BUS608 Study Guide

Navigating this Study Guide

Study Guide Structure

In this study guide, the sections in each unit (1a., 1b., etc.) are the learning outcomes of that unit. 

Beneath each learning outcome are:

• questions for you to answer independently;
• a brief summary of the learning outcome topic; and
• and resources related to the learning outcome. 

At the end of each unit, there is also a list of suggested vocabulary words.

How to Use this Study Guide

1. Review the entire course by reading the learning outcome summaries and suggested resources.
2. Test your understanding of the course information by answering questions related to each unit learning outcome and defining and memorizing the vocabulary words at the end of each unit.

By clicking on the gear button on the top right of the screen, you can print the study guide. Then you can make notes, highlight, and underline as you work.

Through reviewing and completing the study guide, you should gain a deeper understanding of each learning outcome in the course and be better prepared for the final exam!

Unit 1: Integrating Ethics into Business Strategy

1a. Explain the importance of strategy and ethics in business

• How do you think companies effectively implement ethical strategies?
• What are some ways companies implement and monitor their codes of ethics?
• How do you think functional strategies can support corporate strategies?

Strategy is hierarchical in that you'll have a corporate strategy, which is the firm's overarching strategy. The business strategy refers to the aggregated strategies of a single business firm or strategic business unit. Functional strategies are focused on a specific area, such as marketing or human resources, to help the company reach its goal.

To review, see Business Strategy, Overview of Business Ethics, and Why Study Ethics.

1b. Explain the drivers, such as innovation and markets, that assist in determining business strategy

• Think of a few of your favorite products. What type of global business strategy do they use?
• How would an organization utilize diffusion of innovation concepts to develop its strategy?
• In what ways might a company analyze the elements of strategy: suitability, feasibility, and acceptability?

This section focused on the three main drivers of strategy: markets, diversification, and innovation. Understanding the types of markets, such as monopolies and pure competition, is important to determine a strategy.

Diversification is "not putting all your eggs in one basket". In business, this means developing a strategy that allows you to be diversified, which lessens the risk to the business if one or more business units end up not being as successful as you'd hoped. One way companies diversify is to develop a global strategy, which consists of export, standardization, transnational, and multi-domestic strategies. An export strategy is when a company focuses on its domestic operations but sells some products or services to other countries. A standardization strategy is one where a company treats the whole world as one market. That is, they assume one product can meet the needs of everyone, everywhere, so they do not change the product or service when selling to different markets. A multi-domestic strategy is one where products and services are customized based on the specific conditions of the countries in which they operate. A transnational strategy combines standardization and multi-domestic strategies. This strategy might be useful when a company faces significant cost pressure from competitors but must also offer products and services that meet local customer needs.

Innovation is also important to consider when developing a strategy. For example, how the organization develops and introduces new products to the market and the speed at which they do so. In Figure 1, the purple line in the graph shows the percentage of the market that buys new products at each stage of product launch. From the graph, we can see that there are a small number of innovators and a large number of early and late majority adopters. The yellow line on the graph shows the cumulative market share gained. In other words, the yellow line shows the total market share gained at the end of each phase by adding the shares from each previous phase.

Figure 1: Diffusion of ideas

Finally, understanding the framework in which strategic decisions are made is important too. This includes suitability, feasibility, and acceptability. Suitability refers to the overall rationale of the strategy, feasibility looks at the resources necessary to actually implement the strategy, and acceptability concerns itself with meeting the expectations of stakeholders with the strategy.

To review, see Sustained Innovation, Impact of Diversification on Risk and Return, Competition in Market Structure, and Global Business Strategy.

1c. Analyze the importance of leadership and integrity when formulating business strategy

• What behaviors do you think are important to be a servant leader?
• How does servant leadership impact the business strategy?
• What types of ethical models are most important in business?

This section addresses ethical leadership models and explains the principles necessary to apply integrity to business dealings.

Leaders do many things to ensure they are being ethical. Some of the characteristics of ethical behavior for a leader include showing respect for others, treating all stakeholders fairly, building community, and working toward a common good. Honesty, of course, is important in all business (and personal) dealings. Another way leaders engage in ethical dealings is by employing servant leadership. A servant leadership approach means placing service before self-interest, listening to others, inspiring through trust, and working toward feasible goals.

Organizational culture is also important to note when it comes to ethics and strategy development. Culture is defined as the shared values and meanings members hold in common. This concept is important because culture plays an important role in all dealings, and by focusing on shared values, the company can be more ethical.

Also, consider the various ethical models that can be applied to leadership and ethics, such as virtue ethics, a utilitarian approach, universalism, justice, and rights approaches.

To review, see Ethics at the Organizational Level and Ethical Principles and Responsible Decision-Making.

1d. Explain how companies measure ethics and analyze social responsibility in organizations

• What is the difference between shareholders and stakeholders?
• How can companies create goodwill for stakeholders in their organization?
• Can you think of examples of companies that have behaved unethically, resulting in serious profitability issues?

Now, we will address the meaning of social responsibility in business and discuss how this ties to ethical behavior. Something that many companies do to ensure they are meeting the needs of stakeholders is an analysis of stakeholders, stakeholder interests and goals, and the impact of potential decisions on each stakeholder.

As you review the materials in this section, consider that stakeholders benefit directly from managers' ethical conduct, which in turn increases goodwill, and normally equals higher profit. In addition to this idea, the idea that businesses should think long-term and operate for long-term gain rather than short-term gain is important.

To review, see Ethics and Profitability.

Unit 1 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

• business ethics
• business strategy
• corporate strategy
• diversification
• ethics
• functional strategy
• servant leadership
• strategy

Unit 2: Management Strategies Analysis

2a. Examine the internal and external factors that affect a business and drive its strategies, such as available resources and organizational capabilities

• Think of a company you enjoy doing business with. How well do you think it leverages its resources?
• How might external demographic factors affect a business strategy?
• What recent events have occurred worldwide or in your country that could have been important to understanding a company's strategic direction?

To plan an organizational strategy, companies must look at internal and external factors to determine the best direction. Internal factors are characteristics of the company, such as capabilities, human resource factors, organizational design, and financial resources. A strategy will only work if the organization fully understands the internal resources it needs and the company's internal strengths. One such tool for the analysis of internal strengths is the VRIO model. This model asks the questions, before strategy formulation, that include, what value are we providing? How rare is our product or service? Is it easily imitated? Is the company organized in such a way that allows it to capture value?

External factors are those things that may impact the business but things the business does not have control over. This can include demographic, natural, economic, political, cultural, and technological factors. One major external factor to consider is the competition. In hypercompetitive markets, companies try to leverage competitive advantages in several ways, such as stakeholder satisfaction, positioning for speed, positioning for surprise, and leveraging the firm's capabilities to gain advantages.

Figure 2: External and internal factors

According to resource-based theory, organizations that own "strategic resources" have a significant competitive advantage over those that do not. Some resources, like assets such as cash and trucks, are not considered strategic resources because the organization's competitors can easily acquire them. Instead, resources are strategic in that they are valuable, scarce, difficult to imitate, and organized to unlock value. Figure 3 below illustrates how the VRIO framework can be used to evaluate an organization's resources.

Figure 3: VRIO framework

To review, see Understanding the Competitive Environment, D'Aveni's Framework, and The Internal Environment.

2b. Identify the components of well-written mission and vision statements

• Why do you think a mission statement is important to write before determining the organizational strategy?
• How do organizations tie ethics and social responsibility into their vision statements?
• What makes a good mission statement? A good vision statement?

Before companies formulate their strategy, they need to understand the importance of mission and vision statements. A mission statement describes what a firm does or wants to do now. The mission statement is more focused than a vision statement because it describes how an organization will accomplish its vision. Some characteristics of a good mission statement include conciseness, inclusiveness, and being outcome-oriented.

A vision statement is focused on being aspirational and describes what a company hopes to do in the future. A vision statement is broad and answers the question "why do we exist?" A good vision statement should be understood and shared by members of the community, broad enough to include a diverse variety of local perspectives, inspiring, uplifting, and easy to communicate.

Mission and vision statements serve three important roles. It communicates the organization's purpose to stakeholders, informs strategy development, and develops measurable goals and objectives against which the success of the organization's strategy can be measured. Figure 4 summarizes these interdependent and cascading roles and the relationships between them.

Figure 4: Roles of Mission and Vision Statements

To review, see Value of an Organizational Vision and Mission, The Difference between a Vision and a Mission, and Vision, Mission, and Goals.

Unit 2 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

• external factors
• internal factors
• mission statement
• vision statement

Unit 3: Managerial Strategy Formation

3a. Analyze Porter's Generic Strategies to determine the appropriate business strategy

• What companies can you think of that likely use a cost leadership strategy?
• What aspects of narrow and broad markets relate to a differentiation strategy?
• How does Porter define the "hole in the middle"?

Porter's Generic Strategies is a tool often used to provide direction on a company's strategy. Of course, this only occurs after a company has done internal and external analysis. Porter's Generic Strategies look at three main components. The first is cost leadership, which refers to the ability of a company to create economies of scale through efficient operations that produce a large volume.

The second is differentiation, which refers to a company's ability to create a good or service that is difficult to replicate and fulfills a niche within a market.

Finally, a market segmentation strategy is a cross between the two, where a market is narrower, and the firm's goal is to find untapped markets by looking at specific consumer market segments where they may be effective.

Figure 5 and Figure 6 illustrate the two competitive strengths key to business-level strategy. The first dimension is the source of a company's competitive advantage. This aspect includes whether the company is trying to gain an edge over its competitors by keeping costs down or offering something unique in the market. The second dimension is the company's field of activity. This dimension includes whether the company targets general customers or attracts only a subset of customers.

Figure 5: Porter's Generic Strategies model

Figure 6: Analysis of four firms – Walmart, Nordstrom, Dollar General, and Anthropologie

To review, see Porter's Generic Strategies.

3b. Explain the various tools, such as the BCG and SPACE Matrix, to create business strategy

• Using the BCG matrix, what products or services do you use that would be considered a cash cow for an organization?
• On the balanced scorecard, which element is most important in which industries?
• When performing a SWOT analysis, how might a company turn opportunities into strengths?

When companies analyze their current business units, they sometimes use the BCG matrix. This matrix helps companies determine where they should focus their strategic efforts. It looks at how much market share the company has in that particular market and looks at the industry to determine if it is growing. The outcome of the BCG matrix is a cash cow, dog, question mark, or a star. The cash cow is a product or service with a high market share in a slow-growing industry. A dog is a product that has a low market share in a mature industry. A question market indicates a product that is growing rapidly, but the company isn't sure if it will be profitable. Often, when a product is a question mark, they aren't sure when they will recoup the initial financial investments. A star has a high market share in a growing industry. Understanding the BCG matrix can help determine what products/services the company should focus on.

The balanced scorecard is another tool to assist in strategy development. This method involves looking at the financial, customer, internal processes, learning, and growth perspectives of the organization to pinpoint a strategy that appropriately leverages resources.

Some companies also use strategy maps, which focus on using a mind map and other tools, such as internal and external analysis, to map out the best strategic direction for the company.

A SWOT analysis can also be a useful tool to help companies see their strengths, weaknesses, opportunities, and threats. This information can help direct a strategy as well.

The SPACE matrix stands for Strategic Position and Action Evaluation. The tool is a four-quadrant matrix that indicates whether the company should implement an aggressive, conservative, defensive, or competitive strategy.

To review, see Purpose of the BCG Matrix, Strategic Management Tools of Performance, and Strategic Position and Action Evaluation.

3c. Examine the common organizational structures used to craft business strategy, such as the matrix and functional structures

• When might a company use a simple organizational structure?
• What advantages do you see with a functional structure versus a matrix structure?
• How do you think organizational structure supports organizational strategies?

When setting a strategy, organizations must ensure their organizational structure supports their chosen strategy. The first type of organizational structure is the functional structure. This type, illustrated in Figure 7, is characterized by each function (such as marketing or HR) divided into its own departments, with a top-down reporting structure.

In a divisional structure, the organization is divided by product or service offerings, and each division has all resources necessary to function independently, such as human resources and IT departments. For example, GE has six product-specific divisions supported by six centralized service divisions: Energy, Capital, Home and Business Solutions, Healthcare, Aviation, and Transportation. Centralized public relations, legal, human resources, and financial services support these product areas. See Figure 8 for an illustration of this type of structure.

In a matrix structure, an organization is grouped by two different operational perspectives. This is a complex structure because, for example, people could be grouped by the type of project the company is working on AND a particular department.

There is also the simple structure, where there are no formal systems of division of labor. This is normally reserved for sole proprietorships or small businesses, where a formal structure may only be necessary once they grow.

Figure 7: Example of a functional organizational chart

Figure 8: An organizational chart with a divisional structure

To review, see Common Organizational Structures and Executing Strategy through Organizational Design.

3d. Describe how ethical behavior can be integrated into business strategy

• What aspects of a code of ethics are important?
• What can leadership do to ensure an ethical workplace?
• What do you think the role of employees should be in organizational ethics?

When companies use tools to select their organizational strategy, they must keep ethics and social responsibility in mind. There are several ways the leaders of organizations can achieve this. First, when managers lead by example, they model the proper behavior patterns. Many companies also offer ethics training programs, which focus on how employees can identify and resolve ethical situations. Many companies also have a formal code of ethics, which defines the expected behavior of employees.

To review, see How Organizations Influence Ethical Conduct.

Unit 3 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

• balanced scorecard
• BCG matrix
• cost leadership
• differentiation
• divisional structure
• functional structure
• market segmentation
• matrix structure
• Porter's Generic Strategies
• simple structure
• SPACE matrix
• SWOT analysis

Unit 4: Integrating Ethics into Business Implementation

4a. Apply the steps in the strategic management process, including strategic analysis, strategic formulation, strategic implementation, and strategic evaluation and control

• Why is internal analysis an important first step in designing and implementing a strategy?
• When companies formulate strategies, what role do financial resources play in that decision?
• In order to effectively execute a strategy, what elements should be used to support the strategy?

As you've learned so far in this course, the strategic management process involves various steps. The first step is determining the strategic objectives and performing internal and external analysis. Using this information, organizations develop their strategy based on what they've learned about their internal and external environments. Next, they execute the chosen strategy, ensuring they provide training to employees, and have the proper organizational structure to implement the strategy. Finally, the last step is to evaluate the strategy and compare the original goals and strategy to the results.

Figure 9: The basic steps of the strategic management process

Remember that analysis, decision-making, and action occur throughout every step and process.

To review, see Stages and Types of Strategy.

4b. Explain how resource allocation, such as time and financial capital, is fundamental to business strategy implementation

• How do companies review their financial resources to make strategic decisions?
• What elements of budgeting for strategic planning are key to a successful plan?
• What non-tangible resources are likely needed to implement a strategy in any industry?

Resource allocation in strategy involves how you will leverage tangible and intangible resources to execute your strategy. Tangible resources include things like buildings, facilities, and equipment. Intangible resources include patents, logos, branding, and other assets that can not be seen, touched, or felt. All of these elements help an organization support its strategy.

In terms of financial needs, organizations analyze several types of budgets to meet their strategic goals. The planned operating budget helps to plan future earnings and project them in an income statement. The budget shows the management's operating plans for the coming periods, allows managers to formalize financial needs in quantitative terms, and helps them anticipate results. The upside to this type of financial tracking is that it allows managers to take action to remedy issues if they see they aren't meeting financial goals.

Budgeting must include top management support, participation from all involved in the initial goal setting, communication of results, flexibility, and follow-up.

Other types of resource planning include planning for marketing strategies, implementing human resource management strategies that can reinforce and support the strategic direction, and operational resources, such as the supply chain necessary to develop and sustain your strategy. Without understanding the resources needed, strategies may not be successful.

To review, see Business Resource Analysis: New Story, Budgeting and Budgeting Processes, and High Performance through HR Management.

4c. Explain how factors such as entrepreneurial orientation and learning organizations constitute a business' culture

• What are some ways companies can encourage an entrepreneurial culture?
• What is a learning organization, and how does this relate to strategy?
• What are the other important organizational cultural elements that should be leveraged to support the organization's strategy?

Several factors are important to note to have a culture that embraces entrepreneurial culture. In doing so, many companies find this helps them support their strategy. Autonomy is one such factor. This relates to whether or not people in your organization can develop an idea and see it through to completion. Innovativeness is another way companies continually meet the needs of customers. Companies must also be proactive by anticipating and acting on future needs rather than reacting to events as they unfold.

A learning organization is focused on people continually expanding their capacity to create the results they and the company desires. In this culture, people are encouraged to develop new thinking patterns. Companies create this kind of culture by focusing on systems thinking, mental models, building a shared vision, personal mastery, and team learning.

Other important cultural elements include rewarding ethical behaviors, using methods to motivate people to do their part in implementing the strategy, and empowering your people.

To review, see The Value of Thinking and Acting Entrepreneurially, Growing a Learning Organization, Managerial Responses to Motivation, and Reward Systems in Organizations.

4d. Determine which measurement techniques and evaluation criteria would be most appropriate for a given business and ethics strategy

• How do you set SMART goals for a company strategy?
• How might a company measure customer satisfaction?
• Is the number of sales always a good performance measure for an organization?

The final step in the strategic planning process is to monitor and evaluate the success of your strategy. When companies do this, they can see where they've been and make changes to get where they want to be. This final aspect of strategy involves setting tactical and operational plans and developing performance measures for each.

When setting each of your plans to measure strategy, you should make sure your goals are SMART, that is, specific, measurable, attainable, realistic, and have a time frame attached to them. When the goals meet this SMART framework, they are much easier to measure.

Many companies use financial measures to determine if they've met their goals, but other measures can be used too. For example, companies may use measures such as sales, return on investment, market penetration, customer satisfaction, and amount of innovations. Figure 10 shows examples of corporate objectives and how the means of achieving them might be evaluated. Figure 11 illustrates ROI as the means to measure goals.

Figure 10: Example of evaluating the results of corporate activities.

Figure 11: Analysis of ROI to measure goals

To review, see Measuring and Evaluating Strategic Performance and Market-Driven Performance Factors.

Unit 4 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

• autonomy
• learning organization
• resource allocation