Paper
Management
Strategic Management
Section 1 – The Nature of Strategic
• Strategic management • the art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an organization to achieve its objectives
1-2
Defining Strategic Management
vStrategic management is used synonymously with the term strategic planning and business strategy.
vSometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation.
1-3
Defining Strategic Management
• A strategic plan is a company’s game plan. • A strategic plan results from tough managerial choices
among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations.
1-4
Defining Strategic Management
Strategy formulation
Strategy implementation
Strategy evaluation
1-5
Stages of Strategic Management
• Strategy formulation includes: ü developing a vision and mission, ü identifying an organization’s external opportunities and threats, ü determining internal strengths and weaknesses, ü establishing long-term objectives, ü generating alternative strategies, ü and choosing particular strategies to pursue
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Stages of Strategic Management
vDeciding what new businesses to enter, vWhat businesses to abandon, vHow to allocate resources, vWhether to expand operations or diversify, vWhether to enter international markets, vWhether to merge or form a joint venture, vHow to avoid a hostile takeover.
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Strategy Formulation
• Strategy implementation require: • a firm to establish annual objectives, • devise policies, • motivate employees, • and allocate resources so that formulated strategies
can be executed • often called the action stage
1-8
Stages of Strategic Management
• Strategy evaluation • reviewing external and internal factors that are the
bases for current strategies, • measuring performance, • and taking corrective actions
1-9
Stages of Strategic Management
ØMost organizations can benefit from strategic management, which is based upon integrating intuition and analysis in decision making
ØIntuition is particularly useful for making decisions in situations of great uncertainty or little precedent
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Integrating Intuition and Analysis
Where are we now?
Where do we want to go?
How are we going to get there?
1-11
vHistorically, the principal benefit of strategic management has been to help organizations formulate better strategies through the use of a more systematic, logical, and rational approach to strategic choice
vCommunication is a key to successful strategic management
vThrough dialogue and participation, managers and employees become committed to supporting the organization
1-12
Benefits of Strategic Management
• Lack of knowledge in strategic planning
• Poor reward structures • Firefighting • Waste of time • Too expensive • Laziness • Content with success
• Fear of failure • Overconfidence • Prior bad experience • Self-interest • Fear of the unknown • Honest difference of
opinion • Suspicion
1-13
Why Some Firms Do No Strategic Planning
ØUsing strategic planning to gain control over decisions and resources
ØDoing strategic planning only to satisfy accreditation or regulatory requirements
ØToo hastily moving from mission development to strategy formulation
ØFailing to communicate the plan to employees, who continue working in the dark
ØTop managers making many intuitive decisions that conflict with the formal plan
1-14
Pitfalls in Strategic Planning
ØTop managers not actively supporting the strategic-planning process
ØFailing to use plans as a standard for measuring performance
ØDelegating planning to a “planner” rather than involving all managers
ØFailing to involve key employees in all phases of planning
ØFailing to create a collaborative climate supportive of change
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Pitfalls in Strategic Planning (con’t)
A B
- Org Analysis - Market Analysis - Financial Analysis
- Vision - Mission - Goals/Objectives
1 2 3 4
5
Strategic Planning Process
Strategic Management
Section 2 – The Business Vision & Mission
•
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Porter’s Five Generic Strategies
5-3
ØCost leadership Ø emphasizes producing standardized products at a very
low per-unit cost for consumers who are price- sensitive
Ø Often called the low cost producer strategy
5-4
Michael Porter’s Five Generic Strategies
Michael Porter’s Five Generic Strategies
ØType 1 Ølow-cost strategy that
offers products or services to a wide range of customers at the lowest price available on the market
ØType 2 Øbest-value strategy that
offers products or services to a wide range of customers at the best price-value available on the market
5-5
• Differentiation • strategy aimed at producing products and services
considered unique industry-wide and directed at consumers who are relatively price-insensitive 1. Quality 2. Innovation
5-6
Michael Porter’s Five Generic Strategies
Michael Porter’s Five Generic Strategies
ØType 4 Ølow-cost focus strategy
that offers products or services to a niche group of customers at the lowest price available on the market
ØType 5 Øbest-value focus
strategy that offers products or services to a small range of customers at the best price-value available on the market
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ØTo employ a cost leadership strategy successfully, a firm must ensure that its total costs across its overall value chain are lower than competitors’ total costs
Two ways: 1. Perform value chain activities more efficiently than rivals
and control the factors that drive the costs of value chain activities
2. Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities
5-8
Cost Leadership Strategies
• Prospector • Learning orientation; flexible, fluid, decentralized
structure • Strong capability in research • Values creativity, risk-taking, and innovation
•Defender • Efficiency orientation; centralized authority and tight
cost control • Emphasis on production efficiency, low overhead
•Close supervision; little employee empowerment
Miles and Snow’s Strategy Typology
•Analyzer • Balances efficiency and learning; tight cost control with flexibility and adaptability • Efficient production for stable product lines; emphasis on creativity, research, risk- taking for innovation
•Reactor • No clear organizational approach; design characteristics may shift abruptly depending on current needs
Miles and Snow’s Strategy Typology (con’t)
ØA vision statement should answer the basic question: “What do we want to become?”
ØThe vision statement should be short, preferably one sentence, and as many managers as possible should have input into developing the statement.
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Vision: “What Do We Want to Become?”
• Mission statement • a declaration of an organization’s “reason for being.” • answers the pivotal question: “What is our business?” • essential for effectively establishing objectives and
formulating strategies
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Mission: “What Is Our Business?”
üFirst, a good mission statement allows for the generation and consideration of a range of feasible alternative objectives and strategies without unduly stifling management creativity.
üSecond, a mission statement needs to be broad to reconcile differences effectively among, and appeal to, an organization’s diverse stakeholders
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Characteristics of a Mission Statement
A mission statement should: 1. define what the organization is and what the
organization aspires to be 2. be limited enough to exclude some ventures and broad
enough to allow for creative growth 3. distinguish a given organization from all others 4. serve as a framework for evaluating both current and
prospective activities 5. be stated in terms sufficiently clear to be widely
understood throughout the organization
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Attributes of a Mission Statement
• This is critical: Ø A good mission statement reflects the anticipations of
customers. Ø The operating philosophy of organizations should be to
identify customers’ needs and then provide a product or service to fulfill those needs.
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A Customer Orientation
ØMission: The freedom of the open road
Harley Davidson’s Mission
• Here are the principles of how we live that every day: • Our Coffee - It has always been, and will always be, about quality.
We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done.
• Our Partners - We’re called partners, because it’s not just a job, it’s our passion. Together, we embrace diversity to create a place where each of us can be ourselves. We always treat each other with respect and dignity. And we hold each other to that standard.
Our mission: to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.
Starbucks Mission
• Our Customers - When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers – even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that. It’s really about human connection.
• Our Stores - When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet with friends. It’s about enjoyment at the speed of life – sometimes slow and savored, sometimes faster. Always full of humanity.
Starbucks (con’t)
• Our Neighborhood - Every store is part of a community, and we take our responsibility to be good neighbors seriously. We want to be invited in wherever we do business. We can be a force for positive action – bringing together our partners, customers, and the community to contribute every day. Now we see that our responsibility – and our potential for good – is even larger. The world is looking to Starbucks to set the new standard, yet again. We will lead.
• Our Shareholders - We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our shareholders. We are fully accountable to get each of these elements right so that Starbucks – and everyone it touches – can endure and thrive.
Starbucks (con’t)
Mission Statement: Ocumetics Technology Corp. is in the business of fundamentally changing the way people see and experience the world around them – one customer at a time.
Vision Statement: The long-term vision of Ocumetics Technology Corp. is to become a world-class research and product development company in refractive technologies - that is proudly Canadian. The company will strive to accomplish this vision by:
Ocumetics Technology Corp: Mission & Vision
1. Continuously developing cutting edge products and services, such as the Bionic Lens, to meet and exceed the exacting requirements of our end-use customers, the medical professional, and our varying stakeholder groups.
2. Investing in the development of our employees and empowering them to better serve our customers, maximize their potential, and to pursue their dreams.
3. Being wise stewards of the trust and resources our investors, customers and stakeholders have placed in our company.
4. Reaching out to enhance the quality of life for people around the world by making the Bionic Lens technology available to all, and by providing education/professional development and humanitarian services – through the Ocumetics Foundation and the Celebration of Sight initiative.
Ocumetics Technology Corp: Mission & Vision (con’t)
• Working in your major project groups of 2 or 3 people, using the company the professor assigns you for this task, develop a vision statement and a mission statement for the company
ü Look on the company website for descriptive words that capture a sense of excitement about the products
ü Look for words that express emotion ü Use your list of words to develop the mission and vision
statements
Vision & Mission Assignment
• Working with your major project group, develop a vision and mission statement for one of the following the Prof assigns to you:
• Porsche • BMW • Mercedes Benz • Land Rover • Lexus • Audi • Ferrari • Jaguar • Aston Martin • Bentley • Rolls Royce • Tesla • Maserati • Lamborghini
• Vision: What do we want to become?
• Mission: What business are we in?
• Start with single words or phrases to describe ideas and emotions
• Write a one or two sentence vision and mission statement
Developing Mission & Vision Statements - Example
Strategic Management
Section 3 – The External
Assessment
• External audit • focuses on identifying and evaluating trends and events beyond
the control of a single firm • reveals key opportunities and threats confronting an organization
so that managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats
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External Audit
External forces can be divided into five broad categories: 1. economic forces 2. social, cultural, demographic, and natural
environment forces 3. political, governmental, and legal forces 4. technological forces 5. competitive forces
3-3
Key External Forces
vFirst, gather competitive intelligence and information about:
v economic, v social, cultural, demographic, environmental, v political, governmental, legal, v and technological trends.
• Information should be assimilated and evaluated • A final list of the most important key external factors should
be communicated
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The Process of Performing an External Audit
Key external factors should be: 1. important to achieving long-term and
annual objectives 2. measurable 3. applicable to all competing firms, and 4. hierarchical in the sense that some will
pertain to the overall company and others will be more narrowly focused on functional or divisional areas
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The Process of Performing an External Audit
vThe Industrial Organization (I/O) approach to competitive advantage advocates that external (industry) factors are more important than internal factors in a firm for achieving competitive advantage.
vFirm performance is based more on industry properties
3-6
The Industrial Organization (I/O) View
Economies of scale
Barriers to market entry
Product differentiation
The economy
Level of competitiveness
Economic Forces
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Key Social, Cultural, Demographic, and Natural Environment Variables
3-8
vThe increasing global interdependence among economies, markets, governments, and organizations makes it imperative that firms consider the possible impact of political variables on the formulation and implementation of competitive strategies.
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Political, Governmental, and Legal Forces
Political, Government, and Legal Variables
3-10
The Internet has changed the very nature of opportunities and threats by: üaltering the life cycles of products, üincreasing the speed of distribution, ücreating new products and services, üerasing limitations of traditional geographic markets,
üchanging the historical trade-off between production standardization and flexibility.
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Technological Forces
Technological advancements can: ØCreate new markets, ØResult in a proliferation of new and improved products,
ØChange the relative competitive cost positions in an industry,
ØRender existing products and services obsolete.
3-12
Technological Forces
An important part of an external audit is identifying rival firms and determining their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies
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Competitive Forces
Key Questions About Competitors
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The Five-Forces Model of Competition
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EFE Matrix for a Local Ten-Theater Cinema Complex
3-16Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
• Using the company you are analyzing for your major project:
1. Develop a list of external opportunities and threats that could impact your industry
2. Using your opportunities and threats, develop an External Factor Evaluation matrix
• Hand in your work at the end of the class
In your groups of 2 or 3 people:
External Factory Matrix for Volkswagen
Opportunities: Weighting Rating (1-4) Weighted Average
Growth in GDP in North America 0.1 3 0.3
Growth of 3rd world middle class 0.1 4 0.4
Low interest rates 0.1 4 0.4
Low fuel prices 0.1 4 0.4
Threats:
Recession 0.2 2 0.4
Economic fallout from CORVID19 0.2 1 0.2
Environmental concerns 0.1 2 0.2
People savign more and spending less 0.1 2 0.2
1 2.5
Strategic Management
Section 4 – The Internal
Assessment
• Distinctive competencies • A firm’s strengths that cannot be easily matched or
imitated by competitors • Building competitive advantages involves taking
advantage of distinctive competencies.
4-2
Key Internal Forces
• The internal audit • Requires gathering and assimilating information
about: Øthe firm’s management, Ømarketing, Øfinance/accounting, Øproduction/operations, Øresearch and development (R&D), Øand management information systems operations
• Provides more opportunity for participants to understand how their jobs, departments, and divisions fit into the whole organization
4-3
The Process of Performing an Internal Audit
• The Resource-Based View (RBV) approach • Contends that internal resources are more important for a firm
than external factors in achieving and sustaining competitive advantage
• Proponents of the RBV contend that organizational performance will primarily be determined by internal resources that can be grouped into three all-encompassing categories:
Ø physical resources,
Ø human resources, Ø and organizational resources
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The Resource-Based View (RBV)
vFor a resource to be valuable, it must be either (1) rare, (2) hard to imitate, or (3) not easily substitutable
vThese three characteristics of resources enable a firm to implement strategies that improve its efficiency and effectiveness and lead to a sustainable competitive advantage
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The Resource-Based View (RBV)
qOrganizational culture significantly affects business decisions and thus must be evaluated during an internal strategic-management audit.
qIf strategies can capitalize on cultural strengths, such as a strong work ethic or highly ethical beliefs, then management often can swiftly and easily implement changes.
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Integrating Strategy and Culture
1. Does the firm use strategic-management concepts? 2. Are company objectives and goals measurable and well
communicated? 3. Do managers at all hierarchical levels plan effectively? 4. Do managers delegate authority well? 5. Is the organization’s structure appropriate? 6. Are job descriptions and job specifications clear? 7. Is employee morale high? 8. Are employee turnover and absenteeism low? 9. Are organizational reward and control mechanisms
effective?
4-7
Management Audit Checklist of Questions
Customer analysis
Selling products/services
Product and service planning
Pricing Distribution
Marketing research
Opportunity analysis
4-8
Functions of Marketing
• Marketing research • the systematic gathering, recording, and analyzing of
data about problems relating to the marketing of goods and services
• can uncover critical strengths and weaknesses
4-9
Marketing Research
1. Are markets segmented effectively? 2. Is the organization positioned well among
competitors? 3. Has the firm’s market share been increasing? 4. Are present channels of distribution reliable and
cost effective? 5. Does the firm have an effective sales
organization? 6. Does the firm conduct market research?
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Marketing Audit Checklist of Questions
7. Are product quality and customer service good? 8. Are the firm’s products and services priced
appropriately? 9. Does the firm have an effective promotion,
advertising, and publicity strategy? 10. Are marketing, planning, and budgeting effective? 11. Do the firm’s marketing managers have adequate
experience and training? 12. Is the firm’s Internet presence excellent as
compared to rivals?
4-11
Marketing Audit Checklist of Questions
The functions of finance/accounting comprise three decisions:
1. the investment decision 2. the financing decision 3. the dividend decision
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Finance/Accounting Functions
1. Where is the firm financially strong and weak as indicated by financial ratio analyses?
2. Can the firm raise needed short-term capital? 3. Can the firm raise needed long-term capital through debt and/or
equity? 4. Does the firm have sufficient working capital? 5. Are capital budgeting procedures effective? 6. Are dividend payout policies reasonable? 7. Does the firm have good relations with its investors and
stockholders? 8. Are the firm’s financial managers experienced and well trained? 9. Is the firm’s debt situation excellent?
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Finance/Accounting Audit Checklist
1. Are supplies of raw materials, parts, and subassemblies reliable and reasonable?
2. Are facilities, equipment, machinery, and offices in good condition?
3. Are inventory-control policies and procedures effective?
4. Are quality-control policies and procedures effective?
5. Are facilities, resources, and markets strategically located?
6. Does the firm have technological competencies?
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Production/Operations Audit Checklist
1.Does the firm have R&D facilities? Are they adequate? 2.If outside R&D firms are used, are they cost-effective? 3.Are the organization’s R&D personnel well qualified? 4.Are R&D resources allocated effectively? 5.Are management information and computer systems
adequate? 6.Is communication between R&D and other organizational
units effective? 7.Are present products technologically competitive?
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Research and Development Audit
1. Do all managers in the firm use the information system to make decisions?
2. Is there a chief information officer or director of information systems position in the firm?
3. Are data in the information system updated regularly?
4. Do managers from all functional areas of the firm contribute input to the information system?
5. Are there effective passwords for entry into the firm’s information system?
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Management Information Systems Audit
6. Are strategists of the firm familiar with the information systems of rival firms?
7. Is the information system user-friendly? 8. Do all users of the information system understand
the competitive advantages that information can provide firms?
9. Are computer training workshops provided for users of the information system?
10. Is the firm’s information system continually being improved in content- and user-friendliness?
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Management Information Systems Audit
• Value chain analysis (VCA) • refers to the process whereby a firm determines
the costs associated with organizational activities from purchasing raw materials to manufacturing product(s) to marketing those products
• aims to identify where low-cost advantages or disadvantages exist anywhere along the value chain from raw material to customer service activities
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Value Chain Analysis (VCA)
A Sample Internal Factor Evaluation Matrix for a Retail Computer Store
4-19
• Using the company you are analyzing for your major project:
• Develop a list of 4 or 5 internal strengths and 4 or 5 weaknesses
• Using your strengths and weaknesses, develop an Internal Factor Evaluation matrix
• Hand in your group’s work at the end of class.
In your groups of 2 or 3 people:
Internal Factor Matrix for Volkswagen
Strengths: Weighting Rating (1-4) Weighted Average
Financially strong 0.15 4 0.6
Excellent management 0.15 4 0.6
World-class logistics and supply-chain 0.15 4 0.6
engineering and design 0.1 3 0.3
Weaknesses:
Environmental 0.2 2 0.4
Ethics 0.15 1 0.15
Lack of pickup trucks in lineup 0.05 2 0.1
low market shar in North America 0.05 2 0.1
1 2.85
Strategic Management
Section 5 – Strategy in
Action
• Goals/Objectives • provide direction • aid in evaluation • establish priorities • reduce uncertainty • minimize conflicts • aid in both the allocation of resources and the design
of jobs
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The Nature of Long-Term Objectives/Goals
• Forward integration • involves gaining ownership or increased control
over distributors or retailers • Backward integration
• strategy of seeking ownership or increased control of a firm’s suppliers
• Horizontal integration • a strategy of seeking ownership of or increased
control over a firm’s competitors
5-3
Integration Strategies
üWhen an organization’s present distributors are especially expensive
üWhen the availability of quality distributors is so limited as to offer a competitive advantage
üWhen an organization competes in an industry that is growing
üWhen present distributors or retailers have high profit margins
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Forward Integration Guidelines
üWhen an organization’s present suppliers are especially expensive or unreliable
üWhen the number of suppliers is small and the number of competitors is large
üWhen the advantages of stable prices are particularly important
üWhen an organization needs to quickly acquire a needed resource
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Backward Integration Guidelines
• When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government
• When an organization competes in a growing industry
• When increased economies of scale provide major competitive advantages
• When competitors are faltering due to a lack of managerial expertise
5-6
Horizontal Integration Guidelines
1. Market penetration strategy • seeks to increase market share for present
products or services in present markets through greater marketing efforts
2. Market development • involves introducing present products or services
into new geographic areas 3. Product development strategy
• seeks increased sales by improving or modifying present products or services
5-7
Intensive Strategies
• When current markets are not saturated with a particular product or service
• When the usage rate of present customers could be increased significantly
• When the market shares of major competitors have been declining while total industry sales have been increasing
• When increased economies of scale provide major competitive advantages
5-8
Market Penetration Guidelines
• When new channels of distribution are available that are reliable, inexpensive, and of good quality
• When an organization is very successful at what it does
• When new untapped or unsaturated markets exist • When an organization has excess production capacity
5-9
Market Development Guidelines
• When an organization has successful products that are in the maturity stage of the product life cycle
• When an organization competes in an industry that is characterized by rapid technological developments
• When major competitors offer better-quality products at comparable prices
• When an organization competes in a high-growth industry
5-10
Product Development Guidelines
Diversification Strategies
1. Related diversification • value chains possess
competitively valuable cross-business strategic fits
2. Unrelated diversification • value chains are so
dissimilar that no competitively valuable cross-business relationships exist
5-11
ØTransferring competitively valuable expertise, technological know-how, or other capabilities from one business to another
ØCombining the related activities of separate businesses into a single operation to achieve lower costs
ØExploiting common use of a well-known brand name ØWhen an organization competes in a no-growth or a slow-
growth industry ØWhen adding new, but related, products would significantly
enhance the sales of current products ØWhen new, but related, products could be offered at highly
competitive prices ØWhen an organization has a strong management team
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Related Diversification
• When revenues derived from an organization’s current products would increase significantly by adding the new, unrelated products
• When an organization’s present channels of distribution can be used to market the new products to current customers
• When an organization’s basic industry is experiencing declining annual sales and profits
• When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity
• When existing markets for an organization’s present products are saturated
• When antitrust action could be charged against an organization that historically has concentrated on a single industry
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Unrelated Diversification Guidelines
• Retrenchment • occurs when an organization regroups through cost and asset
reduction to reverse declining sales and profits • also called a turnaround or reorganizational strategy • designed to fortify an organization’s basic distinctive competence
• Retrenchment Guidelines • When an organization is one of the weaker competitors in a given
industry • When an organization is plagued by inefficiency, low profitability,
and poor employee morale • When an organization has grown so large so quickly that major
internal reorganization is needed
5-14
Strategies
• Divestiture • Selling a division or part of an organization • often used to raise capital for further strategic acquisitions or
investments • Divestiture Guidelines
• When an organization has pursued a retrenchment strategy and failed to accomplish needed improvements
• When a division needs more resources to be competitive than the company can provide
• When a division is responsible for an organization’s overall poor performance
• When a division is a misfit with the rest of an organization
5-15
Strategies
• Liquidation • selling all of a company’s assets, in parts, for their
tangible worth • can be an emotionally difficult strategy • When an organization has pursued both a
retrenchment strategy and a divestiture strategy, and neither has been successful
• When an organization’s only alternative is bankruptcy
• When the stockholders of a firm can minimize their losses by selling the organization’s assets
5-16
Strategies
Using the strategies listed below chose 3 potential strategies your company could use, and determine how and why your company would implement the strategies (give examples):
• Integration: forward, backward, and horizontal • Intensive: market penetration, market
development, and product development • Diversification: related diversification, and
unrelated diversification • Defensive: retrenchment, divesture, and
liquidation
Using your major project company . . .
Strategic Management
Section 6 – Strategic Analysis
and Choice
• A manageable set of the most attractive alternative strategies must be developed
• The advantages, disadvantages, trade-offs, costs, and benefits of these strategies should be determined
• Identifying and evaluating alternative strategies should involve many of the managers and employees who earlier assembled the organizational vision and mission statements, performed the external audit, and conducted the internal audit.
6-2
The Process of Generating and Selecting Strategies
• Alternative strategies proposed by participants should be considered and discussed in a series of meetings.
• Proposed strategies should be listed in writing. • When all feasible strategies identified by participants are given and understood, the strategies should be ranked in order of attractiveness.
6-3
The Process of Generating and Selecting Strategies
• Stage 1 - Input Stage • summarizes the basic input information needed to formulate strategies
• consists of the EFE Matrix, the IFE Matrix, and the Competitive Profile Matrix (CPM)
• Stage 2 - Matching Stage • focuses on generating feasible alternative strategies by aligning key external
and internal factors
• techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix, the Boston Consulting Group (BCG) Matrix, and the Grand Strategy Matrix
• Stage 3 - Decision Stage • involves the Quantitative Strategic Planning Matrix (QSPM)
• reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies
6-4
A Comprehensive Strategy-Formulation Framework
• The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix helps managers develop four types of strategies:
• SO (strengths-opportunities) Strategies • WO (weaknesses-opportunities) Strategies • ST (strengths-threats) Strategies • WT (weaknesses-threats) Strategies
6-5
The Matching Stage
The Matching Stage
• SO Strategies • use a firm’s internal
strengths to take advantage of external opportunities
• ST Strategies • use a firm’s strengths
to avoid or reduce the impact of external threats
• WO Strategies • aim at improving
internal weaknesses by taking advantage of external opportunities
• WT Strategies • defensive tactics
directed at reducing internal weakness and avoiding external threats
6-6
• BCG Matrix • graphically portrays differences among divisions in
terms of relative market share position and industry growth rate
• allows a multidivisional organization to manage its portfolio of businesses by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organization
6-7
The Boston Consulting Group (BCG) Matrix
The BCG Matrix
6-8
• The major benefit of the BCG Matrix is that it draws attention to:
• the cash flow, • investment characteristics, and • needs of an organization’s various divisions
6-9
The BCG Matrix
The Grand Strategy Matrix
6-10
The Quantitative Strategic Planning Matrix (QSPM)
6-11
• Political maneuvering consumes valuable time, subverts organizational objectives, diverts human energy, and results in the loss of some valuable employees
• Political biases and personal preferences get unduly embedded in strategy choice decisions
• The hierarchy of command in an organization, combined with the career aspirations of different people and the need to allocate scarce resources, guarantees the formation of coalitions of individuals who strive to take care of themselves first and the organization second, third, or fourth
6-12
The Politics of Strategy Choice
1. Formulate 2 or 3 goals for your company to achieve over the next 5 years
2. Formulate 3 potential strategies you could put in place to enable the company to achieve the goals you have proposed
3. Create a Quantitative Strategic Planning Matrix (QSPM) for the 3 strategies you have proposed, including the bottom line scores
4. Do the rankings of the 3 strategies, based on the scores, make sense in light of your analysis of the company to date?
5. Hand in your group’s work at the end of class
In your project groups:
Section 7 – Implementing Strategies: Management and Operational Issues
Strategic Management
•
-- Successful strategy formulation does not guarantee successful strategy implementation
Shift in responsibility
Division or Functional Managers
Strategists
•
Management Issues
Management Issues
Resources
Organizational structure
Restructuring
Rewards/Incentives
Annual Objectives
Policies
•
Management Issues (cont’d)
Management Issues
Supportive Culture
Production/Operations
Human Resources
Resistance to Change
Natural Environment
Ø Basis for resource allocation
Ø Mechanism for management evaluation
Ø Metric for gauging progress on long-term objectives
Ø Establish priorities (organizational, division, & departmental)
ü Measurable
ü Consistent
ü Reasonable
ü Challenging
ü Clear
ü Understood
ü Timely
Policies --
-- Facilitate the solving or recurring problems & guide implementation of strategy
Policies Establish --
ü Boundaries
ü Constraints
ü Limits
Resource Allocation
-- Central management activity that allows for the execution of strategy
1. Financial resources
2. Physical resources
3. Human resources
4. Technological resources
Ø Conflict not always “bad”
Ø No conflict may signal apathy
Ø Can energize opposing groups to action
Ø May help managers identify problems
Managing Conflict
Matching Structure with Strategy
-- Changes in strategy = Changes in structure
Ø Structure dictates how objectives & policies will be established
Ø Structure dictates how resources will be allocated
§ Functional Structure
§ Divisional Structure
§ Strategic Business Unit Structure (SBU)
§ Matrix Structure
Basic Forms of Structure
Restructuring
§Downsizing
§Rightsizing
§Delayering
Reengineering
-- Reconfiguring or redesigning work, jobs,
& processes to improve cost, quality,
service, & speed.
Linking Pay/Performance to Strategies
-- Pay for performance systems
Resistance to Change
Single greatest threat to successful strategy implementation
Raises anxiety; fear concerning
Ø Economic loss
Ø Inconvenience
Ø Uncertainty
Ø Break in status-quo
Change Strategies
Ø Force Change Strategy
Ø Educative Change Strategy
Ø Rational or Self-Interest Change Strategy
Natural Environment
Wide appreciation for firms that “mend” rather than “harm” the environment
Environmental strategies include: Ø Develop/acquire “green” businesses
Ø Divesting environmental-damaging business
Ø Low-cost producer through waste minimization & energy conservation
Strategy-Supportive Culture
-- Preserve, emphasize, & build upon aspects of existing culture that support new strategies
Production/Operations Concerns
-- Production processes typically constitute more than 70% of firm’s total assets
Production/Operations Decisions
Ø Plant size
Ø Inventory/Inventory control
Ø Quality control
Ø Cost control
Ø Technological innovation
Human Resource Concerns
-- HR manager position has strategic responsibility & has changed dramatically as companies continue to reorganize, outsource, etc.
Strategic Management
Section 8 – Implementing Strategy: Marketing, Finance, R&D, and MIS Issues
1. How to make advertisements more interactive to be more effective
2. How to best take advantage of Facebook and Twitter conservations about the company and industry
3. To use exclusive dealerships or multiple channels of distribution
4. To use heavy, light, or no TV advertising versus online advertising
5. To limit (or not) the share of business done with a single customer
6. To be a price leader or a price follower 7. To offer a complete or limited warranty 8. To reward salespeople based on straight salary, straight
commission, or a combination salary/commission
8-2
Current Marketing Issues
• Internet advertising is growing so rapidly that marketers are able to create bigger, more intrusive ads that take up more space on the web page
• Websites are allowing lengthier ads to run before short video clips play
• Blogs are creating more content that doubles also as an ad
Purpose-Based Marketing • best way to sell in a weak economy is to “show customers how
they can improve their lives” with your product or service • need to build trust and an emotional connection to the customer in
order to differentiate your product or service
8-3
Advertising Media
• The segments of people whom marketers want to reach online are much more precisely defined than the segments of people reached through traditional forms of media, such as television, radio, and magazines
• People in essence segment themselves by nature of the websites that comprise their “favorite places,” and many of these websites sell information regarding their “visitors”
8-4
Does the Internet Make Market Segmentation Easier?
1. To raise capital with short-term debt, long-term debt, preferred stock, or common stock
2. To lease or buy fixed assets 3. To determine an appropriate dividend payout ratio 4. To use LIFO (Last-in, First-out), FIFO (First-in, First-out),
or a market-value accounting approach 5. To extend the time of accounts receivable 6. To establish a certain percentage discount on accounts
within a specified period of time 7. To determine the amount of cash that should be kept on
hand
8-5
Finance/Accounting Issues
Three main approaches: Ø What a firm owns Ø What a firm earns Ø What a firm will bring in the market
8-6
Evaluating the Worth of a Business
• Break-even analysis • Ratio analysis • Sensitivity analysis
• Best case • Worst case • Likely case
• Capitalization • Budget issues • Shares - # of rounds • Debt – bonds • Blockchain financing? • Other options?
• Valuation • Harvard Model • Discounted cash flow • First Chicago
• Base revenue • Revenue / Profit Growth – 15% • Revenue / Profit Growth – 50% • Weighted Average
• Conventional VC Method • Weighted Average of the
4 methods
Financial Issues Determining the affordability of the strategic options
1. Emphasize product or process improvements? 2. Stress basic or applied research? 3. Be leaders or followers in R&D? 4. Develop robotics or manual-type processes? 5. Spend a high, average, or low amount of
money on R&D? 6. Perform R&D within the firm or contract R&D to
outside firms? 7. Use university researchers or private-sector
researchers?
8-8
Research and Development (R&D) Issues
1. Be the first firm to market new technological products
2. Be an innovative imitator of successful products, thus minimizing the risks and costs of start-up
3. Be a low-cost producer by mass-producing products similar to but less expensive than products recently introduced
8-9
R&D Approaches for Implementing Strategies
• Having an effective management information system (MIS) may be the most important factor in differentiating successful from unsuccessful firms
• The process of strategic management is facilitated immensely in firms that have an effective information system
8-10
Management Information Systems (MIS) Issues
• Business analytics • a management information system technique that
involves using software to mine huge volumes of data to help executives make decisions
• also called predictive analytics, machine learning, or data mining
• A key distinguishing feature of business analytics is that it is predictive rather than retrospective, in that it enables a firm to learn from experience and make current and future decisions based on prior information
• Artificial Intelligence
8-11
Business Analytics & Artificial Intelligence
Product Positioning Map Exercise – Price vs. Quality • Volkswagen • Honda • Infinity • Land Rover • Mazda • Nissan • BMW • Jeep • Ford • Acura
• Hyundai • Audi • Chevrolet • Porsche • Toyota • Volvo • Mercedes Benz • Lexus • Jaguar • Cadillac
PriceHigh
Low
Quality
High
Low
VW Honda
PriceHigh
Low
Quality
High
Low
Evaluation, and Control
Strategic Management
Section 9 – Strategic Review,
Strategy evaluation includes three basic activities: 1. examining the underlying bases of a firm’s
strategy 2. comparing expected results with actual results 3. taking corrective actions to ensure that performance
conforms to plans
9-2
The Nature of Strategy Evaluation
1. A dramatic increase in the environment’s complexity 2. The increasing difficulty of predicting the future with
accuracy, and decreasing time span for which planning can be done with any degree of certainty
3. The increasing number of variables 4. The rapid rate of obsolescence of even the best plans 5. The increase in the number of both domestic and world
events affecting organizations
9-3
Why Strategy Evaluation is More Difficult Today
• Strategy evaluation ü should initiate managerial questioning of expectations and
assumptions, ü should trigger a review of objectives and values, ü and should stimulate creativity in generating alternatives
and formulating criteria of evaluation • Evaluating strategies on a continuous rather than on a periodic basis allows benchmarks of progress to be established and more effectively monitored
• Successful strategies combine patience with a willingness to promptly take corrective actions when necessary
9-4
The Process of Evaluating Strategies
1. How have competitors reacted to our strategies? 2. How have competitors’ strategies changed? 3. Have major competitors’ strengths and weaknesses
changed? 4. Why are competitors making certain strategic changes? 5. Why are some competitors’ strategies more
successful than others? 6. How satisfied are our competitors with their present
market positions and profitability? 7. How far can our major competitors be pushed before
retaliating? 8. How could we more effectively cooperate with our
competitors?
9-5
Reviewing Bases of Strategy
1. Are our internal strengths still strengths? 2. Have we added other internal strengths? If so, what are
they? 3. Are our internal weaknesses still weaknesses? 4. Do we now have other internal weaknesses? If so, what
are they? 5. Are our external opportunities still opportunities? 6. Are there now other external opportunities? If so, what
are they? 7. Are our external threats still threats? 8. Are there now other external threats? If so, what are
they? 9. Are we vulnerable to a hostile takeover?
9-6
Key Questions to Address in Evaluating Strategies
Strategists use common quantitative criteria to make three critical comparisons: 1. Comparing the firm’s performance over different time
periods 2. Comparing the firm’s performance to competitors’ 3. Comparing the firm’s performance to industry
averages
9-7
Measuring Organizational Performance
• Most quantitative criteria are geared to annual or quarterly objectives rather than long-term objectives
• Different accounting methods can provide different results on many quantitative criteria
• Intuitive judgments are almost always involved in deriving quantitative criteria
9-8
Problems with Quantitative Criteria
1. How good is the firm’s balance of investments between high-risk and low-risk projects?
2. How good is the firm’s balance of investments between long-term and short-term projects?
3. How good is the firm’s balance of investments between slow-growing markets and fast-growing markets?
4. How good is the firm’s balance of investments among different divisions?
5. To what extent are the firm’s alternative strategies socially responsible?
6. What are the relationships among the firm’s key internal and external strategic factors?
7. How are major competitors likely to respond to particular strategies?
9-9
Additional Key Questions
1. How well is the firm continually improving and creating value along measures such as innovation, technological leadership, product quality, operational process efficiencies, and so on?
2. How well is the firm sustaining and even improving upon its core competencies and competitive advantages?
3. How satisfied are the firm’s customers?
The Balanced Scorecard approach to strategy evaluation aims:
ü to balance long-term with short-term concerns, ü to balance financial with nonfinancial concerns, ü and to balance internal with external concerns.
9-10
The Balanced Scorecard
• Strategy evaluation activities must be economical Ø too much information can be just as bad as too little information Ø too many controls can do more harm than good
• Activities should be meaningful Ø should specifically relate to a firm’s objectives
• Activities should provide timely information • Activities should be designed to provide a true picture of
what is happening • Activities should not dominate decisions
Ø should foster mutual understanding, trust, and common sense
9-11
Characteristics of an Effective Evaluation System
• If a major competitor withdraws from particular markets as intelligence reports indicate, what actions should our firm take?
• If our sales objectives are not reached, what actions should our firm take to avoid profit losses?
• If demand for our new product exceeds plans, what actions should our firm take to meet the higher demand?
• If certain disasters occur, what actions should our firm take?
• If a new technological advancement makes our new product obsolete sooner than expected, what actions should our firm take?
9-12
Contingency Planning
1. Identify both beneficial and unfavorable events that could possibly derail the strategy or strategies.
2. Specify trigger points. 3. Assess the impact of each contingent event. 4. Develop contingency plans. 5. Assess the counter-impact of each contingency
plan. 6. Determine early warning signals for key contingent
events. 7. For contingent events with reliable early warning
signals, develop advance action plans to take advantage of the available lead time.
9-13
Effective Contingency Planning
• Deciding whether the process should be more an art or a science
• Deciding whether strategies should be visible or hidden from stakeholders
• Deciding whether the process should be more top-down or bottom-up in their firm
9-14
Twenty-First-Century Challenges in Strategic Management
Strategic Management
Section 10 - Triggering Events & Strategic Decision Making
• Strategy formation is not typically a regular continuous process
• Strategy formation tends to be an irregular process, which can be explained by people’s tendency to: 1. Hold the course until something goes wrong, or 2. A leader is forced to question their actions
Initiation of Strategy
Initiation of Strategy (con’t)
Often a lack of strategic change reflects: • Management’s belief that the current
strategy is still appropriate and needs only fine tuning
• It can also indicate transactional leadership, rather than a transformational leadership on the part of senior leaders
Initiation of Strategy (con’t) • Often it takes some sort of shock to the system to motivate management to seriously reassess the organization’s situation
ØIn other words, organizations are more open to change at certain times than at others
• Unfortunately, many firms fail to see the need for change in the absence of crises or some triggering event that begins to erode performance.
Triggering Events A triggering event is something that acts as a stimulus for a change in strategy
• A new CEO • By asking embarrassing questions, the new CEO cuts through the veil of complacency and forces people to question the very reason for the organization’s existence
• External Intervention • A bank calls a line of credit, or refuses to approve a new loan
• Threat of a Change in Ownership • Another company initiates a takeover by buying the company’s common shares
• Performance Gap • A gap in performance exists due to the company not achieving expectations (i.e. sales and profits falling rather than increasing)
• Other . . .
Symptoms of Decline & Failure • Falling sales • Falling profitability • Reduced dividends • Decreasing liquidity • Increasing debt • Financial ratios in a freefall • Falling EPS
• Declining market share • High turnover of managers • Delay in publishing financial results • Senior management fear • Lack of strategic thinking
Causes of Failure • Poor management and leadership
ØOften due to poor strategic leadership • Neglecting the core business
ØToo much focus on exciting non-core ventures
• Inefficient operations ØArises from poor management of resources, resulting in higher costs
• Poor financial management Ø Financial or managerial resources are over-stretched on big
projects, causing healthier parts of the business to suffer • Inadequate financial control
Ø Poor cash flow forecasts, costing systems, and budgetary controls, means no key info. on costs, sales, and profits
• Failure to compete effectively Ø No understanding of the competitive arena, and an
unsuitable competitive strategy
Causes of Failure (con’t) • Poor marketing effort
ØNo product development ØUnbalanced portfolio of products ØCore products ignored ØLack of market research & knowledge of
consumer behaviour ØMarkets wrongly segmented ØPoorly motivated salesforce with a
complacent manager ØKey customers not targeted effectively ØOutdated advertising and sales promotion
materials ØIneffective advertising locations ØPoor after-sales service
Divestment Candidate? • What does the financial and strategic analysis of
the divestment candidate indicate? • What would happen to the market position and
competitive opportunities for the divestment candidate and org. as a whole?
• How will the company’s portfolio be altered as a result of the divestment?
• How will the freed money and resources be used? • Is there a buyer willing to pay an acceptable
price?
Feasibility of Recovery
Two Stages of Recovery • Retrenchment
• Retrenchment strategies are operational rather than corporate or competitive strategies
• Usually aimed at making a company more productive and profitable with its current markets and products
• Turnaround • Turnaround strategies tackle those areas that need
to be developed if recovery is to be sustained
Retrenchment Strategies • Organizational changes
ØLook at changes in management & restructuring • Financial changes
ØLook at cash-flow, cost of production, expenses • Debt restructuring
ØLook at extending repayment periods, interest-only loans or converting loans to share capital
• Cost reduction in the value chain ØConsider how to reduce costs in all value chain
activities • Asset reduction and divestment
Ø consider selling assets or part of the business
Turnaround Strategies • Changing prices
• How will revenue be affected? • Emphasize advertising and selling
• Check expenditures on advertising and selling, and whether sufficient revenue is generated
• Re-focusing • Review opportunities for comp. advantage and
how well products meet customers needs • Rationalizing the product portfolio
• Will this help company concentrate on strongest market segments?
• New product development • How will new products and product improvements
help achieve a competitive advantage?
The Psychology of a Turnaround • Employee morale is the single biggest issue
you need to deal with in a turnaround • Need to create a sense of hope for the future
– the key to this is creating a compelling vision of the future
• Acknowledge problems, and at times the sins of the past – people need to understand the “why”
• Acknowledge the grieving process inherent in organizational massive change
• Understand that not everyone is going to buy into your vision of the future – bell curve
Surviving a Turnaround as a Leader • Turnarounds take a huge toll: physically,
emotionally, relationally, psychologically, etc. • Make sure you are taking time to recharge your
batteries üNeed regular exercise üNeed breaks and holidays from the stress üNurture your friendships, especially your
marriage • Go easy on yourself – don’t beat yourself up! • Need to forgive past leader’s follies and short
comings
Business Strategy
Strategic Issues in Non-profit Organizations
Sources of Non-Profit Revenue
Patterns of influence on Strategic Decision Making
• The pattern of influence on the organization’s strategic decision making derives from it’s source of revenue
• This is particularly critical for non-profits (i.e. private versus public universities)
• In non-profits, managers often tend to be more concerned with satisfying the funding source than the client that actually uses the service
Impact of Constraints on Strategic Management
vSeveral characteristics unique to non- profits constrain its behaviour & affects strategic planning
üService is often intangible and hard to measure
üClient’s influence may be weak when non- profit has a monopoly, and clients are a small source of funds
üStrong employee commitments to their professions or to a cause may undermine allegiance to the organization employing them
üResource contributors may intrude on the organization’s internal management
üRestraints on the use of rewards or punishments
Impact on Strategy Formulation • Goal conflicts interfere with rational planning
ØMultiple sponsors = multiple goals • An integrated planning focus tend to shift from results to resources • Ambiguous operating objectives create opportunities for internal politics and goal displacement – usually as a result of funding issues • Professionalization simplifies detailed planning, but adds rigidity (i.e. hospitals)
Impact on Strategy Implementation • Decentralization is complicated
ØTop management retains all decision making authority so that lower-level managers don’t take actions that may upset a sponsor
• Linking pins for external/internal integration become important
ØBecause of the heavy dependence on donors, a special need arises for people in buffer roles to relate to inside and outside groups
• Job enlargement & executive development can be restrained by professionalism
Ø In non-profits with large numbers of professionals, managers must design jobs that appeal to the prevailing professional norms, whether they make sense or not.
Impact on Evaluation & Control • Rewards & penalties have little or no relationship to performance
ØWhen desired results are vague and the judgment of success is subjective, then predictable & impersonal feedback cannot be established
ØPerformance is either intuitive, or based on whatever small aspects of the jobs can be measured
• Inputs rather than outputs are heavily controlled
ØBecause inputs can be measured easier than outputs, non-profits tend to focus more on the resources going into performance than on the performance itself