STRATEGIC MANAGEMENT OF EMPLOYEE DEVELOPMENT
INVESTING IN HUMAN CAPITAL FOR LONG-TERM GAINS
ARIZONA STATE UNIVERSITY
WPC 480 - STRATEGIC MANAGEMENT
WEEK 2
A.
Definition of Long-term Goal:
Long-term goals are statements of the results that a company wants to achieve within
a certain period, which is generally three to five years. To achieve long-term prosperity,
strategic planners generally set long-term goals in 7 areas, namely:
1. Probability:
The ability of a company to operate in the long term depends on earning an
adequate level of profit, which generally has a profit objective expressed in the form of
corporate profit or return on equity.
2. Productivity:
Companies that can improve input-output relationships can generally increase
productivity. Therefore, the company states a productivity goal. A commonly used
productivity goal is the number of goods produced or the number of services provided
per unit of input. However, productivity goals are sometimes expressed in terms of
desired cost reductions.
3. Competitive Position:
One measure of a company's success is its relative dominance in the market.
Often total sales or market share is used as a measure of a company's competitive
position. Objectives related to competitive position may indicate a company's long-term
priorities.
4. Employee Development:
Employees value education and training partly because it leads to higher
compensation and job security. This often increases productivity and reduces employee
turnover. Strategic decision-makers therefore often include employee development
goals in their long-term plans.
5. Employee Relations:
Strategic managers believe productivity is linked to employee loyalty and
appreciation of managers' concern for employee welfare. They therefore set goals to
improve employee relations. Some goals include safety programs, worker
representation in commitment and stock-based compensation plans.
6. Technology Leadership:
Companies must decide whether to be a leader or just a follower in the market.
Each approach can be successful, but each requires a posture of different strategies.
Many companies therefore state a goal related to technology leadership.
7. Responsibility to the Community:
Many companies try to fulfill their social responsibility beyond the
requirements of the government. They are not only working to develop a reputation as
producers of products and services at a fair price but also as responsible citizens.
Strategic planners should avoid the following alternatives, namely (not
managing by objectives):
a.
Managing by Extrapolation, which is following the principle, "If it ain't broke, don't
fix it", means keeping doing the same thing in the same way because things are
going well.
b.
Managing by crisis, which is based on the belief that to know how good a strategic
planner is is to measure his ability to solve problems. Because there are so many
crises and problems faced by every person and every organization. Strategic
planners should use their time and creative energy to solve the most pressing
problems. Managing by crisis is actually a form of reaction rather than action and
letting events dictate what and when management decisions are made.
c.
Manage Subjectively, which is based on the premise that there is no general plan
that determines which direction to take and what to do. Do what what best to
accomplish what is deemed to be done.
d.
Managing based on Hope, which is based on the fact that the future is full of
uncertainty. If we make an effort and don't succeed, then we hope that on the
second (or third) attempt, we will succeed. Decisions are made in the hope that
they can be carried out and success is just a few steps away, especially if fate and
luck are on our side.
B.
Concentrated Growth:
Concentrated growth is a corporate strategy that directs its resources towards the
profitable growth of one product, in one market, with one dominant technology. The main
rationale for this approach, called market penetration or concentration strategy, is that the
firm carefully develops and exploits its expertise in a limited competitive arena.
C.
Superior Performance Rationale:
A concentrated growth strategy leads to improved performance. The ability to assess
market needs, understanding of buyer behavior, consumer price sensitivity, and promotional
effectiveness are characteristics of a concentrated growth strategy. Such core capabilities are
more important determinants of competitive market success than the environmental forces
faced by the firm. The high success rate of new products is also related to avoiding situations
of expertise that the firm does not yet have, such as serving customers with markets, buying
technology, developing channels, and developing new products. Channels marketing
channels, developing promotional channels, and dealing with new competitors.
A major misconception about concentrated growth strategies is that companies that
implement them will be satisfied with little or no growth. This is certainly not the case for
companies that use this strategy correctly. A company that implements concentrated growth
grows by developing its competencies, and it achieves competitive growth by competing in
the product market segments that it knows best. A company using this strategy aims for
growth that results from increased productivity, better coverage of its actual product market
segments, and more efficient use of its technology.
D.
Conditions that Favorable Conditions Concentrated Growth:
There are certain conditions in the corporate environment that are favorable for a
concentrated corporate strategy. First, where the firm's industry is resistant to major
technological advances. This is usually the case in late growth stages as well as in product
life cycles and in product markets where the demand for the product is stable and barriers to
entry, such as the level of high capitalization. Machinery for the paper manufacturing
industry, whose basic technology has not changed for more than a century, is a good
example.
Second, another very favorable condition is when the company's target market is not
yet saturated. A market that has a competitive gap gives the company have alternatives to
growth other than capturing market share from competitors. The third favorable condition for
concentrated growth is when the product market is sufficiently differentiated that it
discourages competitors in adjacent product markets from trying to invade the company's
segment. The fourth favorable condition is when the price and quantity of the firm's inputs
are stable and available in the required quantity and time. Concentrated growth is also
supported by stable markets, i.e. markets that do not have seasonal or cyclical movements
that encourage firms to diversify.
A company can also grow and concentrate at the same time, if the company is enjoy a
competitive advantage based on efficient production or distribution channels. This advantage
allows the company to formulate a favorable pricing policy. Efficient production methods
and better handling of distribution enable the firm to formulate favorable pricing policies.
More efficient production methods and better handling of production enable the firm to
achieve greater economies of scale or, in conjunction with marketing, produce products that
are differentiated in the eyes of customers.
Finally, the success of market generalists creates favorable conditions for
concentrated growth. When generalists succeed in using universal appeal, they avoid creating
appeal to specific customer groups. The end result is that many small niches remain open in a
market dominated by generalists, leading to the emergence of specialists who then achieve
success in these niches. For example, appliance store chains, such as Home Depot, primarily
focus on routine home repairs and offer do-it-yourself solutions. This approach ignores the
niche markets of "semi-professional" and "amateur" customers.
E.
Risks and Rewards of Concentrated Growth:
Under stable conditions, concentrated growth carries less risk than other common
strategies. However, in a changing environment, a firm committed to concentrated growth
faces high risks. The biggest risk is that concentrating on a single production market makes
the firm highly vulnerable to changes in that segment. Slow growth in that segment can
jeopardize the company because its investments, competitive advantages, and technology are
deeply embedded in its specialized offerings. It is difficult for addition of a weakening
market, new substitutes, or changes in technology or customer needs.
The entrenchedness of a firm that is concentrated in an industry makes it highly
vulnerable to changes in the industry's economic environment. The entrenched nature of a
company that is concentrated in a particular product market tends to make it more adept at
detecting new trends than its competitors. However, failure to correctly forecast major
changes in the industry of such a company can incur tremendous losses.
Companies with a concentrated growth strategy are also vulnerable to opportunity
costs as a result of sticking to a particular product market and ignoring other options that
could utilize the company's resources more profitably. Over-commitment to a particular
technology or product market may limit a company's ability to enter new or emerging product
markets that offer more attractive cost-benefit comparisons.
F.
Concentrated Growth is Often the Most Likely Growth:
There are many examples of companies that have enjoyed extraordinarily high rates
of return from their strategy concentrated growth strategy. Companies such as McDonald's,
Goodyear, and Appel Computers have used first-person knowledge and deep involvement
with specific product segments to become major competitors in their markets. The strategy is
even more often associated with smaller companies that are constantly succeeding and
improving their position in the market. The limited additional resources required to
implement concentrated growth, coupled with the risk of involved, also makes this strategy
attractive to companies with limited funds.
A concentrated growth firm directs its resources towards the profitable growth of
narrowly defined products and markets, focusing on a dominant technology. A firm that
sticks with its chosen products is able to make the most of its technology and market
knowledge, and thus, is able to minimize the risks associated with unrelated diversification.
The success of a concentrated strategy is based on the firm's superior insight into its
technology, products, and customers to gain a sustainable competitive advantage. A firm's
superior strategic performance on these aspects is shown to have a substantial positive impact
on market success.
The business strategy of concentrated growth allows for a variety of actions. In
general, companies can try to capture a larger market share by increasing the usage rate of
current customers, attracting competitors' customers, or selling to non-users. Ultimately, each
of these choices leads to more specific choices. When strategic managers foresee that their
current products and markets cannot provide the fulfillment of the company's mission, they
have two options that involve moderate costs and risks: market development and product
development.
G.
Market Development:
Market development generally ranks second only to concentration as the least
expensive and least risky of the 15 general strategies. Market development consists of
marketing existing products, often with only domestic modifications, to customers in relevant
market areas by adding distribution channels or by changing advertising or promotional
content.
Market development allows companies to practice a concentrated form of growth
concentrated by identifying new uses for existing products, as well as new demographically,
physically, or geographically defined markets. Often, changes in media choice, promotional
appeal, and distribution are used to initiate this approach.
The pharmaceutical industry is another example of a new market for an existing
product. The National Institutes of Health reported on a study that showed that aspirin use
can lead to reduce the likelihood of a heart attack. This report is expected to increase sales in
the painkiller market. It is estimated that this market expansion is expected to decrease the
market share of non-aspirin brands.
H.
Product Development:
Development Product development involves the substantial modification of an
existing product or the creation of a new but related product that can be marketed to current
customers through existing distribution channels. Product development strategies are often
used to extend the life cycle of an existing product or to maintain a favorable reputation or
brand. The idea is to make satisfied customers who have had a positive experience with the
company's initial offering interested in the new product.
Product development strategies are based on penetrating existing markets by
incorporating product modifications into existing product lines or by developing new
products that have a clear relationship with current products. The telecommunications
industry is an example of product expansion based on product modification. To increase its
market share by about 8 to 10 percent of the corporate market, MCI Communication
Corporation expanded its direct connection services to the same 146 countries served by a
competitor (AT&T), at average rates lower than those offered by AT&T.
Another example of a related expansion of an existing product line is in the Gerber
Company's decision to engage in the marketing of general merchandise. Gerber recently
introduced 52 items, ranging from food supplies for children to toys and clothing for children.
In the same way Nabisco Brands seeks competitive advantage by placing its strategic
emphasis on product development. PJR Nabisco is a major producer of biscuits, candies,
snacks, cereals, and preserved fruits and vegetables. To maintain its leadership position,
Nabisco chose a strategy of developing and introducing new products as well as expanding its
existing product lines.
I.
Innovation:
In many industries, stopping innovation is becoming increasingly risky. Both
consumer and industrial markets expect regular changes and improvements to the products
offered. As a result, some companies find that it is profitable to make innovation their main
strategy. These companies try to achieve high initial profits associated with customer
acceptance of new or improved products. Then, when the basis of profitability shifts from
innovation to production or marketing competence, these companies choose to make
innovation their main strategy to look for other unique ideas rather than face the growing
competition.
The main rationale behind this primary strategy of innovation is to create a new
product life cycle that makes existing products obsolete. As such, it differs from the product
development strategy that extends the life cycle of existing products. For example, Intel, a
leader in the semi-conductor industry, expanded to emphasize innovation. The company is a
designer and manufacturer of semi-conductor and computer-related components,
microcomputer systems and software. Intel's Pentium microprocessor gave desk computers
main frame capability.
While most growth-oriented companies appreciate the need to be innovative, few
companies make innovation a pundamental way to relate to their markets. This is because
innovative ideas require a large expenditure in research, development, and development.
pre-marketing to transform ideas into a profitable product.
J.
Horizontal Integration:
When a firm's long-term strategy is based on growth through the acquisition of one or
more similar firms operating at the same stage of the marketing production chain, the general
strategy of the firm is horizontal integration. Such acquisitions eliminate competitors and
give the acquiring firm access to new markets.
One example is Warner-Lembert's acquisition of Parke Devis, which reduced
competition in the ethical drug field for Chilcott Laboratories, a company that had previously
been acquired by Warner-Lembert.
K.
Vartical Integration:
When a firm's main strategy is to acquire firms that supply its inputs (such as raw
materials) or acquire firms that are consumers of its outputs (such as suppliers of finished
products), vertical integration is involved.
To illustrate if a shirt manufacturer acquires a textile manufacturer by buying its
shares, purchasing its assets, or exchanging its type of ownership, this strategy is called
vartical integration. In the illustration, what happens is upstream vertical integration, as the
acquired company is at an earlier stage of the marketing production process. If a shirt shop
merges with a clothing store, there will be downstream vertical integration, acquiring a
company that is closer to the end customer.
The reasons for choosing vertical integration as the main strategy are more diverse
and sometimes less obvious. The main reason for upstream integration is the desire to
improve the reliability of the process or the quality of raw materials used as production
inputs. Vertical integration is usually to address when the number of suppliers is too small
while the number of competitors is large. In such a situation, the vertically integrated firm
can control its costs well, thereby improving the profit margin of the expanded marketing
production system. Downstream integration is the main strategy chosen if it is a strategy that
is suitable for the company generates great benefits as a result of stable production.
L.
Concentric Diversification:
Diversification Concentric diversification involves the acquisition of businesses that
are related to the acquiring company in technology, markets, or products. Concentric
diversification is ideal when the combined profits of the company enhance strengths and
opportunities while reducing weaknesses and exposure to risk.
As such, the acquiring company seeks out new businesses with products, markets,
distribution channels, technologies and resource requirements that are similar but not
identical to its own, so these acquisitions result in synergies but not full interdependence.
M.
Conglomerate Diversification:
Sometimes a company, especially a very large one, plans to acquire a business
because it is the most promising investment opportunity available. This primary strategy is
known as conglomerate diversification. The main reason for the acquiring company is the
profit pattern of the business. Unlike concentric diversification, conglomerate diversification
pays little attention to creating product-market synergies with existing businesses.
The main difference between the two types of diversification is that concentric
diversification emphasizes on some similarities in terms of markets, products, or
technologies, while conglomerate diversification is mainly based on profit considerations.
N.
Turnaround:
For one reason or another, a company may experience a decline in profits. At Among
these reasons are economic recession, production inefficiencies, and innovative
breakthroughs by competitors. In many cases, strategic managers believe that a company like
this can survive and then recover if a concerted effort is made over a period of several years
to strengthen its specialized competencies. This key strategy is known as turnaround.
These efforts are generally initiated through one of two forms of austerity, either
separately or simultaneously:
1. Cost Reduction. Examples include reducing the workforce through early retirement,
renting instead of buying equipment, extending the life of machinery, eliminating
detailed promotional activities, terminating employment with employees, stopping
production of some items from a product line, and stopping sales to low-margin
buyers.
2. Asset Reduction. Examples include selling land, buildings, and equipment that are not
essential to the company's basic activities and eliminating "luxuries", such as
company aircraft and executive vehicles.
Interestingly, the turnaround commonly associated with this approach is a
management position. Strategic management research provides evidence that companies
using turnaround strategies successfully overcome downturns.
A turnaround situation reflects a decline in performance that is both absolute and
relative to the industry on a sufficient scale to justify an explicit turnaround action. A
turnaround situation may result from a gradual slowdown over a number of years or a sharp
decline over a number of months. In either case the recovery phase of the turnaround process
is likely to be more successful in bringing about the turnaround, if it is preceded by planned
retrenchment that results in short-term financial stabilization.
The threat posed to a company's survival by a turnaround situation is known as
situation severity. The severity of the situation is a major factor in estimating the speed at
which austerity responses will be formulated and implemented. The main objective of the
austerity phase is to stabilize the financial condition.
The main causes of turnaround situations have been attributed to the second stage of
the turnaround process, the recovery response. For companies that have experienced
downturns mainly due to external issues, turnarounds can often be achieved through creative
new entrepreneurial strategies.
O.
Divestment:
A divestiture strategy involves selling the company or a major component of the
company. When Retrenchment fails to achieve a turnaround If a desired or non-integrated
business activity achieves an unusually high market value, strategic managers often decide to
sell the company. But since the intention is to find a buyer to pay a high price beyond the
value of the assets remains based on the principle of going concern, the term "marketing for
sale" is often more appropriate.
There are various reasons why divestments are made. These reasons often arise
because there are partial incompatibilities between the acquired company and its parent
company. Some incompatible parts cannot be integrated into the main activities of the
company, and thus, must be divested. The second reason is the financial needs of the
corporation. Often the cash flow or overall finances of the corporation will be greatly
improved if a business with a high market value can be sacrificed.
The result can be a balance between share ownership, long-term risk or long-term
debt repayment for the following optimizing the cost of capital. The third reason for
disinvestment, which is less common, is government antitrust when a company is believed to
have monopolized or unfairly dominated a particular market.
P.
Liquidation
When liquidation is the main strategy, the company is usually sold in parts separately.
Sometimes it can be sold as a whole but only for the value of its tangible assets and not as a
going concern. In choosing liquidation, the owners and strategic managers of a company
acknowledge failure and realize that this course of action is likely to cause hardship for
themselves and for employees. For these reasons, liquidation is usually seen as the least
attractive primary strategy.
But as a long-term strategy, it minimizes losses for all holders shares of the company.
If facing insolvency, a liquidating company usually tries to develop an unplanned and
organized system to generate the highest possible rate of return and cash conversion as it
slowly sheds its market share.
Q.
Bankruptcy
Company failure plays an increasing role increasingly important in the economy.
Companies experiencing financial difficulties may file for bankruptcy or liquidation. Such
companies agree to distribute all of their assets to creditors, who each receive only a fraction
of the amount they lent to the company.
Liquidation is what most people think of as bankruptcy. The company cannot pay off
its debts, so it must be closed down. Insolvency is only the first step towards the recovery of a
company. There are many questions that must be Answer: How did the company get to the
point where extreme measures such as bankruptcy were necessary? Were there warning signs
that were ignored? Was the competitive environment understood? Assessment of the
insolvency situation requires the executives to consider the causes of the company's decline
and the complexity of the problems it is facing. Investors must decide whether the
management team that led the company's operations during the downturn can return the
company to a position of success.
R.
Joint Venture:
Sometimes two or more capable companies lack the necessary components to succeed
in a particular competitive environment. For example, no one company can handle the job of
installing an oil pipeline. In addition, no single company is capable of processing and
marketing all the oil that will flow through the pipeline through the pipeline. The solution
was joint ventures, which are commercial companies (subsidiaries) that are created and
operated for the benefit of the owners (the parent company).
The form of joint venture discussed specifically above is joint ownership. Joint
ventures expand customer supplier relationships and have strategic advantages for both
parties.
It should be noted that strategic managers are naturally cautious about joint ventures.
Admittedly, joint ventures open up new opportunities with shared risks. On the other hand,
joint ventures often limit the discretion, control and profit potential of each partner, while
demanding managerial attention and other resources that could otherwise be directed to the
firm's core activities. Nonetheless, increasing globalization in some industries makes the joint
venture approach worth considering, if companies which formerly national companies want
to stay afloat.
S.
Strategic Alliance:
Strategic alliances differ from joint ventures in that the companies involved do not
own shares in each other. In most cases, strategic alliances are periodic alliances where allies
contribute their skills and expertise to a cooperative project. For example, one ally provides
manufacturing capabilities while a second ally provides marketing expertise.
Often, such alliances are formed because allies want to develop independent
capabilities to replace an ally when the contractual agreement between allies ends. This kind
of relationship is a bit slippery, as it can be perceived that the allies are trying to "steal" each
other's knowledge. In other cases, strategic alliance agreements are similar to licenses.
License involves the transfer of some industrial property rights from a licensee to a licensee.
Most of these transfers are in the form of patents, trademarks, or technical know-how granted
to the licensee for a specified period of time in exchange for royalties. Most of these license
agreements are made to avoid import duties or quotas.
Outsourcing is an incremental approach to strategic alliances that allows companies to
to gain a competitive advantage. Significant changes in many business segments are also
driving the use of outsourcing practices.
BUSINESS STRATEGY
A.
Definition of Business:
Business is defined as all activities organized by people engaged in commerce
(producers, traders, consumers, and industries where companies are located) in order to
improve their standards and quality of life. (Husein Umar, 2005).
There are several definitions of strategy as stated by experts in their respective books.
According to Stephanie K. Marrus, strategy is defined as a process of determining the plans
of top leaders who focus on the long-term goals of the organization, accompanied by the
preparation of a way or effort how these goals can be achieved.
According to Hamel and Prahalad, strategy is an incremental action (constantly
improving) and continuously, and is done based on the perspective of what customers expect
in the future. As such, strategy almost always starts with what could happen rather than what
has happened. The speed of new market innovations and changing consumer patterns require
core competence. Companies need to look for competencies to find core competencies in
their business.
B.
Strategy Management Model:
Strategic management is the art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an organization to achieve its goals.
Strategic management is the process of setting organizational goals, developing policies and
planning to achieve those goals and allocate resources to implement policies and plan for the
achievement of organizational goals.
Strategic management combines the activities of various functional parts of a business
to achieve organizational goals.
The first activity is to formulate the company's vision and mission statements. The
vision owned by the company is an ideal about the future state that all company personnel
want to realize, from the top to the bottom. The future ideals that exist in the minds of the
founders who roughly represent all members of the company are called Vision. The mission
is a written description of the vision so that the vision becomes easy to understand for all
company staff.
The next step is to analyze the external and internal environment of the company. The
act of knowing and analyzing the external environment is very important because in essence
the external environmental conditions are beyond the control of the organization.
In addition to understanding the conditions of the external environment, a broad and
in-depth understanding of the company's internal environment needs to be done. Therefore,
the strategy made needs to be consistent and realistic in accordance with the situation and
conditions. So that before the management implements a strategy that is suitable for the
running of the company in the future, they must first analyze the company's current position,
both seen from the perspective of the company's internal environment from the position of
competition with similar businesses as well as from the company's own conditions.
Efforts to achieve company goals are a continuous process that requires staging. To
determine whether a stage has been achieved or not, a benchmark is needed, for example, the
period of time and the results to be achieved are clearly formulated.
The next step is the preparation and selection of strategies that the company must do
in order to compete with other competitors.
C.
Stages of Strategy Formulation
The application to determine the main strategy based on Fred R. David's concept is
done through the use of several matrices with three stages of implementation. The following
reproduces the various matrices and the three stages.
1) Stage I: The Input Stage:
In the input stage, all the basic information about the company's internal and external
factors needed to formulate The strategy is summarized by the strategist. This can be done
using two strategy formulation techniques, namely:
1. External Factor Evaluation (EFE) Matrix:
The EFE matrix is used to evaluate factors external factors of the company. External
data is collected to analyze matters concerning economic, social, cultural, environmental,
political, governmental, legal, technological, competitive issues in the industry market where
the company is located. This is important because external factors directly or indirectly affect
the company.
The steps of the EFE Matrix work stages are as follows:
a.
Create a list of Critical Success Factors (CSF) for aspects external aspects which
includes opportunities and threats for the company.
b.
Determine the weight of the CSF with a higher scale for high achievers and vice versa.
The sum of all weights must be 1.0.
c.
Determine the rating of each CSF between 1 and 4, where :
1=Major weakness, 2=Minor weakness,
3=Small power, 4=Major power main
The rating is determined based on the effectiveness of the company's strategy. As such,
the value is based on the condition of the company.
d.
Multiply the weight value by its rating value to get the score of all CSFs.
e.
Add up all the scores to get the total score for the company being assessed. A total score
of 4.0 indicates that the company responds in an exceptional way to opportunities and
avoids threats in its industry market. Meanwhile, a total score of of 1.0 indicates that the
company does not take advantage of existing opportunities or avoid external threats.
2. Internal Factor Evaluation (IFE) Matrix:
The IFE matrix is used to determine the company's internal factors related to strengths
and weaknesses that are considered important. Data and information on the internal aspects of
the company can be extracted from several functional companies, for example from the
aspects of management, finance, human resources, marketing. In principle, the work stages of
the IFE matrix are the same as the EFE matrix.
The steps of the IFE Matrix work stages are as follows:
a.
List Critical Success Factors (CSF) for internal aspects that include Strengths and
weaknesses for the company.
b.
Determine the weight of the CSF with a higher scale for high achievers and vice versa.
The sum of all weights must be 1.0.
c.
Determine the rating of each CSF between 1 and 4, where:
1=Major weakness, 2=Minor weakness,
3=Small power,
4=Power Main.
The rating is determined based on the effectiveness of the company's strategy. As such,
the value is based on the condition of the company.
d.
Multiply the weight value by its rating value to get the score of all CSFs.
e.
Add up all the scores to get the total score for the assessed company. Total score 4.0
2) Stage II: The Matching Stage
At the matching stage, strategists identify a number of alternative strategies by
matching the input information in the form of external and internal factors obtained at the
input stage. In this matching stage, the author identifies only by using the SWOT (Strengths,
Weaknesses, Opportunities, and Threat) matrix.
steps TOWS/SWOT work steps are as follows:
1. List the company's external opportunities.
2. List the company's external threats.
3. List the company's internal key strengths.
4. List the company's internal key weaknesses.
5. Match internal strengths and external opportunities and record the results in the SO
strategy cell.
6. Match internal weaknesses and external opportunities and record the results in the WO
strategy cell.
7. Match the internal strengths and external threats and record the results in the ST strategy
cell.
8. Match internal weaknesses and external threats and record the results in the WT strategy
cell.
Threats-Opportunities-Weaknesses- Strengths (TOWS) matrix is an important
matching tool to help develop four types of strategies. The four strategies are:
a.
Strengths-Opportunities (SO), namely by developing a strategy in utilizing strengths (S)
to take advantage of existing opportunities (O).
b.
Weaknesses-Opportunities (WO), namely by developing a strategy in utilizing
opportunities (O) to overcome existing weaknesses (W).
c.
Strengths-Threats (ST), namely by developing a strategy in utilize strengths to avoid threats
(T).
d.
Weaknesses - Threats (WT), which is to develop a strategy in reducing weaknesses (W)
and avoiding threats (T).
3) Stage III: Decision Stage:
After stage I and stage II, the next step is to enter the third stage, namely the Decision
Stage. In this stage, the method used is using the Quantitative Strategic Planning Matrix
(QSPM). QSPM is a technique that can objectively determine alternative strategies that are
prioritized. This method is a recommended tool for strategists to objectively evaluate
alternative strategy options, based on previously identified internal-external key success
factors.
Conceptually, the purpose of this method is to establish the relative attractiveness of
the of the various strategies that have been selected, to determine which strategy is best to
implement. The main components of a QSPM consist of the following: Key Factors,
Strategic Alternatives, Weights, Attractiveness Score (AS), Total Attractiveness Score (TAS),
and Sum Attractiveness Score.
The steps for developing QSPM are as follows:
1. List the organization's opportunities, threats, strengths, and weaknesses taken from the
EFE method and IFE method.
2. Weighting each external and internal key success factor with a total weight of 1 as in the
EFE and IFE methods.
3. Examine the existing methods in the analysis stage of strategic planning and identify
alternative strategies whose implementation should be considered beforehand by the
company.
4. Calculating the Attractiveness Score (AS), which is a value that indicates the relative
attractiveness of each of the selected strategies. By examining each of the external and
internal key success factors. The boundaries of the Attractiveness Score are 1 = not
attractive; 2 = somewhat attractive; 3 = attractive; 4 = very attractive.
5. Calculating the Total Attractiveness Score (TAS), obtained from multiplying the weight
with the Attractiveness Score (AS) in each row.
6. Calculating the Sum Total Attractiveness Score. Sum up all TAS in each QSPM column.
The TAS value of the highest alternative strategy is what indicates that the alternative
strategy is the top choice. The smallest TAS value indicates that this strategy alternative
is the last choice.
D.
Concept Analytical Hierarchy Process (AHP)
Analytical Hierarchy Process (AHP) is the most frequently used Multicriteria
Decision Making (MCDM) method. And a method to rank alternative decisions and choose
the best one when decision-making has several objectives, or certain criteria for decision-
making.
Multicriteria Decision Making (MCDM) is a method that can be used in decision
making for multicriteria decisions. By using AHP, a problem will be solved in an organized
framework, allowing it to be expressed to make effective decisions on the problem.
The working principle of AHP is to simplify an unstructured, strategic and dynamic
complex problem into its parts, and organize it in a hierarchy. Then the level of The
importance of each variable is given a subjective numerical value of its relative importance
compared to other variables.
AHP allows users to assign relative weights to multiple criteria intuitively, by
performing pairwise comparisons. (Marimin, 2004).
The steps of using the Analytical Hierarchy Process (AHP) method are as follows:
1. Define the hierarchical structure of the problem to be solved.
2. Weighting the elements at each level of the hierarchy.
3. Calculate the weighted priority.
4. Showing order/ranking of alternatives considered.
E.
Characteristics of a Strategic Business Unit (SBU):
The Strategic Business Unit (SBU) was first introduced in 1979 by Mc. Kensey and
Co. in partnership with General Electric. SBU is defined as a way of managing a business, so
that each unit sells a set of products/services to a set of customers in competition with a set of
competitors. The characteristics of SBU consist of five aspects, namely:
1. External focus is the management and organization of an SBU that refers to problems
that arise due to external factors.
2. Identifiable competitors are SBUs that are designed in such a way that the competitors
of the SBU can be identified.
3. Autonomous profit center is an SBU that operates as a separate business with its own
goals and objectives led by a manager.
4. Distinct marketing strategy is each SBU that has its own marketing strategy and is
different from other business units.
5. Separate accounting is an SBU that competes as a stand-alone unit and must be able to
calculate its own profits and costs, so it must be able to have a separate accounting
system from other units.
F.
Strategy Concept:
Strategy is a means to an end. In its development, the concept of strategy continues to
evolve. This can be shown by the different concepts of strategy over the past 30 years.
The first definition of strategy put forward by Chandler (1962: 13) states that strategy
is the long-term goals of a company, as well as the utilization and allocation of all resources
that are important to achieve these goals. A good understanding of the concept of strategy and
other related concepts, is very decisive The success of the strategy. These concepts are as
follows:
1. Distinctive Competence: actions taken by the company in order to carry out activities
better than its competitors. According to Day and Wensley (1998), the identification of
distinctive competence in an organization includes:
a.
Labor skills, and
b.
Resource capability
These two factors cause the company to excel compared to its competitors.
2. Competitive Advantage. Competitive advantage is caused by the strategic choices made
by companies to seize market opportunities. According to Porter, if the company wants
to increase its business in increasingly fierce competition, the company must choose the
principle of doing business, namely products with high prices or products with low
costs, not both. Based on this principle, Porter states that there are three generic
strategies, namely:
a.
Differentiation Strategy. This strategy is characterized by the company making
decisions to build potential market perceptions of a superior product/service so that
it appears different from other products. Thus, it is hoped that potential customers
will want to buy at a high price because of this difference.
b.
Overall Cost Leadership Strategy. The characteristic is that the company takes into
account competitors more than customers by focusing on low product selling
prices, so that production, promotion, and research costs can be reduced, if
necessary the products produced only imitate products from other companies.
c.
Focus Strategy. It is characterized by the company concentrating on a small market
share to avoid competitors by using a Comprehensive Cost Leadership or
Differentiation strategy.
