Strategic Management by Suleman

IN THE NAME OF ALLAH THE MOST BENEFICENT AND

MERCIFUL.

“Without a strategy the organization

is like a ship without a rudder, going

around in circles.”

Joel Ross and Michael Kami

“Quote”

© 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/IrwinCopyrigh

t

3© 2001 by The McGraw-Hill Companies, Inc. All rights reserved.


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Thinking Strategically:The Three Big Strategic Questions

1. Where are we now?

2. Where do we want to go?

Business(es) to be in and market positions to stake out?

Buyer needs and groups to serve?

Outcomes to achieve?

3. How do we get there?



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What is Strategy?

A company’s strategy consists of the set of competitive moves and business approaches that management is employing to run the company

Strategy is management’s “game plan” to

Attract and please customers

Stake out a market position

Conduct operations

Compete successfully

Achieve organizational objectives



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What is a Business Model?

A company’s business model addresses “How do we make money in this business?”

Is the strategy that management is pursuing capable of delivering good bottom-line results?

Do the revenue-cost-profit economics of the company’s strategy make good business sense?

Look at the revenue streams the strategy is expected to produce

Look at the associated cost structure and potential profit margins

Do the resulting earnings streams and ROI indicate the strategy makes sense and that the company has a viable business model?



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Strategy vs. Business Model :What is the Difference?

Strategy -- Deals with a company’s competitive initiatives and business approaches

Business Model -- Concerns whether the revenues and costs flowing from the strategy demonstrate that the business can be amply profitable and viable

Strategy

Business

Model



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Microsoft’s Business Model

Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users

Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users

Sell resulting operating system and software packages to PC makers and users at relatively attractive prices and achieve large unit sales

Sell resulting operating system and software packages to PC makers and users at relatively attractive prices and achieve large unit sales

Most costs arise in developing the software; variable costs are small—once breakeven volume is reached, revenues from additional sales are almost pure profit.

Most costs arise in developing the software; variable costs are small—once breakeven volume is reached, revenues from additional sales are almost pure profit.

Provide technical support to users at no costProvide technical support to users at no cost



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Figure 1-1: The Five Tasksof Strategic Management

Craft aStrategy

to AchieveObjectives

SetObjectives

Develop aStrategic

Visionand

Mission

Implementand

ExecuteStrategy

Improve/Change

Revise asNeeded

Revise asNeeded

Improve/Change

Recycleas Needed

Task 1 Task 2 Task 3 Task 4 Task 5

Monitor,Evaluate,and Take

CorrectiveAction

Prentice Hall, 2000 Chapter 1 9

Basic Elements of the Basic Elements of the Strategic Management Strategic Management

ProcessProcess

1.8 Basic Elements of the Strategic Management Process (Fig. 1.1)

Evaluation and

Control

Strategy Implementation

Environmental Scanning

Strategy Formulation


Evaluation and Control

and Control

Strategic Management Strategic Management ModelModel

1.9 Strategic Management Model (Fig. 1.2)

Strategy Formulation

Strategy Implementation

Mission

Objectives

Strategies

Policies

Feedback/Learning


Societal Environment

General Forces

Task Environment

Industry Analysis

Structure Chain of Command

Resources Assets, Skills

Competencies, Knowledge

Culture Beliefs, Expectations,

Values

Reason for existence

What results to accomplish by when Plan to

achieve the mission & objectives Broad

guidelines for decision making

Programs

Activities needed to accomplish a plan

Budgets

Cost of the programs Procedures

Sequence of steps needed to do the job

Process to monitor performanceand take corrective action

Performance

External

Internal

Evaluationand Control

Fred R. DavidPrentice Hall

Ch. 1-11

Benefits of Strategic Management

• Proactive in shaping organization’s future• Initiate and influence activities• Formulate better strategies

– Systematic, logical, rational approach


Ch. 1-12


• Financial benefits– Improvement in sales– Improvement in profitability– Improvement in productivity


Ch. 1-13


• Non-Financial benefits– Enhanced awareness of external threats– Improved understanding of competitors’

strategies– Increased employee productivity– Reduced resistance to change– Understanding of performance-reward

relationships– Enhances problem-prevention capabilities


Ch. 1-14

Business ethics defined:– Principles of conduct within

organizations that guide decision making and behavior.

Business Ethics and Strategic Management


Ch. 1-15

Code of business ethics:

– Provides basis on which policies can be devised to guide daily behavior and decisions at the workplace

Business Ethics and Strategic Management


Ch. 1-16

Business actions always unethical include:

• Misleading advertising• Misleading labeling• Environmental harm• Poor product or service safety• Padding expense accounts• Insider trading• Dumping flawed products on foreign markets

Business Ethics & Strategic Planning

17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

A Firm’s Ethical Responsibilitiesto Its Stakeholders

Owners/shareholders – Rightfully expect some form of return on their investmentOwners/shareholders – Rightfully expect some form of return on their investment

Employees - Rightfully expect respect for their worth and devoting their energies to firmEmployees - Rightfully expect respect for their worth and devoting their energies to firm

Customers - Rightfully expect a seller to provide them with a reliable, safe product or serviceCustomers - Rightfully expect a seller to provide them with a reliable, safe product or service

Suppliers - Rightfully expect to have an equitable relationship with firms they supplySuppliers - Rightfully expect to have an equitable relationship with firms they supply

Community - Rightfully expect businesses to be good citizens in their communityCommunity - Rightfully expect businesses to be good citizens in their community

18 Ch. 1

Winning competitive battles through deciding how to leverage internal resources, capabilities,

and core competencies

Strategic Intent The most effective strategists provide a vision (strategic intent) to effectively elicit the help of others in creating a firm's competitive advantage

An application of strategic intent in terms of products to be offered

and markets to be served

Strategic Mission



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Developing a Strategic Vision

Involves thinking strategically about Firm’s future business plans Where to “go”

Tasks include Creating a roadmap of the future Deciding future business

position to stake out Providing long-term direction Giving firm a strong identity

First Task of Strategic Management



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Characteristics of a Strategic Vision

A roadmap of a company’s future Future technology-

product-customer focus Geographic and product

markets to pursue Capabilities to be

developed Kind of company

management is trying to create



t

Characteristics of a Strategic Vision

Charts a company’s future strategic course

Defines the business makeup for 5 years (or more)

Specifies future technology-product-customer focus

Indicates capabilities to be developed

Requires managers to exercise foresight



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Questions to Address inDeveloping a Strategic Vision

1. What changes are occurring in the market arena(s) where we operate and what implications do these changes have for our future direction?

2. What new or different customer needs should we be moving to satisfy?

3. What new or different buyer segments should we be concentrating on?

4. What new geographic or product markets should we be pursuing?

5. What should the company’s business makeup look like in 5 years?

6. What kind of company should we be trying to become?



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Why is a Strategic Vision Important?

A managerial imperative exists to look beyond today and think strategically about

Impact of new technologies

How customer needs and expectations are changing

What it will take to outrun competitors

Which promising market opportunities ought to be aggressively pursued

External and internal factors driving what a company needs to do to prepare for the future

?


Three Elements of a Strategic Vision

Use the mission statement mission statement as a as a starting pointstarting point

Develop a strategic vision strategic vision that spells out a course to pursue

CommunicateCommunicate the vision in a clear clear and exciting exciting manner

25

Mission Statement Answers the Question

Mission Statement Answers the Question

“What is Our Business?”

“What is Our Business?”

Vision Statement Answers the Question

Vision Statement Answers the Question

“What Do We Wantto Become?”

“What Do We Wantto Become?”

Vision Versus Mission

©1999 Prentice Hall



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Missions vs. Strategic Visions

A mission statement focuses on current business activities -- “who we are and what we do” Current product and

service offerings Customer needs

being served Technological and

business capabilities

A strategic vision concerns a firm’s future business path -- “where we are going” Markets to be pursued Future technology-

product-customer focus

Kind of company that management is trying to create

27

Why is a Mission Statement Important?Why is a Mission Statement Important?

- To Insure Unanimity of Purpose

- To Provide a Basis for Allocating Resources

- To Serve as a Focal Point for Individuals

- To Reconcile Differences Among Stakeholders

- To Resolve Divergent Views Among Managers

- To Arouse Positive Feelings About the Firm

- To Provide a Basis for Goals and Strategies

- To Provide Direction

©1999 Prentice Hall

© 2007 Prentice Hall, Inc. All rights reserved.

Exhibit 8–2Exhibit 8–2 Components of a Mission StatementComponents of a Mission Statement

Source: Based on F. David, Strategic Management, 11 ed. (Upper Saddle River, NJ: Prentice Hall, 2007), p.70.


Characteristics of a Mission Statement

Defines current business activities Highlights boundaries of current business Conveys

Who we are, What we do, and Where we are now

Company specific, not generic —so as to give a company its own identity

A company’s mission is not to make a profit !The real mission is always—“What will we do

to make a profit?”


Mission and Vision of GIFT

Vision:

To bring about a change in society by becoming a leading educational and research institution that utilizes the latest technology and provides intellectually stimulating, professionally relevant and progressive and innovative education that is consistent with our national values and is accessible to all.

Mission: Employ highly qualified faculty with established research credentials Hire competent and professional administrative staff Ensure quality intake of students Utilize the latest technology in teaching, research and administration Provide adequate infrastructure and facilities for teaching and learning Establish linkages with industry and collaborate with national and

international institutions Provide state of the art library, computer laboratories and other research

resources and so on….


Mission and Vision of LUMS

Vision

To become an internationally acclaimed research university that serves society through excellence in education and research.

Mission

"We will be a pre-eminent academic institution, serving as a catalyst for economic prosperity and social development with a focus on management of resources."

Develop high quality professionals and scholars who are committed to the pursuit of excellence, and are endowed with vision, courage, and dedication.

Improve academic and management practices in the country through the generation, assimilation, and dissemination of knowledge.

Make a significant and meaningful contribution towards the social and economic betterment of Pakistan through development of its human resources.

Serve as an intellectual resource base in the region.


Mission and Vision of H B S

We Educate Leaders, who

make a difference in the world.



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Examples: Mission and Vision Statements

Empower people

through great software

anytime, anyplace, and

on any device.

Microsoft Corporation



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Our vision: Getting to a billion connected computers

worldwide, millions of servers, and trillions of dollars

of e-commerce. Intel’s core mission is being the

building block supplier to the Internet economy and

spurring efforts to make the Internet more useful.

Being connected is now at the center of people’s

computing experience. We are helping to expand the

capabilities of the PC platform and the Internet.

Intel



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Otis Elevator

Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher

reliability than any similar enterprise in the world.

Our business is renting cars. Our mission is total customer satisfaction.

Avis Rent-a-Car


Narrow enough to specify real arena of interest

Serve as Boundary for what to do and not do Beacon of where top management intends

to take firm Diversified companies

have broader business definitions than single-business enterprises

Broad or Narrow Mission Statements?


Definitions: Broad vs. Narrow Scope

Broad Definition

Furniture

Telecommunications

Beverages

Global mail delivery

Travel & tourism

Narrow Definition Wrought-iron lawn

furniture Long-distance

telephone service Soft drinks Overnight package

delivery Caribbean cruises


Mission Statements forFunctional Departments

Spotlights department’s

Role and scope of activities

Direction which department needs to pursue

Contribution to firm’s overall mission


Mission Statements ofFunctional Departments

HUMAN RESOURCESHUMAN RESOURCES To contribute to organizational success by developing effective leaders, creating high performance teams,

and maximizing the potential of individuals.

CORPORATE SECURITYCORPORATE SECURITY

To provide services for the protection of corporate personnel and assets through preventive

measures and investigations.


Two Types of Objectives Are Required

Outcomes that improve a firm’s financial

performance

Outcomes that strengthen a firm’s

competitiveness and long-term market

position

Financial Objectives Strategic Objectives

$


Strategic Management Principle

Every company needs

both strategic and

financial objectives!


Examples: Financial Objectives

Achieve revenue growth of 10% per year Increase earnings by 15% annually Increase dividends per share by 5% per year Increase net profit margins from 2% to 4% Attractive EVA performance Stronger bond and credit ratings A rising stock price (outperform the S&P 500) Attractive increases in MVA Recognition as a “blue chip” company A more diversified revenue base


Examples: Strategic Objectives

A bigger market share Quicker design-to-market times than rivals Higher product quality than rivals Lower costs relative to key competitors Broader product line than rivals Better e-commerce and Internet sales capabilities

than rivals Better customer service than rivals Recognition as a leader in technology Wider geographic coverage than rivals


Short-Range VersusLong-Range Objectives

Short-Range objectives

Targets to be achieved soon

Serve as stair steps for reaching long-range performance

Long-Range objectives

Targets to be achieved within 3 to 5 years

Prompt actions now that will permit reaching targeted long-range performance later


The Hows ThatDefine a Firm's Strategy

How to grow the business

How to please customers

How to outcompete rivals

How to respond to changing market conditions

How to manage each functional piece of the business and develop needed organizational capabilities

How to achieve strategic and financial objectives

Strategy is HOW

to . . .

46 Ch. 1

Mintzberg’s Five P’s for Strategy

2. A ploy the firm is attempting some kind of ‘specific manoeuvre intended to outwit an opponent or competitor’

3. A position placing the firm in a particular environment (i.e. a market niche) that puts it at a competitive advantage & allows it to produce a greater than normal rate of return

4. A perspective or the firm's "ingrained way of perceiving the world" (i.e. there's the right way, the wrong way and the way we do it here)

5. A pattern of fairly consistent actions rather than a set of intended courses of actions

1. A plan the firm is undertaking a conscious and intended course of action to deal with a situation


Strategic Approaches

Strategy as design ------------------ Rationality Strategy as experience ------------ Intuition Strategy as Ideas ------------------- Innovation

Objectives should be SMART Specific Measurable Achievable Realistic Time related

1.1. Strategy dictated by the Strategy dictated by the external environments of external environments of the firm (what the firm (what opportunities exist in opportunities exist in these environments?)these environments?)

2.2. Firm develops internal Firm develops internal skills required by skills required by external environment external environment (what can the firm do (what can the firm do about the opportunities?)about the opportunities?)

GeneralGeneral

EnvironmentEnvironment

GlobalGlobal

TechnologicalTechnological

Eco

nom

ic

Eco

nom

ic

Sociocultural

Sociocultural

Polit

ical

/Leg

al

Polit

ical

/Leg

al Dem

ographic

Dem

ographic

1. External Environments

Industry Environment

Competitor Environment

I/O Model of Above-Average ReturnsI/O Model of Above-Average Returns

Four Assumptions of the I/O ModelFour Assumptions of the I/O Model

1.1. The external environment is assumed to The external environment is assumed to possess pressures and constraints that possess pressures and constraints that determine the strategies that would result determine the strategies that would result in above-average returnsin above-average returns

2.2. Most firms competing within a particular Most firms competing within a particular or within a certain segment of it are or within a certain segment of it are assumed to control similar strategically assumed to control similar strategically relevant resources and to pursue similar relevant resources and to pursue similar strategies in light of those resourcesstrategies in light of those resources

Four Assumptions of the I/O ModelFour Assumptions of the I/O Model

3.3. Resources used to implement strategies Resources used to implement strategies are highly mobile across firmsare highly mobile across firms

4.4. Organizational decision makers are Organizational decision makers are assumed to be rational and committed to assumed to be rational and committed to acting in the firm’s best interests, as acting in the firm’s best interests, as shown by their profit-maximizing shown by their profit-maximizing behaviorsbehaviors

Industrial Organization Industrial Organization ModelModel


1.1. Study the external Study the external environment, especially the environment, especially the industry environmentindustry environment• economies of scaleeconomies of scale• barriers to market entrybarriers to market entry• diversificationdiversification• product differentiationproduct differentiation• degree of concentration of degree of concentration of

firms in the industryfirms in the industry

The External EnvironmentThe External Environment


2.2. Locate an attractive industry Locate an attractive industry with a high potential for with a high potential for above-average returnsabove-average returns

Attractive industry: one whose Attractive industry: one whose structural characteristics structural characteristics suggest above-average returnssuggest above-average returns



An Attractive IndustryAn Attractive Industry


3.3. Identify the strategy called Identify the strategy called for by the attractive industry for by the attractive industry to earn above-average returnsto earn above-average returns

Strategy formulation: selection Strategy formulation: selection of a strategy linked with of a strategy linked with above-average returns in a above-average returns in a particular industryparticular industry




Strategy FormulationStrategy Formulation


4.4. Develop or acquire assets and Develop or acquire assets and skills needed to implement skills needed to implement the strategythe strategy

Assets and skills: those assets Assets and skills: those assets and skills required to and skills required to implement a chosen strategyimplement a chosen strategy





Assets and SkillsAssets and Skills


5. Use the firm’s strengths (its 5. Use the firm’s strengths (its developed or acquired assets developed or acquired assets and skills) to implement the and skills) to implement the strategystrategy

Strategy implementation: Strategy implementation: select strategic actions linked select strategic actions linked with effective implementation with effective implementation of the chosen strategyof the chosen strategy






Strategy ImplementationStrategy Implementation


Industrial Organization Model





Strategy ImplementationStrategy Implementation

Superior ReturnsSuperior Returns

Superior returns: earning of above-average returns

1.1. Strategy dictated by Strategy dictated by unique resources and unique resources and capabilities of the firm capabilities of the firm (what can the firm do (what can the firm do best?)best?)

2.2. Find an environment in Find an environment in which to exploit these which to exploit these assets (where are the best assets (where are the best opportunities?)opportunities?)

Resource-based Model of Above Average Resource-based Model of Above Average ReturnsReturns

1. Firm’s Resources1. Firm’s Resources

1.1. Identify the firm’s Identify the firm’s resources-- strengths and resources-- strengths and weaknesses compared with weaknesses compared with competitorscompetitorsResources: inputs into a firm’s Resources: inputs into a firm’s production processproduction process

Resource-based Model of Above Resource-based Model of Above Average ReturnsAverage Returns

Resource-based Resource-based ModelModel

ResourcesResources

2.2. Determine the firm’s Determine the firm’s capabilities--what it can do capabilities--what it can do better than its competitorsbetter than its competitors

Capability: capacity of an Capability: capacity of an integrated set of resources to integrated set of resources to integratively perform a task or integratively perform a task or activityactivity



ResourcesResources

CapabilityCapability

Four Attributes of Resources and Four Attributes of Resources and Capabilities (Competitive Advantage)Capabilities (Competitive Advantage)

the firm is organized appropriately to the firm is organized appropriately to obtain the full benefits of the resources in obtain the full benefits of the resources in order to realize a competitive advantage order to realize a competitive advantage

ValuableValuable allow the firm to exploit opportunities or allow the firm to exploit opportunities or neutralize threats in its external neutralize threats in its external environmentenvironment

RareRare possessed by few, if any, current and possessed by few, if any, current and potential competitorspotential competitors

Costly to imitateCostly to imitate when other firms cannot obtain them or when other firms cannot obtain them or must obtain them at a much higher costmust obtain them at a much higher cost

NonsubstitutableNonsubstitutable

Res

ourc

es a

nd C

apab

ilit

ies

Res

ourc

es a

nd C

apab

ilit

ies

Core CompetenciesCore Competencies

Resources and capabilitiesResources and capabilities that meet that meet these four criteria become a source of:these four criteria become a source of:

ValuableValuable

RareRare

Costly to imitateCostly to imitate

NonsubstitutableNonsubstitutable


Res

ourc

es a

nd C

apab

ilit

ies

Res

ourc

es a

nd C

apab

ilit

ies

Core CompetenciesCore Competencies are the basis for a are the basis for a firm’sfirm’s

Competitive Competitive advantageadvantage

Strategic Strategic competitivenesscompetitiveness

Ability to earn Ability to earn above-average above-average

returnsreturns


3.3. Determine the potential of the Determine the potential of the firm’s resources and firm’s resources and capabilities in terms of a capabilities in terms of a competitive advantagecompetitive advantage

Competitive advantage: ability Competitive advantage: ability of a firm to outperform its of a firm to outperform its rivalsrivals



ResourcesResources


Competitive AdvantageCompetitive Advantage

4.4. Locate an attractive industryLocate an attractive industry

An attractive industry: an An attractive industry: an industry with opportunities that industry with opportunities that can be exploited by the firm’s can be exploited by the firm’s resources and capabilitiesresources and capabilities



ResourcesResources




5.5. Select a strategy that best Select a strategy that best allows the firm to utilize its allows the firm to utilize its resources and capabilities resources and capabilities relative to opportunities in relative to opportunities in the external environmentthe external environment

Strategy formulation and Strategy formulation and implementation: strategic implementation: strategic actions taken to earn above actions taken to earn above average returnsaverage returns



ResourcesResources




Strategy Form/ImplStrategy Form/Impl



ResourcesResources




Strategy Form/ImplStrategy Form/Impl

Superior ReturnsSuperior Returns

Superior returns: earning Superior returns: earning of above-average returnsof above-average returns


Figure 2.3: Identifying the Components ofa Single-Business Company’s Strategy

Efforts to buildcompetitiveadvantage

Planned, proactive moves to outcompete rivals

Responses to changingconditions

Scope ofgeographiccoverage

Collaborativepartnerships andstrategic alliances

R&D strategy

Supply chain management strategy

Manufacturing strategy

Humanresources strategy

Finance strategy

BusinessStrategyFunctional Strategies

Marketingstrategy


Figure 2.2: Corporate Strategy fora Diversified Company

CorporateStrategy

Approach tocapital allocation

Narrow or broad-based diversification

Scope ofgeographicoperations

Moves to add newnew businesses

Moves to build positionsin new industries

Efforts to capturecross-businessstrategic fits

Moves to divestweak business units

Is diversificationrelated, unrelatedor a mix?


Strategic Decision-Making Strategic Decision-Making ProcessProcess

1.34Strategic Decision-Making Process (Fig. 1.5)

Review and Revise as Necessary: Mission Objectives

Generate and Evaluate Strategic Alterna- tives

Select and Recommend Best Alternative

Implement Strategies: Programs Budgets Procedures

Evaluate and Control

StrategyImplementation

Step 7

5(b) 6(a) 6(b) 7 8

Analyze External Factors: Opportun- ities Threats

Scan and Assess Internal Environment: Structure Culture Resources

Analyze Internal Factors: Strengths Weak- nesses

Select Strategic Factors (SWOT) in Light of Current Situation

Scan and Assess External Environment: Societal Task

Evaluate Current Performance Results

Examine and Evaluate the Current: Mission Objectives Strategies Policies

Review Corporate Governance: Board of Directors Top Man- agement

Strategy

Formulation:

Steps 1 – 6

3(a)

1(a) 1(b) 2 5(a)

4(a)

3(b)

4(b)

Evaluationand

Control:Step 8


Hierarchy of StrategyHierarchy of Strategy

1.24 Hierarchy of Strategy (Fig. 1.4)

CorporateCorporate StrategyStrategy

Business (Division Level)

Strategy

Functional Strategy

© 2005 Prentice Hall Inc. All rights reserved.

Types of Strategic Planning

Corporate-level strategy

– Identifies the portfolio of businesses that, in total, comprise the company and the ways in which these businesses relate to each other.

• Diversification strategy implies that the firm will expand by adding new product lines.

• Vertical integration strategy means the firm expands by, perhaps, producing its own raw materials, or selling its products direct.

• Consolidation strategy reduces the company’s size

• Geographic expansion strategy takes the company abroad.


Types of Strategic Planning (cont’d)

Business-level/competitive strategy

– Identifies how to build and strengthen the business’s long-term competitive position in the marketplace.

• Cost leadership: the enterprise aims to become the low-cost leader in an industry.

• Differentiation: a firm seeks to be unique in its industry along dimensions that are widely valued by buyers.

• Focus: a firm seeks to carve out a market niche, and compete by providing a product or service customers can get in no other way.


Offensive Competitive Location Offensive Competitive Location TacticsTactics• Frontal assault:Frontal assault: matches the target’s marketing mix in detail, product for matches the target’s marketing mix in detail, product for

product and so on.product and so on.

• Flanking maneuver:Flanking maneuver: is mounted upon a market segment, geographic region is mounted upon a market segment, geographic region or area of technology that the target has neglected.or area of technology that the target has neglected.

• Bypass attack:Bypass attack: is indirect and unaggressive. It focuses on unrelated is indirect and unaggressive. It focuses on unrelated products, new geographic areas and technical leap-frogging to advance in products, new geographic areas and technical leap-frogging to advance in the market.the market.

• Encirclement:Encirclement: consists of as large number of simultaneous flank attacks as consists of as large number of simultaneous flank attacks as possible in order to overwhelm the target.possible in order to overwhelm the target.

• Guerilla warfare:Guerilla warfare: consists pf a series of aggressive, short-term moves to consists pf a series of aggressive, short-term moves to demoralise, unbalance and destabilise the opponent. Tactics include drastic demoralise, unbalance and destabilise the opponent. Tactics include drastic price cuts, poaching staff, political lobbying and short bursts of price cuts, poaching staff, political lobbying and short bursts of promotional activity.promotional activity.

5.12Offensive Competitive Location Tactics


Defensive Competitive Location Defensive Competitive Location TacticsTactics• Raise structural barriers:Raise structural barriers: block the challenger’s logical avenues of attack block the challenger’s logical avenues of attack

by offering a full line of products in every profitable market segment to by offering a full line of products in every profitable market segment to close off any entry point, block channel access by signing exclusive close off any entry point, block channel access by signing exclusive agreements with distributors, raise buyer switching costs by offering low-agreements with distributors, raise buyer switching costs by offering low-cost training to users, raise the cost of gaining trial by keeping prices low cost training to users, raise the cost of gaining trial by keeping prices low on items most likely to be purchased by the new users, increase on items most likely to be purchased by the new users, increase economies of scale to reduce unit costs, foreclose alternatives economies of scale to reduce unit costs, foreclose alternatives technologies through patenting or licensing, limit outside access to technologies through patenting or licensing, limit outside access to facilities and personnel, tie up suppliers by obtaining exclusive contracts facilities and personnel, tie up suppliers by obtaining exclusive contracts or purchasing key locations, avoid suppliers that also serve competitors, or purchasing key locations, avoid suppliers that also serve competitors, and encourage the government to raise barriers such as safety and and encourage the government to raise barriers such as safety and pollution standards or favorable trade polices.pollution standards or favorable trade polices.

• Increased expected retaliation:Increased expected retaliation: increases the perceived threat of increases the perceived threat of retaliation.retaliation.

• Lower the inducement for attack Lower the inducement for attack : reduce a challenger’s expectations of : reduce a challenger’s expectations of future profits in the industry.future profits in the industry.

5.12Offensive Competitive Location Tactics


Types of Strategic Planning (cont’d)

Functional strategies– Identify the basic courses of action that

each department will pursue in order to help the business attain its competitive goals.


Information FlowsTo & From Operations


Typical Value Chain for a Typical Value Chain for a Manufactured ProductManufactured Product

4.5 Industry Value Chain

Product Producer

Fabrication Distributor RetailerRaw Materials

Primary Manufacturing

Source: Suggested by J. R. Galbraith, “Strategy and Organization Planning,” in The Strategy Process: Concepts, Contexts, Cases, 2nd ed., edited by H. Mintzberg and J. B. Quinn (Englewood Cliffs, N.J.: Prentice Hall, 1991), p. 316.


Corporate Value ChainCorporate Value Chain4.6 Corporation Value Chain

Support Activities

Primary Activities

Profit Margin

Firm Infrastructure (general management, accounting, finance, strategic planning)

Human Resource Management (recruiting, training, development)

Technology Development (R&D, product and process improvement)

Procurement (purchasing of raw materials, machines, supplies)

Inbound Logistics (raw materials handling and warehousing)

Operations (machining, assembling, testing)

Outbound Logistics (warehousing and distribution of finished product)

Marketing and Sales (advertising, promotion, pricing, channel relations)

Service (installation, repair, parts)

Source: Adapted/reprinted with the permission of the The Free Press, an imprint of Simon & Schuster, from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter, p. 37. Copyright © 1985 by Michael E. Porter.


Marketing Mix VariablesMarketing Mix Variables

4.11 Marketing Mix Variables (Table 4.1)

Product Place Promotion Price

Quality Channels Advertising List price

Features Coverage Personal selling Discounts

Options Locations Sales promotion Allowances

Style Inventory Publicity Payment periods

Brand name Transport Credit terms

Packaging

Sizes

Services

Warranties

Returns

Source: Philip Kotler, Marketing Management: Analysis, Planning, and Control, 4th ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 89. Copyright © 1980. Reprinted by permission of Prentice-Hall, Inc.

McGraw-Hill © 2000 The McGraw-Hill Companies

83

SMExpanded Mix for Services --Expanded Mix for Services --

the 7 Psthe 7 Ps

• Product• Price• Place• Promotion

• People• Process• Physical Evidence

McGraw-Hill © 2000 The McGraw-Hill Companies

84

SM

PEOPLE PHYSICALEVIDENCE

PROCESS

Employees Facility design Flow of activities

Customers Equipment Number of steps

Communicatingculture and values

Signage Level of customerinvolvement

Employee research Employee dress

Other tangibles

Table 1-3 (Continued)Table 1-3 (Continued)

Expanded Marketing Mix for Expanded Marketing Mix for ServicesServices


Product / Market Evolution Portfolio Product / Market Evolution Portfolio MatrixMatrix

11.3Product / Market Evolution Matrix (Fig. 11.2 )

A

B C

D

E

G

F

Decline

Saturation

Maturity

Shakeout

Growth

Development

WeakAverageStrong

Competitive Position

Sta

ge

of

Pro

du

ct/M

arke

t E

volu

tio

n

Source: C. W. Hofer and D. Schendel, Strategy Formulation: Analytical Concepts (St. Paul, Minn,: West Publishing Co., 1978), p. 34. From C. W. Hofer, “Conceptual Constructs for Formulating Corporate and Business Strategies” (Dover, Mass.: Case Publishing), no. BP-0041, p. 3. Copyright © 1977 by Charles W. Hofer. Reprinted by permission.

Ansoff's Product-Market Growth MatrixAnsoff's Product-Market Growth Matrix


Strategic Management Process Strategic Management Process at Maytag Corporation : Mission at Maytag Corporation : Mission

& Objectives& ObjectivesStrategy FormulationStrategy Formulation

MissionMission

• BroadBroad: To serve the best interests of shareowners, customers, : To serve the best interests of shareowners, customers, and employeesand employees

• NarrowNarrow: To become a full-line globally-oriented major home : To become a full-line globally-oriented major home appliance manufacturer and marketerappliance manufacturer and marketer

ObjectivesObjectives• Increased profitabilityIncreased profitability• Number one in customer satisfactionNumber one in customer satisfaction• Number three in North American unit salesNumber three in North American unit sales

1.35aStrategic Management Process at Maytag Corporation : Mission & Objectives


Strategic Management Process Strategic Management Process at Maytag Corporation : at Maytag Corporation :

Strategies & PoliciesStrategies & PoliciesStrategiesStrategies• To grow horizontally where the corporation is not yet well represented To grow horizontally where the corporation is not yet well represented

through external acquisition or joint venturesthrough external acquisition or joint ventures• To grow horizontally internally by improving efficiency and quality of To grow horizontally internally by improving efficiency and quality of

acquired companies and by using one business unit’s expertise in one acquired companies and by using one business unit’s expertise in one acquired are to introduce quality products from a business unit in acquired are to introduce quality products from a business unit in another areaanother area

• PoliciesPolicies• No cost reduction proposal will be approved if it reduces product quality No cost reduction proposal will be approved if it reduces product quality

in any wayin any way• Every product, from the least expensive to the highest priced, should be Every product, from the least expensive to the highest priced, should be

superior to the competition in overall quality and performancesuperior to the competition in overall quality and performance• The corporation must not emphasize market share at the expense of The corporation must not emphasize market share at the expense of

profitabilityprofitability• Business units must be managed for synergies, while simultaneously the Business units must be managed for synergies, while simultaneously the

specialized expertise among those units must be allowed to flourishspecialized expertise among those units must be allowed to flourish

1.35bStrategic Management Process at Maytag Corporation : Strategies & Policies



Programs & BudgetsPrograms & BudgetsProgramsPrograms• Work with Bosch-Siemens to develop joint marketing and Work with Bosch-Siemens to develop joint marketing and

supplier agreements for Hoover appliancessupplier agreements for Hoover appliances• Analyze and develop Asian markets through current Analyze and develop Asian markets through current

distributors and licensees and through joint venturesdistributors and licensees and through joint ventures• Develop new appliances for continental EuropeDevelop new appliances for continental Europe• Develop TV advertising for Jenn-Air and Magic ChefDevelop TV advertising for Jenn-Air and Magic Chef• Consolidate production of washers and dryers in Consolidate production of washers and dryers in

dedicated plantsdedicated plants

BudgetsBudgets• Prepare budgets for each planned programPrepare budgets for each planned program

1.35cStrategic Management Process at Maytag Corporation : Programs & Budgets


Strategic Management Strategic Management Process at Maytag Process at Maytag

Corporation : ProceduresCorporation : ProceduresProceduresProcedures• Develop procedures for joint purchasing and joint Develop procedures for joint purchasing and joint

marketing of Bosch-Siemens with Hoovermarketing of Bosch-Siemens with Hoover

• Coordinate marketing, manufacturing, and Coordinate marketing, manufacturing, and purchasing activities of business units through purchasing activities of business units through committeescommittees

• Research and development takes place in unit Research and development takes place in unit housing each product linehousing each product line

• Consolidate all advertising under one agency, but Consolidate all advertising under one agency, but establish internal advertising for each brand categoryestablish internal advertising for each brand category

1.35d Strategic Management Process at Maytag Corporation : Procedures



Evaluation & ControlEvaluation & ControlEvaluation & ControlEvaluation & Control• Require all business units to provide Require all business units to provide monthlymonthly status reports on status reports on

sales and costs by product line plus any trends in expensessales and costs by product line plus any trends in expenses• Require all business units to provide Require all business units to provide annualannual reports giving reports giving

operating revenues, costs, and expenses as well as identifiable operating revenues, costs, and expenses as well as identifiable assets in dollars, plus property additions and deletionsassets in dollars, plus property additions and deletions

• Require all business units to provide Require all business units to provide quarterlyquarterly assessments of assessments of competitive activity and overall trends affecting each of their competitive activity and overall trends affecting each of their product linesproduct lines

• Require all business units to inform corporate headquarters Require all business units to inform corporate headquarters before proceeding on any financially risky planbefore proceeding on any financially risky plan

1.35eStrategic Management Process at Maytag Corporation : Evaluation & Control


Industry MatrixIndustry Matrix3.12Industry Matrix (Table 3.3)

Strategic Factors WeightCompany ARating

Company AWeighted Score

Company BRating

Company BWeighted Score

1 2 3 4 5 6

Total 1.00

Source: T. L. Wheelen and J. D. Hunger, “Industry Matrix.” Copyright © 1997 by Wheelen and Hunger Associates. Reprinted by permission.


Ch.3-93

Industry Analysis (CPM)Industry Analysis (CPM)

Competitive Profile Matrix

• Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic position


Ch.3-94

(CPM) Procter Avon L’Oreal &

Gamble

2.803.25

3.15

1.00Total

0.1530.20

40.05

10.05Market Share

0.4020.40

20.80

40.20Global Expansion

0.2020.40

40.40

40.10Customer Loyalty

0.4530.45

30.60

40.15Financial Position

0.3030.30

30.40

40.10Management

0.4040.30

30.30

30.10Price Competition

0.3030.40

40.40

40.10Product Quality

0.6030.80

40.20

10.20Advertising

ScoreRating

Score

Rating

Score

Rating

Weight

Critical Success Factor


External Factor Analysis Summary External Factor Analysis Summary (EFAS)(EFAS)

3.16 External Factor Analysis Summary (EFAS): Blank

ExternalStrategic Factors Weight Rating

Weighted Score Comments

1 2 3 4 5

1.00

Opportunities

Threats

Total Weighted Score

Notes: 1. List opportunities and threats (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment.Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and Hunger Associates. Reprinted by permission.


Environmental VariablesEnvironmental Variables1.10 Environmental Variables (Fig. 1.3)

Societal Environment

Economic

Forces

Technological

Forces

Political-Legal Forces

Sociocultural Forces

Internal Environment

Structure Culture

Resources

Shareholders

Governments

Customers

Creditors

Communities

Competitors

Employees/

Labor Unions

Suppliers

Special

Interest

Groups

Trade Associations

TaskEnvironment

(Industry)


Some Important Variables Some Important Variables in the Societal Environmentin the Societal Environment

3.2 Some Important Variables in the Societal Environment (Table 3.1)

Economic

GDP trends

Interest rates

Money supply

Inflation rates

Unemployment levels

Wage/price controls

Devaluation/revaluation

Energy availability and cost

Disposable and discretionary income

Technological

Total government spending for R&D

Total industry spending for R&D

Focus of technological efforts

Patent protection

New products

New developments in technology transfer from lab to marketplace

Productivity improvements through automation

Political-Legal

Antitrust regulations

Environmental protection laws

Tax laws

Special incentives

Foreign trade regulations

Attitudes toward foreign companies

Laws on hiring and promotion

Stability of government

Sociocultural

Lifestyle changes

Career expectations

Consumer activism

Rate of family formation

Growth rate of population

Age distribution of population

Regional shifts in population

Life expectancies

Birth rates

9898 Ch. 3

General Environment Components

9999 Ch. 3

General Environment Components


Scanning the External Scanning the External EnvironmentEnvironment

3.3 Scanning the External Environment (Fig. 3.1)

Analysis of Societal Environment

Economic, Sociocultural, Technological, Political-Legal Factors

Selection of Strategic Factors

• Opportunities • Threats

Market Analysis

Competitor Analysis

Supplier Analysis

Governmental Analysis

Interest Group Analysis

Community Analysis


External Factor Analysis Summary External Factor Analysis Summary (EFAS): Maytag as Example(EFAS): Maytag as Example

3.17External Factor Analysis Summary (EFAS): Maytag as Example (Table 3.4)

ExternalStrategic Factors Weight Rating

Weighted Score Comments

1.00

Opportunities• Economic integration of

European Community

• Demographics favor quality appliances

• Economic development of Asia

• Opening of Eastern Europe

• Trend to “Super Stores”

Threats• Increasing government regulations

• Strong U.S. competition

• Whirlpool and Electrolux strong globally

• New product advances

• Japanese appliance companies

Total Scores

.20

.10

.05

.05

.10

.10

.10

.15

.05

.10

4

5

1

2

2

4

4

3

1

2

.80

.50

.05

.10

.20

.40

.40

.45

.05

.20

Acquisition of Hoover

Maytag quality

Low Maytag presence

Will take time

Maytag weak in this channel

Well positioned

Well positioned

Hoover weak globally

Questionable

Only Asian presence is Australia

3.15

1 2 3 4 5


Ch.3-107

Industry Analysis (EFE)Industry Analysis (EFE)

External Factor Evaluation MatrixExternal Factor Evaluation Matrix

Summarize & evaluate:

CompetitivePoliticalCultural

Technological

EnvironmentalSocial

Governmental

DemographicEconomic


Ch.3-108

.201.20 Clinton Administration

.202.10 Bad media exposure from FDA

.102.05 Smokeless market SE region U.S.

.153.05 Production limits on tobacco

.202.10 Legislation against the tobacco industry

Threats

.303.10 More social pressure to quit smoking

2.101.00TOTAL

.604.15 Pinkerton leader in discount market

.051.05 Astronomical Internet growth

.153.05 Increased demand

.151.15 Global markets untapped

Weighted

scoreRatingWeight

UST—Key External FactorsOpportunities


Internal Factor Analysis Summary Internal Factor Analysis Summary (IFAS)(IFAS)

4.16Internal Factor Analysis Summary (IFAS): Blank

Internal Factors Weight RatingWeighted Score Comments

1 2 3 4 5

1.00

Strengths

Weaknesses


Notes: 1. List strengths and weaknesses (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its internal environment.Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and Hunger Associates. Reprinted by permission.


Internal Factor Analysis Summary Internal Factor Analysis Summary (IFAS):(IFAS):

Maytag as ExampleMaytag as Example

4.17Internal Factor Analysis Summary (IFAS): Maytag as Example (Table 4.2)

Internal Factors Weight RatingWeighted Score Comments

1 2 3 4 5

1.00

Strengths• Quality Maytag culture

• Experienced top management

• Vertical integration

• Employee relations

• Hoover’s international orientation

Weaknesses• Process-oriented R&D

• Distribution channels

• Financial position

• Global positioning

• Manufacturing facilities


Quality key to success

Know appliances

Dedicated factories

Good, but deteriorating

Hoover name in cleaners

Slow on new products

Superstores replacing small dealers

High debt load

Hoover weak outside the United Kingdom and Australia

Investing now

3.05

.15

.05

.10

.05

.15

.05

.05

.15

.20

.05

5

4

4

3

3

2

2

2

2

4

.75

.20

.40

.15

.45

.10

.10

.30

.40

.20


Ch.3-111

• Sum the weighted scores for eachDetermines the total weighted score for the

organization

Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5

Internal Analysis (IFE)Internal Analysis (IFE)


Ch.3-112

.153.05 Financial ratios

.153.05 Reputation as family-friendly

.204.05 Long-range planning

.153.05 Minimal comps provided

.153.05 Buffets at most facilities

.153.05 Strong management team

.604.15 Owns 1 mile on Las Vegas strip

.153.05 Increasing free cash flows

.404.10 Room occupancy rates over 95%

.204.05 Largest casino company in world

Weighted

scoreRatingWeight

Mandalay BayInternal Strengths



Ch.3-113

2.751.0TOTAL (including Strengths)

.101.10Recent loss of joint ventures

.101.10Laughlin properties

.102.05Family reputation, not high rollers

.102.05Little diversification

.051.05Most properties located in Las Vegas

Weighted

scoreRatingWeight

Mandalay BayInternal Weaknesses



Ch 4-114

Integrating Strategy and CultureIntegrating Strategy and Culture

Cultural products

Values

beliefs

rites

rituals

ceremonies

myths

stories

legends

sagas

language

symbols

heroes


Assessing Assessing Strategy—Strategy—

Culture Culture CompatibilitCompatibilit

yy

9.3 Assessing Strategy-Structure Compatibility (Fig. 9.1)

No

Yes

No

Yes

Yes

No

No

Is the planned strategy compatible

with the current culture?

Can the culture be modified to make it more compatible with the new strategy?

Is management willing and able to make major organizational

changes and accept probable delays and a likely increase in

Manage around the culture by establishing a new structural unit

to implement the new strategy.

Find a joint-venture partner or contract with another company to carry out the strategy.

Is management still committed to implementing the strategy?

Yes

Formulate a different stately.

Tie changes into the culture.


Methods of Managing the Culture of an Methods of Managing the Culture of an Acquired FirmAcquired Firm

9.4 Methods of Managing the Culture of an Acquired Firm (Fig. 9.2)

Not at All

How Much Members of the Acquired Firm Value Preservation of Their Own Culture

Very Much

Integration Assimilation

Separation Deculturation

Per

cep

tio

n o

f th

e A

ttra

ctiv

enes

s o

f th

e A

cqu

irer

Not

at A

ll A

ttrac

tive

Ver

y A

ttrac

tive

Source: A. Nahavardi and A. R. Malekzadeh, “Acculturation in Mergers and Acquisitions,” Academy of Management Review (January 1988), p. 83. Copyright © 1988 by the Academy of Management. Reprinted by permission.

Inputs Transformation Outputs

Environment

System

•Raw material

•Human resources

•Capital

•Technology

•Information

•Employees’ work Activities

•Management Activities

•Technology and Operations Methods

•Products and services

•Financial Results

•Information Human Results

FeedbackEnvironment Environment

The

Organiza

tion as

an O

pen

System

118 Ch. 4

ResourcesResources** TangibleTangible** IntangibleIntangible

CapabilitiesCapabilitiesTeams of ResourcesTeams of Resources

CompetitiveCompetitiveAdvantageAdvantage

Gained throughGained throughCore CompetenciesCore Competencies

Criteria ofSustainableAdvantages

ValueChain

Analysis

Valuable RareCostly to Imitate

Organized to be exploited

* **

*

Outsource*

Discovering Core Competencies

Sources ofSources of

CoreCoreCompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns

DiscoveringDiscoveringCoreCore

CompetenciesCompetencies

119 Ch. 4

Tangible Resources

Financial*Physical*Human Resources*Organizational*

Its assets, including its people and the value of its brand name.

Resources represent inputs into a firm’s production process...such as capital equipment, skills of employees, brand names, finances and talented managers.Intangible Resources

Technological*Innovation*Reputation*

What a firm Has to work with

$ $ $ $ $ $$ $ $ $ $ $

Resources

120 Ch. 4

Create core

competencies Have strategic

value Can lead to competitive advantage

That

That

ThatCombined in

unique combinations

Capabilities become important when they are

Capabilities What a firm Does...

121 Ch. 4

VV

RR

II

OO

Core Competencies For a strategic capability to be a Core Competency, it must be:

OOrganized rganized toto be be

ExploitedExploited

the firm must be organized appropriately to obtain full benefits of the resources in order to realize a competitive advantage

RRare are possessed by few, if any, current and potential competitors.

VValuablealuable allow a firm to neutralize threats or exploit opportunities in its external environment.

Costly toCostly to

IImitatemitatewhen other firms either cannot obtain them or must obtain them at a much higher cost

$$

*

122 Ch. 4

YES NO YESYESTemporary

CompetitiveAdvantage

Avg./Above AverageReturns

YES NO NO YESCompetitive

ParityAverageReturns

NO NO NO NOBelow

AverageReturns

CompetitiveDisadvantage

AboveAverageReturns

YES YESYESSustainableCompetitiveAdvantage

YES

Valuable RareCostly to Imitate

Org. to be Exploited

Competitive Consequences

Performance Implications

Valuable

Outcomes from Combinations of Criteria for Sustainable Competitive Advantage

123 Ch. 4

Never take for granted that core competencies will continue to provide a source of competitive advantage

All core competencies have the potential to become Core Rigidities

Core Rigidities

They are former core competencies that sow the seeds of organizational inertia

Prevent the firm from responding appropriately to changes in the external environment

Core Competencies--Cautions and Reminders

124 Ch. 4

Strategic myopia and inflexibility

can stop the firm’s ability to

grow and adapt to environmental

change or competitive

threats

*

Core Competencies--Cautions and Reminders


Ch.3-125

Internal AuditInternal Audit

• Parallels process of external audit

• Gather & assimilate information from:• Management• Marketing• Finance/accounting• Production/operations• Research & development• Management information systems


Ch 4-126

Management Audit ChecklistManagement Audit Checklist

• Does the firm use strategic-management concepts?

• Are company objectives and goals measurable and well communicated?

• Do managers at all hierarchical levels plan effectively?

• Do managers delegate authority well?

• Is the organization’s structure appropriate?


Ch 4-127

Management Audit ChecklistManagement Audit Checklist

• Are job descriptions and job specifications clear?

• Is employee morale high?

• Are employee turnover and absenteeism low?

• Are organizational reward and control mechanisms effective?


Ch 4-128

MarketingMarketing

• Customer analysis• Selling products/services• Product and service planning• Pricing• Distribution• Marketing research• Opportunity analysis


Ch 4-129

Marketing AuditMarketing Audit

• Are markets segmented effectively?• Is the organization positioned well among

competitors?• Has the firm’s market share been increasing?• Are present channels of distribution reliable

and cost effective?• Does the firm have an effective sales force?


Ch 4-130


• Does the firm conduct market research?

• Are product quality and customer service good?

• Are the firm's products/services priced appropriately?

• Does the firm have an effective promotion, advertising, and publicity strategy?


Ch 4-131


• Are marketing planning and budgeting effective?

• Do the firm’s marketing mangers have adequate experience and training


Ch 4-132

Finance/AccountingFinance/Accounting

• Determining financial strengths and weaknesses key to strategy formulation

• Investment decision (Capital budgeting)

• Financing decision

• Dividend decision


Ch 4-133

• Where is the firm strong and weak as indicated by financial ratio analysis?

• Can the firm raise needed short-term capital?• Can the firm raise needed long-term capital

through debt and/or equity?• Does the firm have sufficient working capital?• Are capital budgeting procedures effective?

Finance/Accounting AuditFinance/Accounting Audit


Ch 4-134

• Are dividend payout policies reasonable?• Does the firm have good relations with its

investors and stockholders?• Are the firm’s financial managers experienced

and well trained?

Finance/Accounting AuditFinance/Accounting Audit


Ch 4-135

• Process

• Capacity

• Inventory

• Workforce

• Quality

Production/OperationsProduction/Operations


Ch 4-136

• Are suppliers of raw materials, parts, and subassemblies reliable and reasonable?

• Are facilities, equipment, machinery, and offices in good condition?

• Are inventory-control policies and procedures effective?

Production/Operations AuditProduction/Operations Audit


Ch 4-137

• Are quality-control policies and procedures effective?

• Are facilities, resources, and markets strategically located?

• Does the firm have technological competencies?

Production/Operations AuditProduction/Operations Audit


Ch 4-138

• Development of new products before competition

• Improving product quality

• Improving manufacturing processes to reduce costs

Research and DevelopmentResearch and Development


Ch 4-139

• Does the firm have R&D facilities? Are they adequate?

• If outside R&D firms are used, are they cost effective?

• Are the organization’s R&D personnel well qualified?

• Are R&D resources allocated effectively?

Research and Development AuditResearch and Development Audit


Ch 4-140

• Are management information and computer systems adequate?

• Is communication between R&D and other organizational units effective?

• Are present products technologically competitive?

Research and Development AuditResearch and Development Audit


Ch 4-141

Purpose –– Improve performance of an enterprise by

improving the quality of managerial decisions.

Management Information Management Information SystemsSystems


Ch 4-142

• Do all managers in the firm use the information system to make decisions?

• Is there a chief information officer or director of information systems position in the firm?

• Are data in the information system updated regularly?

Management Information Management Information Systems AuditSystems Audit


Ch 4-143

• Do managers from all functional areas of the firm contribute input to the information system?

• Are there effective passwords for entry into the firm’s information system?

• Are strategists of the firm familiar with the information systems of rival firms?



Ch 4-144

• Is the information system user-friendly?

• Do all users of the information system understand the competitive advantages that information can provide firms?

• Are computer training workshops provided for users?

• Is the firm’s system being improved?



51 2 3 4

Strategic Factor Analysis Summary Strategic Factor Analysis Summary (SFAS)(SFAS)

5.2 Strategic Factor Analysis Summary (SFAS): Blank (Table 5.1)

Key Strategic Factors

(Select the most important opportunities/threats from EFAS, Table 3.4 and the most important strengths and weaknesses from IFAS, Table 4.2)

Total Score

Weight RatingWeighted Score Comments

Notes: 1. List each of your key strategic features developed in your IFAS and EFAS tables in Column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. For duration in Column 5, check appropriate column (short term—less than 1 year; intermediate—1 to 3 years; long term—over 3 years.) 6. Use Column 6 (comments) for rationale used for each factor.Source: T. L. Wheelen and J. D. Hunger, “Strategic Factors Analysis Summary (SFAS).” Copyright © 1997 by Wheelen and Hunger Associates. Reprinted by permission.

SH

OR

T

INT

ER

ME

DIA

TE

LO

NG

Duration 6


Key Strategic Factors

(Select the most important opportunities/threats from EFAS, Table 3.4 and the most important strengths and weaknesses from IFAS, Table 4.2)

S1 Quality Maytag culture (S)

S3 Hoover’s international orientation (S)

W3 Financial position (W)

W4 Global positioning (W)

O1 Economic integration of

European Community (O)

O2 Demographics favor quality (O)

O5 Trend to super stores (O + T)

T3 Whirlpool and Electrolux (T)

T5 Japanese appliance companies (T)

Total Score

Weight RatingWeighted Score Comments

1.00

Notes: 1. List each of your key strategic features developed in your IFAS and EFAS tables in Column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. For duration in Column 5, check appropriate column (short term—less than 1 year; intermediate—1 to 3 years; long term—over 3 years.) 6. Use Column 6 (comments) for rationale used for each factor.Source: T. L. Wheelen and J. D. Hunger, “Strategic Factors Analysis Summary (SFAS).” Copyright © 1997 by Wheelen and Hunger Associates. Reprinted by permission.

SH

OR

T

INT

ER

ME

DIA

TE

LO

NG

Duration

3.05

.10

.10

.10

.15

.10

.10

.10

.15

.10

Quality key to success

Name recognition

High debt

Only in N.A., U.K., and Australia

Acquisition of Hoover

Maytag quality

Weak in this channel

Dominate industry

Asian presence

5

3

2

2

4

5

2

3

2

.50

.30

.20

.30

.40

.50

.20

.45

.20

Strategic Factor Analysis Summary (SFAS): Maytag Strategic Factor Analysis Summary (SFAS): Maytag as Exampleas Example

5.3 Strategic Factor Analysis Summary (SFAS): Maytag as Example (Figure 5.1)

X

X

X

X

X

X

X

X

X


SWOT AnalysisSWOT Analysis

Internal EnvironmentInternal Environment

• SStrengthstrengths• WWeaknesseseaknesses

External EnvironmentExternal Environment

• OOpportunitiespportunities• TThreatshreats

5.1 SWOT Analysis


SO Strategies Generate strategies here that use strengths to take advantage of opportunities

ST Strategies Generate strategies here that use strengths to avoid threats

WO Strategies Generate strategies here that take advantage of opportunities by overcoming weaknesses

WT Strategies Generate strategies here that minimize weaknesses and avoid threats

INTERNAL FACTORS

(IFAS)EXTERNAL FACTORS (EFAS)

Strengths (S) List 5 – 10 internal strengths here

Weaknesses (W) List 5 – 10 internal weaknesses here

Opportunities (O) List 5 – 10 external opportunities here

Threats (T) List 5 – 10 external threats here

TOWS MatrixTOWS Matrix5.4 TOWS Matrix (Fig. 5.2)

Source: Adapted from Long-Range Planning, April 1982, H. Weihrich, “The TOWS Matrix—A Tool for Situational Analysis” p. 60. Copyright 1982, with kind permission from H. Weihrich and Elsevier Science Ltd. The Boulevard, Langford Lane, Kidlington OX5 1GB, UK.


Expand Hoover’s presence in continental Europe by improving quality & reducing costsEmphasize superstore channel for all non-Maytag brands

SO Strategies • Use worldwide Hoover dis-tribution channels for Hoover and Maytag• Find joint venture partners inEastern Europe & Asia

ST Strategies

• Acquire Raytheon’s appliance business• Merge with major Japanese home appliance company• Sell off non-Maytag brands; defend Maytag’s US niche.

WO Strategies

• Expand Hoover’s presence in continental Europe by improving quality & reducing costs• Emphasize superstore channel for non-Maytag brands

WT Strategies

• Sell off Dixie-Narco division toreduce debt• Emphasize cost reduction to reduce break-even point• Sell out to Raytheon or aJapanese firm.

INTERNAL FACTORS

(IFAS)EXTERNAL FACTORS (EFAS)

Strengths (S)

S1 Quality Maytag Culture

S2 Experience top managementS3 Vertical integrationS4 Employee relationsS5 Hoover’s international orientation

Weaknesses (W) W1 Process-orientedW2 Distribution channelsW3 Financial positionW4 Global positioningW5 Manufacturing facilities

Opportunities (O)

O1 Economic integration of European communityO2 Demographics favor qualityO3 Economic development, Asia O4 Opening Eastern EuropeO5 Trend toward super stores

Threats (T)

T1 Increasing government regulationT2 Strong US competitionT3 Whirlpool & Electroluxpositioned for global economy T4 New product advancesT5 Japanese companies

TOWS Matrix: Maytag as TOWS Matrix: Maytag as ExampleExample

5.5 TOWS Matrix: Maytag as Example (Fig. 5.3)

Source: Adapted from Long-Range Planning, April 1982, H. Weihrich, “The TOWS Matrix—A Tool for Situational Analysis” p. 60. Copyright 1982, with kind permission from H. Weihrich and Elsevier Science Ltd. The Boulevard, Langford Lane, Kidlington OX5 1GB, UK.


Basic Structures of Basic Structures of Corporations: Simple and Corporations: Simple and

FunctionalFunctional

4.7aBasic Structures of Corporations: Simple and Functional (Fig. 4.4)

I. Simple Structure

II. Functional Structure

Owner-Manager

Workers

Top Management

Manufacturing Sales Finance Personnel


Basic Structures of Basic Structures of Corporations: DivisionalCorporations: Divisional

4.7b Basic Structures of Corporations: Divisional (Fig. 4.4)

III. Divisional Structure*

Manufacturing Finance Manufacturing Finance

Top Management

Product Division A Product Division B

*Conglomerate structure is a variant of the division structure.

Sales Personnel Sales Personnel


Why Do Structures Differ?Why Do Structures Differ?

Mechanistic Model

A structure characterized by extensive departmentalization, high formalization, a limited information network, and centralization.

Organic Model

A structure that is flat, uses cross-hierarchical and cross-functional teams, has low formalization, possesses a comprehensive information network, and relies on participative decision making.


Why Do Structures Differ? – StrategyWhy Do Structures Differ? – Strategy

Innovation StrategyA strategy that emphasizes the introduction of major new products and services.

Imitation StrategyA strategy that seeks to move into new products or new markets only after their viability has already been proven.

Cost-minimization StrategyA strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting.


Why Do Structures Differ? – SizeWhy Do Structures Differ? – Size

Characteristics of large organizations:

• More specialization

• More vertical levels

• More rules and regulations

Characteristics of large organizations:

• More specialization

• More vertical levels

• More rules and regulations

Size

How the size of an organization affects its structure. As an organization grows larger, it becomes more mechanistic.


Why Do Structures Differ? – TechnologyWhy Do Structures Differ? – Technology

Characteristics of routineness (standardized or customized) in activities:

• Routine technologies are associated with tall, departmentalized structures and formalization in organizations.

• Routine technologies lead to centralization when formalization is low.

• Nonroutine technologies are associated with delegated decision authority.

Characteristics of routineness (standardized or customized) in activities:

• Routine technologies are associated with tall, departmentalized structures and formalization in organizations.

• Routine technologies lead to centralization when formalization is low.

• Nonroutine technologies are associated with delegated decision authority.

Technology

How an organization transfers its inputs into outputs.


Why Do Structures Differ? – EnvironmentWhy Do Structures Differ? – Environment

Key Dimensions-

• Capacity: the degree to which an environment can support growth.

• Volatility: the degree of instability in the environment.

• Complexity: the degree of heterogeneity and concentration among environmental elements.

Key Dimensions-

• Capacity: the degree to which an environment can support growth.

• Volatility: the degree of instability in the environment.

• Complexity: the degree of heterogeneity and concentration among environmental elements.

Environment

Institutions or forces outside the organization that potentially affect the organization’s performance.


Changing Structural Changing Structural Characteristics of Modern Characteristics of Modern

CorporationCorporation

8.5 Changing Structural Characteristics (Table 8.3)

Old Organizational Design New Organizational Design

One large corporation Mini-business units & cooperative relationships

Vertical communication Horizontal communication

Centralized top-down decision making Decentralized participative decision making

Vertical integration Outsourcing & virtual organizations

Work/quality teams Autonomous work teams

Functional work teams Cross-functional work teams

Minimal training Extensive training

Specialized job design focused on individual Value-chain team-focused job design

Source: Adapted from B. Macy and H. Izumi, “Organizational Change, Design, and Work Innovation: A Meta-Analysis of 131 North American Field Studies—1961–1991,” Research in Organizational Change and Development, Vol. 7, JAI Press (1993), p. 298. Reprinted with permission.

158© 2001 by The McGraw-Hill Companies, Inc. All

rights reserved.McGraw-Hill/Irwin

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Question 1: What are theIndustry’s Dominant Economic Traits?

Market size and growth rate Scope of competitive rivalry Number of competitors and their relative sizes Prevalence of backward/forward integration Entry/exit barriers Nature and pace of technological change Product and customer characteristics Scale economies and experience curve effects Capacity utilization and resource requirements Industry profitability



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Table 3.2: Relevance ofKey Economic Features

Economic Feature

Market Size

Market growth rate

Capacity surpluses/shortages

Industry profitability

Entry/exit barriers

Product is big-ticket item for buyers

Standard products

Rapid technological change

Capital requirements

Vertical integration

Economies of scale

Rapid product innovation

Strategic Importance

Small markets don’t tend to attract new firms; large markets attract firms looking to acquire rivals with established positions in attractive industries Fast growth breeds new entry; slow growth spawns increased rivalry & shake-out of weak rivals

Surpluses push prices & profit margins down; shortages pull them up

High-profit industries attract new entrants; depressed conditions lead to exit

High barriers protect positions and profits of existing firms; low barriers make existing firms vulnerable to entry

More buyers will shop for lowest price

Buyers have more power because it’s easier to switch from seller to seller

Raises risk; investments in technology facilities/equipment may become obsolete before they wear outBig requirements make investment decisions critical; timing becomes important; creates a barrier to entry and exitRaises capital requirements; often creates competitive & cost differences among fully vs. partially vs. non-integrated firms

Increases volume & market share needed to be cost competitive

Shortens product life cycle; increases risk because of opportunities for leapfrogging



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Question 2: What Is Competition Like and How Strong Are the Competitive Forces?

To identify

Main sources of competitive forces

Strength of these forces

Key analytical tool

Five Forces Model of Competition

Objective



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Figure 3-4: Five ForcesModel of Competition

Substitute Products(of firms in

other industries)

Suppliers of Key Inputs

Buyers

PotentialNew

Entrants

RivalryAmong

CompetingSellers



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Analyzing the Five Competitive Forces: How to Do It

Assess strength of each of the five competitive forces (Strong? Moderate? Weak? ) Rivalry among competitors Competition from substitute products Competitive threat from potential entrants Bargaining power of suppliers and

supplier-seller collaboration Bargaining power of buyers and

buyer-seller collaboration Explain how each force acts to create competitive pressure

—What are the factors that cause each force to be strong or weak?

Decide whether overall competition (the combined effect of all five competitive forces) is brutal, fierce, strong, normal/moderate, or weak



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Rivalry Among Competing Sellers

Usually the most powerful of the five forces The big factor determining the strength of rivalry is

how actively and aggressively are rivals employing the various weapons of competition in jockeying for a stronger market position and seeking bigger sales Is price competition vigorous? Active efforts to improve quality? Are rivals racing to offer better

performance features? Are rivals racing to offer better

customer service? Lots of advertising/sales promotions? Active efforts to build a stronger

dealer network? Active product innovation? Active use of other weapons of rivalry?



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What Causes Rivalry to be Stronger?

Active jockeying for position among rivals and frequent launches of new offensives to gain sales and market share One or more firms initiates moves to bolster their

standing at expense of rivals Lots of firms that are relatively equal in size and capability Slow market growth Industry conditions tempt some firms to go on the offensive

to boost volume and market share Customers have low costs in switching to rival brands A successful strategic move carries a big payoff Costs more to get out of business than to stay in Firms have diverse strategies, corporate priorities,

resources, and countries of origin



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Factors That Affect the Strength of Rivalry

Rivalry is generally stronger when:•Rivals are active in making fresh moves to increase sales and market shareBuyer demand is growing slowlyThe number of rivals ranges from at least 5 to upwards of 12 or more Rivals are of roughly equal size and capabilityBuyer costs to switch brands are lowOne or more rivals is dissatisfied with their current position and market share and make aggressive moves to improve their market prospectsWhen rivals have diverse strategies and objectives and are located in different countriesWhen one or two rivals have powerful strategies and other rivals are scrambling to stay in the game

Rivalry is generally weaker when:Rivals move only infrequently or in a non-aggressive manner to draw sales and market share away from rivalsBuyer demand is growing rapidlyBuyer costs to switch brands are high

The “Weapons” of Competitive Rivalry•Lower pricesMore appealing featuresBetter product performanceHigher qualityStrong brand image and appealBetter customer service capabilitiesWider product selectionBigger/better dealer networkStronger product innovation capabilitiesLonger warrantiesHigher levels of advertising

Rivalry among

Competing Sellers

Efforts of rivals to gainbetter market

position, higher sales and market

share,and

competitiveadvantage



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Principle of Competitive Markets

Competitive jockeying among rival firms is dynamic and ever-changing

As industry members initiate new offensive and defensive moves

As emphasis swings from one mix of competitive weapons to another



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Competitive Force of Potential Entry

Seriousness of threat depends on

Barriers to entry

Reaction of existing firms to entry

Barriers exist when

Newcomers confront obstacles

Economic factors put potential entrant at a disadvantage relative to incumbent firms



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Factors Affecting the Threat of Entry

Potential New Entrants

The Rivalry Among

Competing Sellers

Competitive pressures coming from the threat of entry

of new rivals

Entry threats are weaker whenThe pool of entry candidates is smallEntry barriers are highExisting competitors are struggling to earn good profitsThe industry’s outlook is risky or uncertainBuyer demand is growing slowly or is stagnant

Entry threats are stronger whenThe pool of entry candidates is largeEntry barriers are low or can be readily hurdled by the likely entry candidatesWhen existing industry members are looking to expand their market reach by entering product segments or geographic areas where they currently do not have a presenceIndustry members are earning attractive profitsBuyer demand is growing rapidly



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Common Barriers to Entry

Sizable economies of scale Inability to gain access to specialized

technology Existence of strong learning/experience

curve effects Strong brand preferences and customer loyalty Large capital requirements and/or other specialized

resource requirements Cost disadvantages independent of size Difficulties in gaining access to distribution channels Regulatory policies, tariffs, trade restrictions



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Threat of entry is stronger when: Entry barriers are low Sizable pool of entry candidates

exists Incumbents are unwilling or unable to

contest a newcomer’s entry efforts Newcomers can expect to earn

attractive profits



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Competitive Force ofSubstitute Products

Substitutes matter when customers are attracted to the products of firms in other industries

Concept

Eyeglasses vs. Contact Lens Sugar vs. Artificial Sweeteners Newspapers vs. TV vs. Internet E-mail vs. Overnight Delivery vs “Snail

mail” (U.S. Post Office)

Examples



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How to Tell Whether SubstituteProducts are a Strong Force

Sales of substitutes are growing rapidly

Producers of substitutes plan to add new capacity

Profits of producers of substitutes are up



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Factors Affecting Competition from Substitutes

Competitive pressures coming from the attempts of

companies outside the industry to win buyers over to their products

Firms in Other Industries

Offering Substitute Products

Rivalry among

Competing Sellers

Competitive pressures from substitutes are stronger when Good substitutes are readily available or new ones are emergingSubstitutes are lower priced relative to the performance they deliverBuyers have low costs in switching to substitutes Buyers grow more comfortable with using substitutes

Competitive pressures from substitutes are weaker when: Good substitutes are not readily available or don’t existSubstitutes are higher priced relative to the performance they deliverBuyers have high costs in switching to substitutes



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Competitive threat of substitutes is stronger when they are:

Readily available

Attractively priced

Believed to have comparable or better performance features

Customer switching costs are low



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Competitive Pressures From Suppliersand Supplier-Seller Collaboration

Whether supplier-seller relationships represent a weak or strong competitive force depends on

Whether suppliers can exercise sufficient bargaining leverage to influence terms of supply in their favor

Extent and competitive importance of collaborative partnerships between one or more sellers and their suppliers



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Competitive Force of Suppliers

Suppliers are a strong competitive force when: Item makes up large portion of product costs,

is crucial to production process, and/or significantly affects product quality

It is costly for buyers to switch suppliers They have good reputations and

growing demand They can supply a component cheaper than

industry members can make it themselves They do not have to contend with substitutes Buying firms are not important customers



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Factors Affecting Supplier Bargaining Power

Rivalry Among

CompetingSellers

Competitive pressures

stemming from supplier

bargaining power and

seller-supplier collaboration

Suppliers of Raw Materials, Parts, Components, or Other Resource Inputs

Supplier bargaining power is stronger whenSeller switching costs to alternative suppliers are highSome suppliers are a threat to integrate forward into the business of their customersNeeded inputs are in short supply

Supplier bargaining power is weaker whenSeller switching costs to alternative suppliers are lowThere is a surge in the availability of suppliesGood substitute inputs exist or new ones emergeSupplier-seller collaboration or partnering provides attractive win-win opportunities



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Competitive Pressures: Collaboration Between Sellers and Suppliers

Rival sellers are forming long-term strategic partnerships with select suppliers to Promote just-in-time deliveries and

reduced inventory and logistic costs Speed availability of next-generation

components Enhance quality of parts being supplied Reduce suppliers’ costs which paves way for

lower prices on items supplied Competitive advantage potential may accrue to

industry rivals doing the best job of managing supply-chain relationships



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Suppliers are a stronger force the more they can exercise power over:

Prices charged

Quality and performance of items supplied

Reliability of deliveries



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Competitive Pressures From Buyersand Seller-Buyer Collaboration

Whether seller-buyer relationships represent a weak or strong competitive force depends on

Whether buyers have sufficient bargaining leverage to influence terms of sale in their favor

Extent and competitive importance of collaborative partnerships between one or more sellers and their customers



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Competitive Force of Buyers

Buyers are a strong competitive force when: They are large and purchase a sizable

percentage of industry’s product They buy in large quantities They can integrate backward Industry’s product is standardized Their costs in switching to substitutes or other

brands are low They can purchase from several sellers Product purchased does not save buyer money



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Competitive Pressures: Collaboration Between Sellers and Buyers

Partnerships are an increasingly important competitive element in business-to-business relationships

Collaboration may result in mutual benefits regarding Just-in-time deliveries Order processing Electronic invoice payments On-line sharing of sales at the cash register

Competitive advantage potential may accrue to industry rivals who do the best job of managing seller-buyer partnerships



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Factors Affecting Buyer Bargaining Power

Buyers Competitive pressures stemming from buyer bargaining power and

seller-buyer collaboration

Rivalry Among

CompetingSellers

Buyer bargaining power is stronger whenBuyer switching costs to competing brands are lowBuyers are large and purchase in large quantitiesQuantity and quality of information available to buyers improvesSome buyers are a threat to integrate backward into the business of sellersBuyer demand is weak or declining

Buyer bargaining power is weaker whenBuyer switching costs to competing brands are highThere is a surge in buyer demandSeller-buyer collaboration or partnering provides attractive win-win opportunities



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Buyers are a stronger competitive force the more they have leverage to bargain over:

PriceQualityServiceOther terms and

conditions of sale



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Strategic Implications of theFive Competitive Forces

Competitive environment is unattractive from the standpoint of earning good profits when:

Rivalry is strong

Entry barriers are lowand entry is likely

Competition from substitutes is strong

Suppliers and customers have considerable bargaining power



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Competitive environment is ideal from a profit-making standpoint when:

Rivalry is moderate

Entry barriers are highand no firm is likely toenter

Good substitutes do not exist

Suppliers and customers are in a weak bargaining position

Strategic Implications of theFive Competitive Forces



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Coping With theFive Competitive Forces

Objective is to craft a strategy

To insulate firm from competitive forces

To help make the “rules,” placing added pressure on rivals

Which allows firm to define the business model for the industry

192192 Ch. 3

Product Differentiation

** Capital Requirements

** Switching Costs

**Access to Distribution Channels**

Cost Disadvantages Independent of Scale** Government Policy

**Expected Retaliation**

Economies of Scale**Barriers to Entry

Barriers to Entry

Threat of New Entrants

*

193193 Ch. 3

** Supplier industry is dominated by a few firms

** Buyer is not an important customer to supplier

** Suppliers’ product is an important input to buyers’ product

** Suppliers’ products are differentiated

Suppliers are likely to be powerful if:

** Suppliers’ products have high switching costs

** Supplier poses credible threat of forward integration

Suppliers exert power in the industry by:

** Threatening to raise prices or to reduce quality

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers’ products have few substitutes

**

Bargaining Power of Suppliers

*

194194 Ch. 3

** Playing firms off ofeach other

Buyers compete with supplying

industry by:

** Bargaining down prices

** Forcing higher quality

Buyer groups are likely to be powerful if:

** Buyers are concentrated or purchases are large relative to seller’s sales

** Purchase accounts for a significant fraction of supplier’s sales

** Products are undifferentiated

** Buyers face few switching costs

** Buyers’ industry earns low profits

** Buyer presents a credible threat of backward integration

** Product unimportant to quality

** Buyer has full information

Bargaining Power of Buyers

195195 Ch. 3

Products with similar function limit the prices firms can charge

** Products with improving price / performance tradeoffs relative to present industry products

Keys to evaluating substitute products:

For Example:For Example:

Electronic security systems in place of security guards

Fax machines or e-mailed attachments in place of overnight mail delivery

Threat of Substitute Products

196196 Ch. 3

Threat of New

Entrants

Threat of Substitute Products

Threat of New

Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Porter’s 5 Forces Model of Competition

Rivalry Among Competing Firms in Industry

*

197197 Ch. 3

Occurs when a firm is pressured or sees an opportunity

** Price competition often leaves entire industry worse off

Intense rivalry often plays out in the following ways

Jockeying for strategic position**Using price competition**Staging advertising battles**Increasing consumer warranties or service**Making new product introductions**

Advertising battles may increase total industry demand, but may be costly to smaller competitors

**

Rivalry Among Existing Competitors

198198 Ch. 3

Cutthroat competition is more likely to occur when

** Numerous or equally balanced competitors

** Slow growth industry

** High fixed costs

** Lack of differentiation or switching costs** High storage costs

** Capacity added in large increments

** High strategic stakes

**High exit barriers

** Diverse competitors


199199 Ch. 3

** Specialized assets

High Exit Barriers are economic, strategic and emotional factors which cause companies to remain in an industry even when future profitability is questionable.

Fixed cost of exit (e.g., labour agreements)**Strategic interrelationships**Emotional barriers**Government and social restrictions**




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Question 3: What Forces Are atWork to Change Industry Conditions?

Industries change because forces are driving industry participants to alter their actions

Driving forces are the major underlying causes of changing industry and competitive conditions



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Analyzing Driving Forces

1. Identify those forces likely to exert greatest influence over next 1 - 3 years Usually no more than 3 - 4

factors qualify as real drivers of change

2. Assess impactWhat difference will the

forces make - favorable? unfavorable?



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Common Types of Driving Forces

Internet and e-commerce opportunities

Increasing globalization of industry

Changes in long-term industry growth rate

Changes in who buys the product and how they use it

Product innovation

Technological change/process innovation

Marketing innovation



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Entry or exit of major firms

Diffusion of technical knowledge

Changes in cost and efficiency

Market shift from standardized to differentiated products (or vice versa)

Regulatory policies / government legislation

Changing societal concerns, attitudes, and lifestyles

Changes in degree of uncertainty and risk

Common Types of Driving Forces



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Monitoring and interpreting sweep of social, political, economic, ecological, and technological

events to spot budding trends that could eventually impact industry

Definition

PurposeRaise consciousness of managers about potential developments that could

Have important impact on industry conditions Pose new opportunities and threats



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Question 4: Which Companies are in Strongest / Weakest Positions?

One technique for revealing the different competitive positions of industry rivals is strategic group mapping

A strategic group consists of those rivals with similar competitive approaches in an industry



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Strategic Group Mapping

Firms in same strategic group have two or more competitive characteristics in common Sell in same price/quality range Cover same geographic areas Be vertically integrated to same degree Have comparable product line breadth Emphasize same types of distribution

channels Offer buyers similar services Use identical technological approaches



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Procedure for Constructing aStrategic Group Map

STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another

STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics

STEP 3: Assign firms that fall in about the same strategy space to same strategic group

STEP 4: Draw circles around each group, making circles proportional to size of group’s respective share of total industry sales



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Example: Strategic Group Map of the Video Game IndustryT

ypes

of

Vid

eo G

ame

Su

pp

lier

s/D

istr

ibu

tio

n C

han

nel

s

Overall Cost to Players of Video Games

Low(Coin-operated

equipment)

Medium (Console players cost

$100-$300)

High (Use PC)

Arcades

Home PCs

Video game consoles

Online/Internet

Sony, Sega, Nintendo, several

others

Arcade operators Publishers

of games on CD-ROMs

MSN Gaming Zone, Pogo.com,

America Online, HEAT, Engage, Oceanline, TEN



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Guidelines: Strategic Group Maps

Variables selected as axes should not be highly correlated

Variables chosen as axes should expose big differences in how rivals compete

Variables do not have to be either quantitative or continuous

Drawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group

If more than two good competitive variables can be used, several maps can be drawn



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Interpreting Strategic Group Maps

Driving forces and competitive pressures often favor some strategic groups and hurt others

Profit potential of different strategic groups varies due to strengths and weaknesses in each group’s market position

The closer strategic groups are on map, the stronger the competitive rivalry among member firms tends to be



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Question 5: What Strategic Moves Are Rivals Likely to Make Next?

A firm’s own best strategic moves are affected by

Current strategies of competitors

Future actions of competitors

Profiling key rivals involves gathering competitive intelligence about their

Current strategies

Most recent moves

Resource strengths and weaknesses

Announced plans



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Competitor Analysis

Successful strategists take great pains in scouting competitors to

Understand their strategies Watch their actions Evaluate their vulnerability to driving

forces and competitive pressures Size up their resource strengths and

weaknesses and their capabilities Try to anticipate rivals’ next moves



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Table 3.3: Categorizing Objectivesand Strategies of Competitors

Competitive Scope

Strategic Intent

Market Share Objective

Competitive Position

Strategic Posture

Competitive Strategy

• Local• Be dominant

leader

• Aggressive expansion via acquisition & internal growth

• Getting stronger; on the move

• Mostly offensive

• Regional• Overtake

industry leader

• Well-entrenched

• Mostly defensive

• National• Be among

industry leaders

• Expansion via internal growth

• Stuck in the middle of the pack

• Combination of offensive & defensive

• Multicountry• Move into

top 10

• Expansion via acquisition

• Going after a different position

• Aggressive risk-taker

• Global• Move up a

notch in rankings

• Hold on to present share

• Struggling; losing ground

• Conservative follower

• Maintain current position

• Give up present share to achieve short-term profits

• Retrenching to a position that can be defended• Just survive

• Striving for low-cost leadership

• Focusing on market niche

• Pursuing differentiation based on

QualityServiceTechnology

superiorityBreadth of

product lineImage &

reputationMore value

for the money

Other attributes

Copyright © 2001 Houghton Mifflin Company. All rights reserved.

The Advantages and Disadvantages of Different The Advantages and Disadvantages of Different Entry ModesEntry Modes

Entry ModeEntry Mode AdvantagesAdvantages DisadvantagesDisadvantages

ExportingExporting • Ability to realize location and Ability to realize location and experience-curve economiesexperience-curve economies

• High transport costsHigh transport costs• Trade barriersTrade barriers• Problems with local marketing agentsProblems with local marketing agents

LicensingLicensing • Low development costs and risksLow development costs and risks • Inability to realize location and Inability to realize location and experience-curve economiesexperience-curve economies

• Inability to engage in global strategic Inability to engage in global strategic coordinationcoordination

• Lack of control over technologyLack of control over technology

FranchisingFranchising • Low development costs and risksLow development costs and risks • Inability to engage in global strategic Inability to engage in global strategic coordinationcoordination

• Lack of control over qualityLack of control over quality

Joint Joint venturesventures

• Access to local partner’s knowledgeAccess to local partner’s knowledge• Shared development costs and risksShared development costs and risks• Political dependencyPolitical dependency

• Inability to engage in global strategic Inability to engage in global strategic coordinationcoordination

• Inability to realize location and Inability to realize location and experience-curve economiesexperience-curve economies

• Lack of control over technologyLack of control over technology

Wholly owned Wholly owned subsidiariessubsidiaries

• Protection of technologyProtection of technology• Ability to engage in global strategic Ability to engage in global strategic

coordinationcoordination• Ability to realize location and Ability to realize location and

experience-curve economiesexperience-curve economies

• High costs and risksHigh costs and risks

TABLE 8.2


The Advantages and Disadvantages of Different The Advantages and Disadvantages of Different Strategies for Competing GloballyStrategies for Competing Globally

StrategyStrategy AdvantagesAdvantages DisadvantagesDisadvantages

InternationalInternational • Transfer of distinctive competencies Transfer of distinctive competencies to foreign marketsto foreign markets

• Lack of local responsivenessLack of local responsiveness• Inability to realize location economiesInability to realize location economies• Failure to exploit experience-curve Failure to exploit experience-curve

effectseffects

MultidomesticMultidomestic • Ability to customize product offerings Ability to customize product offerings and marketing in accordance with and marketing in accordance with local responsivenesslocal responsiveness

• Inability to realize location economiesInability to realize location economies• Failure to exploit experience-curve Failure to exploit experience-curve

effectseffects• Failure to transfer distinctive Failure to transfer distinctive

competencies to foreign marketscompetencies to foreign markets

GlobalGlobal • Ability to exploit experience-curve Ability to exploit experience-curve effectseffects

• Ability to exploit location economiesAbility to exploit location economies

• Lack of local responsivenessLack of local responsiveness

TransnationalTransnational • Ability to exploit experience-curve Ability to exploit experience-curve effectseffects

• Ability to exploit location economiesAbility to exploit location economies• Ability to customize product offerings Ability to customize product offerings

and marketing in accordance with and marketing in accordance with local responsivenesslocal responsiveness

• Reaping benefits of global learningReaping benefits of global learning

• Difficulties in implementation because Difficulties in implementation because of organizational problemsof organizational problems

TABLE 8.1


Choosing an Investment Strategy at the Choosing an Investment Strategy at the Business LevelBusiness Level

Stage of the Stage of the Industry Life CycleIndustry Life Cycle

Strong CompetitiveStrong CompetitivePositionPosition

Weak CompetitiveWeak CompetitivePositionPosition

EmbryonicEmbryonic Share buildingShare building Share buildingShare building

GrowthGrowth GrowthGrowth Market concentrationMarket concentration

ShakeoutShakeout Share increasingShare increasing Market concentration or Market concentration or harvest/liquidationharvest/liquidation

MaturityMaturity Hold-and-maintain or profitHold-and-maintain or profit Harvest or Harvest or liquidation/divestitureliquidation/divestiture

DeclineDecline Market concentration or Market concentration or harvest (asset reduction)harvest (asset reduction)

Turnaround, liquidation,Turnaround, liquidation,or divestitureor divestiture

TABLE 6.2



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Predicting Moves of Rivals

Predicting rivals’ next moves involves

Analyzing their current competitive positions

Examining public pronouncements about what it will take to be successful in industry

Gathering information from grapevine about current activities and potential changes

Studying past actions and leadership

Determining who has flexibility to make major strategic changes and who is locked into pursuing same basic strategy



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Question 6: What are the Key Factors for Competitive Success?

Competitive elements most affecting every industry member’s ability to prosper Specific strategy elements Product attributes Resources Competencies Competitive capabilities

KSFs spell the difference between Profit and loss Competitive success or failure



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Identifying IndustryKey Success Factors

Answers to three questions pinpoint KSFs On what basis do customers choose between

competing brands of sellers? What resources and competitive capabilities

does a seller need to have to be competitively successful?

What does it take for sellers to achieve a sustainable competitive advantage?

KSFs consist of the 3 - 5 really major determinants of financial and competitive success in an industry



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Table 3.3: Common Types ofKey Success Factors

Distribution-related

Marketing-related

Skills-related

Organizational capability

Other types

Technology-related

Manufacturing-related

Scientific research expertise; Product innovation capability; Expertise in a given technology; Capability to use Internet to conduct various business activities

Low-cost production efficiency; Quality of manufacture; High use of fixed assets; Low-cost plant locations; High labor productivity; Low-cost product design; Flexibility to make a range of products

Strong network of wholesale distributors/dealers; Gaining ample space on retailer shelves; Having company-owned retail outlets; Low distribution costs; Fast delivery

Fast, accurate technical assistance; Courteous customer service; Accurate filling of orders; Breadth of product line; Merchandising skills; Attractive styling; Customer guarantees; Clever advertising

Superior workforce talent; Quality control know-how; Design expertise; Expertise in a particular technology; Ability to develop innovative products; Ability to get new products to market quickly

Superior information systems; Ability to respond quickly to shifting market conditions; Superior ability to employ Internet to conduct business; More experience & managerial know-how

Favorable image/reputation with buyers; Overall low-cost; Convenient locations; Pleasant, courteous employees; Access to financial capital; Patent protection



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Example: KSFs for Beer Industry

Utilization of brewing capacity -- to keep manufacturing costs low

Strong network of wholesale distributors -- to gain access to retail outlets

Clever advertising -- to induce beer drinkers to buy a particular brand



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Example: KSFs for Apparel Manufacturing Industry

Fashion design -- to create buyer appeal

Low-cost manufacturing efficiency -- to keep selling

prices competitive



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Example: KSFs for Tin andAluminum Can Industry

Locating plants close to end-use customers -- to keep costs of shipping empty cans low

Ability to market plant output within economical shipping distances



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Strategic Management Principle

A sound strategy incorporates

efforts to be competent on all

industry key success factors and

to excel on at least one factor!



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Question 7: Is the IndustryAttractive or Unattractive and Why?

Develop conclusions about whether the industry and competitive environment is attractive or unattractive, both near- and long-term, for

earning good profits

Objective

Principle

A firm uniquely well-suited in an otherwise unattractive industry can, under certain

circumstances, still earn unusually good profits



Copyright

Things to Consider inAssessing Industry Attractiveness

Industry’s market size and growth potential Whether competitive conditions are conducive to

rising/falling industry profitability Will competitive forces become stronger or

weaker Whether industry will be favorably or unfavorably

impacted by driving forces Potential for entry/exit of major firms Stability/dependability of demand Severity of problems facing industry Degree of risk and uncertainty in industry’s future



Copyright

Conducting an Industry andCompetitive Situation Analysis

Two things to keep in mind

1. Evaluating industry and competitive conditions cannot be reduced to a formula-like exercise--thoughtful analysis is essential

2. Sweeping industry and competitive analyses need to done every 1 to 3 years

234

The Basis for Good Strategic DecisionsThe Basis for Good Strategic Decisions

Intuition + Analysis

Effective Strategic Decisions©1999 Prentice Hall


Ch. 1-235

Integrating Intuition and Analysis

Intuition based on:– Past experiences

– Judgment

– Feelings

Useful for decision making– Conditions of great uncertainty

– Conditions with little precedent


Ch. 1-236

Integrating Intuition and Analysis

Intuition and judgment– Management at all levels

– Analyses are influenced

Analytical thinking and intuitive thinking– Complement each other


Ch5-237

Strategies in ActionStrategies in Action

Even if you’re on the right track, you’ll get run over if you just sit there.

-- Will Rogers


Ch5-238

Long-Term ObjectivesLong-Term Objectives

• The results expected from pursuing The results expected from pursuing certain strategiescertain strategies


Ch5-239


Objectives –Objectives –

– QuantifiableQuantifiable– MeasurableMeasurable– RealisticRealistic– UnderstandableUnderstandable– ChallengingChallenging– HierarchicalHierarchical– Obtainable Obtainable – CongruentCongruent– Time-lineTime-line


Ch5-240


Long-term objectives are necessary –Long-term objectives are necessary –

– CorporateCorporate– DivisionalDivisional– Functional levelsFunctional levels


Ch5-241

Integration StrategiesIntegration Strategies

Integration Strategies

Forward Integration

Backward Integration

Horizontal Integration


Ch5-242


Integration strategies –Integration strategies –

– Allow a firm to gain control over:Allow a firm to gain control over:• DistributorsDistributors• SuppliersSuppliers• competitorscompetitors


Ch5-243


Forward Integration –Forward Integration –

– Gaining ownership or increased control Gaining ownership or increased control over distributors or retailersover distributors or retailers


Ch5-244


Guidelines for Forward Integration –Guidelines for Forward Integration –

Present distributors are expensive, unreliable, or incapable of meeting firm’s needs

Availability of quality distributors is limited When firm competes in an industry that is expected

to grow markedly Organization has both capital and human resources

needed to manage new business of distribution Advantages of stable production are high Present distributors have high profit margins


Ch5-245


Backward Integration –Backward Integration –

– Seeking ownership or increased Seeking ownership or increased control of a firm’s supplierscontrol of a firm’s suppliers


Ch5-246


Guidelines for Backward Integration –Guidelines for Backward Integration –

When present suppliers are expensive, unreliable, or incapable of meeting needs

Number of suppliers is small and number of competitors large

High growth in industry sector Firm has both capital and human resources to

manage new business Advantages of stable prices are important Present supplies have high profit margins


Ch5-247


Horizontal Integration –Horizontal Integration –

– Seeking ownership or increased Seeking ownership or increased control over competitorscontrol over competitors


Ch5-248


Guidelines for Horizontal Integration –Guidelines for Horizontal Integration –

Firm can gain monopolistic characteristics without being challenged by federal government

Competes in growing industry Increased economies of scale provide major

competitive advantages Faltering due to lack of managerial expertise or

need for particular resources


Ch5-249

Intensive StrategiesIntensive Strategies

Intensive Strategies

Market Penetration

Market Development

Product Development


Ch5-250


Intensive strategies –Intensive strategies –

– Require intensive efforts to improve a Require intensive efforts to improve a firm’s competitive position with existing firm’s competitive position with existing productsproducts


Ch5-251


Market Penetration –Market Penetration –

– Seeking increased market share for Seeking increased market share for present products or services in present present products or services in present markets through greater marketing markets through greater marketing effortsefforts


Ch5-252


Guidelines for Market Penetration –Guidelines for Market Penetration –

Current markets not saturated Usage rate of present customers can be increased

significantly Market shares of competitors declining while total

industry sales increasing Increased economies of scale provide major

competitive advantages


Ch5-253


Market Development –Market Development –

– Introducing present products or Introducing present products or services into new geographic areaservices into new geographic area


Ch5-254


Guidelines for Market Development –Guidelines for Market Development –

New channels of distribution that are reliable, inexpensive, and good quality

Firm is very successful at what it does Untapped or unsaturated markets Capital and human resources necessary to manage

expanded operations Excess production capacity Basic industry rapidly becoming global


Ch5-255


Product Development –Product Development –

– Seeking increased sales by improving Seeking increased sales by improving present products or services or present products or services or developing new onesdeveloping new ones


Ch5-256


Guidelines for Product Development –Guidelines for Product Development –

Products in maturity stage of life cycle Competes in industry characterized by rapid

technological developments Major competitors offer better-quality products at

comparable prices Compete in high-growth industry Strong research and development capabilities


Ch5-257

Diversification StrategiesDiversification Strategies

Diversification Strategies

Concentric Diversification

Conglomerate Diversification

Horizontal Diversification


Ch5-258


Diversification strategies –Diversification strategies –

– Becoming less popular as Becoming less popular as organizations are finding it more organizations are finding it more difficult to manage diverse business difficult to manage diverse business activitiesactivities


Ch5-259


Concentric Diversification –Concentric Diversification –

– Adding new, but related, products or Adding new, but related, products or servicesservices


Ch5-260


Guidelines for Concentric Diversification –Guidelines for Concentric Diversification –

Competes in no- or slow-growth industry Adding new & related products increases sales of

current products New & related products offered at competitive prices Current products are in decline stage of the product

life cycle Strong management team


Ch5-261


Conglomerate Diversification –Conglomerate Diversification –

– Adding new, unrelated products or Adding new, unrelated products or servicesservices


Ch5-262


Guidelines for Conglomerate Diversification –Guidelines for Conglomerate Diversification –

Declining annual sales and profits Capital and managerial talent to compete

successfully in a new industry Financial synergy between the acquired and

acquiring firms Exiting markets for present products are saturated


Ch5-263


Horizontal Diversification –Horizontal Diversification –

– Adding new, unrelated products or Adding new, unrelated products or services for present customersservices for present customers


Ch5-264


Guidelines for Horizontal Diversification –Guidelines for Horizontal Diversification –

Revenues from current products/services would increase significantly by adding the new unrelated products

Highly competitive and/or no-growth industry w/low margins and returns

Present distribution channels can be used to market new products to current customers

New products have counter cyclical sales patterns compared to existing products


Ch5-265

Defensive StrategiesDefensive Strategies

Defensive Strategies

Retrenchment

Divestiture

Liquidation


Ch5-266


Retrenchment –Retrenchment –

– Regrouping through cost and asset Regrouping through cost and asset reduction to reverse declining sales reduction to reverse declining sales and profitand profit

– Chapter 11 Bankruptcy (worst case)Chapter 11 Bankruptcy (worst case)– [[Chapter 13 for Small businesses]


Ch5-267


Guidelines for RetrenchmentGuidelines for Retrenchment – –

Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies

Firm is one of the weaker competitors Inefficiency, low profitability, poor employee morale,

and pressure from stockholders to improve performance.

When an organization’s strategic managers have failed

Very quick growth to large organization where a major internal reorganization is needed


Ch5-268


Divestiture –Divestiture –

– Selling a division or part of an Selling a division or part of an organizationorganization


Ch5-269


Guidelines for Divestiture –Guidelines for Divestiture –

When firm has pursued retrenchment but failed to attain needed improvements

When a division needs more resources than the firm can provide

When a division is responsible for the firm’s overall poor performance

When a division is a misfit with the organization When a large amount of cash is needed and cannot

be obtained from other sources.


Ch5-270


Liquidation–Liquidation–

– Selling all of a company’s assets, in Selling all of a company’s assets, in parts, for their tangible worthparts, for their tangible worth

– Chapter 7 Bankruptcy (entire firm sold)


Ch5-271


Guidelines for LiquidationGuidelines for Liquidation – –

When both retrenchment and divestiture have been pursued unsuccessfully

If the only alternative is bankruptcy, liquidation is an orderly alternative

When stockholders can minimize their losses by selling the firm’s assets


Ch5-272

Michael Porter’s Generic StrategiesMichael Porter’s Generic Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies


Ch5-273

Joint Venture/PartneringJoint Venture/Partnering

Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.


Ch5-274


Cooperative ArrangementsCooperative Arrangements – –

Research and development partnerships Cross-distribution agreements Cross-licensing agreements Cross-manufacturing agreements Joint-bidding consortia


Ch5-275


Problems Causing Joint Ventures to FailProblems Causing Joint Ventures to Fail – –

Managers who must collaborate daily not involved in forming or shaping the venture

Venture may benefit the companies but not the customers

Venture not supported equally by both partners Venture may begin to compete with one of the

partners more so than the other


Ch5-276


Guidelines for Joint VenturesGuidelines for Joint Ventures – –

Combination of privately held and publicly held can be synergistically combined

Domestic forms joint venture with foreign firm, can obtain local management to reduce certain risks

Distinctive competencies of two or more firms are complementary

Overwhelming resources and risks where project is potentially very profitable (e.g., Alaska pipeline)

Two or more smaller firms have trouble competing with larger firm

A need exists to introduce a new technology quickly


Ch5-277

Merger/AcquisitionMerger/Acquisition

• Merger - two organizations of about equal size unite to form one enterprise

• Acquisition - large organization purchases a smaller firm, or vice versa

• Takeover or Hostile Takeover - M or A is not desired by both parties


Ch5-278

Leveraged Buyout (LBO)Leveraged Buyout (LBO)

• Corporation’s shares are bought by the company’s management or other private investors using borrowed funds

• Organization becomes private or closely-held


Ch5-279

Strategy Analysis & ChoiceStrategy Analysis & Choice

Whether it’s broke or not, fix it—make it better. Not just products, but the whole company if necessary.

-- Bill Saporito


Ch5-280


Strategic analysis and choice largely Strategic analysis and choice largely involves making subjective decisions involves making subjective decisions based on objective informationbased on objective information..


Ch5-281


The Nature of Strategy Analysis and Choice –The Nature of Strategy Analysis and Choice –

– Establishing long-term objectivesEstablishing long-term objectives– Generating alternative strategiesGenerating alternative strategies– Selecting strategies to pursueSelecting strategies to pursue– Best alternative to achieve mission and objectivesBest alternative to achieve mission and objectives


Ch5-282


Participation in generating alternative Participation in generating alternative strategies should be broad –strategies should be broad –


Ch5-283

Strategy-FormulationStrategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage


Formulation FrameworkFormulation Framework

External Factor EvaluationMatrix (EFE)

Competitive ProfileMatrix

Internal Factor EvaluationMatrix (IFE)

Stage 1:The Input Stage


Ch5-285

Input StageInput Stage

• Provides basic input information for the Provides basic input information for the matching and decision stage matricesmatching and decision stage matrices

• Requires strategists to quantify Requires strategists to quantify subjectivity early in the processsubjectivity early in the process

• Good intuitive judgment always neededGood intuitive judgment always needed



SPACE Matrix

Stage 2:The Matching Stage

TOWS Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix


General Electric’s Business General Electric’s Business ScreenScreen

6.5 General Electric’s Business Screen (Fig. 6.3)

AWinners Winners

B

C

Question Marks

D

F

Average Businesses

EWinners

Losers

GLosers H

LosersProfit

Producers

Strong Average Weak

Low

Medium

High

Business Strength/Competitive Position

Indu

stry

Att

ract

ive

ness

Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company.


Portfolio Matrix for Plotting Products by Portfolio Matrix for Plotting Products by CountryCountry

6.6 Portfolio Matrix for Plotting Products by Country (Fig. 6.4)

Harvest/Divest Combine/License

Invest/Grow Dominate/Divest Joint Venture

Lo

wH

igh

High Low

Competitive Strengths

Co

un

try

Att

ract

iven

ess

Selective Strategies

Source: G. D. Harrell and R. O. Kiefer, “Multinational Strategic Market Portfolios,” MSU Business Topics (Winter 1981), p. 7. Reprinted by permission.


Proposed Outsourcing Proposed Outsourcing MatrixMatrix

7.2 Proposed Outsourcing Matrix (Fig. 7.1)

High

Hig

hL

ow

Activity's Total Value-Added to Firm's Products and Services

Low

Produce Some Internally

Taper Vertical Integration:

Buy on Open Market

Outsource Completely:

Purchase with Long-term Contracts

Outsource Completely:

Produce All Internally

Full Vertical Integration:

Ac

tiv

ity

's P

ote

nti

al

for

Co

mp

eti

tiv

e A

dv

an

tag

e

Source: J. D. Hunger and T. L. Wheelen, “Proposed Outsourcing Matrix.” Copyright © 1996 by Wheelen and Hunger Associates. Reprinted by permission.


Ch5-290

Matching StageMatching Stage

• Match between organization’s internal Match between organization’s internal resources and skills and the opportunities resources and skills and the opportunities and risks created by its external factors.and risks created by its external factors.


Ch5-291

Matching StageMatching Stage

TOWS MatrixTOWS Matrix

– ThreatsThreats

– OpportunitiesOpportunities

– StrengthsStrengths

– WeaknessesWeaknesses


Ch5-292


Develop four types of strategiesDevelop four types of strategies

– Strengths-Opportunities (SO)Strengths-Opportunities (SO)

– Weaknesses-Opportunities (WO)Weaknesses-Opportunities (WO)

– Strengths-Threats (ST)Strengths-Threats (ST)

– Weaknesses-Threats (WT)Weaknesses-Threats (WT)


Ch5-293

SOSO StrategiesStrategies

SO

Strategies

Use a firm’s internal

strengths to take advantage of

external opportunities

ThreatsOpportunitiesWeaknesses

Strengths(TOWS)


Ch5-294

WOWO StrategiesStrategies

WO

Strategies

Improving internal

weaknesses by taking

advantage of external

opportunities


Strengths(TOWS)


Ch5-295

STST StrategiesStrategies

ST

Strategies

Using firm’s strengths to

avoid or reduce the impact of

external threats.


Strengths(TOWS)


Ch5-296

WTWT StrategiesStrategies

WT

Strategies

Defensive tactics aimed at reducing internal

weaknesses and avoiding

environmental threats.


Strengths(TOWS)


Ch5-297


Steps in developing the TOWS Matrix

1. List the firm’s key external opportunities

2. List the firm’s key external threats

3. List the firm’s key internal strengths

4. List the firm’s key internal weaknesses


Ch5-298


Developing the TOWS Matrix

5. Match internal strengths with external opportunities and record the resultant SO Strategies

6. Match internal weaknesses with external opportunities and record the resultant WO Strategies

7. Match internal strengths with external threats and record the resultant ST Strategies

8. Match internal weaknesses with external threats and record the resultant WT Strategies


Ch5-299


WT Strategies

Minimize weaknesses and avoid threats

ST Strategies

Use strengths to avoid threats

Threats-T

List Threats

WO Strategies

Overcome weaknesses by taking advantage of

opportunities

SO Strategies

Use strengths to take advantage of opportunities

Opportunities-O

List Opportunities

Weaknesses-W

List Weaknesses

Strengths-S

List Strengths

Leave Blank



SPACE Matrix


TOWS Matrix

BCG Matrix

IE Matrix



Ch5-301

SPACE MatrixSPACE Matrix

Strategic Position and Action Evaluation Matrix

Four quadrant framework Determines appropriate strategies

Aggressive Conservative Defensive Competitive


Ch5-302


Two Internal Dimensions Financial Strength [FS] Competitive Advantage [CA]

Two External Dimensions Environmental Stability [ES] Industry Strength [IS]


Ch5-303


Developing the SPACE Matrix:

• EFE Matrix

• IFE Matrix

Reconsider info not included in final lists of S’s, W’s, O’s & T’s


Ch5-304

SPACE FactorsSPACE Factors

Environmental Stability (ES)

Technological changes

Rate of inflation

Demand variability

Price range of competing products

Barriers to entry

Competitive pressure

Price elasticity of demand

Financial Strength (FS)

Return on investment

Leverage

Liquidity

Working capital

Cash flow

Ease of exit from market

Risk involved in business

External Strategic PositionInternal Strategic Position


Ch5-305

SPACE FactorsSPACE Factors

Industry Strength (IS)

Growth potential

Profit potential

Financial stability

Technological know-how

Resource utilization

Capital intensify

Ease of entry into market

Productivity, capacity utilization

Competitive Advantage CA

Market share

Product quality

Product life cycle

Customer loyalty

Competition’s capacity utilization

Technological know-how

Control over suppliers & distributors

External Strategic PositionInternal Strategic Position


Ch5-306

SPACE MatrixSPACE MatrixFS

+6

+1

+5+4+3

+2

-6

-5

-4

-3

-2

-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

ES

CA IS

Conservative Aggressive

Defensive Competitive



SPACE Matrix


TOWS Matrix

BCG Matrix

IE Matrix



Ch5-308

BCG MatrixBCG Matrix

Boston Consulting Group Matrix

• Enhances multidivisional firms’ efforts to formulate strategies

• Autonomous divisions (or profit centers) constitute the business portfolio

• Firm’s divisions may compete in different industries requiring separate strategy


Ch5-309


Boston Consulting Group Matrix

• Graphically portrays differences among divisions

• Focuses on market share position and industry growth rate

• Manage business portfolio through relative market share position and industry growth rate


Ch5-310


Relative market share position defined:

• Ratio of a division’s own market share in a particular industry to the market share held by the largest rival firm in that industry.


Ch5-311


DogsDogs

IVIV

Cash CowsCash Cows

IIIIII

Question MarksQuestion Marks

II

StarsStars

IIII

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Ind

ust

ry S

ales

Gro

wth

Rat

e High+20

Low-20

Medium0


Ch5-312


Question Marks

• Low relative market share position yet compete in high-growth industry.• Cash needs are high• Cash generation is low

• Decision to strengthen (intensive strategies) or divest


Ch5-313


Stars

• High relative market share and high industry growth rate.• Best long-run opportunities for growth and

profitability

• Substantial investment to maintain or strengthen dominant position• Integration strategies, intensive strategies, joint

ventures


Ch5-314


Cash Cows

• High relative market share position, but compete in low-growth industry

• Generate cash in excess of their needs• Milked for other purposes

• Maintain strong position as long as possible• Product development, concentric diversification• If becomes weak—retrenchment or divestiture


Ch5-315


Dogs

• Low relative market share position and compete in slow or no market growth • Weak internal and external position

• Decision to liquidate, divest, retrenchment



SPACE Matrix


TOWS Matrix

BCG Matrix

IE Matrix



Ch5-317

Grand Strategy MatrixGrand Strategy Matrix

• Popular tool for formulating alternative strategies

• All organizations (or divisions) can be positioned in one of four quadrants

• Based on two evaluative dimensions:– Competitive position– Market growth


Ch5-318

Quadrant IV

1. Concentric diversification

2. Horizontal diversification

3. Conglomerate diversification

4. Joint ventures

Quadrant III

1. Retrenchment


3. Horizontal diversification

4. Conglomerate diversification

5. Liquidation

Quadrant I

1. Market development

2. Market penetration

3. Product development

4. Forward integration

5. Backward integration

6. Horizontal integration


Quadrant II

1. Market development

2. Market penetration

3. Product development

4. Horizontal integration

5. Divestiture

6. Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK COMPETITIVE

POSITION

STRONGCOMPETITIVE

POSITION


Ch5-319


Quadrant I

• Excellent strategic position• Concentration on current markets and

products• Take risks aggressively when necessary


Ch5-320


Quadrant II

• Evaluate present approach seriously• How to change to improve competitiveness• Rapid market growth requires intensive

strategy


Ch5-321


Quadrant III

• Compete in slow-growth industries• Weak competitive position• Drastic changes quickly• Cost and asset reduction indicated

(retrenchment)


Ch5-322


Quadrant IV

• Strong competitive position• Slow-growth industry• Diversification indicated to more promising

growth areas


Matching Chief Executive “Types” with Matching Chief Executive “Types” with StrategyStrategy

9.1 Matching Chief Executive “Types” with Strategy

Average

Hig

hL

ow

Business Strength/Competitive Position

Strong

Growth—Concentration

Dynamic Industry Expert

Stability

Cautious Profit Planner

Retrenchment—Close Company

Professional Liquidator

Retrenchment—Save Company

Turnaround Specialist

Ind

us

try

Att

rac

tiv

en

es

s

Source: Thomas L. Wheelen and J. David Hunger, “Matching Proposed Chief Executive ‘Types’ with Corporate Strategy.” Copyright © 1991 by Wheelen and Hunger Associates. Reprinted by permission.

Me

diu

m

Weak

Growth—Diversification

Analytical Portfolio Manager



Quantitative Strategic Planning Matrix

(QSPM)

Stage 3:The Decision Stage


Ch5-325

QSPMQSPM


• Only technique designed to determine the relative attractiveness of feasible alternative actions


Ch5-326

QSPMQSPM


• Tool for (?objective?) evaluation of alternative strategies

• Based on identified external and internal Critical Success Factors

• Requires good intuitive judgment


Ch5-327

QSPMQSPM

Limitations:

• Requires intuitive judgments and educated assumptions

• Only as good as the prerequisite inputs


Ch5-328

QSPMQSPM

Positives:

• Sets of strategies examined simultaneously or sequentially

• Requires the integration of pertinent external and internal factors in the decision-making process


Ch5-329

Cultural Aspects of Strategy Cultural Aspects of Strategy ChoiceChoice

Culture:

• The set of shared values, beliefs, attitudes, customs, norms, personalities, heroes, and heroines that describe a firm


Ch5-330

Cultural Aspects of Strategy Cultural Aspects of Strategy ChoiceChoice

Culture:

• Successful strategies depend on degree of support from a firm’s culture


Ch5-331

Politics of Strategy ChoicePolitics of Strategy Choice

Politics in organizations:

• Management hierarchy

• Career aspirations

• Allocation of scarce resources


Ch5-332


Political tactics for strategists:

• Equifinality• Satisfying• Generalization• Focus on Higher-Order Issues• Provide Political Access on Important Issues


Ch5-333



• Equifinality: It is often possible to achieve similar results using different means or paths.

• Satisfying: Achieving satisfactory results with an acceptable strategy is far better than failing to achieve optimal results with an unpopular strategy.

• Generalization: Shifting focus from specific issues to more general ones may increase strategists’ option s for gaining organizational commitment.




• Focus on Higher-Order Issues: By raising an issue to a higher level, many short-term interests can be postponed in favor of long-term interests.

• Provide Political Access on Important Issues: Strategy and policy decisions with significant negative consequences for middle managers will motivate intervention behavior from them.


Ch5-335

Role of A Board of DirectorsRole of A Board of Directors

Duties and Responsibilities:

1. Control and oversight over management

2. Adherence to legal prescriptions

3. Consideration of stakeholder interests

4. Advancement of stockholders’ rights


Ch 7-336

Implementing Strategies: Implementing Strategies: Management IssuesManagement Issues

Pretend that every single person you meet has a sign around his or her neck that says, “Make me feel important.”

-- Mary Kay Ash, CEO of Mary Kay, Inc.


Ch 7-337


Contrasting strategy formulation and Contrasting strategy formulation and strategy implementationstrategy implementation

– Formulation is positioning forces before the action

– Implementation is managing forces during the action



Ch 7-338



– Formulation focuses on effectiveness

– Implementation focuses on efficiency



Ch 7-339



– Formulation is primarily an intellectual process

– Implementation is primarily an operational process



Ch 7-340



– Formulation requires good intuitive and analytical skills

– Implementation requires special motivation and leadership skills



Ch 7-341



– Formulation requires coordination among a few individuals

– Implementation requires coordination among many persons



Ch 8-342

Implementing StrategiesImplementing Strategies

There is no “perfect” strategic decision. One always has to pay a price. One always has to balance conflicting objectives, conflicting opinions, and conflicting priorities. The best strategic decision is only an approximation—and a risk

-- Peter Drucker


Ch 8-343

Marketing variables affect success or Marketing variables affect success or failure of strategy implementationfailure of strategy implementation

• Market SegmentationMarket Segmentation

• Production PositioningProduction Positioning

Marketing IssuesMarketing Issues


Ch 8-344

Finance/Accounting IssuesFinance/Accounting Issues

Central to Strategy Implementation –Central to Strategy Implementation –

– Acquiring needed capitalAcquiring needed capital– Developing pro forma financial statementsDeveloping pro forma financial statements– Preparing financial budgetsPreparing financial budgets– Evaluating worth of a businessEvaluating worth of a business


Ch 8-345

Research & Development IssuesResearch & Development Issues

New products and improvement of existing New products and improvement of existing products that allow for effective strategy products that allow for effective strategy implementationimplementation


Ch 8-346

MIS IssuesMIS Issues

• Information collection, retrieval and Information collection, retrieval and storagestorage

• Blend computer technical knowledge Blend computer technical knowledge with top management visionwith top management vision


Ch 8-347

• Strategy evaluation is vital to the organization’s well-being

• Alert management to potential or actual problems in a timely fashion

• Erroneous strategic decisions can have severe negative impact on organizations

Strategy EvaluationStrategy Evaluation


Ch 8-348

3 Basic Activities –

1. Examining the underlying bases of a firms’ strategy

2. Comparing expected to actual results

3. Corrective actions to ensure performance conforms to plans

Strategy EvaluationStrategy Evaluation


Evaluation FrameworkEvaluation FrameworkI. Review Underlying Bases

Continue present course

II. Measure Firm Performance

III.Take

Corrective Actions

Differences?

Differences?

Yes

NO

Yes

NO


Ch 8-350

Review of underlying bases of strategy –

– Develop revised EFE Matrix

– Develop revised IFE Matrix

Reviewing Bases of StrategyReviewing Bases of Strategy


Ch 8-351

Review effectiveness of strategy –

1. Competitors’ reaction to strategy

2. Competitors’ change in strategy

3. Competitors’ changes in strengths and weaknesses

4. Reasons for competitors’ strategic change



Ch 8-352

Review effectiveness of strategy –

5. Reasons for competitors’ successful strategies

6. Competitors’ present market positions and profitability

7. Potential for competitor retaliation8. Potential for cooperation with competitors



Ch 8-353

Monitor Threats and Opportunities and Weaknesses and Strengths

• Are our internal strengths still strengths?• Have we added additional strengths?• Are our weaknesses still weaknesses?• Have we other internal weaknesses?



Ch 8-354

Monitor Threats and Opportunities and Weaknesses and Strengths

• Are opportunities still opportunities?• Other external opportunities?• Are threats still threats?• Are there other threats?• Are we vulnerable to a hostile takeover?



Evaluation FrameworkEvaluation FrameworkI. Review Underlying Bases

Continue present course

II. Measure Firm Performance

III.Take

Corrective Actions

Differences?

Differences?

Yes

NO

Yes

NO


Contents of a Strategic Business Plan Contents of a Strategic Business Plan for an Entrepreneurial Venturefor an Entrepreneurial Venture

12.4Contents of a Strategic Business Plan for an Entrepreneurial Venture (Table 12.2)

I. Table of Contents X. Human Resources Plan

II. Executive Summary XI. Ownership

III. Nature of the Business XII. Risk Analysis

IV. Strategy Formulation XIII. Timetables and Milestones

V. Market Analysis XIV. Strategy Implementation—Action Plans

VI. Marketing Plan XV. Evaluation and Control

VII. Operational Plans—Service/Product XVI. Summary

VIII. Financial Plans XVII. Appendixes

IX. Organization and Management

Note: The strategic audit can be used to develop a business plan. It provides detailed questions to serve as a checklist.

Source: Thomas L. Wheelen, “Contents of a Strategic Business Plan for an Entrepreneurial Venture.” Copyright © 1988 by Thomas L. Wheelen. Reprinted by permission.


• Focus on industries facing substantial technological or regulatory changes, especially those with recent exits by established competitors.

• Seek industries whose smaller firms have relatively weak competitive positions.

• Seek industries that are in early, high-growth stages of evolution.

• Seek industries in which it is possible to create high barriers to subsequent entry.

• Seek industries with heterogeneous products that are relatively unimportant to the customer’s overall success.

• Seek to differentiate your products from those of your competitors in ways that are meaningful to your customers.

• Focus such differentiation efforts on product quality, marketing approaches, and customer service—and charge enough to cover the costs of doing so.

• Seek to dominate the market segments in which you compete. If necessary, either segment the market differently or change the nature and focus of your differentiation efforts to increase your domination of the segments you serve.

• Stress innovation, especially new product innovation, that is built on existing organizational capabilities.

• Seek natural, organic growth through flexibility and opportunism that builds on existing organizational strengths.

Source: C. W. Hofer and W. R. Sandberg, “Improving New Venture Performance: Some Guidelines for Success,” American Journal of Small Business (Summer 1987), pp. 17, 19. Copyright © 1987 by C. W. Hofer and W. R. Sandberg. Reprinted by permission.

Some Guidelines for New-Venture Some Guidelines for New-Venture SuccessSuccess

12.6Some Guidelines of New-Venture Success (Table 12.3)

358 Ch. 9

Related & Supporting Industries

- Japanese cameras & copiers- Italian shoes & leather

Factor Conditions

Basic Factors- Land, labor

Advanced Factors- Highly educated workers- Digital communications

Generalized Factors- Capital, infrastructure

Specialized Factors- Skilled personnel

Demand Conditions

Home country may support scale efficient operations by itself

Firm Strategy, Structure & Rivalry

Intense rivalry fosters industry competition

Home country of origin is crucial to International success

Factor Conditions

Basic Factors- Land, labor

Advanced Factors- Highly educated workers- Digital communications

Generalized Factors- Capital, infrastructure

Specialized Factors- Skilled personnel

Related & Supporting Industries

- Japanese cameras & copiers- Italian shoes & leather

Demand Conditions

Home country may support scale efficient operations by itself

Firm Strategy, Structure & Rivalry

Intense rivalry fosters industry competition

Porter’s Determinants of National Advantage

359 Ch. 9

Identify International

Opportunities

ExploreResources & Capabilities

Use Core Competence

StrategicCompetitiveness

Outcomes

International Strategies

Modes of Entry

IncreasedMarket Size

Return on Investment

Economies of Scale and Learning

Location Advantage

InternationalBus.-LevelStrategy

Multidomestic Strategy

GlobalStrategy

Transnational Strategy

Exporting

Establishment of New Sub.

Licensing

StrategicAlliances

Acquisition

Higher Performance

Returns

Innovation

International Strategy Opportunities & Outcomes

Management Problems, Risk,

and First Steps

Management Problems, Risk,

and First Steps

360 Ch. 9

International Low Cost

International Differentiation

Countries with advanced or specialized factor conditions most likely to use this strategy

e.g. Canada, Germany, Japan, U.S.A.

Usually located in home country

Export to international markets

Low value added operations in foreign countries

High value added operations in home country

Business-Level International Strategies

361 Ch. 9

Business-Level International Strategies

International Focus Strategies

International Integrated Low Cost/Differentiation

Can be most effective in dealing with diverse markets

Often relies upon flexible manufacturing, total quality management or rapid communication networks

Technologically advanced firms follow focused low cost strategy

Focused differentiation firms compete on the basis of image & design

Third group competes on low price by imitating

362 Ch. 9

Type of Corporate Strategy selected will have an impact on the selection and implementation of the business-level strategies

Some Corp. strategies provide individual country units with flexibility to choose their own strategies

Others dictate bus.-level strategies from the home office & coordinate resource sharing across units

Three Corporate Strategies

Global Strategy


Multi-Domestic Strategy

Corporate-Level International Strategies

363 Ch. 9

Focus on competition in each market

Prominent strategy among European firms due to broad variety of cultures & markets in Europe

Assumes markets differ by country or regions

Business units in each country are independent of each other

Products & services are tailored to local markets

Corp.-Level International Strategies

Strategy & operating decisions are decentralized to strategic business units (SBU) in each country

Multi-Domestic Strategy

364 Ch. 9

Firm often lacks responsiveness to local markets

Requires resource sharing & coordination across borders (which also makes it difficult to manage)


Emphasizes economies of scale

Strategic business units (SBU) are assumed to be interdependent

Decisions regarding business-level strategies are centralized in the home office

Products are standardized across national markets

Global Strategy

365 Ch. 9

Seeks to achieve both global efficiency and local responsiveness

Difficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency as well as local flexibility and decentralization to achieve local market responsiveness

Must pursue organizational learning to achieve competitive advantage



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