Strategic Management Model

Environmental
Strategy Strategy Evaluation
and Control
Scanning Formulation Implementation and Control

External Mission
Reason for
Societal
existence
Environment Objectives
General Forces
What results
to
Task Strategies
accomplish
Environment
by when Plan to
Industry Analysis
achieve the
Policies
mission &
Internal objectives Broad
guidelines for Programs
Structure decision Process
Chain of Command making Activities to monitor
needed to performance
Culture Budgets and take
accomplish
Beliefs, Expectations, a plan corrective
Cost of the
Values action
programs
Procedures
Resources
Sequence
Assets, Skills
of steps
Competencies,
needed to
Knowledge do the job Performance

Feedback/Learning

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Basic Model of
Strategic Management

Four Basic Elements

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The monitoring, evaluating, and disseminating of information from
the external and internal environments to key people within the
firm.
1. Environmental scanning
2. Internal analysis
3. External analysis
4. Industry analysis
5. Strategic Management

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Environmental Scanning

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The societal Environment includes.
• Political- Legal factors, Technological factors, Culture, Structure
• Political- Legal factors, Technological factors, Customers, Government
• Social factors, Technological factors, Political –Legal factors, Economic
factors.
• Social factors, Technological factors, Suppliers, Customers, Interest
groups.
• Suppliers, Customers, Interest groups, Economic factors, Structure
Environmental Scanning
Identify strategic factors
• SWOT Analysis
• Strengths, Weaknesses
• Opportunities, Threats
• Internal Environment
• Strengths & Weaknesses
• Within the organization but not subject to short-run control of
management
• External Environment
• Opportunities & Threats
• External to the organization but not subject to short-run
control of management

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What are the strategic factors in the internal environment?
• Opportunities and threats.
• Strengths and weaknesses.
• Threats and weaknesses
• Competitors and competencies
• Customers and suppliers
Strategy Formulation

Defined:
Development of long-range plans for the effective management of
environmental opportunities and threats in light of corporate
strengths and weaknesses.

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Strategy Formulation
Mission Statement
• Purpose or reason for the organization’s existence
• Promotes shared expectations among employees
• Communicates public image important to stakeholders
• Who we are, what we do, what we’d like to become

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Mission statement express………….
• Reason for the existence of the firm
• Public image to the stakeholders
• Shared expectations of employees
• Who we are
• All the above
Strategy Formulation
Maytag Corporation
Mission Statement

To improve the quality of home life by designing, building,

marketing, and servicing the best appliances in the world.

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• This is a mission statement of an actual company.
“To improve the quality of home life by designing, building,
marketing, and servicing the best appliances in the world”
By reading this mission statement identify the main business of this
company.
1. Real Estate Company
2. Food and Beverage company
3. Fast food company
4. Manufacturing and marketing of home appliance company
5. Garment Company
Strategy Formulation

Objectives

• The end results of planned activity

• What is to be accomplished
• Time in which to accomplish it
• Quantified when possible

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Strategy Formulation
Goals vs. Objectives

A goal is an open-ended statement of what one wants to accomplish with no

quantification of what is to be achieved and no time criteria for completion.

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Goals & Objectives

Corporate goals and objectives include:

• Profitability (net profits)
• Growth (increase in total assets, etc.)
• Utilization of resources (ROE or ROI)
• Market leadership (market share)

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Strategies
Defined:
A strategy of a corporation forms a comprehensive master plan
stating how the corporation will achieve its mission and objectives.
It maximizes competitive advantage and minimizes competitive
disadvantage.

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Strategies

3 Types of Strategy

• Corporate strategy

• Business strategy

• Functional strategy

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Strategies

Corporate Strategy
• Stability
• Growth
• Retrenchment

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6/21/2024
Growth Strategies -- expand the company’s
activities.
Expansion by
• Concentration on the current
product line(s) in one industry
or
•Diversification into other product
lines in other industries.

6/21/2024
Basic Concentration Strategies --
• If a company’s current product lines have real growth
potential, concentration of resources on those
product lines makes sense as a strategy for growth.
• The two basic concentration strategies are
Vertical growth
Horizontal growth
• Growing firms in a growing industry tend to choose
these strategies before they try diversification.

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Vertical Growth
• Vertical growth can be achieved by taking over a
function previously provided by a supplier or by a
distributor.
• The company, in effect, grows by making its own
supplies and/or by distributing its own products.
• This may be done in order to reduce costs, gain
control over a scarce resource, guarantee quality of a
key input, or obtain access to potential customers.
• This growth can be achieved either internally by
expanding current operations or externally through
acquisitions.
6/21/2024
 Vertical integration

• vertical integration—the degree to which a firm operates vertically

in multiple locations on an industry’s value chain from extracting raw
materials to manufacturing to retailing.
• function previously provided by a supplier is called backward
integration (going backward on an industry’s value chain).
• Assuming a function previously provided by a distributor is labeled
forward integration (going forward on an industry’s value chain).

6/21/2024
 Horizontal integration

• Horizontal Growth by operating in multiple geographic

locations at the same point on an industry’s value
chain through internal development or externally
through acquisitions and strategic alliances with other
firms in the same industry .

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Basic Diversification Strategies
• When the growth has plateaued and opportunities for growth in the
original business have been depleted.
• Two basic diversification strategies

– Concentric Diversification

– Conglomerate Diversification

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Concentric Diversification

• Concentration on related industry

• Related industry may be a very appropriate corporate strategy when a
firm has a strong competitive position but industry attractiveness is
low.

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Conglomerate diversification

• Diversifying into an industry unrelated to its current one.

• When the current industry is unattractive and the firm has skills for
unrelated products.
• Rather than maintaining a common thread throughout their
organization, concerned with financial considerations of cash flow or
risk reduction.

6/21/2024
Stability Strategies

• Popular with small business owners who have found a niche and are
happy with their success and the manageable size of their firms.
• Stability strategies can be very useful in the short run.
• Pause/proceed with caution an opportunity to rest before continuing a
growth or retrenchment strategy.
• No change do nothing new, continue current operations and policies for the
foreseeable f
• Profit strategies attempt to artificially support profits

6/21/2024
Retrenchment Strategies
– Turnaround - improvement of operational efficiency by cutting cost, expenses
and selling off assets.
– Captive Company Strategy - to be a captive company to one of its larger
customers in order to guarantee the company’s continued existence with a
long-term contract.
– Selling out/Divestment.
– Bankruptcy- settlement of obligations by court decision
– Liquidation- termination

6/21/2024
 Strategies

Business Strategy
• Competitive strategies
• Cooperative strategies

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Michael Porter proposed four“generic”
competitive strategies
• Lower cost strategy is the ability of a company or a
business unit to design, produce, and market a
comparable product more efficiently than its competitors.
• Differentiation strategy is the ability of a company to
provide unique and superior value to the buyer in terms of
product quality, special features, or after-sale service

• Application of these determined by

• Competitive Scope (Breadth of the target
market)
Prentice Hall, Inc. © 2006
Cost Leadership

–Low-cost competitive strategy

–Broad mass market
–Efficient-scale facilities
–Cost reductions
–Cost minimization
Differentiation

–Broad mass market

–Unique product/service
–Premiums charged
–Less price sensitivity
Cost-Focus

–Low-cost competitive strategy

–Focus on market segment
–Niche focused
–Cost advantage in market segment
Differentiation Focus

–Specific group or geographic market focus

–Differentiation in target market
–Special needs of narrow target market
Strategies
Functional Strategy
• HRM strategies
• Marketing strategies (Market development/Product
development)
• Finance strategies
• R&D strategies
• Technological leadership
• Technological followership

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Hierarchy of Strategy
Corporate Strategy

Business
(Division Level)
Strategy

Functional
Strategy

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Policies

Defined:
Broad guidelines for decision making that link the
formulation of strategy with its implementation.

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Strategy Implementation

Programs
Strategy
Implementation Budgets

Procedures

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Strategic Decision Making

Strategic Decisions

• Rare

• Consequential

• Directive

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Environmental Scanning and
Industry Analysis

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 Environments

Environmental uncertainty:

The degree of complexity plus the degree of change

existing in an organization’s external environment.

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 Environments

Environmental scanning:

The monitoring, evaluating, and disseminating of information from

the external and internal environments to key people within the
corporation to avoid strategic surprise and ensure the long-term
health of the firm.

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External Environment

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 Societal Environment
Important Variables

Economic Technological Political-Legal Sociocultural

GDP trends Total government Antitrust regulations Lifestyle changes
spending for R&D
Interest rates Environmental protection Career expectations
Total industry spending laws
Money supply Consumer activism
for R&D
Tax laws
Inflation rates Rate of family formation
Focus of technological
Special incentives
Unemployment levels efforts Growth rate of population
Foreign trade regulations
Wage/price controls Patent protection Age distribution of
Attitudes toward foreign population
Devaluation/revaluation New products
companies
Regional shifts in
Energy availability and New developments in
Laws on hiring and population
cost technology transfer from
promotion
lab to marketplace Life expectancies
Disposable and
Stability of government
discretionary income Productivity Birth rates
improvements through
automation

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 External Environment
Sociocultural Trends

• Increasing environmental awareness

• Growth of the seniors market
• Impact of Generation Y boomlet
• Decline of the mass market
• Changing pace and location of life
• Changing household composition
• Increasing diversity of workforce and markets

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Issues Priority Matrix
Probable Impact on Corporation

High Medium Low

High High Medium

Priority Priority Priority

Probability of Occurrence

High Medium Low

Priority Priority Priority

Medium Low Low

Priority Priority Priority

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Industry Analysis

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 Industry Analysis

Threat of New Entrants --

Barriers to entry:
• Economies of Scale
• Product Differentiation
• Capital Requirements
• Switching Costs
• Access to Distribution Channels
• Cost Disadvantages Independent of Size
• Government Policy

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 Industry Analysis

Rivalry Among Existing Firms --

Intense rivalry related to:

• Number of competitors
• Rate of Industry Growth
• Produce or Service Characteristics
• Amount of Fixed Costs
• Capacity
• Height of Exit Barriers
• Diversity of Rivals

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Industry Analysis

Threat of Substitute Products/Services

Substitute Products:
Those products that appear to be different but can
satisfy the same need as another product. To the extent
that switching costs are low, substitutes can have a
strong effect on an industry.

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 Industry Analysis

Bargaining Power of Buyers --

Buyer is powerful when:

• Buyer purchases large proportion of seller’s products
• Buyer has the potential to integrate backward
• Alternative suppliers are plentiful
• Changing suppliers costs very little
• Purchased product represents a high percentage of a buyer’s costs
• Buyer earns low profits
• Purchased product is unimportant to the final quality or price of a
buyer’s products

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 Industry Analysis

Bargaining Power of Suppliers --

Supplier is powerful when:

• Supplier industry is dominated by a few companies but sells to
many
• Its product is unique and/or has high switching costs
• Substitutes are not readily available
• Suppliers are able to integrate forward and compete directly
with present customers
• Purchasing industry buys only a small portion of the supplier’s
goods.

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 Industry Analysis

Forecasting Techniques:

• Extrapolation
• Brainstorming
• Expert opinion
• Statistical modeling
• Scenario writing

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 External Factor Analysis Summary (EFAS)

External Weighted
Factors Weight Rating Score Comments
1 2 3 4 5
Opportunities

Threats

Total Weighted Score 1.00

Notes: 1. List opportunities and threats (5–10) 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.

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 External Factor Analysis Summary (EFAS)
Maytag Example

Weighted
External Factors Weight Rating Score Comments
Opportunities 1 2 3 4 5
• Economic integration of .20 4 .80 Acquisition of
European Community Hoover
• Demographics favor quality .10 5 .50 Maytag quality
appliances
• Economic development of Asia .05 1 .05 Low Maytag presence
• Opening of Eastern Europe .05 2 .10 Will take time
• Trend to “Super Stores” .10 2 .20 Maytag weak in this
Threats channel

• Increasing government regulations .10 4 .40 Well positioned

• Strong U.S. competition .10 4 .40 Well positioned
• Whirlpool and Electrolux strong .15 3 .45 Hoover weak globally
globally
• New product advances .05 1 .05 Questionable
• Japanese appliance companies .10 2 .20 Only Asian presence is
Australia
Total Scores 1.00 3.15

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Internal Scanning: Organizational Analysis

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 Resource-Based Approach

Internal strategic factors:

Critical strengths and weaknesses that are likely to determine if the

firm will be able to take advantage of opportunities while avoiding
threats.

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 Resource-Based Approach

Resource:

An asset, competency, process, skill, or knowledge controlled by the

corporation.

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 Evaluating Key Resources
VRIO Framework
• Value: Does it provide competitive advantage?

• Rareness: Do other competitors possess it?

• Imitability: Is it costly for others to imitate?

• Organization: Is the firm organized to exploit the

resource?

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Resource Sustainability

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Corporate Value Chain

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Basic Organizational Structures:
Simple and Functional
I. Simple Structure

Owner-Manager

Workers

II. Functional Structure

Top Management

Manufacturing Sales Finance Personnel

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 Basic Structures of
Corporations: Divisional
III. Divisional Structure*

Top Management

Product Division A Product Division B

Manufacturing Finance Manufacturing Finance

Sales Personnel Sales Personnel

*Conglomerate structure is a variant of the division structure.

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 Strategic Marketing Issues

Market Position:
• “Who are our customers?”

Market Segmentation:
• Niches, new product development

Marketing Mix:
• Combination of key variables under the corporation’s
control used to affect demand and gain competitive
advantage.

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 The Product Life Cycle

*The right end of the Growth

stage is often called
Competitive Turbulence
because of price and
distribution competition that
shakes out the weaker
competitors. For further
information, see C. R. Wasson,
Introduction Growth* Maturity Decline Dynamic Competitive Strategy
and Product Life Cycles, 3rd ed.
Time (Austin, Tex.: Austin Press,
1978).

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 Strategic HRM Issues

Teams
• Autonomous (self-managing)
• Cross-functional
• Concurrent engineering

Unionization
• 13.9% of labor force overall
• 12% of private labor force

Temporary Workers
• Increase flexibility; avoid layoffs

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 Strategic HRM Issues

Quality of Worklife
• Participative problem solving
• Restructuring work
• Innovative reward systems
• Improvements in work environment

Human Diversity
• Different races, cultures and backgrounds in the
workplace.

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