T

EN
EM
AG
A N
M
I C
EG
AT
R
ST
 Chapters

CH 1: Introduction to Strategic Management

CH 2: Mission, Objectives and Goals

CH 3: Environmental Analysis

CH 4: Strategy Formulation

CH 5: Strategy Implementation

CH 6: Strategic Evaluation and Control

 CHAPTER ONE INTRODUCTION


1.1 DEFINING STRATEGIC MANAGEMENT


 The Word ‘strategy’ is derived from the Greek term
strategies, meaning a carefully formulated military style
plan of campaign.
Strategy (from organizational point of view)
– Is a means to achieve mission, vision and objectives and
to establish a favorable competitive position.
Strategic management can be defined as the art and science
of formulating, implementing, and evaluating cross-
functional decisions that enable an organization to
achieve its objectives.
It is overall plan and actions for deploying resources
and skills taking into consideration opportunities and
threats in the environment
CONT.…
Four big questions involved in a strategy
 Where are we now?
 Where do we want to go?
 How will we get there?
 How do we know if we got there?
So it includes environmental scanning
(both external and internal), strategy
formulation (strategic or long-range
planning), strategy implementation, and
evaluation and control.
 CONT.…

 The study of strategic management,

therefore, emphasizes the monitoring
and evaluating of external
opportunities and threats in light of a
c o r p o ra t i o n’s s t r e n g t h s a n d
weaknesses.
 CONT…

 Strategic management techniques can be viewed in two

major ways.
1. bottom-up or collaborative processes.
• When the employees initiate a proposal which they
subsequent ly submit to t heir managers or t heir
sup eriors, w ho p ut t he idea fur t her up in t he
establishment.
2. the top-down approach which is more common than any
other method.
• Here, the chief executive officer and his team decide on
the overall direction which the organization should go.
1.2 STAGES OF STRATEGIC MANAGEMENT
 The strategic-management process
consists of three stages
1. Strategy formulation includes
 developing a vision and mission,
 identifying external opportunities and
threats,
 determining internal strengths and
weaknesses,
 establishing long-term objectives,
 generating alternative strategies, and
 choosing particular strategies to pursue.
CONT…

 Strategy-formulation issues include

 deciding what new businesses to enter,
 what businesses to abandon,
 how to allocate resources,
 whether to expand operations or diversify,
 whether to enter international markets,
 whether to merge or form a joint venture,
 CONT…
2. Strategy implementation
 means mobilizing employees and
managers to put formulated strategies
into action.
 Strategy making requires person with
vision while strategy implementation
requires a person with administrative
ability.
It is often is called the “action stage” of strategic
management.
 CONT…

Implementing strategy includes

• developing a strategy-supportive culture,
• creating an effective organizational structure,
• redirecting marketing efforts,
• preparing budgets,
• developing and utilizing information systems, and
• linking employee compensation to organizational
performance.
It also requires a f ir m to establish annual objectives,
devise policies, motivate employees, and allocate
resources so that formulated strategies can be executed.
CONT…
3. Strategy evaluations
Three fundamental strategy-evaluation activities are
(1) reviewing external and internal factors that are the
bases for current strategies,
(2) measuring performance, and
(3) taking corrective actions.
Strategy evaluation is needed because success today
is no guarantee of success tomorrow!
Success always creates new and different problems;
satisfied organizations experience may failure .
 1 . 3 K E Y T E R M S I N S T R AT E G I C
MANAGEMENT
1. Competitive Advantage “anything that a f irm does
especially well compared to rival f irms.” E.g. Coca
Cola Company
2. Strategists: are the individuals who are
most responsible for the success or
failure of an organization.
 chief executive officer, president, owner, chair
of the board, executive director, chancellor,
dean, or entrepreneur
CONT…

3. Vision and Mission Statements

 vision statement that answers the question
“What we want to become?”
 Mission statements addresses the basic
question :“What is our business?”
 It is about the future direction of an
organization.
CONT…

4. External Opportunities and Threats

5. Internal Strengths and Weaknesses
6. Long-Term Objectives
 Objectives c a n be de f ine d a s spe c if ic re sults tha t a n
organization seeks to achieve in pursuing its basic mission.
 Long-term means more than one year.
7. Strategies are the means by which long-term objectives will be achieved.
8. Annual Objectives
 short-term milestones that organizations must achieve to reach
long-term objectives
9. Policies are the means by which annual objectives will be achieved.
 Policies include guidelines, rules, and procedures established to
support efforts to achieve stated objectives.
 1.4. THE STRATEGIC MANAGEMENT process
MODEL
Relationships among major components of the strategic
management process.
1.5 THE STRATEGIC MANAGEMENT APPROACH

1. Resource-based model
 A f irm’s unique resources and capabilities are the
critical determinants of strategic competitiveness.
 T h i s M o d e l f o c u s e s o n t h e f ir m’s i n t e r n a l
environment of the organization.
 Assumes each f ir m is a collection of unique
resources and capabilities
 To become a competitive advantage, a resource or
capability must be Valuable, Rare, Costly to
imitate, Not substitutable
It mainly focus on Patents and Inventions
CONT…

2. Industrial organization (I/O) model

 This Model focuses on the f ir m’s external
environment.
 This Model says the industry in which a f ir m
chooses to compete has a stronger inf luence
on f ir m performance than do the choices
managers make inside their organizations.
 Strategy dictated by the external environment
of the f ir m (what opportunities exist in these
environments?)
1.6 WHY SOME FIRMS DO NO STRATEGIC PLANNING
 Lack of knowledge or experience in strategic planning—No training in
strategic planning.
 Poor reward structures—when an organization assumes success, it
often fails to reward success. When failure occurs, then the f irm may
punish.
 Firef ighting—a resolving crises and f iref ighting that it reserves no time
for planning.
 Waste of time—some f irms see planning as a waste of time because
no marketable product is produced.
 Too expensive—some organizations see planning as too expensive in
time and money.
 Laziness —People may not want to put forth the effort needed to
formulate a plan.
 Content with success—particularly if a f irm is successful, individuals
may feel there is no need to plan because things are fine as they stand.
But success today does not guarantee success tomorrow.
 Fear of failure—
 1.7 GUIDELINES FOR EFFECTIVE STRATEGIC MANAGEMENT

Seventeen Guidelines for the Strategic-Planning Process to Be

Effective
1. It should be a people process more than a paper process.
2. It should be a learning process for all managers and
employees.
3. It should be words supported by numbers
4. It should be simple and no routine.
5. It should vary assignments, team memberships, meeting
formats, and even the planning calendar.
6. It should challenge the assumptions underlying the current
corporate strategy.
7. It should welcome bad news.
CONT…

8. welcome open-mindness and a spirit of inquiry

and learning.
9. It should not be a bureaucratic mechanism.
10. It should not become ritualistic, stilted, or
orchestrated.
11. It should not be too formal, predictable, or rigid.
12. It should not contain jargon or arcane planning
language.
13. It should not be a formal system for control.
14. It should not disregard qualitative information.
15. It should not be controlled by “technicians.”
16. Do not pursue too many strategies at once.
17. Continually strengthen the “good ethics is good
business” policy.
 1.8 BENEFITS OF STRATEGIC MANAGEMENT
 Businesses using strategic-management
concepts show signif ic ant improvement in
sales, prof itability, and productivity compared
to firms without systematic planning activities.
Non-financially
It allows for identification and exploitation of opportunities
It provides an objective view of management problems.
It represents a framework for improved coordination and control of
activities.
It minimizes the effects of adverse conditions and changes.
It allows major decisions to better support established objectives.
It allows more effective allocation of time and resources to identified
opportunities.
It allows fewer resources and less time to be devoted to correcting
erroneous or ad hoc decisions.
 BENEFITS……

It creates a framework for internal communication among

personnel.
It helps integrate the behavior of individuals into a total effort.
It provides a basis for clarifying individual responsibilities
leads to increased employee productivity.
It encourages forward thinking.
It provides a cooperative, integrated, and enthusiastic
approach to tackling problems and opportunities.
It encourages a favorable attitude toward change.
I t gi v e s a d e gre e o f d i sc i pl i ne and fo rmal i t y to t he
management of a business
1.9. DISADVANTAGES OF STRATEGIC MANAGEMENT
 Long Term Benefit vs. Immediate Results
• Strategic management processes are designed to
provide an organization with long-term benefits.
 Impedes Flexibility
• When you undertake a strategic management
process, it will result in the organization saying “no”
to some of the opportunities that may be available.
 DISADVANTAGES…..
 It Can Be Expensive
• There is no doubt that in the not-for-profit sector there are
many organizations that cannot afford to hire an external
consultant to help them develop their strategy.
 The Future Doesn’t Unfold As Anticipated
• One of the major criticisms of strategic management is that
it requires the organization to anticipate the future
environment in order to develop plans, and as we all know,
predicting the future is not an easy undertaking.
.

End Of Chapter One

Thanks!
CHAPTER TWO

THE BUSINESS VISION, MISSION &

OBJECTIVES

“Where there is no vision, the people perish.”

“An organization without mission,
vision and objectives is not an
organization; it is simply a collection
of individuals/ resources.”
 1.V i s i o n S t a t e m e n t


What is Vision?
 Vision is a goal oriented mental construct that guides
people’s behavior;
 it is the picture for which people are willing to work.
 It is a dream of desired future.
 Vision is what the firma/person would ultimately like to
become. It is a theme which gives a focused view of
accompany.

Vision Statement is a statement of the

future model you are working towards.
CONT…
It outlines what the organization wants to be,
- Vision must be convincing, inspiring and make people
want to join the organization.
If vision is vivid and meaningful enough, people can do
outstanding things to bring to realization.
For example
a charity working with the poor might have a
vision statement which read "A world without
poverty"
We want to be the most successful airline in
Africa.
CONT…

A vision is the hope for “the reality to be” to replace

“the reality that is”.
Features of an effective vision statement include:
Clarity and lack of ambiguity
Vivid and clear picture
Description of a bright future
Memorable and engaging wording
Realistic aspirations
Alignment with organizational values and culture
 3.2. MISSION STATEMENT
What is business mission?
Historically mission is associated with Christian
re l i g i o us g ro up s; i nd e e d , f o r m a ny ye a rs, a
m issionary was assum ed to be a person on a
specifically religious mission.
The word "mission" dates from 1598, originally of
Jesuits sending "missio", Latin for "act of sending"
members abroad.
 Mission defines the fundamental purpose of an
organization describing why it exists and what it does
to achieve its Vision.
 Mission is a very broad and general statement about
the basic purpose of the organization. It is a
declaration of organization’s purpose or clarifies the
purpose.
 CONT…

Mission statements often contain

the following:
Purpose and aim of the organization
Responsibilities of the organization toward these
stakeholders
 CONT…
Characteristics of a mission statement
Effective mission statement should possess the
following 7 characteristics.
It should be
 feasible: always aim high but it should not be an
impossible statement.
 realistic and achievable
 precise: should not be so narrow to restrict the
organization’s activities nor should it be too
broad to make itself meaningless.
 clear: should be clear enough to lead to action.
 CONT…

 motivating: should be motivating for members of the

organization or being its customers.
 distinctive: f or years it c reated an im p ortant
distinction in the public mind.
 indicate major components of strategy: along with
the organizational purpose should indicate the major
components of the strategy to be adopted.
 indicate how objectives are to be accomplished: it
should also provide clues regarding the manner in
which the objectives are to be accomplished.
CONT…
 The mission statement is preceded by
identifying the mandate and taking into
account the interest of stakeholders.
 The limits of mandate are def ined by the
following questions: These are:-
 What must be done?
 What could be done?
 What must not be done?
CONT…

Therefore the mission statement should be

con s is ten ce with th e organ ization’s
mandate.
The mission statement also raises the
following questions.
 Who are our client and stakeholders?
 What do our clients or stakeholders want?
 What do they consider important?
 Is the firm doing the right thing or should it
change the function/service or strategy?
 3. Components of a Mission Statement
Most practitioners and academicians of strategic management consider an
effective statement to exhibit nine components.
Customer: Who are the firm’s customers?
Products or services: What are the firm’s major products or services?
Markets: Geographically, where does the firm compete?
Technology: Is the firm technologically current?
Concern for survival, growth, and prof itability: Is the f ir m committed to growth and
financial soundness?
Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the
firm?
Self-concept: What is the f ir m’s distinctive competence or major competitive
advantage?
Concern for public image: Is the f ir m resp onsive to social, community, and
environmental concerns?
Concern for employees: Are employees a valuable asset of the firm?
 3.Strategic goals and objectives
 Goals: denotes what an organization
hopes to accomplish in the feature.
•I t r e p r e s e n t s a f u t u r e s t a t e o r
outcome of current efforts.
•Strategic goals translate the mission
and vision in to concrete terms and
def in e benef it s to be gained from
introducing changes.
 CONT…

Aims/ goals
Aims and goals are often use interchangeably.
 are general statements of what we intend to achieve
in relation to clients needs.
 Are a broad statement of what we are trying to
achieve.
 Because of this aim/ goals are not usually written in
a way that we would know whether we have
achieved them.
 CONT…

 Objectives: are expressions of goals,

they are end result of that state how
goals shall be achieved.
•They are concrete and specif ic in
contrast to goals.
•Objectives make goals operational
and mainly quantitative, measurable
and comparable.
CONT…

Objective
 Indicate how goals can be achieved.
 Desirable outcomes of organizational activity
 Are more specific than goals.
 are specific statements of what you intend to
achieve.
 Is a very specif ic statement what is to be done to
accomplish the mission.
 Ideally should be SMART:
CONT…

A statement of an objective makes

clear.
What is to be accomplished
How much is to be accomplished
when it is to be accomplished
By whom it is to be accomplished
CONT…

Examples of goals, objectives and targets


Goal: earn $20,


Objective: sell 10 shirts for $2 each,


Target: 10 people
Example of objectives


To achieve 10% annual growth in earning
per share.


To achieve 20% - 25% return on equity.


To achieve 27% return on capital employed.
CONT…

What are the differences between goals

and objectives?
Although both goals and objectives use the language of
outcomes, the characteristic that distinguishes goals from
objectives is the level of specificity.
The difference is where we want to be
(goals) and what we do (objectives ).
 Goals are intangible; objectives are tangible.
 Goals are abstract; objectives are concrete.
 Goals can't be validated as is; objectives can be validated
CONT…

o E.g.: My aim is to lose weight, but my objective is

to lose one pound a week.
 Goals are what you set to achieve the mission of
your organization or program.
 It should include words such a
s "increase/decrease," "deliver," "improve" an
d "create."
 Objectives are milestones that are along the way
to reaching your goal.
CONT…

Characteristics of Objectives:-
 Objectives should be understandable:
 concrete and specific
 related to a time frame
 measurable and controllable:
 Challenging: should be set at challenging but not
unrealistic levels.
 Different objective should correlate with each other
 Objectives should be set within constraints
 Objectives should be SMART
MAKING OBJECTIVES SMART

SMART objectives means

1. Specific (S)
 Well defined, significant, and Clear to anyone that has a
basic knowledge of the project
 Objectives must be clear and un ambiguous,
 When objectives are specific, they communicate exactly
what is expected, when, and how much
2. Measurable (M)
 Measurable, meaningful, motivational
o Know if the goal is obtainable and how far way the
completion is
o Know when it has been achieved
N.B:- A goal without a measurable outcome is like a sports
competition without a scoreboard or scorekeeper.
 CONT…
3. Attainable (A)
 agreed upon achievable, acceptable, action-oriented
 Agreement with all the stakeholders what the goals should be
4. Relevant (R)
 Realistic, relevant, reasonable, rewarding, result-oriented
 Goals must be aligned to the firm’s visions and mission
5. Time-bound (T)
 Time-based, timely, tangible, traceable
o Enough time to achieve the goal.
o Not too much time, when can affect project performance.
 Goals must have starting points, ending points and fixed durations.
 SMART goals = SMART organization
CONT…

Objectives are needed at All Levels

Process is top-down!
1. First, establish organization-wide objectives
2. Next, set business and product line objectives
3. Then, establish functional and departmental
objectives
4. Individual objectives come last
.

End of Chapter Two

Thanks!!
CHAPTER THREE:

ENVIRONMENTAL ANALYSIS

3.1. External Environmental

Analysis


ENVIRONMENTAL ANALYSIS
What is environment?
As to the oxford dictionary “environment” is a surrounding
objects, regions or circumstances.”
The business environment consists
consist of all those aspects
and forces in the surroundings of business enterprises
under which business operations are to be carried out
effectively and efficiently.
Environmental scanning is the monitoring,
evaluating, and disseminating of information
from the external and internal environments to
key people within the corporation
CONT…

Before an organization can begin strategy

formulation, it must scan
 the external environment to identify possible
opportunities and threats and
 Its internal environment for strengths and
weaknesses.
 CONT…
Generally environmental influences could be described as
1. Opportunity
 is a favorable condition in the organization’s environment, which enables it
to consolidate and strengthen its position.
 Opportunities arise when environmental trends create the potential for
organization to achieve a competitive advantage.
2. Threat
 is an unfavorable condition in the organization’s environment, which creates,
arises for or causes damage to the organization.
3. Strength
 is an inherent capacity, which an organization can use to gain strategic
advantage over its competitors.
4. A weakness
 is an inhe re nt lim it at ion or const raint , which cre at e s a st rat e gic
disadvantage.
3.1.1. THE NATURE OF EXTERNAL ANALYSIS
The purpose of an external audit is to develop a finite list of
opportunities that could benefit a firm and threats that
should be avoided.
Broadly external environment further is classified into
1. the macro (general) environment and
I. Social environment/sociological factor
II. Political and Legal Environment
III. Economic Environment
IV. Technological Environment

2. The micro environment

V. industry and competitive environment.
 i. Social environment/sociological
factor
Include Social, cultural, demographic, and
environmental changes that have a major impact
on virtually all products, services, markets, and
customers.
Small, large, for-profit, and nonprofit organizations
in all industries are being shocked and
challenged by the opportunities and threats.
CONT…
E.g. population, waste mgt,
recycling, air pollution,
ozone depletion, endangered species,
value placed on leisure time, no. of births/deaths,
Life expectancy rates, Attitudes toward
business,
Lifestyles, Attitudes toward
government,
Attitudes toward work, Buying habits,
Ethical concerns, Attitudes toward
saving,
Sex roles, Attitudes toward
investing,
Regional changes in tastes and preferences,
Number of women and minority workers,
Attitudes toward product quality,
 II. POLITICAL, GOVERNMENTAL, AND LEGAL FORCES

 Forces are that should gathered information for best utilizing

the oppor tunities and to best d efend the threats are
Government regulations or deregulations,
 Changes in tax laws and Special tariffs,
 Political action committees,
 severity, and location of government Protests,
 Number of patents and Changes in patent laws,
 Environmental protection laws,
 Level of defense expenditures,
 Legislation on equal employment and Antitrust legislation.
 Level of government subsidies,
III. TECHNOLOGICAL FORCES

Technological advancements can dramatically

affect organizations’ products, services, markets,
suppliers, distributors, competitors, customers,
manufacturing processes, marketing practices,
and competitive position
In high-tech industries, identification and
evaluation of key technological opportunities
and threats can be the most important part of
the external strategic-management audit.
Firms should pursue strategies that take advantage
of technological opportunities to achieve
sustainable, competitive advantages in the
marketplace.
 IV. ECONOMIC ENVIRONMENT

Economic factors have a direct impact on the potential

attractiveness of various strategies.
E.g. unemployment rate, recession, Interest rate,
Availability of credit, Level of disposable income,
Inflation rates, Monetary policies, Fiscal policies, Tax
rates
For example, when interest rates rise, funds needed for
capital expansion become hard to get so it limits us
our expansion strategy.
 V. COMPETITIVE FORCES/ENVIRONMENT.
ENVIRONMENT.
competitors are firms that offer similar products and services in
the same market.
An important part of an external audit is identifying rival firms
and determining their strengths, weaknesses, capabilities,
opportunities, threats, objectives, and strategies.
Collecting and evaluating information on competitors is
essential for successful strategy formulation.
Major competitors’ weaknesses can represent external
opportunities; major competitors’ strengths may represent
key threats.
 COMPETITIVE ANALYSIS: PORTER’S FIVE-FORCES
MODEL
Porter’s Five-Forces Model of competitive analysis is a widely
used approach for developing strategies in many industries.
Porter’s Five-Forces of competitive analysis of the industry:-
1. Rivalry among competing firms
2. Potential entry of new competitors new f ir ms can
easily enter a particular industry,
3. Potential development of substitute products
4. Bargaining power of suppliers
5. Bargaining power of consumers
CONT…
 Rivalry among competing firms
1.High number of competing firms
2.Similar size of firms competing
3.Similar capability of firms competing
4.Falling demand for the industry’s products
5.Falling product/service prices in the industry
 Potential Entry of New Competitors
Whenever new firms can easily enter a particular
industry, the intensity of competitiveness among
firms increases.
 The risk of new entry by potential competitors.
CONT…

 Potential Development of Substitute Products

 The closeness of substitutes to an industry’s products.
 Bargaining Power of Suppliers
The bargaining power of suppliers affects the intensity of
competition in an industry, especially when there is a
large number of suppliers, when there are only a few
good substitute raw materials, or when the cost of
switching raw materials is especially costly.

 Bargaining Power of Consumers

When customers are concentrated or large or buy in
volume, their bargaining power represents a major force
affecting the intensity of competition in an industry
Home work :
 Discuses the level of competitive about
Ethiopian Airlines in the industry taking the
porter’s 5 force model.
 3.1.2. SOURCES OF INFORMATION

Source of information for performing an external

audit are:-

Magazines, trade journals, and newspapers

Internet
Suppliers, distributors, salespersons, customers,
and competitors represent other sources of vital
information
3.1.3. FORECASTING TOOLS AND
TECHNIQUES
Forecasts are educated assumptions about future
trends and events
Forecasting tools can be broadly categorized into
two groups:

- Quantitative techniques
Qualitative techniques
QUALITATIVE APPROACHES

The six basic to forecasting are: sales force

estimate, anticipatory surveys, market research,
scenario forecasts, Delphi forecasts, and
brainstorming.
qualitative or judgmental forecasts are particularly
useful when historical data are not available or
when constituent variables are expected to
change significantly in the future.
QUANTITATIVE FORECASTS
are most appropriate when historical data are available and
when the relationships among key variables are
expected to remain the same in the future.
The three types of quantitative forecasting techniques are
econometric models, regression, and trend extrapolation.
Linear regression, for example, is based on the assumption
that the future will be just like the past- which, of course,
it never is.
As historical relationships become less stable, quantitative
forecasts becomes less accurate
 3.1.4. INDUSTRY ANALYSIS: THE EXTERNAL FACTOR
EVALUATION (EFE) MATRIX

EFE) Matrix allows strategists to summarize and

(

evaluate economic, social, cultural, demographic,

environmental, political, governmental, legal,
technological, and competitive information.
The EFE Matrix can be developed in five steps:
1. List key external factors as identified in the external-
audit process.
2. Assign to each factor a weight that ranges from 0.0
(not important) to 1.0 (very important).
CON…
3. Assign a rating between 1 and 4 to each key external

factor to indicate how effectively the f ir m’s current

strategies respond to the factor, where 4 = the response
is superior, 3 = the response is above average, 2 = the
response is average and 1 = the response is poor .
Ratings are based on effec tiveness of the f ir m’s
strategies
4. Multiply each factor’s weight by its rating to determine a
weighted score.
5. Sum the weighted scores for each variable to determine
the total weighted score for the organization.
 3.1.5 THE COMPETITIVE PROFILE MATRIX (CPM)
The Competitive Profile Matrix (CPM) identifies
a firm’s major competitors and its particular
strengths and weaknesses in relation to a
sample firm’s strategic position.
The weights and total weighted scores in both
a CPM and an EFE have the same meaning.
However, critical success factors in a CPM
include both internal and external issues;
therefore, the ratings refer to strengths and
weaknesses, where 4 = major strength, 3 =
minor strength, 2 = minor weakness, and 1 =
major weakness.
CON…

The critical success factors in a CPM are not

grouped into opportunities and threats as they
are in an EFE.
In a CPM, the ratings and total weighted scores for
rival firms can be compared to the sample firm.
This comparative analysis provides important
internal strategic information.
3.2. The Internal Assessment


THE NATURE OF AN INTERNAL AUDIT

The Process of Performing an Internal Audit

 T he internal audit requires g athering and
assim ilating inform ation about the f ir m’s
management, marketing, f inance/accounting,
p ro d uc ti o n/ o p e rati o ns, re se arc h and
development (R&D), and management
information systems operations.
CON…
Performing an internal audit requires
gathering, assimilating, and evaluating
information about the firm’s operations.
Critical success factors, consisting of both
strengths and weaknesses, can be
identified and prioritized
Weaknesses⇒Strengths⇒Distinctive
Competencies ⇒ Competitive Advantage
I. INTERACTING FUNCTIONAL AREAS OF BUSINESS

Strategic management is a highly interactive

process that requires effective
coordination among management,
marketing, finance/accounting, production,
R&D, and information systems.
A key to organizational success is effective
coordination and understanding among
managers from all functional business
areas.
II. INTEGRATING STRATEGY AND CULTURE:

Organizational culture can be def in ed as “a

pattern of beh av ior developed by an
organization as it learns to cope with its
problem of external adaptation and internal
integration that has worked well enough to be
considered valid and to be taught to new
members as the correct way to perceive,
think, and feel.”
 III. INTEGRATING STRATEGY AND RESOURCE
There are three types of resources-Assets, capabilities
and competencies which have been identified under
Resource Based View (RBV) of the firm. Strategic
importance of Resources
1. Available resources: are those resources that are
basic to the capability of any organization:
Physical resources, Human resources, Financial
resources and Intellectual capital
 2. Unique resources: unique resources as def ined in
strategy texts are those resources, which critically
strengthen competitive advantage like patented
products or people
 CORE COMPETENCIES:
activities or processes that critically strengthen an organization’s
competitive advantage is due to.
 Scarcity: - Just in case any resource is widely available, then
it’s not likely to be a source of competitive advantage.
 Inimitability: - limit imitation. Physical uniqueness, causal
ambiguity or scale deterrence are few ways how organizations
attempt doing this.
 Durability: - Durability in such situations becomes a more
stringe nt te st fo r v aluing re so urc e s, c apabilitie s and
competencies.
 Superiority: - “Being good is not enough and a f irm must be
INTERNAL AUDIT TOOLS

1. Quantitative and Qualitative Assessment

i. Quantitative analysis mostly it is about f in ancial
analysis includes Prof itability ratios, Liquidity ratios,
Leverage ratios, Activity ratios
ii. Qualitative analysis is about understanding human
resources, organizational culture and its
temperament towards creativity and innovation
Qualitative information also supplements quantitative
data in understanding basic concepts of what
customers’ value and how they feel about a given
product
 CON…

2. Comparison Standards
The three commonly accepted comparison standards are:
 a ) I nd u st r y N o r m s c o m pa re t h e pe r fo r m a nc e o f a n
organization in the same industry or sector against a set of
agreed performance indicators.
 B) Historical Comparisons look at the performance of an
organization in relation to previous years in order to identify
significant changes.
 c) Benchmarking compares an organization’s performance
against ‘best in class’ performance wherever that is found.
 CON…

3. SWOT- Analysis
An effective organizational strategy, therefore, is
one that capitalizes on the opportunities
through the use of strengths and neutralizes
the threats by minimizing the impact of
weaknesses.
CON…
The four environmental inf luences could be described as
follows:

A. Strengths
Strength is an inherent capacity which an organization can
use to gain strategic advantage over its competitors. An
e xample o f stre ngth is supe rio r re se arc h and
development skills which can be used for new product
development so that the company gains competitive
advantage.
Two factors contribute to your strengths: ability and
resources available.
CON…

Ability is evaluated on 3 counts:

 Versatility: your ability to adapt to an ever changing
environment.
 Growth: your ability to maintain a continuing growth.
 Markets: your ability to penetrate or create new markets.
Resources has three dimensions:
 Availability: your ability to obtain the resources needed.
 Quality: the quality and up-to-datedness of the resources
employed.
 Allocation: your ability to distribute resources both
effectively and efficiently.
CON…

 Firm’s strengths are its resources and capabilities that

can be used as a basis for developing a competitive
advantage. Example:
 Patents
 Strong brand names
 Good reputation among customers
 Cost advantages from proprietary know-how
 Exclusive access to high grade natural resources
 Favorable access to distribution networks
CON…

B. Weaknesses
Weakness is an inherent limitation or constraint
which creates a strategic disadvantage.
Your weaknesses are determined through failures,
defeats, losses and inability to match up with the
dynamic situation and rapid change.
The weaknesses may be rooted in lack of managerial
skills, insufficient quality, technological
backwardness, inadequate systems or processes,
slow deliveries, or shortage of resources.
CON…

There are three possible outcomes to the analysis

of your weaknesses.
Correction of an identified defect.
Protection through cover-up and prevention
strategies to reduce the exposure of your
weaknesses.
Aggression to divert the attention from your
weaknesses.
CON…

The absence of certain strengths may be viewed as a

weakness. Example:
 Lack of patent protection
 A weak brand name
 Poor reputation among customers
 High cost structure
 Lack of access to the best natural resources
 Lack of access to key distribution channels
 CON…

C. Opportunities
Opportunity is a favorable condition in the organization's
environment which enables it to consolidate and
strengthen its position
Example: An unfulfilled customer need, Arrival of new
technologies, Loosening of regulations, Removal of
international trade barriers
Weaknesses of your competitions are also opportunities for
you. You can exploit them in two following ways:
 Marketing warfare: attacking the weak leader's position and
focusing all your efforts at that point, or making a surprise
move into an uncontested area.
 Collaboration: you can use your complementary strengths to
establish a strategic alliance with your competitor.
 CON…

D. Threats
Threat is an unfavorable condition in the organization's environment
which creates a risk for, or causes damage to the organization.
External threats arise from political, economic, social, technological
(PEST) forces.
Changes in the external environment also may present threats to the
firm. Example:
 Shifts in consumer tastes away from the firm’s products
 Emergence of substitute products
 New regulations
 Increased trade barriers
 CON…
Organizations may use confrontation matrix as a tool
to combine the internal factors with the external
factors. Opportunities Threats
Strengths S – O Strategies S – T Strategies
Offensive Adjust
M a ke t h e m o st o f Restore strengths
these
Weaknesse W – O Strategies W – T Strategies
s Defensive Survive
Watch competition Turnaround
closely
CON…
S – O Strategies: - pursue opportunities that are a good f it
to the company’s strengths.
S – T Strategies: - identify ways that the f irm can use its
strengths to reduce its vulnerability to external threats.
W – O Strategies: - overcome weaknesses to pursue
opportunities
W – T Strategies: - establish a defensive plan to prevent the
f irm’s weaknesses from making it highly susceptible to
external threats.
.

END OF CHAPTER THREE

THANKS
 .

CHAPTER STRATEGY FORMULATION

4 (ANALAYSIS AND CHOICE)
 4.1. The nature of strategy analysis and
choice
Strategy analysis and choice seek to determine alternative
courses of action that could best enable the f ir m to
achieve its mission and objectives.
The f ir m’s present strategies, objectives, and mission,
coupled with the external and internal audit information,
provide a basis for generating and evaluating feasible
alternative strategies.
alternative Strategies are derived from the f ir m’s vision,
mission, objectives, external audit, and internal audit;
they are consistent with, or build on, past strategies that
have worked well.
4.1.1 TYPES OF STRATEGY

1. Integration Strategies
Forward Integration- Gaining ownership or
increased control over distributors or
retailers
Backward Integration- Seeking ownership or
increased control of a firm’s suppliers
Horizontal Integration -Seeking ownership or
increased control over competitors
CONT…
2. Intensive Strategies
It is about intensive efforts if a f ir m’s competitive
position with existing products is to improve.
Market Penetration -Seeking increased market share
for present products or services in present markets
through greater marketing efforts
Market Development -Introducing present products
or services into new geographic area
Product Development-Seeking increased sales by
i m p r o v i n g p r e se n t p r o d u c t s o r se r v i c e s o r
developing new ones
CONT…
3. Diversification Strategies
Related / Concentric Diversif ic ation-Adding new but
related products or services
Unrelated / Conglomerate Diversif ic ation-Adding new,
unrelated products or services
4. Defensive strategies
Retrenchment- Regrouping through cost and asset
reduction to reverse declining sales and profit
Divestiture-Selling a division or part of an organization
Liquidation Selling all of a company’s assets, in parts, for
their tangible worth
5. Combination Strategies
The above strategies are not mutually exclusive. It is
possible to adopt a mix of the above to suit particular
4 . 2 T H E P R O C E S S O F G E N E R AT I N G A N D
SELECTING STRATEGIES
Strategists never consider all feasible alternatives that
could benefit the firm because there are an infinite
number of possible actions and an infinite number of
ways to implement those actions.
Therefore, a manageable set of the most attractive
alternative strategies must be developed.
The advantages, disadvantages, trade-offs, costs, and
benefits of these strategies should be determined.
4.2 .1THE PROCESS OF GENERATING….

Identifying and evaluating alternative

strategies should involve many of the
managers and employees who earlier
assembled the organizational vision and
mission statements, performed the external
audit, and conducted the internal audit
All participants in the strategy analysis and
choice activity should have the firm’s
external and internal audit information by
their sides
Proposed strategies should be listed in writing.
4.2.2 THE PROCESS OF GENERATING…
W he n a l l f e a si b l e st ra t e g i e s i d e nt i f ie d b y
participants are given and understood, the
s t ra t e g i e s s h o u l d b e ra n k e d i n o rd e r o f
attractiveness by all participants, with
1 = should not be implemented,
2 = possibly should be implemented,
3 = probably should be implemented, and
4 = definitely should be implemented.
This process will result in a prioritized list of best
strategies that ref lects the collective wisdom of
the group.
4.3 LEVEL OF STRATEGY

Strategy can be formulated on three

different levels:

CORPORATE STRATEGY

BUSINESS STRATEGY

FUNCTIONAL STRATEGY
 A. CORPORATE LEVEL STRATEGY

Corporate level strategy fundamentally is

concerned with the selection of businesses
in which the company should compete and
with the development and coordination of
that portfolio of businesses.
It is useful to think of three components of
corporate level strategy:
(a) growth or directional strategy (what
should be our growth objective, ranging
from retrenchment through stability to
varying degrees of growth - and how do we
accomplish this),
CONT….

(b ) portfolio strategy (what should be our

por tfolio of lines of business, which
implicitly requires reconsidering how
much concentration or diversif ication we
should have), and
(c) parenting strategy (how we allocate
resources and manage capabilities and
activities across the portfolio -- where do
we put special emphasis, and how much
do we integrate ou r variou s lines of
 B. BUSINESS UNIT LEVEL STRATEGY

about developing and sustaining a

competitive advantage for the goods
and services that are produced.
Competitive Strategy often called
Business Level Strategy.
This involves deciding how the company
w i l l c o mpe te w i th i n e a c h l i n e o f
business (LOB) or strategic business
unit (SBU).
CONT…
At the business level, the strategy formulation phase deals
with:
 positioning the business against rivals
 anticipating changes in demand and
technologies and adjusting the strategy to
accommodate them
 Inf lu encing the nature of competition
through strategic actions such as vertical
integration and through political actions
such as lobbying.
CONT…

Michael Porter identif ied three generic

strategies (cost leadership,
differentiation, and focus) that can be
implemented at the business unit level
to create a competitive advantage and
defend against the adverse effects of
the five forces.
 C. FUNCTIONAL LEVEL STRATEGY

is the level of the operating divisions and

departments.
The strategic issues related to business processes
and the value chain.
Functional level strategies in marketing, finance,
operations, human resources, and R&D
involve the development and coordination of
resources through which business unit level
strategies can be executed efficiently and
effectively.
4.4. A Comprehensive Strategy-formulation
Framework
Important strategy formulation techniques
can be integrated into a three-stage decision
making framework.
◦ The input stage
◦ The matching stage
◦ The decision stage
1. THE INPUT STAGE:
It summarizes the basic input information needed to
formulate strategies.
The external factor evaluation(EFE) matrix, an internal
factor evaluation (IFE) matrix, and a Competitive Prof ile
Matrix are useful information required.
The information derived from these three matrices
provide basic information for the matching and decision
stages.
#allows strategists to generate and evaluate alternative
strategies more effectively.
Go o d intuitive jud gme nt is always ne e d e d in
determining appropriate weights and ratings.
2. THE MATCHING STAGE

Strategy is sometimes def ined as the

match an organization makes
between its internal resources and
the opportunities and risks created by
its external factors.
The matching stage of the strategy-
formulation framework consists of
some techniques that can be used in
any sequence.
A. THE THREATS-OPPORTUNITIES-WEAKNESSES-
STRENGTHS (TOWS)
The threats-Opportunities-Weaknesses- strengths
(TOWS) Matrix is an important matching tool
that helps managers develop four types of
strategies.
1. SO strategies: use a f irm’s internal strength to
take advantage of external opportunities.
2. WO Strategies: Aim at improving internal
weaknesses by taking advantage of external
opportunities.
3. ST Strategies: Use a f irm’s strengths to avoid or
reduce the impact of external threats.
4. WT Strategies: are defensive tactics directed at
reduc ing internal weakness and avoiding
environmental threats.
B. THE STRATEGIC POSITION AND ACTION EVALUATION
(SPACE)
I t s fo ur- q uad rant frame wo rk i nd i c at e s whe t he r
aggressive, conservative, defensive, or competitive
strategies are most appropriate for an organization.
The axes of the SPACE Matrix represent
◦ Two internal dimensions
Financial strength [FS]
Competitive advantage [CA]
◦ Two external dimensions
Environmental stability [ES] and
Industry strength [IS].
CONT…
C. COMPETITOR AND INDUSTRY ANALYSIS
In the competitor analysis, we try to assess
what the competitor has and what he does
not have.
I n th i s an al ys i s , foc u s i s on e x te r n al
environment as one of the components of
external environment is the competitor.
In competitive analysis, only the major
c o m p e ti to r s ar e as s e s s e d w h i l e i n
industry analysis all the competitors
belonging to the industry are looked at.
3. THE DECISION STAGE

Analysis and intuition provide a basis for

making strategy-formulation decision.
The matching techniques just discussed
reveal feasible alternative strategies.
Any additional strategies resulting from the
matching analyses could be discussed and
added to the list of feasible alternative
options.
Then after participants could rate these
strateg i es on a 1 to 4 sc al e so that a
prioritized list of the best strategies could
be achieved.
.

End of chapter 4
Thanks