STRATEGIC MANAGEMENT REVIEWER Key Terms in Strategic Management

CHAPTER 1: The Nature of Strategic Management Competitive advantage - anything that a firm does
Strategic management the art and science of especially well compared to rival firms
formulating, implementing, and evaluating cross Strategists - the individuals who are most responsible for
functional decisions that enable an organization to the success or failure of an organization
achieve its objectives Vision statement - answers the question “What do we
• Strategic management is used synonymously with want to become?”
the term strategic planning. -often considered the first step in strategic planning
• Sometimes the term strategic management is Mission statements - enduring statements of purpose
used to refer to strategy formulation, that distinguish one business from other similar firms
implementation, and evaluation, with strategic -identifies the scope of a firm’s operations in product
planning referring only to strategy formulation. and market terms
• A strategic plan is a company’s game plan. -addresses the basic question that faces all strategists:
• A strategic plan results from tough managerial “What is our business?”
choices among numerous good alternatives, and External opportunities and external threats - refer to
it signals commitment to specific markets, policies, economic, social, cultural, demographic,
procedures, and operations. environmental, political, legal, governmental,
technological, and competitive trends and events
Stages of Strategic Management that could significantly benefit or harm an organization
1.Strategy formulation - includes developing a vision in the future
and mission, identifying an organization’s external Some Opportunities and Threats
opportunities and threats, determining internal -Computer hacker problems are increasing.
strengths and weaknesses, establishing long-term -Intense price competition is plaguing most firms.
objectives, generating alternative strategies, and -Unemployment and underemployment rates
choosing particular strategies to pursue remain high.
• Deciding what new businesses to enter -Interest rates are rising.
• What businesses to abandon -Product life cycles are becoming shorter.
• How to allocate resources -State and local governments are financially weak.
• Whether to expand operations or diversify Internal strengths and internal weaknesses - an
• Whether to enter international markets organization’s controllable activities that are
• Whether to merge or form a joint venture performed especially well or poorly
• How to avoid a hostile takeover -determined relative to competitors
2.Strategy Implementation - requires a firm to establish Objectives - specific results that an organization seeks
annual objectives, devise policies, motivate to achieve in pursuing its basic mission
employees, and allocate resources so that formulated -long-term means more than one year
strategies can be executed -should be challenging, measurable, consistent,
- often called the action stage reasonable, and clear
3.Strategy Evaluation - reviewing external and internal Strategies - the means by which long-term objectives
factors that are the bases for current strategies, will be achieved
measuring performance, and taking corrective -may include geographic expansion, diversification,
actions acquisition, product development, market
• Strategy formulation, implementation, and penetration, retrenchment, divestiture, liquidation,
evaluation activities occur at three hierarchical and joint ventures
levels in a large organization: corporate, divisional Annual objectives - short-term milestones that
or strategic business unit, and functional. organizations must achieve to reach long-term
• Strategic management helps a firm function as a objectives
competitive team. -should be measurable, quantitative, challenging,
realistic, consistent, and prioritized
Integrating Intuition and Analysis -should be established at the corporate, divisional,
• Most organizations can benefit from strategic and functional levels in a large organization
management, which is based upon integrating Policies - the means by which annual objectives will be
intuition and analysis in decision making achieved
• Intuition is particularly useful for making decisions in -include guidelines, rules, and procedures established
situations of great uncertainty or little precedent to support efforts to achieve stated objectives
-guides to decision-making and address repetitive or
Adapting to Change recurring situations
• The second-largest bookstore chain in the United
States, Borders Group, declared bankruptcy in 2011 The Strategic Management Model
as the firm had not adapted well to changes in • Where are we now?
book retailing from traditional bookstore shopping • Where do we want to go?
to customers buying online, preferring digital books • How are we going to get there?
to hard copies
• Borders was on the brink of financial collapse before Benefits of Strategic Management
being acquired in July 2011 by Direct Brands • Historically, the principal benefit of strategic
management has been to help organizations
 formulate better strategies through the use of a • Honest difference of opinion
more systematic, logical, and rational approach to • Suspicion
strategic choice.
• Communication is a key to successful strategic Pitfalls in Strategic Planning
management • Using strategic planning to gain control over
• Through dialogue and participation, managers and decisions and resources
employees become committed to supporting the • Doing strategic planning only to satisfy
organization accreditation or regulatory requirements
• Too hastily moving from mission development to
Benefits to a Firm That Does Strategic Planning strategy formulation
Enhanced Communication • Failing to communicate the plan to employees,
a.Dialogue who continue working in the dark
b.Participation • Top managers making many intuitive decisions that
Deeper/Improved Understanding conflict with the formal plan
a.Of others’ view • Top managers not actively supporting the strategic-
b.Of what the firm is doing/planning and why planning process
Greater Commitment • Failing to use plans as a standard for measuring
a.To achieve objectives performance
b.To implement strategies • Delegating planning to a “planner” rather than
c.To work hard involving all managers
THE RESULT • Failing to involve key employees in all phases of
All managers and employees on a mission to help planning
the firm succeed. • Failing to create a collaborative climate supportive
of change
Financial Benefits
• Businesses using strategic management concepts Guidelines for Effective Strategic Management
show significant improvement in sales, profitability, Seventeen Guidelines for the Strategic Planning
and productivity compared to firms without Process to Be Effective
systematic planning activities 1. It should be a people process more than a paper
• High-performing firms seem to make more informed process.
decisions with good anticipation of both short- and 2. It should be a learning process for all managers
long-term consequences and employees.
3. It should be words supported by numbers rather
Nonfinancial Benefits than numbers supported by words.
• It allows for identification, prioritization, and 4. It should be simple and nonroutine.
exploitation of opportunities. 5. It should vary assignments, team memberships,
• It provides an objective view of management meeting formats, and even the planning
problems. calendar.
• It represents a framework for improved 6. It should challenge the assumptions underlying the
coordination and control of activities. current corporate strategy.
• It minimizes the effects of adverse conditions and 7. It should welcome bad news.
changes. 8. It should welcome open-mindness and a spirit of
• It allows major decisions to better support inquiry and learning.
established objectives. 9. It should not be a bureaucratic mechanism.
• It allows more effective allocation of time and 10. It should not become ritualistic, stilted, or
resources to identified opportunities. orchestrated.
• It allows fewer resources and less time to be 11. It should not be too formal, predictable, or rigid.
devoted to correcting erroneous or ad hoc 12. It should not contain jargon or arcane planning
decisions. language.
• It creates a framework for internal communication 13. It should not be a formal system for control.
among personnel. 14. It should not disregard qualitative information.
15. It should not be controlled by “technicians.”
Why Some Firms Do No Strategic Planning 16. Do not pursue too many strategies at once.
• Lack of knowledge in strategic planning 17. Continually strengthen the “good ethics is good
• Poor reward structures business” policy.
• Firefighting
• Waste of time Comparing Business and Military Strategy
• Too expensive • A fundamental difference between military and
• Laziness business strategy is that business strategy is
• Content with success formulated, implemented, and evaluated with an
• Fear of failure assumption of competition, whereas military
• Overconfidence strategy is based on an assumption of conflict
• Prior bad experience • Both business and military organizations must adapt
• Self-interest to change and constantly improve to be successful
• Fear of the unknown
Excerpts from Sun Tzu’s The Art of War Writings The Process of Developing Vision and Mission
• War is a matter of vital importance to the state: a Statements
matter of life or death, the road either to survival or - Select several articles about these statements and
ruin. Hence, it is imperative that it be studied ask all managers to read these as background
thoroughly information.
• Know your enemy and know yourself, and in a - Ask managers themselves to prepare a vision and
hundred battles you will never be defeated mission statement for the organization.
• Skillful leaders do not let a strategy inhibit creative - Merge these statements into a single document
counter-movement and distribute the draft statements to all
managers
CHAPTER 2: The Business Vision and Mission - Process should create an “emotional bond” and
Vision Statement “sense of mission” between the organization and
- should answer the basic question, “What do we its employees
want to become?:
- should be short, preferably one sentence, and as Importance of Vision and Mission Statements
many managers as possible should have input into - To ensure unanimity of purpose within the
developing the statement. organization
Mission Statement - To provide a basis, or standard, for allocating
organizational resources
- To establish a general tone or organizational
climate
- To serve as a focal point for individuals to identify
with the organization’s purpose and direction
- To facilitate the translation of objectives into a
work structure
- To specify organizational purposes

Characteristics of a Mission Statement

- a declaration of an organization’s “reason for - First, a good mission statement allows for the
being.” generation and consideration of a range of
- answers the pivotal question “What is our feasible alternative objectives and strategies
business?” without unduly stifling management creativity.
- essential for effectively establishing objectives and - Second, a mission statement needs to be broad
formulating strategies to reconcile differences effectively among, and
- reveals what an organization wants to be and appeal to, an organization’s diverse stakeholders.
whom it wants to serve Stakeholders
- Also called a creed statement, a statement of - include employees, managers, stockholders,
purpose, a statement of philosophy, a statement boards of directors, customers, suppliers,
of beliefs, and a statement of business principles distributors, creditors, governments (local, state,
federal, and foreign), unions, competitors,
environmental groups, and the general public.

A mission statement should also:

- serve as a framework for evaluating both current
and prospective activities
- be stated in terms sufficiently clear to be widely
understood throughout the organization
- A good mission statement reflects the
Vision vs. Mission
anticipations of customers.
- shared vision creates a commonality of interests
- The operating philosophy of organizations should
that can lift workers out of the monotony of daily
be to identify customers’ needs and then provide
work and put them into a new world of
a product or service to fulfill those needs.
opportunity and challenge.
-
MISSION STATEMENT COMPONENTS employees (9), our consumers, our environment and
1. Customers- Who are the firm’s customers? to the communities in which we operate (8).
2. Products or Services- What are the firm’s major
products or services? Characteristics of a Mission Statement
3. Markets- Geographically, where does the firm 1. Broad in scope; do not include monetary amounts,
compete? numbers, percentages, ratios, or objectives
4. Technology- Is the firm technologically current? 2. Less than 250 words in length
5. Concern for survival, growth, and profitability- is 3. Inspiring
the firm commited to growth and financial 4. Identify the utility of a firm's products
soundness? 5. Reveal that the firm is socially responsible
6. Philosophy- What are the basic beliefs, values, 6. Reveal that the firm is environmentally responsible
aspirations, and ethical priorities of the firm? 7. Include nine components customers, products or
7. Self- concept- What is the firm’s distinctive services, markets, technology, concern for
competence or major competitive advantage? survival/growth/profits, philosophy, self-concept,
8. Concern for public image- Is the firm respopnsive concern for public image, concern for employees
to social, community, and environmental 8. Reconciliatory
concerns? 9. Enduring
9. Concern for employees- Are employees a
valuable asset of the firm? CHAPTER 3: EXTERNAL ASSESSMENT
External audit
Example Mission Statements - focuses on identifying and evaluating trends and
Fleetwood Enterprises will lead the recreational events beyond the control of a single firm
vehicle and manufactured housing industries (2, 7) in - reveals key opportunities and threats confronting an
providing quality products, with a passion for organization so that managers can formulate
customer-driven innovation (1). We will emphasize strategies to take advantage of the opportunities and
training, embrace diversity and provide growth avoid or reduce the impact of threats
opportunities for our associates and our dealers (9).
We will lead our industries in the application of The Nature of an External Audit
appropriate technologies (4). We will operate at the - The external audit is aimed at identifying key
highest levels of ethics and compliance with a focus variables that offer actionable responses
on exemplary corporate governance (6). We will - Firms should be able to respond either offensively or
deliver value to our shareholders, positive operating defensively to the factors by formulating strategies
results and industry- leading earnings (5). that take advantage of external opportunities or that
minimize the impact of potential threats.
We aspire to make PepsiCo the world’s (3) premier
consumer products company, focused on Key External Forces
convenient foods and beverages (2). We seek to External forces can be divided into five broad
produce healthy financial rewards for investors (5) as categories:
we provide opportunities for growth and enrichment 1. Economic forces
to our employees (9), our business partners and the 2. Social, cultural, demographic, and natural
communities (8) in which we operate. And in environment forces
everything we do, we strive to act with honesty, 3. Political, governmental, and legal forces
openness, fairness and integrity (6). 4. Technological forces
5. Competitive forces
Dell’s mission is to be the most successful computer Relationship Between Key External Forces and an
company (2) in the world (3) at delivering the best Organization
customer experience in markets we serve (1). In doing
so, Dell will meet customer expectations of highest
quality; leading technology (4); competitive pricing;
individual and company accountability (6); best-in-
class service and support (7); flexible customization
capability (7); superior corporate citizenship (8);
financial stability (5).

Procter & Gamble will provide branded products and

services of superior quality and value (7) that improve
the lives of the world’s (3) consumers. As a result, The Process of Performing an External Audit
consumers (1) will reward us with industry leadership in • First, gather competitive intelligence and
sales, profit (5), and value creation, allowing our information about economic, social, cultural,
people (9), our shareholders, and the communities (8) demographic, environmental, political,
in which we live and work to prosper. governmental, legal, and technological trends.
• Information should be assimilated and evaluated
At L’Oreal, we believe that lasting business success is • A final list of the most important key external
built upon ethical (6) standards which guide growth factors should be communicated
and on a genuine sense of responsibility to our
Key external factors should be: - 2025=18.5% population>65 years
1. Important to achieving long-term and annual - 2075= no ethnic or racial majority
objectives • Facts
2. Measurable - World population 7 billion
3. Applicable to all competing firms, and - World population = 8 billion by 2028
4. Hierarchical in the sense that some will pertain to - World population = 9 billion by 2054
the overall company and others will be more - U.S population > 310 million
narrowly focused on functional or divisional areas
Key Social, Cultural, Demographic, and Natural
The Industrial organization (I/O) View Environment Variables
• The Industrial Organization (I/O) approach to
competitive advantage advocates that external
(industry) factors are more important than internal
factors in a firm for achieving competitive
advantage.
• Firm performance is based more on industry
properties
• Economies of scale
• Barriers to market entry
• Product differentiation
• The economy
• Level of competitiveness
Economic Forces

Political, Governmental, and Legal Forces

Advantages and Disadvantages of a Weak Dollar • The increasing global interdependence among
Advantages economies, markets, governments, and
1. Leads to more exports organizations makes it imperative that firms
2. Leads to lower imports consider the possible impact of political variables
3. Makes U.S. goods cheaper to foreign consumers on the formulation and implementation of
4. Combats deflation by pushing up prices of competitive strategies.
imports
5. Can contribute to rise in stock prices in short run
6. Encourages foreign countries to lower interest
rates
7. Raises the revenues and profits of firms that do
business outside the United States
8. Forces foreign firms to raise prices
9. Reduces the U.S. trade deficit
10. Encourages firms to globalize
11. Encourages foreigners to visit the United States
Disadvantages
1. Can lead to inflation
2. Can cause rise in oil prices American labor Unions
3. Can weaken U.S. government • The extent that a state is unionized can be a
4. Makes it unattractive for Americans to travel significant political factor in strategic planning
globally decisions as related to manufacturing plant
5. Can contribute to fall in stock prices in long run location and other operational matters
• The size of American labor unions has fallen
Social, Cultural, Demographic, and Natural sharply in the last decade due in large part to
Environmental Forces erosion of the U.S. manufacturing base
• U.S Facts
- Aging population
- Less white
- Widening gap between rich & poor
Technological Forces The three basic objectives of a CI program are:
The internet has changed the very nature of 1. To provide a general understanding of an industry
opportunities and threats by: and its competitors
• Altering the life cycles of product 2. To identify areas in which competitors are
• increasing the speed of distribution, vulnerable and to assess the impact strategic actions
• creating new products and services, would have on competitors
• erasing limitations of traditional geographic 3. To identify potential moves that a competitor might
markets, make that would endanger a firm’s position in the
• changing the historical trade-off between market
production standardization and flexibility.
• The Internet is altering economies of scale, Market Commonality and Resource Similarity
changing entry barriers, and redefining the • Market commonality the number and significance
relationship between industries and various of markets that a firm competes in with rivals
suppliers, creditors, customers, and competitors • Resource similarity the extent to which the type and
• Many firms now have a Chief Information Officer amount of a firm’s internal resources are
(CIO) and a Chief Technology Officer (CTO) who comparable to a rival
work together to ensure that information needed
to formulate, implement, and evaluate strategies The Five-Forces Model of Competition
is available where and when it is needed

Technological Advancements can:

• Create new markets,
• Result in a proliferation of new and improved
products,
• Change the relative competitive cost positions
in an industry,
• Render existing products and services
obsolete.
The Five-Forces Model of Competition
Competitive Forces 1. Identify key aspects or elements of each
• An important part of an external audit is competitive force that impact the firm.
identifying rival firms and determining their 2. Evaluate how strong and important each element
strengths, weaknesses, capabilities, is for the firm.
opportunities, threats, objectives, and 3. Decide whether the collective strength of the
strategies elements is worth the firm entering or staying in the
industry.
Characteristics of the most competitive companies:
1. Market share matters The Five-Forces Model
2. Understand and remember precisely what business 1. Rivalry among competing firms
you are in - Most powerful of the five forces
3. Whether it’s broke or not, fix it–make it better - Focus on competitive advantage of strategies
4. Innovate or evaporate over other firms
5. Acquisition is essential to growth
6. People make a difference
7. There is no substitute for quality

Key Questions About Competitors

2. Potential Entry of New Competitors

- Barriers to entry are important
- Quality, pricing, and marketing can overcome
barriers
Competitive Intelligence Programs Barriers to Entry
- a systematic and ethical process for gathering • Need to gain economies of scale quickly
and analyzing information about the • Need to gain technology and specialized know-
competition’s activities and general business how
trends to further a business’s own goals • Lack of experience
• Strong customer loyalty
 • Strong brand preferences Industry Analysis: The External Factor Evaluation (EFE)
• Large capital requirements Matrix
• Lack of adequate distribution channels • Economic
• Government regulatory policies • Social
• Tariffs • Cultural
• Lak of access to raw materials • Demographic
• Possession of patents • Environmental
• Undesirable locations • Political
• Counterattack by entrenched firms • Governmental
• Potential saturation of market • Technological
3. Potential development of substitute products • Competitive
Pressure increases when: • Legal
-Prices of substitutes decrease
-Consumers’ switching cost decrease EFE Matrix Steps
4. Bargaining Power of Suppliers is increased when 1. List key external factors
there are: 2. Weight from 0 to 1
- Large numbers of suppliers 3. Rate effectiveness of current strategies
- Few substitutes 4. Multiply weight * rating
- Costs of switching raw materials is high 5. Sum weighted scores
• Backward integration is gaining control or EFE Matrix for a Local Ten-Theater Cinema Complex
ownership of suppliers
5. Bargaining power of consumers
- Customers being concentrated or buying in volume
affects intensity of competition
- Consumers power is higher where products are
standard or undifferentiated

Conditions Where Consumers Gain Bargaining Power

1. If buyers can inexpensively switch
2. If buyers are particularly important
3. If sellers are struggling in the face of falling
consumer demand
4. If buyers are informed about sellers’ products,
prices, and costs
5. If buyers have discretion in whether and when they
purchase the product
Industry Analysis: Competitive Profile Matrix (CPM)
Sources of External Information • Identifies firm’s major competitors and their
• Unpublished sources include customer surveys, strengths & weaknesses in relation to a sample
market research, speeches at professional and firm’s strategic positions
shareholders’ meetings television programs, • Critical success factors include internal and
interviews, and conversations with stakeholders. external issues
• Published sources of strategic information include An Example Competitive Profile Matrix
periodicals, journals, reports, government
documents, abstracts, books, directories,
newspapers, and manuals.
• marketwatch.multexinvestor.com
• moneycentral.msn.com
• finance.yahoo.com
• www.clearstation.com
• us.etrade.com/e/t/invest/markets
• www.hoovers.com
• globaledge.msu.edu/industries/

Forecasting Tools and Techniques

Forecasts-educated assumptions about future trends CHAPTER 4: Internal Audit
and events Identify strengths and weaknesses in
-quantitative, qualitative techniques - Management
- Marketing
Making Assumptions - Finance and accounting
Assumptions- Best present estimates of the impact of - Production and operations
major external factors, over which the manager has - Research and development
little if any control, but which may exert a significant - Management information systems
impact on performance or the ability to achieve
desired results.
Key Internal Forces Planning
Distinctive Competencies: • Synergy
• Firm’s strengths that cannot be easily matched or - Can develop through planning
imitated by competitors - Exists when everyone pulls together as a team
• Building competitive advantage involves taking that knows what it wants to achieve
advantage of distinctive competencies
Management Audit Checklist
Internal Audit Process • Does the firm use strategic management
Parallels process of external audit concepts?
Information gathered from: • Are objectives/goals measurable? Well
- Management communicated?
- Marketing • Do managers at all levels plan effectively?
- Finance/accounting • Do managers delegate well?
- Production/operations • Is the organization’s structure appropriate?
- Research & development • Are job descriptions clear?
- Management information systems • Are job specifications clear?
Internal Audit • Is employee morale high?
• Involvement in performing an internal strategic- • Is employee absenteeism low?
management audit provides a vehicle for • Is employee turnover low?
understanding the nature and effect of decisions in • Are the reward mechanisms effective?
other functional business areas of the firm • Are the organization’s control mechanisms
• Managers and employees from all areas provide effective?
information
• A team of managers then selects 10 to 15 key Marketing
organizational strengths and weaknesses to focus • Customer Needs or Wants for Products and
on Services
Financial Ratio Analysis 1. Defining
• Exemplifies complexity of relationships among 2. Anticipating
functional areas of the business 3. Creating
4. Fulfilling
Resource Based View (RBV)
Three All-Encompassing Categories Finance/Accounting
1. Physical resources 1. Investment decision (Capital budgeting)
2. Human resources 2. Financing decision
3. Organizational resources 3. Dividend decision

Empirical Indicators Finance/Accounting Audit

1. Rare 1. Where is the firm financially strong/weak as
2. Hard to imitate indicated by financial ratio analysis?
3. Not easily substitutable 2. Can the firm raise needed short-term capital?
3. Can the firm raise needed long-term capital
Integrating Strategy & Culture through debt and/or equity?
Organizational Culture 4. Does the firm have sufficient working capital?
• Pattern of behavior developed by an organization 5. Are capital budgeting procedures effective?
as it learns to cope with its problem of external 6. Are dividend payout policies reasonable?
adaptation and internal integration . . . is 7. Does the firm have good relations with its
considered valid and taught to new members as investors and stockholders?
the correct way to perceive, think, and feel 8. Are the firm’s financial managers experienced
• Resistant to change and well trained?
• May represent strength and weaknesses 9. Is the firm’s debt situation excellent?

Organizational Culture Can Inhibit Strategic Production/Operations Functions

Management • Process
• Miss external changes due to strongly held beliefs • Capacity
• Natural tendency to “hold the course” even during • Inventory
times of strategic change • Workforce
• Quality
Functions of Management
Function Stage when most important Research & Development Functions
Planning Strategy Formulation • Development of new products before competitors
Organizing Strategy Implementation • Improving product quality
Motivating Strategy Implementation • Improving manufacturing processes to reduce
Staffing Strategy Implementation costs
Control Strategy Evaluation • These functions can be done internally or externally
Management Information Systems Purpose Financial vs. Strategic Objectives
• Improve performance of an enterprise by Financial Objectives
improving the quality of managerial decisions ● Growth in revenues
● Growth in earnings
Value Chain Analysis ● Higher dividends
• The process whereby a firm determines the ● Larger profit margins
costs associated with: ● Greater ROI
- Purchasing raw materials ● Higher earnings per share
- Manufacturing products ● Rising stock price
- Marketing products ● Improved cash flow
• And compares them to the value chain of rival Strategic Objectives
firms ● Development in brands
• Core competencies ● Larger market share
• Distinctive competencies ● Quicker on time delivery than rivals
• Benchmarking ● Shorter design- to market time than rival
● Lower costs than rivals
Transforming Value Chain Activities into Sustained ● Higher product quality
Competitive Advantage ● Wider geographic coverage
1. Value Chain Activities Are Identified and ● Technological leadership
Assessed
2. Core Competencies Arise in Some Activities Not Managing by Objectives
3. Some Core Competencies Evolve into Strategists should avoid the ways to not managing by
Distinctive Competencies objectives.
4. Some Distinctive Competencies Yield ● Managing by Extrapolation – If it isn’t broke,
Sustained Competitive Advantages don’t fix it.
● Managing by Crisis – The true measure of a
Internal Factor Evaluation (IFE) Matrix good strategist is the ability to fix problems.
1. List key internal factors ● Managing by Subjective – Do your own thing,
2. Assign a weight ranging from 0.0 to 1.0 the best way you know how.
3. Assign a 1 to 4 rating to each factor ● Managing by Hope – The future is full of
4. Multiply the weight times the rating uncertainty and if first you don’t succeed, then
5. Sum the weighted scores you may on the second or third try.

CHAPTER 5: STRATEGIES IN ACTION The Balanced Scorecard

Long Term Objectives Robert Kaplan & David Norton –
• Long-term objectives represent the results expected ● Strategy evaluation & control technique
from pursuing certain strategies. ● Balance financial measures with nonfinancial
• Strategies represent the actions to be taken to measures
accomplish long-term objectives. ● Balance shareholder objectives with customer
• The time frame for objectives and strategies should & operational objectives
be consistent, usually from two to five years. ● A balanced scorecard for a firm is a simply
listing of all key objectives (financial and non
Long Term Objectives financial ) such customerservice –employees
• Quantitative morals – product quality – pollution
• Measurable abatement, business ethics ,social
• Realistic responsibility ......etc.
• Understandable LEVELS OF STRATEGIES
• Challenging LARGE COMPANY
• Hierarchical
• Obtainable
• Congruent

The Benefits of Having Clear Objectives

1. Provide direction by revealing expectations
2. Allow synergy
3. Aid in evaluation by serving as standards
4. Establish priorities
5. Reduce uncertainty
6. Minimize conflicts
7. Stimulate exertion
8. Aid in allocation of resources
9. Aid in design of jobs.
10. Provide basis for consistent decision making
SMALL COMPANY - Type 1 is a low-cost strategy that offers products or
services to a wide range of customers at the lowest
price available on the market.
- Type 2 is a best-value strategy that offers products
or services to a wide range of customers at the best
price-value available on the market; the best-value
strategy aims to offer customers a range of
products or services at the lowest price available
compared to a rival’s products with similar
attributes.
Differentiation
- Porter’s Type 3 generic strategy is differentiation, a
strategy aimed at producing products and services
considered unique industrywide and directed at
consumers who are relatively price-insensitive.
Focus- means producing products and services that
fulfill the needs of small groups of consumers.
TYPES OF STRATEGIES
- Type 4 is a low-cost focus strategy that offers
1. Vertical Integration Strategies
products or services to a small range (niche group)
Forward Integration: Gaining ownership or
of customers at the lowest price available on the
increased control over distributors or retailers
market.
Backward Integration: Seeking ownership or
Examples of firms that use the Type 4 strategy include
increased control of a firm’s suppliers
Jiffy Lube International and Pizza Hut, as well as local
2. Horizontal Integration Strategies
used car dealers and hot dog restaurants.
Horizontal Integration: Refers to a strategy of
- Type 5 is a best-value focus strategy that offers
seeking ownership of or increased control over a
products or services to a small range of customers
firm’s competitors.
at the best price-value available on the market.
3. Intensive Strategies
Market Penetration: Seeking increased market
Means for Achieving Strategies
share for present products or services in present
Cooperation Among Competitors - collaboration
markets through greater marketing efforts.
among competitors within same industry
Market Development: Introducing present products
Joint Venture/Partnering – joint venture is a popular
or services into new geographic areas
strategy that occurs when two or more companies
Product Development: Seeking increased sales by
form a temporary partnership or consortium for the
improving present products or services or
purpose of capitalizing on some opportunity.
developing new ones
Merger/Acquisition - A merger occurs when two
4. Diversification Strategies
organizations of about equal size unite to form one
Related Diversification: Adding new, related
enterprise. An acquisition occurs when a large
products or services
organization purchases (acquires) a smaller firm, or
Unrelated Diversification: Adding new, unrelated
vice versa.
products or services
First Mover Advantages- refer to the benefits a firm
5. Defensive Strategies
may achieve by entering a new market
Retrenchment: Regrouping through cost and asset
or developing a new product or service prior to rival
reduction to reverse declining sales and profit
firms.
Divestiture: Selling a division or part of an
Outsourcing - Business-process outsourcing (BPO) is a
organization
rapidly growing new business that involves companies
Liquidation: Selling all of a company’s assets, in
taking over the functional operations, such as human
parts, for their tangible worth
resources, information systems, payroll, accounting,
customer service, and even marketing of other firms.
Porter’s Five Generic Strategies
Type 1 Cost Leadership – Low cost
CHAPTER 6: Strategy Analysis and Choice
Type 2 Cost Leadership – Best value
The Process of Generating and Selecting Strategies
Type 3 Differentiation
● A manageable set of the most attractive
Type 4 Focus – Low cost
alternative strategies must be developed
Type 5 Focus – Best value
● The advantages, disadvantages, trade-offs, costs,
and benefits of these strategies should be
According to Porter, strategies allow organizations to
determined
gain competitive advantage from three different
● Identifying and evaluating alternative strategies
bases:
should involve many of the managers and
1. Cost leadership
employees who earlier assembled the
2. Differentiation
organizational vision and mission statements,
3. Focus
performed the external audit, and conducted the
Cost Leadership- emphasizes producing standardized
internal audit.
products at a very low per-unit cost for consumers who
are price-sensitive.
 ● Alternative strategies proposed by participants o ST (strengths-threats) Strategies
should be considered and discussed in a series of ✔ use a firm’s strengths to avoid or reduce the
meetings. impact of external threats
● Proposed strategies should be listed in writing. o WT (weaknesses-threats) Strategies
● When all feasible strategies identified by ✔ defensive tactics directed at reducing
participants are given and understood, the internal weakness and avoiding external
strategies should be ranked in order of threats
attractiveness
SWOT 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
5. Match internal strengths with external opportunities
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

A Comprehensive Strategy - Formulation Framework

Stage 1 - Input Stage
● summarizes the basic input information needed to
formulate strategies
● consists of the
o EFE Matrix
o the IFE Matrix
o the Competitive Profile Matrix (CPM)
Stage 2 - Matching Stage
● focuses on generating feasible alternative
strategies by aligning key external and internal
factors
● techniques include the
o Strengths-Weaknesses-Opportunities-Threats
(SWOT) Matrix
o the Strategic Position and Action Evaluation
(SPACE) Matrix
o the Boston Consulting Group (BCG) Matrix
o the Internal-External (IE) Matrix
o and the Grand Strategy Matrix
Stage 3 - Decision Stage
● involves the Quantitative Strategic Planning Matrix
(QSPM)
● reveals the relative attractiveness of alternative
strategies and thus provides objective basis for
selecting specific strategies

The Matching Stage

● The Strengths Weaknesses- Opportunities-Threats
(SWOT) Matrix helps managers develop four types
of strategies:
o SO (strengths-opportunities) Strategies
✔ use a firm’s internal strengths to take Strategic Position and Action Evaluation (SPACE) Matrix
advantage of external opportunities ● four-quadrant framework indicates whether
o WO (weaknesses-opportunities) Strategies aggressive, conservative, defensive, or competitive
strategies are most appropriate for a given
✔ aim at improving internal weaknesses by
organization
taking advantage of external opportunities
● Two internal dimensions (financial position [FP] and
competitive position [CP])
● Two external dimensions (stability position [SP] and
industry position [IP])
● Most important determinants of an organization’s
overall strategic position

Steps to Develop a SPACE Matrix

1. Select a set of variables to define financial position
(FP), competitive position (CP), stability position
(SP), and industry position (IP)
2. Assign a numerical value ranging from +1 (worst)
to +7 (best) to each of the variables that make up
the FP and IP dimensions. Assign a numerical value
ranging from –1 (best) to –7 (worst) to each of the
variables that make up the SP and CP dimensions
3. Compute an average score for FP, CP, IP, and SP
4. Plot the average scores for FP, IP, SP, and CP on
the appropriate axis in the SPACE Matrix
5. Add the two scores on the x-axis and plot the
resultant point on X. Add the two scores on the y-
axis and plot the resultant point on Y. Plot the
intersection of the new xy point
6. Draw a directional vector from the origin of the
SPACE Matrix through the new intersection point
o This vector reveals the type of strategies
recommended for the organization:
aggressive, competitive, defensive, or
conservative