Strategic Management

Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved.
 Brief Contents

1. Basic Concepts of Strategic 6. Strategy Formulation: Corporate

Management Strategy
2. Social Responsibility and Ethics in 7. Strategy Formulation: Functional
Strategic Management Strategy and Strategic Choice
3. Environmental Scanning and Industry 8. Strategy Implementation: Organizing
Analysis and Structure
4. Organizational Analysis and 9. Strategy Implementation: Staffing and
Competitive Advantage Directing
5. Strategy Formulation: Business 10. Evaluation and Control
Strategy
 Chapter 1

Basic Concepts of
Strategic Management
Learning Objectives (1 of 2)

1.1 Discuss the benefits of strategic management

1.2 Explain how globalization, innovation, and
environmental sustainability influence strategic
management
1.3 Discuss the differences between the theories of
organizations
1.4 Discuss the activities where learning
organizations excel
Learning Objectives (2 of 2)

1.5 Describe the basic model of strategic

management and its components
1.6 Identify some common triggering events that
act as stimuli for strategic change
1.7 Explain strategic decision-making modes
1.8 Use the strategic audit as a method of
analyzing corporate functions and activities
The Study of Strategic Management
(1 of 2)
• Strategic Management
– a set of managerial decisions and actions that
determines the long-run performance of a
corporation
The Study of Strategic Management
(2 of 2)
Strategic management includes:
• Internal and external environmental scanning
• Strategy formulation
• Strategy implementation
• Evaluation and control
Phases of Strategic Management

As managers attempt to better deal with their

changing world, a firm generally evolves through
the following four phases of strategic
management:
• Phase 1: Basic financial planning
• Phase 2: Forecast-based planning
• Phase 3: Externally oriented strategic planning
• Phase 4: Strategic management
Benefits of Strategic Management
(1 of 2)
• The attainment of an appropriate match, or “fit,”
between an organization’s environment and its
strategy, structure, and processes has positive
effects on the organization’s performance.
• Strategic planning becomes increasingly
important as the environment becomes more
unstable.
Benefits of Strategic Management
(2 of 2)
• Clearer sense of strategic vision for the firm
• Sharper focus on what is strategically important
• Improved understanding of a rapidly changing
environment
Impact of Globalization
• Globalization
– the integrated internationalization of markets
and corporations
– has changed the way modern corporations do
business
Impact of Innovation

• Innovation
– describes new products, services, methods,
and organizational approaches that allow the
business to achieve extraordinary returns

• It is the implementation of potential innovations

that truly drives businesses to be remarkable.
Impact of Sustainability (1 of 2)

• Sustainability
– refers to the use of business practices to
manage the triple bottom line
Impact of Sustainability (2 of 2)
The triple bottom line involves:
1. the management of traditional profit/loss
2. the management of the company’s social
responsibility
3. the management of its environmental
responsibility
Theories of Organizational
Adaptation (1 of 3)
• Population ecology • Institution theory
– Once an organization – Organizations can
is successfully and do adapt to
established in a changing conditions
particular by imitating other
environmental niche, successful
it is unable to adapt to organizations.
changing conditions.
Theories of Organizational
Adaptation (2 of 3)
• Strategic choice perspective
– not only do organizations adapt to a changing
environment, but also have the opportunity and
power to reshape their environment
Theories of Organizational
Adaptation (3 of 3)
• Organizational learning theory
– an organization adjusts defensively to
changing environment and uses knowledge
offensively to improve fit between itself and its
environment
Creating a Learning Organization
(1 of 3)
• Strategic flexibility
– the ability to shift from one dominant strategy to
another
– demands long-term commitment to development
and nurturing of critical resources
– also demands that the company become a
learning organization
Creating a Learning Organization
(2 of 3)
• Learning organization
– an organization skilled at creating, acquiring,
and transferring knowledge and at modifying its
behavior to reflect new knowledge and insights
• Organizational learning is a critical component of
competitiveness in a dynamic environment.
Creating a Learning Organization
(3 of 3)
Learning organizations are skilled at four main
activities:
1. Solving problems systematically
2. Experimenting with new approaches
3. Learning from the organization’s own
experiences and past history as well as from the
experiences of others
4. Transferring knowledge quickly and efficiently
throughout the organization
Basic Model of Strategic Management
(1 of 9)
Strategic management consists of four
basic elements:
1. Environmental scanning
2. Strategy formulation
3. Strategy implementation
4. Evaluation and control
Figure 1-1: Basic Elements of the
Strategic Management Process
Figure 1-2: Strategic Management Model
Basic Model of Strategic Management
(2 of 9)
• Environmental Scanning
– the monitoring, evaluating and disseminating of
information from the external and internal
environments to key people within the
organization
– SWOT analysis: simple way to conduct
environmental scanning
Figure 1-3: Environmental Variables
Basic Model of Strategic Management
(3 of 9)
• Strategy formulation
– process of investigation, analysis, and
decision-making that provides the company
with the criteria for attaining a competitive
advantage
– includes defining the competitive advantages of
the business, crafting the corporate mission,
specifying achievable objectives, and setting
policy guidelines
Basic Model of Strategic Management
(4 of 9)
• Mission
– purpose or reason for the organization’s
existence
• Vision
– describes what the organization would like to
become
• Objectives
– results of planned activity
Basic Model of Strategic Management
(5 of 9)
• Strategy
– forms a comprehensive master approach that
states how the corporation will achieve its
mission and objectives
– maximizes competitive advantage and
minimizes competitive disadvantage
– corporate, business, functional
Figure 1-4: Hierarchy of Strategy
Basic Model of Strategic Management
(6 of 9)
• Policy
– a broad guideline for decision-making that links
formulation of a strategy with its
implementation
Basic Model of Strategic Management
(7 of 9)
• Strategy implementation
– process by which strategies and policies are
put into action through the development of
programs, budgets, and procedures
Basic Model of Strategic Management
(8 of 9)
• Evaluation and control
– a process in which corporate activities and
performance results are monitored so that
actual performance can be compared with
desired performance
Basic Model of Strategic Management
(9 of 9)
• Performance
– result of activities
– includes actual outcomes of the strategic
management process
• Feedback/learning process
– revise or correct decisions based on
performance
Initiation of Strategy:
Triggering Events
• Triggering event
– something that acts as a stimulus for a change
in strategy and can include:
 new CEO
 external intervention
 threat of change of ownership
 performance gap
 strategic inflection point
Strategic Decision-making

• Strategic decisions
– deal with the long-term future of an entire
organization and have three characteristics:
1. rare
2. consequential
3. directive
Three Characteristics of
Strategic Decisions
• Rare
– Strategic decisions are unusual and typically have no
precedent to follow.
• Consequential
– Strategic decisions commit substantial resources and
demand a great deal of commitment from people at all
levels.
• Directive
– Strategic decisions set precedents for lesser decisions
and future actions throughout an organization.
Mintzberg’s Modes of Strategic
Decision-making (1 of 2)
• Entrepreneurial mode
– strategy is made by one powerful individual
• Adaptive mode
– characterized by reactive solutions to existing
problems, rather than a proactive search for new
opportunities
Mintzberg’s Modes of Strategic
Decision-making (2 of 2)
• Planning mode
– involves the systematic gathering of
appropriate information for situation analysis,
the generation of feasible alternative strategies,
and the rational selection of the most
appropriate strategy
• Logical incrementalism
– a synthesis of the planning, adaptive, and, to a lesser
extent, the entrepreneurial modes
Strategic Decision-making Process
1. Evaluate current performance results.
2. Review corporate governance.
3. Scan and assess the external environment.
4. Scan and assess the internal corporate environment.
5. Analyze strategic factors.
6. Generate, evaluate, and select the best alternative
strategies.
7. Implement selected strategies.
8. Evaluate implemented strategies.
Figure 1-5: Strategic Decision-Making
Process (1 of 2)
Figure 1-5:
Strategic Decision-making Process (2 of 2)
The Strategic Audit:
Aid to Strategic Decision-making
• Strategic audit
– provides a checklist of questions, by area or
issue, that enables a systematic analysis to be
made of various corporate functions and
activities
 Chapter 2

Social Responsibility and

Ethics in Strategic
Management
Learning Objectives
2-1 Discuss the relationship between social
responsibility and corporate performance
2-2 Explain the concept of sustainability
2-3 Conduct a stakeholder analysis
2-4 Explain why people may act unethically
2-5 Describe different views of ethics according to
the utilitarian, individual rights, and justice
approaches
Social Responsibilities of Strategic
Decision Makers
• Social responsibility
– proposes that a private corporation has
responsibilities to society that extend beyond
making a profit
Friedman’s Traditional View of
Business Responsibility
• Argues against the concept of social responsibility.
• Primary goal of business is profit maximization not
spending shareholder money for the general
social interests.
Carroll’s Four Responsibilities
of Business (1 of 2)
1. Economic responsibilities
– produce goods and services of value to society
so that the firm may repay its creditors and
increase the wealth of its shareholders
2. Legal responsibilities
– defined by governments in laws that
management is expected to obey
Carroll’s Four Responsibilities
of Business (2 of 2)
3. Ethical responsibilities
– follow the generally held beliefs about behavior
in a society
4. Discretionary responsibilities
– purely voluntary obligations a corporation
assumes
Figure 2-1: Responsibilities of Business
Responsibilities of a Business Firm

• Social capital
– the goodwill of key stakeholders, that can be
used for competitive advantage
– opens doors in local communities
– enhances reputation with consumers
Benefits of Being Socially
Responsible
• May enable firm to charge premium prices and
gain brand loyalty
• May help generate enduring relationships with
suppliers and distributors
• Can attract outstanding employees
• More likely to be welcomed into a foreign country
• Can utilize the goodwill of public officials for
support in difficult times
Characteristics of Sustainability
• Environmental
• Economic
• Social
Corporate Stakeholders
• Stakeholders
– have an interest in the business and affect or
are affected by the achievement of the firm’s
objectives
• Enterprise strategy
– an overarching strategy explicitly articulating
the firm’s ethical relationship with its
stakeholders
Stakeholder Analysis (1 of 4)

• Stakeholder analysis
– the identification and evaluation of corporate
stakeholders
– usually done in a three-step process
Stakeholder Analysis (2 of 4)
• The first step in stakeholder analysis is to identify
primary stakeholders.
• Primary stakeholders
– those who have a direct connection with the
corporation and who have sufficient bargaining
power to directly affect corporate activities
– include customers, employees, suppliers,
shareholders, and creditors
Stakeholder Analysis (3 of 4)
• The second step in stakeholder analysis is to
identify the secondary stakeholders.
• Secondary stakeholders
– have an indirect stake in the corporation but
are also affected by corporate activities
– includes NGOs, activists, local communities,
trade associations, competitors, and
governments
Stakeholder Analysis (4 of 4)

• The third step in stakeholder analysis is to

estimate the effect on each stakeholder group
from any particular strategic decision.
Stakeholder Input

• Once stakeholder impacts have been identified,

managers should decide whether stakeholder
input should be invited into the discussion of the
strategic alternatives.
• A group is more likely to accept or even help
implement a decision if it has some input into
which alternative is chosen and how it is to be
implemented.
Reasons for Unethical Behavior
• Unaware that behavior is questionable
• Lack of standards of conduct
• Different cultural norms and values
• Behavior-based or relationship-based governance
systems
• Different values between business people and
stakeholders
Moral Relativism (1 of 3)

• Moral relativism
– claims that morality is about some personal,
social, or cultural standard and that there is no
method for deciding whether one decision is
better than another
Moral Relativism (2 of 3)

• Naïve relativism
– based on the belief that all moral decisions are
deeply personal and that individuals have the
right to run their lives
• Role relativism
– based on the belief that social roles carry with
them certain obligations to that role
Moral Relativism (3 of 3)

• Social group relativism

– based on a belief that morality is simply a
matter of following the norms of an individual’s
peer group
• Cultural relativism
– based on the belief that morality is relative to a
particular culture, society, or community
Kohlberg’s Levels of Moral
Development
1. Preconventional level
– concern for one’s self
2. Conventional level
– considerations for society’s laws and norms
3. Principled level
– guided by an internal moral code
Encouraging Ethical Behavior (1 of 3)

• Code of Ethics
– specifies how an organization expects its
employees to behave while on the job
Encouraging Ethical Behavior (2 of 3)
A code of ethics:
1. Clarifies company expectations of employee
conduct in various situations
2. Makes clear the company expects its people to
recognize the ethical dimensions in decisions
and action
Encouraging Ethical Behavior (3 of 3)

• Whistleblowers
– employees who report illegal or unethical
behavior on the part of others
Views on Ethical Behavior (1 of 5)
• Ethics
– the consensually accepted standards of behavior
for an occupation, trade, or profession
• Morality
– one’s rules of personal behavior based on religious
or philosophical grounds
• Law
– the formal codes that permit or forbid certain
behaviors and may or may not enforce ethics or
morality
Views on Ethical Behavior (2 of 5)
• Utilitarian approach
– proposes actions and plans should be judged
by their consequences
• Individual rights approach
– proposes human beings have certain
fundamental rights that should be respected in
all decisions
Views on Ethical Behavior (3 of 5)
• Justice approach
– decisions must be equitable, fair, and impartial
in the distribution of costs and benefits to
individuals or groups
Views on Ethical Behavior (4 of 5)
Cavanagh’s questions to solve ethical problems:
1. Utility: Does it optimize the satisfactions of the
stakeholders?
2. Rights: Does it respect the rights of the
individuals involved?
3. Justice: Is it consistent with the canons of
justice?
Views on Ethical Behavior (5 of 5)
Kant’s categorical imperatives
1. Actions are ethical only if the person is willing for
the same action to be taken by everyone who is
in a similar situation.
2. Never treat another person simply as a means
but always as an end.
 Chapter 3

Environmental Scanning
and Industry Analysis
Learning Objectives (1 of 2)
3-1 List the aspects of an organization’s environment that can
influence its long-term decisions
3-2 Identify the aspects of an organization’s environment that
are most strategically important
3-3 Conduct an industry analysis to explain the competitive
forces that influence the intensity of rivalry within an
industry
3-4 Discuss how industry maturity affects industry competitive
forces
3-5 Categorize international industries based on their
pressures for coordination and local responsiveness
Learning Objectives (2 of 2)
3-6 Identify key success factors and develop an industry
matrix
3-7 Construct strategic group maps to assess the
competitive positions of firms in an industry
3-8 Develop an industry scenario as a forecasting technique
3-9 Use publicly available information to conduct competitive
intelligence
3-10 Be able to construct an EFAS Table that summarizes
external environmental factors
Environmental Scanning
• Environmental scanning
– the monitoring, evaluation, and dissemination
of information relevant to the organizational
development of strategy
Identifying External
Environmental Variables (1 of 4)
• Natural environment
– includes physical resources, wildlife, and
climate that are an inherent part of existence
on Earth
– form an ecological system of interrelated life
Identifying External
Environmental Variables (2 of 4)

• Societal environment
– humankind’s social system that includes
general forces that do not directly touch on the
short-run activities of the organization, but that
can influence its long-term decisions
– factors: economic, technological, political-legal,
sociocultural
Identifying External
Environmental Variables (3 of 4)
• Task environment
– those elements or groups that directly affect a
corporation and, in turn, are affected by it
– government, local communities, suppliers,
competitors, customers, creditors,
employees/labor unions, special-interest
groups, and trade associations
Identifying External
Environmental Variables (4 of 4)
• Industry analysis
– an in-depth examination of key factors within a
corporation’s task environment
Scanning the Societal Environment:
STEEP Analysis
• STEEP analysis
– monitoring trends in the societal and natural
environments
– sociocultural, technological, economic,
ecological, and political-legal forces
Table 3-1: STEEP Analysis: Monitoring Trends in
the Societal and Natural Environments
Table 3-2: Demographic trends are part of the
sociocultural aspect of the societal environment.

SOURCES: Developed from Pew Research Center analysis of census bureau population projections (September 3, 2015),
(http://www.people-press.org/2015/09/03/the-whys-and-hows-of-generations-research/generations_2/).
Current Sociocultural Trends
• Increasing environmental awareness
• Growing health consciousness
• Expanding seniors market
• Impact of millennials
• Declining mass market
• Changing pace and location of life
• Changing household composition
• Increasing diversity of workforce and markets
Technological Breakthroughs
• Portable information devices and electronic
networking
• Alternative energy sources
• Precision farming
• Virtual personal assistants
• Genetically altered organisms
• Smart, mobile robots
Categories of Risk: Climate Change
• Regulatory
• Supply chain
• Product and technology
• Litigation
• Reputational
• Physical
Table 3-3: Some Important Variables in
International Societal Environments
Figure 3-1: Scanning the External Task
Environment
Figure 3-2: Forces Driving Industry
Competition
Threat of New Entrants
• Threat of new entrants
– new entrants to an industry bring new capacity,
a desire to gain market share and substantial
resources
• Entry barrier
– an obstruction that makes it difficult for a
company to enter an industry
Barriers to Entry
Some of the possible barriers to entry are:
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of size
• Government policies
Rivalry Among Existing Firms (1 of 2)
• In most industries, corporations are mutually
dependent.
• A competitive move by one firm can be expected
to have a noticeable effect on its competitors and
thus may cause retaliation.
Rivalry Among Existing Firms (2 of 2)
According to Porter, intense rivalry is related to
the presence of several factors, including:
• Number of competitors
• Rate of industry growth
• Product or service characteristics
• Amount of fixed costs
• Capacity
• Height of exit barriers
• Diversity of rivals
Threat of Substitute Products or
Services
• Substitute product
– a product that appears to be different but can
satisfy the same need as another product
• The identification of possible substitute products
means searching for products that can perform
the same function, even though they have a
different appearance.
The Bargaining Power of Buyers
(1 of 2)
• Buyers affect an industry through their
ability to force down prices, bargain for
higher quality or more services, and play
competitors against each other.
The Bargaining Power of Buyers
(2 of 2)
• Bargaining power of buyers:
– Large purchases
– Backward integration
– Alternative suppliers
– Low cost to change suppliers
– Product represents a high percentage of
buyer’s cost: Incented to shop around
– Buyer earns low profits: Cost/service sensitive
– Product is unimportant to buyer
The Bargaining Power of Suppliers
(1 of 2)
• Suppliers can affect an industry through
their ability to raise prices or reduce the
quality of purchased goods and services.
The Bargaining Power of Suppliers
(2 of 2)
A buyer or a group of buyers is powerful if some of
the following factors hold true:
• Industry is dominated by a few companies
• Unique product or service
• Substitutes are not readily available
• Ability to forward integrate
• Unimportance of product or service to the industry
Relative Power of Other Stakeholders
• Government
• Local communities
• Creditors
• Trade associations
• Special-interest groups
• Unions
• Shareholders
• Complementors
Industry Evolution
• Fragmented industry
– no firm has a large market share and each firm
only serves a small piece of the total market in
competition with other firms
• Consolidated industry
– domination by a few large firms, each struggles
to differentiate products from its competition
Categorizing International Industries
• Multi-domestic industries
– specific to each country or group of countries
• Global Industries
– operate worldwide with multinational
companies making only small adjustments for
country-specific circumstances
• Regional industries
– multinational companies primarily coordinate
their activities within regions
Figure 3-3: Continuum of International
Industries
Strategic Groups
• Strategic group
– a set of business units or firms that pursue
similar strategies with similar resources
Figure 3-4: Mapping Strategic Groups in
the U.S. Restaurant Chain Industry
Strategic Types
• Defenders
– focus on improving efficiency
• Prospectors
– focus on product innovation and market opportunities
• Analyzers
– focus on at least two different product market areas
• Reactors
– lack a consistent strategy-structure-culture relationship
Hypercompetition
Market stability is threatened by:
• short product life cycles
• short product design cycles
• new technologies
• frequent entry by unexpected outsiders
• repositioning by incumbents
• tactical redefinitions of market boundaries as
diverse industries merge
Using Key Success Factors to Create
an Industry Matrix
• Key success factors
– Variables that can significantly affect the overall
competitive positions of companies within any
particular industry
Table 3-4: Industry Matrix
• Industry matrix
– summarizes the key success factors within a
particular industry
Competitive Intelligence
• Competitive intelligence
– a formal program of gathering information on a
company’s competitors
– also called business intelligence

• Sources of competitive intelligence:

– information brokers
– Internet
– industrial espionage
– investigatory services
Useful Forecasting Techniques
Some useful forecasting techniques are:
• Extrapolation
• Brainstorming
• Expert opinion
• Delphi technique
• Statistical modeling
• Prediction markets
• Cross-impact analysis (CIA)
Table 3-5: Synthesis of External Factors—
EFAS
 Chapter 4

Organizational Analysis
and Competitive
Advantage
Learning Objectives (1 of 2)

4-1 Apply the resource-based view of the firm and

the VRIO framework to determine core and
distinctive competencies
4-2 Understand a company business models and
how they can be imitated
4-3 Use value chain to assess the activities of
an industry and of an organization
Learning Objectives (2 of 2)

4-4 Explain why different organizational structures

are utilized in business
4-5 Assess a company’s corporate culture and how
it might affect a proposed strategy
4-6 Construct an IFAS Table that summarizes
internal factors
A Resource-Based Approach
to Organizational Analysis
• Organizational analysis
– concerned with identifying and developing an
organization’s resources and competencies
Core and Distinctive Competencies
(1 of 5)
• Resources
– An organization’s assets and are thus the basic
building blocks of the organization.
– Tangible, intangible
• Capabilities
– Refer to a corporation’s ability to exploit its
resources.
– Consist of business processes and routines
that manage the interaction among resources
to turn inputs into outputs
Core and Distinctive Competencies
(2 of 5)
• Core competency
– a collection of competencies that cross
divisional boundaries, is wide-spread
throughout the corporation and is something
the corporation does exceedingly well
• Distinctive competency
– core competencies that are superior to those of
the competition
VRIO Framework of Analysis
1. Valuable: Does it provide customer value and
competitive advantage?
2. Rareness: Do no other competitors possess it at
the same level?
3. Imitability: Do the competitors have the
financial ability to imitate?
4. Organization: Is the firm organized to exploit
the resource?
Core and Distinctive Competencies
(3 of 5)
• Imitability
– the rate at which a firm’s underlying resources,
capabilities, or core competencies can be
duplicated by others
Core and Distinctive Competencies
(4 of 5)
• Transparency
– the speed at which other firms under the relationship of
resources and capabilities support a successful
strategy
• Transferability
– the ability of competitors to gather the resources and
capabilities necessary to support a competitive
challenge
• Replicability
– the ability of competitors to use duplicated resources
and capabilities to imitate the other firm’s success
Core and Distinctive Competencies
(5 of 5)
• Explicit knowledge
– knowledge that can be easily articulated and
communicated

• Tacit knowledge
– knowledge that is not easily communicated
because it is deeply rooted in employee
experience or in the company’s culture
Access to a Distinctive Competency
(1 of 2)
1. Asset endowment
2. Acquired from someone else
3. Shared with another business
4. Built and accumulated within the company
Access to a Distinctive Competency
(2 of 2)
• Clusters
– geographic concentrations of interconnected
companies and industries
• Access to:
– employees
– suppliers
– specialized information
– complementary products
Business Models (1 of 4)
• Business model
– a company’s method for making money in the
current business environment
– includes the key structural and operational
characteristics of a firm—how it earns revenue
and makes a profit
Business Models (2 of 4)
A business model is usually composed of
five elements:
• Who it serves
• What it provides
• How it makes money
• How it differentiates and sustains competitive
advantage
• How it provides its product/service
Business Models (3 of 4)
Some of the many possible business models are:
• Customer solutions model
• Profit pyramid model
• Multi-component system/installed base model
• Advertising model
• Switchboard model
Business Models (4 of 4)
Some other possible business models are:
• Time model
• Efficiency model
• Blockbuster model
• Profit multiplier model
• Entrepreneurial model
• De facto industry standard model
Value-Chain Analysis
• Value chain
– a linked set of value-creating activities that begin with
basic raw materials coming from suppliers moving on
to a series of value-added activities involved in
producing and marketing a product or service, and
ending with distributors getting the final goods into the
hands of the ultimate consumer.

Figure 4-1: Typical Value Chain for a Manufactured Product

Industry Value Chain Analysis
Value chain segments include:
• Upstream
• Downstream

• Center of gravity
– the part of the chain that is most important to
the company and the point where its core
competencies lie
Figure 4-2: A Corporation’s Value Chain
 Corporate Value Chain Analysis
(1 of 2)
Primary Activities Support Activities
• Inbound logistics • Procurement
• Operations • Technology
development
• Outbound logistics
• Human resource
management
• Firm infrastructure
Corporate Value Chain Analysis
(2 of 2)
1. Examine each product line’s value chain in
terms of the various activities involved in
producing the product or service
2. Examine the linkages within each product line’s
value chain
3. Examine the potential synergies among the
value chains of different product lines or
business units
Basic Organizational Structures
(1 of 2)
• Simple
• Functional
• Divisional
• Strategic business units
• Conglomerate
Figure 4-3: Basic Organizational
Structures (2 of 2)
Culture (1 of 2)
• Corporate culture
– the collection of beliefs, expectations, and
values learned and shared by a corporation’s
members and transmitted from one generation
of employees to another
Culture (2 of 2)
• Cultural intensity
– the degree to which members of a unit accept
the norms, values and other cultural content
associated with the unit
– shows the culture’s depth
• Cultural integration
– the extent of which units throughout the
organization share a common culture
– culture’s breadth
Functions of Corporate Culture
1. Conveys a sense of identity for employees
2. Generates employee commitment
3. Adds to the stability of the organization as a
social system
4. Serves as a frame of reference for employees to
understand organizational activities and as a
guide for behavior
Strategic Marketing Issues
• Market position
– refers to the selection of specific areas for
marketing concentration and can be expressed
regarding market, product, and geographic
locations.
• Marketing mix
– the particular combination of key variables
under a corporation’s control that can be used
to affect demand and to gain competitive
advantage
Table 4-1: Marketing Mix Variables
Product Life Cycle (1 of 2)

• Product life cycle

– a graph showing time plotted against the
sales of a product as it moves from
introduction through growth and maturity
to decline.
Figure 4-4: Product Life Cycle (2 of 2)
Brand and Corporate Reputation
(1 of 2)
• Brand
– a name given to a company’s product which
identifies that item in the mind of the consumer
• Corporate brand
– a type of brand in which the company’s name
serves as the brand
Brand and Corporate Reputation
(2 of 2)
• Corporate reputation
– a widely held perception of a company by the
general public
• Consists of two attributes:
1. Stakeholders’ perceptions of quality
2. Corporation’s prominence in the minds of
stakeholders
Strategic Financial Issues
• Financial leverage
– ratio of total debt to total assets
– describes how debt is used to increase
earnings available to common shareholders
• Capital budgeting
– analyzing and ranking of possible investments
in fixed assets regarding additional outlays and
receipts that will result from each investment
– hurdle rate
Strategic Research and Development
Issues
• R&D intensity
– spending on R&D as a percentage of sales
revenue
– principal means of gaining market share in
global competition
• Technology transfer
– the process of taking new technology from the
laboratory to the marketplace
R&D Mix
• Basic R&D
– focuses on theoretical problems
• Product R&D
– concentrates on marketing and is concerned with
product or product packaging improvements
• Engineering R&D
– concerned with engineering, concentrating on
quality control, and the development of design
specifications and improved production equipment
Impact of Technological Discontinuity
on Strategy
• Technology discontinuity
– when a new technology cannot be used to
enhance current technology but substitutes for
the technology to yield better performance
Strategic Operations Issues
• Intermittent systems
– item is normally processed sequentially, but the
work and sequence of the process vary
• Continuous systems
– work is laid out in lines on which products can
be continuously assembled or processed
• Operating leverage
– impact of a specific change in sales volume on
net operating income
Experience Curve

• Experience curve
– unit production costs decline by some fixed
percentage each time the total accumulated
volume of production units doubles
Increasing Use of Teams (1 of 2)
• Autonomous (self-managing)
– a group of people work together without a
supervisor to plan, coordinate and evaluate their
work
• Cross-functional work teams
– various disciplines are involved in a project from
the beginning
• Concurrent engineering
– specialists work side-by-side and compare notes
constantly to design cost-effective products with
features customers want
Increasing Use of Teams (2 of 2)

• Virtual teams
– groups of geographically and/or
organizationally dispersed co-workers that are
assembled using a combination of
telecommunications and information
technologies to accomplish an organizational
task
Five Trends Driving Virtual Teams
1. Flatter organizational structures
2. Turbulent environments
3. Increased employee autonomy
4. Higher knowledge requirements
5. Increasing globalization
Quality of Work Life and Human
Diversity (1 of 2)
Quality of work life includes improvements
in:
1. Introducing participative problem solving
2. Restructuring work
3. Introducing innovative reward systems
4. Improving the work environment
Quality of Work Life and Human
Diversity (2 of 2)
• Human diversity
– the mix in the workplace of people from
different races, cultures and backgrounds
– human resources may be a key to competitive
advantage
Strategic Information
Systems/Technology Issues (1 of 2)
Information systems/technology contributions
to performance:
• Automation of back office processes
• Automation of individual tasks
• Enhancement of key business functions
• Development of a competitive advantage
Strategic Information
Systems/Technology Issues (2 of 2)
• Supply chain management
– the forming of networks for sourcing raw
materials, manufacturing products or creating
services, storing and distributing the goods,
and delivering them to customers and
consumers.
Synthesis of Internal Factors (IFAS)
(1 of 3)
• The IFAS (Internal Factor Analysis Summary)
Table
– one way to organize the internal factors into the
generally accepted categories of strengths and
weaknesses
– examines how well a particular company’s
management is responding to these specific
factors in light of the perceived importance of
these factors
Synthesis of Internal Factors (IFAS)
(2 of 3)
• Use the VRIO framework (Value, Rareness,
Imitability, and Organization) to
assess the importance of each of the factors
that might be considered strengths.
Table 4-2: Synthesis of Internal Factors (IFAS) (3
of 3)
 Chapter 5

Strategy Formulation:
Business Strategy
Learning Objectives
5-1 Utilize the SFAS matrix and a SWOT
diagram to examine business strategy.
5-2 Develop a mission statement that
addresses the five elements of good
design
5-3 Explain the competitive and cooperative
strategies available to corporations
5-4 Identify the types of strategic alliances
A Framework for Examining
Business Strategy (1 of 2)
• Strategy formulation
– concerned with developing a corporation’s
mission, objectives, strategies, and policies
• Situation analysis
– the process of finding a strategic fit between
external opportunities and internal strengths
while working around external and internal
weaknesses
A Framework for Examining
Business Strategy (2 of 2)
• SWOT
– acronym used to describe the particular
strengths, weaknesses, opportunities, and
threats that are potential strategic factors for a
specific company
• Strategy = opportunity/capacity
• Opportunity has no real value unless a company
has the capacity to take advantage of that
opportunity.
Criticisms of SWOT Analysis
(1 of 2)
• It is simply the opinions of those filling out the
boxes.
• Virtually everything that is a strength is also a
weakness.
• Virtually everything that is an opportunity is also a
threat.
• Adding layers of effort does not improve the
validity of the list.
Generating a Strategic Factors
Analysis Summary (SFAS) Matrix
• SFAS (Strategic Factors Analysis
Summary) Matrix
– summarizes an organization’s strategic factors
by combining the external factors from the
EFAS Table with the internal factors from the
IFAS Table
Criticisms of SWOT Analysis
(2 of 2)
• It uses a single point in time approach.
• There is no tie to the view from the customer.
• There is no validated evaluation approach.
Figure 5-1: Strategic Factor Analysis
Summary (SFAS) Matrix
Finding a Propitious Niche
• Propitious niche
– so well suited to the firm’s internal and external
environment that other corporations are not
likely to challenge or dislodge it
• Strategic window
– a unique market opportunity that is available for
a particular time
Mission and Objectives (1 of 2)
• The mission statement must enable a common
thread to highlight and focus the energy of
everyone in the organization in the direction that
the top management team believes is best for the
business.
Mission and Objectives (2 of 2)
A well-crafted mission statement has five common
elements
1. It must be short.
2. The design must be simple.
3. It has to provide direction.
4. It should enable employees knowing exactly
what the company does and what it does not do.
5. It should be measurable.
Business Strategies
• Business strategy
– focuses on improving the competitive position
of a company’s or business unit’s products or
services within the specific industry or market
segment that the company or business unit
serve
– Competitive, cooperative
Porter’s Competitive Strategies
(1 of 8)
Competitive strategy raises the following
questions:
• Should we compete on the basis of lower cost
(and thus price), or should we differentiate our
products or services on some basis other than
cost, such as quality or service?
Porter’s Competitive Strategies
(2 of 8)
• Should we compete head-to-head with our major
competitors for the biggest but most sought-after
share of the market, or should we focus on a
niche in which we can satisfy a less sought-after
but also the profitable segment of the market?
Porter’s Competitive Strategies
(3 of 8)
• Cost leadership
– ability of a company or a business unit to
design, produce, and market a comparable
product more efficiently than its competitors
• Differentiation
– ability of a company to provide unique and
superior value to the buyer in terms of product
quality, special features, or after-sale service
Porter’s Competitive Strategies
(4 of 8)
• Focus
– ability of a company to provide unique and
superior value to a particular buyer group,
segment of the market line, or geographic
market
Porter’s Competitive Strategies
(5 of 8)
• Porter proposed that a firm’s competitive
advantage in an industry is determined by
its competitive scope—that is, the breadth
of the company’s or business unit’s target
market.
Porter’s Competitive Strategies
(6 of 8)
• Cost leadership
– lower-cost competitive strategy that aims at the
broad mass market and requires “aggressive
construction of efficient-scale facilities, vigorous
pursuit of cost reductions from experience, tight
cost and overhead control, avoidance of marginal
customer accounts, and cost minimization
– provides a defense against rivals
– provides a barrier to entry
– generates increased market share
Porter’s Competitive Strategies
(7 of 8)
• Differentiation
– involves the creation of a
product or service that is perceived throughout
its industry as having passed through the
elements of VRIO.
• Lowers customers sensitivity to price
• Increases buyer loyalty
• Can generate higher profits
Porter’s Competitive Strategies
(8 of 8)
• Cost focus
– low-cost competitive strategy that focuses on a
particular buyer group or geographic market
and attempts to serve only this niche to the
exclusion of others
• Differentiation focus
– concentrates on a particular buyer group,
product line segment, or geographic market to
serve the needs of a narrow strategic market
more effectively than its competitors
Risks in Competitive Strategies
• A company following a differentiation strategy
must ensure that the higher price it charges for its
higher quality is not too far above the price of the
competition, otherwise customers will not see the
extra quality as worth the extra cost.
Issues in Competitive Strategies
(1 of 2)
• Stuck in the middle
– when a company has no competitive
advantage and is doomed to below-average
performance
Issues in Competitive Strategies
(2 of 2)
• Successful entrepreneurial ventures follow focus
strategies.
• They differentiate their product or service from
those of others by focusing on customer wants in
a segment of the market, thereby achieving a
dominant share of that part of the market.
Industry Structure and
Competitive Strategy (1 of 3)
• Fragmented industry
– many small and medium-sized companies
compete for relatively small shares of the total
market
• Products are typically in early stages of product
life cycle.
• Focus strategies are used.
Industry Structure and
Competitive Strategy (2 of 3)
• Consolidated industry
– domination by a few large companies
– premium on a firm’s ability to achieve cost
leadership
Industry Structure and
Competitive Strategy (3 of 3)
• Strategic rollup
– developed in the mid-1990s as an efficient way
to quickly consolidate a fragmented industry
• Rollups differ from mergers/acquisitions in three
ways:
1. They involve large numbers of firms.
2. The acquired firms are typically owner
operated.
3. The objective is to reinvent an entire industry.
Hypercompetition and
Competitive Advantage
Sustainability (1 of 2)
• According to D’Aveni:
– “In a hypercompetitive environment, market
stability is threatened by short product life cycles,
short product design cycles, new technologies,
frequent entry by unexpected outsiders,
repositioning by incumbents, and tactical
redefinitions of market boundaries as diverse
industries merge.”
• A company or business unit must constantly work
to improve its competitive advantage.
Hypercompetition and
Competitive Advantage
Sustainability (2 of 2)
• Sustained competitive advantage is
increasingly a matter not of a single advantage
maintained over time, but more a matter of
sequencing advantages over time.
Cooperative Strategies (1 of 3)
• Cooperative Strategies
– used to gain a competitive advantage within an
industry by working with other firms
– collusion, strategic alliances
Cooperative Strategies (2 of 3)
• Collusion
– the active cooperation of firms within an
industry to reduce output and raise prices to
avoid economic law of supply and demand
Cooperative Strategies (3 of 3)
• Strategic Alliances
– a long-term cooperative arrangement between
two or more independent firms or business
units that engage in business activities for
mutual economic gain

Figure 5-2: Continuum of Strategic Alliances

Reasons to Form an Alliance
• Obtain or learn new capabilities
• Obtain access to specific markets
• Reduce financial risk
• Reduce political risk
Types of Alliances (1 of 4)
• Mutual service consortium
– partnership of similar companies in similar
industries that pool their resources to gain a
benefit that is too expensive to develop alone,
such as access to advanced technology
Types of Alliances (2 of 4)
• Joint venture
– cooperative business activity, formed by two or
more separate organizations for strategic
purposes, that creates an independent
business entity and allocates ownership,
operational responsibilities, and financial risks
and rewards to each member, while preserving
their separate identity/autonomy
Types of Alliances (3 of 4)
• Licensing arrangement
– an agreement in which the licensing firm grants
rights to another firm in another country or
market to produce and/or sell a product
Types of Alliances (4 of 4)
• Value-chain partnership
– a strong and close alliance in which one
company or unit forms a long-term
arrangement with a key supplier or distributor
for mutual advantage
Table 5-1: Strategic Alliance Success
Factors
 Chapter 6

Strategy Formulation:
Corporate Strategy
Learning Objectives
6-1 Explain the three key issues that corporate
strategy addresses
6-2 Apply the directional strategies of growth,
stability, and retrenchment to the organizational
environment in which they work best
6-3 Apply portfolio analysis to guide decisions
in companies with multiple products and
businesses
6-4 Develop a parenting strategy for a multiple-
business corporation
Corporate Strategy (1 of 3)
• Corporate strategy
– the choice of direction of the firm as a whole
and the management of its business or product
portfolio and concerns
Corporate Strategy (2 of 3)
• Directional strategy
– the firm’s overall orientation toward growth,
stability, or retrenchment
• Portfolio analysis
– industries or markets in which the firm
competes through its products and business
unites
Corporate Strategy (3 of 3)
• Parenting strategy
– the manner in which management coordinates
activities, transfers resources, and cultivates
capabilities among product lines and business
units
Figure 6-1: Corporate Directional Strategies
Directional Strategy
• Growth strategies
– expand the company’s activities
• Stability strategies
– make no change to the company’s current
activities
• Retrenchment strategies
– reduce the company’s level of activities
Growth Strategies
• Merger
– a transaction involving two or more
corporations in which both companies
exchange stock in order to create one
new corporation
• Acquisition
– purchase of another company
Concentration Strategies (1 of 7)
• Vertical growth
– achieved by taking over a function previously
provided by a supplier or distributor
Concentration Strategies (2 of 7)
• 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
Concentration Strategies (3 of 7)

• Backward • Forward
integration integration
– assuming a function – assuming a function
previously provided previously provided
by a supplier by a distributor
Concentration Strategies (4 of 7)
• Transaction cost economies
– vertical integration is more efficient than
contracting for goods and services in the
marketplace when the transaction costs of
buying on the open market become too great
Concentration Strategies (5 of 7)
• Full integration
– a firm internally makes 100% of its key
suppliers and completely controls its
distributors
• Taper integration
– a firm internally produces less than half of its
own requirements and buys the rest from
outside suppliers
Concentration Strategies (6 of 7)
• Quasi-integration
– a company does not make any of its key
supplies but purchases most of its
requirements from outside suppliers that are
under its partial control
• Long-term contracts
– agreements between two firms to provide
agreed-upon goods and services to each other
for a specific time
Concentration Strategies (7 of 7)
• Horizontal growth
– expansion of operations into other geographic
locations and/or increasing the range of
products and services offered to current
markets
• Horizontal integration
– the degree to which a firm operates in multiple
geographic locations at the same point in an
industry’s value chain
Diversification Strategies (1 of 2)
• Concentric (related) diversification
– growth into a related industry when a firm has a
strong competitive position, but industry
attractiveness is low
Diversification Strategies (2 of 2)
• Conglomerate (unrelated) diversification
– diversifying into an industry unrelated to its
current one
– management realizes that the current industry
is unattractive
– firm lacks outstanding abilities or skills that it
could easily transfer to related products or
services in other industries
Controversies in Directional
Strategies
• Is vertical growth better than horizontal
growth?
• Is concentration better than diversification?
• Is concentric diversification better than
conglomerate diversification?
Stability Strategies
• Pause/proceed with caution strategy
– an opportunity to rest before continuing a
growth or retrenchment strategy
• No-change strategy
– decision to do nothing new—a choice to
continue current operations and policies for the
foreseeable future.
• Profit strategy
– decision to do nothing new in a worsening
situation but instead to act as though the
company’s problems are only temporary
Retrenchment Strategies (1 of 4)
• Retrenchment strategies
– used when the firm has a weak competitive
position in some or all of its product lines from
poor performance
Retrenchment Strategies (2 of 4)
• Turnaround strategy
– emphasizes the improvement of operational
efficiency when the corporation’s problems are
pervasive but not critical
• Contraction
– effort to quickly “stop the bleeding” across the
board but in size and costs
• Consolidation
– stabilization of the new leaner corporation
Retrenchment Strategies (3 of 4)
• Captive company strategy
– company gives up independence in exchange for
security
• Sell-out strategy
– management can still obtain a good price for its
shareholders and the employees can keep their
jobs by selling the company to another firm
• Divestment
– sale of a division with low growth potential
Retrenchment Strategies (4 of 4)
• Bankruptcy
– company gives up management of the firm to
the courts in return for some settlement of the
corporation’s obligations
• Liquidation
– management terminates the firm
Portfolio Analysis
• Portfolio analysis
– management views its product lines and
business units as a series of investments from
which it expects a profitable return
BCG Growth-Share Matrix (1 of 3)

Figure 6-3: BCG Growth-Share Matrix

BCG Growth-Share Matrix (2 of 3)
• Question marks
– new products with the potential for success but
need a lot of cash for development
• Stars
– market leaders that are typically at or nearing
the peak of their product life cycle and can
generate enough cash to maintain their high
share of the market and usually contribute to
the company’s profits
BCG Growth-Share Matrix (3 of 3)
• Cash cows
– products that bring in far more money than is
needed to maintain their market share
• Dogs
– products with low market share and do not
have the potential to bring in much cash
BCG Growth-Share Matrix
Limitations
• Use of highs and lows to form categories is too
simplistic.
• Link between market share and profitability is
questionable.
• Growth rate is only one aspect of industry
attractiveness.
• Product lines or business units are considered only
in relation to one competitor.
• Market share is only one aspect of overall
competitive position.
Advantages and Limitations of
Portfolio Analysis (1 of 2)
Advantages
• Encourages top management to evaluate each of
the corporation’s businesses individually and to
set objectives and allocate resources for each
• Stimulates the use of externally oriented data to
supplement management’s judgment.
• Raises the issue of cash flow availability to use in
expansion and growth.
• Graphic depiction facilitates communication.
Advantages and Limitations of
Portfolio Analysis (2 of 2)
Limitations
• Defining product/market segments is difficult.
• Suggest the use of standard strategies that can miss
opportunities or be impractical.
• Provides illusion of scientific rigor.
• Value-laden terms such as cash cow and dog can lead to
self-fulfilling prophecies
• No clear what makes an industry attractive or where a
product is in its life cycle.
• Naively following prescriptions of model may reduce
corporate profits if used inappropriately.
Tasks Necessary for Managing a
Strategic Alliance Portfolio
(1 of 2)
1. Developing and implementing a portfolio
strategy for each business unit and a corporate
policy for managing all the alliances of the entire
company.
2. Monitoring the alliance portfolio in terms of
implementing business unit strategies and
corporate strategy and policies.
Tasks Necessary for Managing a
Strategic Alliance Portfolio
(2 of 2)
3. Coordinating the portfolio to obtain synergies
and avoid conflicts among alliances.
4. Establishing an alliance management system to
support other tasks of multi-alliance
management.
Corporate Parenting (1 of 2)
• Corporate parenting
– views a corporation in terms of resources and
capabilities that can be used to build business
unit value as well as generate synergies across
business units
Corporate Parenting (2 of 2)
• Generates corporate strategy by focusing on the
core competencies of the parent corporation and
the value created from the relationship between
the parent and its businesses.
Developing a Corporate
Parenting Strategy
1. Examine each business unit in terms of its
strategic factors.
2. Examine each business unit in terms of areas in
which performance can be improved.
3. Analyze how well the parent corporation fits with
the business unit.
Horizontal Strategy and
Multipoint Competition (1 of 2)
• Horizontal strategy
– cuts across business unit boundaries to build
synergy across business units and to improve
competitive position in one of more business
units
Horizontal Strategy and
Multipoint Competition (2 of 2)
• Multipoint competition
– large multi-business corporations compete
against other large multi-business firms in a
number of markets
 Chapter 7

Strategy Formulation:
Functional Strategy and
Strategy Choice
Learning Objectives
7-1 Discuss the impact that the various types of
functional strategies have on the achievement
of organizational goals and objectives
7-2 Explain which activities and functions are
appropriate to outsource/offshore in order to
gain or strengthen competitive advantage
7-3 List and explain the strategies to avoid
7-4 Construct corporate scenarios to evaluate
strategic options
Functional Strategy
• Functional strategy
– the approach a functional area takes to achieve
corporate and business unit objectives and
strategies by maximizing resource productivity
Marketing Strategy (1 of 6)
• Marketing strategy
– deals with pricing, selling, and distributing a
product
Marketing Strategy (2 of 6)
• Market development strategy
– a company or business unit can:
 capture a larger share of an existing market for
current products through market saturation and
market penetration
 develop new uses and/or markets for current
products
Marketing Strategy (3 of 6)
• Product development strategy
– a company or unit can:
 develop new products for existing markets
 develop new products for new markets
Marketing Strategy (4 of 6)
• Brand extension
– using a successful brand name to market other
products
• Push strategy
– spending a large amount of money on trade
promotion in order to gain or hold shelf space in
retail outlets
• Pull strategy
– advertising to “pull” products through the
distribution channels
Marketing Strategy (5 of 6)
• Skim pricing
– offers the opportunity to “skim the cream” from
the top of the demand curve with a high price
while the product is novel and competitors are
few
Marketing Strategy (6 of 6)
• Penetration pricing
– attempts to hasten market development and
offers the pioneer the opportunity to use the
experience curve to gain market share with low
price and then dominate the industry
Financial Strategy (1 of 2)
• Financial strategy
– examines the financial implications of corporate
and business-level strategic options and
identifies the best financial course of action
• The management of dividends and stock price is
an important part of a corporation’s financial
strategy.
Financial Strategy (2 of 2)
• Leveraged buyout
– company is acquired in a transaction financed
largely by debt usually obtained from a third
party
• Reverse stock split
– investor’s shares are split in half for the same
total amount of money
Research and Development
Strategy (1 of 2)
• Research and development (R&D)
strategy
– deals with product and process innovation and
improvement
– also deals with the appropriate mix of different
types of R&D and question of how new
technology should be accessed
Research and Development
Strategy (2 of 2)
• Technological leader
– pioneering an innovation
• Technological follower
– imitating the products of competitors
• Open innovation
– firm uses alliances and connections with
corporate, government, academic labs, and
consumers to develop new products and
processes
Operations Strategy
• Operations strategy
– determines how and where a product or
service is to be manufactured, the level of
vertical integration in the production process,
the deployment of physical resources, and
relationships with suppliers
Purchasing Strategy (1 of 2)
• Purchasing strategy
– deals with obtaining raw materials, parts and
supplies needed to perform the operations
function
– multiple, sole, and parallel sourcing
Purchasing Strategy (2 of 2)
• Multiple sourcing
– the purchasing company orders a particular part
from several vendors
• Sole sourcing
– relies on only one supplier for a particular part
• Parallel sourcing
– two suppliers are the sole suppliers of two
different parts, but they are also backup suppliers
for each other’s parts
Logistics Strategy
• Logistics strategy
– deals with the flow of products into and out of
the manufacturing process

• Trends include:
– centralization
– outsourcing
– Internet
Human Resource Management
(HRM) Strategy
• HRM strategy
– addresses the issue of whether a company or
business unit should hire a large number of
low-skilled employees who receive low pay,
perform repetitive jobs, and will most likely quit
after a short time (the fast-food restaurant
strategy) or hire skilled employees who receive
relatively high pay and are cross-trained to
participate in self-managing work teams
Information Technology Strategy
• Follow-the-sun management
– project team members living in one country can
pass their work to team members in another
country in which the work day is just beginning
The Sourcing Decision:
Location of Functions
• Outsourcing
– purchasing from someone else a product or
service that had been previously provided
internally
– the reverse of vertical integration
• Offshoring
– the outsourcing of an activity or a function to a
wholly owned company or an independent
provider in another country
Disadvantages of Outsourcing
• Customer complaints
• Locked in to long-term contracts
• Lack of ability to learn new skills and develop new
core competencies
• Lack of cost savings
• Poor product quality
Seven Errors in Outsourcing to
Avoid
1. Outsourcing the wrong activities
2. Selecting the wrong vendor
3. Writing poor contracts
4. Overlooking personnel issues
5. Lack of control
6. Overlooking hidden costs
7. Lack of an exit strategy
Figure 7-1: Proposed Outsourcing Matrix
Strategies to Avoid
• Follow the leader
• Hit another home run
• Arms race
• Do everything
• Losing hand
Constructing Corporate
Scenarios
• Corporate scenarios
– pro forma (estimated future) balance sheets
and income statements that forecast the effect
each alternative strategy and its various
programs will likely have on division and
corporate return on investment
Corporate Scenario Steps
1. Use industry scenarios to develop assumptions
about the task environment.
2. Develop common size financial statements for
prior years.
3. Construct detailed pro forma financial
statements for each strategic alternative.
Management’s Attitude Toward
Risk (1 of 2)
• Risk
– composed not only of the probability that the
strategy will be effective but also of the amount
of assets the corporation must allocate to that
strategy and the length of time the assets will
be unavailable for other uses
Management’s Attitude Toward
Risk (2 of 2)
• Real-options approach
– when the future is highly uncertain, it pays to
have a broad range of options open
• Net present value (NPV)
– calculates the value of a project by predicting
its payouts, adjusting them for risk, and
subtracting the amount invested
Figure 7-2: Stakeholder Priority Matrix
Questions to Assess Stakeholder
Concerns
1. How will this decision affect each stakeholder?
2. How much of what stakeholders want are they
likely to get under the alternative?
3. What are the stakeholders likely to do if they
don’t get what they want?
4. What is the probability that they will do it?
Pressures from Stakeholders
• Political strategy
– plan to bring stakeholders into agreement with
a corporation’s actions
– constituency building, political action committee
contributions, advocacy advertising, lobbying,
and coalition building
Pressures from the Corporate
Culture
If there is little fit, management must decide if it
should:
• Take a chance on ignoring the culture.
• Manage around the culture and change the
implementation plan.
• Try to change the culture to fit the strategy.
• Change the strategy to fit the culture.
Process of Strategic Choice (1 of
2)
• Strategic choice
– the evaluation of alternative strategies and
selection of the best alternative

• Failure almost always stems from the actions of

the decision maker, not from bad luck or
situational limitations.
Process of Strategic Choice (2 of
2)
Four criteria for evaluating alternatives:
1. Mutual exclusivity
2. Success
3. Completeness
4. Internal consistency
Avoiding the Consensus Trap
• Devil’s advocate
– assigned to identify potential pitfalls and
problems with a proposed alternative strategy
in a formal presentation
– may be an individual or a group
• Dialectical inquiry
– requires that two proposals using different
assumptions be generated for each alternative
strategy under consideration
Using Policies to Guide
Strategic Choices
When crafted correctly, an effective policy
accomplishes three things:
1. It forces trade-offs between competing resource
demands.
2. It tests the strategic soundness of a particular
action.
3. It sets clear boundaries within which employees
must operate while granting them the freedom to
experiment within those constraints.
 Chapter 8

Strategy Implementation:
Organizing and Structure
Learning Objectives (1 of 2)
8-1 Describe the major issues that impact
successful strategy implementation
8-2 Explain how you would develop programs,
budgets, and procedures to implement
strategic change
8-3 List the stages of corporate development and
the structure that characterizes each stage
Learning Objectives (2 of 2)
8-4 Explain how matrix, network, and
modular structures are used implement
strategy
8-5 Discuss the issues related to centralization
versus decentralization in structuring
organizations
Strategy Implementation (1 of 2)
• Strategy implementation
– the sum total of all activities and choices
required for the execution of a strategic plan
Strategy Implementation (2 of 2)
• Who are the people to carry out the
strategic plan?
• What must be done to align company
operations in the new intended direction?
• How is everyone going to work together to
do what is needed?
Ten Common Strategy
Implementation Problems (1 of 2)
1. Took more time than planned
2. Unanticipated major problems
3. Ineffective coordination
4. Competing activities and crises created
distractions
5. Employees with insufficient capabilities
10 Common Strategy
Implementation Problems (2 of 2)
6. Lower-level employees were inadequately
trained
7. Uncontrollable external environmental factors
8. Poor departmental leadership and direction
9. Key implementation tasks and activities were
poorly defined
10.The information system inadequately monitored
activities
Developing Programs, Budgets,
and Procedures
• Program
– a collection of tactics where a tactic is the
individual action taken by the organization as
an element of the effort to accomplish a plan

• The purpose of a program or a tactic is to

make a strategy action-oriented.
Timing Tactics: When to Compete
(1 of 2)
• Timing tactic
– deals with when a company implements a
strategy
• First mover
– first company to manufacture and sell a new
product or service
Timing Tactics: When to Compete
(2 of 2)
• Late movers
– may be able to imitate the technological
advances of others, keep risks down by waiting
until a new technological standard or market is
established, and take advantage of the first
mover’s natural inclination to ignore market
segments
Market Location Tactics:
Where to Compete
• Market location tactic
– deals with where a company implements a
strategy
• Offensive tactic
– usually takes place in an established competitor’s
market location
• Defensive tactic
– usually takes place in the firm’s own current
market position as a defense against possible
attack by a rival
Offensive Tactics
• Frontal assault
• Flanking maneuver
• Bypass attack
• Encirclement
• Guerilla warfare
Defensive Tactics
• Raise structural barriers
• Increase expected retaliation
• Lower the inducement for attack
Budgets and Procedures
• Planning a budget is the last real check a
corporation has on the feasibility of its selected
strategy.
• Procedures
– detail the various activities that must be carried
out to complete a corporation’s programs
– standard operating procedures
Achieving Synergy
• Synergy
– exists for a divisional corporation if the return
on investment is greater than what the return
would be if each division were an independent
business
Six Forms of Synergy
1. Shared know-how
2. Coordinated strategies
3. Shared tangible resources
4. Economies of scale or scope
5. Pooled negotiating power
6. New business creation
Structure Follows Strategy
• Structure Follows Strategy
– changes in corporate strategy lead to changes
in organizational structure

1. New strategy is created.

2. New administrative problems emerge.
3. Economic performance declines.
4. New appropriate structure is created.
5. Economic performance rises.
Stages of Corporate Development
I. Simple Structure
– Flexible and dynamic
II. Functional Structure
– Entrepreneur is replaced by a team of managers
III. Divisional Structure
– Management of diverse product lines in numerous
industries
– Decentralized decision making
IV. Beyond SBU’s
– Matrix
– Network
Blocks to Changing Stages
• Internal
– Lack of resources
– Lack of ability
– Refusal of top management to delegate
• External
– Economic conditions
– Labor shortages
– Lack of market growth
Blocks to Changing Stages
(Entrepreneurs)
• Loyalty to comrades
• Task oriented
• Single-mindedness
• Working in isolation
Table 8-2: Organizational Life Cycle
• Organizational life cycle
– describes how organizations grow, develop,
and decline
Flexible Types of
Organizational Structures (1 of 4)
• Matrix structures
– functional and product forms are combined
simultaneously at the same level of the
organization
Figure 8-1: Matrix Structure
Flexible Types of Organizational
Structures (2 of 4)
Conditions for matrix structures include:
• Ideas need to be cross-fertilized across
projects or products.
• Resources are scarce.
• Abilities to process information and to make
decisions needs to be improved.
Flexible Types of Organizational
Structures (3 of 4)
Three distinct phases of matrix structure
development include:
1. Temporary cross-functional task forces
2. Product/brand management
3. Mature matrix
Flexible Types of Organizational
Structures (4 of 4)
• Network Structure
– virtual elimination of in-house business
functions

• Virtual organization
– Composed of a series of project groups or
collaborations linked by constantly changing
non-hierarchical, cobweb-like electronic
networks
Figure 8-1: Network Structure Figure
Cellular/Modular Organization: A
New Type of Structure?
• Cellular/Modular Structure
– composed of cells (self-managing teams,
autonomous business units, etc.) which can
operate alone but which can interact with other
cells to produce a more potent and competent
business mechanism
• Beginning to appear in firms that are focused on
rapid product and service innovation.
Reengineering and
Strategy Implementation
• Reengineering
– the radical redesign of business processes to
achieve major gains in cost, service, or time
– effective program to implement a turnaround
strategy
Principles for Reengineering
(1 of 2)
• Organize around outcomes, not tasks.
• Have those who use the output of the process
perform the process.
• Subsume information-processing work into real
work that produces information.
• Treat geographically-dispersed resources as
though they were centralized.
Principles for Reengineering
(2 of 2)
• Link parallel activities instead of integrating
their results.
• Put the decision point where the work is
performed and build control into the
process.
• Capture information once and at the source.
Six Sigma
• Six Sigma
– analytical method for achieving near perfect
results on a production line
– emphasis on reducing product variance in
order to boost quality and efficiency
• Lean Six Sigma
– includes the removal of unnecessary steps in
any process and fixing those that remain
Process of Six Sigma
1. Define a process where results are poorer than
average.
2. Measure the process to determine current
performance.
3. Analyze the information to pinpoint where things
are going wrong.
4. Improve the process and eliminate the error.
5. Establish controls to prevent future defects from
occurring.
Designing Jobs to
Implement Strategy (1 of 2)
• Job design
– the study of individual tasks in an attempt to
make them more relevant to the company and
to the employees
• Job design techniques:
– Job enlargement
 combining tasks to give a worker more of the same
type of duties to perform
– Job rotation
 moving workers through several jobs to increase
variety
Designing Jobs to
Implement Strategy (2 of 2)
• Job characteristics
– using task characteristics to improve employee
motivation
• Job enrichment
– altering the jobs by giving the worker more
autonomy and control over activities
Centralization versus
Decentralization
• Product group structure
– enables the company to introduce and manage
a similar line of products around the world
– enables the corporation to centralize decision-
making along product lines and to reduce costs

• Geographic area structure

– allows the company to tailor products to
regional differences and to achieve regional
coordination
Figure 8-2: Geographic Area Structure
for an MNC
 Chapter 9

Strategy Implementation:
Staffing and Directing
Learning Objectives
9-1 Explain the link between strategy and staffing
decisions
9-2 Discuss how leaders manage corporate culture
9-3 Utilize an action planning framework to
implement an organization’s MBO and
TQM initiatives
Integration Managers
• Prepare a competitive profile of the company in
terms of its strengths and weaknesses.
• Draft a profile of what the ideal combined
company should look like.
• Develop action plans to close the gap between
actual and ideal.
• Establish training programs to unit the combined
company and make it more competitive.
Staffing
Characteristics of successful integration
managers include:
1. Deep knowledge of the acquiring company
2. Flexible management style
3. Ability to work in cross-functional teams
4. Willingness to work independently
5. Sufficient emotional and cultural intelligence to
work in a diverse environment
Staffing Follows Strategy
• One way to implement a company’s business
strategy, such as overall low cost, is through
training and development.
• Executive characteristics influence strategic
outcomes for a corporation.
Matching the Manager to the
Strategy
• Executive type
– executives with a particular mix of skills and
experiences
– paired with a specific corporate strategy
Executive Types
• Dynamic industry expert
• Analytical portfolio manager
• Cautious profit planner
• Turnaround specialist
• Professional liquidator
Selection and Management
Development
• Executive succession
– process of replacing a key top manag
• Succession planning
– identifying candidates below the top layer of
management
– measuring internal candidates against external
candidates
– providing financial incentives
Identifying Abilities and Potential
• Performance appraisal
– systems to identify good performers with
promotion potential
• Assessment centers
– evaluate a person’s suitability for an advanced
position
• Job rotation
– ensures employees are gaining a mix of
experience to prepare them for future
responsibilities
Problems in Retrenchment
• Downsizing
– the planned elimination of positions or jobs
– Also called “rightsizing” or “resizing”

• Can damage the learning capacity of an

organization
• Creativity drops significantly and becomes very
difficult to keep high performers from leaving the
company
Guidelines for Successful
Downsizing
• Eliminate unnecessary work instead of making
across the board cuts
• Contract out work that others can do cheaper
• Plan for long-run efficiencies
• Communicate the reasons for actions
• Invest in the remaining employees
• Develop value-added jobs to balance out job
elimination
Leading
• Implementation
– involves leading and coaching people to use
their abilities and skills most effectively and
efficiently to achieve organizational objectives

• Without direction, people tend to do work

according to personal views of what tasks should
be done, how, and in what order.
Managing Corporate Culture
• Strong cultures are resistant to change.
• Optimal culture supports mission and strategies.
• Management must evaluate what a particular
change in strategy means to the corporate culture,
assess whether a change in culture is needed,
and decide whether an attempt to change the
culture is worth the likely costs.
Accessing Strategy-Culture
Compatibility (1 of 2)
• Is the proposed strategy compatible with the
company’s current culture?
• Can the culture be easily modified to make it more
compatible with the new strategy?
• Is management willing and able to make major
organizational changes and accept probable
delays and a likely increase in costs?
• Is management still committed to implementing
the strategy?
Figure 9-1: Assessing Strategy–Culture
Compatibility (2 of 2)
Managing Cultural Change
Through Communication
Companies in which major cultural changes have
successfully taken place had the following
characteristics in common:
• The CEO and other top managers had a strategic
vision of what the company could become and
communicated that vision to employees at all
levels.
• The vision was translated into the key elements
necessary to accomplish that vision.
Figure 9-2: Methods of Managing the
Culture of an Acquired Firm
Managing Diverse Cultures
Following an Acquisition (1 of 3)
The choice of which method to use should be based
on:
1. How much members of the acquired firm value
preserving their own culture
2. How attractive they perceive the culture of the
acquirer to be
Managing Diverse Cultures
Following an Acquisition (2 of 3)
• Integration
– involves relatively balanced give-and-take of
cultural and managerial practices between
merger partners
– no strong imposition of cultural change on
either company
• Assimilation
– involves domination of one organization over
the other
Managing Diverse Cultures
Following an Acquisition (3 of 3)
• Separation
– characterized by separation of the two
companies’ cultures
• Deculturation
– the disintegration of one company’s culture
resulting from unwanted and extreme pressure
from the other to impose its culture and
practices
Action Planning (1 of 2)
• Action plan
– states what actions are going to be taken, by
whom, during what time frame, and with what
expected results
Action Planning (2 of 2)
1. Specific actions to be taken to make the program
operational
2. Dates to begin and end each action
3. Person responsible for carrying out each action
4. Person responsible for monitoring the timeliness
and effectiveness of each action
5. Expected financial and physical consequences of
each action
6. Contingency plans
Importance of an Action Plan
(1 of 2)
• Serves as a link between strategy formulation and
evaluation and control.
• Specifies what needs to be done differently from
current operations.
Importance of an Action Plan
(2 of 2)
• Helps in both the appraisal of performance and
identification of any remedial actions
• Explicit assignment of responsibilities for
implementing and monitoring the programs may
contribute to better motivation
Table 9-1: Example of an Action Plan
Management by Objectives
(1 of 2)
• Management by objectives (MBO)
– encourages participative decision-making
through shared goal setting and performance
assessment based on achieving stated
objectives
Management by Objectives
(2 of 2)
The MBO process involves:
1. Establishing and communicating organizational
objectives
2. Setting individual objectives
3. Developing an action plan to achieve objectives
4. Periodically (at least quarterly) reviewing
performance
Total Quality Management (TQM)
(1 of 2)
• Total quality management (TQM)
– an operational philosophy committed to
customer satisfaction and continuous
improvement
– committed to quality/excellence and to being
the best in all functions
Total Quality Management (TQM)
(2 of 2)
TQM’s essential ingredients are:
1. Intense focus on customer satisfaction
2. Internal as well as external customers
3. Accurate measurement of every critical variable
in a company’s operations
4. Continuous improvement of products and
services
5. New work relationships based on trust and
teamwork
 Chapter 10

Evaluation and
Control
Learning Objectives (1 of 2)

10-1 Explain how various types of measures

and controls are utilized to properly
assess performance including activity-based
costing, ERM, ROI, and EVA
10-2 Develop a balanced scorecard to examine
key performance measures of a company
10-3 Apply the benchmarking process to a
function or an activity
Learning Objectives (2 of 2)

10-4 Explain how strategic information systems

are being utilized to support specific
strategies
10-5 Discuss the issues with measuring
organizational performance and how
organizations can establish proper controls to
achieve objectives
Figure 10-1: Evaluation and Control
Process
Measuring Performance

• Performance
– end result of activity

• One of the obstacles to effective control is

the difficulty in developing appropriate measures
of important activities and outputs.
Appropriate Measures

• Steering controls
– measure variables that influence future
profitability
• Cost per available seat mile (airlines)
• Inventory turnover ratio (retail)
• Customer satisfaction
Types of Controls (1 of 2)

• Output controls
– specify what is to be accomplished by focusing
on the end result through the use of objectives
• Behavior controls
– specify how something is done through
policies, rules, standard operating procedures
and orders from supervisors
• Input controls
– emphasize resources
Types of Controls (2 of 2)

• ISO 9000 Series of Quality Standards

– a way of objectively documenting a company’s
high-level of quality operations

• ISO 14000 Series of Quality Standards

– establishes how to document the company’s
impact on the environment
Activity-based Costing
• Activity-based costing
– allocates indirect and direct costs to individual
product lines based on value-added activities
going into that product

• Allows accountants to charge costs more

accurately since it allocates overhead more
precisely.
Enterprise Risk Management (1 of 2)
• Enterprise risk management
– corporate-wide, integrated process for
managing uncertainties that could negatively or
positively influence the achievement of
objectives
Enterprise Risk Management (2 of 2)
The process of rating risks involves three steps:
1. Identify the risks using scenario analysis,
brainstorming, or performing risk assessments.
2. Rank the risks, using some scale of impact and
likelihood.
3. Measure the risks using some agreed-upon
standard.
Traditional Financial Measures
(1 of 2)
• Return on investment (ROI)
– result of dividing net income before taxes by
the total amount invested in the company
(typically measured by total assets)
• Earnings per share (EPS)
– dividing net earnings by the amount of common
stock
Traditional Financial Measures
(2 of 2)
• Return on equity (ROE)
– involves dividing net income by total equity
• Operating cash flow
– the amount of money generated by a company
before the cost of financing and taxes
• Free cash flow
– the amount of money a new owner can take out
of the firm without harming the business
Non–financial Performance Measures
Used by Internet Business Ventures
• Stickiness
– length of website visit
• Eyeballs
– number of people who visit a website
• Mindshare
– brand awareness
Shareholder Value (1 of 3)

• Shareholder value
– the present value of the anticipated future
streams of cash flows from the business plus
the value of the company if liquidated
Shareholder Value (2 of 3)

• Economic value-added (EVA)

– measures the difference between the pre-
strategy and post-strategy values for the
business.
– after-tax operating income minus the total
annual cost of capital
Shareholder Value (3 of 3)

• Market value-added (MVA)

– Measures difference between market value of
a corporation and capital contributed by
shareholders and lenders

• Measures the stock market’s estimate of the net

present value (NPV) of a firm’s past and expected
capital investment projects.
Balanced Scorecard (1 of 3)

• Balanced scorecard
– combines financial measures that tell results of
actions already taken with operational
measures on customer satisfaction, internal
processes, and corporation’s innovation and
improvement activities—the drivers of future
financial performance
Balanced Scorecard (2 of 3)
In the balanced scorecard, management develops
goals or objectives in each of four areas:
1. Financial: How do we appear to shareholders?
2. Customer: How do customers view us?
3. Internal business perspective: What must we
excel at?
4. Innovation and learning: Can we continue to
improve and create value?
Balanced Scorecard (3 of 3)

• Key performance measures

– measures that are essential for achieving a
desired strategic option
Chairman-CEO Feedback Instrument
Questionnaire focuses on four key areas:
1. Company performance
2. Leadership of the organization
3. Team-building and management succession
4. Leadership of external constituencies
Management Audits

• Management audits
– developed to evaluate activities such as
corporate social responsibility, functional areas
like the marketing department, and divisions
such as the international division
– useful to boards of directors in evaluating
management’s handling of various corporate
activities
Strategic Audits

• Strategic audits
– provides checklist of questions, by area or
issue, enabling systematic analysis of various
corporate functions and activities to be made
– useful as diagnostic tool to pinpoint corporate-
wide problem areas and to highlight
organizational strengths and weaknesses
Responsibility Centers (1 of 2)

• Responsibility centers
– used to isolate a unit so it can be evaluated
separately from the rest of the corporation
– has its own budget and is evaluated on its use
of budgeted resources
– headed by the manager responsible for the
center’s performance
Responsibility Centers (2 of 2)

• Standard cost centers

• Revenue centers
• Expense centers
• Profit centers
• Investment centers
Using Benchmarking To Evaluate
Performance
• Benchmarking
– the continual process of measuring products,
services and practices against the toughest
competitors or those companies recognized as
industry leaders
Benchmarking
1. Identify area or process to be examined
2. Find behavioral and output measures
3. Select accessible set of competitors of best
practices
4. Calculate differences among company’s
performance measurements and competitors;
determine why differences exist
5. Develop tactical programs for closing performance
gaps
6. Implement the programs and compare the results
Strategic Information Systems 1 of 2

• Enterprise resource planning (ERP)

– unites all of a company’s major business
activities, from order processing to production,
within a single family of software modules
– provides instant access to critical information to
everyone in the organization, from the CEO to
the factory floor worker
Strategic Information Systems 2 of 2

• Radio frequency identification (RFID)

– an electronic tagging technology used to
improve supply chain efficiency

• Divisional and functional strategic

information support
– used to support, reinforce, or enlarge business
level strategy throughout the decision-support
system
Problems in Measuring Performance

• Lack of quantifiable objectives or performance

standards
• Inability to use information systems to provide
timely and valid information
Short-Term Orientation

Long-term evaluations may not be conducted

because executives:
• Don’t realize their importance.
• Believe that short-term considerations are more
important than long-term considerations.
• Aren’t personally evaluated on a long-term basis.
• Don’t have the time to make a long-term analysis.
Goal Displacement (1 of 3)

• Goal displacement
– confusion of means with ends
– occurs when activities originally intended to
help managers attain corporate objectives
become ends in themselves—or are adapted to
meet ends other than those for which they
were intended
– behavior substitution and suboptimization
Goal Displacement (2 of 3)

• Behavior substitution
– phenomenon of pursuing substitute activities
that do not lead to goal accomplishment
instead of activities that do lead to goal
accomplishment because the wrong activities
are being rewarded
Goal Displacement (3 of 3)

• Suboptimization
– refers to phenomenon of a unit optimizing its
goal accomplishment to the detriment of the
organization as a whole
Guidelines for Proper Control (1 of 2)

1. Controls should involve only the minimum

amount of information needed to give a reliable
picture of events.
2. Controls should monitor only meaningful
activities and results, regardless of
measurement difficulty.
3. Controls should be timely so that corrective
action can be taken before it is too late.
Guidelines for Proper Control (2 of 2)

4. Long-term and short-term goals should be used.

5. Controls should aim at pinpointing exceptions.
6. Emphasize the reward of meeting or exceeding
standards rather than punishment for failing to
meet standards.
Approaches to Strategic Incentive
Management (1 of 2)
• Weighted-factor method
• Long-term evaluation method
• Strategic funds method
Approaches to Strategic
Incentive Management (2 of 2)
An effective way to achieve the desired strategic
results through a reward system is to combine the
three approaches:
1. Segregate strategic funds from short-term funds.
2. Develop a weighted factor chart for each SBU.
3. Measure performance based on pre-tax profit,
weighted factors and long-term evaluation of the
SBU’s performance.
Figure 10-2: Business Strength/
Competitive Position
Strategic Management

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