Course- Strategic

Course- Strategic Management

Management

1
outlines
Outlines….
Chapter 1- overview of Strategic
Management

 Strategy and strategic management?

The word strategy is derived from greek word “strategia” means: art


and science of directing military forces

It is a pathway along which the organization moves towards its


goals.

A plan of action designed to achieve a long-term or overall



purpose
 How management plans to achieve its objectives.
Unified, comprehensive and integrated plan relating the


strategic advantages of the firm to the challenges of the

environment.
Strategy is a creation of a unique and valued positioning involving a different set of activities.

An overview of Strategic
Management ……
Strategic management is the process by which top management
determines the long run direction and performance of the
organization by ensuring that careful formulation, effective
implementation, and continuous evaluation of strategy takes place.
The art and science of formulating, implementing and evaluating

cross-functional decisions that enable an organization to achieve

its objective.
Strategic Mgt represents the management responsibility for

defining the organization’s mission, formulating strategies, and

guiding long-term organizational activities consistent with internal
& external conditions.
An overview of Strategic
Management ……

Strategic management comprises the following critical tasks:

Formulate the organization’s Vision, mission, including broad
statements about its purposes, philosophy, & goals;
Develop an organizational profile that reflects its internal
conditions and capabilities;
Assess the organization’s external environment, including both
the competitive & general contextual factors;
Analyze the organization’s options by matching its
resources with the external environment;-internal
Identify the most desirable options by evaluating each
option in light of the organization’s mission, vision, goals
An overview of Strategic
Management ……

Implement the strategic choices by means of budgeted resource

allocations in which the matching of tasks, people, structures,
technologies, & reward systems is emphasized;

Assess the realization of the strategic process as an input decision

making.

Select a set of long-term objectives & grand strategies that will

achieve the most desirable options;
Develop annual objectives & short-term strategies that are
compatible with the selected set of long-term objectives & grand
strategies;
Implement and Evaluate it.
Importance of str. mgt
 to set the objectives and work on attaining them
 to provide broader perspectives for the employees
of an organization
 to keep an eye on organizational goals and
objectives.
 an enhanced awareness of external threats,
 an improved understanding of competitors’
strategies,
 increased employee productivity,
 reduced resistance to change, and
 A clearer understanding of performance-reward
relationships.
Major Principles to Successful Strategy
Management

 Focus on the most important - Setting priorities

 Leverage strengths
 Communicate - Keep your employees informed and
invite comments and questions.
 Give your employees reasons to believe that the

strategic plan will benefit everyone.

 Raise the Energy Level - Create a pace of
progress to create momentum and enthusiasm
 Remain Flexible - Be prepared to make
adjustments as competitors, customers and economic
market conditions change
 Invest in Outside Help
 Nature & Characteristics of
Strategies
 Objective Oriented
 Future Oriented
 Strategy
 Unified, Comprehensive and Integrated
 Relates to the Environment
 Allocation of Resources For effective
implementation of Strategy
 Universal Applicability
 Periodic Review
 Applicable to all functional areas
Dimension of Strategic
Decisions
 Require Top-Management
Decisions and Commitment
 Affect the Firm’s Long-Term

Prosperity
 Future Orientation

 Multi-functional or Multi business

consequences
 Require considering External

Environment
 Stages of Strategic management

Basically, strategic management of three stages,

1. Environmental scanning, and Strategy Formulation
(strategy planning)
2. Strategy Implementations
3. Strategy Evaluation
1. Strategic Formulation:
Strategy formulation is also concerned with setting long term goals and
objectives, generating alternative strategies to achieve that long term goals and
choosing particular strategy to pursue.
Strategy implementation requires a firm to establish annual objectives, devise
policies, motivating employees and allocate resources so that formulated strategies
can be executed.
An overview of Strategic
Management ……

Strategy formulation includes developing:-



 Vision and Mission (The target of the business)

 Strength and weakness (Strong points of business

and also weaknesses

 Opportunities and threats (These are related with

external environment for the business)

 Formulate a strategy to achieve the company goal:
 Allocation of resources
 Business to enter or retain
 Business to divest or liquidate
 Joint ventures or mergers
 Whether to expand or not
 Moving in to foreign market
An overview of Strategic Management ……

2. Strategy Implementation
 Strategy implementation includes developing strategy supportive
culture, creating an effective organizational structure, redirecting
marketing efforts, preparing budgets, developing and utilizing
information system and linking employee compensation to
organizational performance.
 Strategy implementation is often called the action stage of strategic
management.
 Implementing means mobilizing employees and managers in order to
put formulated strategies into action.
action It is often considered to be most
difficult stage of strategic management.
 It requires personal discipline, commitment and sacrifice.
 Strategy formulated but not implemented serve no useful purpose.
An overview of Strategic
Management ……

3. Strategy evaluation:
Strategy evaluation is the final stage in the strategic management
process.
Management desperately needs to know when particular strategies are
not working well;
strategy evaluation is the means for obtaining this information about
the job done.
 All strategies are subject to future modification because external and
internal forces are constantly changing.
An overview of Strategic
Management ……
An overview of Strategic Management
……

1.5. Key Terms in Strategic Management

A. Strategists
Strategists are individuals who are most responsible for the success
or failure of an organization.
Strategists are individuals who form strategies. Strategists have
various job titles, such as chief executive officer, president, and
owner, chair of the board, executive director, chancellor, dean, or
entrepreneur
B. Vision Statements
Many organizations today develop a "vision statement" ‘’the hope for
reality, which answers the question, what do we want to become?
Developing a vision statement is often considered the first step in
strategic planning, preceding even development of a mission
statement. Many vision statements are a single sentence.
An overview of Strategic
Management ……

C. Mission Statements
 Mission statements are "enduring statements of purpose that

distinguish one business from other similar firms.

 It addresses the basic question that faces all strategists: What is our

business?
D. External Opportunities and Threats
 External opportunities and external threats refer to economic, social,

cultural, demographic, environmental, political, legal, governmental,

technological, and competitive trends and events that could
significantly benefit or harm an organization in the future.
 Opportunities and threats are largely beyond the control of a single

organization, thus the term external.

An overview of Strategic Management ……

E. Internal Strengths and Weaknesses/Internal assessments

 Internal strengths and internal weaknesses are an organization's

controllable activities that are performed especially well or poorly.

 They arise in the management, marketing, finance/accounting,

production/operations, research and development, and computer

information systems activities of a business.
 Organizations strive to pursue strategies that capitalize on internal

strengths and improve on internal weaknesses.

F. Long-Term Objectives
 Objectives can be defined as specific results that an organization

seeks to achieve in pursuing its basic mission.

 Long-term objectives represent the results expected from
pursuing certain strategies. Strategies represent the actions to be
taken to accomplish long-term objectives.
An overview of Strategic Management
……

G. Strategies
 Strategies are the means by which long-term objectives will be
achieved/pathway
 Business strategies may include geographic expansion, diversification,
acquisition, product development, market penetration, retrenchment,
divestiture, liquidation, and joint venture.
 Strategies are potential actions that require top management decisions and
large amounts of the firm's resources.
H. Annual Objectives
 Annual objectives are short-term milestones that organizations must achieve to
reach long-term objectives.
 Like long-term objectives, annual objectives should be measurable, quantitative,
challenging, realistic, consistent, and prioritized. They should be established at
the corporate, divisional, and functional levels in a large organization.
An overview of Strategic
Management ……

I. Policies
 Policies are the means by which annual objectives will
be achieved.
 Policies include guidelines, rules, and procedures
established to support efforts to achieve stated
objectives.
 Policies are guides to decision making and address
repetitive or recurring situations.
 Policies can be established at the corporate level and
apply to an entire organization, at the divisional level
and apply to a single division or at the functional level
and apply to particular operational activities or
departments.
An overview of Strategic Management
……

Benefits of Strategic management

Greenly stated that strategic management offers the
following benefits:
It allows for identification, prioritization, and exploitation of

opportunities.
It provides an objective view of management problems.

It represents a framework for improved coordination

It minimizes the effects of adverse conditions

Facilitate better changes.

It allows major decisions to better support established objectives.

It allows more effective allocation of time and resources to

identified opportunities.
It allows fewer resources and less time to be devoted to

correcting erroneous or ad hoc decisions.

An overview of Strategic Management ……
 It creates a framework for internal communication among
personnel.
 It helps integrate the behavior of individuals into a total

effort.
 It provides a basis for clarifying individual responsibilities.

 It encourages forward thinking.

 It provides a cooperative, integrated, and enthusiastic

approach to tackling problems and opportunities.

 It encourages a favorable attitude toward change.

 It gives a degree of discipline and formality to the

management of a business.
====================================
===
Chapter Two
Chapter 2 -Strategy Formulation: The Mission, Vision and
Values

2.1. Vision Statement

The strategic mgt effort begins with creation of organizational
vision (mental journey).
Vision- “description of something (an organization,
corporate culture, a business, a technology, an activity) in
the future.
Aspires to create within a broad time horizon and the


underlying conditions for the actualization of this

perception
It is mental journey and a hope for reality and It outlines
what an organization would like to ultimately achieve
(Desired End-State) I the coming 5,10,15,20......years
2.1. Vision Statement……

Commonly cited traits (parameters) include:

 Concise: able to be easily remembered and repeated

 Clear: defines a prime goal

 Time horizon: defines a time horizon

 Future-oriented: describes where the company is

 Stable: offers a long-term perspective

 Challenging: not something that can be easily met

and discarded
 Abstract: general enough to encompass all of the

organization's interests and strategic direction

 Inspiring: motivates employees and is something

that employees view as desirable

 2.1. Vision Statement……

Vision can:
 Stretch – 30+ Years
 10-15 Words in length
 Future State
 Brief and Memorable
 Examples
 Ethio-telecome’s Vision:
 To be a world-class telecom service provider.

 CBE’s Vision:
 To be a world class commercial bank by the year 2025.

Addis Ababa City Government 2025 Vision

“In 2025, Addis Ababa will be world class city, a green, clean and livable city; with vibrant
economy and residents all living above poverty line, hub of conference tourism and national
bench-mark of good governance.”
 2.1. Vision Statement……

 EAL:
 to become the most competitive and leading aviation group in Africa by

providing safe, market driven and customer focused passenger and cargo
transport, aviation training flight catering, MRO and ground service by
2025
 Ethiopian Revenue and Customs Authority(ERCA)
 To be a leading, fair and modern Tax and Customs Administration in Africa

by 2020 that will finance Government expenditure through domestic tax

revenue collection.

Group Exercise
Drafting a Vision Statement
Imagine five years in to the future:
• What kind of organization do you want to become?
• What will your organization look like in five years?
2.1. Vision Statement……

The Benefits of Having a Vision

 Vision statements may fill the following functions for a

company:
 Serve as foundations for a broader strategic plan

 Good visions are inspiring and exhilarating

 Visions represent a discontinuity, a step function and a jump

ahead so that the company knows what it is to be

 Good visions help in the creation of a common identity and a

shared sense of purpose Good visions are competitive, original

and unique.
 They make sense in the market place, as they are practical

 Good visions foster risk taking and experimentation

 Good visions foster long term thinking.

 Good visions represent integrity; they are truly genuine and

can be used for the benefit of people

Effective leadership and vision
 Effective leadership and vision are closely related:

29  Thus, leaders must be forward looking & clarify the direction in

which the org. to move.
 Managers who do not develop into strong leaders do not develop a
clear vision-instead, they focus on routine tasks.

In general, visionary leaders:

 Have thoughts that others do not have
 Are extraordinary-no focus on routine activities
 Are forward looking and clarify the direction in which they want
their organization move
 Are exemplary in order to employees embrace the vision
 Ensure the success of the vision based on organizational strengths
 Develop further the corporate vision considering internal &
external changes etc.
2.2. Mission Statement

 Mission is defined as “the fundamental purpose of the

organization & its scope of operation.”
 An enduring statement of purpose that distinguishes
one organization from other similar enterprises
 Mission is what an organization is and why it
exists
 A declaration of an organization’s “reason for
being”
 Organization mission is written in terms of the general set of
products & services the organization provides & the markets &
clients it serves
2.2. Mission Statement…..

As the organization grows or is forced by competitive

pressures to alter its product/market/technology,
redefining the org mission may be necessary.
 Functions/benefits of Mission:
– Ensures unanimity of purpose

– Provides a basis for motivation

– Allocates organization’s resources

– Establishes the necessary organizational climate

– Serves as a basis for those who can identify with

the organization
– Facilitates the translation of objectives & goals
2.2. Mission Statement…..

A mission statement defines the basic reason for the

existence of that organization. Such a statement
reflects the corporate philosophy, identity, character,
and image of an organization
 What is our purpose?
 Describes current state
 Timeline is up to 5 Years
 Builds on our distinctive competencies
 Tends to focus on Core Business
 Up to 35 Words in length
 2.2. Mission Statement…..

Mission Examples-
Ethiopian Revenue and Customs Authority(ERCA)


– ERCA will contribute to economic development and social welfare by

developing a modern Tax and Customs Administration that employs
professional and highly skilled staff who promote voluntary compliance
amongst individuals and businesses, and take swift action against those who
do not comply
CBE- We are committed to realize stakeholder's values through enhanced financial
intermediation by deploying the best professionals and technology.
Ethio-Telecom


– Connect Ethiopia through state of the art telecom services

– Provide high quality, innovative and affordable telecom products and services
that enhance the development of our nation and ensure high customer
satisfaction
– Build reputable brand known for its customers’ consideration
– Build its managerial capability and man power talent that enables ethio
telecom to operate at international level
– Support community and environmental development
 Products
34 Services Markets
Customers

Technology

Employees Mission Elements

Survival
Growth
Profit
Public
Image
Self-Concept Philosophy
2.3. Organizational/Company Values

Every organization should be guided by a set of values.

Values are beliefs which your organization's members hold in
common and endeavor to put into practice.
The values guide your organization's members in performing their work.
Specifically, you should ask, "What are the basic beliefs that we share as
an organization?"
Values are often rooted in ethical themes, such as honesty, trust,
integrity, respect, fairness, etc.
Values should be applicable across the entire organization. Values may
be appropriate for certain best management practices – best in terms of
quality, exceptional customer service, etc.
By developing a written statement of the values of the organization,
group members have a chance to contribute to the articulation of these
values, as well as to evaluate how well their personal values and
motivation match those of the organization.
– Guiding Principles
– Help establish Culture
– Part of Preserving the Core
– Core Ideology
2.3. Organizational/Company Values
Values of some corporate companies
Ethiopian Customs and Revenue Authority (ERCA)- Values
•

– Understand customers and their needs treat them with trust and respect and
help them meet their obligations. We will act with integrity, transparency and
professionalism, and enforce customs and tax related laws. We will work
closely with stake holders and ensure the participation of women.
Ethio-telecom- Vales
•

– Lead with vision, Respect, Excellence, Integrate, Accountability .

CBE- VALUES-
– Integrity
– Service Excellence
– Professionalism
– Empowerment
– Learning Organization
– Team Work
– Respect for Diversity
–
2.4. Identifying critical /Strategic Issues

 Identifying strategic issues is the heart of the strategic planning

process.
A strategic issue is:
A fundamental policy questions/critical challenges that affect: mission,
values, level or mix of services, clients, donors, cost, financing, structure or
management.
Generally these are issues that cannot be resolved through a “quick fix”
Strategic issues are issues which if not addressed will severely handicap
the organization’s/regional government’s ability to function effectively.
 Critical issues can reflect long-standing problems in the region, the
community served.
2.5. Strategic Goals and Objectives

What are Strategic Goals?

 Strategic goals are statements of what you wish to achieve over the
period of the strategic plan (e.g. over the next year, five years, ten
years.)
 They reflect the analysis you do that starts with creating a vision, a
role statement and a mission statement, and then your analysis of your
environment, strengths, weaknesses, opportunities and threats.
What are Objectives and Are They Different from Strategic Goals?
 Objectives are usually specific statements (they are actually a
particular kind of goal) that contribute to the achievement of "bigger"
goals. In other words they are actually goals, but they are more
specific.
2.5. Strategic Goals and Objectives….

 Objective Setting
–Quantification (if possible) of more precise statement of the goal.
–Indicate how the mission can be achieved

–Represent specific planned levels of achievement

–Provide precise points or states to be achieved

• Allow review and appraisal of achievement

• Make clear:
– What is to be accomplished
– How much is to be accomplished
– By when it is to be accomplished
– By whom it is to be accomplished
2.5. Strategic Goals and Objectives….

In short an objective should be Specific, Measurable,

Achievable, Relevant and Time bound (SMART)
 Specificity indicates clearly what needs to be achieved. Example: reduce
delay.
 Measurability indicates the possibility to determine if the desired condition
is fulfilled. Example: Reduce delays by 40% by the end of 2010.
 Achievability indicates a consensus and commitment to the objectives
among the major stakeholders
 Relevance indicates objectives need to be achievable. It answers feasibility,
the availability of authority of the managers and the means of realization.
 Time bound indicates a clear understanding of the time scales associated
with each objective as defined. It is difficult to have commitment without
time frame.
2.5. Strategic Goals and Objectives….

Goals vs. Objectives Summary

GOALS OBJECTIVES
o Very short statement, few words o Longer statement, more
descriptive
o Broad in scope o Narrow in scope
o Directly relates to the Mission o Indirectly relates to the Mission
Statement Statement
o Covers long time period (such as o Covers relatively short time
10 years) period (such 1 year budget
cycle, 5 years.)
 Chapter 3
External and Internal Environmental
Analysis
 Environmental influences and how to deal with
them plays a key role in strategic management.
 Because in today’s changing environment,

organizations might be affected negatively or

positively from the changes.
the External Environment
 The external environment consists of everything
outside an organization that might affect it.
 The awareness & understanding of an
increasingly turbulent, complex & global
general environment is critical
 External Environmental Analysis…..
 The process of performing an external analysis
 Gatherrelevant information
 Identify the most important opportunities and threats
 Rank them from the most important to the least important
 Evaluate the importance of the changes for the
organization’s strategies
 Set up a strategy
 A scan of the external general environment in which the firm
operates can be expressed in terms of the following factors:
 Economic Variables
 The international and national economic forces that can affect
the economic wellbeing of the organization, have an implication
In strategic management
External Environmental Analysis……
Some key economic variables:
 Interest rates
 Inflation rates
 Unemployment trends
 Consumption patterns
 Stock market trends
 Import/Export factors
 Demand shifts
 Price fluctuations
 Fiscal policies
 Tax rates
External Environmental Analysis…
Political Factors
The direction and stability of political factors is a major
consideration for managers in formulating company strategy
Some key Political (Gov’al & legal) variables

 Taxation at local, state, federal levels

 Hiring and Promotion Laws
 Environmental protection laws
 Level of government subsidies
 Terrorist activities
 Import/Export regulations
 Fiscal & monetary policies
 Size of Government budget
 Local, state & national elections
External Environmental Analysis
 Socio-cultural
 Some key socio-cultural variables
 Growth rate of population
 Changing work values
 Lifestyle Changes
 Ethical standards
 Life expectancies
 Rate of family formation
 Geographic shifts in population
 Attitudes towards business
 Attitudes towards leisure time
External Environmental Analysis….

 Technological Factors:
 Organizations must strive to understand the
existing scientific or technological advances:
 It is the application of knowledge to practical solutions
 promote innovation
 Creative technological adaptations
 improved; manufacturing and marketing techniques
 Automation
 Technology incentives
 Rate of technological change
 Focus of Technological Efforts
 Wireless Communications
 Productivity Improvements
External Environmental Analysis….

 Ecological Factors
 Ecological/environment factors: land scope, location,
climate and so on.
 Demographic Variables
 Aging Population
 Rising affluence/wealth
 Changes in Ethnic Composition
 Geographic distribution of population
 Global Variables
 Increasing Global Trade
 Currency Exchange Rates (forex)
 Emergence of Economies
 Trade agreements
External Environmental Analysis
 Industry Analysis
 An industry is a group of firms producing products
that are close substitutes.
 It refers to the analysis of:
 Industry trends as a whole;

 Competition within the industry;

 Technologies employed;

 What it takes to succeed – the key success

factors (KSF);
 Comparing the firm, its products, its systems, its

technology etc., with other firms in the industry.

External Environmental Analysis….

 To determine the intensity of competition and the

level of profitability in an industry Porter’s five
forces of competition framework applied; the five
forces of competition Potential
are: entrants

Threat of new
entrants

Industry
competitors
Bargaining power Bargaining power
of buyers of suppliers
Buyers Suppliers

Rivalry among
existing firms

Threat of substitute
products or services

Substitutes
External Environmental Analysis

Competitor intelligence/analysis
components
Competitor intelligence is the set of data and
information the firm gathers to better understand and
better anticipate competitor’s objectives, strategies,
assumptions and capabilities.
 chapter 4
Internal Environmental
 Analysis
Internal analysis is the methodical evaluation
of the key internal features of an
organization.
 The internal environment of strategic management
consists of:
 Core competencies, competitive advantage
 Quality and quantity of Human Resources:
 financial resources, Physical assets
 Mission and Objectives- clarity and relevance
 Values- ethical beliefs that guide the organization
 Organization Structure, physical resource
 Style of Functioning of Top Management
 Technological Capabilities etc.
 Core competencies are the organization's
major value-creating skills and abilities that
are shared across multiple product lines or
multiple businesses.

 Competitive advantage is the collection of

factors that sets a company apart from its
competitors and gives it a unique position in the
market.
 The Process and functional approach to Internal
Analysis
 The Process
 Developing a profile of resource, like- financial, physical,
organizational, human, and other resources,
 Determining the key success requirement of the product/market
segments in which the organization competes or might compete,
 Comparing the resource profile to the key success requirements,
 Comparing the strengths & weaknesses of the organization with
those of its major competitors.
 Set basic proceeding strategies
SWOT Analysis
Opportunities
 An opportunity is a major favorable situation in a firm’s environment.
Opportunities arise when an organization can take advantage of conditions
in its external environment to formulate and implement strategies that
enable it to improve performance.
 Strong economy
 Better employment agencies
 Capacitated potential employees
 Better government support…..
Threats
A major unfavorable situation in a firm’s

environment.
 The entrance of new competitors,
 Shortages of resources
 High tax rates
 Swift Political change
 Changing buyer needs and preferences
 Recession in economy
 Adverse shifts in trade policies of foreign governments
 Slow market growth,
 Increased bargaining power of key buyers or suppliers,
etc….
Strengths:
 “Strength” is a positive characteristic that

gives a company an important capability.

 Competent HR

 Better company finance

 Good Technology usage

 Manufacturing efficiency

 Superior image and reputation

 Superior technological skills

 Distinctive competence in key areas etc..

 Weaknesses:
 A “weakness” is a condition or a characteristic, which
puts the company at disadvantage. Includes:
o Lack of facilities, financial resources, management

capabilities, marketing skills, and brand image can

be source of weaknesses
o Lack clear strategic direction

o Poor research and developmental programs

o Lack of management vision, depth and skills

o Inability to raise capital

o Poor market image

o Lack of employees and managerial competence

o Low employee moral etc…..

SWOT Analysis- the SWOT Matrix
To develop HR strategies that take into account the SWOT
profile
Strengths Weaknesses
Opportuniti S-O strategies W-O strategies
es
Threats S-T strategies W-T strategies
S-O strategies pursue opportunities that are a good fit to the
company's strengths.
W-O strategies overcome weaknesses to pursue opportunities.
S-T strategies identify ways that the firm can use its strengths to

reduce its vulnerability to external threats.

W-T strategies establish a defensive plan to prevent the firm's
weaknesses from making it highly susceptible to external threat.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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 Chapter 5
Formulation of strategy: strategy analysis and choice
60

5.1.The nature of strategy analysis and

choice
 Strategy analysis and choice focuses on generating and
evaluating alternative strategies, as well as on selecting
strategies to pursue.
 It seeks to determine alternative courses of action that could
best enable the firm to achieve its mission and objectives.
 Alternative strategies are derived from the firm’s vision,
mission, objectives, external audit, and internal audit and
are consistent with past strategies that have worked well.
 5.2. Levels of strategy
61

 Management develops a strategy by

evaluating options available to the
organization and choosing one or more of
the options.
 Strategies exist at different levels in an organization and are classified
in to three major categories according to their scope of coverage i.e.
they are classified into:

1. Corporate level:- (growth, stability & defensive)

2. Business level

3. Functional level strategies

62
1. Corporate Level Strategy
 Corporate level strategy occupies the highest level of
strategic decision making ,
 Corporate strategies are often called grand/master

strategies
 Covers actions dealing with the major objective of the

firm,.
 Corporate level strategies are formulated by the top

management of the firm

 Decisions are complex and affects the entire organization

 A corporate-level strategy is an action taken to gain a

competitive advantage
 Levels of strategy
63
 These grand strategies (major Corporate Strategies) can
be:
1. Growth strategies: expand the company's activities.

2. Stability strategy: make no change to the company’s

current activities
3. Defensive strategy: reduce the company’s levels of
activities
A. Growth Strategies
 Growth Strategies involve the attainment of specific growth
objectives by increasing the level of a firm’s operations
 Typical growth objectives for businesses includ e:
A. Increase in sales revenues
B. Increase in earnings or profits
C. Other performance measures
 Corporate Level Strategy…. Growth
Strategies
1. Concentration Strategy
Concentration strategy will be appropriate when the company
concentrates on the current business.
The firm directs its resources to the profitable growth of a
single/some product, in a given market, with existing
technology.
 Increasing present customers’ rate of usage
 Attracting competitors’ customers through price cuts
 Attracting non-users through advertising, price incentives etc.
2. Innovation Strategy

Innovation strategy refers to original or novel ideas
as the basis for profitability.

new product life cycle, thereby
Which is creating a
making any similar existing products obsolete.
 However, innovation is costly & risky – few innovative
ideas prove profitable because R&D, marketing, & other
costs are extremely high.
 Corporate Level Strategy…. Growth
Strategies

3. Integration Strategy
 Integration strategy focuses on moving to different industry level,
Vertical integration and Horizontal integration
 Vertical Integration involves extending an organization’s
present business in two possible directions.
 Forward integration moves the organization into
distributing its own products or services .

 Backward integration moves an organization into

supplying some or all of the products or services used in
producing its present products or services.
Corporate Level Strategy…. Growth
Strategies
 Horizontal integration- increasing production, at the same level
of the supply chain through acquisition, merger or internal
expansion
 Merger – is a strategy through which two or more firms agree

to integrate their operations on a relatively co-equal basis

 Acquisition – a strategy through which one firm buys a

controlling of 100% interest in another firm with the intent of

making the acquired firm a subsidiary business within its
portfolio
4. Diversification
 The entry of a firm or business unit into new lines of activity,
either by processes of internal business development or
acquisition, which entail changes in its administrative structure,
systems and other management processes.
 Classified into two categories:
 Concentric (Related)- when the company goes into a new
business which is closely related to the current business
 The sharing of resources,
 Capabilities, &
 Distinctive competencies
Corporate Level Strategy…. Growth
Strategies
o Conglomerate (Unrelated)- refers to that diversification in
which company goes into new business which is completely
unrelated to current business of the company

B) Stability Strategy
 It is also called neutral strategy: occurs when an organization is
satisfied with its current situation & wants to maintain the
status quo.
 Reasons for using stability strategy:
1. The company is doing well “if it works, don’t fix it”
2. Resources has been exhausted because of earlier growth
strategies
 Corporate Level Strategy….

C) Defensive Strategies
 Defensive Strategies most often used as a short-term solution to:
 Reverse a negative trend/ Overcome a crisis or problem situation


It could be classified into Decline & Closure Strategies
 Decline strategy includes:
 Retrenchment, Harvesting, Turnaround and Divestiture
Retrenchment strategy will be used when the company wants to reduce its
operations – primarily, by reducing product lines
Corporate Level Strategy…. Defensive
Strategies
Harvesting occurs when future growth appears doubtful or
not cost effective ;
 A harvest strategy involves a reduction or a termination of
investments in a product, product line
 Involves reducing spending on an established product in
order to maximize profits.
Turn around strategy is designed to reverse a negative trend
& get the organization back on the track or profitability – a
temporary measure until things improve
Through :
 Corporate Level Strategy…. Defensive
Strategies
 Major actions should be taken are:
are Eliminating low-margin products,
Reducing the size of operations, Selling machineries, Laying off
employees, Replacing higher-paid employees with lower-paid employees,
Leasing rather than buying equipment, Cutting back marketing
expenses…

Divestiture strategy occurs when an organization sells or

divests itself of a business or part of a business – previous
diversification is not successful (weak growth prospects & poor
profitability)
 Closure strategy consists of liquidation- filing of bankruptcy
 Liquidation occurs when an entire company is either sold or

dissolved either by choice or force

2. Business-Level Strategy
 Operationalizing of Corporate Level Strategy
 A strategy designed to gain competitive advantage by exploiting
core competencies in specific product market for the purpose of
providing value to customers
 Focuses o unique value proposition to attract
customers
Business-Level Strategy..
Business-level strategy

• Business-level strategy – Key issues

Which good or
service to offer
Customers?

Business-level How to
Strategy manufacture or
create it?

How to
distribute it?

 In selecting business-level strategy, the firm should

determine:
 Who will be served? Refers to types of

customers
 What needs those target customers have that

the firm will satisfy? Refers to the benefits &

features of products & services
 How those needs will be satisfied?
 Business-Level Strategy….

The five business level generic strategies are:

1. Cost leadership
Is an integrated set of actions designed to produce or deliver


goods or services at the lowest cost relative to competitors,

competitors
with features that are acceptable to customers:
2. Differentiation
is an integrated set of actions designed to produce
goods or services that customers perceive as being
different
Focused cost leadership- denotes an integrated set of actions
designed to produce or deliver goods or services that serve the
needs of a particular competitive segment
 Focused differentiation
 Integrated cost leadership & differentiation – both
3. Functional Level Strategy

Functional-level strategy involves choosing strategies that will enable

functional units to best perform their functions for the business they
belong to.
Functional strategy involves providing objectives for specific functions, allocation
of resources among different operations within that functional area and
coordination between them
How does a firm actually go about achieving a position of cost-
leadership, differentiation or focus?
Through the functional-level strategies day-to-today activities of:
 superior efficiency

 superior quality

 superior innovation

 superior customer responsiveness

 5.3. The Decision stage
77

 Decision- is a choice made between available alternatives.

 Decision making is the act of choosing a course of action
among a given alternatives to produce a desired result.
 Decision-making is the process of developing and analyzing
alternatives and choosing from among them.
 The best administrators make decision constantly, and make
them well.
 If you can’t make decisions, you won’t be an effective
administrator.
 Types of Decision-making
78

1. Programmed decision: A decision that is repetitive and routine

and can be made by using a definite, systematic procedure.
2. Non- programmed decision: A decision that is unique and
novel.
Characteristics Programmed decisions Non-programmed decisions

Type of problem Structured Unstructured

Managerial level Lower level Upper level

Frequency Repetitive New,unusual
Information Readily available Ambiguous or incomplete
Time frame for solution Short Relatively long

Solution relies on Procedures,rules, and Judgment and creativity

policies
 The Decision-making process
79
Stages of Decision-making
 5.4. BSC model
80

 What is a Balanced Scorecard?

 The Balanced Scorecard (or balance score card) is a
strategic performance measurement model which is
developed by Robert Kaplan and David Norton.
 The balanced scorecard is a strategic planning and
performance management framework that tracks
financial and non-financial measures to determine
an organization's effectiveness and when corrective
action is necessary.
 The starting points of the balanced scorecard are the
vision and the strategy that are viewed from four
perspectives:
 The Financial Perspective,
 The Customer Perspective,
 The Internal Business Processes
 Learning & growth
 A. Financial perspective
81

 The financial perspective is important for all

shareholders and other financial backers of an
organization.
 It answers the question:
 “How attractive must we appear to our shareholders and
financial backers?”.
 In addition, it provides a reliable insight into the
operational management and the
sustainability of the chosen strategy. The
delivered added value from the other three
perspectives will be translated into a financial
success.
 This is therefore a quantification of the added value
that is delivered in the organization.
 After all in the balanced scorecard, when there is a
higher added value, the profits will also be higher
 B. Customer perspective
82

 Each organization serves a specific need in the market.

 This is done with a target group in mind, namely its
customers.
 Customers determine for example the quality, price,
service and the acceptable margins on these
products and/or services.
 Organizations always try to meet customer
expectations that may change at any time.
 The existence of alternatives (those of the competitor)
has a large influence on customer expectation.
 This perspective answers the question: “How attractive
should we appear to our customers?”
 C. Internal Business Processes
83

 what internal processes have actually

added value within the organizations and
what activities need to be carried out
within these processes.
 Added value is mainly expressed as the
performance geared towards the customer
resulting from an optimal alignment between
processes, activities and decisions.
 This perspective answers the question: “What
must we excel at to satisfy our customers
and shareholders/ financial backers?”
 D. Learning and growth
84

 An organization’s learning ability and innovation

indicate whether an organization is capable of
continuous improvement and/or growth in a
dynamic environment.
 This dynamic environment is subject to change on a
daily basis due to new legislation and regulations,
economic changes or even increasing competition.
 This perspective answers the question: “How can
we sustain our ability to achieve our chosen
strategy?”
  The balance within
85

 As the name suggests, the equilibrium or

balance is an important principle in the
balanced scorecard model.
 There must be a balance between the short-term
and the long-term objectives, financial and
non-financial criteria, leading and lagging
indicators and external and internal perspectives.
 It is about cohesion in which an improvement in
one perspective must not be an obstacle in
another perspective.
 This cohesion is reflected in the model through the
mutually connected arrows between the four
perspectives
 5.5. The 7’S model
86

 The 7 S Model is better known as McKinsey 7 S. This is

because the two persons who developed this model, Tom
Peters and Robert Waterman, have been consultants at
McKinsey & Co at that time.
 Thy published their 7 S Model in their article “Structure Is
Not Organization” (1980) and in their books “The Art of
Japanese Management” (1981) and “In Search of
Excellence” (1982).
The model starts on the premise that an
organization is not just Structure, but consists of
seven elements
Those seven elements are distinguished in so called
hard S’s and soft S’s. The hard elements are
feasible and easy to identify. And, soft ‘s’ are not…
 The 7’S model
87

The Hard S’s

 Strategy: Actions a company plans in response

to or anticipation of changes in its external

environment.
 Structure: The way in which tasks & people are

specialized & divided, & authority is distributed; how activities

& reporting relationships are grouped; the mechanisms by
which activities in the organization are coordinated
 Systems: Formal and informal procedures that

support the strategy and structure. (Systems are

more powerful than they are given credit)
The
88
7’S model
The Soft S’s
 Style / Culture: The culture of the organization, consisting of two
components:
 Organizational Culture: the dominant values and beliefs, and norms,
which develop over time and become relatively enduring features of
organizational life
 Management Style: more a matter of what managers do than what they
say; How do a company’s managers spend their time? What are they
focusing attention on? Symbolism – the creation and maintenance (or
sometimes deconstruction) of meaning is a fundamental responsibility of
managers
 Staff: The people, their backgrounds & competencies; how the organization
recruits, selects, trains, socializes, manages the careers, & promotes employees
 Skills: The distinctive competences – what the company does
best, ways of expanding or shifting competences
 Shared Values / Super ordinate Goals: Guiding concepts,
fundamental ideas around which a business is built – must be
simple, usually stated at abstract level, have great meaning inside
the organization even though outsiders may not see or understand
them.
 The 7’S model
89

 Effective organizations achieve a fit between these seven

elements. This criterion is the origin of the other name of
the model:
 Diagnostic Model for Organizational Effectiveness. If one
element changes then this will affect all the others.
 For example, a change in HR-systems like internal career
plans and management training will have an impact on
organizational culture (management style) and thus will
affect structures, processes, and finally characteristic
competences of the organization.
 In change processes, many organizations focus their
efforts on the hard S’s, Strategy, Structure and Systems.
They care less for the soft S’s, Skills, Staff, Style and
Shared Values.
Chapter 6: Strategy Implementing, Evaluation And
Control
90

6.1. Strategy Implementation

 Strategy formulation is what an organization is going to do –
example; choosing cost leadership strategy
 Strategy implementation is doing it.
 As an example, the execution of the chosen strategy may involve:
 Building new facilities
 Establishing cost control procedures
 Modifying employee hiring practices & benefits
 Developing new pricing policies, etc
 Strategies that have been carefully formulated are of little value if
they cannot be successfully implemented.
 Strategy implementation involves transferring formulated
strategies into action.
Strategy implementing, evaluation and control …..
91

 For successful execution of the formulated strategy, the following must be

considered:
◦ Acquiring human, financial, & physical resources
◦ Organizational structure, culture, & internal systems must be consistent
with the formulated strategy
◦ Making necessary internal changes in order to achieve the objectives
◦ Briefly, resources must match with the formulated strategy for its
implementation
 Strategy implementation should focus on:
 Research & Development, Marketing effort
◦ Reward system for encouraging extra attention needed by new activities
◦ Controlling & information systems, etc.
Strategy implementing, evaluation and control …..
92

 Components of Strategy Implementation…

1. Is the formulated strategy communicated properly?
2. Are structuring mechanisms properly aligned?
3. Are functional area conflicts reconciled?
4. Does leadership inspire commitment to the formulated
strategy
5. Do reward systems reinforce appropriate behavior?
6. Are functional issues addressed & implemented?
7. Does the control system provide appropriate feedback?
Strategy implementing, evaluation and control …..
93

1. Communicating Strategy
 Before a strategy can be implemented it must be understood.
 A clear understanding of strategy gives purpose to the activities of each
organization member.
 It allows the employee to link whatever task is at hand to the overall
organizational direction

2. Strategy and Structure

 Achieving a fit between strategy & structure is a complex process that
involves how:
 Activities will be grouped &
 Groups will be coordinated
 This refers to the need for identifying the appropriate types of
organizational structure, linking organizational units, & decision making.
Strategy implementing, evaluation and control …..
94

 It is a firm’s role configuration, procedures, governance, control mechanisms,

authority & decision-making processes
 Thus, organizational structure must be congruent with the strategy to achieve
strategic competitiveness
 However, the structure should be changed when no longer provides the
coordination, control & direction required to implement the strategy
successfully
3. Reconciling Functional Area Conflicts
 Operations – maintain efficiency by having few production runs &
variations as possible
 Marketing – provide customers with wider product lines & as many
options as possible (color, accessories, etc.)
 This can lead to conflict & poor strategy implementation unless it is explicitly
managed
 Thus, integrate functional strategies – formulation, communication,
participation, & trade-offs
Strategy implementing, evaluation and control …..
95

 4. Leadership Commitment
 The behavior & activities of top management contribute to strategy
implementation by:
 Supporting the strategy & building the culture of the organization
by example
 Making decisions based on skills, personality, & experience
5. Design Implementation Rewards
 Recognizing or not outstanding performance sends different signals
 The timing & criteria used to determine salary increments &
bonuses have impacts on performance
 Differentiate b/n monetary reward vs. status, recognition, &
attention – there are employees who highly value the latter
Strategy implementing, evaluation and control …..
96

6. Functional Issues
 The most common functional areas & issues:
 Marketing: products/services, pricing & distribution, promotion, etc.
 Operations: production methods & processes, adequate capacity to meet demand,
adequate inventory level & proper inventory control, availability of appropriate
employees & raw materials, etc.
 Accounting & Finance:
 Availability of long & short-term financing
 Cost of capital
 Dividend policy
 The effect of currency revaluation & devaluation
 The overall tax regimes
 Preparation of budgets, etc.
Strategy implementing, evaluation and control …..
97
 Research & Development:
 Basic & applied research activity
 Develop & improve products
 New & improved production processes for efficiency improvement,
etc.
 Personnel & labor relations:

 Obtain in a timely & cost effective manner new employees

 Retain & maintain appropriate human resources
 Administer salary & benefits
 Enhancing cooperation with union & avoid labor strikes to promote
implementation of the strategy, etc.
 Information systems
 Provide support for internal decision-making & for monitoring the
progress of strategy implementation
 Provide information about external trends: markets, political, economic,
technological environments, etc.
 It is important that the information system provides information that is:
 Timely
 Relevant
 Complete
Strategy implementing, evaluation and control …..

 7. Implementation as a Process
 In general, implementation is the action phase of the strategic management
process
 Implementation is the process of making things happen & involves
◦ Allocating resources through budgets
◦ Developing programs & projects that activate the organization
◦ Articulating policies, procedures & rules that can be used in guiding
activities on daily basis
◦ The application of certain operational management techniques (PERT &
CPM) to ensure that planned tasks occur when & as designed
Strategy implementing, evaluation and control …..

6.2. Strategy Control and Evaluation

 Why does actual performance sometimes not match the

performance desired in the strategic objectives?

 Was the strategic plan severely flawed in its formulation?
 Did management’s implementation of the plan fall short?
 Were there uncontrollable factors external to the organization that prevented
achievement of the plan?
These questions suggest the importance of Control & Evaluation and a need to
understand how the plan can go away.
 Too many strategic plans end up collecting dust on a shelf.
Controlling and evaluation planning activities and status of implementation of a plan is
as important as identifying strategic issues and goals.
One advantage of control & evaluation is to ensure that the organization is
following the direction established during strategic planning
Strategy implementing, evaluation and control …..

Purpose of Control
 The purpose of control could be to determine whether:
 Selected strategies implemented successfully
 The resources are used wisely
 Set objectives are achieved, etc.
 Steps in controlling & evaluation process:
① Setting standards for performance
② Measure actual performance
③ Compare actual performance with the standard
④ Analyze the reasons for significant deviations, if any
⑤ Take corrective action when performance does not fall within
acceptable range
Strategy implementing, evaluation and control …..

Evaluation Systems
There are two types of evaluation systems: process evaluation & outcome
evaluation

Process evaluation: uncovering the deficiencies in an ongoing program.

 Monitoring the progress of an organization against the strategic
plan while it is under implementation
Four phases of process evaluation (Cox III et al, 1994):
1. Problem identification
2. Solution development
3. Implementation of the solution
4. Feedback evaluation
Strategy implementing, evaluation and control …..

The outcome from such an evaluation:

 How much of the stated goal was accomplished?
 What other effects, that were not otherwise anticipated, resulted
from this program?
 What databases are available on which to start the strategic
management process again?
 The outcome evaluation closes the loop of the strategic
management process & returns managers to the first phase of
formulating a vision & mission for a new process
 =================E
103

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