Strategic ManagementChapter 1Dimensions of Strat.docx

Strategic Management
Chapter 1
Dimensions of Strategic DecisionsStrategic issues require top-
management decisionsStrategic issues require large amounts of
the firm’s resourcesStrategic issues often affect the firm’s long-
term prosperityStrategic issues are future orientedStrategic
issues usually have multifunctional or multibusiness
consequencesStrategic issues require considering the firm’s
external environment
Multimedia Lecture Support Package to Accompany Basic
Marketing
Lecture Script 6-*
Three Levels of Strategy
Corporate level: board of directors, CEO & administration
[Highest]
Business level: business and corporate managers [Middle]
Functional level: Product, geographic, and functional area
managers [Lowest]

Characteristics of Strategic Management Decisions: Corporate
Often carry greater risk, cost, and profit potential
Greater need for flexibility
Longer time horizons
Choice of businesses, dividend policies, sources of long-term
financing, and priorities for growth
Characteristics of Strategic Management Decisions:
BusinessHelp bridge decisions at the corporate and functional
levelsLess costly, risky, and potentially profitable than
corporate-level decisionsMore costly, risky, and potentially
profitable than functional-level decisionsInclude decisions on
plant location, marketing segmentation, and distribution
Characteristics of Strategic Management Decisions:
FunctionalImplement the overall strategy formulated at the
corporate and business levelsInvolve action-oriented operational
issuesRelatively short range and low riskModest costs: depend
upon available resourcesRelatively concrete and quantifiable
Company Mission
Chapter 2
Four Essential Components:Basic Product or Service Primary
Market--WHOWhereFinancial position

Primary Company GoalsSurvival – A firm that can’t survive
can’t satisfy its stakeholders. (Often taken for
granted)Profitability –the mainstay goal of a business.Growth –
is tied to survival and profitability. Broadly defined in terms of
market share, etc.
Company Philosophy—BULLETS
Covers CustomersEmployeesManagementStockholders
Stakeholders SuppliersCommunitySocial
responsibilityTaxesEnvironmental protection
AGENCY THEORY
Agency theory --based on the belief that the separation of the
ownership from management creates a situation where managers
will spend the stockholders’ money in ways they would not
spend their own.
Agency Costs
The cost of agency problems plus the cost of actions taken to
minimize agency problems are collectively termed agency costs.
How Agency Problems Occur
Moral hazard problem--Executives have disproportionate access
to company information. Adverse selection--a problem caused
by the limited ability of stockholders to determine the

competencies and priorities of executives they hire.
Problems Resulting from Agency
Executives pursue growth in company size rather than earnings
Executives attempt to diversify their corporate risk
Executives avoid healthy risk
Managers act to optimize their personal payoffs
Executives protect their status
Solution
s to Agency Problem
Owners pay executives a premium for their service to increase
loyalty
Executives receive back-loaded compensation.
Creating teams of executives across different units of a
corporation can help to focus performance measures on
organizational rather than personal goals.
Aligning Executive Interests with Owner InterestsStock Option

PlansBonus plansIncentives for Long-Term Performance
Corporate Social Responsibility and Business Ethics
Chapter 3
Dynamics of Social Responsibility
Inside vs. Outside Stakeholders
Duty to serve society plus duty to serve stockholders
Flexibility is key
Firms differ along:
Competitive Position
Industry
Country
Environmental Pressures
Ecological Pressures
Types of Social Responsibility
Economic – the duty of managers, as agents of the company
owners, to maximize stockholder wealth

Legal – the firm’s obligations to comply with the laws that
regulate business activities
Ethical – the company’s notion of right and proper business
behavior.
Discretionary – voluntarily assumed by a business organization.
Corporate Social Responsibility & ProfitabilityCorporate social
responsibility (CSR), is the idea that business has a duty to
serve society in general as well as the financial interests of
stockholders.The dynamic between CSR and success (profit) is
complex. They are not mutually exclusive, and they are not
prerequisites of each other. Better to view CSR as a component
in the decision-making process of business that must determine,
among other objectives, how to maximize profits.
Factors Complicating a Cost-Benefit Analysis of CSR:
Some CSR activities incur no dollar costs at all. In fact, the
benefits from philanthropy can be huge.
Socially responsible behavior does not come at a prohibitive

cost.
Socially responsible practices may create savings, and, as a
result, increase profits.
Proponents argue that CSR costs are more than offset in the
long run by an improved company image and increased
community goodwill.
Sarbanes-Oxley Act of 2002
CEO and CFO must certify every report containing company’s
financial statements
Restricted corporate control of executives, acting, firms,
auditing committees, and attorneys
Specifies duties of registered public acting firms that conduct
audits
Composition of the audit committee and specific responsibilities
Rules for attorney conduct
Disclosure periods are stipulated
Stricter penalties for violations

New Corporate Governance StructureRestructuring governance
structure in American corporations Heightened role of corporate
internal auditors Auditors now routinely deal directly with top
corporate officialsCEO information provided directly by the
company’s chief compliance and chief accounting officers
Social AuditA social audit is an attempt to measure a company’s
actual social performance against its social objectives. The
social audit may be used for more than simply monitoring and
evaluating firm social performance.
Management Ethics
The Nature of Ethics in Business:Belief that managers will
behave in an ethical manner is central to CSREthics – the moral
principles that reflect society’s beliefs about the actions of an
individual or a group that are right and wrongEthical standards
reflect the end product of a process of defining and clarifying
the nature and content of human interaction

3 BASIC Approaches to Questions of Ethics
Utilitarian Approach
Moral Rights Approach
Social Justice Approach
The External Environment
Chapter 4
External EnvironmentThe factors beyond the control of the firm
that influence its choice of direction and action, organizational
structure, and internal processes
Remote EnvironmentEconomic FactorsSocial FactorsPolitical
FactorsTechnological FactorsEcological Factors

Economic Factors
Prime interest rates
Inflation rates
Trends in the growth of the gross national product
Unemployment rates
Globalization of the economy
Outsourcing
Social Factors
Beliefs & Values
Attitudes & Opinions
Lifestyles
Demographics
Age
Ethnic composition
Gender
Health considerations
Religion

Education
Quality-of-life issues
Political Factors
Legal & regulatory parameters:
Fair-trade Decisions
Antitrust Laws
Tax Programs
Minimum Wage Legislation
Pollution and Pricing Policies
Administrative jawboning
Obama care
Technological FactorsSpeed of new developments
Ecological FactorsEcology refers to the relationships among
human beings and other living things and the air, soil, and water
that supports them. Threats to our life-supporting ecology
caused principally by human activities in an industrial society

are commonly referred to as pollution Loss of habitat and
biodiversityEnvironmental legislationEco-efficiency
International Environment
Monitoring the international environment
involves assessing each non-domestic market on the same
factors that are used in a domestic assessment.
While the importance of factors will differ, the same set of
considerations can be used for each country.
Economic, political, legal, and social factors are used to assess
international environments.
One complication to this process is that the interplay among
international markets must be considered.
Ex. 4.8 Forces Driving Industry Competition
Threats of EntryEconomies of ScaleProduct

DifferentiationCapital RequirementsCost Disadvantages
Independent of SizeAccess to Distribution ChannelsGovernment
Policy
Powerful Suppliers
A supplier group is powerful if:It is dominated by a few
companies and is more concentrated than the industry it sells to
Its product is unique or at least differentiated, or if it has built-
up switching costs It is not obliged to contend with other
products for sale to the industry It poses a credible threat of
integrating forward into the industry’s business The industry is
not an important customer of the supplier group
Powerful Buyers
A buyer group is powerful if: It is concentrated or purchases in
large volumes The products it purchases from the industry are
standardThe products it purchases from the industry form a
component of its product and represent a significant fraction of
its costIt earns low profitsThe industry’s product is unimportant
to the quality of the buyers’ products or services The industry’s
product does not save the buyer money The buyers pose a

credible threat of integrating backward
Substitute ProductsBy placing a ceiling on the prices it can
charge, substitute products or services limit the potential of an
industry Substitutes not only limit profits in normal times but
also reduce the bonanza an industry can reap in boom times
Substitute products that deserve the most attention strategically
are those that are subject to trends improving their price-
performance trade-off with the industry’s product orproduced
by industries earning high profits
Jockeying for Position
Intense rivalry occurs when:
Competitors are numerous or are roughly equal
Industry growth is slow, precipitating fights for market share
that involve expansion
The product or service lacks differentiation or switching costs
Fixed costs are high or the product is perishable, creating strong
temptation to cut prices
Capacity normally is augmented in large increments
Exit barriers are high

Rivals are diverse in strategy, origin, and personality
The Global Environment
Chapter 5
GlobalizationGlobalization refers to the strategy of pursuing
opportunities anywhere in the world that enable a firm to
optimize its business functions in the countries in which it
operates.
Why Firms Globalize?U.S. firms can reap benefits from
industries and technologies developed abroad.Direct penetration
of foreign markets can drain vital cash flows from a foreign
competitor’s domestic operations.The resulting lost
opportunities, reduced income, and limited production can
impair the competitor’s ability to invade U.S. markets.
Question: Should firms be proactive or reactive?

Reasons for Going Global
PROACTIVE
Additional resources
Lowered costs
Incentives
New, expanded markets
Exploitation of firm-specific advantages
Taxes
Economies of scale
Synergy
Power and prestige
Protect home market
REACTIVE
Trade barriers
International customers
International competition
Regulations
Chance
4 Strategic Orientations of Global Firms
Ethnocentric orientation
When the values and priorities of the parent organization guide

the strategic decision making of all its international operations
4 Strategic Orientations of Global Firms (contd.)
Polycentric orientation
When the culture of the country in which the strategy is to be
implemented is allowed to dominate a company’s international
decision making process
Regiocentric orientation
When a parent company blends its own predisposition with
those of its international units to develop region-sensitive
strategies.
Geocentric orientation
When an international firm adopts a systems approach to
strategic decision making that emphasizes global integration.

Competitive Strategies for
Firms in Foreign Markets
Niche Market Exporting
Licensing and Contract Manufacturing
Franchising
Joint Ventures
Foreign Branching
Acquisition
Wholly Owned Subsidiary
LOOK UP EACH OF THESE AND UNDERSTAND
Internal Analysis
Chapter 6
SWOT Analysis
A traditional approach to internal analysis: SWOT is an
acronym for the internal Strengths and Weaknesses of a firm
and the environmental Opportunities and Threats facing that

firm.SWOT analysis is a historically popular technique through
which managers create a quick overview of a company’s
strategic situation.
SWOT Components
An opportunity is a major favorable situation in a firm’s
environment
A threat is a major unfavorable situation in a firm’s
environment
A strength is a resource or capability relative to its
A weakness is a limitation or deficiency in a firm’s resources or
capabilities relative to its competitors
S.W.O.T. AnalysisS.W.O.T. information is only as important as
the analysis derived from it.There is no magic number of
strengths or weaknesses compared to a magic number of
opportunities and threats. Do you have the strengths to: 1. Take
advantage of new opportunities? Or 2. Survive a threat? Or 3.
To compensate for your weaknesses?To appropriately use the
S.W.O.T. study the following slide

Ex. 6.2 SWOT Analysis Diagram
Value ChainA perspective in which business is seen as a chain
of activities that transforms inputs into outputs that customers
value.Examines the contributions of different activities within
the business that create customer valueA process point of view
Value Chain Analysis (contd.)Primary Activities
The activities in a firm of those involved in the physical
creation of the product, marketing and transfer to the buyer, and
after-sales supportSupport Activities
The activities in a firm that assist the firm as a whole by
providing infrastructure or inputs that allow the primary
activities to take place on an ongoing basis
Ex. 6.3 The Value Chain

Resource-Based View (RBV)
RBV is a method of analyzing and identifying a firm’s strategic
advantages based on examining its distinct combination of
assets, skills, capabilities, and intangibles
The RBV’s underlying premise is that firms differ in
fundamental ways because each firm possesses a unique
“bundle” of resources
Each firm develops competencies from these resources, and
these become the source of the firm’s competitive advantages
Three Basic TYPES of Resources
Tangible assets are the easiest “resources” to identify and are
often found on a firm’s balance sheet
Intangible assets are “resources” such as brand names, company
reputation, organizational morale, technical knowledge, patents
and trademarks, and accumulated experience
Organizational capabilities are not specific “inputs.” They are
the skills that a company uses to transform inputs into outputs

What makes a resource VALUABLE?
4 Guidelines:
Is the resource or skill critical to fulfilling a customer’s need
better than that of the firm’s competitors?
Is the resource scarce? Is it in short supply or not easily
substituted for or imitated?
Appropriability: Who actually gets the profit created by a
resource?
Durability: How rapidly will the resource depreciate?
Elements of Scarcity Short SupplyAvailability of
SubstitutesImitationIsolating Mechanisms:
Physically Unique Resources
“Path-Dependent” Resources
Casual Ambiguity
Economic Deterrence
Using RBV in Internal Analysis
It is helpful to: Disaggregate resourcesUtilize a functional
perspectiveLook at organizational processesUse the value chain

approach
Long-Term Objectives and Strategies
Chapter 7
Marketing
Lecture Script 6-*
Long-Term ObjectivesStrategic managers recognize that short-
run profit maximization is rarely the best approach to achieving
sustained corporate growth and profitability To achieve long-
term prosperity, strategic planners commonly establish long-
term objectives in seven areas: Profitability–
ProductivityCompetitive Position– Employee
DevelopmentEmployee Relations-- Tech LeadershipPublic
Responsibility

Marketing
Lecture Script 6-*
Qualities of Long-Term Objectives S.M.A.R.T.There are five
criteria that should be used in preparing long-term objectives:
Specific—clear about outcomes desiredMeasurable—able to
quantifyAttainable—able to achieve with current
resourcesRealistically challenging—provide stimulation to
achieveTimed—stating the time frame in which the objective
will be accomplished
The Balanced ScorecardThe balanced scorecard is a set of four
measures that are directly linked to the company’s strategy
allows managers to evaluate the company from four
perspectives:
financial performance
customer knowledge
internal business processes
learning and growth

Generic StrategiesA long-term or grand strategy must be based
on a core idea about how the firm can best compete in the
marketplace. The popular term for this core idea is generic
strategy.
The 4 GENERIC Strategies
Striving for overall low-cost leadership in the industry.
Striving to create and market unique products for varied
customer groups through differentiation.
Striving to have special appeal to one or more groups of
consumers or industrial buyers, focus on their cost or
differentiation concerns.
SPEED rapid response to customer requests or market and
technological changes
GRAND Strategies
Grand strategy
A master long-term plan that provides basic direction for major

actions for achieving long-term business objectives
Grand Strategies
Concentrated growth the strategy that directs resources to the
growth of a dominant product, in a dominant market, with a
dominant technology
Market development consists of marketing present products to
customers in related market areas by adding channels of
distribution or by changing the content of advertising or
promotion
Product development substantial modification of existing
products or the creation of new but related products that can be
marketed to current customers through established channels
Grand Strategies
Innovation companies seek high profits associated with
customer acceptance of a new or greatly improved product—
search for other original or novel ideas—seek to create a new
product life cycle and make similar existing products obsolete
Horizontal acquisition—growth through the acquisition of one

or more similar firms operating at the same stage of the
production-marketing chain
Grand Strategies
Vertical acquisition—BACKWARD—acquire firms that supply
it with inputs (such as raw materials) or FORWARD—are
customers for its outputs (such as warehouses for finished
products)
Concentric diversification involves the acquisition of businesses
that are related to the acquiring firm in terms of technology,
markets, or products
Conglomerate diversification—gives little concern to creating
product-market synergy with existing businesses
Grand Strategies
Turnaround—Cost reduction—Asset reduction
Divestiture strategy the sale of a firm or a major component of
a firm
Liquidation the firm typically is sold in parts for its tangible
asset value and not as a going concern

Chapter 7 Liquidation bankruptcy—agreeing to a complete
distribution of firm assets to creditors, most of whom receive a
small fraction of the amount they are owed Chapter 11
Reorganization bankruptcy—the managers believe the firm can
remain viable through reorganization—management runs the
day-to-day business operations but all significant business
decisions must be approved by a bankruptcy court.
Bankruptcy
Grand Strategies
Joint ventures relationship between two or more parties to
pursue a set of agreed upon goals or to meet a critical business
need while remaining independent organizations
Strategic alliances is a business agreement in which parties
agree to develop, for a finite time, a new entity and new assets
by contributing equity—
Company A & B form Company C
Business Strategy
Chapter 8

Sustainable Low-Cost Activities
Some low-cost advantages reduce the likelihood of buyers’
pricing pressure
Truly sustained low-cost advantages may push rivals into other
areas
New entrants competing on price must face an entrenched cost
leader
Low-cost advantages should lessen the attractiveness of
substitute products
Higher margins allow low-cost producers to withstand supplier
cost increases
Risks of a Cost Leadership Strategy
Many cost-saving activities are easily duplicated
Exclusive cost leadership can be a trap
Obsessive cost cutting can shrink other competitive advantages
Cost differences often decline over time

Ex. 8.2 Evaluating a Business’s Cost Leadership Opportunities
Evaluating Differentiation
Differentiation requires that the business have sustainable
advantages that allow it to provide buyers with something
uniquely valuable to them
Differentiation usually arises from one or more activities in the
value chain that create a unique value important to buyers
RISKS ASSOCIATED WITH A DIFFERENTIATION
STRATEGYCompetitors may be able to imitate the unique
features, Customers may lose interest in the unique features, or
Low cost competitors may be able to undercut prices & erode
brand loyalty.
Ex. 8.3 Evaluating a Business’s Differentiation Opportunities

Evaluating Speed as a Competitive Advantage Speed-based
strategies, or rapid response to customer requests or market and
technological changes, have become a major source of
competitive advantage for numerous firms in today’s intensely
competitive global economy
Risks of Speed-based Strategy
Speeding up activities that haven’t been conducted in a fashion
that prioritizes rapid response should only be done after
considerable attention to training, reorganization, and/or
reengineering
Some industries may not offer much advantage to the firm that
introduces some forms of rapid response
Customers in such settings may prefer the slower pace or the
lower costs currently available, or they may have long time
frames in purchasing
Ex. 8.5 Evaluating a Business’s Rapid Response (Speed)
Opportunities

Evaluating Market Focus as a Way to Competitive Advantage
Market focus: the extent to which a business concentrates on a
narrowly defined market Small companies, at least the better
ones, usually thrive because they serve narrow market niches
Market focus allows some businesses to compete on the basis of
low cost, differentiation, and rapid response against much larger
businesses with greater resources
Risks of Market FocusThe risk of focus is that you attract major
competitors who have waited for your business to “prove” the
market Publicly traded companies built around focus strategies
become takeover targets for large firms seeking to fill out a
product portfolioSlipping into the illusion that it is focus itself,
and not low cost, etc. that is creating the business’s success.
CHAPTER 2
Q1/ Explain the four components of a mission statement as
required by our class. GIVE AN EXAMPLE—CAN BE
FOR/FROM YOUR INDIVIDUAL CASE.

Q2/ seq NL_a r 0 h Explain agency theory, its problems, and
how to solve them. GIVE AN EXAMPLE
CHAPTER 3
Q1/ In class we discussed what some thought of as the PROS of
Corporate Social Responsibility (CSR) and also what some
thought of as the CONS of CSR. Remember this takes into
consideration the company--stockholders--stakeholders. Tell
me what you consider to be the PROS and the CONS then
express your PERSONAL VIEWPOINT. Then of course GIVE
AN EXAMPLE.
Q2/ Do you think a business organization in today’s society
benefits by defining a socially responsible role for itself? Why
or why not? GIVE AN EXAMPLE
CHAPTER 4
Q1/ Briefly describes TWO important recent changes in the
remote environment of U.S. business in each of the following
areas: a.) Economic. b.) Social. c.) Political. d.)
Technological.
e.) Ecological
Q2/ Assume the invention of a competitively priced synthetic
fuel that could supply 25 percent of U.S. energy needs within 20
years. Assumptions include: 1. It is an American invention, 2.
It has government support. 3. Supply and price are steady.

In what major ways might this change the external environment
of U.S. businesses? External being a.) Economic. b.) Social.
c.) Political. d.) Technological. e.) Ecological.
GIVE AN EXAMPLE of each.
CHAPTER 5
Q1/ Explain when and why it is important for a company to
globalize. GIVE AN EXAMPLE
Q2/ Describe the four main strategic orientations of global
firms. One is ethnocentric. GIVE AN EXAMPLE OF EACH
CHAPTER 6
Q1/ What is the resource-based view of internal analysis? What
are the three different types of resources? What are three ways
resources become more valuable? GIVE AN EXAMPLE of each.
Q2/ Describe SWOT analysis as a way to guide internal
analysis. How does this approach reflect the basic strategic
management process? What are potential weaknesses of SWOT
analysis?
CHAPTER 7
Q1/ Distinguish between the following pairs of grand strategies:
You would only receive one of these pairs
a. Horizontal and vertical acquisition

b. Conglomerate and concentric diversification
CHAPTER 8
Q1/ What are three activities or capabilities a firm should
possess to support a low-cost leadership strategy? GIVE AN
EXAMPLE of a company that has done this?
Q2/ What are three activities or capabilities a firm should
possess to support a differentiation-based strategy? GIVE AN
EXAMPLE of a company that has done this?
Instruction:
I upload an attachment PowerPoint review from chapter 1-8 but
don’t use the same words just have an idea.
Name of the book: STRATEGIC MANAGEMENT: Planning for
Domestic & Global Competition, 13th Edition. Pearce &
Robinson
ISBN: 0078029295 / 9780078029295
The answer has to be from your own words not the same the
book or on the Internet with real life example for every question
needed.

Strategic ManagementChapter 1Dimensions of Strat.docx

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