3. 1-3
Strategic Management: a set of managerial decisions
and actions that determines the long-run performance
of a corporation.
Includes:
• Internal and external environment scanning
• Strategy formulation
• Strategy implementation
• Evaluation and control
5. 1-5
Benefits of Strategic Management:
• Clearer sense of strategic vision for the
firm
• Sharper focus on what is strategically
important
• Improved understanding of a rapidly
changing environment
6. 1-6
• Improved organizational
performance
• Achieves a match
between the
organization’s
environment and its
strategy, structure and
processes
• Important in unstable
environments
• Strategic thinking
• Organizational learning
Additional Benefits of Strategic Management:
8. 1-8
Impact of Environmental Sustainability:
Environmental Sustainability: the use of business
practices to reduce a company’s impact on the natural,
physical environment
10. 1-10
Population ecology: established organizations are
unable to adapt to change
Institution theory: organizations adapt by imitating
successful organizations
11. 1-11
Strategic choice perspective: organizations adapt to
change and have the ability to reshape their
environment
Organizational learning theory: organizations adapt
defensively and use knowledge to improve their
relationship with the environment
12. 1-12
Strategic flexibility: the ability to shift from one
dominant strategy to another and requires:
• Long-term commitment to the development and
nurturing of critical resources
• Learning organization
13. 1-13
Learning organization: an organization skilled at
creating, acquiring, and transferring knowledge and at
modifying its behavior to reflect new knowledge and
insights
14. 1-14
Main activities of a learning organization include:
• Solving problems
systematically
• Experimenting with new
approaches
• Learning from past
experience, history and
experiences of others
• Transferring knowledge
quickly and easily
throughout the
organization
15. 1-15
Basic Elements of Strategic Management
1. Environmental scanning
2. Strategy formulation
3. Strategy implementation
4. Evaluation and control
18. 1-18
Basic Elements of Strategic Management
Environmental Scanning is the monitoring, evaluating
and disseminating of information from the external
and internal environments to key people within the
organization
20. 1-20
Strategy Formulation: the development of long-range
plans for the effective management of environmental
opportunities and threats in light of organizational
strengths and weaknesses (SWOT)
Basic Elements of Strategic Management
21. 1-21
Mission- the purpose or reason for the organization’s
existence
Vision- describes what the organization would like to
become
Objectives- the end results of planned activity
Basic Elements of Strategic Management
22. 1-22
Strategies- form a comprehensive master plan that
states how the corporation will achieve its mission
and objectives
– Corporate
– Business
– Functional
Policies- the broad guidelines for decision making
that links the formulation of a strategy with its
implementation
Basic Elements of Strategic Management
24. 1-24
Basic Elements of Strategic Management
Strategy implementation: the process by which
strategies and policies are put into action through the
development of:
• Programs
• Budgets
• Procedures
25. 1-25
Basic Elements of Strategic Management
Evaluation and control: the process in which
corporate activities and performance results are
monitored so that actual performance can be
compared to desired performance
26. 1-26
Basic Elements of Strategic Management
Performance: the end result of organizational activities
Feedback/Learning Process: revise or correct
decisions based on performance
27. 1-27
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
28. 1-28
What Makes a Strategic Decision?
Strategic decision making focuses on the long-run
future of the organization
Characteristics of strategic decision making include:
• Rare
• Consequential
• Directive
29. 1-29
Mintzberg’s Modes of Strategic Decision Making
• Entrepreneurial
• Adaptive
• Planning
• Logical incrementalism (Quinn)
30. 1-30
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
(SWOT) factors
6. Generate, evaluate and
select the best
alternative strategy
7. Implement selected
strategies
8. Evaluate implemented
strategies
33. 1-33
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
35. 1-35
1. Why has strategic management become so important
to today’s corporations?
2. How does strategic management typically evolve
in a corporation?
3. What is a learning organization? Is this approach to
strategic management better than the more traditional
top-down approach in which strategic planning is primarily
done by top management?
4. Why are strategic decisions different from other kinds
of decisions?
5. When is the planning mode of strategic decision making
superior to the entrepreneurial and adaptive modes?
37. Corporation: a mechanism established to allow different
parties to contribute capital, expertise and labor for
their mutual benefit
Corporation is governed by the board of directors
that oversees top management with the
concurrence of the shareholders.
38. Corporate governance: the relationship among the
board of directors, top management and shareholders in
determining the direction and performance of the
corporation
39. Due care: Board of directors are responsible that the
corporation is not harmed by members of the board.
Directors can be held liable
40. Responsibilities of the Board of Directors
• Sets corporate strategy, overall direction, mission, or
vision
• Hires and fires the CEO and top management
• Controls, monitors, or supervises top management
• Reviews and approves the use of resources
• Cares for shareholders’ interests
• Assures that the corporation is managed in accordance
with state laws, security regulations and conflict of
interest situations
41. Role of the Board in Strategic Management
• Monitor developments inside and outside the
corporation
• Evaluate and Influence management proposals,
decisions and actions
• Initiate and Determine the corporation’s mission and
strategies
42.
43. Members of a Board of Directors
Inside Directors are officers or executives employed by
the board’s corporation
Outside Directors are executives of other firms but are
not employees of the board’s corporation
44. Members of a Board of Directors
Affiliated directors- not employed by the corporation,
handle legal or insurance work
Retired executive directors- used to work for the
corporation, partly responsible for past decisions
affecting current strategy
Family directors- descendents of the founder and own
significant blocks of stock
45. Members of a Board of Directors
Agency theory problems arise in corporations because
top management is not willing to accept responsibility
for their decisions unless they own a substantial amount
of stock in the corporation
Stewardship theory as the result of long tenure with
the corporation, insiders (top management) tend to
identify with the corporation and its success. Act in the
best interest of the corporation more than self-interest
46. Interlocking Directorates- useful for gaining both
inside information about an uncertain environment and
objective expertise about potential strategies and tactics
Direct interlocking directorate- when two firms share
a director or when an executive of one firm sits on the
board of a second
Indirect interlocking directorate- when two
corporations have directors who serve on the board of a
third firm
47. Nomination and Election of Board Members
97% of U.S. boards use nominating committees to
identify potential board members
Staggered boards- only a portion of board members
stand for re-election when directors serve more than
one year terms
48. Nomination and Election of Board Members
Criteria for a good director include:
– Willingness to challenge management when necessary
– Special expertise that is important to the company
– Available for outside meetings to advise management
– Expertise on global issues
– Understands the firm’s key technologies and processes
– Brings external contacts that are potentially valuable to the firm
– Has detailed knowledge of the firm’s industry
– Has high visibility in their field
– Is accomplished at representing the firm to stakeholders
49. Approximately 70% of the top executives of U.S.
publicly held companies hold the dual
designation of Chairman and CEO
50. Lead Director- is consulted by the Chair/CEO regarding
board affairs and coordinates the annual evaluation of
the CEO
• 96% of U.S. companies that combine the Chairman and
CEO positions had a lead director
51. Impact of the Sarbanes-Oxley Act on U.S.
Corporate Governance
Sarbanes Oxley Act 2002- designed to protect
shareholders from excesses and failed oversight of
boards of directors
– Whistleblower procedures
– Improved corporate
52. Impact of the Sarbanes-Oxley Act on U.S.
Corporate Governance
• Evaluating Governance
– Rating agencies
– S&P Corporate Governance Scoring System
• Avoiding Governance Improvements
– Multiple classes of stock
– Public to private ownership
– Controlled companies
53. Trends in Corporate Governance
• Boards shaping company strategy
• Institutional investors active on boards
• Shareholder demands that directors and top management own
significant stock
• More involvement of non-affiliated outside directors
• Increased representation of women and minorities
• Boards evaluating individual directors
• Smaller boards
• Splitting the Chairman and CEO positions
• Shareholders may begin to nominate board members
• Society expects boards to balance profitability with social needs of
society
54. Responsibilities of Top Management
Executive leadership is the directing of activities toward
the accomplishment of corporate objectives. Sets the
tone for the entire corporation
Strategic vision- description of what the company is
capable of becoming
55. Responsibilities of Top Management
Transformational Leaders provide change and
movement in an organization by providing a vision for that
change.
Characteristics include:
• CEO articulates a strategic vision for the corporation
• CEO presents a role for others to identify with and to
follow
• CEO communicates high performance standards and also
show confidence in the followers’ abilities to meet these
standards
56. Managing the Strategic Planning Process
Strategic planning staff- supports both top management
and the business units in the strategic planning process
Major responsibilities include:
• Identifying and analyzing company-wide strategic issues,
and suggesting corporate strategic alternatives to top
management
• Work as facilitators with business units to guide them
through the strategic planning process
57. 1. When does a corporation need a board of directors?
2. Who should and should not serve on a board of directors?
3. Should a CEO be allowed to serve on another company’s
board of directors?
4. What would be the result if the only insider on a corporation’s
board were the CEO?
5. Should all CEOs be transformational leaders? Would you like
to work for a transformational leader?
60. 3-60
Responsibilities of a Business Firm
Social Responsibility: proposes that a private
corporation has responsibilities to society that extend
beyond making a profit
61. 3-61
Responsibilities of a Business Firm
Friedman’s traditional view of a business firm:
• Argues against the concept of social
responsibility
– Primary goal of business is profit maximization not
spending shareholder money for the general social
interest
62. 3-62
Responsibilities of a Business Firm
Carroll’s four responsibilities of business: (in order
of priority)
• Economic
• Legal
• Ethical
• Discretionary
64. 3-64
Responsibilities of a Business Firm
• The ability to enter local and
international markets
• Enhanced reputation
• Competitive advantage
• Cost savings
• The ability to charge premium
prices
• Improved relationships with
suppliers and distributors
• The ability to attract better
talent
• Goodwill in the eyes of public
officials
• Access to capital
Social capital refers to the goodwill of key stakeholders
and provides a company with:
65. 3-65
Responsibilities of a Business Firm
Characteristics of Sustainability
•Environmental
•Economic
•Social
66. 3-66
Corporate Stakeholders
Stakeholders have an interest in the business and affect
or are affected by the achievement of the firm’s
objectives
Enterprise strategy- articulates the firm’s ethical
relationship with its stakeholders
67. 3-67
Stakeholder Analysis- the identification of corporate
stakeholders in 3 steps:
1. Primary stakeholders have a direct connection with
the corporation and have sufficient bargaining power
to directly affect corporate activities
2. Secondary stakeholders have an indirect stake in
the corporation but are also affected by corporate
activities
3. Estimate the effect on each stakeholder from a
particular strategic decision
68. 3-68
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
69. 3-69
Moral Relativism claims that morality is relative to some
personal, social, or cultural standard and that there is
not a method for deciding whether one decision is
better than another
70. 3-70
Types of Moral Relativism include:
• Naïve relativism
• Role relativism
• Social group relativism
• Cultural relativism
71. 3-71
Kohlberg’s Levels of Moral Development
• Preconventional level: concern for one’s self
• Conventional level: considerations for society’s laws
and norms
• Principled level: guided by an internal code of ethics
72. 3-72
Encouraging Ethical Behavior
• Code of Ethics- specifies how an organization
expects its employees to behave while on the job
• Whistleblowers- employees who report illegal or
unethical behavior on the part of others
73. 3-73
Key Terms in Ethical Behavior
Ethics- the consensually accepted standards of behavior
for an occupation, trade, or profession
Morality- the precepts of personal behavior based on
religious or philosophical grounds
Law is the formal codes that permit or forbid certain
behaviors and may or may not enforce ethics or
morality
74. 3-74
Approaches to Ethical Behavior
Utilitarian- actions are judged by consequences
Individual rights- fundamental rights should be
respected
Justice- decisions must be equitable, fair and impartial in
the distribution of costs and benefits to individuals or
groups
75. 3-75
Approaches to Ethical Behavior
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?
76. 3-76
Approaches to Ethical Behavior
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
77. 3-77
1. What is the relationship between corporate
governance and social responsibility?
2. What is your opinion of GAP International’s having
a code of conduct for its suppliers? What would
Milton Friedman say? Contrast his view with Archie
Carroll’s view.
78. 3-78
3. Does a company have to act selflessly to be considered
socially responsible? For example, when building a new
plant, a corporation voluntarily invested in additional
equipment that enabled it to reduce its pollution emissions
beyond any current laws. Knowing that it would be very
expensive for its competitors to do the same, the firm
lobbied the government to make pollution regulations
more restrictive on the entire industry.
Is this company socially responsible? Were its managers
acting ethically?
79. 3-79
4. Are the people living in a relationship-based governance
system likely to be unethical in business dealings?
5. Given that people rarely use a company’s code of ethics
to guide their decision making, what good are the codes?
81. 4-81
Environmental scanning- the monitoring, evaluation
and dissemination of information from the external
and internal environments to key people within the
corporation
84. 4-84
Identifying External Environmental Variables
Societal environment- social systems that influence
long-term decisions
• Economic forces
• Technological forces
• Political-legal forces
• Sociocultural forces
85. 4-85
Identifying External Environmental Variables
Task environment- groups that directly affect a
corporation and are affected by the corporation
• Government
• Local communities
• Suppliers
• Competitors
• Customers
• Creditors
• Unions
• Special interest groups/trade associations
90. 4-90
Trends in Technological Forces:
– Portable information devices and electronic
networking
– Alternative energy sources
– Precision farming
– Virtual personal assistants
– Genetically altered organisms
– Smart, mobile robots
91. 4-91
Trends in Political-Legal Forces:
– Enforcement of U.S. antitrust laws
– Taxation and labor laws
– Government bureaucracy
– World Trade Organization
92. 4-92
Trends in Sociocultural Forces:
– Demographics
– Increasing environmental awareness
– Growing health consciousness
– Expanding seniors market
– Impact of Gen Y
– Declining mass market
– Changing pace and location of life
– Changing household composition
– Increasing diversity of workforce and markets
96. 4-96
Identifying External Strategic Factors:
Issues priority matrix- used to identify and analyze
developments in the external environment
External strategic factors- key environmental trends
that are judged to have both a medium to high
probability of occurrence and a medium to high
probability of impact on the corporation
98. 4-98
Industry- a group of firms that produces a
similar product or service
Porter’s 5 forces:
– Threat of new entrants
– Rivalry among existing firms
– Threat of substitute products
– Bargaining power of buyers
– Bargaining power of suppliers
– Relative power of other stakeholders (added)
100. 4-100
Threat of new entrants- new entrants to an
industry bring new capacity, a desire to gain
market share and substantial resources
101. 4-101
Entry barrier- an obstruction that makes it difficult for
a company to enter an industry
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
•Access to distribution
channels
•Cost disadvantages due to
size
•Government policies
102. 4-102
Rivalry Among Existing Firms- new entrants to an
industry bring new capacity, a desire to gain
market share and substantial resources
• Number of competitors
• Rate of industry growth
• Product or service characteristics
• Amount of fixed costs
• Capacity
• Height of exit barriers
• Diversity of rivals
103. 4-103
Threat of Substitute Products or Services-
products that appear different but can satisfy the
same need as another product
104. 4-104
Bargaining Power of Buyers- ability of buyers to
force prices down, bargain for higher quality, play
competitors against each other
• Large purchases
• Backward integration
• Alternative suppliers
• Low cost to change suppliers
• Product represents a high percentage of buyer’s
cost
• Buyer earns low profits
• Product is unimportant to buyer
105. 4-105
Bargaining Power of Suppliers- ability of suppliers
to raise prices or reduce quality
• 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
106. 4-106
Relative Power of Other Stakeholders
• Government
• Local communities
• Creditors
• Trade associations
• Special interest groups
• Unions
• Shareholders
• Complementors- products that work well with a
firm’s product
107. 4-107
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
108. 4-108
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
112. 4-112
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
113. 4-113
Hypercompetition
Creates a condition of disequilibrium and
change
• Competitive advantage comes from:
– knowledge of environment
– willingness to take risks
– Cannibalization of own products
114. 4-114
Key success factors- variables that can significantly
affect the overall competitive positions of
companies within an industry
Industry matrix- summarizes the key success factors
within a particular industry
116. 4-116
Using Key Success Factors to Create an
Industry Matrix
Competitive intelligence (business intelligence)- a
formal program of gathering information on a
company’s competitors
Sources of competitive intelligence:
• Information brokers
• Internet
• Industrial espionage
• Investigatory services
117. 4-117
Monitoring Competitors for Strategic Planning
Primary activity of competitive intelligence is to
monitor competitors
Competitors organizations that offer same, similar, or
substitute products or services in the business
areas in which a particular company operates
118. 4-118
• Forecasting is based on a set of assumptions
• Faulty underlying assumptions are the most
frequent cause of forecasting errors
Useful forecasting techniques
• Extrapolation
• Brainstorming
• Expert opinion
• Industry Scenario
•Delphi technique
•Statistical modeling
•Prediction markets
•Cross impact analysis
121. 4-121
1. Discuss how a development in a corporation’s natural and
societal environments can affect the corporation through
its task environment
2. According to Porter, what determines the level of
competitive intensity in an industry?
3. According to Porter’s discussion of industry analysis, is
Pepsi Cola a substitute of Coca Cola?
4. How can a decision maker identify strategic factors in a
corporation’s external international environment?
5. Compare and contrast trend extrapolation with the writing
of scenarios as forecasting techniques
124. 5-124
Core and Distinctive Competencies
Resources- an organization’s assets
• Tangible
• Intangible
Capabilities- a corporation’s ability to exploit its
resources
125. 5-125
Core and Distinctive Competencies
Competency- a cross-functional integration and
coordination of capabilities
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
126. 5-126
Core and Distinctive Competencies
VRIO framework (Barney)
• Value
• Rare
• Imitability
• Organization
127. 5-127
Using Resources to Gain Competitive Advantage
1. Identify and classify resources in terms of strengths and
weaknesses
2. Combine the firm’s strengths into specific capabilities and
core competencies
3. Appraise profit potential- Are there any distinctive
competencies?
4. Select the strategy that best exploits the firm’s capabilities
and competencies relative to external opportunities
5. Identify resource gaps and invest in upgrading weaknesses
128. 5-128
Access to a Distinctive Competency
1. Asset endowment
2. Acquired from someone else
3. Shared with another business
4. Built and accumulated within the company
129. 5-129
Access to a Distinctive Competency
Clusters- geographic concentrations of
interconnected companies and industries
Access to:
• Employees
• Suppliers
• Information
• Complementary products
130. 5-130
Imitability an Advantage
Durability- the rate at which a firm’s underlying
resources, capabilities, or core competencies
depreciate or become obsolete
Imitability- the rate at which a firm’s underlying
resources, capabilities, or core competencies can
be duplicated by others
131. 5-131
Determining the Sustainability of an Advantage
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
132. 5-132
Determining the Sustainability of an Advantage
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
134. 5-134
Business models- a company’s method for making
money in the current business environment
Includes
• Who the company serves
• What the company provides
• How the company makes money
• How the company differentiates and sustains
competitive advantage
• How the company provides its product/service
135. 5-135
Business models
• Customer solutions model
• Profit pyramid model
• Multi-component system/installed model
• Advertising model
• Switchboard model
136. 5-136
Business models (cont’d)
• Efficiency model
• Blockbuster model
• Profit multiplier model
• Entrepreneurial model
• De Facto industry standard model
137. 5-137
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 marking a product or
service, and ending with distributors getting the final
goods into the hands of the ultimate consumer
138. 5-138
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
– Vertical integration
139. 5-139
Corporate Value Chain Analysis
Primary activities
• Inbound logistics
• Operations
• Outbound logistics
Support activities
• Procurement
• Technology development
• Human resource
management
• Firm infrastructure
141. 5-141
Corporate Value Chain Analysis
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
144. 5-144
Corporate Culture: The Company Way
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.
145. 5-145
Functions of Corporate Culture
• Conveys a sense of identity for employees
• Generates employee commitment
• Adds to the stability of the organization as a
social system
• Serves as a frame of reference for
employees to understand organizational
activities and as a guide for behavior
146. 5-146
Corporate Culture: The Company Way
Cultural intensity- the degree of which members of a unit
accept the norms, values and other cultural content
associated with the unit
Shows the depth of the culture
Cultural integration- the extent of which units
throughout the organization share a common culture
Shows the breadth of the culture
147. 5-147
Strategic Marketing Issues
Market position- Who are our customers?
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
149. 5-149
Product life cycle- product monetary sales over time
from introduction through growth and maturity to
decline
150. 5-150
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
151. 5-151
Corporate reputation- a widely held perception of a
company by the general public
• Stakeholders’ perceptions of quality
• Corporation’s prominence in the minds of stakeholders
152. 5-152
Strategic Financial Issues
Financial leverage- ratio of total debt to total assets
• Used to describe how debt is used to increase earnings
available to common shareholders
Capital budgeting- the analyzing and ranking of possible
investments in fixed assets in terms of additional
outlays and receipts that will result from each
investment
• Hurdle point
153. 5-153
Strategic Research and Development Issues
R & D intensity- pending no R & D as a percentage of
sales revenue
Technology competence- the development and use of
innovative technology
Technology transfer- the process of taking new
technology from the laboratory to the marketplace
154. 5-154
Strategic Research and Development Issues
R & D Mix- the mix of:
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 is concerned with engineering,
concentrating on quality control, and the development
of design specifications and improved production
equipment
155. 5-155
Strategic Research and Development Issues
Technology discontinuity- when a new technology
cannot be used to enhance current technology, but
substitutes for the technology to yield better
performance
• Moore’s Law
157. 5-157
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 operation income
160. 5-160
Strategic Human Resource Issues
Teams
Autonomous (self-managed)- a group of people
working 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
161. 5-161
Strategic Human Resource Issues
Virtual Teams- groups of geographically or
organizationally dispersed coworkers that are
assembled using a combination of telecommunications
and information technologies to accomplish
organizational tasks- driven by 5 trends
163. 5-163
Strategic Human Resource Issues
Quality of work life- includes improvements in:
• Introducing participative problem solving
• Restructuring work
• Introducing innovative reward systems
• Improving the work environment
164. 5-164
Strategic Human Resource Issues
Human diversity- the mix in the workplace of people
from different races, cultures and backgrounds
• Provides a sustainable competitive advantage
165. 5-165
Strategic Information Systems/Technology Issues
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
167. 5-167
Strategic Information Systems/Technology Issues
Supply chain management- networks for sourcing raw
materials, manufacturing products or creating services,
storing, and distributing goods, and delivering them to
customers and consumers
169. 5-169
1. What is the relevance of the resource-based view of the
firm to strategic management in a global environment?
2. How can value chain analysis help indentify a company’s
strengths and weaknesses?
3. In what ways can a corporation’s structure and culture
be internal strengths and weaknesses?
4. What are the pros and cons of management using the
experience curve to determine strategy?
5. How might a firm’s management decide whether it should
continue to invest in current known technology or
in new, but untested technology? What factors might
encourage or discourage such a shift?
171. 6-171
Strategy formulation- concerns 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
173. 6-173
Criticisms of SWOT analysis
• Generates lengthy lists
• Uses no weights to reflect priorities
• Uses ambiguous words and phrases
• Same factor can be in 2 categories
• No obligation to verify opinion with data or analysis
• Requires only a single level of analysis
• No logical link to strategy implementation
174. 6-174
Generating a Strategic Factors Analysis
Summary (SFAS) Matrix
SFAS summarizes an organization’s strategic factors by
combining the external factors from the EFAS Table
with the internal factors from the IFAS Table
176. 6-176
Finding a Propitious Niche
Propitious niche- where an organization can use its
core competencies to take advantage of a
particular market opportunity and the niche is just
large enough for one firm to satisfy its demand
Strategic sweet spot- a company is able to satisfy
customers’ needs in a way that rivals cannot
Strategic window- a unique market opportunity that
is available for a particular time
178. 6-178
Review of Mission and Objectives
A re-examination of an organization’s current
mission and objectives must be made
before alternative strategies can be
generated and evaluated
Performance problems can derive from
inappropriate (narrow or too broad) mission
statements and objectives
179. 6-179
TOWS Matrix- illustrates how the external opportunities
and threats can be matched with internal strengths and
weaknesses to result in 4 possible strategic alternatives
• Provides a means to brainstorm alternative strategies
• Forces managers to create various kinds of growth and
retrenchment strategies
• Used to generate corporate as well as business
strategies
181. 6-181
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 it serves
183. 6-183
Porter’s competitive strategies
Lower cost strategy- the ability of a company or a business
unit to design, produce and market a comparable product
more efficiently than its competitors
Differentiation strategy- the ability of a company or a
business unit to provide a unique or superior value to the
buyer in terms of product quality, special features, or
after sale service
184. 6-184
Porter’s competitive strategies
Cost leadership- a lower-cost competitive strategy that
aims at the broad mass market and requires efficient
scale facilities, cost reductions, cost and overhead
control; avoids marginal customers, cost minimization
in R&D, service, sales force and advertising
• Provides a defense against competitors
• Provides a barrier to entry
• Generates increased market share
185. 6-185
Porter’s competitive strategies
Differentiation- involves the creation of a product or
service that is perceived throughout the industry as
unique. Can be associated with design, brand image,
technology, features, dealer network, or customer
service
• Lowers customers sensitivity to price
• Increases buyer loyalty
• Barrier to entry
• Can generate higher profits
186. 6-186
Porter’s competitive strategies
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
189. 6-189
Issues in Competitive Strategies
Stuck in the middle- when a company has no
competitive advantage and is doomed to below-
average performance
190. 6-190
Issues in Competitive Strategies
Entrepreneurial firms follow focus strategies
where they focus their product or service on
customer needs in a market segment and
differentiate based on quality and service
192. 6-192
Industry Structure and Competitive Strategy
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
193. 6-193
Industry Structure and Competitive Strategy
Consolidated industry- domination by a few large
companies
• Emphasis on cost and service
• Economies of scale
• Regional and national brands
• Slower growth over capacity
• Knowledgeable buyers
194. 6-194
Hyper-competition and Competitive Advantage
Sustainability
Competitive advantage in a hyper-competitive market is
characterized by a continuous series of multiple short-
term initiatives that replace current products with new
products before competitors can do so.
• Leads to an over emphasis on short-term tactics
195. 6-195
Competitive Tactics
Tactic- a specific operating plan that details how a
strategy is going to be implemented in terms of when
and where it is to be put into action
• Narrower in scope and shorter in time horizon than
strategies
200. 6-200
Collusion- the active cooperation of firms within an
industry to reduce output and raise prices to avoid
economic law of supply and demand
201. 6-201
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
Used to:
• Obtain or learn new capabilities
• Obtain access to specific markets
• Reduce financial risk
• Reduce political risk
202. 6-202
Types of Cooperative Agreements
• Mutual Service Consortia
• Joint Venture
• Licensing Arrangements
• Value-Chain Partnerships
203. 6-203
1. What industry forces might cause a propitious niche
to disappear?
2. Is it possible for a company or business unit to follow
a cost leadership and a differentiation strategy
simultaneously? Why or why not?
3. Is it possible for a company to have a sustainable competitive
advantage when its industry becomes hyper-competitive?
4. What are the advantages and disadvantages of being a
first mover in an industry? Give some examples
of first movers and late mover firms.
5. Why are strategic alliances temporary?
205. 7-205
Corporate strategy- the choice of direction of the
firm as a whole and the management of its
business or product portfolio and concerns:
• Directional strategy
• Portfolio analysis
• Parenting strategy
208. 7-208
Parenting strategy- the manner in which
management coordinates activities and transfers
resources and cultivates capabilities among product
lines and business units
210. 7-210
Growth Strategy:
Concentration and Diversification
• Merger- a transaction involving two or more
corporations in which stock is exchanged but in which
only one corporation survives
• Acquisition- the purchase of a company that is
completely absorbed by the subsidiary or division of
the acquiring corporation
212. 7-212
Concentration strategies
Vertical growth- taking over the function previously
provided by a supplier or by a distributor
• 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
– Backward integration- assuming a function previously
provided by a supplier
– Forward integration- assuming a function previously
provided by a distributor
213. 7-213
Concentration strategies
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
214. 7-214
• 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
215. 7-215
• 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 2 firms
to provide agreed-upon goods and services to each
other for a specific period of time
217. 7-217
Horizontal growth- expansion of operations into other
geographic locations and/or increasing the range of
products and services offered to current markets
• Horizontal growth is achieved through:
– Internal development
– Acquisitions
– Strategic alliances
Horizontal integration- the degree to which a firm
operates in multiple geographic locations at the
same point on an industry’s value chain
218. 7-218
International Entry Options for Horizontal Growth
• Exporting
• Licensing
• Franchising
• Joint Venture
• Acquisitions
• Green-Field Development
• Production Sharing
Turn-key Operations
BOT Concept
Management Contracts
221. 7-221
Diversification Strategies
Conglomerate (Unrelated) Diversification- growth
into an unrelated industry
• 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
222. 7-222
Controversies in Directional Strategies
• Is vertical growth better than horizontal
growth?
• Is concentration better than diversification?
• Is concentric diversification better than
conglomerate diversification?
223. 7-223
Stability Strategies- continuing activities without any
significant change in direction
• Pause/Proceed with caution strategy- an opportunity
to rest before continuing a growth or retrenchment
strategy
• No change strategy- continuance of current operations
and policies
• Profit Strategies- to do nothing new in a worsening
situation but instead to act as though the company’s
problems are only temporary
224. 7-224
Retrenchment Strategies- used when the firm has a
weak competitive position in some or all of its product
lines from poor performance
225. 7-225
Retrenchment Strategies
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
226. 7-226
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
227. 7-227
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
228. 7-228
Portfolio analysis- management views its product lines
and business units as a series of investments from
which it expects a profitable return
Popular portfolio analysis techniques include:
• BCG Matrix
• GE Business Screen
229. 7-229
BCG Matrix
Question marks- new products with the potential for
success but require a lot of cash for development
Stars- market leaders at the peak of their product cycle
and are able to generate enough cash to maintain
their high market share and usually contribute to the
company’s profits
230. 7-230
BCG Matrix
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
232. 7-232
BCG 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
234. 7-234
GE Business Screen- Limitations
• Complex and cumbersome
• Numerical estimates of industry attractiveness and
business strength/competitive position give the
appearance of objective, but are actually subjective
judgments that can vary from person to person
• Cannot effectively depict the positions of new products
and business units in developing industries
235. 7-235
Advantages and Limitations of Portfolio Analysis
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
236. 7-236
Advantages and Limitations of Portfolio Analysis
Limitations:
• Defining product/market segments is difficult
• Suggest the use of standard strategies that can miss
opportunities or be impractical
• Provides an illusion of scientific rigor when in reality
positions are based on objective judgments
• Value-laden terms such as cash cow and dog can lead
to self-fulfilling prophecies
• Lack of clarity on what makes an industry attractive or
where a product is in its life cycle
237. 7-237
Managing a Strategic Alliance Portfolio
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 units’ strategies and corporate
strategy and policies
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
238. 7-238
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
• 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
239. 7-239
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
240. 7-240
Horizontal Strategy and Multipoint Competition
Horizontal strategy- cuts across business unit
boundaries to build synergy across business units and
to improve competitive position in one of more
business units
Multipoint competition- large multi-business
corporations compete against other large multi-
business firms in a number of markets
241. 7-241
1. How does horizontal growth differ from vertical growth
as a corporate strategy? From concentric diversification?
2. What are the tradeoffs between an internal and an external
growth strategy? Which approach is best as an international
entry strategy?
3. Is stability really a strategy or just a term for no strategy?
4. Compare and contrast SWOT analysis with portfolio
analysis.
5. How is corporate parenting different from portfolio analysis?
How is it alike? Is it a useful concept in a global industry?
243. 8-243
Functional strategy- the approach a functional area
takes to achieve corporate and business unit
objectives and strategies by maximizing resource
productivity
245. 8-245
Market development strategy- provides the ability
to:
• Capture a larger market share
– Market saturation
– Market penetration
• Develop new uses and/or markets for current
products
246. 8-246
Product development strategy- provides the ability
to:
• Develop new products for existing markets
• Develop new products for new markets
247. 8-247
• Line extension- using a successful brand name to
market other products
• Push strategy- promotions to gain or hold shelf space
in retail outlets
• Pull strategy- advertising to “pull” products through the
distribution channels
248. 8-248
• 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
• 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
249. 8-249
Financial Strategy- examines the financial implications of
corporate and business-level strategic options and
identifies the best financial course of action
Financial strategy includes the management of:
• Dividends
• Stock price
• Sales of company patents
250. 8-250
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
251. 8-251
Research and Development Strategy- deals with
product and process innovation and improvement
• Technological leader- pioneers innovation
• Technological follower- imitates the products of
competitors
• Open innovation- use of alliances and connections with
corporate, government, academic labs and consumers
to develop new products and processes
253. 8-253
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
Manufacturing Types include
• Job shops
• Connected line batch flow
• Flexible manufacturing systems
• Dedicated transfer lines
•Mass production systems
•Continuous improvement
•Modular manufacturing
•Mass customization
254. 8-254
Purchasing Strategy- deals with obtaining raw materials,
parts and supplies needed to perform the operations
function
Options include:
• Sole suppliers (Deming)
• Just-in-time
• Parallel sourcing
255. 8-255
Logistics Strategy- deals with the flow of products into
and out of the manufacturing process
Trends include:
• Centralization
• Outsourcing
• Internet
258. 8-258
Outsourcing- purchasing from someone else a product or
service that had been previously provided internally
• Avoid outsourcing distinctive competencies
Offshoring- the outsourcing of an activity or a function to
a wholly-owned company or an independent provider in
another country
259. 8-259
Disadvantages of outsourcing and offshoring
• Customer complaints
• Long-term contracts
• Ability to learn new skills and develop new core
competencies
• Lack of cost savings
• Poor product quality
• Increased transportation costs
260. 8-260
Errors in Outsourcing Efforts
• Outsourcing the wrong activities
• Selecting the wrong vendor
• Poor contracts
• Personnel issues
• Lack of control
• Hidden costs
• Lack of an exit strategy
262. 8-262
• Follow the leader
• Hit another home run
• Arms race
• Do everything
• Losing hand
263. 8-263
Constructing Corporate Scenarios- pro forma balance
sheets and income statements that forecast the effect of
each alternative strategy/its various programs will have
on division and corporate return on investment
264. 8-264
Steps include
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
266. 8-266
Management’s Attitude Toward Risk
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 the strategy and the length
of time the assets will be unavailable for other uses
• Real options approach- a broad range of options used in
environments of high uncertainty
• Net present value- calculates the value of a project by
predicting its payouts, adjusting them for risk and subtracting the
amount invested
268. 8-268
How to Access the importance of 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?
269. 8-269
Corporate Culture Options
1. Take a chance on ignoring the culture
2. Manage around the culture and change the
implementation plan
3. Try to change the culture to fit the strategy
4. Change the strategy to fit the culture
270. 8-270
Needs and Desires of Key Managers
• Personnel characteristics and experience
• Industry and cultural backgrounds
• Tendency to maintain the status quo
271. 8-271
Process of Strategic Choice
Strategic choice- the evaluation of alternative strategies and
selection of the best alternative
• Consensus
• Devil’s advocate
• Dialectical inquiry
272. 8-272
Process of Strategic Choice
Criteria for evaluating alternatives includes:
• Mutual exclusivity
• Success
• Completeness
• Internal Consistency
273. 8-273
Effective Policies Accomplish
1. Forces trade-offs between competing resource demands
2. Tests the strategic soundness of a particular action
3. Sets clear boundaries within which employees must
operate while granting them freedom to experiment
within those constraints
274. 8-274
1. Are the functional strategies interdependent, or can they
be formulated independently of other functions?
2. Why is penetration pricing more likely than skim pricing
to raise a company’s or a business unit’s operating
profit in the long run?
3. How does mass customization support a business unit’s
competitive strategy?
4. When should a corporation or business unit outsource a
function or an activity?
5. What is the relationship of policies to strategies?
276. 9-276
Strategy implementation- the sum total of all
activities and choices required for the execution of
a strategic plan
• Who are the people to carry out the strategic plan?
• What must be done to align company operations in
the intended direction?
• How is everyone going to work together to do what
is needed?
277. 9-277
Common Strategy Implementation Problems
1. Took more time than planned
2. Unanticipated major problems
3. Poor coordination
4. Competing activities and crises created distractions
5. Employees with insufficient capabilities
6. Poor subordinate training
7. Uncontrollable external environmental factors
8. Poor departmental leadership and direction
9. Inadequately defined implementation tasks and activities
10. Inefficient information system to monitor activities
279. 9-279
Developing Programs, Budgets and Procedures
Matrix of Change- provides guidance on where,
when and how fast to implement change
Budget- provides the last real check on the feasibility
of the strategy
Procedures (organizational routines)- detail the
various activities that must be carried out to
complete a corporation’s programs
281. 9-281
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
Forms of Synergy include
• Shared know-how
• Coordinated strategies
• Shared tangible resources
•Economies of scale or scope
•Pooled negotiating power
•New business creation
282. 9-282
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 invented
5. Profit returns to its previous level
283. 9-283
Stages of Corporate Development
I. Simple Structure
• Flexible and dynamic
II. Functional Structure
• Entrepreneur is replaced by a team of managers
284. 9-284
Stages of Corporate Development
III. Divisional Structure
• Management of diverse product lines in numerous industries
• Decentralized decision making
IV. Beyond SBU’s
• Matrix
• Network
287. 9-287
Blocks to Changing Stages
• Internal
– Lack of resources
– Lack of ability
– Refusal of top management to delegate
• External
– Economy
– Labor shortages
– Lack of market growth
288. 9-288
Blocks to Changing Stages
(Entrepreneurs)
• Loyalty
• Task orientation
• Single-mindedness
• Working in isolation
289. 9-289
Organizational Life Cycle- describes how organizations
grow, develop and decline
Stages include:
• Birth
• Growth
• Maturity
• Decline
• Death
291. 9-291
Advanced Types of Organizational Structures
Matrix structures- functional and product forms are
combined simultaneously at the same level of the
organization
292. 9-292
Advanced Types of Organizational Structures
Conditions for Matrix structures include:
• Ideas need to be cross-fertilized across projects or
products
• Scarcity of resources
• Abilities to process information and to make decisions
needs to be improved
295. 9-295
Market development strategy- provides the ability
to:
• Capture a larger market share
– Market saturation
– Market penetration
• Develop new uses and/or markets for current
products
296. 9-296
Advanced Types of Organizational Structures
Phases of Matrix Structure Development
(Davis and Lawrence)
1. Temporary cross-functional task forces
2. Product/brand management
3. Mature matrix
297. 9-297
Advanced Types of Organizational Structures
Network Structure- eliminates in-house business
functions
Cellular/Modular Structure- composed of a series of
project groups or collaborations linked by constantly
changing non-hierarchical electronic networks
• Useful in unstable environments that require
innovation and quick response
299. 9-299
Network Structure
Advantages:
• Increased flexibility and adaptability
• Ability to concentrate on distinctive competencies
Disadvantages:
• Transitional structure
• Availability of numerous partners
• Overspecialization
300. 9-300
Reengineering and Strategy Implementation
Reengineering- the radical redesign of business
processes to achieve major gains in cost, service, or
time
• Program to implement a turnaround strategy
301. 9-301
Principles for Reengineering (Hammer)
• 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
• 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
302. 9-302
Six Sigma- an analytical method for achieving near
perfect results on a production line
1. Define a process where results are below average
2. Measure the process to determine current performance
3. Analyze the information to determine problems
4. Improve the process and eliminate the error
5. Establish preventive controls
303. 9-303
Lean Six Sigma- incorporates Six Sigma with lean
manufacturing- removes unnecessary production steps
and fixes the remaining steps
304. 9-304
Designing Jobs to Implement Strategy
Job Design- the study of individual tasks in an attempt to
make them more relevant to the company and to the
employees
• Job enlargement
• Job rotation
• Job enrichment model
305. 9-305
International Issues in Strategy Implementation
Multinational Corporation- a highly developed
international company with a deep involvement
throughout the world with a worldwide perspective in
its management and decision making
306. 9-306
Forces for Standardization
• Convergence of customer preferences and incomes
• Competition from other global products
• Growing customer awareness of international brands
• Economies of scale
• Falling trading costs across countries
• Cultural exchange and business interactions among
countries
307. 9-307
Forces for Customization
• Differences in customer preferences
• Differences in customer incomes
• Need to build local brand reputation
• Competition from domestic companies
• Variations in trading costs
• Local regulatory requirements
308. 9-308
International Strategic Alliances
Drivers for strategic fit among alliance partners
• Partners must agree on values and vision
• Alliance must be derived from business, corporate and functional
strategy
• Alliance must be important to partners, especially top
management
• Partners must be mutually dependent for achieving objectives
• Activities must add value
• Alliance must be accepted by stakeholders
• Partners contribute strengths while protecting core competencies
309. 9-309
Stages of International Development
Stage 1: Domestic company
Stage 2: Domestic company with export division
Stage 3: Primarily domestic company with international
division
Stage 4: Multinational corporation with multidomestic
emphasis
Stage 5: Multinational corporation with global emphasis
310. 9-310
Centralization versus Decentralization
Product group structure- enables the company to
introduce and manage a similar line of products
around the world
Geographic area structure- allows the company to
tailor products to regional differences and to achieve
regional coordination
Multinational corporations are moving from geographic
area to product group structures
312. 9-312
1. How should a corporation attempt to achieve synergy
among functions and business units?
2. How should an owner-manager prepare a company for
its movement from Stage I to Stage II?
3. How can a corporation keep from sliding into the Decline
stage of the organizational life cycle?
4. Is reengineering just another fad, or does it offer
something of lasting value?
5. How is the cellular/modular structure different from the
network structure?
314. 10-314
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
315. 10-315
Successful Integration Managers
• Deep knowledge of the acquiring company
• Flexible management style
• Ability to work in cross-functional teams
• Willingness to work independently
• Sufficient emotional and cultural intelligence to
work in a diverse environment
316. 10-316
Staffing Follows Strategy
• Training and development
• Executive types
– Dynamic industry expert
– Analytical portfolio manager
– Cautious profit planner
– Turnaround specialist
– Professional liquidator
317. 10-317
Selection and Management Development
Executive succession- replacing a key top manager
Succession planning
• Identifying candidates below the top layer of
management
• Measuring internal candidates against external
candidates
• Providing financial incentives
318. 10-318
Identifying Abilities and Potential
Performance appraisal system identifies good
performers with promotion potential
Assessment centers evaluates a person’s suitability
for an advanced position
Job rotation- ensures employees are gaining a mix of
experience to prepare them for future
responsibilities
320. 10-320
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
321. 10-321
International Issues in Staffing
• Culture differences
• Management styles
• Human resource practices
• Suboptimization
• Communication and coordination
• Lack of international management with experience
322. 10-322
Implementation involves leading and coaching
people to use their abilities and skills most
effectively and efficiently to achieve
organizational objectives
323. 10-323
Managing Corporate Culture
• Strong cultures are resistant to change
• Optimal culture supports mission and
strategies
• Change in strategy should be followed by
change in culture
324. 10-324
Accessing Strategy-Culture Compatibility
1. Is the proposed strategy compatible with the
company’s current culture
2. Can the culture be easily modified to make it more
compatible with the new strategy
3. Is management willing and able to make major
organizational changes and accept probable delays
and a likely increase in costs
4. Is management still committed to implementing the
strategy
326. 10-326
Managing Cultural Change Through
Communication
• CEO and top management communicated the
strategic vision throughout the organization
• Current performance was compared to competition
and constantly updated
• Vision was translated into key elements needed to
accomplish the vision
327. 10-327
Managing Diverse Cultures Following an
Acquisition
Methods of managing two different cultures
• Integration- balanced give and take of cultures
• Assimilation- domination of one culture over the
other
• Separation of the two cultures
• Assimilation- disintegration of one culture resulting
from pressure form the other to impose its culture
and practices
329. 10-329
Action plan- what actions are going to be taken, by
whom, during what time frame, and with what
expected results
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
330. 10-330
Importance of Action plans
• Serve as a link between strategy formulation and
evaluation and control
• Specifies what needs to be done differently from
current operations
• Evaluation and control processes appraise
performance and identify remedial actions
333. 10-333
Management by Objectives (MBO)- encourages
participative decision making through shared goal
setting and performance assessment based on
achieving stated objectives
• Establishing and communicating organizational
objectives
• Setting individual objectives
• Developing an action plan to achieve objectives
• Performance review (periodic and annual)
334. 10-334
Total Quality Management (TQM)- philosophy that
is committed to customer satisfaction and
continuous improvement
Objectives
1. Better, less variable quality of the product and service
2. Quicker less variable response in processes to customer
needs
3. Greater flexibility in adjusting to customers’ shifting
requirements
4. Lower cost through quality improvement and elimination of
non-value added work
335. 10-335
Essential Ingredients
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
336. 10-336
Dimensions of National Culture
1. Power distance
2. Uncertainty avoidance
3. Individualism-collectivism
4. Masculinity-femininity
5. Long-term orientation
337. 10-337
1. What skills should a person have for managing a business
unit following a differentiation strategy? Why? What should
a company do if no one is available internally and the
company has a policy of promotion from within?
2. When should someone form outside the company be
hired to manage the company or one of its business units?
3. What are some ways to implement a retrenchment
strategy without creating a lot of resentment and conflict
with labor unions?
4. How can corporate culture be changes?
5. Why is an understanding of national cultures important
in strategic management?
339. 11-339
Evaluation and Control ensures that a company is
achieving what it set out to accomplish by
comparing performance with desired results and
taking corrective action as needed
340. 11-340
1. Determine what to measure
2. Establish standards of performance
3. Measure actual performance
4. Compare actual performance with the
standard
5. Take corrective action
343. 11-343
Appropriate Measures
Performance is the end result of activity
Steering controls measure variables that influence
future profitability
• Cost per passenger mile (airlines)
• Inventory turnover ratio (retail)
• Customer satisfaction
344. 11-344
Types of Controls
• Output controls- specify what is to be accomplished
by focusing on the end result
• Behavior controls specify how something is done
through policies, rules, standard operating
procedures and orders from supervisors
• Input controls emphasize resources
345. 11-345
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
346. 11-346
Enterprise Risk Management a corporate-wide,
integrated process for managing uncertainties that
could negatively or positively influence the
achievement of objectives
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
347. 11-347
Primary Measures of Corporate Performance
• Return on Investment (ROI)
• Earnings per share (EPS)
• Return on equity (ROE)
• Operating cash flow
– Free cash flow
348. 11-348
Popular Measures of Internet Companies
Non-Financial Measures
• Stickiness
• Eyeballs
• Mindshare
• Monthly unique viewers
351. 11-351
Shareholder Value- the present value of the
anticipated future streams of cash flows from the
business plus the value of the company if liquidated
Economic Value Added (EVA)- measures the
difference between the pre-strategy and post-
strategy values for the business
EVA=After tax income-total annual cost of capital
352. 11-352
Market Value Added (MVA)- measures the
difference between the market value of a
corporation and the capital contributed by
shareholders and lenders
• Measures the stock market’s estimate of the net
present value of a firm’s past and expected capital
investment projects
353. 11-353
Balanced score card– combines financial measures
that tell results of actions already taken with
operational measures on customer satisfaction,
internal processes and the corporation’s innovation
and improvement activities
• Financial
• Customer
• Internal business perspective
• Innovation and learning
354. 11-354
Evaluating Top Management and the Board of
Directors
• Chairman-CEO Feedback Instrument
• Management Audit
• Strategic Audit
355. 11-355
Primary Measures of Divisional and Functional
Performance
Responsibility centers- used to isolate a unit so it
can be evaluated separately from the rest of the
corporation
• Standard cost centers
• Revenue centers
• Expense centers
• Profit centers
• Investment centers
356. 11-356
Benchmarking- the continual process of measuring
products, services and practices against the
toughest competitors or those companies
recognized as industry leaders
357. 11-357
1. Indentify the area or process to be examined
2. Find behavioral and output measures
3. Select an accessible set of competitors of best
practices
4. Calculate the differences among the company’s
performance measurements and those of the
competitors and determine why the differences
exist
5. Develop tactical programs for closing performance
gaps
6. Implement the programs and compare the results
358. 11-358
International Measurement Issues
Most widely used measurement techniques
• Return on investment
• Budget analysis
• Historical comparison
• International transfer pricing
359. 11-359
International Measurement Issues
Barriers to international trade
• Different standards for products and services
– Safety/environmental
– Energy efficiency
– Testing procedures
• Counterfeiting/piracy
• Control and Reward systems
– Multidomestic – loose
– Multinational- tight control
360. 11-360
Enterprise Resource Planning (ERP)- unites all of
a company’s major business activities within a
single family of software modules providing instant
access throughout the organization
Radio Frequency Identification (RFID)- an
electronic tagging technology used to improve
supply chain efficiency
Divisional and Functional IS Support- used to
support, reinforce, or enlarge business level
strategy throughout the decision support system
361. 11-361
• Lack of quantifiable objectives or performance
standards
• Inability to use information systems to provide
timely and valid information
362. 11-362
Short term orientation- managers only consider
current tactical or operational issues and ignore
long-term strategic issues
• Lack of time
• Do not recognize importance of long-term issues
• Are not evaluated on a long-term basis
363. 11-363
Goal Displacement- confusion of the means with ends
• Behavior substitution- when people substitute
activities that do not lead to goal
accomplishment for activities that do lead to
goal accomplishment because the wrong
activities are rewarded
• Suboptimization- when a unit optimizing its goal
accomplishment is to the detriment of the
organization as a whole
364. 11-364
1. Controls should involve only the minimum amount
of information needed to give a reliable picture of
events (80/20 Rule)
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
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
366. 11-366
Effective means to achieve results is through a
reward system that combines all 3
approaches
• Segregate strategic funds from short-term funds
• Develop a weighted factor chart for each SBU
• Measure performance based on:
– Pre-tax profit (Strategic funds approach)
– Weighted factors
– Long-term evaluation of the SBU’s performance
368. 11-368
1. Is Figure 11-1 a realistic model of the evaluation and
control process?
2. What are some examples of behavior controls? Output
controls? Input controls?
3. Is EVA an improvement over ROI, ROE, or EPS?
4. How much faith can a manager place in transfer price
as a substitute for market price in measuring a profit
center’s performance?
5. Is the evaluation and control process appropriate for a
corporation that emphasizes creativity? Are control and
creativity compatible?
370. 12-370
Case method- provides the opportunity to move from
a narrow, specialized view that emphasizes
functional techniques to a broader, less precise
analysis of the overall corporation
371. 12-371
Researching the Case Situation
Don’t go beyond the decision date of the case in your
research unless instructed to do so
Sources of information:
• Hoover’s
• Company annual and 10-K reports
372. 12-372
Researching the Case Situation
Ratio analysis- the calculation of ratios from data on
financial statements
• Liquidity ratios
• Profitability ratios
• Activity ratios
• Leverage ratios
378. 12-378
Analyzing Financial Statements
• Review historical income statements and balance
sheets
• Compare historical statements over time
• Calculate changes that occur in individual
categories form year to year
• Determine the change as a percentage
• Adjust for inflation
380. 12-380
Altman’s Z Value bankruptcy formula- calculate
the likelihood of going bankrupt. Compare historical
statements over time
Index of sustainable growth- used to determine
whether a company embarking on a growth
strategy will need to take on debt to fund the
growth
381. 12-381
Useful Economic Measures
Constant dollars- dollars adjusted for inflation
Prime interest rate- the rate of interest banks charge
on their lowest risk loans
Gross domestic product- measures total output of
goods and services within a country’s borders
385. 12-385
1. Why should you begin a case analysis with a financial
analysis? When are other approaches appropriate?
2. What are common-size financial statements? What is
their value to case analysis? How are they calculated?
3. When should you gather information outside a case by
going to the library or using the Internet? What should
you look for?
4. When is inflation an important issue in conducting case
analysis? Why bother?
5. How can you learn what date a case took place?
386. Final Exam cases to select from:
• Case 7 Apple
• Case 10 Rosetta
• Case 12 Google
• Case 13 Yahoo
• Case 16 Carnival
• Case 21 Tomtom
• Case 22 Volcom
• Case 26 Rocky chocolate
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