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Strategic short notes

This document provides an outline and overview of strategic management concepts related to strategy analysis and choice. It discusses: 1) Three key stages in the strategy formulation framework - the input, matching, and decision stages. Various analytical tools are used at each stage like IFE, EFE, TOWS matrices. 2) The TOWS matrix as a tool to match internal strengths and weaknesses to external opportunities and threats to generate alternative strategies. Four types of strategies - SO, WO, ST, WT - can be developed. 3) The SPACE matrix, another strategic planning tool that evaluates strategic position based on internal financial strength and competitive advantage and external environmental stability and industry strength to determine appropriate strategies.

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1 Short Notes: Mgt 603 STRATEGIC MANAGEMENT Lecture No. 23 Strategy Analysis And Choice Strategic Management: Concepts and Cases. 9th edition Fred R. David PowerPoint Slides by Anthony F. Chelte Western New England College Chapter Outline • The Nature of Strategy Analysis and Choice • A Comprehensive Strategy-Formulation Framework • The Input Stage • The Matching Stage • The Decision Stage • Cultural Aspects of Strategy Choice • The Politics of Strategy Choice • The Role of a Board of Directors Strategy Analysis & Choice Whether it’s broke or not, fix it—make it better. Not just products, but the whole company if necessary.- Bill Saporito Strategy Analysis & Choice Strategic analysis and choice largely involves making subjective decisions based on objective information. information. The Nature of Strategy Analysis and Choice – – Establishing long-term objectives – Generating alternative strategies – Selecting strategies to pursue – Best alternative to achieve mission and objectives Alternative strategies derive from – – Vision – Mission – Objectives – External audit – Internal audit – Past successful strategies Participation in generating alternative strategies should be broad – Stage 1: The Input Stage Stage 2: The Matching Stage Stage 3: The Decision Stage Formulation Framework
2 Short Notes: Mgt 603 Internal Factor Evaluation Matrix (IFE) External Factor Evaluation Stage 1: Matrix (EFE) The Input Stage Competitive Profile Matrix Formulation Framework TOWS Matrix SPACE Matrix Stage 2: BCG Matrix The Matching Stage IE Matrix Grand Strategy Matrix Matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor Resultant Strategy 20% annual growth in the Excess working capacity + cell phone industry = Acquire Cellfone, Inc. (strength) (opportunity) Exit of two major foreign Pursue horizontal integration Insufficient capacity + competitors form the = by buying competitor's (weakness) industry (opportunity) facilities Decreasing numbers of Develop new products for Strong R&D (strength) + = young adults (threat) older adults Poor employee morale Develop a new employee + Strong union activity = (weakness) (threat) benefits package Strategy-Formulation Analytical Framework Formulation Framework
3 Short Notes: Mgt 603 Stage 3: Quantitative Strategic Planning Matrix The Decision Stage (QSPM) Input Stage • Provides basic input information for the matching and decision stage matrices • Requires strategists to quantify subjectivity early in the process • Good intuitive judgment always needed Matching Stage • Match between organization’s internal resources and skills and the opportunities and organization’ risks created by its external factors. Matching Key Factors to Formulate Alternative Strategies Lecture No. 24 Matching Stage TOWS Matrix – Threats – Opportunities – Strengths – Weaknesses Develop four types of strategies – Strengths-Opportunities (SO) – Weaknesses-Opportunities (WO) – Strengths-Threats (ST) – Weaknesses-Threats (WT) 1. SO Strategies Use a firm’s internal strengths to take advantage of external opportunities 2. WO Strategies Improving internal weaknesses by taking advantage of external opportunities 3. ST Strategies Using firm’s strengths to avoid or reduce the impact of external threats. 4. WT Strategies Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats. 5. TOWS Matrix Steps in developing the TOWS Matrix – List the firm’s key external opportunities – List the firm’s key external threats – List the firm’s key internal strengths
4 Short Notes: Mgt 603 – List the firm’s key internal weaknesses TOWS Matrix Developing the TOWS Matrix • Match internal strengths with external opportunities and record the resultant SO Strategies • Match internal weaknesses with external opportunities and record the resultant WO Strategies • Match internal strengths with external threats and record the resultant ST Strategies • Match internal weaknesses with external threats and record the resultant WT Strategies Leave Blank Strengths-S Weaknesses-W List Strengths List Weaknesses Opportunities-O SO Strategies WO Strategies List Opportunities Use strengths to take Overcome weaknesses advantage of opportunities by taking advantage of opportunities Threats-T ST Strategies WT Strategies List Threats Use strengths to avoid Minimize weaknesses threats and avoid threats Lecture No, 25-26 Formulation Framework SPACE Matrix Strategic Position and Action Evaluation Matrix  Four quadrant framework  Determines appropriate strategies  Aggressive  Conservative  Defensive  Competitive Two Internal Dimensions  Financial Strength [FS]  Competitive Advantage [CA] Two External Dimensions  Environmental Stability [ES]  Industry Strength [IS] Overall Strategic position determined by: – Financial Strength [FS] – Competitive Advantage [CA] – Environmental Stability [ES]
5 Short Notes: Mgt 603 – Industry Strength [IS] Developing the SPACE Matrix: • EFE Matrix • IFE Matrix • Financial Strength • Competitive Advantage • Environmental Stability • Industry Strength • Select variables to define FS, CA, ES, & IS • Assign numerical ranking from +1 (worst) to +6 (best) for FS and IS; Assign numerical ranking from –1 (best) to –6 (worst) for ES and CA. • Compute average score for FS, CA, ES, & IS • Plot the average scores on the Matrix • Add the two scores on the x-axis and plot point on X. Add the scores on the y-axis and plot Y. Plot the intersection of the new xy point. • Draw a directional vector from origin through the new intersection point. • SPACE Factors Internal Strategic Position External Strategic Position Financial Strength (FS) Environmental Stability (ES) Return on investment Technological changes Leverage Rate of inflation Liquidity Demand variability Working capital Price range of competing products Cash flow Barriers to entry Ease of exit from market Competitive pressure Risk involved in business Price elasticity of demand Internal Strategic Position External Strategic Position Competitive Advantage CA Industry Strength (IS) Market share Growth potential Product quality Profit potential Product life cycle Financial stability Customer loyalty Technological know-how Competition’s capacity utilization Resource utilization Technological know-how Capital intensify Control over suppliers & distributors Ease of entry into market Productivity, capacity utilization SPACE Matrix
6 Short Notes: Mgt 603 FS Conservative +6 Aggressive +5 +4 +3 +2 +1 CA IS -6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6 -2 -3 -4 -5 Defensive -6 Competitive ES Lecture No. 27-28 BCG Matrix Boston Consulting Group Matrix • Enhances multidivisional firms’ efforts to formulate strategies • Autonomous divisions (or profit centers) constitute the business portfolio • Firm’s divisions may compete in different industries requiring separate strategy Boston Consulting Group Matrix • Graphically portrays differences among divisions • Focuses on market share position and industry growth rate • Manage business portfolio through relative market share position and industry growth rate Relative market share position defined: • Ratio of a division’s own market share in a particular industry to the market share held by the largest rival firm in that industry. BCG Matrix Relative Market Share Position High Medium Low 1.0 .50 0.0 High +20 Stars Question Marks II I Medium 0 Cash Cows Dogs III IV Low -20 • Question Marks • Stars • Cash Cows
7 Short Notes: Mgt 603 • Dogs Question Marks • Low relative market share position yet compete in high-growth industry. • Cash needs are high • Case generation is low • Decision to strengthen (intensive strategies) or divest Stars • High relative market share and high industry growth rate. • Best long-run opportunities for growth and profitability • Substantial investment to maintain or strengthen dominant position • Integration strategies, intensive strategies, joint ventures Cash Cows • High relative market share position, but compete in low-growth industry • Generate cash in excess of their needs • Milked for other purposes • Maintain strong position as long as possible • Product development, concentric diversification • If becomes weak—retrenchment or divestiture Dogs • Low relative market share position and compete in slow or no market growth • Weak internal and external position • Decision to liquidate, divest, retrenchment Lecture No. 29-30 Grand Strategy Matrix • Popular tool for formulating alternative strategies • All organizations (or divisions) can be positioned in one of four quadrants • Based on two evaluative dimensions: – Competitive position – Market growth
8 Short Notes: Mgt 603 RAPID MARKET GROWTH Quadrant II Quadrant I Market development Market development Market penetration Market penetration Product development Product development Horizontal integration Forward integration Divestiture Backward integration Liquidation Horizontal integration Strong Postion Quadrant III Quadrant IV Concentric diversification Retrenchment Concentric diversification Concentric diversification Horizontal diversification Horizontal diversification Conglomerate diversification Conglomerate diversification Joint ventures Liquidation SLOW MARKET GROWTH Quadrant I • Excellent strategic position • Concentration on current markets and products • Take risks aggressively when necessary Quadrant II • Evaluate present approach seriously • How to change to improve competitiveness • Rapid market growth requires intensive strategy Quadrant III • Compete in slow-growth industries • Weak competitive position • Drastic changes quickly • Cost and asset reduction indicated (retrenchment) Quadrant IV • Strong competitive position • Slow-growth industry • Diversification indicated to more promising growth areas Stage 3: The Decision Stage Quantitative Strategic Planning Matrix (QSPM) Quantitative Strategic Planning Matrix • Only technique designed to determine the relative attractiveness of feasible alternative actions • Tool for objective evaluation of alternative strategies
9 Short Notes: Mgt 603 • Based on identified external and internal crucial success factors • Requires good intuitive judgment • List the firm’s key external opportunities & threats; list the firm’s key internal strengths and weaknesses • Assign weights to each external and internal critical success factor • Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing • Determine the Attractiveness Scores (AS) • Compute the total Attractiveness Scores • Compute the Sum Total Attractiveness Score QSPM Limitations: • Requires intuitive judgments and educated assumptions • Only as good as the prerequisite inputs Positives: • Sets of strategies examined simultaneously or sequentially • Requires the integration of pertinent external and internal factors in the decision-making process Lecture No. 31 Chapter Outline • The nature of Strategy Implementation • Annual Objectives • Policies • Resource Allocation • Managing Conflict • Matching Structure with Strategy • Restructuring, Reengineering, and E-Engineering • Linking Performance and Pay to Strategies • Managing Resistance to Change • Managing the Natural Environment • Creating a Strategy-Supportive Culture • Production/Operations Concerns When Implementing Strategies • Human Resource Concerns When Implementing Strategies Implementing Strategies: Management Issues Pretend that every single person you meet has a sign around his or her neck that says, “Make me feel important.” -- Mary Kay Ash, CEO of Mary Kay, Inc. Management Issues • Annual Objectives • Policies • Resources • Organizational structure
10 Short Notes: Mgt 603 • Restructuring • Rewards/Incentives • Resistance to Change • Managers & strategy • Supportive culture • Production/operations • Human resources • Downsizing Contrasting strategy formulation and strategy implementation – Formulation is positioning forces before the action – Implementation is managing forces during the action Contrasting strategy formulation and strategy implementation – Formulation focuses on effectiveness – Implementation focuses on efficiency – Formulation is primarily an intellectual process – Implementation is primarily an operational process – Formulation requires good intuitive and analytical skills – Implementation requires special motivation and leadership skills – Formulation requires coordination among a few individuals – Implementation requires coordination among many persons Strategy implementation – – Varies among different types and sizes of organizations Strategy implementation Actions – – Altering sales territories – Adding new departments – Closing facilities – Hiring new employees – Cost-control procedures – Changing advertising strategies – Building new facilities Formulation to Implementation transition – – Shift in responsibility • From strategists to division and functional managers 1. Management Issues 2. Management Issues (continued) 3. Annual Objectives • Decentralized activity • Involves all managers in the firm Annual Objectives • Basis for allocating resources
11 Short Notes: Mgt 603 • Primary mechanism for evaluating managers • Major instrument for monitoring progress toward long-term objectives • Establish organizational, divisional, and departmental priorities • Horizontal consistency of objectives • Vertical consistency of objectives Objectives should state – – Quantity – Quality – Cost – Time Policies Policies facilitate solving recurring problems and guide the implementation of strategy Policies set – – Boundaries – Constraints – Limits Example Issues requiring management policy -- – To offer extensive or limited management development workshops and seminars – To centralize or decentralize employee-training activities – To recruit through employment agencies, college campuses, and/or newspapers – To promote from within or hire from the outside – To establish a high- or low-safety stock of inventory – To buy lease, or rent new production equipment Lecture No. 32 Resource Allocation – A central management activity that allows for strategy execution Four types of resources – • Financial resources • Physical resources • Human resources • Technological resources Managing Conflict Conflict – Disagreement between two or more parties on one or more issues • Conflict is not always “bad” “bad” • Absence of conflict – Signal indifference or apathy • Can energize opposing groups to action
12 Short Notes: Mgt 603 • May help managers identify problems Conflict Management and Resolution – Avoidance – Defusion – Confrontation Matching Structure with Strategy 1. Changes in Strategy 2. Changes in Structure • Structure largely dictates how objectives and policies will be established. • Structure dictates how resources will be allocated Chandler’s Strategy-Structure Relationship Organizational New strategy New administrative performance Is formulated problems emerge declines Organizational New organizational performance structure is established improves Lecture No. 33 Basic Forms of Structure 1. Functional Structure Groups tasks and activities by business function 2. Divisional Structure Decentralized and organized by geography, product, customer, or process 3. Strategic Business Unit Structure (SBU) Groups similar divisions; delegates authority and responsibility to SBU executive 4. Matrix Structure Most complex of all designs. Depends upon both vertical and horizontal flows of authority and communication Lecture No. 34 Restructuring – Reducing the size of the firm in terms of number of employees, divisions, or units, and the number of hierarchical levels in the firm’s organizational structure Also called – – Downsizing – Rightsizing – Delayering • Employed when ratios out of line with benchmarked competitors
13 Short Notes: Mgt 603 • Primary benefit sought is cost reduction Reengineering Involves reconfiguring or redesigning work, jobs, and processes to improve cost, quality, service and speed. Reengineering Also called – – Process management – Process innovation – Process redesign Concerned more with employee and customer well-being than shareholder well-being Linking Performance and Pay to Strategies Most companies practicing pay-for-performance • Dual bonus system becoming more common – Based on both annual objectives and long-term objectives • Profit Sharing – Incentive compensation used by 30% of companies • Gain Sharing – Performance targets set for employees or departments Tests for Performance-Pay Plans 1. Does the plan capture attention? 2. Do employees understand the plan? 3. Is the plan improving communication? 4. Does the plan pay out when it should? 5. Is the company or unit performing better? Managing Resistance to Change Change raises anxiety over fear of: – Economic loss – Inconvenience – Uncertainty – Break in status-quo Resistance to change – – Single greatest threat to successful strategy implementation Change Strategies • Force Change Strategy • Educative Change Strategy • Rational or Self-Interest Change Strategy Managing the Natural Environment • Wide appreciation for firms that conduct operations that “mend” rather than “harm” the “mend” “harm” environment. Creating a Strategy-Supportive Culture
14 Short Notes: Mgt 603 Strategists should strive to preserve, emphasize, and build upon aspects of existing culture that support new strategies. Elements linking culture to strategy: • Formal statements of philosophy, charters, etc. used for recruitment and selection, and socialization • Designing of physical spaces, facades, buildings • Deliberate role modeling, teaching and coaching • Explicit reward and status system, promotion criteria • Stories, legends, myths about key people and events • What leaders pay attention to, measure and control • Leader reactions to critical incidents and crises • How the organization is designed and structured • Organizational systems and procedures • Criteria used for recruitment, selection, promotion, retirement Lecture No. 35 Production/Operations Concerns • Production processes typically constitute more than 70% of firm’s total assets • Decisions on: – Plant size – Inventory/inventory control – Quality control – Cost control – Technological innovation Human Resource Concerns • Assessing staffing needs and costs • Develop performance incentives • ESOPs • Child-care policies • Work-life balance Lecture No. 36-37 Marketing variables affect success or failure of strategy implementation • Market Segmentation • Production Positioning Marketing Decisions requiring polices – – Use exclusive dealerships or multiple channels of distribution – Use heavy, light, or no TV advertising – Limit (or not) the share of business done with a single customer – Be a price leader or price follower – Offer a complete or limited warranty – Reward salespeople based on straight commission or combination salary/commission
15 Short Notes: Mgt 603 • Subdividing of a market into distinct subsets of customers according to needs and buying habits • Widely used in implementing strategies • Small and specialized firms Market Segmentation Important Variable: • Market and product development, market penetration, and diversification require increased sales through new markets or products • Firm can operate with limited resources. Enables a small firm by maximizing per-unit profits and per-segment sales. • Segmentation decisions directly affect marketing mix variables: - Product, place, promotion, and price Marketing Mix – Component Factors Bases for Segmenting Markets –z • Geographic • Demographic • Psychographic • Behavioral Geographic Basis: – Region – County Size – City or SMSA size – Density – Climate Demographic Basis: – Age – Family Size – Family Life Cycle – Income Occupation – Education – Religion – Race Nationality Psychographic Basis: – Social Class – Lifestyle – Personality Behavioral Basis: – Use occasion – Benefits sought – User status – Usage rate – Loyalty status
16 Short Notes: Mgt 603 – Readiness Stage – Attitude toward product Developing schematic representations that reflect how products or services compare to competitors’ on dimensions most important to success in the industry Product Positioning based on: – Customers wants – Customers needs Product Positioning Steps 1. Select Key Criteria 2. Diagram Map 3. Plot competitors’ products 4. Look for niches 5. Develop Marketing Plan Product Positioning Map Rental Car Market • Firm 1 Firm 2 • • Firm 3 Low Convenience Product Positioning Map as Strategy-Implementation Tool— – Look for vacant niche – Avoid sub-optimization – Don’t serve 2 segments with same strategy – Don’t position in the middle of the map Lecture No. 38 Finance/Accounting Issues Central to Strategy Implementation – – Acquiring needed capital – Developing pro forma financial statements – Preparing financial budgets – Evaluating worth of a business
17 Short Notes: Mgt 603 Finance/Accounting Issues Acquiring Capital to Implement Strategies – • Basic sources of capital: – Debt – Equity Debt vs. Equity Decisions – • EPS/EBIT analysis – Earnings per share/Earnings before interest and taxes Pro Forma Financial Statements - • Allows an organization to examine the expected results of various actions and approaches 6 Steps in Pro Forma Financial Analysis • Prepare income statement before balance sheet (forecast sales) • Use percentage-of-sales method to project CGS and expenses • Calculate projected net income • Subtract dividends to be paid from Net Income and add remaining to Retained Earnings • Project balance sheet times beginning with retained earnings • List comments (remarks) on projected statements Financial Budget – Document that details how funds will be obtained and spent for a specified period of time. Types of Budgets – – Cash budgets – Operating budgets – Sales budgets – Profit budgets – Factory budgets – Capital budgets – Expense budgets – Divisional budgets – Variable budgets – Flexible budgets – Fixed budgets Evaluating Worth of a Business Central to strategy implementation as integrative, intensive and diversification strategies are often implement through acquisitions of other firms. Evaluating Worth of a Business 3 Basic approaches: 1. What a firm owns 2. What a firm earns 3. What a firm will bring in the market
18 Short Notes: Mgt 603 Lecture No. 39 Same above given in chapter 38 Central to Strategy Implementation – Evaluating Worth of a Business 3 Basic approaches: Till Decisions Requiring Finance/Accounting Policies 1. Raise capital w/ short-term, long-term preferred or common stock 2. Lease or buy fixed assets 3. Determine an appropriate dividend payout ratio 4. Use LIFO, FIFO, or market-value accounting approach 5. Extend time of accounts receivable 6. Establish percentage discount on accounts for terms 7. Determine the amount of cash kept on hand Lecture No. 40 Systematic Review, Evaluation & Control – – Strategies become obsolete – Internal environments are dynamic – External environments are dynamic • Strategy evaluation is vital to the organization’s well-being • Alert management to potential or actual problems in a timely fashion • Erroneous strategic decisions can have severe negative impact on organizations 3 Basic Activities – • Examining the underlying bases of a firms’ strategy • Comparing expected to actual results • Corrective actions to ensure performance conforms to plans Strategy evaluation – – Complex and sensitive undertaking – Overemphasis can be costly and counterproductive In many organizations, evaluation is an appraisal of performance – • Have assets increased? • Increase in profitability? • Increase in sales? • Increase in productivity? • Profit margins, ROI and EPS ratios increased? Four Criteria (Richard Rummelt): • Consistency • Consonance • Feasibility
19 Short Notes: Mgt 603 • Advantage Consistency – Strategy should not present inconsistent goals and policies. • Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency Consonance – Need for strategies to examine sets of trends • Adaptive response to external environment • Trends are results of interactions among other trends Feasibility – Neither overtax resources or create unsolvable sub-problems • Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy Advantage – Creation or maintenance of competitive advantage • Superiority in resources, skills, or position Difficulty in strategy evaluation – • Increase in environment’s complexity • Difficulty predicting future with accuracy • Increasing number of variables Difficulty in strategy evaluation – • Rate of obsolescence of plans • Domestic and global events • Decreasing time span for planning certainty Strategy evaluation should – – Initiative managerial questioning – Trigger review of objectives and values – Stimulate creativity in generating alternatives Lecture No. 41 Porter Supply Chain Model The Value Chain framework of Michael Porter is a model that helps to analyze specific activities through which firms can create value and competitive advantage. The activities of the Value Chain • Primary activities (line functions)
20 Short Notes: Mgt 603 • Support activities (Staff functions, overhead) Primary activities (line functions) • Inbound Logistics • Operations • Outbound Logistics • Marketing and Sales • Service Support activities (Staff functions, overhead) • Firm Infrastructure • Technology Development • Human Resource Management • Procurement Creating a cost advantage based on the value chain • A firm may create a cost advantage: • By reducing the cost of individual value chain activities, or • By reconfiguring the value chain. 10 cost drivers related to value chain activities • Economies of scale • Learning • Capacity utilization • Linkages among activities • Interrelationships among business units • Degree of vertical integration • Timing of market entry • Firm's policy of cost or differentiation • Geographic location • Institutional factors (regulation, union activity, taxes, etc.). Lecture No. 42 Same in above chapter Four Criteria (Richard Rummelt): Strategy evaluation should – Lecture No. 43 Review of underlying bases of strategy – – Develop revised EFE Matrix
21 Short Notes: Mgt 603 – Develop revised IFE Matrix Review effectiveness of strategy – • Competitors’ reaction to strategy • Competitors’ change in strategy • Competitors’ changes in strengths and weaknesses • Reasons for competitors’ strategic change • Reasons for competitors’ successful strategies • Competitors’ present market positions and profitability • Potential for competitor retaliation • Potential for cooperation with competitors Monitor Threats and Opportunities and Weaknesses and Strengths • Are our internal strengths still strengths? • Have we added additional strengths? • Are our weaknesses still weaknesses? • Have we other internal weaknesses? • Are opportunities still opportunities? • Other external opportunities? • Are threats still threats? • Are there other threats? • Are we vulnerable to a hostile takeover? Evaluation Framework I. Review Underlying Bases Differences? Yes NO III. II. Measure Firm Take Performance Corrective Actions Differences? Yes NO Continue present course Lecture No. 44 • Comparing expected to actual results • Investigating deviations from plan
22 Short Notes: Mgt 603 • Evaluating individual performance • Progress toward stated objectives Quantitative criteria for strategy evaluation – – Financial Ratios: • Compare performance over different periods • Compare performance to competitors • Compare performance to industry averages Key Financial Ratios – – Return on investment – Return on equity – Profit margin – Market share – Debt to equity – Earnings per share – Sales growth – Asset growth Qualitative evaluation of strategy - – Internal consistency of strategy – Consistency of strategy with environment – Strategy appropriate in view of resources – Acceptable degree of risk – Appropriate time frame – Workability of the strategy Lecture No. 45 Basic requirements for effective strategy evaluation – – Economical – Meaningful – Generate useful information – Timely information – Provide a true picture of what is happening Strategy-Evaluation Assessment Matrix
23 Have major Have major Short Notes: Mgt 603 changes changes occurred in occurred in Has the firm the firm’s the firm’s progressed internal external satisfactorily toward strategic strategic achieving its stated position? position? objectives? Result No No No Corrective actions Yes Yes Yes Corrective actions Yes Yes No Corrective actions Yes No Yes Corrective actions Yes No No Corrective actions No Yes Yes Corrective actions No Yes No Corrective actions No No Yes Continue course Premise of sound strategic management – – Planning to deal with unfavorable and favorable events before they occur. Contingency Planning – – Alternative plans that can be put into effect if certain key events do not occur as expected • Financial audits to determine correspondence between assertions based on strategic plans and established criteria • Environmental audits to insure sound and safe practices.

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Strategic short notes

  • 1.
    1 Short Notes: Mgt603 STRATEGIC MANAGEMENT Lecture No. 23 Strategy Analysis And Choice Strategic Management: Concepts and Cases. 9th edition Fred R. David PowerPoint Slides by Anthony F. Chelte Western New England College Chapter Outline • The Nature of Strategy Analysis and Choice • A Comprehensive Strategy-Formulation Framework • The Input Stage • The Matching Stage • The Decision Stage • Cultural Aspects of Strategy Choice • The Politics of Strategy Choice • The Role of a Board of Directors Strategy Analysis & Choice Whether it’s broke or not, fix it—make it better. Not just products, but the whole company if necessary.- Bill Saporito Strategy Analysis & Choice Strategic analysis and choice largely involves making subjective decisions based on objective information. information. The Nature of Strategy Analysis and Choice – – Establishing long-term objectives – Generating alternative strategies – Selecting strategies to pursue – Best alternative to achieve mission and objectives Alternative strategies derive from – – Vision – Mission – Objectives – External audit – Internal audit – Past successful strategies Participation in generating alternative strategies should be broad – Stage 1: The Input Stage Stage 2: The Matching Stage Stage 3: The Decision Stage Formulation Framework
  • 2.
    2 Short Notes: Mgt603 Internal Factor Evaluation Matrix (IFE) External Factor Evaluation Stage 1: Matrix (EFE) The Input Stage Competitive Profile Matrix Formulation Framework TOWS Matrix SPACE Matrix Stage 2: BCG Matrix The Matching Stage IE Matrix Grand Strategy Matrix Matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor Resultant Strategy 20% annual growth in the Excess working capacity + cell phone industry = Acquire Cellfone, Inc. (strength) (opportunity) Exit of two major foreign Pursue horizontal integration Insufficient capacity + competitors form the = by buying competitor's (weakness) industry (opportunity) facilities Decreasing numbers of Develop new products for Strong R&D (strength) + = young adults (threat) older adults Poor employee morale Develop a new employee + Strong union activity = (weakness) (threat) benefits package Strategy-Formulation Analytical Framework Formulation Framework
  • 3.
    3 Short Notes: Mgt603 Stage 3: Quantitative Strategic Planning Matrix The Decision Stage (QSPM) Input Stage • Provides basic input information for the matching and decision stage matrices • Requires strategists to quantify subjectivity early in the process • Good intuitive judgment always needed Matching Stage • Match between organization’s internal resources and skills and the opportunities and organization’ risks created by its external factors. Matching Key Factors to Formulate Alternative Strategies Lecture No. 24 Matching Stage TOWS Matrix – Threats – Opportunities – Strengths – Weaknesses Develop four types of strategies – Strengths-Opportunities (SO) – Weaknesses-Opportunities (WO) – Strengths-Threats (ST) – Weaknesses-Threats (WT) 1. SO Strategies Use a firm’s internal strengths to take advantage of external opportunities 2. WO Strategies Improving internal weaknesses by taking advantage of external opportunities 3. ST Strategies Using firm’s strengths to avoid or reduce the impact of external threats. 4. WT Strategies Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats. 5. TOWS Matrix Steps in developing the TOWS Matrix – List the firm’s key external opportunities – List the firm’s key external threats – List the firm’s key internal strengths
  • 4.
    4 Short Notes: Mgt603 – List the firm’s key internal weaknesses TOWS Matrix Developing the TOWS Matrix • Match internal strengths with external opportunities and record the resultant SO Strategies • Match internal weaknesses with external opportunities and record the resultant WO Strategies • Match internal strengths with external threats and record the resultant ST Strategies • Match internal weaknesses with external threats and record the resultant WT Strategies Leave Blank Strengths-S Weaknesses-W List Strengths List Weaknesses Opportunities-O SO Strategies WO Strategies List Opportunities Use strengths to take Overcome weaknesses advantage of opportunities by taking advantage of opportunities Threats-T ST Strategies WT Strategies List Threats Use strengths to avoid Minimize weaknesses threats and avoid threats Lecture No, 25-26 Formulation Framework SPACE Matrix Strategic Position and Action Evaluation Matrix  Four quadrant framework  Determines appropriate strategies  Aggressive  Conservative  Defensive  Competitive Two Internal Dimensions  Financial Strength [FS]  Competitive Advantage [CA] Two External Dimensions  Environmental Stability [ES]  Industry Strength [IS] Overall Strategic position determined by: – Financial Strength [FS] – Competitive Advantage [CA] – Environmental Stability [ES]
  • 5.
    5 Short Notes: Mgt603 – Industry Strength [IS] Developing the SPACE Matrix: • EFE Matrix • IFE Matrix • Financial Strength • Competitive Advantage • Environmental Stability • Industry Strength • Select variables to define FS, CA, ES, & IS • Assign numerical ranking from +1 (worst) to +6 (best) for FS and IS; Assign numerical ranking from –1 (best) to –6 (worst) for ES and CA. • Compute average score for FS, CA, ES, & IS • Plot the average scores on the Matrix • Add the two scores on the x-axis and plot point on X. Add the scores on the y-axis and plot Y. Plot the intersection of the new xy point. • Draw a directional vector from origin through the new intersection point. • SPACE Factors Internal Strategic Position External Strategic Position Financial Strength (FS) Environmental Stability (ES) Return on investment Technological changes Leverage Rate of inflation Liquidity Demand variability Working capital Price range of competing products Cash flow Barriers to entry Ease of exit from market Competitive pressure Risk involved in business Price elasticity of demand Internal Strategic Position External Strategic Position Competitive Advantage CA Industry Strength (IS) Market share Growth potential Product quality Profit potential Product life cycle Financial stability Customer loyalty Technological know-how Competition’s capacity utilization Resource utilization Technological know-how Capital intensify Control over suppliers & distributors Ease of entry into market Productivity, capacity utilization SPACE Matrix
  • 6.
    6 Short Notes: Mgt603 FS Conservative +6 Aggressive +5 +4 +3 +2 +1 CA IS -6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6 -2 -3 -4 -5 Defensive -6 Competitive ES Lecture No. 27-28 BCG Matrix Boston Consulting Group Matrix • Enhances multidivisional firms’ efforts to formulate strategies • Autonomous divisions (or profit centers) constitute the business portfolio • Firm’s divisions may compete in different industries requiring separate strategy Boston Consulting Group Matrix • Graphically portrays differences among divisions • Focuses on market share position and industry growth rate • Manage business portfolio through relative market share position and industry growth rate Relative market share position defined: • Ratio of a division’s own market share in a particular industry to the market share held by the largest rival firm in that industry. BCG Matrix Relative Market Share Position High Medium Low 1.0 .50 0.0 High +20 Stars Question Marks II I Medium 0 Cash Cows Dogs III IV Low -20 • Question Marks • Stars • Cash Cows
  • 7.
    7 Short Notes: Mgt603 • Dogs Question Marks • Low relative market share position yet compete in high-growth industry. • Cash needs are high • Case generation is low • Decision to strengthen (intensive strategies) or divest Stars • High relative market share and high industry growth rate. • Best long-run opportunities for growth and profitability • Substantial investment to maintain or strengthen dominant position • Integration strategies, intensive strategies, joint ventures Cash Cows • High relative market share position, but compete in low-growth industry • Generate cash in excess of their needs • Milked for other purposes • Maintain strong position as long as possible • Product development, concentric diversification • If becomes weak—retrenchment or divestiture Dogs • Low relative market share position and compete in slow or no market growth • Weak internal and external position • Decision to liquidate, divest, retrenchment Lecture No. 29-30 Grand Strategy Matrix • Popular tool for formulating alternative strategies • All organizations (or divisions) can be positioned in one of four quadrants • Based on two evaluative dimensions: – Competitive position – Market growth
  • 8.
    8 Short Notes: Mgt603 RAPID MARKET GROWTH Quadrant II Quadrant I Market development Market development Market penetration Market penetration Product development Product development Horizontal integration Forward integration Divestiture Backward integration Liquidation Horizontal integration Strong Postion Quadrant III Quadrant IV Concentric diversification Retrenchment Concentric diversification Concentric diversification Horizontal diversification Horizontal diversification Conglomerate diversification Conglomerate diversification Joint ventures Liquidation SLOW MARKET GROWTH Quadrant I • Excellent strategic position • Concentration on current markets and products • Take risks aggressively when necessary Quadrant II • Evaluate present approach seriously • How to change to improve competitiveness • Rapid market growth requires intensive strategy Quadrant III • Compete in slow-growth industries • Weak competitive position • Drastic changes quickly • Cost and asset reduction indicated (retrenchment) Quadrant IV • Strong competitive position • Slow-growth industry • Diversification indicated to more promising growth areas Stage 3: The Decision Stage Quantitative Strategic Planning Matrix (QSPM) Quantitative Strategic Planning Matrix • Only technique designed to determine the relative attractiveness of feasible alternative actions • Tool for objective evaluation of alternative strategies
  • 9.
    9 Short Notes: Mgt603 • Based on identified external and internal crucial success factors • Requires good intuitive judgment • List the firm’s key external opportunities & threats; list the firm’s key internal strengths and weaknesses • Assign weights to each external and internal critical success factor • Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing • Determine the Attractiveness Scores (AS) • Compute the total Attractiveness Scores • Compute the Sum Total Attractiveness Score QSPM Limitations: • Requires intuitive judgments and educated assumptions • Only as good as the prerequisite inputs Positives: • Sets of strategies examined simultaneously or sequentially • Requires the integration of pertinent external and internal factors in the decision-making process Lecture No. 31 Chapter Outline • The nature of Strategy Implementation • Annual Objectives • Policies • Resource Allocation • Managing Conflict • Matching Structure with Strategy • Restructuring, Reengineering, and E-Engineering • Linking Performance and Pay to Strategies • Managing Resistance to Change • Managing the Natural Environment • Creating a Strategy-Supportive Culture • Production/Operations Concerns When Implementing Strategies • Human Resource Concerns When Implementing Strategies Implementing Strategies: Management Issues Pretend that every single person you meet has a sign around his or her neck that says, “Make me feel important.” -- Mary Kay Ash, CEO of Mary Kay, Inc. Management Issues • Annual Objectives • Policies • Resources • Organizational structure
  • 10.
    10 Short Notes: Mgt603 • Restructuring • Rewards/Incentives • Resistance to Change • Managers & strategy • Supportive culture • Production/operations • Human resources • Downsizing Contrasting strategy formulation and strategy implementation – Formulation is positioning forces before the action – Implementation is managing forces during the action Contrasting strategy formulation and strategy implementation – Formulation focuses on effectiveness – Implementation focuses on efficiency – Formulation is primarily an intellectual process – Implementation is primarily an operational process – Formulation requires good intuitive and analytical skills – Implementation requires special motivation and leadership skills – Formulation requires coordination among a few individuals – Implementation requires coordination among many persons Strategy implementation – – Varies among different types and sizes of organizations Strategy implementation Actions – – Altering sales territories – Adding new departments – Closing facilities – Hiring new employees – Cost-control procedures – Changing advertising strategies – Building new facilities Formulation to Implementation transition – – Shift in responsibility • From strategists to division and functional managers 1. Management Issues 2. Management Issues (continued) 3. Annual Objectives • Decentralized activity • Involves all managers in the firm Annual Objectives • Basis for allocating resources
  • 11.
    11 Short Notes: Mgt603 • Primary mechanism for evaluating managers • Major instrument for monitoring progress toward long-term objectives • Establish organizational, divisional, and departmental priorities • Horizontal consistency of objectives • Vertical consistency of objectives Objectives should state – – Quantity – Quality – Cost – Time Policies Policies facilitate solving recurring problems and guide the implementation of strategy Policies set – – Boundaries – Constraints – Limits Example Issues requiring management policy -- – To offer extensive or limited management development workshops and seminars – To centralize or decentralize employee-training activities – To recruit through employment agencies, college campuses, and/or newspapers – To promote from within or hire from the outside – To establish a high- or low-safety stock of inventory – To buy lease, or rent new production equipment Lecture No. 32 Resource Allocation – A central management activity that allows for strategy execution Four types of resources – • Financial resources • Physical resources • Human resources • Technological resources Managing Conflict Conflict – Disagreement between two or more parties on one or more issues • Conflict is not always “bad” “bad” • Absence of conflict – Signal indifference or apathy • Can energize opposing groups to action
  • 12.
    12 Short Notes: Mgt603 • May help managers identify problems Conflict Management and Resolution – Avoidance – Defusion – Confrontation Matching Structure with Strategy 1. Changes in Strategy 2. Changes in Structure • Structure largely dictates how objectives and policies will be established. • Structure dictates how resources will be allocated Chandler’s Strategy-Structure Relationship Organizational New strategy New administrative performance Is formulated problems emerge declines Organizational New organizational performance structure is established improves Lecture No. 33 Basic Forms of Structure 1. Functional Structure Groups tasks and activities by business function 2. Divisional Structure Decentralized and organized by geography, product, customer, or process 3. Strategic Business Unit Structure (SBU) Groups similar divisions; delegates authority and responsibility to SBU executive 4. Matrix Structure Most complex of all designs. Depends upon both vertical and horizontal flows of authority and communication Lecture No. 34 Restructuring – Reducing the size of the firm in terms of number of employees, divisions, or units, and the number of hierarchical levels in the firm’s organizational structure Also called – – Downsizing – Rightsizing – Delayering • Employed when ratios out of line with benchmarked competitors
  • 13.
    13 Short Notes: Mgt603 • Primary benefit sought is cost reduction Reengineering Involves reconfiguring or redesigning work, jobs, and processes to improve cost, quality, service and speed. Reengineering Also called – – Process management – Process innovation – Process redesign Concerned more with employee and customer well-being than shareholder well-being Linking Performance and Pay to Strategies Most companies practicing pay-for-performance • Dual bonus system becoming more common – Based on both annual objectives and long-term objectives • Profit Sharing – Incentive compensation used by 30% of companies • Gain Sharing – Performance targets set for employees or departments Tests for Performance-Pay Plans 1. Does the plan capture attention? 2. Do employees understand the plan? 3. Is the plan improving communication? 4. Does the plan pay out when it should? 5. Is the company or unit performing better? Managing Resistance to Change Change raises anxiety over fear of: – Economic loss – Inconvenience – Uncertainty – Break in status-quo Resistance to change – – Single greatest threat to successful strategy implementation Change Strategies • Force Change Strategy • Educative Change Strategy • Rational or Self-Interest Change Strategy Managing the Natural Environment • Wide appreciation for firms that conduct operations that “mend” rather than “harm” the “mend” “harm” environment. Creating a Strategy-Supportive Culture
  • 14.
    14 Short Notes: Mgt603 Strategists should strive to preserve, emphasize, and build upon aspects of existing culture that support new strategies. Elements linking culture to strategy: • Formal statements of philosophy, charters, etc. used for recruitment and selection, and socialization • Designing of physical spaces, facades, buildings • Deliberate role modeling, teaching and coaching • Explicit reward and status system, promotion criteria • Stories, legends, myths about key people and events • What leaders pay attention to, measure and control • Leader reactions to critical incidents and crises • How the organization is designed and structured • Organizational systems and procedures • Criteria used for recruitment, selection, promotion, retirement Lecture No. 35 Production/Operations Concerns • Production processes typically constitute more than 70% of firm’s total assets • Decisions on: – Plant size – Inventory/inventory control – Quality control – Cost control – Technological innovation Human Resource Concerns • Assessing staffing needs and costs • Develop performance incentives • ESOPs • Child-care policies • Work-life balance Lecture No. 36-37 Marketing variables affect success or failure of strategy implementation • Market Segmentation • Production Positioning Marketing Decisions requiring polices – – Use exclusive dealerships or multiple channels of distribution – Use heavy, light, or no TV advertising – Limit (or not) the share of business done with a single customer – Be a price leader or price follower – Offer a complete or limited warranty – Reward salespeople based on straight commission or combination salary/commission
  • 15.
    15 Short Notes: Mgt603 • Subdividing of a market into distinct subsets of customers according to needs and buying habits • Widely used in implementing strategies • Small and specialized firms Market Segmentation Important Variable: • Market and product development, market penetration, and diversification require increased sales through new markets or products • Firm can operate with limited resources. Enables a small firm by maximizing per-unit profits and per-segment sales. • Segmentation decisions directly affect marketing mix variables: - Product, place, promotion, and price Marketing Mix – Component Factors Bases for Segmenting Markets –z • Geographic • Demographic • Psychographic • Behavioral Geographic Basis: – Region – County Size – City or SMSA size – Density – Climate Demographic Basis: – Age – Family Size – Family Life Cycle – Income Occupation – Education – Religion – Race Nationality Psychographic Basis: – Social Class – Lifestyle – Personality Behavioral Basis: – Use occasion – Benefits sought – User status – Usage rate – Loyalty status
  • 16.
    16 Short Notes: Mgt603 – Readiness Stage – Attitude toward product Developing schematic representations that reflect how products or services compare to competitors’ on dimensions most important to success in the industry Product Positioning based on: – Customers wants – Customers needs Product Positioning Steps 1. Select Key Criteria 2. Diagram Map 3. Plot competitors’ products 4. Look for niches 5. Develop Marketing Plan Product Positioning Map Rental Car Market • Firm 1 Firm 2 • • Firm 3 Low Convenience Product Positioning Map as Strategy-Implementation Tool— – Look for vacant niche – Avoid sub-optimization – Don’t serve 2 segments with same strategy – Don’t position in the middle of the map Lecture No. 38 Finance/Accounting Issues Central to Strategy Implementation – – Acquiring needed capital – Developing pro forma financial statements – Preparing financial budgets – Evaluating worth of a business
  • 17.
    17 Short Notes: Mgt603 Finance/Accounting Issues Acquiring Capital to Implement Strategies – • Basic sources of capital: – Debt – Equity Debt vs. Equity Decisions – • EPS/EBIT analysis – Earnings per share/Earnings before interest and taxes Pro Forma Financial Statements - • Allows an organization to examine the expected results of various actions and approaches 6 Steps in Pro Forma Financial Analysis • Prepare income statement before balance sheet (forecast sales) • Use percentage-of-sales method to project CGS and expenses • Calculate projected net income • Subtract dividends to be paid from Net Income and add remaining to Retained Earnings • Project balance sheet times beginning with retained earnings • List comments (remarks) on projected statements Financial Budget – Document that details how funds will be obtained and spent for a specified period of time. Types of Budgets – – Cash budgets – Operating budgets – Sales budgets – Profit budgets – Factory budgets – Capital budgets – Expense budgets – Divisional budgets – Variable budgets – Flexible budgets – Fixed budgets Evaluating Worth of a Business Central to strategy implementation as integrative, intensive and diversification strategies are often implement through acquisitions of other firms. Evaluating Worth of a Business 3 Basic approaches: 1. What a firm owns 2. What a firm earns 3. What a firm will bring in the market
  • 18.
    18 Short Notes: Mgt603 Lecture No. 39 Same above given in chapter 38 Central to Strategy Implementation – Evaluating Worth of a Business 3 Basic approaches: Till Decisions Requiring Finance/Accounting Policies 1. Raise capital w/ short-term, long-term preferred or common stock 2. Lease or buy fixed assets 3. Determine an appropriate dividend payout ratio 4. Use LIFO, FIFO, or market-value accounting approach 5. Extend time of accounts receivable 6. Establish percentage discount on accounts for terms 7. Determine the amount of cash kept on hand Lecture No. 40 Systematic Review, Evaluation & Control – – Strategies become obsolete – Internal environments are dynamic – External environments are dynamic • Strategy evaluation is vital to the organization’s well-being • Alert management to potential or actual problems in a timely fashion • Erroneous strategic decisions can have severe negative impact on organizations 3 Basic Activities – • Examining the underlying bases of a firms’ strategy • Comparing expected to actual results • Corrective actions to ensure performance conforms to plans Strategy evaluation – – Complex and sensitive undertaking – Overemphasis can be costly and counterproductive In many organizations, evaluation is an appraisal of performance – • Have assets increased? • Increase in profitability? • Increase in sales? • Increase in productivity? • Profit margins, ROI and EPS ratios increased? Four Criteria (Richard Rummelt): • Consistency • Consonance • Feasibility
  • 19.
    19 Short Notes: Mgt603 • Advantage Consistency – Strategy should not present inconsistent goals and policies. • Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency Consonance – Need for strategies to examine sets of trends • Adaptive response to external environment • Trends are results of interactions among other trends Feasibility – Neither overtax resources or create unsolvable sub-problems • Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy Advantage – Creation or maintenance of competitive advantage • Superiority in resources, skills, or position Difficulty in strategy evaluation – • Increase in environment’s complexity • Difficulty predicting future with accuracy • Increasing number of variables Difficulty in strategy evaluation – • Rate of obsolescence of plans • Domestic and global events • Decreasing time span for planning certainty Strategy evaluation should – – Initiative managerial questioning – Trigger review of objectives and values – Stimulate creativity in generating alternatives Lecture No. 41 Porter Supply Chain Model The Value Chain framework of Michael Porter is a model that helps to analyze specific activities through which firms can create value and competitive advantage. The activities of the Value Chain • Primary activities (line functions)
  • 20.
    20 Short Notes: Mgt603 • Support activities (Staff functions, overhead) Primary activities (line functions) • Inbound Logistics • Operations • Outbound Logistics • Marketing and Sales • Service Support activities (Staff functions, overhead) • Firm Infrastructure • Technology Development • Human Resource Management • Procurement Creating a cost advantage based on the value chain • A firm may create a cost advantage: • By reducing the cost of individual value chain activities, or • By reconfiguring the value chain. 10 cost drivers related to value chain activities • Economies of scale • Learning • Capacity utilization • Linkages among activities • Interrelationships among business units • Degree of vertical integration • Timing of market entry • Firm's policy of cost or differentiation • Geographic location • Institutional factors (regulation, union activity, taxes, etc.). Lecture No. 42 Same in above chapter Four Criteria (Richard Rummelt): Strategy evaluation should – Lecture No. 43 Review of underlying bases of strategy – – Develop revised EFE Matrix
  • 21.
    21 Short Notes: Mgt603 – Develop revised IFE Matrix Review effectiveness of strategy – • Competitors’ reaction to strategy • Competitors’ change in strategy • Competitors’ changes in strengths and weaknesses • Reasons for competitors’ strategic change • Reasons for competitors’ successful strategies • Competitors’ present market positions and profitability • Potential for competitor retaliation • Potential for cooperation with competitors Monitor Threats and Opportunities and Weaknesses and Strengths • Are our internal strengths still strengths? • Have we added additional strengths? • Are our weaknesses still weaknesses? • Have we other internal weaknesses? • Are opportunities still opportunities? • Other external opportunities? • Are threats still threats? • Are there other threats? • Are we vulnerable to a hostile takeover? Evaluation Framework I. Review Underlying Bases Differences? Yes NO III. II. Measure Firm Take Performance Corrective Actions Differences? Yes NO Continue present course Lecture No. 44 • Comparing expected to actual results • Investigating deviations from plan
  • 22.
    22 Short Notes: Mgt603 • Evaluating individual performance • Progress toward stated objectives Quantitative criteria for strategy evaluation – – Financial Ratios: • Compare performance over different periods • Compare performance to competitors • Compare performance to industry averages Key Financial Ratios – – Return on investment – Return on equity – Profit margin – Market share – Debt to equity – Earnings per share – Sales growth – Asset growth Qualitative evaluation of strategy - – Internal consistency of strategy – Consistency of strategy with environment – Strategy appropriate in view of resources – Acceptable degree of risk – Appropriate time frame – Workability of the strategy Lecture No. 45 Basic requirements for effective strategy evaluation – – Economical – Meaningful – Generate useful information – Timely information – Provide a true picture of what is happening Strategy-Evaluation Assessment Matrix
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    23 Havemajor Have major Short Notes: Mgt 603 changes changes occurred in occurred in Has the firm the firm’s the firm’s progressed internal external satisfactorily toward strategic strategic achieving its stated position? position? objectives? Result No No No Corrective actions Yes Yes Yes Corrective actions Yes Yes No Corrective actions Yes No Yes Corrective actions Yes No No Corrective actions No Yes Yes Corrective actions No Yes No Corrective actions No No Yes Continue course Premise of sound strategic management – – Planning to deal with unfavorable and favorable events before they occur. Contingency Planning – – Alternative plans that can be put into effect if certain key events do not occur as expected • Financial audits to determine correspondence between assertions based on strategic plans and established criteria • Environmental audits to insure sound and safe practices.