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Strategy Formulation.study notes bba semster 2

The document outlines strategic management processes, specifically focusing on strategy formulation, development of vision and mission statements, and the importance of external and internal assessments. It delves into elements such as establishing long-term objectives and understanding external forces affecting business operations. The document also emphasizes the role of mission statements in providing direction and purpose within organizations.

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© Dr. Nábrádi András DE-AVK By: By: Prof. Dr. Andr Prof. Dr. Andrá ás N s Ná ábr brá ádi di PhD, MBA PhD, MBA Strategic Management Process: Strategy formulation Strategy formulation University of Debrecen Faculty Faculty of Ag. Economics and of Ag. Economics and Rural Rural Development Development Dept Dept.: Business Management and Marketing .: Business Management and Marketing HUNGARY HUNGARY
© Dr. Nábrádi András DE-AVK Tasks of strategic management Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Strategy formulation Strategy Implementation Strategy Evaluation
© Dr. Nábrádi András DE-AVK Strategy formulation Business mission Internal analysis External analysis Establishing long term objectives ANALYSIS ANALYSIS Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK First stage of the strategic management Develop Vision and Mission Statements Establish long term objectives Generate, evaluate, and select strategies Strategy formulation (Strategic planning) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Strategy formulation •Developing vision and mission •Indetifying external opportunities and threats •Determining internal strenghts and weaknesses •Establishing long term objectives •Generating alternative strategies •Choosing particular strategies to pursue •Deciding what new business to enter •How to allocate resources •Expand or diversify operations •Entering or not international market •Merge or form joint venture •How to avoid a hostile takeover Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Strategy formulation Developing vision and mission Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Terms to remember STRATEGIC VISION STRATEGIC VISION A view of an organization’s future direction and busines course; a guiding for what the organization is trying to do and to become. What do we want to become? Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Vision Henkel is want to be a leader with brands and technologies that make people's lives easier, better and more beautiful. We will provide knowledge and take action to ensure the national security of the United States and the preservation of American life and ideals. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives What do we want to become?
© Dr. Nábrádi András DE-AVK Vision To be the leading food company in knowledge, consumer relations and revenues among companies headquartered in the region of Southeast, Central and Eastern Europe, as well as a pharmaceutical company which achieves more through a distinctive partnership approach. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives What do we want to become?
© Dr. Nábrádi András DE-AVK Terms to remember A mission statement broadly outlines the organization’s future direction and serves as aquiding concept for what the organization is to do and to become. Overriding premise in line with the values or expectations of stakeholders. STRATEGIC MISSION STRATEGIC MISSION What is our business? Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The mission We believe our first responsibility is to the doctors nurses to mothers who use our products and services. We offer a wide range of home furnishings with good design and function at prices so low that as many people as possible will be able to afford them. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives What is our business?
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The mission We are the eyes and ears of the nation and at times its hidden hand . Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives To create high-quality branded products that acquire the trust of clients and consumers. To pioneer the future in space exploration, scientific discovery and aeronautics research. What is our business?
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Personal mission statement Throughout each day in my life I strive to be loyal to my friends and family, lead a successful career that I will enjoy, stay healthy, and take on any challenges that come my way. I value my family members, friends, spiritual fulfillment, sense of accomplishment, and respect for others. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Strategic management principle Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Profit NOT mission or Profit NOT mission or vision is a primary vision is a primary corporate motivator corporate motivator! !
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The process of developing a mission statement • First to select several articles about mission statements and ask all managers to read these as background information • Ask managers themselves to prepare a mission statement for the organization • Committee of top managers should then merge these statements into a single documents, • Than distribute this draft mission statement to all managers as a request for modifications • Finalize the modified statement in front of CEO’s Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The process of developing a mission statement An effective mission statement An effective mission statement • should not too lengthy; recommended is less than 200 words • arouses positive feelings and emotions about an organization • generates the impression that a firm is successful, has direction • distinguish a given organization from all others • widely understood throughout the organization • identify the utility of a firm’s products to its consumers >>>> Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Do not offer me things Do not offer me clothes. Offer me attractive looks. Do not offer me shoes. Offer me comfort feet of walking. Do not offer me a house. Offer me security, comfort, and place that is clean and happy. Do not offer me books. Offer me hours of pleasure and benefit of knowledge. Do not offer me records. Offer me leisure and sound of music. Do not offer me things. Offer me ideas, Do not offer me things. Offer me ideas, emotions, ambience, feelings and benefits. emotions, ambience, feelings and benefits. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Characteristic of a mission statement • •Declaration of attitude Declaration of attitude • • Not allowed to move wrong diversification • Not designed to concrete ends, rather to provide motivation, general direction, image and philiosophy • • Costumer orientation Costumer orientation • To attract customers who give meaning to an organization • Declaration of social policy Declaration of social policy • • Different kind of responsibility Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Why mission statement? 1. To ensure unanimity of purpose within the organization. 2. To provide a basis or standard for allocating organizational resources. 3. To establish a general tone or organizational climate. 4. To serve a focal point for individuals to identify with the organization’s purpose and direction. 5. To facilitate the translation of objectives into a work structure involving the assignment of tasks to responsible elements within the organization. 6. To specify organizational purposes or motion and then to translate these purposes into objectives. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Why mission statement? Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Strategy formulation Business mission Internal analysis External analysis External analysis Establishing long term objectives Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés External assessment Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives „ORGANIZATION” Suppliers Consumers Competitors Regulatory agencies. Unions, cham bers I n t e r n a t i o n a l L e g a l s y s t e m Economic policy S o c i o / c u l t u r a l Technological Natural environment Financial corporations
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The nature of an external audit The purpose is to develop a finite list of The purpose is to develop a finite list of opportunities opportunities that could benefit a firm and that could benefit a firm and threats threats that should be avoided. that should be avoided. Methods for external assessment; Methods for external assessment; 1. 1. Key external forces; (STEP analysis) Key external forces; (STEP analysis) 2. 2. Competitive Analysis (Porter Competitive Analysis (Porter’ ’s Five Forces s Five Forces Model) Model) 3. 3. The External Factor Evaluation Matrix (EFE) The External Factor Evaluation Matrix (EFE) 4. 4. The Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Key external forces Key external forces; (STEP analysis) Key external forces; (STEP analysis) • • S Social, cultural, demographic, and environment • • T Technological • • E Economic • • P Political, governmental, and legal + + • • Competitive Competitive Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Social, Cultural, Demographic, and Environmental Forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 1. What is the dominant religion? 2. What are attitudes to foreign products and services? 3. Does language impact upon the diffusion of products onto markets? 4. How much time do consumers have for leisure? 5. What are the roles of men and women within society? 6. How long are the population living? Are the older generations wealthy? 7. Do the population have a strong/weak opinion on green issues?
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Social, Cultural, Demographic, and Environmental Variables Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Number of marriages Number of divorces Number of births Number of death Immigration rates Social security programs Life expectancy rates Trust in government Ethical concerns Average level of education Sex roles Average disposable income Retirement age Attitudes tow. leisure time Pollution control Social programs Number of churches Attitudes tow. product qal. Attitudes tow. authority Waste management Number of school, college Recycling Water pollution Ozone depletion Air pollution Social responsibility
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Technological Forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 1. Does technology allow for products and services to be made more cheaply and to a better standard of quality? 2 .Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc? 3. How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc? 4. Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Economic Forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Strategists Strategists need need to to consider consider the the state state of a of a trading trading economy in the economy in the short short and and long long- -terms terms. . This This is is especially especially true true when when planning planning for for international marketing. international marketing. You need to look at: 1. Interest rates 2. The level of inflation Employment level per capita 3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Key Economic Variables to be Monitored Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Availability of credit Level of disposable income Interest rates Inflation rates Government budget deficit Consumption patterns Unemployment rates Import/export factors Price fluctuations Monetary policies Fiscal policies Gross domestic product trend Worker productivity levels Value of the local currency Stock market trends Export of labor and capital Income differences by region and consumer groups Tax rates Change of European Economic Policy
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Political, governmental, and legal forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives The The political political arena arena has a has a huge huge influence influence upon upon the the regulation regulation of businesses, and the of businesses, and the spending spending power of power of consumers consumers and and other other businesses. businesses. You You must must consider consider issues issues such such as: as: 1.How stable is the political environment? 2.Will government policy influence laws that regulate or tax your business? 3.What is the government's position on marketing ethics? 4. What is the government's policy on the economy? 5. Does the government have a view on culture and religion? 6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Some Political, Governmental, and Legal Variables to be Monitored Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Government regulations Changes in tax laws Special tariffs Number of patterns Political action committees Environmental protection laws Level of governmental subsidies Import/export regulation Government fiscal and monetary policy changes Political conditions in foreign countries Special local laws, taxes Lobbying activities Size of governmental budget National/local elections, regulations Location and severity of terrorist activities Relationships between neighbor countries Antitrust legislation
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Competitive forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Collecting and evaluating information on competitors is Collecting and evaluating information on competitors is essential for successful strategy formulation. essential for successful strategy formulation. 1. What are the major competitor’s strengths? 2. What are the major competitor’s weaknesses? 3. What are the major competitor’s objectives and strategies? 4. How will the major competitors most likely respond to STEP affecting our industry? 5. How vulnerable are the major competitors to our alternative company strategies? 6. How are our products or services positioned relative to major competitors?
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Competitive forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives To what extent are new firms entering and old firms leaving this industry? 7. What key factors have resulted in our present competitive position in this industry? 8. How have sales and profit rankings of major competitors in the industry changed over recent years? Why have these rankings changed that way? 9. What is the nature of supplier and distributor relationships in this industry? 10. To what extent could substitute products or services be a threat to competitors in this industry?
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The nature of an external audit The purpose is to develop a finite list of The purpose is to develop a finite list of opportunities opportunities that could benefit a firm and that could benefit a firm and threats threats that should be avoided. that should be avoided. Methods for external assessment; Methods for external assessment; 1. 1. Key external forces; (STEP analysis) Key external forces; (STEP analysis) 2. 2. Competitive Analysis (Porter Competitive Analysis (Porter’ ’s Five Forces s Five Forces Model) Model) 3. 3. The External Factor Evaluation Matrix (EFE) The External Factor Evaluation Matrix (EFE) 4. 4. The Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Competitive Analysis Porter’s Five-Forces Model Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Potential development of substitute products Potential entry of new competitors Bargaining power of suppliers Bargaining power of consumers Rivalry among competing firms
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Rivalry among competing firms The most powerful Tools Tools 1. Lowering prices 2. Enhancing quality 3. Adding features 4. Providing services 5. Extending warranties 6. Increasing advertising Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The intensity of Rivalry increases 1. Number of competitor increases 2. Competitors become more equal 3. Demand for the products declines 4. Price cutting become common 5. Consumers can switch brands easily 6. Fixed costs are high 7. Consumer demand decline or stagnates 8. Mergers and acquisitions are common Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Competitive Analysis Porter’s Five-Forces Model Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Potential development of substitute products Potential entry of new competitors Potential entry of new competitors Bargaining power of suppliers Bargaining power of consumers Rivalry among competing firms
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Potential entry of new competitors BARRIERS BARRIERS 1. The lack of experience 2. Strong consumer royalty 3. Strong brand preferences 4. Government regulatory policies 5. Tariffs 6. Lack of process to raw materials 7. Possession of patterns 8. Undesirable location 9. Market saturation Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives OPPORTUNITIES OPPORTUNITIES 1. Higher quality products 2. Lower prices 3. Substantial marketing resources 4. All the opposite listed in barriers
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Competitive Analysis Porter’s Five-Forces Model Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Potential development of substitute products Potential entry of new competitors Bargaining power of suppliers Bargaining power of consumers Rivalry among competing firms
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Potential development of substitute products Competitive pressures arising from substitute products increase as the relative price of substitute products declines and consumer’s switching costs decrease. Substitutes Substitutes Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Eyeglasses, contact lens >>>>>>> Laser surgery Sugar >>>>>>>> Artificial sweeteners Newspapers >>>>>>>> Internet
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Bargaining power of suppliers WHEN bigger? WHEN bigger? 1. Large number of suppliers 2. Few good substitute raw materials 3. Cost of switching raw materials is especially costly Tools against the bargaining power of suppliers Backward integration Self manufacture Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Competitive Analysis Porter’s Five-Forces Model Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Potential development of substitute products Potential entry of new competitors Bargaining power of suppliers Bargaining power of consumers Rivalry among competing firms
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Bargaining power of consumers WHEN bigger? WHEN bigger? 1. When costumers are concentrated 2. Products are standard or undifferentiated 3. If they can inexpensively switch to competing brands or substitutes 4. If they are particularly important to the seller 5. When sellers extremely need consumer demand 6. If they are informed about seller’s product prices and costs Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The nature of an external audit The purpose is to develop a finite list of The purpose is to develop a finite list of opportunities opportunities that could benefit a firm and that could benefit a firm and threats threats that should be avoided. that should be avoided. Methods for external assessment; Methods for external assessment; 1. 1. Key external forces; (STEP analysis) Key external forces; (STEP analysis) 2. 2. Competitive Analysis (Porter Competitive Analysis (Porter’ ’s Five Forces s Five Forces Model) Model) 3. 3. The External Factor Evaluation Matrix (EFE) The External Factor Evaluation Matrix (EFE) 4. 4. The Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés External Factor Evaluation (EFE) Matrix EFE allows strategists to summarize and evaluate all external factors in one one sum. 1. Collect 10 to 20 factors both opportunities and threats that affect the firm and its industry. 2. Assign to each factor a weight from 0,00 (not important) to 1,00 (extremely important). The weight indicates the relative importance of that factor to being successful in the firm firm’ ’s s industry industry. The sum of all weights is 1. 3. Assign a rating between 1 and 4 to each external factor to indicate how effectively the firm firm’ ’s current strategies s current strategies respond to the factor: where 4 is superior, 3 is above average, 2 is average and 1 is response is poor. 4. Multiply each factor’s weight by rating to determine a weighted score. 5. Sum the weighted score to determine the total weighted score for organization. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés External Factor Evaluation (EFE) Matrix Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 3. >>>>9 or 10 key items 0,07 1 0,07 2. Leading rival firms are more fully integrated Σ (1 to 4) 1,00 Total 0,08 2 0,04 1. Increasing governmental regulation in the industry Threats 3 . >>>>…..9 or 10 items 0,06 2 0,03 2. Packaging technology offers 15 % annual cost savings 0,28 4 0,07 1. Demand for prepared food increasing 10 % annually Opportunities Weighted score Rating Weight Key external factors 1 2 3 4 5 Importance to the firm’s industry Importance to the firm’s current strategy
© Dr. Nábrádi András DE-AVK Az üzleti küldetés External Factor Evaluation (EFE) Matrix Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives The highest weighted score is 4 the lowest is 1 the average is 2,5. 4 means: the firm’s strategies effectively take advantage of existing opportunities and minimize the potential adverse of external threats. 1 means: The firm’s strategies are not capitalizing on opportunities or avoiding external threats.
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The nature of an external audit The purpose is to develop a finite list of The purpose is to develop a finite list of opportunities opportunities that could benefit a firm and that could benefit a firm and threats threats that should be avoided. that should be avoided. Methods for external assessment; Methods for external assessment; 1. 1. Key external forces; (STEP analysis) Key external forces; (STEP analysis) 2. 2. Competitive Analysis (Porter Competitive Analysis (Porter’ ’s Five Forces s Five Forces Model) Model) 3. 3. The External Factor Evaluation Matrix (EFE) The External Factor Evaluation Matrix (EFE) 4. 4. The Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The Competitive Profile Matrix (CPM) Identifies a firm’s major competitors and its particular strengths and weaknesses in relation to a sample firm’s strategic position 1. Collect 10 to 20 critical success factors (CSF) that affect the firm and its industry. The SCF include both internal and external issues. 2. Assign to each factor a weight from 0,00 (not important) to 1,00 (extremely important). The weight indicates the relative importance of that factor to being successful in the industry industry. The sum of all weights is 1. 3. Assign a rating between 1 and 4 to each external factor to refer to strengths and weaknesses: where 4 is major strength, 3 is minor strength, 2 is minor weakness, and 1 is major weakness. 4. Multiply each factor’s weight by rating to determine a weighted score. 5. Sum the weighted score to determine the total weighted score for organization. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 2,80 3,15 1,00 TOTAL 0,15 3 0,05 1 0,05 Market share 0,40 2 0,8 4 0,20 Global expansion 0,20 2 0,4 4 0,10 Customer loyalty 0,45 3 0,6 4 0,15 Financial position 0,30 3 0,4 4 0,10 Management 0,40 4 0,3 3 0,10 Price competitiveness 0,30 3 0,4 4 0,10 Product quality 0,60 3 0,2 1 0,20 Advertising Score Ratin g Score Rating Weight Critical Success Factors Procter&Gambl e AVON AN EXAMPLE
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Important differences between EFE and CPM CPM CPM • are boarder, they do not include specific or factual data and even may focus on internal issues. • Not grouped into opportunities and threats. • CPM ratings and total weighted scores for rival firms can be compared to the sample firm.
© Dr. Nábrádi András DE-AVK Strategy formulation Business mission Internal analysis External analysis Establishing long term objectives Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Internal assessment Internal assessment Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Internal strengths/weaknesses strengths/weaknesses, coupled with external opportunities/threats and clear statement of mission provide the basis for establishing objectives and strategies. Methods for internal assessment: Methods for internal assessment: 1. 1. Resource Based View (RBV) Approach Resource Based View (RBV) Approach 2. 2. Analyzing Key Internal Forces Analyzing Key Internal Forces 3. 3. Value Chain Analysis (VCA), (ABC) Value Chain Analysis (VCA), (ABC) 4. 4. Internal Factor Evaluation (IFE) Matrix Internal Factor Evaluation (IFE) Matrix
© Dr. Nábrádi András DE-AVK Internal assessment Methods Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 1. 1. Resource Based View approach Resource Based View approach • Physical resources Plant, equipment, location, technology, raw materials, machines • Human resources Employees, training, experience, intelligence, knowledge, skills, abilities • Organizational resources Firm structure, planning processes, information systems, patents, trademarks, copyrights, databases
© Dr. Nábrádi András DE-AVK Internal assessment Methods Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Key internal forces: Key internal forces: 1. Management 2. Marketing 3. Finance/accounting 4. Production/operation 5. Research and development 6. Management Information System
© Dr. Nábrádi András DE-AVK Internal assessment Methods Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 2. Analyzing key internal forces 2. Analyzing key internal forces 1. Management Planning, organizing, motivating, staffing, and controlling. 2. Marketing Customer analysis, selling products and services, product and service planning, pricing, distribution, marketing research, opportunity analysis 3. Finance/ accounting Firm’s liquidity, leverage, working capital, profitability, asset utilization, cash flow, and equity
© Dr. Nábrádi András DE-AVK Internal assessment Methods Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 2. Analyzing key internal forces 2. Analyzing key internal forces 4. Production/operation Decision on process, capacity, inventory, workforce and quality. 5. Research and development 6. Management information system Data become information only when they are evaluated, filtered, condensed, analyzed, and organized for a specific purpose, problem, individual, or time. 3. Value Chain Analysis 3. Value Chain Analysis Refers to the process whereby a firm determines the costs associated with organizational activities. 4. Internal Factor Evaluation (IFE) Matrix 4. Internal Factor Evaluation (IFE) Matrix
© Dr. Nábrádi András DE-AVK Key Internal Forces Management Management 1. 1. planning: planning: consists of all those managerial activities related to preparing for future. Specific tasks: forecasting, establishing objectives, devising strategies, developing policies, and setting goals. 2. 2. Organizing: Organizing: includes all those managerial activities that result in a structure of task and authority relationships. Specific areas: organizational design, job specialization, job description, coordination, job analysis. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Key Internal Forces Management Management 3. 3. Motivating: Motivating: involves efforts directed towards shaping human behavior. Specific topics: leadership, communication, work groups, delegation of authority, job satisfaction, employee morale. 4. 4. Staffing: Staffing: are centered on personnel or HRM. Wage and salary administration, interviewing, hiring, firing, training, employee safety, union relation, career development, personnel research, public relations. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Key Internal Forces Management Management 5. 5. Controlling: Controlling: ensuring that actual results are consistent with planned results. Key areas: quality control, financial control, sales control, inventory control, expense control, analysis of variances, rewards, and sanctions. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Strategy Strategy evaluation evaluation Controlling Controlling Staffing Staffing Motivating Motivating Strategy Strategy Implementation Implementation Organizing Organizing Strategy Strategy Formulation Formulation Planning Planning
© Dr. Nábrádi András DE-AVK Internal assessment Methods Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Key internal forces: Key internal forces: 1. Management 2. Marketing 3. Finance/accounting 4. Production/operation 5. Research and development 6. Management Information System
© Dr. Nábrádi András DE-AVK Key Internal Forces Finance/accounting Finance/accounting 1. 1. Investment decision: Investment decision: (capital budgeting) is the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization. 2. 2. Financing decision: Financing decision: determines the best capital structure, how the firm can raise capital. Issuing stock, increasing dept, selling assets or using a combination of these. 3. Dividend decision: percentage of earnings paid to stockholders. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Key Internal Forces Finance/accounting Finance/accounting Key financial ratios: Key financial ratios: Like a blood test: reflect a situation at just one point in time. 1. Liquidity 2. Leverage 3. Activity 4. Profitability 5. Growth Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Key Internal Forces Finance/accounting Finance/accounting 1. 1. Liquidity Liquidity Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives A firm can (not) meet its short term obligations Without relying upon the sale of its inventories Current assets – inventory Current liabilities Quick ratio A firm can (not) meet its short term obligations Current assets Current liabilities Current What it measures What it measures How calculated How calculated RATIO RATIO
© Dr. Nábrádi András DE-AVK Key Internal Forces Finance/accounting Finance/accounting 2. Leverage ratios 2. Leverage ratios Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives A balance between dept and equity in a firm’s long term capital structure Long term dept__ Total stockholder’s equity Long term dept to equity The extent to which earnings can decline without the firm becoming unable to meet its annual interest Profit before interest and taxes Total interest charges Times interest earned ratio The % of total funds provided by creditors versus by owners Total dept____ Total stockholder’s equity Dept to equity The % of total funds that are provided by creditors Total dept Total assets Dept to total assets What it measures What it measures How calculated How calculated RATIO RATIO
© Dr. Nábrádi András DE-AVK Key Internal Forces Finance/accounting Finance/accounting 3. Activity ratios 3. Activity ratios Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives The average length of time it takes a firm to collect credit sales (%) Annual credit sales Account receivable Account receivable turnover The average length of time it takes a firm to collect credit sales (days) Account receivable Total credit sales/365 days Average collection period Sales productivity on total assets Sales______ Total assets Total assets turnover Sales productivity and plant and equipment utilization Sales______ Fixed assets Fixed assets turnover Whether a firm holds excessive stocks of inventories Sales______ Inventory of finished goods Inventory turnover What it measures What it measures How calculated How calculated RATIO RATIO
© Dr. Nábrádi András DE-AVK Key Internal Forces Finance/accounting Finance/accounting 4. Profitability ratios 4. Profitability ratios Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives After tax profits of sales Net income______ Sales Net profit margin Profitability exclude I&T Earnings before interest and taxes Sales Operating profit margin A total margin available to cover operating expenses and yield a profit Sales minus cost of good sold Sales Gross profit margin What it measures What it measures How calculated How calculated RATIO RATIO
© Dr. Nábrádi András DE-AVK Key Internal Forces Finance/accounting Finance/accounting 4. Profitability ratios (continued) 4. Profitability ratios (continued) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Attractiveness of firm on equity market Market price per share Earnings per share Price earning ratio Earnings available to the owners of common stock Net income______ Number of shares of common stock Earnings per share (EPS) After tax profits of stockholder’s investment Net income Total stockholders’ equity Return on stockholder s’ equity After tax profits of assets (Return on investment) Net income Total assets Return on total assets (ROA) What it measures What it measures How calculated How calculated RATIO RATIO
© Dr. Nábrádi András DE-AVK Key Internal Forces Finance/accounting Finance/accounting 5. Growth ratios 5. Growth ratios Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Firms growth rate in EPS Annual % growth in EPS Earnings per share Firms growth rate in dividends per share Annual % growth in dividends per share Dividends per share Firms growth rate in profits Annual % growth in profits Net income Firms growth rate in sales Annual % growth in total sales Sales What it measures What it measures How calculated How calculated RATIO RATIO
© Dr. Nábrádi András DE-AVK Internal assessment Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Key internal forces: Key internal forces: 1. Management 2. Marketing 3. Finance/accounting 4. Production/operation 5. Research and development 6. Management Information System
© Dr. Nábrádi András DE-AVK Key Internal Forces Production/operation Production/operation This function of a business consists of all those activities that transform inputs into good and services. 5 functions or decision areas 5 functions or decision areas: • Process • Capacity • Inventory • Workforce • Quality Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
© Dr. Nábrádi András DE-AVK Key Internal Forces Production/operation Production/operation Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Design of physical production system. Specific: choice of technology, facility layout, process flow analysis, process control, transportation analysis 1. Process Ensuring the certain quality goods and services are produced. Specific: quality control, sampling, quality assurance and cost control 5. Quality Managing the skilled, unskilled, clerical, and managerial employees. Specific: job design, work measurement, job enrichment, work standards and motivation techniques. 4. Workforce Managing the level of raw materials, work-in process, and finished goods. Specific: what to order, how much to order, materials handling. 3. Inventory Determination of optimal output level for the firm. Specific: forecasting, facilities planning, aggregate planning, scheduling, capacity planning. 2. Capacity DESCRIPTION DESCRIPTION FUNCTION FUNCTION
© Dr. Nábrádi András DE-AVK Internal assessment Internal assessment Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Internal strengths/weaknesses strengths/weaknesses, coupled with external opportunities/threats and clear statement of mission provide the basis for establishing objectives and strategies. Methods for internal assessment: Methods for internal assessment: 1. 1. Resource Based View (RBV) Approach Resource Based View (RBV) Approach 2. 2. Analyzing Key Internal Forces Analyzing Key Internal Forces 3. 3. Value Chain Analysis (VCA) Value Chain Analysis (VCA) Activity Based Activity Based Costing (ABC) Costing (ABC) 4. 4. Internal Factor Evaluation (IFE) Matrix Internal Factor Evaluation (IFE) Matrix
© Dr. Nábrádi András DE-AVK Value chain Analysis Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Value chain analysis refers to the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products to marketing those products. Aims to identify where low cost Aims to identify where low cost advantages or disadvantages exist advantages or disadvantages exist anywhere along the value chain. anywhere along the value chain.
© Dr. Nábrádi András DE-AVK Value Chain Analysis Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Supplier Production Distribution Sales + marketing Customer service
© Dr. Nábrádi András DE-AVK Value Chain Analysis Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Supplier Production Distribution Sales + marketing Customer service Maintenance Warehouse Food and lodging Fuel Cost accounting Storing Transportatio n Railroads R and D Inspection Advertising Trucking Computer Component parts Promotion Internet Plant location Truck drivers Warranty Publicity Personnel Maintenance Transportatio n Internet Internet Budgeting Plant layout Energy Phone Web site Shipping Receiving Fuel Postage Salespersons Loading Inventory system Raw mat.
© Dr. Nábrádi András DE-AVK Value Chain Analysis Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Supplier Production Distribution Sales + marketing Customer service
© Dr. Nábrádi András DE-AVK Value Chain Analysis Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Supplier Production Distribution Sales + marketing Customer service
© Dr. Nábrádi András DE-AVK Internal assessment Internal assessment Internal strengths/weaknesses strengths/weaknesses, coupled with external opportunities/threats and clear statement of mission provide the basis for establishing objectives and strategies. Methods for internal assessment: Methods for internal assessment: 1. 1. Resource Based View (RBV) Approach Resource Based View (RBV) Approach 2. 2. Analyzing Key Internal Forces Analyzing Key Internal Forces 3. 3. Value Chain Analysis (VCA), (ABC) Value Chain Analysis (VCA), (ABC) 4. 4. Internal Factor Evaluation (IFE) Matrix Internal Factor Evaluation (IFE) Matrix Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés The Internal Factor Evaluation Matrix Identifies a firm’s major strengths and weaknesses allows strategists to summarize and evaluate all internal factors in one one sum. 1. Collect 10 to 20 internal factors including both strengths and weaknesses. Use percentage, ratios and comparative numbers. 2. Assign to each factor a weight from 0,00 (not important) to 1,00 (extremely important). The weight indicates the relative importance of that factor to being successful in the industry industry. The sum of all weights is 1. 3. Assign a rating between 1 and 4 to each external factor to refer to strengths and weaknesses: where 4 is major strength, 3 is minor strength, 2 is minor weakness, and 1 is major weakness. 4. Multiply each factor’s weight by rating to determine a weighted score. 5. Sum the weighted score to determine the total weighted score for organization. Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives
© Dr. Nábrádi András DE-AVK Az üzleti küldetés Internal Factor Evaluation (IFE) Matrix 3. >>>>9 or 10 key items 0,07 1 0,07 2. 86 % of the trade revenues come from Europe Σ (1 to 4) 1,00 Total 0,06 2 0,03 1. Our company total dept to equity ratio is 0,36 compared to the industry average of 0,9 Weaknesses 3 . >>>>…..9 or 10 items 0,24 4 0,06 2. Our company has 50 subsidiary in Europe and Asia 0,24 3 0,08 1. Our company provide 24-hour, 7 day services Strengths Weighted score Rating Weight Key internal factors Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives
© Dr. Nábrádi András DE-AVK Internal Factor Evaluation (IFE) Matrix The highest weighted score is 4 the lowest is 1 the average is 2,5. Total weighted scores well below 2,5 below 2,5 characterize organizations that are weak weak internally, whereas scores significantly above 2,5 above 2,5 indicate a strong strong internal position position. Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives
© Dr. Nábrádi András DE-AVK Internal Factor Evaluation (IFE) Matrix Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Strategy formulation Business mission Internal analysis External analysis Establishing long term objectives Establishing long term objectives Generating alternative strategies Choosing particular strategies to pursue Deciding what new business to enter

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Strategy Formulation.study notes bba semster 2

  • 1.
    © Dr. NábrádiAndrás DE-AVK By: By: Prof. Dr. Andr Prof. Dr. Andrá ás N s Ná ábr brá ádi di PhD, MBA PhD, MBA Strategic Management Process: Strategy formulation Strategy formulation University of Debrecen Faculty Faculty of Ag. Economics and of Ag. Economics and Rural Rural Development Development Dept Dept.: Business Management and Marketing .: Business Management and Marketing HUNGARY HUNGARY
  • 2.
    © Dr. NábrádiAndrás DE-AVK Tasks of strategic management Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Strategy formulation Strategy Implementation Strategy Evaluation
  • 3.
    © Dr. NábrádiAndrás DE-AVK Strategy formulation Business mission Internal analysis External analysis Establishing long term objectives ANALYSIS ANALYSIS Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 4.
    © Dr. NábrádiAndrás DE-AVK First stage of the strategic management Develop Vision and Mission Statements Establish long term objectives Generate, evaluate, and select strategies Strategy formulation (Strategic planning) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 5.
    © Dr. NábrádiAndrás DE-AVK Strategy formulation •Developing vision and mission •Indetifying external opportunities and threats •Determining internal strenghts and weaknesses •Establishing long term objectives •Generating alternative strategies •Choosing particular strategies to pursue •Deciding what new business to enter •How to allocate resources •Expand or diversify operations •Entering or not international market •Merge or form joint venture •How to avoid a hostile takeover Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 6.
    © Dr. NábrádiAndrás DE-AVK Strategy formulation Developing vision and mission Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 7.
    © Dr. NábrádiAndrás DE-AVK Terms to remember STRATEGIC VISION STRATEGIC VISION A view of an organization’s future direction and busines course; a guiding for what the organization is trying to do and to become. What do we want to become? Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 8.
    © Dr. NábrádiAndrás DE-AVK Vision Henkel is want to be a leader with brands and technologies that make people's lives easier, better and more beautiful. We will provide knowledge and take action to ensure the national security of the United States and the preservation of American life and ideals. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives What do we want to become?
  • 9.
    © Dr. NábrádiAndrás DE-AVK Vision To be the leading food company in knowledge, consumer relations and revenues among companies headquartered in the region of Southeast, Central and Eastern Europe, as well as a pharmaceutical company which achieves more through a distinctive partnership approach. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives What do we want to become?
  • 10.
    © Dr. NábrádiAndrás DE-AVK Terms to remember A mission statement broadly outlines the organization’s future direction and serves as aquiding concept for what the organization is to do and to become. Overriding premise in line with the values or expectations of stakeholders. STRATEGIC MISSION STRATEGIC MISSION What is our business? Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 11.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The mission We believe our first responsibility is to the doctors nurses to mothers who use our products and services. We offer a wide range of home furnishings with good design and function at prices so low that as many people as possible will be able to afford them. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives What is our business?
  • 12.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The mission We are the eyes and ears of the nation and at times its hidden hand . Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives To create high-quality branded products that acquire the trust of clients and consumers. To pioneer the future in space exploration, scientific discovery and aeronautics research. What is our business?
  • 13.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Personal mission statement Throughout each day in my life I strive to be loyal to my friends and family, lead a successful career that I will enjoy, stay healthy, and take on any challenges that come my way. I value my family members, friends, spiritual fulfillment, sense of accomplishment, and respect for others. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 14.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Strategic management principle Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Profit NOT mission or Profit NOT mission or vision is a primary vision is a primary corporate motivator corporate motivator! !
  • 15.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The process of developing a mission statement • First to select several articles about mission statements and ask all managers to read these as background information • Ask managers themselves to prepare a mission statement for the organization • Committee of top managers should then merge these statements into a single documents, • Than distribute this draft mission statement to all managers as a request for modifications • Finalize the modified statement in front of CEO’s Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 16.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The process of developing a mission statement An effective mission statement An effective mission statement • should not too lengthy; recommended is less than 200 words • arouses positive feelings and emotions about an organization • generates the impression that a firm is successful, has direction • distinguish a given organization from all others • widely understood throughout the organization • identify the utility of a firm’s products to its consumers >>>> Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 17.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Do not offer me things Do not offer me clothes. Offer me attractive looks. Do not offer me shoes. Offer me comfort feet of walking. Do not offer me a house. Offer me security, comfort, and place that is clean and happy. Do not offer me books. Offer me hours of pleasure and benefit of knowledge. Do not offer me records. Offer me leisure and sound of music. Do not offer me things. Offer me ideas, Do not offer me things. Offer me ideas, emotions, ambience, feelings and benefits. emotions, ambience, feelings and benefits. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 18.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Characteristic of a mission statement • •Declaration of attitude Declaration of attitude • • Not allowed to move wrong diversification • Not designed to concrete ends, rather to provide motivation, general direction, image and philiosophy • • Costumer orientation Costumer orientation • To attract customers who give meaning to an organization • Declaration of social policy Declaration of social policy • • Different kind of responsibility Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 19.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Why mission statement? 1. To ensure unanimity of purpose within the organization. 2. To provide a basis or standard for allocating organizational resources. 3. To establish a general tone or organizational climate. 4. To serve a focal point for individuals to identify with the organization’s purpose and direction. 5. To facilitate the translation of objectives into a work structure involving the assignment of tasks to responsible elements within the organization. 6. To specify organizational purposes or motion and then to translate these purposes into objectives. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 20.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Why mission statement? Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 21.
    © Dr. NábrádiAndrás DE-AVK Strategy formulation Business mission Internal analysis External analysis External analysis Establishing long term objectives Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 22.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés External assessment Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives „ORGANIZATION” Suppliers Consumers Competitors Regulatory agencies. Unions, cham bers I n t e r n a t i o n a l L e g a l s y s t e m Economic policy S o c i o / c u l t u r a l Technological Natural environment Financial corporations
  • 23.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The nature of an external audit The purpose is to develop a finite list of The purpose is to develop a finite list of opportunities opportunities that could benefit a firm and that could benefit a firm and threats threats that should be avoided. that should be avoided. Methods for external assessment; Methods for external assessment; 1. 1. Key external forces; (STEP analysis) Key external forces; (STEP analysis) 2. 2. Competitive Analysis (Porter Competitive Analysis (Porter’ ’s Five Forces s Five Forces Model) Model) 3. 3. The External Factor Evaluation Matrix (EFE) The External Factor Evaluation Matrix (EFE) 4. 4. The Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 24.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Key external forces Key external forces; (STEP analysis) Key external forces; (STEP analysis) • • S Social, cultural, demographic, and environment • • T Technological • • E Economic • • P Political, governmental, and legal + + • • Competitive Competitive Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 25.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Social, Cultural, Demographic, and Environmental Forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 1. What is the dominant religion? 2. What are attitudes to foreign products and services? 3. Does language impact upon the diffusion of products onto markets? 4. How much time do consumers have for leisure? 5. What are the roles of men and women within society? 6. How long are the population living? Are the older generations wealthy? 7. Do the population have a strong/weak opinion on green issues?
  • 26.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Social, Cultural, Demographic, and Environmental Variables Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Number of marriages Number of divorces Number of births Number of death Immigration rates Social security programs Life expectancy rates Trust in government Ethical concerns Average level of education Sex roles Average disposable income Retirement age Attitudes tow. leisure time Pollution control Social programs Number of churches Attitudes tow. product qal. Attitudes tow. authority Waste management Number of school, college Recycling Water pollution Ozone depletion Air pollution Social responsibility
  • 27.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Technological Forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 1. Does technology allow for products and services to be made more cheaply and to a better standard of quality? 2 .Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc? 3. How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc? 4. Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?
  • 28.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Economic Forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Strategists Strategists need need to to consider consider the the state state of a of a trading trading economy in the economy in the short short and and long long- -terms terms. . This This is is especially especially true true when when planning planning for for international marketing. international marketing. You need to look at: 1. Interest rates 2. The level of inflation Employment level per capita 3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on
  • 29.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Key Economic Variables to be Monitored Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Availability of credit Level of disposable income Interest rates Inflation rates Government budget deficit Consumption patterns Unemployment rates Import/export factors Price fluctuations Monetary policies Fiscal policies Gross domestic product trend Worker productivity levels Value of the local currency Stock market trends Export of labor and capital Income differences by region and consumer groups Tax rates Change of European Economic Policy
  • 30.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Political, governmental, and legal forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives The The political political arena arena has a has a huge huge influence influence upon upon the the regulation regulation of businesses, and the of businesses, and the spending spending power of power of consumers consumers and and other other businesses. businesses. You You must must consider consider issues issues such such as: as: 1.How stable is the political environment? 2.Will government policy influence laws that regulate or tax your business? 3.What is the government's position on marketing ethics? 4. What is the government's policy on the economy? 5. Does the government have a view on culture and religion? 6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?
  • 31.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Some Political, Governmental, and Legal Variables to be Monitored Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Government regulations Changes in tax laws Special tariffs Number of patterns Political action committees Environmental protection laws Level of governmental subsidies Import/export regulation Government fiscal and monetary policy changes Political conditions in foreign countries Special local laws, taxes Lobbying activities Size of governmental budget National/local elections, regulations Location and severity of terrorist activities Relationships between neighbor countries Antitrust legislation
  • 32.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Competitive forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Collecting and evaluating information on competitors is Collecting and evaluating information on competitors is essential for successful strategy formulation. essential for successful strategy formulation. 1. What are the major competitor’s strengths? 2. What are the major competitor’s weaknesses? 3. What are the major competitor’s objectives and strategies? 4. How will the major competitors most likely respond to STEP affecting our industry? 5. How vulnerable are the major competitors to our alternative company strategies? 6. How are our products or services positioned relative to major competitors?
  • 33.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Competitive forces Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives To what extent are new firms entering and old firms leaving this industry? 7. What key factors have resulted in our present competitive position in this industry? 8. How have sales and profit rankings of major competitors in the industry changed over recent years? Why have these rankings changed that way? 9. What is the nature of supplier and distributor relationships in this industry? 10. To what extent could substitute products or services be a threat to competitors in this industry?
  • 34.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The nature of an external audit The purpose is to develop a finite list of The purpose is to develop a finite list of opportunities opportunities that could benefit a firm and that could benefit a firm and threats threats that should be avoided. that should be avoided. Methods for external assessment; Methods for external assessment; 1. 1. Key external forces; (STEP analysis) Key external forces; (STEP analysis) 2. 2. Competitive Analysis (Porter Competitive Analysis (Porter’ ’s Five Forces s Five Forces Model) Model) 3. 3. The External Factor Evaluation Matrix (EFE) The External Factor Evaluation Matrix (EFE) 4. 4. The Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 35.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Competitive Analysis Porter’s Five-Forces Model Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Potential development of substitute products Potential entry of new competitors Bargaining power of suppliers Bargaining power of consumers Rivalry among competing firms
  • 36.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Rivalry among competing firms The most powerful Tools Tools 1. Lowering prices 2. Enhancing quality 3. Adding features 4. Providing services 5. Extending warranties 6. Increasing advertising Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 37.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The intensity of Rivalry increases 1. Number of competitor increases 2. Competitors become more equal 3. Demand for the products declines 4. Price cutting become common 5. Consumers can switch brands easily 6. Fixed costs are high 7. Consumer demand decline or stagnates 8. Mergers and acquisitions are common Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 38.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Competitive Analysis Porter’s Five-Forces Model Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Potential development of substitute products Potential entry of new competitors Potential entry of new competitors Bargaining power of suppliers Bargaining power of consumers Rivalry among competing firms
  • 39.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Potential entry of new competitors BARRIERS BARRIERS 1. The lack of experience 2. Strong consumer royalty 3. Strong brand preferences 4. Government regulatory policies 5. Tariffs 6. Lack of process to raw materials 7. Possession of patterns 8. Undesirable location 9. Market saturation Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives OPPORTUNITIES OPPORTUNITIES 1. Higher quality products 2. Lower prices 3. Substantial marketing resources 4. All the opposite listed in barriers
  • 40.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Competitive Analysis Porter’s Five-Forces Model Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Potential development of substitute products Potential entry of new competitors Bargaining power of suppliers Bargaining power of consumers Rivalry among competing firms
  • 41.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Potential development of substitute products Competitive pressures arising from substitute products increase as the relative price of substitute products declines and consumer’s switching costs decrease. Substitutes Substitutes Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Eyeglasses, contact lens >>>>>>> Laser surgery Sugar >>>>>>>> Artificial sweeteners Newspapers >>>>>>>> Internet
  • 42.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Bargaining power of suppliers WHEN bigger? WHEN bigger? 1. Large number of suppliers 2. Few good substitute raw materials 3. Cost of switching raw materials is especially costly Tools against the bargaining power of suppliers Backward integration Self manufacture Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 43.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Competitive Analysis Porter’s Five-Forces Model Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Potential development of substitute products Potential entry of new competitors Bargaining power of suppliers Bargaining power of consumers Rivalry among competing firms
  • 44.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Bargaining power of consumers WHEN bigger? WHEN bigger? 1. When costumers are concentrated 2. Products are standard or undifferentiated 3. If they can inexpensively switch to competing brands or substitutes 4. If they are particularly important to the seller 5. When sellers extremely need consumer demand 6. If they are informed about seller’s product prices and costs Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 45.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The nature of an external audit The purpose is to develop a finite list of The purpose is to develop a finite list of opportunities opportunities that could benefit a firm and that could benefit a firm and threats threats that should be avoided. that should be avoided. Methods for external assessment; Methods for external assessment; 1. 1. Key external forces; (STEP analysis) Key external forces; (STEP analysis) 2. 2. Competitive Analysis (Porter Competitive Analysis (Porter’ ’s Five Forces s Five Forces Model) Model) 3. 3. The External Factor Evaluation Matrix (EFE) The External Factor Evaluation Matrix (EFE) 4. 4. The Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 46.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés External Factor Evaluation (EFE) Matrix EFE allows strategists to summarize and evaluate all external factors in one one sum. 1. Collect 10 to 20 factors both opportunities and threats that affect the firm and its industry. 2. Assign to each factor a weight from 0,00 (not important) to 1,00 (extremely important). The weight indicates the relative importance of that factor to being successful in the firm firm’ ’s s industry industry. The sum of all weights is 1. 3. Assign a rating between 1 and 4 to each external factor to indicate how effectively the firm firm’ ’s current strategies s current strategies respond to the factor: where 4 is superior, 3 is above average, 2 is average and 1 is response is poor. 4. Multiply each factor’s weight by rating to determine a weighted score. 5. Sum the weighted score to determine the total weighted score for organization. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 47.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés External Factor Evaluation (EFE) Matrix Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 3. >>>>9 or 10 key items 0,07 1 0,07 2. Leading rival firms are more fully integrated Σ (1 to 4) 1,00 Total 0,08 2 0,04 1. Increasing governmental regulation in the industry Threats 3 . >>>>…..9 or 10 items 0,06 2 0,03 2. Packaging technology offers 15 % annual cost savings 0,28 4 0,07 1. Demand for prepared food increasing 10 % annually Opportunities Weighted score Rating Weight Key external factors 1 2 3 4 5 Importance to the firm’s industry Importance to the firm’s current strategy
  • 48.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés External Factor Evaluation (EFE) Matrix Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives The highest weighted score is 4 the lowest is 1 the average is 2,5. 4 means: the firm’s strategies effectively take advantage of existing opportunities and minimize the potential adverse of external threats. 1 means: The firm’s strategies are not capitalizing on opportunities or avoiding external threats.
  • 49.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The nature of an external audit The purpose is to develop a finite list of The purpose is to develop a finite list of opportunities opportunities that could benefit a firm and that could benefit a firm and threats threats that should be avoided. that should be avoided. Methods for external assessment; Methods for external assessment; 1. 1. Key external forces; (STEP analysis) Key external forces; (STEP analysis) 2. 2. Competitive Analysis (Porter Competitive Analysis (Porter’ ’s Five Forces s Five Forces Model) Model) 3. 3. The External Factor Evaluation Matrix (EFE) The External Factor Evaluation Matrix (EFE) 4. 4. The Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 50.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The Competitive Profile Matrix (CPM) Identifies a firm’s major competitors and its particular strengths and weaknesses in relation to a sample firm’s strategic position 1. Collect 10 to 20 critical success factors (CSF) that affect the firm and its industry. The SCF include both internal and external issues. 2. Assign to each factor a weight from 0,00 (not important) to 1,00 (extremely important). The weight indicates the relative importance of that factor to being successful in the industry industry. The sum of all weights is 1. 3. Assign a rating between 1 and 4 to each external factor to refer to strengths and weaknesses: where 4 is major strength, 3 is minor strength, 2 is minor weakness, and 1 is major weakness. 4. Multiply each factor’s weight by rating to determine a weighted score. 5. Sum the weighted score to determine the total weighted score for organization. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 51.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 2,80 3,15 1,00 TOTAL 0,15 3 0,05 1 0,05 Market share 0,40 2 0,8 4 0,20 Global expansion 0,20 2 0,4 4 0,10 Customer loyalty 0,45 3 0,6 4 0,15 Financial position 0,30 3 0,4 4 0,10 Management 0,40 4 0,3 3 0,10 Price competitiveness 0,30 3 0,4 4 0,10 Product quality 0,60 3 0,2 1 0,20 Advertising Score Ratin g Score Rating Weight Critical Success Factors Procter&Gambl e AVON AN EXAMPLE
  • 52.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The Competitive Profile Matrix (CPM) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Important differences between EFE and CPM CPM CPM • are boarder, they do not include specific or factual data and even may focus on internal issues. • Not grouped into opportunities and threats. • CPM ratings and total weighted scores for rival firms can be compared to the sample firm.
  • 53.
    © Dr. NábrádiAndrás DE-AVK Strategy formulation Business mission Internal analysis External analysis Establishing long term objectives Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 54.
    © Dr. NábrádiAndrás DE-AVK Internal assessment Internal assessment Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Internal strengths/weaknesses strengths/weaknesses, coupled with external opportunities/threats and clear statement of mission provide the basis for establishing objectives and strategies. Methods for internal assessment: Methods for internal assessment: 1. 1. Resource Based View (RBV) Approach Resource Based View (RBV) Approach 2. 2. Analyzing Key Internal Forces Analyzing Key Internal Forces 3. 3. Value Chain Analysis (VCA), (ABC) Value Chain Analysis (VCA), (ABC) 4. 4. Internal Factor Evaluation (IFE) Matrix Internal Factor Evaluation (IFE) Matrix
  • 55.
    © Dr. NábrádiAndrás DE-AVK Internal assessment Methods Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 1. 1. Resource Based View approach Resource Based View approach • Physical resources Plant, equipment, location, technology, raw materials, machines • Human resources Employees, training, experience, intelligence, knowledge, skills, abilities • Organizational resources Firm structure, planning processes, information systems, patents, trademarks, copyrights, databases
  • 56.
    © Dr. NábrádiAndrás DE-AVK Internal assessment Methods Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Key internal forces: Key internal forces: 1. Management 2. Marketing 3. Finance/accounting 4. Production/operation 5. Research and development 6. Management Information System
  • 57.
    © Dr. NábrádiAndrás DE-AVK Internal assessment Methods Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 2. Analyzing key internal forces 2. Analyzing key internal forces 1. Management Planning, organizing, motivating, staffing, and controlling. 2. Marketing Customer analysis, selling products and services, product and service planning, pricing, distribution, marketing research, opportunity analysis 3. Finance/ accounting Firm’s liquidity, leverage, working capital, profitability, asset utilization, cash flow, and equity
  • 58.
    © Dr. NábrádiAndrás DE-AVK Internal assessment Methods Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives 2. Analyzing key internal forces 2. Analyzing key internal forces 4. Production/operation Decision on process, capacity, inventory, workforce and quality. 5. Research and development 6. Management information system Data become information only when they are evaluated, filtered, condensed, analyzed, and organized for a specific purpose, problem, individual, or time. 3. Value Chain Analysis 3. Value Chain Analysis Refers to the process whereby a firm determines the costs associated with organizational activities. 4. Internal Factor Evaluation (IFE) Matrix 4. Internal Factor Evaluation (IFE) Matrix
  • 59.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Management Management 1. 1. planning: planning: consists of all those managerial activities related to preparing for future. Specific tasks: forecasting, establishing objectives, devising strategies, developing policies, and setting goals. 2. 2. Organizing: Organizing: includes all those managerial activities that result in a structure of task and authority relationships. Specific areas: organizational design, job specialization, job description, coordination, job analysis. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 60.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Management Management 3. 3. Motivating: Motivating: involves efforts directed towards shaping human behavior. Specific topics: leadership, communication, work groups, delegation of authority, job satisfaction, employee morale. 4. 4. Staffing: Staffing: are centered on personnel or HRM. Wage and salary administration, interviewing, hiring, firing, training, employee safety, union relation, career development, personnel research, public relations. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 61.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Management Management 5. 5. Controlling: Controlling: ensuring that actual results are consistent with planned results. Key areas: quality control, financial control, sales control, inventory control, expense control, analysis of variances, rewards, and sanctions. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Strategy Strategy evaluation evaluation Controlling Controlling Staffing Staffing Motivating Motivating Strategy Strategy Implementation Implementation Organizing Organizing Strategy Strategy Formulation Formulation Planning Planning
  • 62.
    © Dr. NábrádiAndrás DE-AVK Internal assessment Methods Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Key internal forces: Key internal forces: 1. Management 2. Marketing 3. Finance/accounting 4. Production/operation 5. Research and development 6. Management Information System
  • 63.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Finance/accounting Finance/accounting 1. 1. Investment decision: Investment decision: (capital budgeting) is the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization. 2. 2. Financing decision: Financing decision: determines the best capital structure, how the firm can raise capital. Issuing stock, increasing dept, selling assets or using a combination of these. 3. Dividend decision: percentage of earnings paid to stockholders. Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 64.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Finance/accounting Finance/accounting Key financial ratios: Key financial ratios: Like a blood test: reflect a situation at just one point in time. 1. Liquidity 2. Leverage 3. Activity 4. Profitability 5. Growth Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 65.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Finance/accounting Finance/accounting 1. 1. Liquidity Liquidity Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives A firm can (not) meet its short term obligations Without relying upon the sale of its inventories Current assets – inventory Current liabilities Quick ratio A firm can (not) meet its short term obligations Current assets Current liabilities Current What it measures What it measures How calculated How calculated RATIO RATIO
  • 66.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Finance/accounting Finance/accounting 2. Leverage ratios 2. Leverage ratios Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives A balance between dept and equity in a firm’s long term capital structure Long term dept__ Total stockholder’s equity Long term dept to equity The extent to which earnings can decline without the firm becoming unable to meet its annual interest Profit before interest and taxes Total interest charges Times interest earned ratio The % of total funds provided by creditors versus by owners Total dept____ Total stockholder’s equity Dept to equity The % of total funds that are provided by creditors Total dept Total assets Dept to total assets What it measures What it measures How calculated How calculated RATIO RATIO
  • 67.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Finance/accounting Finance/accounting 3. Activity ratios 3. Activity ratios Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives The average length of time it takes a firm to collect credit sales (%) Annual credit sales Account receivable Account receivable turnover The average length of time it takes a firm to collect credit sales (days) Account receivable Total credit sales/365 days Average collection period Sales productivity on total assets Sales______ Total assets Total assets turnover Sales productivity and plant and equipment utilization Sales______ Fixed assets Fixed assets turnover Whether a firm holds excessive stocks of inventories Sales______ Inventory of finished goods Inventory turnover What it measures What it measures How calculated How calculated RATIO RATIO
  • 68.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Finance/accounting Finance/accounting 4. Profitability ratios 4. Profitability ratios Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives After tax profits of sales Net income______ Sales Net profit margin Profitability exclude I&T Earnings before interest and taxes Sales Operating profit margin A total margin available to cover operating expenses and yield a profit Sales minus cost of good sold Sales Gross profit margin What it measures What it measures How calculated How calculated RATIO RATIO
  • 69.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Finance/accounting Finance/accounting 4. Profitability ratios (continued) 4. Profitability ratios (continued) Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Attractiveness of firm on equity market Market price per share Earnings per share Price earning ratio Earnings available to the owners of common stock Net income______ Number of shares of common stock Earnings per share (EPS) After tax profits of stockholder’s investment Net income Total stockholders’ equity Return on stockholder s’ equity After tax profits of assets (Return on investment) Net income Total assets Return on total assets (ROA) What it measures What it measures How calculated How calculated RATIO RATIO
  • 70.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Finance/accounting Finance/accounting 5. Growth ratios 5. Growth ratios Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Firms growth rate in EPS Annual % growth in EPS Earnings per share Firms growth rate in dividends per share Annual % growth in dividends per share Dividends per share Firms growth rate in profits Annual % growth in profits Net income Firms growth rate in sales Annual % growth in total sales Sales What it measures What it measures How calculated How calculated RATIO RATIO
  • 71.
    © Dr. NábrádiAndrás DE-AVK Internal assessment Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Key internal forces: Key internal forces: 1. Management 2. Marketing 3. Finance/accounting 4. Production/operation 5. Research and development 6. Management Information System
  • 72.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Production/operation Production/operation This function of a business consists of all those activities that transform inputs into good and services. 5 functions or decision areas 5 functions or decision areas: • Process • Capacity • Inventory • Workforce • Quality Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives
  • 73.
    © Dr. NábrádiAndrás DE-AVK Key Internal Forces Production/operation Production/operation Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Design of physical production system. Specific: choice of technology, facility layout, process flow analysis, process control, transportation analysis 1. Process Ensuring the certain quality goods and services are produced. Specific: quality control, sampling, quality assurance and cost control 5. Quality Managing the skilled, unskilled, clerical, and managerial employees. Specific: job design, work measurement, job enrichment, work standards and motivation techniques. 4. Workforce Managing the level of raw materials, work-in process, and finished goods. Specific: what to order, how much to order, materials handling. 3. Inventory Determination of optimal output level for the firm. Specific: forecasting, facilities planning, aggregate planning, scheduling, capacity planning. 2. Capacity DESCRIPTION DESCRIPTION FUNCTION FUNCTION
  • 74.
    © Dr. NábrádiAndrás DE-AVK Internal assessment Internal assessment Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Internal strengths/weaknesses strengths/weaknesses, coupled with external opportunities/threats and clear statement of mission provide the basis for establishing objectives and strategies. Methods for internal assessment: Methods for internal assessment: 1. 1. Resource Based View (RBV) Approach Resource Based View (RBV) Approach 2. 2. Analyzing Key Internal Forces Analyzing Key Internal Forces 3. 3. Value Chain Analysis (VCA) Value Chain Analysis (VCA) Activity Based Activity Based Costing (ABC) Costing (ABC) 4. 4. Internal Factor Evaluation (IFE) Matrix Internal Factor Evaluation (IFE) Matrix
  • 75.
    © Dr. NábrádiAndrás DE-AVK Value chain Analysis Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Value chain analysis refers to the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products to marketing those products. Aims to identify where low cost Aims to identify where low cost advantages or disadvantages exist advantages or disadvantages exist anywhere along the value chain. anywhere along the value chain.
  • 76.
    © Dr. NábrádiAndrás DE-AVK Value Chain Analysis Outline • Strategy formulation • Develop vision • Develop mission • Why mission statement • External assessment • Internal assessment • Establish long term objectives Supplier Production Distribution Sales + marketing Customer service
  • 77.
    © Dr. NábrádiAndrás DE-AVK Value Chain Analysis Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Supplier Production Distribution Sales + marketing Customer service Maintenance Warehouse Food and lodging Fuel Cost accounting Storing Transportatio n Railroads R and D Inspection Advertising Trucking Computer Component parts Promotion Internet Plant location Truck drivers Warranty Publicity Personnel Maintenance Transportatio n Internet Internet Budgeting Plant layout Energy Phone Web site Shipping Receiving Fuel Postage Salespersons Loading Inventory system Raw mat.
  • 78.
    © Dr. NábrádiAndrás DE-AVK Value Chain Analysis Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Supplier Production Distribution Sales + marketing Customer service
  • 79.
    © Dr. NábrádiAndrás DE-AVK Value Chain Analysis Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Supplier Production Distribution Sales + marketing Customer service
  • 80.
    © Dr. NábrádiAndrás DE-AVK Internal assessment Internal assessment Internal strengths/weaknesses strengths/weaknesses, coupled with external opportunities/threats and clear statement of mission provide the basis for establishing objectives and strategies. Methods for internal assessment: Methods for internal assessment: 1. 1. Resource Based View (RBV) Approach Resource Based View (RBV) Approach 2. 2. Analyzing Key Internal Forces Analyzing Key Internal Forces 3. 3. Value Chain Analysis (VCA), (ABC) Value Chain Analysis (VCA), (ABC) 4. 4. Internal Factor Evaluation (IFE) Matrix Internal Factor Evaluation (IFE) Matrix Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives
  • 81.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés The Internal Factor Evaluation Matrix Identifies a firm’s major strengths and weaknesses allows strategists to summarize and evaluate all internal factors in one one sum. 1. Collect 10 to 20 internal factors including both strengths and weaknesses. Use percentage, ratios and comparative numbers. 2. Assign to each factor a weight from 0,00 (not important) to 1,00 (extremely important). The weight indicates the relative importance of that factor to being successful in the industry industry. The sum of all weights is 1. 3. Assign a rating between 1 and 4 to each external factor to refer to strengths and weaknesses: where 4 is major strength, 3 is minor strength, 2 is minor weakness, and 1 is major weakness. 4. Multiply each factor’s weight by rating to determine a weighted score. 5. Sum the weighted score to determine the total weighted score for organization. Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives
  • 82.
    © Dr. NábrádiAndrás DE-AVK Az üzleti küldetés Internal Factor Evaluation (IFE) Matrix 3. >>>>9 or 10 key items 0,07 1 0,07 2. 86 % of the trade revenues come from Europe Σ (1 to 4) 1,00 Total 0,06 2 0,03 1. Our company total dept to equity ratio is 0,36 compared to the industry average of 0,9 Weaknesses 3 . >>>>…..9 or 10 items 0,24 4 0,06 2. Our company has 50 subsidiary in Europe and Asia 0,24 3 0,08 1. Our company provide 24-hour, 7 day services Strengths Weighted score Rating Weight Key internal factors Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives
  • 83.
    © Dr. NábrádiAndrás DE-AVK Internal Factor Evaluation (IFE) Matrix The highest weighted score is 4 the lowest is 1 the average is 2,5. Total weighted scores well below 2,5 below 2,5 characterize organizations that are weak weak internally, whereas scores significantly above 2,5 above 2,5 indicate a strong strong internal position position. Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives
  • 84.
    © Dr. NábrádiAndrás DE-AVK Internal Factor Evaluation (IFE) Matrix Outline • Strategy formulation •Develop vision •Develop mission •Why mission statement •External assessment •Internal assessment •Establish long term objectives Strategy formulation Business mission Internal analysis External analysis Establishing long term objectives Establishing long term objectives Generating alternative strategies Choosing particular strategies to pursue Deciding what new business to enter