Strategic Management & Total Quality Mgmt. (Prelim) PDF

STRATEGIC MGT. & TOTAL weak one management’s ability to QUALITY MGT. (PRELIM) forge a series of moves, both in the marketplace and internally that makes LESSON 1: The Nature of Strategic...

STRATEGIC MGT. & TOTAL weak one management’s ability to QUALITY MGT. (PRELIM) forge a series of moves, both in the marketplace and internally that makes LESSON 1: The Nature of Strategic the company distinctive, tilts the playing Planning field in the company’s favor by giving Introduction buyers a reason to prefer its products or services, and produces a sustainable What’s the company’s present competitive advantage over rivals. situation? Four of the most frequently used Where does the company need to go strategic approaches to setting a from here? company apart from rivals and achieving How should it go there? sustainable competitive advantages are: What is strategy? 1. Strive to be the industry’s low-cost provider, thereby aiming for a cost based Strategy competitive advantage over rivals. A company’s strategy is management’s 2. Out-competing rivals based on such game plan for growing the business, differentiating features as higher quality, staking out market position, attracting broader product and service selection, and pleasing customers, competing added performance, better service, more successfully, conducting operations, and attractive styling, technological achieving targeted objectives. superiority, or excellent value for the What is all about strategic management money in tourism and hospitality industry? 3. Focusing on a narrow market niche and Strategic Management is an inconstant winning competitive edge by doing a process where any change in the better job than serving buyers’ unique environment where the organization is needs and tastes constituting the niche. operating will result in a change in the 4. Developing expertise and resource strategies of the organization. strengths give the company competitive Strategic Planning in Tourism Industry capabilities that rivals can’t easily imitate is the development of priorities based on or trump their abilities. strategies for planning developing and What makes a strategy a winner? marketing of a destination. How well does the strategy fit the Strategy and the Quest for Competitive company’s situation? Advantage Is the strategy helping the company The central thrust of a company’s achieve a sustainable competitive strategy involves crafting moves to advantage? strengthen the company’s long- term competitive position and financial Is the strategy resulting in better performance. Indeed, what separates a company performance? robust approach from an ordinary or What is Strategic Management? its primary mission. Long term means more than one year. Strategic Management can be defined as the art and science of formulating, G. Strategies – how long-term objectives implementing, and evaluating cross- will be achieved. For example, business functional decisions that enable an strategies may include geographic organization to achieve its objectives. expansion, diversification, acquisition, product development, market Stages of Strategic Management penetration, retrenchment, divestiture, Strategy formulation liquidation, and joint venture. Strategy implementation H. Annual Objectives - Short-term milestones that organizations must Strategy evaluation achieve to reach long-term objectives. Key Terms In Strategic Management I. Policies A. Competitive Advantage – defined as Policies are how annual objectives will anything that a firm does exceptionally be achieved. well compared to rival firms. Policies include guidelines, rules, and B. Strategists – individuals who are most procedures established to support efforts responsible for the success or failure of an to achieve stated goals. organization. Policies are most often stated in C. Vision and Mission Statements management, marketing, Vision statements answer the question: finance/accounting, research and “What do we want to become?” development, and computer information Mission statements are “enduring systems activities. statements of purpose that distinguish Benefits of Strategic Management one business from other similar firms. The principal benefit of strategic D. External Opportunities and Threats – management has been to help refers to economic, social, cultural, organizations formulate better strategies demographic, environmental, political, using a more systematic, logical, and legal, governmental, technological, and rational approach to strategic use. competitive trends ad events that could significantly benefit or harm an Financial Benefits organization in the future. Nonfinancial benefits E. Internal Strengths and Weaknesses – Greenley (Greenley G.F. “Does Strategic an organization’s controllable activities Planning Improve Company that are performed exceptionally well or Performance?” Long range planning 19 poorly. no. 2 stated that strategic management F. Long-Term Objectives – can be offers these benefits: defined as specific results that an organization seeks to achieve in pursuing  It allows for identification, Poor reward structures prioritization, and exploitation of Fire fighting opportunities. Waste of time It provides an objective view of management problems. Too expensive It represents a framework for improved Laziness coordination and control activities. Content with success It minimizes the effects of adverse conditions and changes. Fear of failure It allows major decisions to better Overconfidence support established objectives. Prior bad experience It allows a more effective allocation of Self-interest time and resources to identified opportunities. Fear of the unknown It allows fewer resources and less time Honest difference of opinion to be devoted to correcting erroneous or Suspicion ad hoc decisions. Pitfalls in strategic planning It creates a framework for internal communication among personnel. Using strategic planning to gain control over decisions and resources. It helps integrate the behavior of individuals into a total effort. Doing strategic planning only to satisfy accreditation or regulatory requirements It provides a basis for clarifying individual responsibilities. Too hastily moving from mission development to strategy formulation. It encourages forward-thinking Failing to communicate the plan to It provides a cooperative, integrated, employees, who continue working in the and enthusiastic approach to tackling dark. problems and opportunities. Top managers making many intuitive It encourages a favorable attitude decisions that conflict with the formal toward change. plan. It gives a degree of discipline and Top managers not actively supporting formality to the management of a the strategic planning process. business. Failing to use plans as a standard for Why some firms do not do strategic measuring performance. planning Delegating planning to a “planner” Lack of knowledge or experience rather than involving all managers.  Failing to involve key employees in all 2. Military strategy is based on an phases of planning. assumption of conflict. Failing to create a collaborative climate 3. The similarities between military and supportive of change. business strategy can be seen in Sun Tzu’s The Art of War. Viewing planning as unnecessary or unimportant. If you don’t know where you are going, any road will take you there. – The Koran Becoming so engrossed in current problems that sufficient or no planning is Lesson 2: The Business Mission and done. Vision Being so formal in planning that INTRODUCTION flexibility and creativity are stifled. DEVELOPING A STRATEGIC VISION Guidelines for effective strategic - Very early in the strategy-making management process, the company’s senior managers in any Tourism and Hospitality industry 1. An integral part of strategy evaluation must wrestle with the issue of what must be to evaluate the quality of the directional path the company should be strategic management process. taken and what changes in the 2. An important guideline for effective company’s product/ service-market- strategic management is open- customer-technology focus would mindedness. improve its current market position and prospects. 3. Strategic decisions require trade-offs such as long-range versus short-range - For a strategic vision to function as a considerations or maximizing profits valuable managerial tool, it must versus increasing shareholders’ wealth. understand what management wants its business to look like and 4. Subjective factors such as attitudes provide managers with a reference point toward risk, concern for social in making strategic decisions and responsibility, and organizational culture preparing the future. will affect strategy-formulation decisions, but organizations must remain Strategic vision VS Mission statement as objective. A strategic vision is different from Comparing business and military mission statement. whereas the chief strategy concern of a strategic vision is “where we are going and why,” a company A strong military heritage underlies the mission statement usually deals with a study of strategic management company’s present business scope 1. Terms such as objectives, mission, and purpose - “who we are, what to do, strengths, and weaknesses were first and why we are here.” formulated to address problems on the MISSION AND VISION STATEMENTS battlefield. EXPLAINED These statements are the words leaders customer service in an area, what key use to explain an organization’s purpose performance indicator will let you know and direction. When expressed clearly that your customers are delighted? and concisely, they can motivate your Again, you don’t have to include exact team or the organization as a whole with figures here, but it’s essential to have a an inspiring vision of the future. general idea of what success looks like so that you know when you’ve achieved it. PURPOSE HOW TO CREATE A VISION The two statements do distinctly STATEMENT different jobs. Mission statements define the firm’s or organization’s STEP 1: Find the Human Value in Your purpose and primary objectives. Work These statements are set in the present First, identify your organization’s tense, and they explain why you exist as a mission. Then uncover the natural, business, both to members of the human value in that mission. For organization and to people outside it. example, how does your organization Mission statements tend to be short, improve people’s lives? How do you make clear, and powerful. Vision statements the world a better place? also define your organization’s purpose, but they focus on its goals and STEP 2: Distill into Values aspirations. These statements are designed to be uplifting and inspiring. Next, identify what you, your customers, They’re also timeless: even if and other stakeholders value the most the organization changes its strategy, the about how your organization has, or vision will often stay the same. should have. Some examples of values include excellence, integrity, teamwork, HOW TO CREATE A MISSION originality, equality, honesty, freedom, STATEMENT service, and strength. STEP 1: Develop Your Winning Idea STEP 3: Combine Your Mission and Values First, identify your organization’s “winning idea” or unique selling Combine your mission and values, and proposition (USP). It is the idea or polish your words until you have an approach that makes your organization inspiring statement that will energize stand out from its competitors, and it is people, inside and outside your why customers come to you and not your organization. It should be broad and competitors. timeless, and it should explain why the people in your organization do what they STEP 2: Clarify Your Goal do. Next, make a short list of the most KEYPOINT SOURCE: critical measures of success for the idea. For instance, if your winning idea is to Mission and vision statements are create cutting-edge products in a concise, inspiring statements that particular idea is to provide excellent communicate the direction and values of an organization. these statements can b. Products or services: What are the powerfully explain your intentions, and firm's major products or services? they can motivate your team or c. Markets: Geographically, where does organization to realize an inspiring vision the firm compete? of the future. when writing them, make sure that you understand your d. Technology: Is the firm organization’s values, and distill them technologically current? into statements that are concise, engaging, and uplifting. e. Concern for survival, growth, and profitability: Is the firm committed to growth and financial soundness? f. Philosophy: What are the basis beliefs, values, aspirations, and ethical priorities of the firm? g. Self-concept: What is the firm’s distinctive competence or major competitive advantage? h. Concern for public image: Is the firm responsive to social, community, and environmental concerns? i. Concerns for employees: Are employees a valuable asset of the firm? MANAGEMENT’S JOB IS NOT TO SEE THE COMPANY AS IT IS... BUT AS IT CAN BECOME. – JOHN W. TEETS (Former CEO, Greyhound Corp) Lesson 3: Analyzing a Company’s External Environment What is night audit in hotel and how to do it with a cloud property management system? Example of a vision and mission statements together with their values. Front office audit, or more commonly night audit in a hotel, is a significant part MISSION STATEMENT of hotel’s accounting section. This COMPONENTS process records, reviews, and collates, all 1. Components and Questions That a financial activities of the hotel that Mission Statement Should Answer have taken place in one day and posts a. Customers: Who are the firm’s them on appropriate account heads. customers? What is night audit in a a hotel are closed, making it the ideal hotel? time to perform night audit. This helps the front office personnel, also called The hospitality environment runs 24/7, night auditor to initiate and finish the especially during season time. Guests’ night audit process with minimal check-in and check-out throughout the interruption. day. With every check-out, hoteliers need to keep track of transactions carried out For the night auditor, some of the steps through cash or cards. At the end of in the night audit process are- the business day, hotels need to properly Total outstanding charge posting- record and reconcile guest folios and Hotel night auditor needs to ensure that their transactions. The purpose of all guest transaction happened in a day the night audit process is to collate are correctly captured, charged and revenue against various revenue heads. to posted to guest accounts. be precise, hotel night audit evaluates and closes daily cash flow into and out of Reconcile room status- The night the hotel’s account. Also referred to as auditor must evaluate and analyze a the end-of-day process, it ensures the particular day’s occupancy report and the rollover from one business day to the housekeeping room status report to find next day. out the correct occupancy status of a hotel. Here are some of the major functions of night audit Verify room rates- It is mandatory to compare guest registration records with Ensures rollover from one business a room reports to ensure rack rate and day to the next day actual rates are the same. Reconciles all front office cash Verify no-shows of the day- By verifying counters/accounts no-shows of the day in the front office Verifies posted entries to guest/non console, the night auditor ensures that guest accounts the no- show bills are duly charged, and the rooms are marked as ‘available’ for Resolves room status and rate future dates. discrepancies Balance all departmental accounts- This Most importantly, generates several process of balancing all revenue center MIS reports called night audit reports accounts is called ‘Trial Balance’ that How to do night audit in a hotel? helps in accurately posting the day’s room and tax charges. Night audit is a mandatory process for hotels of all sizes, categories and services. Night audit room details report This The most convenient time to perform report captures the total number of night audit is between the late evening rooms and their total guests under each and early morning - just after the category such as occupied rooms, business day closes. This is the time when available rooms, day use rooms, etc. for most revenue centers and POS outlets at the day. It helps you to understand a particular day’s occupied rooms, environmental, economic, political, legal, available rooms, check-ins, checkouts, governmental, and technological trends. no-shows, cancellations, complimentary a. Individuals can be asked to monitor rooms, day use rooms, etc. various sources of information such as THE NATURE OF AN EXTERNAL key magazines, trade journals, and AUDIT newspapers. The purpose of an external audit is to b. The Internet is another source for develop a finite list of opportunities that gathering strategic information, as are could benefit a firm and avoid threats. corporate, university, and public libraries. A. Key External Forces c. Suppliers, distributors, salespersons, 1. External forces can be divided into five customers, and competitors represent broad categories: (1) economic forces; (2) other sources of vital information. social, cultural, demographic, and natural environment forces; (3) political, THE INDUSTRIAL governmental, and legal forces; (4) ORGANIZATIONAL (I/O) VIEW technological forces; and (5) competitive A. External Factors versus Internal forces. Factors 2. External trends and events 1. External factors are more important significantly affect all products, services, than internal factors in a firm achieving markets, and organizations in the world. competitive advantage. Industry forces 3. Changes in external forces translate primarily determine organizational into changes in consumer demand for performance. both industrial and consumer products 2. Managing strategically from the I/O and services. An example of this is a U.S. perspective entails firms striving to unemployment rate that is close to 10 compete in attractive industries, percent. avoiding weak or faltering industries, and B. The Process of Performing an External gaining a full understanding of key Audit external factor relationships. 1. The process of performing an external B. Factors Affecting Firm Performance audit must involve as many managers and 1. Firm performance is primarily based on employees as possible. As emphasized industry properties such as economies of in earlier chapters, involvement in the scale, barriers to market entry, product strategic-management process can lead differentiation, and level of to understanding and commitment from competitiveness. organizational members. 2. The recent global economic recession’s 2. To perform an external audit, a negative impact on both strong and weak company first must gather competitive firms added credence to the notion that intelligence and information about social, cultural, cultural, demographic, external forces are more important than 2. The United States is getting older and internal. less White. By 2075, the United States will have no racial or ethnic majority. ECONOMIC FORCES 3. Social, cultural, demographic, and A. Economic Factors have a Direct environmental trends are shaping the way Impact Americans live, work, produce, and 1. Economic factors have a direct impact consume. New trends are creating a on the potential attractiveness of various different type of consumer and, strategies. For example, if interest rates consequently, a need for different rise, then funds needed for capital products, services, and strategies expansion become costlier or POLITICAL, GOVERNMENTAL, AND unavailable. LEGAL FORCES 2. The key economic variables that a firm A. Federal, state, local, and foreign should monitor should be studied. The governments are major regulators, list includes (1) shifts to a service subsidizers, employers, and customers of economy; (2) availability of credit; (3) organizations. Political, governmental, level of disposable income; (4) propensity and legal factors, therefore, can represent of people to spend; (5) interest rates; (6) key opportunities or threats for both inflation rate; (7) unemployment trends; small and large organizations. and so on. 1. For industries and firms that depend 3. Trends in the dollar’s value have heavily on government contracts or significant and unequal effects on subsidies, political forecasts can be the companies in different industries and in most important part of an external audit. different locations. 2. Changes in patent laws, antitrust 4. The slumping economy worldwide and legislation, tax rates, and lobbying depressed prices of assets have activities can affect firms significantly. dramatically slowed the migration of people from country to country and from 3. Many countries worldwide are the cities to the suburbs. As a result, resorting to protectionism to safeguard there is lower demand for new or used their own industries. Many economists homes. point out that the current rash of trade constraints will make it harder for global SOCIAL, CULTURAL, economic growth to recover from the DEMOGRAPHIC, AND NATURAL global recession. ENVIRONMENT FORCES 4. A political debate raging in the United A. Social, Cultural, Demographic, and States concerns sales tax on the internet. Environmental Impact Wal-Mart, Target, and other large 1. Social, cultural, demographic, and retailers are pressuring state environmental changes have a major governments to collect sales taxes from impact on virtually all products, services, Amazon.com and other online retailers. markets, and customers. B. American Labor Unions manufacturing practices, and competitive position. 1. The extent that a state is unionized can be a significant factor in strategic 2. Technology management is one of the planning decisions as related to key responsibilities of strategists. Firms manufacturing plant location and other should pursue strategies that take operational matters. advantage of technological opportunities to achieve sustainable, competitive C. Laws, regulatory agencies, and special- advantages in the marketplace. interest groups can have a major impact on the strategies of small, large, for- 3. Not all sectors of the economy are profit, and nonprofit organizations. affected equally be forestry, and metals industries. TECHNOLOGICAL FORCES COMPETITIVE FORCES A. The Internet has changed the nature of opportunities and threats by altering the A. An important part of an external audit life cycles of products, increasing the is identifying rival firms and determining speed of distribution, creating new their strengths, weaknesses, products and services, erasing opportunities, threats, objectives, and limitations, and changing the historical strategies. trade-off between production 1. Collecting and evaluating information standardization and flexibility on competitors is essentials for successful 1. Historically, total Internet retail sales strategy formulation. the last two months of 2010 jumped 15.4 2. Addressing questions about percent compared to 2009. competitors such is important in 2. To effectively capitalize on performing an external audit. information technology, a number of 3. Competition in virtually all industries organizations are establishing two new can be described as intense and positions in their firms: chief information sometimes cutthroat. technology (CIO) and chief technology officer (CTO). This trend B. Seven concepts describe the most reflects the growing importance of competitive companies: information technology (IT) in strategic management. 1. Market share matters. B. Technological forces represent major 2. Understand and remember precisely opportunities and threats that must be what business you are in. considered in formulating strategies. 3. Whether it’s broke or not, fix it. 1. Technological advancements can 4. Innovate or evaporate. dramatically affect organizations’ product, services, markets, suppliers, 5. Acquisition is essential to growth. distributors, competitors, customers, 6. People make a difference. 7. There is no substitute for quality. C. Competitive Intelligence (CI) competitor might make that would Programs endanger a firm’s position in the market. 1. CI, as formally defined by the Society of Competitive Intelligence Professionals 6. Competitive information is equally (SCIP), is a systematic and ethnical applicable for strategy formulation, process of gathering and analyzing implementation, and evaluation information about the competition’s decisions. activities and general business trends to 7. The increasing emphasis on further a business’s own goals (SCIP competitive analysis in the United website). States is evidenced by corporations 2. Good CI in business, as in the military, putting this function on their is one of the keys to success. The more organizational charts under job titles information and knowledge a firm can such as Director of Competitive obtain about competitors, the more likely Analysis. it can formulate and implement 8. Unethical tactics such as bribery, effective strategies. wiretapping, and computer break-ins 3. Three strong misconceptions about should never be used to obtain business intelligence prevail among U.S. information. executives today: D. Market Commonality and Resources a. Running an intelligence program Similarity requires lots of people, computers, and 1. Competitors are firms that offer other resources. similar products in the same market. b. Collecting intelligence about 2. Markets can be geographic, product competitors violates antitrust laws; areas, or segments. business intelligence equals espionage. 3. Market commonality can be defined as c. Intelligence gathering is an unethical the number and significance of markets business practice. that a firm competes in with rivals. 4. The Internet has become an excellent 4. Resource similarity is the extent to medium for gathering competitive which the type and amount of a firm’s intelligence. internal resources are comparable to a 5. Firms need an effective CI program. rival. The three basic objectives of a CI COMPETITIVE ANALYSIS: program are (1) to provide a general PORTER’S FIVE-FORCES MODEL understanding of an industry and its competitors, (2) to identify areas in which A. Porter’s Five-Forces Model competitors are vulnerable and to assesses the impact strategic actions 1. Porter’s Five-Forces Model of would have on competitors, and (3) to competitive analysis is a widely used identify potential moves that a approach for developing strategies in many industries. The intensity of competition among firms varies widely 5. Potential Entry of New Competitors from industry to industry. a. Whenever new firms can easily enter a 2. According to Porter, the nature of particular industry, the intensity of competitiveness in a given industry can competitiveness among firm’s increases. be viewed as a composite of five forces: b. Despite numerous barriers to entry, a. Rivalry among competitive firms new firms sometimes enter industries with higher-quality products, lower b. Potential entry of new competitors prices, and substantial marketing c. Potential development of substitute resources. products 6. Potential Development of Substitute d. Bargaining power of suppliers Products e. Bargaining power of consumers a. In many industries, firms are in close competition with producers of substitute 3. These three steps can reveal whether products in other industries. competition in a given industry is such that a firm can make an acceptable profit: b. Competitive pressures arising from substitute products increase as the a. Identify key aspects or elements of relative price of substitute products each competitive force that impact the declines and as consumers’ switching firm. costs decrease. b. Evaluate how strong and important 7. Bargaining Power of Suppliers each element is for the firm. a. The bargaining power of suppliers c. Decide whether the collective strength affects the intensity of competition in an of the elements is worth the firm entering industry, especially when there are a or staying in the industry. large number of suppliers, when there are 4. Rivalry among Competing Firms only a few good substitute raw materials, or when the cost of switching raw a. Usually, the most powerful of the five materials is especially high. competitive forces. b. Firms may pursue a backward b. The strategies pursued by one firm can integration strategy to gain control or be successful only to the extent that they ownership of suppliers. However, in many provide competitive advantage over the industries it is more economical to use strategies pursued by rival firms. outside suppliers of component parts c. The Internet, coupled with the than to self-manufacture items. common currency in Europe, enables c. In more and more industries, sellers are consumers to make price comparisons forging strategic partnerships with select easily across countries. suppliers to: 1) reduce inventory and d. The intensity of rivalry among logistics costs; 2) speed the availability of competing firms tends to increase as the next-generation components; 3) enhance number of competitors increases. the quality of the parts and components being supplied and reduce defect rates; B. Web Sites for gathering strategic and 4) squeeze out important cost information: savings. 1. http://marketwatch.com 8. Bargaining Power of Consumers 2. http://moneycentral.msn.com a. When customers are concentrated, are large, or buy in volume, their bargaining 3. http://finance.yahoo.com power represents a major force affecting intensity of competition in an industry. 4. www.clearstation.com b. In particular, consumers gain 5.https://us.etrade.com/e/t/invest/mar increasing bargaining power under the kets following circumstances: 6. www.hoovers.com * If they can inexpensively switch to C. Standard & Poor’s (S&P) Industry competing brands or substitutes. Surveys include the following sections of * If they are particularly important to the information: seller. 1. Current environment * If sellers are struggling in the face of 2. Industry trends falling consumers’ demand. 3. How the industry operates * If they are well informed about sellers’ products, prices, and costs. 4. Key industry ratios and statistics * If they have discretion in whether and 5. How to analyze a company? when they purchase the product. 6. Glossary of industry terms SOURCES OF EXTERNAL 7. Additional industry information INFORMATION 8. References A. A wealth of information is available to organizations from both published and 9. Comparative company financial unpublished sources. analysis 1. Unpublished sources include customer FORECASTING TOOLS AND surveys, market research, speeches at TECHNIQUES professional and shareholders’ meetings, A. Forecasts television programs, interviews, and conversations with stakeholders. 1. Forecasts are educated assumptions about future trends and events. 2. Published sources of strategic 2. Forecasting is a complex activity due information include periodicals, journals, to factors such as technological reports, government documents, innovation, cultural changes, new abstracts, books, directories, products, improves services, stronger newspapers, and manuals. competitors, shifts in government priorities, changing social values, unstable economic conditions, and governmental, legal, technological, and unforeseen events. competitive information. 3. Forecasting tools can be broadly 2. There are five steps in developing an categorized into two groups: quantitative EFE Matrix. techniques and qualitative techniques. a. List key external factors as identified a. Quantitative forecasts are most in the external-audit process. Include a appropriate when historic data are total of 10-20 factors from both the available and when the relationships opportunities and threats. among key variables are expected to b. Assign to each factor a weight from.0 remain the same in the future. Linear (not important) to 1.0 (very important). regression, for example, is based on the These weights shows the relative assumption that the future will be just importance. The total of all weights like the past. should equal 1.0. b. Accurate forecasts can provide major c. Assign a 1-4 rating to each factor to competitive advantages for indicate how effectively the firm’s organizations. However, no forecast is current response strategy is: 1= the perfect, and some are wildly inaccurate. response is poor, 2= the response is B. Making Assumptions average, 3= the response is 1. By identifying future occurrences that above average, and 4= the response is could have a major effect on the firm and superior. making reasonable assumptions about d. Multiply each factor’s weight by its those factors, strategists can carry the rating to get a weighted score. strategic-management process forward. e. Sum the weighted scores for each variable to determine the total weighted 2. Assumptions are needed only for future score for the organization. trends and events that are most likely to have a significant effect on the company’s THE COMPETITIVE PROFILE business. MATRIX (CPM) 3. Firms that have the best information A. The CPM Matrix generally make the most accurate assumptions, which can lead to major 1. The CPM identifies a firm’s major competitive advantages. competitors and their particular strengths and weaknesses in relation to a INDUSTRY ANALYSIS: THE sample firm’s strategic position. EXTERNAL FACTOR EVALUATION (EFE) MATRIX 2. Gaining and sustaining competitive advantage is the overriding purpose of A. An EFE Matrix developing the opportunity/threat lists, value chain, EFEM, and CPM. 1. Allows strategists to summarize and evaluate economic, social, cultural, Competitive battles should be seen not as demographic, environmental, political, one-shot skirmishes but as a dynamic multi round game moves and examine the firm’s portfolio of resources countermoves. – Anil K. and the bundles of heterogeneous resources and capabilities managers Lesson 4: Analyzing a Company’s have created. Understanding how to Resources and Competitive Position leverage the firm’s unique Introduction bundle of resources and capabilities is a key outcome decision Competitiveness has been a subject of makers seek when analyzing the internal study in the manufacturing and related environment. sectors since early 1990s. However, only recently have some researchers started THE NATURE OF AN INTERNAL to examine the tourism and hospitality AUDIT competitiveness, both conceptually and A. KEY INTERNAL FORCES empirically, with a particular focus on tourism destinations and the hotel A firm’s strengths cannot be easily industry. As the tourism and hotel matched or imitated by competitors are industry continue to prosper in the global called distinctive competencies. economy, competition whether it be Building competitive advantages international or domestic among involves taking advantage of distinctive members of the industries become competencies. fiercer. Strategies are designed in part to improve on a firm’s weaknesses, turning The Context of Internal Analysis them into strengths, and maybe even into In the global economy, traditional distinctive competencies. factors such as labor costs access to A. THE PROCESS OF PERFORMING financial resources and raw materials, and AN INTERNAL AUDIT protected or regulated markets continue to be sources of competitive advantage, The process of performing an internal but to a lesser degree (mostly because the audit closely parallels the process of advantages created by these more performing an external audit. traditional sources can be overcome by Representative managers and employees competitors through an international from throughout the firm need to be strategy and by the flow of resources involved in determining a firm’s throughout the global economy). strengths and weaknesses. The Context of Internal Analysis Compared to the external audit, the process of performing an internal Increasingly, those analyzing their audit provides more opportunity for firm’s internal environment should use a participants to understand how global mindset (i.e., the ability to study their jobs, departments, and divisions fit an internal environment in ways that are into the whole organization. not dependent on the assumptions of a single country, culture, or context). Performing an external audit, critical Analysis of the firm’s internal success factors, consisting of both environment requires that evaluators strengths and weaknesses, can be Resources are only valuable if they have identified and prioritized. one or more of the following characteristics: Financial ratio analysis exemplifies the complexity of relationships among the a. Rare functional areas of business. b. Hard to imitate THE RESOURCE-BASED VIEW (RBV) c. Not easily substitutable A. INTERNAL FACTORS VS INTEGRATING STRATEGY AND EXTERNAL FACTORS CULTURE 1. The RBV takes the opposing view to A. STRATEGY AND CULTURE that of the I/O theorists discussed. The RBV approach to competitive advantage Relationships among firm’s functional contends that internal resources are more business activities perhaps can be important than external factors for a firm exemplified by focusing or organizational in achieving and sustaining competitive culture, an internal phenomenon that advantage. permeates through all departments and divisions of an organization. 2. Internal resources come from three categories Organizational culture can be defined as a pattern of behavior developed by an Physical resources: plant, equipment, organization as it learns to cope with its location, technology, raw materials, problem of external adaptation and machines, etc. internal integration that has worked well Human resources: employees, training, enough to be considered valid and to be experience, intelligence, knowledge, taught to new members as the correct skills, abilities, etc. way to perceive, think, and feel. Organizational resources: firm A. STRATEGY AND CULTURE structure, planning process, information Remarkably resistant to change, culture systems, patents, trademark, copyrights, can represent a major strength or databases, etc. weakness for the firm. Cultural products include values, beliefs, rites, B. THE BASIC PREMISE rituals, ceremonies, myths, stories, The mix, type, amount, and nature of a legends, sagas, language, metaphors, firm’s internal resources should be symbols, heroes, and heroines. considered first and foremost in Success is often determined by linkages devising strategies that can lead to between a firm’s culture and strategies. sustainable competitive advantage. Strategists must understand their firm as Firms should pursue strategies that are a socio-cultural system. not currently being implemented by any MANAGEMENT competing firm. A. THE FUNCTIONS OF C. VALUABLE RESOURCES MANAGEMENT The functions of management consist of measuring individual and organizational five basic activities: planning, organizing, performance, 3) comparing actual motivating, staffing, and controlling. performance to planned performance standards, and 4) taking a. Planning – consists of all those corrective actions. managerial activities related to preparing for the future. Specific tasks include MARKETING forecasting, establishing objectives, Marketing can be described as the devising strategies, developing policies, process of defining, anticipating, and setting goals. creating, and fulfilling customers’ needs b. Organizing – includes all those and wants for products and services. managerial activities that result in a There are seven structure of task and authority basic functions of marketing:1) customer relationships. The organizing function analysis, 2) selling products/services, 3) consists of three sequential activities product and service planning, 4) pricing, breaking down tasks into jobs, combining 5) distribution, 6) marketing research, jobs to form departments, and and 7) opportunity analysis delegating authority. A. Customer Analysis c. Motivating – is defined as the process The examination and evaluation of of influencing people to accomplish consumer needs, desires, and specific objectives. Specific topics wants – involves administering customer include leadership, group dynamics, surveys, analyzing consumer communication, and organizational information, evaluating market change. positioning strategies, developing d. Staffing – activities are centered on customer profiles, and determining personnel or human resource optimal market segmentation strategies. management. Included are activities such B. Selling Product/Services as recruiting, disciplining, promoting, transferring, demoting, and dismissing Successful strategy implementation employees, as well as managing union generally rests on the ability of an relations. It plays a major role in organization to sell some product or strategy-implementation efforts. service. Selling includes many marketing activities such as advertising, sales e. Controlling – refers to all those promotion, publicity, personal selling, managerial activities directed toward sales force management, customer ensuring that actual results are relations, and dealer relations. consistent with planned results. The controlling function of management is C. Product and Service Planning particularly important in the strategy- evaluation stage of the strategic- Product and service planning include management process. Controlling activities such as test marketing: product consists of four basic steps: 1) and brand positioning; devising establishing performance standards, 2) warranties; packaging; determining product options, product features, A. Importance of Finance and Accounting product style, and product quality; 1. Financial condition is often considered deleting old products; and providing for the single best measure of a firm’s customer service. competitive position and overall D. Pricing attractiveness to investors. Determining an organization’s financial strengths and Five major stakeholders affect pricing weaknesses is essential to formulating decisions: consumers, governments, strategies effectively. suppliers, distributors, and competitors. Sometimes an organization will pursue a 2. A firm’s liquidity, leverage, working forward integration strategy primarily to capital, profitability, asset utilization, gain better control over prices charged to cash flow, and equity can eliminate some consumers. strategies as being feasible alternatives. E. Distribution B. Finance/Accounting Functions Distribution includes warehousing, 1. According to James Van Home, the distribution channels and coverage, retail functions of finance/accounting site locations, sales territories, inventory comprise three decisions: the investment levels and location, transportation decision, the financing decision, and carriers, wholesaling, and retailing. dividend decision. Financial ratio analysis is the most widely used method F. Marketing Research for determining an organization’s Marketing research is the systematic strength and weaknesses in these areas. gathering, recording, and analyzing of 2. The investment decision, also called data about problems relating to the capital budgeting, is the allocation and marketing of goods and services. It can reallocation of capital and resources for uncover strengths and weaknesses, and projects, products, assets, and divisions marketing researchers can employ of an organization. numerous scales, instruments, procedures, concepts, and techniques to 3. The financing decision determines the gather information. best capital structure for the firm and includes examining various methods by G. Cost-benefit analysis which the firm can raise capital. It must It involves assessing the costs, benefits, consider both short-term and long-term and risks associated with marketing needs for working capital. decisions. Three steps required to 4. Dividend decisions concern issues such perform a cost/benefit analysis: 1) as the percentage of earnings paid to compute the total costs associated a stockholders, the stability of dividends decision, 2) estimate the total benefits paid over time, and the repurchase or from the decision, and 3) compare the issuance of stock. The benefits of paying total costs with the total benefits. dividends to investors must be balanced FINANCE/ACCOUNTING against the benefits of internally retaining funds. C. Basic Types of Financial Ratios comparative ratios. Third, departures from industry averages do not always 1. Financial ratios are computed from an indicate that a firm is doing especially organization’s income statement and well or badly. balance sheet. 3. Since consumers remain price 2. Trend analysis is a technique that sensitive, many firms lowered prices to incorporates both the time and industry compete. As a firm lowers prices, its average dimensions of financial breakdown point in terms of units sold ratios. increases. 3. Financial ratios can be classified into 4. Notice that increasing fixed costs also five types: raises a firm’s breakeven quantity. a. Liquidity ratios measure a firm’s ability PRODUCTION/OPERATIONS to meet maturing short-term obligations 1. The production/operations functions b. Leverage ratios measure the extent to of a business consist of all those activities which a firm has been financed by debt that transform inputs into goods and c. Activity ratios measure how effectively services. a firm is using its resources. 2. Production/operations management d. Profitability ratios measure a deals with inputs, transformations, and management’s overall effectiveness as outputs that may vary across industries shown by returns generated on sales and and markets. investment 3. The basic functions of production e. Growth ratios measure the firm’s operations management, include process, ability to maintain its economic position capacity, inventory, workforce, and in the growth of the economy and quality. industry. 4. Production/operations activities often FINANCIAL ANALYSIS represent the largest part of an organization’s human and capital assets. 1. Financial analysis must go beyond the actual calculation and interpretation of RESEARCH AND DEVELOPMENT ratios. The analysis should be conducted (R&D) on three separate fronts: A. Importance of R&D a. How has each ratio changed overtime? 1. The fifth major area of internal b. How does each ratio compare to operations that should be examined for industry norms. specific strengths and weaknesses in R&D. Many firms today do not conduct 2. Financial ratios are not without some R&D, and yet many other companies limitations. First, financial ratios are depend on successful R&D activities for based on accounting data, and firms survival. Firms pursuing a product differ in their treatment of such data. Second, seasonal factors can influence development strategy especially need to A. Importance of Value Chain Analysis have a strong R&D orientation. Value chain analysis refers to the process whereby a firm determines the costs 2. Organizations invest in R&D because associated with organizational activities they believe that such investment will from purchasing raw materials to lead to a superior product or service. manufacturing products to A. Internal and External R&D marketing those products. VCA aims to identify where low-cost advantages or 1. Cost distributions among R&D disadvantages exist anywhere along the activities vary by company and industry, value chain from raw material to but total R&D costs generally do not customer service activities. Firm should exceed manufacturing and marketing use value chain analysis to develop and start-up costs. Four approaches to nurture a core competence and convert determining R&D budget allocations are: this into distinctive competence. (1) financing as many project proposals as possible, (2) using a percentage-of-sales- B. Benchmarking method, (3) budgeting about the same 1. Firms use benchmarking to determine amount that competitors spend for R&D, whether their value chain activities are or (4) deciding how many successful new competitive compared to rivals. This products are needed and working entails measuring the costs of value chain backward to estimate the required R&D activities across an industry top investment. determine “best practices” among MANAGEMENT INFORMATION competing firms for the purpose of SYSTEM duplicating or improving upon those best practices. A. Importance of Information 2. The hardest part of benchmarking can 1. Information ties all business functions be gaining access to other firms’ value together and provides the basis for all chain activities with associated managerial decisions. costs. 2. A management information system THE INTERNAL FACTOR receives raw material from both the EVALUATION (IFE) MATRIX external and internal evaluation of an organization. It gathers data about A. The IFE Matrix marketing, finance, production, and A summary step conducting an internal personnel matters internally; and social, strategic-management audit is to cultural, demographic, environmental, construct an IFE Matrix. This strategy- economic, political, government, legal, formulation tool summarizes and technological, and competitive factors evaluates the major strengths and externally. Data are integrated in ways weaknesses into the functional areas needed to support managerial decision of a business, and it also provides a basis making. for identifying and evaluating VALUE CHAIN ANALYSIS relationships among these areas. ORGANIZATIONS SUCCEED IN A COMPETITIVE MARKETPLACE OVER THE LONG RUN BECAUSE THEY CAN DO CERTAIN THINGS THEIR CUSTOMERS VALUE BETTER THAN CAN THEIR COMPETITORS. --- Robert Hayes, Gary Pisano, and David Upton