Strategic Management Reviewer PDF

INTRODUCTION TO STRATEGIC MANAGEMENT TRATEGY IMPLEMENTATION STEPS Strategic Management and Strategic Competitiveness Developing a strategy-supportive culture A. What is Strategic Management? Creating an effective...

INTRODUCTION TO STRATEGIC MANAGEMENT TRATEGY IMPLEMENTATION STEPS Strategic Management and Strategic Competitiveness Developing a strategy-supportive culture A. What is Strategic Management? Creating an effective organizational structure defined as the art and science of formulating, Redirecting marketing efforts implementing, and evaluating cross-functional Preparing budgets decisions that enable an organization to achieve its Developing and utilizing information systems objectives. Linking employee compensation to organizational As this definition implies, strategic management performance focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and information systems to achieve ISSUES IN STRATEGY IMPLEMENTATION organizational success. Action Stage of Strategic Management The term strategic management in this text is used 1. Mobilization of employees & managers synonymously with the term strategic planning. The 2. Most difficult stage latter term is more often used in the business world, whereas the former is often used in academia. 3. Interpersonal skills critical Sometimes the term strategic management is used to STRATEGY EVALUATION refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today. Communication is key to successful strategic management. Strategy refers to top management’s plans to develop and sustain competitive advantage. It is about making you think ahead regarding key issues affecting PRIME TASK OF STRATEGIC MANAGEMENT organizations; Strategic management is about giving Peter Drucker: Think through the overall mission of a you concepts, frameworks, tools, and techniques to business. Ask the key question: “What is our help you do so. Business?” STRATEGY FORMULATION Integrating Intuition & Analysis The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty Intuition is based on: Past experiences Judgment Feelings Intuition is useful for decision making in conditions of: Great uncertainty Little precedent Highly interrelated variables Several plausible alternatives ISSUES IN STRATEGY FORMULATION Businesses to enter Intuition & Judgment Businesses to abandon Involve management at all levels Influence all analyses Allocation of resources Expansion or diversification Adapting to Change International markets Organizations should continually monitor internal and Mergers or joint ventures external events and trends so that timely changes can Avoidance of hostile takeover be made as needed STRATEGY IMPLEMENTATION B. KEY TERMS IN STRATEGIC MANAGEMENT Competitive Advantage Strategic management is all about gaining and maintaining competitive advantage. This term can be defined as “anything that a firm does especially well compared to rival firms.” When a firm can do something that rival firms cannot do, or owns something that rival firms desire, that can represent a competitive advantage. An increasing number of companies are gaining a competitive advantage by using the Internet for direct selling and for communication with suppliers, customers, creditors, partners, shareholders, clients,  and competitors who may be dispersed globally. organization exists and what the founders envisioned E-commerce allows firms to sell products, advertise, when they put their fame and fortune at risk to purchase supplies, bypass intermediaries, track breathe life into their dreams. inventory, eliminate paperwork, and share information. In total, e-commerce is minimizing the expense and C. External Opportunities and Threats cumbersomeness of time, distance, and space in Demographic, environmental, political, legal, doing business, thus yielding better customer service, governmental, technological, and greater efficiency, improved products, and higher competitive trends and events that could profitability. significantly benefit or harm an organization in the future. Opportunities and threats are Achieving Sustained Competitive Advantage largely beyond the control of a single 1. Continually adapting to changes in external trends organization—thus the word external. and events and internal capabilities, competencies, and resources Analysis of Trends ○ Economic 2. Effectively formulating, implementing, and evaluating ○ Social strategies that capitalize on those factors ○ Cultural ○ Demographic/Environmental Strategists ○ Political, Legal, Governmental ○ Technological ○ Competitors Strategists are the individuals who are most responsible for the success or failure of an organization. Strategists have various job titles, such as chief executive officer, president, owner, chair of D. Internal Strengths and Weaknesses the board, executive director, chancellor, dean, or entrepreneur. Internal strengths and internal weaknesses are an organization’s controllable activities Strategists help an organization gather, analyze, and that are performed especially well or poorly. organize information. They track industry and competitive trends, develop forecasting models and They arise in the management, marketing, scenario analyses, evaluate corporate and divisional finance/accounting, production/operations, performance, spot emerging market opportunities, research and development, and identify business threats, and develop creative action management information systems activities plans. Strategic planners usually serve in a support or of a business. Identifying and evaluating staff role. Usually found in higher levels of organizational strengths and weaknesses in management, they typically have considerable the functional areas of a business is an authority for decision making in the firm. The CEO is essential strategic management activity. the most visible and critical strategic manager. Organizations strive to pursue strategies that capitalize on internal strengths and eliminate Vision and Mission internal weaknesses. Vision Determined relative to competitors 1. Many organizations today develop a vision statement that answers the question “What do we want to become?” 2. Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. 3. Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is “Our vision is to take care of your vision.” Mission Mission statements are “enduring statements of purpose that distinguish one business from other E. Long Term Objectives similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms.” Objectives can be defined as specific results that an organization seeks to achieve in It addresses the basic question that faces all pursuing its basic mission. strategists: “What is our business?” Long-term means more than one year. A clear mission statement describes the values and priorities of an organization. Objectives are essential for organizational success because they state (provide) Developing a mission statement compels strategists direction; aid in evaluation; create synergy; to think about the nature and scope of present reveal priorities; focus coordination; and operations and to assess the potential attractiveness provide a basis for effective planning, of future markets and activities. organizing, motivating, and controlling A mission statement broadly charts the future activities. direction of an organization. A mission statement is a constant reminder to its employees of why the  Objectives should be challenging, measurable, consistent, reasonable, and 1. Strategy Formulation clear. Strategy formulation includes developing a vision and mission, identifying an organization’s external opportunities and threats, F. Strategies determining internal strengths and weaknesses, establishing Strategies are the means by which long-term objectives, generating alternative strategies, and long-term objectives will be achieved. choosing particular strategies to pursue. Strategy-formulation Business strategies may include geographic issues include deciding what new businesses to enter, what expansion, diversification, acquisition, businesses to abandon, how to allocate resources, whether to product development, market penetration, expand operations or diversify, whether to enter international retrenchment, divestiture, liquidation, and markets, whether to merge or form a joint venture, and how to joint ventures. avoid a hostile takeover. G. Annual Objectives Because no organization has unlimited resources, strategists must decide which alternative strategies will benefit the firm Annual objectives are short-term milestones most. Strategy-formulation decisions commit an organization to that organizations must achieve to reach specific products, markets, resources, and technologies over long term objectives. an extended period of time. Strategies determine long-term Like long-term objectives, annual objectives competitive advantages. For better or worse, strategic should be measurable, quantitative, decisions have major multifunctional consequences and challenging, realistic, consistent, and enduring effects on an organization. Top managers have the prioritized. best perspective to understand fully the ramifications of strategy-formulation decisions; they have the authority to H. Policies commit the resources necessary for implementation. Policies are the means by which annual objectives will be achieved. Communication is key to successful strategic management. Policies include guidelines, rules, and procedures established to support efforts to BENEFITS OF STRATEGIC MANAGEMENT achieve stated objectives. Policies are guides to decision making and address repetitive or recurring situations. Nonfinancial Benefits ○ Enhanced awareness of threats ○ Improved understanding of competitors’ strategies ○ Increased employee productivity ○ Reduced resistance to change ○ Clearer understanding of performance-reward relationship ○ Enhanced problem-prevention capabilities Why Some Firms Do No Strategic Planning Lack of knowledge of strategic planning Poor reward structures Fire fighting Waste of time STRATEGIC MANAGEMENT MODEL Too expensive Strategic Management Process Laziness Content with success ○ Dynamic & continuous Fear of failure ○ More formal in larger organizations Overconfidence Prior bad experience STAGES OF STRATEGIC MANAGEMENT Self-interest Fear of the unknown Honest difference of opinion Suspicion PITFALLS IN STRATEGIC PLANNING Strategic planning is an involved, complicated, and complex process that takes an organization into unexplored territory EFFECTIVE STRATEGIC PLANNING IS: A people process more than a paper process A learning process Words supported by numbers The strategic-management process consists of three stages: Simple and nonroutine strategy formulation, strategy implementation, and strategy evaluation.  Varying assignments, team membership, meeting formats, and planning calendars Challenging assumptions underlying corporate strategy Welcomes bad news Requires open-mindedness and a spirit of inquiry Is not a bureaucratic mechanism Is not ritualistic or stilted Is not too formal, predictable, or rigid Does not contain jargon or arcane language Is not a formal system for control Does not disregard qualitative information Is not controlled by “technicians” Does not pursue too many strategies at once Continually strengthens the “good ethics is good business” policy. Comparing Business Strategy and Military Strategy Strategic planning started in the military Similarity ○ Both business and military organizations must adapt to change and constantly improve Difference ○ Business strategy assumes competition ○ Military strategy assumes conflict A strong military heritage underlies the study of strategic management. Terms such as objectives, mission, strengths, and weaknesses first were formulated to address problems on the battlefield. According to Webster’s New World Dictionary, strategy is “the science of planning and directing large-scale military operations, of maneuvering forces into the most advantageous position prior to actual engagement with the enemy.” The word strategy comes from the Greek strategos, which refers to a military general and combines stratos (the army) and ago (to lead). The history of strategic planning began in the military. A key aim of both business and military strategy is “to gain competitive advantage.” In many respects, business strategy is like military strategy, and military strategists have learned much over the centuries that can benefit business strategists today. Both business and military organizations try to use their own strengths to exploit competitors’ weaknesses. If an organization’s overall strategy is wrong (ineffective), then all the efficiency in the world may not be enough to allow success. Business or military success is generally not the happy result of accidental strategies. Rather, success is the product of both continuous attention to changing external and internal conditions and the formulation and implementation of insightful adaptations to those conditions. The element of surprise provides great competitive advantages in both military and business strategy; information systems that provide data on opponents’ or competitors’ strategies and resources are also vitally important. CHAPTER 2: THE BUSINESS VISION & MISSION Dell’s mission is to be the most successful computer Vision company in the world at delivering the best customer “The last thing IBM needs right now is a vision.” (July 1993) experience in markets we serve. In doing so, Dell will meet consumer expectations of highest quality; “What IBM needs most right now is a vision.” (March 1996) leading technology; competitive pricing; individual and – Louis V. Gerstner, Jr., CEO, IBM Corporation company accountability; best-in-class service and support; flexible customization capability; superior Agreement on the basic vision for which the firm corporate citizenship; financial stability. strives to achieve in the long term is especially Proctor & Gamble will provide branded products and important. services of superior quality and value that improve the “What do we want to become?” lives of the world’s consumers. As a result, consumers will reward us with industry leadership in Vision Statement Examples sales, profit, and value creation, allowing our people, a. Tyson Foods’ vision is to be the world’s first choice for our shareholders, and the communities in which we protein solutions while maximizing shareholder value. live and work to prosper. b. General Motors’ vision is to be the world leader in At L’Oreal, we believe that lasting business success is transportation products and related services. built upon ethical standards which guide growth and c. PepsiCo’s responsibility is to continually improve all on a genuine sense of responsibility to our aspects of the world in which we operate – employees, our consumers, our environment and to environment, social, economic – creating a better the communities in which we operate. tomorrow than today. Vision & Mission d. Dell’s vision is to create a company culture where environmental excellence is second nature. Great benefits can be achieved if an organization ○ Systematically revisits their vision and mission statement ○ Treats them as living documents ○ Considers them to be an integral part of the firm’s culture ○ Profit & vision are necessary to effectively motivate a workforce ○ Shared vision creates a community of Mission Statement interests Answers the question: Developing Vision & Mission ○ “What is our business?” A clear mission is needed before alternative Reveals: strategies can be formulated and implemented ○ what the organization wants to be Participation by as many managers as possible is ○ whom we want to serve important in developing the mission because through An enduring statement of purpose that distinguishes involvement people become committed to an one organization from other similar enterprises organization A declaration of an organization’s “reason for being” Steps to Developing Vision & Mission Statements Mission Statements are also called 1. Have managers read related articles Creed statement 2. Have managers prepare a vision and mission Statement of purpose statement for the organization Statement of philosophy 3. Merge the documents into one and distribute Statement of beliefs 4. Gather feedback from managers Statement of business principles 5. Meet to revise the final document A statement “defining our business” Benefits of Mission Statements Mission Statement Examples Better financial results Fleetwood Enterprises will lead the recreational Unanimity of purpose vehicle and manufactured housing industries in Resource allocation providing quality products with a passion for Establishment of culture customer-driven innovation. We will emphasize training, embrace diversity and provide growth Focal point for individuals opportunities for our associates and our dealers. We Establishment of work structure will lead our industry in the application of appropriate Basis of assessment and control technologies. We will operate at the highest levels of Resolution of divergent views ethics and compliance with a focus on exemplary corporate governance. We will deliver value to our shareholders, positive operating results and industry-leading earnings. We aspire to make PepsiCo the world’s premier consumer products company, focused on convenient foods and beverages. We seek to produce healthy financial rewards for investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive to act with honesty, openness, fairness and integrity. Resolution of Divergent Views A genuine decision must be based on divergent views to have a chance to be a right and effective decision Considerable disagreement over vision and mission statements can cause trouble if not resolved Vision & Mission Statements Provide unity of direction Promote shared expectations Consolidate values Project a sense of worth and intent Affirm the company’s commitment to responsible action Declaration of Attitude Broad in scope Generate strategic alternatives Not overly specific Reconciles interests among diverse stakeholders Finely balanced between specificity & generality Broad in scope Arouse positive feelings & emotions Motivate readers to action Generate favorable impression of the firm Reflect future growth Provide criteria for strategy selection Basis for generating & evaluating strategic options Dynamic in nature Mission & Customer Orientation – Vern McGinnis Define what the organization is Define what it aspires to be Limited to exclude some ventures Broad enough to allow for growth Distinguishes firm from all others Framework for evaluating activities Stated clearly – understood by all An effective mission statement: Anticipates customer needs Identifies customer needs Provides product/service to satisfy needs Identifies the utility of a firm’s products to its customers Utility of Firm’s Products to Customers Do not offer me things. Do not offer me clothes. Offer me attractive looks. Do not offer me shoes. Offer me comfort for my feet and the pleasure of walking. Do not offer me a house. Offer me security, comfort, and a place that is clean and happy. Do not offer me books. Offer me hours of pleasure and the benefit of knowledge. Do not offer me CDs. Offer me leisure and the sound of music. Do not offer me tools. Offer me the benefits and the pleasure that come from making beautiful things. Do not offer me furniture. Offer me comfort and the quietness of a cozy place. Do not offer me things. Offer me ideas, emotions, ambience, feelings, and benefits. Please, do not offer me THINGS. CHAPTER 3: THE EXTERNAL ASSESSMENT Industrial Organization (I/O) View Industry factors are more important than internal factors Performance determined by industry forces I/O Perspective Firm Performance Economic Forces GDP Trends in the dollar’s value Unemployment rates External Assessment “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” – Charles Darwin “Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map.” – Wayne Calloway, Former CEO, PepsiCo External Strategic Management Audit Environmental Scanning Industry Analysis Identify & evaluate factors beyond the control of a single firm Increased foreign competition Social, Cultural, Demographic, and Natural Environmental Population shifts Forces Aging society Major Impact: Fear of traveling Products Stock market volatility Services Purpose of an External Audit Markets Develop a finite list of Customers ○ opportunities that could benefit a firm US Facts ○ threats that should be avoided Aging population Less White Widening gap between rich & poor 2025 = 18.5% population > 65 years 2075 = no ethnic or racial majority Facts World population 7 billion World population = 8 billion by 2028 World population = 9 billion by 2054 U.S. population > 310 million The Process of Performing an External Audit Trends a. Gather competitive intelligence More American households with people living alone Aging Americans – affects all organizations b. Assimilate information c. Evaluate Political, Governmental, and Legal Forces Government Regulation Resulting in a list of the most important key external factors Key opportunities & threats Performing an External Audit ○ Antitrust legislation ○ Tax rates ○ Lobbying activities ○ Patent laws Protectionist policies Governments taking equity stakes in companies Technological Forces Objectives of Competitive Intelligence Major Impact – Provide a general understanding of industry and Internet competitors Identify areas where competitors are vulnerable and Significance of IT assess impact of actions on competitors Chief Information Officer (CIO) Identify potential moves that a competitor might make Chief Technology Officer (CTO) Market Commonality Essential for nearly every strategic decision The number and significance of markets that a firm competes in with rivals Competitive Forces Collection & evaluation of data on competitors is Resource Similarity essential for successful strategy formulation Extent to which the type and amount of a firm’s Identify Rival Firms’ internal resources are comparable to a rival Strengths The Five-Forces Model of Competition Weaknesses Capabilities Opportunities Threats Objectives Strategies Competition in virtually all industries can be described as intense Key Questions Concerning Competitors Steps to Determine if an Acceptable Profit Can Be Earned Their strengths 1. Identify key aspects or elements of each competitive Their weaknesses force Their objectives and strategies 2. Evaluate how strong and important each element is Their responses to external variables for the firm Their vulnerability to our alternative strategies 3. Decide whether the collective strength of the elements is worth the firm entering or staying in the Our vulnerability to strategic counterattack industry Our product/service positioning Entry and exit of firms in the industry Rivalry among competing firms Key factors for our current position in industry Most powerful of the five forces Sales/profit ranking of competitors over time Focus on competitive advantage of strategies over Nature of supplier and distributor relationships other firms The threat of substitute products/services Conditions that Cause High Rivalry Among Competing Firms 7 characteristics of most competitive firms High number of competing firms Market share matters Similar size of firms competing Understanding what business you are in Similar capability of firms competing Broke or not, fix it Falling demand for the industry’s products Innovate or evaporate Falling product/service prices in the industry Acquisition is essential to growth Consumers can switch brands easily People make a difference Barriers to leaving the market are high No substitute for quality Barriers to entering the market are low Competitive Intelligence Fixed costs are high among firms competing A systematic and ethical process for gathering and The product is perishable analyzing information about the competition’s Rivals have excess capacity activities and general business trends to further a Consumer demand is falling business’s own goals Rivals have excess inventory Sources of Competitive Intelligence Rivals sell similar products/services Internet Mergers are common in the industry Employees Managers Potential Entry of New Competitors Suppliers Distributors Barriers to entry are important Customers Quality, pricing, and marketing can overcome barriers Creditors Consultants Potential development of substitute products Trade journals Pressure increases when: Want ads Newspaper articles ○ Prices of substitutes decrease Government filings ○ Consumers’ switching costs decrease Competitors Bargaining Power of Suppliers Political is increased when there are: Governmental Technological Large numbers of suppliers Competitive Few substitutes Legal Costs of switching raw materials is high Backward integration is gaining control or ownership of EFE Matrix Steps suppliers 1. List key external factors 2. Weight from 0 to 1 Bargaining power of consumers 3. Rate effectiveness of current strategies Customers being concentrated or buying in volume 4. Multiply weight * rating affects intensity of competition 5. Sum weighted scores Consumer power is higher where products are standard or undifferentiated Conditions Where Consumers Gain Bargaining Power If buyers can inexpensively switch If buyers are particularly important If sellers are struggling in the face of falling consumer demand If buyers are informed about sellers’ products, prices, and costs If buyers have discretion in whether and when they purchase the product Sources of External Information: Unpublished Sources Industry Analysis EFE Customer surveys Market research Total weighted score of 4.0 Speeches at professional or shareholder meetings Organization response is outstanding to threats and Television programs weaknesses Interviews and conversations with stakeholders Total weighted score of 1.0 Sources of External Information: Published Sources Firm’s strategies not capitalizing on opportunities or avoiding threats Periodicals Journals Reports Industry Analysis: Competitive Profile Matrix (CPM) Government documents Identifies firm’s major competitors and their strengths Abstracts & weaknesses in relation to a sample firm’s strategic Books positions Directories Critical success factors include internal and external Newspapers issues Manuals Sources of External Information: Web Sites http://marketwatch.multexinvestor.com http://moneycentral.msn.com http://finance.yahoo.com www.clearstation.com https://us.etrade.com/e/t/invest/markets www.hoovers.com Forecasting Tools and Techniques Forecasts are educated assumptions about future trends and events Industry Analysis CPM ○ Quantitative techniques – most appropriate Important – when historical data is available and there is a constant relationship Just because one firm receives a 3.2 rating and another receives a 2.8 rating, it does not follow that ○ Qualitative techniques the first firm is 20 percent better than the second. Assumptions Estimates of future events based upon the best available information in the present Industry Analysis: The External Factor Evaluation (EFE) Matrix Economic Social Cultural Demographic Environmental CHAPTER 4: INTERNAL ASSESSMENT Resourced-Based View (RBV) Internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage. Organizational performance will primarily be determined by internal resources that can be grouped into three categories: ○ Physical resources: plant and equipment, location, technology, raw materials, and machines ○ Human resources: employees, training, experience, intelligence, knowledge, skills, and abilities ○ Organizational resources: firm structure, planning processes, information systems, Internal Assessment patents, trademarks, copyrights, databases, “Great spirits have always encountered violent opposition from and so on. mediocre minds.” Resources are what actually helps a firm exploit – Albert Einstein opportunities and neutralize threats. A firm's internal resources (mix, type, amount, and “Weak leadership can wreck the soundest strategy.” nature) should be prioritized in devising strategies for – Sun Tzu sustainable competitive advantage. Internal Audit Involves developing and exploiting a firm's unique resources and capabilities, and continually Identify strengths and weaknesses in maintaining and strengthening those resources. ○ Management Advantageous for a firm to pursue a strategy that is ○ Marketing not currently being implemented by any competing ○ Finance and accounting firm. ○ Production and operations Sustainable competitive advantage is achieved when ○ Research and development other firms cannot duplicate a particular strategy. ○ Management information systems Empirical indicators For a resource to be valuable, it must be: Nature of an Internal Audit ○ Rare: Rare resources give firms a Basis for Objectives & Strategies competitive advantage, while common Internal strengths/weaknesses resources aid economic prosperity but do not sustain an advantage. External opportunities/threats ○ Hard to imitate: Difficult-to-imitate resources Clear statement of mission provide stronger competitive advantages than those easily copied. Key Internal Forces ○ Not easily substitutable: Resources Distinctive Competencies: without viable substitutes help firms maintain Firm’s strengths that cannot be easily matched or their competitive advantage, though imitated by competitors substitutes can create new advantages for Building competitive advantage involves taking competitors. advantage of distinctive competencies These characteristics enable a firm to implement strategies that improve its efficiency and effectiveness Internal Audit Process and lead to a sustainable competitive advantage. Parallels process of external audit Emphasizes that neither internal nor external factors Information gathered from: alone are consistently more important for competitive advantage; understanding the interaction between the ○ Management two is key. ○ Marketing ○ Finance/accounting Since both internal and external factors constantly ○ Production/operations change, strategists must adapt by identifying positive ○ Research & development shifts and mitigating negative ones to maintain ○ Management information systems competitive advantage. Strategic management's core challenge is ensuring a firm's survival amidst these Compared to external audits, this provides more changes. opportunity for participants to understand how their jobs, departments, and divisions fit into the whole organization — perform better when they understand Integrating Strategy and Culture how their work affects other areas and activities of the Organizational culture firm. "a pattern of behavior that has been developed by an organization as it learns to cope with its problem of “Communication may be the most word in management” external adaptation and internal integration, and that has worked well enough to be considered valid and to Process of Gaining Competitive Advantage in a Firm be taught to new members as the correct way to Weaknesses → Strengths → Distinctive Competencies → perceive, think, and feel." Competitive Advantage ○ importance of matching external with internal factors in making strategic decisions. Financial ratio analysis exemplifies the complexity of relationships among the functional areas of business. Cultural products: values, beliefs, rites, rituals, ceremonies, myths, stories, legends, sagas, language, metaphors, symbols, heroes, and heroines.  ○ levers that strategists can use to influence Management Audit Checklist and direct strategy formulation, Does the firm use strategic management concepts? implementation, and evaluation activities. Are objectives/goals measurable? Well Culture affects strengths and weaknesses, and communicated? aligning it with strategy is essential for success in Do managers at all levels plan effectively? strategic management. Do managers delegate well? A supportive culture aids strategy implementation, while misaligned culture creates confusion and Is the organization’s structure appropriate? challenges. Are job descriptions clear? The relationship between culture and strategy is Are job specifications clear? crucial to success, and understanding the firm as a Is employee morale high? sociocultural system helps strategists align strategies Is employee absenteeism low? with cultural strengths and address challenges. Is employee turnover low? Management Are the reward mechanisms effective? Functions of management Are the organization’s control mechanisms effective? 1. Planning Marketing a. essential bridge between the present and the future that increases the likelihood of process of defining, anticipating, creating, and fulfilling achieving desired results. customers’ needs and wants for products and services. b. process by which one determines whether to attempt a task, works out the most effective Marketing Functions way of reaching desired objectives, and 1. Customer analysis prepares to overcome unexpected difficulties with adequate resources. 2. Selling products/services 2. Organizing 3. Product & service planning a. achieve coordinated effort by defining task 4. Pricing and authority relationships. b. determining who does what and who reports 5. Distribution to whom. 6. Marketing research 3. Motivating a. process of influencing people to accomplish 7. Opportunity analysis specific objectives. b. Motivation explains why some people work Marketing Audit hard and others do not. 1. Are markets segmented effectively? c. leadership, group dynamics, communication, and organizational change 2. Is the organization positioned well among competitors? 4. Staffing 3. Has the firm’s market share been increasing? a. also called personnel management or human resource management 4. Are the distribution channels reliable & cost effective? b. includes activities such as recruiting, 5. Is the sales force effective? interviewing, testing, selecting, orienting, 6. Does the firm conduct market research? training, developing, caring for, evaluating, 7. Are product quality & customer service good? rewarding, disciplining, promoting, transferring, demoting, and dismissing 8. Are the firm’s products and services priced employees, as well as managing union appropriately? relations. 9. Does the firm have effective promotion, advertising, 5. Controlling and publicity strategies? a. includes all of those activities undertaken to 10. Are the marketing, planning, and budgeting effective? ensure that actual operations conform to 11. Do the firm’s marketing managers have adequate planned operations. experience and training? b. Controlling consists of four basic steps: 12. Is the firm’s Internet presence excellent as compared i. Establishing performance standards to rivals? ii. Measuring individual and organizational performance Finance/Accounting iii. Comparing actual performance to considered the single best measure of a firm's competitive planned performance standards position and overall attractiveness to investors iv. Taking corrective actions 1. Investment decision (Capital budgeting) 2. Financing decision 3. Dividend decision Finance/Accounting Audit Checklist 1. Where is the firm financially strong/weak as indicated by financial ratio analysis? 2. Can the firm raise needed short-term capital? 3. Can the firm raise needed long-term capital through debt and/or equity? 4. Does the firm have sufficient working capital?  5. Are capital budgeting procedures effective? Is communication between R&D and other 6. Are dividend payout policies reasonable? organizational units effective? 7. Does the firm have good relations with its investors Are present products technologically competitive? and stockholders? Management Information Systems 8. Are the firm’s financial managers experienced and well trained? Purpose 9. Is the firm’s debt situation excellent? Improve performance of an enterprise by improving the quality of managerial decisions Production/Operations Strategic-Planning Software consists of all those activities that transform inputs into goods and services Must be simple and unsophisticated Simplicity allows wide participation among managers Production/Operations Functions and participation is essential for effective strategy Process implementation. Capacity Management Information Systems Audit Do all managers use the information system to make Inventory decisions? Workforce Is there a CIO or Director of Information Systems position in the firm? Quality Are data updated regularly? Production/Operations Audit Checklist Do managers from all functional areas contribute Are suppliers of materials, parts, etc. reliable and input to the information system? reasonable? Are there effective passwords for entry into the firm’s Are facilities, equipment, machinery, and offices in information system? good condition? Are strategists of the firm familiar with the information Are inventory-control policies and procedures systems of rival firms? effective? Is the information system user-friendly? Are quality-control policies & procedures effective? Do all users understand the competitive advantages Are facilities, resources, and markets strategically that information can provide? located? Are computer training workshops provided for users? Does the firm have technological competencies? Is the firm’s system being improved? Research & Development Value Chain Analysis (VCA) directed at developing new products before competitors do, at Value chain – business of a firm, in which total improving product quality, or at improving manufacturing revenues minus total costs of all activities undertaken processes to reduce costs. to develop and market a product or service yields value. Four approaches to determining R&D budget allocations Value chain analysis (VCA) commonly are used: ○ process whereby a firm determines the costs 1. financing as many project proposals as possible associated with organizational activities from 2. using a percentage-of-sales method purchasing raw materials to manufacturing product(s) to marketing those products. 3. budgeting about the same amount that competitors spend for R&D ○ identify where low-cost advantages or disadvantages exist anywhere along the 4. deciding how many successful new products are value chain needed and working backward to estimate the required R&D investment. ○ better identify its own strengths and weaknesses, especially compared to R&D in organizations can take two basic forms: competitors 1. internal R&D, in which an organization operates its Core competence – value chain activity that a firm own R&D department performs especially well 2. contract R&D, in which a firm hires independent Distinctive competence – when a core competence researchers or independent agencies to develop evolves into a major competitive advantage specific products. Benchmarking Research & Development Functions analytical tool used to determine whether a firm's Development of new products before competitors value chain activities are competitive to rivals and Improving product quality thus conducive to winning in the marketplace Improving manufacturing processes to reduce costs These functions can be done internally or externally Research & Development Audit Are the R&D facilities adequate? If R&D is outsourced, is it cost-effective? Are the R&D personnel well qualified? Are R&D resources allocated effectively? Are MIS and computer systems adequate? Internal Factor Evaluation (IFE) Matrix 1. List key internal factors 2. Assign a weight ranging from 0.0 to 1.0 3. Assign a 1 to 4 rating to each factor 4. Multiply the weight times the rating 5. Sum the weighted scores Conclusion Management, marketing, finance/accounting, research and development, and management information systems ○ represents the core operations of most businesses A strategic-management audit of a firm's internal operations is vital to organizational health. Strategists must identify and evaluate internal strengths and weaknesses in order to effectively formulate and choose among alternative strategies The process of performing an internal audit represents an opportunity for managers and employees throughout the organization to participate in determining the future of the firm. Involvement in the process can energize and mobilize managers and employees.