STRATMA Lecture 4 & 5 PDF

**Lecture 4. Internal Assessment** - **Advantages to practice self-evaluation in an organization** - Employees can feel more engaged as they have the opportunity to assess their work, progress, and the impact they have in their organization. - Employees can improve their emotional i...

**Lecture 4. Internal Assessment** - **Advantages to practice self-evaluation in an organization** - Employees can feel more engaged as they have the opportunity to assess their work, progress, and the impact they have in their organization. - Employees can improve their emotional intelligence as this exercise improves people\'s self-awareness of their strengths and weaknesses. - Employees become more accountable for the mistakes they make. - It can help managers and leaders better understand how employees perceive their work and results. **INTERNAL ASSESSMENT** □ In an organization, identify strengths and weaknesses in: 1. Management 2. Marketing 3. Finance and accounting 4. Production and operations 5. Research and development 6. Management information systems - It is vital to help a firm formulate, implement, and evaluate strategies to enable it to gain and sustain competitive advantages. **Management** Starbucks' talent acquisition, training, performance management, and succession planning methods - Starbucks\' success is not solely measured by its revenue, which reached USD \$29.46 billion in 2023 - And its impact on people and the planet (a culture of warmth and belonging, everyone feels welcome) - **talent acquisition:** its strategy underscores its commitment to excellence and inclusivity (with a global retail workforce boasting 53% gender diversity and 23.5% representation of people of color in retail and manufacturing roles) - **training**: its strategy underscores its commitment to continuous learning and development (on average, employees receive 20 hours of training per year, the company\'s investment in its workforce) - **performance management**: emphasizes regular feedback, coaching, and goal setting to empower partners to achieve their full potential (including the equity in the company through annual Bean Stock Awards) - started to work at 16 years old - when turned 18, start a 401k retirement account and learn about Bean Stock - In 2021, used part of the retirement account and the Bean Stock to pay a two-storey condo for her family. - In May 2022, earned a psychology degree through the Starbucks College Achievement Plan, with 100% percent tuition coverage at Arizona State University's online program. **Marketing** According to Statista (2024), advertising expenditure of Procter & Gamble worldwide (2011-2024, in billion U.S. dollars). **Key Internal Forces** Distinctive Competencies: - Firm's strengths that cannot be easily matched or imitated by competitors - Building competitive advantage involves taking advantage of distinctive competencies - Customer service - Strategies are designed in part to improve on a firm's weaknesses, turning them into strengths, and maybe even into distinctive competencies. - 18 Major Companies Tied to the Apple Supply Chain (Foxconn, Compal Quanta Computer, Taiwan Semiconductor Manufacturing Company, Wistron, Pegatron from Taiwan). **Weaknesses Strengths Distinctive Competencies Competitive Advantage** To achieve this greatness, though, Apple doesn\'t depend on its own manufacturing alone, and it relies on for procuring components for assembly.  **Internal Audit** - Involvement in performing an internal strategic-management audit: - Gathering, - Assimilating, and - Prioritizing information - Provides vehicle for understanding the nature and effect of decisions in other functional business areas of the firm. - all work together to provide ideas and information. - understand the nature and effect of decisions in other functional business areas in their firm. **Resource Based View (RBV) Approach** - approach to competitive advantage contends that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage - resources are actually what helps a firm exploit opportunity and neutralize threats 1. Physical resources 2. Human resources 3. Organizational resources **The Resource-Based Model of Above Average Returns** **Empirical Indicators for a Sustainable Competitive Advantage** - Rare - Hard to imitate - Not easily substitutable **Integrating Strategy and Culture** **Organizational Culture** A pattern of behavior developed by an organization as it learns to cope by an organization as it learns to cope with its problem of [external adaptation] and [internal integration], and that has worked well enough to be considered valid and taught to new members as the correct way to perceive, think, and **Example of Organizational Culture**  Organizational culture can inhibit strategic management (according to Lorsch). 1. Frequently miss the significance of the external changes, due to strongly help beliefs. 2. Natural tendency to hold course/ stick with it in the , even during times of strategy - Taiichi Ohno: Hero of the Toyota Production System - "Ten Precepts" of lean manufacturing, a cornerstone of the Toyota Production System 1. First reduce waste 2. First say, "I can do it." And try before everything 3. The workplace is a teacher. You can find answers only in the workplace. **5S Pillars** - Sort (Seiri), - Set in Order (Seiton), - Shine (Seiso), - Standardize (Seiketsu) - Sustain (Shitsuke) 5S is a system to **reduce waste** and optimize productivity through maintaining an orderly workplace and using visual cues to achieve more consistent operational results.  **MANAGEMENT** **Functions** 1. **Planning** - managerial activities related to preparing for the future. 2. **Organizing** - managerial activities that result in a structure of task and authority relationships. 3. **Motivating** - efforts directed toward shaping human behavior. 4. **Staffing** - human resource activities 5. **Controlling** - managerial activities directed toward ensuring that actual results are consistent with planned results **Synergy** - Can develop through planning - Exists when everyone pulls together as a team that knows what it wants to achieve effect **Management Audit Checklist** 1. Does the firm use strategic-management concepts? 2. Are company objectives and goals measurable and well communicated? 3. Do managers at all hierarchical levels plan effectively? 4. Do managers delegate authority well? 5. Is the organization's structure appropriate? 6. Are job descriptions and job specifications clear? 7. Is employee morale high? 8. Are employee turnover and absenteeism low? 9. Are organizational reward and control mechanisms effective? **MARKETING** Customer Needs or Wants for Products and Services 1. **Defining** 2. **Anticipating** 3. **Creating** 4. **Fulfilling** **Functions:** 1. **Customer analysis** The examination and evaluation of consumer needs, desires, and wants. 2. **Selling products and services** Includes many marketing activities, such as advertising, sales, promotion, publicity, personal selling, sales force management, customer relations, and dealer relations. 3. **Product and service planning** includes activities such as test marketing; product and brand positioning; devising warranties; packaging; determining product options, features, style, and quality; deleting old products; and providing for customer service. 4. **Pricing** determining the value, a producer will get in the exchange of goods and services. 5. **Distribution** includes warehousing, distribution channels, distribution coverage, retail site locations, sales territories, inventory levels and location, transportation carriers, wholesaling, and retailing. 6. **Marketing research** - systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and services. - Organizations that possess excellent marketing research skills have a competitive advantage. 7. **Cost/benefit analysis** involves assessing the costs, benefits, and risks associated with marketing decisions. Three steps are required to perform a cost/benefit analysis: 1. compute the total costs associated with a decision, 2. estimate the total benefits from the decision, and 3. compare the total costs with the total benefits. **Marketing Audit Checklist** 1. Are markets segmented effectively? 2. Is the organization positioned well among competitors? 3. Has the firm's market share been increasing? 4. Are present channels of distribution reliable and cost effective? 5. Does the firm have an effective sales organization? 6. Does the firm conduct market research? 7. Are product quality and customer service good? 8. Are the firm's products and services priced appropriately? 9. Does the firm have an effective promotion, advertising, and publicity strategy? 10. Are marketing, planning, and budgeting effective? 11. Do the firm's marketing managers have adequate experience and training? 12. Is the firm's Internet presence excellent as compared to rivals? **FINANCE/ ACCOUNTING** - **Financial condition** -- considered one of the single-best measures of a firm's competitive position and overall attractiveness to investors - **Financial ratio analysis** -- most widely used method for determining an organization's strengths and weaknesses in the investment, financing, and dividend areas. **Financial Ratio Analysis** - **Financial Ratios -** useful tools used to determine the financial health of the business enterprise (Medina, 2016) - growth, - profitability, - liquidity, - leverage, and - activity ratios - **Growth Ratios** - It is often best to start with the question: "Has the company grown?" If the answer is "No", then the conclusion must be that there is some kind of problem, unless you know that the company has a policy of no growth.  - **Profitability Ratios** - measures the overall financial performance of a business enterprise, and shows the ability of the business enterprise to generate revenues in excess of the operating costs and other expenses - For the business plan, we'll focus in the profitability ratios, such as the Gross Profit Margin, Net Profit Margin, Return on Investments, and Return on Equity. - **Liquidity Ratios** - determine the business enterprises' ability to meet or pay its maturing short-term (due within a year) debts or obligations.  - **Leverage Ratios** - measure the extent of the firm's total debt burden and its ability to meet obligations. These ratios are important to creditors since it reflect the capacity of the firm\'s revenues to support interest (of loans taken out) and other fixed charges. - **Activity Ratios** - the turnover ratios, and are helpful in evaluating the small business enterprise's performance and showing how effectively the business employs its resources  **Finance/Accounting** **Functions:** 1. **Investment decision (Capital budgeting)** -- allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization. 2. **Financing decision** -- determines the best capital structure for the firm and includes examining various methods by which the firm can raise capital. 3. **Dividend decision** -- concern issues such as the percentage of earnings paid to stockholders, the stability of dividends paid over time, and the repurchase or issuance of stock. **Finance/Accounting Audit** 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? 6. Are divided payout policies reasonable? 7. Does the firm have good relations with its investors and stockholders? 8. Are the firm's financial managers experienced and well trained? 9. Is the firm's debt situation excellent? **PRODUCTION/OPERATIONS** - consists of all those activities that transform inputs into goods and services; deals with inputs, transformations, and outputs that vary across industries and markets. **Functions:** 1. **Process** -- These decisions include choice of technology, facility layout, process flow analysis, facility location, line balancing, process control, and transportation analysis. Distances from raw materials to production sites to customers are a major consideration. 2. **Capacity** -- These decisions include forecasting, facilities planning, aggregate planning, scheduling, capacity planning, and queuing analysis. Capacity utilization is a major consideration. 3. **Inventory** -- These decisions involve managing the level of raw materials, work-in-process and finished goods, especially considering what to order, when to order, how much to order, and materials handling. 4. **Workforce** -- These decisions involve managing the skilled, unskilled, clerical, and managerial employees by caring for job design, work measurement, job enrichment, work standards, and motivation techniques. 5. **Quality** -- These decisions are aimed at ensuring that high-quality goods and ser- vices are produced by caring for quality control, sampling, testing, quality assurance, and cost control. **Production/Operations Audit** 1. Are supplies of raw materials, parts, and subassemblies reliable and reasonable? 2. Are facilities, equipment, machinery, and offices in good condition? 3. Are inventory-control policies and procedures effective? 4. Are quality-control policies and procedures effective? 5. Are facilities, resources, and markets strategically located? 6. Does the firm have technological competencies? **Implications of Strategies on Production/Operations** +-----------------------------------+-----------------------------------+ | **Various Strategies** | **Implications** | +===================================+===================================+ | **1. Become a low-cost provider** | - Creates high barriers to | | | entry | | | | | | - Creates larger market | | | | | | - Requires longer production | | | runs and fewer product | | | changes | +-----------------------------------+-----------------------------------+ | **2. Become a high-quality | - Requires more | | provider** | quality-assurance efforts | | | | | | - Requires more expensive | | | equipment | | | | | | - Requires highly skilled | | | workers and higher wages | +-----------------------------------+-----------------------------------+ | **3. Provide great customer | - Requires more service people, | | service** | service parts, and equipment | | | | | | - Requires rapid response to | | | customer needs or changes in | | | customer tastes | | | | | | - Requires a higher inventory | | | investment | +-----------------------------------+-----------------------------------+ | **4. Be the first to introduce | - Has higher research and | | new products** | development costs | | | | | | - Has high retraining and | | | tooling costs | +-----------------------------------+-----------------------------------+ | **5. Become highly automated** | - Requires high capital | | | investment | | | | | | - Reduces flexibility | | | | | | - May affect labor relations | | | | | | - Makes maintenance more | | | crucial | +-----------------------------------+-----------------------------------+ | **6. Minimize layoffs** | - Serves the security needs of | | | employees and may develop | | | employee loyalty | | | | | | - Helps attract and retain | | | highly skilled employees | +-----------------------------------+-----------------------------------+ **Research & Development** **R&D Functions:** - Development of new products before competitors - Improving product quality - Improving manufacturing processes to reduce costs - These functions can be done internally or externally **Management Information Systems** **Purpose:** - Improve performance of an enterprise by improving the quality of managerial decisions. **Value Chain Analysis** - The process whereby a firm determines the costs associated with: - Purchasing raw materials - Manufacturing products - Marketing products **Transforming Value Chain Activities into Sustained Competitive Advantage** **Internal Factor Evaluation (IFE) Matrix** 1. List key factors, at least 10 for strengths and for weaknesses 2. Assign a weight ranging from 0.0 (not important) to 1.0 (all important) 3. Assign 1 to 4 rating to each factor: major weakness (1), minor weakness (2), minor strength (3), major strength (4) 4. Multiply the weight times the rating sum the weighted scores ***Sample for a Retail Computer Store:***  **Lecture 5. External Assessment** - The environment has an impact on all business enterprises and, thus, may affect an individual firm. - Every firm is not an island to itself; moreover, it subsists, endures and develops within its environment. - An individual firm is able to do minute to change or manage the forces of its environment, it has no choice to reacting or modifying according to these forces. **EXTERNAL ASSESSMENT** - **External Strategic Management Audit** - environmental scanning or industry analysis - focuses on identifying and evaluating **trends and events beyond the control** of a single firm, such as increased foreign competition, population shifts to coastal areas, and information technology. *"the stock market is volatile" - **(not)** actionable?* *"The 2023 GDP of the Philippines is 6.8%, 0.5% higher in 2022 -- **(yes)** Actionable?* - **External Audit** - develop a finite list of **opportunities** that could benefit a firm, and **threats** that should be avoided. +-----------------------------------+-----------------------------------+ | **Opportunities** | **Threats** | +===================================+===================================+ | - What emerging trends can we | - What is our competition | | take advantage of? | doing? | | | | | - Which of our strengths might | - How could our weaknesses | | be valuable to potential | leave us vulnerable? | | partners? | | | | - What market trends are we | | - What adjacent markets might | unprepared for? | | we tap into? | | | | - What economic or political | | - Are there geographic | issues could impact our | | locations with less | business? | | competition? | | +-----------------------------------+-----------------------------------+  In identifying the key external factors, the opportunities and threats should offer: 1. **actionable responses,** 2. **specific,** and 3. **stated as external trends, events or facts** - With these, an individual firm can respond either offensively or defensively to the key external factors in formulating strategies - exploit opportunities - minimize or avoid the impact of threats **Key External Forces and the Organization** **Performing External Audit** **External Factors** - Long-term orientation - Measurable - Applicable to competing Firms - Hierarchical **Industrial Organization (I/O) View** - opposite of the Resource Based View, this advocates that external (industry) factors are more important than internal ones for gaining and sustaining competitive advantage. **Industry Properties** - Economies of Scale - Barriers to market entry - Product differentiation - Level of competitiveness **Economic Forces** - a direct impact on the potential attractiveness of various strategies - high underemployment (minimum wage-type employment) - commodity prices are up sharply, especially food, which is contributing to rising inflation fears **Example Key Variables to be Monitored**  **Social, Cultural, Demographic and Environmental Forces** - impact strategic decisions on virtually all products, services, markets, and customers - Aging population - Less Caucasian - Widening gap between rich & poor - 2025 = 18.5% population \>65 years - 2075 = no ethnic or racial majority **Example Key Variables to be Monitored** **Political, Government & Legal Forces** **Globalization of Industry** - Worldwide trend toward similar consumption patterns - Global buyers and sellers - E-commerce - Technology for instant currency transfers **Example Key Variables to be Monitored**  **Technological Forces** - fueling innovation in many industries, impacts strategic-planning decisions - Internet of Things - 3D printing - cloud storage - mobile devices - biotechnology - robotics - artificial intelligence - Results of technological advancements: 1. **They represent major opportunities and threats** that must be considered in formulating strategies. 2. **They can dramatically affect organizations' products**, services, markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and competitive position. 3. **They can create new markets**, result in a proliferation of new and improved products, change the relative competitive cost positions in an industry, and render existing products and services obsolete. 4. **They can reduce or eliminate cost barriers** between businesses, create shorter production runs, create shortages in technical skills, and result in changing values and expectations of employees, managers, and customers. 5. **They can create new competitive advantages** that are more powerful than existing advantages. **Competitive Forces** **Identifying Rival Firms** - Strengths - Weaknesses - Capabilities - Opportunities **Competitive Intelligence (CI) --** a systematic and ethical process for gathering and analyzing information about the competition's activities and general business trends to further a business's own goals ***Legal and ethical ways to obtain CI:*** - Hire top executives from rival firms. - Reverse engineer rival firms' products. - Use surveys and interviews of customers, suppliers, and distributors. - Conduct drive-by and on-site visits to rival firm operations. - Search online databases. - Contact government agencies for public information about rival firms. - Systematically monitor relevant trade publications, magazines, newspapers, and other media used. **Basic Objectives of a CI program:** - to provide a general understanding of an industry and its competitors - to identify areas in which competitors are vulnerable and to assess the impact strategic actions would have on competitors - to identify potential moves that a competitor might make that would endanger a firm's position in the market. **Characteristics describe competitive firms:** 1. Strive to continually increase market share. 2. Use the vision/mission as a guide for all decisions. 3. Realize that the adage "If it's not broke, don't fix it" has been replaced by "Whether it's broke or not, fix it;" in other words, continually strive to improve everything about the firm. 4. Continually adapt, innovate, improve---especially when the firm is successful. 5. Strive to grow through acquisition whenever possible. 6. Hire and retain the best employees and managers possible. 7. Strive to stay cost-competitive on a global basis. **Philippines Fintech Map 2023** Between 2021 and 2023, the Philippines' fintech sector grew by more than 38%, rising from 216 companies two years ago to 299, data from the Fintech Map Philippines 2023. As of 2023, to see how competitive the industry, the Philippines' fintech startup ecosystem was dominated by companies in the payment, remittance and e-wallet segments, which counted 107, 31 and 27 companies, respectively, according to the Fintech Philippines Report 2023. **The Five-Forces Model of Competition (Porter)**  **Threat of new entrants** - For example, in the insurance industry, the threat of new entrants can be considered as **low to medium** because it takes big investments to start an insurance company. New entrants may need licenses, insurances, distribution channels and other qualifications or expertise that are not easy to obtain when new to the industry. **Bargaining power of suppliers** - For example, the bargaining power of suppliers in the automotive industry can be considered **low to medium** because of many manufacturers and suppliers of cars exist in the automotive industry, therefore these suppliers have less bargaining power on the prices they charge. - For example, the bargaining power of buyers in the banking industry is **high** because customers are able to check the rates and fees from different banks fast with many online price comparisons websites and with switching costs or transfer fees involved in the process. **Threat of substitute products** - For example, in the airline industry, the general need of its customers is traveling; however, there are many alternatives for traveling besides going by airplane. Depending on the mode, urgency and distance, customers may take a bus by land or a motorboat by water. Therefore, the threat of substitutes in the airline industry can be considered **medium to high.** **Rivalry among existing competitors.** - For example, the rivalry among existing competitors in the fast food or quick service restaurant (QSR) industry is **high** because many QSRs offer many bundle pricing schemes, they're increasing their promotional activities, and they provide better services. **Conditions that cause High Rivalry among Competing Firms:** 1. When the number of competing firms is high 2. When competing firms are of similar size 3. When competing firms have similar capabilities 4. When the demand for the industry\'s products is falling 5. When the product or service prices in the industry is falling 6. When consumers can switch brands easily 7. When barriers to leaving the market are high 8. When barriers to entering the market are low 9. When fixed costs are high among competing firms 10. When the product is perishable 11. When rivals have excess capacity 12. When consumer demand is falling 13\. When rivals have excess inventory 14\. When rivals sell similar products/services 15\. When mergers are common in the industry **The External Factor Evaluation (EFE) Matrix** **Steps** 1. List the key external factors as identified in the external-audit process, including both opportunities and threats that affect the firm and its industry. 2. Assign to each factor a weight that ranges from 0.0 (not important) to 1.0 (very important). 3. Assign a rating between 1 and 4 to each key external factor to indicate how effectively the firm's current strategies respond to the factor, where 4 = the response is superior, 3 = the response is above average, 2 = the response is average, and 1 = the response is poor. 4. Multiply each factor's weight by its rating to determine a weighted score. 5. Sum the weighted scores for each variable to determine the total weighted score for the organization. **External Factor Evaluation (EFE) Matrix for a Local 10-Theater Cinema Complex (Example)**