2nd Term Reviewer Strategic Management PDF

2nd Term Reviewer Strategic Management “Oftentimes there is trade-off between the two.” Establishing Long Term Strategies Levels of Strategies Long Term Objectives These represent the results expected from pursuing certain strategies. Strate...

2nd Term Reviewer Strategic Management “Oftentimes there is trade-off between the two.” Establishing Long Term Strategies Levels of Strategies Long Term Objectives These represent the results expected from pursuing certain strategies. Strategies are actions to be taken to accomplish long-term objectives. The time frame for objectives and strategies should be consistent, usually from two to five years. Business Level Strategy Long term objectives are needed at This is the business’s overall competitive corporate, divisional, and functional levels theme, the way it positions itself in the Objectives marketplace to gain a competitive advantage, and the different positioning These should be quantitative, measurable, strategies that can be used in different realistic, understandable, challenging, industry settings. hierarchical, obtainable, and congruent The two basic ways that companies chose among organizational units. how to compete in a market is by: These should be associated with a timeline lowering costs These must be stated in terms such as differentiating their products from growth in assets, growth in sales, that offered by rivals so that they profitability, market share, degree and create more value nature of diversification, degree and nature broad low-cost strategy - when a of vertical integration, earnings per share, company lowers costs so that it can lower and social responsibility. prices and still make a profit These provide direction, allow synergy, aid broad differentiation strategy - when a in evaluation, establish priorities, reduce company differentiates its product in some uncertainty, minimize conflicts, stimulate way, such as by recognizing different exertion, and aid in both the allocation of segments or offering different products to resources and the design of jobs. each segment Types of Objectives focus low-cost strategy - when a company targets a certain segment or 1. Financial – examples are growth in niche, and tries to be the low-cost player in revenues, growth I nearnings, higher that niche dividends, larger profit margins, greater focus differentiation strategy - when a return on investment, higher earnings per company targets a certain segment or share, a rising stock price, improved cash niche, and customizes its offering to the flow… needs of that particular segment through 2. Strategic – examples are larger market the addition of features and functions share, quicker on-time delivery than rivals, shorter design-to-market times than rivals, Business Level Strategy and the Industry lower costs than rivals, higher product Environment quality than rivals, wider geographic fragmented industry – is an industry coverage than rivals, achieving composed of a large number of small- and technological leadership, consistently medium-sized companies getting new or improved products to market Examples are: dry-cleaning, hair ahead of rivals… salon, restaurant, health club, massage, and legal services industries  Reasons for fragmentation are: lack because forward integration reduces an of scale economies, brand loyalty in organization’s ability to diversify if its basic the industry may primarily be local, industry falters. low entry barriers 4. When an organization has both the capital and human resources needed to manage 11 Types of Strategies the new business of distributing its own 1. forward integration products. 2. backward integration 5. When the advantages of stable production 3. horizontal integration are particularly high; this is a consideration 4. market penetration because an organization can increase the 5. market development predictability of the demand for its output 6. product development through forward integration. 7. related diversification 6. When present distributors or retailers have 8. unrelated diversification high profit margins; this situation suggests 9. retrenchment that a company profitably could distribute 10. divestiture its own products and price them more 11. liquidation competitively by integrating forward. Guidelines to have effective Backward Integration Strategy 1. When an organization’s present suppliers are especially expensive, or unreliable, or incapable of meeting the firm’s needs for parts, components, assemblies, or raw materials. 2. When the number of suppliers is small and the number of competitors is large. 3. When an organization competes in an industry that is growing rapidly; this is a Integration Strategies factor because integrative-type strategies These strategies are collectively called as vertical (forward, backward, and horizontal) reduce integration strategies an organization’s ability to diversify in a declining industry. These include: 4. When an organization has both capital and Forward integration human resources to manage the new Backward integration business of supplying its own raw Horizontal integration materials. 5. When the advantages of stable prices are Guidelines to have effective Forward Integration particularly important; this is a factor Strategy because an organization can stabilize the 1. When an organization’s present cost of its raw materials and the associated distributors are especially expensive, or price of its product(s) through backward unreliable, or incapable of meeting the integration. firm’s distribution needs. 6. When present supplies have high profit 2. When the availability of quality distributors margins, which suggests that the business is so limited as to offer a competitive of supplying products or services in the advantage to those firms that integrate given industry is a worthwhile venture. forward. 7. When an organization needs to quickly 3. When an organization competes in an acquire a needed resource. industry that is growing and is expected to Guidelines to have effective Horizontal continue to grow markedly; this is a factor Integration Strategy  1. When an organization can gain 2. When an organization is very successful at monopolistic characteristics in a particular what it does. area or region without being challenged by 3. When new untapped or unsaturated the federal government for “tending markets exist. substantially” to reduce competition. 4. When an organization has the needed 2. When an organization competes in a capital and human resources to manage growing industry. expanded operations. 3. When increased economies of scale 5. When an organization has excess provide major competitive advantages. production capacity. 4. When an organization has both the capital 6. When an organization’s basic industry is and human talent needed to successfully rapidly becoming global in scope. manage an expanded organization. Guidelines to have effective Product 5. When competitors are faltering due to a Development Strategy lack of managerial expertise or a need for particular resources that an organization 1. When an organization has successful possesses; note that horizontal integration products that are in the maturity stage of would not be appropriate if competitors are the product life cycle; the idea here is to doing poorly, because in that case overall attract satisfied customers to try new industry sales are declining. (improved) products as a result of their positive experience with the organization’s Intensive Strategies present products or services. These strategies require intensive efforts if a 2. When an organization competes in an firm’s competitive position with existing products is industry that is characterized by rapid to improve technological developments. 3. When major competitors offer better-quality These include: products at comparable prices. Market penetration 4. When an organization competes in a high- Market development growth industry. Product development 5. When an organization has especially strong research and development Guidelines to have effective Market Penetration capabilities. Strategy Diversification Strategies 1. When current markets are not saturated with a particular product or service. These include: 2. When the usage rate of present customers Related - when their value chains posses could be increased significantly competitively valuable cross-business 3. When the market shares of major strategic fits competitors have been declining while total Unrelated - when their value chains are so industry sales have been increasing. dissimilar that no competitively valuable 4. When the correlation between dollar sales cross-business relationships exist and dollar marketing expenditures historically has been high. Companies favor this because of: 5. When increased economies of scale Transferring competitively valuable provide major competitive advantages expertise, technological know-how, or other Guidelines to have effective Market Development capabilities from one business to another. Strategy Combining the related activities of separate businesses into a single operation to 1. When new channels of distribution are achieve lower costs. available that are reliable, inexpensive, and Exploiting common use of a well-known of good quality. brand name.  Cross-business collaboration to create and unrelated diversification is that the competitively valuable resource strengths former should be based on some and capabilities. commonality in markets, products, or technology, whereas the latter should be Guidelines to have effective Related based more on profit considerations.) Diversification Strategy 9. When existing markets for an 1. When an organization competes in a no- organization’s present products are growth or a slow-growth industry. saturated. 2. When adding new, but related, products 10. When antitrust action could be charged would significantly enhance the sales of against an organization that historically has current products. concentrated on a single industry. 3. When new, but related, products could be Defensive Strategies offered at highly competitive prices. 4. When new, but related, products have These include: seasonal sales levels that counterbalance Retrenchment an organization’s existing peaks and Divestiture valleys. 5. When an organization’s products are Liquidation currently in the declining stage of the Guidelines to have effective Retrenchment product’s life cycle. Strategy 6. When an organization has a strong management team. 1. When an organization has a clearly distinctive competence but has failed Guidelines to have effective Unrelated consistently to meet its objectives and Diversification Strategy goals over time. 1. When revenues derived from an 2. When an organization is one of the weaker organization’s current products or services competitors in a given industry. would increase significantly by adding the 3. When an organization is plagued by new, unrelated products. inefficiency, low profitability, poor employee 2. When an organization competes in a highly morale, and pressure from stockholders to competitive and/or a no-growth industry, as improve performance. indicated by low industry profit margins and 4. When an organization has failed to returns. capitalize on external opportunities, 3. When an organization’s present channels minimize external threats, take advantage of distribution can be used to market the of internal strengths, and overcome internal new products to current customers. weaknesses over time; that is, when the 4. When the new products have organization’s strategic managers have countercyclical sales patterns compared to failed (and possibly will be replaced by an organization’s present products. more competent individuals). 5. When an organization’s basic industry is 5. When an organization has grown so large experiencing declining annual sales and so quickly that major internal profits. reorganization is needed. 6. When an organization has the capital and managerial talent needed to compete successfully in a new industry. Guidelines to have effective Divestiture Strategy 7. When an organization has the opportunity 1. When an organization has pursued a to purchase an unrelated business that is retrenchment strategy and failed to an attractive investment opportunity accomplish needed improvements. 8. When there exists financial synergy 2. When a division needs more resources to between the acquired and acquiring firm. be competitive than the company can (Note that a key difference between related provide.  3. When a division is responsible for an Porter called these generic strategies organization’s overall poor performance. 4. When a division is a misfit with the rest of an organization; this can result from radically different markets, customers, managers, employees, values, or needs. 5. When a large amount of cash is needed quickly and cannot be obtained reasonably from other sources. 6. When government antitrust action threatens an organization. Guidelines to have effective Liquidation Strategy 1. When an organization has pursued both a retrenchment strategy and a divestitute Michael Porter’s 5 Generic Strategies strategy, and neither has been successful. 1. Cost Leadership - producing standardized 2. When an organization’s only alternative is products at a very low per-unit cost for bankruptcy. Liquidation represents an consumers who are price-sensitive (these orderly and planned means of obtaining the target large market) greatest possible cash for an organization’s Type 1 - low-cost strategy that offers assets. A company can legally declare products or services to a wide range of bankruptcy first and then liquidate various customers at the lowest price available on divisions to raise needed capital. the market 3. When the stockholders of a firm can Type 2 - best-value strategy that offers minimize their losses by selling the products or services to a wide range of organization’s assets. customers at the best price-value available Balanced Scorecard on the market; the best-value strategy aims to offer customers a range of products or It is a strategy evaluation and control services at the lowest price available technique. compared to a rival’s products with similar This term derives its name from the attributes. perceived need of firms to “balance” financial measures that are oftentimes 2. Type 3 - Differentiation - aimed at used exclusively in strategy evaluation and producing products and services control with nonfinancial measures such as considered unique industry-wide and product quality and customer service. directed at consumers who are relatively It contains a carefully chosen combination price-insensitive. of strategic and financial objectives tailored 3. Focus - producing products and services to the company’s business. that fulfill the needs of small groups of This concept is consistent with continuous consumers (these target small market) improvement in management (CIM) and Type 4 - low-cost focus strategy that total quality management (TQM). offers products or services to a small range (niche group) of customers at the lowest Michael Porter’s 5 Generic Strategies price available on the market. Strategies allow organizations to gain competitive Type 5 - best-value focus strategy that advantage from offers products or services to a small range of customers at the best price-value three different bases: available on the market. Sometimes called 1. cost leadership “focused differentiation” 2. differentiation 3. focus Means for Achieving Strategies The intent of virtually all PE acquisitions is to buy firms at a low price and sell them 1. Cooperation Among Competitors later at a high price, arguably just good 2. Joint Venture/Partnering business. 3. Merger/Acquisition PE-to-PE acquisitions are called 4. Private-Equity Acquisitions secondary buyouts. Means for Achieving Strategies In addition, PE firms especially, but other firms too, sometimes borrow money simply 1. Cooperation Among Competitors to fund dividend payouts to themselves, a This is collaboration between competitors controversial practice known as dividend To succeed, both firms must contribute recapitalizations. technology, distribution, basic research, or manufacturing capacity. Tactics to Facilitate Strategies The major risk to this is unintended 1. First Mover Advantages transfers of important skills or technology 2. Outsourcing and Reshoring may occur at organizational levels 2. Joint Venture/Partnering 1. First Mover Advantages This is when two or more companies form These refer to the benefits a firm may a temporary partnership or consortium for achieve by entering a new market or the purpose of capitalizing on some developing a new product or service prior opportunity. Often, the two or more to rival firms. sponsoring firms form a separate Some advantages include securing organization and have shared equity access to rare resources, gaining new ownership in the new entity. knowledge of key factors and issues, Other types of cooperative arrangements and carving out market share and a include research and development position that is easy to defend and partnerships, cross-distribution costly for rival firms to overtake. agreements, cross-licensing agreements, cross-manufacturing 2. Outsourcing and Reshoring agreements, and joint-bidding consortia Leveraged buyout (LBO) this occurs Outsourcing - involves companies taking when a corporation’s shareholders are over the functional operations, such as bought (hence buyout) by the company’s human resources, information systems, management and other private investors payroll, accounting, customer service, and using borrowed funds (hence leverage). even marketing of other firms. 3. Merger/Acquisition Reshoring - this means companies These are two commonly used ways to planning to move some of their pursue strategies. manufacturing back to its country. Its Merger - when two organizations of about benefits are: equal size unite to form one enterprise. Stable wages Acquisition - when a large organization Reduced gas and electricity costs purchases (acquires) a smaller firm, or vice Excellent security to protect designs from versa. overseas copycats When a merger or acquisition is not desired Enable closer tabs on quality control and by both parties, it can be called a takeover supply chains or hostile takeover. In contrast, if the Excellent economy with consumers acquisition is desired by both firms, it is purchasing more termed a friendly merger. Less shipment costs with consumers 4. Private-Equity Acquisitions nearby Private equity (PE) firms are acquiring and Excellent human rights, education, legal, taking private a wide variety of companies and political systems that promote freedom almost daily in the business world. and opportunity for citizens  2. Strategic Position and Action Evaluation (SPACE) Matrix 3. Boston Consulting Group (BCG) Matrix 4. Internal-External (IE) Matrix 5. Grand Strategy Matrix These tools rely upon information derived from the input stage to match external opportunities and threats with internal strengths and weaknesses. Matching external and internal critical success factors is the key to effectively generating feasible alternative strategies. Strategies Formulation and Analysis Comprehensive Strategy-Formulation Framework Stage 1: Input Stage - summarizes the basic input information needed to formulate strategies. Stage 2: Matching Stage - focuses upon Matching Stage: 1) SWOT Matrix generating feasible alternative strategies by aligning key external and internal factors. This is an important matching tool that helps managers develop four types of strategies: Stage 3: Decision Stage - evaluate feasible alternative strategies 1. SO (strengths-opportunities) Strategies - use a firm’s internal strengths to take advantage of external opportunities. 2. WO (weaknesses-opportunities) Strategies - improving internal weaknesses by taking advantage of external opportunities. 3. ST (strengths-threats) Strategies - use a firm’s strengths to avoid or reduce the impact of external threats. 4. WT (weaknesses-threats) Strategies - Input Stage defensive tactics directed at reducing The tools used in this stage are: internal weakness and avoiding external threats. 1. External Factor Evaluation (EFE) Matrix 2. Internal Factor Evaluation (IFE) Matrix Steps in constructing a SWOT Matrix: 3. Competitive Profile Matrix (CPM) 1. List the firm’s key external Small decisions in the input matrices opportunities. regarding the relative importance of 2. List the firm’s key external threats. external and internal factors allows 3. List the firm’s key internal strengths. strategists to more effectively generate and 4. List the firm’s key internal weaknesses. evaluate alternative strategies. 5. Match internal strengths with external Matching Stage opportunities, and record the resultant SO Strategies in the appropriate cell. The tools used in this stage are: 6. Match internal weaknesses with external opportunities, and record the 1. Strengths-Weaknesses-Opportunities- resultant WO Strategies. Threats (SWOT) Matrix  7. Match internal strengths with external threats, and record the resultant ST Strategies. 8. Match internal weaknesses with external threats, and record the resultant WT Strategies. Steps to develop a SPACE Matrix are: 1. Select a set of variables to define financial position (FP), competitive position (CP), stability position (SP), and industry position (IP). 2. Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables that make up the FP and IP dimensions. Assign a numerical value ranging from -1 (best) to -7 (worst) to each of the variables that make up the SP and CP dimensions. On the FP and CP axes, make comparison Matching Stage: 2) SPACE Matrix to competitors. On the IP and SP axes, make comparison to other industries. It is a four-quadrant framework that indicates 3. Compute an average score for FP, CP, IP, whether aggressive, conservative, defensive, and SP by summing the values given to the or competitive strategies are most appropriate variables of each dimension and then by for a given organization. dividing by the number of variables The axes of the SPACE Matrix represent: included in the respective dimension. 4. Plot the average scores for FP, IP, SP, and 1. internal dimensions CP on the appropriate axis in the SPACE financial position (FP) Matrix competitive position (CP) 5. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores 2. external dimensions on the y-axis and plot the resultant point on stability position (SP) Y. Plot the intersection of the new xy point. industry position (IP) 6. Draw a directional vector from the origin of the SPACE Matrix through the new These factors are the most important determinants intersection point. This vector reveals the of an organization’s overall strategic position.  type of strategies recommended for the the relative market share position and the industry organization: aggressive, competitive, growth rate of each division relative to all other defensive, or conservative divisions in the organization. Relative market share position is defined as the ratio of a division’s own market share (or revenues) in a particular industry to the market share (or revenues) held by the largest rival firm in that industry. This is given on the x-axis of the BCG Matrix. The industry sales growth rate is on the y-axis The directional vector associated with of the BCG Matrix. each profile suggests the type of strategies to pursue: aggressive, conservative, defensive, or competitive. When a firm’s directional vector is located in the aggressive quadrant (upper-right quadrant) of the SPACE Matrix, an organization is in an excellent position to use its internal strengths to (1) take advantage of Quadrant 1: Question Marks— This Quadrant external opportunities, (2) overcome have a low relative market share position, yet internal weaknesses, and (3) avoid they compete in a high-growth industry. Generally external threats. these firms’ cash needs are high and their cash generation is low. Therefore, market penetration, market These businesses are called Question development, product development, Marks because the organization must backward integration, forward decide whether to strengthen them by integration, horizontal integration, or pursuing an intensive strategy (market diversification, can be feasible, penetration, market development, or depending on the specific product development) or to sell them. circumstances that face the firm. Quadrant II: Stars— This Quadrant represents the organization’s best long-run opportunities for growth and profitability. Divisions with a high relative market share and a high industry growth rate should receive substantial investment to maintain or strengthen their dominant positions. Forward, backward, and horizontal integration; market penetration; market development; and product development are appropriate strategies for these Matching Stage: 3) BCG Matrix divisions to consider This graphically portrays differences among Quadrant III: Cash Cows—These have a high divisions in terms of relative market share relative market share position but compete in a position and industry growth rate. low-growth industry. Called Cash Cows because This allows a multidivisional organization to they generate cash in excess of their needs, they manage its portfolio of businesses by examining are often milked. Many of today’s Cash Cows were yesterday’s Stars. Cash Cow divisions should be Important differences between the BCG Matrix and managed to maintain their strong position for as the IE Matrix are: long as possible. The axes are different Product development or diversification may The IE Matrix requires more information be attractive strategies for strong Cash about the divisions than the BCG Matrix. Cows. However, as a Cash Cow division The strategic implications of each matrix becomes weak, retrenchment or divestiture are different. can become more appropriate For these reasons, strategists in multidivisional firms often develop both the BCG Matrix and the IE Matrix in formulating alternative strategies. Quadrant IV: Dogs—These have a low relative market share position and compete in a slow- A common practice is to develop a BCG Matrix and or no-market-growth industry; they are Dogs in an IE Matrix for the present and then develop the firm’s portfolio. Because of their weak internal projected matrices to reflect expectations of the and external position, these businesses are often future. liquidated, divested, or trimmed down through retrenchment. When a division first becomes a Dog, retrenchment can be the best strategy to pursue because many Dogs have bounced back, after strenuous asset and cost reduction, to become viable, profitable divisions. Matching Stage: 4) IE Matrix This positions an organization’s various divisions in a nine-cell display. Matching Stage: 5) Grand Strategy Matrix It is similar to the BCG Matrix in that both tools This is based on two evaluative dimensions: involve plotting organization divisions in a competitive position and market (industry) schematic diagram; this is why they are both growth. called “portfolio matrices.” Any industry whose annual growth in sales The size of each circle represents the percentage exceeds 5 percent could be considered to have sales contribution of each division, and pie slices rapid growth. Appropriate strategies for an reveal the percentage profit contribution of each organization to consider are listed in sequential division in both the BCG and IE Matrix. order of attractiveness in each quadrant of the matrix. The IE Matrix is based on two key dimensions: the IFE total weighted scores on the x-axis and the EFE total weighted scores on the y-axis.  Quadrant III: Firm here compete in slow-growth industries and have weak competitive positions. These firms must make some drastic changes quickly to avoid further decline and possible liquidation. Extensive cost and asset reduction (retrenchment) should be pursued first. Quadrant I : Firms located in this Quadrant are in An alternative strategy is to shift resources away an excellent strategic position. from the current business into different areas The appropriate strategy for these firms is (diversify). If all else fails, the final options for continued concentration on current markets Quadrant III businesses are divestiture or (market penetration and market development) and liquidation. products (product development). Quadrant IV: Firms here have strong It is unwise for these firms to shift from its competitive position but are in a slow growth established competitive advantages. industry. When these have excessive resources, backward, These firms have the strength to launch diversified forward, or horizontal integration may be effective programs into more promising growth areas. strategies. Firms here have characteristically high cash-flow When these firms are too heavily committed to a levels and limited internal growth needs and often single product, related diversification may reduce can pursue related or unrelated diversification the risks associated with a narrow product line. successfully. These firms also may pursue joint ventures. These firms can afford to take advantage of external opportunities in several areas. They can Decision Stage take risks aggressively when necessary. This stage uses: Quantitative Strategic Planning Quadrant II: Firms positioned here need to Matrix (QSPM) evaluate their present approach to the QSPM uses input from Stage 1 analyses marketplace seriously. and matching results from Stage 2 These firms are unable to compete effectively and analyses to decide objectively among they need to determine why their current approach alternative strategies. is ineffective and how they can best change to QSPM is a tool that allows strategists to improve their competitiveness. evaluate alternative strategies objectively, based on previously identified external and Because these firms are in a rapid-market-growth internal critical success factors. industry, an intensive strategy (as opposed to integrative or diversification) is usually the first option that should be considered. However, these firms are lacking distinctive competence or competitive advantage, horizontal integration is often a desirable alternative. As a last resort, divestiture or liquidation should be considered. Divestiture can provide funds needed to acquire other businesses or buy back shares of stock. Decision Stage: QSPM Step 1. Make a list of the firm’s key external opportunities/threats and internal The top row of a QSPM consists of alternative strengths/weaknesses in the left column of the strategies derived from the SWOT Matrix, SPACE QSPM. Matrix, BCG Matrix, IE Matrix, and Grand Strategy Matrix. This information should be taken directly from the EFE Matrix and IFE Matrix. These matching tools usually generate similar A minimum of 10 external key success feasible alternatives. However, not every strategy factors and 10 internal key success factors suggested by thematching techniques has to be should be included in the QSPM. evaluated in a QSPM. Strategists should use good intuitive judgment in selecting strategies to include Step 2. Assign weights to each key external and in a QSPM. internal factor. The left column of a QSPM consists of key external These weights are identical to those in the and internal factors (from Stage 1), and the top row EFE Matrix and the IFE Matrix. consists of feasible alternative strategies (from The weights are presented in a straight Stage 2). column just to the right of the external and internal critical success factors. Specifically, the left column of a QSPM consists of information obtained directly from the EFE Matrix Step 3. Examine the Stage 2 (matching) matrices, and IFE Matrix. In a column adjacent to the critical and identify alternative strategies that the success factors, the respective weights received organization should consider implementing. by each factor in the EFE Matrix and the IFE Matrix Record these strategies in the top row of are recorded. the QSPM. The QSPM determines the relative attractiveness Group the strategies into mutually of various strategies based on the extent to which exclusive sets if possible. key external and internal critical success factors Step 4. Determine the Attractiveness Scores (AS). are capitalized upon or improved. AS is defined as numerical values that The relative attractiveness of each strategy within indicate the relative attractiveness of each a set of alternatives is computed by determining strategy in a given set of alternatives. the cumulative impact of each external and internal These are determined by examining each critical success factor. key external or internal factor, one at a time, The six steps required to develop a QSPM are: and asking the question “Does this factor affect the choice of strategies being Step 1. Make a list of the firm’s key external made?” If the answer to this question is opportunities/threats and internal yes, then the strategies should be strengths/weaknesses. compared relative to that key factor. Step 2. Assign weights to each key external and AS should be assigned to each strategy to internal factor. indicate the relative attractiveness of one strategy over others, considering the Step 3. Examine the Stage 2 (matching) matrices particular factor. and identify alternative strategies that the The range for AS is 1 = not attractive, 2 = organization should consider implementing. somewhat attractive, 3 = reasonably Step 4. Determine the Attractiveness Scores (AS). attractive, an 4 = highly attractive. By attractive, it means the extent that one Step 5. Compute the Total Attractiveness Scores strategy, compared to others, enables the (TAS). firm to either capitalize on the strength, Step 6. Compute the Sum Total Attractiveness improve on the weakness, exploit the Score (STAS). opportunity, or avoid the threat. Work row by row in developing a QSPM.  If the answer to the previous question is no, indicating that the respective key factor has no effect upon the specific choice being made, then do not assign AS to the strategies in that set. Use a dash to indicate that the key factor does not affect the choice being made. Note: If an AS score is assigned to one strategy, then assign AS score(s) to the other. In other words, if one strategy receives a dash, then all others must receive a dash in a given row. STRATEGIES IMPLEMENTATION Nature of Strategy Implementation Step 5. Compute the Total Attractiveness Scores (TAS). Successful strategy formulation does not guarantee successful implementation. TAS is defined as the product of It is more difficult implement than formulate multiplying the weights (Step 2) by the strategies. AS (Step 4) in each row. Strategy-formulation concepts and tools do not The TAS indicate the relative differ greatly for small, large, forprofit, or attractiveness of each alternative nonprofit organizations but strategy strategy, considering only the impact of implementation varies substantially among the adjacent external or internal critical different types and sizes of organizations. success factor. Strategies have no chance of being The higher the TAS, the more attractive implemented successfully in organizations that the strategic alternative (considering do not market goods and services well, in firms only the adjacent critical success that cannot raise needed working capital, in factor). firms that produce technologically inferior Step 6. Compute the Sum Total products, or in firms that have a weak Attractiveness Score (STAS). information system. Add TAS in each strategy column of The difference with Strategy formulation and the QSPM. The STAS reveal which implementation are: strategy is most attractive in each set of alternatives. Formulation Implementation Higher scores indicate more positioning forces managing forces attractive strategies, considering all before the action during the action the relevant external and internal focuses on focuses on efficiency factors that could affect the effectiveness strategic decisions. primarily an intellectual primarily an The magnitude of the difference process operational process between the STAS in a given set of requires good requires special strategic alternatives indicates the intuitive and motivation and relative desirability of one strategy analytical skills leadership skills over another. requires requires coordination coordination among a among many few individuals individuals Establishing annual objectives, devising policies, and allocating resources are central strategy implementation activities common to all Restructuring organizations. This reduction in size is intended to Depending on the size and type of the improve both efficiency and effectiveness. organization, other management issues could Restructuring is concerned primarily with be equally important to successful strategy shareholder well-being rather than implementation employee well-being. Annual Objectives Reengineering Annual objectives serve as guidelines for Reengineering - involves reconfiguring or action, directing and channeling efforts and redesigning work, jobs, and processes for the activities of organization members. purpose of improving cost, quality, service, and speed. These are essential for strategy implementation It is also called process management, because these; process innovation, or process redesign. 1. represent the basis for allocating revenues This is the process of redesigning business 2. are a primary mechanism for evaluating processes to achieve dramatic improvements managers in performance, such as cost, quality, service, 3. are the major instruments for monitoring and speed (Hill, Jones, & Schilling, 2014). progress toward achieving long-term Reengineering is concerned more with objectives employee and customer well-being than 4. establish organizational, divisional, and shareholder well-being. departmental priorities It does not usually affect the organizational structure or chart, nor does it imply job loss or Policies employee layoffs. Whereas restructuring is concerned with Policy – refers to specific guidelines, methods, eliminating or establishing, shrinking or procedures, rules, forms, and administrative enlarging, and moving organizational practices established to support and departments and divisions, the focus of encourage work toward stated goals. reengineering is changing the way work is Policies are instruments for strategy actually carried out. implementation. Policies set boundaries, constraints, and limits Management issues considered central to on the kinds of administrative actions that can strategy implementation include: be taken to reward and sanction behavior; a) matching organizational structure with these clarify what can and cannot be done in strategy pursuit of an organization’s objectives. b) linking performance and pay to strategies Resource Allocation c) creating an organizational climate conducive to Resource allocation is a central change management activity that allows for strategy d) managing political relationships execution. e) creating a strategy-supportive culture In organizations that do not use a strategic- f) adapting production/ operations processes management approach to decision making, g) managing human resources Human resource allocation is often based on Resources Issues political or personal factors. The job of human resource manager is Strategic management enables resources to changing rapidly as companies continue to be allocated according to priorities downsize and reorganize. established by annual objectives. Strategic responsibilities of the human resource manager include assessing the staffing needs and costs for alternative  strategies proposed during strategy Notes: formulation and developing a staffing plan for Marketing departments are commonly charged effectively implementing strategies. with implementing strategies that require Production/Operations Issues significant increases in sales revenues in new areas and with new or improved products. Production/operations capabilities, limitations, and policies can significantly enhance or inhibit Finance and accounting managers must the attainment of objectives. devise effective strategy-implementation A major part of the strategy implementation approaches at low cost and minimum risk to process takes place at the production site. that firm. Production-related decisions on plant size, R&D managers have to transfer complex plant location, product design, choice of technologies or develop new technologies to equipment, kind of tooling, size of inventory, successfully implement strategies. inventory control, quality control, cost control, Information systems managers are being use of standards, job specialization, employee called upon more and more to provide training, equipment and resource utilization, leadership and training for all individuals in the shipping and packaging, and technological firm. innovation can have a dramatic impact on the Marketing Issues success or failure of strategy-implementation efforts. Countless marketing variables affect the success or failure of strategy implementation, Type of Strategy Production and the scope of this text does not allow us to Organization Being System address all those issues. Implemented Adjustment Some examples of marketing decisions that Hospital Adding a Purchase may require policies are as follows: cancer center specialized o To use exclusive dealerships or (Product equipment and multiple channels of distribution Development) add specialized o To use heavy, light, or no TV people advertising o To limit (or not) the share of business Bank Adding 10 Perform site done with a single customer new location analysis o To be a price leader or a price follower branches o To offer a complete or limited warranty (Market o To reward salespeople based on Development) straight salary, straight commission, or Beer Purchasing a Revise the a combination salary or commission o brewery barley farm inventory To advertise online or no operation control system Two variables are of central importance to (Backward strategy implementation: market Integration) segmentation and product positioning. Steel Acquiring a Improve the Market segmentation and product positioning manufacturer fast-food quality rank as marketing’s most important chain control system contributions to strategic management. (Unrelated Social media marketing has become an Diversification) important strategic issue Computer Purchasing a Alter the company retail shipping, Market Segmentation - is defined as the distribution packaging, and subdividing of a market into distinct subsets of chain transportation customers according to needs and buying habits. (Forward systems Integration)  This is widely used in implementing strategies Examples of decisions that may require especially for small and specialized firms. finance/accounting policies are: Market segmentation is an important variable in strategy implementation for the ff reasons: 1. To raise capital with short-term debt, long-term 1. Strategies such as market development, debt, preferred stock, or common stock product development, market penetration, and 2. To lease or buy fixed assets diversification require increased sales through 3. To determine an appropriate dividend payout new markets and products. To implement ratio these strategies successfully, new or improved 4. To use LIFO (Last-in, First-out), FIFO (First-in, market-segmentation approaches are First-out), or a market-value accounting required. approach 2. Market segmentation allows a firm to operate 5. To extend the time of accounts receivable with limited resources because mass 6. To establish a certain percentage discount on production, mass distribution, and mass accounts within a specified period of time advertising are not required. 7. To determine the amount of cash that should 3. Market segmentation decisions directly affect be kept on hand marketing mix variables: product, place, Research and Development Issues promotion, and price. Research and development (R&D) Market positioning - this entails developing schematic representations that reflect how the personnel can play an integral part in company’s products or services compare to strategy implementation. competitors’ on dimensions most important to These individuals are generally charged success in the industry. with developing new products and improving old products in a way that will This is also called as perceptual mapping allow effective strategy implementation. This is the next step after market R&D employees and managers perform segmentation. tasks that include transferring complex technology, adjusting processes to local Some rules for using product positioning as raw materials, adapting processes to local strategy-implementation tool are the following: markets, and altering products to particular tastes and specifications. 1. Look for the hole or vacant niche. The best Strategies such as product development, strategic opportunity might be an unserved market penetration, and related segment. diversification require that new products be 2. Do not serve two segments with the same successfully developed and that old strategy. Usually, a strategy successful with products be significantly improved. But the one segment cannot be directly transferred to level of management support for R&D is another segment. often constrained by resource availability. 3. Do not position yourself in the middle of the map. The middle usually means a strategy that is not clearly perceived to have any distinguishing characteristics. This rule can vary with the number of competitors. Finance/Accounting Issues The following are central to strategy implementation: acquiring needed capital, developing projected financial statements, preparing financial budgets, and evaluating the worth of a business. R&D policies can enhance strategy Type of Strategy R&D Activity implementation efforts to: Organization Being 1. Emphasize product or process Implemented improvements. Pharmaceutical Product Test the 2. Stress basic or applied research. company development effects of a 3. Be leaders or followers in R&D. new drug on 4. Develop robotics or manual-type different processes. subgroups 5. Spend a high, average, or low amount of Boat Related Test the money on R&D. Manufacturer Diversification performance 6. Perform R&D within the firm or to contract of various keel R&D to outside firms. designs under 7. Use university researchers or private- various sector researchers. conditions Plastic Market Develop a Management and Information Systems Issues container penetration biodegradable manufacturer container The process of strategic management is facilitated immensely in firms that have an effective information system. Electronics Market Develop a MODULE 9 Strategies Review, Evaluation, and company Development telecommunic Control ations system Strategy Evaluation in a foreign country The activities for Strategy Formulation are: 2. The increasing difficulty of predicting the future 1. examining the underlying bases of a firm’s with accuracy strategy 3. The increasing number of variables 2. comparing expected results with actual results 4. The rapid rate of obsolescence of even the 3. taking corrective actions to ensure that best plans performance conforms to plans 5. The increase in the number of both domestic and world events affecting organizations Adequate and timely feedback is crucial to 6. The decreasing time span for which planning have effective strategy evaluation. can be done with any degree of certainty Reasons why strategy evaluation was less Strategy Evaluation Framework difficult in the past: 1. domestic and world economies were more stable 2. product life cycles were longer 3. product development cycles were longer 4. technological advancement was slower 5. change occurred less frequently 6. there were fewer competitors 7. foreign companies were weak 8. there were more regulated industries Reasons why strategy evaluation is difficult at present: 1. There is dramatic increase in the environment’s complexity 1. Reviewing bases of strategy 2. Measuring organizational performance This can be done by developing a revised EFE This activity includes comparing expected Matrix and IFE Matrix. results to actual results, investigating revised IFE Matrix - focuses on changes in deviations from plans, evaluating individual the organization’s management, marketing, performance, and examining progress being finance/accounting, production/operations, made toward meeting stated objectives. R&D, and management information systems Both long-term and annual objectives are strengths and weaknesses. commonly use in this process revised EFE Matrix – should indicate how Strategy evaluation is based on both effective a firm’s strategies have been in quantitative and qualitative criteria (criteria response to key opportunities and threats. depends on a particular organization’s size, industry, strategies The company should answer the ff: implemented, and management philosophy). a. How have competitors reacted to our strategies? Quantitative criteria commonly used to evaluate b. How have competitors’ strategies strategies are financial ratios, which strategists use changed? to make three critical comparisons: c. Have major competitors’ strengths and weaknesses changed? a) comparing the firm’s performance over d. Why are competitors making certain different time periods, strategic changes? b) comparing the firm’s performance to e. Why are some competitors’ strategies competitors’ more successful than others? c) comparing the firm’s performance to f. How satisfied are our competitors with industry averages their present market positions and profitability? 3. Taking corrective actions g. How far can our major competitors be pushed before retaliating? This requires making changes to h. How could we more effectively competitively reposition a firm for the future. cooperate with our competitors? Examples of changes could be: Key questions to address in evaluating a) altering an organization’s structure strategies: b) replacing one or more key a) Are our internal strengths still individuals strengths? c) selling a division b) Have we added other internal d) revising a business mission strengths? If so, what are they? e) establishing or revising objectives c) Are our internal weaknesses still f) devising new policies weaknesses? g) issuing stock to raise capital d) Do we now have other internal h) adding additional salespersons weaknesses? If so, what are they? i) differently allocating resources e) Are our external opportunities still j) developing new performance incentives opportunities? Taking corrective actions does not f) Are there now other external necessarily mean that existing strategies will opportunities? If so, what are they? be abandoned or even that new strategies g) Are our external threats still threats? must be formulated. h) Are there now other external threats? If so, what are they? i) Are we vulnerable to a hostile takeover? Balance Scorecard 6. It should challenge the assumptions underlying the current corporate strategy. This is a process that allows firms to evaluate 7. It should welcome bad news. strategies from four perspectives: financial 8. It should welcome open-mindedness and a performance, customer knowledge, spirit of inquiry and learning. internal business processes, and learning 9. It should not be a bureaucratic mechanism. & growth. 10. It should not become ritualistic, stilted, or This is an important strategy-evaluation tool. orchestrated. The Balanced Scorecard analysis requires that 11. It should not be too formal, predictable, or firms seek answers to the following questions and rigid. utilize tha information, in conjunction with financial 12. It should not contain jargon or arcane measures, to adequately and more effectively planning language. evaluate strategies being implemented: 13. It should not be a formal system for control. a) How well is the firm continually improving and creating value along measures such 14. It should not disregard qualitative as innovation, technological leadership, information. product quality, operational process 15. It should not be controlled by efficiencies, and so on? “technicians.” b) How well is the firm sustaining and even improving upon its core competencies and Contingency Planning competitive advantages? c) How satisfied are the firm’s customers? Contingency plans these are alternative plans Guidelines for Effective Strategic Management that can be put into effect if certain key events do not occur as expected. 1. Keep the process simple and easily Firms should plan ways to deal with understandable. unfavorable and favorable events before they 2. Eliminate vague planning jargon. occur. 3. Keep the process non-routine; vary Firms must have contingency plan both for assignments, team membership, meeting unfavorable and favorable unforeseen formats, settings, and even the planning events. calendar. 4. Welcome bad news and encourage devil’s Some contingency plans commonly advocate thinking. established by firms include the following: 5. Do not allow technicians to monopolize the planning process. 1) If a major competitor withdraws from 6. To the extent possible, involve managers from particular markets as intelligence reports all areas of the firm. indicate, what actions should our firm take? Guidelines for Effective Strategic Management 2) If our sales objectives are not reached, (David, 2011) what actions should our firm take to avoid profit losses? 1. It should be a people process more than a 3) If demand for our new product exceeds paper process. plans, what actions should our firm take to 2. It should be a learning process for all meet the higher demand? managers and employees. 4) If certain disasters occur—such as loss of 3. It should be words supported by numbers computer capabilities; ahostile takeover rather than numbers supported by words. attempt; loss of patent protection; or 4. It should be simple and non-routine. destruction of manufacturing facilities 5. It should vary assignments, team because of earthquakes, tornadoes or memberships, meeting formats, and even the planning calendar.  hurricanes—what actions should our firm All strategy formulation, implementation, and take? evaluation decisions have ethical 5) If a new technological advancement ramifications. makes our new product obsolete sooner Business actions that are considered to be than expected, what actions should our unethical firm take? misleading advertising or labeling Benefits of Contingency Planning causing environmental harm 1) It enables quick responses to change. poor product or service safety 2) It prevents panic in crisis padding expense accounts situations. insider trading 3) It makes managers more adaptable by dumping banned or flawed products in foreign encouraging them to appreciate just markets how variable the future can be. not providing equal opportunities for women and minorities overpricing Steps in Contingency Planning moving jobs overseas sexual harassment 1) Identify both good and bad events that Social Responsibility could jeopardize strategies. Companies have their tremendous social 2) Determine when the good and bad events obligations are likely to occur. Social Policy - concerns what responsibilities 3) Determine the expected pros and cons of the firm has to employees, consumers, each contingency event. environmentalists, minorities, communities, 4) Develop contingency plans for key shareholders, and other groups. contingency events. 5) Determine early warning trigger points for Environmental Sustainability key contingency events Preserving the environment should be a Auditing permanent part of doing business for the.This is a systematic process of objectively following reasons: obtaining and evaluating evidence regarding assertions about economic actions and events 1) Consumer demand for environmentally to ascertain the degree of correspondence safe products and packages is high. between these assertions and established 2) Public opinion demanding that firms criteria, and communicating the results to conduct business in ways that preserve the interested users. natural environment is strong. An Audit is a frequently used tool in strategy 3) Environmental advocacy groups now have evaluation. over 20 million Americans as members. 4) Federal and state environmental Module 10: Issues on Business Ethics, Social regulations are changing rapidly and Responsibility, Environmental Sustainability, becoming more complex. and Global Business 5) More lenders are examining the Scenario environmental liabilities of businesses seeking loans. 6) Many consumers, suppliers, distributors, Business Ethics and investors shun doing business with This is defined as principles of conduct within environmentally weak firms. organizations that guide decision making and 7) Liability suits and fines against firms having behavior. environmental problems are on the rise This is a prerequisite for good strategic management. Corporations in every corner of the globe are taking advantage of the opportunity to obtain customers globally. Global Business Scenario Markets are shifting rapidly and in many cases converging in tastes, trends, and prices. Innovative transport systems are accelerating the transfer of technology. Shifts in the nature and location of production systems (such as in China and India) are reducing the response time to changing market conditions. More and more countries around the world are welcoming foreign investment and capital which resulted to labor markets to become more international. Advancements in telecommunications are drawing countries, cultures, and organizations worldwide closer together