Midterm Reviewer_StraMa PDF

BA 218 - STRATEGIC MANAGEMENT UNIT 1 5. To limit (or not) the share of business done STRATEGY FORMULATION with a single customer....

BA 218 - STRATEGIC MANAGEMENT UNIT 1 5. To limit (or not) the share of business done STRATEGY FORMULATION with a single customer. 6. To be a price dealer or a price follower. 7. To offer a complete or limited warranty. UNIT 2 8. To reward salespeople based on straight STRATEGY GENERATION AND SELECTION salary, straight commission, or a combination salary and commission. UNIT 3 Marketing is more about building a two-way STRATEGY IMPLEMENTATION relationship with consumers than just informing consumers about a product or service. Marketers OBJECTIVES: today must get their customers involved in their 1. Explained why strategy implementation is company website and solicit suggestions from more difficult than strategy formulation. customers in terms of product development, 2. Described the relationships between customer service, and ideas. The online community production/operations and strategy is much quicker, cheaper, and effective than implementations. traditional focus groups and surveys. 3. Explained market segmentation and product positioning as strategy implementation tools; Firms should provide incentives to customers to and share their thoughts, opinions, and experiences on 4. Explained how management information the company website. Encourage customers to systems can determine the success of network among themselves on topics of their strategy implementation efforts. choosing on the company website. So the company website must not be all about the company—it must THE NATURE OF STRATEGY IMPLEMENTATION be all about the customer too. Perhaps offer points or Strategy Implementation directly affects the lives of discounts for customers who provide ideas and plant managers, division managers, department suggestions. This practice will not only encourage managers, sales managers, product managers, participation but will allow both the company and project managers, personnel managers, staff other customers to interact with “experts.” managers, supervisors, and all employees. New Principles of Marketing CURRENT MARKETING ISSUES A business or organization’s website must provide Countless marketing variables affect the success or clear and simple instructions for customers to set up failure of Strategy Implementation efforts. Some a blog or contribute to a wiki. Customers trust each example marketing decisions that may require others’ opinions more than a company’s marketing policies are as follows: pitch, and the more they talk freely, the more the firm can learn how to improve its product, service, and 1. How to make advertisements more interactive marketing. Marketers today monitor blogs daily to to be more effective. determine, evaluate, and influence opinions being 2. How to best take advantage of Facebook and formed by customers. Customers must not feel like Twitter conversations about the company and they are a captive audience for advertising at a firm’s industry. website. 3. To use exclusive dealerships or multiple channels of distributions. NEW PRINCIPLES OF MARKETING: 4. To use heavy, light, no TV advertising versus 1. Do not just talk to consumers—work with online advertising. them throughout the marketing process. 2. Give consumers a reason to participate.  BA 218 - STRATEGIC MANAGEMENT 3. Listen to and join the conversation outside or improved market-segmentation your company's website. approaches are required. 4. Resist the temptation to sell, sell, sell. Instead 2. Market Segmentation allows a firm to operate attract, attract, attract. with limited resources because mass 5. Do not control online conversations; let it flow production, mass distribution, and mass freely. advertising are not required. Market 6. Find a “marketing technologist” a person who segmentation enables a small firm to has three excellent skill sets (marketing, compete successfully with a large firm by technology, and social interaction). maximizing per-unit profits and per-segment 7. Embrace instant messaging and chatting. sales. 3. Market Segmentation decisions directly affect Internet advertising is growing so rapidly that marketing mix variables: product, place, marketers are more and more allowed to create promotion, and price. bigger, more intrusive ads that take up more space on the web page. Websites are allowing lengthier ads to run before short video clips play. And blogs are creating more content that doubles also as an ad. Companies are also waiving minimum ad purchases. Companies are redesigning their websites to be much more interactive and are building new sponsorship programs and other enticements on their sites. Editorial content and advertising content are increasingly being mixed on blogs. Perhaps the most dramatic new market-segmentation strategy is the targeting of MARKET SEGMENTATION regional tastes. Firms from Pizza Hut to Honda Two variables are of central importance to strategy Motors are increasingly modifying their products to implementation: market segmentation and meet different regional preferences of customers product positioning. Market segmentation and around the world. Campbell’s has a spicier version of product positioning rank as marketing’s most its nacho cheese soup for the Southwest, and Burger important contributions to strategic management. King offers breakfast burritos in New Mexico but not in South Carolina. Geographic and demographic Market Segmentation can be defined as the bases for segmenting markets are the most subdividing of a market into distinct subsets of commonly employed, as illustrated in Table 9-3. customers according to needs and buying habits, and is widely used in implementing strategies, especially for small and specialized firms. Market segmentation is an important variable in strategy implementation for at least three major reasons. 1. Strategies such as market development, product development, market penetration, and diversification require increased sales through new markets and products. To implement these strategies successfully, new  BA 218 - STRATEGIC MANAGEMENT The basic approach to tagging customers is to use historical retention data to make predictions about active customers regarding: Whether they are at high risk of cancelling their service Whether they are profitable to retain What retention tactics are likely to be most effective The idea with retention-based segmentation is to match up active customers with customers from historic retention data who share similar attributes. PRODUCT POSITIONING OR PERCEPTUAL MAPPING Identifying target customers on which to focus marketing efforts sets the stage for deciding how to meet the needs and wants of particular consumer Retention-Based Segmentation groups. Product Positioning is widely used for this To aid in more effective and efficient deployment of purpose. marketing resources, companies commonly Positioning entails developing schematic tag each of their active customers with three values: representations that reflect how products or services compare to competitors’ on dimensions most Tag 1: Is this customer at high risk of cancelling the important to success in the industry. company’s service? The following steps are required in Product One of the most common indicators of high-risk Positioning (sometimes called Perceptual customers is a drop off in usage of the company’s Mapping): service. For example, in the credit card industry this could be signalled through a customer’s decline in 1. Select key criteria that effectively differentiate spending on his or her card. products or services in the industry. 2. Diagram a two-dimensional product-positioning Tag 2: Is this customer worth retaining? map with specified criteria on each axis. This determination boils down to whether the post 3. Plot major competitors’ products or services in the retention profit generated from the customer is resultant four-quadrant matrix. predicted to be greater than the cost incurred to 4. Identify areas in the positioning map where the retain the customer. Customers need to be managed company’s products or services could be most as investments. competitive in the given target market. Look for vacant areas (niches). Tag 3: What retention tactics should be used to 5. Develop a marketing plan to position the retain this customer? company’s products or services appropriately. For customers who are deemed “save-worthy,” it is essential for the company to know which save tactics Because just two criteria can be examined on a are most likely to be successful. Tactics commonly single product-positioning (perceptual) map, multiple used range from providing “special” customer maps are often developed to assess various discounts to sending customers communications that approaches to strategy implementation. reinforce the value proposition of the given service.  BA 218 - STRATEGIC MANAGEMENT Multidimensional Scaling one another are perceived as similar in the relevant Multidimensional Scaling could be used to examine dimensions. For example, in Figure 9-2, consumers three or more criteria simultaneously, but this see Buick, Chrysler, and Oldsmobile as similar. technique requires computer assistance and is beyond the scope of this text. Perceptual maps may also display consumers’ ideal points. These points reflect ideal combinations of the Some rules for using product positioning as a two dimensions as seen by a consumer. Figure 9-3 strategy-implementation tool are the following: reveals the results of a study of consumers’ ideal points in the alcohol and spirits product space. Each 1. Look for the hole or vacant niche. The best dot represents one respondent’s ideal combination of strategic opportunity might be an unserved segment. the two dimensions. Areas where there is a cluster of 2. Do not serve two segments with the same ideal points (such as A) indicates a market strategy. Usually, a strategy successful with one segment. Areas without ideal points are sometimes segment cannot be directly transferred to another referred to as demand voids. segment. 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. For example, when there are only two competitors, as in U.S. presidential elections, the middle becomes the preferred strategic position. The product positioning map, or perceptual map, in Figure 9-2, shows consumer perceptions of various automobiles on the two dimensions of sportiness and conservative and classy and affordable. FINANCE AND ACCOUNTING ISSUES In terms of “Financial Soundness,” Fortune recently ranked the following companies as best in the world Perceptual maps can aid marketers in being more effective in spending money to promote products. Products, brands, or companies positioned close to  BA 218 - STRATEGIC MANAGEMENT Several finance and accounting concepts central to EBIT is operating income. EBT is Earnings Before strategy implementation are acquiring needed Tax. EAT is Earnings After Tax. capital, developing projected financial statements, preparing financial budgets, and evaluating the worth The purpose of EPS/EBIT analysis is to determine of a business. whether all debt, or all stock, or some combination of Some examples of decisions that may require debt and stock yields the highest EPS values for the finance and accounting policies are these: firm. EPS is perhaps the best measure of success of a company, so it is widely used in making the capital 1. To raise capital with short-term debt, long-term acquisition decision. EPS reflects the common debt, preferred stock, or common stock “maximizing shareholders’ wealth” overarching 2. To lease or buy fixed assets corporate objective. 3. To determine an appropriate dividend payout ratio 4. To use last-in, first-out (LIFO), first-in, first-out EPS/EBIT analysis may best be explained by (FIFO), or a market-value accounting approach working through an example for the XYZ Company, 5. To extend the time of accounts receivable as provided in Table 9-4. 6. To establish a certain percentage discount on accounts within a specified period of time 7. To determine the amount of cash that should be kept on hand Acquiring Capital to Implement Strategies Successful strategy implementation often requires additional capital. Besides net profit from operations and the sale of assets, two basic sources of capital for an organization are debt and equity. Earnings Per Share/Earnings Before Interest and Taxes (EPS/EBIT) Limitations of EPS-EBIT Analysis: An earnings per share/earnings before interest and 1. Flexibility taxes (EPS/EBIT) analysis is the most widely used 2. Control technique for determining whether debt, stock, or a 3. Interest Rates combination of debt and stock is the best alternative 4. If the firm is already too highly leveraged vs. for raising capital to implement strategies. industry average ratios, then stock may be best regardless of determined EPS values in This technique involves an examination of the impact the analysis. that debt versus stock financing has on Earnings Per 5. The analysis assumes stock price, tax rate, Share under various expectations for EBIT given and interest rates to be the same over all specific recommendations (strategies to be economic conditions. implemented). 6. The estimated EBIT low and high values are based on the prior year plus the impact of Before explaining EPS/EBIT analysis, it is important strategies to be implemented. to know that EPS is Earnings Per Share, which is net income divided by number of shares outstanding. Another term for shares outstanding is shares issued. Also know that EBIT is Earnings Before Interest and Taxes. Another name for  BA 218 - STRATEGIC MANAGEMENT 4. Subtract from the net income any dividends to be paid for that year. This remaining net income is retained earnings (RE). 5. Project the balance sheet items, beginning with retained earnings. 6. List comments (remarks) on the projected statements. Financial Budgets A financial budget is a document that details how funds will be obtained and spent for a specified period of time. Annual budgets are most common, although the period of time for a budget can range from one day to more than 10 years. When an organization is experiencing financial difficulties, budgets are especially important in guiding strategy implementation. Perhaps the most common type of financial budget is the cash budget. Company Valuation Firms can do many things in the short run to Evaluating the worth of a business is central to maximize profits, so investors and creditors consider strategy implementation because integrative, maximizing shareholders’ wealth to be the better intensive, and diversification strategies are often criteria for making financing decisions. implemented by acquiring other firms. Projected Financial Statements Approaches in Evaluating the Worth of a Projected Financial Statement Analysis is a central Business strategy implementation technique because it allows an organization to examine the expected results of The first approach in evaluating the worth of a various actions and approaches. business is determining its net worth or A projected income statement and balance sheet stockholders’ equity. allow an organization to compute projected financial The second approach to measuring the value ratios under various strategy implementation of a firm grows out of the belief that the worth scenarios. of any business should be based largely on the future benefits its owners may derive Six (6) steps in performing Projected Financial through net profits. Analysis: The third approach is called the price-earnings ratio method. 1. Prepare the projected income statement The fourth method can be called the before the balance sheet. outstanding shares method. 2. Use the percentage-of-sales method to project the cost of goods sold (CGS) and the Deciding Whether to Go Public expense items in the income statement. Initial public offerings (IPOs) to move from being 3. Calculate the projected net income. private to being public. In addition to initial costs involved with a stock offering, there are costs and obligations associated  BA 218 - STRATEGIC MANAGEMENT with reporting and management in a publicly held 3. If technology is changing slowly but the market is firm. growing quickly, there generally is not enough time for in-house development. RESEARCH AND DEVELOPMENT (R&D) ISSUES 4. If both technical progress and market growth are Research and Development (R&D) fast. - personnel can play an integral part in strategy implementation. These individuals are generally Three major R&D approaches for implementing charged with developing new products and improving strategies: old products in a way that will allow effective strategy 1. To be the first firm to market new implementation. technological products. R&D employees and managers perform tasks that 2. To be an innovative imitator of successful include transferring complex technology, adjusting products, thus minimizing the risks and costs processes to local raw materials, adapting processes of start-up. to local markets, and altering products to particular 3. To be a low-cost producer by mass-producing tastes and specifications. products similar to but less expensive than products recently introduced. R&D POLICIES CAN ENHANCE STRATEGY IMPLEMENTATION EFFORTS TO: MANAGEMENT INFORMATION SYSTEMS (MIS) 1. Emphasize product or process improvements. ISSUES 2. Stress basic or applied research. Firms that gather, assimilate, and evaluate external 3. Be leaders or followers in R&D. and internal information most effectively are gaining 4. Develop robotics or manual-type processes. competitive advantages over other firms. Having an 5. Spend a high, average, or low amount of money effective management information system (MIS) may on R&D. be the most important factor in differentiating 6. Perform R&D within the firm or to contract R&D to successful from unsuccessful firms. The process of outside firms. strategic management is facilitated immensely in 7. Use university researchers or private-sector firms that have an effective information system. researchers. Information collection, retrieval, and storage can be used to create competitive advantages in ways such as cross-selling to customers, monitoring suppliers, keeping managers and employees informed, coordinating activities among divisions, and managing funds. Many firms wrestle with the decision to acquire R&D Business Analytics expertise from external firms or to develop R&D Business Analytics is a MIS technique that involves expertise internally. using software to mine huge volumes of data to help The following guidelines can be used to help make executives make decisions. Sometimes called this decision: predictive analytics, machine learning, or data 1. If the rate of technical progress is slow, the rate of mining, this software enables a researcher to assess market growth is moderate, and there are significant and use the aggregate experience of an barriers to possible new entrants, then in-house R&D organization, a priceless strategic asset for a firm. is the preferred solution. 2. If technology is changing rapidly and the market is The history of a firm's interaction with its customers, growing slowly. suppliers, distributors, employees, rival firms, and  BA 218 - STRATEGIC MANAGEMENT more can all be tapped with data mining to generate Alfred Chandler's Insight: predictive models. "Changes in strategy lead to changes in organizational structure." Business Analytics is similar to the actuarial methods Structure should support the strategic goals and used by insurance companies to rate customers by mission of the organization. the chance of positive or negative outcomes. Numerous external and internal forces affect an A key distinguishing feature of business analytics is organization; no firm could change its structure in that it is predictive rather than retrospective, in that it response to every one of these forces because to do enables a firm to learn from experience and to make so would lead to chaos. However, when a firm current and future decisions based on prior changes its strategy, the existing organizational information. structure may become ineffective. Symptoms of an Ineffective Organizational UNIT 4 Structure STRATEGY EXECUTION 1.Too many levels of management 2. Too many meetings attended by too many people OBJECTIVES: 3. Too much attention being directed toward solving 1. Explained the effectiveness of organizational interdepartmental conflicts chart; 4. Too large a span of control 2. Explained strategy implementation is more 5. Too many unachieved objectives difficult than strategy formulation; 6. Declining corporate or business performance 3. Discussed the contrast of restructuring, 7. Losing ground to rival firms reengineering, and e-engineering; 8.Revenue or earnings divided by number of 4. Explained why corporate wellness has employees or number of managers is low compared become so important in strategic planning; to rival firms 5. Described the relationship between production/operations strategy The Seven Basic Types of Organizational implementation.7 Structure: 1. FUNCTIONAL STRUCTURE MATCHING STRUCTURE WITH STRATEGY A Functional Structure groups tasks and activities Changes in strategy often require changes in the by business function, such as production and way an organization is structured, for two major operations, marketing, finance and accounting, reasons: research and development, and management Reason 1: Structure Dictates How Objectives and information systems. Policies will be Established A Functional Structure also promotes specialization Example: Geographic structure leads to of labor, encourages efficient use of managerial and geographic objectives. technical talent, minimizes the need for an elaborate Product-based structure leads to control system, and allows rapid decision making. product-oriented policies. Reason 2: Structure Dictates How Resources will be Allocated Customer-based structure allocates resources by customer group. Functional structure allocated by business function.  BA 218 - STRATEGIC MANAGEMENT Advantages of a Functional Structure Requires an elaborate control system Simple and inexpensive Competition among divisions can become so Capitalizes on specialization of business intense as to be dysfunctional activities such as marketing and finance Can lead to limited sharing of ideas and Minimizes need for elaborate control system resources Allows for rapid decision making Some regions, products, or customers may Disadvantages of a Functional Structure receive special treatment Accountability forced to the top Delegation of authority and responsibility not DIVISIONAL STRUCTURE BY GEOGRAPHIC encouraged AREA Minimizes career development This is appropriate for organizations whose Low employee and manager morale strategies need to be tailored to fit the particular Inadequate planning for products and needs and characteristics of customers in different markets geographic areas. This type of structure can be most Leads to short-term, narrow thinking appropriate for organizations that have similar Leads to communication problems branch facilities located in widely dispersed areas. 2. DIVISIONAL BY GEOGRAPHIC AREA The Divisional Structure, also known as a decentralized structure, organizes a company into semi-autonomous units or divisions. Each division typically has its own set of functions (such as production, marketing, and finance) and operates somewhat independently, often categorized by geographic area, product or service, customer type, or process. 3. DIVISIONAL BY PRODUCT (OR SERVICES) This is most effective for implementing strategies The Divisional Structure can be organized in one of when specific products or services need special four ways: by geographic area, by product or service, emphasis. Also, this type of structure is widely used by customer, or by process. With a divisional when an organization offers only a few products or structure, functional activities are performed both services or when an organization’s products or centrally and in each separate division. services differ substantially. Advantages of a Divisional Structure Accountability is clear Allows local control of local situations Creates career development chances Promotes delegation of authority Leads to competitive climate internally Allows easy adding of new products or regions Allows strict control and attention to products, customers, or regions 4. DIVISIONAL BY CUSTOMER Disadvantages of a Divisional Structure Can be costly 5. DIVISIONAL PROCESS Duplication of functional activities This is similar to a functional structure, because Requires a skilled management force activities are organized according to the way work is  BA 218 - STRATEGIC MANAGEMENT actually performed. However, a key difference Shutting down a project is easily between these two designs is that functional accomplished departments are not accountable for profits or Facilitates uses of special equipment, revenues, whereas divisional process departments personnel, and facilities are evaluated on these criteria. Functional resources are shared instead of duplicated as in a divisional structure 6. STRATEGIC BUSINESS UNIT (SBU) Disadvantages of a Matrix Structure An SBU structure is an organizational design that Requires excellent vertical and horizontal groups a company's divisions into distinct, flows of communication semi-autonomous units called Strategic Business Costly because creates more manager Units (SBUs). Each SBU typically focuses on a positions specific market or product line and is managed by a Violates unity of command principle senior executive who reports directly to the chief Creates dual lines of budget authority executive officer (CEO). This structure helps large, Creates dual sources of reward and diverse organizations manage and control their punishment operations more effectively by improving Creates shared authority and reporting coordination, accountability, and strategic alignment. Requires mutual trust and understanding Fifteen Guidelines for Developing an Organizational Chart 1. Instead of chairman of the board, make it chairperson of the board. 2. Make sure the board of directors reveals diversity in race, ethnicity, gender, and age. 3. Make sure the chair of the board is not also the CEO or president of the company. 4. Make sure the CEO of the firm does not also carry the title president. 5. Reserve the title president for the division heads of the firm. 6. Make sure the firm has a COO. 7. Make sure only presidents of divisions report to the COO. 7. MATRIX STRUCTURE 8. Make sure functional executives such as A Matrix Structure is the most complex of all CFO, CIO, CMO, CSO, R&D, CLO, CTO, and designs because it depends on both vertical and HRM report to the CEO, not the COO. horizontal flows of authority and communication 9. Make sure every executive has one boss, so (hence the term matrix). In contrast, functional lines in the chart should be drawn and divisional structures depend primarily on accordingly, assuring unity of command. vertical flows of authority and communication. A 10. Make sure span of control is reasonable, Matrix Structure can result in higher overhead probably no more than 10 persons reporting because it creates more management positions. to any other person. 11. Make sure diversity in race, ethnicity, gender, Advantages of a Matrix Structure and age is well represented among corporate Project objectives are clear executives. Employees can clearly see results of their 12. Avoid a functional type structure for all but the work smallest firms.  BA 218 - STRATEGIC MANAGEMENT 13. Decentralize, using some form of divisional attainment of objectives. Production processes structure, whenever possible. typically constitute more than 70 percent of a firm’s 14. Use an SBU type structure for large, total assets. A major part of the multidivisional firms. strategy-implementation process takes place at the 15. Make sure executive titles match product production site. names as best possible in division-by-product and SBU-designated firms. RESTRUCTURING Restructuring, also called downsizing, rightsizing, or delayering, involves reducing the size of the firm in terms of number of employees, number of divisions or units, and number of hierarchical levels in the firm’s organizational structure. This reduction in size is intended to improve both Just-In-Time (JIT) significantly reduces the costs of efficiency and effectiveness. implementing strategies. With JIT, parts and materials are delivered to a production site just as REENGINEERING they are needed, rather than being stockpiled as a Reengineering, also called process management, hedge against later deliveries. process innovation, or process redesign, involves reconfiguring or redesigning work, jobs, and Factors that should be studied before Locating processes for the purpose of improving cost, quality, Production Facilities: service, and speed. The availability of major resources, Example of Reengineering: The prevailing wage rates in the area, Six Sigma is a quality boosting process Transportation costs related to shipping and improvement technique that entails training several receiving, key persons in the firm in the techniques to monitor, The location of major markets, measure, and improve processes and eliminate Political risks in the area or country, defects. The availability of trainable employees. HUMAN RESOURCE CONCERNS WHEN IMPLEMENTING STRATEGIES More and more companies are instituting furloughs to cut costs as an alternative to laying off employees. Furloughs are temporary layoffs and even white-collar managers are being given furloughs, once confined to blue-collar workers. Most companies are still using temporary and part-time workers rather than hiring full-time employees, which suggests that high unemployment rates may be a long-term trend. PRODUCTION AND OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES Production and operations capabilities, limitations, and policies can significantly enhance or inhibit the  BA 218 - STRATEGIC MANAGEMENT than 10,000 firms covering more than 14 million employees. “The ownership culture really makes a difference, when management is a facilitator, not a dictator.” - Corey Rosen Human resource problems that arise when businesses implement strategies can usually be traced to one of three causes: (1) disruption of social and political structures, BALANCING WORK LIFE AND HOME LIFE (2) failure to match individuals’ aptitudes with Work and family strategies have become so popular implementation tasks, and among companies today that the strategies now (3) inadequate top management support for represent a competitive advantage for those firms implementation activities. that offer such benefits as elder care assistance, flexible scheduling, job sharing, adoption benefits, an Perhaps the best method for preventing and on-site summer camp, employee helplines, pet care, overcoming human resource problems in strategic and even lawn service referrals. New corporate titles management is to actively involve as many such as work and life coordinator and director of managers and employees as possible in the process. diversity are becoming common. Although time consuming, this approach builds understanding, trust, commitment, and ownership and reduces resentment and hostility. The true potential of strategy formulation and implementation resides in people. EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS) An ESOP is a tax-qualified, defined-contribution, employee-benefit plan whereby employees purchase stock of the company through borrowed money or cash contributions. ESOPs empower employees to work as owners; this is a primary reason why the number of ESOPs have grown dramatically to more A corporate objective to become more lean and mean must today include consideration for the fact  BA 218 - STRATEGIC MANAGEMENT that a good home life contributes immensely to a good work life. THE NATURE OF STRATEGIC EVALUATION The Strategic Management Process results in BENEFITS OF A DIVERSE WORKFORCE decisions that can have significant, long-lasting Leading executives of culturally specialized agencies consequences. Erroneous Strategic Decisions can are defecting in large numbers to generalist agencies inflict severe penalties and can be exceedingly as companies increasingly embrace multicultural difficult, if not impossible, to reverse. marketing using multicultural ad agencies. Three Basic Activities of Strategy Evaluation CORPORATE WELLNESS PROGRAMS 1. Examining the underlying bases of a firm’s Wellness of employees has become a strategic issue strategy. for many firms. Most firms require a health 2. Comparing expected results with actual examination as a part of an employment application, results. and healthiness is more and more becoming a hiring 3. Taking corrective actions to ensure that factor. performance conforms to plans. “We have this notion that you can gorge on hot dogs, Adequate and timely feedback is the cornerstone be in a pie-eating contest, and drink every day, and of effective strategy evaluation. Strategy evaluation society will take care of you. We can’t afford to let can be no better than the information on which it is individuals drive up company costs because they’re based. not willing to address their own health problems.” Too much pressure from top managers may result in - Michael Porter lower managers contriving numbers they think will be satisfactory. Strategy evaluation can be complex and sensitive undertaking. Too much emphasis on evaluating strategies may be expensive and counterproductive. In many organizations, strategy evaluation is simply an appraisal of how well an organization has performed. Have the firm’s assets increased? Has there been an increase in profitability? UNIT 5 Have sales increased? STRATEGY MONITORING Have productivity levels increased? Have profit margin, return on investment, and OBJECTIVES: earnings-per-share ratios increased? 1. Described a practical framework for evaluating strategies; RUMELT’S CRITERIA FOR EVALUATING 2. Explained why strategy evaluation is STRATEGIES complex, sensitive, and yet essential for CONSISTENCY organizational success; Three guidelines help determine if organizational 3. Described and developed Balanced problems are the result of inconsistencies in strategy: Scorecard; If managerial problems continue despite 4. Explained the role of auditing in strategy changes in personnel and if they tend to be evaluation; and issue-based rather than people-based, then 5. Described the importance of contingency strategies may be inconsistent. planning;  BA 218 - STRATEGIC MANAGEMENT If success for one organizational department Domestic and world economies were more stable in means, or is interpreted to mean, failure for years past, product life cycles were longer, product another department, then strategies may be development cycles were longer, technological inconsistent. advancement was slower, change occurred less If policy problems and issues continue to be frequently, there were fewer competitors, foreign brought to the top for resolution, then companies were weak, and there were more strategies may be inconsistent. regulated industries. CONSONANCE Other reasons why strategy evaluation is more Consonance refers to the need for strategists to difficult today include the following trends: examine sets of trends, as well as individual trends, 1. A dramatic increase in the environment’s in evaluating strategies. complexity A strategy must represent an adaptive response to 2. The increasing difficulty of predicting the the external environment and to the critical changes future with accuracy occurring within it. 3. The increasing number of variables One difficulty in matching a firm’s key internal and 4. The rapid rate of obsolescence of even the external factors in the formulation of strategy is that best plans most trends are the result of interactions among 5. The increase in the number of both domestic other trends. and world events affecting organizations 6. The decreasing time span for which planning FEASIBILITY can be done with any degree of certainty A strategy must neither overtax available resources nor create unsolvable subproblems. The Process of Evaluating Strategies The final broad test of strategy is its feasibility; that Strategy evaluation is necessary for all sizes is, can the strategy be attempted within the physical, and kinds of organizations. human, and financial resources of the enterprise? Strategy evaluation should initiate managerial The financial resources of a business are the easiest questioning of expectations and assumptions, to quantify and are normally the first limitation should trigger a review of objectives and against which strategy is evaluated. values, and should stimulate creativity in In evaluating a strategy, it is important to examine generating alternatives and formulating whether an organization has demonstrated in the criteria of evaluation. past that it possesses the abilities, competencies, Strategy-evaluation activities should be skills, and talents needed to carry out a given performed on a continuing basis, rather than strategy. at the end of specified periods of time or just after problems occur. ADVANTAGE A strategy must provide for the creation or STRATEGIC EVALUATION FRAMEWORK maintenance of a competitive advantage in a selected area of activity. Competitive advantages normally are the result of superiority in one of three areas: 1.Resources 2.Skills 3.Position Strategy Evaluation is becoming increasingly difficult with the passage of time, for many reasons.  BA 218 - STRATEGIC MANAGEMENT A Strategy-Evaluation Framework 4.Why are competitors making certain strategic Notice that corrective actions are almost always changes? needed except when (1) external and internal 5.Why are some competitors' trategies more factors have both significantly changed and (2) successful than others? the form is progressing satisfactorily towards 6.How satisfied are our competitors with their present achieving stated objectives. market positions and profitability? 7.How far can our major competitors be pushed before retaliating? 8.How could we more effectively cooperate with our competitors? External opportunities and threats and internal strengths and weaknesses that present the bases of current strategies should continually be monitored for change. It is not really a question of whether these factors will change but rather when they will change and in what ways. Here are some key questions to address in evaluating strategies: 1. Are our internal strengths still strengths? 2. Have we added other internal strengths? If so, what are they? 3. Are our internal weaknesses still weaknesses? 4.Do we now have other internal weaknesses? If so, what are they? Reviewing Bases of Strategy 5. Are our external opportunities still opportunities? As shown in Figure 11-2, reviewing the underlying 6.Are there now other external opportunities? bases of an oraganization's strategy could be If so, what are they? approached by developing a revised EFE Matrix and 7. Are our external threats still threats? IFE Matrix. A revised IFE Matrix should focus on 8. Are there now other external threats? changes in the organization's management, If so, what are they? marketing, finance, and accounting, production and 9. Are we vulnerable to a hostile takeover? operations, research and development (R&D), and managemenf information systems (MIS) strengths Measuring Organizational Performance and weaknesses. A revised EFE Matrix should This activity includes comparing expected indicate how effective a firm's strategies have been results to actual results, investigating in response to key opportunities and threats. deviations from plans, evaluating individual performance, and examining progress being This analysis could also address such questions made toward meeting stated objectives. as the following: Both long-term and annual objectives are 1.How have competitors reacted to our strategies? commonly used in this process. 2.How have competitors' strategies changed? Criteria for evaluating strategies should be 3.have major competitors' strengths and weaknesses measurable and easily verifiable. changed?  BA 218 - STRATEGIC MANAGEMENT Criteria that predict results may be more Third, intuitive judgments are almost always important than those that reveal what already involved in deriving quantitative criteria. has happened. Failure to make satisfactory progress toward Some additional key questions that reveal the accomplishing long-term or annual objectives need for qualitative or intuitive judgements in signals a need for corrective actions. strategy evaluation are as follows: Many factors, such as unreasonable policies, 1.How good is the firm's balance of investments unexpected turns in the economy, unreliable between high-risk and low-risk projects? suppliers or distributors, or ineffective 2.How good is the firm's balance of investments strategies, can result in unsatisfactory between long-term and short-term projects? progress toward meeting objectives. 3.How good is the firm's balance of investments Problems can result from ineffectiveness (not between slow-growing markets and faster-growing doing the right things) or inefficiency (poorly markets? doing the right things). 4.How good is the firm's balance of jnvestments among different divisions. 5.To what extent are the firm's alternative strategies socially responsible? 6.What are the relationships among the firm's key internal and external strategic factors? 7.How are major competitors likely to respond to particular strategies? Taking Corrective Actions The final strategy-evaluation activity, taking Corrective actions, requires making changes to Quantitative Criteria commonly used to evaluate competitively reposition a firm for the future. strategies are financial ratios, often monitored for The probabilities and possibilities fro incorrect each segment of the firms. or inappropriate actions increase Strategists use ratios to make three Critical geometrically with an arithmetic increase in comparisons: personnel. 1. comparing the firm's performance over Any person directing an overall undertaking different time periods, must check on the actions of the participants 2. Comparing the firm's performance to as well as the results that they have competitors' achieved. 3. comparing the firm's performance to industry If either the actions or results do not comply averages. with preconceived or planned achievements, then core given actions are needed. Some potential problems are associated with using only quantitative criteria for evaluating strategies. First, most quantitative criteria are geared to annual objectives rather than long-term objectives. Also, different accounting methods can provide different results on many quantitative criteria.  BA 218 - STRATEGIC MANAGEMENT Resistance to change is often emotionally based and not easily overcome by rational argument. Resistance may be based on such feelings as loss of status, implied criticism of present competence, fear of failure in the new situation, annoyance at not being consulted, lack of understanding of the need for change, or insecurity in changing from well-known and fixed methods. It is necessary, therefore, to overcome such resistance by creating situations of participation and full explanation when changes are envisaged. Consumers prefer purchase office supplies Corrective actions should place an organisation in a online (cheaper) from rivals such as Amazon better position to capitalize on internal strengths: There is falling demand for office supplies to take advantage of key external since handled devices such as the iPad have opportunities reduced demand for personal computers, to avoid, reduce, or mitigate external threats printers, and even paper. to improve internal weaknesses Strategic Management | BA 218 Corrective actions should have a proper time horizon and an appropriate amount of risk. They should be No organization can survive as an island; no internally consistent and socially responsible. organization can escape change. Taking corrective actions in necessary to keep an organisation on track Carter Bayles described the benefits of strategy toward achieving stated objectives. evaluation as follows: Evaluation actives may renew confidence in In his thought-provoking books Future Shock and the current business strategy or point to the The Third Wave, Alvin Toffler argued that business need for actions to correct some environments are becoming so dynamic and weaknesses, such as erosion of product complex that they threaten people and organizations superiority or technological edge. with future shock, which occurs when the nature, In many cases, the benefits of strategy types, and speed changes overpower an individuals evaluation are much more far-reaching for the or oragantion's ability and capacity to adapt. outcome of the process may be a fundamentally new strategy that will lead, According to Erez and Kanfer, individuals accept even in a business that is already turning a change best when they have a cognitive respectable profit, to substantially increase understanding of the changes, a sense of control earnings. over the situation, and an awareness that necessary actions are going to be taken to implement the THE BALANCED SCORECARD changes. developed in 1993 by Harvard Business School professors Robert Kaplan and David Norton, and Hussey and Langham offered the following refined continually through today, the Balanced insight on taking corrective actions: Scorecard is a strategy evaluation and control technique.  BA 218 - STRATEGIC MANAGEMENT Balanced Scorecard derives its name from the 3. How satisfied are the firm’s customers? perceived need of firms to “balance” financial measures that are oftentimes used exclusively in strategy evaluation and control with nonfinancial measures such as product quality and customer service. The overall aim of the Balanced Scorecard is to “balance” shareholder objectives with customer and operational objectives. Its concept is consistent with the notions of continuous improvement in management (CIM) and total quality management (TQM). The Balanced Scorecard basic premise is that firms should establish objectives and evaluate strategies on criteria other than financial measures. The Balanced Scorecard is an important strategy- evaluation tool; it is a process that allows firms to evaluate strategies from four perspectives: financial performance, customer knowledge, internal business processes, and learning and growth. The Balanced Scorecard analysis requires that firms seek answers to the following questions and use that information, in conjunction with financial measures, to adequately and more effectively evaluate strategies being implemented: 1. How well is the firm continually improving and creating value along measures such as innovation, technological leadership, product quality, operational process efficiencies, and so on? 2. How well is the firm sustaining and even improving on its core competencies and competitive advantages?  BA 218 - STRATEGIC MANAGEMENT CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM PUBLISHED SOURCES OF BASIC REQUIREMENTS OF AN EFFECTIVE STRATEGY-EVALUATION INFORMATION STRATEGY EVALUATION: Fortune annually identifies and evaluates the Fortune 1. Strategy-evaluation activities must be 1,000 and the Fortune 50, and ranking the best and economical; too much information can be just worst performers on various factors. as bad as too little information, and too many Businessweek, Industry Week, and Dun’s Business controls can do more harm than good. Month periodically publish detailed evaluations of 2. Strategy-evaluation activities should be U.S. businesses and industries. meaningful; they should be specifically relate Although published sources of strategy-evaluation to a firm’s objectives. information focus primarily on large, publicly held 3. Strategy-evaluation activities should provide businesses, the comparative ratios and related timely information; on occasion and in some information are widely used to evaluate small areas, managers may daily need information. businesses and privately owned firms as well. ADDITIONALLY, Fortune annually publishes its strategy-evaluation Strategy evaluation should be designed to research in an article titled “World’s Most Admired provide a true picture of what is happening. Companies”. Information derived from the Nine key Attributes serve as Evaluative Criteria: strategy-evaluation process should facilitate 1. people management action and should be directed to those 2. innovativeness individuals in the organization who need to 3. products quality take action based on it. 4. financial soundness The strategy evaluation process should not 5. social responsibility dominate decisions; it should foster mutual 6. use of assets understanding, trust, and common sense. 7. long-term investments Strategy evaluations should be simple, not 8. global competitiveness too cumbersome, and not too restrictive. 9. quality of management AUDITING Auditing is defined by the American Accounting Association (AAA) as “a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence  BA 218 - STRATEGIC MANAGEMENT between these assertions and established criteria, organization to quickly capitalize on them. Linneman and communicating the results to interested users.” and Chandran reported that contingency planning gave users, such as DuPont, Dow Chemical , Auditing plays a crucial role in strategy evaluation by Consolidated Foods, and Emerson Electric, three providing an objective assessment of financial major benefits: statements, ensuring compliance with regulations, and offering insights that can inform better 1. It permitted quick response to change, decision-making and strategy formulation. This 2. It prevented panic in crisis situations, and comprehensive approach helps organizations 3. It made managers more adaptable by maintain transparency and accountability, fostering encouraging them to appreciate just how the trust among stakeholders and enhancing overall future can be. strategic alignment. They suggested that effective contingency CONTINGENCY PLANNING planning involves a five-step process: Contingency Plans can be defined as an alternative 1. Identify both good and bad events that could plans that can be put into effect if certain key events jeopardize strategies. do not occur as expected. 2. Determine when the good and bad events are likely to occur. Some contingency plans commonly established by 3. Determine the expected pros and cons of firms include the following: each contingency event. 1. If a major competitor withdraws from 4. Develop contingency plans for key particular markets as intelligence reports contingency events. indicate, what actions should our firm take? 5. Determine early warning trigger points key 2. If our sales objectives are not reached, what contingency events. actions should our firm take to avoid profit losses? 3. If demand for our new product exceeds plans, what action should our firm take to meet the higher demand? 4. If certain disasters occur - such as loss of computer capabilities; a hostile takeover attempt; loss of patent protection; or destruction of manufacturing facilities because of earthquakes, tornadoes, or hurricanes - what actions should our firm take? 5. If a new technological advancement makes our new product obsolete sooner than expected, what actions should our firm take? Contingency plans can promote a strategist’s ability to respond quickly to key changes in the internal and external bases of an organization’s current strategy. In some cases, external or internal conditions present unexpected opportunities. when such opportunities occur, contingency plans could allow an