Strategic Management Review Chapter 1-4 PDF

CHAPTER 1: STRATEGIC MANAGEMENT THE NEW actions fitting into the new and changing CHALLENGE OF THE NEW CENTURY environment.  Strategic Adapt...

CHAPTER 1: STRATEGIC MANAGEMENT THE NEW actions fitting into the new and changing CHALLENGE OF THE NEW CENTURY environment.  Strategic Adaptation Is scanning the present business scenario and is STRATEGIC MANAGEMENT PROCESS making amendments to operational programs  Strategic Management STRATEGIC VISION AND INTENT Is the dynamic process that is full of commitment to  Strategic Vision decisions and actions to deliver strategic - Is the advantage of the firm’s resources and core competencies to achieve the desired results in terms competencies to accomplish its goals in the of corporate profitability and growth. competitive environment.  Strategic Competitiveness - Provides the manpower resource with the commitment to remain the best in the industrial world Is the result of internal and external analysis of the and unseat the best in their ranks of competitors. corporate environment for the formulation of the - It is the power of effectively and fervently believe that strategy and action plans that are directed to set they produce market quality products as they focus goals and target. their firm’s ability to outperform their industry competitors.  Strategic Process STATEGIC MISSION Is used to match the ever-changing market environment and the competitive structure of the - It is the statement of the firm’s direction in the pursuit business involving material and production of its operation in the production and marketing of its resources. products and services. - Provides general descriptions of the products and Competitive advantage can be divided into two (2) services that the firm offers to tis various different strategies. stakeholders based on its own competencies 1. Industry Based Model *An effective mission and vision when properly implemented - It refers to the analysis of the prevailing industry with strategic actions develop positive effect on performance where the firms has its competitive advantage over that can be measured in terms of increased sales and market the firms in the environment. growth. - The corporate strategy must be focused on industry search and scanning of the most profitable business THE LANDSCAPE OF BUSINESS IN THE NEW CENTURY activities that would give the best returns on investment - New Mindset is necessary to cope with the ever- 2. Resourced Based Model increasing competition as the old economies of scale - It refers to the analysis of the prevailing resources and intensive advertising are not as effective as it available to the firm that are present in internal was before. environment which could then be utilized in the - Managers and corporate leaders need new development of competitive advantage. orientation in terms of flexibility and foresight. They - This may refer to the capabilities of the human must be able to think the foregoing development in resources that could be linked to the need of the their area of operation. They must see the future with present technological development as highly trained the clear vision of what is going to happen in 5 to 10 manpower could develop new products years ahead. - Forward Planning must be put in the drawing board STRATEGIC MANAGEMENT CHALLENGES ahead of time and make amendments as the new landscape develops in the new business horizon. - The challenges are substantial in the economic - Hyper-competitive Market – companies are global arena not only for big corporations operating aggressively challenging their competitors in the in multi-national environment but also for small firms hope of improving their performance. This is the that need to innovate in order to survive challenges result of the rapid change in technology that is of competition. usually the monopoly of big industries and innovative - Strategy is an integrated management challenges young corporations with new visions and foresight. as the top executive formulated policies and programs that will bring the company to its desired THE GLOBAL ECONOMIC SCENARIO direction. - It is the integrated and coordinated set of actions - Is the result of the new borderless flow of goods, designed to exploit core competencies that were services, people, skills and ideas that are relatively develops overtime and revised the new strategic unfettered by the artificial constraints.  - Singapore, Malaysia, Indonesia, Vietnam and - The firms that produces more products not only for Philippines continue to grow economically. local market but for the global supply has the greater - China, with its new policy of changing from total advantage of the economies of scales. communist philosophy to capitalist-socialist - The more products that the firm produces, the lesser economy with less government control for new the cost of production as the fixed cost is minimized investments became the new economic hub of the and the marketing strategy is spread to the greater Asian region. market niche. 3. Barriers to Market Entry THE TREND AND CONDITIONS THAT ALTER - The competitive advantage is developed by the firm COMPETITION with vast resources to deter other firms from entering 1. The Increased Rate of Technological Change the market that they dominate. - The present rate of technology change has gone too 4. Corporate Vertical and Horizontal Diversification fast during the last decade - The strategy for growth and expansion is the major - Perpetual Innovation is the byword of advancing role of competitive major corporations to increase companies for supremacy especially in the their return if investments. Once they have saturated electronic industry and the invention of new the market with their products and brands, the next machinery that will produce more products or step is to expand horizontally or vertically and services. integrate the resource base of operation. - Innovations, even covered by patent, could be 5. Degree of Market Concentration copied within 3-month period after its introduction - Companies that acquire the develop skills needed to into the market. implement strategies required succeed in their 2. The Advancement in Information Linkages chosen field of operation, developed competitive - The advancing technology in the exchange of advantage by concentrating on their field of information in recent years is brought about the expertise. presence of new computers and the wireless THE INFLUENCE OF INTERNAL ABOVE ROI transformation of messages across countries. 3. Knowledge Based Intensity The corporate achievement in ROI are the makings of people - The computer has increased the competitive and executives with an eye for competitive strategic knowledge based of the company as they invest in competencies. The following strategies are common to information intelligence, technology and its people with higher achievements for greater ROI: application. - In the new century, knowledge based on new 1. Study the business environment technology and its application is the organizational 2. Locate the industry with high potential or above corporate resource that develops greater average returns competitive advantages. 3. Identify the strategy needed by the industry that will - Continuous learning is the product of generate greater returns innovativeness. 4. Develop and acquire the needed assets and skills to - INNOVATIVENESS is the injection of new ideas and implement strategy knowledge in products or marketing strategies that 5. Use the corporate skills that were developed, and will develop new competitive advantage. implement the strategy THE EXTERNAL INFLUENCE IN ABOVE RETURN ON ENVIRONMENTAL SCANNING OF INDUSTRY INVESTMENTS - The internal environment is managed by the The success if the firm’s objective in the increased return on executives and managers with an eye for profitability investments is primarily the determinants of strategic and growth of their firm. competency. - Their focus of attention is not only the internal operation of the business but also the prevailing FIRMS PERFORMANCE IS BELIEVED TO BE environment where the firms operate within the DETERMINED PRIMARILY BY THE RANGE AND industrial landscape AVAILABILITY OF THE RESOURCES OF THE FIRM IN  ENVIRONAMENTAL SCANNING TERMS OF THE FOLLOWING: - Is the process of seeing the whole scenario of business operation in terms of the general business 1. The Availability of Fixed Assets activities prevailing within the industry and the - The firm that has a well asset management could competitor’s strategies that may affect the present compete with other firms within the industry as they market share of the firm have the capital base to mobilize these resources to  PRODUCT INNOVATION IN THE NEW CENTURY take advantage of the prevailing opportunities within - Is the competitive advantage of the firm that makes the business environment. new or innovative products as customer satisfaction 2. The Economies of Scale is the foundation for grater ROI. HORIZONTAL AND VERTICAL EXPANSION that will influence the strategic intent, vision, and mission and strategic actions. - This refers to seeing the firm’s expansion on related business within the environment that is either ANALYSIS OF THE EXTERNAL ENVIRONMENT making the product inputs related to their operation or new attractive industries where the corporate The environment of business in the world’s landscape is capabilities have earned the competitive advantage highly turbulent, complex and uncertain. The firm must have  HORIZONTAL EXPANSION the complete data and information by which to base their - Either the backward integration or forward forecast and program of operation in order to stay afloat in expansion their business operation. - BACKWARD INTEGRATION is the processing of EXTERNAL ENVIRONMENT ANALYSIS INCLUDE 4 the material inputs that re-sourced outside the firm’s IMPORTANT ACTIVITIES: operation.  FORWARD EXPANSION 1. Scanning - Is taking over the marketing of the products that were - The process entails the study of all segments in the produced and used to be channeled to distributors general environment. and dealers. - It is identifying the signal of potential changes in the - It could also be the acquisitions of related industries environment that pose threats or opportunities that or firms that used to be competitors in the same needed immediate actions. business. - Is generally important in highly volatile business environment. It is important to analyze the data carefully as the source of information is usually CHAPTER 2: THE BUSINESS ENVIRONMENT FOR incomplete and unconnected. COMPETITIVE STRATEGY 2. Monitoring - It is the process of carefully observing the changes  GENERAL BUSINESS ENVIRONMENT in the environment and seeing the effects from it. - Composed of dimensions in the broader society that 3. Forecasting influence an industry and the firms within it - Is the result of scanning and monitoring.  INDUSTRY ENVIRONMENT - Are derived from results of the analysis of the - Is a set of factors that directly influence the company changes in the environment and its competitive actions. - Is the process of developing projections of what  PROFIT POTENTIAL OF THE COMPANY might happen and how quickly the company - Is determined by the different factors in the developed strategies to be competitive in the environment that influence its operational changing business landscape. competitive advantage 4. Assessing  COMPETITIVE ANALYSIS - It is the process of determining the timing and - Refer to the gathering and interpreting of information significance of the effects of the environment and data about the business environment and how changes and trends on the strategic management of the other competitors are doing in the wide the company. landscape of business - Assessment objective is to understand the general environment and to specify the actions that will be The focus of analysis is on 3 important factors: implemented to adjust to the changes in the 1. The General Environment environment. - TGE focus is seeing the industry in the future and - Its absence will leave the data useless as the how it will affect the present and future operation. unknown competitive relevance is not properly taken THE GENERAL BUSINESS LANDSCAPE is wide advantage by the firm. and open for exploration and seeing the business SEGMENTATION OF THE GENERAL ENVIRONMENT condition miles ahead an important factor in the survival of business. The general environment is composed of segments that are 2. The Industry Environment external to the firm. The company must be able to recognize - It refers to the analysis of the firm’s conditions of the environmental changes, trends, opportunities and threats profitability within the industry. and apply the firm’s core competencies to take advantage if 3. The Competitor the changing environment. - Analysis of the competitors are focus on predicting the dynamics of competition that are related to their 6 SEGMENTS THAT AFFECTS THE OPERATION OF THE operational actions, responses and intentions. FIRM: *Combining the results of the analysis of 3 elements, the 1. The Demographic Segment firm will be able to understand the external environment - It is concerned with the population’s size, age structure, geographic distribution system, ethnic groups and economic index (ethnic mix).  2. The Economic Segment - The firm concentrated on the competitors in the - Refers to the nature and directions of the country in same product line or category. their economic development. - The strategic competencies have changed the - Companies operate profitability in a country with landscape of competition, as the firm must search economic stability. more broadly to identify current and potential - There is the domino effect when the economy of one competitors, and the customers that the firm is country slows down. serving them. 3. The Political and Legal Segments  MARKET MICROSTRUCTURE - It is the arena in which business organizations - The customers are influenced by the location of firm operates and interest groups compete for attention and capabilities to serve their needs. and resources - It also deals with the voice of overseeing the FIVE (5) FORCES THAT AFFECT FIRM’S implementation of the laws of the country which has COMPETITIVENESS (5 forces of competition): something to do with trade and commerce. 1. The Threat of New Entrants - This segment represents how business organization - Firms must always be on watch with possible new tries to influence the government and how the entrants in the industry as it will affect their market government influences the flow of trade and share and at the same time their profitability. commerce. - New entrants usually bring in additional production 4. The Social and Cultural Segments capacity and make modifies products that may be - These are concerned with the society’s attitudes and the same or more superior to the existing product of cultural values. the firm. They usually have also a keen interest in - The growing cultural diversity in the working gaining a larger market share and force competitors environment creates challenges and opportunities to be more efficient and effective in the delivery by combining the men’s and women’s traditional goods to their customers. styles of leadership for the firm’s benefits. 5. The Advancement on Technology Segments The threat of new entrant could be avoided with the - The advent of new technology has great effects in following strategies: the development of new products, processes and a. Economic of Scale material required to produce new kinds of goods. - It refers to the marginal improvement in efficiency - Firms and business organizations that develop new that the firm experiences as it incrementally technology and new products have the greater increases in size. advantage in higher market share and earn b. Product Differentiation considerable advantage. - It is the customer’s perception that the product 6. The World of Business Segments entering the market first is unique and this captures - The globalization of the business market creates customer’s loyalty and patronage. both opportunities and challenges. c. Capital Requirements - The nation’s development of industries and creation - Is needed for the firm to enter a new market. of investments for the production of goods are - Investments in terms of resources, manpower skills challenges not only for the firm but also for the and new technology needed huge investments and government. INDUSTRIALIZATION and the risk of overcoming those in the market is great. GLOBALIZATION are 2 important components of d. Access to Distribution Channel development as the creation of more job - Can be a strong entry barrier for new entrants as the opportunities and increased income of the labor old firm has established foothold on their distributors force create new tax base for the important who have developed loyalty over time. government social services I health and education. e. Government Regulations ANALYSIS OF THE INDUSTRIAL ENVIRONMENT - The government policy on licensing and permit requirement can also control new entrants to an  INDUSTRY industry. - Is a group of firms producing products that are - This could be true in industry where franchising similar or close substitutes regulations is required like operating transport - They are competing for the share of the market pie business especially in saturated routes. and have influence on the strategy of the other firms. 2. The Power of the Suppliers - It includes a rich mix of competitive strategies in - The suppliers of material inputs in the production of pursuing their own goals of greater returns. goods are determinants of quality products. The intensity of market competition and the industry profit Suppliers can exert power to the industry to increase potential could be measure in terms of long-run ROI. their prices that will affect the firm’s profitability.  TRADITIONAL STRATEGY The power of the supplier is powerful under the following:  a. When it is dominated by few large companies 1. The extent technological development b. When they are more concentrated than the industry 2. Product leaderships it sells 3. Quality c. When there is no substitute available 4. Pricing policy d. When the industry is not a significant customer for 5. Distribution channels the supplier 6. Customer’s service e. When the supplier’s goods are critical to the firm’s success Implications for strategic analysis: f. When it poses threat to integrate forward into the 1. Firms supply and service the same kind of buyer’s industry. customers 3. The Buyer’s Bargaining Power 2. The strength of the 5 industry forces affecting the - The firm’s objective is to maximize returns on their firm invested capital as business operates for the desired 3. The similarities of strategies develop greater rivalry profit. among firms The consumers group has the bargaining power ANALYSIS OF THE INDUSTRY COMPETITION under the following:  COMPETITORS’ ENVIRONMENT a. When they purchase a large volume of the firms - Is the final stage in the analysis as it directly affects output the firm’s position in the industry. b. When there is available substitute of similar quality - The intense rivalry creates a string need to c. When the sales are significant portion of the firm’s understand the moves of the competitors. The firm sales volume must be able to develop counteraction and strategy 4. The Threat of Substitute Product in order to remain afloat in the industry. - Firm that do not innovate will lose their market as - Critical to an effective analysis of the competitor’s innovation is the byword of the industry. Consumers moves is the gathering of data and information that are looking for new and innovative products and their can help the firm understand its competitors’ level of satisfaction is limitless. intention and strategic actions. The threat for product substitutes is based on the - To gather the needed information, the firm must set following: up COMPETITOR INTELLIGENCE NETWORK that will provide data and information as baseline for a. When the substitute product is priced lower counter strategic actions. b. When the quality is better than the existing product c. When the product is immediately available in the The firm must be able to seek the following market information: d. When service is available 1. The competitors’ future objectives 5. The Power of Competition 2. The competitors’ current strategic actions - The actions taken by one company invite counter 3. The competitors’ assumptions about the industry reaction by the other firm 4. The competitors’ strength and capabilities or their - COMPETITIVE RESPONSE is an active reaction weaknesses that forces the company to make innovations 5. The government policy for the global market Factors that intensify the power competition: a. The presence of balance competitors CHAPTER 3: THE INTERNAL OPERATION b. The slow industrial growth in some sectors ENVIRONMENT OF BUSINESS c. Higher fixed cost of some firms d. High storage cost of some products ANALYSIS OF FIRMS INTERNAL OPERATION e. Low product differentiation and switching cost  INTERNAL BUSINESS ENVIRONMENT INDUSTRY ANALYSIS AND STRATEGIC ACTIONS - Is defined as the evaluation in terms of respect, awareness, and knowledge, and the emotional and - The 5 forces of completion are the guidelines for affective reactions of the various stakeholders. firms to develop insights required to determine the - It is an intangible resource upon which the firm can firm’s attractiveness in terms of its potential to earn build capabilities and its core competencies. adequate ROI. - The firm develop intangible distinctions between - Firms compete not only with multinational itself from its rivals within each reputational category. corporations but also with new entrants and small - These resource assets could be the jump-off point players. for the company to build perceptual measures that Some strategic dimensions that interplay for each provide signals to rivals and stakeholders for the firm’s competitive advantage competitive value of their image in the industry.   INTERNAL MANAGEMENT RESOURCES 3. Intra-Organizational Conflict - Are the foundation for strategic actions and these - The structure if the organization is so designed that bundles of resources generate competitive managers are tasks with specific duties and advantage that leads to wealth generation and profit. responsibilities  STRATEGIC POSITIONING - Managers face uncertainty in terms of new propriety - Is the utilization of the bundle of heterogeneous technologies, the rapid changing economic and resources, capabilities and core competencies that political trends, transformation in social value and can be used to create an exclusive market position. shifts in customer demand.  PRESENCE OF FIRMS’ RESOURCES - Arises when managers cannot nurture and accept - Is a source of capabilities that are used by the firm some group’s decision. to develop its competitive advantage especially - JUDGEMENT must be used in making decision when such resources are not present in the when affected by the factors. It is the capacity to see competitors’ disposals. through the possible consequences of the actions to be taken after a thorough analysis of the business CREATING CUSTOMER’S VALUE environment and those of the competitor’s strategy.  CREATING VALUE - TIMELY JUDGEMENT allows the firm to build - Is the source of the firms’ potential to earn desired strong reputation and retain loyal stakeholders profit objective. whose support is linked to the above ROI.  CUSTOMER VALUE RESOURCES OF THE INTERNAL ENVIRONMENT - Is created when they buy the product at reasonable price and based on quality standards or high  RESOURCES products differentiations. - Are the internal capabilities of the firm which could in - With the various products available in the market, turn be the source of corporate core competencies. customer value is difficult to gain will create new - It covers wide spectrum of individuals, social dimensions in customer value. structure and organizational system that operate harmoniously in the direction of its intel. THE CHALLENGES OF INTERNAL ANALYSIS  CORPORATE RESOURCES - The challenges to the implementation of strategic - Could be tangible and intangible as they are assets actions may appear to be easy in the surface. that can be used for competitive advantage. - The firms; success is not rooted mainly in identifying 1. Tangible Assets could be classified as: the problems, developing alternative strategies, and a. Financial Resources protecting the corporate resources but on how - This refers to the firm’s cash flow assets that can be effective the process of analysis and cooperative used in the operation of the business. thinking done by all managers in crafting the - It is the capacity to borrow money from financial strategic action. institutions and generates internal funds to sustain - Decisions may be uncertain to make results, but the the firm’s growth potential important thing is for decision makers to admit - It refers also to the wise use of money to finance mistakes and learn from it. ongoing operation and sustainable development  LEARNING b. Organizational Resources - Is the process of reforms and the development of - It refers to the organizational structure that plans, new strategy. organize, directs and control the operation of the - This would avoid future mistakes and careful the business. next time around to develop more strategic actions - The formal and informal relationships are out in that will give the firm its corporate advantage. place to guide the corporate operational dimensions. c. Physical Resources MANAGERIAL DECISION MAKING - These are physical assets that are used in the operation of the business. Managerial decision making is affected by the following: - This refers to plant facilities, machinery and 1. Uncertainty equipment and used to produce products - Decisions are uncertain about the conditions of the - This may also refer to tangible assets used in the general industry environment as it keep changing delivery of goods and other assets which can be overtime. used in other operations - Any changes in their environment would need new d. Technological Resources approach and new strategy. - It refers to the technology such as system and 2. Complexity procedures, patents, corporate trademarks, - The universe of decision-making process is complex copyrights and trade secrets as the interrelated environment is shaping so rapidly. - This may also refer to new inventions and innovation - Information gathering needs time and effort and undertaken by the company to improve its products decisions needed sufficient data for analysis. and services to its clients  2. Intangible Assets are classified into: INTERNAL CORE COMPETENCIES a. Human Resources - It is one of the most important assets that the  CORE COMPETENCIES company could depend on for competitive - Are internal and external resources and capabilities advantage that serve as the source of competitive advantage - It refers to skills and knowledge base of the workers over rivals in the industry to see and direct corporate activities towards the - Are the corporate crowning glory earned through profit objective of the firm concerted effort and actions - Refers to the managerial ability to plan, organize, THE CRITERIA FOR SUSTAINBALE ADVANTAGE direct and control the organizational routine of the firm - The firm achieves a sustained competency when the b. Innovation Resources competitors failed to duplicate products or services - It is the capacity to bring new ideas and innovative that the firm produced or failed in entering the firm’s strategies that would be necessary in the change market niche process - Competitors will always have an eye to copy the - Refers to the scientific innovation in terms of products that sell in the market and will just be pollution control and wise use of material resources looking for the opportune time when the firms slows c. Reputational Resources down its operational strategy - Refers to the reputation the firm has earned overtime FOUR (4) SUSTAINABLE CRITERIA FOR COMPETITIVE with its customers and stakeholders ADVANTAGE - Refers to the perceptions about product quality, durability and reliability 1. Valuable Capabilities - REPUTATION is built with suppliers in terms of - Refers to the state of how the firm can exploit mutual and interactive relationships that are both opportunities and neutralize threats in the external beneficial to both parties environment - The creation of value among its customers and the *STRATEGIC VALUE OF RESOURCES is measured in development of loyalty and patronage by sustaining terms of degree by which they can contribute to the the product’s quality and innovative features development of capabilities, core competencies and - Challenges with the online purchasing through the eventually their competitive advantage internet *intangible resources are less visible to competitors and 2. Rare Capabilities difficult to copy or imitate - Are possessed by few (if any) by the competitors - Competitive advantage results only when firms *Training and development interventions are avenue for the develop and exploit capabilities differ from those development of human resources that will enhance their shared with competitors work values 3. Imitation Cost Capabilities THE FIRMS INTERNAL CAPABILITIES - Costly capabilities are corporate competencies that other firms cannot easily develop  CAPABILITIES - Are tangible and intangible resources that are The combination of 1 or 4 reasons for firms to costly purposely integrated to achieve the desired results imitate are: - It is measures on its effectiveness in the utilization a. Unique Historical Condition and integration in the deployment, carrying, - Refers to the historical development of the firm that exchange of information and knowledge through its comes at the right time and place in history human capital - These are firms that were established in the early  KNOWLEDGE BASE period of development where they acquired rights - Is grounded in organizational interventions that and franchise and developed organizational culture enhance human capital to great advantage in the early stage of operation  “The person who knows how will always have a b. The Firm is Casually Ambiguous job” and “A person who knows why will always - Refers to the condition when the competitors cannot be the boss” clearly understand how firms uses its capabilities as - The firm that develops its human assets will always the foundation for competitive advantage be at the forefront of competition. These are - The value creating strategy of the existing firm is capabilities that no competitors in the industry could unique in nature and competitors are uncertain to match as they are invisible to most firms. Their duplicate its capabilities and earn the desired profit functional expertise is the foundation of strong objective capabilities to the challenges of competition. c. Social Complexity  INVOLVEMENT - Means that the firm’s capabilities are the product of - Is the motivational process that will enhance the complex social phenomenon people’s talents and skills  d. Political Complexity and Government physical assets that are inherent in the firm’s Regulations operation and used with utmost economy - Political connection in business operation is a competitive advantage as the power to elect officials MATERIAL OUTSOURCING is also dictated by the business community  OUTSOURCING INPUTS TO PRODUCTION - Political connections also play a great role for - Are the process of getting materials from external competitors to enter the market or the industry sources and trend continuous at the rapid pace in 4. Non-substitutable Capabilities the new global economy - Refers to the condition where there is no strategic - Effective outsourcing develops value as few equivalent to the firm’s existing capabilities organizations possess the resources and - The existing has capabilities and resources where capabilities required to achieve competitive other firms cannot imitate due its uniqueness superiority in both primary and secondary support VALUE CHAIN ANALYSIS activities - OUTSOURCING enriched the firms’ competitive It is the value analysis of the process of understanding the capability as they do not overextend in areas that are parts of operation creating value for the firm and the analysis not their expertise and core values. It works of cost position in creating products that gives the effectively with the extensive internal capabilities as competitive advantage. purchasing and procurement needs extensive relations with external suppliers in acquiring inputs It also identifies the multiple means to implement the choses for production business strategy Outsourcing needs managers and external TWO (2) IMPORTANT SEGMENTS THAT NEES outsourcing executives the following ANALYSIS OF THE BUSINESS SITUATION: characteristics: 1. The primary activities are those that are related 1. Technical competence in evaluating the materials to product creation and delivery needed a. Inbound logistics is concerned with the internal 2. Effective communication and human relations with cost related to the operation such as finance and intended suppliers other overhead cost related to production 3. Coordination and effective control in inventory b. Operation is related to the efficiency and management effectiveness in the manufacturing of the product 4. Honest and highly committed in the following with the use of system and procedures that agreements with suppliers generate economy 5. Possess the expertise to assist technical c. Outbound logistics is related to the improvements in material development effectiveness and efficiency in product to its customers and clients at least cost to the firm d. Marketing and sales is concerns with the development of creating a greater share of CHAPTER 4: STRATEGY FORMULATION AND market through advertising, sales promotion and BUSINESS LEVEL STRATEGIC ACTION effective client relations STRATEGY FOCUS AND DEVELOPMENT e. Service is concerned with after sales services undertaken by the firm to maintain reputable - The development of strategy is the making of top image and develop continuous customer executives and line managers by making choices patronage among alternatives that are more likely to gain the 2. The support activities are activities that support desired profit objective the primary activities - STRATEGIC DEVELOPMENT PROCESS begins a. Procurement is the activity related to with analysis of the internal and external purchasing, delivery, storage, and inventory of environment the products that will used in the production of - BUSINESS LEVEL STRATEGY is the process of goods deciding what industry to compete and the kind of b. Technological development is concerned with product and market segment that will be most the technology that is applied in the production attractive to the firm and efficiency by which they are used IDENTIFICATION OF CUSTOMERS c. Human resources management is recruitment, selection and process of making the  CUSTOMERS workers productive in the development of - Are the vital component in the development of new products through motivation and the strategies and the firm must adopt flexibility to find development of moral values and work ethics new markets as they serve the needs of their old d. Firm infrastructure is related to the physical customers facilities like building, machineries and other In selecting the business level strategy, it is - Are being used to determine the market niches that important to consider the following dimensions: identify the changing customers’ needs and wants in order to gain the competitive advantage 1. The Target Customers - Using this program allows firm to gain insights that - This refers to the specific segments or group of are needed to segment the market into specific customers that the firm intends to enter and the groups with unique needs and wants richness of the segments in terms of population and  GLOBAL MARKET SEGMENTATION their capacity to buy the product - Is the process of identifying specific segments or - MARKET SEGMENTATION is the process of consumer groups across countries with clustering customers into different individuals and homogenous groups that exhibits similar buying groups with similar needs and wants behavior Based on their level of competencies in the internal and external environment the firm must be able to serve the following specific segments: 2. The Customers’ Needs and Wants - The need of the customer is to buy products that CONSUMER MARKET SEGMENTS create value to them in terms of basic requirements a. Demographic Segmentation for survival or the creation of emotional satisfaction - Age of the target customers - Customers are looking for affordable products in - Income or capability to pay terms of cost factors or highly differentiated featured - Gender as either male or female as they differ in with acceptable cost wants and needs - Customer change preferences overtime as their b. Socioeconomic Segmentation social and economic status change with economic - The social class and living condition conditions prevailing in the society where they - Stage in the family life cycle belong - Employment classification - The higher standards of education and literacy are c. Geographic Segmentation contributory factors in the changing customer needs - Urban distribution and wants - Rural distribution networks - National distribution networks - International or global market 3. Strategies to Satisfy Customer Needs d. Psychographic Segmentation - Customer satisfaction is limitless, and the company - Population lifestyle must always seek to satisfy customer needs and - Personality traits wants - Social levels and educational status - Customers’ level of satisfaction changes overtime e. Consumer’s Consumption Patterns (CCP) seeking new and better products - Heavy consumers - Moderate consumers CUSTOMER RELATION MANAGEMENT (CRM) - Light users - Superior value is the key to effective customer f. Perpetual Factors Segments relations as it strengthens the binding attachments - Benefits segmentation as to quality and features building customer loyalty - Perceptual and information linkages - Receiving superior value enhances customers’ INDUSTRIAL AND COMMERCIAL CONSUMERS loyalty to the firm’s product and positive relationship exists to develop profitability a. End-User Segments - CUSTOMER RELATION MANAGEMENT (CRM) - Construction companies and developers SOFTWARE is available for firms to enhance their - Airlines and transport sector customer relations program. A successful CRM b. Product Segments program can be the source of competitive advantage - Machineries and equipment as the firm uses knowledge gained from it to improve - Electronics and other components strategy implementation process - Supplies and materials c. Geographic Distributions TYPE OF BUSINESS LEVEL STRATEGY - Local market  BUSINESS LEVEL STRATEGIES - International or global distribution - Are intended to create differences between the firm’s d. Customer Size Segments strategic advantages relative to those present in the - Number of industrial users industry. - Market population distribution - POSITIONING THE FIRM’S STRATEGY is the  SOPHISTICATED PROGRAMS process of identifying whether to enter activities differently with competitors or performing different activities with its rivals  Some simple secrets of success are: - Developing technical cooperative relationships with 1. Keeping costs down 2 or more suppliers means that the firm’s purchasing 2. Focusing on customer value executives must be able to visit and assist the 3. Keeping the employee happy and contented suppliers in the innovation and development of 4. Keeping simple operations materials quality while reducing cost c. Long term relationship with suppliers UNIVERSAL BUSINESS LEVEL STRATEGIES - Long term relationship could be established with This level of strategy focuses on the delivery of products to suppliers in terms of volume purchase which in turn consumers at a lower cost and differentiation against could be an added advantage due to volume competitors in the market. discounts - Suppliers could be assured also of long term TWO IMPORTANT COST STRATEGIES: profitability if the firms are committed to volume orders 1. EFFECTIVE MANAGEMENT AND CONTROL OF d. Just-In-time materials delivery PRIMARY ACTIVITIES - JIT agreements could be made possible as the a. Production efficiency and materials supply of inputs could be programmed according to management system the firm’s manufacturing schedule. - The primary activities of inbound logistics have - JIT delivery system will reduce handling cost as something to do with purchasing and delivery of materials could be delivered direct to the production materials to the warehouse and the inventory control line in time for production. system applied are cost factors that could reduce e. Development of alternative substitute material cost handling. - The technical competence that was developed by b. Manpower efficiency and cost control the supplier’s and the firm’s technical specialist - Manpower cost could be another factor. These could be tasked to developed alternative and to includes salaries, wages and benefits which are improve materials without necessarily adding cost or variable cost. even resulting in cost reduction that could be - Salaries and allowances of executives are fixed cost advantageous to both firms and must be maintained at levels that would make the product cost competitive in the marker. THE RISK ASSOCIATED WITH COST LEADERSHIP c. Effective delivery of product and services STRATEGY - Strategic management of the outbound logistics refers to the delivery of products direct to the Cost leadership strategy is not a monopoly of the firm customers in the case of consumer products like as innovation is everybody’s business. Nevertheless, milk, coffee, chocolate products and many others the firm must keep on guard on the following: - Many firms used the warehouse of distributors as 1. The obsolescence of machinery and equipment jump off point to the customers and developed in the production of goods cooperative undertakings that brought cost reduction - The firm may have concentrated on the production d. Use of reliable middleman and distributors of its product using the same technology. - Reduce cost in the maintenance of equipment and - Keeping the machineries and equipment at salaries of regular salesclerk and truck helpers. maximum level of usability to reduce cost on Warehousing is now the responsibility of the investment and innovation may cause the rival distributors and its delivery to retailers, thereby competitors to introduce new technology. creating cost reduction in outbound logistics. 2. Distribution strategy and dealer’s relations e. Effective management of finances - Competitors have ways to penetrate the market with - Competitive advantage is developed as parties new strategy that could be better than that of the undertaking dual responsibility create ROI. firm’s in terms of more liberal credit, rebates and 2. STRATEGIC MANAGEMENT OF SUPPORT commissions ACTIVITIES - Cost distribution is another factor that must be a. Strategic outsourcing of materials looked into as competitive advantage in cost - Is one prime consideration in the development of leadership strategy may reduce customer perception competitive competencies as the firm must take in product value and price advantage advantage of the raw materials available both in local 3. Product differentiation and improvement in and international market. features b. Cooperative supplier relationships - Customers will always be looking for new product - The development of effective outsourcing could be features done with cooperative technical undertakings of the - The firm may have concentrated on producing the firm and with at least 2 suppliers same product overtime to reduce cost and maintain - The firm must not rely on 1 supplier of material inputs cist leadership as they make take advantage of the firm’s 4. The presence of imitation dependence on them  - The rival firms may introduce imitation products with brand that offers similar features but offering lower lower cost but with the same features. prices - Patents and innovations could easily be avoided with 4. The presence of counterfeit products the development in new design and features that - Some small firms with less investments may develop could be different from the firm’s original design counterfeit products that offer similar features and design without much differences from the original PRODUCT DIFFERENTIATION STRATEGY SEGMENTED FOCUS STRATEGY - Differentiation in product features add value us the firm’s integrated action to produce and deliver - Firms using segmented focus strategy intend to products or services that are acceptable to the serve a particular segment of an industry wide consumer are perceived to be of higher quality than competitors those offered by the competitor - It is the firm’s intention to focus on a particular - Customers will be willing to pay additional premium segment and concentrate their competencies to the with products they like and distinctively differ with needs of particular group those present in the market and with price that is competitively affordable The following risk factors include: - The firm’s unique product is a competitive advantage 1. The competitor may focus on a narrower segment - The differentiation strategy is a continuous process 2. Competitors may decide to enter the narrow market, concentrating on research, development and thereby slicing the market pie inventing new features in ways that develop 3. Similarly in product features reduces the customer value attractiveness of the market THE EXTERNAL ENVIRONMENTAL FACTORS THAT INTEGRAED COST LEADERSHIP AND AFFECT DIFFERENTIATION: DIFFERENTIATION STRATEGY 1. Competitors presence in the market In global market, the firm that produces the lower cost of - The firms hold on the customer’s loyalty and products and with differentiation n can expect it to perform patronage hinges on the products with differentiated well in the market. value from that of the competitors 2. The power of customer to exert pressure Successful firms re-integrating the cost leaderships and - Customers are the king and queen in the market product differentiation strategy are in a better position along - The uniqueness if differentiated goods reduces the following areas: customer’s sensitivity to price increases 1. Adopt quickly to environmental change 3. The supplier’ influence on quality of materials 2. Learn new skills and technology more quickly - Continuous supply of quality inputs in the production 3. Greater leverage against competition in core of goods can assure the delivery of differentiated competencies products to the customers 4. Imitation and product substitute Cost leadership strategy and differentiation use a variety of - Products that developed substantial brand image in flexible operating system to be competitive in the market the industry are positioned effectively against product substitutes The firm that uses the FLEXIBLE MANUFACTURING - Customers could easily distinguish imitations form SYSTEMS (FMS) develop competitive advantage as it the original reduces material handling and establishes a greater flow of material resources in the production line without much RISK INVOLVED IN DIFFERENTIATION STRATEGY human intervention 1. Customer’s perception of product features and NETWORK LINKAGES AND INFORMATION SYSTEM price - It is the customer’s value analysis that the cost The development of network and linkages with suppliers, leadership product is excessively priced higher than distributors and retailers and the consumers provide another its perceived value source of strategic flexibility 2. Consistency in providing the desired product CRM provides a 360-degree view of the total customer’s value satisfaction level. It encompasses all contract points of all - It is the tendency that the firm’s means of business process including all communication sales differentiation may cease to provide value for which channels the customers are willing to pay due to other external factors of production.(RO ENTERPISE RESOURCE PLANNING (ERP) improves 3. The narrow difference in product differentiation efficiency in financial planning and data analysis as it moves - It is the customer’s perception that the brand they across departments that require immediate action used to patronize has been overtaken by another