Wayne State University Business Essay

Assignment:

Provide a reflection of at least 500 words (or 2 pages double spaced) of how the knowledge, skills, or theories of this course have been applied, or could be applied, in a practical manner to your current work environment. If you are not currently working, share times when you have or could observe these theories and knowledge could be applied to an employment opportunity in your field of study.

Requirements:

Provide a 500 words (or 2 pages double spaced) minimum reflection.

Use of proper APA formatting and citations. If supporting evidence from outside resources is used those must be properly cited.

Share a personal connection that identifies specific knowledge and theories from this course.

Demonstrate a connection to your current work environment. If you are not employed, demonstrate a connection to your desired work environment.

Strategic Management Concepts: A
Competitive Advantage Approach
Sixteenth Edition
Chapter 9
Strategy Review, Evaluation,
and Control
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (1 of 2)
9.1 Discuss the strategy-evaluation process, criteria, and
methods used.
9.2 Discuss three activities that comprise strategy
evaluation.
9.3 Describe and develop a Balanced Scorecard.
9.4 Identify and describe published sources of strategyevaluation information.
9.5 Identify and describe six characteristics of an effective
strategy-evaluation system.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (2 of 2)
9.6 Discuss the nature and role of contingency planning in
strategy evaluation.
9.7 Explain the role of auditing in strategy evaluation.
9.8 Identify and discuss three twenty-first-century challenges
in strategic management.
9.9 Identify and describe 17 guidelines for effective strategic
management.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 9-1 A Comprehensive StrategicManagement Model
Source: Fred R. David, Ã¢â‚¬Å“How Companies Define Their Mission,Ã¢â‚¬Â Long Range Planning 22, no. 3 (June 1988): 40. See
also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, Ã¢â‚¬Å“Balance Scorecard of DavidÃ¢â‚¬â„¢s
Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,Ã¢â‚¬Â Journal of Mathematics
and Technology, no. 4 (October 2010): 20.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Strategy Evaluation
Three basic activities:
1. Examine the underlying bases of a firmÃ¢â‚¬â„¢s strategy.
2. Compare expected results with actual results.
3. Take corrective actions to ensure that performance
conforms to plans.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Strategy Evaluation Criteria
Ã¢â‚¬Â¢ Consonance
Ã¢â‚¬Â¢ Consistency
Ã¢â‚¬Â¢ Advantage
Ã¢â‚¬Â¢ Feasibility
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Why Strategy Evaluation is More Difficult
Today (1 of 2)
1. A dramatic increase in the environmentÃ¢â‚¬â„¢s complexity
2. The increasing difficulty of predicting the future with
accuracy
3. The increasing number of variables
4. The rapid rate of obsolescence of even the best plans
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Why Strategy Evaluation is More Difficult
Today (2 of 2)
5. The increase in the number of both domestic and world
events affecting organizations
6. The decreasing time span for which planning can be
done with any degree of certainty
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Process of Evaluating Strategies (1 of 2)
Ã¢â‚¬Â¢ Strategy evaluation should initiate managerial questioning
of expectations and assumptions, should trigger a review
of objectives and values, and should stimulate creativity in
generating alternatives and formulating criteria of
evaluation.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Process of Evaluating Strategies (2 of 2)
Ã¢â‚¬Â¢ Evaluating strategies on a continuous rather than on a
periodic basis allows benchmarks of progress to be
established and more effectively monitored.
Ã¢â‚¬Â¢ Successful strategies combine patience with a willingness
to promptly take corrective actions when necessary.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 9-2 A Strategy-Evaluation Assessment
Matrix
Have Major Changes
Occurred in the FirmÃ¢â‚¬â„¢s
Internal Strategic
Position?
Have Major Changes
Occurred in the FirmÃ¢â‚¬â„¢s
External Strategic
Position?
Has the Firm
Progressed
Satisfactorily Toward
Achieving Its Stated
Objectives?
No
No
No
Take corrective actions
Yes
Yes
Yes
Take corrective actions
Yes
Yes
No
Take corrective actions
Yes
No
Yes
Take corrective actions
Yes
No
No
Take corrective actions
No
Yes
Yes
Take corrective actions
No
Yes
No
Take corrective actions
No
No
Yes
Continue present
strategic course
Result
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 9-2 A Strategy-Evaluation
Framework
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Reviewing Bases of Strategy (1 of 2)
1. How have competitors reacted to our strategies?
2. How have competitorsÃ¢â‚¬â„¢ strategies changed?
3. Have major competitorsÃ¢â‚¬â„¢ strengths and weaknesses
changed?
4. Why are competitors making certain strategic changes?
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Reviewing Bases of Strategy (2 of 2)
5. Why are some competitorsÃ¢â‚¬â„¢ strategies more successful
than others?
6. How satisfied are our competitors with their present
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?
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Measuring Organizational Performance
Strategists use common quantitative criteria to make three
critical comparisons:
1. Comparing the firmÃ¢â‚¬â„¢s performance over different time
periods
2. Comparing the firmÃ¢â‚¬â„¢s performance to competitorsÃ¢â‚¬â„¢
3. Comparing the firmÃ¢â‚¬â„¢s performance to industry averages
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Key Questions to Address in Evaluating
Strategies (1 of 2)
1. How good is the firmÃ¢â‚¬â„¢s balance of investments between
high-risk and low-risk projects?
2. How good is the firmÃ¢â‚¬â„¢s balance of investments between
long-term and short-term projects?
3. How good is the firmÃ¢â‚¬â„¢s balance of investments between
slow-growing markets and fast-growing markets?
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Key Questions to Address in Evaluating
Strategies (2 of 2)
4. How good is the firmÃ¢â‚¬â„¢s balance of investments among
different divisions?
5. To what extent are the firmÃ¢â‚¬â„¢s alternative strategies socially
responsible?
6. What are the relationships among the firmÃ¢â‚¬â„¢s key internal
and external strategic factors?
7. How are major competitors likely to respond to particular
strategies?
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 9-4 Corrective Actions
1. Alter the firmÃ¢â‚¬â„¢s structure.
2. Replace one or more key individuals.
3. Divest a division.
4. Alter the firmÃ¢â‚¬â„¢s vision or mission.
5. Revise objectives.
6. Alter strategies.
7. Devise new policies.
8. Install new performance incentives.
9. Raise capital with stock or debt.
10. Add or terminate salespersons, employees, or managers.
11. Allocate resources differently.
12. Outsource (or rein in) business functions.
Corrective Actions Possibly Needed to Correct Unfavorable Variances
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Balanced Scorecard (1 of 2)
1. Is the firm continually improving and creating value along
measures such as innovation, technological leadership,
product quality, operational process efficiencies, and so
on?
2. Is the firm sustaining and even improving on its core
competencies and competitive advantages?
3. How satisfied are the firmÃ¢â‚¬â„¢s customers?
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Balanced Scorecard (2 of 2)
Ã¢â‚¬Â¢ The Balanced Scorecard approach to strategy evaluation
aims to balance long-term with short-term concerns, to
balance financial with nonfinancial concerns, and to
balance internal with external concerns.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Characteristics of an Effective Evaluation
System (1 of 2)
Ã¢â‚¬Â¢ Strategy evaluation activities must be economical
Ã¢â‚¬â€œ too much information can be just as bad as too little
information
Ã¢â‚¬â€œ too many controls can do more harm than good
Ã¢â‚¬Â¢ Activities should be meaningful
Ã¢â‚¬â€œ should specifically relate to a firmÃ¢â‚¬â„¢s objectives
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Characteristics of an Effective Evaluation
System (2 of 2)
Ã¢â‚¬Â¢ Activities should provide timely information
Ã¢â‚¬Â¢ Activities should be designed to provide a true picture of
what is happening
Ã¢â‚¬Â¢ Activities should not dominate decisions
Ã¢â‚¬â€œ should foster mutual understanding, trust, and common
sense
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Contingency Planning (1 of 3)
Ã¢â‚¬Â¢ Contingency Plans can be defined as alternative plans
that can be put into effect if certain key events do not occur
as expected.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Contingency Planning (2 of 3)
Ã¢â‚¬Â¢ If a major competitor withdraws from particular markets as
intelligence reports indicate, what actions should our firm
take?
Ã¢â‚¬Â¢ If our sales objectives are not reached, what actions
should our firm take to avoid profit losses?
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Contingency Planning (3 of 3)
Ã¢â‚¬Â¢ If demand for our new product exceeds plans, what actions
should our firm take to meet the higher demand?
Ã¢â‚¬Â¢ If certain disasters occur, what actions should our firm
take?
Ã¢â‚¬Â¢ If a new technological advancement makes our new
product obsolete sooner than expected, what actions
should our firm take?
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Effective Contingency Planning
1. Identify both good and bad events that could jeopardize
strategies.
2. Determine when the good and bad events are likely to
occur.
3. Determine the expected pros and cons of each
contingency event.
4. Develop contingency plans for key contingency events.
5. Determine early warning trigger points for key
contingency events.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Auditing
Ã¢â‚¬Â¢ Auditing
Ã¢â‚¬â€œ Ã¢â‚¬Å“a systematic process of objectively obtaining and
evaluating evidence regarding assertions about
economic actions and events to ascertain the degree of
correspondence between these assertions and
established criteria, and communicating the results to
interested usersÃ¢â‚¬Â
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Twenty-First-Century Challenges in
Strategic Management
Ã¢â‚¬Â¢ Deciding whether the process should be more an art or a
science
Ã¢â‚¬Â¢ Deciding whether strategies should be visible or hidden
from stakeholders
Ã¢â‚¬Â¢ Deciding whether the process should be more top-down or
bottom-up in their firm
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Guidelines for Effective Strategic
Management
1. Keep the process simple and easily understandable.
2. Eliminate vague planning jargon.
3. Keep the process non routine; vary assignments, team
membership, meeting formats, settings, and even the planning
calendar.
4. Welcome bad news and encourage devilÃ¢â‚¬â„¢s advocate thinking
5. Do not allow technicians to monopolize the planning process.
6. To the extent possible, involve managers from all areas of the
firm.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Copyright
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Strategic Management Concepts: A
Competitive Advantage Approach
Sixteenth Edition
Chapter 8
Implementing Strategies:
Marketing,
Finance/Accounting, R and
D, and MIS Issues
Slide in this Presentation Contain
Hyperlinks. JAWS users should be
able to get a list of links by using
INSERT+F7
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (1 of 3)
8.1 Identify and describe strategic marketing issues vital for
strategy implementation.
8.2 Explain why social media marketing is an important
strategy-implementation tool.
8.3 Explain why market segmentation is an important
strategy-implementation tool.
8.4 Explain how to use product positioning (perceptual
mapping) as a strategy-implementation tool.
8.5 Identify and describe strategic finance/accounting issues
vital for strategy implementation.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (2 of 3)
8.6 Perform EPS/EBIT analysis to evaluate the
attractiveness of debt versus stock as a source of capital to
implement strategies.
8.7 Develop projected financial statements to reveal the
impact of strategy recommendations.
8.8 Determine the cash value of any business using four
corporate evaluation methods.
8.9 Discuss IPOs, keeping cash offshore, and issuing
corporate bonds as strategic decisions that face many firms.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (3 of 3)
8.10 Discuss the nature and role of research and
development (R&D) in strategy implementation.
8.11 Explain how management information systems (MISs)
impact strategy-implementation efforts.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 8-1 Comprehensive StrategicManagement Model
Source: Fred R. David, Ã¢â‚¬Å“How Companies Define Their Mission,Ã¢â‚¬Â Long Range Planning 22, no. 3 (June 1988): 40. See
also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu ArtamaWiguna, Ã¢â‚¬Å“Balance Scorecard of DavidÃ¢â‚¬â„¢s
Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,Ã¢â‚¬Â Journal of Mathematics
and Technology, no. 4 (October 2010): 20.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Strategic Marketing Issues (1 of 2)
1. How to make advertisements more interactive to be more
effective
2. How to best take advantage of Facebook and Twitter
conservations about the company and industry
3. To use exclusive dealerships or multiple channels of
distribution
4. To use heavy, light, or no TV advertising versus online
advertising
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Strategic Marketing Issues (2 of 2)
5. To limit (or not) the share of business done with a single
customer
6. To be a price leader or a price follower
7. To offer a complete or limited warranty
8. To reward salespeople based on straight salary, straight
commission, or a combination salary/commission
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Social Media Marketing
Ã¢â‚¬Â¢ Marketers must get customers involved in the company website
and solicit suggestions in terms of product development,
customer service, and ideas.
Ã¢â‚¬Â¢ The company should enable customers to interact with the firm
on the following social media networks:
Ã¢â‚¬â€œ Facebook
Ã¢â‚¬â€œ Google Plus
Ã¢â‚¬â€œ Twitter
Ã¢â‚¬â€œ LinkedIn
Ã¢â‚¬â€œ Instagram
Ã¢â‚¬â€œ Pinterest
Ã¢â‚¬â€œ Foursquare
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 8-1 The New Principles of Marketing
1. Do not just talk at consumers-work with them throughout the marketing
process.
2. Give consumers a reason to participate.
3. Listen to-and join-the conversation outside your companyÃ¢â‚¬â„¢s website.
4. Resist the temptation to sell, sell, sell. Instead attract, attract, attract.
5. Do not control online conversations; let it flow freely.
6. Find a Ã¢â‚¬Å“marketing technologist,Ã¢â‚¬Â a person who has three excellent skill sets
(marketing, technology, and social interaction).
7. Embrace instant messaging and chatting.
Source: Based on Salvatore Parise, Patricia Guinan, and Bruce Weinberg, Ã¢â‚¬Å“The Secrets of
Marketing in a Web 2.0 World,Ã¢â‚¬Â Wall Street Journal, December 15, 2008, R1
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Market Segmentation (1 of 3)
Ã¢â‚¬Â¢ Market Segmentation
Ã¢â‚¬â€œ subdividing of a market into distinct subsets of
customers according to needs and buying habits
Ã¢â‚¬â€œ widely used in implementing strategies
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Market Segmentation (2 of 3)
Ã¢â‚¬Â¢ Strategies such as market development, product
development, market penetration, and diversification
require increased sales through new markets and
products.
Ã¢â‚¬Â¢ Market segmentation allows a firm to operate with limited
resources because mass production, mass distribution,
and mass advertising are not required.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Market Segmentation (3 of 3)
Ã¢â‚¬Â¢ Market segmentation decisions directly affect the
marketing mix variables:
Ã¢â‚¬â€œ Product
Ã¢â‚¬â€œ Place
Ã¢â‚¬â€œ Promotion
Ã¢â‚¬â€œ Price
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 8-2 The Marketing Mix Component
Variables
Product
Place
Promotion
Price
Quality
Distribution channels
Advertising
Level
Features and
options
Distribution coverage
Personal selling
Discounts and
Style
Outlet location
Sales promotion
allowances
Brand name
Sales territories
Publicity
Payment terms
Packaging
Inventory levels and locations
blank
blank
Product line
Transportation carriers
blank
blank
Warranty
blank
blank
blank
Service level
blank
blank
blank
Other services
blank
blank
blank
Source: Based on E. Jerome McCarthy, Basic Marketing: A Managerial Approach, 9th
ed. (Homewood, IL: Richard D. Irwin, Inc., 1987), 37-44. Used with permission.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Retention-Based Segmentation
Tag #1: Is this customer at high risk of canceling the
companyÃ¢â‚¬â„¢s service?
Tag #2: Is this customer worth retaining?
Tag #3: What retention tactics should be used to retain this
customer?
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Alternative Bases for Market Segmentation
Ã¢â‚¬Â¢ Geographic
Ã¢â‚¬â€œ Region, country size, city size, density, climate
Ã¢â‚¬Â¢ Demographic
Ã¢â‚¬â€œ Age, gender, family size, family life cycle, income,
occupation, education, religion, race, nationality
Ã¢â‚¬Â¢ Psychographic
Ã¢â‚¬â€œ Social class, personality
Ã¢â‚¬Â¢ Behavioral
Ã¢â‚¬â€œ Use occasion, benefits sought, user status, usage rate,
loyalty status, readiness stage, attitude toward product
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Product Positioning (1 of 2)
Ã¢â‚¬Â¢ Product Positioning
Ã¢â‚¬â€œ entails developing schematic representations that
reflect how your products or services compare to
competitors’ on dimensions most important to success
in the industry
Ã¢â‚¬â€œ Also called perceptual mapping
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Product Positioning Steps (1 of 2)
1. Select key criteria that effectively differentiate products or
services in the industry.
2. Diagram a two-dimensional product-positioning map with
specified criteria on each axis.
3. Plot major competitors’ products or services in the
resultant four-quadrant matrix.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Product Positioning Steps (2 of 2)
4. Identify areas in the positioning map where the
company’s products or services could be most
competitive in the given target market. Look for vacant
areas (niches).
5. Develop a marketing plan to position the company’s
products or services appropriately.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Rules for Using Product Positioning as a
Strategy-Implementation Tool
1. Look for the hole or vacant niche.
2. DonÃ¢â‚¬â„¢t serve two segments with the same strategy.
3. Don’t position yourself in the middle of the map.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Product Positioning (2 of 2)
An effective product positioning strategy meets two criteria:
Ã¢â‚¬Â¢ It uniquely distinguishes a company from the competition
Ã¢â‚¬Â¢ It leads customers to expect slightly less service than a
company can deliver
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 8-2 Example of a ProductPositioning Map
A Perceptual Map for the Automobile Industry
Source: Based on info at Perceptual_mapping.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Finance/Accounting Issues (1 of 3)
1. To raise capital with short-term debt, long-term debt,
preferred stock, or common stock
2. To lease or buy fixed assets
3. To determine an appropriate dividend payout ratio
4. To use LIFO (Last-in, First-out), FIFO (First-in, First-out),
or a market-value accounting approach
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Finance/Accounting Issues (2 of 3)
5. To extend the time of accounts receivable
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
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Finance/Accounting Issues (3 of 3)
1. Acquire needed capital to implement strategies.
2. Develop projected financial statements to show expected
impact of strategies implemented.
3. Determine the firmÃ¢â‚¬â„¢s value (corporate valuation) in the
event an offer is received.
4. Decide whether to go public with an Initial Public Offering
(IPO).
5. Decide whether to keep cash offshore that was earned
offshore.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Acquiring Capital to Implement
Strategies (1 of 2)
Ã¢â‚¬Â¢ Successful strategy implementation often requires
additional capital.
Ã¢â‚¬Â¢ Besides net profit from operations and the sale of assets,
two basic sources of capital for an organization are debt
and equity.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Acquiring Capital to Implement
Strategies (2 of 2)
Ã¢â‚¬Â¢ EPS = Earnings Per Share, which is Net Income divided
by # of Shares Outstanding
Ã¢â‚¬Â¢ Another term for Shares Outstanding is Shares Issued
Ã¢â‚¬Â¢ EBIT = Earnings Before Interest and Taxes (also called
operating income)
Ã¢â‚¬Â¢ EBT = Earnings Before Tax
Ã¢â‚¬Â¢ EAT = Earnings After Tax
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 8-4 EPS/EBIT Analysis for the XYZ
Company (1 of 2)
Input Data
The Number
How Determined
$ Amount of
Capital Needed
$100 million
Estimated $ cost of recommendations
EBIT Range
$20 to $40 million Estimate based on prior year EBIT and
recommendations for the coming year(s)
Interest Rate
5 percent
Estimate based on cost of capital
Tax Rate
30 percent
Use prior year %: taxes divided by income
before taxes, as given on income statement
Stock Price
$50
Use most recent stock price
# Shares
Outstanding
500 million
For the debt columns, enter the existing #
shares outstanding. For stock columns, use
the existing # shares outstanding + the # new
shares that must be issued to raise the
needed capital (i.e., based on stock price). So
divide the stock price into the $ amount of
capital needed.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 8-4 EPS/EBIT Analysis for the XYZ
Company (2 of 2)
Conclusion: The best financing alternative is 100% stock because the EPS values are
largest; the worst financing alternative is 100% debt because the EPS values are lowest.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 8-6 An EPS/EBIT Chart for the XYZ
Company
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Projected Financial Statements
Ã¢â‚¬Â¢ Projected Financial Statements
Ã¢â‚¬â€œ allows an organization to examine the expected results
of various actions and approaches
Ã¢â‚¬â€œ allows an organization to compute projected financial
ratios under various strategy-implementation decisions
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Performing Projected Financial Analysis (1 of 2)
1. Prepare the projected income statement before the
balance sheet.
2. Use the percentage-of-sales method to project cost of
goods sold (CGS) and the expense items in the income
statement.
3. Calculate the projected net income.
4. Subtract from the net income any dividends to be paid for
that year.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Performing Projected Financial Analysis (2 of 2)
5. Project the balance sheet items, beginning with retained
earnings and then forecasting stockholders’ equity, longterm liabilities, current liabilities, total liabilities, total
assets, fixed assets, and current assets (in that order).
6. Use the cash account as the plug figure.
7. List commentary (remarks) on the projected statements.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Corporate Valuation
Methods:
Ã¢â‚¬Â¢ The Net Worth Method
Ã¢â‚¬â€œ Total ShareholdersÃ¢â‚¬â„¢ Equity (SE) minus (Goodwill +
Intangibles)
Ã¢â‚¬Â¢ The Net Income Method
Ã¢â‚¬â€œ Net Income Ãƒâ€” Five
Ã¢â‚¬Â¢ Price-Earnings Ratio Method
Ã¢â‚¬â€œ Stock Price Ã¯â€šÂ´ NI
EPS
Ã¢â‚¬Â¢ Outstanding Shares Method
Ã¢â‚¬â€œ # of Shares Outstanding Ãƒâ€” Stock Price
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
IPOs, Cash Management, and Corporate
Bonds
Ã¢â‚¬Â¢ Go public with an IPO?
Ã¢â‚¬Â¢ Keep cash offshore if earned offshore?
Ã¢â‚¬Â¢ Issue corporate bonds for what purpose?
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Research and Development (R and D) Issues
1. Emphasize product or process improvements.
2. Stress basic or applied research.
3. Be leaders or followers in R and D.
4. Develop robotics or manual-type processes.
5. Spend a high, average, or low amount of money on R
and D.
6. Perform R and D within the firm or contract R and D to
outside firms.
7. Use university researchers or private-sector researchers.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
R and D Approaches for Implementing
Strategies
Ã¢â‚¬Â¢ Be the first firm to market new technological products.
Ã¢â‚¬Â¢ Be an innovative imitator of successful products, thus
minimizing the risks and costs of start-up.
Ã¢â‚¬Â¢ Be a low-cost producer by mass-producing products
similar to but less expensive than products recently
introduced.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Management Information System (MIS)
Issues
Ã¢â‚¬Â¢ Having an effective management information system (MIS)
may be the most important factor in differentiating
successful from unsuccessful firms.
Ã¢â‚¬Â¢ The process of strategic management is facilitated
immensely in firms that have an effective information
system.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Mobile Computing
Ã¢â‚¬Â¢ Mobile tracking of employees
Ã¢â‚¬Â¢ Mobile apps for customers
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Copyright
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Strategic Management Concepts: A
Competitive Advantage Approach
Sixteenth Edition
Chapter 7
Implementing Strategies:
Management, Operations,
and Human Resource Issues
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (1 of 2)
7.1 Describe the transition from formulating to implementing
strategies.
7.2 Discuss five reasons why annual objectives are
essential for effective strategy implementation.
7.3 Identify and discuss six reasons why policies are
essential for effective strategy implementation.
7.4 Explain the role of resource allocation and managing
conflict in strategy implementation.
7.5 Discuss the need to match a firmÃ¢â‚¬â„¢s structure with its
strategy.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (2 of 2)
7.6 Identify, diagram, and discuss seven different types of
organizational structure.
7.7 Identify and discuss fifteen dos and donÃ¢â‚¬â„¢ts in constructing
organizational charts.
7.8 Discuss four strategic production/operations issues vital
for successful strategy implementation.
7.9 Discuss seven strategic human resource issues vital for
successful strategy implementation.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 7-1 Comprehensive StrategicManagement Model
Source: Fred R. David, Ã¢â‚¬Å“How Companies Define Their Mission,Ã¢â‚¬Â Long Range Planning 22, no. 3 (June 1988): 40. See
also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, Ã¢â‚¬Å“Balance Scorecard of DavidÃ¢â‚¬â„¢s
Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,Ã¢â‚¬Â Journal of Mathematics
and Technology, no. 4, (October 2010): 20.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Nature of Strategy Implementation
Strategy Formulation
Strategy Implementation
Ã¢â‚¬Â¢ Strategy formulation is
positioning forces before the
action.
Ã¢â‚¬Â¢ Strategy implementation is
managing forces during the
action.
Ã¢â‚¬Â¢ Strategy formulation focuses
on effectiveness.
Ã¢â‚¬Â¢ Strategy implementation
focuses on efficiency.
Ã¢â‚¬Â¢ Strategy formulation is
primarily an intellectual
process.
Ã¢â‚¬Â¢ Strategy implementation is
primarily an operational
process.
Ã¢â‚¬Â¢ Strategy formulation requires Ã¢â‚¬Â¢ Strategy implementation
good intuitive and analytical
requires special motivation and
skills.
leadership skills.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Annual Objectives
Annual Objectives:
1. Represent the basis for allocating resources
2. Are a primary mechanism for evaluating managers
3. Are the major instrument for monitoring progress toward
achieving long-term objectives
4. Establish organizational, divisional, and departmental
priorities
5. Are essential for keeping a strategic plan on track
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 7-3 The Stamus CompanyÃ¢â‚¬â„¢s
Hierarchy of Aims
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Policies (1 of 3)
Ã¢â‚¬Â¢ Policy
Ã¢â‚¬â€œ specific guidelines, methods, procedures, rules, forms,
and administrative practices established to support and
encourage work toward stated goals
Ã¢â‚¬â€œ instruments for strategy implementation
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Policies (2 of 3)
Ã¢â‚¬Â¢ Policies
Ã¢â‚¬â€œ set boundaries, constraints, and limits on the kinds of
administrative actions that can be taken to reward and
sanction behavior
Ã¢â‚¬â€œ let both employees and managers know what is
expected of them, thereby increasing the likelihood that
strategies will be implemented successfully
Ã¢â‚¬â€œ provide a basis for management control and allow
coordination across organizational units
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Policies (3 of 3)
Ã¢â‚¬Â¢ Policies
Ã¢â‚¬â€œ reduce the amount of time managers spend making
decisions. Policies also clarify what work is to be done
and by whom.
Ã¢â‚¬â€œ promote delegation of decision making to appropriate
managerial levels where various problems usually
arise.
Ã¢â‚¬â€œ clarify what can and cannot be done in pursuit of an
organizationÃ¢â‚¬â„¢s objectives.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Types of Resources
Ã¢â‚¬Â¢ Financial
Ã¢â‚¬Â¢ Physical
Ã¢â‚¬Â¢ Human
Ã¢â‚¬Â¢ Technological
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Resource Allocation
Ã¢â‚¬Â¢ Resource Allocation
Ã¢â‚¬â€œ central management activity that allows for strategy
execution
Ã¢â‚¬â€œ Strategic management enables resources to be
allocated according to priorities established by annual
objectives
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Managing Conflict
Ã¢â‚¬Â¢ Conflict
Ã¢â‚¬â€œ Disagreement between two or more parties on one or
more issues
Ã¢â‚¬â€œ Establishing annual objectives can lead to conflict
because individuals have different expectations and
perceptions, schedules create pressure, personalities
are incompatible, and misunderstandings occur
between line managers and staff managers
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Managing Conflict (1 of 2)
Ã¢â‚¬Â¢ Avoidance
Ã¢â‚¬â€œ Includes such actions as ignoring the problem in hopes
that the conflict will resolve itself or physically
separating the conflicting individuals
Ã¢â‚¬Â¢ Defusion
Ã¢â‚¬â€œ Includes playing down differences between conflicting
parties while accentuating similarities and common
interests
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Managing Conflict (2 of 2)
Ã¢â‚¬Â¢ Confrontation
Ã¢â‚¬â€œ exemplified by exchanging members of conflicting
parties so that each can gain an appreciation of the
otherÃ¢â‚¬â„¢s point of view or holding a meeting at which
conflicting parties present their views and work through
their differences
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 7-5 Some Management Trade-Off
Decisions Required in Strategy Implementation
To emphasize short-term profits or long-term growth
To emphasize profit margin or market share
To emphasize market development or market penetration
To lay off or furlough
To seek growth or stability
To take high risk or low risk
To be more socially responsible or more profitable
To outsource jobs or pay more to keep jobs at home
To acquire externally or to build internally
To restructure or reengineer
To use leverage or equity to raise funds
To use part-time or full-time employees
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Matching Structure With Strategy
Ã¢â‚¬Â¢ Structure largely dictates how objectives and policies will
be established
Ã¢â‚¬Â¢ Structure dictates how resources will be allocated
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 7-6 Symptoms of an Ineffective
Organizational Structure
1.
Too many levels of management
2.
Too many meetings attended by too many people
3.
Too much attention being directed toward solving interdepartmental conflicts
4.
Too large a span of control
5.
Too many unachieved objectives
6.
Declining corporate or business performance
7.
Losing ground to rival firms
8.
Revenue or earnings divided by number of employees or number of
managers is low compared to rival firms
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Functional Structure
Ã¢â‚¬Â¢ Functional Structure
Ã¢â‚¬â€œ groups tasks and activities by business function, such
as production/operations, marketing,
finance/accounting, research and development, and
management information systems
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 7-7 Advantages and Disadvantages of
a Functional Organizational Structure
Advantages
Disadvantages
1. Simple and inexpensive
1. Accountability forced to the top
2. Capitalizes on specialization of
business activities such as marketing
and finance
2. Delegation of authority and
responsibility not encouraged
3. Minimizes need for elaborate control
system
3. Minimizes career development
4. Allows for rapid decision making
4. Low employee and manager morale
Blank
5. Inadequate planning for products and
markets
Blank
6. Leads to short-term, narrow thinking
Blank
7. Leads to communication problems
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Divisional Structure
Ã¢â‚¬Â¢ Functional activities are performed both centrally and in
each separate division
Ã¢â‚¬Â¢ Organized by geographic area, product or service,
customer, or process
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 7-8 Advantages and Disadvantages of
a Divisional Organizational Structure
Advantages
Disadvantages
1. Clear accountability
1. Can be costly
2. Allows local control of local situations
2. Duplication of functional activities
3. Creates career development chances
3. Requires a skilled management force
4. Promotes delegation of authority
4. Requires an elaborate control system
5. Leads to competitive climate internally
5. Competition among divisions can become so
intense as to be dysfunctional
6. Allows easy adding of new products or
regions
6. Can lead to limited sharing of ideas and
Resources
7. Allows strict control and attention to
products, customers, or regions
7. Some regions, products, or customers may
receive special treatment
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Strategic Business Unit (SBU) Structure
Ã¢â‚¬Â¢ SBU Structure
Ã¢â‚¬â€œ groups similar divisions into strategic business units
and delegates authority and responsibility for each unit
to a senior executive who reports directly to the chief
executive officer
Ã¢â‚¬â€œ can facilitate strategy implementation by improving
coordination between similar divisions and channeling
accountability to distinct business units
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Matrix Structure (1 of 2)
Ã¢â‚¬Â¢ Matrix Structure
Ã¢â‚¬â€œ most complex of all designs because it depends upon
both vertical and horizontal flows of authority and
communication
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Matrix Structure (2 of 2)
Ã¢â‚¬Â¢ For a matrix structure to be effective, organizations need
participative planning, training, clear mutual understanding
of roles and responsibilities, excellent internal
communication, and mutual trust and confidence
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 7-9 Advantages and Disadvantages of
a Matrix Structure
Advantages
Disadvantages
1. Clear project objectives
1. Requires excellent vertical and horizontal
flows of communication
2. Results of their work clearly seen by
employees
2. Costly because creates more manager
positions
3. Easy to shut down a project
3. Violates unity of command principle
4. Facilitates uses of special equipment,
personnel, and facilities
4. Creates dual lines of budget authority
5. Shared functional resources instead of
duplicated resources, as in a divisional
structure
5. Creates dual sources of reward and
punishment
Blank
6. Creates shared authority and reporting
Blank
7. Requires mutual trust and understanding
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 7-6 Typical Top Managers of a Large
Firm
Note: Titles spelled out as follows.
Chief Executive Officer (CEO)
Chief Finance Officer (CFO)
Chief Strategy Officer (CSO)
Chief Information Officer (CIO)
Human Resources Manager (HRM)
Chief Operating Officer (COO)
Chief Legal Officer (CLO)
Research & Development Officer (R&D)
Chief Marketing Officer (CMO)
Chief Technology Officer (CTO)
Competitive Intelligence Officer (CIO)
Maintenance Officer (MO)
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Restructuring
Ã¢â‚¬Â¢ Restructuring
Ã¢â‚¬â€œ 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
Ã¢â‚¬â€œ primary benefit sought from restructuring is cost
reduction
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Reengineering
Ã¢â‚¬Â¢ Reengineering
Ã¢â‚¬â€œ involves reconfiguring or redesigning work, jobs, and
processes for the purpose of improving cost, quality,
service, and speed
Ã¢â‚¬â€œ does not usually affect the organizational structure or
chart, nor does it imply job loss or employee layoffs
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Managing Resistance to Change
Ã¢â‚¬Â¢ Force Change Strategy
Ã¢â‚¬â€œ involves giving orders and enforcing those orders
Ã¢â‚¬Â¢ Educative Change Strategy
Ã¢â‚¬â€œ presents information to convince people of the need for
change
Ã¢â‚¬Â¢ Self-interest Change Strategy
Ã¢â‚¬â€œ attempts to convince individuals that the change is to
their personal advantage
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Strategic Human Resource Issues
Seven human resource issues:
1. Linking performance and pay to strategy
2. Balancing work life with home life
3. Developing a diverse work force
4. Using caution in hiring a rivalÃ¢â‚¬â„¢s employees
5. Creating a strategy-supportive culture
6. Using caution in monitoring employeesÃ¢â‚¬â„¢ social media
7. Developing a corporate wellness program
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Linking Performance and Pay to Strategies
Ã¢â‚¬Â¢ Decisions on salary increases, promotions, merit pay, and
bonuses need to support the long-term and annual
objectives of the firm
Ã¢â‚¬Â¢ Gain sharing and bonus systems can be used
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Balance Work and Home Life
Ã¢â‚¬Â¢ Work and family strategies now represent a competitive
advantage for those firms that offer such benefits as:
Ã¢â‚¬â€œ elder care assistance
Ã¢â‚¬â€œ flexible scheduling
Ã¢â‚¬â€œ job sharing
Ã¢â‚¬â€œ adoption benefits
Ã¢â‚¬â€œ onsite summer camp
Ã¢â‚¬â€œ employee help line
Ã¢â‚¬â€œ pet care
Ã¢â‚¬â€œ lawn service referrals
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Develop a Diverse Workforce (1 of 2)
Six benefits of having a diverse workforce are:
1. Women and minorities have different insights, opinions,
and perspectives that should be considered.
2. A diverse workforce portrays a firm committed to
nondiscrimination.
3. A workforce that mirrors a customer base can help attract
customers, build customer loyalty, and design/offer
products/services that meet customer needs/wants.
4. A diverse workforce helps protect the firm against
discrimination lawsuits.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Develop a Diverse Workforce (2 of 2)
5. Women and minorities represent a huge additional pool
of qualified applicants.
6. A diverse workforce strengthens a firmÃ¢â‚¬â„¢s social
responsibility and ethical position
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Creating a Strategy-Supportive Culture (1 of 2)
1. Formal statements of organizational philosophy, charters,
creeds, materials used for recruitment and selection, and
socialization
2. Designing of physical spaces, facades, buildings
3. Deliberate role modeling, teaching, and coaching by
leaders
4. Explicit reward and status system, promotion criteria
5. Stories, legends, myths, and parables about key people
and events
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Creating a Strategy-Supportive Culture (2 of 2)
6. What leaders pay attention to, measure, and control
7. Leader reactions to critical incidents and organizational
crises
8. How the organization is designed and structured
9. Organizational systems and procedures
10.Criteria used for recruitment, selection, promotion,
leveling off, retirement, and Ã¢â‚¬Å“excommunicationÃ¢â‚¬Â of people
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Monitoring Social Media
Ã¢â‚¬Â¢ Proponents of companies monitoring employeesÃ¢â‚¬â„¢ socialmedia activities emphasize that
Ã¢â‚¬â€œ a companyÃ¢â‚¬â„¢s reputation in the marketplace can easily
be damaged by disgruntled employees venting on
social media sites
Ã¢â‚¬â€œ social-media records can be subpoenaed, like email,
and used as evidence against the company.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Corporate Wellness Program
Ã¢â‚¬Â¢ The Affordable Care Act increased the maximum
incentives and penalties employers may use to encourage
employee well-being
Ã¢â‚¬Â¢ Most companies have both
Ã¢â‚¬â€œ Ã¢â‚¬Å“carrots,Ã¢â‚¬Â such as giving employee discounts on
insurance premiums or even extra cash,
Ã¢â‚¬â€œ Ã¢â‚¬Å“sticks,Ã¢â‚¬Â such as imposing surcharges on premiums for
those who do not make progress toward getting
healthy.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Copyright
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Strategic Management Concepts: A
Competitive Advantage Approach
Sixteenth Edition
Chapter 6
Strategy Analysis and Choice
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (1 of 2)
6.1 Describe the strategy analysis and choice process.
6.2 Diagram and explain the three-stage strategy-formulation
analytical framework.
6.3 Diagram and explain the Strengths-WeaknessesOpportunities-Threats (SWOT) Matrix.
6.4 Diagram and explain the Strategic Position and Action
Evaluation (SPACE) Matrix.
6.5 Diagram and explain the Boston Consulting Group (BC
G) Matrix.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (2 of 2)
6.6 Diagram and explain the Internal-External (IE) Matrix.
6.7 Diagram and explain the Grand Matrix.
6.8 Diagram and explain the Quantitative Strategic Planning
Matrix (QSPM).
6.9 Discuss the role of organizational culture in strategic
analysis and choice.
6.10 Identify and discuss important political considerations in
strategy analysis and choice.
6.11 Discuss the role of a board of directors (governance) in
strategic planning.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-1 A Comprehensive StrategicManagement Model
Source: Fred R. David, Ã¢â‚¬Å“How Companies Define Their Mission,Ã¢â‚¬Â Long Range Planning 22, no. 3 (June 1988): 40. See
also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, Ã¢â‚¬Å“Balance Scorecard of DavidÃ¢â‚¬â„¢s
Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,Ã¢â‚¬Â Journal of Mathematics
and Technology, no. 4 (October 2010): 20.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Process of Generating and Selecting
Strategies (1 of 3)
Ã¢â‚¬Â¢ A manageable set of the most attractive alternative
strategies must be developed.
Ã¢â‚¬Â¢ The advantages, disadvantages, trade-offs, costs, and
benefits of these strategies should be determined.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Process of Generating and Selecting
Strategies (2 of 3)
Ã¢â‚¬Â¢ Identifying and evaluating alternative strategies should
involve many of the managers and employees who earlier
assembled the organizational vision and mission
statements, performed the external audit, and conducted
the internal audit.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Process of Generating and Selecting
Strategies (3 of 3)
Ã¢â‚¬Â¢ Alternative strategies proposed by participants should be
considered and discussed in a series of meetings.
Ã¢â‚¬Â¢ Proposed strategies should be listed in writing.
Ã¢â‚¬Â¢ When all feasible strategies identified by participants are
given and understood, the strategies should be ranked in
order of attractiveness.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-2 The Strategy-Formulation
Analytical Framework
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
A Comprehensive Strategy-Formulation
Framework (1 of 3)
Ã¢â‚¬Â¢ Stage 1 – Input Stage
Ã¢â‚¬â€œ summarizes the basic input information needed to
formulate strategies
Ã¢â‚¬â€œ consists of the EFE Matrix, the IFE Matrix, and the
Competitive Profile Matrix (CPM)
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
A Comprehensive Strategy-Formulation
Framework (2 of 3)
Ã¢â‚¬Â¢ Stage 2 – Matching Stage
Ã¢â‚¬â€œ focuses on generating feasible alternative strategies
by aligning key external and internal factors
Ã¢â‚¬â€œ techniques include the Strengths-WeaknessesOpportunities-Threats (SWOT) Matrix, the Strategic
Position and Action Evaluation (SPACE) Matrix, the
Boston Consulting Group (BCG) Matrix, the InternalExternal (IE) Matrix, and the Grand Strategy Matrix
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
A Comprehensive Strategy-Formulation
Framework (3 of 3)
Ã¢â‚¬Â¢ Stage 3 – Decision Stage
Ã¢â‚¬â€œ involves the Quantitative Strategic Planning Matrix (QS
PM)
Ã¢â‚¬â€œ reveals the relative attractiveness of alternative
strategies and thus provides objective basis for
selecting specific strategies
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 6-1 Matching Key External and Internal
Factors to Formulate Alternative Strategies
Key Internal Factor
Key External Factor
Resultant Strategy
Excess working capital
(an internal strength)
+ Annual growth of 20
percent in the cell phone
industry (an external
opportunity)
= Acquire Cellfone, Inc.
Insufficient capacity (an
internal weakness)
+ Exit of two major
foreign competitors from
The industry (an external
opportunity)
= Pursue horizontal
integration by buying
competitorsÃ¢â‚¬â„¢ facilities
Strong research and
development expertise
(an internal strength)
+ Decreasing numbers
of younger adults (an
external threat)
= Develop new products
for older adults
Poor employee morale
(an internal weakness)
+ Rising health-care
costs (an external threat)
= Develop a new
wellness program
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Matching Stage (1 of 3)
Ã¢â‚¬Â¢ The Strengths-Weaknesses-Opportunities-Threats (SW
OT) Matrix helps managers develop four types of
strategies:
Ã¢â‚¬â€œ SO (strengths-opportunities) Strategies
Ã¢â‚¬â€œ WO (weaknesses-opportunities) Strategies
Ã¢â‚¬â€œ ST (strengths-threats) Strategies
Ã¢â‚¬â€œ WT (weaknesses-threats) Strategies
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Matching Stage (2 of 3)
Ã¢â‚¬Â¢ SO Strategies
Ã¢â‚¬â€œ use a firmÃ¢â‚¬â„¢s internal strengths to take advantage
of external opportunities
Ã¢â‚¬Â¢ WO Strategies
Ã¢â‚¬â€œ aim at improving internal weaknesses by taking
advantage of external opportunities
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Matching Stage (3 of 3)
Ã¢â‚¬Â¢ ST Strategies
Ã¢â‚¬â€œ use a firm’s strengths to avoid or reduce the impact
of external threats
Ã¢â‚¬Â¢ WT Strategies
Ã¢â‚¬â€œ defensive tactics directed at reducing internal
weakness and avoiding external threats
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
SWOT Matrix (1 of 2)
1. List the firmÃ¢â‚¬â„¢s key external opportunities.
2. List the firmÃ¢â‚¬â„¢s key external threats.
3. List the firmÃ¢â‚¬â„¢s key internal strengths.
4. List the firmÃ¢â‚¬â„¢s key internal weaknesses.
5. Match internal strengths with external opportunities,
and record the resultant SO strategies.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
SWOT Matrix (2 of 2)
6. Match internal weaknesses with external opportunities,
and record the resultant WO strategies.
7. Match internal strengths with external threats, and record
the resultant ST strategies.
8. Match internal weaknesses with external threats, and
record the resultant WT strategies.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-4 The SPACE Matrix (1 of 3)
Source: Based on H. Rowe, R. Mason, and K. Dickel, Strategic Management and Business Policy: A Methodological
Approach (Reading, MA: Addison-Wesley Publishing Co. Inc., Ã‚Â© 1982), 155
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-4 The SPACE Matrix (2 of 3)
Ã¢â‚¬Â¢ Strategic Position and Action Evaluation (SPACE)
Matrix
Ã¢â‚¬â€œ four-quadrant framework indicates whether aggressive,
conservative, defensive, or competitive strategies are
most appropriate for a given organization
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-4 The SPACE Matrix (3 of 3)
Ã¢â‚¬Â¢ Two internal dimensions (financial position [FP] and
competitive position [CP])
Ã¢â‚¬Â¢ Two external dimensions (stability position [SP] and
industry position [IP])
Ã¢â‚¬Â¢ Most important determinants of an organizationÃ¢â‚¬â„¢s overall
strategic position
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 6-2 SPACE Matrix Axes (1 of 2)
Internal Strategic Position
External Strategic Position
Financial Position (FP)
Stability Position (SP)
Return on investment
Technological changes
Leverage
Rate of inflation
Liquidity
Demand variability
Working capital
Price range of competing products
Cash flow
Barriers to entry into market
Inventory turnover
Competitive pressure
Earnings per share
Ease of exit from market
Price earnings ratio
Price elasticity of demand
Blank
Risk involved in business
Example Factors That Make Up the SPACE Matrix Axes
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 6-2 SPACE Matrix Axes (2 of 2)
Internal Strategic Position
External Strategic Position
Competitive Position (CP)
Industry Position (IP)
Market share
Growth potential
Product quality
Profit potential
Product life cycle
Financial stability
Customer loyalty
Extent leveraged
Capacity utilization
Resource utilization
Technological know-how
Ease of entry into market
Control over suppliers and distributors
Productivity, capacity utilization
Source: Based on H. Rowe, R. Mason, & K. Dickel, Strategic Management and Business Policy: A
Methodological Approach (Reading, MA: Addison-Wesley Publishing Co. Inc., Ã‚Â© 1982), 155-156.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Steps to Develop a SPACE Matrix (1 of 4)
1. Select a set of variables to define financial position (FP),
competitive position (CP), stability position (SP), and
industry position (IP).
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Steps to Develop a SPACE Matrix (2 of 4)
2. Assign a numerical value ranging from +1 (worst) to +7
(best) to each of the variables that make up the FP and I
P dimensions.
Assign a numerical value ranging from Ã¢â‚¬â€œ1 (best) to Ã¢â‚¬â€œ7
(worst) to each of the variables that make up the SP and CP
dimensions.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Steps to Develop a SPACE Matrix (3 of 4)
3. Compute an average score for FP, CP, IP, and SP.
4. Plot the average scores for FP, IP, SP, and CP on the
appropriate axis.
5. Add the two scores on the x-axis and plot the resultant
point on X. Add the two scores on the y-axis and plot the
resultant point on Y. Plot the intersection of the new xy
point.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Steps to Develop a SPACE Matrix (4 of 4)
6. Draw a directional vector from the origin of the SPACE
Matrix through the new intersection point.
Ã¢â‚¬â€œ This vector reveals the type of strategies
recommended for the organization: aggressive,
competitive, defensive, or conservative
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-5 Example Strategy Profiles (1 of 2)
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-5 Example Strategy Profiles (2 of 2)
Source: Based on H. Rowe, R. Mason, and K. Dickel, Strategic Management and Business Policy: A Methodological
Approach (Reading, MA: Addison-Wesley Publishing Co. Inc., Ã‚Â© 1982), 155.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Boston Consulting Group (BCG)
Matrix
Ã¢â‚¬Â¢ BCG Matrix
Ã¢â‚¬â€œ graphically portrays differences among divisions in
terms of relative market share position and industry
growth rate
Ã¢â‚¬â€œ allows a multidivisional organization to manage its
portfolio of businesses by examining the relative
market share position and the industry growth rate
of each division relative to all other divisions in the
organization
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-7 The BCG Matrix (1 of 4)
Source: Based on the BCG Portfolio Matrix from the Product Portfolio Matrix, Ã‚Â© 1970, The Boston Consulting Group
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-7 The BCG Matrix (2 of 4)
Ã¢â‚¬Â¢ Question Marks – Quadrant I
Ã¢â‚¬â€œ Organization must decide whether to strengthen them
by pursuing an intensive strategy (market penetration,
market development, or product development) or to sell
them
Ã¢â‚¬Â¢ Stars – Quadrant II
Ã¢â‚¬â€œ represent the organizationÃ¢â‚¬â„¢s best long-run opportunities
for growth and profitability
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-7 The BCG Matrix (3 of 4)
Ã¢â‚¬Â¢ Cash Cows – Quadrant III
Ã¢â‚¬â€œ generate cash in excess of their needs
Ã¢â‚¬â€œ should be managed to maintain their strong position
for as long as possible
Ã¢â‚¬Â¢ Dogs – Quadrant IV
Ã¢â‚¬â€œ compete in a slow- or no-market-growth industry
Ã¢â‚¬â€œ businesses are often liquidated, divested, or trimmed
down through retrenchment
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-7 The BCG Matrix (4 of 4)
Ã¢â‚¬Â¢ The major benefit of the BCG Matrix is that it draws
attention to the cash flow, investment characteristics,
and needs of an organization’s various divisions.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-10 The Internal-External (IE)
Matrix (1 of 2)
Source: Based on: The IE Matrix was developed from the General Electric (GE) Business Screen Matrix. For a
description of the GE Matrix, see Michael Allen, Ã¢â‚¬Å“Diagramming GEÃ¢â‚¬â„¢s Planning for WhatÃ¢â‚¬â„¢s WATT,Ã¢â‚¬Â in R. Allio and M.
Pennington, eds., Corporate Planning: Techniques and Applications l par; New York: AMACOM, 1979.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-10 The Internal-External (IE)
Matrix (2 of 2)
Ã¢â‚¬Â¢ The IE Matrix is based on two key dimensions: the IFE
total weighted scores on the x-axis and the EFE total
weighted scores on the y-axis
Ã¢â‚¬Â¢ Three Major Regions
Ã¢â‚¬â€œ Grow and build
Ã¢â‚¬â€œ Hold and maintain
Ã¢â‚¬â€œ Harvest or divest
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-11 An Example IE Matrix
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Grand Strategy Matrix (1 of 3)
Ã¢â‚¬Â¢ Grand Strategy Matrix
Ã¢â‚¬â€œ based on two evaluative dimensions: competitive
position and market (industry) growth
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 6-13 The Grand Strategy Matrix
Source: Based on Roland Christensen, Norman Berg, and Malcolm Salter, Policy Formulation and Administration
(Homewood, IL: Richard D. Irwin, 1976), 16-18.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Grand Strategy Matrix (2 of 3)
Ã¢â‚¬Â¢ Quadrant I
Ã¢â‚¬â€œ continued concentration on current markets (market
penetration and market development) and products
(product development) is an appropriate strategy
Ã¢â‚¬Â¢ Quadrant II
Ã¢â‚¬â€œ unable to compete effectively
Ã¢â‚¬â€œ need to determine why the firm’s current approach is
ineffective and how the company can best change to
improve its competitiveness
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Grand Strategy Matrix (3 of 3)
Ã¢â‚¬Â¢ Quadrant III
Ã¢â‚¬â€œ must make some drastic changes quickly to avoid
further decline and possible liquidation
Ã¢â‚¬â€œ Extensive cost and asset reduction (retrenchment)
should be pursued first
Ã¢â‚¬Â¢ Quadrant IV
Ã¢â‚¬â€œ have characteristically high cash-flow levels and limited
internal growth needs and often can pursue related or
unrelated diversification successfully
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Quantitative Strategic Planning Matrix
(QSPM)
Ã¢â‚¬Â¢ Quantitative Strategic Planning Matrix (QSPM)
Ã¢â‚¬â€œ objectively indicates which alternative strategies are
best
Ã¢â‚¬â€œ uses input from Stage 1 analyses and matching results
from Stage 2 analyses to decide objectively among
alternative strategies
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 6-5 The Quantitative Strategic
Planning Matrix (QSPM)
Key Factors
Weight
Strategy 1
Strategy 2
Strategy 3
Key External Factors
Blank
Blank
Blank
Blank
Economy
Blank
Blank
Blank
Blank
Political/Legal/Governmental
Blank
Blank
Blank
Blank
Social/Cultural/Demographic/ Environmental
Blank
Blank
Blank
Blank
Technological
Blank
Blank
Blank
Blank
Competitive
Blank
Blank
Blank
Blank
Key Internal Factors
Blank
Blank
Blank
Blank
Management
Blank
Blank
Blank
Blank
Marketing
Blank
Blank
Blank
Blank
Finance/Accounting
Blank
Blank
Blank
Blank
Production/Operations
Blank
Blank
Blank
Blank
Research and Development
Blank
Blank
Blank
Blank
Management Information Systems
Blank
Blank
Blank
Blank
Strategic Alternatives
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Steps in a QSPM (1 of 2)
1. Make a list of the firmÃ¢â‚¬â„¢s key external opportunities and
threats and internal strengths and weaknesses in the left
column.
2. Assign weights to each key external and internal factor.
3. Examine the Stage 2 (matching) matrices, and identify
alternative strategies that the organization should
consider implementing.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Steps in a QSPM (2 of 2)
4. Determine the Attractiveness Scores (AS).
5. Compute the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness Score.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Positive Features of the QSPM
Ã¢â‚¬Â¢ Sets of strategies can be examined sequentially or
simultaneously
Ã¢â‚¬Â¢ Requires strategists to integrate pertinent external and
internal factors into the decision process
Ã¢â‚¬Â¢ Can be adapted for use by small and large for-profit and
nonprofit organizations
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Limitations of the QSPM
Ã¢â‚¬Â¢ Always requires informed judgments
Ã¢â‚¬Â¢ It is only as good as the prerequisite information and
matching analyses on which it is based
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 6-6 A QSPM for a Retail Computer
Store (1 of 3)
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 6-6 A QSPM for a Retail Computer
Store (2 of 3)
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 6-6 A QSPM for a Retail Computer
Store (3 of 3)
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Culture and Politics of Strategy Choice
Ã¢â‚¬Â¢ Strategies that require fewer cultural changes may be
more attractive because extensive changes can take
considerable time and effort
Ã¢â‚¬Â¢ Political maneuvering consumes valuable time, subverts
organizational objectives, diverts human energy, and
results in the loss of some valuable employees
Ã¢â‚¬Â¢ Political biases and personal preferences get unduly
embedded in strategy choice decisions
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Tactics to Aid Strategists
Ã¢â‚¬Â¢ Choose Methods That Afford Employee Commitment
Ã¢â‚¬Â¢ Achieve Satisfactory Results with a Popular Strategy
Ã¢â‚¬Â¢ Shift from Specific to General Issues
Ã¢â‚¬Â¢ Focus on Long-Term Issues and Concerns
Ã¢â‚¬Â¢ Involve Middle Level Managers in Decisions
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Governance Issues
Ã¢â‚¬Â¢ Board of Directors
Ã¢â‚¬â€œ a group of individuals who are elected by the
ownership of a corporation to have oversight and
guidance over management and who look out for
shareholdersÃ¢â‚¬â„¢ interests
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Board of Director Duties and Responsibilities
1. Control and oversight over management
2. Adherence to legal prescriptions
3. Consideration of stakeholders/ interests
4. Advancement of stockholdersÃ¢â‚¬â„¢ rights
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Principles of Good Governance (1 of 2)
1. No more than two directors are current or former
company executives.
2. The audit, compensation, and nominating committees are
made up solely of outside directors.
3. Each director owns a large equity stake in the company,
excluding stock options.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Principles of Good Governance (2 of 2)
4. Each director attends at least 75 percent of all meetings.
5. The board meets regularly without management present
and evaluates its own performance annually.
6. The CEO is not also the chairperson of the board.
7. There are no interlocking directorships (where a director
or CEO sits on another director’s board).
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Copyright
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Strategic Management Concepts: A
Competitive Advantage Approach
Sixteenth Edition
Chapter 5
Strategies in Action
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (1 of 2)
5.1 Identify and discuss eight characteristics of objectives and
ten benefits of having clear objectives.
5.2 Define and give an example of eleven types of strategies.
5.3 Identify and discuss the three types of Ã¢â‚¬Å“Integration
Strategies.Ã¢â‚¬Â
5.4 Give specific guidelines when market penetration, market
development, and product development are especially
effective strategies.
5.6 Explain when diversification is an effective business
strategy.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (2 of 2)
5.6 List guidelines for when retrenchment, divestiture, and
liquidation are especially effective strategies.
5.7 Identify and discuss PorterÃ¢â‚¬â„¢s five generic strategies.
5.8 Compare (a) cooperation among competitors, (b) joint
venture and partnering, and (c) merger/acquisition as key
means for achieving strategies.
5.9 Discuss tactics to facilitate strategies, such as (a) being
a first mover, (b) outsourcing, and (c) reshoring.
5.10 Explain how strategic planning differs in for-profit, notfor-profit, and small firms.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Long-Term Objectives
Ã¢â‚¬Â¢ The results expected from pursuing certain strategies
Ã¢â‚¬Â¢ 2-to-5 year timeframe
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-1 Varying Performance Measures by
Organizational Level
Organizational Level Basis for Annual Bonus or Merit
Pay
Corporate
75% based on long-term objectives
25% based on annual objectives
Division
50% based on long-term objectives
50% based on annual objectives
Function
25% based on long-term objectives
75% based on annual objectives
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-2 The Desired Characteristics of
Objectives
1. Quantitative
2. Measurable
3. Realistic
4. Understandable
5. Challenging
6. Hierarchical
7. Obtainable
8. Congruent across departments
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Nature of Long-Term Objectives
Ã¢â‚¬Â¢ Objectives
Ã¢â‚¬â€œ provide direction
Ã¢â‚¬â€œ allow synergy
Ã¢â‚¬â€œ assist in evaluation
Ã¢â‚¬â€œ establish priorities
Ã¢â‚¬â€œ reduce uncertainty
Ã¢â‚¬â€œ minimize conflicts
Ã¢â‚¬â€œ stimulate exertion
Ã¢â‚¬â€œ aid in both the allocation of resources and the design of
jobs
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Financial Versus Strategic Objectives
Ã¢â‚¬Â¢ Financial objectives include growth in revenues, growth
in earnings, higher dividends, larger profit margins, greater
return on investment, higher earnings per share, a rising
stock price, improved cash flow, and so on.
Ã¢â‚¬Â¢ Strategic objectives include a larger market share,
quicker on-time delivery than rivals, shorter design-tomarket times than rivals, lower costs than rivals, higher
product quality than rivals, wider geographic coverage than
rivals, achieving technological leadership, consistently
getting new or improved products to market ahead of
rivals, and so on.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Not Managing by Objectives
Ã¢â‚¬Â¢ Managing by Extrapolation
Ã¢â‚¬Â¢ Managing by Crisis
Ã¢â‚¬Â¢ Managing by Subjectives
Ã¢â‚¬Â¢ Managing by Hope
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 5-1 A Comprehensive StrategicManagement Model
Source: Fred R. David, Ã¢â‚¬Å“How Companies Define Their Mission,Ã¢â‚¬Â Long Range Planning 22, no. 3 (June 1988): 40. See
also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, Ã¢â‚¬Å“Balance Scorecard of DavidÃ¢â‚¬â„¢s
Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,Ã¢â‚¬Â Journal of Mathematics
and Technology, no. 4 (October 2010): 20.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Types of Strategies
Ã¢â‚¬Â¢ Most organizations simultaneously pursue a combination
of two or more strategies, but a combination strategy can
be exceptionally risky if carried too far.
Ã¢â‚¬Â¢ No organization can afford to pursue all the strategies that
might benefit the firm.
Ã¢â‚¬Â¢ Difficult decisions must be made and priorities must be
established.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-4 Alternative Strategies Defined and
Exemplified (1 of 2)
Strategy
Definition
Example
Forward Integration
Gaining ownership or increased control
over distributors or retailers
Amazon began rapid delivery
services in some U.S. cities.
Backward Integration
Seeking ownership or increased
control of a firmÃ¢â‚¬â„¢s suppliers
Starbucks purchased a coffee
farm.
Horizontal Integration
Seeking ownership or increased
control over competitors
BB&T acquired Susquehanna
Bancshares.
Market Penetration
Seeking increased market share for
present products or services in present
markets through greater marketing
efforts
Under Armour signed tennis
champion Andy Murray to a 4year, $23 million marketing deal.
Market Development
Introducing present products or
services into new geographic area
Gap opened its first five stores
in China.
Product Development
Seeking increased sales by improving
present products or
services or developing new ones
Amazon just began offering its
own line of baby diapers and
wipes.
Alternative Strategies Defined and Recent Examples Given
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-4 Alternative Strategies Defined and
Exemplified (2 of 2)
Strategy
Definition
Example
Related Diversification
Adding new but related products
or services
Facebook acquired the textmessaging firm WhatsApp for
$19 billion.
Unrelated Diversification
Adding new, unrelated products
or services
Kroger and Whole Foods
Market are cooking meals,
becoming restaurants.
Retrenchment
Regrouping through cost and
asset reduction to reverse
declining sales and profit
Staples closed 250 stores and
reduced by 50% the size of
other stores.
Divestiture
Selling a division or part of an
organization
Sears Holdings divested its
LandÃ¢â‚¬â„¢s End division to SearsÃ¢â‚¬â„¢
shareholders.
Liquidation
Selling all of a companyÃ¢â‚¬â„¢s
assets, in parts, for their
tangible worth
The Trump Taj Mahal in Atlantic
City, New Jersey, faces
liquidation.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 5-2 Levels of Strategies with Persons
Most Responsible
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Integration Strategies
Ã¢â‚¬Â¢ Forward Integration
Ã¢â‚¬â€œ involves gaining ownership or increased control over
distributors or retailers
Ã¢â‚¬Â¢ Backward Integration
Ã¢â‚¬â€œ strategy of seeking ownership or increased control of a
firm’s suppliers
Ã¢â‚¬Â¢ Horizontal Integration
Ã¢â‚¬â€œ a strategy of seeking ownership of or increased control
over a firm’s competitors
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Forward Integration Guidelines
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s present distributors are especially
expensive
Ã¢â‚¬Â¢ When the availability of quality distributors is so limited as to
offer a competitive advantage
Ã¢â‚¬Â¢ When an organization competes in an industry that is growing
Ã¢â‚¬Â¢ When an organization has both capital and human resources to
manage distributing their own products
Ã¢â‚¬Â¢ When the advantages of stable production are particularly high
Ã¢â‚¬Â¢ When present distributors or retailers have high profit margins
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Backward Integration Guidelines
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s present suppliers are especially
expensive or unreliable
Ã¢â‚¬Â¢ When the number of suppliers is small and the number of
competitors is large
Ã¢â‚¬Â¢ When the organization competes in a growing industry
Ã¢â‚¬Â¢ When an organization has both capital and human resources
Ã¢â‚¬Â¢ When the advantages of stable prices are particularly important
Ã¢â‚¬Â¢ When present suppliers have high profit margins
Ã¢â‚¬Â¢ When an organization needs to quickly acquire a needed
resource
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Horizontal Integration Guidelines
Ã¢â‚¬Â¢ When an organization can gain monopolistic
characteristics in a particular area or region without being
challenged by the federal government
Ã¢â‚¬Â¢ When an organization competes in a growing industry
Ã¢â‚¬Â¢ When increased economies of scale provide major
competitive advantages
Ã¢â‚¬Â¢ When an organization has both the capital and human
talent needed
Ã¢â‚¬Â¢ When competitors are faltering due to a lack of managerial
expertise
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Intensive Strategies
Ã¢â‚¬Â¢ Market Penetration Strategy
Ã¢â‚¬â€œ seeks to increase market share for present products or
services in present markets through greater marketing
efforts
Ã¢â‚¬Â¢ Market Development
Ã¢â‚¬â€œ involves introducing present products or services into
new geographic areas
Ã¢â‚¬Â¢ Product Development Strategy
Ã¢â‚¬â€œ seeks increased sales by improving or modifying
present products or services
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Market Penetration Guidelines
Ã¢â‚¬Â¢ When current markets are not saturated with a particular
product or service
Ã¢â‚¬Â¢ When the usage rate of present customers could be
increased significantly
Ã¢â‚¬Â¢ When the market shares of major competitors have been
declining while total industry sales have been increasing
Ã¢â‚¬Â¢ When the correlation between dollar sales and dollar
marketing expenditures historically has been high
Ã¢â‚¬Â¢ When increased economies of scale provide major
competitive advantages
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Market Development Guidelines
Ã¢â‚¬Â¢ When new channels of distribution are available that are
reliable, inexpensive, and of good quality
Ã¢â‚¬Â¢ When an organization is very successful at what it does
Ã¢â‚¬Â¢ When new untapped or unsaturated markets exist
Ã¢â‚¬Â¢ When an organization has the needed capital and human
resources to manage expanded operations
Ã¢â‚¬Â¢ When an organization has excess production capacity
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s basic industry is rapidly becoming
global in scope
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Product Development Guidelines
Ã¢â‚¬Â¢ When an organization has successful products that are in
the maturity stage of the product life cycle
Ã¢â‚¬Â¢ When an organization competes in an industry
characterized by rapid technological developments
Ã¢â‚¬Â¢ When major competitors offer better-quality products at
comparable prices
Ã¢â‚¬Â¢ When an organization competes in a high-growth industry
Ã¢â‚¬Â¢ When an organization has strong research and
development capabilities
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Diversification Strategies
Ã¢â‚¬Â¢ Related Diversification
Ã¢â‚¬â€œ value chains possess competitively valuable crossbusiness strategic fits
Ã¢â‚¬Â¢ Unrelated Diversification
Ã¢â‚¬â€œ value chains are so dissimilar that no competitively
valuable cross-business relationships exist
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Synergies of Related Diversification
Ã¢â‚¬Â¢ Transferring competitively valuable expertise,
technological know-how, or other capabilities from one
business to another
Ã¢â‚¬Â¢ Combining the related activities of separate businesses
into a single operation to achieve lower costs
Ã¢â‚¬Â¢ Exploiting common use of a known brand name
Ã¢â‚¬Â¢ Using cross-business collaboration to create strengths
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Related Diversification Guidelines
Ã¢â‚¬Â¢ When an organization competes in a no-growth or a slowgrowth industry
Ã¢â‚¬Â¢ When adding new, but related, products would significantly
enhance the sales of current products
Ã¢â‚¬Â¢ When new, but related, products could be offered at highly
competitive prices
Ã¢â‚¬Â¢ When new, but related, products have seasonal sales levels that
counterbalance an organizationÃ¢â‚¬â„¢s existing peaks and valleys
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s products are currently in the declining
stage of the productÃ¢â‚¬â„¢s life cycle
Ã¢â‚¬Â¢ When an organization has a strong management team
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Unrelated Diversification Guidelines (1 of 2)
Ã¢â‚¬Â¢ When revenues derived from an organizationÃ¢â‚¬â„¢s current products
would increase significantly by adding the new, unrelated
products
Ã¢â‚¬Â¢ When an organization competes in a highly competitive or a nogrowth industry, as indicated by low industry profit margins and
returns
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s present channels of distribution can be
used to market the new products to current customers
Ã¢â‚¬Â¢ When the new products have countercyclical sales patterns
compared to present products
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s basic industry is experiencing declining
annual sales and profits
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Unrelated Diversification Guidelines (2 of 2)
Ã¢â‚¬Â¢ When an organization has the capital and managerial
talent needed to compete successfully in a new industry
Ã¢â‚¬Â¢ When an organization has the opportunity to purchase an
unrelated business that is an attractive investment
opportunity
Ã¢â‚¬Â¢ When there exists financial synergy
Ã¢â‚¬Â¢ When existing markets for an organizationÃ¢â‚¬â„¢s present
products are saturated
Ã¢â‚¬Â¢ When antitrust action could be charged against an
organization that historically has concentrated on a single
industry
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Defensive Strategies (1 of 3)
Ã¢â‚¬Â¢ Retrenchment
Ã¢â‚¬â€œ Regroups through cost and asset reduction to reverse
declining sales and profits
Ã¢â‚¬Â¢ Divestiture
Ã¢â‚¬â€œ Selling a division or part of an organization
Ã¢â‚¬â€œ Often used to raise capital for further strategic
acquisitions or investments
Ã¢â‚¬Â¢ Liquidation
Ã¢â‚¬â€œ Selling all of a companyÃ¢â‚¬â„¢s assets, in parts, for their
tangible worth
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Defensive Strategies (2 of 3)
Ã¢â‚¬Â¢ Retrenchment
Ã¢â‚¬â€œ occurs when an organization regroups through cost
and asset reduction to reverse declining sales and
profits
Ã¢â‚¬â€œ also called a turnaround or reorganizational strategy
Ã¢â‚¬â€œ designed to fortify an organizationÃ¢â‚¬â„¢s basic distinctive
competence
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Retrenchment Guidelines
Ã¢â‚¬Â¢ When an organization has a distinctive competence but
has failed consistently to meet its goals
Ã¢â‚¬Â¢ When an organization is one of the weaker competitors in
a given industry
Ã¢â‚¬Â¢ When an organization is plagued by inefficiency, low
profitability, and poor employee morale
Ã¢â‚¬Â¢ When an organization fails to capitalize on external
opportunities and minimize external threats
Ã¢â‚¬Â¢ When an organization has grown so large so quickly that
major internal reorganization is needed
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Divestiture Guidelines
Ã¢â‚¬Â¢ When an organization has pursued a retrenchment
strategy and failed to accomplish improvements
Ã¢â‚¬Â¢ When a division needs more resources to be competitive
than the company can provide
Ã¢â‚¬Â¢ When a division is responsible for an organization’s overall
poor performance
Ã¢â‚¬Â¢ When a division is a misfit with the rest of an organization
Ã¢â‚¬Â¢ When a large amount of cash is needed quickly
Ã¢â‚¬Â¢ When government antitrust action threatens a firm
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Defensive Strategies (3 of 3)
Ã¢â‚¬Â¢ Liquidation
Ã¢â‚¬â€œ selling all of a companyÃ¢â‚¬â„¢s assets, in parts, for their
tangible worth
Ã¢â‚¬â€œ can be an emotionally difficult strategy
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Liquidation Guidelines
Ã¢â‚¬Â¢ When an organization has pursued both a retrenchment
strategy and a divestiture strategy, and neither has been
successful
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s only alternative is bankruptcy
Ã¢â‚¬Â¢ When the stockholders of a firm can minimize their losses
by selling the organizationÃ¢â‚¬â„¢s assets
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 5-3 PorterÃ¢â‚¬â„¢s Five Generic Strategies
Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors
(New York: Free Press, 1980), 35-40.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Michael Porter’s Five Generic Strategies (1 of 3)
Cost Leadership emphasizes producing standardized
products at a very low per-unit cost for consumers who are
price-sensitive
Ã¢â‚¬Â¢ Type 1
Ã¢â‚¬â€œ low-cost strategy that offers products or services to a
wide range of customers at the lowest price available
on the market
Ã¢â‚¬Â¢ Type 2
Ã¢â‚¬â€œ best-value strategy that offers products or services to
a wide range of customers at the best price-value
available on the market
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Michael Porter’s Five Generic Strategies (2 of 3)
Ã¢â‚¬Â¢ Type 3
Ã¢â‚¬â€œ Differentiation is a strategy aimed at producing
products and services considered unique industry-wide
and directed at consumers who are relatively priceinsensitive
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Michael Porter’s Five Generic Strategies (3 of 3)
Ã¢â‚¬Â¢ Type 4
Ã¢â‚¬â€œ low-cost focus strategy that offers products or
services to a niche group of customers at the lowest
price available on the market
Ã¢â‚¬Â¢ Type 5
Ã¢â‚¬â€œ best-value focus strategy that offers products or
services to a small range of customers at the best
price-value available on the market
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Means for Achieving Strategies
Ã¢â‚¬Â¢ Cooperation Among Competitors
Ã¢â‚¬Â¢ Joint Venture/Partnering
Ã¢â‚¬Â¢ Merger/Acquisition
Ã¢â‚¬Â¢ Private-Equity Acquisitions
Ã¢â‚¬Â¢ First Mover Advantages
Ã¢â‚¬Â¢ Outsourcing/Reshoring
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-5 Nine Reasons Why Many Mergers
and Acquisitions Fail
1. Integration difficulties
2. Inadequate evaluation of target
3. Large or extraordinary debt
4. Inability to achieve synergy
5. Too much diversification
6. Managers overly focused on acquisitions
7. Too large an acquisition
8. Difficult to integrate different organizational cultures
9. Reduced employee morale due to layoffs and relocations
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-6 Eleven Potential Benefits of
Merging With or Acquiring Another Firm
1. To provide improved capacity utilization
2. To make better use of the existing sales force
3. To reduce managerial staff
4. To gain economies of scale
5. To smooth out seasonal trends in sales
6. To gain access to new suppliers, distributors,
customers, products, and creditors
7. To gain new technology
8. To gain market share
9. To enter global markets
10. To gain pricing power
11. To reduce tax obligations
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-7 Five Benefits of a Firm Being the
First Mover
Secure access and commitments to rare resources.
Gain new knowledge of critical success factors and issues.
Gain market share and position in the best locations.
Establish and secure long-term relationships with customers, suppliers,
distributors, and investors.
Gain customer loyalty and commitments.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Copyright
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Strategic Management Concepts: A
Competitive Advantage Approach
Sixteenth Edition
Chapter 5
Strategies in Action
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (1 of 2)
5.1 Identify and discuss eight characteristics of objectives and
ten benefits of having clear objectives.
5.2 Define and give an example of eleven types of strategies.
5.3 Identify and discuss the three types of Ã¢â‚¬Å“Integration
Strategies.Ã¢â‚¬Â
5.4 Give specific guidelines when market penetration, market
development, and product development are especially
effective strategies.
5.6 Explain when diversification is an effective business
strategy.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives (2 of 2)
5.6 List guidelines for when retrenchment, divestiture, and
liquidation are especially effective strategies.
5.7 Identify and discuss PorterÃ¢â‚¬â„¢s five generic strategies.
5.8 Compare (a) cooperation among competitors, (b) joint
venture and partnering, and (c) merger/acquisition as key
means for achieving strategies.
5.9 Discuss tactics to facilitate strategies, such as (a) being
a first mover, (b) outsourcing, and (c) reshoring.
5.10 Explain how strategic planning differs in for-profit, notfor-profit, and small firms.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Long-Term Objectives
Ã¢â‚¬Â¢ The results expected from pursuing certain strategies
Ã¢â‚¬Â¢ 2-to-5 year timeframe
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-1 Varying Performance Measures by
Organizational Level
Organizational Level Basis for Annual Bonus or Merit
Pay
Corporate
75% based on long-term objectives
25% based on annual objectives
Division
50% based on long-term objectives
50% based on annual objectives
Function
25% based on long-term objectives
75% based on annual objectives
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-2 The Desired Characteristics of
Objectives
1. Quantitative
2. Measurable
3. Realistic
4. Understandable
5. Challenging
6. Hierarchical
7. Obtainable
8. Congruent across departments
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
The Nature of Long-Term Objectives
Ã¢â‚¬Â¢ Objectives
Ã¢â‚¬â€œ provide direction
Ã¢â‚¬â€œ allow synergy
Ã¢â‚¬â€œ assist in evaluation
Ã¢â‚¬â€œ establish priorities
Ã¢â‚¬â€œ reduce uncertainty
Ã¢â‚¬â€œ minimize conflicts
Ã¢â‚¬â€œ stimulate exertion
Ã¢â‚¬â€œ aid in both the allocation of resources and the design of
jobs
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Financial Versus Strategic Objectives
Ã¢â‚¬Â¢ Financial objectives include growth in revenues, growth
in earnings, higher dividends, larger profit margins, greater
return on investment, higher earnings per share, a rising
stock price, improved cash flow, and so on.
Ã¢â‚¬Â¢ Strategic objectives include a larger market share,
quicker on-time delivery than rivals, shorter design-tomarket times than rivals, lower costs than rivals, higher
product quality than rivals, wider geographic coverage than
rivals, achieving technological leadership, consistently
getting new or improved products to market ahead of
rivals, and so on.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Not Managing by Objectives
Ã¢â‚¬Â¢ Managing by Extrapolation
Ã¢â‚¬Â¢ Managing by Crisis
Ã¢â‚¬Â¢ Managing by Subjectives
Ã¢â‚¬Â¢ Managing by Hope
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 5-1 A Comprehensive StrategicManagement Model
Source: Fred R. David, Ã¢â‚¬Å“How Companies Define Their Mission,Ã¢â‚¬Â Long Range Planning 22, no. 3 (June 1988): 40. See
also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, Ã¢â‚¬Å“Balance Scorecard of DavidÃ¢â‚¬â„¢s
Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,Ã¢â‚¬Â Journal of Mathematics
and Technology, no. 4 (October 2010): 20.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Types of Strategies
Ã¢â‚¬Â¢ Most organizations simultaneously pursue a combination
of two or more strategies, but a combination strategy can
be exceptionally risky if carried too far.
Ã¢â‚¬Â¢ No organization can afford to pursue all the strategies that
might benefit the firm.
Ã¢â‚¬Â¢ Difficult decisions must be made and priorities must be
established.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-4 Alternative Strategies Defined and
Exemplified (1 of 2)
Strategy
Definition
Example
Forward Integration
Gaining ownership or increased control
over distributors or retailers
Amazon began rapid delivery
services in some U.S. cities.
Backward Integration
Seeking ownership or increased
control of a firmÃ¢â‚¬â„¢s suppliers
Starbucks purchased a coffee
farm.
Horizontal Integration
Seeking ownership or increased
control over competitors
BB&T acquired Susquehanna
Bancshares.
Market Penetration
Seeking increased market share for
present products or services in present
markets through greater marketing
efforts
Under Armour signed tennis
champion Andy Murray to a 4year, $23 million marketing deal.
Market Development
Introducing present products or
services into new geographic area
Gap opened its first five stores
in China.
Product Development
Seeking increased sales by improving
present products or
services or developing new ones
Amazon just began offering its
own line of baby diapers and
wipes.
Alternative Strategies Defined and Recent Examples Given
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Table 5-4 Alternative Strategies Defined and
Exemplified (2 of 2)
Strategy
Definition
Example
Related Diversification
Adding new but related products
or services
Facebook acquired the textmessaging firm WhatsApp for
$19 billion.
Unrelated Diversification
Adding new, unrelated products
or services
Kroger and Whole Foods
Market are cooking meals,
becoming restaurants.
Retrenchment
Regrouping through cost and
asset reduction to reverse
declining sales and profit
Staples closed 250 stores and
reduced by 50% the size of
other stores.
Divestiture
Selling a division or part of an
organization
Sears Holdings divested its
LandÃ¢â‚¬â„¢s End division to SearsÃ¢â‚¬â„¢
shareholders.
Liquidation
Selling all of a companyÃ¢â‚¬â„¢s
assets, in parts, for their
tangible worth
The Trump Taj Mahal in Atlantic
City, New Jersey, faces
liquidation.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 5-2 Levels of Strategies with Persons
Most Responsible
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Integration Strategies
Ã¢â‚¬Â¢ Forward Integration
Ã¢â‚¬â€œ involves gaining ownership or increased control over
distributors or retailers
Ã¢â‚¬Â¢ Backward Integration
Ã¢â‚¬â€œ strategy of seeking ownership or increased control of a
firm’s suppliers
Ã¢â‚¬Â¢ Horizontal Integration
Ã¢â‚¬â€œ a strategy of seeking ownership of or increased control
over a firm’s competitors
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Forward Integration Guidelines
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s present distributors are especially
expensive
Ã¢â‚¬Â¢ When the availability of quality distributors is so limited as to
offer a competitive advantage
Ã¢â‚¬Â¢ When an organization competes in an industry that is growing
Ã¢â‚¬Â¢ When an organization has both capital and human resources to
manage distributing their own products
Ã¢â‚¬Â¢ When the advantages of stable production are particularly high
Ã¢â‚¬Â¢ When present distributors or retailers have high profit margins
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Backward Integration Guidelines
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s present suppliers are especially
expensive or unreliable
Ã¢â‚¬Â¢ When the number of suppliers is small and the number of
competitors is large
Ã¢â‚¬Â¢ When the organization competes in a growing industry
Ã¢â‚¬Â¢ When an organization has both capital and human resources
Ã¢â‚¬Â¢ When the advantages of stable prices are particularly important
Ã¢â‚¬Â¢ When present suppliers have high profit margins
Ã¢â‚¬Â¢ When an organization needs to quickly acquire a needed
resource
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Horizontal Integration Guidelines
Ã¢â‚¬Â¢ When an organization can gain monopolistic
characteristics in a particular area or region without being
challenged by the federal government
Ã¢â‚¬Â¢ When an organization competes in a growing industry
Ã¢â‚¬Â¢ When increased economies of scale provide major
competitive advantages
Ã¢â‚¬Â¢ When an organization has both the capital and human
talent needed
Ã¢â‚¬Â¢ When competitors are faltering due to a lack of managerial
expertise
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Intensive Strategies
Ã¢â‚¬Â¢ Market Penetration Strategy
Ã¢â‚¬â€œ seeks to increase market share for present products or
services in present markets through greater marketing
efforts
Ã¢â‚¬Â¢ Market Development
Ã¢â‚¬â€œ involves introducing present products or services into
new geographic areas
Ã¢â‚¬Â¢ Product Development Strategy
Ã¢â‚¬â€œ seeks increased sales by improving or modifying
present products or services
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Market Penetration Guidelines
Ã¢â‚¬Â¢ When current markets are not saturated with a particular
product or service
Ã¢â‚¬Â¢ When the usage rate of present customers could be
increased significantly
Ã¢â‚¬Â¢ When the market shares of major competitors have been
declining while total industry sales have been increasing
Ã¢â‚¬Â¢ When the correlation between dollar sales and dollar
marketing expenditures historically has been high
Ã¢â‚¬Â¢ When increased economies of scale provide major
competitive advantages
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Market Development Guidelines
Ã¢â‚¬Â¢ When new channels of distribution are available that are
reliable, inexpensive, and of good quality
Ã¢â‚¬Â¢ When an organization is very successful at what it does
Ã¢â‚¬Â¢ When new untapped or unsaturated markets exist
Ã¢â‚¬Â¢ When an organization has the needed capital and human
resources to manage expanded operations
Ã¢â‚¬Â¢ When an organization has excess production capacity
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s basic industry is rapidly becoming
global in scope
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Product Development Guidelines
Ã¢â‚¬Â¢ When an organization has successful products that are in
the maturity stage of the product life cycle
Ã¢â‚¬Â¢ When an organization competes in an industry
characterized by rapid technological developments
Ã¢â‚¬Â¢ When major competitors offer better-quality products at
comparable prices
Ã¢â‚¬Â¢ When an organization competes in a high-growth industry
Ã¢â‚¬Â¢ When an organization has strong research and
development capabilities
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Diversification Strategies
Ã¢â‚¬Â¢ Related Diversification
Ã¢â‚¬â€œ value chains possess competitively valuable crossbusiness strategic fits
Ã¢â‚¬Â¢ Unrelated Diversification
Ã¢â‚¬â€œ value chains are so dissimilar that no competitively
valuable cross-business relationships exist
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Synergies of Related Diversification
Ã¢â‚¬Â¢ Transferring competitively valuable expertise,
technological know-how, or other capabilities from one
business to another
Ã¢â‚¬Â¢ Combining the related activities of separate businesses
into a single operation to achieve lower costs
Ã¢â‚¬Â¢ Exploiting common use of a known brand name
Ã¢â‚¬Â¢ Using cross-business collaboration to create strengths
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Related Diversification Guidelines
Ã¢â‚¬Â¢ When an organization competes in a no-growth or a slowgrowth industry
Ã¢â‚¬Â¢ When adding new, but related, products would significantly
enhance the sales of current products
Ã¢â‚¬Â¢ When new, but related, products could be offered at highly
competitive prices
Ã¢â‚¬Â¢ When new, but related, products have seasonal sales levels that
counterbalance an organizationÃ¢â‚¬â„¢s existing peaks and valleys
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s products are currently in the declining
stage of the productÃ¢â‚¬â„¢s life cycle
Ã¢â‚¬Â¢ When an organization has a strong management team
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Unrelated Diversification Guidelines (1 of 2)
Ã¢â‚¬Â¢ When revenues derived from an organizationÃ¢â‚¬â„¢s current products
would increase significantly by adding the new, unrelated
products
Ã¢â‚¬Â¢ When an organization competes in a highly competitive or a nogrowth industry, as indicated by low industry profit margins and
returns
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s present channels of distribution can be
used to market the new products to current customers
Ã¢â‚¬Â¢ When the new products have countercyclical sales patterns
compared to present products
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s basic industry is experiencing declining
annual sales and profits
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Unrelated Diversification Guidelines (2 of 2)
Ã¢â‚¬Â¢ When an organization has the capital and managerial
talent needed to compete successfully in a new industry
Ã¢â‚¬Â¢ When an organization has the opportunity to purchase an
unrelated business that is an attractive investment
opportunity
Ã¢â‚¬Â¢ When there exists financial synergy
Ã¢â‚¬Â¢ When existing markets for an organizationÃ¢â‚¬â„¢s present
products are saturated
Ã¢â‚¬Â¢ When antitrust action could be charged against an
organization that historically has concentrated on a single
industry
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Defensive Strategies (1 of 3)
Ã¢â‚¬Â¢ Retrenchment
Ã¢â‚¬â€œ Regroups through cost and asset reduction to reverse
declining sales and profits
Ã¢â‚¬Â¢ Divestiture
Ã¢â‚¬â€œ Selling a division or part of an organization
Ã¢â‚¬â€œ Often used to raise capital for further strategic
acquisitions or investments
Ã¢â‚¬Â¢ Liquidation
Ã¢â‚¬â€œ Selling all of a companyÃ¢â‚¬â„¢s assets, in parts, for their
tangible worth
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Defensive Strategies (2 of 3)
Ã¢â‚¬Â¢ Retrenchment
Ã¢â‚¬â€œ occurs when an organization regroups through cost
and asset reduction to reverse declining sales and
profits
Ã¢â‚¬â€œ also called a turnaround or reorganizational strategy
Ã¢â‚¬â€œ designed to fortify an organizationÃ¢â‚¬â„¢s basic distinctive
competence
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Retrenchment Guidelines
Ã¢â‚¬Â¢ When an organization has a distinctive competence but
has failed consistently to meet its goals
Ã¢â‚¬Â¢ When an organization is one of the weaker competitors in
a given industry
Ã¢â‚¬Â¢ When an organization is plagued by inefficiency, low
profitability, and poor employee morale
Ã¢â‚¬Â¢ When an organization fails to capitalize on external
opportunities and minimize external threats
Ã¢â‚¬Â¢ When an organization has grown so large so quickly that
major internal reorganization is needed
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Divestiture Guidelines
Ã¢â‚¬Â¢ When an organization has pursued a retrenchment
strategy and failed to accomplish improvements
Ã¢â‚¬Â¢ When a division needs more resources to be competitive
than the company can provide
Ã¢â‚¬Â¢ When a division is responsible for an organization’s overall
poor performance
Ã¢â‚¬Â¢ When a division is a misfit with the rest of an organization
Ã¢â‚¬Â¢ When a large amount of cash is needed quickly
Ã¢â‚¬Â¢ When government antitrust action threatens a firm
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Defensive Strategies (3 of 3)
Ã¢â‚¬Â¢ Liquidation
Ã¢â‚¬â€œ selling all of a companyÃ¢â‚¬â„¢s assets, in parts, for their
tangible worth
Ã¢â‚¬â€œ can be an emotionally difficult strategy
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Liquidation Guidelines
Ã¢â‚¬Â¢ When an organization has pursued both a retrenchment
strategy and a divestiture strategy, and neither has been
successful
Ã¢â‚¬Â¢ When an organizationÃ¢â‚¬â„¢s only alternative is bankruptcy
Ã¢â‚¬Â¢ When the stockholders of a firm can minimize their losses
by selling the organizationÃ¢â‚¬â„¢s assets
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
Figure 5-3 PorterÃ¢â‚¬â„¢s Five Generic Strategies
Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors
(New York: Free Press, 1980), 35-40.
Copyright Ã‚Â© 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
…
Purchase answer to see full
attachment

Wayne State University Business Essay

We offer the best custom paper writing services. We have done this question before, we can also do it for you.

Why Choose Us

How It Works

Recent Posts