Description
* The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
* Assignments submitted through email will not be accepted.
* Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.
* Students must mention question number clearly in their answer.
* Late submission will NOT be accepted.
* Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
* All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).
* Submissions without this cover page will NOT be accepted.E, [Aug 28, 2024 at 4:52 PM]
Wheelen, T. L., Hunger, J. D., Hoffman, A., & Bamford, C. (2015). Concepts in Strategic Management and Business Policy: Globalization, Innovation, and Sustainability. Prentice Hall.add more sources to this.
Strategic
Management
Chapter 1
Learning Objectives
Understand the benefits of strategic
management
Explain how globalization and environmental
sustainability influence strategic management
Understand the basic model of strategic
management and its components
Copyright © 2015 Pearson Education, Inc.
1-2
Learning Objectives
Identify some common triggering events that
act as stimuli for strategic change
Understand strategic decision-making modes
Use the strategic audit as a method of
analyzing corporate functions and activities
Copyright © 2015 Pearson Education, Inc.
1-3
The Study of Strategic Management
Strategic Management
a set of managerial decisions and actions that
determines the long-run performance of a
corporation
Copyright © 2015 Pearson Education, Inc.
1-4
The Study of Strategic Management
Strategic Management includes:
Internal and external environment scanning
Strategy formulation
Strategy implementation
Evaluation and control
Copyright © 2015 Pearson Education, Inc.
1-5
Phases of Strategic Management
Phase 1: Basic financial
planning
Phase 2: Forecast-based
planning
Phase 3: Externally oriented
strategic planning
Phase 4: Strategic
management
Copyright © 2015 Pearson Education, Inc.
1-6
Benefits of Strategic Management
The attainment of an appropriate match, or “fit,”
between an organization’s environment and its
strategy, structure and processes has positive
effects on the organization’s performance.
Strategic planning becomes increasingly
important as the environment becomes more
unstable.
Copyright © 2015 Pearson Education, Inc.
1-7
Benefits of Strategic Management
Clearer sense of strategic vision for the firm
Sharper focus on what is strategically
important
Improved understanding of a rapidly changing
environment
Copyright © 2015 Pearson Education, Inc.
1-8
Impact of Globalization
Globalization
the integrated internationalization of markets and
corporations
has changed the way modern corporations do
business
Copyright © 2015 Pearson Education, Inc.
1-9
Impact of Innovation
Innovation
describes new products, services, methods and
organizational approaches that allow the business
to achieve extraordinary returns
Innovation is the implementation of potential
innovations that truly drives businesses to be
remarkable.
Copyright © 2015 Pearson Education, Inc.
1-10
Impact of Sustainability
Sustainability
refers to the use of business practices to manage
the triple bottom line
Copyright © 2015 Pearson Education, Inc.
1-11
Impact of Sustainability
The triple bottom line involves:
1. the management of traditional profit/loss;
2. the management of the company’s social
responsibility; and
3. the management of its environmental
responsibility.
Copyright © 2015 Pearson Education, Inc.
1-12
Theories of Organizational Adaptation
Population ecology
once an organization
is successfully
established in a
particular
environmental niche,
it is unable to adapt
to changing
conditions
Institution theory
organizations can and
do adapt to changing
conditions by
imitating other
successful
organizations
Copyright © 2015 Pearson Education, Inc.
1-13
Theories of Organizational Adaptation
Strategic choice perspective
not only do organizations adapt to a changing
environment, but they also have the opportunity
and power to reshape their environment
Copyright © 2015 Pearson Education, Inc.
1-14
Theories of Organizational Adaptation
Organizational learning theory
an organization adjusts defensively to a changing
environment and uses knowledge offensively to
improve the fit between itself and its
environment
Copyright © 2015 Pearson Education, Inc.
1-15
Creating a Learning Organization
Strategic flexibility
the ability to shift from one dominant strategy to
another and requires:
• Long-term commitment to the development
and nurturing of critical resources
• Learning organization
Copyright © 2015 Pearson Education, Inc.
1-16
Creating a Learning Organization
Learning organization
an organization skilled at creating, acquiring and
transferring knowledge and at modifying its
behavior to reflect new knowledge and insights
Organizational learning is a critical component of
competitiveness in a dynamic environment.
Copyright © 2015 Pearson Education, Inc.
1-17
Creating a Learning Organization
Learning organizations are skilled at four main
activities:
Solving problems systematically
Experimenting with new approaches
Learning from their own experiences and past
history as well as from the experiences of others
Transferring knowledge quickly and efficiently
throughout the organization
Copyright © 2015 Pearson Education, Inc.
1-18
Basic Model of Strategic Management
Strategic management consists of four basic
elements:
Environmental scanning
Strategy formulation
Strategy implementation
Evaluation and control
Copyright © 2015 Pearson Education, Inc.
1-19
Basic Elements of the Strategic
Management Process
Figure 1-1
Copyright © 2015 Pearson Education, Inc.
1-20
Strategic Management Model
Figure 1-2
Copyright © 2015 Pearson Education, Inc.
1-21
Basic Model of Strategic Management
Environmental scanning
the monitoring, evaluating and disseminating of
information from the external and internal
environments to key people within the
organization
SWOT analysis
Copyright © 2015 Pearson Education, Inc.
1-22
Environmental Variables
Figure 1-3
Copyright © 2015 Pearson Education, Inc.
1-23
Basic Model of Strategic Management
Strategy formulation
process of investigation, analysis and decision
making that provides the company with the
criteria for attaining a competitive advantage
includes defining the competitive advantages of
the business (Strategy), crafting the corporate
mission, specifying achievable objectives and
setting policy guidelines.
Copyright © 2015 Pearson Education, Inc.
1-24
Basic Model of Strategic Management
Mission
the purpose or reason for the organization’s
existence
Vision
describes what the organization would like to
become
Objectives
the end results of planned activity
Copyright © 2015 Pearson Education, Inc.
1-25
Basic Model of Strategic Management
Strategy
forms a comprehensive master approach that
states how the corporation will achieve its
mission and objectives
maximizes competitive advantage and minimizes
competitive disadvantage
corporate, business, functional
Copyright © 2015 Pearson Education, Inc.
1-26
Hierarchy of Strategy
Copyright © 2015 Pearson Education, Inc.
1-27
Basic Model of Strategic Management
Policy
a broad guideline for decision making that links
the formulation of a strategy with its
implementation
Copyright © 2015 Pearson Education, Inc.
1-28
Basic Model of Strategic Management
Strategy implementation
a process by which strategies and policies are put
into action through the development of
programs, budgets and procedures
Copyright © 2015 Pearson Education, Inc.
1-29
Basic Model of Strategic Management
Evaluation and control
a process in which corporate activities and
performance results are monitored so that
actual performance can be compared with
desired performance
Copyright © 2015 Pearson Education, Inc.
1-30
Basic Model of Strategic Management
Performance
the end result of organizational activities
includes the actual outcomes of the strategic
management process
Feedback/Learning process
revise or correct decisions based on performance
Copyright © 2015 Pearson Education, Inc.
1-31
Initiation of Strategy: Triggering Events
Triggering event
something that acts as a stimulus for a change in
strategy and can include:
• New CEO
• External intervention
• Threat of change of ownership
• Performance gap
• Strategic inflection point
Copyright © 2015 Pearson Education, Inc.
1-32
Strategic Decision Making
Strategic decisions
deal with the long-term future of an entire
organization and have three characteristics:
• Rare
• Consequential
• Directive
Copyright © 2015 Pearson Education, Inc.
1-33
Three Characteristics of
Strategic Decisions
Rare
Strategic decisions are unusual and typically have
no precedent to follow.
Consequential
Strategic decisions commit substantial resources
and demand a great deal of commitment from
people at all levels.
Directive
Strategic decisions set precedents for lesser
decisions and future actions throughout an
organization
Copyright © 2015 Pearson Education, Inc.
1-34
Mintzberg’s Modes of Strategic
Decision Making
Entrepreneurial
Adaptive
Planning
Logical
incrementalism
Copyright © 2015 Pearson Education, Inc.
1-35
Strategic Decision-Making Process
1. Evaluate current performance results
2. Review corporate governance
3. Scan and assess the external environment
4. Scan and assess the internal corporate
environment
5. Analyze strategic (SWOT) factors
6. Generate, evaluate and select the best
alternative strategy
7. Implement selected strategies
8. Evaluate implemented strategies
Copyright © 2015 Pearson Education, Inc.
1-36
Strategic Decision-Making Process
Figure 1-5
Copyright © 2015 Pearson Education, Inc.
1-37
Strategic Decision-Making Process
Figure 1-5
Copyright © 2015 Pearson Education, Inc.
1-38
The Strategic Audit: Aid to Strategic
Decision Making
Strategic audit
provides a checklist of questions, by area or issue,
that enables a systematic analysis to be made of
various corporate functions and activities
Copyright © 2015 Pearson Education, Inc.
1-39
Copyright © 2015 Pearson Education, Inc.
1-40
Corporate
Governance
Chapter 2
Learning Objectives
Describe the role and responsibilities of the
board of directors in corporate governance
Understand how the composition of a board can
affect its operation
Describe the impact of the Sarbanes–Oxley Act
on corporate governance in the United States
Discuss trends in corporate governance
Explain how executive leadership is an important
part of strategic management
Copyright © 2015 Pearson Education, Inc.
2-2
Role of the Board of Directors
Corporation
a mechanism established to allow different
parties to contribute capital, expertise and labor
for their mutual benefit
The corporation is governed by the board of
directors that oversees top management with
the concurrence of the shareholders.
Copyright © 2015 Pearson Education, Inc.
2-3
Role of the Board of Directors
Corporate governance
refers to the relationship among the board of
directors, top management and shareholders in
determining the direction and performance of the
corporation
Copyright © 2015 Pearson Education, Inc.
2-4
Responsibilities of the Board
Effective Board Leadership
Strategy of the Organization
Risk vs. Initiative
Succession Planning
Sustainability
Copyright © 2015 Pearson Education, Inc.
2-5
Responsibilities of the Board
Due care
the board is required to direct the affairs of the
corporation but not to manage them
If a director or the board as a whole fails to act with
due care and, as a result, the corporation is in some
way harmed, the careless director or directors can
be held personally liable for the harm done.
Copyright © 2015 Pearson Education, Inc.
2-6
Role of the Board in
Strategic Management
Monitor developments inside and outside
the corporation
Evaluate and Influence management
proposals, decisions and actions
Initiate and Determine the corporation’s
mission and strategies
Copyright © 2015 Pearson Education, Inc.
2-7
Board of Directors’ Continuum
Copyright © 2015 Pearson Education, Inc.
2-8
Members of a Board of Directors
Inside directors
typically officers or executives employed by the
corporation
Outside directors
may be executives of other firms but are not
employees of the board’s corporation
Copyright © 2015 Pearson Education, Inc.
2-9
Members of a Board of Directors
Agency theory
states that problems arise in corporations
because the agents (top management) are not
willing to bear responsibility for their decisions
unless they own a substantial amount of stock in
the corporation
Copyright © 2015 Pearson Education, Inc.
2-10
Members of a Board of Directors
Stewardship theory
proposes that, because of their long tenure with
the corporation, insiders (senior executives) tend
to identify with the corporation and its success
Copyright © 2015 Pearson Education, Inc.
2-11
Members of a Board of Directors
Affiliated directors
not employed by the corporation, handle legal or
insurance work
Retired executive directors
used to work for the corporation, partly responsible
for past decisions affecting current strategy
Family directors
descendants of the founder and own significant
blocks of stock
Copyright © 2015 Pearson Education, Inc.
2-12
Codetermination: Should Employees
Serve on Boards?
Codetermination
the inclusion of a corporation’s workers on its
board, began only recently in the United States
Although the movement to place employees on the
boards of directors of U.S. companies shows little
likelihood of increasing, the European experience
reveals an increasing acceptance of worker
participation on corporate boards.
Copyright © 2015 Pearson Education, Inc.
2-13
Interlocking Directorates
Direct interlocking directorate
when two firms share a director or when an
executive of one firm sits on the board of a
second
Indirect interlocking directorate
when two corporations have directors who serve
on the board of a third firm
Copyright © 2015 Pearson Education, Inc.
2-14
Interlocking Directorates
Interlocking directorates
useful for gaining both inside information about
an uncertain environment and objective expertise
about potential strategies and tactics
Copyright © 2015 Pearson Education, Inc.
2-15
Nomination and Election of
Board Members
97% of U.S. boards use nominating
committees to identify potential board
members
Staggered boards
only a portion of board members stand for reelection when directors serve more than one year
terms
Copyright © 2015 Pearson Education, Inc.
2-16
Nomination and Election of
Board Members
Criteria for a good director include:
Willingness to challenge management when
necessary
Special expertise that is important to the
company
Available for outside meetings to advise
management
Expertise on global issues
Understands the firm’s key technologies and
processes
Copyright © 2015 Pearson Education, Inc.
2-17
Organization of the Board
The size of a board in the United States is
determined by the corporation’s charter and
its by- laws, in compliance with state laws.
Although some states require a minimum
number of board members, most
corporations have quite a bit of discretion in
determining board size.
Copyright © 2015 Pearson Education, Inc.
2-18
Organization of the Board
The average large, publicly held U.S. firm has
10 directors on its board
The average small, privately-held company
has four to five members.
Copyright © 2015 Pearson Education, Inc.
2-19
Organization of the Board
Lead director
consulted by the Chair/CEO regarding board
affairs and coordinates the annual evaluation of
the CEO
96% of U.S. companies that combine the
Chairman and CEO positions had a lead
director.
Copyright © 2015 Pearson Education, Inc.
2-20
Organization of the Board
The most effective boards accomplish much
of their work through committees.
Although they do not usually have legal
duties, most committees are granted full
power to act with the authority of the board
between board meetings.
Copyright © 2015 Pearson Education, Inc.
2-21
Impact of the Sarbanes–Oxley Act on
U.S. Corporate Governance
Sarbanes–Oxley Act
designed to protect shareholders from excesses
and failed oversight of boards of directors
whistleblower procedures
improved corporate financial statements
Copyright © 2015 Pearson Education, Inc.
2-22
Evaluating Governance
S&P Corporate Governance Scoring System
Ownership Structure and Influence
Financial Stakeholder Rights and Relations
Financial Transparency and Information
Disclosure
Board Structure and Processes
Copyright © 2015 Pearson Education, Inc.
2-23
Avoiding Governance Improvements
Multiple classes of stock
Public to private ownership
Controlled companies
Copyright © 2015 Pearson Education, Inc.
2-24
Trends in Corporate Governance
Boards shaping company strategy
Institutional investors active on boards
Shareholder demands that directors and top
management own significant stock
More involvement of non-affiliated outside
directors
Increased representation of women and
minorities
Copyright © 2015 Pearson Education, Inc.
2-25
Trends in Corporate Governance
Boards evaluating individual directors
Smaller boards
Splitting the Chairman and CEO positions
Shareholders may begin to nominate board
members
Society expects boards to balance profitability
with social needs of society
Copyright © 2015 Pearson Education, Inc.
2-26
The Role of Top Management
Top management responsibilities
involve getting things accomplished through and
with others in order to meet the corporate
objectives.
are multidimensional and are oriented toward the
welfare of the total organization
Copyright © 2015 Pearson Education, Inc.
2-27
Executive Leadership and
Strategic Vision
Executive leadership
the directing of activities toward the
accomplishment of corporate objectives, sets the
tone for the entire corporation
Strategic vision
description of what the company is capable of
becoming
Copyright © 2015 Pearson Education, Inc.
2-28
Executive Leadership and
Strategic Vision
Transformational leaders
provide change and movement in an organization
by providing a vision for that change
Copyright © 2015 Pearson Education, Inc.
2-29
Executive Leadership and
Strategic Vision
Characteristics of effective CEOs include:
1. The CEO articulates a strategic vision for the
corporation.
2. The CEO presents a role for others to identify
with and to follow.
3. The CEO communicates high performance
standards and also show confidence in the
followers’ abilities to meet these standards.
Copyright © 2015 Pearson Education, Inc.
2-30
Managing the
Strategic Planning Process
Strategic planning staff
charged with supporting both top management
and the business units in the strategic planning
process
Copyright © 2015 Pearson Education, Inc.
2-31
Managing the
Strategic Planning Process
Strategic planning staff responsibilities include:
1. Identify and analyze company-wide strategic
issues, and suggest corporate strategic
alternatives to top management
2. Work as facilitators with business units to
guide them through the strategic planning
process
Copyright © 2015 Pearson Education, Inc.
2-32
Copyright © 2015 Pearson Education, Inc.
2-33
Social
Responsibility
and Ethics in
Strategic
Management
Chapter 3
Learning Objectives
Compare and contrast Friedman’s traditional
view with Carroll’s contemporary view of
social responsibility
Understand the relationship between social
responsibility and corporate performance
Explain the concept of sustainability
Copyright © 2015 Pearson Education, Inc.
3-2
Learning Objectives
Conduct a stakeholder analysis
Explain why people may act unethically
Describe different views of ethics according
to the utilitarian, individual rights and justice
approaches
Copyright © 2015 Pearson Education, Inc.
3-3
Social Responsibilities of Strategic
Decision Makers
Social Responsibility
proposes that a private corporation has
responsibilities to society that extend beyond
making a profit
Copyright © 2015 Pearson Education, Inc.
3-4
Friedman’s Traditional View of
Business Responsibility
Argues against the concept of social
responsibility
Primary goal of business is profit
maximization not spending shareholder
money for the general social interest
Copyright © 2015 Pearson Education, Inc.
3-5
Carroll’s Four Responsibilities
of Business
1. Economic responsibilities
produce goods and services of value to society so
that the firm may repay its creditors and increase
the wealth of its shareholders
2. Legal responsibilities
defined by governments in laws that management
is expected to obey
Copyright © 2015 Pearson Education, Inc.
3-6
Carroll’s Four Responsibilities
of Business
3. Ethical responsibilities
follow the generally held beliefs about behavior in
a society
4. Discretionary responsibilities
purely voluntary obligations a corporation
assumes
Copyright © 2015 Pearson Education, Inc.
3-7
Responsibilities of Business
Figure 3-1
Copyright © 2015 Pearson Education, Inc.
3-8
Responsibilities of a Business Firm
Social capital
the goodwill of key stakeholders, that can be used
for competitive advantage
opens doors in local communities
enhances reputation with consumers
Copyright © 2015 Pearson Education, Inc.
3-9
Benefits of Being
Socially Responsible
May enable firm to charge premium prices
and gain brand loyalty
May help generate enduring relationships
with suppliers and distributors
Can attract outstanding employees
Can utilize the goodwill of public officials for
support in difficult times
Copyright © 2015 Pearson Education, Inc.
3-10
Characteristics of Sustainability
Environmental
Social
Economic
Copyright © 2015 Pearson Education, Inc.
3-11
Corporate Stakeholders
Stakeholders
have an interest in the business and affect or are
affected by the achievement of the firm’s
objectives
Enterprise strategy
an overarching strategy that explicitly articulates
the firm’s ethical relationship with its
stakeholders
Copyright © 2015 Pearson Education, Inc.
3-12
Stakeholder Analysis
Stakeholder analysis
the identification and evaluation of corporate
stakeholders
usually done in a three-step process
Copyright © 2015 Pearson Education, Inc.
3-13
Stakeholder Analysis
The first step in stakeholder analysis is to
identify primary stakeholders.
Primary stakeholders
have a direct connection with the corporation and
who have sufficient bargaining power to directly
affect corporate activities
include customers, employees, suppliers,
shareholders and creditors
Copyright © 2015 Pearson Education, Inc.
3-14
Stakeholder Analysis
The second step in stakeholder analysis is to
identify the secondary stakeholders.
Secondary stakeholders
have an indirect stake in the corporation but are
also affected by corporate activities
include NGOs, activists, local communities, trade
associations, competitors and governments
Copyright © 2015 Pearson Education, Inc.
3-15
Stakeholder Analysis
The third step in stakeholder analysis is to
estimate the effect on each stakeholder
group from any particular strategic decision.
Copyright © 2015 Pearson Education, Inc.
3-16
Stakeholder Input
Once stakeholder impacts have been identified,
managers should decide whether stakeholder
input should be invited into the discussion of the
strategic alternatives.
A group is more likely to accept or even help
implement a decision if it has some input into
which alternative is chosen and how it is to be
implemented.
Copyright © 2015 Pearson Education, Inc.
17
Reasons for Unethical Behavior
Unaware that behavior is questionable
Lack of standards of conduct
Different cultural norms and values
Behavior-based or relationship-based
governance systems
Different values between business people
and stakeholders
Copyright © 2015 Pearson Education, Inc.
3-18
Moral Relativism
Moral relativism
claims that morality is relative to some personal,
social or cultural standard and that there is no
method for deciding whether one decision is
better than another
Copyright © 2015 Pearson Education, Inc.
3-19
Moral Relativism
Naïve relativism
based on the belief that all moral decisions are
deeply personal and that individuals have the
right to run their own lives
Role relativism
based on the belief that social roles carry with
them certain obligations to that role
Copyright © 2015 Pearson Education, Inc.
3-20
Moral Relativism
Social group relativism
based on a belief that morality is simply a matter
of following the norms of an individual’s peer
group
Cultural relativism
based on the belief that morality is relative to a
particular culture, society or community
Copyright © 2015 Pearson Education, Inc.
3-21
Kohlberg’s Levels of Moral
Development
Preconventional level
concern for one’s self
Conventional level
considerations for society’s laws and norms
Principled level
guided by an internal code of ethics
Copyright © 2015 Pearson Education, Inc.
3-22
Encouraging Ethical Behavior
Code of Ethics
specifies how an organization expects its
employees to behave while on the job
Copyright © 2015 Pearson Education, Inc.
3-23
Encouraging Ethical Behavior
A code of ethics:
1. clarifies company expectations of employee
conduct in various situations
2. makes clear that the company expects its
people to recognize the ethical dimensions in
decisions and action
Copyright © 2015 Pearson Education, Inc.
3-24
Encouraging Ethical Behavior
Whistleblowers
employees who report illegal or unethical
behavior on the part of others
Copyright © 2015 Pearson Education, Inc.
3-25
Guidelines for Ethical Behavior
Ethics
the consensually accepted standards of behavior for
an occupation, trade or profession
Morality
one’s rules of personal behavior based on religious or
philosophical grounds
Law
the formal codes that permit or forbid certain
behaviors and may or may not enforce ethics or
morality
Copyright © 2015 Pearson Education, Inc.
3-26
Guidelines for Ethical Behavior
Utilitarian approach
proposes that actions and plans should be judged
by their consequences
Individual rights approach
proposes that human beings have certain
fundamental rights that should be respected in all
decisions
Copyright © 2015 Pearson Education, Inc.
3-27
Guidelines for Ethical Behavior
Justice approach
decisions must be equitable, fair and impartial in
the distribution of costs and benefits to
individuals or groups
Copyright © 2015 Pearson Education, Inc.
3-28
Guidelines for Ethical Behavior
Cavanagh’s questions to solve ethical problems:
1. Utility: Does it optimize the satisfactions of
the stakeholders?
2. Rights: Does it respect the rights of the
individuals involved
3. Justice: Is it consistent with the canons of
justice?
Copyright © 2015 Pearson Education, Inc.
3-29
Guidelines for Ethical Behavior
Kant’s categorical imperatives
1. Actions are ethical only if the person is
willing for the same action to be taken by
everyone who is in a similar situation.
2. Never treat another person simply as a
means but always as an end.
Copyright © 2015 Pearson Education, Inc.
3-30
Copyright © 2015 Pearson Education, Inc.
3-31
Environmental
Scanning and
Industry Analysis
Chapter 4
Learning Objectives
Recognize aspects of an organization’s environment
that can influence its long-term decisions
Identify the aspects of an organization’s environment
that are most strategically important
Conduct an industry analysis to understand the
competitive forces that influence the intensity of
rivalry within an industry
Understand how industry maturity affects industry
competitive forces
Categorize international industries based on their
pressures for coordination and local responsiveness
Copyright © 2015 Pearson Education, Inc.
4-2
Learning Objectives
Construct strategic group maps to assess the
competitive positions of firms in an industry
Identify key success factors and develop an
industry matrix
Use publicly available information to conduct
competitive intelligence
Know how to develop an industry scenario
Be able to construct an EFAS Table that
summarizes external environmental factors
Copyright © 2015 Pearson Education, Inc.
4-3
Environmental Scanning
Environmental scanning
the monitoring, evaluation, and dissemination of
information relevant to the organizational
development of strategy
Copyright © 2015 Pearson Education, Inc.
4-4
Identifying External
Environmental Variables
Natural environment
includes physical resources, wildlife and climate
that are an inherent part of existence on Earth
form an ecological system of interrelated life
Copyright © 2015 Pearson Education, Inc.
4-5
Identifying External
Environmental Variables
Societal environment
mankind’s social system that includes general
forces that do not directly touch on the short-run
activities of the organization, but that can
influence its long-term decisions
economic, technological, political-legal and
sociocultural
Copyright © 2015 Pearson Education, Inc.
4-6
Identifying External
Environmental Variables
Task environment
those elements or groups that directly affect a
corporation and, in turn, are affected by it
government, local communities, suppliers,
competitors, customers, creditors, unions, special
interest groups/trade associations
Copyright © 2015 Pearson Education, Inc.
4-7
Identifying External
Environmental Variables
Industry analysis
an in-depth examination of key factors within a
corporation’s task environment
Copyright © 2015 Pearson Education, Inc.
4-8
Scanning the Societal Environment:
STEEP Analysis
STEEP Analysis
monitoring trends in the societal and natural
environments
sociocultural, technological, economic, ecological
and political-legal forces
Copyright © 2015 Pearson Education, Inc.
4-9
Some Important Variables in the
Societal Environment
Copyright © 2015 Pearson Education, Inc.
4-10
Current U.S. Generations
Copyright © 2015 Pearson Education, Inc.
4-11
Current Sociocultural Trends
Increasing environmental awareness
Growing health consciousness
Expanding seniors market
Impact of Millennials
Copyright © 2015 Pearson Education, Inc.
4-12
Current Sociocultural Trends
Declining mass market
Changing pace and location of life
Changing household composition
Increasing diversity of workforce and markets
Copyright © 2015 Pearson Education, Inc.
4-13
Technological Breakthroughs
Portable information devices
Electronic networking
Alternative energy sources
Precision farming
Virtual personal assistants
Genetically altered organisms
Smart, mobile robots
Copyright © 2015 Pearson Education, Inc.
4-14
Categories of Risk
Regulatory
risk
Supply chain
risk
Product and
technology
risk
Litigation risk
Reputational
risk
Physical risk
Copyright © 2015 Pearson Education, Inc.
4-15
Some Important Variables in
International Societal Environments
Copyright © 2015 Pearson Education, Inc.
4-16
Scanning External Environment
Copyright © 2015 Pearson Education, Inc.
4-17
Forces Driving Industry Competition
Copyright © 2015 Pearson Education, Inc.
4-18
Threat of New Entrants
Threat of new entrants
new entrants to an industry bring new capacity, a
desire to gain market share and substantial
resources
Entry barrier
an obstruction that makes it difficult for a
company to enter an industry
Copyright © 2015 Pearson Education, Inc.
4-19
Barriers to Entry
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages due to size
Government policies
Copyright © 2015 Pearson Education, Inc.
4-20
Rivalry among Existing Firms
In most industries, corporations are mutually
dependent.
A competitive move by one firm can be
expected to have a noticeable effect on its
competitors and thus may cause retaliation.
Copyright © 2015 Pearson Education, Inc.
4-21
Rivalry among Existing Firms
Number of
competitors
Amount of
fixed costs
Rate of
industry
growth
Product or
service
characteristics
Capacity
Height of exit
barriers
Diversity of
rivals
Copyright © 2015 Pearson Education, Inc.
4-22
Threat of Substitute
Products or Services
Substitute product
a product that appears to be different but can
satisfy the same need as another product
The identification of possible substitute products
means searching for products that can perform
the same function, even though they have a
different appearance.
Copyright © 2015 Pearson Education, Inc.
4-23
The Bargaining Power of Buyers
Bargaining power of buyers
ability of buyers to force prices down, bargain for
higher quality and play competitors against each
other
Large purchases, backward integration,
alternative suppliers, low cost to change
suppliers, product represents a high percentage
of buyer’s cost, buyer earns low profits, product is
unimportant to buyer
Copyright © 2015 Pearson Education, Inc.
4-24
The Bargaining Power of Suppliers
Buyers affect an industry through their ability
to force down prices, bargain for higher
quality or more services and play competitors
against each other.
Copyright © 2015 Pearson Education, Inc.
4-25
The Bargaining Power of Suppliers
A buyer or a group of buyers is powerful if some
of the following factors hold true:
Industry is dominated by a few companies
Unique product or service
Substitutes are not readily available
Ability to forward integrate
Unimportance of product or service to the
industry
Copyright © 2015 Pearson Education, Inc.
4-26
Relative Power of Other Stakeholders
Government
Local communities
Creditors
Trade associations
Special interest groups
Unions
Shareholders
Copyright © 2015 Pearson Education, Inc.
4-27
Industry Evolution
Fragmented industry
no firm has a large market share and each firm
only serves a small piece of the total market in
competition with other firms
Consolidated industry
domination by a few large firms, each struggles to
differentiate products from its competition
Copyright © 2015 Pearson Education, Inc.
4-28
Categorizing International Industries
Multi-domestic industries
specific to each country or group of countries
Global industries
operate worldwide with multinational companies
making only small adjustments for countryspecific circumstances
Regional industries
multinational companies primarily coordinate
their activities within regions
Copyright © 2015 Pearson Education, Inc.
4-29
Continuum of
International Industries
Copyright © 2015 Pearson Education, Inc.
4-30
Strategic Groups
Strategic group
a set of business units or firms that pursue similar
strategies with similar resources
Copyright © 2015 Pearson Education, Inc.
4-31
Mapping Strategic Groups in the
U.S. Restaurant Chain Industry
Copyright © 2015 Pearson Education, Inc.
4-32
Strategic Types
Defenders
focus on improving efficiency
Prospectors
focus on product innovation and market
opportunities
Analyzers
focus on at least two different product market areas
Reactors
lack a consistent strategy-structure-culture
relationship
Copyright © 2015 Pearson Education, Inc.
4-33
Hypercompetition
Market stability is threatened by short
product life cycles, short product design
cycles, new technologies, frequent entry by
unexpected outsiders, repositioning by
incumbents and tactical redefinitions of
market boundaries as diverse industries
merge.
Copyright © 2015 Pearson Education, Inc.
4-34
Using Key Success Factors to Create
an Industry Matrix
Key success factors
variables that can significantly affect the overall
competitive positions of companies within any
particular industry
Copyright © 2015 Pearson Education, Inc.
4-35
Industry Matrix
Industry matrix
summarizes the key success factors within a
particular industry
Copyright © 2015 Pearson Education, Inc.
4-36
Competitive Intelligence
Competitive intelligence
a formal program of gathering information on a
company’s competitors
also called business intelligence
Sources of competitive intelligence:
Information brokers
Internet
Industrial espionage
Investigatory services
Copyright © 2015 Pearson Education, Inc.
4-37
Useful Forecasting Techniques
Extrapolation
Brainstorming
Expert
opinion
Delphi
technique
Statistical
modeling
Prediction
markets
Cross impact
analysis
Copyright © 2015 Pearson Education, Inc.
4-38
Synthesis of External Factors—EFAS
Copyright © 2015 Pearson Education, Inc.
4-39
Copyright © 2015 Pearson Education, Inc.
4-40
Internal
Scanning:
Organizational
Analysis
Chapter 5
Learning Objectives
Apply the resource-based view of the firm to
determine core and distinctive competencies
Use the VRIO framework and the value chain to
assess an organization’s competitive advantage
and how it can be sustained
Understand a company’s business model and
how it could be imitated
Copyright © 2015 Pearson Education, Inc.
5-2
Learning Objectives
Assess a company’s corporate culture and how it
might affect a proposed strategy
Scan functional resources to determine their fit
with a firm’s strategy
Construct an IFAS Table that summarizes internal
factors
Copyright © 2015 Pearson Education, Inc.
5-3
A Resource-Based Approach
to Organizational Analysis
Organizational analysis
concerned with identifying and developing an
organization’s resources and competencies
Copyright © 2015 Pearson Education, Inc.
5-4
Core and Distinctive Competencies
Resources
an organization’s assets and are thus the basic
building blocks of the organization
tangible, intangible
Capabilities
refer to a corporation’s ability to exploit its
resources
consist of business processes and routines that
manage the interaction among resources to turn
inputs into outputs
Copyright © 2015 Pearson Education, Inc.
5-5
Core and Distinctive Competencies
Core competency
a collection of competencies that cross divisional
boundaries, is wide-spread throughout the
corporation and is something the corporation
does exceedingly well
Distinctive competency
core competencies that are superior to those of
the competition
Copyright © 2015 Pearson Education, Inc.
5-6
VRIO Framework of Analysis
1. Value: Does it provide customer value and
competitive advantage?
2. Rareness: Do no other competitors possess
it?
3. Imitability: Is it costly for others to imitate?
4. Organization: Is the firm organized to exploit
the resource?
Copyright © 2015 Pearson Education, Inc.
5-7
Using Resources to Gain Competitive
Advantage
1. Identify and classify resources in terms of strengths
and weaknesses
2. Combine the firm’s strengths into specific
capabilities and core competencies
3. Appraise profit potential—Are there any distinctive
competencies?
4. Select the strategy that best exploits the firm’s
capabilities and competencies relative to external
opportunities
5. Identify resource gaps and invest in upgrading
weaknesses
Copyright © 2015 Pearson Education, Inc.
5-8
Access to a Distinctive Competency
Asset endowment
Acquired from someone else
Shared with another business
Built and accumulated within the company
Copyright © 2015 Pearson Education, Inc.
5-9
Access to a Distinctive Competency
Clusters
geographic concentrations of interconnected
companies and industries
Access to:
Employees
Suppliers
Specialized information
Complementary products
Copyright © 2015 Pearson Education, Inc.
5-10
Determining the Sustainability
of an Advantage
Durability
the rate at which a firm’s underlying resources,
capabilities or core competencies depreciate or
become obsolete
Imitability
the rate at which a firm’s underlying resources,
capabilities or core competencies can be
duplicated by others
Copyright © 2015 Pearson Education, Inc.
5-11
Determining the Sustainability
of an Advantage
Transparency
the speed at which other firms under the relationship
of resources and capabilities support a successful
strategy
Transferability
the ability of competitors to gather the resources and
capabilities necessary to support a competitive
challenge
Replicability
the ability of competitors to use duplicated resources
and capabilities to imitate the other firm’s success
Copyright © 2015 Pearson Education, Inc.
5-12
Determining the Sustainability
of an Advantage
Explicit knowledge
knowledge that can be easily articulated and
communicated
Tacit knowledge
knowledge that is not easily communicated
because it is deeply rooted in employee
experience or in the company’s culture
Copyright © 2015 Pearson Education, Inc.
5-13
Business Models
Business model
a company’s method for making money in the
current business environment
includes the key structural and operational
characteristics of a firm—how it earns revenue
and makes a profit
Copyright © 2015 Pearson Education, Inc.
5-14
Business Models
A business model is usually composed of five
elements:
Who it serves
What it provides
How it makes money
How it differentiates and sustains competitive
advantage
How it provides its product/service
Copyright © 2015 Pearson Education, Inc.
5-15
Business Models
Some of the many possible business models are:
Customer solutions model
Profit pyramid model
Multi-component system/installed model
Advertising model
Switchboard model
Copyright © 2015 Pearson Education, Inc.
5-16
Business Models
Some other possible business models are:
Efficiency model
Blockbuster model
Profit multiplier model
Entrepreneurial model
De Facto industry standard model
Copyright © 2015 Pearson Education, Inc.
5-17
Value-Chain Analysis
Value chain
a linked set of value-creating activities that begin
with basic raw materials coming from suppliers,
moving on to a series of value-added activities
involved in producing and marketing a product or
service and ending with distributors getting the
final goods into the hands of the ultimate consumer
Figure 5-1
Copyright © 2015 Pearson Education, Inc.
5-18
Industry Value Chain Analysis
Value chain segments include:
Upstream
Downstream
Center of gravity
the part of the chain that is most important to the
company and the point where its core
competencies lie
Copyright © 2015 Pearson Education, Inc.
5-19
Corporate Value Chain Analysis
Primary activities
Inbound logistics
Operations
Outbound logistics
Support activities
Procurement
Technology
development
Human resource
management
Firm infrastructure
Copyright © 2015 Pearson Education, Inc.
5-20
A Corporation’s Value Chain
Copyright © 2015 Pearson Education, Inc.
5-21
Corporate Value Chain Analysis
1. Examine each product line’s value chain in terms
of the various activities involved in producing
the product or service
2. Examine the linkages within each product line’s
value chain
3. Examine the potential synergies among the
value chains of different product lines or
business units
Copyright © 2015 Pearson Education, Inc.
5-22
Basic Organizational Structures
Simple
Functional
Strategic
Business
Units
Divisional
Conglomerate
Copyright © 2015 Pearson Education, Inc.
5-23
Basic Organizational Structures
Copyright © 2015 Pearson Education, Inc.
5-24
Corporate Culture:
The Company Way
Corporate culture
the collection of beliefs, expectations and values
learned and shared by a corporation’s members
and transmitted from one generation of
employees to another.
Copyright © 2015 Pearson Education, Inc.
5-25
Functions of Corporate Culture
1. Conveys a sense of identity for employees
2. Generates employee commitment
3. Adds to the stability of the organization as a
social system
4. Serves as a frame of reference for employees
to understand organizational activities and as
a guide for behavior
Copyright © 2015 Pearson Education, Inc.
5-26
Corporate Culture:
The Company Way
Cultural intensity
the degree of which members of a unit accept the
norms, values and other cultural content associated
with the unit
shows the culture’s depth
Cultural integration
the extent of which units throughout the
organization share a common culture
culture’s breadth
Copyright © 2015 Pearson Education, Inc.
5-27
Strategic Marketing Issues
Market position
refers to the selection of specific areas for
marketing concentration and can be expressed in
terms of market, product and geographic
locations
Marketing mix
the particular combination of key variables under
a corporation’s control that can be used to affect
demand and to gain competitive advantage
Copyright © 2015 Pearson Education, Inc.
5-28
Marketing Mix Variables
Copyright © 2015 Pearson Education, Inc.
5-29
Product Life Cycle
Product life cycle
a graph showing time
plotted against the
sales of a product as
it moves from
introduction through
growth and maturity
to decline
Copyright © 2015 Pearson Education, Inc.
5-30
Brand and Corporate Reputation
Brand
a name given to a company’s product which
identifies that item in the mind of the consumer
Corporate brand
a type of brand in which the company’s name
serves as the brand
Copyright © 2015 Pearson Education, Inc.
5-31
Brand and Corporate Reputation
Corporate reputation
a widely held perception of a company by the
general public
Consists of two attributes:
Stakeholders’ perceptions of quality
Corporation’s prominence in the minds of
stakeholders
Copyright © 2015 Pearson Education, Inc.
5-32
Strategic Financial Issues
Financial leverage
ratio of total debt to total assets
describes how debt is used to increase earnings
available to common shareholders
Capital budgeting
the analyzing and ranking of possible investments
in fixed assets in terms of additional outlays and
receipts that will result from each investment
Hurdle point
Copyright © 2015 Pearson Education, Inc.
5-33
Strategic Research and Development
Issues
R&D intensity
spending on R&D as a percentage of sales
revenue
principal means of gaining market share in global
competition
Technology transfer
the process of taking new technology from the
laboratory to the marketplace
Copyright © 2015 Pearson Education, Inc.
5-34
R&D Mix
Basic R&D
focuses on theoretical problems
Product R&D
concentrates on marketing and is concerned with
product or product packaging improvements
Engineering R&D
concerned with engineering, concentrating on quality
control and the development of design specifications
and improved production equipment
Copyright © 2015 Pearson Education, Inc.
5-35
Impact of Technological Discontinuity
on Strategy
Technology discontinuity
when a new technology cannot be used to
enhance current technology, but substitutes for
the technology to yield better performance
Copyright © 2015 Pearson Education, Inc.
5-36
Strategic Operations Issues
Intermittent systems
item is normally processed sequentially, but the
work and sequence of the process vary
Continuous systems
work is laid out in lines on which products can be
continuously assembled or processed
Operating leverage
impact of a specific change in sales volume on net
operation income
Copyright © 2015 Pearson Education, Inc.
5-37
Experience Curve
Experience curve
unit production costs decline by some fixed
percentage each time the total accumulated
volume of production units doubles
Copyright © 2015 Pearson Education, Inc.
5-38
Increasing Use of Teams
Autonomous (self-managed)
a group of people work together without a supervisor
to plan, coordinate and evaluate their work
Cross-functional work teams
various disciplines are involved in a project from the
beginning
Concurrent engineering
specialists work side-by-side and compare notes
constantly to design cost-effective products with
features customers want
Copyright © 2015 Pearson Education, Inc.
5-39
Increasing Use of Teams
Virtual teams
groups of geographically and/or organizationally
dispersed co-workers that are assembled using a
combination of telecommunications and
information technologies to accomplish an
organizational task
Copyright © 2015 Pearson Education, Inc.
5-40
Trends Driving Virtual Teams
Flatter organizational structures
Turbulent environments
Increased employee autonomy
Higher knowledge requirements
Increased globalization
Copyright © 2015 Pearson Education, Inc.
5-41
Quality of Work Life and
Human Diversity
Quality of work life includes improvements in:
Introducing participative problem solving
Restructuring work
Introducing innovative reward systems
Improving the work environment
Copyright © 2015 Pearson Education, Inc.
5-42
Quality of Work Life and
Human Diversity
Human diversity
the mix in the workplace of people from different
races, cultures and backgrounds
provides a competitive advantage
Copyright © 2015 Pearson Education, Inc.
5-43
Strategic Information
Systems/Technology Issues
Information systems/technology contributions
to performance:
Automation of back office processes
Automation of individual tasks
Enhancement of key business functions
Development of a competitive advantage
Copyright © 2015 Pearson Education, Inc.
5-44
Strategic Information
Systems/Technology Issues
Web 2.0
the use of wikis, blogs, RSS (Really Simple
Syndication), social networks (e.g., LinkedIn and
Facebook), podcasts and mash-ups through
company Web sites to forge tighter links with
customers and suppliers and to engage
employees more successfully
Copyright © 2015 Pearson Education, Inc.
5-45
Strategic Information
Systems/Technology Issues
Supply chain management
the forming of networks for sourcing raw
materials, manufacturing products or creating
services, storing and distributing the goods and
delivering them to customers and consumers
Copyright © 2015 Pearson Education, Inc.
5-46
Internal Factor Analysis Summary
Copyright © 2015 Pearson Education, Inc.
5-47
Copyright © 2015 Pearson Education, Inc.
5-48
Strategy
Formulation:
Situation
Analysis and
Business
Strategy
Chapter 6
Learning Objectives
Organize environmental and organizational
information using a SWOT approach and the SFAS
matrix
Understand the competitive and cooperative
strategies available to corporations
List the competitive tactics that would accompany
competitive strategies
Identify the basic types of strategic alliances
Copyright © 2015 Pearson Education, Inc.
6-2
Situational Analysis:
SWOT Approach
Strategy formulation
concerned with developing a corporation’s
mission, objectives, strategies and policies
Situation analysis
the process of finding a strategic fit between
external opportunities and internal strengths
while working around external and internal
weaknesses
Copyright © 2015 Pearson Education, Inc.
6-3
Situational Analysis:
SWOT Approach
SWOT
acronym used to describe the particular
Strengths, Weaknesses, Opportunities and
Threats that are potential strategic factors for a
specific company
Strategy = opportunity/capacity
Opportunity has no real value unless a company
has the capacity to take advantage of that
opportunity.
Copyright © 2015 Pearson Education, Inc.
6-4
Criticisms of SWOT analysis
It is simply the opinions of those filling out the
boxes.
Virtually everything that is a strength is also a
weakness.
Virtually everything that is an opportunity is also
a threat.
Adding layers of effort does not improve the
validity of the list.
Copyright © 2015 Pearson Education, Inc.
6-5
Criticisms of SWOT analysis
It uses a single point in time approach.
There is no tie to the view from the customer.
There is no validated evaluation approach.
Copyright © 2015 Pearson Education, Inc.
6-6
Generating a Strategic Factors Analysis
Summary (SFAS) Matrix
SFAS (Strategic Factors Analysis Summary)
Matrix
summarizes an organization’s strategic factors by
combining the external factors from the EFAS
Table with the internal factors from the IFAS Table
Copyright © 2015 Pearson Education, Inc.
6-7
Strategic Factor Analysis Summary
(SFAS) Matrix
Copyright © 2015 Pearson Education, Inc.
6-8
Finding a Propitious Niche
Propitious niche
so well-suited to the firm’s internal and external
environment that other corporations are not
likely to challenge or dislodge it
Strategic window
a unique market opportunity that is available for a
particular time
Copyright © 2015 Pearson Education, Inc.
6-9
Review of Mission and Objectives
A re-examination of an organization’s current
mission and objectives must be made before
alternative strategies can be generated and
evaluated.
Performance problems can derive from
inappropriate (narrow or too broad) mission
statements and objectives.
Copyright © 2015 Pearson Education, Inc.
6-10
Business Strategies
Business strategy
focuses on improving the competitive position of
a company’s or business unit’s products or
services within the specific industry or market
segment that the company or business unit serves
competitive, cooperative
Copyright © 2015 Pearson Education, Inc.
6-11
Porter’s Competitive Strategies
Competitive strategy raises the following
questions:
Should we compete on the basis of lower cost
(and thus price), or should we differentiate our
products or services on some basis other than
cost, such as quality or service?
Copyright © 2015 Pearson Education, Inc.
6-12
Porter’s Competitive Strategies
Should we compete head to head with our
major competitors for the biggest but most
sought-after share of the market, or should
we focus on a niche in which we can satisfy a
less sought-after but also profitable segment
of the market?
Copyright © 2015 Pearson Education, Inc.
6-13
Porter’s Competitive Strategies
Cost leadership
ability of a company or a business unit to design,
produce and market a comparable product more
efficiently than its competitors
Differentiation
ability of a company to provide unique and
superior value to the buyer in terms of product
quality, special features or after-sale service
Copyright © 2015 Pearson Education, Inc.
6-14
Porter’s Competitive Strategies
Focus
ability of a company to provide unique and
superior value to a particular buyer group,
segment of the market line or geographic market
Copyright © 2015 Pearson Education, Inc.
6-15
Porter’s Competitive Strategies
Porter proposed that a firm’s competitive
advantage in an industry is determined by its
competitive scope—that is, the breadth of
the company’s or business unit’s target
market.
Copyright © 2015 Pearson Education, Inc.
6-16
Porter’s Competitive Strategies
Cost leadership
lower-cost competitive strategy that aims at the
broad mass market and requires “aggressive
construction of efficient-scale facilities, vigorous
pursuit of cost reductions from experience, tight cost
and overhead control, avoidance of marginal
customer accounts, and cost minimization”
Provides a defense against rivals
Provides a barrier to entry
Generates increased market share
Copyright © 2015 Pearson Education, Inc.
6-17
Porter’s Competitive Strategies
Differentiation
involves the creation of a product or service that
is perceived throughout the industry as unique.
can be associated with design, brand image,
technology, features, dealer network or customer
service
Lowers customers sensitivity to price
Increases buyer loyalty
Can generate higher profits
Copyright © 2015 Pearson Education, Inc.
6-18
Porter’s Competitive Strategies
Cost focus
low-cost competitive strategy that focuses on a
particular buyer group or geographic market and
attempts to serve only this niche to the exclusion
of others
Differentiation focus
concentrates on a particular buyer group, product
line segment or geographic market to serve the
needs of a narrow strategic market more
effectively than its competitors
Copyright © 2015 Pearson Education, Inc.
6-19
Risks in Competitive Strategies
A company following a differentiation
strategy must ensure that the higher price it
charges for its higher quality is not too far
above the price of the competition,
otherwise customers will not see the extra
quality as worth the extra cost.
Copyright © 2015 Pearson Education, Inc.
6-20
Issues in Competitive Strategies
Stuck in the middle
when a company has no competitive advantage
and is doomed to below-average performance
Copyright © 2015 Pearson Education, Inc.
6-21
Issues in Competitive Strategies
Successful entrepreneurial ventures follow
focus strategies.
They differentiate their product or service
from those of others by focusing on customer
wants in a segment of the market, thereby
achieving a dominant share of that part of
the market.
Copyright © 2015 Pearson Education, Inc.
6-22
Industry Structure and
Competitive Strategy
Fragmented industry
many small- and medium-size companies
compete for relatively small shares of the total
market
Products are typically in early stages of product
life cycle
Focus strategies are used
Copyright © 2015 Pearson Education, Inc.
6-23
Industry Structure and
Competitive Strategy
Consolidated industry
domination by a few large companies
premium on a firm’s ability to achieve cost
leadership
Copyright © 2015 Pearson Education, Inc.
6-24
Industry Structure and
Competitive Strategy
Strategic rollup
developed in the mid-1990s as an efficient way to
quickly consolidate a fragmented industry
1. They involve large numbers of firms.
2. The acquired firms are typically owner operated.
3. The objective is to reinvent an entire industry.
Copyright © 2015 Pearson Education, Inc.
6-25
Hyper-Competition and Competitive
Advantage Sustainability
Competitive advantage in a hypercompetitive market is characterized by a
continuous series of multiple short-term
initiatives that replace current products with
new products before competitors can do so.
Copyright © 2015 Pearson Education, Inc.
6-26
Hyper-Competition and Competitive
Advantage Sustainability
Sustained competitive advantage is
increasingly a matter not of a single
advantage maintained over time, but more a
matter of sequencing advantages over time.
Copyright © 2015 Pearson Education, Inc.
6-27
Cooperative Strategies
Cooperative strategies
used to gain a competitive advantage within an
industry by working with other firms
collusion, strategic alliances
Copyright © 2015 Pearson Education, Inc.
6-28
Cooperative Strategies
Collusion
the active cooperation of firms within an industry
to reduce output and raise prices to avoid
economic law of supply and demand
Copyright © 2015 Pearson Education, Inc.
6-29
Cooperative Strategies
Strategic alliances
a long-term cooperative arrangement between
two or more independent firms or business units
that engage in business activities for mutual
economic gain
Figure 6-2
Copyright © 2015 Pearson Education, Inc.
6-30
Reasons to Form an Alliance
Obtain or learn new capabilities
Obtain access to specific markets
Reduce financial risk
Reduce political risk
Copyright © 2015 Pearson Education, Inc.
6-31
Types of Alliances
Mutual service consortium
partnership of similar companies in similar
industries that pool their resources to gain a
benefit that is too expensive to develop alone,
such as access to advanced technology
Copyright © 2015 Pearson Education, Inc.
6-32
Types of Alliances
Joint venture
cooperative business activity, formed by two or
more separate organizations for strategic
purposes, that creates an independent business
entity and allocates ownership, operational
responsibilities and financial risks and rewards to
each member, while preserving their separate
identity/autonomy
Copyright © 2015 Pearson Education, Inc.
6-33
Types of Alliances
Licensing arrangement
agreement in which the licensing firm grants
rights to another firm in another country or
market to produce and/or sell a product
Copyright © 2015 Pearson Education, Inc.
6-34
Types of Alliances
Value-chain partnership
a strong and close alliance in which one company
or unit forms a long-term arrangement with a key
supplier or distributor for mutual advantage
Copyright © 2015 Pearson Education, Inc.
6-35
Strategic Alliance Success Factors
Copyright © 2015 Pearson Education, Inc.
6-36
Copyright © 2015 Pearson Education, Inc.
6-37
Strategy
Formulation:
Corporate
Strategy
Chapter 7
Learning Objectives
Understand the three aspects of corporate strategy
Apply the directional strategies of growth, stability
and retrenchment
Understand the differences between vertical and
horizontal growth as well as concentric and
conglomerate diversification
Identify strategic options to enter a foreign country
Apply portfolio analysis to guide decisions in
companies with multiple products and businesses
Develop a parenting strategy for a multiple-business
corporation
Copyright © 2015 Pearson Education, Inc.
7-2
Corporate Strategy
Corporate strategy
the choice of direction of the firm as a whole and
the management of its business or product
portfolio and concerns
Copyright © 2015 Pearson Education, Inc.
7-3
Corporate Strategy
Directional strategy
the firm’s overall orientation toward growth,
stability or retrenchment
Portfolio analysis
industries or markets in which the firm competes
through its products and business units
Copyright © 2015 Pearson Education, Inc.
7-4
Corporate Strategy
Parenting strategy
the manner in which management coordinates
activities and transfers resources and cultivates
capabilities among product lines and business
units
Copyright © 2015 Pearson Education, Inc.
7-5
Corporate Directional Strategies
Figure 7-1
Copyright © 2015 Pearson Education, Inc.
7-6
Directional Strategy
Growth strategies
expand the company’s activities
Stability strategies
make no change to the company’s current
activities
Retrenchment strategies
reduce the company’s level of activities
Copyright © 2015 Pearson Education, Inc.
7-7
Growth Strategies
Merger
a transaction involving two or more corporations
in which stock is exchanged but in which only one
corporation survives
Acquisition
100% purchase of another company
Copyright © 2015 Pearson Education, Inc.
7-8
Concentration Strategies
Vertical growth
achieved by taking over a function previously
provided by a supplier or distributor
Copyright © 2015 Pearson Education, Inc.
7-9
Concentration Strategies
Vertical integration
the degree to which a firm operates vertically in
multiple locations on an industry’s value chain
from extracting raw materials to manufacturing to
retailing
Copyright © 2015 Pearson Education, Inc.
7-10
Vertical Integration
Backward integration Forward integration
assuming a function
previously provided
by a supplier
assuming a function
previously provided
by a distributor
Copyright © 2015 Pearson Education, Inc.
7-11
Vertical Integration
Transaction cost economies
vertical integration is more efficient than
contracting for goods and services in the
marketplace when the transaction costs of buying
on the open market become too great
Copyright © 2015 Pearson Education, Inc.
7-12
Vertical Integration Continuum
Copyright © 2015 Pearson Education, Inc.
7-13
Vertical Integration
Full integration
a firm internally makes 100% of its key supplies
and completely controls its distributors
Taper integration
a firm internally produces less than half of its own
requirements and buys the rest from outside
suppliers
Copyright © 2015 Pearson Education, Inc.
7-14
Vertical Integration
Quasi-integration
a company does not make any of its key supplies
but purchases most of its requirements from
outside suppliers that are under its partial control
Long-term contracts
agreements between two firms to provide
agreed-upon goods and services to each other for
a specific period of time
Copyright © 2015 Pearson Education, Inc.
7-15
Concentration Strategies
Horizontal growth
expansion of operations into other geographic
locations and/or increasing the range of products
and services offered to current markets
Horizontal integration
the degree to which a firm operates in multiple
geographic locations at the same point on an
industry’s value chain
Copyright © 2015 Pearson Education, Inc.
7-16
International Entry Options for
Horizontal Growth
Exporting
Licensing
Franchising
Joint Venture
Acquisitions
Green-Field
Development
Production
Sharing
Turn-Key
Operations
BOT Concept
Management
Contracts
Copyright © 2015 Pearson Education, Inc.
7-17
Diversification Strategies
Concentric (Related) diversification
growth into a related industry when a firm has a
strong competitive position but attractiveness is
low.
Synergy
the concept that two businesses will generate
more profits together than they could separately.
Copyright © 2015 Pearson Education, Inc.
7-18
Diversification Strategies
Conglomerate (Unrelated) diversification
diversifying into an industry unrelated to its
current one
Management realizes that the current industry is
unattractive.
Firm lacks outstanding abilities or skills that it could
easily transfer to related products or services in
other industries.
Copyright © 2015 Pearson Education, Inc.
7-19
Controversies in
Directional Strategies
Is vertical growth better than horizontal
growth?
Is concentration better than diversification?
Is concentric diversification better than
conglomerate diversification?
Copyright © 2015 Pearson Education, Inc.
7-20
Stability Strategies
Pause/Proceed with caution strategy
an opportunity to rest before continuing a growth or
retrenchment strategy
No-change strategy
decision to do nothing new—a choice to continue
current operations and policies for the foreseeable
future
Profit strategies
decision to do nothing new in a worsening situation
but instead to act as though the company’s problems
are only temporary
Copyright © 2015 Pearson Education, Inc.
7-21
Retrenchment Strategies
Retrenchment strategies
used when the firm has a weak competitive
position in some or all of its product lines from
poor performance
Copyright © 2015 Pearson Education, Inc.
7-22
Retrenchment Strategies
Turnaround strategy
emphasizes the improvement of operational
efficiency when the corporation’s problems are
pervasive but not critical
Contraction
effort to quickly “stop the bleeding” across the board
but in size and costs
Consolidation
stabilization of the new leaner corporation
Copyright © 2015 Pearson Education, Inc.
7-23
Retrenchment Strategies
Captive company strategy
company gives up independence in exchange for
security
Sell-out strategy
management can still obtain a good price for its
shareholders and the employees can keep their
jobs by selling the company to another firm
Divestment
sale of a division with low growth potential
Copyright © 2015 Pearson Education, Inc.
7-24
Retrenchment Strategies
Bankruptcy
company gives up management of the firm to the
courts in return for some settlement of the
corporation’s obligations
Liquidation
management terminates the firm
Copyright © 2015 Pearson Education, Inc.
7-25
Portfolio Analysis
Portfolio analysis
management views its product lines and business
units as a series of investments from which it
expects a profitable return
Copyright © 2015 Pearson Education, Inc.
7-26
BCG Growth—Share Matrix
Figure 7-3
Copyright © 2015 Pearson Education, Inc.
7-27
BCG Matrix
Question marks
new products with the potential for success but
need a lot of cash for development
Stars
market leaders that are typically at or nearing the
peak of their product life cycle and are able to
generate enough cash to maintain their high
share of the market and usually contribute to the
company’s profits
Copyright © 2015 Pearson Education, Inc.
7-28
BCG Matrix
Cash cows
products that bring in far more money than is
needed to maintain their market share
Dogs
products with low market share and do not have
the potential to bring in much cash
Copyright © 2015 Pearson Education, Inc.
7-29
BCG Matrix—Limitations
Use of highs and lows to form categories is too
simplistic.
Link between market share and profitability is
questionable.
Growth rate is only one aspect of industry
attractiveness.
Product lines or business units are considered
only in relation to one competitor.
Market share is only one aspect of overall
competitive position.
Copyright © 2015 Pearson Education, Inc.
7-30
Advantages and Limitations of
Portfolio Analysis
Advantages
Encourages top management to evaluate each of
the corporation’s businesses individually and to set
objectives and allocate resources for each
Stimulates the use of externally oriented data to
supplement management’s judgment
Raises the issue of cash flow availability to use in
expansion and growth
Copyright © 2015 Pearson Education, Inc.
7-31
Advantages and Limitations of
Portfolio Analysis
Limitations
Defining product/market segments is difficult
Suggest the use of standard strategies that can miss
opportunities or be impractical
Value-laden terms such as cash cow and dog can
lead to self-fulfilling prophecies
Lack of clarity on what makes an industry attractive
or where a product is in its life cycle
Copyright © 2015 Pearson Education, Inc.
7-32
Tasks Necessary for Managing a
Strategic Alliance Portfolio
1. Developing and implementing a portfolio
strategy for each business unit and a
corporate policy for managing all the
alliances of the entire company
2. Monitoring the alliance portfolio in terms of
implementing business units’ strategies and
corporate strategy and policies
Copyright © 2015 Pearson Education, Inc.
7-33
Tasks Necessary for Managing a
Strategic Alliance Portfolio
3. Coordinating the portfolio to obtain synergies
and avoid conflicts among alliances
4. Establishing an alliance management system
to support other tasks of multi-alliance
management
Copyright © 2015 Pearson Education, Inc.
7-34
Corporate Parenting
Corporate parenting
views a corporation in terms of resources and
capabilities that can be used to build business
unit value as well as generate synergies across
business units
Copyright © 2015 Pearson Education, Inc.
7-35
Corporate Parenting
Generates corporate strategy by focusing on
the core competencies of the parent
corporation and the value created from the
relationship between the parent and its
businesses
Copyright © 2015 Pearson Education, Inc.
7-36
Developing a Corporate
Parenting Strategy
1. Examine each business unit in terms of its
strategic factors
2. Examine each business unit in terms of areas
in which performance can be improved
3. Analyze how well the parent corporation fits
with the business unit
Copyright © 2015 Pearson Education, Inc.
7-37
Horizontal Strategy and
Multipoint Competition
Horizontal strategy
cuts across business unit boundaries to build
synergy across business units and to improve
competitive position in one of more business
units
Copyright © 2015 Pearson Education, Inc.
7-38
Horizontal Strategy and
Multipoint Competition
Multipoint competition
large multi-business corporations compete
against other large multi-business firms in a
number of markets
Copyright © 2015 Pearson Education, Inc.
7-39
Copyright © 2015 Pearson Education, Inc.
7-40
Strategy
Formulation:
Functional
Strategy
and Strategic
Choice
Chapter 8
Learning Objectives
Identify a variety of functional strategies that can be
used to achieve organizational goals and objectives
Understand what activities and functions are
appropriate to outsource in order to gain or
strengthen competitive advantage
Recognize strategies to avoid and understand why
they are dangerous
Construct corporate scenarios to evaluate strategic
options
Develop policies to implement corporate, business
and functional strategies
Copyright © 2015 Pearson Education, Inc.
8-2
Functional Strategy
Functional strategy
the approach a functional area takes to achieve
corporate and business unit objectives and
strategies by maximizing resource productivity
Copyright © 2015 Pearson Education, Inc.
8-3
Marketing Strategy
Marketing strategy
deals with pricing, selling and distributing a
product
Copyright © 2015 Pearson Education, Inc.
8-4
Marketing Strategy
Market development strategy
a company or business unit can (1) capture a
larger share of an existing market for current
products through market saturation and market
penetration or (2) develop new uses and/or
markets for current products.
Copyright © 2015 Pearson Education, Inc.
8-5
Marketing Strategy
Product development strategy
a company or unit can (1) develop new products
for existing markets or (2) develop new products
for new markets.
Copyright © 2015 Pearson Education, Inc.
8-6
Marketing Strategy
Brand extension
using a successful brand name to market other
products
Push strategy
trade promotions to gain or hold shelf space in
retail outlets
Pull strategy
advertising to “pull” products through the
distribution channels
Copyright © 2015 Pearson Education, Inc.
8-7
Marketing Strategy
Skim pricing
offers the opportunity to “skim the cream” from
the top of the demand curve with a high price
while the product is novel and competitors are
few.
Copyright © 2015 Pearson Education, Inc.
8-8
Marketing Strategy
Penetration pricing
attempts to hasten market development and
offers the pioneer the opportunity to use the
experience curve to gain market share with low
price and then dominate the industry
Copyright © 2015 Pearson Education, Inc.
8-9
Financial Strategy
Financial Strategy
examines the financial implications of corporateand business-level strategic options and identifies
the best financial course of action
The management of dividends and stock price is
an important part of a corporation’s financial
strategy.
Copyright © 2015 Pearson Education, Inc.
8-10
Financial Strategy
Leveraged buyout
company is acquired in a transaction financed
largely by debt usually obtained from a third party
Reverse stock split
investor’s shares are split in half for the same
total amount of money
Copyright © 2015 Pearson Education, Inc.
8-11
Research and
Development Strategy
Research and Development Strategy
deals with product and process innovation and
improvement
also deals with the appropriate mix of different
types of R&D and question of how new
technology should be accessed
Copyright © 2015 Pearson Education, Inc.
8-12
Research and
Development Strategy
Technological leader
pioneering an innovation
Technological follower
imitating the products of competitors
Open innovation
firm uses alliances and connections with
corporate, government, academic labs and
consumers to develop new products and
processes
Copyright © 2015 Pearson Education, Inc.
8-13
Operations Strategy
Operations Strategy
determines how and where a product or service is
to be manufactured, the level of vertical
integration in the production process, the
deployment of physical resources and
relationships with suppliers
Copyright © 2015 Pearson Education, Inc.
8-14
Purchasing Strategy
Purchasing Strategy
deals with obtaining raw materials, parts and
supplies needed to perform the operations
function
multiple, sole and parallel sourcing
Copyright © 2015 Pearson Education, Inc.
8-15
Purchasing Strategy
Multiple sourcing
the purchasing company orders a particular part
from several vendors
Sole sourcing
relies on only one supplier for a particular part
Parallel sourcing
two suppliers are the sole suppliers of two different
parts, but they are also backup suppliers for each
other’s parts
Copyright © 2015 Pearson Education, Inc.
8-16
Logistics Strategy
Logistics Strategy
deals with the flow of products into and out of
the manufacturing process
Trends include:
Centralization
Outsourcing
Internet
Copyright © 2015 Pearson Education, Inc.
8-17
HRM Strategy
HRM strategy
addresses the issue of whether a company or
business unit should hire a large number of lowskilled employees who receive low pay, perform
repetitive jobs and will most likely quit after a
short time (the fast-food restaurant strategy) or
hire skilled employees who receive relatively high
pay and are cross-trained to participate in selfmanaging work teams
Copyright © 2015 Pearson Education, Inc.
8-18
Information Technology
Follow-the-sun management
project team members living in one country can
pass their work to team members in another
country in which the work day is just beginning.
Copyright © 2015 Pearson Education, Inc.
8-19
The Sourcing Decision:
Location of Functions
Outsourcing
purchasing from someone else a product or
service that had been previously provided
internally
the reverse of vertical integration
Offshoring
the outsourcing of an activity or a function to a
wholly owned company or an independent
provider in another country.
Copyright © 2015 Pearson Education, Inc.
8-20
Disadvantages of Outsourcing
Customer complaints
Locked in to long-term contracts
Lack of ability to learn new skills and develop
new core competencies
Lack of cost savings
Poor product quality
Copyright © 2015 Pearson Education, Inc.
8-21
Errors in Outsourcing to Avoid
Outsourcing the wrong activities
Selecting the wrong vendor
Writing a poor contracts
Overlooking personnel issues
Lack of control
Overlooking hidden costs
Lack of an exit strategy
Copyright © 2015 Pearson Education, Inc.
8-22
Proposed Outsourcing Matrix
Figure 8-1
Copyright © 2015 Pearson Education, Inc.
8-23
Strategies to Avoid
Follow the
leader
Hit another
home run
Do
everything
Arms race
Losing hand
Copyright © 2015 Pearson Education, Inc.
8-24
Strategic Choice: Selecting the
Best Strategy
Corporate scenarios
pro forma (estimated future) balance sheets and
income statements that forecast the effect each
alternative strategy and its various programs will
likely have on division and corporate return on
investment
Copyright © 2015 Pearson Education, Inc.
8-25
Corporate Scenario Steps
1. Use industry scenarios to develop
assumptions about the task environment
2. Develop common-size financial statements
for prior years
3. Construct detailed pro forma financial
statements for each strategic alternative
Copyright © 2015 Pearson Education, Inc.
8-26
Scenario Box for Use in Generating
Financial Pro Forma Statements
Copyright © 2015 Pearson Education, Inc.
8-27
Management’s Attitude
Toward Risk
Risk
composed not only of the probability that the
strategy will be effective but also of the amount
of assets the corporation must allocate to that
strategy and the length of time the assets will be
unavailable for other uses
Copyright © 2015 Pearson Education, Inc.
8-28
Management’s Attitude
Toward Risk
Real-options approach
when the future is highly uncertain, it pays to
have a broad range of options open
Net present value
calculates the value of a project by predicting its
payouts, adjusting them for risk and subtracting
the amount invested
Copyright © 2015 Pearson Education, Inc.
8-29
Stakeholder Priority Matrix
Figure 8-2
Copyright © 2015 Pearson Education, Inc.
8-30
Questions to Assess
Stakeholder Concerns
1. How will this decision affect each stakeholder?
2. How much of what stakeholders want are they
likely to get under the alternative?
3. What are the stakeholders likely to do if they
don’t get what they want?
4. What is the probability that they will do it?
Copyright © 2015 Pearson Education, Inc.
8-31
Pressures from Stakeholders
Political strategy
plan to bring stakeholders into agreement with a
corporation’s actions
constituency building, political action committee
contributions, advocacy advertising, lobbying and
coalition building
Copyright © 2015 Pearson Education, Inc.
8-32
Pressures from the
Corporate Culture
If there is little fit, management must decide if it
should:
Take a chance on ignoring the culture.
Manage around the culture and change the
implementation plan.
Try to change the culture to fit the strategy.
Change the strategy to fit the culture.
Copyright © 2015 Pearson Education, Inc.
8-33
Process of Strategic Choice
Strategic choice
the evaluation of alternative strategies and
selection of the best alternative
Failure almost always stems from the actions of
the decision maker, not from bad luck or
situational limitations.
Copyright © 2015 Pearson Education, Inc.
8-34
Avoiding the Consensus Trap
Devil’s advocate
assigned to identify potential pitfalls and
problems with a proposed alternative strategy in
a formal presentation
may be an individual or a group
Dialectical inquiry
requires that two proposals using different
assumptions be generated for each alternative
strategy under consideration
Copyright © 2015 Pearson Education, Inc.
8-35
Process of Strategic Choice
Criteria for evaluating alternatives includes:
Mutual exclusivity
Success
Completeness
Internal Consistency
Copyright © 2015 Pearson Education, Inc.
8-36
Developing Policies
When crafted correctly, an effective policy
accomplishes three things:
It forces trade-offs between competing resource
demands.
It tests the strategic soundness of a particular
action.
It sets clear boundaries within which employees
must operate, while granting them the freedom
to experiment within those constraints.
Copyright © 2015 Pearson Education, Inc.
8-37
Copyright © 2015 Pearson Education, Inc.
8-38
Strategy
Implementation:
Organizing for
Action
Chapter 9
Learning Objectives
Develop programs, budgets and procedures to
implement strategic change
Understand the importance of achieving synergy
during strategy implementation
List the stages of corporate development and the
structure that characterizes each stage
Identify the blocks to changing from one stage to
another
Copyright © 2015 Pearson Education, Inc.
9-2
Learning Objectives
Construct matrix and network structures to
support flexible and nimble organizational
strategies
Decide when and if programs such as
reengineering, Six Sigma and job redesign are
appropriate methods of strategy implementation
Understand the centralization versus
decentralization issue in multinational
corporations
Copyright © 2015 Pearson Education, Inc.
9-3
Strategy Implementation
Strategy implementation
the sum total of all activities and choices required
for the execution of a strategic plan
Who are the people to carry out the strategic
plan?
What must be done to align company operations
in the intended direction?
How is everyone going to work together to do
what is needed?
Copyright © 2015 Pearson Education, Inc.
9-4
Common Strategy
Implementation Problems
1. Took more time than planned
2. Unanticipated major problems
3. Ineffective coordination
4. Competing activities and crises created distractions
5. Employees with insufficient capabilities
6. Lower-level employees were inadequately trained
7. Uncontrollable external environmental factors
8. Poor departmental leadership and direction
9. Inadequately defined implementation tasks and
activities
10.Inefficient information system to monitor activities
Copyright © 2015 Pearson Education, Inc.
9-5
Developing Programs, Budgets
and Procedures
Program
a collection of tactics where a tactic is the
individual action taken by the organization as an
element of the effort to accomplish a plan
The purpose of a program or a tactic is to make a
strategy action-oriented.
Copyright © 2015 Pearson Education, Inc.
9-6
Timing Tactics: When to Compete
Timing tactic
deals with when a company implements a strategy
First mover
first company to manufacture and sell a new product
or service
Late movers
may be able to imitate the technological advances of
others, keep risks down by waiting until a new
technological standard or market is established and
take advantage of the first mover’s natural inclination
to ignore market segments.
Copyright © 2015 Pearson Education, Inc.
9-7
Market Location Tactics:
Where to Compete
Market location tactic
deals with where a company implements a strategy.
Offensive tactic
usually takes place in an established competitor’s
market location
Defensive tactic
usually takes place in the firm’s own current market
position as a defense against possible attack by a rival
Copyright © 2015 Pearson Education, Inc.
9-8
Offensive Tactics
Frontal
assault
Flanking
maneuver
Encirclement
Bypass
attack
Guerilla
warfare
Copyright © 2015 Pearson Education, Inc.
9-9
Defensive Tactics
Raise structural barriers
Increase expected retaliation
Lower the inducement for attack
Copyright © 2015 Pearson Education, Inc.
9-10
Developing Programs, Budgets
and Procedures
Planning a budget is the last real check a
corporation has on the feasibility of its
selected strategy.
Procedures
detail the various activities that must be carried
out to complete a corporation’s programs
Standard operating procedures
Copyright © 2015 Pearson Education, Inc.
9-11
Achieving Synergy
Synergy
exists for a divisional corporation if the return on
investment is greater than what the return would
be if each division were an independent business
Copyright © 2015 Pearson Education, Inc.
9-12
Forms of Synergy
Shared know-how
Coordinated strategies
Shared tangible resources
Economies of scale or scope
Pooled negotiating power
New business creation
Copyright © 2015 Pearson Education, Inc.
9-13
Structure Follows Strategy
Structure Follows Strategy
changes in corporate strategy lead to changes in
organizational structure
1. New strategy is created
2. New administrative problems emerge
3. Economic performance declines
4. New appropriate structure is invented
5. Profit returns to its previous level
Copyright © 2015 Pearson Education, Inc.
9-14
Factors Differentiating
Stage I, II and III Companies
Copyright © 2015 Pearson Education, Inc.
9-15
Stages of Corporate Development
I. Simple Structure
Flexible and dynamic
II. Functional Structure
Entrepreneur is replaced by a team of managers
III. Divisional Structure
Management of diverse product lines in numerous
industries
Decentralized decision making
IV. Beyond SBU’s
Matrix
Network
Copyright © 2015 Pearson Education, Inc.
9-16
Blocks to Changing Stages
Internal
Lack of resources
Lack of ability
Refusal of top management to delegate
External
Economic conditions
Labor shortages
Lack of market growth
Copyright © 2015 Pearson Education, Inc.
9-17
Blocks to Changing Stages
(Entrepreneurs)
Loyalty to comrades
Task oriented
Single-mindedness
Working in isolation
Copyright © 2015 Pearson Education, Inc.
9-18
Organizational Life Cycle
Organizational life cycle
describes how organizations grow, develop and
decline
Copyright © 2015 Pearson Education, Inc.
9-19
Advanced Types of
Organizational Structures
Matrix structures
functional and product forms are combined
simultaneously at the same level of the
organization
Copyright © 2015 Pearson Education, Inc.
9-20
Matrix Structure
Figure 9-1
Copyright © 2015 Pearson Education, Inc.
9-21
Advanced Types of
Organizational Structures
Conditions for matrix structures include:
Ideas need to be cross-fertilized across
projects or products
Scarcity of resources
Abilities to process information and to make
decisions needs to be improved
Copyright © 2015 Pearson Education, Inc.
9-22
Advanced Types of
Organizational Structures
Phases of matrix structure development
Temporary cross-functional task forces
Product/brand management
Mature matrix
Copyright © 2015 Pearson Education, Inc.
9-23
Advanced Types of
Organizational Structures
Network structure
virtual elimination of in-house business functions
Virtual organization
composed of series of project groups or
collaborations linked by constantly changing
nonhierarchical, cobweb-like electronic networks
Copyright © 2015 Pearson Education, Inc.
9-24
Network Structure
Figure 9-1
Copyright © 2015 Pearson Education, Inc.
9-25
Cellular/Modular Organization: A New
Type of Structure?
Cellular/Modular structure
composed of cells (self-managing teams,
autonomous business units, etc.) which can
operate alone but which can interact with other
cells to produce a more potent and competent
business mechanism
Beginning to appear in firms that are focused on
rapid product and service innovation
Copyright © 2015 Pearson Education, Inc.
9-26
Reengineering and
Strategy Implementation
Reengineering
the radical redesign of business processes to
achieve major gains in cost, service or time
effective program to implement a turnaround
strategy
Copyright © 2015 Pearson Education, Inc.
9-27
Principles for Reengineering
Organize around outcomes, not tasks
Have those who use the output of the
process perform the process
Subsume information-processing work into
real work that produces information
Treat geographically-dispersed resources as
though they were centralized
Copyright © 2015 Pearson Education, Inc.
9-28
Principles for Reengineering
Link parallel activities instead of integrating
their results
Put the decision point where the work is
performed and build control into the process.
Capture information once and at the source
Copyright © 2015 Pearson Education, Inc.
9-29
Six Sigma
Six Sigma
analytical method for achieving near perfect
results on a production line
emphasis is on reducing product variance in order
to boost quality and efficiency
Lean Six Sigma
includes the removal of unnecessary steps in any
process and fixing those that remain
Copyright © 2015 Pearson Education, Inc.
9-30
Process of Six Sigma
1. Define a process where results are poorer than
average
2. Measure the process to determine current
performance
3. Analyze the information to pinpoint where things
are going wrong
4. Improve the process and eliminate the error
5. Establish controls to prevent future defects from
occurring
Copyright © 2015 Pearson Education, Inc.
9-31
Designing Jobs to
Implement Strategy
Job design
the study of individual tasks in an attempt to make
them more relevant to the company and to the
employees
Job enlargement
combining tasks to give a worker more of the same
type of duties to perform
Job rotation
moving workers through several jobs to increase
variety
Copyright © 2015 Pearson Education, Inc.
9-32
Designing Jobs to
Implement Strategy
Job characteristics
using task characteristics to improve employee
motivation
Job enrichment
altering the jobs by giving the worker more
autonomy and control over activities
Copyright © 2015 Pearson Education, Inc.
9-33
International Issues in
Strategy Implementation
Multinational corporation (MNC)
a highly developed international company with a
deep involvement throughout the world, plus a
worldwide perspective in its management and
decision making
Copyright © 2015 Pearson Education, Inc.
9-34
Drivers for Strategic Fit among Alliance
Partners
Partners must agree on values and vision
Alliance must be derived from business,
corporate and functional strategy
Alliance must be important to partners,
especially top management
Partners must be mutually dependent for
achieving objectives
Copyright © 2015 Pearson Education, Inc.
9-35
Stages of International Development
Stage 1: Domestic company
Stage 2: Domestic company with export division
Stage 3: Primarily domestic company with
international division
Stage 4: Multinational corporation with
multidomestic emphasis
Stage 5: Multinational corporation with global
emphasis
Copyright © 2015 Pearson Education, Inc.
9-36
Centralization versus Decentralization
Product group structure
enables the company to introduce and manage a
similar line of products around the world
enables the corporation to centralize decision
making along product lines and to reduce costs
Geographic area structure
allows the company to tailor products to regional
differences and to achieve regional coordination
Copyright © 2015 Pearson Education, Inc.
9-37
Geographic Area Structure
for an MNC
Figure 9-2
Copyright © 2015 Pearson Education, Inc.
9-38
Copyright © 2015 Pearson Education, Inc.
9-39
Strategy
Implementation:
Staffing and
Directing
Chapter 10
Learning Objectives
Understand the link between strategy and staffing
decisions
Match the appropriate manager to the strategy
Understand how to implement an effective downsizing
program
Discuss important issues in effectively staffing and
directing international expansion
Assess and manage the corporate culture’s fit with a
new strategy
Formulate effective action plans when MBO and TQM
are determined to be appropriate methods of strategy
implementation
Copyright © 2015 Pearson Education, Inc.
10-2
Integration Managers
Prepare a competitive profile of the company in
terms of its strengths and weaknesses
Draft a profile of what the ideal combined
company should look like
Develop action plans to close the gap between
actual and ideal
Establish training programs to unite the
combined company and make it more
competitive
Copyright © 2015 Pearson Education, Inc.
10-3
Staffing
To be a successful integration manager, a
person should have:
Deep knowledge of the acquiring company
Flexible management style
Ability to work in cross-functional teams
Willingness to work independently
Sufficient emotional and cultural intelligence to
work in a diverse environment
Copyright © 2015 Pearson Education, Inc.
10-4
Staffing Follows Strategy
One way to implement a company’s business
strategy, such as overall low cost, is through
training and development.
Executive characteristics influence strategic
outcomes for a corporation.
Copyright © 2015 Pearson Education, Inc.
10-5
Matching the Manager
to the Strategy
Executive type
executives with a particular mix of skills and
experiences
paired with a specific corporate strategy
Copyright © 2015 Pearson Education, Inc.
10-6
Executive Types
Dynamic
industry
expert
Analytical
portfolio
manager
Turnaround
specialist
Cautious
profit planner
Professional
liquidator
Copyright © 2015 Pearson Education, Inc.
10-7
Selection and Management
Development
Executive succession
process of replacing a key top manager
Succession planning
identifying candidates below the top layer of
management
measuring internal candidates against external
candidates
providing financial incentives
Copyright © 2015 Pearson Education, Inc.
10-8
Identifying Abilities and Potential
Performance appraisal systems identify good
performers with promotion potential.
Assessment centers evaluate a person’s
suitability for an advanced position.
Job rotation ensures employees are gaining a
mix of experience to prepare them for future
responsibilities.
Copyright © 2015 Pearson Education, Inc.
10-9
Problems in Retrenchment
Downsizing
the planned elimination of positions or jobs
also called “rightsizing” or “resizing”
Can damage the learning capacity of an
organization
Creativity drops significantly and it becomes very
difficult to keep high performers from leaving
the company
Copyright © 2015 Pearson Education, Inc.
10-10
Guidelines for
Successful Downsizing
Eliminate unnecessary work instead of making
across the board cuts
Contract out work that others can do cheaper
Plan for long-run efficiencies
Communicate the reasons for actions
Invest in the remaining employees
Develop value added jobs to balance out job
elimination
Copyright © 2015 Pearson Education, Inc.
10-11
International Issues in Staffing
Companies that do a good job of managing
foreign assignments follow three general
practices:
When making international assignments, they focus
on transferring knowledge and developing global
leadership.
They make foreign assignments to people whose
technical skills are matched or exceeded by their
cross-cultural abilities.
Copyright © 2015 Pearson Education, Inc.
10-12
International Issues in Staffing
They end foreign assignments with a
deliberate repatriation process, with career
guidance and jobs where the employees can
apply what they learned in their assignments.
Copyright © 2015 Pearson Education, Inc.
10-13
International Issues in Staffing
Stealth expatriates
managers that are either cross-border commuters
(especially in the EU) or the accidental expatriate
who goes on many business trips or temporary
assignments due to offshoring and/or
international joint ventures
Copyright © 2015 Pearson Education, Inc.
10-14
Leading
Implementation
involves leading and coaching people to use their
abilities and skills most effectively and efficiently
to achieve organizational objectives
Without direction, people tend to do their work
according to their personal view of what tasks
should be done, how and in what order.
Copyright © 2015 Pearson Education, Inc.
10-15
Managing Corporate Culture
Strong cultures are resistant to change.
Optimal culture supports mission and strategies.
Management must evaluate what a particular
change in strategy means to the corporate
culture, assess whether a change in culture is
needed and decide whether an attempt to
change the culture is worth the likely costs.
Copyright © 2015 Pearson Education, Inc.
10-16
Assessing Strategy—Culture
Compa…
Purchase answer to see full
attachment
