Management Question

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment 1
Strategic Management (MGT 401)
Due Date: 05/10/2024 @ 23:59
Course Name: Strategic Management
Student’s Name:
Course Code: MGT 401
Student’s ID Number:
Semester: First
CRN:
Academic Year:2024-25-1st
For Instructor’s Use only
Instructor’s Name: Lujain Miralam
Students’ Grade:
Marks Obtained/Out of 10
Level of Marks: High/Middle/Low
General Instructions – PLEASE READ THEM CAREFULLY
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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.
Learning Outcomes:
CLO1- Recognize the basic concepts and terminology used in Strategic Management.
CLO2-Describe the different issues related to environmental scanning, strategy formulation, and
strategy implementation in diversified organizations
CLO5-Demonstrate how executive leadership is an important part of strategic management .
Assignment Question(s): (2.5 marks for each question)
1. Why is strategic management important for a corporation’s competitive advantage?
2. How does strategic management typically evolve in a corporation? Give examples
3. Why does a corporation need a board of directors? What is the relationship between
corporate governance and social responsibility? Give examples from the actual
market.
4. Choose any corporation from the Saudi market and discuss the forces driving its
industry competition (review chapter 4-slide 18).
Notes:
– Your answers MUST include at least four scholarly peer-reviewed references, using a proper
referencing style (APA). Remember that these scholarly references can be found in the Saudi
Digital Library (SDL).
– Make sure to support your statements with logic and argument, citing all sources referenced.
Answers
1. Answer-
2. Answer-
Basic Concepts of
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
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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
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The Study of Strategic Management
Strategic Management
 a set of managerial decisions and actions that
determines the long-run performance of a
corporation
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The Study of Strategic Management
Strategic Management includes:
Internal and external environment scanning
Strategy formulation
Strategy implementation
Evaluation and control
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Phases of Strategic Management
Phase 1: Basic financial
planning
Phase 2: Forecast-based
planning
Phase 3: Externally oriented
strategic planning
Phase 4: Strategic
management
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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.
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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
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Impact of Globalization
Globalization
 the integrated internationalization of markets and
corporations
 has changed the way modern corporations do
business
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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.
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Impact of Sustainability
Sustainability
 refers to the use of business practices to manage
the triple bottom line
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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.
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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
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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
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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
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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
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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.
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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
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Basic Model of Strategic Management
Strategic management consists of four basic
elements:
Environmental scanning
Strategy formulation
Strategy implementation
Evaluation and control
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Basic Elements of the Strategic
Management Process
Figure 1-1
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Strategic Management Model
Figure 1-2
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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
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Environmental Variables
Figure 1-3
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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.
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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
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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
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Hierarchy of Strategy
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Basic Model of Strategic Management
Policy
 a broad guideline for decision making that links
the formulation of a strategy with its
implementation
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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
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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
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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
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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
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Strategic Decision Making
Strategic decisions
 deal with the long-term future of an entire
organization and have three characteristics:
• Rare
• Consequential
• Directive
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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
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Mintzberg’s Modes of Strategic
Decision Making
Entrepreneurial
Adaptive
Planning
Logical
incrementalism
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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
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Strategic Decision-Making Process
Figure 1-5
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Strategic Decision-Making Process
Figure 1-5
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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
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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
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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.
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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
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Responsibilities of the Board
Effective Board Leadership
Strategy of the Organization
Risk vs. Initiative
Succession Planning
Sustainability
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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.
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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
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Board of Directors’ Continuum
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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
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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
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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
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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
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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.
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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
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Interlocking Directorates
Interlocking directorates
 useful for gaining both inside information about
an uncertain environment and objective expertise
about potential strategies and tactics
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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
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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
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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.
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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.
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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.
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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.
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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
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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
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Avoiding Governance Improvements
Multiple classes of stock
Public to private ownership
Controlled companies
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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
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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
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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
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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
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Executive Leadership and
Strategic Vision
Transformational leaders
 provide change and movement in an organization
by providing a vision for that change
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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.
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Managing the
Strategic Planning Process
Strategic planning staff
 charged with supporting both top management
and the business units in the strategic planning
process
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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
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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
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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
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Social Responsibilities of Strategic
Decision Makers
Social Responsibility
 proposes that a private corporation has
responsibilities to society that extend beyond
making a profit
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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
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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
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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
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Responsibilities of Business
Figure 3-1
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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
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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
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Characteristics of Sustainability
Environmental
Social
Economic
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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
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Stakeholder Analysis
Stakeholder analysis
 the identification and evaluation of corporate
stakeholders
 usually done in a three-step process
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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
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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
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Stakeholder Analysis
The third step in stakeholder analysis is to
estimate the effect on each stakeholder
group from any particular strategic decision.
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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.
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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
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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
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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
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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
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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
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Encouraging Ethical Behavior
Code of Ethics
 specifies how an organization expects its
employees to behave while on the job
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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
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Encouraging Ethical Behavior
Whistleblowers
 employees who report illegal or unethical
behavior on the part of others
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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
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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
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Guidelines for Ethical Behavior
Justice approach
 decisions must be equitable, fair and impartial in
the distribution of costs and benefits to
individuals or groups
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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?
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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.
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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
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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
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Environmental Scanning
Environmental scanning
 the monitoring, evaluation, and dissemination of
information relevant to the organizational
development of strategy
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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
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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
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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
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Identifying External
Environmental Variables
Industry analysis
 an in-depth examination of key factors within a
corporation’s task environment
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Scanning the Societal Environment:
STEEP Analysis
STEEP Analysis
 monitoring trends in the societal and natural
environments
 sociocultural, technological, economic, ecological
and political-legal forces
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Some Important Variables in the
Societal Environment
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4-10
Current U.S. Generations
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Current Sociocultural Trends
Increasing environmental awareness
Growing health consciousness
Expanding seniors market
Impact of Millennials
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Current Sociocultural Trends
Declining mass market
Changing pace and location of life
Changing household composition
Increasing diversity of workforce and markets
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Technological Breakthroughs
Portable information devices
Electronic networking
Alternative energy sources
Precision farming
Virtual personal assistants
Genetically altered organisms
Smart, mobile robots
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4-14
Categories of Risk
Regulatory
risk
Supply chain
risk
Product and
technology
risk
Litigation risk
Reputational
risk
Physical risk
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Some Important Variables in
International Societal Environments
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4-16
Scanning External Environment
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4-17
Forces Driving Industry Competition
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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
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Barriers to Entry
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages due to size
Government policies
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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.
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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
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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.
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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
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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.
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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
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Relative Power of Other Stakeholders
Government
Local communities
Creditors
Trade associations
Special interest groups
Unions
Shareholders
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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
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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
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Continuum of
International Industries
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Strategic Groups
Strategic group
 a set of business units or firms that pursue similar
strategies with similar resources
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Mapping Strategic Groups in the
U.S. Restaurant Chain Industry
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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
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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.
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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
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Industry Matrix
Industry matrix
 summarizes the key success factors within a
particular industry
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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
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Useful Forecasting Techniques
Extrapolation
Brainstorming
Expert
opinion
Delphi
technique
Statistical
modeling
Prediction
markets
Cross impact
analysis
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Synthesis of External Factors—EFAS
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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
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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
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A Resource-Based Approach
to Organizational Analysis
Organizational analysis
 concerned with identifying and developing an
organization’s resources and competencies
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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
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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
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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?
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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
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Access to a Distinctive Competency
Asset endowment
Acquired from someone else
Shared with another business
Built and accumulated within the company
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Access to a Distinctive Competency
Clusters
 geographic concentrations of interconnected
companies and industries
Access to:
 Employees
 Suppliers
 Specialized information
 Complementary products
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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
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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
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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
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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
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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
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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
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Business Models
Some other possible business models are:
 Efficiency model
 Blockbuster model
 Profit multiplier model
 Entrepreneurial model
 De Facto industry standard model
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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
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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
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Corporate Value Chain Analysis
Primary activities
 Inbound logistics
 Operations
 Outbound logistics
Support activities
Procurement
Technology
development
Human resource
management
Firm infrastructure
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A Corporation’s Value Chain
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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
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Basic Organizational Structures
Simple
Functional
Strategic
Business
Units
Divisional
Conglomerate
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Basic Organizational Structures
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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.
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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
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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
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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
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Marketing Mix Variables
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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
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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
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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
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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
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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
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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
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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
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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
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Experience Curve
Experience curve
 unit production costs decline by some fixed
percentage each time the total accumulated
volume of production units doubles
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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
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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
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Trends Driving Virtual Teams
Flatter organizational structures
Turbulent environments
Increased employee autonomy
Higher knowledge requirements
Increased globalization
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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
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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
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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
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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
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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
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Internal Factor Analysis Summary
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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
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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
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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.
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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.
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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.
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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
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Strategic Factor Analysis Summary
(SFAS) Matrix
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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
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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.
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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
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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?
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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?
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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
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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
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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.
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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
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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
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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
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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.
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6-20
Issues in Competitive Strategies
Stuck in the middle
 when a company has no competitive advantage
and is doomed to below-average performance
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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7-8
Concentration Strategies
Vertical growth
 achieved by taking over a function previously
provided by a supplier or distributor
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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
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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
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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
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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.
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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?
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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
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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
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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
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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
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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
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9-12
Forms of Synergy
Shared know-how
Coordinated strategies
Shared tangible resources
Economies of scale or scope
Pooled negotiating power
New business creation
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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
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9-14
Factors Differentiating
Stage I, II and III Companies
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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
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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
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9-17
Blocks to Changing Stages
(Entrepreneurs)
Loyalty to comrades
Task oriented
Single-mindedness
Working in isolation
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9-18
Organizational Life Cycle
Organizational life cycle
 describes how organizations grow, develop and
decline
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9-19
Advanced Types of
Organizational Structures
Matrix structures
 functional and product forms are combined
simultaneously at the same level of the
organization
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9-20
Matrix Structure
Figure 9-1
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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
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Advanced Types of
Organizational Structures
Phases of matrix structure development
Temporary cross-functional task forces
Product/brand management
Mature matrix
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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
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9-24
Network Structure
Figure 9-1
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Geographic Area Structure
for an MNC
Figure 9-2
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9-38
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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
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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
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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
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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.
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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
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10-6
Executive Types
Dynamic
industry
expert
Analytical
portfolio
manager
Turnaround
specialist
Cautious
profit planner
Professional
liquidator
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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
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10-8
Identifying Abilities and Potential
Performance appraisal systems identify good
performers with promotion potential.
Assessment centers evaluate a person’s
suit…
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