BUSINESS POLICY

MIDTERM EXAM REVIEWER

LESSON 1
THE STRATEGIC MANAGEMENT PROCESS
Strategic Management includes all the decisions and actions set by the managers and provides a
gauge on the performance of a particular organization.
The Strategic Management Process: Components

 Situation Analysis
 Strategy Formulation
 Strategy Implementation
 Strategy Evaluation

SITUATON ANALYSIS
• Includes environmental scanning
Environmental Scanning
– a process of collecting, scrutinizing and providing information for strategic purposes.
– It helps in analyzing the internal and external factors influencing an organization. After
executing the environmental analysis process, management should evaluate it on a
continuous basis and strive to improve it.
– Internal - Employee interactions, Management
– External – Customers, Suppliers, Creditors, Competitors
• Provides necessary information to formulate the company’s vision and mission statements.
The Three Critical Phases

 Strategy Formulation
 Strategy Implementation
 Strategy Evaluation
The Strategic Management Process

STRATEGY FORMULATION
Also called Strategic Planning
• Involves development of company strategies
 • Strategy formulation is the process of deciding the best course of action for accomplishing
organizational objectives and hence achieving organizational purpose. After conducting
environmental scanning, managers formulate corporate, business and functional strategies.
Step 1: Define the Current Business
• Mission
– Spells out who the company is, what it does, and where it’s headed.
- Patagonia: Build the best product, cause no unnecessary harm, use business to inspire and
implement solutions to the environmental crisis.
- Starbucks: To be the best premier purveyor of the finest coffee in the world, while
maintaining our uncompromising principles as we grow.
- Mary Kay, Inc.: To enrich women’s lives.
• Vision
– A general statement of its intended direction that evokes emotional feelings in
organization members
Step 2: Perform External and Internal Audits
• Methodically analyzing the external and internal situations.
• The strategic plan should provide a direction for the firm that makes sense, in terms of the
external opportunities and threats the firm faces and the internal strengths and weaknesses it
possesses.
Step 3: Formulate New Business and Mission Statements
– What should our new business be?
– In terms of what products will it sell?
– Where will it sell them?; and
– How will its products or services differ from its competitors’?
Step 4: Translate the Mission into Strategic Goals
• To guide managerial action, it needs goals in terms of things like building shareholder value,
maintaining superior rates of return, building a strong balance sheet, and balancing the business
by customer, product, and geography.
Step 5: Formulate Strategies to Achieve the Strategic Goals
• The strategies bridge where the company is now, with where it wants to be tomorrow. The best
strategies are concise enough for the manager to express in an easily communicated phrase that
resonates with employees.
- Strategy Formulation: Competitive Advantage
Competitive Advantage. An advantage that a firm has over its competitors, allowing it to
generate greater sales or margins and/or retain more customers than its competition.
 Core Competency

• A special strength that gives an organization a competitive advantage.

• It can be found in special knowledge or expertise, superior technologies, or unique distribution
systems, among many other possibilities.
STRATEGY IMPLEMENTATION
Strategy versus Tactics
TACTICS are immediate measures in face of an enemy.
STRATEGY concerns something done out of sight of an enemy.
Step 6: Implement the Strategies
– Translating the strategies into actions and results—by actually hiring (or firing) people,
building (or closing) plants, and adding (or eliminating) products and product lines.
– Involves drawing on and applying all the management functions: planning, organizing,
staffing, leading, and controlling.
– Involves development of procedures, programs and activities to put the strategies into
practice.
– Time to determine strategies to be implemented first.
– Strategy Implementation implies making the strategy work as intended or putting the
organization’s chosen strategy into action.
– Strategy implementation includes designing the organization’s structure, distributing
resources, developing decision making process, and managing human resources.
STRATEGY EVALUATION
• Strategies don’t always succeed. For example, Procter & Gamble announced it was selling its
remaining food businesses—Jif, Crisco, and Folger’s coffee—because management wants to
concentrate on household and cosmetics products.
Step 7: Evaluate Performance
– Appraising internal and external factors that are the root of present strategies;
– Measuring performance; and
– Taking remedial or corrective actions.
• Strategic control
– The process of assessing progress toward strategic goals and taking corrective action as
needed.
– Keeps the company’s strategy up to date.
 LESSON 2:
HISTORY OF STRATEGIC MANAGEMENT

 Alfred Chandler –
• Recognize the importance of coordinating the Various aspects of management under one
umbrella strategy.
• In 1962, made Strategy and Structure which showed that a long-term properly coordinated
strategy is important to give a company the needed structure, direction and focus.

 Philip Selznick –
• 1957, introduces the matching of the organizations internal factors and external
environmental circumstances. Prelude to SWOT Analysis – Harvard Business School
 Igor Ansoff
• Came up with a new vocabulary pertaining to strategic management. In his book “Corporate
Strategy” 1965, he develop the concept of gap analysis which is now translated into
mission/vision statement. Explained the current situation of the company and where it would
like be in the future.
• Conceptualized strategy grid which illustrates:
 Market penetration strategies
 Product development strategies
 Market development strategies
 Diversification strategies
 Peter Drucker – Management Guru
• First, he emphasized the importance of objective. He believes in a clear-cut objectives that
would set the direction for a particular organization. This was developed in 1954 and has
evolved into Theory of Management by objectives (MBO) – allows the organization to
monitor its progress from top to bottom.
• Another theory is the Intellectual Capital. He foresaw the advent of the knowledge worker
and explained the impact of management. The tasks in assigned in teams and a leader heads
the group.
 Ellen-Earle Chaffee – summarizes her thoughts on Strategic Management
• It should be aligned with the business environment
• It is complex, thereby should allow an organization to adopt change
• It affects the organization in providing direction, where the company wants to be.
• It involves a process of strategy formulation and implementation.
• It is both planned and unplanned
• Is also done in an overall corporate strategy as well as specific business units.
• Both conceptual and analytical thought processes.

GROWTH AND PORFOLIO THEORY

 The Profit Impact of Marketing Strategies (PIMS) was a continuing study on strategy that started
in 1960. It started with General Electronics – Harvard in the early 70s – Strategic Planning
institutes in the late 1970s. By that time companies had now developed link between profitability
and strategy.
  The growing interest on profitability, market share and strategy led to the awareness on growth
strategies. Another strategy led to the competition and the environment through marker
dominance strategies. While bigger market share led to high profits.
 Schumacher, Woo and Cooper, Levenson and Traverso is now called niche marketing. Creating
a niche can result in a very high returns.
 In early 1980s, there was a paradoxical conclusion that high market share and low market share
were often very profitable and those in between were not.
 Harry Markwitz – Portfolio Theory
• This propagated the concept that a broad portfolio of financial assets could reduce risk
exposure of companies.
• An operating division is also called strategic business units – each has its own revenue, cost,
objectives and strategies.
 Boston Consulting Group (BCG)
• Examines how a business units performs and what it contributes to the organization in terms
of revenue.
THE RISE OF MARKETING MANAGEMENT
 Production orientation started at the height of capitalism – key requirement is a product of high
quality. A product is produce then sold to the consumers.
 In the 1950s and 1960s, sales orientation was conceptualized. The concentration as the art of
selling. After the product is produced, a high-caliber sales force can sell it.
 1970s, Theodore Levitt theorized that business should start with customers instead of producing
the product first before selling it. A company should find what they and produce it for them. This
is now called marketing orientation. Several terms were used to reflect market oriented concept.
- Customer Intimacy
- Customer orientation
- Marketing Philosophy
- Customer Focus
- Customer Driven
THE RISE OF JAPANESE-ORIENTED MANAGEMENT STYLE
 During 70’s Japanese surpassed the American and European companies including steel, watches,
cameras, automobiles and electronics.
 The success of Japanese was explained in these practices.
1. High Employee morale, dedication and loyalty
2. Lower cost including labor cost
3. Government policies favors business
4. After WW2, Japanese became highly productive and capital intensive org.
5. Export prevailed
6. There was Superior Quality control such as Total Quality Management
 Richard Pascale and Anthony Athos – 1981
• proved that despite of success of Japanese, there was still missing. Added, further analysis
showed that the cost structure was actually higher.
• “The Art of Management” claimed that the reason for success of the Japanese was their
superior management techniques.
  This theory is better known as 7s:
- Structure
- Strategy
- System
- Skills
- Styles
- Staffs
- Subordinate goals and Shared Values
 Kenichi Ohmae – head of Mckinsey and Co., realesed the book “The Mind of Strategies”
• He reiterated that a strategy should be too analytical but more of a creative art. It is a
combination of intuition and flexibility.
 Tom Peters and Robert Waterman – released “In search of Excellence”. 8 keys to success:
1. Customer focus – The company should know and understand the customers
2. Action oriented – Implement strategies not just mere paperwork or plans without action.
3. Entrepreneurship – Exude the entrepreneurial spirit; innovate and create
4. Simplicity – Simple not too complex
5. Stick to what the company knows best – continue in the field where it excels.
6. Value-oriented management – Advocates corporate values throughout the organization.
7. People oriented – Respect and Motivate its people.
8. Centralized and decentralized – centralize its control but also allows autonomy in each
business unit.
 J. Rehfeld (1994)
• Discussed the importance of transformation of knowledge from various cultures to a
management style to compete globally. The Japanese style kaizen had not been
successful in the United states unless it was modified to suit American culture
THE COMPETITIVE EDGE
 GARY HAMEL and C.K. PRAHALAD – Strategic Architecture Concept
• Core competency – detail of what the company has or can do better than its competitors.
 DAVE PACKARD and BILL HEWLETT
• Management by Walking Around (MBWA) – Building of strategic relationship base
with key people who can be a source of viable strategies for the company.
 JAPANESE MANAGERS
• 3 G’s – Genba, Genbutsu, Genjitsu which are translated to: actual place, actual thing,
and actual situation.
 MICHAEL PORTER
• Five Forces Analysis – Introduced the company to gain sustainable competitive
advantage.
• Threat of new entity
• Supplier power
• Threat of substitution
• Buyer power
• Competitive Rivalry
 JOHN HAY
• Value Chain Concept – Adding value means the difference between the market value of
outputs and the cost of inputs, divided by the firm’s net output.3 capabilities a company
should have: Innovation, Reputation, and Organizational Structure
 AL RIES and JACK TROUT
• Positioning Theory – Crafting a strategy that would make the brand/product in the
minds of the consumers.
 JAY BARNEY (1992)
• A strategy is a product of resources such as human, technology, and suppliers combined
in unique ways.
 MICHAEL HAMMER and JAMES CHAMPY
• Championed REENGINEERING which involves the organization of firm’s assets around
whole processes rather than tasks.
 RICHARD LESTER (1989)
• 7 Best Practices
1. Continuous improvements on simultaneous basis
2. Breaking down organizational barriers between departments
3. Eliminating layers of management to make it leaner and simpler
4. Closer relationships towards customers and suppliers
5. Intelligent use of new technology
6. Global Focus
7. Improving human resource skills

 W. Edwards Deming, Joseph Juran, A . Kearney, Phillip Crosby, and Armand Feignbaum
developed quality improvement techniques like:
• Total Quality Management, Continuous Improvement, Lean Manufacturing, Six Sigma,
and Return on Quality
 JAMES HESKETT, EARL SASSER, WILLIAM DAVIDOW, LEN SCHLESINGER,
A. PARAUGMAN, LEN BERRY, JANE KINGMAN-BRUNDAGE, CHRISTOPHER
HART, and CHRISTOPHER LOVELOCK
• They provided: Fishbone diagramming, service charting, Total Customer Service, the
service profit chain, service gap analysis, strategic service vision, service mapping, and
service teams.
 CARL SEWELL, FREDERICK REICHELD C. GRONROS, and EARL SASSER
• Loyalty effect among customers – Broadened by Reicheld to include employee loyalty,
supplier loyalty, distributor loyalty, and shareholder loyalty
• Customer Lifetime Value - This made customer service a long-term endeavor, a long-
term relationship with customers.
 JAMES GILMORE and JOSEPH PINE
• Mass Customization Concept – Allowed for a company to individualize a product for
each customer without losing economies of scale. Expanded by Bernd Schmitt and called
it Customer Experience Management.
 JAMES COLLINS and JERRY PORRAS
• Core Values – It would make the company last. Core values are seen in the employees
who will build a great company.
 ARIE DE GEUS
• 4 Key Traits of Companies that have survived for the last 50 years
1. Sensitivity to the business environment – ability to be attuned with the forces in the
environment.
2. Cohesion and identity – ability to build a company with shared vision and purpose.
 3. Tolerance and decentralization – ability to build relationship among the employees and
strategic business units.
4. Conservative financing – ability to handle financial matters well.

 JORDAN LEWIS
• Alliance Strategies - Considered the distributors, suppliers, firms in related industries,
and even competitors as strategic partners.