Septemer 4

Rational Individual

How can we say that an individual is rational?

 A person who is rational will not based on their feelings instead it will be based on their logic or
reasoning (thinking).
 A person who is rational is reasonable, logical; there is basis.

There are four assumptions of a Rational Individual:

1. The individual is rational he is reasonable his actions are based on logic/thinking. (Identify first
what motivates the individual)
2. The individual is faced with problems (both positive and negative problem)
o The positive problems are called opportunities.
o The negative problems are the problem itself.

Individual face problem regularly

3. Respond to the problem; make a decision; alternative/options (select the best option)
o Choose what's the best “optimal solution” or “optimal alternative”
o Optimization is called the best solution
4. Individual has a limited resource
o As an individual we have limited resources that's why we need to select the optimal
solution.
o There are two conditions:
1. Select the best if it gives you the most satisfaction, happiness, or benefit.
 In economics it means “utility” (you maximize your happiness)
2. Minimize cost
 Maximize satisfaction; minimize cost (it should be efficient and effective
because they are very limited

Rational Firm

What happens to rational individual also happens to rational firm. Firm refers to private sectors,
corporate, business, enterprise, etc.

There are two assumptions:

1. The firm is faced with problems it can be good or bad problem.

o The good problem is called opportunities
 Expansion of the store or firm
o The bad problems are the problems itself
 Unexpected events that is equivalent to loss
2. The firm is faced with alternatives
 o There are different ways to respond to those problems
(Firms also have limited resources they do not have so much income, borrowings, finite
resources for firm)
o Select the best possible solution or the optimal solution. There are two conditions:
1. Maximizing satisfaction
 This is done through the maximization of the profit or revenue
2. Minimize costs
 Maximize revenue; minimize costs

Cost minimization => maximiser Ave

Example: Hiring- if there are errors it is equivalent to costs and risks

Marketing- when it comes to advertise it is costly but there is assurance that there will be more
customers

Operations- invest to a software, by investing into the software the processing time for the products will
be faster. In this way the revenues could increased.
 September 11 (Chapter 1)
Strategic Management

 the art and science of formulating, implementing, and evaluating cross-functional decisions that
enable an organization to achieve its objectives

Formulating- conceptualizing, thinking, planning (on the mind)

Implementing- action part where you implement the strategy

Evaluation- adjust when you found something is wrong

Cross- functional- different areas/departments/functions in the organization (HR, Marketing,

Accounting, Production, Research and Development, IT)

 Strategic management is used synonymously with the term strategic planning in this course.
 Sometimes the term strategic management is used to refer to strategy formulation,
implementation, and evaluation, with strategic planning referring only to strategy formulation.

Strategic management is for?

This is for the management to be able to exploit and create new and different opportunities for the
organization, not just for today, but for tomorrow-future. (create something new- “innovation”)

“new”, “innovation”- never enter the minds of people before, never heard before

“Strategic”- the timeframe is long-term (5,10,20 years); planning for tomorrow

A strategic plan- is a company’s game plan.

 A strategic plan results from tough managerial choices among numerous good alternatives, and
it signals commitment to specific markets, policies, procedures, and operations.

3 Stages of Strategic Management

1. Strategy Formulation
2. Strategy Implementation
3. Strategy Evaluation

Strategy Formulation-you are thinking, conceptualizing

Formulation is for? - thinking (includes studying, researching, data gathering, writing)

It has to be written because it will be the future reference. You have something to look at, you can track
where are you now and what will be your next step. (to be on track, check)

 developing a vision and mission

 identifying an organization’s external opportunities and threats
  determining internal strengths and weaknesses
 establishing long-term objectives
 generating alternative strategies
 choosing particular strategies to pursue
 What new businesses to enter (Example: SM- new ventures, SMDC, NUniversity; innovation);
kahit sikat you are not excuse to think new business to enter)
 What businesses to abandon (companies experience loss)
 Whether to expand operations or diversify (For SM, build more stores/malls)
 Whether to enter international markets (Example Jollibee, it is available around the world)
 Whether to merge or form a joint venture (Joint venture: two companies joint together for a
project. Example: PhilInvest and BCDA they combine for projects in Clark.
 How to avoid a hostile takeover

Strategy Implementation-dirty works, you execute the plan

 requires a firm to establish annual objectives, devise policies, motivate employees, and allocate
resources so that formulated strategies can be executed
 often called the action stage

Action- execution of what have been formulated

Strategy Evaluation- what are the things to be improve more?

 Determining which strategies are not working well

 Three fundamental activities:
o reviewing external and internal factors that are the bases for current strategies
o measuring performance
o taking corrective actions

if there is (any) wrong, it will take corrective actions

Competitive Advantage- what makes them unique above all of the competitors, What sets you apart?

 any activity a firm does especially well compared to activities done by rival firms, or
 any resource a firm possesses that rival firms desire.
 A firm must strive to achieve sustained competitive advantage

Competitive Strategy of the following:

Ariel- “soaking” has been associated with Ariel; target market: professionals women who have no time
for laundry

-technology and R&D

Apple- innovation, coming up with new products (color minimalist app, simple- android creative)

Penshoppe- cheaper price

Restaurants

Strategists

 Individuals most responsible for the success or failure of an organization

 Help an organization gather, analyze, and organize information

Example: FEU- Deans, Head Departments, Chairman; CEO-organization

Vision and Mission Statements

 A vision statement answers the question “What do we want to become?”

 A mission statement answers the question “What is our business?”

What is your goal or objective? Where do we want to go?

Vision- this is the first step before you practice the strategy WHERE YOU WANT TO GO?

Mission- is the support, it tells what is the business all about, it put details on the vision HOW DO YOU
GET THERR?

External Opportunities and Threats

 economic, social, cultural, demographic, environmental, political, legal, governmental,

technological, and competitive trends and events that could significantly benefit or harm an
organization.

It is beyond the control of the company

After knowing where do you want to go (Vision and Mission), the next thing to identify is GATHER DATA,
you research, study

1. VISION and MISSION

2. GATHER DATA
3. SMART OBJECTIVES
4. Make a strategy based on objectives

External Opportunities- what is happening outside/industry/competition? What are other companies?

competitive arena (knowing your product if essential or not knowing we have pandemic)

Positive- knowing what is going on outside,

Negative- this is the threat not just the industry, what is happening in the government/country? GDP
going down?

Internal Strengths and Internal Weaknesses

 an organization’s controllable activities that are performed especially well or poorly

 determined relative to competitors

Within the control of the company

Opportunities and Threats

 Availability of capital can no longer be taken for granted. (Threat- lack of funding)
 Consumers expect green operations and products. (Opportunity- company could target eco-
friendly market; Threat- if your product is not organic)
 Marketing is moving rapidly to the Internet. (Opportunity- company nowadays is digital)
 Commodity food prices are increasing. (Threat- consumers will be affected)
 An oversupply of oil is driving oil and gas prices down. (Opportunity- for companies, they want
oil process to go down, so that their operation cost will be low also (transportation). Threat-
point of view of Shell, Caltex, Petron, other gas corp. because lesser revenue for them.)

Long-Term Objectives

 specific results that an organization seeks to achieve in pursuing its basic mission
 long-term means more than one year
 should be challenging, measurable, consistent, reasonable, and clear

Strategic meaning LONG TERM (5-20 years)

SMART Objective, Specific, Measurable, Attainable, Realistic and Time Bound

Strategies

 the means by which long-term objectives will be achieved

 may include geographic expansion, diversification, acquisition, product development, market
penetration, retrenchment, divestiture, liquidation, and joint ventures

Geographic expansion- adding store

Diversification- adding new product lines like SM before mall now we have BDO, SMDC

Acquisition- buying new companies (Example: Jollibee buy Coffee Project)

Product development- possibly existing product in the company that you improved

Market penetration- before a limited marker, now you already target different market (Nike- pambata)

Retrenchment-when the organization closes you have to let go of some people

Divestiture- making investment in other portfolio

Liquidation-liquid assets; sell assets; transform it to cash

Annual objectives

 short-term milestones that organizations must achieve to reach long-term objectives

 should be measurable, quantitative, challenging, realistic, consistent, and prioritized
 should be established at the corporate, divisional, and functional levels in a large organization

Segregate on what is attainable in what year; yearly goals

Policies
  the means by which annual objectives will be achieved

Example: January about absences; 2-3 absences every month have suspension

The Strategic Management Model

 Where are we now? (Gather data)

 Where do we want to go?
 How are we going to get there?

Model- simplifies complex phenomenon; simplifies business

Beauty model- someone to look at

Benefits of Strategic Management

 Strategic management allows an organization to be more proactive than reactive in shaping its
own future;
 It allows an organization to initiate and influence (rather than just respond to) activities—and
thus to exert control over its own destiny.

Reactive- reacting when the situation already happens

Proactive- preventing a situation from happening

Financial Benefits

 Businesses using strategic-management concepts show significant improvement in sales,

profitability, and productivity compared to firms without systematic planning activities
  High-performing firms tend to do systematic planning to prepare for future fluctuations in their
external and internal environments

Condition for optimization in the firm? Maximize revenue, minimize cost

Nonfinancial Benefits

 Enhanced awareness of external threats

 Improved understanding of competitors’ strategies
 Increased employee productivity
 Reduced resistance to change
 Clearer understanding of performance– reward relationships

Why Some Firms Do No Strategic Planning

 No formal training in strategic management (outsource, hire external people; these people
 No understanding of or appreciation for the benefits of planning
 No monetary rewards for doing planning
 No punishment for not planning
 Too busy “firefighting” (resolving internal crises) to plan ahead v
 View planning as a waste of time, since no product/service is made
 Laziness; effective planning takes time and effort; time is money
 Content with current success; failure to realize that success today is no guarantee for success
tomorrow; even Apple Inc. is an example
 Overconfident
 Prior bad experience with strategic planning done sometime/somewhere

Pitfalls in Strategic Planning (wrong mindset)

 Using strategic planning to gain control over decisions and resources (this is bad to take
advantage the control)
 Doing strategic planning only to satisfy accreditation or regulatory requirements (just
compliance)
 Too hastily moving from mission development to strategy formulation
 Failing to communicate the plan to employees, who continue working in the dark (high level to
be translated so that the staff maybe able to understand)
 Top managers making many intuitive decisions that conflict with the formal plan (may kaniya
kaniyang agenda)
 Top managers not actively supporting the strategic planning process (waste of time if you do not
support)
 Failing to use plans as a standard for measuring performance
 Delegating planning to a “planner” rather than involving all managers
 Failing to involve key employees in all phases of planning
 Failing to create a collaborative climate supportive of change
 Viewing planning as unnecessary or unimportant
 Becoming so engrossed in current problems that insufficient or no planning is done
 Being so formal in planning that flexibility and creativity are stifled
Goal of strategic management- to come up with strategies that will help you be more competitive

How to Gain and Sustain Competitive Advantage

Comparing Business and Military Strategy

 A fundamental difference between military and business strategy is that business strategy is
formulated, implemented, and evaluated with an assumption of competition, whereas military
strategy is based on an assumption of conflict
 Both business and military organizations must adapt to change and constantly improve to be
successful

These terms were used to solved problems in the battlefield. Business strategy- formulated, implemented
and evaluated on the assumption of beating the competitors.

Excerpts from Sun Tzu’s The Art of War Writings

 War is a matter of vital importance to the state: a matter of life or death, the road either to
survival or ruin. Hence, it is imperative that it be studied thoroughly
 Know your enemy and know yourself, and in a hundred battles you will never be defeated
  Skillful leaders do not let a strategy inhibit creative counter-movement

Mexico- patricarch

Japan- consensus

China- relationship

Indians-