Strategic Management

Quiz 1
1. A business model vs a strategy

⮚ A business strategy is a deliberate vision to get toward a desired

long-term goal. Or A business strategy is a way to get there. You

know where you want to be, you have a mission and a vision, you
crafted a unique value proposition, and a deliberate plan to get where
you want to be.

⮚ A business model is a great tool to execute a business strategy or a

business model is a great tool to apply a business strategy.

In conclusion, a business model is the way to apply business strategy. Example, I

plan to go home as a business strategy. For a business model the ways I arrive
home are more specific than a business strategy by using skill and techniques to
implement strategies successfully.

2. Business Unit is a self-contained division that provides a product or service

for a particular market. Strategic business units often have their own visions,
missions, objectives, and courses. For example, a snowboard manufacturer
decides to set up two strategic business units because it owns two product
divisions, which are fashion and equipment. Because the fashion division
and the equipment division have the same brand name and administrative
tasks, such as HR and information systems.

Quiz 2:

1. Risk capital means Equity capital for which there is no guarantee that stockholders will
ever recoup their investment or earn a decent return. For example, you are a shareholder
 in one company and you have to invest some money into this company. When a company
fails and goes bankrupt, you can’t recover any money back.
2. Top Management is a person or group of people who directs and controls an organization
at the highest level. For example, Top management in one company can be a CEO or
shareholder who can control the whole company.
Quiz 3:
1. Social class means a division of a society based on social and economic
status. Example: Some countries we divide such as lower class, middle class,
high class.
2. A strategic manager is a person who analyses the major initiatives taken by a
company’s top management on behalf of owners, involving resources and
performance in internal and external environments.
Quiz 4:
1. A system that describes how specific tasks are directed in order to fulfil an
organization's goals is known as an organizational structure. Rules, roles,
and duties are examples of these activities. The flow of information between
levels inside the firm is also determined by the organizational structure.
2. The Cost condition is the way that the company site the price of their
produce. Moreover, the cost condition depends on the company. For
example, Smartphone companies, site the price into three different levels of
performance. In the first level, the price is low (100$ to 200$) because they
sell to customers who need a new phone at a low price. The second level, the
price is middle (250$ to 500$) because they sell to customers who need a
good performance phone. The third level is the high price. Another example,
the transport company is investing in cars, packages, tax and employees so
the price depends on what they have spent.
Quiz 5:
1. Substitute products are the products of companies serving customer needs
similar to the needs served by the industry being analyzed. When substitute
 products are very similar to one another, companies can charge a lower price
without losing customers to the substitutes.
2. Innovation and Change
● Innovation refers to the act of creating new products or processes.
There are two main types of innovation: product innovation and
process innovation.
● Change in one industry during the process of innovation if they have
some problem, they will change the process rapidly as they can. For
another example, many products were changing from time to time
because of customers' needs. So change depends on many factors of
the company.
Quiz 6:

1. fixed costs, costs that must be incurred to produce a product regardless of the
level of output.
2. Marketing strategy is the position that a company takes with regard to
pricing, promotion, advertising, product design, and distribution.
Quiz7:
1. Customer loyalty is the relationship between the company and its customers.
Companies try to build goods and services to get trust from customers.
2. Just-In-Time of inventory system is the System of economizing on inventory
holding costs by scheduling components to arrive just in time to enter the
production process or as stock is depleted.
International business
What is Globalization?
● The world is moving away from self-contained national economies toward
an interdependent, integrated global economy system.
 ● Globalization refers to the shift toward a more integrated and interdependent
world economy.
● Globalization has two facets:
1. The globalization of markets
2. The globalization of production
The shift toward a more integrated and interdependent world economy is referred
to as
a) Economic integration
b) Economic interdependency
c) Globalization
d) internationalization
Institution created over the past half century include:
- The general agreement on Tariffs and Trade (GATT)
- The world Trade Organization (WTO)
- The international Monetary Fund (IMF)
- The world Bank
- The United Nations (UN)
➔ Which organization is responsible for policing the world trading system? C.
The world trade organization
➔ What is the single most important innovation to the globalization of markets
and production? B. the development of the microprocessor
➔ A political system that stresses the primacy of collective goals over
individual goals is called: B. collectivism
➔ A. communists: believe (s) that socialism can only be achieved through
violent revolution and totalitarian dictatorship.
 ➔ A therm of government in which one person or political party exercises
complete control over all spheres of human life and prohibits opposing
political parties is C. totalitarianism
➔ C. theocratic totalitarianism is found in states where political power is
monopolized by a party according to religious principles.
➔ In which type of economic system are all productive activities privately
owned? D. a market economy
➔ Which type of law is based on tradition, precedent, and custom? B.
theocratic law
➔ Which country is not among the most corrupt countries in the world? B.
Indonesia
➔ Design and names by which merchants or manufacturers designate and
differentiate their products are called a. Trademarks
➔ Which is not a primary determinant of a nation’s rate of economic
development? D. its currency
➔ Abstract ideas about what a group believes to be good, right, and desirable
are called b. Values
➔ The basic social organization of a society is its c. social structure
➔ Which of the following is not characteristic of individualism? B. low
managerial mobility
➔ Which religion promotes the nation that a moral force in society requires the
acceptance of certain responsibilities called dharma? C. hinduism
➔ The most widely spoken language in the world is d. English
➔ A. power distance : focuses on how society deals with the fact that people
are unequal in physical and intellectual capabilities.
Review all lesson
Chapter 1:
II. The study of strategic Management
● Strategic Management is that set of managerial decisions and actions that
determines the long run performance of a corporation. The study of strategic
management, therefore, emphasizes the monitoring and evaluating of
external opportunities and threats in light of a corporation's strengths and
weaknesses.
● Business Policy , in contrast, has general management orientation and tends
primarily to look inward with its concern for properly integrating the
corporation's many functional activities.
2 Strategic management involves the formulation and implementation of the major
goals and initiatives taken by an organization's top managers on behalf of owners,
based on consideration of resources and an assessment of the internal and external
environments in which the organization operates.
3 Strategic management provides overall direction to an enterprise and involves
specifying the organization's objectives, developing policies
and plans to achieve those objectives, and then allocating resources to implement
the plans.
II. Strategic Management
1 Strategic leadership is creating competitive advantage through effective
management of the strategy making process.
2 Strategy formulation is selecting strategies based on analysis of an organization's
external and internal environment.
3 Strategy implementation is putting strategies into action.
1 Strategy Formulation
➢ Vision & Mission
➢ Opportunities & Threats
➢ Strengths & Weaknesses
 ➢ Long Term Objectives
➢ Alternative Strategies
➢ Strategy Selection
2 Strategy Implementation
Annual Objectives, Policies, Employee Motivation, Resource Allocation
3 Strategy Evaluation
Internal Review
External Review
Performance Measurement
Corrective Action
V. Who Performs Strategic Management?
● Large Corporations: Chief Executive Officer (CEO) Vice Presidents (e.g.
Finance, Marketing General Managers of Divisions
● Small Businesses: The Owner / Entrepreneur
● Non Governmental Organizations (NGO s) Home Office / In Country
Representatives Senior Coordinators of Programs, Admin., Finance, etc.
1. Role of Board of Directors
● The Board represents the interests of the stockholders (owners) of the
● Average size for a U.S. firm: 11 Directors
● Boards consist of both “Inside Directors” and “Outside Directors”
● Inside Directors include executives employed by the Company (e.g. CEO)
● Outside Directors who usually represent the majority of Board members, are
usually executives of other companies from different industries.
2. Role of Board of Directors(Policy)
● Board members are elected by the Shareholders.
● Committees: Audit, Compensation, Nominating, etc.
 ● Chairman of the Board: Schedules Board Meetings and presides over or to
be a chief the annual shareholders meeting.
● In many U.S. Corporations, the CEO is also the Chairman of the Board;
Role of Board of Directors (Policy)
● The role of the Board is to review and approve the strategic plan prepared by
the CEO and other senior managers.
● Traditionally, Boards of Directors have not been directly involved in the
strategic management process, though this is changing as Boards are now
taking a much more active role with regards to strategic management.
Board Responsibilities
Set corporate strategy, direction, mission or vision
• Hire and fire/ post out the CEO and top management
• Control, monitor, supervise top management
• Review and approve use of resources
• Care for shareholders interests
1. External Analysis requires an assessment
Industry environment in which company operates
- Competitive structure of industry
- Competitive position of the company
- Competitiveness and position of major rivals
The country or national environments in which company competes
The wider Socioeconomic or Macro environment that may affect the company and
its industry
- Social
- International
- Government
- Legal
 - Technological
2. Industry Analysis
Definition of Industry:
● A group of companies offering products or services that are close substitutes
for each other and that satisfy the same basic customer needs
● Industry boundaries may change as customer needs evolve and technology
changes
Sector:
● A group of closely related industries
Market Segments:
● Distinct groups of customers within an industry
● Can be differentiated from each other with distinct attributes and specific
demands
Porter’s five forces model
- Risk of entry by potential competitors
- Bargaining power of suppliers
- Threat of substitutes
- Bargaining power of buyers
To intensity of rivalry among established firms.
V. Risk of Entry by Potential Competitors
Potential Competitors are companies that are not currently
competing in an industry but have the capability to do so if they
choose. Barriers to new entrants include:
1. Economies of Scale as firms expand output unit costs fall via:
● Cost reductions through mass production
● Discounts on bulk purchases of raw material and standard parts
● Cost advantages of spreading fixed and marketing costs over large volume
2. Brand Loyalty
● Achieved by creating well established customer preferences
● Difficult for new entrants to take market share from established brands
3. Absolute Cost Advantages
- Relative to new entrants
- Accumulated experience: in production and key business processes.
- Control of particular inputs required for production
- Lower financial risks
- access to cheaper funds
VII. Bargaining Power of Buyers
Industry Buyers
may be the consumers or end users who ultimately
use the product or intermediaries that distribute or retail the products. These
buyers are most powerful when:
VII. Bargaining Power of Buyers
Industry Buyers may be the consumers or end users who ultimately use the
product or intermediaries that distribute or retail the products. These buyers are
most powerful when:
1. Buyers are dominant.
● Buyers are large and few in number.
● The industry supplying the product is composed of many small companies.
2. Buyers purchase in large quantities.
● Buyers have purchasing power as leverage for price reductions.
3. The industry is dependent on the buyers.
● Buyers purchase a large percentage of a company's total orders.
4. Switching costs for buyers are low.
● Buyers can play off the supplying companies against each other.
 5. Buyers can purchase from several supplying companies at once.
6. Buyers can threaten to enter the industry themselves.
● Buyers produce themselves and supply their own product.
● Buyers can use the threat of entry as a tactic to drive prices down.
VIII. Bargaining Power of Suppliers
Suppliers are organizations that provide inputs such as material and labor into the
industry. These suppliers are most powerful when:
1. The product supplied is vital to the industry and has few substitutes.
2. The industry is not an important customer to suppliers.
● Suppliers are not significantly affected by the industry.
3. Switching costs for companies in the industry are significant.
● Companies in the industry cannot play suppliers against each other.
4. Suppliers can threaten to enter their customers ’ industry.
● Suppliers can use their inputs to produce and compete with companies
already in the industry.
5. Companies in the industry cannot threaten to enter suppliers ’ industry.
IX. Substitute Products
Substitute Products are the products from different businesses or industries that can
satisfy similar customer needs.
The Role of the Macro- environment:
- Political and legal forces
- Demographic forces
- Global forces
- Technological forces
- Social forces
- Macroeconomic forces
II. Internal Analysis: a three Step Process
 1. Understand the process by which companies create value for customers and
profit for themselves.
● Resources
● Capabilities
● Distinctive competencies
2. Understand the importance of superiority in creating value and generating
high profitability.
● Efficiency
● Quality
● Innovation
● Responsiveness to Customers
3. Analyze the sources of the company's competitive advantage
● Strengths that are driving profitability
● Weaknesses opportunities for improvement

How profitable a company becomes depends on three basic factors:

1. VALUE or UTILITY the customer gets from owning the product
2. PRICE that a company charges for its products
3. COSTS of creating those products
Quality products are goods and services that are:
Reliable and Differentiated by attributes that customers perceive to have higher
value
Innovation is the act of creating new products or new processes
• Product innovation
- Creates products that customers perceive as more Valuable
- Increases the company’s pricing options
• Process innovation
 - Creates value by lowering production costs
The DURABILITY of a company’s competitive advantage over its competitors
depends on:
1. Barriers to Imitation
Making it difficult to copy a company’s distinctive competencies
● Imitating Resources
● Imitating Capabilities
2. Capability of Competitors
● Strategic commitment Commitment to a particular way of doing
business
● Absorptive capacity Ability to identify, value, assimilate, and use
knowledge
3. Industry Dynamism
● Ability of an industry to change rapidly
Functional-level strategies: are strategies aimed at improving the effectiveness of a
company’s operations.
Improves company’s ability to attain superior:
1. Efficiency 2. Quality
3. Innovation 4. Customer responsiveness
Increases the utility that customers receive:
● Through differentiation
● Creating more value
● Lower cost structure than rivals
Functional steps to increasing efficiency:
1. Economies of Scale
2. Learning Effects
3. Experience Curve
 4. Flexible Manufacturing and Mass Customization
5. Marketing
6. Materials Management and Supply Chain
7. R&D Strategy
8. Human Resource Strategy
9. Information Systems
10.Infrastructure
Marketing strategy Refers to the position that a company takes regarding
● Pricing
● Promotion
● Advertising
● Distribution
● Product design
Customer defection rates
Percentage of customers who defect every year
● Defection rates are determined by customer loyalty
● Loyalty is a function of the ability to satisfy customers
2 Supply Chain Management
Task of managing the flow of inputs to a company’s processes to minimize
inventory holding and maximize inventory turnover.
VI. Human Resource Strategy
The key challenge of the Human Resource function: improve employee
productivity.
● Hiring strategy
Assures that the people a company hires have the attributes that match the strategic
objectives of the company
● Employee training
Upgrades employee skills to perform tasks faster and more accurately
● Self managing teams
Members coordinate their own activities and make their own hiring, training, work,
and reward decisions.
● Pay for performance
Linking pay to individual and team performance can help to increase employee
productivity
Information systems’ impact on productivity is wide ranging:
● Web based information systems can automate many of the company
activities
● Potentially affects all the activities of a company
● Automates interactions between
- Company and customers
- Company and suppliers
Quality can be thought of in terms of two dimensions and gives a company two
advantages:
Quality as reliability
They do the jobs they were designed for and do it well
Quality as excellence
Perceived by customers to have superior attributes
1. A strong reputation for quality allows a company to differentiate its
products.
2. Eliminating defects or errors reduces waste, increases
efficiency, and lowers the cost structure increasing profitability