What is Strategy and why do we need it?

 Strategy as was defined by the Cambridge dictionary is how business, government or

other organization carefully plans its actions over a period of time to improve its position
and achieve what it wants.

1. For every organization to reach objectives, they need to formulate different strategies,
evaluate those strategies, and select the best course of action they will take.
2. Strategists never consider all feasible alternatives that could benefit the firm because
there are an infinite number of possible actions and an infinite number of ways to
implement those actions; therefore, a manageable set of the most attractive alternative
strategies must be developed.

A Comprehensive Strategy-Formulation Framework by David 2011

Stage 1: The Input Stage

 External Factor Evaluation Matrix will determine the Opportunities and Threats
 Internal Factor Evaluation Matrix determine the Strengths and Weaknesses
 Competitive Profile Matrix is about determining the stand of the business between its
competitors

Stage 2: The Matching Stage: The second stage of Strategy Formulation Analytical
Framework is the Matching Stage.

1. SWOT Matrix - SWOT matrix stands for Strengths, Weaknesses, Opportunities, and
Threats.

(Managers develop four types of strategies.)

 Strengths define what a company excels at and separates it from the competition:
 Weaknesses hinder a company from operating at their highest level.
 Opportunities apply to advantageous external conditions that may offer a competitive
advantage to an enterprise.
 Threat refers to factors that may harm a business

SWOT Matrix Strategies are the following;

 Strength and Opportunities (SO) - SO Techniques leverage the internal assets of a

company to maximize external opportunities.
 Strength and Threat (ST) - ST Strategies use the strengths of a firm to avoid or
diminish the impact of external threats.
 Weakness and Opportunities (WO), WO Approaches aim to strengthen the internal
vulnerabilities by leveraging external opportunities.
 Weakness and Threat (WT), WT Techniques are defensive tactics intended to reduce
internal vulnerabilities and deter external threats.
Eight steps SWOT MATRIX according to David, F. (2011)

 list the firm's key external opportunities;

 list the firm's key external threats;
 list the firm's key internal strengths;
 list the firm's key internal weaknesses;
 match internal strengths with external opportunities, and record the results to SO
Strategies in the appropriate cell;
 Match internal weaknesses with external opportunities, and record the results to WO
Strategies;
 Match internal strengths with external threats, and record the results to ST Strategies;
 Match internal weaknesses with external threats, and record the results to WT
Strategies.

2. SPACE Matrix - is a strategic management tool that focuses on strategy formulation

especially as related to the competitive position of an organization.
 The SPACE matrix is a management method used for the analyzing of a
company.
 This is a strategic management tool that focuses on formulating a strategy,
 he SPACE matrix can be used as a basis for other analysis, such as the SWOT
analysis,
 he SPACE matrix is broken down into four quadrants where each quadrant
suggests a different type or nature of a strategy:
1. Aggressive
2. Conservative
3. Defensive
4. Competitive

A set of variables to be used to gauge the competitive advantage factors as a basis:

 Competitive Advantage (CA) – market share, product quality, product life cycle,
customer loyalty, capacity utilization, technological know-how, control over suppliers,
and distributors.
 Environmental Stability (ES) – technological changes, rate of inflation, demand
variability, price range of competing products, barriers to entry into the market,
competitive pressure, ease of exit from the market, price elasticity of demand, risk
involved in business.
 Industrial Strength (IS) – growth potential, profit potential, financial stability, extend
leveraged, resource utilization, ease of entry into the market, productivity, capacity
utilization
 Financial Strength (FS) – return on investment, leverage, liquidity, working capital,
cash flow, inventory turnover, earning per share, price earnings ratio.

Strategy Implementation
 According to David, F. (2011), In all but the smallest organizations, the transition from strategy
formulation to strategy implementation requires a shift in responsibility from strategists to divisional
and functional managers.

 Successful strategy formulation does not at all guarantee successful strategy implementation.
 In a single word, strategy implementation means change.
 Successful strategy implementation requires the support of, as well as discipline and hard work
from, motivated managers and employees.

Concerns when Implementing Strategies

Annual Objective: According to David, F. annual objectives serve as guidelines for action, directing and
channeling efforts and activities of organization members.

They provide a source of legitimacy in an enterprise by justifying activities to stakeholders.

 They serve as standards of performance.

 They serve as an important source of employee motivation and identification.
 They give incentives for managers and employees to perform.
 They provide a basis for organizational design.

Changes in strategy lead to changes in an organizational structure According to David (2011)

 The strategy serves as a guide as to what kind of organizational structure an organization should
have.
 As organizations formulate new strategies; this will not be as always as perfect, new problems
can emerge from time-to-time
 Soon as problems emerge on the surface, organizations should reconstruct their arrangement to
see fit to those strategies.

Seven basic type’s organizational structure according to David:

1. Functional - from the word itself, the department of organizations are divided according to their
function in the organization
2. Division by Geographic - Organizations that serve service to different locations tends to have
division by geographic or division by location.
3. Division by Product - The organizations who are often using this kind of strategy are the
business that sells a lengthy product line (a lot of different kinds of products). Organizations
have a set of different managers and assistants per product that they are selling.
4. Division by Customers - organizations that have a different set of customers (different
backgrounds) are the one who usually does this kind of division among organizations.
5. Division by Process - most likely organization who does this are the businesses that have a lot of
processing to do before they could bring out their final product.
6. Strategic Business Unit (SBU) - As an organization continuous to diversify and expand. It will be
hard for the CEO to handle each department very closely.
7. Matrix - According to David (2011), “A matrix structure is the most complex of all designs
because it depends upon both vertical and horizontal flows of authority and communication
(hence the term matrix).
Production/Operation Concerns When Implementing Strategies:

In making a decision for a product/ operation there are certain things to consider like:

 location of the site;

 the wage rate of the location of the site;
 resource’s location;
 size of inventory;
 inventory control;
 quality control;
 specialization of the employees;
 new technology;
 training of employee in handling machines.

The Nature of Strategy Implementation

According to David (2011), strategy implementation directly affects all
employees and managers or employees who are not committed to the business may
sabotage the strategy implementation.
 Strategy is not limited to only one department. It encompasses all offices and
employees. The implementation of a strategy will greatly affect the company
 If the strategy succeeds, the fruits will also be reaped by the employees.
 Strategy implementation is hard to achieve if not all are on the same page and
are committed.
 It is also harder when employees have already developed a routine in their work.
Employees are sometimes scared to get out of their comfort zone, and which
makes it hard to implement new policies. When a couple of people do not abide
by these policies, it disrupts the plan and strategies may fail.

Marketing: is the lifeblood of a business. Not only does marketing build brand
awareness, but it can also increase sales, grow businesses, and engage customers.
Two main functions of Marketing
1. Market Segmentation - According to David (2011), market segmentation is the
subdividing of a market into distinct subsets of customers according to needs and
buying habits.

 Segmentation of the market is commonly used in the implementation of

strategies, especially for small and specialized companies.
 This is important because it will help companies identify their target
audiences and potential customers and better understand them. Hence,
the company knows what kind of strategy they would do in creating,
promoting, placing, and selling of the products.
There are four bases of market segmentation:
 Demographic Segmentation - this is where you divide the market according to
gender, age, race, marital status, income, education, family size, family life cycle
employment, generation, etc.
  Psychographic Segmentation - according to Keller and Kotler, “buyers are
divided into groups on the basis of psychological/personality traits, lifestyle, or
values.”
 Geographic Segmentation - this market is being divided according to location,
country, region, state, zip code, city, village, building.
 Behavioral Segmentation - this segmentation is about dividing the market
according to their behavior as a customer and their response to product.

2. Product Positioning - Positioning refers to the position a brand occupies in the

consumers' minds, and how it is differentiated from the competitors' goods.
 According to Al Ries, Jack Trout Positioning is not what you do to a product.
Positioning is what you do to the mind of the prospect.
 Another definition by Louis E. Boone and David L. Kurtz said that product
positioning refers to consumers' perceptions of a product's attributes, uses,
quality, and advantages and disadvantages relative to competing brands”.
Perception is how people see a thing.
 In marketing, a positive perception will give a good position in the minds of the
consumers.

Finance and Accounting

 Acquiring Needed Capital - Successful implementation of a strategy often
demands additional capital.
Two main sources of capital for a company
1. Debt- involves borrowing money to repay, plus interest.
2. Equity- involves raising capital from the selling of business shares.

 Projected Financial Analysis - This is a technique that allows an organization

to examine the expected results of various actions and approaches.
 Financial Budget - According to David (2011), this is a document that details
how funds will be obtained and spent for a specified period of time.
 Evaluating the Worth of the Business - One of the department's Finance /
Accounting tasks is to determine the worth of a company. Implementation of the
strategy is central, as integrative, intensive, and diversification strategies are
often implemented through the acquisition of other companies.
Research and Development
 defined as individuals or departments that are generally charged with developing
new products and improving old products in a way that will allow effective
strategy implementation.

 R&D personnel and managers perform tasks that include moving sophisticated
technologies, adapting processes to local raw materials, tailoring processes to
local markets,
 R&D leads to business sustainability. Most organizations do not realize the
importance of research and development until it is too late. It is the R&D function
that gives an organization a platform for creativity and innovation to flourish.
Management and Information System
This is the study of “people, technology, organizations, and relationships
among them” according to David (2011).
  Collection, processing, and storage of information may be used to establish
competitive advantages such as cross-selling to clients, tracking of suppliers,
keeping managers and workers updated, organizing divisional activities, and
managing funds.
 MIS professionals help businesses allow the most profit from investing in
personnel, facilities, and business processes.
 MIS is a people-oriented field with a focus on technology-based operation.
Managers of information technology are increasingly being called upon to guide
within the organization through their data bank.

The Nature of Strategy Evaluation

Strategy evaluation is important for the organization’s well-being; on-time evaluations can alert or warn
the management to present or potential problems before it occurs.

 Evaluating strategies regularly allows existing standards to be enhanced and monitored

effectively.
 People inside the firm, especially the managers must have continuous tracking of progress being
made
 It is impossible to conclude that a particular strategy is 100% guaranteed that it will give the result
as the way the organization wants.

Four main criteria to evaluate a strategy According to Rumelt:

1. Consistency - A strategy should not present inconsistent goals and policies.

Three guidelines that can help determine if organizational problems are due to inconsistencies in
strategy:
 If managerial problems continue despite personnel changes and if they tend to be issue-
based rather than people-based, then strategies may be inconsistent.
 If success for one organizational department means or is interpreted to as failure for
another department, then strategies may be inconsistent.
 If policy problems and issues continue to be brought to the top for resolution, then
strategies may be inconsistent.

2. Consonance - Refers to the need for strategists to examine sets of trends, as well as individual
trends, in evaluating strategies.

3. Feasibility - A strategy must neither overtax available resources nor create unsolvable sub-
problems. It needs to be Feasible.

 Normally, you can evaluate already the feasibility of a strategy through the financial
resources of a business, since they are the easiest to quantify.
 In evaluating a strategy, it is important to examine whether an organization possesses
the capabilities needed to carry out a given strategy based on its past performances.

4. Advantage - A strategy must provide for the creation and/or maintenance of competitive
advantage in a selected area of activity.

Three areas of Competitive superiority advantages

1. Resources
2. Skills
3. position.

Strategy-Evaluation Framework

According to David (2011), Strategy evaluation includes three basic stages:

1. Examining the underlying bases of a firm’s strategy,

 this stage compromises of comparing the forecast to actual results, evaluating
departmental performance, looking into a more detailed manner for discrepancies from
the plans, and checking into the progress the organization does moving into their
objective.
2. Comparing expected results with actual results, and
  this stage compromises of comparing the forecast to actual results, evaluating
departmental performance, looking into a more detailed manner for discrepancies from
the plans, and checking into the progress the organization does moving into their
objective.
3. Taking corrective actions to ensure that performance conforms to plans.
 The last stage in strategy-evaluation is about taking corrective action.

According to David (2011), some corrective actions possibly needed to correct unfavorable
variances:

 Alter the firm’s structure

 Replace one or more key individuals
 Divest a division
 Alter the firm’s vision and/or mission
 Revise objectives
 Alter strategies
 Devise new policies
 Install new performance incentives
 Raise capital with stock or debt
 Add or terminate salespersons, employees, or managers
 Allocate resources differently
 Outsource (or rein in) business functions

Business Ethics
Every good business does have a good business ethics. Simply because strategy
formulation, implementation, and evaluation are all and should be anchored in a good
business ethics. In a business organization, managers and CEO are the persons who
are most responsibility in making sure that high ethical principles are being observed
and practiced in the organization.

 Good strategic management always comes whenever a good business ethics is

being implemented all throughout the process.
 On the other hand, bad ethics can disrupt and bring a negative color to a well-
planned strategic plan.
 According to David (2011) “business ethics can be defined as principles of
conduct within organizations that guide decision making and behavior
According to David has common unethical behavior inside a business:
a. Misleading advertising or labeling
b. Leakage of sensitive information
c. Discrimination or not providing equal opportunities for women and minorities
Code of Business Ethics
Given that every form of business face different kinds of business ethics issues, one
thing a strategist can do to face this correctly is to develop a clear code of business
ethics.

 A code of business ethics is a document that provides behavioral guidelines that

cover daily activities and decisions within an organization by David 2011
(example)
Below are quoted text from Colgate-Palmolive Company’s code of business ethics
document title “Code of Conduct Living Our Values.
 a. WE STRIVE TO HAVE SUCCESSFUL WORKING RELATIONSHIPS. At
Colgate, we take pride in the strong personal commitment of our people and the
excellent achievements that result from that commitment.
b. WE PROMOTE OPEN AND HONEST COMMUNICATIONS. We encourage
creative and innovative thinking.
Colgate-Palmolive Company prohibits discrimination against any employee or
applicant for employment based on:
Race or Ethnicity

 Color
 Religion
 Gender or Gender Identity
 Disability
 Marital or Familial Status

Citizenship

 Age
 Pregnancy
 Sexual Orientation
 Veteran Status
 Status as a Victim of Domestic Violence

c. OTHER CONSIDERATIONS. We strive to maintain a positive work environment

that reflects our Company’s values and promotes strong working relationships.

d. WE PROTECT THE COMPANY’S PROPRIETARY INFORMATION. Colgate’s

proprietary information is valuable asset. Proprietary information is information
used in connection with Colgate’s business that is not generally known or easily
discovered and is competitively sensitive.

e. WE MAINTAIN ACCURATE BOOKS AND RECORDS. The financial position of

our Company and the results of its operations must be recorded in accordance
with the requirements of law and generally accepted accounting principles
(GAAP).

Business Ethics Issues

1. Misleading Advertising or Labeling – Every business because of wanting to

have a competitive advantage emphasize certain value of their business within
their advertising and labeling.

 Ethically, this way of promoting the special characteristic of your business in

your advertising and labeling are simply fine.
 However, there are times some business because of too much desire for their
product or service to sell and to have a big gap with their competitor they tend
to exaggerate and at times misleading the customer with their advertising and
labeling,
 In the Philippines, doing such kind of activity in prohibited by the law. Below is
the Article 50 of Regulation of Sales Acts and Practices in the Philippines
2. Leakage of Sensitive Information – In the Philippines it is required for non-
stock and stock corporations to submit an updated General Information Sheet
 and audited Financial Statement yearly at the office of Securities and Exchange
Commission or SEC. (Republic Act 10173 – Data Privacy Act of 2012)
3. Discrimination or not providing equal opportunities for women and
minorities – According to Amnesty International discrimination “occurs when a
person is unable to enjoy his or her human rights or other legal rights on an equal
basis with others because of an unjustified distinction made in policy, law or
treatment”.