(SMC) Merged

Strategic management
Lecture 1
Contents to cover
 Class Introduction
 Subject evaluation criteria
 Study theme
 Norms tree
 Subject discussion
 Definition
 Purpose
 Challenge
Introduction
 Build a strategy to introduce you self

Subject evaluation criteria
 Attendance
 Class participation/discussion /group work
 Quiz
 Assignments and presentations
 Knowledge contribution
 Case study
 Strategic games
Learning tools
(Mix methods) :
 Documentaries
 Power point based
 Group discussions
 Research paper discussions
 cases
 Else :As suggested by learners
Norms tree
Required Prohibited
Course Out lines
Objectives
 Diagnostic Reasoning Skills.

 Taking meanings out of imperfect information
 Practice and improve communication skills.
 Listening
 Collecting information
Learn understand and apply tool kits
Subject discussion
Strategic Management
Compound of two words Strategy +Management
What is strategy ?
Plan of action designed to achieve desired goals or long
term objectives.
http://en.wikipedia.org/wiki/Strategy
Examples: ?
Strategy
Major questions to ask.
 What company does? (Mission and vision)
 What company will not do?
 Where do we compete? (identify market opportunity)
 How do we compete? (types of resources required
tangible /intangible)
 How companies execute the strategies?
Take Strategy as 3 legged stool
How can we ensure strategy
implements successfully?
 • How to translate important strategic decisions into

actions
• How to track progress, synergies & benefits on a
recurrent basis
• How to actively manage changes in your plans
• How to deliver periodically the right information to
the governance bodies
objectives for Developing Strategies
 Financial objectives(Market Share)

 Customer (quality/value)
 Internal (Innovation)
 Customer service/satisfaction (after sale service)
 Operational excellence (Reduce Cost/TQM)
 Regulatory (ensure/Increase Recycling)
 Learning and Growth (Learn and Improve)
Case of IKEA
 is a Swedish-founded multinational group that designs and

sells ready-to-assemble furniture, kitchen appliances and home
accessories, among other useful goods and occasionally home
services. It has been the world's largest furniture retailer since at
least 2008.
 It was founded in Sweden in 1943 by 17-year-old
carpenter, Ingvar Kamprad, who was listed by Forbes in 2015 as
one of the ten richest people in the world, worth more than $40
billion.
 The company's name is an acronym that consists of the initials
of Ingvar Kamprad (name of founder), Elmtaryd (the farm where
he grew up), and Agunnaryd (his hometown in Småland,
southern Sweden)
 IKEA's strategy has always been to design and
develop products based on consumers' everyday
needs, keeping prices low and providing functional,
attractive and reliable furnishings and solutions.
Sustainability has been at the root of IKEA's
strategy throughout its evolution.
 Here are a few crucial aspects to Ikea's success.
 1. Solving the worst part of buying furniture.
 Before Ikea existed, people saw furniture as an investment
for the next 20 years.
 This resulted in a lot of anxiety and indecision, according to
Shoulberg.
 "They created products that were nicely designed, if not
particularly durable, that were intended to be used
immediately… and disposed of when they wore out or,
more likely, when the user had moved on to a different
taste level or purchasing strata," he writes. "It's a seminal
change in the home business and one that conventional
furniture stores are still trying to come to grips with."
 2. Hitting the right demographic.
 Ikea resonates with young people, according to
Shoulberg.
 The products are clean, with a simple aesthetic and
"whimsical" names.
 Ikea is also known for paying workers a living wage
and being transparent about the production process.
 4. Stores are a destination.
 As e-commerce becomes more popular, shoppers
need incentive to come into stores.
 With its elaborate showroom and cafeteria, Ikea has
become a unique destination for shoppers.
 While many retailers enter shopping centers hoping
for traffic, Ikea is a standalone store that shoppers
seek out with a specific goal in mind.
 "There is no mistaking why you are there," Shoulberg
says.
 Strategy pyramid
Mission
/Vision
Strategies
Smart Goals
Objectives
Action Plan
Role of strategy
Product
Strategy
Vision
Case of McDonald
 When most firms were struggling in 2008,

McDonald’s increased its revenues from $22.7 billion
in 2007 to $23.5 billion in 2008. Headquartered in Oak
Brook, Illinois McDonald’s net income nearly doubled
during that time from $2.4 billion to $4.3 billion—
quite impressive. Fortune magazine in 2009 rated
McDonald’s as their 16th “Most Admired Company in
the World” in terms of their management and
performance
 McDonald’s added 650 new outlets in 2009 when
many restaurants struggled to keep their doors open.
McDonald’s low prices and expanded menu items
have attracted millions of new customers away from
sit-down chains and independent eateries.
 Jim Skinner, CEO of McDonald’s, says, “We do so well

because our strategies have been so well planned
out.”
 McDonald’s served about 60 million customers every
day in 2009, 2 million more than in 2008. Nearly 80
percent of McDonald’s are run by franchisees (or
affiliates).
 About half of McDonald’s 31,000 locations are outside
the United States
 But McDonald’s top management team says
everything the firm does is for the long term.
 McDonald’s for several years referred to their
strategic plan as “Plan to Win.”
 This strategy has been to increase sales at existing
locations by improving the menu, remodeling dining
rooms, exteand improving the drive-through
windows to increase sales and efficiency.
 McDonald’s receives nearly two thirds of its revenues

from outside the United States. The company has
14,000 U.S. outlets and 18,000 outlets outside the
United Statesnding hours, and adding snacks.
Strategic Management
 Definition
1. It entails three ongoing processes, analysis decision
and action i.e. strategic management is concerned with
analysis of the hierarchy of strategic goals (vision,
mission, and strategic objectives) along with the analysis
of the internal and external environment of organization.
(dess lumpkin taylor)
 2. strategic management is art and science of
formulating , implementing and evaluating cross
functional decisions that enable an organization to
achieve its objectives.
(Fred R Devid)
Strategic management Vs strategic
planning
Strategic management Strategic planning

Academia use Business use
Based on formulation, Based on formulation/ analysis
implementation and evaluation
Originated in 1950’s lasted till 1980’s
and then revived again in 1990’s
Integrating intuition and analysis
 Albert Einstein acknowledged the importance of
intuition when he said,
 “I believe in intuition and inspiration .at times I feel
certain that I am right while not knowing the reason .
 Imagination is more important than knowledge
,because knowledge is limited, whereas imagination
embraces the entire world.
 Analytical thinking and intuitive thinking complement
each other.
Why strategic management is important?
 To rationally plan you job or business.
 Reason for studying strategic management is that

organizations of all types and sizes continually face
changing situations.
Challenges
 Growth is the overarching challenge.
 Addressing the challenge of value provides your foundation for

growth
 Success in pursuing the challenges of growth and value, requires

addressing the challenge of focus, which provides your path
from value to growth
 The challenge of change requires that you design the new

enterprise for the pursuing the path from value to growth
 Change almost always involves investing in inherently
unpredictable outcomes in the future, the fifth challenge.
 By addressing the challenge of knowledge, you can gain

the means of transforming information to insights to
programs of action
 The seventh challenge is time. This challenge involves

carefully allocating the organization’s scarcest resource
the time of the top management team, including you
Importance of Studying Strategic
Management
 Strategic management can systematize the business

decisions.
 Study of strategic management coupled with
‘knowledge industry’ can educate the business
managers to understand the inherent problems so as
to make rational decisions in times of need.
 Corporate activities are multi-dimensional and multi-
directional and becoming complex in view of what is
charted in the diagram above. Short-term planning
depending on situations and necessary coordination
and communication in the areas of resource
allocation require strategic management practices.
Why it is important to study
strategic management?
 First, the subject matter is relatively new compared to

traditional business topics.
 Second, strategic management and business policy
integrates the traditional subjects with the main purpose
of providing a practical, real-world view of business
management.
 The study of strategic management and business policy is a
capstone course designed to integrate all prior learning
into one subject suited for application in the modern
business environment.
 Further, strategic management is designed to
develop an awareness of the processes by which
organizations can achieve synergies of the whole
through the effective cooperation and interaction of
the many departments within an organization.
 Today’s managers must have and/or develop the
ability to see the interdependent and interrelated
nature of organizations.
 In addition, managers must develop the necessary
skills to closely interact with people from differing
backgrounds.
 Therefore, the study of strategic management is
designed to prepare current as well as future
managers to meet the challenges of today’s
competitive and ever-changing environments.
Chapter 2
The Business Vision & Mission
Strategic Management:
Concepts & Cases
13th Edition
Fred David
Copyright © 2011 Pearson Education, Inc. Ch 2 -1

Publishing as Prentice Hall
Vision
“The last thing IBM needs right now is a

vision.” (July 1993)
“What IBM needs most right now is a

vision.” (March 1996)
– Louis V. Gerstner, Jr., CEO, IBM Corporation

Vision
Agreement on the basic vision for which the

firm strives to achieve in the long term is
especially important.

Vision
“What do we want to become?”

Vision Statement Examples
Tyson Foods’ vision is to be the

world’s first choice for protein
solutions while maximizing
shareholder value.

General Motors’ vision is to be the

world leader in transportation
products and related services.

PepsiCo’s responsibility is to
continually improve all aspects of the
world in which we operate –
environment, social, economic –
creating a better tomorrow than today.

Dell’s vision is to create a company culture

where environmental excellence is second
nature.

Vision
Clear Business
Vision
Comprehensive
Mission Statement

Mission Statement
◼ Answers the question:

❑ “What is our business?”
◼ Reveals:
❑ what the organization wants to be
❑ whom we want to serve

Mission Statement
◼ An enduring statement of purpose

that distinguishes one organization
from other similar enterprises
◼ A declaration of an organization’s
“reason for being”

Mission Statements are also called
◼ Creed statement
◼ Statement of purpose
◼ Statement of philosophy
◼ Statement of beliefs
◼ Statement of business principles
◼ A statement “defining our business”

Mission Statement Examples
Fleetwood Enterprises will lead the recreational
vehicle and manufactured housing industries in
providing quality products with a passion for
customer-driven innovation. We will emphasize
training, embrace diversity and provide growth
opportunities for our associates and our dealers. We
will lead our industry in the application of appropriate
technologies. We will operate at the highest levels of
ethics and compliance with a focus on exemplary
corporate governance. We will deliver value to our
shareholders, positive operating results and industry-
leading earnings.

We aspire to make PepsiCo the world’s
premier consumer products company, focused
on convenient foods and beverages. We seek
to produce healthy financial rewards for
investors as we provide opportunities for
growth and enrichment to our employees, our
business partners and the communities in
which we operate. And in everything we do, we
strive to act with honesty, openness, fairness
and integrity.

Dell’s mission is to be the most successful

computer company in the world at delivering
the best customer experience in markets we
serve. In doing so, Dell will meet consumer
expectations of highest quality; leading
technology; competitive pricing; individual
and company accountability; best-in-class
service and support; flexible customization
capability; superior corporate citizenship;
financial stability.
Proctor & Gamble will provide branded

products and services of superior quality
and value that improve the lives of the
world’s consumers. As a result, consumers
will reward us with industry leadership in
sales, profit, and value creation, allowing
our people, our shareholders, and the
communities in which we live and work to
prosper.

At L’Oreal, we believe that lasting

business success is built upon ethical
standards which guide growth and on
a genuine sense of responsibility to
our employees, our consumers, our
environment and to the communities in
which we operate.

Vision & Mission
◼ Great benefits can be achieved if

an organization
❑ Systematically revisits their vision and
mission statement
❑ Treats them as living documents
❑ Considers them to be an integral part

of the firm’s culture
Vision & Mission
Profit & vision are necessary to

effectively motivate a workforce

Vision & Mission
Shared vision creates a community of

interests

Developing Vision & Mission
A clear mission is needed before

alternative strategies can be
formulated and implemented

Developing Vision & Mission
Participation by as many managers as

possible is important in developing the
mission because through involvement
people become committed to an
organization

Steps to Developing Vision &
Mission Statements
1. Have managers read related articles
2. Have managers prepare a vision and
mission statement for the organization
3. Merge the documents into one and
distribute
4. Gather feedback from managers
5. Meet to revise the final document
Benefits of Mission Statements
◼ Better financial results

◼ Unanimity of purpose
◼ Resource allocation
◼ Establishment of culture
◼ Focal point for individuals
◼ Establishment of work structure
◼ Basis of assessment and control
◼ Resolution of divergent views
Resolution of Divergent Views
◼ A genuine decision must be based on

divergent views to have a chance to be
a right and effective decision
◼ Considerable disagreement over vision

and mission statements can cause
trouble if not resolved

Vision & Mission Statements
◼ Provide unity of direction

◼ Promote shared expectations
◼ Consolidate values
◼ Project a sense of worth and intent
◼ Affirm the company’s commitment

to responsible action
Declaration of
Attitude
✓Broad in scope
✓Generate strategic alternatives
✓Not overly specific
✓Reconciles interests among

diverse stakeholders
✓Finely balanced between

specificity & generality

Declaration of
Attitude
✓Arouse positive feelings &

emotions
✓Motivate readers to action
✓Generate favorable impression

of the firm

Declaration of
Attitude
✓Reflect future growth
✓Provide criteria for strategy

selection
✓Basis for generating &

evaluating strategic options
✓Dynamic in nature

Mission & Customer
Orientation – Vern McGinnis
◼ Define what the organization is
◼ Define what it aspires to be
◼ Limited to exclude some ventures
◼ Broad enough to allow for growth
◼ Distinguishes firm from all others
◼ Framework for evaluating activities
◼ Stated clearly – understood by all
Mission & Customer Orientation
◼ An effective mission statement:

❑ Anticipates customer needs
❑ Identifies customer needs
❑ Provides product/service to satisfy
needs
❑ Identifies the utility of a firm’s products
to its customers
Utility of Firm’s Products to Customers
◼ Do not offer me things.

◼ Do not offer me clothes. Offer me attractive
looks.
◼ Do not offer me shoes. Offer me comfort for my
feet and the pleasure of walking.
◼ Do not offer me a house. Offer me security,
comfort, and a place that is clean and happy.
◼ Do not offer me books. Offer me hours of
pleasure and the benefit of knowledge.

Utility of Firm’s Products to Customers
◼ Do not offer me CDs. Offer me leisure and the

sound of music.
◼ Do not offer me tools. Offer me the benefits and
the pleasure that come from making beautiful
things.
◼ Do not offer me furniture. Offer me comfort and
the quietness of a cozy place.
◼ Do not offer me things. Offer me ideas,
emotions, ambience, feelings, and benefits.
◼ Please, do not offer me THINGS.
Products or
Services Markets
Customers
Mission Technology
Employees Components
Survival,
Growth,
Public Profits
Image
Self-Concept Philosophy

All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

Chapter 3
The External Assessment
Strategic Management:
Concepts & Cases
13th Edition
Global Edition
Fred David
Copyright © 2011 Pearson Education Ch 3 -1

External Assessment
“It is not the strongest of the species that

survive, nor the most intelligent, but the one
most responsive to change.”
– Charles Darwin
“Nothing focuses the mind better than the

constant sight of a competitor who wants to
wipe you off the map.”
– Wayne Calloway, Former CEO, PepsiCo
External Strategic
Management Audit
– Environmental Scanning
– Industry Analysis

External Strategic
Management Audit
Identify & evaluate factors beyond the

control of a single firm
 Increased foreign competition
 Population shifts
 Ageing society
 Fear of travelling
 Stock market volatility

External Strategic
Management Audit
Purpose of an External Audit

 Develop a finite list of
 opportunities that could benefit a firm

 threats that should be avoided

External Audit
 Gather competitive intelligence
 Assimilate information
 Evaluate
Resulting in a list of the most

important key external factors

Performing External Audit
Long-term Orientation
Measurable
External
Factors Applicable to
Competing Firms
Hierarchical

Industrial Organization
(I/O) View
Industry factors are more important

than internal factors
 Performance determined by industry

forces

I/O Perspective Firm Performance
Industry Properties
Economies of Scale
Barriers to Market Entry
Product Differentiation
The Economy
Level of Competitiveness

Economic Forces
 GDP
 Trends in the dollar’s value
 Unemployment rates

Social, Cultural, Demographic, and
Natural Environmental Forces
Major Impact –
•Products
•Services
•Markets
•Customers

 US Facts
 Aging population
 Less White
 Widening gap between rich & poor
 2025 = 18.5% population > 65 years
 2075 = no ethnic or racial majority

 Facts
 World population 7 billion
 World population = 8 billion by 2028
 World population = 9 billion by 2054
 U.S. population > 310 million

 Trends
 More American households with
people living alone
 Aging Americans – affects all
organizations

Political, Governmental, and
Legal Forces
Government Regulation
Key opportunities & threats

 Antitrust legislation
 Tax rates
 Lobbying activities
 Patent laws

Political, Governmental, and
Legal Forces
 Protectionist policies
 Governments taking equity stakes

in companies

Technological Forces
Major Impact –
•Internet

Significance of IT
•Chief Information Officer (CIO)
•Chief Technology Officer (CTO)

Essential for nearly every

strategic decision

Competitive Forces
Collection & evaluation of data on

competitors is essential for successful
strategy formulation

Competitive Forces
Identify Rival Firms’
•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies

Competitive Forces
Competition in virtually all

industries can be described as
intense

Key Questions Concerning
Competitors
 Their strengths
 Their weaknesses
 Their objectives and strategies
 Their responses to external variables
 Their vulnerability to our alternative
strategies
 Our vulnerability to strategic counterattack

Key Questions Concerning
Competitors
 Our product/service positioning
 Entry and exit of firms in the industry
 Key factors for our current position in industry
 Sales/profit ranking of competitors over time
 Nature of supplier and distributor
relationships
 The threat of substitute products/services

Competitive Forces
 7 characteristics of most competitive firms

 Market share matters
 Understanding what business you are in
 Broke or not, fix it
 Innovate or evaporate
 Acquisition is essential to growth
 People make a difference
 No substitute for quality

Competitive Intelligence
 A systematic and ethical process for

gathering and analyzing information
about the competition’s activities and
general business trends to further a
business’s own goals

Sources of Competitive Intelligence
 Internet  Consultants
 Employees  Trade journals
 Managers  Want ads
 Suppliers  Newspaper articles
 Distributors  Government filings
 Customers  Competitors
 Creditors

Objectives of Competitive Intelligence
 Provide a general understanding of industry

and competitors
 Identify areas where competitors are
vulnerable and assess impact of actions on
competitors
 Identify potential moves that a competitor
might make

Market Commonality
 The number and significance of

markets that a firm competes in
with rivals

Resource Similarity
 Extentto which the type and

amount of a firm’s internal
resources are comparable to a
rival

The Five-Forces Model of Competition

Steps to Determine if an Acceptable
Profit Can Be Earned
1. Identify key aspects or elements of each
competitive force
2. Evaluate how strong and important each
element is for the firm
3. Decide whether the collective strength of
the elements is worth the firm entering or
staying in the industry

The Five-Forces Model
 Rivalry among competing firms

 Most powerful of the five forces
 Focus on competitive advantage of
strategies over other firms

Conditions that Cause High Rivalry
Among Competing Firms
 High number of competing firms
 Similar size of firms competing
 Similar capability of firms competing
 Falling demand for the industry’s products
 Falling product/service prices in the
industry

 Consumers can switch brands easily

 Barriers to leaving the market are high
 Barriers to entering the market are low
 Fixed costs are high among firms
competing
 The product is perishable

 Rivals have excess capacity

 Consumer demand is falling
 Rivals have excess inventory
 Rivals sell similar products/services
 Mergers are common in the industry

 Potential Entry of New Competitors

 Barriers to entry are important
 Quality, pricing, and marketing can
overcome barriers

 Potential development of substitute

products
 Pressure increases when:
 Prices of substitutes decrease
 Consumers’ switching costs

decrease

 Bargaining Power of Suppliers is

increased when there are:
 Large numbers of suppliers
 Few substitutes
 Costs of switching raw materials is high
 Backward integration is gaining control or

ownership of suppliers

 Bargaining power of consumers

 Customers being concentrated or
buying in volume affects intensity of
competition
 Consumer power is higher where
products are standard or

undifferentiated
Conditions Where Consumers Gain
Bargaining Power
 If buyers can inexpensively switch
 If buyers are particularly important
 If sellers are struggling in the face of falling
consumer demand
 If buyers are informed about sellers’
products, prices, and costs
 If buyers have discretion in whether and
when they purchase the product

Sources of External Information:
Unpublished Sources
 Customer surveys
 Market research
 Speeches at professional or shareholder
meetings
 Television programs
 Interviews and conversations with
stakeholders

Published Sources
 Periodicals
 Journals
 Reports
 Government documents
 Abstracts
 Books
 Directories
 Newspapers
 Manuals

Web Sites
 http://marketwatch.multexinvestor.com
 http://moneycentral.msn.com
 http://finance.yahoo.com
 www.clearstation.com
 https://us.etrade.com/e/t/invest/markets
 www.hoovers.com

Forecasting Tools and Techniques
 Forecasts are educated assumptions

about future trends and events
 Quantitative techniques – most
appropriate when historical data is
available and there is a constant
relationship
 Qualitative techniques

Assumptions
Estimates of future events based

upon the best available
information in the present

Industry Analysis: The External
Factor Evaluation (EFE) Matrix
 Economic  Political
 Social  Governmental
 Cultural  Technological
 Demographic  Competitive
 Environmental  Legal

EFE Matrix Steps
1. List key external factors

2. Weight from 0 to 1
3. Rate effectiveness of current strategies
4. Multiply weight * rating
5. Sum weighted scores

Industry Analysis EFE
Total weighted score of 4.0

 Organization response is outstanding to threats
and weaknesses
Total weighted score of 1.0

 Firm’s strategies not capitalizing on opportunities
or avoiding threats

Industry Analysis: Competitive Profile
Matrix (CPM)
 Identifies firm’s major competitors and
their strengths & weaknesses in
relation to a sample firm’s strategic
positions
 Critical success factors include

internal and external issues

Industry Analysis CPM
Important –
Just because one firm receives a 3.2 rating

and another receives a 2.8 rating, it does not
follow that the first firm is 20 percent better
than the second.

GROUP EXERCISE
 Analyse Varsity College’s External Strategic Situation

 Identify 10 opportunities and rank them in order of
importance, 1 being most important, 10 being least
important
 Identify 10 threats and rank them in order of importance,
1 being most important, 10 being least important
 Develop an EFE matrix for Varsity College
 Prepare a 2 minute presentation to summarise your
findings

FOR NEXT WEEK
• Readings 5 & 6 Strategic Management Supplement for

Southern Africa
• Assurance of Learning exercise 3A – Group exercise
• Read Business Report, www.busrep.co.za
• Read CNBC, www.cnbc.com

The Internal
Assessment
Chapter Four
Key Internal Forces
❖ Distinctive competencies
 A firm’s strengths that cannot be easily
matched or imitated by competitors.
❖ Building competitive advantages involves

taking advantage of distinctive
competencies.
4-2
Copyright ©2013 Pearson Education
The Internal Audit
❖ The internal audit

 Requires gathering and understanding
information about the firm’s management,
marketing, finance/accounting,
production/operations, research and
development (R&D), and management
information systems operations
 Provides more opportunity for participants to
understand how their jobs, departments, and
divisions fit into the whole organization.
4-3
4-4
The Internal Factor Evaluation
(IFE) Matrix
❖ Internal Factor Evaluation (IFE) matrix is a
strategic management tool for auditing or
evaluating major strengths and weaknesses in
functional areas of a business.
❖ IFE matrix also provides a basis for identifying
and evaluating relationships among those areas.
❖ IFE matrix together with the EFE matrix are used

in strategy formulation.
4-5
Weights
❖ Each key factor should be assigned a weight

ranging from 0.0 (low importance) to 1.0 (high
importance).
❖ The number indicates how important the factor
is if a company wants to succeed in an industry.
❖ If there were no weights assigned, all the
factors would be equally important, which is an
impossible scenario in the real world.
4-6
❖ The sum of all the weights must equal
1.0.
❖ Separate factors should not be given too
much emphasis (assigning a weight of
0.30 or more) because the success in an
industry is rarely determined by one or
few factors.
4-7
Rating
❖ The ratings in internal matrix refer to how

strong or weak each factor is in a firm.
❖ The numbers range from 4 to 1,
❖ where 4 means a major strength,
❖ 3 – minor strength,
❖ 2 – minor weakness and
❖ 1 – major weakness.
❖ Strengths can only receive ratings 3 & 4,
weaknesses – 2 & 1
4-8
❖ The firm can receive the same total score from
1 to 4 in both matrices.
❖ The total score of 2.5 is an average score.
❖ In external evaluation a low total score
indicates that company’s strategies aren’t well
designed to meet the opportunities and defend
against threats.
❖ In internal evaluation a low score indicates that
the company is weak against its competitors.
4-9
4-10
❖ 2.40, which indicates that company’s
strategies are neither effective nor
ineffective in exploiting opportunities or
defending against threats. The company
should improve its strategy and focus
more on how take advantage of the
opportunities.
4-11
The Resource-Based View (RBV)
❖ The Resource-Based View (RBV)

approach
 Contends that internal resources are more
important for a firm than external factors in
achieving and sustaining competitive
advantage.
4-12
❖ Supporters of the RBV argue that

organizational performance will mainly be
determined by internal resources that can
be grouped into three all-inclusive
categories:
▪ physical resources, human resources,
and organizational resources.
4-13
❖ For a resource to be valuable, it must be

either (1) rare, (2) hard to copy, or (3) not
easily substitutable.
❖ These three characteristics of resources
enable a firm to implement strategies that
improve its efficiency and effectiveness
and lead to a sustainable competitive
advantage.
4-14
4-15
1. Integrating Strategy and Culture
❖ Organizational culture significantly affects

business decisions and thus must be
evaluated during an internal strategic-
management audit.
❖ If strategies can benefit from cultural

strengths, such as a strong work ethic or
highly ethical beliefs, then management often
can quickly and easily implement changes.
4-16
2. Management
❖ The functions of management consist of

five basic activities: planning, organizing,
motivating, staffing, and controlling.
❖ These activities are important to assess in
strategic planning because an organization
should continually benefit from its
management strengths and improve on its
management weaknesses.
4-17
Management Audit Checklist
of Questions
1. Does the firm use strategic-management
concepts?
2. Are company objectives and goals
measurable and well communicated?
3. Do managers at all hierarchical levels plan
effectively?
4. Do managers delegate authority well?
5. Is the organization’s structure appropriate?
4-18
Management Audit Checklist
of Questions (cont.)
6. Are job descriptions and job specifications
clear?
7. Is employee morale high?
8. Are employee turnover and absenteeism
low?
9. Are organizational reward and control
mechanisms effective?
4-19
3. Marketing
❖ Marketing
 the process of defining, anticipating, creating,
and fulfilling customers’ needs and wants for
products and services.
4-20
Functions of Marketing
Customer analysis
Selling products/services
Product and service planning
Pricing Distribution
Marketing research
Opportunity analysis
4-21
3.1. Customer analysis
❖ Customer analysis
 the examination and evaluation of consumer
needs, desires, and wants.
 involves administering customer surveys,
analyzing consumer information, evaluating
market positioning strategies, developing
customer profiles, and determining optimal
market segmentation strategies
 essential in developing an effective mission
statement.
4-22
3.2. Product and Service Planning
❖ Product and service planning

 includes activities such as test marketing;
product and brand positioning; devising
warranties; packaging; determining product
options, features, style, and quality; deleting
old products; and providing for customer
service.
 important when a company is pursuing
product development or diversification
4-23
3.3. Pricing
❖ Five major stakeholders affect pricing

decisions: consumers, governments,
suppliers, distributors, and competitors
❖ Sometimes an organization will pursue a
forward integration strategy primarily to
gain better control over prices charged to
consumers.
4-24
3.4. Distribution
❖ Distribution
 includes warehousing, distribution channels,
distribution coverage, retail site locations,
sales territories, inventory levels and
location, transportation carriers, wholesaling,
and retailing.
 especially important when a firm is striving to
implement a market development or forward
integration strategy.
4-25
3.5. Marketing Research
❖ Marketing research
 the systematic gathering, recording, and
analyzing of data about problems relating to
the marketing of goods and services
 can uncover critical strengths and
weaknesses.
4-26
Marketing Audit Checklist
of Questions
1. Are markets segmented effectively?
2. Is the organization positioned well among
competitors?
3. Has the firm’s market share been increasing?
4. Are present channels of distribution reliable and
cost effective?
5. Does the firm have an effective sales
organization?
6. Does the firm conduct market research?
4-27
Marketing Audit Checklist
of Questions
7. Are product quality and customer service good?
8. Are the firm’s products and services priced
appropriately?
9. Does the firm have an effective promotion,
advertising, and publicity strategy?
10. Are marketing, planning, and budgeting effective?
11. Do the firm’s marketing managers have adequate
experience and training?
12. Is the firm’s Internet presence excellent as
compared to rivals?
4-28
Finance/Accounting Functions
The functions of finance/accounting

comprise three decisions:
1. the investment decision
2. the financing decision
3. the dividend decision
4-29
4. Finance/Accounting Functions
❖ Investment decision
 the allocation and reallocation of capital and
resources to projects, products, assets, and
divisions of an organization.
❖ Financing decision
 determines the best capital structure for the
firm and includes examining various methods
by which the firm can raise capital.
4-30
❖ Dividend decisions
 concern issues such as the percentage of
earnings paid to stockholders, the stability of
dividends paid over time, and the repurchase
or issuance of stock.
 determine the amount of funds that are
retained in a firm compared to the amount
paid out to stockholders.
4-31
1. How does each ratio changed over time?
2. How does each ratio compared to

industry norms?
3. How does each ratio compared with key

competitors?
4-32
Finance/Accounting Audit
Checklist
1. Where is the firm financially strong and weak
as indicated by financial ratio analyses?
2. Can the firm raise needed short-term capital?
3. Can the firm raise needed long-term capital
through debt and/or equity?
4. Does the firm have sufficient working capital?
5. Are capital budgeting procedures effective?
4-33
Finance/Accounting Audit
Checklist
7. Are dividend payout policies
reasonable?
8. Does the firm have good relations with
its investors and stockholders?
9. Are the firm’s financial managers
experienced and well trained?
10. Is the firm’s debt situation excellent?
4-34
5. Production/Operations
❖ Production/operations function
 consists of all those activities that
transforms inputs into goods and services.
❖ Production/operations management
deals with inputs, transformations, and
outputs that vary across industries and
markets.
4-35
Production/Operations
Audit Checklist
1. Are supplies of raw materials, parts, and
subassemblies reliable and reasonable?
2. Are facilities, equipment, machinery, and offices in
good condition?
3. Are inventory-control policies and procedures
effective?
4. Are quality-control policies and procedures effective?
5. Are facilities, resources, and markets strategically
located?
6. Does the firm have technological competencies?
4-36
6. Research and Development
Audit
1. Does the firm have R&D facilities? Are they adequate?
2. If outside R&D firms are used, are they cost-effective?
3. Are the organization’s R&D personnel well qualified?
4. Are R&D resources allocated effectively?
5. Are management information and computer systems
adequate?
6. Is communication between R&D and other
organizational units effective?
7. Are present products technologically competitive?
4-37
7. Management Information
Systems
❖ A management information system’s purpose is
to improve the performance of an enterprise by
improving the quality of managerial decisions
❖ An effective information system thus collects,

codes, stores, synthesizes, and presents
information in such a manner that it answers
important operating and strategic questions
4-38
Management Information
Systems Audit
1. Do all managers in the firm use the information
system to make decisions?
2. Is there a chief information officer or director of
information systems position in the firm?
3. Are data in the information system updated
regularly?
4. Do managers from all functional areas of the
firm contribute input to the information system?
5. Are there effective passwords for entry into the
firm’s information system?
4-39
Management Information
Systems Audit
6. Are strategists of the firm familiar with the
information systems of rival firms?
7. Is the information system user-friendly?
8. Do all users of the information system understand
the competitive advantages that information can
provide firms?
9. Are computer training workshops provided for users
of the information system?
10. Is the firm’s information system continually being
improved in content- and user-friendliness?
4-40
8. Value Chain Analysis (VCA)
❖ Value chain analysis (VCA)

 refers to the process whereby a firm
determines the costs associated with
organizational activities from purchasing raw
materials to manufacturing product(s) to
marketing those products
 aims to identify where low-cost advantages or
disadvantages exist anywhere along the value
chain from raw material to customer service
activities
4-41
4-42
examples include:
❖ Food and Beverage: Selecting and

sourcing high-quality coffee beans,
developing loyalty through excellent
customer service, and aggressively
marketing their brand were key elements
in Starbucks’ creation of a unique identity
and a robust competitive edge.
❖ Rather than focusing on premium pricing,
Pizza Hut outpaced the competition by
offering fast delivery of a less expensive
4-43
❖ Delivery Service: To increase market
share and brand loyalty, FedEx's value
chain emphasizes and invests in
employee development through excellent
human resources initiatives and
infrastructure improvements.
4-44
❖ Retail: Walmart is constantly performing
value chain analysis in order to keep
costs low for their customers. From
regularly evaluating suppliers and
integrating in-store and online shopping
experiences to remaining innovative in
order to differentiate, Walmart is driven by
their commitment to helping people save
money.
4-45
approaches that focus on discovering cost advantages and
disadvantages include:
❖ Identifying primary and supporting activities
❖ Rating the importance of each activity in providing
value to the product or service
❖ Identifying the cost drivers that cause a change in the
activity cost
❖ Identifying linkages and dependencies
❖ Identifying cost reduction and value improvement
opportunities
4-46
Approaches with a focus on finding
differentiation include:
❖ Identifying activities that create value for
your customers
❖ Identifying differentiation activities that
improve customer value
❖ Identifying the best opportunity for
differentiation
4-47
CREATE A COLLABORATIVE VALUE CHAIN ANALYSIS
WITH SMARTSHEET
❖ Conducting an in-depth value chain

analysis is essential to help create a
competitive advantage. But this analysis
cannot happen in a silo. You must have a
way to collaborate on and share your
value chain analysis with key
stakeholders.
4-48
4-49
ADVANTAGES OF VALUE
CHAIN ANALYSIS
❖ easily identify those activities where you can quickly
reduce cost, optimize effort, eliminate waste, and
increase profitability.
❖ Analyzing activities also gives insights into elements

that bring greater value to the end user.
❖ A company may choose to design a product or service,

but use an outsourced provider to build or manufacture
the product.
4-50
Disadvantages
❖ difficulties involve gathering data (which

can be labor and time-intensive)
❖ difficulties to Identifying the tasks or
functions that can add perceived or real
value, and developing and deploying the
plan.
❖ it is not always easy to find appropriate
information
4-51
8.1. Benchmarking
❖ Benchmarking
 an analytical tool used to determine whether
a firm’s value chain activities are competitive
compared to rivals and thus conducive to
winning in the marketplace
 entails measuring costs of value chain
activities across an industry to determine
“best practices”
4-52
Means of Achieving
strategies
Online lecture 9
Chapter 5
Book : Fred R. David 13th Edition
Video Links of the Topics
• Joint venture/Partnership
• https://www.youtube.com/watch?v=drK_S95gCJU
• Merger and acquisitions
https://www.youtube.com/watch?v=DVRPe897nnA
First movers Advantage
https://www.youtube.com/watch?v=VL4jBchBYsU
• Outsourcing
• https://www.youtube.com/watch?v=DcQraUl1Zjg
Joint Venture
• A joint venture occurs when two or more businesses join together to
pursue a common project
• Basics on joint ventures
• With a joint venture, businesses remain separate in legal terms
• Joint ventures are common, as firms want to benefit
from collaborative work in reaching a mutually agreed strategic
target.
• Many joint ventures seek to share the fixed costs of major business
research / infrastructure projects
Examples of joint ventures include:
• Vodafone & Telefónica agreed to share their mobile network
• BMW and Toyota co-operate on research into hydrogen fuel cells,

vehicle electrification and ultra- lightweight materials
• Google and NASA developing Google Earth

Joint venture and partnership
• http://www.infoentrepreneurs.org/en/guides/joint-ventures-and-
partnering/
Merger and acquisitions
• WHAT IT IS:
• Mergers & acquisitions (M&A) refer to the management, financing,
and strategy involved with buying, selling, and combining companies.
HOW IT WORKS (EXAMPLE):
• A merger is the combination of two similarly sized companies combined to form a new company.
• An acquisition occurs when one company clearly purchases another and becomes the new owner.
• A merger or an acquisition usually starts out with a series of informal discussions between the
boards of the companies, followed by formal negotiation, a letter of intent, due diligence, a
purchase or merger agreement, and finally, the execution of the deal and the transfer of payment.
• Quite often, these transactions can take six to nine months (smaller deals often take less time and
larger deals often take more time), and they can be complex, particularly from legal
and accounting perspectives.
• companies often hire investment bankers or other intermediaries to facilitate M&A transactions.
• These intermediaries can help sellers find buyers (or vice versa), conduct the negotiations for a
client, handle paperwork, and perform the due diligence on the other party. For this, the
intermediary receives a fee, which is usually a percentage of the transaction amount
• Mergers & Acquisitions can take place:
• • by purchasing assets
• • by purchasing common shares
• • by exchange of shares for assets
• • by exchanging shares for share
First Movers Advantage
• The first mover advantage refers to an advantage gained by a
company that first introduces a product or service to the market. The
first mover advantage allows a company to establish strong brand
recognition and product/service loyalty before other entrants.
• first mover advantage only refers to a large company that moves into a market. For example,
Amazon was not the first company to sell books online. However, it was the first company to
achieve significant scale in that line of business.
• Advantages of Being a First Mover

• There are several advantages to being the first business to execute a strategy.
• Companies that are first movers can often:
• Establish their product as the industry standard
• Be able to tap into consumers first and make a strong impression, which can lead to brand
recognition and brand loyalty.
• May be able to control resources, such as basing themselves in a strategic location, establishing a
premium contract with key suppliers, or hiring talented employees.
• Can gain an advantage when there is a high switching cost for consumers to switch to later
entrants
Benefits of FMA
• 1. Technology leadership
• First movers can make their technology/product/services harder for
later entrants to replicate. For example, if the first mover can reduce
the costs of producing a product (an “experience” curve effect), the
first mover can establish an absolute cost advantage. In addition,
applying for patents can protect and establish a first-mover
advantage.
• 2. Control of resources
• The second benefit is the ability to control strategic and/or scarce
resources. For example, Wal-Mart was able to locate their stores in
small towns and prevent others from entering the market
• 3. Buyer-switching costs
• The third benefit that first movers may enjoy is buyer-switching costs.
If the first business is able to establish itself first, it may seem
inconvenient consumers to switch to a new brand
Disadvantages of Being a First Mover
• Being the first business in an industry may not always guarantee an

advantage.
• The first mover may invest heavily in persuading consumers to try a new
product. Later entrants would benefit from these informed buyers and
would not need to spend that much on educating consumers.
• Later entrants can avoid mistakes made by the first mover.
• If the first mover is unable to capture consumers with their products, later
entrants can take advantage of it.
• Later entrants can reverse-engineer new products and make them better
or cheaper.
• Later entrants can identify areas of improvement by the first mover and
take advantage of it.
Examples of Successful Companies That Were Not
First Movers
Listed below are 3 companies that were not first
movers in their respective markets, but have now
grown to become some of the biggest companies
in the world:
• 1. Google
• Before Google, there were search engines such as Yahoo and
Infoseek. However, Google was able to customize their search engine
to perform more effectively and efficiently. They now control over
65% of the search activity.
• 2. Southwest Airlines
• Southwest Airlines entered the airline industry as a late entrant but
was able to expand and become the second largest airline in the
world in terms of the total number of passengers. The company
focused on an area that other airlines were not looking at – short haul
flights.
• 3. Starbucks
• There were a lot of places to buy coffee before the establishment of
Starbucks. However, Starbucks was able to establish a strong brand
equity by placing an emphasis on making Starbucks the go-to place
when you’re not home or at the office.
Out sourcing
• Outsourcing is a term used to describe almost any corporate activity
that is managed by an outside vendor, from the running of the
company's cafeteria to the provision of courier services.
Difference between outsourcing and joint
venture
• Outsourcing is the contracting of services via monetary means in
order to minimize or limit the resources that would normally be
required to perform business functions internally, thus reducing
costs.
A partnership, on the other hand, does not necessarily involve

monetary payment from one firm to another, or a binding contractual
agreement between two companies.
Strategic Management Concepts: A
Competitive Advantage Approach,
Concepts and Cases
Seventeenth Edition
Chapter 5
Strategies in Action
Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
Learning Objectives (1 of 2)
5.1 Identify and discuss five characteristics and ten benefits
of clear objectives.
5.2 Define and give an example of eleven types of
strategies.
5.3 Identify and discuss the three types of “Integration
Strategies.”
5.4 Give specific guidelines when market penetration,
market development, and product development are
especially effective strategies.
5.5 Explain when diversification is an effective business
strategy.
Learning Objectives (2 of 2)
5.6 List guidelines for when retrenchment, divestiture, and
liquidation are especially effective strategies.
5.7 Identify and discuss Porter’s five generic strategies.
5.8 Compare (a) cooperation among competitors, (b) joint
venture and partnering, and (c) merger/acquisition as
key means for achieving strategies.
5.9 Discuss tactics to facilitate strategies, such as (a) being
a first mover, (b) outsourcing, and (c) reshoring.
5.10 Explain how strategic planning differs in for-profit, not-
for-profit, and small firms.
Figure 5.1
A Comprehensive Strategic-Management Model
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 1
(February 1989): 91. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama
Wiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National
Construction Contractor of Indonesia,” Journal of Mathematics and Technology, no. 4 (October 2010):
20.
Long-Term Objectives
• The results expected from pursuing certain strategies

• 2-to-5 year timeframe
The Nature of Long-Term Objectives
• Objectives
– provide direction
– allow synergy
– assist in evaluation
– establish priorities
– reduce uncertainty
– minimize conflicts
– stimulate exertion
– aid in both the allocation of resources and the design of
jobs
Table 5.1 Five Characteristics of
Objectives
1. Quantitative: measurable
2. Understandable: clear
3. Challenging: achievable
4. Compatible: consistent vertically and horizontally in a
chain of command
5. Obtainable: realistic
Financial Versus Strategic Objectives
• Financial objectives include growth in revenues, growth
in earnings, higher dividends, larger profit margins, greater
return on investment, higher earnings per share, a rising
stock price, improved cash flow, and so on.
• Strategic objectives include a larger market share,
quicker on-time delivery than rivals, shorter design-to-
market times than rivals, lower costs than rivals, higher
product quality than rivals, wider geographic coverage than
rivals, achieving technological leadership, consistently
getting new or improved products to market ahead of
rivals, and so on.
Not Managing by Objectives
• Managing by Crisis
• Managing by Hope
• Managing by Extrapolation
• Managing by Mystery
Types of Strategies
• Most organizations simultaneously pursue a combination
of two or more strategies, but a combination strategy can
be exceptionally risky if carried too far.
• No organization can afford to pursue all the strategies that
might benefit the firm.
• Difficult decisions must be made and priorities must be
established.
Table 5.3 (1 of 2)
Alternative Strategies Defined and Exemplified
Strategy Definition Example

Gaining ownership or increased control Amazon began rapid delivery
Forward Integration
over distributors or retailers services in some U.S. cities.
Seeking ownership or increased Starbucks purchased a coffee farm.
Backward Integration
control of a firm’s suppliers
Seeking ownership or increased &T acquired Susquehanna
Horizontal Integration
control over competitors Bancshares.
Seeking increased market share for Under Armour signed tennis
present products or services in present champion Andy Murray to a 4-year,
Market Penetration
markets through greater marketing $23 million marketing deal.
efforts
Introducing present products or Gap opened its first five stores in
Market Development
services into new geographic area China.
Seeking increased sales by improving Amazon just began offering its own
Product Development present products or services or line of baby diapers and wipes.
developing new ones
Alternative Strategies Defined and Recent Examples Given
Table 5.3 (2 of 2)
Alternative Strategies Defined and Exemplified
Strategy Definition Example

Adding new but related products Facebook acquired the text-
Related
or services messaging firm WhatsApp for
Diversification
$19 billion.
Adding new, unrelated products or Kroger and Whole Foods
Unrelated
services Market are cooking meals,
Diversification
becoming restaurants.
Regrouping through cost and Staples closed 250 stores and
Retrenchment asset reduction to reverse reduced by 50% the size of
declining sales and profit other stores.
Selling a division or part of an Sears Holdings divested its
Divestiture organization Lands’ End division to Sears’
shareholders.
Selling all of a company’s assets, The Trump Taj Mahal in Atlantic
Liquidation in parts, for their City, New Jersey, faces
tangible worth liquidation.
Figure 5.2
Levels of Strategies with Persons Most Responsible
Table 5.4
Varying Performance Measures by Organizational Level
Organizational Level Basis for Annual Bonus or Merit Pay

Corporate 75% based on long-term objectives
25% based on annual objectives
Division 50% based on long-term objectives

Function 25% based on long-term objectives

Operational 25% based on long-term objectives

Integration Strategies
• Forward Integration
– involves gaining ownership or increased control over
distributors or retailers
• Backward Integration
– strategy of seeking ownership or increased control of a
firm's suppliers
• Horizontal Integration
– a strategy of seeking ownership of or increased control
over a firm's competitors
Forward Integration Guidelines
• When an organization’s present distributors are especially
expensive
• When the availability of quality distributors is so limited as
to offer a competitive advantage
• When an organization competes in an industry that is
growing
• When an organization has both capital and human
resources to manage distributing their own products
• When the advantages of stable production are particularly
high
• When present distributors or retailers have high profit
margins
Backward Integration Guidelines
• When an organization’s present suppliers are especially
expensive or unreliable
• When the number of suppliers is small and the number of
competitors is large
• When the organization competes in a growing industry
• When an organization has both capital and human resources
• When the advantages of stable prices are particularly important
• When present suppliers have high profit margins
• When an organization needs to quickly acquire a needed
resource
Horizontal Integration Guidelines
• When an organization can gain monopolistic
characteristics in a particular area or region without being
challenged by the federal government
• When an organization competes in a growing industry
• When increased economies of scale provide major
competitive advantages
• When an organization has both the capital and human
talent needed
• When competitors are faltering due to a lack of managerial
expertise
Intensive Strategies
• Market Penetration Strategy
– seeks to increase market share for present products or
services in present markets through greater marketing
efforts
• Market Development
– involves introducing present products or services into
new geographic areas
• Product Development Strategy

– seeks increased sales by improving or modifying
present products or services
Market Penetration Guidelines
• When current markets are not saturated with a particular
product or service
• When the usage rate of present customers could be
increased significantly
• When the market shares of major competitors have been
declining while total industry sales have been increasing
• When the correlation between dollar sales and dollar
marketing expenditures historically has been high
• When increased economies of scale provide major
competitive advantages
Market Development Guidelines
• When new channels of distribution are available that are
reliable, inexpensive, and of good quality
• When an organization is very successful at what it does
• When new untapped or unsaturated markets exist
• When an organization has the needed capital and human
resources to manage expanded operations
• When an organization has excess production capacity
• When an organization’s basic industry is rapidly becoming
global in scope
Product Development Guidelines
• When an organization has successful products that are in
the maturity stage of the product life cycle
• When an organization competes in an industry
characterized by rapid technological developments
• When major competitors offer better-quality products at
comparable prices
• When an organization competes in a high-growth industry
• When an organization has strong research and
development capabilities
Diversification Strategies
• Related Diversification
– value chains possess competitively valuable cross-
business strategic fits
• Unrelated Diversification
– value chains are so dissimilar that no competitively
valuable cross-business relationships exist
Synergies of Related Diversification
• Transferring competitively valuable expertise,
technological know-how, or other capabilities from one
business to another
• Combining the related activities of separate businesses
into a single operation to achieve lower costs
• Exploiting common use of a known brand name
• Using cross-business collaboration to create strengths
Related Diversification Guidelines
• When an organization competes in a no-growth or a slow-
growth industry
• When adding new, but related, products would significantly
enhance the sales of current products
• When new, but related, products could be offered at highly
competitive prices
• When new, but related, products have seasonal sales
levels that counterbalance an organization’s existing peaks
and valleys
• When an organization’s products are currently in the
declining stage of the product’s life cycle
• When an organization has a strong management team
Unrelated Diversification Guidelines
(1 of 2)
• When revenues derived from an organization’s current products

would increase significantly by adding the new, unrelated
products
• When an organization competes in a highly competitive or a no-
growth industry, as indicated by low industry profit margins and
returns
• When an organization’s present channels of distribution can be
used to market the new products to current customers
• When the new products have countercyclical sales patterns
compared to present products
• When an organization’s basic industry is experiencing declining
annual sales and profits
Unrelated Diversification Guidelines
(2 of 2)
• When an organization has the capital and managerial

talent needed to compete successfully in a new industry
• When an organization has the opportunity to purchase an
unrelated business that is an attractive investment
opportunity
• When there exists financial synergy
• When existing markets for an organization’s present
products are saturated
• When antitrust action could be charged against an
organization that historically has concentrated on a single
industry
Defensive Strategies (1 of 3)
• Retrenchment
– Regroups through cost and asset reduction to reverse
declining sales and profits
• Divestiture
– Selling a division or part of an organization
– Often used to raise capital for further strategic
acquisitions or investments
• Liquidation
– Selling all of a company’s assets, in parts, for their
tangible worth
• Retrenchment
– occurs when an organization regroups through cost
and asset reduction to reverse declining sales and
profits
– also called a turnaround or reorganizational strategy
– designed to fortify an organization’s basic distinctive
competence
Retrenchment Guidelines
• When an organization has a distinctive competence but
has failed consistently to meet its goals
• When an organization is one of the weaker competitors in
a given industry
• When an organization is plagued by inefficiency, low
profitability, and poor employee morale
• When an organization fails to capitalize on external
opportunities and minimize external threats
• When an organization has grown so large so quickly that
major internal reorganization is needed
Divestiture Guidelines
• When an organization has pursued a retrenchment
strategy and failed to accomplish improvements
• When a division needs more resources to be competitive
than the company can provide
• When a division is responsible for an organization's overall
poor performance
• When a division is a misfit with the rest of an organization
• When a large amount of cash is needed quickly
• When government antitrust action threatens a firm
• Liquidation
– selling all of a company’s assets, in parts, for their
tangible worth
– can be an emotionally difficult strategy
Liquidation Guidelines
• When an organization has pursued both a retrenchment
strategy and a divestiture strategy, and neither has been
successful
• When an organization’s only alternative is bankruptcy
• When the stockholders of a firm can minimize their losses
by selling the organization’s assets
Value Chain Analysis and
Benchmarking
• Value chain analysis
– The process whereby a firm determines the value
(price minus cost) of each and all activities that went
into producing and marketing a product, from
purchasing raw materials to manufacturing, distributing,
and marketing those products.
• Benchmarking
– Entails examination of value chain activities across an
industry to determine “best practices” among
competing firms; firms engage in benchmarking for the
purpose of duplicating or improving on those best
practices.
Figure 5.3
A Value Chain Illustrated
Figure 5.4 (1 of 2)
An Example Value Chain for a Typical Manufacturing Company
Figure 5.4 (2 of 2)
An Example Value Chain for a Typical Manufacturing Company
Figure 5.5
Transforming Value Chain Activities into Sustained
Competitive Advantages
Michael Porter’s Two Generic
Strategies (1 of 3)
Cost Leadership emphasizes producing standardized
products at a very low per-unit cost for consumers who are
price-sensitive
• Type 1
– low-cost strategy that offers products or services to a
wide range of customers at the lowest price available
on the market
• Type 2
– Narrow or focused low-cost strategy that offers
products or services to a small range of customers at
one of the lowest prices in the market
Strategies (2 of 3)
• Differentiation
– is a strategy aimed at producing products and services
considered unique industry-wide and directed at
consumers who are relatively price-insensitive
Strategies (3 of 3)
Two types of differentiation
• Type 3
– Wide target market
• Type 4
– Narrow target market
Means for Achieving Strategies
• BUILD from within to grow
• BORROW from others to grow
• BUY others to grow
Table 5.6 Six Reasons Why Many
Mergers and Acquisitions Fail
1. Integration difficulties up and down the two value chains
2. Taking on too much new debt the target firm owes or to
buy the target
3. Inability to achieve synergy
4. Too much diversification
5. Difficult to integrate different organizational cultures
6. Reduced employee morale due to layoffs and relocations
Table 5.7 12 Potential Benefits of
Merging With or Acquiring Another Firm
• To provide improved capacity utilization
• To make better use of the existing sales force
• To reduce managerial staff
• To gain economies of scale
• To smooth out seasonal trends in sales
• To gain access to new suppliers, distributors, customers, products, and
creditors
• To gain new technology
• To gain market share
• To enter global markets
• To gain pricing power
• To reduce tax obligations
• To eliminate competitors
Table 5.8 Six Benefits of a Firm Being
the First Mover
Secure access and commitments to rare resources.
Gain new knowledge of critical success factors and issues.
Gain market share and position in the best locations.
Establish and secure long-term relationships with customers,
suppliers, distributors, and investors.
Gain customer loyalty and commitments.
Gain patent protection early.
Strategic Management in Nonprofit
and Small Firms
• Two differences between nonprofit and for-profit
organizations:
– Nonprofits do not pay taxes
– Nonprofits do not have shareholders to provide capital
Figure 5.6
How to Gain and Sustain Competitive Advantages
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Strategic management

 Build a strategy to introduce you self

 Diagnostic Reasoning Skills.

 • How to translate important strategic decisions into

 Financial objectives(Market Share)

 is a Swedish-founded multinational group that designs and

 When most firms were struggling in 2008,

 Jim Skinner, CEO of McDonald’s, says, “We do so well

 McDonald’s receives nearly two thirds of its revenues

Strategic management Strategic planning

 To rationally plan you job or business.

 Reason for studying strategic management is that

 Growth is the overarching challenge.

 Addressing the challenge of value provides your foundation for

 Success in pursuing the challenges of growth and value, requires

 The challenge of change requires that you design the new

 By addressing the challenge of knowledge, you can gain

 The seventh challenge is time. This challenge involves

 Strategic management can systematize the business

 First, the subject matter is relatively new compared to

Copyright © 2011 Pearson Education, Inc. Ch 2 -1

“The last thing IBM needs right now is a

“What IBM needs most right now is a

– Louis V. Gerstner, Jr., CEO, IBM Corporation

Agreement on the basic vision for which the

Copyright © 2011 Pearson Education, Inc. Ch 2 -4

“What do we want to become?”

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Tyson Foods’ vision is to be the

Copyright © 2011 Pearson Education, Inc. Ch 2 -6

General Motors’ vision is to be the

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Copyright © 2011 Pearson Education, Inc. Ch 2 -8

Dell’s vision is to create a company culture

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Copyright © 2011 Pearson Education, Inc. Ch 2 -10

◼ Answers the question:

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◼ An enduring statement of purpose

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Copyright © 2011 Pearson Education, Inc. Ch 2 -13

Copyright © 2011 Pearson Education, Inc. Ch 2 -14

Copyright © 2011 Pearson Education, Inc. Ch 2 -15

Dell’s mission is to be the most successful

Proctor & Gamble will provide branded

Copyright © 2011 Pearson Education, Inc. Ch 2 -17

At L’Oreal, we believe that lasting

Copyright © 2011 Pearson Education, Inc. Ch 2 -18

◼ Great benefits can be achieved if

❑ Considers them to be an integral part

Profit & vision are necessary to

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Shared vision creates a community of

Copyright © 2011 Pearson Education, Inc. Ch 2 -21

A clear mission is needed before

Copyright © 2011 Pearson Education, Inc. Ch 2 -22

Participation by as many managers as

Copyright © 2011 Pearson Education, Inc. Ch 2 -23

◼ Better financial results