Course Title: Strategic Management

Instructor:

Saqib Yousaf
PhD, Vienna University of Economics, Austria

Course Code:

MGT501

Introduction
What is Strategic Management? art and science of formulating, implementing, and evaluating crossfunctional decisions that enable an organization to achieve its objectives (Fred R. David, 2009) Focus on integrating organizational functions to achieve its desire objectives and success. The purpose of SM is to create and exploit present and future potentials. Strategic Plan is company's game plan. In world of scarce resources and competition strategic planning is essential to survive the competition and grow.

History


Originated in 1950s, and got popularity in 60s and 70s.

In 1990s strategic management/planning was revived and still dominate planning process in today's world of business
 

Strategic management is also referred as strategic planning.

Strategic planning is more used in business world.

Stages of Strategic Management

Three main steps 1) Strategy Formulation 2) Strategy Implementation 3) Strategy Evaluation Strategic Management

Formulation

Implementation

Evaluation

Stages of Strategic Management

1) Strategy Formulation
Defining vision, mission, objectives. Identifying company's internal and external environment. Setting long term objectives. Generating multiple and alternative strategies and decide which strategy to pursue. Deciding which business to enter and which to close. How to allocate and assign resources. Diversify or not, expand operation, appropriate to go global, mergers and ventures decisions.

Stages of Strategic Management

2 Strategy Implementation
Action Stage: Execution of chosen strategy. Devise policies, allocate and assign resources, motivate people (need leadership and interpersonal skills). Developing a supportive culture, creating organizational structure, redirecting marketing efforts, preparing financial budgets, implementing information systems

Stages of Strategic Management

3) Strategy Evaluation Stage
To monitor and ensure that chosen strategy is working fine. Three Fundamental Activities 1) reviewing internal and external factors on the basis of which strategy was developed (check your assumptions) 2) measuring performance 3) corrective actions Need adjustment and shift in strategy as environmental forces constantly changing. Key Message

Stages of Strategic Management

These three stages performed at corporate, divisional or strategic business unit, and functional level. Corporate Strategy Business Level Strategy Functional Level Strategy Strong interaction, communication, and team work.

Strategic Management Model

External Audit

Vision, Mission

Long term objectives

Select strategies

Implement Strategy (Management)

Implement Strategy (Operational) Evaluate Performance

Internal Audit

Source: Strategic Management Concepts and Cases Fred R. David, 2009. 12th Edition. p.46.

Strategic Management
Continuous and ongoing process (Economy, missed objectives, competitors). Not exact sequence elaborated in the Model (hierarchical levels) Advantages of SM Proactive approach (more informed decisions) Better strategy through systematic and logical manner. Empowered employees (understanding mission and objectives motivates employees). Participation ensure commitment to change. Decentralized strategic planing (line managers own strategy) Financial and Non-financial benefits (min. resistance to change, informed decisions, more aware of OT. Teamwork, (Fred, R. David p.48) Key

Why Firms Avoid Strategic Planning?

Poor Reward Structures Occupied with current crises Waste of time Too expensive Laziness Content with success Fear of failure Overconfidence (rely on experience) Prior bad experience Self interest Fear of unknown Difference of opinion (different perceptions) Mistrust on management (Fred R. David, p.49)

Dont's in Strategic Management

Intention to gain control over decisions
Too hasty Unable to communicate Making decisions based on intuition Lack of support from top management Take use of planners (not involving others) Unable to Link plans to measure performance Unable to manage resistance to change Not much importance to planning (jump to implementation) So much formal (discourage creativity) (Fred R. David, p.49-50)

Guidelines for Effective Strategic Management

Open mindedness Open Communication Not follow idealistic approach rather focus on realities. (What you can achieve in limited resources) Don't follow multiple strategies. Be objective and focused. (consider qualitative factors as it effects strategy formulation like cultural, attitudes, and social responsibility issues but in purposeful way) Trade off (maximize profit or share holder's wealth (ethical issues). (Fred R. David, p.50)

Key Terms
Competitive Advantage Strategist Strategies

Hypothetical Case
Telesys is operating in telecommunication and information industry. It provides technology solutions to business organizations. The product of Telesys includes both hardware -system installation and software development providing management decisions, HRIS, MIS, and financial solutions. Despite surge in telecom industry in Pakistan the company has been stagnant in terms of financial and operational growth. The CEO decides to hire the consultant to make strategy so that the firm could also reap benefits from growing industry. After much hard work the consultant delivers the Comprehensive Strategic Plan to the CEO. It was implemented with the hope to get value from it. But after one year the performance measures did not show any positive change rather there was chaos and lack of focus and commitment in pursuing set business objectives. Questions: What could be the probable causes of this lack of success in strategy formulation and implementation?

Strategic Model
Planned Strategy
Deliberate Strategy

Realized Strategy

Unpredicted change Revisited Strategy

Unrealized Strategy

Emergent Strategy

Source: Hill and Jones, 2007, p. 24

Vision and Mission Statement

Vision is necessary to achieve long term objective What do want to become? Basic guideline for developing mission statement Should be short: one sentence Input from managers Example: Vision the world leader in transportation products and related services (GM) Dell's Vision is to create a company culture where environment excellence is second nature To become world's leading consumer company for automotive product and services (Ford Motors)
Key Message

Mission Statement
What is our business (who is being satisfied, what is being satisfied, how are customer needs are being satisfied? Reasons of existence (what is business) synonymous to mission statement (Peter Drucker) Foundation for establishing objectives and formulating strategies Set priorities, strategies, plans, work assignment, managerial job design, and management structure. Should not be static: rethink, revise, and restate vision and mission statement on regular basis. Motivating force: give direction to organization and employees

The Process of Developing a Mission Statement

Involve everyone Develop several mission statements then distribute it to employees Develop consensus It ensures understanding, commitment and dedication towards developed mission statement. Some organization use discussion groups of mangers and some hires consultant or expert.

Importance of Mission Statement

Research indicate that firms with formal and well documented mission statement have twice the average return on shareholder's equity than those lacking it. Positive relationship between mission statement and organizational performance (Bart & Baetz). However, some research did not found any link between financial performance and mission statement.

Reasons for Developing Mission Statement

King and Cleland states following reasons Consensus on purpose of business Basis for allocating resources Translation of objectives into work structure (assignment of tasks) To specify purpose and then break down into objectives in such a way that cost, time, an performance parameters can be controlled.


(Fred, R. David, eleventh edition, p. 62)

Characteristics of Mission Statement

Broad (but fine balance between specificity and generality) allow creativity Provides sense of direction and help to select strategy/Basis for generating and screening strategic options Inspirational force Emphasize on potential growth opportunities/ mention utility of firm's product or service Define organizations' purpose, customer orientation, product or service, market, philosophy and basic technology Illustration of social responsibility Recommended length is less than 250 words

Components of Mission Statement

1 Customers 2 Products or Services 3 Markets 4 Technology 5 Concerns for survival, growth and profitability 6 Philosophy (basic beliefs, values, and ethical priorities ex: people above profit, integrity) 7 Self concept 8 Concerns for society 9 Employees concerns

Objectives/Goals
Precise and measurable Address crucial issues Challenging but realistic Specify a time frame

SMART

Example of Mission Statement

We aspire to make PepsiCo the world's premier consumer 3 products company, focused on convenient foods and beverages 2 We seek to produce healthy financial rewards for investors as we provide opportunities for growth and enrichment to our 5 8 employees, our business partners and the communities in which 9 we operate. And in everything we do, we strive to act with honest, openness, fairness, and integrity. 6

Example of Mission Statement

Dell's mission is to be most successful computer company in the world at the delivering the best customer experience in market we serve. In doing so, Dell will meet customer expectations of highest quality, leading technology: competitive pricing; individual and company accountability; best in service and support; flexibility customization capability; superior corporate citizenship; financial stability.

Class Activity

Develop a Mission Statement of selected business Considering the nine criteria of mission statement

Chapter 3: The External Assessment

The purpose of external audit is to make list of possible number of opportunities and threats. Key factors that influence business Five Categories 1 Economic 2 Demographic, Social, Cultural, Environmental 3 Political, governmental, and legal 4 technological 5 competitive

Relationship Between Key External Factors

Economic Social Technological Political Competitive

Competitors Suppliers Distributors Retailers Creditors Customers Communities Stockholders Unions Government Trade associations Pressure groups Products Services Markets Environment


Organization's Opportunities and threats

The Process of Conducting External Audit

Involve employees across departments Closely monitor key external factors News magazines, internet, industry news etc. Customers, suppliers, competitors, and distributors Evaluation through meetings Identify and rank factors from most important to least important

The Industrial/Organization (I/O) View

External factors in industry are more critical and gaining competitive advantage Porter's Five forces model I/O perspective believe that firms performance and profitability depend on industry in which it is operating Economies of scale, barrier to entry, product differentiation, and level of competition in industry

Economic Forces
Stock price Monetary and fiscal policy Exchange rate Economic policy Trade policy Inflation Some key economic issues: Shift of economy towards service, availability of credit, purchasing power, budget deficit, devaluation of Pakistani Rupees, Unemployment, global economic conditions, OPEC, import and export trend, wages, taxation.

Social, Cultural, Demographic and legal Forces

These factors significantly influence the way people live, work, and consume Population issues Urbanization Pollution De-regulation and regulatory issues Political instability Bureaucratic structure/legal issues Cultural issues (Protest)

Technological Forces
Internet (e-commerce) Breakthrough technological changes can create new markets, obsolete existing products, competitive cost positioning in industry, competitive advantage shift Transition from manual to automated production

Competitive Forces
SWOT analysis of competitors Their objectives and strategies Product position of own and competitors Strategic alternatives influencing competitors Change in market competitor positioning and fluctuation in their profits Supplier and distributor relationship in industry prevailing Substitute products potential in industry Key factors of success in industry

Competitive Forces
Joint Ventures Strategic Alliance

Porter's Five Forces Model

Potential substitute Products

Power of Suppliers

Rivalry among Competitors

Power of Consumers

Source: Hill and Jones, 2007, p. 117

Entry of new Competitors

Porter's Five Forces

Rivalry Among Competitors Most powerful force Change in strategy may be responded with lower prices, quality enhancement, value added features, good sale and after service, warranties, advertising etc. Rivalry increase if industry structure is that fixed cost is very high (leaving industry is difficult), more competitors, demand declining, consumer have choices for brands, extra capacity, price cutting so common. Ultimately industry become unattractive and profit decline

Porter's Five Forces

New Entrants
Factors that are barriers to entry such as economies of scale, specialized knowledge and technology, customer loyalty, brand preferences, large capital requirements for starting business, government policies, possession of patents, counterattack by existing firms, saturation of market Counterattack Strategies against potential entrants When there is threat for entry is expected it can be counterattacked by lowering prices, giving value added features, mergers and acquisition etc.

Porter's Five Forces

Bargaining Power of Suppliers When number of suppliers are large enough, raw material substitute is rare or unavailable, switching to raw material is very costly Mutual understanding is crucial for long term profitability, develop new products, improve quality, and just in time delivery options Backward integration strategy Strategic partnership

Porter's Five Forces

Bargaining Power of Consumers Large, buy in bulk When products are standardized (unbranded) and buy in volume When consumers can move to other brand or availability of options Declining customer demand They are aware of product cost and pricing

Industry Analysis: The External Factor Evaluation Matrix

List key external factors Include limited possible numbers Use percentage, ratio or number Assign weight 0.0 not important and 1.0 very important based on competitive industry dynamics. The sum weight of all factors be 1. Assign rating between 1to 4. Range 4 indicates=superior response 3= above average response, 2= average response, 1=poor response This is yours competitive strategy against these factors Multiply weight to rating to get weighted score.

Industry Analysis: The External Factor Evaluation Matrix: An Illustration of Mobile Comany
Key External Factors

Opportunities Young population is increasing Education awareness is increasing Pakistani society is highly socialized Government de-regulation policy Excess to large population

Weight Rating 0.12 0.03 0.14 0.16 0.08

Weighted Score 3 0.36 2 0.06 4 0.56 4 0.64 3 0.24

Threats Increasing competition on price cut basis unemployment rate is increasing/economic co saving decreasing high taxation

0.19 0.05 0.06 0.17

3 1 2 1

0.57 0.05 0.12 0.17 2.77

Competitive Analysis Profile Matrix

It analyze major competitors and there strengths and weaknesses Critical success factors may relate to internal or external matters 4 = main strength, 3= minor strength, 2= minor weakness, 1= major weakness It provides strategic information and strategic positioning

Competitive Analysis Profile Matrix: An Illustration

Critical Success Factors Advertising Product Quality Prices Top Management Financial Position Brand Loyalty Global Presence Market Share Services Company 1 Weight Rating 0.15 4 0.05 2 0.18 1 0.05 2 0.1 2 0.22 3 0.04 1 0.12 3 0.1 3 Score 0.6 0.1 0.18 0.1 0.2 0.66 0.04 0.36 0.3 2.9 Company2 Rating Score 3 0.45 3 0.15 4 0.72 1 0.05 2 0.2 4 0.88 2 0.08 4 0.48 3 0.3 3.31

HTC: The Case Study

Major Themes HTC aim to position itself in highly emerging and competitive industry to compete effectively with Apple and Blackberry at the high end and on other hand to compete with Nokia, Samsung and LG in other segment The case introduce to devise platform strategy. How many operating system it should use/buy or develop its own Where to position in value chain to add extra value added features when competition goes beyond product and features. (to offer an app store or not ?) (one hit product like iphone or variations) (platform to use one or several or develop its own)

HTC: The Case Study

Question No. 1: Evaluate the HTC performance? What are its competitive advantages and weaknesses/competitive threats/disadvantages? Competitive advantages: An attractive alternative of iphone help HTC to increase sale and profit margin HTC's strong relationship with mobile phone operators (BT, TMobile, Orange, Verizon wireless). Many operators considered HTC as established brand Fast product development capabilities. Leads in developing proprietary user interface (UI) runs on both Android and Windows Presence in Asia and Europe. Partnership with Google and Microsoft

HTC: The Case Study

Disadvantages HTC first to make smart phone but still unknown hard choice to make phones for others Lack of app store. Apple pioneer Samsung and LG has announced to open Limitations of partnership with Google and Microsoft. Cannot dictate to add features as Android has to take other handset manufactures interest in mind. Microsoft lacking cutting edge technology compare to Apple, RIM and Palm High manufacturing cost. Cost of customization, licensing fee to Microsoft

HTC: The Case Study

Question No. 2: What should HTC's Operating System strategy be? Exhibit 5a Symbian losing market share RIM and Apple is gaining. Windows platform slow to upgrade and make user friendly and charges licensing fee. Android free open source has great potential to capture market share Three main strategies 1) HTC has core competence in product development of Windows and Android and should continue to stick to it. Rather it focus on product development based on Android at it is emerging (horizontal structure)

HTC: The Case Study

2) Develop or buy as OS (Vertical Model): By developing or buy its won will allow greater product development and design control. Hardware and software development may gain competitive edge and market share Example of Apple and RIM But downside of this Vertical Model is a) High cost (2-3 years and 200 million $) b) High switching cost c) Already very late: Saturation in the market Given these limitations: buying another company with its OS as Palm will pay off 3) Add another platform like Linux (but may divert resources and R& D efforts invested in technological developing dedicated to Android and Windows Mobile Depending on Android on long run may be risky as currently Google giving it free to encourage development but in next phase they may control the platform.

HTC: The Case Study

Question No. 3: What strategic actions are needed to make HTC leading smart-phone company? Adopt the Vertical Model like Apple (few specialized products) but limit economies of scale Full line of Products (like Nokia, Samsung and LG cover medium to high end price segments) attain economies of scale Consider to merge with company having its own platform Divert resources to marketing campaign to make it global brand

HTC: The Case Study

Conclusion: HTC making innovative products and amongst the top five smartphone companies however to succeed further it should Build strong brand positioning Where to position in value chain Solve platform problem Enter into new and emerging markets

Chapter 4: The Internal Assessment

Every organization has its strengths and weakness Information about organizations operations like marketing, finance, HR, design, R & D and production department etc. It is great source of communication assist to understand how jobs fit in overall framework of organization and effect others job How business functions effect or being effected by another functions (for example: poor financial performance may be the result of ineffective marketing)

Resource Based View

Internal resources like physical, human resource, financial, organizational resources (structure, planning, strategy, information system, patents, etc)are source of competitive edge For a resource to be valuable it should be rare, not easy to imitate, and not easily sustainable (no easy substitute) Integration Strategy with Culture Organizational Culture is defined as a pattern of behavior that has been developed by an organizations as it learns to cope with its problem of external adaptation and internal integration, and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel'(David, 2009, p. 139)

Culture
Culture includes, beliefs, rituals, ceremonies, myths, stories, legends, symbols, heroes, heroines, saga) Match strategy to culture or considered culture while formulating strategy Domestic vs Foreign Cultures MARKETING Seven functions are 1) customer analysis 2) selling product/services 3) product and service planning 4) pricing 5) Distribution 6) marketing analysis 7) opportunity analysis

Finance/Accounting
Three important financial decisions investment, financing, and dividend Financial ratios are way to determine strength and weakness of organizations in terms of these areas Some important financial ratios are liquidity ratios (ability to measure short term financial obligations), leverage ratios (how much financed by debt), activity ratios( how effectively firms using resources), profitability ratios (over effectiveness returns generated over sales and investment), growth ratios (show ability to maintain economic position in the industry, market, and economic growth)

Production/Operations
All functions that transform inputs into goods/products/services Process (design of physical production system) Capacity (optimal output levels) Inventory (managing raw materials) Workforce (decision on managing employees clerical, technical, managerial, skilled) Quality (to maintain and product high quality products and services)

Production/Operations
Strategy Implication on Production/Operations

Low Cost

High quality

High barrier to entry Larger market Need longer production work and standardisation More profit with low sales volume High operating cost Better equipment and quality procedure Skilled and high wage worker

Stress Customer Service Innovation

More service people Quick response to customer needs and complaints More R & D efforts and costs Skilled and technical worker

Production/Operations
Strategy Implication on Production/Operations

Vertical Integration Consolidated Processing (Centralize)

More control on process More risk as enter into new area High cost on labor and operations Economies of scale One event can disrupt whole operation/production Locate near major supplier or customer Near to more customers or suppliers Complex coordination and duplication of resources High capital investment Reduces flexibility Maintenance more critical

Disperse processing (David, 2009, p. 160) Use of mechanization

Research and Development

If firm following product development strategy then need to focus on R & D efforts R & D efforts must be coordinated and focused The strategic management process assist and facilitate this cross functional decision to manager R & D Four approaches to decide R & D investment 1) how many new products are needed 2) fund many project possible 3) percentage sale method 4) same amount as main competitors are spending Two forms 1) Internal R & D 2) external R & D ( mergers, strategic alliance, sub contracting-sublet, joint venture R & D efforts mainly depend on organization strategy for example market leaders in new product innovation or followers to work on existing ideas and products.

Value Chain Analysis

According to Porter Business of firm can be described by value chain analysis All activities undertake to produce good and services for acquisition of raw material to processing/production to delivery to end users Firms in a industry almost alike value chain Value chain analysis assist to calculate and identify the cost advantages and disadvantages associated with the product development and marketing try to calculate in terms of
both time and money total cost of all activities

total revenue

Value

Value Chain Analysis: An Example of Manufacturing Firm

Supplier cost Raw Material Fuel Energy Transportation Truck drivers Truck Maintenance Component parts Inspection Storing Warehouse David, 2009, p. 165) Inventory System Receiving Plant layout Maintenance Computer R&D

Production Cost

Chapter 5: Objectives/Topic of Discussion

Long term objective and its value Types of business strategies Circumstances to follow particular strategy Balanced Score Card Financial and Strategic objectives Level of strategies First Mover advantage Outsourcing Strategies for dynamic market

Long Term Objectives

Long term results Actions/strategies to be taken to accomplish long term objectives Objectives and strategies to be persistent for three to five years Objectives should be SMART Narrated in growth in assets, sales, profitability, market share, earning per share etc Long term objectives are set at corporate, divisional, and functional level We can measure managerial performance and functions in terms of objectives achievement Managerial reward should be associated with long term objectives

Long Term Objectives

Managerial Performance by Level of Organization Organization Level Corporate Basis for bonus 75% on long term objectives 25% on short term objectives 50% based on long term objectives 50% based on short term objectives 25% based on long term objectives 75% on short term objectives

Division (David, 2009, p. 176) Function

Financial vs Strategic Objectives

Financial objectives: in terms of growth and revenues, dividends, earning per share, profit margins, ROI, Stock price, cash flows etc Strategic Objectives: large market share, fast delivery, fastest design time than competitors, low cost, product quality than competitors, expansion of operations, ISO certification, technology leadership, New Product development more often than competitors. Short term financial objectives can hamper long term strategy Example: To increase revenue charging higher price may damage the efforts to increase market share Trade off: Dont let long term strategic objectives to miss at the expense of short term financial gains or objectives

Balance Score Card

Developed by Robert Kaplan and David Norton in 1993 Tool to evaluate strategies and control The name originate with the efforts to balance financial measures/objectives with non financial measures/objectives

Types of Strategies
11 types of different strategies and actions organization can pursue
Strategy Definition

Forward Integration

Increased control on distribution and retail Increased control over competitors (Mergers, acquisition)

Integrative Backward Integration Control over supplier Horizontal Integration

Market Penetration

Marketing efforts to Intensive increase market share through product and services in markets Market Development Introducing product and Diversificati service in new geographical area: Market on expansion

Types of Strategies
Strategy Retrenchment Defensive Divestiture Liquidation (David, 2009, p. 179) Definition Cost and asset reduction to reduce sales and profit Selling division or unit of organization Selling all assets of company

Level of Strategies

Corporate Level CEO Division: Division Head or Vice President

In small companies this level is missing

Functional Level: functional head Operational Level: plant manager, sales manager

Types of Strategies and Guidelines

Strategies Forward Integration Guidelines Present distributors are expensive, unreliable, in efficient Availability of distributor is limited Has finances and human resource to handle distributors Retailer or distributors have high profit margin Suppliers are expensive Number of suppliers are limited Stable prices are important Suppliers have high profit margins Monopolistic opportunity Compete in growing industry Economies of scale offer

Backward Integration

Horizontal Integration

Types of Strategies and Guidelines

Market development When new retailers or distributor are available easily Untapped or unsaturated market available Excess product capacity is available Industry is becoming global Present products are at maturity stage to retain customers introduce new improved products Industry of rapid technological development Competitors are offering quality product High growth industry Organization has skills in R &

Product Development

Types of Strategies and Guidelines

Retrenchment When organization is weaker competitor Low profit, inefficiency, low employee morale, pressure from shareholder Firm is not able to capitalize on external opportunities and avoid weakness When organization has grown into massive structure or volume When retrenchment strategy failed to give results Division need more resources and organization lack it Division is performing very poor

Divestiture

Porter's Five Generic Strategies

Size of market Cost Leadership Large Small Differentiation Focus

Type 1 Type 2 --

Type 3 Type 3

--Type 4 Type 5

Five Generic Strategies Type 1: Cost Leadership-Low Cost Type 2: Cost Leadership-Best Value Type 3: Differentiation Type 4: Focus-Low Cost Type 5: Focus-Best Value

(David, 2009, p. 193)

Five Generic Strategies

Cost Leadership (Type 1 and Type 2)  Economies of scale, learning and experience curve, capacity utilization, linkages with supplier and distributors,sharing of knowledge and R & D, manufacturing plant, shipping cost, shifting of plant, labor cost etc.  Perform value chain activities more efficiently, Revisit entire value chain and eliminate some costly activities.


Conditions in which strategy works: when price competition is very intense, when similar products are easily available, few ways to achieve differentiation, when user product in same way, buyers have low switching cost to other supplier, when new comers offer low price to attract and build customer base.

Five Generic Strategies

Differentiation Strategy (Type 3): greater product flexibility,
compatibility, durability, reliability, better customer services, n ore features, ease of use, product performance etc. Downside: if customer does not perceive differentiation worth than cost leadership strategy will work well (justify higher prices) Conditions in which it works: many ways to differentiate products, when customer need and uses varies, when few firms are following this strategy, when technological changes are rapid and competition revolves around features of product and services. Focus Strategy (Type 4 and Type 5): industry segments sufficient enough in size, large competitors ignoring the segment, market penetration and market development, niche marketing, Conditions: market niche is large and has growth potential, when market leader have no attraction or ignore this segment, when industry has many distinctive niche markets having varied customer needs, when few rivals capitalize on niche segment.

Operating in Highly Change Markets

Offer new product as competitors offers Adjust to regulatory environment Respond to change in and user expectation and needs


Strategy
React and respond Defend company position

Defensive

Response to change

Anticipate Change

Buyer needs research Follow and anticipate technological developments Analyze the potentials of globalization and new market


Plan for future changes Improve product line

Leading Change
offensive

Pioneer in new technology and products Innovate products that shape the competition in the industry Set industry standards


Be the agent of change Change the rules of game Force rivals to follow

(David, 2009, p. 197)

Means of Achieving Strategies

Joint Ventures and Strategic Alliances
Make temporary partnership Two or more sponsor companies make new organization  Example: Cross manufacturing agreements, joint bidding, cross distribution agreement, cross licensing agreement
 

Mergers and Acquisition

Mergers: When two or more companies unite to form enterprise  Acquisition: When large firm acquire smaller one  GE formed in 1892 as a result of merger of Edison General Electric Company and Thomson-Houston Electric Company


Outsourcing
Business Process Outsourcing (taking over functional operations by another firms)  Advantage: cost effective, focus on core business, other companies have expertise in performing functions, allow to focus on internal value chain activities


First Mover Advantage

Entering new market or offer new product ahead of competitors, Firm need to be fast learner otherwise in difficult situation, fast follower or last mover may have advantage in technological industry to offer better new products next


Chapter 6: Strategy Analysis and Choice

A Comprehensive Strategy Formulation Framework Stage 1: The Input Stage
External Factor Evaluation (EFE) Competitive Profile Matrix (CPM)
Internal Factor Evaluation Matrix (IFE)

Stage 2: Matching Stage SWOT SPACE BCG IE Matrix

Grand Strategy Matrix

Stage 3: Decision Stage avid, 2009, p. 222) Quantitative Strategic Planning Matrix (QSPM)

The Matching Stage

Strategy matching refers to matching internal capabilities and core competencies with external opportunities Using internal strength to capitalize on external opportunities can be termed as offensive strategy while overcoming weaknesses and avoid threats considered to be defensive strategy designed These two strategy designs are important to survive competition Strength, weaknesses, opportunities, and threats analysis used to generate alternative strategies

The Strategy Matching Tools

SWOT analysis gear to develop four kind of strategies SO strategies (GE) WO strategies (Fuel injection demand) ST strategies WT strategies (retrenchment, declare bankruptcy, or go for liquidation Method for developing alternative strategies using SWOT analysis 1) List firm internal strengths 2) Internal weaknesses 3) Opportunities 4) Threats 5) Match internal strength with opportunities and record SO strategies 6) Match and Record WO strategies 7) Match and Record ST strategies Be quantitative 8) Match and Record WT strategies and specific Example: if resources are available and suppliers are not efficient or reliable go for backward integration similarly if product capacity and skills available and market is declining go for related diversification

Strategy Matching Tools

The Strategic Position and Action Evaluation (SPACE) Matrix Conservative
Market Penetration Market Development Product Development Related Diversification Defensive Retrenchment Divestiture Liquidation Aggressive Backward, Forward, horizontal integration Market Penetration Market Development Product Development Diversification (related and unrelated) Competitive Backward, Forward, horizontal integration Market Penetration Market Development Product Development

Two Internal Dimension Financial Strength (FS) Competitive Advantage (CA) Two External Dimension Environment Stability Industry Strength


(David, 2009, p. 226) For example see: page 230

Strategy Matching Tools

Boston Consulting Group Matrix Business Portfolio (Profit Centers or independent business units) Strategy Formulation for Multi-divisional Firms Industry Sales Growth High Rate High Relative Market Share Position
Integration Market Penetration Market Development Product Development Market Penetration Market Development Product Development Divestiture

Low

Stars
Product Development Diversification Retrenchment Divestiture

Question Marks
Retrenchment Divestiture Liquidation

Low

Cash Cows

Dogs

(David, 2009, p. 232)

BCG Matrix
Question Marks: Low market share position Cash need are very high and cash generation is usually low They are question mark in the sense that why these are not making profit instead of high industry growth strategy flaw or need to pursue intensive strategy or sell out etc. Stars: These are profitable business units earning profit from growing industry doing well so they need investment or priority in budget allocation in order to maintain their competitive position Cash Cows: They are generating cash more than their needs. Performing well in low industrial growth. At some time they might be in star mode. Dogs: Weak external and internal position. Retrenchment is very viable option it may revive.

BCG Matrix
With the passage of time (anti clock wise) Dogs may become Question Marks Question Mark may become Stars Stars become Cash Cows Cash cow become Dogs Limitations: Static showing company position at given time It is some time hard to classify business divisions in one of these categories it may lie in middle. Too simple view other dimensions like competitive edge also important element is strategy formulation

Strategy Matching Tools

The Internal External (IE) Matrix
Grow and build Integration Market Devep. Penet., Product Devep. Harvest or divest Retrenchment Divestiture

Positions company various divisions on nine cell matrix IFE total weighted score Average II V VIII III VI IX Weak (David, 2009, p. 234)

Strong EFE total weigthed scroe high I IV VII low

medium

Hold and maintain Market Penetration, Product Development

The Grand Strategy Matrix

Two dimensions Competitive position Industrial (Market) growth Industry with growth rate exceeding 5 % can be considered as rapid growth industry weak competitive position Quadrant II rapid market growth Quadrant I
Market development Market penetration Product development Fwd. back.horiz integration Related diversification Related diversification un-related diversification Joint ventures

Quadrant III
Retrenchment (un)Related diversification Divestiture Liquidation

Quadrant IV

slow market growth

(David, 2009, p. 237)

Market development Market penetration Product development Horizontal integration Divestiture, liquidation

strong competitive position

Grand Strategy Matrix

Quadrant I: companies in this quadrant are excellent performers. They should focus on their competitive edge. Quadrant II: They are in question mark as in BCG matrix. They are operating in rapid growth industry but unable to take benefit. Quadrant III: They are in problem so they should look for restructuring or cost reduction efforts, increase efficiency Quadrant IV: They should consider to diversify in more promising or growth areas. To decide and choose the best strategy from alternative strategies. We can prioritize and then select or can use Quantitative Strategic Planning Matrix to select the appropriate strategy.

Quantitative Strategic Planing Matrix

Take information from stage 1 that is analysis stage (EFE, IFE, Competitive Profile Matrix) Stage 2 that is matching strategy (SWOT, SPACE, BCG, IE Matrix, and Grand Strategy Matrix) QSPM (Stage 3) QSPM evaluate alternative strategies objectively and of course intuition and judgment is also play its role.

Quantitative Strategic Planing Matrix

Strategy 1 Buy New Store Strategy 2 Renovat e existing one (David, 2009, p. 240)

Key Weight Factors Opportuniti Importanc es e of the factor

Attractivenes TAS s Score Relative Weight* attractivenes AS s of the strategy for given factors (1-4)

Threats Strengths

Quantitative Strategic Planing Matrix

Features: Number of strategies can be considered at once Corporate level strategy, divisional level and operational or functional level strategy can be considered. In QSPM internal and external factors are integrated to make strategy choice Limitations: It requires subjective judgment and estimates Hypothetical Case: Zong is operating in highly competitive mobile industry in Pakistan. The competition is characterized by price cut, network coverage and more value added features. Develop two alternative strategies that Zong must pursue and then apply QSPM to choose best strategy.

Chapter 7:Strategy Implementations

This is more critical and difficult step than strategy formulation It is operational issue Strong motivation and leadership skills Strong coordination among individuals and departments Management Issues:  Establishing annual objectives  Devising policies  Allocating resources  Rethinking and changing organizational structure  Restructuring and Re engineering  Matching culture to strategy  Linking reward and incentives  Managing resistance to change  Modifying production and operations

Annual Objectives
Double revenue in three years through market development and penetration Division 1 Increase revenue by 50 % this year Division 1 Increase revenue by 60 % this year Division 3 Increase revenue by 40 % this year

R &D Develop two new Products this year

Marketing Increase sales force (50 new salespeople)

production Increase production efficiency by 50 %

HR Reduce turnover and absenteeism from 205 to 10%

Finance Obtain and arrange long term Finances of 4 million $

(David, 2009, p. 262)

Chapter 8: Strategy Implementation Operational Issues

Marketing Issues:  Own distribution channel or rely on one or several channels  Mode of advertising  Fixed salary or commensurate with performance, commission or bonuses  Warranties issues  Online presence or not  Explore more customers or rely on one major customer Two critical issues in strategy implementation 1) Market Segmentation and 2) Product Positioning  Market Segmentation: Important implication for business strategy for several reasons I) Market Penetration, Development and Product Development aim to increase sale that is often depend on finding or entering into new market segment ii) allows small firms to compete iii) affects


Strategy Implementation
Financial Issues: To arrange short and long term debt, equity  Lease or invest in fixed assets  Determine the time for receivables  Prepare project financial statements  Evaluating the value or worth of business (to implement diversification, integrative, retrenchment strategies)  Amount kept as reserves etc.


Go public or not

Strategy Implementation
R & D issues: New product development, market development etc. MIS issues: timely and updated information for effective decisions. Group Discussion: Strategy formulation is more important or strategy implementation phase is more critical. I/O view is more relevant or core competencies (inner perspective view) is pertinent for effective strategy

Chapter 9: Strategy Evaluation

Strategy Review, Evaluation and Control 1) evaluate the underlying assumptions/basis of strategy 2) comparing actual and targeted results 3) take corrective actions
 

Too much or little (debate)

Strategy Evaluation in most firms focus on appraising of performance

Rumelt's Criteria for strategy Evaluation 1) Consistency: managerial problems persist. Even change of people do not solve problem. Issue based.  If one department get benefits or succeed and other fails  If problems related to policy and issue regularly brought to top management
 

Strategy Evaluation
2) Consonance: Evaluate and observe trends. The purpose is to be adaptive in course of change. 3) Feasibility: Strategy could be implemented with in given financial, capital and human resources 4) Advantage: Competitive advantage Key Message: Internal and external factors always change therefore, today success is not guarantee of tomorrow. Therefore, strategy must be evaluated on regular basis. Strategy Evaluation becoming more difficult 1) increasing number of competition at global level 2) Technological advancement, short product cycle 3) World events unfolding at great pace 4) Environment is now more uncertain and unpredictable

Strategy Evaluation
The Process: Management by wandering around essential and useful technique to evaluate strategy. Must be performed on regular basis (if performs once in a year, problem may aggravate to critical situation. No point of return.) Employees must be involved. If major and basic targets missed then go back to strategy formulation and implementation. A Strategy Evaluation Framework: Reviewing basis of strategy: Review IFE and EFE matrix. Competitors move analysis and external factors evaluation Assessment of capabilities. Problems in implementation or wrong strategy was chosen. Review of SWOT analysis Compare current IFE, EFE and SWOT with previous one

Strategy Evaluation
Revise IFE Revised EFE

Compare existing with revised Is there significant change? no yes (David, 2009, p. 334) Take corrective measures

Measure Organizational Performance

Is there significant change? no Continue

yes

Strategy Evaluation
Characteristics of Effective Evaluation System Must be economical: not too much or too little information Should be clear, have objectives, meaningful and simple Time span must be matched with the event Must present true and accurate information and analysis: (Ex: downwards sale may be the result of global recession) Evaluation system varies from small to large sized companies Employees must be taken into confidence and educate about control. Contingency Plans: very well formulated and implemented strategy may not work due to unforeseen events or sudden shift in external factors. Develop contingency plans as alternative strategies It helps to put back organization on track very quickly