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© Dr. Nábrádi AndrásDE-AVK
By: By: Prof. Dr. AndrProf. Dr. Andráás Ns NáábrbráádidiPhD, MBAPhD, MBA
Strategic Management Process:
Strategy formulationStrategy formulation
University of DebrecenFacultyFaculty of Ag. Economics and of Ag. Economics and RuralRural DevelopmentDevelopment
DeptDept.: Business Management and Marketing.: Business Management and MarketingHUNGARYHUNGARY
© Dr. Nábrádi AndrásDE-AVK
Tasks of strategic management
Outline
� Strategy formulation
�Develop vision
�Develop mission
�Why mission statement
�External assessment
�Internal assessment
�Establish long term objectives
Strategy formulation
Strategy Implementation
Strategy Evaluation
© Dr. Nábrádi AndrásDE-AVK
Strategy formulation
Business mission
Internal analysis External analysis
Establishing long term objectives
ANALYSISANALYSIS
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
First stage of the strategic management
DevelopVision and MissionStatements
Establishlong termobjectives
Generate, evaluate, and selectstrategies
Strategy formulation
(Strategic planning)
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Strategy formulation
�Developing vision and mission�Indetifying external opportunities and threats�Determining internal strenghts and weaknesses
�Establishing long term objectives
�Generating alternative strategies�Choosing particular strategies to pursue�Deciding what new business to enter
�How to allocate resources�Expand or diversify operations�Entering or not international market�Merge or form joint venture�How to avoid a hostile takeover
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Strategy formulation
Developingvision and
mission
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Terms to remember
STRATEGIC VISIONSTRATEGIC VISION
A view of an organization�s futuredirection and busines course; a
guiding for what the organization is trying to do and to become.
What do we want to become?
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Vision
Henkel is want to be a leader with brands and technologies that make people's lives easier, better and more beautiful.
We will provide knowledge and take actionto ensure the national security of the United States and the preservation of American life and ideals.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
What do we want to become?
© Dr. Nábrádi AndrásDE-AVK
Vision
To be the leading food company in knowledge, consumer relations and revenues among companiesheadquartered in the region of Southeast, Central and Eastern Europe, as well as a pharmaceutical companywhich achieves more through a distinctive partnershipapproach.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives What do we want to become?
© Dr. Nábrádi AndrásDE-AVK
Terms to remember
A mission statement broadly outlines the organization�s future direction and serves as
aquiding concept for what the organization is to doand to become. Overriding premise in line with the
values or expectations of stakeholders.
STRATEGIC MISSIONSTRATEGIC MISSION
What is our business?
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe mission
We believe our first responsibility is to the doctors nurses to mothers who use our products and services.
We offer a wide range of home furnishings withgood design and function at prices so low thatas many people as possible will be able to afford them.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
What is our business?
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe mission
We are the eyes and ears of the nation and at timesits hidden hand .
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
To create high-quality branded products thatacquire the trust of clients and consumers.
To pioneer the future in space exploration, scientificdiscovery and aeronautics research.
What is our business?
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésPersonal mission statement
Throughout each day in my life I strive to be loyal to my friends and family, lead a successful career thatI will enjoy, stay healthy, and take on anychallenges that come my way.
I value my family members, friends, spiritualfulfillment, sense of accomplishment, and respectfor others.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésStrategic management principle
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Profit NOT mission or Profit NOT mission or vision is a primary vision is a primary
corporate motivatorcorporate motivator!!
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe process of developing a mission statement
� First to select several articles about mission statements and ask all managers to read these as background information� Ask managers themselves to prepare a mission statement for the organization� Committee of top managers should then merge these statements into a single documents,� Than distribute this draft mission statement to all managers as a request for modifications� Finalize the modified statement in front of CEO�s
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe process of developing a mission statement
An effective mission statementAn effective mission statement� should not too lengthy; recommended is less than 200 words� arouses positive feelings and emotions about an organization� generates the impression that a firm is successful, has direction� distinguish a given organization from all others� widely understood throughout the organization � identify the utility of a firm�s products to its consumers >>>>
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésDo not offer me things
Do not offer me clothes. Offer me attractive looks.Do not offer me shoes. Offer me comfort feet of walking.Do not offer me a house. Offer me security, comfort, and place that is clean and happy.Do not offer me books. Offer me hours of pleasure and benefit of knowledge.Do not offer me records. Offer me leisure and sound of music.Do not offer me things. Offer me ideas, Do not offer me things. Offer me ideas, emotions, ambience, feelings and benefits.emotions, ambience, feelings and benefits.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésCharacteristic of a mission statement
��Declaration of attitudeDeclaration of attitude�� Not allowed to move wrong diversification� Not designed to concrete ends, rather to provide motivation, general direction, image and philiosophy
�� Costumer orientation Costumer orientation � To attract customers who give meaning to an organization
� Declaration of social policyDeclaration of social policy�� Different kind of responsibility
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésWhy mission statement?
1. To ensure unanimity of purpose within the organization.
2. To provide a basis or standard for allocating organizational resources.
3. To establish a general tone or organizational climate.
4. To serve a focal point for individuals to identify with the organization�s purpose and direction.
5. To facilitate the translation of objectives into a work structure involving the assignment of tasks to responsible elements within the organization.
6. To specify organizational purposes or motion and then to translate these purposes into objectives.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésWhy mission statement?
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Strategy formulation
Business mission
Internal analysis External analysisExternal analysis
Establishing long term objectives
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésExternal assessment
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
�ORGANIZATION�Suppliers Consumers
Competitors
Regulatory agencies.Unions, c
hambers
InternationalLega
l sys
tem
Economic policy Socio/
cultu
ral
Technological
Natural environment
Financial corporations
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe nature of an external audit
The purpose is to develop a finite list of The purpose is to develop a finite list of opportunitiesopportunities that could benefit a firm and that could benefit a firm and
threatsthreats that should be avoided.that should be avoided.
Methods for external assessment;Methods for external assessment;
1.1. Key external forces; (STEP analysis)Key external forces; (STEP analysis)2.2. Competitive Analysis (PorterCompetitive Analysis (Porter��s Five Forces s Five Forces
Model)Model)3.3. The External Factor Evaluation Matrix (EFE)The External Factor Evaluation Matrix (EFE)4.4. The Competitive Profile Matrix (CPM)The Competitive Profile Matrix (CPM)
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésKey external forces
Key external forces; (STEP analysis)Key external forces; (STEP analysis)�� SSocial, cultural, demographic, and
environment�� TTechnological�� EEconomic �� PPolitical, governmental, and legal
++�� CompetitiveCompetitive
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésSocial, Cultural, Demographic, and Environmental Forces
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
1. What is the dominant religion? 2. What are attitudes to foreign products and services? 3. Does language impact upon the diffusion of products onto markets? 4. How much time do consumers have for leisure? 5. What are the roles of men and women withinsociety?6. How long are the population living? Are the oldergenerations wealthy? 7. Do the population have a strong/weak opinion on green issues?
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésSocial, Cultural, Demographic, and Environmental Variables
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Number of marriagesNumber of divorcesNumber of birthsNumber of deathImmigration ratesSocial security programsLife expectancy ratesTrust in governmentEthical concernsAverage level of educationSex rolesAverage disposable income
Retirement ageAttitudes tow. leisure timePollution controlSocial programsNumber of churchesAttitudes tow. product qal.Attitudes tow. authorityWaste managementNumber of school, collegeRecyclingWater pollutionOzone depletionAir pollutionSocial responsibility
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésTechnological Forces
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
1. Does technology allow for products and servicesto be made more cheaply and to a better standard of quality? 2 .Do the technologies offer consumers and businesses more innovative products and servicessuch as Internet banking, new generation mobile telephones, etc?3. How is distribution changed by new technologiese.g. books via the Internet, flight tickets, auctions, etc? 4. Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésEconomic Forces
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Strategists Strategists needneed to to considerconsider the the statestate of a of a tradingtrading economy in the economy in the shortshort and and longlong--termsterms. .
ThisThis is is especiallyespecially truetrue whenwhen planningplanning for for international marketing. international marketing.
You need to look at:1. Interest rates2. The level of inflation Employment level per capita3. Long-term prospects for the economy GrossDomestic Product (GDP) per capita, and so on
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésKey Economic Variables to be Monitored
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Availability of creditLevel of disposable incomeInterest ratesInflation ratesGovernment budget deficitConsumption patternsUnemployment ratesImport/export factorsPrice fluctuationsMonetary policiesFiscal policies
Gross domestic product trendWorker productivity levelsValue of the local currencyStock market trendsExport of labor and capitalIncome differences by region and consumer groupsTax ratesChange of European Economic Policy
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésPolitical, governmental, and legal forces
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
The The politicalpolitical arenaarena has a has a hugehuge influenceinfluence uponupon the the regulationregulation of businesses, and the of businesses, and the spendingspending power of power of consumersconsumers and and otherother businesses. businesses. YouYou must must considerconsider
issuesissues suchsuch as: as:
1.How stable is the political environment? 2.Will government policy influence laws that regulate or tax your business?3.What is the government's position on marketing ethics? 4. What is the government's policy on the economy? 5. Does the government have a view on culture and religion? 6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésSome Political, Governmental, and Legal Variables to be Monitored
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Government regulationsChanges in tax lawsSpecial tariffsNumber of patternsPolitical action committeesEnvironmental protection lawsLevel of governmental subsidiesImport/export regulationGovernment fiscal and monetary policy changes
Political conditions in foreign countriesSpecial local laws, taxesLobbying activitiesSize of governmental budgetNational/local elections, regulationsLocation and severity of terrorist activitiesRelationships between neighbor countriesAntitrust legislation
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésCompetitive forces
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Collecting and evaluating information on competitors is Collecting and evaluating information on competitors is essential for successful strategy formulation.essential for successful strategy formulation.
1. What are the major competitor�s strengths?2. What are the major competitor�s weaknesses?3. What are the major competitor�s objectives and
strategies?4. How will the major competitors most likely
respond to STEP affecting our industry?5. How vulnerable are the major competitors to
our alternative company strategies?6. How are our products or services positioned
relative to major competitors?
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésCompetitive forces
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
To what extent are new firms entering and old firms leaving this industry?
7. What key factors have resulted in our present competitive position in this industry?
8. How have sales and profit rankings of major competitors in the industry changed over recent years? Why have these rankings changed that way?
9. What is the nature of supplier and distributor relationships in this industry?
10. To what extent could substitute products or services be a threat to competitors in this industry?
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe nature of an external audit
The purpose is to develop a finite list of The purpose is to develop a finite list of opportunitiesopportunities that could benefit a firm and that could benefit a firm and
threatsthreats that should be avoided.that should be avoided.
Methods for external assessment;Methods for external assessment;
1.1. Key external forces; (STEP analysis)Key external forces; (STEP analysis)2.2. Competitive Analysis (PorterCompetitive Analysis (Porter��s Five Forces s Five Forces
Model)Model)3.3. The External Factor Evaluation Matrix (EFE)The External Factor Evaluation Matrix (EFE)4.4. The Competitive Profile Matrix (CPM)The Competitive Profile Matrix (CPM)
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésCompetitive Analysis Porter�s Five-Forces Model
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Potential development of substitute products
Potential entry of new competitors
Bargaining power of suppliers
Bargaining powerof consumers
Rivalry amongcompeting
firms
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésRivalry among competing firms
The most powerful
ToolsTools
1. Lowering prices2. Enhancing quality3. Adding features4. Providing services5. Extending warranties6. Increasing advertising
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe intensity of Rivalry increases
1. Number of competitor increases2. Competitors become more equal3. Demand for the products declines4. Price cutting become common5. Consumers can switch brands easily6. Fixed costs are high7. Consumer demand decline or stagnates8. Mergers and acquisitions are common
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésCompetitive Analysis Porter�s Five-Forces Model
Outline
� Strategy formulation
�Develop vision
�Develop mission
�Why mission statement
�External assessment
�Internal assessment
�Establish long term objectives
Potential development of substitute products
Potential entry of new competitorsPotential entry of new competitors
Bargaining power of suppliers
Bargaining powerof consumers
Rivalry amongcompeting
firms
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésPotential entry of new competitors
BARRIERSBARRIERS1. The lack of experience2. Strong consumer
royalty3. Strong brand
preferences4. Government regulatory
policies5. Tariffs6. Lack of process to raw
materials7. Possession of patterns8. Undesirable location9. Market saturation
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
OPPORTUNITIESOPPORTUNITIES1. Higher quality products2. Lower prices3. Substantial marketing
resources4. All the opposite listed
in barriers
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésCompetitive Analysis Porter�s Five-Forces Model
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Potential development of substitute products
Potential entry of new competitors
Bargaining power of suppliers
Bargaining powerof consumers
Rivalry amongcompeting
firms
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésPotential development of substitute products
Competitive pressures arising from substitute products increase as the relative price of substitute products declines and consumer�s switching costs decrease.
SubstitutesSubstitutes
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Eyeglasses, contact lens >>>>>>> Laser surgerySugar >>>>>>>> Artificial sweetenersNewspapers >>>>>>>> Internet
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésBargaining power of suppliers
WHEN bigger?WHEN bigger?
1. Large number of suppliers2. Few good substitute raw materials3. Cost of switching raw materials is
especially costly
Tools against the bargaining power of suppliers
Backward integrationSelf manufacture
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésCompetitive Analysis Porter�s Five-Forces Model
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Potential development of substitute products
Potential entry of new competitors
Bargaining power of suppliers
Bargaining powerof consumers
Rivalry amongcompeting
firms
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésBargaining power of consumers
WHEN bigger?WHEN bigger?
1. When costumers are concentrated2. Products are standard or undifferentiated3. If they can inexpensively switch to
competing brands or substitutes4. If they are particularly important to the
seller5. When sellers extremely need consumer
demand6. If they are informed about seller�s product
prices and costs
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe nature of an external audit
The purpose is to develop a finite list of The purpose is to develop a finite list of opportunitiesopportunities that could benefit a firm and that could benefit a firm and
threatsthreats that should be avoided.that should be avoided.
Methods for external assessment;Methods for external assessment;
1.1. Key external forces; (STEP analysis)Key external forces; (STEP analysis)2.2. Competitive Analysis (PorterCompetitive Analysis (Porter��s Five Forces s Five Forces
Model)Model)3.3. The External Factor Evaluation Matrix (EFE)The External Factor Evaluation Matrix (EFE)4.4. The Competitive Profile Matrix (CPM)The Competitive Profile Matrix (CPM)
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésExternal Factor Evaluation (EFE) Matrix
EFE allows strategists to summarize and evaluate all external factors in oneone sum.
1. Collect 10 to 20 factors both opportunities and threats that affectthe firm and its industry.
2. Assign to each factor a weight from 0,00 (not important) to 1,00(extremely important). The weight indicates the relative importance of that factor to being successful in the firmfirm��s s industryindustry. The sum of all weights is 1.
3. Assign a rating between 1 and 4 to each external factor to indicate how effectively the firmfirm��s current strategiess current strategies respond to the factor: where 4 is superior, 3 is above average, 2 is average and 1 is response is poor.
4. Multiply each factor�s weight by rating to determine a weighted score.
5. Sum the weighted score to determine the total weighted score fororganization.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésExternal Factor Evaluation (EFE) Matrix
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
3. >>>>9 or 10 key items
0,0710,072. Leading rival firms are more fully integrated
Σ (1 to 4)1,00Total
0,0820,041. Increasing governmental regulation in the industry
Threats3 . >>>>�..9 or 10 items
0,0620,032. Packaging technology offers 15 % annual cost savings
0,2840,071. Demand for prepared food increasing 10 % annually
Opportunities
Weighted score
RatingWeightKey external factors 12 3 4
5Importance to the firm�s industry
Importance to the firm�s current strategy
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésExternal Factor Evaluation (EFE) Matrix
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
The highest weighted score is 4 the lowest is 1 the average is 2,5.
4 means: the firm�s strategies effectively take advantage of existing opportunities and minimize the potential adverse of external threats.
1 means: The firm�s strategies are not capitalizing on opportunities or avoiding external threats.
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe nature of an external audit
The purpose is to develop a finite list of The purpose is to develop a finite list of opportunitiesopportunities that could benefit a firm and that could benefit a firm and
threatsthreats that should be avoided.that should be avoided.
Methods for external assessment;Methods for external assessment;
1.1. Key external forces; (STEP analysis)Key external forces; (STEP analysis)2.2. Competitive Analysis (PorterCompetitive Analysis (Porter��s Five Forces s Five Forces
Model)Model)3.3. The External Factor Evaluation Matrix (EFE)The External Factor Evaluation Matrix (EFE)4.4. The Competitive Profile Matrix (CPM)The Competitive Profile Matrix (CPM)
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe Competitive Profile Matrix (CPM)
Identifies a firm�s major competitors and its particular strengths and weaknesses in relation to a sample
firm�s strategic position1. Collect 10 to 20 critical success factors (CSF) that affect the firm
and its industry. The SCF include both internal and external issues.2. Assign to each factor a weight from 0,00 (not important) to 1,00
(extremely important). The weight indicates the relative importance of that factor to being successful in the industryindustry. The sum of all weights is 1.
3. Assign a rating between 1 and 4 to each external factor to refer to strengths and weaknesses: where 4 is major strength, 3 is minor strength, 2 is minor weakness, and 1 is major weakness.
4. Multiply each factor�s weight by rating to determine a weighted score.
5. Sum the weighted score to determine the total weighted score fororganization.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe Competitive Profile Matrix (CPM)
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
2,803,151,00TOTAL
0,1530,0510,05Market share
0,4020,840,20Global expansion
0,2020,440,10Customer loyalty
0,4530,640,15Financial position
0,3030,440,10Management
0,4040,330,10Price competitiveness
0,3030,440,10Product quality
0,6030,210,20Advertising
ScoreRating
ScoreRatingWeightCritical Success Factors
Procter&Gamble
AVONAN EXAMPLE
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe Competitive Profile Matrix (CPM)
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Important differences between EFE and CPM
CPMCPM� are boarder, they do not include specific or
factual data and even may focus on internal issues.
� Not grouped into opportunities and threats.� CPM ratings and total weighted scores for rival
firms can be compared to the sample firm.
© Dr. Nábrádi AndrásDE-AVK
Strategy formulation
Business mission
Internal analysis External analysis
Establishing long term objectives
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Internal assessmentInternal assessment
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Internal strengths/weaknessesstrengths/weaknesses, coupled with external opportunities/threats and clear statement of mission provide the basis for establishing objectives and strategies.
Methods for internal assessment:Methods for internal assessment:
1.1. Resource Based View (RBV) ApproachResource Based View (RBV) Approach2.2. Analyzing Key Internal ForcesAnalyzing Key Internal Forces3.3. Value Chain Analysis (VCA), (ABC)Value Chain Analysis (VCA), (ABC)4.4. Internal Factor Evaluation (IFE) MatrixInternal Factor Evaluation (IFE) Matrix
© Dr. Nábrádi AndrásDE-AVK
Internal assessment Methods
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
1.1. Resource Based View approachResource Based View approach� Physical resources
Plant, equipment, location, technology, raw materials, machines
� Human resourcesEmployees, training, experience, intelligence,
knowledge, skills, abilities� Organizational resources
Firm structure, planning processes, information systems, patents, trademarks, copyrights, databases
© Dr. Nábrádi AndrásDE-AVK
Internal assessment Methods
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Key internal forces:Key internal forces:
1. Management2. Marketing3. Finance/accounting4. Production/operation5. Research and development6. Management Information System
© Dr. Nábrádi AndrásDE-AVK
Internal assessment Methods
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
2. Analyzing key internal forces 2. Analyzing key internal forces 1. Management
Planning, organizing, motivating, staffing, and controlling.
2. MarketingCustomer analysis, selling products and services,
product and service planning, pricing, distribution, marketing research, opportunity analysis
3. Finance/ accountingFirm�s liquidity, leverage, working capital,
profitability, asset utilization, cash flow, and equity
© Dr. Nábrádi AndrásDE-AVK
Internal assessment Methods
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
2. Analyzing key internal forces 2. Analyzing key internal forces 4. Production/operation
Decision on process, capacity, inventory, workforce and quality.
5. Research and development6. Management information system
Data become information only when they are evaluated, filtered, condensed, analyzed, and organized for a specific purpose, problem, individual, or time.
3. Value Chain Analysis3. Value Chain AnalysisRefers to the process whereby a firm determines the
costs associated with organizational activities.4. Internal Factor Evaluation (IFE) Matrix4. Internal Factor Evaluation (IFE) Matrix
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces ManagementManagement
1.1. planning:planning: consists of all those managerial activities related to preparing for future. Specific tasks: forecasting, establishing objectives, devising strategies, developing policies, and setting goals.
2.2. Organizing:Organizing: includes all those managerial activities that result in a structure of task and authority relationships. Specific areas: organizational design, job specialization, job description, coordination, job analysis.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces ManagementManagement
3.3. Motivating:Motivating: involves efforts directed towards shaping human behavior. Specific topics: leadership, communication, work groups, delegation of authority, job satisfaction, employee morale.
4.4. Staffing: Staffing: are centered on personnel or HRM. Wage and salary administration, interviewing, hiring, firing, training, employee safety, union relation, career development, personnel research, public relations.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces ManagementManagement
5.5. Controlling:Controlling: ensuring that actual results are consistent with planned results. Key areas: quality control, financial control, sales control, inventory control, expense control, analysis of variances, rewards, and sanctions.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Strategy Strategy evaluationevaluation
ControllingControllingStaffingStaffingMotivatingMotivating Strategy Strategy
ImplementationImplementation
OrganizingOrganizing
Strategy Strategy FormulationFormulation
PlanningPlanning
© Dr. Nábrádi AndrásDE-AVK
Internal assessment Methods
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Key internal forces:Key internal forces:
1. Management2. Marketing3. Finance/accounting4. Production/operation5. Research and development6. Management Information System
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces Finance/accountingFinance/accounting
1.1. Investment decision:Investment decision: (capital budgeting) is the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization.
2.2. Financing decision:Financing decision: determines the best capital structure, how the firm can raise capital. Issuing stock, increasing dept, selling assets or using a combination of these.
3. Dividend decision: percentage of earnings paid to stockholders.
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces Finance/accountingFinance/accounting
Key financial ratios:Key financial ratios:Like a blood test: reflect a situation at just one
point in time.
1. Liquidity2. Leverage3. Activity4. Profitability5. Growth
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces Finance/accountingFinance/accounting
1.1. LiquidityLiquidityOutline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
A firm can (not) meet its short term obligationsWithout relying upon the sale of its inventories
Current assets � inventoryCurrent liabilities
Quick ratio
A firm can (not) meet its short term obligations
Current assetsCurrent liabilities
Current
What it measuresWhat it measuresHow calculatedHow calculatedRATIORATIO
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces Finance/accountingFinance/accounting
2. Leverage ratios2. Leverage ratiosOutline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
A balance between dept and equity in a firm�s long term capital structure
Long term dept__Total stockholder�s equity
Long term dept to equity
The extent to which earnings can decline without the firm becoming unable to meet its annual interest costs
Profit before interest and taxes
Total interest charges
Times interest earned ratio
The % of total funds provided by creditors versus by owners
Total dept____ Total stockholder�s equity
Dept to equity
The % of total funds that are provided by creditors
Total deptTotal assets
Dept to total assets
What it measuresWhat it measuresHow calculatedHow calculatedRATIORATIO
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces Finance/accountingFinance/accounting
3. Activity ratios3. Activity ratiosOutline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
The average length of time it takes a firm to collect credit sales (%)
Annual credit salesAccount receivable
Account receivable turnover
The average length of time it takes a firm to collect credit sales (days)
Account receivableTotal credit sales/365 days
Average collection period
Sales productivity on total assets
Sales______Total assets
Total assets turnover
Sales productivity and plant and equipment utilization
Sales______Fixed assets
Fixed assets turnover
Whether a firm holds excessive stocks of inventories
Sales______Inventory of finished goods
Inventory turnover
What it measuresWhat it measuresHow calculatedHow calculatedRATIORATIO
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces Finance/accountingFinance/accounting
4. Profitability ratios4. Profitability ratiosOutline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
After tax profits of salesNet income______Sales
Net profit margin
Profitability exclude I&TEarnings before interest and taxesSales
Operating profit margin
A total margin available to cover operating expenses and yield a profit
Sales minus cost of good soldSales
Gross profit margin
What it measuresWhat it measuresHow calculatedHow calculatedRATIORATIO
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces Finance/accountingFinance/accounting
4. Profitability ratios (continued)4. Profitability ratios (continued)Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Attractiveness of firm on equity market
Market price per shareEarnings per share
Price earning ratio
Earnings available to the owners of common stock
Net income______Number of shares of common stock
Earnings per share (EPS)
After tax profits of stockholder�s investment
Net incomeTotal stockholders� equity
Return on stockholders� equity
After tax profits of assets (Return on investment)
Net incomeTotal assets
Return on total assets (ROA)
What it measuresWhat it measuresHow calculatedHow calculatedRATIORATIO
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces Finance/accountingFinance/accounting
5. Growth ratios5. Growth ratiosOutline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Firms growth rate in EPS
Annual % growth in EPSEarnings per share
Firms growth rate in dividends per share
Annual % growth in dividends per share
Dividends per share
Firms growth rate in profits
Annual % growth in profitsNet income
Firms growth rate in sales
Annual % growth in total sales
Sales
What it measuresWhat it measuresHow calculatedHow calculatedRATIORATIO
© Dr. Nábrádi AndrásDE-AVK
Internal assessment
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Key internal forces:Key internal forces:
1. Management2. Marketing3. Finance/accounting4. Production/operation5. Research and development6. Management Information System
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces Production/operationProduction/operation
This function of a business consists of all those activities that transform inputs
into good and services.
5 functions or decision areas5 functions or decision areas:
� Process� Capacity� Inventory� Workforce� Quality
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Key Internal Forces Production/operationProduction/operation
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Design of physical production system. Specific: choice of technology, facility layout, process flow analysis, process control, transportation analysis
1. Process
Ensuring the certain quality goods and services are produced. Specific: quality control, sampling, qualityassurance and cost control
5. Quality
Managing the skilled, unskilled, clerical, and managerial employees. Specific: job design, work measurement, job enrichment, work standards and motivation techniques.
4. Workforce
Managing the level of raw materials, work-in process, and finished goods. Specific: what to order, how much to order, materials handling.
3. Inventory
Determination of optimal output level for the firm. Specific: forecasting, facilities planning, aggregate planning, scheduling, capacity planning.
2. Capacity
DESCRIPTIONDESCRIPTIONFUNCTIONFUNCTION
© Dr. Nábrádi AndrásDE-AVK
Internal assessmentInternal assessment
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Internal strengths/weaknessesstrengths/weaknesses, coupled with external opportunities/threats and clear statement of mission provide the basis for establishing objectives and strategies.
Methods for internal assessment:Methods for internal assessment:
1.1. Resource Based View (RBV) ApproachResource Based View (RBV) Approach2.2. Analyzing Key Internal ForcesAnalyzing Key Internal Forces3.3. Value Chain Analysis (VCA)Value Chain Analysis (VCA) Activity Based Activity Based
Costing (ABC)Costing (ABC)4.4. Internal Factor Evaluation (IFE) MatrixInternal Factor Evaluation (IFE) Matrix
© Dr. Nábrádi AndrásDE-AVK
Value chain Analysis
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Value chain analysis refers to the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products to marketing those products.
Aims to identify where low cost Aims to identify where low cost advantages or disadvantages exist advantages or disadvantages exist
anywhere along the value chain.anywhere along the value chain.
© Dr. Nábrádi AndrásDE-AVK
Value Chain Analysis
Outline
� Strategy formulation
� Develop vision
� Develop mission
� Why mission statement
� External assessment
� Internal assessment
� Establish long term objectives
Supplier Production Distribution Sales +marketing
Customerservice
© Dr. Nábrádi AndrásDE-AVK
Value Chain Analysis
Outline
� Strategy formulation
�Develop vision
�Develop mission
�Why mission statement
�External assessment
�Internal assessment
�Establish long term objectives
Supplier Production Distribution Sales +marketing
Customerservice
MaintenanceWarehouse
Food and lodging
FuelCost accounting
Storing
Transportation
RailroadsR and DInspection
AdvertisingTruckingComputerComponent parts
PromotionInternetPlant locationTruck drivers
WarrantyPublicityPersonnelMaintenanceTransportation
InternetInternetBudgetingPlant layoutEnergy
PhoneWeb siteShippingReceivingFuel
PostageSalespersonsLoadingInventory system
Raw mat.
© Dr. Nábrádi AndrásDE-AVK
Value Chain Analysis
Outline
� Strategy formulation
�Develop vision
�Develop mission
�Why mission statement
�External assessment
�Internal assessment
�Establish long term objectives
Supplier Production Distribution Sales +marketing
Customerservice
© Dr. Nábrádi AndrásDE-AVK
Value Chain Analysis
Outline
� Strategy formulation
�Develop vision
�Develop mission
�Why mission statement
�External assessment
�Internal assessment
�Establish long term objectives
Supplier Production Distribution Sales +marketing
Customerservice
© Dr. Nábrádi AndrásDE-AVK
Internal assessmentInternal assessment
Internal strengths/weaknessesstrengths/weaknesses, coupled with external opportunities/threats and clear statement of mission provide the basis for establishing objectives and strategies.
Methods for internal assessment:Methods for internal assessment:
1.1. Resource Based View (RBV) ApproachResource Based View (RBV) Approach2.2. Analyzing Key Internal ForcesAnalyzing Key Internal Forces3.3. Value Chain Analysis (VCA), (ABC)Value Chain Analysis (VCA), (ABC)4.4. Internal Factor Evaluation (IFE) MatrixInternal Factor Evaluation (IFE) Matrix
Outline
� Strategy formulation
�Develop vision
�Develop mission
�Why mission statement
�External assessment
�Internal assessment
�Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésThe Internal Factor Evaluation Matrix
Identifies a firm�s major strengths and weaknessesallows strategists to summarize and evaluate all
internal factors in oneone sum.
1. Collect 10 to 20 internal factors including both strengths and weaknesses. Use percentage, ratios and comparative numbers.
2. Assign to each factor a weight from 0,00 (not important) to 1,00(extremely important). The weight indicates the relative importance of that factor to being successful in the industryindustry. The sum of all weights is 1.
3. Assign a rating between 1 and 4 to each external factor to refer to strengths and weaknesses: where 4 is major strength, 3 is minor strength, 2 is minor weakness, and 1 is major weakness.
4. Multiply each factor�s weight by rating to determine a weighted score.
5. Sum the weighted score to determine the total weighted score fororganization.
Outline
� Strategy formulation
�Develop vision
�Develop mission
�Why mission statement
�External assessment
�Internal assessment
�Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Az üzleti küldetésInternal Factor Evaluation (IFE) Matrix
3. >>>>9 or 10 key items
0,0710,072. 86 % of the trade revenues come from Europe
Σ (1 to 4)1,00Total
0,0620,031. Our company total dept to equity ratio is 0,36 compared to the industry average of 0,9
Weaknesses3 . >>>>�..9 or 10 items
0,2440,062. Our company has 50 subsidiary in Europe and Asia
0,2430,081. Our company provide 24-hour, 7 day services
Strengths
Weighted score
RatingWeightKey internal factorsOutline
� Strategy formulation
�Develop vision
�Develop mission
�Why mission statement
�External assessment
�Internal assessment
�Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Internal Factor Evaluation (IFE) Matrix
The highest weighted score is 4 the lowest is 1 the average is 2,5.
Total weighted scores well below 2,5below 2,5characterize organizations that are weakweak internally, whereas scores significantly above 2,5above 2,5 indicate a strongstronginternal positionposition.
Outline
� Strategy formulation
�Develop vision
�Develop mission
�Why mission statement
�External assessment
�Internal assessment
�Establish long term objectives
© Dr. Nábrádi AndrásDE-AVK
Internal Factor Evaluation (IFE) Matrix
Outline
� Strategy formulation
�Develop vision
�Develop mission
�Why mission statement
�External assessment
�Internal assessment
�Establish long term objectives
Strategy formulation
Business mission
Internal analysis External analysis
Establishing long term objectivesEstablishing long term objectives
Generating alternative strategiesChoosing particular strategies to pursue
Deciding what new business to enter
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