Strategy and business policy

Strategy and Business Strategy and Business PolicyPolicy

George AntoniadesGeorge Antoniades

Strategic ManagementStrategic Management►Set of decisions and actions that result Set of decisions and actions that result

in the formulation and implementation in the formulation and implementation of plans designed to achieve a of plans designed to achieve a company’s objectivescompany’s objectives

Strategic ManagementStrategic Management► It’s main tasksIt’s main tasks

1.1. Formulate a mission of the company Formulate a mission of the company (reason for it’s existence)(reason for it’s existence)

2.2. Develop a company profileDevelop a company profile3.3. Assess the external environmentAssess the external environment4.4. Analyze the company’s optionsAnalyze the company’s options5.5. Identify the most desirable options in Identify the most desirable options in

light of it’s missionlight of it’s mission

7.7. Select long term objectivesSelect long term objectives8.8. Implement the strategic choicesImplement the strategic choices9.9. Evaluate the success of the strategy Evaluate the success of the strategy

for future referencefor future reference

The Dimensions of Strategic The Dimensions of Strategic DecisionsDecisions

► Strategic Issues Require Top-Management Strategic Issues Require Top-Management DecisionsDecisions Only top management can understand the Only top management can understand the

implications of these decisionsimplications of these decisions Only top Management can authorize the Only top Management can authorize the

allocation of the sources requiredallocation of the sources required► Strategic Issues Require large Amounts of Strategic Issues Require large Amounts of

ResourcesResources Require substantial allocation of people and Require substantial allocation of people and

assetsassets

►Strategic Issues often Affect the firms Long-Term ProsperityStrategic Issues often Affect the firms Long-Term Prosperity The decision will commit the organization for a long time. The decision will commit the organization for a long time.

(usually 5 years and more)(usually 5 years and more)►Strategic Issues are future OrientedStrategic Issues are future Oriented

Managers are based on forecast rather than what they Managers are based on forecast rather than what they knowknow

►Strategic issues usually have Multifunctional or Strategic issues usually have Multifunctional or Multibusiness consequencesMultibusiness consequences Strategic decisions often affect the firm’s SBUsStrategic decisions often affect the firm’s SBUs

►Strategic Issues require Considering the Firm’s External Strategic Issues require Considering the Firm’s External EnvironmentEnvironment

Levels Of StrategyLevels Of Strategy►Corporate Level ManagementCorporate Level Management

Board of Directors, C.E.O, and Board of Directors, C.E.O, and Administrative Officers.Administrative Officers.►Responsible for financial performanceResponsible for financial performance►Responsible for the non financial goals (e.g. Responsible for the non financial goals (e.g.

Image and social responsibilities of the firm)Image and social responsibilities of the firm)►Business Level ManagementBusiness Level Management

Business and Corporate ManagersBusiness and Corporate Managers►Translate statements of direction and intent Translate statements of direction and intent

coming from Corporate Level into objectives and coming from Corporate Level into objectives and strategiesstrategies

►Functional Level ManagementFunctional Level Management Product managers, area managers, Product managers, area managers,

functional managersfunctional managers►Annual objectivesAnnual objectives►Short term strategiesShort term strategies►Implement company’s strategic planImplement company’s strategic plan►Focus on doing the “right thing”Focus on doing the “right thing”

Benefits of strategic Benefits of strategic managementmanagement

► Prevent problemsPrevent problems► Group-based strategic decisions generate greater Group-based strategic decisions generate greater

variety of strategies by experts specialized in variety of strategies by experts specialized in different areas improve the screening of optionsdifferent areas improve the screening of options

► The involvement of employees in strategy The involvement of employees in strategy formulation heightens their motivationformulation heightens their motivation

► Gaps and overlaps in activities are reduced since Gaps and overlaps in activities are reduced since participation of individuals and groups clarifies the participation of individuals and groups clarifies the different rolesdifferent roles

► Resistance to change is reducedResistance to change is reduced Participants are more likely to accept changes which they Participants are more likely to accept changes which they

have taken part onhave taken part on

Risks of Strategic Risks of Strategic ManagementManagement

►Strategic Planning takes timeStrategic Planning takes time Negative impact on operational responsibilitiesNegative impact on operational responsibilities

► If the formulators are not involved in the If the formulators are not involved in the implementation they may shrink their implementation they may shrink their responsibility for the decisions reachedresponsibility for the decisions reached Managers should limit their promisesManagers should limit their promises

►Strategic managers must be trained to Strategic managers must be trained to anticipate and respond to disappointment anticipate and respond to disappointment of subordinates over unattained of subordinates over unattained expectationsexpectations

Strategic Management ModelStrategic Management Model► Company MissionCompany Mission

The mission describes the company’s product, The mission describes the company’s product, market, and technological areas.market, and technological areas.

► Company ProfileCompany Profile Portray the company’s quantity and quality of Portray the company’s quantity and quality of

financial, human and physical resourcesfinancial, human and physical resources Examine the company’s strengths and Examine the company’s strengths and

weaknesses of its management and structureweaknesses of its management and structure Contrasts the company’s past successes Contrasts the company’s past successes

traditional concerns with current capabilities to traditional concerns with current capabilities to identify its capabilitiesidentify its capabilities

►External EnvironmentExternal Environment Consist of all conditions and forces that Consist of all conditions and forces that

effect a firm’s strategic options and define effect a firm’s strategic options and define its competitive situationits competitive situation

►Strategic Analysis and choice Strategic Analysis and choice Simultaneous assessment of external Simultaneous assessment of external

environment and the company profile to environment and the company profile to identify possibly attractive interactive identify possibly attractive interactive opportunities.opportunities.

► Long –Term ObjectivesLong –Term Objectives The results an organization seeks to achieve over The results an organization seeks to achieve over

long period of timelong period of time►Profitability R.O.I (return on investment), productivity Profitability R.O.I (return on investment), productivity

etc.etc.►Generic and Grand StrategiesGeneric and Grand Strategies

Generic StrategiesGeneric Strategies►Low cost, differentiation, and focus strategies.Low cost, differentiation, and focus strategies.►Combined with a comprehensive, general plan of major Combined with a comprehensive, general plan of major

actions through which the firm will achieve its Long-actions through which the firm will achieve its Long-Term objectivesTerm objectives

►Action Plans and Short-Term objectivesAction Plans and Short-Term objectives Action Plans translate generic and grand Action Plans translate generic and grand

strategies into action by incorporating:strategies into action by incorporating:►SpecificSpecific and functional and functional tactics and actionstactics and actions for for

a short term period in an effort to build a a short term period in an effort to build a competitive advantagecompetitive advantage

►Clear Clear frame time for completionframe time for completion►Create Create accountabilityaccountability to determine who is to determine who is

responsible for each action in the planresponsible for each action in the plan►OutcomesOutcomes that action should generate that action should generate

►Functional TacticsFunctional Tactics Identify and undertake activities unique to Identify and undertake activities unique to

the function that help build a competitive the function that help build a competitive advantageadvantage

►Policies that Empower ActionPolicies that Empower Action►Restructuring, Reengineering, refocusing Restructuring, Reengineering, refocusing

the organizationthe organization►Strategic control and continuous Strategic control and continuous

improvementimprovement

Chapter 2Chapter 2

Defining the Company Defining the Company missionmission

►Company MissionCompany Mission The mission describes the company’s The mission describes the company’s

product, market, and technological areas.product, market, and technological areas. ““It describes the reason for the company’s It describes the reason for the company’s

existence”existence”► Strategic management (Strategic management (Board of Board of

directorsdirectors) is responsible for overseeing ) is responsible for overseeing the creation and accomplishment of the creation and accomplishment of the company missionthe company mission

Company missionCompany mission► Designed to accomplish:Designed to accomplish:1.1. To ensure unanimity of purpose To ensure unanimity of purpose 2.2. To provide a basis for motivation for To provide a basis for motivation for

employees employees 3.3. To develop a basis for allocating the To develop a basis for allocating the

organizational resourcesorganizational resources4.4. TO establish organizational climateTO establish organizational climate

Company missionCompany mission5. To serve as a focal point for those who 5. To serve as a focal point for those who

can identify with the organization’s can identify with the organization’s purpose and direction, and deter those purpose and direction, and deter those who can’twho can’t

6. To facilitate the translation of objectives 6. To facilitate the translation of objectives and goals into work structure involving and goals into work structure involving the assignment of tasks the assignment of tasks

7. Specify the purposes of the organization 7. Specify the purposes of the organization and translate it into goalsand translate it into goals

Formulating a MissionFormulating a Mission►Start by thinking our beliefs about the Start by thinking our beliefs about the

organizationorganization The product or service of the business can The product or service of the business can

provide at least equal benefits with its priceprovide at least equal benefits with its price The product or service can satisfy a customer The product or service can satisfy a customer

need in specific market segments that is not need in specific market segments that is not currently met adequately currently met adequately

The business can survive grow and make The business can survive grow and make profitsprofits

The technology the business is involved in can The technology the business is involved in can provide cost and quality product or service provide cost and quality product or service

Formulating a MissionFormulating a Mission►The management philosophy will create The management philosophy will create

a favourable public image. It will a favourable public image. It will provide financial and psychological provide financial and psychological rewards for those who are willing to rewards for those who are willing to invest in the organizationinvest in the organization

►The entrepreneur’s self-concept of the The entrepreneur’s self-concept of the business can be communicated to, and business can be communicated to, and adopted by employees and adopted by employees and stockholdersstockholders

Mission statement Mission statement componentscomponents

►Product or service, Primary market, Product or service, Primary market, Principal TechnologyPrincipal Technology Specifications of the basic product or serviceSpecifications of the basic product or service Specifications of the primary marketSpecifications of the primary market Specifications of the principal technology of Specifications of the principal technology of

production or deliveryproduction or delivery

Combined they describe the business Combined they describe the business activityactivity

Mission Statement Mission Statement ComponentsComponents

►Company Goals:Company Goals: Secure SURVIVAL through GROWTH and Secure SURVIVAL through GROWTH and

PROFITABILITYPROFITABILITY


►Company PhilosophyCompany Philosophy Reflects or SpecifiesReflects or Specifies

►Basic beliefsBasic beliefs►Values Values ►Aspirations (ambitions)Aspirations (ambitions)►Philosophical prioritiesPhilosophical priorities

Decision makers are committed to these Decision makers are committed to these valuesvalues►E.g. General motors on its statement clarifies its E.g. General motors on its statement clarifies its

environmental principlesenvironmental principles


►Public imagePublic image Reflects public’s expectationsReflects public’s expectations

►E.g. Johnson & Johnson makes safe productsE.g. Johnson & Johnson makes safe products►Corvette makes powerful machinesCorvette makes powerful machines►Toyota makes reliable carsToyota makes reliable cars


► Company self conceptCompany self concept Company knows itself Company knows itself Characteristics of the corporate self conceptCharacteristics of the corporate self concept

1.1. Based on management perception of how Based on management perception of how the society will respond to the companythe society will respond to the company

2.2. Directs the behaviour of people employed by Directs the behaviour of people employed by the companythe company

3.3. It is determined in part by the responses of It is determined in part by the responses of others to the companyothers to the company

4.4. It is incorporated into mission statements It is incorporated into mission statements that are communicated to individuals inside that are communicated to individuals inside and outside the companyand outside the company

Mission Statement ComponentsMission Statement ComponentsNewest TrendsNewest Trends

►CustomerCustomer Majority of companies state “The Majority of companies state “The

customer is our top Priority”customer is our top Priority” Focuses on customer satisfactionFocuses on customer satisfaction

►SafetySafety►ServiceService►ValueValue

►QualityQuality

Mission Statement ComponentsMission Statement ComponentsNewest TrendsNewest Trends

►Social ResponsibilitySocial Responsibility PollutionPollution Give back to societyGive back to society Donate to non-profit organizationsDonate to non-profit organizations

Inputs to the development of Inputs to the development of the company missionthe company mission

►StakeholdersStakeholders A stakeholder is any person or A stakeholder is any person or

Organization who can be positively or Organization who can be positively or negatively impacted by, or cause an negatively impacted by, or cause an impact on the actions of a company.impact on the actions of a company.

Inputs to the development of Inputs to the development of the company missionthe company mission

Inside Inside StakeholdersStakeholders

-Executive -Executive officersofficers-Board of -Board of directorsdirectors-Stockholders-StockholdersEmployeesEmployees

Outside Outside stakeholdersstakeholders-Customers-Customers-Suppliers-Suppliers-Creditors-Creditors-Governments-Governments-Unions-Unions-Competitors-Competitors-General Public-General Public

Company Company missionmission

ExamplesExamples►Customer-Market: We believe our first Customer-Market: We believe our first

responsibility is our doctors, nurses, responsibility is our doctors, nurses, and patients, to mothers and all others and patients, to mothers and all others who use our products and services who use our products and services (Johnson & Johnson)(Johnson & Johnson)

►Product-Service: AMAX’s principal Product-Service: AMAX’s principal products are molybdenum, coal, iron, products are molybdenum, coal, iron, copper, lead, zinc, gold and copper, lead, zinc, gold and magneseum. (Amax)magneseum. (Amax)

ExamplesExamples► Technology-The common technologies in Technology-The common technologies in

these areas relates to discrete particle these areas relates to discrete particle coatings (NASHUA)coatings (NASHUA)

► Concern for survival-The company will run Concern for survival-The company will run it’s operations prudently, and will provide it’s operations prudently, and will provide the profits and growth which will assure the profits and growth which will assure Hoover’s ultimate success (Hoover)Hoover’s ultimate success (Hoover)

► Philosophy-We are committed to improve Philosophy-We are committed to improve health care throughout the world Bxtel health care throughout the world Bxtel Travenol)Travenol)

ExamplesExamples►Self Concept-Hoover is a diversified, Self Concept-Hoover is a diversified,

multi industry corporation with strong multi industry corporation with strong manufacturing capabilities manufacturing capabilities entrepreneurship policies, and entrepreneurship policies, and individual business unit autonomiesindividual business unit autonomies

►Concern for public image-We are Concern for public image-We are responsible to the communities in responsible to the communities in which we live and work and to the which we live and work and to the world community as well (J & J)world community as well (J & J)

Strategy MakersStrategy Makers► Board of directorsBoard of directors

Elected by stockholdersElected by stockholders► ResponsibilitiesResponsibilities

Establish and update company missionEstablish and update company mission Elect top officers (CEO)Elect top officers (CEO) Establish compensation levels of top officers Establish compensation levels of top officers

(salaries, bonuses)(salaries, bonuses) Determine the amount of timing and dividend Determine the amount of timing and dividend

paid to stockholderspaid to stockholders Set company policy on matters like Labour-Set company policy on matters like Labour-

Management relations, employee benefitsManagement relations, employee benefits Set company objectives and authorise managers Set company objectives and authorise managers

to implement strategiesto implement strategies Mandate company compliance with legal and Mandate company compliance with legal and

ethical dictatesethical dictates

The External EnvironmentThe External Environment

Remote EnvironmentRemote Environment►EconomicEconomic►SocialSocial►PoliticalPolitical►TechnologicalTechnological►EcologicalEcological

Remote EnvironmentRemote Environment► Economic FactorsEconomic Factors Concern the direction of the economy in which Concern the direction of the economy in which

the firm operatesthe firm operates► Social FactorsSocial Factors Beliefs, Values, attitudes, Opinions, and Beliefs, Values, attitudes, Opinions, and

lifestyles of persons in the firm’s external lifestyles of persons in the firm’s external environment.environment.

Social factors are shaped by Cultural, Social factors are shaped by Cultural, ecological, demographic, religious educational, ecological, demographic, religious educational, and ethnic conditioningand ethnic conditioning

Remote EnvironmentRemote Environment►Political FactorsPolitical Factors Concerns of the direction and stability Concerns of the direction and stability

of political situations. (legal and of political situations. (legal and regulatory parameters)regulatory parameters)

►Technological FactorsTechnological Factors Changes in technologyChanges in technology

►Crucial to predict future technological Crucial to predict future technological capabilities and their probable impactcapabilities and their probable impact

Remote EnvironmentRemote Environment►Ecological FactorsEcological Factors Ecology refers to the relationship Ecology refers to the relationship

among human beings and other living among human beings and other living things, and air, soil, and water that things, and air, soil, and water that support itsupport it Relationship between business and Relationship between business and

ecologyecology

Industry EnvironmentIndustry Environment►Competitive forces shape the industry Competitive forces shape the industry

environmentenvironment Fight of market shareFight of market share

►5 Forces that shape competition and 5 Forces that shape competition and determine the attractiveness of the determine the attractiveness of the industryindustry

Threat of EntryThreat of Entry►There are 6 major forces of barriers to There are 6 major forces of barriers to

entryentry Economies of scaleEconomies of scale

►Either come in on large scale, or accept cost Either come in on large scale, or accept cost disadvantagedisadvantage

Product differentiationProduct differentiation►Brand identification creates a barrier because it Brand identification creates a barrier because it

makes new entrants to spend heavily to makes new entrants to spend heavily to overcome customer loyaltyovercome customer loyalty

Capital requirementsCapital requirements►The need for investing large financial resources.The need for investing large financial resources.

Threat of EntryThreat of Entry Cost Disadvantages independent of sizeCost Disadvantages independent of size

►Already established companies have advantages like Already established companies have advantages like Learning curve, experience curve, access to the best Learning curve, experience curve, access to the best

raw material, assets purchased at pre inflation prices.raw material, assets purchased at pre inflation prices. Access to distribution ChannelsAccess to distribution Channels

►New entrants must secure distribution of their productNew entrants must secure distribution of their product Government policyGovernment policy

►Licence requirementLicence requirement►Limit the access to materialLimit the access to material

Power of SuppliersPower of Suppliers► Powerful suppliers can squeeze profitability Powerful suppliers can squeeze profitability

out of the companyout of the company Raise PricesRaise Prices Reduce qualityReduce quality

► A supplier group is powerful if:A supplier group is powerful if: It is dominated by few companies and is more It is dominated by few companies and is more

concentrated than the industry it sells. concentrated than the industry it sells. Its product is unique or at least differentIts product is unique or at least different It does not content with other productsIt does not content with other products It poses a threat for integrating forward into the It poses a threat for integrating forward into the

industry’s business (sell what it produce) industry’s business (sell what it produce) The industry is not an important customer to the The industry is not an important customer to the

supplier groupsupplier group

Powerful BuyersPowerful Buyers►A buyer group is powerful ifA buyer group is powerful if

It is concentrated or purchases in large It is concentrated or purchases in large volumesvolumes

The products are standard or The products are standard or undifferentiatedundifferentiated

The product sold by the industry is a The product sold by the industry is a significant fraction of the buyers costsignificant fraction of the buyers cost

The buyers pose a threat for integrating The buyers pose a threat for integrating backwards to make the industry’s productsbackwards to make the industry’s products

Substitute ProductsSubstitute Products►Substitute goods that need our Substitute goods that need our

attention are those that:attention are those that: a) Are improving their price-a) Are improving their price-

performance trade-off with the performance trade-off with the industry productindustry product

b) Are produced by industries earning b) Are produced by industries earning high profitshigh profits

Rivalry among industryRivalry among industry► Intense rivalry is related to the factorsIntense rivalry is related to the factors

Many competitors, or equal in power and Many competitors, or equal in power and sizesize

Slow industry growth-fight for market shareSlow industry growth-fight for market share The product or service lacks differentiation The product or service lacks differentiation

or switching costsor switching costs Fixed costs are highFixed costs are high Exit barriers are highExit barriers are high Rivals are diverse in strategies, origins and Rivals are diverse in strategies, origins and

personalitiespersonalities

Industry analysis and Industry analysis and competitive analysiscompetitive analysis

► A firm need to answer 4 questionsA firm need to answer 4 questions1.1. What are the boundaries of the What are the boundaries of the

industryindustry2.2. What is the structure of the industryWhat is the structure of the industry3.3. Which firms are our competitorsWhich firms are our competitors4.4. What are the major determinants of What are the major determinants of

competitioncompetition

Industry StructureIndustry Structure► ConcentrationConcentration

The extend by which sales are dominated by only The extend by which sales are dominated by only a few firmsa few firms

► Economies of scaleEconomies of scale Savings that the companies within the industry Savings that the companies within the industry

achieve due to increased volumeachieve due to increased volume► Product differentiationProduct differentiation

The extend to which customers perceive The extend to which customers perceive products or services offered by firms in the products or services offered by firms in the industry as differentindustry as different

Industry StructureIndustry Structure►Barriers to EntryBarriers to Entry

Tangible (Capital, resources, laws)Tangible (Capital, resources, laws) Intangible (Reputation of existing firms, Intangible (Reputation of existing firms,

loyalty of consumers for existing firms)loyalty of consumers for existing firms)

Competitive AnalysisCompetitive Analysis►How to identify competitorsHow to identify competitors

Identify how other firms define their Identify how other firms define their marketmarket

How similar are the benefits the How similar are the benefits the customers get from the product or customers get from the product or services other firms offerservices other firms offer

How committed are other firms to the How committed are other firms to the industryindustry

Operating environmentOperating environment► Competitive PositionCompetitive Position►Development of competitor profiles we often Development of competitor profiles we often

include the following criteriainclude the following criteria Market shareMarket share Breadth of product lineBreadth of product line Effectiveness of sales distributionEffectiveness of sales distribution Price competitivenessPrice competitiveness Capacity and productivityCapacity and productivity Cost of raw materialCost of raw material R&D advantages positionR&D advantages position Location of facilitiesLocation of facilities

Operating EnvironmentOperating Environment►Customer profilesCustomer profiles

Geographic – where the customers do or Geographic – where the customers do or could come fromcould come from

Demographic-Variables used to Demographic-Variables used to differentiate groups (sex, age, marital differentiate groups (sex, age, marital status, income, occupation)status, income, occupation)

Psychographic-Personality and LifestylePsychographic-Personality and Lifestyle Buyer Behaviour-Brand loyalty, frequency Buyer Behaviour-Brand loyalty, frequency

of use, benefits sought)of use, benefits sought)

Operating EnvironmentOperating Environment►Suppliers-Assessing the relationship Suppliers-Assessing the relationship

with supplier we considerwith supplier we consider Are the suppliers price competitive? Do Are the suppliers price competitive? Do

they offer discounts?they offer discounts? How costly are their shipping charges?How costly are their shipping charges? Are the suppliers competitive in terms of Are the suppliers competitive in terms of

production standards?production standards?

Operating EnvironmentOperating Environment►CreditorsCreditors

Are the creditors able to extend the Are the creditors able to extend the necessary lines of credit?necessary lines of credit?

Are the creditor’s loan terms compatible Are the creditor’s loan terms compatible with the firms profitability objectives?with the firms profitability objectives?

Do the creditors perceive the firm as Do the creditors perceive the firm as having an acceptable record of past having an acceptable record of past payment?payment?

Operating EnvironmentOperating Environment►Human ResourcesHuman Resources

The ability to attract and keep capable The ability to attract and keep capable employees is essential for a firm’s successemployees is essential for a firm’s success

Reputation of the firm pays a key role Reputation of the firm pays a key role

The Global EnvironmentThe Global Environment►Ch 4Ch 4

Factors that drive global Factors that drive global companiescompanies

►Global management teamGlobal management team Possesses global vision & culturePossesses global vision & culture Includes foreign nationalsIncludes foreign nationals Leaves management of subsidiaries to Leaves management of subsidiaries to

nationalsnationals Frequently travels internationally Frequently travels internationally Has cross-cultural trainingHas cross-cultural training


►Global strategyGlobal strategy Implement strategy as opposed to Implement strategy as opposed to

independent country strategyindependent country strategy Develop significant cross-country alliancesDevelop significant cross-country alliances Select country targets strategically rather Select country targets strategically rather

than opportunisticallythan opportunistically Perform business functions where most Perform business functions where most

efficientefficient


►Global operations and productsGlobal operations and products Use common core operating processes Use common core operating processes

worldwide to ensure quantity and worldwide to ensure quantity and uniformityuniformity

Produce globally to obtain best cost and Produce globally to obtain best cost and market advantagemarket advantage


►Global technology and R&DGlobal technology and R&D Design global products but take regional Design global products but take regional

differences into accountdifferences into account Manage development work centrally but Manage development work centrally but

carry out globallycarry out globally


►Global financingGlobal financing Finance globally to obtain lower costFinance globally to obtain lower cost Price in local currenciesPrice in local currencies List shares in foreign exchangesList shares in foreign exchanges


►Global marketingGlobal marketing Develop Global brandsDevelop Global brands Use core of global marketing practices Use core of global marketing practices

and themesand themes Simultaneously introduce new global Simultaneously introduce new global

products world wideproducts world wide

Considerations Prior Considerations Prior GlobalizationGlobalization

► 1. Scan the global situation1. Scan the global situation Read journals, reports or other written sources, Read journals, reports or other written sources,

meeting people in conferences and in-house seminarsmeeting people in conferences and in-house seminars► 2. Make connections with research 2. Make connections with research

Organizations. Organizations. Enter into consulting agreements with themEnter into consulting agreements with them

► 3. Increase the firm’s global visibility3. Increase the firm’s global visibility Participation in trade fairs, circulate brochuresParticipation in trade fairs, circulate brochures

► 4. Undertake cooperative research projects4. Undertake cooperative research projects Reduce expenses and riskReduce expenses and risk

Complexity of the global Complexity of the global environmentenvironment

►Global companies face multiple political, Global companies face multiple political, economic, legal, social and cultural economic, legal, social and cultural environments and various rates of environments and various rates of changeschanges

► Interactions between the national and Interactions between the national and foreign environments are complex foreign environments are complex because of national sovereignty issues because of national sovereignty issues and differing economic & social conditionsand differing economic & social conditions

►Geographic separation tend to make Geographic separation tend to make communication difficult communication difficult

Global Strategic PlanningGlobal Strategic Planning►Multidomestic IndustriesMultidomestic Industries

Is the industry where the competition is Is the industry where the competition is essentially segmented from country to essentially segmented from country to countrycountry

Competition in one country is independed Competition in one country is independed of competition in other countriesof competition in other countries►E.g. Insurance, consumer financeE.g. Insurance, consumer finance

In this case subsidiaries of the global In this case subsidiaries of the global corporation should be rather autonomouscorporation should be rather autonomous

Global strategic planningGlobal strategic planning►Global industriesGlobal industries

Competition in this case crosses national Competition in this case crosses national borders.borders.

In such industry a firm’s strategic moves In such industry a firm’s strategic moves in one country can be effected by its in one country can be effected by its competitive position in another country competitive position in another country ►These industries include automobiles, main These industries include automobiles, main

frame computers, commercial aircrafts.frame computers, commercial aircrafts.

Global strategic planningGlobal strategic planning►Global industriesGlobal industries

Strategic management planning should be Strategic management planning should be global for many reasonsglobal for many reasons►The increased scope of the global The increased scope of the global

management taskmanagement task►The increased globalization of firmsThe increased globalization of firms►The information explosionThe information explosion►The increase in global competitionThe increase in global competition►The rapid development of technologyThe rapid development of technology►Strategic management planning breeds Strategic management planning breeds

managerial confidencemanagerial confidence

Globalization of the company Globalization of the company missionmission

►The mission statement must be The mission statement must be revised to go along with the changes revised to go along with the changes in strategic direction and strategic in strategic direction and strategic alternatives that globalization alternatives that globalization demandsdemands

►The firm could define its market as The firm could define its market as global or it could focus on particular global or it could focus on particular demands of each national marketdemands of each national market


►Company goals: Survival growth Company goals: Survival growth ProfitabilityProfitability Companies should be careful when Companies should be careful when

committed to profit motive. Many committed to profit motive. Many countries may view development goals as countries may view development goals as taking superiority over the goals of free taking superiority over the goals of free market capitalism market capitalism


►Company PhilosophyCompany Philosophy When a firm extends its operations into When a firm extends its operations into

another country it encounters a new set of another country it encounters a new set of accepted corporate values and beliefs, accepted corporate values and beliefs, which it must assimilate and incorporate which it must assimilate and incorporate into its owninto its own


►Self conceptSelf concept The globalized self-concept of a firm is The globalized self-concept of a firm is

dependent on management’s dependent on management’s understanding of the firms strengths and understanding of the firms strengths and weaknesses as a competitor in each of its weaknesses as a competitor in each of its operating locationsoperating locations

Competitive strategies in Competitive strategies in foreign marketsforeign markets

►Niche Market exportingNiche Market exporting Modify product performance to meet Modify product performance to meet

special foreign demandsspecial foreign demands Exporting requires minimal capital Exporting requires minimal capital

investmentinvestment The organization maintains its quality The organization maintains its quality

control standardscontrol standards


►Licensing/Contract manufacturingLicensing/Contract manufacturing► Involves the transfer of some Involves the transfer of some

industrial property right from the industrial property right from the licensor to the licensee. These licensor to the licensee. These property is usually patents, property is usually patents, trademarks, or technical know-howtrademarks, or technical know-how In return the licensor is paid royalty and In return the licensor is paid royalty and

avoids tariffs or import quotasavoids tariffs or import quotas


► Joint VenturesJoint Ventures Most companies will form joint venture Most companies will form joint venture

with target nation firmswith target nation firms Offers more permanent cooperative Offers more permanent cooperative

relationships than exportingrelationships than exporting


►Foreign BranchingForeign Branching A foreign branch is an extension of the A foreign branch is an extension of the

company in its foreign marketcompany in its foreign market►It is a separately located SBUIt is a separately located SBU


►Foreign subsidiariesForeign subsidiaries Foreign subsidiaries are considered by Foreign subsidiaries are considered by

companies that are willing and able to companies that are willing and able to make the highest investment commitment make the highest investment commitment to the foreign marketto the foreign market

These companies insist of full ownership These companies insist of full ownership to control and manage efficientlyto control and manage efficiently

Fully owned subsidiaries can be either Fully owned subsidiaries can be either from scratch or by acquiring established from scratch or by acquiring established firms in the host countryfirms in the host country

Environmental forecasting Environmental forecasting (ch 5)(ch 5)

► The aid in the search for future opportunities The aid in the search for future opportunities and constrains should take the following stepsand constrains should take the following steps Select the environmental variables that are critical Select the environmental variables that are critical

to the firmto the firm Select the sources of significant environmental Select the sources of significant environmental

formationformation Evaluate forecasting techniquesEvaluate forecasting techniques Integrate forecast results into strategic Integrate forecast results into strategic

management processmanagement process Monitor the critical aspects of managing forecastsMonitor the critical aspects of managing forecasts

Select critical environmental Select critical environmental variablesvariables

►Changes in the population structure Changes in the population structure and dynamics produce other changes and dynamics produce other changes in environment such asin environment such as EconomicEconomic SocialSocial politicalpolitical


► Usually top management has the Usually top management has the responsibility for environmental forecastingresponsibility for environmental forecasting

► A list of key variables should be usedA list of key variables should be used► The key variables can be kept manageable in The key variables can be kept manageable in

by:by: Including all variables that would have significant Including all variables that would have significant

impact although they do not have a high chance for impact although they do not have a high chance for occurring. (e.g. trucking deregulation).occurring. (e.g. trucking deregulation).

Also include variables that have high chance to Also include variables that have high chance to occur regardless on their impact (e.g. a supplier occur regardless on their impact (e.g. a supplier will increase its price slightly). Delete those that will increase its price slightly). Delete those that have low impact and low probabilityhave low impact and low probability


►The key variables can be kept The key variables can be kept manageable in by (cont’d):manageable in by (cont’d): Disregard major disasters such as nuclear Disregard major disasters such as nuclear

warwar If the value of one variable is based on If the value of one variable is based on

the value of another variable separate the value of another variable separate them for future planningthem for future planning

Select sources of significant Select sources of significant environmental informationenvironmental information

►These sources includeThese sources include MeetingsMeetings InteractionsInteractions Periodicals such as The Wall street journalPeriodicals such as The Wall street journal

Evaluate forecasting Evaluate forecasting techniquestechniques

►Economic forecastEconomic forecast Primary concerned with remote factors like Primary concerned with remote factors like

general economic conditions, disposable general economic conditions, disposable income, wage rate and productivityincome, wage rate and productivity

Data gathered from government and Data gathered from government and private sourcesprivate sources

Served as framework for industry and Served as framework for industry and company forecast that dealt with task-company forecast that dealt with task-environment concerns (sales, market)environment concerns (sales, market)

Econometric modelEconometric model►Utilize complex simultaneous regression Utilize complex simultaneous regression

equations to relate economic occurrences equations to relate economic occurrences to areas of corporate activityto areas of corporate activity Time series models (exponential smoothing Time series models (exponential smoothing

and linear projection, trend analysis) and linear projection, trend analysis) ►Attempt to identify patterns based on combination Attempt to identify patterns based on combination

of historical trends and seasonal and cyclical of historical trends and seasonal and cyclical factors.factors.

►This technique assumes that the past is the This technique assumes that the past is the prologue for the futureprologue for the future


►Social forecastSocial forecast Involve analysis of areas like population, Involve analysis of areas like population,

housing, social security and welfare, housing, social security and welfare, health and nutrition, education and health and nutrition, education and training, income and wealth and training, income and wealth and expendituresexpenditures


►Social forecasts (cont’d)Social forecasts (cont’d)Scenario approach is the most popularScenario approach is the most popular Imagined stories that help managers Imagined stories that help managers

prepare alternative possibilitiesprepare alternative possibilities


►Political forecastPolitical forecast Business success can be effected by Business success can be effected by

political factors such as size of political factors such as size of government budgets, tariffs, tax rates, government budgets, tariffs, tax rates, defence spending, extend of business defence spending, extend of business leaders’ participation in government leaders’ participation in government planningplanning


►Technological forecastTechnological forecast Brainstorming techniqueBrainstorming technique

►Helps group generate new ideas and forecastsHelps group generate new ideas and forecasts►The most promising ideas are generated are The most promising ideas are generated are

considered considered Delphi methodDelphi method

►A detailed survey of opinion of experts, usually A detailed survey of opinion of experts, usually abstained through a mail questionnaireabstained through a mail questionnaire

►Anonymous evaluation of the responses by the Anonymous evaluation of the responses by the experts involvedexperts involved

►One or more revisions of the experts answersOne or more revisions of the experts answers

Internal Analysis Internal Analysis ►Ch. 6Ch. 6

SWOTSWOT ANALYSIS ANALYSIS►The overall evaluation of a company’s The overall evaluation of a company’s

sstrength’s, trength’s, wweaknesses, eaknesses, oopportunities pportunities and and tthreatshreats

SWOTSWOT►External Environment Analysis External Environment Analysis

(Opportunities and Threats)(Opportunities and Threats) Opportunity is a favourable situation in a Opportunity is a favourable situation in a

firm’s environmentfirm’s environment Opportunities can take many formsOpportunities can take many forms

►A company may make buying process more A company may make buying process more convenient (internet)convenient (internet)

►A company can meet the need of acquiring more A company can meet the need of acquiring more informationinformation

►A company may be able to deliver a product fasterA company may be able to deliver a product faster►A company can offer a product at lower priceA company can offer a product at lower price

An environmental threat is a challenge An environmental threat is a challenge post by an unfavourable trend or post by an unfavourable trend or developmentdevelopment►New government regulationsNew government regulations►New entrantsNew entrants►Competitor develops a superior product or Competitor develops a superior product or

serviceservice►Economic depressionEconomic depression►Higher costsHigher costs

► Internal Environment analysis (Strengths Internal Environment analysis (Strengths and weaknesses)and weaknesses)Strengths – Where the company has Strengths – Where the company has

advantages advantages E.g. Company reputationE.g. Company reputation

Market shareMarket share Customer satisfactionCustomer satisfaction

Product qualityProduct quality Service qualityService quality Distribution effectivenessDistribution effectiveness

Weaknesses-The areas where the company Weaknesses-The areas where the company has limitationshas limitations

E.g. Geographical coverageE.g. Geographical coverage Sales force effectivenessSales force effectiveness Technical manufacturing skillsTechnical manufacturing skills Dedicated employees Dedicated employees

Cost or availability of capitalCost or availability of capital

SWOTSWOT►SWOT analysis can be used to help in SWOT analysis can be used to help in

a firms strategy analysisa firms strategy analysis Use it as a framework to discussion that Use it as a framework to discussion that

would help in alternatives that the would help in alternatives that the management considersmanagement considers

Functional ApproachFunctional Approach►Focusing on Internal analysisFocusing on Internal analysis►List of key internal factors (basic List of key internal factors (basic

capabilities, limitations and capabilities, limitations and characteristics)characteristics)

►Managers will analyse the internal Managers will analyse the internal factors that are most critical for factors that are most critical for successsuccess

The Functional ApproachThe Functional Approach►MARRKETINGMARRKETING

After sale serviceAfter sale service Understanding of customer needsUnderstanding of customer needs Product or service ImageProduct or service Image

► Production and operationProduction and operation Supplier relationshipsSupplier relationships Economies of scaleEconomies of scale

► PersonnelPersonnel Employee skills and moralEmployee skills and moral Specialized skillsSpecialized skills Employee tutnoverEmployee tutnover

Value Chain AnalysisValue Chain Analysis► Is based on the assumption that a Is based on the assumption that a

business’s basic purpose is to create value business’s basic purpose is to create value for people who use its products or servicesfor people who use its products or services

► The firm is viewed as a chain of value The firm is viewed as a chain of value creating activitiescreating activities

► Each of these activities create value and can Each of these activities create value and can be a competitive advantagebe a competitive advantage

► By identifying and examining these By identifying and examining these activities managers get a good activities managers get a good understanding of their firm’s capabilities, its understanding of their firm’s capabilities, its cost structure and how these create cost structure and how these create competitive advantage or disadvantagecompetitive advantage or disadvantage

Value Chain AnalysisValue Chain Analysis►Divide the a firm’s activities into two Divide the a firm’s activities into two

major activitiesmajor activities►Primary activitiesPrimary activities

Those that are involved in the physical Those that are involved in the physical creation of the productcreation of the product

►Support activitiesSupport activities Assist the Primary activitiesAssist the Primary activities

Value Chain AnalysisValue Chain Analysis► Primary ActivitiesPrimary Activities

Purchased Supplies and inbound logistics-Purchased Supplies and inbound logistics-Activities costs and assets associated with Activities costs and assets associated with purchasing fuel, energy raw materialpurchasing fuel, energy raw material

Operations-Activities costs and assets associated Operations-Activities costs and assets associated with converting inputs into the final product with converting inputs into the final product (Assembly, packaging, production)(Assembly, packaging, production)

Outbound logistics-Activities costs and assets Outbound logistics-Activities costs and assets dealing with the distribution of product to buyers dealing with the distribution of product to buyers (Finish goods warehousing, order processing, (Finish goods warehousing, order processing, shipping)shipping)

Value Chain AnalysisValue Chain Analysis►Primary ActivitiesPrimary Activities

Sales and Marketing-Activities costs and Sales and Marketing-Activities costs and assets related to sales force efforts, assets related to sales force efforts, advertising and promotionadvertising and promotion

Service-Activities costs and assets Service-Activities costs and assets associated with providing assistance to associated with providing assistance to buyers (installation, technical assistance, buyers (installation, technical assistance, spare part delivery)spare part delivery)

Value Chain AnalysisValue Chain Analysis► Support activitiesSupport activities

Research Technology and system development- Research Technology and system development- Activities costs and assets relating to product Activities costs and assets relating to product R&D, equipment design, computer software R&D, equipment design, computer software development, telecommunications systemdevelopment, telecommunications system

Human resource management-Activities, Costs Human resource management-Activities, Costs and assets related with recruitment, hiring, and assets related with recruitment, hiring, compensation of personnelcompensation of personnel

General Administration-Activities, costs and General Administration-Activities, costs and assets related to general management, safety assets related to general management, safety and security, accounting ad financeand security, accounting ad finance

The Value ChainThe Value Chain

BenchmarkingBenchmarking►A firm’s comparison with its competitors A firm’s comparison with its competitors ► In choosing a strategy firms should In choosing a strategy firms should

compare their internal capabilities with compare their internal capabilities with those of its rivals, to isolate its key those of its rivals, to isolate its key strengths and weaknesses strengths and weaknesses

►The main objective in benchmarking is The main objective in benchmarking is to identify the best practices in to identify the best practices in performing an activity, to learn how to performing an activity, to learn how to lower our cost, have fewer defectslower our cost, have fewer defects

Chapter 7Chapter 7

Formulating Long Term Formulating Long Term ObjectivesObjectives

► In order to achieve long-term In order to achieve long-term prosperity, strategic planners prosperity, strategic planners commonly establish long term commonly establish long term objectives in 7 areas:objectives in 7 areas:

1.1. Profitability-Usually expressed in Profitability-Usually expressed in earnings/share or return on equityearnings/share or return on equity

2.2. Productivity-Firms that can improve the Productivity-Firms that can improve the input output relationship normally improve input output relationship normally improve profitability. profitability. For this reason companies state objectives on For this reason companies state objectives on

productivityproductivity


3. Competitive position-The relative 3. Competitive position-The relative dominance in the market place.dominance in the market place.► Usually measured by Total Sales or Market Usually measured by Total Sales or Market

shareshare 4. Employee development-Because 4. Employee development-Because

employees value growth and career employees value growth and career opportunities, such opportunities are opportunities, such opportunities are increasing productivity and reduce turnover.increasing productivity and reduce turnover.► E.g. of an employee development objective. Develop E.g. of an employee development objective. Develop

highly skilled and flexible employeeshighly skilled and flexible employees


5. Employee relations-Strategic 5. Employee relations-Strategic managers believe that productivity is managers believe that productivity is linked to employee loyalty and they linked to employee loyalty and they set employee relations objectives. set employee relations objectives.

►Such objectives might be safety programs, Such objectives might be safety programs, worker representation on management worker representation on management committees, employee stock option planscommittees, employee stock option plans


6. Technological leadership-Firms must choose if 6. Technological leadership-Firms must choose if they want to lead or follow in the market place. they want to lead or follow in the market place. Both can be successful but firms should state Both can be successful but firms should state an objective regarding technological leadershipan objective regarding technological leadership

7. Public responsibility- Firms recognize their 7. Public responsibility- Firms recognize their responsibilities toward the customer and the responsibilities toward the customer and the society they are operating in at great point. society they are operating in at great point. They wish to go beyond legal requirements to They wish to go beyond legal requirements to establish themselves as responsible corporate establish themselves as responsible corporate citizenscitizens Such objectives might be charitable and educational Such objectives might be charitable and educational

contributionscontributions

Qualities of long term Qualities of long term objectivesobjectives

►Acceptable-Managers pursue objectives Acceptable-Managers pursue objectives that are consistent with their preferences. that are consistent with their preferences. They will ignore achievement of They will ignore achievement of objectives that offend themobjectives that offend them E.g. Promote a non nutritional food itemE.g. Promote a non nutritional food item

►Flexible-Objectives should be adaptable Flexible-Objectives should be adaptable to unforeseen changes in the competitive to unforeseen changes in the competitive or environmental forecast.or environmental forecast.


►Measurable- Objectives must state what will Measurable- Objectives must state what will be achieved, and when it will be achieved.be achieved, and when it will be achieved.

►Motivating-People are most productive when Motivating-People are most productive when objectives are set at a motivating level. Not objectives are set at a motivating level. Not too high to provide frustration but not too too high to provide frustration but not too low to be easily attainedlow to be easily attained

► Suitable-Objectives must be suited to the Suitable-Objectives must be suited to the broad aims of the firm which are expressed broad aims of the firm which are expressed in the mission statement. Each objective in the mission statement. Each objective should be a step toward the overall goalsshould be a step toward the overall goals


►Understandable-Strategic managers at Understandable-Strategic managers at all levels should understand what is to all levels should understand what is to be achieved.be achieved.

►Achievable-Objectives must be Achievable-Objectives must be challenging but possible to achievechallenging but possible to achieve

Grand StrategiesGrand Strategies►Often called master or business Often called master or business

strategiesstrategies►Provide direction for strategic actionsProvide direction for strategic actions►They are the basis of coordinated and They are the basis of coordinated and

sustained efforts directed toward sustained efforts directed toward achieving long term objectivesachieving long term objectives

Grand StrategiesGrand Strategies► Concentrated growthConcentrated growth

When a firm directs its resources to the When a firm directs its resources to the profitable growth of a single product, in a single profitable growth of a single product, in a single market, with a single dominant technology. (e.g. market, with a single dominant technology. (e.g. swimming pool care)swimming pool care)

Firms have the ability to assess market needs, Firms have the ability to assess market needs, knowledge of buyer behaviour, price sensitivity knowledge of buyer behaviour, price sensitivity and effect of promotional acts.and effect of promotional acts.

A firm that employs this strategy is aiming for A firm that employs this strategy is aiming for the growth that results from increased the growth that results from increased productivityproductivity

Grand strategiesGrand strategies►Concentrated growth is favoured by Concentrated growth is favoured by

conditions likeconditions like The industry is resistant to major The industry is resistant to major

technological advancements technological advancements The firms inputs are stable in price and The firms inputs are stable in price and

quantity and available at the amounts and quantity and available at the amounts and time needed time needed

The market is stable without seasonal and The market is stable without seasonal and cyclical swingscyclical swings

Grand strategiesGrand strategies►Market developmentMarket development

Market development is the name given to Market development is the name given to a growth strategy where the business a growth strategy where the business seeks to sell its existing products into new seeks to sell its existing products into new markets.markets.

Grand strategiesGrand strategiesMarket DevelopmentMarket Development► There are many possible ways of approaching There are many possible ways of approaching

this strategy, including:this strategy, including:• • New geographical markets; for example New geographical markets; for example

exporting the product to a new countryexporting the product to a new country New product dimensions or packaging: for New product dimensions or packaging: for

example example • • New distribution channelsNew distribution channels• • Different pricing policies to attract different Different pricing policies to attract different

customers or create new market segmentscustomers or create new market segments

Grand StrategiesGrand Strategies►Product Development Product Development

Product development is the name given to Product development is the name given to a growth strategy where a business aims a growth strategy where a business aims to introduce new products into existing to introduce new products into existing markets. This strategy may require the markets. This strategy may require the development of new competencies and development of new competencies and requires the business to develop modified requires the business to develop modified products which can appeal to existing products which can appeal to existing markets.markets.

Grand StrategiesGrand Strategies►Horizontal IntegrationHorizontal Integration

When a firm’s long term strategy is based When a firm’s long term strategy is based on growth through the acquisition of one or on growth through the acquisition of one or more similar firms operating at the same more similar firms operating at the same stage of production-making chain, it’s stage of production-making chain, it’s grand strategy is called HORIZONTAL grand strategy is called HORIZONTAL INTEGRATIONINTEGRATION

Such acquisitions eliminate competitors Such acquisitions eliminate competitors and provide the acquiring firm with new and provide the acquiring firm with new marketsmarkets

Grand StrategiesGrand Strategies►Vertical IntegrationVertical Integration

When a firm’s grand strategy is to acquire When a firm’s grand strategy is to acquire firms that supply it with inputs (such as firms that supply it with inputs (such as raw material) or are customers for its raw material) or are customers for its inputs (such as ware houses for finished inputs (such as ware houses for finished goods) this strategy is called Vertical goods) this strategy is called Vertical integrationintegration

By vertical integration firms can expand By vertical integration firms can expand their operations and achieve greater their operations and achieve greater market sharemarket share

Vertical and Horizontal Vertical and Horizontal IntegrationsIntegrations

Textile Producer Textile ProducerTextile Producer Textile Producer

Shirt Manufacturer Shirt ManufacturerShirt Manufacturer Shirt Manufacturer

Clothing Store Clothing StoreClothing Store Clothing Store

Grand StrategiesGrand Strategies►Concentric diversification Concentric diversification

Involves the acquisition of businesses that Involves the acquisition of businesses that are related to the acquiring firms in term are related to the acquiring firms in term of technology, markets or products.of technology, markets or products.

E.g. A ski shop diversify into summer E.g. A ski shop diversify into summer sporting goods to offset seasonalitysporting goods to offset seasonality

Grand StrategiesGrand Strategies►Conglomerate diversificationConglomerate diversification

A very large company acquire a business A very large company acquire a business because it represents the most promising because it represents the most promising investment opportunity availableinvestment opportunity available

It gives little concern about product It gives little concern about product synergy with existing businesssynergy with existing business

Based principally on profit considerationsBased principally on profit considerations

Grand StrategiesGrand Strategies► Turnaround Turnaround

When faced with declining profits (e.g. economic When faced with declining profits (e.g. economic recession, innovative breakthroughs by competitorsrecession, innovative breakthroughs by competitors

A company can choose to do cost reduction and/or A company can choose to do cost reduction and/or asset reduction asset reduction

Cost reduction-Decreasing workforce, leasing than Cost reduction-Decreasing workforce, leasing than purchasing equipment, Eliminate promotional purchasing equipment, Eliminate promotional activities, dropping items from production line, activities, dropping items from production line, discontinuing low profit margin customersdiscontinuing low profit margin customers

Asset reduction-Sale of land, buildings and Asset reduction-Sale of land, buildings and equipment not essential to the basic activity equipment not essential to the basic activity

Of the firmOf the firm

Grand StrategiesGrand Strategies►DivestitureDivestiture

A divestiture strategy involves the sale of a firm or A divestiture strategy involves the sale of a firm or a major component of a firma major component of a firm►E.g. Goodyear sold its polyester business to Shell E.g. Goodyear sold its polyester business to Shell

Chemical to cut on its $2.6 billion debtChemical to cut on its $2.6 billion debt► LiquidationLiquidation

The firm typically is sold in partsThe firm typically is sold in parts In selecting liquidation the management admits In selecting liquidation the management admits

it’s failureit’s failure It means the termination of the organization It means the termination of the organization

exsistanceexsistance

Corporate CombinationsCorporate Combinations► A A Strategic AllianceStrategic Alliance is a formal is a formal

relationship between two or more parties to relationship between two or more parties to pursue a set of agreed upon goals or to pursue a set of agreed upon goals or to meet a critical business need while meet a critical business need while remaining independent organizationsremaining independent organizations

► Partners may provide the strategic alliance Partners may provide the strategic alliance with resources such as products, distribution with resources such as products, distribution channels, manufacturing capability, project channels, manufacturing capability, project funding, capital equipment, knowledge, funding, capital equipment, knowledge, expertise, or intellectual property. expertise, or intellectual property.

Corporate CombinationsCorporate Combinations► Joint VenturesJoint Ventures

Creation of third commercial companies Creation of third commercial companies created and operated for the benefit of created and operated for the benefit of co-ownersco-owners►E.g. Petroleum firms cannot by themselves E.g. Petroleum firms cannot by themselves

market and distribute all the oil provided by market and distribute all the oil provided by the Alaskan pipe line. Nor they had the the Alaskan pipe line. Nor they had the resources by themselves to create the resources by themselves to create the pipeline.pipeline.

Chapter 8Chapter 8►Evaluate and choose business Evaluate and choose business

strategiesstrategies

Evaluating Cost leadership Evaluating Cost leadership opportunitiesopportunities

►Business success that build in cost Business success that build in cost leadership requires the business to be leadership requires the business to be able to provide its products or services able to provide its products or services at a lower cost than its competitorsat a lower cost than its competitors


►Low cost advantage reduce the Low cost advantage reduce the likelihood of prising pressure from likelihood of prising pressure from buyers buyers

►Truly sustained low cost advantages Truly sustained low cost advantages may push rivals into other areas, may push rivals into other areas, reducing price competitionreducing price competition Intense and continued price competition Intense and continued price competition

may ruin all rivals (airline industry)may ruin all rivals (airline industry)


►Low cost advantages should lessen the Low cost advantages should lessen the attractiveness of substitute productsattractiveness of substitute products A customer will be less concerned about price, A customer will be less concerned about price,

when facing an inferior lower priced substitutewhen facing an inferior lower priced substitute►Higher margins allow low-costs producers Higher margins allow low-costs producers

to withstand supplier increasesto withstand supplier increases Increases in the costs of suppliers can be Increases in the costs of suppliers can be

easily absorbed by low cost, higher margin easily absorbed by low cost, higher margin producersproducers


►Exclusive cost leadership can become Exclusive cost leadership can become a trapa trap Firms that emphasise on lowest price Firms that emphasise on lowest price

must be truly convinced of the must be truly convinced of the sustainability of their advantagessustainability of their advantages►Differentiation is increasingly not consideredDifferentiation is increasingly not considered►Customers might pressure for lower price that Customers might pressure for lower price that

will damage both the price leader and the will damage both the price leader and the lesser playerslesser players


►Obsessive cost cutting can shrink Obsessive cost cutting can shrink other competitive advantages other competitive advantages involving key product attributesinvolving key product attributes Intense cost cutting can Intense cost cutting can

►Reduce opportunities for investment in Reduce opportunities for investment in innovationinnovation

►Reduce the quality of the product (use inferior Reduce the quality of the product (use inferior raw material)raw material)


►Cost differences often decline over Cost differences often decline over timetime As products age, competitors learn how to As products age, competitors learn how to

match advantagesmatch advantages Absolute volumes sold often declineAbsolute volumes sold often decline

Evaluating Differentiation Evaluating Differentiation opportunitiesopportunities

►Differentiation requires that the Differentiation requires that the business have sustainable advantages business have sustainable advantages that allow it to provide buyers with that allow it to provide buyers with something uniquely valuable to them.something uniquely valuable to them.

►The buyer feels that additional cost to The buyer feels that additional cost to buy the product or service is worth buy the product or service is worth compared to other available compared to other available alternativesalternatives


►Rivalry is reduced when business Rivalry is reduced when business successfully differentiates itselfsuccessfully differentiates itself For example Harvard does not compete For example Harvard does not compete

local technical schoolslocal technical schools►Buyers are less sensitive to price for Buyers are less sensitive to price for

effectively differentiated productseffectively differentiated products


► Brand loyalty is hard for new entrants to Brand loyalty is hard for new entrants to overcome overcome Budweiser continues to gain market share even Budweiser continues to gain market share even

though new beers enter the market in the U.S. all though new beers enter the market in the U.S. all the timethe time

► The cost difference between low-cost The cost difference between low-cost competitors and the differentiated business competitors and the differentiated business becomes too great for differentiation, to hold becomes too great for differentiation, to hold brand loyaltybrand loyalty Buyers might seek to sacrifice some of the features, Buyers might seek to sacrifice some of the features,

services or image to save moneyservices or image to save money

Evaluating Speed as a Evaluating Speed as a competitive advantagecompetitive advantage

► Speed or rapid response to customer Speed or rapid response to customer requests or market and technological requests or market and technological changechange

► Speed involves the availability of a rapid Speed involves the availability of a rapid response to a customer byresponse to a customer by Providing current products quicker Providing current products quicker Accelerating new product development or Accelerating new product development or

improvementimprovement Quickly adjusting production process Quickly adjusting production process Make decisions quickly Make decisions quickly


► Speed based competitive advantage can be Speed based competitive advantage can be created around several activitiescreated around several activities Customer responsiveness – Quick response with Customer responsiveness – Quick response with

answers, information and solution to mistakes answers, information and solution to mistakes can become the basis of competitive advantage.can become the basis of competitive advantage.►This can build customer loyalty quicklyThis can build customer loyalty quickly

Product or service improvements – Companies Product or service improvements – Companies that can adopt their products or services rapidly that can adopt their products or services rapidly in a way that benefits their customers or create in a way that benefits their customers or create new customers have major competitive new customers have major competitive advantageadvantage


► Speed based competitive advantage can be Speed based competitive advantage can be created around several activities cont’dcreated around several activities cont’d Speed in delivery or distribution – Firms that can Speed in delivery or distribution – Firms that can

get you what you need when you need it realize get you what you need when you need it realize that buyers have come to expect that level of that buyers have come to expect that level of responsiveness (Federal Express success)responsiveness (Federal Express success)

Information sharing and technology – Speed in Information sharing and technology – Speed in sharing information that becomes the basis for sharing information that becomes the basis for decisions, actions, or other important activities, decisions, actions, or other important activities, taken by customer supplier or partner has taken by customer supplier or partner has become a major source of competitive advantagebecome a major source of competitive advantage

Evaluating Market focus as a Evaluating Market focus as a way of competitive advantageway of competitive advantage

►Focus is the extend to which a business Focus is the extend to which a business concentrates on a narrowly defined marketconcentrates on a narrowly defined market

►Small companies, usually thrive because Small companies, usually thrive because they serve narrow market niches.they serve narrow market niches.

►Focus lets the business “learn” its target Focus lets the business “learn” its target customers-their needs-special customers-their needs-special considerations they want to considerations they want to accommodate- and establish personal accommodate- and establish personal relationships in ways that differentiate relationships in ways that differentiate smaller firmssmaller firms

Competitive advantage in the Competitive advantage in the transition to Industry maturitytransition to Industry maturity

►As an industry evolves, its rate of As an industry evolves, its rate of growth eventually declines due togrowth eventually declines due to More intense competitionMore intense competition Buyers are making choices among known Buyers are making choices among known

alternativesalternatives New products and new applications are New products and new applications are

harder to come byharder to come by


►Strategy elements of successful firms in Strategy elements of successful firms in maturing industries includematuring industries include Pruning the product line by dropping Pruning the product line by dropping

unprofitable modelsunprofitable models Emphasis on process innovation that permits Emphasis on process innovation that permits

low cost product design, manufacturing low cost product design, manufacturing methods, and distribution synergymethods, and distribution synergy

Emphasis on cost reduction through Emphasis on cost reduction through pressure on suppliers, switching to cheaper pressure on suppliers, switching to cheaper components and lowering sales and components and lowering sales and administrative overheadadministrative overhead


►Strategy elements of successful firms Strategy elements of successful firms in maturing industries include cont’din maturing industries include cont’d Horizontal integration to acquire rival Horizontal integration to acquire rival

firms whose weakness can be used to firms whose weakness can be used to gain a bargain price and is correctable by gain a bargain price and is correctable by the acquiring firmthe acquiring firm

Expansion internationally where growth Expansion internationally where growth rate and limited competition exists. rate and limited competition exists.

Competitive advantage in Competitive advantage in mature and declining industriesmature and declining industries►Declining industries are those that make Declining industries are those that make

products or services which demand is products or services which demand is growing slower than demand in the growing slower than demand in the economy as a whole, or is actually declining.economy as a whole, or is actually declining.

► Firms in this situation choose strategies that Firms in this situation choose strategies that emphasize one or more of the following emphasize one or more of the following themesthemes Focus on segments within the Industry that offer Focus on segments within the Industry that offer

a chance for higher growth or a higher returna chance for higher growth or a higher return Emphasize product innovation and quality Emphasize product innovation and quality

improvement to differentiate from competitorsimprovement to differentiate from competitors Emphasize production and distribution efficiency Emphasize production and distribution efficiency

(Closing marginal production facilities).(Closing marginal production facilities). Harvest the business Harvest the business

Chapter 9Chapter 9►Strategic Analysis and choice in Strategic Analysis and choice in

multibusiness company: Rationalizing multibusiness company: Rationalizing Diversification and building Diversification and building shareholder valueshareholder value

Rationalizing Diversification and Rationalizing Diversification and IntegrationIntegration

►Managers address four questions in Managers address four questions in order to determine whether their order to determine whether their portfolio of business units is capturing portfolio of business units is capturing the synergies they intended, how to the synergies they intended, how to respond accordingly, and choosing respond accordingly, and choosing among diversification and divestiture among diversification and divestiture optionsoptions

1. Are opportunities of sharing 1. Are opportunities of sharing infrastructure and capabilities infrastructure and capabilities

forthcomingforthcoming►Opportunities to build value via Opportunities to build value via

diversification, integration, or joint diversification, integration, or joint venture strategies are usually found in venture strategies are usually found in Market related Market related Operating relatedOperating related Management activitiesManagement activities

1. Are opportunities of sharing 1. Are opportunities of sharing infrastructure and capabilities infrastructure and capabilities

forthcomingforthcoming►Two elements are critical in Two elements are critical in

meaningful share opportunitiesmeaningful share opportunities Shared opportunities must be a significant Shared opportunities must be a significant

portion of the value chain of the portion of the value chain of the businesses involvedbusinesses involved

The businesses involved must have The businesses involved must have shared needs-need for the same activity-shared needs-need for the same activity-or there is no basis for synergy in the first or there is no basis for synergy in the first placeplace

2.Are we capitalizing on our 2.Are we capitalizing on our competencies (key value competencies (key value

building skills)building skills)► Is each core competency providing a Is each core competency providing a

relevant competitive advantage to the relevant competitive advantage to the intended businessesintended businesses Honda viewed itself as having a core Honda viewed itself as having a core

competence in manufacturing small, competence in manufacturing small, internal compaction engines. It diversified internal compaction engines. It diversified into small garden tools. into small garden tools.

2.Are we capitalizing on our 2.Are we capitalizing on our competencies (key value competencies (key value

building skills)building skills)► Are businesses in the portfolio related in ways Are businesses in the portfolio related in ways

that make the core competences beneficialthat make the core competences beneficial General cinema is successful in both movie exhibition General cinema is successful in both movie exhibition

and bottling soft drinksand bottling soft drinks► Are our combination of competencies unique or Are our combination of competencies unique or

difficult to recreate?difficult to recreate? Skills that corporate strategists expect to transfer Skills that corporate strategists expect to transfer

from one business to another may be transferrablefrom one business to another may be transferrable They may also be easily replicated by competitorsThey may also be easily replicated by competitors

3. Does the business portfolio 3. Does the business portfolio Balance financial resources?Balance financial resources?

► Various business within a company Various business within a company generate and consume different levels generate and consume different levels of cash.of cash.

►Some generate more cash than they Some generate more cash than they can use to maintain or expand their can use to maintain or expand their business while others consume more business while others consume more than they can generatethan they can generate


►The BCG, Growth Share MatrixThe BCG, Growth Share Matrix


►The Industry attractiveness-Business The Industry attractiveness-Business strength matrixstrength matrix Uses multiple factors to assess industry Uses multiple factors to assess industry

attractiveness.attractiveness.

G.E. ModelG.E. Model

For For market attractivenessmarket attractiveness::► Size of market. Size of market. ► Market rate of growth. Market rate of growth. ► The nature of competition and its diversity. The nature of competition and its diversity. ► Profit margin. Profit margin. ► Impact of technology, the law, and energy Impact of technology, the law, and energy

efficiency. efficiency. ► Environmental impact. Environmental impact.

For For competitive positioncompetitive position::

►Market share. Market share. ►Management profile. Management profile. ► R & D. R & D. ►Quality of products and services. Quality of products and services. ► Branding and promotions success. Branding and promotions success. ► Place (or distribution). Place (or distribution). ► Efficiency. Efficiency. ► Cost reduction. Cost reduction.

4. Does our business portfolio 4. Does our business portfolio achieve appropriate levels of achieve appropriate levels of

risk and growthrisk and growth►Both risk and growth are assumptions Both risk and growth are assumptions

or priorities corporate managers or priorities corporate managers should carefully examine, as they should carefully examine, as they undertake strategic analysis and undertake strategic analysis and choicechoice Is growth always desirable?Is growth always desirable? Can risk truly be managed most Can risk truly be managed most

effectivelyeffectively

Considerations affecting Considerations affecting strategy choicestrategy choice

1.1. Role of the current strategyRole of the current strategy2.2. Degree of the firm’s external Degree of the firm’s external

dependencedependence3.3. Attitudes toward riskAttitudes toward risk4.4. Internal Political considerationsInternal Political considerations5.5. TimingTiming6.6. Competitive reactionCompetitive reaction


►1. Role of the current strategy1. Role of the current strategy Current strategists are often the Current strategists are often the

architects of past strategiesarchitects of past strategies The older and more successful a strategy The older and more successful a strategy

has been, the harder is to replace ithas been, the harder is to replace it Familiarity with, and commitment to past Familiarity with, and commitment to past

strategy fill the entire firm, thus lower strategy fill the entire firm, thus lower lever managers encourage top level lever managers encourage top level managers to continue with past strategymanagers to continue with past strategy


►2. Degree of firm’s external 2. Degree of firm’s external dependencedependence The greater a firm’s external dependence, The greater a firm’s external dependence,

the lower range and flexibility it has for the lower range and flexibility it has for strategic choicestrategic choice►Bama pies was only selling to one customer. Bama pies was only selling to one customer.

McDonald’s. Thus it’s pricing, R&D, McDonald’s. Thus it’s pricing, R&D, distributions etc. should be designed having in distributions etc. should be designed having in mind McDonald’s mind McDonald’s


►3. Attitudes toward risk3. Attitudes toward risk Where attitudes favour risk, the strategic Where attitudes favour risk, the strategic

choice expands, and high risk strategies are choice expands, and high risk strategies are acceptableacceptable

A firm in early stages in the product-market A firm in early stages in the product-market cycle is required to operate in a much cycle is required to operate in a much greater risk and uncertainty greater risk and uncertainty

In making a strategic choice, risk-oriented In making a strategic choice, risk-oriented managers lean toward opportunistic managers lean toward opportunistic strategies strategies


►4. Internal Political Considerations4. Internal Political Considerations In smaller firms the CEO is considered the In smaller firms the CEO is considered the

dominant force of strategic choicedominant force of strategic choice CoalitionsCoalitions are power sources that are power sources that

influence strategic choice. In large firms influence strategic choice. In large firms subunits and individuals (particularly key subunits and individuals (particularly key managers) have reason to support some managers) have reason to support some alternatives and oppose others. Mutual alternatives and oppose others. Mutual interests draws certain groups together. interests draws certain groups together.


►5. Timing 5. Timing Time limit constrains strategic choiceTime limit constrains strategic choice

►E.g. A company has a six month option to E.g. A company has a six month option to acquire another company or a key locationacquire another company or a key location

A good strategy might be disastrous if it is A good strategy might be disastrous if it is taken at a wrong time (E.g. The taken at a wrong time (E.g. The breakdown of Gulf war in 1991)breakdown of Gulf war in 1991)


►6. Competitive reaction6. Competitive reaction In weighing strategic choices, top In weighing strategic choices, top

management frequently incorporates management frequently incorporates perceptions of likely competitor reactions perceptions of likely competitor reactions to these choicesto these choices

If it chooses for example an aggressive If it chooses for example an aggressive strategy directly challenging a key strategy directly challenging a key competitor then the competitor is expected competitor then the competitor is expected to mount an aggressive counter strategy. to mount an aggressive counter strategy.