strama - finals

Long-term objectives

• represent the results expected from pursuing certain strategies.

• are needed at the corporate, divisional, and functional levels of

  an organization

Strategies

represent the actions to be taken to accomplish long-term objectives.

Objectives

• should be quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable, and congruent among organizational units.

• are commonly stated in terms such as growth in assets, growth in sales, profitability, market share, degree and nature of diversification, degree and nature of vertical integration, earnings per share, and social responsibility.

• They provide direction, allow synergy, aid in evaluation, establish priorities, reduce uncertainty, minimize conflicts, stimulate exertion, and aid in both the allocation of resources and the design of jobs.

Financial objectives

include those associated with growth in revenues, growth in earnings, higher dividends, larger profit margins, greater return on investment, higher earnings per share, a rising stock price, improved cash flow, and so on

Strategic Objectives

include things such as a larger market share, quicker on-time delivery than rivals, shorter design-to-market times than rivals, lower costs than rivals, higher product quality than rivals, wider geographic coverage than rivals, achieving technological leadership, consistently getting new or improved products to market ahead of rivals, and so on.

Managing by Extrapolation

• adheres to the principle “If it ain’t broke, don’t fix it.

• The idea is to keep on doing about the same things in the same ways because things are going well.

Managing by Crisis

• based on the belief that the true measure of a really good strategist is the ability to solve problems.

• there are plenty of crisis and problems to go around for every person and every organization, strategists ought to bring their time and creative energy to bear on solving the most pressing problems of the day.

• is actually a form of reacting rather than acting and of letting events dictate the what and when of management decisions.

Managing by Subjectives

• built on the idea that there is no general plan for which way to go and what to do; just do the best you can to accomplish what you think should be done.

• “Do your own thing, the best way you know how”

Managing by Hope

• based on the fact that the future is laden with great uncertainty and that if we try and do not succeed, then we hope our second (or third) attempt will succeed.

• Decisions are predicated on the hope that they will work and the good times are just around the corner, especially if luck and good fortune are on our side!

The Balanced Scorecard

• Developed in 1993 by Harvard Business School professors Robert Kaplan and David Norton, and refined continually through today,

• is a strategy evaluation and control technique.

The Balanced Scorecard

derives its name from the perceived need of firms to “balance” financial measures that are oftentimes used exclusively in strategy evaluation and control with nonfinancial measures such as product quality and customer service.

• Forward Integration

• Backward Integration

• Horizontal Integration

• Market Penetration

• Market Development

• Product Development

• Related Diversification

• Unrelated Diversification

• Retrenchment

• Divestiture

• Liquidation

Alternative strategies that an enterprise could pursue can be categorized into 11 actions

Forward Integration

Gaining ownership or increased control over distributors or retailers

Backward Integration

• Seeking ownership or increased control of a firm’s suppliers

• can be especially appropriate when a firm’s current suppliers are unreliable, too costly, or cannot meet the firm’s needs.

Horizontal Integration

Seeking ownership or increased control over competitors/firm’s competitors.

Market Penetration

• Seeking increased market share for present products or services in present markets through greater marketing efforts

• This strategy is widely used alone and in combination with other strategies

Market Development

Introducing present products or services into new geographic area

Product Development

• Seeking increased sales by improving present products or services or developing new ones

• usually entails large research and development expenditures.

Related Diversification

• Adding new but related products or service

• occurs when a firm moves into a new industry that has important similarities with the firm's existing industry or industries

Unrelated Diversification

• Adding new unrelated products or services

• favors capitalizing on a portfolio of businesses that are capable of delivering excellent financial performance in their respective industries, rather than striving to capitalize on value chain strategic fits among the businesses

Retrenchment

• Regrouping through cost and asset reduction to reverse declining sales and profit

• sometimes called a turnaround or reorganizational strategy is designed to fortify an organization’s basic distinctive competence.

Divestiture

• Selling a division or part of an organization and is used to raise capital for further strategic acquisitions or investments.

• can be part of an overall strategy to rid an organization of businesses that are unprofitable, that require too much capital, or that do not fit well with the firm’s other activities.

Liquidation

• Selling all of a company’s assets, in parts, for their tangible worth

• is a recognition of defeat and consequently can be an emotionally difficult strategy.

Hansen and Smith

explain that strategic planning involves “choices that risk resources” and “trade-offs that sacrifice opportunity.”

Corporate Level

chief executive officer

Company Level

owner or president

Division Level

division president or executive vice president

Functional Level

finance, marketing, R&D, manufacturing, information systems, and human resource managers

Operational Level

plant managers, sales managers, production and department managers

• Market penetration

• Market development

• Product development

are sometimes referred to as Intensive Strategies

Intensive Strategies

they require intensive efforts if a firm’s competitive position with existing products is to improve

• Related

• Unrelated

Two general types of Diversification Strategies

Related

Businesses are said to be ________ when their value chains posses competitively valuable cross-business strategic fits;

Unrelated

Businesses are said to be ________ when their value chains are so dissimilar that no competitively valuable cross-business relationships exist.

Cost Leadership

emphasizes producing standardized products at a very low per-unit cost for consumers who are price-sensitive.

Type 1 is a low-cost strategy

that offers products or services to a wide range of customers at the lowest price available on the market.

Type 2 is a best-value strategy

• offers products or services to a wide range of customers at the best price value available on the market;

• aims to offer customers a range of products or services at the lowest price available compared to a rival’s products with similar attributes.

Differentiation

a strategy aimed at producing products and services considered unique industrywide and directed at consumers who are relatively price-insensitive

Focus

means producing products and services that fulfill the needs of small groups of consumers

Type 4 is a low-cost focus strategy

that offers products or services to a small range/niche group of customers at the lowest price available on the market

Type 5 is a best-value focus strategy

• that offers products or services to a small range of customers at the best price-value available on the market.

• sometimes called “focused differentiation,” aims to offer a niche group of customers products or services that meet their tastes and requirements better than rivals’ products do.

• Type 1: Cost Leadership—Low Cost

• Type 2: Cost Leadership—Best Value

• Type 3: Differentiation

• Type 4: Focus—Low Cost

• Type 5: Focus—Best Value

Porter’s Five Generic Strategies

Turbulent or High-velocity markets

Some industries are changing so fast that researchers call them such as telecommunications, medical, biotechnology, pharmaceuticals, computer hardware, software, and virtually all internet-based industries.

High-velocity change

is clearly becoming more and more the rule rather than the exception, even in such industries as toys, phones, banking, defense, publishing, and communication.

Cooperation Among Competitors

• Strategies that stress this are being used more.

• For collaboration between competitors to succeed, both firms must contribute something distinctive, such as technology, distribution, basic research, or manufacturing capacity.

Joint venture

• is a popular strategy that occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity.

• the two or more sponsoring firms form a separate organization and have shared equity ownership in the new entity.

• Research and development partnerships

• Cross-distribution agreements

• Cross-licensing agreements

• Cross-manufacturing agreements

• Joint-bidding consortia

Other types of cooperative arrangements include

Merger and acquisition

are two commonly used ways to pursue strategies

Merger

occurs when two organizations of about equal size unite to form one enterprise.

Acquisition

occurs when a large organization purchases (acquires) a smaller firm, or vice versa

Takeover or Hostile Takeover

When a merger or acquisition is not desired by both parties, it can be called a

Friendly Merger

if the acquisition is desired by both firms, it is termed a

White knight

is a term that refers to a firm that agrees to acquire another firm when that other firm is facing a hostile takeover by some company.

Leveraged Buyout (LBO)

occurs when a corporation’s shareholders are bought (hence buyout) by the company’s management and other private investors using borrowed funds (hence leverage).

First Mover Advantages

refer to the benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.

Slow over also called fast follower or late mover

being a __________ can be effective when a firm can easily copy or imitate the lead firm’s products or services.

Business-Process Outsourcing (BPO)

is a rapidly growing new business that involves companies taking over the functional operations, such as human resources, information systems, payroll, accounting, customer service, and even marketing of other firms.

Strategic Management Process

is being used effectively by countless nonprofit and governmental organizations, such as the Girl Scouts, Boy Scouts, the Red Cross, chambers of commerce, educational institutions, medical institutions, public utilities, libraries, government agencies, and churches.

Educational institutions

are more frequently using strategic-management techniques and concepts.

Richard Cyert, former president of Carnegie Mellon University

said, “I believe we do a far better job of strategic management than any company I know.”

Strategic Management in Small Firms

The reason why “becoming your own boss” has become a national obsession is that entrepreneurs are America’s role models.

Strategy analysis and choice

seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives.

The Process of Generating and Selecting Strategies

• Strategists can't consider all possible alternatives due to infinite options and implementation methods.

• Identifying and evaluating strategies should involve those who helped create the vision, mission, and audits.

Input Stage

• Stage 1 summarizes the basic input information needed to formulate strategies.

• Input tools help strategists quantify subjectivity early in strategy formulation.

• Making small decisions in the input matrices regarding the relative importance of external and internal factors allows strategists to more effectively generate and evaluate alternative strategies.

• Good intuitive judgment is always needed in determining appropriate weights and ratings.

Matching Stage

focuses upon generating feasible alternative strategies by aligning key external and internal factors

Decision Stage

involves a single technique, the Quantitative Strategic Planning Matrix (QSPM) which evaluates and prioritizes alternative strategies based on their attractiveness and the organization's strengths.

Autonomous divisions

in an organization commonly use strategy-formulation techniques to develop strategies and objectives.

Divisional Analyses

provide a basis for identifying, evaluating, and selecting among alternative corporate-level strategies.

Lenz

emphasized that the shift from a words-oriented to a numbers-oriented planning process can give rise to a false sense of certainty; it can reduce dialogue, discussion, and argument as a means for exploring understandings, testing assumptions, and fostering organizational learning.

Matching Stage

Strategy is sometimes defined as the match an organization makes between its internal resources and skills and the opportunities and risks created by its external factors.

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

it is an important matching tool that helps managers develop four types of strategies:

• SO (strengths-opportunities) Strategies

• WO (weaknesses-opportunities) Strategies

• ST (strengths-threats) Strategies

• WT (weaknesses-threats) Strategies.

Strengths-Opportunities Strategies

• strategies that uses a firm’s internal strengths to take advantage of external opportunities.

• All managers would like their organizations to be in a position in which internal strengths can be used to take advantage of external trends and events

Weaknesses-Opportunities Strategies

aim at improving internal weaknesses by taking advantage of external opportunities.

Strengths-Threats Strategies

• use a firm’s strengths to avoid or reduce the impact of external threats.

• does not mean that a strong organization should always meet threats in the external environment head-on

Weaknesses-Threats Strategies

• these are defensive tactics directed at reducing internal weakness and avoiding external threats.

• organization faced with numerous external threats and internal weaknesses may indeed be in a precarious position.

The Strategic Position and Action Evaluation (SPACE) Matrix

should be both tailored to the particular organization being studied and based on factual information as much as possible.

Question Marks

Divisions in Quadrant I have a low relative market share position, yet they compete in a high-growth industry.

Stars

• It represent the organization’s best long-run opportunities for growth and profitability.

• Divisions with a high relative market share and a high industry growth rate should receive substantial investment to maintain or strengthen their dominant positions.

Cash Cows

Divisions positioned in Quadrant III have a high relative market share position but compete in a low-growth industry

Dogs

Quadrant IV divisions of the organization have a low relative market share position and compete in a slow or no-market-growth industry

The Boston Consulting Group Matrix

graphically portrays differences among divisions in terms of relative market share position and industry growth rate

Aggressive Quadrant

• the area of the company that has a strong financial position and industry position.

• In this area, the company can take advantage of eternal opportunities, overcome the weakness in void straits.

Conservative Quadrant

• It is the area where the company has weaknesses and competitive position strong in financial position.

• It should focus on maintaining its position and making cautious moves to adapt to the external environment.

Defensive Quadrant

• It is the company having competitive position and law stability position.

• The focus should be on protecting the business, cutting losses, and reducing risks.

Competitive Quadrant

• It is the company's industry position in a stability position.

• The company is doing well internally but faces moderate external challenges.

• It should focus on leveraging its strengths to compete effectively in the market.

Two Dimension of SPACE Matrix

Internal Dimension

External Dimension

Financial Position

• It reflects a company’s ability to manage its resources, generate revenue, and handle expenses.

• It assesses whether the company has strong financial health, such as high profits, low debt, or sufficient cash flow, enabling it to invest and grow.

Competitive Strength

• It means how well the company competes in the market compared to others.

• For example, its market share, brand strength, customer loyalty, and the quality of its products or services.

Stability Position

• It refers to how safe or risky the market is, or how stable or unstable the outside environment is.

• These factors deal with external conditions that the company cannot directly influence, such as economic conditions, market growth, and competition.

The Internal and External Matrix

• it used to evaluate an organization’s Internal Strength and Weaknesses, as well as External Opportunities and Threats.

• It helps organization’s prioritize and make informed decisions about these strategies.

The Grand Strategy Matrix

It is based on two evaluative dimensions: competitive position and market (industry) growth.

Quadrant I

• firms can afford to take advantage of external opportunities in several areas.

• They can take risks aggressively when necessary.

Quadrant II

• need to evaluate their present approach to the marketplace seriously.

• industry is growing, they are unable to compete effectively, and they need to determine why the firm’s current approach is ineffective and how the company can best change to improve its competitiveness.

Quadrant III

• organizations compete in slow-growth industries and have weak competitive positions.

• These firms must make some drastic changes quickly to avoid further decline and possible liquidation.

Quadrant IV

• businesses have a strong competitive position but are in a slow-growth industry.

• These firms have the strength to launch diversified programs into more promising growth areas

Decision Stage

• Analysis and intuition provide a basis for making strategy-formulation decisions.

• The matching techniques just discussed reveal feasible alternative strategies.

Quantitative Strategic Planning Matrix

• there is only one analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions.

• based on the extent to which key external and internal critical success factors are capitalized upon or improved.

Six steps required to develop a QSPM

• Step 1 Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM.

• Step 2 Assign weights to each key external and internal factor

• Step 3 Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing

• Step 4 Determine the Attractiveness Scores (AS)

• Step 5 Compute the Total Attractiveness Scores

• Step 6 Compute the Sum Total Attractiveness Score.

A positive feature of the QSPM

• is that sets of strategies can be examined sequentially or simultaneously

• it requires strategists to integrate pertinent external and internal factors into the decision process.

Culture

• it includes the set of shared values, beliefs, attitudes, customs, norms, personalities, heroes, and heroines that describe a firm.

• it is the unique way an organization does business.