INSTITUTE OF CHARTERED ACCOUNTANTS 2.6 CORPORATE STRATEGY STRATEGIC MANAGEMENT ? Strategic management is the art and science of formulating, implementing, and evaluating cross- functional decisions that will enable an organization to achieve its objectives. Dimensions of Strategic Decisions Strategic decisions are about: The long term direction of an organisation
The scope of an organisations activities Gaining advantage over competitors Addressing changes in the business environment Building on resources and competencies (capability) Values and expectations of stakeholders Therefore they are likely to: Be complex in nature
Be made in situations of uncertainty Affect operational decisions Require an integrated approach (both inside and outside an organisation) Involve considerable change Strategic Management Responsibilities of Managers
Establishing the mission Establishing the mission Establishing policies Setting objectives Developing strategy Planning the organization structure
Providing personnel Establishing procedures Providing facilities Providing capital Setting standards Establishing management programs and operational plans Providing control information
Activating people Strategic Management Process Strategy Formulation Strategy Implementation and Strategy Evaluation Strategy Formulation Identify current mission, objectives and strategies Perform external audit to identify key opportunities and threats Revise the business mission Perform internal audit to identify
key strengths and weaknesses Strategy Implementation Establish long-term objectives Establish annual objectives Select strategies to pursue
Devise policies Strategy Evaluation Measure and performance evaluate Levels of Strategy Corporate Level Business Level Operational/
Functional Level Corporate Level Is concerned with the overall purpose and scope of an organisation and how value will be added to the different parts
(business units) of the Business Level Is about how to compete successfully in particular markets A Strategic Business Unit is a part of an organisation for which there is a distinct external market for goods or
Operational/Functional Level They are concerned with how the component parts of an organisation deliver effectively the corporate and business-level strategies in terms of resources, processes and people. Benefits of Strategic Management
Signals that problems may arise before they happen. Alerts the organization to changes and allows for action in response to change. Identifies any need to redefine the nature of the business. Enables mangers to have a clearer understanding of business. Facilitates the identification and exploitation of future marketing Helps managers relate major decisions more
effectively to established objectives. Renders more effective the allocation of time and resources to identified opportunities. Coordinates the execution of the tactics that make up the plan. Allows for the integration of all marketing
functions into a combined effort. Minimizes the resources and time that must be devoted to correcting erroneous ad hoc decisions. Creates a framework for internal The Vocabulary of Strategy Terms Mission Definition Overriding
purpose in line with the values or expectations of stakeholders Terms Vision or Strategic intent Definition Desired future state: the aspiration of
the organisation Terms Goal Definition General statement of aim or purpose Terms Objective
Definition Quantification (if possible) or more precise statement of the goal Terms Strategic Capability Definition Resources, activities and
processes. Some will be unique and provide competitive advantage Terms Definition Strategies Long-term direction Terms Business model
Definition How product, service and information flow between participating parties. Terms Control Definition Monitoring the steps
to: Assess effectiveness Modify as necessary strategies and/or actions CORPORATE GOVERNANCE: ROLE OF THE BOARD OF DIRECTORS A company is a mechanism established to allow different parties to contribute capital, expertise and labour for their
mutual benefit. The investor or shareholders participates in the profits of the enterprise without taking responsibility for the operations. As representatives of the shareholders, directors have both the authority and responsibility
to establish basic corporate policies and to ensure that The board of directors has, therefore, an obligation to approve all decisions that
might affect the long-run performance of the company. This means that, the company is fundamentally governed by the BOD overseeing
The term Corporate Governance refers to the relationship among these three groups (BOD, management, and shareholders) in determining the
directions and performance of the WHAT ARE THE RESPONSIBILITIES OF THE BOARD? There are five main responsibilities of board of directors: Setting corporate strategy, overall direction, mission, or vision, Succession: hiring and firing the CEO
and top management Controlling, monitoring, or supervising top management. Reviewing and approving the use of resources Caring for shareholders interest. WHAT IS THE ROLE OF THE BOD IN STRATEGIC MANAGEMENT? Monitor. By acting through its
committees, a board can keep abreast of development s both inside and outside the company Evaluate and Influence. A board can examine managements proposals decisions, and actions; agree or disagree with them; give advise and offer suggestions; and outline alternatives. Initiate and Determine. A board can delineate a companys mission and specify strategic
options to its WHO ARE MEMBERS OF A BOD? Inside Directors (sometimes called management directors) are typically officers
or executives employed by the company. Outside Directors may be executives of other firms but WHAT ARE THE TRENDS IN BOARDS OF DIRECTORS? The BOD is likely to play a more active role in the strategic management of the company
in the future. Some of todays trends that are likely to continue include: Increasing numbers of institutional investors Larger share ownership by directors and executives A greater willingness of the board
to balance the economic goal of profitability with the social needs of society. CORPORATE GOVERNANCE: THE ROLE OF TOP MANAGEMENT The
top management function is usually conducted by the CEO of the company in coordination with the COO or President, Vice Presidents etc.
What are the responsibilities of top management? Top management responsibilities, especially those of the CEO involve getting things accomplished through and with others in order to meet the corporate objectives. The CEO in particular must successfully handle two responsibilities crucial to the effective
strategic management of the company: Provide executive leadership and strategic vision Manage the strategic planning Executive Leadership is the directing of the activities toward the accomplishment of corporate objectives. Strategic Vision is a
description of what the company is capable of becoming. It is often communicated in the mission statement. People in an organisation want to have a sense of
mission, but only top management is in the position to specify and communicate this strategic vision to the general workforce. Top management
enthusiasm (or lack of it) about the The importance of executive leadership is illustrated by John Welch, Jr, the successful Chairman and CEO of General Electric Company (GE). According to Welch: good business
leaders create a vision, articulate the vision, passionately own the vision and relentlessly drive it to completion. The three Key characteristics of CEOs The CEO articulates a strategic Vision The CEO presents a role for others to identify with and to follow. Eg Dressing, attitude and values. The CEO not only communicates
with high performance standards, but also shows confidence in the followers abilities to meet these Vision Statements A strategic vision is a road map of a companys future the direction it is headed, the business position it intends to stake out, and the capabilities it plans to develop. (Thompson and Strickland (1998).
As Thompson (1997) observes, whilst mission statements have become increasingly popular for organisations, vision statements are less prevalent. Nonetheless, the lack of a published statement does not necessarily indicate a lack of vision. Where they exist they reflect the companys vision of some future state, which ideally the organisation will achieve. Mission Statements
A good mission statement describes an organisations purpose, customers, products or service, markets, philosophy, and basic technology. McGinnis (1981) suggests that a good mission statement should:
Define what the organisation is and what the organisation aspires to be Be limited enough to exclude some ventures and broad enough to allow for creative growth Distinguish a particular organisation from all others Serve as a framework for evaluating both current and prospective activities Be stated in terms clear enough to be widely understood throughout
the The Importance of a Mission Statement To ensure unanimity of purpose within the organisation To provide a basis, or standard, For allocating organisational resources To establish a general tone or organisational climate. To serve as a focal point for individuals to identify with the organisations purpose
and direction, and to deter those who cannot from participating further in the organisations activities. To facilitate the translation of objectives into a work structure involving the assignment of tasks to responsible elements within the organisation. To specify organisational purposes and the translation of
these purposes into objectives in such a way that cost, time, and performance parameters can be assessed and controlled. The Nature of a Business Mission A Declaration of Attitude A Resolution of Divergent Views A Customer Orientation A Declaration of Social Responsibility
Components of a Mission Statement Customers. Who are the enterprises customers? Products or services. What are the firms major products or services? Markets. Where does the firm compete? Technology. What is the firms basic technology? Concern for survival, growth, and profitability. What is the firms
commitment towards economic objectives? Philosophy. What are the basic beliefs, values, aspirations, and philosophical aspirations of the firm? Self-concept. What are the firms major strengths and competitive advantages? Concern for public image. What
is the firms public image? Concern for employees. What is the firms attitude toward employees? ANALYSING THE EXTERNAL ENVIRONMENT Political
Economic Factors Legal Technological Sociocultural Factors Sociocultural Factors Population demographics Income distribution
Social Mobility Attitude to work and leisure Consumerism Legal Factors Competition Law Employment Law Health and Safety
Economic Factors Business Cycles GNP trends Interest rates Money supply Inflation Unemployment Disposable Political Factors Government
Stability Taxation policy Foreign Trade Policy Social Welfare Technological Government spending on research Government and industry focus on technological effort New discoveries/developments
Speed of technology Industry and Competitive Analysis Purpose and Contributions of Industry and Competitive Analysis Identifying and selecting the companys competitive arena by defining its industry and served markets.
Identifying business opportunities Producing a benchmark for evaluating the company Shortening the companys response time to competitors moves Restricting or preempting competitors
moves. Encouraging organisational development through Helping the company to gain a competitive advantage Promoting learning from the competition Aiding in the development of the strategy and its successful
The Process of Industry and Competitive Analysis Defining and choosing the boundaries of the industry and the companys served market. Understanding the structure of the industry Analysing the forces of competition Determining key success factors Conducting strategic group analysis Performing competitive intelligence
Analysing the Forces of Competition The nature and degree of competition in any industry depends on five basic forces: The threat of new entrants. The bargaining power of buyers. The bargaining power of suppliers. The threat of substitute products or services.
Rivalry among existing firms. The Threat of New Entrants. Entry Barriers include Economies of Scale Product Differentiation Capital Requirements Cost Disadvantages Independent of Size Access to Distribution Channels Regulatory Policies
Bargaining Power of Buyers Bargaining Power is Determined by The concentration and size of buyer The relative volume of the buyers purchases in the market and the relative importance to the buyer of the purchase in terms of both cost and quality. The degree of
product standardisation Bargaining Power of Suppliers The power of suppliers is affected by Concentration amongst suppliers The degree to which suppliers are able effectively to differentiate their product or service The extent to which the buyer is important to supplier The availability (or otherwise) of close
substitutes as satisfactory inputs to the buyers requirements The potential for threat of forward The costs, practicability and opportunity for buyers to switch suppliers. The extent to which buyers are well informed about suppliers products, prices, and costs The degree to which buyers are price sensitive The degree of threat of backward integration by buyers
Threat of Substitute Products threats by substitute products depends on Whether attractively priced substitutes are available, How satisfactory the substitutes are in terms of quality, performance, and other relevant attributes, The ease with which buyers can switch to substitutes.
Rivalry Among Existing Competitors threats by substitute products depends on The number and diversity of competitors, and the degree of balance (or equality) between their relative market strengths. The rate of growth of the industry. The degree to which product differentiation is effective Fixed costs are high or the product is perishable, creating
strong temptation cut prices The degree to which capacity is increased in large increments The extent to which competitors are aware of the strategies of their rivals Exit barriers, and the costs of leaving the industry Threats of new Entrants Threats of
Substitutes Competitive rivalry Bargaining power of Suppliers Bargaining power of Buyers Forces of Competition The Nature of Competition
Price competition, which may reduce industry margins and profits or drive some businesses out of the market. Non-price competition in mature markets, based on brand and product differentiation, promotion and new product development, etc Locking-in customers or channels by the use of discounts, credit and preferential financial arrangements, etc. Mergers and takeovers of competitors or new comers so as to consolidate and protect market position. Direct government regulation and
Industry Key Success Factors (KSFs) Relevant Questions for Analysis: On what basis do buyers of the industrys product choose between the brands of the sellers? Given the nature of competitive rivalry, what resources and competitive capabilities does a company need to have to be successful? What shortcomings are almost certain to
put a company at a significant competitive disadvantage Common types of Key Success Factors (KSFs) Technology related KSFs Manufacturing related KSFs Distribution related KSFs Marketing related KSFs Skills and capability related KSFs Other types of KSFs
Technology related KSFs Expertise in a particular technology or in scientific research Proven ability to improve production processes Manufacturing related KSFs Ability to achieve scale economies and/or capture learning-curve effects Quality control know-how High utilization of fixed assets Access to attractive supplies of skilled
labour High labour productivity Low-cost product design and engineering Distribution related KSFs Ability to manufacture or assemble products that are
customized to buyer specifications A strong network of wholesale distributors or dealers Ability to secure favourable display space on retailers shelves Marketing related KSFs Breadth of product line and product selection A well-known and well respected
brand name Fast, accurate, technical assistance Courteous, personalized customer service Accurate filling of buyer orders Customer guarantees and warranties Skills and capability related KSFs A talented work-force National or global distribution capabilities Product innovation capabilities Design expertise
Short delivery-time capabilities Supply chain management capabilities Other types of KSFs Overall low cost Convenient location Ability to provide fast,
convenient, after-the-sale repairs and services A strong balance sheet and access to financial capital Patent protection Competitive Analysis Guidelines for effective Competitive Analysis Identify key competitors, even if they have different organisational types
than your company. Identify substitutes, both domestic and foreign, whether traditional or nontraditional. Use both formal and informal means of collecting information about your competition. Informal sources of data, while costly, are sometimes more revealing and informative than official information.
Develop knowledge of the national and organisational cultures. This knowledge is important in gaining access to vital information and to accurately interpreting data about the competition. Give special attention to the network (group) of companies to which the competitors may belong. Not only do they determine access to markets and resources, but
they also ensure coordination of strategic moves. As with domestic competitive analysis, pay attention to the competitors unique attributes. You should delve deeply into their operations, culture, and organisation. INTERNAL
ENVIRONMENTA L ANALYSIS Functional Areas Covered by an Internal Environmental Analysis Finance and accounting Production and operations Marketing Research and development Human resources Organisational structure
Finance and Accounting The financial condition of an organisation is usually considered as the most critical measure of its competitive position and overall attractiveness to investors. As David (1989) points out, an organisations liquidity,
leverage, working capital, profitability, asset utilisation, cash flow, and equity can eliminate some accounting comprise three decisions:
the investment decision, the financing decision, and the dividend decision. Production and Operations The Basic Functions of Production Management are; Process Capacity Inventory
Work Force Quality Functions Description Process decisions concern the design of the physical production system. Specific Process decisions include choice of technology, facility layout, process flow analysis facility location,
line balancing, process control, and transportation Functions Capacity Description Capacity
decision concern determination of optimal output levels for the organisation not too much and not too little. Specific decisions include forecasting, facilities planning, aggregate planning, scheduling, capacity planning, and queuing analysis.
Functions Description Inventory decisions involve managing the level of raw materials, work in process, Inventory and finished goods. Specific decision includes what to order, when to order, how much to order, and material handling. Functions
Description Work Force Work force decisions are concerned with managing the skilled, unskilled, clerical, and managerial employees. Specific decisions include job design, work measurement, job enrichment,
work standards, and motivation techniques. Functions Description Quality Quality decisions are aimed at assuring that high-quality goods and services are produced. Specific decisions
include quality control, sampling, testing, quality assurance, and cost control. Marketing Marketing can be defined as the process of defining, anticipating, creating, and fulfilling customers needs and wants for products and services. Closely allied with an organisations production and operations
capability is its marketing capability. That is, its ability to produce the right product or service, deliver it at the right place at the right time Research and Development Many organizations today conduct no
research and development, and yet many other organizations depend on successful R&D activities for survival. Organizations pursuing a product development strategy especially need to have a
Byars et al (1996) submission is that every organisation, whether it has a formal research and development or not, must be concerned about its ability to develop new products and services. Human Resources
As Byars et al rightly point out, all the activities of an organisation are significantly influenced by the quality and quantity of its human
Organisational Structure All organisations produce and market their products through an organisational structure. This structure can either help or hinder an organisation in achieving its objectives. SWOT Analysis According to Thompson
and Strickland (1998), sizing up an organisations resource strengths and weaknesses and its external opportunities and threats, commonly known as SWOT analysis, provides a good overview of whether an organisations business position is fundamentally
healthy or unhealthy. Potential Resource Strengths and Competitive Capabilities A powerful strategy supported by good Skills and expertise in key areas A strong financial condition; ample financial resources to grow the business Strong brand-name image/company reputation A widely recognized market leader and an attractive customer base
Potential Resource Weaknesses and Competitive Deficiencies No clear strategic direction Obsolete facilities A weak balance sheet; burdened with too much debt Higher overall unit costs relative to key competitors Falling behind in R&D Weak brand image or reputation Potential Company
Opportunities Serving additional customer groups into new geographic markets or product segments Expanding the companys product line to meet a broader range of customer needs Transferring the company skills or technological know-how to new products or businesses Integrating forward or backward Potential External Threats to a Companys Well-Being Likely entry of potent new
competitors Loss of sales to substitute products Slowdowns in market growth Costly new regulatory requirements Growing bargaining power of customers or suppliers Adverse demographic changes The five primary activities (sometimes called line functions) are
inbound logistics, operations, outbound logistics, marketing and sales, and service. They represent activities of physically creating the product or service, and marketing and transferring it to the buyer, together with after-sale service. Inbound Logistics
They are activities, costs, and assets associated with obtaining fuel, energy, raw materials, parts components, merchandise, and consumable items from vendors; receiving, storing and disseminating inputs from suppliers;
inspection; and inventory Operations Activities, costs, and assets associated with converting inputs into final product form (production, assembly, packaging, equipment
maintenance, facilities, operations, quality assurance, and environmental protection). Outbound Logistics Activities, costs, and assets dealing with physically distributing the product to buyers (finished
goods warehousing, order processing, order picking and packing, shipping, delivery vehicle operations). Marketing and Sales Activities, costs and assets related to sales force
efforts, advertising and promotion, market research and planning and dealer/distributor Service Activities, costs, and assets associated with providing assistance to buyers, such as installation, spare parts
delivery, maintenance and repair, technical assistance, buyer inquiries and complaints They are linked to four support activities procurement, technology development, human resource management, and
general administration. They assist the firm as a whole by providing infrastructure or inputs that allow the primary activities to take place on an ongoing basis. General Administration Activities costs, and assets relating
to general management, accounting and finance, legal and regulatory affairs, safety and security, management information systems, and other overhead functions. Human Resources Management Activities costs, and assets associated
with the recruitment, hiring, training, development and compensation of all types of personnel; labor relations activities; developments of knowledge-based skills. Research, Technology, and Systems Development Activities, costs, and assets relating to product R & D, process R & D, process
design improvement, equipment design, computer software development, telecommunications systems, computer-assisted design and engineering, new data-base capabilities, and development of computerized support systems. Procurement
Activities, costs and assets associated with purchasing and providing raw materials, supplies, services and outsourcing necessary to support the firm and its activities. Sometimes this
activity is assigned as part of a firms inbound logistic The value chain includes a profit margin since a mark-up above the cost of providing a firms valueadding activities is normally part of the price paid by the buyer creating value exceeds cost so as to generate
IDENTIFYING STRATEGIC ALTERNATIVES Stable Growth Strategies The organisation is satisfied with its past performance and decides to continue to pursue the same or similar objectives. Each year the level
of achievement expected is increased by approximately the same percentage. The organisation continues to serve its customers with Growth Strategies They do not necessarily grow faster than the economy as a
whole but do grow faster than the markets in which their products are sold. They tend to have larger-thanaverage profit margins. They attempt to postpone or even eliminate the danger of price competition in their industry. Instead of adapting to changes in the outside world, they tend to adapt the outside world to
themselves by creating something or a demand for something that Ansoffs matrix (product-market Growth Matrix) Present products Present markets New markets New products
Market Penetration Product development Market development Diversification When is each appropriate ? Market Penetration
Current markets are not saturated with your particular product or service The usage rate of present customers could be significantly increased. The market shares of major competitors have been declining while total industry sales have been increasing.
Market Development New channels of distribution are available that are reliable, inexpensive, and of good quality. An organisation is very successful at what it does. New untapped or unsaturated markets exist. An organisation has the needed capital and human resources to
manage expanded operations. An organisation has excess production capacity. An organisation's basic industry is rapidly Product Development An organisation has successful products that are in the maturity stage of their life cycles; the idea here is to attract satisfied customers to try new (improved) products as a result of their positive experience with the organisation's present products or services. An organisation competes in an industry that
is characterized by rapid technological developments. Major competitors offer better quality products at comparable prices. An organisation competes in a high-growth industry. Diversification Strategies in Action Concentric Diversificatio n
Conglomerat e They are appropriate under the following conditions: Concentric Diversification An organisation competes in a no-growth or a slow-growth industry. Adding new, but related, products would significantly enhance the sales of current products. New, but related, products could be
offered at high competitive prices. New, but related, products have seasonal sales levels that counterbalance an organisation's existing peaks and valleys. An organisation's products are currently in the decline stage of their life cycles. An organisation has a strong management Conglomerate Diversification An organisation's basic industry is
experiencing declining annual sales and profits. An organisation has the capital and managerial talent needed to compete successfully in a new industry. There exists financial synergy between the acquired and acquiring firm; note that a key difference between concentric and conglomerate diversification is that the former should
be based on some commonality in markets, products, or technology; whereas the latter should be based more on profit considerations. Market/customer base Product/Service Existing Modified/improved
New but related New and unrelated Existing New Market penetration Market development Product development Concentric diversification Horizontal diversification Conglomerate diversification
Defensive Strategies Turnaroun d Divestmen t Combination Strategies Simultaneo us
Combinatio Generic Strategies There are three main generic strategies: Striving for overall low-cost leadership in the industry. Striving to create and market unique products for varied customer groups through differentiation. Striving to have special appeal to one or more groups of consumer or individual buyers, focusing on their cost or differentiation concerns.
Competitive Advantage Broad target Differentiation Cost Leadership Differentiation Narrow target
Competitive Scope Lower cost Cost Focus Differentiation Focus Gaining Competitive Advantage Cost leadership Differentiation
Focus Cost leadership Cost leadership emphasises producing standardised products at very low per-unit cost for many consumers who are price-sensitive. Low cost provider strategy avenues for achieving cost
advantage Control cost drivers Economies or diseconomies of scale Learning curve effects Capacity utilization effects Revamp the value chain Simplify product design Relocate resources Make greater use of internet When a low-cost provider strategy works best
Price competition is fierce Homogenous or similar/identical products Product differentiation is difficult Most buyers use the product in the same ways Buyers incur low switching costs Predatory pricing is feasible Buyers are large and have
Differentiation Differentiation refers to producing products and services considered unique industry-wide and directed at consumers who are relatively priceinsensitive. When a Differentiation Strategy Works Best There are many ways to
differentiate the product/service Buyers perceive differences as having value Buyer needs and uses are diverse Few rival firms are following a Pitfalls of Differentiation Strategy May not enhance perceived value and yet may be costly Over-differentiating/overdesigned to that service level
exceed buyers needs Trying to change too high a premium Tinkering with differentiation Focus Focus has to do with producing products and services that fill the needs of small groups of consumers.
International Strategic Choices Entry A firm should consider the following issues: Firms marketing objectives Firms Size Mode Availability Method
Quality Risks Human Resource Requirements Market Information Feedback Learning Curve Requirements Modes Exporting
Licensing Franchising Joint venture Foreign direct investments. Exporting Exporting represents an initial stage in a companys international participation. It is the
easiest, cheapest and most commonly used Licensing and Other Contractual Agreements In addition to exporting, the company can use licensing as a means of entering foreign markets. Thus, for a fee, the company transfers one or more of its
intangible assets (such as a trade secret, patent, or trademark) to foreign Several factors encourage companies to engage in licensing agreements: Licensing diffuses the technology and establishes it as the
industrys dominant standard. Licensing encourages others to use its technology so it can control the market or preempt rival technologies. For example, with the use of licensing agreements, Microsofts Windows became a
Royalties generated from licensing are a major source of revenue on products already considered mature in the domestic markets. International licensing keeps the companys technology or trademark
in use. The company may use cross licensing to obtain information about other technologies, products, or processes. For instance, a company may allow another company to use its technology in return for access to that
companys new technology. For users, licensing can speed up access to vital technological innovation. It can also help fill Sometimes the R&D activities of a company generate products or
technologies that fall outside the companys mission. In this case, the company uses licensing to make use of its technology, without assuming the risks Franchising This approach is
fact becoming a popular mode of entering foreign markets. In franchising, a company authorises other companies to do business in a specific manner. Soft drink and fastfood companies have used franchising to expand Joint Ventures
Several factors encourage the use of international joint ventures, including: The companys major industry is experiencing technological volatility Significant entry barriers exist in the target foreign market. There is a need for major economies of scale The company has expertise in international operations Foreign direct investments.
Establishing and running a production facility in an overseas market demonstrates the fullest commitment to that market. Production capacity can be built from scratch, or, alternatively, an existing firm can be
STRATEGY ANALYSIS SELECTION Market Growth Boston Consulting Groups Growth-Share Matrix High Low STARS
QUESTION MARKS CASH COWS DOGS High Low Market Share The following steps are generally followed in using
the growth-share matrix in strategy evaluation and selection: Divide the company into its business units. Many organisational perform this step when the establish strategic business units (SBUs). On the matrix, a circle is used to depict individual business units. Determine the business units relative size within the total organisation. Relative size can be measured in terms of assets employed in the business
unit as a percentage of the total assets or in terms of sales of the business unit as a percentage of total sales. On the matrix, the area in the Determine the market growth rate for each business unit. Determine the relative market share of each business unit. Develop a graphical picture of the companys overall portfolio of business. Select a strategy for each business unit based on its
position in the companys overall portfolio of business. Cash Cow is a leading SBU (high market share) in a mature or declining industry (low growth) A Dog is an SBU with low market share and low market growth A Question Mark is an SBU with low market share and high market growth rate A Star is a leading SBU (high
BCG uses market share to determine the strategic choice for individual business units. The four major strategic choices identified are: Increase market share. Hold market share. Harvest Divest. Market-growth rate
'Stars' High Highly profitable Allocate enough resources to maintain market share Low 'Cash cows' Major sources of profit Invest enough to maintain market share Use surplus profit to finance 'stars'
High Question marks Requires spending which is disproportionate to growth potential Candidates for divestment 'Dogs' Unprofitable Abandon quickly Reallocate resources elsewhere
Relative market share Low Planning Grid It uses two dimenssions to evaluate business units: Business Unit Strength Industry Attractiveness Business Unit Strength Some of the factors that influence business unit strength include
Management Quality Market Share held Profitability competitive position, image, and employees of the business unit. Industry attractiveness Industry attractiveness is also judged on a number of factors size of market, market growth rate,
industry profitability, technological advances, competitive structure, and Business Unit Strengths High High Medium Low
Growth (Growth/Defense & Hold) Borderline (Shrink/Harvest/Rebuild) No Growth (Divest/Exit/Turnaround) Medium Low Competitive Strategy Formulation Porter contends that every firm competing
in an industry has a competitive strategy, whether it is explicit or implicit. He further contends that competitive strategy formulation involves the consideration of four key factors: Company strengths and weaknesses Industry opportunities and threats Personal values of the key managers, and
Broader societal Process for Formulating a Competitive Strategy A. What is the Business Doing Now? Identification What is the implicit or explicit current strategy? Implied Assumptions What assumptions about
the companys relative position, strengths, and weaknesses, competitors, and industry trends must be made for the current strategy to make sense? B. What is happening in the Environment? Industry Analysis
What are the key factors for competitive success and the important industry opportunities and threats? Competitor Analysis What are the capabilities and limitations of existing and potential competitors, and their probable future moves? Societal Analysis What important governmental, social, and political factors will present opportunities or threats? Strengths and Weaknesses Given an analysis of industry and competitors, what are the companys strengths and weaknesses relative to
present and future competitors? C. What should the Business Be Doing? Tests of Assumptions and Strategy How do the assumptions embodied in the current strategy compare with the analysis in B above? Strategic Alternatives What are the feasible strategic alternatives given the analysis above? (Is the current strategy one of these?)
Strategic Choice Which alternative best relates the Life Cycle Approach The life cycle approach to strategy evaluation and selection classifies business units in an organisation by industry maturity and by
competitive position The approach postulates that industries can be grouped into the following stages of maturity. Embryoni c Growth Mature Ageing Embryonic characterised by rapid growth, rapid changes in technology,
pursuit of new customers, and fragmented and changing shares of market. Growth characterised by rapid growth; but customers, market share, and technology are better known and entry into the industry is more difficult. Mature characterised by stability in known customers, technology, and market shares. The industry can, however, still be competitive.
Ageing characterised by falling demand, declining number of competitors, and, in Profit Impact of Market Strategy (PIMS) Model The Strategic Planning Institute (SPI) develops and manages the Profit Impact of Market Strategy (PIMS)
database. Portfolio Analysis which examine an entire portfolio of businesses, identify widespread problems or opportunities, and propose resource allocations to specific businesses. Customer Profiling a process for identifying quality improvement opportunities for winning
in the marketplace. Special Studies on the PIMS Database designed to shed light on specific problems facing a particular business. Analyses of Troubled Businesses which facilitate the design of turnaround strategies. Strategic Planning Process a process to
Qualitative Factors in the Strategy Evaluation and Selection Process Managerial attitudes toward risk. Environment of the organisation. Organisational culture and power relationships.
Competitive actions and reactions. Influence of previous Developing and Communicating Concise Policies Policies are designed to guide the behaviour of managers in relation to the
pursuit and achievement of strategies and objectives. They can guide either thoughts or actions or both by indicating what is Policies can be either advisory,
leaving decision makers with some flexibility, or mandatory, whereby managers have no discretion. Koontz and ODonnell (1968) suggest that mandatory policies should be regarded as rules rather than policies. They argue that mandatory
policies tend to stop managers and other employees thinking about the most efficient and effective ways to carry out tasks and searching for improvements. Policies should guide rather than
They further argue that advisory policies should normally be preferred because it is frequently essential to allow managers some flexibility to respond and adapt to changes in both the organisation and the environment. Moreover, mandatory
policies are unlikely to motivate The Purpose of Policies Policies establish indirect control over independent action Policies promote uniform handling of similar
activities Policies ensure quicker decisions Policies institutionalise Policies reduce uncertainty in repetitive and day-to-day decision making Policies counteract resistant to
or rejection of chosen strategies by organisation members Policies counteract resistant to or rejection of chosen strategies by organisation members Policies counteract resistant to or rejection of chosen strategies by organisation members Formal, written policies have at least seven advantages: They required managers to think through the policys
meaning, content, and intended use. They reduced misunderstanding. They make equitable and consistent treatment of They ensured unalterable transmission of policies.
They communicate the authorisation or sanction of policies more clearly. They supply a convenient and authoritative reference. They systematically enhanced indirect control and organisation-wide
coordination of the key Choosing an Effective Organisational Structure Organisational structure is a firm's formal role configuration, procedures, governance and control mechanisms, and authority and decision-making
processes. The initial growth strategy of such firms was Volume Expansion, which created a need for an administrative office to manage the increased volume. The next
growth strategy was Geographic Expansion, which required multiple field units, still performing the same function but in different locations.
Vertical Integration was usually the next growth strategy. Firms remained within the same industry but performed additional functions.
The final growth strategy was Product Diversification. Firms entered other industries in which they
Four significant conclusions can be made A single-product firm or single dominant business firm should employ a functional structure A firm in several lines of business that are somehow related should employ a multidivisional structure A firm in several unrelated lines of business should be organised into strategic business units
Early achievement of a strategystructure fit can be a competitive advantage Centralisation and Decentralisation Centralisation and decentralisation relate to the degree to which the authority, power and responsibility for decision making is
devolved through the organisation Centralisation and Decentralisation The size of the organisation Geographical locations, together with the: homogeneity/heterogeneity of the products and services. Technology of the
tasks involved Inter-dependences The relative importance and stability of the external environment, and the possible need to react quickly. Generally, how fast decisions need to be made. The work load on decision
makers Issues of motivation via delegation, together with the abilities and willingness of The location of competence and expertise in the organisation.
Are the managerial strengths in the divisions or at headquarters? The significance and impact of competitive and functional decisions and changes The status of the firm's planning, control and Basic Structure for Organisational Design
The entrepreneurial structure The Functional Structure Product Structure Geographic Structure The Matrix Organisational Structure Strategy Deal and Kennedy, lists five reasons that can justify large-scale cultural change. Organisation has strong
values that dont fit a changing environment. Industry is very competitive and moves with lightning speed. Organisation is mediocre or worse. Organisational is about to join the ranks of the very largest organisations.
The Management Analysis Centre (MAC) has developed and successfully used the following six-steps process for changing culture: Start by having senior managers re-examine the companys history, culture, and skills, as well as the
traits of the business they are in. Have the CEO announce a vision of the new strategy and the shared values to make it work. The CEO should then spread the Confront mismatches
between present behaviour patterns and those required by the future strategy. This may entail designing new organisational incentives and controls to encourage different behaviour. Have executives promulgate and reinforce the new values in everything they
Reshuffle power to elevate people who implement the new ways, including outsiders hired mainly for their values. Use levers of change, such as the budgeting process and
internal public relations, to keep people moving toward Strategy and Motivational Systems Encouraging employees to work hard toward the achievement of organisational objectives is one of the
most significant challenges for any Organisational rewards include all types of rewards, both intrinsic and
extrinsic, that are received as a result of employment by the organisation. Incentive Pay Plans Incentive play plans attempt to tie pay to performance and are used by many organisations
to motivate employees to work toward Two major problems seem to exist in the design of most management incentive pay programs: The plans are not coupled to the industrys performance. Thus, managers may receive a high reward for achieving a 15 percent
growth rate while the industry is growing at a rate of 25 percent. The plans are one-dimensional. For example, if compensation, is based solely on return on assets, managers may be tempted to eliminate assets Advantages of Incentive Pay Programmes Incentive compensation is directly related to operating performance. If performance objectives (quantity and/or quality) are met, incentives are paid.
If objectives are not achieved, incentives are withheld Incentives foster teamwork and unit cohesiveness when payments to individuals are based on team Incentives focus employee efforts on specific performance targets. They provide real motivation that produces important employee and organisational gains.
Incentive payouts are variable costs linked to the achievement of results. Base salaries are fixed costs largely unrelated to output. Incentives are a way to distribute success amount those responsible for producing that success. IMPLEMENTING STRATEGY TACTICAL/MANAGEMENT ISSUES Managers are
responsible for developing strategies in the Functional areas that will help achieve corporate objectives. Importance of Functional Strategies Functional
strategy provides an action plan for strategy implementation at the level of the work group and individual. It puts corporate and business strategy into operation by defining the activities needed for implementation.
Depending on the specific strategy to be implemented, functional strategy may need to be formulated by
a variety of work groups within the The most significant challenge lies in coordinating the activities of the various work groups that must work together to implement the strategy. The strategies must be consistent
both within each functional area of the business (such as the marketing department) and between functional areas (such as the marketing department and the production department).
Examples of functional strategies needed to implement a new product development strategy Marketing Coordinate with R&D for formula development Conduct market research
with consumers Develop a pricing strategy Design promotional materials Identify and negotiate with potential distributors Coordinate with Productions as to product specifications Coordinate with Human Resources Production Identify suppliers of input materials Negotiate purchasing
agreements Arrange for storage facilities for both raw materials and finished goods. Design and/or purchase new production equipment Human Resources: Work with Production to assess human resource needs Work with Marketing to assess
human resources needs Identify potential candidates for new positions Develop compensation and benefits packages for new employees Design and provide training A number of strategic tactical issues are likely to arise in the functional areas Marketing Finance Operations/ Production
Human Resource/Personnel Research and Development Marketing Strategies Product Decisions Integrated Marketing Communication Decisions
Marketing Mix Distribution Decisions Price Decisions Product Life Cycle Sales Introduction
Growth Maturity Decline And Profits Sales Profits
Time Pricing Pricing is a complex issue because it is related to cost-volumeprofit trade-offs and because it is frequently used
as competitive weapon. Pricing-policy changes are likely to The benefits of well-conceived pricing include increasing sales to current customers, attracting new customers, maximizing short-run cash flow, and maintaining an established position. The particular benefit or benefits sought should be considered so that the most appropriate approach is
selected. Pricing must be considered in relation to costs, to consistency, and to potential inflation (Byars et al 1996) Distribution The distribution system brings the product or service to the place where it can best fill customers needs. Access to distribution can mean the difference between success and failure for a new product. Because many products require support from distribution channels in the form of prompt
service, rapid order processing, or parts inventory, the choice of Promotion The function strategy for the promotion component defines how the firm will communicate with the target markets. Promotion is more than advertising. Promotion refers to the methods which are used to
put products and services Customer Care It is now recognised that meeting customer needs is the foundation of any successful organisation, and that the customers come first, second and third.
Today, both profit and non-profit organisations have It can be argued that customer service is now the only factor which distinguishes one organisation from another in the same business. At the same time,
the customers have changed, they have become more demanding and they have more choice. It is these changes which have made imperative and change in the role of Managers should work to meet customer needs better: at lower cost at maximum
customer satisfaction with competitive advantages Levinson (1997) provide below 17 ways by which managers can show their customers that they care. Put your customer service principles in writing. Establish support systems that give clear instructions for gaining
and maintaining service superiority. Develop a measurement of superb customer service, and reward employees who practice it consistently. Be certain that your passion for customer service runs rampant Be genuinely committed to providing more customer service excellence than anyone else in your industry. Ask your customers questions, then listen carefully to their answers.
Stay in touch with your customers. Nurture a human bond, as well as a business bond, with customers and prospects. Recognise that your customers have needs and expectations - and meet them. Keep alert for trends; then respond to them. Observe your customers' birthdays and anniversaries. Send postage-paid questionnaire cards and letters asking for suggestions.
Invest in phone equipment that makes your business sound friendly, pleasant to do business with, easy to contact and quick to respond. Design your company's physical layout for efficiency, clarity of signage, lighting, accessibility for the disabled and simplicity. Everything should be easy to find. Act on the knowledge that what customers
value most are attention, dependability, promptness and competence. Operations Issues The operations (or production) function has responsibility for the procurement and transformation of raw materials into products or services. This involves securing raw materials, making decisions to make or buy parts and components, maintaining adequate inventory,
designing and scheduling production, ensuring quality control, and making capacity adjustments. Decisions in the operations area determine a large proportion of the organizations costs and are reflected in measures of efficiency and productivity. Strategic Choices
Product and service plans Positioning strategy Competitive priorities Quality management and control Design Decisions Process design
Technology management Job design and work measurement Capacity Location Layout Operating Decisions
Materials management Aggregate planning Master production scheduling Inventory Scheduling Operations as a Competitive Weapon The Role of Top and Functional Level
Managers in TQM Managers have critical roles to play in the TQM process. Normally, top managers initiate a TQM programme, and a continuing emphasis on TQM requires their longterm commitment and willingness to make TQM an organisation wide priority.
According to Jones et al (2000), it is functional-level managers who Identify defects, trace them back to their source, and fix quality problems Design products that are easy to assemble Identify customer needs, translate those needs into quality requirements, and see that these quality requirements shape the production
system of the organisation. Work to break down the barriers between functional departments. Solicit suggestions from lower-level employees about how to improve the Pitfalls of TQM False Starts Disconnection from Customer Issues Do Versus Develop. Were Doing Okay. The Quick-Fix Syndrome Mandate and Move on
No Space on the Agenda Look Whos Running the Show Outsourcing According to Ellis (2004) outsourcing refers to the transfer of in-house jobs to outside firm to reduce costs, take advantage of others' expertise and focus on what the contracting company does best.
In addition to operations, functions that are frequently outsourced include human resource management, information systems, accounting, legal work and after-sales service on appliances and equipment.
Reasons for New Trends in Outsourcing According to Jones et al (2000) there are at least two reasons why human resource planning sometimes leads managers to outsource: flexibility and cost.
Financial Issues The finance function provides the financial resources necessary to implement the strategy. Schall and Haley (1991) assert that finance is concerned with the lifeblood of a company, money: How it is obtained to finance the business and how it should be used to assure the business's success.
Schall and Haley (1991) have identified the major finance-related functions in a firm as follows: Financing and Investments Accounting and Control Forecasting and LongTerm Planning Pricing Other Functions organizations with international operations include:
Are sources of local funding available and properly developed for nondomestic operations? How will the strategy be affected by currency depreciation and/or inflation? How can overall tax be minimised? How should the transfer of profits from foreign subsidiaries to headquarters be handled for
Strategies for Facing Cash Crisis Some of the most important signs of deteriorating liquidity are: An unexpected building in inventory (an increase in the inventory conversion period). An increase in the firms level of outstanding accounts receivable (an increase in the average collection period). A decline in the firms daily or weekly cash inflows.
Increased costs the firm is unable to pass on to its customers. A decline in the firms net working capital; or an increase in its debt ratio. Managers can take some of the following steps to deal with cash crisis (liquidity problem): Control and reduce investment in inventory Re-examine and tighten up on credit and reduce the firms level of accounts receivable.
Increase short-term or long-term debt, or issue equity. Control overhead and increase awareness of the need for effective asset management. Lay off employees. Reduce planned long-term (capital) expenditures. Qualitative Factors for Decision Making
Management decisions in finance should not only be based on quantitative data alone. In employing the tools for decisions making we have discussed management should also bear in mind qualitative Qualitative factors in decision making will vary with the
circumstances and nature of the opportunity being considered. Here are some examples. The availability of cash Inflation Employees Customers Competitors Timing factors Suppliers
Flexibility and internal control Unquantified opportunity costs Political pressures Legal constraints Human Resource Strategies perspective to human resource management, an organisation should:
Use its strategies (corporate-level, business unit, and functional) to identify what human resources are needed and how they should be allocated. Develop and implement human resource practices that select, reward, and develop employees who best contribute to the accomplishment of organisational objectives. Use its resources to compete for or retain employees who are needed to reach its objectives. Develop mechanisms
that match employees competencies to the organisations present and future needs There are four key human resource functions involved in getting the right people into the right jobs at the right time. Recruiting and Hiring Training and
Development Coaching and Evaluation Career Planning Recruitment Recruitment is the process of finding and attracting job candidates who are qualified for current and future needs.
Forms of Recruitment Internal Recruitment External Recruitment Internal Recruitment The main benefits to the employer of internal appointments are: An organisation with a reputation for internal advancement will find it easier to motivate staff, whereas in organisations where internal advancement is rare, staff
will be less committed to the work and may be preoccupied with external job applications. The organisation will attract better candidates if they see there is a future career in it. Many candidates will be local people who have bought homes there, have children Internal candidates know the business and what will be expected of them, and they can become effective in the new job very quickly. Although there is bound to be bitterness
from other internal applicants who do not get the job, they will at least feel that there will be other career opportunities in the organisation and that their "turn" will come. The organisation will not need to rely upon external references when choosing from internal applicants - accurate information will be available from The disadvantages of appointing internally are equally valid: The successful candidates may suffer role
conflict in that they are now senior to people with whom they worked with as equals there may be a problem for them in asserting their authority. A person promoted internally may be expected to pick up the new job in an unreasonably short space of time. Filling a vacancy internally leaves another vacancy to fill, and so on If the promotion policy is based upon seniority (often called "filling dead mens shoes") young keen staff will leave, whereas a policy of promoting keen young people will demoralize and demotivate older staff who
External Recruitment These benefits are: Much wider range of people from which to choose. Newcomers to the organisation will bring in new ideas. Newcomers are not likely to be more mobile than existing staff and in a multisite business this can be very useful to the organisation. Newcomers may bring skills and
management techniques from their former employers which your organisation might also adopt. There are also disadvantages It is more expensive than internal recruitment, and often much more so. It takes time for a newcomer to get used to his or her new employer, and therefore the newcomer will not be performing effectively for the initial period. People who move between jobs have a better idea of their market value than people who stay with the same
organisation for a long time, and they make the best use they can of this by threatening to leave unless they get high Problems of Successful Implementation Owen (1982) contends that, in practice, there are five problem areas associated with the successful implementation of
strategies. At any time strategy and structure need to be matched and supportive of each other. It is also possible that related products may be produced in various plants nationally or internationally, when
a geography-oriented structure, which keeps the The information and communications systems are inadequate for reporting back and evaluating the adaptive changes which are taking place, and hence the strategic leader is not fully aware of what is happening. Implementing structure involves change,
which in turn involves uncertainty and risk. Management systems, such as compensation schemes, management development, communications systems, and so on, which operate within the For
Successful Implementation Clear responsibility for the successful outcome of planned strategic change should be allocated. The number of strategies and changes being pursued at any time should be limited. The ability of the necessary resources to cope with the changes should be seen as a key determinant of strategy and should not be overlooked. Necessary actions to implement strategies
should be identified and planned, and again responsibility should be allocated. Milestones, or progress measurement points, should be established. Measures of performance should be established, and appropriate monitoring STRATEGY REVIEW, EVALUATION AND CONTROL Strategic Controls Newman and Logan (1976)
use the term steering control to highlight some important characteristics of strategic control. Ordinarily, there is a significant time span between the initial implementation of strategy and the measurement of Financial Controls Financial data are some of the most commonly used warning signals. As commonly used
financial measures include considerations for profit, sales, return on investment return on equity, cost figures, and trends in these and other related measures. Non-Financial Controls In addition to financial data, there are many other early warning signals that can be used to alert the strategist to
potential problems. Some of the most frequently used nonfinancial signals are measures of productivity, measures of quality, personnel-related Most organizations use a combination of financial and non-financial early warning signals. Early warning signals and other similar strategic controls are used to detect something specific which has gone wrong or which is about
to go wrong with operations. Evaluating Corporate Strategy There are a number of criteria developed for assessing the effectiveness of corporate strategy. In
this sense, we will examine Rumelts criteria and McKinneys Rumelts Criteria for Evaluating Corporate Strategy Rumelt (1980) argues that corporate strategy evaluation at the widest level involves seeking answers to three questions: Are the current objectives of the organization appropriate? Are the strategies created previously, and which are currently being implemented to
achieve these objectives, still appropriate? Do current results confirm or refute previous assumptions about the feasibility of achieving the objectives and the ability of the chosen strategies to proposed four criteria that could
be used to evaluate a given strategy: consistency, consonance, advantage, and Mckinseys 7-S Framework A good strategy is not synonymous with
a double one. Nor is a double strategy synonymous with a good one. The challenge is to find a good double Structure
Strategy Shared Values Systems Skills Style Staff Let us examine the meaning of each of 7-S variables.
Strategy. A coherent set of actions aimed at gaining a sustainable advantage over competition, improving position vis-vis customers, or allocating resources. Structure. The organization chart and accompanying baggage that show who reports to whom and how tasks are both divided up and integrated. Systems. The processes and flows that show how an organization gets things done from day to day. (Information systems, capital budgeting systems,
manufacturing processes, quality control systems, and performance measurement systems all would be good examples.) Style. Tangible evidence of what management considers important by the way it collectively spends time and attention and uses symbolic behaviour. It is not what management says is important; it is the way management behaves. Staff. The people in an organization. Here it is very useful to think not about individual personalities
but about corporate demographics. Shared values (or superordinate goals). The values that go beyond, but might well include, simple goal statements in determining corporate destiny. To fit the concept, these values must be shared by most people in an organization.
Skills. A derivative of the rest. Skills are Control through information and measurement The following general guidelines have been suggested towards designing the
control Levels of control Creation of responsibility centers Identification of key factors Diversity in control Misleading measurements should be avoided To guard against negative monitoring Errors Relating to the Use of
Strategic Management Inability to Think Strategically Seven Assumptions that Kill Strategic Thinking: My top team is a closely knit group. Our team controls our organization. If its long term, its strategic. Established corporate strategy means clear divisional or overall strategy. Stable organisations do not need strategy. Our long range plans tell us where were going.
Our top team is bright, experienced; therefore, theyve got what it takes to set strategy. Other errors include Undue Emphasis on Form of Procedure Isolation from the Environment Too Much Emphasis on the Near Term
Improper Use of Planning Unpredictable Changes Most problems which fall into this category stem from unpredictable changes in the external environment. The solution is to develop early
warning signals and then to respond quickly. Some of the most frequently encountered problem sources are discussed in the following paragraphs. Naturally, some of these are Innovations New Products or Services Government Regulations. Weather Shortages in Raw Material
Consumer Preference New Competitors or Changes in a Competitors Abilities Characteristics of Standards The standards to be used in control usually have several characteristics: Relevance. This means that the standard
is logically connected to the activity or outcome being evaluated. It helps the manager to answer the question, Why are we doing this? Stability. This means that, when used by different people or at different points in time, Clarity. Managers and employees
understand, beforehand, what will be measured and how. This requires executives to communicate their intended use of the standard, when and how it will be used, and by whom. Clarity is a prerequisite of an effective measurement criterion. Fairness. The standard should invoke a sense of confidence and fairness. Conversely, irrelevant standards may
cause people to question the system and even create the impression that they are unfair. Standards that are easily Senior Executives and Strategic Controls Clarify and communicate the goals of the control system Establish the informational flow between different units of the control system Highlight the beneficial, not the
punitive, uses of the system. Clarify the responsibilities associated with different aspects of the system STRATEGIC CHANGE MANAGEMENT What is Change Management Change management is
the process of aligning the organisation's people and culture with changes in business strategy, organisational structure, systems, and processes. Properly executed, change management results in: Ownership of
and commitment to the planned change Sustained and measurable improvement Improved capability to manage future change. Major organisational change may include: Reducing the purchasing costs for a car manufacturer, through working more closely an in partnership with several
hundred suppliers Reducing the development and launch time for a major new product by about two years. Restructuring an organisation with several thousand employees from being based on functional departments to being organised around serving market sectors. Thank you