Bba 503 Cba 504-Strategic-G. Gongera

KENYATTA UNIVERSITY
INSTITUTE OF OPEN LEARNING
CBA 504: STRATEGIC MANAGEMENT
G. GONGERA
Institute of Business Administration
TABLE CONTENTS
LESSON 1 .............................................................................................................................1
STRATEGIC MANAGEMENT: AN INTRODUCTION................................................1
1.0 Objectives.....................................................................................................................1
1.1 Introduction ..................................................................................................................1
1.2 Meaning of strategy .....................................................................................................3
1.3 The characteristics of strategic decisions.....................................................................3
1.4 Strategic management ..................................................................................................4
1.5 Importance of strategic management ...........................................................................7
1.6 Strategic management responsibilities of managers. ...................................................7
1.7 Committees and the responsibilities ............................................................................9
1.8 Influences on strategic management ..........................................................................10
1.9 Emerging Issues of Strategic Management................................................................12
1.10 Formulating Strategies for Small Business ................................................................14
1.11 Strategy and International Operations........................................................................15
1.12 Strategies of Going Abroad........................................................................................16
1.13 Revision questions .....................................................................................................21
1.14 Summary ....................................................................................................................21
1.15 Definition of Key Concepts .......................................................................................22
1.15 Definition of Key Concepts .......................................................................................23
1.16 Further Reading..........................................................................................................23
LESSON TWO ...................................................................................................................24
THE STRATEGIC MANAGEMENT PROCESS ..........................................................24
2.0
Objectives..................................................................................................................24
2.1 Introduction ................................................................................................................24
2.2 Environmental analysis ..............................................................................................25
2.3 Step 2. Establishing organizational direction.............................................................26
2.4 Strategy formulation ..................................................................................................26
2.5 Step 4. Implementation of organizational strategy ....................................................27
2.6 Step 5 Strategic control ..............................................................................................28
2.8 Summary ....................................................................................................................29
2.9 Further reading ...............................................................................................................29
LESSON 3 ...........................................................................................................................30
ENVIRONMENTAL ANALYSIS ....................................................................................30
3.0 Objectives...................................................................................................................30
3.1 Purpose of environmental analysis ............................................................................30
3.2 Roles of environmental analysis ................................................................................31
3.3 Environmental structure .............................................................................................31
3.4 General environment..................................................................................................33
3.5 The operating environment ........................................................................................33
3.6 Internal environment ..................................................................................................34
3.7 Environmental forecasting .........................................................................................35
3.9 Summary ....................................................................................................................36
3.10 Definition of key concepts .........................................................................................37
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LESSON FOUR..................................................................................................................38
ORGANIZATIONAL DIRECTION: MISSION AND OBJECTIVE ..........................38
4.0 Objectives...................................................................................................................38
4.1 Organizational Mission: Definition............................................................................39
4.2 Importance of organizational mission........................................................................39
4.3 Contents of mission statements. The topics include; .................................................40
4.4 Organizational objectives...........................................................................................40
4.5 Strategic goals and objectives ....................................................................................41
4.6 Areas in which organizational objectives are established..........................................43
4.7 The process of establishing organizational direction. ................................................44
4.9 Summary ....................................................................................................................45
4.11 Further reading ...........................................................................................................46
LESSON 5 ...........................................................................................................................47
STRATEGY FORMULATION........................................................................................47
5.0 Objectives...................................................................................................................47
5.1 Strategy formulation inputs from environmental analysis ......................................47
5.2 Formulation of Business Strategy ..............................................................................48
5.3 Formulating organizational strategies ........................................................................51
5.4 Formulating functional strategies...............................................................................53
5.5 Strategy formulation constraints and selection criteria..............................................54
5.6 Strategy selection criteria...........................................................................................55
5.8 Summary ....................................................................................................................55
5.10 Further reading ...........................................................................................................56
LESSON 6 ...........................................................................................................................56
STRATEGY IMPLEMENTATION ................................................................................56
6.0 Objectives...................................................................................................................56
6.1 Analyzing strategic change ........................................................................................59
6.1 Analyzing strategic change ........................................................................................60
6.2 Analyzing organizational structure ............................................................................61
6.3 Advantages and disadvantages of five organizational structures...............................66
6.4 The managers role in leading the implementation process.......................................68
6.5 Building a capable organization.................................................................................69
6.6 Matching organization structure to strategy...............................................................69
6.7 Analyzing organizational culture ...............................................................................70
6.8 Selecting an implementation approach ......................................................................71
6.9 Implementing the strategy and evaluating the results ................................................75
6.11 Summary ....................................................................................................................76
6.13 Further reading ...........................................................................................................77
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LESSON 7 ...........................................................................................................................78
STRATEGIC CONTROL .................................................................................................78
7.0 Objectives...................................................................................................................78
7.1 The purpose and contributions of strategic controls ..................................................78
7.2 The components of strategic control ..........................................................................79
7.3 Process of strategic control ........................................................................................80
7.4 Designing effective strategic control systems............................................................81
7.5 Consequences of poor controls ..................................................................................83
7.6 Why do control systems fail?.....................................................................................83
7.7 The importance of information in strategic control ...................................................84
7.8 Key players in strategic control process: ...................................................................84
7.10 Summary ....................................................................................................................87
7.11 Further reading ...........................................................................................................87
LESSON 8 ...........................................................................................................................88
STRATEGIC HUMAN RESOURCE MANAGEMENT ...............................................88
8.0 Objectives...................................................................................................................88
8.2 Strategic Human Resource.........................................................................................88
8.3 HRM In The Strategic Management Process.............................................................89
8.4 Aims of Strategic Human Resource Management .....................................................90
8.4 Aims of Strategic Human Resource Management .....................................................91
8.5 Origins of The Concept Of Strategic HRM ...............................................................91
8.6 Meaning of Strategic HRM........................................................................................91
8.7 Strategic Integration: Integrating Business And HR Strategies.................................91
8.8 Limitations .................................................................................................................92
8.9 The Concept Strategic Fit .......................................................................................94
8.10 The Concept of Coherence.........................................................................................95
8.11 Formulation of HR Strategy General Considerations. ............................................96
8.12 Requirements for Strategic HRM...............................................................................97
8.13 Developing HR Strategies..........................................................................................97
8.14 Revision questions ...................................................................................................101
8.15 Summary ...................................................................................................................101
8.16 Further reading .........................................................................................................101
LESSON 9 .........................................................................................................................102
STRATEGIC MANAGEMENT: CASE ANALYSIS...................................................102
9.0 Objectives.................................................................................................................102
9.1 Introduction ..............................................................................................................102
9.2 Preparing for Case Discussion .................................................................................103
9.3 Suggestions for Effective Preparations ....................................................................103
9.4 Participation in Class ...............................................................................................105
9.5 Oral Presentations ....................................................................................................107
9.6 Working as a Team Member....................................................................................108
9.7 Summary ..................................................................................................................132
9.8 Further Reading........................................................................................................133
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LESSON 1
STRATEGIC MANAGEMENT: AN INTRODUCTION
1.0
Objectives
By the end of this lesson, you should be able to:

1. Define what is meant by strategy and strategic management
2. Describe strategic management paradigm
3. Explain Importance of strategic management
4. Explain the various influences on strategic management
5. The components of strategic management
6. Characteristics of strategic decisions
7. Strategic responsibilities of managers and committees.
1.1
Introduction
Managers face no greater challenge than that of strategic management. Guiding a complex
organization through a dynamic, rapidly changing environment requires the best of
judgement. Strategic management are invariably ambiguous and unstructured, and the way
in which management responds to them determines whether an organization will succeed
or fail (Arthur A. Thompson, 1987). There has been a debate of why some management
organizations fail while others succeed in a complex environment. Research has been done
on the management practices of successful and unsuccessful organizations in an effort to
learn the really important managerial dos and donts that separate the winners from the
losers. The differences consists of the following:
1.
In high performing companies, managers are committed to having a first rate

strategic action plan - one aimed at achieving superior financial performance and a
strong, defendable competitive position. They see competitive advantage (if possible,
competitive dominance) as the key to superior profitability and long-term
performance. Weak performing organizations are always on the short end of the
strategy stick. Their managers, pre-occupied with internal brush fires and paper work
deadlines, do a comparative poor job of maneuvering their organizations into
favourable competitive positions; they dont develop effective ways to compete more
successfully.
2.
High-performing organizations are strongly result-oriented and performance

conscious. Doing a good job of managing means achieving the targeted results on
time. Outstanding individual performance is valued and well rewarded. The
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managers of poorly performing organizations excuse weak performances on the basis

of such uncontrollable factors such as a depressed economy, slack demand, strong
competitive pressures, using casts, and unforeseen problems.
3.
In high performing organizations, there is a clear sense of direction. Senior managers

have a strong vision of where the company needs to be headed and why. They are not
afraid to blaze new trails or initiate major changes in the organizations business
make up. By contrast, the managers of low-performing organizations are
characteristically so absorbed in the latest crisis and tendering to administrative detail
that they neglect the task of thinking deeply about where the organization will be in
five years if it sticks to doing just what it is already doing. Big direction-setting
decisions stay on the back burner. They are more comfortable being late-movers
instead of first-movers. Major strategic issues are often studied but less often acted
on decisively.
4.
High-performing companies, there is enough skilled workforce, with unmatched

knowledge about customer needs and behaviour, market trends, and emerging
opportunities. Managers doggedly pursue ways to do things better or differently,
often getting their best ideas from listening to customers. The innovative approach
they practice is persistence try, fail, learn, try again, keep at it, and eventually
succeed. They aggressively search out new opportunities and move boldly to pursue
those they find most attractive. Poor run organizations are neither customer-driven
nor opportunity-driven. Their managers are normally less perceptive about customer
needs and attitudes, their instinct is to react to market trends rather than initiate them.
They are reluctant to try out new ideas for fear of making mistakes.
5.
In the best performing companies, managers are deeply involved in implementing the
chosen strategy and making it work as panel. They understand the internal
requirements for successful strategy implementation and they insist that careful
attention be paid to the tiny details required for first-rate execution of the chosen
strategy. In unsuccessful organizations managers fail to appreciate the importance of
charting a clear organizational course and being good entrepreneurs. They lack an
instinct for strategic thinking and ignore the lesson implicit in the familiar
expression. If you dont know where you are going, any road will take you there.
The challenge of strategic management is to be able to think through complex issues facing
organizations about their long-term direction, formulate clear views as to what direction
should be followed in the realities of how organizations function. This unit addresses
various issues and challenges affecting many organizations here in Kenya and lessons to be
learned.
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1.2
Meaning of strategy
Strategy refers to top managements plans to attain outcomes consistent with

organizations mission and goals. One can look at strategy from three vantage points:
1. Strategy formulation (developing the strategy)
2. Strategy implementation (putting strategy into action), and
3. Strategy control (modifying either the strategy or its implementation to ensure that
desired outcomes are attained.
Chandlers (1962:13) definition is perhaps the fundamental contribution to corporate
strategy.
The determination of the basic long-term goals and the objectives of an enterprise, and the
adoption of courses of action and the allocation of resources necessary for carrying out
these goals. However, Andrews (1971:28), expounded on this a well complete and
accepted definition:
Corporate strategy is the pattern of major objectives, purposes or goals and essential
policies of plans for achieving those goals, stated in such a way as to define what business
the company is in or is to be in and the kind of company it is to be.
Andrews and Chandlers definitions define strategy in terms of intentions. Mintzberg and
Waters (1983:466) are of the view that organizations may sometimes pursue strategies they
never intended. Hence they propose that the usual definition of strategy be called intended
strategy and strategy in general and realised strategy be defined as a pattern in a
stream of decisions (actions).
According to Gerry Johnson and Kevan Scholes, strategy is the direction and scope of an
organization over the long-term: which achieves advantages for the organizations through
its configuration of resources within a changing environment, to meet the needs of markets
and to fulfil stakeholder expectations.
1.3
The characteristics of strategic decisions

They are:
1.
Strategic decisions are concerned with or affect the long-term direction of an

organization.
2.
Strategic decisions are normally about trying to achieve some advantage for the
organization, for example over competition.
Strategic decisions are concerned with the scope of an organizations activities: does
(and should) the organization concentrate on one area of activity, or should it have
many? The issue of scope of activity is fundamental to strategic decisions because it
3.
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concerns the way in which those responsible for managing the organization conceive
the organizations boundaries.
4.
Strategy can be seen as the matching of the activities of an organization to the

environment in which it operates. This is sometimes known as the search for strategic
fit identifying opportunities, which exist in the environments.
5.
Strategy can also be seen as building on or stretching an organizations resources

and competencies to create opportunities or to capitalize on them; (identifying
existing resources and competencies, which might be a basis for creating new
opportunities in the market place).
6.
Strategic decisions are likely to affect operational decisions. A change in doing

business (internationalization) requires a whole series of decisions at operational
level. Management and control structures to deal with the geographical spread of the
firm have to change. The way in which supplies were controlled and the method of
developing and distributing stock requires revision to deal with the extended
distribution logistics.
7.
The strategy of an organization is affected not only by environmental forces and

resource availability, but also the values and expectations of those who have power in
and around the organization. In some respects, strategy can be thought of as a
reflection of the attitudes and beliefs of those who have most influence on the
organization, whether a company is expansionist or more concerned with
consolidation, and where the boundaries are drawn for a companys activities, may
say much about the values and attitudes of those who influence strategy the
stakeholders of the organization.
1.4
Strategic management
Strategic management is a broader term that encompasses all activities that determine the
missions and goals of an organization within the context of its external environment.
Hence, strategic management can be viewed as a series of steps in which top management
should accomplish the following tasks:
1. Analyse the opportunities and threats or constraints in the external environment
2. Establish the organizations mission and develop its goals
3. Analyse the organizations internal strengths and weaknesses
4. Formulate strategies (at corporate level, the business unit level, and the functional
level) that will match the organizations strengths and weaknesses with environments
opportunities and threats.
5. Implements the strategies
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6. Engage in strategic control activities to ensure that the organizations goals are
attained.
Strategic management is the process whereby managers establish an organizations longterm direction, set specific performance objectives, develop strategic to achieve these
objectives in the light of all the relevant internal and external circumstances, and undertake
to execute the chosen plans. (Arthur A. Thompson Jr. and A.J. Strickland III, 1987).
Strategic management will be interpreted in relation to Schendel and Hofers (1979)
paradigm (see figure 1). This paradigm conceives of the management of strategy as
consisting of the following steps and tasks: goal formulation, strategy evaluation and
strategy control. While other paradigms have been suggested (Bower 1982, Green Wood
and Thomas 1981) it is contended that Schendel and Hofers paradigm is a practical and
useful framework conceptualization of strategic management as institutionalized
entrepreneurship.
The nature of strategic management is different from other aspects of management.
Individual managers is often required to deal with problems of operation control, such as
the efficient production of goods and services, management of a sales force, the monitoring
of financial performance or the designing of some new system that will improve the
efficiency of the operation. Therefore, differences between strategic management and
operational management is as follows:
Strategic management
1.
Ambiguous
2.
Complex
3.
Organization wide
4.
Fundamental
5.
Long-term implications
Operational management
1.
Routinised
2.
3.
Operationally specific
4.
5.
Short-term implications
The scope of strategic management is greater than that of any area of operational
management. Strategic management is concerned with complexities arising out of
ambiguous and non-routine situations with major challenges for managers who are used to
managing on a day-to-day basis the resources they control. It can be a particular problem
because of the background of managers who may typically have been trained, perhaps over
many years to undertake operational tasks and operational responsibilities.
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Figure 1
Goal formulation
Goal structure
Strategy
control
Performance
evaluation
Strategy
formulation
Proposed
strategy
set
Strategy
evaluation
Choice of
strategy
Environmental industry
analysis
Figure 1. Strategic management paradigm

(Adapted from Schendel and Hofer, 1979)
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Strategy
implementation
Strategic planning
Arthur A. Thompson Jr. and A.J. Strickland III, (1987), are of the view that strategic
management consist of five critical components:
1.
2.
3.
4.
5.
Defining the organizations business and developing a strategic mission as a basis for
establishing what the organization does and doesnt do and where it is headed.
Establishing strategic objectives and performance targets.
Formulating a strategy to achieve the strategic objectives and targeted results.
Implementing and executing the strategic plan.
Evaluating strategic performance and making corrective adjustments in strategy
and/or how it is being implemented in light of actual experience, changing
conditions, and new ideas and opportunities.
It is often important for the management to monitor both how well the chosen strategy is
working and how well implementation is proceeding, making corrective and adjustments
wherever better ways of doing things can be supported. Therefore, the function of strategic
management is ongoing, not something to be done once and then neglected.
1.5
Importance of strategic management
Strategic management has gained prominence in the world of business. Most of the current
events covered in such business publications as the Economist, Business Week, and the
Wall Street Journal encompasses strategic management concepts. It is important that one
has to understand the basics of strategic management process, as domestication and foreign
competition intensifies, government influences on business operations expands.
Employees, supervisors, and middle managers ought to familiarize themselves on issues of
strategic management. An appreciation of their organizations strategy helps them relate
their work assignments more closely to the direction of the organizations, thereby
enhancing them job performance and opportunity for promotion and making their
organization more effective.
1.6
Strategic management responsibilities of managers.
They are:
1.
Establishing the mission deciding on business or businesses that the company or
division should engage in other fundamentals that will guide and characterize the
business, such as continuous growth. A mission is usually enduring and timeless.
2.
Formulating a company philosophy establishing the beliefs, values, attitude, and

unwritten guidelines that add up to the way we do things around here.
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3.
Establishing policies deciding on plans of action to guide the performance of all

major activities in carrying out strategy in accordance with company philosophy.
4.
Setting objectives deciding on achievement targets within a defined time range.

Objectives are narrower in scope than the mission, and are designed to aid in making
operational plans for carrying out strategy.
5.
Developing strategy developing concepts, ideas and plans for achieving objectives
successfully and meeting and beating the competition. Strategic planning is part of
the total planning process that includes management and operation planning.
6.
Planning the organization structure developing the plan of organization and the
activities that help people work together to perform activities in accordance with
strategy, philosophy, and policies.
7.
Providing personnel recruiting, selecting, and developing people to fill the

positions in the organization plan.
8.
Establishing procedures determining and prescribing how all important and current
activities will be carried out.
9.
Providing facilities providing the plant, equipment, and other physical facilities
required to carry on the business.
10.
Providing capital making sure the business has the money and the credit needed for
working capital and physical facilities.
11.
Setting standards establishing measures of performance that will enable the

business to best achieve its long-term objectives successfully.
12.
Establishing management programs and operation plans developing programs and

plans governing activities and the use of resources that, when carried out in
accordance with established strategy, policies, procedures and standards, will enable
people to achieve particular objectives. There are phases of the total planning
process, which include strategic planning.
13. Providing control information supplying facts and figures to help people follow the
strategy, policies, procedures, programs: to keep alert to forces at work inside and
outside the business; to measure overall company performance against established
plans and standards.
14.
Activating people commanding and motivating people to act in accordance with

philosophy, procedures, and standards in carrying out plans of the company.
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The purpose of strategic management is to ensure that an organization as a whole is

appropriately matched to its environment that is, to its operational surroundings.
Organizational environments are constantly, changing, and organization must be changed
accordingly to ensure that organizational goals can be attained. Legislation affecting the
organization, changes in the labour supply available to it, and actions taken by its
competition are examples of changes within the organizations environment that are
normally addressed by management.
According to George Grune, Chairman of the board and CEO of Readers Digest
Association, allowing others to participate in the strategic management process, even to the
extent of involving lower-level lime managers, generally results in more realistic goals,
objectives, and strategies. In this situation others suggest to top management how their
areas should be integrated within strategic management of the organization as a whole.
Grune maintains that such participation and involvement builds organizational
commitment to achieve established goals and to implement those strategies that have been
selected.
1.7
Committees and the responsibilities
The business, which exists in corporate form, has a board of directors elected by
stockholders and given authority and responsibility. The board guides the affairs of the
corporation and protects stockholders interest.
The board of directors should be seen as a scarce resource to be used to perform those
activities that it can uniquely and best contribute to organizational goal attainment. Most
authorities on corporate governance argue that greater board involvement in strategic
management process should be used as a means to improve the quality of strategic decision
making, enabling them to better discharge their responsibilities. Some of their
responsibilities are:
(a)
1.
2.
3.
4.
(b)
1.
2.
Executive committee
To act within specified bounds for the board of director between board meetings.
To serve as a sounding board for ideas of the (EO before they are presented to the
full board.
To monitor extended negotiation.
To oversee activities not specifically delegated to other committees.
Audit committee
To ensure that company policies and Practices are within the bounds of accepted
conduct
To select (or recommend) auditors and determine the scope of audits.
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3.
4.
5.
(c)
1.
2.
3.
(d)
1.
To review financial reports to gain full insight into the companys current and future
financial condition.
To review internal accounting procedures
To assure the integrity of the companys operations.
Compensation committee
To assure that compensation (including stock options, benefits, bonuses and salaries)
will attract, hold, and motivate key personnel.
To see that compensation and benefit plans throughout the organization are
competitive, equitable and well executed.
To oversee the development and implementation of human resource plans.
4.
Financial committee
To review and advice the board on the financial structure and needs of the
organization.
To recommend to management and the board the timing and types of financing
needed (both long-term and short-terms).
To assist top management in establishing good working relationship with the
financial community.
To provide advice about various investment, expenditure, and funding alternatives.
(e)
1.
2.
3.
Nominating committee
To recommend candidates for membership on the board
To recommend candidates for managerial or officer positions in the company
To advise management on human resources planning
2.
3.
1.8
Influences on strategic management
Strategic management is eclectic, drawing upon a variety of theoretical frameworks. This

part will focus on the diverse roots that have influenced strategic managements growth.
1. Industrial organization theory
Industrial organization, a branch of microeconomics, emphasizes the influence of industry
environment upon the firm. Implicit in industrial organization theory is the premises of
evolutionary change. A firm must adapt to its particular industrys forces to survive and
prosper, and its financial performance is determined by the competition of other industries.
Industries with favourable structures, offers the opportunity for high returns, while the
opposite is true for firms operating in industries with less favourable forces.
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Industrial organization theory is deterministic because it assumes that an organizations

survival depends upon its ability to adapt to industry forces. A firms strategies, resources,
and competencies are reflections of the industry environment.
2. Chamberlins economic theories
Edward Chamberlin, presented his ideas within the context of evolutionary environmental
change. He proposed that a single form could clearly distinguish itself from its
competitors.
(a) General class of product is differentiated if any significant basis exist for
distinguishing the goods (or services) of one seller from those of another. Where such
differentiation exists, even though it might be slight, buyers will be paired with sellers,
not by chancebut according to their preferences.
Differentiation can exist for quite some time because of legal protection as trade marks or
patent or because a firms unique strategies, competencies and resources can not be easily
duplicated by its competitors. The premise that buyers will be paired with sellers, not by
chance but according to their preferences, emphasizes the need for the firm to structure a
compatible fit between its competitive status.
3. Contingency theory
Contingency theory also exists within the context of evolutionary environmental change.
The basic principle of this theory is that higher returns are associated with those firms that
develop a beneficial fit with their environment. The advantage of this theory is that it can
be used to view environment organization interaction at any level of analysis industry,
strategic group or individual firm. Firm can become proactive by choosing to operate in
environments in which the opportunities and threats match the firms strength and
weaknesses. Should the environment change in a way that is unfavourable to the firm, the
firm could perhaps leave that industry and relocate its resources and competencies to other,
more favourable industries.
4. Resource based theory

Resource-based theory gives more weight to the firms proactive choices. Although
environmental opportunities and threats are important considerations, a firms unique
resource comprises the key variables that allow it to develop and sustain a competitive
strategic advantage. Resource encompasses all of firms tangible and intangible assets
(such as capital, equipment, employees, knowledge and information. Resource-based
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theory emphasizes primarily on individual firms rather than on the competitive

environment.
1.9
Emerging Issues of Strategic Management
(i)
(ii)
(iii)
Social responsibility
International business
SMES and problems of strategy formulation
Social Responsibility
Social responsibility seriously considers the impact of the companys action on society. It
is the responsibility of the business to improve the overall welfare of the society by
refraining from harmful practices or by making a positive effect to help society. It is
defined as the implied, enforced or failed obligation of managers acting in their official
capacity to serve or protect the interest of groups other than themselves.
Benefits of Social Responsibility
1.
It is in the best interest of the business to promote and improve the communities
where it does business. The creation of a better social environment benefits both
the society and the business. Society benefit from employment opportunities, while
business benefit from a better community, which is a source of its workforce and
the consumer of its products and services.
2.
Social actions can be profitable.
3.
It is the ethical thing to do.
4.
It improves the public image of the firm.
5.
Social involvement may be in the interest of the shareholders as it may improve the
value of their shares quoted in stock market.
6.
It is necessary to avoid government regulation and intervention. This creates greater

freedom and flexibility in decision making for the business.
7.
Since the society gives the business the charter to exist, then the firm must live up
to the societys expectation.
8.
Business has a great deal of power which is reasoned should be accompanied by an

equal amount of societal responsibility.
9.
Businesses should attempt to solve problems which other institutions have not been
able to solve after all they have been known to come up with new ideas.
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10.
Businesses have first resources, which they should specifically use to solve
societies problems.
11.
It is better to prevent events than to cure them. Organizations should assist in the
problem of street children instead of dealing with hardcore criminals in the future.
Arguments Against
1.
2.
3.
4.
5.
6.
7.
8.
9.
It might be illegal to use shareholders resources in social activities.

Social actions cannot be measured
It violates profit Maximization.
It would increase prices too much.
Business and managers lack social skills to solve societies problems
It would dilute the primary purpose of a business.
Business already has too much power and such involvement will give members
power.
Businesses lack accountability to the public or society they are accountable to
shareholders.
It may lack broad public nor societal support.
Main Social Responsibility Areas

1.
Improving the safety of its products and services. The managers should seek
solution to the following questions.
(a)
A product safe and well design?
(b)
Are they priced fairly?
(c)
Are the advertisements clear and not deceptive?
(d)
Are customers treated fairly by the companys sales force?
(e)
Are credit terms clear and is adequate product information available?
2.
Improving the safety of the employees and work environment. The managers
should seek solutions to the following questions
(a)
Are employees paid a fair wage?
(b)
Are they provided with a safe work environment?
(c)
Are workers hired, promoted and treated fairly without regard to sex, race
or colour?
(d)
Are they given good training and educational opportunities?
(e)
Are handicapped people given employment opportunities and is the
company assisting disadvantaged members of the societies?
(f)
Does the business help to rehabilitate employees with mental and physical
disabilities?
3.
Protect and improve the physical environment

The business should do more than is provided by the law to eliminate water, air and
solid waste and noise pollution. They should be concerned with deforestation and
pouring of waste chemicals into the river and oil spills. They should ask the
following questions?
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(a)
(b)
(c)
Is the environment adequately protected among clean water, excessive noise

and other types of pollutions?
Are products degradable or can they be recycled?
Are any by-product that pose a safety hazard to the society carefully
handled and properly treated and disposed of?
4.
Concern for society in general. The questions requiring solutions include:

(a)
Are donations made to help develop and support education and other
community programs?
(b)
Does the firm support the community enterprises by purchasing from them?
(c)
Is the social impact of plant locations and relocations considered by the
managers who make such decisions?
(d)
Is appropriate information concerning business operations made public?
5.
To obey the spirit and the letter of the laws of the land. There are many laws that
companies this days do not obey e.g. import export requirements, remission of
employee returns and statutory deductions to central government, pollution of the
environment etc.
6.
Contributing towards supporting the informal sector
7.
Developing equipments to meet employees and societies needs for socializing.
8.
Providing customers education about their products and services.
1.10
Formulating Strategies for Small Business
Ten suggestions have been made for survival and success of small businesses.
1.
Be objective An honest assessment of the strengths and weaknesses of the

business and management skills must be done.
2.
Keep it simple and focused In small businesses simple is effective, efforts and
resources should be concentrated where the impact and profits are greatest.
3.
Focus on profitable markets small businesses survive by providing distinctive

goods and services, that meets the wants and needs of selected group of consumers.
4.
Develop sound marketing plans As a small business you must determine how to
reach and sell to customers.
5.
Manage employees well Small businesses succeed by building, managing and

motivating winning teams.
6.
Keep clear accounting records Small businesses need to keep track of assets,
liabilities, sales, costs and other accounting information in order to survive and
prosper.
- 14 -
7.
Never run out of cash Cash is KING in small businesses world
8.
Avoid recurring pitfalls or rapid growth small business must carefully manage its
growth
9.
Understand all phases of the business Control of a small business and

improvement of small business profits depend on a complete understanding of all
business functions.
10.
Plan ahead small Businesses must develop plans and convert them into
productive activities.
1.11
Strategy and International Operations

Before a manager is able to practice strategic management successfully in
international context it is important for him/her to understand the basic principles
of international management. To engage in international management is to perform
management activities across national boundaries. In such cases the firm
accomplishes its mission at least partially by conducting business activities in a
foreign country. Such activities can be as simple as selling a product in a foreign
country or entering into an agreement with a foreign partner to sell products
throughout the world. Advances in transportation technology and communication
have made it possible for managers to do business elsewhere.
Advantages of international business

1.
2.
3.
4.
5.
6.
7.
8.
9.
The firm will be able to lower its operating costs relative to those of competitors by
purchasing raw materials from foreign concerns.
It can increase its sales and profits by becoming involved in less competitive
situations.
It can ensure continuous growth in relation to competitors.
The company might need a large consumer base in order to achieve the economies
of sale.
The company might want to reduce dependency on one market in order to reduce
risks.
The company customers may be going abroad and may require international
servicing.
It can offer better understanding of problems and needs to customers in overseas
market.
It can overcome the effects of tariffs and non-tariffs barriers to imports.
For firms producing bulky products it can reduce storage and transportation costs.
Disadvantages of international business

1.
The company is confronted by many different political, economic and cultural
environment that change at different rates.
- 15 -
2.
9.
The company becomes involved in situations it is much more difficult to keep track
of competitors due to differences in language, distances between countries and
varying national attitudes as well as different communication media.
The company must deal with two or more monitory systems, which complicates
accounting systems.
The organization significantly increases political risk of doing business. This is
defined as the potential loss of control over ownership or benefits of an enterprise
due to actions of a foreign country.
Huge foreign debts by some countries completes international business.
Foreign government entry requirements, tariffs and bureaucracy complicates
international business.
Corruption by officials in foreign countries affects bidding and tendering.
Technological piracy where foreign managers learn how to make a company
product and running away to complete openly can result.
High cost of product and communication adaptability can arise.
1.12
Strategies of Going Abroad
3.
4.
5.
6.
7.
8.
There are four strategies of going abroad

(i)
Importing/exporting
(ii)
License agreements or licensing
(iii)
Joint ventures
(iv)
Direct investment
Importing/Exporting
Importing is buying goods and services for use by a foreign company while exporting is
selling goods and services to customers in a foreign country. Companies of all sizes are
involved to exporting and importing today. Exporting in particular has enabled local firms
to cause competition by foreign companies.
Exporting
There are two types of exporting. Indirect and direct exporting. Companies in most cases
start with direct exporting through the use of independent middlemen. There are four such
middlemen commonly used. This includes:
(i)
Domestic based export merchants
(ii)
Domestic based export agents
(iii) Co-operative organizations
(iv)
Domestic based export company
Advantages of exporting
(i)
(ii)
(iii)
(iv)
It involves less investment to the company

It is the quickest way of going abroad
It involves less risks because middlemen bring a lot of knowledge and experience
Organization gains the benefit of export houses with market knowledge and
contacts
- 16 -
(v)
Organization does not have to bear the overhead costs of an export marketing
department.
Disadvantages of exporting
(i)
(ii)
(iii)
(iv)
The organization is always at the mercy of exporter who makes decisions to market
a product.
When you use intermediaries or the merchants you do not gain exclusive loyalty
because it deals with many producers.
Any goodwill that is created in the market normally benefit the middlemen at the
expense of the company.
It can also be expensive due to taxes or tariffs one has to pay before shipping in or
out of goods and services e.g. import duty.
Licensing
Licensing represents in a way management can become involved in international business.
A license agreement is a right that is granted from one company to another to use its brand
name, product specification ion the sale of goods and services. The licenser may provide
any of the following:
(a) The right to produce patented product or use a patented production process
Sales performance will improve because the commitment and motivation of a
producers own staff should be more effective than those of an agent
The producer retains complete marketing control
The producer should be able to acquire more accurate and timely market information
Customer services should improve because intermediaries are notorious of poor
performance in this respect
Branch office (limitations)
Higher investments, overhead and a running costs are entailed
There can be a political risk particularly expropriation of assets
The firm will be subject to local employee legislation which may not be welcoming
Licensing agreement
A licensing agreement is a commercial contract whereby the licensor gives something of
value to a licensee in exchange for certain performance and payments
It is a right that is given or granted to another company by one company to use its brand
name and product specifications in the sale of goods and services. The licensor may
provide any of the following:
(a)
(b)
(c)
(d)
(e)
The right to produce patented product or use a patented production process

Manufacturing know-how
Technical advice and assistance reducing the supply of essential; materials
components and plants.
Rights to use a trademark or a branch name
Marketing advice and assistance
- 17 -
The licensor benefits through a payment. The licensor benefits through a fee for use of the
name. The licensee benefit through appropriate product or technical advice received.
Licensing is growing in extent and scope throughout the world nit is used by small medium
and large and has the following advantages.
Advantages of licensing
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Requires no investment except for the continuing costs of monitoring the

agreement
It enables entry into markets that would otherwise be closed by tariffs, government
attitudes and policies
The licensor gains access to knowledge of local conditions
New products can be introduced to many countries quickly because of low
investment requirement
As a method of entry, it is relatively simple and quick
It provides all the usual advantages and benefits of overseas production i.e. cheaper
transport and lower import barriers
It can be a source of competitive advantage because it spreads the firms proprietary
technology giving wider exposure than that of rivals
Limitations of licensing
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Revenues from licenses are generally very low

There is a danger of establishing a future competitor. A licensee may eventually
become the licensors competitor. During the license period, it may gain enough
know how from the licensor to be able to operate independently
Although the contract may specify a minimum sales volume, there is a possibility
that the licensee may not fully exploit the market.
Product quality might deteriorate if the licensee has a more lux attitude to quality
control than the licensor.
Product quality may enforce restrictions or conditions on the payment of royalties
to the licensor or supplier of essential component.
It is often difficult to control the licensee effectively. The licensees objectives
often conflict with those of the licensor and disagreement are common. The less
control over the licensees operation could also result in damage to the licensors
reputation
Requirements of controlling the license

1.
2.
3.
Be careful in the choice of the licensee. Identify an important criteria for choosing
them
Design contracts that protects both parties
Control the licensees by having an equitys interest in the licensees business or by
retaining control over key input components. Coco cola uses these strategies when
they license bottling firms throughout the world. They have control of the cola
product and normally offers technical advise to the licensee.
- 18 -
4.
Take action to motivate the licensee. Franchising is a type of licensing. The

franchised agreement specifies in more detail than a license agreement exactly what
is required of a franchisee. In a franchise agreement, the franchiser supplies a
standard package of goods, along with management and marketing services or
adverts. The franchisee supplies capital, personal involvement and local market
knowledge.
Advantages and disadvantages of franchising are more less the same as those of licensing.
There is however an extra benefit in that it provides some leverage for controlling the
franchisees activities because the franchiser supplies ingredients for companies. A
particular disadvantage of franchising is that the search for component candidates is both
costly and time consuming particularly where the franchiser requires many outlets.
Joint Venture
This is an agreement where two or more often competing firms join forces for
manufacturing financial and marketing purposes. Each of them has a share in both the
equity and management of the business forming a joint venture with a technologically
advanced foreign companies can lead to new product development at a lower cost.
Licensing, franchising and contract manufacturing are loose forms of joint venture. If one
company cannot undertake a business venture alone, it can create a joint venture. It is
usually an alternative to seeking to buy or build a wholly owned manufacturing operations
can offer substantial advantage.
An aircraft firm. The characteristics of joint venture include:
(i)
Direct control of distribution challenge
Advantages of joint venture
1.
With joint ventures, capital outlays is shared such that joint ventures become
attractive to smaller firms.
2.
Coverage of larger markets. When firms are limited, joint ventures allow
companies to cover large number of countries which they would be unable due to
lack of capital or less investment power.
3.
Reduced government intervention. When a local firm in a country is involved, the

government risk of intervention is reduced. In this way, restrictions that will be
brought about in form of taxes and tariffs is reduced.
4.
Control. Joint venture can provide a company with firm control over marketing and
other operations. This will enable it not to have its rights infringed and a good
business policy can easily be created.
5.
Knowledge. Joint ventures with indigenous firms provide local knowledge of the
market companies will not have to invest a lot on market research because they are
first hand information.
- 19 -
6.
Technology Where firms are researching on new expensive technology, the joint
efforts, shared expenses tend to diversify risks and go a long way to influence joint
ventures.
7.
Benefit involved. In joint ventures, the participating enterprises normally benefit

from all sources of profits.
Limitations of joint venture

1.
Can lead to major conflicts of interest between different parties. Disagreements are
likely to arise over how to share profits, the amounts to be invested, marketing
strategy and management of joint ventures
2.
Some protectionist government discourage or even prohibit foreign firms setting up

independent operations or joint ventures with indigenous firms. This is because
such governments regard uncontrolled investments from overseas as a type of
colonial exploitation and they are averse to sending foreign exchange outside the
country. In addition to this, joint ventures generally involve a transfer of know how
and technology that tend to benefit the local economy.
Advantages of Direct investment

(i)
(ii)
(iii)
(iv)
(v)
The firm does not have to share profits with partners of any kind
The firm does not have to share or delegate decision-making and so there are no
losses in efficiency arising from interfirm conflicts.
There are none of the communications problems that arise in joint ventures or
license agreements
The firm is able to operate a completely integrated and synergistic international
system.
The firm gains more experience from overseas market in all assets of the marketing
mix.
Disadvantages
(i)
(ii)
(iii)
(iv)
The substantial investment funding required prevent some firms from establishing
operations overseas.
Suitable managers whether recruited in overseas markets or posted abroad from
home may be difficult to obtain
Some overseas governments discourage 100% ownership of an enterprise by a
foreign company
This method of entry is not only risky in terms of possible expropriation but also
forgoes the benefits of an overseas partners market knowledge system distribution
and other local expertise.
- 20 -
1.13
Revision questions
(a) Explain what you understand by the terms of strategy and strategic management.
(b) Discuss the relevance of strategic management in strategic decision making in the
organization of your choice.
(c) Explain the difference between an intended strategy and a realised strategy
differed from its original strategy.
(d) How can an understanding of strategic management be beneficial to your career.
1.14
Summary
Strategic management refers to the process that begins with determining the mission and
goals of an organization within the context of its external environment. Appropriate
strategies are formulated, implemented, and strategic control is exerted to ensure that the
organizations strategies are attained successfully.
Strategic management, as a field of study, has been influenced by such diverse disciplines
biology (in theories of evolution and revolution) and economics perspective of industrial
theory). The contingency theory (that high financial returns are associated with those firms
that most closely develop a beneficial fit with their environment) and resource based
theory (that a firms unique resource are the key variables that allow it to develop and
sustain a competitive strategy advantages) have provided a useful framework for analyzing
strategic management.
Determining organizational strategy is the responsibility of the chief executive officer
(CEO), but he or she relies on a host of other individuals, including the board of directors,
vice presidents, and various line and staff managers. It therefore imperative that, a strategic
decision is molded from the streams of inputs, decision and actions of many people.
Strategic management is a continuous process. Once a strategy is implemented, often it
requires changes as environmental or organizational condition change. Because these
changes are normally difficult to predict, a strategy may, over time, be changed to have a
slight resemblance to the organizations intended strategy. This realized strategy is the
result of unforeseen external or internal events that require changes in the organizations
intended strategy. Thus, strategies need to be examined continuously in the ever-changing
situations as summarized in this model.
- 21 -
Figure 2:
Summary model of the elements of strategic management
The
environment
Expectations
and purposes
Resources
competencies
and capability
Strategy
analysis
Bases of
strategic
choice
Strategic
options
Strategy
implementation
Strategic
choice
Strategy
evaluation
and selection
Managing
strategic
change
- 22 -
Organizational structure
and design
Resource
allocation
and control
1.15 Definition of Key Concepts
1.
2.
3.
4.
5.
6.
1.16
1.
2.
3.
4.
5.
Intended strategy. The original strategy that management plans and intends to
implement.
Realised strategy. The actual and eventual strategy that management
implements. The realised strategy often differs from the intended strategy
because unforeseen environmental or organizational events occur that
necessitates changes in the intended strategy.
Strategic management. The continuous process of determining the mission and
goals of an organization within the context of its external environment,
formulating appropriate strategies, implementing those strategies, and exerting
strategic control to ensure that the organizations strategies are successful in
attaining its goals.
Strategy. Top managements plans to attain outcomes consistent with
organizations mission and goals.
Strategic fit. Sees managers trying to develop strategy by identifying
opportunities arising from an understanding of the environmental forces acting
upon the organization, and adapting resources so as to take advantage of those.
Strategic development by stretch is the identification and leverage of the
resources and competencies of the organization, which yields new
opportunities, or provides competitive advantage.
Further Reading
Adrews, Kenneth K. The Concept of Corporate Strategy. Home Wood II,

Richard D. Irwin, 1987.
Fahey, Liam and V.K. Maryann Macroenvironmental Analysis for Strategic
Management. St. Paul, Minn: West Publishing, 1986.
Hills, Charles W.C. and Gareth R. Jones Strategic Management: An
Integrated Approach. Boston. Houghton Mifflin Company, 1989.
Losch, Jay W. The Invisible Barrier to Strategic Change. California
Management Review, Winter 1986. P. 95.
M.E Porter, The Contributions of Industrial Organization to Strategic
Management, Academy of Management Review 6 (1981): 609-620.
- 23 -
LESSON TWO
THE STRATEGIC MANAGEMENT PROCESS
2.0 Objectives
By the end of this lesson, you should be able to understand the

series of:
1. Performing an environmental analysis
2.Establishing organizational direction
3. Implementation of organizational strategy, and
4. Exerting strategic control.
2.1
Introduction
Strategic management is a process or series of steps. They Include:
1. Performing an environmental analysis
2. Establishing organizational direction
3. Formulating organizational strategy
4. Implementing organizational strategy, and
5. Exerting strategic control
The basic steps of the strategic management process are as below:
Step 1:
- 24 -
Environmental
Analysis
Feedback
Internal
External
Step 2:
Establishing
Organizational
Direction
Mission
Objectives
Step 3:
Strategy
Formulation
Step 4:
Strategy
Implementation
Step 5:
Strategic
Control
Fig: 1 Major steps of strategic management process

Lets take a look at each of these steps and its relationship to strategic management system.
2.2
Environmental analysis
Strategic management process begins with environmental analysis, the process of

monitoring the organizations environment to identify both present and future threats and
opportunities. The organization exists in the context of a complex commercial, economic,
political, technological, cultural, and social world. This environment changes and is more
complex for some organizations than for the others. Examples of environmental variable
commonly monitored are as follows:
1.
2.
Organizational characteristics
Market share
Quality of products
Discretionary cash flow/gross capital investment
Market and consumer behavior
- 25 -
Market segmentation
Market size
New market development
Buyer loyalty
3.
Supplies
Major changes in availability of raw materials
4.
Industrial structure
Rate of technological change in products or process
Degree of product differentiation
Industrial/cost structure
Economies of scale
5.
Social, economic and political

GNP trend
Interest rates
Energy availability
Government-established and legally enforceable regulations
Managers therefore, must grasp the purpose of environmental analysis, recognize the
various levels of organizational environment that exist, and recommend guidelines for
performing an environmental analysis.
2.3
Step 2. Establishing organizational direction
There are two main indicators of the direction in which an organization moves:
organizational mission and organizational objectives: organizational mission is the purpose
for which, or reason why an organization exists. Objections are the targets the organization
has chosen.
After the management has done an environmental analysis by understanding the strength,
weaknesses, opportunities and threats, its better to change its organizational direction. The
effectiveness on this depend on the following:
1.
2.
3.
2.4
Management must know what comprises an organizational mission

Understand the nature of organizational objectives, and
Adopt an effective and efficient process for establishing organizational direction
Strategy formulation
- 26 -
Strategy formulation is the process of designing and selecting strategies that lead to the
attainment of organizational objectives. The aim of organizational strategy is to deal with
competition of rivals better. Once the environment has been analyzed and organizational
direction stipulated, management is able to give alternative courses of action scientifically
to ensure organizational success.
It is therefore important that managers are in a position to understand various approaches
to strategic formulation as critic question analysis, strength/opportunities/threat (SWOT)
analysis.
2.5
Step 4. Implementation of organizational strategy
This step involves putting into action the logically developed strategy that emerged from
previous steps of the strategic management process. The organization is bound to fail in
achieving its objectives if proper and effective strategies are not implemented.
In order to implement organizational strategies successfully, managers must be thorough
on the following:
1.
How much change is necessary within an organization when if implements a new
strategy
2.
How it is best to deal with organization culture in order to ensure that a strategy
will indeed be implemented smoothly.
3.
How strategy implementation and various types of organization structure are related.
4.
What different implementation approaches a manager can follow, and
5.
What skills are necessary in managers who hope to implement organizational
strategy successfully?
Larry D. Alexander, investigated the types of strategic decisions commonly made in the
organizations and the difficulties associated in implementing these decisions. They are:
Table 1.
Strategic decisions commonly made and related implementation problems.
Strategic decisions commonly

made in organizations
1. Introducing a new product or
service. Opening and starting
new plant or facility.
2. Expanding operations to enter
new market.
3. Discounting a product or
withdrawing from a market
that was not effective enough.
Related implementation problems commonly faced.
Implementation took more time than originally

allocated.
Major problems suffered during implementation
that had not been identified before hand.
Co-ordinating activities for implementation was
not effective.
Competing activities and crises distracted
attention
for
implementation
from
- 27 -
4. Acquiring or merging with
other firms.
5. Changing the strategy in
functional departments.
2.6
implementing this decision.

Capabilities of employees involved were not
sufficient.
Training and instruction given lower-level
employers were not adequate.
Uncontrollable factors in the external
environment had an adverse impact in
implementation.
Leadership and direction provided by
departmental managers were not adequate.
Key implementation tasks and activities were
not defined in enough detail.
Information systems used to monitor
implementation were not adequate.
Step 5 Strategic control
Strategic control is a type of organizational control that focuses on monitoring and

evaluating the strategic management process in order to improve it and ensure that it is
functioning properly. This process requires that managers:
1.
Understand the process of strategic control and the role that strategic audits
(assessments of the organizational environment) normally play in it; and
1.
Managers must understand the intricacies of management information systems and

how such systems can complement the strategic control process.
For the purpose of analysis, I have presented the strategic management process as a series
of discrete steps. The process is presented in this fashion to facilitate learning about what
the process entails and to describe how the steps commonly relate one another. All these
steps are discussed in detail on separate chapters in this module.
1.7 Revision questions
- 28 -
1.
2.
2.8
Strategic management process takes a central place in attaining

organizations objectives. Discuss.
Define the following terms:
(a) Environmental analysis
(b) Organizational direction
(c) Strategy implementation
(d) Strategic control.
Summary
Strategic management is a continuous, interactive process aimed at keeping an organization as a

whole appropriately matched to its environment. Normally, the process involves top
management, board of directors, and planning staff. The main steps of the process are:
performing an environmental; analysis, establishing organizational direction, formulating
organizational strategy, implementing that strategy, and exerting strategic control.
2.9 Further reading
1.
Meyers, Getald C, with John Holusha.

When it Hits the Fun: Managing the
- 29 Nine Crises of Business, Boston: Houghston Mifflin Company, 1986.
LESSON 3
ENVIRONMENTAL ANALYSIS
3.0
Objectives

1. Describe what environmental analysis is, and why it is important
2. Explain environmental structure by defining the general, operating and internal
environments in which firms operate.
Environmental analysis: Definition

Environmental analysis is the process of monitoring the organizational environment to
identify both present and future threats and opportunities that may influence the firms
ability to reach its goals. Here, the organizational environment is the set of all factors
both outside and inside the organization that can affect its progress towards attaining
those goals.
Awareness of the organizational environment is important to the organizations success.
Accordingly, management should constantly gather and consider the implications of data
related to important factors (Michael E. Naylor, the corporate strategic planner for
general motors).
According to Certo and Peter, the future will probably retard an ever-increasing rate of
change in all aspects of organizational environment. Because future organizations will be
more complex and more dependent on their environments, performing environment
analysis will be even more important to managers of future than to managers today.
On the other hand, since modern organizations are open, rather than closed system based
on general system theory, managers should perform an environmental analysis. Modern
organizations are influenced by and constantly integrating with their environments.
Because organizations are open systems, environmental factors do influence them and
therefore managers should channel this positive influence and contribute to
organizational success.
3.1
Purpose of environmental analysis
- 30 -
Modern organizational managers do experience more complex situations than ever before
and it is imperative that performing an environmental analysis is important. Some of
environmental analysis is important. Some of environmental analysis aims are:
1.
To assess the organizational environment so that management can react to it
appropriately and thereby enhance organizational success.
2.
Small business to compete with big organizations
3.
Provide management with the ability to respond to critical issues in the environment
4.
Explore future conditions of the organizational environment and to incorporate
what it lean runs into organizational decision making
5.
Identify current emerging issues that are important to the company, assign priorities
to these issues, and develop a plan for handling each of them.
3.2
1.
Roles of environmental analysis

They are:
The policy-oriented role is to improve organizational performance by helping top
management aware about major trends emerging in the environment. This role
emphasizes early detection and appropriate top-management reaction to broad
strategic issues such as attitudes, norms and laws that are likely to affect the
organization as a whole.
2.
The strategic planning role is to improve organizational performance by making

top managers and divisional managers aware of issues that arise in the firms
environment, by having a direct impact on planning and by linking corporate and
divisional planning. The task involved focuses preparing environmental forecasts
in order to generate basic assumptions about relevant parts of the environment as
specific organizational plans begin to materialize.
3.
The function-oriented role is to improve organizational performance by

providing environmental informing concerning the effective performance of
specific organizational functions. This type of environmental analysis is
undertaken to enhance the performance of a particular function or major
organizational activity at either the corporate or the divisional level. Tasks
involved (improving organizational recruitment practices, or very specific
(complying with a government regulation). The management should therefore
focus on specific environmental segments related to the organizational function
being addressed.
3.3
Environmental structure
- 31 -
It is important that managers understand thoroughly how organizational environment is

structured. Thomas divides the environment of an organization, the operating
environment, and the internal environment as shown in figure 1.
General
Environment
Economic
Environment
Operating
Environment
Social
Component
Supplier
Component
International
Component
Technologic
Component
Political
Component
The
Organization
Internal
environment
Competition
Component
Labour
Component
Customer
Component
Legal
Component
Figure 1:
The organization, the level of its environment.
The managers should be thorough on these three environmental levels, know what factors
they include, understand how each factor and the relationships among the factors affect
- 32 -
organizational performance and manager organizational operations in light of this

understanding.
3.4
General environment
The general environment is that level of an organizations external environment made up

of components that are broad in scope and have little application for managing an
organization. The components consist of the following:
1.
The political component comprises those elements that are related to government
affairs. Examples include the type of government in power, governmental attitude
towards various industries, lobbying efforts by interest groups, progress towards the
passage of laws, platforms of political parts.
2.
The social component describes characteristics of the society in which the

organization exist literary rates, educational levels, customs, beliefs, values,
lifestyles, age, geographic distribution and mobility of population. It is important
managers realize that changes in the attributes of a society may come either slowly
or quickly, changes will inevitably come.
3.
The economic component indicates how to allocate resources and used within the
environment. Examples are: gross national product, corporate profits, inflation rate,
productivity, employment rates, balance of payments, interest rates, tax rates and
consumer income, debt and spending.
4.
The legal component consists of legislation that has been passed. This component
prescribes rules or laws that all members of society must follow.
5.
Technological component includes new approaches to producing goods and

services, new procedures as well as new equipment. Example, using robots with an
aim of improving productivity.
3.5
The operating environment
It is that level of the organizations external environment made up of components that

have relatively specific and more immediate implications for managing the organization.
The major components of the operating environment are customers, competition, labour,
suppliers and international issues.
1.
The customer, component reflects the characteristics and behaviour of those who
buy the firms provided by the organization. Developing such profiles help the
- 33 -
management generate ideas on how to improve customer acceptance of

organizational goods and services.
2.
Competitive Component - consists of those with whom an organization must do

battle in order to obtain resources. The purpose of competitive analysis is to help
management appreciate the strengths, weaknesses, and capabilities of existing and
potential competitors and predict what strategies they are likely to adopt.
3.
The labour component is made of factors that influence the supply of workers
available to perform needed organizational tasks. The area focus are: skill levels,
trainability, desired wage rates and average age of potential workers are important
to the operation of the organization.
4.
The supplier component includes all variable related to those who provide
resources for the organization. The main focus are: how many vendors offer
specific resources for sale, the relative quality of materials offered by vendors, the
reliability of vendor deliveries, and the credit terms offered by vendors are
important in managing an organization effectively and efficiently.
5.
The international component comprises all factors related to the international

implications of organizational operations. Aspects of the international component
include the laws, political practices, culture and economic environment that prevail
in the foreign countries.
3.6
Internal environment
The internal environment is that level of an organizations environment, which exist

inside the organization and has immediate and implications for managing the
organization. The important components of internal environment include:
1.
Organization aspect communication network, organization structure, record of

success, hierarchy of objectives, policies, procedures, rules and ability of
management teams.
2.
Personnel aspects labour relations, recruitment practices, training programs,

performance appraisal system, incentives systems, and turnover and absenteeism.
3.
Marketing aspects marketing segmentation, product strategy, pricing strategy,

promotion strategy and distribution strategy.
- 34 -
4.
Production aspects plant facility layout, research and development, use of

technology, purchasing of raw materials, inventory control and use of sub
contracting.
5.
Financial aspects liquidity, profitability, activity and investment opportunity.
3.7
Environmental forecasting
Environmental forecasting is the process of determining what conditions will exist within
an organizations environment at some future time. The important aspect of
environmental analysis is gauging the present status of the organizations environment,
and certain companies, determining the present condition of the environment may suffice
for effective strategy development. However, it is important that future environmental
conditions are determined to ensure organizational success.
Managers should be thorough in predicting the future status of critical environmental
component at all environmental levels. Forecasts made for organizations include
economic forecast, social forecast, political forecast and technological forecast. The
methods of environmental forecasting are as important as deciding the course and future
trend of development of the organization. The commonly used methods of environmental
forecasting are:
1.
Expert opinion knowledgeable people are selected and asked to assign importance
and probability ratings to various possible future developments. The most refined
version, the delphi method, puts experts through several rounds of event assessment
where they keep refining their assumptions and judgments.
2.
Trend extrapolation researchers fit best-fitting curves (linear, quadratic or sshaped growth curves) through past-time series to serve as a basis for extrapolation.
This method can be unreliable when new events completely alter the expected
direction of movement.
3.
Trend correlation research correlate various time series in the hope of identifying
leading and logging relationship that can be used for forecasting.
Dynamic modeling researchers built sets of equation that attempt to describe the
underlying system. The coefficients in the equations are fitted through statistical
means.
4.
5.
Cross-impact analysis research identify a set of key trends (those high in

importance and/or probability).
- 35 -
6.
Multiple scenarios researchers build pictures of alternative futures, each internally

consistent and with a certain probability of happening. The major purpose of the
scenarios is to stimulate contingency planning.
7.
Desmond/hazard forecasting research identify major events that would greatly

affect the firm. Each event is rated for its convergence with several major trends
taking place in society and for its app4st to each major public group in the society.
3.8
Revision questions
1.
2.
3.
4.
3.9
Discuss the importance of environmental analysis in any organization of your

choice.
Define and discuss various methods of environmental forecasting.
What are the strengths and weaknesses of environmental analysis as a system of
strategic management
Assume that you have been asked to develop an environmental forecast for the
bookstore at your university, using the judgmental forecasting technique.
Attempt how to forecast the environment of the bookstore.
Summary
- 36 -
Environment analysis is the process of monitoring environment to identify both present

and future threats and opportunities that may influence the firm' ability to reach its goals.
The environment analysis is divided into three segments: the internal environment
(consisting of organizational, marketing, financial, personnel and production aspects), the
operating environment (consisting of the supplier, competition, customer, labour and
international components), and the general environment (consisting of the economic,
technological, legal, political and social components.
There are various techniques to help management develop a worthwhile environment
analysis once implemented. The management should therefore continue to evaluate the
process through a link in planning operations, responsive to the information needs of top
management, supported by key managers and performed by people who understand the
difference between being an analyst and being a strategist.
3.10
1.
2.
3.
Definition of key concepts
Delphi technique. A forecasting procedure in which experts in the appropriate field of

study are independent questioned about the probability of some events occurrence.
Judgmental forecasting. A forecasting procedure in which employees, customers,
suppliers and/or trade associations serve as sources of qualitative information regarding
future trends.
Macro environment. The general environment that affects all business firms. Its principal
components are political, legal, economic, technological and social systems and trends.
Further reading
1.
2.
Annald Danny R. Louis: Strategic Retail Management Reading, Mass, Addison

Wesley Publishing, 1983.
- 37 Certo, Sammuel C. and J. Paul Peter. Strategic Management A Focus on Process. New
York: McGraw-Hill, 1989.
LESSON FOUR
ORGANIZATIONAL DIRECTION: MISSION AND OBJECTIVE
4.0
Objectives
By the end of this lesson, you should be able to understand:

- 38 -
1. What is organizational mission

2. Why organizational mission is important
4.1
Organizational Mission: Definition
Organizational mission is the purpose for which, or why, an organization exists. A firms
mission contains information as to what types of products or services the organization
produces, who its customers tend to be, and what important values it holds. To develop
an appropriate organizational mission, management should thoroughly analyse and
consider information generated during the environmental process.
4.2
Importance of organizational mission.
They are:
1.
It helps focus human effort in a common direction. The mission makes explicit the
major targets the organization is trying to reach. Through these targets, management
can ensure that all organization members work together in a concerted effort to
reach them.
2.
Serves as a general rationale for allocating organizational resources. Organizations

use various resources to produce goods and services and avail them to customers.
These resources include monetary resources, human resources, raw materials and
equipment.
3.
Ensure that the organization will not pursue conflicting purposes. Purposes that are
inconsistent with one another imply that the organization is moving in different,
incompatible directions. Sound mission statements ensure that the organization is
built on a foundation of clear, compatible purposes and avoids waste and conflict.
4.
Establishes broad areas of job responsibilities within the organization. People work
specific jobs within organizations in order to produce goods and services. Broad
guidance concerning the types of jobs that should exist within an organization are
found in a statement of organization mission.
- 39 -
5.
4.3
Acts as a basis for the development of organizational objects. Organizational

objectives should reflect organizational missions because a mission statement
outlines the general purpose of the organization and more so serve as the point of
departure for the more specific organizational objectives.
Contents of mission statements. The topics include;
1.
Company product or service. Identifies the goods and services produced by the
organization and made available to customers.
2.
Market. Describes the customers of the organization. Who are these customers, and
where are they located.
3.
Technology. Includes such topics as the tools, machines, materials, techniques and
processes used to produce organizational goods and services. The advent of
technological innovations as the business computer and robots, technology has
come tot be emphasized within the strategic planning process of virtually every
organization.
4.
Company objectives. Mission statements make general reference to company

objectives. These include the intention to survive through continuing growth and
profitability.
5.
Company philosophy. Statement philosophy (also called company creed)

commonly appears as part of the mission statement or in the supplemental material
that accompanies it. Company philosophy is a statement reflecting the basic beliefs
and values that should guide organizational members in conducting organizational
business.
6.
Company self-concept. Contain information on the self-concept of the companys

own view or impression of itself. In essence, the company arrives at this selfconcept by assessing its strengths, weaknesses, competition and ability to survive in
the market place.
7.
Public image. Contain reference, either direct or indirect, to the type of impression
the company is attempting to leave with the organizations public.
4.4
Organizational objectives
Organizational objectives are a target toward which the organization directs its efforts.
The importance of establishing appropriate objectives cannot be over emphasized.
Objectives provide the foundation for planning, organizing, motivating and controlling.
Without objectives and their effective communication, behaviour in organizations can
- 40 -
stray in almost any direction. Managers should use objectives to guide their organizations
in the following ways:
1.
Should use organizational objectives as guide in decision making. Managers who

know what objectives have been established for the organization finds it easy to
make decisions that will ensure that organizational objectives are reached.
2.
Should use organizational objectives as a guide for increasing organizational

efficiency. To develop and maintain an efficient organization, managers should
have organizational objectives clearly in mind.
3.
Managers should use organizational objectives for performance appraisal. Managers

should evaluate and reward work performance in terms of how instrumental the
performance is in helping the organization attain its objectives.
According to Certo and Peter, managers should develop high-quality organizational

objectives including:
i.
Managers should develop organizational objectives that are specific
ii. Managers should set organizational objectives that require a desirable level of effort
iii. Managers should establish organizational objectives that are reachable
iv. Managers should establish organizational objectives that are flexible
v. Managers should establish organizational that are measurable
vi. Managers should develop organizational objectives that are consistent in the long
run and the short run. Managers should establish organizational objectives that
reflect a desirable mix of time frames and are supportive of one another. Long-term
objectives must be consistent with organizational mission and should represent
targets to be hit within three to five-year period. Short run objectives must be
consistent with long-run objectives and should represent targets to be reached
within about one or two years.
4.5
Strategic goals and objectives
Strategic goals and objectives are developed and formalized in order to giver general
direction to management for the overall corporate planning tasks as well as more specific
departmental planning activities. The goals and objectives should not limit the ingenuity
and imagination of company management but rather should provide an overall agreed-
- 41 -
upon course of action. It is recognized that the management of the company must remain
flexible and innovative in solving the day-to-day operating problems. The goals and
objectives of the company should focus on:
1.
Customer service
Provide a quality of service to customers at least equal to the highest standards
in the industry
Maintain reliability of service to customers at a level above 99 per cent
Retain all existing customers and seek new customers through system expansion
where feasible and consistent with good economics.
2.
Community service
Promote economic growth and increased development of the companys total
service area
Protect, enhance and develop the communitys natural resources with particular
attention to air, water and land resources
Provide job opportunities and an investment in the service are which promoters
a higher standard of living for all citizens
Provide to the service are both economic and social support consistent with the
level of responsibility expected of the number one corporate citizen.
Promote a high degree of positive involvement in the service area by all
employees
Corporate with and serve the educational institutions located in the service area
in a manner consistent with other leaders in the industry
Maintain leadership positions within and provide appropriate assistance to
community service organizations. Continue to support the united way in a
leadership manner.
3.
Shareholders relations
Assure that all expenditures are made in a such way as to protect and enhance
the shareholders investment
Provide a rate of return to the shareholders, which is competitive with other
possible investments
Continue to study the feasibility of new programme and projects which might
be undertaken as measures to maintain and improve the financial integrity of the
company
Base all company involvement in new programs
4.
Employee management obligations

Monitor and strive to improve the quality of management and supervision
Promote a high degree of professionalism throughout the entire company
- 42 -
5.
4.6
Develop, update and monitor both long and short-term plans in a formalized
manner
Insure the flexibility of corporate plans while establishing performance goals for
all levels of employees
Undertake research and development consistent with strategic goals, corporate
objectives and sound economics.
Attract, develop and retain able and loyal employees
Provide equal employment opportunities and a high degree of training along
with modern professional tools
Strive to provide employees with compensation levels at or above industry
norms.
Corporate communications
Make an assertive effort to provide informative communications on relevant
company issues maintain positive communications with all those in contact with
company to specifically include customers, regulators, members of
governmental bodies, employees, community and industry leaders, financial
community and regional utilities
Keep senior management appraised and educated on current topics of interest
and always maintain an issues management ability
Communicate the companys good citizen achievements and future aspirations
to support the community
Enhance the community image of the company by being receptive to the needs
of customers and the community, and
Show and communicate actions by the company which show our concern for
the customer.
Areas in which organizational objectives are established
Peter Druncker, in his Landmark book The Practice of Management points out that it is
a mistake to manage organizations by focusing primarily on one and only one objective.
According to Druncker, organizations should aim at achieving several objectives instead
of just one. Enough objectives should be set so that all areas important to the operation of
the firm are covered. Key areas of organizational objectives are:
1.
Market standing: the position of an organization where it stands relative to its

competitors. The organizational objective should indicate the position an
organization is striving to achieve relative to its competitors.
- 43 -
2.
Innovation: any change made to improve methods of conducting organizational

business. Organizational objectives should indicate targets at which the
organization is aiming in the area of innovation.
3.
Productivity: The level of goods and services produced by an organization relative

to the resources used in the production process. Organizations that use fewer
resources to produce more are said to be more productive than organizations that
require more resources to produce at the same level.
4.
Resource level: The relative amounts of various resources held by an organization

such as inventory, equipment and cash. Most organizations should set objectives
indicating the relative amounts of each of these assets that should be held.
5.
Profitability: the ability of an organization to earn revenue dollars beyond the

expenses necessary to generate the revenue. Organizations commonly have
objectives indicating the level of profitability they seek.
6.
Worker performance and attitude: the quality of non-management performance and

such employees feeling about their work. These areas are also crucial to long-term
organizational success. The importance of these considerations should be stressed
through the establishment of organizational objectives.
7.
Manager performance and development: the quality of managerial performance and

the rate at which managers are developing personally. Because both these areas are
critical to the long-term success of an organization, emphasizing them by
establishing and striving to reach related organizational objectives is very
important.
8.
Social responsibility: the obligation of business to help improve the welfare of

society while it strives to reach organizational objectives.
4.7
The process of establishing organizational direction.
This process consist of three major steps:

1.
Reflecting on the results of an environmental analysis. Environmental analysis

normally provides managers with adequate information for reflection. Data should
be drawn from all organizational environment levels the general, operating and
- 44 -
internal environment. Analysis of this, information should establish the relevance of

these environmental levels and of various strategic issues to the organization.
1
Developing an appropriate organizational mission. Information form the

environmental analysis serves as a solid foundation on which the organizational
mission can be built. Once managers understand both the internal and external
organizational environments, they are better equipped to outline an appropriate
purpose or mission for the organization. An appropriate organization mission is one
that reflects the organizational environment and thereby increases the probability of
the organizations long-term survival.
Developing appropriate organizational objective. Objectives that are consistent with

an appropriate organizational mission-must be formulated. The process that
managers use in systematically developing organizational objectives has evolved
into four stages:
i. Analyzing significant trends within the environment
ii. Developing objectives for the organization as a whole
iii. Creating a hierarchy of objectives, and
iv. Developing individual objectives
1.
2.
3.
4.9
Explain the relationship between organizations mission and its strategy

Explain the difference between a goal and objective. Give an appropriate example in
each case.
Why do various groups that are stakeholders in the organization have different goals?
Should they not all be pulling together in the same direction?
Summary
Two main organizational ingredients are commonly used to establish organizational

directions: organizational mission and organizational objectives. Organizational mission
is the purpose for which or reason why, the organization exists. An organizational
mission should help focus human effort, ensure compatibility of organizational
purposes, provide a rationale for resource allocation, indicate broad areas of job
responsibility and provide the foundation for organizational objectives. Missions
address the topics of company products- 45
or - services, market, technology and company
objectives, philosophy, self-concept and image.
Organizational objectives are targets towards which the organization is directed.
4.10
1.
2.
3.
4.
4.11
Goals, desired ends towards which efforts are directed.

Objectives. A specific, verifiable and after quantified version of a goal.
Mission. The reason for an organizations existence
Mission statement. A broadly defined, but enduring statement of purpose that identifies
the scope of an organizations operations identifies the scope of an organizations
operations and its offerings to various stakeholders.
Further reading
1.
Daniels, John D. Robert A. Pitts and Marrietta J. Tretter. Strategy and Structure
of U.S Multinationals: An Exploratory Study Academy of Management Journal
27 No.2 (1984) 293-307.
2.
D.O. Mckee, r. Vavadarajan, and W.M. Prides, Strategic Adaptability and Firm
Performance: A Market Contingent Perspective. Journal Marketing 53 (1989)
21-35.
- Strategic Management. Columbus, Ohio:
Harvey Don, Business Policy- 46
and
Merill Publishing Company 1982.
3.
LESSON 5
STRATEGY FORMULATION
5.0
Objectives

1.
2.
3.
4.
5.
Define and understand the meaning of strategy formulation

Understand strategy formulations inputs from environmental analysis
Formulate organizational strategies
Formulate functional strategies
Understand strategy formulation constraint and selection criteria
Formulating strategies entails determining appropriate course of action for achieving

organizational objectives. It involves such activities such as:
Analysis
Planning, and
Selecting strategies
According to Kenneth R. Andrews, the principal sub-activities of strategy formulation as
a logical activity include identifying opportunities and threats in the companys
environment and attaching some estimates or risk to the discernible alternatives. Before a
choice can be made, the companys strengths and weakness should be appraised together
with the resources on hand and available. The strategic alternative which results from
matching opportunity and corporate capability at acceptable level of risks is what is
known as economic strategy.
5.1
Strategy formulation inputs from environmental analysis
Environmental analysis helps the managers in providing the necessary information to

begin the strategy formulation process. In this aspect, environmental analysis involves
two important factors in strategy formulation process: critical question analysis and
SWOT analysis.
Critical question analysis
This approach provides a general framework for analyzing an organizations current
situation and formulating appropriate strategies. It answers the following basic questions.
- 47 -
1. What are the purposes and objectives of the organization. The answer to the question
equips the managers to understand where the organization wants to go. Managers
who consider this question during strategy formulation are bound to avoid
inconsistencies among mission, objectives and strategies.
2. Where is the organization presently going? The answer reveals whether an
organization is achieving its goals or at least making satisfactory progress.
3. What critical environmental factors does the organization currently face? The answer
addresses both internal and external environments both factors inside and outside
the organization.
4. What can be done to achieve organizational objectives more effectively in the future?
This results on the formulation of a strategy for the organization. It goes beyond
environmental analysis and addresses the issue of planning and selection of strategy
formulation process.
SWOT analysis
SWOT analysis is a useful tool for analyzing an organizations overall situation. (sot
stands for Strengths, weaknesses, Opportunities and Threats). This approach attempts to
balance the internal strengths and weaknesses of an organization with the opportunities
and threats that the external environment presents. The approach suggests that the major
issues facing an organization can be isolated through careful analysis of each of these
four elements.
5.2
Formulation of Business Strategy
Business or competitive are those that are adopted in order to strengthen the position of
the organization in the market. It deal with:
a.
How to compete in a market
b.
Which products or services should be developed and offered to which markets.
c.
To what extent the organization meets its customers needs.
d.
The extent which the organization meets nits objectives of long-term profitability,
market growth and efficiency.
Formulating business strategy involves decision making at the division level of the
organization. The strategies this level plus, must be consistent with the overall
organization strategies for the specific line of business. A useful approach to formulating
business strategy is based on Michael Porters (Competitive analysis).
- 48 -
NEW ENTRANTS
Threats of New Entrants
SUPPLIERS
Bargaining Power of
Suppliers
INDUSTRY
COMPETITORS
FIRM Intensify of Rivalry
BUYER
Bargaining Power of
Buyers
SUBSTITUTES
A Michael Porters approach as based on the analysis of 5 competitive forces which

include:
1.
Threats of new entrants
2.
Bargaining power of suppliers
3.
Bargaining power of buyers
4.
Rates of substitute products
5.
Rivalry among existing competitors.
Threats of new entrants
Firms entering an industry bring new capacity and a desire to gain market share and
profit but whether new firms enter an industry depends on the barriers to entry.
The determinants of entry, barriers includes capital requirements, which capital effects
i.e. their accumulate experience in production and marketing of products often reduced
their costs below those of inexperienced firms. In general the higher entry barriers the
less likely outside firms are to enter the industry.
Bargaining power of suppliers
Suppliers can be a competitive threat in an industry because they can raise the price of
raw materials or even reduce their quality. Powerful suppliers can reduce profitability of
- 49 -
an industry if companies in that industry cannot pay higher price to cover price increases
that suppliers require. Determinants of suppliers power includes:
Supplier concentration in one place
Importance of volume to the supplier
Costs relating to total purchases in the industry
Differentiation of inputs etc.
Bargaining power of buyers
Buyers compare with the industry by forcing prices down, bargaining for higher quality
or more services all at the expense of industry profitability. The factors that determine
buyer power include:
Buyer concentration in one place
Buyer volume
Buyer information etc.
Threats of substitute products
In broad sense all firms in an industry are competing with industry producing substitute
products. Substitutes limit the potential return in an industry by placing a ceiling on the
price that firms in the industry charge.
Factors that determine this include:
Relative price performance of substitute product
The buyers propensity to buy substitute products and ability to import
Rivalry among existing firms
This determines by the number of firms in that industry. It is a conventional type of
competition in which firms try to take customers form one another through strategies
such as price competition, advertising wars, new product introduction, and increased
customer service in order to meet competitions.
Strategic alternatives
In Michael Porters Scheme and analysis of these five factors should shape the
development of business strategy. There are 3 strategies that have been recommended.
(a)
Overall cost leadership strategy
- 50 -
A firm can obtain average returns in an industry despite the presence of strong
competitive forces it can concentrate on overall cost leadership. However this strategy
requires high relative market share and other advantages such as favourable access raw
materials or ready availability of cash to purchase the most efficiency equipment.
(b)
Differentiation strategy
This involves production and marketing of unique products for mass Markets.
Approaches to differentiation includes developing unique brand images, unique customer
service, unique product features and unique distribution channels.
c)
Focus strategy
This is essentially a strategy of segmenting markets and appealing to only one or a few
group of consumers or industrial buyers. The logic of this approach is that a firm that
limits its attention to one or only a few market segments can serve those markets better.
5.3
Formulating organizational strategies
Organizational strategies are formulated by top management and designed to achieve the
firms overall objectives. This process includes two related tasks:
(i)
(ii)
General strategies must be selected and developed, and

Decisions must be made about what role various lines of business in the
organization will pray and how resources will be allocated among them.
1.
General Strategies
An organization can choose from a wide variety of general strategies:
a) Concentration strategies is one in which an organization focuses on a single line of
business. This strategy is used by firms seeking to gain competitive advantage
through specialized knowledge and efficiency and to avoid the problems involved in
managing many businesses.
b) Stability strategy focus on its existing line or lines of business and attempts to
maintain them. This strategy is useful in;
(i) Organization that is large and dominates its markets may choose a stability
strategy to avoid government controls or penalties for monopolizing the
industry
(ii) Organization may find that further growth is too costly and have detrimental
effects on profitability
- 51 -
(iii)Organization in slow-growth or no-growth industry that has no other viable

options may be forced to select a stability strategy.
c) Growth strategies. May be pursued by means of vertical integration, horizontal
integration, diversification and mergers and joint ventures.
(i) Horizontal integration involves growth through acquisition of competing firms
in the same lines of business. It is adopted to increase the size, sales, profits and
potential market space of an organization.
(ii) Vertical integration involves growth through acquisition of other organization in
the channel of distribution. When an organization purchases other companies
that supply it, it engages in back ward integration. The organization that
purchases other firms that are closer to the end user of the product (such as
wholesalers and retailers) engages in forward integration.
(iii)Diversification involves growth through acquisition of firms in other industries
or lines of business. When acquired firm has production technology, products,
channels of distribution and make similar to those of firm purchasing it, the
strategy is known as related or concentric diversification.
When the acquired firm is in a completely different line of business, the strategy is
known as unrelated conglomerate diversification. This strategy is used for the following
reasons:
(i)
Organizations in slow-growth industries may purchase firms in faster-growing

industries to increase their overall growth rate.
(ii) Organizations with excess cash often find investment in another industry
(particularly a faster-growing one) a profitability strategy.
(iii) Organizations may diversify in order to spread their risks across several
industries
(iv) The acquiring organization may have management talent financial and
technical resources, or marketing skills that it can apply to a weak firm in
another industry in the hope of making it highly profitable.
(v) Managers and joint ventures in a merger, a company joins with another to
form a new organization, while joint ventures an organization works with
another company on a project too large to handle itself, such as the space
program.
(vi) Leverage buyouts the stockholders of a public company are offered a
premium for their shares over the going market price. The buyers of the firm
use little cash in the transaction.
- 52 -
d) Retrenchment strategies when an organizations survival is threatened and it us not

competing effectively, retrenchment strategies are needed. The types of retrenchment
include:
(i) Turn around strategy used when an organization is performing poorly but has
not reached a critical stage. Normally this strategy involves getting rid of
unprofitable products, pruning the work force, trimming and distribution outlets.
(ii) Divestment strategy involves selling business or selling it up as a separate
corporation. It is used when a particular business doesnt fit well in the
organization or consistently fails to reach the objectives set for it.
(iii)Liquidation strategy business is terminated and its assets sold off. Liquidation is
the least desirable retrenchment strategy, because it involves losses for both
stockholders and employees.
e) Combination strategies large organizations commonly use these strategies in
combination (i.e. an organization may seek growth through acquisition of new
business, employ a stability strategy for some of existing business, and divest itself of
other business.
5.4
Formulating functional strategies
Functional strategies shows out the specific tasks that must be performed to implement
the business strategy- business level and functional-area managers should coordinate their
activities to ensure that strategies pursued are consistent. The major functional areas are:
(i)
Operations
(ii)
Finance
(iii) Marketing, and
(iv)
Human resources
(a) Research and development organizations cannot grow without new products. It is
the responsibility of the research and development specialists to come up with new
products for the business and organization. The process involves concept generation
and screening, product planning and development, and actual test marketing.
(b) Operations strategy specialists in this area focus on making decisions about required
plant capacity, plant layout, manufacturing and production process and inventory
requirements. They also focus on controlling costs and improving the efficiency of
plant operations.
(c) Financial strategy specialists are responsible for forecasting and financing planning
for various investment proposals, securing financing for various investments and
- 53 -
controlling financial resources. The specialists contribute to strategy formulation by

assessing the potential profit impact of various strategic alternatives and evaluating
the financial conditions of the business.
(d) Marketing strategy focuses on determining the appropriate markets for business
offerings and on developing effective marketing mixes (marketing mixers includes
four strategic elements: price, product, promotion and channels of distribution.
(e) Human resource strategy is concerned with attracting, assessing, motivating and
retaining the number and types of employees required to run the business effectively.
5.5
Strategy formulation constraints and selection criteria
Managers select those strategies that optimize the chances of achieving their
organizational objectives. However, they are bound to face the following constraints
when planning and selecting organizational or functional strategies.
i.
Availability of financial resources. Serious considerations should be made to

ascertain where the money to finance the strategy is going to come from. Some
organizations may be in such poor financial position that borrowing large sums to
finance expensive strategies is out of question. Some firms are averse to borrowing
per se or to increasing their debt levels beyond a certain point.
ii.
Attitude towards risks: some firms accept minimal levels of risks, regardless of the
level of potential return. Accept firm to little risk.
iii.
Organizational capabilities. A firm that has excellent production skills but weak
marketing skills may not be able to execute a strategy requiring superior marketing
efforts. Therefore excellent strategies may require capabilities beyond those
organization currently possesses.
iv.
Channel relationship: strategies that call for the development of new channels of
distribution or that involve new suppliers require careful consideration of the
availability of these other organizations and their willingness to work with the firm.
Some strategies may have to be foregone because the firm cannot establish its own
channel and other firms are not available to perform distribution tasks.
v.
Competitive retaliation. Some strategies may have the unintended effect of

dramatically increasing competitors efforts in the market place. The competitor
strategy of reducing prices may effectively stimulate a short-term demand for a
product but result in costly price wars.
- 54 -
5.6
Strategy selection criteria
It is often difficult to forecast accurately what the return on investment for an alternative
will be or to adjust it appropriately for risks involved. According to David asker, strategic
alternatives should be accepted to the degree that they meet the following six criteria:
(i) They are responsible to the external environment
(ii) They involve a sustainable competitive advantage
(iii) They are consistent with other strategies in the organization
(iv) They provide adequate flexibility for the business and the organization
(v) They conform to the organizations mission and long-term objectives
(vi) They are organizationally feasible.
5.7
1.
2.
3.
5.8
Revision questions
Discuss how strategy formulation takes a central position in helping

managers achieve organizational goals.
Formulating strategies involves determining appropriate courses of action for
achieving objectives. Discuss.
Kenyatta University has approached you on how to help achieve its
objectives on various areas of strategic management. What are some strategy
formulation constraints are you bound to face?
Summary
- 55 Strategy formulation is the task of managers

to shape, understand the context in which their
strategies will unfold. They rely on environmental analysis for the information they need.
5.9
1.
2.
5.10
1.
2.
3.
6.0
SWOT analysis a useful tool for performing environmental analysis, the foundation
for the strategic planning stage of strategy formulation.
Business portfolio models are tools for analyzing the relative position of each
organizations business in its industry, and the relationships among all of the
organizations business.
Further reading
Fredericks, Peter and N. Venkatram. The Rise of Strategy Support Systems Sloan
Management Review, Spring 1988, pp. 47-54.
Hax, Annoldo C., and Nicholas s. Majluf. Strategic Management: An Integrative
Perspective Englewood Diffs, N.J. Prentice-Hall, 1984.
National Academy of Public Administration, Revitalizing Federal Management
(Washington DC: National Academy of Public Administration, 1986).
LESSON 6
STRATEGY IMPLEMENTATION
Objectives
- 56 -

1.
1.
2.
3.
4.
Determine how much the organization will have to change in order to

implement the strategy under consideration
Analyzing the formal and informal structures of the organization
Analyzing the culture of the organization
Selecting an appropriate approach to implementing the strategy, and
Implementing the strategy and evaluating the results
In order for the organization to achieve its objectives, the process of strategy formulation
and strategy implementation must be well done. Putting strategy into effect and getting
the organization moving in the direction of strategy accomplishments calls for a
fundamentally different set of managerial tasks and skills. Whereas crafting strategy is
largely an entrepreneurial activity, implementing strategy is primarily an internal
administrative activity. Whereas strategy formulation involves heavy does of vision,
analyses and entrepreneurial judgment, successful strategy implementation depends upon
the skills of working through others, organizing, motivating, culture building and creating
strong fits between strategy and how the organization does things.
Roulette involves situations wherein a poorly formulated strategy is implemented well.
Two basic outcomes may ensue. The good execution may overcome the poor strategy or
at least give management an early warning of impending failure. Perhaps the field sales
force recognizes a problem in the strategy and changes its selling approach to a more
success one. Alternatively, the same good execution can hasten the failure of the poor
strategy. For example rapid production and effective marketing of a fault new product
causes the strategy to fall sooner. Thus, it is impossible to predict exactly what will
happen to strategies in the roulette cell, and thats where it gets its name.
Figure 1:
Diagnosing strategic problems
Strategic formulation
Good
Poor
- 57 -
Good
Poor
Success
Roulette
Trouble
Failure
Strategy implementation
The trouble cell is characterized by situations wherein a well-formulated strategy is

poorly implemented. In this situation because managers are more accustomed to
focussing on strategy formulation, the real problem with the strategy fault
implementation is not often diagnosed. When things go wrong, managers are likely to
reformulate the strategy rather than question whether the implementation was effective.
The new strategy is reimplemented and continues to fail.
Failure is the most likely to occur when a poorly formulated is poorly implemented.
Management has great difficult getting back on the right track. If the same strategy is
retained and implemented in a different way, it is likely to fail. If the strategy is
reformulated and implemented the same way, the failure remains the probable results.
Strategy implementation is important as strategy formulation. However, managers when
formulating strategies, simply assume that effective implementation will occur and yet it
should be obvious that what organizations actually do is art least important as what they
plan to do. The quality of a formulated strategy is difficult if not impossible to assess in
the absence of effective implementation. Diagnosing why a strategy failed in the roulette,
trouble, and failure cells in order to find a remedy requires the analysis of both
formulation and implementation. Figure 1.1 offers a model of the major task involved in
implementing strategies.
Analyzing strategic change
- 58 -
Analyzing organizational
structure
Analyzing organizational
culture
Selecting an implementation approach
Implementing and evaluating the strategy
Figure 1.1: Strategic implementation tasks
- 59 -
6.1
Analyzing strategic change
The first step in implementing a strategy is to develop a proper understanding on how

much the organization will have to change in order to implement its successfully. Some
strategies require minimal changes in the way the firm conducts its business, others
require sweeping changes in the conducts of operation. For example, implementing a new
price strategy may affect only a few people within the organization and cause very little
change in day-to-day operations. However, creating, producing and marketing product
lines different from those previously handled by the firm may require a radical change in
every phase of the business.
Strategic change is viewed as a continuum running from no variation in strategy to a
complete change in organizations mission. The value of knowing the level of strategic
change is giving managers better ideas of the problems likely to arise in implementing a
particular strategy. The five levels of strategic change are discussed below.
1.
Continuum strategy is one which the same strategy that was used in the previous
planning period is repeated. Because new skills and unfamiliar tasks are not
required at this level, successful implementation is largely a matter of monitoring
activities to ensure that they are performed on schedule. A continuation strategy is
the simplest to execute.
2.
Routine strategy change involves normal changes in the appeals used to attract
customers. Firm changes in the existing appeals, update packaging, use different
pricing tactics and may change distributors or distribution methods in the normal
course of operation. Implementing such strategies requires managers to schedule
and coordinate activities with ad agencies and middlemen. In some cases, such as
when the firm offers a significant price deal to middlemen or consumers, managers
must coordinate then activities with those of production to ensure that enough
inventory is available to handle increased demand.
3.
Limited strategy change involves offering new products to new markets within
the same general product class. There are many variations of this level of strategic
change, because products can be new in a variety of ways. For example, the
creation, production and marketing of products such as stereos, television, home
computers often involve new and more complex implementation problems and vice
versa.
4.
Radical strategy change involves a major reorganization within the organization.

This type of change is common when mergers and acquisitions occur between firms
in the same basic industry. Acquisitions can prove to be complex when two firms
- 60 -
get geared to integrate completely. The new firms not only get new products, but
also confronts legal problems, the complexities of developing a new organizational
structure and the need to reconcile conflicting organizational values and beliefs.
5.
6.2
Organizational redirection involves mergers and acquisitions of firms in different

industries. The degree of strategic change depends on how different the industries
are and on how centralized management of the new firm is to be. Another form of
redirection occurs when a firm leaves one industry and enters a new one. For
example when one small brewery could no longer compete in the beer industry, in
indirected its efforts to the trucking and packaging industry.
Analyzing organizational structure
There are two basic kinds of organizational structure:

1.
The formal organizational structure represents the relationships between resources
as designed by management.
2.
Informal organization structure represents the social relationships based on
friendships or interests shared among various members of an organization. The
informal organizational structure is evidence in the patterns of communication
commonly called the gravevine
When implementing a strategy, managers must take both formal and informal
organizational structure into consideration.
1.
There is the question of whether the existing organizational structure will promote
or impede successful implementation. If the organizational has so many levels of
management that a strategy cannot be implemented effectively or changed rapidly
to accommodate changing conditions, then the successful implementation may
become difficult.
2.
There is the question of what management levels and personnel with the
organization will be responsible for various implementation tasks. Radical strategy
changes or organizational redirections one typically spear-headed by the chief
executive officer, whereas routine strategy changes may be under the direction of
middle management.
3.
The informal organization can be used to facilitate successful implementation. For

example if several regional managers commonly consult each other about
implementation issues, this informal artwork can be used to encourage rapid
execution of strategies.
- 61 -
The five types of organizational structures that are commonly seen are simple, functional,
divisional, Strategic Business Unit (SBU) and matrix structures. The diagram of each
structure is shown in figure 1.2.
Simple
Owner-manager
CEO
Employees
Operational
Marketing
- 62 -
Finance
Divisional
CEO
CEO
Division 1
Manager
Division 2
Manager
VP
SBI
VP
SB2
Division
Managers
1
3
- 63 -
Division
Managers
4
6
CEO
VP
Production
VP
Marketing
Project
Manger 1
Project
Manger 2
Figure 1.2
Five types of organizational structures
- 64 -
VP
R&D
VP
Finance
1. Simple organizational structure has only two levels, the owner manager and the
employees. Small firms with one product or only a few related ones usually exhibit
this structure. A major advantage of this structure is that it allows rapid, flexible
implementation of strategies. This advantage is a primary reason why small firms can
compete very effectively with industry giants. However, because success depends on
one person (the owner) in formulating strategies, many such organizations do not
survive in the long-run.
2.
Functional organizational structure organizations grow and develop a number of

related products and markets, their structures frequently change to reflect greater
specialization in functional business areas. Such line functions as production and
operations, marketing and research and development may be organized in
departments. May also include a number of staff departments such as finance and
accounting or personnel and administration, which report to CEO. Specialization is
one of the advantages of functional structure, it promotes the development of
greater expertise in each area. However, this structure may lead to coordination
problems among departments that may impede efficient implementation.
3.
Divisional organizational structure as firms acquire or develop new products in

different industries and markets, they may evolve a divisional organizational
structure. Each division may operate autonomously under the direction of a division
manager, who reports directly to the CEO. Divisions may be formed on the basis of
product lines, markets, geographical areas or channels of distribution. Each division
not only has its own line and staff function to manage but also formulates and
implements strategies on its own with the approval of the CEO. The overall
organization has staff positions (such as vice presidents of administration and
operations) to assist in co-ordinating activities and allocating resources. The
divisional organizational structure offers large companies away of remaining close
to their markets, but because the different divisions must compete for resources,
conflict can also result.
4.
Strategic business structure when a divisional structure becomes unwieldingly

because a CEO has too many divisions to manage effectively, organizations may
reorganize in the form of strategic business units (SBU) or strategic groups. This
structure groups a number of divisions together on the basis of such things as the
similarity of product lines or markets. Vice presidents are appointed to oversee the
operations of newly formed strategic business units and these executives report
directly to the CEO. The SBU structure may be useful for coordinating divisions
with similar strategic problems and opportunities and may thus facilitate strategy
implementation. However, because it imposes another layer of management on the
- 65 -
structure, it can also slow decision-making and retard the implementation process
unless authority is decentralized.
5.
Matrix organization structure is used to facilitate the development and execution

of various programs or projects. This approach allows project managers to cut
across departmental lines and can promote efficient implementation of strategies.
However, it does have an important disadvantage. Employees often become
confused about their work responsibilities and about whether they are accountable
to the project manager or to their functional group managers.
6.3
Advantages and disadvantages of five organizational structures
They are:
Simple
Advantages
1.
Facilitates control of all the businesses activities
2.
Makes possible rapid decision making and ability to change with market signals
3.
Offers simple and informal motivation/reward/control systems
Disadvantages
1.
Is very demanding on the owner-manager
2.
Grows increasing inadequate as volume expands
3.
Does not facilitate development of future managers
4.
Tends to focus owner-manager on day-to-day matters and not on future strategy.
Functional
Advantages
1.
Boosts efficiency through specialization
2.
Fosters improved development of functional expertise
3.
Differentiates and delegates day-to-day operating decisions
4.
Retains centralized control of strategic decisions
Disadvantages
1.
Promotes narrow specialization and potential functional rivalry or conflict
2.
Fosters difficult in functional coordination and inter-functional decision making
3.
Can reason staff-line conflict
4.
Limits internal development of general managers
- 66 -
Divisional
Advantages
1.
Forces coordination and necessary authority down to the appropriate level of rapid
response
2.
Places strategy development and implementation in closer proximity to the
divisions unique environment
3.
Frees chief executive officer for broader strategic decision making
4.
Sharply focuses accountability for performance
5.
Retains functional specialization within each division
6.
Serves as good training ground for strategic managers
Disadvantages
1.
Fosters potentially dysfunctional competition for corporate level resources
2.
Creates a problem with the extent of authority given to division managers
3.
Fosters the potential for policy inconsistencies between divisions
4.
Raises the problem of arriving at a method to distribute corporate overhead costs
that is acceptable to different division managers with profit responsibility.
Strategic Business Units (SBU)
Advantages
1.
Improves coordination between divisions with similar strategic concerns and
product/market environments
2.
Tightens the strategic management and control of longer diverse business
enterprises
3.
Facilitates distinct and indept business planning at the corporate and business levels
4.
Channels accountability to distinct business units.
Disadvantages
1.
Places another layer of management between the divisions and corporate
management
2.
May increase dysfunctional competition for corporate resources
3.
May make defining the role of the group vice president difficult
4.
May increase difficult in defining the degree of autonomy for the group vice
presidents and division managers.
Matrix
Advantages
1.
Accommodates a wide variety of project-oriented business activity
- 67 -
2.
3.
4.
5.
Serves as good training ground for strategic managers

Maximizes efficient use of functional managers
Fosters creativity and multiple sources of diversity
Provides broader middle-management exposure to strategic issues for the business.
Disadvantages
1.
Can create confusion and contradictory policies by allowing dual accountability
2.
Necessitates tremendous horizontal and vertical coordination
6.4
The managers role in leading the implementation process
The chief executive officer and the heads of major organizational sub units are
responsible for leading and keynoting the tone, pace and style of strategy implementation.
Some of the key roles include:
1.
Building an organizational capable of carrying out strategic plans. Specific tasks

includes:
(i) Building and nurturing the skills distinctive competence upon which strategy
is grounded
(ii) Selecting people for key positions
2.
Establishing a strategy supportive budge. Specific tasks include:

(i) Seeing that each organizational unit has the budget to carry out its part of the
strategic plan.
(ii) Ensuring that all resources are used efficiently to get the bigger bang for the
buck
3.
Linking work assignments directly to strategic performance targets. Specific tasks

include:
(i) Defining work assignments in terms of what is to be accomplished, not just in
terms of what duties are to be performed
(ii) Listing that doing a good job means achieving the target on objectives
4.
Galvanizing organization-wide commitment to the chosen strategic plan. Specific

tasks include:
(i) Motivating organizational units and individuals to accomplish strategy
(ii) Creating strategy-supportive work environment and corporate culture
(iii) Promoting a results orientation and a spirit of high performance
(iv) Keeping the reward structure tightly linked to strategic performance and the
achievement of target objectives
- 68 -
5.
Installing internal administrative support system. Specific tasks include:

(i) Establishing and administering strategy facilitating policies and procedures
(ii) Generating the right strategic information on a timely basis
(iii) Instituting internal controls to keep the organization on its strategic course
(iv) Creating fits between strategy and the various internal ways of doing things
6.
Exercising strategic leadership. Specific tasks include:

(i) Leading the process of shaping values, molding, culture and energizing
strategic accomplishment
(ii) Keeping the organization innovative, responsive and opportunistic
(iii) Dealing with the politics of strategy coping with power struggles and of
building consensus
(iv) Initiating corrective actions to improve strategy execution.
6.5
Building a capable organization
Successful strategy execution depends on good internal organization and competent

personnel. Building a capable organization is, thus, a top strategy implementation
priority. Three organizational issues stand out as dominant.
1.
2.
3.
6.6
Developing an internal organization structure that is responsive to the needs of

strategy
Building and nurturing the skills and distinctive competencies in which the strategy
is grounded and to see, generally, that the organization has the managerial talents,
technical know-how and competencies capabilities it needs
Selecting people for key positions.
Matching organization structure to strategy
There are rules for designing a strategy-supportive organization structure. Every firms
internal organization is partly idiosyncratic, the result of many organizational decisions
and historical circumstances. The following five-sequence procedure serves as a useful
guideline for fitting structure to strategy:
1.
2.
3.
4.
5.
Pin point the key functions and tasks requisite for successful strategy execution
Reflect on how the strategy-critical functions and organizational units relate to
those that provide staff support
Make strategy-critical business units and functions the main organizational building
blocks
Determine the degrees of authority needed to manage each organizational unit,
bearing in mind both the benefits and costs of decentralized decision making
Provide for coordination among the various organizational units
- 69 -
6.7
Analyzing organizational culture
Organizational culture means a set of shared values and beliefs that influences the
effective of strategy formulation and implementation. The importance of organizational
culture for implementing strategy is that it influences the behaviour of employees, and
motivates them to achieve or surpass organizational objectives
Organizational cultures are developed and reinforced in a variety of ways. One authority
suggests that there are five primary and five secondary cultural development
mechanisms. The five primary mechanisms are;
1.
What leaders pay attention to, measure and control. Leaders can communicate very
effectively what their vision of the organization is and what they want done by
consistently emphasizing the same issues in meetings, in casual remarks and
questions and in strategy discussion. For example if the quality of the product is the
dominant value to be inculcated in employees, leaders should consistently inquire
about the effect of any proposed changes on product quality.
2.
Leaders reaction to critical incidents and organizational crises. The manner in

which leaders deal with crises can create new beliefs and values and reveal
underlying organizational assumptions. For example when a firm faces financial
crises but does not lay off any employees, the massage may be that the organization
sees itself as a family that looks for its members.
3.
Deliberate role modelling, teaching and coaching. The behaviours that the leaders
perform in both formal and informal settings have an important effect on employee
beliefs, values and behaviours. For example, if the CEO regularly works very long
hours and on weekends, other managers may respond by spending more of their
time at work too.
4.
Criteria for allocation of rewards and status. Leaders can quickly communicate their
priorities and values by consistently linking rewards and punishments to the
behavious they are concerned with. For example, if a weekly bonus is given
exceeding production or sales quotas, employees my recognize the values placed on
these activities and focus their efforts on them.
5.
Criteria for recruitment, promotion and retirement of employees. The types of

people who are hired and who succeed in an organization are those who accept the
organizations values and behave accordingly. For example, if managers who are
action oriented, and who implement strategies effectively consistently move up the
- 70 -
organizational ladder, the organizations priorities should come through loud and
clear to other managers.
The five secondary mechanisms by which organizational culture develops are as:
1.
The organizations design and structure: the designing of the organizations

structure offers leaders a chance to express their feeling about the responsibilities
facing the organization, the best means of finishing them, human nature and the
right kinds of relationships among people. For example, a highly decentralized
organization suggests that leaders have confidence in the abilities of subordinate
managers.
2.
Organizational systems and procedures: Some very visible parts of organizational

life are daily, weekly, monthly, quarterly and annual cycles of routines, procedures,
reports to file, forms to fill out, and other recurring task that have to be performed
repeatedly. For example, if the CEO asks for quarterly reports on all assistant
managers, this requirement communicates the message that the organization values
and is concerned with this group.
3.
Design of physical space, facades and buildings. Leaders who embrace a clear
philosophy and management style often make the style manifest in their choice of
architectural style, interior design and dcor. For example, if a leader believes in
open communication, office space may be laid out such that very few private areas
or barriers to the flow of traffic exist.
4.
Stores, legends, myths and parables about important events and people. As a group
develops and accumulates a history, some of this history becomes embodied in
stories about events and leadership behaviour.
5.
Formal statements of organizational philosophy, creed and charters. Explicit

statements by leaders of organizations about their values are a final means of
shaping organizational culture.
6.8
Selecting an implementation approach
The managers task is to determine a viable approach in implementing strategy. David

Brodwin and L.J. Bourgeois suggest five fundamental approaches to implementing
strategies. They are:
1.
The commander approach: The manager concentrates on formulating strategy by

applying rigorous logic analysis. The manager may develop the strategy alone or
- 71 -
supervise a team of strategists charged with determining the optional course of

action for the organization. Tools such as growth-share matrices and industry and
competitive analysis are commonly used. In order for this approach to be
successful, three conditions must exist:
(a) The manager must wield enough power to command implementation; or the
strategy must pose little threat to the status quo. Implementation under this
approach is resisted if the new strategy threatens the position of employees.
(b) Accurate and timely information must be available and the environment must
be reasonably stable. If the environment is changing so rapidly that information
becomes dated before it can be assimilated, effective implementation under this
approach is unlikely.
(c) The manager formulating the strategy should be insulated from personal bases
and political influences that might affect the content of the strategy.
Advantages
(i) Offers managers a valuable perspective and allows them to focus their energies on
strategy formulation
(ii) By dividing the strategic management task into two stages thinking and doing
the manager reduces the number of factors that have to be considered
simultaneously
(iii) Young managers in particular seem to prefer this approach because it allows them
to focus on quantitative, subjective aspects of a situation rather than on the
quantitative, subjective elements of behaviour interactions.
(iv) This approach may make ambitious managers feel powerful in their thinking and
decision making affect the activities of thousands of people.
Disadvantages
(i) It can reduce employee motivation and employees who feel that they have no say in
strategy formulation are unlikely to be a very innovative group.
(ii) The approach can not be effective in large and stable industries. It works best when
the strategy to be implemented requires relatively little change, such as strategy
continuation or routine strategy changes.
2.
The organizational change approach: This approach focuses on how to get an

organization to implement a strategy. Managers who apply the change approach
assume that a good strategy has been formulated and view the task as getting the
company moving towards new goals. The tolls used to finish this task are
behavioural and include changing the organizational a structure and staffing to
- 72 -
focus attention on the organizations new priorities, revising planning and control
systems and invoking other organizational change techniques.
Advantages
i. Because powerful behavioural tools are used in the change approach to
implementation, it is often more effective than the commander approach and can be
used to implement more difficult strategies.
ii. The managers role is that of an architect designing administrative system for
effective strategy implementation.
Disadvantages
i. It doesnt keep managers stay a breast of rapid changes in the environment. It doesnt
deal with situations where in politics and personal agendas discourage, objectivity
among strategists.
ii. It calls for imposing strategy in top-down fashion, it is subject to the same
motivational problems as the command approach.
iii. This approach can backfire in uncertain or rapid changing conditions. The manager
sacrifices important strategic flexibility by manipulating the systems and structures of
the organization in support of a particular strategy. Some of these systems
(particularly incentive compensation) take a long time to design and install. Should a
change in the environment requires a new strategy, it may be very difficult to change
the organizations course, which has been firmly established to support the now
obsolete strategy.
3. The collaborative Approach
In this approach, the manager calls the rest of the management team to brainstorm
strategy formulation and strategy implement managers with different perspective are
encouraged to contribute their points of view in order to get whatever group wisdom
emerges from these multiple perspective. The role of the manager is that of a
coordinator and uses his or her understanding of group dynamics to ensure that all
good ideas discussed and investigated.
Advantages
i. By capturing information contributed by managers closer to operation and by offering
a forum for the expression of many view points, it can increase the quality and
timeliness of the information incorporated in the strategy.
ii. Since participation enhances commitment to the strategies, it improves the chances of
efficient implementation.
Disadvantages
i. A poor strategy: A negotiated strategy is likely to be less visionary and more
conservative than one created by an individual or staff team. Gaming and empire
building by various group managers may result in strategy that favours a particular
functional area but is less sound from an overall strategic perspective.
ii. It is not really collective decision making from an organizational viewpoint because
upper-level managers often retain centralized control. In effect, his approach
- 73 -
preserves the artificial distinctive between thinkers and doers and fails to draw on the
full human potential throughout the organization.
4.
The cultural Approach enlarges the collaboration. Approach to include lower levels
in the organization. The manager guides the organization by communicating and
instilling her or his vision of the overall visions for the organization and allowing
employees to design their own work activities in accordance with this mission. The
manager normally plays the role of a coach, giving general directions but
encouraging individual decision making on the operating details of executing the
strategy.
The implementation tools used in building a strong organizational culture include
publishing a company creed and singing company song to much more complex
techniques. These techniques: third-order control, first- order control is direct
supervision, second-order control involves using rules, procedures and
organizational structure to guide behavior. Third-order control consist of
influencing behavior by shaping the norms, values, symbols, and beliefs that
manager and employees draw on as they make day to day decisions.
Advantage
i. Work best in organizations that have sufficient resources to absorb the cost of
building and maintaining a supportive value system.
ii. The cultural approach partly breaks down the barriers between thinkers and doers, be
cause members of the organization can be involved to some degree in both the
formulation and the implementation of strategy.
Disadvantages
i.
It tends to work only in organizations composed primarily of informed, intelligent
people.
ii. It consumes enormous amount of time to install.
iii. It can foster such a strong sense of organizational identity that it becomes a
handicap; for example, bringing outsiders in at top management can be difficult
because they arent acceptive by other executives.
iv. Companies with excessive strong cultures often suppress deviance; discourage
attempts to change, and foster homogeneity and inbreeding.
5.
The Crescive Approach: Crescive means increasing or growing. Managers

normally address strategy formulation and strategy implementation simultaneously.
They do not focus in doing this task but encourage subordinates to develop,
champion and implement sound strategies on their own. This approach differs from
the others in several ways:
(a) Instead of strategy being delivered downward from top management or a
strategy group, it moves upwards from he doers (sales people, engineers,
production workers) and lower middle level managers and supervisors.
- 74 -
(b) Strategy becomes the sum of all the individual proposals that surface
throughout the year.
(c) The top management team shapes the employees premise- that is, the
employees notions of what would constitute supportable strategic projects.
(d) The chief executive, or managers in charge of strategy, functions more as a
judge evaluating the proposals than master strategist.
Advantages
i.
It encourages middle-level managers to formulate effective strategies and gives
them the opportunity to carry out the implementation of their own plans.
ii. Strategies developed, as these are, by employees and managers are closer to the
strategic opportunity are likely to be operationally sound and readily implemented.
Disadvantages
i.
Converting an organization that is accustomed to centralize, top-down system to the
crescive approach can be difficult, expensive, and time consuming.
ii. The crescive approach does not specify how the managers who are in charge of
implementing the strategy should do so.
6.9
Implementing the strategy and evaluating the results
Professor Thomas V. Bonoma of the Havard Business School suggests that successful
implementation of strategies requires four basic types of skills.
i.
ii.
iii.
iv.
Interacting skills: Expressed in managing ones own and others behavior to

achieve objectives. Depending on the level of strategic change required to
implement a strategy, managers may need to influence others both within and
outside the organization. Bonoma suggests that managers who show empathy-the
ability to understand how others feel- and have good bargaining skills and are the
best implementers.
Allocating Skills: Brought to bear in managers the ability to schedule tasks and
budget time, money and other resources efficiently. Able managers avoid putting
too many resources in mature programs and recognize that new, tuskier programs
often demand greater investments of resources.
Monitoring skills involves the efficient use of information to correct any problems
that rise in process of implementation. Good implementers have an efficient
feedback system to analyze progress toward strategy execution any problem that
occurs.
Organizing skills are exhibited in the ability to create a new informal organization
or network to match each problem that occurs. Good implementers know people in
every part of the organization (and outside of it) who, by virtue of mutual respect,
attraction, or some other tie, can and will help however they can. In other words,
good implementers customize the informal organization to facilitate good
execution.
- 75 -
Implementation requires managers who have particular skills tailored to overcoming

obstacles and ensuring that responsibilities are performed efficiently. Throughout
implementation, managers must evaluate how well the strategy is being executed and
whether it is accomplishing organizational objectives.
1.
2.
3.
4.
6.11
List the pros and cons of announcing a new strategy to the entire
organization.
Discuss the relationship between strategy and structure.
Name some symptoms that may indicate an inappropriate organizational
structure.
Under what conditions would matching the skills of an executive with the
requirements of strategy be appropriate?
Summary
Strategy implementation and strategy formulation form an important part of strategic

management. The concept of strategy implementation encompasses different aspects in
term of how much the firm itself will have to change in order to achieve organizational
objectives. Strategies can range from the no-change continuation strategy through
routine strategy change all the way to organizational redirection.
The strategy implementation process is to analyze both the formal and the informal
structure of the organization. Its formal structure may be (owner manager and
employees). The firm may be divided into functions (such as marketing, operations and
finance), distributions (reflecting different product lines, areas, distribution channels,
etc). Recognizing the probable impact of structure on successful strategy
implementation is always important.
Organizational culture is important for both formulating and implementing strategies.
The organizational structure consists of the values, beliefs and attitudes towards the firm
that employees share. Leader behaviours, criteria for recruiting and rewarding
employees, rules, and procedures, formal statements of a company creed, often-told
tales about important events and people in the history of the organization and even the
physical layout of the buildings- all can contribute to effective organizational cultures
6.12 Definition of key concepts
and can be used to shape employee attitudes and behaviours.
1.
2.
Flat organization. An organization

- 76 - characterized by relative few hierarchical
levels and a wide span of control.
Tall organization. An organization characterized by relatively many hierarchical
6.13
Further reading
1.
2.
3.
4.
Barney Jay B. Organizational Culture: Can It be a Source of Sustained

Competitive Advantage? Academy of Management Review, Vol. 11 No 3
(1986): 656-665.
Bennigson Lawrence A.. Managing Corporate Cultures. Management
Review, February 1985, pp 31-32.
Marcus, Alfred A.. Implementing Externally Induced Innovation: A
Comparison of Rule-Round Autonomous Approaches. Academy of
Management Journal, Vol. 31 No 2 (1988): 235-256.
Wright, Pringle and Kroll. Strategic Management Text and Cases. Woodstock
publishers Services, 1994.
- 77 -
LESSON 7
STRATEGIC CONTROL
7.0
Objectives

1.
1.
2.
3.
4.
Discuss the purposes and contributions of strategic controls.

Highlight the qualities of an effective control system.
Discuss design factors that lead to failure of the strategic control system.
Discuss managerial factors that lead to the failure of the strategic control
system.
Explain the differences between financial and strategic controls.
Organizational Control
Controlling entails monitoring, evaluating and improving various activities that take
place within an organization. Therefore, control consists of making something happen the
way it was planned to happen. For example, if an organization plans to increase net profit
by 5 percent in order to meet accelerating product demand, control entails monitoring
organizations, if necessary, to ensure that net profit does indeed increase by 5 percent.
Managers must have a clear understanding of the results a particular action is intended, if
control has to be effective, only then can they ascertain whether the anticipated results are
accruing and make whatever changes are necessary to ensure that the desired results do
occur.
Definition of strategic control
Strategic control is a special type of organizational control that focuses on monitoring
and evaluating the strategic management process in order to make sure it is functioning
properly. In essence, strategic control is undertaken to ensure that outcomes planned
during the strategic management process do indeed materialize.
7.1
The purpose and contributions of strategic controls
Companies small and large, use strategic controls to accomplish the following:
1.
Determine the accuracy of the assumptions on which the strategy has been
formulated. In todays highly dynamic markets, where conditions change rapidly,
managers need to ascertain the validity of their strategys assumptions and
premises.
- 78 -
2.
Determine that the chosen strategy is being implemented effectively, on time, and
within the constraints of available resources. Strategic control provides information
of managers on the progress of strategy implementation. This helps managers to
spot any bottlenecks that might slow down strategy implementation.
3.
Ensure that the company is performing according to plans and expectations. The
data generated by strategic control system can be useful in appraising the
companys performance. It helps the executives and members of the board of
directors appraise the companys ability to achieve its strategic, financial, and social
goals.
4.
Generate data for evaluating executive performance and making compensation

decisions. Companies need to develop compensation packages that spun their
managers motivation and performance. The data is important and rich source of
information about the managers contribution to the company and its shareholders.
5.
Enhance organizational learning. As plans are put in action, executives encounter

new situations and issues and must respond creatively to these challenges. Strategic
controls allow managers to examine their response to these issues and distill
important lessons for future action. This can help to improve future strategy
formation and implementation processes and achieve greater realism in these efforts
7.2
The components of strategic control
Strategic control system provides feedback about the companys operations, strategies
and goal achievement. A strategic control system has focus major components.
Strategic surveillance. These component aims to detect quickly environmental changes or
shifts that are likely to impact the companys strategy. It requires extensive and ongoing
environmental scanning and monitoring to collect relevant data for managerial decision
making strategic surveillance requires.
Identifying the firms environmental sectors that should be monitored

Collecting and analyzing the data and interpreting the result.
Feeding the data in to the control process and, later, identify thrests to the companys
successful execution of the strategy.
2.
Special alert control: the component serves as an early warning signal of potential
crises, which may affect the company or the implementation of the strategy.
While the manager cannot forecast crises, its beneficial to spot them quickly as
they emerge and contain them.
3.
Premise control: this component helps to validate the assumptions on which the
strategy is developed. Success in premises control requires environmental
monitoring to spot developing trends and examine their potential implications for
the premises on which the firm has developed its strategy.
- 79 -
4.
Implementation control: this component requires monitoring the actions undertaken

by management to implement the strategy and determine the effects of these
actions. It ensures that plans are performed in their designated sequence, within the
established time frame and within the resources and budget constraints.
Implementation controls require creating milestones for strategy execution (what
will be done? By whom? When? Where? How? How much?).
7.3
Process of strategic control
They are:
Step 1: Measure organizational performance.
Before managers can determine what can be done to make the strategic management
process more effective, they must make measure that reflect current organizational
performance. Organizational performance must take into account the following:
Strategic audit.
Strategic audit and measurement methods.
1.
Strategic audit is an examination and evaluation of areas affected by operation of

strategic management process within an organization. Such an audit may be very
comprehensive, emphasizing all facts of strategic management process, or very
focused, emphasizing only a single part of the process. The strategic audit can be
quite formalistic adhering to established organizational rules and procedures or
quite informal allowing managers wide discretion in deciding what organizational
measurements should be taken and when.
2.
Strategic audit measurement methods: there are several methods accepted for
measuring organizational performance; qualitative and quantitative. Quantitative
organizational measurements are measurements resulting in data that are
numerically summarized and organized before any conclusion are drawn on which
to base strategic control action.
Qualitative organizational measurement is organizational assessment resulting in data
that are numerically summarized and organized before conclusions are drawn on which
strategic control action. Although data gathered through via more qualitative
measurements, interpreting hat quantitative measurement actually mean and what
corrective action they signal can be very difficult and can be objective.
Step 2:
Compare organizational performance to goal and standards.
After measurement of organizational performance are taken, they must be compared with
two established benchmarks; organizational goals and standards; organizational goals and
the output of an earlier steps of the strategic management process.
- 80 -
Standards are developed to reflect organizational goals: they are yard sticks that
indicates acceptable levels of organizational performance. Some of the specific standards
are:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
Profitability standards: indicate how much profit a firm will like to make in a
given time.
Market position standards: indicate the percentage of total product market that the
company would like to win from its competitors.
Productivity standards. Indicate various acceptable rates at which final products
should be generated within the organization.
Product leadership standards: indicate what level of products innovation would
make people views the firm products as leaders in the market.
Personal development standards. Lists acceptable levels of progress in this area.
Employee attitude standards: indicate attitudes that a firm s employees should
adopt: not only are workers evaluated for the degree to which they project these
attitudes, but managers are evaluated for the extent to which they develop them in
their subordinates.
Public responsibility standards: indicate acceptable levels of activity within the
organization directed toward living up to social responsibilities.
Standards reflecting balance between short-range and long-range goals: indicate
what the acceptable long and short-range goals are and the relationships among
them.
Step 3. Take necessary corrective action.

Corrective action is defined as a change measurement makes in the way an organization
functions in order to ensure that the organization can be more effectively and efficiently
reach organizational goals and perform up to standards that have been established.
7.4
Designing effective strategic control systems
Strategic controls are an integral component of the strategic process. If not properly
planned the whole system can go away. There it is important to understand the quantities
of effective strategic controls.
To ensure the effectiveness of strategic controls, executives should ensure that the
following criteria are adhered.
(i)
They are future-oriented. Strategic control helps managers visualize every aspect
of the strategy formulation and implementation and plan accordingly. To be
future-oriented, strategic control systems should be tied to the companys
planning processing.
(ii)
The are closely linked to strategy evaluation. It is important to link closely

strategic controls with company efforts to evaluate chosen strategy. Once the
strategy has been implemented and selected, plans are developed and needs for
- 81 -
strategic controls are considered during strategy evaluation. However, attention

must be given to four areas:
Consistence means that the activities of different units are harmonized and
directed toward the common goal successfully executing the companys
strategy. Strategy should be evaluated based on three factors. Companys
objectives, the firms assumptions about its environment, and the companys
internal conditions.
Consonance: Managers should determine that the strategy reflects the
conditions of the firms external environment. Where changes are necessary,
the chosen strategy should give the company flexibility of action.
Feasibility. Managers should determine if the strategy is double and
achievable. Managers need to examine the companys resources base, both
current and potential. It demands also that they examine the strategy compared
to the companys resource base, the riskness of the strategy and the strategys
implementation time horizon.
(iii)
They emphasize both the content and process issues. Focussing on the process
aspect of controls reminds managers of the human factors that can affect the
systems performance and usefulness. Processes centers on people, their goals,
their information processing styles, aspirations and fears.
(iv)
They balance short-term and long-term demands on the company and its
executives. Strategic control recognize that short-term success does not always
mean long-term competitive superiority. They are designed with a clear focus on
the requirement for long-term success. Thus, managers feel not pressured into
making short-term decisions that compromise their companys long-term financial
performance.
(v)
They establish formality without undue bureaucracy. Strategic control has a

logical and viable organizational structure that defines their different tasks.
Structure creates legitimacy and instills a sense of accountability. It also helps
accomplish the systems goal efficiently and economically.
(vi)
They encourage learning. Strategic control should allow managers to reflect on

their experiences and determine which action has been conducive to success. The
data generated by the systems should enable managers to identify factors that
have contributed to any failures in the implementation of the companys strategy.
(vii)
Strategic controls form an integrated system. One reason why some strategic
control systems fail is their poor design. This causes mismatches between the
information generated and managers need.
- 82 -
7.5
Consequences of poor controls
Poor strategic controls can result in:

1.
Inflexibility: Managers feel that they are tried and they are unable to act. In turn,
this inflexibility can reduce managers willingness to assume risks and show
initiative.
2.
Missed opportunities. This can occur because of attention centers on the wrong
issues, managers are unable to act, or signals of promising opportunities are not
analyzed and understood.
3.
Loss of motivation and poor morale. Poor control can democratize managers and
employees. This can lower managers commitment to the company and its strategy.
4.
Lack of accountability. Poor control system fails to determine the causes of

deviations, if they exist. When this happens, managers learn to manipulate the
system to avoid accountability. Absence of clear authority/responsibility
relationship may further weaken the system and breed lack of trust in its results.
5.
Stiffling creativity, innovation and entreprenuership. Poor controls discourage

creativity and stiffle innovation by placing obstacles in the way of managers and
entrepreneurship.
7.6
Why do control systems fail?
Despite careful planning, strategic control systems fail to achieve their goal. The
following are some of the reasons.
1.
System design factors

(i)
Poorly stated (or vague) goals
(ii)
Obsession with procedures and systems (whether they make sense or not).
(iii) Insufficient or faulty information processing capabilities
(iv)
Mismatch between the capabilities of the system and managers cognitive
abilities
Management-related factors
(i)
Breakdowns in authority accountability centers
(ii) Dysfunctional organizational politics
Misconceptions about the strategic controls

(i) Strategic controls are post-hoc activities after the fact.
(ii) Strategic controls are an exercise in date crunching (needs acceptance from
top-management.
(iii) The assumption that one system fits all.
- 83 -
7.7
The importance of information in strategic control
Information plays a significant role if the organization has to achieve desired goals
through strategic control. Management must have valid and reliable information that
reflects various measurements of organizational performance. Without such information,
action taken to exert strategic control will be highly subjective and will have little chance
of consistently improving organizational performance. Information is the lifeblood of
successful strategic control.
The management information system (MIS)
A management information system is a formal organizational act work that is normally
computer-assisted and is established within an organization to provide managers with
information to help their decision-making.
Once management establishes what information is needed for strategic control,
appropriate data must be collected and analyzed and the information this analysis yields
must be disseminated to appropriate organization members, usually upper management.
Upper management must formulate and implement strategic control activities and on the
functioning of MIS system, future control needs should be met.
The effectiveness of the strategic control process is largely dependent on valid and
reliable organizational performance, and continuous assessment of MIS functions.
However, sensing mis-related problems can be quite difficult or it may be as simple as
listening to comments of strategic control decision-makers. Bertram A. Colbert, a
principle of price waterhouse and company, has indicated that there are some kinds of
symptoms which can betray an MIS that is operating improperly without the knowledge
of managers. They are:
(i) Operational symptoms which relate to the way an organization functions.
(ii) Psychological symptoms which reflect the feelings of organization members, and
(iii) Report content symptoms which are exhibited in the structure of reports generated
by the MIS.
7.8
Key players in strategic control process:
Roles of modern controllers

Controllers play three major roles. They are:
1. Functions as catalyst influence the way different units and managers communicate,
interact; they may also influence the amount of power each unit might exert on
strategic initiative proposed.
2. Serve as analyst Because of the amount of information collected in performing his
or her duty, the controller is positioned to add value to the companys strategic
- 84 -
initiatives. By analyzing data, the controller can identify strategic issues that warrant
managerial attention.
3. Function as strategist. The role is important to any organization if the desired goals
are to be achieved. The controller has to evaluate the systems success and shortcomings, and become more responsive to the informational needs of different units.
Senior executives
Senior executives play a profound role in designing and implementing the strategic
control system. Many of these roles are:
1.
Clarify and communicate the goals of the control system. In particular, they should
outline the expected results and their potential uses.
2.
Establish the information flow between different units of the control system. This
requires a clear view of the company and its operations. It also requires senior
executives to involve managers throughout the company.
3.
Highlight the beneficial, not the punitive, uses of the system. Executives need to
pay attention to the symbolism associated with the strategic control system.
Employees and managers alike read things into senior managers interpretations of
data collected through the control system. Who is involved in the process? How do
they interpret the results? How do they reconcile contradictory views? What types
of actions are taken and by whom?
4.
Clarify the responsibilities associated with different aspect of the system.

Executives should decide who will carry out the control systems different
managerial responsibilities.
5.
Provide political and financial support, political support can take many forms such
as placing the system under the direct supervision of senior executives, requiring
the use of data generated by the system, and publishing the system s results.
Financial support is manifested in making available the right personnel and
equipment for the system.
Board of Directors
Boards of directors are considered the apex of the system of corporate checks and
balances in publicly held companies. Board of directors is established to represent the
companys shareholders and protect their interest. Directors are responsible for
monitoring, evaluating, compensating and challenging the companys CEO.
Because strategic management is primary the responsibility of top management and
because strategic control is a critical ingredient of unsuccessful strategic management,
- 85 -
top management must be able to understand strategic control process. To maintain

strategic momentum to leap to new strategy, top management must ensure the following:
1. Appropriate behaviour within the organization is encouraged through the use of
organizational incentives.
2. Organizational structure contributes to attainment of the objectives.
3. Values and norms existing within the organizational culture are consistent with the
objective being pursued.
4. The information support Andes to reach the objective is available.
7.9
1.
2.
3.
4.
5.
Revision questions
Discuss the purposes and contributions of strategic controls

Outline the different components of the company control system
Discuss design factors that lead to the failure of the strategic control system
How does the breakdown in authority accountability influence strategic controls?
A company has decided to expand its international operations. Managers are concerned
about the effectiveness of the existing control system. They believe that the growth of
international operations requires broadening the scope of the control system. What
changes in the system would you recommend? How might the mission of the strategic
control system vary because of internationalization? Why?
- 86 -
7.10
Summary
Strategic control entails the process of monitoring, evaluating and improving various types of
activities occurring within organizations in order to make events unfold as planned.
There are three basic steps to strategic control process: measurement organizational
performance, comparing organizational performance to goals and standards, and taking
corrective action. If events are occurring in line with organizational goals that were
established within the strategic management process, no corrective action, some type of
corrective action is necessary.
Strategic control process has different components of the companys control system. They
consist of: strategic surveillance, special alert control, premise control and strategy
evaluation-feedback control, which centers on reviewing the progress being made in
implementing the strategy, highlighting deviations from expectations and goals.
Top management has an important role to play in making sure that strategic control is
successful. Some of the important role-played include: design and implementation of strategic
control process so that appropriates strategic control behaviour within organizational structure
is consistent with strategic control objectives and information needed to support strategic
control system is made available.
7.11
1.
2.
3.
Further reading
Bennis, Warver and Burt Nanus. Leaders: Strategies for Taking Charge. New York:
Harper and Row, 1985.
Byars, Lloyd L.v Strategic Management: Planning and implementation. Concepts and
cases. New York: Harp and Row, 1987.
Screyogg. George and Horst Steinman, Strategic Control A New Perspective. The
Academy of Management Review 12, No 1 (January 1987), 91-103.
- 87 -
LESSON 8
STRATEGIC HUMAN RESOURCE MANAGEMENT
8.0
1.
2.
3.
4.
5.
Objectives

Understand the meaning of strategic human resource management.
Trace the genesis of strategic human resource management.
Develop human resource strategies.
Formulate human resource strategy
Focus human resource management in the strategic management
process.
The role of human resource manager has changed from good old boy personnel
specialist to general manager. This shift is reflected in the increasing number of
companies turning to successful general managers filling key positions in human
resources.
In recent years there has been growing awareness that human resource management is a
factor that can be or should play an important role in the development and
implementation of effective strategic plans. It is the latter area where human resource
management may be able to play its most important role.
8.2
Strategic Human Resource
Strategic human resource management is an approach to making decisions on the

intentions of the organization concerning people and the decisions being important
components of the organizations business strategy. It is about the relationship between
human resource management and strategic management in the organization. Strategic
human resource management refers to the overall direction the organization wishes to
pursue in achieving its objectives through people. It is however argued that, because in
the last analysis it is people who implement the strategic plan, top management must take
this key factor fully in account in developing its corporate strategies.
Strategic human resource management covers broad organizational concerns relating to
structure and culture, organizational effectiveness and performance, matching resources
to future business requirements and the management of change.
- 88 -
Wright and Snell (1989) are of the view that in a business, strategic human resource
management deals with those HR activities used to support the firms competitive
strategy. Strategic human resource management encompasses those decisions and
actions which concern the management of employees at all levels in the business and
which are directed towards creating and sustaining competitive advantage (Miller 1989).
Walker (1992) defined strategic item as the means of aligning the management of
human resources with the strategic content of the business and Boxal (1994) said that
the critical concerns of human resource management are integral to strategic
management in any business.
8.3
HRM In The Strategic Management Process
Strategic management refers to a continuing process consisting of a sequence of activities

i.e. strategy formulation, strategic planning, implementation, review and updating.
Strategic management is the set of decisions and actions resulting in the formulation and
implementation of strategies designed to achieve the objectives of an organization
(Pearce and Robinson, 1988).
Gunnigle and Moore (1994), strategic management is concerned with policy decisions
affecting the entire organization, the overall objective being to position the organization
to deal effectively with its environment.
The other definitions given by other experts is as follows:
Strategic management means that managers are looking ahead at what they need to
achieve in the middle or relatively distant future. Although as fombrun et al (1984), put
it, they are aware of the fact that business, like managers, must perform well in the
present to succeed in the future, they are concerned with the broader issues they are
facing and the general directions in which they must go in order to deal with these issues
and achieve longer-term objectives.
The purpose of strategic management has been expressed by Kanter (1984) who believes
that strategic plans elicit the present actions for future and become action vehicles
integrating and institutionalizing mechanisms for change. She goes to say:
Strong leaders articulate direction and save the organization from change by drift they
see a vision of the future that allows them to see more clearly what steps to take, building
on present capacities and strengths.
Strategic human resource management is an overall approach to dealing with longer-term
people issues as part of the strategic management thrusts of the business. It is a process
which deals with macro concerns about organizational effectiveness, structure, values,
culture, quality, commitment, performance, competence and management development
(figure 1) presents a diagram showing a proper position of human resource management
within the broader strategic context. HR forms the foundation for people issues in an
- 89 -
organization. Although most capital assets are managed in such groups as finance,
marketing, operations, and R and D. HRM can provide a great assistance in the
management of human assets and can play a role in the leadership of those assets. After
corporate leaders have established the strategic direction, it is up to the functional areas
of marketing and operations, ideally working together, to develop specific functional
strategies that supports the companys strategy.
The functional areas do not exist, much less function without people. As important as
financial resources are to the success of an organization, they are useless unless managed
by people.
Leadership
R
Marketing
and
D
Financial Resources
Human Resources
(Figure 1)
- 90 -
Operations
8.4
Aims of Strategic Human Resource Management
Strategic HRM aims at providing a sense of direction in an often turbulent environment

so that organizational and business needs can be translated into coherent and practical
policies and programmes. Strategic human resource management should provide
guidelines for successful action and the ultimate test of the reality of strategic human
resource management is the extent to which it has stimulated such action.
8.5
Origins of The Concept Of Strategic HRM
The concept of strategic human resource management was first formulated by fombrum
et al (1984), with a view that three core elements are necessary for firms to function
effectively.
Mission and strategy
Human resource management
Organization structure
Their view was based on the fact that strategy is a process through which the basic
mission and objectives of the organization are set, and a process through which the
organization uses its resources to achieve its objectives. They made a distinction between
the three level of managerial work:
Strategic level policy formulation and overall goal setting
Management level concerned with the availability and allocation of resources to
carry out the strategic plan.
Operational level day-to-day management.
However, they made a conclusion as:
HR systems and organizational structures should be managed in a way, which is
congruent with organizational strategy.
8.6
Meaning of Strategic HRM
Heading and Pettigrew (1986), suggests that HRM has four meanings:
The use of planning
A coherent approach to the design and management of personal systems based on an
employment + policy manpower strategy and often underpinned by a philosophy.
Matching HRM activities and policies to some explicit business strategy.
Seeing the people of the organization as a strategic resource for the achievement of
competitive advantage.
8.7
Strategic Integration: Integrating Business And HR Strategies
The concept of strategic human resource management is predicted on the belief that
human resource strategies should be integrated with corporate or business strategies
(Armstrong, 1995).
- 91 -
Millers (1989) has the understanding that for this state of affairs to exist it is necessary to
ensure that management initiative in the field of human resource management are
consistent with those decisions taken in other functional areas of the business, and
consistent with an analysis of the product market situation.
Armstrong (1995), goes further to say that the key is to make operational the concept of
fit - the fit of human resource management with the strategic thrusts of the
organization. It could be said that the development of operational linkages is what
strategic human resource management is all about.
The significance of strategic human resource management is underlined by Tyson and
Witcher (1994), who said that human resource management strategies should be studied
in the context of corporate and business strategies. Strategic integration is necessary to
provide congruence between business and human resource so that the latter supports the
accomplishment of the former and indeed, helps to define it. The aim is to provide
strategic fit and consistency between the policy goals of human resource management
and the business.
Guest (1089b) views strategic human resource management as largely being about
integration. He sees this as one of the key policy goals for human resource management
on:
Adopting a strategic approach one in which human resource strategies are
integrated with business strategies
Treating people as assets to be invested in to further the interests of the organization
Obtaining added value from people by the process of human resource development
and performance management
Gaining their commitment to the objectives and value of the organization
The need for a stronger corporate culture expressed in mission and value statements
and reinforced by communications, training and performance management process.
These will ensure that human resource management is fully integrated into strategic
planning so that human resource management policies where both across policy areas and
across hierarchies, and human resource line managers as part of their everyday work use
management practices. Human resource strategic according to walk (1992), are functional
strategies like financial marketing production or information technology strategies.
8.8
Limitations
They are:
Diversity of strategy process, levels and styles.
The different levels at which strategy is formulated and the different styles adopted by
organizations, may make it difficult to develop a coherent view of what sort of human
resource strategies will fit the overall strategies and what type of human resource
contributions are required during the process of formulation. To achieve competitive
- 92 -
advantages, such business unit is a diversified cooperation should tailor its human
resource management policy to its own product-market conditions, irrespective of the
human resource management policies being pursued elsewhere in the corporation. If this
is the case, there maybe coherence within a unit but not across the whole organisation and
it may be difficult to focus human resource strategies on corporate needs (Miller 1987).
The complexity of the strategy formulation process.
Strategy formulation and implementation is a complex, interactive process heavily

influenced by a variety of contextual and historical factors. Hendry and Pettigrew (1986).
There is also doubt on how can there be a strategy forward flow from the business
strategy to the human resource strategy as evidenced by experts like David Guest and
others.
The evolutionary nature of business strategy.
The nature of strategic-making process, and the phenomenon associated to this process,
may maker it difficulty to pin down the human resource issues which are likely to be
relevant. There are limits to the extent to which rational human resource strategies can be
drawn up if the process of business strategic planing is itself irrational as suggested by
Hendry and Pettigrew (1900). Even if Mintrbergs (1978) description of strategy as the
pattern in a steam decision overtime is accepted, it may be difficult to fit human
resource strategy into the process in a well-defined way.
The absence of articulated business strategies
Business strategies has not been property articulated and this adds to the problem of
clarifying the business strategic issues which human resource strategies should address.
But it should noted that articulation in this context made means that the business
strategies are fully understood by those concerned
The qualitative nature of HR issues.
Business strategies aim to be expressed in the common currency of figures and hard data
on portfolio management, growth, competitive position, market share and profitability.
HR strategies may deal with Quantifiable issues such as resourcing and skill acquisition
but are equally likely to refer to Qualitative factors such as commitment, motivation and
good employee relation and high employment standards. The relationship between the
pursuit of policies in those areas and individual organizational performance may be
difficult to establish. Armstrong (1995)
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Integration with what?
The concept of human resource management implies that human resource strategies must
be totally integrated with corporate/business strategies in the sense that they both flow
from and contribute to such strategies. However, Brewstes (1903) argues that human
resource strategies will be subjected to considerable environmental pressure i.e.
legislation about employee involvement. These may mean that HR strategies cannot be
entirely governed by corporate/business strategies.
Storey (1989), say that a soft strategic HRM will place greater emphasis on the human
relations aspect of personnel managing, stressing security of employment, continuous
development, communication, involvement and the quality of working life. Hard
strategic HRM on the other hand emphasizes the yield to be obtained by investing in
human resources in the interests of the business. As lengwick-Hall and Lengic Hall
(1990) put it:
There is now a growing realization that the concern should be the yield from employees.
Yield concentrates on the intricate web of costs and benefits that result from investing in
and forecasting human resource activities toward a certain set of activities and away from
behaviors and attitudes. Yield recognizes both trade-offs and choice. Yield depends on
shared responsibilities and collaboration across functional units and hierarchical levels.
Ideally, strategic integration should attempt to achieve a proper balance between the hard
and soft elements. The emphasis may be on achieving corporate or business objectives
but this should be a process, in Quinn-Mills (1985) phrase of planning with people in
mind, taking into account the needs and aspiration of the members of the organization.
8.9
The Concept Strategic Fit
The concept of strategic fit or strategic integration may beguiling, but it is difficult it one.
David Guest (1991) fails to understand it the fit should be to business strategy, a set of
values about the quantity of working life or the stock of human resources or what? He
further asked
Are there inevitable conflicts between the different types of fit?
How do we identify or measure fit?
How do we integrate the various human resource management policies?
Walker (1992) suggested useful analytical model for assessing the degree of fit or
integration. He recommends three types of processes in developing and implementing HR
strategy:
The integrated process
HR strategy is an integral part of the business strategy, a long with all the other functional
strategies. In strategy review discussions, HR issues are addressed as well as financial
products-market and operational ones. But, the focus is not on down-stream matters
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such as staffing individual performance or development but rather on people- related

business issues, resource allocation, the implications of internal and external charge and
the associated goals, strategies and action plans.
The aligned process
HR strategy is developed together with the business strategy. They may be presented and
discussed together but they at distinct outcomes of parallel processes. By developing and
considering them together as there is some likelihood that they will influence each other
and be adopted as a cohesive or at least an adhesive whole!
The separate process
In this, the most common approach, a distinct HR plan is developed. It is both prepared
and considered separately from the overall business plan. It may be formulated
concurrently with strategic planning before (and an input to) or following (to examine its
implications). The environmental assessment is wholly independent. It focuses on human
resources issues and, so far possible looks for the business-relativeness of the information
obtained. Since the assessment is outside the strategic planning process, consideration of
HR strategy depends on a review of the current and past business strategies.
8.10
The Concept of Coherence
Another aspect of strategic human resource management is the concept of coherence. It is

the development of a mutually reinforcing and inter-related set of personnel and
employment policies and programmes which jointly contribute to the achievement of the
organizations strategies for matching resources to organizational needs, improving
performance and quality and, in commercial enterprises, achieving competitive
advantage.
On the other hand, strategic human resource management is holistic; it is concerned with
the organization as a total entity and addresses what needs to be done across the
organization as a whole in order to enable it to achieve its corporate strategic objectives.
Beer et al (1984) suggested that this framework (employee influence, human resource
management flow, reward system and work systems) stimulate managers to plan how to
accomplish the major HRM tasks, in a unified, coherent manner rather thatn in a
disjointed approach based on some combination of past practice, accident and adhoc
response to outside pressures. The following realistic comments on the practicality of
achieving coherence have been made by Stevens (1995).
People management practices and styles are sometimes very consciously coherent.
Equally often, they are an amalgam of conscious decision, pragmatic development and
compromise between what is and what is to be desired. Different approaches may be
taken with different groups of employees. The consistency of policies of reward ,
training and development, job security and industrial relations may not be obvious to the
outside observes; however, the apparent inconsistencies may be the result of subtle
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decisions made to fit in with the particular requirements of a particular organizational at

one point in time.
8.11
Formulation of HR Strategy General Considerations.
There are many approaches that can be adopted to the formulation of HR strategies as
the research conducted by Armstrong and Long (1994) confirmed, there is no one right
way. Tyson and Witches (1994) holds the same view on the basis of their research
conducted on 30 companies that different approaches to strategy formulation reflect
different ways to manage change and different ways to bring the people part of the
business into line with business goals. They went on to say that: the process of
formulation HR strategy was often as important as the content of the strategy ultimately
agreed. It was organized that by working through strategic issues as highlighting points
of tension, new ideas emerged as a consensus over goals was found.
Purcell (1989) made a distinction between:
Upstream first-order decisions which are concerned with the long-term direction of
the enterprise of the scope of its activities.
Downstream second-order decisions which are concerned with internal operating
procedures and how the firm is organized to achieve its goals CT Chandlers (1962)
dictum that structure follows strategy which may be an over-simplified view of how
structures develop, but does present a fundamental truth, that organization structure
must be contingent on business strategy and how this relates to the environment in
which the business is operating.
Downstream third-order decisions which are concerned with choices on human
resource structures and approaches and are strategic in the sense that they establish
the basic parameters of employee relations management in the firm.
Armstrong and Long (1994), on their research, found that there were only two clearly
distinguishable levels of strategy formulation in the organization. They are:
The corporate strategy relating to the vision, mission and objectives of the
organization and the business it is in or aspires to be in.
The specific strategies within the corporate strategy. Concerning product market
development, acquisition and divestments, human resources, finance, new
technology, organization and such overall aspects of management as quality,
flexibility, productivity, innovation and cost reduction.
Boxall (1993) drew up the following prepositions about the formulation of HR strategy
as:
There is typically no single HR strategy in a firm.
Business strategy may be an important influence on HR strategy but it is only one of
several factors and the relationship is not unilinear.
Implicit (if not explicit) in the mix of factors that influence the shape of HR strategies
is a set of historical compromises and trade-offs from stakeholders.
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Management may seek to shift the historical pattern of HR strategy significantly in

response to major contextual change, but not all managements will respond in the
same way or equally effectively.
The strategy formation process is complex, and excessively rationalistic models that
advocate formalistic linkages between strategic planning and HR planning are not
particularly helpful to our understanding of it.
Descriptions of the dimensions that underpin HR strategies are critical to the
development of useful typologies but remain controversial, as no one set of constructs
has established on intellectual superiority over the others.
8.12
Requirements for Strategic HRM
They are:
Strong, visionary and often charismatic leadership from the top.
Well-articulated missions and values, the latter often including a strong emphasis on
quality and customer service (Tyson and Witcher, 1994, noted the importance their
respondents attached to corporate values)
A clearly expressed business strategy which had been implemented successfully.
A positive focus on well-understood critical success factors.
The organization offers a closely related range of products or services to customers.
A personal/HR director who plays on active part in discussing corporate/ business
issues as well as making an effective and corporate/business-oriented contribution on
HR matters.
8.13
Developing HR Strategies
Dyer and Holder (1988), developed a methodology in adopting a systematic approach in

formulating HR strategies which considers all relevant organizational, business and
environmental issues as follows:
Assess feasibility from an HR point of view, feasibility depends on whether the
numbers and types of key people required to make the proposal succeed can be
obtained on a timely basis and at reasonable cost and whether the behavioral
expectations assumed by the strategy are realistic (e.g. retention rates and productive
levels)
Determine desirability examine the implications of strategy in terms of sacrosanct
HR policies (e.g. a strategy of rapid retrenchment would have to be called into
question by a company with a full employment policy)
Determine goals these indicate the main issue to be worked on and they derive
primarily from the content of the corporate business strategy. For example, a strategy
to become a lower cost producer would require the reduction of labor costs. This in
turn translates into two types of HR goal.
Higher performance standards (contribution), and
Reduced head counts (composition)
Deciding means of achieving goals the general rule is that the closer the external
and internal fit, the better the strategy, consistent with the need to adopt flexibility to
change. External fit refers to the degree of consistency between HR goals on the one
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hand and the exigencies of the underlying corporate/business strategy and relevant
environmental conditions on the other. Internal fit indicates the extent to which HR
means follow from HR ends or goals and other relevant environmental conditions, as
well a the degree of coherency or synergy among the various HR means.
Mission
Business goals
Analysis
internal
environment
Critical success factor

Business Strategy
Personnel Strategy
FIGURE 1.1 A sequential strategic HRM model
Personnel Plans
Implementation
of
personnel programmes
KEY ISSUES WHICH MAY IMPACT ON HR STRATEGIES ARE:
Intentions concerning growth or retrenchment requisitions, mergers, divestments,

product/market development.
Proposals on increasing competitive advantage or organizational effectiveness
through higher levels of productivity, improved quality/customer service, cost
reduction (downsizing).
The felt need to develop a more positive, performance-orientated culture.
Any other culture management imperatives associated with changes in the
philosophies of the organization in such areas as gaining communications,
involvement, empowerment, devolution, teamworking and developing a climate of
success.
Any external environmental factors (opportunities and threats) which may impinge on
the organization, such as government interventions i.e. competition or economic
pressure (recession).
Corporate strategy sets the agenda for HR strategy in the following areas:
Mission
Values, culture and style
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Organizational philosophy and approach to the management of people

Top management as a corporate resource
Resourcing
Skills acquisition and development
Commitment
Productivity
Performance management
Rewards
Employee relations
GUIDELINES ON DEVELOPING A STRATEGIC HRM APPROACH

1. Get to know and thoroughly understand.
The vision of the chief executive on the future of the organization.
The views of each of the key Directors or top executive concerning the future of their
own functions and the challenges and problems facing them.
The mission of the organization and whether or not it has been formalized.
The values of the organization as espoused and practiced.
The management style of the chief executive and your colleagues.
The distinctive core competence of the organization and its people.
The critical success factors of the organization.
The objectives of the organization in terms of rate and direction of growth,
quantified wherever possible.
The measures used by the organization to assess its performance.
The corporate or business strategies of the organization in such as:
Innovation
Product market development
Technological development
Expansion or downsizing
Acquisitions, mergers or divestments
2. Develop this understanding by:
Absorbing and analyzing informing discussed at board and other meetings or

incorporated in any documents which are available or can, somehow, be obtained.
Playing a full part in board meetings on any corporate or business matters on which
you think you can make a contribution based on your own knowledge of the
challenges and choices facing the organization bearing in mind that you may be
able to bring a fresh perspective to these discussions.
Talking informally to your chief executive and your colleagues about their business
or functional plans and problems, not confining yourself to purely human resource
issues your credibility and ability to contribute will increase if you show an
intelligent interest in what is going on and in what may transpire in the future.
3. Conduct your own analysis of the HR issues which emerge from your understanding
of the corporate or business issues concerning the organization as a whole or those
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relating to specific areas. This could be conducted in the form of a SWOT (strengths
and weaknesses and opportunities and threats) analysis. The outcome of this analysis
could be grouped under headings such as:
Organization
Skill acquisition or expansion
Competence development
Continuous learning and development
Performance improvement
Values and management style
Quality and customer service
Motivation and reward
Commitment
Team work
Participation
Empowerment
Flexibility
Employee and trade union relations
Change management generally
4. Consider any innovations you think are required under any of the above headings.
5. Conduct a thorough assessment of these possible strategic innovations under such

headings as:
How they will provide for added value or competitive advantage.
How they will address the critical strategic issues facing the organization and fit
organizational requirements.
The specific impact they will make on performance and the ability of the
organization to achieve its immediate and longer-term goals.
How they will fit with one another and existing policies and practices.
Their costs as well as their benefits.
The financial return you expect from investing in them.
The arguments that are most likely to convince your colleagues that the
innovations will pay off (anticipate objections).
How the innovations will be developed and implemented (the resources and time
required).
6. Form alliances identify any champions for change in the organization who are
likely to provide support.
7. Identify any enemies of change who may block your proposals and decide what to do
about them.
8. Test other peoples opinions about your ideas.
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9. Lobby and network as necessary (not all key decisions are made in board meetings).
10. Always keep in mind the objectives you are aiming to achieve, how these will support
the achievement of organizational objectives and how you are going to ensure that
your strategies will be accepted and implemented effectively.
8.14
Revision questions
1. Discuss the relevance of strategic HRM citing the changing trends of

development in HR issues.
2. Why is it hard for any organization to implement strategic HRM policies.
Suggest possible solutions if organizations objectives are to be achieved.
8.15 Summary
The fundamental concept of strategic human resource management is base on the assumption
that human resource strategy can contribute to the business strategy but is also justified by it.
The validity of this concept depends on the extent to which it is believed that people create
added value and should therefore be trusted as a strategic resource. If this assumption is
accepted, and it is difficult to challenge the validity of the concept of strategic human
resource management does depend on the extent to which it can be applied in practice and the
outcomes of such applications.
8.16
Further reading
1. Harvey non Business policy and strategic management Columbus , Ohio: Merill
publishing company 1982
2. Yip George S. Who needs strategic planning?
Journal of business strategy. Fall. 985 pp. 35-42
3. D.O. Mickee. r. Vavadarajan and WM. prides strategic adaptability and firm
performance: A market contingent perspective. Journal marketing 53 (1989) 21 35.
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LESSON 9
STRATEGIC MANAGEMENT: CASE ANALYSIS
9.0
Objectives

1.
To apply textbook knowledge about strategic management and become more skilled
in the art and science of situation analysis.
2.
Getting out of the habit of being a receiver of facts, concepts and technologies and
into the habit of diagnosing problems, analyzing and evaluating alternatives and
formulating workable plans of action.
3.
Able to work out answers and solutions for oneself, as opposed to relying on the
authoritative crutch of the lecturers or back-of-the book-answers.
4.
Get exposure of a range of firms and strategy-related situations (which might take a
life time to experience personally), thus creating a background of experience for
coming up with your own business.
9.1
Introduction
Case analysis is educational method that is effective in strategic management through

experience analysis. The case method compliments and enhances the text materials by
focusing attention on what a firm has done or should do in an actual business situation.
The significance of cases in strategic management, is highlighted by Gragg in his classic
article. Because Wisdom Cant Be Told, to characterize the plight of business students
who had no exposure to cases. He obscured that the mere act of listening to lecturers and
sound advice about managing does little for anyones management skills and the
accumulated managerial experience and wisdom cannot effectively be passed on by
lectures and by reading alone. Gragg suggested that if anything has been learned about
the practice of management, it is that a store house of read-made textbook answers does
not exist. Each managerial situation has unique aspects, requiring its own diagnosis,
judgment and tailor-made actions.
The case approach to strategic analysis is learning by doing. The case method of
instruction builds on the benefits of acquiring managerial experiences and skills by
analyzing company after company and situation after situation. The other important
aspect of case method is that not all students have access to different kind of companies
and real-life strategic situations cases offer a viable substitute by bringing a variety of
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industries, organizations and strategic problems into the classroom, permitting students to
assume the managers role, and providing a test of how to apply tools and techniques of
strategic management.
9.2
Preparing for Case Discussion
The case method requires an approach to class preparation that differs from the typical
lecture course. In the typical lecture course you can benefit from each class session even
if you did not prepare, by listening carefully to the lecturer. This approach will not be
effective in case method. It is therefore important that proper preparation is done.
9.3
Suggestions for Effective Preparations
Pearce and Robinson suggest the following effective preparation methods of handling
cases:
1.
Allow adequate time in preparing a case. Many of these cases involve complex
issues that are not often apparent without careful reading and purposeful
reflection on the information in the cases.
2.
Read each case twice. Because these cases involve complex decision making, you
should read each case at least twice. Your first reading should give you an over
view of the firms unique circumstances and the issues confronting the firm. Your
second reading allows you to concentrate on what you feel are the most critical
issues and to understand what information in the case is not important. Make
limited notes identifying key points during your first reading. During your second
reading, you can add details to your original notes and revise them as necessary.
3.
Focus on the key strategic issues in each case. Each time you read a case you
should concentrate on identifying the key issues. In some of the cases, the key
issue will be identified by the case writer in the introduction. In other cases, you
may not grasp the key strategic issue until you have read the case several times
(Remember not all every piece of information is important).
4.
Do not overlook exhibits. The exhibits in these cases should be considered an

integral part of the information for the case. They are not just window dressing.
In fact for many cases you will need to analyse financial statements, evaluate
organizational charts, and understand the firms products, all of which are
represented in the firm exhibits.
5.
Adopt the appropriate time frame. It is critical that you assume the appropriate
time frame for each case you read. If the case ends in 1985, that year should
become the present for you as you work on that case. Making a decision on each
case that ends in 1985 by using data you could not have had until 1986 defeats the
purpose of the case method. For the same reason, although it is recommended that
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you do outside reading on each firm and industry, you should not read material
written after the case unless your lecturer instructs you to do so.
6.
Draw n all your knowledge of business. As the key decision maker for the
organization being studied, you will need to consider all aspects of the business
and industry. Do not confine yourself to strategic management concepts presented
in the course. You will need to determine if the production, finance or economic,
or in the strategic management course. However, Arthur A. Thompson, Jr. and
A.J. Strickland III are of the view that following points should be taken into
consideration:
i)
The case method enlists a maximum of individual participation in class

discussion. It is not enough to be present as a silent observer, if every
student took this approach, then there would be no discussion (Thus, do
not be surprised if a portion of your grade is based on your participation in
case discussion).
ii)
Although you should do your own independent work and independent

thinking, dont hesitate to discuss the case with other students. Managers
often discuss their problems with other key people.
iii)
During case discussions, expect and tolerate challenges to the views

expressed. Be willing to submit your conclusions for scrutiny and rebuttal.
State your views without fear of disapproval and overcome the hesitation
of speaking out.
iv)
In orally presenting and defending your ideas, strive to be convincing and

persuasive. Always give supporting evidence and reasons.
v)
Expect the instructor to assume the role of extensive questioner and

listener. Expect to be cross-examined for evidence and reasons by your
instructor or by others in class. Expect students to dominate the discussion
and do most of the talking.
vi)
Although discussion of a case is a group process, this does not imply

conformity to group opinion. Learning respect for the views and
approaches of others is an integral part of case analysis exercises. But be
willing to swim against the tide of majority opinion. In the practice of
management, there is always room for originality, unorthodox, and unique
personality.
vii)
In participation, make a conscious effort to contribute, rather than just talk.

There is a very big difference between saying something that builds the
discussion and offering a long-winded, off-the-cuff remark and that leaves
the class wondering what the point was.
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9.4
viii)
In making your points, assume that everyone has read the case and knows
what the case says, avoid reciting and rehearsing information in the case
instead, use the data and information to support your position.
ix)
Avoid the use of I think, I believe. and I feel and the company
should do because of
x)
Dont be surprised if you change your mind about some things as the
discussion unfolds. Be alert for how these changes affect your analysis and
recommendations (in case you get called on). You will learn a lot from
each case discussion, use what you learn to be better prepared for the next
case discussion.
Participation in Class
Strategic management usually use case method as a viable means of challenging students
in way of understanding and grasping materials, making viable decisions. The success
and value of the class discussion rely on the roles performed by the lecturers and their
students.
The students as a learner
The case method requires students participation. This means the role of a student is no
longer one of sitting and listening. Hence students should:
1.
Attend class regularly. Not only students grade depend on participation in class
discussion, but the benefit achieved from the course is directly related in
participation in an involvement and understanding of the discussions.
2.
Be prepared for class. The need for adequate preparation is important. The
students are bound to benefit from the discussions, participate and understand
exchange of ideas and avoid the embarrassment of being called on when not
prepared.
3.
Participation in the discussion. Attending class and being prepared are not
enough, there is need to express your views in class. You can participate in a
number of ways: by addressing a question asked by your lecturer, by disagreeing
with your lecturer or class mate (by all means be tactful), by building on an idea
expressed by a class mate, or by asking a relevant question.
4.
Participate wisely. Although you do not want be one of those students who never
raise his or her hand, you should be sensitive to the fact that others in your class
will want to express themselves.
5.
Keep a broader perspective. By definition the strategic management course deals

with the issues facing general managers or business owners.
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6.
Pay attention to the topic being discussed. Focus your attention on the topic being
discussed. When a new topic is introduced, do not attempt to immediately
introduce another topic for discussion. Do not feel you have something to say on
every topic covered.
Lecture as Discussion Leader

Lecture as a leader, should attempt to stimulate the class as a whole to share insights,
observations and thoughts about the case. Following are some of the roles performed by a
lecturer:
1.
Facilitating comprehension of strategic management concepts. Some lecturers

prefer to lecture on strategic management concepts on a need-to-know basis. In
this scenario, a lecture on a particular topic will be followed by an assignment to
work on a case that deals with that particular topic. Others will work through a
case or two before lecturing on a topic to give a class a feel for the value of the
topic being covered and for the type of information needed to work on cases. On
the other hand others prefer covering theory in the beginning of the course
thereby allowing uninterrupted case discussion. All these three approaches are
valid.
2.
Maintaining focus. Because multiple complex issues need to be explored,

lecturers prefer maintaining the focus of the class discussion on one issue at a
time.
3.
Getting students involved. The value of class discussion increases as more people
share their comments, hence lecturers tend to encourage this.
4.
Playing devils advocate. At time, lecturers may appear to be contradicting many

of the comments or observations made or may adopt a position that does not
immediately make sense, given the circumstance of the case. There are some of
the ways how a lecturer may play a devils advocate. The aim of this, is to expose
alternative viewpoints or testing students resolve on a particular point.
Assignments: Written Assignments

Written analyses are a criticize part of any strategic management course. There are a
number of general guidelines on written assignment analysis concepts:
1.
Analyze. Avoid merely repeating the facts presented in the case. Analyze the
issues involves in the case and build locally towards recommendations.
2.
Use headings or labels. Using headings or labels throughout your written analysis
will help your reader follow your analysis and recommendations. For example,
when you are analyzing the weaknesses of the firm in the case, include the
leading weaknesses. Note all the headings in the same case analysis that follows.
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3.
Discuss alternatives. Follow the proper strategic management sequence by

a. Each alternative, and
b. Identifying alternatives
c. Evaluating Recommending the alternative you think is best
4.
Use topic alternatives. You can help your reader more easily evaluate your
analysis by putting the topic sentence first in each paragraph and following with
statements directly supporting the topic sentence.
5.
Be specific in your recommendations. Develop specific recommendations

logically and be sure your recommendations are well defended by your analysis.
Avoid using generalization, clichs, and ambiguous statements.
6.
Do not overlook implementations. Many good analyses receive poor evaluation

because they do not include a discussion of implementation. The analysis will be
much stronger when discussion is made on how recommendations can be
implemented.
7.
Specifically state your assumptions. Cases, like all business situations, involve
incomplete information. Therefore, it is important that clearly stated assumption is
made.
9.5
Oral Presentations
Make an effective presentation on a particular case. The following suggestions should be

taken into consideration:
1.
Use your own words. Avoid memorizing a presentation. The best approach is to
prepare an outline of the key points you want to cover. Do not be afraid to have
the outline in front of you during your presentation, but do not just read the
outline.
2.
Rehearse your presentation. Do not assume you can simply read the outline you
have prepared or that the right words will come to you when you are in front of
the class making your presentation. Take time to practice your speech, and be sure
to rehearse the entire presentation with your group.
3.
Use visual aids. The adage a picture is worth a thousand words. Contains a bit
of truth. The people in your audience will more quickly and thoroughly
understand your key points and will retain them longer if you can use visual
aids.
4.
Be prepared to handle questions. You probably will be asked questions by your

classmates. If questions are asked during your presentation, try to address those
that require clarification. Tactically postpone more elaborate questions until you
have completed the formal phase of your presentation.
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9.6
Working as a Team Member
Groups or teams for analyzing cases adds more realism to the course since most strategic
decision in business are addressed by a group of key managers. The following are some
suggestions to be an effective team member:
1.
Be sure the division of labour is equitable. It is not always easy to decide how the
workload can be divided equitably, since it is not always obvious how much work
needs to be done. Try breaking down the case into distinct parts that need to be
analyzed to determine if having a different person assume responsibility for each
part is equitable. All team members should read and analyze the entire case, but
different team members can be assigned primary responsibility for each major
aspect of the analysis. Each team member with primary responsibility for a major
aspect of the analysis also will be the logical choice to write that portion of the
written analysis or to present it orally in class.
2.
Communicate with other team members. This is particularly important if you

encounter problems with your portion of the analysis. Since, by definition, the
team members are dependent as each other, it is critical that you communicate
openly and honestly with each other. It therefore is important that your team
discuss problems, such as some members not doing their fair share of work or
members insisting that their point of view dominate the teams report.
3.
Work as a team. Since groups output should reflect a combined effort, the whole
group should be involved in each part of the analysis, even if different individual
assume primary responsibility for different part of the analysis. Avoid having the
marketing major do the marketing portion of the analysis, the production major
handle the production issues, and so forth. This will both hamper the groups
aggregate analysis and do all of the team members a disservice by not giving each
member exposure to decision making involving the other functional areas.
4.
Plan and structure team meetings. When working with a group on case analysis, it
is important to achieve the teams goals and objectives without meeting outside of
class. As soon as the team is formed, establish mutually convenient times for
regular meetings, and be sure to keep this time available each week. Be punctual
in going to the meetings, and manage the meetings so they end at a predetermined
time. Plan shorter meetings, as opposed to longer session right before the case is
due.
CASE 1
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NIKE, INC.
INTRODUCTION
In his letter to shareholders in the 1991 annual report, Philip H. Knight, Chairman and
CEO, projected his outlook for the company:
Around the world, people of all cultures are increasing their participation in fitness
activities. All are motivated by the common desire for athletic and personal excellence.
Nike-a simple sneaker company to many newspaper readers is transforming into an
international consumer productions company. Companies attacking international markets
generally will take one of two approaches: (1) lay a solid infrastructure and build off of it
forever, or (2) cream it without regard to the long term. Obviously, we have chosen the
first approach.
Specifically, over the past decade, we have built an international management team of
more 1500 people. In Western Europe, we own the distribution rights over 90% of our
sales. Nike has hired more than 1000 people in the last 12 months, mostly dictated by our
desire to service and support our international growth.
Shortly after the middle of the decade, Nike will be a bigger company outside the United
States than inside. Given the speed and power of global communications, there will no
longer be a different brand leading the market in each hemisphere. There will be one
world leader in sports and fitness. You can easily guess which brand gets my vote.
The payoff from overcoming all these challenges can be seen in our 1991 international
growth of 80% to $862 million in revenues. We are at last, after many sometimes comical
fits and starts, after 10 years of hard work, a serious threat not only in Europe, but in Asia
as well.
Reflecting Knight;s comments, Nike experienced continued growth in net income, from
$167 million in 1989 to $243 million in 1990 to over $287 million in 1991, an increase of
over 71% since 1989. This impressive growth was in sharp contrast to the reported
income of $36 million in 1987. The company reported that the decline in 1987 was due to
three factors: the decrease in volume of Air Jordan basketball products, the elimination
in 1987 revenues from the companys unprofitable Japanese subsidiary which was sold,
and increased competition [1]. However, profits rebounded to over $101 million in
1988,
partly because of a swing in buyers tastes. After years of
preferring stylish Reeboks, the trendsetters are now clamoring for
performance shoes such as Nikes. [4]
- 109 -
Sales followed a relatively similar pattern. From 1989 to 1990, revenues climbed from
over $1.7 billion to $2.2 billion, a 29% increase. The following year, 1991, revenues
exceeded $3 billion, a 34% increase.
The companys inventory position increased from $309 million in 1990 to about $586
million in 1991, a $277 million increase. Approximately $157 million of this increase
was in domestic footwear, while international inventories increased $102 million to
handle the increased demand.
Nevertheless, as it faced stiff challenges in its various market segments, the question
remained whether Nike could respond fast enough to remain a top athletic shoe
manufacturer. Other strategic questions were facing the company. (a) Nike was low-cost
producer with overseas manufacturing facilities in Asia notably South Korea, Thailand,
and Taiwan where 51%, 15%, and 13%, respectively, of shoes were produced. About
43% of the companys apparel production was also located in Asia and in South America.
Could the potential political risks, increasing costs, and a declining U.S. dollar compel
the company to retrench and make other sourcing arrangements? (b) Did it have the
financial muscle and customer franchise to counter such strong competitors as Reebok,
L.A. Gear, and others? (c) Would the intense competition in the industry compel the
company to sell its high-quality athletic footwear as private-branded products for major
retailing chains? Or, should it position itself as the premier athletic shoe company?
BRIEF HISTORY
Incorporated in 1968 in Oregon, Nike began years earlier when Knight, a former college
miler, sold running shoes from the back of his station wagon at track meets [2]. A native
of Oregon and born in 1938, Knight graduated from the University of Oregon in 1959
with a BBA and later received his MBA from Stanford in 1962. His interests in running
shoes remained strong during this athletic shoe market. Knight joined Coopers &
Lybrand as an accountant from 1963 to 1964 and then moved to Price Waterhouse from
1964 to 1967. He later became an assistant professor in business administration at
Portland State University from 1967 to 1969. Both Fortune and Business Week
magazines provided interested personal glimpses of Knight:
He is no match for Bo Jackson, the pro football player who displays a
stunning athletic versatility in the ubiquitous TV ads for Nike shoes. But
for a middle-aged CEO who gently complains about old bones, Phil
Knight, 51, does all right. He runs 18 to 30 miles a week, lifts weights,
plays tennis. [4]
Phil H. Knight, shy? In private, yes. A foot twitches nervously while the blond, bearded
chief executive officer of Nike Inc. talks about himself. But watch the former college
runner in competition, and shy is not a word anyone would dare hang on Phil Knight.
He is emotional about Nike, even prone to watery eyes during his employee pep talks.
And when a guy like that gets beat, he usually gets even. [4]
- 110 -
Knight and his track coach, William Bowerman of the University of Oregon, formed
Blue Ribbon Sports on an initial investment of $500 each and began importing Tiger
brand shoes from Japan. The venture enjoyed considerable success as sales surged from
its modest beginning of $3 million in 1972 to fiscal year-end 1988, when sales exceed $1
billion. However, disputes with the companys large supplier led the company to design
and market its own shoes, which the founders named Nike, after the Greek goddess of
victory.
Highly regarded within the company as the driving entrepreneurial force that ultimately
transformed Nike into a world-class athletic footwear manufacturer, Knight visualized
the company focusing on three core areas: shoes, related clothing, and accessories. At the
same time, he viewed timely acquisitions as a way to strengthen the companys position
in the highly competition athletic footwear market. Moreover, Knight envisioned the
company primarily as a producer of performance-oriented shoes, not a fashion shoe
company.
ORGANIZATION
Nikes organizational structure is shown in exhibit 1. Although generally regarded as a
company with a deliberately lean structure intended to foster autonomy and an
entrepreneurial climate, Nike has a formalized management structure that defines
accountability and responsibility. This presumably freed Knight to deal with long-term
strategic issues.
The companys experienced executive officers and the board of directors are listed in
Exhibit 2. Outsiders accounted for one-half of the board membership; in addition, six of
its officers, including Knight, are CPAs.
Nikes basic mission is the design, development, and worldwide merchandising of highquality footwear and apparel products for a wide range of sport, athletic, and leisure
activities. Nike does not see itself as a manufacturer but more a market driven company.
Consequently, it does a number of things very well for example, maintaining and
nurturing the ability to pinpoint future trends in the industry, continuing to strengthen its
R&D capability for new and technologically superior athletic footwear, and cultivating its
existing and potential relationships with its various domestic and international contract
manufacturers in order to ensue product quality.
In effect, Nike, as well as many other U.S. companies, has essentially become a marketer
for foreign producers; that is, a company such as Nike, which designs, develops, and
markets products worldwide, does not manufacture anything! In contrast to traditional
manufactures, these firms are labeled hollow corporations [14, p. 57]. As many U.S.
firms move to low-cost overseas producers (e.g., Taiwan, South Korea, and others), this
continued outsourcing could bring about a decline in U.S. manufacturering capability.
Some see these hollow corporations as network companies that is, companies that
depend on other firms for manufacturing and other functional support.
- 111 -
CASE 1
Exhibit 1
Nike Management Organization Chart
Chief Executive
Officer
Finance and
Administration
Executive
Vice President
ColeHahn
Footwear
production
Marketing
Sales
Product Line
Managers
Advertising
Promotions
- 112 -
Sports
active
Design
Sports
casual
International
Nike
International
Europe
MARKETING
Product
Although the companys footwear products are targeted for athletics use, many buyers
tend to wear them also for casual and leisure purposes. To complement its footwear
merchandise and round out its athletic image, Nike produces a variety of accessory and
apparel items such as athletic bags, hats, socks, jackets, warm-up suits, shorts, T-shirts,
and tank tops. The company also introduced the Nike Monitor, and electronic monitoring
training aid.
Jones [2] reported that Nike may need to diversity to stay ahead in the highly competitive
and mature running shoe market, and perhaps, to change its image from a running show
company to a total-fitness-oriented operation. However, it was unlikely it would
abandon the running show market a unique Nike strength.
To protect its market share from fast-growing fashion-oriented competitors such as
Reebok and L.A. Gear, Nike introduced, in late 1988, a new line called Side One,
a nontechnical shoe for teenager girls who buy athletic, or athleticlooking shoes, to make a fashion statement. Those customers are the core
of Keds and L.A. Gears business. [7]
The company missed the shift in consumer preferences toward fashion and sport-styled
shoes, and consumer desire to stay fit through a variety of such activities as running,
weightlifting, aerobics, tennis, and other sports activities [3]. To meet this need, Nike
developed the cross-training shoe, which was a natural product evolution for the
company, whose prime attention was directed toward specialized products. The company
pinpointed the products marketing message toward the shoes economy and the
convenience of buying, wearing, and carrying only one pair of shoes for diverse fitness
activities. The shoe was a result of the companys commitment to thorough research of
the foots biomechanical movements. To convey the cross-trainers technical qualities,
Nike contracted with 100 of the top U.S. fitness instructors and provided them with
samples of the product to influence their students as well as to take part in trade shows
and other sales activities [15].
To further expand its products lines, Nike acquired, in May 1988, Cole-Hahn Holdings,
Inc., a leading designer and marketer of high quality casual and dress shoes. Nike paid
for the acquisition with $89.2 million in cash and the issuance of 243,713 shares of Nike
stock, which had a market value of $5.8 million, for the remainder [1]. Knight estimated
the companys efforts to broaden its lines would increase sales by $150 million and
would position Nike with the most prestigious brands at both ends of the footwear
spectrum [8]. Knight added that about 69% of the companys shoe sales come from
models costing between $44 and $73 a pair [8].
- 113 -
Exhibit 2
Officers and Directors
Name
Age
Philip H. Knight*, ** (1)

Chairman and CEO
50
Richard K. Donahue*,**(1) n/a

President
and
Chief
Operating Officer
William
J. 77
Bowerman*,**(2)
Deputy Chairman of the
Board of Directors and
Senior Vice President
Delbert J. Hayes*,**(4) 53
Executive Vice President
n/a
Thomas E. Clarke*
General Manager and Vice
President
Harry C. Carsh*
49
Vice President
Nicholas Kartalis*
Vice President
Ronald E. Nelson*
Vice President
n/a
45
Position with Nike, Principal Occupation and

Business Experience
Co-founder of the company and has served as
its Chairman of the Board and, except for the
period June 1983 through September 1984, as
its President since its organization in 1968.
Partner, Donahue & Donahue, Attorneys,
Lowell, Massachusetts
Co-founder of the company, has served as Sr.
Vice President and a Director since 1988 and
was elected Senior Vice President and Deputy
Chairman of the Board in 1980.
Joined the company as Treasurer and
Executive and became a Director in 1975. He
thereafter served as Treasurer and in a number
of
executive
positions,
primarily
in
manufacturing, until his election as Executive
Vice President in 1980. He is a certified public
accountant.
n/a
Joined the company in 1977 and was elected
Vice president in June 1984. Mr. Carsh has
held executive positions in accounting,
manufacturing, and European marketing. He
has served as Vice President in charge of the
International Division and is currently Vice
President in charge of merchandising
operations, prior to joining the company, he
served for four years as Vice President of
Finance for Laneet Medical Industries. He is a
certified public accountant.
n/a
Has been employed by the company since
1976, with primary responsibilities in finance,
marketing, and production. He is currently
Vice President in charge of the companys
footwear production operations. He was
elected Vice President in 1983. He is a
certified public accountant.
- 114 -
Mark G. Parket*
n/a
n/a
George E. Porter*
Vice President Finance
57
David B. Taylor*
Vice President
John E. Jaqua*, **(3)(5)
Secretary
n/a
Joined the company as Vice President in 1982 and

has held executive positions in administration,
research and development, and footwear. He
became Vice President Finance in February
1985. Prior to joining the company, he was
employed for nine years by Evans Products
Company, Portland, Oregon, as Vice President and
Controller. He is a certified public accountant.
n/a
67
n/a
Lindsay D. Stewart*
Vice President & Corporate
Counsel
Thomas Niebergall*
n/a
Assistant Secretary
Jill K. Conway**(2)
n/a
Robert T. Davis**(2)
n/a
Robert D. DeNuncio**
(3)(4)(5)
Douglas G. Houser**(2)
n/a
Thomas O. Paine**(3)(5)
n/a
Chares W. Robinson**(4)
n/a
John R. Thompson, Jr.**(3)
n/a
n/a
Has been Secretary and a Director of the

company since 1968. He has been a principal
in the law firm of Jaqua, Wheatley, Gallagher
and Holland, P.C., Eugene, Oregon since 1962.
n/a
n/a
Visiting Scholar, Massachusetts Institute of
Technology, Boston, Massachusetts.
Professor of Marketing, Stanford University,
Palo Alto, California.
N/a
Assistant Secretary, Nike, Inc.; Partner
Bullivant, Houser, Bailey, Pendergrass &
Hoffman, Attorneys, Portland, Oregon.
Chairman, Thomas Paine Associates, Los
Angeles, California.
Chairman, Energy Transition Corporation,
Santa Fe, New Mexico.
Head
Basketball
Coach,
Georgetown
University.
Officer, annual report.

Directors
1. Member Executive Committee
2. Member Audit Committee
3. Member Personnel Committee
4. Member Finance Committee
5. Member Stock Option Committee
- 115 -
PROMOTION
Advertising and promotion expenditures steadily increased, from @135 million in 1989
to $190 million in 1990 (a 40% increase), then doubled from 1989 to 1991, to $286
million. Promotional activities include brochures, print and TV advertising, as well as
point-of-purchase displays. Posters are used to depict new footwear models promoted by
the company.
Other promotional efforts have included publication of the book Walk On, which was coauthored by the former sports research laboratory director and a senior editor of
American Health Magazine. Containing extensive information on walking a potentially
large growth area for the company the book provided relevant consumer and product
information. Back-to-school campaigns broadened the childrens line of such new
products as the Air Jordan, Air Max, and the Air Trainer; these were competitively
promoted in the fifty-dollar range. Other new childrens shoes were designed
exclusively for childrens activities such as skateboarding and biking. In addition, a
licensing arrangement with Major League Baseball allowed the company to market
specially designed baseball apparel; this unique opportunity would enable Nike to
transfer its favorable sports image to both on and off the field.
Nike has also developed a co-op advertising program whereby a retailer can accumulate a
1% to 3% credit allowance based on its total footwear purchases. For example, assuming
a 1% allowance on $100,000 of footwear purchases, the retailer could build up $1,000 of
credit with Nike whereby it could use this credit to buy certain promotional items such
as watches, sunglasses, and ankle weights. The applicable percentage for the retailer is
based on population and buying power data.
To a large extent, Nike relies heavily on endorsements by prominent athletes from a
variety of sports such as running, walking, track, tennis, basketball, football, baseball,
and racquetball, and from such general fitness activities as aerobics. Hence, the high
performance of Nike is consistently advertised by these top athletes. The companys Air
Ace tennis shoe achieved a milestone when it received the first endorsement of a U.S.
based shoe manufacturer by a Soviet sports federation; this allowed the company to
introduce its products into the Soviet Union. The company has also promoted the highpriced cross-training shoe, the Air Trainer, as one-shoe for all purposes! To further
develop this concept, the company signed Bo Jackson, the versatile NFL (Los Angeles
Raiders) and Major League Baseball (Chicago White Sox) superstar to endorse the crosstraining line [6].
The company achieved a milestone in 1985, when it signed Chicago Bulls basketball star
Michael Jordan to a contract. Jordan, who had just completed an outstanding rookie year
- 116 -
in the National Basketball Association, was hired to introduce the new Air Jordan leather
basketball shoe [9]. This shoe, which has a special gas pocket in its sole, provided extra
spring and better protection from serious injuries usually encountered by the professional
basketball athlete to the foot, leg, and back. The Air Jordan was cited as one of several
new products for the year by Fortune magazine [10]. Nike also signed Charles Barkley
of the Phoenix Suns [9].
DISTRIBUTION
Domestic
The companys approximately 17,000 retail accounts racked up over $2 billion in sales in
1991, about 71% of total revenues. Retailers included department, footwear, and sporting
goods stores as well as tennis and golf shops and other specialty retailers. The three
largest retail customers accounted for about 30% of domestic sales; military sales were
handled in-house.
Independent regional sales representatives are assigned several associate representatives
and specific accounts within their jurisdictions. These associate representatives, who
work solely on commission, are especially careful to ensure that retailer orders are
handled promptly and within monthly deadlines. To establish and maintain a solid loyal
dealer network as well as control the demands placed on the companys transportation
and delivery system, Nike set up its innovative Futures ordering program whereby
retailers could place their orders five to six months in advance and Nike would guarantee
that 90% of their orders would be delivered on a set date at a fixed price. The Futures
program has had some success in controlling inventory; for example, 81% of domestic
footwear shipments in 1991 (excluding Cole-Hahn) were made under this program
compared to 82% and 79% in 1990 and 1989, respectively [1]. As ocean and air carriers
are used to transport products produced overseas into the United States, Nike exerts much
effort to work closely with U.S. Customs Service to avoid the inspections and seizures
other importers face. This working relationship also helps the company to detect
counterfeiters of athletic footwear, apparel, and sports bags [16]. Additionally, imported
products are subject to duties collected by the Customs Service.
Another innovation is Nikes next-day guarantee shipment for certain team accounts
such as colleges and universities. According to one source, if the university faces an
emergency when a few athletes require a certain size or type of shoe, the institution can
contact Nikes Promotion Division for a special shipment of this equipment. The shoes
are shipped via Federal Express. The program is reported to be very successful because
of the high degree of loyalty these accounts provide Nike. Team accounts also have
access to Nikes Futures program; for example, orders placed in December will be
delivered by June or July of the following year. Regional distribution centers for footwear
are located in Wilsonville and Beaverton, Oregon; Memphis, Tennessee; Greenland, New
Hampshire; and Yarmouth, Maine. Apparel goods are shipped exclusively from
Memphis.
- 117 -
The company also has 40 wholly owned retail outlets. Chain Store Age Executives, a
trade publication, described one of Nikes innovative retail outlets. It cited the stores
attractive display of styles and colors for footwear and clothing, which are geared toward
a variety of sports. Knowledgeable sales personnel staff the store; they know the product,
can explain it, and use it themselves. Shoes are turned upside down to show their soles,
thus differentiating the various types of athletic footwear. Apparently, Nike capitalized
on the simple idea that customers prefer to buy from salespeople who really know what
they sell [17].
Twenty-two outlets sell primarily B grade and closeout merchandise. B grade
merchandise has cosmetic defects such as discoloration, poor stitching, and so on and
is therefore not first quality. As this merchandise is not first line, these products are sold
in plain white boxes marked blemished.
Foreign
Nike markets its products through independent distributors, licensees, subsidiaries, and
branch officers located in about 66 countries outside the United States. Foreign sales
accounted for 29% of revenues in 1991, compared to 21% and 20% for 1990 and 1989,
respectively. Branch officers are located in Canada, Brazil, Belgium, Denmark, France,
Great Britain, Hong Kong, Italy, Norway, South Korea, Spain, Sweden, Taiwan, West
Germany, the Netherlands, Indonesia, Malaysia, Singapore, and Thailand. Since 1972,
the Japanese trading company Nissho Iwai American Corporation (NIAC) has provided
Nike with substantial financing and export-import services, enabling Nike to buy through
NIAC almost all of its athletic footwear and apparel for U.S. and European sales. Nike
also bought goods for other foreign sales through NIAC. In 1991, the largest single
foreign supplier outside the United States accounted for about 7% of total production.
RESEARCH AND DEVELOPMENT
The company takes an aggressive stance in designing and marketing innovative footwear
products based on such customer benefits as performance, reliability, quality, and
reduction or prevention of injury factors that appeal to both the professional and
nonprofessional athlete. In-house specialists come from a variety of such backgrounds as
biomechanics, exercise physiology, engineering, industrial design and related fields [1,
p. 2]. The company set up advisory boards and research committees to review designs,
materials, and product concepts; these groups included a broad range of experts such as
athletes, coaches, trainers, equipment managers, orthopedists, podiatrists, and other
professionals. R&D expenditures averaged over $8.4 million from 1989 to 1991.
Its Sports Research Lab, reputedly one of the most sophisticated among shoe
manufacturers, is equipped to do biomechanical and anatomical checks on footwear
using the latest traction-testing devices and high-speed video cameras. Through careful
testing procedures, Nike evaluates shoes in diverse locations under varying climate
conditions. Over a 90-day period, testers long reports of total miles and terrain traversed,
reporting every 2 weeks on cushioning, flexibility, perception of weight, and durability
- 118 -
[18]. The companys advanced product engineers, regarded as the cornerstone of their
R&D efforts, devised the multisport cross-trainer shoe and conceived what became the
aqua sock, bow used widely by swimmers. Compounds and molds for footwear are also
tested in a rubber laboratory; the molds for soles are constructed in a model shop, after
which samples are manufactured by a small-scale shoe factory. A physical testing lab
also evaluates shoe tension and adhesion.
Nike has an exclusive worldwide license to manufacture and sell footwear using its
technology to deliver the ultimate cushioning agent: compressed air. According to
Science Digest, Nike Air shoes feature
Gas-filled mattresses encapsulated in polyurethane. The walls of the
mattresss inflated plastic tubes are supposed to be virtually leak-proof.
The gas never breaks down, and it returns to the foot much of the energy
of additional impact, acting somewhat like a trampoline. [19, p. 80]
Additional stability for the shoe is provided by using denser polyurethane, which collars
the heel, plus a wider sole along the inside of the foot near the arch. This feature helps
to prevent the foots natural tendency to roll inward after landing, a tendency called
pronation. E.C. Frederick, Nikes former director of the Sports Research Lab, called
pronation the herpes of the running crowd [20]. This Air Revolution, as Nike called
it, helped to introduce twelve new Nike-Air models. The research lab also pioneered
other new materials such as durathane, a synthetic, and washable leather.
To protect itself from patent infringement, the company registered its Nike trademark and
the well-known Swoosh design in over 70 countries. The company felt that these
distinctive marks were important in marketing its products as well as distinguishing them
from competitors goods.
MANUFACTURING
In fiscal 1991, about 47% of Nikes apparel production was manufactured in the United
States, by independent contract manufactures located primarily in the southern states. The
balance was manufactured by independent contractors in Asia and in South America,
manly in Hong Kong, Malaysia, Singapore, Taiwan, Thailand, Chile, and Peru. Almost
all of its footwear is produced by Asian contractors in Taiwan, Indonesia, South Korea,
and Thailand. Management contracts also exist with independent factories in Brazil,
Hungary, Italy, Mexico, and the United States. Nike also has a management contract with
the Peoples Republic of China (PRC) and has experienced no stoppages at these plants.
The Chinese produce about 11% of its shoes 18, 1].
As mentioned earlier, South Korean, Thai, and Taiwanese contractors account for 51%,
15%, and 13%, respectively, of the companys total footwear production. Considering the
magnitude of the companys dependence on Korean manufacturers, Nikes financial
condition could be seriously affected by any disruptions in delivery of their products.
However, the company has indicated that it has the ability to develop over a period of
- 119 -
time alternative sources of supply for its products. Moreover, Nike claims that at the
present time, it is not materially affected by this risk. Still another risk Nike faces with
certain Asian manufacturers is increasing labor costs.
Management contracts are a critical part of Nikes overall strategy to provide its 17,000
retail accounts with a reliable delivery system. Moreover, these contracts allow the
company to solidify its Futures program and enable Nike to guarantee retailers orders by
a set date and a fixed price. Additionally, the company is better able to refine its sales
forecasts and, equally important, control inventory build-up and the subsequent costs.
These independent domestic and foreign contractors provide Nike with two advantages:
greater flexibility to take advantage of low-cost foreign labor and less capital
requirements. Yet, foreign sourcing could cause the company a number of problems such
as political instability, currency fluctuations, and the inability to repatriate profits.
Because of the volume of overseas production, Nike maintains a keen interest regarding
any legislation passed by Congress that would impose quotas on certain countries that
have been cited as having unfair trading practices. For example, Japan has been cited as
having restrictive trade barriers that deny U.S. firms access to the Japanese market.
Hence, the U.S. could access an increase in duty rates on certain Japanese products
imported into the United States. In addition, legislation has been introduced that could
revoke the most favored nation status of the PRC and, consequently, result in a
significant increase in tariffs on goods imported from China.
Raw materials such as canvas, rubber, nylon, and leather used in Nikes footwear
products are purchased in bulk and are generally available in the countries where these
products are manufactured. The company also acquired Tetra Plastics, Inc., in 1991, its
only supplier for the air-sole cushioning components used in footwear. Hence, Nike
encounters little difficulty in meeting its raw materials requirements. Moreover, to assure
uniform product quality, Nike provides its contractors with exacting product guidelines,
which, according to one source, are closely monitored through on-site expatriate quality
control personnel. It should be noted that there is an industry trend to move from
relatively high labor cost countries such as Taiwan and South Korea to other low-cost
Asian countries.
THE COMPETITION
Several firms can be identified as competitors in the U.S. athletic shoe market (see
Exhibits 3 and 4). This $5.8 billion wholesale market in 1991 was characterized as one
with a shoe for any occasion. According to Marketing and Media Decisions, about 80%
of the athletic shoes purchased are not used for the activity they are designed for; hence,
the shoes look counts. Moreover, basketball shoes are the largest segment, with a 28%
share of the market, claimed the Sporting Goods Manufacturers Association [21].
Exhibits 5 through 9 show the financial picture for Nike, followed by Exhibits 10 through
13, which details the financial picture for its competitors.
- 120 -
Exhibit 3
Athletic Footwear World Market Share, 1991

Nike*
Reebok*
Adidas
L.A. Gear*
ASICS (Tiger)
Aritmos (includes Etonic, Puma)
Keds*
Converse*
Others (includes licenses)
20.72%
16.18
9.89
5.23
4.95
3.51
3.14
3.09
33.29
*U.S. based company

Source: Sporting Goods Intelligence, as cited in
The Wall Street Journal, July 1, 1992, p. 417.
Exhibit 4
Financial Data, 1989 1991 (In Millions)

Net sales
Nike
Reebok
L.A. Gear
1989
1990
1991
$1710.8
1822.1
617.1
$2235.2
2159.2
902.2
3003.6
2734.5
618.1
Net Income
Nike
Reebok
L.A. Gear
167.1
175.0
55.1
243.0
176.6
31.3
287.1
243.0
d45.0
Net Profit Margin

Nike
Reebok
L.A. Gear
9.8%
9.6%
8.9%
10.9%
8.2%
3.5%
9.6%
8.6%
NMF
% Earned Net Worth

Nike
29.7%
31.0%
27.8%
Reebok
20.7% 17.7%
28.5%
L.A. Gear
32.7% 15.2%
NMF
Source: Value Line
Exhibit 5
Nike Revenues by Product Categories for the Fiscal Years
- 121 -
Ended May 31, 1991, 1990, 1989

1991
Domestic
footwear
Domestic apparel
Other brands
Total
United
States
International
Europe
Canada
Other
Total International
Total Nike
$1,676,4
325,700
139,400
2,141,50
664,700
98,100
99,300
862,100
$3,003,600
Percen 1990
(in
t
Chang thousands)
e
$1,368,900
22
266,100
22
120,500
16
1,755,500
22
99
7
86
80
34
334,300
92,100
53,300
479,700
$2,235,200
Percen 1989
t
Chang
e
$1,058,40
29
208,200
28
95,500
26
1,362,100
29
Percen
t
Chang
e
40
46
51
241,400
52,200
55,100
348,700
$1,710,800
3
66
45
15
42
38
76
(3)
38
31
Source: 1991 annual report

Reebok International, Ltd.
A closely held firm (about 60%) and a major competitor of Nike, Reebok was founded in
1979 when it acquired exclusive use of the name in North America - it bought the
original English Reebok firm later, in mid-1985. The company was incorporated in
Massachusetts to design, develop, and market athletic shoes and related accessories. It
was initially a successful marketer of womens fashion aerobic shoes; however, in order
to grow, the company needed to expand into mens performance athletic footwear such as
basketball and tennis shoes. Exhibits 10 and 11 provide financial and operating data.
According to Steve Race, its general manager of athletic footwear, a shoe could have
fashion and performance; moreover fashion is a very important function and
performance; moreover, fashion is a very important in terms of comfort is a very
important element [21]. To stress performance, the company contracted with such
professional Dominique Wilkins of the NBAs Atlanta Hawks and PGA professional
Greg Norman. The company also added childrens shoes to its product lines.
Reebok acquired the Rockport Company, a major walking and leisure shoe manufacturer,
for about $119 million cash in late 1986 and followed with another major acquisition, for
about $180 million in early 1987, of Avia Group International, a premiun-priced athletic
footwear and hiking shoes producer. Other acquisitions included the North American
- 122 -
operations of the Italian Ellesses International for about $60 million; Ellesses
manufactures premium priced tennis shoes and ski fashions. Other acquisitions were the
John A. Frye Company, a boot and loafer manufacturer, and Boston Whaler, a power
boat firm [11, 12].
Six plants are located in Massachusetts and one in Oregon, the home state of Nike. The
company sources over 70% of its footwear with contract manufactures in South Korea, in
addition to other plants located in Taiwan and the Philippines.
- 123 -
Exhibit 6
Nike Inc. Consolidated Balance Sheet As of Fiscal Years
May 31, 1991, 1990 (in thousands)
Assets
Current Assets
Cash and equivalents
Accounts receivable, less allowance for
doubtful accounts of $14,288 and $10,624
Inventories
Deferred income taxes
Prepaid expenses
Total current assets
Property, plant and equipment
Less accumulated depreciation
Goodwill
Other assets
1991
1990
$ 119,804
521,588
$ 90,449
400,877
586,594
25,536
26,738
1,280,260
309,476
17,029
19,851
837,682
397,601
105,138
292,463
114,710
20,997
$1,708,430
238,461
78,797
159,664
81,021
16,185
$1,094,552
$ 580
300,364
165,912
115,824
45,792
628,472
$8,792
31,102
107,423
94,939
30,905
273,161
29,992
16,877
265,941
10,941
300
300
164
168
2,712
2,706
84,681
(4,428)
78,582
1,035
Liabilities and Shareholders Equity

Current Liabilities
Current portion of long-term debt
Notes payable
Accounts payable
Accrued liabilities
Income taxes payable
Total current liabilities
Long- term debt
Non-current deferred income taxes and
purchased tax benefits
Commitments and contingencies
Redeemable preferred stock
Shareholders equity
Common Stock at stated value:
Class A convertible 27,438 and 28,102
shares outstanding
Class B-47,858 and 46,870 shares
outstanding
Capital in excess of stated value
Foreign currency translation adjustment
- 124 -
Retained earnings
949,660
1,032,789
$1,708,430
701,728
784,219
$1,094,552
Source: 1991 Annual Report.

Exhibit 7
Nike, Inc. Consolidated Statement of Income Fiscal Years Ended May
31, 1989, 1990, and 1991 (in thousands, except per share data)
Revenues
Costs and expenses
Cost of sales
Selling and administrative
Interest
Other (income) expense
Income before income taxes
Income taxes
Net income
Net income per common share
Average number of common and
common shares
1991
1990
1989
$3,003,610
$2,234,244
$1,710,803
1,850,530
664,061
27,316
(43)
2,541,864
461,746
174,700
$ 287,046
$ 3.77
1,384,172
454,521
10,457
(7,264)
1,841,886
393,358
150,400
$ 242,958
$3.21
1,074,831
354,825
13,949
(3,449)
1,440,156
270,647
103,600
$ 167,047
$ 2.22
76,067
75,668
75,144
Source: 1991 annual report.

Exhibit 8
Nike, Inc. Selected Financial Data Year Ended May 31, 1987
Through 1991 (in thousands, except per share data)
1991
1990
1989
1988
1987
Revenues
$3,003,610 $2,235,244 $1,710,803 341,203,440 $877,357
Net income
287,046
242,958
167,047
101,695
35,879
Net
income
per
common share
3.77
3.21
2.22
1.35
.46
Cash
dividends
declared per common
.52
.38
.27
.20
.20
share
Working capital
$ 651,788 $ 564,521 $ 422,478
$ 298,816 $325,200
Total assets
1,708,430 1,094,552
825,410
709,095 511,843
Long- term debt
29,992
25,941
34,051
30,306
35,202
Redeemable preferred
300
300
300
300
300
stock
- 125 -
Common shareholders
equity
1,032,789
784,219
561,804
411,774
338,017

Note: All common share amounts have been adjusted to reflect the 2-for-1 stock split
paid October 5, 1990. The companys class B common stock is listed on the New York
and the Pacific Stock Exchanges and traders under the symbol NKE. At May 31, 1991,
there were approximately 4,400 shareholders of record.
Exhibit 9
Nike, Inc. Operations by Geographic Areas
Fiscal Years Ended May 31,1991,1990, and 1989 (in thousands)
Revenues from unrelated entities

United States
Europe
Other international
1991
1990
1989
$2,141,461
664,747
197,402
$3,003,610
$1,755,496
334,275
145,473
$2,235,244
$1,362,148
241,380
107,275
$1,710,803
$9,111
11,892
$21,003
$4,765
5,628
$10,393
$1,757
4,323
$6,080
$2,150,572
664,747
209,294
(21,003)
$3,003,610
$1,760,261
334,275
151,101
(10,393)
$2,235,244
$1,363,905
241, 380
111,598
(6,080)
$1,710,803
$325,257
134,069
51,745
4315,256
55,098
42,880
$230,156
35,376
30,173
(49,325)
(19,866)
(25,058)
$461,746
$393,358
$270,647
Intergeographic revenues
United States
Europe
Other international
Total Revenues
United States
Europe
Other international
Less intergeographic revenues
Operating income
United States
Europe
Other international
Less corporate, interest,
other income (expense)
eliminations
and
and
- 126 -
Assets
United States
Europe
Other international
Total identifiable assets
Corporate cash and eliminations
$1,156,091
370,104
94,212
1,620,407
88,023
$1,708,430
$786,775
162,383
74,329
1,023,487
71,065
$1,094,552
$600,629
102,744
50,756
754,129
71,281
$825,410

Exhibit 10
Reebok International, Ltd. Consolidated Balance Sheet
As of December 31,1990 ($000)
1990
1989
227,140
391,288a
367,233
31,673
12,328
1,029,662
171,424
289,363a
276,911
34,845
11,735
748,278
160,132
49,017
111,115
255,051
7,397
373, 563
1,403,225
136,776
30,542
106,234
261,398
14,457
382,089
1,166,367
Notes payable to banks

Commercial paper
Current maturity of long-term debt
Accounts payable & accrued expenses
Dividends payable
8,855
59,805
1,411
166,061
49,071
8,576
293,779
1,651
598
148,360
43,834
8,538
202,981
Long- term debt current maturity

Common stock
Additional paid-in capital
Retained earnings
Unearned compensation
105,752
6,975
1,144b
281,478
707,336
dr 191
110,302
7,788
1,139b
275,336
564,987
dr 524
Assets
Cash &cash equivalents
Accounts receivable, net
Inventory
Prepaid expenses
Gross property & equipment
Less: Accumulated depreciation & amortization
Property & equipment, net
Intangibles, net of amortization
Other noncurrent assets
Totals noncurrent assets
Total assets
Liabilities
- 127 -
Foreign currency translation adjusted

Stockholders equity
Total liability and stockholders equity
Net current assets
Book value
Cr 6,962
996,729
1,403,225
Cr 3,358
844,296
1,166,367
735,883
581,297
$6.48
$5.12
Allowance for doubtful accounts: 1990, $33,730,000; 1989, $28,704,000

Par value $.01; Auth Shs: 1990, 250,000,000; 1989, 250,000,000.
Source:Reebok Annual Reports.

Exhibit 11
Reebok International, Ltd. Consolidated Income Account

Years Ended December 31,1990,1989,1988 ($000)
Net sales
Other income (exp)
Gross operating revenues
Costs of sales
Selling expenses
General & administrative expenses
Amortization of intangibles
Interest expense
Interest income
Total costs & expenses
Income before income taxes
Income taxes
Net income
Previous retained earnings
Dividends declared
Retained earnings
Earnings per common share
Common shares (000):
Year end
Average
Depreciation & amortization
1990
2,159,243
dr 893
2,158,350
1,288,314
353,983
202,352
15,646
18,857
15,637
1,863,515
294,835
118,229
176,606
564,987
34,257
707,336
$1.54
1989
1,822,092
11,377
1,833,469
1,071,751
278,939
174,972
14,427
15,554
12,953
1,542,690
290,779
115,781
174,998
424,002
34,013
564,987
$1.53
1988a
1,785,935
dr 1,351
1,784,584
1,122,226
260,891
149,195
14,216
14,129
6,633
1,554,024
230,560
93,558
137,002
320,886
33,886
424,002
$1.20
114,428
114,654
20,156
113,856
114,176
13,512
112,951
113,767
8,850
Reclassified to conform to current presentation.

Source: Reebok Annual Reports.
- 128 -
Sales grew steadily, from over $1.7 billion in 1988 to about $1.8 billion in 1989, then
exceeded to $2.1 billion in 1990. Net income increased from $137 million in 1988, a 20%
increase; this was followed by another increase of over 18% from to 1990.
L.A. Gear, Inc. [13]
Robert Y.Greenberg, CEO and owner of 25% of the companys stock, founded L.A. Gear
in 1985. L.A. Gear carved its niche as a developer, designer, and marketer of stylish,
high-quality, and youthful shoes for aerobics, athletics and leisure. The line was later
expanded to include a variety of other footwear, such as walking, tennis, and overall
fitness shoes for children and men. Sales surged from over $223 million in 1988 to $902
million in 1990, a threefold increase. Although net income rose 15%, from $22 million in
1988 to over $55 million in 1989, it then declined 43% from 1989 to 1990. Exhibits 12
and 13 provide financial and operating data.
Exhibit 12
L.A. Gear, Inc. Consolidated Balance Sheet

As of November 30, 1990, 1989 (in thousands of dollars)
Assets
Cash
Accounts receivable, net
Inventory
Prepaid expenses & other current assets
Deferred tax charges
Gross property & equipment
Accumulated depreciation
Property & equipment, net
Other assets
Total assets
Liabilities
Line of credit
Accounts payable
Accrued expenses & other current liability
Accrued compensation
Common stock
Retained earnings
- 129 -
1990
1989
$3,291
156,391
160,668
16,912
1,097
338,359
$353
100,290
139,516
12,466
4,589
257,214
28,599
4,975
23,624
1,972
363,955
9,888
1,809
8,079
1,265
266,558
94,000
22,056
36,672
2,350
158,078
91,179a
114,698
37,400
25,619
17,627
16,906
783
98,335
84,363a
83,360
Total shareholders equity

Total liabilities & stock equity
205,877
363,955
168,223
266,558
Net current assets

Book value
180,281
$10.61
158,879
$8.80
No par value; Auth shs: 1990, 80,000,000; 1989, 80,000,000

Source: L.A. gear Annual Reports
The company moved into the highly competitive 60% chunk of the $4.2 billion U.S.
athletics-shoe market in basketball and running, a market dominated by Nike and
Reebok. Skeptics were doubtful about the success of L.A. Gears shoes for the maledominated basketball segment, as males typically paid less attention to style and leaned
more toward the inner structure of the shoe supporting the feet. Commented a competitor,
technology was the fashion. However, to promote its importance in this market, the
company signed
Exhibit 13
L.A Gear Inc. Consolidated Income Statement Years Ended

November 30, 1990, 1989, 1988 (In Thousands)
Net sales
Cost of sales
Gross profit
Sell, general & administrative expenses
Interest expense, net
Earned income before taxes
Income tax expenses
Net earnings
Previous retained earnings
Retained earnings
Earnings per common share
Common shares (000):
Year-end
Average
1990
902,225
591,740
30,485
240,596
18,515
51,374
20,036
31,338
83,360
114,698
$1.56
1989
617,080
358,482
258,598
154,449
12,304
91,845
36,786
55,059
28,301
83,360
$3.01a
1988
223,713
129,103
94,610
53,168
4,102
37,340
15,310
22,030
6,271
28,301
$1.29b
19,395
20,041
19,109a
18,308a
16,374b
17,110b
2-for-1 stock split, 9/25/89.

Reclassified to confirm to 1989 presentation.
Source: L.A. Gear Annual Reports
b
42-year-old Kareem Abdul-Jabbar, the retired superstar of the Los Angeles Lakers. As
one analyst remarked, this was a move to the geriatric crowd. Later, other notable
basketball athletes were signed to contracts Akeem Alajuwan of the Houston Rockets
- 130 -
and Karl Malone of the Utah Jazz. Michael Jackson was also contracted to design shoes
and apparel [21].
The companys footwear is sold principally in department, shoe, sporting goods, and
athletic footwear stores, while its apparel is distributed through department, specially, and
sporting good stores. Products are also distributed through independent distributors in 20
countries, primarily in Japan, Canada, and West Germany. Manufacturing is done by 13
suppliers in South Korea and 2 in Taiwan; both countries also manufacture Nike
footwear. The company maintains offices in both countries.
To further expand its product offerings, L.A. gear has ventured into the jeans and watch
markets where, presumably, its brand name and distribution network will enhance its
market position.
THE INDUSTRY
Exhibit 14 depicts a growing sales trend for the shoe industry from 1989 to 1992. Other
data in the exhibit show varying performances for this same period.
Generally regarding athletic footwear as discretionary items, consumers would be likely
to limit spending for these products during an economic downturn. Moreover, with rising
consumer debt and decreasing personal savings, buyers confidence could be seriously
affected. At the same time, buyers would prefer footwear that is not only durable but also
suitable for a variety of activities.
Exhibit 14
Selected Industry Composite Indicators, 1989 1992
Sales ($ Mil)
Operating margin (%)
Net profit margin (%)
Return on net worth (%)
1989
7762.8
12.7
6.7
20.9
1990
8905.2
12.1
6.2
19.1
1991*
10365.0
10.5
5.9
20.5
1992*
11250.0
11.0
6.5
21.0
*Estimated
The long-term prospects for the industry appear promising. The trend toward physical
fitness should accelerate, as it becomes a pastime for increasing numbers of buyers. Also,
certain demographic changes favour continued industry growth; for example, Census
Bureau projections for adults in the 25-44 age segment-major buyers for sports and
athletic equipment-are estimated to approximate 82 million people by 1992, about onethird of the total population. Moreover, this age group is forecasted to grow at twice the
rate the total population. Another important buyer segment is the 45-54 age group,
projected to increase annually by 3.6% between 1987 and 1992 in contrast to a 1%
growth for the total population.
- 131 -
Other key growth indicators include the increasing participation of women in sports, not
only to improve their physical fitness, but also for recreation and competition. According
to a National sporting Goods Associations study, women were the major participants in
10 of 45 activities it surveyed; these activities include aerobic exercise, gymnastics, and
exercise walking. Additionally, the increasing presence of women in the work force and
decisions to delay childbearing and have fewer children, should bring about higher
household incomes, thus allowing for more discretionary spending and more leisure time
available for recreation. In essence, greater emphasis may be directed toward fitnessrelated products.
As mentioned earlier in the case, there is a continuing movement by U.S. manufacturers
to produce overseas through manufacturing contracts. However, as these newly
industrialized countries become more developed which exerts upward pressure on
production costs manufacturers will be compelled to seek other low-cost producer
countries.
THE FUTURE
Nike management faces a number of challenges for the future. Can Nike move fast
enough in a rapidly changing market with strong competitor such as Reebok, L.A. gear,
and others to remain the premier athletic shoe manufacturer? Given Nikes low-cost
production in Taiwan, south Korea, and the peoples Republic of China, will recent
political demonstrations in the latter two countries compel Nike to seek other low-cost
Asian producers or increase nits U.S. domestic manufacturing private-branded products
for major retailing chains?
9.7
Summary
A case portrays a real organizational situation and requires one to analyze that situation
and then develop recommendations for future action. In this chapter, I have given one
case intended for classroom discussion. The case should be analyzed using the
following outline:
Macro-environment
Industry environment
Mission, goals, objectives, social responsibility, and ethics
Corporate level strategies
Business unit strategies and functional strategies
Portfolio management and corporate level strategy issues
Strategy implementation
Strategic control
Your recommendations for future action
- 132 -
9.8
Further Reading
1.
Annual Reports, various years, and Forms 10-K.
2.
Lynn Strongin Dodds, Heading Back on the Fast Track, Finance World, August 21September 3, 1985, p. 90. See also Whos Who in Finance & Industry, 1983 84, p. 431.
3.
Sheryl Franklin, The Other Side, Bank Marketing, August 1987, p. 62.
4.
Barbara Buell, Nike Catches Up with the Trendy Frontrunner, Business Week, October
24, 1988. p. 88. See also Walking on Air at Nike, Fortune, January 1, 1990, p. 72.
5.
See reference II.
6.
Marcy Magiera, and Pat Sloan, Sneaker Attack, Advertising Age, June 20, 1988, p. 3.
7.
Marcy Magiera, As Nike Flexes Its Fashion Sense, Advertising Age, January 30,
1989, p. 76.
8.
James P. Miller, Nike Concurs with Estimates of Net Rise for Year of as Much as 65%,
The Wall Street Journal, July 7, 1989, p. A5A. See also Increase in Sales Expected by
Nike, The New York Times, February 11, 1989, p. 37; Dori Jones Yang, Setting Up Shop
in China: Three Paths to Success, Business Week, October 19, 1987, p. 74.
9.
Nike Pairs Michael Jordan with a Down-to-Earth Guy, The New York Times, February
14, 1989, p. D7.
10. Carr Gottlieb, Products of the Year, Fortune, December 9, 1985, p. 112. See also Jon
Wiener, Exploitation and the Revolution, Advertising Age, June 29, 1987, p. 18.
11. Douglas C. McGill, Reeboks New Models, Fully Loaded, The New York Times,
February 14, 1989, pp. D1 D2.
12. Christopher Chipello, Reebok to Buy CML Unit for $42 Million, Signalling Expansion of
Product Line, The Wall Street Journal, August 8, p. A4.
- 133 -

Bba 503 Cba 504-Strategic-G. Gongera

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KENYATTA UNIVERSITY

INSTITUTE OF OPEN LEARNING

CBA 504: STRATEGIC MANAGEMENT

Institute of Business Administration

By the end of this lesson, you should be able to:

In high performing companies, managers are committed to having a first rate

High-performing organizations are strongly result-oriented and performance

managers of poorly performing organizations excuse weak performances on the basis

In high performing organizations, there is a clear sense of direction. Senior managers

High-performing companies, there is enough skilled workforce, with unmatched

Strategy refers to top managements plans to attain outcomes consistent with

The characteristics of strategic decisions

Strategic decisions are concerned with or affect the long-term direction of an

Strategy can be seen as the matching of the activities of an organization to the

Strategy can also be seen as building on or stretching an organizations resources

Strategic decisions are likely to affect operational decisions. A change in doing

The strategy of an organization is affected not only by environmental forces and

Figure 1. Strategic management paradigm

Importance of strategic management

Strategic management responsibilities of managers.

Formulating a company philosophy establishing the beliefs, values, attitude, and

Establishing policies deciding on plans of action to guide the performance of all

Setting objectives deciding on achievement targets within a defined time range.

Providing personnel recruiting, selecting, and developing people to fill the

Setting standards establishing measures of performance that will enable the

Establishing management programs and operation plans developing programs and

Activating people commanding and motivating people to act in accordance with

The purpose of strategic management is to ensure that an organization as a whole is

Committees and the responsibilities

Influences on strategic management

Strategic management is eclectic, drawing upon a variety of theoretical frameworks. This

Industrial organization theory is deterministic because it assumes that an organizations

4. Resource based theory

theory emphasizes primarily on individual firms rather than on the competitive

Emerging Issues of Strategic Management

Social actions can be profitable.

It is the ethical thing to do.

It improves the public image of the firm.

It is necessary to avoid government regulation and intervention. This creates greater

Business has a great deal of power which is reasoned should be accompanied by an

It might be illegal to use shareholders resources in social activities.

Main Social Responsibility Areas

Protect and improve the physical environment

Is the environment adequately protected among clean water, excessive noise

Concern for society in general. The questions requiring solutions include:

Contributing towards supporting the informal sector

Developing equipments to meet employees and societies needs for socializing.

Providing customers education about their products and services.

Formulating Strategies for Small Business

Be objective An honest assessment of the strengths and weaknesses of the

Focus on profitable markets small businesses survive by providing distinctive

Manage employees well Small businesses succeed by building, managing and

Never run out of cash Cash is KING in small businesses world

Understand all phases of the business Control of a small business and

Strategy and International Operations

Advantages of international business

Disadvantages of international business

Strategies of Going Abroad

There are four strategies of going abroad

It involves less investment to the company

The right to produce patented product or use a patented production process

Requires no investment except for the continuing costs of monitoring the

Revenues from licenses are generally very low