STRATEGIC MANAGEMENT

Introduction What is Strategic Management? According to Wheelen and Hunger (1988), Strategic Management is that set of managerial decisions and actions that determines the long-run performance of a corporation. David (1999) defined Strategic Management as “the art and science of formulating, implementing, and evaluating cross functional decisions that enable an organization to achieve its objectives. Harvey (1982) also defines Strategic

Management as the process of formulating, implementing and evaluating business strategies to achieve future goals.

Specifically Harvey says strategic management is about the following 1. Strategic systems approach which is about seeing the organisation as one whole that has interdependent parts. 2. Long-range planning that involves a longer time frame 3. Competitive analysis that addresses such questions as    What business are we in? Who are our customers? Who are our competitors?

4. It is about developing a comprehensive vision of the future that provides a sense of purpose and direction for the organisation. 5. It is about developing a corporate culture that identifies and develops a sense of belonging, motivation and shared values to accomplish the future goals.

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Thompson and Strickland (1988) say strategic management is about managerial decisions and skills that impact directly upon the organisation’s capacity      To survive To adapt to market and environmental changes To grow profitably To move in new directions To fundamentally alter its mix of business interests.

The Strategic Management Process therefore consists of three major activities which are (1) Strategy formulation, (2) Strategy

Implementation and (3) Strategy evaluation.

Summary of the Strategic Management Process 1 Strategy formulation that includes        Developing a vision and mission Identifying an organisation’s external opportunities and threats Determining internal strengths and weaknesses Establishing long-term objectives Generating alternative strategies Choosing particular strategies to pursue Deciding what new businesses to enter and what to abandon based on strategy analysis

2. Strategy Implementation involves    Establishment of annual objectives, devise policies, motivate employees Allocate resources Developing a supportive culture

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  

Creating an effective organizational structure, preparing budgets Developing and utilizing information systems Linking employee compensation to organizational

performance

3. Strategy evaluation entails    Reviewing external and internal factors that influence the current strategies Measuring performance Taking corrective actions

Benefits of Strategic Management 1. It allows an organisation to be more proactive than reactive in shaping its own future. 2. It allows an organisation to initiate and influence activities 3. A great benefit of strategic management is the opportunity that the process provides to empower individuals (David 2001). He further defines empowerment as the act of strengthening employees’ sense of effectiveness by encouraging and rewarding them to participate in decision making and exercise initiative and imagination.

In other words strategic management is used in organizations because 1. It provide long-term direction in planning 2. It helps the organisation in adapting to an increasing rate of change and 3.In gaining competitive advantage in a high-risk environment and 4. achieving a more effective organisation

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The strategic management process provides the organisation members with clear direction as seen through the vision, mission statement and objectives.

Characteristics of Best Run Companies according to Harvey (1982). He describes the characteristics as the

Sources of Excellence as the companies are put into two groups of winners and losers. Winners are: Anticipative and future oriented Losers are: Reactive and stay

with one strategy. Have Strategic Plan Their culture fits well with Strategic plan Strategy flexibility Fail to plan Have an inappropriate culture Slow to meet

changing conditions

The strategists in an organisation include     The board of directors Top management Functional heads Corporate planning staff

WHAT IS A STRATEGY? The word/term strategy is derived from the Greek world “strategos”, which means general or the art of the army general. In a military sense, strategy involves the planning and directing of battles or campaigns. In the business sense, it refers to actions by a manager to offset actual or potential moves of competitors. By definition therefore: “A strategy is a unified, comprehensive, and integrated plan that relates the strategic advantages of the firm to the challenges of the environment. It is designed

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to ensure that the basic objectives of the enterprise are achieved through proper execution by the organisation”.

A strategy, therefore, is an action plan for achieving future objectives and competitive advantage relative to rival firms. In other words it is a game plan that outlines how things are to be done. It addresses the issues of precisely how the desired results are to be achieved. It is the blue print of getting the organisation where it wants to go.

CRITERIA FOR EFFECTIVE STRATEGY If a firm’s strategy is to be effective there must be: 1. Clear, decisive objectives, which if achieved, ensure the continued viability and vitality of the entire organisation vis-à-vis its opponents. 2. High encouragement of workers’ initiative: - i.e. it must preserve freedom of action which subsequently leads to enhanced commitment on the part of the implementing organisational members. 3. Concentration on strategically vantage points i.e. strategy must define what will make the enterprise superior or “best” in competitive advantage. 4. Flexible i.e. strategy must build in resource buffers and dimensions for flexibility and maneuver. These reserved extra resources and flexibility and repositioning allow continued viability of the firm keeping opponents at a relative disadvantage. 5. Coordinated and Committed direction leadership: i.e. specifically ensuring that each divisional or departmental head is aware of the strategy and the guiding policies and procedures. The leaders’ own interests and values must match the needs of their roles in the strategy. For the strategy to be successful there is need for commitment and not just acceptance by leadership.

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Surprise: Very much like in the military sense. A good strategy makes use of speed, secrecy, and intelligence to attack exposed or unprepared opponents at

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The Performance Test: which means that a good strategy boosts a company performance as seen through profitability. aspirations. The Goodness of fit Test: which means a good strategy is well matched to the company’s situation both externally and internally. If the surprise attack is correctly timed. choosing the tools for achieving the objectives (strategies) and action plans to achieve those objectives and implementing them.e. What is a Vision? A vision is a statement of hopes. It is a clear and challenging statement that serves as a beacon and control of the organisation. Security: The strategy should secure resource bases and all vital operating points and links for the enterprise. It prepares 6 . where the leadership would like the organisation to be in the future. top management has to develop a concept of what business the organization is in and thereby establishing the purpose of their existence. 3. 7. and/or wishes of the organisation’s future i. The Competitive Advantage Test: which means that a good strategy leads to sustainable competitive advantage. Tests of a Winning Strategy 1. 2. THE STRATEGIC MANAGEMENT PROCESS Strategy Formulation Strategy Formulation is the problem-solving process (often called “strategic planning”) of setting the firm’s vision and mission. analysing the environment: establishing longterm objectives.unexpected times. In the process of Strategy formulation. The strategy must be supported by an effective intelligence/research system. it can decisively change the opponents’ strategic positions.

Vision is a compelling image of the future that is offered by corporate leaders. For an organisation’s vision to be sound it should have the following components: . Meaningful vision empowers organizations to solve problems and accomplish goals. ten or twenty years’ time? What do our capabilities lead us to be? What does our market want us to be? The Corporate Vision A positive vision of the future is essential for providing meaning and direction to the present.Comprehensive and Detailed .Shared and Supported .Positive and Inspiring “Vision without action is merely a dream.Leader Initiated . A mission statement identifies the scope of an organisation’s operations in product/service and market terms. 7 . Vision with action can change the world” MISSION STATEMENT A mission statement is an enduring statement of purpose that distinguishes an organisation from other similar organizations in the same industry. and then shared with the corporate community who should agree to support it.for the future while honouring the past. Action without vision just passes the time. Vision Formulation This entails asking and answering such questions as    What do we want to be in five. It empowers organizational members first. and then the clients as they can all see where the organization is going.

Derek Abel expanded on Peter Drucker’s idea and said business should be defined in terms of:    Customer needs or what is being satisfied Customer groups or who is being satisfied Technologies or how customer needs are being satisfied Answering what will our business be question is the most important and necessary step in setting the direction for the organisation. The shaping of an organisation’s future begins with clarity of the organisation’s purpose of existence. The purpose of business is to create a customer whose needs need to be satisfied through the provision of goods and services whose availability are made possible through the use of technology. a business is defined by the want the customer satisfies when he buys a product or service. image and scope of activities in ways that are detailed enough to distinguish the organisation from other types of organizations.In coming up with the mission statement. the strategists have to answer the following questions:    What is our business? What will it be? What should it be? If these questions are answered the organisation will have been given its identity. According to Peter Drucker. This requires the strategist to look ahead and try to anticipate the impact of:    Changing customer needs Changing technology Changing customer uses 8 . top management should bear in mind the fact that the mission statement should depict the organisation’s character. During that exercise of coming up with the mission statement. So to satisfy a customer should be the starting point of the mission statement of every business. character and make-up.

extend and develop its existing business concepts.  Changing customer markets The impact of all these changes on the business Answering what will our business be will help the organisation to identify the customer’s unsatisfied wants and hence be on the guard to modify. By taking that dimension the organisation is addressing such issues as:     How can innovations be converted into new businesses What technologies are opening up or can be created to the advantage of the customer (ATMS) Should diversification be pursued and if so what kind Which things should the organization continue doing and which should it plan to discontinue? What will a Mission Statement Accomplish? / Benefits of Mission Statement a) b) c) d) Promotes and encourages unanimity within the organization Provides a basis. for allocating organizational resources Establishes a general tone or organizational climate/culture Serves as a focal point for individuals to identify with the organisation’s purpose and direction. What should our business be is an equally important question to ask. 9 . Provides perspective on economic and/or organizational growth. time and performance parameters can be assessed and controlled g) h) Provides the general framework for the establishment of organizational policies. from participating further in the organisation’s activities. or standard. e) Facilitates the translation of objectives into a work structure involving the assignment of tasks to responsible elements within the organisation f) Specifies organisation purposes and translation of these purposes into objectives in such a way that cost. and deters those who cannot.

The objectives that need to be specific. Objectives provide direction for organisation efforts Strategic objectives perform an intergrating function. achievable. Importance of Objectives 1. values and norms and in coming up with the mission statement the corporate culture has to be factored in. 2. They provide a means for setting priorities and resolving conflicts between organizational elements 3.Components of the Mission Statement The major components include the following: a) b) c) d) Products/Services – What are the organisation’s major products/services? Markets – Where does the organisation operate/compete? Technology – Is technology a primary concern of the organisation? Concern for survival. 4. growth. Objectives provide measures for organizational performance Corporate Culture Culture is about people’s shared beliefs. measurable. 10 . time-bound and challenging play a very important role in the strategic management process. Objectives provide a motivating force. and fiscal viability – Is the organisation committed to economic objectives? e) Self-concept – What are the distinctive competencies of the company or company’s major competitive advantage? f) Concern for public image – To what extent is the public image a major concern of the organisation? g) Concern for people – What is the organisation’s attitude toward management and staff? SETTING OBJECTIVES In coming up with a mission statement the strategist should establish specific objectives that will help the organisation to keep focused.

An Industry is a group of companies offering products or services that are close substitutes for each other. legal. customers and suppliers Macro-economic consists of broader economic. its industry environment and the general/remote environment. This is referred to as the SWOT ANALYSIS. a firm needs to scan and analyse the environment in which it is operating. 1989. weaknesses. The analysis exercise entails looking at the organization’s strengths. Culture conveys a sense of identity for employees 2. political. opportunities and threats. technological and demographic environments A good fit is needed between strategy and the environment. SWOT ANALYSIS External Environment Industry environment that the company competes in: 1. social.Importance of Culture in an Organisation 1. 2. Culture serves as a frame of reference for employees to use to make sense out of organizational activities and to use as a guide for appropriate behaviour (Wheelen and Hunger. Culture helps generate employee’s commitment to something greater than themselves 3. the macro-environment in which it operates.p 137) ENVIRONMENTAL ANALYSIS Having articulated its vision and mission. Culture adds to the stability of the organisation as a social system 4. The environment comprises of the firm’s internal environment. Porter’s Five Forces Model is used in analyzing competition within an industry 11 . Industry Environment consists of the competitors.

Potential Competitors Established companies try to discourage potential competitors from entering the industry through some barriers to new entry such as: Brand Loyalty refers to the preference of buyers for the products of established companies. materials Discounts on bulk purchases Economies of Scale – associated with large company size hence mass production  Scale economies in advertising 12 .Porter’s Five Forces Model Risk of Entry by Potential Competitors Bargaining Power of Suppliers Rivalry Among Established Firms Bargaining Power of Buyers Threat of Substitute Products 1. emphasis on high product quality and good after sales service. Brand Loyalty can be created through continuous advertising of brand and company names. product innovation through R& D. Absolute Cost Advantage    Can arise from superior production techniques Control of particular inputs such as labour. Patents protection of products.

g NRZ). (e. (d) Strategic relationships between business units (e) Economic dependence on the industry. a company can increase revenue without taking market share away from other companies (ii)where demand is declining companies fight to maintain revenue and market share.  Price wars may also result Extent of rivalry among established companies is a function of: (a) Industry competitive structure – the number and size of the distribution of companies. Structure can either be fragmented or consolidated (b) Demand conditions (i) in situations where there is demand. Exit barriers – are economic. strategic and emotional factors that keep competing in an industry even when returns are low. companies 3. it has to write off the book value of these assets (b) High fixed costs of exit. Examples are (a) Investments in plant and equipment that have no alternative uses and cannot be sold off. as when a company is not diversified and so relies on the industry for its income. Rivalry Among Established Companies If this competitive force is weak companies have the opportunity to raise prices and earn greater profits. such as severance pay to workers who are being made redundant © Emotional attachments to an industry. such as when a company is unwilling to exit from its original industry for sentimental reasons. If the company wishes to leave the industry. The Bargaining Power of Buyers Buyers can be viewed as a competitive threat when they   Force down prices Demand higher quality and better service 13 .2.

and the buyers are few in number and large When they purchase in large quantities When they can switch orders between supply companies at a low cost When it is economically feasible for them to purchase the input from several companies at once When they can use the threat to supply their own needs through vertical integration as a device for forcing down prices. if money is borrowed. In this case the company is dependent on its suppliers and unable to play them off against each other. Suppliers are most powerful    When the product that they sell has few substitutes and is important to the company When the company’s industry is not an important customer to the suppliers When their respective products are differentiated such an extent it is costly for a company to switch from one supplier to another.     When the supply industry is composed of many small companies. 4 The Bargaining Power of Supplies. Substitute Products These are products serving similar consumer needs Macro environment Economic Growth – rate of growth in the economy has a direct impact on the level of opportunities and threats that companies face – Business Cycles 1. 14 . Interest rates – level of interest rates can determine the levels of demand for a company’s product. 5. They influence the demand for funds and they determine the cost of capital.   When they can use the threat of vertically integrating forward into the industry and competing directly with the company as a device for raising prices When buying companies are unable to use the threat of vertically integrated backward and supplying their own needs as a device for reducing input prices.

15 . higher interest rates and volatile currency movements. Threat to the tobacco industry. It makes the future less predictable. Currency exchange rates – the value of the dollar relative to the currencies of other countries. 3.  Technological Environment -Technological change can make established products obsolete overnight. For Mineral waters diet drinks and fruit drinks. Inflation rates – results into slower economic growth. It affects investment negatively.  Social Environment – can create opportunities and threats.2.  The Global Environment Globalisation can create both opportunities and threats. -It can also create a host of new possibilities. example the trend-toward greater health consciousness.  The Demographic Environment refers to the changing composition of the population and can create both opportunities and threats.  The Political and Legal Environment Deregulation opened up a number of industries to intense competition. The AIDS pandemic is a threat to human beings and an opportunity to the pharmacies. Privitisation as well is a government tool for empowering the indigeneous people.

these create norms (rules of conduct) that define acceptable behavior of people from top management to the low level employees. i. Corporation’s pattern of relationships.e. 4. A formal arrangement of roles and relationships of people. Culture adds to the stability of the organization as a social system. 2.INTERNAL ANALYSIS Strengths which emanate from a company’s distinctive competencies that competitors cannot easily match.“its anatomy”. CULTURE - Culture has a powerful influence on the behavior of leadership and can strongly affect a corporation’s ability to shift its strategic direction.STRUCTURE. and values shared by the corporation’s members and passed on from one generation of employees to another. IMPORTANCE OF CULTURE IN AN ORGANIZATION 1. 3. Culture helps generate employees` commitment to something greater than themselves.flow. [Wheeler and Hunger 1989 p. Corporate culture shapes the behavior of people in the organization.137] 16 . Culture conveys a sense of identity for employees. so as to facilitate the achievement of goals and the accomplishing of the mission of the corporation Also referred to as the chain of command the collection of beliefs expectations. CULTURE & RESOURCES STRUCTURE: Often defined in terms of communication authority and work. Culture serves as a frame of reference for employees to use to make sense out of organizational activities and to use as a guide for appropriate behavior. THE INTERNAL ENVIRONMENT It includes the following:.

91]. a corporation also does an internal analysis of its resources so as to identify its strengths and weaknesses and examine functional level strategies that it can build and exploit the strengths and correct the weaknesses. This refers to a company’s strengths that competitors cannot easily match or imitate [Hill and Jones 1989 p. Porter). The value a company creates is measured by the amount that buyers are willing to pay for a product or service (Michael E. Distinctive competences represent the unique strengths of a company and from distinctive competences a company can build a sustainable competitive advantage. 17 . In a company distinctive competences are found within individual functions such as: Marketing Finance Research and Development Operations (Manufacture/Services) Human Resources Information Systems The Value Chain & Distinctive Competences Distinctive competencies can help a company maximize value created through its value chain. which form the bedrock of a company’s strategy. a company must have a distinctive competence in one or more of its value creation functions. To gain competitive advantage.Corporate culture generally is embedded in the mission statement of the organization. It gives a corporation a sense of identity who we are what we do what we stand for RESOURCES: Besides the structure and the culture. From its strengths a company can end up having a distinctive competence.

characteristics. “Who are our customers?” That involves the selection of target market segments that determine where the company will compete. b) The design of the Marketing Mix (Price. Promotion. timing and character of demand in a way that will help the corporation achieve its objectives. A market segment is a group of buyers with similar purchasing a. Place) These are the key variables that can be used to affect demand and to gain competitive advantage or differential advantage: Within each of the four variables are several sub-variables. Product.MARKETING The marketing manager’s major tasks are to regulate the level. The Managers’ Concerns Market Position – which deals with the question. PRODUCT Quality Features Options Style Packaging Brand Name Sizes Services Warranties Returns PLACE Channels Coverage Locations Inventory Transport PROMOTION Advertising Personal Selling Sales Promotion Publicity PRICE List Price Discounts Allowances Payment Period Credit Terms Source: Philip Kotler Marketing Management (1982) 18 .

Skills in basic scientific and technological research Skills in exploiting new scientific and technological knowledge Skills in project management (selection and evaluation) Skills in prototype design and development Skills in integrating Research and Development with manufacturing.A company alters its marketing mix to discriminate among different segments. 19 . Positioning Strategy Positioning according to Hill and Jones (1989) refers to the choice of target market segments that a company decides to focus on and the design of the marketing mix to create a competitive advantage that defines how the company will compete with rivals in each segment. 3. c. Strategies of product development aimed at improving the quality or features of existing products. Strategies of product innovation aimed at developing entirely new products ahead of competitors. RESEARCH AND DEVELOPMENT Types of Research and Development Strategies: 1. 2. The marketing mix goes hand in hand with the product Life Cycle. 4. 2. Skills in integrating Research and Development with Marketing. Strategies of Process Innovation aimed at improving manufacturing processes to reduce costs and/or increase quality. 6. 3. Skills Necessary to Support the Research and Development Strategies: 1. 5.

1) Current Ratio Current Assets Current Liabilities CA – Inventory CL 2) Quick Ratio or Acid test Ratio e) Debit Ratios / Leverage Ratios Total Debt Total Assets f) Activity Ratios: Demonstrates how effectively a firm is using its resources Asset turnover = Sales = times inventory is turned over Total Assets g) Profitability Ratios: h) Break even Analysis shows relationships among fixed costs. best uses of funds and control of funds. variable costs and profits. Break even point in units = Fixed Cost Selling Price-Variable cost/unit 20 . credit position and liquidity Cash flow – a positive cash flow enables a company to finance new investments without having to borrow money from bankers or investors.FINANCE The financial manager must ascertain the best sources of funds. FINANCIAL RATIOS: d) Liquidity Ratios measure the company’s ability to meet unexpected contingencies such as price war or a prolonged strike. A company’s cash flow position depends on the Industry life cycle. The critical considerations are cash flow.

Job Analysis. just-in-time production systems maintenance and reliability in order to develop an appropriate functional strategy. They should work towards the improvement of: Quality of Work Life and employee empowerment by 1. Labour for example and management efficiency. 4. job design. With operations or manufacturing there is the concept of experience Curve or learning curve which simply says that after a company has been around for sometime it tends to produce at low costs that come from learning by doing. 2. quality assurance. Good selection and Orientation. work measurement.MANUFACTURING / OPERATIONS The primary task of the manufacturing or service manager is to develop and operate a system that will produce the required number of products or services with a certain quality at a given cost within an allotted time. It is said that the operations manager in charge of either manufacturing or services must be very knowledgeable of forecasting. proper appraisal and effective employee training and development. employee satisfaction and employee turnover. scheduling. There is also economies of scale which a company achieve through mass production. introducing participative problem-solving restructuring work introducing innovative reward systems improving the work environment 21 . There is need for good HRM that entails Human Resources Planning. purchasing. HUMAN RESOURCES The primary task of the manager of human resources is to improve the match between individuals and jobs since this influences job performance. A good Human Resources Manager should be able to work closely with the unions if the company is unionized. process design. 3.

Provide a basis for the analysis of early warning signals that can originate both externally and internally. Integration – integrates existing systems into the organization and decision support systems.e. The systems must focus managers’ attention on the critical success factors in their jobs.e.e. Requirements of a well –designed Information Systems include: 1. inventory reports and other records can be generated from the database and thus the need for file clerks is reduced. Automate routine clerical operations.INFORMATION SYSTEMS The primary task of the manager of information systems is to design and manage the information flow of the corporation in ways that improve productivity and decision making.e. accounts receivable. forecasting. Stages of Development of the Firm’s Information Systems (Wheeler and Hunger 1989 p154) There are four basic stages of development 1. Assist managers in making routine (programmed) decisions. personnel inventory. payroll. Initiation – generally involves accounting applications i. i. 3. cash flow. payroll. scheduling orders. production scheduling 4. 3. budgeting. Growth – expansion of application in many functional areas i. 2. Major Purposes of Information 1. Provide the information necessary for management to make strategic (non programmed) decisions. sales inventory control. 4. i. accounts payable. billing. 22 . Moratorium – a consolidated phase and emphasis is on control purchasing control. 2. assigning orders to machines and reordering supplies.

4. There are basically three levels of strategies: 1. DIFFERENT STRATEGIES After doing a SWOT analysis different strategies have to be put in place. The strategy aims at giving direction to the total mix of organizational activities addressing such issues as:    What set of businesses should we be in? What should we continue to do? What existing businesses should we get into? 23 . 3. 2)developing methods of embodying the new technology in new products and processes. RESEARCH AND DEVELOPMENT The Research and Development manager’s responsibility is to suggest and implement a company’s technological strategy in light of its corporate objectives and policies. For meaningful profits to result from the inception of a specific R&D program time needed is 7-11 years. The job involves: 1) choosing among alternatives new technologies to use within the company. The system must present information that is accurate and of high quality. Besides the money invested in Research and Development there is also the time factor. 3)deploying resources so that the new technology can be successfully implemented.Corporate strategy is used by diversified organizations whose activities cut across several lines of business. The system must process raw data so that it can be presented in a manner useful to the manager. The system must provide the necessary information when it is needed to those who most need it.2.

such areas as the production. Business level strategy relates to how a Strategic Business Unity (SBU) intends to do its business focusing on a:    Particular product Product line or Group of related products Business level strategy focuses on how to compete effectively and profitably in a distinct. ALTERNATIVE CORPORATE STRATEGIES The corporate strategies are grouped in three categories which are growth.The Functional level Strategy is designed for the functional areas of the SBU. Concentration strategy focusing on:    Advantages      It is more manageable More focused on doing one thing well and resulting in building distinctive competencies There is simplicity which brings which brings clarity and unity of purpose The organisation zeros in on specific markets and market segments hence getting greater market visibility and even a leadership position The organisation can detect changes and trends in customer purchasing behaviour and market position at an early stage and quickly respond to them 24 A single product A single market A single technology . The primary focus of the functional strategy is on maximizing the achievement of target objectives. 3.2. Growth Strategies 1. marketing. retrenchment and turnaround and exit strategies. identifiable and strategically relevant line of business.

inflation. Advantages The company may end up being a monopoly hence no competition Disadvantages  It increases business risk  Administration costs rise  Capital requirements may hinder integration  Skills may be thinly spread 25 . It allows a firm to avert market uncertainties associated with suppliers of raw materials. There is the possibility of becoming blind to other opportunities which a result of changes in people’s tastes. Forward Integration entails owning of outlets on the part of the manufacturer. etc. production breakdowns or delays in scheduled deliveries. strikes. Use of a single technology is myopic 2. such as bad weather. to be in control of the situation and to manage the supply chain. It is motivated by the desire to realize more profits which profit could have been enjoyed by the middlemen. It enables an organisation to create a differential strategic advantage through market reputation and the competitive strength that come from having a distinctive competence Disadvantages    It is equated to putting ones’ eggs in one basket. Vertical integration is embarked upon as a result of   Diminishing profits prospects associated with further expansion of the main product line. Being the wrong size to realize economies of scale There can be backward integration and forward integration for the company to enjoy economies of scale. Backward integration as a strategy focuses on gaining ownership of suppliers.

  Diversifying into areas with a counter cyclical sales pattern so as to smooth out sales and profit fluctuations Seeking out a marriage of a highly leveraged firm and a debt free firm.3. Reasons for Diversification         To spread the risk Having too much money lying around When there is market saturation of the product currently produced Product line absolescence General decline in demand Because you expect to make more money Need for instant profit It is a survival strategy Concentric diversification is when a company expands its business operations by Adding new but related products to its existing business lines. opportunity poor company and an opportunity rich.rich. cash poor company. It may be embarked upon as way of Establishing a match between a cash. Diversification can be either concentric or conglomerate.g Tanganda Tea Conglomerate Diversification is when the firm adds unrelated lines of business to its existing business operations. 26 . Specific types of concentric diversification include:       Moving into closely related products Building upon company technology or knowhow to come up with different products Seeking to increase plant utilization Utilizing available sources of raw material Making fuller use of the firm’s sales force Building upon the organisation’s brand name and goodwill e.

Vertical acquisition that is aimed at creating a more vertically integrated enterprise and it is embarked upon sometimes to raise barriers to entry. 3.MERGERS AND ACQUISITIONS A major is about combing two or more firms into one. Retrenchment and Turnaround Strategies These are embarked upon as a result of corporate decline caused by  Poor management 27 .Horizontal acquisition that involves the merging of firms in the same industry 2. while an acquisition is when one firm (the parent) acquires another and absorbs it into its own operations. Financial Strategies for Accomplishing Mergers and Acquisitions     Purchase of stock on the open market Tender offers An exchange of stock A purchase of assets Mergers and acquisitions may occur amicably or with conflict and tension resulting in bidding wars or complex legal maneuvering. Acquisition Strategies 1.Advantages     Increase in profits Risk is spread Disadvantages Loss of control The strategic fit between the businesses may not be realized 4.A market extension acquisition that happens when firm A adds a product related to its existing product line by acquiring firm B and that is some kind of concentric diversification. and to produce unfair control over sources of critical inputs. often as a subsidiary.

A reduction in the corporation’s scope of business activities that entails the reappraisal of the desirability of continuing in each one of the present lines of business. Retrenchment can take two forms: 1.Strigent internal economies aimed at squeezing out organizational slack and improving efficiency. 28 . This is done because of poor corporate performance. That is achieved through the following:          Reducing hiring of personnel Trimming the size of corporate staff Postponing capital expenditure projects Stretching out the use of equipment and delaying replacement purchases so as to economize on cash requirements Dropping marginally profitable products Closing older and less efficient plants Internal reorganization of workflows Inventory reductions Revised purchasing procedures 2. periods of financial strain or general poor corporate performance.    Over expansion Inadequate financial controls which lead to high costs New competition Unforeseen demand shifts Retrenchment Strategy It is a short-run strategy for organizations during periods of uncertainty about the economic future. Turnaround Strategies (a) A replacement of top management and other key personnel (b) Revenue-increasing strategies focusing on how to increase sales volume.

Divestment involves selling of an SBU to another company or to the management of the business because of :     Of misfits or partial fits due to acquisitions Market potential change with the times Poorly performing divisions A particular line of business loses its appeal Guiding question to determine if and when to divest “If we were not in this business today. 2. When the business is in a saturated or declining market.(c) Cost-reduction strategies (d) Asset reduction/retrenchment through sale of some of the firm’s assets when cash flow is limited. liquidation and harvest strategies. When the business has gained only a small market share. 3. To increase cash flow management may do the following:    Eliminates or severely cut down on new investment Cuts down on maintenance of facilities Reduce advertising and Research and Development Kotler has suggested seven indicators of when a business should become a candidate for harvesting. Exit Strategies These include divestiture. would we want to get into it now?” Harvest Strategy involves disinvestments in a business unit to optimize cash flow as the company exits from that industry. and building it up would be too costly or not profitable enough. or when it has a respectable market share that is becoming increasingly costly to maintain or defend. When profits are not especially attractive 29 . 1.

When the business does not contribute other desired features (sales stability. It entails layoffs and plant closure COMBINATION STRATEGIES Identifying Strategic Alternatives that fit s Firm’s Market Circumstances Rapid Market Growth Quadrant 11 strategies (in probable order of attractiveness) 1. Liquidation Strategy involves closing down of an operation. When reduced levels of resource support will not entail sharp declines in sales and market position. Vertical integration 3. When the business is not a major component of the organization’s overall business portfolio 6. It is the most unpleasant and painful strategy especially if it means terminating the organisation’s existence.Liquidation Weak competitive position Quadrant 111 strategies (in probable order of attractiveness) 1. Diversification 3. Concentric diversification 2. Divestiture 4. Retrenchment 2. When the organization can redeploy the freed-up resources in higher opportunity areas. Joint Venture 30 . 5. Reformulation of concentric strategy 2. prestige. Concentric Diversification Strong competitive position Quadrant 1V strategies (in probable order of attractiveness) 1. Concentration 2. Conglomerate diversification 3.4. a well-rounded product line) to the total business portfolio. Liquidation Slow market growth Quadrant 1 strategies (in probable order of attractiveness) 1. 7. Horizontal integration or merger 3. Divestiture 4.

joining hands with government in certain business areas 5.CORPORATE STRATEGY ANALYSIS Strategic Gap Analysis or Performance Gap Analysis That is done by looking at the aggregate performance of the businesses in the portfolio and see if corporate objectives are being achieved.g. developing strategic objectives with respect to each SBU. In the case of a gap top management can do the following 1. Add new business units to the corporate portfolio Delete one or more businesses from the corporate portfolio. 31 . It involves three main steps: 1. Use political action to alter conditions that responsible for sub par performance potential e. 3. There are several models that can be used to evaluate strategy alternatives at corporate level. comparing SBUs by means of a matrix that indicates the relative prospects of each 3. dividing a company into Strategic Business Units (SBUs) and assessing the long-term prospects of each 2. Bring corporate objectives in line with reality. 2. They include The Boston Business Consulting Group (BCG). if not.those businesses that are in a weak competitive position 4. then search for the changes that need to be done in order to close the gap. Alter the business-level strategies of some or all of its businesses in order to build distinctive competencies. The GE Nine –Cell Matrix or McKinsey Matrix The Boston Consulting Group Business Technique The main objective of the BCG technique is to help strategic managers identify the cash flow requirements of the different businesses in their portfolio.

Weak cash cows may be harvested.The company uses two criteria. They require large cash investments for expansion of production facilities especially the young stars. Dogs should be maintained only if they can contribute positive cash flow without being financed by the cash cows. Otherwise a weak dog should be harvested.they are in low growth industries but have a high market share and strong competitive position in mature industries. 3. They have low relative market share and high growth industries. Question marks – they are relatively weak in competitive terms. Relative Market Share High Low High STARS QUESTION MARKS Industry Growth Rate Low CASH COWS DOGS 1. If nurtured they can become stars. but have a weak competitive position in unattractive industries. They have both competitive strengths and opportunities for expansion. the SBU’s relative market share 2. 2. the growth rate of the SBU’s Industry. 1. Starts They are the leading SBUs in the Company’s portfolio. 32 . Dogs – They are in low-growth industries. 4. Cash cows .

Question marks with the weakest position are divested as a way of reducing cash demands. cash cows. The long-term objective is to consolidate the position of stars and to turn favoured question marks into stars. stars. 3. 3. but just the high and low type. At the same time some businesses do not neatly fall under the four categories of stars. If a company lacks sufficient cash cows. When a star becomes a problem child and then falls to become a dog When a cash cow loses the market and falls to become a dog Over investing in a safe cash cow 33 . 2. it does not cater for businesses which are average. 2. it should consider acquisition and divestments to build a more balanced portfolio. Weaknesses The matrix just looks at the attractiveness of an SBU from the relative market share and industry growth rate perspectives only. Use the cash surplus from any cash cows to support the development of selected question marks and nurture the emerging stars. “Disaster Sequences in the BCG scheme of things 1. Besides. Strengths and Weaknesses of The BCG Matrix Strengths: The major strength is that it focuses a company’s attention on the cash flows of different types of business and from there the company can decide where to invest or divest in order to optimize the value of the corporate portfolio. dogs and question marks. The company should exit from any industry where the SBU is a dog.Strategic Implications of the BCG The objective of the BCG’s portfolio is to identify how corporate cash resources can best be used to maximize a Company’s future growth and profitability. and question marks. There are other relevant factors such as product differentiation. Recommendations 1. 4.

The McKinsey Matrix or The GE Nine-Cell Business Portfolio Matrix Competitive Position GOOD MEDIUM POOR Industry Attractiveness HIGH Winner Winner Question Mark MEDIUM Winner Average Loser LOW Profit Producer Loser Loser The technique has two dimensions (1) the attractiveness of the industry in which an SBU is based and (2) an SBU’s competitive position within that industry. Due to the shortfalls of the BCG matrix General Electric with the help of McKinsey & Co. product quality.cell matrix based on business strength/competitive position and industry/market attractiveness. The GE Nine. The difference with the BCG is that there are more factors considered under each dimension. Under investing in a question mark such that it tumbles into a dog Spreading resources thinly over many question marks rather than on a few selected ones.4. aftersales service/maintenance. competitive intensity and cyclicality. technological know-how. 5. For example factors considered under industry attractiveness include industry size.Cell 34 . developed a nine. Under competitive position key success factors include market share. industry growth. capital intensity. technological stability. industry profitability. low operating costs and productivity.

Too many question Marks 3. The aim of the GE matrix is to achieve the balanced portfolio from the SBUS. Too many developing Winners Excessive cash demands Divest selected developing Excessive demands on winners if necessary Management Unstable growth and profits Acquire profit producers 35 . Too many losers Typical symptoms Inadequate cash flow Inadequate profits Inadequate growth Inadequate cash flow Inadequate profits Inadequate growth Excessive cash flow Typical correction Divest/liquidate/harvest loser Acquire profit producers Acquire winners Divest/harvest/liquidate selected question marks Acquire winners Nurture/develop selected Question marks 2. Four basic types of unbalanced portfolios Problem action 1.Matrix allows for intermediate rankings between high and low and between strong and weak and it also incorporates explicit consideration of a much wider variety of strategically relevant variables. Too many profit Producers 4. A balanced portfolio is one that contains mostly winners and developing winners with a few profit producers to generate the cash flow necessary to support the developing winners and a few small question marks with the potential to become future winners.

The risk that industry conditions and trends will not be favourable enough to allow the firm’s business to contribute its “fair share” toward the achievement of overall corporate objectives. management can also look at such things as 1. highly cyclical or seasonal demand or major pollution control problems) 3.Product/Market or Industry Evolution Matrix Strong Average Development Weak Market/ Industry Evolution Growth Shakeout Maturity Saturation Decline The matrix has 15 cells based on Competitive position and Industry evolution Assessing Industry Attractiveness by Hofer and Schendel At corporate level. 36 .Whether the industry has enough of the positive attributes that management is looking for such as (growth.The extend to which the industry is characterized by traits management wants to avoid such (history of labour strikes. profitability or export opportunities) 2.

5. (ii) comparing the attractiveness of different business units STEPS IN STRATEGY ANALYSIS PROCESS (Thompson and Strickland. technology.it involves a determination of where the firm’s business stands in relation to that of its rivals with regards to market share. 2. price.Specific factors considered in assessing Industry Attractiveness (a) Evaluation of competitive position. (b) Identification of the key factors underlying success in the industry. Probe the competitive strength of the individual business and how well situated each is in its respective industry. 4. 1981) 1. Rank the business units from highest to lowest in investment priority. Identify the present corporate strategy Construct business portfolio matrixes to examine the overall composition of the present portfolio 3. 6. Determine how well each business unit fits in with corporate direction and strategy and other businesses on the portfolio. drawing conclusions about where the firm should be putting its money and what the general 37 . Rank the different business units on the basis of their past performance record and future performance prospects. Profile the industry and competitive environment of each business unit and draw conclusion about how attractive each industry in the portfolio is. They include (i) an ability to manufacture a superior quality product in a market where customers are quality conscious (ii) using low cost manufacturing methods as a basis for out-competing rival firms on price where customers are very price sensitive (iii) having a more complete product line in a market where customers place a high value on broad product selection (iv) having proficiency in R&D in a high technology business. © Identifying opportunities and threats in the industry through (i) resource/skills analysis that could materially alter the firm’s competitive standing. breadth and quality of product line.

Work closely with major customers (d) Channel innovation strategy finding ways to distribute goods that offer substantial savings (e) Distinctive image strategy: develop a differentiated competitive advantage via some distinctive. visible and unique appeal 38 . assessing opportunities and threats in particular markets and for particular products b. identifying organizational strengths and weaknesses f. (b) Specialist or concentration strategy only in a few carefully chosen market segments rather than the entire industry. harvest/divest ALTERNATIVE LINE OF BUSINESS STRATEGIES Focus of strategy at the Business Level consists of a. fortify-and defend. evaluating the competitive strategies of rival organizations d. trying to match specific product-market opportunities with internal skills. overhaul and reposition. determining the keys to success in that particular business c. distinctive competences and financial resources The different business level strategies include the following: 1 Strategies for underdog and low market share businesses that include the following (a) Vacant niche strategy in areas where larger firms are not catering or ignoring or are not as well equipped to serve. (c) “Ours is better than theirs” strategy capitalizing on opportunities to improve upon the products of dominant firms and develop an appeal to quality-conscious or performance-oriented buyers.strategic direction of each business unit (invest-and-expand. searching for an effective competitive advantage e.

etc. product quality etc through reinvestment in the business. cost-cutting discoveries. innovative customer services. 39 . It becomes the source of new product ideas. sizes and improved design. (f) Be alert for product development opportunities geared at product quality. (h) Shift the focus of advertising and promotion from building product awareness to increasing frequency use and to create brand loyalty. (c) Confrontation Strategy: through promotional wars. performance features. introduce own brands to compete with alreadysuccessful company brands. (b) Fortification strategy: surround the chief products with patents.Strategies for Dominant Firms (a) Keep-the offensive strategy where the firm refuses to be content with just being a leader. (i) Seek out new distribution channels to gain additional product exposure. and how to develop the sort of distinctive competencies. (g) Search out new market segments and new geographical areas to enter. (d) Maintenance strategy: maintain production capacity.2. operating efficiency. (e) Manage the business in an entrepreneurial mode with the aim of building the business for its future potential. That can be achieved by following guidelines. 3.Strategies for Firms in Growth Markets focusing on how to acquire the resources needed to grow with the market.

maintenance strategy. Test-the water strategy due to environmental changes and the need to venture into fields. Strategies for firms in Mature or Declining Industries The firms that prosper under such conditions do the following (a) They identify. high-cost distribution outlets to high-volume. This however invites retaliation ©. 6.Strategies for Weak Businesses There are essentially four options of dealing with a weak business at division. create and exploit the growth segments within their industries. low-cost outlets. 5. more advertising. The strategies to embark upon include building strategy. Glamour strategy (d).4. (b) They emphasize quality improvements and product innovation ©They work diligently and persistently to improve production and distribution efficiency through (i) automation and increased specialization.Strategies to avoid (a) Drift strategy (b)Hope-for-a-better-day strategy ©Sitting on your laurels strategy (d)Popgun strategy head-on-competition with proven leaders 40 . (ii) adding more distribution channels and (iv) shifting sales away from low-volume.Strategies to be Leery of (a)“Me too or copy-cat strategy trying to play catch-up by beating the leaders at their own game (b) Take-away strategy by attacking other firms head on by luring away their customers via lower prices. (ii) consolidating underutilized production facilities. product line or product level. or harvest strategy. divestment strategy or liquidation strategy. 7.

Customers are prepared to pay the premium prices 1.Differentiation and brand loyalty also create any entry barrier for other companies seeking to enter the industry. Uniqueness or differentiation can be seen through:      The product itself High quality Brand image The delivery system The after sales service including access to spare parts Differentiation allows the company to charge premium prices Advantages of differentiation 1 It safeguards a company against competitors to the degree that customers develop brand loyalty for its products. 41 .GENERIC BUSINESS STRATEGIES-BUSINESS LEVEL STRATEGIES The generic business strategies include Cost Leadership. Differentiation and Focus They are called generic because they can be applied to all businesses or industries regardless of the nature of the business. 3. Disadvantages Competitors move in to imitate and copy successful differentiators and customers can easily switch to competition. 2. Cost Leadership or low cost Strategy is when a firm sets out to become the low cost producer in its industry. The sources of cost advantage include:    Economies of scale Proprietary technology Preferential access to raw material Differentiation Strategy is where a firm seeks to be unique in its industry by highlighting some dimensions that are widely valued by customers such things as product attributes that many buyers in an industry perceive as important or as unique.

. 2 nd edition) which are as follows 1. In other words it is directed at serving the needs of a limited customer group or segment which maybe defined geographically or by the type of customer or by segment of the product line. 2. According to (Strickland and Thompson. The phase is accomplished through adjustments in three major systems (Harvey. It raises all kinds of administrative and policy issues concerning the specific details of what it will take to put the chosen strategy in place and make it work. 2 The development of customer loyalty reduces the threat from substitutes Disadvantages The company may not be in a position to move easily to new niches. The implementation stage is the acid test of Strategy Formulation since it tests management’s ability to convert the strategic plan into effective performance and results. analyze and evaluate. Advantages 1 The company is protected from competitors in the short run and has power over its buyers because they cannot get the same thing from anyone else. The technical system – allocating resources and organization structure The managerial system – providing leadership and responsibility The cultural system.determining the behavioural processes and member values. The implementation stage takes more managerial time and energy than formulation.Focus Strategy or Specialized Strategy It is based on the choice of a narrow competitive scope within an industry and can take the form of cost focus or differentiation focus. 1981) it is largely intellectual and emphasizes the abilities to conceptualize. Implementation is the execution of the strategic plan to achieve objectives. 42 . 3. STRATEGY IMPLEMENTATION Implementation is the means by which a strategy is carried out into successful goal achievement.

structure and processes and resources in reaching organizational goals. Implementation hinges on 3 major systems 1. The procedure includes        setting annual objectives coming up with policies allocating resources designing the organizational structure to suit the strategy developing corporate culture to enable the attainment of the objectives. Formulation Positioning forces before action Focuses on effectiveness Primarily an intellectual process Requires good intuitive and analytic skills Implementation Managing forces during action Focuses on efficiency Primarily an operational process Requires special motivation & leadership skills Requires coordination among few individuals Requires coordination among many persons Strategy formulation concepts and tools are universally applicable to the companies while strategy implementation varies substantially by type and size of organization and culture of implementers.Strategy implementation might be defined as actually executing the strategic plan to achieve objective. (Steiner and Miner)  directing the use of the resources within and outside the organization Contrasting strategy Formulation and Implementation Successful strategy formulation does not guarantee successful implementation. the technical system – the alignment of structure to strategy 43 . the carrying out or accomplishing of certain plans or goals concerned with design and management of systems to achieve the best integration of people. It is easier to say I am going to do something (strategy formulation) than to actually do it (strategy implementation).

GALVANIZING ORGANIZATIONWIDE COMMITMENT TO THE CHOSEN STRATEGIC PLAN MONITERING STRATEGIC PROGRESS EXERTING STRATEGIC LEADERSHIP Key Issues 1. Key Issues 1. and build consensus. 3. How to build and nurture a distinctive competence and to staff positions with the right talent and technical expertise. 2.2.power.What budgets and programs are needed by each organizational unit to carry out its part of the strategic plan? 2. 4.How to focus the performance of tasks on achieving organizational objectives rather than on just carrying out the assigned duties.What kinds of strategyfacilitating policies and procedures to establish. How to match organization structure to the needs of strategy. When and how to initiate corrective actions to improve strategy execution 44 .How to deal with the politics of strategy. ALLOCATING AND FOCUSING RESOURCES ON STRATEGIC OBJECTIVES Key Issues 1. the cultural system. How to link the reward structure to strategic performance. 2. How to get the right strategic information on a timely basis. 3. What “controls” are needed to keep the organization on its strategic course. play the power game. How to create a climate and culture that energizes the organization to accomplish strategy and perform at a high level. How to measure the contribution of individuals and subunits to strategic performance. . How to motivate organizational units and individuals to accomplish strategy.the development and integration of a corporate culture to fit the strategy. rewards and leadership styles 3. 2. 2. the political managerial system . Key Issues 1. The Central Tasks of Strategy Implementation and Administration BUILDING AN ORGANIZATION CAPABLE OF CARRYING OUT THE STRATEGIC PLAN Key Issues 1.

 Generating the right strategic information on a timely basis.    Keeping the organization innovative. Building an Organization Capable of Executing the Strategy focusing on   Creating a strategy-supportive organization structure Developing the skills and core competencies needed to excute the strategy successfully. Initiating corrective actions to improve strategy execution 5. responsive and opportunistic. 45 . Installing Internal Administrative Support Systems by  Establishing and administering strategy-facilitating policies and procedures. 4. molding culture and energizing strategy accomplishment. Shaping the Corporate Culture to fit the Strategy by     Establishing shared values Setting ethical standards Creating a strategy-supportive work environment Building a spirit of high performance into the culture. Enforcing ethical standards and behaviour.  Selecting people for key positions 2. Exercising Strategic Leadership  Leading the process of shaping values. Establishing a Strategy –Supportive Budget by  Seeing that each organizational unit has a big enough budget to carry out its part of the strategic plan Ensuring that resources are used efficiently to get “the biggest bang for the buck”  3.The Administrative Components of Strategy Implementation 1.  Developing administrative and operating systems to give the organization strategy-critical capabilities.

strategy.  Designing rewards and incentives that induce employees to do the very things needed for successful strategy execution. Strategy A coherent set of actions aimed at gaining advantage over competition. structure. Structure Strategy Systems Shared Values Style Skills Staff Summary of the 7-S Elements 4. Devising Rewards and Incentives that are highly linked to objectives and strategy by  Motivating organizational units and individuals to do their best to make the strategy work. 46 . The Mckinsey 7-S Framework Strategy implementation is more likely to succeed when the organization’s elements are in alignment.  Promoting a results orientation. The elements of strategic fit include. skills. improving position vis-avis customers or allocating resources. staff. and the linkage results in shared values.6. systems. style.

these values must be shared by most people in the organization. Reflect on how strategy-critical functions and organizational units relate to those that are routine and to those that provide staff support. Shared Values (or superordinate goals) The values that go beyond. Skills are those capabilities that are possessed by an organization as a whole as opposed to the people in it. but about corporate demographics. 8. Staff The people in the organization. 7. Fitting Structure to Strategy following a five-step procedure 1. it is the way management behaves. 10. Skills. To fit the concept. Structure The organization chart and accompanying baggage that show who reports to whom and how tasks are both divided up and integrated. Style Tangible evidence of what management considers important by the way it collectively spends time and attention and uses symbolic behavior. but might well include. manufacturing processes. 6. Here it is very useful to think not about individual personalities. Systems The processes and flows that show how an organization get things done from day to day (information systems. 47 . A derivative of the rest. Pinpoint the key functions and tasks necessary for successful strategy execution 2. Activities can be related by (a) the flow of material through the production process (b) the type of customer served © the distribution channels used and (d) the technical skills used.5. quality control systems and performance measurement systems. This is about understanding the strategic relationships among activities. simple goal statements in determining corporate destiny. It is not what management says is important. capital budgeting systems. 9.

Control follows planning and it ensures that the corporation is achieving what it is set out to accomplish. the control process compares performance with desired results and provides the feedback necessary for management to evaluate results and take corrective action Decision -making Set goals/ standards Measure actual Performance Strategic objectives Strategic planning Strategic Implementation Strategic evaluation Compare actual With planned Results Take corrective actions Feedback Feedback 48 . Just as planning involves the setting of objectives along with the strategies and programs necessary to accomplish them.STRATEGIC EVALUATION and CONTROL The last part of the strategic management model is the evaluation of performance and the control of work activities.

Productivity value added or sales per employee 4. Marketing standing relative to competitors 2. Focus on strategic control points where deviations from the plan are likely to take place. Acceptance for it to be accepted it must be related to meaningful goals. Decentralization Characteristics of Strategic control systems 3. 49 . Profitability Importance of Strategic Control 7. 6.The Strategic Control Process (Harvey) According to Wheelen and Hunger (1989) the evaluation and control process can be viewed as a five-step feedback model 1 Determine What to Measure 2 Establish predetermined standards 3 4 NO 5 Measure Does Take corrective performance Performance action match std? Yes STOP Setting Standards Standards are the units of measurement or criteria against which actual performance can be compared. Innovative performance (R&D) as a percentage of sales in the industry 3. Complexity in today’s organizations require a more forma and accurate approach to planning and control 9. Change in market and economic conditions 8. Accurate performance information 4. Timely – information must be evaluated on a timely basis if action is to be taken in time to correct deviations 5. Liquidity and cash flow 5. Peter Drucker suggested five criteria to evaluate performance 1. Flexible due to the dynamic environment 7.

Revenue centers – which consider the sales in a particular year as compared to the previous year’s sales.Some of the control centers in organizations 1. Expenses centers – according to departments or divisions and budgets are allocated to the centers. Standard Cost centers – Primarily used in manufacturing facilities and standard costs are computed for each operation on the basis of historical data. 3. 5. 4. Investment centers – which measure the return on investment. 2. Profit centers – which determine the difference between revenue and expenditure. 50 .

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