Professional Documents
Culture Documents
Handling Steps
MBA Comprehensive Exam Handling Steps
Overview for the Suggested steps & time span to handle the Exam
1. ( 5 Min) Start by reading the Questions for the purpose of reorder the questions hence
concentrate on the related parts from the case and the unrelated parts to be excluded.
2. (10 Min) Read the case “Screening” again to identify the unrelated parts to be excluded
3. (35 Min) Read the case carefully focusing on the parts that are related to the questions, using 4
different colored markers highlight the similar Factors i.e. Opportunities, Threats,
Strengths and Weaknesses.
4. (10 Min) Writing a introduction “Abstract” that may involve the following topics:
About the company (Background & History), Products Range, Geographical domination/market,
SBUs, divisions, Territories, industry, customer branding, competitors, competitive advantage
5. (60 Min) The input phase (Strategy Formulation) – involving internal & External Scanning to
form SWOT:
1. Vision
2. Mission
3. Assessing of the External and Internal environment within the step 3” as
following:
i. Mega or Societal Environmental Scanning: PEST assessment.
ii. Task or Industry Environmental Scanning: Porter five forces assessment.
(Proter five forces when asked only, when you have to choose between two
markets or to whether enter a new market or not.
iii. External Audit outcome: is an ordinal list of gathered external factors;
“Opportunities and Threats” Weighted (Sum =1) according to their
importance & Ranked (1-4) according to the degree of achieving, listed in an
EFE Method (where for each Opportunity or threat the weighted score = weight
* rank).
Internal Environment scanning:
• Divisional
• Matrix
• Network structure.
B. Organization Culture and values
C. Resource Based view
a. Tangible Assets
b. Intangible Assets
c. Managerial Capabilities
D. Organizational Functions
d. Financial Analysis – including comment and interpretation on each ratio.
e. Marketing analysis and decision using strategic model “i.e.; BCG”
f. R&D
g. Operations
h. Information Systems
i. Manufacturing
j. Human Resources
E. Internal Audit: is an ordinal list of gathered Internal factors; “Strengths and
Weaknesses” Weighted (Sum =1) according to their importance & Ranked (1-4)
according to the degree of achieving, listed in an IFE method.
6. (30 Min) The Matching phase – List all suitable plans through using one of the matching tools:
a. IE Matrix
b. SPACE Matrix
c. SWOT/TWOS
d. Boston consulting group – BCG.
e. Grand Matrix
7. (60 Min) The Output phase (Decision) – involving selecting the suitable plans in the
following levels:
a. Organizational Strategies,
b. Business and functional Strategies (Competitive strategies)
c. Structure Changes. (Marketing Plan and HR Plan)(Implementation if asked)
9. Conclusion/ Epilogue “ الخاتمةinvolving what’s expected when applying the selected strategies”
1. Writing an introduction “Abstract” First point four steps and a in the fifth step was clearly
fulfilled in the previous page involving
About the company– following is an example:
• “The Company name & website (www. The Company.com) (Background &
History)
• Type of Business/ Industry
• Products/services Range
• Geographical domination/markets
• Market Size
• Customers, Branding
• SBUs and Divisions
• Culture
• Competitors, Competitive situations, competitive advantage, main challenges
” i.e.; The Company operates in the business of Entertainment concerned with
organizing event, production of plays, music and films as well as promotions product in
the United States, Europe, Australia and much of Middle east. The main competitors
are XXX & XX. The company makes approximately ## varieties of the Entertainment
product. The Company is led by CEO XXX whose base pay was $###K in 20##. The
firm’s major competitor is privately-owned XX and conglomerate giant XX”.
Conglomerate= Philp moris and Kraft to all client
Concertic=Dunlop to specific customer
1. Vision
Write the Actual Vision for the purpose of evaluation hence develop a new one according to
the following criteria:
Achieving
Unrealistic
No available resources
No time frame
No commitment to achieve it
Perceds Mission statement
Future oriented
Clear and Short
Challenging
If the criteria are achieved and it matches the strategic direction of the company then
keep the vision if not change it
Example: “To become the leading producer of Entertainment Services in the world”
2. Mission
Write the Actual Mission to be evaluated:
Criteria
Consistency Consistent with the vision
Credibiity Saying what we are doing
Clarity Self-explained/ No jargon
Orientation Product oriented or customer oriented
Length Not too long= Boring, Not too short= Vague
Life cycle (Start - Growth – Maturity – Decline)
Components
1.Customers Who are the firms customers?
2.Products or Services What are the firms major products or services
3.Industry
4.Market Geographically where does the firm competes
5.Employees Are employees a valuable asset for the
company
6.Technology
7.Philosophy Value and belifes
8.Public Image
9.Self-Concept Protifiability
Survival/ Growth / Profits
If it matches the strategic direction and fulfill the criteria then keep the mission as it is, and if not
adjust the mission and ad the missing elements
Example: “To be the world’s (4) leading Entertainment Company focused on organizing
Events & Producing movies (2). We work for profits to investors (8) as we provide comfort
work zone to our employees (8), and the community (6) in which we operate. We deploy the
latest technological (9) and superior customer care (7) systems to continually create better
services for our customers (1). And in everything we do, we strive for fairness, and integrity
(4)”.
3. External Audit: -
This analysis is to end up with writing a list of: Threats and Opportunities
“External refers to outside the organization, some of things beyond our control"
1. Political: These factors determine the extent to which a government may influence the
economy or a certain industry. [For example] a government may impose a new tax or duty
due to which entire revenue generating structures of organizations might change.
Political factors include
a. Political stability and stability of the government
b. Fiscal policy
c. Special Tariffs &Trade tariffs (tariffs, customs and taxes) etc. that a government
may levy around the fiscal year and it may affect the business environment
(economic environment) to a great extent.
d. Boycott, Embargo &Quota
e. Government regulations & deregulations.
f. Changes in tax laws and policies
g. Pressure groups
h. Level of government subsidies( )الدعم
i. Global relationships
j. Trading policies& Import-export regulations
k. Political conditions in foreign countries/ stability
3. Social: These factors scrutinize the social environment of the market, and gauge
determinants like cultural trends, demographics, population analytics etc. An example for
this can be buying trends for Western countries like the US where there is high demand
during the Holiday season.
a. Social Class (Education, Job, Income)
b. Life Style changes
c. Population growth rate
d. Age distribution
e. Life expectancies
f. Birth rate
g. Mortality rate
h. Religious orientation
i. Language
j. Dress
k. Working hours
l. Customs
m. Etiquette
n. Aesthetics
o. Childbearing rates
p. Immigration & emigration rates
q. Consumer behavior
r. Attitudes toward saving
s. Attitudes toward quality
t. Attitudes toward customer service
u. Buying habits
v. Marriages, divorces
w. Number of women and minority workers
x. Social Security programs.
y. size, structure, and regional distribution of the population
z. Cultural fear or freedom level
aa.Population changes by race, age, sex and religion
bb. Cultural symbol (status) What’s socially acceptable?
cc. The attitudinal changes towards business (product / services) produced
dd. Traffic congestion
ee. Trust in government
4. Technological: These factors pertain to innovations in technology that may affect the
operations of the industry and the market favorably or unfavorably. This refers to
automation, research and development and the amount of technological awareness that a
market possesses. Examples:
a. Government Spending on R&D
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5. Legal: These factors have both external and internal sides. There are certain laws that affect
the business environment in a certain country while there are certain policies that companies
maintain for themselves. Legal analysis takes into account both of these angles and then
charts out the strategies in light of these legislations.
For example:
a. Consumer laws
b. Safety standards
c. Labor laws
d. Competition law
e. Contract law
f. Environmental protection law
g. Changes in patents( )التراخيصlaws
h. Trade License
i. Customer Protection Law (Law of Negligence)
6. Environmental: These factors include all those that influence or are determined by the
surrounding environment. This aspect of the PESTLE is crucial for certain industries
particularly for example tourism, farming, agriculture etc. Factors of a business
environmental analysis include but are not limited to climate, weather, geographical
location, global changes in climate, environmental offsets etc.
Societal Env.
STEP.C
Task Env.
Porter 5 Forces
Organisation
Internal Env.
“Porter five forces assessment may be excluded if it wasn’t required explicitly to answer
questions in exam like do you think that this market is attractive? Or what do you think about
competition?”
Five Forces Analysis assumes that there are five important forces that determine competitive
power in a business situation. These are:
Overall result for threats of new entry: Attractive/not attractive ** Quality, pricing, and marketing
can overcome barriers.
Power is affected by the ability of people to enter your market. If it costs little in time or money to
enter your market and compete effectively, if there are few economies of scale in place, or if you
have little protection for your key technologies, then new competitors can quickly enter your
market and weaken your position. If you have strong and durable barriers to entry, then you can
preserve a favorable position and take fair advantage of it.
Rivalry among Competition (existing firms):
Intense rivalry related to:
Conditions That Cause High Rivalry Among Competing Firms
• High number of competing firms
• Similar size of firms competing
• Similar capability of firms competing
• Falling demand for the industry’s products
• Falling product/service prices in the industry
• When consumers can switch brands easily
• When barriers to leaving the market are high
• When barriers to entering the market are low
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This is affected by the ability of your customers to find a different way of doing what you do – for
example, if you supply a unique software product that automates an important process, people may
substitute by doing the process manually or by outsourcing it. If substitution is easy and
substitution is viable, then this weakens your power.
• concentrated
• large
• buy in volume
Bargaining Power of Buyers
Customers concentrated or buy in volume affects intensity of competition
Consumer power is higher where products are standard or undifferentiated
Bargaining power od suppliers
• Number of suppliers and buyers (Petroleum) (few suppliers higher power)
• Suppliers product characteristics (unique or commodity – quality) unique (higher
power)
• Switching costs/ High switching cost (higher power)
• Availability of substitutes/ Substitutes are not easily available (higher power)
• Suppliers forward integration/ Real threat of forward integration from supplier (high
power)
• Amount purchased from supplier (large quantities)
• Product is critical for the business (higher power)
• The target industry is NOT important to the supplier (higher power)
• supplier switching costs relative to firm switching costs
• degree of differentiation of inputs
• presence of substitute inputs
• supplier concentration to firm concentration ratio
• Threat of forward integration by suppliers relative to the threat of backward
integration by firms.
• cost of inputs relative to selling price of the product
•
Overall result for bargaining power of suppliers: Attractive/not attractive
** Backward integration can gain control or ownership of suppliers (This strategy is especially
effective when suppliers are unreliable, too costly, or not capable of meeting a firm’s needs on a
consistent basis)
** However, in many industries it is more economical to use outside suppliers of component parts
than to self-manufacture the items, who specialize in such components and have huge economies
of scale.
Here you assess how easy it is for suppliers to drive up prices. This is driven by the number
of suppliers of each key input, the uniqueness of their product or service, their strength and
control over you, the cost of switching from one to another, and so on. The fewer the
supplier choices you have, and the more you need suppliers' help, the more powerful your
suppliers are.
When suppliers are:
Example:
Example:
Key External Factors Weight Rating Weighted
Comment
The average total weighted score is 2.5. A total weighted score of 4.0 indicates that an organization
is responding in an outstanding way to existing opportunities and threats in its industry. In other
words, the firm’s strategies effectively take advantage of existing opportunities and minimize the
potential adverse effects of external threats. A total score of 1.0 indicates that the firm’s strategies
are not capitalizing on opportunities or avoiding external threats.
If TWS= 2.5-onwards means that your organization is in a good external position, i.e.
your organization is able to capitalize all its external opportunities and avoid all its
external threats.
Less than 2.5 to 1 it means that your organization is in a weak external position, that
many opportunities your organization is not able to capitalize on or take advantage of
and many threats you cannot avoid.
Example: The total weighted score of 2.72 suggests that Moderna is aware of the opportunities
and threats it faces, and has embarked on a serious review of its potential for growth, its
capabilities, and its limitations. However, the response is still tentative, and firm Internal Scanning
4. Internal Audit
1. Organization Structure
• Refers to how job tasks are formally divided, grouped and coordinated. [A system of tasks
reporting, relationships and communication channels linking individuals and groups in the
organization]
• Structure changes as environnemental conditions change
• Usually we choose between two types of structure Functional or Divisional structure.
Changes in strategy often require changes in the way an organization is structured for two
major reasons.
a. First, structure largely dictates how objectives and policies will be established.
For example, objectives and policies established under a geographic organizational structure are
couched in geographic terms. Objectives and policies are stated largely in terms of products in
an organization whose structure is based on product groups.
The structural formula for developing objectives and policies can significantly impact all other
strategy-implementation issues.
b. The second is that structure dictates how resources will be allocated.
President
ADVANTAGES
• is the simplest and least expensive
• Centralized control of operations. (Minimizes the need for an elaborate control system).
• Promotes in-depth functional expertise(specialization of labor)
• Enhances operating efficiency where tasks are routine.
• Allows rapid decision-making.
• High quality in solving technical problems.
• In depth training and skill development within each function.
• Clear career paths.
DISADVANTAGES
• It forces accountability to the top. (Problems are moved forward to the upper level for
solving).
• Minimizes career development opportunities.
• Sometimes characterized by low employee morale.
• Functional coordination problems. (Lack of coordination.)
• Inter-functional rivalry (may lead to internal conflict)
• Overspecialization and narrow viewpoints
• Hinders development of cross-functional experience
• Slower to respond in turbulent environments (communication and problem solving across
functions this can result in slowing the decision making process and problem solving.
• Unclear responsibilities in areas such as innovation, product quality.
2. Product or service:
General
(Allows high degree of accountability as costs, profits, failures, successes Manager
are clearly identified)
Personal
✓ Is most effective for implementing strategies when specific products Food
care product
or services need special emphasis.
3. Process:
Catalog Sales
Manager
(Group of related tasks creating something of a value to the customer)
Product Order
✓ Is similar to a functional structure, because activities are organized Purchasing fulfillment
4. Customer.
(requirements of each customer is different)
Industrial Consumers
Division Division
With a divisional structure, functional activities are performed both centrally and in each separate
division.
ADVANTAGES:
• Decentralized decision making.
• Each business is organized around products.
• Puts profit/loss accountability on manager.
• Facilitates rapid response to environmental changes.
• Allows efficient management of a large number of units.
• Creates career development opportunities for managers.
• Allows new businesses and products to be added easily (flexibility in changing size by
adding or deleting divisions).
• Improved cross functional coordination.
• Clear point of responsibility for product delivery and quality.
• Focused expertise on customers/ products/ regions.
DISADVANTAGES
3. The Strategic Business Unit (SBU) Structure (a recent form of the divisional structure)
Divisions or group of divisions composed of independent product-market segments that are
primary responsibility and authority for the management of their own functional areas.
The SBU structure groups similar divisions into strategic business units and delegates authority and
responsibility for each unit to a senior executive who reports directly to the CEO.
Typically used when:
Any size
A unique mission
Identifiable competitors
External market focus
Control over its business functions
(E.G. instead of organizing food on the basis of the packaging technology: canned, packed they are
divided according to the customer segments they serve)
ADVANTAGES:
This change in structure can facilitate strategy implementation by improving coordination between
similar divisions and channeling accountability to distinct business units.
DISADVANTAGES:
• It requires an additional layer of management, which increases salary expenses.
• The role of the group vice president is often ambiguous.
• Functional & product form are combined simultaneously at the same level.
• Workers belong to 2 formal groups: a functional and a project (or program or product)
team.
• Employee have 2 superior, functional superior & horizontal product manager (reporting to 2
bosses one within the functions and the other within the team).
General Manager
Project A
Project B
ADVANTAGES:
•
Project objectives are clear.
•
There are many channels of communication.
•
Workers can see visible results of work.
•
Projects can be shut down easily.
•
Better inter-functional cooperation in operations and problem solving.
•
Increased flexibility in adding, removing and changing operations to meet changing
demands.
• Better customer service since there is always a program, product, project manager who is
fully informed and available to answer all and every enquiries.
• Better performance accountability through the program, product, project managers.
• Improved decision making as problem solving takes place at team level, where the best
information is available.
• Improved strategic management since top management levels are freed from unnecessary
problem solving to focus time into strategic issues.
DISADVANTAGES:
• It is the most complex of all designs because it depends upon both vertical and horizontal flows
of authority and communication.
• It can result in higher overhead cost because it creates more managerial positions.
• It also creates dual lines of budget authority, dual sources of reward and punishment, shared
authority, and dual reporting channels.
• boss system could create a conflict between the two in exercising power and authority
• Strong teams loyalties could cause losing the focus on the larger organizational goals,
adding team leaders cause increase in costs.
** Distinct phase exist in the DEVELOPMENT OF matrix structure
3. Mature matrix:
A true dual authority structure, functional & product structure are permanent.
5. Network structure
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Warehouse
Off-shore
Supplier
manufacturing
and packaging
firm
Business
Core
Furniture
• Many activities are outsource
• Series of independent firms or business units that are linked together by computers in an
IS
Nike, Reebok, Benetton
Furniture design use the network structure on their operation
Accountingfunctions
and by subcontracting
manufacturingstudio financial
to other companies in low cost location around the world. firm
ADVANTAGES:
• Rapid response time
• Firm’s emphasize their own core competencies
• Very flexible
• Reduces capital intensity
• Allowing the firm to operate with less employees.
• A more simplified internal systems.
• Reducing costs overheads.
• Increased operations efficiency and therefore increasing competitiveness.
• no geographical boundaries.
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DISADVANTAGES:
• With large size it is often difficult to maintain control over the network of relationships and
contracts.
• If one part of the network fail to deliver, the whole system will fall.(single point of flair)
6. Team Structures:
→ Pros: solve the problem of lack of coordination and communication across function, boost the
morale as people from different part of the organization are working together, improve the quality
and the speed of the decisions making process, synergies are expected as people having different
technical expertise work together.
→ Cons: difficulty for team members to balance between the team and the function assignment,
passing too much time in meeting – time – that is not always productive.
2. Organizational Culture
It is the collection of beliefs, expectations, and values learned and shared by a corporations’ members and
transmitted from one generation of employees to another.
➢ Intensity:
The degree to which members of a unit accept the norms, values or other culture content associated with the unit.
(depth)
➢ Integration:
The extent to which units throughout an organization share a common culture. (breadth)
Importance:
✓ Conveys a sense of identity for employees.
✓ Generates employee commitment to something greater than themselves.
✓ Adds to the stability of the organization as a social system
✓ Guide for appropriate behavior.
Cultural Differences
Research on pace of life in various countries suggest that Westerners have fairly precise measures of time and a
stronger concern for punctuality than most other people
– Mono-chronic style individuals focus on one thing at a time; characteristic of USA
– Poly-chronic style individuals focus on several things at one time; characteristics of Latin American
countries
Dimensions of Cultural Differences
Research has shown that countries differ significantly in
– Interpersonal trust
– Power-distance
– Avoidance of uncertainty
– Individualism v. Collectivism
Artifacts/Symbols
Visible objects, actions, stories that represent the culture
- Most easily changed
- Rites, rituals, ceremonies
- Stories, myths, legends
- Symbols
- Language/jargon/gestures
Behavior Patterns
Shared ways of interacting, approaching a task
- Shared ways of responding to something new
Norms
- Socially constructed preferences
- Group expectations about how things should be done
In order to create a more innovative corporation, top management must develop an entrepreneurial culture that is
open to the transfer of the new technology into company activities and products and services. The company must be
flexible and accepting of change. It should include a willingness to withstand a certain percentage of product
failures on the way to success.
4. Uncertainty avoidance
When uncertainty avoidance is strong, a culture tends to perceive unknown situations as threatening so that people
tend to avoid them. Examples include South Korea, Japan, and Latin America.
In countries where uncertainty avoidance is weak (the US; the Netherlands; Singapore; Hong Kong, Britain) people
feel less threatened by unknown situations. Therefore, they tend to be more open to innovations, risk, etc.
Board of Directors:
• Who are they, are they internal or external, do they own shares, do they have different
voting rights and for how long they are serving on the board?
• Do they contribute knowledge, skills and connections to the firm? And if the firm has
international operations do they have international experience?
• What is there level of involvement in strategic management?(refer to board continuum
Example:
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Top Management
• Who are the top managers and what are their characteristics in terms of knowledge, skills,
background and style? And if the firm has international operations do they have
international experience?
• Are they responsible for the performance of the firm and how well they interact with the
lower level and the BOD?
• What is there level of involvement in the strategic management process?
Example:
• As outlined in the case, company has been appointed Mr. ……. as CEO from within the
company or outside
• He is Very experienced in the industry – long history.
• Responsible for the current situation to on improvements; he was the driving engine and
the reason of having the creativity atmosphere in the company
• Mr. ……. (Style = Active participation).
Leadership Style
1. Laissez-faire (Delegative)
Shows low concern for both people and task. Turn most decisions over the work group
and show less interest in the work process or its results.
2. Directive or Autocratic(Dictatorial)
High concern for task and low concern for people. Make most of the decisions, gives
directions and expect his orders to be followed.
The autocratic leadership style allows managers to make decisions alone without the
input of others. Managers possess total authority and impose their will on employees. No
one challenges the decisions of autocratic leaders. Countries such as Cuba and North
Korea operate under the autocratic leadership style. This leadership style benefits
employees who require close supervision. Creative employees who thrive in group
functions detest this leadership style.
3. Supportive leader
Shows high concern for people and low concern for tasks. Warm in interpersonal
relationships, avoid conflict, and seek harmony in decision-making.
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4. Participative or Democratic
shows high concern for both people and task. Share decisions with the work group,
encourage participation and support the work efforts of others.
Often called the democratic leadership style, participative leadership values the input of
team members and peers, but the responsibility of making the final decision rests with the
participative leader. Participative leadership boosts employee morale because employees
make contributions to the decision-making process. It causes them to feel as if their opinions
matter. When a company needs to make changes within the organization, the participative
leadership style helps employees accept changes easily because they play a role in the
process. This style meets challenges when companies need to make a decision in a short
period
Managerial skills
• Technical skills is the ability to use a special proficiency or expertise in one’s work
(Lower level)
• Human skills: is the ability work well in cooperation with others people (all levels)
• Conceptual skills: is the ability to think analytically and solve complex problems (Top
management)
Organizational Functions
Finance
Ratios
A. Liquidity
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
Current Ratio= (Xtimes)
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑡𝑖𝑒𝑠
Current ratio: How much current assets covers the current liabilities.
(capability of the company to fulfill the short-term liabilities)
Current assets: All assets that can be liquidated for the next 3 months (converted into cash)
a. Cash
b. Receivables
c. Inventory
Current liabilities: All Liabilities for the same period
a. Payables
b. Account Expenditure
Scenarios:
A. Current Ratio = 1: Bad situation (Risky Situation to fulfill short term liabilities)
B. Profitability Ratio
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
1. Gross Profit Margin=
𝑆𝑎𝑙𝑒𝑠
Sales (Revenue): Marketing and sales department responsibility
COGS: Supply chain department responsibility
Gross profit margin evaluates the performance pf supply chain team of the company
Increased trend: Efficient performance of the supply chain department
Decreased Trend: Inefficient performance of the supply chain departement
Example: Product (10$) Cost (8$), year 3 cost (7$), Recession decreased no of units sold
Year Units sold Revenue COGS Gross Profit Gross Profit
Margin
One 100 1000$ 800$ 200 200/1000=0.2
Two 200 2000$ 1600$ 400 400/2000=0.2
Three 100 1000$ 700$ 300 300/100=0.3
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
3. Net Operating Income margin =
𝑆𝑎𝑙𝑒𝑠
It is a combination of efforts of management team and supply chain team
Increasing trend: The aim of any business.
Decreasing trend: Adopt unrelated diversification strategy.
𝑅𝑒𝑡𝑢𝑟𝑛 (𝐸𝑎𝑟𝑛𝑖𝑛𝑔)(𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒)
4. Return on Assets=
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 (𝑓𝑟𝑜𝑚 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 𝑠ℎ𝑒𝑒𝑡)
How much investment in asset to earn one dollar in return.
ROA=ROI in calculation
Company A B
Capital 100 MD 100 MD
Return 20% 15%
The two companies work in the same industry.
The management team of company A is better than that of company B regarding managing all
assets (taking decisions regarding assets whether fixed or current/ long term or short term).
ROA: how much impact of operations on assets
Increasing trend: good performance of the management team
Decreasing trend: bad performance of the management team in managing assets.
To rectify we have to:
1. Increase return or total assets.
2. Decrease inventory turnover (offering discounts).
Decreasing current assets will decrease total assets thus will increase ROA.
At 31/12 take cash buy new inventory so lead time ends in the next year.
C. Leverage
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Debt Ratio = (from balance sheet)
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
Example: Debt ratio is 30%
Then 30% of the company assets is financed by debt
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• Liquidity Ratios: They measure the short term debt paying ability. i.e: firm’s liquidity
position.
1. Current Ratio = Current assets ÷ Current liabilities = # times; each 1$ of current liabilities
is covered by # $ of current assets.
2. Quick Ratio(Acid test ratio) = Cash + Marketable securities +Receivables ÷ Current
liabilities
OR = Current Assets – Inventories ÷ Current Liabilities = (# times It’s a measure of immediate
paying ability. It should be > 1 to be a good sign.
• Financial leverage or Debt Management Ratios: Determine the level of debt in the
firm’s capital structure & measure how much debt the firm can take to finance its
activities.
1. Total Debt To Total Assets Ratio = total debt (liabilities) ÷ total assets = (%) the creditors
have supplied (%) of the firms total financing.
• Profitability Ratios: The effect of liquidity, asset management & debt management on
operating results
1. Profit Margin on Sales Ratio = Net Income ÷ Net Sales (cash & credit) = (%); Each 1$ of
net sales results on average in () cents of net income. more realistic it’s better to use
operating income instead of net income. If it’s lower than industry average it indicates;
Costs are too high, inefficient operations & Heavy use of debt.
2. Return On Total Assets (ROA) ratio = net income /average total assets = (%) Each 1$ of
total assets results in (…) cents of net income.
3. Return on Common Stockholder’s Equity (ROE) = net income ÷ average common
stockholder’s equity = #%
• Market Value Ratios: (the outsider’s view): Give management an indication of what
investors think of the company’s past performance and future prospects.
1. Price/earnings ratio = market price per share ÷ earnings per share (EPS) = (..Time). If the
market price per share is > 12-15 time EPS, this is overvalued stock If t’s < 12-15 time EPS,
this is undervalued stock.
To provide the organization with funds and a capital structure to suit the strategic requirements
2. Usage of funds linking allocation to strategies prioritizing projects and activities Capital
expenditure vs. working capital
3. Management of funds Dividend mgt., accounts and audit, capital structure management,
compensation
Stability: daily operations, cash mgt., working capital needs, current assets
Expansion: capital budgeting, fixed assets, long term investments, decentralized expenditure
Retrenchment: rescue operations, centralized expenditure, reallocation of funds, pruning and cuts
Marketing
1. Customer,
2. Effective segmentation
3. Competitive Standpoint,
4. Unique Selling Propositions,
5. Product Quality,
6. Relative Market Share
7. Loyalty
8. Distribution Costs
9. Pricing
10.Promotion
11. Geographical Coverage
12.Market research
13.After Sales Services
14.Customer knowledge
15.New product skills
16.Sales force
17.Reputation
R&D
• Are R&D facilities available and adequate?
• Cost effectiveness of outsourced R&D
• R&D personnel well qualified
• Effective allocation of R&D resources
• Adequate management information and computer systems
• Effective communication between R&D and other units
• Are present products technologically competitive
Operations/ Production
• Are supplier’s raw materials reliable and reasonable
• Are facilities machinery and offices in good condition
• Are inventory control policies and procedures effective
• Effectiveness of quality control policy and procedures
• Are facilities resources and markets strategically located
• Does the firm have technological competencies?
• Process, Capacity, Inventory, Workforce and quality are the functions
Information Systems
• Is it used by all managers to make decisions?
• Is CIO or director if IS position n the firm
• Data on IS updated regularly
• All functional areas contribute input to IS
• Effective passwords for entry to IS
• Familiarity of strategists with rival firms IS
• Is user friendly
• Do all users of IS understand the competitive advantages that information can provide firms
• Computer training workshops for IS users
• Continually improvements of IS content and user friendliness
Human Resource
The human resource objective reflects the intention of the senior management (strategy) with a
balance to the related topics such as HR functions, society, governing rules, etc.
A. Objectives:
There are four major objectives for the Human resource management;
The example hereafter include Itemized below are the strengths and weaknesses of Elsewedy –
from the information provided, far more strengths than weaknesses could be identified.
Key Internal Factors Weight Rating Weighted
(assumption) (assumption) Score
Strengths
1. Elsewedy is a highly reputed firm in the MENA with four
diversified segments 0.10 4 0.40
2. The company has an extensive and wide variety of electrical
products and services 0.09 4 0.36
5. Matching Phase
The Matching phase – AFTER doing internal and external analysis, we will List all
suitable plans through using one or more of the matching tools
Matching tools are: TOWS, IE Matix, SPACE Matrix, BCG and Grand Matrix
Start with IE Matrix Then SPACE
If you have time or it was mentioned do TOWS if not, don’t do it.
You can develop BCG Matrix or Grand Matrix if the data of the model is available
Cell#3 and cell#5 and cell#7 are the second bundle: is called: Hold and Upgrade
"hold& maintain"
Cell#3 in terms of external and internal position: means that a certain business unit that is located
in this cell is weak internally and strong externally, it is an average position.
Cell#5: means that a certain business unit that is located in this cell is average internally and
average externally.
Cell#7: means that a certain business unit that is located in this cell is strong internally and weak
externally, which is average position. because the weakest position in this bundle is average and
not weak, then I have to sustain this average position and try to upgrade the situation, i.e. I need to
stabilize myself in this bundle and avoid going down to the third bundle and this stabilization is
through the intensive strategies.
Cell#6 and cell#8 and cell#9 are the third bundle:
Cell#6 regarding external/internal position: Business located in this cell is weak internally and
average externally.
Cell#8: means that a certain business located in this cell is average internally and weak externally.
Cell#9: means that a certain business located in this cell is weak internally and weak externally,
which is average position. The situation in this bundle is from weak to average. This third bundle
that covers cells#6, 8, 9 is called: "Harvest or Divest". If I have a sort of competitive edge in the
business unit located in this bundle I will invest in it, in order to be able to push this business
unit/product line from this third bundle to the second bundle, that's what we call to harvest in this
business unit, if I don’t have any. Competitive edge, I will just go for the divestiture strategy, i.e.
relying basically on the defensive strategy.
Comment
Regardless of how many factors are included in an IFE Matrix, the total weighted score can range
from a low of 1.0 to a high of 4.0, with the average score being 2.5.
Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas
scores significantly above 2.5 indicate a strong internal position.
Like the EFE Matrix, an IFE Matrix should include from 10 to 20 key factors. The number of
factors has no effect upon the range of total weighted scores because the weights always sum to
1.0.
SPACE Matrix
The Strategic Position & Action Evaluation matrix or short a SPACE matrix is a strategic
management tool that focuses on strategy formulation especially as related to the competitive
position of an organization.
The SPACE matrix can be used as a basis for other analyses, such as the SWOT analysis, BCG
matrix model, industry analysis, or assessing strategic alternatives (IE matrix).
The SPACE matrix is a management tool used to analyze a company. It is used to determine
what type of a strategy a company should undertake.
The SPACE matrix is broken down to four quadrants where each quadrant suggests a different type
or a nature of a strategy:
• Aggressive
• Conservative
• Defensive
• Competitive
The SPACE Matrix analysis functions upon two internal and two external strategic dimensions in
order to determine the organization's strategic posture in the industry. The SPACE matrix is based
on four areas of analysis.
Internal strategic dimensions:
I. Financial strength (FS) +VE / Y-axis
• Return on investment
• Leverage
• Liquidity
• Working capital
• Cash flow
• Inventory turnover
• Earnings per share
• Price earnings ratio
• Ability to raise capital
II. Competitive advantage (CA) -VE/ X-axis
• Market share
• Product quality
• Product life cycle
• Customer loyalty
• Competition’s capacity utilization
• Technological know-how
• Control over suppliers & distributors
• Speed of innovation
• Market niche position
External strategic dimensions
I. Environmental stability (ES) -VE/ Y-axis
• Technological changes
• Rate of inflation
• Demand variability
• Price range of competing products
• Barriers to entry
• Competitive pressure
• Price elasticity of demand
Ease of exit from market
Risk involved in business
II. Industry strength (IS) +VE/ X-axis
• Growth potential (GDP Growth)
• Profit potential
• Financial stability
• Technological know-how
• Resource utilization
• Ease of entry into market
• Productivity, capacity utilization
The SPACE matrix calculates the importance of each of these dimensions and places them on a
Cartesian graph with X and Y coordinates.
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This particular SPACE matrix tells us that our company should pursue an aggressive strategy.
Comment
Aggressive: Our company has a strong competitive position it the market with rapid growth. It
needs to use its internal strengths to develop a market penetration and market development
strategy. This can include product development, integration with other companies, acquisition
of competitors, and so on.
Conservative: Implies staying close to the firm’s basic competencies and not taking excessive
risks. Conservative strategies most often include market penetration, market development,
product development, and related diversification.
Defensive: Suggests that the firm should focus on rectifying internal weaknesses and avoiding
external threats. Defensive strategies include retrenchment, divestiture, liquidation, and
related diversification.
Competitive: Indicating competitive strategies. Competitive strategies include backward,
forward, and horizontal integration; market penetration; market development and product
development.
-
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9. Form a partnership/ joint venture (minority interest) with generic drug manufacturers on
promoting and educating the health benefits of specific products
10. Outsource some of R&D procedures and processes in order to reduce R&D cost but ensure the
intellectual property remains secure and confidential
11. Improve promotion on selected lower priced models with zero or very low rate financing to
younger generation through Internet using Facebook, Twitter, and other networking channels
12. Offer “Free” extended warranty for additional 2 years to gain customer loyalty and brand image
13. Use the excess cash by acquiring biotechnology or other health related businesses
14. Work with the government and the U.S. Congress in developing a medical program, discounting
product pricing
15. Sponsor programs to teens and younger generation to through virtual Facebook, Twitter, and such
16. Improve distribution in European market with new and innovative organic products 17. Increase
current promotional campaign (product placement, advertising, Online newsgroup / press releases,
media ads, etc.) both in the U.S. and abroad
The SO Strategy (Maxi-Maxi) attached all startegy
• Any company would like to be in a position where it can maximize both, strengths and
opportunities.
• Such an enterprise can lead from strengths, utilizing resources to take advantage
• Successful enterprises, even if they temporarily use one of the three previously mentioned
strategies, will attempt to get into a situation where they can work from strengths to take advantage
of opportunities.
• If they have weaknesses, they will strive to overcome them, making them strengths. If they
face threats, they will cope with them so that they can focus on opportunities.
Examples:
1.Expand XXX(company) segment to popular countries where they have strong economy and have
positive image for US products and services
2. Increase advertising and promotion to young generation (coupons and rebate cards) through social
networks such as Twitter and Facebook
3. Expand into international market more where the economy is stronger
4. Aggressively promote the XXX(company) by offering deep discounts to local and surrounding
counties / cities
5. Penetrate the market (non-locals) by offering discount / membership cards if purchased in
advance (% off after so many visits), student or state or employee discounts, corporate / school event
discounts, etc.
6. Implement a vertical or horizontal integration (forward or backward) of a company that has global
presence
7. Increase advertising spending by additional 10 percent on fee based segments 8. Cutback prices
on advertising and fee-based segment by 2 percent
Example of how Daimler-Benz used the TOWS matrix in Mercedes cars division:
Grand Strategy Matrix has emerged into a powerful tool in devising alternative strategies. This
matrix is basically based on four important elements:
• Rapid Market Growth
• Slow Market Growth
• Strong Competitive Position
• Weak Competitive Position
These elements form a four quadrant matrix in which all organizations can be positioned in
such a way that identification and selection of appropriate strategy becomes an easy task.
Moreover, this matrix helps in adopting the best strategy based on the current growth and
competitive state of the firm.
A large scale firm segregated into many divisions can also plot its divisions in this four
quadrant Grand Strategy Matrix for formulating the best strategy for each division.
The key area of management is to suitably select the strategy cohesive with the firms’ market
and competitive position.
The Grand Strategy Matrix makes it an easygoing job. It helps in scientific analysis of firms
‘current position and selection of best strategy in accordance with the revealed competitive
position and market place.
Broadly speaking four elements of the Grand Strategy Matrix can be described as two
evaluative dimensions namely market growth and competitive position.
In each quadrant of the matrix the apt strategies are enlisted in sequential order for each
organization or division keeping in view the attractiveness in each quadrant of the matrix.
Quadrant I
The quadrant one of the Grand Strategy Matrix is meant for those firms which are in a strong
competitive position and flourishing with rapid market growth. Firms located in this quadrant
are in excellent strategic position and they need to concentrate on current markets and products.
Concentration on current markets reveals the adoption of strategies such as market penetration
and market development and likewise concentration on current products calls for adoption of
product development strategy. These firms or divisions should continue to ponder upon current
competitive advantage and must avoid from loosing the focus from the competitive advantage
gained over the time.
In case quadrant one firms have excessive resources, than, it would be wise to adopt the
expansion program and indulge in backward, forward, or horizontal integration. But and a
careful thought process needs to be done before assuming such integrations so that any
meditation from the current competitive advantage can be avoided. The quadrant one firm also
requires identifying the risk associated mainly if it is committed to a single product line. The
best strategy to espouse in this case is related diversification because it can be helpful in
reducing the risk associated with the slender product line.
One of the main advantages to the quadrant one firms is that they can afford to exploit the
external opportunities and magnify the wealth in numerous areas of dealings.
Quadrant II
Firms and divisions falling in quadrant two of the Grand Strategy Matrix are characterized with
a weak competitive position in fast growing market. The present market position of these firms
must click in the minds of the management and they need to weigh up the firms’ present market
place critically. The opportunity lagging here is that such firms are operating in a growing
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industry but the problem area is that they are competing ineffectively. An in-depth analysis is
necessary to identify the gray areas of incompetence and the reasons behind such
ineffectiveness. Moreover, adoption of counteractive measures is also indispensable so that
ability to compete effectively is strengthen and firm can find its space in the more competitive
environment.
Since quadrant two firms are in a rapid market growth industry, therefore, an intensive strategy,
more appropriately, can be classified as the first option to adopt. The dilemma in espousing the
intensive strategy arises when the firms is lacking distinctive competence or competitive
advantage. In this scenario the most enviable substitute is horizontal integration.
In case the quadrant II firm does not find any suitable strategy to adopt than divestiture of some
divisions can be considered as another option. Such an arrangement may avail the desired
funding to buy back the shares or to invest in the current venture in other divisions to strengthen
the competitive position. Moreover, as last resort, liquidation should be considered so that
another business can be acquired.
Quadrant III
The quadrant three firms are operating in a slow growth industry with a weak competitive
position. These firms are prone to further decline which may result possibly in liquidation. To
avoid such situations quadrant three firms needs introduce drastic changes in almost all the
areas of managing the company. The management has to change its philosophy and should
necessarily adopt new approaches of governing the firm. The management should be willing to
incur some extensive costs in the overall revamp of the organization.
Strategically retrenchment (assets reduction) would be the best option to be considered first.
Secondly diversifying the overall business through shifting the resources should be evaluated as
another choice (related or unrelated diversification). The final option is again divesture or
liquidation.
Quadrant IV
The firms falling in quadrant IV are characterized as having a strong competitive position but
are operating in a slow growth industry. These firms have to quest for the promising growth
areas and to exploit the opportunities in the growing markets as they possess the strengths to
instigate diversified programs in growing industries.
Ideally quadrant four firms have limited requirements of funds for internal growth whereas they
enjoy the high cash flows due to the competitive position they are characterized for. Therefore,
these firms can often hunt for related or unrelated diversification fruitfully. Due to
availability of excessive funds quadrant IV firms can also pursue joint ventures.
Market growth rate= Individual sales this year – Individual sales last year
Individual sales last year
Markets experiencing high growth are ones where the total market share available expanding,
and there is plenty of opportunities for everyone to make money
The BCG growth share matrix is a portfolio planning model which is based on the observation
that a company’s business units are classified into four categories:
1. Stars
• High growth and high market share
• Stars are leaders in business
• They also require heavy investment to maintain its large market share
• It leads to a large amount of cash consumption and cash generation
• Attempts should be made to hold the market share otherwise the star will become a
Cash Cow
2. Cash cows
Low growth and high market share
They are the foundation of the company and often the stars of yesterday
They generate more cash than required
They extract the profits by investing as little cash as possible
They are located in industries that are mature, not growing or declining
3. Question marks
High growth and low market share
Most businesses start of as a question mark
They will absorb great cash if the market share remains unchanged (low)
They have potential to become a star and eventually cash cow but can also become a dog
Investments should be high for question marks
4. Dogs
low growth, low market share
they are the cash traps
they do not have the potential to bring in cash
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Benefits
• BCG matrix is simple and easy to understand
• It helps you to quickly and simply screen the opportunities open to you, and helps you
think about how to make the most of them
• It is used to identify how corporate cash resources can best be used to maximize the
company’s future growth and profitability
Limitations
• BCG matrix used only two dimensions’; market growth rate and relative market share
• Problems of getting data on market growth and relative market share
• High market share does not mean profits all time
• Business with low market share can be profitable too
The BCG matrix has its limitations and it is one of the most famous and simple portfolio planning
matrix used by large companies having multiple products
Relative market share position is given on the x-axis of the BCG Matrix. The midpoint on
the x-axis usually is set at .50, corresponding to a division that has half the market share
of the leading firm in the industry.
The y-axis represents the industry growth rate in sales, measured in percentage terms.
The growth rate percentages on the y-axis could range from -20 to +20 percent, with 0.0
being the midpoint.
When company executives think about what to do, and which way to go, they usually have a
prioritized list of strategies. If they like one strategy over another one, they move it up on the list.
This process is very much intuitive and subjective. The QSPM method introduces some numbers
into this approach making it a little more "expert" technique.
The Quantitative Strategic Planning Matrix or a QSPM approach attempts to objectively select the
best strategy using input from other management techniques and some easy computations. In other
words, the QSPM method uses inputs from stage 1 analyses, matches them with results from stage
2 analyses, and then decides objectively among alternative strategies.
The first step in the overall strategic management analysis is used to identify key strategic factors.
This can be done using, for example, the EFE matrix and IFE matrix.
After we identify and analyze key strategic factors as inputs for QSPM, we can formulate the type
of the strategy we would like to pursue. This can be done using the stage 2 strategic management
tools, for example the SWOT analysis (or TOWS), SPACE matrix analysis, BCG matrix model, or
the IE matrix model.
Conceptually, the QSPM in stage 3 determines the relative attractiveness of various strategies
based on the extent to which key external and internal critical success factors are capitalized upon
or improved. The relative attractiveness of each strategy is computed by determining the
cumulative impact of each external and internal critical success factor.
What does a QSPM look like and what does it tell me?
First, let us take a look at a sample Quantitative Strategic Planning Matrix QSPM, see the picture
below. This QSPM compares two alternatives. Based on strategies in the stage 1 (IFE, EFE) and
stage 2 (BCG, SPACE, IE), company executives determined that this company XYZ needs to
pursue an aggressive strategy aimed at development of new products and further penetration of the
market.
They also identified that this strategy can be executed in two ways. One strategy is acquiring a
competing company. The other strategy is to expand internally. They are now asking which option
is the better one.
Doing some easy calculations in the Quantitative Strategic Planning Matrix QSPM, we came to a
conclusion that acquiring a competing company is a better option. This is given by the Sum Total
Attractiveness Score figure. The acquisition strategy yields higher score than the internal expansion
strategy. The acquisition strategy has a score of 4.04 in the QSPM shown above whereas the
internal expansion strategy has a smaller score of 2.70.
Step 1...
Provide a list of internal factors -- strengths and weaknesses. Then generate a list of the firm's key
external factors -- opportunities and threats. These will be included in the left column of the
QSPM. You can take these factors from the EFE matrix and the IFE matrix.
Step 2...
Having the factors ready, identify strategy alternatives that will be further evaluated. These
strategies are displayed at the top of the table. Strategies evaluated in the QSPM should be
mutually exclusive if possible.
Step 3...
Each key external and internal factor should have some weight in the overall scheme. You can take
these weights from the IFE and EFE matrices again. You can find these numbers in our example in
the column following the column with factors.
Step 4…
Attractiveness Scores (AS) in the QSPM indicate how each factor is important or attractive
to each alternative strategy. Attractiveness Scores are determined by examining each key
external and internal factor separately, one at a time, and asking the following question:
Does this factor make a difference in our decision about which strategy to pursue?
If the answer to this question is yes, then the strategies should be compared relative to that key
factor.
If the answer to the above question is no, then the respective key factor has no effect on our
decision. If the key factor does not affect the choice being made at all, then the Attractiveness
Score would be 0.
Step 5...
Calculate the Total Attractiveness Scores (TAS) in the QSPM. Total Attractiveness Scores are
defined as the product of multiplying the weights (step 3) by the Attractiveness Scores (step 4) in
each row.
The Total Attractiveness Scores indicate the relative attractiveness of each key factor and related
individual strategy. The higher the Total Attractiveness Score, the more attractive the strategic
alternative or critical factor.
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Step 6...
Calculate the Sum Total Attractiveness Score by adding all Total Attractiveness Scores in each
strategy column of the QSPM.
The QSPM Sum Total Attractiveness Scores reveal which strategy is most attractive. Higher
scores point at a more attractive strategy, considering all the relevant external and internal
critical factors that could affect the strategic decision
6.Decision/Recommendations
▪
2. Diversification Strategies (Less Popular -- More difficult to manage diverse
business activities)
2.1. Concentric Diversification (New & related products/services)
Guidelines
▪ Compete in no/slow growth industry
▪ New & related products increases sales of current products
▪ New & related products offered at competitive prices
▪ Current products—decline stage of product life cycle
▪ Strong management team
2.2. Conglomerate Diversification(New & unrelated products/services)
Guidelines
▪ Declining annual sales & profits
▪ Capital & managerial ability to compete in new industry
▪ Financial synergy between acquired and acquiring firms
▪ Current markets for present products – saturated
4.3. Liquidation: Selling , Company’s assets, in parts, for their tangible worth
Guidelines
▪ Retrenchment & divestiture failed
▪ Only alternative is bankruptcy
▪ Minimize stockholder loss by selling firm’s assets
• Executive Summary
• Situational Analysis
• SWOT (mentioned above)
• PESTEL (mentioned above)
• Competitive Analysis
• List competitors, products, revenues (Market Share Pie Chart)
• Determine the brand images of each of the competitors.
• Identify how each of the products are positioned in the market and with respect to other
competitors.
• Find out who their suppliers are.
• Make a list of the kinds of activities they engaged in over the past year or two. For example,
did they introduce new products, adjust their prices, embark on advertising campaigns, etc.
• Marketing Objectives:
Objectives has to be SMART:
• Specific
• Measurable
• Achievable
• Realistic/ Relevant
• Time bounded
Examples:
• Sales/ Revenue/ Turnover
• Market share/ Relative market share
• Awareness
• Customer Satisfaction
• Innovation
• New customers
Marketing Strategies
Ansoff' Products
Markets
Existing Modified New
Existing Sell more of our Modify our current Design new products that
existing products to our products and sell will appeal to our
existing types of more of them to existing customers. (New
customers. (Market our existing product development)
penetration) customers.
(Product
modification)
Modified Enter and sell our Offer and sell Design new products for
products in other modified products prospects in new
geographical areas. to new geographic areas.
(Geographical geographical
expansion) markets.
New Sell our existing Offer and sell Design new products to
products to new types of modified products sell to new types of
customers. (Segment to new types of customers.
invasion) customers. (Diversification)
Type of Ways to achieve the strategy Benefits Possible problems
strategies
Cost • Size and economies of scale The ability to: • Vulnerability to even lower
Leadership: Globalization • outperform cost operators
Being the low- • Relocating to low-cost parts of the rivals • Possible price wars
cost competitor in world • erect barriers to • The difficulty of sustaining
an industry while • Modification/simplification of entry it in the long term
maintaining designs • resist the five
satisfactory • Greater labour effectiveness forces
profit margins. • Greater operating effectiveness
• Strategic alliances
• New source of supply
• Government Subsidies-------
• New Delivery Methods------
• Production Innovations------
• Obtain inexpensive raw materials
• Create efficient operations--
• Control overhead costs------
• Avoid marginal customers-
Focus(Niche): • Concentration upon on or a small A more detailed Limited opportunities for sector
Advantage number of a strong and specialist understanding of growth
achieved when a reputation particular segments The possibility of outgrowing the
firm target and • Used by small companies with The creation of barriers market
effectively serve limited resources to entry The decline of the sector
a small segment • used in a limited geographic market A reputation for A reputation for specialization which
of the market • focused on a specific product line specialization ultimately inhibits growth and
The ability to development into other sectors
concentrate efforts
Differentiation: • The creation of strong brand A distancing from others The difficulties of sustaining the
Advantage identities and Image in the market bases for differentiation
• STP
Segmentation
Market Segment: a group of consumers who share a similar set of needs and wants.
Marketer’s task is to identify them, rather than to create the segments.
Niche Marketing: A more narrowly defined customer group seeking a distinctive mix of
benefits.
Niches are identified by dividing a segment into sub-segments.
Geographic segmentation
Dividing the market into different geographical units such as nations, states, regions, counties,
cities or neighborhoods.
Hilton Hotels customizes according to location.
Wal-Mart, Sears and K-Mart stock different products according to the local community
E.g. Hyper One
Demographic Segmentation
Dividing the market into groups on the basis of variables such as age, family size, family life
cycle, gender, income, occupation, education, religion, race, generation, nationality and social
class.
Psychographic Segmentation
Using psychology and demographics to better understand consumers.
Consumers are divided into groups based on psychological/personality traits, lifestyle or
values.
Many people within the same demographic group can exhibit very different psychographic
profiles.
Behavioral Segmentation
Buyers are divided into groups based on their attitude toward, use of or response to a product.
Segmentation(Market segments opportunities) Not all segments are useful An ideal Market
segment must be: Measurable(purchasing power can be measured), substantial(Large and
profitable enough to serve), accessible(effectively reached),differentiable (different respond to
product),Actionable(easy attracted)
Targeting
Targeting (segmentation evaluation):-we look to the segment's overall attractiveness aligned with
company's objectives & resources availability
Targeting Five criteria :-business size, growth, profitability, scales economies and low risk
Targeting approaches:
Mass market (Product oriented marketing program): All Segments are the same so I
will focus on my product rather than the customer and I will apply undifferentiated
marketing program
Full market coverage (diff. products, diff. groups): market is divided into few
segments so I will make a marketing plan for each
Multiple segments specialization: "Product Specialization) OR "Market
specialization" : I will take the best 3 segments of the market
Single segment (customer oriented marketing prog. Individuals as segments): All the
market is only one segment
Positioning
Positioning: is the act of designing the company’s offering and image to occupy a distinctive place
in the target market’s mind within a certain competitive frame of reference.
What exactly the customer gets? "Competitive advantage". Using points of parity POPs and Points
of Differences PODs to provide reasons to believe or proof points BY Positioning maps (according
to most product beneficial features). Brand Mantra
Points-of-difference
(PODs)
Attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe
they could not find to the same extent with a competitive brand
• Relevance
• Distinctiveness
• Believability
• Feasibility
• Communicability
• Sustainability
Points-of-parity (POPs)
Associations that are not necessarily unique to the brand but may be shared with other brands;
usually indicates a category membership
Perceptual (positioning) Map:
In searching for a specific positioning, the business unit should consider the following possible
sources:
Attribute positioning: The Company positions itself on some attribute or feature. A hotel
describes itself as the city’s tallest hotel. Positioning by feature is normally a weak choice
since no benefit is explicitly claimed.
Benefit positioning: The product promises a benefit. Tide claims that it cleans better.
as an expensive coffee where coffee could always be had for much less; some Cuban cigar brands
command an unbelievably high price, in general, a company should be alert to the possibility of
introducing a “much more for much more” brand in any underdeveloped product or service
category.
Yet more-for-more brands are vulnerable: They often invite imitators who claim the same quality
but are priced lower. And luxury goods are at risk during economic downturns when buyers
become more cautious in their spending.
Companies have been able to attack a “more for more” brand by introducing a brand claiming
comparable quality and performance but priced much lower. The Toyota company introduced its
new Lexus automobile with “more for the same” value positioning.
Lexus advertising shows the Mercedes and Lexus side by side and the superior qualities of the
Lexus; and through evidence that Lexus dealerships were providing a better buying experience
than Mercedes dealerships. Mercedes car owners in many American cities ended tip making their
next car purchase a Lexus. Since that time the Lexus repurchase rate has been 60 percent twice that
of the average car brand repurchase rate.
It seems that everyone is happy when they can buy a typical product or brand at less than the
normal price. Everything—Arrow shirts, Goodyear tires, Panasonic TV sets—seems to be
available at a lower price at some store or discount shop.
Discount stores don’t claim to have superior products, but they can offer ordinary brands at deep
savings, based on superior purchasing power.
Some people complain that some manufacturers or service providers provide more than they
require but they still have to pay the higher price. One cannot say to a hotel, “take out the TV set
and charge me less,” or tell an airline, “skip the food and charge me less.”
Therefore sellers have an opportunity to enter a market with a “less for much less” offering. There
is a hotel in Tokyo that rents not a room but a berth for substantially less than the normal hotel
price. Southwest Airlines, the most profitable U.S. air carrier, charges much less by not serving
food, not assigning seats, not using travel agents, and not transferring luggage to other carriers.
Of course, the winning value positioning would be to offer prospects and customers more for less.”
This is the attraction of highly successful category killer stores. Sportmart offers the largest
selection of sports equipment and sports clothing for the lowest prices. Mass merchandisers make a
similar claim: walking into a Wal-Mart store, one meets a friendly greeter, sees a whole array of
attractively laid-out, well-known branded goods, finds everyday low prices, and generous return
policies, and leaves thinking of Wal-Mart as a place where he or she can get more for less.
Marketing Mix:
1. How do people become aware of their need for your products or service?
2. How do consumers find your offering?
3. How do consumers make their final selections?
4. How do consumers order and purchase your product or service?
5. How is your product or service delivered?
6. What happens when your product or service is delivered?
7. How is your product installed?
8. How is your product or service paid for?
9. How is your product stored?
10.How is your product moved around?
11.What is the customer really using your product for?
12.What do customers need help with when they use your product?
13.What about returns or exchanges?
14.How is your product repaired or serviced?
15.What happens when your product is disposed of or no longer used?
1. Line extension: additional items in the same product under the same brand
Advantage:
• Saving cost
• Minimize risk in introducing new products
Disadvantage:
• Brand dilution
• consumer confusion
• Cannibalization on original product
B. Promotion
Advertising Sales Promotion Public Sales Force Direct
Relations Marketing
Print and Contests, games, Press kits Sales Catalogs
broadcast sweep presentations
ads
Packaging- Stakes, lotteries Speeches Sales meetings Mailings
outer
Packaging Premiums and gifts Seminars Incentive Telemarketing
inserts programs
Motion Sampling Annual Samples Electronic
pictures reports shopping
Brochures Fairs and trade Charitable Fairs and trade TV shopping
and shows donations shows
booklets
1. Advertising
Used when:
• Build up long term image
• Cost efficient in reaching geographically dispersed buyers
• Trigger quick sales
• Gives image of good value to the brand
2. Sales promotion
Used when:
• Encourage trial or purchase
• Short run effect
• Boosting sagging sales
3. Public relation
Used when:
• Building up good corporate image
• Heading off unfavorable rumors
4. Personal selling
Used when:
• Making sales
• Building customer relations preference, conviction and solicit action
• Build up buyers
3. Selecting channels
Based on:
• Years on business
• Growth record
• Financial strength
• Service reputation
Inventory management
• Manufacture focused
• Time based market focused
Budgeting
A typical marketing budget will include: market research, marketing communications, salaries for
marketing staff, travel costs, etc.
• Task Method: Also known as the "objective and task" method, the objective task
method is a system in which a company allocates a certain amount of money to its
marketing budget based on specific objectives, rather than choosing an arbitrary
amount or basing its marketing budget on sales revenues or projections alone.
• Percentage of last year Sale
• Same as Last time (SALT)
• All You Can Afford
• Profit Maximization
• Competitive Parity
D-Pricing Strategies
Pricing is one of the most important elements of the marketing mix, as it is the only mix, which
generates a turnover for the organisation. The remaining 3p’s are the variable cost for the
organisation.
It costs to produce and design a product, it costs to distribute a product and costs to promote it.
Price must support these elements of the mix. Pricing is difficult and must reflect supply and
demand relationship. Pricing a product too high or too low could mean a loss of sales for the
organisation.
2. Competition
3. Company objectives
Pricing Strategies
An organisation can adopt a number of pricing strategies. The pricing strategies are based much on
what objectives the company has set itself to achieve.
▪ Penetration pricing: Where the organisation sets a low price to increase sales and market
share.
▪ Skimming pricing: The organisation sets an initial high price and then slowly lowers the price
to make the product available to a wider market. The objective is to skim profits of the market
layer by layer.
▪ Product Line Pricing: Pricing different products within the same product range at different
price points. An example would be a video manufacturer offering different video recorders with
different features at different prices. The greater the features and the benefit obtained the greater
the consumer will pay. This form of price discrimination assists the company in maximising
turnover and profits.
▪ Psychological pricing: The seller here will consider the psychology of price and the positioning
of price within the market place. The seller will therefore charge 99p instead £1 or $199 instead
of $200
▪ Premium pricing: The price set is high to reflect the exclusiveness of the product. An example
of products using this strategy would be Harrods, first class airline services, porsche etc.
▪ Optional pricing: The organisation sells optional extras along with the product to maximise its
turnover. This strategy is used commonly within the car industry.
1. Market penetraion: set low prices to ensure high level of sales
used when:
• market is highly price sensitive
• low price simulate market growth
• production and distribution cost fall with in accumulated production experience
2. Market skimming: initial prices are set high and gradually reduced to capture greet number of market
segments
Used when:
• sufficient number of buyers have a high current demand
• high price communicates the image of superior product
Evaluation
Metrics (KPIs)
• Customer satisfaction
• Revenue growth
• Market share
• Customer retention rates
Key practices to consider in the marketing mix are the creation of value propositions
and in positioning the product. The Value Proposition is used to define and prove the
economic or strategic benefit of the product or service for a given target market
Select one of the following Structures to follow and use the Advantage and disadvantage to
justify your selection:
▪ SIMPLE STRUCTURE:
• OWNER-MANAGER MAKES DECISIONS.
• LITTLE SPECIALIZATION OF TASKS.
• FEW RULES, LITTLE FORMALIZATION.
ADVANTAGES:
▪ Provides high flexibility
▪ Rapid product introduction
▪ Few coordination problems
▪ FUNCTIONAL STRUCTURE:
The company rather being lead by an entrepreneur, he is replaced by as team of managers who
have functional specializations. The entrepreneur must learn now to delegate his responsibilities;
otherwise, the new structure will yield no benefit
ADVANTAGES
▪ Centralized control of operations
▪ Promotes in-depth functional expertise
▪ Enhances operating efficiency where tasks are routine
DISADVANTAGES
▪ Functional coordination problems
▪ Inter-functional rivalry
▪ Overspecialization and narrow viewpoints
▪ Hinders development of cross-functional experience
▪ Slower to respond in turbulent environments
▪ DIVISIONAL STRUCTURE:
It occurs especially when the organization is managing diverse product line or when the
organization is expanding to cover wider geographical areas
ADVANTAGES:
▪ Decentralized decision making
▪ Each business is organized around products
▪ Puts profit/loss accountability on manager
▪ Facilitates rapid response to environmental changes
▪ Allows efficient management of a large number
of units
DISADVANTAGES
▪ May lead to costly duplication of functions
▪ Inter-divisional rivalry
▪ Corporate managers may lose in-depth understanding
▪ MATRIX STRUCTURE
It combines the functional and divisional structure. It is designed to gain the advantage and
minimize the disadvantages of the functional and divisional structures. The matrix is formed by
using permanent cross functional teams to integrate functional expertise in support of a clear
divisional focus on project, product or program.
The matrix structure in the multinational
organizations offers a flexibility to deal with the
regional differences as well as the multi products,
programs or regional needs.
The matrix structure is the common solution for
the organizations that pursues the growth
strategies in a dynamic and complex environment
▪ Functional & product form are combined
simultaneously at the same level.
▪ Employee have 2 superior,
functional superior & horizontal
product manager
WHEN TO USE?
▪ Scarce resources
▪ Ideas need to be cross fertilized across projects
▪ External environment is very complex and changeable
Distinct phase exist in the DEVELOPMENT OF matrix structure
▪ NETWORK STRUCTURE
• MANY ACTIVITIES ARE OUTSOURCE
• SERIES OF INDEPENDENT FIRMS OR BUSINESS UNITS THAT ARE LINKED TOGETHER BY
COMPUTERS IN AN IS
• USED when the environment is unstable
Nike, Reebok, Benetton use the network structure on their operation functions by
subcontracting manufacturing to other companies in low cost location around the world.
ADVANTAGES:
▪ Rapid response time
▪ Firm’s emphasize their own core competencies
▪ Very flexible
▪ Reduces capital intensity
.
EXTRAS
Value Chain Model
It is a model that helps to analyze specific activities through which firms can create value
and competitive advantage
1. Primary Activities
a. Inbound Logistics: Raw material handling and warehousing, receiving, storing,
inventory control and transportation scheduling
b. Operations: Machining, Assembling, Testing, packaging, equipment maintenance
and all other value creating activities that transform the input into final product.
c. Outbound Logistics
The activities required to get the finished product to customers: Warehousing,
order fulfillment, transportation, distribution management of finished goods)
d. Marketing and Sales
The activities associated with getting buyers to purchase the product including:
channel selection, advertising, promotion, selling, pricing, retail management, etc.
e. Services
The activities that maintains and enhance product’s value including: customer
support, installation, training, spare part management upgrading, etc.
2. Support Activities
a. Firm Infrastructure
Includes: General management, accounting, finance, strategic planning (planning
management, legal, public affairs, quality management, etc.
b. Human Resource Management
The activities associated with recruiting, training, development retention and
compensation of employees and managers.
c. Technology Development
Includes technology development that supports value chain activities such as R&D,
product and process improvement, process automation, design and redesign
d. Procurement
Purchasing of raw material, machines and supplies, spare parts, buildings, and
servicing.
Mckinsey 7S
McKinsey 7s model is a tool that analyzes firm’s organizational design by looking at 7 key
internal elements: strategy, structure, systems, shared values, style, staff and skills, in order to
identify if they are effectively aligned and allow organization to achieve its objectives.
The model can be applied to many situations and is a valuable tool when organizational design
is at question. The most common uses of the framework are:
• To facilitate organizational change.
• To help implement new strategy.
• To identify how each area may change in a future.
• To facilitate the merger of organizations
The McKinsey 7-S model involves seven interdependent factors which are categorized as
either "hard" or "soft" elements:
Structure Skills
System Style
Staff
"Hard" elements are easier to define or identify and management can directly influence them:
These are strategy statements; organization charts and reporting lines; and formal processes and IT
systems.
"Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and
more influenced by culture. However, these soft elements are as important as the hard elements if
the organization is going to be successful.
1. Strategy: the plan devised to maintain and build competitive advantage over the
competition.
Strategy is a plan developed by a firm to achieve sustained competitive advantage and
successfully compete in the market. What does a well-aligned strategy mean in 7s McKinsey
model? In general, a sound strategy is the one that’s clearly articulated, is long-term, helps to
achieve competitive advantage and is reinforced by strong vision, mission and values. But it’s
hard to tell if such strategy is well-aligned with other elements when analyzed alone. So the key
in 7s model is not to look at your company to find the great strategy, structure, systems and etc.
but to look if its aligned with other elements. For example, short-term strategy is usually a poor
choice for a company but if its aligned with other 6 elements, then it may provide strong results.
Questions
• What is our strategy?
• How do we intend to achieve our objectives?
• How do we deal with competitive pressure?
• How are changes in customer demands dealt with?
Page 89 Exam Handling Template
MBA Comprehensive Exam Handling Steps
The way that a company’s structure develops often falls into a tall (vertical) structure or a flat
(horizontal) structures. Tall structures are more of what we think of when we visualize an
organizational chart with the CEO at the top and multiple levels of management. Flat
organizational structures differ in that there are fewer levels of management and employees often
have more autonomy.
management style.
systems.
-Licensing Arrangement: An agreement in which the licensing firm grants right to another firm in
another country or market to produce and/or sell the original company’s products.
-Franchising: franchiser grant rights to another company to open a retail using the name.
-Joint Venture: Cooperative business activity formed of two or more separate organization to form
a new independent business entity and allocates ownership and liabilities.
-Acquisition: Purchasing another company already operating in the market or in the area.
-Mutual Service Consortia: Partnership of similar companies in similar industry who pool their
resources to gain a benefit that is too expensive for each of them separately
-Value Chain Partnership: A strong and close alliance in which a company forms a long term
arrangement with a key supplier or a distributor for mutual advantage.
▪ Recommended Strategy
• Explain what are the most feasible alternative strategies available to the firm and what are the pros and
cons of each?
1-Market-leader strategies
a-New Users
market-penetration strategy,
new market- segment strategy-
geographical -expansion strategy
b-New Uses
discovering and promoting new uses for the product.
c-More Usage
convince people to use more products per use occasion.
2-Market-challenger strategies
CHOOSING A SPECIFIC ATTACK STRATEGY
Price discount:
Lower price goods
Prestige goods
Product proliferation
Product innovation
Improved services:
Distribution innovation
Manufacturing-cost reduction
Intensive advertising promotion
3-Market-follower strategies
present similar offers to buyers by copying the leader.
creating niches,
expanding niches,
protecting niches.
A. Implementation
• Management commitment
• Employee empowerment
• Reward System
• Integrating training
• Process improvement
• Quality at source
•Board members with more global business experience should be recruited with an eye on the future and market
potential in local and international markets.
Develop more programs that invest in employees’ capability to handle international operations and increased
competition locally and internationally.
•Create new job rotational programs locally and internationally within for more exposure of employees and
creativity.
•A TQM department should be structured to ensure quality and customer service leadership. As mentioned before
the company has implemented several principles of total quality management philosophy, such as:
2. Employee empowerment: giving workers the responsibility for improvements and the authority to make
changes to accomplish them.
3. Reward System: is the missing link that motivates managers and employees to "walk the talk" and use TQM
to the fullest and it's divided into two groups, monetary and non-monetary rewards.
4. Integrating training: includes different aspects of TQM elements, team skills and problem-solving
techniques.
5. Process improvement: process of reducing waste and cycle times in all areas through cross-departmental
process analysis.
6. Quality at source: the philosophy of making each worker responsible for the quality of his/her work