Strategic Management Review Questions – 19.

1B

Reference Text – book (author: )

Strategic Management and Business Policy toward global sustainability
Engcouraging Students to search/to read more material for enhancing their knowledge
and preparation.
QUESTIONS
1. Briefly explain the concept of strategic thinking?
2. How does horizontal growth differ from vertical growth as a corporate strategy? From
concentric diversification?
3. According to Porter, what determines the level of competitive intensity in an industry?
4. How can value-chain analysis help identify a company’s strengths and weaknesses?
5. Is it possible for a company to have a sustainable competitive advantage when its industry
becomes hypercompetitive?
6. Identify and establish a relationship between ‘Strategic Directions’ and ‘Vision’ of
a company. Give an example to support your answer?
7. Why are many strategic alliances temporary?
8. Are functional strategies interdependent, or can they be formulated independently of
other functions?
9. What are differences (distinguish) between strategy and tactics?
10. What are the tradeoffs between an internal and an external growth strategy?
STRATEGIC EVALUATION MATRIXS and STRATEGIC IMPLEMETATION
1. TOWS MATRIX
2. STRATEGIES – COMPANY LEVEL: CORPORATE DIRECTIONAL STRATEGIES
CASES
Case 1: IBM
Over the period 1991–1993, IBM (US) suffered a net loss of almost $16 billion (half the total
GDP of the Republic of Ireland at that time) . During this period, the company had many of the
characteristics of a supposedly good strategy: a dominant market share, excellent employee
policies, reliable products (if not the most innovative), close relationships with national
governments, responsible local and national community policies, sound finances and extensive
modern plant investment around the world. Yet none of these was crucial to its profit problems,
which essentially arose from a failure in strategic management. This case examines how this
came about: see Figure below. The reasons for the major losses are explored in the sections that
follow
– clearly the company was continuing to sell its products, but its costs were too high and it was
unable to raise its prices because of increased competition.
During the 1970s and early 1980s, IBM
became the first-choice computer
company for many of the world’s leading
companies: it had a remarkable global
market share – approaching 60 per cent.
In essence, IBM offered large, fast and
reliable machines that undertook tasks
never before operated by machinery:
accounting, invoicing and payroll.
Hence, IBM was the market leader in
large mainframe computers and earned
around
60 per cent of its profits from such
machines.
Because IBM’s existing company
structure was large and nationally based
and its culture was so slow and
blinkered, it chose to set up a totally new
subsidiary to manufacture and market its
first PC.
Although computer markets were driven by new technology, the key development was IBM’s
establishment of the common technical design mentioned above. This meant that its rivals at last
had a common technical platform to drive down costs. IBM’s strategic mistake was to think that
its reputation alone would persuade customers to stay with its PC products. However, its
competitors were able to exploit the new common IBM-compatible PC design to produce faster,
reliable and cheaper machines than IBM, using the rapid advances in technology that occurred
during the 1980s. In the late 1980s, IBM recognised the competitive threat from Microsoft and
Intel.
After the major profit problems of the early 1990s, IBM clearly needed a major shift in strategy.
A new chief executive, LouGerstner, was recruited from outside the computer industry, but he
was faced with a major task. The conventional strategic view in 1993 was that the company was
too large. Its true strengths were the series of national IBM companies that had real autonomy
and could respond to specific national market conditions, and the wide range of good IBM
products. But the local autonomy coupled with the large IBM product range meant that it was
difficult to provide industry solutions. Moreover, IBM’s central HQ and research facility had
difficulty in responding quickly to the rapid market and technological changes that applied across
its global markets. The ISUs had been set up to tackle this but did not seem to be working.
The most common strategy solution suggested for IBM was therefore to break up the company
into a series of smaller and more responsive subsidiaries in different product areas – a PC
company, a mainframe company, a printer company and so on. The solution adopted by IBM was
to turn itself into a computer services company

CASE 2: Cultural Differences Create implementation problems in Merger

When Upjohn Pharmaceuticals of Kalamazoo, Michigan, and Pharmacia AB of Stockholm,
Sweden, merged in 1995, employees of both sides were optimistic for the newly formed
Pharmacia
& Upjohn, Inc. Both companies were second-tier competitors fighting for survival in a global
industry. Together, the firms would create a global company that could compete scientifically
with its bigger rivals.
Because Pharmacia had acquired an Italian firm in 1993, it also had a large operation in Milan.
U.S. executives scheduled meetings throughout the summer of 1996—only to cancel them when
their European counterparts could not attend. Although it was common knowledge in Europe that
most Swedes take the entire month of July for vacation and that Italians take off all of August,
this was not common knowledge in Michigan.
Differences in management styles became a special irritant. Swedes were used to an open system,
with autonomous work teams. Executives sought the whole group’s approval before making an
important decision. Upjohn executives followed the more traditional American top-down
approach. Upon taking command of the newly merged firm, Dr.Zabriskie (who had been
Upjohn’s CEO), divided the company into departments reporting to the new London
headquarters. He required frequent reports, budgets, and staffing updates. The Swedes reacted
negatively to this top- down management hierarchical style. “It was degrading,” said Stener
Kvinnsland, head of Pharmacia’s cancer research in Italy before he quit the new company. The
Italian operations baffled the Americans, even though the Italians felt comfortable with a
hierarchical management style. Italy’s laws and unions made layoffs difficult. Italian data and
accounting were often inaccurate.
Because the Americans didn’t trust the data, they were constantly asking for verification. In turn,
the Italians were concerned that the Americans were trying to take over Italian operations. At
Upjohn, all workers were subject to testing for drug and alcohol abuse. Upjohn also banned
smoking. At Pharmacia’s Italian business centre, however, waiters poured wine freely every
afternoon in the company dining room. Pharmacia’s boardrooms were stocked with humidors for
executives who smoked cigars during long meetings.
After a brief attempt to enforce Upjohn’s policies, the company dropped both the no-drinking and
non-smoking policies for European workers. Although the combined company had cut annual
costs by $200 million, overall costs of the merger reached $800 million, some $200 million more
than projected. Nevertheless, Jan Eckberg, CEO of Pharmacia before the merger, remained
confident of the new company’s ability to succeed. He admitted, however, that “we have to make
some smaller changes to release the full power of the two companies.”
END.