Bme 4004

Chapter One – The Nature of
Strategic Management
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After the chapter, students are
expected to:
1. Describe the strategic-management
process.
2. Discuss the three stages of strategy
formulation, implementation, and
evaluation activities.
3. Explain the need for integrating analysis
and intuition in strategic management.
4. Define and give examples of key terms
in strategic management.
5. Illustrate the comprehensive strategic-
management model.
6. Describe the benefits of engaging in
strategic management.
7. Explain why some firms do no strategic
planning.
8. Describe the pitfalls in actually doing
strategic planning.
9. Discuss the connection between
business and military strategy.
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For any organization to operate and
effectively focus its efforts on certain tasks and
avoid going astray or deviate away from targets
– a sense of direction needs to be set and some
sort of rules and guidelines have to be
established and observed – in the minds of
founders, leaders and managers though some
are put in writing.
Copyright ©2017 Pearson Education, Inc. 1-4

the art and science of formulating,
implementing, and evaluating cross-
functional decisions that enable an
organization to achieve its
objectives
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 Strategic management is used synonymously with
the term strategic planning in this course.
 Sometimes the term strategic management is

used to refer to strategy formulation,
implementation, and evaluation, with strategic
planning referring only to strategy formulation.
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 A strategic plan is a company’s game plan.
 A strategic plan results from tough

managerial choices among numerous good
alternatives, and it signals commitment to
specific markets, policies, procedures, and
operations.
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Strategy Strategy Strategy
formulation implementation evaluation
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I. Strategy Formulation
◦ developing a vision and mission
◦ identifying an organization’s external opportunities and
threats
◦ determining internal strengths and weaknesses
◦ establishing long-term objectives
◦ generating alternative strategies
◦ choosing particular strategies to pursue
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 What new businesses to enter
 What businesses to abandon
 Whether to expand operations or diversify
 Whether to enter international markets
 Whether to merge or form a joint venture
 How to avoid a hostile takeover
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◦ requires a firm to establish annual
objectives, devise policies, motivate
employees, and allocate resources so
that formulated strategies can be
executed
◦ often called the action stage
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◦ Determining which strategies are not
working well
◦ Three fundamental activities:
 reviewing external and internal factors that
are the bases for current strategies
 measuring performance
 taking corrective actions
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Competitive Advantage
◦ any activity a firm does especially
well compared to activities done by
rival firms,
or
◦ any resource a firm possesses that
rival firms desire.
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Strategists
◦ Individuals most responsible for the success or failure of
an organization
◦ Help an organization gather, analyze, and organize
information
Vision and Mission Statements
◦ A vision statement answers the question “What do we
want to become?”
◦ A mission statement answers the question “What is our
business?”
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External Opportunities and Threats
◦ economic, social, cultural, demographic, environmental,
political, legal, governmental, technological, and
competitive trends and events that could significantly
benefit or harm an organization
Internal Strengths and Internal Weaknesses
◦ an organization’s controllable activities that are
performed especially well or poorly
◦ determined relative to competitors
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 Availability of capital can no longer be taken for
granted.
 Consumers expect green operations and
products.
 Marketing is moving rapidly to the Internet.
 Commodity food prices are increasing.
 An oversupply of oil is driving oil and gas prices
down.
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Long-Term Objectives
◦ specific results that an organization
seeks to achieve in pursuing its basic
mission - more than one year
◦ should be challenging, measurable,
consistent, reasonable, and clear
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Strategies
◦ the means by which long-term objectives
will be achieved
◦ it may include geographic expansion,
diversification, acquisition, product
development, market penetration,
retrenchment, divestiture, liquidation, and
joint ventures
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Annual objectives
◦ short-term milestones that organizations must achieve to
reach long-term objectives
◦ should be measurable, quantitative, challenging, realistic,
consistent, and prioritized
◦ should be established at the corporate, divisional, and
functional levels in a large organization
Policies
◦ the means by which annual objectives will be achieved
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Where are we now?
Where do we want to go?
How are we going to get there?
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 It allows an organization to be more proactive
than reactive in shaping its own future;
 It allows an organization to initiate and influence

(rather than just respond to) activities—and thus to
exert control over its own destiny.
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Greater
Deeper commitment to The result –
Enhanced
understanding achieve everybody on
communication
of others objectives/imple a mission to
(dialogue &
view/what the ment help the firm
participation
firm is doing strategies/work to succeed
hard
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 Businesses using strategic-management
concepts show significant improvement in
sales, profitability, and productivity compared
to firms without systematic planning activities
 High-performing firms tend to do systematic

planning to prepare for future fluctuations in
their external and internal environments
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 Enhanced awareness of external threats
 Improved understanding of competitors’
strategies
 Increased employee productivity
 Reduced resistance to change
 Clearer understanding of performance–reward
relationships
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 No formal training in strategic management
 No understanding of or appreciation for the
benefits of planning
 No monetary rewards for doing planning
 No punishment for not planning
 Too busy “firefighting” (resolving internal crises) to
plan ahead
 View planning as a waste of time, since no
product/service is made
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 Laziness; effective planning takes time
and effort; time is money
 Content with current success; failure to
realize that success today is no
guarantee for success tomorrow
 Overconfident
 Prior bad experience with strategic
planning done sometime/somewhere
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 Using strategic planning to gain control over decisions and
resources
 Doing strategic planning only to satisfy accreditation or
regulatory requirements
 Too hastily moving from mission development to strategy
formulation
 Failing to communicate the plan to employees, who continue
working in the dark
 Top managers making many intuitive decisions that conflict
with the formal plan
 Top managers not actively supporting the strategic-planning
process
 Failing to use plans as a standard for measuring performance
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 Delegating planning to a “planner” rather than
involving all managers
 Failing to involve key employees in all phases of
planning
 Failing to create a collaborative climate supportive
of change
 Viewing planning as unnecessary or unimportant
 Becoming so engrossed in current problems that
insufficient or no planning is done
 Being so formal in planning that flexibility and
creativity are stifled
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Copyright ©2017 Pearson Education, Inc. 31
Chapter Two
Strategy
Formulation
After the chapter, students are expected to:
1. Describe the nature and role of vision statements in strategic
management.
2. Describe the nature and role of mission statements in
3. Discuss the process of developing a vision and mission
statement.
4. Discuss how clear vision and mission statements can benefit
other strategic-management activities.
5. Describe the characteristics of a good mission statement.
6. Identify the components of mission statements.
7. Evaluate mission statements of different organizations and
write effective vision and mission statements.
It is especially important for managers and
executives in any organization to agree on the basic
vision that the firm strives to achieve in the long term.
A clear vision provides the foundation for

developing a comprehensive mission statement.
The vision statement should be
short, preferably one sentence,
and as many managers as
possible should have input into
developing the statement.
The vision statement should

reveal the type of business the
firm engages.
 Central Philippine University’s Vision
Statement: “A University committed to Exemplary
Christian Education for Life (EXCEL) and responsive
to the needs of the total person and the world.
General Motors’ vision is to

be the world leader in
transportation products
and related services.
 Peter Drucker, who - A declaration of an organization's
is often called “the “reason for being.”
father of modern - It answers the pivotal question “What
is our business?”
management” - It is essential for effectively
believes that establishing objectives and formulating
asking the question strategies.
“what is our - It reveals what an organization wants
business?” is to be and whom it wants to serve
synonymous with
- It is also called a creed statement, a
asking “what is statement of purpose, a statement of
our mission?” philosophy, a statement of beliefs, and a
statement of business principles
A widely used approach includes:
 Select several articles about these statements and ask
all managers to read these as background information.
 Ask managers themselves to prepare a vision and
mission statement for the organization.
 A facilitator or committee of top managers should then
merge these statements into a single document and
distribute the draft statements to all managers.
 A request for modifications, additions, and deletions is
needed next, along with a meeting to revise the
document.
 To make sure all employees/managers understand
the firm’s purpose or reason for being.
 To provide a basis for prioritization of key internal
and external factors utilized to formulate feasible
strategies.
 To provide a basis for the allocation of resources.
 To provide a basis for organizing work,
departments, activities, and segments around a
common purpose.
1. A good mission statement allows for the
generation and consideration of a range of feasible
alternative objectives and strategies without unduly
stifling management creativity.
- A mission statement needs to be broad to

reconcile differences effectively among, and appeal
to, an organization's diverse stakeholders
2. Include stakeholders - employees,
managers, stockholders, boards of directors,
customers, suppliers, distributors, creditors,
governments (local, state, federal, and
foreign), unions, competitors, environmental
groups, and the general public.
1. Broad in scope; does not include monetary amounts, numbers,
percentages, ratios, or objectives
2. Fewer than 150 words in length
3. Inspiring
4. Identifies the utility of a firm’s products
5. Reveals that the firm is socially responsible
6. Reveals that the firm is environmentally responsible
7. Includes nine components: customers, products or services,
markets, technology, concern for survival/growth/profits, philosophy,
self-concept, concern for public image, concern for employees
8. Reconciliatory
9. Enduring
An effective According to Vern McGinnis, a mission
mission statement statement should:
describes the
 define what the organization is and
Organization’s what the organization aspires to be
purpose,  be limited enough to exclude some
customers, ventures and broad enough to allow for
creative growth
products or  distinguish a given organization from
services, markets, all others
philosophy, and
basic technology.
A mission statement should also:
 serve as a framework for evaluating both current
and prospective activities
 be stated in terms sufficiently clear to be widely
understood throughout the organization
 reflects the anticipations of customers
The operating philosophy of organizations

should be to identify customers' needs and then
provide a product or service to fulfill those needs.
 Do not offer me things.
 Do not offer me clothes. Offer me attractive looks.
 Do not offer me shoes. Offer me comfort for my feet
and the pleasure of walking.
 Do not offer me a house. Offer me security, comfort,
and a place that is clean and happy.
 Do not offer me books. Offer me hours of pleasure
and the benefit of knowledge.
 Do not offer me CDs. Offer me leisure and the sound
of music.
 Do not offer me tools. Offer me the benefits and the
pleasure that come from making beautiful things.
 Do not offer me furniture. Offer me comfort and the
quietness of a cozy place.
 Do not offer me things. Offer me ideas, emotions,
ambience, feelings, and benefits.
 Please, do not offer me things.

1. Customers—Who are the 6. Philosophy—What are the
firm’s customers? basic beliefs, values,
2. Products or services— aspirations, and ethical
What are the firm’s major priorities of the firm?
products or services? 7. Self-concept (distinctive
3. Markets—Geographically, competence)—What is
where does the firm the firm’s major
compete? competitive advantage?
4. Technology—Is the firm 8. Public image—Is the firm
technologically current? responsive to social,
5. Survival, growth, and community, and
profitability—Is the firm environmental concerns?
committed to growth and 9. Employees—Are
financial soundness? employees a valuable
asset of the firm?
Avon
 Our mission is to provide women (1) quality
fragrances, cosmetics, and jewelry (2) at reasonable
prices backed by outstanding customer service
provided by our thousands of door-to-door sales
representatives (7, 9) operating globally (3). We use
the latest technology (4) to profitably develop and
market products desired by women all over the world
(5). Avon representatives put integrity first (6) in
setting a good example in every community (8) they
operate—as they sell beauty. (58 words)
- Establishing and nurturing an effective
vision and mission is a vital first step in gaining
and maintaining competitive advantage.
- They are not just words – they provide a
basis for strategy and action. Well-designed
vision and mission statements are essential for
formulating, implementing, and evaluating
strategies
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Strategy Chapter Three
Formulation
The External
Assessment
1. describe the nature and purpose of an
external assessment in formulating strategies.
2. identify and discuss 10 external forces that
must be examined in formulating strategies:
economic, social, cultural, demographic,
environmental, political, governmental, legal,
technological, and competitive.
3. Explain Porter’s Five Forces Model and its
relevance in formulating strategies.
4. Describe key sources of information used for
locating vital external information.
5. Discuss forecasting tools and techniques.
6. Explain how to develop and use an External
Factor Evaluation (EFE) Matrix.
7. Explain how to develop and use a
Competitive Profile Matrix.
- The purpose of an external audit is to develop a
finite list of opportunities ( actionable responses)
that could benefit a firm as well as threats that
should be avoided.
- Firms should be able to respond either
offensively or defensively to the factors by
formulating strategies that take advantage of
external opportunities or that minimize the impact of
potential threats.
1. economic forces
2. social, cultural, demographic, and natural
environment forces
3. political, governmental, and legal forces
4. technological forces
5. competitive forces
- Must involve as many managers and employees
- First, gather competitive intelligence and information

about economic, social, cultural, demographic, environmental,
political, governmental, legal, and technological trends.
- Information should be assimilated and evaluated
- A final list of the most important key external

factors should be communicated
 The Industrial Organization (I/O) approach to
competitive advantage advocates that external
(industry) factors are more important than internal
factors in a firm for gaining and sustaining
competitive advantage.
 Competitive advantage is determined largely by
competitive positioning within an industry.
 Income differences by region
 Shift to service economy and consumer group
 Availability of credit  Price fluctuations
 Level of disposable income  Foreign countries’ economic
 Propensity of people to spend conditions
 Interest rates  Monetary and Fiscal policy
 Inflation rates  Stock market trends
 GDP trends  Tax rate variation by country and
state
 Consumption patterns
 European Economic Community
 Unemployment trends (EEC) policies
 Value of the dollar  Organization of Petroleum
 Import/Export factors Exporting Countries (OPEC)
 Demand shifts for different policies
goods and services
 U.S. Facts
◦ Aging population
◦ Less white
◦ 2050 = 20% population > 65 years
◦ 2075 = no ethnic or racial majority
 Population changes by  Attitudes toward retirement
race, age, and geographic  Energy conservation
area  Attitudes toward product
 Regional changes in tastes quality
and preferences  Attitudes toward customer
 Number of marriages service
 Number of divorces  Pollution control
 Number of births  Attitudes toward foreign
 Number of deaths peoples
 Immigration and  Energy conservation
emigration rates  Social programs
 Social Security programs  Number of churches
 Life expectancy rates  Number of church members
 Per capita income  Social responsibility issues
 Social media pervasiveness
 The increasing global interdependence among
economies, markets, governments, and
organizations makes it imperative that firms
consider the possible impact of political variables
on the formulation and implementation of
competitive strategies.
 Environmental regulations  USA vs. other
country relationships
 Number of patents  Political conditions
 Changes in patent laws in foreign countries
 Equal employment laws  Global price of oil
changes
 Level of defense expenditures
 Local, state, and
 Unionization trends federal laws
 Antitrust legislation  Import–export
regulations
 Tariffs
 Local, state, and
national elections
New technologies such as:
 the Internet of Things
 3D printing
 the cloud
 mobile devices
 biotech
 analytics
 autotech
 robotics and
 artificial intelligence
are fueling innovation in many industries, and
impacting strategic-planning decisions.
 Many firms now have a Chief Information Officer
(CIO) and a Chief Technology Officer (CTO)
who work together to ensure that information
needed to formulate, implement, and evaluate
strategies is available where and when it is
needed
1. Major opportunities and threats that must be considered in
formulating strategies.
2. Can affect organizations’ products, services, markets,
suppliers, distributors, competitors, customers,
manufacturing processes, marketing practices, and
competitive position.
3. Can create new markets, result in new and improved
products, change the relative competitive cost positions, and
render existing products and services obsolete.
4. Can reduce or eliminate cost barriers between businesses,
create shorter production runs, create shortages in technical
skills, and result in changing values and expectations of
employees, managers, and customers.
5. Can create new competitive advantages that are more
powerful than existing advantages.
 An important part of an external audit is identifying
rival firms and determining their strengths,
weaknesses, capabilities, opportunities, threats,
objectives, and strategies
Characteristics of the most competitive companies:
1. Strive to continually increase market share
2. Use the vision/mission as a guide for all decisions
3. Whether it's broke or not, fix it–make it better
4. Continually adapt, innovate, improve
5. Acquisition is essential to growth
6. Hire and retain the best employees and managers
possible
7. Strive to stay cost-competitive on a global basis
1. What are the strengths of our major competitors?
2. What are the weaknesses of our major competitors?
3. What are the objectives and strategies of our major competitors?
4. How will our major competitors most likely respond to current economic, social,
cultural, demographic, environmental, political, governmental, legal, technological,
and competitive trends affecting our industry?
5. How vulnerable are the major competitors to our alternative company strategies?
6. How vulnerable are our alternative strategies to successful counterattack by our
major competitors?
7. How are our products or services positioned relative to major competitors?
8. To what extent are new firms entering and old firms leaving this industry?
9. What key factors have resulted in our present competitive position in this industry?
10.How have the sales and profit rankings of our major competitors in the industry
changed over recent years? Why have these rankings changed that way?
11.What is the nature of supplier and distributor relationships in this industry?
12.To what extent could substitute products or services be a threat to our competitors?
 Competitive intelligence (CI)
◦ a systematic and ethical process for gathering and
analyzing information about the competition's activities
and general business trends to further a business's own
goals
The three basic objectives of a CI program are:
1. To provide a general understanding of an industry and

its competitors
2. To identify areas in which competitors are vulnerable

and to assess the impact strategic actions would have
on competitors
3. To identify potential moves that a competitor

might make that would endanger a firm's
position in the market
1. Identify key aspects or elements of each
competitive force that impact the firm.
2. Evaluate how strong and important each element

is for the firm.
3. Decide whether the collective strength of the

elements is worth the firm entering or
staying in the industry.
 Rivalry among competing firms
◦ Most powerful of the five forces
◦ Focus on competitive advantage of

strategies over other firms
TABLE 3-7 Conditions That Cause High Rivalry Among Competing Firms
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1. When the number of competing firms is high
2. When competing firms are of similar size
3. When competing firms have similar capabilities
4. When the demand for an industry’s products is falling
5. When the product or service prices in the industry are falling
6. When consumers can switch brands easily
7. When barriers to leaving the market are high
8. When barriers to entering the market are low
9. When fixed costs are high among competing firms
10. When the product is perishable
11. When rivals have excess capacity
12. When consumer demand is falling
13. When rivals have excess inventory
14. When rivals sell similar products/services
15. When mergers are common in the industry
 Potential Entry of New Competitors
◦ Barriers to entry are important
◦ Quality, pricing, and marketing can

overcome barriers
 Need to gain economies of scale quickly
 Need to gain technology and specialized know-
how
 Lack of experience
 Strong customer loyalty
 Strong brand preferences
 Large capital requirements
 Lack of adequate distribution channels
 Government regulatory policies
 Tariffs
 Lack of access to raw materials
 Possession of patents
 Undesirable locations
 Counterattack by entrenched firms
 Potential saturation of the market
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 Potential
development of
substitute products
◦ Pressure increases when:
 Prices of substitutes decrease
 Consumers' switching costs decrease

 Bargaining Power of Suppliers is increased
when (there are):
◦ Few suppliers
◦ Few substitutes
◦ Costs of switching raw materials is high
 Backward integration is gaining control or
ownership of suppliers
 Bargaining power of consumers
◦ Customers being concentrated or buying
in volume affects intensity of competition
◦ Consumer power is higher where
products are standard or undifferentiated
1. If buyers can inexpensively switch
2. If buyers are particularly important
3. If sellers are struggling in the face of falling
consumer demand
4. If buyers are informed about sellers' products,
prices, and costs
5. If buyers have discretion in whether and when
they purchase the product
 Unpublished sources include customer
surveys, market research, speeches at
professional and shareholders' meetings,
television programs, interviews, and
conversations with stakeholders.
 Published sources of strategic information
include periodicals, journals, reports,
government documents, abstracts, books,
directories, newspapers, and manuals.
 http://finance.yahoo.com
 www.hoovers.com
 http://globaledge.msu.edu/industries/
 Forecasts
◦ educated assumptions about future

trends and events
◦ no forecast is perfect
 Assumptions
◦ Best present estimates of the impact of
major external factors, over which the
manager has little if any control, but
which may exert a significant impact on
performance or the ability to achieve
desired results.
 Using
software to mine huge
volumes of data
 Helpsexecutives make
decisions
Summarize and evaluate these factors:
 Economic  Political
 Social  Governmental
 Cultural  Legal
 Demographic  Technological
 Environmental  Competitive
1. List 20 key external factors
2. Weight from 0.0 to 1.0
3. Rate the effectiveness of current
strategies from 1-4
4. Multiply weight * rating
5. Sum weighted scores
 Identifiesfirm's major competitors
and their strengths & weaknesses in
relation to a sample firm's strategic
positions
 Critical
success factors include
internal and external issues
Chapter Four
Strategy
Formulation
1. describe the nature and role of an internal

assessment in formulating strategies.
2. discuss why organizational culture is so important
in formulating strategies.
3. identify the basic functions (activities) that make
up management and their relevance in formulating
strategies.
4. identify the basic functions of marketing and their
relevance in formulating strategies.
5. discuss the nature and role of finance and
accounting in formulating strategies.
6. discuss the nature and role of
production/operations in formulating strategies.
7. discuss the nature and role of research and
development (R&D) in formulating strategies.
8. discuss the nature and role of management
information systems (MIS) in formulating strategies.
9. explain value chain analysis and its relevance in
formulating strategies.
10. develop and use an Internal Factor Evaluation
(IFE) Matrix.
 Distinctive competencies
◦ A firm's strengths that cannot be easily matched or
imitated by competitors
 Building competitive advantages involves taking
advantage of distinctive competencies.
 The Process of Gaining Advantage in A Firm

Weakness strengths Distinctive Competencies Competitive Advantage
 The internal audit
◦ Requires gathering, assimilating, and prioritizing
information about the firm's management,
marketing, finance, accounting,
production/operations, research and development
(R&D), and management information systems
operations
◦ Provides more opportunity for participants to
understand how their jobs, departments, and
divisions fit into the whole firm
 The Resource-Based View (RBV) Approach
◦ contends that internal resources are more important for
a firm than external factors in achieving and sustaining
competitive advantage
 Proponents of the RBV contend that
organizational performance will primarily be
determined by internal resources that can be
grouped into three all-encompassing categories:
◦ physical resources
◦ human resources
◦ organizational resources
 For a resource to be valuable, it must be either (1)
rare, (2) hard to imitate, or (3) not easily
substitutable.
 These three characteristics of resources are called
Empirical Indicators
 These enable a firm to implement strategies that
improve its efficiency and effectiveness and lead
to a sustainable competitive advantage.
 Organizational culture significantly affects
planning activities.
 If strategies can capitalize on cultural
strengths, such as a strong work ethic or
highly ethical beliefs, then management often
can swiftly and easily implement changes.
 Organizational culture is “a pattern of
behavior that has been developed by an
organization as it learns to cope with its
problem of external adaptation and internal
integration and that has worked well enough
to be considered valid and to be taught to
new members as the correct way to perceive,
think, and feel.”
 Values  Sagas
 Beliefs  Language
 Rites  Metaphors
 Rituals  Symbols
 Ceremonies  Folktales
 Myths  Heroes and
 Stories
heroines
 Legends
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The functions of management consist
of five basic activities:
◦ planning
◦ organizing
◦ motivating
◦ staffing
◦ controlling
 Planning: forecasting, establishing objectives,
devising strategies, and developing policies
 Organizing: organizational design, job
specialization, job descriptions, span of
control, coordination, job design, and job
analysis
 Motivating: leadership, communication, work
groups, behavior modification, delegation of
authority, job enrichment, job satisfaction,
needs fulfillment, organizational change,
employee morale, and managerial morale
 Staffing: wage and salary administration,
employee benefits, interviewing, hiring,
firing, training, management development,
employee safety, equal employment
opportunity, and union relations
 Controlling: quality control, financial control,
sales control, inventory control, expense
control, analysis of variances, rewards, and
sanctions
1. Does the firm use strategic-management
concepts?
2. Are company objectives and goals
measurable and well communicated?
3. Do managers at all hierarchical levels plan
effectively?
4. Do managers delegate authority well?
5. Is the organization's structure appropriate?
6. Are job descriptions and job specifications clear?
7. Is employee morale high?
8. Are employee turnover and absenteeism low?
9. Are organizational reward and control
mechanisms effective?
the process of defining, anticipating,
creating, and fulfilling customers’
needs and wants for products and
services
Customer analysis
Selling products and services
Product and service planning
Pricing
Distribution
Marketing research
Cost/benefit analysis
 Customer Analysis
◦ the examination and evaluation of consumer
needs, desires, and wants
◦ involves administering customer surveys,
analyzing consumer information, evaluating
market positioning strategies, developing
customer profiles, and determining optimal
market segmentation strategies
 Selling
◦ includes many marketing
activities, such as advertising,
sales promotion, publicity,
personal selling, sales force
management, customer
relations, and dealer relations
 Product and Service Planning
◦ includes activities such as test marketing; product and
brand positioning; devising warranties; packaging;
determining product options, features, style, and quality;
deleting old products; and providing for customer service
◦ important when a company is pursuing product
development or diversification
 Pricing
◦ Five major stakeholders affect pricing decisions:
consumers, governments, suppliers, distributors, and
competitors
◦ Sometimes an organization will pursue a forward
integration strategy primarily to gain better control over
prices charged to consumers.
 Distribution
◦ includes warehousing, distribution channels, distribution
coverage, retail site locations, sales territories, inventory
levels and location, transportation carriers, wholesaling,
and retailing
◦ especially important when a firm is striving to implement
a market development or forward integration strategy
◦ the systematic gathering, recording, and analyzing of
data about problems relating to the marketing of goods
and services
◦ can uncover critical strengths and weaknesses
◦ Three steps are required:
1. compute the total costs associated with a
decision
2. estimate the total benefits from the
decision
3. compare the total costs with the total
benefits
1. Are markets segmented effectively?
2. Is the organization positioned well among
competitors?
3. Has the firm’s market share been increasing?
4. Are present channels of distribution reliable and
cost effective?
5. Does the firm have an effective sales
organization?
6. Does the firm conduct market research?
7. Are product quality and customer service good?
8. Are the firm's products and services priced
appropriately?
9. Does the firm have an effective promotion,
advertising, and publicity strategy?
10. Are marketing, planning, and budgeting effective?
11. Do the firm's marketing managers have adequate
experience and training?
12. Is the firm's Internet presence excellent as
compared to rivals?
The functions of finance/accounting comprise three
decisions:
1. the investment decision
2. the financing decision
3. the dividend decision
 Investment Decision (Capital Budgeting)
◦ the allocation and reallocation of capital and resources to
projects, products, assets, and divisions of an
organization
 Financing Decision
◦ determines the best capital structure for the firm and
includes examining various methods by which the firm
can raise capital
 Dividend Decisions
◦ concern issues such as the percentage of earnings paid
to stockholders, the stability of dividends paid over time,
and the repurchase or issuance of stock
◦ determine the amount of funds that are retained in a firm
compared to the amount paid out to stockholders
1. How has each ratio changed
over time?
2. How does each ratio compare
to industry norms?
3. How does each ratio compare
with key competitors?
1. Where is the firm financially strong and weak
as indicated by financial ratio analyses?
2. Can the firm raise needed short-term capital?
3. Can the firm raise needed long-term capital
through debt and/or equity?
4. Does the firm have sufficient working capital?
5. Are capital budgeting procedures effective?
6. Are dividend payout policies reasonable?
7. Does the firm have good relations with its
investors and stockholders?
8. Are the firm's financial managers experienced
and well trained?
9. Is the firm's debt situation excellent?
 Production/operations function
◦ consists of all those activities that transform inputs into
goods and services
 Production/operations management deals with
inputs, transformations, and outputs that vary
across industries and markets.
1. Are supplies of raw materials, parts, and
subassemblies reliable and reasonable?
2. Are facilities, equipment, machinery, and offices in
good condition?
3. Are inventory-control policies and procedures
effective?
4. Are quality-control policies and procedures effective?
5. Are facilities, resources, and markets strategically
located?
6. Does the firm have technological competencies?
1. Does the firm have R&D facilities? Are they adequate?
2. If outside R&D firms are used, are they cost-effective?
3. Are the organization's R&D personnel well qualified?
4. Are R&D resources allocated effectively?
5. Are management information and computer systems
adequate?
6. Is communication between R&D and other
organizational units effective?
7. Are present products technologically competitive?
 Management Information System
◦ Receives raw material from both external and internal
evaluation of an organization
◦ Improves the performance of an enterprise by improving
the quality of managerial decisions
◦ Collects, codes, stores, synthesizes, and presents
information in such a manner that it answers important
operating and strategic questions
1. Do all managers in the firm use the information
system to make decisions?
2. Is there a chief information officer or director of
information systems position in the firm?
3. Are data in the information system updated
regularly?
4. Do managers from all functional areas of the
firm contribute input to the information system?
5. Are there effective passwords for entry into the
firm's information system?
6. Are strategists of the firm familiar with the
information systems of rival firms?
7. Is the information system user-friendly?
8. Do all users of the information system understand
the competitive advantages that information can
provide firms?
9. Are computer training workshops provided for
users of the information system?
10.Is the firm’s information system continually being
improved in content- and user-friendliness?
 Value Chain Analysis (VCA)
◦ refers to the process whereby a firm determines
the costs associated with organizational
activities from purchasing raw materials to
manufacturing product(s) to marketing those
products
◦ aims to identify where low-cost advantages or
disadvantages exist anywhere along the value
chain from raw material to customer service
activities
 Benchmarking
◦ an analytical tool used to determine whether a firm's
value chain activities are competitive compared to rivals
and thus conducive to winning in the marketplace
◦ entails measuring costs of value chain activities across
an industry to determine “best practices”
1. List key internal factors as identified in the internal-audit
process.
2. Assign a weight that ranges from 0.0 (not important) to
1.0 (all-important) to each factor.
3. Assign a 1-to-4 rating to each factor to indicate whether
that factor represents a strength or weakness.
4. Multiply each factor's weight by its rating to determine a
weighted score for each variable.
5. Sum the weighted scores for each variable to determine
the total weighted score for the organization.
Module 5
Strategies In
Action
1. identify and discuss eight characteristics of objectives
and ten benefits of having clear objectives.
2. define and give an example of eleven types of strategies.
3. identify and discuss the three types of “Integration
Strategies.”
4. Give specific guidelines when market penetration,
market development, and product development are
especially effective strategies.
5. Explain when diversification is an effective business
strategy.
6. list guidelines for when retrenchment, divestiture, and
liquidation are especially effective strategies.
7. identify and discuss Porter’s five generic strategies.
8. compare (a) cooperation among competitors, (b) joint
venture and partnering, and (c) merger/acquisition as
key means for achieving strategies.
9. discuss tactics to facilitate strategies, such as (a)
being a first mover, (b) outsourcing, and (c) reshoring.
10. explain how strategic planning differs in for-profit,
not-for-profit, and small firms.
- Represent the results
expected from pursuing
certain strategies.
- 2-to-5 year timeframe
1. Quantitative
2. Measurable
3. Realistic
4. Understandable
5. Challenging
6. Hierarchical
7. Obtainable
8. Congruent across departments
Each objective should also be associated with a
timeline.
Objectives are commonly stated in terms of
growth in assets, growth in sales, profitability,
market share, degree and nature of diversification,
degree and nature of vertical integration, earnings
per share, and social responsibility.
◦ provide direction
◦ allow synergy
◦ assist in evaluation
◦ establish priorities
◦ reduce uncertainty
◦ minimize conflicts
◦ stimulate exertion
◦ aid in both the allocation of resources and the design of
jobs
1. Financial objectives include growth in revenues,
growth in earnings, higher dividends, larger profit
margins, greater return on investment, higher
earnings per share, a rising stock price, improved
cash flow, and so on.
2. Strategic objectives include a larger market
share, quicker on-time delivery than rivals, shorter
design-to-market times than rivals, lower costs
than rivals, higher product quality than rivals,
wider geographic coverage than rivals, achieving
technological leadership, consistently getting new
or improved products to market ahead of rivals,
and so on.
 Mr. Derek Bok, former - Managing by extrapolation –
President of Harvard adheres to the principle ‘if ain’t
University, once said, “If broke, don’t fix it”
you think education is - Managing by crisis – based
expensive, try on the belief that the true
ignorance.” measure of a really good strategist
 The idea behind this is the ability to solve problems
saying also applies to - Managing by subjectives
establishing objectives, (the mystery approach)– built on
because strategists the idea that there is no general
should avoid the plan for which way to go and what
following ways of “not to do – “Do your own thing, the
managing by best way you know how”
objectives.” - Managing by hope – that
the future is laden with great
uncertainty and that if we try and
 Avoid do not succeed, then we hope our
second (or third) attempt will
succeed.
5-
10
 Most organizations simultaneously pursue a
combination of two or more strategies, but a
combination strategy can be exceptionally
risky if carried too far.
 No organization can afford to pursue all the
strategies that might benefit the firm.
 Difficult decisions must be made and
priorities must be established.
 Forward Integration
◦ involves gaining ownership or increased control
over distributors or retailers
 Backward Integration
◦ strategy of seeking ownership or increased
control of a firm's suppliers
 Horizontal Integration
◦ a strategy of seeking ownership of or increased
control over a firm's competitors
 When an organization's present distributors are especially
expensive
 When the availability of quality distributors is so limited as to
offer a competitive advantage
 When an organization competes in an industry that is
growing
 When an organization has both capital and human
resources to manage distributing their own products
 When the advantages of stable production are particularly
high
 When present distributors or retailers have high profit
margins
5-
13
 When an organization's present suppliers are
especially expensive or unreliable
 When the number of suppliers is small and the number
of competitors is large
 When the organization competes in a growing
industry
 When an organization has both capital and human
resources
 When the advantages of stable prices are particularly
important
 When present suppliers have high profit margins
 When an organization needs to quickly acquire a
needed resource
 When an organization can gain monopolistic
characteristics in a particular area or region without
being challenged by the federal government
 When an organization competes in a growing
industry
 When increased economies of scale provide major
competitive advantages
 When an organization has both the capital and
human talent needed
 When competitors are faltering due to a lack of
managerial expertise
 Market Penetration Strategy
◦ seeks to increase market share for present
products or services in present markets through
greater marketing efforts
 Market Development
◦ involves introducing present products or services
into new geographic areas
 Product Development Strategy
◦ seeks increased sales by improving or modifying
present products or services
 When current markets are not saturated with a
particular product or service
 When the usage rate of present customers could be
increased significantly
 When the market shares of major competitors have
been declining while total industry sales have been
increasing
 When the correlation between dollar sales and
dollar marketing expenditures historically has
been high
 When increased economies of scale provide major
competitive advantages
 When new channels of distribution are available that
are reliable, inexpensive, and of good quality
 When an organization is very successful at what it
does
 When new untapped or unsaturated markets exist
 When an organization has the needed capital
and human resources to manage expanded
operations
 When an organization has excess production
capacity
 When an organization's basic industry is rapidly
becoming global in scope
 When an organization has successful products that
are in the maturity stage of the product life cycle
 When an organization competes in an industry
characterized by rapid technological developments
 When major competitors offer better-quality
products at comparable prices
 When an organization competes in a high-growth
industry
 When an organization has strong research and
development capabilities
 Related Diversification
◦ value chains possess competitively valuable cross-
business strategic fits
 Unrelated Diversification
◦ value chains are so dissimilar that no competitively
valuable cross-business relationships exist
 Transferring competitively valuable expertise,
technological know-how, or other capabilities from
one business to another
 Combining the related activities of separate
businesses into a single operation to achieve lower
costs
 Exploiting common use of a known brand name
 Using cross-business collaboration to create
strengths
 When an organization competes in a no-growth or a
slow-growth industry
 When adding new, but related, products would
significantly enhance the sales of current products
 When new, but related, products could be offered at
highly competitive prices
 When new, but related, products have seasonal
sales levels that counterbalance an organization’s
existing peaks and valleys
 When an organization’s products are currently in
the declining stage of the product’s life cycle
 When an organization has a strong management team
 When revenues derived from an organization's current
products would increase significantly by adding the new,
unrelated products
 When an organization competes in a highly
competitive or a no-growth industry, as indicated
by low industry profit margins and returns
 When an organization's present channels of distribution
can be used to market the new products to current
customers
 When the new products have countercyclical sales
patterns compared to present products
 When an organization's basic industry is experiencing
declining annual sales and profits
 When an organization has the capital and
managerial talent needed to compete successfully
in a new industry
 When an organization has the opportunity to
purchase an unrelated business that is an attractive
investment opportunity
 When there exists financial synergy
 When existing markets for an organization's
present products are saturated
 When antitrust action could be charged against an
organization that historically has concentrated on a
single industry
 Retrenchment
◦ Regroups through cost and asset reduction to
reverse declining sales and profits
 Divestiture
◦ Selling a division or part of an organization
◦ Often used to raise capital for further strategic
acquisitions or investments
 Liquidation
◦ Selling all of a company’s assets, in parts, for their
tangible worth
 Retrenchment
◦ occurs when an organization regroups through cost and
asset reduction to reverse declining sales and profits
◦ also called a turnaround or reorganizational strategy
◦ designed to fortify an organization’s basic distinctive
competence
 When an organization has a distinctive competence
but has failed consistently to meet its goals
 When an organization is one of the weaker
competitors in a given industry
 When an organization is plagued by inefficiency,
low profitability, and poor employee morale
 When an organization fails to capitalize on external
opportunities and minimize external threats
 When an organization has grown so large so
quickly that major internal reorganization is needed
 When an organization has pursued a retrenchment
strategy and failed to accomplish improvements
 When a division needs more resources to be
competitive than the company can provide
 When a division is responsible for an organization's
overall poor performance
 When a division is a misfit with the rest of an
organization
 When a large amount of cash is needed quickly
 When government antitrust action threatens a firm
 Liquidation
◦ selling all of a company’s assets, in parts, for their
tangible worth
◦ can be an emotionally difficult strategy
 When an organization has pursued both a
retrenchment strategy and a divestiture
strategy, and neither has been successful
 When an organization's only alternative is
bankruptcy
 When the stockholders of a firm can minimize
their losses by selling the organization's
assets
Cost Leadership emphasizes producing
standardized products at a very low per-unit cost for
consumers who are price-sensitive
 Type 1
◦ low-cost strategy that offers products or services to a
wide range of customers at the lowest price available on
the market
 Type 2
◦ best-value strategy that offers products or services to a
wide range of customers at the best price-value available
on the market
 Type 3
◦ Differentiation is a strategy aimed at producing products
and services considered unique industry-wide and
directed at consumers who are relatively price-insensitive
 Type 4
◦ low-cost focus strategy that offers products or services to
a niche group of customers at the lowest price available
on the market
 Type 5
◦ best-value focus strategy that offers products or
services to a small range of customers at the best
price-value available on the market
 Cooperation Among Competitors
 Joint Venture/Partnering
 Merger/Acquisition
 Private-Equity Acquisitions
 First Mover Advantages
 Outsourcing/Reshoring
Strategy
Formulation
1. describe the strategy analysis and choice process.
2. diagram and explain the three-stage strategy-
formulation analytical framework.
3. diagram and explain the Strengths-Weaknesses-
Opportunities-Threats (SWOT) Matrix.
4. diagram and explain the Strategic Position and
Action Evaluation (SPACE) Matrix.
5. diagram and explain the Boston Consulting Group
(BCG) Matrix.
6. diagram and explain the Internal-External (IE)
Matrix.
7. diagram and explain the Grand Matrix.
8. diagram and explain the Quantitative Strategic
Planning Matrix (QSPM).
9. discuss the role of organizational culture in
strategic analysis and choice.
10. identify and discuss important political
considerations in strategy analysis and choice.
11. Discuss the role of a board of directors
(governance) in strategic planning.
 Strategy analysis and choice seek to
determine alternative courses of action that
could best enable the firm to achieve its
mission and objectives.
 Strategists never consider all feasible
alternatives that could benefit the firm
because there are an infinite number of
possible actions and an infinite number of
ways to implement those actions.
 Identifying and evaluating alternative strategies
should involve many of the managers and
employees who earlier assembled the
organizational vision and mission statements,
performed the external audit, and conducted the
internal audit.
 Alternative strategies proposed by
participants should be considered and
discussed in a series of meetings.
 Proposed strategies should be listed in
writing.
 When all feasible strategies identified by
participants are given and understood, the
strategies should be ranked in order of
attractiveness.
 Stage 1 - Input Stage
◦ summarizes the basic input information needed to
formulate strategies
◦ consists of the EFE Matrix, the IFE Matrix, and the
Competitive Profile Matrix (CPM)
 Stage 2 - Matching Stage
◦ focuses on generating feasible alternative
strategies by aligning key external and internal
factors
◦ techniques include the Strengths-Weaknesses-
Opportunities-Threats (SWOT) Matrix, the
Strategic Position and Action Evaluation
(SPACE) Matrix, the Boston Consulting Group
(BCG) Matrix, the Internal-External (IE) Matrix,
and the Grand Strategy Matrix
 Stage 3 - Decision Stage
◦ involves the Quantitative Strategic Planning Matrix
(QSPM)
◦ reveals the relative attractiveness of alternative strategies
and thus provides objective basis for selecting specific
strategies
 The Strengths-Weaknesses-Opportunities-
Threats (SWOT) Matrix helps managers develop
four types of strategies:
◦ SO (strengths-opportunities) Strategies
◦ WO (weaknesses-opportunities) Strategies
◦ ST (strengths-threats) Strategies
◦ WT (weaknesses-threats) Strategies
 SO Strategies  WO Strategies
◦ use a firm's internal ◦ aim at improving internal
strengths to take weaknesses by taking
advantage of
advantage of external
external
opportunities opportunities
 ST Strategies  WT Strategies
◦ use a firm's strengths to ◦ defensive tactics
avoid or reduce the directed at reducing
impact of external internal weakness and
threats avoiding external threats
1. List the firm's key external opportunities.
2. List the firm's key external threats.
3. List the firm's key internal strengths.
4. List the firm's key internal weaknesses.
5. Match internal strengths with external
opportunities, and record the resultant SO
strategies.
6-
6. Match internal weaknesses with external
opportunities, and record the resultant WO
strategies.
7. Match internal strengths with external threats,
and record the resultant ST strategies.
8. Match internal weaknesses with external
threats, and record the resultant WT strategies.
6-
6-
15
 Strategic Position and Action Evaluation
(SPACE) Matrix
◦ four-quadrant framework indicates whether aggressive,
conservative, defensive, or competitive strategies are
most appropriate for a given organization
6-
 Two internal dimensions (financial position [FP]
and competitive position [CP])
 Two external dimensions (stability position [SP]
and industry position [IP])
 Most important determinants of an organization's
overall strategic position
6-
6-
1. Select a set of variables to define financial
position (FP), competitive position (CP), stability
position (SP), and industry position (IP).
6-
2. Assign a numerical value ranging from +1
(worst) to +7 (best) to each of the variables that
make up the FP and IP dimensions.
Assign a numerical value ranging from –1
(best) to –7 (worst) to each of the variables that
make up the SP and CP dimensions.
6-
3. Compute an average score for FP, CP, IP,
and SP.
4. Plot the average scores for FP, IP, SP, and
CP on the appropriate axis.
5. Add the two scores on the x-axis and plot
the resultant point on X. Add the two scores
on the y-axis and plot the resultant point on
Y. Plot the intersection of the new xy point.
6-
6. Draw a directional vector from the origin of the
SPACE Matrix through the new
intersection point.
► This vector reveals the type of strategies recommended
for the organization: aggressive, competitive,
defensive, or conservative
6-
6-
6-
 BCG Matrix
◦ graphically portrays differences among divisions in terms
of relative market share position and industry growth rate
◦ allows a multidivisional organization to manage its
portfolio of businesses by examining the relative market
share position and the industry growth rate of each
division relative to all other divisions in the organization
6-
6-
26
 Question Marks – Quadrant I
◦ Organization must decide whether to strengthen them
by pursuing an intensive strategy (market penetration,
market development, or product development) or to sell
them
 Stars – Quadrant II
◦ represent the organization’s best long-run opportunities
for growth and profitability
6-
 Cash Cows – Quadrant III
◦ generate cash in excess of their needs
◦ should be managed to maintain their strong position for
as long as possible
 Dogs – Quadrant IV
◦ compete in a slow- or no-market-growth industry
◦ businesses are often liquidated, divested, or trimmed
down through retrenchment
6-
 The major benefit of the BCG Matrix is that it
draws attention to the cash flow, investment
characteristics, and needs of an organization's
various divisions.
6-
6-
30
 The IE Matrix is based on two key dimensions:
the IFE total weighted scores on the x-axis and
the EFE total weighted scores on the y-axis
 Three Major Regions
◦ Grow and build
◦ Hold and maintain
◦ Harvest or divest
6-
6-
32
 Grand Strategy Matrix
◦ based on two evaluative dimensions: competitive position
and market (industry) growth
6-
6-
34
 Quadrant I
◦ continued concentration on current markets
(market penetration and market development)
and products (product development) is an
appropriate strategy
 Quadrant II
◦ unable to compete effectively
◦ need to determine why the firm's current
approach is ineffective and how the company can
best change to improve its competitiveness
6-
 Quadrant III
◦ must make some drastic changes quickly to avoid
further decline and possible liquidation
◦ Extensive cost and asset reduction (retrenchment)
should be pursued first
 Quadrant IV
◦ have characteristically high cash-flow levels and
limited internal growth needs and often can pursue
related or unrelated diversification successfully
6-
 Quantitative Strategic Planning Matrix (QSPM)
◦ objectively indicates which alternative strategies are best
◦ uses input from Stage 1 analyses and matching results
from Stage 2 analyses to decide objectively among
alternative strategies
6-
6-
1. Make a list of the firm's key external opportunities
and threats and internal strengths and
weaknesses in the left column.
2. Assign weights to each key external and internal

factor.
3. Examine the Stage 2 (matching) matrices, and

identify alternative strategies that the organization
should consider implementing.
6-
4. Determine the Attractiveness Scores (AS).
5. Compute the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness
Score.
6-
 Sets of strategies can be examined sequentially or
simultaneously
 Requires strategists to integrate pertinent external
and internal factors into the decision process
 Can be adapted for use by small and large for-
profit and nonprofit organizations
6-
 Always requires informed judgments
 It is only as good as the prerequisite information
and matching analyses on which it is based
6-
6-
6-
 Strategies that require fewer cultural changes
may be more attractive because extensive
changes can take considerable time and effort
 Political maneuvering consumes valuable time,
subverts organizational objectives, diverts human
energy, and results in the loss of some valuable
employees
 Political biases and personal preferences get unduly
embedded in strategy choice decisions
6-
Choose Methods That Afford Employee Commitment
Achieve Satisfactory Results with a Popular Strategy
Shift from Specific to General Issues
Focus on Long-Term Issues and Concerns
Involve Middle Level Managers in Decisions
6-
 Board of Directors
◦ a group of individuals who are elected by the ownership
of a corporation to have oversight and guidance over
management and who look out for shareholders’
interests
6-
1. Control and oversight over
management
2. Adherence to legal
prescriptions
3. Consideration of
stakeholders/ interests
4. Advancement of stockholders’
rights 6-
1. No more than two directors are current or
former company executives.
2. The audit, compensation, and nominating
committees are made up solely of outside
directors.
3. Each director owns a large equity stake in
the company, excluding stock options.
6-
4. Each director attends at least 75 percent of all
meetings.
5. The board meets regularly without management
present and evaluates its own performance
annually.
6. The CEO is not also the chairperson of the board.
7. There are no interlocking directorships (where a
director or CEO sits on another director's board).
6-
 Strategy  Module 7 –
Implementing
Implementation Strategies 1 –
Management,
Operations &
Human
Resource Issues
After the chapter, students should be able to:
1. describe the transition from formulating to
implementing strategies.
2. discuss the reasons why annual objectives are
essential for effective strategy implementation.
3. identify and discuss the reasons why policies
are essential for effective strategy
implementation.
4. explain the role of resource allocation and
managing conflict in strategy implementation.
5. discuss the need to match a firm’s structure
with its strategy.
6. identify, diagram, and discuss seven different
types of organizational structure.
7. identify and discuss the dos and don’ts in
constructing organizational charts.
8. discuss the strategic production/operations
issues vital for successful strategy
implementation.
9. discuss the strategic human resource issues
vital for successful strategy implementation.
 Strategy formulation is  Strategy implementation is
positioning forces before managing forces during the
the action. action.
 Strategy formulation  Strategy implementation
focuses on effectiveness. focuses on efficiency.
 Strategy formulation is  Strategy implementation is
primarily an intellectual primarily an operational
process. process.
 Strategy implementation
 Strategy formulation
requires special motivation
requires good intuitive
and leadership skills.
and analytical skills.
Strategy Formulation Strategy Implementation

1. Represent the basis for allocating resources
2. Are a primary mechanism for evaluating
managers
3. Are the major instrument for monitoring progress
toward achieving long-term objectives
4. Establish organizational, divisional, and
departmental priorities
5. Are essential for keeping a strategic plan
on track
- specific guidelines, methods,
procedures, rules, forms, and
administrative practices established to
support and encourage work toward
stated goals
- instruments for strategy implementation

◦ set boundaries, constraints, and limits on the kinds of
administrative actions that can be taken to reward
and sanction behavior
◦ let both employees and managers know what is

expected of them, thereby increasing the
likelihood that strategies will be implemented
successfully
◦ provide a basis for management control and

allow coordination across organizational units
◦ reduce the amount of time managers spend
making decisions. Policies also clarify what work
is to be done and by whom.
◦ promote delegation of decision making to

appropriate managerial levels where various
problems usually arise.
◦ clarify what can and cannot be done in pursuit of

an organization’s objectives.
Financial Physical
Human Technological
◦ distributing an organization’s “assets” across
products, regions, and segments according to
priorities established by annual objectives.
◦ central management activity that allows for strategy
execution
◦ Strategic management enables resources to be
allocated according to priorities established by annual
objectives
 Conflict - disagreement between two or more
parties on one or more issues
◦ Establishing annual objectives can lead to conflict

because individuals have different expectations
and perceptions, schedules create pressure,
personalities are incompatible, and
misunderstandings occur between line managers
and staff managers
 Avoidance
◦ includes such actions as ignoring the problem in hopes
that the conflict will resolve itself or physically separating
the conflicting individuals
 Defusion
◦ includes playing down differences between conflicting
parties while accentuating similarities and common
interests
 Confrontation
◦ exemplified by exchanging members of conflicting
parties so that each can gain an appreciation of the
other’s point of view or holding a meeting at which
conflicting parties present their views and work through
their differences
 Structure largely dictates how objectives and
policies will be established
 Structure dictates how resources will be allocated
 Functional Structure
◦ groups tasks and activities by business function, such as
production/operations, marketing, finance/accounting,
research and development, and management
information systems
7-
◦ Functional activities are performed both centrally
and in each separate division
◦ Organized by geographic area, product or service, customer,

or process
7-
 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 chief
executive officer
◦ can facilitate strategy implementation by improving

coordination between similar divisions and channeling
accountability to distinct business units
 Matrix Structure
◦ most complex of all designs because it depends upon
both vertical and horizontal flows of authority and
communication
 For a matrix structure to be effective,
organizations need participative planning, training,
clear mutual understanding of roles and
responsibilities, excellent internal communication,
and mutual trust and confidence
7-
 Restructuring
◦ involves reducing the size of the firm in terms of number
of employees, number of divisions or units, and number
of hierarchical levels in the firm's organizational
structure
◦ primary benefit sought from restructuring is cost
reduction
 Reengineering
◦ involves reconfiguring or redesigning work, jobs, and
processes for the purpose of improving cost, quality,
service, and speed
◦ does not usually affect the organizational structure
or chart, nor does it imply job loss or employee
layoffs
 Force Change Strategy
◦ involves giving orders and enforcing those orders
 Educative Change Strategy
◦ presents information to convince people of the need for
change
 Self-interest Change Strategy
◦ attempts to convince individuals that the change is to
their personal advantage
 Seven human resource issues:
1. linking performance and pay to strategy
2. balancing work life with home life
3. developing a diverse work force
4. using caution in hiring a rival’s employees
5. creating a strategy-supportive culture
6. using caution in monitoring employees’ social
media
7. developing a corporate wellness program
 Decisions on salary increases, promotions,
merit pay, and bonuses need to support the
long-term and annual objectives of the firm
 Gain sharing and bonus systems can be used
 Work and family strategies now represent a
competitive advantage for those firms that
offer such benefits as:
◦ elder care assistance
◦ flexible scheduling
◦ job sharing
◦ adoption benefits
◦ onsite summer camp
◦ employee help line
◦ pet care
◦ lawn service referrals
Six benefits of having a diverse workforce are:
1. Women and minorities have different insights, opinions, and
perspectives that should be considered.
2. A diverse workforce portrays a firm committed to
nondiscrimination.
3. A workforce that mirrors a customer base can help attract
customers, build customer loyalty, and design/offer
products/services that meet customer needs/wants.
4. A diverse workforce helps protect the firm against
discrimination lawsuits.
5. Women and minorities represent a huge additional pool of
qualified applicants.
6. A diverse workforce strengthens a firm’s social responsibility
and ethical position
1. Formal statements of organizational philosophy,
charters, creeds, materials used for recruitment
and selection, and socialization
2. Designing of physical spaces, facades, buildings
3. Deliberate role modeling, teaching, and coaching
by leaders
4. Explicit reward and status system, promotion
criteria
5. Stories, legends, myths, and parables about key
people and events
6. What leaders pay attention to, measure, and
control
7. Leader reactions to critical incidents and
organizational crises
8. How the organization is designed and structured
9. Organizational systems and procedures
10. Criteria used for recruitment, selection,
promotion, leveling off, retirement, and
“excommunication” of people
 Proponents of companies monitoring
employees’ social-media activities emphasize
that
◦ (1) a company’s reputation in the marketplace can
easily be damaged by disgruntled employees
venting on social media sites
◦ (2) social-media records can be subpoenaed, like
email, and used as evidence against the company.
 The Affordable Care Act increased the
maximum incentives and penalties employers
may use to encourage employee well-being
 Most companies have both
◦ “carrots,” such as giving employee discounts on
insurance premiums or even extra cash,
◦ “sticks,” such as imposing surcharges on premiums
for those who do not make progress toward getting
healthy.
 Strategy Module 8 -
Implementation Implementing
Strategies: Marketing,
Finance/Accounting,
R&D, and MIS Issues
1. Identify and describe strategic marketing issues
vital for strategy implementation.
2. Explain why social media marketing is an
important strategy-implementation tool.
3. Explain why market segmentation is an important
strategy-implementation tool.
4. Explain how to use product positioning (perceptual
mapping) as a strategy-implementation tool.
5. Identify and describe strategic finance/accounting
issues vital for strategy implementation.
6. Perform EPS/EBIT analysis to evaluate the
attractiveness of debt versus stock as a source of
capital to implement strategies.
7. Develop projected financial statements to
reveal the impact of strategy
recommendations.
8. Determine the cash value of any business
using four corporate evaluation methods.
9. Discuss IPOs, keeping cash offshore, and
issuing corporate bonds as strategic decisions
that face many firms.
10. Discuss the nature and role of research and
development (R&D) in strategy implementation.
11. Explain how management information systems
(MISs) impact strategy-implementation efforts.
1. How to make advertisements more
interactive to be more effective
2. How to best take advantage of Facebook
and Twitter conservations about the
company and industry
3. To use exclusive dealerships or multiple
channels of distribution
4. To use heavy, light, or no TV advertising
versus online advertising
5. To limit (or not) the share of business done
with a single customer
6. To be a price leader or a price follower
7. To offer a complete or limited warranty
8. To reward salespeople based on straight
salary, straight commission, or a
combination salary/commission
 Marketers must get customers involved in the
company website and solicit suggestions in terms
of product development, customer service, and
ideas.
 The company should enable customers to
interact with the firm on the following social
media networks:
◦ Facebook
◦ Google Plus
◦ Twitter
◦ LinkedIn
◦ Instagram
◦ Pinterest
◦ Foursquare
Copyright ©2017 Pearson Education, Inc. 8-7
◦ subdividing of a market into distinct
subsets of customers according to
needs and buying habits
◦ widely used in implementing
strategies
 Strategies such as market development, product
development, market penetration, and diversification
require increased sales through new markets and
products.
 Market segmentation allows a firm to operate

with limited resources because mass
production, mass distribution, and mass
advertising are not required.
 Market segmentation decisions directly affect the
marketing mix variables:
Product Place
Promotion Price
8-
Tag #1: Is this customer at high risk of canceling the
company’s service?
Tag #2: Is this customer worth retaining?
Tag #3: What retention tactics should be used to

retain this customer?
 Geographic
◦ Region, country size, city size, density, climate
 Demographic
◦ Age, gender, family size, family life cycle, income,
occupation, education, religion, race, nationality
 Psychographic
◦ Social class, personality
 Behavioral
◦ Use occasion, benefits sought, user status, usage
rate, loyalty status, readiness stage, attitude toward
product
 Product Positioning
◦ entails developing schematic representations that reflect
how your products or services compare to competitors'
on dimensions most important to success in the industry
◦ Also called perceptual mapping

1. Select key criteria that effectively
differentiate products or services in the
industry.
2. Diagram a two-dimensional product-

positioning map with specified criteria on
each axis.
3. Plot major competitors' products or services

in the resultant four-quadrant matrix.
4. Identify areas in the positioning map where
the company's products or services could be
most competitive in the given target market.
Look for vacant areas (niches).
5. Develop a marketing plan to position the

company's products or services
appropriately.
1. Look for the hole or vacant niche.
2. Don’t serve two segments with the same

strategy.
3. Don't position yourself in the middle of the map.

An effective product positioning strategy meets two
criteria:
it
uniquely distinguishes a company from the
competition
itleads customers to expect slightly less service

than a company can deliver
1. To raise capital with short-term debt, long-
term debt, preferred stock, or common stock
2. To lease or buy fixed assets
3. To determine an appropriate dividend payout
ratio
4. To use LIFO (Last-in, First-out), FIFO (First-
in, First-out), or a market-value accounting
approach
5. To extend the time of accounts receivable
6. To establish a certain percentage discount on
accounts within a specified period of time
7. To determine the amount of cash that should be
kept on hand
1. Acquire needed capital to implement
strategies.
2. Develop projected financial statements to
show expected impact of strategies
implemented.
3. Determine the firm’s value (corporate
valuation) in the event an offer is received.
4. Decide whether to go public with an Initial
Public Offering (IPO).
5. Decide whether to keep cash offshore that
was earned offshore.
 Successful strategy implementation often requires
additional capital.
 Besides net profit from operations and the sale of

assets, two basic sources of capital for an
organization are debt and equity.
 EPS = Earnings Per Share, which is Net Income
divided by # of Shares Outstanding
 Another term for Shares Outstanding is Shares
Issued
 EBIT = Earnings Before Interest and Taxes (also
called operating income)
 EBT = Earnings Before Tax
 EAT = Earnings After Tax
 Projected Financial Statements
◦ allows an organization to examine the expected results of
various actions and approaches
◦ allows an organization to compute projected financial
ratios under various strategy-implementation decisions
1. Prepare the projected income statement
before the balance sheet.
2. Use the percentage-of-sales method to
project cost of goods sold (CGS) and the
expense items in the income statement.
3. Calculate the projected net income.
4. Subtract from the net income any dividends
to be paid for that year.
5. Project the balance sheet items, beginning
with retained earnings and then forecasting
stockholders' equity, long-term liabilities,
current liabilities, total liabilities, total assets,
fixed assets, and current assets (in that
order).
6. Use the cash account as the plug figure.
7. List commentary (remarks) on the projected
statements.
Methods:
The Net Worth Method
◦ Total Shareholders’ Equity (SE) minus (Goodwill +
Intangibles)
The Net Income Method
◦Net Income x Five
Price-Earnings Ratio Method
◦(Stock Price / EPS) x NI
Outstanding Shares Method
◦# of Shares Outstanding x Stock Price
 Go public with an IPO?
 Keep cash offshore if earned offshore?
 Issue corporate bonds for what purpose?

1. Emphasize product or process improvements.
2. Stress basic or applied research.
3. Be leaders or followers in R&D.
4. Develop robotics or manual-type processes.
5. Spend a high, average, or low amount of money on
R&D.
6. Perform R&D within the firm or contract R&D to
outside firms.
7. Use university researchers or private-sector
researchers.
 Be the first firm to market new technological
products.
 Be an innovative imitator of successful
products, thus minimizing the risks and costs
of start-up.
 Be a low-cost producer by mass-producing
products similar to but less expensive than
products recently introduced.
 Having an effective management information
system (MIS) may be the most important factor in
differentiating successful from unsuccessful firms.
 The process of strategic management is facilitated

immensely in firms that have an effective
information system.
 Mobile tracking of employees
 Mobile apps for customers

Module 9 – Strategy Review, Evaluation &
Control
After the chapter, students should be able to:
1. discuss the strategy-evaluation process, criteria, and
methods used.
2. discuss the activities that comprise strategy evaluation.
3. describe and develop a Balanced Scorecard.
4. identify and describe published sources of strategy-
evaluation information.
5. identify and describe six characteristics of an effective
strategy-evaluation system.
6. discuss the nature and role of contingency planning in
strategy evaluation.
7. explain the role of auditing in strategy evaluation.
8. identify and discuss three twenty-first-century challenges in
9. identify and describe the guidelines for effective strategic
management.
Three basic activities:
1. Examine the underlying bases of a firm’s
strategy.
2. Compare expected results with actual results.
3. Take corrective actions to ensure that

performance conforms to plans.
Consonance Consistency
Advantage Feasibility
1. A dramatic increase in the environment’s
complexity
2. The increasing difficulty of predicting the future
with accuracy
3. The increasing number of variables
4. The rapid rate of obsolescence of even the best
plans
5. The increase in the number of both domestic and
world events affecting organizations
6. The decreasing time span for which planning can

be done with any degree of
certainty
 Strategy evaluation should initiate managerial
questioning of expectations and assumptions,
should trigger a review of objectives and values,
and should stimulate creativity in generating
alternatives and formulating criteria of evaluation.
 Evaluating strategies on a continuous rather than
on a periodic basis allows benchmarks of progress
to be established and more effectively monitored.
 Successful strategies combine patience with a

willingness to promptly take corrective actions
when necessary.
9-9
1. How have competitors reacted to our
strategies?
2. How have competitors’ strategies changed?
3. Have major competitors’ strengths and
weaknesses changed?
4. Why are competitors making certain
strategic changes?
5. Why are some competitors’ strategies more
successful than others?
6. How satisfied are our competitors with their
present market positions and profitability?
7. How far can our major competitors be
pushed before retaliating?
8. How could we more effectively cooperate
with our competitors?
Strategists use common quantitative criteria to make
three critical comparisons:
1. Comparing the firm’s performance over different
time periods
2. Comparing the firm’s performance to
competitors’
3. Comparing the firm’s performance to industry
averages
1. How good is the firm’s balance of investments
between high-risk and low-risk projects?
between long-term and short-term projects?
between slow-growing markets and fast-
growing markets?
4. How good is the firm’s balance of
investments among different divisions?
5. To what extent are the firm’s alternative
strategies socially responsible?
6. What are the relationships among the
firm’s key internal and external strategic
factors?
7. How are major competitors likely to
respond to particular strategies?
9-
1. Is the firm continually improving and
creating value along measures such as
innovation, technological leadership,
product quality, operational process
efficiencies, and so on?
2. Is the firm sustaining and even improving on
its core competencies and competitive
advantages?
3. How satisfied are the firm’s customers?
 The Balanced Scorecard approach to strategy
evaluation aims to balance long-term with short-
term concerns, to balance financial with
nonfinancial concerns, and to balance internal with
external concerns.
 Strategy evaluation activities must be economical
◦ too much information can be just as bad as too little
information
◦ too many controls can do more harm than good
 Activities should be meaningful
◦ should specifically relate to a firm’s objectives
 Activities should provide timely information
 Activities should be designed to provide a true

picture of what is happening
 Activities should not dominate decisions

◦ should foster mutual understanding, trust, and common
sense
 ContingencyPlans can be
defined as alternative plans
that can be put into effect if
certain key events do not
occur as expected.
 If a major competitor withdraws from particular
markets as intelligence reports indicate, what
actions should our firm take?
 If our sales objectives are not reached, what

actions should our firm take to avoid profit losses?
 If demand for our new product exceeds
plans, what actions should our firm take to
meet the higher demand?
 If certain disasters occur, what actions should
our firm take?
 If a new technological advancement makes
our new product obsolete sooner than
expected, what actions should our firm take?
1. Identify both good and bad events that could
jeopardize strategies.
2. Determine when the good and bad events
are likely to occur.
3. Determine the expected pros and cons of
each contingency event.
4. Develop contingency plans for key
contingency events.
5. Determine early warning trigger points for
key contingency events.
 Auditing
◦ “a systematic process of objectively obtaining and
evaluating evidence regarding assertions about
economic actions and events to ascertain the degree of
correspondence between these assertions and
established criteria, and communicating the results to
interested users”
 Deciding whether the process should be more an
art or a science
 Deciding whether strategies should be visible or

hidden from stakeholders
 Deciding whether the process should be more top-

down or bottom-up in their firm
1. Keep the process simple and easily
understandable.
2. Eliminate vague planning jargon.
3. Keep the process nonroutine; vary assignments,
team membership, meeting formats, settings,
and even the planning calendar.
4. Welcome bad news and encourage devil’s
advocate thinking
5. Do not allow technicians to monopolize the
planning process.
6. To the extent possible, involve managers from
all areas of the firm.
9-

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Chapter One – The Nature of

Copyright ©2017 Pearson Education, Inc. 1-4

 Sometimes the term strategic management is

 A strategic plan results from tough

Where do we want to go?

How are we going to get there?

 It allows an organization to initiate and influence

 High-performing firms tend to do systematic

A clear vision provides the foundation for

The vision statement should

General Motors’ vision is to

- A mission statement needs to be broad to

The operating philosophy of organizations

 Please, do not offer me things.

- First, gather competitive intelligence and information

- A final list of the most important key external

1. To provide a general understanding of an industry and

2. To identify areas in which competitors are vulnerable

3. To identify potential moves that a competitor

2. Evaluate how strong and important each element

3. Decide whether the collective strength of the

◦ Most powerful of the five forces

◦ Focus on competitive advantage of

◦ Barriers to entry are important

◦ Quality, pricing, and marketing can

 Prices of substitutes decrease

 Consumers' switching costs decrease

◦ educated assumptions about future

1. describe the nature and role of an internal

 The Process of Gaining Advantage in A Firm

 Myths  Heroes and

2. Assign weights to each key external and internal

3. Examine the Stage 2 (matching) matrices, and

Achieve Satisfactory Results with a Popular Strategy

Shift from Specific to General Issues

Focus on Long-Term Issues and Concerns

Involve Middle Level Managers in Decisions

Strategy Formulation Strategy Implementation

- instruments for strategy implementation

◦ let both employees and managers know what is

◦ provide a basis for management control and

◦ promote delegation of decision making to

◦ clarify what can and cannot be done in pursuit of

◦ Establishing annual objectives can lead to conflict

◦ Organized by geographic area, product or service, customer,

◦ can facilitate strategy implementation by improving

 Market segmentation allows a firm to operate

Tag #2: Is this customer worth retaining?

Tag #3: What retention tactics should be used to

◦ Also called perceptual mapping

2. Diagram a two-dimensional product-

3. Plot major competitors' products or services

5. Develop a marketing plan to position the

2. Don’t serve two segments with the same

3. Don't position yourself in the middle of the map.

itleads customers to expect slightly less service

 Besides net profit from operations and the sale of

 Keep cash offshore if earned offshore?

 Issue corporate bonds for what purpose?

 The process of strategic management is facilitated

 Mobile apps for customers

2. Compare expected results with actual results.

3. Take corrective actions to ensure that