C1 : Strategic Management Three Perspectives on Strategic Management

1. Resource-based View
Definition of strategic management
 Strategic management is a process through which:
- Organizations analyze and learn from their internal and
external environments,
- Establish strategic direction,
- Create strategies that are intended to move the
organization in that direction, and
- Implement those strategies
 All in an effort to satisfy key stakeholders
Three perspective on strategic management
 Origin
- Economics, distinctive competencies and general
management capability
 View of Firm
- A collection of resources, skills and abilities
 Approach to Strategy Formulation
- Analysis of organizational resources, skills and abilities.
Acquisition of superior resources, skills and abilities
 Source of Competitive Advantage
- Possession of resources skills and abilities that are
valuable, rare and difficult to imitate by competitors

i. Traditional Perspective
 Origin
- Economics, other business disciplines, and consulting
firms
 View of Firm
- An economic entity
 Approach to Strategy Formulation
- Situation analysis of internal and external environments
leading to formulation of mission and strategies
 Source of Competitive Advantage
- Best adapting the organization to its environment by
taking advantage of strengths and opportunities and
overcoming weaknesses and threats

Traditional Strategic Management Process

2. Stakeholder View
 Origin
- Business ethics and social responsibility
 View of Firm
- A network of relationships among the firm and its
stakeholders
 Approach to Strategy Formulation
- Analysis of the economic power, political influence,
rights and demands of various stakeholders
 Source of Competitive Advantage
Strategy Fundamentals - Superior linkages with stakeholders leading to trust,
Traditional View Contemporary View goodwill, reduced uncertainty, improved business
 Environmental  Enactment (firms can dealings and ultimately higher firm performance
determinism (the influence their
best strategy is environments)
determined by the  A firm should pursue
environment) actions to make the
 Firms should adapt environment more
to the environment hospitable
 Strategy is  Strategy emerges from a
deliberate stream of decisions as firms
(intended) learn
 The strategic management process
Internal Stakeholder External Stakeholder
Management Management Analyze the Environment,
 Nature of Relationship  Nature of Relationship Stakeholders and
- Contractual - Contractual, legal or Organizational Resources
 Physical Location informal (Chs. 2 & 4)
- Predominantly inside  Physical Location
organization structure, - Predominantly outside
Establish Formulate Strategies ↔ Implement Strategies
sometimes organizational structure;
Strategic ↔ Business-Unit (Ch. 5) & Establish Controls
geographically diverse sometimes included Direction Corporate-Level (Ch. (Chs. 7 & 8)
 Motivation to Perform  Motivation to Perform (Ch. 3) 6)
- Regular payments, - Regular payments,
retention, bonuses, retention, incentives, Strategy Formulation in a Multibusiness Organization
common purpose, bonuses, common
persuasion purpose, persuasion
 Direct Control  Direct Control
- Schedules, plans, - Schedules, plans, less
sometimes direct often direct supervision
supervision  Communication
 Communication - E-mail, face-to-face,
- E-mail, face-to-face, telephone, memos,
telephone, memos, directives, policies
directives, policies  Involvement in
 Involvement in Organizational
Organizational Decisions
Decisions - External stakeholder
- Employee involvement involvement varies from Strategic Planning Process vs. Strategic Thinking
varies from organization organization to - The strategic planning process is often rigid and
to organization, but it is organization, but it is unimaginative, with detailed instructions pertaining to
increasing increasing every aspect of the process
Importance of Trust Importance of Trust
- Strategic thinking leads to creative solutions and new
 

- High - High ideas

- The best firms use both!
A combined perspective of strategic management
Elements of Strategic Thinking
Process
Intent Focused


Firms conduct external and internal analysis (situation
analysis), which include analysis of stakeholders. On the - Strategic intent--a managerial vision of where the firm is
basis of information obtained, they create strategic direction, going
strategies, tactics for implementing strategies and control  Comprehensive
systems - A “systems” perspective. Envisions the firm as a part
 Origin of a larger system of value creation.
Traditional, resource-based and stakeholder perspectives  Opportunistic
 Adaptation vs. Enactment - Seizes unanticipated opportunities
Influence the environment when it is economically feasible to  Long-term Oriented
do so. Take a proactive stance with regard to managing
external stakeholders. Monitor, forecast and adapt to - Looks several years into the future at what the firm will
environmental forces that are difficult or costly to influence. become
 Deliberate vs. Emergent  Built on Past and Present
Firms should be involved in deliberate strategy-creating - learns from the past and builds on a foundation of the
processes. However, they should learn from past decisions realities of the present
and be willing to try new things and change strategic course  Hypothesis Driven
 Source of Competitive Advantage - Creative ideas are then critically evaluated. Takes risks
superior resources, including knowledge-based resources,
superior strategies for managing those resources and/or
superior relationships with internal or external stakeholders
(which are another type of resource)
 Creation of Strategic Alternatives
Develop strategies to take advantage of strengths and
opportunities or overcome weaknesses or threats.
C2 : The environment and external stakeholder
The organizational, Its primary stakeholders & the board
environment
Major Sociocultural Issues in the U.S.
 Role of government in health care and elder care
 Terrorism and levels of violent crime
 Security of travel and public places
 Global warming
 War and role of the military
 Declining quality of education
Illegal immigration

Technological Forces
 Technology is knowledge about products and services
and the way they are made and delivered
 Organizations should monitor
- New Production Processes
- New Products/Product Ideas
- Current Process Research Efforts
- Current Product Research Efforts
- Scientific Discoveries that May Have an Impact
 Characteristics of innovation
- New innovations often emerge from existing
technologies
- A dominant design will eventually be widely adopted
- Radical innovations often come from outside the
industry
From Analysis of the Broad Environment to Development
of Alternative Strategies
 For each key influence found during analysis of the
broad environment, determine whether it is:
- An opportunity
- A threat

 Quality and health levels of various imported and

manufactured food products - Neutral
 Pollution and disposal of toxic and nontoxic waste  Then determine which strategies the firm might pursue in
response to each influence, if action should be taken at
Why Monitor Society? all
 Change = opportunities  This is one way to generate ideas regarding future
 Avoid being called a “bad corporate citizen” strategies the firm might pursue
 A good reputation can lead to increased demand or
business opportunities The Organization and Its Operating Environment
 Accurate assessment can sometimes help firms avoid
restrictive legislation

Global Economic Forces to Monitor and Predict

 Economic Growth
- Influences consumer demand, cost of factors of
production, availability of factors of production
(especially labor and scarce resources)
 Interest Rates
- Influences cost of capital for new projects, cost of Five Forces of Industry Competition
refinancing existing debt, consumer demand (due to Potential
customer ability to finance purchases) Entrants
 Inflation Threats of new
- Influences interest rates, cost of factors of production, entrants
optimism or pessimism of stakeholders ↓
 Exchange Rates Supplies Industry Customers
- Influences ability to profitably remove profits from Bargaining Competitors Bargaining
foreign ventures, government policies towards business power of → ← power of
 Trade Deficits supplies Rivalry Among customers
Existing Firms
- Influences government policies, incentives, trade barriers ↑
Substitutes
Political Forces Threats substitute
 New Laws products on
 New Regulations services
 Current Administrative Policies
 Government Stability
 Wars
 International Pacts and Treaties
Economics power of customers Substitute products
 Customers are more powerful if: - Substitutes are products or services provided by another
- They are few in number industry that can be readily substituted for an industry’s
- They make high-volume purchases own products or services
- They are buying undifferentiated products - Substitutes place a ceiling on the price that can be
charged
- They are highly motivated to get good deals (i.e., earn
low profits or buy a lot from the industry) - They can also set new performance standards
- They can easily vertically integrate backward and Typical roles of various stakeholders
become their own suppliers
O - Managers - Other -Governments
- They are not very concerned about quality w w/stock companies that w/ownership
- They have an information advantage over the suppliers n - Directors own stock stake
- They are well organized e w/stock
r - Stockholders
 Suppliers are more powerful if: s
h
- They are few in number i
- They sell products/services that are not easily substituted p
- They do not sell a large percentage of their -Managers/ - Employees - Competitors
products/services to the buying industry directors - Customers - For. govern.
E - Venture - Suppliers - Local
- They have a dependent customer S c partners - Creditors communities
- They sell products/services that are differentiated T o - Creditors - Competitors
- They can easily vertically integrate forward and become A n - Internal
their own customers K o revenue
E m service
- They have an information advantage relative to their
buyers i
c
- They are well organized S - Regulators - Financial - Activists
o - Unpaid trustees community - Government
Industry competition c leaders
 A high level of competition is expected when: i - The media
- There are many competitors and none of them is a - Residents
dominant l
- Slow industry growth Formal Economic Political
INFLUENCE ON BEHAVIORAL (POWER)
- Hard to differentiate products
- High fixed costs exist Managing the operating environment
- High exit barriers exist (what is lost if you leave the  Economic Actions
industry) - Erect new entry barriers
Terms to describe industry competition:
- Competitive tactics such as advertising, new-product


- A monopoly is a situation in which one firm is the only
significant provider of a good or service
- An oligopoly exists when an industry contains a few
very large firms (very common in established industries)
- Hyper competition is a condition of rapidly escalating
competition
Entry barriers
 Some common entry barriers include:
- Economies of scale
- High capital requirements
- High levels of product/service differentiation
- Limited access to distribution channels
- Inimitable resources
- Government policies or regulations that discourage new
entry
launches, cost-reduction efforts, new distribution
methods or quality improvements (to name a few)
- Competitive bench marking
 Political Strategies include all firm activities that have as
one of their objectives the creation of a friendlier
political climate
- Direct contact with legislators and government leaders
- Political contributions
- Lobbying
- Creation of collective institutions such as trade
associations
Common forms of inter organizational relationship
 Joint Venture
- An entity that is created when two or more firms pool a
portion of their resources to create a separate jointly
owned entity
 Network
- A hub and wheel configuration with a local firm at the
hub organizing the inter dependencies of a complex array
of firms
 Consortia
- Specialized joint ventures encompassing many different
arrangements. Consortia are often a group of firms
oriented towards problem solving and technology
development, such as R&D consortia
 Alliance
- An arrangement between two or more firms that
establishes an exchange relationship but has no joint
ownership involved
 Trade Association
- Organizations (typically nonprofit) that are formed by
firms in the same industry to collect and disseminate
trade information, offer legal and technical advice,
furnish industry-related training, and provide a platform
for collective lobbying
 Interlocking Directorate
- Occurs when a director or executive of one firm sits on
the board of a second firm or when two firms have
directors who also serve on the board of a third firm.
Interlocking directorates serve as a mechanism for
interfirm information sharing and cooperation
Chapter 3 : Strategic Direction
Multiple Uses of Mission Statements
 Used for Decision Making and Resource Allocations
- Managers and employees are targeted
- Mission statements should use terms that are
understandable to internal stakeholders
- Communicate mission to internal stakeholders on a
regular basis
 Used to Inspire Higher Levels of Performance and Pride
in Association
- Also targets managers and employees
- Should be inspiring
- However, organization must act accordingly
 Communicates Organizational Purpose and Values
- Targets primarily managers, employees, shareholders
and potential investors
- Helps managers and employees resolve dilemmas
when faced with trade-offs
- Helps external stakeholders know what to expect
from the organization in particular situations
 Enhances Organizational Reputation
- Targets society and most external stakeholder groups,
especially customers and potential venture partners
- Carefully articulated to enhance reputation
- Catchy slogans (but not cliche) are helpful
- Should be short enough so that external
stakeholders will attempt to read them
- Widely dispersed to media sources and apparent in
public settings
Characteristics of a mission statement
1. Broad in scope; do not include monetary amounts,
numbers, percentage, ratios, or objectives
2. Less than 250 words in length
3. Inspiring
4. Identify the utility of a firm’s product
5. Reveal that the firm is socially responsible
6. Reveal that the firm is environmentally responsible
7. Include nine components customers, products or services,
markets, technology, concern for survival/ growth/
profits, philosophy,self-concept, concern for public
image, concern for employees
8. Re-conciliatory
9. Enduring
Organizational vision
 A sense of what the organization will be in the future
- CEO has primary responsibility for defining vision
 Microsoft Vision Statement
- Empowering people through great software – any time,
any place and on any device
- Bill Gates wants Microsoft to dominate the software
systems that link all digital transactions and
communications
Vision statement examples
 Tyson food’s vision is to be the world’s first choice for
protein solutions while maximizing shareholder value.
(Author comment : Good statement, unless Tyson
provides non-protein products)
 General Motors’ vision is to be the world leader in
transportation products and related services. (Author
comment : Good statement)
 PepsiCo’s responsibilities is to continually improve all
aspects of the world in which we operate-environment,
social, economics - creating a better tomorrow than
today. (Author comment : Statement is too vague, it
should reveal beverage and food business)
Dells’s vision is to create a company culture where

environment excellent is a second nature.(Author
comment : Statement is too vague; it should reveal
computer business in some manner; the world
environment is generally used to refer to natural
environment so is unclear in its use here)
The vision of First Relliance Bank is to be recognized as

the largest and most profitable bank in South Carolina.
(Author comment : This is a very small new bank
headquartered in Florence, South Carolina, so this goal is
not achievable in five years; the statement is too
futuristic)
 Samsonite’s vision is to provide innovative solutions for
the travelling world. (Author comment : Statement needs
to be more specific, perhaps mention luggage : statement
as is could refer to air carriers or cruise lines, which is
not good)
 Royal Caribbean’s vision is to empower and enable our
employees to deliver the best vacation experience for our
guest, thereby generating superior returns for our
shareholders and enhancing the well-being of our
communities. (Author comment : Statement is good but
could end after the word ‘guest’)
 Procter & Gamble’s vision is to be, and be recognized as,
the best consumer products company in the world.
(Author comment: Statement is too vague and readability
is not that good)
Mission vs Vision Social Responsibility
 What is the difference between a mission statement and  Economic Responsibilities
a vision statement?  Legal Responsibilities
 A mission statement is what an organization is all about.  Moral Obligations
 A vision statement is what the organization wants to  Discretionary Responsibilities
become.
Enterprise Strategy
Mission statement  Joins ethical and strategic thinking
A mission statement should answer three key questions:  Best possible reason for the actions it takes
1. What do we do?  Focused on which stakeholder needs are given priority
2. For whom do we do it?  Mission statements often provide clues regarding the
3. What is the benefit? enterprise strategy of a firm
- “We focus on satisfying customer needs”
Vision statement
 A mission statement explains what the organization does, - “Our goal is to provide a satisfying work environment in
for whom and the benefit. which our employees can grow and develop”
 A vision statement, on the other hand, describes how the - “Our primary purpose is to maximize shareholder
future will look if the organization achieves its mission. returns”
 A vision statement describes how the future will look if - “We focus on giving back to the communities in which
the organization achieves its mission. we operate”
 A mission statement gives the overall purpose of an
organization, while a vision statement describes a picture Ethical Frames of Reference
of the "preferred future."  Economic Theory
- The purpose of business organizations is to maximize
Ten benefits of having a clear mission a vision
profits
1. Achieve clarity of purpose among all managers and
 Legal Theory
employees.
2. Provide a basis for all other strategic planning activities, - Compliance with laws ensures ethical behavior
including internal and external assessment, establishing  Religious Theory
objectives, developing strategics, choosing among - Everyone should act in accordance with religious
alternative strategics, devising policies, establishing teachings
organizational structure, allocating, and evaluating  Utilitarian Theory
performance. - Focus on outcomes from decisions. Everyone should
3. Provide direction. act in a way that generates the greatest benefits for the
4. Provide a focal point for all stakeholder of the firm. largest number of people
5. Resolve divergent views among managers.  Universalist Theory
6. Promote a sense of shared expectations among all
managers and employees. - Focus on the intent of the decision. “Would I be willing
7. Project a sense of worth and intent to all stakeholders. for everyone else in the world to make the same
8. Project an organized, motivated organization worthy of decision?”
support.
9. Achieve higher organizational performance. Codes of Ethics
10. Achieve synergy among all managers and employees.  Communicate the values of the corporation to employees
and other stakeholders
Organizational values  Ethics systems are sometimes established to ensure
 The underlying philosophies that guide decisions and compliance
behavior in a firm  Formal systems may not be enough to ensure ethical
behavior
- Also called core values OR organizational ethics
 CEO and other top managers have the most influence on - Often people don’t personalize ethical behavior
organizational values  Ethical issues are even more difficult for firms working
 Also a reflection of societal values in more than one country

Core Values of Darden Restaurant, Inc.

 Integrity and fairness
 Respect and caring
 Diversity
 Always learning ---- always teaching
 Being “of service”
 Teamwork
 Excellence
Our Core Values communicate the behaviors and attitudes we
cherish as we strive to deliver Darden’s Core Purpose, which
is “To nourish and delight everyone we serve.”
 Chapter 4 : Organizational Resources and Competitive The value chain
Advantage

Financial Human
 Excellent cash flow  Superior CEO
 Strong balance sheet characteristics
 Superior past  Experienced


performance
Strong links to ↔ 
managers
Well trained,
financiers motivated, loyal
employees
 High- performance
structure or culture

Knowledge and Learning

 Superior technology
development Value Chain-based Sources of Competitive Advantage
 Excellent innovation processes  Develop an advantage in any of the primary or support
and organizational activities
entrepreneurship  Develop an advantage in the way any of the primary or
 Outstanding learning processes support activities are combined
 Develop superior linkages between one or more of the
Physical General Organizational activities and stakeholders in the external environment
 State-of-the-art plant  Excellent reputation
or machinery or brand name Value Chain for the Wine Industry
Superiority in a Patents
↔
 

value-adding process  Exclusive contracts

or function  Superior linkages
 Superior locations or with stakeholders
raw materials
 Outstanding
products and/or
services Types of Resources

Six Questions that Determine the Value of Firm Resources Tangible Resources
and Capabilities  Can be seen, touched and/or quantified
 Examples are manufacturing processes and products
Firm 1. Does the 4. Do 6. Is the  Tend to be easy to imitate
Resources and resource or organization resource or Intangible Resources
Capabilities capability al systems capability  Hard to quantify
have value exist that difficult or  Examples are knowledge, skills, abilities and
- Financial in the allow costly to relationships with stakeholders
- Physical market? realization imitate?  Difficult to imitate. Makes them good sources of
- Human of potential? competitive advantage
- Knowledge 2. Is the Industry Differences
and Learning resource or 5. Is the  The resources and capabilities that lead to competitive
- General capability organization advantage vary from industry to industry
Organizational unique? aware of
and Competitiveness and Resource Interconnectedness
3. Is there a realizing the
readily advantages?
available
substitute
for the
resource or
capability?

Potential Actual The

Competitive Source of Competitive
Advantage Competitive Advantage or
or Core Advantage Core
Competency Competency
Is
Sustainable
Commonly Used Financial Ratios
Profitability
 Gross profit margin
- Sales-COGS / Sales X 100
- Efficiency of operations and product pricing
 Net profit margin
- Net profit aft. Tax / Sales X 100
- Efficiency after all expenses are considered
 Return on Assets (ROA)
- Net profit aft. Tax / Total Assets X 100
- Productivity of Assets
 Return on Equity (ROE)
- Net profit aft. Tax / Stockholders Equity X 100
- Earnings power of equity
Liquidity
 Current Ratio
- Current Assets / Current Liabilities
- Short-run debt paying ability
Quick Ratio

- Current Assets - Inventories / Current Liabilities
- Short-term liquidity
- Leverage
 Debt to Equity
- Total Liabilities / Stockholder’s Equity
- Extent to which stockholders’ investments are leveraged
 Total Debt to Total Assets (Debt Ratio)
- Total Liabilities / Total Assets
- Percent of assets financed through borrowing
Activity
 Asset Turnover
- Sales / Total Assets
- Efficiency of asset utilization
 Inventory Turnover
- Cost of Goods Sold / Average Inventory
- Management’s ability to control inventory investments
 Average Collection Period
- Receivables X 365 days / Annual Credit Sales
- Effectiveness of collection and credit policies
- Information may only be available to internal managers
 Accounts Receivable Turnover
- Annual Credit Sales / Receivables
- Effectiveness of collection and credit policies
- Information may only be available to internal managers
Strategic Leadership
 Create organizational vision
 Envision what the organization should be like in the
future
Communicate this vision to followers

 Empower followers to enact the vision
 Establish core values for the organization
 Develop strategies and a management structure
 Foster an environment conducive to organizational
learning and development
 Serve as coach, teacher and facilitator
 Help organizational members question their assumptions
 Serve as a steward for the organization
Leadership Approach
 Commander
- CEO formulates strategy and then directs subordinates to
implement
 Change
- CEO formulates strategy and then plans changes to
structure, personnel, information systems, and
administration to implement it
 Collaborative
- CEO initiates planning. Group discusses, agrees and
takes responsibility for their parts of the strategy
 Cultural
- CEO and top management team formulate vision and
strategy and then mold a strategy-supportive culture
 Crescive
- Lower-level managers formulate and implement their
own strategic plans. CEO encourages innovation and
filters out inappropriate ideas
Agency Theory
Agents

- Managers, as agents for the owners, should pursue their
best interests
 Agency problem
- Managers may maximize their own self-interests at the
expense of owners
 Entrenchment
- Occurs when managers gain so much power that they use
the firm to further their own interests rather than the
interests of shareholders
Situations in Which Agency Problems Sometimes Exist

- Empire building for status
- Extremely high salaries of some CEOs
- CEO duality
Effective Boards
 Take an active role in the organization
- Protect shareholder interests
- Advise top management
- Provide resources such as contacts with external
stakeholders
Includes outsiders

- External stakeholders who sit on the board
- Bring fresh ideas and breadth of knowledge
- High percentage of outsiders makes a board independent.
The best defense against agency problems
 Includes insiders
- Provide stability and enhanced understanding of internal
operations
Employees
 Employees and the way they are managed are important
sources of competitive advantage
- More sophisticated HR practices lead to higher
productivity, especially in capital-intensive industries
- High performance work practices lead to lower turnover,
higher productivity and performance
 Effective HR Practices
- Work with people instead of replacing them or limiting
the scope of their activities
- Get people involved in organizational improvements Types of cultures
Craftsmen
-

Employee stock ownership plans (ESOPs)
- Focus on quality
- Performance-based compensation plans
- Can evolve into “tinkerers” if obsession for perfection
Structure and Culture results in products that are overengineered and
 Organizational structure can greatly influence overpriced
performance  Builder
- Includes reporting relationships - Focus on growth
- Division of people into groups, teams, task forces, and - If efforts to grow become careless, culture becomes
departments “imperialist”
Pioneer
- Some organizations are becoming “modular” in an


attempt to increase speed and flexibility - Focus on being the leader in product / technology
development
- Many organizations are decentralizing responsibility and
improving rewards for innovations and flexibility - If firm pursues impractical products or technologies, it
 Organizational Culture becomes “escapist”
Salesman
- A system of shared values of an organization’s members


- Focus on marketing
Defining an Organization’s Culture - If firm overemphasizes marketing at the expense of
 Attitude Towards Customers product capability or quality, if becomes “drifter”
- Respect vs. indifference
 Attitude Towards Competitors We Live in a Knowledge Economy
Knowledge is an intangible asset
- Compliance, cooperation, or competitiveness Core vs. Integrative Knowledge
 Achievement Orientation  Core knowledge--scientific or technological knowledge
- Industry leader or follower associated with creation of a product or service
 Risk Tolerance  Integrative knowledge--helps integrate various activities,
- Degree to which individuals are encouraged to take risks capabilities and products.
 Conflict Tolerance - More difficult to acquire and more difficult to
- Degree to which individuals are encouraged to express imitate
differences  Codified vs. Tacit Knowledge
 Individual Autonomy  Codified knowledge--can be communicated completely
through written means
- The amount of independence and responsibility given to
Tacit knowledge--difficult to articulate in a way that is
individuals in decision making


meaningful and complete

 Employee Relations
- More difficult to acquire and more difficult to
- Cooperative vs. adversarial relationships among
imitate
employees
 Management Relations
Tasks Associated with Internal Knowledge Creation and
- Cooperative vs. adversarial relationships between Utilization
managers and employees  Knowledge Creation
Goal Ownership
- Develop reward systems that encourage innovative


- Identification with goals and concerns of organization as thinking.

a whole vs. identification with goals and concerns of a
- Create a forum whereby creative ideas are shared.
work group or department
 Management Support - Invest in research and development programs.
Knowledge Retention
- Cooperative vs. adversarial relationships between


managers and employees - Document findings from research and development

 Perceived Compensation Equity
- Perceived relationship between performance and rewards
 Decision-making Style
- Rational and structured vs. creative and intuitive
 Work Standards
- Diligent, high performing vs. mediocre
 Moral Integrity
- Degree to which employees are expected to exhibit
truthfulness
 Ethical Integrity
- Degree to which decisions are expected to be balanced
with regard to stakeholder interests vs. focused
exclusively on a key objective like profitability
programs.
- Create information systems that record and organize
innovative ideas.
- Document both the ideas and managerial responses or
organizational responses to them.
- Document successes and failures.
 Knowledge Sharing
- Create an information system that shares results from
research and development projects with other parts of the
organization.
- Routinely pass new ideas on to managers who can act on
them.
- Create a database management system to organize ideas
generated from employees and managers so that they can
be retrieved systematically at a later date.
 Knowledge Utilization C5 : Strategy formulation at the business-unit level
- Reduce bureaucratic barriers that prevent knowledge
from resulting in new program and projects. Business-level strategy formulation responsibility
Direction Setting
-

Encourage risk taking.
- Establishment and communication of mission, vision,
- Reward success. values, long-term goals of a single business unit
Facilitating Knowledge Transfer in Joint Ventures - Creation and communication of shorter-term goals
 Flexible Learning Objectives  Analysis of Business Situation
- Enter into a venture with learning objectives, but be - Compilation and assessment of information from
willing to adjust those objectives if needed stakeholders, broad environmental analysis and other
 Leadership Commitment sources
- A strong, higher-level manager must champion the - Internal resource analysis
learning objective. This person acts as a catalyst for - Identification of strengths, weaknesses, opportunities,
knowledge transfer. threats, sources of sustainable competitive advantage
 A Climate of Trust  Selection of Strategy
- Critical to the free exchange of knowledge - Generic approach to competition—cost leadership,
 Tolerance for Redundancy differentiation, focus or best value
- Redundancy leads to more interaction among - Strategic posture—specific strategies needed to carry out
participants and interaction leads to more sharing of the generic strategy
information  Management of Resources
 Creative Chaos - Acquisition of resources and/or development of
- High-stress events can enhance transfer of knowledge by competencies leading to sustainable competitive
focusing partners on solving problems and resolving advantage
difficulties - Ensure development of functional strategies and an
 Focus on Learning in Spite of Performance appropriate organizational design (management structure)
- Organizations can still learn from ventures that don’t to support business strategy
perform well - Develop control systems to ensure that strategies remain
relevant and that the business unit continues to progress
General Organizational Resources toward its goals
 Patents and Brands
 Organizational Reputation Generic Business-level Strategies
 Superior Relationships with Stakeholders Strategy Broad/Narrow Sources of Advantage
 Other Resources Specific to Each Firm Market
Low cost leadership Broad Lowest cost production
Differentiation Broad Preferred product or
service
Best value Broad Low cost & higher
desirable product or
service
Focus through low Narrow Lowest cost production
cost leadership
Focus through Narrow Preferred product &
differentiation service
Focus through best Narrow Low cost & highly
value desirable

Cost leadership
- High Capacity Utilization (combined with accurate
demand forecasting)
- Economies of Scale
- Technological Advances (google, apple, android)
- Outsourcing
- Learning / Experience Effects

A Typical Learning Curve

Risk associated with cost leadership strategy
- May not detect required product or marketing changes
due to preoccupation with cost
- Investments in plants and equipment may become
obsolete due to technological breakthroughs
- Large investments cause reluctance to change
- Competitors may quickly imitate cost-saving strategies
- May go too far in cutting costs, thus endangering
customers or employees
Differentiation
- Uniqueness may be achieved through many means.
Examples are:
 Product innovations
 Superior quality
 Superior service
 Creative advertising
 Better supplier relationships
- The key to success is that customers must be willing to
pay more for the uniqueness of the product or service
than the firm paid to create it.
Risks associated with a differentiation strategy
- Customers may be willing to sacrifice special features
due to a high price
- Customers may no longer perceive an attribute as
differentiating
- A source of differentiation may be easy to imitate.
Constant innovation is necessary.
Best value strategy
- A combination of strategic elements from differentiation
and low cost
- Firms can increase sales of an attractive product or
service. Sales increases may lead to efficiency and thus
reduced costs
- Consumers are coming to expect a combination of high
quality and low price
- Technological advances often allow a company to pursue
differentiation and low cost at the same time
- Many companies are pursuing best value through an
emphasis on quality or speed
Risks Associated with a Best Value Strategy
- A Trade off Between Risks of Cost Leadership and
Differentiation
 Technological breakthroughs can make the strategy
obsolete
 Risk of imitation
 However,
 Unlikely to become preoccupied with cost or
differentiation
 Unlikely to take cost cutting too far
 Increases likelihood of being able to recover additional
costs associated with differentiation
Focus strategy
- Can be based on differentiation, lowest cost or best value
- Key is to provide a product or service that caters to a
particular market segment.
 Must identify segment
 Must assess and meet the needs of the segment better
than competitors (target marketing)
 May also be called a “niche” strategy
Risk associated with a focus strategy
- Risks depend on whether the strategy is being pursued
through differentiation, lowest cost or best value as well
as:
 The desires of the target market can become similar to
the desires of the whole market, thus eliminating
advantage in catering to the target market
 A competitor may focus on an even more narrowly
defined segment of the market
Competitive dynamics
- Competitive action and reaction
 Creative destruction
- The inevitable decline of leading firms due to
competitive moves and countermoves
- Competition has been increasing in most global
industries
Strategies that reflect competitive dynamics
 Aggressive Competition
- Exploit ownership of superior resources.
- Overwhelm competitors through a combination of
factors that could include the best products or services,
superior advertising, the lowest production cost, superior
design, the lowest price or the strongest brand name.
 First-mover Advantage
- Invest significantly more time and resources to creating
state-of-the-art products and services than competitors to
protect leadership position.
- Organizational learning capacity is important.
 Collaboration
- Partnerships and alliances with stakeholders to offset the
influence of a powerful rival (defensive strategy).
- Or, if a company is the largest rival, create partnerships
and alliances that will block new competition or hurt
existing competitors (offensive strategy).
 Threat of Retaliation
- Make it very clear to competitors that a firm will retaliate
against any action that will upset the balance in the
industry.
- The threat must be believable.
- Firms may compete simultaneously in multiple industries
(multi-market competition). Therefore, a firm could
retaliate in another industry.
 Government Intervention
- A political strategy in which the firm hires lobbyists and
creates strong relationships with political leaders or
parties in an effort to influence the “rules of the game”.
 Create Barriers to Imitation
- Many potential barriers exist, including economies of
scale, patents, special relationships with stakeholders
(pre-emptive collaboration), or private information.
 Strategic Flexibility
- An organization limits investments in fixed capital and
forms joint ventures or subcontracting agreements to
provide a lot of what it needs so that it is in a position to
quickly move in and out of markets.
 Avoid Direct Competition
- Find a niche in which no other organization has interest.
- Don’t compete with the same intensity in the same
geographical markets competitors.
Resources, Industry Structure and Competitive Actions
Strategic-group map of hotel size by country of origin
C6 : Corporate-level strategy and restructuring
Corporate-level Strategy Formulation Responsibilities
 Direction Setting
- Establishment and communication of organizational
mission, vision, enterprise strategy and long-term goal
 Development of Corporate-level Strategy
- Broad approach to corporate-level
strategy—concentration, vertical integration,
diversification, international expansion
- Selection of resources and capabilities in which to
develop corporate-level distinctive competencies
 Selection of Businesses and Portfolio Management
- Buy and sell businesses
- Allocation of resources to business units for capital
equipment, R&D, etc.
 Selection of Tactics for Diversification and Growth
- Choice among methods of diversification—internal
venturing, acquisitions, joint ventures
 Management of Resources
- Acquisition of resources and/or development of
competencies leading to a sustainable competitive
advantage for the entire corporation
- Hire, fire and reward business-unit managers
- Ensure that the business units (divisions) within the
corporation are well managed, including strategic
management. Provide training where appropriate
- Develop a high-performance corporate management
structure
- Develop control systems to ensure that strategies remain
relevant and that the corporation continues to progress
towards its goals
Corporate-level Strategies
 Advantages and Disadvantages of Concentration Transaction costs
Advantages Disadvantages  Transactions costs economics
- Allows an organization - Dependence on one area - Study of economic transactions and their costs
to master one business is problematic if the - Transactions costs are reflected by the time and
- Less strain on resources, industry is unstable resources devoted to contract creation and enforcement
allowing more of an - Primary product may  Make or Buy Decisions
opportunity to develop a become obsolete - Firms should usually buy what they need in the market
sustainable competitive - Difficult to grow when as long as they do not have to expend an undue amount
advantage the industry matures of time or other resources in contract creation and
- Lack of ambiguity - Significant changes in enforcement
concerning strategic the industry can be very - A market failure means that these costs are high and it is
direction hard to deal with in the best interests of the firm to vertically integrate
- Often found to be a - Cash flow can be a instead of buying from the market
profitable strategy, serious problem  Transactions costs tend to be high when:
depending on the - The future is highly uncertain
industry
- There are only one or a small number of suppliers
Advantages and Disadvantages of Concentration - One party to the transaction has superior information
Internal Benefits Internal Costs - Asset specificity--asset investment that can be used for
- Integration economies - Need for overhead to only one purpose
can eliminate steps, coordinate vertical  Transaction costs are high (market failure) when:
reduce duplication and integration - Highly uncertain future
cut costs - Burden of excess - One or small number of suppliers
- Improved coordination capacity if not all output - Knowledge differences
reduces inventorying is used
and other costs - Asset specificity
- Poorly organized firms
- Avoids time-consuming do not enjoy enough Substitutes for Full Vertical Integration
tasks, such as price synergy to compensate  Taper Integration
shopping, for the higher costs
communicating design - Produce some in-house and buy the rest
details and negotiating  Quasi Integration
contracts - Purchase most of what you need from a supplier in
which the purchaser holds an ownership stake (i.e.,
Competitive Benefits Competitive Dangers stock)
Long-term Contracts
- Avoid getting shut out - Obsolete processes may


of the market for rare be perpetuated - Helps achieve some of the benefits of vertical integration,
inputs such as more assurance of supply or more control over
- Reduces strategic
quality
- Improve marketing or flexibility due to being
technological “locked in” to a
Reasons for diversification
intelligence business
 Strategic Reasons
- Can create - May link to unprofitable
- Risk reduction through investments in dissimilar
differentiation through adjacent businesses
businesses or less dynamic environments
coordinated effort - Lose access to
- Stabilization or improvement in earnings
- Superior control of information from
firm’s market suppliers or customers - Improvement in growth
environment - May not be potential for - Use of excess cash from slower-growing traditional areas
- Increased ability to synergy because (a form of organizational slack)
create credibility for vertically integrated - Application of resources, capabilities or core
new products businesses are so competencies to related areas
- Synergies could be different - Generation of synergy through economies of scope
created by coordinating - May use the wrong - Use of excess debt capacity (also a form of
vertical activities method of vertical organizational slack)
carefully integration (i.e., full
integration instead of - Ability to learn new technologies
contracting) - Increase in market power
 Motives of the CEO
- Desire to increase the value of the firm
- Desire to increase personal power and status
- Desire to increase personal rewards such as salary and
bonuses
- Craving for a more interesting and challenging
management environment
Requirements for the Creation of Synergy
 Relatedness
- Tangible--same physical resources for multiple purposes
- Intangible--capabilities developed in one area can be
used elsewhere
 Fit
- Strategic--matching of organizational
capabilities--complementary resources and skills (based
on relatedness, as described above)
- Organizational--similar processes, cultures, systems and
structures
- Dominant logic--the way managers deal with managerial
tasks, the things they value, and their general
management approach
 Managerial actions to share resources or skills
 Benefits must exceed costs of integration
Potential Sources of Synergy from Related Diversification
Operations Synergies

- Common parts designs: Larger purchased quantities
allows lower cost per unit
- Common processes and equipment: Combined
equipment purchases and engineering support allow
lower costs
- Common new facilities: Larger facilities may allow
economies of scale
- Shared facilities and capacity: Improved capacity
utilization allows lower per unit overhead costs
- Combined purchasing activities: Increased influence
leading to lower costs, and lower cost shipping
arrangements
- Shared computer systems: Lower per unit overhead
costs and can spread the risk of investing in higher priced
systems
- Combined training programs: Lower training costs per
employee
 R&D / Technology
- Shared R&D programs: Spread overhead cost and risk
of R&D to more than one business
- Technology transfer: Faster, lower cost adoption of
technology at the second business
- Development of new core businesses: Access to
capabilities and innovation not available in the market
- Multiple use of creative researchers: Opportunities for
innovation across business via individual experience and
business analogy
 Marketing
- Shared brand names: Build market influence faster and
at lower cost through a common name
- Shared advertising and promotion: Lower unit costs
and tie-in purchases
- Shared distribution channels: Bargaining power to
improve access and lower costs
- Cross-selling and bundling: Lower costs and more
integrated view of the marketplace
 Management
- Similar industry experience: Faster response to
industry trends
- Transferable core skills: Experience with previously
tested, innovative strategies and skills in strategy and
program development
Forces that Undermine Synergies
Management Ineffectiveness

- Too little effort to coordinate between businesses means
synergies will not be created
- Too much effort to coordinate between businesses can
stifle creativity
 Administrative Costs
- Additional layers of management and staff add costs
- Executives in larger organizations are often paid higher
salaries
- Delays from and expense of meetings and planning
sessions necessary for coordination
- Extra travel and communications costs to achieve
coordination
 Poor Strategic Fit
- Relatedness without strategic fit decreases the
opportunity for synergy
- Overstated (or imaginary) opportunities for synergies
- Industry evolution that undermines strategic fit
- Overvaluing potential synergies often results in paying
too much for a target firm or in promising too much
improvement to stakeholders
 Poor Organizational Fit
- Incompatible cultures and management styles
- Incompatible strategies, priorities, and reward systems
- Incompatible production processes and technologies
- Incompatible computer and budgeting systems
Unrelated Diversification
 Conglomerates
- Large, unrelated diversified firms
 Popularity of Unrelated Diversification in the 50s, 60s
and early 70s
- Rigid antitrust enforcement
- Financial theories supported the idea that risk could be
reduced by investing in businesses in unrelated
businesses with uneven revenue streams
 Most Research Suggests that Unrelated
Diversification is Not High Performing
- Places unusual demands on managers
- Trend is towards reducing diversification (refocusing)
- In spite of the negative evidence, some firms have been
successful with this strategy
Mergers and Acquisitions
M&A Basics

- Mergers occur any time two organizations combine into
one
- Acquisitions occur when one firm buys another firm
- Most mergers are in the form of an acquisition, so these
terms are often used as synonyms
- M&As tend to depress profitability, reduce innovation
and increase leverage, at least in the short run
Industry Consolidation

- Occurs as competitors merge together
- A dominant trend in the U.S. and elsewhere
 Corporate Raiders
- Engage in acquisitions, typically against the will of
target companies (called hostile)
- Hostile acquisitions tend to be more expensive
- May motivate target firm managers to be more
responsive to stockholder interests (reduce agency costs)
Problems with Mergers and Acquisitions
 High Costs
- High Premiums Typically Paid By Acquiring Firms
- Increased Interest Costs from Higher Leverage
- High Advisory Fees and Other Transaction Costs
- Poison Pills—things target companies do so they are less
attractive to takeover
 Strategic Problems
- High Turnover Among the Managers of the Acquired
Firm
- Short-Term Managerial Distraction—takes managers
away from the critical tasks of the core businesses
- Long-Term Managerial Distraction—lose sight of the
factors that lead to success in their core businesses
- Less Innovation
- No Organizational Fit—cultures or systems don’t
combine well
- Increased Risk—increased leverage. Also the risk of
unsuccessful management
Successful Mergers and Acquisitions
- Low debt
- Friendly negotiations
- Complementary resources (relatedness)
- Cultures and management styles are similar
(organizational fit)
- Post-merger sharing of resources
- Due diligence before merger
- Learning occurs
Corporate-level Distinctive Competencies
 Come from achieving shared advantage across the
businesses of a multibusiness firm
- Integrated managerial skills
- Attracting and retaining competent top managers
- Shared use of resources that are hard to acquire except
through experience
- A well-developed strategic planning system
- Shared use of resources that contribute significantly to
perceived customer benefits
- Excellent R&D
- Resources that can be widely applied across businesses
- Excellence in tax management
Strategic Restructuring
 Retrenchment (Downsizing)
- Turnaround through workforce reductions, plant closings,
outsourcing, cost controls, etc.
- Downsizing is dangerous to the health of an organization
 Refocusing (Downscoping)
- Reducing diversification through selling off nonessential
businesses
- Divestiture--reverse acquisition
- Spin-off--current shareholders are issued stock
 Chapter 11 Reorganization
- Legal filing allowing protection from creditors and
others while problems are worked out
- Should probably be a strategy of last resort
 Leveraged Buyouts
- Private purchase of a business unit by managers,
employees, unions or private investors
- High levels of debt
- Asset sales typically lead to a smaller, more focused firm
- Stifle innovation
 Changes to Organizational Design
- Switch to a new organizational structure
- More decentralized or more centralized, depending on
needs
- Linked also to changes in the culture of a firm
- Reengineering involves radical redesign of core business
processes to achieve dramatic improvements in
efficiency and quality
 These Restructuring Approaches are Often
Combined
Boston Consulting Group (BCG) Matrix
C7 : Strategy implementation through inter organizational Strategic Importance of Stakeholders and Decision to
relationship and management of functional resources Partner

Strategy Implementation
 Managing
- Stakeholder relationships and
- Organizational resources
 To move the organization towards the successful
execution of its strategies
 Consistent with strategic direction

Advantages of Inter organizational Relationships

 Resource Acquisition
- Gain access to a particular resource, such as capital,
employees with specialized skills, intimate knowledge of
a market, or a modern production facility.
 Speed to Markets Tactics for Managing and Partnering with External
Stakeholders
- Firms with complementary skills partner to increase
speed to market with hope of capturing first-mover Traditional Management Partnering / Inclusion
advantages. Customers Customers
 Enter Foreign Market - Customer service - Involvement on design
- Often the only practical way to gain access to a foreign departments teams or product testing
market. - Marketing and - Joint planning sessions
 Economies of Scale marketing research - Joint training/service
- High fixed costs sometimes require firms to find partners - On-site visits programs
to expand production volume. - 800 numbers - Financial investments
Risk and Cost Sharing
- Long-term contracts - Interlocking directorate


- Allows two or more firms to share the risk and cost of a

particular business endeavor. Suppliers Suppliers
Product / service development
- Purchasing departments - Involvement on design


- Provides firms the opportunity to pool their skills to teams for new products
- Encourage competition
develop new products and/or services
among suppliers - Integration of ordering
Learning
system with

- Sponsor new suppliers
- Provide participants with the opportunity to “learn” from manufacturing
their partners (e.g. lean manufacturing, product - Threat of
- Shared information
development, human resource management in an - Long-term contracts systems
unfamiliar country)
 Strategic Flexibility - Interlocking directorate
- A valuable alternative to acquisitions, because they do
Competitors Competitors
not have to be as permanent. They also require less of
an internal resource commitment, which frees up - Direct competition - Joint ventures
resources for other uses. based on differentiation - Consortia or Alliances
 Collective Political Clout - Intelligence systems - Trade associations for
- Can increase collective clout and influence governments - Corporate spying and information sharing and
into adopting policies favorable to their industries or espionage (ethical collective lobbying
circumstances. problems) - Informal price
 Neutralizing or Blocking Competitors leadership
- Firms can gain the competencies and market power - Collusion (may be
needed to neutralize or block the moves of a competitor illegal)

Government
Government
- Jointly or government
- Legal, tax or sponsored research
government relations
offices - Joint foreign
development projects
- Lobbying and political
action committees - Problem solving task
forces on sensitive
- Campaign contributions issues
- Personal gifts to - Appoint retired
politicians (ethical government officials to
problems) board
 Local Communities Actions that Increase the Likelihood of Successful
Local Communities - Task forces to work on Partnerships
- Community relations special community - Carefully study and select a partner
offices needs - Define roles of partners
- Public relations - Cooperative training - Develop a strategic plan
advertising and educational
- Keep top managers involved
- Involvement in programs
- Meet often, informally, at all managerial levels
community service - Development
committees/boards - Appoint someone to monitor partnership
- Donations to local
causes - Joint employment - Maintain enough independence to develop your own
programs expertise
- Anticipate and plan for cultural differences
Activist Groups
Activist Groups - Consultation with Functional-Level Resource Management
- Organizational representatives on  Functional-level strategy is the collective pattern of
decisions to satisfy sensitive issues day-to-day decisions made and actions taken by
demands managers and employees who are responsible for
- Joint research and
value-creating activities within a functional area
- Public/political relations development programs
efforts - Paying attention to the details
- Appointments to the
- Financial donations board - Many companies are successful because of excellence at
the functional level
The Media  The following characteristics are essential:
The Media - Exclusive interviews or - Decisions made within each function are consistent
- Public/political relations early release of - Decisions made within one function are consistent with
efforts information decisions made within other functions
- Media experts/press - Inclusion in social - Decisions made in all functional areas are consistent with
releases events and other special and support the strategies of the business
treatment
Conducting a Functional Strategy Audit
Unions  Marketing Strategy
Unions - Contract clauses that - Target Customers—few vs. many, what groups, what
- Union avoidance link pay to performance regions
through excellent - Joint committees on - Product Positioning—premium commodity, multi-use,
treatment of employees safety and other issues specialty use
- Hiring professional - Joint industry/labor - Product Line Mix—a mix of complementary products
negotiators panels - Product Line Breadth—a full-line offering of products
- Mutually satisfactory - Inclusion on
labor contracts - Pricing Strategies—discount, moderate, premium prices
management
- Chapter XI protection to committees - Promotion Practices—direct sales, advertising, direct
re-negotiate contract mail, Internet
- Appointments to the
board - Distribution Channels—few or many, sole contract
responsibilities
Financial Intermediaries - Customer Service Policies—flexibility, responsiveness,
Financial Intermediaries quality
- Inclusion in
- Financial reports management decisions - Product/Service Image –premium quality, good price,
- Close correspondence requiring financing reliable
- Finance and accounting - Contracts and linkages - Market Research—accuracy, frequency and methods for
departments with other clients of obtaining marketing information
- High-level financial financier  Operations Strategy
officer - Shared ownership of - Capacity Planning—lead demand to ensure availability
- Audits projects or lag demand to achieve capacity utilization
- Appointments to the - Facility Location—near suppliers, customers, labor,
board natural resources or transportation
- Facility Layout—continuous or intermittent flow
- Technology and Equipment Choices—degree of C8 : Strategy implementation through organizational
automation, use of computers and information design and control
technology
Dimensions of Organizational Structure
- Sourcing Arrangements—cooperative arrangements with
a few vs. competitive bid - Hierarchy of Authority
- Planning and Scheduling—make to stock, make to order, - Degree of Centralization
flexibility to customer requests - Complexity
- Quality Assurance—acceptance sampling, process - Specialization
control, standards - Formalization
- Workforce Policies—training levels, cross-training, - Professionalism
rewards, use of teams
Functional structure
Areas of Interdependence and Potential Conflict Between
Marketing and Operations
- Facility Size and Process Choice vs. Market Forecasts
- Facility Location vs. Market Planning
- Production Schedules vs. Forecasts, Orders and
Promotions  Organizing Framework
- Operating Policies - Inputs such as marketing and production
 Degree of Centralization
Conducting a Functional Strategy Audit - High centralization
 Human Resources Strategy  Competitive Environment
- Recruitment—entry level vs. experienced employees, - Stable, demands for internal efficiency or functional
colleges, technical schools, job services specialization
- Selection—selection criteria and methods  Growth Strategy
- Nature of Work—part-time, full-time, or a combination, - Market penetration
on site or off site, domestic or foreign  Strengths
- Performance Appraisal—appraisal methods and - Economies of scale
frequency, link to rewards - Functional expertise and specialization
- Salary and Wages—hourly, piece rate, commission, - Best if few products or services
fixed, relationship to performance, competitiveness  Weaknesses
- Other Compensation—stock ownership programs, - Slow response time
bonuses - Hierarchy overload
- Management Compensation—stock awards, stock - Sometimes poor coordination across departments
options, bonuses linked to performance, perquisites, low
interest loans - Can restrict view or broader organizational goals
- Benefits—medical, dental and life insurance, paid leave, Geographic and Customer–Based Structures
vacations, child care, health club
- Personnel Actions—disciplinary plans, outplacement,
early retirements
- Training—types of training, availability of training to
employees, tuition reimbursement
Geographic / Customer Structures Project matrix structure
 Organizing Framework  Organizing Framework
- Outputs such as customer groups or markets - Inputs and outputs
 Degree of Centralization  Degree of Centralization
- Decentralized - Decentralization with shared authority
 Competitive Environment  Competitive Environment
- Dynamic with pressure to satisfy particular market needs - Responds well to internal pressure for efficiency or
very well specialization AND external market pressure to satisfy
 Growth Strategy particular market needs or customers
- Market and/or product development  Growth Strategy
 Strengths - Frequent changes to products and markets (allows
- Suited to fast change in an unstable environment flexible use of human resource)
Strengths
- High levels of client satisfaction


- Achieves coordination
- High coordination across functions
- Flexible use of human resources
- Best in larger organizations with several products or
- Works well in medium-sized firms with multiple
- markets products
 Weaknesses  Weaknesses
- Loss of economies of scale within functional areas - Dual authority can cause frustration and confusion
- Some redundancy of functions - Excellent interpersonal skills needed
- Loss of in-depth functional specialization - Additional training can be expensive
- May lead to poor coordination across product lines or - Time consuming, frequent meetings
markets
- Great effort to maintain power balance
Network structure
 Organizing Framework Corporate structure multi divisional
- Outputs
 Degree of Centralization
- Very decentralized
 Competitive Environment
- Conditions vary from region to region
Growth Strategy
-

Few businesses compared to the other corporate
- Market penetration or market development structures
Strengths
-

Moderate/low relatedness across divisions
- Units can focus on specific needs of markets
- Moderate/low need for coordination across divisions
- High levels of client satisfaction
- Financial synergy may be available across divisions and
- Works well in larger organizations with highly some operational synergy (although limited) only to the
differentiated markets extent that the divisions are related to each other
 Weaknesses
- Loss of economies of scale Corporate Structures Strategic Business Unit
- Duplication of resources
- Hard to coordinate units when coordination is necessary
or desirable
- Can be confusing to customers with locations in multiple
regions where the firm operates

Project matrix structure

- Many businesses, some of which are related to each
other
- Groups (SBUs) of related businesses
- Coordination needed within each SBU; low need for
coordination across SBUs
- Financial synergy across SBUs, potential exists for
operational synergy within SBUs
Corporate Structures Matrix - Consumer Advocates - Consumer Advocates
- Number of meetings, - Number of changes in
hostile encounters, policy due to CA
coalitions formed or - Number of CA-initiated
legal actions “calls for help”

- Environmentalists - Environmentalists
- Any number of businesses - Number of meetings, - Number of changes in
hostile encounters, policy due to
- Highly related businesses so people can easily transfer coalitions formed, EPA environmentalists
- Very high level of coordination is required complaints or legal
actions - Number of
- Many opportunities exist for operational synergies (for environmentalist “calls
innovation, to reduce costs, or serve multiple markets for help”
well)

Steps in Developing a Feedback Control System Feedback controls

- Determine Broad Goals
- Establish Links Between Broad Goals and Resource
Areas or Activities of the Organization
- Create Measurable Operating Goals for Each Resource
Area or Activity
- Assign Responsibility for Goal Accomplishment
- Develop Specific Action Plans
Feed forward Controls
- Allocate Resources
- Follow Up

Key Result Areas and Possible Measures

Near-Term Measures Long-term Measures
Customers Customers
- Sales $ and volume - Growth in sales
- New customers - Turnover of customer
- New customer contacts base
- Ability to control price

Suppliers Suppliers
- Cost of materials - Growth rate of material
- Delivery time cost, delivery time or
inventory Behavioral and Process Controls
- Inventory
- New ideas from
- Availability of materials suppliers
Financial Community Financial Community
- EPS - Ability to convince
- Stock Price Wall Street of strategy
- Number of “buy” lists - Growth in ROE, EPS, or
- ROE stock price

- Employees - Employees
- Number of suggestions - Number of internal
The Five Phases of Crisis Preventing and Controlling
promotions
- Productivity Management Crises
- Turnover
- Number of grievances - Signal Detection - Strategic Actions
- Preparation / Prevention - Technical and Structural
- Congress
- Congress - Containment / Damage Actions
- Number of new
- New legislation Limitation - Evaluation and
regulations that affect
affecting firm - Recovery Diagnostic Actions
industry
- Access to key members - Learning - Communication Actions
- Ratio of “cooperative”
and staff - Psychological and
vs. “competitive”
encounters Cultural Actions
C9 : Strategy for entrepreneurship and innovation Sources of Capital for Entrepreneurs
- Commercial Banks
Entrepreneurship
- Personal Contacts
- Entrepreneurship is the creation of new business
- Venture Capitalists
- Opportunity recognition or creation (entrepreneurial
discovery is the intersection of a need and a - Corporate Partnerships
solution) - Business Angels
- Assembling resources to pursue the opportunity, - Initial Public Offerings
including capital (typically associated with a
business plan) Initial public (IPO) Offering Process
- Managing activities that bring a new venture into
existence
- Some ventures are complete start-ups
- Other ventures occur within existing firms
- Organizational entrepreneurship or
“entrepreneurship”

Entrepreneurs
- Opportunists First Year Agenda for Entrepreneurial Startups
- Recognize and take advantage of opportunities  Financial Management
- Resourceful (Networking) - Obtain initial capital
- Creative - Establish systems to track revenues and expenses and
- Visionary control costs.
- Hardworking - A record-keeping system must be established that will
satisfy the demands of investors, creditors and the
- Optimistic internal revenue service.
- Independent Thinkers  Marketing
- Excellent Leaders - Selection of initial product/service offering.
- Dreamers - Selection of initial market.
- Targeted advertising.
What’s in a Business Plan?  Product / service Development
- Executive Summary - Establishment of a system for collecting feedback from
- Business Description early customers. Continuous improvement is essential.
- Environmental Analysis (see next slide for details)  Resource Acquisition
- Resource Analysis (with a focus on the entrepreneur) - Site selection and construction.
- Functional Plans - Acquisition of machinery, furnishings, information
systems, utilities and supplies.
- Financial Projections
- Contracts with suppliers.
- Implementation Schedule
 Process Development
- End-game Strategy
- Focus is on production and operations management to
- Risk Analysis ensure efficiency, quality and continuous improvement
 Management and Staffing
What in the Environmental Analysis for a Business Plan?
- Recruitment of motivated, well-trained employees
 Environmental Analysis
- Selection of managers.
- Market analysis
- Assignment of responsibilities
- Existing competitor analysis
- Establishment of personnel policies
- Supplier analysis
- Training
- Evaluation of potential substitutes
- Compensation system, which may include benefits.
- Discussion of entry and exit barriers
- Supportive culture.
- Relevant government regulations and regulators
 Legal Requirements
- Financial condition of the industry
- Legal form (sole proprietorship, partnership,
- Availability of funding corporation).
- Overall economic factors for the host country - Other legal requirements and filing of forms.
- Availability of technology - Patents and trademarks if necessary.
Legal forms of business Most common sources of entrepreneurial failure
 Sole proprietorship - Poor Management Skills
- The entrepreneur is the owner and legally liable for the - Lack of Adequate Capitalization
venture in its entirety
 Partnership - Product/Service Problems
- Each of the partners contribute resources such as money, - External Market Conditions
physical goods, services, knowledge and relationships
Factors encouraging or discouraging innovation
- Limited partnership means that management  Factors Encouraging Innovation
responsibility and legal liability of partners are limited,
except that one partner must be a general partner with - Vision and culture that support innovation, personal
unlimited liability growth and risk taking
 Corporation - Top management support and organizational champions
- Risk of a shareholder is limited to investment in stock - Teamwork and collaboration; a flat management
- However, the tax advantages of a partnership are lost hierarchy
- S Corporations allow some partnership-type tax - Decentralized approval process
advantages, but they must meet restrictions and - The ideas of every employee are considered valuable
have few shareholders - Excellent communications
- Innovation grants and time off to pursue projects
Internal and External Problems Faced by Entrepreneurs
External Problems Internal Problems - Large rewards for successful entrepreneurs
- Customer Contact - Adequate Capital - Focus on learning
(27.3%) (15.9%)  Factors Discouraging Innovation
- Market Knowledge - Cash Flow (14.9%) - Rigid bureaucracy and conservatism in decision making
(19.3%) - Facilities / Equipment - Absence of management support or champions
- Market Planning (12.6%) - Authoritarian leadership and traditional hierarchy
(14.4%) - Inventory Control - Difficult approval process
- Location (11.1%) (12.3%) - Only the ideas of certain people (researchers or managers)
- Pricing (8.4%) - Human Resources are given attention
- Product Issues (7.6%) (12.0%) - Closed-door offices
- Competitors (6.3%) - Leadership (11.1%) - Inadequate resources devoted to entrepreneurial
- Expansion (5.5%) - Organizational Structure activities
(10.8%) - Harsh penalties for failure
- Accounting Systems - Exclusive emphasis on measurable outcomes
(10.4%)
C10 : Global strategic management and the future
Primary reason firms make foreign investment
- New Markets
- Better Resources
- Efficiency
- Risk Reduction
- Competitive Countermove
Multi domestic, Global and Transnational Strategies
 A multi domestic strategy –
- Focuses on extensive customization on
country-by-country basis by tailoring the services
provided around individual market needs.
 A global strategy –
- Standardizes what it offers so that it is essentially the
same in all markets.
- A global strategy can result in cost efficiency, global
flexibility, and an ability to apply the firm’s resources
and skills across multiple markets.
 A transnational strategy -
- Entails standardized and yet flexible services, seeking
both the benefits of global efficiency and local
responsiveness.
- Through cooperation and integration among corporate
offices, local operations, and international subsidiaries, a
company using this approach seeks to integrate global
operations.
Global strategies are appropriate if :
1. There is a global market segment for a product or
service.
2. There are economic efficiencies associated with a global
strategy.
3. There are no external constraints, such as government
regulations, that will prevent a global strategy from
being implemented.
4. There are no absolute internal constraints.
Advantages of Involvement in Multiple Global Markets
- Expanding markets leading to economies of scale.
Some companies could not grow large enough to enjoy

the lowest possible costs on the basis of domestic
demand alone, but expansion into foreign markets can
lead to significant increases in demand.
- Transfer of technological know-how through joint
ventures (learning from competitors).
Joint ventures may provide opportunities to learn new

technologies that can lead to significant cost reductions.
- Superior quality through joint ventures.
 Companies can learn how to better differentiate their
products through higher quality or some other unique
feature.
- Licensing of brands or technologies from abroad.
- Forcing an open, learning mind-set.
 Companies that attempt to differentiate themselves in the
international marketplace must be willing to learn from
and adapt to a variety of conflicting circumstances.
They can then bring what they learn back to the home

country and apply it to local businesses.
Market Entry Tactics
- Exporting
- Contractual Arrangements
- Licensing
- Franchising
- Long-term Management Contracts
- Foreign Direct Investment
- Joint Venture
- Wholly Owned Subsidiary
- Acquisition
a - In general, moving down the list (above) is associated
with greater cost, financial risk, profit potential and
control
Contractual Arrangements
 Licensing.
- Selling the right to use a brand name in a foreign market.
This right typically comes with restrictions that allow the
licensing firm to protect its brand image.
 Franchising.
- Similar to licensing, but franchising typically requires
more standardization on the part of the franchisee.
- A foreign firm buys the legal right to use the name, but it
may also be required to apply operating methods or use
supplies from the franchisor company.
- Marketing arrangements vary, but a lodging franchisee is
typically a part of the company wide reservation system.
Also, the franchisee typically contributes to a company
wide advertising pool. Both hotels and restaurants use
this tactic extensively.
 Long-term management contract.
- A contract between an owner and a management
company. The owner agrees to make a payment from the
operation’s gross revenues to the management company
in exchange for running the business with full
management responsibility. This is a common hotel
tactic for expansion.
Foreign Direct Investments
 Joint venture.
- Cooperative agreement among two or more companies to
pursue common business objectives.
 Wholly owned subsidiary.
- Venture is started from scratch, thus creating a wholly
owned foreign subsidiary. These ventures are sometimes
called a “greenfield investment.”
Acquisition.

- Purchase of a foreign firm or the foreign subsidiary of a
foreign or domestic firm.
Challenges Facing Market Entry
- Unstable government
- Inadequately trained workers
- Low levels of supporting technology
- Shortages of supplies
- Weak transportation systems
- Unstable currency
Institutional Differences Across Countries
National Advantages: The Competitive Advantages of
Nations
Four Characteristics of Countries
 Factor conditions.
- Some nations enjoy special endowments, such as
uncommon raw materials or laborers with specific skills
or training. Often countries with excellent schools or
universities that excel in particular areas produce
laborers with superior skills.
Demand conditions.

- If a nation’s buyers of a particular product or service are
the most discriminating and demanding in the world,
then firms must achieve product and service excellence
just to survive. These companies can easily outperform
foreign companies that compete in the same industry,
even in the home countries of those foreign competitors.
 Related and supporting industries.
- If suppliers in a particular country are the very best in the
world, then the companies that buy from them are at a
relative advantage. Firms in related industries that are
also global leaders can also help create a nationally
based competitive advantage.
 Firm strategy, structure, and rivalry.
- If the management techniques that are customary in the
nation’s businesses are conducive to success in a
particular industry, then the firms in that nation are at a
competitive advantage relative to firms from other
countries.
- Another advantage can come from having an industry
that attracts the most talented managers in the nation.
- Finally, if industry rivalry is strong in a particular
industry, then firms are forced to excel. This is similar to
the argument with regard to discriminating buyers.
Responsibilities of Development Directors
- Developing a strategic plan for the designated
geographic area.
- Establishing a network of productive contacts, such as
real estate developers, individual and institutional
investors, hotel owners, hotel management companies,
municipalities, and governmental development
organizations.
- Selling the value proposition of the brand, particularly to
potential franchisees.
- Assisting franchisees with applications and fee payments,
and developing relationships with existing local
franchisees and owners.
Strategic Management for the Future
- Increasing Levels of Global Trade and Global
Awareness
- Global and Domestic Social Turbulence
- Increased Terrorism and a World-Wide Effort to
Eliminate It
- Increased Sensitivity to Ethical Issues and
Environmental Concerns
- Rapidly Advancing Technology, Especially in
Communications
- Continued Erosion of Buying Power in the U.S. and
Other Economies
- Continued Development of Third World Economies
- Increases in U.S. and Global Strategic Alliances
- Revolution in the U.S. Healthcare Industry
- Greater Emphasis on Security and Crisis Management
Preparing for the Future
- Pay global attention by looking after the global traveler
at home and the local traveler abroad and by extending
the global reach of your portfolio.
- Uncover the unexpected experiences that excite and
delight your customers.
- Invest in your guest by developing a comprehensive
framework for guest interactions.
- Become agile by integrating your businesses across
business units, brands, and locations into a common
business infrastructure for back-of-house and key
front-of-house functions, and consider strategic
outsourcing opportunities.
- Rethink revenues to focus on “return on investment
management.”
- Polish your “guest experience managers.” to transform
front-line staff into GEMs.
- Extend the experience before the trip begins and after it
ends.