ENVIRONMENTAL/EXTERNAL SCANNING
provide constraining and protecting laws and
Globalized frontier: In this scenario, the Arctic by
2040 has become an integral component of the
global economic system
Adaptive frontier: In this scenario, the Arctic in
2040 is being
drawn much more slowly into the global economy.
Fortress frontier: In this scenario, widespread
resource exploitation and increased international
tension exist throughout the Arctic.
Equitable frontier: In this scenario, the Arctic is
integrated with the global economic system by
2040, but international concern for sustainable
development has slowed the region’s economic
development.
Environmental scanning is the monitoring,
evaluation, and dissemination of information from
the external and internal environments to key
people within the corporation
natural environment includes physical
resources, wildlife, and climate that are an
inherent part of existence on Earth. These factors
form an ecological system of interrelated life.
Economic forces that regulate the exchange of
materials, money, energy, and information.
societal environment is mankind’s social system
that includes general forces that do not directly
touch on the short-run activities of the
organization that can, and often do, influence its
long-run decisions.
Technological forces that generate problem-
solving inventions.
Political–legal forces that allocate power and
regulations.
Sociocultural forces that regulate the values,
mores, and customs of society.
task environment includes those elements or
groups that directly affect a corporation and, in
turn, are affected by it. These are governments,
local communities, suppliers, competitors.
Industry analysis (popularized by Michael
Porter) refers to an in-depth examination of key
factors within a corporation’s task environment.
STEEP Analysis, the scanning of Sociocultural,
Technological, Economic, Ecological, and
Political-legal environmental forces.
- Includes trends from natural environment
International Societal Considerations
International societal environments vary so widely
that a corporation’s internal environment and
strategic management process must be very
flexible.
New entrants to an industry typically bring to it
new capacity, a desire to gain market share, and
substantial resources. They are, therefore, threats
to an established corporation.
entry barrier is an obstruction that makes it
difficult for a company to enter an industry
- possible barriers to entry are-
Economies of scale: Scale economies in the
production and sale of microprocessors, for
example, gave Intel a significant cost advantage
over any new rival.
Product differentiation
Capital requirements: The need to invest huge
financial resources in manufacturing facilities in
order to produce large
Switching costs
Access to distribution channels: Small
entrepreneurs often have difficulty obtaining
supermarket shelf space for their goods because
large retailers charge for space on their
shelves and give priority to the established firms
Cost disadvantages independent of size: Once
a new product earns sufficient market share to be
accepted as the standard for that type of product,
the maker has a key advantage.
Government policy: Governments can limit entry
into an industry through licensing requirements by
restricting access to raw materials, such as oil-
drilling sites in protected areas
Rivalry among Existing Firms
- Number of competitors
- Rate of industry growth
- Product or service characteristics
- Amount of fixed costs
- Capacity
- Height of exit barriers: Exit barriers
- Diversity of rivals: Diversity of rivals
substitute product is a product that appears to
be different but can satisfy the same need as
another product.
Bargaining Power of Buyers - Buyers affect an
industry through their ability to force down prices,
bargain for higher quality or more services, and
play competitors against each other.
Bargaining Power of Suppliers - Suppliers can
affect an industry through their ability to raise
prices or reduce the quality of purchased goods
and services.
fragmented industry—where no firm has large mark
share, and each firm serves only a small piece of the to
market in competition with others.
consolidated industry—dominated by a few
large firms, each of which struggles to differentiate
its products from those of the competition.
Multidomestic industries are specific to each
country or group of countries.
Global industries, in contrast, operate
worldwide, with MNCs making only small
adjustments for country-specific circumstances.
strategic group is a set of business units or firms
that “pursue similar strategies with similar
resources.”
STRATEGIC TYPES
Defenders are companies with a limited product
line that focus on improving the efficiency of their
existing operations.
Prospectors are companies with fairly broad
product lines that focus on product innovation and
market opportunities.
Analyzers are corporations that operate in at
least two different product-market areas, one
stable and one variable. In the stable areas,
efficiency is emphasized. In the variable areas,
innovation is emphasized.
Reactors are corporations that lack a consistent
strategy-structure-culture relationship.
Hypercompetition
Competitive intelligence is a formal program of
gathering information on a
company’s competitors. Often called business
intelligence, it is one of the fastest
growing fields within strategic management. Imitability is the rate at which a firm’s underlying
Sources of Competitive Intelligence resources, capabilities, or core competencies can
✦ Information brokers be duplicated by others.

✦ Internet Transparency is the speed with which other firms

can understand the relationship of resources and
✦ Industrial espionage
capabilities supporting a successful firm’s strategy
✦ Investigatory services
Transferability is the ability of competitors to
gather the resources and capabilities necessary
INTERNAL SCANNING
to support a competitive challenge
Replicability is the ability of competitors to use
Resources are an organization’s assets and are
duplicated resources and capabilities to imitate
thus the basic building blocks of the organization.
the other firm’s success.
Capabilities refer to a corporation’s ability to
explicit knowledge, knowledge that can be
exploit its resources.
easily articulated and communicated.
3Competency is a cross-functional integration
tacit knowledge, is knowledge that is not easily
and coordination of capabilities.
communicated because it is deeply rooted in
core competency is a collection of competencies
employee experience or in a corporation’s culture.
that crosses divisional boundaries, is widespread
Tacit knowledge is more valuable and more likely
within the corporation,
to lead to a sustainable competitive advantage
and is something that the corporation can do
than is explicit knowledge because it is much
exceedingly
harder for competitors to imitate.
well.
continuum of sustainability
distinctive competencies When core
Customer solutions model by selling its
competencies
expertise to improve its customers’ operations.
are superior to those of the competition
Profit pyramid model The key is to get
Value: Does it provide customer value and
customers to
competitive advantage?
buy in at the low-priced, low-margin entry point
Rareness: Do no other competitors possess it?
(Saturn’s basic sedans) and move them up to
Imitability: Is it costly for others to imitate?
high-priced, high-margin products (SUVs and
Organization: Is the firm organized to exploit the
pickup trucks) where the company
resource?
makes its money.
Durability is the rate at which a firm’s underlying
Multi-component system/installed base model
resources, capabilities, or core competencies
The product is thus a system, not just one product,
depreciate or become obsolete.
with one component providing most of the profits.
Advertising model Similar to the multi-
component system/installed base model, this
model offers its basic product free in order to
make money on advertising.
Switchboard model In this model a firm acts as
an intermediary to connect multiple sellers to
multiple buyers
Time model Being the first to market with a new
innovation allows a pioneer.
Efficiency model In this model a company waits
until a product becomes standardized and then
enters the market with a low-priced, low-margin
product that appeals to the mass
market.
Blockbuster model In some industries, such as
pharmaceuticals and motion picture studios,
profitability is driven by a few key products.
Profit multiplier model The idea of this model is
to develop a concept that may or may not make
money on its own but, through synergy, can spin
off many profitable products.
Entrepreneurial model In this model, a company
offers specialized products/services to market
niches that are too small to be worthwhile to large
competitors but have the potential to grow quickly.
De Facto industry standard model In this
model, a company offers products free or at a very
low price in order to saturate the market and
become the industry standard.
value chain is a linked set of value-creating
activities that begin with basic raw materials
coming from suppliers, moving on to a series of
value-added activities involved in producing and
marketing a product or service, and ending with
distributors getting the final goods into the hands
of the ultimate consumer.
Upstream
Downstream
center of gravity is the part of the chain that is
most important to the company and the point
where its greatest expertise and capabilities lie—
its core competencies.
Simple structure has no functional or product
categories and is appropriate for a small,
entrepreneur-dominated company with one or two
product lines that operates in a reasonably
small, easily identifiable market niche.
Functional structure is appropriate for a
medium-sized firm with several product lines in
one industry.
Divisional structure is appropriate for a large
corporation with many product lines in several
related industries.
Strategic business units (SBUs) are a
modification of the divisional structure. Strategic
business units are divisions or groups of divisions
composed of independent product market
segments that are given primary responsibility
and authority for the management of their own
functional areas.
Conglomerate structure is appropriate for a
large corporation with many product lines in
several unrelated industries.
Corporate culture is the collection of beliefs,
expectations, and values learned and shared by a
corporation’s members and transmitted from one
generation of employees to another.
- Has two types the intensity and integration
Cultural intensity is the degree to which
members of a unit accept the norms, values, or
other culture content associated with the unit.
Cultural integration is the extent to which units
throughout an organization share a common
culture.
STRATEGIC MARKETING ISSUES
Market Position and Segmentation Market
position deals with the question, “Who are our
customers?” It refers to the selection of specific
areas for marketing concentration and can be
expressed in terms of market, product, and
geographic locations.
Marketing mix refers to the particular
combination of key variables under a concerned with product or product-packaging
corporation’s control that can be used to affect
demand and to gain competitive advantage.
These variables are product, place, promotion,
and price.
product life cycle is a graph showing
time plotted against the monetary sales of a
product as it moves from introduction through
growth and maturity to decline.
brand is a name given to a company’s product
which identifies that item in the mind of the
consumer.
corporate brand is a type of brand in which the
company’s name serves as the brand.
corporate reputation is a widely held perception
of a company by the general public. (1)
stakeholders’ perceptions of a corporation’s ability
to produce quality goods and (2) a corporation’s
prominence in the minds of stakeholders
STRATEGIC FINANCIAL ISSUES
financial leverage (the ratio of total debt to total
assets)
Capital budgeting is the analyzing and ranking of
possible investments in fixed assets such as land,
buildings, and equipment in terms of the additional
outlays and additional receipts that will result from
each investment.
R&D intensity (its spending on R&D as a
percentage of sales revenue) is a principal means
of gaining market share in global competition.
Basic R&D is conducted by scientists in well-
equipped laboratories where the focus is on
theoretical problem areas
Product R&D concentrates on marketing and is
improvements.
STRATEGIC OPERATIONS ISSUES
Intermittent systems (job shops), the item is
normally processed sequentially, but the work and
sequence of the process vary.
continuous systems are those laid out as lines
on which products can be continuously
assembled or processes
operating leverage, this firm has a high amount
of fixed costs.
It also has a relatively high break-even point, but
its variable cost line rises slowly
experience curve
economies of scale
Flexible manufacturing permits the low-volume
output of custom-tailored products at relatively low
unit costs through economies of scope.
STRATEGIC HUMAN RESOURCE (HRM)
ISSUES
- Increasing Use of Team
Virtual teams are groups of geographically
and/or organizationally dispersed coworkers
that are assembled using a combination of
telecommunications and information technologies
to accomplish an organizational task
- Union Relations and Temporary/Part-
Time Workers
- Quality of Work Life and Human
Diversity
Human diversity refers to the mix in the
workplace of people from different races, cultures,
and backgrounds.
Supply chain management
STRAREGY IMPLEMENTATION
Strategy formulation, often referred to as
strategic planning or long-range planning, is
concerned with developing a corporation’s
mission, objectives, strategies, and policies.
SWOT is an acronym used to describe the
particular Strengths, Weaknesses, Opportunities,
and Threats that are strategic factors for a specific
company.
Niche is a need in the marketplace that is
currently unsatisfied.
Mission is the purpose or reason for the
organization’s existence.
Vision describes what the organization
would like to become.
Business strategy focuses on improving the
competitive position of a company’s or business
unit’s products or services within the specific
industry or market segment that the company or
business unit serves.
TOWS MATRIX illustrates how external
opportunities and threats facing a particular
corporation can be matched with the company's
internal strength and weaknesses to result in four
set of possible strategic alternatives.
Competitive Strategy
Lower cost strategy is the ability of a company
or a business unit to design, produce, and market
a comparable product more efficiently than its
competitors.
Differentiation strategy is the ability of a
company to provide unique and superior value to
the buyer in terms of product quality, special
features, or after-sale service.
Competitive scope – the breadth of the
company’s or business unit’s target market.
Cost leadership is a lower-cost competitive
strategy that aims at the broad mass market and
requires.
Differentiation is aimed at the broad mass
market and involves the creation of a product or
service that is perceived throughout its industry as
unique.
Cost focus is a low-cost competitive strategy that
focuses on a particular buyer group or geographic
market and attempts to serve only this niche, to
the exclusion of others.
Differentiation focus, like cost focus,
concentrates on a particular buyer group,
product line segment, or geographic market.
8 Dimensions of Quality
1. Performance
2. Features
3. Reliability
4. Conformance
5. Durability
6. Serviceability
7. Aesthetics
8.Perceived Quality
Competitive Tactics A tactic is a specific
operating plan that details how a strategy is to be
implemented in terms of when and where it is to
be put into action.
Timing tactic deals with when a company
implements a strategy.
- First mover (or pioneer).
- Late movers
Market location tactic deals with where a
company implements a strategy.
- offensive tactic usually takes place in
- an established competitor’s market
location.
Frontal assault: The attacking firm goes head to
head with its competitor
Flanking maneuver: Rather than going straight
for a competitor’s position of strength with a frontal
assault, a firm may attack a part of the market
where the competitor is weak.
Bypass attack: Rather than directly attacking the
established competitor frontally or on its flanks, a
company or business unit may choose to change
the rules of the game.
Encirclement: Usually evolving out of a frontal
assault or flanking maneuver, encirclement
occurs as an attacking company or unit encircles
the competitor’s position in terms of products or
markets or both.
Guerrilla warfare: Instead of a continual and
extensive resource-expensive attack on a financial risks and rewards to each member, while
competitor, a firm or business unit may choose to
“hit and run
- defensive tactic usually takes place in the
firm’s own current market position as a
defense against possible attack by a rival.
Raise structural barriers. Entry barriers act to
block a challenger’s logical avenues of attack.
Increase expected retaliation: This tactic is any
action that increases the perceived threat of
retaliation for an attack.
Lower the inducement for attack: A third type of
defensive tactic is to reduce a challenger’s
expectations of future profits in the industry.
COOPERATIVE STRATEGIES
Collusion - is the active cooperation of firms
within in industry to reduce output and raise prices
in order to get around the normal economic law of
supply and demand.
- Explicit and tacit
Strategic Alliance - is a long-term cooperative
arrangement between two or more independent
firms or business units that engage in business
activities for mutual economic gain.
Mutual Service Consortia. A mutual service
consortium is a partnership of similar companies
in similar industries that pool their resources to
gain a benefit that is too expensive to develop
alone, such as access to advanced technology.
Joint Venture. A joint venture is a “cooperative
business activity, formed by two or more separate
organizations for strategic purposes, that creates
an independent business entity and allocates
ownership, operational responsibilities, and
preserving their separate identity/autonomy.
Licensing Arrangements. A licensing
arrangement is an agreement in which the
licensing firm grants rights to another firm in
another country or market to produce and/or sell
a product.
Value-Chain Partnerships. A value-chain
partnership is a strong and close alliance in which
one company or unit forms a long-term
arrangement with a key supplier or distributor for
mutual advantage.
CHAPTER 7
Corporate strategy is primarily about the choice
of direction for a firm as a whole and the
management of its business or product portfolio
- includes decisions regarding the flow of
financial and other resources to and from a
company’s product lines and business
units
directional strategy The firm’s overall orientation
toward growth, stability, or retrenchment
- Growth strategies expand the company’s
activities.
- Stability strategies make no change to
the company’s current activities.
- Retrenchment strategies reduce the
company’s level of activities
merger is a transaction involving two or more
corporations in which stock is exchanged but in
which only one corporation survives.
acquisition is the purchase of a company that is
completely absorbed as an operating subsidiary
or division of the acquiring corporation
2 Basic Growth Strategies
Concentration If a company’s current product
lines have real growth potential, concentration of
resources on those product lines makes sense as
a strategy for growth.
- Vertical growth can be achieved by taking
over a function previously provided by a
supplier or by a distributor. Results to;
vertical integration—the degree to which a firm
operates vertically in multiple locations on an
industry’s value chain from extracting raw
materials to manufacturing to retailing.
backward integration (going backward on an
industry’s value chain
forward integration (going forward on an
industry’s
value chain)
Transaction cost economics proposes that
vertical integration is more efficient than
contracting for goods and services in the
marketplace when the transaction costs of buying
goods on the open market become too great.
full integration, a firm internally makes 100% of
its key supplies and completely controls its
distributors.
taper integration (also called concurrent
sourcing), a firm internally produces less than half
of its own requirements and buys the rest from
outside suppliers (backward taper integration).
quasi-integration, a company does not make
any of its key supplies but purchases most of its
requirements from outside suppliers that are
under its partial control.
Long-term contracts are agreements between
two firms to provide agreed-upon goods and
services to each other for a specified period of cost labor available in developing countries often
time called outsourcing
- Horizontal growth by expanding its Turnkey operations are typically contracts for
operations into other geographic locations the construction of operating facilities in exchange
and/or by increasing the range of products for a fee.
and services offered to current markets. BOT (Build, Operate, Transfer) concept It then
- can be achieved through internal turns the facility over to the government at little or
development or externally through no cost to the host country
acquisitions and strategic alliances with Management contracts offer a means through
other firms in the same industry. It results which a corporation can use some of its personnel
to; to assist a firm in a host country for a specified fee
horizontal integration—the degree to which a and period of time
firm operates in multiple geographic locations at
the same point on an industry’s value chain portfolio analysis The industries or markets in
exporting, shipping goods produced in the which the firm competes through its products and
company’s home country to other countries for business units
marketing - top management views its product lines
licensing agreement, the licensing firm grants and business units as a series of
rights to another firm in the host country to investments from which it expects a
produce and/or sell a product profitable return.
franchising agreement, the franchiser grants parenting strategy The manner in which
rights to another company to open a retail store management coordinates activities and transfers
using the franchiser’s name and operating system resources and cultivates capabilities among
joint venture between a foreign corporation and product lines and business units
a domestic company is the most popular strategy Diversification Strategies
used to enter a new country. Concentric (Related) Diversification into a
Acquisitions related industry may be a very appropriate
Green-Field Development If a company doesn’t corporate strategy when a firm has a strong
want to purchase another company’s problems competitive position but industry attractiveness is
along with its assets and build its own low.
manufacturing plant and distribution system synergy, the concept that two businesses will
production sharing means the process of generate more profits together than they could
combining the higher labor skills and technology separately
available in developed countries with the lower- Conglomerate (Unrelated) Diversification.
When management realizes that the current
industry is unattractive and that the firm lacks
outstanding abilities or skills that it could easily
transfer to related products or services in other
industries
STABILITY STRATEGIES sometimes viewed as
a lack of strategy
- pause/proceed-with-caution strategy is,
in effect, a timeout—an opportunity to rest
before continuing a growth or retrenchment
strategy.
- no-change strategy is a decision to do
nothing new—a choice to continue current
operations and policies for the foreseeable
future.
- profit strategy is a decision to do nothing
new in a worsening situation but instead to
act as though the company’s problems are
only temporary.
RETRENCHMENT STRATEGIES when it has a
weak competitive position in some or all of its
product lines resulting in poor performance—
sales are down and profits are becoming losses (
Palubog na)
- Turnaround strategy emphasizes the
improvement of operational efficiency and
is probably most appropriate when a
corporation’s problems are pervasive but
not yet critical. It has 2 phase;
Contraction is the initial effort to quickly “stop
the bleeding” with a general, across-theboard
cutback in size and costs.
consolidation, implements a program to
stabilize the nowleaner corporation.
- Captive company strategy involves
giving up independence in exchange for
security
- Sell-Out/Divestment Strategy sell-out
(strategy makes sense if management can
still obtain a good price for its shareholders
and the employees can keep their jobs by
selling the entire company to another firm).
(divestment. sell off a division with low
growth potential)
- Bankruptcy/Liquidation Strategy
(Bankruptcy involves giving up
management of the firm to the courts in
return for some settlement of the
corporation’s obligations.) ( liquidation is
the termination of the firm)
BCG (Boston Consulting Group) Growth-
Share Matrix is the simplest way to portray a
corporation’s portfolio of investments
- Question marks (sometimes called
“problem children” or “wildcats”) are new
products with the potential for success, but
they need a lot of cash for development.
- Stars are market leaders that are typically
at the peak of their product life cycle and
are able to generate enough cash to
maintain their high share of the market and
usually contribute to the company’s profits.
- Cash cows typically bring in far more
money than is needed to maintain their
market share.
- Dogs have low market share and do not
have the potential (because they are in an
unattractive industry) to bring in much
cash.
GE BUSINESS SCREEN
Corporate parenting, in contrast, views a
corporation in terms of resources and capabilities
that can be used to build business unit value as
well as generate synergies across business units
horizontal strategy is a corporate strategy that
cuts across business unit boundaries to build
synergy across business units and to improve the
competitive position of one or more
business units
multipoint competition, large multi-business
corporations compete against other large multi-
business firms in a number of markets.