Buma 20023 - Strategic Management

Republic of the Philippines
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Office of the Vice President for Academic Affairs
College of Business Administration
INSTRUCTIONAL MATERIALS FOR

BUMA 20023: STRATEGIC
MANAGEMENT
COMPILED BY:
PROF. MARIFEL I. JAVIER
PUP A. Mabini Campus, Anonas Street, Sta. Mesa, Manila 1016

Direct Line: 335-1730 | Trunk Line: 335-1787 or 335-1777 local 000
Website: www.pup.edu.ph | Email: inquire@pup.edu.ph
THE COUNTRY’S 1st POLYTECHNICU

Polytechnic University of the Philippines
COLLEGE OF BUSINESS ADMINISTRATION
Department of Human Resource Management
INTRODUCTION
Without strategy, an organization is like a ship without a rudder. It may know where it wants to
go but has no means of getting there. On the other hand, if it does not know where it wants to
go – rudder or no rudder – any route would do: it is pointless worrying over what route to take if
you do not know where you are going! Today, the term strategy is used in business to describe
how an organization is going to achieve its overall objectives. Most organizations have several
alternatives for achieving its objectives. Strategy is concerned with deciding which alternative is
to be adopted to accomplish the overall objectives of the organization.
This Instructional Material (IM) is all about identification and description of the strategies that
managers can carry to achieve better performance and a competitive advantage for their
organization. An organization is said to have competitive advantage if its profitability is higher
than the average profitability for all companies in its industry.
It is divided into four-part, lesson 1 will be discussing the introduction to Strategic Management
and Business Policy that corresponds to knowing the different concept and ethical and social
responsibility in the Strategic Management. Lesson 2 will be all about Scanning the environment
of the organization and Industry such as the opportunities and threats. This will also focus on
competencies and profitability analyzing resources and strategy at the different level of the
organization. Lesson 3 would focus about strategy formulation such as strategy at the business
level, industry environment, technology and as well as the strategy in the corporate level. For
lesson 4, this will focus on the implementation of the strategy and control. Evaluation of the
control also take part on this.
Each lesson comes with a supplemental reading to support learners in its educational process.
Completing the four lessons will provide the fundamentals of Strategic Management and
learners are expected to answer all activities/assessment required at the end of each lesson
and accomplished the exams attached in this instructional materials for it should also assist in
the learning process.
TABLE OF CONTENTS
LESSON PAGE
NO. TOPICS NO.
1 INTRODUCTION TO STRATEGIC MANGEMENT AND BUSINESS 1

POLICY
Basic Concept of Strategic Management 1
Corporate Governance 2
.
Ethics and Social Responsibility in the Strategic Management 3
Strategy Spotlight 5
Assessment/Activities 6
2 SCANNING THE ENVIRONMENT 7
Opportunities and Treat – Analyzing the External Environment 7
11
Competencies and Profitability Analyzing Internal Resources
and Strategy at the Functional Level
17
Assessment/Activities
FORMULATING STRATEGIES AND CORPORATE
3 18
DIVERSIFICATION STRATEGY
Strategy at the Business Level 18
Industry Environment and Business Level Strategy 20
Technology 21
Global Strategy 26
Strategy at the Corporate Level 29
4 IMPLEMENTING STRATEGY AND CONTROL 34
Corporate Single Industry Strategy 37
Corporate Strategies across Countries and Industries 38
Evaluation Control 44
COURSE OUTCOMES
Understand and Discuss the Strategic Management Process

Apply the Environmental Scanning techniques used in formulating strategies
Apply the Strategic Management Process in different business situations.
Evaluate an effective and efficient strategic plan in different business situations.
Create an effective and efficient strategic plan in different business situations
LESSON 1: INTRODUCTION TO STRATEGIC MANAGEMENT AND

BUSINESS POLICY
OVERVIEW
Given the many challenges and opportunities in the global marketplace, today’s managers must do
more than set long-term strategies and hope for the best.12 They must go beyond what some have
called “incremental management,” whereby they view their job as making a series of small, minor
changes to improve the efficiency of their firm’s operations.13 Rather than seeing their role as
merely custodians of the status quo, today’s leaders must be proactive, anticipate change, and
continually refine and, when necessary, make dramatic changes to their strategies. The strategic
management of the organization must become both a process and a way of thinking throughout the
organization.
LEARNING OUTCOMES
After successful completion of this lesson, you should be able to:
Discuss and explain the concept of strategic management, benefits, basic model and its
component and the impact of globalization.
Identify and explain the role, responsibilities, and degree of involvement in the strategic
management of the board of directors
Discuss and explain the traditional and contemporary view of social responsibility
Explain the relationship of social responsibility and corporate performance
Discuss and explain the difference views of ethics
COURSE MATERIALS
BASIC CONCEPT OF STRATEGIC MANAGEMENT
Creating Competitive Advantages

There are two perspectives of leadership: the romantic view of leadership, and the external view of
leadership. The implicit assumption of the romantic view of leadership is that the leader is the key
to the (lack of) organizational success. In the external view of leadership, focus is on external
factors that influence the success of an organization. Neither of these perspectives is entirely
correct, but both must be acknowledged in strategic management.
Strategic management consists of the analyses, decisions, and actions an organization

undertakes to create and sustain competitive advantages. The strategic management process is
the full set of commitments, decisions, and actions required for a firm to achieve strategic
competitiveness and earn above-average returns. Sustainable competitive advantage is possible
only by performing different activities from rivals or performing similar activities in different ways.
Performing similar activities better than rivals is called operational effectiveness. Furthermore,
strategic management has four main attributes:
Instructional Material – STRATEGIC MANAGEMENT (BUMA 20023) Compiled by: PROF. MARIFEL I. JAVIER 1
 It is conducted at overall, firm-level organizational goals and objectives.

 It includes multiple stakeholders in the making of decisions.
 It requires managers to have both short- term and long-term perspectives; It involves the
recognition of trade-offs between effectiveness and efficiency
Strategic competitiveness is achieved when a firm successfully formulates and implements a

value-creating strategy. A strategy is an integrated and coordinated set of commitments and actions
designed to exploit core competencies and gain a competitive advantage. When choosing a
strategy, firms make choices among competing alternatives as the pathway for deciding how they
will pursue strategic competitiveness. In this sense, the chosen strategy indicates what the firm will
do as well as what the firm will not do.
A firm has a competitive advantage “when it implements a strategy that creates superior
value for customers and that its competitors are unable to duplicate or find too costly to imitate.” An
organization can be confident that its strategy has resulted in one or more useful competitive
advantages only after competitors’ efforts to duplicate its strategy have ceased or failed. In addition,
firms must understand that no competitive advantage is permanent. The speed with which
competitors are able to acquire the skills needed to duplicate the benefits of a firm’s value-creating
strategy determines how long the competitive advantage will last.
Some authors have developed the concept of ambidexterity. Ambidexterity encompasses

the manager’s challenge to both align resources to take advantage of existing product markets
(which is referred to as exploitation) as well as actively explore a new opportunity (which is
referred to as exploration).
Organizational decisions that are determined only by analysis

constitute the intended strategy of a firm. The final realized strategy of an
organization is strategy in which organizational decisions are both
determined by analysis, unforeseen environmental developments,
unanticipated resource constraints, and/or changes in managerial
preferences.
As mentioned earlier, the three core processes of strategic

management are analyses, decisions, and actions. Strategy analysis
consists of the work that needs to be done in order to effectively formulate
(decide on) and implement strategies (actions). Strategy formulation is
developed at different levels: business-level strategy (how to compete in a
given business) and corporate-level strategy (what business to compete in,
and how to achieve synergy). Lastly, strategy implementation involves
ensuring proper strategic controls and organizational designs.
CORPORATE GOVERNANCE
The vital role of corporate governance and stakeholder management, as well as how
“symbiosis” can be achieved among an organization’s stakeholders. Overall purpose of a
corporation is to maximize the long-term return to the owners (shareholders). Corporate
governance is the relationship among various participants in determining the direction and
performance of corporations. The primary participants in corporate governance are the
shareholders, the management, and the board of directors
An Organization’s Key Stakeholders and the Nature of Their Claims
There are two opposing ways of looking at the role of stakeholder management. In the zero- sum
perspective, stakeholders compete for the resources of the organization: the gain of one
stakeholder is the loss of other stakeholders. The stakeholder symbiosis perspective recognizes
that stakeholders are dependent upon each other for their success and well-being.
ETHICS AND SOCIAL RESPONSIBILITY IN THE STRATEGIC MANAGEMENT
Leadership is the process of transforming organizations from what they are to what the leader
would have them become. It challenges the status, implies a vision of what should be, and a
process for bringing about change. Successful leaders must recognize three interdependent
activities that must continually be reassessed for organizations to succeed: (1) determining a
direction; (2) designing the organization; and (3) nurturing a culture dedicated to excellence and
ethical behavior. See it as a three-legged stool: it will collapse if one leg is missing or broken.
Leaders often encounter barriers to change, i.e. characteristics of individuals and

organizations that prevent a leader from transforming an organization. There are five barriers to
change:
1. Many people have vested interests in the status quo, and thus tend to be risk averse and
resistant to change.
2. Systematic barriers are barriers that stem from organizational design that impedes the
proper flow of and evaluation of information.
3. Behavioral barriers are associated with the tendency for managers to look at issues from a
biased or limited perspective based on prior education and experience.
4. Political barriers refer to conflicts arising from power relationships.
5. Personal time constraints refer to the tendency that operational decisions will drive out
the time necessary for strategic thinking and reflection.
Central to overcoming barriers of change is power, i.e. a leader’s ability to get things done in a
way he or she wants them to be done. Power is derived from an organizational base (holding a
formal management position), which includes legitimate power, reward power, coercive power, and
information power, or from a personal base (personality and characteristics), which includes
referent power and expert power.
Successful traits of leaders can be grouped into three broad sets of capabilities: technical skills,
cognitive abilities, and emotional intelligence. Emotional intelligence is an individual’s capacity for
recognizing his own emotions and those of others, including the five components of self-
awareness, self-regulation, motivation, empathy, and social skills.
Self-awareness is the ability to recognize and understand your moods, emotions, and drives,
as well as their effect on others. Self-regulation is the ability to control or redirect disruptive
impulses and moods, and the propensity to suspend judgment (think before acting). Motivation is a
passion to work for reasons that go beyond money or status, and a propensity to pursue goals with
energy and persistence. These three components are self-management skills.
Empathy is the ability to understand the emotional makeup of other people, and skill in treating
people according to their emotional reactions. Social skills encompass proficiency in managing
relationships and building networks, and an ability to fund common ground and build report. These
two components are grouped under managing relationships.
A learning organization is an organization that creates a proactive, creative approach to the
unknown, characterized by (1) inspiring and motivating people with a mission and a purpose, (2)
empowering employees at all levels, (3) accumulating and sharing internal knowledge, (4) gathering
and integrating external information, and (5) challenging the status quo and enabling activities.
Ethics is a system of right and wrong that assists individuals in deciding when an act is moral or
immoral and/or socially desirable or not. Sources of individual ethics include religious beliefs,
national and ethnic heritage, family practices, community standards, educational experiences, and
friends and neighbors; business ethics is the application of ethical standards to commercial
enterprise.
There are two approaches to organizational ethics. Compliance-based ethics programs are
programs for building ethical organizations that have the goal of preventing, detecting, and
punishing legal violations. Integrity-based ethics programs are programs for building ethical
organizations that combine a concern for law with an emphasis on managerial responsibility for
ethical behavior, including (1) enabling ethical conduct, (2) examining the organization’s and
members’ core guiding values, thoughts, and actions, and (3) defining the responsibilities and
aspirations that constitute an organization’s ethical compass.
Before a firm can become a highly ethical organization, it must both present and constantly
reinforce the following key elements: (a) role models, (b) corporate credos and codes of conduct,
(c) reward and evaluation systems, and (d) policies and procedures.
Social responsibility is the expectation that businesses or individuals will try to improve the
overall welfare of society. Many companies are now measuring what has been called a triple
bottom line, which involves assessing financial, social, and environmental performance.
As mentioned earlier, organizations must strive toward common goals and objectives. Firms
express priorities best through stated goals and objectives that form a hierarchy of goals, which
include the organization’s vision, mission, and strategic objectives. At the top, we find those
organizational goals that are less specific yet able to evoke powerful and compelling mental images
(a vision), and at the bottom we find the organizational goals that are more specific and
measurable (the mission statement and strategic objectives)
A company’s mission statement is a set of organizational goals that include both the purpose of
the organization, its scope of operations, and the basis of its competitive advantage. Finally,
strategic objectives are a set of organizational goals that are used to operationalize the mission
statement and that are specific and cover a well-defined time frame. For strategic objectives to be
meaningful, they must be measurable, specific, appropriate, realistic, and timely.
STRATEGY SPOTLIGHT
Read the below article and try to answer the following questions if you were on the shoes how
would you handle the scenario?
ACTIVITIES/ ASSESSMENTS
The following assessment shall be written in a short bond paper minimum of 50 words per
questions. Compose of cover page, title page and the answers to the Instructional material per
lesson. Each question corresponds to 10pts.
QUESTIONS:
1. Briefly discuss the concept of strategic management and identify its components and the
processes involved.
2. Identify the impact of globalization in achieving organization competitive advantage.
3. Enumerate and briefly discuss the role and responsibility of the organizations board of directors
and their degree of involvement in achieving the competitive advantage of the organization.
4. In todays organization, differentiate and briefly discuss the difference between traditional and
contemporary view of social responsibility.
5. In your own words define what is ethics and briefly explain the different views of ethics.
LESSON 2: SCANNING THE ENVIRONMENT
OVERVIEW
Analyzing the external environment is a critical step in recognizing and understanding the
opportunities and threats that organizations face. And here is where some companies fail to do a
good job. The fact is that few things really “sell themselves”—especially if they are new to the
market. According to Booz & Company, 66 percent of new products fail within two years, and,
according to the Doblin Group, an astonishing 96 percent of all innovations fail to deliver any return
on a company’s investment.
Environmental analysis requires you to continually question such assumptions. Peter Drucker,
considered the father of modern management, labeled these interrelated sets of assumptions the
“theory of the business.”5 One could attribute much of the failure of Ms. Marchionni’s tenure at
Lands’ End to her efforts to re-invent the apparel brand in a way that was in conflict with both its
customer base as well as the firm’s family culture and wholesome style.
A firm’s strategy may be good at one point in time, but it may go astray when management’s frame
of reference gets out of touch with the realities of the actual business situation. This results when
management’s assumptions, premises, or beliefs are incorrect or when internal inconsistencies
among them render the overall “theory of the business” invalid. As Warren Buffett, investor
extraordinaire, colorfully notes, “Beware of past performance ‘proofs.’ If history books were the key
to riches, the Forbes 400 would consist of librarians.” In the business world, many once-successful
firms have fallen. Today we may wonder who the next Blockbuster, Borders, Circuit City, or Radio
Shack will be.
LEARNING OUTCOMES
Identify and discuss the opportunities and threat of the industry

Explain the industry life cycle, Porter’s five forces model and the new forces.
Discuss and explain the competitive advantage, value chain, building block of competitive
advantage, generic distinctive competencies, and durability of competitive advantage
Explain and discuss achieving superior efficiency, quality, innovation, and responsiveness to
customer
COURSE MATERIALS
OPPORTUNITIES AND THREAT – ANALYZING THE EXTERNAL ENVIRONMENT
Environmental scanning involves surveillance of a firm’s external environment to predict

environmental changes and detect changes that are already under way. Environmental
monitoring tracks the evolution of trends, sequences of events, or streams of activities. Finally,
competitive intelligence aids firms in defining and understanding their industry and identifying
rivals’ strengths and weaknesses.
Inputs to Forecasting
These three processes are the fundament of environmental forecasting, which refers to the
development of plausible projections about the direction, scope, and intensity of environmental
change. A danger of forecasting is that managers can underestimate or overestimate uncertainty,
which results in decisions that neither take advantage of opportunities nor defend against threats. A
more in-depth approach to forecasting is scenario analysis, which involves experts’ detailed
assessments of societal trends, economics, politics, technology, or other dimensions of the external
environment.
A basic technique for analyzing firm and industry conditions is SWOT analysis. SWOT stands for
Strengths, Weaknesses, Opportunities, and Threats. The strengths and weaknesses portion refers
to internal conditions of the firm; threats and opportunities are environmental conditions external to
the firm. The basic idea of SWOT analysis is that a firm’s strategy must:
 Build on its strengths
 Try to remedy or avoid the weaknesses
 Take advantage of the opportunities
 Protect the firm from the threats.
The SWOT approach is very popular for several reasons. It forces managers to simultaneously
consider internal and external factors; it encourages firms to be proactive, not reactive; finally, its
conceptual simplicity is achieved without sacrificing analytical rigor.
The general environment consists of factors external to an industry, and usually beyond a firm’s
control that affect a firm’s strategy. The general environment is divided into six segments. These
are demographic, sociocultural, political/legal, technological, economical, and global. Key trends
and events are listed below.
The demographic segment includes elements such as the aging population, rising or declining
affluence, changes in ethnic composition, geographic distribution of the population, and disparities
in income level.
The sociocultural segment includes a higher percentage of women in the workforce, dual- income
families, increases in the number of temporary workers, greater concern for healthy diets and
physical fitness, greater interest in the environment, and postponement of having kids.
Important areas of the political/legal segment include tort reform, the 1990 Americans with
Disabilities Act (ADA), banks being allowed to offer brokerage services, deregulation of utilities and
other industries, and increases in the federally mandated minimum wage.
Examples of trends and developments in the technological segment genetic engineering, Internet
technology, computer-aided design, and computer-aided manufacturing (CAD/CAM), research in
artificial and exotic materials, and, on the downside, pollution and global warming.
The economic segment impacts all industries. Key economic indicators include interest rates,
unemployment rates, the Consumer Price Index (CPI), the gross domestic product (GDP), and net
disposable income.
Firms increasingly operate abroad. Key elements of the global segment include currency
exchange rates, increasing global trade, the economic emergence of China, trade agreements
amongst national blocs (NAFTA, EU) and the General Agreement on Tariffs and Trade.
In addition to the general environment, managers must consider the competitive environment.
This environment consists of many factors that pertain to an industry and affect a firm’s strategies.
One of the most used analytical tools for examining the competitive environment is Michael E.
Porter’s Five-Forces Model, which the environment in terms of five basic forces:
1. The threat of new entrants

2. The bargaining power of suppliers
3. The bargaining power of buyers
4. The threat of substitutes
5. The intensity of competitive rivalry.
Porter’s Five Forces Model of Industry Competition
The threat of new entrants refers to the possibility that the profits of established firms in the
industry may be eroded by new competitors. There are six major sources of entry barriers: (a)
economies of scale; (b) product differentiation; (c) capital requirements; (d) switching costs; (e)
access to distribution channels; and (f) cost disadvantages independent of scale. If few of these
barriers are present, the threat of new entry is high, and vice versa,
The bargaining power of suppliers can drive down industry profitability. Suppliers’ bargaining
power will be high in the following instances: (a) the supplier group is dominated by only a few
companies and is more concentrated than the industry it sells to; (b) the supplier group is not
obliged to contend with substitute products for sale to the industry; (c) the industry is not an
important customer of the supplier group; (d) the supplier’s product is an important input to the
buyer’s business; (e) the supplier group’s products are differentiated or it has built up switching
costs for the buyer; and (d) the supplier group poses a credible threat of forward integration.
Like that of suppliers, the bargaining power of customers can also drive down the profits of firms
in an industry, especially if a buyer group satisfies the following conditions: (a) it is concentrated or
purchases large volumes relative to seller sales; (b) the products it purchases from the industry are
standard or undifferentiated; (c) it faces few switching costs; (d) it earns low profits; (e) it poses a
credible threat of backward integration; and (f) the industry’s product is unimportant to the quality of
its products or services.
All firms in an industry compete with other industries producing substitute products and services.
The threat of substitutes limits the potential returns of an industry by placing a ceiling on the
prices those firms in an industry can profitably charge. The more attractive the price/performance
ratio of substitute products, the tighter the lid on an industry’s profitability is.
The final element of the Five-Forces Model is the intensity of competitive rivalry. Intense rivalry
is the result of several interacting factors, including: (a) numerous or equally balanced competitors;
(b) slow industry growth; (c) high fixed or storage costs; (d) lack of differentiation or switching costs;
(e) capacity augmented in large increments; and (f) high exit barriers.
Using Industry Analysis: A Few Caveats
There are, however, caveats to industry analysis. First, managers should not always avoid low-
profit industries, as these can still yield high returns for some players who pursue sound strategies.
Second, Porter’s five-force analysis implicitly assumes a zero-sum game, determining how a firm
can enhance its position relative to the forces. But this approach can overlook the many potential
benefits of developing win-win relationships with buyers and suppliers. Third, the five-force model
has been criticized for being essentially a static analysis: external forces and firms’ strategies are
continually changing the structure of all industries.
The Value Net
Strategic Groups within Industries
In an industry analysis, two assumptions cannot be assailed: (1) no two firms are totally different,
and (2) no two firms are the same. Clusters of firms that share similar strategies are known as
strategic groups. The value of strategic grouping is fourfold. First, it helps a firm to identify barriers
to mobility that protect a group from attacks by other groups; second, it helps a firm identify groups
whose competitive position may be marginal or tenuous; third, it helps chart the future directions of
firms’ strategies; and fourth, it is helpful in thinking through the implications of each industry trend
for the strategic group as a whole.
COMPETENCIES AND PROFITABILITY - ANALYZING INTERNAL RESOURCES AND

STRATEGY AT THE FUNCTIONAL LEVEL
Assessing the Internal Environment of the Firm
Value-chain analysis sees the organization as a sequential process of value-creating activities.

Activities can be classified in two categories: primary activities and support activities. Primary
activities are sequential activities of the value chain that refer to the physical creation of the
product or service. There are five primary activities, explained below:
Inbound Logistics: location of distribution facilities to minimize shipping times, excellent material
and inventory control systems, systems to reduce time to send “returns” to suppliers, warehouse
layout and designs to increase efficiency of operations for incoming materials.
Operations: efficient plant operations to minimize costs, appropriate level of automation in

manufacturing, quality production control systems to reduce costs and enhance quality, efficient
plant layout and workflow design.
Outbound Logistics: effective shipping processes to provide quick delivery and minimize
damages, efficient finished goods warehousing processes, shipping of goods in large lot sizes to
minimize transportation costs, quality material handling equipment to increase order picking.
Marketing and Sales: highly motivated and competent sales force, innovative approaches to
promotion and advertising, selection of most appropriate distribution channels, proper identification
of customer segments and needs, effective pricing strategies.
Service: effective use of procedures to solicit customer feedback and to act on information, quick
response to customer needs and emergencies, ability to furnish replacement parts as required,
effective management of parts and equipment inventory, quality of service personnel and ongoing
training, appropriate warranty and guarantee policies.
The Value Chain: Primary and Support Activities
Next to primary activities, there are support activities, i.e. activities of the value chain that either
add value by themselves or add value through important relationships with primary and other
support activities. There are four support activities, listed and explained below:
General Administration: effective planning systems to attain overall goals and objectives, ability of
top management to anticipate and act on key environmental trends and events, ability to obtain low-
cost funds for capital expenditures and working capital, excellent relationships with diverse
stakeholder groups, ability to coordinate and integrate activities across the “value system”, high
visibility to inculcate organizational culture and values, effective IT to integrate value- creating
activities.
Human Resource Management: effective recruiting and development and retention mechanisms
for employees, quality relations with trade unions, quality work environment to maximize overall
employee performance and minimize absentee- ism, reward, and incentive programs to motivate.
Technology Development: effective R&D activities for process and product initiatives, positive
collaborative relationships between R&D and other departments, state-of-the-art facilities and
equipment, culture that enhances creativity and innovation, excellent qualifications of personnel.
Procurement: procurement of raw material inputs to optimize quality and speed and to minimize
the associated costs, development of “win-win” relationships with suppliers, effective procedures to
purchase advertising and media services, analysis and selection of alternate sources of inputs to
minimize dependence on one supplier, ability to make proper lease-vs.-buy decisions.
Interrelationships among Value-Chain Activities within and Across Organizations
Managers should not ignore the importance of relationships among value-chain activities. There are
two levels: (1) interrelationships between activities within the firm, and (2) relationships among
activities within the firm and with other organizations that are part of the firm’s expanded value
chain, e.g. buyers and suppliers.
Resource-Based View of the Firm
The resource-based view of the firm is the perspective that firms’ competitive advantages are due
to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to
substitute. It combines two perspectives: (1) the internal analysis of phenomena within a company,
and (2) an external analysis of the industry and its competitive environment. A firm possesses three
key types of resources, explained below.
Types of Firm Resources
Tangible resources are organizational assets that are relatively easy to identify, including
financial resources, physical assets, organizational resources, and technological resources.
Intangible resources are organizational assets that are difficult to identify and account for and
are typically embedded in unique routines and practices, including human resources, reputation
resources, and innovation resources. Organizational capabilities are the competencies and
skills that a firm employs to transform inputs into outputs.
Firm Resources and Sustainable Competitive Advantages

For a resource to provide a firm with the potential for a sustainable competitive advantage, it
must have four attributes. It must be valuable (neutralize threats and exploit opportunities), rare
(not many firms possess), difficult to imitate (physically unique, path dependency, causal
ambiguity, social complexity), and difficult to substitute (no equivalent strategic resources or
capabilities). Only if a resource satisfies all four of these conditions, it creates sustainable
competitive advantages. If a resource is valuable and rare, it creates a temporary competitive
advantage; if it is only valuable, it creates competitive parity. If it satisfies none of the conditions,
there is a competitive disadvantage.
The Generation and Distribution of a Firm’s Profits: Extending the Resource-Based View of
the Firm
The resource-based view, however, is not suited for addressing how a firm’s profits will be
distributed to a firm’s management and workers. There are four factors that help explain the extent
to which employees and managers will be able to obtain a proportionally high level of the profits that
they generate:
 Employee bargaining power

 Employee replacement cost
 Employee exit cost
 Manager bargaining power.
Evaluating Firm Performance: Two Approaches

Two approaches can be used when evaluating a firm’s performance. The first is financial ratio
analysis, which identifies how a firm performs according to its balance sheet, income statement,
and market valuation. The starting point in analyzing the financial position of a firm is to compute
and analyze five different types of financial ratios:
 Short-term solvency or liquidity
 Long-term solvency measures
 Asset management (turnover)
 Market value
 Profitability.
A meaningful ratio analysis should not only calculate and interpret financial ratios, but also how they
change over time and are interrelated. When analyzing firms’ financial performance, important
reference points are needed. Issues that must be considered to make financial analysis more
meaningful are: (a) historical comparisons; (b) comparison with industry norms; and (c) comparison
with key competitors.
Summary of Five Types of Financial Ratio
The second approach takes a broader stakeholder view: firms must satisfy a broad range of
stakeholders to ensure long-term viability. A method that combines both the second and the first
approach is the balanced scorecard, which is a method to evaluate a firm’s performance using the
following four questions:
 How do customers see us? (i.e. the customer perspective)
 What must we excel at? (i.e. the internal business perspective)
 Can we keep improving/creating value? (i.e. the innovation and learning perspective)
 How do we look to shareholders? (i.e. the financial perspective).
While most agree that the balanced scorecard concept is an appropriate and useful tool, there are
design and implementation issues that may decrease its value, including: (a) lack of clear strategy;
(b) limited or ineffective executive sponsorship; (c) too much emphasis on financial measures rather
than nonfinancial measures; (d) poor data on actual performance; (e) inappropriate links of
scorecard measures to compensation; and (f) inconsistent or inappropriate terminology.
Recognizing Firm’s Intellectual Assets
In the knowledge economy, wealth is created through the effective management of workers
instead of by the efficient control of physical and financial assets. Many have defined intellectual
capital as the difference between the market value and the book value of the firm, including assets
such as reputation, employee loyalty and commitment, customer relationships, company values,
brand names, and the experience and skills of employees. Intellectual capital can be divided into
four types of knowledge.
Explicit knowledge is knowledge that is codified, documented, easily reproduced, and widely
distributed. Tacit knowledge is knowledge that is in the minds of employees and is based on their
experiences and backgrounds.
Human capital is the individual capabilities, skills, knowledge, and experience of the firm’s
employees and managers. Human capital consists of three interdependent activities: (1) attracting
human capital; (2) retaining human capital; and (3) developing human capital. For developing
human capital, it is especially important to: (3.a) encourage widespread development; (3.b) transfer
knowledge; (3.c) monitor progress and track development; and (3.d) evaluate human capital. For
retaining human capital, firms need: (2.a) their people to identify with the organization’s mission and
values; (2.b) create challenging work and a stimulating environment; and (2.c) provide
(non)financial rewards and incentives.
Finally, social capital is the network of relationships that individuals have both outside and inside
the organization. Developing social capital helps tie knowledge workers to a given firm. The Pied
Piper Effect refers to groups of professionals, not individuals, who encompasses leave (or join) an
organization. Social relationships thus provide an important mechanism for obtaining both
resources and information from individuals and organizations outside the firm.
Part of social capital is the social network. Social network analysis depicts the pattern of inter-
actions between individuals and aids to diagnose effective and ineffective patterns. In a social
relationship, there are closure (the degree to which members of a social network have ties with
other group members) and bridging (stress the importance of ties connecting otherwise
disconnected people) relationships. Structural holes are social gaps between groups in a social
network where there are few relationships that bridge the groups. A potential downside of social
capital is called groupthink, which is a tendency for individuals in an organization not to question
shared beliefs.
Nowadays, technology plays an important role in leveraging knowledge and human capital. The use
of technology has also allowed professionals to work as part of electronic teams to enhance the
speed and effectiveness with which products are developed. Advantages of e-teams are that they
not restricted by geographic constraints, and they can be very effective in generating social capital.
However, challenges include a lack of what is called “identification and combination”. These two
processes are central to the effective functioning of face-to-face groups.
Intellectual property rights are more difficult to determine and protect than property rights for
physical assets. But if intellectual property is not reliably protected by the state, no individuals will
have the incentive to develop new products and services. Dynamic capabilities entail the capacity to
build and protect a competitive advantage. They are about the ability of an organization to
challenge the conventional wisdom within its industry and market, learn and innovate, adapt to the
changing world, and continuously adopt new ways to serve the evolving needs of the market.
STRATEGY SPOTLIGHT
Read the article below and analyze, based on five Porter’s Model identify which does is applicable
to this article and justify your reason?
The following assessment shall be written in a short bond paper minimum of 50 words per questions.
Compose of cover page, title page and the answers to the Instructional material per lesson. Each
question corresponds to (ten) 10 points
ESSAYS:
1. Identify what are the opportunities and threats in the industry. Discuss briefly.
2. Briefly explain each stage in the industry life cycle.
3. Examine how Porter’s five forces model are used as an analytical tool in achieving organization
competitive advantage as well as the new forces corresponding it.
4. Explain and discuss the following how these affect the organization.
(a) competitive advantage
(b) value chain
(c) building block of competitive advantage
(d) generic distinctive competencies
(e) durability of competitive advantage
5. How does an organization would achieve superior efficiency, quality innovation and a positive
respond to clientele?
LESSON 3: FORMULATING STRATEGIES AND CORPORATE

DIVERSIFICATION STRATEGY
OVERVIEW
To create and sustain a competitive advantage, companies need to stay focused on their
customers’ evolving wants and needs and not sacrifice their strategic position as they mature and
the market around them evolves. Answering How and why firms outperform each other goes to the
heart of strategic management. In this lesson, we will identify three generic strategies and
discussed how firms are able not only to attain advantages over competitors but also to sustain
such advantages over time. Also, we will answer why do some advantages become long-lasting
while others are quickly imitated by competitors?
We also discussed the viability of combining (or integrating) overall cost leadership and generic
differentiation strategies. If successful, such integration can enable a firm to enjoy superior
performance and improve its competitive position. However, this is challenging, and managers must
be aware of the potential downside risks associated with such an initiative.
The concept of the industry life cycle is a critical contingency that managers must consider in
striving to create and sustain competitive advantages. We will identify the four stages of the industry
life cycle— introduction, growth, maturity, and decline—and suggested how these stages can play a
role in decisions that managers must make at the business level. These include overall strategies
as well as the relative emphasis on functional areas and value-creating activities.
LEARNING OUTCOMES
Discuss the competitive positioning and the business model, business level strategy, generic
business level strategies and the dynamics of the competitive positioning.
Identify and explain the strategies in fragmented, embryonic and growth, mature and declining
industries.
Explain the strategies for winning a format war, cost in high-technology industries and the
technological paradigm shift.
Discuss and explain the increasing profitability and profit growth through global expansion,
choosing global strategy, the choice of entry mode and the global strategic alliances
COURSE MATERIALS
STRATEGY AT THE BUSINESS LEVEL
Michael E. Porter described three generic strategies that a firm can use to achieve a competitive
advantage. The first of these strategies is overall cost leadership, which is based on appeal to the
industry-wide market using a competitive advantage based on low cost.
To generate above-average performance, a firm that uses this strategy must attain competitive
parity based on differentiation relative to its competitors. There are a number of potential pitfalls
that a cost leadership strategy encounter: (a) too much focus on one or a few value-chain activities;
(b) all rivals share a common input or raw material; (c) the strategy is imitated too easily; (d) a lack
of parity on differentiation; and (e) erosion of cost advantages when the pricing information
available to customers increases.
Three Generic Strategies
The second generic strategy is a differentiation strategy. As the name implies, this strategy
consists of creating differences in the firm’s product or service offering by creating something that is
perceived industry wide as unique and valued by customers. Firms create sustainable
differentiation advantages and attain above average performance when their price premiums
exceed the extra costs incurred in being unique. Pitfalls of the differentiation strategy include: (a)
uniqueness that is not valuable; (b) too much differentiation; (c) the price premium is too high; (d)
differentiation that is too easily imitated; (e) dilution of brand identification through product- line
extensions; and (f) perceptions of differentiation may vary between buyers and sellers.
The third and final generic strategy, the focus strategy, is based on a narrow competitive scope
within an industry. Essentially this strategy is about the exploitation of a market niche. Focus
strategy has two variants: cost focus (creating a cost advantage in the target segment) and
differentiation focus (differentiate in the target market). Potential pitfalls of focus strategies are: (a)
erosion of cost advantages within the narrow segment; (b) even product and service offerings that
are highly focused are subject to competition from new entrants and from imitation; and (c) focusers
can become too focused to satisfy buyer needs.
High performers are firms that attain both cost and differentiation advantages. This strategy allows
a firm to provide two types of value to customers: differentiated attributes and lower prices. There
are three approaches to combining overall low-cost and differentiation: (1) automated and flexible
manufacturing systems; (2) exploiting the profit pool concept for sustainable competitive advantage;
and (3) coordinating the “extended” value chain by way of information technology. Pitfalls of this
integrated approach are: (a) failing to attain both strategies may result in ending up with neither one
– i.e. being stuck in the middle; (b) underestimating the challenges and expenses associated with
coordinating value-creating activities in the extended value chain; and (c) miscalculating sources of
revenue and profit pools in the firm’s industry.
INDUSTRY ENVIRONMENT AND BUSINESS-LEVEL STRATEGY
The industry life cycle refers to the stages of introduction, growth, maturity, and decline that occur
over the life of an industry. Below, each stage of the industry life cycle will be discussed.
Stages of the Industry Life Cycle
The first stage of the industry life cycle is the introduction stage. It is characterized by new
products that are not yet known to customers, poorly defined market segments, unspecified product
features, low sales growth, rapid technological change, operating losses, and a need for financial
support. The challenge that firms face in the introduction stage becomes one of: (a) developing the
product and finding ways to get users to try it; and (b) generating enough exposure so the product
emerges as the standard by which all other rivals’ products are evaluated.
The second stage is the growth stage. This stage is characterized by strong increases in sales,
growing competition, developing brand recognition, and a need for financing complementary value-
chain activities such as marketing, sales, customer service, and research and development. The
primary key to success in this stage is to build consumer preferences for specific brands. In this
stage, revenues increase at an accelerating pace because: (a) new consumers are trying the
product; and (b) a growing proportion of satisfied customers are making repeat purchases.
The third stage, the maturity stage, is characterized by slowing demand growth, saturated markets,
direct competition, price competition, and strategic emphasis on efficient operations. By
(re)positioning their products in unexpected ways, firms can change how customers mentally
categorize them. This can be done using one of two strategies: reverse positioning, which strips
away product attributes while adding new ones, resulting in a lower price, and breakaway
positioning, which associates the product with a radically different category. Like reverse
positioning, this strategy permits the product to shift backward on the life-cycle curve, moving from
the dismal maturity phase to a growth opportunity. The final stage of the industry life cycle is the
decline stage. This stage is characterized by falling sales and profits, increasing price competition,
and industry consolidation. Firms must face up to the strategic choices of either exiting or staying
and attempting to consolidate their position in the industry. Four basic strategies are available in the
decline phase: (1) maintaining; harvesting; (3) exiting the market; and (4) consolidation.
A turnaround strategy is a strategy that reverses a firm’s decline in performance and returns it to
growth and profitability. A need for turnaround may occur in any stage of the life cycle but is most
prevalent in the maturity and decline stage. There are three basic turnaround strategies: (1) asset
and cost surgery; (2) selective product and market pruning; and (3) piecemeal productivity
improvements.
TECHNOLOGY
Entrepreneurial Strategy and Competitive Dynamics

Broadly defined, entrepreneurship refers to the creation of value by an existing organization or
new venture that involves the assumption of risk. Three factors must be present for value creation:
(1) an entrepreneurial opportunity; (2) the resources to pursue the opportunity; and (3) an
entrepreneur or entrepreneurial team willing and able to take the opportunity.
Opportunity Analysis Framework
The process of discovering and evaluating changes in the business environment (such as new
technology, socio-cultural trends, or shifts in consumer demand) that can be exploited is referred to
as opportunity recognition. Viable opportunities have four qualities: (1) they must be attractive in
the marketplace; (2) they must be practical and physically possible, i.e. achievable; (3) they must
be durable, i.e. they must be attractive long enough for the development and deployment to be
successful; and (4) they must be value-creating, which means the opportunity must be potentially
profitable.
If an opportunity meets the previously defined four criteria, there are two other factors that must be
considered. These are entrepreneurial resources and entrepreneurial leadership. Resources
will be discussed first, followed by entrepreneurial leadership.
There are numerous types of resources available to entrepreneurs. Financial resources are equity
(i.e. funds invested in ownership shares such as stock; the value of equity funding decreases or
increases depending on firm performance; obtaining equity requires business founders to give up
some ownership and control of the firm) and debt (i.e. borrowed funds such as interest- bearing
loans; in general, debt funding must always be repaid regardless of performance; obtaining debt
requires some business of personal assets to be used as collateral).
Human capital encompasses skilled and strong management. Many regard this as the most
important asset an entrepreneurial firm can have. Entrepreneurial firms are more likely to succeed if
the owner has extensive social contacts or social capital than firms started without the support of a
social network. Finally, start-up firms can be supported with government resources. This not only
encompasses funding, but also government contracting.
Successful entrepreneurs should embody three characteristics of leadership: (1) vision, (2)
dedication and drive, and (3) commitment to excellence. These thee characteristics should be
cohesive and passed on to all those who work with the entrepreneurs.
To be successful, new ventures should evaluate the industry conditions, the competitive
environment, and market opportunities. First, a new entrant should examine the entry barriers,
followed by the threat of retaliation by incumbents. There are three types of entry strategies. The
first entry strategy is pioneering new entry, which refers to a firm’s entry into an industry with a
radical new product or highly innovative service that changes the way business is conducted.
The second entry strategy is imitative new entry. This strategy refers to a firm’s entry into an
industry with products or services that capitalize on proven market successes, and that has a strong
market orientation. The third and final entry strategy is adaptive new entry, which refers to a firm’s
entry into an industry by offering a product or service that is somewhat new and sufficiently different
to create value for customers by capitalizing on current market trends. This strategy holds the
middle between imitative new entry and pioneering new entry.
Competitive dynamics refers to intense rivalry, involving actions and responses, among similar
competitors vying for the same customers in a marketplace. New entrants may, for example, be
forced to change their strategies or develop new ones to survive competitive challenges by
incumbent rival firms. The competitive dynamics model is summarized in the below diagram.
Firms launch new competitive actions for a number of reasons, including: (a) improve market
position; (b) capitalize on growing demand; (c) expand production capacity; (d) provide an
innovative new solution; and (e) obtain first-mover advantage. Under all these reasons lies a desire
to strengthen financial outcomes, capture some of the extraordinary profits that industry leaders
enjoy and grow the business.
Firms need to be aware of their competitors and the kinds of competitive actions they might be
planning. This is known as threat analysis. Two factors are used to determine whether or not firms
are close competitors: market commonality, i.e. whether or not competitors are vying for the same
customers and how many markets they share in common, and resource similarity, i.e. the degree
to which rivals draw on the same types of resources to compete.
Once a firm has determined if it is motivated and capable to respond with competitive action, it
needs to assess what type of action is appropriate. Broadly defined, there are two types of
competitive action: (1) strategic action, which represents major commitments of distinctive and
specific resources (e.g. entering new markets, introduce new products, changing production
capacity, or engaging in a merger or alliance), and (2) tactical action, which includes refinements
or extensions of strategies (e.g. price cutting or increasing, enhancing products or services,
increase marketing efforts, or establish new distribution channels).
The final step before initiating new competitive action is to evaluate the likelihood of competitive
reaction. The response of a competitor will depend on three factors: (1) market dependence
(single-industry firms or those where one industry dominates its activities are more likely to give
competitive response); (2) the competitor’s resources (firms with lots of resources are more likely
to mount a competitive response than firms with little resources); and (3) the actor’s reputation.
And, of course, firms may decide to not respond to or initiate an attack (known as forbearance) or
go for a mix of cooperating and competing with rival firms (which is described by the term ‘co-
opetition’).
Managing Innovation and Fostering Corporate Entrepreneurship
Innovation is the use of new knowledge to transform organizational processes or create

commercially viable products and services. Innovation can be radical, or incremental.
Radical innovations are innovations that fundamentally change existing practices. They
usually occur because of technological change. Incremental innovations, on the other hand, are
innovations that enhance existing practices or make small improvements to products and
processes. Another distinction often used when discussing innovation is between product
innovations, which refers to efforts to create product designs and applications of technology to
develop new products for end users, and process innovations, which is typically associated with
improving the efficiency of an organizational process, especially manufacturing systems and
operation. Innovation is essential to sustainable competitive advantage but comes with a lot of
difficulties. There are five dilemmas that firms must wrestle with when pursuing innovation:
 Seeds vs. Weeds – identifying the most promising innovative ideas and casting aside those
ideas that are not very likely to bear fruit.
 Experience vs. Initiative – who will lead an innovation project? Experienced but risk-averse
managers or the actual innovators, often midlevel workers?
 Internal vs. External Staffing – staff sourced internally can possess a lot of social capital
but may be incapable of thinking outside the box.
 Building Capabilities vs. Collabo- rating – innovations often require a new skill set, which
can be sourced outside or learned by experience.
 Incremental vs. Preemptive Launch – incremental launches have less risk but can
undermine credibility. Large scale launches are more expensive but can preempt a
competitive response.
The scope of innovation is defined by four questions. How much will the innovation initiative cost?
How likely is to become commercially viable? How much value will it add if it works? What will be
learned if it does not pan out?
The pace of innovation must also be regulated. The project timeline of incremental innovations is
often between six months and two years, while radical innovations are typically long term, often
having a time span of ten years or more.
Central to innovation are people. Four practices are very important when creating staffs to engage
in business venturing: (1) creating innovation teams with experienced players who know how to
deal with uncertainty and can help the learning process of new staff members; (2) require
employees that seek career advancement to serve in the new venture as part of their career climb;
(3) once experienced, transfer staff members from the new venture to mainstream management
positions where they can revitalize the firm’s core business; and (4) separate the performance of
individuals from the innovation’s performance.
Often, companies do not possess all the required resources to carry an innovative idea from
concept to commercialization. In this case, innovation partners can provide the missing skills and
insights. Innovation partners should be chosen on the basis of required competencies and the
possible contributions they can offer to the innovation process.
Corporate entrepreneurship refers to the creating of new value for a corporation, through
investments that create either new sources of competitive advantage or renewal of the value
proposition. Two distinct approaches to corporate entrepreneurship are found among firms that
pursue innovation: focused corporate venturing and dispersed corporate venturing.
A focused approach typically separates the corporate venturing activity from the firm’s other
ongoing operations. One of the most common types of a focused approach is the new venture
group (NVG), which is a group of individuals or a division within a corporation that identifies,
evaluates, and cultivates venture opportunities.
Another common type of focus approach are business incubators, corporate new ventures that
support and nurture fledging entrepreneurial ventures until they can thrive on their own as
independent businesses. Business incubators typically provide funding, physical space, business
services, mentoring, and networking functions to the venture group.
The dispersed approach entails that dedication to the principles and practices of entrepreneur-
ship is spread throughout the organization. One aspect related to the dispersed approach is
entrepreneurial culture. In companies with such a culture, everyone in the organization is attuned
to opportunities to help create new businesses. Another related aspect is product champions,
which are individuals that work within a corporation and bring entrepreneurial ideas forward.
The success of a corporate venture initiative is judged by several important criteria, including
financial and strategic goals. Three questions should be asked to assess the effectiveness of a
corporation’s ventures: (1) are the products or services offered by the venture accepted in the
marketplace? (2) Are the contributions of the venture to the corporation’s internal competencies and
experience valuable? And (3) is the venture able to sustain its basis of competitive advantage?
Corporate venture initiatives do not always pay off. Costly and discouraging defeats can be avoided
by appointing an exit champion, an individual who works within a corporation and is willing to
question the viability of a venture project by demanding hard evidence of venture success and
challenge the belief system that carries a venture forward. As unappealing as this role may seem, it
could save a corporation both financially and in terms of its reputation.
Another way to minimize failure and avoid losses from pursuing faulty ideas is real options analysis.
This concept will be explained on the next page.
Real options analysis is an investment analysis tool that looks at an investment or an activity as a
series of sequential steps and for each step the investor has the option to (a) invest additional funds
to grow or accelerate, (b) delay, (c) shrink the scale of, or (d) abandon the activity.
There are, however, three major issues with using real options analysis. First, managers may have
an incentive to propose not only projects that should be successful, but also projects that might be
successful. Because of the subjectivity involved in formally modeling a real option, managers may
have an incentive to choose variables that increase changes of approval. Second is the issue of
managerial conceit. It occurs when decision makers who made successful choices in the past come
to believe they have superior judgment skills. Using ROA may furthermore encourage decision
makers toward a bias for action. And finally, managers’ commitment to a project may be irrationally
escalated.
Firms that want to engage in successful corporate entrepreneurship need to have an

entrepreneurial orientation, which refers to the strategy-making practices that businesses use to
identify and launch corporate ventures. Entrepreneurial orientation has five dimensions:
 Autonomy – independent action by individuals or teams aimed at bringing forth a business
concept or vision and carrying it through to completion.
 Innovativeness – the willingness to introduce novelty through creative processes and
experimentation aimed at developing new products and services
 Proactiveness – a forward-looking perspective characteristic of a marketplace leader that
has the foresight to seize opportunities in anticipation of future demand
 Competitive aggressiveness – An intense effort to outperform rivals characterized by a
combative posture or an aggressive response aimed at improving position or overcoming
threats
 Risk taking – making decisions and taking action without certain knowledge of probable
outcomes; some under- takings may also involve making substantial resource commitments.
Risk can be business, financial, and personal.
GLOBAL STRATEGY
International Strategies: Creating Value in Global Market

Four forces impact a nation’s competitiveness. Factor conditions are the nation’s position in
factors of production (infrastructure, labor, etc.) necessary to compete in each industry. Factor
conditions are a national advantage. Demand conditions are the nature of home-market demand
for the service or product of the industry. This is also a national advantage. Related and
supporting industries entail the presence of absence in the nation of related industries that are
internationally competitive. Again, this is a national advantage. The final force is firm strategy
structure, and rivalry, i.e. the conditions in the nation that govern how firms are created,
organized, and managed, and the nature of domestic rivalry. This too is a national advantage.
One of the most obvious motivations for international expansion is to increase the size of potential
markets for a firm’s products and services, which will also potentially result in the ability to attain
economies of scale. Another reason is to reduce the costs of research and development and
operating costs, or to extend the life cycle of a product. Finally, international expansion can enable
a firm to optimize the physical location for activities in its value chain.
Four types of risk are associated with expanding internationally. Political risk is the potential threat
to a company’s operations in a country due to ineffectiveness of the domestic political system;
economic risk is the potential threat to a company’s operations in a country due to economic
policies and conditions (such as property right laws and enforcement mechanics); currency risk is
the possible threat to a firm’s activities in a country due to fluctuations in the local currency’s
exchange rate; finally, management risk is the potential threat to a company’s operations in a
country due to the problems that managers have in making decisions in the context of foreign
markets.
When looking at the global dispersion of value chains, there are two interrelated trends that are
increasingly witnessed: outsourcing, i.e. using other firms to perform value-creating activities that
were previously performed in-house, and offshoring, i.e. shifting a value-creating activity from a
domestic location to a foreign location.
Firms that enter international markets are faced with two opposing forces: cost reduction and
adaptation to local markets. These two opposing pressures result in four different basic strategies
that companies can use to compete in the global marketplace: international, multidomestic, global,
and transnational. Each of these strategies will be further explained below.
Opposing Pressures and Four Strategies
An international strategy is based on diffusion and adaptation of the parent company’s knowledge
and expertise to foreign markets. This strategy is most successful when pressures for local
adaptation and to lower costs are low. Strengths of this strategy include leverage and diffusion of a
parent firm’s knowledge and core competencies, and lower costs because of less need to tailor
products and services; limitations are the limited ability to adapt to local markets and an inability to
take advantage of new ideas and innovations occurring in local markets.
A global strategy emphasizes economies of scale due to standardization of services and products,
and the centralization of operations in a few locations. This strategy is most successful when
pressure to lower cost is high, while the pressure for local adaptation is low. Strengths include
strong integration across various businesses, higher economies of scale and lower costs due to
standardization, and the creating of uniform quality standards throughout the world; limitations are
the limited ability to adapt to local markets, concentration of activities may increase the dependence
on a single facility, and single facilities may lead to higher transportation costs and higher tariffs.
Multidomestic strategies emphasize on the differentiation of products and service offerings to

adapt to local markets. This strategy is most successful when pressures to lower costs are low, but
pressures for local adaptation are high. Strengths of this strategy are the ability to adapt products
and services to local market conditions and the ability to detect potential opportunities for attractive
niches in a given market, enhancing revenue; limitations are the decreased ability to realize cost
savings through economies of scale, greater difficulty in transferring knowledge across countries,
and a risk of “over-adaptation” as conditions change.
Finally, a transnational strategy strives to optimize the trade-offs associated with local adaptation,
efficiency, and learning. This strategy is most successful when pressures for local adaptation and
cost reductions are high. Strengths of transnational strategies are the ability to attain economies of
scale, the ability to adapt to local markets, the ability to locate activities in optimal locations, and the
ability to increase knowledge flows and learning; limitations include unique challenges in
determining optimal locations of activities to ensure cost and quality, and unique managerial
challenges in fostering knowledge transfer.
When a firm decides to expand into international markets, there are six modes of entry it can follow,
listed from low - high in terms of the extent of investment and risk, and the degree of ownership and
control: exporting, licensing, franchising, strategic alliances, joint ventures, and wholly owned
subsidiaries. As usual, a riskier endeavor is also more likely to yield high returns.
Entry Modes for International Expansion
Exporting refers to producing goods in one country to sell to residents in another country.
Licensing is a contractual arrangement in which a company receives a fee or royalty in exchange
for the right to use its trademark, patent, trade secret, or other valuable intellectual property.
Franchising is, like licensing, a contractual agreement in which a company receives a fee or
royalty in exchange for the right to use its intellectual property. However, it usually involves a longer
time period and includes other factors, such as monitoring of operations, training, and advertising.
Strategic alliances and joint ventures have recently become increasingly popular. These forms of
partnership differ in two ways: joint ventures entail the creation of a third-party legal entity, and
strategic alliance initiatives generally are smaller in scope than joint ventures.
Finally, a wholly owned subsidiary is a business in which a multinational company owns all of its
stocks. A firm can establish a wholly owned subsidiary either by acquiring an existing company in
the home country, or develop a totally new operation (which is often referred to as a “greenfield
venture”) resulting in a lower price, and breakaway positioning, which associates the product with
a radically different category. Similar to reverse positioning, this strategy permits the product to shift
backward on the life-cycle curve, moving from the dismal maturity phase to a growth opportunity.
The final stage of the industry life cycle is the decline stage. This stage is characterized by falling
sales and profits, increasing price competition, and industry consolidation. Firms must face up to
the strategic choices of either exiting or staying and attempting to consolidate their position in the
industry. Four basic strategies are available in the decline phase: (1) maintaining; harvesting; (3)
exiting the market; and (4) consolidation.
A turnaround strategy is a strategy that reverses a firm’s decline in performance and returns it to
growth and profitability. A need for turnaround may occur in any stage of the life cycle but is most
prevalent in the maturity and decline stage. There are three basic turnaround strategies: (1) asset
and cost surgery; (2) selective product and market pruning; and (3) piecemeal productivity
improvements.
STRATEGY AT THE CORPORATE LEVEL: CORPORATE DIVERSION STRATEGY
Firms diversify to achieve synergy. There are two meanings to this term: related diversification
enables a firm to benefit from horizontal relationships across different businesses in the diversified
corporation by leveraging core competencies and sharing activities. This allows a firm to benefit
from economies of scope, i.e. cost savings that arise because of this leveraging.
Firms generate value by leveraging their core competencies. Core competencies are a firm’s
strategic resources that reflect the collective learning in the organization. Core competencies must
meet three criteria to generate value: (1) they must enhance competitive advantage by creating
superior customer value; (2) different businesses in the corporation must be similar in at least one
important way related to them; and they must be difficult to imitate or substitute.
Organizations can also achieve synergy by sharing activities, i.e. having activities of two or more
businesses’ value chains done by one of the businesses. The most common types of synergy that
result from sharing activities are cost reductions. Furthermore, sharing activities can also lead to
enhanced revenues.
Firms can also achieve related diversification through market power, which entails the firm’s ability
to profit through restricting or controlling supply to a market (vertical integration, i.e. an extension
of the firm by integrating preceding or successive production processes) or coordinating with other
firms to reduce investments (pooled negotiation power).
Benefits of vertical integration include:

a. secure source of raw materials or distribution channels.
b. protection of and control over valuable asses.
c. access to new business opportunities; and
d. simplified procurement and administrative procedures.
However, there are also risks that need to be considered:
a. costs and expenses associated with increased overhead and capital expenditures.
b. loss of flexibility resulting from large investments
c. problems associated with unbalanced capacities along the value chain; and
d. additional administrative costs associated with managing a more complex set of
activities.
In making vertical integration decisions, the following six issues should be considered:
1. Is the company satisfied with the quality of the value that its present suppliers and
distributors are providing?
2. Are there activities in the industry value chain presently being outsourced or performed
independently by others that are a viable source of future profits?
3. Is there a high level of stability in the demand for the products of the organization?
4. How high is the proportion of additional production capacity that is absorbed by existing
products or by the prospects of new and similar products?
5. Does the company have the required competencies to execute the vertical integration
strategies?
6. Will the vertical integration initiative have potential negative impacts on the firm’s stake-
holders?
Another approach that prove to be very useful in understanding vertical integration is the
transaction cost perspective, which is a perspective that the choice of a transaction’s governance
structure (such as vertical integration or market transaction) is influenced by transaction costs,
including search, negotiation, contracting, monitoring, and enforcement costs, associated with each
choice. Vertical integration, however, gives rise to a different set of costs referred to as
administrative costs.
Contrary to in related diversification, potential benefits in unrelated diversification can be gained

from vertical relationships, i.e. creation of synergies from the interaction of the corporate office with
the individual business units. There are two main sources of such synergies: parenting and
restructuring, and portfolio management. Both perspectives will be discussed in the following
paragraphs.
The positive contributions of the corporate office to a new business as a result of expertise and
support provided and not as a result of substantial changes in assets, capital structure, or
management is referred to as the parenting advantage. Another means by which the corporate
office can add substantial value to a business is by restructuring, which is defined as the
intervention of the corporate office in a new business that substantially changes the assets, capital
structure (capital restructuring), and/or management, including selling off parts of the business
(asset restructuring) changing management (management restructuring), reducing payroll and
unnecessary sources of expenses, changing strategies, and infusing the new business with new
technology, processes, and reward systems.
Portfolio management is a method of (a) assessing the competitive position of a business within a
corporation, (b) suggesting strategic alternatives for each business, and (c) to identify priorities for
the allocation of resources between the businesses. The key purpose of portfolio management is to
assist a firm in achieving a balanced portfolio of businesses.
The Boston Consultancy Group has identified four types of strategic business units:
 Stars are competing in high-growth industries; relatively high market shares; long-term
growth potential; should continue to receive substantial funding.
 Question marks are competing in high growth industries; relatively low market shares;
invest resources to enhance their competitive positions
 Cash cows have high market shares; low-growth industry; limited long-run potential;
present source of current cash flows to support stars/question marks
 Dogs have weak market share; low- growth industries; limited potential; recommend
divesting.
In using portfolio management, a firm tries to create synergies and value in several ways. First,
portfolio analysis gives a snapshot of the businesses in a corporation’s portfolio, enabling more
effective resource allocation. Second, the expertise and analytical resources in the corporate office
provide guidance in determining what firms may be (un)attractive acquisitions. Third, the corporate
office can provide financial resources to the business units on favorable terms that reflect the
corporation’s overall ability to raise funds.
There are, however, a number of limitations to portfolio analysis: (1) they are overly simplistic,
because they consists only of the dimensions of growth and market share; (2) they view each
business as separate, ignoring potential synergies; (3) the process may become overly mechanical,
ignoring judgment and expertise; (4) the reliance on strict rules for resource distribution across
strategic business units can be detrimental to a firm’s long-term viability; and (5) the imagery (cash
cows, question marks, stars and dogs) may lead to overly simplistic prescriptions. The previous part
of this chapter has dealt with the types of diversification. The remainder will deal with how
diversification can be achieved.
There are three basic means of diversification. Through mergers (the combining of two or more
firms into one new legal entity) and acquisitions (the incorporation of one firm into another through
purchase), corporations can directly acquire a firm’s assets and competencies. Motives and benefits
of mergers and acquisitions include: (a) obtaining valuable resources that can help an organization
expand its product offerings and services; (b) provide firms with the opportunity to attain the three
bases of synergy, i.e. leveraging core competencies, sharing activities, and building market power;
(c) consolidation within an industry and forcing other players to merge.
However, there are also limitations to mergers and acquisitions: (a) the takeover premium that is
paid for an acquisition is very high; (b) competing firms can often imitate any advantages realized or
copy synergies that result from the merger and/or acquisition; (c) managers’ credibility and ego
might get in the way of sound business decisions; and (d) there can be many cultural issues that
may doom the intended benefits from M&A endeavors.
The other side of the “M&A coin” are divestments, which entails the exit of a business from the
firm’s portfolio. Divesting a business can accomplish many objectives, including: (1) enabling
managers to focus more directly on the firm’s core businesses; (2) providing the firm with more
resources to spend on attractive alternatives; and (3) raising cash to fund existing businesses.
A strategic alliance is a cooperative relationship between two or more firms. Joint ventures
represent a special case of alliances, where two or more firms contribute equity to establish a new
legal entity. Both play a prominent role in leading firms’ strategies, because they have many
potential advantages, including entering new markets, reducing manufacturing (or other) costs in
the value chain, and developing and diffusing new technologies.
STRATEGY SPOTLIGHT
Read the following case and try to answer the following questions if you were on the shoes how
lesson. Each question corresponds to ten (10) points.
QUESTION:
1. What kinds of strategies might a (a) small pizza place operating in a crowded college market
and (b) detergent manufacturer seeking to bring out new products in an established market use
to strengthen their business models?
2. Imagine that IBM has decided to diversify into the telecommunications business to provide
online “cloud computing” data services and broadband access for businesses and individuals.
What method would you recommend that IBM pursue to enter this industry? Why?
3. You are a manager for a major music record label. Last year, music sales declined by 10%,
primarily because of very high piracy rates for CDs. Your boss has asked you to develop a
strategy for reducing piracy rates. What would you suggest that the company do?
4. Why are standards important in many high-tech industries? What are the competitive
implications of this?
5. Discuss how companies can use (a) product differentiation and (b) capacity control to manage
rivalry and increase an industry’s profitability.
LESSON 4: IMPLEMENTING STRATEGY AND CONTROL
OVERVIEW
Given the many challenges and opportunities in the global marketplace, today’s managers must do
more than set long-term strategies and hope for the best. They must go beyond what some have
called “incremental management,” whereby they view their job as making a series of small, minor
changes to improve the efficiency of their firm’s operations.13 Rather than seeing their role as
merely custodians of the status quo, today’s leaders must be proactive, anticipate change, and
continually refine and, when necessary, make dramatic changes to their strategies. The strategic
management of the organization must become both a process and a way of thinking throughout the
organization.
LEARNING OBJECTIVES
Explain the implementing strategies through organizational design, strategic control system,
building distinctive competencies at the functional level, and implementing strategy in single
industry
Discuss the managing corporate strategy through multidivisional structure, implementing
strategy across countries, and the entry mode and implementation.
Discuss and explain the evaluation and control in strategic management, measuring
performance, problems in measuring performance and guidelines for proper control
COURSE MATERIALS
IMPLEMENTING STRATEGY AND CONTROL
Two aspects are central to strategic control: informational control, which is the ability to respond
effectively to environmental change, and behavioral control, the appropriate balance and alignment
among a firm’s culture, rewards, and boundaries. There are two broad types of control systems: the
traditional approach, and the contemporary approach.
The traditional approach to strategic control is a sequential method of organizational control in

which (1) strategies are formulated and top management sets goals, (2) strategies are
implemented, and (3) performance is measured against the predetermined goal set. In other words,
this is a ‘feedback’ approach to organizational control.
The contemporary approach to strategic control is a method of organizational control in which a

firm gathers and analyzes information from the internal and external environment in order to obtain
the best fit between the organization’s goals and strategies and the strategic environment. This
approach requires four characteristics to be effective:
1. Focus must be on constantly changing information that is identified as having potential

strategic importance
2. Information is important enough to demand frequent and regular attention from managers
throughout the firm
3. Data and information generated by the control system are best interpreted and discussed in
face-to-face meetings
4. The contemporary control system is a key catalyst for an ongoing debate about underlying
assumptions, data, and action plans.
Behavioral control focuses on doing things right, i.e. implementation. There are three key control
aspects. First of these is organizational culture, which has previously been defined as a system of
shared values and beliefs that shape a company’s people, organizational structures, and control
systems to produce behavioral norms. By creating a framework of shared values, culture
encourages individual identification with the organization and its goals and thus acts as a way to
reduce monitoring costs.
Reward and incentive systems are a powerful means of focusing efforts on high-priority tasks,
influencing culture, individual motivation, and collective performance. The potential downside of
these systems, however, is that the collective sum of individual behaviors of an organization’s
employees does not always result in what is best for the organization. To be effective, reward and
incentive systems need to reinforce basic core values and enhance cohesion and commitment to
goals and objectives.
Finally, it is important so set boundaries and constraints. When used properly, they can serve
many useful purposes, including: (a) focusing individual efforts on strategic priorities; (b) providing
short-term objectives and action plans to channel efforts; (c) improving efficiency and effectiveness;
and (d) minimizing improper and unethical conduct. An organization’s goal should be to internalize
these boundaries and, which reduces the need for external controls. There are four ways in which
this can be accomplished:
1. Hire the right people
2. Build culture through training
3. Have managerial role models
4. Align reward systems with the firm’s goals and objectives.
Corporate governance is a broader perspective on the issue of strategic control. It is defined as

the relationship among various participants in determining the direction and performance of
corporations. The main participants are the shareholders, the management, and the board of
directors.
There are seven external governance control mechanisms. First is the market for corporate
control, in which shareholders dissatisfied with a firm’s management can sell their shares, which
will lead to a decrease in share price. A firm can then be subject to a hostile takeover for a price
that is below the value of the firm’s assets. The first thing the new owner does, naturally, is to fire
the incompetent management. The takeover constraint deters management from engaging in
opportunistic behavior.
Another control mechanism is auditors. Audits can unearth financial irregularities and ensure that
financial reporting by the firm conforms to standard accounting practices. Banks and analysts also
play an important role. Banks lend money to corporations and thus want to ensure that the firm’s
finances are in order and that the loan covenants are being followed. Analysts make
recommendations to their clients to buy, hold, or sell, and their rewards and reputation depends on
the quality of the recommendations.
Furthermore, regulatory bodies should also be considered an external control mechanism, as all
corporations are subject to some regulation by the government. There is also no denying that the
media and public activists play an important, albeit indirect, role as external control mechanisms:
they constantly report on firms and influence public perception of their financial prospects and the
quality of its management.
Aside from previously mentioned principal-agent conflicts, there are also principal-principal
conflicts. These are conflicts between two classes of principals (controlling shareholders and
minority shareholders) within the context of a corporate governance system. The result of this is
that controlling shareholders often engage in expropriation of minority shareholders. In other words,
they enrich themselves at the expense of minority shareholders.
A corporation is a mechanism created to allow different parties to contribute capital, expertise, and
labor for the maximum benefit of each party. Management, or the agents, can run the company
without the responsibility of personally providing the funds; shareholders, the principals, have
limited liability as well as limited involvement in the company’s affairs. Central to the idea of a
corporation is the separation of ownership and control.
Agency theory is a theory of the relationship between principals and their agents, with emphasis
on two problems: (1) the conflicting goals of principals and agents (i.e. the agents act in their own
interest rather than in the interest of the principal), and (2) the different attitudes and preference
towards risk of principals and agents. Below, mechanisms will be discussed that can align the
interests of owners and managers.
There are two primary means of monitoring the behavior of managers: (1) a committed and involved
board of directors (i.e. a group that has a fiduciary duty to ensure that the company is run
consistently with the long-term interests of the owners, or shareholders, of a corporation and that
acts as an intermediary between the shareholders and management) that acts in the best interests
of the shareholders to create long- term value, and (2) shareholder activism (i.e. actions by large
shareholders to protect their interests when they feel that managerial actions of a corporation
diverge from shareholder value maximization) wherein the owners view themselves as shareowners
rather than shareholders and become actively engaged in the governance of the firm. Finally, there
are managerial incentives which consist of reward and compensation agreements that aim to
align the interests of managers with those of the shareholders.
The aforementioned means of monitoring the behavior of managers are all internal governance
mechanisms. External governance mechanisms are methods that ensure that managerial actions
lead to shareholder value maximization and do not harm external stakeholder groups.
There are seven external governance control mechanisms. First is the market for corporate
control, in which shareholders dissatisfied with a firm’s management can sell their shares, which
will lead to a decrease in share price. A firm can then be subject to a hostile takeover for a price
that is below the value of the firm’s assets. The first thing the new owner does, naturally, is to fire
the incompetent management. The takeover constraint deters management from engaging in
opportunistic behavior.
Another control mechanism is auditors. Audits can unearth financial irregularities and ensure that
financial reporting by the firm conforms to standard accounting practices. Banks and analysts also
play an important role. Banks lend money to corporations and thus want to ensure that the firm’s
finances are in order and that the loan covenants are being followed. Analysts make
recommendations to their clients to buy, hold, or sell, and their rewards and reputation depends on
the quality of the recommendations.
Furthermore, regulatory bodies should also be considered an external control mechanism, as all
corporations are subject to some regulation by the government. There is also no denying that the
media and public activists play an important, albeit indirect, role as external control mechanisms:
they constantly report on firms and influence public perception of their financial prospects and the
quality of its management.
Aside from previously mentioned principal-agent conflicts, there are also principal-principal
conflicts. These are conflicts between two classes of principals (controlling shareholders and
minority shareholders) within the context of a corporate governance system. The result of this is
that controlling shareholders often engage in expropriation of minority shareholders. In other words,
they enrich themselves at the expense of minority shareholders. A business group is a set of firms
that, though not legally independent, are bound together by a constellation of formal and informal
ties and are accustomed to take controlled action.
CORPORATE SINGLE INDUSTRY
Creating Effective Organizational Design
Organizational structure refers to the formalized patterns of interactions that connect a firm’s tasks,
technologies, and people. The most appropriate type of structure depends on the nature and
magnitude of growth in a business.
New firms with a simple structure typically increase sales revenue and output volume over time.
After a while, the simple-structure businesses implement a functional structure to focus efforts on
increasing efficiency and enhancing operations and products. Strategies of related diversification
require a need to reorganize around product lines or geographic markets, which leads to a
divisional structure. As it expands, a firm might seek to expand internationally; it then has numerous
structures to choose from including international division, geographic area, worldwide product
division, worldwide functional and worldwide matrix. Finally, a conglomerate firm will find a
holding company structure to be appropriate. Selected organizational structures will be discussed
below.
Simple Structure
The simple organizational structure is an organizational form in which the owner-manager makes
most of the decisions and controls activities, and the staff serves as an extension of the top
executive. While a simple structure may often foster creativity and individualism, this ‘informality’
may cause conflict and confusion.
Functional Structure
A functional organizational structure is an organizational form in which the major functions of the
firm, such as production, marketing, R&D, and accounting, are grouped internally. This structure
enhances coordination and control within each functional area because it brings together specialists
into functional departments. However, differences in values and orientation among functional areas
may impede coordination and communication.
CORPORATE STRATEGIES ACROSS COUNTRIES AND INDUSTRIES
Strategic managers need to invest more resources to develop a more complex structure—one that
allows it to implement its multi-business model and strategies successfully. The answer for most
large, complex companies, is to move to a multidivisional structure, design a cross-industry control
system, and fashion a corporate culture to reduce these problems and economize on bureaucratic
costs.
A multidivisional structure has two organizational design advantages over a functional or product
structure that allow a company to grow and diversify in a way that reduces the coordination and
control problems that are inevitable when it enters and competes in new industries. First, in each
industry in which a company operates, strategic managers group all its different business
operations in that industry into one division or sub-unit. Normally, each division contains a full set of
the value chain functions it needs to pursue its industry business model and is called a self-
contained division.
Second, the office of corporate headquarters staff is created to monitor divisional activities and
exercise financial control over each division. This staff contains the corporate-level managers who
oversee the activities of divisional managers. Hence, the organizational hierarchy is taller in a
multidivisional structure than in a product or functional structure. The role of the new level of
corporate management is to develop strategic control systems that lower a company’s overall cost
structure, including finding ways to economize on the costs of controlling the handoffs and transfers
between divisions.
In the multidivisional structure, the day-to-day operations of each division are the responsibility of
divisional management; that is, divisional management has operating responsibility. The corporate
headquarters, which includes top executives as well as their support staff, is responsible for
overseeing the company’s long-term multi-business model and providing guidance for
interdivisional projects. These executives have strategic responsibility.
Multidivisional Structure
Advantages implementing Multidivisional structure:
 The organization can have advantages of both centralized and decentralized.

 Evaluating efficiency of the organizations
 Increasing the morale of the organization
 Enabling the corporations to direct placing of additional capital where ROI is higher.
 Enhanced strategic control
Problems implementing Multidivisional structure:
 Establishing divisional corporate Authorities relationship: Introduces a new level in the

multidivisional structure, must get authority at the centralized headquarters of corporate staff
and how should be decentralized to the individual divisions.
 Restrictive Financial Controls lead to short run Focus: Divisional managers are engaged in
Information distortion: The manipulation of facts supplied to corporate managers to hide
declining divisional performance, for maximization of return on investment from each and every
division.
 Competition for Resource: Few impossible to obtain the gains from transferring, sharing, or
leveraging distinctive competencies across business units.
 Transfer Pricing: The problem of establishing the fair or competitive price of a resource or skill
developed in one division that is to be transferred and sold to another division.
 Duplication of Functional Resources: It could lead to the differentiation advantages overall
organizations
STRUCTURE, CONTROL, CULTURE, AND CORPORATE-LEVEL STRATEGY
Once corporate managers select a multidivisional structure, they must then make choices about
what kind of integrating mechanisms and control systems to use to make the structure work
efficiently. Such choices depend on whether a company chooses to pursue a multi-business model
based on a strategy of unrelated diversification, vertical integration, or related diversification.
Corporate Strategy, Structure, and Control
Unrelated Diversification
 Easiest and cheapest strategy to manage
 Allows corporate managers to evaluate divisional performance easily and accurately
 Divisions have considerable autonomy
 No integration among divisions is necessary
Vertical Integration
 More expensive than unrelated diversification
 Multidivisional structure provides necessary controls to achieve benefits from the control of
resource transfers
 Must strike balance between centralized and decentralized control
 Divisions must have input regarding resource transfer
 Managed through a combination of corporate and divisional controls
Related Diversification
 Multidivisional structure allows gains from the transfer, sharing, or leveraging of R&D
knowledge, industry information, and customer bases across divisions.
 Difficult to measure performance of individual divisions
 High bureaucratic costs
 Integration and control at divisional level is required
 Incentives and rewards for cooperation are necessary
The Role of Information Technology

 IT provides a common software platform that can make it less problematic for divisions to
share information.
 IT facilitates output and financial control.
 IT helps corporate managers react more quickly because of higher-quality, more timely
information.
 IT makes it easier to decentralize control to divisional managers but react quickly if
necessary.
 IT makes it difficult to distort information because of standardized information.
 IT eases the transfer pricing problem
Implementing Strategies Across Countries

 Multidomestic strategy: Local responsiveness; decentralized control
 International strategy: Centralized R&D and marketing; other functions are decentralized
 Global strategy: Cost reductions; centralized functions
 Transnational strategy: Local responsiveness and cost reduction
Global Strategy/Structure Relationships
Implementing a Multidomestic Strategy

Global-area structure
 All value creation activities duplicated, and overseas division established in every country of
operation.
 Decentralized authority
 Managers at global headquarters evaluate performance of overseas divisions
 No integrating mechanisms needed
 No global organizational culture
 Duplication of specialist activities raises costs
Global Area Structure
Implementing International Strategy

International division structure
 Used when a company sells domestically made products in markets abroad
 Foreign sales organization added to existing structure, same control system
 Customization is minimal
 Subsidiary handles local sales and distribution
 Behavior controls keep the home office informed
 International division coordinates flow of different products across different countries
 Domestic and overseas managers may compete for control of strategy making
International Division Structure
Implementing Global Strategy

Global product-division structure
 All value chain activities located to allow efficiency, quality, and innovation
 Problems of coordinating and integrating global activities
 Structure must lower bureaucratic costs and provide central control
 Product division headquarters coordinates activities
Global Product Division Structure
Implementing Transnational Strategy

Global Matrix Structure
 Lower cost structures and differentiate activities
 Decentralized control provides flexibility for local issues, but product and corporate
managers at headquarters have centralized control to coordinate company activities on
global level
 Knowledge and experience can be transferred
 Global corporate culture
 IT integration mechanisms provide coordination
 Bureaucratic costs are high
Global Matrix Structure
Entry Mode and Implementation

 Internal new venturing
a. Structure, control, and culture must encourage creativity and give intrapreneurs
autonomy and freedom to develop and champion new products and allow corporate
managers to monitor profitability and fit
b. Organization-wide new venturing vs. separate new-venture division
 Joint venturing
a. Managing culture differences
b. Allocating authority and responsibility
 Mergers and acquisitions

a. Must establish new lines of authority
b. Must streamline operations
c. In unrelated acquisitions, managers must understand the new industry
d. Must standardize control systems
e. Must recognize culture differences
IT, Internet, and Outsourcing

 IT and strategy implementation
a. Knowledge leveraging through IT to achieve low costs and differentiation
b. Flattening the organization, moving toward decentralization and increased integration
through IT
c. Virtual organization
d. Knowledge management system
 Strategic outsourcing and network structure

a. IT increases the efficiency of inter-organizational relationships
b. Business-to-business (B2B) networks
c. Network structure
EVALUATION AND CONTROL
Strategic evaluation and control are the process of determining the effectiveness of a given
strategy in achieving the organizational objectives and taking corrective actions whenever
required. Control can be exercised through formulation of contingency strategies and a crisis
management team. There can be the following types of control –
(i) Operational control- It is aimed at allocation and use of organizational resources through
evaluation of performance of organizational units, divisions, SBU`s to assess their contribution
in achieving organizational objectives.
(ii) Strategic control- It considers the changing assumptions that determine a strategy,
continually evaluate the strategy as it is being implemented and take the necessary steps to
adjust the strategy to the new requirements.
The four basic types of strategic control are:
1. Premise control - It identifies the key assumptions and keeps track of any change in them to
assess its impact on strategy and implementation. The goal is to find if the assumptions are still
valid or not. It is generally handled by the corporate planning staff considering the
environmental and organizational factors.
2. Implementation control - It includes evaluating plans, programs, projects, to see if they guide
the organization to achieve predetermined organizational objectives or not. It leads to strategic
rethinking. It consists of identification and monitoring of strategic thrusts.
3. Strategic surveillance - It aims at generalized control. It is designed to monitor a broad range

of events inside and outside the organization that are likely to threaten the course of the firm.
Organizational learning and knowledge management systems capture the information for
strategic surveillance.
4. Special Alert control - It is a rapid response or immediate reassessment of strategy in the

light of sudden and unexpected events. It can be exercised through formulation of contingency
strategies and a crisis management team.
Strategic Evaluation Process
(A) Setting standards of performance – It must focus on questions like:

 What standards should be set?
 How should the standards be set?
 In what terms should these standards be expressed?
The firm must identify the areas of operational efficiency in terms of people, processes,
productivity, and pace. Standards set must be related to key management tasks. The special
requirement for performance of these task must be studied. It can be expresses in terms of
performance indicators.
The criteria for setting standards may be qualitative or quantitative. Therefore, standards can be
set keeping in mind past achievements, compare performance with industry average or major
competitors. Factors such as capabilities of a firm, core competencies, risk bearing ability, strategic
clarity and flexibility and workability must also be considered.
(B) Measurement of performance – Standards of performance act as a benchmark in evaluating

the actual performance. Operationally it is done through accounting, reporting and communication
system. The key areas which must be kept in mind are – difficulty in measurement, timing of
measurement (critical points) and periodicity in measurement (task schedule).
(C) Analyzing variances – The two main tasks are noting deviations and finding the cause of
deviations.
 When actual performance is equal to budgeted performance tolerance limits must be set.
 When actual performance is greater than budgeted performance one must check the validity of
standards and efficiency of management.
 When actual performance is less than budgeted performance, we must pinpoint the areas
where performance is low and take corrective action.
The cause of deviations may be – External or internal, Random, or expected, Temporary, or

permanent. The two main questions to focus upon are:
Are the strategies still valid?

Does the organization have the capacity to respond to the changes needed?
(D) Taking corrective actions – It consists of the following-

 Checking of performance – It includes in-depth analysis and diagnosis of the factors that
might be responsible for bad performance.
 Checking of standards – It results in lowering or elevation of standards according to the
conditions.
 Reformulate strategies, plans, objectives – Giving a fresh start to the strategic
management process
Importance of Strategic evaluation and control
 There is a need for feedback, appraisal, and reward

 to check on the validity of strategic choice
 Congruence between decisions and intended strategy
 Creating inputs for new strategic planning
STRATEGY SPOTLIGHT
Read the following case and try to answer the following questions if you were on the shoes how
lesson. Each question corresponds to ten (10) points.
QUESTION:
1. Under what conditions is it ethically defensible to outsource production to producers in the
developing world who have much lower labor costs when such actions involve laying off long-
term employees in the fi rm’s home country?
2. What kind of structure best describes the way your (a) business school and (b) university
operate? Why is the structure appropriate? Would another structure fit better?
3. What is the relationship among organizational structure, control, and culture? Give some
examples of when and under what conditions a mismatch among these components might
arise.
4. What is evaluation and control? Explain and identify the different types of strategic evaluation
control?
5. Briefly explain the essence of strategic evaluation and control in a corporate single strategy and
across countries and industries.
6. Identify and discuss the different effective organizational design in a corporate single industry
and enumerate the different factors corresponding such organizational design.
7. Discuss how corporate strategy works in a multidivisional structure and identify the essence and
problems arising from it.
GRADING SYSTEM
Class Standing
(This compose of Assignment, e-portfolio, projects, 70%
case analysis, summative test)
Midterm Exam / Final Exam 30%

100%
Midterm Grade + Final Grade = FINAL GRADE

2
REFERENCE
 9th Edition Strategic Management Text and Cases by Dess McNAMARA Einer Lee. McGraw Hill
Education. 2019.
CONSULTATION TIME
Consultation time may be done 15mins before or after every session or it can be by appointment.
Learner may send a formal request either via LMS (goggle classroom, Facebook group or MS
Teams), or via email at mijavier@pup.edu.ph during office hours.
STRATEGIC MANAGEMENT
FINAL EXAM
Name: ____________________ Date: _______________

Year & Section: ___________ Score: ______________
I. IDENTIFICATION
___________1. It is to build or defend its competitive advantages and to improve its market position.
___________2. It is a firm operating in the same market, offering similar products and targeting
similar customers is identified as?
___________3. It occurs when firms compete against each other in several product or geographic
markets.
___________4. It is concerned with the number of markets with which the firm and a competitor are
jointly involved and the degree of importance of the individual markets to each
___________5. Markets in which the firm's competitive advantages are shielded from imitation,
commonly for long periods of time, and where imitation is costly.
___________6. Specifies actions a firm takes to gain a competitive advantage by selecting and
managing a group of different businesses competing in different product markets.
___________7. Strategy through which two firms agree to integrate their operations on a relatively
coequal basis.
___________8. Strategy through which one firm buys a controlling, or 100%, interest in another firm
with the intent of making the acquired firm a subsidiary business within its portfolio.
___________9. Special type of acquisition wherein the target firm does not solicit the acquiring firm's
bid; thus, takeovers are unfriendly acquisitions.
___________10. Strategy through which a firm changes its set of businesses or its financial
structure
___________11. Activities of the value chain that either add value by themselves or add value through
important relationships with both primary activities and other support activities,
including procurement, technology development, human resource management, and
general administration.
___________12. Activities associated with purchases of products and services by end users and the
inducements used to get them to make purchases.
___________13. The relationship among various participants in determining the direction and
performance of corporations.
___________14. Actions made by firms that carry out the formulated strategy, included strategic
controls, organizational design, and leadership.
___________15. Organizational goals ranging from, at the top, those that are less specific yet able to
evoke powerful and compelling mental images, to at the bottom, those that are more
specific and measurable.
___________16. A strategic analysis of an organization that uses value-creating activities
___________17. The function of purchasing inputs used in the firm's value chain, including raw
materials, supplies, and other consumable items as well as assets such as
machinery, laboratory equipment, office equipment, and buildings.
___________18. Collecting, storing, and distributing the product or service to buyers.
___________19. A way that digital technologies and the internet have added value to firms' operations
by enhancing the gathering of information and identifying purchase options.

Subject Professor (BUMA 20023)
STRATEGIC MANAGEMENT
FINAL EXAM
___________20. Measures of a firms' financial performance that indicate how well strategy,
implementation and execution are contributing bottom-line improvement.
___________21. A way that digital technologies and the internet have added value to firms' operations
by facilitating the comparison of the costs and benefits of various options.
___________22. A method and a set of assumptions that explain how a business creates value and
earns profits in a competitive environment.
___________23. Factors external to an industry, and usually beyond a firm's control, that affect a firm's
strategy.
___________24. Innovation and state of knowledge in industrial arts, engineering, applied sciences,
and pure science, and their interaction with society.
___________25. A tool for examining the industry level competitive environment, especially the ability
of firms in that industry to set prices and minimize costs.
___________26. The threat that buyers may force down prices, bargain for higher quality or more
services, and play competitors against each other.
___________27. Clusters of firms the share similar strategies.
___________28. Products or services that have an impact on the value of a firm's products or
services.
___________29. One-time costs that a buyer/supplier faces when switching from one supplier/buyer to
another.
___________30. Decreases in cost per unit as absolute output per period increases
II. ENUMERATION
1 – 4 List the four Industry life Cycle

5 – 9 Identify Michael Porter’s Model of competitive advantage
10 – 11 Value chain analysis activity
12 – 13 Two approach in evaluating firm’s performance
14 – 18 Five types of financial ratios
19 – 20 Give at least two types of knowledge
III. ESSAY (10pts each)

1. Using the Industry Life Cycle, adapt and formulate your life cycle.
2. Explain why the Industry life cycle concept is an important factor in determining a firm’s busines
level strategy?
3. Discuss briefly the five financial ratios essence in determining the financial position of a firm?

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Buma 20023 - Strategic Management

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Republic of the Philippines

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

INSTRUCTIONAL MATERIALS FOR

PROF. MARIFEL I. JAVIER

PUP A. Mabini Campus, Anonas Street, Sta. Mesa, Manila 1016

THE COUNTRY’S 1st POLYTECHNICU

1 INTRODUCTION TO STRATEGIC MANGEMENT AND BUSINESS 1

Understand and Discuss the Strategic Management Process

LESSON 1: INTRODUCTION TO STRATEGIC MANAGEMENT AND

BASIC CONCEPT OF STRATEGIC MANAGEMENT

Creating Competitive Advantages

Strategic management consists of the analyses, decisions, and actions an organization

 It is conducted at overall, firm-level organizational goals and objectives.

Strategic competitiveness is achieved when a firm successfully formulates and implements a

Some authors have developed the concept of ambidexterity. Ambidexterity encompasses

Organizational decisions that are determined only by analysis

As mentioned earlier, the three core processes of strategic

An Organization’s Key Stakeholders and the Nature of Their Claims

ETHICS AND SOCIAL RESPONSIBILITY IN THE STRATEGIC MANAGEMENT

Leaders often encounter barriers to change, i.e. characteristics of individuals and

LESSON 2: SCANNING THE ENVIRONMENT

Identify and discuss the opportunities and threat of the industry

OPPORTUNITIES AND THREAT – ANALYZING THE EXTERNAL ENVIRONMENT

Environmental scanning involves surveillance of a firm’s external environment to predict

1. The threat of new entrants

Porter’s Five Forces Model of Industry Competition

Using Industry Analysis: A Few Caveats

The Value Net

Strategic Groups within Industries

COMPETENCIES AND PROFITABILITY - ANALYZING INTERNAL RESOURCES AND

Assessing the Internal Environment of the Firm

Value-chain analysis sees the organization as a sequential process of value-creating activities.

Operations: efficient plant operations to minimize costs, appropriate level of automation in

The Value Chain: Primary and Support Activities

Interrelationships among Value-Chain Activities within and Across Organizations

Resource-Based View of the Firm

Types of Firm Resources

Firm Resources and Sustainable Competitive Advantages

 Employee bargaining power

Evaluating Firm Performance: Two Approaches

Summary of Five Types of Financial Ratio

Recognizing Firm’s Intellectual Assets

LESSON 3: FORMULATING STRATEGIES AND CORPORATE

STRATEGY AT THE BUSINESS LEVEL

Three Generic Strategies

INDUSTRY ENVIRONMENT AND BUSINESS-LEVEL STRATEGY

Entrepreneurial Strategy and Competitive Dynamics

Managing Innovation and Fostering Corporate Entrepreneurship

Innovation is the use of new knowledge to transform organizational processes or create

Firms that want to engage in successful corporate entrepreneurship need to have an

International Strategies: Creating Value in Global Market

Opposing Pressures and Four Strategies

Multidomestic strategies emphasize on the differentiation of products and service offerings to

STRATEGY AT THE CORPORATE LEVEL: CORPORATE DIVERSION STRATEGY

Benefits of vertical integration include:

However, there are also risks that need to be considered:

Contrary to in related diversification, potential benefits in unrelated diversification can be gained

LESSON 4: IMPLEMENTING STRATEGY AND CONTROL

IMPLEMENTING STRATEGY AND CONTROL

The traditional approach to strategic control is a sequential method of organizational control in

The contemporary approach to strategic control is a method of organizational control in which a

1. Focus must be on constantly changing information that is identified as having potential

Corporate governance is a broader perspective on the issue of strategic control. It is defined as

Name: ______ Date: _