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Strategic Management Realized by :
FATIMA EZZAHRA WAJIB A2111
SORAYA TOUIJER T2135
SAFAA MOUNAZIL J2126
BOUCHRA ABOUCHOKR 2738
MERIEM ENNACIRI 2726
IKBAL HAFLAOUI
SIMOHAMED LAMKATAA 2627
MERYEM HADDADI Supervised by :
M. WAHABI Chapter I Introduction
The key to the long term prosperity of an organization is High-quality strategic Thinking.
It takes into consideration « strategic planing » and « strategic management » 1-1/ Definition of strategy
Strategy literally:
The art and science of directing military forces
Strategy in business:
How an organization works in order to achieve its objectives and mission
1-1/ Definition of strategy
« A strategy is a comprehensive plan of action that sets critical direction for an organization and guides the allocation of its resources. It is an action focus that represents a « best guess » regarding what must be done to ensure long-run prosperity for the organization or one of its subsystems »
Definition of strategy at Wal Mart 1-2/ The strategist
The strategist has a major responsability to perform the activities associated with a business strategy planing:
Developing a plan to complete the strategy activities.
Ensuring uniformity in the development of the plan
The objectives provided by the functional areas should be compared to those made by the entire firm
The activities have to be supported by training and assistance 1-2/ The strategist
The board of directors
Responsible for the organization’s strategy
The role of « wise counsel »
Le directory
The same attributions of the BOD
Not obligatory stockholders
Responsible for the strategy’s implementation 1-2/ The strategist
The Supervisory Board
Ensure the supervision of the directory’s management.
The law allows to the entity the right to access to informations, to call for meetings
The chief executive officer(CEO)
The officer of the company who is the accountable to the BOD for the company’s total effort and total results
Responsible for the day-to-day operations to ensure the survival of the firm 1-2/ The strategist
Senior management
Elected by the BOD
He is usually: the president, vice president, treasurer, secretary…
They have a daily responsabilities in the strategy analysis,formulation and implementation task.
1-2/ The strategist
Planing departments
Employed in large organization(sales over $100 million)
Provide staff assistance to the CEO in his role of chief plannig officer
Develop a plan or a system plannig and initiate the planning cycle
The role of coordinator and an integrator for the planning effort
2) The strategic Management 2-1/ Definition
« Strategic management is a process through which managers formulate and implement strategies geared to optimizing strategic goal achievement given available environment and internal conditions »
Management Kathryn M. Bartol & David C. Martin Strategic management process 2-2/ Integrating Intuition and analysis
Intuition is the key of making a good strategic decision especially in situation of great inccertainly or little precedent.
But Intuitive and experience-based management are inadequate when decisions are strategic and have a major irreversible consequences 2-3/ The importance of strategic management
Strategic Management help organizations to identify and develop a competitive advantage
Provide a sens of direction so that employees know where they expend their efforts
Highlight the need of innovation related to strategies.
Link between strategic management and financial performance
2-4/ Strategic Management: A continuous process
The Intended strategy and Realized strategy usually differ because of unforeseen environmental or organizational events.
2-4/ Strategic Management: A continuous process Deliberate Strategy Emergent Strategy Unrealized Strategy 2-4/ Strategic Management: A continuous process
Strategy Planing Strategy implementation
Creating Putting strategies into actions
strategies
Strategic Management is concerned with making decision about an organization’s future direction and implementing those decisions 2-4/ Strategic Management: A continuous process 2-4/ Strategic Management: A continuous process 2-4/ Strategic Management: A continuous process
Strategic competitiveness is achieved when a company successfully formulates and implements a value creating strategy.
When the value creating strategy that is new, unique and not easly imitable, the firm had a sustained competitive advantage.
2-4/ Strategic Management: A continuous process Feedback about firm’s strategic actions comes from various sources but the most important source is provided by firm stakeholder’s.
It helps the firm continuously to adjust and refine strategic inputs and strategic actions.
It includes:
Clients
Competitors
Suppliers
The State
The society 2-5/ Promoting Innovation:Modes of strategic management
Modes of strategic management are the actual kinds of approaches taken by managers in formulating and implementing strategies
The mode selected is likely to influence the degree of innovation that occurs within the organization. 3)The strategic planning
Before developing plans for the idividual departments, a larger plan for the entire organization must be developed.
Then, objectives and strategies established at the top level provide the planning context for each division. 3-1/ Definition
Strategic planning is the process of formulating and implementing strategic plans. It involves identifying the major objectives of an organization, choosing the strategies needed to achieve them, creating plans to implement the stategies, and then doing the required work. 3-1/ Definition
It involves 5 steps:
Where do we want to be in the future?
How well are we currently doing?
How can we get where we really want to be?
Has everything been done that needs to be done?
Are things working out as planned, and why?
3-1/ Definition
The strategic planning is responsibility of the top-management, although it requires participation of managers at all levels 3-2/ The growth of strategic planning
Many of today’s most successful business organization continue to survive because many years ago they offered the right product at the right time.
In other hand, wisdom and intuition can help to make decisions but still not sufficient to guide the destiny of organization. And because of uncertainty, instability and chaging environment.
Therefore, managers turn to the use of strategic planning
3-2/ The growth of strategic planning
Strategic planning is
A process that involves the review of market condition, customer’s nedds, competitive strenghts and weaknesses, resources and opportunities.
The developement of strategic plans involves taking information from the environment and deciding upon the organizational mission, objectives… 3-3/ The importance of strategic planning
Plans for the future were merely extensions of where the organization had been in the past.
Due to energy crises, deregulation, accelerating technological change, uncertainty of markets, competition… managers are forced to develop a systematic means of analyzing the envirnoment, assessing their organization’s strenghts and weaknesses, and identifying opportunities where the organizations could have a competitive advantage. 3-4/ The nature of strategic planning
Organizations exists to make contributions to society. If it fails, it can disintegrate.
So, strategy is concerned with the grand picture of how organization serve society, and strategic planning is concerned with how organizations intentionnally and systematically make decisions about products, services, customers, and human resources vital both to itself and society. 3-4-1/ Relating Strategic plan- Operational plans 3-4-1/ Relating Strategic plan- Operational plans
Most managers will not directly develop organization’s strategic plan. However, they may be involved to the process in 2 ways:
By providing inputs in the form of informations and suggestions relating to their particular areas of responsibility.
They must be completely aware of what the process of strategic planning as well as the results. 3-4-2/ Relating organizational objectives- Operational objectives 3-4-2/ Organizational objectives- Operational objectives
If planning is done, it will clearly appear in all levels in the organization.
Objectives and strategies plan for the entire organization relate to objectives and strategies that are part of operational plans for individual departments.
As we move down from the top of the organization to lower levels in term of who does the planning, we increase the detail and specificity of the objectives, and we decrease their time span.
4-Ethical and social responsibility in management
Before it is implemented, a potential solution to a problem should be tested by the « ethics double-check », and should meets moral standards.
The ethical and social responsibility of corporations arise from the simple fact that corporations serve multiple stakeholders. And each one has different stakes in the corporation and demands different outputs from it. 4-1/ The realm of ethics
Business decisions are also « good » and « bad ».
Making decisions requires that managers go beyond traditional economic technological, and sociopolitical citeria and make evaluations based on ethical criteria.
Decision making can be simplified if managers can understand ethical issues and if the organization allows ethical considerations to influence strategic decisions. 4-1/ The realm of ethics The examination of ethical issues can be done at three levels: 4-2/ Ethical conflicts The dilemma of ethical decision making in business setting arises out of the tensions or conflicts between what it is good for individuals, organizations, and society. 4-2/ Ethical conflicts
Dealing with ethical conflicts requires companies establish and communicate ethical stadards for their employees. And they must create decision making procedure for resolving ethical conflicts. 4-3/ Corporate social responsiblity and strategy formulation
Corporations are primarily economic entities whose soles purpose is to increase shareholder wealth by producing and selling goods needed by customers
In contrast , corporations have grown to such large size and complexity that they affect many noneconomic aspects of society. These areas include health politics, culture, and social relations. 4-4/ Areas of social resposability
Responsibility for protecting the natural environment.
Responsibility toward customers
Responsibility toward employee welfare
Responsibilities toward local, state and federal government agencies.
Responsibilities to the public or communities where the corporation has operations
Responsibilities toward the media.
4-4/ Procedures for dealing with social responsibilities 1. Forecasting strategic sosial issues
In each area of social responsibility,managers need to forecast the emergence and life cycle of strategic social issues.This can be done by instituting an issues management program in the company.
Issues management refers to early identification,tracking,and resolution of strategic issues that could affect the company; By considering emerging strategic issues early,firms have the opportunity to shape strategies as they become important to the firm and put them on their strategic agenda. 4-4/ Procedures for dealing with social responsibilities
2. Organizing for social responsibility
If socially responsive behaviour is to be seriously and consistently encouraged within organizations,if cannot be left up to the personal preferences of idividual managers.It must be institutionalized with appropriate organizational authority and resources.Managerial roles and functions must be defined that are in charge f monitoring social performance of the firm and ensuring that it fulfils its diverse responsibilities toward its stakeholders 4-4/ Procedures for dealing with social responsibilities 3. Socially resposible strategies
It consits on evaluating the social merits of each corporate and business strategy selected based on financial, technological, and market criteria.
A second approach consists on developing socially responsive strategies is adopting specific strtegies toward all key stakeholders of the firm.
Such stategies pursue multiple stakeholder objectives rather than simple profitability objectives. 4-4/ Procedures for dealing with social responsibilities
4. Social responsibility regulations
Over the past twenty years, establishment of a variety of regulations and regulatory agencies has ensured that corporations meet at least their minimal social responsibilities. Some agencies that adress all the areas of social responsibility identified in this section:
Consumer product safety commission
Environmental protection agency
Equal employment opportunity commission
Faderal emergency management agency
Federal trade commission
Food and drug administration
General accounting office
Interstate commerce commission
Minning enforcement and safety commission
National highway safety administration
Nuclear regulatory commission
Occupational safety health administration
Office of consumer affairs
Office of federal contract compliance programs
Office of technology assessment
Securities and exchange commission
CHAPTER 2: Strategies in action 1.CORPORATE STRATEGY Corporate-level strategy is often called the portfolio-level strategy because board-level decisions are usually concerned with acquisitions, mergers, major expansions, and divestitures that add to or reduce product lines There are many types of strategies that can be pursued to gain a specific sense of overall direction at the corporate and business levels. These four "grand" or "major" strategies fall into four major categories:
Growth: Pursuit of increased organizational size through expanded operations.
Retrenchment: Pursuit of reduced organizational size through operations cutbacks.
Stability: Pursuit of the status quo, or present course of action.
Combination: Pursuit of two or more strategies at the same time.
1-1. TYPES OF GRAND STRATEGIES alternative strategies that an enterprise could pursue can be categorized into thirteen actions: forward integration, backward integration, horizontal integration, market penetration, market development, product development, concentric diversification, conglomerate diversification, horizontal diversification, joint venture, retrenchment, divestiture, liquidation, and a combination strategy. Each alternative strategy has countless variations. 1/ GROWTH STRATEGIE (1/3)
Some organisation try to grow inernally through some form of concentration. That is by using existing strenghs in new and productive ways but with out taking the risk of great shift.
A second set of growth strategies is through some form of diversification .
The acquisition of new businesses in related or unrelated areas, or investment in new ventutres. 1/ GROWTH STRATEGIE (2/3)
FORWARD INTEGRATION: involves gaining ownership or increased control over distributors or retailers.
BACKWARD INTEGRATION: it is a strategy of seeking ownership or increased control of firm’s suppliers.
HORIZONTAL INTEGRATION: refers to a strategy of seeking ownership or increased control over a firm’s competitors. 1/ GROWTH STRATEGIE (3/3)
MARKET PENETRATION : The purpose of this strategy is to increase sales of product in an existing market through the use of more aggressive marketing tactics, especially pricing.
MARKET DEVELOPMENT: it consists on radical modifications of existing product or the creation of new ones with new characteristics that satisfy newly defined needs.
CONCENTRIC DIVERSIFICATION: Adding new but related products or services is widely called concentric diversification.
HORIZONTAL DIVERSIFICATION: Adding new unrelated products or services for present customers is called horizontal diversification .
CONGLOMERATE DIVERSIFICATION: Adding new , unrelated products or services is called conglomerate diversification . Some firms pursue conglomerate diversification based in part on an expectation of profits from breaking up acquired firms and selling divisions piecemeal.
JOINT VENTURE STRATEGY:
Joint venture is a popular strategy that occurs when two or more copanies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. 2/ TURNAROUND STRATEGIES ( or Defensive strategies) (1/3)
Turnaround strategies attempt to revitalize business in a slump. They involve a combination of cost-cutting and revenue –enhancing strategies. Four turnaround options exists:
Cost-cutting strategies: if the firm has high direct labour costs, high fixed expenses, or is close to the break-even point, cost-cutting may be appropriate. 2/ TURNAROUND STRATEGIES ( or Defensive strategies) (2/3)
Asset-reduction strategies: may be needed if the firm is far from its break-even point, since there is no way to out costs sufficiently. Assets or capacity unneeded in the next two years or so should be the first to go.
Revenue-increasing strategies: If the firm is close to covering its fixed costs and has low variable costs, revenue increasing approches such as price increases may be more beneficial. 2/ TURNAROUND STRATEGIES ( or Defensive strategies) (3/3)
Combination strategies: If the firm is covering fixed costs but significantly below its break-even point, a combination of the previous three approches may be more fruitful.
DIVESTITURE
Selling a divison or part of an organisation is called divestiture. It is often used to raise capital for further strategic acquisitions or investment.
LiQUIDATION
Selling all of a company’s assets, in parts, for their tangible worth is called liquidation. Liquidation is recognition of defeat and consequently can be an emotionally difficult strategy. 3/ STABILITY STRATEGY
A stability strategy is characterized by an abscene of significant change. It involves maintaining the status quo or growing in a methodical but slowmanner. 4/ COMBINATION STRATEGY
A combination strategy is the pursuit of two or more of the previous strategies simultaneously. For exemple, one business in the company may be pursuing growth while another in the same company is contracting. I I ) BUSINESS LEVEL STRATEGIES
Two frameworks in wich business units formulate strategy are the adaptive typology and Porter’s competitive strategies. 1/ ADAPTIVE STRATEGIES Miles and Snow’s Adaptive Strategies 2/ Porter’s generic strategies Part II : Strategy Formulation CHAPTER 1: SETTING CORPORATE PURPOSE AND DIRECTION 1. Vision & Mission 1. Vision & Mission A Vision is a description of the business as you want it to be
The description might include :
How things will be
Where
With Whom
What you’ll be doing
How you’ll feel 1. Vision & Mission 1.1. Definition
1.2. Corporate mission
1.3. Mission and change
1.4. Mission and strategy
1.5. Organizational mission 1.1. Definition Strategic Mission is a statement of firm’s which reveals the long –term vision of an organization in terms of what it wants to be and whom it want to serve
It anwers the pivatal question « What is our business? » 1.2. Corporate mission
Corporate mission represent the broadest statements of the company’s vision and philosophy
They describe the company’s relationship to its external environment and establish the basic identity of the company for external stakeholders
The following steps can help managers to develop useful missions statements :
1-analyze historical missions , values and business operations and practices
2-consult organizational stakeholders about directions the company should take
3-Resolve conlicting demands
4-Describe the company’s value , guiding philosophy , business domains
5- share the draft mission statement with key managers and stakeholders , seek feedback and make modifications
1.3. Mission and change
Corporate and strategic business level missions will generally change over time
The change may take place rapidly or be slow and gradual 1.4. Mission and strategy
It’s difficult to know where one is going if one does not first know who one is
Effective management requires not only an understanding of the environment but also a focus on the organization’s mission 1.5. Organizational mission Mission statements tend to be made up of some or all of the following nine components :
Customers
Products or Services
Location
Concern for survival
Philosophy
Self concept
Concern for public image
Concern for employees Key elements
In developing a statement of mission , management must take into account three key elements :
The organization’s history
The competencies
The environment
Characteristics of a mission statement
An effective mission statement should be :
Market rather than product focus
Achievable
Motivational
Specific The mission statement of any business should answer the following general questions :
What is our business?
Who is the customer ?
What will our business be ?
What should our business be ?
2.Goals 2.Goals
« Goals are the end-result that an organization wishes to achieve by giving reason to its activities and indicating the purpose the system performs for society »
2.Goals
They describe the nature of organization’s operations
They cover multiple evaluation periods The benefits of goal setting The drawbacks of goal setting Goals formulation Goals make explicit the organization’s relationship to its internal and external environments
Goals state what an organization hopes to become and give it direction, cohesiveness and personnality External influences on goal formulation The goal-formulation process is essentially determining the relationship of the organization to the larger society
Therefore, it must take into consideration the claims of the various group External influences on goal formulation Goals might be suggested by the organization’s:
Owners
Customers
Suppliers
Employees
Creditors
Community
Government Internal function of goals
Goals serve a direct internal function of setting bounds on strategy generation Internal influences on goal formulation The motivations of managers are more complex than the pursuit of goals imposed by society
It may represent a conflict of personal goals with organizational goals Goal modification
The organization’s goals may be modified by values, ideas,and philosophies reflected in the personal goals of management Business goals and targets
Goals describe what a business must achieve in terms of specific performance indicators such as return on investment,return on assets,and return on sales Levels of goals Organizations have three levels of goals:
Types of goals
Goal content
Effective goals must be:
Challenging
Attainable
Specific and measurable
Time limited
Relevant
Goal commitment Goal commitment is one’s attachment to reach a goal
Six factors influence positively goal commitment:
Supervisory authority
Peer and group pressure
Public display of commitment
Expectations of sucess
Incentives and rewards
Participation
Potential problems with goals
Excessive risk- taking
Increased stress
Undermined self-confidence
Dishonesty and cheating 3. Objectives 3-Objective Objectives are short-term, specific, measurable targets that must be achieved to accomplish organizational goals.
They must be relevant, challenging and focused.
Objectives are the desired end results of any activity.
They should be set at each managerial level in the organization Types of objectives Setting objectives in Strategic Business Units and functional areas Each strategic business unit or functional area must establish its own objectives.
The steps in this process are as follows:
The objective setting process begins at the top of the organization with a statement of mission.
Long range objectives are established to achieve the mission.
Long range objectives lead to the setting of performance targets (short range objectives) for the overall organization
Long and short range objectives are established for each SBU, major division, or operating unit in the organization*
Long and short range objectives are established for the functional areas (marketing, finance, production) in each SBU, major division, or operating unit A- Long range objectives Specify the results that are desired in pursuing the organization’s purpose. They are specific, concrete and measurable. They can be categorized as follows: profitability; service to customers, clients, or other recipients; employee needs and well-being; and social responsibility
All organizations do not have objectives in all these areas
They must support and not be in conflict with the organization’s mission; be clear, concise, quantified, span all significant units, and dynamic. B- Short-range objectives They are performance targets, normally of less than one year’s duration, that are used by management toi achieve the organization’s long-range objectives.
They should be derived from an in-depth evaluation of the organization’s long range objectives.
Such a system ensures that all objectives are consistent with each other C- MIX of organizational objectives No one mix or combination of organizational objectives is applicable to all organizations.
The nature and the type of objectives are dependent on the nature and type of organization.
Ideally, objectives should:
Match strengths to opportunities
Minimize threats to the organization
Eliminate weaknesses in the organization How managers establish good objectives? Organizations have multiple objectives that must be orchestrated to avoid conflicts.
Setting company objectives is more complicated than making isolated choices in each category of objectives.
Well-defined objectives have several characteristics:
Expressed in writing
Measurable
Specific as to time
Challenging but attainable
Priority of objectives:
It’s entirely possible for an organization to have multiple goals and objectives contributing to its mission. Managers must establish priorities if they want to allocate resources in a rational way Conflicts among objectives:
The process of establishing objectives and setting priorities must not overlook the stakeholders interest. The form and weight to be given to conflicting objectives is a matter of managerial judgment.
Management must consider the expectations of the diverse groups on whom the firm’s ultimate success depends.
Measuring objectives:
Objectives must be clear, achievable, and measurable to be effective.
Effective managerial performance requires establishing objectives in every area that contributes to overall organizational performance.
Profitability objectives:
Includes the ratios of profits to sales, profits to total assets and profits to capital.
Marketing objectives:
Measures performance relative to products, markets, distribution, and customer service. Productivity objectives:
Measured with ratios of output to input. Other factors being equal, the higher the ration, the more efficient is the use of inputs.
Physical and financial objectives
Reflect the firm’s capacity to acquire resources sufficient to achieve its objectives. Quality objectives:
Quality derives from meeting or exceeding customer expectations on each dimension. Strategic management and organizational objectives Organizational objectives are the specific ends that an organization seeks to achieve. They symbolize the reasons for an organization’s existence.
Any strategy should have a clear means-end relationship with organizational objectives. Organizational objectives will accomplish the following:
Will be capable of being converted into specific actions
Will provide directions
Will establish long-run priorities for the organization
Will facilitate management control They are necessary in any and all areas that may influence the performance long-run survival of the organization
The important point si that management must translate the organizational mission into specific objectives that will support the realization of the mission
Official objectives state the organization’s basic purpose in society as a supplier of goods and/or services.
Operating objectives are specific ends toward which organizational resources are actually allocated The organization’s goals and objectives The mission is the reason for the existence of the firm.
The organization’s goals are the desired general ends toward which efforts are directed.
Objectives are specific, and often quantified, versions of goals. The role of the organization’s mission Without verifiability and specificity , objectives will not provide a clear direction for managerial decision making, nor permit an assessment of organizational performance 4. Plans 4.Plans
« Plans are statements of how objectives are going to be accomplished » 4.Plans Planning should answer the following questions:
What activities are required to accomplish the objective?
When should these activities be carried out ?
Who is responsible for doing what?
Where and when the action should be completed?
4.1. Levels of plans Strategic plans Tactical plans Operational plans Human resource plans 5. Budget 5. Budget Bugets are single-use plans that commit ressources to activities, projects, or programms.
We can distinguish three (3) types of budgets:
Fixed budget
Flexible budget
Zero based budget
Fixed budget:
It establishes a fixed pool of ressources that can be used, but not exceede, in support of specified purpose.
Exemple: a manager may have a 25 000 dh budget for equipment purchases in a given year. Flexible budget :
It allows the allocation of ressources to vary in proportion with various level of activity.
Exemple: a manager may have a buget allowance for hiring temporary workers if production exceeds a certain volume. Zero-based budget:
A project or activity is budgeted as if it were brand new. All projects compete anew for available funds. Strategic management process
In order to devise an effective strategy managers have to analyze the organization’s competitive situation
This analysis is a method of assessing both the environmental and the organizational factors that can influence the organization ’s ability to compete effectively Ch1: External and internal analysis SWOT analysis
SWOT is a method of analyzing :
The strengths and weaknesses that the internal factors can offer to the organization’s competitive situation
The opportunities and threats related to the environmental factors The External Assessment (1/2)
The combination between what the environment wants and what the corporation has to offer
Because actually the environment is Associated to the increasing uncertainty the manager may consider one of the four orientations
The External Assessment (2/2)
The external factors that influence strategic decisions :
Industry
Political
Government
Resources
Cultural
Social
economic The Internal Assessment
Analysis of the macro-environment (societal environment)
Industry analysis
Competitors analysis Analysis of the Societal Environment
The main goal of this analysis is to predict the state of External events of the future , this prediction serves three very important purposes :
Allows the firm to establish mission or goals concerning how it wishes to interact with future events
Allows the identification of the fundamental requirements for success in the future
Allows the goals within the constraints of the fundamental requirements for success
Analysis of the Societal Environment
The most important variables in the societal environment :
Economic
Technological
Politico-legal
Sociocultural Technological forces
Technology is a body of knowledge , skills or procedures for making , utilizing or doing useful things
The importance of the technological aspect consist of the serious effect that can the organization’s reaction to the technological improvement influence the continuation of the firm
Management may not have time to react but must predict the technological future to ensure the continued existence of the organization
Technological developments
Change in technology affect certainly the organization’s destiny
Strategic management helps to anticipate the technological change , use it successfully in the workplace and exploit it for the competitive advantage Stage of technology
Technology can be considered as a three stage process consisting of:
Invention : creation of new product or process
Innovation : introduction of a product or process into use
Diffusion : the spread of the product or process beyond the first use Problems of predicting technology
In order to properly consider the factor of technological predicting the manager must consider additional factors : Raw materials , technology
What effect will advances in raw materials have in the product group ?
What effect will advances in the process technology have on the product group ?
The technological prediction
The technological prediction concern one of the stages
Most technological prediction concern the stages of innovation and diffusion
The approach is to assume the invention and predict the innovation or the diffusion stage Sociocultural forces
By social forces we mean:
Traditions
Values
Societal trends
Consumer psychology
A society expectations of business
Sociocultural forces
Societal trends present various opportunities and threats or constraints to business (health and fitness)
Demographic trends affect dramatically business opportunities ( the baby boom)
The society ‘ s expectations of business emanate from diverse groups referred to a stakeholders
Socio – cultural Milieu
Most managers use techniques to be aware of developments in the socio cultural environment :
Political legal forces
By Political – legal forces we mean the outcomes of elections , legislation and court judgement, as well as the decisions rendered by various commissions and agencies at every level of government
Economic forces
The health of a nation’s economy affects the performance of individual firms and industries
The economic environment refers to the nature and direction of the economy in which a firm competes or may compete
Economic forces
As examples we will consider:
Gross’national product (GNP )
Interest rates
Inflation rates
value of the dollar
Gross’national product
GNP refers to the value of a nation’s annual total production of goods and services
It serves as a major indicator of economic growth Interest rates
Interest rate levels greatly affect strategic decisions
High rates normally damping business plans to raise funds to expand or replace facilities
Low rates are more conductive to capital expenditures and to mergers and acquisitions Inflation rates
Inflation rates levels affect strategic decisions
High rates boost costs such as the purchase of raw materials and parts and the wages and salaries of employees Value of the dollar
When the value of dollar is strung , american manufacturers tend to:
Locate their plants abroad
Make purchase from foreign sources
Enter into strategic alliances with firms in other countries Monitoring strategic factors
Issues priority matrix
This matrix helps to find strategic factors which are those strategic issues with a high probability of occurrence and a high impact on the corporation
Issues priority matrix Obstacles to general environmental analysis
Top management must support the analysis by :
Demonstrating the importance of the analysis
Providing resources
Providing sources of information
Providing leadership by making decisions based upon the general environmental analysis
Having a willingness to tolerate risk Industry analysis: Porter’s five competitive forces mode According to Porter , the nature of competitiveness in a given industry can be viewed as a composite of five forces:
Rivarly among competitive firms
Potential entry of new competitors
Potential development of substitute products
Bargaining power of suppliers
Bargaining power of consumers
1- Rivarly among Competing Firms Its intensity tends to increase in the following cases :
The number of competitors increases
Competitors become more equal in size and capability
Price cutting becomes common
Consumers can Switch brands easily
Fixed costs are high
Rival firms are divere in strategies, origins and cultures
Mergers and acquisitions are common in the industry
2- Potential entry of new competitors
Barriers to entry , can include :
The need to gain economies of scale quickly
The need to gain technology and specialized know –how
The need of experience
Strong brand preference
Large capital requirements
Access to raw materials
Counter attack by entrenched firms
Potential saturation of the market 3- Development of substitute Product
Competitive pressures arising from substitute products increase as the relative price of substitute products declines
The competitive strength of substitute products is best measured by the inroads into market share those products obtain 4-Bargaining power of suppliers
It affects the intensity of competition in industry especially when there is :
Few number of suppliers
Few good substitute of raw materials
The switching cost of raw materials is especially high 5- Bargaining power of consumers
It affects the intensity of competition when:
The customers are concentrated , few or buy in volume
The products being purchased are standard or undifferentiated
The shifting costs are low Competitors analysis
It is important to evaluate the firm but it is also important to evaluate the capabilities of competitors
The competitive analysis is related to identifying firm’s current and potential competitors The External Factors Evaluation (EFE)
It allows strategists to summarize and evaluate economic, social , cultural, demographic , environmental , political , governmental , legal, technological and competitive information
The External Factors Evaluation (EFE)
There are five steps in developing an EFE Matrix :
1- List critical factors as identified in the external –audit process
2-Assign a weight that ranges from 0..0 (not important) to 1..0 (very important )
3- Assign 1 to 4 rating to each critical success factor (4 = response is superior … 1 = the response is poor)
4- Multiply each factor’s weight by its rating to determine a weighted score
5 - Sum the weighted scores for each variable to determine the total weighted score for the organization
The changing environment of organizations
Strategic managers must bear that an organization is part of a system that change constantly
These advances occur , the roles of all organization members change Strategic shifts
Strategic managers must evaluate their organization’s situation relative to industry shifts and competitive changes in order to formulate plans The Internal Assessment
Strategic managers need to assess internal strengths and weaknesses as they influence the ability of the organization to compete
Strengths are important because they are potential of competitive advantage Approaches to internal environment analysis
A - internal environment analysis
7’S framework
PIMS analysis
Value chain Analysis
Functional analysis
B - The internal environment analysis as proposed by Hit and Ireland 7’S framework
Popularized by Peters and Waterman
It involves gathering information on seven organizational variables :
Structure
Strategy
Staff
Management style
Systems and procedures
Skills
Shared values
PIMS analysis The profit impact of market strategy programs is useful in identifying key internal variables :
Investment intensity
Market share
Product quality
Capacity utilization
Operating effectiveness
Direct costs per unit Value Chain Analysis
Proposed by Porter ,is a way of examining the nature and extent of the synergies that do or not exist between the internal activities of a corporation
The value chain is all the activities an organization undertakes to create value for a customer Value Chain analysis Functional analysis
Ansoff proposes that a corporation’s skills and resources can be organized into a « competence profile » According to the typical business functions of marketing , finance research and development The internal environment analysis as proposed by Hit and Ireland A firm is a bundle of heterogeneous resources capabilities and core competencies that can be used to create an exclusive market position
To manage development managers requires courage , self confidence , integrity and willingness to hold people accountable for their work
Some of firm’s resources are tangible , while others are intangible
Tangible resources are assets that can be seen ,touched or quantified
Intangible resources range from the intellectual property rights of patents , trademarks and copyrights
Tangible resources
Managers are challenged to establish a strategic value of resources
This strategy indicates the degree to which they can contribute to the development of capabilities , core competencies and ultimately a competitive advantage Intangible resources
Intangible resources are less visible so more difficult to understand and imitate and a likely source of sustainable competitive advantage
The intangible resource may be the only source of core competencies because they tend to be invisible so difficult to imitate Key internal forces
Distinctive competencies are competencies that cannot be easily imitated by competitors
Management
The functions of management include five basic activities :
Planning
Organizing
Motivating
Staffing
Controlling The basic functions of management The basic functions of management Marketing Marketing Marketing Finance/accounting Finance/accounting: basic types of financial ratios Finance/accounting
Economic value added indicators:
EVA = Résultat d’exploitation après impôts et taxes-CMP * Capital
Market value added = Capitalisation boursière- Actif net comptable
Production/operations
Consists of all those activities that transform inputs into goods and services
Comprises five functions or decision areas:
Process
Capacity
Inventory
Work force
Quality
Research and development
Four approaches to determining R & D budget allocations are commonly used:
Computer information systems
Ties all business functions together and provides the basis for all managerial decisions
Integrating Strategy and Culture
A culture includes the set of shared values, beliefs, attitudes, customs, norms, personalities, and heroes that describe a firm.
It’s also the unique way an organization does business.
An organization’s culture must support the collective commitment of its people to a common purpose.
The internal factor evaluation (IFE) matrix
Summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas.
The competitive profile matrix (CPM)
It identifies a firm’s major competitors and their particular strengths and weaknesses in relation to a sample firm’s strategic position.
The critical success factors in a CPM are broader, they do not include specific or factual data.
Ch2:Formulating Strategies Matrices conecerned with the developing a corporation’s mission, objectives, strategies and policies
Strategy makers analyse strategic factors of the current situation
Popular methods of situation analysis
The SWOT Analysis
Portfolio Analysis Component of the SWOT Analysis Generating a SWOT matrix Finding a propitious Niche
The Niche is corporation specific competitive role
The corporation has a distinctive competence that enables it to take advantage of specific environmental opportunities
Portefolio Analysis Learning/experience curve
The BCG growth-share Matrix
Nine-cell GE business sreen
The SPACE Matrix
The internal-external Matrix
The grand strategy Matrix
The QSP Matrix
Attractiveness: Competitive position
Product/Market Evolution Matrix Learning/experience curve
Tool used in the strategy formulation process
Based on the constant decline in the deflated marginal cost of production with increasing cumulative volume of production The BCG growth-share Matrix
Developed by General Electric in 1971
Strategy tool to guide resource allocation decisions based on market share and growth of SB U s
Nine-cell GE business screen
Developed by General Electric with the assistance of McKinsey
Includes nine cells based on long-term industry attractiveness and business stregth/competitive position The SPACE Matrix
Strategic Position and Action Evaluation Matrix
An important tool that indicates whether agressive,conservative, defensive, or competitive strategies are most appropriate for a given organization
The internal-external Matrix
Similar to the BCG matrix
Involves plotting organisation divisions in a schematic diagram The grand strategy Matrix
Tool for formulating alternative strategies
Based on two evaluative dimensions :
Competitive position
Market growth
The QSP Matrix
Quantitative Strategic Planning Matrix
Indicates which alternative strategies are best
Identify external and internal critical success factors Attractiveness:Competitive position
Any strategy contains four components:
The scope or domain of action
The skills and resources
Competitive advantages
synergies
Product/Market Evolution Matrix
Called the life-cycle portfolio matrix
Businesses are plotted according to the business units, business strength,or competitive position Part II.
The Internal Assessment The Internal Assessment Approaches to internal environment analysis
The internal environment analysis as proposed by Hit & Ireland
The Internal Factor Evaluation Matrix
Intergrating Strategy and Culture
I-Approaches to internal Environment analysis 7’S framework
PIMS Analysis
Value Chain Analysis
Functional Analysis 7’S framework The 7-S Framework of McKinsey is a management model that describes 7 factors to organize a company in an holistic and effective way.
Together these factors determine the way in which a corporation operates. Managers should take into account all seven of these factors, to be sure of successful implementation of a strategy.
7’S framework The Benefits of the 7-S Model :
Diagnosis tool for understanding organizations that are ineffective.
Guides organizational change.
Combines rational and hard elements with emotional and soft elements.
Managers must act on all Ss in parallel and all Ss are interrelated.
7’S framework These seven variables are:
The meaning of the 7 Ss Shared Values
What does the organization stands for and what it believes in. Central beliefs and attitudes.
Strategy
Plans for the allocation of a firms scarce resources, over time, to reach identified goals.
Structure
The way in which the organization's units relate to each other: centralized, functional divisions, decentralized, a matrix, a network, a holding, etc.
The meaning of the 7 Ss Systems
The procedures, processes and routines that characterize how the work should be done: financial systems; recruiting, promotion and performance appraisal systems; information systems.
Staff
Numbers and types of personnel within the organization. Style
Cultural style of the organization and how key managers behave in achieving the organization's goals.
Skills
Distinctive capabilities of personnel or of the organization as a whole.
PIMS Analysis The Profit Impact of Market Strategy programs is a shared experience model that helps firms to make and support marketing strategy decisions.
Database The Impact
of strategy on performance The
SBU performance Formulation
of business strategy PIMS Analysis The PIMS project was started by Sidney Schoeffler working at General Electric in the 1960s, then picked up by Harvard's Management Science Institute in the early 1970s, and has been administered by the American Strategic Planning Institute since 1975.
PIMS Analysis The senior managers at GE who wanted to know why some of their business units were more profitable than the others.
With the help of Sidney Schoeffler they set up a research project in which each of their strategic business units reported their performance on dozens of variables. This was then expanded to outside companies in the early 1970s.
PIMS seeks to respond three basic questions What is the typical profit rate for each type of business?
Given current strategies in a company, what are the future operating results likely to be?
What strategies are likely to help improve future operating results?
According to Lancaster, Massingham and Ashford (p531, Essentials of Marketing, 4th edition, 2002, McGraw Hill),
PIMS Analysis The model helps marketing managers to Select the appropriate market to target, to identify the marketing strategy that will maximize profits in a business unit.
It Compares a firm's actual return on investment (ROI) and return on sales (ROS) with the ROI and ROS that are expected from firms in comparable businesses and circumstances. PIMS Analysis The Profit Impact of Market Strategy (PIMS) database "yields solid evidence in support of both common sense and counter-intuitive principles for gaining and sustaining competitive advantage“
According to Tom Peters and Nancy Austin
“Passion for excellence”
How PIMS works ? PIMS uses information about the experiences of a variety of successful and unsuccessful businesses to provide insights into a firm's expected profitability. The PIMS database contains information about 3000 businesses owned by 450 firms.
Based on this reference database, PIMS develops relationships between the profitability measures of a firm (ROI and ROS) and such independent variables as the rate of price inflation and vertical integration. Participation in the PIMS study PIMS evaluate businesse’s market position and suggest possible strategies, based on the data gathered from participating companies.
Businesses wishing to use the service provide detailed information, including details of their:
Competitors and market
Balance sheet
Assumptions about future sales.
Participation in the PIMS study In return, PIMS provides four reports, described by Lancaster, Massingham and Ashford as:
1) A 'Par' report - showing the ROI and cash flows that are 'normal' for this type of business, given its market, competition, technology, and cost structure.
2) A 'Strategy Analysis' report, which computes the predicted consequences of each of several alternative strategic actions, judged by information in similar businesses making similar moves, from a similar starting-point and in a similar business environment.
Participation in the PIMS study A 'Report on Look-Alikes' (ROLA), which aimed at predicting the best combination of strategies for the particular company, by analysing strategically similar business more closely.
An 'Optimus Strategy' report, which is aimed at predicting the best combination of strategies for that particular company, again based on the experiences of other businesses in 'similar' circumstances.
Value Chain Analysis A way of examining the nature and extent of the synergies that do or not exist between the internal activities of a corporation.
Every firm is a collection of activities that are :
Performed to design, produce, market, and support its products.
Represented through a Value Chain.
Value Chain Analysis A method that’s distinguishing among the firm’s activities, from the conception to the distribution, those which may be value-creating and make the firm more competitive.
The Value Chain Value Chain Analysis The analysis’ steps are :
Examine the value chain of a particular product or service in terms of the various activities involved in its production.
Examine the « linkages » among the product’s or service’s value activities.
Examine the potential synergies among the corporation’s products or services.
Functional Analysis A corporation’s skills and resources can be organized into a « competence profile » according to the typical business functions of Marketing, Finance, R&D…
Functional Analysis Analyze the capacities observed at the employees who excel at various strategic posts.
Define the competence profile for every type of post office.
II- The internal environment analysis as proposed by Hit & Ireland 1-Importance of internal analysis In world of global competition, traditional sources of competitive advantage are infective.
Top managers have to rethink the concept of the corporation.
A firm is a bundle of heterogeneous resources, capabilities, and core competencies that can be used to create an exclusive market position.
1-Importance of internal analysis
How a firm can identify the sources of its competitive advantage ?
1-Importance of internal analysis ‘‘ Know your enemy and know yourself ; in a hundred battles, you will never be defeated. When you are ignorant of the enemy but know yourself, your chances of winning or losing are equal. If ignorant both of your enemy and of yourself, you are sure to be defeated in every battle ”
Sun Tzu - The Art of War 2-challenge of internal analysis Top Managers make strategic decisions that will have an impact on the firm’s orientation.
Managerial decisions are characterized by three conditions: Uncertainty, Complexity and Intraorganizational conflicts.
2-challenge of internal analysis Uncertainty :
The emergence of new proprietary technologies
The changing of economic and political trends
The changing of societal values
The shifts of the consumer demand
2-challenge of internal analysis 2-challenge of internal analysis Intraorganizational conflicts :
The wrong structuring of the corporation
The non-accuracy of Person-Post office 3-Resources, capabilities and core competencies “Firm Resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness.”
According to Jay Barney Tangible Resources Financial * Physical * Human Resources * Organizational * Resources What a firm Has... What a firm has to work with: its assets, including its people and the value of its brand name Resources represent inputs into a firm’s production process... Such as capital equipment, skills of employees, brand names, finances and talented managers Resources Intangible Resources Technological * Innovation * Reputation * Human Resources Capabilities What a firm Does... The firm’s capacity or ability to integrate individual firm resources to achieve a desired objective. Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees. Capabilities Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage.
Examples of Firms’ Capabilities Core Competencies Resources and capabilities that serve as a source of a firm’s competitive advantage:
Distinguish a company competitively and reflect its personality
Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities
Core Competencies Activities that a firm performs especially well compared to competitors
Activities through which the firm adds unique value to its goods or services over a long period of time
The Competencies hierarchy
Source : Mansour Javidan, Core Competence : What Does It Mean in Practice ?, Long Range Planning, February 1998, Long Range Planning, Vol 31, N° 1, pp 60-71.
Identifying Core Competencies Step
1. Prepare a current product/market profile
2. Identify sources of advantage in primary product/markets
3. Determine organizational competencies
4. Determine if competencies give you a sustained competitive advantage
Question
1. What are we selling, to whom and how are we doing?
2. Why do our customers choose our products over others?
3. What about our org. gives us advantage with customers?
4. Is the competency rare, valuable, difficult to imitate or substitute? Which
Leads To Combined With Results In Resources * Tangible * Intangible Capabilities Teams of
Resources Sources of
Sustained
Competitive Advantage Core Competencies Above-Average
Returns Strategic Competitiveness Components of Internal Analysis 4-Key Internal Forces Strategies are designed in part to improve on firm’s weakness, turning them into strengths that cannot be easily matched or imitated by competitors. These strengths, called distinctive competencies, are the firm’s key internal forces.
The key internal forces concern many function within the firm, among them:
Management
Marketing
Finance/accounting
Production/operations
R&D
Computer information systems
Management Management characterizes the process of leading and directing all or part of an organization, often a business, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible).
The functions of management consist of five basic activities:
Planning
Organizing
Motivating
Staffing
Controlling Marketing (1/3) Marketing is defined as the process of determining the needs and wants of consumers and being able to deliver products that satisfy those needs and wants.
Marketing includes all of the activities necessary to move a product from the producer to the consumer. Think of marketing as a bridge from the producer to the consumer. Joel Evans and Barry Bergman suggest that there are nine basic functions of marketing:
Understanding these functions helps strategists identify and evaluate marketing strengths and weaknesses.
Marketing (2/3) 1- Customer analysis
2- Buying supplies
3- Selling products/services
4- Product and service planning
5- Pricing
6- Distribution
7- Marketing research
8- Opportunity analysis
9- Social responsibility
Marketing KPI’s Key performance indicators (KPMs) are measures by which the performances of organizations, business units, and their division, departments and employees are periodically assessed.
Some examples are:
Customers attrition
New customers acquired
Brand awareness
marketing Cost Per Lead
Marketing KPI’s Marketing KPI include KPIs:
1. Public relations KPI
PR KPI include KPIs related to appraisal indicators of Public relations such as effective PR items, press releases, conducting survey, the level of awareness of the enterprise through the public relations did etc.
2. Promotion KPI
Promotion KPI include KPIs related to appraisal indicators of promotion activities in marketing such as the rate of sales in promotion period and before the promotion, percentage of sales in promotion and after promotion etc.
3. Advertisement KPI
Advertisement KPI include KPIs related to appraisal indicators of advertisement activities in marketing such as the cost of advertising on the 1000 target audiences, the level of awareness of the product etc.
4. E-marketing KPI
E-marketing KPI include KPIs related to appraisal indicators of E-marketing in marketing such as the rate of new visitors, number of page views / visitors etc.
Marketing KPI’s 1-Public relation KPI:
Marketing KPI’s 2- Promotion KPI:
Marketing KPI’s 3-Advertissment KPI:
Marketing KPI’s 4-e-marketing KPI FINANCE/ACCOUNTING (1/5) A firm’s liquidity, leverage, working capital, profitability, asset utilization, cash flow, and equity can eliminate some strategies as being feasible alternatives.
Financial factors often alter existing strategies and change implementation plans.
FINANCE/ACCOUNTING (2/5) The functions of finance/accounting comprise three decisions:
The investment decision,
The financing decision,
The dividend decision.
FINANCE/ACCOUNTING (3/5) The investment decision also called capital budgeting, is the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization.
Once strategies are formulated, capital budgeting decisions are required to implement strategies successfully.
FINANCE/ACCOUNTING (4/5) The financing decision concerns determining the best capital structure for the firm and includes examining various methods by which the firm can raise capital (for example, by issuing stock, increasing debt, selling assets, or using a combination of these approaches).
The financing decision must consider both short-term and long-term needs for working capital.
FINANCE/ACCOUNTING (5/5) The Dividend decisions concern issues such as the percentage of earnings paid to stockholders.
It determines the amount of funds that are retained in a firm compared to the amount paid out to stockholders.
The benefits of paying dividends to investors must be balanced against the benefits of retaining funds internally.
Basic types of Financial ratios
Financial ratios are computed from an organization’s income statement and balance sheet. Computing financial ratios is like taking a picture, because the results reflect a situation at just one point in time.
1) Liquidity ratios Measure a firm’s ability to meet maturing short term obligations 2)Leverage ratios: Measure the extent to which a firm has been financed by debt 3) Activity ratios: Measure how effectively a firm is using its resources. 4)Profitability ratios: Measure management’s overall effectiveness as shown by the returns generated on sales investment. 4)Profitability ratios : Measure management’s overall effectiveness as shown by the returns generated on sales and investment. 5)Growth ratios : Measure the firm’s ability to maintain its economic position in the growth of the economy and industry. PRODUCTION/OPERATIONS This function of a business consists of all those activities that transform inputs into goods and services.
Production/operations management deals with inputs, transformations, and outputs that vary across industries and markets.
PRODUCTION/OPERATIONS Production/operations management comprises five functions or decision areas:
Process,
Capacity,
Inventory,
Work force,
Quality. Production ratios Production ratios RESEARCH AND DEVELOPMENT Organizations invest in R&D because they believe that such investment will lead to superior product or services and give them a competitive advantage.
RESEARCH AND DEVELOPMENT R&D in organizations can take two basic forms:
Internal R&D, in which an organization operates its own R&D department ;
Contract R&D, in which a firm hires independent researchers or independent agencies to develop specific products
RESEARCH AND DEVELOPMENT Ratios of the intensity of R&D in a firm :
Number of the employees R&D/number of the employees of the firm
budget allocated to R&D/turnover
number of researchers/ Number of the employees R&D
Computer Information System The purpose of a computer information system is to improve the performance of an enterprise by improving the quality of managerial decisions.
An effective information system collects, codes, stores, synthesize, and presents information in such a manner that it answers important operating and strategic questions.
Computer Information System There are a number of commercially available strategic planning software products designed to train and assist managers in strategic planning, including Business Advantage, Business Simulator, SUCCESS, EXCEL, STRATPAC, SIMPLAN, REVEAL, COSMOS…
Relationship among the functional areas of business III-The internal factor evaluation (IFE) matrix
“This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas” How can we create the IFE matrix? (1/2) The IFE matrix can be created using the following five steps:
List critical success factors as identified in the internal-audit process.
Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor.
Assign a 1 to 4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4).
How can we create the IFE matrix? (1/2)
4) Multiply each factor's weight by its rating to determine a weighted score for each variable.
5) Sum the weighted scores for each variable to determine the total weighted score for the organization.
Example of IFE Matrix Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas scores significantly above 2.5 indicate a strong internal position.
Like the EFE Matrix, an IFE Matrix should include from 10 to 20 key factors. The number of factors has no effect upon the range of total weighted scores because the weights always sum to 1.0.
When a key internal factor is both a strength and a weakness, the factor should be included twice in the IFE Matrix, and a weight and rating should be assigned to each statement Example of IFE Matrix Definition
Culture is a set of shared values, beliefs, attitudes, customs, norms, personalities, and heroes that describe a firm. Culture is the unique way an organization does business. IV- Intergrating Strategy and Culture IV- Intergrating Strategy and Culture Culture and strategy
It is beneficial to view strategic management from a cultural perspective because success often depends on the degree of support that strategies receive from a firm’s culture. The CPM is used to compare a firm with its major competitors showing the clear picture about their strong and weak points.
The CPM includes both internal and external factors to evaluate the firm’s overall position compared with its major competitors.
The competitive profile matrix (cpm) The CPM score is measured on basis of critical success factors :
Higher rating shows that the firm’s strategy is doing well to support this critical success factors.
Lower rating means that the firm’ strategy is lacking to support these factors.
The competitive profile matrix (cpm) Rating represents the response of firm towards the critical success factors.
The Rating range is from 1 to 4 and can be applied to any factor. The competitive profile matrix (cpm) Weight indicates the relative importance of the factor to being successful in the firm’s industry.
The Weight range from 0 to 1. The competitive profile matrix (cpm) Weighted score is the result achieved after :
Factor Rating x Factor Weight
Total Weighted score is the sum of all weighted score
The Total weighted score range is from 1 to 4. The competitive profile matrix (cpm) Average Total Weighted score = 2.5
Total Weighted score < 2.5 = weak position
Total Weighted score > 2.5 = strong position
The firm with the higher Total Weighted score is considered as the winner among the competitors The competitive profile matrix (cpm) Strategy formulation Strategy formulation The formulation process is concerned with developing a corporation’s mission, objectives, strategies and policies. In order to do this, strategy makers must analyze the corporation’s strategic factors in light of the current situation.
Strategy formulation 1- SWOT MATRIX
2-PORTFOLIO ANALYSIS
1-The SWOT Matrix After completing an industry and a competitive analysis, managers examine the strengths and weaknesses of their own company to determine how well existing strategies are working:
At the corporate level, the question is whether the company has created a portfolio of businesses that fit together to support corporate objectives.
At the business level, the question is whether competitive strategies are realistic in relation to industry conditions and competition.
At the functional level, the question is whether strategies have accomplished the supporting objectives necessary to remain competitive 1-The SWOT Matrix Generating a S.W.O.T Matrix 2-Portfolio Analysis Portfolio strategy is the process of determining how an SBU will compete in a particular line of business, with a concentration on the mix of business units and product lines that fit together in a logical way to provide maximum competitive advantage for the corporation.
A portfolio strategy approach is a method of analyzing an organization's mix of businesses in terms of both individual and collective contributions to strategic goals.
The Learning/Experience Curve The Learning/Experience Curve The learning curve slope refers to the percentage of learning. This is the percentage level to which marginal costs fall each time cumulative output doubles.
It is frequently used to justify aggressive pricing decisions of new products and to discourage new entrants into the business.
There are at least two different pricing strategies based on the learning curve. A short-run profit pricing strategy or a barrier pricing strategy.
The BCG Growth-share matrix: BOSTON CONSULTING GROUP (BCG) MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP in the early 1970’s.
The BCG Growth-share matrix is a strategy tool to guide resource allocation decisions based on market share and growth of SBUs.
The BCG matrix is probably the most popular portfolio strategy.
Relative Market Share and Market Growth To understand the Boston Matrix you need to understand how market share and market growth interrelate.
MARKET SHARE Market share is the percentage of the total market that is being serviced by the company, measured either in revenue terms or unit volume terms.
RELATIVE MARKET SHARE
RMS = Business unit sales this year
Leading rival sales this year
The higher your market share, the higher proportion of the market you control.
MARKET GROWTH RATE Market growth is used as a measure of a market’s attractiveness.
MGR =total market sales(n) - total market sales(N-1)
total market sales(N-1)
Markets experiencing high growth are ones where the total market share available is expanding, and there’s plenty of opportunity for everyone to make money.
THE BCG GROWTH-SHARE MATRIX It is a portfolio planning model which is based on the observation that a company’s business units can be classified into four categories:
Stars
Question marks
Cash cows
Dogs
It is based on the combination of market growth and market share relative to the next best competitor. STARS High growth, High market share Stars are leaders in business.
it leads to large amount of cash consumption and cash generation
stars often require substantial investment capital beyond what they are able to earn themselves.
Successful stars become cash cows when the market growth rate declines.
Question marks?? High growth , Low market share Most businesses start of as question marks.
they require substantial investment to take advantage of the rapidly growing market.
Question marks have potential to become star and eventually cash cow but can also become a dog.
Strategy recommended : Growth
or retrenchment.
CASH COWS Low growth , High market share
They are foundation of the company and often the stars of yesterday.
They generate more cash than required.
They can be "milked" to provide cash for the other SBU’s (stars and question marks).
Recommended strategy: stability or modest growth.
DOGS Low growth, Low market share Dogs are the cash traps.
Dogs do not have potential to bring in much cash.
Number of dogs in the company should be minimized.
Business is situated at a declining stage.
Recommended strategy: retrenchment, divest, sell or liquidate.
BeNEFITS BCG MATRIX is simple and easy to understand.
It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them.
It is used to identify how corporate cash resources can best be used to maximize a company’s future growth and profitability. LIMITATIONS BCG MATRIX uses only two dimensions, Relative market share and market growth rate.
The link between market share and profitability is not necessarily strong.
Growth rate is only one aspect of industry attractiveness.
viewing every business as either a Star, Cash Cow, Dog, or Question Mark is an oversimplification.
The framework assumes that each SBU is independent of the others.
Nine-cell GE business screen Developed by General Electric with the assistance of the Mckinsey.
It includes nine cells based on long-term industry attractiveness and business strength/competitive position.
Nine-cell GE business screen In the GE screen, the three cells at the upper left of the matrix represent situations of long-term industry attractiveness and business strength; the strategic prescription for businesses in these cells is grow and build. Nine-cell GE business screen The three cells at the opposite end of the matrix (lower right) represent situations of relatively low industry attractiveness and weak business strength, indicating that the strategy generally should be harvest and/or divest. The remaining cells depict mixed situations in which the strategy usually is hold and maintain.
The GE screen
High
Medium
Low
High Medium Low
Business Strengths Industry Attractiveness Green Zone:
Invest and Grow
Red Zone:
Minimise additional investment, retrench or limit technological support.
Yellow Zone:
Maintain share rather than growing or reducing share.
Nine-cell GE business screen In contrast to the BCG matrix, it includes much more data in its two keys factors for example at the first factors we can find criteria like market growth rate, industry profitability, size, and pricing practices among other possible opportunities and threats.
And at the second factor (business strength/competitive position) it includes market share as well as technological position, profitability, and size among other possible strengths and weaknesses. The Strategic Position and Action Evaluation (SPACE) Matrix The SPACE matrix is a management tool used to analyze a company. It is used to determine what type of a strategy a company should undertake.
It is also a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization. What is the SPACE matrix strategic management method? The SPACE matrix is broken down to four quadrants where each quadrant suggests a different type or a nature of a strategy: Aggressive
Conservative
Defensive
Competitive SPACE Matrix Copyright 2007 Prentice Hall Ch 6 -334 FS +6 +1 +5 +4 +3 +2 -6 -5 -4 -3 -2 -1 -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 ES CA IS Conservative Aggressive Defensive Competitive The Strategic Position and Action Evaluation (SPACE) Matrix The SPACE Matrix analysis functions upon two internal and two external strategic dimensions.
The SPACE matrix is based on four areas of analysis:
Internal strategic dimensions:
Financial strength (FS) Competitive advantage (CA)
External strategic dimensions:
Environmental stability (ES) Industry strength (IS)
SPACE Factors SPACE Factors Steps to Developing a SPACE Matrix (1/2) 1- Select a set of variables to define FS, CA, ES, & IS.
2- Assign a numerical value:
From +1 to +6 to each FS & IS dimension
From -1 to -6 to each ES & CA dimension
3- Find the average scores for each FS, CA, ES, & IS
Steps to Developing a SPACE Matrix (2/2) 4- Plot values from step 3 for each dimension on the SPACE matrix on the appropriate axis.
5- Add the two scores on the x-axis and plot the point. Add the two scores on the y-axis and plot the point.
6- Find intersection of your X and Y points. Draw a line from the center of the SPACE matrix to your point. This line reveals the type of strategy the company should pursue ( aggressive, competitive, defensive, or conservative).
SPACE matrix example The interpretation of the matrix The Internal-External (IE) Matrix The IE Matrix is similar to the BCG Matrix, but there are some important differences between the BCG Matrix and IE Matrix.
First, the axes are different.
Also, the IE Matrix requires more information about the divisions than the BCG Matrix.
Further, the strategic implications of each matrix are different.
The Internal-External (IE) Matrix The IE Matrix is based on two key dimensions:
The IFE total weighted scores on the x-axis;
The EFE total weighted scores on the y-axis.
Grand Strategy Matrix is a tool for formulating alternative strategies based on two evaluative dimensions: Competitive position and Market growth.
Grand Strategy Matrix Grand Strategy Matrix Grand Strategy Matrix The QSPM is an approach, including 3 stages, whose purpose is selecting the best strategy.
The QSPM uses input from Stage 1 (IFE, EFE) and Stage 2 (BCG, SPACE, IE) to reach Stage 3 (the needed information for setting up the QSPM). Quantitative Strategic
Planning Matrix Attractiveness Score :
1 = not acceptable 3 = probably acceptable
2 = possibly acceptable 4 = most acceptable PRODUCT CYCLE ANALYSIS
THE PRODUCT LIFE CYCLE (PLC) concept is concerned with the courses that a product’s sales and profits take over its life time.
The concept holds that these two parameters (sales & profits) change over time in a predictable way, and that products go through a series of five distinct stages:
Pre-introduction
Introduction
Growth
Maturity
Decline
Each of these stages provide distinct opportunities and threats, thereby affecting the firm’s strategies and marketing programmes.
The product life-cycle Curve Time sales Decline
Declining sales
Declining profit or losses
Exit of competitors
Reduced promotional budget
Introduction
Low sales
Low growth
Profit is zero Few
High
promotional
budget Growth
High, increasing sales and higher profits
Entry of competitors
Stable price
Stable promotional budget Maturity Static but high sales and profits
Emphasis on low
costs
Fight for market
share with established competitors
PREINTRO
Product
development
PLC CURVE AND STRATEGIES ADOPTED AT EACH STAGE High promotion
Spending Focus
is on building
Market Share
R &D strategy:
shifts to
development
orientation
Financial
Strategy:
to support R &D,
and marketing
efforts. GROWTH
Growth maintaining Product quality
Production line
Increase
distribution
Channels
Adverts (product
awareness,
product
conviction)
g
MATURITY
Defending Market
Share
- -product evolving
to meet changing
consumer needs
-market development
aim at repositioning
the brand
-innovation in
marketing
-production strategy
concentrates on
efficiency and cost
control DECLINE Maintain
the
product
Drop the
product
INTRODUCTION Personnel
Strategy: focus on planning and recruitment
Capital budgeting Sales & Profit Time Strategies for the differing stages of the Product Life Cycle. Introduction
The need for immediate profit is not a pressure. The product is promoted to create awareness. If the product has no or few competitors, a skimming price strategy is employed. Limited numbers of product are available in few channels of distribution.
Strategies for the differing stages of the Product Life Cycle. Growth
Competitors are attracted into the market with very similar offerings. Products become more profitable and companies form alliances, joint ventures and take each other over. Advertising spend is high and focuses upon building brand. Market share tends to stabilise.
Strategies for the differing stages of the Product Life Cycle. Maturity
Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilize. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and use a greater variety of media.
Strategies for the differing stages of the Product Life Cycle. Decline
At this point there is a downturn in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing spend and cost cutting.
Strengths When used carefully the PLC concept can help in developing good marketing strategies for different stages in the product life cycle. Weaknesses Its usefulness as a forecasting tool is limited.
Its patterns vary too widely.
Identifying the stage a product is actually in is difficult.
It may be readily biased by marketing strategy decisions and as such, the curve itself is a dependent, not an independent, variable.
Deployment of resources through budgeting One of the key methods used in the development of resources is the budget process. The preparation of a budget determines the level of resources that is to be allocated to each organizational unit. Each unit can be either strengthened or weakened depending on its level of allocation. The administration of the budget is also a key method of control in the strategy implementation process.
Some of the methods employed in the “budgeting game”, as it is often called, have been described as follows:
Flexible budgets
Zero-base budgeting
Program budgeting
Product life-cycle budgeting
Chapter 3: Role of culture and performance evaluation in strategy implementation. Impact of Culture on Strategy
Strategy implementation depends on "assumptions, values, and working" that at variance with organization's culture. An organization can change its strategy and its structure and yet will find its culture.
A GLOBAL PERSPECTIVE
Comparing Management Styles across countries
A key success factor for strategy implementation is building motivation and commitment among managers.
There are two ways organizations can improve employee commitment to strategies: by improving their understanding of strategies and their impact, and by rewarding them for appropriate strategic actions.
The second way to improve commitment to strategy is the reward and compensation system. The following criterions are commonly used in establishing and using an organizational reward system:
Person-related Variables
Educational qualifications
Work experience
Tenure on job and in company
Potential for growth and advancement
Job-related Variables
Amount of skill required
Number of people being supervised
Special knowledge required to do the job
Strategic importance of job
Organization-related Variables
Salary history and triangle in the firm
Other perks and benefits offered
Intangible benefits
Profitability of the company
Environment-related Variables
Competitor's salary offerings
Extent of job mobility in the industry
Strategy-related Variables
Criticality for strategy
Compensation Chapter 4: Managing Innovation and Change 1.The nature of change and innovation: 1.1. Distinguishing between Change and Innovation :
In considering more closely the concepts of change and innovation, it is useful to distinguish between the two terms.
1.2 Forces for Change and Innovation:
A variety of forces influence change and innovation in organizations. Some of these forces stem from external factors, while others arise from factors that are mainly internal to organizations.
2.ORGANIZATIONAL LIFE CYCLES:
2.1 Four Life-Cycle Stages:
Entrepreneurial Stage
Collectivity Stage
Formalization and Control Stage
Elaboration-of-Structure Stage:
2.2 Organizational Termination:
There are several important reasons why an organization may be terminated. One reason, frequently related to such factors as environmental changes, deficient management, and/or technological obsolescence, is bankruptcy 2.3 Promoting Innovation: The Change and Innovation Process:
The processes of change and innovation are similar, although innovation -a special type of change- tends to be more difficult because it moves beyond the more traditional changes and relies on incorporating significant new ideas.
2.4 Six-Step Model
Part III: Implementation Implementation definitions Strategy implementation is the process by which strategies and policies are put into action through the development of programs, budgets and procedures.
Strategy implementation means putting the strategy to work, or putting it into action.
It involves accomplishment of administrative tasks, allocation of necessary resources to strategic programs, and the development of appropriate organizational systems and competencies to support strategic plans.
Implementation definitions Implementation involves executing the strategic plan. It is the process of:
Designing the organization's structure and climate to match the strategy.
Ensuring that divisional and functional managers have the right background, skills, and attributes to make the strategy work.
Employing the right functional policies to make the strategy work.
Motivating collaborators to execute the plans.
Allocating resources to the operating units in support of the strategies approved for those units.
Implementing strategic decisions The purpose of implementation is ensuring that the planned results of the strategic decisions are realized.
Implementation involves carrying out the chosen strategy-doing what must be done to make the strategy successful.
Successful implementation requires that management shape the formal structure of the organization, its informal relationship and the processes of motivation and control to the particular needs of their strategy.
Implementing strategy decisions results in the choice of organization structure, of information and measurement Systems, and of reward-and-punishment systems.
The first step in implementation is identifying the activities, decisions and relationships critical to accomplishing the strategy.
Key Implementation Tasks Implementation of strategies is a managerial task performed by the operational organization. The organization—its structure, processes systems, and people—must be pointed toward what is needed to make the strategy work.
Five tasks are vital to successful implementation:
1- Building an organization capable of carrying out the strategic plan.
2- Allocating and focusing resources on strategic objectives
3- Galvanizing organization commitment to the chosen strategic plan.
4- Installing internal managerial support systems
5- Exerting strategic leadership Characteristics of "Implementable" Strategic Plans They are linked to the appropriate control System within the organization.
They are "owned" by operating management.
They are perceived as being achievable by those responsible for implementation.
Organizational structures Organizations are social entities that are goals-directed are designed as deliberately structured and coordinated activity systems, and are linked to the external environment.
The macro-design process involves the simultaneous selection and development of a variety of managerial tools. These are usually grouped into three categories:
Structure
Systems and processes
Behavior
Evolutionary Patterns of strategy and structure implementation Simple structure:
A small firm following a single business strategy requires a simple-structure, defined as an organizational form in which the owner-manager makes all major decisions directly and monitors activities.
This structure involves little specialization of tasks, few rules, and limited formalization.
Information systems are unsophisticated, and owner-managers are directly involved in all phases of day-to-day operations.
Examples: fast food restaurants, repair businesses and other specialized enterprises that have limited complexity.
Functional structure :
A company organized with a functional structure groups people together into functional departments such as purchasing, accounts, production, sales, marketing. These departments would normally have functional heads that may be called managers or directors depending on whether the function is represented at board level.
Multidivisional Structure:
The multidivisional structure is composed of operating divisions where each division represents a separate business and the top corporate officer delegates responsibilities for day-to-day operations and business-unit strategy to the division manager.
The multidivisional structure was organized around functions and not businesses and thus costs were not allocated to each product.
Matrix Organization:
The matrix structure groups employees by both function and product. This structure can combine the best of both separate structures.
A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms.
Project management structure:
A project management structure is set up to handle a one-time undertaking with a specified period for completion.
Example: Project organizations are advantageous for handling such special assignments as developing new product, constructing a new building or factory, handling a government contract, or consummating a merger.
Network structure:
The network structure is series of independent firms or business units linked together by computers in an information system that designs, produces and market a product or service.
This structure provides an organization with increased flexibility and adaptability to cope with rapid technological change and shifting patterns of international trade and competition.
How can organizations put in order itself? Committee Organization:
A committee is a group of people formally appointed and organized to consider or decide certain matters.
Permanent or standing: have a function in a purely advisory capacity to particular organizational units or managers.
Committees
Temporary or ad hoc: are generally appointed to deal with a specific problem or problems where there is a need for a pooling of talent How can organizations put in order itself? Boards of directors:
Is a type of committee that ideally is responsible for formulating, changing, and evaluating an organization’s strategy.
Corporate board of directors:
They passively approved proposals from top management and hired and fired their CEO’s.
How can organizations put in order itself? Responsibilities of the boards:
Oversee the management of the corporation’s assets.
Establish and approve the company mission, objectives, strategy and policies.
Review management’s actions in light of the financial performances of the corporation
Hire or fire the principal operating officers of the corporation.
Role of the board in strategic management:
To monitor
To evaluate and influence
To initiate and determine
Advantages of committee structures
Better solutions to problems
Group decisions can be better than individual decisions
Better communication and coordination
Disadvantages of committee structures:
Committees can be costly and time consuming
Compromises often result when committees have difficulty in reaching decisions
Committees can result in divided responsibility with no one feeling responsible.
Hybrid structures:
Is the combination of different organizational structure options.
Implementing business level strategies: structures and control
Figure 7.4: Hierarchy of Strategy We can distinguish four types of strategies:
Cost leadership
Differentiation
Cost focus
Differentiation focus 1-Implementing Cost Leadership To obtain competitive advantage with a cost leadership strategy, a firm must obtain optimal efficiency from its operations. Usually this strategic option includes producing a standardized product at a low cost per unit. With this strategy, the firm seeks to establish economies of scale and incrementally increase efficient production capacities. Market share is important, especially when market demand increases with price concessions. 2-Implementing the Differentiation Strategy A firm seeking to differentiate particularly needs support from its manufacturing and marketing functions. These two functions allow for modification of existing production and quick response to changes in volume and demand. Efficient and flexible manufacturing systems are particularly valuable.
3-Implementing the Integrated Low Cost/Differentiation Strategy Differentiation requires an emphasis on marketing and new product R&D, with relatively frequent product changes to maintain perceptions of product exceptionality. These different functional emphases make implementation difficult. However, with the use of flexible manufacturing Systems and horizontal coordination, such as cross-functional teams, more firms are effectively implementing an integrated low cost/differentiation strategy, in addition, some firms have been ab1e to do both by focusing on low-cost products, while creating other unique features, such as quality service, such as quality service. Figure 7.5: Functional structure for implementation of a differentiation strategy
4-Implementing a Focus Strategy Focus strategies are not easy to implement and the structure can have considerable effect on their success. As firms diversify, the simple and the functional structures are no longer effective. Next we discuss the type of structures necessary to implement strategies of greater diversification...
5- Implementing corporate level strategies: Once a firm diversifies away from a dominant-product business strategy, implementation becomes more complex. As earlier section described, evolution to a diversification strategy usually requires the implementation of the multidivisional structure. Multidivisional structures are organized around products or geographic markets. Each division has its own departments with specialists organized into their functional specialties; Divisions are relatively autonomous and governed by a central corporate office.
6-Implementing the Related-Constrained Strategy Linkages among business units are important to related-constrained diversification strategy. Because of these linkages, top executives must encourage appropriate cooperation among divisions. Cooperation among these divisions is necessary to realized. This centralization is needed to ensure coordination between divisions that are vertically integrated. In this situation, capital investment decisions are more centralized in firms with a high degree of interdivision integration.
7-Implementing the Mixed Related and Unrelated Strategy (Related-Linked) Implementing the mixed related and unrelated (related-linked) strategy requires a different structure form than the related-constrained strategy. Because the mixed strategy seeks to implement both related and unrelated divisions, the strategic business unit structure is needed for organizing its businesses. FIGURE 7.7 SBU Form of the Multidivisional Structure for Implementation of a Related-Linked Strategy 8-Implementing the Unrelated Diversification Strategy An unrelated firm can create value through efficient internal capital allocation or restructuring, buying and selling businesses. However, the appropriate organization for this strategy differs from those- used when implementing a related diversification strategy. The structure implemented in this situation is the competitive form where the structure and controls emphasize competition between separate (usually unrelated) divisions for corporate capital to realize benefits from efficient allocation of resources. Chapter 2 Development of functional strategies and resources allocation Development of functional strategies strategies describe the means or methods for carrying out the organizational strategy.
enables lower levels of management to know what they are supposed to do and encourages to higher their performance
Difference between functional strategies and master strategies Functional strategies usually
cover a much shorter time span than do master strategies
are much more specific and action oriented than are master strategies
require much more active participative by lower levels of management Developing a Marketing Strategy The basic role of marketing in an organization is to have the right products or service', in the right quantity at the right place at the right time
Marketing strategy is concerned with matching existing or potential products or services with the needs of customers informing customers that the products or services exist Market penetration strategy Includes:
The reaction of competitors
The capacity of the market to increase usage or consumption and or the avaibility of new customers
The costs involved in gaining customers from competition Market development strategy Involves:
introducing the organization’s existing products or services to customers other than the ones it currently serves
And includes
The reaction of competitors
Understanding the number, needs, and purchasing patterns of the new customers.
Determining the organization’s adaptability to new markets.
The impact of the new product or service on existing products or services
The ability of the organization, to deliver the product or service
The diversification marketing strategy Involves the offering of as new product or service to new customers
It includes:
Developing a considerable knowledge of the new customer’s needs
Making certain that the organization has the human talent to serve the new customers
The marketing mix Includes:
Determining the exact type of product or service that is to be offered (product strategy)
Deciding how the product or service is to be communicated to customers (channel strategy)
Selecting the method for distributing the product or service to the customer (channel strategy)
Establishing a price for the product or service price strategy
Product positioning Determines where proposed and or present brands or product are in comparison to their competitors.
Enables managers to decide whether they want to leave their present product and marketing mix alone or whether they want to reposition the product. Developing Finance/Accounting Strategy Concerned with two functions:
The first function is concerned with recording, monitoring, and controlling the financial results of an organization's operations responsibility of the controller of an organization.
The second function is concerned with acquiring funds to meet the current and future needs of an organization responsibility of the treasurer of the organization. The activities of financial management can be grouped into five categories:
Recordkeeping
Allocating existing resources in the most efficient manner
Determining the magnitude and characteristics of funds necessary to conduct the business operations
Serving as an interface with creditors and stockholder
Providing financial data to top management.
Developing a Production/ Operations Strategy consists of the processes and activities necessary to transform various inputs into products or service
A service operating System involves processing knowledge or skills into a product that is not physical in nature Developing a Research and Development Strategy An effective way to safeguard against either product or service or production technique obsolescence is through an organization's own research
Basic research:
Enlarge technical knowledge without having a specific application of the knowledge.
Applied research.
Enlarge technical knowledge but in such a manner that is useful.
Development research.
Use available knowledge in the introduction of new or improved products or services or production techniques.
Developing a management information system strategy MIS is a formal system designed to provide information to managers in a systematic and integrated manner rather than in a sporadic and piecemeal manner.
EDP refers to the hardware, software, and personnel that process data into information
The personnel in an EDP system fall into three categories:
Systems analysts design MISs.
Programmers prepare computer programs based on the specifications of systems analysts.
Operators run or operate the computer hardware.
Developing a Human Resource/Personnel Strategy Includes
Recruiting
Selecting
Training
developing, and counseling employees
developing compensation Systems
developing disciplinary Systems
acting as a liaison with unions and government organizations
And handling other matters of employee well-being.
Leadership: Managers must influence organization members to adopt the behaviors needed for strategy implementation
Coordinating Functional Strategies
Under MBO, “Management by objective” objectives are established for the organization as a whole, for functional areas within the organization, for departments within the functional areas, and finally for individuals within each department.
Resources allocation
Performance budgets: concerned with estimating the sales volume as well as the expense-and-profit level the firm should achieve over a specified budget period. they are also called operational.
Resource Budgets: an estimate of the amount and type of resources required to attain the results desired by the performance or operational budget.
Deployment of resources through budgeting One of the key methods used in the development of resources is the budget process. The preparation of a budget determines the level of resources that is to be allocated to each organizational unit. Each unit can be either strengthened or weakened depending on its level of allocation. The administration of the budget is also a key method of control in the strategy implementation process.
Some of the methods employed in the “budgeting game”, as it is often called, have been described as follows:
Flexible budgets
Zero-base budgeting
Program budgeting
Product life-cycle budgeting
Chapter 3: Role of culture and performance evaluation in strategy implementation. Impact of Culture on Strategy
Strategy implementation depends on "assumptions, values, and working" that at variance with organization's culture. An organization can change its strategy and its structure and yet will find its culture.
A GLOBAL PERSPECTIVE
Comparing Management Styles across countries
A key success factor for strategy implementation is building motivation and commitment among managers.
There are two ways organizations can improve employee commitment to strategies: by improving their understanding of strategies and their impact, and by rewarding them for appropriate strategic actions.
The second way to improve commitment to strategy is the reward and compensation system. The following criterions are commonly used in establishing and using an organizational reward system:
Person-related Variables
Educational qualifications
Work experience
Tenure on job and in company
Potential for growth and advancement
Job-related Variables
Amount of skill required
Number of people being supervised
Special knowledge required to do the job
Strategic importance of job
Organization-related Variables
Salary history and triangle in the firm
Other perks and benefits offered
Intangible benefits
Profitability of the company
Environment-related Variables
Competitor's salary offerings
Extent of job mobility in the industry
Strategy-related Variables
Criticality for strategy
Compensation Chapter 4: Managing Innovation and Change 1.The nature of change and innovation: 1.1. Distinguishing between Change and Innovation :
In considering more closely the concepts of change and innovation, it is useful to distinguish between the two terms.
1.2 Forces for Change and Innovation:
A variety of forces influence change and innovation in organizations. Some of these forces stem from external factors, while others arise from factors that are mainly internal to organizations.
2.ORGANIZATIONAL LIFE CYCLES:
2.1 Four Life-Cycle Stages:
Entrepreneurial Stage
Collectivity Stage
Formalization and Control Stage
Elaboration-of-Structure Stage:
2.2 Organizational Termination:
There are several important reasons why an organization may be terminated. One reason, frequently related to such factors as environmental changes, deficient management, and/or technological obsolescence, is bankruptcy 2.3 Promoting Innovation: The Change and Innovation Process:
The processes of change and innovation are similar, although innovation -a special type of change- tends to be more difficult because it moves beyond the more traditional changes and relies on incorporating significant new ideas.
2.4 Six-Step Model
2.5 Managing Resistance to Change
As mentioned earlier, one of the reasons why it takes concerted managerial planning and skill to bring about innovation and change is that people often resist change.
It is not always the employees who resist change. Efforts to involve employees in decision making about their work often are resisted by managers who mistrust employees and fear loss of power.
2.6 Managing conflict
Interdependency of objectives and competition for limited resources often leads to conflict. Conflict can be defined as a disagreement between two or more parties on one or more issues. Establishing annual objectives can lead to conflict because individuals have different expectations and perceptions, schedules create pressure. Chapter 5: Forecasting What is it about? Forecasting is a process aimed at predicting changing conditions and future events that may significantly affect the business of an organization
The forecasting process is important to both planning and decision making because each depends heavily on assessments of future conditions. Quantitative Forecasting Quantitative forecasting relies on numerical data and mathematical models to predict future conditions. Time-series methods
Time-series Methods use historical data to develop forecasts of the future. The assumption underlying time-series models is that there are patterns or combinations of patterns that repeat over time.
b. Explanatory, or Causal, Models
Explanatory, or causal, models attempt to identify the major variables that are related to or have caused particular past conditions and then use current measures of those variables (predictors) to predict future conditions.
c. Monitoring Methods
Monitoring methods provide early warning signals of significant changes in established patterns and relationships so that managers can assess the likely impact and plan responses if necessary. Quantitative approaches to monitoring rely on a tracking signal. A tracking signal is a mathematically derived measure that is based on recent fluctuations in a variable of interest and is designed to identify possible significant deviations presently occurring that are worthy of managerial attention. Promoting Innovation: Technological, or Qualitative, Forecasting Quantitative forecasting relies oThe rapid pace of technological change has seen innovations in lasers, biotechnology, robotics, and data communications dramatically change surgery practices, the processes used for manufacturing almost every mass-produced product, pharmaceutical offerings, and the practicality of cellular telephones.
The Delphi Method
The Delphi method is a structured approach to gaining the judgments of a number of experts on a specific issue relating to the future. One exceptional aspect of the Delphi method, which was originally developed at the Rand Corporation, is that the experts are not brought together to discuss their views.
Delphi Method for Marketing decisions b. Morphological Analysis
Based on the work of Swiss mathematician Frank Zwicky, morphological analysis is a system of forecasting potential technological breakthroughs by breaking the possibilities into component attributes and evaluating various attribute combinations.
c. The Prospective
Developed in France and widely used in Europe, the La Prospective view (sometimes also called the futuristics or futuribles view) argues that there are many different possible futures depending on such factors as confrontations among actors, the continuation of current trends, regulatory and other constraints, and the relative power of the actors involved. Judgmental Forecasting Judgmental forecasting relies mainly on individual judgments or committee agreements regarding future conditions. The Jury of Executive Opinion
Since the estimators are in direct contact with one another, the outcome may be heavily weighted by power and personality factors within the group.
b. Sales-Force Composites
The sales-force composite is a means of forecasting that is used mainly to predict future sales and typically involves obtaining the views of various salespeople, sales managers, and/or distributors regarding the sales outlook.
Salespeople and distributors tend to be relatively close to the customer, they often do not have information about broad economic factors that may affect future sales.
c. Choosing a forecasting method:
Various criteria can be used in selecting a forecasting method. Managers need to consider such factors as the desired time horizon for the forecast, type of accuracy needed, ease of understanding, and development costs. The use of a defined method depends on the needs of the particular forecasting situation. Part IV:Control & Evaluation Chapter 1: Strategic Control Strategic Control definitions Two characteristics of strategy compound the problem of designing such strategy control systems:
Long lead times before the impact is fully felt;
Strategy decisions, once implementend, are very difficult to reverse. Strategic Control definitions Strategic Control definitions Monitoring deals with setting up an information system to track variables that will provide feedback and making modifications to objectives, strategies and implementation variables to keep the strategy on track. Strategic Control definitions The strategy evaluation system is to inform top management of how the system is perfoming, by relaying what has occured or what may occur if action is not taken. Strategic Control process Strategic Control process Strategy Evaluation
It deals with testing the soundness and practical feasibility of formulated strategies. It involves identifying criteria for evaluation and establishing a process that structures the tasks of strategy evaluation. Strategic Control process Strategy Evaluation’ criteria
Internal validation
External validation
Qualitative criteria
Quantitative criteria
Key factors for success
Evaluating performance
Feed back
Strategic Control process Strategy Evaluation’ review process
Strategic Control process Strategy Monitoring
Its purpose is to clear allocation of responsibilities ans ressources for strategy implementation. Strategic Control process Strategic Control
The aim of strategic control is to ensure accurate implementation of strategic plans and achieving the needed results. Strategic Control process Strategic Control: the steps
Chapter 2: Control Practice a) Requirements of effective control methods and systems b) Budgets c) Audits Control Methods and systems 1) CONTROL METHODS AND SYSTEMS Control methods and systems can be categorized as:
Behavior control
Output control a) Requirements of effective control methods In order to be effective, control methods and systems must be:
Economical
Meaningful
Simple
Measurable
b) Budgets The key elements in successful strategy implementation are:
c) Audits Auditing has been defined as a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events. Definitions of strategic audit: People who perform the audit function can be divided into three basic groups:
Management audits can be performed by:
Outside consultants
An organization's own internal audit staff Management Audits:
To determine a firm’s vulnerability to financial crisis, some analysts use Alman’s Z score or a refined but proprietary version. The zeta concept combines weighted key financial ratios to produce an indicator of financial vulnerability. Measures of organizational health
A strategy audit is conducted in three phases: Strategy Audits 2) Control Levels They are distinguishing three key areas that must be evaluated in the process of strategic control:
3) Exerting Strategic Control Strategic control may be exerted in a number of different ways such as:
Control Through Multilevel Performance Criteria
Control Through Performance
Control trough organizational variables 4) Problems of Control In an evaluation system, major sources of dissension are :
(1) Vesting excessive authority in the controller's operation
The abuse of budgets
Rewards and punishments
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