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Title: Appendix A


1
Appendix A
  • Strategic Management

2
The Need for Strategy
  • When Lou Gerstner took over as Chairman and CEO
    of IBM, he faced monumental challenges. Critics
    saw IBM as bureaucratic, slow, bloated, and
    self-absorbed.
  • Gerstner was an outsider to the computer industry
    and lacked technical knowledge, but was a strong
    manager who could bring fresh perspectives.
  • He said, What IBM needs now is a series of very
    tough-minded, market-driven, highly effective
    strategies in each of its businesses.
  • The chapter considers the big picture facing
    firms, and how highly effective strategies are
    developed in the face of environmental demands.

3
Four Strategic Questions
  • How do we respond to new opportunities in the
    environment, lessen the impact of threats from
    the environment, and strengthen the mix of the
    organizations activities by doing more of some
    things and less of others?
  • How do we assign resources among the various
    subunits, divisions, and activities of the
    organization?
  • How do we compete with other organizations for
    customers through allocation of existing or new
    products and services?
  • How do we effectively manage organizational
    activities at the departmental, divisional, and
    corporate levels of the organization?

4
Environmental Domains of an Organization (Figure
A-1)
Organization
5
The Economic Domain
  • Many economic factors, such as interest rates,
    trade deficits, inflation rates, gross domestic
    product indicators, and the money supply, may
    influence an organizations activities.
  • Factors in the economic domain influence the
    ability of managers to get resources needed to
    produce goods and services and distribute them to
    a market.
  • Also, employees are likely to behave differently
    depending on the nature of the economic
    environment.

6
The Political Domain
  • The political domain of the organization
    environment rests on the laws and regulations
    passed by governmental agencies and legislative
    bodies.
  • Legislation has been directed toward
  • eliminating discrimination based on gender, race,
    and age
  • ending sexual harassment in the workplace
  • preventing unfair pricing in markets
  • restricting pollution
  • protecting customers
  • discouraging unethical behavior
  • regulating corporate taxation
  • As corporations are more global, they must
    consider political risk associated with foreign
    governments.

7
The Social Domain
  • The social domain of an organizations
    environment consists of societal values,
    attitudes, norms, customs, and demographics.
  • Values are what people believe to be proper goals
    for members of society to maintain or achieve.
  • Attitudes reflect what individuals think about
    issues and behaviors that occur within a society.
  • Values and attitudes may change over time.
    Examples in the U.S. include changing attitudes
    toward mothers in the workplace and toward
    providing benefits to same-sex partners of
    employees.

8
The Technological Domain
  • The technological domain, or technology, refers
    to the application of knowledge to the production
    and distribution of goods and services.
  • Technology is greatly affected by innovation
    innovation is the creation or modification of a
    process, product, or service.
  • Technology transfer involves the application of
    innovation to processes, products, or services
    either within or between industries.
  • Technology and technological change are
    transforming organizations.

9
The Competitive Domain
  • Organizations can face a wide variety of
    competitive conditions in their environment.
  • Some large organizations compete only with small
    organizations, often giving them an advantage in
    pricing of their products.
  • Other competitive conditions arise from different
    mixes of the strategies that competitors pursue.
  • Within a capitalistic system, organizations can
    compete in one of four competitive market
    structures.
  • Deregulation -- relaxation of government controls
    to encourage greater competition -- is
    transforming many industries.

10
Competitive Market Structures
  • Monopoly exists when an organization has sole
    access to the market for its goods and services.
  • Oligopoly exists when only a few firms are in
    competition to provide goods and services to a
    market.
  • Monopolistic competition exists when many firms
    offer a similar good or service with only minor
    price differentials.
  • Perfect competition exists when many
    organizations offer essentially the same good or
    service price thus becomes the primary
    discriminator.

11
The Physical Domain
  • All organizations must respond in some manner to
    their physical domains.
  • Weather conditions, for instance, may greatly
    influence the activities of a firm. This is
    especially true, for instance, of airlines,
    construction companies in the upper Midwest, and
    orange growers.
  • The physical domain may also influence things
    such as the availability of qualified talent.
    For instance, companies located in one of the
    Best Places to Live may find themselves at an
    advantage.

12
Environmental Dimensions
  • Three important environmental dimensions are
    munificence, dynamism, and complexity
  • Munificence of an organizations environment
    refers to the level of resources available to the
    organization.
  • Dynamism refers to the rate of change in
    environmental factors.
  • Complexity is the number of components in an
    organizations environment and the degree to
    which they are similar or different.
  • High levels of dynamism and complexity result in
    perceived environmental uncertainty (PEU). When
    PEU is high, firms may have to emphasize
    creativity and flexibility over efficiency.

13
Perceived Environmental Uncertainty
Perceived Environmental Uncertainty
14
Organizational Effectiveness
  • Organizational effectiveness can be defined as
    the degree to which an organization achieves its
    goals, maintains its health, secures resources
    needed for survival, and satisfies parties that
    have a stake in it.
  • This definition suggests that effectiveness has
    many dimensions.

15
Approaches to Assessing OrganizationalEffectivene
ss
  • Goal assessment is concerned with whether the
    organization reaches the growth, sales,
    profitability, or other goals management has set
    for it.
  • Internal process assessment focuses on
    organizational health. According to this
    approach, an unhealthy organization cannot be
    considered effective.
  • Systems resource assessment considers whether an
    organization is able to acquire the resources it
    needs to survive and prosper.
  • Strategic constituencies assessment considers
    whether an organization satisfies important its
    constituencies.

16
Approaches to Assessing OrganizationalEffectivene
ss (Figure A-2)
INPUTS (Systems Resource Assessment)
17
The Most Admired Companies (Figure A-3)
18
The Malcolm Baldrige Quality Award
  • The Malcolm Baldrige National Quality Award was
    established in 1987 to enhance U.S.
    competitiveness by promoting quality awareness,
    recognizing quality and business achievements of
    U.S. companies, and publicizing those companies
    successful performance.
  • The award is based on rated performance on seven
    criteria.

19
Malcolm Baldrige Award Criteria
Baldrige Award Criteria
20
Strategies
  • Strategies are methods of competition.
  • The strategic plan of an organization is a
    comprehensive plan that reflects the longer-term
    needs and directions of the organization or
    subunit.
  • Strategic planning consists of several
    components, as shown in Figure A-5.

21
The Strategic Planning Process(Figure A-5)
Strategic Analysis
22
Focus on Management Alagasco Puts Customers
Second
  • Alagasco, Alabamas largest utility -- and the
    only utility on Fortune magazines 100 Best
    Companies to Work for in America list -- is proud
    of its philosophy of putting customers second.
  • Alagasco believes that by putting employees first
    and treating them well, good service to customers
    will naturally follow.
  • Each year Alagasco employees at all levels meet
    to refine the corporate strategic plan for the
    coming year.

23
SWOT Analysis
24
SWOT Analysis Questions Regarding Internal
Strengths
  • A distinctive competence?
  • Adequate financial resources?
  • Good competitive skills?
  • Well thought of by buyers?
  • An acknowledged market leader?
  • Well-conceived functional strategies?
  • Access to economies of scale?

25
SWOT Analysis Questions Regarding Internal
Strengths (Continued)
  • Insulated from competitive pressures?
  • Technology leader?
  • Cost advantages?
  • Competitive advantages?
  • Product innovation abilities?
  • Proven management?
  • Other?

26
SWOT Analysis Questions Regarding Internal
Weaknesses
  • No clear strategic direction?
  • A deteriorating competitive position?
  • Obsolete factories?
  • Subpar profitability?
  • Lack of managerial depth and talent?
  • Missing any key skills or competencies?
  • Poor track record in implementing strategy?
  • Plagued with internal operating problems?
  • Vulnerable to competitive pressures?

27
SWOT Analysis Questions Regarding Internal
Weaknesses (Continued)
  • Falling behind in research?
  • Too narrow a product line?
  • Weak market image?
  • Competitive disadvantages?
  • Below-average marketing skills?
  • Unable to finance needed changes in strategy?
  • Other?

28
SWOT Analysis Questions Regarding External
Opportunities
  • Serve additional customer groups?
  • Enter new markets or segments?
  • Expand product line to meet broader range of
    customer needs?
  • Diversify into related products?
  • Vertical integration?
  • Ability to move to better strategic group?
  • Complacency among rival firms?
  • Faster market growth?
  • Other?

29
SWOT Analysis Questions Regarding External Threats
  • Likely entry of new competitors?
  • Rising sales of substitute products?
  • Slower market growth?
  • Adverse government policies?
  • Growing competitive pressures?
  • Vulnerability to recession and business cycle?
  • Growing power of customers or suppliers?
  • Changing buyer needs and tastes?
  • Adverse demographic changes?
  • Other?

30
Focus on Management SWOT Analysis at Ruby Tuesday
  • As the first step in a thorough strategic
    planning process, Ruby Tuesday conducted a SWOT
    analysis.
  • Strengths identified included growth rate of
    20, strong technical skills, and fast
    reaction time from management team.
  • Weaknesses included lack of proactive approach,
    internal communications could be improved, and
    need comprehensive review of compensation
    system.
  • Opportunities and threats were also identified.

31
Purpose, Vision, and Mission
  • The purpose of the organization is the reason for
    the organizations existence.
  • Vision is a vivid description of a preferred
    future.
  • The organizational mission is the path managers
    choose to achieve the purpose and vision.
  • The mission is often written down in the form of
    a mission statement.

32
Focus on Management Ben Jerrys Mission
Statement
  • Product To make, distribute and sell the
    finest-quality all-natural ice cream and euphoric
    concoctions with a continued commitment to
    incorporating wholesome, natural ingredients and
    promoting business practices that respect the
    Earth and the Environment.
  • Economic To operate the company on a
    sustainable financial basis of profitable growth,
    increasing value for our shareholders expanding
    opportunities for development and career growth
    for our employees.
  • Social To operate the company in a way that
    actively recognizes the central role that
    business plays in society by initiating
    innovative ways to improve the quality of life
    locally, nationally, and internationally.

33
Bottom Line Developing a Mission Statement
Identify the Basic Reasons Why the Organization Ex
ists
34
Focus on Management Strategic Objectives at Dana
Corporation
  • Dana Corporation, one of the worlds largest
    independent suppliers to vehicle and engine
    manufacturers, was selected as a Most-Admired
    Manufacturer in the U.S. by Start Magazine.
  • Start emphasized Danas strategic objectives,
    focus on technology, employee involvement, and
    reputation.
  • Among its key strategic objectives are to have a
    15 return on invested capital after tax, 25 of
    sales from products less than two years old, 40
    hours of education per person annually, and 65
    of business opportunity outside the United
    States.

35
Choose Corporate-Level Strategies
  • Corporate-level strategies provide direction for
    the total organization.
  • Managers at the corporate level define a
    strategic direction that includes business units
    and departments within those business units.
  • Managers often select either grand strategies or
    portfolio strategies for guiding their company.

36
Grand Strategies
  • A grand strategy is a broad plan to guide the
    organization toward reaching its goals.
  • Managers may choose to implement one of three
    grand strategies
  • A growth strategy is common in new, emerging
    industries or industries that are undergoing
    rapid growth and gaining new external
    opportunities.
  • A stability strategy is selected when managers
    want to protect the existing market share of the
    firm from external threats or have just completed
    a phase of rapid growth or divestment.
  • A retrenchment strategy is often selected when
    managers are faced with declining performance due
    to internal weaknesses and external threats.

37
Focus on Management The Risks of Growth at Any
Cost
  • The danger of growth at any cost was
    dramatically evident in the crash of ValuJet
    Flight 592 in the Florida Everglades.
  • ValuJet -- which had grown from its inception to
    serve 17 states -- was only two years old.
  • ValuJet had attempted to achieve growth through
    aggressive efforts to cut costs. It paid low
    salaries, used planes averaging older than 26
    years, and turned planes around so fast that FAA
    inspection was difficult.
  • ValuJet pictured itself as the Wal-Mart of
    airlines but, as noted by one writer, Wal-mart
    does not conduct business 35,000 feet above the
    ground.

38
Grand Strategy Selection Matrix(Figure A-7)
Stability
Growth
Stability
Retrenchment
39
Portfolio Strategies
  • A portfolio strategy considers the business mix
    of the firm -- that is, the types of business
    units and product lines the firm controls.
  • The BCG matrix and the GE matrix are two models
    used by many corporations in selecting a
    portfolio strategy.

40
The BCG Portfolio Matrix(Figure A-8)
Stars
Question Marks
High Market Growth Rate Low
Dogs
Cash Cows
41
Strategic Types in the BCG Matrix
  • A star is a business unit that has both a high
    market growth rate and a relatively large share
    of the market.
  • A cash cow has a large share of the market, but
    there is little growth.
  • Question marks exist in a rapidly growing market
    but have a small market share.
  • A dog is a poor performer because of little
    growth in the market and a small market share.

42
Implications of the Strategic Types
  • Stars typically need large amounts of cash to
    support rapid growth. Stars have the potential
    to increase sales and generate large amounts of
    profit in the future.
  • Large amounts of cash can be milked from cash
    cows and channeled into stars.
  • Managers must decide whether to invest more cash
    into question marks to take advantage of high
    growth opportunities (and transform them into
    stars) or to divest it to emphasize other
    business units and products in the portfolio.
  • Management must sell dogs to another company or
    liquidate their assets.

43
The GE Matrix (Figure A-9)
44
The Adaptation Model
  • Raymond Miles and Charles Snow developed the
    adaptation model of organizational strategy.
  • The model contends that a major thrust of
    strategic management should be the aligning
    organizational activities with key dimensions of
    the organizational environment.
  • To do this, managers must set up a strategy that
    will adapt to environmental conditions and also
    manage internal organizational activities to
    support the selected strategy.
  • Adaptation is accomplished by simultaneously
    solving three critical strategic problems
    entrepreneurial, engineering, and administrative.

45
Critical Strategic Problems in the Adaptation
Model
  • The entrepreneurial problem considers what
    managers believe to be their market.
  • The engineering problem is one of deciding which
    methods are appropriate for the production and
    distribution of goods or services.
  • The administrative problem addresses the need to
    develop an appropriate administrative system
    within the organization.

46
Organizational Types in the Adaptation Model
  • The defender strategy is carried out when
    management seeks or creates an environment that
    is stable.
  • The prospector strategy -- the opposite of the
    defender strategy -- seeks or creates an unstable
    environment in the form of rapid change and high
    growth rate in the market.
  • The analyzer strategy exists between the two
    extremes of defender and prospector. It involves
    adapting solutions from both the defender and
    prospector strategies to the three problems.
  • The reactor strategy is adopted in an
    organization that has experienced strategic
    failure.

47
Lighten Up Ambushes and Golden Parachutes
  • Some of the language of mergers and acquisitions
  • Afterglow Postmerger euphoria of acquirer and/or
    acquiree, but soon lost.
  • Cyanide pill Antitakeover finance strategy in
    which the potential target arranges for long-term
    debt to fall due immediately and in full if it is
    acquired.
  • Golden parachute Provision in the employment
    contract of top executives that ensures them a
    lucrative financial landing if the firm is
    acquired in a takeover.
  • Mushroom treatment Postmerger problems from an
    acquired executives viewpoint First they
    buried us in manure, then they left us in the
    dark awhile, then they let us stew, and finally
    they canned us.

48
The Competitive Model
  • The competitive model of organizational strategy
    was developed by Michael Porter.
  • This model contends that the nature and degree of
    competition in an industry determine the strategy
    that is appropriate for managers to formulate and
    implement.
  • The model considers five industry forces and
    three competitive strategies.

49
Industry Forces in the Competitive Model
  • The threat of new entrants to compete in the
    industry.
  • The bargaining power of suppliers in the
    industry.
  • The bargaining power of customers in the
    industry.
  • The threat of substitute products or services
    from potential competitors.
  • Competitive rivalry among existing firms.

50
Strategies in the Competitive Model
  • Overall cost leadership. This strategy requires
    management to formulate and implement a strategic
    plan that will lead to an efficient and low-cost
    organization.
  • Differentiation. This strategy recognizes that a
    firms product is unique in relation to other
    products produced in the industry.
  • Focus. This strategy pursues either an overall
    cost leadership strategy or a differentiation
    strategy by focusing on a narrow customer group,
    product line, or geographic market.

51
Implement the Strategic Plan
  • Vince Lombardi said, The best game plan in the
    world never blocked or tackled anybody.
  • Managers must see that strategic plans are
    converted into action.
  • To do this, they must
  • effectively communicate the plan
  • assign responsibility and authority for
    activities within the plan
  • motivate employees to achieve the plan
  • develop methods for measuring the results of
    activities
  • develop procedures for taking any corrective
    action

52
Evaluate the Strategic Plan
  • Since there are many facets of effectiveness, we
    must assess effectiveness of the strategic plan
    on those multiple facets.
  • The balanced scorecard (BSC) is a conceptual
    framework for translating an organizations
    vision into a set of performance indicators
    distributed among four perspectives
  • financial
  • customer
  • internal business processes
  • learning and growth
  • Using the BSC, companies can monitor both their
    current performance and their efforts to learn
    and improve.

53
Balanced Scorecard Indicators
  • Financial-based measures. Examples return on
    investment, cost reduction, profits.
  • Customer-based measures. Examples customer
    satisfaction, retention, market share.
  • Internal business process measures. Examples
    quality, response time, new product
    introductions.
  • Learning- and growth-based measures. Examples
    employee satisfaction, employee productivity,
    employee retention.

54
Bottom LineManaging the Strategic Planning
Process
Involve All Relevant Stakeholders in The Process
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