Title: Appendix A
1Appendix A
2The 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.
3Four 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?
4Environmental Domains of an Organization (Figure
A-1)
Organization
5The 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.
6The 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.
7The 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.
8The 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.
9The 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.
10Competitive 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.
11The 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.
12Environmental 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.
13Perceived Environmental Uncertainty
Perceived Environmental Uncertainty
14Organizational 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.
15Approaches 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.
16Approaches to Assessing OrganizationalEffectivene
ss (Figure A-2)
INPUTS (Systems Resource Assessment)
17The Most Admired Companies (Figure A-3)
18The 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.
19Malcolm Baldrige Award Criteria
Baldrige Award Criteria
20Strategies
- 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.
21The Strategic Planning Process(Figure A-5)
Strategic Analysis
22Focus 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.
23SWOT Analysis
24SWOT 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?
25SWOT Analysis Questions Regarding Internal
Strengths (Continued)
- Insulated from competitive pressures?
- Technology leader?
- Cost advantages?
- Competitive advantages?
- Product innovation abilities?
- Proven management?
- Other?
26SWOT 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?
27SWOT 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?
28SWOT 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?
29SWOT 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?
30Focus 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.
31Purpose, 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.
32Focus 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.
33Bottom Line Developing a Mission Statement
Identify the Basic Reasons Why the Organization Ex
ists
34Focus 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.
35Choose 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.
36Grand 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.
37Focus 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.
38Grand Strategy Selection Matrix(Figure A-7)
Stability
Growth
Stability
Retrenchment
39Portfolio 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.
40The BCG Portfolio Matrix(Figure A-8)
Stars
Question Marks
High Market Growth Rate Low
Dogs
Cash Cows
41Strategic 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.
42Implications 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.
43The GE Matrix (Figure A-9)
44The 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.
45Critical 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.
46Organizational 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.
47Lighten 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.
48The 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.
49Industry 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.
50Strategies 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.
51Implement 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
52Evaluate 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.
53Balanced 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.
54Bottom LineManaging the Strategic Planning
Process
Involve All Relevant Stakeholders in The Process