Strategic Management Module

CONTENTS
The Concepts and Techniques of Strategic Management.
The Strategic management Process: An overview.

Establishing company Direction: Developing a Strategic Vision, setting objectives and
crafting a strategy.
Industry and competitive analysises.
Evaluating company Resources and competitive capabilities.
Strategy and competitive advantage.
Strategies for Globalizing markets.
Tailoring strategy to fit specific industry and company situation.
8
Strategy and competitive advantage in diversified companies.
9. Evaluating the strategies of diversified companies.
Building resource strengths and organization capabilities.
Managing the internal organization to promote better strategy execution.
1.
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CHAPTER 1
THE STRATEGIC MANAGEMENT PROCESS
Without a strategy the organization is like a ship without a rudder, going around in circles.
(Joel Ross and Michael Kamei)
Chapter Outline
0*
Five tasks of strategic management

0*
Developing a strategic vision and mission
Setting objectives
Crafting performance and initiating corrective adjustments
1* Why strategic management is a process
Who performs the task of strategy?
Benefits of Managing Strategically
Terms to remember
Thinking Strategically:
The Three Big Strategic Questions
0* Where are we now what is our situation?
Where do we want to go?
0* Business (es) we want to be in and market positions we want to stake out
Buyer needs and groups we want to serve
Outcomes we want to achieve
How will we get there?
What is strategy?
2* Competitive moves and business approaches management employs in running a
company
Managements game plan to
1*
Please customers
Position a company in its chosen market
Compete successfully
Achieve good business performance
Why are strategies needed?
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1*
To proactively shape how a companys business will be conducted

To mold the independent actions and decisions of managers and employees into a coordinated,
companywide game plan
The Five Tasks of Strategic Management

Missions vs. Strategic Visions
2* A mission statement focuses on current business activities
0*
Business(es) company is in now
Customer needs currently being served
3* A strategic vision concerns a firms future business path
1*
The kind of company it is trying to become
Customer needs to be satisfied in the future
Strategic Management Concept
4* N/L
Developing a Vision and Mission
3* The first task of Strategic Management
Begins with thinking strategically about
2*
The firms future business makeup
Where to take the firm
4* The task is to
3*
Create a roadmap of a companys future
Decide what future business position to stake out
Provide long-term direction
Give the firm a strong identity
Developing a Strategic Vision
5* A strategic vision is a roadmap of a companys future
2*
Direction it is headed
Business position it intends to stake out
Capabilities it plans to develop
Customer needs it intends to serve
Examples: Mission and Vision Statements
6* McDonalds Corporation
McDonalds vision is to dominate the global foodservice industry. Global dominance means
setting the performance standard for customer satisfaction while increasing market share and
profitability through our Convenience, Value and Execution Strategies.
Example: Mission and Vision Statements
Avis Rent a-Car
7* Our business is renting cars. Our mission is total customer satisfaction.
American Red Cross
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8*
The mission of the American Red Cross is to improve the quality of human life; to
enhance self-reliance and concern for others and to help people avoid, prepare for and cope
with emergencies.

Ritz-Carlton Hotels
5* The Ritz-Calton Hotel is a place where the genuine care and
comfort of our guests is our highest mission
We pledge to provide the finest personal service and facilities for our guests who always enjoy a
warm, relaxed yet refined ambiance.
6* The Ritz-Carlton experience enlivens the senses, instils well-being, and fulfils
even the unexpressed wishes and needs of our guests.
7* Otis Elevator
8*
Our mission is to provide any customer a means of moving people and things up,
down, and sideways over short distances with higher reliability than any similar
enterprise in the world.
9* Microsoft Corporation
10*
One vision drives everything we do: A computer on every desk and in every home
using great software as an empowering tool.
The Body Shop
11* We aim to achieve commercial success by meeting our customers needs through
the provision of high quality, good value products with exceptional service and relevant
information which enables customers to make informed and responsible choices.
Eastman Kodak
12* We are in the picture business
Intel
13* Intel supplies the computing industry with chips, boards, systems, and software.
Intels products are used as building blocks to create advanced computing systems for
PC users. Intels mission is to be the preeminent building block supplier to the new
computing industry worldwide
Compaq Computer
To be the leading supplier of PCs and PC servers in all customer segments.
Long John Silvers
14* To be Americas best quick service restaurant chain. We will provide each guest
great tasting, healthful, reasonably priced fish, seafood, and chicken in a fast, friendly
manner on every visit.
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Bristol-Myers Squibb
15* The mission is to extend and enhance human life by providing the highest quality
health and personal care products. We intended to be the preeminent global diversified
health and personal care Company.
Types of Objectives Required

Financial Objectives
Outcomes focused on improving a firms financial performance
Strategic Objectives
Outcomes focused on improving a firms competitiveness and its long term business position
Examples: Strategic Objectives
16* Increase firms market share
Overtake key rivals on quality or customer service or product performance.
Attain lower overall costs than rivals
Boost firms reputation with customers
Attain stronger foothold in international markets
Achieve technological superiority
Become leader in new product introductions
Capture attractive growth opportunities
Setting Objectives
The Second Task of strategic Management
-Establishing Objectives-
1*
Converts vision into specific performance targets.

Create yardsticks to track performance
Pushes firm to be inventive and focused
Helps prevent coasting and complacency if targets require stretch
Examples: Financial Objectives
9* Grow earnings per share 15% annually
Boost annual return on investment (or EVA) from 15% to 20%
Increase annual dividends per share to stockholders by 5% each year.
Strive for stock price appreciation equal to or above the S & P 500 average
Maintain a positive cash flow
Achieve and maintain a AA bond rating
Example: Corporate Objectives
0* Protect and improve Nike's position as the number one athletic brand in America.
Build a strong momentum in growing fitness market.
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Intensify the companys effort to develop products that are women need and want
Explore the market for products specifically designed for the requirements of maturing
Americans.
Direct and manage the companys international business as it continues to develop.
Continue the drive for increased margins through proper inventory management and fewer, better
products.
Example: McCormicks Corporate Objectives

17* Dispose of those parts of our business which cannot generate adequate returns or
do not fit with our business strategy
Achieve a 20% return on equity
Achieve net sales growth rate of 10% per year
Maintain an average earning per share growth rate of 15% per year
Maintain a total debt to total capital at 40% or less
Pay out 25% to 35% of net income in dividends
Example: Strategic and Financial Objectives
Ford Motor Company
18* To satisfy our customers by providing
4*
Quality cars and trucks.
Developing new products
Reducing the time it takes to bring new vehicles to market
Improving the efficiency of all our plants & processes, and
Building on our teamwork with employees unions, dealers, and suppliers.
Example: Strategic and Financial Objectives
General Electric
10*
To become the most competitive enterprise in the world by being number one or
number two in market share in every business the company is in. To achieve an average of 10
inventory turns and a corporate operating profit margin of 16% by 1998.
Examples: Strategic and Financial Objectives
Banc One Corporation
11*
To be one of the top three banking companies in terms of market share in all
significant markets we serve.
Dominos Pizza
12*
To safely deliver a hot, quality pizza in 30 minutes or less at a fair price and a
reasonable profit.
Exxon
13*
To provide shareholders a secure investment with a superior return.
Alcan Aluminum
14*
To be the lowest-cost producer of aluminum and to outperform the average return
on equity of the Standard and Poors industrial stock index.
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Bristol-Myers Squibb
19* To focus globally on those businesses in health and personal care where we can be
number one or number two through delivering superior value to the customer.
Atlas Corporation
20* To become a low-cost, medium-size gold producer, producing in excess of
125000 ounces of gold a year and building gold reserves of 1 500 000 ounces.
Example: Strategic Financial Objectives
3M Corp
2* Annual growth in earnings per share of 10% or better on average
A return on stockholders equity of 20 25%
A return on capital employer of 27% or better
Have at least 30% of sales come from products introduced in the past four years.
Crafting a strategy
Crafting a strategy:
Involves deciding how to:
3* Respond to changing buyer preferences
Outcome rivals
Respond to new market conditions
Grow the business over the long term
Achieve performance targets
Strategy is Both Planned and Reactive to Changing circumstances
Planned
Adaptive
Reactions
The Hows That Define a Firms Strategy

21* How to grow the business
How to please customer
How to out complete rivals
How to respond to changing market conditions
How to manage each functional piece of the business and develop needed organizational
capabilities
How to achieve strategic and financial objectives
Crafting a Strategy
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The Third Task of Strategic Management

1* Strategy involves determining whether to
1*
Concentrate on a single business or several business (diversification)

Cater to a broad range of customers or focus on a particular niche
Develop a wide or narrow product line
Pursue a competitive advantage based on
- Low cost or
- Product superiority or
- Unique organizational capabilities
Strategy: McDonalds
15*
Strategic Priorities
4* Continued growth
Providing
Remaining an efficient and quality producer
Offering high value and good tasting products.
Effectively marketing McDonalds brand on a global scale
Core Elements of Mc Donalds Strategy
2*
Add 2500 restaurants annually

Promote frequent customer visits via attractive menu items, low-price specials and extra value
meals
Be highly selective in granting franchises
Locate on sites offering convince to customers and profitable growth potential
Focus on limited menu and consistent quality
Careful attention to store efficiency
Extensive advertising and use of Mc prefix
Hire courteous personnel, pay an equitable wage, provide good training
Crafting strategy is an Exercise in Entrepreneurship
16*
Strategy making is a market- driven and customer driven activity that involves
5*
Risk taking and venturesomeness

Innovation and business creativity
Keen eye for spotting market opportunities
Keen observation of customer needs
Choosing among alternatives
Characteristics of Entrepreneurial Managers
17*
Boldly pursue new strategic opportunities
Emphasize out-innovating the competition
Lead the way to improve firm performance
Willing to be first-mover and take risks
Respond quickly and opportunistically to new developments
Devise trail blazing strategies
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Why Do Strategies Evolve?

22* There is always an ongoing need to react to
1* Shifting market conditions

Fresh moves of competitions
New technologies
Evolving customer preferences
Political and regulatory changes
New windows of opportunity
Then crisis of the moment
What is a Strategic Plan?
18*
Where firm is headed
Strategic vision and business mission
Short and long term performance
Strategic and financial objectives
Action approaches to achieve targeted results
A comprehensive strategy
Implementing Strategy
The fourth task of Strategic Management
19*
Creating fits between way things are done and what it takes for effective strategy
execution
Getting the organization to execute strategy proficiency and efficiently
Producing excellent results in a timely manner
Strategy Implementation
Strategy implementation is an internal, operation-driven activity involving organizing,
budgeting, motivating, culture-building, supervising and leading to make the strategy work as
intended!
What does strategy implementation include?
3* Building a capable organization
Allocating resources to strategy-critical activities
Establishing strategy-supportive policies
Motivating people to pursue objectives
Tying rewards to achievement of results
Creating a strategy-supportive corporate culture
Installing needed information, communication, and operating systems
Instituting best practices for continuous improvement
Exerting strategic leadership
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Evaluating Performance
The tasks of strategy are not a one-time only exercise
0*
Times and conditions change
Events unfold
Better ways to do things emerge
- New managers with different ideas take over
The tasks of strategy are not a one-time only exercise
1*
Times and conditions change
Events unfold
Better ways to do things emerge
- New managers with different ideas take over
20*
Corrective adjustments
2*
Alter long-term direction
Redefine the business
Raise or lower performance objectives
Modify the strategy
Improve strategy execution
Characteristics of the strategic Management Process
23* Need to perform tasks never goes away
Boundaries among tasks are blurry
Strategizing is not isolated from other managerial activities
Time required comes in lumps and spurts
The big challenge is to get the best strategy supportive performance from employees, perfect
current strategy and improve strategy execution
Who Performs the Five Strategic Management Tasks?
21*
Senior corporate level executives

Subsidiary unit managers
Functional area managers
Operating managers
Strategizing an Individual or Group Responsibility?
22*
Teams are increasingly used because
3*
Strategic issues cut across departmental lines
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Ideas of people with different backgrounds can be tapped into

More people will have an ownership stake in the strategy
23*
4*
24*
5*
Role of Strategic Planners
24* Gather necessary information
Provide support in revising strategic plans
Coordinate review and approval process
Crystallize strategic issues to be addressed
Conduct studies of industry and competitive conditions
Establish an annual review cycle
Develop strategy performance assessments
Why Planers should not be strategy makers
25*
Managers may toss tough decisions to planners
Planers know less about companys situation
Difficult to fix accountability for poor results
Managers have no buy in to strategy
Strategic planning may be viewed as an unproductive bureaucratic activity
Strategic Management Principle
26*
Strategy making is a job for line managers, not a staff of planners doers should
be the strategy-makers!
Strategic Role of a Board of Directors
27*
Continuously audit validity of a companys long-term direction ad strategy
Evaluate strategic leadership skills of the CEO and candidates to succeed the CEO
28*
A board of directors role in the strategic management process is to critically
appraise and ultimately approve strategic action plans, but rarely, if ever, to develop the
details!
Benefits of Strategic Approach to Managing
25* Guides entire firm regarding what is we are trying to do and to achieve
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Lowers managements threshold to change

Provides basis for evaluating competing budget requests
Unifies numerous strategy-related decisions
Creates a proactive atmosphere
Enhances long range performance
Recap Key Terms

Strategic Vision
26* A view of an organizations future direction and business course; a guiding
concept for what the organization is trying to do and to become
Organization Mission
27* Represents managements customized answer to the question what is our
business and what will it be. A mission statement broadly outlines the organizations
future direction ad serves as a guiding concept for what the organization is to do and to
become.
Long-range Objectives
29*
Achievement levels to be reached within the next three to five years.
30*
31*
short-range Objectives
Near-term performance target: they establish the pace for achieving the longrange objectives.
Performance Objectives
28* Organizations targets for achievement: both short and long range objectives are
needed
Financial performance targets a company wants to achieve
29* Strategic Objectives
30*
Targets relating to strengthening a companys overall market position and

competitive viability
Strategy
4* Managerial action plan for achieving organizational objectives; strategy is
mirrored in the pattern of moves and approaches devised by management to produce the
desired performance. Strategy is the how of pursuing an organizations mission and
reaching target objectives.
Strategic Plan
5* Statement outlining an organizations mission and future direction, near-term and
long-term performance targets and strategy, in light of organizations external and internal
situations.
32*
Strategy Implementation
33*
Includes the full range of managerial activities associated with putting the chosen
strategy into place, supervision its pursuit and achieving the targeted results.
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Exercise
1. Depict the strategic management
Define strategic management
Name the benefits of strategic management
Discipline and sense of responsibility
Name the risks of strategic management
6. Name the three-comptemporary special applications of strategic management discussed in
this book.
CHAPTER 2
THE STRATEGY - MAKING TASKS
A strategy is a commitment to undertake one set of actions rather than another
(Sharon M Oster)
Chapter Outline
34*
Developing a strategic vision/mission
Establishing financial and strategic objectives
Crafting a strategy
Factors shaping a companys strategy
Linking strategy with ethics
Approaches to performing the strategy-making task
Developing a Vision or Mission
First direction-setting task
35*
Indicates the long-term course management has charted for the organization
6*
Business activities to be pursued
Future market position
Future customer focus
- Kind of company to become
Why have a Mission or Strategic Vision?
36*
Power of a well-conceived strategic vision
7*
Guides managerial decision making
Arouses employee buy-in and commitment
Prepares a company for the future
Characteristics of a Strategic Vision
31* Charts a companys future strategic course
0*
Defines the business makeup in 5 to 10 years
32* Company specific, not genetic
1*
Provides a company with its own special identity and path to follow
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33*
The vision is not to make a profit

2*
The real mission/vision is what will we do to make a profit?
34* Requires the exercise of management foresight
Elements of a Strategic Vision
37*
Defines present and future Business make up of company
Charts a long-term path to follow
DELTA AIRLINES
we want Delta to be the
WORLD WIDE AIRLINE OF CHOICE
Example: Strategic Vision
DELTA AIRLINES
38*
WORLDWIDE, because we are and intend to remain an innovative, aggressive,
ethical and successful competitor that offers access to the world at the highest standards of
customer service. We will continue to look for opportunities to extend our reach through new
routes and creative global alliances.
DELTA AIRLINES
35* OF CHOICE, because we have value the loyalty of our customers, employees and
investors. For passengers and shippers, we will continue to provide the best service and
value. For our personnel, we will continue to offer an evermore challenging, rewarding
and result-oriented workplace that recognizes and appreciates their contributions. For our
shareholders, we will earn a consistent, superior financial return.
DELTA AIRLINES
AIRLINE, because we intend to stay in the business we know best air transport and related
services. We wont stray from our roots. We believe in the long-term prospects for profitable
growth in the airline industry and we will continue for focus time, attention and investment on
enhancing our place in that business environment
Defining a Companys Business
39*
A good business definition incorporates three factors:
Customer needs WHAT is being satisfied
Customer groups WHO is being satisfied
Technologies used and functions performed HOW customer needs are satisfied
Business Mission: Russell Corp.
36* Russell Corporation is a vertically integrated international designer, manufacturer
and mark of athletic uniforms, and a comprehensive of lightweight, yarn-dyed woven
fabrics
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The companys manufacturing operations include the entire process of converting raw fibers into
finished apparel and fabrics
Products are marketed to sporting goods dealers, department and specially stores, mass
merchandisers and other apparel manufacturers
Business Mission: McDonalds

40*
Serving a limited menu of hot, tasty food quickly in a clean, friendly restaurant
for a good value to a broad base of fast-food customers worldwide
6*
McDonalds serves approximately 30 million customers daily at 20.000-plus

restaurants in over 90 countries
41*
Broad Narrow Mission Statements?

Narrow enough to specify real arena of interest
Serve as
8*
Boundary for what to do and not do

Beacon of where top management intends to take firm
42*
Diversified companies employ broader business definitions
Definitions: Broad-Narrow scope
Mission Statement of a Diversified Firm

TIMES MIRROR CORPORATION
43*
Times mirror is a media and information company principally engaged in
newspaper publishing, book, magazine and other publishing and cable and broadcast
television
Mission Statements for Functional Departments
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44*
6*
Spotlights Departments
Contribution to firms mission/vision/objectives

Role and scope of activities
Direction which department needs to pursue
Mission Statements of Functional Departments
Human Resources
45*
To contribute to organizational success by developing effective leaders, creating
high performance teams and maximizing the potential of individuals
Corporate Security
46*
To provide service for the protection of corporate personnel and assets through
preventive measures and investigations
Intels Strategic Inflection Points
37* Pre-mid 1980s
3*
Business focus was memory chips
38* Post-mid 1980s
4*
Abandon memory chip business
Adopt new strategic vision
0*
Become preeminent supplier of microprocessors to PC industry
Make PC central appliance in workplace and home
Be undisputed leader in driving PC technology forward
Decision Time:
What will the Vision Be?
Entrepreneurial challenge
9*
Creatively preparing a company for the future
47*
Astute strategists focus on
10* Shifting customer needs
New technologies
Attractive foreign markets
Growing or shrinking opportunities
Decision Time:
What will the Vision Be?
Entrepreneurial challenge
11* Creatively preparing a company for the future
48*
Astute strategists focus on
12* Shifting customer needs
New technologies
Attractive foreign markets
Growing or shrinking opportunities
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Communicating the Vision

49*
An exciting, inspirational vision
13* Inspires, challenges and motivates workforce
Arouses strong sense of organizational purpose and induces employee buy-in
Brings workforce together and galvanizes people to live the business
Managerial Value: Strategic Vision and Mission
Crystallizes long-term direction
Reduces risk or rudderless decision-making

50*
Conveys organizational purpose and identity
Keeps direction-related actions of lower-level managers on common path
Helps organization prepare for the future
Establishing Objectives
Second Direction-Setting Task
51*
Represent commitment to achieve specific performance targets by a certain time
Must be stated in quantifiable terms and contain a deadline for achievement
Spell-out how much of what kind of performance by when
Purpose of Objectives
52*
Substitutes results-oriented decision-making for aimlessness over what to
accomplish
Provides benchmarks for judging organizational performance
Companies whose managers set objectives for each key result area and then press forward with
actions aimed directly at achieving these performance outcomes typically outperform companies
while managers exhibit good intentions, try hard and hope for the best!
Types of Objectives Required
53*
Outcomes that improve a firms financial performance
54*
Outcomes that strengthen a firms competitiveness and long-term market position
Every company needs bothstrategic and financial objectives!
Examples: Financial Objectives

7* Achieve revenue growth of 10% per year
Increase earnings by 15% annually
Increase dividends per share by 5% per year
Increase net profit margins from 2% to 4%
Attractive EVA performance
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Stronger bond and credit ratings

A rising stock price (outperform the S&P 500)
Attractive increases in MVA
Recognition as a blue chip company
A more diversified revenue base
Examples: Strategic Objectives
8* A bigger market share
Quicker design-to-market times than rivals
Higher product quality than rivals
Lower costs relative to key competitors
Broader product line than rivals
A stronger reputation with customers than rivals
Better customer service than rivals
Recognition as a leader in technology
Wider geographic coverage than rivals
More innovative products than rivals
Corporate Objectives: McDonalds
55*
To achieve 100 percent total customer satisfaction everyday in every
restaurant for every customer
Corporate Objectives: 3M Corporation
30 percent of the companys annual sales must come from products fewer than four years old.
Corporate Objectives: Anheuser-Busch
9* To make all our companies leaders in their industries in quality while exceeding
customer expectations
To achieve a 50% share of the U.S beer market
To establish and maintain a dominant leadership position in the international beer market
To provide all our employees with challenging and rewarding work, and opportunities for
personal development, advancement and competitive compensation
To provide our shareholders with superior returns by achieving double-digit annual earnings per
share growth
Corporate Objectives: McCormick & Co.
56*
To achieve a 20 percent return on equity
To achieve a net sales growth rate of 10 percent per year
To maintain an average earnings per share growth rate of 15 percent per year
To maintain total debt-to-total capital at 40 percent or less
To pay out 25% to 35% of the net income in dividends
Strategic or Financial Objectives
Which Take Precedence?
39* Pressure for better short-term financial performance become pronounced when
5*
Firm is struggling financially
Resource commitments for new strategic initiatives may hurt bottom-line for several years
Proposed strategic moves are risky
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40*
A firm that consistently passes up opportunities to strengthen its long-term

competitive position
6*
Risks diluting its competitiveness
Risks losing momentum in its markets
- Can hurt its ability to fend off rivals challenges
57*
Building a stronger long-term competitive position benefits shareholders more
lastingly than improving short-term profitability!
The Concept of Strategic Intent
58*
A Company exhibits Strategic Intent when it relentlessly pursues an ambitious
strategic objective and concentrates its competitive actions and energies on achieving that
objective!
The Concept of Strategic Intent
59*
Indicates firms intent to stake out a particular position over the long-term
60*
Serves as a rallying cry for employees to do their very best
Signals deep-seated commitment to winning

Short-Ranger and Long-Ranger Objectives
Short-range Objectives
14* Targets to be achieved soon
Serve as star steps for reaching long-range performance
Long Range Objectives
15* Targets to be achieved within 3 to 5 years
Prompt actions now that will permit reaching targeted long-range performance later
Objectives are needed at all Levels
61*
Process is top-down, not bottom-up
First, establish organization-wide objectives
Next, set business and product line objectives
Then, establish functional and departmental objectives
Individual objectives come last
62*
Objectives-setting needs to be more of a top-down than a bottom-up process in

order to guide lower-level managers and organizational units toward outcomes that support
the achievement of overall business and company objectives.
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Crafting a Strategy
Third Direction Setting Task
An organization's strategy deals with
7* How to make management's strategic vision a reality

The game plan for
0*
Moving the company into an attractive business position
Building A sustainable competitive advantage
Strategizing is How to
63*
Achieve performance targets
Out-compete rivals
Achieve sustainable competitive advantage
Strengthen firms long-term competitive position
Make the strategic vision a reality
Fig. 2-1(a): Level of Strategy-Making:
A Diversified Company
Corporate level Managers
Two-way influence
Business-level Managers
Two-way influence
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Functional-level Managers
Two-way influence
Operating-level Managers
Fig. 2-1(a): Level of Strategy-Making: A Single Business Company

Executive-level Managers
Two-way influence
Functional-level Managers
Two-way influence
Operating-level Managers
Characteristics of strategy - Making
64*
Action oriented
65*
Evolves over time

A never-ending, ongoing task
Corporate Strategy for a Diversified Company
Tasks of Corporate Strategy

66*
Moves to achieve diversification
98
Actions to boost of individual businesses

Capturing synergy among business units 2+2=5 effects!
Establishing investment priorities and steering corporate resources into the most attractive
business units
Strategy Components of a Single-Business Company
What Business Strategy Involves

41* Forming responses to changes in industry and competitive conditions, buyer
needs and preferences, economy, regulations etc
Crafting competitive moves leading to sustainable competitive advantage
Building competitively valuable competencies and capabilities
Uniting strategic initiative of functional areas
Addressing strategic issues facing the company

Functional Strategies
67*
Game plan for a strategically-relevant function, activity or business process
Details how key activities will be managed
Provide support for business strategy
Specify how functional objectives are to be achieved
Operating Strategies
68*
Concern narrower strategies for managing grassroots activities and strategicallyrelevant operating units
Add detail to business and functional strategies but of lesser scope
Example: Operating Strategy
Boosting Worker Productivity
42* To boost productivity by 10%, managers of firm with low-price, high-volume
strategy take following actions
7*
Recruitment manager develops selection process designed to weed out all bestqualified candidates
Information systems manager devises way to use technology to boost productivity of office
workers
Compensation manger devises improved incentive compensation plan
Purchasing manager obtains new efficiency
Increasing tools and equipment
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Example: Operating Strategy

Improving Delivery & Order-Filling
Manufacturer of plumbing equipment emphasizes quick delivery and accurate order-filling as
keystones of its customer service approach
43* Warehouse manager took following approaches:
Inventory stocking strategy allowing 99% of all orders to be completely filled without
backordering any item
Staffing strategy of maintaining workforce capability to ship any order within 24hrs
Uniting the Companys Strategy Making Effort
69*
A companys strategy is a collection of strategies and initiatives
Separate levels of strategy must be unified into a cohesive company-wide action plan
Pieces of strategy should fit together like puzzle pieces
Networking of Missions, Objectives and Strategies
Level 1
Corporate level managers
Two way influence
Two way influence
Two way influence
Level 2
Business level managers
Two way influence
Two way influence
Two way influence
Level 3
Functional level managers
Level 4
Two way influence
Two way influence
Two way influence
Plant managers, lower

Level supervisors

70*
Objectives and strategies that are unified from top to bottom of the strategymaking managerial hierarchy require a team effort
Factors Shaping the Choice of Company Strategy
External Factors
98
Internal Factors
Social, Political, Regulatory, and Citizenship Factors

44* Pressures from special interest groups
Glare of investigative reporting
Health and nutrition concerns
Concerns about alcohol and drug abuse
Sexual harassment
Corporate downsizing
Impact of plant closings on communities
Rising/falling interest rates
Recessionary economy conditions
Trade restrictions, tariffs and import quotas
Corporate Social Responsibility
45* Conduct company activities within bounds of what is considered ethical and in
interest
Respond positively to emerging societal priorities and expectations
Demonstrate willingness to take needed action ahead of regulatory confrontation
Balance stockholder interests against larger interest of society as a whole
Be a good citizen in community
Competitive Conditions and Industry Attractiveness
71*
A companys strategy has to be responsive to
16* Fresh moves of rival competitors
Changes in industrys price-cost-profit economics
Shifting buyer needs and expectations
New technological developments
Pace of market growth
A companys strategy cant produce real market success unless it is well-matched to
industry and competitive conditions
Company Opportunities and Threats
72*
For strategy to be successful, it has to be well matched to
17*
A companys opportunities
18*
Threats to the companys well-being

98
Company Strengths, Competencies, and Competitive Capabilities

73*
A company must have or be able to acquire the resources, competencies and
competitive capabilities needed to execute the chosen strategy
Resource defiance's, gaps in skills, and weaknesses in competitive position make pursuit of
certain strategies risky or altogether unwise
A companys strategy ought to be grounded in its resource strengths and in what it is good at
doing (its competencies and competitive capabilities): it is perilous to craft a strategy whose
success is depended on resources and capabilities that a company lacks!
Ambitions, Philosophies and Ethics of Key Executives
74*
Managers generally stamp strategies they craft with their own personal
Ambitions
Values
Business philosophies
Attitudes toward risk
Ethical beliefs
Shared Values and Company Culture
75*
Values and culture can dominate strategic moves a company will
19* Consider
Reject
76*
A company should not undertake strategic moves which conflict with
20* Its culture
Values widely shared by managers and employees
Hewlett-Packards Basic Values: The HP Way
46* Sharing firms success with employees
Showing trust and respect for employees
Providing customers with products/services of the greatest value
Being genuinely interested in providing customers with effective solutions to their problems
Making profit a high stockholder priority
Avoiding use of long-term debt to finance growth
Individual initiative, creativity & teamwork
Being a good corporate citizen
Linking Strategy with Ethics
77*
Ethical and moral standards to beyond
21* Prohibitions of law and
Language of thou shalt not to
1*
Issues of duty and
- Language of should and should not do
Ethical Responsibilities of Firm to Stakeholders
78*
Owner/shareholders expect some form of return on their investment
98
Employees expect reliable, safe product or service

Suppliers expect equitable relationship with firm
Community expect businesses to be good citizens in their community
79*
To be a real winner, a strategy must
Fit the enterprises situation
Build sustainable competitive advantage
Improve company performance
Tests of a Winning Strategy
80*
Goodness of Fit Test
22* How well is strategy matched to firms situation?
81*
Competitive advantage test
23* Does strategy lead to sustainable competitive advantage?
82*
Performance Test
Does strategy boost firm performance
Tests of a Winning Strategy
83*
Goodness of Fit Test
24* How well is strategy matched to firms situation?
84*
Competitive advantage test
- Does strategy lead to sustainable competitive advantage?
85*
Performance Test
- Does strategy boost firm performance
Strategic management
To be a real winner, a strategy must:
1. Fit the enterprises situation
Build sustainable competitive advantage
Improve company performance
Approaches to Performing the Strategy-Making Task
Master Strategist
47* Manager personally functions as chief strategist
Delegate it to others
48* Manager delegates strategy-making to others
Collaborative
49* Manager enlists help of key subordinates in hammering out consensus strategy
Champion
50* Manager encourages subordinates to develop and implement strong strategies
Looking Back
98
What is a Vision Statement?

What are the components of the mission statement?
In what way is strategic intent related to both the mission and the vision statement?
Do all companies require both financial and strategic objectives?
Why should a companys strategy match industry competitive conditions?
1.
Key Terms
Vision/mission
- Corporate Strategy
Broad Narrow Mission Statement
- Functional Strategy
- Operating Strategy
- Key Executives
Crafting a Strategy
- Ethical responsibility
Chapter 3
INDUSTRY AND COMPETITIVE ANALYSIS
Analysis is the critical starting point of strategic thinking.(Kenichi Ohmae)
Chapter Outline
51* Role of situation analysis in strategy-making
Methods of industry and competitive analysis
8*
Industrys competitive forces
Industrys competitive forces
Drivers of industry change
Competitive positions of rivals
Competitive moves of rivals
Key success factors
Conclusions: overall industry attractiveness
Conducting an industry and competitive analysis
What is Situation Analysis
86*
Focuses on two considerations
25* A companys EXTERNAL or MACRO-ENVIRONMENT
0*
Industry and competitive conditions
98
26*
A companys INTERNAL or MICRO ENVIRONMENT

0*
Its competencies, capabilities, resource, strengths and
competitiveness
Good Situation Analysis Leads to Good Strategic Choices
Key Considerations Regarding the External Environment

1. Industrys dominant economic traits
Competitive forces and strength of each force
Predicting the moves of competitors
Drivers of change in the industry
Conclusions about industry attractiveness
Question 1: What are the Industrys Dominant Economic Traits?

52* Market size and growth rate
Scope of competitive rivalry (height, intensity)
Number of competitors and their relative sizes.
Prevalence of backward/forward integration
Entry /exit barriers
Nature and pace of technological change
Product and customer characteristics
Scale economies and experience curve effects
Capacity utilization and resource requirements
Industry profitability
The Experience Curve Effect
98
weakness
and
87*
An experience curve exists when unit costs decline as cumulative production

volume increase because of
- Accumulating production know how
- Growing mastery of the technology
The bigger the experience curve effect, the bigger the cost advantage of the firm with the
largest cumulative production volume.
Cost Advantages of Different Experience Curve Effects
Cost per Unit
1
Units
Units
2
4
8
Million
Million
Million
Units
Million
Units
Question 2: What is Competition like & how strong are the Competitive Forces?
Objective
88*
To identify
27* Main sources of competitive forces
Strength of these forces
89*
Key analytical tools
28* Five forces models of competition
Five Forces Model of Competition
98
Analyzing the Five Competitive Forces: How to do it

53* Asses strength of each competitive force
Rivalry among competitors
Substitute products
Potential entry
Bargaining power of buyers
Explain how each force acts to create competitive pressure.
Decide whether overall competition is brutal fierce, strong, normal/moderate, or weak
Rivalry among Competing sellers
54* Usually the most powerful of the five forces
Check which weapons of competitive rivalry are most actively used by rivals in jockeying for
position
9*
Price
Quantity
Performance features offered
Customer service
Warranties / guarantees
Advertising / promotions
Dealer networks
- Product innovation
What Causes rivalry to be stronger?
10* Lots of firms, more equal in size and capability
Slow market growth (competing for a small market)
Industry conditions tempt some firms to go on the offensive to boost volume and market share
Customers have low costs in switching brands
One or more firms initiates moves to bolster their standing at expense of rivals
A successful strategic move carries a big payoff
Cost more to get out of business than to stay in
Firms have diverse strategies, corporate priorities resources, and countries of origin.
98
Principle of Competitive Markets

90*
Competitive jockeying among rival firms is dynamic and ever changing
As industry members initiate new offensive and defensive moves
As emphasis swings from one mix of competitive weapons to another
91*
Competitive jockeying among rival firms is dynamic and ever changing
As industry members initiate new offensive and defensive moves
As emphasis swings from one mix of competitive weapons to another
Competitive Force of Potential Entry

92*
Seriousness of threat depends on
29* Barriers to entry
Reaction of existing firms to entry
93*
Barriers exist when
30* Newcomers confront obstacles
Economic factors put potential entrant at a disadvantage relative to incumbent firms
Common Barriers to Entry
55* Economic of scale
Inability to gain access to specialized technology
Existence of learning/experience curve effects
Strong brand preferences and customer loyalty
Capital requirements and/or other specialized resource requirements
Cost disadvantages independent of size
Access to distribution channels
Regulatory policies, tariffs, trade restrictions
Threat of entry is stronger when
31* Entry barriers are low
Sizeable pool of entry candidates exists
Incumbents are unwilling or unable to contest a newcomers entry efforts
Newcomer can expect to earn attractive profits
How to tell whether substitute Products are a strong forces

94*
Sales of substitutes are growing rapidly
Producers of substitutes are planning to add new capacity
Their profits are up
Competitive Force of Suppliers
56* Suppliers are a strong competitive force when:
10* Item makes up large portion of products costs is crucial to production process and
or significantly affects products quality
It is costly for buyers to switch suppliers
98
They have good reputations and growing demands

They can supply a component cheaper than industry members can make it themselves
They do not have to contend with substitutes
Buying firms are not important customers
Competitive Force of Substitute Products
Concept
95*
Substitutes matter when customers are attracted to the products of firms in other
industries
Examples
32* Eyeglasses vs. contact lens
Sugar vs. glass vs. metal vs. wood
Newspapers vs. TV Internet
Transport vs. Letters
96*
The competitive threat of substitutes is stronger when they are:
Readily available
Attractively priced
Believed to have comparable or better performance features
Customer switching costs are below
97*
Suppliers are a stronger force the more they can exercise power over:
Price charged
Quality/performance or items supplied
Amounts and delivery times
Competitive Force of Buyers
57* Buyers are a stronger competitive force when
11* They are large and purchase a sizeable percentage of industrys product
They buy in volume quantities
They can integrate backward
Industrys product is standardized
Their costs in switching to substitutes or other brands are low
They can purchase from several sellers
Product purchased does not save buyer money
98*
Buyers are a stronger competitive force the more they have leverage to bargaining
over:
Price
Quality
Service
Other terms and conditions of sale

Strategic Implications of the Five Competitive Forces
99*
Competitive environment is unattractive when:
98
33* Rivalry is strong

Entry barriers are low
Competition from substitutes is strong
Suppliers and customers have considerable bargaining power
Coping with the Five Competitive Forces
100*
Objective is to craft a strategy that will:
34* Insulate firm from competitive forces
Influence competitive pressures in ways that favor company
Build a sustainable competitive advantage
Strategic Implications of the Five Competitive Forces
101*
Competitive environment is ideal when:
35* Rivalry is moderate
Entry barriers are high
Good substitutes do not exist
- Suppliers and customers are in a weak bargaining position
Question 3: What Forces are at Work to Change Industry Conditions?
102*
Industries change because forces are driving industry participants to alter their
actions
Driving forces are the major underlying causes of changing industry and competitive conditions
Analyzing Driving Forces
103*
Identify those forces likely to exert greatest influence over next 1 3 years
36* Usually no more that 3 4 factors qualify
Assess impact
37* What differences will the forces (favorable? Unfavorable?)
Common Types of Driving Forces
104*
Changes in low-term industry growth rate
Changes in who buys the product and how they use it
Product innovation
Technological change/process innovation
Marketing innovation
Entry or exit of major firms
Diffusion of technical knowledge
Common Types of Driving Forces
105*
Increasing globalization of industry
Changes in cost and efficiency
Market shift from standardized to differentiated products (or vice versa)
New regulatory policies and/or government legislation
Changing societal concerns, attitudes and lifestyles
Changes in degree of uncertainty and risk
Question4: Which Companies are in Strongest/Weakest Positions?
106*
One technique for revealing the different competitive positions of industry rivals
is strategic group mapping
98
A strategic group consists of those rivals with similar competitive approaches in an industry
Environmental Scanning
Definition
58* Monitoring and interpreting sweep of social political, economic, ecological and
technical events to spot budding trends that could eventually impact industry
Purpose
59* Raise consciousness of managers and potential developments that could
12* Have important impact on industry conditions
Pose new opportunities and threats
Strategic Group Mapping
60* Firms in same strategic group have two or more competitive characteristics in
common:
13* Sell in same price/quality range
Cover same geographic areas
Be vertically integrated to same degree
Have comparable product line breadth
Emphasize same types of distribution channels
Offer buyers similar services
Use identical technological approaches
Procedure: Constructing a Strategic Group Map

Step 1: Identify competitive characteristics that differentiate firms in an industry from one
another
Step 2: Plot firms on a two-variable map using pairs of these differentiating characteristics
Step 3: Assign firms that fall about the same strategy space to same strategic group
Step 4: Draw circles around each group, making circles proportional to size of groups
respective share of total industry sales
Guidelines: Strategic Group Maps
11* Variables selected as axes should not be highly correlated
Variables chosen as axes should expose big differences in how rivals compete
Variables do not have to be either quantitative or continuous
Drawing sizes of circles proportional to combined sales of firms in each strategic group allows
map to reflect relative sizes of each strategic group
If more than two good competitive variables can be used, several maps can be drawn
Interpreting Strategic Group Maps
98
107*
Driving forces and competitive pressures often favor strategic groups and hurt
others
Profit potential of different strategic groups varies to strengths and weaknesses in each groups
market position
The closer strategic groups are on map, the stronger the competitive rivalry among
member firms tends to be
Question 5: What Strategic Moves are Rivals likely to make next?
108*
A firms own best strategic moves are affected by

38* Current strategies of competitors
Actions competitors are likely to take next
Profiling key rivals involves studying
39* Current position in industry
Strategic objectives
Basic competitive approaches
Competitor Analysis
109*
Successful strategists take pains in scouting competitors
40* Understanding their strategies
Watching their actions
Evaluating their vulnerability to driving forces and competitive pressures
Sizing up their resource strengths and weaknesses and their capabilities
Trying to anticipate rivals next moves
Predicting Moves of Rivals
110*
Predicting rivals next moves involves
41* Analyzing their current competitive positions
Examining public pronouncements about what it will take to be successful in industry
gathering information from grapevine about current activities and potential changes
Studying past actions and leadership
- Determining who has flexibility to make major strategic changes and who is locked into
pursuing same basic strategy
Question 6: What are the Key Factors for Competitive Success?
61* KSFs are competitive elements that most affect every industry members ability
to prosper in the market place
14* Specific strategy elements
Product attributes
Resources
Competencies
Competitive capabilities
KSFs spell difference between
Profit and loss
Competitive success or failure
98
Identifying
Industry
Key Success Factors
62* Answers to three questions pinpoint KSFs
15* On what basis do customers choose between competing brands of sellers?
What must a seller do to be competitively successful what resources and competitive
capabilities does it need?
What does it take for sellers to achieve a sustainable competitive advantage?
KSFs consist of the 3 5 really major determinants of financial and competitive success in
an industry
Common Types of Key Success Factors
1. Technology related
Manufacturing related
Distribution related
Marketing related
Skills related
Organizational related
Others
Example: KSFs for Beer Industry
111*
Utilization of brewing capacity to keep manufacturing costs low
Strong network of wholesale distributors to gain access to retail
Clever advertising to induce beer drinkers to buy a particular brand
Example: KSFs for Apparel Manufacturing Industry
112*
Fashion design to create buyer appeal
Low cost manufacturing efficiency to keep selling prices competitive
Example: KFs for Tin and Aluminum Can Industry
113*
Locating plants close to end-use customers to keep costs of shipping empty cans
low
Ability to market plant output within economical shipping distances
114*
A sound strategy incorporates efforts to be competent on all industry key success
factors and to excel on at least one factor!
Question 7: Is the Industry Attractive or Unattractive and Why?
Objective
63* Develop conclusions about whether the industry and competitive environment is
attractive or unattractive, both near and long-term, for earning good profits
Principle
Firms uniquely well-suited in an otherwise unattractive industry can, under certain circumstances, still earn
unusually good profits
Things to Consider in Assessing Industry Attractiveness

12* Industrys market size and growth potential
98
Whether competitive conditions are conducive to rising/falling industry profitability

Will competitive forces become stronger or weaker
Whether industry will be favorably impacted by driving forces
Potential for entry/exit of major firms
Stability/dependability of demand
Severity of problems facing industry
Degree of risk and uncertainty in industrys future
Conducting an Industry and Competitive Situation Analysis
115*
Two things to keep in mind:
Evaluating industry and competitive conditions cannot be reduced to a formula-like exercisethoughtful analysis is essential
Sweeping industry and competitive analyses to be done every 1 to 3 years
Looking Back
What is the meaning of an opportunity and a threat in terms of external environmental
analysis?
What are the five interrelated activities of a continuous process of external environmental
analysis?
What are the five environmental segments of the macro environment?
What are Michael Porters Five Forces that he identified as important when doing industry
analysis?
What aspects can be regarded as entry barriers?
What are the specific conditions that contribute to intense competition among existing
competitors?
When are suppliers powerful?
When do buyers have bargaining power?
What are key success factors?
Key Terms
Opportunity
- Political environment
Threat
- Social environment
Economic environment
- Technological
Industry Analysis
- Key success Factors
Market environment
1.
98
CHAPTER 4
EVALUATING COMPANY RESOURCES AND COMPETITIVE CAPABILITIES
Understand what really makes a company tick (Charles R Scott)
If a Company is not best in the world at a critical activity, it is sacrificing competitive advantage by performing that activity with its existing
techniques (James Brian Quinn)
Chapter Outline
116*
Determining how well the companys present strategy is working
SWOT Analysis
42* Resources strengths and weaknesses
Opportunities and threats facing firm
117*
Strategic cost analysis and value chains
Assessing firms competitive position
Identifying strategic issues
Company Situation Analysis: The Key Questions
64* How well is firms present strategy working?
What are the resource strengths and weaknesses and its external opportunities and threats?
Are firms prices and costs competitive?
How strong is firms competitive position relative to rivals?
What strategic issues does firm face?
98
Question 1: How well is the Present Strategy Working?
118*
Two steps involved
43*
Determine current strategy of company
44*
Examine key indicators of strategic and financial performance
What is the Strategy

65* Identify competitive approach
16* Low-cost leadership
Differentiation
Focus on a particular market niche
66* Determine competitive scope
17* Stages of industrys production/distribution chain
Geographic coverage
Customer base
67* Identify functional strategies
Examine recent strategic moves
Key Indicators of How Well the Strategy is Working
68* Trend in market share
Trend in profit margins
Trend in net profits, return on investment and EVA
Trend in sales growth
Credit ranking
Trend in stock price and stockholder value
Leadership role(s) technology, quality etc
Competitive advantages or disadvantages
Question 2: What are the firms strengths, Weaknesses, Opportunities and threats?
69*
SWOT represents the first letter in

18* Strengths
Weaknesses
Opportunities
Threats
70* Strategy-making must be well-matched to both
19* A firms resource strengths and weaknesses
- A firms best market opportunities and external threats to its well-being
98
Identifying Resource Strengths and Competitive Capabilities

71* A strength is something a firm does well or a characteristic that enhances its
competitiveness
20* Valuable competencies or know how
Valuable physical assets
Valuable human assets
Valuable organizational assets
Valuable intangible assets
Important competitive capabilities
An attribute that places a company in a position of market advantage
Alliances or cooperative ventures
SWOT Analysis What to Look for
119*
Potential Resource strengths
Potential Resource Weaknesses
Potential Company Opportunities

Potential External threats
Identifying Resource Weaknesses and Competitive Deficiencies
120*
A weakness is something a firm lacks, dies poorly, or a condition placing it at a
disadvantage
Resource weaknesses relate to
45* Deficiencies in know-how or expertise or competencies
Lack of important physical, organizational or intangible assets
Missing capabilities in key areas
Competencies vs. Core Competencies vs. Distinctive Competencies
72* A competence is an internal activity that a company performs better than other
internal activities
A core competence is a well-performed internal activity that is central not peripheral to a
companys strategy, competitiveness and profitability
A distinctive competence is a competitively valuable activity that a company performs better
than its rivals
Core
Competencies:
Valuable
73*
Company
Resource
A competence becomes a core competence when the well-performed activity is

central to the companys strategy, competitiveness and profitability
Often a core competence results from collaboration among different parts of an organization
Typically, core competencies reside in a companys people not in its assets on the balance sheet
A core competence gives a company a potentially valuable competitive capability
98
Types of Core Competencies

13* Skills in manufacturing a high quality product
System to fill customer orders accurately and swiftly
Fast development of new products
Better after-sale service capability
Superior know-how in selecting good retail locations
Innovativeness in developing popular product features
Merchandising and product display skills
Expertise in an important technology
Expertise in integrating multiple technologies to create whole families of new products

A Distinctive Competence A Competitively Superior Resource
74* A distinctive competence is a competitively significant activity that a company
performs better than its competitors
A distinctive competence represents a competitively superior resource strength
A distinctive competence
21* Represents a competitively valuable capability that rivals do not have
Has potential for being a cornerstone of strategy
Can provide a competitive edge in the marketplace
A Distinctive competence empowers a company to build competitive advantage
A Distinctive competence empowers a company to build competitive advantage
Examples: Distinctive Competencies

75* Sharp Corporation
22* Expertise in flat-panel display technology
76* Toyota, Honda, Nissan
23* Low cost, high-quality manufacturing capability and short design-to-market
cycles
77* Intel
24* Ability to design and manufacture ever more powerful microprocessors for PCs
78* Motorola
25* Defect-free manufacture (six-stigma quality) of cell phone
Determining the Competitive Value of a Company Resource
79* There are 4 tests of whether a resource has real potential for producing
sustainable competitive advantage
98
Is the resource hard to copy?

Does the resource have staying power is it durable?
Is the resource really competitively superior?
Can the resource be trumped by the different capabilities of rivals?
Successful strategies seek to capitalize on a companys resource strengths its expertise, core
competencies, and strongest competitive capabilities
Identifying a Companys Market Opportunities
121*
The market opportunities most relevant to a company are those offering
46* The best prospects for profitable long-term growth
Comparative advantage
- Good match with its financial and organizational resource capabilities
A company is well advised to pass on a particular market opportunity unless it has, or can
build the resource capabilities to capture it!
Identifying External Threats
80* Emergence of cheaper/better technologies
Introduction of better products by rivals
Intensifying competitive pressures
Onerous regulations
A rise in interest rates
Potential of a hostile takeover
Unfavorable demographic shifts
Adverse shifts in foreign exchange rates
Political upheaval in a country/unrest
Successful strategists aim at capturing a companys best growth opportunities and creating
defenses against external threats to its competitive position and future performance!
Role of SWOT Analyzing Crafting a Better Strategy
81* Developing a clear understanding of a companys
26* Resource strengths
Resource opportunities
Best opportunities
External threats
82* Drawing conclusions about how best to deploy resources in light of the
companys internal and external situation
Thinking strategically about how to strengthen the companys resources base for the future
Question 3: Are the Companys Prices and Costs Competitive?
122*
Assessing whether a firms costs are competitive with those of rivals is a crucial
part of company analysis
Key analytical tools
47* Strategic cost analysis
98
Value chain analysis

Benchmarking
Why Rival Companies have Different Costs

83* Companies do not have the same costs because of differences in
27* Prices paid for raw materials, component parts, energy and other supplier
resources
Basic technology and age of plant & equipment
Economies of scale and experience curve effects
Wage rates and productivity levels
Marketing, promotion, and administration costs
Inbound and outbound shipping costs
- Forward channel distribution costs
The higher a companys costs are above those of close rivals, the more competitively vulnerable
it becomes!
What is Strategic Cost Analysis?
123*
Focuses on a firms costs relative to its rivals
Compares a firms costs activity by activity against costs of key rivals
48* From raw materials purchase to
Price paid by ultimate customer
124*
Pinpoints which internal activities are a source of cost advantage or disadvantage
The Value Chain Concept
125*
Identifies the separate activities and business processes performed to design,
produce, market, deliver and support a product/service
Consists of two types of activities
49* Primary activities
Support activities
Typical Company Value Chain
Primary Activities
98
Support
Activities
& Costs
Activity-Based Costing: A Key Tool on Strategic Cost Analysis

84* Determining whether a companys cost are in line with those of rivals requires
measuring how a companys costs with those of rivals activity-by-activity from one end
of the value chain to the other
This requires having accounting data that measures the cost of each value chain activity
Activity-based accounting systems provide a way of measuring costs for each relevant value
chain activity
Traditional Cost Accounting Vs Activity-Based Costing
Benchmarking the Costs of Key Value Chain Activities

85* Focuses on cross-company comparisons of how well activities are performed
28* Purchase of materials
Payment of suppliers
Management of inventories
Training of employees
Processing of payrolls
Getting new products to market
Performance of quality control
Filling and shipping of customer orders
Objectives of Benchmarking
126*
Determine whether a company is performing particular value chain activities
efficiently
Understand the best practices in performing an activity
Assess if costs are in line with competitors
Learn how lower costs are achieved
Take action to improve cost competitiveness

Ethical Standards in Benchmarking: Dos and Donts
86* Avoid talk about pricing or competitively sensitive costs
98
Dont ask for sensitive data

Dont share proprietary data without clearance
Have impartial third party assemble and present competitive data with no names attached
Dont disparage a rivals business to outsiders based on data obtained
What Determines Whether a Company is Cost Competitive?
14* A companys cost competitiveness depends on how well managers its value chain
relative to competitors
Three areas contribute to cost differences
1. Suppliers activities
The companys own internal activities
Forward channel activities
The Value Chain System
87* Assessing a companys cost competitiveness involves comparing costs all along
the industrys value chain
Suppliers value chains are relevant because
29* Costs, quality and performance of inputs provided by suppliers influence a firms
own costs and product performance
88* Forward channel allies value chains are relevant because
30* Forward channel allies costs and margins are part of price paid by ultimate enduser
- Activities performed affect end-user satisfaction
The Value Chain System

Upstream
A Companys
Downstream
Value Chains
Own
Value Chain
Value Chain
Activities,
Internally Performed
Costs, &
Margins of
Supplier
Activities, Costs Margins of Forward

Margins
Channel Allies &
Strategic Partners
Activities, Costs &
Buyer/User
Example: Key Value Chain Activities

PULP & PAPER INDUSTRY
Timber farming
Logging
Pulp mills
Paper making
98
Value Chains
Printing & Publishing

SOFT DRINK INDUSTRY
Processing of basic ingredients
Syrup manufacture
Bottling and can filing
Wholesale distribution
Retailing
HOME APPLIANCE INDUSTRY
Parts & components manufacture
Assembly
Wholesale distribution
Retail sales
COMPUTER SOFTWARE INDUSTRY
Programming
Disk loading
Marketing
Distribution
Correcting Supplier-Related Cost Disadvantages: The Options
89* Negotiate more favorable prices with suppliers
Work with suppliers to help them achieve lower costs
Integrate backward
Use lower-priced substitute inputs
Do a better job of managing linkages between suppliers value chains and firms own chain
Make up difference by initiating cost savings in other areas of value chain
Correcting Forward Channel Cost
Disadvantages: The Options
90* Push for more favorable terms with distributors and other forward channel allies
Work closely with forward channel allies and customers to identify win-win opportunities to
reduce costs
Change to a more economical distribution strategy
Make up difference by initiating cost savings earlier in value chain
Correcting Internal Cost Disadvantages: The Options
15* Reengineer how the high-cost activities or business processes are performed
Eliminate some cost-producing activities altogether by revamping value chain system
Relocate high-cost activities to lower-cost geographic areas
See if high cost activities can be performed cheaper by outside vendor/suppliers
Invest in cost-saving technology
Simplify product design
Make up difference by achieving savings in backward or forward portions of value chain system
From Value Chain Analysis to Competitive Advantage
98
The Strategy making lesson of value chain analysis:

Sustainable competitive advantage can be created by
1. Managing value chain activities better than rivals and
Developing distinctive capabilities to serve customers!
From Value Chain Analysis to Competitive Advantage

127*
A company can create competitive advantage by managing its value so as to
50* Integrate the knowledge and skills of employees in competitively valuable ways
Leverage economies of learning / experience
Coordinate related activities in ways that build valuable capabilities
Build dominating expertise in a value chain activity critical to customer satisfaction or
market success
Question 4: How Strong is the Companys Competitive Position?
91* Can be firms position be expected to improve or deteriorate present strategy is
continued
How the firm ranks relative to key rivals on each industry KSF and relevant measure of
competitive strength
Whether the firm has a sustainable competitive advantage or disadvantage
Ability of firm to defend its position in light of
31* Industry driving forces
Competitive pressures
Anticipated moves of rivals
Assessing A Companys Competitive Strength versus Key Rivals
92* List industry key success factors and other relevant measures of competitive
strength
Rate firm and key rivals on each factor using rating scale of 1 10 (1 = weak; 10 = strong)
Decide whether to use a weighted or unweighted rating system
Sum individual ratings to get overall measure of competitive strength for each rival
Determine whether the firm enjoys a competitive advantage or suffers from competitive
disadvantage
Why Do a Competitive Strength Assessment?
93* Reveals strength of firms competitive position
Shows how firm stacks up against rivals measure-by-measure pinpoints the companys
competitive strengths and competitive weaknesses
Indicates whether firm is at a competitive advantage/ disadvantage against each rival
Identifies possible offensive attacks (pit company strengths against rivals weaknesses)
Identifies possible defensive actions (a need to correct competitive weaknesses)
Question 5: What Strategic Issues does the Company Need to Address?
94* What should management be worried about what items should be on the
companys worry list?
98
Requires thinking strategically about

32* The pluses and minuses in the industry and competitive situation
The companys resource strengths and weaknesses and the attractiveness of its competitive
position
95* A good strategy must address each and every strategic issue!
Identifying the Strategic Issues

16* Is present strategy adequate in light of competitive pressures and driving forces?
Is the strategy well matched to the industrys key success factors?
Does the company need new or different resource strengths and competitive capabilities
Does present strategy adequately protect against external threats and resource deficiencies?
Is firm vulnerable to competitive attack by rivals?
Where are strong/weak spots in present strategy?
Stating the Issues Clearly and Precisely
96* A well stated issue involves such phrases as
33* What should be done about ?
How to ..?
Whether to ..?
Should we ?
97* Issues need to be precise, specific and cut straight to the chase
Issues raise questions about
34* What actions need to be considered?
What to think about doing
Criticisms of the SWOT Analysis
1. It generates lengthy lists
It uses no weight to reflect priorities
It uses ambiguous words and phrases
The same factor can be placed in two categories (e.g. a strength may also be a weakness)
There is no obligation to verity opinions with data or analysis
There is no logical link to strategy implementation
SWOT Analysis by itself, is not a panacea
Looking Back
1. What is the meaning of the acronym SWOT?
Explain the relationship between resources and organizational capabilities, SWOT analysis and
strategic competitiveness.
The activities in the value chain are grouped into which two categories?
What are the limitations of the SWOT analysis?
What are the characteristics that make a resource valuable?
What is strategic intent?
Why is it important for a company to keep track of its competitors costs?
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What are common types of core competencies?

Key Terms
Present strategy
Situation Analysis
Resource strength
Competence
Core competence
Distinctive competence
CHAPTER 5
STRATEGY AND COMPETITIVE ADVANTAGE
The essence of strategy lies in creating tomorrows competitive advantages faster than competitors mimic
the ones you possess today. (Gary Hamel and C.K Prahald)
Strategies for taking the hill wont necessarily hold it. (Amar Bhide)
Chapter Outline
98* Generic Competitive Strategies
35* Low cost leadership strategy
Broad differentiation strategies
Best cost provider strategies
Focused low-cost strategies
Focused differentiation strategies
99* Vertical integration strategies
Cooperative strategies (alliances)
Offensive and defensive strategies
First-mover advantages and disadvantages
Strategy and Competitive Advantage
100* Competitive Advantage exists when a firms strategy gives it an edge in
36* Defending against competitive forces and
Securing customers
Key to Success
101* Convince customers firms product/service offers SUPERIOR VALUE
37* Offer buyers a good product at lower price
- Use differentiation to provide a better product buyers think is worth a premium price
What is Competitive Strategy?
102* Consists of business approaches to
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38* Attract customers, fulfilling their expectations

Withstand competitive pressures
Strengthen market position
103* Includes offensive and defensive moves to
39* Counter actions of key rivals
Shift resources to improve long-term market position
Respond to prevailing market conditions
104* Narrower in scope than business strategy
Objectives of Competitive Strategy

128*
Build a COMPETITIVE ADVANTAGE
Cultivate clientele of LOYAL CUSTOMERS
Knock the socks off rivals, ethically and honorably
The Five Generic Competitive Strategies
Type of Advantage Sought
Low cost
differentiation
Market
Target
Broad Range
of Buyers
Narrow
Buyer
Segment/Niche
A low-cost Leadership Strategy

Objective
129*
Open up a sustainable cost advantage over rivals, using lower-cost edge as a basis
either to
51* Under-price rivals and reap market share gains OR

- Earn higher profit margin selling at going price
Low-Cost Leadership
Keys to Success
130*
Make achievement of low-cost relative to rivals the THEME of firms business
strategy
Find ways to drive costs out of business year-after-year
Low-Cost Leadership means low OVERALL costs, not just low manufacturing or production
costs!
98
Approaches to Securing a Cost Advantage

Approach 1
131*
Do a better job than rivals of performing value chain activities efficiently and cost
effectively
Approach 2
Revamp value chain to bypass some cost-producing activities
Approach 1: Controlling the Cost Drivers
17* Capture scale economies: avoid scale diseconomies
Capture learning and experience curve effects
Manage costs of key resource inputs
Consider linkages with other activities in value chain
Find sharing opportunities with other business units compare vertical integration vs. outsourcing
Assess first-mover advantages vs. disadvantages
Control percentage of capacity utilization
Make prudent strategic choices related to operations
Approach 2: Revamping the Value Chain
18* Simplify product design
Offer basic, no-frills products/service
Shift to a simpler, less capital-intensive or more streamlined technological process
Find ways to bypass use of high-cost raw materials
Use direct-to-end user sales/marketing approaches
Relocate facilities closer to suppliers or customers
Reengineering core business processes be creative in finding ways to eliminate value chain
activities
Use PC technology to delete works steps, modify processes cut out cost-producing activities
Characteristics of a low-cost Provider
105* Cost conscious corporate culture
Employee participation in cost-control efforts
Ongoing efforts to benchmark costs
Intensive scrutiny of budget requests
Programs promoting continuous cost improvement
Successful low-cost producers champion frugality (not wasteful) but wisely and aggressively
invest in cost-saving improvement
What Company Managers have to do to Achieve low-cost Leadership
106* Scrutinize each cost creating activity, identifying cost drivers
Use knowledge about cost drivers to manage costs of each activity down year after year
Find ways to reengineer how activities are performed and coordinated eliminate unnecessary
work steps
Be creative in cutting some activities out of value chain system re-invent the industry value
chain
The Competitive Strengths of low-cost Leadership
98
107* Better
positioned than RIVAL COMPETITORS to complete offensively on
basis of price
Low-cost provides some protection from bargaining leverage of powerful BUYERS
Low-cost provides some protection from bargaining leverage of powerful SUPPLIERS
Low-cost providers pricing power acts as a significant barrier for POTENTIAL ENTRANTS
Low cost puts a company in position to use low price as a defense against SUBSTITUTES
Low-Cost Strategy Works Best When:
132*
Price competition is vigorous
Product is standardized or readily available from many suppliers
There are a few ways to achieve differentiation that have value
Most buyers use product in same ways
Buyers incur low switching costs
Buyers are large and have significant bargaining power
Pitfalls of low-cost Strategies

108* Being overly aggressive in cutting price (revenue erosion of lower price is not
offset by gains in sales volume-profits go down, not up)
Low cost methods are easily limited by rivals
Becoming too fixated on reducing costs and ignoring
40* Buyer interest in additional features
Declining buyer sensitivity to price
Changes in how the product is used
109* Technological breakthroughs open up cost reductions for rivals
Differentiation Strategies
Objective
110* Incorporate differentiating features that cause buyers to prefer firms product or
service over the brands of rivals
Keys to Success
111* Find ways to differentiate that CREATE VALUE for buyers and that are not
easily matched or cheaply copied by rivals
Not spending more to achieve differentiation than the price premium that can be charged
The Appeal of Differentiation Strategies
o A powerful competitive approach when uniqueness can be achieved in ways that
52* Buyers perceive as valuable
Rivals find hard to match or copy
Can be incorporated at a cost well below the price premium that buyers will pay
The Benefits of Successful Differentiation
A product/service with unique and appealing attributes allows a firm to
Command a premium price and/or

Increase unit sales and/or
Build brand loyalty
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= Competitive Advantage
Types of Differentiation Themes
19* Unique taste Dr Pepper
Special features America Online
Superior service FedEx, Ritz-Carlton
Spare parts availability Caterpillar
More for your money McDonalds, Wal-Mart
Engineering design and performance Mercedes
Prestige Rolex
Quality manufacture Honda, Toyota
Technological leadership 3M Corporation, Intel
Top-of-the line image Ralph Lauren Channel
Sustaining Differentiation: The Key to Competitive Advantage
112* Most appealing approaches to differentiation:
41* Those hardest for rivals to match or imitate
Those buyers will find most appealing
113* Best choices to gaining a longer-lasting, more profitable competitive edge:
42* New product innovation
Technical superiority
Product quality and reliability
Comprehensive customer service
Where to Find Differentiation Opportunities in the Value Chain
114* Purchasing and procurement activities
Product R&D activities
Production R&D, technology-related activities
Manufacturing activities
Outbound logistics and distribution activities
Marketing, sales and customer service activities
How to Achieve a Differentiation-Based Advantage

Approach 1
20* Incorporate product features/attributes that lower buyers overall costs of using
product
Approach 2
21* Incorporate features/attributes that raise the performance a buyer gets out of the
product
Approach 3
22* Incorporate features/attributes that enhance buyer satisfaction in non-economic or
intangible ways
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23*
Approach 4
Compete on the basis of superior capabilities
Signaling Value as well as Delivering Value

o Buyers seldom pay for value that is not perceived
Signals of value may be as important as actual value when
53* Nature of differentiation is hard to quantify
Buyers are making first-line purchases
Repurchase is infrequent
Buyers are unsophisticated
The Competitive Strengths of a Differentiation Strategy
115* Buyers develop loyalty to brand they like bestcan beat rival competitors in the
marketplace
Mitigates bargaining power of large buyers since other products are less attractive
Differentiation puts a seller in better position to withstand efforts of suppliers to raise prices
Buyer loyalty acts as a barrier to potential entrants
Differentiation puts a seller in better position to fend off threats of substitutes not having
comparable features
A Differentiation Strategy Works Best When:

o There are many ways to differentiate a product that have value and please
customers
Buyer needs and uses are diverse
Few rivals are following a similar type of differentiation approach
Technological change is fast-paced and competition is focused on evolving product features
What Can Make a Differentiation Strategy Fail
116* Trying to differentiate on a feature buyers do not perceive as lowering their cost
or enhancing their well-being
Over-differentiating such that product features exceed buyers needs
Charging a price premium that buyers perceive is too high
Failing to signal value
Not understanding what buyers want or prefer and differentiating on the wrong things
Competitive Strategy Principle
o A low-cost producer strategy can defeat a differentiation strategy when buyers are
satisfied with a standard product and do not see extra attributes as worth paying
for!
Best Cost Provider Strategies
98
117* Combine
a strategic emphasis on low-cost with a strategic emphasis on
differentiation
0*
Make an upscale product at a lower cost
Give customers more value for the money
Objectives
118* Create superior value by meeting or exceeding buyer expectations on product
attributes and beating the or price expectations
Be the low-cost producer of a product with good-to-excellent product attributes, then use cost
advantage to under price comparable brands
The Competitive Strength of a Best-Cost Provider Strategy
119* Competitive advantage comes from matching close rivals on key product
attributes and beating them on price
Success depends on having the skills and capabilities to provide attractive performance and
features at a lower cost than rivals
A best cost producer can often out-compete both a low-cost provider and a differentiator when
1*
Standardized features/attributes wont meet the diverse needs of buyers
Many buyers are price and value sensitive
Focus/Niche Strategies
Involves concentrated attention on a narrow piece of the total market
Objective
Serve niche buyers better than rivals
Keys to Success
Chooses a market niche where buyers have distinctive preferences, special requirements, or unique needs
Develop unique capabilities to serve needs of target segment
Focus/Niche Strategies and Competitive Advantage

Approach 1
Achieve lower costs than rivals in serving the segment-A low cost strategy
Approach 2
Offer niche buyers something different from rivals -A different strategy
Examples of Focus Strategies
Netscape
98
Software to browse World Wide Web

Porsche
Sports cars
Cannondale
Mountain bikes
Horizon and Comar Commuter airlines
Link major airports with small cities
Jiffy Lube International
Maintenance for motor vehicles
What Makes a Niche Attractive for Focusing?
120* Big enough to be profitable
Good growth potential
Not crucial to success of major competitors (making it unlikely they will compete hard in niche)
Focuser has resources to effectively serve segment
Focuser can defend against challenges via superior ability to serve buyers in segment and
customer goodwill
The Competitive strength of Focus/Niche Strategies
Rival Competitors do not have matching capabilities to meet specialized needs of niche
members
Focusers competence/capabilities act as barrier to potential Entrants
Focusers competence/capabilities pose obstacle to sellers of Substitutes
Focusers unique ability to meet niche buyers needs can blunt bargaining leverage of powerfu
Buyers
When Does a Focus Strategy Work Best?

o Costly or difficult for multi-segment rivals to serve specialized needs of larger
niche
No other rivals are concentrating on same segment
Firms resources do not allow it to go after a bigger piece of market
Industry has many different segments, creating more focusing opportunities
Risks of a Focus Strategy
o Competitors find effective ways to match a focusers capabilities in serving niche
Niche buyers preferences shift towards product attributes desired by majority of buyers-the
niche becomes part of the overall market
Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be
splintered
Vertical Integration Strategies
o Vertical integration extends a firms competitive scope within same industry
54* Backward into sources of supply
Forward toward end-users of final product
o Can aim at either full or partial integration
98

A vertical integration strategy has appeal ONLYif it significantly strengthens a firms competitive position!
Appeal of Backward Integration

121* Generates cost savings only if volume needed is big enough to capture
efficiencies of suppliers
Potential to reduce costs when
2*
Suppliers have sizeable profit margins
Item supplied is a major cost component
Resource requirements are easily met
122* Can produce a differentiation based competitive advantage when it results in a
better quality part
Reduces risk of depending on suppliers of crucial raw materials/parts/components
Appeal of Forward Integration
123* Advantages for a firm to establish its own distribution network if
3*
Undependable distribution channels undermine steady production operations
124* Integrating forward into distribution and retailing
4*
May be cheaper than going through independent distributors
May help achieve stronger product differentiation, allowing escape from space competition
May provide better access to users
Strategic Disadvantages of Vertical Integration
24* Boosts resource requirements/money, people, space

Locks firm deeper into same industry
Results in fixed sources of supply and less flexibility in accommodating buyer demands for
product variety
Poses problems of balancing capacity at each stage of value chain
May require radically different skills/capabilities
Reduces manufacturing flexibility, lengthening design time and ability to introduce new products
Differences in organization culture-takes time to integrate
Unbundling and Outsourcing Strategies
Concept
Involves not performing certain value chain activities internally and relying on outside vendors
to perform needed activities and services.
Advantages of Outsourcing Strategies
125* Outside specialists may/can perform the activity better or more cheaply
Activity is not crucial competitive advantage
Reduces risk exposure to changing technology and/or changing buyer preferences
Streamlines operations to
98
5*
Cut cycle time
Speed decision-making
Reduce coordination costs
126* Allows firm to concentrate on its core business
Pros and Cons of Vertical Integration
127* The appeal of a vertical integration strategy depends on
6*
Its ability to enhance performance of strategy-critical activities by
- Lowering costs or
- Increasing differentiation
7*
Its impact on
- Resource requirements
- Flexibility and response times
- Administrative overhead of coordination
Its ability to create a company a competitive advantage
Cooperative Strategies
o Companies sometimes use strategic alliances or strategic partnerships or
collaborative agreements to complement their own strategic initiatives and
strengthen their competitiveness. Such cooperative strategies go beyond normal
company-to-company dealings but fall short of merger or formal joint venture
Why are Strategic Alliances Formed?

o To collaborate technology development or new product development
To improve supply chain efficiency
To gain economies of scale in production and/or marketing
To fill gaps in technical or manufacturing expertise
To speed new products to market
To acquire or improve market access
Offensive and Defensive Strategies
Offensive Strategies
o Are undertaken to build new or stronger market positions and/or create
competitive advantage
Defensive Strategies
o Can protect competitive advantage, but rarely are the basis for creating advantage
The Building and Eroding of Competitive Advantage

Buildup
Period
Benefit Period
Erosion Period
Size of
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Competitive
Advantage
Strategic
Moves
Produces
Competitive
Advantage
Size of
Competitive
Advantage
Achieved
Moves by
Rivals Reduce
Competitive
Advantage
Time

Any competitive advantage currently held will eventually be eroded by the actions of competent,
resourceful competitors!
Options for Mounting Strategic Offensives
o Initiatives to match or exceed rivals strengths
Initiatives to capitalize on rivals weaknesses
Simultaneous initiatives on many fronts
End-run offensives
Guerilla warfare tactics
Preemptive strikes
Attacking Competitors Strengths

Appeal
128* Gain market share by out-matching strengths of weaker rivals
Whittle away at a rivals competitive advantage
Challenging strong competitors with a lower price is foolhardy unless the aggressor has COST
ADVANTAGE or advantage of GREATER FINANCIAL STRENGTH!
Attacking Competitor Strengths
Possible Offensive options
129* Under-price rivals
Boost advertising
Introduce new features to appeal to rivals customers
Best Options
130* Attack with equally good products and lower price
Develop low-cost edge, use it to under-price rivals
Options for Attacking a Competitors Strengths
131* Offer equally good product at a lower price
Offer a better product at the same price
Leapfrog into next generation technologies
Add appealing new features
Run comparison ads
98
Construct new plant capacity

Offer a wider product line
Develop better customer service capabilities
Attacking Competitor Weaknesses
Basic Approach
132* Concentrate company strengths and resources directly against rivals weaknesses
Weaknesses to Attack
133* Geographic regions where rival is weak
Segments rival is neglecting
Go after those customers a rival is least equipped to serve
Rivals with weaker marketing skills
Introduce new models exploiting gaps in rivals product lines
Launching Simultaneous Offensive on Many Fronts
Objective
o Launch several major initiatives to
55* Throw rivals off-balance
Force their attention
Appeal
A challenge superior resources can overpower weaker rivals by out-competing them across the
board long enough to become a market leader
End-Run Offensives
Objectives
o DODGE head-t-head confrontations that escalate competitive intensity or risk
cutthroat competition
Attempt to MANEUVERaround areas of strong competition-concentrate on those areas of market where
competition is weakest
Optional Approaches for End-Run Offensives

o Build presence in geographic areas where rivals have little presence or exposure
Introduce products with different attributes and features to better meet buyer needs
Introduce next-generation technologies and leapfrog rivals
Add support services for customers
Guerilla Offenses
Approach
o Use principles of surprise and hit-and-run to attack in locations and at times
where conditions are most favorable to initiator
Appeal
Well-suited to small challenges with limited resources

Options for Guerilla Offenses
0* Focus on narrow target weakly defended by rivals
98
Challenge rivals where they are overextended and when they are encountering problems
Make random scattered raids on leaders
8*
Occasional low-balling on price
Intense bursts of promotional activity
Legal actions charging antitrust violations, patent infringements or unfair advertising
Preemptive Strikes
Approach
Involves moving first to secure an advantageous position that rivals are foreclosed or
discouraged from duplicating!
Preemptive Strike Options
1* Expand capacity ahead of demand in hope of discouraging rivals from allowing
suit
Tie up best cheapest sources of essential raw materials
Move to secure best geographic locations
Obtain business of prestigious customers
Build an image in buyers minds that is unique & hard to copy
Secure exclusive or dominant access to best distributors
Acquire desirable, but struggling, competitor
Choosing Whom to Attack

o Four types of firms can be the target of an offensive:
56* Market leaders
Runner-up firms
Struggling rivals on verge of going under
- Small local or regional firms not doing a good job for their customers
Offensive strategy and Competitive Advantage
2* STRATEGIC OFFENSIVE options offering strongest basis
COMPETITIVE ADVANTAGE
9*
Develop lower-cost product design
Make changes in production operations that lower costs or enhance differentiation
Develop product features that deliver superior performance or lower users costs
Give more responsive customer service
Escalate marketing effort
Pioneer new distribution channel
Sell direct to end-users
Offensive Strategy Principle
98
for
The chances for a successful offensive initiative are improved when it is based on
a companys resource strengths and strongest competencies and capabilities.
Defensive Strategy
Objectives
o Fortify firms present position
Help sustain any competitive advantage held
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at other rivals
Defensive Strategies: Approaches
Approach 1
o Block avenues challenges can take in mounting offensive attacks
Approach 2
Make it clear any challenge will be met with strong counterattack
Blocking Avenues for Rivals Offensives
25* Broaden product line to fill gaps rivals may go after

Keep prices low on models that match rivals
Sign exclusive agreements with distributors
Offer free training to buyers personnel
Give better credit terms to buyers
Reduce delivery times for spare parts
Increase warranty coverage
Patent alternative technologies
Sign exclusive contacts with best suppliers
Protect proprietary know-how
Signaling Defensive Toughness
3* Publicly announce managements strong commitment to maintain present market
share
Publicly announce plans to construct new production capacity to meet forecasted demand
Give out advance information about new products, technological breakthroughs and other moves
Publicly commit firm to policy of matching prices and terms offered by rivals
Maintain war chest of cash reserves
Make occasional counter-responses to rivals
4*
Give out advance information about new products, technological breakthroughs

and other moves
First-Mover Advantages
5* WHEN to make a strategic move is often as crucial as WHAT move to make
First mover advantages arise WHEN
10* Pioneering helps build firms image and reputation
98
Early commitments to raw material suppliers, new technologies & distribution channels can
produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
First-Mover Disadvantages
o Moving early can be a disadvantage (all fail to produce an advantage) when
57* Costs of pioneering are sizeable and loyalty of first time buyers is weak
Rapid technological change allows followers to leapfrog pioneers
Achievements of pioneers are easily and quickly imitated by late movers
It is relatively easy for latecomers to crack the market
Looking Back
What is competitive advantage and how do the resources of an organization contribute to the
attainment of competitive advantage?
What do the generic strategies identified by Michael Porter entail and what are the advantages
and risks associated with each of the strategies?
What is the best cost strategy and which generic strategies are involved in pursuing this kind of
strategy?
1.
Key Terms
Low cost leadership

Differentiation
Focus
Competitive advantage
Generic strategy
98
CHAPTER 6
MATCHING STRATEGY TO A COMPANYS SITUATION
Competing in the marketplace is like war. You have injuries and casualties and the best strategy.
(John Collins
You do not choose to become global. The market chooses for you; it forces your hand.
(Alain Gomez)
Chapter outline
6* Strategies for Emerging industries
Strategies for high velocity markets
Strategies for maturing industries
Strategies for declining industries
Strategies for fragmented industries
Strategies for international markets
Strategies for industry leaders
Strategies for runner-up firms
Strategies for weak businesses
Thirteen commandments for crafting strategies
98
Features of an Emerging Industry

7* New and unproven market
Proprietary technology
Low entry barriers
Experience curve effects may permit cost reductions as volume builds
Buyers are first-time users
Marketing involves inducing initial purchase and overcoming customer concerns
Possible difficulties in securing raw materials
Firms struggle to fund R&D, operations and build resource capabilities for rapid growth
Overview: Matching Strategy to a Companys Situation
Strategy Options for Competing in Emerging Industries

8* Win early race for industry leadership by employing a bold, creative strategy
Push hard to
11* Perfect technology
Improve product quality
Develop attractive performance features
9* Move quickly when technological uncertainty clears and a dominant technology
emerges
Form strategic alliance
Capture potential first-mover advantages
Competing in a Mature Industry: The Strategy Pitfalls and Mistakes
26*
Employing a ho-hum strategy with no stand-out or distinctive features thus

leaving the company stuck in the middle with no good options for improving its
position
Concentrating on short-term profits rather than strengthening long-term competitiveness
Being slow to adapt competencies to changing customer expectations
Being slow to respond to price-cutting
Having too much excess capacity
Overspending on marketing
Failing to pursue cost reduction aggressively
Stagnant or Declining Industries: The Standout Features
o Demand grows more slowly than economy as whole (or even declines)
Competitive pressures intensify rivals battle for market share
98
To grow and prosper, firm must take market from rivals

Industry consolidates to a smaller number of key players via mergers and acquisitions.
Strategy Options for Competing in a Stagnant or Declining Industry
10* Pursue focus strategy aimed at fastest growing market segments
Stress differentiation based on quality improvement or product innovation
Work diligently to drive costs down by
12* Outsourcing
Redesign internal processes
Consolidate under-utilized production facilities
Close low-volume, high-cost distribution outlets
Cut marginal activities from value chain
Competing in a stagnant Industry:

The Strategic Mistakes
o Being overly optimistic about industrys future (believing things will get better)
Getting embroiled in a profitless battle for market share with stubborn rivals
Diverting resources out of the business too quickly Competing in a stagnant Industry:
The Strategic Mistakes
o Being overly optimistic about industrys future (believing things will get better)
Getting embroiled in a profitless battle for market share with stubborn rivals
Diverting resources out of the business too quickly
Competitive Features of Fragmented Industries
27* No seller has a sizeable market share (sometimes because the industry is so new
that no large firms have yet emerged)
Exploding technologies force firm to specialize just to keep up in their area of expertise
Low entry barriers
Absence of scale economies
Buyers require small quantities of customized products (a condition that allows small firms to
serve the special needs of a few buyers)
Market is so big or diverse that it requires many firms to satisfy buyer needs
Examples of Fragmented industries
28*
Book publishing
Landscaping and plant nurseries

Auto repair
98
Restaurant industry
Public industry
Public accounting
Womens dresses
Meat packing
Paperboard boxes
Hotels and motels
Furniture
Manufacturing share vs. market share
o Firm with the biggest manufacturing share is best able to fully capture scale
economies
Consequently manufacturing share is a better indicator than market share of the industrys global
low cost producer
Pattern of International Competition
Characteristics of multi - country competition
11* Each country market is self contained

Competition in one country market is independent of competition in other country markets
Rivals competing in one country market differ from set of rivals competing in another country
market
Rivals vie for national market leadership
No international market just a collection of country markets
Characteristics of Global Competition
12* Competitive conditions across country markets are strongly linked together.
2*
Many of same rivals compete in many of the same country markets

Rivals vie for worldwide leadership
A true international market
13* A firms competitive position in one country is affected by its position in other
countries
A firms overall competitive advantage is based on its entire world wide operations
Types of International Strategies
- Licensing
Exporting
Multi-country strategy
Global low cost strategy
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Global differentiation strategy

o Global focus strategy
Global best cost strategy
Multi Country Strategy
14* Strategy in each country market is matched to local market circumstances
Different country strategies are called for when
13* Buyers in one country want a product that is different from buyers in another
country
Host government regulations preclude uniform global approach
15* Two drawbacks
Poses problems of transferring competencies across boarders
Works against building a unified competitive advantage
Coordinating Activities to Build a Global Advantage
16* Achieve dominating depth in a competitively valuable area by transferring
competencies, capabilities, resource strengths from one country to another
Shift production from one location to another to take advantage of most favorable cost or trade
conditions or exchange rates
Enhance brand reputation by incorporating same differentiating attributes in its products in all
markets where it competes
Choose when and where to challenge rivals
Achieving Global Competitiveness via Strategic Alliances
o Allows firms to compete on a
0*
More global scale and
Preserve their independence
o Types of alliances
1*
Joint research efforts
Technology-sharing
Joint use of production facilities
Marketing one anothers products
- Joint manufacturing or assembly
Achieving Global Competitiveness via Strategic Alliances
o Allows firms to compete on a
2*
More global scale and
Preserve their independence
o Types of alliances
3*
Joint research efforts
Technology-sharing
Joint use of production facilities
Marketing one anothers products
Joint manufacturing or assembly
98
Benefits of Strategic Alliances

o Gain scale economies in production and/or marketing
Fill gaps in technical expertise or knowledge of local markets
Share distribution facilities and networks
Direct combined competitive energies toward defeating mutual rivals
Pitfalls of Strategic Alliances
o Becoming too dependent on another firm for essential expertise over the longterm
Different motives and conflicting objectives
Time consuming
Language and cultural barriers
Mistrust when collaborating in competitively sensitive areas
Clash of egos and company cultures
Guidelines in Forming Strategic Alliances
o Pick a compatible partner
Choose ally whose strengths complement firms products and customers
Learn thoroughly and rapidly about partner's technology and management
Do not share competitively sensitive information
View alliance as temporary not permanent
How Strategic Intent Varies among Industry Competitors
Global Dominance
Pursue global strategy
Dominance in Home Market
Defend home country market while pursuing international sales in foreign markets
Multinational
Pursue multi-country strategy
Domestic Only
Focus on home country market
Strategy Options: Industry Leaders
Stay on the offensive strategy
Fortify-and-defend Strategy
Follow the Leader Strategy
Stay-on-the-Offensive Strategies
o Best defense is a good defense
Be a first-mover
Relentlessly pursue continuous improvement and innovation
Force rivals to scramble to keep up
Launch initiatives to keep rivals off balance
Grow faster than industry, taking market share from rivals
Stay-on-the-Offensive Strategies
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Best defense is a good defense

Be a first-mover
Relentlessly pursue continuous improvement and innovation
Force rivals to scramble to keep up
Launch initiatives to keep rivals off balance
o Grow faster than industry, taking market share from rivals
Objectives: Fortify-and-Defend Strategy
o Make it harder for new firms to enter and for challengers to gain ground
Hold onto present market share
Strengthen current market position
Protect competitive advantage
Fortify-and-Defend: Strategic Options
29* Increase advertising and R&D
Provide higher levels of customer services
Introduce more brands to match attributes of rivals
Add personalized services to boost buyer loyalty
Keep prices reasonable and quality attractive
Build new capacity ahead of market demand
Invest enough to remain cost competitive
Patent feasible alternative technologies
Sign exclusive contracts with best suppliers and distributors
Objectives: Follow the-Leader-Strategy
o Use competitive muscle to encourage runner-up firms to be content followers
Signals smaller rivals that moves to cut into leaders business will be hard fought
Follow-the-Leader: Strategic Options
17* Be quick to meet competitive price cuts
Counter with large-scale promotional campaigns if challengers boost advertising
Offer better deals to major customers of maverick firms
Dissuade distributors from carrying rivals products
Attempt to attack key executives if rivals
Use hard ball measures to signal aggressive small firms should lead
Weak Businesses: Strategic Options
o Launch a strategic offensive
Play aggressive defense
Pursue immediate abandonment
Adopt a harvest
98
What Is a Harvest Strategy?

o Steers middle course between status quo and existing quickly
Invoices gradually sacrificing market position in return for bigger near term cash flow/profit
Objectives
Short term General largest feasible cash flow
Long term Exit market
Types of Harvesting Options
18* Reduce operating budget to rock bottom

Hold reinvestment to minimum
Emphasize stringent internal cost controls
Place little priority on new capital investments
Raise price gradually
Trim promotional expenses
Reduce quality in non visible ways
Curtail non essential customer services
Shave equipment maintenance
When Should Harvesting Be Considered
19*
Industrys long term prospects are unattractive

Building up business would be too costly
Market share is increasingly costly to maintain
Reduced levels of competitive effort will not trigger immediate fall off in sales
Firm can re-deploy freed-up resources in higher opportunity areas
Business is not a major component of diversified firms portfolio of business
Business does not contribute other desired features to overall business portfolio
Achieving a Turnaround:
The Strategic Options
o Revise existing strategy
Launch efforts to boost revenues
Cut costs
Sell off assets to generate cash and / or reduce debt
Combination of efforts
13 Commands for Crafting Successful Business Strategies

98
20*
Always put top priority on crafting and executing strategic moves that enhance a
firms competitive position for the long-term and that serve to establish it as an industry
leader
Understand that a clear, consistent competitive strategy, when well-crafted and well executed,
build reputation and recognizable industry position whereas a strategy aimed solely at
capturing momentary market opportunities yields fleeting benefits
Looking Back
What are the most important drivers shaping a firms strategic options?
What are the pitfalls of strategic alliances?
What are the characteristics of multi - country competition?
What are the strategic options available to a company to fortify and defend?
What are the types of harvesting options?
What strategies can a firm use to internationalize?
1.
Key Terms
Multi country
Emerging industry
Mature industry
Stagnant/Decline industry
Global competition
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CHAPTER 7
STRATEGY AND COMPETITIVE ADVANTAGE IN DIVERSIFIED COMPANIES

Establish investment priorities, steering resources into most attractive business units
.
to
acquire
or
not
to
acquire:
that
is
the
question.
(Robert J. Terry)
Fit between a parent and its businesses is a two-edged sword: a good fit can create value; a bad one can destroy it.
(Andrew Campbell, Michael Gould and Marcus Alexander and Marcus Alexander)
Chapter Outline
21* When to Diversify
Building shareholder value
Entering new businesses
Related diversification strategies
Unrelated diversification strategies
Divestiture and liquidation strategies
Corporate turnaround, retrenchment and portfolio restructuring strategies
Multinational diversification strategies
Combination diversification strategies
Diversification and Corporate Strategy
o A company is diversified when it is in two or more lines of business
Strategy-making in a diversified company is a bigger picture exercise than crafting strategy for a
single line of business
0*
A diversified company a multi-industry, multi-business strategy
- A strategic action plan must be developed for several different businesses competing in
diverse industry environments
98
The Four Main tasks in Crafting Corporate Strategy

o Make moves to enter new businesses
Initiate actions to boost combines performance of businesses
Find ways to capture synergy among related business units
Stages in Transitioning from a Single Business to a Diversified Company
Stage 1: Small single-business serving a regional market
Stage 2: Geographic expansion
Stage 3: Vertical integration (optional)
Stage 4: Diversification usually initiated when growth opportunities dwindle in the companys
present business

o To create shareholder value, a diversifying firm must get into businesses that can
perform better under common management than they could perform operating as
independent stand-alone enterprises!
Corporate Strategy Alternatives
Diversification Strategies
o Entering new industries
Related diversification
Unrelated diversification
Divestiture and liquidation
Corporate turnaround, retrenchment and restructuring
Multinational diversification
Acquire a Company Already in the Target Industry
o Most popular approach to diversification
Advantages
1*
Quicker entry into target market
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Easier to hurdle certain entry barriers

0*
Technological inexperience
Gaining access to reliable suppliers
Being of a size to match rivals in terms of efficiency and costs
Getting adequate distribution access
Diversification via Internal Startup
More attractive when
22* Ample time exists to create a new business from group up
Incumbents slow in responding to new entry
Less expensive than acquiring an existing firm
Company already has most of needed skills
Additional capacity will not adversely impact supply-demand balance in industry
New start-up does not have to go head-to-head against powerful rivals
Common Approaches to Related Diversification
o Sharing of sales force, advertising or distribution activities
Exploiting closely related technologies
Transferring brand name and reputation to a new product/service
Acquiring new businesses to uniquely help firms position in existing businesses
Benefits of Related Diversification
Preserve unity in its business activities

Reap competitive advantage benefits of
2*
Skills transfer
Lower costs
Common brand name usage
o Spread investor risks over a broader base
Achieve consolidated performance greater than the sum of what businesses can earn
operating independently
Concept: Economies of Scope
o Arise from ability to eliminate costs by operating two or more businesses sunder
same corporate umbrella
Exist when it is less costly for two or more businesses to operate under centralized management
than to function immediately
Cost saving opportunities can stem from interrelationships anywhere along businesses value
chains
Concept: Strategic Fit
o Exists among different businesses when their value chains are sufficiently similar
to offer opportunities
Offers competitive advantage potential of
3*
Lower costs
Efficient transfer of
98
1*
Key skills
Technological know-how
- Use of a common brand name
Types of Strategic Fit
23*
Technology Fits
Offer potential for sharing common technology or transferring technological how-
how
Potential benefits
14* Cost-savings in technology development and new product R&D
Shorter times in getting new product to market
Interdependence between resulting products leads to increased sales
Technology-transfer allows more efficient performance of value chain activities
What id Unrelated Diversification?
o Involves diversifying into businesses, with
4*
No strategic fit
no meaningful value chain relationships
No unifying strategic theme
o Approach is to venture into any business in which we think we can make a
profit
Firms pursuing unrelated diversification are often referred to as conglomerates
Basic Premise of Unrelated Diversification
Any company that can be acquired on good financial terms and offers good prospects for
profitability is a good business to diversify into!
Acquisition Criteria for Unrelated Diversification Strategies
24* Can business meet corporate targets for profitability and ROI?
Will businesses require substantial infusions of capital?
Is business in an industry with growth potential?
Is business big enough to contribute to the parent firms bottom line?
Is there potential for union difficulties or adverse government regulations?
Is industry vulnerable to recession, inflation, high interest rates, or shifts in government policy?
Attractive Acquisition Targets
o Companies with undervalued assets
5*
Capital gains may be realized
98
Companies in financial distress

6*
May be purchased at bargain prices and turned around
Companies with bright prospects but limited capital
Appeal of Unrelated Diversification

25* Business risk scattered over different industries
Capital resources can be directed to those industries offering best profit prospects
Stability of profits Hard times in one industry may be offset by good times in another industry
If bargain-prices firms with big profit potential are bought, shareholders wealth can be enhanced
Drawbacks of Unrelated Diversification
o Difficulties of competently managing many diverse businesses
There are no strategic fits can be leveraged into competitive advantage
7*
Consolidated performance of unrelated businesses tends to be better than sum of
individual businesses on their own (an it may be worse)
Promise of greater sales-profit stability over business cycles seldom realized
Turnaround, Retrenchment and Portfolio Restructuring
o Strategy options for a diversified firm with ailing subsidiaries
Why consider these options?
8*
Large losses in one or more subsidiaries
Large number of businesses in unattractive industries
Bad economic conditions
Excessive debt load
Acquisitions performing worse than expected
Corporate Turnaround Strategies
26* Objectives
15* Restore money-losing businesses to profitability rather than divest them
Get whole firm back in the back by curing problems of ailing businesses in portfolio
27* Most appropriate where
16* Reasons for poor performance are short-term
Ailing businesses are in attractive industries
Divesting money-losers doesnt make long-term strategic sense
Corporate Retrenchment Strategies
Objective
9*
Reduce scope of diversification to a smaller number of businesses
Most appropriate when
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10* Company in too many businesses

Certain businesses cant be made profitable
o Strategic options-divest businesses
11* Too small to contribute to earnings
Having little strategic fit with core businesses
Portfolio Restructuring Strategy
o Objective
1*
Involves radical changes in mix of businesses in portfolio via both
0*
Divestitures and
New acquisitions
Conditions that make Portfolio Restructuring Attractive
1* Long-term performance prospects are attractive
Core business units fall upon hard times
Wave of the future technologies emerge prompting a shakeup to build position in a new
industry
Unique opportunity emerges and existing businesses must be sold to finance new acquisition
Major businesses in portfolio become unattractive
Changes in markets of certain businesses proceed in such different directors, its better to demerge
Comment: Trend in Diversification
o The present trend toward narrower diversification has been driven by a growing
preference to gear diversification around creating strong competitive positions in
a few, well-selected industries as opposed to scattering corporate investments
across many industries!
Competitive Strength of a DMNC in Global Markets
o A DMNC has a strategic arsenal capable of defeating both s SINGLE-BUSINESS
MNC and a SINGLE-BUSINESS domestic firm in cross-subsidization power of
profit sanctuaries in multiple businesses and multiple country markets
Step 1: Identify the Present Corporate Strategy
o Things to consider:
2*
Extent to which firm is diversified (broad versus narrow, % of sales contributed
by each business)
Is portfolio keyed to related diversification or both?
Is scope of operations mostly domestic increasingly multinational or global?
Recent moves to add new businesses
Step 1: Identify the Present Corporate Strategy (cont.)
o Recent moves to divest weak businesses
Actions to boost performance of key business units
Efforts to capture strategic fit benefits and use value chain relationships to create competitive
advantage
Percentage of capital expenditures allocated to each business unit
98
Step2:
Evaluate
Industry Attractiveness
Attractiveness of each industry or portfolio
Each industrys attractiveness relative to the others
Sum to get overall industry attractiveness
Industry Attractiveness Factors
2* Market size and projected growth
Intensity of competition
Emerging opportunities and threats
Seasonal and cyclical factors
Resource requirements
Strategic fits and resource fits with present businesses
Industry profitability
Social, political, regulatory and environmental factors
Degree or risk and uncertainly

Procedure: Rating the Relative Attractiveness of each Industry
o Step 1: Select industry attractiveness factors
Step 2: Assign weights to each factor (sum of weights = 10)
Step 3: Rate each industry on each factor (use scale of 1 to 10)
Step 4: Calculate weighted ratings, sum to get an overall industry attractiveness rating for each
industry
Strategy Implications of Attractive /Strength Matrix
28* Business in upper left corner
0*
Accorded top investment priority
Strategic prescription is grow and build
29* Businesses in three diagonal cells
1*
Given medium investment priority
Invest to maintain position
30* Businesses in lower right corner
2*
Candidates for harvesting or divestiture
May be candidate for an overhaul and reposition strategy
The Attractiveness/Strength Matrix
o Allows for intermediate rankings between high and low and between strong and
weak
Incorporates a wide variety of strategically relevant variables
Stresses allocating corporate resources to businesses with greatest potential for
12* Competitive advantage and
1* Superior performance
98
Step 4: Strategic Fit Analysis

o Objective
3*
Determine competitive advantage potential of value chain relationships and
strategic fits among current businesses
o Examine fit needs from two angles
4*
Whether one or more businesses have valuable strategic fit with other businesses
in portfolio
Whether each business meshes well with firms long-term strategic direction
Identifying Strategic Fits among a Diversified Firms Business Units
Value Chain Activities
Inbound Logistics Technology Operations Marketing Distribution Service
Business A
Business B
Business C
Business D
Business E
0* Opportunity to combine purchasing activities & gain greater leverage with suppliers
Opportunity to share technology, transfer technical skills, combine R&B
Opportunity to combine sales & marketing activities use common distribution channels, leverage
use of a common brand name, and /or combine after sales service
No strategic fit opportunities
Step 5: Assess Resource Fit
o Objective:
0*
Determine how well firms resources match business unit requirements
o Good resource fit exists when
1*
Businesses add to firms resource strengths, either financially or strategically
Firm has resources to adequately support requirements of its businesses as long as a group
Checking for Financial resource Fit
31* Determine cash flow and investment requirements of the business units
17* Are they cash hogs or cash cows?
32* Assessing cash flow aspects of each business
18* Highlights opportunities to shift financial resources between businesses
Explains why priorities for resources allocation can differ from business to business
Provides rationalization for both invest and expand strategies and divestiture
Step 7: Decide Resource Allocation Priorities and Strategic Direction
33* Objective
19* Get the biggest bang for the buck in allocating corporate resources
34* Procedure
98
20*
Rank each business from highest to lowest priority for corporate resource support
and new investments (steer resources to high opportunity areas and limit support to low
opportunity areas)
Develop a general strategic direction for each business
o
2*
o
3*
o
4*
o
5*
Options: General Strategic Direction

Invest and grow
Aggressive expansion
Fortify-and-defend
Protect current position
Overhaul and reposition
Make major strategy changes
Harvest-divest
Spun off business as independent company
Sell business
Options: General Strategic Direction
o Invest and grow
6*
Aggressive expansion
o Fortify-and-defend
7*
Protect current position
o Overhaul and reposition
8*
Make major strategy changes
o Harvest-divest
9*
Spun off business as independent company
Sell business
Options: Allocating Financial Resources
o Invest in ways to strengthen or expand businesses
Make acquisitions to establish positions in new industries
Fund long-range R&D ventures
Pay off existing long-term debt
Increase dividends
Repurchase companys stock
Step 8: Crafting a Corporate Strategy Key Issues
35* Are enough businesses in attractiveness in attractive industries?
Is the number of mature or declining businesses so great corporate growth will be sluggish?
Are businesses overly vulnerable to seasonal influences or recession?
Are there too many average-to-weak businesses in the companys business make-up?
Is there ample strategic fit among the businesses?
98
Step 8: Crafting a Corporate Strategy- Key Issues (cont.)

o Is there ample resource fit among the businesses?
Are there enough cash cows to finance cash hogs with potential to be star performers?
Do core businesses generate dependable profits and / cash flow?
Does makeup of business portfolio put firm in good future position?
The Performance Test
o Can the companys performance targets be reached with the current businesses?
10* If yes, no major corporate strategy changes are indicated
If a performance gap is likely actions can be taken to close the gap
Looking Back
1. Describe a diversified company.
What are the forms of diversification?
What are the strategies for unrelated diversification?
Why is it necessary to carry out a strategic Fit Analysis?
What is the purpose for carrying out a performance Test?
Key Terms
Diversified company - Internal startup

- Unrelated diversification
Corporate strategy - Strategic Fit
- Performance Test
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Chapter 8
IMPLEMENTING STRATEGY:
BUILDING RESOURCE CAPABILITIES AND STRUCTURING THE ORGANIZATION
Unless you have a trained, literate, motivated work force, and give them decision-making authority, you dont get
satisfied customers
Anthony Rucci
Chief Administrative Officer
Sears Roebuck
Chapter Outline
36* Strategy Implementation Framework
3*
Key Tasks
Leading the Implementation Process
37* Building a Capable Organization
4*
Selecting people for key positions
Building core competencies and competitive capabilities
Matching organization structure to strategy
0* Why structure follows strategy
Strategic advantages and disadvantages of different organization structures
Organizational structures of the future
The Task of Implementing Strategy
38* An action-oriented, operations-driven activity revolving around managing people
and business processes
Tougher and more time-consuming than crafting strategy
Success depends on doing a good job of
5*
Leading
Motivating
Working with others to create fits between strategy and how organization does things
Why Implementing Strategy is a Tough Management Job
o Implementing a new strategy takes adept leadership to
5*
Overcome pockets of doubt
Build consensus
Secure commitment of concerned parties
98
Get all implementation pieces in place and coordinated

Factors Influencing Managers in Leading Implementation Process
39* Experience and knowledge of business
New to job seasoned
Network and personal relationships
Diagnostic, administrative, interpersonal and problem-solving skills
Authority given manager
Leadership style most comfortable with
View of role to get things done
Context of organization's situation
Task #1: Building a Capable Organization
o Selectable people for key positions
Develop skills core competencies managerial talents competitive capabilities
Selecting People for Key Positions: Implementation Issues
o Type of core management team needed to carry out strategy
Find the right people to fill each slot
6*
Existing management team may be suitable
Core executive group may need strengthening
0*
Promote from within
Bring in skilled outsiders
Selecting People for Key Positions: Key Considerations
40* Determine mix of
6*
Backgrounds
Experiences and know-how
Beliefs and values
Styles of managing and personalities
41* Personal chemistry must be right
Talent base needs to be appropriate
Picking a solid management team needs to be acted on early in implementation process
Key Organization-Building Objectives
o Staff organizational units with the specialized talents, skills and technical
expertise needed to develop and build core competencies
Build competitively valuable organizational capabilities
Building core competencies, resource strengths and organizational capabilities that rivals cant
match is a sound foundation for sustainable competitive advantage!
Building Core Competencies: The Necessary Understanding
98
42*
Core competencies are rarely grounded in skills or know-how of a single

department
1*
Typically emerge from collaborative efforts of different work groups
43* Leveraging competencies into competitive advantage requires concentrating more
effort and more talent than rivals on strengthening competencies and creating valuable
organizational capabilities
Sustaining competitive advantage requires adapting competencies to new conditions
Building Competitively Valuable Competencies and Capabilities
44* Involves
7*
Managing human skills, knowledge bases and intellect
Coordinating efforts of related work groups
Collaborative networking among internal groups and with external partners
Achieving dominating depth
45* Senior managers have to guide the process
The ongoing challenge; broaden, deepen or modify competencies and capabilities in response to
customer/market changes
o Building core competencies, resource strengths and organizational capabilities
that rivals cant match is a sound basis for sustainable competitive advantage.
Building Competencies and Capabilities: The Keys to Success:
46* Superior selection -Empowerment
Training
- Attractive incentives
Cultural influences - Organizational flexibility
Cooperative
- Short deadlines
Networking
- Good databases
Motivation
The Most Valuable Organizational Capabilities

o Contribute heavily to better strategy execution
Provide a differentiating fact that customers can see and that customers value
Are hard for rivals to match
7*
Time consuming to build
Hard to replicate or imitate
Difficult to obtain from others
The Process of Building Organizational Capabilities: Step 1
Step one is to
8*
Select people with relevant skills/experience
Broaden or deepen individual abilities as needed
Mold the energies and work products of individuals into a cooperative group effort to create
organizational ability
98
Step 2: Looking for Outsourcing Opportunities

o Potential advantages of outsourcing
Decrease internal bureaucracies
Flatten organization structure
Provide firm with heightened strategic focus
Makes strategic sense when outsiders can perform certain activities
9*
At a lower cost and/or
With higher value added
Step 3: Deciding which Activities Require Partners
o The advantages partnering may offer:
10*
Speed new technology/products to market
Quicker delivery or lower inventories of parts
Help provide better/faster technical assistance to customers via
0*
Geographically wider distribution
Economical custom manufacture
More extensive after-sale support services
Partnering makes strategies sense when result is to enhance organizational
Step 4: Making Strategy-Critical Activities the Main Building Blocks

o Assign managers of strategy critical activities a visible, influential position
Avoid fragmenting responsibility for strategy-critical activities across many departments
Provide coordinating linkages between related work groups
Meld into a valuable competitive capability
Guard against Organization Designs that Fragment Activities
0* Parceling critical work across specialized departments contributed to
Many hand-offs which
Lengthens completion time
Increase overhead costs
Obsession with activity rather than result
Solution: Pull critical processes from functional silos and create process-complete departments
However some fragmentation is often advantageous for certain support activities
Examples of Strategy-Critical Activities that are Often Fragmented
1* Filing customer orders
Customer service
Obtaining feedback from customers
New product development
Improving product quality
Managing relationships with key suppliers
Building capability to conduct business via the internet
Why Structure follows Strategy
98
2*
Changes in strategy typically require a new structure for implementation to be

successful
Research indicates
8*
Structure affects performance \structure merits reassessment whenever strategy
changes
New strategy involves different skills and key activities
How work is structured is a means to an end not an end in itself.
A Traditional Functional Organization Structure
A Process Oriented Functional Structure
98
A Geographic Organization Structure
A Decentralized Line of Business Organization Structure
98
Organizational Structures of the Future: Success depends On

3* Quick response to shifting customer preferences
Short design to market cycles
First time quality
Custom order and multi version production
Expedited delivery and accurate order filing
Personalized customer service
Creativity and Innovativeness
Speedy reaction to competitive developments
Organization Structures of the future: Meeting the New Requirements
4* Decentralized structures with fewer managers
Small scale business units
Reengineering to decrease fragmentation
Development of stronger and newer capabilities
Collaborative partnerships with outsiders
Empowerment and self directed work teams
Lean staffing of corporate support functions
Open communications via e mail
Electronic information systems
Accountability for results

Characteristics of Organization of the Future
5* Fewer boundaries between
2*
Different vertical ranks

Functions and disciplines
Units in different geographic locations
Firm and its suppliers, distributors, strategic allies, and customers
6* Capacity for change and learning
Collaborative efforts among people in different functions and geographic locations
Extensive use of digital technology
98
How policies and Procedures Aid Strategy Implementation

o Provide top down guidance regarding expected behaviors
Help align internal actions with strategy channeling efforts along the intended path
Enforce consistency in performance of activities in geographically scattered units
Serve as powerful lever for changing corporate culture to produce stronger fit with a new
strategy
Creating strategy - Supportive policies and Procedures
7* Role of new policies
Channel behaviors and decisions to promote strategy execution counteract tendencies of people
to resist chosen strategy
Too much policy can be as stiffing as
9*
Wrong policy or as
Chaotic as no policy
Often, the best policy is a willingness to empower employees

Instituting Best Practices and Continuous improvement
o Searching out and adopting best practices is integral to effective implementation
Benchmarking has spawned new approaches to improve strategy execution
Reengineering
TQM
Continuous improvement programs
The Objectives of Quality Improvement Programs
o Defect-free manufacture
Superior product quality
Superior customer service
Total customer satisfaction
EXCELLENCE
Implementing a Philosophy of continuous Improvement
o Instill enthusiasm to do things right throughout company
Strive to achieve little steps forward each day i.e. Kaizen
Ignite creativity in employees to improve performance of value chain activities
Preach there is no such thing as good enough
Reform the corporate culture
Characteristics of TQM/Continuous Improvement Programs
8* Valuable competitive asset in a companys resource portfolio
Have hard-to-imitate aspects
Require substantial investment of management time and effort
Expensive in terms of training and meetings
Seldom produce short-term results
Long-term pay-off instilling a TQM culture
TQM Vs Process Reengineering
98
9*
10*
Reengineering
Aims at quantum of 30 to 50% or more
10* TQM
- Stresses incremental progress
11* Techniques are not mutually exclusive
Reengineering- used to produce a good basic design yielding dramatic improvement
TQM used to perfect process, gradually improving efficiency and effectiveness
Using Best Practice Programs as an Implementation Tool

12* Select indicators of successful strategy execution benchmark against best practice
companies
Reengineer business processes
Build a TQ culture
Starts with management commitment
Install TQ-supportive employee practice
Empower employees to do the right things
Provide employees with quick access to required information
Preach that performance can be improved
Installing Support Systems
13* Essential to promote successful execution
Types of support systems
Online data systems
Internet and company intranets
Electronic mail
Web pages
Mobilizing information and creating systems to use knowledge effectively can yield
competitive advantage
Examples: Support Systems
Airlines
o Computerized reservation systems
Federal Express
o Computerized parcel tracking system and leading edge flight operations systems
Examples: Support Systems
Otis Elevator
o Sophisticated maintenance support system
Procter & Gamble
o System to obtain early warning signs of product problems and changing tastes
98
Approaches: Motivating People to Execute the Strategy Well

o Inspire employees to do their best
Get employees to buy into strategy
Structure individual efforts in teams to facilitate a supportive climate
Allow employees to participate in decision about their jobs
Make jobs interesting in satisfying
Devise strategy supportive motivational approaches
Examples: Motivational Practices
Mars Inc.
o Every employee including the president, gets a weekly 10% bonus by coming to
work on time each day that week
Japanese Companies
Employees meet regularly to hear inspirational speeches, sing company songs, and chant the
corporate litany
Tupperware and Mary Kay Cosmetics
o Hold inspirational get-togethers for sales force organizations
Nordstrom
o Pays salespeople higher than prevailing rates, plus commission. Use judgment in
all situations. There will be no additional rules.
Microsoft
14* Team members enjoy working 60-80 hours per week for a leading edge company,
accompanied by attractive pay and lucrative stock options
Lincoln Electric
Rewards productivity by paying for each good produced (defects can be traced to
worker causing them). Bonuses of 50% to 100% are common
Balancing Positive vs. Negative Rewards

15* Elements of both are necessary
Challenge and competition is necessary for self-satisfaction
Prevailing view
Positive approaches work better than negative ones
Enthusiasm
Effort
Initiative
Linking the Reward System to Performance Outcomes
98
Rewards are the single most powerful tool to win commitment to the strategy
Objectives
11*
Generously reward those achieving objectives
Deny rewards to those who dont
Make strategic performance measures the dominate basis for designing incentives
Looking Back
1.
Why is organizational structure important for strategy implementation?

2. What does structure follows strategy refer to?
List different types of organizational structure.
What are the probable characteristics of the organizational structures of the future?
Provide brief guidelines for matching structures with strategies?
Why is resource allocation important for strategy implementation?
List the different types of resources?
What are polices?
Key Terms
Human resources
Policies
Structure
Resource allocation
Structure follows strategy
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CHAPTER 9
IMPLEMENTING STRATEGY: CULTURE AND LEADERSHIP
An organization's capacity to execute its strategy depends on its hard infrastructure and systems and on its
soft infrastructureits culture and norms.
(Amar Bhide)
Chapter Outline
3* Building a strategy supportive corporate culture
Where does corporate culture come from?
Power of culture
Types of cultures
Creating a fit between Strategy and culture
Establishing ethical Standards and values
Building a spirit of high performance
Exerting strategic leadership MBWA
Fostering a strategy- supportive culture
Keeping internal organization innovative
Dealing with company politics
Enforcing ethical behavior
Making collective adjustments
What Makes Up a Companys Culture
16* Beliefs about how business ought to be conducted
Values and principles of management
Patterns of how we do things around here
Oft-told stories illustrating companys values
Taboos and political donts
Traditions
Ethical standards
Features of the Corporate Culture at Wal-Mart
17* Dedication to customer satisfaction
Zealous pursuit of low costs
Belief in treating employees as partners
Sam Waltons legendary frugality
Ritualistic Saturday morning meetings
98
Executive commitment to
Visit stores
Talk to customers
Solicit employees suggestions
Features of the Corporate Culture at Nordstrom's

o Company motto
12*
Respond to unreasonable customer requests
o Out of the ordinary customer requests viewed as opportunities for heroic acts
Promotions based on outstanding service
Salaries based entirely on commission
Weed out those not meeting standards and reward those who do
Types of Corporate Cultures
o Strong vs. Weak Cultures
Low-performance cultures
Characteristics of Strong Culture Companies
18* Conduct business according to a clear, widely understood philosophy
Management spends considerable time communicating and reinforcing values
Values widely shared and deeply rooted
Often have a values statement
Careful screening /selection of new employees to be sure they will fit in
Visible rewards for those following norms; penalties for those who dont
How does a culture come to be strong?
19* Leader who establishes values consistent with
11*
Customer needs
Competitive conditions
Strategic requirements
20* A deep, abiding commitment espoused values and business philosophy
Genuine concern for well-being of
12*
Customers
Employees
Shareholders
Strong cultures promote good strategy execution where theres fit and hurt execution where
theres little fit
Characteristics of Weak Culture Companies
98
Many subcultures
Few values and norms widely shared
Few strong traditions
Little cohesion among the departments
Weak employee allegiance to companys vision and strategy
No strong sense of company identity
Characteristics of Low Performance Cultures
21* Politicized internal environment issues resolved on basis of turf
Hostility to change
Experimentation and efforts to alter status quo discourages
Avoid risks and dont screw up
Promote managers who are more concerned about process than about results
Aversion to look outside for superior practices
Must be invented here syndrome
Instilling Values of Ethics
o Incorporating values statement and ethics code in employee training programs
Screen out applicants who do not exhibit compatible character traits
Communicate the vales and ethics code to all employees
Management involvement and oversight
Strong endorsement by CEO
Word-of-mouth indoctrination
Building a Spirit of High Performance into the Culture
o Emphasize achievement and excellence
Promote a results-oriented culture
Pursue practices to inspire people to excel
Desired outcome
13*
Produce extraordinary results with ordinary people
Approaches to Building a Spirit of High Performance
22* Treat employees with dignity and respect
Train each employee thoroughly
Encourage employees to use initiative
Set clear performance standards
Use rewards and punishment to enforce high performance standards
Hold managers responsible for employee development
Grant employees autonomy to contribute
Make champions out of people who excel
Six Roles of the Strategy Implementer
98
23*
Stay on top of whats happening

Promote a culture energizing organization to accomplish strategy
Keep firm responsive to changing conditions
Build consensus and deal with politics of crafting and implementing strategy
Enforce ethics standards
Take corrective actions to improve overall strategic performance

Role #1: Stay on Top of Whats Happening
o Talk with many people at all levels
Be an avid practitioner of MBWA
Observe situation firsthand
Monitor operating results regularly
Get feedback from customers
Watch competitive reactions of rivals
Role #2: Foster a Strategy Supportive

Culture
leaders
14*
Spend time convincing organization members that chosen strategy is right and
that competent strategy execution is top priority
Nurturing values
Building and nurturing a culture that promotes good strategy execution
Political Tactics of Successful Executives
4* Let weakly supported ideas die via inaction
Establish harmless for strongly supported ideas that shouldn't be opposed
Keep low ideas on unacceptable ideas by getting subordinates to say no
Let most negative decision come from group consensus
Lead the strategy but dont dictate it
Stay alert to symbolic impact of ones actions
Ensure all major power bases have access to top managers
Inject new views when considering major changes
Minimize political exposure on highly controversial issues
Role #5: Enforce Ethical Behavior
o Insist upon strong code of ethics
Install tough consequences for unethical behavior
Take actions to ensure compliance
Make it a duty for employees to
Report ethical violations
Observe ethical codes
Leaders Role in Enforcing Ethical Behavior
98
Set an excellent ethical example

Provide training to employees about what is ethical and what isnt
Reiterate unequivocal support of ethics code
Remove people from key positions if found guilty
Reprimand people lax in monitoring ethical compliance
Key Components of an Ethics Program
24* Oversight committee of board of directors
Committee of senior managers to direct training, implementation and compliance
Annual audit managers efforts to uphold ethical standards
Formal reports on managers actions to remedy deficient conduct
Require people to sign documents certifying compliance with ethical standards
Role #6: Lead the Process of Making Corrective Adjustments

o Requires both
15*
Reactive adjustments
Proactive adjustments
o Involves
16*
Reshaping long-term direction, objectives and strategy to unfolding events
Promoting initiatives to align internal activities and behavior with strategy
Supplementing Formal Approaches to Organizing
o Special project teams create a largely self-sufficient work group to oversee the
completion of a special activity
Popular means of handling one of a kind situations having a finite life expectancy
Cross Functional Task Forces
25* Top level executives/specialists come together to:
13*
Solve problems requiring specialized expertise
Coordinate strategy related activities spanning departmental boundaries
Explore ways to leverage skills of functional specialists into broader care competencies
Typically used to solve real problems, produce some solution efficiently and then disbanded
Venture Team Approach
Group formed to manage launch of new producer, entry into new geographic area,
or creation of a specific new business
Self contained work teams
98
People from different disciplines work together on a semi-permanent basis to

continuously improve performance in specific strategy related areas
Process Teams
o Functional specialists who perform pieces of a specific business process form a
team to reengineer the process
Team is held accountable for results and rewarded on basis of how well process is performed
Contact Managers
o Managers who provide a single point contact for customers, acting as a buffer
between internal process and customers
Best results are achieved when contact persons are empowered to act on their own judgment to
please customers
Current Trends in Organization
o Quick response to customer preferences
Looking Back
1. Briefly describe strategy implementation.
Distinguish between strategy formulation and strategy implementation.
What is strategic leadership?
List four barriers to strategy implementation.
What are the drivers and instruments for strategy implementation?
What are the tasks of a strategic leader?
A change in strategy requires a change in reward systems. Provide brief guidelines for matching
reward systems and strategies with reference to organizational life cycle.
What is organizational culture?
Key Terms
Leader
Manager
Organizational culture
Reward systems
Strategy implementation
Strong culture
Weak culture
98

Strategic Management Module

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CONTENTS

The Concepts and Techniques of Strategic Management.

The Strategic management Process: An overview.

Five tasks of strategic management

To proactively shape how a companys business will be conducted

The Five Tasks of Strategic Management

Examples: Mission and Vision Statements

Types of Objectives Required

Converts vision into specific performance targets.

Example: McCormicks Corporate Objectives

Examples: Strategic and Financial Objectives

The Hows That Define a Firms Strategy

The Third Task of Strategic Management

Concentrate on a single business or several business (diversification)

Add 2500 restaurants annually

Risk taking and venturesomeness

Why Do Strategies Evolve?

1* Shifting market conditions

Senior corporate level executives

Ideas of people with different backgrounds can be tapped into

Lowers managements threshold to change

Enhances long range performance

Recap Key Terms

Targets relating to strengthening a companys overall market position and

The vision is not to make a profit

Business Mission: McDonalds

McDonalds serves approximately 30 million customers daily at 20.000-plus

Broad Narrow Mission Statements?

Boundary for what to do and not do

Mission Statement of a Diversified Firm

Contribution to firms mission/vision/objectives

Communicating the Vision

Crystallizes long-term direction

Reduces risk or rudderless decision-making

Examples: Financial Objectives

Stronger bond and credit ratings

A firm that consistently passes up opportunities to strengthen its long-term

Serves as a rallying cry for employees to do their very best

Signals deep-seated commitment to winning

Objectives-setting needs to be more of a top-down than a bottom-up process in

7* How to make management's strategic vision a reality

Fig. 2-1(a): Level of Strategy-Making: A Single Business Company

Characteristics of strategy - Making

Evolves over time

Tasks of Corporate Strategy

Actions to boost of individual businesses

Strategy Components of a Single-Business Company

What Business Strategy Involves

Addressing strategic issues facing the company

Example: Operating Strategy

Two way influence

Two way influence

Two way influence

Two way influence

Two way influence

Two way influence

Two way influence

Plant managers, lower

Strategic Management Principle

Social, Political, Regulatory, and Citizenship Factors

Threats to the companys well-being

Company Strengths, Competencies, and Competitive Capabilities

Employees expect reliable, safe product or service