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BMST5103
Strategic Management
INTRODUCTION
BMST5103 Strategic Management is one of the courses offered by OUM Business
School at Open University Malaysia (OUM). This course is worth 3 credit hours
and should be covered over 15 weeks.
COURSE AUDIENCE
This course is offered to all learners taking OUM Business Schools MBA, Masters
in Management and Masters in Human Resource Management programmes.
This module aims to impart the fundamental theories and concepts of strategic
management and provide a good understanding of knowledge and analytical
skills for decision making.
STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend
120 study hours. Table 1 gives an estimation of how the 120 study hours could be
accumulated.
Study
Study Activities
Hours
Briefly go through the course content and participate in initial discussions 5
Study the module 60
Attend 4 tutorial sessions 8
Online participation 12
Revision 15
Assignment(s) and Examination(s) 20
TOTAL STUDY HOURS ACCUMULATED 120
COURSE OUTCOMES
By the end of this course, you should be able to:
COURSE SYNOPSIS
This course is divided into ten topics. The synopsis for each topic is listed as
follows:
Topic 2 explores the vision and mission statements of firms and organisations.
The topic aims to provide a thorough understanding about vision and mission
statements of firms and organisations; and the role of the statements in strategic
planning and management. Finally, this topic provides guidelines to evaluate
some examples of vision and mission statements.
Topic 3 discusses the role of internal audit for strategic management with
emphasis of the conduct of an effective internal strategic management audit to
provide an excellent foundation for formulating strategies. This topic also
provides guidelines for the development of an Internal Factor Evaluation (IFE)
Matrix. The functions of marketing, accounting and finance, production and
operations are discussed further. Audit checklists for each of the functions are
also presented. The topic also introduces strategic analytical tools such as value
chain analysis, cost-benefits analysis, and benchmarking using an Internal Factor
Evaluation (IFE) Matrix.
Topic 4 discusses the need for external audit to assess the environment within
which an organisation, firm or business operates. External audit provides
valuable information in supporting strategic planning. This topic explores the
dimensions of the external environment. This is followed by the roles of an
external auditor in strategic management. Several tools and frameworks were
explored in their characteristics and its uses for external audit in providing
Competitive Intelligence (CI). This topic ends with the method to develop an
External Factor Evaluation Matrix.
Topic 6 discusses the different corporate level strategies that businesses can use.
Integration strategies are first discussed followed by intensive strategies. The
different types of diversification strategies are then discussed followed by a
discussion on defensive strategies. The topic ends with a case for learners to
evaluate and discuss.
Learning Outcomes: This section refers to what you should achieve after you
have completely covered a topic. As you go through each topic, you should
frequently refer to these learning outcomes. By doing this, you can continuously
gauge your understanding of the topic.
Summary: You will find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the summary, you should
be able to gauge your knowledge retention level. Should you find points in the
summary that you do not fully understand, it would be a good idea for you to
revisit the details in the module.
Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargon used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms in the module.
PRIOR KNOWLEDGE
This is a capstone course. Pre-requisites for this course include: Accounting
for Business Decision Making; Managerial Finance; Organisation and Business
Management; Marketing Management.
ASSESSMENT METHOD
Please refer to myINSPIRE.
REFERENCES
David, F. R., & David, F. R. (2015). Strategic management: Concepts and cases
(15th ed.). Boston, MA: Pearson.
INTRODUCTION
Strategic management is the capstone course in any business degree programme,
whether it is an undergraduate programme or a postgraduate programme.
Strategic management is very important as it is the culmination of all other
business subjects such as finance, marketing, management, and human resource
management, tied together by the decisions made by the Chief Executive Officer
(CEO) and his or her management team. In essence, strategic management
teaches you how to be a CEO.
ACTIVITY 1.1
ACTIVITY 1.2
To learn more about what strategic management is, let us watch a video
from the following link: https://youtu.be/DR00Ja5CMnM
ACTIVITY 1.3
Thus, under strategy formulation, these are the decisions that are faced by
organisations:
Strategy evaluation involves reviewing external and internal factors to the firm.
At the strategy evaluation stage, the organisation also measures its performance
by comparing its goals and objectives set with the actual performance for the
year and then proceeds to take corrective action.
SELF-CHECK 1.1
1.3.1 Objectives
Objectives are the exact results that an organisation wants to achieve in line with
its mission statement. Objectives can be set for short-term or less than a year or
long-term, which is more than a year.
1.3.2 Strategies
Strategies are how the long-term objectives of an organisation will be achieved.
Strategies can be further divided into business level strategies and corporate level
strategies which will be explained in Topics 5 and 6.
(b) Diversification;
(c) Acquisition;
(f) Retrenchment;
(g) Divestiture;
(a) Measurable;
(b) Quantifiable;
(c) Challenging;
(d) Realistic;
1.3.5 Strategists
Strategists are the individuals who are most responsible for the success or failure
of an organisation and usually refer to the people involved in the strategic
management process such as CEOs, corporate planners and head of departments.
ACTIVITY 1.4
List some of the objectives, strategies and annual objectives that you
have in your work organisation. Do these objectives and strategies
change every year or remain the same?
SELF-CHECK 1.2
With the use of strategic management, there are increased awareness of external
threats and opportunities as the organisation takes into account these factors in
making their decisions. There are also improved understanding of competitors
tactics and strategies through conscious monitoring. Employee productivity is
increased due to the set objectives and there is less resistance to change
as everything is communicated throughout the organisation. There is also
better performance due to a clearer understanding of performance-reward
relationships through the use of KPIs.
Some organisations are not well-versed in strategic management and move too
fast through the various stages, resulting in numerous problems. Sometimes
there is also failure to communicate the strategic plans to employees, who are
thus oblivious to the organisations purpose and objectives. Top managers might
also rely too much on intuitive decisions that conflict with the formal plans.
(d) Failing to involve key employees in all phases of strategic management; and
SELF-CHECK 1.3
This topic has discussed the strategic management process and described
the key concepts of strategic management. Key definitions in strategic
management were also defined.
There are three stages involved in the strategic management process, namely
the strategy formulation, strategy implementation and strategy evaluation.
Strategists refer to those who are most responsible for the success or failure of
an organisation. It usually refers to the people involved in the strategic
management process.
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Understand the rationale and the importance of vision and mission
statements;
2. Describe the characteristics of vision and mission statements; and
3. Evaluate vision and mission statements of different organisations.
INTRODUCTION
Every organisation would have some sort of statements in declaring its reasons
for existence, its purpose and its destination. This topic explores vision and
mission statements of firms and organisations. This topic aims to provide a
thorough understanding about vision and mission statements of firms and
organisations; and the role the statements play in strategic planning and
management. At the end of this topic, you should be able to assess vision and
mission statements against good practice and possibly write a good mission and
vision statement for a particular business.
This topic defines mission and vision statements, provides a clear understanding
of the objectives of those statements as in the rational and the importance of
mission and vision statements to an organisation. This topic also emphasises on
the process of developing mission and vision statements. Lastly, we will discuss
the characteristics of mission and vision statements and highlight the main
components of mission and vision statements.
With an understanding of the main components, the last subtopic will guide you
in evaluating examples of vision and mission statements. You have an exercise
on reviewing and writing an improved version of a mission and vision
statement.
ACTIVITY 2.1
Exploring Vision and Mission Statements of Firms from Different
Industries
Select an organisation of your choice from each of these industries:
food, education, healthcare and transportation. Examine each of their
mission and vision statements. What were the commonalities shared
with those statements from across different industries?
ACTIVITY 2.2
A set of clearly written vision and mission statements serve as a communiqu for
establishing and ensuring unanimity of purpose and direction within the
organisation that:
Figure 2.1: The role of mission and vision statements in strategic planning and
management
Figure 2.1 demonstrates the linkages between business activities (goals and
objectives) and mission and vision statements, further emphasising the influence
of mission and vision statements on what the firm does.
Referring to the Coca-Cola mission and vision statements in Figure 2.2, the
company establishes its purpose to refresh the world, to inspire moments of
optimism and happiness and to create value and make a difference. Coca-
Cola (2015) also clearly states that the vision serves as a framework, guiding
every aspect of business in what they need to accomplish. These statements are
the philosophies that underpin all decisions set to steer the direction and shape
the plans for the business. Hence, it is crucial that the vision and mission
statements are written clearly such that everyone within the organisation
interprets it as intended.
ACTIVITY 2.3
Read the article titled Building your companys vision by Collins and
Porras (1996). Relate it to what you have learnt so far. Download a copy
of the article from:
https://hbr.org/1996/09/building-your-companys-vision
(a) Broad in nature in defining the purpose of organisation and the values that
underpins organisational decisions;
(i) Customers;
(iii) Market;
(iv) Technology;
(vi) Philosophy;
ACTIVITY 2.4
To learn more about mission statement, let us watch a video from the
following link: https://youtu.be/LHeGKQfG7rQ
ACTIVITY 2.5
Try to evaluate the given mission statements for Dell and PepsiCo.
ACTIVITY 2.6
Let us watch a video about vision statement from the link as follows:
https://youtu.be/QSp7bB02ZAg
SELF-CHECK 2.1
ACTIVITY 2.7
You searched on Google and found the mission and vision statement of
three different supermarkets as tabulated in Error! Reference source not
found.. You read them carefully assessing its comprehensives against
the characteristics of good mission and vision statements.
J-Cool Supermarket
The Vision
To be the most successful Supermarket Chain in the Caribbean Region
The Mission
Operate supermarkets at internationally accepted standards. Maintain
the trust and loyalty of our customers. Train, motivate and reward our
team members. Foster mutually beneficial relationships with our
suppliers. Be socially conscious and ethically responsible and contribute
towards the economic development of our country. Provide attractive
returns on investment to our shareholders.
Values
Commitment
Competitive spirit
Good with people
Burns, P. (2011). Entrepreneurship and small business (3rd ed.). New York, NY:
Palgrave Macmillan.
Collins, J. C., & Porras, J. I. (1996). Building your companys vision. Harvard
Business Review, 74(5), 6577.
Eden, C., Ackermann, F., & Page, K. (2011). Strategic management is a social
process. In F. Ackermann, & C. Eden, Making strategy: Mapping out
strategic success (2nd ed.). London, England: Sage Publications.
Ross, B., & Segal, C. (2016). The strategy workout: The 10 tried-and-tested steps
that will build your strategic thinking skills. New York, NY: Pearson
Business.
The Coca-Cola Company. (2015). Mission, vision and values. Retrieved from
http://www.coca-colacompany.com/our-company/mission-vision-values
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain and discuss the evolving and expanding functions and
roles of the internal audit for strategic management;
2. Explain the main functions of management and its role in strategic
planning; and
3. Discuss the functions of the marketing department and how it
relates to the internal audit.
INTRODUCTION
This topic discusses the role of internal audit for strategic management with
emphasis on the conduct of an effective internal strategic management audit to
provide an excellent foundation for formulating strategies. An internal audit
needs to cover the main aspects of the basic business functions (management,
marketing, finance, production or operations, research and development [R&D],
and management information systems [MIS]).
This topic also explores some of the decision making tools such as the value
chain analysis, benchmarking, break-even analysis and cost-benefit analysis. This
topic also provides guidelines for the development of an Internal Factor
Evaluation (IFE) Matrix, an important strategic planning tool.
An internal audit can add value to the organisation by taking a more active role
in advising, the setting of good practices for the development of corporate
governance and risk management processes. To be effective, an internal audit
should establish an audit cycle for the monitoring, evaluation and review of the
implementation of strategic actions rather than reacting and responding to
tactical needs of the organisation.
The emphasis on risk management is not a surprise due the volatility of the
external business environment and the extensive regulatory expectations. There
is now a more urgent need for organisations to be more concerned about
identifying and managing risks that could undermine the successful
implementation of the organisations strategic plans.
The traditional role of an internal audit was mainly focused on compliance and
perceived to have no part in supporting and implementing strategic plans of the
organisation. That has now changed. The internal audit now has evolved from
compliance to encompass a broader scope in the operations of the organisation as
a whole and includes risk management and risk mitigation.
SELF-CHECK 3.1
What are the functions and roles of the internal audit for strategic
management?
(a) Planning;
(b) Organising;
(c) Motivating;
(e) Controlling.
Stage of Strategic-
Function Description Management Process
when Most Important
Planning Planning consists of all those managerial Strategy Formulation
activities related to preparing for the future.
Specific tasks include forecasting, establishing
objectives, devising strategies, developing
policies and setting goals.
Organising Organising includes all those managerial Strategy Implementation
activities that result in a structure of task and
authority relationships. Specific areas include
organisational design, job specialisation, job
descriptions, job specifications, span of
control, unity of command, coordination, job
design and job analysis.
Motivating Motivating involves efforts directed toward Strategy Implementation
shaping human behaviour. Specific topics
include leadership, communications, work
groups, behaviour modification, delegation of
authority, job enrichment, job satisfaction,
needs fulfilment, organisational change,
employee morale and managerial morale.
Staffing Staffing activities are centred on personnel or Strategy Implementation
human resource management. Included are
wage and salary administration, employee
benefits, interviewing, hiring, firing, training,
management development, employee safety,
affirmative action, equal employment
opportunity, union relations, career
development, personnel research, discipline
policies, grievance procedures and public
relations.
Controlling Controlling refers to all those managerial Strategy Evaluation
activities directed toward ensuring that actual
results are consistent with planned results.
Key areas of concern include quality control,
financial control, sales control, inventory
control, expense control, analysis of variances,
rewards and sanctions.
(b) Are company objectives and goals measurable and well communicated?
SELF-CHECK 3.2
2. Are those functions the same for each planning level? If yes, how?
If no, why?
(b) The planning of product and service (particularly in the stage of product
development): Includes activities such as test marketing; product and
brand positioning; devising warranties; packaging; determining product
options, features, style, and quality; deleting old products and providing
for customer service.
(c) Product pricing: Understanding the needs and wants of various stakeholder
groups including consumers, governments, suppliers, distributors and
competitors to avoid over or under pricing.
(d) Are the present distribution channels reliable and cost effective?
(i) Does the firm have an effective promotion, advertising and publicity strategy?
(k) Do the firms marketing managers have adequate experience and training?
SELF-CHECK 3.3
(a) Which part of the firm is financially strong and weak as indicated by
financial ratio analyses?
(c) Can the firm raise needed long-term capital through debt and/or equity?
(g) Does the firm have good relations with its investors and stockholders?
(h) Are the firms financial managers experienced and well trained?
The system model (see Figure 3.1) for production and operation management
includes the following:
(a) Low cost strategy: Deliver standardised product and services to capture the
mass market, thus creating barriers to entry through larger production
volume and longer production hours.
(b) High quality product: Deliver high quality products at premium prices
targeting a niche market through stricter quality assurance, more
sophisticated equipment and machinery operated by highly-skilled
employees.
(c) High quality services: Customer satisfaction and delight as a goal for
services through a team of highly-skilled employees; requiring more
resources to meet the changing demands and expectations of more
sophisticated customers.
(d) Innovator versus imitator: Some organisations lead in product and service
design with high investments in research and development and highly-
skilled employees. Others might gain competitive advantage when they are
able to deliver imitations of new product and services at a lower price as
they ride on the innovation ideas without incurring the cost of research and
development.
(a) Are the supplies of raw materials, parts and sub-assemblies reliable and
reasonable?
(b) Are the facilities, equipment, machinery and offices in good condition?
Figure 3.2 presents the linear rational prescriptive process of strategic planning
and implementation. Strategy analysis provides organisations with a better
understanding of the issues they have to address and based on those
information, alternatives or options can then be generated. A great deal of time
and effort are required to weigh alternatives and the trade-offs for each option
before selecting an appropriate strategy to be implemented.
The following are the elements of the management information audit checklist:
(a) Do all managers in the firm use the information system to make decisions?
(d) Do managers from all functional areas of the firm contribute input to the
information system?
(e) Are there effective passwords for entry into the firms information system?
(f) Are strategists of the firm familiar with the information systems of rival
firms?
(i) Are computer training workshops provided for users of the information
system?
(j) Is the firms information system continually being improved in content and
user-friendliness?
ACTIVITY 3.1
The following link will show us a video, which explains more about this
subtopic: https://youtu.be/4q8pbfyOGtQ
3.6.4 Benchmarking
Benchmarking is an analytical tool used to determine whether a firms value
chain activities are competitive compared to its rivals and thus conducive to
winning in the marketplace.
ACTIVITY 3.2
If the fixed costs (FC) associated with setting up the manufacturing line for this
technological marvel are $15,000,000 while the variable costs (VC) associated
with the manufacture of each unit are $1,000,000.
The quantity (Q) of the vehicle that must be sold in order for the business to
break-even (BE), even if the price (P) for each vehicle is $2,000,000 is as follows
where:
TR TC BE
FC $15, 000, 000
VC $1, 000, 000 per unit
P $2, 000, 000
TFC
BE Q
P VC
$15, 000, 000
$2, 000, 000 $1, 000, 000
Q 15
Table 3.3 illustrates the use of an Internal Factor Evaluation (IFE) Matrix to
support strategic decision making.
Table 3.3: Sample Internal Factor Evaluation Matrix for a Retail Computer Store
This topic discusses the functions of an internal audit and its role in strategic
planning in organisations. One of the major areas of the internal audit
reviews is the overall management of the organisation.
The system model for production and operation management includes input,
process and output.
The Internal Factor Evaluation (IFE) matrix strategic analysis tool and it also
provides a good baseline for benchmarking with external organisations.
Benchmarking Marketing
Cost-benefit analysis Production and operations
Finance and accounting Strategic analysis tool
Implementation of strategy Strategic planning
Internal audit Value chain analysis
Management information systems Value-added processes
INTOSAI GOV 9100. Guidelines for Internal Control Standards for the Public
Sector. Retrieved from http://www.issai.org/media/13329/intosai_gov_
9100_e.pdf
INTRODUCTION
This topic discusses the need for an external audit to assess the environment
within which an organisation, firm or business operates. An external audit
provides valuable information in supporting strategic planning.
The first subtopic explores the dimensions of the external environment. This is
followed by the roles of an external audit in strategic management. Several tools
and frameworks are explored in their characteristics and its uses for external
audit in providing Competitive Intelligence (CI). This topic ends with discussion
on the method to develop an External Factor Evaluation (EFE) Matrix.
ACTIVITY 4.1
In doing that, they must act and react to external stimuli to be relevant to the
context within which they operate, which includes:
(a) Social: Refers to how consumers, households and communities behave and
their value systems. For instance, changes in attitude towards smoking, or
literacy rate in the country.
(b) Legal: Looks into the way in which legislation in society affects the
business. For example, changes in employment laws on retirement age or
minimum wage.
(d) Political: Looks into how changes in government policy might affect the
business. For example, a decision to increase the monthly payment for
housemaid or length on a work permit.
(e) Technological: Studies how the rapid pace of change in the adoption of
technology changes the way people work and the way product and services
are created.
(f) Ethical: Answers the following questions: What is regarded as morally right
or wrong for a business to do? Does the society have some kind of value
system? Does religion play a vital role in ethical conduct of the people?
SELF-CHECK 4.1
Describe the context of external environments in which organisations
operate.
The external audit is aimed at identifying key variables that offer actionable
responses. Based on findings from the external audit, firms decide to respond
either offensively or defensively to the factors by formulating strategies that take
advantage of external opportunities or that minimise the impact of potential
threats.
SELF-CHECK 4.2
The following subtopics present the Porters five forces analysis, forecasting and
the external factor evaluation matrix as strategy tools for external environment
analysis.
ACTIVITY 4.2
Critical Thinking
How could a manager objectively defend a set of ideas and plan of
actions for the next 5 to 10 years?
Force Description
Potential entry of Barriers to entry are important
new competitors Quality, pricing and marketing can overcome barriers
You can visit the following link to view a video about this:
https://youtu.be/LeF1_MyRKh0
Rivalry among Most powerful of the five forces
competing firms Focus on competitive advantage of strategies over other
firms
You can visit the following link to view a video about this:
https://youtu.be/yuSrG5-nXSc
Bargaining power of It is increased when there are:
suppliers Large numbers of suppliers
Few substitutes
Costs of switching raw materials is high
Backward integration is gaining control or ownership of
suppliers
You can visit the following link to view a video about this:
https://youtu.be/ns3WoUmIbIo
Bargaining power of Customers being concentrated or buying in volume affects
consumers intensity of competition
Consumer power is higher where products are standard or
undifferentiated
You can visit the following link to view a video about this:
https://youtu.be/W45zDlEAcZQ
Potential Pressure increases when:
development of Prices of substitutes decrease
substitute products
Consumers switching costs decrease
You can visit the following link to view a video about this:
https://youtu.be/ma6dsRtoFxs
4.3.2 Forecasting
Forecasting is a planning tool that supports management decision-making
process. Forecasting uses historical data to provide a sense of how the future
might look.
There are various techniques for forecasting. An example is to use time series,
which may include trend projection and moving averages; while causal
relationships is established using regression analysis.
ACTIVITY 4.3
How would you convince the senior management about the usefulness
of historical information such as sales of the last 10 months?
SELF-CHECK 4.3
The EFE and internal factor evaluation (IFE) matrix are commonly used to assess
the organisations competitive position in the industry. The EFE matrix is similar
to the SWOT or PEST analysis and has been proven useful in identifying and
evaluating the key affecting factors.
The tool systematically examines the external environment; while the IFE
assesses the internal environment, on the following dimensions:
(a) Social;
(b) Legal;
(d) Political;
(f) Ethical.
(a) Identify and list external factors that essentially have strong impacts on the
organisations competitiveness on each of the dimensions: social, legal,
economic, political, technological and ethical.
(b) Assess and categorise identified factors under Opportunities and Threats.
This list is usually developed using SWOT or PEST analysis.
(c) Assign weights for each factor from 0 to 1. Each key factor should be
assigned a weight ranging from 0.0 (low importance) to 1.0 (high
importance). The number indicates the importance of each factor to the
organisations survival in the industry. If there were no weights assigned,
all the factors would be equally important, which is an impossible scenario
in the real world. The sum of all the weights must equal 1.0. Weights for
both Opportunities and Threats have the same meaning.
(d) Rate effectiveness of current strategies from one to four. The ratings in
external matrix refer to the effectiveness of the organisations current
strategy in response to the opportunities and threats. The numbers range
from four to one, where four means a superior response, three above
average response, two average response and one poor response.
Ratings, as well as weights, are assigned subjectively to each factor based
on senior management reviews.
(f) Sum weighted scores. The score is the result of weight multiplied by rating.
Each key factor must receive a score. Total weighted score is simply the
sum of all individual weighted scores. The organisation can receive the
same total score from one to four in both matrices. An average for total
score is 2.5. In external evaluation a low total score indicates that the
companys strategies arent well designed to meet the opportunities and
defend against threats.
Table 4.2 presents an example of the EFE matrix for a 10-theater cinema complex.
A total score of 2.58 is slightly better than average, which indicates that the
organisations strategies are addressing both the opportunities and threats but
not sufficiently taking a good competitive lead.
Weighted
Key External Factors Weight Rating
Score
Opportunities
1. Rowan County is growing 8 per cent annually in 0.05 3 0.15
population
2. TDB University is expanding 6 per cent annually 0.08 4 0.32
3. Major competitor across town recently ceased 0.08 3 0.24
operations
4. Demand for going to cinema growing 10 per cent 0.07 2 0.14
annually
5. Two new neighbourhoods being developed 0.09 1 0.09
within 3 miles
6. Disaposable income among citizens grew 0.06 3 0.18
5 per cent in prior year
7. Unemployment rate in county declined to 0.03 2 0.06
3.1 per cent
Threats
8. Trend toward healthy eating eroding concession 0.12 4 0.48
sales
9. Demand for online movies and DVDs growing 0.06 2 0.12
10 per cent annually
10. Commercial property adjacent to cinemas for sale 0.06 3 0.18
11. TDB University installing an on-campus movie 0.04 3 0.12
theatre
12. County and city property taxes increasing 0.08 2 0.16
25 per cent this year
13. Local religious groups object to R-rated movies 0.04 3 0.12
being shown
14. Movies rented from local Blockbuster store up 0.08 2 0.16
12 per cent
15. Movies rented last quarter from Time Warner up 0.06 1 0.06
15 per cent
Total 1.00 2.58
The EFE matrices have little value on their own. Organisation should also
develop the internal factor evaluation (IFE) matrix and combine those findings to
inform the development of new strategies.
In addition, the organisation can conduct both the EFE and IFE on selected
competitors to develop a competitive profile matrix for benchmarking as shown
in Table 4.3.
Note: (1) The ratings values are as follows 1 = major weakness, 2 = minor weakness,
3 = minor strength, 4 = major strength. (2) As indicated by the total weighted score of
2.50, Competitor 2 is weakest. (3) Only eight critical success factors are included for
simplicity; this is too few in actuality.
ACTIVITY 4.4
Suppose that the senior management has sat down to elaborately think
about the firms key factors and assess each of those factors using an
EFE Matrix. Explain to the senior management the results of the EFE
Matrix (see Table 4.4).
Weighted
Key External Factors Weight Rating
Score
Opportunities
1. New immigration laws abolish the 0.02 1 0.02
restrictions for immigrants to live and
work freely in the country.
2. A government increases budget 0.17 4 0.68
spending for our products.
3. New product market, worth $1 billion a 0.05 4 0.20
year, could be introduced for the
consumers.
4. Consumers are 20% more likely to buy 0.12 4 0.48
the products that share the same
ecosystem.
5. We have patented the technology that 0.03 3 0.09
increases the quality of our products and
lowers the amount of the materials
needed to produce it.
6. Our largest competitor is selling their 0.14 2 0.28
subsidiary in TV market.
Threats
7. Tax rates will increase by 10% for the 0.06 2 0.12
polluting companies
8. Due to the fast economic growth credit 0.04 4 0.16
availability will tighten.
9. Credit rates are growing by 5% 0.02 2 0.04
10. Natural disasters disrupts our suppliers 0.08 3 0.24
or our operations.
11. Rivalry in the market is intensifying. 0.12 4 0.48
12. Competitor is pursuing horizontal 0.10 3 0.30
integration strategy.
13. Inflation has increased to 6%. 0.05 2 0.10
Total 1.00 3.19
Source: http://www.strategicmanagementinsight.com/tools/ife-efe-
matrix.html
The strategy tools for external environment analysis discussed in this topic
include Porters five forces analysis, forecasting and the external factor
evaluation matrix.
David, F. R. (2009). Strategic management: Concepts and cases (12th ed.). Upper
Saddle River, NJ: Prentice Hall.
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Discuss the different types of business level strategies;
2. Evaluate the business level strategies utilised by business
organisations; and
3. Evaluate the strategies used for turbulent markets.
INTRODUCTION
We have looked at the organisations mission and vision, their internal and
external environments. In this topic, we will look at the different business level
strategies that organisations can use to compete with their competitors.
ACTIVITY 5.1
(b) Differentiation strategy: It can be used in both large and small markets.
The following are Porters five generic strategies (see Figure 5.1):
Now let us look into greater detail on the three types of strategies in the
following subtopics.
An organisation must make sure that its total costs across its overall value chain
are lower than its competitors total costs in order to be successful in
implementing a cost leadership strategy.
There are basically two ways that an organisation can achieve this:
(a) Perform value chain activities more efficiently than its competitors and
control the factors that might increase the costs of value chain activities;
and
(b) Restore the firms overall value chain to remove or avoid some cost-
producing activities.
(b) There are a few ways to achieve product differentiation that have value to
buyers.
(d) Buyers incur low costs in switching their purchases from one seller to
another.
ACTIVITY 5.2
https://youtu.be/mnw3D7rccg4
An organisation should also adopt the differentiation strategy when only a few
competitors are using similar approaches to differentiate itself and when
technology in the industry is constantly changing.
ACTIVITY 5.3
https://youtu.be/i-Mp3_jPOtY
When should we use focus strategies? The focus strategies should be used in the
following situations (David & David, 2015):
(a) When the target market niche is large, profitable and growing.
(b) When industry leaders do not consider the niche to be crucial to their own
success.
(c) When industry leaders consider it too costly or difficult to meet the
specialised needs of a niche market.
(e) When there are only a few players in the same target segment.
ACTIVITY 5.4
https://youtu.be/5vePx4_vopc
SELF-CHECK 5.1
What is differentiation strategy? How is it different from cost leadership
strategy?
(d) Merger/acquisition;
(g) Outsourcing/reshoring.
There are various reasons why some mergers and acquisitions fail. These include
integration difficulties between the two companies in the case of mergers and
insufficient evaluation of the target in the case of an acquisition. Either or both
companies might suffer from large debts or the acquisition is too large.
Sometimes, both companies are unable to achieve synergy with each other or
there is too much diversification.
The managers might be overly focussed on acquisitions and not on solving the
day-to-day problems. In the case of different organisational cultures, there might
be problems in integrating the two companies. There might also be reduced
employee morale due to layoffs and relocations after the merger or acquisition.
These reasons are summarised in Figure 5.2.
Figure 5.2: Nine key reasons why many mergers and acquisitions fail
Source: David & David (2015)
Despite the difficulties outlined, there are inherent benefits from mergers and
acquisitions. Mergers and acquisition can be used to provide the following
benefits shown in Figure 5.3.
Figure 5.3: Eight potential benefits of merging with or acquiring another firm
Source: David & David (2015)
Do you know which strategy is the best? Let us watch the following video that
will answer this question: https://youtu.be/GpOkRv2edjM
ACTIVITY 5.5
Watch the following video and answer the questions mentioned at the
end of this video: https://youtu.be/WC5Vf59jD-c
This topic discusses the various business level strategies that an organisation
can utilise in the course of conducting its business.
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the corporate level strategies;
2. Differentiate between the different types of integration strategies;
3. Describe the different types of intensive strategies;
4. Identify the use of market penetration and market development
strategies; and
5. Explain when organisations utilise diversification strategies.
INTRODUCTION
Organisations generally pursue a combination of two or more strategies, often at
different levels in the organisation. However, caution must be taken that not too
many strategies are pursued at any one time, especially at the corporate level. At
this level, difficult decisions must be made by the top management of the
organisation and priorities must be set and established after careful assessment of
both the internal and external environment.
So what is corporate level strategy? Corporate level strategies deal with the
strategic decisions that organisations make which affect the whole organisation
and not just one or two units in the organisation. Financial performance, mergers
and acquisitions, human resource management and the allocation of resources
are considered part of corporate level strategy. Thus, corporate level strategies
cover the strategic scope of the organisation as a whole.
Corporate strategies address the long-term direction for the organisation. They
include the strategic plans for the entire organisation and change as the
capabilities of the organisation expands and as the environment around the
organisation changes.
ACTIVITY 6.1
Look up the Internet for corporate level strategies and the different
explanations given for them.
The corporate level strategies are cascaded down to the divisional level where
the Vice President of deputies is responsible. At the functional level, the
managers of each department, for example, human resource managers, IT
managers, marketing managers and other managers carry out the decisions that
have been made at the corporate level. These are then further cascaded down to
the operational level where the supervisors and employees carry out their tasks
as decided by top management.
Figure 6.1 shows the different levels of strategies with the person most
responsible in a large and small company.
Table 6.1 shows the different types of corporate level strategies available and
some examples of the said strategies.
ACTIVITY 6.2
To learn more about what corporate level strategies are, let us watch a
video from the following link: https://youtu.be/znAbitvMRiA
An organisation could also pursue the forward integration strategy when the
availability of quality distributors is so limited as to offer a competitive
advantage. In this case, the organisation is better off with its own distribution
channel.
Backward integration should also be used when the number of suppliers is small
and the number of competitors is large. In this case, the organisation would be
able to ensure that it has its own supplies and can easily compete with its
competitors. The adoption of the backward integration strategy is also feasible
when the organisation possesses both capital and human resources and when the
advantages of stable prices are particularly important to the survival of the
organisation. The strategy is particularly useful when an organisation needs to
quickly acquire a needed resource from its suppliers in the course of its
production.
SELF-CHECK 6.1
What are the different types of integration strategies available? Can you
differentiate between them?
ACTIVITY 6.3
This strategy should be adopted when current markets are not saturated with a
particular product or service. Thus the organisation can increase its market share
by penetrating its current markets. It can also be adopted when the usage rate of
present customers could be increased considerably which includes customers
that are currently not using the products intensively.
Market penetration strategy should also be used when the market shares of an
organisations main competitors have been declining but total industry sales
have been increasing. This means that the organisation will be able to compete in
the same market better than its competitors. The strategy should also be used
when an increase in economies of scale provide major competitive advantages to
the organisation.
This strategy should be adopted when new channels of distribution are available
and these channels are reliable, inexpensive, and of good quality. The strategy
should also be adopted when an organisation is very successful at what it does,
thus making it viable for it to develop new markets.
The market development strategy should also be used when new untapped or
unsaturated markets exist and when an organisation has excess production
capacity. This would ensure that the organisation is equipped to produce more
for the new markets it will develop.
SELF-CHECK 6.2
What are the different types of intensive strategies available? Discuss
each of them.
ACTIVITY 6.4
ACTIVITY 6.5
David and David (2015) recommended the use of unrelated diversification in the
following situations:
(c) When the new products have countercyclical sales patterns when compared
to current products produced;
(g) When current markets for an organisations present products are saturated.
SELF-CHECK 6.3
(a) Retrenchment;
(c) Liquidation.
6.5.1 Retrenchment
Retrenchment refers to the exercise of an organisation reorganising or
restructuring itself through cost and asset reduction to reverse declining sales
and profits. It is often called reorganisation strategy or turnaround strategy and
is utilised to strengthen an organisations basic competencies or competitive
advantage.
When an organisation has a distinctive competence but has failed to meet its
goals recurringly, it should start to think of retrenchment. An organisation
should also use retrenchment when it is one of the poor players in a given
industry and when is faced with inefficiency, low profitability and poor
employee morale.
ACTIVITY 6.6
6.5.2 Divestiture
Divestiture is a strategy which involves the selling of a division or part of an
organisation. It is often used to raise capital for future strategic acquisitions or
investments.
6.5.3 Liquidation
Liquidation refers to the selling of all of a companys assets, in parts, for their
tangible worth. This can be an emotionally difficult strategy for the stakeholders
involved.
ACTIVITY 6.7
Go to this link: http://www.thestar.com.my/business/business-
news/2016/06/28/airasia-buys-80-of-tco-coffee/ and read the article titled
Air Asia buys 80% of T&Co Coffee. Answer the following questions.
(b) What would be the justification for the strategy? From Air Asias
perspective and from T&Cos perspective?
The three defensive strategies that an organisation can choose to adopt are
retrenchment, divestiture and liquidation.
Liquidation refers to the selling of all of a companys assets, in parts, for their
tangible worth.
INTRODUCTION
In shaping steps to move forward, organisations need to understand their
competitive positions at any point of time and the foreseeable future. This topic
explores strategy generation as part of the strategy formulation stage.
There are two main categories of strategy: corporate strategy and business
strategy as covered in Topics 5 and 6. This topic focuses on the generation of
corporate strategy which essentially gives the direction for which the
organisation has to take.
Corporate strategy consists of chief executive officers (CEOs) and top executives
making three basic choices:
(c) What businesses can shape what the firm is all about?
These are the fundamental choices that a firm makes when deciding on its
corporate strategy; which essentially guides all the business and operational
decisions of the firm.
At the end of this topic, you should be able to generate alternative strategies
using the 3-stage framework; understand the use of tools for environmental
scanning, learn to match strategic profiles to an organisations strengths,
weaknesses, opportunities and threats; the use of SPACE Matrix in developing
strategic profiles; and finally, appreciate the importance of intuition or gut feel
of senior management when making strategy decisions.
ACTIVITY 7.1
ACTIVITY 7.2
The last element of the input stage is developing a competitive profile matrix
(CPM). In addition, the organisation can conduct EFE and IFE matrices on
selected competitors to develop a competitive profile matrix (CPM) for
benchmarking (refer to Table 7.1). These three activities provide the organisation
with an understanding of the environment it operates in to better understand the
industry, the market and the competition in order to strategise their next step
forward. Table 7.1 was also presented in Topic 4 (refer to Table 4.3).
In this matching stage, managers would also think about the strategies to address
the organisations weaknesses that could be detrimental in the exploitation
of market opportunities (WO); and realise the organisations weaknesses in
addressing the market threats (WT).
The SWOT template shown in Figure 7.2 summarises the SO, WO, ST and WT.
Figure 7.3 presents the quadrants of SO, WO, ST and WT for a computer retail
shop.
SELF-CHECK 7.1
(a) Two internal dimensions (financial position [FP] and competitive position
[CP]); and
(b) Two external dimensions (stability position [SP] and industry position [IP]).
Table 7.2 lists the examples of factors associated with each quadrant.
Figures 7.7 and 7.8 illustrate the calculation of scores for SPACE matrix and the
creation of vectors for strategic profile in SPACE matrix.
Figure 7.7(b): Vector for a competitive profile in SPACE matrix (1.29, 0.24)
Source: http://mba-lectures.com/management/strategic-management/1011/space-
matrix-of-harrahs-entertainment.html
Figure 7.8(b): Vector for an aggressive profile in SPACE matrix (3.00, 2.75)
Source: http://www.differentiateyourbusiness.co.uk/space-analysis-strategic-position-
and-action-evaluation-matrix
Figure 7.9: Examples of aggressive and conservative profiles using SPACE matrix
Source: David & David (2015)
Figure 7.10: Examples of competitive and defensive profiles using SPACE matrix
Source: David & David (2015)
Figure 7.10 shows examples of competitive and defensive profiles using SPACE
matrix with a focus on stability position (SP) against industry position (IP) and
competitive position (CP).
Now let us learn more about space matrix by visiting the following link:
https://youtu.be/1grK19KwRjQ
ACTIVITY 7.3
ACTIVITY 7.2
Copyright Open University Malaysia (OUM)
TOPIC 7 STRATEGY GENERATION AND SELECTION 93
Intuition means being able to bring to bear on situation everything youve seen,
felt, tasted and experienced in an industry (Perot as cited in Rowan, 1990).
ACTIVITY 7.4
Internal analysis can be conducted using the internal evaluation factor (IEF)
matrix while the external environment, external evaluation factor (EEF)
matrix. These two matrices combined a competitive profile matrix (CPM)
can be used to analyse the competition in the market- benchmarking.
David, F. R. (2009). Strategic management: Concepts and cases (12th ed.). Upper
Saddle River, NJ: Prentice Hall.
Khatri, N., & Ng, A. (2000). The role of intuition in strategic decision making.
Human Relations, 53(1), 5786.
Kleinmuntz, B. (1990). Why we still use our heads instead of formulas: Toward
an integrative approach. Psychological Bulletin, 107(3), 296310.
Mintzberg, H. (1994). The rise and fall of strategic planning. New York, NY: The
Free Press.
Peters, T., & Waterman, R. (1982). In search of excellence. New York, NY: Harper
and Row.
Prietula, M. J., & Simon, H. A. (1989). The experts in your midst. Harvard
Business Review, 67(1), 120124.
Rowan, R. (1990). Listen for those warning bells. In W. H. Agor (Ed.), Intuition in
organizations. Newbury Park, CA; Sage.
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the term market place;
2. Discuss the current marketing issues;
3. Describe the funding methods to develop a new market for a firms
products; and
4. Explain the research and development issues to be considered
when a firm develops a new product.
INTRODUCTION
In Topic 7, we introduced the use of a 3-stage framework and several analytical
tools in support of the generation and selection of strategies to develop corporate
strategy, essentially the direction that steers the business of the firm.
This topic explores the issues relating to strategy implementation in the context
in which the organisation operates within. At this juncture, we need to cascade
the set of corporate strategy to business unit level strategies for implementation.
At the business unit level, another three key decisions have to be made. They
include:
(a) Who are the group of customers that define our target market?
(b) How can we add value that differentiates our products and services?
(c) What kind of capabilities and capacities do we need to make that value
proposition happen?
The answer to these questions drives the decisions a business units management
team, functions and staff make every day, including product design, pricing,
markets, promotion, financial and research and development (R&D).
This topic discusses the type of product and its pricing to suit a particular group
of prospective consumer; the market place the firm has to compete in and the
means to reach and grow its prospective customer base.
Having decided the type of product, the pricing, the market and the promotion
the firm is most likely to engage in, next the firm has to consider funding and
investment issues. Every strategic decision requires investments from small
amounts to very large amounts. How would that be funded?
For the new product, the firm needs to consider research and development
issues. Do they have the resources for in-house research or should they consider
outsourcing? What about trade secrets, patents and copyrights?
The advancement of technologies has changed how players win the games in the
market. The social media and virtual networks brought about big data that have
transformed business analytics that support business decisions.
After establishing what consumers need; now consider What do they want in
what they need? For example, if it was found that the people in this region need
to communicate with others all around the world for business dealings. The firm
can then think about the wants the need to communicate can be satisfied
with all types of gadgets from a basic mobile phone to a smart watch wrapped
with a designer wrist band, for example Apple iWatch by Hermes. Should the
firm have a range of new products with a range of prices to cater to different
groups of consumers? We are now considering the pricing part of marketing,
such as: How much does it cost a firm to produce? or How much margin is
required for a sustainable business operation?
Should the firm decide to sell their new product in Region A, there must be
existing players in the market. How should the firm position its product to find a
niche; something that the other players are not offering perhaps due to
potentially a lack of technology, or capital investments? For example: Jeep and
Range Rover have long dominated the 4-wheeled drive automobiles. There is a
vacancy in the niche market for such vehicles, hence Porsche and BMW are
examples of the high-end players who have decided that they want a piece of the
cake when they recognise that high-end consumers want their SUVs or 4WDs to
look great with a certain class that gives them the status they think they deserve.
SELF-CHECK 8.1
8.1.3 Promotion
This then takes us to promotion. How do we reach out to existing and, more
importantly, prospective customers? We now have the internet along with the
social networks Instagram, Twitter, Facebook, blogs, websites for online market
place such as Amazon.com or Alibaba; web-based advertisements; and the ever
growing mobile applications that allows for personalised lifestyle environments.
ACTIVITY 8.1
Suppose that a firm has decided to get a bigger share in the fashion
industry. It wants to build on its existing ladies fashion to reach out to
the teenagers. What are some of the issues they need to consider in
terms of marketing?
In times of high stock prices, stock may prove to be the best alternative.
However, when cost of capital (interest rates) is low, debt is more attractive.
ACTIVITY 8.2
When a firm has decided to find and develop a new market for their
products and services, how might they fund the project? Discuss your
answer with your coursemates.
Assuming the firm has decided to develop a new water filter for rural areas
where electricity is scarce. The firm has to decide if they want to be the leader in
R&D for the product or strategise to imitate an existing popular filter that might
do the job but in a different setting not using electricity.
The amount of money the firm decides to invest would determine the size of the
project and would impact the 4-Ps of marketing decisions too. Does the firm
intend to do R&D in-house to protect intellectual property and patenting rights,
or to outsource R&D?
ACTIVITY 8.3
What were some of the research and development (R&D) issues you
might need to consider should the firm decided to develop a new range
of body care products for mother and baby?
As was mentioned earlier, business analytics help predict, for example, which
regions would have the largest university-going age group population in the next
five years, and what might this group of population need and how can the firm
cater to that need?
ACTIVITY 8.4
What kinds of information might you need to find a market for mother
and baby care products? Where can you find these information?
The firm has to decide on the specifics: the type of product to develop, the
price it sells, the place the product will be sold, the people whom the product
will be sold to; the channels on which the product will be introduced.
The next consideration would be funding. How should the new product and
market penetration be funded? There are some financial accounting issues
that require lengthy planning.
For new product development, for example, how should the research and
development be implemented? Does the firm conduct in-house research or
outsource the job? What could potential influence the decision?
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the strategic orientation and planning for a company;
2. Construct the annual objectives for a firms new business plan;
3. Differentiate the functions of marketing for different businesses of
a firm;
4. Assess the conflicting interests and resource allocation of a firm;
and
5. Analyse the human resource for strategy execution.
INTRODUCTION
In Topic 8, we explored the issues and challenges pertaining to strategy
implementation in the context in which the organisation operates within. This
topic discusses the operational issues stemming from putting strategies in action.
Once the senior or top management have decided on the three key decisions on:
the target market, product or service differentiation and the level capabilities and
capacities required to deliver the level of value propositions as promised; the
responsibilities of putting those strategies in action is now shifted to the division
or functional managers.
(a) Establishing annual objectives based on the strategic directions and plans;
(f) Revising reward and incentive plans according to the changes in work
performance expectations;
..What, then, is execution? I define the term as the decisions and activities
you undertake in order to turn your implemented strategy into commercial
success. To achieve execution excellence is to realize the best possible
results a strategy and its implementation will allow.
Cascading action items and to-dos for each short-term goal in your
strategic plan is where the rubber meets the road literally. Moving from
big ideas to action (cascading) happens when strategy is translated from the
organizational level to the individual. This point is also when the planning
circle widens, and departments and individual contributors join in and
develop their short-term goals and actions to support the organizational
direction.
Once the senior management has decided on the strategic orientation of the
organisation, the middle management would now need to think of the game plan
or the business plans for specific departments to push those strategies forward.
This leads to cascading strategic objectives into operational objectives with time
frame: annual objectives.
The following subtopics will highlight some of the main aspects of strategy
execution and will be discussed and illustrated using this scenario:
SkaneyB Inc. an apparel firm established since 1975, has a strong culture on
cost savings; and aims to maintain a regular customer based in the region they
operate. They offer a completed range of fashion from pyjamas to dinner suits
for the middle-aged, both men and women. The recent developments in the
market changed the competition in the industry. Customers were more
sophisticated in their demands; they want more value in the products and
services; recognising that they want more and were willing to pay more if they
believe in the product and services. Advancements in technology changed the
design of products and the delivery of services; and changed the way
organisations work and the way customers find what they want and need.
There are more players in the market physical and/or online businesses.
SkaneyB Inc. now realised that they will be out of business within the next
three years, if they were to operate the same way that they did with a
defensive strategic profile. The senior management has decided to take on a
more aggressive orientation with an aim to expand their market share to
survive this wave of socioeconomic change.
The progress of these activities must be measured against targets associated with
each objective. To allow for more effective monitoring, the longer term strategic
objectives should be broken down into annual objectives with measures (key
performance indicators and targets). Let us now look into the following scenario.
The senior management has decided to maintain what the relationship they
have built with the middle-aged and senior citizens to continue the range of
apparels and to develop a new label for the middle and upper income
working adults. The name of the new label is BoardWalk.
They have decided to put in the investment to first penetrate at least 10 per
cent of the local market by the third year of the launch and to develop new
markets in at least three countries in South East Asia; specifically South Korea,
Singapore and Hong Kong by the fifth year; and by the 10th, BroadWalk is
retailed in the Gulf countries.
They have decided to put in the investment to first penetrate at least 10 per
cent of the local market by the third year of the launch and to develop new
markets in at least three countries in South East Asia; specifically South Korea,
Singapore and Hong Kong by the fifth year; and by the 10th, BroadWalk is
retailed in the Gulf countries.
ACTIVITY 9.1
Year
1 2 3 nth
Objectives Introduce new product range
Measure Launch label in retail
Target All branches in the country
Based on the senior managements decision, a specific team will now be set up
to manage the BoardWalk project. The team will ensure they will get the
right people to work on product design, manufacturing, merchandising,
logistics, and marketing & promotion for the range of new clothes.
All these activities will take place in addition to the regular businesses
SkaneyB Inc. This special team is tasked to ensure that each of the functional
departments that were already very busy with business as usual, would put
time and resource to working on the new product range of BoardWalk.
How long would it take to design the range of clothes for Fall?
How much would the company need to invest for this range?
Product Development:
The weather
Quality of fabric
Modern designs
Product Pricing
kinds of advertisements to reach out to the new market and new group of
What consumers?
**Refer to Topic 8
9.3 RESTRUCTURING
In an attempt to turn an organisation around or to steer the organisation towards
a very different direction, based on the strategic alternatives generated from
SPACE Matrix, the senior management might make some drastic strategic
decisions to either expand or shrink the size of an organisation.
When a firm changes its strategy, the existing organisational structure may
become ineffective. For example, new strategies to reduce payroll costs may
require a change in span of control.
(a) Structure largely dictates how objectives and policies will be established
(for example, objectives and policies established under a geographic
organisational structure are couched in geographic terms); and
Under the existing organisational structure, SkaneyB Inc. has only one label
Skaney. The organisation structure was typically, functional-based.
With the new label, the senior management is considering in put in a new level
to differentiate the labels and clearly identifying the resources allocated for
each.
ACTIVITY 9.2
The creation of a supportive culture for change is vital to ensure members of the
organisation should embrace the new direction by shifting mind sets, changing
work practices and expectations. Management needs to consciously make an
effort for successful strategy execution.
The management needs to address some change issues and put some of the
following in action, where relevant:
(a) Formal statements of organisational philosophy;
(b) Design of physical spaces;
(c) Deliberate role modelling, teaching and coaching;
(d) Explicit reward and status system on the desired and preferred work
practices and behaviour;
(e) Stories, legends, myths, and parables to reflect the values of the organisation;
(f) What leaders pay attention to reflect the values of the organisation;
(g) Leader reactions to critical incidents and crises;
(h) Organisational design and structure;
(i) Organisational systems and procedures; and
(j) Criteria for recruitment, selection, promotion, levelling off, retirement, and
excommunication of the right set of people with the right competencies
and right mindsets consistent with what the organisations believed in and
values.
ACTIVITY 9.3
ACTIVITY 9.4
Olsen, E. (2011). Strategic planning kit for dummies (2nd ed.). Hoboken, NJ: John
Wiley & Sons. Retrieved from http://media.wiley.com/product_data/
excerpt/76/11180777/1118077776-96.pdf
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Discuss the nature of strategy evaluation;
2. Describe the criteria for strategy evaluation;
3. Explain the steps involved in the four stages of the strategy
evaluation process;
4. Describe the characteristics of an effective evaluation; and
5. Evaluate the strategy used by an organisation compared to its
competitors.
INTRODUCTION
In Topic 9, strategy execution was discussed extensively. Strategy execution is
essentially developing and implementing a set of actions that an organisation
takes to achieve strategic goals and objectives. Now, if the organisation has
already put plans in action, how would they know if strategic goals and
objectives were achieved? This topic discusses monitoring achievements of
strategy, which is How much have we done?
This topic begins with the understanding of the nature of strategy evaluation.
This understanding is extended with a discussion on the principles of strategy
evaluation based on Rumelts criteria. Next the challenges of strategy evaluation
are presented, followed by a discussion on the stages of strategy evaluation and
then on the use of the balanced scorecard as a framework for strategy evaluation.
The topic concludes with an emphasis on the need to audit the strategy
evaluation process in an attempt to provide a set of valid and reliable data for the
decision making process.
A valid strategy will yield results, for example, growth in sales and profit and
increased in international student enrolment in a college. While an inappropriate
strategy will not give any positive returns and might even cause damage to the
organisation.
Glueck (1980) state that the evaluation of strategy is the phase in which the top
managers determine whether their strategic choice as implemented is meeting
the objective of the enterprise.
SELF-CHECK 10.1
Business strategy is a set of objectives, policies, and plans that, taken together,
define the scope of the enterprise and its approach to survival and success.
The criteria for a set of business strategies are defined by the following:
(a) Consistency: The strategy must not present mutually inconsistent goals and
policies.
(c) Advantage: The strategy must provide for the creation and/or maintenance
of a competitive advantage in the selected area of activity.
(d) Feasibility: The strategy must neither overtax available resources nor create
unsolvable sub problems.
(a) Consistency
A key function of strategy is to provide coherence to organisational action.
Hence, management must communicate the organisations strategy clearly
and explicitly to foster coordination. Many organisations use some kind of
framework such as the Balanced Scorecard, the EFQM or performance
measurement system, to support that communication and coordination of
effort.
(b) Consonance
There is a need for strategists to examine set of trends and individual
trends: macro and micro economical. This is highlighted as follows:
The way in which a business relates to its environment has two aspects:
the business must both match and be adapted to its environment and it
must at the same time compete with other firms that are also trying to
adapt. This dual character of the relationship between the firm and its
environment has its analog in two different aspects of strategic choice
and two different methods of strategy evaluation.
Generic Competitive
Measure of success Sales growth Market share
Return to firm Value added Return on investment
Function Provision of value to the Maintaining or obtaining
customer a defensible position
Basic strategic tasks Adapting to change and Creating barriers and
innovation deterring rivals
Method of expressing Product/market terms, Policies leading to
strategy functional terms defensible position
Basic approach to Study of group of Comparison across rivals
analysis businesses over time at a given time
(c) Advantage
According to Rumelt (1980), competitive strategy is the art of creating or
exploiting those advantages that are most telling, enduring, and most
difficult to duplicate.
(d) Feasibility
The key is to ensure the business strategy does not over stretch resources or
create unsolvable problems for the organisation. This is highlighted as
follows:
SELF-CHECK 10.2
What are the Rumelts four criteria for strategy evaluation? Briefly
describe them.
(a) Businesses are operating within a more complex and changing environment
as they respond to domestic and global events.
(c) The globalised business world is changing the competitive equation where
the number of variables are ever changing and increasing.
Stage Description
Stage 1: Review The following are to be done in this stage:
underlying bases of Develop revised IFE Matrix
strategy
Develop revised EFE Matrix
Stage 2: Review The following are to be reviewed:
effectiveness of Competitors reaction to strategy
strategy
Competitors change in strategy
Competitors changes in strengths and weaknesses
Reasons for competitors strategic change
Reasons for competitors successful strategies
Competitors satisfaction with present market positions and
profitability
Potential for competitor retaliation
Potential for cooperation with competitors
Stage 3: Monitor This is done by asking the following questions:
strengths, Are strengths still strengths?
weaknesses,
opportunities and Have we added additional strengths?
threats Are weaknesses still weaknesses?
Have we developed other weaknesses?
Are opportunities still opportunities?
Have other opportunities developed?
Are threats still threats?
Have other threats emerged?
Are we vulnerable to hostile takeover?
Stage 4: Measure This is done by doing the following:
organisational Compare expected to actual results
performance
Investigate deviations from plan
Evaluate individual performance
Examine progress toward stated objectives
(b) Marketing;
SELF-CHECK 10.3
SELF-CHECK 10.4
10.6 AUDITING
Auditing is a systematic process of objectively obtaining and evaluating evidence
regarding assertions about economic actions and events to ascertain the degree of
correspondence between these assertions and established criteria, and
communicating the results to interested users. The strategy evaluation process
needs to produce results that management can trust to based their decisions. The
strategy evaluation process and outcomes ought to be audited to ensure integrity
in providing a set of valid and reliable data.
ACTIVITY 10.1
ACTIVITY 10.2
Case Study
Read the article titled Ryanair the low fares airline by OHiggins
(2007) and answer the following questions. You can access the
article from the link:
http://www.cit.ie/exampapers/PastExams/Accounting%20%26%20In
formation%20Systems/BBSIS4/2007%20Summer/Strategic%20%26%20
Business%20Management%20-%20Case%20Study-2.pdf
Advantage Consonance
Balanced scorecard Feasibility
Consistency Strategy evaluation
OR
Thank you.