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”(John
W.Teets)
CHAPTER OUTLINE
• developing a strategic vision/mission
• establishing financial and strategic objectives
• crafting a strategy
• factors shaping a company’s strategy
• linking strategy with ethics
• approaches to performing the strategy-making task
PURPOSE OF OBJECTIVES
• substitutes results-oriented decision-making for aimlessness over what to
accomplish
• provides benchmarks for judging organizational performance
CRAFTING A STRATEGY
Third Direction –Setting Task
• an organization’s strategy deals with
- how to make management’s strategic vision a reality
- This is a game plan for :
i) moving the company into an attractive business position
ii) building a sustainable competitive advantage
LEVELS OF STRATEGY-MAKING
A Diversified Company
Corporate-Level
Corporate
Strategy
Two-way influence
Business-Level
Managers Business Strategies
Two-way influence
Two-way influence
Operating
Operating Strategies
Managers
LEVELS OF STRATEGY-MAKING:
A Single-Business Company
Business
Executive-Level
Strategy
Managers
Two-way influence
Two-way influence
Kind of diversification
Moves to add
New business
TASKS OF CORPORATE STRATEGY
• moves to achieve diversification
• actions to boost performance of individual businesses
• capturing synergy among business units
• establishing investment priorities and steering corporate resources into the most
attractive business units
FUNCTIONAL STRATEGIES
• game plan for a strategically-relevant function, activity, or business
• details how key activities will be managed
• provide support for business strategy
• specify how functional objectives are to be achieved
OPERATING STRATEGIES
• concern narrower strategies for managing grassroots activities and strategically-
relevant operating units
• add detail to business and functional strategies but of lesser scope
Level 1
Corporate-level Overall Scope & Corporate level Corporate level
Managers strategic vision objectives strategy
Agency theory
This looks at the problems that can arise in a business relationship when one person
delegates decision making authority to another. This theory tries to explain why
managers as agency may fail to act in the best interest of their principal i.e. the
shareholder.
The shareholders provide capital to the management so that the management employs
such capital in the best interest of shareholders. Due to information Asymmetry between
the principal (shareholders) and Agency, senior management, Unscrupulous Agency
(Management) can take advantage of any lack of information by the shareholders to
mislead them and maximize their own interest at the expense of principals.
Asymmetry of information in this case means management has more information than
shareholders. Management like any human beings has their own personal needs i.e.
they are motivated by desires for status, power, job security and income. By virtue of
their position within the company, the CEO’s can use their authority and control over
cooperate funds to satisfy their personal desires at the expense of the shareholders.
This can be achieved through:
A. On the Job consumption i.e. through increasing their income, buying executive jets,
having lavish offices and going for expensive paid trips to exotic locations.
GOVERNANCE MECHANISMS
These are mechanisms that are put in place by the shareholder to try to align the interest
of the top management and the shareholder interest.
A. Board of Directors
These are people who are chosen by shareholders to run the company on their behalf.
Their responsibilities include the following:
1. The Executive Directors should not dominate the Board because they are also
employees
2. All Board sub-committees should be chaired by non – Executive Directors .
3. The CEO of the company must not chair the board (no need for an Executive
Chairperson).
4. The system of appointing board members must not be delegated to senior
management as they will choose their friends.
This is where senior management is paid on the basis what they would have achieved
e.g. introducing profit sharing skills
D. Auditors
These are independent firms whose role is to check on whether the accounts have been
prepared in accordance to the accounting guidelines. This independent checking
provides some form of control on the behaviour of management. The problem on this
mechanism is that at times the senior management might have a lot of influence on the
appointment of auditors thus catering the independency of auditors.
The CRS concept state that companies give to society or communities in recognition of
the business they get from them. This can be done through giving the less advantaged
towards the case of society, assisting in community projects, assisting when there are
natural disasters, contributing towards arts, sport, education, the environment and so on.
Arguments which have been advanced for companies to exercise their CRS are:
• That it helps to enhance the name of the company and its products as a result of
the publicity which often follows whenever a company performs an act of
corporate social responsibility, when the media carry the news.
• That companies have the resources, and being citizens, through corporate, they
should give whatever they can afford to promote the well-being of society or
communities.
• It is good for business in general because happy communities will provide
clientele.
• It can be instrumental in preventing external regulation of business by central
government, local authorities and professional associations. The rationale is that
self –regulation is better than being externally regulated – corporate social
responsibility acts make companies look responsible.
Several arguments have been advanced against corporate social responsibility. Among
the arguments are;
• It gives organizations a lot of power relative to the rest of society. That is,
authorities are more likely to listen to the problems of companies than
communities.
• It can be abused by companies which might act in a way which is unethical.
• Companies should concentrate on doing business and leave the task of
improving the welfare of society to government; after all they pay taxes to enable
governments to finance their budgets.
• Company profits are owed to shareholders
Stakeholder Concept
Definition
The stake holder concept states that companies should be aware of all the individuals
and organizations that have an interest in what they do. The reason for this are:
• They should know the expectations of all the stakeholders and find ways to cater
for them in their objectives, strategies and activities.
• Stakeholders also have power to determine what an organization can or cannot
do so they cannot be ignored.
There are both internal and external stakeholders. Internal stakeholders are members of
the organization while external stakeholders are found outside the organization.
Internal stakeholders
This relates to stakeholders within the organization. These stakeholders have their
expectations and power. Their power comes from:
• Exchange processes i.e. organizations need them for their skills and knowledge.
They manage the operations of the organization and are therefore responsible
for its performance. That is the survival and growth of the organization depends
on them, While on the other hand, they depend on the income they get from their
efforts for their material and social well-being therefore creating a dependant
relationship.
• Their position in the managerial hierarchy i.e. the level of management they are
found
• Personal qualities i.e. their attributes as individuals and the social influence they
wield.
• Ability to give or deny rewards i.e. this closely relates to position in the
managerial hierarchy although it might also relate to social rewards outside the
organization.
• Perceived power i.e. the power which someone is seen as having. Whether the
power is real or not does not count).
• Boundary management function i.e. the ability by a member to help an
organization to maintain beneficial relations with stakeholders such as
government, suppliers and financiers. In this way, such members are able to add
value to their presence in an organization.
• Control over resources i.e. those members of the organization who control
resources, which others need tend to have a lot of power. Examples are IT
personnel, Human resources personnel who grant loans and the transport
supervisor who issues vehicles.
STAKEHOLDERS EXPECTATIONS
STAKEHOLDERS - Size of dividend
- Increase in value of investments
- Company growth
- Growth in profit
MANAGERS - Good remuneration
- Attractive perks
- Status from working in the company
- Level of responsibility
- Job security
- Amount of challenge
EMPLOYEES - Job security
- Conditions of work
- Take home pay
- Level of representation
- Level of job satisfaction
External Stakeholders
STAKEHOLDERS EXPECTATIONS
CUSTOMERS - Respect
- Fair prices
- Desirable and quality product
- Soft products
- Choice
- New products
DISTRIBUTORS -After sale service
timely delivery
High after sales service
Quality products
High service levels
Profitable , mutual relations
SUPPLIIERS - Mutual , profitable relations
- Timely payment
- Adherence to terms
- Consistent orders
- Reasonable lead time
FINANCES Good -
management of
company finances
- Payment of both interest and
principal
- Timely payment
- Correct information
- Complying with terms
INSTITUTIONAL INVESTORS - A balanced portfolio
- High returns
PRESSURE/CIVIC GROUPS - Socially responsible actions
- Ethical conduct
- Professionalism
- Concern for the
environment
- To be listed to
- Meeting legal and
regulatory requirements
GOVERNMENT (INCLUDING LOCAL - Provision of employment
AUTHORITIES
Factors which determine the influence of stakeholders
It will often happen that an organization fails to agree with some stakeholders. In such a
case, several strategies can be used for example:
• Seeking agreement on basic issues
• Using persuasion by appealing to reason
• Forming alliances with other stakeholders
• Making demands of the stakeholder i.e. showing them that they have obligations
towards the company
• Cooperating with them so that they change their demands
• Destroying them
Ethics
What is Ethics?
Ethics involves acceptable behavior, relating to such questions as what is wrong or right,
fair or unfair, professional or unprofessional, legal or illegal, conscience etc.
The criteria for judging acceptable behaviour derived from social values, professional
codes of conduct, religion, natural justice, laws, regulations, corporate codes of conduct,
social good etc.
The important of ethics lies in that it regulates behavioral on the basis of which managers
and organizations are judged. Judgment passed will determine the image relevant
stakeholders will have with regard to the manager or organization. Unethical behaviour
can have negative impact on the organization in addition to that on the affected party.
Levels of ethics
There are four levels or areas at which ethics are most significant:
• The relations of the organization and its employees; in relation too hiring,
termination of employment, wages, working conditions, confidentiality of
employee information, respect for religious beliefs, ETC.
• The relations of the employee to the employer: in relation to conflict of interest,
secrecy, honesty, integrity, diligence theft, embezzlement, abuse of property etc.
• The relations of the organization to society i.e. individuals, organizations, wider
society, communities, environment, and other organization.
• The relations of the organization with other organizations; in relation to stealing
secretes, undercutting prices, negative promotional messages.
Ethics issues can arise in all aspects of the managerial task in all the functional areas.
Codes of Ethics
The aspect of developing a code of ethics deserves to be explored further. A code of ethic
is a document that spells out the ethical standards an organization has committed itself to
abide by.
CHAPTER OUTLINE
• role of situation analysis in strategy making
• methods of industry and competitive analysis
- industry’s dominant economic traits
- industry’s 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
Macro Environment
Political
Economic
Social
Technological
Legal
Ecology
Globalization
Substitute
products
Potential new
entrants
PRINCIPLES OF COMPETITIVE
Threat of entry is stronger when:
• entry barriers are low
• sizable pool of entry candidates exists
• incumbents are unwilling or unable to contest a newcomer’s entry efforts
• newcomer can expect to earn attractive profits
2. assess impact
- what difference will the make (favorable? Unfavorable
Purpose
• raise consciousness of managers about potential developments that could
- have important impact on industry conditions
- pose new opportunities and threats
• one technique for revealing the different competitive positions of industry rivals is
strategic group mapping
COMPETITOR ANALYSIS
Successful strategists take great pains in scouting competitors through the following
means:
- 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
Principle
A firm uniquely well-suited in an otherwise unattractive industry can, under certain
circumstances, still earn unusually good profits.
S W O T
COMPETENCIES VS CORE
COMPETENCIES VS DISTINCTIVE COMPETENCIES
• 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 company’s strategy, competitiveness, and profitability
• a distinctive competence is a competitively valuable activity that a company
performs better than its rivals
CORRECTING SUPPLIER-RELATED
COST DISADVANTAGES: THE OPTIONS
• negotiate more favorable prices with suppliers
• work with suppliers to help substitute inputs
• do a better job of managing linkages between suppliers’ value chains and firm’s
own chain
• make up differences by initiating cost savings in other areas of value chain
CORPORATE CULUTRE
Corporate Culture is a collection of beliefs, expectations and values learned and shared
by the cooperative members and transmitted from one generation to the next.
• corporate culture reflects the values of the founding members. It gives a
company a sense of identity
• corporate culture has two attributes i.e. intensity and integration
- cultural intensity is the extent to which members accept the noms, values. It shows
the cultural depth
- cultural integration is the extent to which various units throughout the organization
share a common culture
CHAPTER OUTLINE
• generic competitive strategies
- low-cost leadership strategy
- broad differentiation strategies
- best cost provider strategies
- focused low-cost strategies
- focused differentiation strategies
• vertical integration strategies
• cooperative strategies
• offensive and defensive strategies
• first-mover advantages and disadvantages
KEY TO SUCCESS
• convince customers firm’s product/service offers superior value
- offer buyers a good product at a lower price
Approach 2
- revamp value chain to bypass some cost-producing activities
DIFFERENTIATION STRATEGIES
Objective
• incorporate differentiating features that cause buyers to prefer firm’s product or
service over rivals brand
Key to success
• find ways to differentiate that create value for buyers and that are not easily matched
or cheaply copied by rivals not spending more to differentiate than price premium to
be charged
Approach 2
• incorporate product features/attributes that raise the performance a buyer gets out of
the product
Approach 3
• incorporate product features/attributes that enhance buyer satisfaction in non-
economic or intangible ways
Approach 4
• compete on the basis of superior capabilities
Objectives
• create superior value by meeting or exceeding buyer expectations on product
attributes and beating their price expectations
• be the low –cost producer of a product with good-to-excellent product attributes then
use cost advantage to underprice comparable brands
FOCUS/NICHE STRATEGIES
Objective
• do a better job of serving buyers in target market niche than rivals
Key to success
• choose a market niche where buyers have distinctive preferences, special
requirements, or unique needs
• develop unique capabilities to serve needs of target buyer segment
Approach 2
* offer niche buyers a low cost strategy .. something different from rivals.. a
differentiation strategy
COOPERATIVE STRATEGIES
• companies sometimes use strategic alliances or strategic partnerships or
collaborative
agreements to complement their own strategic initiativeness. Such cooperative
strategies go beyond normal company –to-company dealings but fall.
Defensive Strategies
• can protect competitive advantage, but rarely are the basis for creating advantage
Size of competitive
Advantage
Strategic size of
Moves competitive moves by
Produce advantage rivals
Competitive achieved competitive
Advantage advantage
Time
Best Options
• attack with equally good product & lower price
Weaknesses to attack
• geographic regions where rival is weak
• segments rival in 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
Appeal
• a challenger with superior resources can overpower weaker rivals by out-competing
them across-the board long enough to become a market leader
END-RUN OFFENSIVES
Objectives
• dodge head-to-head confrontations that escalate competitive intensity or risk
cutthroat competition
• attempt to maneuver around areas of strong competition
GUERRILLA OFFENSES
Approach
• 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 challengers with limited resources
PREEMPTIVE STRIKES
Approach
• involve first to secure an advantageous position that rivals are fore closed or
discouraged duplicating
• expand capacity ahead of demand in hopes of discouraging rivals from following suit
• tie up best or 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
DEFENSIVE STRATEGY
• fortify firm’s 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
FIRST-MOVER ADVANTAGES
• when to make a strategic move is often as crucial as what move to make
• first-mover advantages arise when:
- pioneering helps build firm’s image and reputation
- 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
• moving early can be a disadvantage (or fail to produce an advantage) when
- 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
Principle 2
• being a fast-mover follower can sometimes yield as good a result as being a first-
mover
Principle 3
• being a late-mover may or may not be fatal.. it varies with the situation