Strategic Management Presentation PDF

Chapter 1
The Nature of Strategic Management
Strategic Management:
Concepts & Cases
10th Edition
Fred David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Ch 1 -1
Copyright 2005 Prentice Hall
REMEMBER
If you are what you eat,

then definitely
you are what you plan for.
Ch 1 -2
Prime Task of
Strategic Management
Peter Drucker: -- think through the

overall mission of a business. Ask
the key question: “What is our
Business?”
Ch 1 -3
Some Basic Assumptions
 Plan or be planned for.
 No planning is planning for failure.
 If you think planning process is expensive,
try ignorance (no planning).
 Sometimes planning is more important than
plans.
 Good old days are not sufficient to secure
future success (Vision and mission).
 If you don’t know where are you going, any
road will take there (strategic direction).
Ch 1 -4
Strategic Thinking & Strategists
 Strategic thinking is done by maintaining focus, thinking long term,
sorting out what “important” vs. what is “noise” and acting
accordingly.
 An organization can continuously regenerate itself by envisioning its
future, assessing what and where it is currently, and determining what
goals and activities are necessary to move the organization toward its
intended future.
 The key element that makes long-range planning “strategic“ is the
process of creating and evaluating alternatives possible outcomes
(scenarios) based on data collected from the many environments that
influence an organization (such as political, economic, social, and
technological environments).
 Strategic thinking involves making some assumptions about the future
environments of an organization.
Ch 1 -5
Strategic Thinking & Strategists
 The gathering of environmental information and adapting to
environmental change are the primary characteristics of planning that
make it strategic.
 Strategic planning works best when the guiding members of an
organization revisit what “business” they are in, who their customers
and stakeholders are, and what these constituents need and expect.
 Strategic thinking states how components of the whole organization
relate to each other within their internal and external environments
both now and in the future. Because of this, strategic thinking provides
direction for, and constraints on, long-range, intermediate, and short-
range planning.
Ch 1 -6
Strategic Management – Defined
Art & science of formulating,

implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives.
Ch 1 -7
Strategic Management – Defined
 Strategic Management is that set of managerial

decisions and actions that determines the long-run
performance of a corporation (Wheelen and
Hunger).
 It includes four stages:
 Environmental scanning.
 Strategy formulation.
 Strategy implementation.
 Strategy evaluation and control.
Ch 1 -8
In essence, the strategic plan is a

company’s game plan.
Ch 1 -9
achieves a firm’s success
through integration --
Management Marketing
Finance/Accounting Production/Operations
Research & Development MIS
Ch 1 -10
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Ch 1 -11
Issues in Strategy
Formulation
New Business opportunities

Businesses to abandon
Allocation of resources
Expansion or diversification
International markets
Mergers or joint ventures
Avoidance of hostile takeover
Ch 1 -12
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
Ch 1 -13
Strategy
Implementation
Action Stage of Strategic

Management –
Most difficult stage

Mobilization of employees &
managers
Interpersonal skills critical
Consensus on goal pursuit
Ch 1 -14
Strategy Evaluation
Internal Review
External Review
Performance Metrics
Corrective Actions
Ch 1 -15
Strategy
Evaluation
Final Stage of Strategic
Management
Subject to future
modification
Today’s success no
guarantee of future success
New & different problems
Complacency leads to
demise
Ch 1 -16
Integrating Intuition and
Analysis
The strategic management process

attempts to organize quantitative and
qualitative information under conditions
of uncertainty.
Ch 1 -17
Integrating Intuition and
Analysis
Intuition is based on:

 Past experiences
 Judgment
 Feelings
Intuition is Useful for decision making

 Conditions of great uncertainty
 Conditions with little precedent
Ch 1 -18
Integrating Intuition & Analysis
Intuition & Judgment
Involve Management at all levels
Influence all Analyses
Ch 1 -19
Integrating Intuition & Analysis
Analytical Thinking
Intuitive Thinking
Ch 1 -20
Adapting to Change
Organizations must monitor

events
 On-going process
 Internal and external events
 Timely changes
Ch 1 -21
Strategic Management is
Gaining and Maintaining
Competitive Advantage
“Anything that a firm does especially

well compared to rival firms”
Ch 1 -22
Achieving Sustained
1. Adapting to change in external trends,

internal capabilities and resources
2. Effectively formulating, implementing &

evaluating strategies
Ch 1 -23
Adapting to Change
Rate & magnitude of change

increasing dramatically
E-commerce
Demographics
Technology
Ch 1 -24
Adapting to Change
Effective Adaptation
Requires long-term focus
Ch 1 -25
Adapting to Change – Key
Questions
 What kind of business should
we become?
 Are we in the right fields
 Are there new competitors
 What strategies should we
pursue?
 How are our customers
changing?
Ch 1 -26
Key Terms
Strategists – Firm’s success/failure
Various Job Titles:
•Chief Executive Officer (CEO)

•Chief Strategy Officer (CSO)
•President
•Owner
•Board Chair
•Executive Director
Ch 1 -27
Key Terms
Vision Statement –
What do we want to become?
Mission Statement –
What is our business?
Ch 1 -28
Key Terms
Opportunities and Threats (External)
 Largely beyond the control of a single

organization
Ch 1 -29
Key Terms
Opportunities & Threats (External)

Analysis of Trends:
• Economic
• Social
• Cultural
• Demographic/Environmental
• Political, Legal, Governmental
• Technological
• Competitors
Ch 1 -30
Key Terms
Opportunities & Threats
Environmental Scanning (Industry Analysis)
 Process of conducting research and

gathering and assimilating external
information
Ch 1 -31
Key Terms
Basic Tenet of Strategic Management
Take advantage of
External Opportunities
Strategy Formulation
Avoid/minimize impact of
External Threats
Ch 1 -32
Key Terms
Strengths & Weaknesses (Internal)
 Controllable activities performed

especially well or poorly
Ch 1 -33
Key Terms
Strengths & Weaknesses (Internal)
Typically located in functional areas of the firm

• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research & Development
• Computer Information Systems
Ch 1 -34
Key Terms
Strengths & Weaknesses
Assessing the Internal Environment
Financial Ratios
Performance Metrics
Internal Factors
Industry Averages
Survey Data
Ch 1 -35
Key Terms
Long-term Objectives
 Mission-driven pursuit of specified results

more than one year out
Ch 1 -36
Key Terms
Long-term Objectives
Essential for ensuring the firm’s success

• Provide direction
• Aid in evaluation
• Create synergy
• Focus coordination
• Basis for planning, motivating, and
controlling
Ch 1 -37
Key Terms
Strategies
 Means by which long-term objectives are

achieved
Ch 1 -38
Key Terms
Strategies
Some Examples
• Geographic expansion
• Diversification
• Acquisition
• Market penetration
• Retrenchment
• Liquidation
• Joint venture
Ch 1 -39
Key Terms
Annual Objectives
 Short-term milestones that firms must

achieve to attain long-term objectives
Ch 1 -40
Key Terms
Policies
 Means by which annual objectives will be

achieved
Ch 1 -41
Comprehensive strategic management model
External
Audit
Chapter 3
Long-Term Generate, Implement Implement Measure &

Vision
Objectives Evaluate, Strategies: Strategies: Evaluate
&
Select Mgmt Issues Marketing, Performance
Mission
Strategies Fin/Acct,
R&D, CIS
Chapter 2 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9
Internal
Audit
Chapter 4
Ch 1 -42
Strategic Management Model
Strategic Management Process
 Dynamic & Continuous

 More formal in larger organizations
Ch 1 -43
1. Identify Existing --
• Vision
• Mission
• Objectives
• Strategies
Ch 1 -44
2. Audit external environment

3. Audit internal environment
4. Establish long-term objectives
5. Generate, evaluate & select
strategies
6. Implement selected strategies
7. Measure & evaluate performance
Ch 1 -45
Benefits of Strategic
Management
• Proactive in shaping firm’s future
• Initiate and influence firm’s activities

• Formulate better strategies
•Systematic, logical, rational
Ch 1 -46
Management
Financial Benefits
• Improvement in sales
• Improvement in profitability
• Productivity improvement
Ch 1 -47
Management
Non-Financial Benefits
• Improved understanding of competitors strategies

• Enhanced awareness of threats
• Reduced resistance to change
• Enhanced problem-prevention capabilities
Ch 1 -48
Management (Greenley)
1. Identification of Opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes adverse conditions & changes
5. Decisions that better support objectives
Ch 1 -49
Management (Greenley – cont’d)
6. Effective allocation of time & resources

7. Internal communication among personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking
Ch 1 -50
Management (Greenley – cont’d )
11. Encourages favorable attitude toward

change
12. Provides
discipline and formality to the
management of the business
Ch 1 -51
Why Some Firms Do No
Strategic Planning
Poor reward structures

Fire-fighting
Waste of time
Too expensive
Laziness
Content with success
Ch 1 -52
Why Some Firms Do No
Strategic Planning
Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Suspicion
Ch 1 -53
Business Ethics & Strategic
Management
Business Ethics defined --
 Principles of conduct within organizations

that guide decision making and behavior.
Ch 1 -54
Management
Good business ethics –
 Prerequisite for good strategic management
Ch 1 -55
Management
Code of business ethics –
 Provides basis on which policies can be

devised to guide daily behavior and
decisions in the workplace
Ch 1 -56
Management
Business practices always considered unethical –
 Misleading advertising
 Misleading labeling
 Harm to the environment
 Insider trading
 Dumping flawed products on foreign markets
 Poor product or service safety
 Padding expense accounts
Ch 1 -57
Natural Environment
Perspective
ISO used to gain strategic advantage
 ISO 9000 focuses on quality control

 > 1.5 million companies incorporate ISO
Ch 1 -58
Natural Environment
Perspective
ISO 14000 standards
 Voluntary standards
 ISO 14001 standard for Environmental
Management System
 Firms minimize harmful effects on
environment
Ch 1 -59
The Nature of Global
Competition
International/multinational corporations
 Parent company
 Host country
Ch 1 -60
The Nature of Global
Competition
Strategy implementation may be difficult
 Cultural differences
 Norms
 Values
 Work ethic
Ch 1 -61
Advantages of International
Operations
Absorb excess capacity

Reduce unit costs
Spread risk over wider markets
Low-cost production facilities
Ch 1 -62
Advantages of International
Operations (cont’d)
Less intense competition

Lower taxes
Economies of scale
Ch 1 -63
Disadvantages of International
Operations
Difficult communications
Underestimate foreign competition
Cultural barriers to effective management
Complications arising from currency
differences
Ch 1 -64
Chapter 2
The Business Vision & Mission
Concepts & Cases
10th Edition
Fred David
Anthony F. Chelte
Ch 2 -1
Vision
“The last thing IBM needs right now is a

vision.” (July 1993)
What IBM needs most right now is a

vision.” (March 1996)
-- Louis V. Gerstner, Jr., CEO, IBM Corporation
Ch 2 -2
Vision
Agreement on the basic vision for which the

firm strives to achieve in the long run is
critically important to the firm’s success.
Ch 2 -3
Vision
“What do we want to become?”
Ch 2 -4
Vision
Clear Business
Vision
Comprehensive
Mission Statement
Ch 2 -5
Vision & Mission
Shared Vision --
 Creates commonality of interests
 Reduce daily monotony
 Provides opportunity & challenge
Ch 2 -6
Vision Statement Examples
A national organization which represents its

members in all aspects of poultry and eggs
on both a national and international level.
-- U.S. Poultry & Egg Association
Ch 2 -7
Vision Statement Examples
The Vision of USGS is to be a world leader in

the natural sciences through our scientific
excellence and responsiveness to society’s
needs.
-- U.S. Geological Survey (USGS)
Ch 2 -8
Mission Statements
-- 90% of all companies have used a

mission statement in the previous five
years.
Ch 2 -9
Mission Statement
“What is our business?”
Ch 2 -10
Mission Statements
•Enduring statement of purpose

•Distinguishes one firm from another
•Declares the firm’s reason for being
Ch 2 -11
Mission Statements
Also referred to as:
•Creed statement
•Statement of purpose
•Statement of philosophy
•Statement of business principles
Ch 2 -12
Mission Statements
Reveal what an organization wants to be

and whom it wants to serve
Ch 2 -13
Mission Statements
Essential for effectively establishing

objectives and formulating strategies.
Ch 2 -14
Specific questions that help
form startegic vision/mission
 What business we are in now?

 What business do we want to be in?
 What will our customers want in future?
 What are expectations of our stakeholders?
 Who will be our future competitors? Suppliers?
Partners?
 What should our competitive scope be?
 How will technology impact our industry?
 What environmental scenarios are possible?
Ch 2 -15
Products
Services Markets
Customers
Technology
Mission
Employees
Elements
Survival
Growth
Profit
Public
Image
Self-Concept Philosophy
Ch 2 -16
CIA Vision
 We will provide knowledge

and take action to ensure the
national security of the
United States and the
prevention of American life
and ideals.
Ch 2 -17
CIA Mission
 We are the eyes and ears of the nation and

at times its hidden hand. We accomplish this
mission by:
 Collecting intelligence that matters.
 Providing relevant, timely, and objective all-source
analysis.
 Conducting covert action at the direction of the
president to preempt threats or achieve United
states policy objectives.
Ch 2 -18
CIA Values
 In pursuit of our country’s interests, we put Nation Before

Agency, Agency before unit, and all before self. What we do
matters.
 Our success depends on our ability to act with total discretion and
an ability to protect sources and methods.
 We provide objective, unbiased information and analysis.
 Our mission requires complete personal integrity and personal
courage, physical and intellectual.
 We accomplish things other than cannot, often at great risk.
When the stakes are highest and dangers greatest, we are there
and there first.
 We stand by one another and behind one another. Service,
sacrifice, flexibility, teamwork, and quiet patriotism (loyalty) are
our hallmarks.
Ch 2 -19
Mission Statement Examples
It is the California Energy Commission’s

mission to assess, advocate, and act to
through public/private partnerships to improve
energy systems that promote a strong
economy and healthy environment
-- California Energy Commission
Ch 2 -20
Mission Statement Examples
John Deere has grown and prospered through

a long-standing partnership with the world’s
most productive farmers. Today, John Deere
is a global company with several equipment
operations and complementary service
businesses. These businesses are closely
interrelated, providing the company with
significant growth opportunities and other
synergistic benefits.
-- John Deere, Inc.

Ch 2 -21
Examples: Mission / vision statements
Avis Rent A Car
 “Our mission is renting cars. Our mission is
total customer satisfaction.”
McCormick & Company

 “The primary mission is to expand our
worldwide leadership position in the spice,
seasoning, and flavoring market.
Ch 2 -22
Saturn Division of GM
 “To market vehicles developed and manufactured in the U.S.
that are world leaders in quality, cost, and customer satisfaction
through the integration of people, technology, and business
systems and to transfer knowledge, technology, and experience
through out GM.”
Eastman Kodak
 “To be the best chemicals and electronic imaging.”
Ch 2 -23
Public Service Company of New Mexico
 “Our mission is to work for the success of people we serve
providing our customers reliable electric service, energy
information, and energy options that best satisfy their
needs.”
American Red Cross
 “The mission 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.”
Ch 2 -24
Otis Elevator
 Key Market: To provide any customers.
 Contribution: a means of moving people
and things up, down and
sideways over short
distances.
 Distinction: with higher reliability than
any similar enterprise in the
world.
Ch 2 -25
McDonald’s
 Key Market: To offer the fast food
customer.
 Contribution: food prepared in the same
high- quality manner world-
wide, tasty, and reasonably
priced.
 Distinction: delivered in a consistent, low-
key décor and friendly
atmosphere.
Ch 2 -26
Wall-Mart
 Key Market: To offer all of the fine
customers in our territories.
 Contribution: all of their household needs.
 Distinction: in a manner in which they
continue to think of us fondly.
Ch 2 -27
Our Mission ….. Impossible
Ch 2 -28
Our Mission
 Key Market:
.
 Contribution:
.
 Distinction:
Ch 2 -29
Vision & Mission
Many organizations develop both

vision & mission statements.
Ch 2 -30
Vision & Mission
Profit & vision are necessary to effectively

motivate a workforce
Ch 2 -31
Vision & Mission
Shared vision creates a community of

interests
Ch 2 -32
Developing Vision & Mission
Clear mission is needed before alternative

strategies can be formulated and
implemented
Ch 2 -33
Developing Vision & Mission
Participation from diverse managers is

important in developing the mission.
Ch 2 -34
Importance of Mission
Benefits from a strong mission
Unanimity of Purpose
Resource Allocation
Mission
Organizational Climate
Focal point for work

structure
Ch 2 -35
Effective Missions
Broad in scope
Generate strategic
alternatives
Not overly specific
Reconciles interests among

diverse stakeholders
Finely balanced between

specificity & generality
Ch 2 -36
Effective Missions
Arouse positive feelings &

emotions
Motivate readers to action
Generate favorable
impression of the firm
Ch 2 -37
Effective Missions
Reflect future growth
Provide criteria for strategy

selection
Basis for generating &

evaluating strategic options
Are dynamic in nature
Ch 2 -38
Mission & Customer
Orientation – Vern McGinnis
 Define what the organization is

 Define what it aspires to be
 Limited to exclude some ventures
 Broad enough to allow for growth
 Distinguishes firm from all others
 Stated clearly – understood by all
Ch 2 -39
Mission & Customer
Orientation
An Effective Mission Statement --
 Anticipates customer needs

 Identifies customer needs
 Provides product/service to satisfy needs
Ch 2 -40
Social Policy & Mission
Managerial philosophy shapes social policy --
 Affects development of vision & mission
 Responsibilities to –
 Consumers
 Environmentalists
 Minorities
 Communities
Ch 2 -41
Social Policy & Mission
Social policy should be integrated in all

strategic-management activities.
Mission should convey the social

responsibility of the firm
Ch 2 -42
Vision & Mission
Research results are mixed, however,

firms with formal mission statements --
 2x average return on shareholder’s equity

 Positive relationship to company performance
 30% high return on certain financial measures
Ch 2 -43
PepsiCo Mission
PepsiCo’s mission is to increase the value of our
shareholders’ investment. We do this through sales
growth, cost controls, and wise investment
resources. We believe our commercial success
depends upon offering quality and value to our
consumers and customers; providing products that
are safe, wholesome, economically efficient and
environmentally sound; and providing a fair return to
our investors while adhering to the highest
standards of integrity.
Ch 2 -44
Ben & Jerry’s Mission
Ben & Jerry’s mission is to make, distribute and sell
the finest quality all-natural ice cream and related
products in a wide variety of innovative flavors made
from Vermont dairy products. To operate the
Company on a sound financial basis of profitable
growth, increasing value for our shareholders, and
creating career opportunities and financial rewards
for our employees. To operate the Company in a
way that actively recognizes the central role that
business plays in the structure of society by initiating
innovative ways to improve the quality of life of a
broad community—local, national and international.
Ch 2 -45
Mission Statement Evaluation Matrix
COMPONENTS
Concern for
Survival,
Products Growth,
Organization Customers Services Markets Profitability Technology
PepsiCo Yes No No Yes No
Ben & Jerry's No Yes Yes Yes No
Ch 2 -46
Mission Statement Evaluation Matrix
COMPONENTS
Self- Concern for Concern for

Organization Philosophy Concept Public Image Employees
PepsiCo Yes No No No
Ben & Jerry's No Yes Yes Yes
Ch 2 -47
Chapter 3
The External Assessment
Concepts & Cases
10th Edition
Fred David
Anthony F. Chelte
Ch 3 -1
External Assessment
It is not the strongest of the species that

survive, nor the most intelligent, but the one
most responsive to change. –
Charles Darwin
Nothing focuses the mind better than the

constant sight of a competitor who wants to
wipe you off the map. –
Wayne Calloway, Former CEO, PepsiCo
Ch 3 -2
Environmental Uncertainty:
Complexity and Change
Complex
H. D. Uncertainty
Complexity
L. D. uncertainty
Simple
Stable Unstable
Change Ch 3 -3
Environmental Scanning
 Environmental scanning: is
the monitoring, evaluating, and
disseminating of information
from external and internal
environments to key people
within the organization.
 Task Environment: includes
those elements or groups that
directly affect the corporation
and, in turn, are affected by it.
Ch 3 -4
External Strategic
Management Audit
-- Environmental Scanning
-- Industry Analysis
Ch 3 -5
External Strategic
Management Audit
Identify & Evaluate factors beyond the

control of a single firm
 Increased foreign competition
 Population shifts
 Information technology
Ch 3 -6
External Strategic
Management Audit
Purpose of External Audit

 Identify
 Opportunities
 Threats
Ch 3 -7
Key External Forces
•Economic forces
•Social, cultural, demographic &
environmental forces
•Political, governmental & legal forces
•Technological forces
•Competitive forces
Ch 3 -8
Key External Forces & the Organization
Competitors
Suppliers
Distributors
Creditors
Key Customers Opportunities
External Employees &
Forces
Communities Threats
Managers
Stockholders
Labor Unions
Special Interest Groups
Products
Services
Ch 3 -9
External Audit
Gather competitive
intelligence –
 Social
 Cultural
 Demographic
 Environmental
 Economic
 Political, legal governmental
 Technological
Ch 3 -10
External Audit – Sources of
Information
•Internet
•Libraries
•Suppliers
•Distributors
•Customers
•Competition
Ch 3 -11
Performing External Audit --
Variables
•Market share
•Breadth of competing products
•World economies
•Foreign affiliates
•Proprietary account advantages
Ch 3 -12
Performing External Audit --
Variables
•Price competitiveness
•Technological advancements
•Interest rates
•Pollution abatement
Ch 3 -13
Performing External Audit
Long-term orientation
Measurable
External
Factors Applicable to
competing firms
Hierarchical
Ch 3 -14
Industrial Organization (I/O)
View
-- Industry factors more important than

internal factors
 Performance determined by industry forces
Ch 3 -15
I/O Perspective Firm Performance
Industry Properties
Economies of Scale
Barriers to market entry
Product differentiation
Level of competitiveness
Ch 3 -16
Economic Forces
•Availability of credit
•Level of disposable income
•Interest rates
•Inflation rates
Ch 3 -17
Economic Forces
•Money market rates

•Fed Gov’t deficits
•GDP trend
•Consumption patterns
Ch 3 -18
Key Economic Variables
Unemployment trends
Worker productivity levels
Value of the dollar in world markets
Stock market trends
Foreign economic conditions
Ch 3 -19
Import/Export factors
Demand shifts for goods/services
Income differences by region/customer
Price fluctuations
Exportation of labor and capital
Ch 3 -20
Monetary policies
Fiscal policies
Tax rates
OPEC policies
ECC policies
Ch 3 -21
Social, Cultural, Demographic
& Environmental Forces
Major Impact –
•Products
•Services
•Markets
•Customers
Ch 3 -22
Key Social, Cultural, Demographic &
Environmental Variables
Childbearing rates
Number of special interest groups
Number of marriages & divorces
Number of births & deaths
Immigration & emigration rates
Ch 3 -23
Social, Cultural, Demographic &
Environmental Forces
Actuarial rates
Monitor Key Per capita income
Variables Attitudes toward business
Avg. disposable income
Ch 3 -24
Consumer behavior
Monitor Key Ethical concerns
Variables Attitudes toward saving
Racial equality
Ch 3 -25
Avg. educational level
Monitor Key Governmental regulation
Variables Attitudes toward customer service
Attitudes toward quality
Ch 3 -26
Energy conservation
Monitor Key Social responsibility
Variables Leisure time values
Recycling
Ch 3 -27
Waste management
Monitor Key Air & water pollution
Variables Ozone depletion
Endangered species
Ch 3 -28
Political, Government & Legal
Forces
Government Regulation
Key opportunities & threats

 Antitrust legislation
 Tax rates
 Lobbying efforts
 Patent laws
Ch 3 -29
Forces
Increasing Global Interdependence
Political variables impact –

 Formulation of strategies
 Implementation of strategies
Ch 3 -30
Forces
Increasing Global Interdependence
Strategists in a global economy --

 Forecast political climates
 Legalistic skills
 Diverse world cultures
Ch 3 -31
Forces
Globalization of Industry
 Worldwide trend toward similar
consumption patterns
 Global buyers and sellers
 E-commerce
 Technology for instant currency transfers
Ch 3 -32
Key Political, Governmental, & Legal Variables
Regulation/deregulation
Tax law changes
Special tariffs
PAC’s
Voter participation rates
Ch 3 -33
(cont’d)
Number of patents
Changes in patent laws
Environmental protection laws
Equal employment legislation
Government subsidies
Ch 3 -34
(cont’d)
Anti-trust enforcement
Global relationships
Import/export regulations
Political conditions
Location and severity of terrorist activity
Ch 3 -35
Technological Forces
Major Impact –
•Internet
•Communications
•Semiconductors
Ch 3 -36
Significance of IT
•Chief Information Officer (CIO)
•Chief Technology Officer (CTO)
Ch 3 -37
Technology-based issues
Essential for nearly every strategic decision
Ch 3 -38
Competitive Forces
Collection & evaluation of data on

competitors is essential for successful
strategy formulation
Ch 3 -39
Competitive Forces
Competition on virtually all industries can be

described as intense.
Ch 3 -40
Competitive Forces
Identifying Rival Firms
Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
Ch 3 -41
Key Questions Concerning Competitors
Their strengths
Their weaknesses
Their objectives and strategies
Their responses to external variables
Their vulnerability to our alternative strategies
Ch 3 -42
Key Questions Concerning Competitors (cont’d)
Our vulnerability to strategic counterattack
Our product/service positioning
Entry and exit of firms in the industry
Key factors for our current position in industry
Sales/profit rankings of competitors over time
Ch 3 -43
Key Questions Concerning Competitors (cont’d)
Nature of supplier & distributor relationships
The threat of substitute products/services
Should we keep our strategies secret from

employees and stakeholders?
Ch 3 -44
Competitive Forces
7 Characteristics of most
Competitive U.S. Firms:
1. Market share matters

2. Understand what business you are in
3. Broke or not, fix it
4. Innovate or evaporate
Ch 3 -45
Competitive Forces
7 Characteristics of most
Competitive U.S. Firms:
5. Acquisition is essential to growth

6. People make a difference
7. No substitute for quality
Ch 3 -46
The Five-Forces Model of Competition
Potential development
of substitute products
Bargaining power Rivalry among Bargaining power

of suppliers competing firms of Buyers
Potential entry of new

competitors
Ch 3 -47
The Five-Forces Model
Rivalry Among Competing Firms
 Most powerful of the five forces

 Focus on competitive advantage of
strategies
Ch 3 -48
(1) Rivalry among existing firms
• Number of competitors.
• Rate of industry growth.
• Product or service characteristics.
• Amount of fixed costs.
• Capacity.
• Height of exit barriers.

• Diversity of rivals.
Ch 3 -49
(2) Threats of new entrants
 New entrants bring to the industry new capacity, a desire to

gain market share, and substantial resources.
 An entry barriers is an obstruction that makes it difficult for a
company to enter an industry.
 Some possible barriers to entry are:
 Economies of scale.
 Product differentiation.
 Capital requirements.
 Switching costs.
 Access to distribution channels.
 Disadvantages independent of size.
 Government policy.
Ch 3 -50
Potential Entry of New Competitors
 Barriers to entry are important

 Quality, pricing, and marketing can
overcome barriers
Ch 3 -51
(3) Threats of substitute products or services
 Substitute products are those products that appear to be different but

can satisfy the same need as another products
 Examples:
 Regular mail vs. e.mail.
 Medical glasses vs. contact lenses.
 Airplane, trans, buses.
 Pepsi vs. Asser Asab.
Ch 3 -52
Potential Development of Substitute

Products
 Pressures increase when consumer’s

switching costs decrease
 Firm’s plans for increased capacity &
market penetration
Ch 3 -53
(4) Bargaining power of Buyers
A Buyer or a group of buyers is powerful if some of the following factors hold
true:
1. A buyer purchase a large proportion of the seller’s product or
service.
2. A buyer has the potential to integrate backward by producing the
product itself.
3. Alternative suppliers are plentiful because the product is standard or
undifferentiated.
4. Changing suppliers costs very little.
5. The purchase product represents a high percentage of a buyer’s
costs, thus providing incentive to shop around for a lower price.
6. A buyer earns low profits and is thus very sensitive to costs and
service differentiation.
7. The purchased product is unimportant to the final quality or price of a
buyer’s products or service.
Ch 3 -54
Bargaining Power of Buyers
 Customers concentrated or buy in volume

affects intensity of competition
 Consumer power is higher where products
are standard or undifferentiated
Ch 3 -55
(5) Bargaining power of Suppliers
A Buyer or a group of buyers is powerful if some of
the following factors apply:
1. The supplier industry is dominated by few
companies.
2. Its product or service is unique and /or it has built
up, but it sells to many.
3. Substitutes are not readily available.
4. Suppliers are able to integrate forward and compete
directly with their present customers.
5. A purchasing industry buys only a small portion of
the supplier group’s goods and services and is thus
unimportant to the supplier.
Ch 3 -56
Bargaining Power of Suppliers
 Large number of suppliers & few

substitutes affects intensity of competition
 Backward integration can gain control or
ownership of suppliers
Ch 3 -57
Industry Analysis: The External Factor
Evaluation (EFE) Matrix
Summarize & Evaluate
Economic Demographic Governmental
Social Environmental Technological
Cultural Political Competitive
Ch 3 -58
EFE – Gateway Computers (2003)
Wtd
Key External Factors Weight Rating
Score
Opportunities
1. Global PC market expected to grow 20%
0.10 3 0.30
in 2004
2. Cost of PC component parts expected to
0.10 3 0.30
decrease 10% - 2004
3. Internet use growing rapidly 0.05 2 0.10
4. China entered WTO; lowered taxes for
0.10 1 0.10
importing PC’s
5. The average income for PC worker has
0.05 3 0.15
declined from $40K/yr to $30k/yr
Ch 3 -59
EFE – Gateway Computers (2003) (cont’d)
Wtd
Score
Opportunities (cont’d)
6. Modernization of business firms and
0.05 2 0.10
government agencies
7. U.S. (& world) economies recovering 0.05 3 0.15
8. 30% of Chinese population can afford a
0.05 1 0.05
PC; only 10% of homes have a PC
Threats 0.10 1 0.10
1. Intense rivalry in industry 0.10 1 0.05
Ch 3 -60
Wtd
Score
Threats (cont’d)
2. Severe price cutting in PC industry 0.10 2 0.20
3. Different countries have different reg’s
0.05 1 0.05
and infrastructure for PC’s
4. Palm & PDA becoming substitutes 0.05 3 0.15
5. Demand exceeds supply of experienced
0.05 4 0.20
PC workers
6. Birth rate in U.S. declining annually 0.05 3 0.15
Ch 3 -61
Wtd
Score
Threats (cont’d)
7. U.s. consumers and businesses delaying
0.05 2 0.10
purchase of PC’s
8. PC firms diversifying into consumer
0.05 3 0.15
electronics
Total 1.00 2.40
Ch 3 -62
Industry Analysis EFE
Total weighted score of 4.0

 Organization response is outstanding to threats
and weaknesses
Total weighted score of 1.0

 Firm’s strategies not capitalizing on opportunities
or avoiding threats
Ch 3 -63
Industry Analysis EFE
Important --
Understanding the factors used in the EFE

Matrix is more important than the actual
weights and ratings assigned.
Ch 3 -64
Industry Analysis: Competitive Profile
Matrix (CPM)
Identifies firm’s major competitors and

their strengths & weaknesses in
relation to a sample firm’s strategic
positions
Ch 3 -65
Gateway Apple Dell
Wt Rating Wt’d Rating Wt’d Rating Wt’d
CSF’s Score Score Score
Market share 0.15 3 0.45 2 0.30 4 0.60

Inventory sys 0.08 2 0.16 2 0.16 4 0.32
Fin position 0.10 2 0.20 3 0.30 3 0.30
Prod. Quality 0.08 3 0.24 4 0.32 3 0.24
Cons. Loyalty 0.02 3 0.06 3 0.06 4 0.08
Sales Distr 0.10 3 0.30 2 0.20 3 0.30
Global Exp. 0.15 3 0.45 2 0.30 4 0.60
Org. Structure 0.05 3 0.15 3 0.15 3 0.15
Ch 3 -66
Gateway Apple Dell
CSF’s (cont’d) Wt Rating Wt’d Rating Wt’d Rating Wt’d
Score Score Score
Prod. Capacity 0.04 3 0.12 3 0.12 3 0.12

E-commerce 0.10 3 0.30 3 0.30 3 0.30
Customer Serv 0.10 3 0.30 2 0.20 4 0.40
Price
0.02 4 0.08 1 0.02 3 0.06
competitive
Mgt. experience 0.01 2 0.02 4 0.04 2 0.02
Total 1.00 2.83 2.47 3.49
Ch 3 -67
Industry Analysis CPM
Important --
Just because one firm receives a 3.2 rating

and another receives a 2.8 rating, it does not
follow that the first firm is 20 percent better
than the second.
Ch 3 -68
Chapter 4
The Internal Assessment
Concepts & Cases
10th Edition
Fred David
Anthony F. Chelte
Ch 4 -1
Internal Assessment
The biggest levers you’ve got to change a

company are strategy, structure, and culture.
If I could pick two, I’d pick strategy and
culture. –
Wayne Leonard, CEO, Entergy
Weak leadership can wreck the soundest

strategy. –
Sun Zi
Ch 4 -2
The Nature of an Internal
Audit
Functional Areas of Business
-- Strengths
-- Weaknesses
Ch 4 -3
Nature of an Internal Audit
Basis for Objectives & Strategies
 Internal strengths/weaknesses
 External opportunities/threats
 Clear statement of mission
Ch 4 -4
Key Internal Forces
Functional Business Areas:
Vary by organization
Divisions have differing strengths &
weaknesses
Ch 4 -5
Key Internal Forces
Distinctive Competencies:
Firm’s strengths that cannot be easily

matched or imitated by competitors
Ch 4 -6
Key Internal Forces
Building competitive advantage involves

taking advantage of distinctive
competencies
Ch 4 -7
Key Internal Forces
Strategies designed to improve on a

firm’s weaknesses and turn to strengths
Ch 4 -8
Internal Audit
Parallels process of external audit
•Information from:
•Management
•Marketing
•Finance/accounting
•Production/operations
•Research & Development
•Management information Systems
Ch 4 -9
Internal Audit
Involvement in performing an internal

strategic-management audit provides
vehicle for understanding nature and
effect of decisions in other functional
business areas of the firm
Ch 4 -10
Internal Audit
Key to Organizational Success
Coordination & understanding among

managers from all functional areas
Ch 4 -11
Internal Audit
Functional Relationships
Number and complexity increases

relative to organization size
Ch 4 -12
Internal Audit
Financial Ratio Analysis
Exemplifies complexity of relationships

among functional areas of the business
Ch 4 -13
Resource Based View (RBV)
Approach to Competitive Advantage
Internal resources are more important

than external factors
Ch 4 -14
3 All Encompassing Categories
1. Physical resources
2. Human resources
3. Organizational resources
Ch 4 -15
Empirical Indicators
 Rare
 Hard to imitate
 Not easily substitutable
Ch 4 -16
Integrating Strategy & Culture
Organizational Culture
Pattern of behavior developed by an

organization as it learns to cope with its
problem of external adaptation and
internal integration . . . is considered valid
and taught to new members as the correct
way to perceive, think and feel.
Ch 4 -17
Organizational Culture
 Resistant to change
 May represent
 Strength
 Weakness
Ch 4 -18
Values
Legends Beliefs
Cultural
Heroes Rites
Products
Symbols Rituals
Myths
Ch 4 -19
Organizational Culture Can Inhibit

 Miss external changes due to strongly

held beliefs
 Natural tendency to “hold the course”
even during times of strategic change
Ch 4 -20
Value Chain Analysis (VCA)
refers to the process whereby a firm determines the costs
Organizational Culture Can Inhibit
associated with organizational activities from purchasing
raw materials to manufacturing product(s) to marketing
those products. VCA aims to identify where low-cost
advantages or disadvantages exist anywhere along the
value chain from raw material to customer service
activities.
VCA can enable a firm to better identify its own strengths
and weaknesses, especially as compared to competitors’
value chain analyses and their own data examined over
time
Ch 4 -21
Management
Functions of Management
1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling
Ch 4 -22
Management
Stage When Most
Function Important
Planning Strategy Formulation
Organizing Strategy Implementation
Motivating Strategy Implementation
Staffing Strategy Implementation
Controlling Strategy Evaluation
Ch 4 -23
Management
Planning
 Beginning of management process

 Bridge between present & future
 Improves likelihood of attaining
desired results
Ch 4 -24
Management
Forecasting
Establishing objectives
Planning Devising strategies
Developing policies
Setting goals
Ch 4 -25
Management
Organizing
 Achieves coordinated effort

 Defines task & authority relationships
 Departmentalization
 Delegation of authority
Ch 4 -26
Management
Organizational design
Job specialization
Job descriptions
Job specifications
Organizing Span of control
Unity of command
Coordination
Job design
Job analysis
Ch 4 -27
Management
Motivating
 Influencing to accomplish specific

objectives
 Communication – major component
Ch 4 -28
Management
Leadership
Communication
Work groups
Job enrichment
Motivating
Job satisfaction
Needs fulfillment
Organizational change
Morale
Ch 4 -29
Management
Staffing
 Personnel management
 Human resources management
Ch 4 -30
Management
Wage & salary admin.

Employee benefits
Interviewing
Hiring
Discharging
Staffing
Training
Management development
Affirmative Action
EEO
Labor relations
Ch 4 -31
Management
Controlling
 Establishing performance standards

 Ensure actual operations conform to
planned operations
 Taking corrective actions
Ch 4 -32
Management
Quality
Financial
Sales
Inventory
Controlling
Expense
Analysis of variance
Rewards
Sanctions
Ch 4 -33
Management Audit Checklist
•Does the firm use strategic management

concepts?
•Are objectives/goals measurable? Well
communicated?
•Do managers at all levels plan
effectively?
Ch 4 -34
•Do managers delegate well?

•Is the organization’s structure
appropriate?
•Are job descriptions clear?
•Are job specifications clear?
•Is employee morale high?
Ch 4 -35
•Is employee absenteeism low?

•Is employee turnover low?
•Are the reward mechanisms effective?
•Are the organization’s control
mechanisms effective?
Ch 4 -36
Marketing
Customer Needs/Wants for Products/Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling
Ch 4 -37
Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
Ch 4 -38
Marketing
Customer surveys
Consumer information
Market positioning
Customer
strategies
Analysis
Customer profiles
Market segmentation
strategies
Ch 4 -39
Marketing
Advertising
Sales
Promotion
Selling
Products/Services Publicity
Sales force management
Customer relations
Dealer relations
Ch 4 -40
Marketing
Test marketing
Brand positioning
Devising warrantees
Planning
Product/Service Packaging
Product features/options
Product style
Quality
Ch 4 -41
Marketing
Forward integration
Discounts
Credit terms
Pricing
Condition of sale
Markups
Costs
Unit pricing
Ch 4 -42
Marketing
Warehousing
Channels
Coverage
Distribution Retail site locations
Sales territories
Inventory levels
Transportation
Ch 4 -43
Marketing
Data collection
Marketing Research Data input
Data analysis
Support business functions
Ch 4 -44
Marketing
Assessing costs
Assessing benefits
Opportunity
Analysis
Assessing risks
Cost/benefit/risk analysis
Ch 4 -45
Marketing
Opportunity Analysis
1. Are markets segmented effectively?

2. Is the organization positioned well among
competitors?
3. Has the firm’s market share been
increasing?
4. Are the distribution channels reliable &
cost effective?
5. Is the sales force effective?
Ch 4 -46
Marketing
6. Does the firm conduct market research?

7. Are product quality & customer service
good?
8. Are the firm’s products/services priced
appropriately?
9. Does the firm have effective promotion,
advertising, & publicity strategies?
Ch 4 -47
Marketing
10. Are the marketing planning & budgeting

effective?
11. Do the firm’s marketing managers have
adequate experience and training?
Ch 4 -48
Finance/Accounting
 Determining financial strengths &

weaknesses key to strategy
formation
Ch 4 -49
Finance/Accounting
Finance/Accounting Functions
1. Investment decision (Capital budgeting)

2. Financing decision
3. Dividend decision
Ch 4 -50
Basic Financial Ratios
Firm’s ability to meet its

short-term obligations
Liquidity Ratios
Ratios
Current ratio
Quick (or acid test) ratio
Ch 4 -51
Extent of debt financing
Ratios
Leverage Ratios
Debt-to-total assets
Debt-to-equity
Long-term debt-to-equity
Times-interest earned
Ch 4 -52
Effective use of firm’s

resources
Activity Ratios Ratios
Inventory-turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Ch 4 -53
Effectiveness shown by
returns on sales &
investment
Profitability Ratios
Ratios
Gross profit margin

Operating profit margin
Net profit margin
Return on total assets (ROA)
Ch 4 -54
Effectiveness shown by
returns on sales &
investment
Profitability Ratios
(cont’d) Ratios
Return on stockholders equity

(ROE)
Earnings per share
Price-earnings ratio
Ch 4 -55
Firm’s ability to maintain

economic position
Growth Ratios Ratios
Sales
Net income
Earnings per share
Dividends per share
Ch 4 -56
Finance/Accounting Audit
•Where is the firm strong/weak indicated

by financial ratio analysis?
•Can the firm raise short-term capital as
needed?
•Can the firm raise long-term capital as
needed through debt and/or equity?
Ch 4 -57
Finance/Accounting Audit
•Does the firm have sufficient working

capital?
•Are capital budgeting procedures
effective?
•Are dividend payout policies reasonable?
•Are the firm’s financial managers
experienced & well trained?
Ch 4 -58
Production/Operations
Production/Operations Functions
 Process
 Capacity
 Inventory
 Workforce
 Quality
Ch 4 -59
Facility design
Technology selection
Facility layout
Process Process flow analysis
Facility location
Line balancing
Process control
Ch 4 -60
Forecasting
Facilities planning
Capacity Aggregate planning
Scheduling
Capacity planning
Queuing analysis
Ch 4 -61
Raw materials
Inventory Work in process
Finished goods
Materials handling
Ch 4 -62
Job design
Work measurement
Workforce Job enrichment
Work standards
Motivation techniques
Ch 4 -63
Quality control
Sampling
Quality Testing
Quality assurance
Cost Control
Ch 4 -64
Production/Operations Audit
•Are suppliers of materials, parts, etc.

reliable and reasonable?
•Are facilities, equipment & machinery in
good condition?
•Are inventory-control policies and
procedures effective?
Ch 4 -65
Production/Operations Audit
•Are quality-control policies & procedures

effective?
•Are facilities, resources, and markets
strategically located?
•Does the firm have technological
competencies?
Ch 4 -66
Research & Development
Research & Development Functions
 Development of new products before

competitors
 Improving product quality
 Improving manufacturing processes to
reduce costs
Ch 4 -67
Financing as many
projects as possible
use percent-of-sales
method
R&D Budgets
Budgeting relative to
competitors
How many successful

new products are
needed
Ch 4 -68
Research & Development Audit
•Are the R&D facilities adequate?

•If R&D is outsourced, is it cost effective?
•Are the R&D personnel well qualified?
•Are R&D resources allocated effectively?
Ch 4 -69
Management Information
Systems
Purpose
 Improve performance of an enterprise by

improving the quality of managerial
decisions.
Ch 4 -70
Systems
 Information Systems
 CIO/CTO
 Security
 User-friendly
 E-commerce
Ch 4 -71
Systems Audit
•Do managers use the information system

to make decisions?
•Is there a CIO or Director of information
systems position in the firm?
•Is data updated regularly?
Ch 4 -72
Systems Audit
•Do managers from all functional areas

contribute input to the information system?
•Are there effective passwords for entry
into the firm’s information system?
•Are strategists of the firm familiar with the
information systems of rival firms?
Ch 4 -73
Systems Audit
•Is the information system user-friendly?

•Do all users understand the competitive
advantages that information can provide?
•Are computer training workshops provided
for users?
•Is the firm’s system being improved?
Ch 4 -74
IFE– Gateway Computers (2003)
Wtd
Key Internal Factors Weight Rating
Score
Strengths
1. Several new senior executive with world-
0.05 4 0.40
class skills and leadership experience
2. Continuous decline in operating costs
0.05 3 0.15
and cost of goods sold
3. Well-known brand name 0.05 3 0.15
4. Consumer Reports (Sept 2002)
0.10 4 0.40
recommended Gateway 500X as #1
5. As a direct seller, Gateway holds high
0.05 3 0.15
brand recognition
Ch 4 -75
Wtd
Score
Strengths (cont’d)
6. Gateway is diversifying into non-PC
0.10 3 0.30
products
7. Good relationship with its suppliers. 0.05 4 0.20
8. Economies of scale, the 6th largest PC
0.05 4 0.20
maker I the world
9. Gateway retails stores excellent 0.05 3 0.15
Ch 4 -76
Wtd
Score
Weaknesses
1. High operating expense (22% of revenue
0.05 3 0.15
vs. 10% for Dell)
2. Almost no budget for R&D vs. Dell’s 18%
0.10 1 0.05
of revenue
3. Low return on assets ratio 0.025 1 0.10
4. No niche market 0.025 2 0.05
Ch 4 -77
Wtd
Score
Weaknesses (cont’d)
5. Shortage of cash due to successive
0.10 2 0.20
losses
6. Limited number Gateway stores 0.05 2 0.10
7. Weak performance in overseas market 0.10 2 0.20
TOTAL 1.00 2.85
Ch 4 -78
Chapter 5
Strategies in Action
Concepts & Cases
10th Edition
Fred David
Anthony F. Chelte
Ch 5 -1
Chapter Outline
Types of Strategies
Integration Strategies
Ch 5 -2
Chapter Outline (cont’d)
Intensive Strategies
Diversification Strategies
Defensive Strategies
Ch 5 -3
Michael Porter’s Generic Strategies
Means for Achieving Strategies
First Mover Advantages
Ch 5 -4
Outsourcing
Strategic Management in Nonprofit &

Governmental Organizations
Strategic Management in Small Firms
Ch 5 -5
Strategies for taking the hill won’t

necessarily hold it. –
Amar Bhide
The early bird may get the worm, but the

second mouse gets the cheese. –
Unknown
Ch 5 -6
Companies Embrace Strategic Planning
-- Quest for higher revenues
-- Quest for higher profits
Ch 5 -7
 Results expected from pursuing certain

strategies.
 Strategies represent actions to accomplish
long-term objectives.
Ch 5 -8
Objectives --
Quantifiable
Measurable
Realistic
Understandable
Challenging
Ch 5 -9
Objectives --
Hierarchical
Obtainable
Congruent
Time-line
Ch 5 -10
Objectives Necessary --
Corporate Level
Divisional Level
Functional Level
Ch 5 -11
Strategists Should Avoid --
Managing by Extrapolation
Managing by Crisis
Managing by Subjectives
Managing by Hope
Ch 5 -12
Varying Performance Measures

by Organizational Level
Organizational
Basis for Annual Bonus/Merit Pay
Level
75% on long-term objectives
Corporate
25% on annual objectives
Division
Function
Ch 5 -13
Financial vs. Strategic
Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Higher Earnings per share
Improved cash flow
Ch 5 -14
Objectives
Strategic Objectives
Larger market share
Quicker on-time delivery than rivals
Quicker design-to-market times than rivals
Lower costs than rivals
Higher product quality than rivals
Wider geographic coverage than rivals
Ch 5 -15
Objectives
Trade-Off
Maximize short-term financial objectives – harm
long-term strategic objectives
Pursue increased market share at the expense
of short-term profitability
Tradeoffs related to risk of actions; concern for
business ethics; need to preserve natural
environment; social responsibility issues
Ch 5 -16
Types of Strategies
Corp
A Large Company Level
Division Level
Functional Level
Operational Level
Ch 5 -17
Types of Strategies
A Small Company Company

Level
Functional Level
Operational Level
Ch 5 -18
The Balanced Scorecard
Robert Kaplan & David Norton --
Strategy evaluation & control technique

Balance financial measures with non-financial
measures
Balance shareholder objectives with customer
& operational objectives
Ch 5 -19
Types of Strategies
Forward
Integration
Vertical Backward
Integration Integration
Strategies
Horizontal
Integration
Ch 5 -20
Vertical Integration Strategies
Gain Control Over --
Distributors
Suppliers
Competitors
Ch 5 -21
Forward Integration Strategies
Gain Control Over --
Distributors
Retailers
Ch 5 -22
Forward Integration Strategies
Guidelines --
Current distributors – expensive or unreliable
Availability of quality distributors – limited
Firm competes in industry expected to grow
markedly
Firm has both capital & HR to manage new
business of distribution
Current distributors have high profit margins
Ch 5 -23
Backward Integration
Strategies
Ownership or Control --
Firm’s suppliers
Ch 5 -24
Backward Integration
Strategies
Guidelines --
Current suppliers – expensive or unreliable
# of suppliers is small; # competitors is large
High growth in industry sector
Firm has both capital & HR to manage new
business
Stable prices are important
Current suppliers have high profit margins
Ch 5 -25
Horizontal Integration
Strategies
Ownership or Control --
Firm’s competitors
Ch 5 -26
Horizontal Integration
Strategies
Guidelines --
Gain monopolistic characteristics w/o federal
government challenge
Competes in growing industry
Increased economies of scale – major competitive
advantages
Faltering due to lack of managerial expertise or
need for particular resource
Ch 5 -27
Types of Strategies
Market
Penetration
Intensive Market
Strategies Development
Product
Development
Ch 5 -28
Intensive Efforts --
Improve competitive position with

existing products
Ch 5 -29
Market Penetration Strategies
Increased Market Share --
Present products/services
Present markets
Greater marketing efforts
Ch 5 -30
Market Penetration Strategies
Guidelines --
Current markets not saturated
Usage rate of present customers can be increased
significantly
Shares of competitors declining; industry sales
increasing
Increased economies of scale provide major
competitive advantage
Ch 5 -31
Market Development
Strategies
New Markets --
Present products/services to new

geographic areas
Ch 5 -32
Market Development
Strategies
Guidelines --
New channels of distribution – reliable, inexpensive,
good quality
Firm is successful at what it does
Untapped/unsaturated markets
Excess production capacity
Basic industry rapidly becoming global
Ch 5 -33
Product Development
Strategies
Increased Sales --
Improving present products/services

Developing new products/services
Ch 5 -34
Product Development
Strategies
Guidelines --
Products in maturity stage of life cycle
Industry characterized by rapid technological
development
Competitors offer better-quality products @
comparable prices
Compete in high-growth industry
Strong R&D capabilities
Ch 5 -35
Types of Strategies
Concentric
Diversification
Diversification
Strategies
Conglomerate
Diversification
Ch 5 -36
Diversification Strategies
Less Popular --
More difficult to manage diverse

business activities
Ch 5 -37
Concentric Diversification
Strategies
Addition --
New & related products/services
Ch 5 -38
Concentric Diversification
Strategies
Guidelines --
Compete in no/slow growth industry
New & related products increases sales of current
products
New & related products offered at competitive
prices
Current products—decline stage of product life
cycle
Strong management team
Ch 5 -39
Conglomerate Diversification
Strategies
Addition --
New & unrelated products/services
Ch 5 -40
Conglomerate Diversification
Strategies
Guidelines --
Declining annual sales & profits
Capital & managerial ability to compete in new
industry
Financial synergy between acquired and acquiring
firms
Current markets for present products - saturated
Ch 5 -41
Types of Strategies
Retrenchment
Defensive Divestiture
Strategies
Liquidation
Ch 5 -42
Retrenchment Strategies
Regrouping --
Cost & asset reduction to reverse

declining sales & profit
Ch 5 -43
Retrenchment Strategies
Guidelines --
Failed to meet objectives & goals consistency; has
distinctive competencies
Firm is one of weaker competitors
Inefficiency, low profitability, poor employee morale,
pressure for stockholders
Strategic managers have failed
Rapid growth in size; major internal reorganization
necessary
Ch 5 -44
Divestiture Strategies
Selling a division or part of an

organization.
Ch 5 -45
Divestiture Strategies
Guidelines --
Retrenchment failed to attain improvements
Division needs more resources than are available
Division responsible for firm’s overall poor
performance
Division is a mis-fit with organization
Large amount of cash is needed and cannot be
raised through other sources
Ch 5 -46
2003 Examples
Doll maker & mail order firm,

Forward
Pleasant Co., opened a retail store
Integration in Manhattan
Backward McDonalds recently acquired a

Integration paper cup producer
Horizontal Callaway Golf recently acquired

Integration Top-Flite Golf Company
Ch 5 -47
2003 Examples
SABMiller Plc spent $500 million in

Market
2003 on marketing its Miller
Penetration brands of beer
Market JetBlue is adding dozens of new

Development routes
GM developing hydrogen powered

Product
automobiles or Pfizer developing a
Development new antismoking pill
Ch 5 -48
2003 Examples
Microsoft launched its first

Concentric
personal computers that double as
Diversification entertainment centers
The video-rental firm Blockbuster

Conglomerate
may acquire the DVD and music
Diversification
direct-marketing firm Columbia
House
Horizontal Viacom acquired Comedy Central,

Diversification from AOL
Ch 5 -49
2003 Examples
America West Airlines closing its

Retrenchment hub at Columbus, Ohio and laying
off 390 employees
ConocoPhillips recently sold its

Divestiture Circle K convenience store chain
to Alimentation Couche-Tard, a
Canadian firm
Sprint liquidated its Web-hosting

Liquidation
division
Ch 5 -50
Liquidation Strategies
Selling
Company’s assets, in parts, for

their tangible worth
Ch 5 -51
Liquidation Strategies
Guidelines --
Retrenchment & divestiture failed

Only alternative is bankruptcy
Minimize stockholder loss by selling firm’s assets
Ch 5 -52
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Ch 5 -53
Generic Strategies
Cost Leadership
In conjunction with differentiation
Economies or diseconomies of
scale
Capacity utilization achieved
Linkages w/ suppliers & distributors
Ch 5 -54
Generic Strategies
Low Cost Producer Advantage
Many price-sensitive buyers

Few ways of achieving differentiation
Buyers not sensitive to brand
differences
Large # of buyers w/bargaining power
Ch 5 -55
Generic Strategies
Differentiation
Greater product flexibility

Greater compatibility
Lower costs
Improved service
Greater convenience
More features
Ch 5 -56
Generic Strategies
Focus
Industry segment of sufficient size

Good growth potential
Not crucial to success of major competitors
Ch 5 -57
Joint Venture/Partnering -
 Two or more companies form a temporary

partnership or consortium for purpose of
capitalizing on some opportunity.
Ch 5 -58
Cooperative Arrangements -
 R&D partnerships
 Cross-distribution agreements
 Cross-licensing agreements
 Cross-manufacturing agreements
 Joint-bidding consortia
Ch 5 -59
Why Joint Ventures Fail -
 Managers who must collaborate daily; not

involved in developing the venture
 Benefits the company not the customers
 Not supported equally by both partners
 May begin to compete with one of the
partners
Ch 5 -60
Joint Ventures
Guidelines --
Synergies between private and publicly held
Domestic with foreign firm, local management can
reduce risk
Complementary distinctive competencies
Resources & risks where project is highly profitable
(e.g. Alaska Pipeline)
Two or more smaller firms competing w/larger firm
Need to introduce new technology quickly
Ch 5 -61
Mergers & Acquisitions
 Provide improved capacity utilization
 Better use of existing sales force
 Reduce managerial staff
 Gain economies of scale
 Smooth out seasonal trends in sales
 Gain new technology
 Access to new suppliers, distributors, customers,
products, creditors
Ch 5 -62
Recent Mergers
Acquiring Firm Acquired Firm

IBM Rational Software Corp
Yahoo Inktomi Corp
U.S. Steel National Steel Corp
Pfizer Pharmacia
Krispy Kreme Doughnuts Montana Mills
Oracle People Soft
Palm Handspring
Nike Converse
Ch 5 -63
 Benefits a firm may achieve by entering a

new market or developing a new product or
service prior to rival firms.
Ch 5 -64
Potential Advantages
 Securing access to rare resources

 Gaining new knowledge of key factors &
issues
 Carving out market share
 Easy to defend position & costly for rival
firms to overtake
Ch 5 -65
Outsourcing
Business-process outsourcing
(BPO)
 Companies taking over the functional

operations of other firms
Ch 5 -66
Outsourcing
Benefits
 Less expensive
 Allows firm to focus on core business
 Enables firm to provide better services
Ch 5 -67
For Review (Chapter 5)
Key Terms & Concepts
Concentric
Acquisition
Diversification
Backward Conglomerate
Integration Diversification
Cooperative
Bankruptcy
Arrangements
Combination
Cost Leadership
Strategy
Ch 5 -68
Differentiation Focus
Diversification
Forward Integration
Strategies
Divestiture Franchising
First Mover
Generic Strategies
Advantages
Ch 5 -69
Horizontal
Diversification
Horizontal
Joint Venture
Integration
Hostile Takeover Leveraged Buyout
Integration
Liquidation
Strategies
Ch 5 -70
Long-Term
Outsourcing
Objectives
Market Development Product Development
Market Penetration Retrenchment
Merger Vertical Integration
Ch 5 -71
Chapter 6
Strategy Analysis & Choice
Concepts & Cases
10th Edition
Fred David
Anthony F. Chelte
Ch 6 -1
Chapter Outline
The Nature of Strategy & Choice
A Comprehensive
Strategy-Formulation Framework
The Input Stage
Ch 6 -2
The Matching Stage
The Decision Stage
Cultural Aspects of Strategy Choice
Ch 6 -3
The Politics of Strategy Choice
Governance Issues
Ch 6 -4
To acquire or not to acquire, that is the

question –
Robert J. Terry
Life is full of lousy options --

General P.X. Kelley
Ch 6 -5
Nature of Strategy Analysis & Choice
-- Establishing long-term objectives

-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Ch 6 -6
Alternative Strategies Derive From --
 Vision
 Mission
 Objectives
 External audit
 Internal audit
 Past successful strategies
Ch 6 -7
Generating Alternatives --
Participation in generating alternative

strategies should be as broad as
possible
Ch 6 -8
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2: Stage 3:
The Matching Stage The Decision Stage
Ch 6 -9
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)
Competitive Profile Matrix

(CPM)
Ch 6 -10
Stage 1: The Input Stage
Basic input information for the matching &

decision stage matrices
Requires strategists to quantify subjectivity
early in the process
Good intuitive judgment always needed
Ch 6 -11
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Grand Strategy Matrix
Ch 6 -12
Stage 2: The Matching Stage
Match between organization’s internal

resources & skills and the opportunities & risks
created by its external factors
Ch 6 -13
Stage 2: The Matching Stage
SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats
Ch 6 -14
SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Ch 6 -15
SO Strategies
Strengths
Weaknesses Use a firm’s
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT
Ch 6 -16
WO Strategies
Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT
Ch 6 -17
ST Strategies
Strengths Use a firm’s

Weaknesses strengths
Opportunities to avoid or
Threats reduce the impact
ST of external
Strategies threats
SWOT
Ch 6 -18
WT Strategies
Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats avoiding
WT environmental
Strategies threats
SWOT
Ch 6 -19
SWOT Matrix
Developing the SWOT
List firm’s key internal Strengths

List firm’s key internal Weaknesses
List firm’s key external Opportunities
List firm’s key external Threats
Ch 6 -20
SWOT Matrix
Strengths – S Weaknesses – W
Leave Blank
List Strengths List Weaknesses
Opportunities – O SO Strategies WO Strategies
Use strengths to take Overcoming weaknesses

List Opportunities advantage of by taking advantage of
opportunities opportunities
Threats – T ST Strategies WT Strategies
Use strengths to avoid Minimize weaknesses and

List Threats threats avoid threats
Ch 6 -21
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor Key External Factor Resultant Strategy
20% annual growth in

Excess working capacity
+ the cell phone industry = Acquire Cellfone, Inc.
(strength)
(opportunity)
Exit of two major foreign Pursue horizontal integration

Insufficient capacity
+ competitors form the = by buying competitor's
(weakness)
industry (opportunity) facilities
Decreasing numbers of Develop new products for

Strong R&D (strength) + =
young adults (threat) older adults
Develop a new
Poor employee morale Strong union
+ = employee benefits
(weakness) activity (threat) package
Ch 6 -22
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -23
SPACE Matrix
Steps required to develop a SPACE Matrix are as follows:
1. Select a set of variables to define the financial

strength (FS), competitive advantage (CA),
environmental stability (ES), and industry strength
(IS).
2. Assign a numerical value ranging from +1 (worst) to
+6 (best) to each of the variables that make up the
FS and IS dimensions. Assign a numerical value
ranging from -1 (best) to -6 (worst) to each of the
variables that make up the ES and CA dimensions.
On the FS and CA axes, make comparisons to
competitors. On the IS and ES axes, make
comparisons
Copyright 2005 Prentice to
Hallother industries. Ch 6 -24
SPACE Matrix
3. Compute an average score for FS, CA, IS and ES by

summing the values given to variables of each
dimension and then by dividing by the number of
variables included in the perspective dimensions.
4. Plot the average scores for FS, IS, ES, and CA on
the appropriate axis in the SPACE Matrix.
5. Add the two scores on the x-axis and plot the
resultant point on X. Add the two scores on the y-axis
and plot the resultant point on y.
Ch 6 -25
SPACE Matrix
6. Draw a directional vector form the origin of the space

Matrix through the new intersection point. The vector
reveals the type of strategies recommended for the
organization:
a) Aggressive,
b) competitive.
c) Defensive, and
d) Conservative.
Ch 6 -26
SPACE Factors
Internal Strategic Position External Strategic Position
Financial Strength (FS) Environmental Stability (ES)
Technological changes
Return on investment
Rate of inflation
Leverage
Demand variability
Liquidity
Price range of competing products
Working capital
Barriers to entry
Cash flow
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
Ch 6 -27
SPACE Factors
Internal Strategic Position External Strategic Position
Competitive Advantage CA Industry Strength (IS)
Market share Growth potential

Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity utilization Resource utilization
Technological know-how Ease of entry into market
Control over suppliers & distributors Productivity, capacity utilization
Ch 6 -28
SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1
CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
-2
-3
-4
-5
Defensive Competitive
-6
ES Ch 6 -29
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Ch 6 -30
BCG Matrix
Boston Consulting Group Matrix

Enhances multi-divisional firm in formulating
strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry
growth rate
Ch 6 -31
BCG Matrix
Relative Market Share Position
Ratio of a division’s own market share in an

industry to the market share held by the largest
rival firm in that industry.
Ch 6 -32
BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
High
+20
Industry Sales Growth Rate
Stars Question Marks

II I
Medium
0
Cash Cows Dogs

III IV
Low
-20
Ch 6 -33
BCG Matrix
Question Marks
Low relative market share – compete in high-
growth industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive strategies) or

divest
Ch 6 -34
BCG Matrix
Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or

strengthen dominant position
Integration strategies, intensive strategies, joint
ventures
Ch 6 -35
BCG Matrix
Cash Cows
High relative market share, competes in low-
growth industry
Generate cash in excess of their needs
Milked for other purposes
Maintain strong position as long as possible

Product development, concentric diversification
If weakens—retrenchment or divestiture
Ch 6 -36
BCG Matrix
Dogs
Low relative market share & compete in slow or

no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Ch 6 -37
Framework
SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
Ch 6 -38
Tool for formulating alternative strategies

Based on two dimensions
Competitive position
Market growth
Ch 6 -39
RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
WEAK 7. Concentric diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH
Ch 6 -40
Quadrant I
Excellent strategic position

Concentration on current markets/products
Take risks aggressively when necessary
Ch 6 -41
Quadrant II
Evaluate present approach

How to improve competitiveness
Rapid market growth requires intensive
strategy
Ch 6 -42
Quadrant III
Compete in slow-growth industries

Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Ch 6 -43
Quadrant IV
Strong competitive position

Slow-growth industry
Diversification to more promising growth areas
Ch 6 -44
Framework
Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)
Ch 6 -45
QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative

attractiveness of feasible alternative actions
Ch 6 -46
QSPM Strategic Alternatives
Key External Factors Weight Strategy 1 Strategy 2 Strategy 3
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Research and Development
Computer Information
Systems
Ch 6 -47
QSPM
Limitations
Requires intuitive judgments & educated

assumptions
Only as good as the prerequisite inputs
Ch 6 -48
QSPM
Advantages
Sets of strategies considered simultaneously or

sequentially
Integration of pertinent external & internal
factors in the decision making process
Ch 6 -49
Cultural Aspects of Strategy
Choice
Organization Culture
Successful strategies depend on the degree of

consistency with the firm’s culture
Ch 6 -50
Politics of Strategy Choice
Politics in Organizations
Management hierarchy
Career aspirations
Allocation of scarce resources
Ch 6 -51
Politics of Strategy Choice
Political tactics for strategists
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Ch 6 -52
Governance Issues
Board of Directors Roles & Responsibilities
Control & oversight over management

Adherence to legal prescriptions
Consideration of stakeholder interests
 Advancement of stockholder rights
Ch 6 -53
Corporate Governance Issues
Business Week’s “principles of good governance”
1. No more than 2 directors current or former company executives

2. No directors do business with the company
3. Audit, compensation, and nominating committees made up
of outside directors
4. Each director attends at lest 75% of all meetings
5. Audit committee meets at least four times a year
6. CEO is not also the Chairperson of the Board
7. Shareholders have considerable power and information to
choose & replace directors
8. Stock options are considered a corporate expense
9. No interlocking directorships
Ch 6 -54
Aggressive Quadrant Business Portfolio
Attractiveness Scores
Cash Cows
(AS)
Boards of Directors
(CA)
Boston Consulting
Competitive Quadrant
Group (BCG) Matrix
Ch 6 -55
Conservative Quadrant Dogs
Environmental Stability
Culture
(ES)
Financial Strength
Defensive Quadrant
(FS)
Directional Vector Governance
Ch 6 -56
Internal-External (IE)
Matrix
Halo Error Matching
Industry Strength
Matching Stage
(IS)
Quantitative Strategic
Input Stage
Planning Matrix (QSPM)
Ch 6 -57
Question Marks Stars
Relative Market Share Strategic Position & Action

Position Evaluation (SPACE)
Sum Total Attractiveness

SO Strategies
Score (STAS)
ST Strategies Sustainability
Ch 6 -58
Strengths, Weaknesses
WO Strategies
Opportunities, Threats SWOT
Total Attractiveness
WT Strategies
Scores (TAS)
Ch 6 -59
Chapter 7
Implementing Strategies: Management &
Operations Issues
Concepts & Cases
10th Edition
Fred David
Anthony F. Chelte
Ch 7-1
Chapter Outline
The Nature of Strategy Implementation
Annual Objectives
Policies
Ch 7-2
Resource Allocation
Managing Conflict
Matching Structure with Strategy
Ch 7-3
Restructuring, Reengineering & E-Engineering
Linking Performance & Pay to Strategies
Managing Resistance to Change
Ch 7-4
Managing the Natural Environment
Creating a Strategy-Supportive Culture
Production/Operations Concerns When

Implementing Strategies
Ch 7-5
Human Resource Concerns When

Ch 7-6
Pretend that every single person you meet

has a sign around his or her neck that says,
“Make me feel important” –
Mary Kay Ash, CEO of Mary Kay, Inc.
Ch 7-7
The Nature of Strategy
Implementation
-- Successful strategy formulation does not

guarantee successful strategy implementation
Ch 7-8
Nature of Strategy
Implementation
Formulation vs. Implementation
 Formulation positions forces before the action
 Implementation manages forces during the

action
Ch 7-9
Nature of Strategy
Implementation
 Formulation focuses on effectiveness
 Implementation focuses on efficiency
Ch 7-10
Nature of Strategy
Implementation
 Formulation primarily an intellectual process
 Implementation primarily an operational

process
Ch 7-11
Nature of Strategy
Implementation
 Formulation requires good intuitive & analytical

skills
 Implementation requires special motivational &

leadership skills
Ch 7-12
Nature of Strategy
Implementation
 Formulation requires coordination among a

few individuals
 Implementation requires coordination among

many individuals
Ch 7-13
Nature of Strategy
Implementation
Strategy Implementation
 Varies among different types & sizes of

organizations
Ch 7-14
Nature of Strategy
Implementation
Implementation Activities
 Altering sales territories
 Adding new departments
 Closing facilities
 Hiring new employees
 Cost-control procedures
 Modifying advertising strategies
 Building new facilities
Ch 7-15
Nature of Strategy
Implementation
Management Perspectives
 Shift in responsibility
Division or
Strategists Functional
Managers
Ch 7-16
Management Issues
Annual Objectives
Policies
Resources
Management
Issues Organizational structure
Restructuring
Rewards/Incentives
Ch 7-17
Management Issues (cont’d)
Resistance to Change
Natural Environment
Supportive Culture
Management
Issues Production/Operations
Human Resources
Ch 7-18
Management Issues
Annual Objectives --
-- Decentralized activity
-- Directly involve all managers in the
organization
Ch 7-19
Management Issues
Purpose of Annual Objectives --
Basis for resource allocation

Mechanism for management evaluation
Metric for gauging progress on long-term
objectives
Establish priorities (organizational, division,
& departmental)
Ch 7-20
Management Issues
Consistency of Annual Objectives --
Across hierarchical levels

Horizontally consistent
Vertically consistent
Ch 7-21
Management Issues
Requirements of Annual Objectives
Measurable
Consistent
Reasonable
Challenging
Clear
Understood
Timely
Ch 7-22
Management Issues
Annual Objectives Should State
Quantity
Quality
Cost
Time
Be Verifiable
Ch 7-23
Management Issues
Annual Objectives
Policies
Resources
Management
Restructuring
Rewards/Incentives
Ch 7-24
Management Issues
Policies --
-- Facilitate the solving or recurring

problems & guide implementation of
strategy
Ch 7-25
Management Issues
Policies Establish --
Boundaries
Constraints
Limits
Ch 7-26
Management Issues
Annual Objectives
Policies
Resources
Management
Restructuring
Rewards/Incentives
Ch 7-27
Management Issues
Resource Allocation
-- Central management activity that

allows for the execution of strategy
Ch 7-28
Management Issues
4 Types of Resources
1. Financial resources
2. Physical resources
3. Human resources
4. Technological resources
Ch 7-29
Management Issues
Managing Conflict
-- Disagreement between two more

parties on one or more issues
Ch 7-30
Management Issues
Managing Conflict
 Conflict not always “bad”
 No conflict may signal apathy
 Can energize opposing groups to
action
 May help managers identify problems
Ch 7-31
Management Issues
Conflict Management & Resolution
 Avoidance
 Diffusion
 Confrontation
Ch 7-32
Management Issues
Annual Objectives
Policies
Resources
Management
Restructuring
Rewards/Incentives
Ch 7-33
Management Issues
Matching Structure w/ Strategy
-- Changes in strategy = Changes in

structure
Ch 7-34
Management Issues
Structure & Strategy
 Structure dictates how objectives &

policies will be established
 Structure dictates how resources will
be allocated
Ch 7-35
Chandler’s Strategy-Structure
Relationship
Organizational
New strategy New administrative
performance
Is formulated problems emerge
declines
Organizational
New organizational
performance
structure is established
improves
Ch 7-36
Management Issues
Basic Forms of Structure
 Functional Structure
 Divisional Structure
 Strategic Business Unit Structure (SBU)
 Matrix Structure
Ch 7-37
Management Issues
Annual Objectives
Policies
Resources
Management
Restructuring
Rewards/Incentives
Ch 7-38
Management Issues
Restructuring
-- Reducing the size of the firm – # of

employees, divisions, and/or units, # of
hierarchical levels
Ch 7-39
Management Issues
Restructuring
Downsizing
Rightsizing
Delayering
Ch 7-40
Management Issues
Reengineering
-- Reconfiguring or redesigning work,

jobs, & processes to improve cost,
quality, service, & speed.
Ch 7-41
Management Issues
Reengineering
Process management
Process innovation
Process redesign
Ch 7-42
Management Issues
Annual Objectives
Policies
Resources
Management
Restructuring
Rewards/Incentives
Ch 7-43
Management Issues
Linking Pay/Performance to Strategies
-- Pay for performance systems
Ch 7-44
Management Issues
Linking Pay/Performance to Strategies
Dual bonus systems

Profit sharing systems
Gain Sharing systems
Ch 7-45
Tests for Performance-Pay Plans
Does the plan capture attention?
Do employees understand the plan?
Is the plan improving communication?
Does the plan pay out when it should?
Is the company or unit performing better?
Ch 7-46
Natural Environment
Supportive Culture
Management
Human Resources
Ch 7-47
Management Issues
-- Single greatest threat to successful

strategy implementation
Ch 7-48
Management Issues
-- Raises anxiety; fear concerning

Economic loss
Inconvenience
Uncertainty
Break in status-quo
Ch 7-49
Management Issues
Change Strategies
Force Change Strategy

Educative Change Strategy
Rational or Self-Interest Change
Strategy
Ch 7-50
Natural Environment
Supportive Culture
Management
Human Resources
Ch 7-51
Management Issues
Natural Environment
-- Wide appreciation for firms that

“mend” rather than “harm” the
environment
Ch 7-52
Management Issues
Natural Environment – Environmental

Strategies
Develop/acquire “green” businesses

Divesting environmental-damaging
business
Low-cost producer through waste
minimization & energy conservation
Ch 7-53
Natural Environment
Supportive Culture
Management
Human Resources
Ch 7-54
Management Issues
Strategy-Supportive Culture
-- Preserve, emphasize, & build upon

aspects of existing culture that support
new strategies
Ch 7-55
Management Issues
Elements linking culture to strategy:
• Formal statements of philosophy, charters, etc. used

for recruitment and selection, and socialization
• Designing of physical spaces, facades, buildings
• Deliberate role modeling, teaching and coaching
• Explicit reward and status system, promotion criteria
• Stories, legends, myths about key people and events
Ch 7-56
Management Issues
Elements linking culture to strategy:
• What leaders pay attention to, measure and control

• Leader reactions to critical incidents and crises
• How the organization is designed and structured
• Organizational systems and procedures
• Criteria used for recruitment, selection, promotion,
retirement
Ch 7-57
Natural Environment
Supportive Culture
Management
Human Resources
Ch 7-58
Management Issues
Production/Operations Concerns
-- Production processes typically

constitute more than 70% of firm’s total
assets
Ch 7-59
Management Issues
Production/Operations Decisions
Plant size
Inventory/Inventory control
Quality control
Cost control
Technological innovation
Ch 7-60
Natural Environment
Supportive Culture
Management
Human Resources
Ch 7-61
Management Issues
Human Resource Concerns
-- HR manager position has strategic

responsibility & has changed
dramatically as companies continue to
reorganize, outsource, etc.
Ch 7-62
Management Issues
Human Resource Strategic Responsibilities
Assessing staffing needs/costs

Developing performance incentives
ESOP’s
Child-care policies
Work-life balance issues
Ch 7-63
Diversity Issues
Women CEO’s in U.S. 2004 (examples)
Carly Fiorina Hewlett-Packard 49 yrs old

Meg Whitman eBay 47 yrs old
Andrea Jung Avon Products 45 yrs old
Anne Mulcahy Xerox 50 yrs old
Marjorie Magner Citigroup 54 yrs old
Betsy Holden Kraft Foods 47 yrs old
Mary Sammons Rite Aid 57 yrs old
Ch 7-64
Annual Objectives Conflict
Avoidance Confrontation
Benchmarking Culture
Bonus System Defusion
Ch 7-65
Educative Change
Delayering
Strategy
Employee Stock Ownership

De-centralized Structure
Plans (ESOP’s)
Establishing Annual
Divisional Structure
Objectives
Downsizing Force Change Strategy
Ch 7-66
Functional Structure Just in Time (JIT)
Gain Sharing Matrix Structure
Glass Ceiling Policy
Horizontal Consistency
Profit Sharing
of Objectives
Ch 7-67
Rational Change
Restructuring
Strategy
Reengineering Rightsizing
Self-Interest Change
Strategy
Strategic Business Unit

Resource Allocation
(SBU)
Ch 7-68
Vertical Consistency
Triangulation
of Objectives
Ch 7-69
Chapter 8
Implementing Strategies: Marketing,
Finance/Accounting, R&D, & MIS Issues
Concepts & Cases
10th Edition
Fred David
Anthony F. Chelte
Ch 8-1
Chapter Outline
The Nature of Strategy Implementation
Marketing Issues
Finance/Accounting Issues
Ch 8-2
Research & Development (R&D) Issues
Management Information Systems (MIS)

Issues
Ch 8-3
The greatest strategy is doomed if it’s

implemented badly. --
Bernard Reimann
Ch 8-4
Implementation
-- Strategy implementation means change.
Ch 8-5
Implementation
-- Less than 10% of strategies formulated are

successfully implemented!
Ch 8-6
Nature of Strategy
Implementation
Low Success Rate – Strategy Implementation
 Failing to segment markets appropriately

 Paying too much for a new acquisition
 Falling behind competition in R&D
 Not recognizing benefit of computers in
managing information
Ch 8-7
Nature of Strategy
Implementation
Successful Strategy Implementation
 Market goods & services well

 Raise needed working capital
 Produce technologically sound goods
 Sound information systems
Ch 8-8
Marketing Issues
-- Marketing variables affect

success/failure of strategy implementation
Ch 8-9
Marketing Issues
Marketing Decisions requiring policies
 Exclusive dealerships – multiple channels of

distribution
 Heavy, light, or no TV advertising
 Price leader or price follower
 Advertise online or not
 Offer complete or limited warrantee
Ch 8-10
Marketing Issues
Centrally important to Implementation
1. Market segmentation
2. Product positioning
Ch 8-11
Marketing Issues
Market Segmentation
 Subdividing of a market into distinct subsets

of customers according to needs and buying
habits.
Ch 8-12
Marketing Issues
Market Segmentation
 Key to matching supply & demand

 Market development, product-development,
market penetration & diversification strategies
 Allows operating with limited resources
 Enables small firms to compete successfully
Ch 8-13
Marketing Issues
Market Segmentation
 Directly affect marketing mix variables:

 Product
 Place
 Promotion
 Price
Ch 8-14
Marketing Mix – Component Factors
Product Place Promotion Price
Distribution
Quality Advertising Level
channels
Distribution Discounts &
Features Personal selling
coverage allowances
Style Outlet location Sales promotion Payment terms
Brand name Sales territories Publicity
Inventory
Packaging
levels/locations
Transportation
Product line
carriers
Warranty
Service level
Ch 8-15
Marketing Issues
Geographic
Demographic
Market Segment
Basis Psychographic
Behavioral
Ch 8-16
Marketing Issues
Geographic
 Region
 County size
 City or SMSA size
 Density
 Climate
Ch 8-17
Marketing Issues
Geographic
Demographic
Market Segment
Basis Psychographic
Behavioral
Ch 8-18
Marketing Issues
Demographic
 Age
 Family Size
 Family Life Cycle
 Income/Occupation
 Education
 Religion
 Race/Nationality
Ch 8-19
Marketing Issues
Geographic
Demographic
Market Segment
Basis Psychographic
Behavioral
Ch 8-20
Marketing Issues
Psychographic
 Social Class
 Lifestyle
 Personality
Ch 8-21
Marketing Issues
Geographic
Demographic
Market Segment
Basis Psychographic
Behavioral
Ch 8-22
Marketing Issues
Behavioral
 Use occasion
 Benefits sought
 User status
 Usage rate
 Loyalty status
 Readiness stage
 Attitude toward product
Ch 8-23
Marketing Issues
Product Positioning
-- Schematic representations that reflect how

products/services compare to competitors’ on
dimensions most important to success in the
industry
Ch 8-24
Marketing Issues
Customer Wants
Product
Positioning
Customer Needs
Ch 8-25
Product Positioning Steps
1. Select Key Criteria
2. Diagram Map
Product 3. Plot competitors’

Positioning products
Steps
4. Look for niches
5. Develop Marketing
Plan
Ch 8-26
Product Positioning Map
High
Convenience Rental Car Market
•
Firm 1
Firm 2
•
High Low
Customer Customer
Loyalty Loyalty
•
Firm 3
Low
Convenience
Ch 8-27
Marketing Issues
Product Positioning as Strategy Implementation
Tool
 Look for vacant niche

 Avoid sub optimization
 Don’s serve 2 segments w/ same strategy
 Don’t position in the middle of the map
Ch 8-28
-- Central to strategy implementation.
Ch 8-29
Essential for implementation
 Acquiring needed capital

 Developing projected financial statements
 Preparing financial budgets
 Evaluating worth of a business
Ch 8-30
Decisions based on Finance/Accounting
 Raise capital – short-term, long-term, preferred,

or common stock
 Lease or by fixed assets
 Determine appropriate dividend payout ratio
Ch 8-31
Decisions based on Finance/Accounting
 LIFO, FIFO, or market-value accounting

approach
 Extend time of AR
 Establish % discount on accounts for terms
 Determine the amount of cash kept on hand
Ch 8-32
Capital acquisition to implement strategies
 Debt
 Equity
Ch 8-33
Debt vs. Equity Decisions
 EPS/EBIT analysis
 Earnings per share/Earnings before interest and
taxes
Ch 8-34
EPS-EBIT Analysis
(in $millions)
Heinz Company – Year End 2001
 $Amount Needed: $500
 Stock Price $40
 EBIT Range $1000 to $2000
 Tax Rate 175/673 = .26 = 26%
 Interest Rate 5%
 # Shares Outstanding 350
Ch 8-35
EPS-EBIT Analysis (in $millions) – Heinz
Company
Stock Financing Financing Financing
High Low High Low High Low
EBIT ($982.4 in 2001) $2000 $1000 $2000 $1000 $2000 $1000
Interest (5%) 0 0 25 25 10 10
EBT 2000 1000 1975 975 1990 990
Taxes 26% 520 260 514 254 517 257
EAT 1480 740 1461 721 1473 733
# Shares outstanding 362.5 362.5 350 350 357.5 357.5
EPS 4.08 2.04 4.17 2.06 4.12 2.05
Ch 8-36
EPS-EBIT Analysis Heinz
 Conclusion:
 Heinz should use debt to raise the $500 million
Ch 8-37
Projected Financial Statements
 Allow an organization to examine the expected

results of various actions and approaches
Ch 8-38
Steps in Preparing Projected Financial

Statements
1. Prepare income statement before balance
sheet (forecast sales)
2. Use percentage of sales method to project

CoGS & expenses
3. Calculate projected net income
Ch 8-39
Steps in Preparing Projected Financial
Statements (cont’d)
4. Subtract dividends to be paid from Net Income

and add remaining to Retained Earnings
5. Project balance sheet times beginning with

retained earnings
6. List comments (remarks) on projected

statements
Ch 8-40
Projected Income Statement for Litten Company (in millions)
Projected Year
Prior Year 2004 2005 Remarks
Projected Income Statement

Sales 100 150.00 50% increase
Cost of Goods Sold 70 105.00 70% of sales
Gross Margin 30 45.00
Selling Expense 10 15.00 10% of sales
Administrative Expense 5 7.50 5% of sales
EBIT 15 22.50
Interest 3 3.00
EBT 12 19.50
Taxes 6 9.75 50% rate
Net Income 6 9.75
Dividends 2 5.00
Retained Earnings 4 4.75
Ch 8-41
Financial Budget
-- Details how funds will be obtained and spent for

a specified period of time.
Ch 8-42
Types of Budgets
 Cash budgets
 Operating budgets
 Sales budgets
 Profit budgets
 Factory Budgets
 Expense Budgets
Ch 8-43
Types of Budgets
 Divisional budgets
 Variable budgets
 Flexible budgets
 Fixed budgets
Ch 8-44
Evaluating Worth of a Business
 Central to strategy implementation – integrative,

intensive, & diversification strategies often
implemented through acquisitions of other firms
Ch 8-45
Evaluating Worth of a Business:

3 Basic Approaches
1. What a firm owns

2. What a firm earns
3. What a firm will bring in the market
Ch 8-46
Issues
-- New products and improvement of

existing products that allow for effective
strategy implementation
Ch 8-47
Issues
Constraints
 Level of support constrained by resource

availability
 Technological improvements shorten product
life cycles
Ch 8-48
Issues
3 Major R&D approaches to implementing

strategies
1. 1st firm to market new technological products

2. Innovative imitator of successful products
3. Low-cost producer of similar but less
expensive products
Ch 8-49
Systems (MIS) Issues
-- Information is basis for understanding

the firm. One of the most important
factors differentiating successful from
unsuccessful firms
Ch 8-50
MIS Issues
Functions of MIS
 Information collection, retrieval, & storage

 Keeping managers informed
 Coordination of activities among divisions
 Allow firm to reduce costs
Ch 8-51
Cash Budget Marketing Mix Variables
Outstanding Shares
EPS/EBIT Analysis
Method
Management Information Price-Earnings Ratio

Systems (MIS) Method
Market Segmentation Product Positioning
Ch 8-52
Projected Financial
Statement Analysis

(R&D)
Vacant Niche
Ch 8-53
Chapter 9
Strategy Review, Evaluation, & Control
Concepts & Cases
10th Edition
Fred David
Anthony F. Chelte
Ch 9-1
Chapter Outline
The Nature of Strategy Evaluation
A Strategy-Evaluation Framework
The Balanced Scorecard
Ch 9-2
Chapter Outline
Published Sources of Strategy
Evaluation Information
Characteristics of an Effective
Evaluation System
Contingency Planning
Ch 9-3
Auditing
21st Century Challenges in

Ch 9-4
Strategy Review
Organizations are most vulnerable when

they are at the peak of their success --
R.T. Lenz
Ch 9-5
Strategy Review, Evaluation &
Control
-- Strategies become obsolete

-- Internal environments are dynamic
-- External environments are dynamic
Ch 9-6
Strategy Evaluation, Review,
& Control
Strategy Evaluation
 Vital to the organization’s well-being

 Alert management to potential/actual problems
in a timely fashion
 Erroneous strategic decisions can have severe
negative impact on organizations
Ch 9-7
Strategy Evaluation, Review &
Control
3 Basic Activities
1. Examine the underlying bases of a firm’s

strategy
2. Compare expected to actual results
3. Identify corrective actions to ensure that
performance conforms to plans
Ch 9-8
Control
Strategy Evaluation
 Complex & sensitive undertaking
 Overemphasis can be costly &

counterproductive
Ch 9-9
Control
Appraisal of Strategic Performance
 Have assets increased

 Increase in profitability
 Increase in sales
 Increase in productivity
 Profit margins, ROI, & EPS ratios increased
Ch 9-10
Control
Consistency
Rummelt’s Consonance
4 Criteria
Feasibility
Advantage
Ch 9-11
Control
Consistency
 Strategy should not present inconsistent

goals & policies
Ch 9-12
Control
Consistency
4 Criteria
Feasibility
Advantage
Ch 9-13
Control
Consonance
 Need for strategies to examine sets of trends
Ch 9-14
Control
Consistency
4 Criteria
Feasibility
Advantage
Ch 9-15
Control
Feasibility
 Neither overtax resources or create

unsolvable sub-problems
Ch 9-16
Control
Consistency
4 Criteria
Feasibility
Advantage
Ch 9-17
Control
Advantage
 Creation or maintenance of competitive

advantage
Ch 9-18
Control
Difficulties in Strategy Evaluation
1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy
3. Increasing number of variables
Ch 9-19
Control
Difficulties in Strategy Evaluation
4. Rate of obsolescence of plans

5. Domestic and global events
6. Decreasing time span for planning certainty
Ch 9-20
Control
Strategy Evaluation Should --
 Initiate managerial questioning

 Trigger review of objectives & values
 Stimulate creativity in generating
alternatives
Ch 9-21
Control
Review of underlying bases of strategy --
 Develop revised EFE Matrix
 Develop revised IFE Matrix
Ch 9-22
Control
Review effectiveness of strategy --
1. Competitors’ reaction to strategy

2. Competitors’ change in strategy
3. Competitors’ changes in strengths &
weaknesses
4. Reasons for competitors’ strategic change
Ch 9-23
Control
Review effectiveness of strategy --
5. Reasons for competitors’ successful

strategies
6. Competitors’ present market positions &
profitability
7. Potential for competitor retaliation
8. Potential for cooperation with competitors
Ch 9-24
Control
Monitor Strengths & Weaknesses;
 Are strengths still strengths?

 Have we added additional strengths?
 Are weaknesses still weaknesses?
 Have we developed other weaknesses?
Ch 9-25
Control
Monitor Strengths & Weaknesses;
 Are opportunities still opportunities?

 Other opportunities develop?
 Are threats still threats
 Other threats emerged?
 Are we vulnerable to hostile takeover?
Ch 9-26
Evaluation Framework
I. Review Underlying Bases
Differences? Yes
NO
III.
Take
II. Measure Firm Performance Corrective
Actions
Differences? Yes
NO
Continue present course Ch 9-27

Control
Measuring Organizational Performance
 Compare expected to actual results

 Investigate deviations from plan
 Evaluate individual performance
 Progress toward stated objectives
Ch 9-28
Control
Quantitative Criteria for Strategy Evaluation
 Financial Ratios
 Compare performance over different periods
 Compare performance to competitors
 Compare performance to industry averages
Ch 9-29
Control
Key Financial Ratios
 Return on investment (ROI)

 Return on equity (ROE)
 Profit margin
 Market Share
Ch 9-30
Control
Key Financial Ratios
 Debt to equity
 Earnings per share (EPS)
 Sales growth
 Asset growth
Ch 9-31
Control
Qualitative Evaluation of Strategy
 Internal consistency of strategy

 Consistency with environment
 Appropriateness in view of resources
Ch 9-32
Control
Qualitative Evaluation of Strategy
 Acceptable degree of risk

 Appropriate time frame
 Workability of the strategy
Ch 9-33
Control
Balanced Scorecard
-- Evaluate strategies from 4 perspectives:

1. Financial performance
2. Customer knowledge
3. Internal business processes
4. Learning & growth
Ch 9-34
Balanced Scorecard
Area of Objectives Measure or Target Time Expectation Primary Responsibility
Customers
1
2
Managers/Employees
1
2
Operations/Processes
1
2
Community/Social Responsibility
1
2
Business Ethics/Natural Environment

1
2
Financial
1
2
Ch 9-35
Control
Characteristics of strategy evaluation
 Economical
 Meaningful
 Generates useful information
 Timely information
 Provides accurate picture of events
Ch 9-36
Strategy-Evaluation Assessment Matrix
Have major Have major

changes changes Has the firm
occurred in the occurred in the progressed
firm’s internal firm’s external satisfactorily toward
strategic strategic achieving its stated
position? position? objectives? Result
No No No Corrective actions
Yes Yes Yes Corrective actions
Yes Yes No Corrective actions
Yes No Yes Corrective actions
Yes No No Corrective actions
No Yes Yes Corrective actions
No Yes No Corrective actions
No No Yes Continue course
Ch 9-37
Control
Contingency Planning
Alternative plans that can be put into effect if

certain key events do not occur as expected
Ch 9-38
Control
Auditing
 Financial audits determine correspondence

between assertions based on strategic plan
& established criteria
 Environmental audits insure sound and safe

practices
Ch 9-39
Strategy Evaluation, Review & Control
21st Century Challenges in

 Process is more an “art” than “science”

 Should strategies be visible or hidden from
stakeholders
 Should process be more top-down or bottom
up
Ch 9-40
Advantage Consonance
Auditing Contingency Plans
Balanced Score Card Corporate Agility
Consistency Feasibility
Ch 9-41
Future Shock Revised EFE Matrix
Management by Wandering Revised IFE Matrix

Around
Measuring
Taking Corrective Action
Organizational Performance
Reviewing Underlying
Bases of Strategy
Ch 9-42

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Chapter 1

The Nature of Strategic Management

If you are what you eat,

Peter Drucker: -- think through the

Art & science of formulating,

 Strategic Management is that set of managerial

In essence, the strategic plan is a

Research & Development MIS

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

New Business opportunities

Action Stage of Strategic

Most difficult stage

The strategic management process

Intuition is based on:

Intuition is Useful for decision making

Intuition & Judgment

Involve Management at all levels

Influence all Analyses

Organizations must monitor

“Anything that a firm does especially

1. Adapting to change in external trends,

2. Effectively formulating, implementing &

Rate & magnitude of change

Requires long-term focus

Strategists – Firm’s success/failure

Various Job Titles:

•Chief Executive Officer (CEO)

Opportunities and Threats (External)

 Largely beyond the control of a single

Opportunities & Threats (External)

Environmental Scanning (Industry Analysis)

 Process of conducting research and

Basic Tenet of Strategic Management

Strengths & Weaknesses (Internal)

 Controllable activities performed

Strengths & Weaknesses (Internal)

Typically located in functional areas of the firm

 Mission-driven pursuit of specified results

Essential for ensuring the firm’s success

 Means by which long-term objectives are

 Short-term milestones that firms must

 Means by which annual objectives will be

Long-Term Generate, Implement Implement Measure &

Strategic Management Process

 Dynamic & Continuous

2. Audit external environment

• Proactive in shaping firm’s future

• Initiate and influence firm’s activities

• Improved understanding of competitors strategies

6. Effective allocation of time & resources

11. Encourages favorable attitude toward

Poor reward structures

Business Ethics defined --

 Principles of conduct within organizations

Good business ethics –

 Prerequisite for good strategic management

Code of business ethics –

 Provides basis on which policies can be

Business practices always considered unethical –

ISO used to gain strategic advantage

 ISO 9000 focuses on quality control