CBME 2- STRATEGIC MANAGEMENT WHAT STRATEGY IS NOT

• Vision or Mission
CHAPTER 1 • Goal, budget, or business plan
UNDERSTANDING STRATEGY • Data analysis
• Zero-sum game
BASIC CONCEPTS OF STRATEGY
STRATEGY vs OBJECTIVE
STRATEGY STRATEGY
• Strategy is an action that managers take to ✓ overarching approach taken to meet or exceed
attain one or more of the organization’s goals. goals
Strategy can also be defined as “A general ✓ Actions taken must relate to the original goal
direction set for the company and its various set by management
components to achieve a desired state in the
future. Strategy results from the detailed OBJECTIVE
strategic planning process”. ➢ a measurable action taken to execute the
strategy agreed on by management and the rest
▪ Strategy describes the goal-directed actions a of the organization.
firm intends to take in its quest to gain and ➢ follows the paradigm of the SMART formula
sustain competitive advantage.
▪ The firm that possesses competitive advantage
provides superior value to customers at a THE S.M.A.R.T. GOAL FORMULA
competitive price.
▪ Profitability and market share are the Specific
consequences of superior value creation. Clearly identify the goal.
Measurable
In developing strategy, it was essential to Define the goal in measurable terms.
systematically anticipate future environmental Attainable
challenges to an organization, and draw up Choose goals that are realistic and manageable.
appropriate strategic plans for responding to Relevant
these challenges. Make sure the goal is something that is
important to you.
—IGOR ANSOFF Time-bound
Father of Strategic Management Define the time frame during which you will
achieve the goal.
BASIC CONCEPTS OF STRATEGY
Strategy is the quest to gain and sustain STRATEGY
competitive advantage. ➢ helps create a plan for how you want to
➢ It is the managers’ theories about how to gain achieve a goal
and sustain competitive advantage. ➢ is meant to solve problems and determine a
➢ It is about being different from your rivals. pathways towards a goal. (PURPOSE)
➢ It is about creating value while containing ➢ Need to have an overview of core values and
cost. the motivations why you are coming up with a
➢ It is deciding what to do, and what not to do. strategy. (EXECUTION)
➢ It combines a set of activities to stake out a
unique position.
➢ It requires long-term commitments that are
not easily reversible.
OBJECTIVES Top Management
➢ is a list of documented steps that assist in ✓ Concerned with selection of a course of action
fulfilling the goals of the strategy from among different alternatives to meet the
➢ Has measured elements that relate to the organizational objectives
execution of the strategy and when it should be
finalized. (PURPOSE) Strategic Management – is the process by
➢ Preparing objectives occurs once you have a which objectives are formulated and achieved.
finalized set of core values and motivations to Strategy – acts as the means to achieve the
perform tasks and find out how you can improve objective.
in the process. (EXECUTION)
NATURE AND SCOPE OF STRATEGIC
THE DIFFERENT VIEWS/APPROACHES OF MANAGEMENT
STRATEGY
• Competitive Positioner Strategic management is both an art and
• Visionary Transformer science of formulating, implementing, and
• Self-Organizer evaluating, cross-functional decisions that
• Classical Administrator facilitate an organization to accomplish its
• Design Planner objectives.
• Role Player • Is the ongoing planning, monitoring, analysis
• Turnaround Strategist and assessment of all necessities an
organization needs to meet its goals and
CHOOSING THE RIGHT APPROACH objectives.
Involves: Purpose: To use and create new and different
opportunities for future.
❑ Gathering the right information;
❑ Developing market awareness; Strategic plan is a company’s game plan.
❑ Deciding what action needs to be taken;
❑ Assessing risk; Key Elements of a Strategic Plan as a Game
❑ Thinking critically; Plan
❑ Taking into account of unexpected. ● Clear objectives
● Assessment of the Environment
“Strategy is choosing what not to do.” ● Coordinated actions
-Michael Porter ● Adaptability

BENEFITS OF STRATEGIC MANAGEMENT

CHAPTER 2
THE NATURE OF STRATEGIC MANAGEMENT ✓ Competitive Advantage
Anything that a firm does especially well
STRATEGIC MANAGEMENT compared to rival firms.
➢ Provides overall direction to an organization
for attaining its objectives and achieving ✓ Achieving Goals
success. Helps keep goals achievable by using a clear and
➢ It is an ongoing process in which an dynamic process for formulating steps and
organization continuously updates its strategies implementation.
with respect to changes taking place in the ever-
changing business environment. ✓ Sustainable Growth
Lead to more efficient organizational
performance, which leads to manageable
growth.
✓ Cohesive Organization •Descriptive Strategic Management
Necessitates communication and goal -means putting strategies into practice when
implementation company-wide. needed
-observing and understanding how strategies
✓ Increased Managerial Awareness emerge and evolve in real-world situations
Strategic management means looking toward
the company’s future. KEY DIFFERENCES

PRESCRIPTIVE STRATEGIC MANAGEMENT

BASIC STRATEGIC MANAGEMENT CONCEPTS Focus: Predetermined goals and structured
planning
STRATEGISTS Environment: Assumes stable and predictable
environment
● Strategists are individuals who are most Strategy Formulation: Strategy is formulated
responsible for the success and failure of an before implementation
organization. Flexibility: Less flexible, rigid adherence to the
● Help an organization gather, analyze, and plan
organize information. Examples: Apple product launches
● Have various job titles such as CEO, President,
owner, Chair of the Board, Executive Director, DESCRIPTIVE STRATEGIC MANAGEMENT
Chancellor, Dean, Entrepreneur Focus: Emergent strategies based on real-world
observations
MISSION STATEMENT Environment: Assumes a dynamic and
A mission statement identifies the scope of a unpredictable environment
firm’s operations in product and market terms. Strategy Formulation: Strategy emerges during
implementation
VISION STATEMENT Flexibility: Highly flexible, adapts to changing
Answers the question conditions
“What do we want to become” Examples: Airbnb’s evolving business model
Where it wants to be in the future
TYPES OF STRATEGIC MANAGEMENT
VALUES
That will guide its action ● SWOT ANALYSIS
A SWOT analysis is a comprehensive evaluation
PROCESS of all the strengths, weaknesses, opportunities,
Requires a commitment to strategic planning. and threats of the strategy you compose

STRATEGIC PLANNING STRENGTHS

Includes the planning of strategic decisions, What does your organization do better than your
activities and resource allocation needed to competition?
achieve those goals. WEAKNESSES
What does your organization need to improve
STRATEGIC MANAGEMENT CAN BE: upon?
OPPORTUNITIES
• Prescriptive Strategic Management What market trends could lead to increased
-means developing strategies in advance sales?
-Proactive and emphasizes a structured, step- THREATS
by-step process What are the advantages competitors have over
your organization?
● BALANCED SCORECARD Process Value Chain is made up of three
The Balanced Scorecard is a strategic processes:
management system that translate the vision ❑ Innovation process
and strategy of an organization into operational ❑ Operations process
objectives and measures. ❑ Post-sales process

FOUR PERSPECTIVES: • LEARNING AND GROWTH

• Financial Perspective (INFRASTRUCTURE) PERSPECTIVES
• Customer Perspective →The source of the capabilities that enable the
• The Internal Business Process Perspective accomplishment of the other three perspectives.
• The learning and growth (infrastructure) → It has three major objectives:
Perspective -Increase employee capabilities
-Increase motivation
-Empowerment and alignment
STRATEGY TRANSLATION PROCESS -Increase information systems capabilities

VISION AND STRATEGY Basic Principles that can Help Strategic

→ Financial, Customer, Process, Infrastructure Management to be Successful
→Objectives, Measures, Targets, Initiatives
✓ Creating a unique strategic position for the
proposition
THE FOUR PERSPECTIVES AND ✓ Consider the availability or potential
PERFORMANCE MEASURES availability of resources
✓ Understand the importance of Values and
• THE FINANCIAL PERSPECTIVES incentives
→Establishes long and short-term financial ✓ Gain’s people emotional commitment to the
performance objectives strategy
→Concerned with the global financial ✓ Be open to strategic ideas whenever they
consequences originate
→Has three strategic themes: ✓ Keep the strategy flexible
-revenue growth
-Cost reduction
-Asset utilization CHAPTER 3
THE STRATEGIC MANAGEMENT PROCESS
• CUSTOMER PERSPECTIVES
→Source of the revenue component for the STRATEGIC MANAGEMENT PROCESS
financial objectives • describes its methods by which managers
→Defines and selects the customers and market conceived of and implement a strategy that can
segment in which the company chooses to lead to a sustainable competitive advantage
compete
Strategic Management Process
• PROCESS PERSPECTIVES Managers ask the following questions:
→ Entails the identification of the processes • What do we want to accomplish ultimately?
needed to achieve the customer and financial What is our vision?
objectives. • What are we about? What is our mission?
• How do we accomplish our goals? What are
our values?
VISION STATEMENT • Concern for survival, growth, and
A vision statement provides the profitability: Is the firm committed to growth
direction and describes what and financial soundness?
the founder wants the • Philosophy: What are the basic beliefs, values,
organization to achieve in the aspirations, and ethical priorities of the firm?
future; it’s more about the • Self-concept: What is the firm’s distinctive
“what” of a business. It is competence or major competitive advantage?
different from a mission • Concern for public image: Is the firm
statement, which describes the responsive to social, community, and
purpose of an organization and environmental concerns?
more about the “how” of a • Concern for employees: Are employees a
business. valuable asset of the firm?

IMPORTANCE OF A VISION STATEMENT ROLES PLAYED BY MISSION AND VISION

Mission and vision statements play three critical
• A vision statement should answer the basic roles:
question, “What do we want to become?” (1) Communicate the purpose of the
❑ A clear vision provides the foundation for organization to stakeholders,
developing a comprehensive mission statement. (2) Inform strategy development, and
• Many organizations have both a vision and a (3) Develop the measurable goals and
mission statement, but the vision statement objectives by which to gauge the success
should be established first and foremost. of the organization’s strategy.
❑ The vision statement should be short,
preferably one sentence, and as many managers LIVING THE ETHICAL VALUES
as possible should have input into developing • Organizational Values are the ethical standards
the statement. and norms that govern the behavior of
individuals within a firm or organization and
MISSION STATEMENT within society.
• Distinguishes one firm from another • Strong ethical values have two important
• Declares the firm’s reason for being functions:
• Reveal what an organization wants to be and ❖ They form a solid foundation on which a firm
whom it wants to serve can build its mission and long-term success.
• Essential for effectively establishing objectives ❖ They serve as the guardrails put in place so
and formulating strategies the company can stay on track when pursuing its
• Also referred to as: quest for competitive advantage.
➢ Creed statement
➢ Statement of purpose STEPS IN THE STRATEGIC MANAGEMENT
➢ Statement of philosophy PROCESS
• Identify the organization’s current mission,
➢ Statement of business principles
goals and strategies.
• Do the SWOT analysis (External Analysis –
MISSION STATEMENT COMPONENTS
Opportunities, Threats) (Internal Analysis –
• Customers: Who are the firm’s customers?
Strength, Weakness)
• Products or services: What are the firm’s
• Formulate Strategies
major products or services?
• Implement Strategies
• Markets: Geographically, where does the firm
• Evaluate Results
compete?
• Technology: Is the firm technologically
current?
WHAT IS STRATEGY FORMULATION? ADAPTING TO CHANGE
• includes developing a vision and mission ● The second largest bookstore chain in the
• identifying an organization’s external United States, Borders Group, declared
opportunities and threats, bankruptcy in 2011 as the firm had not adapted
• determining internal strengths and well to changes in book retailing from traditional
weaknesses, bookstore shopping to customers buying online,
• establishing long-term objectives, preferring digital books to hard copies.
• creating alternative strategies, and ● Borders was on the brink of financial collapse
• choosing particular strategies to pursue. before being acquired in July 2011 by Direct
Brands
STRATEGY FORMULATION
● Deciding what new businesses to enter KEY TERMS IN STRATEGIC MANAGEMENT
● What businesses to abandon
● How to allocate resources Competitive Advantage
● Whether to expand operations or diversify Anything that a firm does especially well
● Whether to enter international markets compared to rival firms
● Whether to merge or form a joint venture Strategists
● How to avoid a hostile takeover Help an organization gather, analyze, and
organize information
STRATEGY IMPLEMENTATION Vision Statement
● requires a firm to establish annual objectives, “what do we want to become?”
devise policies, motivate employees, and Mission Statement
allocate resources so that formulated strategies “what is our business?”
can be implemented
● developing a strategy-supportive culture, EXTERNAL OPPORTUNITIES AND THREATS
● creating an effective organizational structure, Are factors which could harm or benefit the
● redirecting marketing efforts, organization in the future
● preparing budgets,
● developing and utilizing information systems, Some Opportunities and Threats
● relating employee reward to organizational • Computer hacker problems are increasing.
Performance. • Intense price competition is plaguing most
● Often called the ACTION STAGE firms.
• Unemployment and underemployment rates
STRATEGY EVALUATION remain high.
Three fundamental strategy-evaluation activities • Interest rates are rising.
are: • Product life cycles are becoming shorter.
1) Reviewing external and internal factors • State and local governments are financially
that are the bases for current strategies weak.
2) Measuring performance
3) Taking corrective actions INTERNAL STRENGTHS AND WEAKNESSES
Controllable activities that are performed
INTEGRATING INTUITION AND ANALYSIS especially well or poorly
● Most organizations can benefit from strategic
management, which is based upon integrating LONG-TERM OBJECTIVES
intuition and analysis in decision making Essential for organizational success
● Intuition is particularly useful for making
decisions in situations of great uncertainty or STRATEGIES
little precedent Are the means by which long term objectives will
be achieved.
ANNUAL OBJECTIVES • Waste of time
Are short term milestones that organizations • Too expensive
must achieve to reach long term objectives. • Laziness
• Content with success
POLICIES • Fear of failure
Are the means by which annual objectives will be • Overconfidence
achieved. • Prior bad experience
• Self-interest
LEVELS OF STRATEGIES • Fear of the unknown
❑ Corporate Strategy • Honest difference of opinion
❑ Business Strategy • Suspicion
❑ Functional strategy
❑ Operational Strategy
CHAPTER 4 – 5
THE EXTERNAL ASSESSMENT
BENEFITS OF STRATEGIC MANAGEMENT
➢ Nonfinancial Benefits
➢ This chapter examines the tools and concepts
● Enhanced awareness of threats
needed to conduct an external strategic
● Improved understanding of competitors’
management audit (sometimes called
strategies
environmental scanning or industry analysis).
● Increased employee productivity
● Reduced resistance to change ➢ An external audit focuses on identifying and
● Clearer understanding of performance-reward evaluating trends and events beyond the control
relationship of a single firm.
● Enhanced problem-prevention capabilities ➢ An external audits reveals key opportunities
and threats confronting an organization so that
Benefits to a Firm That Does Strategic managers can formulate strategies to take
Planning advantage of the opportunities and avoid or
reduce the impact of threats.
Enhanced Communication
a. Dialogue NATURE OF EXTERNAL AUDITS
b. Participation ❑The purpose of an external audit is to develop
Deeper/Improved Understanding a finite list of opportunities that could benefit a
a. Of others’ views firm and threats that should be avoided.
b. Of what the firm is doing/planning and ❑As the term finite suggests, the external audit
why is not aimed at developing an exhaustive list of
Greater Commitment every possible factor that could influence the
a. To achieve objectives business.
b. To implement strategies ❑ It is aimed at identifying key variables that
c. To work hard offer actionable responses.
THE RESULT ❑ Firms should be able to respond to the factors
All Managers and Employees on a Mission to by formulating strategies that take advantage of
Help the Firm Succeed external opportunities or that minimize the
impact of potential threats.
WHY SOME FIRMS DO NO STRATEGIC
PLANNING
• Lack of knowledge of strategic planning
• Poor reward structures
• Fire fighting
KEY EXTERNAL FORCES ECONOMIC FORCES

• The PESTEL model Five Macroeconomic Factors

The PESTEL model is a strategic framework used ➢ Growth rates
to analyze the macro-environmental factors that ➢ Interest rates
can impact an organization, company, or ➢ Levels of employment
industry. The acronym PESTEL stands for
➢ Price stability (inflation and deflation)
Political, Economic, Social, Technological,
➢ Currency exchange rates
Environmental, and Legal factors. This analysis
helps businesses understand the external forces
that could influence their operations and ❑An economic variable of significant
strategic decisions. importance in strategic planning is Gross
Domestic Product (GDP), especially across
POLITICAL (P) countries. Trends in the dollar’s value have
These include government policies, political significant and unequal effects on companies in
stability, tax regulations, trade tariffs, and other different countries and in different locations
political influences that can affect business
operations SOCIAL, CULTURAL, DEMOGRAPHIC, AND
NATURAL ENVIRONMENT FORCES
ECONOMIC (E) ➢Social, cultural, demographic, and
This encompasses economic growth rates, environmental changes have a major impact on
inflation, exchange rates, and overall economic virtually all products, services, markets, and
conditions that can impact consumer customers. Small, large, for-profit, and non-
purchasing power and business profitability profit organizations in all industries are being
staggered and challenged by the opportunities
SOCIOCULTURAL (S) and threats arising from changes in social,
These refer to societal trends, demographics, cultural, demographic, and environmental
cultural aspects, and consumer behaviors that variables.
can influence demand for products and services.
KEY SOCIAL, CULTURAL, DEMOGRAPHIC, AND
TECHNOLOGICAL (T) NATURAL ENVIRONMENT VARIABLES
This includes the impact of technology on the ✓Number of marriages
industry, such as innovation, automation, ✓Number of divorces
research and development, and the rate of ✓Number of births
technological change.
POLITICAL, GOVERNMENTAL, AND LEGAL
ECOLOGICAL/ENVIRONMENTAL FACTORS FORCES
These factors consider ecological and • Federal, state, local, and foreign governments
environmental aspects, including climate are major regulators, deregulators, subsidizers,
change, sustainability practices, and employers, and customers of organizations.
environmental regulations that can affect Political, governmental, and legal factors,
business operations therefore, can represent key opportunities and
threats for both small and large organizations
LEGAL FACTORS (L) • For industries and firms that depend heavily on
This involves the legal environment in which a government contracts or subsidies, political
business operates, including laws related to forecasts can be the most important part of an
employment, consumer protection, health and external audit. Changes in patents, laws,
safety, and competition antitrust legislation, tax rates, and lobbying
activities can affect firms significantly.
• The increasing global interdependence among ❖Identifying major competitors is not always
economies, markets, governments, and easy because many firms have divisions that
organizations makes it imperative that firms compete in different industries.
consider the possible impact of political ❖Many multidivisional firms do not provide sales
variables on the formulation and implementation and profit information on a divisional basis for
of competitive strategies. competitive reasons.

SOME POLITICAL, GOVERNMENTAL, AND THE NATURE OF COMPETITION

LEGAL VARIABLES ❖Competitiveness is closely linked with
• Governmental regulations or deregulations customer focus.
• Changes in tax laws
❖A business must be competitive because this
• Special tariffs
enables it to undertake activities central to its
• Number of patents
strategy
• Changes in patent laws
• Environmental protection laws
They include:
• Legislations on equal employment
➢Developing customer loyalty
• Political conditions in foreign countries
• Lobbying activities ➢Increasing sales to existing customers
➢Enhancing the strength and value of its brand
➢ This trend reflects the growing importance of ➢Developing new product and product
information technology (IT) in strategic extensions
management ➢Increasing market effectiveness
➢ A CIO and CTO work together to ensure that
information needed to formulate, implement, FIVE FORCES AFFECTING COMPETITION IN AN
and evaluate strategies is available where and INDUSTRY
when it is needed ▪ Developed by Michael Porter
➢ These individuals are responsible for ▪ Poster’s model aims to enable managers not
developing, maintaining, and updating a only to understand their industry environment
company’s information database. but also to shape their firm’s strategy.
▪ As a rule of thumb, the stronger the five forces,
TECHNOLOGICAL FORCES the lower the industry’s potential-making the
industry less attractive to competitors.
➢ Revolutionary Technological changes and
▪ The weaker the five forces, the greater the
discoveries are having a dramatic impact on
industry’s profit potential making the industry
organizations
more attractive.
➢ The Internet has changed the nature of
opportunities and threats by altering the life
1 Threat of entry
cycles of products, increasing the speed of
2 Power of suppliers
distribution, creating new products and services.
3 Power of buyers
➢ To effectively capitalize on e-commerce, a 4 Threat of Substitutes
number of organizations are establishing two 5 Rivalry among existing competitors
new positions in their firms: Chief Information
Officer (CIO) and Chief Technology Officer (CTO) THREAT OF ENTRY
• Entry barriers are obstacles that determine
COMPETITIVE FORCES AND FIRM’S STRATEGY: how easily a firm can enter an industry.
THE FIVE FORCES MODEL • Threats of entry is High when:
❖Collecting and evaluating information on - Customer switching costs are low
competitors is essential for successful strategy - Capital requirements are low
formulation.
 - Incumbents do not posses: RIVALRY AMONG EXISTING COMPETITORS
Proprietary Technology and • The rivalry among existing competitors is HIGH
established brand equity when:
• New entrants expect that incumbent will not or - There are many competitors in the
cannot retaliate industry.
- The competitors are roughly of
THE POWER OF SUPPLIERS equal size.
• Powerful suppliers can raise the cost of - Industry growth is slow, zero, or
production by demanding higher prices or even negative.
delivering lower-quality products. - Exit barriers are high.
• Supplier power is enhanced when the supplied - Products and services are direct
product is unique and differentiated substitutes.

THE POWER OF BUYERS The strategic role of components: Adding a

• The bargaining power of buyers concerns the sixth force
pressure buyers can put on the margins of ❑ A complement is a product, service or
producers in the industry. competency that adds value to the original
• Backward integration occurs when a buyer product offering when the two are used in
moves upstream in the industry value chain, into tandem.
the seller’s business. ❑ A company is a complementor to your
• Power of buyers is HIGH when: company if customers value your product or
- There are a few large buyers. service offering more when they are able to
- Each buyer purchases large combine it with the other company’s product or
quantities relative to the size of a service.
single seller.
- The industry’s products are EXTERNAL FACTOR EVALUATION (EFE) MATRIX
standardized or undifferentiated External Factor Evaluation (EFE) Matrix is a
commodities. strategy tool used to examine company’s
- Buyer’s face little or no switching external environment and to identify the
costs. available opportunities and threats.
- Buyer’s can credibly threaten to
backward-integrate into the • Key External Factors
industry When using the EFE matrix we identify the key
external opportunities and threats that are
THREAT OF SUBSTITUTES affecting or might affect a company. By analyzing
• The threat of substitutes is the data that the external environment with the tools like
products or services available from outside the PESTLE analysis, Porter’s Five Forces or Profile
given industry will come close to meeting the Matrix, the key external factors can be identified.
needs of current customers. The general rule is to identify as many key
• Threat of substitute is high WHEN: external and internal factors as possible.
- The substitute offers an attractive • Weights
price-performance trade-off. Each key factor should be assigned a weight
- The buyer’s cost of switching to the ranging from 0.0 (low importance) to 1.0 (high
substitute is low. importance). The number indicates how
important the factor is if a company wants to
succeed in an industry. If there were no weights
assigned, all the factors would be equally
important, which is an impossible scenario in
the real world. The sum of all the weights must ➢ The analysis displays the information on a
equal 1.0. Separate factors should not be given matrix, which makes it easy to compare the
too much emphasis (assigning a weight of 0.30 companies visually
or more) because the success in an industry is
rarely determined by one or few factors. ➢ The results of the matrix facilitate decision-
• Ratings making. Companies can easily decide which
The ratings in external matrix refer to how areas they should strengthen, protect or what
effectively company’s current strategy responds strategies they should pursue
to the opportunities and threats. The numbers
range from 4 to 1, where 4 means a superior
response, 3 – above average response, 2 – CHAPTER 6 – 7
average response and 1 – poor response. THE INTERNAL ASSESSMENT
Ratings, as well as weights, are assigned
subjectively to each factor. In our example, we NATURE OF AN INTERNAL AUDIT
can see that the company’s response to the ◼ Internal strengths/weaknesses
opportunities is rather poor, because only one ◼ External opportunities/threats
opportunity has received a rating of 3, while the ◼ Clear statement of mission
rest have received the rating of 1. The company is
better prepared to meet the threats, especially All organizations have strengths and
the first threat. weaknesses in the functional areas of
• Weighted Score business. No enterprise is equally strong or
The score is the result of weight multiplied by weak in all areas.
rating. Each key factor must receive a score.
Total weighted score is simply the sum of all Example: LG Electronics is known for excellent
individual weighted scores. The firm can receive appliance production and product design;
the same total score from 1 to 4 in both Procter & Gamble is known for superb marketing
matrices. The total score of 2.5 is an average
score. In external evaluation a low total score ASSESSMENT OF THE FIRMS RESOURCES
indicates that company’s strategies aren’t well
designed to meet the opportunities and defend Resources – are assets such as cash, buildings,
against threats. In internal evaluation a low score or intellectual property that a company can draw
indicates that the company is weak against its on when crafting and executing a strategy.
competitors.
Resources can either be:
COMPETITIVE PROFILE MATRIX (CPM) Tangible Resources
Competitive profile matrix is an essential Intangible Resources
strategic management tool to compare the firm
with the major players of the industry. Capabilities – are the organizational and
Competitive profile matrix show the clear picture managerial skills necessary to orchestrate a
to the firm about their strong points and weak diverse set of resources and to deploy them
points relative to their competitors. The benefits strategically.
to using Competitive Profile Matrix (CPM) for
rivals analysis are: Activities – enable firms to add value by
transforming inputs into goods or services.
➢ The same factors are used to compare the
firms. This makes the comparison more accurate Core Competencies – are unique strengths,
embedded deep within a firm, that allow a firm
to differentiate its products and sources from
those of its rivals, creating a higher value for the 1. Physical resources –include all
customer or offering products and services of plant & equipment, location,
comparable value at lower cost. technology, raw materials,
machines
KEY INTERNAL FORCES 2. Human resources – include all
employees, training, experience,
➢ For different types of organizations such as intelligence, skills, knowledge,
hospitals, universities, and government abilities
agencies, the functional business areas differ. 3. Organizational resources – include
➢ Functional areas of a university can include firm structures, planning
athletic programs, placement services, processes, information system,
fundraising, academic research, counseling and patents, trademark, copyrights,
intramural programs. databases, etc.

DISTINCTIVE COMPETENCIES ➢ Empirical Indicators – three characteristics of

resources enable a firm to implement strategies
➢ A firm’s strengths that cannot be easily that improve its efficiency and effectiveness and
matched or imitated by competitors. lead to sustainable competitive advantage
➢ Building competitive advantages involves ▪ Rare
taking advantage of distinctive competencies ▪ Hard to imitate
▪ Not easily substitutable
➢ Strategies are designed to improve on a firm’s
weaknesses, turning them into strengths and
The more a resources(s) is rare, non-imitable,
maybe even into distinctive competencies
and non-substitutable, the stronger a firm’s
competitive advantage will be and the longer will
THE PROCESS OF PERFORMING AN INTERNAL
it last.
AUDIT
➢ Closely parallels the process of performing DOMESTIC VERSUS FOREIGN CULTURES
-INFORMATION FROM:
In Japan – business relations operate within the
•Management
context of “Wa”, which stresses social harmony
•Marketing
and group cohesion.
•Finance/accounting
•Production/operations
In China – business behavior revolves around
•Research & Development
“guanxi”-or personal relations.
•Management Information Systems
In Korea – “inhwa” – or harmony based on
Communication maybe the most important word
respect of hierarchical relationships, including
in management
obedience to authority
RESOURCE BASED VIEW (RBV)
MANAGEMENT
➢ Approach to Competitive Advantage
➢ Internal resources are more important than Function – Stage When Most Important
external factors in achieving and sustaining Planning - Strategy Formulation
competitive advantage Organizing – Strategy Implementation
Motivating – Strategy Implementation
✓ Three All Encompassing Categories Staffing – Strategy Implementation
Controlling – Strategy Evaluation
MARKETING MARKETING RESEARCH – is the systematic
gathering, recording, and analyzing of data about
Customer Needs/Wants for problems relating to the marketing of goods and
Products/Services services.
1. Defining
2. Anticipating OPPORTUNITY ANALYSIS – involves assessing
3. Creating the costs, benefits, and risks associated with
4. Fulfilling marketing decisions.

Marketing Functions THREE STEPS IN COST/BENEFIT ANALYSIS:

1. Compute the total costs associated with
1. Customer analysis a decision
2. Selling products/services 2. Estimate the total benefits from the
3. Product & service planning decision
4. Pricing 3. Compare the total costs with the total
5. Distribution benefits
6. Marketing research
7. Opportunity analysis FINANCE/ACCOUNTING

CUSTOMER ANALYSIS – the examination and Finance/Accounting Functions

evaluation of consumer needs, desires and
wants—involves administering surveys, ➤ Often considered the single best measure of a
analyzing consumer information, evaluating firm’s competitive position and overall
market positioning strategies, developing attractiveness to investors
customer profiles and determining optimal 1. Investment decision (Capital budgeting)
market segmentation strategies. 2. Financing decision
3. Dividend decision
SELLING- includes many marketing strategies
such as advertising, sales promotion, publicity, Financial Ratio Analysis is most widely used,
personal selling, sales force management, method for determining an organization’s
customer relations and dealer relations. strengths and weaknesses in the investment,
financing and dividend areas
PRODUCT AND SERVICE PLANNING – activities
such as test marketing; product and brand FIVE TYPES OF FINANCIAL RATIOS:
positioning; devising warranties; packaging, 1. Liquidity Ratios – measures a firm’s
determining product options, product features, ability to meet maturing short-term
product styles and product quality, deleting old obligations.
products; and providing for customer service. 2. Leverage ratios – measure the extent to
which a firm has been financed by debt.
PRICING – Five major stakeholders affect pricing 3. Activity Ratios –measure how effectively
decisions: consumers, governments, suppliers, a firm is using its resources.
distributors, and competitors. 4. Profitability ratios – measure
management’s overall effectiveness as
DISTRIBUTION – includes warehousing, shown by returns generated on sales and
distribution channels, distribution coverage, investments.
retail site locations, sales territories, inventory 5. Growth ratios – measures the firm’s
levels and locations, transportation carriers, ability to maintain its economic position
wholesaling, and retailing. in the growth of the economy and industry
PRODUCTION/OPERATIONS Organizations invest in R&D because they
believe that such an investment will lead to a
Production/Operations Functions superior product or service and will give them a
➤ Consists of all those activities that transforms competitive advantage.
inputs into goods and services.
MANAGEMENT INFORMATION SYSTEMS
The Basic Functions (Decisions) Within ■ Information Systems
Production/Operations ■ CIO/CTO (Chief Information Officer/Chief
Technology Officer)
Process ■ Security
These decisions include choice of technology, ■ User-friendly
facility layout, process flow analysis, facility ■ E-commerce
location, line balancing, process control, and
transportation analysis. Distances from raw CIO typically looks inward, aiming to improve
materials to production sites to customers are a processes within the company, while the CTO
major consideration. looks outward, using technology to improve or
Capacity innovate products that serve the customers
These decisions include forecasting, facilities VALUE CHAIN ANALYSIS (VCA)
planning, aggregate planning. Scheduling, ➢ According to Porter, the business of a firm can
capacity planning, and queuing analysis. be described as a value chain, in which total
Capacity utilization is a major consideration. revenues minus total costs of all activities
Inventory undertaken to develop and market a product or
These decisions involve managing the level of services yields value.
raw materials, work-in-process, and finished ➢ VCA refers to a process whereby a firm
goods, especially considering what to order, determines the costs associated with
when to order, how much to order, and materials organizational activities from purchasing raw
handling. materials to manufacturing products to
Workforce marketing those products.
These decisions involve managing the skilled, ➢ VCA aims to identify where low-cost
unskilled, clerical, and managerial employees by advantages or disadvantages exists anywhere
caring for job design, work measurement, job along the value chain from raw material to
enrichment, work standards, and motivation customer service activities.
techniques.
Quality BENCHMARKING
These decisions are aimed at ensuring that high- ➢ Is an analytical tool used to determine
quality goods and services are produced by whether a firm’s value chain activities are
caring for quality control, sampling, testing, competitive compared to rivals and thus
quality assurance, and cost control. conducive to winning in the marketplace.
➢ Determines “best practices” among
RESEARCH & DEVELOPMENT
competing firms for the purpose of duplicating or
improving
Research & Development Functions
• Development of new products before
INTERNAL FACTOR EVALUATION (IFE) MATRIX
competitors
➢ This strategy formulation tool summarizes and
• Improving product quality
evaluates the major strengths and weaknesses
• Improving manufacturing processes to reduce
in the functional areas of a business, and it also
costs
provides a basis for identifying and evaluating
relationships among those areas.