review for exam (strategic management)

7/31/2019 Review for Exam (Strategic Management)

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Strategic Management 1 THUN Kosal

Review for Exam

(Strategic Management)1. Strategic and benefit strategic management

Strategic management is art and science offormulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives.

Benefits of strategic management

Financial benefits o Improvement in sales o Improvement in profitability o Productivity improvement

Non-Financial benefits o Improved understanding of competitors strategies

o Enhanced awareness of threats o Reduced resistance to change o Enhanced problem-prevention capabilities

2. Vision, mission statements and nine element of component of mission statementsVision statement(What do we want to become?) focuses on the future, it provides a picture ofwhere the organization is going, or what it will look like in the next 5 to 10 years. Examples:

General Motor: Our mission is for GM to be the world leader in transportation productsand related services

Dell Computer Corp.: To become the world leader in computer sales for home, office, anduniversity use.

PepsiCos responsibility is to continually improve all aspects of the world in which weoperateenvironment, social, economiccreating a better tomorrow than today.

5 10 Mission statement(What is our business?) refers to as creed statement, statement of purpose,statement of philosophy, and statement of business principles. Example:Dells mission is to be the

most successful computer company in the world at delivering the best customer experience inmarkets we serve. In doing so, Dell will meet consumer expectations of highest quality; leading

technology; competitive pricing; individual and company accountability; best-in-class service and

support; flexible customization capability; superior corporate citizenship; financial stability.

Nine mission elements: 9 i. Customers

ii. Products/services /iii.

Markets

iv. Technology


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v. Survival Growth Profit vi. Philosophy

vii. Self-Concept viii. Public Image

ix. Employees 3. General environment (PEST), Five-Forces Model of competition, steps and develop EFE matrix,

develop CPM matrix General environment (PEST) can be opportunities and threats.

o Politics: related to government law, tax rates on exports and imports, patent, etc. that arebarriers to organization. For example, high tax rate is the barrier to imports

o Economics: related to income level of population, unemployment, crisis, etc. Forexample, when the level of income is low, it affects to customer to buy products.

o Societies: related to culture, religion, demography, etc. For example, Islamists dont eatpork, so we have to think about this and will not produce food from pork in that society.

o Technology: technology is updated everyday. Organization must use up to datetechnology to satisfy customers need. Five-Force Model of competition

Steps to develop EFE matrix: List key external factors as identified in the external-audit process. Include a total of

10-20 factors from both the opportunities and threats Assign to each factor a weight from .0 (not important) to 1.0 (very important). These

weights show the relative importance. The total of all the weights should equal 1.0 Assign a 1-4 rating to each factor to indicate how effectively the firms current

response strategy is: 1=the response is poor, 2=the response is average, 3=theresponse is above average, and 4=the response is superior

Multiple each factors weight by its rating to get a weighted score Sum the weighted scores for each variable to determine the total weighted score forthe organization

EFE matrix:Retail computer store


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External Factors Weight RatingWeighted

Score

Opportunities

1. population of city growing 10% 0.10 3 0.30

2. Rival computer store opening 1 kilometer away 0.10 2 0.20

3. Vehicle traffic passing store up 12% 0.08 3 0.24

4. Vendors average six new product per year 0.05 2 0.105. Senior citizen use of computers up 8% 0.05 2 0.10

6. Small business growth in area up 10% 0.10 3 0.30

7. desire for web sites up 18% by Realtors 0.06 3 0.18

8.Desire for web site up 12% by small firms 0.06 2 0.12

Threats

1. Best buy opening new store in 1 years nearby 0.10 1 0.10

2. Local university offers computer repair 0.08 2 0.16

3. New bypass Hwy 34 in 1 year will divert traffic 0.10 4 0.40

4. New mall being build nearby 0.05 2 0.10

5. Gas price up 14% 0.04 1 0.046. Vendors raising price 8% 0.03 2 0.06

Total 1.00 2.40

BANK

So the total weighted score of BANK on the external factors (Opportunities and Threats) is 3.00. Itmeans that BANK is responding in an outstanding way to existing opportunities and treats. In other word, theBANK strategies effectively take advantage of existing opportunities and minimize the potential adverseeffects of external threats.


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CPM Matrix

CSF's Wt Rating Wt'd Score Rating Wt'd Score Rating Wt'd Score

Advertising 0.20 1 0.20 4 0.80 3 0.60

Product quality 0.10 4 0.40 3 0.30 2 0.20Price competitiveness 0.10 3 0.30 2 0.20 4 0.40

Management 0.10 4 0.40 3 0.30 3 0.30

Financial position 0.15 4 0.60 2 0.30 3 0.45

Customer loyalty 0.10 4 0.40 3 0.30 2 0.20

Gobal Exp. 0.20 4 0.80 1 0.20 2 0.40

Market share 0.05 1 0.05 4 0.20 3 0.15

Total 1.00 3.15 2.60 2.70

Company 1 Company 2 Company 3


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In this matrix shows that the product and reputation of Bank 2 and Bank 3 are superior and soimportant critical success factor as indicated rates of 4. For the physical distribution of Bank 1 iseffectiveness of sales distribution and for the customer service is attracted the customer more confident andtrust on bank.

4. Staff (HMR), motivation, culture product, steps and develop IFE matrix. Staffing: Wage and salary admin, employee benefits, interviewing, hiring, discharging,

training, management development, affirmative action, EEO, Labor relations. Motivating: Leadership, communication, work groups, job enrichment, job satisfaction,

needs fulfillment, organizational change, morale. Cultural products: Values, beliefs, rites, rituals, myths, symbols, heroes, legends. Steps to develop IFE matrix:

List key internal factors, use a total from ten to twenty internal factors includingboth strengths and weaknesses.

Assign a weight ranging from 0 (not important) to 1.0 (very important). The weightindicates the relative importance of the factor to being successful in the firmsindustry. The sum of all the weights must equal 1.0.

Assign a 1-4 rating to each factor to indicate whether that factor represents ao Major weaknesso Minor weaknesso Minor strengtho Major strength

Multiply each factors weight by its rating to determine a weighted score for eachvariable.

Sum the weighted scores for each variable to determine the total weighted score forthe organization.* Total weighted scores of below 2.5 indicate an internal weak organization.

IFE matrix:Retail Computer Store


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Key Internal Factors Weight RatingWeighted

Score

Strengths

1. Inventory turnover increased from 5.8 to 6.7 0.05 3 0.15

2. Average customer purchase increased from $97 to $128 0.07 4 0.28

3. Employee morale is excellent 0.10 3 0.30

4. In-store promotions resulted in 20 percent increase in sales 0.05 3 0.15

5. Newspaper advertising expenditures increased 10 percent 0.02 3 0.06

6. Revenues from repair/service segment of store up 16 percent 0.15 3 0.45

7. In-store technical support personnel have MIS college degrees 0.05 4 0.20

8. Store's debt-to-total assets ratio declined to 34 percent 0.03 3 0.09

9. Revenues per employee up 19 percent 0.02 3 0.06

Weaknesses

1. Revenues for software segment of store down 12 percent 0.10 2 0.20

2. Location of store negatively impacted by new Highway 34 0.15 2 0.30

3. Carpet and point in store somewhat in disrepair 0.02 1 0.02

4. Bathroom in store needs refurbishing 0.02 1 0.02

5. Revenues from businesses down 8 percent 0.04 1 0.04

6. Store has no Web site 0.05 2 0.10

7. Supplier on-time delivery increased to 2.4 days 0.03 1 0.03

8. Often customers have to wait to check out 0.05 1 0.05

Total 1.00 2.50


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5. Type of Corporate level (corporate strategies), business level (Business strategies)Corporate level Integration strategies/ Vertical integration strategies

Forward integration: Increased control distributors (retailer, wholesaler, agent)o Priceo High services (training and motivate)o Promotion

Backward integration: Increased control suppliero Qualityo On timeo Cost

Horizontal integration: Increased control competitoro Strengtho Weakness Concentration/ intensive strategies

Market penetration: Increased market shareo Present products/serviceso Present marketso Greater marketing efforts

Market development: new marketso Present products/services to new geographic areas

Product development: Increased saleso Improving present products/serviceso Developing new products/services

Diversification strategies Concentric diversification: addition new and related products/services Conglomerate diversification: addition new and unrelated products/services Horizontal diversification: addition new and unrelated products/services for current customers

Defensive strategies Retrenchment: cost and asset reduction to reverse declining sales and profit Divestiture: selling a division or part of an organization Liquidation: selling companys assets, in parts, for their tangible worth

Business level

Cost leadership strategies (low-cost and best-value) High capacity utilization (Labor, Raw material, Machinery) Large volume Backward and forward

Differentiation strategies Unique (quality, style, feature, packaging, color, brand name ,size, ) Sale force Buying power (income, asset, credit)

Focus strategies (low-cost focus and best-value focus) Joint venture/partnering Mergers and acquisitions

6. Steps and develop SWOT matrix, SPACE matrix, BCG matrix, IE matrix Steps and develop SWOT matrix

List the firms key external opportunitiesList the firms key external threats

List the firms key internal strengthsList the firms key internal weaknessesMatch internal strengths with external opportunities and record the resulting SO strategies in

the appropriated cell


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Match internal weaknesses with external opportunities and record the resulting WO strategiesMatch internal strengths with external threats and record the resulting ST strategiesMatch internal weaknesses with external threats and record the resulting WT strategies

Leave BlankStrengthsSList Strengths

WeaknessesWList Weaknesses

OpportunitiesO

List Opportunities

SO

Strategies

Use strengths to take advantage ofopportunities

WO

Strategies

Overcoming weaknesses bytaking advantage of

opportunities

ThreatsTList Threats

ST

StrategiesUse strengths to avoid threats

WT

StrategiesMinimize weaknesses and avoid

threats

Steps and develop SPACE matrixSelect a set of variables to define FS, CA, ES, and ISAssign a numerical value:

1) Form +1 to +6 to each FS and IS dimension2) Form1 to6 to each ES and CA dimensionCompute an average score for each FS, CA, ES, and ISPlot the average score on the appropriate axisAdd the two scores on thex-axis and plot the point. Add the two scores on they-axis and plot

the point. Plot intersection of the newxy pointDraw a directional vector from the origin through the new intersection point

Internal strategic position External Strategic Position

Competitive Advantage (CA) Market share Product quality Product life cycle Customer loyalty Competitions capacity utilization Technological know-how Control over suppliers & distributors

Industry Strength (IS) + Growth potential Profit potential Financial stability Technological know-how Resource utilization Ease of entry into market Productivity, capacity utilization

Financial Strength (FS) +

Return on investment Leverage Liquidity Working capital Cash flow Inventory turnover Earnings per share Price earnings ratio

Environmental Stability (ES)

Technological changes Rate of inflation Demand variability Price range of completing products Barriers to entry Competitive pressure Price elasticity of demand

Ease of exit from market Risk involved in business


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Construct SPACE matrix Liquidity = +5 Growth potential = +5 Technological know-how = +6 Cash flow = +6 Barrier to entry =3 Market share =3 Financial stability = +4

Product quality =2 Rate of inflation =3 Price elasticity of demand =4 Return on investment = +4 Technological know-how =2 Customer loyalty =3

FS: Return on Investment = +4, Liquidity = +5, Cash flow = +6,4 5 6

53

FS

CA: Market share =3, Product quality =2, Customer loyalty =3, Technological know-how =2

3 2 3 22.5

4CA

ES: Rate of inflation =3, Price elasticity of demand =4, Barrier to entry =3

3 4 33.33

3ES

IS: Growth potential = +5, Technological know-how = +6, Financial stability = +45 6 4

5

3

IS

Y = FS + ES = +5 + (3) = + 2X = IS + CA = +5 + (2.5) = +2.5


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Develop BCG matrix

BCG Matrix:


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Product A B C D

Sales $600,000 $40,000 $30,000 $20,000

Profit $10,000 $5,000 $2,000 $8,000Relative market share 0.45 0.15 0.70 0.50

Industry growth rate +10 0 12 +5

IFE weighted scores 2.5 2.00 2.8 3.5

EFE weighted score 3.5 1.5 3.5 3.00

IE matrix

Stars

II

Question Marks

I

Cash Cows

III

Dogs

IV

Relative market share

0.00.51.0

LowMediumHigh

+20

0

20Low

Medium

High

Industryg

rowthRate

A

B

C

D


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7. Change strategies, restructuring and reengineering Change strategies:

Force change strategy Educative change strategy Rational of Self-Interest Change

RestructuringReducing the size of the firm, number of employees, divisions, and/or units,number of hierarchical levels

Downsizing Rightsizing Delayering

ReengineeringReconfiguring or redesigning work, job, and process to improve cost quality,service and speed

Process management Process innovation Process redesign

8. Marketing issues (market segmentation and product positioning) Market segmentation

o Geographico Demographic

Age Family size Family life cycle Income /occupation Education Religion Race/nationality

o Psychographic

Social class Lifestyle Personality

o Behavioral Use occasion Benefits sought User status Usage rate Loyalty status Readiness stage Attitude toward product

Product positioningo Customer wantso Customer needs

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review for exam (strategic management)

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