strategic short notes

Short Notes: Mgt 603

STRATSTRATEEGGIICC MMAANNAGAGEMENTEMENTLecture No. 23Lecture No. 23Strategy Analysis And ChoiceStrategy Analysis And ChoiceStrategic Management: Concepts and Cases. 9th editionFred R. DavidPowerPoint Slides by Anthony F. Chelte Western New England CollegeChapter OutlineChapter Outline

• The Nature of Strategy Analysis and Choice

• A Comprehensive Strategy-Formulation Framework

• The Input Stage

• The Matching Stage

• The Decision Stage

• Cultural Aspects of Strategy Choice

• The Politics of Strategy Choice

• The Role of a Board of DirectorsStrategy Analysis & ChoiceStrategy Analysis & ChoiceWhether it’s broke or not, fix it—make it better. Not just products, but the whole company if

necessary.- Bill Saporito

Strategy Analysis & ChoiceStrategy Analysis & ChoiceStrategic analysis and choice largely involves making subjective decisions based on Strategic analysis and choice largely involves making subjective decisions based on

objective informationobjective information..The Nature of Strategy Analysis and Choice –The Nature of Strategy Analysis and Choice ––– Establishing long-term objectivesEstablishing long-term objectives–– Generating alternative strategiesGenerating alternative strategies–– Selecting strategies to pursueSelecting strategies to pursue–– Best alternative to achieve mission and objectivesBest alternative to achieve mission and objectives

Alternative strategies derive from –Alternative strategies derive from ––– VisionVision

–– MissionMission

–– ObjectivesObjectives

–– External auditExternal audit

–– Internal auditInternal audit

–– Past successful strategiesPast successful strategiesParticipation in generating alternative strategies should be broad –Participation in generating alternative strategies should be broad –Stage 1: The Input StageStage 1: The Input StageStage 2: The Matching StageStage 2: The Matching StageStage 3: The Decision StageStage 3: The Decision Stage

Formulation FrameworkFormulation Framework

1



Matching Key Factors to Formulate Alternative StrategiesMatching Key Factors to Formulate Alternative Strategies

Strategy-Formulation Analytical FrameworkStrategy-Formulation Analytical Framework


External Factor EvaluationMatrix (EFE)

Competitive ProfileMatrix

Internal Factor EvaluationMatrix (IFE)

Stage 1:The Input Stage

SPACE Matrix

Stage 2:The Matching Stage

TOWS Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Resultant StrategyKey External FactorKey Internal Factor

Develop a new employee benefits package

=Strong union activity (threat)

+Poor employee morale (weakness)

Develop new products for older adults

=Decreasing numbers of young adults (threat)

+Strong R&D (strength)

Pursue horizontal integration by buying competitor's facilities

=Exit of two major foreign competitors form the industry (opportunity)

+Insufficient capacity (weakness)

Acquire Cellfone, Inc.=20% annual growth in the cell phone industry (opportunity)

+Excess working capacity (strength)

2


Input StageInput Stage

•• Provides basic input information for the matching and decision stage matricesProvides basic input information for the matching and decision stage matrices

•• Requires strategists to quantify subjectivity early in the processRequires strategists to quantify subjectivity early in the process

•• Good intuitive judgment always neededGood intuitive judgment always needed

Matching StageMatching Stage

•• Match between organization’s internal resources and skills and the opportunities and Match between organization’s internal resources and skills and the opportunities and risks created by its external factors.risks created by its external factors.

Matching Key Factors to Formulate Alternative StrategiesMatching Key Factors to Formulate Alternative Strategies

Lecture No. 24

Matching StageMatching StageTOWS MatrixTOWS Matrix

–– ThreatsThreats

–– OpportunitiesOpportunities

–– StrengthsStrengths

–– WeaknessesWeaknesses

Develop four types of strategiesDevelop four types of strategies

–– Strengths-Opportunities (SO)Strengths-Opportunities (SO)

–– Weaknesses-Opportunities (WO)Weaknesses-Opportunities (WO)

–– Strengths-Threats (ST)Strengths-Threats (ST)

–– Weaknesses-Threats (WT)Weaknesses-Threats (WT)1.1. SOSO Strategies StrategiesUse a firm’s internal strengths to take advantage of external opportunities2.2. WOWO Strategies StrategiesImproving internal weaknesses by taking advantage of external opportunities3.3. STST Strategies StrategiesUsing firm’s strengths to avoid or reduce the impact of external threats.4.4. WTWT Strategies StrategiesDefensive tactics aimed at reducing internal weaknesses and avoiding environmental threats.5.5. TOWS MatrixTOWS Matrix

Steps in developing the TOWS Matrix– List the firm’s key external opportunities– List the firm’s key external threats– List the firm’s key internal strengths– List the firm’s key internal weaknesses

TOWS MatrixTOWS Matrix

Quantitative Strategic Planning Matrix

(QSPM)

Stage 3:The Decision Stage

3


Developing the TOWS Matrix• Match internal strengths with external opportunities and record the resultant SO Strategies• Match internal weaknesses with external opportunities and record the resultant WO

Strategies• Match internal strengths with external threats and record the resultant ST Strategies• Match internal weaknesses with external threats and record the resultant WT Strategies

Lecture No, 25-26

Formulation FrameworkFormulation FrameworkSPACE MatrixSPACE MatrixStrategic Position and Action Evaluation Matrix Four quadrant framework Determines appropriate strategies

Aggressive Conservative Defensive Competitive

Two Internal Dimensions Financial Strength [FS] Competitive Advantage [CA]

Two External Dimensions Environmental Stability [ES] Industry Strength [IS]

Overall Strategic position determined by:– Financial Strength [FS]– Competitive Advantage [CA]– Environmental Stability [ES]– Industry Strength [IS]

WT Strategies

Minimize weaknesses and avoid threats

ST Strategies

Use strengths to avoid threats

Threats-T

List Threats

WO Strategies

Overcome weaknesses by taking advantage of

opportunities

SO Strategies

Use strengths to take advantage of opportunities

Opportunities-O

List Opportunities

Weaknesses-W

List Weaknesses

Strengths-S

List Strengths

Leave Blank

4


Developing the SPACE Matrix:• EFE Matrix• IFE Matrix• Financial Strength• Competitive Advantage• Environmental Stability• Industry Strength• Select variables to define FS, CA, ES, & IS• Assign numerical ranking from +1 (worst) to +6 (best) for FS and IS; Assign numerical

ranking from –1 (best) to –6 (worst) for ES and CA.• Compute average score for FS, CA, ES, & IS• Plot the average scores on the Matrix• Add the two scores on the x-axis and plot point on X. Add the scores on the y-axis and plot

Y. Plot the intersection of the new xy point.• Draw a directional vector from origin through the new intersection point.• SPACE FactorsInternal Strategic Position External Strategic PositionFinancial Strength (FS)Return on investmentLeverageLiquidityWorking capitalCash flowEase of exit from marketRisk involved in business

Environmental Stability (ES)Technological changesRate of inflationDemand variabilityPrice range of competing productsBarriers to entryCompetitive pressurePrice elasticity of demand

Internal Strategic Position External Strategic PositionCompetitive Advantage CAMarket shareProduct qualityProduct life cycleCustomer loyaltyCompetition’s capacity utilizationTechnological know-howControl over suppliers & distributors

Industry Strength (IS)Growth potentialProfit potentialFinancial stabilityTechnological know-howResource utilizationCapital intensifyEase of entry into marketProductivity, capacity utilization

SPACE Matrix

5


Lecture No. 27-28

BCG MatrixBCG Matrix

Boston Consulting Group Matrix• Enhances multidivisional firms’ efforts to formulate strategies • Autonomous divisions (or profit centers) constitute the business portfolio• Firm’s divisions may compete in different industries requiring separate strategy

Boston Consulting Group Matrix• Graphically portrays differences among divisions • Focuses on market share position and industry growth rate• Manage business portfolio through relative market share position and industry growth rate

Relative market share position defined:• Ratio of a division’s own market share in a particular industry to the market share held by

the largest rival firm in that industry.BCG Matrix

• Question Marks • Stars

FS+6

+1

+5+4+3

+2

-6

-5

-4

-3

-2

-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

ES

CA IS

Conservative Aggressive

Defensive Competitive

DogsDogsIVIV

Cash CowsCash CowsIIIIII

Question MarksQuestion MarksII

StarsStarsIIII

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

High+20

Low-20

Medium0

6


• Cash Cows• DogsQuestion Marks

• Low relative market share position yet compete in high-growth industry.• Cash needs are high• Case generation is low

• Decision to strengthen (intensive strategies) or divestStars

• High relative market share and high industry growth rate.• Best long-run opportunities for growth and profitability

• Substantial investment to maintain or strengthen dominant position• Integration strategies, intensive strategies, joint ventures

Cash Cows• High relative market share position, but compete 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 becomes weak—retrenchment or divestiture

Dogs• Low relative market share position and compete in slow or no market growth

• Weak internal and external position• Decision to liquidate, divest, retrenchment

Lecture No. 29-30

Grand Strategy MatrixGrand Strategy Matrix• Popular tool for formulating alternative strategies• All organizations (or divisions) can be positioned in one of four quadrants• Based on two evaluative dimensions:

– Competitive position– Market growth

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Quadrant I• Excellent strategic position• Concentration on current markets and products• Take risks aggressively when necessary

Quadrant II• Evaluate present approach seriously• How to change to improve competitiveness• Rapid market growth requires intensive strategy

Quadrant III• Compete in slow-growth industries• Weak competitive position• Drastic changes quickly• Cost and asset reduction indicated (retrenchment)

Quadrant IV• Strong competitive position• Slow-growth industry• Diversification indicated to more promising growth areasStage 3: The Decision StageQuantitative Strategic Planning Matrix (QSPM)

Quantitative Strategic Planning Matrix• Only technique designed to determine the relative attractiveness of feasible alternative

actions• Tool for objective evaluation of alternative strategies

Quadrant IVConcentric diversificationHorizontal diversificationConglomerate diversificationJoint ventures

Quadrant IIIRetrenchmentConcentric diversificationHorizontal diversificationConglomerate diversificationLiquidation

Quadrant IMarket developmentMarket penetrationProduct developmentForward integrationBackward integrationHorizontal integrationStrong Postion

Concentric diversification

Quadrant IIMarket developmentMarket penetrationProduct developmentHorizontal integrationDivestitureLiquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

8


• Based on identified external and internal crucial success factors• Requires good intuitive judgment• List the firm’s key external opportunities & threats; list the firm’s key internal strengths

and weaknesses• Assign weights to each external and internal critical success factor• Examine the Stage 2 (matching) matrices and identify alternative strategies that the

organization should consider implementing• Determine the Attractiveness Scores (AS)• Compute the total Attractiveness Scores• Compute the Sum Total Attractiveness Score

QSPMQSPMLimitations:• Requires intuitive judgments and educated assumptions• Only as good as the prerequisite inputs

Positives:• Sets of strategies examined simultaneously or sequentially• Requires the integration of pertinent external and internal factors in the decision-making

process

Lecture No. 31

Chapter OutlineChapter Outline

• The nature of Strategy Implementation

• Annual Objectives

• Policies

• Resource Allocation• Managing Conflict• Matching Structure with Strategy• Restructuring, Reengineering, and E-Engineering• Linking Performance and Pay to Strategies

• Managing Resistance to Change

• Managing the Natural Environment

• Creating a Strategy-Supportive Culture

• Production/Operations Concerns When Implementing Strategies

• Human Resource Concerns When Implementing Strategies

Implementing Strategies: Management IssuesImplementing Strategies: Management IssuesPretend 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.Management Issues Annual Objectives Policies Resources Organizational structure

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Restructuring Rewards/Incentives Resistance to Change Managers & strategy Supportive culture Production/operations Human resources Downsizing

Contrasting strategy formulation and strategy implementationContrasting strategy formulation and strategy implementation– Formulation is positioning forces before the action– Implementation is managing forces during the action

Contrasting strategy formulation and strategy implementationContrasting strategy formulation and strategy implementation– Formulation focuses on effectiveness– Implementation focuses on efficiency– Formulation is primarily an intellectual process– Implementation is primarily an operational process– Formulation requires good intuitive and analytical skills– Implementation requires special motivation and leadership skills– Formulation requires coordination among a few individuals– Implementation requires coordination among many persons

Strategy implementation –Strategy implementation –

–– Varies among different types and sizes of organizations Varies among different types and sizes of organizations

Strategy implementation Actions –Strategy implementation Actions ––– Altering sales territoriesAltering sales territories

–– Adding new departmentsAdding new departments

–– Closing facilitiesClosing facilities

–– Hiring new employeesHiring new employees

–– Cost-control proceduresCost-control procedures

–– Changing advertising strategiesChanging advertising strategies

–– Building new facilities Building new facilities

Formulation to Implementation transition –Formulation to Implementation transition –

–– Shift in responsibilityShift in responsibility

•• From strategists to division and functional managers From strategists to division and functional managers 1.1. Management IssuesManagement Issues2.2. Management Issues (continued)Management Issues (continued)3.3. Annual ObjectivesAnnual Objectives

•• Decentralized activityDecentralized activity

•• Involves all managers in the firmInvolves all managers in the firm

Annual ObjectivesAnnual Objectives

•• Basis for allocating resourcesBasis for allocating resources

•• Primary mechanism for evaluating managersPrimary mechanism for evaluating managers

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•• Major instrument for monitoring progress toward long-term objectivesMajor instrument for monitoring progress toward long-term objectives

•• Establish organizational, divisional, and departmental prioritiesEstablish organizational, divisional, and departmental priorities

•• Horizontal consistency of objectivesHorizontal consistency of objectives

•• Vertical consistency of objectivesVertical consistency of objectives

Objectives should state –Objectives should state –– Quantity– Quality– Cost– Time

PoliciesPoliciesPolicies facilitate solving recurring problems and guide the implementation of strategyPolicies facilitate solving recurring problems and guide the implementation of strategyPolicies set –Policies set –

– Boundaries– Constraints– Limits

Example Issues requiring management policy --Example Issues requiring management policy --– To offer extensive or limited management development workshops and seminars– To centralize or decentralize employee-training activities– To recruit through employment agencies, college campuses, and/or newspapers– To promote from within or hire from the outside– To establish a high- or low-safety stock of inventory– To buy lease, or rent new production equipment

Lecture No. 32

Resource Allocation –Resource Allocation –A central management activity that allows for strategy executionA central management activity that allows for strategy execution

Four types of resourcesFour types of resources – –• Financial resources• Physical resources• Human resources• Technological resources

Managing ConflictManaging Conflict

Conflict –Conflict –Disagreement between two or more parties on one or more issues

•• Conflict is not always “bad”Conflict is not always “bad”

•• Absence of conflictAbsence of conflict

–– Signal indifference or apathySignal indifference or apathy

•• Can energize opposing groups to actionCan energize opposing groups to action

•• May help managers identify problemsMay help managers identify problems

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Conflict Management and Resolution– Avoidance– Defusion– Confrontation

Matching Structure with StrategyMatching Structure with Strategy1. Changes in Strategy 2. Changes in Structure

• Structure largely dictates how objectives and policies will be established.• Structure dictates how resources will be allocatedChandler’s Strategy-Structure RelationshipChandler’s Strategy-Structure Relationship

Lecture No. 33

Basic Forms of StructureBasic Forms of Structure1. Functional StructureGroups tasks and activities by business function2. Divisional StructureDecentralized and organized by geography, product, customer, or process 3. Strategic Business Unit Structure (SBU)Groups similar divisions; delegates authority and responsibility to SBU executive4. Matrix Structure

Most complex of all designs. Depends upon both vertical and horizontal flows of authority and communication

Lecture No. 34

Restructuring –Reducing the size of the firm in terms of number of employees, divisions, or units, and the number of hierarchical levels in the firm’s organizational structure

Also called –

– Downsizing– Rightsizing– Delayering

• Employed when ratios out of line with benchmarked competitors

• Primary benefit sought is cost reduction

New administrativeproblems emerge

New strategyIs formulated

Organizationalperformance

declines

Organizational performance

improves

New organizationalstructure is established

12


ReengineeringReengineeringInvolves reconfiguring or redesigning work, jobs, and processes to improve cost, quality, service and speed.

ReengineeringReengineering Also called –

– Process management– Process innovation– Process redesign

Concerned more with employee and customer well-being than shareholder well-being

Linking Performance and Pay to StrategiesLinking Performance and Pay to StrategiesMost companies practicing pay-for-performanceMost companies practicing pay-for-performance•• Dual bonus system becoming more commonDual bonus system becoming more common–– Based on both Based on both annual objectives and long-term objectivesannual objectives and long-term objectives•• ProfitProfit Sharing Sharing–– Incentive compensation used by 30% of companiesIncentive compensation used by 30% of companies•• Gain SharingGain Sharing–– Performance targets set for employees or departmentsPerformance targets set for employees or departmentsTests for Performance-Pay PlansTests for Performance-Pay Plans

1.1. Does the plan capture attention?Does the plan capture attention?2.2. Do employees understand the plan?Do employees understand the plan?3.3. Is the plan improving communication?Is the plan improving communication?4.4. Does the plan pay out when it should?Does the plan pay out when it should?5.5. Is the company or unit performing better?Is the company or unit performing better?

Managing Resistance to ChangeManaging Resistance to ChangeChange raises anxiety over fear of:Change raises anxiety over fear of:–– Economic lossEconomic loss

–– InconvenienceInconvenience

–– UncertaintyUncertainty

–– Break in status-quoBreak in status-quoResistance to change –Resistance to change ––– Single greatest threat to successful strategy implementationSingle greatest threat to successful strategy implementation

Change StrategiesChange Strategies

•• Force Change StrategyForce Change Strategy

•• Educative Change StrategyEducative Change Strategy

•• Rational or Self-Interest Change StrategyRational or Self-Interest Change Strategy

Managing the Natural EnvironmentManaging the Natural Environment

•• Wide appreciation for firms that conduct operations that “mend” rather than “harm” the Wide appreciation for firms that conduct operations that “mend” rather than “harm” the environment.environment.

Creating a Strategy-Supportive CultureCreating a Strategy-Supportive CultureStrategists should strive to preserve, emphasize, and build upon aspects of existing culture that

support new strategies.

13


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• 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

Lecture No. 35

Production/Operations ConcernsProduction/Operations Concerns

• Production processes typically constitute more than 70% of firm’s total assets

• Decisions on:– Plant size– Inventory/inventory control– Quality control– Cost control– Technological innovation

Human Resource ConcernsHuman Resource Concerns

• Assessing staffing needs and costs

• Develop performance incentives

• ESOPs

• Child-care policies

• Work-life balance

Lecture No. 36-37Marketing variables affect success or failure of strategy implementationMarketing variables affect success or failure of strategy implementation

•• Market SegmentationMarket Segmentation

•• Production PositioningProduction Positioning

Marketing Decisions requiring polices –Marketing Decisions requiring polices –– Use exclusive dealerships or multiple channels of distribution– Use heavy, light, or no TV advertising– Limit (or not) the share of business done with a single customer– Be a price leader or price follower– Offer a complete or limited warranty– Reward salespeople based on straight commission or combination salary/commission

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•• Subdividing of a market into distinct subsets of customers according to needs and buyingSubdividing of a market into distinct subsets of customers according to needs and buying habitshabits

•• Widely used in implementing strategiesWidely used in implementing strategies

•• Small and specialized firmsSmall and specialized firms

Market Segmentation Important Variable:• Market and product development, market penetration, and diversification require increased

sales through new markets or products• Firm can operate with limited resources. Enables a small firm by maximizing per-unit

profits and per-segment sales.• Segmentation decisions directly affect marketing mix variables:

- Product, place, promotion, and price

Marketing Mix – Component FactorsMarketing Mix – Component FactorsBases for Segmenting Markets –z Geographic Demographic Psychographic Behavioral

Geographic Basis:– Region– County Size– City or SMSA size– Density– Climate

Demographic Basis:– Age– Family Size– Family Life Cycle– Income Occupation– Education– Religion– Race Nationality

Psychographic Basis:– Social Class– Lifestyle– Personality

Behavioral Basis:– Use occasion– Benefits sought– User status– Usage rate– Loyalty status– Readiness Stage– Attitude toward product

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Developing schematic representations that reflect how products or services compare to competitors’ on dimensions most important to success in the industry

Product Positioning based on:– Customers wants– Customers needs

Product Positioning StepsProduct Positioning Steps1. Select Key Criteria2. Diagram Map3. Plot competitors’ products4. Look for niches5. Develop Marketing Plan

Product Positioning MapProduct Positioning Map

Product Positioning Map as Strategy-Implementation Tool—– Look for vacant niche– Avoid sub-optimization– Don’t serve 2 segments with same strategy– Don’t position in the middle of the map

Lecture No. 38

Finance/Accounting IssuesFinance/Accounting Issues

Central to Strategy Implementation –Central to Strategy Implementation ––– Acquiring needed capitalAcquiring needed capital

–– Developing pro forma financial statementsDeveloping pro forma financial statements

–– Preparing financial budgetsPreparing financial budgets

–– Evaluating worth of a businessEvaluating worth of a business

Finance/Accounting IssuesFinance/Accounting Issues

LowConvenience

Firm 1•

•Firm 2

• Firm 3

Rental Car Market

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Acquiring Capital to Implement Strategies –Acquiring Capital to Implement Strategies –

•• Basic sources of capitalBasic sources of capital ::

–– DebtDebt

–– EquityEquityDebt vs. Equity Decisions –Debt vs. Equity Decisions –

•• EPS/EBIT analysisEPS/EBIT analysis

–– Earnings per share/Earnings before interest and taxesEarnings per share/Earnings before interest and taxes

Pro Forma Financial Statements -Pro Forma Financial Statements -

•• Allows an organization to examine the expected results of various actions and Allows an organization to examine the expected results of various actions and approachesapproaches

6 Steps in Pro Forma Financial Analysis6 Steps in Pro Forma Financial Analysis•• Prepare income statement before balance sheet (forecast sales)Prepare income statement before balance sheet (forecast sales)•• Use percentage-of-sales method to project CGS and expensesUse percentage-of-sales method to project CGS and expenses•• Calculate projected net incomeCalculate projected net income•• Subtract dividends to be paid from Net Income and add remaining to Retained EarningsSubtract dividends to be paid from Net Income and add remaining to Retained Earnings•• Project balance sheet times beginning with retained earningsProject balance sheet times beginning with retained earnings•• List comments (remarks) on projected statementsList comments (remarks) on projected statements

Financial Budget –Financial Budget –Document that details how funds will be obtained and spent for a specified period of time.Document that details how funds will be obtained and spent for a specified period of time.

Types of Budgets –Types of Budgets ––– Cash budgetsCash budgets–– Operating budgetsOperating budgets–– Sales budgetsSales budgets–– Profit budgetsProfit budgets–– Factory budgetsFactory budgets–– Capital budgetsCapital budgets–– Expense budgetsExpense budgets–– Divisional budgetsDivisional budgets–– Variable budgetsVariable budgets–– Flexible budgetsFlexible budgets–– Fixed budgetsFixed budgets

Evaluating Worth of a BusinessEvaluating Worth of a BusinessCentral to strategy implementation as integrative, intensive and diversification strategies are Central to strategy implementation as integrative, intensive and diversification strategies are often implement through acquisitions of other firms.often implement through acquisitions of other firms.

Evaluating Worth of a BusinessEvaluating Worth of a Business3 Basic approaches:3 Basic approaches:1.1. What a firm ownsWhat a firm owns2.2. What a firm earnsWhat a firm earns3.3. What a firm will bring in the marketWhat a firm will bring in the market

Lecture No. 39

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Same above given in chapter 38Same above given in chapter 38Central to Strategy Implementation –Central to Strategy Implementation –Evaluating Worth of a BusinessEvaluating Worth of a Business3 Basic approaches: 3 Basic approaches: TillTillDecisions Requiring Finance/Accounting Policies1. Raise capital w/ short-term, long-term preferred or common stock2. Lease or buy fixed assets3. Determine an appropriate dividend payout ratio4. Use LIFO, FIFO, or market-value accounting approach5. Extend time of accounts receivable6. Establish percentage discount on accounts for terms7. Determine the amount of cash kept on hand

Lecture No. 40

Systematic Review, Evaluation & Control –Systematic Review, Evaluation & Control ––– Strategies become obsoleteStrategies become obsolete

–– Internal environments are dynamicInternal environments are dynamic

–– External environments are dynamicExternal environments are dynamic

• Strategy evaluation is vital to the organization’s well-being

• Alert management to potential or actual problems in a timely fashion• Erroneous strategic decisions can have severe negative impact on organizations

3 Basic Activities –• Examining the underlying bases of a firms’ strategy• Comparing expected to actual results• Corrective actions to ensure performance conforms to plans

Strategy evaluation –Strategy evaluation –– Complex and sensitive undertaking– Overemphasis can be costly and counterproductive

In many organizations, evaluation is an appraisal of performance –In many organizations, evaluation is an appraisal of performance –• Have assets increased?• Increase in profitability?• Increase in sales?• Increase in productivity?• Profit margins, ROI and EPS ratios increased?

Four Criteria (Richard Rummelt):• Consistency

• Consonance

• Feasibility

• Advantage

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Consistency– Strategy should not present inconsistent goals and policies.

• Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency

Consonance– Need for strategies to examine sets of trends

• Adaptive response to external environment• Trends are results of interactions among other trends

Feasibility– Neither overtax resources or create unsolvable sub-problems

• Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy

Advantage

– Creation or maintenance of competitive advantage• Superiority in resources, skills, or position

Difficulty in strategy evaluation –

• Increase in environment’s complexity

• Difficulty predicting future with accuracy

• Increasing number of variables

Difficulty in strategy evaluation –

• Rate of obsolescence of plans

• Domestic and global events

• Decreasing time span for planning certainty

Strategy evaluation should –

– Initiative managerial questioning

– Trigger review of objectives and values

– Stimulate creativity in generating alternatives

Lecture No. 41

Porter Supply Chain ModelThe Value Chain framework of Michael Porter is a model that helps to analyze specific activities

through which firms can create value and competitive advantage.

The activities of the Value Chain The activities of the Value Chain

• Primary activities (line functions)

• Support activities (Staff functions, overhead)

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Primary activities (line functions)Primary activities (line functions)

• Inbound Logistics

• Operations

• Outbound Logistics

• Marketing and Sales

• Service

Support activities (Staff functions, overhead)Support activities (Staff functions, overhead)

• Firm Infrastructure

• Technology Development

• Human Resource Management

• Procurement

Creating a cost advantage based on the value chainCreating a cost advantage based on the value chain

• A firm may create a cost advantage:

• By reducing the cost of individual value chain activities, or

• By reconfiguring the value chain.

10 cost drivers related to value chain activities 10 cost drivers related to value chain activities

• Economies of scale

• Learning

• Capacity utilization

• Linkages among activities

• Interrelationships among business units

• Degree of vertical integration

• Timing of market entry

• Firm's policy of cost or differentiation

• Geographic location

• Institutional factors (regulation, union activity, taxes, etc.).

Lecture No. 42

Same in above chapterFour Criteria (Richard Rummelt):Strategy evaluation should –

Lecture No. 43

Review of underlying bases of strategy –– Develop revised EFE Matrix– Develop revised IFE Matrix

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Review effectiveness of strategy –• Competitors’ reaction to strategy• Competitors’ change in strategy• Competitors’ changes in strengths and weaknesses• Reasons for competitors’ strategic change • Reasons for competitors’ successful strategies• Competitors’ present market positions and profitability• Potential for competitor retaliation• Potential for cooperation with competitors

Monitor Threats and Opportunities and Weaknesses and Strengths• Are our internal strengths still strengths?• Have we added additional strengths?• Are our weaknesses still weaknesses?• Have we other internal weaknesses?• Are opportunities still opportunities?• Other external opportunities?• Are threats still threats?• Are there other threats?• Are we vulnerable to a hostile takeover?

Lecture No. 44• Comparing expected to actual results

• Investigating deviations from plan

• Evaluating individual performance

Evaluation FrameworkEvaluation FrameworkI. Review Underlying Bases

Continue present course

II. Measure Firm Performance

III.Take

Corrective Actions

Differences?

Differences?

Yes

NO

Yes

NO

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• Progress toward stated objectives

Quantitative criteria for strategy evaluation –– Financial Ratios:

• Compare performance over different periods• Compare performance to competitors• Compare performance to industry averages

Key Financial Ratios –– Return on investment– Return on equity– Profit margin– Market share– Debt to equity– Earnings per share– Sales growth– Asset growth

Qualitative evaluation of strategy -– Internal consistency of strategy– Consistency of strategy with environment– Strategy appropriate in view of resources– Acceptable degree of risk– Appropriate time frame– Workability of the strategy

Lecture No. 45

Basic requirements for effective strategy evaluation –– Economical– Meaningful– Generate useful information– Timely information– Provide a true picture of what is happening

Strategy-Evaluation Assessment MatrixStrategy-Evaluation Assessment Matrix

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Premise of sound strategic management –– Planning to deal with unfavorable and favorable events before they occur.

Contingency Planning –– Alternative plans that can be put into effect if certain key events do not occur as

expected• Financial audits to determine correspondence between assertions based on strategic plans

and established criteria• Environmental audits to insure sound and safe practices.

Continue courseYesNoNo

Corrective actionsNoYesNo

Corrective actionsYesYesNo

Corrective actionsNoNoYes

Corrective actionsYesNoYes

Corrective actionsNoYesYes

Corrective actionsYesYesYes

Corrective actionsNoNoNo

Result

Has the firm progressed

satisfactorily toward achieving

its stated objectives?

Have major changes

occurred in the firm’s external strategic position?

Have major changes

occurred in the firm’s internal strategic position?

23

strategic short notes

Business

advantage of external

firms internal strengths

firms key internal strengths

firms key external threats

external factors

impact of external threats

resultant wt strategies

environmental threats