Strategy and business policy

Strategy and Business PolicyStrategy and Business Policy
George AntoniadesGeorge Antoniades

Strategic ManagementStrategic Management
►Set of decisions and actions that result inSet of decisions and actions that result in
the formulation and implementation of plansthe formulation and implementation of plans
designed to achieve a company’s objectivesdesigned to achieve a company’s objectives

Strategic ManagementStrategic Management
► It’s main tasksIt’s main tasks
1.1. Formulate a mission of the company (reasonFormulate a mission of the company (reason
for it’s existence)for it’s existence)
2.2. Develop a company profileDevelop a company profile
3.3. Assess the external environmentAssess the external environment
4.4. Analyze the company’s optionsAnalyze the company’s options
5.5. Identify the most desirable options in light ofIdentify the most desirable options in light of
it’s missionit’s mission

7.7. Select long term objectivesSelect long term objectives
8.8. Implement the strategic choicesImplement the strategic choices
9.9. Evaluate the success of the strategy forEvaluate the success of the strategy for
future referencefuture reference

The Dimensions of StrategicThe Dimensions of Strategic
DecisionsDecisions
► Strategic Issues Require Top-ManagementStrategic Issues Require Top-Management
DecisionsDecisions
 Only top management can understand the implicationsOnly top management can understand the implications
of these decisionsof these decisions
 Only top Management can authorize the allocation ofOnly top Management can authorize the allocation of
the sources requiredthe sources required
► Strategic Issues Require large Amounts ofStrategic Issues Require large Amounts of
ResourcesResources
 Require substantial allocation of people and assetsRequire substantial allocation of people and assets

► Strategic Issues often Affect the firms Long-Strategic Issues often Affect the firms Long-
Term ProsperityTerm Prosperity
 The decision will commit the organizationThe decision will commit the organization
for a long time. (usually 5 years and more)for a long time. (usually 5 years and more)
► Strategic Issues are future OrientedStrategic Issues are future Oriented
 Managers are based on forecast ratherManagers are based on forecast rather
than what they knowthan what they know
► Strategic issues usually have MultifunctionalStrategic issues usually have Multifunctional
or Multibusiness consequencesor Multibusiness consequences
 Strategic decisions often affect the firm’sStrategic decisions often affect the firm’s
SBUsSBUs
► Strategic Issues require Considering theStrategic Issues require Considering the
Firm’s External EnvironmentFirm’s External Environment

Levels Of StrategyLevels Of Strategy
►Corporate Level ManagementCorporate Level Management
 Board of Directors, C.E.O, and AdministrativeBoard of Directors, C.E.O, and Administrative
Officers.Officers.
►Responsible for financial performanceResponsible for financial performance
►Responsible for the non financial goals (e.g. ImageResponsible for the non financial goals (e.g. Image
and social responsibilities of the firm)and social responsibilities of the firm)
►Business Level ManagementBusiness Level Management
 Business and Corporate ManagersBusiness and Corporate Managers
►Translate statements of direction and intent comingTranslate statements of direction and intent coming
from Corporate Level into objectives and strategiesfrom Corporate Level into objectives and strategies

►Functional Level ManagementFunctional Level Management
 Product managers, area managers, functionalProduct managers, area managers, functional
managersmanagers
►Annual objectivesAnnual objectives
►Short term strategiesShort term strategies
►Implement company’s strategic planImplement company’s strategic plan
►Focus on doing the “right thing”Focus on doing the “right thing”

Benefits of strategic managementBenefits of strategic management
► Prevent problemsPrevent problems
► Group-based strategic decisions generate greater varietyGroup-based strategic decisions generate greater variety
of strategies by experts specialized in different areasof strategies by experts specialized in different areas
improve the screening of optionsimprove the screening of options
► The involvement of employees in strategy formulationThe involvement of employees in strategy formulation
heightens their motivationheightens their motivation
► Gaps and overlaps in activities are reduced sinceGaps and overlaps in activities are reduced since
participation of individuals and groups clarifies the differentparticipation of individuals and groups clarifies the different
rolesroles
► Resistance to change is reducedResistance to change is reduced
 Participants are more likely to accept changes which they haveParticipants are more likely to accept changes which they have
taken part ontaken part on

Risks of Strategic ManagementRisks of Strategic Management
►Strategic Planning takes timeStrategic Planning takes time
 Negative impact on operational responsibilitiesNegative impact on operational responsibilities
►If the formulators are not involved in theIf the formulators are not involved in the
implementation they may shrink theirimplementation they may shrink their
responsibility for the decisions reachedresponsibility for the decisions reached
 Managers should limit their promisesManagers should limit their promises
►Strategic managers must be trained toStrategic managers must be trained to
anticipate and respond to disappointment ofanticipate and respond to disappointment of
subordinates over unattained expectationssubordinates over unattained expectations

Strategic Management ModelStrategic Management Model
► Company MissionCompany Mission
 The mission describes the company’s product, market,The mission describes the company’s product, market,
and technological areas.and technological areas.
► Company ProfileCompany Profile
 Portray the company’s quantity and quality of financial,Portray the company’s quantity and quality of financial,
human and physical resourceshuman and physical resources
 Examine the company’s strengths and weaknesses ofExamine the company’s strengths and weaknesses of
its management and structureits management and structure
 Contrasts the company’s past successes traditionalContrasts the company’s past successes traditional
concerns with current capabilities to identify itsconcerns with current capabilities to identify its
capabilitiescapabilities

►External EnvironmentExternal Environment
 Consist of all conditions and forces that effect aConsist of all conditions and forces that effect a
firm’s strategic options and define itsfirm’s strategic options and define its
competitive situationcompetitive situation
►Strategic Analysis and choiceStrategic Analysis and choice
 Simultaneous assessment of externalSimultaneous assessment of external
environment and the company profile to identifyenvironment and the company profile to identify
possibly attractive interactive opportunities.possibly attractive interactive opportunities.

► Long –Term ObjectivesLong –Term Objectives
 The results an organization seeks to achieve over longThe results an organization seeks to achieve over long
period of timeperiod of time
► Profitability R.O.I (return on investment), productivity etc.Profitability R.O.I (return on investment), productivity etc.
► Generic and Grand StrategiesGeneric and Grand Strategies
 Generic StrategiesGeneric Strategies
► Low cost, differentiation, and focus strategies.Low cost, differentiation, and focus strategies.
► Combined with a comprehensive, general plan of major actionsCombined with a comprehensive, general plan of major actions
through which the firm will achieve its Long-Term objectivesthrough which the firm will achieve its Long-Term objectives

►Action Plans and Short-Term objectivesAction Plans and Short-Term objectives
 Action Plans translate generic and grandAction Plans translate generic and grand
strategies into action by incorporating:strategies into action by incorporating:
►SpecificSpecific and functionaland functional tactics and actionstactics and actions for a shortfor a short
term period in an effort to build a competitiveterm period in an effort to build a competitive
advantageadvantage
►ClearClear frame time for completionframe time for completion
►CreateCreate accountabilityaccountability to determine who isto determine who is
responsible for each action in the planresponsible for each action in the plan
►OutcomesOutcomes that action should generatethat action should generate

►Functional TacticsFunctional Tactics
 Identify and undertake activities unique to theIdentify and undertake activities unique to the
function that help build a competitive advantagefunction that help build a competitive advantage
►Policies that Empower ActionPolicies that Empower Action
►Restructuring, Reengineering, refocusingRestructuring, Reengineering, refocusing
the organizationthe organization
►Strategic control and continuousStrategic control and continuous
improvementimprovement

Defining the Company missionDefining the Company mission
►Company MissionCompany Mission
 The mission describes the company’s product,The mission describes the company’s product,
market, and technological areas.market, and technological areas.
 ““It describes the reason for the company’sIt describes the reason for the company’s
existence”existence”
► Strategic management (Strategic management (Board of directorsBoard of directors))
is responsible for overseeing the creationis responsible for overseeing the creation
and accomplishment of the companyand accomplishment of the company
missionmission

Company missionCompany mission
► Designed to accomplish:Designed to accomplish:
1.1. To ensure unanimity of purposeTo ensure unanimity of purpose
2.2. To provide a basis for motivation forTo provide a basis for motivation for
employeesemployees
3.3. To develop a basis for allocating theTo develop a basis for allocating the
organizational resourcesorganizational resources
4.4. TO establish organizational climateTO establish organizational climate

Company missionCompany mission
5. To serve as a focal point for those who can5. To serve as a focal point for those who can
identify with the organization’s purpose andidentify with the organization’s purpose and
direction, and deter those who can’tdirection, and deter those who can’t
6. To facilitate the translation of objectives and6. To facilitate the translation of objectives and
goals into work structure involving thegoals into work structure involving the
assignment of tasksassignment of tasks
7. Specify the purposes of the organization and7. Specify the purposes of the organization and
translate it into goalstranslate it into goals

Formulating a MissionFormulating a Mission
►Start by thinking our beliefs about theStart by thinking our beliefs about the
organizationorganization
 The product or service of the business canThe product or service of the business can
provide at least equal benefits with its priceprovide at least equal benefits with its price
 The product or service can satisfy a customerThe product or service can satisfy a customer
need in specific market segments that is notneed in specific market segments that is not
currently met adequatelycurrently met adequately
 The business can survive grow and makeThe business can survive grow and make
profitsprofits
 The technology the business is involved in canThe technology the business is involved in can
provide cost and quality product or serviceprovide cost and quality product or service

Formulating a MissionFormulating a Mission
►The management philosophy will create aThe management philosophy will create a
favourable public image. It will providefavourable public image. It will provide
financial and psychological rewards forfinancial and psychological rewards for
those who are willing to invest in thethose who are willing to invest in the
organizationorganization
►The entrepreneur’s self-concept of theThe entrepreneur’s self-concept of the
business can be communicated to, andbusiness can be communicated to, and
adopted by employees and stockholdersadopted by employees and stockholders

Mission statement componentsMission statement components
►Product or service, Primary market,Product or service, Primary market,
Principal TechnologyPrincipal Technology
 Specifications of the basic product or serviceSpecifications of the basic product or service
 Specifications of the primary marketSpecifications of the primary market
 Specifications of the principal technology ofSpecifications of the principal technology of
production or deliveryproduction or delivery
 Combined they describe the business activityCombined they describe the business activity

Mission Statement ComponentsMission Statement Components
►Company Goals:Company Goals:
 Secure SURVIVAL through GROWTH andSecure SURVIVAL through GROWTH and
PROFITABILITYPROFITABILITY

►Company PhilosophyCompany Philosophy
 Reflects or SpecifiesReflects or Specifies
►Basic beliefsBasic beliefs
►ValuesValues
►Aspirations (ambitions)Aspirations (ambitions)
►Philosophical prioritiesPhilosophical priorities
 Decision makers are committed to these valuesDecision makers are committed to these values
►E.g. General motors on its statement clarifies itsE.g. General motors on its statement clarifies its
environmental principlesenvironmental principles

►Public imagePublic image
 Reflects public’s expectationsReflects public’s expectations
►E.g. Johnson & Johnson makes safe productsE.g. Johnson & Johnson makes safe products
►Corvette makes powerful machinesCorvette makes powerful machines
►Toyota makes reliable carsToyota makes reliable cars

► Company self conceptCompany self concept
 Company knows itselfCompany knows itself
Characteristics of the corporate self conceptCharacteristics of the corporate self concept
1.1. Based on management perception of how theBased on management perception of how the
society will respond to the companysociety will respond to the company
2.2. Directs the behaviour of people employed by theDirects the behaviour of people employed by the
companycompany
3.3. It is determined in part by the responses of othersIt is determined in part by the responses of others
to the companyto the company
4.4. It is incorporated into mission statements that areIt is incorporated into mission statements that are
communicated to individuals inside and outside thecommunicated to individuals inside and outside the
companycompany

Newest TrendsNewest Trends
►CustomerCustomer
 Majority of companies state “The customer isMajority of companies state “The customer is
our top Priority”our top Priority”
 Focuses on customer satisfactionFocuses on customer satisfaction
►SafetySafety
►ServiceService
►ValueValue
►QualityQuality

Newest TrendsNewest Trends
►Social ResponsibilitySocial Responsibility
 PollutionPollution
 Give back to societyGive back to society
 Donate to non-profit organizationsDonate to non-profit organizations

Inputs to the development of theInputs to the development of the
company missioncompany mission
►StakeholdersStakeholders
 A stakeholder is any person or OrganizationA stakeholder is any person or Organization
who can be positively or negatively impactedwho can be positively or negatively impacted
by, or cause an impact on the actions of aby, or cause an impact on the actions of a
company.company.

Inputs to the development of theInputs to the development of the
company missioncompany mission
InsideInside
StakeholdersStakeholders
-Executive officers-Executive officers
-Board of directors-Board of directors
-Stockholders-Stockholders
EmployeesEmployees
OutsideOutside
stakeholdersstakeholders
-Customers-Customers
-Suppliers-Suppliers
-Creditors-Creditors
-Governments-Governments
-Unions-Unions
-Competitors-Competitors
-General Public-General Public
CompanyCompany
missionmission

ExamplesExamples
►Customer-Market: We believe our firstCustomer-Market: We believe our first
responsibility is our doctors, nurses, andresponsibility is our doctors, nurses, and
patients, to mothers and all others who usepatients, to mothers and all others who use
our products and services (Johnson &our products and services (Johnson &
Johnson)Johnson)
►Product-Service: AMAX’s principal productsProduct-Service: AMAX’s principal products
are molybdenum, coal, iron, copper, lead,are molybdenum, coal, iron, copper, lead,
zinc, gold and magneseum. (Amax)zinc, gold and magneseum. (Amax)

ExamplesExamples
► Technology-The common technologies in theseTechnology-The common technologies in these
areas relates to discrete particle coatingsareas relates to discrete particle coatings
(NASHUA)(NASHUA)
► Concern for survival-The company will run it’sConcern for survival-The company will run it’s
operations prudently, and will provide the profitsoperations prudently, and will provide the profits
and growth which will assure Hoover’s ultimateand growth which will assure Hoover’s ultimate
success (Hoover)success (Hoover)
► Philosophy-We are committed to improve healthPhilosophy-We are committed to improve health
care throughout the world Bxtel Travenol)care throughout the world Bxtel Travenol)

ExamplesExamples
►Self Concept-Hoover is a diversified, multiSelf Concept-Hoover is a diversified, multi
industry corporation with strongindustry corporation with strong
manufacturing capabilities entrepreneurshipmanufacturing capabilities entrepreneurship
policies, and individual business unitpolicies, and individual business unit
autonomiesautonomies
►Concern for public image-We areConcern for public image-We are
responsible to the communities in which weresponsible to the communities in which we
live and work and to the world communitylive and work and to the world community
as well (J & J)as well (J & J)

Strategy MakersStrategy Makers
► Board of directorsBoard of directors
Elected by stockholdersElected by stockholders
► ResponsibilitiesResponsibilities
 Establish and update company missionEstablish and update company mission
 Elect top officers (CEO)Elect top officers (CEO)
 Establish compensation levels of top officers (salaries,Establish compensation levels of top officers (salaries,
bonuses)bonuses)
 Determine the amount of timing and dividend paid toDetermine the amount of timing and dividend paid to
stockholdersstockholders
 Set company policy on matters like Labour-Set company policy on matters like Labour-
Management relations, employee benefitsManagement relations, employee benefits
 Set company objectives and authorise managers toSet company objectives and authorise managers to
implement strategiesimplement strategies
 Mandate company compliance with legal and ethicalMandate company compliance with legal and ethical
dictatesdictates

The External EnvironmentThe External Environment

Remote EnvironmentRemote Environment
►EconomicEconomic
►SocialSocial
►PoliticalPolitical
►TechnologicalTechnological
►EcologicalEcological

► Economic FactorsEconomic Factors
Concern the direction of the economy in which theConcern the direction of the economy in which the
firm operatesfirm operates
► Social FactorsSocial Factors
Beliefs, Values, attitudes, Opinions, and lifestyles ofBeliefs, Values, attitudes, Opinions, and lifestyles of
persons in the firm’s external environment.persons in the firm’s external environment.
Social factors are shaped by Cultural, ecological,Social factors are shaped by Cultural, ecological,
demographic, religious educational, and ethnicdemographic, religious educational, and ethnic
conditioningconditioning

►Political FactorsPolitical Factors
Concerns of the direction and stability ofConcerns of the direction and stability of
political situations. (legal and regulatorypolitical situations. (legal and regulatory
parameters)parameters)
►Technological FactorsTechnological Factors
Changes in technologyChanges in technology
►Crucial to predict future technological capabilities andCrucial to predict future technological capabilities and
their probable impacttheir probable impact

►Ecological FactorsEcological Factors
Ecology refers to the relationship amongEcology refers to the relationship among
human beings and other living things, andhuman beings and other living things, and
air, soil, and water that support itair, soil, and water that support it
 Relationship between business and ecologyRelationship between business and ecology

Industry EnvironmentIndustry Environment
►Competitive forces shape the industryCompetitive forces shape the industry
environmentenvironment
 Fight of market shareFight of market share
►5 Forces that shape competition and5 Forces that shape competition and
determine the attractiveness of the industrydetermine the attractiveness of the industry

Threat of EntryThreat of Entry
►There are 6 major forces of barriers to entryThere are 6 major forces of barriers to entry
 Economies of scaleEconomies of scale
►Either come in on large scale, or accept costEither come in on large scale, or accept cost
disadvantagedisadvantage
 Product differentiationProduct differentiation
►Brand identification creates a barrier because itBrand identification creates a barrier because it
makes new entrants to spend heavily to overcomemakes new entrants to spend heavily to overcome
customer loyaltycustomer loyalty
 Capital requirementsCapital requirements
►The need for investing large financial resources.The need for investing large financial resources.

Threat of EntryThreat of Entry
 Cost Disadvantages independent of sizeCost Disadvantages independent of size
►Already established companies have advantages likeAlready established companies have advantages like
Learning curve, experience curve, access to the bestLearning curve, experience curve, access to the best
raw material, assets purchased at pre inflation prices.raw material, assets purchased at pre inflation prices.
 Access to distribution ChannelsAccess to distribution Channels
►New entrants must secure distribution of theirNew entrants must secure distribution of their
productproduct
 Government policyGovernment policy
►Licence requirementLicence requirement
►Limit the access to materialLimit the access to material

Power of SuppliersPower of Suppliers
► Powerful suppliers can squeeze profitability out ofPowerful suppliers can squeeze profitability out of
the companythe company
 Raise PricesRaise Prices
 Reduce qualityReduce quality
► A supplier group is powerful if:A supplier group is powerful if:
 It is dominated by few companies and is moreIt is dominated by few companies and is more
concentrated than the industry it sells.concentrated than the industry it sells.
 Its product is unique or at least differentIts product is unique or at least different
 It does not content with other productsIt does not content with other products
 It poses a threat for integrating forward into theIt poses a threat for integrating forward into the
industry’s business (sell what it produce)industry’s business (sell what it produce)
 The industry is not an important customer to the supplierThe industry is not an important customer to the supplier
groupgroup

Powerful BuyersPowerful Buyers
►A buyer group is powerful ifA buyer group is powerful if
 It is concentrated or purchases in large volumesIt is concentrated or purchases in large volumes
 The products are standard or undifferentiatedThe products are standard or undifferentiated
 The product sold by the industry is a significantThe product sold by the industry is a significant
fraction of the buyers costfraction of the buyers cost
 The buyers pose a threat for integratingThe buyers pose a threat for integrating
backwards to make the industry’s productsbackwards to make the industry’s products

Substitute ProductsSubstitute Products
►Substitute goods that need our attention areSubstitute goods that need our attention are
those that:those that:
a) Are improving their price-performancea) Are improving their price-performance
trade-off with the industry producttrade-off with the industry product
b) Are produced by industries earning highb) Are produced by industries earning high
profitsprofits

Rivalry among industryRivalry among industry
►Intense rivalry is related to the factorsIntense rivalry is related to the factors
 Many competitors, or equal in power and sizeMany competitors, or equal in power and size
 Slow industry growth-fight for market shareSlow industry growth-fight for market share
 The product or service lacks differentiation orThe product or service lacks differentiation or
switching costsswitching costs
 Fixed costs are highFixed costs are high
 Exit barriers are highExit barriers are high
 Rivals are diverse in strategies, origins andRivals are diverse in strategies, origins and
personalitiespersonalities

Industry analysis and competitiveIndustry analysis and competitive
analysisanalysis
► A firm need to answer 4 questionsA firm need to answer 4 questions
1.1. What are the boundaries of the industryWhat are the boundaries of the industry
2.2. What is the structure of the industryWhat is the structure of the industry
3.3. Which firms are our competitorsWhich firms are our competitors
4.4. What are the major determinants ofWhat are the major determinants of
competitioncompetition

Industry StructureIndustry Structure
► ConcentrationConcentration
 The extend by which sales are dominated by only a fewThe extend by which sales are dominated by only a few
firmsfirms
► Economies of scaleEconomies of scale
 Savings that the companies within the industry achieveSavings that the companies within the industry achieve
due to increased volumedue to increased volume
► Product differentiationProduct differentiation
 The extend to which customers perceive products orThe extend to which customers perceive products or
services offered by firms in the industry as differentservices offered by firms in the industry as different

Industry StructureIndustry Structure
►Barriers to EntryBarriers to Entry
 Tangible (Capital, resources, laws)Tangible (Capital, resources, laws)
 Intangible (Reputation of existing firms, loyaltyIntangible (Reputation of existing firms, loyalty
of consumers for existing firms)of consumers for existing firms)

Competitive AnalysisCompetitive Analysis
►How to identify competitorsHow to identify competitors
 Identify how other firms define their marketIdentify how other firms define their market
 How similar are the benefits the customers getHow similar are the benefits the customers get
from the product or services other firms offerfrom the product or services other firms offer
 How committed are other firms to the industryHow committed are other firms to the industry

Operating environmentOperating environment
► Competitive PositionCompetitive Position
► Development of competitor profiles we oftenDevelopment of competitor profiles we often
include the following criteriainclude the following criteria
 Market shareMarket share
 Breadth of product lineBreadth of product line
 Effectiveness of sales distributionEffectiveness of sales distribution
 Price competitivenessPrice competitiveness
 Capacity and productivityCapacity and productivity
 Cost of raw materialCost of raw material
 R&D advantages positionR&D advantages position
 Location of facilitiesLocation of facilities

Operating EnvironmentOperating Environment
►Customer profilesCustomer profiles
 Geographic – where the customers do or couldGeographic – where the customers do or could
come fromcome from
 Demographic-Variables used to differentiateDemographic-Variables used to differentiate
groups (sex, age, marital status, income,groups (sex, age, marital status, income,
occupation)occupation)
 Psychographic-Personality and LifestylePsychographic-Personality and Lifestyle
 Buyer Behaviour-Brand loyalty, frequency ofBuyer Behaviour-Brand loyalty, frequency of
use, benefits sought)use, benefits sought)

►Suppliers-Assessing the relationship withSuppliers-Assessing the relationship with
supplier we considersupplier we consider
 Are the suppliers price competitive? Do theyAre the suppliers price competitive? Do they
offer discounts?offer discounts?
 How costly are their shipping charges?How costly are their shipping charges?
 Are the suppliers competitive in terms ofAre the suppliers competitive in terms of
production standards?production standards?

►CreditorsCreditors
 Are the creditors able to extend the necessaryAre the creditors able to extend the necessary
lines of credit?lines of credit?
 Are the creditor’s loan terms compatible with theAre the creditor’s loan terms compatible with the
firms profitability objectives?firms profitability objectives?
 Do the creditors perceive the firm as having anDo the creditors perceive the firm as having an
acceptable record of past payment?acceptable record of past payment?

►Human ResourcesHuman Resources
 The ability to attract and keep capableThe ability to attract and keep capable
employees is essential for a firm’s successemployees is essential for a firm’s success
 Reputation of the firm pays a key roleReputation of the firm pays a key role

The Global EnvironmentThe Global Environment
►Ch 4Ch 4

Factors that drive global companiesFactors that drive global companies
►Global management teamGlobal management team
 Possesses global vision & culturePossesses global vision & culture
 Includes foreign nationalsIncludes foreign nationals
 Leaves management of subsidiaries toLeaves management of subsidiaries to
nationalsnationals
 Frequently travels internationallyFrequently travels internationally
 Has cross-cultural trainingHas cross-cultural training

►Global strategyGlobal strategy
 Implement strategy as opposed to independentImplement strategy as opposed to independent
country strategycountry strategy
 Develop significant cross-country alliancesDevelop significant cross-country alliances
 Select country targets strategically rather thanSelect country targets strategically rather than
opportunisticallyopportunistically
 Perform business functions where most efficientPerform business functions where most efficient

►Global operations and productsGlobal operations and products
 Use common core operating processesUse common core operating processes
worldwide to ensure quantity and uniformityworldwide to ensure quantity and uniformity
 Produce globally to obtain best cost and marketProduce globally to obtain best cost and market
advantageadvantage

►Global technology and R&DGlobal technology and R&D
 Design global products but take regionalDesign global products but take regional
differences into accountdifferences into account
 Manage development work centrally but carryManage development work centrally but carry
out globallyout globally

►Global financingGlobal financing
 Finance globally to obtain lower costFinance globally to obtain lower cost
 Price in local currenciesPrice in local currencies
 List shares in foreign exchangesList shares in foreign exchanges

►Global marketingGlobal marketing
 Develop Global brandsDevelop Global brands
 Use core of global marketing practices andUse core of global marketing practices and
themesthemes
 Simultaneously introduce new global productsSimultaneously introduce new global products
world wideworld wide

Considerations PriorConsiderations Prior
GlobalizationGlobalization
► 1. Scan the global situation1. Scan the global situation
 Read journals, reports or other written sources, meetingRead journals, reports or other written sources, meeting
people in conferences and in-house seminarspeople in conferences and in-house seminars
► 2. Make connections with research Organizations.2. Make connections with research Organizations.
 Enter into consulting agreements with themEnter into consulting agreements with them
► 3. Increase the firm’s global visibility3. Increase the firm’s global visibility
 Participation in trade fairs, circulate brochuresParticipation in trade fairs, circulate brochures
► 4. Undertake cooperative research projects4. Undertake cooperative research projects
 Reduce expenses and riskReduce expenses and risk

Complexity of the global environmentComplexity of the global environment
►Global companies face multiple political,Global companies face multiple political,
economic, legal, social and culturaleconomic, legal, social and cultural
environments and various rates of changesenvironments and various rates of changes
►Interactions between the national andInteractions between the national and
foreign environments are complex becauseforeign environments are complex because
of national sovereignty issues and differingof national sovereignty issues and differing
economic & social conditionseconomic & social conditions
►Geographic separation tend to makeGeographic separation tend to make
communication difficultcommunication difficult

Global Strategic PlanningGlobal Strategic Planning
►Multidomestic IndustriesMultidomestic Industries
 Is the industry where the competition isIs the industry where the competition is
essentially segmented from country to countryessentially segmented from country to country
 Competition in one country is independed ofCompetition in one country is independed of
competition in other countriescompetition in other countries
►E.g. Insurance, consumer financeE.g. Insurance, consumer finance
 In this case subsidiaries of the globalIn this case subsidiaries of the global
corporation should be rather autonomouscorporation should be rather autonomous

Global strategic planningGlobal strategic planning
►Global industriesGlobal industries
 Competition in this case crosses nationalCompetition in this case crosses national
borders.borders.
 In such industry a firm’s strategic moves in oneIn such industry a firm’s strategic moves in one
country can be effected by its competitivecountry can be effected by its competitive
position in another countryposition in another country
►These industries include automobiles, main frameThese industries include automobiles, main frame
computers, commercial aircrafts.computers, commercial aircrafts.

Global strategic planningGlobal strategic planning
►Global industriesGlobal industries
 Strategic management planning should beStrategic management planning should be
global for many reasonsglobal for many reasons
►The increased scope of the global management taskThe increased scope of the global management task
►The increased globalization of firmsThe increased globalization of firms
►The information explosionThe information explosion
►The increase in global competitionThe increase in global competition
►The rapid development of technologyThe rapid development of technology
►Strategic management planning breeds managerialStrategic management planning breeds managerial
confidenceconfidence

Globalization of the companyGlobalization of the company
missionmission
►The mission statement must be revised toThe mission statement must be revised to
go along with the changes in strategicgo along with the changes in strategic
direction and strategic alternatives thatdirection and strategic alternatives that
globalization demandsglobalization demands
►The firm could define its market as global orThe firm could define its market as global or
it could focus on particular demands of eachit could focus on particular demands of each
national marketnational market

missionmission
►Company goals: Survival growth ProfitabilityCompany goals: Survival growth Profitability
 Companies should be careful when committedCompanies should be careful when committed
to profit motive. Many countries may viewto profit motive. Many countries may view
development goals as taking superiority overdevelopment goals as taking superiority over
the goals of free market capitalismthe goals of free market capitalism

missionmission
►Company PhilosophyCompany Philosophy
 When a firm extends its operations into anotherWhen a firm extends its operations into another
country it encounters a new set of acceptedcountry it encounters a new set of accepted
corporate values and beliefs, which it mustcorporate values and beliefs, which it must
assimilate and incorporate into its ownassimilate and incorporate into its own

missionmission
►Self conceptSelf concept
 The globalized self-concept of a firm isThe globalized self-concept of a firm is
dependent on management’s understanding ofdependent on management’s understanding of
the firms strengths and weaknesses as athe firms strengths and weaknesses as a
competitor in each of its operating locationscompetitor in each of its operating locations

Competitive strategies in foreignCompetitive strategies in foreign
marketsmarkets
►Niche Market exportingNiche Market exporting
 Modify product performance to meet specialModify product performance to meet special
foreign demandsforeign demands
 Exporting requires minimal capital investmentExporting requires minimal capital investment
 The organization maintains its quality controlThe organization maintains its quality control
standardsstandards

marketsmarkets
►Licensing/Contract manufacturingLicensing/Contract manufacturing
► Involves the transfer of some industrialInvolves the transfer of some industrial
property right from the licensor to theproperty right from the licensor to the
licensee. These property is usually patents,licensee. These property is usually patents,
trademarks, or technical know-howtrademarks, or technical know-how
 In return the licensor is paid royalty and avoidsIn return the licensor is paid royalty and avoids
tariffs or import quotastariffs or import quotas

marketsmarkets
►Joint VenturesJoint Ventures
 Most companies will form joint venture withMost companies will form joint venture with
target nation firmstarget nation firms
 Offers more permanent cooperativeOffers more permanent cooperative
relationships than exportingrelationships than exporting

marketsmarkets
►Foreign BranchingForeign Branching
 A foreign branch is an extension of theA foreign branch is an extension of the
company in its foreign marketcompany in its foreign market
►It is a separately located SBUIt is a separately located SBU

marketsmarkets
►Foreign subsidiariesForeign subsidiaries
 Foreign subsidiaries are considered byForeign subsidiaries are considered by
companies that are willing and able to make thecompanies that are willing and able to make the
highest investment commitment to the foreignhighest investment commitment to the foreign
marketmarket
 These companies insist of full ownership toThese companies insist of full ownership to
control and manage efficientlycontrol and manage efficiently
 Fully owned subsidiaries can be either fromFully owned subsidiaries can be either from
scratch or by acquiring established firms in thescratch or by acquiring established firms in the
host countryhost country

Environmental forecasting (ch 5)Environmental forecasting (ch 5)
► The aid in the search for future opportunities andThe aid in the search for future opportunities and
constrains should take the following stepsconstrains should take the following steps
 Select the environmental variables that are critical to theSelect the environmental variables that are critical to the
firmfirm
 Select the sources of significant environmentalSelect the sources of significant environmental
formationformation
 Evaluate forecasting techniquesEvaluate forecasting techniques
 Integrate forecast results into strategic managementIntegrate forecast results into strategic management
processprocess
 Monitor the critical aspects of managing forecastsMonitor the critical aspects of managing forecasts

Select critical environmentalSelect critical environmental
variablesvariables
►Changes in the population structure andChanges in the population structure and
dynamics produce other changes indynamics produce other changes in
environment such asenvironment such as
 EconomicEconomic
 SocialSocial
 politicalpolitical

variablesvariables
► Usually top management has the responsibility forUsually top management has the responsibility for
environmental forecastingenvironmental forecasting
► A list of key variables should be usedA list of key variables should be used
► The key variables can be kept manageable in by:The key variables can be kept manageable in by:
 Including all variables that would have significant impactIncluding all variables that would have significant impact
although they do not have a high chance for occurring.although they do not have a high chance for occurring.
(e.g. trucking deregulation).(e.g. trucking deregulation).
 Also include variables that have high chance to occurAlso include variables that have high chance to occur
regardless on their impact (e.g. a supplier will increaseregardless on their impact (e.g. a supplier will increase
its price slightly). Delete those that have low impact andits price slightly). Delete those that have low impact and
low probabilitylow probability

variablesvariables
►The key variables can be kept manageableThe key variables can be kept manageable
in by (cont’d):in by (cont’d):
 Disregard major disasters such as nuclear warDisregard major disasters such as nuclear war
 If the value of one variable is based on theIf the value of one variable is based on the
value of another variable separate them forvalue of another variable separate them for
future planningfuture planning

Select sources of significantSelect sources of significant
environmental informationenvironmental information
►These sources includeThese sources include
 MeetingsMeetings
 InteractionsInteractions
 Periodicals such as The Wall street journalPeriodicals such as The Wall street journal

Evaluate forecasting techniquesEvaluate forecasting techniques
►Economic forecastEconomic forecast
 Primary concerned with remote factors likePrimary concerned with remote factors like
general economic conditions, disposablegeneral economic conditions, disposable
income, wage rate and productivityincome, wage rate and productivity
 Data gathered from government and privateData gathered from government and private
sourcessources
 Served as framework for industry and companyServed as framework for industry and company
forecast that dealt with task-environmentforecast that dealt with task-environment
concerns (sales, market)concerns (sales, market)

Econometric modelEconometric model
►Utilize complex simultaneous regressionUtilize complex simultaneous regression
equations to relate economic occurrences toequations to relate economic occurrences to
areas of corporate activityareas of corporate activity
 Time series models (exponential smoothing andTime series models (exponential smoothing and
linear projection, trend analysis)linear projection, trend analysis)
►Attempt to identify patterns based on combination ofAttempt to identify patterns based on combination of
historical trends and seasonal and cyclical factors.historical trends and seasonal and cyclical factors.
►This technique assumes that the past is the prologueThis technique assumes that the past is the prologue
for the futurefor the future

►Social forecastSocial forecast
 Involve analysis of areas like population,Involve analysis of areas like population,
housing, social security and welfare, health andhousing, social security and welfare, health and
nutrition, education and training, income andnutrition, education and training, income and
wealth and expenditureswealth and expenditures

►Social forecasts (cont’d)Social forecasts (cont’d)
Scenario approach is the most popularScenario approach is the most popular
 Imagined stories that help managers prepareImagined stories that help managers prepare
alternative possibilitiesalternative possibilities

►Political forecastPolitical forecast
 Business success can be effected by politicalBusiness success can be effected by political
factors such as size of government budgets,factors such as size of government budgets,
tariffs, tax rates, defence spending, extend oftariffs, tax rates, defence spending, extend of
business leaders’ participation in governmentbusiness leaders’ participation in government
planningplanning

►Technological forecastTechnological forecast
 Brainstorming techniqueBrainstorming technique
►Helps group generate new ideas and forecastsHelps group generate new ideas and forecasts
►The most promising ideas are generated areThe most promising ideas are generated are
consideredconsidered
 Delphi methodDelphi method
►A detailed survey of opinion of experts, usuallyA detailed survey of opinion of experts, usually
abstained through a mail questionnaireabstained through a mail questionnaire
►Anonymous evaluation of the responses by theAnonymous evaluation of the responses by the
experts involvedexperts involved
►One or more revisions of the experts answersOne or more revisions of the experts answers

Internal AnalysisInternal Analysis
►Ch. 6Ch. 6

SWOTSWOT ANALYSISANALYSIS
►The overall evaluation of a company’sThe overall evaluation of a company’s
sstrength’s,trength’s, wweaknesses,eaknesses, oopportunities andpportunities and
tthreatshreats

SWOTSWOT
►External Environment AnalysisExternal Environment Analysis
(Opportunities and Threats)(Opportunities and Threats)
 Opportunity is a favourable situation in a firm’sOpportunity is a favourable situation in a firm’s
environmentenvironment
 Opportunities can take many formsOpportunities can take many forms
►A company may make buying process moreA company may make buying process more
convenient (internet)convenient (internet)
►A company can meet the need of acquiring moreA company can meet the need of acquiring more
informationinformation
►A company may be able to deliver a product fasterA company may be able to deliver a product faster
►A company can offer a product at lower priceA company can offer a product at lower price

 An environmental threat is a challenge post byAn environmental threat is a challenge post by
an unfavourable trend or developmentan unfavourable trend or development
►New government regulationsNew government regulations
►New entrantsNew entrants
►Competitor develops a superior product or serviceCompetitor develops a superior product or service
►Economic depressionEconomic depression
►Higher costsHigher costs

►Internal Environment analysis (StrengthsInternal Environment analysis (Strengths
and weaknesses)and weaknesses)
Strengths – Where the company has advantagesStrengths – Where the company has advantages
E.g. Company reputationE.g. Company reputation
Market shareMarket share
Customer satisfactionCustomer satisfaction
Product qualityProduct quality
Service qualityService quality
Distribution effectivenessDistribution effectiveness

Weaknesses-The areas where the company hasWeaknesses-The areas where the company has
limitationslimitations
E.g. Geographical coverageE.g. Geographical coverage
Sales force effectivenessSales force effectiveness
Technical manufacturing skillsTechnical manufacturing skills
Dedicated employeesDedicated employees
Cost or availability of capitalCost or availability of capital

SWOTSWOT
►SWOT analysis can be used to help in aSWOT analysis can be used to help in a
firms strategy analysisfirms strategy analysis
 Use it as a framework to discussion that wouldUse it as a framework to discussion that would
help in alternatives that the managementhelp in alternatives that the management
considersconsiders

Functional ApproachFunctional Approach
►Focusing on Internal analysisFocusing on Internal analysis
►List of key internal factors (basicList of key internal factors (basic
capabilities, limitations and characteristics)capabilities, limitations and characteristics)
►Managers will analyse the internal factorsManagers will analyse the internal factors
that are most critical for successthat are most critical for success

The Functional ApproachThe Functional Approach
► MARRKETINGMARRKETING
 After sale serviceAfter sale service
 Understanding of customer needsUnderstanding of customer needs
 Product or service ImageProduct or service Image
► Production and operationProduction and operation
 Supplier relationshipsSupplier relationships
 Economies of scaleEconomies of scale
► PersonnelPersonnel
 Employee skills and moralEmployee skills and moral
 Specialized skillsSpecialized skills
 Employee tutnoverEmployee tutnover

Value Chain AnalysisValue Chain Analysis
► Is based on the assumption that a business’sIs based on the assumption that a business’s
basic purpose is to create value for people whobasic purpose is to create value for people who
use its products or servicesuse its products or services
► The firm is viewed as a chain of value creatingThe firm is viewed as a chain of value creating
activitiesactivities
► Each of these activities create value and can be aEach of these activities create value and can be a
competitive advantagecompetitive advantage
► By identifying and examining these activitiesBy identifying and examining these activities
managers get a good understanding of their firm’smanagers get a good understanding of their firm’s
capabilities, its cost structure and how thesecapabilities, its cost structure and how these
create competitive advantage or disadvantagecreate competitive advantage or disadvantage

►Divide the a firm’s activities into two majorDivide the a firm’s activities into two major
activitiesactivities
►Primary activitiesPrimary activities
 Those that are involved in the physical creationThose that are involved in the physical creation
of the productof the product
►Support activitiesSupport activities
 Assist the Primary activitiesAssist the Primary activities

► Primary ActivitiesPrimary Activities
 Purchased Supplies and inbound logistics-ActivitiesPurchased Supplies and inbound logistics-Activities
costs and assets associated with purchasing fuel,costs and assets associated with purchasing fuel,
energy raw materialenergy raw material
 Operations-Activities costs and assets associated withOperations-Activities costs and assets associated with
converting inputs into the final product (Assembly,converting inputs into the final product (Assembly,
packaging, production)packaging, production)
 Outbound logistics-Activities costs and assets dealingOutbound logistics-Activities costs and assets dealing
with the distribution of product to buyers (Finish goodswith the distribution of product to buyers (Finish goods
warehousing, order processing, shipping)warehousing, order processing, shipping)

►Primary ActivitiesPrimary Activities
 Sales and Marketing-Activities costs and assetsSales and Marketing-Activities costs and assets
related to sales force efforts, advertising andrelated to sales force efforts, advertising and
promotionpromotion
 Service-Activities costs and assets associatedService-Activities costs and assets associated
with providing assistance to buyers (installation,with providing assistance to buyers (installation,
technical assistance, spare part delivery)technical assistance, spare part delivery)

► Support activitiesSupport activities
 Research Technology and system development-Research Technology and system development-
Activities costs and assets relating to product R&D,Activities costs and assets relating to product R&D,
equipment design, computer software development,equipment design, computer software development,
telecommunications systemtelecommunications system
 Human resource management-Activities, Costs andHuman resource management-Activities, Costs and
assets related with recruitment, hiring, compensation ofassets related with recruitment, hiring, compensation of
personnelpersonnel
 General Administration-Activities, costs and assetsGeneral Administration-Activities, costs and assets
related to general management, safety and security,related to general management, safety and security,
accounting ad financeaccounting ad finance

The Value ChainThe Value Chain

BenchmarkingBenchmarking
►A firm’s comparison with its competitorsA firm’s comparison with its competitors
►In choosing a strategy firms should compareIn choosing a strategy firms should compare
their internal capabilities with those of itstheir internal capabilities with those of its
rivals, to isolate its key strengths andrivals, to isolate its key strengths and
weaknessesweaknesses
►The main objective in benchmarking is toThe main objective in benchmarking is to
identify the best practices in performing anidentify the best practices in performing an
activity, to learn how to lower our cost, haveactivity, to learn how to lower our cost, have
fewer defectsfewer defects

Formulating Long Term ObjectivesFormulating Long Term Objectives
► In order to achieve long-term prosperity,In order to achieve long-term prosperity,
strategic planners commonly establishstrategic planners commonly establish
long term objectives in 7 areas:long term objectives in 7 areas:
1.1. Profitability-Usually expressed inProfitability-Usually expressed in
earnings/share or return on equityearnings/share or return on equity
2.2. Productivity-Firms that can improve the inputProductivity-Firms that can improve the input
output relationship normally improveoutput relationship normally improve
profitability.profitability.
For this reason companies state objectives onFor this reason companies state objectives on
productivityproductivity

3. Competitive position-The relative dominance in3. Competitive position-The relative dominance in
the market place.the market place.
► Usually measured by Total Sales or Market shareUsually measured by Total Sales or Market share
4. Employee development-Because employees4. Employee development-Because employees
value growth and career opportunities, suchvalue growth and career opportunities, such
opportunities are increasing productivity andopportunities are increasing productivity and
reduce turnover.reduce turnover.
► E.g. of an employee development objective. Develop highlyE.g. of an employee development objective. Develop highly
skilled and flexible employeesskilled and flexible employees

5. Employee relations-Strategic managers5. Employee relations-Strategic managers
believe that productivity is linked tobelieve that productivity is linked to
employee loyalty and they set employeeemployee loyalty and they set employee
relations objectives.relations objectives.
►Such objectives might be safety programs, workerSuch objectives might be safety programs, worker
representation on management committees,representation on management committees,
employee stock option plansemployee stock option plans

6. Technological leadership-Firms must choose if6. Technological leadership-Firms must choose if
they want to lead or follow in the market place.they want to lead or follow in the market place.
Both can be successful but firms should state anBoth can be successful but firms should state an
objective regarding technological leadershipobjective regarding technological leadership
7. Public responsibility- Firms recognize their7. Public responsibility- Firms recognize their
responsibilities toward the customer and theresponsibilities toward the customer and the
society they are operating in at great point. Theysociety they are operating in at great point. They
wish to go beyond legal requirements to establishwish to go beyond legal requirements to establish
themselves as responsible corporate citizensthemselves as responsible corporate citizens
 Such objectives might be charitable and educationalSuch objectives might be charitable and educational
contributionscontributions

Qualities of long term objectivesQualities of long term objectives
►Acceptable-Managers pursue objectivesAcceptable-Managers pursue objectives
that are consistent with their preferences.that are consistent with their preferences.
They will ignore achievement of objectivesThey will ignore achievement of objectives
that offend themthat offend them
 E.g. Promote a non nutritional food itemE.g. Promote a non nutritional food item
►Flexible-Objectives should be adaptable toFlexible-Objectives should be adaptable to
unforeseen changes in the competitive orunforeseen changes in the competitive or
environmental forecast.environmental forecast.

► Measurable- Objectives must state what will beMeasurable- Objectives must state what will be
achieved, and when it will be achieved.achieved, and when it will be achieved.
► Motivating-People are most productive whenMotivating-People are most productive when
objectives are set at a motivating level. Not tooobjectives are set at a motivating level. Not too
high to provide frustration but not too low to behigh to provide frustration but not too low to be
easily attainedeasily attained
► Suitable-Objectives must be suited to the broadSuitable-Objectives must be suited to the broad
aims of the firm which are expressed in theaims of the firm which are expressed in the
mission statement. Each objective should be amission statement. Each objective should be a
step toward the overall goalsstep toward the overall goals

►Understandable-Strategic managers at allUnderstandable-Strategic managers at all
levels should understand what is to belevels should understand what is to be
achieved.achieved.
►Achievable-Objectives must be challengingAchievable-Objectives must be challenging
but possible to achievebut possible to achieve

Grand StrategiesGrand Strategies
►Often called master or business strategiesOften called master or business strategies
►Provide direction for strategic actionsProvide direction for strategic actions
►They are the basis of coordinated andThey are the basis of coordinated and
sustained efforts directed toward achievingsustained efforts directed toward achieving
long term objectiveslong term objectives

► Concentrated growthConcentrated growth
 When a firm directs its resources to the profitableWhen a firm directs its resources to the profitable
growth of a single product, in a single market, with agrowth of a single product, in a single market, with a
single dominant technology. (e.g. swimming pool care)single dominant technology. (e.g. swimming pool care)
 Firms have the ability to assess market needs,Firms have the ability to assess market needs,
knowledge of buyer behaviour, price sensitivity andknowledge of buyer behaviour, price sensitivity and
effect of promotional acts.effect of promotional acts.
 A firm that employs this strategy is aiming for the growthA firm that employs this strategy is aiming for the growth
that results from increased productivitythat results from increased productivity

Grand strategiesGrand strategies
►Concentrated growth is favoured byConcentrated growth is favoured by
conditions likeconditions like
 The industry is resistant to major technologicalThe industry is resistant to major technological
advancementsadvancements
 The firms inputs are stable in price and quantityThe firms inputs are stable in price and quantity
and available at the amounts and time neededand available at the amounts and time needed
 The market is stable without seasonal andThe market is stable without seasonal and
cyclical swingscyclical swings

►Market developmentMarket development
 Market development is the name given to aMarket development is the name given to a
growth strategy where the business seeks togrowth strategy where the business seeks to
sell its existing products into new markets.sell its existing products into new markets.

Market DevelopmentMarket Development
► There are many possible ways of approaching thisThere are many possible ways of approaching this
strategy, including:strategy, including:
•• New geographical markets; for example exportingNew geographical markets; for example exporting
the product to a new countrythe product to a new country
New product dimensions or packaging: for exampleNew product dimensions or packaging: for example
•• New distribution channelsNew distribution channels
•• Different pricing policies to attract differentDifferent pricing policies to attract different
customers or create new market segmentscustomers or create new market segments

►Product DevelopmentProduct Development
 Product development is the name given to aProduct development is the name given to a
growth strategy where a business aims togrowth strategy where a business aims to
introduce new products into existing markets.introduce new products into existing markets.
This strategy may require the development ofThis strategy may require the development of
new competencies and requires the business tonew competencies and requires the business to
develop modified products which can appeal todevelop modified products which can appeal to
existing markets.existing markets.

►Horizontal IntegrationHorizontal Integration
 When a firm’s long term strategy is based onWhen a firm’s long term strategy is based on
growth through the acquisition of one or moregrowth through the acquisition of one or more
similar firms operating at the same stage ofsimilar firms operating at the same stage of
production-making chain, it’s grand strategy isproduction-making chain, it’s grand strategy is
called HORIZONTAL INTEGRATIONcalled HORIZONTAL INTEGRATION
 Such acquisitions eliminate competitors andSuch acquisitions eliminate competitors and
provide the acquiring firm with new marketsprovide the acquiring firm with new markets

►Vertical IntegrationVertical Integration
 When a firm’s grand strategy is to acquire firmsWhen a firm’s grand strategy is to acquire firms
that supply it with inputs (such as raw material)that supply it with inputs (such as raw material)
or are customers for its inputs (such as wareor are customers for its inputs (such as ware
houses for finished goods) this strategy is calledhouses for finished goods) this strategy is called
Vertical integrationVertical integration
 By vertical integration firms can expand theirBy vertical integration firms can expand their
operations and achieve greater market shareoperations and achieve greater market share

Vertical and HorizontalVertical and Horizontal
IntegrationsIntegrations
Textile Producer Textile ProducerTextile Producer Textile Producer
Shirt Manufacturer Shirt ManufacturerShirt Manufacturer Shirt Manufacturer
Clothing Store Clothing StoreClothing Store Clothing Store

►Concentric diversificationConcentric diversification
 Involves the acquisition of businesses that areInvolves the acquisition of businesses that are
related to the acquiring firms in term ofrelated to the acquiring firms in term of
technology, markets or products.technology, markets or products.
 E.g. A ski shop diversify into summer sportingE.g. A ski shop diversify into summer sporting
goods to offset seasonalitygoods to offset seasonality

►Conglomerate diversificationConglomerate diversification
 A very large company acquire a businessA very large company acquire a business
because it represents the most promisingbecause it represents the most promising
investment opportunity availableinvestment opportunity available
 It gives little concern about product synergy withIt gives little concern about product synergy with
existing businessexisting business
 Based principally on profit considerationsBased principally on profit considerations

► TurnaroundTurnaround
 When faced with declining profits (e.g. economicWhen faced with declining profits (e.g. economic
recession, innovative breakthroughs by competitorsrecession, innovative breakthroughs by competitors
 A company can choose to do cost reduction and/orA company can choose to do cost reduction and/or
asset reductionasset reduction
 Cost reduction-Decreasing workforce, leasing thanCost reduction-Decreasing workforce, leasing than
purchasing equipment, Eliminate promotional activities,purchasing equipment, Eliminate promotional activities,
dropping items from production line, discontinuing lowdropping items from production line, discontinuing low
profit margin customersprofit margin customers
 Asset reduction-Sale of land, buildings and equipmentAsset reduction-Sale of land, buildings and equipment
not essential to the basic activitynot essential to the basic activity
Of the firmOf the firm

► DivestitureDivestiture
 A divestiture strategy involves the sale of a firm or aA divestiture strategy involves the sale of a firm or a
major component of a firmmajor component of a firm
► E.g. Goodyear sold its polyester business to Shell Chemical toE.g. Goodyear sold its polyester business to Shell Chemical to
cut on its $2.6 billion debtcut on its $2.6 billion debt
► LiquidationLiquidation
 The firm typically is sold in partsThe firm typically is sold in parts
 In selecting liquidation the management admits it’sIn selecting liquidation the management admits it’s
failurefailure
 It means the termination of the organization exsistanceIt means the termination of the organization exsistance

Corporate CombinationsCorporate Combinations
► AA Strategic AllianceStrategic Alliance is a formal relationshipis a formal relationship
between two or more parties to pursue a set ofbetween two or more parties to pursue a set of
agreed upon goals or to meet a critical businessagreed upon goals or to meet a critical business
need while remaining independent organizationsneed while remaining independent organizations
► Partners may provide the strategic alliance withPartners may provide the strategic alliance with
resources such as products, distribution channels,resources such as products, distribution channels,
manufacturing capability, project funding, capitalmanufacturing capability, project funding, capital
equipment, knowledge, expertise, or intellectualequipment, knowledge, expertise, or intellectual
property.property.

Corporate CombinationsCorporate Combinations
►Joint VenturesJoint Ventures
 Creation of third commercial companies createdCreation of third commercial companies created
and operated for the benefit of co-ownersand operated for the benefit of co-owners
►E.g. Petroleum firms cannot by themselves marketE.g. Petroleum firms cannot by themselves market
and distribute all the oil provided by the Alaskan pipeand distribute all the oil provided by the Alaskan pipe
line. Nor they had the resources by themselves toline. Nor they had the resources by themselves to
create the pipeline.create the pipeline.

Chapter 8Chapter 8
►Evaluate and choose business strategiesEvaluate and choose business strategies

Evaluating Cost leadershipEvaluating Cost leadership
opportunitiesopportunities
►Business success that build in costBusiness success that build in cost
leadership requires the business to be ableleadership requires the business to be able
to provide its products or services at a lowerto provide its products or services at a lower
cost than its competitorscost than its competitors

►Low cost advantage reduce the likelihood ofLow cost advantage reduce the likelihood of
prising pressure from buyersprising pressure from buyers
►Truly sustained low cost advantages mayTruly sustained low cost advantages may
push rivals into other areas, reducing pricepush rivals into other areas, reducing price
competitioncompetition
 Intense and continued price competition mayIntense and continued price competition may
ruin all rivals (airline industry)ruin all rivals (airline industry)

►Low cost advantages should lessen theLow cost advantages should lessen the
attractiveness of substitute productsattractiveness of substitute products
 A customer will be less concerned about price,A customer will be less concerned about price,
when facing an inferior lower priced substitutewhen facing an inferior lower priced substitute
►Higher margins allow low-costs producers toHigher margins allow low-costs producers to
withstand supplier increaseswithstand supplier increases
 Increases in the costs of suppliers can be easilyIncreases in the costs of suppliers can be easily
absorbed by low cost, higher margin producersabsorbed by low cost, higher margin producers

►Exclusive cost leadership can become aExclusive cost leadership can become a
traptrap
 Firms that emphasise on lowest price must beFirms that emphasise on lowest price must be
truly convinced of the sustainability of theirtruly convinced of the sustainability of their
advantagesadvantages
►Differentiation is increasingly not consideredDifferentiation is increasingly not considered
►Customers might pressure for lower price that willCustomers might pressure for lower price that will
damage both the price leader and the lesser playersdamage both the price leader and the lesser players

►Obsessive cost cutting can shrink otherObsessive cost cutting can shrink other
competitive advantages involving keycompetitive advantages involving key
product attributesproduct attributes
 Intense cost cutting canIntense cost cutting can
►Reduce opportunities for investment in innovationReduce opportunities for investment in innovation
►Reduce the quality of the product (use inferior rawReduce the quality of the product (use inferior raw
material)material)

►Cost differences often decline over timeCost differences often decline over time
 As products age, competitors learn how toAs products age, competitors learn how to
match advantagesmatch advantages
 Absolute volumes sold often declineAbsolute volumes sold often decline

Evaluating DifferentiationEvaluating Differentiation
►Differentiation requires that the businessDifferentiation requires that the business
have sustainable advantages that allow it tohave sustainable advantages that allow it to
provide buyers with something uniquelyprovide buyers with something uniquely
valuable to them.valuable to them.
►The buyer feels that additional cost to buyThe buyer feels that additional cost to buy
the product or service is worth compared tothe product or service is worth compared to
other available alternativesother available alternatives

►Rivalry is reduced when businessRivalry is reduced when business
successfully differentiates itselfsuccessfully differentiates itself
 For example Harvard does not compete localFor example Harvard does not compete local
technical schoolstechnical schools
►Buyers are less sensitive to price forBuyers are less sensitive to price for
effectively differentiated productseffectively differentiated products

► Brand loyalty is hard for new entrants to overcomeBrand loyalty is hard for new entrants to overcome
 Budweiser continues to gain market share even thoughBudweiser continues to gain market share even though
new beers enter the market in the U.S. all the timenew beers enter the market in the U.S. all the time
► The cost difference between low-cost competitorsThe cost difference between low-cost competitors
and the differentiated business becomes too greatand the differentiated business becomes too great
for differentiation, to hold brand loyaltyfor differentiation, to hold brand loyalty
 Buyers might seek to sacrifice some of the features,Buyers might seek to sacrifice some of the features,
services or image to save moneyservices or image to save money

Evaluating Speed as a competitiveEvaluating Speed as a competitive
advantageadvantage
► Speed or rapid response to customer requests orSpeed or rapid response to customer requests or
market and technological changemarket and technological change
► Speed involves the availability of a rapid responseSpeed involves the availability of a rapid response
to a customer byto a customer by
 Providing current products quickerProviding current products quicker
 Accelerating new product development or improvementAccelerating new product development or improvement
 Quickly adjusting production processQuickly adjusting production process
 Make decisions quicklyMake decisions quickly

advantageadvantage
► Speed based competitive advantage can beSpeed based competitive advantage can be
created around several activitiescreated around several activities
 Customer responsiveness – Quick response withCustomer responsiveness – Quick response with
answers, information and solution to mistakes cananswers, information and solution to mistakes can
become the basis of competitive advantage.become the basis of competitive advantage.
► This can build customer loyalty quicklyThis can build customer loyalty quickly
 Product or service improvements – Companies that canProduct or service improvements – Companies that can
adopt their products or services rapidly in a way thatadopt their products or services rapidly in a way that
benefits their customers or create new customers havebenefits their customers or create new customers have
major competitive advantagemajor competitive advantage

advantageadvantage
► Speed based competitive advantage can beSpeed based competitive advantage can be
created around several activities cont’dcreated around several activities cont’d
 Speed in delivery or distribution – Firms that can get youSpeed in delivery or distribution – Firms that can get you
what you need when you need it realize that buyerswhat you need when you need it realize that buyers
have come to expect that level of responsivenesshave come to expect that level of responsiveness
(Federal Express success)(Federal Express success)
 Information sharing and technology – Speed in sharingInformation sharing and technology – Speed in sharing
information that becomes the basis for decisions,information that becomes the basis for decisions,
actions, or other important activities, taken by customeractions, or other important activities, taken by customer
supplier or partner has become a major source ofsupplier or partner has become a major source of

Evaluating Market focus as a way ofEvaluating Market focus as a way of
►Focus is the extend to which a businessFocus is the extend to which a business
concentrates on a narrowly defined marketconcentrates on a narrowly defined market
►Small companies, usually thrive becauseSmall companies, usually thrive because
they serve narrow market niches.they serve narrow market niches.
►Focus lets the business “learn” its targetFocus lets the business “learn” its target
customers-their needs-specialcustomers-their needs-special
considerations they want to accommodate-considerations they want to accommodate-
and establish personal relationships in waysand establish personal relationships in ways
that differentiate smaller firmsthat differentiate smaller firms

Competitive advantage in theCompetitive advantage in the
transition to Industry maturitytransition to Industry maturity
►As an industry evolves, its rate of growthAs an industry evolves, its rate of growth
eventually declines due toeventually declines due to
 More intense competitionMore intense competition
 Buyers are making choices among knownBuyers are making choices among known
alternativesalternatives
 New products and new applications are harderNew products and new applications are harder
to come byto come by

►Strategy elements of successful firms inStrategy elements of successful firms in
maturing industries includematuring industries include
 Pruning the product line by droppingPruning the product line by dropping
unprofitable modelsunprofitable models
 Emphasis on process innovation that permitsEmphasis on process innovation that permits
low cost product design, manufacturinglow cost product design, manufacturing
methods, and distribution synergymethods, and distribution synergy
 Emphasis on cost reduction through pressureEmphasis on cost reduction through pressure
on suppliers, switching to cheaper componentson suppliers, switching to cheaper components
and lowering sales and administrative overheadand lowering sales and administrative overhead

►Strategy elements of successful firms inStrategy elements of successful firms in
maturing industries include cont’dmaturing industries include cont’d
 Horizontal integration to acquire rival firmsHorizontal integration to acquire rival firms
whose weakness can be used to gain a bargainwhose weakness can be used to gain a bargain
price and is correctable by the acquiring firmprice and is correctable by the acquiring firm
 Expansion internationally where growth rate andExpansion internationally where growth rate and
limited competition exists.limited competition exists.

Competitive advantage in matureCompetitive advantage in mature
and declining industriesand declining industries
► Declining industries are those that make productsDeclining industries are those that make products
or services which demand is growing slower thanor services which demand is growing slower than
demand in the economy as a whole, or is actuallydemand in the economy as a whole, or is actually
declining.declining.
► Firms in this situation choose strategies thatFirms in this situation choose strategies that
emphasize one or more of the following themesemphasize one or more of the following themes
 Focus on segments within the Industry that offer aFocus on segments within the Industry that offer a
chance for higher growth or a higher returnchance for higher growth or a higher return
 Emphasize product innovation and quality improvementEmphasize product innovation and quality improvement
to differentiate from competitorsto differentiate from competitors
 Emphasize production and distribution efficiencyEmphasize production and distribution efficiency
(Closing marginal production facilities).(Closing marginal production facilities).
 Harvest the businessHarvest the business

Chapter 9Chapter 9
►Strategic Analysis and choice inStrategic Analysis and choice in
multibusiness company: Rationalizingmultibusiness company: Rationalizing
Diversification and building shareholderDiversification and building shareholder
valuevalue

Rationalizing Diversification andRationalizing Diversification and
IntegrationIntegration
►Managers address four questions in order toManagers address four questions in order to
determine whether their portfolio ofdetermine whether their portfolio of
business units is capturing the synergiesbusiness units is capturing the synergies
they intended, how to respond accordingly,they intended, how to respond accordingly,
and choosing among diversification andand choosing among diversification and
divestiture optionsdivestiture options

1. Are opportunities of sharing1. Are opportunities of sharing
infrastructure and capabilitiesinfrastructure and capabilities
forthcomingforthcoming
►Opportunities to build value viaOpportunities to build value via
diversification, integration, or joint venturediversification, integration, or joint venture
strategies are usually found instrategies are usually found in
 Market relatedMarket related
 Operating relatedOperating related
 Management activitiesManagement activities

1. Are opportunities of sharing1. Are opportunities of sharing
infrastructure and capabilitiesinfrastructure and capabilities
forthcomingforthcoming
►Two elements are critical in meaningfulTwo elements are critical in meaningful
share opportunitiesshare opportunities
 Shared opportunities must be a significantShared opportunities must be a significant
portion of the value chain of the businessesportion of the value chain of the businesses
involvedinvolved
 The businesses involved must have sharedThe businesses involved must have shared
needs-need for the same activity-or there is noneeds-need for the same activity-or there is no
basis for synergy in the first placebasis for synergy in the first place

2.Are we capitalizing on our2.Are we capitalizing on our
competencies (key value buildingcompetencies (key value building
skills)skills)
►Is each core competency providing aIs each core competency providing a
relevant competitive advantage to therelevant competitive advantage to the
intended businessesintended businesses
 Honda viewed itself as having a coreHonda viewed itself as having a core
competence in manufacturing small, internalcompetence in manufacturing small, internal
compaction engines. It diversified into smallcompaction engines. It diversified into small
garden tools.garden tools.

2.Are we capitalizing on our2.Are we capitalizing on our
competencies (key value buildingcompetencies (key value building
skills)skills)
► Are businesses in the portfolio related in ways thatAre businesses in the portfolio related in ways that
make the core competences beneficialmake the core competences beneficial
 General cinema is successful in both movie exhibitionGeneral cinema is successful in both movie exhibition
and bottling soft drinksand bottling soft drinks
► Are our combination of competencies unique orAre our combination of competencies unique or
difficult to recreate?difficult to recreate?
 Skills that corporate strategists expect to transfer fromSkills that corporate strategists expect to transfer from
one business to another may be transferrableone business to another may be transferrable
 They may also be easily replicated by competitorsThey may also be easily replicated by competitors

3. Does the business portfolio3. Does the business portfolio
Balance financial resources?Balance financial resources?
► Various business within a companyVarious business within a company
generate and consume different levels ofgenerate and consume different levels of
cash.cash.
►Some generate more cash than they canSome generate more cash than they can
use to maintain or expand their businessuse to maintain or expand their business
while others consume more than they canwhile others consume more than they can
generategenerate

►The BCG, Growth Share MatrixThe BCG, Growth Share Matrix

►The Industry attractiveness-BusinessThe Industry attractiveness-Business
strength matrixstrength matrix
 Uses multiple factors to assess industryUses multiple factors to assess industry
attractiveness.attractiveness.

ForFor market attractivenessmarket attractiveness::
► Size of market.Size of market.
► Market rate of growth.Market rate of growth.
► The nature of competition and its diversity.The nature of competition and its diversity.
► Profit margin.Profit margin.
► Impact of technology, the law, and energyImpact of technology, the law, and energy
efficiency.efficiency.
► Environmental impact.Environmental impact.

ForFor competitive positioncompetitive position::
► Market share.Market share.
► Management profile.Management profile.
► R & D.R & D.
► Quality of products and services.Quality of products and services.
► Branding and promotions success.Branding and promotions success.
► Place (or distribution).Place (or distribution).
► Efficiency.Efficiency.
► Cost reduction.Cost reduction.

4. Does our business portfolio4. Does our business portfolio
achieve appropriate levels of riskachieve appropriate levels of risk
and growthand growth
►Both risk and growth are assumptions orBoth risk and growth are assumptions or
priorities corporate managers shouldpriorities corporate managers should
carefully examine, as they undertakecarefully examine, as they undertake
strategic analysis and choicestrategic analysis and choice
 Is growth always desirable?Is growth always desirable?
 Can risk truly be managed most effectivelyCan risk truly be managed most effectively

Considerations affecting strategyConsiderations affecting strategy
choicechoice
1.1. Role of the current strategyRole of the current strategy
2.2. Degree of the firm’s external dependenceDegree of the firm’s external dependence
3.3. Attitudes toward riskAttitudes toward risk
4.4. Internal Political considerationsInternal Political considerations
5.5. TimingTiming
6.6. Competitive reactionCompetitive reaction

choicechoice
►1. Role of the current strategy1. Role of the current strategy
 Current strategists are often the architects ofCurrent strategists are often the architects of
past strategiespast strategies
 The older and more successful a strategy hasThe older and more successful a strategy has
been, the harder is to replace itbeen, the harder is to replace it
 Familiarity with, and commitment to pastFamiliarity with, and commitment to past
strategy fill the entire firm, thus lower leverstrategy fill the entire firm, thus lower lever
managers encourage top level managers tomanagers encourage top level managers to
continue with past strategycontinue with past strategy

choicechoice
►2. Degree of firm’s external dependence2. Degree of firm’s external dependence
 The greater a firm’s external dependence, theThe greater a firm’s external dependence, the
lower range and flexibility it has for strategiclower range and flexibility it has for strategic
choicechoice
►Bama pies was only selling to one customer.Bama pies was only selling to one customer.
McDonald’s. Thus it’s pricing, R&D, distributions etc.McDonald’s. Thus it’s pricing, R&D, distributions etc.
should be designed having in mind McDonald’sshould be designed having in mind McDonald’s

choicechoice
►3. Attitudes toward risk3. Attitudes toward risk
 Where attitudes favour risk, the strategic choiceWhere attitudes favour risk, the strategic choice
expands, and high risk strategies areexpands, and high risk strategies are
acceptableacceptable
 A firm in early stages in the product-marketA firm in early stages in the product-market
cycle is required to operate in a much greatercycle is required to operate in a much greater
risk and uncertaintyrisk and uncertainty
 In making a strategic choice, risk-orientedIn making a strategic choice, risk-oriented
managers lean toward opportunistic strategiesmanagers lean toward opportunistic strategies

choicechoice
►4. Internal Political Considerations4. Internal Political Considerations
 In smaller firms the CEO is considered theIn smaller firms the CEO is considered the
dominant force of strategic choicedominant force of strategic choice
 CoalitionsCoalitions are power sources that influenceare power sources that influence
strategic choice. In large firms subunits andstrategic choice. In large firms subunits and
individuals (particularly key managers) haveindividuals (particularly key managers) have
reason to support some alternatives andreason to support some alternatives and
oppose others. Mutual interests draws certainoppose others. Mutual interests draws certain
groups together.groups together.

choicechoice
►5. Timing5. Timing
 Time limit constrains strategic choiceTime limit constrains strategic choice
►E.g. A company has a six month option to acquireE.g. A company has a six month option to acquire
another company or a key locationanother company or a key location
 A good strategy might be disastrous if it is takenA good strategy might be disastrous if it is taken
at a wrong time (E.g. The breakdown of Gulfat a wrong time (E.g. The breakdown of Gulf
war in 1991)war in 1991)

choicechoice
►6. Competitive reaction6. Competitive reaction
 In weighing strategic choices, top managementIn weighing strategic choices, top management
frequently incorporates perceptions of likelyfrequently incorporates perceptions of likely
competitor reactions to these choicescompetitor reactions to these choices
 If it chooses for example an aggressive strategyIf it chooses for example an aggressive strategy
directly challenging a key competitor then thedirectly challenging a key competitor then the
competitor is expected to mount an aggressivecompetitor is expected to mount an aggressive
counter strategy.counter strategy.

Strategy and business policy

Recomendados

Recomendados

Más contenido relacionado

La actualidad más candente

La actualidad más candente (20)

Destacado

Destacado (7)

Similar a Strategy and business policy

Similar a Strategy and business policy (20)

Último

Último (20)

Strategy and business policy