strat. corp. bab1-6 [17-10--09]ndg
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Chapter - 1
Basic Concepts of Strategic ManagementBasic Concepts of Strategic ManagementBasic Concepts of Strategic ManagementBasic Concepts of Strategic Management
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Lecture Objectives
1. To explain the phases of strategic management.
2. To draw a strategic management model.
3. To identify benefits of strategic management.
4. To discuss theory of organizational adaptation.
5. To describe the creation of a learning organization.
6. To explan the degree of environmental variables.
7. To discuss mission, objectives and strategies.
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Phases of Strategic Management Basic Financial Planning
Managers initiate serious planning when they are requested to propose nextyears budget. Projects are proposed on the basis of very little analysis withmost information coming from within the firm.
Forecast-based PlanningAs annual budgets become less useful at stimulating long-term planning,managers attempt to propose five-years plans, extrapolate current trends fiveyears into the future. The process gets very political as managers compete forlarger shares of funds.
Strategic PlanningFrustated with highly political, yet ineffective five-year plans, top managementtakes control of the planning process by initiating strategic planning. Planningis concentrating in a planning staff whose task is develop strategic plans forcorporation.
Strategic ManagementTop management forms planning groups of managers and key employees atmany level from various departments and work groups. Strategic plans nowdetail the implementation, evaluation and control issues, rather thanattempting to perfectly forecast the future, the plans emphasize probablescenarios and contingency strategies. People at all levels are now involved.
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Strategic Management Model
Step 1
EnvironmentalScanning
External
- Societal Env
- Task Env
Internal
- Structure
- Culture
- Resources
Step 2
StrategyFormulation
Mission
Objectives
Strategies
Policies
Step 3
StrategyImplementation
Programs
Budgets
Procedures
Step 4
Evaluation &Control
Performance
FEEDBACK/LEARNING
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1. Clearer sense of strategic vision for the firm.2. Sharper focus on what is strategically important.
3. Improved understanding of a rapidly changing environment.
1. Where is the organization now? (not where do we hope it is!)
2. If no changes are made, where will the organization be in one year? Two
years? Five years? Ten years? Are answers acceptable?
3. If the answers are not acceptable, what specific actions shouldmanagement undertake? What are the risks and payoffs involved?
Benefits of Strategic Management
A survey of nearly 50 corporations in a variety of countries and industries foundthe three most highly rate benefits of strategic management to be:
To be effective, however, strategic management need not always be a formalprocess. As occurred at Maytag, it can begin with a few simple questions:
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Theories of Organizational Adaptation
How can any one company keep track of all the changing technological,economic, political-legal, and socialcultural trends around the world and makethe necessary adjustments? THIS IS NOT AN EASY TASK.
Population EcologyAn organization that is successfully established in a particular environmentalniche, it is unable to adapt to changing conditions. To much inertia preventsthe organization from changing. The company is thus replaced (bought out orgoes bankrupt) by other organizations more suited the new environment.
Institution TheoryIn contrast, proposes that organizations can and do adapt to changingconditions by imitating other successful organizations.
Strategic Choice Perspective
Not only do organizations adapt to a changing environment, but that they alsohave the opportunity and power to reshape their environment. This is thedominant one taken in strategic management.
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Creating a Learning Organization
To be competitive in dynamic environments, corporations are having tobecome less bureaucratic and more flexible. The company must developstrategic flexibility the ability to shift from one dominant strategy to another.
It demands that the company become a learning organization:
Solving problems systematically.
Experimenting with new approaches.
Learning from their own experiences and past history as well as from theexperiences of others.
Transferring knowledge quickly and efficiently throughout the organization.
Organizations that are willing to experiment and are able to learn from their
experiences are more successful than those that do not.
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Environmental Variables
Creditors
Customers
Internal Env.StructureCulture
Resources
Task. Env(Industry)
TradeAssoct
Share holder
SocietalEnvironment
SocioculturalForces
Govermt
SpecialInterestGroups
Communities
Suppliers
Labor Unions
Political-LegalForces
EconomicForces
TechnologicalForces
Competitors
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Building Your Companys Vision
Core Ideology Core Values
Core Purpose
Envisioned Future
10 to 30 years BHAG
Vivid Description
BHAG =
Big, Hairy, Audacious Goal
The handful of guiding principles
by which a company navigates
Core purpose is an organi-
zations most fundamental
reason for being.
Ambitious plans that
rev up the entire org
A picture of what it will be
like to achieve the BHAGs.
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Core Values Elevation of the Japanese culture and
national status
Being a pioneer not followingothers; doing the impossible
Encouraging individual ability andcreativity
Sonys Corporate Vision
Core PurposeTo experience the sheer joy of innovationand the application of technology for thebenefit and pleasure of the general public
BHAGBecome the company most known forchanging the worldwide poor-quality
image of Japanese products
Vivid DescriptionWe will create products that becomepervasive around the world. We will bethe first Japanese company to go into theUS market and distribute directly. We willsucceed with innovations that UScompanies have failed at such as thetransistor radio. Fifty years from now, ourbrand name will be as well known as any
in the world and will signify innovationand quality that rival the most innovativecompany anywhereMade in Japan willmean something fine, not somethingshoddy
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Company product or service.
Market
Technology
Company objectives
Company philosophy
Company self-concept
Public image
BaxterBaxterBaxterBaxter TravenolTravenolTravenolTravenol is commited to
improving health care for peoplearound the world, meeting the higheststandards in responsible corporatecitizenship, attaining a position ofleadership in each of the health care
markets we serve. Providing ourcustomers with products and servicesof consistently high quality and value.Sustaining a strong spirit of teamwork
through mutual commitment,
dedication and loyalty within ouremployee family, and achievingconsistent, long-term financial growthand the best possible return to ourstockholders.
What Information Appears in theMission Statement?
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Some areas of goals and objectives
Profitability (net profits)
Efficiency (low cost)
Growth (increase in total sales)
Shareholder wealth (dividends)
Utilization of resources (ROI atau ROE)
Reputation (considered as top firm)
Contributions to employees (security,wage, diversity)
Contributions to society (taxes paid, participation in charities,providing a needed product/service)
Market leadership (market share)
Technological leadership (innovation, creativity)
Survival (avoiding bankruptcy) Personal needs of top management (job for relatives)
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Hierarchy of StrategyStrategy of corporation form a comprehensive master plan stating
how the
corporation will achieve its mission and objectives.
Corporate Strategy describes a companys overall direction interm of its general attitude toward growth and the management ofits various business and product lines.
Business Strategy usually occurs at the business unit or productlevel, and it emphasizes improvement of the competitive positionof a corporations products or services in the specific industry ormarket segment served by that business unit.
Functional Strategy is the approach taken by a functional areato achieve corporate and business unit objectives and strategies bymaximizing resource productivity. It is concerned with developinga distinctive competence to provide a company or business unitwith a competitive advantage.
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Impact of the Internet on Strategic Mgt
Expands the marketplace to national and international market. Allanyone now needs is a computer to connect buyers and sellers.
Decreases the cost of creating, processing, distributing, storing
and retrieving information. Enables people to create new, highly specialized business
ventures.
Allows smaller inventories, just in time manufacturing and less
overhead expenses by facilitating pull-type supply chainmanagement.
Enables the customization of products and services to better suitcustomer needs.
Provide the stimulus to rethink a firms strategy and to initiatereengineering projects.
Increases flexibility, compresses cycle and delivery time andprovides easy access to information on customers, suppliers andcompetitors.
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Chapter - 2
Corporate Governance & Social ResponsibilityCorporate Governance & Social ResponsibilityCorporate Governance & Social ResponsibilityCorporate Governance & Social Responsibility
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Corporate Government
A Corporation is a mechanism established to allow differentparties to contribute capital, expertise and labor for their mutualbenefit.
The investor/shareholder participates in the profits of the enterprisewithout taking responsibility for the operations. Management runsthe company without being responsible for personally providing thefunds.
Corporate Governance refers to the relationship among the threegroups (shareholder, board of directors, and top management) indetermining the direction and performance of the corporation.
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Board of Directors Continuum
Degree of Involvement in Strategic Management
Takes theleading role inestablishing &modifying themission,objectives,strategy &policies. It hasa very active
strategycommittee
Approves,questions, andmakes finaldecisions onmission,strategy,policies, &objectives. Hasactive board
committee.Performs fiscal& mgt audit.
Involved to alimited degreein theperformanceor reviewselected keydecisions,indicators, orprograms of
management
Formallyreviewsselectedissues thatofficersbring to itsattention.
Permitsofficers tomake alldecisions. Itvotes as theofficersrecommended on actionissues
Never knowswhat to do.If anything;no degree ofinvolvement
CatalystActive
Participation
Nominal
Participation
Minimal
Review
Rubber
Stamp
Phantom
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Agency Theory v.s Stewardship Theory in
Corporate Governance
Agency Theory: top managers are, in effect, hired hands who may verylikely be more interested in their personal welfare than in that of theshareholders. It will occur increases when stock is widely held, when theboard of directors is composed of people who know little of the company orwho are personal friends of top management and when a high percentage ofboard members are inside directors.
Agency theory suggests that top management have a significant degree of
ownership in the firm.
Stewardship Theory: Executives tend to be more motivated to act in thebest interests of the corporation than in their own self interests. Whereasagency theory focuses on extrinsic rewards that serve the lower-level needs
such as pay and security, but stewardship theory focuses on achievement andself-actualization.
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Trends in Corporate Governance
McKinsey survey reveals that investors are willing to pay 16% more for a
corporations stock if it is known to have good corporate governance.
Boards are getting more involved not only in reviewing and evaluating but also inshaping company strategy.
Institutional investors annually publishes a list of poorly performing companies.
Stock is increasingly being used as part of a directors compensation.
Nonaffiliated outside directors are increasing their numbers and power in publiclyheld corporations.
Boards are getting smaller and take more control of board functions by eithersplitting the combined Chair/CEO position or establishing a lead outside director
position. Corporations are increasingly looking for international experience in their board
members and to balance the economic goal with social need of society.
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The Role of Top Management
1. The CEO articulates a strategic vision.
2. The CEO presents a role.
3. The CEO communicates high performance standards and also showsconfidence in the followers ability.
Good business leaders create a vision,
articulate the vision, passionately own the
vision, and relentlessly drive it to completion.
Jack Welch
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Responsibilities of Business
Discretionary
(Might
Do)
Ethical
(ShouldDo)
Legal
(Have toDo)
Economic
(Must Do)
Social Responsibility
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Impact of the Internet on Corporate Governanceand Social Responsibility
Cybersquatting
Fraud
Taxation
Public Interest
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Chapter - 3
Environmental Scanning & Industry AnalysisEnvironmental Scanning & Industry AnalysisEnvironmental Scanning & Industry AnalysisEnvironmental Scanning & Industry Analysis
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Lecture Objectives
1. To explain the definition of environmental scanning.
2. To discuss factors in societal environment.
3. To describe the sociocultural trend in USA.
4. To identify external strategic factors.
5. To explain industry analysis using the Porters Five+ Forces.
6. To draw an industry matrix.
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Environmental Scanning
Environmental Scanning is the monitoring, evaluating, anddisseminating of information from the external and internalenvironments to key people within the corporation.
Societal Environment includes general forces that do notdirectly touch on the short-run activities of the organization butthat can, and often do, influence its long-run decisions.
Task Environment includes those elements or groups that
directly affect the corporation and, in turn, are affected by it. Industry Analysis refers to an in-depth examination of key
factors within a corporations task environment.
Both the societal and task environments must be monitored to detectthe
strategic factors that are likely to have a strong impact on corporatesuccess or failure.
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Socialcultural trends in the United States
Increasing environmental awareness
Growth of the senior market
Impact of generation Y boomlet
Decline of the mass market
Changing pace and location of life
Changing household composition
Increasing diversity of workforce and markets
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Identifying External Strategic Factors
Low
Priority
Low
Priority
Medium
Priority
LowPriority
MediumPriority
HighPriority
Medium
Priority
High
Priority
High
Priority
High Medium Low
High
Medium
Low
Probable Impact on Corporation
Probabilityof
Occurance
Strategic Factors
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IndustryCompetitors
Rivalry AmongExisting Firms
PotentialEntrants
Buyers
Substitutes
Suppliers
OtherStakeholders Bargaining power
of buyers
Threat ofnewentrants
Threats ofsubstituteproducts orservices
Bargaining powerof suppliers
Relative power ofunions,
governments, etc
Porter Five+ Forces (Industry Analysis)
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New Entrants to industry typically bring to it new capacity, a desire togain market share, and substantial resources.
Entry Barrier is an obstruction that makes it difficult for a company toenter an industry.
Some of the possible barriers to entry are:
1. Economies of scale
2. Product differentiation3. Capital requirements
4. Switching costs
5. Access to distribution channels
6. Cost disadvantages independent of size
7. Government policy
Treat of New Entrants
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Intense rivalry is related to the presence of several factors, including:
1. Number of competitors
2. Rate of industry growth
3. Product or service characteristics
4. Amount of fixed cost
5. Capacity
6. Height of exit barriers
7. Diversity of Rivals
Rivalry Among Existing Firms
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Substitute products are those products that appear to be different butcan satisfy the same need as another products.
Substitutes limit the potential returns of an industry by placing a ceiling onthe prices firms in the industry can profitably charge.
To the extent that switching costs are low, substitute may have a strongeffect on an industry. Tea can be considered a substitute for coffee. If theprice of coffee goes up high enough, coffee drinkers will slowly beginswitching to tea.
Threat of Substitute Products/Services
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Buyers affect an industry through their ability to force down prices,bargain for higher quality or more services, and play competitors againtseach other.
A buyer or a group of buyers is powerful if some of the following factors
hold true:1. A buyer purchases a large of the sellers product or service (ex: oil filters purchased
by a major automakers)
2. A buyer has the potential to integrate backward by producing the product itself.
3. Alternative suppliers are plentiful because the product is standard or undifferentiated
(ex: fotocopy paper)4. Changing suppliers costs very little.(ex: office supplies are easy to find)
5. The purchased product represents a high percentage of a buyers costs, thusproviding an incentive to shop around for a lower price.
6. A buyer earns low profits and is thus very sensitive to costs and service differences
(ex: grocery stores)7. The purchased product is unimportant to the final quality or price of a buyers
products or services and thus can be easily substituted without affecting the finalproduct adversely (ex: electric wire bought for use in lamps).
Bargaining Power of Buyers
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Supplier dapat mempengaruhi industri melalui kemampuannya untukmeningkatkan harga atau mengurangi kualitas atau pasokannya.
A supplier or supplier group is powerful if some of the following factorsapply:
1. The supplier industry is dominated by a few companies, but it sells tomany (ex: petroleum industry).
2. Its product or service is unique and/or it has built up switching costs
(ex: word processing software)
3. Substitutes are not readily available (ex: electricity).
4. Suppliers are able to integrate forward and compete directly with theirpresent customers (ex: Intel can make PC)
5. A purchasing industry buys only a small portion of the supplier groupsgoods and services and is thus unimportant to the supplier.
Bargaining Power of Suppliers
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HighlyAttractive
MildlyAttractive
NeutralMildlyUnattractiv
e
HighlyUnattractiv
e
Government actions
Availability ofsubstitutes
Power of suppliers
Power of buyers
Rivalry among
competitors
Barrier to exit
Barriers to entry
Kesimpulan: Industry attractiveness = neutral (now); mildly attractive (future)
Summary of Industry Attractiveness
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Key Success Factors are those variables that can affect significantly theoverall competitive positions of all companies within any particularindustry.
Industry Matrix:
Using Key Success Factors to Create an Industry Matrix
CompanyB
WeightedScore
CompanyB Rating
CompanyA
WeightedScore
CompanyA RatingWeight
KeySuccess
Factors
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Chapter - 4
Internal Scanning: Organizational AnalysisInternal Scanning: Organizational AnalysisInternal Scanning: Organizational AnalysisInternal Scanning: Organizational Analysis
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Lecture Objectives
1. To explain a resource-based approach to organizational analysis.
2. To determine the sustainability of an advantage.
3. To discuss about value chain analysis.
4. To explain the generic strategy.
5. To describe organization structure and corporate culture.
6. To discuss the impact of technological discontinuity on strategy.
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A Resource-based Approach to Organizational Analysis
Internal Strategic Factors are those critical strengths andweaknesses that are likely to determine if the firm will be able to
take advantage of opportunities while avoiding threats.VRIO frameworkproposes 4 questions to evaluate each of a
firms key resources:
1.Value: Does it provide competitive advantage?
2. Rareness: Do other competitors posses it?
3. Imitability: Is it costly for others to imitate?
4. Organization: Is the firm organized to exploit the resource?
If the answer to these questions is yes for a particular resources,it is considered a strength and a distinctive competence.
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Determining the Sustainability of an Advantage
Durability: the rate at which a firms underlying resources and capabilities(core competence) depreciate or become obselete.
Imitability: the rate at which a firms underlying resources and capabilities
(core competence) can be duplicated by others.
Reverse Engineering is taking apart a competitors product in order tofind out how it works.
Core Competency can be easily imitated to the extent that it istransparent, transferable, and replicable.
- Transparency: the speed with which other firms can understand the relationshipof resources and capabilities supporting a successful firms strategy.
- Transferability: the ability of competitors to gather the resources and
capabilities necessary to support a competitive challenge.- Replicability: the ability of competitors to use duplicated resources and
capabilities to imitate the other firms success.
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Continuum of Resource Sustainability
Easily duplicated
Idea driven Sony: Walkman
Standardized mass
production. Economies of
scale
Complicatedprocesses
Chrysler: Minivan
Strongly shielded
Patents, brandname
Gillette: sensorrazor
Fast-CycleResources
Standard-CycleResources
Slow-CycleResources
Level of Resource Sustainability
High Low
(Hard to imitate) (Easy to imitate)
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A value chain is a linked set of value-creating activities beginning withbasic raw materials coming from supplier, moving on to a series of valueadded activities involved in producing and marketing a product or service
and ending with distributors getting the final goods into hands of theultimate customer.
Raw
Material
Primary
Manufactrg
Fabrication
.
Product
Producers
Distributor
.
Retailer
.
Typical Value Chain for a Manufactured Products
Value Chain Analysis (1)
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Administrative
Strategy
Financial Strategy
HR StrategyTechnology Strategy
ProcurementStrategy
Inbound
Logistics
Operations Outbound
Logistics
Marketing
and Sales
Services
Marketing Strategy
HUMAN RESOURCES
TECHNOLOGY DEVELOPMENT
PROCUREMENT
FIRM INFRASTRUCTURE
Manufacturing Strategy
Profit
Margin
Primary Activities
SupportActivities
Value Chain Analysis (2)
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Differentiation
Focus
Cost
Focus
DifferentiationCost
Leadership
Narrow
Broad
Lower Cost Differentiation
Competitive Advantage
Marke
t
Sc
ope
The Three Generic Strategies
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Firm Top Management Support (Welch is CEO)
Infrastructure
Human Superior training Use of commision
Resources sales incentives
Management Best alloy Best applications
Technology technology engineering support
Development Best market research
Excellent product
Procurement positioning Profit
- High quality - Flexible - Extensive - High sales - Easy to use Margin
production delivery advertising force covera- products
capability ge.
- Excellent - Strong focus - Extensive
conformance on high - Strong per- training of
to spec. growth areas sonal relation customers
ship
- Extensive
credit
(GE credit)
Inbound Operations Outbound Marketing Sales Service
Logistics Logistics
GEs Competitive Advantage: Source of Differentiation
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DuPonts Competitive Advantage: Source of Cost
LeadershipFirm History and Tradition of DuPont in Plastics and Materials
Infrastructure
Human - Paternalistics culture guarantees security Best training, integrating sales and
Resources attracts highest-quality scientiests technical service
Management - Best polymer R & D Extensive commitment to process development.Technology - Global scale R & D technolo Recognized for R & D of customers' manufacturing
Development processes
Lowest-cost Quality image
Procurement raw materials Profit
- Direct supply - Largest scale - Extensive - Quality - Strong sales - Replacement Margin
economies warehouse image force quaranteed
network- Highest - Horizontal - Best customer
product - Rapid deli- integration of training
physical very guaran- marketing
properties teed with other - Highest technical
DuPont service coverage
- High yield SBUslow defects
Inbound Operations Outbound Marketing Sales Service
Logistics Logistics
S O
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Scanning Functional Resources Organizational
Structures Simple Structure is appropriate for a small, entrepreneur-dominated company with
one or two product lines. Employees tend to be generalist and jacks-of-all trades.
Functional Structure is appropriate for a medium-sized firm with several relatedproduct lines. Employees tend to be specialist in the business functions.
Divisional Structure is appropriate for large corporation with many product lines.Employees tend to be functional specialists organized according to product/marketdistinctions.
Strategic Business Units (SBUs) are modification to the divisional structure. SBU
must have 1) a unique mission, 2) identifiable competitors, 3) an external marketfocus, and 4) control of its business functions, 5) its income statement.
Conglomerate Structure is appropriate for a large corporation with many productlines in several unrelated industries. There is a structure of holding and subsidiarycompany.
It is a strength for the company, if the organization structure supportthe determined strategy.
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Corporate Culture: The Company Way
Corporate Culture is the collection of beliefs, expectations, and valueslearned and shared by a corporations members and transmitted from onegeneration of employees to another.
Corporate culture gives a company a sense of identity: This is who we are.This is what we do. This is what we stand for.
Corporate Culture has two distinct attributes: Cultural Intensity andCultural Integration.
Corporate culture fulfills several important functions in an organization:
1. Conveys a sense of identity for employees.
2. Helps generate employee commitment to something greater than
themselves
3. Adds to the stability of the organization as a social system.4. Serves as a frame of reference for employees to use to make sense out of
organizational activities and to use as a guide for appropriate behavior.
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Impact of Technological Discontinuity on Strategy
Mature
Technology
New
Technology
Product
Performance
Research Effort/Expenditure
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Chapter - 5
Strategy Formulation: Situation Analysis &Strategy Formulation: Situation Analysis &Strategy Formulation: Situation Analysis &Strategy Formulation: Situation Analysis &
Business StrategyBusiness StrategyBusiness StrategyBusiness Strategy
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Lecture Objectives
1. To explain the method of SWOT analysis.
2. To compose IFAS and EFAS table.
3. To discuss about Corporate Directional Strategy
4. To explain the TOWS matrix
5. To describe Porters Generic Competitive Strategies.
SWOT Analysis
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SWOT Analysis
SWOT is an acronym used to describe the particular Strengths,Weaknesses, Opportunities, and Threats that are strategic factors forspecific company.
SWOT analysis should not only result in the identification of a corporationsdistinctive competencies the particular capabilities and resources that afirm possesses and the superior way in which they are used but also inthe identification of opportunities that the firm is not currently able to takeadvantage of due to a lack of appropriate resources.
Strategic Alternative equals Opportunities divided by (Strenghts minusWeaknesses). SA= O/(S W).
Some experts criticize the SWOT analysis.
Internal Factor Analysis Summary (IFAS)
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Internal Factor Analysis Summary (IFAS)
StrengthsS1
S2
X(1 to 5)1.00Score of
Strengths
Y
(X+ Y)
(-1 to -5)1.00Score ofWeakness
Total Score
Weaknesses
W1
W2
CommentsWeighted
Score
RatingWeightInternal
StrategicFactors
E t l F t A l i S (EFAS)
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External Factor Analysis Summary (EFAS)
Opportunities
O1
O2
X(1 to 5)1.00Score of
Opportunities
Y
(X + Y)
(-1 to -5)1.00Score of Threats
Total Score
Threats
T1
T2
CommentsWeighted
Score
RatingWeightExternal Strategic
Factors
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Corporate Directional Strategies
DIVERSIFICATIONRETRENCHMENT
GROWTHSTABILITY
strengthsweakness
opportunity
threats
Competitive Advantage
TOWS M t i
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TOWS Matrix
WT STRATEGIES
Generate strategies here
that minimize weaknessesand avoid threats
ST STRATEGIES
Generate strategies here
that use strengths to avoidthreats
THREATS (T)
List 5 10 external threatshere
WO STRATEGIES
Generate strategies herethat take advantage of
opportunities byovercoming weaknesses
SO STRATEGIES
Generate strategies herethat use strengths to take
advantage of opportunity
OPPORTUNITIES (O)
List 5 10 external
opportunities here
WEAKNESSES (W)
List 5 10 internalweaknesses here
STRENGTHS (S)
List 5 10 internalstrengths here
INTERNALFACTORS(IFAS)
EXTERNALFACTORS
(EFAS)
B i S i
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Business Strategies
Business Strategy focuses on improving the competitive positionof a companys or business units products or services within thespecific industry or market segment that the company or business
unit serves.
Porters Competitive Strategies
- Should we compete on the basis oflow cost (and thus price), or should
we differentiate our products or services on some basis other thancost, such as quality or service?
- Should we compete head to head with our major competitors for thebiggest but most sought-after share of the market, or should we focuson a niche in which we can satisfy a less sought-after but also profitable
segment of the market?
Porters Generic Competitive Strategies
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Porter s Generic Competitive Strategies
Differentiation
Focus
Cost
Focus
DifferentiationCost
Leadership
Narrow
Broad
Lower Cost Differentiation
Competitive Advantage
M
arket
Sco
pe
Ri k f G i C titi St t i
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Risk of Generic Competitive Strategies
The focus strategy is
imitated.
The target segmentbecomes structurally
unattractive:
Structure erodes
Demand disappears
Broadly targetedcompetitors everwhelm thesegment:
The segments differencesfrom other segments
narrow. The advantages of a
broad line increase.
New focusers subsegment
the industry.
Differentiation is not
sustained:
Competitors imitate
Bases for differentiationbecome less importantto buyers
Cost proximity is lost
Differentiation focusers
achieve even greater
differentiation in segments
Cost leadership is not
sustained:
Competitors intimate
Technology changes
Other bases for costleadership erode
Proximity in differentiation
is lost
Cost focusers achieveeven lower cost in
segments
Risks of FocusRisks ofDifferentiation
Risks of CostLeadership
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Chapter - 6
Strategy Formulation: Corporation StrategyStrategy Formulation: Corporation StrategyStrategy Formulation: Corporation StrategyStrategy Formulation: Corporation Strategy
L Obj i
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Lecture Objectives
1. To discuss the level of corporate strategy
2. To explain strategies of growth, stability and retrenchment.
3. To describe BCG Growth-Share Matrix
4. To describe GEs Business Screen.
5. To discuss the corporate parenting strategy
Corporate Strategy
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Corporate Strategy
The firms overall orientation toward growth, stability, orretrenchment (directional strategy).
The industries or markets in which the firm competes through itsproducts and business units (portfolio strategy).
The manner in which management coordinates activities, transfers
resources and cultivates capabilities among product lines andbusiness units (parenting strategy).
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Corporate Directional Strategies (2)
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RETRENCHMENTSTABILITYGROWTH
- Turnaround- Captive Company
- Sell-Out/Divestment
- Backruptcy/Liquidation
- Pause/Proceed withCaution
- No Change
- Profit
Concentration- Vertical Growth
- Horizontal Growth
Diversification
- Concentric
- Conglomerate
International Entry Options
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y p
Exporting
Licensing
Franchising Joint Venture
Acquisition
Green-Field Development
Production Sharing
Turnkey Operations
BOT Concept
Management Contract
The Forms of Strategic Alliances
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g
Interfirm Links
Contractual Agreements Equity of Arrangements
Traditional Nontraditional No New Entity Creation of Entity Dissolution
Contracts Contracts of Entity
Arm's-length Joint R & D Minority Nonsubsidiary JV Subsidiaries Merger &Buy/Sell Equity JVs of MNCs Acquisitions
Contracts Joint Product Investments
Development Fifty-fifty
Franchising Equity Joint Ventures
Long-term Swaps
Licensing Sourcing Unequal Equity
Agreements Joint Ventures
Cross-licensing
Joint Manufacturin
Joint Marketing
Shared Distribution/
Service
Standards Setting/
Research Consortia
STRATEGIC ALLIANCES
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General Electrics Business Screen (1)
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Business Strengths
IndustryAttractivene
ss
High
Medium
Low
High Medium Low
Grow
DivestProtect &Refocus
Limited Expansion/Harvest
Selectivity/Managefor Earnings
Build SelectivelyInvest to Build
Build Selectively
Manage forEarnings
5 4 3 2 1
4
3
2
1
Invest to grow at
maximum digestible rate
Concentrate effort on
maintaining strength
Challenge for leadership
Build selectively on
strengths
Reinforce vulnerable areas
Specialize around limited
strengths
Seeks ways to overcome
weaknesses
Invest heavily in mostattractive segments
Build up ability to counter
competition Emphasize profitability byraising productivity
Protect existing program Concentrate investments in
segments where profitabilityis good and risk is relativelylow
Look for ways to expandwithout high risk, otherwise
minimize investment andrationalize operations
Manage for current
earnings
Concentrate on attractivesegments
Defend strengths
Protect position in most
profitable segments
Upgrade product line
Minimize investment
Sell at time that will
maximize cash value
Cut fixed costs and avoidinvestment meanwhile
General Electrics Business Screen (2)
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Must be
acceptable
Social/Politic/Legal
3.45
0.0510.05Environmental Impact
0.1020.05Energy Requirement0.1530.05Inflationary Vulnerability
0.4530.15Technological Requirements
0.3020.15Competitive Intensity
0.6040.15Historical Profit Margin
1.0050.20Annual Market Growth Rate
0.8040.20Overall Market Size
VALUERATING (1-5)
WEIGHTINDUSTRYATTRACTIVENESS
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