revision final spring 2012

7/28/2019 Revision Final Spring 2012

1/85

DEFINITION OF STRATEGIC MANAGEMENT

Strategic Management is defined as continuous, iterative process aimedat keeping an organization as a whole appropriately matchedto its

environment.

Continuous; strategic management process is continuous and

never really stops within an organization. Although different

activities receiving different intensity of attention at differenttimes but management should be focusing on overall process.

Iterative; the term indicates that process of strategic management

starts with the first step and ends with the last step and then begin

with the first. These steps are repeated in a cycles fashion.

Organization appropriately matched; the purpose of strategicmanagement is to ensure that the organization as a whole is

appropriately matched to its environment that it to its operational

surrounding.


2/85

Benefits of Strategic Management

Profit Level; an efficient and effective strategic management system

can increase profitability.

Attainment of Long Term Organizational Goals; the increased

commitment comes when organization members participate in settinggoals as well as setting strategies for attaining these goals.

Assessing Organizations Assessment; strategic management

emphasis on assessing the organizations environment makes the

organization less likely to be surprised by movement within the market

place or by actions of competitors that can put an organization at asudden disadvantage.


3/85

Step 1

Environmental

Analysis

InternalExternal

Step 2

Establishing

Organizational

Direction

Mission

Objectives

Step 3

Strategy

Formulation

Step 4

Strategy

Implementation

Step 5

Strategic

Control

STRATEGIC MANAGEMENT PROCESS

Feed Back


4/85

Step 1: Environmental Analysis

Environmental analysis is the process of monitoring the

organizations environment to identify both present and

future Threat & Opportunities.

Organizational environment encompasses all factors both

inside and outside the organization.

Level of environment are;

Internal; comprising of marketing, financial, personnel and

production aspects.

External; consisting of supplier, competition, customer,labour and international components.

General; consisting of economic, technological, political &

legal and social components.


5/85

Step 2: Establishing Organizational Direction

The second step of strategic management process is

establishing organization direction / determining the

thrust of organization.

Two main indicators of direction in which organization ismoving;

Mission; organization mission is the purpose for

which an organization exists (Line of Business).

Objectives; targets the organization has chosen.


6/85

Step 3: Strategy Formulation

Strategy; a course of aimed at ensuring that

organization will achieve its objectives.

Strategy Formulation; the process of designing and

Selecting strategies that lead to the attainment oforganizational objectives. Once the environment has

be management is able to chart alternative courses

of action in an effort to ensure organizational

success.


7/85

Step 4: Implementing Organizational Strategy

This step Involves putting into action in logically developed

strategies that emerged from the previous steps of strategic

management process. It is concerned with;

Making decisions with regard to developing structure.

Staffing the structure.

Providing leadership and motivation to the staff.

Monitoring the effectiveness of the strategy in achieving

the organizational objectives


8/85

Step 5: Organizational Control

It is a special type of organizational control that focuses on

monitoring and evaluation the strategic management

process in order to improve it and ensure that it is

functioning properly.


9/85


10/85

MANAGERIAL SKILLS EMPHASIZED IN STRATEGIC MANAGEMENT

Establishing the mission a mission is usually enduring and timeless.

Formulating a company philosophy establishing beliefs, values and attitudes.

Establishing policies-deciding on plans of action to guide the performance of all

major activities.

Setting objectives-deciding on achievement targets within a defined time range.

Developing strategy-developing concepts, ideas and plans for achieving objectives

successfully and meeting and beating the competition. Planning the organization & structure-development.

Providing personnel-recruiting, selecting and developing people to fill the positions

in the organization plan.

Providing facilities-providing the equipment, and other physical facilities.

Providing capital.

Setting standards-establishing measures of performance.

Establishing procedures determining and prescribing how recurrent activities will

be carried out.


11/85

CHAPTER 2


12/85

FUNDAMENTAL OF ENVIRONMENTAL ANALYSISEnvironmental Analysis; is the process of monitoring the

organizational environment to identify both present & future threats& opportunities that may influence the firms ability to reach its goal.

Organizational Environment; is the set of all factors both outside &

inside the organization that can affect its progress toward attaining

organizational goals.

Role of Environmental Analysis In Organizational Planning

The policy oriented role; it seems to be broadest in scope and the most loosely

related to formal organizational planning.

The integrated strategy planning role;it seems to emphasize a close relationship

between environmental analysis and formal organizational planning.

The function oriented role; it seems the most specifically targeted at particular

organizational issues.


13/85

Environmental Analysis Role In Organizational Planning

The policy oriented role; it seems to be broadest in scope and the most

loosely related to formal organizational planning.

The integrated strategy planning role; it seems to emphasize a close

relationship between environmental analysis and formal organizational

planning.

The function oriented role; it seems the most specifically targeted at

particular organizational issues.

ROLE SCOPE RELATIONSHIP PURPOSE / ISSUE

Policy

Oriented

Broadest Loosely

Related

Formal organizational planning,

keeping management inform about

major emerging trend.

Integrated

Strategic

Planning

Focused Close

Relationship

Make Mgrs & Div Mgrs aware about

issues with a view to;

Prepare environmental forecasts

Generate basic assumptions

Functional

Oriented

Specifically

Targeted

Close

Relationship

Provide information about a

specific functional issue & its

improvement.


14/85

Environmental Structure

The General Environment; consisting of economic,

technological, political & legal and social components.

The Operating Environment; consisting of supplier,

competition, customer, labour and international

components.

The Internal Environment; covers marketing, financial,

personnel and production aspects.


15/85


16/85

ENVIRONMENTAL STRUCTURE

The General Environment

Economic Component;Marketing executives need to know whichstage of business cycle the economy currently is & how the marketingprogramme will be effected. Therefore companys marketingprogrammes be changed from one stage of the business cycle toanother.

Social Component; Marketers are required to evaluate thedemographic factors influence the marketing programme, and factorslike change in age distribution, household composition & growth inminority market.

Political Component; How the political situation in the country willeffect the market conditions.

Legal Component; How laws, legislation & tariffs will effect thebusiness environment.

TechnologyComponent; the market trend and ability to absorb thetechnological changes.


17/85

EXAMPLES OF GENERAL ENVIRNOMENTAL FACTORS

ECONOMIC COMPONENT

Gross National Product Corporate Profits Inflation Rate Productivity Employment Rates Interest Rates Tax Rates

Consumer Income Dept & Spending

LEGAL COMPONENT Environment Acts Occupational Acts Monopoly Acts Various Labour Laws Treaties with Foreign Nations Patent Trademark Laws Laws Affecting Business Firms SECP Laws

SOCIAL COMPONENT

Literacy Rates Educational Level Customs, Norms, Values, Beliefs,

Lifestyle, Age, GeographicDistribution

POLITICAL COMPONENT

Type of Government in Existence Government Attitude Toward VariousIndustries

Lobbying Efforts by Interest Groups Progress Towards Legislation

TECHNOLOGY COMPONENT Employment of Robots for Improving

Productivity Create Competitive Advantage Automation & Computerization


18/85

ENVIRONMENTAL STRUCTURE

The General Environment

The Operating Environment Customer Component; Characteristics of Customers, Develop Profile

of Target Customers

Competitive Component; Competitive Analysis, Focus of Competition,

Gain Competitive Advantage

Labour Component; Factors Influencing Workers Suppliers, Skill &

Desired Wage Rates

Supplier Component; Variable Providing Resources, Credit Terms

Offered by Customers.

International Component; Legal Environment, Economic Environment,Cultural Environment, Political System.


19/85

THE COMPETITIVE COMPONENT Competitors; Rival organizations provide goods or services to the same set of

customers.

Competitive Analysis-Purpose; is to help management appreciate strengths,weaknesses and capabilities of existing and potential competitors and predictwhat strategies they are likely to adopt.

Competition

Brand Competition come from marketers of directly similar product

Substitute Product satisfy the same needGeneral Type of competition in which every company is rival for the customers

limited buying power.

Competitive Advantage; is the companys ability to perform in one or more waysthe competitors cannot or will not match.

Differential Advantage; is the products characteristics due to which it enjoys

a competitive edge over competing products.

Competitive Analysis Porters Five Forces Model; Porters five forcesmodel of competitive analysis is a widely used approach for developingbusiness level strategies.


20/85


21/85

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Production: Capability of manufacturing facility and production in

broader sense is evaluated; it refers to creating the set of thatcreate the set of products that organization offers to its markets. Itconcerns-retailer as well.

Marketing Effort: All environmental forces combine to shape anorganizations marketing programme. Within the framework ofthese constraints, management should develop a marketing

programme to satisfy the needs of its markets Financial Resources: Finance department arrange the capital to

produce and market the products.

Human Resources: Train the existing manpower and select / hireadditional resources.

R&D: This factor may determine whether firm will lead or follow inits industry.

MIS: Helps organization in storing all internal and external dataand facilitate management in decision making.


22/85

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Organizational Aspects

Communication Network

Organizational Structure

Record of Success

Hierarchy of Objectives

Policies, Procedures, Rules

Ability of Management Team

Marketing Aspects Market Segmentation

Product Strategy

Promotion Strategy

Distribution Strategy

Financial Aspects

Liquidity Profitability

Activity

Investment Opportunity

Personnel Aspects

Labor Relations

Recruitment Practices

Training Programmes

Performance Appraisal System

Incentive Systems

Turnover & Absenteeism

Production Aspects

Plant Facility Layout

R & D

Use of Technology

Purchasing of Raw Materials

Inventory Control

Use of Sub-contracting


23/85


24/85

ENVIRONMENTALFORECASTINGIt is the process of determining, what conditions will exist within on

organizations environment at same future tine. To ensure futureenvironmental success companies determine future environmental

conditions. Environmental forecasts commonly made include economic,

social, political & technological forecasts. Methods of Environmental

Forecasting are:-

Expert Opinion Trend Exploitation

Trend Correlation

Dynamic Modeling

Cross Impact Analysis

Multiple scenarios

Demand/hazard forecasting


25/85

METHODS OF ENVIRONMENTAL FORECASTING Expert opinion, knowledgeable people are selected and asked to assign importance and

probability rating to various possible future developments. The most refined version, the

Delphi method, puts experts through several rounds of event assessment, where they keep

refining their assumptions and judgments.

Trend extrapolation, Researchers fit best-fitting curves through past time series to serve as abasis for extrapolation. This method direction of movement.

Trend correlation. Researchers correlate various time series in the hope of identifying leading

and lagging relationships that can be used for forecasting.

Dynamic modeling. Researchers build sets of equations that attempt to describe the

underlying system. The coefficient in the equations are fitted through statistical means.

Econometric models of more than three hundred equations for example are used to forecastchanges in the US economy.

Cross-impact analysis. Researchers identify a set of key trends (those high in importance / or

probability). The question arises: ifevent A occurs, what will be the impact on other trends?.

The results are then used to build sets ofdominochains with one event triggering others.

Multiple scenarios. Researchers build pictures alternative futures, each internally consistent &

with a certain probability of happening. The purpose of the scenarios is to stimulate

contingency planning.

Demand/hazard forecasting. Researchers identify major event that would greatly affect the

firm. Each event is rated for its convergence with several major trends taking place in society

and for its appeal to each major public group in the society. The higher the events

convergence and appeal, the higher its probability of occurring the highest scoring events

are then researched further.


26/85


27/85

Potential

Entrants

Substitutes

INDUSTRY

COMPETITORS

Revelry Among

Existing Firms

BuysSuppliers

Bargaining

Power of

suppliers

BargainingPower of buys

Threat of newentrants

Threat of

substitute

products or

services

PORTERS FIVE FORCES MODEL


28/85

THE COMPETITIVE COMPONENT

Competitive Analysis Porters Five Forces Model; Porters five

forces model of competitive analysis is a widely usedapproach for developing strategies.

Focus of Competition: The competition focuses on;-

Rivalry among existing firms

The bargaining power of consumers

Development of substitute products

Bargaining power of suppliers

New entrants into market place


29/85

RIVALARY AMONG COMPETITIVE (Existing) FIRMS

DESCRIPTION IMPLICATIONS STRATEGY EMPLOYED

As rivalry amongcompetitive

firms increases,

industry profit

declines, in

some cases tothe point where

an industry

becomes

inherently

unattractive.

Intensity of Rivalry Increases; Competitors become more

equal in size and capability

Demand of industry

products decline

Competition Increases When consumers switch

brands easily

When barriers of leaving

market are high

When mergers & acquisition

are common

When rival firms are diverse

in strategies, culture & origin

When new firms can enter

industry easily

Price Competition Advertising Battles

New product

introduction &

Additional Services

Enhancing Quality &Adding Features

Extending warranties


30/85

BARGAINING POWER OF CONSUMERS

DESCRIPTION IMPLICATIONS STRATEGYEMPLOYED

Consumers ability to

influence market &

competition.

Bargaining power of

consumer is higher

when products are

standard andundifferentiated,

Whenever the

bargaining power of

consumer is

substantial rival

firms efforts are

focused to gain

consumers loyalty.

Higher quality

Negotiate selling

price

Warranty coverage

/

Extended

warranties Accessory package

Special services


31/85

DEVLOPMENT OF SUBSTITUTE PRODUCTS


In many industries firms

are in close competition

with produces of substitute

products in other

industries. The competitivestrength of substitute

product is best measured

by inroad into market

share those products

obtain

Puts a ceiling on price,

higher price may compel

consumers to switch to

substitute products

Ceiling potential return &industry profit

Performance alternative

offered by substitute

Increases capacity and

market penetration


32/85

BARGAINING POWER OF SUPPLIERS


Supplier can be

a competitive

threat and at

times control

the market.

Raise the price and

reduce the quality.

Reduce the

profitability in

an industry.

Affects the

intensity of

competition in anindustry.

Firms may pursue a

backward integration

strategy to gain control

or ownership of

suppliers.


33/85

POTENTIAL ENTRY OF NEW COMPETITORS


Also called the Threatto new entrants. A

firm entering an

industry brings new

capacity and an

increase desire togain market share

and profits.

Whenever, a firm can

easily enter a

particular industry,

the intensity of

competitiveness

among firms

increase.

The higher the entrybarriers, less likely are the

success chances.

Need to gain

economics of scale

quickly Need to gain tech &

specialized knowhow

Lack of experience

Strong customer loyalty

Strong brand preferences

Large capital requirements

Government regulatory

policies & tariffs

Potential saturation market

New firms sometimesenter industry with

higher quality

products, lower prices

and substantial

marketing resources.


34/85


35/85

RIVALARY AMONG COMPETITING FIRMS Conventional Type of Competition: Strategies commonly used are:-

Price competition

Advertising battles

New product introduction & Additional services

Enhancing Quality & Adding Features

Extending Warranties

WHEN COMPETITION INCREASES Intensity of Rivalry. Tends to increase

Number of competitors increases

Competitors become more equal in size and capability

Demand of industry products decline

Rivalry Increase

When consumers switch brands easilyWhen barriers of leaving market are high

When the products are perishable

When mergers & acquisition are common

When rival firms are diverse in strategies, culture & origin

When new firms can enter industry easily.

POTENTIAL ENTRY OF NEW COMPETITORS


36/85

POTENTIAL ENTRY OF NEW COMPETITORSAlso called the threat to new entrants. A firm entering an industry bring new capacity

and an increase desire to gain market share and profits. New firms are confronted with

barriers of entry. The higher the entry barriers, less likely are the success chances.

Whenever, a firm can easily enter a particular industry the intensity of competitivenessamong firms increases.

BARGAINING POWER OF SUPPLIERSSuppliers can be a competitive threat as they can raise the price & reduce the quality.

Power-full supplier can reduce the profitability in an industry. It affects the intensity ofcompetition in an industry. Firms may pursue a backward integration strategy to gain

control over suppliers.

BARGAINING POWER OF BUYERS

Bargaining power of consumers (consumerization); Consumers bargaining powerrepresents a major force affecting the intensity of competition. Whenever the

bargaining power of consumer is substantial rival firms to gain consumers loyalty offer

Extended warranties

Special services

Higher quality


37/85

CHAPTER 3

FUNDMENTALS OF ORGANIZATIONAL MISSION


38/85

FUNDMENTALS OF ORGANIZATIONAL MISSION

Organizational Mission; Is the purpose for which why an organization exists.

Organizational mission is a very broad statement of organizational direction. For any

firm organizational mission is normally summarized and documented in a mission

statement. Organization mission comprises of its purpose and philosophy.

Organizations Purpose

It defines the activities that the organization performs or intends to perform and the

kind of organization that it is or intends to be.

Organization purpose must be defined at its inception but also must be redefined

regularly during both difficult and successful periods.Defining the organization purpose starts with defining present and potential

customers;

Changes in organization purpose can lead to major changes in organization

operations.

Organizations Philosophy It establishes the values, beliefs and guidelines for the manner in which

organization is going to conduct its business. Ideally an organizations philosophy

should rarely be changed

Business philosophy reveals;

The image company seeks to project.

Reflects the firms self concept.

CONTENTS OF MISSION


39/85

CONTENTS OF MISSION

Company Product or Service; This information identifies the goods or services produced by

an organization --- that which the company offers to its customers.

Market; This information describes the customers of an organization, who these are and

where they are located?

Technology; The information generally includes such topics as tools, machines, materials,

techniques and processes used to produce organizational goods and services.

Company Objectives; Most mission statements make general reference to company

objectives. For many firms, these include the intention to survive through continuing growth

and profitability.

Company Philosophy; Statements of company philosophy (also called company creed)commonly appear as part of mission statement. Company philosophy is a statement

reflecting the basic beliefs and values that should guide an organization member in

conducting organizational business.

Company Self-Concept; Mission statements inevitably contain or accompanied by

information on self concept of the company. Company self-concept is the companys own

view or impression of itself.

Public Image; Mission statements generally contain some reference, either direct or indirect,

to the type of impression the company is attempting to leave with the organizations public.


40/85

THE NATURE OF ORGANIZATIONAL OBJECTIVES

Organizational Objective; A target towards which organizationdirects its efforts.

The Importance of Organizational Objectives

Guide in Decision Making

Guide for Increasing Organizational Efficiency

Guide for Performance Appraisal

Types of Organizational Objectives

Short Run Objectives: targets that the organization is

attempting to reach within about one or two years.

Long Run Objectives; targets that reach the

organization is trying to reach within about three to five

years.


41/85

Areas in Which Organizational Objectives Are Established

Market Standing; the position of an organization where it stands relative to its

competitors.

Innovation; any change made to improve methods of conducting organizational

business.

Productivity; the level of goods or services produced by an organization relative to

the resources used in the production process.

Resource Levels; the relative amounts of various resources held by an organization

such as inventory, equipment, and cash.

Profitability; the ability of an organization to earn revenue dollars beyond the

expenses necessary to generate the revenue.

Manager Performance and Development; the quality of managerial performance

and the rate at which managers are developing personally.

Work Performance and Development; the quality of non-managementperformance and such employees feelings about their work.

Social Responsibility; the obligation of business to help improve the welfare of

society while it strives to reach organizational objectives.


42/85

Goals and Objectives Definition

Goals; are long-term aims that you want to accomplish.

Objectives; are concrete attainments that can be achieved by following acertain number of steps.

Difference between goals and objectives

Goals are broad objectives are narrow

Goals are general intentions; objectives are precise.

Goals are intangible; objectives are tangible.

Goals are abstract; objectives are concrete. Goals can't be validated as is; objectives can be validated.

Summary

Goals and objectives are both tools for accomplishing what you want toachieve.

Goals are long term and objectives are usually accomplished in the short ormedium term.

Goals are nebulous and you cant definitively say you have accomplished onewhereas the success of an objective can easily be measured.

Goals are hard to quantify or put in a timeline, but objectives should be givena timeline to be more effective.


43/85

CHAPTER 4


44/85

FORMULATING ORGANIZATIONAL STRATEGIES

LEVEL OF STRATEGIES

Corporate Level Strategies

The corporations overall plan concerning the number of businesses the

corporation holds, the variety of industries it serves, and distribution of

resources among those businesses.

Business Level StrategiesThis strategy involves decisions about how the firm will compete in each

business area and industry.

Functional Level Strategies

The level of strategy that determines how activities in each of theorganizations functional areas will support business level strategy.


45/85



The corporations overall plan concerning the number of businesses the

corporation holds, the variety of industries it serves, and distribution of resources

among those businesses.

Corporate Level Decisions

Grand Strategies serves as Master Plan to decide the overall direction of theorganization.

Decide about the portfolio strategy that will determine the organizational

activities.

Strategy Facilitate

Guides overall direction. Define the Businesses in which company competes

Determine the resource allocation


46/85

CORPORATE LEVEL STRATEGIES

Stability Strategy; Focuses on existing line or line of business & attempt

to maintain them. This strategy is useful in following situations; An organization in no growth or low growth industry.

An organization that is of large size & dominates its markets.

Once further growth is costly, with detrimental effects on profitability.

Growth Strategy; A growth strategy that involves the acquisition of

organizations in existing line of business (competitors), as well as in otherindustries or other line of businesses with a view to seek growth in sales,

profit and market share. Growth strategies are pursued by means of

Integrative, Intensive and Diversification strategies.

Defensive Strategy; A grand strategy that involves reducing organizations

operations retrenchment & joint venture are the two defensive strategies. Concentration Strategy; An organization focuses on single line of business.

This strategy is used by firms seeking to gain competitive advantage

through specialized knowledge & avoid managing too many businesses.


47/85


48/85

BUSINESS LEVEL STRATEGIES

Porters Generic Competitive Strategies

The level of strategy that determines how a company will compete in each ofits business units. Business level strategy is concerned with the way each

business approaches its market place.


49/85



The level of strategy that determines how a company will compete in each of

its business units. Business level strategy is concerned with the way each


Porters Generic Competitive business level strategies that organization can

adopt to achieve competitive advantage within their industries. These

strategies are considered generic because they can be applied in variety ofsituations. Each require particular skills, resources and organizational

characteristics.


50/85



The level of strategy that determines how a company will compete in each ofits business units. Business level strategy is concerned with the way each


Porters Generic Competitive business level strategies that organization can

adopt to achieve competitive advantage within their industries. These

strategies are considered generic because they can be applied in variety of

situations. Each require particular skills, resources and organizational

characteristics.

Three broad business level strategies are;

Cost leadership strategy. A generic competitive strategy that keeps cost

as low as possible to attract a broad market and to yield high profits.

Differentiation Strategy. A generic competitive strategy in which anorganization crafts a product that customers perceive to be distinctly

different from the competition.

Focus Strategy. In this strategy on organization concentrates on a limited

part of the market a limited product line or a confined geographic area.


51/85

COST LEADRERSHIP STRATEGY; Keep cost as low aspossible to attract broad market and yield profit.

EFFECTIVENESS REQUIREMENTS RISKS

Buyers are sensitive to

price and always prefer low

price products.

To keep the price low high

efficiency and low

overhead is mandatory.

War price is waged

resulting in less

profitability.

Normally buyers cant

differentiate between

brand and value.

Firm to undertake cost

control.

Competitors can imitate

strategy.

Underpriced competitorscan gain market share. Reward link to costcontainment. Firm must use technologyto achieve low production

cost.


52/85

DIFFERENTATION STRATEGY; Customer perceiveproduct to be distinctively different


Develop product by

carefully checking the

preferences and buyers

need.

Competitors should not

copy the uniqueness

quickly and cheaply.

Uniqueness can at times be

quickly and cheaply

imitated.

Higher price can be

charged.

Production of a unique

product requires close

coordination between R &

D and Marketing Functions.

Can also be achievedthrough superior service,

warranty & after sales

service.


53/85

FOCUS STRATEGY; Concentrate on limited part of market,product or geographic area.


Once competitors are not

specialized in that area.

Customers may change

preferences.

Customers have distinctive

preferences

Competitors may copy.


54/85


55/85

CHAPTER 5

ISSUES IN STRATEGY FORMULATION & IMPLEMENTATION


56/85

Possible Combination

Success; Most likely outcome when an organization has good strategy and

implements its well. Still the environmental factors outside companys control

like competitive reactions or customer changes may make a strategy

unsuccessful.

Roulette; Situation when a poor formulated strategy is implemented well.

Good execution at times overcome the poor strategy or at least give

management an early warning.

Trouble; A well formulated strategy is poorly implemented. Failure; Poorly formulated strategy is poorly implemented. In this situation

management has the great difficulty on going back on the right track.

Conclusion

First; strategy implementation is at least as important as strategyimplementation.

Second; the quality of a formulated strategy is difficult if not impossible to

access in the absence of effective implementation.


57/85

ANALYZING STRATEGIC CHANGE

Continuation Strategy; Means the old strategy used in previous period isrepeated. Its implementation depends on the results of environmental

analysis and on the previous track record of the strategy. It is simpler toexecute and learning from previous experience (learning curve) can makeimplementation cost effective and efficient.

Routine Strategy Change; It involves changes in the appeals which attractcustomers and positioning / repositioning of products for customers.

Limited Strategy Change; involves offering new products to new markets

within the same product class, that does not involve radically differentmethods of production and marketing.

Radical Strategy Change; It involves major reorganization within the firm. Thistype of change is common when mergers occur in the same industry. Suchacquisitions can be particularly complex, when attempts are made to integratetwo firms completely

Organizational Redirection; It involves when merger and acquisition takesplace relating to different type of industries. The strategic chance dependsthat how different the industries are and how centralized the newmanagement is. The degree of strategic change depends on how different theindustries are and how centralized the management of new firm is


58/85

ANALYZING ORGANIZATIONAL STRUCTURE


59/85

ANALYZING ORGANIZATIONAL STRUCTURE

Formal & Informal Structure; When implementing a strategy managers must

take formal and informal structure into consideration, for three reasons;

Existing Structure; the existing organizational structure will promote orimpede successful implementation. With more level of management in anorganization, strategy cannot be implemented effectively.

Management Level; It is important to note that what management levels& personnel are responsible for implementation. Routine Strategy changescan be implemented by middle management , Radical Strategy changes &

Organizational Redirection be spearheaded by CEO for implementation The informal organization can effectively be used to facilitate successful

implementation.

Organizational Structures

Simple Structure

Functional Structure Divisional Structure

Strategic Business Unit Structure

Matrix Structure


60/85

SIMPLE STRUCTURE

Advantages

Facilitate control of all business

activities.

Makes possible rapid decision making

& ability to change with market

signals.

Offers simple & informal motivation,

reward & control systems.

Disadvantages

Very demanding for owner-manager.

Grows increasingly inadequate asvolume expands.

Does not facilitate development of

managers.

Tends to focus owner-manager on

day-to-day matters and not on future

strategy.

A simple organizational structure has only two levels, the owner-manager and

employees. Small firms with one product or only a few related ones usually

exhibited this structure.


61/85

FUNCTIONAL STRUCTURE

Advantages

Boots efficiency through

specialization. Fosters improved development of

functional expertise.

Differentiates & delegates day to- day operating decisions.

Retains centralized control ofstrategic decisions.

Offers large company a way of

remaining close to their markets.

Disadvantages

Promotes narrow specialization &potential functional rivalry or conflict.

Foster difficulty in functionalcoordination & inter-functional decisionmaking.

Can occasion staff-line conflict

Limits internal development of generalmanagers.

Since different divisions compete forresources, conflict can also

Organizations are divided into line and staff department & report to CEO. As

organizations grow & develop a number of related products & markets their

structure is developed into functional areas with greater specialization.


62/85

DIVISIONAL STRUCTURE

Advantages

Forces coordination & necessary down

to appropriate level for rapid response.

Places strategy development and

implementation in closer proximity to

the divisions unique environment.

Frees CEO from broader strategic

decision making.

Focuses accountability for performance.

Functional specialization is retained

within each division.

Serves as good training ground for

managers.

Disadvantages

Foster potentially dysfunctional

competition for corporate levelresources.

Creates a problem with the extent ofauthority given to divisional managers.

Raises the problem of arriving at amethod to distribute corporateoverhead costs that is acceptable to

different managers with profitresponsibility.

Divisions may be formed on the basis of product lines, markets, geographic

area, or channel of distribution. Each division has its own line and staff

functions to manage but also formulate and implement strategies.


63/85

SBU STRUCTURE

Advantages

Improve coordination with divisionswith similar strategic concerns &product-market environment.

Tightens the strategic management &control of large, diverse businessenterprises.

Facilitates distinct & in-depthbusiness planning at the corporate &business level.

Channels accountability to distinctbusiness units.

Disadvantages

Places another layer of managementbetween divisions & corporatemanagement which will slow downthe decision making process.

May increases dysfunctionalcompetition resources.

May make the defining the role ofGroup VP difficult.

May increase difficulty in defining thedegree of autonomy for the group VP& division managers.

When a divisional structure becomes unmanageable by a CEO, it is reorganized

inform of an SBU. These are structured on the basis of similarity of product lines

or markets. normally a VP is appointed as in-charge.


64/85

MATRIX STRUCTURE

Advantages Accommodates a wide variety of

project related business activities.

Serves as good training ground formanagers.

Maximizes efficient use of functionalmanagers.

Fosters creativity and multiplesources of diversity.

Provides broader middle-management exposure to strategicissues for the business.

Disadvantages Can creates confusion &

contradictory policies by allowing

dual accountability.

Necessitates tremendous horizontal

and vertical coordination.

This structure is used to facilitate the development & execution of various

programmes/projects. Departmental VP has functional responsibility of all

projects whereas, the PM has the responsibility for completing & implementing

respective project strategy.

ANALYZING ORGANIZATIONAL CULTURE


65/85

ANALYZING ORGANIZATIONAL CULTURE

Primary Organizational Culture Development Mechanism

Leaders Measure & Control

Leaders Reaction to Organizational Crises

Deliberate Role Modeling, Teaching & Coaching

Criteria of Allocation of Reward & Status

Criteria Relating to HR Activities

Secondary Organizational Culture Development Mechanism

The Organizations Design & Structure

Organizations Systems and Procedures Design of Physical Space, Facades & Buildings

Stories, Legends & Myths

Formal Organizational Statements

SELECTING AN IMPLEMENTATION APPROACH

Commanders Approach

Organizational Change Approach

The Collaborative Approach

Cultural Approach

The Crescive Approach


66/85

CHAPTER 6


67/85

ORGANIZATIONAL CONTROL & STRATEGIC CONTROL

Broad View of Organizational ControlControl; The regulatory process directing the activities an organization conducts toachieve anticipated goals and standards.

Controlling;The process of monitoring and regulating the organizations progress

towards achieving goals.

Definition of Organizational Control; controlling entails monitoring, evaluating and

improving activities that take place within an organization.

General Characteristics of Control Process; Managers actually control by three

general steps;

Measuring Performance

Comparing Measured Performance with Standards.

Taking Corrective Action.


68/85

STRATEGIC CONTROL PROCESS

Step 1 Measure Organizational Performance

Management generally uses strategic audit to determine what is actually

happening within the organization. Strategic Audit; it is examination & evaluation of areas affected by the

operation of strategic management process within the organization.

Scope of Audit; it may be very comprehensive or very focused.

Formal / Informal; Formal Audit strictly adhere to establishedorganizational rules & procedures, whereas during informal auditmanagers enjoy discretion in deciding what organizational measurementshould be taken & when.

Strategic Audit Measurement Methods

Qualitative Organizational Measurement

Quantitative Organizational Measurement Step 2 Compare Organizational Performance With Goals and Standards;

Management build a case for concluding whether what has happened as a result of

strategic management process is acceptable. Step 3 Take Necessary Corrective Action; If events are occurring in line with

organizational goals, no corrective action is required. If they are out of line somecorrective action is required.


69/85

STRATEGIC AUDIT MEASUREMENT METHODS

Qualitative Organizational Measurement;. Measurements are best arrived by answeringquestions designed to reflect important facets of organizational operations.

Is Organizational Strategy Internally Consistent?

Refers to the impact of various strategies on the organization. Strategies are not conflicting in purpose, in terms of relationship to other

organizational strategies.

Is Organizational Strategy Consistent With Environment?--- Problems rise from:-

Inconsistency between environment and strategy is due to the difficulty ofmatching two variables.

Organizations dont make effort to make strategy and environment consistent.

Is Organizational Strategy Given Appropriate Organizational Resources; Resources organization possesses are sufficient to carry out organizational strategy.

Without resources it is senseless to pursue any strategy.

Is Organizational Strategy Too Risky?

Strategy & resources taken together determine the degree of risk being taken.

Management must access proportion of organizational resources.

Is Time Horizon of Strategy Appropriate? Strategy is designed to achieve organizational goals within a given time period.

Management must ensure that time available to reach the goal and time necessaryto implement the strategy is consistent.

In consistency between two variables can delay the achievement of organizationalgoals in a satisfactory way.


70/85

STRATEGIC AUDIT MEASUREMENT METHODS

Quantitative Organizational Measurement; These organizational assessments

resulting in data that are numerically summarized and organized before

conclusions are drawnon which to base strategic control action. Methods are;-

ROI

Net income is divided by total asset, it indicates the relationship between

the amount income generated & amount of assets needed to operate.

It is the most commonly measures of organizational performance. ROI

value of one year may not provide useful information Suggested action is;- Compare ROI value of consecutive quarters and years.

Comparison with competitors operating in the same industry.

Z-Score; These common quantitative measures results from an analysis that

numerically weights & sums five measures to arrive an overall score. Z Score of

a particular firm gives top management an idea of financial health of the firm. Formula ; Z= 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 +1.0 X5

Z Defines the overall corporate health. Z-Score result in a single number

ranges from -- 1 to 5.


71/85

CHAPTER 7


72/85

Fundamental of International Management International Management; It is to perform management activities across national borders.

The firm accomplishes its organization mission by conducting its business activities in aforeign country.

International Business: Pros & Cons Advantages

Lower Operating Cost; Businesses are normally operated in under developedcountries where raw material, wages and other overhead costs are normally morethan the mother country.

Increase Sales & Profits; Foreign markets are less competitive thus more sales andprofits are achieved, thus more promising.

Continued Growth;Management may be able to ensure companys growth inrelation to its competitors by becoming more involved international business arena.

Disadvantages

Operating in Difficult Environment; In foreign countries management is confrontedwit h different political, economic and cultural environment s. The managers of aninternationally oriented company must handle diversified environmental issuessimultaneously.

Difficult to Keep Track of Competitors: Keeping record of competitors in two or

more countries is simply difficult than staying abreast with the competitors in asingle country. The distances between countries, the different languages andvarying national attitudes exacerbate this difficulty.

Dealing With Different Monetary Systems; Dealing with two or more monetarysystems rather than one complicates the accounting process considerably.

Increases the Political Risk; Political risk is the p[potential loss of control overownership or benefits of enterprise due to action taken by a foreign government.


73/85

Fundamental of International Management

Multinational Corporations; A company that has significant operationsin more than one country. The company investing in internationaloperations is called the parent company; the country in which theinvestment is made is called the host company.

Stages of Multi-nationalization

Stage 1: Exports its products to foreign countries. Stage 2: Establishes sales organization abroad.

Stage 3: Licenses use of its patients & knowhow the foreign firmsthat make & sell its products.

Stage 4: Establishes foreign manufacturing facilities.

Stage 5: Multi-nationalizes managementfrom top to bottom.

Stage 6: Multi-nationalizes management ownership of corporatestock.


74/85

CHAPTER 12

A COMPREHENSIVE APPROACH OF ANALYZING


75/85

A COMPREHENSIVE APPROACH OF ANALYZING

STRATEGIC PROBLEMS & CASES

A Case Analysis Frame Work

Define the Problem

Formulate Alternates

Evaluate & Compare the Alternatives

Select & Implement the Chosen Alternative

An Expanded Frame Work For Case Analysis

Analyze and Record Current Situation

Analyze & Record Problems & their Core Elements

Formulate Alternatives

Evaluate & Record Alternative Courses of Action

Select, Justify & Record the Chosen Course of Action & Implementation

ANALYZE AND RECORD THE CURRENT SITUATION


76/85

ANALYZE AND RECORD THE CURRENT SITUATION Purpose; analyzing the current situation is important for:

Developing a Clear Understanding of Current Situation

Investigate Current & Potential ProblemsDetermine the Level of Analysis



77/85




Steps of Carrying Out Environmental Analysis

Separate Relevant from Superfluous Information

Differentiate between Symptoms and Problems

Differentiate between Facts and OpinionCollect Additional Information for Situational Analysis

Evaluate Reasonableness & Necessity of Assumptions

Draw Explicit Conclusions



78/85










Steps of Completing Current Situation

Organizational Overview

Organizational Clientele & Product Mix



79/85










Steps of Completing Current Situation

Organizational Overview

Organizational Clientele & Product Mix

Carryout Environmental Analysis, Identify Organizational Direction & Carryout

SWOT Analysis

Study Areas in Environmental Analysis

STUDY AREAS IN ENVIRONMENTAL ANALYSIS


80/85

STUDY AREAS IN ENVIRONMENTAL ANALYSIS GENERAL ENVIRONMENT

Economic ; Economic variables as inflation, unemployment & interest rates.

Social; Social variables as educational levels, customs, beliefs & values.

Political; Lobbying activities & government attitudes toward business.

Legal; Legal variables as federal, state and local legislation

Technological; Level of technology, Technological trends

OPERATING ENVIRONMENT

Customer; Target markets and customer profiles.

Competition; Strengths, weaknesses, strategies & market share of competitors

Labor; Supply of labor, skills & competence of available labor.

Supplier; Relationships between suppliers, Resources and the firm

International; International factors / trends

INTERNAL ENVIRONMENT

Organizational aspects; Organizational issues, concepts & analysis. Marketing aspects; Marketing issues, concepts and analysis

Financial aspects; Financial issues, concepts and analysis

Personnel aspects; Personnel issues, concepts and analysis

Production aspects; Production issues, concepts and analysis

ANALYZE & RECORD PROBLEMS & THEIR CORE ELEMENTS


81/85


Purpose; is to help analyst recognize the major problems & issues of

the current situation.

Identifying the Inconsistencies

Recognizing and Recording of problem is critical for case analysis. In

case roots of problems are not determined, explicitly stated and

understood the case analysis has little problem.

General Worksheet and Defining Problems

Description of Problem

Evidence of Problems

Facts

Symptoms

Opinions

Assumptions

Repeat for Cases In the Event of Additional Problems



82/85


Purpose; is to help analyst recognize the major problems & issues of

the current situation.

Identifying the Inconsistencies

Recognizing and Recording of problem is critical for case analysis. In

case roots of problems are not determined, explicitly stated and

understood the case analysis has little problem.

General Worksheet and Defining Problems

Description of Problem

Evidence of Problems

Facts

Symptoms

Opinions

Assumptions

Repeat for Cases In the Event of Additional Problems

FORMULATE EVALUATE & RECORD ALTERNATIVE COURSES OF ACTION


83/85

FORMULATE, EVALUATE & RECORD ALTERNATIVE COURSES OF ACTION

Purpose; what can be done to resolve problems already defined?

Alternate Courses of Action

Brainstorming

Search Each Alternate

Formulation & Recommendations of Alternatives

Evaluation of AlternativesStrengths; anything favorable about the alternatives

Weaknesses; anything unfavorable

General Worksheet for Evaluating Courses of Action

Description of Alternative Course

Strength of Alternative

Weaknesses of Alternatives

Overall Evaluation of Alternative.

SELECT JUSTIFY & RECORD CHOOSEN COURSE OF ACTION &


84/85

SELECT, JUSTIFY & RECORD CHOOSEN COURSE OF ACTION &

IMPLEMENTATION

Purpose; select the alternate that best solves the problem.

Select the alternate that best solves the problem after careful

analysis.

Justify Selection; regardless of which alternative is selected the

analyst must justify choice.

Implementation Plan; The final phase in the case analysis is devising

the action oriented implementation plan.

General Worksheet for Implementing the Chosen Alternative

Describe the Alternative

Responsibilities of Functional Department for Implementation of

Alternative

Contingencies in Case of Failure


85/85

revision final spring 2012

Documents