BarCharts, Inc.

® WORLD’S #1 QUICK REFERENCE GUIDE

DEFINITIONS COMPANY MISSION: 2. Advances in technology, e.g., fiber optics, gene

Strategic Management is a process for conducting the WHAT IS OUR BUSINESS? manipulation.
entrepreneurial activities of a firm for organizational 1. Basic product or service 3. A misfortune befalls a major competitor who
renewal, growth, and transformation. The major tasks 2. Primary markets then shuts down, liquidates, or goes bankrupt.
are: (1) set a mission and goals, (2) assess the 3. Principal technology used (if relevant) 4. A competing company is put up for sale at a good
environment, (3) appraise company capabilities, (4) 4. Customer satisfaction, quality, and societal goals price.
craft the strategy, (5) implement the strategy, and (6) 5. Company philosophy 5. A chance occurs for you to hire a noted expert
evaluate and control the strategy. 6. Self-concept (identity) that you need.
Business Policy is a set of prescribed and discretionary 6. A breakthrough in your product or process
statements, limiting actions of individuals in the firm, (“Research & Development”) that makes
as set forth in directives and guides.
THE ENVIRONMENT possible a gain in market share.
Mission is the reason for which the firm exists, and what THE REMOTE (MACRO)
ENVIRONMENTAL FACTORS THREAT
it will do. Basically, it describes the products/services
to be supplied, the markets to be served, and the 1. Economic A threat is an event, as defined by its impact on your
technology applied (if important). company and the probability of its occurrence, that
Vision Statement answers the question, What do we
2. Social-demographic
3. Political-legal will result in harm to your company. It is an attack on
want to become? company underpinnings, such as:
4. Technological
Goals express the aspirations of the firm, general ends 1. Support of stakeholder groups
5. Cultural
that cannot be measured. Ex. “In unrelenting pursuit of 2. Resources: human, financial
6. Ecological-natural
perfection.” 3. Customer base
Objectives are specific targets to be accomplished by a TASK (IMMEDIATE, OPERATING)
ENVIRONMENTAL FACTORS 4. Capabilities, such as technology, products,
specified time. Ex. “Profits will grow at the rate of 5%
annually for the next five years.” Long-term objectives
processes, management, and functional
1. The task environment comprises all persons, 5. Artificial barriers to competition: laws,
(5 years or more) are strategic objectives and define the groups, or entities that have an interest in the
desired character of the company, at the specified time. regulations, patents, and licenses
company. These are called stakeholders.
Strategy is simply the means or general actions to be 2. A narrower definition refers to those 6. Social changes and customer preferences
taken to achieve long-term objectives. Strategic stakeholders with whom the firm has contact
management is the work of the General Manager. from time to time, as follows:
General Manager is a person who is responsible for a 4. Potential
a. Customers computer
profit center, as opposed to a functional manager who b. Suppliers entrants
is responsible only for a cost or revenue center. c. Financial institutions
Generic Strategy is the name for a group of d. Competitors
similar specific strategies. e. Trade associations 2. Buyers
Levels of Strategy f. Activist groups
1. Corporate level. What types of businesses g. Federal, state, and local government agencies
should we be in? h. Media representatives 1.
2. Business level. How do we compete? i. Unions
3. Functional component level. What should our
organization do to synchronize with the DEFINING AN INDUSTRY
Rivalry among
business-level strategy? 1. Products existing firms
Opportunity is a set of circumstances that, if acted upon
2. Competitors
at the right moment, will produce a gain.
3. Structure (number, size, relative strength, market
Threat is the probability of a future event and its
share of competitors, product differentiation)
potentially harmful impact on the firm.
4. Economic traits
3.
5. Critical success factors Suppliers
Mission 6. Entry barriers
& Vision COMPETITIVE ENVIRONMENT: 5. Potential competitive
MICHAEL E. PORTER’S 5-FORCE MODEL substitutive products
Evaluation Forecast the
See Figure 2. from firms in other
Capabilities Environment industries
As Porter says, the nature and intensity of competition
in an industry is a composite of five competitive Fig. 2, Porter’s Force Model
Strengths Opportunities forces:
1. Rivalry among competitors in the industry
Weaknesses Threats 2. The bargaining power of buyers EVOLUTION OF
3. The bargaining power of suppliers COMPANY CAPABILITIES
Set 4. The potential entry of new competitors
Long-Term 5. The power of firms with substitute products SITUATION ANALYSIS
Objectives Industry-driving forces increase incentive for the 1. How well is the company’s strategy working?
industry to change. Examples of driving forces are
industry growth rate, product innovation, customer 2. What are the company’s strengths and weaknesses?
preferences, firms entering and leaving the industry, 3. What are its core products and competencies?
Craft cost and productivity, and increasing globalization.
the Strategy 4. What benchmarks are being used for measuring its
OPPORTUNITY situation?
Implement An opportunity is a combination of events or
APPROACHES TO INTERNAL
the Strategy circumstances that arise, which, if acted upon at a
SCANNING & ANALYSIS
certain time, will result in profit, gain, or victory. Such
circumstances may be caused by changes in the Value Chain Analysis
Evaluate & environment or by changes in the company, relative to 1. Basic concept: Value analysis identifies the primary
Control the environment. Examples: and support activities that create value.
Strategy 1. Opportunities arise for the firm as it is. These 2. It may be used to analyze and reduce business costs
include product and market extensions through and compare one business’ value chain with those of
Fig. 1, The Strategic Management Model mergers, failures of competitors, and legal change. competing companies. See Fig. 3 (next page).
1
 Evolution of Company Capabilities (continued)
Functional Analysis of Strengths & Weaknesses of the Firm SETTING STRATEGIC
(LONG-TERM) OBJECTIVES Corporate Level
1. Establish a table with column headings: Factors,
Characteristics of Long-Term Objectives What business should we be in?
Strengths/Weaknesses, Standards and Comparison. 1. Acceptable to managers
For each factor to be evaluated, the question must be 2. Adaptable to extraordinary changes in the environment A. Choose GENERIC corporate-level strategies.
asked, “Compared to what?” 3. Clearly measurable against specified criterion 1. Feasible corporate-level strategies.
2. Standards or criteria may be: 4. Motivating - not too high and not too low
a. The industry average for the factor being evaluated 5. Understandable
b. The best firm’s values GENERIC GROUPS OF competitive
LONG-TERM OBJECTIVES strength
c. The best value of any firm on each criterion
Within each generic strategy objective group below,
d. A previously set objective
specific objectives may be selected.
e. A previous forecast
1. Product/Market scope industry
3. Functional factors should be selected from the 2. Profitability attractiveness
following functional areas: 3. Competitive edge
a. Marketing 4. Financial specifications, expenditures, net worth, etc.
2. Choose final generic strategy option.
b. Operations/Production 5. Innovation and technology
c. Finance and accounting 6. Employee development/Productivity
d. Human resources, especially management and 7. Sources of, and deployment of, resources Options
8. Synergy
organization
9. Risk
e. Information systems 10. Legitimacy (satisfaction of stakeholders) Opportunity
f. Quality of all transactions, relationships, and 11. Ideological leadership Long-term objectives
outputs Generic strategy (appropriate feasible)
CRAFTING CORPORATE-
Support Primary
LEVEL STRATEGY
activities activities OBJECTIVES Select options to get final gene strategies.
and costs and costs
Corporate-level strategy is directed toward:
Purchased 1. Maintaining corporate-wide consistency of
Technology supplies and direction of the total company toward long-range, B. Choose SPECIFIC corporate-level strategy,
development inbound usually global, goals called strategic intent. guide by final generic strategy to yield.
and product logistics 2. Leveraging resources for long-range goals.
and process 3. Reducing financial risk by building a balanced Portfolio of businesses
Operations portfolio of businesses with a balanced portfolio
improvement =
of advantages. answers to the origin of the question
Outbound
4. Investing in core competencies for the businesses
logistics (usually called Strategic Business Units or SBUs).
Human Resources Fig. 4, Corporate Strategy Formulation
Sales and 5. In general, corporate strategy is designed to
Management
answer the question: What businesses should we ANALYSIS & EVALUATION
Marketing be in? OF THE PORTFOLIO
General Service General Electric 9-Cell Business Screen
THE PROCESS
Administration Profit 1. Fig. 6 shows a 9-cell matrix of the
The process of developing corporate-level strategy is positioning of SBUs, in terms of competitive
Margin shown in Fig. 4 and explained as follows: strength vs. industry attractiveness.
CHOOSE GENERIC
2. The areas of the circles represent the sales of
Fig. 3, The Value Chain each SBU. The segments represent market share.
CORPORATE-LEVEL STRATEGIES
3. The position of a business on the grid may be
MATCH OF STRATEGY & STRUCTURE Generic Strategy is a group of corporate-level determined either subjectively, or quantitatively,
1.Culture strategies that are first determined so that the decision by using a weighted rating system for the factors
maker is guided toward making an appropriate specific shown.
2.Images strategy (See Fig. 5.5, 6 & 7). A list of generic 4. Corporate strategy implications from the matrix
3.Identity strategies generally used is as follows: are:
4.Leadership Concentration - the corporation concentrates its a. Suggest investment priorities.
efforts and resources on current business or
5.Mission, goals, objectives, and organizational b. Incorporate a wide variety of strategic
businesses.
structure Concentric diversification - the company decides to variables (others in addition to those shown
diversify into products related to its present products may be incorporated).
RESOURCE-BASED ANALYSIS through similar marketing methods, production c. Indication of possible life-cycle stages of the
This approach to strengths and weaknesses is based on processes, or products. SBUs.
two fundamental assumptions: (1) resource heterogeneity Conglomerate diversification - diversification d. Indicate balance or lack of balance in the
into products unrelated to the firm’s present portfolio.
- a firm is a bundle of resources and these resources are
products. e. Compare performance among business units.
different for each firm, and (2) resource immobility, Vertical backward integration - the company
which says that if these resources are difficult to copy, buys, or otherwise competes with, its suppliers. SELECTING A GENERIC STRATEGY
they are a potential source of competitive advantage. Lists Forward integration - the company buys 1. Plot the company’s current (and potential) SBUs
of firm attributes that may be thought of as resources may companies that are customer businesses. on Fig. 5, a competitive strength vs. industry
Joint ventures - two or more companies combine attractiveness matrix. Each circle (area) is
be divided into four categories: equity in a new company to gain an advantage or
1. Financial capital proportional to the sales of the particular SBU
minimize individual weaknesses.
(See Fig. 5).
2. Plant capital Divestiture - a company sells off, spins off in various
ways, a portion or an entire SBU. 2. Select feasible corporate-level generic strategies
3. Human capital from the cells in which the SBUs fall.
Turnaround/Restructuring - a defensive strategy
4. Organizational capital followed by a company in need of immediate 3. Find a match of an opportunity, a set of
improvement. long-term objectives, and a generic
PIMS ANALYSIS strategy from Fig. 5. Such a set represents
Bankruptcy - a means for getting respite from
Profit Impact of Marketing Strategy, offered by the creditors and used by very healthy companies, as a strategic option.
Strategic Planning Institute, is based on a database of well as those which need to be reorganized and 4. Find a number of strategic options and select,
about 3,000 businesses. Their research is directed at obtain additional capital. judgmentally, the ones that your resources can
identifying principles that will guide companies in Liquidation - the company sells its assets and goes support. This will give you your final feasible
establishing successful strategies, or evaluating their own. out of business.An generic strategies.
2
 Rapid Market Growth Competitive Status of the Corporation’s Business Units
1. Reformation of Strong Average Weak
concentration 1. Concentration
2. Horizontal 2. Vertical Cell A Cell D Cell G
integration integration
3. Divestiture 3. Concentric 1. Mergers
1. Internal growth 1. Turnaround
diversification

environmental
4. Liquidation

opportunities
2. Vertical integration 2. Horizontal integration 2. Divestment
of related businesses 3. Strategic alliances

Many
Specialty
Shop 3. Mergers
Supermarket
Group 4. Horizontal
Group diversification

StateoftheExternalEnvironment
Weak
Competitive Drug Cell B Cell E Cell H
Position Store
Strong 1. Vertical integration 1. Stability 1. Turnaround

environmental
Group

opportunities
Competitive

andthreats
Moderate
of related businesses 2. Mergers 2. Divestment
Position
2. Horizontal related 3. Horizontal integration
diversification 4. Strategic alliances
1. Turnaround or 1. Concentric 5. Divestment
retrenchment diversification
2. Concentric 2. Conglomerate
diversification diversification
3. Joint ventures
Cell C Cell F Cell I
3. Conglomerate
diversification 1. Liquidation
1. Horizontal-related 1. Divestment
4. Divestiture
5. Liquidation diversification 2. Horizontal-related
environmental

2. Horizontal-unrelated diversification
Critical

threats

diversification 3. Horizontal-unrelated
Slow Market Growth (conglomerate) diversification
3. Vertical integration of 4. Stability
Source: John A. Pearce & Richard B. Robinson, Strategic Management,
Homewood, Illinois: Irwin, Inc., 1982 p. 210.
unrelated businesses
4. Divestment
Fig. 5, Feasible Corporate Generic Strategies
CHOOSE THE SPECIFIC CORPORATE-LEVEL
STRATEGY (PORTFOLIO OF BUSINESS UNITS)
1. Specific Corporate-Level Strategy Fig. 5.5, SWOT Portfolio Framework
answers the question: “What businesses
should we be in?” STRATEGIC FIT ANALYSIS
2. For each generic strategy, decide the business, if Market size Cyclicality 1. Does each business fit with other businesses in
any, that you wish to add to or subtract from your and growth rate of demand the portfolio? Compare the value analysis
portfolio. For example, if you were a Industry profit margins Financial norms
Competitive intensity Economies of scale chains of each.
manufacturer of golf carts and decided to follow Bargaining power of Barriers to entry 2. Does each business fit the strategic direction of
a concentric diversification strategy, you might customers and supplier Capital intensity the total company? Does each business
select the purchase of a power lawn mower contribute heavily to corporate financial
company to add to your portfolio. Invest aggressively performance?
3. When you have reviewed all your feasible generic
strategies and made such decisions, the Invest selectively
companies remaining represent your portfolio Harvest or divest Competitive
and set the direction for the total company. Position
Industry Attractiveness
Using SWOT (Strength, Weaknesses,
Opportunities, Threats) to derive generic High Medium Low Strong Average Weak
corporate strategies (P. Wright, M. J. Kroll,
and J. Parnell) Business
Low

Strength Development
SWOT analysis ties together strengths, weaknesses,
opportunities, and threats vs. competitive position.
Place each SBU in a cell, giving recommended
Medium

feasible generic strategies (Fig 5.5). Growth

StageofProduct/MarketEvolution

LIFE CYCLE MATRIX

The Life Cycle Matrix is similar to the G.E. Matrix,
High

except that it focuses on the life cycles of the Shakeout

products, rather than the industry attractiveness. In
Fig. 7, the competitive position is shown for each
SBU, but the stage of the SBU’s life cycle is also Maturity
shown. Small sales at the beginning and end of the life Relative market share
cycle, with a strong competitive position, for Profit margins
Cost position Saturation
example, may be considered favorable. If all
SBUs are in different stages of the life cycle, but Level of differentiation
Technological capability
in the strong competitive position, this may also be a Response time Decline
favorable condition. If all SBUs are in the strong Financial strength
competitive position and maturity stage, this indicates Human assets
trouble later, because no new businesses are in the
company’s portfolio. Fig. 6, GE 9-Cell Screening Grid Fig. 7, Life Cycle Matrix
3
BUSINESS STRATEGIES FOR SBUS
& SINGLE-PRODUCT COMPANIES
THE FIRST STEP IN CRAFTING THE
COMPETITIVE STRATEGY FOR SBU
Decide on the generic strategy or strategies to follow.
The basic four generic strategies that may be used are
shown in Fig. 8 (below) as (1) low-cost leadership, (2)
differentiation, (3) niche or focus market segment
with low cost, and (4) focus on a market segment using
differentiation.
Use low-cost leadership when:
1. Price competition among rival sellers is
especially intense.
2. The product is essentially a commodity with
many sellers.
3. There are few ways to differentiate the products
that have value to the user.
4. Buyers have low switching costs and can change
to lower-priced sellers.
5. Buyers are large and can bargain down prices.
Use differentiation strategy when:
1. Differentiation of a product can command a
premium price for its product.
2. Brand loyalty can be won over.
3. The cost of differentiation is less than the
premium price that can be obtained.
Use focus strategy when:
1. The segment of the market focused on is large
enough to be profitable.
2. The segment is not important to the success of
major competitors.
3. The segment has good potential for growth.
4. The company can provide excellent service and
goodwill within the segment.
GENERIC BUSINESS STRATEGY OPTIONS
1. A business generic strategy option consists of a
match of an opportunity, a long-term business
objective, and a generic strategy. See Fig. 8.
2. At this point, the generic strategy is honed by
deciding on the emphasis to be placed on or
allocation of resources to: competitor orientation,
market orientation, and product/service
orientation.
3. Avoid “stuck-in-the-middle” strategies that lead
to engaging in each generic strategy, and thereby
failing to achieve any of them.
4. Select the option or options to obtain the final
generic strategies.
DEVELOP THE SPECIFIC
BUSINESS-LEVEL STRATEGY
1. The specific business strategy describes
specifically what the firm will do to compete.
2. The generic strategies and long-term
objectives restrict the statement of the
business-level strategy.
3. Each functional manager prepares his/her
component of the total business strategy,
showing major additions and programs for
the next five years.
4. The General Manager then directs the
reconciliation of all functional programs and
budgets, as indicated in Fig. 8 (this page, at right).
IMPLEMENTING
THE STRATEGY
IMPLEMENTING WITH STRUCTURE
Implementing strategy is the conversion of concepts
into action and results. It is the total and detailed
activities to fulfill the strategy and achieve the long-
term objectives. The first part consists of:
1. Communicating the strategy to the organization 2. Is the strategy consistent with the environment?
to prepare every employee with an understanding 3. Is the strategy appropriate in view of the
of what will follow and the things in general that available resources?
must be done. 4. Does the strategy involve an acceptable degree of
2. Prepare and disseminate a list of major annual risk?
objectives for the organization. 5. Does the strategy have an appropriate time
3. Establish policies and procedures for actions. framework?
4. Prepare annual plans and budgets for resource 6. Is the strategy workable?
allocations. Stage Criteria
5. Prepare an organization STRUCTURE that
The strategy may be evaluated at each stage of
matches the new strategy (portfolio and SBUs).
its development shown in Fig. 1 (see page 1), as well
6. Install best practices for each department, based
on the value chain and benchmarks. as after implementation at selected times.
* Source: Seymour Tilles, “How to Evaluate Corporate Strategy,” Harvard
IMPLEMENTING WITH Business Review 41 (1963): 111-121.
ORGANIZATIONAL LEADERSHIP
1. Staff the organization with committed leaders
capable of driving implementation.
Business Level
2. Avoid resistance to change through employee How should we compete?
development and communication with A.Choose GENERIC business-level strategies.
employees. 1. Feasible business strategies
3. Tie rewards and incentives to achievement of
performance objectives. Low-cost Differentiation
4. Develop a strategy-supporting culture. leadership
IMPLEMENTING WITH THE FUNCTIONAL Niche low Focused
COMPONENTS OF STRATEGY cost differentiation
Each functional manager should prepare his/her
2. Choose final generic business strategy option.
functional component of the business strategy and
plans for execution. These are reconciled and approved Options
by the business managers and upper management. The Opportunities
Long-term objectives
typical functional areas are shown with examples of a Generic strategies (feasible)
few issues that may arise in implementation: Competitor-Directed
1. Marketing: product policies, distribution Market-Directed
Product-Directed
policies, ethics, customer relations, pricing
policies. Select options to get final generic strategies
2. Production/operations: equipment, layout, Year 1 2 3 4 5
method of delivery of services, work methods, Marketing
Production
production planning,quality control, outsourcing. Research & Development
3. R&D/design: estimating the time for new Finance
product development, quality and cost balance in
design, continuing education of creative workers, Generic Long-term
outsourcing of design work. Strategies objectives
4. Accounting/finance: increasing labor costs,
increasing sales expense, economic value added, Fig. 8, Business Strategy Formation
Fig. 1, The Strategic Management Model
taxes, exchange rate between U. S. and other
currencies, transfer pricing.
5. Human Resource management: assignment of CREDITS PRICE
people to new projects, salary and bonus
payments, promotions and dismissals, major Layout: A. Thomas Fenik U.S. $ 4.95
human errors, recruitment and selection. CAN $ 7.50
6. Corporate information and communication
systems: management information system, NOTE TO STUDENT
personalcommunications, mass communications, This QUICKSTUDY® guide is an outline of the
communicating policies.
basic topics taught in Management courses.
IMPLEMENTING WITH CONCERN FOR LAWS, Due to its condensed format, use it as a study
ENVIRONMENTAL & SOCIAL CONCERNS guide but not as a replacement for assigned
Implementation must be carried out with concern for class work.
factors that may not always be spelled out, but must
All rights reserved. No part of this publication may be reproduced or transmitted in any form, or by any means,
represent good citizenship. electronicormechanical,includingphotocopy,recording,oranyinformationstorageandretrievalsystem,without
written permission from the publisher.
©2001 BarCharts, Inc. 0508
ISBN-13: 978-142320707-8
STRATEGY
ISBN-10: 142320707-6
EVALUATION
FOUNDATION FOR
STRATEGY EVALUATION
Foundation for Evaluation of Strategy
The basis for evaluation is to compare strategy with
free downloads &
hundreds of titles at
quantitative or qualitative criteria. In addition, strategy quickstudy.com
may be evaluated at different stages.
Quantitative Criteria
1. Overall financial performance, such as ROI, ROE,
Customer Hotline # 1.800.230.9522
profit margin, market share, earnings per share.
2. Time of implantation vs. planned time.
3. Increase in productivity, quality, number of
employees, etc.
Qualitative Criteria (from S. Tilles *)
1. Is the strategy internally consistent?
4