Strategic Management

Contents
Chapter 1 - Strategic Management: Concept and definition
Chapter 2 – Develop VMO for organization
Chapter 3 – Strategic Analysis
Chapter 4 – Generate, evaluate and select strategies
Chapter 5 – Strategy implementation and execution
Chapter 6 – Strategy Review, Evaluation and Control
 Upon completion this unit, student should be able to:
i. Provide clear definition about strategic management

ii. Explain stages in strategic planning processes

Unit 1 iii. Explain key terms in strategic planning

Strategic iv. Discuss advantage and disadvantage of having

Management: strategic planning

Concept and v. Explain Comprehensive Model of Strategic Planning

definition
Defining Strategic Management
 Strategic Management (SM) is an art and science of formulating,
implementing and evaluating cross-functional decisions that enable an
organization to achieve its objectives

 It is used synonymously with the term strategic planning

Defining Strategic Management
 Sometimes the term strategic management is used to refer to strategy
formulation, implementation, and evaluation, with strategic planning referring
only to strategy formulation.

 A Strategic Plan is a company’s game plan which results from tough managerial
choices among numerous good alternatives and signals organization's
commitment to specific markets, policies, procedures and operations
Defining Strategic Management
 Strategic Management focuses on integrating Management +
Marketing + Finance/Accounting + Production/Services/Operations
+ RND + Computer Information Systems = Organizational Success
Strategic Management vs Strategic
Planning
 Sometimes the term strategic management is used to refer to strategy
formulation, implementation, and evaluation, with strategic planning
referring only to strategy formulation.
Strategic Management vs Strategic
Planning
Strategic Management Strategic Planning
 Often used in Academia  Often used in Business
 Used to refer Strategy  Used to refer only Strategy
Formulation, Implementation Formulation.
and Evaluation.  Purpose: Tries to optimize for
 Purpose: Create new and tomorrow the trends of today.
different opportunities for
tomorrow.
Stages of Strategic Management

Strategy Strategy Strategy

formulation implementation evaluation
Stages of Strategic Management: Strategy
Formulation
Developing a vision & mission
Identifying organization’s external opportunities and
treats
Determining internal strengths and weaknesses

Establishing long term objectives

Generating alternative strategies

Choosing particular strategies to pursue

Stages of Strategic Management: Strategy
Formulation
Deciding what new businesses to enter

Deciding what businesses to abandon

How to allocate resources

Whether to expend operations or diversify

Whether to enter international markets

Whether to merge or form a joint venture

Stages of Strategic Management: Strategy
Implementation

Establish annual objectives

Devise policies

Motivate employees

Allocate resources
Stages of Strategic Management: Strategy
Implementation
Developing a strategy-supportive culture

Creating an effective organizational structure

Redirecting marketing efforts

Preparing budgets

Developing and utilizing information system Most

Difficult
Linking employee compensation to organizational performance
Stages of Strategic Management: Strategy
Evaluation
Reviewing external and internal factors that are the bases for
current strategies

Measuring performance

Taking corrective actions

Stages of Strategic Management
 Strategy formulation, implementation, and evaluation activities

occur at three hierarchical levels in a large organization: corporate,

divisional or strategic business unit, and functional

 Strategic management helps a firm function as a competitive team

Key Terms in Strategic Management
 Competitive advantage  Strategists

Anything that a firm does The individuals who are most

especially well compared to rival responsible for the success or
firms failure of an organization
Key Terms in Strategic Management
 Vision statement  Mission statements
Identifies the scope of firm’s operations
First step in strategic planning
(product & market)
Answers to the question “What do
One that distinguish one business from
we want to become?” other similar firm

Answer to the question “What is our

business?”
Key Terms in Strategic Management
 External opportunities and External Threats

- refer to economic, social, cultural, demographic, environmental, political, legal,

governmental, technological, and competitive trends and events that could
significantly benefit or harm an organization in the future
Key Terms in Strategic Management
 Internal Strengths and Internal Weaknesses

 an organization’s controllable activities that are performed especially well or

poorly

determined relative to competitors

Key Terms in Strategic Management
 Objectives

 specific results that an organization seeks to achieve in pursuing its basic

mission
long-term means more than one year

should be challenging, measurable, consistent, reasonable, and clear

Key Terms in Strategic Management
 Strategies

 the means by which long-term objectives will be achieved

 may include geographic expansion, diversification, acquisition, product

development, market pénétration, retranchement, dévestiture, liquidation, and
joint ventures
Key Terms in Strategic Management
 Annual objectives

 short-term milestones that organizations must achieve to reach long-term objectives

 should be measurable, quantitative, challenging, realistic, consistent, and prioritized

 should be established at the corporate, divisional, and functional levels in a large

organization
Key Terms in Strategic Management
 Policies

 the means by which annual objectives will be achieved

 include guidelines, rules, and procedures established to support efforts to

achieve stated objectives
 guides to decision making and address repetitive or recurring situations
 Advantages and disadvantages of
Strategic Planning
i. Historically, the principal benefit of strategic management has been to
help organizations formulate better strategies through the use of a
more systematic, logical, and rational approach to strategic choice

ii. Communication is a key to successful strategic management

iii. Through dialogue and participation, managers and employees become

committed to supporting the organization
Advantages and disadvantages of
Strategic Planning
Strategic Management Model

Where are we now?

Where do we want to go?

How are we going to get there?

Comprehensive Model of Strategic
Management
 Reflections
i. Discuss financial benefits and non-financial benefits of having strategic
planning in an organization.

ii. Discuss the reasons why some organizations are refuse to conduct or
perform strategic planning.

iii. Discuss two pitfalls in strategic management.

 This chapter aims to:

I. Describe the nature and role of VMO in strategic

Chapter 2 management

II. Explore the process of developing a mission

VMO: Strategic
Management statement

and Policy III. Evaluate selected mission statement

IV. Write good vision and mission statement

V. Types of Strategies
Strategic Management and Policy
“A business is not defined by its name, statutes, or articles of incorporation. It is
defined by the business mission. Only a clear definition of the mission and purpose
of the organization makes possible clear and realistic business objectives”

- Peter Drucker

“A corporate vision can focus, direct, motivate, unify and even excite a business into
superior performance. The job of the strategist is to identify and project a clear vision”

-John Keane
Strategic Management and Policy
• The vision will define where the organization wishes to go, which is vital for
identifying successful strategies for the organization. It is a big picture that will
Vision show who we are, what we do and where are we heading to

• The mission statement of an organization translates the vision of the organization

closer to reality
Mission

• Specific statements of what to achieve with precise characteristics like timeliness,

Objective measurable and quantifiable
 Vision
I. Future based and meant for inspire and give direction to the
employees of the company

II. It is a dynamic statement and can change over time. As company

grows, vision and objectives of the company may change

III. Vision statement should be written to last at least few years

IV. A clear vision lay the foundation for developing a comprehensive

mission statement
Vision statement - example
“A personal computer in every home running Microsoft Software” – Microsoft

“To be the company that best understands and satisfies the product, service and
self-fulfillment needs of women” – Avon

“To inspire healthier communities by connecting people to real world” – Sweet

green

“We work hard every day to make American Express the world’s most respected

service brand” – American Express

 Mission statement (MS)
I. “An enduring statement of purpose that distinguish one business from other
similar firms; a statement that identifies the scope of a firm’s operation in
product and market terms”

II. MS defines the basic reason for the purpose of setting up the business and
legitimize its existence in society

III. MS also may describe the firm’s product, market and technology in a way that
reflects the value of organization
Mission statement components
 Customers  Self-concept

 Product and services  Concern for public image

 Markets  Concern of employees

 Technology

 Concern for survival, growth and

profitability

 Philosophy
 Mission statement - examples
I. “To be the world’s most trusted and respected financial services institution” –
JP Morgan

II. “To inspire Life Long Learning, advance knowledge and strengthen our
communities” - New York Public Library

III. “To develop and enhancing experiences towards the development of

knowledge based society” – OUM

IV. “We are committed to excellence in our products and services” – TNB 2003
 Characteristics of a Mission Statement
I. Broad in scope

II. Fewer than 150 words in length

III. Inspiring

IV. Identifies the utility of a firm’s products

V. Reveals that the firm is socially responsible

VI. Include nine components**

VII.Reconciliatory

VIII.Enduring
 The importance of VM
I. Business Weeks reported that firms using mission statements have a 30 percent
higher return on certain financial measures than those without such statements

II. Rarick and Vitton found that firm with a formalized mission statement have twice
the average return on shareholders’ equity than those firms without a formalized
mission statement have.

III. Bart and Baetz found a positive relationship between mission statements and
organizational performance
 The importance of VM (other benefits)
I. Achieve clarity of purpose among all managers and employees

II. Promote a sense of shared expectations among all managers and employees

III. Achieve synergy among all mangers and employees

IV. Resolve divergent views among managers

V. Provide a basis for all other strategic planning activities, including internal and external
assessment, establishing objectives, developing strategies, choosing among alternative
strategies, devising policies, establishing organizational structure, allocating resources and
evaluating performance
 Objectives
I. Specific results that an organization seeks to achieve in pursuing its basic mission

II. Objectives are essential for organizational success because they provide direction,
aid in evaluation, create synergy, reveal priorities, focus coordination and also
provide basis for planning, organizing, motivating and controlling activities.

III. Objectives should be challenging, measurable, consistent, reasonable and clear

IV. Thus, strategies also known as Long term objectives

 Eight desired characteristics of Objectives
I. Quantitative “Objectives are commonly stated in terms such

II. Measurable as growth in assets, growth in sales,

profitability, market share, degree and nature of
III. Realistic
diversification, degree and nature of vertical
IV. Understandable
integration, earnings per share and social
V. Challenging responsibility”

VI. Hierarchical

VII.Obtainable

VIII.Congruent among organizational unit

 Benefits of having clear objectives
I. Provide direction by revealing expectations

II. Allow synergy

III. Assist in evaluation by serving as standards

IV. Establish priorities

V. Minimize conflicts

VI. Stimulate exertion

VII. Reduce uncertainty

 Benefits of having clear objectives
i. Aid in allocation of resources

ii. Aid in design of jobs

iii. Provide basis for consistent decision making

Financial versus Strategic Objectives
Financial objectives include those associated with growth in revenues, growth in
earnings, higher dividends, larger profit margins, greater return on investment, higher
earning per share, a rising stock price, improve cash flow.

Strategic objectives include things such as a larger market share, quicker on time
delivery than rivals, shorter design to market times than rivals, lower costs than
rivals, higher product quality than rivals, wider geographic coverage than rivals,
achieving technological leadership, consistently getting new or improved products to
market ahead of rivals.
Strategies: Key terms
Strategies – This means by which long-term objectives will be achieved. Business
strategies may include geographic expansion, divestiture, liquidation and joint
ventures.

Strategist – The person(s) responsible for formulating and implementing a firm’s

strategic plan, including CEO, president, owner of a business, head coach,
governor, chancellor and/or the top management team in a firm.
Levels of Strategies – large company
Levels of Strategies – small company
Types of strategies

Integration Intensive
strategy strategy
Strategies
Diversification Defensive
strategy strategy
Integration Strategies
i. Also known as vertical integration strategies
ii. Vertical integration strategies allow a firm to gain control over distributors, suppliers,
and/or competitors.

Strategy Definition
Forward Integration Gaining ownership or increased control over distributors or
retailers
Backward Integration Seeking ownership or increased control pf a firm’s suppliers
Horizontal Integration Seeking ownership or increased control over competitors
Integration Strategies
Forward Integration

Forward integration involves gaining ownership or increased control over

distributors or retailers.

Increasing numbers of manufacturers (suppliers) today are pursuing a forward

integration strategy by establishing Web sites to directly sell products to
consumers.
Integration Strategies
Forward Integration – implementation guidelines
Organization’s present distributors are expensive
or unreliable or incapable of meeting the firm’s
distribution needs.

Availability of quality distributors is so limited as

to offer a competitive advantage to those firms
that integrate forward.

Organization competes in an industry that is

growing and is expected to continue to grow
markedly
Integration Strategies
Forward Integration – implementation guidelines
Organization has both the capital and human
resources needed to manage the new business of
distributing its own products.

When the advantages of stable production are

particularly high.

Present distributors or retailers have high profit

margins.
Integration Strategies
Backward Integration

A strategy of seeking ownership or increased control of a firm’s suppliers.

This strategy can be especially appropriate when a firm’s current suppliers are
unreliable, too costly or cannot meet the firm’s needs.
Integration Strategies
Backward Integration – implementation guidelines
Organization’s present suppliers are expensive,
unreliable or incapable of meeting the firm’s needs
for parts, components, assemblies or raw materials.

When the number of suppliers is small and the

number of competitors is large.

Organization competes in an industry that is growing

rapidly.
Integration Strategies
Backward Integration – implementation guidelines
When the advantages of stable prices are particularly important.

Organization has both capital and human resources to manage the

new business of supplying its own raw materials.

When present supplies have high profit margins, which suggests that
the business of supplying products or services in the given industry is
a worthwhile venture.

When an organization needs to quickly acquire a needed resource.

Integration Strategies
Horizontal Integration

A strategy of seeking ownership of or increased control over a firm’s competitors.

Current trend - Increased use of horizontal integration as a growth strategy.

Mergers, acquisitions, and takeovers among competitors allow for increased

economies of scale and enhanced transfer of resources and competencies.
Integration Strategies
Horizontal Integration – implementation guidelines
Organization can gain monopolistic characteristics in
a particular area or region without being challenged
by the federal government to reduce competition.

When an organization competes in a growing

industry.

When increased economies of scale provide major

competitive advantages.
Integration Strategies
Horizontal Integration – implementation guidelines

When an organization has both the capital

and human talent needed to successfully
manage an expanded organization.

When competitors are faltering due to a lack

of managerial expertise or a need for
particular resources that an organization
possesses.
Types of Strategies
Strategy Definition
Forward Integration Gaining ownership or increased control over distributors or
retailers
Backward Integration Seeking ownership or increased control pf a firm’s suppliers
Horizontal Integration Seeking ownership or increased control over competitors
Market Penetration Seeking increased market share for present products or services
in present markets through greater marketing efforts
Market Development Introducing present products or services into new geographic
area
Product Development Seeking increased sales by improving present product or services
or developing new ones
Types of Strategies - continued
Strategy Definition
Related Diversification Adding new but related product or services
Unrelated Diversification Adding new, unrelated product or services
Retrenchment Regrouping through cost and asset reduction to reverse declining
sales and profit

Divestiture Selling a division or part of an organization

Liquidation Selling all of a company’s assets, in parts for their tangible worth
 This chapter aims to:

i. Strategy Analysis and Choice

Chapter 3 ii. Processes in Strategy Generating

Strategic iii. Comprehensive Model for Strategy Formulation

Analysis and Framework
Choice iv. Stages in Strategy Formulation Framework

v. SWOT analysis, SPACE Matrix, BCG Matrix,

IE Matrix, Grand Strategy Matrix
 Strategy Analysis and Choice
I. One of the activity in strategy formulation

II. Alternative strategies represent incremental steps that move the firm from its
present position to a desired future position.

III. They are derived from the firm’s vision, mission, objectives, external audit,
and internal audit;

IV. The analysis activity encompasses the analysis of external environment,

organizational analysis, industry analysis and competitive analysis
Generating Strategies: What are those
processes?
Involved managers & employees who:
i. assembled the organizational vision and Alternative strategies proposed by
mission statements, participants are considered and
ii. performed the external audit, and discussed in meetings.
iii. conducted the internal audit.

When all feasible strategies are given

and understood, the strategies are This process will result in a
ranked in order of attractiveness prioritized list of best strategies that
1 = should not be implemented reflects the collective wisdom of the
2 = possibly should be implemented group.
3 = probably should be implemented
4 = definitely should be implemented
Strategy Formulation Framework: A
Comprehensive Model
Three stages decision making
Strategy Formulation Framework: A
Comprehensive Model
Three stages decision making

Stage 1 Stage 2 Stage 3

(Input (Matching (Decision
Stage) Stage) Stage)
• Summarizes the • Focuses upon • Uses input
basic input generating feasible information from
information needed alternative Stage 1 to evaluate
to formulate strategies by feasible alternative
strategies. aligning key strategies
external and identified in Stage
internal factors. 2.
 The Nature of Strategy Analysis and
Choice
I. Alternative strategies represent incremental steps that move the firm from
its present position to a desired future position.

II. Alternative strategies derived from the firm’s vision, mission, objectives,
external audit, and internal audit.

III. Alternative strategies consistent with or build on past strategies that have
worked well
 Comprehensive Strategy Formulation
Framework: Input Stage
I. Input derived from 3 matrices (EFE Matrix, IFE Matrix and CPM)

II. Information from 3 matrices provides basic input information for Matching
and Decision Stage matrices.
 Comprehensive Strategy Formulation
Framework: Matching Stage
I. Matching external & internal critical success factors is the key to effectively
generating feasible alternative strategies.

II. Consists of FIVE techniques; SWOT Matrix, SPACE Matrix, BCG Matrix, IE
Matrix and Grand Strategy Matrix
Comprehensive Strategy Formulation
Framework: Matching Stage
Comprehensive Strategy Formulation
Framework: Matching Stage
1. The Strengths-
SO Strategies:
Use a firm’s internal strengths to take advantage of external opportunities. Weaknesses-
Opportunities-Threats
(SWOT) Matrix
All managers would like their organizations to be in a position in which
internal strengths can be used to take advantage of external trends and
events.

When a firm has major weaknesses, When an organization faces major

it will strive to overcome them and threats, it will seek to avoid them to
make them strengths. concentrate on opportunities.
Comprehensive Strategy Formulation
Framework: Matching Stage
WO Strategies:
1. The Strengths-
Aim at improving internal weaknesses by taking advantage of external
opportunities. Weaknesses-
Opportunities-Threats
Sometimes key external opportunities exist, but a firm has internal
weaknesses that prevent it from exploiting those opportunities. (SWOT) Matrix

Example: There are a high demand for electronic devices to control the amount and
timing of fuel injection in automobile engines (opportunity), but a certain auto parts
manufacturer may lack the technology required for producing these devices
(weakness).
One possible WO Strategy would be to
An alternative WO Strategy would be to
acquire this technology by forming a
hire and train people with the required
joint venture with a firm having
technical capabilities.
competency in this area.
Comprehensive Strategy Formulation
Framework: Matching Stage
ST Strategies: 1. The Strengths-
Use a firm’s strengths to avoid or reduce the impact of external threats. Weaknesses-
Opportunities-
This does not mean that a strong organization should always meet threats in
the external environment head-on. Threats (SWOT)
Matrix
Example: Texas Instruments used an excellent legal department (a strength) to collect
nearly $700 million in damages and royalties from 9 Japanese & Korean firms that
infringed on patents for semiconductor memory chips (threat).

Rival firms that copy ideas, innovations, and patented products are a major
threat in many industries.
Comprehensive Strategy Formulation
Framework: Matching Stage
WT Strategies: 1. The Strengths-
Defensive tactics directed at reducing internal weakness and avoiding Weaknesses-
external threats.
Opportunities-Threats
(SWOT) Matrix
An organization faced with numerous external threats and internal
weaknesses may indeed be in a precarious position.

In fact, such a firm may have to fight for its survival, merge, retrench,
declare bankruptcy, or choose liquidation.
Comprehensive Strategy Formulation
Framework: 8 steps in constructing
SWOT
1. List the firm’s key
2. List the firm’s key 3. List the firm’s key
external opportunities
external threats (ET). internal strengths (IS).
(EO).

6. Match IW with EO, 5. Match IS with EO,

4. List the firm’s key
and record the and record the
internal weaknesses
resultant WO resultant SO Strategies
(IW).
Strategies. in the appropriate cell.

8. Match IW with ET,

7. Match IS with ET,
and record the
and record the
resultant WT
resultant ST Strategies.
Strategies.
 Comprehensive Strategy Formulation
Framework: Matching Stage
I. SPACE (The Strategic Position and Action Evaluation) Matrix

II. FOUR Quadrant; Aggressive, Conservative, Defensive, Competitive strategies

The axes of the SPACE Matrix represent:

1. 2 Internal Dimensions – Financial Position (FP) & Competitive Position (CP)

2. 2 External Dimensions (Stability Position (SP) & Industry Position (IP)

 Comprehensive Strategy Formulation
Framework: Matching Stage
I. Steps required to develop a SPACE Matrix
STEP DESCRIPTION
STEP 1 Select a set of variables to define FP, CP, SP & IP
STEP 2 Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables
that make up the FP and IP dimensions.

Assign a numerical value ranging from -1 (best) to -7 (worst) to each of the variables
that make up the SP and CP dimensions.

On the FP and CP axes, make comparison to competitors. On the IP and SP axes, make
comparison to other industries.

STEP 3 Compute an average score for FP, CP, IP, and SP by summing the values given to the
variables of each dimension and then by dividing by the number of variables included
in the respective dimension.
 Comprehensive Strategy Formulation
Framework: Matching Stage
I. Steps required to develop a SPACE Matrix
STEP DESCRIPTION
Plot the average scores for FP, IP, SP, and CP on the appropriate axis in the SPACE
STEP 4 Matrix.

Add the two scores on the x-axis and plot the resultant point on X.

Add the two scores on the y-axis and plot the resultant point on Y.
STEP 5
Plot the intersection of the new xy point.

Draw a directional vector from the origin of the SPACE Matrix through the new
intersection point.
STEP 6 This vector reveals the type of strategies recommended for the organization:
aggressive, competitive, defensive, or conservative.
 Comprehensive Strategy Formulation
Framework: Matching Stage
I. The Boston Consulting Group (BCG) Matrix

II. When a firm’s divisions compete in different industries, a separate strategy often must
be developed for each business.

III. BCG Matrix is designed specifically to enhance a multidivisional firm’s efforts to

formulate strategies

IV. The BCG Matrix graphically shows differences among divisions in terms of relative
market share position and industry growth rate.
 Comprehensive Strategy Formulation
Framework: Matching Stage
I. The Boston Consulting Group (BCG) Matrix

II. Relative market share position is given on the x-axis of the BCG Matrix.

III. The midpoint on the x-axis usually is set at .50, corresponding to a division that has half
the market share of the leading firm in the industry.

IV. The y-axis represents the industry growth rate in sales, measured in percentage
terms.

V. The growth rate percentages on the y-axis could range from -20 to +20 percent, with 0.0
being the midpoint.
 Comprehensive Strategy Formulation
Framework: Matching Stage
I. The Boston Consulting Group (BCG) Matrix

II. Each circle represents a separate division.

III. The size of the circle corresponds to the proportion of corporate revenue
generated by that business unit, and the pie slice indicates the proportion of
corporate profits generated by that division.
i. Quadrant I – Question Marks

ii. Quadrant II – Stars

iii. Quadrant III – Cash Cows

iv. Quadrant IV – Dogs

 Comprehensive Strategy Formulation
Framework: Matching Stage
I. The Boston Consulting Group (BCG) Matrix

II. The major benefit of the BCG Matrix is that it draws attention to the cash
flow, investment characteristics, and needs of a firm’s various divisions.

III. The divisions of many firms evolve over time:

i. Dogs become Question Marks,
ii. Question Marks become Stars,
iii. Stars become Cash Cows, and
iv. Cash Cows become Dogs in an ongoing counterclockwise motion.
 Comprehensive Strategy Formulation
Framework: Matching Stage
I. The Internal-External (IE) Matrix

II. Differences between BCG Matrix and IE Matrix:

1. The axes are different.

2. IE Matrix requires more information about the divisions than the BCG Matrix.

3. The strategic implications of each matrix are different.

Strategists in multidivisional firms often develop both BCG Matrix &

IE Matrix in formulating alternative strategies.
 Comprehensive Strategy Formulation
Framework: Matching Stage
I. The Grand Strategy Matrix

II. The Grand Strategy Matrix is based on 2 evaluative dimensions:

competitive position and market (industry) growth.

III. Any industry whose annual growth in sales exceeds 5 percent could be
considered to have rapid growth.

IV. Appropriate strategies for an organization to consider are listed in

sequential order of attractiveness in each quadrant of the matrix.
 Comprehensive Strategy Formulation
Framework: Decision Stage
I. The matching techniques discussed feasible alternative strategies.

II. These strategies should be rate on a 1 to 4 scale so that a

prioritized list of the best strategies could be achieved.
 This chapter aims to:

1.

Chapter 5
Strategy
Implementation
and Execution
 Strategy Implementation: Overview
I. The crucial part in strategy implementation is translating of strategic thought
into strategic action. It is crucial because:

II. Easier for managers and employees of the firm to understand the business

III. Feel a part of the company through involvement in strategy-formulation

activities
The Nature of Strategy Implementation
#1 #2 #3 #4 #5
Strategy
Strategy Strategy Strategy
Strategy formulation
formulation is formulation is formulation
formulation requires
positioning primarily an requires good
focuses on coordination
forces before intellectual intuitive and
effectiveness. among a few
the action. process. analytical skills.
individuals.

Strategy Strategy
Strategy Strategy
Strategy implementation implementation
implementation implementation
implementation requires special requires
is managing is primarily an
focuses on motivation and coordination
forces during operational
efficiency. leadership among many
the action. process.
skills. individuals.
 Strategy Implementation: Important facts
I. Successful strategy formulation does not guarantee successful strategy
implementation.

II. It is always more difficult to do something (strategy implementation) than to say you
are going to do it (strategy formulation)!

III. Strategy-formulation concepts and tools do not differ greatly for small, large, for-
profit, or nonprofit organizations.

IV. However, strategy implementation varies among different types and sizes of
organizations.
Strategy Implementation: Important facts
Implementing strategies requires such actions:
Altering sales territories, Adding new departments, Closing / Building
new facilities.
Hiring / Training new employees, Developing new employee benefits,
Transferring managers among divisions.
Changing organization’s pricing strategy, Developing financial budgets,
Establishing cost-control procedures, Changing advertising strategies.
Strategy Implementation: Management
issues
Altering an
Establishing Effective HR
Devising Allocating existing
annual function, and
policies resources organizationa
objectives downsizing
l structure

Developing a Revising Matching Adapting

Minimizing
strategy reward and managers production/
resistance to
supportive incentive with operations
change
culture plans strategy processes
 Matching structure with strategy
I. Changes in strategy lead to changes in organizational structure.

II. Structure should be designed to facilitate the strategic pursuit of

a firm

III. Without a strategy or reasons (mission), companies find it difficult

to design an effective structure.
 Matching structure with strategy
I. There is no one optimal organizational design or structure for a
given strategy or type of organization

II. What is appropriate for one organization may not be appropriate

for a similar firm.

III. As organizations grow, their structures generally change from

simple to complex.
Matching structure with strategy
Symptoms of an ineffective organizational structure:
1. Too many levels of management

2. Too many meetings attended by too many people

3. Too much attention being directed toward solving interdepartmental conflicts

4. Too large a span of control

5. Too many unachieved objectives

6. Declining corporate or business performance

Matching structure with strategy
Functional
Divisional by geographic area

7 basic types of Divisional by product / service

organizational
structure:
Divisional by customer
Divisional by process
Strategic business unit (SBU)
Matrix
Matching structure with strategy
The Functional Structure
The most widely used structure because it is the simplest and least expensive.

A functional structure groups tasks and activities by business function, such as:
Production/operations, marketing, finance/accounting, research and development, and
management information systems.
Matching structure with strategy
The Divisional Structure
The divisional or decentralized structure is the second most common type.

The divisional structure can be organized in one of four ways:

1. By geographic area

2. By product or service

3. By customer

4. By process
 Matching structure with strategy
Divisional by geographic area
I. Suitable for organizations whose strategies need to be tailored to fit the particular needs
and characteristics of customers in different geographic areas.

II. Suitable for organizations that have similar branch facilities located in widely dispersed
areas.

III. Allows local participation in decision making and improved coordination within a region.
 Matching structure with strategy
Divisional by product / service

I. Most effective when specific products or services need special emphasis.

II. Widely used when an organization offers only a few products or services or when an
organization’s products or services differ greatly.

III. Allows strict control and attention to product lines, but also require more skilled
management force and reduced top management control.
Matching structure with strategy
Divisional by customer
I. When a few major customers are of paramount importance and many different services are

provided to these customers

II. Allows an organization to cater effectively to the requirements of clearly defined customer

groups.

III. For example:

I. Book publishing companies often organize their activities around customer groups –

colleges, secondary schools and private commercial schools.

Matching structure with strategy
Divisional by process

I. Similar to a functional structure, as activities are organized

according to the way work is actually performed.

II. Difference between these 2 designs is that functional departments

are not accountable for profits or revenues, whereas divisional

process departments are evaluated on these criteria.

Matching structure with strategy
Strategic business unit (SBU)

I. As the number, size and diversity of divisions in an organization

increase, controlling & evaluating divisional operations become

more difficult for strategists.

II. In multidivisional organizations, an SBU structure can greatly

facilitate strategy-implementation efforts.

Matching structure with strategy
Strategic business unit (SBU)

I. SBU, groups similar divisions and delegates authority and responsibility for

each unit to a senior executive who reports directly to the CEO.

II. In a 100-division organization, the divisions could be regrouped into 10 SBUs

according to certain common characteristics – Competing in the same

industry, being located in the same area, or having the same customers.
Matching structure with strategy
Matrix Structure

I. Most complex because it depends upon both vertical and horizontal flows of

authority and communication (hence the term matrix).

II. In contrast, functional and divisional structures depend primarily on vertical

flows of authority and communication.

III. Despite complexity, is widely used in construction, research, health care and

defense.
 Human resource concerns when
implementing strategy
I. More companies are using furloughs to cut costs as an alternative
to laying off employees.

II. Strategic responsibilities of the HR manager:

I. Assessing the staffing needs and costs for proposed alternative strategies.

II. Developing a staffing plan for effectively implementing strategies.

III. Motivate employees during a time when layoffs are common and workloads are high.
Human resource concerns when
implementing strategy
Labor Cost-Saving Tactics
1. Salary freeze, Hiring freeze

2. Salary reductions, Reduce employee benefits

3. Reduce employee, Reduce employee workweek

4. Mandatory furlough, Voluntary furlough

5. Hire temporary instead of full-time employees

6. Hire contract employees instead of full-time employees

7. Halt production for 3 days a week (Toyota Motor is doing this)

8. Layoffs, Early retirement

9. Reducing/eliminating bonuses
 This chapter aims to:

1. Discuss the needs to review strategy

Chapter 6 2. Elaborate strategy evaluation (SE) and SE

Strategy framework
Review, 3. Strategy Evaluation (SE) activities
Evaluation and
Control 4. Characteristic of Effective Evaluation System
The needs to review strategy

The best formulated and best implemented strategies become obsolete as a

firm’s external and internal environments change. Therefore, it is essential for
strategists to systematically review, evaluate, and control the execution of
strategies.
 Strategy Evaluation
I. Strategy Evaluation (SE) is vital to an organization’s well being. Timely
evaluations can alert management to potential or actual problems before a
situation becomes critical.
II. Strategy Evaluation (SE) includes three basic activities:
(1) Examining the underlying bases of a firm’s strategy.
(2) Comparing expected results to actual results.
(3) Taking corrective actions to ensure that performance conforms to plans.
 Strategy Evaluation
I. Adequate and timely feedback is the cornerstone of effective Strategy
Evaluation.

II. Strategy Evaluation is important because organizations face dynamic

environments in which key external and internal factors can change quickly
and dramatically.

III. Strategy Evaluation is essential to ensure that the stated objectives of an

organization are being achieved.
 Strategy Evaluation
I. Strategy Evaluation (SE) should:
Initiate managerial questioning of expectations and assumptions

Trigger a review of objectives & values

Stimulate creativity in generating alternative strategies and formulating

criteria for evaluation
Be performed on a continuing basis, rather than at the end of specified
periods of time or just after problems occur.
 Strategy Evaluation Framework
I. Reviewing Bases of Strategy

II. Measuring Organizational Performance

III. Taking Corrective Actions

 Strategy Evaluation Framework
I. Reviewing Bases of Strategy
 Reviewing the organization’s strategy could be approached by developing a
revised EFE Matrix and IFE Matrix.
Revised IFE Matrix Revised EFE Matrix
Focus on changes in the Should indicate how effective a
organization’s management, firm’s strategies have been in
marketing, finance/accounting, response to key opportunities and
production/operations, R&D and threats.
MIS, strengths and weaknesses.
 Strategy Evaluation Framework
I. Reviewing Bases of Strategy
Key Questions
1 Are our internal strengths still strengths?
2 Have we added other internal strengths? If so, what are they?
3 Are our internal weaknesses still weaknesses?
4 Do we now have other internal weaknesses? If so, what are they?
5 Are our external opportunities still opportunities?
6 Are there now other external opportunities? If so, what are they?
7 Are our external threats still threats?
8 Are there now other external threats? If so, what are they?
9 Are we vulnerable to a hostile takeover?
 Strategy Evaluation Framework
I. Measuring Organizational Performance
◦ Activity includes:

i. Comparing expected results to actual results

ii. Investigating deviations from plans

iii. Evaluating individual performance

iv. Examining progress being made toward meeting stated objectives

◦ Both long-term and annual objectives are commonly used in this process.
 Strategy Evaluation Framework
I. Measuring Organizational Performance
◦ SE is based on both quantitative and qualitative criteria
Quantitative criteria Qualitative criteria
Financial ratios (using 3 critical Human factors:
comparisons): • High absenteeism and turnover
• Comparing the firm’s rates
performance over different time • Poor production quality and
periods. quantity rates
• Comparing the firm’s • Low employee satisfaction
performance to competitors’.
• Comparing the firm’s
performance to industry averages.
 Strategy Evaluation Framework
I. Taking Corrective Actions

II. Taking corrective actions does not mean that existing strategies will be
abandoned or new strategies must be formulated.

III. Taking corrective actions is necessary to keep an organization on track

toward achieving stated objectives.
 Strategy Evaluation Framework
I. Taking Corrective Actions
Examples of changes
1 Altering an organization’s structure
2 Replacing one or more key individuals
3 Selling a division
4 Revising a business mission
5 Establishing or revising objectives
6 Devising new policies
7 Adding additional salespersons
8 Differently allocating resources
9 Developing new performance incentives
 Characteristics of an Effective Evaluation
System
I. SE activities must be economical

II. SE activities also should be meaningful

III. SE activities should provide timely information

IV. SE should provide a true picture of what is happening

V. SE process should not dominate decisions

VI. SE should be simple and not too restrictive

End of module