Appendix A

1
Appendix A

• Strategic Management

2
The Need for Strategy

• When Lou Gerstner took over as Chairman and CEO
  of IBM, he faced monumental challenges. Critics
  saw IBM as bureaucratic, slow, bloated, and
  self-absorbed.
• Gerstner was an outsider to the computer industry
  and lacked technical knowledge, but was a strong
  manager who could bring fresh perspectives.
• He said, What IBM needs now is a series of very
  tough-minded, market-driven, highly effective
  strategies in each of its businesses.
• The chapter considers the big picture facing
  firms, and how highly effective strategies are
  developed in the face of environmental demands.

3
Four Strategic Questions

• How do we respond to new opportunities in the
  environment, lessen the impact of threats from
  the environment, and strengthen the mix of the
  organizations activities by doing more of some
  things and less of others?
• How do we assign resources among the various
  subunits, divisions, and activities of the
  organization?
• How do we compete with other organizations for
  customers through allocation of existing or new
  products and services?
• How do we effectively manage organizational
  activities at the departmental, divisional, and
  corporate levels of the organization?

4
Environmental Domains of an Organization (Figure
A-1)
Organization
5
The Economic Domain

• Many economic factors, such as interest rates,
  trade deficits, inflation rates, gross domestic
  product indicators, and the money supply, may
  influence an organizations activities.
• Factors in the economic domain influence the
  ability of managers to get resources needed to
  produce goods and services and distribute them to
  a market.
• Also, employees are likely to behave differently
  depending on the nature of the economic
  environment.

6
The Political Domain

• The political domain of the organization
  environment rests on the laws and regulations
  passed by governmental agencies and legislative
  bodies.
• Legislation has been directed toward
• eliminating discrimination based on gender, race,
  and age
• ending sexual harassment in the workplace
• preventing unfair pricing in markets
• restricting pollution
• protecting customers
• discouraging unethical behavior
• regulating corporate taxation
• As corporations are more global, they must
  consider political risk associated with foreign
  governments.

7
The Social Domain

• The social domain of an organizations
  environment consists of societal values,
  attitudes, norms, customs, and demographics.
• Values are what people believe to be proper goals
  for members of society to maintain or achieve.
• Attitudes reflect what individuals think about
  issues and behaviors that occur within a society.
• Values and attitudes may change over time.
  Examples in the U.S. include changing attitudes
  toward mothers in the workplace and toward
  providing benefits to same-sex partners of
  employees.

8
The Technological Domain

• The technological domain, or technology, refers
  to the application of knowledge to the production
  and distribution of goods and services.
• Technology is greatly affected by innovation
  innovation is the creation or modification of a
  process, product, or service.
• Technology transfer involves the application of
  innovation to processes, products, or services
  either within or between industries.
• Technology and technological change are
  transforming organizations.

9
The Competitive Domain

• Organizations can face a wide variety of
  competitive conditions in their environment.
• Some large organizations compete only with small
  organizations, often giving them an advantage in
  pricing of their products.
• Other competitive conditions arise from different
  mixes of the strategies that competitors pursue.
• Within a capitalistic system, organizations can
  compete in one of four competitive market
  structures.
• Deregulation -- relaxation of government controls
  to encourage greater competition -- is
  transforming many industries.

10
Competitive Market Structures

• Monopoly exists when an organization has sole
  access to the market for its goods and services.
• Oligopoly exists when only a few firms are in
  competition to provide goods and services to a
  market.
• Monopolistic competition exists when many firms
  offer a similar good or service with only minor
  price differentials.
• Perfect competition exists when many
  organizations offer essentially the same good or
  service price thus becomes the primary
  discriminator.

11
The Physical Domain

• All organizations must respond in some manner to
  their physical domains.
• Weather conditions, for instance, may greatly
  influence the activities of a firm. This is
  especially true, for instance, of airlines,
  construction companies in the upper Midwest, and
  orange growers.
• The physical domain may also influence things
  such as the availability of qualified talent.
  For instance, companies located in one of the
  Best Places to Live may find themselves at an
  advantage.

12
Environmental Dimensions

• Three important environmental dimensions are
  munificence, dynamism, and complexity
• Munificence of an organizations environment
  refers to the level of resources available to the
  organization.
• Dynamism refers to the rate of change in
  environmental factors.
• Complexity is the number of components in an
  organizations environment and the degree to
  which they are similar or different.
• High levels of dynamism and complexity result in
  perceived environmental uncertainty (PEU). When
  PEU is high, firms may have to emphasize
  creativity and flexibility over efficiency.

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Perceived Environmental Uncertainty
Perceived Environmental Uncertainty
14
Organizational Effectiveness

• Organizational effectiveness can be defined as
  the degree to which an organization achieves its
  goals, maintains its health, secures resources
  needed for survival, and satisfies parties that
  have a stake in it.
• This definition suggests that effectiveness has
  many dimensions.

15
Approaches to Assessing OrganizationalEffectivene
ss

• Goal assessment is concerned with whether the
  organization reaches the growth, sales,
  profitability, or other goals management has set
  for it.
• Internal process assessment focuses on
  organizational health. According to this
  approach, an unhealthy organization cannot be
  considered effective.
• Systems resource assessment considers whether an
  organization is able to acquire the resources it
  needs to survive and prosper.
• Strategic constituencies assessment considers
  whether an organization satisfies important its
  constituencies.

16
Approaches to Assessing OrganizationalEffectivene
ss (Figure A-2)
INPUTS (Systems Resource Assessment)
17
The Most Admired Companies (Figure A-3)
18
The Malcolm Baldrige Quality Award

• The Malcolm Baldrige National Quality Award was
  established in 1987 to enhance U.S.
  competitiveness by promoting quality awareness,
  recognizing quality and business achievements of
  U.S. companies, and publicizing those companies
  successful performance.
• The award is based on rated performance on seven
  criteria.

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Malcolm Baldrige Award Criteria
Baldrige Award Criteria
20
Strategies

• Strategies are methods of competition.
• The strategic plan of an organization is a
  comprehensive plan that reflects the longer-term
  needs and directions of the organization or
  subunit.
• Strategic planning consists of several
  components, as shown in Figure A-5.

21
The Strategic Planning Process(Figure A-5)
Strategic Analysis
22
Focus on Management Alagasco Puts Customers
Second

• Alagasco, Alabamas largest utility -- and the
  only utility on Fortune magazines 100 Best
  Companies to Work for in America list -- is proud
  of its philosophy of putting customers second.
• Alagasco believes that by putting employees first
  and treating them well, good service to customers
  will naturally follow.
• Each year Alagasco employees at all levels meet
  to refine the corporate strategic plan for the
  coming year.

23
SWOT Analysis
24
SWOT Analysis Questions Regarding Internal
Strengths

• A distinctive competence?
• Adequate financial resources?
• Good competitive skills?
• Well thought of by buyers?
• An acknowledged market leader?
• Well-conceived functional strategies?
• Access to economies of scale?

25
SWOT Analysis Questions Regarding Internal
Strengths (Continued)

• Insulated from competitive pressures?
• Technology leader?
• Cost advantages?
• Competitive advantages?
• Product innovation abilities?
• Proven management?
• Other?

26
SWOT Analysis Questions Regarding Internal
Weaknesses

• No clear strategic direction?
• A deteriorating competitive position?
• Obsolete factories?
• Subpar profitability?
• Lack of managerial depth and talent?
• Missing any key skills or competencies?
• Poor track record in implementing strategy?
• Plagued with internal operating problems?
• Vulnerable to competitive pressures?

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SWOT Analysis Questions Regarding Internal
Weaknesses (Continued)

• Falling behind in research?
• Too narrow a product line?
• Weak market image?
• Competitive disadvantages?
• Below-average marketing skills?
• Unable to finance needed changes in strategy?
• Other?

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SWOT Analysis Questions Regarding External
Opportunities

• Serve additional customer groups?
• Enter new markets or segments?
• Expand product line to meet broader range of
  customer needs?
• Diversify into related products?
• Vertical integration?
• Ability to move to better strategic group?
• Complacency among rival firms?
• Faster market growth?
• Other?

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SWOT Analysis Questions Regarding External Threats

• Likely entry of new competitors?
• Rising sales of substitute products?
• Slower market growth?
• Adverse government policies?
• Growing competitive pressures?
• Vulnerability to recession and business cycle?
• Growing power of customers or suppliers?
• Changing buyer needs and tastes?
• Adverse demographic changes?
• Other?

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Focus on Management SWOT Analysis at Ruby Tuesday

• As the first step in a thorough strategic
  planning process, Ruby Tuesday conducted a SWOT
  analysis.
• Strengths identified included growth rate of
  20, strong technical skills, and fast
  reaction time from management team.
• Weaknesses included lack of proactive approach,
  internal communications could be improved, and
  need comprehensive review of compensation
  system.
• Opportunities and threats were also identified.

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Purpose, Vision, and Mission

• The purpose of the organization is the reason for
  the organizations existence.
• Vision is a vivid description of a preferred
  future.
• The organizational mission is the path managers
  choose to achieve the purpose and vision.
• The mission is often written down in the form of
  a mission statement.

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Focus on Management Ben Jerrys Mission
Statement

• Product To make, distribute and sell the
  finest-quality all-natural ice cream and euphoric
  concoctions with a continued commitment to
  incorporating wholesome, natural ingredients and
  promoting business practices that respect the
  Earth and the Environment.
• Economic To operate the company on a
  sustainable financial basis of profitable growth,
  increasing value for our shareholders expanding
  opportunities for development and career growth
  for our employees.
• Social To operate the company in a way that
  actively recognizes the central role that
  business plays in society by initiating
  innovative ways to improve the quality of life
  locally, nationally, and internationally.

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Bottom Line Developing a Mission Statement
Identify the Basic Reasons Why the Organization Ex
ists
34
Focus on Management Strategic Objectives at Dana
Corporation

• Dana Corporation, one of the worlds largest
  independent suppliers to vehicle and engine
  manufacturers, was selected as a Most-Admired
  Manufacturer in the U.S. by Start Magazine.
• Start emphasized Danas strategic objectives,
  focus on technology, employee involvement, and
  reputation.
• Among its key strategic objectives are to have a
  15 return on invested capital after tax, 25 of
  sales from products less than two years old, 40
  hours of education per person annually, and 65
  of business opportunity outside the United
  States.

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Choose Corporate-Level Strategies

• Corporate-level strategies provide direction for
  the total organization.
• Managers at the corporate level define a
  strategic direction that includes business units
  and departments within those business units.
• Managers often select either grand strategies or
  portfolio strategies for guiding their company.

36
Grand Strategies

• A grand strategy is a broad plan to guide the
  organization toward reaching its goals.
• Managers may choose to implement one of three
  grand strategies
• A growth strategy is common in new, emerging
  industries or industries that are undergoing
  rapid growth and gaining new external
  opportunities.
• A stability strategy is selected when managers
  want to protect the existing market share of the
  firm from external threats or have just completed
  a phase of rapid growth or divestment.
• A retrenchment strategy is often selected when
  managers are faced with declining performance due
  to internal weaknesses and external threats.

37
Focus on Management The Risks of Growth at Any
Cost

• The danger of growth at any cost was
  dramatically evident in the crash of ValuJet
  Flight 592 in the Florida Everglades.
• ValuJet -- which had grown from its inception to
  serve 17 states -- was only two years old.
• ValuJet had attempted to achieve growth through
  aggressive efforts to cut costs. It paid low
  salaries, used planes averaging older than 26
  years, and turned planes around so fast that FAA
  inspection was difficult.
• ValuJet pictured itself as the Wal-Mart of
  airlines but, as noted by one writer, Wal-mart
  does not conduct business 35,000 feet above the
  ground.

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Grand Strategy Selection Matrix(Figure A-7)
Stability
Growth
Stability
Retrenchment
39
Portfolio Strategies

• A portfolio strategy considers the business mix
  of the firm -- that is, the types of business
  units and product lines the firm controls.
• The BCG matrix and the GE matrix are two models
  used by many corporations in selecting a
  portfolio strategy.

40
The BCG Portfolio Matrix(Figure A-8)
Stars
Question Marks
High Market Growth Rate Low
Dogs
Cash Cows
41
Strategic Types in the BCG Matrix

• A star is a business unit that has both a high
  market growth rate and a relatively large share
  of the market.
• A cash cow has a large share of the market, but
  there is little growth.
• Question marks exist in a rapidly growing market
  but have a small market share.
• A dog is a poor performer because of little
  growth in the market and a small market share.

42
Implications of the Strategic Types

• Stars typically need large amounts of cash to
  support rapid growth. Stars have the potential
  to increase sales and generate large amounts of
  profit in the future.
• Large amounts of cash can be milked from cash
  cows and channeled into stars.
• Managers must decide whether to invest more cash
  into question marks to take advantage of high
  growth opportunities (and transform them into
  stars) or to divest it to emphasize other
  business units and products in the portfolio.
• Management must sell dogs to another company or
  liquidate their assets.

43
The GE Matrix (Figure A-9)
44
The Adaptation Model

• Raymond Miles and Charles Snow developed the
  adaptation model of organizational strategy.
• The model contends that a major thrust of
  strategic management should be the aligning
  organizational activities with key dimensions of
  the organizational environment.
• To do this, managers must set up a strategy that
  will adapt to environmental conditions and also
  manage internal organizational activities to
  support the selected strategy.
• Adaptation is accomplished by simultaneously
  solving three critical strategic problems
  entrepreneurial, engineering, and administrative.
  

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Critical Strategic Problems in the Adaptation
Model

• The entrepreneurial problem considers what
  managers believe to be their market.
• The engineering problem is one of deciding which
  methods are appropriate for the production and
  distribution of goods or services.
• The administrative problem addresses the need to
  develop an appropriate administrative system
  within the organization.

46
Organizational Types in the Adaptation Model

• The defender strategy is carried out when
  management seeks or creates an environment that
  is stable.
• The prospector strategy -- the opposite of the
  defender strategy -- seeks or creates an unstable
  environment in the form of rapid change and high
  growth rate in the market.
• The analyzer strategy exists between the two
  extremes of defender and prospector. It involves
  adapting solutions from both the defender and
  prospector strategies to the three problems.
• The reactor strategy is adopted in an
  organization that has experienced strategic
  failure.

47
Lighten Up Ambushes and Golden Parachutes

• Some of the language of mergers and acquisitions
• Afterglow Postmerger euphoria of acquirer and/or
  acquiree, but soon lost.
• Cyanide pill Antitakeover finance strategy in
  which the potential target arranges for long-term
  debt to fall due immediately and in full if it is
  acquired.
• Golden parachute Provision in the employment
  contract of top executives that ensures them a
  lucrative financial landing if the firm is
  acquired in a takeover.
• Mushroom treatment Postmerger problems from an
  acquired executives viewpoint First they
  buried us in manure, then they left us in the
  dark awhile, then they let us stew, and finally
  they canned us.

48
The Competitive Model

• The competitive model of organizational strategy
  was developed by Michael Porter.
• This model contends that the nature and degree of
  competition in an industry determine the strategy
  that is appropriate for managers to formulate and
  implement.
• The model considers five industry forces and
  three competitive strategies.

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Industry Forces in the Competitive Model

• The threat of new entrants to compete in the
  industry.
• The bargaining power of suppliers in the
  industry.
• The bargaining power of customers in the
  industry.
• The threat of substitute products or services
  from potential competitors.
• Competitive rivalry among existing firms.

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Strategies in the Competitive Model

• Overall cost leadership. This strategy requires
  management to formulate and implement a strategic
  plan that will lead to an efficient and low-cost
  organization.
• Differentiation. This strategy recognizes that a
  firms product is unique in relation to other
  products produced in the industry.
• Focus. This strategy pursues either an overall
  cost leadership strategy or a differentiation
  strategy by focusing on a narrow customer group,
  product line, or geographic market.

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Implement the Strategic Plan

• Vince Lombardi said, The best game plan in the
  world never blocked or tackled anybody.
• Managers must see that strategic plans are
  converted into action.
• To do this, they must
• effectively communicate the plan
• assign responsibility and authority for
  activities within the plan
• motivate employees to achieve the plan
• develop methods for measuring the results of
  activities
• develop procedures for taking any corrective
  action

52
Evaluate the Strategic Plan

• Since there are many facets of effectiveness, we
  must assess effectiveness of the strategic plan
  on those multiple facets.
• The balanced scorecard (BSC) is a conceptual
  framework for translating an organizations
  vision into a set of performance indicators
  distributed among four perspectives
• financial
• customer
• internal business processes
• learning and growth
• Using the BSC, companies can monitor both their
  current performance and their efforts to learn
  and improve.

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Balanced Scorecard Indicators

• Financial-based measures. Examples return on
  investment, cost reduction, profits.
• Customer-based measures. Examples customer
  satisfaction, retention, market share.
• Internal business process measures. Examples
  quality, response time, new product
  introductions.
• Learning- and growth-based measures. Examples
  employee satisfaction, employee productivity,
  employee retention.

54
Bottom LineManaging the Strategic Planning
Process
Involve All Relevant Stakeholders in The Process