PART 1

INTRODUCTION TO
STRATEGIC
MANAGEMENT
Chapter 1: Strategic Management

1. INTRODUCTION

An important key to the long-term prosperity of any organization is high-quality strategic thinking
–the ability to look ahead, understand a dynamic environment, and effectively position one's
organization or subunit for continued success in changing times. CEO Glass is thinking strategically
as he positions Wal-Mart in new markets to help meet the retailing challenges of the decade. He is
also thinking strategically when he decides to use technology to maximum advantage. And he is
thinking strategically by spending time each week talking to customers and employees, and learning
what is really happening where it really counts-in the stores. In each of these ways, strategic
thinking is the outgrowth of proper attention to the essentials of "strategic planning" and "strategic
management".

1-1. Definition of strategy

The word strategy came from the Greek word strategos, which means “a general”. At that
time, strategy literally, meant the art and science of directing military forces. Today, the term
strategy is used in business to describe how an organization intends to achieve its objectives and
mission. Most organizations have several options for accomplishing their objectives and mission.
Strategy is concerned with deciding which option is going to be used. Strategy includes the
determination and evaluation of alternative paths to achieve an organization’s objectives and
mission and, eventually, a choice of the alternative that is to be adopted.

The term strategy implies long-range and broad-based considerations. It implies change and
uncertainty because managers are often dealing with concepts and ideas that are novel or untried,
but may in the near future be commonplace. Strategy also implies an organizational responsibility to
contribute to society. In this era of increased international competition, many managers are
preoccupied with revitalizing their firms to make them more productive and more profitable.
Managers at multinationals have to deal with international competition and a variety of global
associations with their firms and nations. Other managers are simply grappling with how to survive.

A strategy is a comprehensive plan of action that sets critical direction for an organization
and guides the allocation of its resources. It is an action focus that represents a "best guess"
regarding what must be done to ensure long-run prosperity for the organization or one of its
subsystems. At Wal-Mart this seems deceptively simple: Find out what customers need, then
provide for them at the lowest prices and with better service. In practice, the choice of strategy is a

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complex and even risky task. Any strategy defines the direction in which an organization intends to
move in a competitive situation. It is a choice made by decision makers that specifies how they plan
to match the organization's strengths and weaknesses with opportunities and threats in the
environment. Whereas good strategies thus become competitive weapons, poor ones are great
disadvantages.

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1-2. The strategist

Performing the activities associated with business strategy planning is a major responsibility.

First, someone must assume the responsibility to develop a plan to complete the strategy
activities, the plan must be initiated, dates set, deadlines established, and the process must be
monitored to ensure that the deadlines are met.

Second, basic assumptions about forecasts, economic indicators, technology, and general
industry competitiveness must be agreed on and communicated to the functional areas. Procedures
must be developed to assure uniformity in the development of the plan. Responsibility for
undertaking fundamental studies and valuation of special matters necessary to strategic planning
must be assumed.

Third, the functional areas must actively participate by providing basic underlying data,
information, and in some cases specific studies and evaluations. The objectives established by the
functional areas must be analyzed and compared to those established for the entire firm. The inputs
from the functional areas must also reviewed for major problems, contradictions, gaps, omissions,
conflicts and inconsistencies.

Fourth, training and assistance must be made available to functional areas that do not have
the experience or staff to perform their strategic activities well. This is especially true for the firms
initiating formal strategic planning for the first time, or new firms. Responsibility must be allocated
in such a fashion that someone stands ready to help the functional areas upon request with
substantive problems, forecasts, and studies.

Fundamentally, then, responsibility for coordinating and integrating of the strategic planning
function must be assigned. However, the responsibility does not stop there. It also includes
instigation of the planning process, simulation of creativity and innovation, and providing support
studies and advice to others involved in strategic planning.

 The Board of Directors (BOD)

Who is responsible for the organization’s strategy? The simple answer is the board of
directors. The enabling legislation for the corporate form of organization calls for a
specification in the corporate charter of the board of directors (BOD) authority and
responsibility. Among the BOD authority is the function of establishing objectives,
goals, policies, selecting officers, approving major corporate actions and so forth.

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 However, the nature of the role assumed by the BOD varies widely depending upon,
among other factors, the composition of the BOD (e.g., insiders or outsiders) and each
member’s philosophy along with the number of votes from stockholders each member
has acquired. Although the BOD has an essential role in business strategy, through its
legal obligations, it generally does not become involved in the time-consuming
activities of analysis, formulation and implementation. Rather, it usually elects to
serve in the role of “wise counsel”, which includes the activities of review and
approval or denial of proposed strategies.

Dans la forme juridique dualiste prevue dans la législation européenne et marociane, il

convient de citer deux organes qui ont un impact déterminant sur l’élaboration et
l’implémentation de la stratégie de l’entreprise : le directoire et le conseil de
surveillance

 Le Directoire:

Il a les mêmes attributions que le conseil d’administration « The BOD », en matière

d’élaboration de la stratégie. Toutefois, le directoire diffère du « BOD » dans la
mesure où la loi n’impose pas aux membres du Directoire d’être des actionnaires. En
plus, le Directoire se charge également de l’implémentation de la stratégie à travers la
gestion et la supervision des actions quotidiennes de l’entreprise.

 Le conseil de surveillance

Le conseil de surveillance assure un contrôle permanent de la gestion de la société

effectuée par le Directoire. Le droit confère au conseil de surveillance une marge de
manœuvre importante pour exercer sa mission, notamment le droit à l’information, de
surveillance du fonctionnement de l’entreprise, la convocation de l’assemblé
générale…A travers ce contrôle, le conseil de surveillance exerce une influence
notable sur le management stratégique de l’entreprise.

 The Chief Executive Officer (CEO)

The BOD typically delegates to the chief executive officer the right to perform the
activities of the initiative and creative tasks required for the analysis, formulation and
implementation of a business strategy. The chief executive officer (CEO) is the officer
of the company who is accountable to the BOD for the company’s total effort and total
results. However, strategy is not the CEO’s only responsibility; the CEO has other

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 duties associated with the day-to-day operations of the firm that must also be done
well if the firm is to survive. Consequently, the CEO’s duties and responsibilities are
spread over a wide area and it is obvious that one person cannot do all of these tasks.
Therefore, CEOs must devise means of reducing their burdens.

 Senior Management

One method frequently used in medium-size companies to relieve the CEO of a

portion of his or her duties is to share them with what is commonly called senior
management. The CEO then acts as a reviewer and final arbiter of certain types of
strategic decisions. The term senior management typically applies to the officers
formally elected by the BOD, in accordance with the charter by-laws. These officers
are usually the president, vice president, treasurer, secretary, and so forth. However,
each of these officers also has daily operational responsibilities and senior
management typically “parcel out” the strategy analysis, formulation, and
implementation task. The strategic function of senior managers in larger firms is just
another added assignment for executives who are already fully occupied with
managing their functional area. Indeed, the CEO may utilize the strategy committee
composed of senior management as the vehicle for delegating these duties.
Consequently, not much creative or innovative effort may be devoted to the strategy
responsibility because the executive’s immediate success will be determined by how
adequately the functional day-to-day responsibilities are currently met. Since strategy
is concerned with the immediate time period, its impact upon the firm’s success cannot
be gauged until some period in the future. Consequently, senior management may
delay or rush through strategy responsibilities in favor of functional responsibilities if
they become overburdened. The result is that provisions for the firm’s future may not
be adequate.

 Planning Departments

The planning department is usually employed in large organizations (sales over $ 100
million) and provides staff assistance to the CEO in his role of chief planning officer.
The planning staff does not perform all the activities of planning. They develop a plan
or a system planning and initiate the planning cycle. In this role the planning
department is primarily a coordinator and an integrator for the planning effort. The
planning staff will provide procedural guidance to ensure uniformity in the data
collection and development of plans. They will provide planning premises, constraints

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advice, support and special studies. And finally, they will assemble and integrate the
final plan into a logical whole for presentation to the appropriate person.

Who is the responsible person? Since the BOD has delegated to the CEO the
responsibility for strategy analysis and formulation, it would seem logical that the
responsible person is the CEO. Although the CEO has the ultimate responsibility, the
planning committee may report to and be guided party by a senior management
committee. The committee assumes the responsibility for preparation of the strategy,
and their role is to obtain support, cooperation, and the participation of line managers.

Whoever the planning department reports to, it is important that functional managers
and the planning department work together since the planning department can exert the
energy, talent and creativity needed for quality strategy development. Additionally,
since only functional managers can make decisions in their respective areas, they
ultimately must implement the strategy. If they are included in the strategy analysis
and selection, implementation may be better.

Conflict is bound to arise in strategy planning; consequently, a forum for thrashing out
important questions and problems must be provided. This forum may also simulate
creativity, innovation, and imaginative thinking which could result in collective
decisions that are superior to individual decisions. The forum also will provide a basis
for keeping other members of the organization informed, thus encouraging
communication, participation, and cooperation in the strategy analysis, formulation,
and implantation process. Given these requirements, it seems logical that the required
forum is one that blends both individual efforts and team efforts. It seems also logical
that a senior management committee is the forum that the planning department should
report to, in conjunction with the CEO. This may be a significant influence in
achieving results and high quality strategy analysis, formulation, and implementation.

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 2. THE STRATEGIC MANAGEMENT
Most well-run organizations attempt to develop and follow strategies, large-scale action
plans for interacting with the environment in order to achieve long-term goals. A comprehensive
statement of an organization's strategies, along with its mission and goals, constitutes an
organization's strategic plan.

2-1. Definition:

Strategic management is a process through which managers formulate and implement

strategies geared to optimizing strategic goal achievement, given available environmental and
internal conditions (“Management Kathryn M. Bartol & David C. Martin). This definition
recognizes that strategic management is oriented toward reaching long-term goals, weighs
important environmental elements, considers major internal characteristics of the organization, and
involves developing specific strategies.

Strategic management can be defined as the art and science of formulating, implementing,
and evaluating cross-functional decisions that enable an organization to achieve its objectives. As
this definition implies, strategic management focuses on integrating management, marketing,
finance/accounting, production/operations, research and development, and computer information
systems to achieve organizational success. The term “strategic management” is used at many
colleges and universities as the title for the capstone course in business administration, “business
policy”, which integrates material from all business courses. “Strategic Management; 4th edition.
Fred R. David”

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 Figure 1.1 Strategic Management Process

2-2. Integrating intuition and analysis:

The strategic management process can be described as an objective, logical, systematic
approach for making major decisions in an organization. It attempts to organise qualitative and
quantitative information in a way that allows effective decisions to be made under conditions of
uncertainty. Yet, strategic management is not a pure science that lends itself to a nice, neat, one-
two-three approach.

Based on past experiences, judgement, and feelings, “intuition” is essential to making good
strategic decisions. Intuition is particularly useful for making decisions in situations of great
uncertainty or little precedent. It is also helpful when highly interrelated variables exist, when there

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is immense pressure to be right, or when it is necessary to choose from several plausible
alternatives. These situations describe the very nature and heart of strategic management.

Some managers and owners of businesses profess to have extraordinary abilities for using
intuition alone in devising brilliant strategies. For example, Will Durant, who organized General
Motors Corporation, was described by Alfred Sloan as “a man who would proceed on a course of
action guided solely, as far as I could tell, by some intuitive flash of brilliance. He never felt obliged
to make an engineering hunt for the facts. Yet at times he was astoundingly correct in his
judgement. Albert Einstein acknowledged the importance of intuition when he said: “I believe in
intuition and inspiration. At times I feel certain that I am right while not knowing the reason.
Imagination is more important than knowledge, because knowledge is limited, whereas imagination
embraces the entire world.”

Although some organizations today may survive and prosper because they have intuitive
geniuses managing them, most are not so fortunate. Most organizations can benefit from strategic
management, which is based upon integrating intuition and analysis in decision making. Choosing
an intuitive or analytic approach to decision making is not an either or proposition. Managers at all
levels in an organization should inject their intuition and judgement into strategic management
analysis. Analytical thinking and intuitive thinking complement each other.

Operating from the “I’ve already made up my mind, don’t bother me with the facts” mode is
not management by intuition; it is management by ignorance. Drucker says: “I believe in intuition
only if you discipline it. ‘Hunch artists, who make a diagnosis but don’t check it out with the facts,
are the ones in medicine who kill people and in management kill businesses.” In a sense, the
strategic management process is an attempt to duplicate what goes on in the mind of a brilliant
intuitive person who knows the business. Successful strategic management hinges upon effective
integration of intuition and analysis, as Henderson notes:

The accelerating rate of change today is producing a business world in which customary
managerial habits in organizations are increasingly inadequate. Experience alone was an adequate
guide when changes could be made in small increments. But intuitive and experience-based
management philosophies are grossly inadequate when decisions are strategic and have major,
irreversible consequences.

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2-3. The Importance of Strategic Management:

Strategic management is important to organizations for several reasons. For one thing, the
process helps organizations identify and develop a competitive advantage, which is a significant
edge over the competition in dealing with competitive forces. For example, Disney has been able to
gain a competitive advantage in the family entertainment industry by creating amusement parks,
movies, and products based on the renowned Disney characters.

Another reason for the importance of strategic management is that it provides a sense of
direction so that organization members know where to expend their efforts. Without a strategic
plan, managers throughout the organization may concentrate on day-to-day activities only to find
that a competitor has maneuvered itself into a favorable competitive position by taking a more
comprehensive, long-term view of strategic directions.

Yet another reason for the importance of strategic management is that it can help highlight
the need for innovation and provide an organized approach for encouraging new ideas related to
strategies. In addition, the process can be used to involve managers at various levels in planning,
thus making it more likely that the managers will understand the resulting plans and be committed
to their implementation.

Finally, studies support the existence of a link between strategic management and
organizational financial performance, although results have not always been consistent. According
to Fred R. David, research studies indicate that organizations using strategic management concepts
are more profitable and successful than those that do not. For example, a longitudinal study of 101
retail, service, and manufacturing firms over a 3-year period concluded that businesses using
strategic management concepts showed significant improvement in sales, profitability, and
productivity compared to firms without systematic planning activities; another study reported that
up to 80 percent of the improvement possible in a firm’s profitability is achieved through changes in
a company’s strategic direction; Cook and Ferris reported that the practices of high performing
firms reflect a more strategic orientation and longer term-focus. High-performing firms tend to do
systematic planning to prepare for future fluctuations in their external and internal environments.
Firms with planning systems more closely resembling strategic management theory generally
exhibit superior long-term financial performance relative to their industry.

Of course, assessments of strategic management should also consider other important

outcomes, such as the satisfaction of various organizational stakeholders and the extent to which the
organization adequately deals with relevant factors in the environment.

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2.4 Strategic management: a continuous process

Once a planned strategy is implemented, it often requires modification as environmental or

organizational conditions change. These changes are often difficult or even impossible to forecast.
In fact, it is a rare situation indeed which top management is able to develop a long-range strategic
plan and implement it over several years without any need for modification.

Hence, an intended strategy (what management originally planned) may be realized in its
original form, in a modified form, or even in an entirely different form. Occasionally, of course, the
strategy that management intends is actually realized, but usually, the intended strategy and the
realized strategy (what management actually implements) differ. The reason is that unforeseen
environmental or organizational events occur that necessitate changes in the intended strategy. The
full range of possibilities is illustrated in figure 1.2 and table 1-1.

Figure 1.2 : Types of strategies

Intended Realized
Strategy Deliberate Strategy
Strategy

Unrealized Emergent
Strategy Strategy

Source: Henry Mintzberg, «  Patterns in Strategy formation  », May 1978, Management Science

As an example of the difference between intended strategy and realized strategy, consider
Honda’s entry into the U.S. motorcycle market. When Honda established an American subsidiary I
Los Angeles in 1959, its intended strategy was to emphasize the sale of motorcycles with 250-cc
and 305-cc engines despite the fact that its smaller 50-cc model was a big seller in Japan. Honda’s
top managers believed that American customers would prefer larger models. But Honda’s 250-cc
and 305-cc bikes met a disappointing response from U.S. motorcyclists. The intended strategy is
failed.

During this time, Honda’s executives were using their own 50-cc motorcycles to commute
in traffic-congested Los Angeles. The convenience and appearance of motorcycles were soon
noticed by automobile drivers, pedestrians, and retailers. Orders for the 50-cc model began to
become in from some motorcycle retailers, but Honda was reluctant to fill them because

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management did not wish to be associated with a no-frills motorcycle. When the huge retailer Sears,
Roebuck expressed an interest in selling the 50-cc model, however, Honda executives changed their
minds. The intended strategy of selling 250-cc and 305-cc motorcycles was modified to emphasize
sales of the 50-cc machine. This modified strategy was realized with desirable results (alternative 3
in Table 1-1).

Honda’s overwhelming success in selling its 50-cc motorcycle gradually convinced its
executives to build upon that base by expanding into the larger bike categories. This intended
strategy was realized with desirable results (alternative 1 in Table 1-1) from the late 1960s through
the mid-1980s.

Honda’s success during this time was partially based on its reliable, sturdy products. But
Honda was also successful because of weak competition. With the exception of a lethargic Harley-
Davidson, Honda did not face any competitive threat from American companies, and European and
Japanese competitors had not matched Honda’s investment in U.S. market. This scenario began to
change during the mid-1980s, however.

Foreign competitors became more assertive in the American market, particularly in the small
and midsize lines. And following a management-led leveraged buyout in 1981, Harley-Davidson
began to reassert its dominance in the large-motorcycle market. While Honda was busy battling
competitors with products offering in all sizes of bikes, Harley-Davidson increased its market share
for the largest motorcycles from 23 percent in 1983 to 63 percent in 1992. Honda’s sales,
meanwhile, dropped from $1.1 billion in 1985 to $230 million in 1990, and its share of the U.S.
motorcycle market plunged from 58 to 28 percent during that period. Hence, as the competitive
situation changed rapidly after 1984, Honda’s results deteriorated. The years from 1985 through
1992, therefore, can be characterized as an intended strategy that was realized with less than
desirable results (alternative 2 in Table 1-1).

This text assumes that strategies need to be examined continuously in light of changing
situations. Table 1-1 presents the range of outcomes that are possible as an organization
implements its strategy. Therefore, wherever reference is made to plans for strategic formulation
and implementation in the text, recall that management’s intended strategy is rarely in its original,
unchanged from.

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 Table 1-1: Intended Strategy, Realized Strategy, and Results: Range of Possibilities
1. What is intended as a strategy is realized with desirable results.
2. What is intended as a strategy is realized, but with less than desirable results.
3. What is intended as a strategy is realized in some modified version because of an unanticipated environmental
or internal requirement or change. The results are desirable.
4. What is intended as a strategy is realized in some modified version because of an unanticipated environmental
or internal requirement or change. The results are less than desirable.
5. What is intended as a strategy is not realized. Instead, an unanticipated environmental or internal change
requires an entirely different strategy. The different strategy is realized with desirable results.
6. What is intended as a strategy is not realized. Instead, an unanticipated environmental or internal change
requires an entirely different strategy. The different strategy is realized with less than desirable results.

Strategic management is concerned with making decision about an organization’s future direction
and implementing those decisions. Basically, strategic management can be broken down into two
phases: strategic planning and strategy implementation. Strategic planning is concerned with
making decision with regard to:

1. Analyzing the both external and internal environment.

2. Determining the organization’s mission.
3. Formulating policies to guide the organization in establishing objectives, choosing a
strategy, and implementing the chosen strategy.
4. Establishing long- and short-range objectives to achieve the organization’s mission.
5. Determining the strategy that is to be used in achieving the organization’s objectives
Strategy implementation is concerned with making decision with regard to:
1. Developing an organizational structure to achieve the strategy.
2. Ensuring that the activities necessary to accomplish the strategy are performed
effectively
3. Monitoring the effectiveness of the strategy in achieving the organization

Figure 1.3 show that strategic management includes responsibilities for both strategy
"formulation" and strategy "implementation." To begin, strategy formulation is the process of
choosing among various possible strategies and tailoring them to best fit the organization's needs. In
general, strategies may be formulated by the entrepreneurial insight of one person, as the by-product
of management responses to problems, or through systematic planning and analysis.' In practice,

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there may be a good deal of each involved as organizations and their managers’ struggle with
complex pressures.

Figure 1.3 The strategic management process: strategy formulation and strategy
implementation

Once strategies are created, they must be successfully acted upon to achieve the desired
results. This process of putting strategies into action is strategy implementation. Its success depends
on the achievement of good "fits" between strategies and their means of implementation. All
operating systems and the other management functions-organizing, leading, and controlling must be
well applied to support and reinforce strategies. All of this, in turn, requires the strong commitment
of organization members. Getting this commitment through participative planning is part of the
strategic management challenge.

Strategic analysis begins with a clear statement of purpose the mission of the organization.
With a well-articulated mission statement, managers determine major objectives. Recall from
Chapter 6 that strategies are formulated through analysis to delineate (tracer) actions an
organization must pursue to fulfill those objectives. Although the formal planning process is similar
for each strategic level we have described, different types of strategies will be employed to
implement corporate-level, business-level, and functional-level objectives. Figure 1.4 identifies the
general strategic management process.

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 Figure 1.4: The process of strategic management

Strategic competitiveness is achieved when a firm successfully formulates and implements a

value-creating strategy. When a firm implements a value-creating strategy that current and potential
competitors are not simultaneously implementing and when another companies are unable to
duplicate the benefits of its strategy, this firm has a sustained or sustainable competitive advantage.
A firm is assured of a sustained competitive advantage only after others’ efforts duplicate its
strategy have ceased because they have failed. Even if a firm achieves a competitive advantage only
for a period of time.

A sustained competitive advantage results in investors earning above-average profits on their

investments. Above-average profits are returns in excess of what an investor expects to earn from
other investments with a similar amount of risk. Firms that are without a sustained competitive
advantage or that are not competing in an attractive industry earn, at best, only average profits.
Average profits are returns equal to those an investor expects to earn from other investments with a
similar amount of risk. In the long run, an inability to earn at least average profits results in failure.
Failure occurs because investors will choose to invest their funds in firms that earn at least average
profits and will withdraw investments from firms that earn less. The strategic management process
is the full set of commitments, decisions, and actions required for a firm to achieve strategic
competitiveness and earn above-average profits

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 The strategic management process is dynamic in nature. Relevant and accurate inputs, from
analyses of the external and internal environments, are required for effective and efficient strategy
formulation and implementation actions. In turn, effective and efficient strategic actions are a
prerequisite to achieving the desired strategic outcomes of strategic competitiveness and above-
average profits.

Feedback about a firm’s strategic actions comes from various sources. The degree to which a
company has become strategically competitive and the level of profits it has earned yield valuable
feedback. Feedback is also provided by a firm’s stakeholders. Effective feedback helps firms
continuously adjust and refine their strategic inputs and strategic actions.

Le feedback inclut également les reactions des :

- Clients
- Concurrents
- Fournisseurs
- Etat
- Société (organisations non gouvernementales)

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2-6. Promoting Innovation: Modes of Strategic Management:

Modes of strategic management are the actual kinds of approaches taken by managers in
formulating and implementing strategies. They address the issues of who has the major influence in
the strategic management process and how the process is carried out. Research indicates that
managers tend to use one of three major approaches to, or modes of, strategic management:
entrepreneurial, adaptive, and planning. The mode selected is likely to influence the degree of
innovation that occurs within the organization. Innovation is particularly important in the context of
strategic management, because organizations that do not continually incorporate new ideas are
likely to fail behind competitively, particularly when the environment is changing rapidly. As we
saw in the Disney situation, the failure to innovate adequately after Walt Disney's death almost led
to the company's demise.

1-2-6-1: Entrepreneurial Mode

“Entrepreneurial mode is an approach in which strategy is formulated mainly by a strong
visionary chief executive who actively searches for new opportunities, is heavily oriented toward
growth, and is willing to make bold strategies rapidly” (Management, Kathryn M. Bartol & David
C. Martin). The entrepreneurial searches for new mode are most likely to be found in organizations
that are young or small, have a strong leader, or are in such serious trouble that bold are their only
hope. Not surprisingly, in the entrepreneurial mode, the extent to which the strategic management
process encourages innovation depends largely on the orientation of top leaders. Their personalities,
power, and information enable them to overcome obstacles and push for change. Conversely, strong
leaders also are in a position to threat innovative activities, should they be so inclined.

1-2-6-2: Adaptive Mode

“Adaptive mode is an approach to strategy formulation that emphasizes taking small

incremental steps, reacting to problems rather than seeking opportunities, and attempting to satisfy
a number of organizational power groups” (Management, Kathryn M. Bartol & David C. Martin).
The adaptive mode is most likely to be used by managers in established organizations that face a
rapidly changing environment and yet have several coalitions, or power blocks, that make it
difficult to obtain agreement on clear strategic goals and associated long-term plans. For example,
before London-based Grand Metropolitan PLC purchased Pillsbury, including the Burger King
Chain, the chain was plagued by constant turnover, marketing problems, inconsistent service, and
angry franchisees who frequently told Pillsbury what to do. Grand Met is now working to put the
chain back on track through a strategy that emphasizes, doing "whatever it takes to create a positive,

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memorable experience." Concrete measures include increasing the number of field representatives
who visit Burger King stores, highlighting cleanliness, and rewarding employees who take the
initiative in improving service by doing things differently.

With the adaptive approach, the degree of innovation fostered by the strategic management
process is likely to depend on the ability of managers to agree on at least some major goals and
basic strategies that set essential directions. In addition, lower-level managers must have some
flexibility in carrying out the basic strategy rather than being given extremely detailed plans to
follow; this approach might be effective in a more stable environment or one in which agreement
among coalitions is easy to obtain. Without at least some agreement among high-Level managers on
major goals and directions, however the adaptive mode may be ineffective in moving the
organization in viable strategic directions.

1-2-6-3: Planning Mode

Planning mode is an approach to strategy formulation that involves systematic,
comprehensive analysis, along with integration of various decisions and strategies” (Management,
Kathryn M. Bartol & David C). Martin. With the planning mode, executives often utilize planning
specialists to help with the strategic management process. The ultimate aim of the planning mode is
to understand the environment well enough to influence it. The planning mode is most likely to be
used in large organizations that have enough resources to conduct comprehensive analysis, have an
internal situation in which agreement is possible on major goals, and face an environment that has
enough stability to enable the formulation and implementation of carefully conceived strategies. For
example, the managers at Disney are able to engage in considerable planning because of its
relatively stable environment. Disney's recent plans include entry into the convention hotel business
with its Dolphin Hotel, operated by the Sheraton Corporation, and Swan Hotel, run by the Westin
Hotel Company.

Combined, the two hotels offer 2350 rooms and more than 200,000 square feet of
convention space inside Disney World. The hotels were heavily booked well in advance of their
opening in 1990. With the planning mode, innovation is most likely to occur when strategies
explicitly articulate needs for product and service innovation and when top-level managers, such as
those at Disney, help integrate efforts in the direction of encouraging innovation.

1-2-6-4: Assessing the Modes

Each mode can be relatively successful as long as it is matched to an appropriate situation.
In fact, it may be possible to use different modes within the same organization. For example, a top-

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level manager may adopt an entrepreneurial mode for a new business that is just starting and use the
planning mode for strategic management of the rest of the organization.

Each of these modes can either promote organizational innovation or stifle it, depending on
how the mode is used. Still, operating effectively in any of the three modes requires knowledge of
the strategic management process. In carrying out the process, once the mission and strategic goals
are determined, managers engage in competitive analysis.

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 3. THE STRATEGIC PLANNING
Before a production manager, marketing manager, or personal manager can develop plans
for their individual departments, a larger plan for the entire organization must be developed.
Otherwise, on what would the individual departments’ plans be based?

A large business organization usually has several business divisions and several product
lines within each division. Before any planning can be done by individual divisions or departments,
a plan must be developed for the entire organization. Then, objectives and strategies established at
the top level provide the planning context for each of the divisions and departments. Finally,
divisional and departmental managers develop their plans within the within the constraints
developed at the higher levels.

3-1. Definition:

Strategic planning is the process of formulating and implementing strategic plans. It

involves identifying the major objectives of an organization, choosing the strategies needed to
achieve them, creating plans to implement the strategies, and then doing the required work. A
special form of problem-solving, strategic planning, involves these five steps:
 Identify organizational purpose and objectives. Ask, "Where do we want to be in the future?"
 Assess current performance vis-à-vis purpose and objectives. Ask, "How well are we currently
doing?"
 Create strategic plans to accomplish purpose and objectives. Ask, "How can we get where we
really want to be?"
 Implement the strategic plans. Ask, "Has everything been done that needs to be done?"
 Evaluate results and renew the strategic planning process as necessary. Ask, "Are things
working out as planned, and why?"

Although strategic planning for the organization as a whole is largely a top-management

responsibility, managers at all levels must participate in and support the process. They should also
lead the strategic planning process in their areas of immediate work responsibility. The reason for
this is made quite clear by Peter Drucker, who says: “The future will not just happen if one wishes
hard enough. It requires decision now. It imposes risk-now. It requires action-now. It demands
allocation of resources and above all of human resources-now. It requires work-now. A major
element of the work with which Drucker is so concerned is "strategic management.”

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 The planning process remains essentially the same at each organizational level; however,
managers today have access to a number of concepts and techniques that relate specifically to
strategic planning. Strategic planning is the process by which top management determines overall
organizational purposes and objectives and how they are to be achieved.

3-2. The growth of strategic planning

Many of today’s most successful business organizations continue to survive because many
years ago they offered the right product at the right time; the same can be said for nonprofits and
government organizations. Many critical decisions of the past were made without the benefit of
strategic thinking or planning. Whether these decisions were based on wisdom or luck is not
important. They resulted in momentum that has carried these organizations to where they are today.
However, present day managers increasingly recognize that wisdom and intuition alone are not
sufficient to guide the destinies of large organizations in today’s ever changing environment. These
managers are turning to strategic planning.

In earlier, less dynamic periods in our society, the planning system utilized by most
organizations extrapolated current year sales and environmental trends for 5 and 10 years. Based on
these, they made plant, product, and investment decisions. In most instances, the decisions were
fairly accurate because the factors influencing sales were more predictable and the environment was
more stable.

In the year after World War II, many of the factors on which earlier planners counted could
no longer be taken for granted. Uncertainty, instability, and changing environments because the rule
rather than the exception. Managers faced increased foreign competition, technological
obsolescence, and changing market and population characteristics because, changes are occurring so
rapidly, there is increased pressure on top management to respond. In order to respond more
accurately, on a more timely schedule, and with a direction or course of action in mind, managers
are increasingly turning to the use of strategic planning. Strategic planning is a process that involves
the review of market condition; customer’s needs; competitive strengths and weaknesses and the
availability of resources that lead to the specific opportunities or threats facing the organization. In
practice, the development of strategic plans involves taking information from the environment and
deciding upon an organizational mission and upon objectives, strategies, and a portfolio plan.
Among the most important questions strategic managers ask are: what products should we produce?
What services should we offer these products or services? And what is our purpose for existing? For
example, managers have introduced new products that have positioned their companies in new
industries. In 1930, DuPont was known for industrial explosives and construction materials, but

59
then it introduced cellophane and moved into plastics. Other synthetic materials soon followed,
including nylon and more than 200 different polyesters, and Du Pont was transformed into a plastics
fabricating company. Soon after cellophane became popular, 3M Corporation, then a firm known
for sanding abrasives, coated cellophane with an adhesive to create Scotch Tape, and the company
repositioned itself as an innovator in films, adhesives, coating, and sealers, including the recent
Post-it notepads. Scotch Tape was initially designed in one-foot-wide rolls to seal cardboard
shipping boxes. Then a marketing manager at 3M envisioned Scotch Tape as a revolutionary
product for home and office use, and 3M shifted its marketing efforts toward consumer goods.

3-3. The Importance of Strategic Planning

Before the early 1970s, managers who made long-range plans generally assumed that better
times lay ahead. Plans for the future were merely extensions of where the organization had been in
the past. A number of environmental shocks in the 1970s and 1980s undermined this approach to
long-range planning. The energy crisis, deregulation, accelerating technological change, the
maturing or stagnation of certain markets, threats of takeover, and increased global competition are
a few of the more obvious.

These changes in the rules of the game forced managers to develop a systematic means of
analyzing the environment, assessing their organization’s strengths and weaknesses, and identifying
opportunities where the organization could have a competitive advantage. The value of strategic
planning began to be recognized.

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 Today, strategic planning has moved beyond the confines of corporate America to include
government agencies, hospitals, and educational institutions. For example, the skyrocketing costs of
a college education, cutbacks in federal aid for students and research, and the decline in the absolute
number of high school graduates have led many university administrators to assess their colleges’
aspirations and identify a market niche in which they can survive and prosper.

3-4. The Nature of Strategic Planning

Organizations exist to make contributions to society. An organization is a collective

enterprise, a group of individuals that provides society with more than individual enrichment. If it
fails to maintain its contribution to society, especially through value creation, it can disintegrate.
When an American automobile manufacturer stops providing customers with quality cars,
customers buy cars elsewhere, perhaps from a Japanese company. If too many customers buy
foreign cars, the American manufacturer can become bankrupt. If a church fails to serve its
members, it will lose its congregation. And if a university no longer offers sound academic
programs, students will transfer to other schools.

Thus when an organization no longer provides beneficial services or products to its

stakeholders, society perceives little need for its existence. Strategy is concerned with the grand
picture of how organizations serve society, and strategic planning is concerned with how
organizations intentionally and systematically make decisions about products, services, customers,
and human resources vital both to itself and to society.

In their landmark book In Search of Excellence, Thomas J. Peters and Robert H. Waterman,
Jr, note that managers of the best firms are adroit at planning, using the best information their firms
can generate: “Show us a company without a good fact base, a good quantitative picture of its
customers, markets, and competitors, and we’ll show you one in which priorities are set with the
most Byzantine of political manoeuvring. Peters and Waterman are not advocating quantitative
analysis; they are reporting a pattern of effective research coupled with innovative management
among America’s best firms. In fact, they observe that many disintegrating firms have relied too
heavily on detached, analytical decisions at the expense of inquisitiveness and innovation.

Several messages emerge from this and similar studies. First, intuition alone does not suffice
for planning in a complex society. Second, analytical research is essential to enhance managers’
ability to make good strategic decisions. Third, strategic planning is a blend of meticulous research
and managerial verve to make better decisions. We should add that the process is also future-

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oriented compelling managers to seek plausible courses of action today to assure the organization’s
future.

1-3-4-1: Relating the Strategic Plan and Operational Plans

Most managers in an organization will not directly develop the organization's strategic plan.
However, they may be involved in this process in two important ways:
(1) They usually influence the strategic planning process by providing inputs in the form of
information and suggestions relating to their particular areas of responsibility.
(2) They must be completely aware of what the process of strategic planning involves as wel1 as the
results, because everything their respective departments do, the objectives they establish for their
areas of responsibility, should all be derived from the strategic plan.

In well managed organizations, therefore, there is a direct relationship between strategic

planning and the planning done by managers at all levels. The focus of the planning and the time
perspectives will, of course, differ. Figure 5-7 illustrates the relationship between the strategic plan
and operational plans. It indicates very clearly that all plans should be derived from the strategic
plan while at the same time contributing to the achievement of the strategic plan.

Figure 1.5 : The relationship between the organization’s strategic plan and operational plans

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 1-3-4-2. Relating Organizational Objectives and Strategies and
Operational Objectives and Strategies:

If planning is done probably, it will result in a clearly blueprint for management action at all
levels in the organization. Figure 5-8 illustrates the hierarchy of objectives and strategies, using
only one objective from the strategic plan and two strategies from the strategic plan. In the figure,
all objectives are related to other objectives at higher and lower levels in the organization. We have
illustrated only four possible operational objectives. Obviously many others could be developed, but
our purpose is that the reader clearly understands how objectives and strategies plan for the entire
organization relate to objectives and strategies that are part of operational plans for individual
departments. As we move down from the top of the organization to lower levels in terms of who
does the planning, we increase the detail and specificity of the objectives, and we decrease their
time span. However, although the scope, time span, and issues confronted by operational plans
differ, they are all derived from those in the strategic plan.

Figure 1.6: Relating Organizational Objectives and Strategies and Operational Objectives
and strategies

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4. ETHICS AND SOCIAL RESPONSIBILITY IN MANAGEMENT
Before it is implemented, a potential solution to a problem should be tested by the "ethics
double-check". This step should increase your confidence that a particular course of action meets
moral standards. This requirement is increasingly necessary to ensure that the ethical aspects of a
problem are properly considered in the complex, fast-paced decision making so common in today's
organizations. It’s also consistent with the demanding moral standards of modern society. A
willingness to pause to examine the ethics of a proposed decision might well result in both better
decisions and the prevention of costly litigation. You should recall that the ethical foundations of
any decision may be double-checked, at a minimum, by at least asking-and answering-these two
questions: (1) "How would I feel about this decision if my family found

The ethical and social responsibilities of corporations arise from the simple fact that
corporations serve multiple stakeholders. Each stakeholder has different stakes in the corporation
and demands different outputs from it. Corporate management is responsible to these stakeholders.
It has the obligation of balancing competing demands of stakeholders and providing an acceptable
level of performance to each stakeholder group. In doing so, managers often run into dilemmas
about ethical and social responsibilities. They must manage the behavioural and political processes
that arise as a consequence. This process is depicted in figure (1).

La vision liée aux stakeholders est plutôt issue des pays européens, notamment scandinaves.
Certes cette vision est présente aux USA mais avec moins de rigueur car la priorité est plutôt
accordée à la satisfaction des actionnaires représentés principalement par le marché financier. Cette
obsession liée au service de l’actionnaire est à l’origine de plusieurs scandales récents : Enron,
Worldcom, Xerox… dans lesquels les malversations avaient en partie pour but de doper les résultats
pour garder les cours des niveaux appréciables pour les actionnaires.

59
Figure 1.7: Ethics values and social responsibilities

59
4-1. The Realm of Ethics

Ethics, or moral philosophy, in business, deals with matters of right and wrong, good and
bad. Business decisions are not simply efficient or inefficient, or effective or ineffective; they are
also "good" or "bad" in a moral sense. Making ethical decisions requires that managers go beyond
traditional economic, technological, and sociopolitical criteria and make evaluations based on
ethical criteria. Decision making can be simplified if managers have a framework for understanding
ethical issues. Also, the organization must have a decision-making process that allows ethical
considerations to influence strategic decisions.

The examination of ethical issues can be done at three levels: individual, organizational, and
societal, as shown in Figure 1.8. At the individual level, the preferences of individuals determine
ethics. What is good for the individual in question is considered ethical. The ethical doctrines of
Plato and the Epicureans have advocated that a person ought to act in ways to achieve the greatest
good and least bad results for himself or herself. This form of ethical egoism, with its emphasis on
self-interest, is at the heart of the capitalist economic System.

Conceptualized at the organizational (or group) level, ethics involves acting in ways that
maximize benefits to the widest community (organization or group) affected by an action. The must
complete articulation of this doctrine is utilitarianism, which \vas advocated by Jeremy Bentham
and John Stuart Mill. Benevolence toward others is a hallmark of utilitarianism. A variety of ethical
concepts, such as social justice, fairness, equity, the greater good, and altruism, originates from this
collective notion of ethics.

The focuses on self and on others represent ends of a continuum of ethical orientations.
Between these ends, there are several dualist conceptions of ethics that attempt to relate self to the
larger society. For example, the premise that individuals have a need to universalise their free will is
the basis of Kant's view of ethics. Ethical acts should reflect a will that would be acceptable as
universal law. Being ethical requires treating humanity (self and others) always as an end and never
as just a means.

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 Figure 1.8: Ethical individual, organizational and societal

Individual Organizational
ethics ethics

Societal ethics

4-2. Ethical Conflicts

The dilemma of ethical decision making in business settings arises out of the tensions or
conflicts between what is good for individuals, organisations, and society. These conflicts manifest
themselves in rules that govern organizational behaviour and in concrete decision situations.

Individual versus organizational conflicts are apparent when personal values of employees
conflict with the requirements organizational tasks. For example, a junior accountant's audit opinion
may be based on ethical grounds. It may be rejected by his or her superiors who do not want to
relinquish the business of the client by giving a negative opinion. A salesperson may consider the
company policy of giving large discounts or personal gifts to selected customers to attract their
business unfair and unethical. A marketing executive may object to company advertisements on the
grounds that they are not truthful.

Conflicts between organizational and societal interests arise when corporations consume
public goods without paying for them or when they sell goods that may have harmful effects. These
conflicts are most common in the areas of environmental pollution and community protection from
technological and product hazards. For example, toxic waste disposal practices that are not yet
regulated by law may be harmful to the natural environment. International transfer of nuclear waste
to poor African countries is a case in point. Many countries, such as Benin in Africa, can more than
double their annual gross national product by accepting nuclear waste from advanced industrial
countries. Locating of hazardous facilities in communities and manufacturing defective products or
products with harmful side effects may be other common sources of organizational-societal ethical
conflicts.

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 Ethical conflicts between individuals and society arise when individuals acting in narrow
self-interest harm collective interests. Trading stocks on privileged information is a victimless crime
that is detrimental to the collective interests of stockholders and erodes confidence in the financial
markets. As businesses have become international, we have seen the emergence of ethical conflicts
between societies that follow different ethical standards. For example, giving bribes to officials to
expedite work is ethically and legally unacceptable behavior in the United States. In many
countries, however, it is an institutionalized business practice to give gifts and bribes to ease the
conduct of business deals. Without such facilitation, it is impossible to conduct business. When
American companies do business in these countries they face the dilemma of which country's
ethical and legal standards to adopt.

Dealing with ethical conflicts requires that companies establish and communicate ethical
standards to their employees. They must create decision making procedures for resolving ethical
conflicts. Conflict resolution should involve an explicit set of ethical criteria for making legitimate
choices. Today, many companies are instituting ethics programs that provide information on ethical
problems managers are likely to face. Some also provide procedures for n-solving ethical conflicts.
Broadly, the structure of such programs is as follows:

a) Identify the organizational, technological, and strategic decision areas that have important
ethical dimensions. Examples of these areas include dealing with insider information,
managing hazardous facilities and wastes, and avoiding job discrimination based on race,
gender, ethnicity, or religion.

b) For each of these decision areas, describe a procedure for conducting a situational analysis
of facts. Such an analysis involves studying the background and history of decisions,
identifying the key stakeholders and their stakes, examining decision options and their
likely consequences.

c) Analyze the ethical issues involved using an explicit and predetermined set of ethical
criteria. Identify the dilemmas and tensions they pose. Examine moral conflicts, costs-
benefits, and accountability-responsibility issues related to the decision.

d) Choose a resolution strategy for dealing with the dilemmas and conflicts. The choices
available to managers are acting on personal ethical values and taking responsibility for
consequences, compromising personal ethics with organizational and societal demands,
and broadening participation in decision making by inviting other perspectives into the
process.

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 e) Discuss the approach to resolution with relevant peers, superiors, and subordinates.

f) Implement the resolution strategy by bringing necessary resources to bear on the situation.
These resources could take the form of personal courage, organizational resources, and
new decision makers. Implementation also involves learning from the situation and
codifying lessons for future use.

4-3. Corporate Social Responsibility and Strategy Formulation

The tensions between corporate and societal interests is a hot topic of debate in them
business literature under the heading of corporate social responsibility. The essential question is, do
corporations have broader social responsibilities beyond their economic mandates? If they do, then
how can these responsibilities be acknowledged and fulfilled through firm strategies? There are
many opinions on these questions. One dominant opinion holds that corporations are primarily
economic entities whose sole purpose is to increase shareholder wealth by producing and selling
goods needed by customers (Friedman, 1962). This conception harbours a narrow economic view of
a corporation's responsibility to society. In contrast is the view that corporations have grown to such
large size and complexity that they affect many noneconomic aspects of society. These areas
include health, politics, culture, and social relations. Therefore, corporations should be held
responsible for these noneconomic influences on society (Davis, 1975; Drucker, 1984).

There is no unambiguous resolution of this debate. On the balance, however, it seems

reasonable to expect businesses to be sensitive to the new demands placed on it by society and be
responsive to them. It is also clear that the resolution of this debate depends largely on individual
personal values. In my view, power and responsibility have a reciprocal relationship. The scope and
power of corporations to influence all aspects of social life, and their symbiotic relationship to
society, impose on corporations broad social responsibilities. Understanding and fulfilling these
responsibilities through strategic management of firms is the issue we turn to next.

4-4. Areas of Social Responsibility:

Even though corporate responsibility for increasing the wealth of stockholders is well
recognized, other social responsibilities are only beginning to be accepted. Below is a brief list of
the many areas in which corporations have acknowledged their social responsibility and established
programs to deal with them.

 Responsibility for protecting the natural environment includes judicious use of natural
resources, energy conservation, limiting polluting emissions, and waste management.

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  Responsibility toward consumers: includes creating safe products and packages, educating
consumers on product use and disposal, being truthful in advertising, and establishing a
procedure for dealing with consumer complaints.

 Responsibility toward employee welfare: includes providing fair compensation and benefits
and safe work environments, eliminating discrimination, providing opportunities for
personal and professional development, and having progressive human resource policies.

 Responsibilities toward local, state, and federal government agencies: include fulfilling
obligations under regulations and statures of these agencies, coop-erating in planning and
investigations, and coordinating administrative activities with these agencies.

 Responsibilities to the public or communities where the corporation has operations: include
providing economic stability, safeguarding public safety, protecting the environment, and
aiding in the development of social and cultural resources of the community through
corporate philanthropy.

 Responsibilities toward the media: include being cooperative and truthful about issues that
affect public welfare.

One way to deal with these responsibilities is to establish internal procedures for forecasting
strategic social issues. The company may then institutionalize social responsibility as a regular
organizational function and develop socially responsible strategies.

4-5. Procedures for dealing with Social Responsibilities:

1-4-5-1: Forecasting Strategic Social Issues

In each area of social responsibility, managers need to forecast the emergence and life cycle
of strategic social issues. This can be done by instituting an issues management program in the
company. Issues management refers to early identification, tracking, and resolution of strategic
issues that could affect the company. By considering emerging strategic issues early, firms have the
opportunity to shape strategies as they become important to the firm and put them on their strategic
agenda (Chase, 1984; Dutton, 1988). An example of effective management of a strategic issue was
Polaroid's early assessment in the l970s of South Africa's apartheid policy and its impact on
American businesses. The company initiated internal programs to deal with apartheid and its
influences on internal race relations before it became an explosive issue in the 1980s. It promoted

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black managers to high managerial positions in its South African business and supported black
enterprises in the United States and in South Africa.

1-4-5-2: Organizing for Social Responsibility

If socially responsive behaviour is to be seriously and consistently encouraged within

organizations, it cannot be left up to the personal preferences of individual managers. It must be
institutionalized with appropriate organizational authority and resources. Managerial roles and
functions must be defined that are in charge of monitoring social performance of the firm and
ensuring that it fulfils its diverse responsibilities toward its stakeholders.

Some firms have institutionalized social responsibility by creating a new position of

corporate responsibility officer or a public affairs function. These positions have senior ranking
officers who work full time on all social issues facing the firm. Other firms have expanded their
public/external affairs, or even strategic planning, departments to include the function of monitoring
social issues.

Plusieurs entreprises ont des chartes organisationnelles qui traduisent les valeurs communes
qui sont partagées et encouragées à l’échelle de l’entreprise.

1-4-5-3: Socially Responsible Strategies

A question of central interest here is, how can corporations formulate socially responsible
strategies? How can companies assure that corporate domain choice strategies and competitive
strategies are responsive to social needs and do not harm the public interest? There are two basic
approaches to dealing with these questions.

First is to evaluate the social merits of each corporate and business strategy selected based
on financial, technological, and market criteria. For each strategy, one could ask these questions:
What social good does the strategy contribute? Does the strategy create any public risks or harm?
Does the strategy harm the interests of our stakeholders? How does the strategy affect public image
and goodwill? Will the strategy lead us into social controversies? The answers to these questions
can aid in modifying strategies to fit reasonable demands. The idea is not to abandon strategies that
have even the slightest negative consequences, but to consider these consequences explicitly in an
attempt to develop balanced strategies (McGuire, Lundgren, and Schneeweis, 1988).

A second approach to developing socially responsive strategies is adopting specific

strategies toward all key stakeholders of the firm (Freeman, 1984). Such strategies pursue multiple

59
stakeholder objectives rather than simple profitability objectives. They are sensitive and responsive
to the demands of all constituencies that provide the organization with opportunities and resources
for success. Conflicting demands of stakeholders are carefully balanced. While acknowledging that
a primary responsibility of the company is to increase shareholder wealth, stakeholder strategies
also must acknowledge responsibilities toward externalities-customers, suppliers, employees,
business associates, communities, media, and government.
Specific stakeholder strategies and programs may be developed to meet stakeholder
demands This requires listening to stakeholders, taking their needs into account, and letting their
perspectives inform organizational decisions. It involves getting inputs from stakeholders, weighing
them, and making decisions that are best for the whole business. It does not mean giving in to all
stakeholder demands or reaching stakeholder consensus on all decisions.
Stakeholder analysis begins with identification of who they are. It involves understanding
their stakes in the organization, their sources of influence, and their size and power. The history of
relations with stakeholders and specific organizational decisions in which the stakeholders have the
greatest interest are also important considerations. Stakeholder needs and perspectives should be
sought and incorporated into strategies.

1-4-5-4: Social Responsibility Regulations

Over the past twenty years, establishment of a variety of regulations and regulatory agencies
has ensured that corporations meet at least their minimal social responsibilities. Along with the
various departments of the government (Commerce, Defence, Energy, Health and Human Services,
Interior, etc.), the following federal agencies and their regulations address all the areas of social
responsibility identified in this section:
 Consumer Product Safety Commission;
 Environmental Protection Agency;
 Equal Employment Opportunity Commission;
Federal Aviation Administration;

 Federal Communications Commission;

 Federal Emergency Management Agency;
 Federal Trade Commission;
 Food and Drug Administration;
 General Accounting Office;
 Interstate Commerce Commission;
 Mining Enforcement and Safety Commission;
 National Highway Safety Administration;

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  Nuclear Regulatory Commission;
 Occupational Safety and Health Administration;
 Office of Consumer Affairs;
 Office of Federal Contract Compliance Programs;
 Office of Technology Assessment;
 Securities and Exchange Commission;

There are literally thousands of laws at local, state, and federal levels that address public
health and environmental protection concerns. Most large corporations have senior managers (or
entire departments) in charge of the government relations function. Their responsibilities include
ensuring compliance with all relevant regulations, confirming that all necessary information is filled
with designated agencies, and participating in shaping of regulations that affect the company.

Besides issues of ethical and social responsibility, behavioural, social, and political decision-
making processes profoundly influence strategy making. Social interactions among managers,
departments, and divisions and the confluence of many competing internal interests shape the
content of strategies.

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CHAPTER 2: STRATEGIES IN ACTION

1. CORPORATE STRATEGY
At the apex of large organizations, board members and executives reshape the purpose of a firm by
deciding what businesses to pursue. Corporate-level strategy is often called the portfolio-level
strategy because board-level decisions are usually concerned with acquisitions, mergers, major
expansions, and divestitures that add to or reduce product lines. Today this also involves setting up
international operations and forming new enterprises through joint ventures with other corporations.

Acquisitions and mergers among well-known companies illustrate corporate strategy. Companies
like Sears, Philip Morris, Coca-Cola, CitiCorp, and Hospital Corporation of America have acquired
new product or service lines, added divisions, and in some instances altered their corporate purpose.
For example, Sears had been a dominant merchandiser for nearly a century, but with the
acquisitions of Allstate, Coldwell Bnaker, and Dean Witter, it became a financial giant in real
estate, securities, and insurance.

1-1. TYPES OF GRAND STRATEGIES

The model illustrated in figure 2-1 provides a conceptual basis for applying strategic management.
Defined and exemplified in Table 2-1, alternative strategies that an enterprise could pursue can be
categorized into thirteen actions: forward integration, backward integration, horizontal integration,
market penetration, market development, product development, concentric diversification,
conglomerate diversification, horizontal diversification, joint venture, retrenchment, divestiture,
liquidation, and a combination strategy. Each alternative strategy has countless variations.

59
 Figure 2 – 1: A comprehensive strategic management mode

Feedback
Feedback

Perform Establish Establish

Perform
external audit Establish
Long- Establish
annual
externalkey
to identify audit Long-
term annual
objectives
to identify key
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objectives objectives
Identify opportunities
and threats objectives
Identify
current and threats Meassure
Revise Allocate Meassure
and
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mission, Revise
the Allocate
ressource and
evaluate
mission,
objectives the
business ressource
s evaluate
performanc
, objectives
and business
mission s
, and mission performanc
e
strategies
strategies e
Perform
Perform
internal audit to Select Devise
internal key
audit to Select
strategies Devise
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identify
identifyand
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to pursue policies
strengths
strengths and to pursue
weaknesses
weaknesses

Feedback
Strategy Strategy Strategy
Formulation Implementatio Evaluation
n

The WD-40 Co, Wal-Mart, and AT&T are successful and highly profitable companies.
However, in recent years, each seems to be going in a different direction. WD-40’s management
seems content to essentially maintain that status quo. Wal-Mart is rapidly expanding its operations
and developing new businesses. Meanwhile, AT&T is cutting back and selling off some of its
businesses. These different directions can be explained in terms of grand strategies.

There are many types of strategies that can be pursued to gain a specific sense of overall
direction at the corporate and business levels. These four "grand" or "major" strategies fall into four
major categories:
 Growth: Pursuit of increased organizational size through expanded operations.
 Retrenchment: Pursuit of reduced organizational size through operations cutbacks.
 Stability: Pursuit of the status quo, or present course of action.
 Combination: Pursuit of two or more strategies at the same time.

59
 concentration
concentration
Growth
Growth Vertical integration
Vertical integration

Divertification
Divertification
Stability
Grand strategies Stability Harvest
Grand strategies Harvest

Turnaround
Turnaround
Defensive
Defensive Disverture
Disverture

Banckruptcy
Banckruptcy

Liquidation
Liquidation

1-1-1 : Growth Strategy

The pursuit of growth has traditionally had a magic appeal for North Americans.
Supposedly, bigger is better, and biggest is best. In our terms, a growth strategy means increasing
the level of the organization’s operations. This includes such popular measures as more revenues,
more employees, and more of the market share. Growth can be achieved through direct expansion, a
merger with similar firms, or diversification. Firms like Wal-Mart and McDonald’s have pursued a
growth strategy by way of direct expansion. When Texaco absorbed Gulf Oil, it chose the merger
route to growth. When Philip Morris bought General Foods, it was using diversification to achieve
growth. Strategies Growth strategies seek greater size and the expansion of current operations. Wal-
Mart is pursuing a highly aggressive growth strategy. Its competitor, Target, is doing the same.
These strategies are popular in part because growth is necessary for long-run survival in some
industries. Many managers also equate growth with effectiveness, although this is not necessarily
true.

There are different ways to pursue growth. Some organizations try to grow internally
through some form of concentration-that is, by using existing strengths in new and productive ways,
but without taking the risks of great shifts.

A second set of growth strategies includes actions that can change the basic nature of an
organization. They pursue growth through some form of diversification-the acquisition of new
businesses in related or unrelated areas, or investment in new ventures. Along with the growth
diversification makes possible, it can also bring the complications of operating in new and often
unfamiliar business areas. The added risk may be justified for organizations that are limited by
environments of strong competition, have restricted access to markets, or are experiencing

59
uncertainties in supply and distribution channels. Common diversification strategies include
horizontal integration, vertical integration, conglomerate diversification, and joint ventures.

A commonly used term among organizational strategists is Integration, the unified control of
a number of successive or similar operations.

The combining of companies is an example of integration. Integration also includes a

company’s taking over a portion of an industrial or commercial process that previously was
accomplished by other firms. Integration doses not involve ownership; it may include only control.
Thus, supply and marketing contracts are forms of integration. Integration toward the final users of
a company’s goods or services, as when Tandy Corporation opened its Radio Shack stores, is
forward integration. A company’s taking control of any of the sources of its inputs, including raw
materials and labour, is backward integration.

Southland Corporation’s purchase of a petroleum refinery that supplies gasoline to the

company’s 7-Eleven stores is an example of backward integration. Buying or taking control of
competitors at the same level in the production and marketing process is horizontal Integration. For
example, when Firestone, already in the auto service business, took over J.C. Penney's auto service
centers, horizontal integration occurred.

Integration can extend beyond the boundaries of the United States. AT&T's joint ventures
with Italtel, an Italian telecommunications company, and Philips, a Dutch telecommunications
company, are examples of backward integration. These joint ventures established AT&T as a major
player in the European telecommunications market.

Following are some of the competitive advantages of integration:

- Improved marketing and technological intelligence.
- Superior control of the firm’s economic environment.
- Product differentiation advantages.
- Knowledge transfert
- Risk reduction

Each type of integration can be a strategy for accomplishing a different objective. For
example, if the objective is to decrease the cost of inputs, a company could buy out suppliers that
earn profits producing the inputs an example of backward integration. If the objective is to increase
market share, horizontal integration might be attempted. This was done when 7-Eleven's parent,
Southland Corporation, bought the Pak-A-Sak convenience store chain.

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 Backward and forward integration are usually designed to accomplish one or both of two
purposes: capturing additional profits and obtaining better control. Backward integration does this
for the supply channels, and forward integration does it for the distribution channels. Obviously, if
either a supplier or an intermediate customer is making exorbitant profits, vertical integration may
be justified on this basis alone. Vertical integration may also be justified when a company believes
it can perform the functions of suppliers or intermediate customers effectively and efficiently. But if
better control of sources of supply or distribution channels is the only objective, it may be better not
to buy the business. There may be better ways to ensure control, such as making franchise
agreements with intermediate customers and long-term supply agreements with suppliers. Taking
over customers or suppliers is costly, and it often involves the company in businesses with which its
managers are unfamiliar.

Forward integration, backward integration, and horizontal integration are sometimes

collectively referred to as vertical integration strategies. Vertical integration strategies allow a firm
to gain control over distributors, suppliers, and/or competitors.

Figure 2-2: Guidelines for situations when particular strategies are most effective

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 2-1-1-1-1.Forward Integration

Forward integration involves gaining ownership or increased control over distributors or

retailers. A company that is betting a large part of its future on forward integration is Coca-Cola. An
effective means of implementing forward integration is franchising. Approximately 2,000
companies in about fifty different industries in the United States use franchising to distribute their
products or services. Businesses can expand rapidly by franchising because costs and opportunities
are spread among many individuals.

2-1-1-1-2. Backward Integration

Both manufacturers and retailers purchase needed materials from suppliers. Backward
integration is 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.

More and more, consumers are buying products according to environmental considerations
which include recyclability of the package. Some firms are thus using backward integration to gain
control over suppliers of packages.

Some industries in the United States (such as the automotive and aluminium industries) are
reducing their historical pursuit of backward integration. Instead of owning their suppliers,
companies negotiate with several outside suppliers.

Global competition is also spurring firms to reduce their number of suppliers and to demand
higher levels of service and quality from those they keep.

1-1-1-3. Horizontal Integration

Horizontal integration refers to a strategy of seeking ownership of or increased control over

a firm's competitors. One of the most significant trends in strategic management today is the
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.

The trend towards horizontal integration seems to reflect strategists' misgivings about their
ability to operate many unrelated businesses.

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 Mergers between direct competitors are more likely to create efficiencies than mergers
between unrelated businesses, both because there is a greater potential for eliminating duplicate
facilities and because the management of the acquiring firm is more likely to understand the
business of the target.

As a grand strategy, diversification usually has risk reduction as its purpose. A company
involved in a number of businesses avoids having all its eggs in one basket. Ideally, when some of a
conglomerate firm’s businesses decline, others will be on the increase. Some conglomerate firms
are countercyclical; that is, they tend to see increasing sales when the economy in general is
dec1ining. Such businesses are hard to find. The do-it-yourself hand-tool market is one of the rare
exceptions. When times are tough, people tend to repair their own automobiles, for example; and
they need tools to do so.

About the best a conglomerate firm can hope for, in general, is a group of SBUs whose
valleys and peaks occur at different times in the business cycle. Of course, concentric
diversification may not appear to serve the risk reduction objective as well as conglomerate
diversification does; however, this type of diversification tends to be more successful in improving
profitability. This is probably because the managers of concentrically diversifying firms know
something about the businesses they are buying. Diversification often occurs as a by-product of
bargain hunting by corporate strategists. Even if the preference is for a related merger candidate,
corporate-level strategists may opt for acquiring an SBU in an entirely different business because it
is deemed to be greatly underpriced. Diversification can also be a product of a desire for growth.

1-1-1-4. Market Penetration

The purpose of this strategy is to increase sales of product in an existing market through the use of
more aggressive marketing tactics, especially pricing.

This strategy is available in the following cases:

 When current markets are not saturated with your particular product or service;
 When the usage of present customers could be significantly increased;
 When the market shares of major competitors have been declining while total industry sales have
been increasing;
 When the correction between dollar sales and dollar marketing expenditures has historically;
 When increased economy of scale provide major competitive advantages ;

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 1-1-1-5. Market Development

It consists on identifying and developing new markets for existing products. This strategy is
available in the following cases:

 When new channels of distribution are available that reliable inexpensive and of good quality;
 When an organization is very successful at what it does;
 When an organization has the needed capital and human resources to manage expanded operation;
 When an organization basic industry is rapidly becoming global in scope ;

1-1-1-6. Product Development

It consists on radical modifications of existing product or the creation of new ones with new characteristics
that satisfy newly defined needs. This strategy is available in the following cases:
 When an organization has successful products that are in the maturity stage of the product life
cycle.
 When major organization competes in a industry that is characterized by rapid technological
development
 When an organization competes in a high-growth industry

There are three general types of diversification strategies: concentric, horizontal, and conglomerate.
Overall, diversification strategies are becoming less and less popular as organisations are finding it
more and more difficult to manage diverse business activities. In die 1960s and 1970s, the trend was
to diversify so as not to be dependent on any single industry, but the 1980s saw a general reversal of
that thinking. Diversification is now on the retreat. Michael Porter of the Harvard Business School
says, "Management found they couldn't manage the beast." Hence, businesses are selling, or
closing, less profitable divisions in order to focus on core businesses. Peters and Waterman's advice
to firms is to "stick to the knitting" and not to stray too far firm the firm's basic areas of competence.
However, diversification is still an appropriate and successful strategy sometime.

1-1-1-7. Concentric Diversification

Adding new, but related, products or services is widely called concentric diversification. An
example of this strategy is the recent Prudential Insurance acquisition of Merrill Lynch's residential
real estate sales and relocation businesses for more than $300 million. A large insurance company,
Prudential desires to become a dominant player in the residential brokerage industry. This
acquisition adds 450 offices and 18,000 salespeople to Prudential's ranks.

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 1-1-1-8. Horizontal Diversification

Adding new, unrelated products or services for present customers is called horizontal
diversification. This strategy is not as risky as conglomerate diversification, because a firm should
already be familiar with its present customers.

1-1-1-9. Conglomerate Diversification

Adding new, unrelated products or services is called conglomerate diversification. Some

firms pursue conglomerate diversification based in part on an expectation of profits from breaking
up acquired firms and selling divisions piecemeal. Richard West, dean of New York University's
School of Business, says, "The stock market is rewarding deconglomerations, saying company
assets are worth more separately than together. There is a kind of antisynergy, the whole being
worth less than the parts."

1-1-2: Turnaround Strategies (or defensive strategies):

When a firm has experienced a serious decline in its market position, it is a candidate to
mount an all-out effort to turn the firm around and improve its market position. Use of a
turnaround strategy appears to be most appropriate when the firm's decline is caused by internal
actions such as improper strategy selection or poor implementation and execution of a workable.
If the analysis indicates the firm's present strategy is appropriate, then the problem is poor
implementation. If the analysis indicates the firm's present strategy is inappropriate, then the
problem is improper strategy selection.

Turnaround strategies attempt to revitalize businesses in a slump. They involve a

combination of cost-cutting measures and revenue-enhancing strategies (Hofer, 1980).

Before a firm elects a turnaround strategy, two questions should be asked:

1) Does the firm have the capabilities to earn an acceptable level of profits in the future?

2) Will the firm's value after a successful turnaround strategy be significantly greater
than its present liquidation value?

If the answer to both of these questions is yes, then the following turnaround strategies should be
evaluated.

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  Danger signals

The best turnaround is the one that does not have to happen; prevention is a lot better
than cure. What are some of the danger signals that indicate impending trouble? John Marris of
Booz Allen & Hamilton offers 12 danger signals that are remarkably similar for both industries
and companies. Companies that are in turnaround situations typically exhibit one or more to
the following characteristics:

1. Decreasing market share. This is perhaps the most telling signal of a major problem.
It may be masked temporarily by sales increases due to market growth or inflation.
However, the company's competitive position is eroding, portending future trouble.

2. Declining constant dollar sales, Inflation-adjusted declines in sales in comparison to

industry criteria (such as sales per square foot of retail space) indicate trouble.

3. Decreasing profitability this can- show up as lower dollar profits, lower return on
sales or investment, or similar measures.

4. Increasing reliance on debt. A substantial se in cleft or the debt-to-equity ratio, or a

lowered credit rating can cause significant problems.

5. Restricted dividend policies, such as lowered or eliminated dividends. Do not

confuse this with actions taken to affect a turnaround, however, once the need is
recognized.

6. Inadequate reinvestment in the business. Adequate rein-vestment in plant,

equipment, and maintenance is required for a business to remain competitive.
Deferred indicates that the company is mortgaging its future for the short term.

7. Proliferation of new ventures. Such actions, if done while ignoring the basic
business may be attempts to cover up problems anal a search for a bailout.
Diversification should supplement, not replace, the basic business of the firm.

8. Lack of planning. Unplanned growth or inattention to environmental changes and

strategy is sure to create problems.

9. CEO resistant to the ideas of others.

10. Management succession problems.

11. An overly passive board.

12. Inbred management. Management that feels nothing can be learned from outsiders,
professional conferences, competitors, and the Use is headed for trouble.

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L’une des actions proposées par Hamel & Prahalad (1989) est la creation creation d’un sens
d’urgence ou de quasi crise par l’amplification des signaux de faiblesse issus de
l’environnement et qui appellent à des actions d’amélioration : “create a sens of urgency, or
quasi crisis, by amplifying weak signals in the environment that point up the need to improve
instead of allowing inaction to precipitate a real crisis. Komatsu, for example, budgeted on the
basis of worst-case exchange rates that overvalued the yen.”

Gary Hamel & C.K. Prahalad, Srategic Intent, Harvard Business Review, May/ June 1989, vol 67, Issue 3,
p67.

 Action is needed

While such danger signals may be present, they are valuable only if recognized and acted
on. Many firms ignore such signals until it may be too late. Or management prevents action from
being taken. At some point, however, the firm must face the music and someone has to intervene
and take charge. Once consensus has been achieved that trouble exists, the turnaround can begin.

Extraordinary powers must be granted to those responsible for the turnaround. The
"turnaround team" needs to select and focus on one or two activities offering the greatest
opportunity to affect company performance. Singleness of purpose is crucial—the company
cannot tolerate business as usual. The cause of the decline must be isolated and corrective actions
taken. In turnaround situations, achieving a positive cash flow, not profits, becomes all
important. Profit-making, but cash-absorbing, assets may have to be sold to generate cash. In any
event, cash outflows must be stopped in the short run, with a goal of restoring profitability as the
next step. Curtailing investments and dividend payments are obvious ways to conserve cash.
Others are price increases and cost and asset reduction programs.

 Turnaround options

Four major turnaround options exist, as shown in Figure 2.16 Depending on the firm's
position in relation to its break-even point; the following actions may be taken:

 Cost-cutting strategies. If the firm has high direct labour costs,

high fixed expenses, or is close to the break-even point, cost-
cutting may be most appropriate. Such actions usually take
effect relatively quickly.

 Asset-reduction strategies: may be needed if the firm is far from its break-even
point, since there is no way to out costs sufficiently. Assets or capacity unneeded in
the next two years or so should be the first to go.

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  Revenue-increasing strategies. If the firm is close to covering its fixed costs and
has low variable costs (such as direct labour costs), revenue increasing approaches
such as price increases may be most beneficial. This option is an alternative to asset
reduction strategies if the assets are likely to be needed within the next year or two.
Keep in mind that revenue-increasing strategies may not pay off as quickly as cost-
cutting or asset-reduction approaches.

 Combination strategies. If the firm is covering fixed costs but significantly

below its break-even point, a combination of the previous three approaches may be
most fruitful.

Whatever action is pursued, the focus must be on short-term cash flow, while
minimizing long-term damage. Whether or not a turn-around strategy is required, keeping a
low break-even point should be considered essential for any business; therefore, periodic
retrenchment may be warranted. The break-even point can be kept low by automation, such as
the use of robotics or, in banking, automatic teller machines. Automation provides
depreciation, which labour does not. From a human standpoint, it is better to have a thriving
business with 30 percent fewer people, than a business with 100 percent fewer people because
of bankruptcy.

However, one must keep a core of key, motivated, and talented people. Subcontracting
all nonessential activities (such as janitorial, grounds keeping, maintenance, and the like) is one
way to keep the organization lean..

In summary, firms would prefer never to have to use turnaround strategies. However,
because of the dynamic nature on the environment in which Firms must compete, they are often
forced to. The major factor causing a firm to use such strategies is declining demand. However,
success is possible even in hostile environments, particularly if the firm can achieve the lowest
delivered cost position and the highest product, service, and quality position in the industry. If
possible, the firm should attempt to gain or defend a leadership position in the industry.

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 Figure 2.3 Deciding on the type of Turnaround Strategy to follow

Source : Lester. A.Digman. «Strategic Management: Concepts, Decisions, Cases”

1-1-3. Divestiture

Selling a division or part of an organization is called divestiture. Divestiture is often used to

raise capital for further strategic acquisitions or investments. Divestiture can be part of an overall
retrenchment strategy to rid an organization of businesses that are unprofitable, that require too
much capital, or that do not fit well with the firm's other activities.

Divestment is a difficult decision for the management of any organization. The barriers that
impede an organization from following a divestment strategy have been described as follows:

 Structural (or Economic). Characteristics of a business’s technology and its fixed and
working capital impede exit, especially if the business is a core competence to the
company.
 Corporate strategy. Relationships between the various business units within an
organization may deter divestment of a particular business unit.
 Managerial. Aspects of company’s decision making process inhibit exit from an
unprofitable business. Such aspects may be:
 Company does not know that it is making unsatisfactory return on its
investment.
 Exit is a blow to management’s pride.
 Exit is taken externally as a sign of failure.
 Exit threatens specialized managers’ careers.

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  Exit conflicts with social goals.
 Managerial incentive systems work against exit.

Specific suggestions on overcoming exit barriers include the following:

 Have someone in the top management who has the responsibility of encouraging
management to consider the divestment option.
 Design compensation and incentive systems so that they do not discourage sound
exit decision.
 Design management information systems that provide meaningful data to assist in
the exit decision.
 Carefully plan answers to the questions of job security and easier progression for the
middle managers affected by the divestment decision.
 Change top management periodically to overcome commitments built up over time
by incumbents.

 Aussi, la mise en place d’un système de decision basé sur la création de valeur qui
aboutit aux désinvestissements des unités qui détériorent la valeur gloable de
l’entreprise et ce, en utilisant notamment l’indicateur EVA (Economic Value Added)
comme critère d’évaluation et non pas les ratios financiers traditionnels tels que le
ROE ou le ROA…

1-1-4. Liquidation

Selling all of a company's assets, in parts, for their tangible worth is called liquidation.
Liquidation is recognition of defeat and consequently can be an emotionally difficult strategy.
However, it may be better to cease operating than to continue losing large sums of money.

1.1.5. Bankruptcy

Pre-emptive bankruptcy: A heretofore unsuspected pre-emptive strategy surfaced in

the early 1980s — bankruptcy. The increased competition due to airline deregulation was
causing Continental Airlines severe profit problems. Continental was coming out third-best in
its battle with United and Frontier at its Denver hub. Frank Lorenzo, CEO of Texas Air
(Continental's parent), decided that the company had no choice but to become a discount
carrier, hoping to develop a new distinctive competence. However, the company was locked
into long-term, high-cost labour agreements with its unions. Lorenzo took the high-risk action
of declaring chapter 11 bankruptcy, briefly shutting down, and starting up as a non-union

59
carrier with much lower pay scales. The move worked and was upheld in the courts; the airline
was soon profitable, with Frontier’s survival at stake.

Contrarian pre-emptive strategies: The best time to expand may be when the market is
temporarily in decline, as long as the competition is cutting back. For example, recession may be
the best time for businesses to pick up market share. During recessions, firms, particularly
weaker competitors, often out back.

TABLE 2.2: Sources of Preemptive Opportunities

Supply Systems
1. Secure access to raw materials or components"
2. Preempting production equipment
3. Dominating supply logistics
Product
1. Introducing new product lines
2. Developing dominant design
3. Positioning
4. Securing accelerated approval from agencies
5. Securing product development and delivery skills
6. Expanding scope of the product
Production Systems
1. Proprietary processes
2. Aggressive capacity expansion
3. Vertical integration with key suppliers
4. Securing scarce and critical production skills
Customers
1. Segmentation
2. Building early brand awareness
3. Training customers in usage sKills
4. Capturing key accounts
Distribution and Service Systems
1. Occupation of prime locations
2. Preferential access to key distributors
3. Dominance of distribution logistics
4. Access to superior service capabilities
5. Development of distributor skills
Source: LAN C. MacMillan, "Preemptive Strategies." in Handbook of Business Strategy, ed. W. D, Gulh
(Boston: Warren, Gorham & Lamont, 1985), p. 9-9.

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 1-1-6. Stability Strategy:

A stability strategy is characterized by an absence of significant change. Examples of this

strategy include continuing to serve the same clients by offering the same product or service,
maintaining market share, and sustaining that organization’s past return-on-investment record.
When should management pursue stability? When it views the organization’s performance as
satisfactory and the environment appears stable and unchanging.
It’s not easy to identify organizations that are pursuing a stability strategy, if for no other
reason than that few top executives are willing to admit it. In North America, growth tends to have
universal appeal, and retrenchment is often accepted as a necessary evil. Moreover, the active
pursuit of stability can result in management is being considered complacent or even smug.
A stability strategy involves maintaining the status quo or growing in a methodical, but
slow, manner. Organizations might choose a stability strategy for a number of reasons. For
instance, if a company is doing reasonably well, managers may not want the risks or hassles
associated with more aggressive growth. This is often the case in small, privately owned
businesses, which constitute the largest group likely to adopt a strategy of stability. For example,
Bob Sidell started California Cosmetics after formulating special cosmetics to cope with the skin
problems of teenage actors appearing in the TV show The Waltons. Within 3 years, Sidell and his
partner, Paula Levey, had developed their mail order operation into a company with annual sales of
$10 million. Such fast growth, though, brought botched orders, rising complaints, and returns and
non deliveries in the 17 percent range. After some initial cutbacks to gain stability, the company
plans to grow much more slowly. "We'll probably never be the richest folks on the block," says
Levey. "But we're going to be around years from now." Another major reason for choosing
stability is that it provides a chance to recover. An organization that stretched its resources during a
period of accelerated growth' may need to attain stability before it attempts further accelerated
growth. On the other hand, if managers believe that growth prospects are low, they may choose a
stability strategy in an attempt to hold on to current market share. (Worsening situations, however,
may call for defensive strategies.) Finally, a stability strategy may even occur through default if
managers are unconcerned with their strategic direction.

1-1-7. Combination Strategy:

A combination strategy is the pursuit of two or more of the previous strategies

simultaneously. For example, one business in the company may be pursuing growth while another
in the same company is contracting. In the spring of 1989, for instance, Texas Air was rapidly
expanding its Continental Airlines unit. But its Eastern Airlines operation was being consolidated.

59
Eastern’s management was selling off routes and planes, cutting back the number of cities served,
and making plans for operating a much smaller airline.
A combination strategy simultaneously employs more than one of the other strategies. This
often reflects different strategic approaches among subsystems. For example, an M-form
conglomerate like GE might seek growth overall, but it may do so by pursuing growth in some
divisions, stability in others, and retrenchment in still others. Combination strategies are common,
especially for complex organizations operating in dynamic and highly competitive environments.

Many, if not most, organizations pursue a combination of two or more strategies

simultaneously, but a combination strategy can be exceptionally risky if carried too far. No
organization can afford to pursue all the strategies that might benefit the firm. Difficult decisions
must be made. Priorities must be established. Organizations, like individuals, have limited
resources. Both organizations and individuals must choose among alternative strategies and avoid
excessive indebtedness.

Organizations cannot do too many things well because resources and talents get spread thin
and competitors gain advantage. In large diversified companies, a combination strategy is
commonly employed when different divisions pursue different strategies. Also, organizations
struggling to survive may employ a combination of several defensive strategies, such as
divestiture, liquidation, and retrenchment, simultaneously.

1.1.8. Joint venture strategy

Joint venture is a popular strategy that occurs when two or more companies form a
temporary partnership or consortium for the purpose of capitalizing on some opportunity. This
strategy can be considered defensive only because the firm is not under-taking the project alone.
Often, the two or more sponsoring firms form a separate organization and have shared equity
ownership in the new entity. Other types of cooperative arrangements include research and
development partnerships, cross-distribution agreements, cross-licensing agreements, cross-
manufacturing agreements, and joint-bidding consortia.

Joint ventures and cooperative arrangements are being used increasingly because they allow
companies to improve communications and networking, to globalize operations, and to minimize
risk (also for transferring knowledge from the partner who could be also a competitor). Kathryn
Rudie Harrigan, professor of strategic management at Columbia University, summarizes the trend
toward increased joint venturing:

In today's global business environment of scarce resources, rapid rates of technological

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 change, and rising capital requirements, the important question is no longer, "shall we form a joint
venture?" Now the question is, "Which joint ventures and cooperative arrangements are most
appropriate for our needs and expectations?" followed by, "How do we manage these ventures
most effectively?"

Cooperative agreements even between competitors are becoming popular. But a major risk is
that unintended transfers of important skills or technology may occur at organizational levels below
where the deal was signed. Information not covered in the formal agreement often gets traded in
day-to-day interactions and dealings of engineers, marketers, and product developers.

En plus, d’autres options stratégiques peuvent être envisagées :

- Recentrage sur le métier de base

- Le développement de nouveaux projets

- La révision du concept de produit ainsi que la démarche client

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 2. BUSINESS-LEVEL STRATEGIES
Business-Level strategy is concerned with how a particular business competes. Considerable
research has been conducted on strategic alternatives for individual businesses within an
organization (or for organizations that operate a single business). The best-known approach for
developing strategy at the SBU level is based on the research of strategy expert Michael E. Porter.

Strategy formulation at the business level -within the strategic business units- is concerned
primarily with how to compete. The strategies of growth, stability, and retrenchment apply at the
business level as well as the corporate level, but they are accomplished through competitive actions
rather than by the acquisition or divestment of other business. Two frameworks in which business
units formulate strategy are the adaptive strategy typology and Porter’s competitive strategies.

Figure 2-4: Strategic Business Unit

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2-1. Adaptive Strategies

The adaptive strategy framework was developed from the study of business strategies by
Raymond Miles and Charles Snow. First, Miles and Snow identified four strategic types: defenders,
prospectors, analyzers, and reactors. Then they demonstrated that success can be achieved with any
of the first three strategies if there is a good fit between the strategy and the business unit’s
environment, internal structure, and managerial processes. However, Miles and Snow found that the
reactor strategy often led to failure (see Table 2-1).

Table 2-1: Miles and Snow’s Adaptive Strategies

Strategy Goal Environment Structure & Process

Defenders Stability Stable Tight control
Efficacy Efficient operations
Low overhead
Prospectors Flexibility Dynamic Loose structure
Innovative
Analyzers Stability Moderate Tight control & flexibility
Operations Flexibility change Efficient Innovative
Reactors Not clear Any condition Not clear

2-2. Porter’s generic strategies

Porter has outlined three generic business-level strategies that can be used to gain
competitive advantage over other firms operating in the same industry. The strategies are termed
"generic" because they are widely applicable to a variety of situations. Still, they are more specific
than the generic strategies reviewed earlier that apply to the corporate level. Porter's three strategies
are:

2-2-1: Differentiation strategy

A differentiation strategy involves attempting to develop products and services that are
viewed as unique in the industry. Successful differentiation allows the business to charge premium
prices, leading to above average profits. Differentiation can take many forms - for example, design
or brand image (Baker in furniture, Coach in handbags, Ralph Lauren in menswear), technology

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(Hewlett-Packard in laser printers, Coleman in camping equipment, Hyster in lift trucks), customer
service (IBM in computers, Crown Cork and Seal in metal cans, and Nordstrom's in apparel
retailing), features (Jenn-Air in electric ranges), quality (Xerox in copiers, Milliken in textiles,
Swarovski in rhinestones), and selection (Echlin in auto parts). With differentiation, a company still
cannot afford to ignore costs, but costs are not as important as perceptions of product or service
uniqueness.

Still, there are vulnerabilities associated with a differentiation strategy. If costs are too high,
customers may choose less costly alternatives, even though they forgo some desirable features.
Also, customer tastes and needs can change, so businesses following a differentiation strategy must
carefully assess customers' shifting requirements. Differentiation, of course, works best when the
differentiating factor is both important to customers and difficult for competitors to imitate. While
differentiation usually is aimed at a fairly broad market, a focus strategy concentrates on a narrow
niche.

2-2-2: Cost leadership strategy

The business-level strategy in which the organization aggressively seeks efficient facilities,
pursues cost reductions, and uses tight cost controls to produce products more efficiently than
competitors is the cost leadership strategy. A low-cost position means that the company can
undercut competitors’ prices and still offer comparable quality and earn a reasonable profit. Quality
Inns is a low-priced alternative to lodging outlets such as Holiday Inns and Ramada Inns.

A cost leadership strategy involves emphasizing organizational efficiency so that the

overall costs of providing products and services are lower than those of competitors. This low-cost
approach entails careful attention to minimizing necessary costs in every aspect of the business,
such as developing efficient production methods, keeping tight controls on overhead and
administrative costs, seeking savings by procuring supplies at low prices, and monitoring costs in
other areas (such as promotion, distribution, and service). Lower costs enable an organization to
gain an edge over competitors by offering lower prices and potentially earning above-average
profits because of higher profit margins or large sales volumes. For instance, Louisville-based
Humana, Inc., a publicly owned health-care company, claims that the reason why it recently has
been achieving a significantly higher return on equity than others in the industry and has been
realizing pretax profit margins of around 10 percent is that it is the lowest-cost producer of health
care in the United States.

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 Of course, for a cost leadership strategy to be effective, achieving lower costs cannot be
done at the expense of necessary quality. For example, the H. J. Heinz Company ran into difficulties
at its Ore-Ida division when cost-cutting efforts related to Heinz's low-cost strategy caused changes
in manufacturing methods for popular Tater Tots frozen spuds. Sales began to decline because, as a
result of the changes, the Tater Tot insides were mushy and the outsides had lost their light and
crispy coating. With the changes reversed, Tater Tots now have more than 55 percent of the market
for frozen fried potatoes.

A low cost strategy is not without risks. To be effective, the strategy usually requires that a
business be the cost leader, not just one of several. Otherwise, two or more businesses vying for
cost leadership can engage in a rivalry that drives profits down to extremely low levels, thus the
business must have a cost advantage that is not easily or inexpensively imitated, and it must stay
abreast of new technologies that can alter the cost curve. In addition, managers still must consider
making at least those product or service innovations that are very important to customers, lest
competitors, using a differentiation strategy, lure customers away with significant product or service
improvements.

Figure 2.5 Examples of Value-Creating Activities Associated with the Cost Leadership

Cost-effective Relatively few

Strategy Simplified
Management managerial layers in order planning practices to
Information systems. To reduce overhead costs reduce planning costs.

FIRM Consistent policies Intense and effective training programs

INFRASTRUCTURE To reduce turnover costs. to improve worker efficiency and effectiveness.

Easy-to-use manufacturing Investments in technologies in order

Technologies to reduce costs associated with a firm’s
Manufacturing processes.
HUMAN RESOURCE Systems and procedures to find the frequent evaluation
Lowest-cost (with acceptable quality) processes to monitor
MANAGEMENT Products to purchase as raw materials. Suppliers’ performances.

Highly Use of A delivery A small, Efficient and proper

TECHNOLOGY Efficient economies of schedule that highly trained product installations
DEVELO¨MENT Systems to link scale to reduce reduce costs sales force in order to reduce
Suppliers’ production the frequency
PROCUREMENT Products with costs. and
The firm’s severity
Production Construction of Selection of products of
Processes efficient-scale low-cost priced so recalls.
Production transportation as to
Facilities. Carriers. Generate
Significant sales
Volume.
Source: Adapted with the permission of The Free Press, an imprint of Simon Schuster from COMPETITIVE
ADVANTAGE: Creating and Sustaining Superior Performance by Michael E.Porter .Copyright by Michael E. Porter.

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 2-2-3: Focus strategy

The business-level strategy in which the organization concentrates on a specific regional

market, product line, or buyer group is the focus strategy. When focusing on a single market
segment, the company may use either a differentiation or a low-cost approach, but only for that
narrow market. The company may be seeking either a competitive cost advantage or a perceived
differentiation in the target segment. Porter found that many businesses did not consciously adopt
one of these three strategies and were therefore stuck in the middle of the pack with no strategic
advantage.

Without a strategic advantage, the businesses earned below-average profits and therefore
were not in a position to compete successfully.

A focus strategy entails specializing by establishing a position of overall cost leadership,

differentiation, or both, but only within a particular portion, or segment, of an entire market. The
segment may be a particular group of customers, a specific geographic area, or a certain part of the
product or service line. The rationale is that by specializing the organization can serve the market
segment more effectively than can competitors who attempt to cover the entire market. The focus
strategy still relies on a low-cost or a differentiation approach, or perhaps both, to establish a strong
position within the particular market segment, or niche. The differentiation within a focus strategy
can occur by tailoring products to the specialized needs of the market segment. A cost advantage
may be simultaneously possible because a firm may be able to offer better prices on custom orders
even though another firm may have the cost leadership in serving the larger-volume needs of the
broader market. An example of a company that has successfully used a focus strategy is Baxters of
Speyside.

Stuck in the middle

Porter use this term to describe organizations that are unable to gain a competitive
advantage by one of these strategies .Such organizations find it very difficult to achieve long-
term success. When they do, it is usually a result of competing in a highly favourable industry
or having all their rivals similarly stuck in the middle.

There is some similarity between Porters strategies and Miles and Snow’s adaptive
typology. The differentiation strategy is similar to the prospector strategy, the low cost strategy is
similar to the defender strategy, and the focus strategy is similar to the analyzer strategy, which
adopts a focus strategy appropriate for each product line. The reactor strategy, which is really not a

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strategy at all, is similar to what is used by the middle-of-the-pack organizations that cannot attain a
competitive strategic advantage.

2-3: The Incremental-Emergent View

Not all strategic planning is as rational and systematic as the prior approaches suggest. There
is another side to the process that cannot be neglected-the incremental-emergent side. Not all
strategies are clearly formulated at one point in time and then implemented step-by-step. They take
shape, change, and develop over time as modest adjustments to past patterns. James Brian Quinn
calls this a process of logical incrementalism in which incremental changes in strategy occur as
managers learn from experience."

This approach has much in common with Henry Mintzberg's and John Kotler's pragmatic
views of managerial behavior." As you should recall, they see managers as planning and acting in
complex interpersonal networks, and in hectic, fast-paced work settings. Given these challenges,
effective managers must have the capacity for strategic opportunism- the ability to stay focused on
long-term objectives while still being flexible enough to master short-run problems and
opportunities as they occur." In his book, The Renewal Factor, Robert H. Waterman, Jr. points out
that highly successful company "treat information as their main competitive advantage and
flexibility as their main strategic weapon."" They plot strategy as a general sense of direction, but
recognize that the future is uncertain. Waterman notes that top managers at the best organizations
"sense opportunity where others can't act while others hesitate, and demur when others plunge.”

Such reasoning has led Mintzberg to identify what he calls emergent strategies." They
develop progressively over time as "streams" of decisions made by managers as they learn from and
respond to work situations. There is an important element of "craftsmanship" here that Mintzberg
worries may be over- looked by managers who choose and discard strategies in rapid succession
while using the formal planning models. Like Quinn, he feels strategies can and do emerge
incrementally over time and in building-block fashion. He also believes that incremental-emergent
strategic planning allows managers and organizations to become really good at implementing
strategies, not just formulating them. Mintzberg says, most of the time senior managers should not
be formulating strategy at all; they should be getting on with making their organizations as effective
as possible in pursuing the strategies they already have."

Early in this chapter strategic management was described as formulating and implementing
strategies to create longer-term success for an organization or one of its subunits. No strategy, no
matter how well formulated, can achieve this result if it is not properly implemented. This is part of

59
Mintzberg's point in the last quotation. Effective strategy implementation depends on commitment
to truly comprehensive strategic management.
Figure 2.6: Rest of the world Strategy

Source: Management: « Kathryn M. Bartol & David C. Martin »; Edition McGraw Hill 1991.

Rest of the World Strategy: Excess capacity is indeed a problem that lowers efficiency
and productivity and raises unit costs. But excess capacity can be a problem even in industries
that are not slowing down. In electric power generation, for example, the capacity that must be
available to meet peak loads results in excess at other times. Most cyclical industries, such as
auto and farm-equipment manufacturing, find themselves with excess capacity at some times
and shortages of capacity at other times.

The ideal would be to operate at some level of output corresponding to the most
economical level of production, which defines the plant's optimal capacity. But how can a firm
(or industry) be responsive to market demands without having significant excess capacity from
time to time?

The Japanese approach has been to employ a "rest of the world" strategy. They focus on
certain markets—say the domestic market and one additional—and use other markets as a
buffer. In this way, by using the other market to fill the gap between what is demanded in their
primary markets and their capacity, they can operate near optimal capacity. For example, as
shown in Figure2.7, a company attempts to satisfy as much of its domestic market as it can, as
well as one export market. If plant capacity exceeds the total of these two markets, additional
sales can be made to other markets in the rest of the world, but only on an "as available" basis.

Defense and renewal: The further one progresses in the product/ market life cycle, the
more important defensive strategies become. There is less margin for error, and improvements
in performance are likely to be incremental, rather than dramatic, as they were in the earlier
stages. Put another way, businesses in mature markets may find the risk/reward ratio from a

59
bold action less favourable than it was in earlier stages. Market-share improvements tend to be
won in the trenches, by hard work and attention to detail day after day and year after year.

A serious strategic or even tactical error can cause hard-earned ground to be quickly
lost, and it may take years to recover. For example, Schlitz switched to lower-cost ingredients
for its beer in the 1970s, causing a rapid loss of market share/ The Company quickly corrected
its mistake, but was never able to regain its sales even though some industry experts felt that
their subsequent product was superior to the competition. In this context, the easiest and
cheapest way to increase market share is through the mistakes of competitors. Thus, the patient
firm that does not become overanxious and overambitious will likely be the long- term
beneficiary, particularly in mature markets.

The maturity phase is also an opportune time for actions that may renew or revive the
products and services of the business. Such actions can include product innovations, new
technologies, service and distribution innovations, process innovations, management improve-
ments, and the like, and may even serve to put the industry or a segment on a new growth
curve. An obvious example of this was the creation of the fast-food segment of the mature
restaurant industry.

C’est l’exemple des LCD dans l’industrie des televisions qui était déjà arrivé à la phase
de maturité au début des années 1980.

Segmentation tactics: Numerous experts prescribe differentiation strategies for

businesses in mature industries. One way to achieve differentiation is by segmenting the market
in some productive way, such as by appealing to singles, Yuppies, or the elderly, for example.
Often products or services can be repositioned to appeal to such defined segments. Another
approach is using multiple branding to promote similar products to different customers, as the
cigarette industry has done. In general, segmentation tends to create identifiable market niches,
one or more of which may be pursued by the business. Quality improvements: Another
major competitive strategy for mature industries canters on quality. Improving the quality of
the product or service can result in improved sales and market share. This can be done by
product improvements or by building in additional features or services (such as delivery, on-
time service, quick repair, extended warranties, and the like). Actions taken to enhance the
product's image and reliability-such as Ford's "Quality is Job 1" campaign-are obvious
examples.

Efficiency improvements: Low-cost strategies are important in mature markets,

especially if a business does not have a dominant position or a defensible niche. Economies of

59
scale, purchasing, common interchangeable parts, selective consolidations of facilities,
automation, and the like can contribute to efficiency and lower costs.

Research findings: Industrial products businesses in the maturity stage tend to be

smaller, independent firms in a relatively low-growth industry. For this type of business, an
emphasis on differentiation, sales efforts, and price cuts tends to be rewarded with increased
market share. Consumer-products businesses in this stage tend to be small, independent leading
firms serving fragmented markets. Such businesses can improve market share primarily by very
aggressive price-cutting strategies. On the other hand, cash flow is improved by differentiation,
increased R&D, improved capacity utilization, compensation cuts, and slowing down (not
cutting) advertising and promotion efforts.

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2-4. Other strategies:

2-4-1. International strategies:

As companies grow, more and more wind up competing in foreign markets, when
domestic markets become more mature and/or saturated, expansion into foreign markets offers
the firm the opportunity to continue its growth. In addition, some foreign markets may be at an
earlier stage of the life cycle for a given product than is the case in advanced industrial areas,
such as the United States, Canada, Japan, or Western Europe.

International business is different from domestic business in several important ways. It

involves operating effectively within different national sovereignties, under disparate economy
Systems and conditions, within different value Systems, and across great distances. The
implications of these differences for management are mimeos. Different nations have different
political, legal, monetary, and social Systems. Each legal System, for example, involves a
unique set of rights and obligations concerning property, taxation, regulation, contracts, and
ownership. These differences often require new forms of organization, new management skills,
and different accounting and control Systems. Figure 2.8 illustrates how differences in
important variables general different Systems and relationships, which lead to different ways of
doing business. The firm that chooses to compete internationally is taking a big step; in many
ways it may be easier to enter an additional domestic business than to expand internationally

Forms of international business: From an organisational perspective, there are a

number of ways of conducting international business. As shown in Figure 2.9 the degree of
parent company control increases as one goes from licensing agreements to branch operations
to joint ventures to subsidiary operations. In addition to increasing to control, the amount of
required capital, risk, and profit potential also increases.

Licensing grants a foreign firm the right to handle specified products in the country.
Most companies begin foreign sales, however, by establishing a branch office in the foreign
market. With this approach, sales offices and warehouses must be established, but
manufacturing is performed elsewhere. Sometimes, a joint venture with a foreign firm (or a
consortium with several firms) is used, enabling the companies to share investment, skills, and
profits. The advantage of this method is that the distribution and marketing kills of the" firm
can be helpful in a foreign country, and these skills increase the likelihood of successful
operations. Laws in some countries (such as Mexico) effectively require joint ventures. The
most predominant method, however, is to form a wholly owned subsidiary incorporated under
the laws of the host country. For example, Seagram Co. Ltd. of Canada operates a wholly

59
owned subsidiary in the United States-Joseph E. Seagram & Sons. Sandoz, the large Swiss
multinational pharmaceutical company, has subsidiaries in a number of countries, including
Sandoz, Inc. (prescription drugs) and Dorsey Labs (over-the-counter drugs) in the United
States.

Figure 2.7: Variable in the international system

Source : Lester. A.Digman. «Strategic Management: Concepts, Decisions, Cases”

59
 Figure 2.8: Basic Organizational Forms for Multinational Operations

Source : Lester. A.Digman. «Strategic Management: Concepts, Decisions,

Cases” page 195
Stages of "internationalization" Most businesses that operate in foreign countries
evolve into international, multinational, of global operations over time. They tend to
begin with low stakes in foreign operations, and then develop a growing corporate
dependence on foreign operations, and finally evolve into global corporate structure (as
opposed to domestic plus international divisions). The three typical phases, including
typical corporate viewpoints, organizational arrangements, and managerial emphasis for
each are shown in Figure 2.11.

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 Figure 2.9: Typical Phases in the internationalization of Organizations

Phase Typical Organizational Form Primary Emphasis

Decision to
internationalize

Small stake licensing, branches, Domestic

In foreign joint ventures, or operations
Operations subsidiaries

Larger stake Addition of Domestic plus

In foreign international international or
Operation division multinational

Operations

Substantial stake International operations integrated into

Multinational
And/ or many basic organizational for (e.g. global product or global
Foreign operation divisions or global matrix)

In summary, a strategy of international expansion holds an inherent

attractiveness and mark of success for many firms. For many whose domestic markets are
saturated, it may be a requirement for future growth, and certain industries effectively
demand global strategies. But international expansion is not without a number of
problems and significant risks. A firm should look hard when deciding whether or not to
pursue an international strategy to determine if the benefits truly outweigh the costs.

2-4-1. Ecological strategies:

Ecological strategies consist on the firm’s position vis- à-vis the natural
environment; they define the firm’s relationship with nature. They describe strategies for
use of environmental resources and acceptable environmental impacts of the company’s
activities. Ecological strategies try to minimize long-term environmental damages by
managing the company’s inputs, throughputs, and outputs. Just as “Total quality

59
management” in corporation demands attention to each stage of the design and production
process, a “Total environmental management” perspective can optimize the performance of
the total system (Imai, 1986)

Every organization requires materials and energy as inputs to its production

process. Primary industries such as mining, forest products, pulp and paper, and oil and gas
are particularly oriented toward extraction and utilization of raw materials. Secondary
(manufacturing) industries such as steel, construction, automobiles, and petrochemicals are
important users of materials and energy. Service industries (e.g. health care, education,
legal, consulting, etc.) maker fewer demands for materials but use significant amounts of
energy.

Environmental concerns about depletion of forests and other natural resources, loss
of biodiversity, and pollution created by mining and use to fossil fuels suggest the guiding
principle of sustainable resource use. The basis for this principle is recognition that the
earth’s resources are finite and that economic growth based on material consumption is
limited by this fact. Organizations cannot continue indefinitely to use natural resources
without providing for their renewal. Corporations should seek to minimize the use of virgin
materials and non-renewable forms of energy. This goal can be achieved by reducing the
use of energy and materials through conservation measures, making greater use of recycled
or renewable materials and energy, and offsetting consumption with replenishment.

Throughputs, the production processes of goods and services often create emissions
and effluents that have undesirable environmental and health consequences. In other cases,
poor reliability or system malfunctions lead to spills, accidents, and or unintended
consequences. Poorly designed throughput processes lead to occupational and public health
risks as well as inefficient use of materiel and human resources.

Ecological strategies seek to eliminate emissions, effluents, and accidents. Through

preventive action and continuous improvement at every step of the production process,
Companies can aim for zero discharge and zero risk .This preventive approach is more
efficient than controlling discharges at the “End of the pipe”. For example, Dow chemical’s
new ethylene plant in Fort Saskatchewan, Canada, has been designed to minimize
discharges. It will release only 10gallons of waste water per minute, compared with 360
gallons for traditional plants.

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