The Strategic Management Process

Corporate Vision and Mission Setting objectives Environmental scanning

Evaluation and Control

Strategy implementation

Formulating crafting strategy

Vision and mission statements Anything created, conceived, developed, built definitely has a purpose, this purpose is previously determined by the creator. Thus, when a company is put up, the owner has a clear idea about what this company is and should be A vision is blueprint of a companys future, it is statement of what the company should be stand for A mission statement however, focuses more on the reason for existence for the company; who we are and what we do. It broadly describes an organizations present capabilities, customer focus, activities and business makeup. Corporate objectives- goals or ends that are desired In terms of an enterprise or institution, it may be considered as performance target outputs. Objectives may be categorized into: 1. Profitability 2. Efficiency 3. Growth 4. Financial 5. Market leadership (increase in market share) 6. Sustainability status quo (maintenance of budget) 7. Shareholder wealth 8. Employee growth

9. Social responsibility 10.Impact legacy (firms reputation, product) SMART- Specific, measurable, attainable, realistic, time-bound External Environment Analysis Macro environment Charles Darwin: It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.
Technolog Immediate Environment Rival Firms The Company Suppliers Legal Buyers New Entrants Substitutes Economy

Societ

Economic: GNP trends, interest rates, money supply, inflation rates, FEX, unemployment, wages/price control, poverty levels, disposable income Technological: investment for research & technology (public and private), new products, rate of transference of technology from laboratory to end user, internet availability, telecommunication infrastructure Political legal: tax law, political stability, antitrust regulations, incentives, foreign investment policies, labor laws, graft & corruption, environmental protection laws Socio-cultural: lifestyles, consumer activities New entrants: economies of scale, product differentiation, capital requirements, access to distribution channels, government policy Rival firms: number and competitive edge of competitors, rate of industry growth, product and service differentiation, product capacity, costs, industry exit & entry barriers Buyers: product/service preferences, bargaining power, supply and demand statistics, price elasticity

 Sellers market Buyers market: lots of supplies, buyer has more bargaining power Suppliers: number of suppliers, distribution channels, bargaining power, supply and demand stats Substitutes: threat of substitute products and services (price, place, promotions), product/service differentiation

Internal environment analysis concerns studying variables, characteristics, and attributes inherent to the company. Hence, we can say that these variables are within the control of the company. The result of an internal environment scanning is the identification of a companys strengths and resource deficiencies. Strengths- competitive assets weaknesses/deficiencies- competitive liabilities

Areas of strengths and/or deficiencies: 1. Innovation- technical product or service superiority, R&D, technologies 2. Manufacturing- cost structure, equipment, flexible production operations, vertical integration, capacity, access to raw materials 3. Finance/access to capital- from operations and assets, ability to use debt and equity financing 4. Management- quality of top & middle management, knowledge of business, culture, entrepreneurial thrust, quality of strategic decision making, loyalty/turnover 5. Marketing- product quality reputation, brand name recognition, breadth of product line, customer orientation and service, distribution, segment focus, retailer relationship, sales force, advertising & promotions, product support 6. Customer base- size and loyalty, market share, growth of segments served , top of mind

Environmental Threat and Opportunity Profile In order to assess/scan the environment effectively, a systematic approach is useful. One of these systematic approaches is the ETOP, an example is given below: Factors Economic factors Govt/legal factors Market factors Supplier factors Competitive factors Weighing of factor +1 -3 +4 -0 +5 Impact of factor 00 -30 +30 -20 +50

 Social factors Environmental factors

+1 0

00 00

Weighting: From +5 (strongly positive) to 0 (neutral) to -5 (strongly negative) Impact: Significance of the factor makes it an opportunity: very high impact +50 to no impact (00) to serious threat -50.

Strategic Advantage Profile Strategic advantage analysis is the process by which strategists examine the firms internal environment in order to effectively exploit the opportunities and meet the risks in the external environment. Company executives can make a strategic advantage profile (SAP) and match it with an ETOP with the end goal of creating optimal conditions for adjusting or crafting strategies. We can apply the value of weights and impact that we used in the ETOP to construct our SAP. However, this time: ~weighing is from +5 (strongly positive) to 0 (neutral) to -5 (strongly negative) ~significance of the factor makes it a strength at very high impact to +50 to no impact (00) to serious deficiency (-50)

Some techniques of strategic advantage analysis: 1. Boston Consulting Groups business portfolio analysis ~Key assumption is that high market share in faster-growing products/services normally lead to high profitability and stable competitive situations.

High

Market Share

Business Stars: products which are growing rapidly, need large amounts of cash to maintain their position Growth Rate and are leaders. Low represent the best opportunities for the firm in growth and investment. They Cash cows: low-growth, high-market share products. They are low cost and generate cash. They are the foundation of the firm because they pay the overhead, dividends, and investment for the rest of the firm. Low High Dogs: products or division with low-growth and low-market share and therefore poor profits, needing cash to survive. They should be minimized or liquidated.

Question marks: high growth, low-market share products/divisions. Cash needs are high but cash generation is low. Should be converted to stars then to cash cows. Cash drain in the short run but positive flow in the long run.

Key Success Factors (KSF): Those variables that can significantly affect the overall competitive position of all companies within a particular industry. Vary from industry to industry. Crucial in determining the companys ability to succeed in the industry. Determined by economic, technological and competitive factors within the industry. Whereas strategic factors/advantage deal with a particular company, key success factors deal with the entire industry. All firms in an industry should pay close attention to these factors. We can identify the KSFs by answering these: 1. On what basis do customers choose between the competing brands of sellers? What product attributes are crucial? 2. What resources and competitive capabilities does a seller need to have to be competitively successful? 3. What does it take for sellers to achieve a sustainable competitive advantage?

Common types of KSFs: 1. Technology-related: scientific research expertise, technical capability to make innovative improvements in production processes, product innovation capability 2. Manufacturing-related: low-cost production efficiency, quality of manufacturing, high utilization of fixed assets, access to adequate supply of skilled workers, high labor productivity 3. Distribution-related: a strong network of wholesale distributors/deals, gaining ample space on retailers shelves, having company-owned retail outlets, low distribution costs 4. Marketing-related: fast and accurate technical assistance, courteous customer service, merchandising skills, attractive styling or packaging, clever advertising, customer guarantees and warranties 5. Skills-related: superior workforce talent, quality control know-how, design expertise 6. Organization capability: superior information systems, ability to respond quickly to shifting market conditions, superior ability to employ the internet and other aspects of electronic commerce to conduct business, managerial expertise 7. Other types of KSFs: favorable image or reputation with buyers, overall low cost (not only in manufacturing), convenient locations, access to financial capital, patent protection, customer-focused employees (especially for those with customer contact)

~A sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor. ~patent protection

Competitive/Strategic Advantage ~After scanning both the external and internal environment, the firm is in the best position to match internal strengths to the external opportunities. This is the time to identify the competitive/strategic advantage of the company. A strategic advantage is derived from a firms competency vis--vis the different players in the field. A competency is one step beyond strength-it is something that a company does particularly well; such that having this competency is enough to outperform competitors. The most common strategic/competitive advantages are: 1. Low cost- the ability of a firm to design, manufacture, and market a product or service more efficiently than its competitors 2. Differentiation- the ability to provide unique and superior value to the buyer in terms of product quality, special features or after-sales service

_____________________________________________________________________________________ Industry and competitive analysis When discussing industry and competitive analysis, most management authors refer to Mr. Michael Porterthe expert in competitive and strategic advantage, Mr. Porter offers this diagram of the 5 competitive forces that determine the industry profitability which is used by corporations to analyze the competitive environment:

Potential entrants Suppliers Industry competitors (Rivalry among existing firms) Buyers

Substitutes

A. Entry Barriers 1. Brand identity

2. 3. 4. 5. 6.

Capital requirements Switching costs Access to distribution Government policy Proprietary product differenceswhere patent comes in

A. Rivalry determinants: 1. Industry growth 2. Fixed costs/value added 3. Product differences 4. Brand identity 5. Diversity of competitors 6. Exit barriers 7. Concentration and balance

Strategy ~Mintzberg has this to say about strategy: 1. Strategy is plan. Leaders try to establish direction for organizations, to set them on predetermined courses of action. As a plan, a strategy has these characteristics: a. It is made in advance of actions which they apply. b. It is developed consciously and purposely. ~In the military, strategy is concerned with drafting the plan of war of shaping individual campaigns and within these, deciding on individual engagements. ~In game theory, strategy is a complete plan which specifies what choices the player will make in every possible situation. ~In management, strategy is a unified comprehensive and integrated plan designed to ensure that the basic objectives of the enterprise are achieved. 1. Strategy is a ploy. It is a maneuver intended to outwit an opponent. Strategy takes us into the realm of direct competition, where threats and maneuvers are employed to gain advantage. Here, strategy formation is placed in its most dynamic setting, with moves provoking countermoves and so on. 2. Strategy is a pattern. It is patterned in a stream of actions. It is consistency in behavior. As a pattern, it introduces then notion of convergence. It can emerge or can be deliberately imposed. 3. Strategy is position. It is a means of locating an organization in its environment. This enables organizations to situate themselves in their environments and protect their position to meet, avoid and subvert competition. 4. Strategy is a perspective.

Strategy is a conceptan abstraction that exists in the minds of individual united by common thinking and behavior. ~Like corporate objectives, strategies are translated at the various decision-making levels in the organization. ~We recall that we have corporate objectives, which in turn are translated to department, unit and division objectives. ~For strategies, we have corporate strategy and the overall strategy used by the whole company. Depending on the structure and size of the company, then we can have business unit strategies, department and division strategies. Corporate strategy addresses key issues facing the company as a whole: 1. Directional strategy- the firms orientation toward growth, stability or retrenchment 2. Portfolio strategy-the industries or markets in which the firm competes through its products and business units (compilation of products and services that are being offered to the market; how to better manage the business units) 3. Parenting strategy- the manner in which management coordinates activities, transfers resources, and cultivates capabilities among product lines and business units (creating more products or business units---expansion)

Directional strategy Answers the following questions: 1. Should we expand, cut back or continue operations as is? 2. Should we concentrate our activities within our present industry or should we diversify into others? 3. Should we expand nationally and/or globally? If yes, should we do it through acquisitions, mergers, joint ventures or alliances?

The different types of directional strategies are: 1. Growth- expand the companys operations 2. Stability- status quo or no change in activities 3. Retrenchment- reduce companys level of operations Growth strategies Different kinds: 1. Internal growth Singe product Product line Diversification (other products or lines) - concentric vs. conglomerate 2. External growth:

Mergers Joint venture Acquisitions Alliances

Franchises Licensing

3. Vertical integration or horizontal integration Vertical: like an alliance for a specific purpose Forward- control of the product distribution (channels, wholesalers, retailers) Backward-control supplier

Stability A corporation may opt to choose stability over growth by continuing current levels of activity/operations without significant changes in direction. 1. Pause/proceed with caution- a time-out or chance to take it easy before engaging in a different strategy like growth or retrenchment 2. No change- do nothing new for the near future; like a waiting time 3. Profit-an attempt to support profits when a companys sales are declining by reducing investments and short-term expenses; belt-tightening Retrenchment When things go awry for the company, retrenchment may be the only way to go: 1. Turnaround- emphasizes the improvement operational efficiency through contraction and consolidation 2. Captive company- giving up independence for security 3. Sell-out/divestment- sell the company entirely or divest (get rid, cut) the ailing division 4. Bankruptcy- giving control of the company over to the government/legal system in exchange for some settlement of obligation; reorganization often follows so that the company may operate again 5. Liquidation-termination of the firm

Portfolio Strategy Answers the questions: 1. How much of our time and money should we spend on our best products and business units to ensure that they continue to be successful? 2. How much of our time and money should we spend developing new costly products, most of which may never be successful? A useful process used by most corporations in determining their portfolio strategy is portfolio analysis. And two of them most popular tools are: 1. BCG growth-share matrix

~This is the simplest way of assessing the corporations portfolio of investments of products

B U 2. GE business screen S I N Growth D Attractiveness Rates % High Med Low Winners A Winners C Profit Producers Strong Winners B Average Business Losers F Average Question Marks Losers D Losers G Weak

Business Strength/Competitive Position Parenting Strategy Corporate parenting views the corporation in terms of resources and capabilities that can be Relative Market Share/Competitive used to build business and value as well as generate synergies across business units. (Wheelen Position &Hunger) Moreover, corporate parenting generates corporate strategy by focusing on the core competencies of the firm and on the value created from the relationship between the parent and its businesses. Campbell et al suggest the following steps for developing the appropriate corporate strategy: 1. Examine each business unit (or target firm in the case of acquisition) in terms of its strategic factors. 2. Examine each business unit (or target firm) in terms of areas in which performance can be improved. 3. Analyze how well the parent corporation fits with the business unit (or target firm).

After the corporation has identified and formulated its strategy(ies), it is now time for the different SBUs, divisions and departments to craft their own functional strategies. Examples are: Marketing- push (company demand) or pull (the customers demand) , skim or penetration pricing Financial- equity or debt R&D- technological leader or follower Operations- mass or modular production, customization, or generic products, in-house or outsourced Purchasing- make or buy