Strategic Management by Suleman

IN THE NAME OF
ALLAH THE MOST

BENEFICENT AND
MERCIFUL.
“Without a strategy the organization
is like a ship without a rudder, going
around in circles.”
Joel Ross and Michael Kami
“Quote”
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McGraw-Hill/Irwin © 2001 by The McGraw-Hill Companies, Inc. All
t
Thinking Strategically:
The Three Big Strategic Questions
1. Where are we now?
2. Where do we want to go?
 Business(es) to be in and market
positions to stake out?
 Buyer needs and groups to
serve?
 Outcomes to achieve?
3. How do we get there?
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What is Strategy?
 A company’s strategy consists of the set of
competitive moves and business approaches that
management is employing to run the company
 Strategy is management’s “game plan” to
 Attract and please customers
 Stake out a market position
 Conduct operations
 Compete successfully
 Achieve organizational objectives

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What is a Business Model?
 A company’s business model addresses “How do we make
money in this business?”
 Is the strategy that management is pursuing capable of
delivering good bottom-line results?
 Do the revenue-cost-profit economics of the company’s
strategy make good business sense?
 Look at the revenue streams the
strategy is expected to produce
 Look at the associated cost structure
and potential profit margins
 Do the resulting earnings streams and
ROI indicate the strategy makes sense and that the
company has a viable business model?
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Strategy vs. Business Model :
What is the Difference?
Strategy -- Deals with Business Model --
a company’s Concerns whether
competitive initiatives the revenues and
and business costs flowing from
approaches the strategy
demonstrate that the
business can be
y
St
ra
t eg
i nes
s del
s amply profitable and
u
B o
M
viable
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Microsoft’s Business Model
Employ
Employ aa cadre
cadre of
of highly
highly skilled
skilled programmers
programmers to
to
develop
develop proprietary
proprietary code;
code; keep
keep source
source code
code hidden
hidden
from
from users
users
Sell
Sell resulting
resulting operating
operating system
system andand software
software
packages
packages to to PC
PC makers
makers and
and users
users atat relatively
relatively
attractive
attractive prices
prices and
and achieve
achieve large
large unit
unit sales
sales
Most
Most costs
costs arise
arise in
in developing
developing the
the software;
software; variable
variable
costs
costs are
are small—once
small—once breakeven
breakeven volume
volume is
is reached,
reached,
revenues
revenues from
from additional
additional sales
sales are
are almost
almost pure
pure profit.
profit.
Provide
Provide technical
technical support
support to
to users
users at
at no
no cost
cost
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Figure 1-1: The Five Tasks
of Strategic Management
Task 1 Task 2 Task 3 Task 4 Task 5
Develop a Monitor,
Craft a Implement
Strategic Evaluate,
Set Strategy and
Vision and Take
Objectives to Achieve Execute
and Corrective
Objectives Strategy
Mission Action
Revise as Revise as Improve/ Improve/ Recycle

Needed Needed Change Change as Needed
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1.8 Basic Elements of the Strategic Management Process (Fig. 1.1)
Basic Elements of the

Strategic Management
Process
Evaluation
Environmental Strategy Strategy
and
Scanning Formulation Implementation
Control
Prentice Hall, 2000 Chapter 1 9

1.9 Strategic Management Model (Fig. 1.2)
Environmental
Model Strategy Strategy Evaluation
and Control
Scanning Formulation Implementation and Control
External Mission
Reason for
Societal
existence
Environment Objectives
General Forces
What results
to
Task Strategies
accomplish
Environment
by when Plan to
Industry Analysis
achieve the
Policies
mission &
Internal objectives Broad
guidelines for Programs
Structure decision Process
Chain of Command making Activities to monitor
needed to performance
Culture Budgets and take
accomplish
Beliefs, Expectations, a plan corrective
Cost of the
Values action
programs
Procedures
Resources
Sequence
Assets, Skills
of steps
Competencies,
needed to
Knowledge do the job Performance
Feedback/Learning

Benefits of Strategic
Management
• Proactive in shaping organization’s future

• Initiate and influence activities
• Formulate better strategies
– Systematic, logical, rational approach
Ch. 1-11
Fred R. David
Prentice Hall
Management
• Financial benefits
– Improvement in sales
– Improvement in profitability
– Improvement in productivity
Ch. 1-12
Fred R. David
Prentice Hall
Management
• Non-Financial benefits
– Enhanced awareness of external threats
– Improved understanding of competitors’
strategies
– Increased employee productivity
– Reduced resistance to change
– Understanding of performance-reward
relationships
– Enhances problem-prevention capabilities
Ch. 1-13
Fred R. David
Prentice Hall
Business Ethics and Strategic
Management
Business ethics defined:

– Principles of conduct within
organizations that guide decision
making and behavior.
Ch. 1-14
Fred R. David
Prentice Hall
Business Ethics and Strategic
Management
Code of business ethics:
– Provides basis on which policies can

be devised to guide daily behavior
and decisions at the workplace
Ch. 1-15
Fred R. David
Prentice Hall
Business Ethics & Strategic
Planning
Business actions always unethical include:
• Misleading advertising
• Misleading labeling
• Environmental harm
• Poor product or service safety
• Padding expense accounts
• Insider trading
• Dumping flawed products on foreign markets
Ch. 1-16
Fred R. David
Prentice Hall
A Firm’s Ethical Responsibilities
to Its Stakeholders
Owners/shareholders
Owners/shareholders –– Rightfully
Rightfully expect
expect some
some
form
form of
of return
return on
on their
their investment
investment
Employees
Employees -- Rightfully
Rightfully expect
expect respect
respect for
for their
their
worth
worth and
and devoting
devoting their
their energies
energies to
to firm
firm
Customers
Customers -- Rightfully
Rightfully expect
expect aa seller
seller to
to provide
provide
them
them with
with aa reliable,
reliable, safe
safe product
product or
or service
service
Suppliers
Suppliers -- Rightfully
Rightfully expect
expect to
to have
have an
an equitable
equitable
relationship
relationship with
with firms
firms they
they supply
supply
Community
Community -- Rightfully
Rightfully expect
expect businesses
businesses to
to be
be
good
good citizens
citizens in
in their
their community
community
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 17
Strategic Intent The most
Winning competitive battles effective
through deciding how to leverage strategists
internal resources, capabilities,
provide a vision
and core competencies
(strategic intent)
to effectively
elicit the help of
Strategic Mission others in
An application of strategic intent creating a firm's
in terms of products to be offered competitive
and markets to be served
advantage
Ch. 1 1
Developing a Strategic Vision
First Task of Strategic Management
 Involves thinking strategically about
 Firm’s future business plans
 Where to “go”
 Tasks include
 Creating a roadmap of the future
 Deciding future business
position to stake out
 Providing long-term direction
 Giving firm a strong identity
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Characteristics of a Strategic Vision
 A roadmap of a company’s
future
 Future technology-product-
customer focus
 Geographic and product
markets to pursue
 Capabilities to be
developed
 Kind of company
management is trying to
create
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Characteristics of a Strategic Vision
 Charts a company’s future
strategic course
 Defines the business makeup for
5 years (or more)
 Specifies future technology-
product-customer focus
 Indicates capabilities to be
developed
 Requires managers to exercise
foresight
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Questions to Address in
Developing a Strategic Vision
1. What changes are occurring in the market arena(s)
where we operate and what implications do these
changes have for our future direction?
2. What new or different customer needs should we
be moving to satisfy?
3. What new or different buyer segments should we
be concentrating on?
4. What new geographic or product markets should
we be pursuing?
5. What should the company’s business makeup look
like in 5 years?
6. What kind of company should we be trying to
become?
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Why is a Strategic Vision Important?
 A managerial imperative exists to look beyond
today and think strategically about
 Impact of new technologies
?
 How customer needs and
expectations are changing
 What it will take to outrun competitors
 Which promising market opportunities ought to
be aggressively pursued
 External and internal factors driving what a
company needs to do to prepare for the future
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Three Elements of a Strategic Vision
Use the mission statement as a

starting point
Develop a strategic vision that

spells out a course to pursue
Communicate the vision in a

clear and exciting manner

Vision Versus Mission
Mission
Mission Statement
Statement Vision
Vision Statement
Statement
Answers
Answers the
the Question
Question Answers
Answers the
the Question
Question
“What
“What isis Our
Our “What
“What Do
Do We
We Want
Want
Business?”
Business?” to
to Become?”
Become?”
25
©1999 Prentice Hall
Missions vs. Strategic Visions
 A mission statement  A strategic vision
focuses on current concerns a firm’s future
business activities -- “who business path -- “where we
we are and what we do” are going”
 Current product and  Markets to be pursued
service offerings  Future technology-
 Customer needs product-customer
being served focus
 Technological and  Kind of company that
business capabilities management is
trying to create
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Why
Why is
is aa Mission
Mission Statement
Statement Important?
Important?
- To Insure Unanimity of Purpose
- To Provide a Basis for Allocating Resources
- To Serve as a Focal Point for Individuals
- To Reconcile Differences Among Stakeholders
- To Resolve Divergent Views Among Managers
- To Arouse Positive Feelings About the Firm
- To Provide a Basis for Goals and Strategies
- To Provide Direction
27
Exhibit 8–2 Components of a Mission Statement
Source: Based on F. David, Strategic Management, 11 ed. (Upper Saddle River, NJ: Prentice Hall, 2007), p.70.
© 2007 Prentice Hall, Inc. All rights reserved.
Characteristics of a Mission Statement
 Defines current business activities
 Highlights boundaries of current business
 Conveys
 Who we are,
 What we do, and
 Where we are now
 Company specific, not generic —
so as to give a company its own identity
A company’s mission is not to make a profit !
The real mission is always—“What will we do
to make a profit?”
Mission and Vision of GIFT
Vision:
To bring about a change in society by becoming a leading educational and
research institution that utilizes the latest technology and provides
intellectually stimulating, professionally relevant and progressive and
innovative education that is consistent with our national values and is
accessible to all.
Mission:
 Employ highly qualified faculty with established research credentials
 Hire competent and professional administrative staff
 Ensure quality intake of students
 Utilize the latest technology in teaching, research and administration
 Provide adequate infrastructure and facilities for teaching and learning
 Establish linkages with industry and collaborate with national and
international institutions
 Provide state of the art library, computer laboratories and other research
resources
 and so on….

Mission and Vision of LUMS
Vision
 To become an internationally acclaimed research university that serves society

through excellence in education and research.
Mission
 "We will be a pre-eminent academic institution, serving as a catalyst for

economic prosperity and social development with a focus on management of
resources."
 Develop high quality professionals and scholars who are committed to the
pursuit of excellence, and are endowed with vision, courage, and dedication.
 Improve academic and management practices in the country through the
generation, assimilation, and dissemination of knowledge.
 Make a significant and meaningful contribution towards the social and
economic betterment of Pakistan through development of its human resources.
 Serve as an intellectual resource base in the region.

Mission and Vision of H B S
We Educate
Leaders, who
make a difference
in the world.
Examples: Mission and Vision Statements
Microsoft Corporation
Empower people
through great software
anytime, anyplace, and
on any device.
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Intel
Our vision: Getting to a billion connected computers

worldwide, millions of servers, and trillions of dollars
of e-commerce. Intel’s core mission is being the
building block supplier to the Internet economy and
spurring efforts to make the Internet more useful.
Being connected is now at the center of people’s
computing experience. We are helping to expand the
capabilities of the PC platform and the Internet.
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Otis Elevator
Our mission is to provide any customer a means
of moving people and things up, down, and
sideways over short distances with higher
reliability than any similar enterprise in the world.
Avis Rent-a-Car
Our business is renting cars. Our mission is total
customer satisfaction.
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Broad or Narrow Mission Statements?
 Narrow enough to specify real arena of
interest
 Serve as
 Boundary for what to do and not do
 Beacon of where top management intends
to take firm
 Diversified companies
have broader business
definitions than single-business
enterprises
Definitions: Broad vs. Narrow Scope
 Broad Definition  Narrow Definition

 Wrought-iron lawn
Furniture
furniture
Telecommunications  Long-distance
telephone service
Beverages  Soft drinks
 Overnight package
Global mail delivery delivery
 Caribbean cruises
Travel & tourism

Mission Statements for
Functional Departments
 Spotlights department’s
 Role and scope of

activities
 Direction which
department needs to
pursue
 Contribution to firm’s
overall mission
Mission Statements of
Functional Departments
HUMAN RESOURCES
To contribute to organizational success by developing
effective leaders, creating high performance teams,
and maximizing the potential of individuals.
CORPORATE SECURITY
To provide services for the protection of corporate
personnel and assets through preventive
measures and investigations.

Two Types of Objectives Are Required
Financial Objectives Strategic Objectives

Outcomes that improve Outcomes that
a firm’s financial strengthen a firm’s
performance competitiveness and
long-term market
position

Strategic Management Principle
Every company needs
both strategic and
financial objectives!

Examples: Financial Objectives
 Achieve revenue growth of 10% per year
 Increase earnings by 15% annually
 Increase dividends per share by 5% per year
 Increase net profit margins from 2% to 4%
 Attractive EVA performance
 Stronger bond and credit ratings
 A rising stock price (outperform the S&P 500)
 Attractive increases in MVA
 Recognition as a “blue chip” company
 A more diversified revenue base

Examples: Strategic Objectives
 A bigger market share
 Quicker design-to-market times than rivals
 Higher product quality than rivals
 Lower costs relative to key competitors
 Broader product line than rivals
 Better e-commerce and Internet sales capabilities
than rivals
 Better customer service than rivals
 Recognition as a leader in technology
 Wider geographic coverage than rivals
Short-Range Versus
Long-Range Objectives
 Short-Range objectives
 Targets to be achieved soon
 Serve as stair steps for reaching
long-range performance
 Long-Range objectives
 Targets to be achieved within
3 to 5 years
 Prompt actions now that will
permit reaching targeted
long-range performance later
The Hows That
Define a Firm's Strategy
 How to grow the business
 How to please customers

Strategy
 How to outcompete rivals is HOW
to . . .
 How to respond to changing
market conditions
 How to manage each functional piece of the
business and develop needed organizational
capabilities
 How to achieve strategic and financial objectives

Mintzberg’s Five P’s for Strategy
1. A plan the firm is undertaking a conscious and
intended course of action to deal with a situation
2. A ploy the firm is attempting some kind of ‘specific
manoeuvre intended to outwit an opponent or competitor’
3. A position placing the firm in a particular environment
(i.e. a market niche) that puts it at a competitive advantage
& allows it to produce a greater than normal rate of return
4. A perspective or the firm's "ingrained way of perceiving
the world" (i.e. there's the right way, the wrong way and
the way we do it here)
5. A pattern of fairly consistent actions rather than a set of
intended courses of actions
Ch. 1 4
Strategic Approaches
 Strategy as design ------------------ Rationality
 Strategy as experience ------------ Intuition
 Strategy as Ideas ------------------- Innovation
Objectives should be SMART

 Specific
 Measurable
 Achievable
 Realistic
 Time related

I/O Model of Above-Average Returns
1. External Environments
General 1. Strategy dictated by the
Global external environments of
the firm (what
l
ega
De
Industry
l /L
mo
opportunities exist in
ca
gra
Environment
these environments?)
liti
ph
Po
ic
2. Firm develops internal
skills required by
So
c
cio
mi
Competitor external environment

on o
cu
ltu
Environment
Ec
(what can the firm do

ral
Technological about the opportunities?)

Environment
Four Assumptions of the I/O Model
1. The external environment is assumed to
possess pressures and constraints that
determine the strategies that would result
in above-average returns
2. Most firms competing within a particular
or within a certain segment of it are
assumed to control similar strategically
relevant resources and to pursue similar
strategies in light of those resources
Four Assumptions of the I/O Model
3. Resources used to implement strategies
are highly mobile across firms
4. Organizational decision makers are
assumed to be rational and committed to
acting in the firm’s best interests, as
shown by their profit-maximizing
behaviors
Industrial Organization 1. Study the external
Model environment, especially the
industry environment
The External Environment • economies of scale
• barriers to market entry
• diversification
• product differentiation
• degree of concentration of
firms in the industry
Industrial Organization 2. Locate an attractive industry
Model with a high potential for
above-average returns
The External Environment
An Attractive Industry Attractive industry: one whose

structural characteristics
suggest above-average returns
Industrial Organization 3. Identify the strategy called
Model for by the attractive industry
to earn above-average returns
An Attractive Industry
Strategy Formulation Strategy formulation: selection

of a strategy linked with
above-average returns in a
particular industry
Industrial Organization 4. Develop or acquire assets and
Model skills needed to implement
the strategy
Strategy Formulation
Assets and Skills Assets and skills: those assets

and skills required to
implement a chosen strategy
Industrial Organization 5. Use the firm’s strengths (its
Model developed or acquired assets
and skills) to implement the
The External Environment strategy
Assets and Skills

Strategy implementation:
Strategy Implementation select strategic actions linked
with effective implementation
of the chosen strategy
Industrial Organization
Model
Assets and Skills Superior returns: earning

of above-average returns
Strategy Implementation
Superior Returns
Resource-based Model of Above Average
Returns
1. Firm’s Resources 1. Strategy dictated by

unique resources and
capabilities of the firm
(what can the firm do
best?)
2. Find an environment in
which to exploit these
assets (where are the best
opportunities?)
Resource-based Model of Above
Average Returns
Resource-based 1. Identify the firm’s
Model resources-- strengths and
weaknesses compared with
Resources competitors
Resources: inputs into a firm’s
production process
Average Returns
Resource-based 2. Determine the firm’s
Model capabilities--what it can do
better than its competitors
Resources
Capability Capability: capacity of an

integrated set of resources to
integratively perform a task or
activity
Four Attributes of Resources and
Capabilities (Competitive Advantage)
Valuable allow the firm to exploit opportunities or
neutralize threats in its external
Resources and Capabilities

environment
Rare possessed by few, if any, current and

potential competitors
Costly to imitate when other firms cannot obtain them or

must obtain them at a much higher cost
Nonsubstitutable the firm is organized appropriately to

obtain the full benefits of the resources in
order to realize a competitive advantage
Resources and capabilities that meet
these four criteria become a source of:
Valuable
Resources and Capabilities

Rare
Core Competencies
Costly to imitate
Nonsubstitutable
Core Competencies are the basis for a
firm’s
Competitive
advantage
Strategic
competitiveness Core Competencies
Ability to earn
above-average
returns
Average Returns
Resource-based 3. Determine the potential of the
Model firm’s resources and
capabilities in terms of a
Resources competitive advantage
Capability
Competitive Advantage Competitive advantage: ability

of a firm to outperform its
rivals
Average Returns
Resource-based 4. Locate an attractive industry
Model
Resources
Capability
Competitive Advantage
An Attractive Industry An attractive industry: an

industry with opportunities that
can be exploited by the firm’s
resources and capabilities
Average Returns
Resource-based 5. Select a strategy that best
Model allows the firm to utilize its
resources and capabilities
Resources relative to opportunities in
Capability the external environment
Strategy formulation and
Strategy Form/Impl implementation: strategic
actions taken to earn above
average returns
Average Returns
Resource-based
Model
Resources
Capability
An Attractive Industry Superior returns: earning

of above-average returns
Strategy Form/Impl
Superior Returns
Figure 2.3: Identifying the Components of
a Single-Business Company’s Strategy
Planned, proactive moves to outcompete rivals
Efforts to build Responses to

competitive changing
advantage conditions
Scope of
R&D strategy Business geographic
Supply chain Fu Strategy coverage
management nc
strategy tio
na
lS
tra
Manufacturing teg Collaborative
strategy ies partnerships and
Marketing strategic alliances
strategy
Human Finance strategy

resources strategy
Figure 2.2: Corporate Strategy for
a Diversified Company
Narrow or broad-based diversification
Is diversification
Approach to
related, unrelated
capital allocation
or a mix?
Scope of
Efforts to capture Corporate geographic
cross-business
strategic fits
Strategy operations
Moves to divest Moves to add new

weak business units new businesses
Moves to build positions

in new industries
1.34 Strategic Decision-Making Process (Fig. 1.5)
Strategic Decision-Making
Process 3(a) 3(b)
Scan and Analyze

Assess External
External Factors:
Environment: • Opportun-
• Societal ities
• Task • Threats
1(a) 1(b) 2 5(a) 5(b) 6(a) 6(b) 7 8
Examine and Review Select Generate

Evaluate the Corporate Strategic Review and and Select Implement
Evaluate Revise as and Strategies: Evaluate
Current Current: Governance: Factors Evaluate
• Mission • Board of (SWOT) Necessary: Strategic Recommend • Programs and
Performance • Mission Best • Budgets Control
Results • Objectives Directors in Light of Alterna-
• Strategies • Top Man- Current • Objectives tives Alternative • Procedures
• Policies agement Situation
4(a) 4(b)
Scan and
Assess Analyze
Internal Internal
Environment: Factors:
• Structure • Strengths
• Culture • Weak-
• Resources nesses
Strategy Strategy Evaluation

Formulation: Implementation and
Steps 1 – 6 Step 7 Control:
Step 8
1.24 Hierarchy of Strategy (Fig. 1.4)
Hierarchy of Strategy
Corporate Strategy
Business
(Division Level)
Strategy
Functional
Strategy

Types of Strategic Planning
 Corporate-level strategy
– Identifies the portfolio of businesses that, in
total, comprise the company and the ways in
which these businesses relate to each other.
• Diversification strategy implies that the firm will expand
by adding new product lines.
• Vertical integration strategy means the firm expands by,
perhaps, producing its own raw materials, or selling its
products direct.
• Consolidation strategy reduces the company’s size
• Geographic expansion strategy takes the company
abroad.
© 2005 Prentice Hall Inc. All rights reserved.

Types of Strategic Planning (cont’d)
 Business-level/competitive strategy
– Identifies how to build and strengthen the
business’s long-term competitive position
in the marketplace.
• Cost leadership: the enterprise aims to become the
low-cost leader in an industry.
• Differentiation: a firm seeks to be unique in its industry
along dimensions that are widely valued by buyers.
• Focus: a firm seeks to carve out a market niche, and
compete by providing a product or service customers
can get in no other way.

Offensive Competitive Location
5.12 Offensive Competitive Location Tactics
• Tactics
Frontal assault: matches the target’s marketing mix in detail, product for
product and so on.
• Flanking maneuver: is mounted upon a market segment, geographic region or

area of technology that the target has neglected.
• Bypass attack: is indirect and unaggressive. It focuses on unrelated products,

new geographic areas and technical leap-frogging to advance in the market.
• Encirclement: consists of as large number of simultaneous flank attacks as

possible in order to overwhelm the target.
• Guerilla warfare: consists pf a series of aggressive, short-term moves to

demoralise, unbalance and destabilise the opponent. Tactics include drastic
price cuts, poaching staff, political lobbying and short bursts of promotional
activity.

Defensive Competitive Location
5.12 Offensive Competitive Location Tactics
• Tactics
Raise structural barriers: block the challenger’s logical avenues of attack by offering a
full line of products in every profitable market segment to close off any entry point,
block channel access by signing exclusive agreements with distributors, raise buyer
switching costs by offering low-cost training to users, raise the cost of gaining trial by
keeping prices low on items most likely to be purchased by the new users, increase
economies of scale to reduce unit costs, foreclose alternatives technologies through
patenting or licensing, limit outside access to facilities and personnel, tie up suppliers
by obtaining exclusive contracts or purchasing key locations, avoid suppliers that also
serve competitors, and encourage the government to raise barriers such as safety
and pollution standards or favorable trade polices.
• Increased expected retaliation: increases the perceived threat of retaliation.
• Lower the inducement for attack : reduce a challenger’s expectations of future profits
in the industry.

Types of Strategic Planning (cont’d)
 Functional strategies
– Identify the basic courses of action that
each department will pursue in order to help
the business attain its competitive goals.

Information Flows
To & From Operations

4.5 Industry Value Chain
Typical Value Chain for a

Manufactured Product
Raw Primary Product

Fabrication Distributor Retailer
Materials Manufacturing Producer
Source: Suggested by J. R. Galbraith, “Strategy and Organization Planning,” in The Strategy Process:

Concepts, Contexts, Cases, 2nd ed., edited by H. Mintzberg and J. B. Quinn (Englewood Cliffs, N.J.: Prentice
Hall, 1991), p. 316.

4.6 Corporation Value Chain
Corporate Value Chain
Firm Infrastructure
(general management, accounting, finance, strategic planning)
Human Resource Management

(recruiting, training, development)
Support
Activities
Technology Development
(R&D, product and process improvement)
Profit
Procurement Margin
(purchasing of raw materials, machines, supplies)
Source: Adapted/re
printed with the
permission of the
Inbound Operations Outbound Marketing Service The Free Press, an
Logistics (machining, Logistics and Sales (installation, imprint of Simon &
(raw assembling, (warehousing (advertising, repair, parts)
materials testing) and promotion, Schuster, from
handling and distribution pricing, Competitive
warehousing) of finished channel Advantage:
product) relations) Creating and
Sustaining Superior
Performance by
Michael E. Porter, p.
37. Copyright ©
Primary Activities 1985 by Michael E.
Prentice Hall, 2000 Chapter 4 Porter. 78
4.11 Marketing Mix Variables (Table 4.1)
Marketing Mix Variables

Product Place Promotion Price
Quality Channels Advertising List price
Features Coverage Personal selling Discounts
Options Locations Sales promotion Allowances
Style Inventory Publicity Payment periods
Brand name Transport Credit terms
Packaging
Sizes
Services
Warranties
Returns
Source: Philip Kotler, Marketing Management: Analysis, Planning, and Control, 4th ed. (Englewood Cliffs,
N.J.: Prentice-Hall, 1980), p. 89. Copyright © 1980. Reprinted by permission of Prentice-Hall, Inc.

83
SM Expanded Mix for Services --

the 7 Ps
• Product
• Price
• Place
• Promotion
• People
• Process
• Physical Evidence
McGraw-Hill © 2000 The McGraw-Hill Companies

84
Table 1-3 (Continued)
SM Expanded Marketing Mix for
Services
PEOPLE PHYSICAL PROCESS
EVIDENCE
Employees Facility design Flow of activities
Customers Equipment Number of steps
Communicating Signage Level of customer

culture and values involvement
Employee research Employee dress
Other tangibles
McGraw-Hill © 2000 The McGraw-Hill Companies

11.3 Product / Market Evolution Matrix (Fig. 11.2 )
Product / Market Evolution Portfolio

Matrix Competitive Position
Strong Average Weak
Development A
Stage of Product/Market Evolution
B C
Growth
Shakeout
E
Maturity Source: C. W. Hofer and D.

F Schendel, Strategy Formulation:
Saturation Analytical Concepts (St. Paul, Minn,:
West Publishing Co., 1978), p. 34.
G From C. W. Hofer, “Conceptual
Constructs for Formulating
Decline Corporate and Business Strategies”
(Dover, Mass.: Case Publishing), no.
BP-0041, p. 3. Copyright © 1977 by
Charles W. Hofer. Reprinted by
Prentice Hall, 2000 Chapter 11 permission. 85
Ansoff's Product-Market Growth Matrix
1.35aStrategic Management Process at Maytag Corporation : Mission &
Objectives
Strategic Management Process
at Maytag Corporation : Mission
& Objectives
StrategyFormulation
Mission
• Broad: To serve the best interests of shareowners, customers, and
employees
• Narrow: To become a full-line globally-oriented major home
appliance manufacturer and marketer
Objectives
• Increased profitability
• Number one in customer satisfaction
• Number three in North American unit sales

1.35bStrategic Management Process at Maytag Corporation : Strategies &
Policies
at Maytag Corporation :
Strategies & Policies
Strategies
• To grow horizontally where the corporation is not yet well represented through
external acquisition or joint ventures
• To grow horizontally internally by improving efficiency and quality of acquired
companies and by using one business unit’s expertise in one acquired are to
introduce quality products from a business unit in another area
• Policies
• No cost reduction proposal will be approved if it reduces product quality in any
way
• Every product, from the least expensive to the highest priced, should be superior
to the competition in overall quality and performance
• The corporation must not emphasize market share at the expense of profitability
• Business units must be managed for synergies, while simultaneously the
specialized expertise among those units must be allowed to flourish

1.35cStrategic Management Process at Maytag Corporation : Programs &
Budgets

Programs & Budgets
Programs
• Work with Bosch-Siemens to develop joint marketing and
supplier agreements for Hoover appliances
• Analyze and develop Asian markets through current distributors
and licensees and through joint ventures
• Develop new appliances for continental Europe
• Develop TV advertising for Jenn-Air and Magic Chef
• Consolidate production of washers and dryers in dedicated
plants
Budgets
• Prepare budgets for each planned program
1.35d Strategic Management Process at Maytag Corporation : Procedures
Process at Maytag
Corporation : Procedures
Procedures
• Develop procedures for joint purchasing and joint
marketing of Bosch-Siemens with Hoover
• Coordinate marketing, manufacturing, and
purchasing activities of business units through
committees
• Research and development takes place in unit
housing each product line
• Consolidate all advertising under one agency, but
establish internal advertising for each brand category

1.35eStrategic Management Process at Maytag Corporation : Evaluation &
Control
Evaluation & Control
Evaluation&Control
• Require all business units to provide monthly status reports on sales
and costs by product line plus any trends in expenses
• Require all business units to provide annual reports giving operating
revenues, costs, and expenses as well as identifiable assets in dollars,
plus property additions and deletions
• Require all business units to provide quarterly assessments of
competitive activity and overall trends affecting each of their product
lines
• Require all business units to inform corporate headquarters before
proceeding on any financially risky plan

3.12 Industry Matrix (Table 3.3)
Industry Matrix
Company A Company A Company B Company B
Strategic Factors Weight Rating Weighted Score Rating Weighted Score
1 2 3 4 5 6
Total 1.00
Source: T. L. Wheelen and J. D. Hunger, “Industry Matrix.” Copyright © 1997 by Wheelen and Hunger
Associates. Reprinted by permission.
Industry Analysis (CPM)
Competitive Profile Matrix
• Identifies firm’s major competitors

and their strengths & weaknesses
in relation to a sample firm’s
strategic position
Ch.3-93
Fred R. David
Prentice Hall
(CPM) Procter
Avon L’Oreal &
Gamble
Critical Success Weigh Ratin Scor Ratin Scor Ratin Score
Factor t g e g e g
Advertising 0.20 0.2 0.8 3 0.60
1 4
Product Quality 0 0
0.10 4 0.4 4 0.4 3 0.30
Price Competition 0.10 0
0.3 0
0.3 4 0.40
3 3
Management 0.10 0
0.4 0
0.3 3 0.30
4 3
Financial Position 0 0
0.15 4 0.6 3 0.4 3 0.45
Customer Loyalty 0.10 0
0.4 5
0.4 2 0.20
4 4
Global Expansion 0 0
0.20 4 0.8 2 0.4 2 0.40
Market Share 0.05 0
0.0 0
0.2 3 0.15
1 4
5 0
Total 1.00 3.1 3.2 2.80
5
Fred R. David
5 Ch.3-94
Prentice Hall
3.16 External Factor Analysis Summary (EFAS): Blank
External Factor Analysis Summary

(EFAS)
External Weighted
Strategic Factors Weight Rating Score Comments
1 2 3 4 5
Opportunities
Threats
Total Weighted Score 1.00
Notes: 1. List opportunities and threats (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not
Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to
1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply
each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. Use Column 5 (comments) for rationale
used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how
well the company is responding to the strategic factors in its external environment.
Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and
Hunger Prentice
Associates. Reprinted
Hall, 2000 by permission. Chapter 3 95
1.10 Environmental Variables (Fig. 1.3)
Environmental Variables
Societal Environment
Sociocultural Task Economic

Forces Environment Forces
(Industry)
Shareholders Suppliers
Governments
Internal
Employees/
Environment
Special LaborUnions
Interest Structure
Culture
Groups
Resources
Competitors
Customers
TradeAssociations
Creditors
Political-Legal Technological
Communities
Forces Forces

3.2 Some Important Variables in the Societal Environment (Table 3.1)
Some Important Variables

in the Societal Environment
Economic Technological Political-Legal Sociocultural
GDP trends Total government Antitrust regulations Lifestyle changes
spending for R&D
Interest rates Environmental Career expectations
Total industry spending protection laws
Money supply Consumer activism
for R&D
Tax laws
Inflation rates Rate of family formation
Focus of technological
Special incentives
Unemployment levels efforts Growth rate of
Foreign trade population
Wage/price controls Patent protection
regulations
Age distribution of
Devaluation/revaluation New products
Attitudes toward foreign population
Energy availability and New developments in companies
Regional shifts in
cost technology transfer
Laws on hiring and population
from lab to
Disposable and promotion
marketplace Life expectancies
discretionary income
Stability of government
Productivity Birth rates
improvements through
automation

General Environment Components
Ch. 3 9
General Environment Components
Ch. 3 9
3.3 Scanning the External Environment (Fig. 3.1)
Scanning the External

Environment
Analysis of Societal Environment
Economic, Sociocultural, Technological, Political-Legal Factors
Market
Analysis
Community Competitor
Analysis Analysis
Supplier
Analysis
Selection of
Interest Group Strategic Factors Governmental
Analysis Analysis
• Opportunities
• Threats

3.17 External Factor Analysis Summary (EFAS): Maytag as Example (Table
3.4)
External Factor Analysis Summary
(EFAS): Maytag as Example
External Weighted
Strategic Factors Weight Rating Score Comments
Opportunities 1 2 3 4 5
• Economic integration of .20 4 .80 Acquisition of
European Community Hoover
• Demographics favor quality .10 5 .50 Maytag quality
appliances
• Economic development of Asia .05 1 .05 Low Maytag presence
• Opening of Eastern Europe .05 2 .10 Will take time
• Trend to “Super Stores” .10 2 .20 Maytag weak in this
Threats channel
• Increasing government regulations .10 4 .40 Well positioned

• Strong U.S. competition .10 4 .40 Well positioned
• Whirlpool and Electrolux strong .15 3 .45 Hoover weak globally
globally
• New product advances .05 1 .05 Questionable
• Japanese appliance companies .10 2 .20 Only Asian presence is
Australia
Total Scores 1.00 3.15

Industry Analysis (EFE)
External Factor Evaluation Matrix
Summarize & evaluate:
Economic Demographic Government

al
Social Environmental Technologic
al
Cultural Political Competitive
Ch.3-107
Fred R. David
Prentice Hall
UST—Key External Factors Weighte
Weight Rating d
Opportunities score
Global markets untapped .15 1 .15
Increased demand .05 3 .15
Astronomical Internet growth .05 1 .05
Pinkerton leader in discount market .15 4 .60
More social pressure to quit smoking .10 3 .30
Threats
Legislation against the tobacco .10 2 .20
industry
Production limits on tobacco .05 3 .15
Smokeless market SE region U.S. .05 2 .10
Bad media exposure from FDA .10 2 .20
Clinton Administration .20 1 .20
TOTAL 1.00 2.10
Ch.3-108
Fred R. David
Prentice Hall
4.16 Internal Factor Analysis Summary (IFAS): Blank
Internal Factor Analysis Summary

(IFAS)
Weighted
Internal Factors Weight Rating Score Comments
1 2 3 4 5
Strengths
Weaknesses
Total Weighted Score 1.00
Notes: 1. List strengths and weaknesses (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not
Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to
1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply
each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. Use Column 5 (comments) for rationale
used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how
well the company is responding to the strategic factors in its internal environment.
Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and
Hunger Prentice
Hall, 2000 by permission. Chapter 4 109
4.17 Internal Factor Analysis Summary (IFAS): Maytag as Example (Table
4.2)
Internal Factor Analysis Summary
(IFAS):
Maytag as Example
Weighted
Internal Factors Weight Rating Score Comments
Strengths 1 2 3 4 5
• Quality Maytag culture .15 5 .75 Quality key to success
• Experienced top management .05 4 .20 Know appliances
• Vertical integration .10 4 .40 Dedicated factories
• Employee relations .05 3 .15 Good, but deteriorating
• Hoover’s international orientation .15 3 .45 Hoover name in cleaners
Weaknesses
• Process-oriented R&D .05 2 .10 Slow on new products
• Distribution channels .05 2 .10 Superstores replacing
small dealers
• Financial position .15 2 .30 High debt load
• Global positioning .20 2 .40 Hoover weak outside the
United Kingdom and
Australia
• Manufacturing facilities .05 4 .20 Investing now
Total Weighted Score 1.00 3.05

Internal Analysis (IFE)
• Sum the weighted scores for each

 Determines the total weighted score for the
organization
 Highestpossible weighted score for the

organization is 4.0; the lowest, 1.0.
Average = 2.5
Ch.3-111
Fred R. David
Prentice Hall
Weighte
Mandalay Bay Weight Rating d
Internal Strengths score
Largest casino company in world .05 4 .20
Room occupancy rates over 95% .10 4 .40
Increasing free cash flows .05 3 .15
Owns 1 mile on Las Vegas strip .15 4 .60
Strong management team .05 3 .15
Buffets at most facilities .05 3 .15
Minimal comps provided .05 3 .15
Long-range planning .05 4 .20
Reputation as family-friendly .05 3 .15
Financial ratios .05 3 .15
Ch.3-112
Fred R. David
Prentice Hall
Weighte
Mandalay Bay Weight Rating d
Internal Weaknesses score
Most properties located in Las Vegas .05 1 .05
Little diversification .05 2 .10
Family reputation, not high rollers .05 2 .10
Laughlin properties .10 1 .10
Recent loss of joint ventures .10 1 .10
TOTAL (including Strengths) 1.0 2.75
Ch.3-113
Fred R. David
Prentice Hall
Integrating Strategy and Culture
Cultural products
Values stories
beliefs legends
rites sagas
rituals language
ceremonies symbols
myths heroes
Ch 4-114
Fred R. David
Prentice Hall
9.3 Assessing Strategy-Structure Compatibility (Fig. 9.1)
with the current culture?

Is the planned strategy compatible
No
Yes
Can the culture be modified to

Tie changes into the culture.
make it more compatible with the
new strategy?
Yes
Is management willing and able to

make major organizational
No
changes and accept probable
delays and a likely increase in
Assessing Yes
No
Strategy— Manage around the culture by Is management still committed
Culture establishing a new structural unit

to implement the new strategy.
to implementing the strategy?
Compatibilit Yes
No
y Find a joint-venture partner or

contract with another company
Formulate a different stately.
to carry out the strategy.

9.4 Methods of Managing the Culture of an Acquired Firm (Fig. 9.2)
Methods of Managing the Culture of an

How Much Members of Acquired Firm
the Acquired Firm Value
Preservation of Their Own Culture
Very Much Not at All

Perception of the Attractiveness of the Acquirer
Very Attractive
Integration Assimilation
Not at All Attractive
Source: A. Nahavardi and A. R.

Separation Deculturation
Malekzadeh, “Acculturation in
Mergers and Acquisitions,” Academy
of Management Review (January
1988), p. 83. Copyright © 1988 by
the Academy of Management.
Reprinted by permission.
e a s
Th ation
aniz pen
g O
Or an stem Environment
Sy
System
Inputs Transformation Outputs
•Raw material •Employees’ work Activities •Products and
services
•Human resources •Management Activities
•Financial Results
•Capital •Technology and Operations
Methods •Information
•Technology
Human Results
•Information
Feedback
Enviro m en t
nment v i ro n
En
Discovering Core Competitive
Advantage
Competencies Gained through
Core Competencies
Strategic
Core Competitiveness
Competencies
Discovering
Core Above-Average
Sources of Returns
Competitive Competencies
Advantage
Criteria of Value
Capabilities
Sustainable Chain
Teams of Advantages Analysis
Resources
Resources * Valuable * Rare * Outsource

* Costly to Imitate
* Tangible
* Intangible * Organized to be exploited
Ch. 4 11
Resources What a firm Has to work with
Tangible Resources Its assets, including its people
Financial and the value of its brand name.
*
* Physical Resources represent inputs into
* Human Resources a firm’s production process...
* Organizational
such as capital equipment, skills
of employees, brand names,
Intangible Resources finances and talented managers.
* Technological
* Innovation
* Reputation
$ $ $ $ $ $
Ch. 4 11
Capabilities What a firm Does...
Capabilities become important when they are
Combined in
unique That
combinations Create
core That
competencies Have
strategic That
value Can lead to
competitive
advantage
Ch. 4 12
Core Competencies For a strategic
capability to be a Core Competency, it must be:
Valuable allow a firm to neutralize threats or exploit
opportunities in its external environment.
Rare possessed by few, if any, current and
potential competitors.
Costly to when other firms either cannot obtain
Imitate $ them or must obtain them at a much
higher cost
Organized the firm must be organized appropriately to

to be obtain full benefits of the resources in
order to realize a competitive advantage
Exploited
Ch. 4 * 12
Outcomes from Combinations of Criteria
for Sustainable Competitive Advantage
Costly to Org. to be Competitive Performance
Valuable
Valuable Rare
Imitate Exploited Consequences Implications
Below
Competitive Average
NO NO NO NO Disadvantage Returns
Competitive Average
YES NO NO YES Parity Returns
Temporary Avg./Above
YES YES NO YES Competitive Average
Advantage Returns
Sustainable Above
YES YES YES YES Competitive Average
Advantage Returns
Ch. 4 12
Core Competencies--
Cautions and Reminders
Never take for granted that core
competencies will continue to provide
a source of competitive advantage
All core competencies have the potential to
become Core Rigidities
Core Rigidities
They are former core competencies that sow
the seeds of organizational inertia
Prevent the firm from responding appropriately
to changes in the external environment
Ch. 4 12
Core Competencies--
Cautions and Reminders
Strategic myopia
and inflexibility
can stop the
firm’s ability to
grow and adapt to
environmental
change or
competitive
threats
Ch. 4 * 12
Internal Audit
• Parallels process of external audit
• Gather & assimilate information from:
• Management
• Marketing
• Finance/accounting
• Production/operations
• Research & development
• Management information systems
Ch.3-125
Fred R. David
Prentice Hall
Management Audit Checklist
• Does the firm use strategic-management
concepts?
• Are company objectives and goals
measurable and well communicated?
• Do managers at all hierarchical levels
plan effectively?
• Do managers delegate authority well?
• Is the organization’s structure
appropriate?
Ch 4-126
Fred R. David
Prentice Hall
Management Audit Checklist
• Are job descriptions and job specifications

clear?
• Is employee morale high?
• Are employee turnover and absenteeism
low?
• Are organizational reward and control
mechanisms effective?
Ch 4-127
Fred R. David
Prentice Hall
Marketing
• Customer analysis
• Selling products/services
• Product and service planning
• Pricing
• Distribution
• Marketing research
• Opportunity analysis
Ch 4-128
Fred R. David
Prentice Hall
Marketing Audit
• Are markets segmented effectively?

• Is the organization positioned well among
competitors?
• Has the firm’s market share been increasing?
• Are present channels of distribution reliable
and cost effective?
• Does the firm have an effective sales force?
Ch 4-129
Fred R. David
Prentice Hall
Marketing Audit
• Does the firm conduct market research?
• Are product quality and customer service
good?
• Are the firm's products/services priced
appropriately?
• Does the firm have an effective promotion,
advertising, and publicity strategy?
Ch 4-130
Fred R. David
Prentice Hall
Marketing Audit
• Are marketing planning and budgeting

effective?
• Do the firm’s marketing mangers have
adequate experience and training
Ch 4-131
Fred R. David
Prentice Hall
Finance/Accounting
• Determining financial strengths and

weaknesses key to strategy formulation
• Investment decision (Capital budgeting)
• Financing decision
• Dividend decision
Ch 4-132
Fred R. David
Prentice Hall
Finance/Accounting Audit
• Where is the firm strong and weak as

indicated by financial ratio analysis?
• Can the firm raise needed short-term capital?
• Can the firm raise needed long-term capital
through debt and/or equity?
• Does the firm have sufficient working capital?
• Are capital budgeting procedures effective?
Ch 4-133
Fred R. David
Prentice Hall
Finance/Accounting Audit
• Are dividend payout policies reasonable?

• Does the firm have good relations with its
investors and stockholders?
• Are the firm’s financial managers experienced
and well trained?
Ch 4-134
Fred R. David
Prentice Hall
Production/Operations
• Process
• Capacity
• Inventory
• Workforce
• Quality
Ch 4-135
Fred R. David
Prentice Hall
Production/Operations Audit
• Are suppliers of raw materials, parts, and

subassemblies reliable and reasonable?
• Are facilities, equipment, machinery, and
offices in good condition?
• Are inventory-control policies and procedures
effective?
Ch 4-136
Fred R. David
Prentice Hall
Production/Operations Audit
• Are quality-control policies and procedures

effective?
• Are facilities, resources, and markets
strategically located?
• Does the firm have technological
competencies?
Ch 4-137
Fred R. David
Prentice Hall
Research and Development
• Development of new products before

competition
• Improving product quality
• Improving manufacturing processes to
reduce costs
Ch 4-138
Fred R. David
Prentice Hall
Research and Development Audit
• Does the firm have R&D facilities? Are

they adequate?
• If outside R&D firms are used, are they
cost effective?
• Are the organization’s R&D personnel
well qualified?
• Are R&D resources allocated
effectively?
Ch 4-139
Fred R. David
Prentice Hall
Research and Development Audit
• Are management information and computer

systems adequate?
• Is communication between R&D and other
organizational units effective?
• Are present products technologically
competitive?
Ch 4-140
Fred R. David
Prentice Hall
Management Information
Systems
Purpose –
– Improve performance of an enterprise by
improving the quality of managerial
decisions.
Ch 4-141
Fred R. David
Prentice Hall
Systems Audit
• Do all managers in the firm use the
information system to make decisions?
• Is there a chief information officer or director
of information systems position in the firm?
• Are data in the information system updated
regularly?
Ch 4-142
Fred R. David
Prentice Hall
Systems Audit
• Do managers from all functional areas of the
firm contribute input to the information system?
• Are there effective passwords for entry into the
firm’s information system?
• Are strategists of the firm familiar with the
information systems of rival firms?
Ch 4-143
Fred R. David
Prentice Hall
Systems Audit
• Is the information system user-friendly?
• Do all users of the information system
understand the competitive advantages
that information can provide firms?
• Are computer training workshops
provided for users?
• Is the firm’s system being improved?
Ch 4-144
Fred R. David
Prentice Hall
5.2 Strategic Factor Analysis Summary (SFAS): Blank (Table 5.1)
Strategic Factor Analysis Summary

(SFAS)
1 2 3 4 Duration 5 6
Key Strategic Factors
INTERMEDIATE
(Select the most important
opportunities/threats from EFAS, Table 3.4
Weighted
SHORT
and the most important strengths and
LONG
weaknesses from IFAS, Table 4.2) Weight Rating Score Comments
Total Score
Notes: 1. List each of your key strategic features developed in your IFAS and EFAS tables in Column 1. 2. Weight each factor
from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic
position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the
company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in
Column 4. 5. For duration in Column 5, check appropriate column (short term—less than 1 year; intermediate—1 to 3 years; long
term—over 3 years.) 6. Use Column 6 (comments) for rationale used for each factor.
Source: T. L. Wheelen and J. D. Hunger, “Strategic Factors Analysis Summary (SFAS).” Copyright © 1997 by Wheelen and Hunger
Prentice Hall,by2000
permission. Chapter 5 145
5.3 Strategic Factor Analysis Summary (SFAS): Maytag as Example (Figure
5.1)
Strategic Factor Analysis Summary (SFAS): Maytag
as Example
Duration
Key Strategic Factors
INTERMEDIATE
(Select the most important
opportunities/threats from EFAS, Table 3.4
Weighted
SHORT
and the most important strengths and
LONG
weaknesses from IFAS, Table 4.2) Weight Rating Score Comments
S1 Quality Maytag culture (S) .10 5 .50 X Quality key to success
S3 Hoover’s international orientation (S) .10 3 .30 X Name recognition
W3 Financial position (W) .10 2 .20 X High debt
W4 Global positioning (W) .15 2 .30 Only in N.A., U.K., and Australia
O1 Economic integration of
European Community (O) .10 4 .40 X Acquisition of Hoover
O2 Demographics favor quality (O) .10 5 .50 X X Maytag quality
O5 Trend to super stores (O + T) .10 2 .20 X Weak in this channel
T3 Whirlpool and Electrolux (T) .15 3 .45 X Dominate industry
T5 Japanese appliance companies (T) .10 2 .20 X Asian presence
1.00 3.05
Total Score
Notes: 1. List each of your key strategic features developed in your IFAS and EFAS tables in Column 1. 2. Weight each factor
from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic
position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the
company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in
Column 4. 5. For duration in Column 5, check appropriate column (short term—less than 1 year; intermediate—1 to 3 years; long
term—over 3 years.) 6. Use Column 6 (comments) for rationale used for each factor.
Source: T. L. Wheelen and J. D. Hunger, “Strategic Factors Analysis Summary (SFAS).” Copyright © 1997 by Wheelen and Hunger
Prentice Hall,by2000
permission. Chapter 5 146
5.1 SWOT Analysis
SWOT Analysis
Internal Environment
• Strengths
• Weaknesses
External Environment
• Opportunities
• Threats
5.4 TOWS Matrix (Fig. 5.2)
TOWS Matrix
INTERNAL Strengths (S) Weaknesses (W)

FACTORS
(IFAS) List 5 – 10 internal List 5 – 10 internal
EXTERNAL strengths here weaknesses here
FACTORS
(EFAS)
Opportunities (O) SO Strategies WO Strategies

List 5 – 10 external Generate strategies here Generate strategies here
opportunities here that use strengths to take that take advantage of
advantage of opportunities opportunities by
overcoming weaknesses
Threats (T) ST Strategies WT Strategies

List 5 – 10 external Generate strategies here Generate strategies here
threats here that use strengths to that minimize weaknesses
avoid threats and avoid threats
Source: Adapted from Long-Range Planning, April 1982, H. Weihrich, “The TOWS Matrix—A Tool for
Situational Analysis” p. 60. Copyright 1982, with kind permission from H. Weihrich and Elsevier Science Ltd.
The Boulevard, Langford Lane, Kidlington OX5 1GB, UK.
5.5 TOWS Matrix: Maytag as Example (Fig. 5.3)
TOWS Matrix: Maytag as

Example Strengths (S) Weaknesses
INTERNAL S1 Quality Maytag Culture (W)
FACTORS W1 Process-oriented
(IFAS) S2 Experience top management W2 Distribution channels
EXTERNAL S3 Vertical integration W3 Financial position
FACTORS S4 Employee relations W4 Global positioning
(EFAS) S5 Hoover’s international W5 Manufacturing facilities
orientation
Opportunities (O) SO WO
O1 Economic integration of Strategies Strategies
Expand Hoover’s presence in
European community • Use worldwide Hoover dis- • Expand Hoover’s presence in
continental Europe by improving
O2 Demographics favor quality tribution channels for Hoover continental Europe by
quality & reducing costs
O3 Economic development, and Maytag improving quality & reducing
Emphasize superstore channel
Asia costs
• Find joint venture partners in for all non-Maytag brands
O4 Opening Eastern Europe • Emphasize superstore
Eastern Europe & Asia
O5 Trend toward super stores channel for non-Maytag brands
Threats ST WT
T1 Increasing
(T) government Strategies • Sell offStrategies
• Acquire Raytheon’s Dixie-Narco division to
regulation
appliance business reduce debt
T2 Strong US competition • Emphasize cost reduction to
• Merge with major Japanese
T3 Whirlpool & Electrolux
home appliance company reduce break-even point
positioned for global economy • Sell out to Raytheon or a
• Sell off non-Maytag brands;
defend Maytag’s US niche. Japanese firm.
T4 New product advances
T5 Japanese companies
Source: Adapted from Long-Range Planning, April 1982, H. Weihrich, “The TOWS Matrix—A Tool for Situational
Analysis” p. 60. Copyright 1982, with kind permission from H. Weihrich and Elsevier Science Ltd. The Boulevard,
Langford Lane, Kidlington OX5 1GB, UK.
4.7a Basic Structures of Corporations: Simple and Functional (Fig. 4.4)
Basic Structures of
Corporations: Simple and
Functional
I. Simple Structure
Owner-Manager
Workers
II. Functional Structure
Top Management
Manufacturing Sales Finance Personnel

4.7b Basic Structures of Corporations: Divisional (Fig. 4.4)
Basic Structures of
Corporations: Divisional
III. Divisional Structure*
Top Management
Product Division A Product Division B
Manufacturing Finance Manufacturing Finance
Sales Personnel Sales Personnel
*Conglomerate structure is a variant of the division structure.

Why Do Structures Differ?
Mechanistic Model
A structure characterized by extensive
departmentalization, high formalization, a
limited information network, and
centralization.
Organic Model
A structure that is flat, uses cross-hierarchical
and cross-functional teams, has low
formalization, possesses a comprehensive
information network, and relies on participative
decision making.

Why Do Structures Differ? – Strategy
Innovation Strategy
A strategy that emphasizes the introduction of
major new products and services.
Cost-minimization Strategy
A strategy that emphasizes tight cost
controls, avoidance of unnecessary innovation
or marketing expenses, and price cutting.
Imitation Strategy
A strategy that seeks to move into new
products or new markets only after their
viability has already been proven.
Why Do Structures Differ? – Size
Size
How the size of an organization affects its
structure. As an organization grows larger, it
becomes more mechanistic.
Characteristics
Characteristicsof
oflarge
largeorganizations:
organizations:
• •More
Morespecialization
specialization
• •More
Morevertical
verticallevels
levels
• •More
Morerules
rulesand
andregulations
regulations

Why Do Structures Differ? – Technology
Technology
How an organization transfers its inputs into
outputs.
Characteristics
Characteristicsof
ofroutineness
routineness(standardized
(standardizedor
or
customized)
customized)ininactivities:
activities:
• •Routine
Routinetechnologies
technologiesare
areassociated
associatedwith
withtall,
tall,
departmentalized
departmentalizedstructures
structuresand
andformalization
formalizationinin
organizations.
organizations.
• •Routine
Routinetechnologies
technologieslead
leadto
tocentralization
centralizationwhen
when
formalization
formalizationisislow.
low.
• •Nonroutine
Nonroutinetechnologies
technologiesare
areassociated
associatedwith
withdelegated
delegated
decision
decisionauthority.
authority.

Why Do Structures Differ? – Environment
Environment
Institutions or forces outside the organization
that potentially affect the organization’s
performance.
Key
KeyDimensions-
Dimensions-
• • Capacity:
Capacity:the
thedegree
degreeto
towhich
whichan
anenvironment
environmentcan
can
support
supportgrowth.
growth.
• • Volatility:
Volatility:the
thedegree
degreeof
ofinstability
instabilityininthe
theenvironment.
environment.
• • Complexity:
Complexity:the
thedegree
degreeof
ofheterogeneity
heterogeneityand
and
concentration
concentrationamong
amongenvironmental
environmentalelements.
elements.

8.5 Changing Structural Characteristics (Table 8.3)
Changing Structural
Characteristics of Modern
Corporation
Old Organizational Design New Organizational Design
One large corporation Mini-business units & cooperative relationships
Vertical communication Horizontal communication
Centralized top-down decision making Decentralized participative decision making
Vertical integration Outsourcing & virtual organizations
Work/quality teams Autonomous work teams
Functional work teams Cross-functional work teams
Minimal training Extensive training
Specialized job design focused on individual Value-chain team-focused job design

Source: Adapted from B. Macy and H. Izumi, “Organizational Change, Design, and Work Innovation: A Meta-
Analysis of 131 North American Field Studies—1961–1991,” Research in Organizational Change and
Development, Vol. 7, JAI Press (1993), p. 298. Reprinted with permission.

Question 1: What are the
Industry’s Dominant Economic Traits?
 Market size and growth rate
 Scope of competitive rivalry
 Number of competitors and their relative sizes
 Prevalence of backward/forward integration
 Entry/exit barriers
 Nature and pace of technological change
 Product and customer characteristics
 Scale economies and experience curve effects
 Capacity utilization and resource requirements
 Industry profitability
Copyrigh 158
t
Table 3.2: Relevance of
Key Economic Features
Economic Strategic Importance
Feature
Market Size Small markets don’t tend to attract new firms; large markets attract firms
looking to acquire rivals with established positions in attractive industries
Market growth rate Fast growth breeds new entry; slow growth spawns increased rivalry & shake-
out of weak rivals
Capacity Surpluses push prices & profit margins down; shortages pull them up
surpluses/shortages
Industry profitability High-profit industries attract new entrants; depressed conditions lead to exit
Entry/exit barriers High barriers protect positions and profits of existing firms; low barriers make
existing firms vulnerable to entry
Product is big-ticket More buyers will shop for lowest price
item for buyers
Standard products Buyers have more power because it’s easier to switch from seller to seller
Rapid technological Raises risk; investments in technology facilities/equipment may become
change obsolete before they wear out
Capital requirements Big requirements make investment decisions critical; timing becomes
important; creates a barrier to entry and exit
Vertical integration Raises capital requirements; often creates competitive & cost differences
among fully vs. partially vs. non-integrated firms
Economies of scale Increases volume & market share needed to be cost competitive
Rapid product Shortens product life cycle; increases risk because of opportunities for
innovation leapfrogging
Copyrigh 159
t
Question 2: What Is Competition Like and
How Strong Are the Competitive Forces?
Objective
 To identify
 Main sources of
competitive forces
 Strength of these forces
 Key analytical tool
 Five Forces Model
of Competition
Copyrigh 160
t
Figure 3-4: Five Forces
Model of Competition
Substitute Products
(of firms in
other industries)
Rivalry
Suppliers
Among
of Key Buyers
Competing
Inputs
Sellers
Potential
New
Entrants
Copyrigh 161
t
Analyzing the Five Competitive Forces:
How to Do It
 Assess strength of each of the five competitive forces
(Strong? Moderate? Weak? )
 Rivalry among competitors
 Competition from substitute products
 Competitive threat from potential entrants
 Bargaining power of suppliers and
supplier-seller collaboration
 Bargaining power of buyers and
buyer-seller collaboration
 Explain how each force acts to create competitive pressure
—What are the factors that cause each force to be strong
or weak?
 Decide whether overall competition (the combined effect
of all five competitive forces) is brutal, fierce, strong,
normal/moderate, or weak
Copyrigh 162
t
Rivalry Among Competing Sellers
 Usually the most powerful of the five forces
 The big factor determining the strength of rivalry is
how actively and aggressively are rivals employing the
various weapons of competition in jockeying for a
stronger market position and seeking bigger sales
 Is price competition vigorous?
 Active efforts to improve quality?
 Are rivals racing to offer better
performance features?
 Are rivals racing to offer better
customer service?
 Lots of advertising/sales promotions?
 Active efforts to build a stronger
dealer network?
 Active product innovation?
 Active use of other weapons of rivalry?
Copyrigh 163
t
What Causes Rivalry to be Stronger?
 Active jockeying for position among rivals and frequent
launches of new offensives to gain sales and market share
 One or more firms initiates moves to bolster their
standing at expense of rivals
 Lots of firms that are relatively equal in size and capability
 Slow market growth
 Industry conditions tempt some firms to go on the offensive
to boost volume and market share
 Customers have low costs in switching to rival brands
 A successful strategic move carries a big payoff
 Costs more to get out of business than to stay in
 Firms have diverse strategies, corporate priorities,
resources, and countries of origin
Copyrigh 164
t
Factors That Affect the Strength of Rivalry
Rivalry is generally stronger when:
•Rivals are active in making fresh moves to
The “Weapons” of
increase sales and market share
Competitive Rivalry Buyer demand is growing slowly
•Lower prices Rivalry The number of rivals ranges from at least 5 to
•More appealing among upwards of 12 or more
features Competing Rivals are of roughly equal size and capability
•Better product
Sellers Buyer costs to switch brands are low
performance One or more rivals is dissatisfied with their
•Higher quality
Efforts of current position and market share and make
•Strong brand image
rivals to gain aggressive moves to improve their market
and appeal
better market prospects
•Better customer
position, When rivals have diverse strategies and
service capabilities
higher sales objectives and are located in different countries
•Wider product
and market When one or two rivals have powerful
selection
share, strategies and other rivals are scrambling to
•Bigger/better dealer
and stay in the game
network
•Stronger product competitive
advantage
innovation Rivalry is generally weaker when:
capabilities •Rivals move only infrequently or in a non-
•Longer warranties aggressive manner to draw sales and market
•Higher levels of share away from rivals
advertising •Buyer demand is growing rapidly
•Buyer costs to switch brands are high
Copyrigh 165
t
Principle of Competitive Markets
Competitive jockeying among rival

firms is dynamic and ever-changing
As industry members initiate new
offensive and defensive moves
As emphasis swings from one
mix of competitive weapons to
another
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t
Competitive Force of Potential Entry
 Seriousness of threat depends on
 Barriers to entry
 Reaction of existing firms to entry
 Barriers exist when
 Newcomers confront obstacles
 Economic factors put potential
entrant at a disadvantage relative
to incumbent firms
Copyrigh 167
t
Factors Affecting the Threat of Entry
Entry threats are
stronger when
•The pool of entry
The Rivalry candidates is large
Among •Entry barriers are low or
Entry threats are can be readily hurdled by
weaker when Competing the likely entry candidates
•The pool of entry Sellers •When existing industry
candidates is small members are looking to
•Entry barriers are high expand their market reach
•Existing competitors by entering product
Competitive pressures coming
are struggling to earn segments or geographic
from the threat of entry
good profits of new rivals areas where they
•The industry’s outlook currently do not have a
is risky or uncertain presence
•Buyer demand is •Industry members are
growing slowly or is Potential New earning attractive profits
stagnant •Buyer demand is
Entrants
growing rapidly
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t
Common Barriers to Entry
 Sizable economies of scale
 Inability to gain access to specialized
technology
 Existence of strong learning/experience
curve effects
 Strong brand preferences and customer loyalty
 Large capital requirements and/or other specialized
resource requirements
 Cost disadvantages independent of size
 Difficulties in gaining access to distribution channels
 Regulatory policies, tariffs, trade restrictions
Copyrigh 169
t
Threat of entry is stronger when:

 Entry barriers are low
 Sizable pool of entry candidates
exists
 Incumbents are unwilling or unable
to contest a newcomer’s entry efforts
 Newcomers can expect to earn
attractive profits
Copyrigh 170
t
Competitive Force of
Substitute Products
Concept
Substitutes matter when customers are attracted to
the products of firms in other industries
Examples
✔ Eyeglasses vs. Contact Lens
✔ Sugar vs. Artificial Sweeteners
✔ Newspapers vs. TV vs. Internet
✔ E-mail vs. Overnight Delivery vs “Snail
mail” (U.S. Post Office)
Copyrigh 171
t
How to Tell Whether Substitute
Products are a Strong Force
 Sales of substitutes are
growing rapidly
 Producers of substitutes plan

to add new capacity
 Profits of producers of
substitutes are up
Copyrigh 172
t
Factors Affecting Competition
from Substitutes
Firms in Other
Industries
Offering Competitive pressures
Competitive pressures Substitute from substitutes are
from substitutes are Products stronger when
weaker when: •Good substitutes are
•Good substitutes are readily available or new
not readily available or ones are emerging
don’t exist •Substitutes are lower
Competitive pressures coming
•Substitutes are higher from the attempts of priced relative to the
priced relative to the companies outside the performance they
industry to win buyers
performance they deliver
over to their products
deliver •Buyers have low costs
•Buyers have high in switching to
costs in switching to Rivalry substitutes
substitutes among •Buyers grow more
Competing comfortable with using
Sellers substitutes
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t
Competitive threat of substitutes is

stronger when they are:
Readily available
Attractively priced
Believed to have comparable or
better performance features
Customer switching costs are low
Copyrigh 174
t
Competitive Pressures From Suppliers
and Supplier-Seller Collaboration
 Whether supplier-seller relationships
represent a weak or strong
competitive force depends on
 Whether suppliers can exercise
sufficient bargaining leverage to
influence terms of supply in their
favor
 Extent and competitive importance
of collaborative partnerships
between one or more sellers and
their suppliers
Copyrigh 175
t
Competitive Force of Suppliers
 Suppliers are a strong competitive force when:
 Item makes up large portion of product costs,
is crucial to production process, and/or
significantly affects product quality
 It is costly for buyers to switch suppliers
 They have good reputations and
growing demand
 They can supply a component cheaper than
industry members can make it themselves
 They do not have to contend with substitutes
 Buying firms are not important customers
Copyrigh 176
t
Factors Affecting Supplier Bargaining Power
Competitive
Suppliers of Raw pressures Rivalry
Materials, Parts, stemming from
supplier Among
Components,
or Other
bargaining Competing
power and
Resource Inputs seller-supplier Sellers
collaboration
Supplier bargaining power is stronger when

•Seller switching costs to alternative suppliers are high
•Some suppliers are a threat to integrate forward into the business of their customers
•Needed inputs are in short supply
Supplier bargaining power is weaker when

•Seller switching costs to alternative suppliers are low
•There is a surge in the availability of supplies
•Good substitute inputs exist or new ones emerge
•Supplier-seller collaboration or partnering provides attractive win-win opportunities
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t
Competitive Pressures: Collaboration
Between Sellers and Suppliers
 Rival sellers are forming long-term strategic
partnerships with select suppliers to
 Promote just-in-time deliveries and
reduced inventory and logistic costs
 Speed availability of next-generation
components
 Enhance quality of parts being supplied
 Reduce suppliers’ costs which paves way for
lower prices on items supplied
 Competitive advantage potential may accrue to
industry rivals doing the best job of managing supply-
chain relationships
Copyrigh 178
t
Suppliers are a stronger force the

more they can exercise power over:
 Prices charged
 Quality and
performance
of items supplied
 Reliability of deliveries
Copyrigh 179
t
Competitive Pressures From Buyers
and Seller-Buyer Collaboration
 Whether seller-buyer relationships
represent a weak or strong
competitive force depends on
 Whether buyers have sufficient

bargaining leverage to influence
terms of sale in their favor
 Extent and competitive

importance of collaborative
partnerships between one or
more sellers and their customers
Copyrigh 180
t
Competitive Force of Buyers
 Buyers are a strong competitive force when:
 They are large and purchase a sizable
percentage of industry’s product
 They buy in large quantities
 They can integrate backward
 Industry’s product is standardized
 Their costs in switching to substitutes or other
brands are low
 They can purchase from several sellers
 Product purchased does not save buyer money
Copyrigh 181
t
Competitive Pressures: Collaboration
Between Sellers and Buyers
 Partnerships are an increasingly important
competitive element in business-to-business
relationships
 Collaboration may result in mutual benefits regarding
 Just-in-time deliveries
 Order processing
 Electronic invoice payments
 On-line sharing of sales at the cash register
 Competitive advantage potential may accrue to
industry rivals who do the best job of managing
seller-buyer partnerships
Copyrigh 182
t
Factors Affecting Buyer Bargaining Power
Rivalry Competitive pressures

Among stemming from buyer
bargaining power and Buyers
Competing seller-buyer
Sellers collaboration
Buyer bargaining power is stronger when

•Buyer switching costs to competing brands are low
•Buyers are large and purchase in large quantities
•Quantity and quality of information available to buyers improves
•Some buyers are a threat to integrate backward into the business of sellers
•Buyer demand is weak or declining
Buyer bargaining power is weaker when

•Buyer switching costs to competing brands are high
•There is a surge in buyer demand
•Seller-buyer collaboration or partnering provides attractive win-win opportunities
Copyrigh 183
t
Buyers are a stronger competitive

force the more they have leverage to
bargain over:
 Price
 Quality
 Service
 Other terms and
conditions of sale
Copyrigh 184
t
Strategic Implications of the
Five Competitive Forces
 Competitive environment is unattractive
from the standpoint of earning
good profits when:
 Rivalry is strong
 Entry barriers are low
and entry is likely
 Competition from
substitutes is strong
 Suppliers and customers have
considerable bargaining power
Copyrigh 185
t
Strategic Implications of the
 Competitive environment is ideal
from a profit-making standpoint when:
 Rivalry is moderate
 Entry barriers are high
and no firm is likely to
enter
 Good substitutes do
not exist
 Suppliers and customers are in a
weak bargaining position
Copyrigh 186
t
Coping With the
 Objective is to craft a strategy
To insulate firm from competitive forces
To help make the “rules,” placing

added pressure on rivals
Which allows firm to define the

business model for the industry
Copyrigh 187
t
Threat of New Entrants
Economies of Scale
*
Product
Barriers
Barriers * Differentiation
to to Entry
Entry Capital
* Requirements
Switching
* Costs
Access to Distribution Channels
*
Cost Disadvantages Independent of Scale
*
Government
* Policy
* Expected Retaliation
Ch. 3 * 19
Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
Suppliers exert * Supplier industry is dominated by a
power in the few firms
industry by:
* Suppliers’ products have few
* Threatening to raise substitutes
prices or to reduce * Buyer is not an important customer
quality to supplier
Powerful suppliers * Suppliers’ product is an important
can squeeze industry input to buyers’ product
profitability if firms
are unable to * Suppliers’ products are differentiated
recover cost * Suppliers’ products have high
increases switching costs
* Supplier poses credible threat of
forward integration
Ch. 3 * 19
Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
* Buyers are concentrated or purchases
are large relative to seller’s sales
* Purchase accounts for a significant Buyers compete
fraction of supplier’s sales with supplying
* Products are undifferentiated industry by:
* Buyers face few switching costs
* Bargaining down prices
* Buyers’ industry earns low profits
* Forcing higher quality
* Buyer presents a credible threat of
backward integration
* Playing firms off of
each other
* Product unimportant to quality
* Buyer has full information
Ch. 3 19
Threat of Substitute Products
Keys to evaluating substitute products:
Products with improving price /
* performance tradeoffs relative
Products
to present industry products
with similar
function
limit the For Example:
prices firms Electronic security systems in
can charge place of security guards
Fax machines or e-mailed
attachments in place of
overnight mail delivery
Ch. 3 19
Porter’s 5 Forces Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants
Bargaining Bargaining
Rivalry Among Competing
Power of Power of
Firms in Industry
Suppliers Buyers
Threat of
Substitute
Products
Ch. 3 * 19
Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways
* Jockeying for strategic position
* Using price competition
* Staging advertising battles
* Increasing consumer warranties or service
* Making new product introductions
Occurs when a firm is pressured or sees an opportunity
* Price competition often leaves entire industry worse off

* Advertising battles may increase total industry
demand, but may be costly to smaller competitors
Ch. 3 19
Cutthroat competition is more likely to occur when
* Numerous or equally balanced competitors
* Slow growth industry
* High fixed costs
* High storage costs
* Lack of differentiation or switching costs
* Capacity added in large increments
* Diverse competitors
* High strategic stakes
High exit barriers
*
Ch. 3 19
High Exit Barriers are economic, strategic and

emotional factors which cause companies to
remain in an industry even when future
profitability is questionable.
Specialized assets
*
* Fixed cost of exit (e.g., labour agreements)
* Strategic interrelationships
* Emotional barriers
* Government and social restrictions
Ch. 3 19
Question 3: What Forces Are at
Work to Change Industry Conditions?
 Industries change because forces
are driving industry participants
to alter their actions
 Driving forces are the

major underlying causes
of changing industry and
competitive conditions
Copyrigh 200
t
Analyzing Driving Forces
1. Identify those forces likely to exert

greatest influence over next 1 - 3 years
 Usually no more than 3 - 4
factors qualify as real
drivers of change
2. Assess impact
 What difference will the
forces make - favorable?
unfavorable?
Copyrigh 201
t
Common Types of Driving Forces
 Internet and e-commerce opportunities
 Increasing globalization of industry
 Changes in long-term industry growth rate
 Changes in who buys the product and how they
use it
 Product innovation
 Technological change/process innovation
 Marketing innovation
Copyrigh 202
t
Common Types of Driving Forces
 Entry or exit of major firms
Diffusion of technical knowledge
Changes in cost and efficiency
Market shift from standardized to differentiated
products (or vice versa)
Regulatory policies / government legislation
Changing societal concerns, attitudes, and
lifestyles
Changes in degree of uncertainty and risk
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t
Environmental Scanning
Definition
Monitoring and interpreting sweep of social,
political, economic, ecological, and technological
events to spot budding trends that could
eventually impact industry
Purpose
Raise consciousness of managers about potential
developments that could
 Have important impact on industry conditions
 Pose new opportunities and threats
Copyrigh 204
t
Question 4: Which Companies are in
Strongest / Weakest Positions?
 One technique for revealing the different
competitive positions of industry rivals is strategic
group mapping
 A strategic group
consists of those
rivals with similar
competitive
approaches in
an industry
Copyrigh 205
t
Strategic Group Mapping
 Firms in same strategic group have two or
more competitive characteristics in common
 Sell in same price/quality range
 Cover same geographic areas
 Be vertically integrated to same degree
 Have comparable product line breadth
 Emphasize same types of distribution
channels
 Offer buyers similar services
 Use identical technological approaches
Copyrigh 206
t
Procedure for Constructing a
Strategic Group Map
STEP 1: Identify competitive characteristics that
differentiate firms in an industry from one
another
STEP 2: Plot firms on a two-variable map using
pairs of these differentiating
characteristics
STEP 3: Assign firms that fall in about the same
strategy space to same strategic group
STEP 4: Draw circles around each group, making
circles proportional to size of group’s
respective share of total industry sales
Copyrigh 207
t
Example: Strategic Group Map of the
Video Game Industry
Arcades
Suppliers/Distribution Channels
Arcade
operators
Types of Video Game
Publishers
Home PCs of games on
CD-ROMs
Sony, Sega,
Nintendo, several
Video game others
consoles
MSN Gaming Zone,

Online/Internet Pogo.com,
America Online,
HEAT, Engage,
Oceanline, TEN
Low Medium High

(Coin-operated (Console players cost (Use PC)
equipment) $100-$300)
Overall Cost to Players of Video Games
Copyrigh 208
t
Guidelines: Strategic Group Maps
 Variables selected as axes should not be highly
correlated
 Variables chosen as axes should expose big
differences in how rivals compete
 Variables do not have to be either quantitative or
continuous
 Drawing sizes of circles proportional to combined
sales of firms in each strategic group allows map
to reflect relative sizes of each strategic group
 If more than two good competitive variables can
be used, several maps can be drawn
Copyrigh 209
t
Interpreting Strategic Group Maps
 Driving forces and competitive pressures often
favor some strategic groups and hurt others
 Profit potential of different strategic groups varies
due to strengths and weaknesses in each group’s
market position
 The closer strategic groups are on map, the
stronger the competitive rivalry among member
firms tends to be
Copyrigh 210
t
Question 5: What Strategic Moves Are
Rivals Likely to Make Next?
 A firm’s own best strategic moves are affected by
 Current strategies of competitors
 Future actions of competitors
 Profiling key rivals involves gathering
competitive intelligence about their
 Current strategies
 Most recent moves
 Resource strengths and weaknesses
 Announced plans
Copyrigh 214
t
Competitor Analysis
 Successful strategists take great pains in
scouting competitors to
 Understand their strategies
 Watch their actions
 Evaluate their vulnerability to driving
forces and competitive pressures
 Size up their resource strengths and
weaknesses and their capabilities
 Try to anticipate rivals’ next moves
Copyrigh 215
t
Table 3.3: Categorizing Objectives
and Strategies of Competitors
Competitive Strategic Market Share Competitive Strategic Competitive
Scope Intent Objective Position Posture Strategy
• Aggressive • Getting • Striving for
• Be dominant • Mostly
• Local expansion stronger; on low-cost
leader offensive
via the move leadership
• Overtake acquisition &
internal • Well- • Mostly • Focusing on
• Regional industry
growth entrenched defensive market niche
leader
• Be among • Expansion • Stuck in the • Combination • Pursuing
• National industry via internal middle of the of offensive differentiation
leaders growth pack & defensive based on
Quality
• Expansion • Going after a
• Move into • Aggressive Service
• Multicountry via different
top 10 risk-taker Technology
acquisition position
superiority
• Move up a • Hold on to • Struggling; Breadth of
• Conservative
• Global notch in present losing product line
follower
rankings share ground Image &
• Maintain • Give up reputation

More value
current present • Retrenching
position share to for the
to a position
achieve money
that can be Other
• Just survive short-term defended
profits attributes
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t
The Advantages and Disadvantages of Different
Entry Modes
Entry Mode Advantages Disadvantages
Exporting • Ability to realize location and experience-• High transport costs
curve economies • Trade barriers
• Problems with local marketing agents
Licensing • Low development costs and risks • Inability to realize location and
experience-curve economies
• Inability to engage in global strategic
coordination
• Lack of control over technology
Franchising • Low development costs and risks • Inability to engage in global strategic
coordination
• Lack of control over quality
Joint ventures • Access to local partner’s knowledge • Inability to engage in global strategic
• Shared development costs and risks coordination
• Political dependency • Inability to realize location and
experience-curve economies
• Lack of control over technology
Wholly owned • Protection of technology • High costs and risks

subsidiaries • Ability to engage in global strategic
coordination
• Ability to realize location and experience-
curve economies
TABLE
8.2 © 2001 Houghton Mifflin Company. All rights reserved.
Copyright
The Advantages and Disadvantages of Different
Strategies for Competing Globally
Strategy Advantages Disadvantages
International • Transfer of distinctive competencies to • Lack of local responsiveness
foreign markets • Inability to realize location economies
• Failure to exploit experience-curve effects
Multidomestic • Ability to customize product offerings • Inability to realize location economies

and marketing in accordance with local • Failure to exploit experience-curve effects
responsiveness • Failure to transfer distinctive
competencies to foreign markets
Global • Ability to exploit experience-curve • Lack of local responsiveness

effects
• Ability to exploit location economies
Transnational • Ability to exploit experience-curve • Difficulties in implementation because of

effects organizational problems
• Ability to exploit location economies
• Ability to customize product offerings
and marketing in accordance with local
responsiveness
• Reaping benefits of global learning
TABLE
8.1 © 2001 Houghton Mifflin Company. All rights reserved.
Copyright
Choosing an Investment Strategy at the
Business Level
Stage of the Industry Strong Competitive Weak Competitive
Life Cycle Position Position
Embryonic Share building Share building
Growth Growth Market concentration
Shakeout Share increasing Market concentration or

harvest/liquidation
Maturity Hold-and-maintain or profit Harvest or

liquidation/divestiture
Decline Market concentration or Turnaround, liquidation,

harvest (asset reduction) or divestiture
TABLE
6.2
Copyright © 2001 Houghton Mifflin Company. All rights reserved.
Predicting Moves of Rivals
 Predicting rivals’ next moves involves
 Analyzing their current competitive positions
 Examining public pronouncements about
what it will take to be successful in industry
 Gathering information from grapevine about
current activities and potential changes
 Studying past actions and leadership
 Determining who has flexibility to make major
strategic changes and who is locked into
pursuing same basic strategy
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Question 6: What are the Key Factors
for Competitive Success?
 Competitive elements most affecting every
industry member’s ability to prosper
 Specific strategy elements
 Product attributes
 Resources
 Competencies
 Competitive capabilities
 KSFs spell the difference between
 Profit and loss
 Competitive success or failure
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Identifying Industry
Key Success Factors
 Answers to three questions pinpoint KSFs
 On what basis do customers choose between
competing brands of sellers?
 What resources and competitive capabilities
does a seller need to have to be competitively
successful?
 What does it take for sellers to achieve a
sustainable competitive advantage?
 KSFs consist of the 3 - 5 really major
determinants of financial and
competitive success in an industry
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Table 3.3: Common Types of
Key Success Factors
Scientific research expertise; Product innovation capability; Expertise
Technology- in a given technology; Capability to use Internet to conduct various
related business activities
Manufacturing- Low-cost production efficiency; Quality of manufacture; High use of
fixed assets; Low-cost plant locations; High labor productivity; Low-
related cost product design; Flexibility to make a range of products
Strong network of wholesale distributors/dealers; Gaining ample
Distribution-
space on retailer shelves; Having company-owned retail outlets; Low
related distribution costs; Fast delivery
Fast, accurate technical assistance; Courteous customer service;
Marketing- Accurate filling of orders; Breadth of product line; Merchandising
related skills; Attractive styling; Customer guarantees; Clever advertising
Superior workforce talent; Quality control know-how; Design
Skills-related expertise; Expertise in a particular technology; Ability to develop
innovative products; Ability to get new products to market quickly
Organizational Superior information systems; Ability to respond quickly to shifting
market conditions; Superior ability to employ Internet to conduct
capability business; More experience & managerial know-how
Favorable image/reputation with buyers; Overall low-cost; Convenient
Other types locations; Pleasant, courteous employees; Access to financial capital;
Patent protection
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Example: KSFs for Beer Industry
 Utilization of brewing capacity -- to keep

manufacturing costs low
 Strong network of wholesale distributors -- to gain
access to retail outlets
 Clever advertising -- to induce beer drinkers to buy
a particular brand
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Example: KSFs for Apparel
Manufacturing Industry
 Fashion design -- to
create buyer appeal
 Low-cost manufacturing
efficiency -- to keep selling
prices competitive
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Example: KSFs for Tin and
Aluminum Can Industry
 Locating plants close to end-use
customers -- to keep costs of shipping
empty cans low
 Ability to market plant output within
economical shipping distances
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Strategic Management Principle
A sound strategy incorporates

efforts to be competent on all
industry key success factors and
to excel on at least one factor!
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Question 7: Is the Industry
Attractive or Unattractive and Why?
Objective
Develop conclusions about whether the industry
and competitive environment is attractive or
unattractive, both near- and long-term, for
earning good profits
Principle
A firm uniquely well-suited in an otherwise
unattractive industry can, under certain
circumstances, still earn unusually good profits
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Things to Consider in
Assessing Industry Attractiveness
 Industry’s market size and growth potential
 Whether competitive conditions are conducive to
rising/falling industry profitability
 Will competitive forces become stronger or
weaker
 Whether industry will be favorably or unfavorably
impacted by driving forces
 Potential for entry/exit of major firms
 Stability/dependability of demand
 Severity of problems facing industry
 Degree of risk and uncertainty in industry’s future
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Conducting an Industry and
Competitive Situation Analysis
 Two things to keep in mind
1. Evaluating industry and competitive

conditions cannot be reduced to a
formula-like exercise--thoughtful
analysis is essential
2. Sweeping industry and competitive

analyses need to done every 1 to 3
years
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The
The Basis
Basis for
for Good
Good
Strategic
Strategic Decisions
Decisions
Intuition + Analysis
Effective Strategic Decisions

234
Integrating Intuition and Analysis
Intuition based on:
– Past experiences
– Judgment
– Feelings
Useful for decision making
– Conditions of great uncertainty
– Conditions with little precedent
Ch. 1-235
Fred R. David
Prentice Hall
Integrating Intuition and Analysis
Intuition and judgment
Management at all levels
–
Analyses are influenced
–
Analytical thinking and intuitive thinking

Complement each other
–
Ch. 1-236
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Strategies in Action
Even if you’re on the right track, you’ll get

run over if you just sit there.
-- Will Rogers
Ch5-237
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Long-Term Objectives
• The results expected from pursuing certain strategies
Ch5-238
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Objectives –
– Quantifiable
– Measurable
– Realistic
– Understandable
– Challenging
– Hierarchical
– Obtainable
– Congruent
– Time-line
Ch5-239
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Long-term objectives are necessary –
– Corporate
– Divisional
– Functional levels
Ch5-240
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Integration Strategies
Forward Integration
Integration
Backward Integration
Strategies
Horizontal Integration
Ch5-241
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Integration strategies –
– Allow a firm to gain control over:

• Distributors
• Suppliers
• competitors
Ch5-242
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Forward Integration –
– Gaining ownership or increased

control over distributors or retailers
Ch5-243
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Guidelines for Forward Integration –
 Present distributors are expensive, unreliable, or

incapable of meeting firm’s needs
 Availability of quality distributors is limited
 When firm competes in an industry that is expected to
grow markedly
 Organization has both capital and human resources
needed to manage new business of distribution
 Advantages of stable production are high
 Present distributors have high profit margins
Ch5-244
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Prentice Hall
Backward Integration –
– Seeking ownership or increased

control of a firm’s suppliers
Ch5-245
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Guidelines for Backward Integration –
 When present suppliers are expensive, unreliable, or

incapable of meeting needs
 Number of suppliers is small and number of competitors large
 High growth in industry sector
 Firm has both capital and human resources to manage new
business
 Advantages of stable prices are important
 Present supplies have high profit margins
Ch5-246
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Prentice Hall
Horizontal Integration –
– Seeking ownership or increased

control over competitors
Ch5-247
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Guidelines for Horizontal Integration –
 Firm can gain monopolistic characteristics without

being challenged by federal government
 Competes in growing industry
 Increased economies of scale provide major
competitive advantages
 Faltering due to lack of managerial expertise or
need for particular resources
Ch5-248
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Intensive Strategies
Market Penetration
Intensive
Market Development
Strategies
Product Development
Ch5-249
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Intensive strategies –
– Require intensive efforts to improve a

firm’s competitive position with existing
products
Ch5-250
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Market Penetration –
– Seeking increased market share for present

products or services in present markets
through greater marketing efforts
Ch5-251
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Guidelines for Market Penetration –
 Current markets not saturated

 Usage rate of present customers can be increased
significantly
 Market shares of competitors declining while total
industry sales increasing
 Increased economies of scale provide major
competitive advantages
Ch5-252
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Prentice Hall
Market Development –
– Introducing present products or

services into new geographic area
Ch5-253
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Guidelines for Market Development –
 New channels of distribution that are reliable,

inexpensive, and good quality
 Firm is very successful at what it does
 Untapped or unsaturated markets
 Capital and human resources necessary to manage
expanded operations
 Excess production capacity
 Basic industry rapidly becoming global
Ch5-254
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Product Development –
– Seeking increased sales by improving

present products or services or
developing new ones
Ch5-255
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Guidelines for Product Development –
 Products in maturity stage of life cycle

 Competes in industry characterized by rapid
technological developments
 Major competitors offer better-quality products at
comparable prices
 Compete in high-growth industry
 Strong research and development capabilities
Ch5-256
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Prentice Hall
Diversification Strategies
Concentric
Diversification
Diversification Conglomerate
Strategies Diversification
Horizontal
Diversification
Ch5-257
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Diversification strategies –
– Becoming less popular as organizations are

finding it more difficult to manage diverse
business activities
Ch5-258
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Concentric Diversification –
– Adding new, but related, products or

services
Ch5-259
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Guidelines for Concentric Diversification –
 Competes in no- or slow-growth industry

 Adding new & related products increases sales of
current products
 New & related products offered at competitive prices
 Current products are in decline stage of the product
life cycle
 Strong management team
Ch5-260
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Prentice Hall
Conglomerate Diversification –
– Adding new, unrelated products or

services
Ch5-261
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Prentice Hall
Guidelines for Conglomerate Diversification –
 Declining annual sales and profits

 Capital and managerial talent to compete
successfully in a new industry
 Financial synergy between the acquired and
acquiring firms
 Exiting markets for present products are saturated
Ch5-262
Fred R. David
Prentice Hall
Horizontal Diversification –
– Adding new, unrelated products or

services for present customers
Ch5-263
Fred R. David
Prentice Hall
Guidelines for Horizontal Diversification –
 Revenues from current products/services would

increase significantly by adding the new unrelated
products
 Highly competitive and/or no-growth industry w/low
margins and returns
 Present distribution channels can be used to market
new products to current customers
 New products have counter cyclical sales patterns
compared to existing products
Ch5-264
Fred R. David
Prentice Hall
Defensive Strategies
Retrenchment
Defensive
Divestiture
Strategies
Liquidation
Ch5-265
Fred R. David
Prentice Hall
Retrenchment –
– Regrouping through cost and asset

reduction to reverse declining sales
and profit
– Chapter 11 Bankruptcy (worst case)
– [Chapter 13 for Small businesses]
Ch5-266
Fred R. David
Prentice Hall
Guidelines for Retrenchment –
 Firm has failed to meet its objectives and goals

consistently over time but has distinctive
competencies
 Firm is one of the weaker competitors
 Inefficiency, low profitability, poor employee morale,
and pressure from stockholders to improve
performance.
 When an organization’s strategic managers have
failed
 Very quick growth to large organization where a
major internal reorganization is needed
Ch5-267
Fred R. David
Prentice Hall
Divestiture –
– Selling a division or part of an

organization
Ch5-268
Fred R. David
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Guidelines for Divestiture –
 When firm has pursued retrenchment but failed to attain

needed improvements
 When a division needs more resources than the firm can
provide
 When a division is responsible for the firm’s overall poor
performance
 When a division is a misfit with the organization
 When a large amount of cash is needed and cannot be
obtained from other sources.
Ch5-269
Fred R. David
Prentice Hall
Liquidation–
– Selling all of a company’s assets, in

parts, for their tangible worth
– Chapter 7 Bankruptcy (entire firm sold)
Ch5-270
Fred R. David
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Guidelines for Liquidation –
 When both retrenchment and divestiture have been

pursued unsuccessfully
 If the only alternative is bankruptcy, liquidation is an
orderly alternative
 When stockholders can minimize their losses by
selling the firm’s assets
Ch5-271
Fred R. David
Prentice Hall
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Ch5-272
Fred R. David
Prentice Hall
Joint Venture/Partnering
Two or more companies form a temporary

partnership or consortium for purpose of
capitalizing on some opportunity.
Ch5-273
Fred R. David
Prentice Hall
Cooperative Arrangements –
 Research and development partnerships

 Cross-distribution agreements
 Cross-licensing agreements
 Cross-manufacturing agreements
 Joint-bidding consortia
Ch5-274
Fred R. David
Prentice Hall
Problems Causing Joint Ventures to Fail –
 Managers who must collaborate daily not involved in

forming or shaping the venture
 Venture may benefit the companies but not the
customers
 Venture not supported equally by both partners
 Venture may begin to compete with one of the
partners more so than the other
Ch5-275
Fred R. David
Prentice Hall
Guidelines for Joint Ventures –
 Combination of privately held and publicly held can be

synergistically combined
 Domestic forms joint venture with foreign firm, can obtain local
management to reduce certain risks
 Distinctive competencies of two or more firms are complementary
 Overwhelming resources and risks where project is potentially
very profitable (e.g., Alaska pipeline)
 Two or more smaller firms have trouble competing with larger firm
 A need exists to introduce a new technology quickly
Ch5-276
Fred R. David
Prentice Hall
Merger/Acquisition
• Merger - two organizations of about equal

size unite to form one enterprise
• Acquisition - large organization purchases a

smaller firm, or vice versa
• Takeover or Hostile Takeover - M or A is not

desired by both parties
Ch5-277
Fred R. David
Prentice Hall
Leveraged Buyout (LBO)
• Corporation’s shares are bought by the

company’s management or other private
investors using borrowed funds
• Organization becomes private or closely-held
Ch5-278
Fred R. David
Prentice Hall
Strategy Analysis & Choice
Whether it’s broke or not, fix it—make it

better. Not just products, but the whole
company if necessary.
-- Bill Saporito
Ch5-279
Fred R. David
Prentice Hall
Strategic analysis and choice largely

involves making subjective decisions
based on objective information.
Ch5-280
Fred R. David
Prentice Hall
The Nature of Strategy Analysis and Choice –
– Establishing long-term objectives

– Generating alternative strategies
– Selecting strategies to pursue
– Best alternative to achieve mission and objectives
Ch5-281
Fred R. David
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Participation in generating alternative

strategies should be broad –
Ch5-282
Fred R. David
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Strategy-Formulation Analytical Framework
Stage 1: The Input Stage
Stage 2: The Matching Stage
Stage 3: The Decision Stage
Ch5-283
Fred R. David
Prentice Hall
Formulation Framework
Internal Factor Evaluation

Matrix (IFE)
Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)
Competitive Profile
Matrix
Fred R. David
Prentice Hall
Input Stage
• Provides basic input information for the

matching and decision stage matrices
• Requires strategists to quantify subjectivity
early in the process
• Good intuitive judgment always needed
Ch5-285
Fred R. David
Prentice Hall
TOWS Matrix
SPACE Matrix
Stage 2:
BCG Matrix
The Matching Stage
IE Matrix
Grand Strategy Matrix
Fred R. David
Prentice Hall
6.5 General Electric’s Business Screen (Fig. 6.3)
General Electric’s Business

Screen
Winners Winners
C
A Question
High B Marks
D
Industry Attractiveness
Winners
E Average
Businesses
Medium F
Losers
H
Losers
G
Low Source: Adapted from Strategic
Profit
Producers Management in GE, Corporate
Losers
Planning and Development, General
Electric Corporation. Used by
permission of General Electric
Strong Average Weak
Company.
Business Strength/Competitive Position
6.6 Portfolio Matrix for Plotting Products by Country (Fig. 6.4)
Portfolio Matrix for Plotting Products by

Country
Competitive Strengths
High Low
Dominate/Divest
High
Invest/Grow
Joint Venture
Country Attractiveness
Selective
Strategies
Harvest/Divest
Low
Source: G. D. Harrell and R. O.

Combine/License Kiefer, “Multinational Strategic
Market Portfolios,” MSU Business
Topics (Winter 1981), p. 7.
7.2 Proposed Outsourcing Matrix (Fig. 7.1)
Proposed Outsourcing
Matrix
Activity's Total Value-Added to Firm's Products
and Services
Low High
Activity's Potential for Competitive Advantage
Taper Vertical Full Vertical

Integration: Integration:
High
Produce Some Produce All

Internally Internally
Outsource Outsource
Completely: Completely:
Low
Buy on Open Purchase with Source: J. D. Hunger and T. L.

Market Long-term
Contracts Wheelen, “Proposed Outsourcing
Matrix.” Copyright © 1996 by
Wheelen and Hunger Associates.
Matching Stage
• Match between organization’s internal resources and skills

and the opportunities and risks created by its external factors.
Ch5-290
Fred R. David
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Matching Stage
TOWS Matrix
– Threats
– Opportunities
– Strengths
– Weaknesses
Ch5-291
Fred R. David
Prentice Hall
TOWS Matrix
Develop four types of strategies
– Strengths-Opportunities (SO)
– Weaknesses-Opportunities (WO)
– Strengths-Threats (ST)
– Weaknesses-Threats (WT)
Ch5-292
Fred R. David
Prentice Hall
SO Strategies
Threats Use a firm’s

Opportunities SO internal
strengths to take
Weaknesses Strategies
advantage of
Strengths external
(TOWS) opportunities
Ch5-293
Fred R. David
Prentice Hall
WO Strategies
Improving
Threats internal
Opportunities WO weaknesses by
Weaknesses Strategies taking
Strengths advantage of
(TOWS) external
opportunities
Ch5-294
Fred R. David
Prentice Hall
ST Strategies
Threats Using firm’s

ST strengths to
Opportunities
avoid or reduce
Weaknesses Strategies the impact of
Strengths external threats.
(TOWS)
Ch5-295
Fred R. David
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WT Strategies
Defensive
Threats tactics aimed at
Opportunities WT reducing internal
Weaknesses Strategies weaknesses
Strengths and avoiding
(TOWS) environmental
threats.
Ch5-296
Fred R. David
Prentice Hall
TOWS Matrix
Steps in developing the TOWS Matrix
1. List the firm’s key external opportunities

2. List the firm’s key external threats
3. List the firm’s key internal strengths
4. List the firm’s key internal weaknesses
Ch5-297
Fred R. David
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TOWS Matrix
Developing the TOWS Matrix
5. Match internal strengths with external opportunities and

record the resultant SO Strategies
6. Match internal weaknesses with external opportunities
and record the resultant WO Strategies
7. Match internal strengths with external threats and
record the resultant ST Strategies
8. Match internal weaknesses with external threats and
record the resultant WT Strategies
Ch5-298
Fred R. David
Prentice Hall
TOWS Matrix
Leave Blank Strengths-S Weaknesses-W
List Strengths List Weaknesses
Opportunities-O SO Strategies WO Strategies
List Opportunities Use strengths to take Overcome weaknesses

advantage of opportunities by taking advantage of
opportunities
Threats-T ST Strategies WT Strategies
List Threats Use strengths to avoid Minimize weaknesses

threats and avoid threats
Ch5-299
Fred R. David
Prentice Hall
TOWS Matrix
SPACE Matrix
Stage 2:
BCG Matrix
The Matching Stage
IE Matrix
Fred R. David
Prentice Hall
SPACE Matrix
Strategic Position and Action Evaluation Matrix
 Four quadrant framework

 Determines appropriate strategies
 Aggressive
 Conservative
 Defensive
 Competitive
Ch5-301
Fred R. David
Prentice Hall
SPACE Matrix
Two Internal Dimensions

 Financial Strength [FS]
 Competitive Advantage [CA]
Two External Dimensions

 Environmental Stability [ES]
 Industry Strength [IS]
Ch5-302
Fred R. David
Prentice Hall
SPACE Matrix
Developing the SPACE Matrix:
• EFE Matrix
• IFE Matrix
Reconsider info not included in final lists of

S’s, W’s, O’s & T’s
Ch5-303
Fred R. David
Prentice Hall
SPACE Factors
Internal Strategic Position External Strategic Position
Financial Strength (FS) Environmental Stability (ES)
Return on investment Technological changes

Leverage Rate of inflation
Liquidity Demand variability
Working capital Price range of competing products
Cash flow Barriers to entry
Ease of exit from market Competitive pressure
Risk involved in business Price elasticity of demand
Ch5-304
Fred R. David
Prentice Hall
SPACE Factors
Internal Strategic Position External Strategic Position
Competitive Advantage CA Industry Strength (IS)
Market share Growth potential

Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity utilization Resource utilization
Technological know-how Capital intensify
Control over suppliers & distributors Ease of entry into market
Productivity, capacity utilization
Ch5-305
Fred R. David
Prentice Hall
SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1
CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
-2
-3
-4
-5
Defensive -6 Competitive
ES Ch5-306
Fred R. David
Prentice Hall
TOWS Matrix
SPACE Matrix
Stage 2:
BCG Matrix
The Matching Stage
IE Matrix
Fred R. David
Prentice Hall
BCG Matrix
Boston Consulting Group Matrix
• Enhances multidivisional firms’ efforts

to formulate strategies
• Autonomous divisions (or profit centers)
constitute the business portfolio
• Firm’s divisions may compete in
different industries requiring separate
strategy
Ch5-308
Fred R. David
Prentice Hall
BCG Matrix
Boston Consulting Group Matrix
• Graphically portrays differences among

divisions
• Focuses on market share position and
industry growth rate
• Manage business portfolio through relative
market share position and industry growth
rate
Ch5-309
Fred R. David
Prentice Hall
BCG Matrix
Relative market share position defined:
• Ratio of a division’s own market share in a

particular industry to the market share held by
the largest rival firm in that industry.
Ch5-310
Fred R. David
Prentice Hall
BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
High
+20
Stars Question Marks
II I
Medium
0
Cash Cows Dogs

III IV
Low
s udnI
-20 Ch5-311
Fred R. David
Prentice Hall
BCG Matrix
Question Marks
• Low relative market share position yet

compete in high-growth industry.
• Cash needs are high
• Cash generation is low
• Decision to strengthen (intensive

strategies) or divest
Ch5-312
Fred R. David
Prentice Hall
BCG Matrix
Stars
• High relative market share and high

industry growth rate.
• Best long-run opportunities for growth and
profitability
• Substantial investment to maintain or

strengthen dominant position
• Integration strategies, intensive strategies, joint
ventures
Ch5-313
Fred R. David
Prentice Hall
BCG Matrix
Cash Cows
• High relative market share position, but compete

in low-growth industry
• Generate cash in excess of their needs
• Milked for other purposes
• Maintain strong position as long as possible

• Product development, concentric diversification
• If becomes weak—retrenchment or divestiture
Ch5-314
Fred R. David
Prentice Hall
BCG Matrix
Dogs
• Low relative market share position and

compete in slow or no market growth
• Weak internal and external position
• Decision to liquidate, divest, retrenchment
Ch5-315
Fred R. David
Prentice Hall
TOWS Matrix
SPACE Matrix
Stage 2:
BCG Matrix
The Matching Stage
IE Matrix
Fred R. David
Prentice Hall
• Popular tool for formulating alternative
strategies
• All organizations (or divisions) can be

positioned in one of four quadrants
• Based on two evaluative dimensions:

– Competitive position
– Market growth
Ch5-317
Fred R. David
Prentice Hall
RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
WEAK 7. Concentric diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH
Ch5-318
Fred R. David
Prentice Hall
Quadrant I
• Excellent strategic position

• Concentration on current markets and products
• Take risks aggressively when necessary
Ch5-319
Fred R. David
Prentice Hall
Quadrant II
• Evaluate present approach seriously

• How to change to improve competitiveness
• Rapid market growth requires intensive
strategy
Ch5-320
Fred R. David
Prentice Hall
Quadrant III
• Compete in slow-growth industries

• Weak competitive position
• Drastic changes quickly
• Cost and asset reduction indicated
(retrenchment)
Ch5-321
Fred R. David
Prentice Hall
Quadrant IV
• Strong competitive position

• Slow-growth industry
• Diversification indicated to more promising
growth areas
Ch5-322
Fred R. David
Prentice Hall
9.1 Matching Chief Executive “Types” with Strategy
Matching Chief Executive “Types” with

Strategy
Business Strength/Competitive Position
Strong Average Weak
Growth—Concentration Retrenchment—
Save Company
Dynamic Industry Expert
Turnaround
High
Specialist
Industry Attractiveness
Stability
Medium
Cautious Profit Planner
Source: Thomas L. Wheelen and J.

Low
Growth—Diversification Retrenchment— David Hunger, “Matching Proposed

Close Company Chief Executive ‘Types’ with
Analytical Portfolio Corporate Strategy.” Copyright ©
Manager Professional 1991 by Wheelen and Hunger
Liquidator Associates. Reprinted by
permission.
Stage 3: Quantitative Strategic

The Decision Stage Planning Matrix
(QSPM)
Fred R. David
Prentice Hall
QSPM
Quantitative Strategic Planning Matrix
• Only technique designed to determine the

relative attractiveness of feasible
alternative actions
Ch5-325
Fred R. David
Prentice Hall
QSPM
Quantitative Strategic Planning Matrix
• Tool for (?objective?) evaluation of

alternative strategies
• Based on identified external and
internal Critical Success Factors
• Requires good intuitive judgment
Ch5-326
Fred R. David
Prentice Hall
QSPM
Limitations:
• Requires intuitive judgments and

educated assumptions
• Only as good as the prerequisite inputs
Ch5-327
Fred R. David
Prentice Hall
QSPM
Positives:
• Sets of strategies examined simultaneously

or sequentially
• Requires the integration of pertinent external

and internal factors in the decision-making
process
Ch5-328
Fred R. David
Prentice Hall
Cultural Aspects of Strategy
Choice
Culture:
• The set of shared values, beliefs,

attitudes, customs, norms,
personalities, heroes, and heroines that
describe a firm
Ch5-329
Fred R. David
Prentice Hall
Cultural Aspects of Strategy
Choice
Culture:
• Successful strategies depend on

degree of support from a firm’s culture
Ch5-330
Fred R. David
Prentice Hall
Politics of Strategy Choice
Politics in organizations:
• Management hierarchy
• Career aspirations
• Allocation of scarce resources
Ch5-331
Fred R. David
Prentice Hall
Political tactics for strategists:
• Equifinality
• Satisfying
• Generalization
• Focus on Higher-Order Issues
• Provide Political Access on Important Issues
Ch5-332
Fred R. David
Prentice Hall
• Equifinality: It is often possible to achieve similar

results using different means or paths.
• Satisfying: Achieving satisfactory results with an
acceptable strategy is far better than failing to
achieve optimal results with an unpopular strategy.
• Generalization: Shifting focus from specific
issues to more general ones may increase
strategists’ option s for gaining organizational
commitment.
Ch5-333
Fred R. David
Prentice Hall
• Focus on Higher-Order Issues: By raising an

issue to a higher level, many short-term interests
can be postponed in favor of long-term interests.
• Provide Political Access on Important Issues:
Strategy and policy decisions with significant
negative consequences for middle managers will
motivate intervention behavior from them.
Fred R. David
Prentice Hall
Role of A Board of Directors
Duties and Responsibilities:
1. Control and oversight over management

2. Adherence to legal prescriptions
3. Consideration of stakeholder interests
4. Advancement of stockholders’ rights
Ch5-335
Fred R. David
Prentice Hall
Implementing Strategies:
Management Issues
Pretend that every single person you

meet has a sign around his or her neck
that says, “Make me feel important.”
-- Mary Kay Ash, CEO of Mary Kay, Inc.
Ch 7-336
Fred R. David
Prentice Hall
Management Issues
Contrasting strategy formulation and

strategy implementation
– Formulation is positioning forces before the action
– Implementation is managing forces during the action
Ch 7-337
Fred R. David
Prentice Hall
Management Issues

– Formulation focuses on effectiveness
– Implementation focuses on efficiency
Ch 7-338
Fred R. David
Prentice Hall
Management Issues

– Formulation is primarily an intellectual process
– Implementation is primarily an operational process
Ch 7-339
Fred R. David
Prentice Hall
Management Issues

– Formulation requires good intuitive and analytical

skills
– Implementation requires special motivation and

leadership skills
Ch 7-340
Fred R. David
Prentice Hall
Management Issues

– Formulation requires coordination among a few

individuals
– Implementation requires coordination among many

persons
Ch 7-341
Fred R. David
Prentice Hall
Implementing Strategies
There is no “perfect” strategic decision. One

always has to pay a price. One always has to
balance conflicting objectives, conflicting
opinions, and conflicting priorities. The best
strategic decision is only an approximation—
and a risk
-- Peter Drucker
Ch 8-342
Fred R. David
Prentice Hall
Marketing Issues
Marketing variables affect success or

failure of strategy implementation
• Market Segmentation
• Production Positioning
Ch 8-343
Fred R. David
Prentice Hall
Finance/Accounting Issues
Central to Strategy Implementation –
– Acquiring needed capital

– Developing pro forma financial statements
– Preparing financial budgets
– Evaluating worth of a business
Ch 8-344
Fred R. David
Prentice Hall
Research & Development Issues
New products and improvement of existing

products that allow for effective strategy
implementation
Ch 8-345
Fred R. David
Prentice Hall
MIS Issues
• Information collection, retrieval and

storage
• Blend computer technical knowledge

with top management vision
Ch 8-346
Fred R. David
Prentice Hall
Strategy Evaluation
• Strategy evaluation is vital to the organization’s

well-being
• Alert management to potential or actual

problems in a timely fashion
• Erroneous strategic decisions can have severe

negative impact on organizations
Ch 8-347
Fred R. David
Prentice Hall
Strategy Evaluation
3 Basic Activities –
1. Examining the underlying bases of a firms’

strategy
2. Comparing expected to actual results
3. Corrective actions to ensure performance
conforms to plans
Ch 8-348
Fred R. David
Prentice Hall
Evaluation Framework
I. Review Underlying Bases
Differences? Yes
NO III.
Take
II. Measure Firm Performance Corrective
Actions
Differences? Yes
NO
Continue present course

Fred R. David
Prentice Hall
Reviewing Bases of Strategy
Review of underlying bases of strategy –
– Develop revised EFE Matrix
– Develop revised IFE Matrix
Ch 8-350
Fred R. David
Prentice Hall
Review effectiveness of strategy –
1. Competitors’ reaction to strategy

2. Competitors’ change in strategy
3. Competitors’ changes in strengths and
weaknesses
4. Reasons for competitors’ strategic change
Ch 8-351
Fred R. David
Prentice Hall
Review effectiveness of strategy –
5. Reasons for competitors’ successful

strategies
6. Competitors’ present market positions and
profitability
7. Potential for competitor retaliation
8. Potential for cooperation with competitors
Ch 8-352
Fred R. David
Prentice Hall
Monitor Threats and Opportunities and

Weaknesses and Strengths
• Are our internal strengths still strengths?

• Have we added additional strengths?
• Are our weaknesses still weaknesses?
• Have we other internal weaknesses?
Ch 8-353
Fred R. David
Prentice Hall
Monitor Threats and Opportunities and

Weaknesses and Strengths
• Are opportunities still opportunities?

• Other external opportunities?
• Are threats still threats?
• Are there other threats?
• Are we vulnerable to a hostile takeover?
Ch 8-354
Fred R. David
Prentice Hall
Evaluation Framework
I. Review Underlying Bases
Differences? Yes
NO III.
Take
II. Measure Firm Performance Corrective
Actions
Differences? Yes
NO
Continue present course

Fred R. David
Prentice Hall
12.4 Contents of a Strategic Business Plan for an Entrepreneurial Venture
(Table 12.2)
Contents of a Strategic Business Plan

for an Entrepreneurial Venture
I. Table of Contents X. Human Resources Plan

II. Executive Summary XI. Ownership
III. Nature of the Business XII. Risk Analysis
IV. Strategy Formulation XIII. Timetables and Milestones
V. Market Analysis XIV. Strategy Implementation—Action
Plans
VI. Marketing Plan XV. Evaluation and Control
VII. Operational Plans—Service/Product XVI. Summary
VIII. Financial Plans XVII. Appendixes
IX. Organization and Management
Note: The strategic audit can be used to develop a business plan. It provides detailed questions to serve
as a checklist.
Source: Thomas L. Wheelen, “Contents of a Strategic Business Plan for an Entrepreneurial Venture.”
Copyright © 1988 by Thomas L. Wheelen. Reprinted by permission.
12.6 Some Guidelines of New-Venture Success (Table 12.3)
Some Guidelines for New-Venture

Success
• Focus on industries facing substantial technological or regulatory changes, especially those with
recent exits by established competitors.
• Seek industries whose smaller firms have relatively weak competitive positions.
• Seek industries that are in early, high-growth stages of evolution.
• Seek industries in which it is possible to create high barriers to subsequent entry.
• Seek industries with heterogeneous products that are relatively unimportant to the customer’s
overall success.
• Seek to differentiate your products from those of your competitors in ways that are meaningful to
your customers.
• Focus such differentiation efforts on product quality, marketing approaches, and customer
service—and charge enough to cover the costs of doing so.
• Seek to dominate the market segments in which you compete. If necessary, either segment the
market differently or change the nature and focus of your differentiation efforts to increase your
domination of the segments you serve.
• Stress innovation, especially new product innovation, that is built on existing organizational
capabilities.
• Seek natural, organic growth through flexibility and opportunism that builds on existing
organizational strengths.
Source: C. W. Hofer and W. R. Sandberg, “Improving New Venture Performance: Some Guidelines
for Success,” American Journal of Small Business (Summer 1987), pp. 17, 19. Copyright © 1987 by
C. W. Hofer and W. R. Sandberg. Reprinted by permission.
Porter’s Determinants of National Advantage
Home country of origin is crucial to International success
Related & Supporting
Industries
- Japanese cameras & copiers
- Italian shoes & leather
Factor Conditions
Basic Factors Demand
- Land, labor Conditions
Advanced Factors Home country may
- Highly educated workers support scale
- Digital communications efficient operations
Generalized Factors by itself
- Capital, infrastructure Firm Strategy,
Specialized Factors Structure & Rivalry
- Skilled personnel
Intense rivalry fosters
industry competition
Ch. 9 35
International Strategy Opportunities & Outcomes
Identify Explore Use Core Strategic
International Resources & Competence Competitiv
Opportunities Capabilities eness
International Modes of ManagementOutcomes
Strategies Entry Problems, Risk,
and First Steps
Increased International Exporting
Market Size Bus.-Level
Strategy Higher
Return on Licensing
Performance
Investment Multidomestic Returns
Strategic
Strategy
Economies Alliances
of Scale and Global
Acquisition Innovation
Learning Strategy
Location Transnational Establishment
Advantage Strategy of New Sub.
Management
Problems, Risk,
and First Steps
Ch. 9 35
Business-Level International Strategies
International Low Cost
Usually located in home country
Export to international markets
Low value added operations in foreign countries
High value added operations in home country
International Differentiation
Countries with advanced or
specialized factor conditions
most likely to use this strategy
e.g. Canada, Germany, Japan, U.S.A.
Ch. 9 36
Business-Level International Strategies
International Focus Strategies
Technologically advanced firms follow
focused low cost strategy
Focused differentiation firms compete on the
basis of image & design
Third group competes on low price by imitating
International Integrated Low Cost/Differentiation

Can be most effective in dealing with diverse markets
Often relies upon flexible manufacturing, total quality
management or rapid communication networks
Ch. 9 36
Corporate-Level International Strategies
Type of Corporate Strategy selected
will have an impact on the selection and
implementation of the business-level strategies
Some Corp. strategies provide individual country
units with flexibility to choose their own strategies
Others dictate bus.-level strategies from the home
office & coordinate resource sharing across units
Multi-Domestic Strategy
Three
Corporate Global Strategy
Strategies Transnational Strategy
Ch. 9 36
Corp.-Level International Strategies
Multi-Domestic Strategy
Strategy & operating decisions are decentralized
to strategic business units (SBU) in each country
Products & services are tailored to local markets
Business units in each country are independent
of each other
Assumes markets differ by country or regions
Focus on competition in each market
Prominent strategy among European firms due to
broad variety of cultures & markets in Europe
Ch. 9 36
Global Strategy
Products are standardized across
national markets
Decisions regarding business-level strategies
are centralized in the home office
Strategic business units (SBU) are assumed to
be interdependent
Emphasizes economies of scale
Firm often lacks responsiveness to local markets
Requires resource sharing & coordination
across borders (which also makes it
difficult
Ch. 9
to manage) 36
Transnational Strategy
Seeks to achieve both global
efficiency and local responsiveness
Difficult to achieve because of simultaneous
requirements for strong central control and
coordination to achieve efficiency as well as
local flexibility and decentralization to
achieve local market responsiveness
Must pursue organizational learning to

achieve competitive advantage
Ch. 9 36

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IN THE NAME OF

ALLAH THE MOST

 Attract and please customers

 Stake out a market position

 Achieve organizational objectives

Revise as Revise as Improve/ Improve/ Recycle

Basic Elements of the

Prentice Hall, 2000 Chapter 1 9

Prentice Hall, 2000 Chapter 1 10

• Proactive in shaping organization’s future

Business ethics defined:

Code of business ethics:

– Provides basis on which policies can

Use the mission statement as a

Develop a strategic vision that

Communicate the vision in a

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 24

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 30

 To become an internationally acclaimed research university that serves society

 "We will be a pre-eminent academic institution, serving as a catalyst for

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 31

Our vision: Getting to a billion connected computers

 Broad Definition  Narrow Definition

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 37

 Role and scope of

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 39

Financial Objectives Strategic Objectives

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 40

Every company needs

both strategic and

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 41

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 42

 How to please customers

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 45

Objectives should be SMART

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All 47

Competitor external environment

(what can the firm do

Technological about the opportunities?)

An Attractive Industry Attractive industry: one whose

Strategy Formulation Strategy formulation: selection

Assets and Skills Assets and skills: those assets

Assets and Skills

Assets and Skills Superior returns: earning

1. Firm’s Resources 1. Strategy dictated by

Capability Capability: capacity of an

Resources and Capabilities

Rare possessed by few, if any, current and

Costly to imitate when other firms cannot obtain them or

Nonsubstitutable the firm is organized appropriately to

Resources and Capabilities

Competitive Advantage Competitive advantage: ability

An Attractive Industry An attractive industry: an

An Attractive Industry Superior returns: earning

Efforts to build Responses to

Human Finance strategy

Moves to divest Moves to add new

Moves to build positions

Scan and Analyze

1(a) 1(b) 2 5(a) 5(b) 6(a) 6(b) 7 8

Examine and Review Select Generate

Strategy Strategy Evaluation

Prentice Hall, 2000 Chapter 1 70