Embed Size (px)
Citation preview
STRATEGIC MANAGEMENT
Introduction
What is Strategic Management?
According to Wheelen and Hunger (1988), Strategic Management is that
set of managerial decisions and actions that determines the long-run
performance of a corporation. David (1999) defined Strategic
Management as “the art and science of formulating, implementing, and
evaluating cross functional decisions that enable an organization to
achieve its objectives. Harvey (1982) also defines Strategic
Management as the process of formulating, implementing and evaluating
business strategies to achieve future goals.
Specifically Harvey says strategic management is about
the following
1. Strategic systems approach which is about seeing the
organisation as one whole that has interdependent parts.
2. Long-range planning that involves a longer time frame
3. Competitive analysis that addresses such questions as
What business are we in?
Who are our customers?
Who are our competitors?
4. It is about developing a comprehensive vision of the
future that provides a sense of purpose and direction for
the organisation.
5. It is about developing a corporate culture that identifies
and develops a sense of belonging, motivation and shared
values to accomplish the future goals.
1
Thompson and Strickland (1988) say strategic management
is about managerial decisions and skills that impact directly
upon the organisation’s capacity
To survive
To adapt to market and environmental changes
To grow profitably
To move in new directions
To fundamentally alter its mix of business interests.
The Strategic Management Process therefore consists of three major
activities which are (1) Strategy formulation, (2) Strategy
Implementation and (3) Strategy evaluation.
Summary of the Strategic Management Process
1 Strategy formulation that includes
Developing a vision and mission
Identifying an organisation’s external opportunities and
threats
Determining internal strengths and weaknesses
Establishing long-term objectives
Generating alternative strategies
Choosing particular strategies to pursue
Deciding what new businesses to enter and what to
abandon based on strategy analysis
2. Strategy Implementation involves
Establishment of annual objectives, devise policies,
motivate employees
Allocate resources
Developing a supportive culture
2
Creating an effective organizational structure, preparing
budgets
Developing and utilizing information systems
Linking employee compensation to organizational
performance
3. Strategy evaluation entails
Reviewing external and internal factors that influence the
current strategies
Measuring performance
Taking corrective actions
Benefits of Strategic Management
1. It allows an organisation to be more proactive than reactive
in shaping its own future.
2. It allows an organisation to initiate and influence activities
3. A great benefit of strategic management is the opportunity
that the process provides to empower individuals (David
2001). He further defines empowerment as the act of
strengthening employees’ sense of effectiveness by
encouraging and rewarding them to participate in decision
making and exercise initiative and imagination.
In other words strategic management is used in organizations
because
1. It provide long-term direction in planning
2. It helps the organisation in adapting to an increasing rate of
change and
3.In gaining competitive advantage in a high-risk environment
and
4. achieving a more effective organisation
3
The strategic management process provides the organisation
members with clear direction as seen through the vision,
mission statement and objectives.
Characteristics of Best Run Companies according to
Harvey (1982). He describes the characteristics as the
Sources of Excellence as the companies are put into two
groups of winners and losers.
Winners are: Losers are:
Anticipative and future oriented Reactive and stay
with one strategy.
Have Strategic Plan Fail to plan
Their culture fits well with Have an inappropriate
Strategic plan culture
Strategy flexibility Slow to meet
changing conditions
The strategists in an organisation include
The board of directors
Top management
Functional heads
Corporate planning staff
WHAT IS A STRATEGY?
The word/term strategy is derived from the Greek world “strategos”, which means
general or the art of the army general. In a military sense, strategy involves the planning
and directing of battles or campaigns. In the business sense, it refers to actions by a
manager to offset actual or potential moves of competitors. By definition therefore:
“A strategy is a unified, comprehensive, and integrated plan that relates the
strategic advantages of the firm to the challenges of the environment. It is designed
4
to ensure that the basic objectives of the enterprise are achieved through proper
execution by the organisation”.
A strategy, therefore, is an action plan for achieving future objectives and competitive
advantage relative to rival firms. In other words it is a game plan that outlines how
things are to be done. It addresses the issues of precisely how the desired results are to be
achieved. It is the blue print of getting the organisation where it wants to go.
CRITERIA FOR EFFECTIVE STRATEGY
If a firm’s strategy is to be effective there must be:
1. Clear, decisive objectives, which if achieved, ensure the continued viability and
vitality of the entire organisation vis-à-vis its opponents.
2. High encouragement of workers’ initiative: - i.e. it must preserve freedom of
action which subsequently leads to enhanced commitment on the part of the
implementing organisational members.
3. Concentration on strategically vantage points i.e. strategy must define what
will make the enterprise superior or “best” in competitive advantage.
4. Flexible i.e. strategy must build in resource buffers and dimensions for flexibility
and maneuver. These reserved extra resources and flexibility and repositioning
allow continued viability of the firm keeping opponents at a relative disadvantage.
5. Coordinated and Committed direction leadership: i.e. specifically ensuring
that each divisional or departmental head is aware of the strategy and the guiding
policies and procedures.
The leaders’ own interests and values must match the needs of their roles in the strategy.
For the strategy to be successful there is need for commitment and not just acceptance by
leadership.
6. Surprise: Very much like in the military sense. A good strategy makes use of
speed, secrecy, and intelligence to attack exposed or unprepared opponents at
5
unexpected times. If the surprise attack is correctly timed, it can decisively
change the opponents’ strategic positions.
7. Security: The strategy should secure resource bases and all vital operating points
and links for the enterprise. The strategy must be supported by an effective
intelligence/research system.
Tests of a Winning Strategy
1. The Goodness of fit Test: which means a good strategy is well matched to the
company’s situation both externally and internally.
2. The Competitive Advantage Test: which means that a good strategy leads to
sustainable competitive advantage.
3. The Performance Test: which means that a good strategy boosts a company
performance as seen through profitability.
THE STRATEGIC MANAGEMENT PROCESS
Strategy Formulation
Strategy Formulation is the problem-solving process (often called “strategic planning”) of
setting the firm’s vision and mission, analysing the environment: establishing long-
term objectives, choosing the tools for achieving the objectives (strategies) and action
plans to achieve those objectives and implementing them. In the process of Strategy
formulation, top management has to develop a concept of what business the organization
is in and thereby establishing the purpose of their existence.
What is a Vision?
A vision is a statement of hopes, aspirations, and/or wishes of the organisation’s future
i.e. where the leadership would like the organisation to be in the future. It is a clear and
challenging statement that serves as a beacon and control of the organisation. It prepares
6
for the future while honouring the past. It empowers organizational members first, and
then the clients as they can all see where the organization is going.
Vision Formulation
This entails asking and answering such questions as
What do we want to be in five, ten or twenty years’ time?
What do our capabilities lead us to be?
What does our market want us to be?
The Corporate Vision
A positive vision of the future is essential for providing meaning and direction to the
present. Meaningful vision empowers organizations to solve problems and accomplish
goals. Vision is a compelling image of the future that is offered by corporate leaders, and
then shared with the corporate community who should agree to support it.
For an organisation’s vision to be sound it should have the following components:
- Leader Initiated
- Shared and Supported
- Comprehensive and Detailed
- Positive and Inspiring
“Vision without action is merely a dream.
Action without vision just passes the time.
Vision with action can change the world”
MISSION STATEMENT
A mission statement is an enduring statement of purpose that distinguishes an
organisation from other similar organizations in the same industry. A mission statement
identifies the scope of an organisation’s operations in product/service and market terms.
7
In coming up with the mission statement, the strategists have to answer the following
questions:
What is our business?
What will it be?
What should it be?
If these questions are answered the organisation will have been given its identity,
character and make-up. During that exercise of coming up with the mission statement,
top management should bear in mind the fact that the mission statement should depict the
organisation’s character, image and scope of activities in ways that are detailed enough to
distinguish the organisation from other types of organizations.
The purpose of business is to create a customer whose needs need to be satisfied through
the provision of goods and services whose availability are made possible through the use
of technology.
The shaping of an organisation’s future begins with clarity of the organisation’s purpose
of existence. According to Peter Drucker, a business is defined by the want the customer
satisfies when he buys a product or service. So to satisfy a customer should be the
starting point of the mission statement of every business. Derek Abel expanded on Peter
Drucker’s idea and said business should be defined in terms of:
Customer needs or what is being satisfied
Customer groups or who is being satisfied
Technologies or how customer needs are being satisfied
Answering what will our business be question is the most important and necessary step
in setting the direction for the organisation. This requires the strategist to look ahead and
try to anticipate the impact of:
Changing customer needs
Changing technology
Changing customer uses
8
Changing customer markets
The impact of all these changes on the business
Answering what will our business be will help the organisation to identify the customer’s
unsatisfied wants and hence be on the guard to modify, extend and develop its existing
business concepts.
What should our business be is an equally important question to ask. By taking that
dimension the organisation is addressing such issues as:
How can innovations be converted into new businesses
What technologies are opening up or can be created to the advantage of
the customer (ATMS)
Should diversification be pursued and if so what kind
Which things should the organization continue doing and which should it
plan to discontinue?
What will a Mission Statement Accomplish? / Benefits of Mission Statement
a) Promotes and encourages unanimity within the organization
b) Provides a basis, or standard, for allocating organizational resources
c) Establishes a general tone or organizational climate/culture
d) Serves as a focal point for individuals to identify with the organisation’s purpose
and direction; and deters those who cannot, from participating further in the
organisation’s activities.
e) Facilitates the translation of objectives into a work structure involving the
assignment of tasks to responsible elements within the organisation
f) Specifies organisation purposes and translation of these purposes into objectives
in such a way that cost, time and performance parameters can be assessed and
controlled
g) Provides the general framework for the establishment of organizational policies.
h) Provides perspective on economic and/or organizational growth.
9
Components of the Mission Statement
The major components include the following:
a) Products/Services – What are the organisation’s major products/services?
b) Markets – Where does the organisation operate/compete?
c) Technology – Is technology a primary concern of the organisation?
d) Concern for survival, growth, and fiscal viability – Is the organisation
committed to economic objectives?
e) Self-concept – What are the distinctive competencies of the company or
company’s major competitive advantage?
f) Concern for public image – To what extent is the public image a major concern
of the organisation?
g) Concern for people – What is the organisation’s attitude toward management
and staff?
SETTING OBJECTIVES
In coming up with a mission statement the strategist should establish specific objectives
that will help the organisation to keep focused. The objectives that need to be specific,
measurable, achievable, time-bound and challenging play a very important role in the
strategic management process.
Importance of Objectives
1. Objectives provide direction for organisation efforts
2. Strategic objectives perform an intergrating function. They provide a means for
setting priorities and resolving conflicts between organizational elements
3. Objectives provide a motivating force.
4. Objectives provide measures for organizational performance
Corporate Culture
Culture is about people’s shared beliefs, values and norms and in coming up with the
mission statement the corporate culture has to be factored in.
10
Importance of Culture in an Organisation
1. Culture conveys a sense of identity for employees
2. Culture helps generate employee’s commitment to something greater than
themselves
3. Culture adds to the stability of the organisation as a social system
4. Culture serves as a frame of reference for employees to use to make sense out of
organizational activities and to use as a guide for appropriate behaviour (Wheelen
and Hunger, 1989,p 137)
ENVIRONMENTAL ANALYSIS
Having articulated its vision and mission, a firm needs to scan and analyse
the environment in which it is operating. The environment comprises of
the firm’s internal environment, its industry environment and the
general/remote environment, the macro-environment in which it operates.
The analysis exercise entails looking at the organization’s strengths,
weaknesses, opportunities and threats. This is referred to as the SWOT
ANALYSIS.
SWOT ANALYSIS
External Environment
Industry environment that the company competes in:
1. Industry Environment consists of the competitors, customers and suppliers
2. Macro-economic consists of broader economic, social, political, legal,
technological and demographic environments
A good fit is needed between strategy and the environment.
An Industry is a group of companies offering products or services that are close
substitutes for each other. Porter’s Five Forces Model is used in analyzing competition
within an industry
11
Porter’s Five Forces Model
1. Potential Competitors
Established companies try to discourage potential competitors from entering the industry
through some barriers to new entry such as:
Brand Loyalty refers to the preference of buyers for the products of established
companies. Brand Loyalty can be created through continuous advertising of
brand and company names. Patents protection of products, product innovation
through R& D, emphasis on high product quality and good after sales service.
Absolute Cost Advantage
Can arise from superior production techniques
Control of particular inputs such as labour, materials
Discounts on bulk purchases
Economies of Scale – associated with large company size hence mass production
Scale economies in advertising
2. Rivalry Among Established Companies
12
Risk of Entry by Potential Competitors
Bargaining Power of Suppliers
Rivalry Among Established Firms
Bargaining Power of Buyers
Threat of Substitute Products
If this competitive force is weak companies have the opportunity to raise
prices and earn greater profits.
Price wars may also result
Extent of rivalry among established companies is a function of:
(a) Industry competitive structure – the number and size of the
distribution of companies. Structure can either be fragmented or
consolidated
(b) Demand conditions (i) in situations where there is demand, a company
can increase revenue without taking market share away from other
companies (ii)where demand is declining companies fight to maintain
revenue and market share.
Exit barriers – are economic, strategic and emotional factors that keep companies
competing in an industry even when returns are low. Examples are
(a) Investments in plant and equipment that have no alternative uses and cannot be sold
off. (e.g NRZ). If the company wishes to leave the industry, it has to write off the book
value of these assets
(b) High fixed costs of exit, such as severance pay to workers who are being made
redundant
© Emotional attachments to an industry, such as when a company is unwilling to exit
from its original industry for sentimental reasons.
(d) Strategic relationships between business units
(e) Economic dependence on the industry, as when a company is not diversified and
so relies on the industry for its income.
3. The Bargaining Power of Buyers
Buyers can be viewed as a competitive threat when they
Force down prices
Demand higher quality and better service
13
When the supply industry is composed of many small companies, and the
buyers are few in number and large
When they purchase in large quantities
When they can switch orders between supply companies at a low cost
When it is economically feasible for them to purchase the input from several
companies at once
When they can use the threat to supply their own needs through vertical
integration as a device for forcing down prices.
4 The Bargaining Power of Supplies, Suppliers are most powerful
When the product that they sell has few substitutes and is important to the
company
When the company’s industry is not an important customer to the suppliers
When their respective products are differentiated such an extent it is costly for
a company to switch from one supplier to another. In this case the company is
dependent on its suppliers and unable to play them off against each other.
When they can use the threat of vertically integrating forward into the industry
and competing directly with the company as a device for raising prices
When buying companies are unable to use the threat of vertically integrated
backward and supplying their own needs as a device for reducing input prices.
5. Substitute Products
These are products serving similar consumer needs
Macro environment
Economic Growth – rate of growth in the economy has a direct impact on the level
of opportunities and threats that companies face – Business Cycles
1. Interest rates – level of interest rates can determine the levels of demand for a
company’s product, if money is borrowed. They influence the demand for funds
and they determine the cost of capital.
14
2. Currency exchange rates – the value of the dollar relative to the currencies of
other countries.
3. Inflation rates – results into slower economic growth, higher interest rates and
volatile currency movements. It affects investment negatively. It makes the
future less predictable.
Technological Environment
-Technological change can make established products obsolete overnight.
-It can also create a host of new possibilities.
Social Environment – can create opportunities and threats. For
example the trend-toward greater health consciousness. Mineral
waters diet drinks and fruit drinks. Threat to the tobacco industry.
The Demographic Environment refers to the changing composition
of the population and can create both opportunities and threats. The
AIDS pandemic is a threat to human beings and an opportunity to the
pharmacies.
The Political and Legal Environment
- Deregulation opened up a number of industries to intense
competition.
- Privitisation as well is a government tool for empowering the
indigeneous people.
The Global Environment
- Globalisation can create both opportunities and threats.
15
INTERNAL ANALYSIS
Strengths which emanate from a company’s distinctive competencies that competitors
cannot easily match.
THE INTERNAL ENVIRONMENT
It includes the following:- STRUCTURE, CULTURE & RESOURCES
STRUCTURE:
- Often defined in terms of communication authority and work- flow.
- Corporation’s pattern of relationships, i.e.“its anatomy”,
- A formal arrangement of roles and relationships of people, so as to facilitate the
achievement of goals and the accomplishing of the mission of the corporation
- Also referred to as the chain of command
CULTURE
- the collection of beliefs expectations, and values shared by the corporation’s members
and passed on from one generation of employees to another.
- these create norms (rules of conduct) that define acceptable behavior of people from
top management to the low level employees.
- Corporate culture shapes the behavior of people in the organization.
Culture has a powerful influence on the behavior of leadership and can strongly affect a
corporation’s ability to shift its strategic direction.
IMPORTANCE OF CULTURE IN AN ORGANIZATION
1. Culture conveys a sense of identity for employees.
2. Culture helps generate employees` commitment to something greater than
themselves.
3. Culture adds to the stability of the organization as a social system.
4. Culture serves as a frame of reference for employees to use to make sense out of
organizational activities and to use as a guide for appropriate behavior.
[Wheeler and Hunger 1989 p.137]
16
Corporate culture generally is embedded in the mission statement of the organization. It
gives a corporation a sense of identity
- who we are
- what we do
- what we stand for
RESOURCES:
Besides the structure and the culture, a corporation also does an internal analysis of its
resources so as to identify its strengths and weaknesses and examine functional level
strategies that it can build and exploit the strengths and correct the weaknesses.
From its strengths a company can end up having a distinctive competence. This refers
to a company’s strengths that competitors cannot easily match or imitate [Hill and Jones
1989 p.91]. Distinctive competences represent the unique strengths of a company and
from distinctive competences a company can build a sustainable competitive advantage,
which form the bedrock of a company’s strategy.
In a company distinctive competences are found within individual functions such as:
Marketing
Finance
Research and Development
Operations (Manufacture/Services)
Human Resources
Information Systems
The Value Chain & Distinctive Competences
Distinctive competencies can help a company maximize value created through its value
chain. The value a company creates is measured by the amount that buyers are willing to
pay for a product or service (Michael E. Porter). To gain competitive advantage, a
company must have a distinctive competence in one or more of its value creation
functions.
17
MARKETING
The marketing manager’s major tasks are to regulate the level, timing and character of
demand in a way that will help the corporation achieve its objectives.
The Managers’ Concerns
a. Market Position – which deals with the question.
“Who are our customers?”
That involves the selection of target market segments that determine where the company
will compete. A market segment is a group of buyers with similar purchasing
characteristics.
b) The design of the Marketing Mix (Price, Promotion, Product, Place)
These are the key variables that can be used to affect demand and to gain
competitive advantage or differential advantage: Within each of the four variables
are several sub-variables.
PRODUCT PLACE PROMOTION PRICE
Quality Channels Advertising List Price
Features Coverage Personal Selling Discounts
Options Locations Sales Promotion Allowances
Style Inventory Publicity Payment Period
Packaging Transport Credit Terms
Brand Name
Sizes
Services
Warranties
Returns
Source: Philip Kotler Marketing Management (1982)
18
A company alters its marketing mix to discriminate among different segments.
The marketing mix goes hand in hand with the product Life Cycle.
c. Positioning Strategy
Positioning according to Hill and Jones (1989) refers to the choice of target
market segments that a company decides to focus on and the design of the
marketing mix to create a competitive advantage that defines how the company
will compete with rivals in each segment.
RESEARCH AND DEVELOPMENT
Types of Research and Development Strategies:
1. Strategies of product innovation aimed at developing entirely new products ahead
of competitors.
2. Strategies of product development aimed at improving the quality or features of
existing products.
3. Strategies of Process Innovation aimed at improving manufacturing processes to
reduce costs and/or increase quality.
Skills Necessary to Support the Research and Development Strategies:
1. Skills in basic scientific and technological research
2. Skills in exploiting new scientific and technological knowledge
3. Skills in project management (selection and evaluation)
4. Skills in prototype design and development
5. Skills in integrating Research and Development with manufacturing.
6. Skills in integrating Research and Development with Marketing.
19
FINANCE
The financial manager must ascertain the best sources of funds; best uses of funds and
control of funds. The critical considerations are cash flow, credit position and liquidity
Cash flow – a positive cash flow enables a company to finance new investments
without having to borrow money from bankers or investors. A company’s cash
flow position depends on the Industry life cycle.
FINANCIAL RATIOS:
d) Liquidity Ratios measure the company’s ability to meet unexpected
contingencies such as price war or a prolonged strike.
1) Current Ratio Current Assets
Current Liabilities
2) Quick Ratio or Acid test Ratio CA – Inventory
CL
e) Debit Ratios / Leverage Ratios Total Debt
Total Assets
f) Activity Ratios: Demonstrates how effectively a firm is using its resources
Asset turnover = Sales = times inventory is turned over
Total Assets
g) Profitability Ratios:
h) Break even Analysis shows relationships among fixed costs, variable costs
and profits. Break even point in units = Fixed Cost
Selling Price-Variable cost/unit
20
MANUFACTURING / OPERATIONS
The primary task of the manufacturing or service manager is to develop and operate a
system that will produce the required number of products or services with a certain
quality at a given cost within an allotted time.
With operations or manufacturing there is the concept of experience Curve or learning
curve which simply says that after a company has been around for sometime it tends to
produce at low costs that come from learning by doing. Labour for example and
management efficiency. There is also economies of scale which a company achieve
through mass production.
It is said that the operations manager in charge of either manufacturing or services must
be very knowledgeable of forecasting, scheduling, purchasing, quality assurance, process
design, job design, work measurement, just-in-time production systems maintenance and
reliability in order to develop an appropriate functional strategy.
HUMAN RESOURCES
The primary task of the manager of human resources is to improve the match between
individuals and jobs since this influences job performance, employee satisfaction and
employee turnover. There is need for good HRM that entails Human Resources
Planning, Job Analysis, Good selection and Orientation, proper appraisal and effective
employee training and development.
A good Human Resources Manager should be able to work closely with the unions if the
company is unionized. They should work towards the improvement of:
Quality of Work Life and employee empowerment by
1. introducing participative problem-solving
2. restructuring work
3. introducing innovative reward systems
4. improving the work environment
21
INFORMATION SYSTEMS
The primary task of the manager of information systems is to design and manage the
information flow of the corporation in ways that improve productivity and decision -
making.
Major Purposes of Information
1. Provide a basis for the analysis of early warning signals that can originate
both externally and internally.
2. Automate routine clerical operations, i.e. payroll, inventory reports and other
records can be generated from the database and thus the need for file clerks is
reduced.
3. Assist managers in making routine (programmed) decisions. i.e. scheduling
orders, assigning orders to machines and reordering supplies.
4. Provide the information necessary for management to make strategic (non
programmed) decisions.
Stages of Development of the Firm’s Information Systems (Wheeler and Hunger 1989
p154)
There are four basic stages of development
1. Initiation – generally involves accounting applications i.e. accounts payable,
accounts receivable, payroll, billing.
2. Growth – expansion of application in many functional areas i.e. cash flow,
budgeting, forecasting, personnel inventory, sales inventory control.
3. Moratorium – a consolidated phase and emphasis is on control purchasing
control, production scheduling
4. Integration – integrates existing systems into the organization and decision
support systems.
Requirements of a well –designed Information Systems include:
1. The systems must focus managers’ attention on the critical success factors in
their jobs.
22
2. The system must present information that is accurate and of high quality.
3. The system must provide the necessary information when it is needed to those
who most need it.
4. The system must process raw data so that it can be presented in a manner
useful to the manager.
RESEARCH AND DEVELOPMENT
The Research and Development manager’s responsibility is to suggest and
implement a company’s technological strategy in light of its corporate objectives
and policies. The job involves:
1) choosing among alternatives new technologies to use within the company.
2)developing methods of embodying the new technology in new products and
processes.
3)deploying resources so that the new technology can be successfully implemented.
Besides the money invested in Research and Development there is also the time
factor. For meaningful profits to result from the inception of a specific R&D
program time needed is 7-11 years.
DIFFERENT STRATEGIES
After doing a SWOT analysis different strategies have to be put in place.
There are basically three levels of strategies:
1.Corporate strategy is used by diversified organizations whose activities
cut across several lines of business. The strategy aims at giving direction
to the total mix of organizational activities addressing such issues as:
What set of businesses should we be in?
What should we continue to do?
What existing businesses should we get into?
23
2. Business level strategy relates to how a Strategic Business Unity
(SBU) intends to do its business focusing on a:
Particular product
Product line or
Group of related products
Business level strategy focuses on how to compete effectively and profitably in a distinct,
identifiable and strategically relevant line of business.
3.The Functional level Strategy is designed for the functional areas of the SBU; such
areas as the production, marketing. The primary focus of the functional strategy is on
maximizing the achievement of target objectives.
ALTERNATIVE CORPORATE STRATEGIES
The corporate strategies are grouped in three categories which are growth, retrenchment
and turnaround and exit strategies.
Growth Strategies
1. Concentration strategy focusing on:
A single product
A single market
A single technology
Advantages
It is more manageable
More focused on doing one thing well and resulting in building distinctive
competencies
There is simplicity which brings which brings clarity and unity of purpose
The organisation zeros in on specific markets and market segments hence
getting greater market visibility and even a leadership position
The organisation can detect changes and trends in customer purchasing
behaviour and market position at an early stage and quickly respond to
them
24
It enables an organisation to create a differential strategic advantage
through market reputation and the competitive strength that come from
having a distinctive competence
Disadvantages
It is equated to putting ones’ eggs in one basket.
There is the possibility of becoming blind to other opportunities which a
result of changes in people’s tastes.
Use of a single technology is myopic
2. Vertical integration is embarked upon as a result of
Diminishing profits prospects associated with further expansion of the
main product line.
Being the wrong size to realize economies of scale
There can be backward integration and forward integration for the
company to enjoy economies of scale, to be in control of the situation and
to manage the supply chain.
Backward integration as a strategy focuses on gaining ownership of
suppliers. It allows a firm to avert market uncertainties associated with
suppliers of raw materials; such as bad weather, strikes, production
breakdowns or delays in scheduled deliveries, inflation, etc.
Forward Integration entails owning of outlets on the part of the
manufacturer. It is motivated by the desire to realize more profits which profit
could have been enjoyed by the middlemen.
AdvantagesThe company may end up being a monopoly hence no competition
Disadvantages It increases business risk Administration costs rise Capital requirements may hinder integration Skills may be thinly spread
25
3. Diversification can be either concentric or conglomerate.
Reasons for Diversification
To spread the risk
Having too much money lying around
When there is market saturation of the product currently produced
Product line absolescence
General decline in demand
Because you expect to make more money
Need for instant profit
It is a survival strategy
Concentric diversification is when a company expands its business
operations by Adding new but related products to its existing business
lines. Specific types of concentric diversification include:
Moving into closely related products
Building upon company technology or knowhow to come up with
different products
Seeking to increase plant utilization
Utilizing available sources of raw material
Making fuller use of the firm’s sales force
Building upon the organisation’s brand name and goodwill e.g
Tanganda Tea
Conglomerate Diversification is when the firm adds unrelated lines of
business to its existing business operations. It may be embarked upon as way
of Establishing a match between a cash- rich, opportunity poor company
and an opportunity rich, cash poor company.
Diversifying into areas with a counter cyclical sales pattern so as to
smooth out sales and profit fluctuations
Seeking out a marriage of a highly leveraged firm and a debt free firm.
26
Advantages
Increase in profits
Risk is spread
Disadvantages
Loss of control The strategic fit between the businesses may not be realized
4.MERGERS AND ACQUISITIONS
A major is about combing two or more firms into one; while an acquisition is when one
firm (the parent) acquires another and absorbs it into its own operations, often as a
subsidiary.
Acquisition Strategies
1.Horizontal acquisition that involves the merging of firms in the same industry
2. Vertical acquisition that is aimed at creating a more vertically integrated enterprise and
it is embarked upon sometimes to raise barriers to entry; and to produce unfair control
over sources of critical inputs.
3.A market extension acquisition that happens when firm A adds a product related to its
existing product line by acquiring firm B and that is some kind of concentric
diversification.
Financial Strategies for Accomplishing Mergers and Acquisitions
Purchase of stock on the open market
Tender offers
An exchange of stock
A purchase of assets
Mergers and acquisitions may occur amicably or with conflict and tension resulting in
bidding wars or complex legal maneuvering.
Retrenchment and Turnaround Strategies
These are embarked upon as a result of corporate decline caused by
Poor management
27
Over expansion
Inadequate financial controls which lead to high costs
New competition
Unforeseen demand shifts
Retrenchment Strategy
It is a short-run strategy for organizations during periods of uncertainty about the
economic future, periods of financial strain or general poor corporate performance.
Retrenchment can take two forms:
1.Strigent internal economies aimed at squeezing out organizational slack
and improving efficiency. That is achieved through the following:
Reducing hiring of personnel
Trimming the size of corporate staff
Postponing capital expenditure projects
Stretching out the use of equipment and delaying replacement
purchases so as to economize on cash requirements
Dropping marginally profitable products
Closing older and less efficient plants
Internal reorganization of workflows
Inventory reductions
Revised purchasing procedures
2. A reduction in the corporation’s scope of business activities that
entails the reappraisal of the desirability of continuing in each one of
the present lines of business. This is done because of poor corporate
performance.
Turnaround Strategies
(a) A replacement of top management and other key personnel
(b) Revenue-increasing strategies focusing on how to increase sales
volume.
28
(c) Cost-reduction strategies
(d) Asset reduction/retrenchment through sale of some of the firm’s
assets when cash flow is limited.
Exit Strategies
These include divestiture, liquidation and harvest strategies.
Divestment involves selling of an SBU to another company or to the
management of the business because of :
Of misfits or partial fits due to acquisitions
Market potential change with the times
Poorly performing divisions
A particular line of business loses its appeal
Guiding question to determine if and when to divest
“If we were not in this business today, would we want to get into it now?”
Harvest Strategy involves disinvestments in a business unit to optimize cash flow as the
company exits from that industry. To increase cash flow management may do the
following:
Eliminates or severely cut down on new investment
Cuts down on maintenance of facilities
Reduce advertising and Research and Development
Kotler has suggested seven indicators of when a business should become a candidate for
harvesting.
1. When the business is in a saturated or declining market.
2. When the business has gained only a small market share, and building
it up would be too costly or not profitable enough; or when it has a
respectable market share that is becoming increasingly costly to
maintain or defend.
3. When profits are not especially attractive
29
4. When reduced levels of resource support will not entail sharp declines
in sales and market position.
5. When the organization can redeploy the freed-up resources in higher
opportunity areas.
6. When the business is not a major component of the organization’s
overall business portfolio
7. When the business does not contribute other desired features (sales
stability, prestige, a well-rounded product line) to the total business
portfolio.
Liquidation Strategy involves closing down of an operation. It is the most unpleasant
and painful strategy especially if it means terminating the organisation’s existence. It
entails layoffs and plant closure
COMBINATION STRATEGIES
Identifying Strategic Alternatives that fit s Firm’s Market Circumstances
Rapid Market Growth
Quadrant 11 strategies Quadrant 1 strategies(in probable order of attractiveness) (in probable order of attractiveness)1. Reformulation of concentric strategy 1. Concentration2. Horizontal integration or merger 2. Vertical integration3. Divestiture 3. Concentric Diversification4.Liquidation
Weak competitive position Strong competitive position
Quadrant 111 strategies Quadrant 1V strategies(in probable order of attractiveness) (in probable order of attractiveness)
1. Retrenchment 1. Concentric diversification
2. Diversification 2. Conglomerate diversification
3. Divestiture 3. Joint Venture
4. LiquidationSlow market growth
30
CORPORATE STRATEGY ANALYSIS
Strategic Gap Analysis or Performance Gap Analysis
That is done by looking at the aggregate performance of the businesses in the portfolio
and see if corporate objectives are being achieved, if not, then search for the changes that
need to be done in order to close the gap. In the case of a gap top management can do the
following
1. Alter the business-level strategies of some or all of its businesses in
order to build distinctive competencies.
2. Add new business units to the corporate portfolio
3. Delete one or more businesses from the corporate portfolio- those
businesses that are in a weak competitive position
4. Use political action to alter conditions that responsible for sub par
performance potential e.g. joining hands with government in certain
business areas
5. Bring corporate objectives in line with reality.
There are several models that can be used to evaluate strategy alternatives at
corporate level. They include The Boston Business Consulting Group
(BCG), The GE Nine –Cell Matrix or McKinsey Matrix
The Boston Consulting Group Business Technique
The main objective of the BCG technique is to help strategic managers identify the cash
flow requirements of the different businesses in their portfolio. It involves three main
steps:
1. dividing a company into Strategic Business Units (SBUs) and assessing the
long-term prospects of each
2. comparing SBUs by means of a matrix that indicates the relative prospects of
each
3. developing strategic objectives with respect to each SBU.
31
The company uses two criteria.
1. the SBU’s relative market share
2. the growth rate of the SBU’s Industry.
Relative Market Share
High Low
High STARS QUESTION MARKS Industry
Growth
Rate
Low CASH COWS DOGS
1. Starts They are the leading SBUs in the Company’s portfolio. They have both
competitive strengths and opportunities for expansion. They require large cash
investments for expansion of production facilities especially the young stars.
2. Question marks – they are relatively weak in competitive terms. They have low
relative market share and high growth industries. If nurtured they can become stars.
3. Cash cows - they are in low growth industries but have a high market share and
strong competitive position in mature industries. Weak cash cows may be harvested.
4. Dogs – They are in low-growth industries, but have a weak competitive position in
unattractive industries. Dogs should be maintained only if they can contribute positive
32
cash flow without being financed by the cash cows. Otherwise a weak dog should be
harvested.
Strategic Implications of the BCG
The objective of the BCG’s portfolio is to identify how corporate cash resources can best
be used to maximize a Company’s future growth and profitability.
Recommendations
1. Use the cash surplus from any cash cows to support the development of selected
question marks and nurture the emerging stars.
2. The long-term objective is to consolidate the position of stars and to turn favoured
question marks into stars.
3. Question marks with the weakest position are divested as a way of reducing cash
demands.
4. The company should exit from any industry where the SBU is a dog.
If a company lacks sufficient cash cows, stars, and question marks, it should
consider acquisition and divestments to build a more balanced portfolio.
Strengths and Weaknesses of The BCG Matrix
Strengths: The major strength is that it focuses a company’s attention on the cash
flows of different types of business and from there the company can decide where to
invest or divest in order to optimize the value of the corporate portfolio.
Weaknesses
The matrix just looks at the attractiveness of an SBU from the relative market share
and industry growth rate perspectives only. There are other relevant factors such as
product differentiation. Besides, it does not cater for businesses which are average,
but just the high and low type. At the same time some businesses do not neatly fall
under the four categories of stars, cash cows, dogs and question marks.
“Disaster Sequences in the BCG scheme of things
1. When a star becomes a problem child and then falls to become a dog
33
2. When a cash cow loses the market and falls to become a dog
3. Over investing in a safe cash cow
4. Under investing in a question mark such that it tumbles into a dog
5. Spreading resources thinly over many question marks rather than on a
few selected ones.
Due to the shortfalls of the BCG matrix General Electric with the help of McKinsey
& Co. developed a nine- cell matrix based on business strength/competitive position
and industry/market attractiveness.
The McKinsey Matrix or The GE Nine-Cell Business Portfolio Matrix
Competitive Position
GOOD MEDIUM POOR
Industry HIGH Winner Winner
Question Mark
Attractiveness
MEDIUM Winner Average Loser
LOW Profit Loser Loser
Producer
The technique has two dimensions (1) the attractiveness of the industry in which an
SBU is based and (2) an SBU’s competitive position within that industry. The
difference with the BCG is that there are more factors considered under each
dimension. For example factors considered under industry attractiveness include
industry size, industry growth, industry profitability, capital intensity, technological
34
stability, competitive intensity and cyclicality. Under competitive position key
success factors include market share, technological know-how, product quality, after-
sales service/maintenance, low operating costs and productivity. The GE Nine- Cell
Matrix allows for intermediate rankings between high and low and between strong
and weak and it also incorporates explicit consideration of a much wider variety of
strategically relevant variables.
The aim of the GE matrix is to achieve the balanced portfolio from the SBUS. A
balanced portfolio is one that contains mostly winners and developing winners
with a few profit producers to generate the cash flow necessary to support the
developing winners and a few small question marks with the potential to become
future winners.
Four basic types of unbalanced portfolios
Problem action Typical symptoms Typical correction
1. Too many losers Inadequate cash flow Divest/liquidate/harvest loserInadequate profits Acquire profit producersInadequate growth Acquire winners
2. Too many question Inadequate cash flow Divest/harvest/liquidateMarks Inadequate profits selected question marks
3. Too many profit Inadequate growth Acquire winnersProducers Excessive cash flow Nurture/develop selected
Question marks
4. Too many developing Excessive cash demands Divest selected developingWinners Excessive demands on winners if necessary
ManagementUnstable growth and profits Acquire profit producers
35
Product/Market or Industry Evolution Matrix Strong Average Weak
Development Market/
IndustryEvolution
Growth
Shakeout
Maturity
Saturation
Decline
The matrix has 15 cells based on Competitive position and Industry evolution
Assessing Industry Attractiveness by Hofer and Schendel
At corporate level, management can also look at such things as
1.Whether the industry has enough of the positive attributes that management is
looking for such as (growth, profitability or export opportunities)
2.The extend to which the industry is characterized by traits management wants to
avoid such (history of labour strikes, highly cyclical or seasonal demand or major
pollution control problems)
3. The risk that industry conditions and trends will not be favourable enough to
allow the firm’s business to contribute its “fair share” toward the achievement of
overall corporate objectives.
Specific factors considered in assessing Industry Attractiveness
36
(a) Evaluation of competitive position- it involves a determination of where the firm’s
business stands in relation to that of its rivals with regards to market share, price, breadth
and quality of product line, technology.
(b) Identification of the key factors underlying success in the industry. They include (i)
an ability to manufacture a superior quality product in a market where customers are
quality conscious (ii) using low cost manufacturing methods as a basis for out-competing
rival firms on price where customers are very price sensitive (iii) having a more complete
product line in a market where customers place a high value on broad product selection
(iv) having proficiency in R&D in a high technology business.
© Identifying opportunities and threats in the industry through (i) resource/skills analysis that could materially alter the firm’s competitive standing. (ii) comparing the attractiveness of different business units
STEPS IN STRATEGY ANALYSIS PROCESS (Thompson and Strickland, 1981)
1. Identify the present corporate strategy
2. Construct business portfolio matrixes to examine the overall
composition of the present portfolio
3. Profile the industry and competitive environment of each business unit
and draw conclusion about how attractive each industry in the
portfolio is.
4. Probe the competitive strength of the individual business and how well
situated each is in its respective industry.
5. Rank the different business units on the basis of their past performance
record and future performance prospects.
6. Determine how well each business unit fits in with corporate direction
and strategy and other businesses on the portfolio.
Rank the business units from highest to lowest in investment priority, drawing
conclusions about where the firm should be putting its money and what the general
strategic direction of each business unit (invest-and-expand, fortify-and defend, overhaul
and reposition, harvest/divest
37
ALTERNATIVE LINE OF BUSINESS STRATEGIES
Focus of strategy at the Business Level consists of
a. assessing opportunities and threats in particular markets and for particular
products
b. determining the keys to success in that particular business
c. evaluating the competitive strategies of rival organizations
d. searching for an effective competitive advantage
e. identifying organizational strengths and weaknesses
f. trying to match specific product-market opportunities with internal skills,
distinctive competences and financial resources
The different business level strategies include the following:
1 Strategies for underdog and low market share businesses that include the following
(a) Vacant niche strategy in areas where larger firms are not catering or
ignoring or are not as well equipped to serve.
(b) Specialist or concentration strategy only in a few carefully chosen
market segments rather than the entire industry.
(c) “Ours is better than theirs” strategy capitalizing on opportunities to
improve upon the products of dominant firms and develop an appeal to
quality-conscious or performance-oriented buyers. Work closely with
major customers
(d) Channel innovation strategy finding ways to distribute goods that
offer substantial savings
(e) Distinctive image strategy: develop a differentiated competitive
advantage via some distinctive, visible and unique appeal
2.Strategies for Dominant Firms
38
(a) Keep-the offensive strategy where the firm refuses to be
content with just being a leader. It becomes the source of
new product ideas, cost-cutting discoveries, innovative
customer services, etc.
(b) Fortification strategy: surround the chief products with
patents; introduce own brands to compete with already-
successful company brands.
(c) Confrontation Strategy: through promotional wars.
(d) Maintenance strategy: maintain production capacity,
operating efficiency, product quality etc through
reinvestment in the business.
3.Strategies for Firms in Growth Markets focusing on how to acquire the resources
needed to grow with the market; and how to develop the sort of distinctive competencies.
That can be achieved by following guidelines; -
(e) Manage the business in an entrepreneurial mode with the aim of
building the business for its future potential.
(f) Be alert for product development opportunities geared at product
quality, performance features, sizes and improved design.
(g) Search out new market segments and new geographical areas to
enter.
(h) Shift the focus of advertising and promotion from building
product awareness to increasing frequency use and to create
brand loyalty.
(i) Seek out new distribution channels to gain additional product
exposure.
4.Strategies for Weak Businesses
39
There are essentially four options of dealing with a weak business at division, product
line or product level. The strategies to embark upon include building strategy,
maintenance strategy, divestment strategy or liquidation strategy, or harvest strategy.
5. Strategies for firms in Mature or Declining Industries
The firms that prosper under such conditions do the following
(a) They identify, create and exploit the growth segments within their industries.
(b) They emphasize quality improvements and product innovation
©They work diligently and persistently to improve production and distribution efficiency
through (i) automation and increased specialization, (ii) consolidating underutilized
production facilities, (ii) adding more distribution channels and (iv) shifting sales away
from low-volume, high-cost distribution outlets to high-volume, low-cost outlets.
6.Strategies to be Leery of
(a)“Me too or copy-cat strategy trying to play catch-up by beating the leaders at their own
game
(b) Take-away strategy by attacking other firms head on by luring away their customers
via lower prices, more advertising. This however invites retaliation
©. Glamour strategy
(d). Test-the water strategy due to environmental changes and the need to venture into
fields.
7.Strategies to avoid
(a) Drift strategy
(b)Hope-for-a-better-day strategy
©Sitting on your laurels strategy
(d)Popgun strategy head-on-competition with proven leaders
GENERIC BUSINESS STRATEGIES-BUSINESS LEVEL STRATEGIES
40
The generic business strategies include Cost Leadership, Differentiation and
Focus
They are called generic because they can be applied to all businesses or industries
regardless of the nature of the business.
Cost Leadership or low cost Strategy is when a firm sets out to become the low
cost producer in its industry. The sources of cost advantage include:
Economies of scale
Proprietary technology
Preferential access to raw material
Differentiation Strategy is where a firm seeks to be unique in its industry by
highlighting some dimensions that are widely valued by customers such things
as product attributes that many buyers in an industry perceive as important or
as unique. Uniqueness or differentiation can be seen through:
The product itself
High quality
Brand image
The delivery system
The after sales service including access to spare parts
Differentiation allows the company to charge premium prices
Advantages of differentiation
1 It safeguards a company against competitors to the degree that
customers develop brand loyalty for its products.
2. Customers are prepared to pay the premium prices
1. 3.Differentiation and brand loyalty also create any entry barrier for other
companies seeking to enter the industry.
Disadvantages
Competitors move in to imitate and copy successful differentiators and
customers can easily switch to competition.
Focus Strategy or Specialized Strategy
41
It is based on the choice of a narrow competitive scope within an industry and
can take the form of cost focus or differentiation focus. In other words it is
directed at serving the needs of a limited customer group or segment which
maybe defined geographically or by the type of customer or by segment of the
product line.
Advantages
1 The company is protected from competitors in the short run and has power
over its buyers because they cannot get the same thing from anyone else.
2 The development of customer loyalty reduces the threat from substitutes
Disadvantages
The company may not be in a position to move easily to new niches.
STRATEGY IMPLEMENTATION
Implementation is the means by which a strategy is carried out into successful goal
achievement. According to (Strickland and Thompson, 1981) it is largely intellectual and
emphasizes the abilities to conceptualize, analyze and evaluate. The implementation stage
is the acid test of Strategy Formulation since it tests management’s ability to convert the
strategic plan into effective performance and results. The implementation stage takes
more managerial time and energy than formulation. It raises all kinds of administrative
and policy issues concerning the specific details of what it will take to put the chosen
strategy in place and make it work. Implementation is the execution of the strategic plan
to achieve objectives.
The phase is accomplished through adjustments in three major systems (Harvey, 2nd
edition) which are as follows
1. The technical system – allocating resources and organization structure
2. The managerial system – providing leadership and responsibility
3. The cultural system, - determining the behavioural processes and
member values.
42
Strategy implementation might be defined as actually executing the strategic plan to
achieve objective. The procedure includes
setting annual objectives
coming up with policies
allocating resources
designing the organizational structure to suit the strategy
developing corporate culture to enable the attainment of the objectives.
the carrying out or accomplishing of certain plans or goals
concerned with design and management of systems to achieve the best integration
of people, structure and processes and resources in reaching organizational goals.
(Steiner and Miner)
directing the use of the resources within and outside the organization
Contrasting strategy Formulation and Implementation
Successful strategy formulation does not guarantee successful implementation. It is easier
to say I am going to do something (strategy formulation) than to actually do it (strategy
implementation).
Formulation Implementation
Positioning forces before action Managing forces during action
Focuses on effectiveness Focuses on efficiency
Primarily an intellectual process Primarily an operational process
Requires good intuitive and analytic skills Requires special motivation &
leadership skills
Requires coordination among few individuals Requires coordination among many
persons
Strategy formulation concepts and tools are universally applicable to the companies while
strategy implementation varies substantially by type and size of organization and culture
of implementers. Implementation hinges on 3 major systems
1. the technical system – the alignment of structure to strategy
43
2. the political managerial system - power, rewards and leadership
styles
3. the cultural system, - the development and integration of a corporate
culture to fit the strategy.
The Central Tasks of Strategy Implementation and Administration
BUILDING AN
ORGANIZATION
CAPABLE OF
CARRYING OUT
THE
STRATEGIC
PLAN
ALLOCATING
AND
FOCUSING
RESOURCES
ON
STRATEGIC
OBJECTIVES
GALVANIZING
ORGANIZATIONWIDE
COMMITMENT TO
THE CHOSEN
STRATEGIC PLAN
MONITERING
STRATEGIC
PROGRESS
EXERTING
STRATEGIC
LEADERSHIP
Key Issues
1. How to match organization structure to the needs of strategy.2. How to build and nurture a distinctive competence and to staff positions with the right talent and technical expertise.
Key Issues
1.What budgets and programs are needed by each organizational unit to carry out its part of the strategic plan?2.How to focus the performance of tasks on achieving organizational objectives rather than on just carrying out the assigned duties.
Key Issues
1. How to motivate organizational units and individuals to accomplish strategy.2. How to measure the contribution of individuals and subunits to strategic performance.3. How to link the reward structure to strategic performance.4.What kinds of strategy-facilitating policies and procedures to establish.
Key Issues
1. How to get the right strategic information on a timely basis.2. What “controls” are needed to keep the organization on its strategic course.
Key Issues
1. How to create a climate and culture that energizes the organization to accomplish strategy and perform at a high level.2.How to deal with the politics of strategy, play the power game, and build consensus.3. When and how to initiate corrective actions to improve strategy execution
44
The Administrative Components of Strategy Implementation
1. Building an Organization Capable of Executing the Strategy focusing
on
Creating a strategy-supportive organization structure
Developing the skills and core competencies needed to excute
the strategy successfully.
Selecting people for key positions
2. Establishing a Strategy –Supportive Budget by
Seeing that each organizational unit has a big enough budget to carry
out its part of the strategic plan
Ensuring that resources are used efficiently to get “the biggest bang for
the buck”
3. Installing Internal Administrative Support Systems by
Establishing and administering strategy-facilitating policies and
procedures.
Developing administrative and operating systems to give the
organization strategy-critical capabilities.
Generating the right strategic information on a timely basis.
4. Exercising Strategic Leadership
Leading the process of shaping values, molding culture and energizing
strategy accomplishment.
Keeping the organization innovative, responsive and opportunistic.
Enforcing ethical standards and behaviour.
Initiating corrective actions to improve strategy execution
5. Shaping the Corporate Culture to fit the Strategy by
Establishing shared values
Setting ethical standards
Creating a strategy-supportive work environment
Building a spirit of high performance into the culture.
45
6. Devising Rewards and Incentives that are highly linked to objectives
and strategy by
Motivating organizational units and individuals to do their best to make the
strategy work.
Designing rewards and incentives that induce employees to do the very things
needed for successful strategy execution.
Promoting a results orientation.
The Mckinsey 7-S Framework
Strategy implementation is more likely to succeed when the organization’s elements are
in alignment. The elements of strategic fit include, structure, strategy, style, staff, skills,
systems, and the linkage results in shared values.
Structure Strategy
Systems Shared Values Style
Skills Staff
Summary of the 7-S Elements
4. Strategy A coherent set of actions aimed at gaining advantage over
competition, improving position vis-avis customers or allocating
resources.
46
5. Structure The organization chart and accompanying baggage that
show who reports to whom and how tasks are both divided up and
integrated.
6. Systems The processes and flows that show how an organization get
things done from day to day (information systems, capital budgeting
systems, manufacturing processes, quality control systems and
performance measurement systems.
7. Style Tangible evidence of what management considers important by
the way it collectively spends time and attention and uses symbolic
behavior. It is not what management says is important; it is the way
management behaves.
8. Staff The people in the organization. Here it is very useful to think not
about individual personalities, but about corporate demographics.
9. Shared Values (or superordinate goals) The values that go beyond,
but might well include, simple goal statements in determining
corporate destiny. To fit the concept, these values must be shared by
most people in the organization.
10. Skills. A derivative of the rest. Skills are those capabilities that are
possessed by an organization as a whole as opposed to the people in it.
Fitting Structure to Strategy following a five-step procedure
1. Pinpoint the key functions and tasks necessary for successful strategy
execution
2. Reflect on how strategy-critical functions and organizational units relate to
those that are routine and to those that provide staff support. This is about
understanding the strategic relationships among activities. Activities can
be related by (a) the flow of material through the production process
(b) the type of customer served
© the distribution channels used and (d) the technical skills used.
47
STRATEGIC EVALUATION and CONTROL
The last part of the strategic management model is the evaluation of performance and the
control of work activities. Control follows planning and it ensures that the corporation is
achieving what it is set out to accomplish. Just as planning involves the setting of
objectives along with the strategies and programs necessary to accomplish them, the
control process compares performance with desired results and provides the feedback
necessary for management to evaluate results and take corrective action
Decision -making
Set goals/ standards
Measure actual
Performance
Strategic Strategic Strategic Strategic
objectives planning Implementation evaluation
Compare actual Take With planned corrective
Results actions
Feedback Feedback
48
The Strategic Control Process (Harvey)
According to Wheelen and Hunger (1989) the evaluation and control process can be viewed as a five-step feedback model
1 2 3 4 5NO
Determine Establish Measure Does Take correctiveWhat to predetermined performance Performance actionMeasure standards match std?
Yes
STOP
Setting StandardsStandards are the units of measurement or criteria against which actual performance can be compared. Peter Drucker suggested five criteria to evaluate performance
1. Marketing standing relative to competitors2. Innovative performance (R&D) as a percentage of sales in the
industry3. Productivity value added or sales per employee4. Liquidity and cash flow 5. Profitability
Importance of Strategic Control7. Change in market and economic conditions8. Complexity in today’s organizations require a more forma and accurate
approach to planning and control9. Decentralization
Characteristics of Strategic control systems3. Accurate performance information4. Timely – information must be evaluated on a timely basis if action is to be
taken in time to correct deviations5. Focus on strategic control points where deviations from the plan are likely
to take place.6. Flexible due to the dynamic environment7. Acceptance for it to be accepted it must be related to meaningful goals.
Some of the control centers in organizations
49
1. Standard Cost centers – Primarily used in manufacturing facilities and standard costs are computed for each operation on the basis of historical data.
2. Revenue centers – which consider the sales in a particular year as compared to the previous year’s sales.
3. Expenses centers – according to departments or divisions and budgets are allocated to the centers.
4. Profit centers – which determine the difference between revenue and expenditure.
5. Investment centers – which measure the return on investment.
50
