Strategic Managementchapter one,two2).pptx

Comprihensive note

1. Strategic Management Chapter One

2. Introduction  1.1 Defining Strategic Management The Word ‘strategy’ is derived from the Greek term strategies , meaning a carefully formulated military style plan of campaign. Strategy (from organizational point of view) Is a means to achieve mission, vision and objectives and to establish a favorable competitive position . Strategic management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives . It is overall plan and actions for deploying resources and skills taking into consideration opportunities and threats in the environment

3. Cont.… Four big questions involved in a strategy Where are we now? Where do we want to go? How will we get there? How do we know if we got there? So it includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation, and evaluation and control .

4. Cont.… The study of strategic management, therefore, emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporation’s strengths and weaknesses.

5. Cont … Strategic management techniques can be viewed in two major ways. bottom-up or collaborative processes . When the employees initiate a proposal which they subsequently submit to their managers or their superiors, who put the idea further up in the establishment. 2. the top-down approach which is more common than any other method. Here, the chief executive officer and his team decide on the overall direction which the organization should go.

6. 1.2 Stages of Strategic Management The strategic-management process consists of three stages Strategy formulation includes developing a vision and mission, identifying external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue.

7. Cont … Strategy-formulation issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture,

8. Cont … 2. Strategy implementation means mobilizing employees and managers to put formulated strategies into action. Strategy making requires person with vision while strategy implementation requires a person with administrative ability . It is often is called the “action stage” of strategic management .

9. Cont … Implementing strategy includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance . It also requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed.

10. Cont … 3. Strategy evaluations Three fundamental strategy-evaluation activities are ( 1) reviewing external and internal factors that are the bases for current strategies, ( 2) measuring performance, and ( 3) taking corrective actions. Strategy evaluation is needed because success today is no guarantee of success tomorrow! Success always creates new and different problems; satisfied organizations experience may failure .

11. 1.3 Key Terms in Strategic Management Competitive Advantage “anything that a firm does especially well compared to rival firms .” E.g. Coca Cola Company 2. Strategists: are the individuals who are most responsible for the success or failure of an organization . chief executive officer, president, owner, chair of the board, executive director, chancellor, dean, or entrepreneur

12. Cont … 3. Vision and Mission Statements vision statement that answers the question “What we want to become ?” Mission statements addresses the basic question : “ What is our business?” It is about the future direction of an organization.

13. Cont … 4. External Opportunities and Threats 5. Internal Strengths and Weaknesses 6. Long-Term Objectives Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission. Long-term means more than one year . 7. Strategies are the means by which long-term objectives will be achieved . 8. Annual Objectives short-term milestones that organizations must achieve to reach long-term objectives 9. Policies are the means by which annual objectives will be achieved. Policies include guidelines, rules , and procedures established to support efforts to achieve stated objectives.

14. 1.4. The Strategic Management process Model R elationships among major components of the strategic management process.

15. 1.5 The strategic management approach 1. Resource-based model A firm’s unique resources and capabilities are the critical determinants of strategic competitiveness. This Model focuses on the firm’s internal environment of the organization. Assumes each firm is a collection of unique resources and capabilities To become a competitive advantage, a resource or capability must be Valuable, Rare, Costly to imitate, Not substitutable It mainly focus on Patents and Inventions

16. Cont … 2. Industrial organization (I/O) model This Model focuses on the firm’s external environment. This Model says the industry in which a firm chooses to compete has a stronger influence on firm performance than do the choices managers make inside their organizations. Strategy dictated by the external environment of the firm (what opportunities exist in these environments?)

17. 1.6 Why Some Firms Do No Strategic Planning Lack of knowledge or experience in strategic planning —No training in strategic planning. Poor reward structures —when an organization assumes success, it often fails to reward success. When failure occurs, then the firm may punish. Firefighting —a resolving crises and firefighting that it reserves no time for planning. Waste of time —some firms see planning as a waste of time because no marketable product is produced. Too expensive —some organizations see planning as too expensive in time and money. Laziness —People may not want to put forth the effort needed to formulate a plan. Content with success —particularly if a firm is successful, individuals may feel there is no need to plan because things are fine as they stand. But success today does not guarantee success tomorrow. Fear of failure — Overconfidence — Prior bad experience —

18. 1.7 Guidelines for Effective Strategic Management Seventeen Guidelines for the Strategic-Planning Process to Be Effective It should be a people process more than a paper process. It should be a learning process for all managers and employees. It should be words supported by numbers It should be simple and no routine. It should vary assignments, team memberships, meeting formats, and even the planning calendar. It should challenge the assumptions underlying the current corporate strategy. It should welcome bad news .

19. Cont … 8. welcome open- mindness and a spirit of inquiry and learning. 9. It should not be a bureaucratic mechanism. 10. It should not become ritualistic, stilted, or orchestrated. 11. It should not be too formal, predictable, or rigid. 12. It should not contain jargon or arcane planning language. 13. It should not be a formal system for control. 14. It should not disregard qualitative information. 15. It should not be controlled by “technicians.” 16. Do not pursue too many strategies at once. 17. Continually strengthen the “good ethics is good business” policy.

20. 1.8 Business ethics and strategic management Business ethics is Principles of conduct within organizations that guide decision making and behavior. Organization should have A code of business ethics which is a document that provides behavioral guidelines that cover daily activities and decisions within an organization

21. Cont … A new wave of ethics issues related to product safety, employee health, sexual harassment, smoking , affirmative action, waste disposal, foreign business practices, conflicts of interest , employee privacy, inappropriate gifts, and security of company records

22. Cont … Business practices always considered unethical – Misleading advertising Misleading labeling Harm to the environment Dumping flawed products on foreign markets Poor product or service safety not providing equal opportunities for women and minorities, overpricing, Moving jobs overseas and sexual harassment.

23. Cont … Social responsibility refers to actions an organization takes beyond what is legally required to protect or enhance the well-being of living things. Sustainability refers to the extent that an organization’s operations and actions protect, mend, and preserve rather than harm or destroy the natural environment . Polluting the environment, for example, is unethical, irresponsible, and in many cases illegal. Business ethics, social responsibility, and sustainability issues therefore are interrelated and impact all areas of the comprehensive strategic management.

24. 1.9 Benefits of Strategic Management Businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities . Non-financially It allows for identification, prioritization, and exploitation of opportunities It provides an objective view of management problems. It represents a framework for improved coordination and control of activities. It minimizes the effects of adverse conditions and changes. It allows major decisions to better support established objectives. It allows more effective allocation of time and resources to identified opportunities. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.

25. Benefits…… It creates a framework for internal communication among personnel. It helps integrate the behavior of individuals into a total effort. It provides a basis for clarifying individual responsibilities leads to increased employee productivity. It encourages forward thinking. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities. It encourages a favorable attitude toward change. It gives a degree of discipline and formality to the management of a business

26. 1.9. Disadvantages of Strategic Management Long Term Benefit vs. Immediate Results Strategic management processes are designed to provide an organization with long-term benefits. Impedes Flexibility When you undertake a strategic management process, it will result in the organization saying “no” to some of the opportunities that may be available.

27. Disadvantages….. It Can Be Expensive There is no doubt that in the not-for-profit sector there are many organizations that cannot afford to hire an external consultant to help them develop their strategy. The Future Doesn’t Unfold As Anticipated One of the major criticisms of strategic management is that it requires the organization to anticipate the future environment in order to develop plans, and as we all know, predicting the future is not an easy undertaking.

28. . End Of Chapter One Thanks!

29. CHAPTER TWO T HE BUSINESS VISION, MISSION & OBJECTIVES “ Where there is no vision, the people perish.” “An organization without mission, vision and objectives is not an organization; it is simply a collection of individuals / resources.”

30. VisionStatement What is Vision ? Vision is a goal oriented mental construct that guides people’s behavior; it is the picture for which people are willing to work. It is a dream of desired future. Vision is what the firma/person would ultimately like to become. It is a theme which gives a focused view of accompany. Vision Statement is a statement of the future model you are working towards .

31. Cont … It outlines what the organization wants to be, Vision must be convincing, inspiring and make people want to join the organization. If vision is vivid and meaningful enough, people can do outstanding things to bring to realization. For example a charity working with the poor might have a vision statement which read "A world without poverty " We want to be the most successful airline in Africa.

32. Cont … A vision is the hope for “ the reality to be ” to replace “ the reality that is”.   Features of an effective vision statement include: Clarity and lack of ambiguity Vivid and clear picture Description of a bright future Memorable and engaging wording Realistic aspirations Alignment with organizational values and culture

33. 3.2. Mission Statement What is business mission? Historically mission is associated with Christian religious groups; indeed, for many years, a missionary was assumed to be a person on a specifically religious mission. The word "mission" dates from 1598, originally of Jesuits sending " missio ", Latin for "act of sending" members abroad. Mission defines the fundamental purpose of an organization describing why it exists and what it does to achieve its Vision. Mission is a very broad and general statement about the basic purpose of the organization. It is a declaration of organization’s purpose or clarifies the purpose.

34. Cont … Mission statements often contain the following: Purpose and aim of the organization Responsibilities of the organization toward these stakeholders

35. Cont … Characteristics of a mission statement Effective mission statement should possess the following 7 characteristics . It should be feasible: always aim high but it should not be an impossible statement. realistic and achievable precise : should not be so narrow to restrict the organization’s activities nor should it be too broad to make itself meaningless. clear: should be clear enough to lead to action.

36. Cont … motivating: should be motivating for members of the organization or being its customers. distinctive: for years it created an important distinction in the public mind. indicate major components of strategy: along with the organizational purpose should indicate the major components of the strategy to be adopted. indicate how objectives are to be accomplished: it should also provide clues regarding the manner in which the objectives are to be accomplished .

37. Cont … The mission statement is preceded by identifying the mandate and taking into account the interest of stakeholders . The limits of mandate are defined by the following questions : These are:- What must be done? What could be done? What must not be done?

38. Cont … Therefore the mission statement should be consistence with the organization’s mandate. The mission statement also raises the following questions . Who are our client and stakeholders? What do our clients or stakeholders want? What do they consider important? Is the firm doing the right thing or should it change the function/service or strategy?

39. Components of a Mission Statement Most practitioners and academicians of strategic management consider an effective statement to exhibit nine components . Customer: Who are the firm’s customers? Products or services: What are the firm’s major products or services? Markets: Geographically, where does the firm compete? Technology: Is the firm technologically current? Concern for survival, growth, and profitability: Is the firm committed to growth and financial soundness? Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm? Self-concept: What is the firm’s distinctive competence or major competitive advantage? Concern for public image: Is the firm responsive to social, community, and environmental concerns? Concern for employees: Are employees a valuable asset of the firm?

40. Strategic goals and objectives Goals: denotes what an organization hopes to accomplish in the feature. It represents a future state or outcome of current efforts. Strategic goals translate the mission and vision in to concrete terms and define benefits to be gained from introducing changes.

41. Cont … Aims / goals Aims and goals are often use interchangeably . are general statements of what we intend to achieve in relation to clients needs. Are a broad statement of what we are trying to achieve. Because of this aim/ goals are not usually written in a way that we would know whether we have achieved them.

42. Cont … Objectives: are expressions of goals, they are end result of that state how goals shall be achieved . They are concrete and specific in contrast to goals. Objectives make goals operational and mainly quantitative, measurable and comparable .

43. Cont … Objective Indicate how goals can be achieved. Desirable outcomes of organizational activity Are more specific than goals. are specific statements of what you intend to achieve. Is a very specific statement what is to be done to accomplish the mission. Ideally should be SMART:

44. Cont … A statement of an objective makes clear. What is to be accomplished How much is to be accomplished when it is to be accomplished By whom it is to be accomplished

45. Cont … Examples of goals, objectives and targets Goal: earn $20, Objective: sell 10 shirts for $2 each, Target: 10 people Example of objectives To achieve 10% annual growth in earning per share. To achieve 20% - 25% return on equity. To achieve 27% return on capital employed.

46. Cont … What are the differences between goals and objectives ? Although both goals and objectives use the language of outcomes, the characteristic that distinguishes goals from objectives is the level of specificity . The difference is where we want to be ( goals ) and what we do ( objectives ). Goals are intangible; objectives are tangible. Goals are abstract; objectives are concrete. Goals can't be validated as is; objectives can be validated

47. Cont … E.g.: My aim is to lose weight, but my objective is to lose one pound a week. Goals are what you set to achieve the mission of your organization or program. It should include words such as "increase/decrease," "deliver," "improve" and "create." Objectives are milestones that are along the way to reaching your goal.

48. Cont … Characteristics of Objectives:- Objectives should be understandable: concrete and specific related to a time frame measurable and controllable: Challenging: should be set at challenging but not unrealistic levels. Different objective should correlate with each other Objectives should be set within constraints Objectives should be SMART

49. Making Objectives SMART SMART objectives means Specific (S) Well defined, significant, and Clear to anyone that has a basic knowledge of the project Objectives must be clear and un ambiguous, When objectives are specific, they communicate exactly what is expected, when, and how much 2. Measurable (M) Measurable, meaningful, motivational Know if the goal is obtainable and how far way the completion is Know when it has been achieved N.B :- A goal without a measurable outcome is like a sports competition without a scoreboard or scorekeeper.

50. Cont … 3. Attainable (A) agreed upon achievable, acceptable, action-oriented Agreement with all the stakeholders what the goals should be 4. Relevant (R) Realistic, relevant, reasonable, rewarding, result-oriented Goals must be aligned to the firm’s visions and mission 5. Time-bound (T) Time-based, timely, tangible, traceable Enough time to achieve the goal. Not too much time, when can affect project performance. Goals must have starting points, ending points and fixed durations. SMART goals = SMART organization

51. Cont … Objectives are needed at All Levels Process is top-down ! First, establish organization-wide objectives Next, set business and product line objectives Then, establish functional and departmental objectives Individual objectives come last

52. . End of Chapter Two Thanks!!

53. Chapter Three: Environmental Analysis 3.1. External Environmental Analysis

54. Environmental Analysis What is environment? As to the oxford dictionary “ environment” is a surrounding objects, regions or circumstances .” The business environment consist s of all those aspects and forces in the surroundings of business enterprises under which business operations are to be carried out effectively and efficiently. Environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation

55. Cont … Before an organization can begin strategy formulation , it must scan the external environment to identify possible opportunities and threats and Its internal environment for strengths and weaknesses.

56. Cont … Generally environmental influences could be described as Opportunity is a favorable condition in the organization’s environment, which enables it to consolidate and strengthen its position. Opportunities arise when environmental trends create the potential for organization to achieve a competitive advantage.   2. Threat is an unfavorable condition in the organization’s environment, which creates, arises for or causes damage to the organization. 3. Strength is an inherent capacity, which an organization can use to gain strategic advantage over its competitors. 4. A weakness is an inherent limitation or constraint, which creates a strategic disadvantage.

57. 3.1.1. The nature of external Analysis The purpose of an external audit is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided. Broadly external environment further is classified into the macro (general) environment and Social environment/sociological factor Political and Legal Environment Economic Environment Technological Environment The micro environment V. industry and competitive environment.

58. i. Social environment/sociological factor Include Social , cultural, demographic, and environmental changes that have a major impact on virtually all products, services, markets, and customers . Small, large, for-profit, and nonprofit organizations in all industries are being shocked and challenged by the opportunities and threats.

59. Cont … E.g. population, waste mgt , recycling , air pollution, ozone depletion, endangered species, value placed on leisure time, no . of births/deaths, Life expectancy rates, Attitudes toward business, Lifestyles , Attitudes toward government, Attitudes toward work, Buying habits, Ethical concerns, Attitudes toward saving, Sex roles, Attitudes toward investing, Regional changes in tastes and preferences, Number of women and minority workers, Attitudes toward product quality, Attitudes toward customer service, Average level of education

60. ii. Political , Governmental, and Legal Forces Forces are that should gathered information for best utilizing the opportunities and to best defend the threats are Government regulations or deregulations, Changes in tax laws and Special tariffs, Political action committees, severity , and location of government Protests, Number of patents and Changes in patent laws, Environmental protection laws, Level of defense expenditures, Legislation on equal employment and Antitrust legislation . Level of government subsidies,

61. iii. Technological Forces Technological advancements can dramatically affect organizations’ products, services, markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and competitive position In high-tech industries, identification and evaluation of key technological opportunities and threats can be the most important part of the external strategic-management audit . Firms should pursue strategies that take advantage of technological opportunities to achieve sustainable, competitive advantages in the marketplace.

62. iv. Economic Environment Economic factors have a direct impact on the potential attractiveness of various strategies. E.g . unemployment rate, recession, Interest rate, Availability of credit, Level of disposable income, Inflation rates, Monetary policies, Fiscal policies, Tax rates For example, when interest rates rise, funds needed for capital expansion become hard to get so it limits us our expansion strategy.

63. v. Competitive Forces/ Environment. competitors are firms that offer similar products and services in the same market. An important part of an external audit is identifying rival firms and determining their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies. Collecting and evaluating information on competitors is essential for successful strategy formulation . Major competitors’ weaknesses can represent external opportunities; major competitors’ strengths may represent key threats.

64. Competitive Analysis: Porter’s Five-Forces Model Porter’s Five-Forces Model of competitive analysis is a widely used approach for developing strategies in many industries. Porter’s Five-Forces of competitive analysis of the industry:- Rivalry among competing firms Potential entry of new competitors new firms can easily enter a particular industry, Potential development of substitute products Bargaining power of suppliers Bargaining power of consumers

65. Cont … Rivalry among competing firms High number of competing firms Similar size of firms competing Similar capability of firms competing Falling demand for the industry’s products Falling product/service prices in the industry Potential Entry of New Competitors Whenever new firms can easily enter a particular industry, the intensity of competitiveness among firms increases . The risk of new entry by potential competitors .

66. Cont … Potential Development of Substitute Products The closeness of substitutes to an industry’s products . Bargaining Power of Suppliers The bargaining power of suppliers affects the intensity of competition in an industry, especially when there is a large number of suppliers , when there are only a few good substitute raw materials, or when the cost of switching raw materials is especially costly . Bargaining Power of Consumers When customers are concentrated or large or buy in volume , their bargaining power represents a major force affecting the intensity of competition in an industry

67. Home work (5%): Discuses the level of competitive about Ethiopian Airlines in the industry taking the porter’s 5 force model.

68. 3.1.2. Sources of information Source of information for performing an external audit are :- Magazines, trade journals, and newspapers Internet Suppliers , distributors, salespersons, customers, and competitors represent other sources of vital information

69. 3.1.3. Forecasting Tools and Techniques Forecasts are educated assumptions about future trends and events Forecasting tools can be broadly categorized into two groups: Quantitative techniques Qualitative techniques

70. Qualitative approaches The six basic to forecasting are: sales force estimate, anticipatory surveys, market research, scenario forecasts, Delphi forecasts, and brainstorming. qualitative or judgmental forecasts are particularly useful when historical data are not available or when constituent variables are expected to change significantly in the future.

71. Quantitative forecasts are most appropriate when historical data are available and when the relationships among key variables are expected to remain the same in the future. The three types of quantitative forecasting techniques are econometric models , regression , and trend extrapolation . Linear regression, for example, is based on the assumption that the future will be just like the past- which, of course, it never is. As historical relationships become less stable, quantitative forecasts becomes less accurate

72. 3.1.4. Industry Analysis: The External Factor Evaluation (EFE) Matrix ( EFE) Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. The EFE Matrix can be developed in five steps: 1 . List key external factors as identified in the external-audit process . 2. Assign to each factor a weight that ranges from 0.0 (not important) to 1.0 (very important).

73. Con… 3. Assign a rating between 1 and 4 to each key external factor to indicate how effectively the firm’s current strategies respond to the factor, where 4 = the response is superior , 3 = the response is above average , 2 = the response is average and 1 = the response is poor . Ratings are based on effectiveness of the firm’s strategies 4. Multiply each factor’s weight by its rating to determine a weighted score. 5 . Sum the weighted scores for each variable to determine the total weighted score for the organization.

74. 3.1.5 The Competitive Profile Matrix (CPM ) The Competitive Profile Matrix (CPM) identifies a firm’s major competitors and its particular strengths and weaknesses in relation to a sample firm’s strategic position. The weights and total weighted scores in both a CPM and an EFE have the same meaning. However , critical success factors in a CPM include both internal and external issues ; therefore, the ratings refer to strengths and weaknesses, where 4 = major strength, 3 = minor strength, 2 = minor weakness, and 1 = major weakness.

75. Con… The critical success factors in a CPM are not grouped into opportunities and threats as they are in an EFE. In a CPM, the ratings and total weighted scores for rival firms can be compared to the sample firm. This comparative analysis provides important internal strategic information .

76. 3.2. The Internal Assessment The Nature of an Internal Audit The Process of Performing an Internal Audit The internal audit requires gathering and assimilating information about the firm’s management, marketing, finance/accounting, production/operations, research and development (R&D), and management information systems operations .

77. Con… Performing an internal audit requires gathering, assimilating, and evaluating information about the firm’s operations. Critical success factors, consisting of both strengths and weaknesses, can be identified and prioritized Weaknesses ⇒ Strengths ⇒ Distinctive Competencies ⇒ Competitive Advantage

78. i. Interacting Functional Areas of Business Strategic management is a highly interactive process that requires effective coordination among management, marketing, finance/accounting, production, R&D, and information systems. A key to organizational success is effective coordination and understanding among managers from all functional business areas.

79. ii. Integrating strategy and culture : Organizational culture can be defined as “a pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel.”

80. iii. Integrating strategy and resource There are three types of resources-Assets, capabilities and competencies which have been identified under Resource Based View (RBV) of the firm. Strategic importance of Resources 1. Available resources: are those resources that are basic to the capability of any organization: Physical resources , Human resources , Financial resources and Intellectual capital 2. Unique resources: unique resources as defined in strategy texts are those resources, which critically strengthen competitive advantage like patented products or people

81. Core competencies : activities or processes that critically strengthen an organization’s competitive advantage is due to . Scarcity : - Just in case any resource is widely available, then it’s not likely to be a source of competitive advantage. Inimitability: - limit imitation. Physical uniqueness, causal ambiguity or scale deterrence are few ways how organizations attempt doing this. Durability : - Durability in such situations becomes a more stringent test for valuing resources, capabilities and competencies. Superiority: - “ Being good is not enough and a firm must be better than its competitor .”

82. Internal Audit Tools Quantitative and Qualitative Assessment Quantitative analysis mostly it is about financial analysis includes Profitability ratios , Liquidity ratios , Leverage ratios, Activity ratios Qualitative analysis is about understanding human resources, organizational culture and its temperament towards creativity and innovation Qualitative information also supplements quantitative data in understanding basic concepts of what customers’ value and how they feel about a given product

83. Con… 2. Comparison Standards The three commonly accepted comparison standards are: a) Industry Norms compare the performance of an organization in the same industry or sector against a set of agreed performance indicators. B ) Historical Comparisons look at the performance of an organization in relation to previous years in order to identify significant changes. c ) Benchmarking compares an organization’s performance against ‘best in class’ performance wherever that is found.

84. Con… 3. SWOT- Analysis An effective organizational strategy, therefore, is one that capitalizes on the opportunities through the use of strengths and neutralizes the threats by minimizing the impact of weaknesses .

85. Con… The four environmental influences could be described as follows: A. Strengths Strength is an inherent capacity which an organization can use to gain strategic advantage over its competitors. An example of strength is superior research and development skills which can be used for new product development so that the company gains competitive advantage. Two factors contribute to your strengths: ability and resources available .

86. Con… Ability is evaluated on 3 counts: Versatility: your ability to adapt to an ever changing environment. Growth: your ability to maintain a continuing growth. Markets: your ability to penetrate or create new markets. Resources has three dimensions: Availability: your ability to obtain the resources needed. Quality: the quality and up-to-datedness of the resources employed. Allocation: your ability to distribute resources both effectively and efficiently.

87. Con… Firm’s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Example: Patents Strong brand names Good reputation among customers Cost advantages from proprietary know-how Exclusive access to high grade natural resources Favorable access to distribution networks

88. Con… B. Weaknesses Weakness is an inherent limitation or constraint which creates a strategic disadvantage . Your weaknesses are determined through failures, defeats, losses and inability to match up with the dynamic situation and rapid change. The weaknesses may be rooted in lack of managerial skills, insufficient quality , technological backwardness, inadequate systems or processes , slow deliveries, or shortage of resources.

89. Con… There are three possible outcomes to the analysis of your weaknesses. Correction of an identified defect. Protection through cover-up and prevention strategies to reduce the exposure of your weaknesses. Aggression to divert the attention from your weaknesses.

90. Con… The absence of certain strengths may be viewed as a weakness. Example: Lack of patent protection A weak brand name Poor reputation among customers High cost structure Lack of access to the best natural resources Lack of access to key distribution channels

91. Con… C. Opportunities Opportunity is a favorable condition in the organization's environment which enables it to consolidate and strengthen its position Example: An unfulfilled customer need, Arrival of new technologies, Loosening of regulations, Removal of international trade barriers Weaknesses of your competitions are also opportunities for you. You can exploit them in two following ways: Marketing warfare : attacking the weak leader's position and focusing all your efforts at that point, or making a surprise move into an uncontested area. Collaboration: you can use your complementary strengths to establish a strategic alliance with your competitor.

92. Con… D. Threats Threat is an unfavorable condition in the organization's environment which creates a risk for, or causes damage to the organization . External threats arise from political, economic, social, technological ( PEST ) forces . Changes in the external environment also may present threats to the firm. Example: Shifts in consumer tastes away from the firm’s products Emergence of substitute products New regulations Increased trade barriers

93. Con… Organizations may use confrontation matrix as a tool to combine the internal factors with the external factors .   Opportunities Threats Strengths S – O Strategies Offensive Make the most of these S – T Strategies Adjust Restore strengths Weaknesses W – O Strategies Defensive Watch competition closely W – T Strategies Survive Turnaround

94. Con… S – O Strategies: - pursue opportunities that are a good fit to the company’s strengths. S – T Strategies: - identify ways that the firm can use its strengths to reduce its vulnerability to external threats. W – O Strategies: - overcome weaknesses to pursue opportunities W – T Strategies: - establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats.

95. . End of chapter three thanks

96. . chapter 4 STRATEGY formulation (ANALAYSIS AND CHOICE)

97. 5.1. The nature of strategy analysis and choice Strategy analysis and choice seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives. The firm’s present strategies, objectives, and mission, coupled with the external and internal audit information, provide a basis for generating and evaluating feasible alternative strategies . alternative Strategies are derived from the firm’s vision, mission, objectives, external audit, and internal audit; they are consistent with, or build on, past strategies that have worked well.

98. 1.5. T ypes of strategy Integration Strategies Forward Integration - Gaining ownership or increased control over distributors or retailers Backward Integration- Seeking ownership or increased control of a firm’s suppliers Horizontal Integration -Seeking ownership or increased control over competitors

99. Cont … 2. Intensive Strategies It is about intensive efforts if a firm’s competitive position with existing products is to improve . Market Penetration -Seeking increased market share for present products or services in present markets through greater marketing efforts Market Development -Introducing present products or services into new geographic area Product Development-Seeking increased sales by improving present products or services or developing new ones

100. Cont … 3. Diversification Strategies Related / Concentric Diversification-Adding new but related products or services Unrelated / Conglomerate Diversification-Adding new, unrelated products or services 4. Defensive strategies Retrenchment- Regrouping through cost and asset reduction to reverse declining sales and profit Divestiture-Selling a division or part of an organization Liquidation Selling all of a company’s assets, in parts, for their tangible worth 5. Combination Strategies The above strategies are not mutually exclusive. It is possible to adopt a mix of the above to suit particular situations.

101. 5.2 The Process of Generating and Selecting Strategies Strategists never consider all feasible alternatives that could benefit the firm because there are an infinite number of possible actions and an infinite number of ways to implement those actions. Therefore , a manageable set of the most attractive alternative strategies must be developed. The advantages, disadvantages, trade-offs, costs, and benefits of these strategies should be determined.

102. 5.2 The Process of Generating…. Identifying and evaluating alternative strategies should involve many of the managers and employees who earlier assembled the organizational vision and mission statements, performed the external audit, and conducted the internal audit All participants in the strategy analysis and choice activity should have the firm’s external and internal audit information by their sides Proposed strategies should be listed in writing.

103. 5.2 The Process of Generating… When all feasible strategies identified by participants are given and understood, the strategies should be ranked in order of attractiveness by all participants, with 1 = should not be implemented, 2 = possibly should be implemented, 3 = probably should be implemented, and 4 = definitely should be implemented. This process will result in a prioritized list of best strategies that reflects the collective wisdom of the group .

104. 5.3 level of strategy Strategy can be formulated on three different levels :

105. A. Corporate Level Strategy Corporate level strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of businesses . It is useful to think of three components of corporate level strategy: ( a) growth or directional strategy (what should be our growth objective, ranging from retrenchment through stability to varying degrees of growth - and how do we accomplish this),

106. Cont …. (b ) portfolio strategy (what should be our portfolio of lines of business, which implicitly requires reconsidering how much concentration or diversification we should have), and (c) parenting strategy (how we allocate resources and manage capabilities and activities across the portfolio -- where do we put special emphasis, and how much do we integrate our various lines of business )

107. B. Business Unit Level Strategy about developing and sustaining a competitive advantage for the goods and services that are produced. Competitive Strategy often called Business Level Strategy. This involves deciding how the company will compete within each line of business (LOB) or strategic business unit (SBU).

108. Cont … At the business level, the strategy formulation phase deals with: positioning the business against rivals anticipating changes in demand and technologies and adjusting the strategy to accommodate them Influencing the nature of competition through strategic actions such as vertical integration and through political actions such as lobbying .

109. Cont … Michael Porter identified three generic strategies ( cost leadership , differentiation , and focus ) that can be implemented at the business unit level to create a competitive advantage and defend against the adverse effects of the five forces.

110. C. Functional Level Strategy is the level of the operating divisions and departments. The strategic issues related to business processes and the value chain. Functional level strategies in marketing, finance, operations, human resources, and R&D involve the development and coordination of resources through which business unit level strategies can be executed efficiently and effectively.

111. 5.4. A Comprehensive Strategy-formulation Framework Important strategy formulation techniques can be integrated into a three-stage decision making framework. The input stage The matching stage The decision stage

112. 1. THE INPUT STAGE : It summarizes the basic input information needed to formulate strategies. The external factor evaluation(EFE) matrix, an internal factor evaluation (IFE) matrix, and a Competitive Profile Matrix are useful information required. The information derived from these three matrices provide basic information for the matching and decision stages. #allows strategists to generate and evaluate alternative strategies more effectively. Good intuitive judgment is always needed in determining appropriate weights and ratings.

113. 2. The Matching Stage Strategy is sometimes defined as the match an organization makes between its internal resources and the opportunities and risks created by its external factors. The matching stage of the strategy-formulation framework consists of some techniques that can be used in any sequence.

114. A. The threats-Opportunities-Weaknesses- strengths (TOWS) The threats-Opportunities-Weaknesses- strengths (TOWS) Matrix is an important matching tool that helps managers develop four types of strategies. SO strategies: use a firm’s internal strength to take advantage of external opportunities. 2. WO Strategies: Aim at improving internal weaknesses by taking advantage of external opportunities. 3. ST Strategies: Use a firm’s strengths to avoid or reduce the impact of external threats. 4. WT Strategies: are defensive tactics directed at reducing internal weakness and avoiding environmental threats.

115. B . The Strategic Position and Action Evaluation (SPACE ) Its four-quadrant framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for an organization. The axes of the SPACE Matrix represent Two internal dimensions Financial strength [FS] Competitive advantage [CA] Two external dimensions Environmental stability [ES] and Industry strength [IS].

116. Cont …

117. c. Competitor and Industry Analysis In the competitor analysis, we try to assess what the competitor has and what he does not have. In this analysis, focus is on external environment as one of the components of external environment is the competitor. In competitive analysis, only the major competitors are assessed while in industry analysis all the competitors belonging to the industry are looked at.

118. 3. THE DECISION STAGE Analysis and intuition provide a basis for making strategy-formulation decision. The matching techniques just discussed reveal feasible alternative strategies. Any additional strategies resulting from the matching analyses could be discussed and added to the list of feasible alternative options. Then after participants could rate these strategies on a 1 to 4 scale so that a prioritized list of the best strategies could be achieved.

119. . End of chapter 4 Thanks