Week 2 Strategy w Ratios

Questions that are dealt with by a company's mission, objectives, and corporate strategy

"Where will we be active?" and "How will we get there?"

Cash ratio

(Cash+cash equivalents)/current liabilities -expressed as a decimal -Measures the extent to which the company's capital is in cash or cash equivalents; shows how much of the current obligations can be paid from cash or near-cash assets.

Quick (acid test) ratio

(Current Assets-Inventory)/Current Liabilities -expressed as a decimal -Measures the company's ability to pay off its short-term obligations from current assets, excluding inventories.

Strategic Audit: 5. Analysis of Strategic Factors (SWOT): A. Situational Analysis

(List in SFAS Matrix, Figure 6-1, pp. 166-167) Of the external (EFAS) and internal (IFAS) factors listed in III.D and IV.D, which are the strategic (most important) factors that strongly affect the corporation's present and future performance?

Strategic Audit: 3. External Environment (Opportunities and Threats): D. Summary of External Factors

(List in the EFAS Table 4-5, p. 121) Which of these forces and factors are the most important to the corporation and to the industries in which it competes at the present time? Which will be important in the future?

Strategic Audit: 4. Internal Environment: Strengths and Weaknesses: D. Summary of Internal Factors

(List in the IFAS Table 5-2, p. 154) Which of these factors are core competencies? Which, if any, are distinctive competencies? Which of these factors are the most important to the corporation and to the industries in which it competes at the present time? Which might be important in the future? Which functions or activities are candidates for outsourcing?

VRIO framework

(Value, Rareness, Imitability, and Organization) to assess the importance of each of the factors that might be considered strengths.

Earnings per share (EPS)

(net profit after taxes-preferred stock dividends)/average number of common shares -expressed as dollars per share -shows the after-tax earnings generated for each share of common stock

gross profit margin

(sales-cost of goods sold)/net sales -expressed as a percentage -indicates the total margin available to cover other expenses beyond cost of goods sold and still yield a profit

____out of 10 portfolio managers and __% of security analysts use annual reports when making decisions. They contain not only the usual income statements and balance sheets, but also cash flow statements and notes to the financial statements indicating why certain actions were taken. On_____ you will find detailed information not usually available in an annual report. ____ forms include quarterly financial reports. ____ include detailed information on members of a company's board of directors and proxy statements for annual meetings. Some resources available for research into the economy and a corporation's industry are suggested in Appendix 13.A.

-8 -75% -10-K forms -SEC 10-Q forms -SEC 14-A forms

Current Ratio

-Current assets/current liabilities -expressed as a decimal -A short-term indicator of the company's ability to pay its short-term liabilities from short-term assets; how much of current assets are available to cover each dollar of current liabilities.

An opportunity by itself has no real value unless ______. By itself, a distinctive competency in a key resource or capability is _____. Weaknesses in other resource areas can _______. SWOT, as a conceptual tool can be used to take a broader view of strategy through the formula ___. This reflects an important issue strategic managers face: _______.

-a company has the capacity (i.e., resources) to take advantage of that opportunity -no guarantee of competitive advantage -prevent a strategy from being successful -SA = O/(S-W)—that is, (Strategic Alternative equals Opportunity divided by Strengths minus Weaknesses). -Should we invest more in our strengths to make them even stronger (a distinctive competence) or should we invest in our weaknesses to at least make them competitive?

One desired outcome of analyzing strategic factors is identifying _______. A _______ is a need in the marketplace that is currently unsatisfied.

-niches where an organization can use its core competencies to take advantage of a particular market opportunity. -niche

strategic audit

-provides a checklist of questions, by area or issue, that enables a systematic analysis to be made of various corporate functions and activities. -Note that the numbered primary headings in the audit are the same as the numbered blocks in the strategic decision-making process in Figure 1-5. Beginning with an evaluation of current performance, the audit continues with environmental scanning, strategy formulation, and strategy implementation, and it concludes with evaluation and control. A strategic audit is a type of management audit and is extremely useful as a diagnostic tool for pinpointing corporatewide problem areas and to highlight organizational strengths and weaknesses.65 A strategic audit can help determine why a certain area is creating problems for a corporation and help generate solutions to the problem. -each question in a particular area of a strategic audit can be broken down into an additional series of sub questions. An analyst can develop responses to these sub questions when they are needed for a complete strategic analysis of a company.

Strategic Audit: 8. Evaluation and Control: B. Are Adequate Control Measures in Place to Ensure Conformance with the Recommended Strategic Plan?

1. Are appropriate standards and measures being used? 2. Are reward systems capable of recognizing and rewarding good performance?

Strategic Audit: 5. Analysis of Strategic Factors (SWOT): B. Review of Mission and Objectives

1. Are the current mission and objectives appropriate in light of the key strategic factors and problems? 2. Should the mission and objectives be changed? If so, how? 3. If they are changed, what will be the effects on the firm?

Strategic Audit: 8. Evaluation and Control: A. Is the Current Information System Capable of Providing Sufficient Feedback on Implementation Activities and Performance? Can It Measure Strategic Factors?

1. Can performance results be pinpointed by area, unit, project, or function? 2. Is the information timely? 3. Is the corporation using benchmarking to evaluate its functions and activities?

Strategic Audit: 6. Strategic Alternatives and Recommended Strategy: A. Strategic Alternatives

1. Can the current or revised objectives be met through more careful implementation of those strategies presently in use (for example, fine-tuning the strategies)? 2. What are the major feasible alternative strategies available to the corporation? What are the pros and cons of each? Can corporate scenarios be developed and agreed on? (Alternatives must fit the natural physical environment, societal environment, industry, and corporation for the next three to five years.) a. Consider stability, growth, and retrenchment as corporate strategies. b. Consider cost leadership and differentiation as business strategies. c. Consider any functional strategic alternatives that might be needed for reinforcement of an important corporate or business strategic alternative.

4 Liquidity Ratios

1. Current Ratio 2. Quick (acid test) ratio 3.Inventory to net working capital 4.Cash ratio

Strategic Audit: 4. Internal Environment: Strengths and Weaknesses: A. Corporate Structure

1. How is the corporation structured at present? a. Is the decision-making authority centralized around one group or decentralized to many units? b. Is the corporation organized on the basis of functions, projects, geography, or some combination of these? 2. Is the structure clearly understood by everyone in the corporation? 3. Is the present structure consistent with current corporate objectives, strategies, policies, and programs, as well as with the firm's international operations? 4. In what ways does this structure compare with those of similar corporations?

Except for its internal orientation, this IFAS Table is built the same way as the EFAS Table described in Chapter 4 (in Table 4-5). To use the IFAS Table, complete the following steps:

1. In Column 1 (Internal Factors), list the 8 to 10 most important strengths and weaknesses facing the company. 2. In Column 2 (Weight), assign a weight to each factor from 1.0 (Most Important) to 0.0 (Not Important) based on that factor's probable impact on a particular company's current strategic position. The higher the weight, the more important is this factor to the current and future success of the company. All weights must sum to 1.0 regardless of the number of factors. 3. In Column 3 (Rating), assign a rating to each factor from 5.0 (Outstanding) to 1.0 (Poor) based on management's specific response to that particular factor. Each rating is a judgment regarding how well the company's management is currently dealing with each specific internal factor. 4. In Column 4 (Weighted Score), multiply the weight in Column 2 for each factor times its rating in Column 3 to obtain that factor's weighted score. 5. In Column 5 (Comments), note why a particular factor was selected and/or how its weight and rating were estimated. 6. Finally, add the weighted scores for all the internal factors in Column 4 to determine the total weighted score for that particular company. The total weighted score indicates how well a particular company is responding to current and expected factors in its internal environment. The score can be used to compare that firm to other firms in its industry. Check to ensure that the total weighted score truly reflects the company's current performance in terms of profitability and market share. The total weighted score for an average firm in an industry is always 3.0.

Steps of SFAS matrix (Strategics Factors Analysis Summary):

1. In Column 1 (Strategic Factors), list the most important EFAS and IFAS items. After each factor, indicate whether it is a Strength (S), Weakness (W), an Opportunity (O), or a Threat (T). 2. In Column 2 (Weight), assign weights for all of the internal and external strategic factors. As with the EFAS and IFAS Tables presented earlier, the weight column must total 1.00. This means that the weights calculated earlier for EFAS and IFAS will probably have to be adjusted. 3. In Column 3 (Rating) assign a rating of how the company's management is responding to each of the strategic factors. These ratings will probably (but not always) be the same as those listed in the EFAS and IFAS Tables. 4. In Column 4 (Weighted Score) multiply the weight in Column 2 for each factor by its rating in Column 3 to obtain the factor's rated score. 5. In Column 5 (Duration), depicted in Figure 6-1, indicate short-term (less than one year), intermediate-term (one to three years), or long-term (three years and beyond). 6. In Column 6 (Comments), repeat or revise your comments for each strategic factor from the previous EFAS and IFAS Tables. The total weighted score for the average firm in an industry is always 3.0.

Strategic Audit: 4. Internal Environment: Strengths and Weaknesses: B. Corporate Culture

1. Is there a well-defined or emerging culture composed of shared beliefs, expectations, and values? 2. Is the culture consistent with the current objectives, strategies, policies, and programs? 3. What is the culture's position on environmental sustainability? 4. What is the culture's position on other important issues facing the corporation (that is, on productivity, quality of performance, adaptability to changing conditions, and internationalization)? 5. Is the culture compatible with the employees' diversity of backgrounds? 6. Does the company take into consideration the values of the culture of each nation in which the firm operates?

Strategic Audit: 4. Internal Environment: Strengths and Weaknesses: C. Corporate Resources

1. Marketing a. What are the corporation's current marketing objectives, strategies, policies, and programs? i. Are they clearly stated or merely implied from performance and/or budgets? ii. Are they consistent with the corporation's mission, objectives, strategies, and policies, and with internal and external environments? b. How well is the corporation performing in terms of analysis of market position and marketing mix (that is, product, price, place, and promotion) in both domestic and international markets? How dependent is the corporation on a few customers? How big is its market? Where is it gaining or losing market share? What percentage of sales comes from developed versus developing regions? Where are current products in the product life cycle? i. What trends emerge from this analysis? ii. What impact have these trends had on past performance and how might these trends affect future performance? iii. Does this analysis support the corporation's past and pending strategic decisions? iv. Does marketing provide the company with a competitive advantage? c. How well does the corporation's marketing performance compare with that of similar corporations? d. Are marketing managers using accepted marketing concepts and techniques to evaluate and improve product performance? (Consider product life cycle, market segmentation, market research, and product portfolios.) e. Does marketing adjust to the conditions in each country in which it operates? f. Does marketing consider environmental sustainability when making decisions? g. What is the role of the marketing manager in the strategic management process? 2. Finance a. What are the corporation's current financial objectives, strategies, policies, and programs? i. Are they clearly stated or merely implied from performance and/or budgets? ii. Are they consistent with the corporation's mission, objectives, strategies, and policies, and with internal and external environments? b. How well is the corporation performing in terms of financial analysis? (Consider ratio analysis, common size statements, and capitalization structure.) How balanced, in terms of cash flow, is the company's portfolio of products and businesses? What are investor expectations in terms of share price? i. What trends emerge from this analysis? ii. Are there any significant differences when statements are calculated in constant versus reported dollars? iii. What impact have these trends had on past performance and how might these trends affect future performance? iv. Does this analysis support the corporation's past and pending strategic decisions? v. Does finance provide the company with a competitive advantage? c. How well does the corporation's financial performance compare with that of similar corporations? d. Are financial managers using accepted financial concepts and techniques to evaluate and improve current corporate and divisional performance? (Consider financial leverage, capital budgeting, ratio analysis, and managing foreign currencies.) e. How does finance adjust to the conditions in each country in which the company operates? f. How does finance cope with global financial issues? g. What is the role of the financial manager in the strategic management process? 3. Research and Development (R&D) a. What are the corporation's current R&D objectives, strategies, policies, and programs? i. Are they clearly stated or merely implied from performance or budgets? ii. Are they consistent with the corporation's mission, objectives, strategies, and policies, and with internal and external environments? iii. What is the role of technology in corporate performance? iv. Is the mix of basic, applied, and engineering research appropriate given the corporate mission and strategies? v. Does R&D provide the company with a competitive advantage? b. What return is the corporation receiving from its investment in R&D? c. Is the corporation competent in technology transfer? Does it use concurrent engineering and cross-functional work teams in product and process design? d. What role does technological discontinuity play in the company's products? e. How well does the corporation's investment in R&D compare with the investments of similar corporations? How much R&D is being outsourced? Is the corporation using value-chain alliances appropriately for innovation and competitive advantage? f. Does R&D adjust to the conditions in each country in which the company operates? g. Does R&D consider environmental sustainability in product development and packaging? h. What is the role of the R&D manager in the strategic management process? 4. Operations and Logistics a. What are the corporation's current manufacturing/service objectives, strategies, policies, and programs? i. Are they clearly stated or merely implied from performance or budgets? ii. Are they consistent with the corporation's mission, objectives, strategies, and policies, and with internal and external environments? b. What are the type and extent of operations capabilities of the corporation? How much is done domestically versus internationally? Is the amount of outsourcing appropriate to be competitive? Is purchasing being handled appropriately? Are suppliers and distributors operating in an environmentally sustainable manner? Which products have the highest and lowest profit margins? i. If the corporation is product-oriented, consider plant facilities, type of manufacturing system (continuous mass production, intermittent job shop, or flexible manufacturing), age and type of equipment, degree and role of automation and/or robots, plant capacities and utilization, productivity ratings, and availability and type of transportation. ii. If the corporation is service-oriented, consider service facilities (hospital, theater, or school buildings), type of operations systems (continuous service over time to the same clientele or intermittent service over time to varied clientele), age and type of supporting equipment, degree and role of automation and use of mass communication devices (diagnostic machinery, video machines), facility capacities and utilization rates, efficiency ratings of professional and service personnel, and availability and type of transportation to bring service staff and clientele together. c. Are manufacturing or service facilities vulnerable to natural disasters, local or national strikes, reduction or limitation of resources from suppliers, substantial cost increases of materials, or nationalization by governments? d. Is there an appropriate mix of people and machines (in manufacturing firms) or of support staff to professionals (in service firms)? e. How well does the corporation perform relative to the competition? Is it balancing inventory costs (warehousing) with logistical costs (just-in-time)? Consider costs per unit of labor, material, and overhead; downtime; inventory control management and scheduling of service staff; production ratings; facility utilization percentages; and number of clients successfully treated by category (if service firm) or percentage of orders shipped on time (if product firm). i. What trends emerge from this analysis? ii. What impact have these trends had on past performance and how might these trends affect future performance? iii. Does this analysis support the corporation's past and pending strategic decisions? iv. Do operations provide the company with a competitive advantage? f. Are operations managers using appropriate concepts and techniques to evaluate and improve current performance? Consider cost systems, quality control and reliability systems, inventory control management, personnel scheduling, Total Quality Management (TQM), learning curves, safety programs, and engineering programs that can improve efficiency of manufacturing or of service. g. Do operations adjust to the conditions in each country in which it has facilities? h. Do operations consider environmental sustainability when making decisions? i. What is the role of the operations manager in the strategic management process? 5. Human Resources Management (HRM) a. What are the corporation's current HRM objectives, strategies, policies, and programs? i. Are they clearly stated or merely implied from performance and/or budgets? ii. Are they consistent with the corporation's mission, objectives, strategies, and policies and with internal and external environments? b. How well is the corporation's HRM performing in terms of improving the fit between the individual employee and the job? Consider turnover, grievances, strikes, layoffs, employee training, and quality of work life. i. What trends emerge from this analysis? ii. What impact have these trends had on past performance and how might these trends affect future performance? iii. Does this analysis support the corporation's past and pending strategic decisions? iv. Does HRM provide the company with a competitive advantage? c. How does this corporation's HRM performance compare with that of similar corporations? d. Are HRM managers using appropriate concepts and techniques to evaluate and improve corporate performance? Consider the job analysis program, performance appraisal system, up-to-date job descriptions, training and development programs, attitude surveys, job design programs, quality of relationships with unions, and use of autonomous work teams. e. How well is the company managing the diversity of its workforce? What is the company's record on human rights? Does the company monitor the human rights record of key suppliers and distributors? f. Does HRM adjust to the conditions in each country in which the company operates? Does the company have a code of conduct for HRM for itself and key suppliers in developing nations? Are employees receiving international assignments to prepare them for managerial positions? g. What is the role of outsourcing in HRM planning? h. What is the role of the HRM manager in the strategic management process? 6. Information Technology (IT) a. What are the corporation's current IT objectives, strategies, policies, and programs? i. Are they clearly stated or merely implied from performance and/or budgets? ii. Are they consistent with the corporation's mission, objectives, strategies, and policies, and with internal and external environments? b. How well is the corporation's IT performing in terms of providing a useful database, automating routine clerical operations, assisting managers in making routine decisions, and providing information necessary for strategic decisions? i. What trends emerge from this analysis? ii. What impact have these trends had on past performance and how might these trends affect future performance? iii. Does this analysis support the corporation's past and pending strategic decisions? iv. Does IT provide the company with a competitive advantage? c. How does this corporation's IT performance and stage of development compare with that of similar corporations? Is it appropriately using the Internet, intranet, and extranets? d. Are IT managers using appropriate concepts and techniques to evaluate and improve corporate performance? Do they know how to build and manage a complex database, establish Web sites with firewalls and virus protection, conduct system analyses, and implement interactive decision-support systems? e. Does the company have a global IT and Internet presence? Does it have difficulty with getting data across national boundaries? f. What is the role of the IT manager in the strategic management process?

5 profitability ratios

1. Net Profit Margin 2.Gross Profit Margin 3.Return on investment (ROI) 4.Return on Equity (ROE) 5.Earnings per share (EPS)

Strategic Audit: 6. Strategic Alternatives and Recommended Strategy: B. Recommended Strategy

1. Specify which of the strategic alternatives you are recommending for the corporate, business, and functional levels of the corporation. Do you recommend different business or functional strategies for different units of the corporation? 2. Justify your recommendation in terms of its ability to resolve both long- and short-term problems and effectively deal with the strategic factors. 3. What policies should be developed or revised to guide effective implementation? 4. What is the impact of your recommended strategy on the company's core and distinctive competencies?

3 useful techniques to synthesize many factors in a complex strategy case:

1. The External Factor Analysis (EFAS) 2.The Internal Factor Analysis (IFAS) 3.The Strategic Factor Analysis Summary Matrix (SFAS)

Strategic Audit: 3. External Environment (Opportunities and Threats): C. Task Environment

1. What forces drive industry competition? Are these forces the same globally or do they vary from country to country? Rate each force as high, medium, or low. a. Threat of new entrants b. Bargaining power of buyers c. Threat of substitute products or services d. Bargaining power of suppliers e. Rivalry among competing firms f. Relative power of unions, governments, special interest groups, etc. 2. What key factors in the immediate environment (that is, customers, competitors, suppliers, creditors, labor unions, governments, trade associations, interest groups, local communities, and shareholders) are currently affecting the corporation? Which are current or future threats? Opportunities?

Strategic Audit: 3. External Environment (Opportunities and Threats): A. Natural Physical Environment: Sustainability Issues

1. What forces from the natural physical environment are currently affecting the corporation and the industries in which it competes? How would you categorize current or future threats? Opportunities? a. Climate, including global temperature, sea level, and fresh water availability b. Weather-related events, such as severe storms, floods, and droughts c. Solar phenomena, such as sunspots and solar wind 2. Do these forces have different effects in other regions of the world?

Strategic Audit: 2. Corporate Governance: B. Top Management

1. What person or group constitutes top management? 2. What are top management's chief characteristics in terms of knowledge, skills, background, and style? If the corporation has international operations, does top management have international experience? Are executives from acquired companies considered part of the top management team? 3. Has top management been responsible for the corporation's performance over the past few years? How many managers have been in their current position for less than three years? Were they promoted internally or externally hired? 4. Has top management established a systematic approach to strategic management? 5. What is top management's level of involvement in the strategic management process? 6. How well does top management interact with lower-level managers and with the board of directors? 7. Are strategic decisions made ethically in a socially responsible manner? 8. Are strategic decisions made in an environmentally sustainable manner? 9. Do top executives own significant amounts of stock in the corporation? 10. Do you believe that top management is sufficiently skilled to cope with likely future challenges?

Strategic audit: 2. Corporate governance: A. Board of Directors

1. Who is on the board? How many are internal (employees) or external members? 2. Which board members own significant shares of stock? What percentage? 3. Is the stock privately held or publicly traded? Are there different classes of stock with different voting rights? What do the board members contribute to the corporation in terms of knowledge, skills, background, and connections? If the corporation has international operations, do any board members have international experience? Are board members concerned with environmental sustainability? 5. How long have the board members served on the board? 6. What is their level of involvement in strategic management? Do they merely rubber-stamp top management's proposals or do they actively participate and suggest future directions? Do they evaluate management's proposals in terms of environmental sustainability?

Strategic Audit: 7. Implementation: A. What kinds of programs or tactics should be developed to implement the recommended strategy?

1. Who should develop these programs/tactics? 2. Who should be in charge of these programs/tactics?

9 activity ratios

1. inventory turnover 2.days of inventory 3.net working capital turnover 4.asset turnover 5.fixed asset turnover 6.average collection period 7.accounts receivable turnover 8.accounts payable period 9.days of cash

All weights must sum to _____ regardless of the number of factors.

1.0

When was SWOT developed and why?

1970s, SWOT was one of the original approaches as the field moved from business policy (looking at examples and inferring long-range plans) to strategy. In the intervening years, many techniques have developed that provide strategists with keener insights into the elements of SWOT. However, as strategists, we need to understand our strengths, calculate the impact of weaknesses (whether they are real or perceived), take advantage of opportunities that match our strengths and minimize the impact of outside threats to the success of the organization. Thus, SWOT as a means of conceptualizing the organization is quite effective.

The total weighted score for an average firm in an industry is always ___.

3.0

list of key terms

A list of key terms and the pages on which they are discussed let the reader keep track of important concepts as they are introduced in each chapter

Strategic Audit: 7. Implementation: B.

Are the Programs/Tactics Financially Feasible? Can Pro Forma Budgets Be Developed and Agreed On? Are Priorities and Timetables Appropriate to Individual Programs/Tactics?

5 elements of a good strategy

Arenas: Where will we be active? ■■ Vehicles: How will we get there? ■■ Differentiators: How will we win in the marketplace? ■■ Staging: What will be our speed and sequence of moves? ■■ Economic logic: How will we obtain our returns?

CERs

Certified Emission Reductions; the amount of money a company earns from reducing carbon emissions and selling them on the open market.

Example of the industry scenario process

Examine possible shifts in the natural environment and in societal variables globally. 2. Identify uncertainties in each of the six forces of the task environment (i.e., potential entrants, competitors, likely substitutes, buyers, suppliers, and other key stakeholders). 3. Make a range of plausible assumptions about future trends. 4. Combine assumptions about individual trends into internally consistent scenarios. 5. Analyze the industry situation that would prevail under each scenario. 6. Determine the sources of competitive advantage under each scenario. 7. Predict competitors' behavior under each scenario. 8. Select the scenarios that are either most likely to occur or most likely to have a strong impact on the future of the company. Use these scenarios as assumptions in strategy formulation.

Strategic audit: 1. Current Situation: A. current performance

How did the corporation perform in the past year overall in terms of return on investment, market share, and profitability?

EFAS, IFAS, and SFAS tables

Internal and external strategic factors are emphasized through the use of these

RFID tags

Radio-frequency identification (RFID) tags containing product information are used to track goods through inventory and distribution channels.

Many executives prefer to present their analysis using a ____ chart.

SWOT SWOT is an acronym used to describe the four quadrants of Strengths, Weaknesses, Opportunities, and Threats for a specific company.

reverse logistics

The company also needs to know where its products are being used in order to take them back—known as the art of reverse logistics.

primary emphasis of the evaluation and control element of the strategic management model.

The question "How will we obtain our returns?"

concern of business strategy

The question "How will we win in the marketplace?"

answered not only by business strategy and tactics but also by functional strategy and by implemented programs, budgets, and procedures.

The question "What will be our speed and sequence of moves?"

The Strategic Factor Analysis Summary (SFAS) Matrix

This condenses the 16 to 20 factors generated in the EFAS and IFAS tables into the 8 to 10 most important (strategic) factors facing the company. These strategic factors become the basis for generating alternatives and act as a recommendation for the company's future direction.

The External Factor Analysis (EFAS) table

This reduces the external opportunities and threats to the 8 to 10 most important external factors facing management.

The Internal Factor Analysis (IFAS) table

This reduces the internal strengths and weaknesses to the 8 to 10 most important internal factors facing management.

Strategic audit: 1. Current Situation: B. Strategic posture

What are the corporation's current mission, objectives, strategies, and policies? 1. Are they clearly stated, or are they merely implied from performance? 2. Mission: What business(es) is the corporation in? Why? 3. Objectives: What are the corporate, business, and functional objectives? Are they consistent with each other, with the mission, and with the internal and external environments? 4. Strategies: What strategy or mix of strategies is the corporation following? Are they consistent with each other, with the mission and objectives, and with the internal and external environments? 5. Policies: What are the corporation's policies? Are they consistent with each other, with the mission, objectives, and strategies, and with the internal and external environments? 6. Do the current mission, objectives, strategies, and policies reflect the corporation's international operations, whether global or multidomestic?

Strategic Audit: 3. External Environment (Opportunities and Threats): B. Societal Environment

What general environmental forces are currently affecting both the corporation and the industries in which it competes? Which present current or future threats? Opportunities? a. Economic b. Technological c. Political-legal d. Sociocultural 2. Are these forces different in other regions of the world?

Strategic Audit: 7. Implementation: C.

Will New Standard Operating Procedures Need to Be Developed?

industry scenario

a forecasted description of a particular industry's likely future. Such a scenario is developed by analyzing the probable impact of future societal forces on key groups in a particular industry.

What reports and forms are helpful from the year of the case?

annual report and SEC 10-K form

4 of the most important financial ratios

are (1) liquidity ratios, (2) profitability ratios, (3) activity ratios, and (4) leverage ratios.

social responsibility and managerial ethics

are examined in detail in terms of how they affect strategic decision making. They include the process of stakeholder analysis and the concept of social capital.

Before obtaining additional information about the company profiled in a particular case, ________.

ask your instructor if doing so is appropriate for your class assignment. Your strategy instructor may want you to stay within the confines of the case information provided in the book. In this case, it is usually acceptable to at least learn more about the societal environment at the time of the case.

strategic audit worksheet

based on the time-tested strategic audit and is designed to help students organize and structure daily case preparation in a brief period of time. The worksheet works exceedingly well for checking the level of daily student case preparation—especially for open class discussions of cases.

suggestions for case analysis

contain step-by-step procedures on how to use a strategic audit in analyzing a case.

The Case Instructor's Manual

contains examples of student-written strategic audits for each of the full-length comprehensive strategy cases.

functional strategies

examined in light of outsourcing

corporate governance

examined in terms of the roles, responsibilities, and interactions of top management and the board of directors.

core and distinctive competencies

examined within the framework of the resourcebased view of the firm and utilizing the VRIO framework.

evaluation and control

explains the importance of measurement and incentives to organizational p e r f o r m a n c e.

Once you have read a case, a good place to begin your analysis is with the_____.

financial statements

experiential exercise

focusing on the material covered in each chapter helps the reader apply strategic concepts to an actual situation.

One way of scanning the environment is to:

identify opportunities and threats is by using the Strategic Audit -audit provides a checklist of questions by area of concern. -Part III of the audit examines the natural, societal, and task environments. It looks at the societal environment in terms of economic, technological, political-legal, and sociocultural forces. It also considers the task environment (industry) in terms of the threat of new entrants, the bargaining power of buyers and suppliers, the threat of substitute products, rivalry among existing firms, and the relative power of other stakeholders.

organizational analysis

includes material on business models, supply chain management, and corporate reputation.

days of inventory

inventory/(cost of goods sold+365) -expressed as days -measures the number of one day's worth of inventory that a company has on hand at any given time

Inventory to net working capital

inventory/(current assets-current liabilities) -expressed as a decimal -A measure of inventory balance; measures the extent to which the cushion of excess current assets over current liabilities may be threatened by unfavorable changes in inventory.

strategy implementation

issues that deal with strategy implementation, such as organizational and job design, as well as strategy-manager fit, action planning, and corporate culture; Global Strategy is a unique strategy implementation issue

The SFAS Matrix includes only the______.

most important factors gathered from environmental scanning, and thus provides information that is essential for strategy formulation.

net profit margin

net profit after taxes/net sales -expressed as a percentage -shows how much after-tax profits are generated by each dollar of sales

Return on equity (ROE)

net profit after taxes/shareholders' equity -expressed as a percentage -measures the rate of return on the book value of shareholders' total investment in the company

Return on investment (ROI)

net profit after taxes/total assets -expressed as a percentage -measures the rate of return on the total assets utilized in the company; a measure of management's efficiency, it shows the return on all the assets under its control, regardless of source of financing

inventory turnover

net sales/inventory -expressed as a decimal -measures the number of times that average inventory of finished goods was turned over or sold during a period of time, usually a year

net working capital turnover

net sales/net working capital -expressed as a decimal -measures how effectively the net working capital is used to generate sales

environmental scanning

of the societal environment as well as on the task environment. Topics include forecasting and Miles and Snow's typology in addition to competitive intelligence techniques and Porter's industry analysis.

strategy formulation

often referred to as strategic planning or long-range planning, is concerned with developing a corporation's mission, objectives, strategies, and policies. It begins with situation analysis: the process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses.

It can be said that the essence of strategy is ________.

opportunity divided by capacity

suggestions for in-depth case analysis

provide a complete listing of financial ratios, recommendations for oral and written analysis, and ideas for further research.

After strategic managers have scanned the natural, societal, and task environments and identified a number of likely external factors for their particular corporation, they may want to _______.

refine their analysis of these factors by using a form such as that given in Table 4-5. Using an EFAS table (External Factors Analysis Summary) is one way to organize the external factors into the generally accepted categories of opportunities and threats, as well as to analyze how well a particular company's management (rating) is responding to these specific factors in light of the perceived importance (weight) of these factors to the company. To generate an EFAS Table for the company being analyzed, complete the following steps: 1. In Column 1 (External Factors), list the 8 to 10 most important opportunities and threats facing the company. 2. In Column 2 (Weight), assign a weight to each factor from 1.0 (Most Important) to 0.0 (Not Important) based on that factor's probable impact on a particular company's current strategic position. The higher the weight, the more important is this factor to the current and future success of the company. (All weights must sum to 1.0 regardless of the number of factors.) 3. In Column 3 (Rating), assign a rating to each factor from 5.0 (Outstanding) to 1.0 (Poor) based on that particular company's specific response to that particular factor. Each rating is a judgment regarding how well the company is currently dealing with each specific external factor. 4. In Column 4 (Weighted Score), multiply the weight in Column 2 for each factor times its rating in Column 3 to obtain that factor's weighted score. 5. In Column 5 (Comments), note why a particular factor was selected and how its weight and rating were estimated. 6. Finally, add the weighted scores for all the external factors in Column 4 to determine the total weighted score for that particular company. The total weighted score indicates how well a particular company is responding to current and expected factors in its external environment. The score can be used to compare that firm to other firms in the industry. Check to ensure that the total weighted score truly reflects the company's current performance in terms of profitability and market market share.? The total weighted score for an average firm in an industry is always 3.0.

Fixed asset turnover

sales/Fixed Assets -expressed as a decimal -measures the utilization of the company's fixed assets (i.e. plant and equipment); measures how many sales are generated by each dollar of fixed assets

asset turnover

sales/total assets -expressed as a decimal -measures the utilization of all the company's assets; measures how many sales are generated by each dollar of assets

total weighted score

score indicates how well a particular company is responding to current and expected factors in its external environment. The score can be used to compare that firm to other firms in the industry. Check to ensure that the total weighted score truly reflects the company's current performance in terms of profitability and market share.

In your analysis, do not simply make an exhibit that includes all the ratios (unless your instructor requires you to do so), but______.

select and discuss only those ratios that have an impact on the issues you are addressing about that company.

The EFAS and IFAS Tables plus the SFAS Matrix were developed to deal with ______.

some of the criticisms of SWOT analysis and have been very effective. The SFAS (Strategic Factors Analysis Summary) Matrix summarizes an organization's strategic factors by combining the external factors from the EFAS Table with the internal factors from the IFAS Table. The EFAS and IFAS examples given of Maytag Corporation (as it was in 1995) in Table 4-5 and Table 5-2 list a total of 20 internal and external factors. These are too many factors for most people to use in strategy formulation. The SFAS Matrix requires a strategic decision maker to condense these strengths, weaknesses, opportunities, and threats into fewer than 10 strategic factors. This is done with a management team review and then by revising the weight given each factor. The revised weights reflect the priority of each factor as a determinant of the company's future success. The highest-weighted EFAS and IFAS factors should appear in the SFAS Matrix.

The use of EFAS and IFAS Tables together with the SFAS Matrix deals with_____.

some of the criticisms of SWOT analysis. For example, the use of the SFAS Matrix reduces the list of factors to a manageable number, puts weights on each factor, and allows one factor to be listed as both a strength and a weakness (or as an opportunity and a threat).

After strategists have scanned the internal organizational environment and identified factors for their particular corporation, they may want to ______.

summarize their analysis of these factors using a form such as that given in Table 5-2. This IFAS (Internal Factor Analysis Summary) Table is one way to organize the internal factors into the generally accepted categories of strengths and weaknesses as well as to examine how well a particular company's management is responding to these specific factors in light of the perceived importance of these factors to the company. Use the VRIO framework (Value, Rareness, Imitability, and Organization) to assess the importance of each of the factors that might be considered strengths.

Ratio analysis

the calculation of ratios from data in these statements. It is done to identify possible financial issues. A review of key financial ratios can help you assess a company's overall situation and pinpoint some problem areas. Ratios are useful regardless of firm size and enable you to compare a company's ratios with industry averages.

scenario writing

the most widely used forecasting technique after trend extrapolation. Originated by Royal Dutch Shell, scenarios are focused descriptions of different likely futures presented in a narrative fashion. A scenario thus may be merely a written description of some future state, in terms of key variables and issues, or it may be generated in combination with other forecasting techniques. Often called scenario planning, this technique has been successfully used by 3M, Levi Strauss, General Electric, United Distillers, Electrolux, British Airways, and Pacific Gas and Electricity, among others. According to Mike Eskew, Chairman and CEO of United Parcel Service, UPS uses scenario writing to envision what its customers might need 5 to 10 years in the future.

Why are Industry leaders integrating modern information systems into their corporate value chains?

to harmonize companywide efforts and to achieve competitive advantage.

strategic management model

unifying concept

strategic audit

way to operationalize the strategic decisionmaking process, serves as a checklist in case analysis.

Primary criticisms of SWOT

■■ It is simply the opinions of those filling out the boxes ■■ Virtually everything that is a strength is also a weakness ■■ Virtually everything that is an opportunity is also a threat ■■ Adding layers of effort does not improve the validity of the list ■■ It uses a single point in time approach ■■ There is no tie to the view from the customer ■■ There is no validated evaluation approach.