MGMT 425 Exam 1

Strategic Management

(Originally called business policy) Is a set of managerial decisions and actions that help determine the long-term performance of an organization. It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation, and evaluation and control.

Industry Analysis

(Popularized by Michael Porter) refers to an in-depth examination of key factors within a corporation's task environment. The natural, societal, and task environments must be monitored to examine the strategic factors that have a strong impact on corporate success or failure. Significant changes in the natural environment tend to impact the societal environment of the business (resource availability and costs), and finally the task environment because it impacts the growth or decline of whole industries.

From management's perspective (but perhaps not a stockholder's), growth is very attractive for 2 key reasons:

- Growth based on increasing market demand may mask flaws in a company --flaws that would be immediately evident in a stable or declining market. - A growing firm offers more opportunities for advancement, promotion, and interesting jobs.

Phase 2 - Forecast-Based Planning

- Management attempts to propose 5 year plans as annual budgets become less useful at stimulating long term planning. - They consider projects that may take more than 1 year - Managers gather any available environmental data- usually on an ad hoc basis and extrapolate current trends 5 years into the future. - Time consuming - involves full month plus of managerial activity to make sure all the proposed budgets fit together. - Time horizon is usually 3-5 years.

Phase 1 - Basic financial planning

- Managers initiate serious planning when they are requested to propose the following year's budget. - Projects are proposed on the basis of very little analysis, with most information coming from within the firm. - Quite time consuming - Time horizon is 1 year

Phase 4 - Strategic Management

- The best strategic plans are worth less without the input and commitment of lower-level managers, top management forms planning groups of managers and key employees at many levels, from various depth and workgroups. - Develop and integrate a series of strategic plans aimed at achieving the company's primary objectives. - Strategic plans detail the implementation, evaluation, and control issues. - Rather than forecasting the future, the plans emphasize probable scenarios and contingency strategies. - Strategic info is now available virtually to people throughout the organization. - Planning is typically interactive across levels and is no longer strictly top down. People of all levels are now involved.

Phase 3 - Externally oriented (strategic) planning

- Top management takes control of the planning process by initiating strategic planning. - Company seeks to increase its responsiveness to changing markets and competition by thinking strategically. - Planning is concentrated in a planning staff whose tasks is to develop strategic plans for the corporation. - Consultants often provide the sophisticated and innovative techniques that the planning staff uses to gather information and forecast future trends. - Organizations start competitive intelligence units. - Upper-level managers meet once a year to evaluate and update the current strategic plan. - Implementation issues are left to lower-management levels.

Companies or business units may form a strategic alliance for a number of reasons, including-

1. To obtain or learn new capabilities 2. To obtain access to specific markets 3. To reduce financial risk 4. To reduce political risk

Strategy

A _________ of a corporation forms a comprehensive master approach that states how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage. An organization must examine the external environment in order to determine who constitutes the perfect customer for the business as it exists today, who the most direct competitors are for that customer, what the company does that is necessary to compete and what the company does that truly sets it apart from its competitors.

Cooperative Strategies

A company uses competitive strategies to gain competitive advantage within an industry by battling against other firms. A company can also use cooperative strategies to gain competitive advantage within an industry by working with other firms. The two types of cooperative strategies are collusion and strategic alliances. Collusion- is the active cooperation of firms within an industry to reduce output and raise prices in order to get around the normal economic law of supply and demand.

Multinational Corporation (MNC)

A company with significant assets and activities in multiple countries. Differences in societal environments strongly affect the ways in which a (MNC), conducts its marketing, financial, manufacturing, and other functional activities. For example: Europe's lower labor productivity, due to a shorter work week and restrictions on the ability to lay off unproductive workers, forces European-based MNCs to expand operations in countries where labor is cheaper and productivity is higher. Moving manufacturing to a lower-cost location, such as China, was a successful strategy during the 1990's, but a country's labor costs rise as it develops economically. For example, China required all firms in January 2008 to consult employees on material work-related issues, enabling the country to achieve its stated objective of having trade unions in all of China's non-state owned enterprises. By September 2008, the All-China Federation of Trade Unions had signed with 80% of the largest foreign companies.

Internal Environment

A corporation consists of variables (Strengths and Weaknesses) that are within the organization itself and are not usually within the short-run control of top management. They include the corporation's structure, culture, and resources. Key strengths from a set a core competencies that the corporation can use to gain competitive advantage. While strategic management is fundamentally concerned with strengths, weaknesses, opportunities, and threats, the methods to analyze each has developed substantially in the past two decades. No longer do we simply list the SWOT variables and have employees try to populate the quadrants.

Horizontal Growth

A firm can achieve a horizontal growth by expanding its operations into other geographic locations and/or by increasing the range of products and services offered to current markets. Research indicates that firms that grow horizontally by broadening their product lines have high survival rates. Horizontal growth results in horizontal integration the degree to which a firm operates in multiple geographic locations at the same point on an industry's value chain. Horizontal growth can be achieved through internal development or externally through acquisitions and strategic alliances with other firms in the same industry.

Full Integration

A firm internally makes 100% of its key supplies and completely controls its distributors.

Industry Value-Chain Analysis (Vertical Integration)

According to Galbraith, a company's center of gravity is usually the point in which the company started. After a firm successfully establishes itself at this point by obtaining a competitive advantage, one of its first strategic moves is to move forward or backward along the value chain in order to reduce costs, guarantee access to key raw materials, or to guarantee distribution. This process, called vertical integration.

Strategic types

According to Miles and Snow, competing firms with a single industry can be categorized into one of four basic types on the basis of their general strategic orientation. This distinction helps explain why companies facing similar situations behave differently and why they continue to do so over long periods of time. These general types have the following characteristics: - Defenders: Are companies with a limited product line that focus on improving the efficiency of their existing operations. This cost orientation makes them unlikely to innovate in new areas. With its emphasis on efficiency, Lincoln Electric is an example of a defender. - Prospectors: Are companies with fairly broad product lines that focus on product innovation and market opportunities. This sales orientation makes them somewhat inefficient. They tend to emphasize creativity over efficiency. Frito Lay's emphasis on new product development makes it an example of a prospector. - Analyzers: Are corporations that operate in a t leas two different product-market areas, one stable and one variable. In the stable areas, efficiency is emphasized. In the variable areas, innovation is emphasized. Multidivisional firms, such as BASF and Procter and Gamble, which operate in multiple industries, tend to be analyzers. - Reactors: Are corporations that lack a consistent strategy structure culture relationship. Their (often ineffective) responses to environmental pressures tend to be piecemeal strategic changes. Most major U.S. airlines have recently tended to be reactors --given the way they have been forced to respond to more nimble airlines such as Southwest and Jet Blue. * Dividing the competition into these four categories enables the strategic manager not only to monitor the effectiveness of certain strategic orientations, but also to develop scenarios of future industry developments (discussed later in this chapter)

Rivalry Among Existing Firms

According to Porter, intense rivalry is related to the presence of several factors, including: - Number of competitors: When competitors are few and roughly equal in size, such as in the auto and major home appliance industries, they watch each other carefully to make sure they match any move by another firm with an equal countermove. - Rate of industry growth: Any slowing in passenger traffic tends to set off price wars in the airline industry because the only path to growth is to take sales away from a competitor. - Product or service characteristics: A product can be very unique, with many qualities differentiating it from others of its kind, or it may be a commodity, a product whose characteristics are the same, regardless of who sells it. For example, most people choose a gas station based on location and pricing because they view gasoline as a commodity. - Amount of fixed costs: Because airlines must fly their planes on a schedule, regardless of the number of paying passengers for any one flight, some offer cheap standby fares whenever a plane has empty seats. - Capacity: If the only way a manufacturer can increase capacity is in a large increment by building a new plant (as in the paper industry), it will run that new plant at full capacity to keep its unit costs as low as possible --thus producing so much that the selling price falls throughout the industry. - Height of exit barriers: Exit barriers keep a company from leaving an industry. The brewing industry, for example, has a low percentage of companies that voluntarily leave the industry because breweries are specialized assets with dew uses except for making beer. - Diversity of rivals: Rivals that have very different ideas of how to compete are likely to cross paths often and unknowingly challenge each other's position. This happens frequently in the retail clothing industry when a number of retailers open outlets in the same location-- thus taking sales away from each other. This is also likely to happen in some countries or regions when multinational corporations compete in an increasingly global economy.

Industry Structure and Competitive Strategy (Fragmented industry & Consolidated industry)

Although each of Porter's generic competitive strategies may be used in any industry, certain strategies are more likely to succeed depending upon the type of industry. - In a Fragmanted Industry, for example, where many small- and medium-sized local companies compete for relatively small shares of the total market, focus strategies will likely predominate. Fragmented industries are typical for products in the early stages of their life cycles. If a company is able to overcome the limitations of a fragmented market, however, it can reap the benefits of a broadly targeted cost leadership or differentiation strategy. - As an industry matures, fragmentation is overcome, and the industry tends to become a consolidated industry dominated by a few large companies. Although many industries start out being fragmented, battles for market share and creative attempts to overcome local or niche market boundaries often increase the market share of a few companies.

Mission

An organization's _________ is the purpose or reason for the organization's existence. - It announces what the company is providing to society --either a service such as consulting or a product such as automobiles. A well-conceived mission statement defines the fundamental, unique purpose that sets a company apart from other firms of its type and identifies the scope or domain of the company's operations in terms of products (including services) offered. Mission describes what the organization is now; vision describes what the organization would like to become. We prefer to combine these ideas into a single mission statement.

Basic Organizational Structures (Strategic business units)

Are a modification of the divisional structure. Strategic business units are divisions or groups of divisions composed of independent product market segments that are given primary responsibility and authority for the management of their own functional areas. An SBU may be of any size or level, but it must have (1) a unique mission (2) Identifiable competitors (3) an external market focus, and (4) control of its business functions.

Core and Distinctive Competencies (Resources)

Are an organization's assets and are thus the basic building blocks of the organization. They include tangible assets (such as its plant, equipment, finances, and location), human assets (the number of employees, their skills, and motivation), and tangible assets (such as its technology [patents and copyrights], culture, and reputation).

Categorizing International Industries Multidomestic Industries

Are specific to each country or group of countries. This type of international industry is a collection of essentially domestic industries, such as retailing and insurance. - Industry in which companies tailor their products to the specific needs of consumers in a particular country: Retailing Insurance Banking

Objectives

Are the end results of planned activity. They should be stated as action verbs and tell what is to be accomplished by when and quantified if possible. The achievement of corporate objectives should result in the fulfillment or a corporation's mission. In effect, this is what society gives back to the corporation when the corporation does a good job of fulfilling its mission. The term goal is often used interchangeably with the term objective, we consider a goal as an open-ended statement of what to accomplish, with no quantification of what is to be achieved and no time criteria for completion. For example: A simple statement of "increased profitability" thus is a goal, not an objective, because it does not state how much profit the firm wants to make the next year. A good objective should be action-oriented and begin with the word to. Ex: "To increase the firm's profitability in 2014 by 10% over 2013."

Forward Integration

Assuming a function previously provided by a distributor. (Going forward on an industry's value chain). Although backward integration is often more profitable than forward integration (because of typical low margins in retailing), it can reduce a corporation's strategic flexibility.

Backward Integration

Assuming a function previously provided by a supplier. (Going backward on an industry's value chain).

Environmental Scanning chp 4

Before managers can begin strategy formulation, they must understand the context of the environment in which it competes. It is virtually impossible for a company to design a strategy without a deep understanding of the external environment. Once management has framed the aspects of the environment that impacts the business, they are in a position to determine the firm's competitive advantages. (Environmental Scanning) is an overarching term encompassing the monitoring, evaluation, and dissemination of information relevant to the organizational development strategy. A corporation uses this tool to avoid strategic surprise and to ensure its long-term health.

The Bargaining Power of Buyers

Buyers affect an industry through their ability to force down prices, bargain for higher quality or more services, and play competitors against each other. A buyer or a group of buyers is powerful if some of the following factors hold true: - A buyer purchases a large proportion of the seller's product or service (for example, oil filters purchased by a major automaker). - A buyer has the potential to integrate backward by producing the product itself (for example, a newspaper chain could make its own paper). - Alternative suppliers are plentiful because the product is standard or undifferentiated (for example, motorists can choose among many gas stations). - Changing suppliers costs very little (for example, office suppliers are easy to find). - The purchased product represents a high percentage of a buyer's costs, thus providing an incentive to shop around for a lower price (for example, gasoline purchased for resale by convenience stores makes up half their total costs). - A buyer earns low profits and is thus very sensitive to costs and service differences (for example, grocery stores have very small margins). - The purchased product is unimportant to the final quality or price of a buyer's products or services and thus can be easily substituted without affecting the final product adversely (for example, electric wire bought for use in lamps).

Growth Strategies

By far, the most widely pursued corporate directional strategies are those designed to achieve growth in sales, assets, profits, or some combination of these. Continuing growth means increasing sales and a chance to take advantage of the experience curve to reduce the per-unit cost of products sold, thereby increasing profits. Growth is a popular strategy because larger businesses tend to survive longer than smaller companies due to the greater availability of financial resources, organizational routines, and external ties. A corporation can grow internally by expanding it operations both globally and domestically, or it can grow externally through mergers, acquisitions, and strategic alliances.

The two basic growing strategies are:

Concentration: On the current product lines in one industry - If a company's current product lines have real growth potential, the concentration of resources on those product lines makes sense as a strategy for growth. The two basic concentration strategies are vertical growth and horizontal growth. Diversification: Into other product lines in other industries.

Basic Model of Strategic Management

Consists of 4 basic elements: 1. Environmental Scanning 2. Strategy Formulation 3. Strategy Implementation 4. Evaluation and Control Figure 1-1 This model is both rational and perspective. It presents what a corporation should do in terms of the strategic management process, not what any particular firm may actually do. The rational planning model predicts that as environmental uncertainty increases, corporations that work more diligently to analyze and predict more accurately the changing situation in which they operation will outperform those that do not.

External Environment

Consists of variables (Opportunities and Threats) that are outside the organization and not typically within the short-run control of top management. Opportunities: Ex: McDondal's has the opportunity to expand locations domestically and internationally Threats: External Elements - Threat of political and legal issues/regulations - Economic factors - Sociocultural - Technological (Can be a strength & weakness) These variables from the context within which the corporation exists. Figure 1-3 depicts key environmental variables. They may be general forces and trends within an organization's specific task environment--often called its industry.

Corporate Strategy

Describes a company's overall direction in terms of its general attitude toward growth and the management of its various businesses and product lines. Corporate strategies typically fit within the three main categories of stability, growth, and retrenchment.

Consolidated Industry

Dominated by a few large firms, each of which struggles to differentiate its products from those of the competition. As buyers become more sophisticated over time, purchasing decisions are based on better information. Price becomes a dominant concern, given a minimum level of quality and features, and profit margins decline. As an industry moves through maturity toward possible decline, its products' growth rate of sales slows and may even begin to decrease. To the extent that exit barriers are low, firms begin converting their facilities to alternate uses or sell them to other firms. The industry tends to consolidate around fewer but larger competitors. The tobacco industry is an example of an industry currently in decline.

Basic Organizational Structures

Each structure tends to support some corporate strategies better than others. Simple Structure: Has no functional or product categories and is appropriate for a small, entrepreneur-dominated company with one or two product lines that operates in a reasonably small, easy identifiable market niche. Employees tend to be generalists and jacks of all trades. Functional Structure: Is appropriate for medium-sized firm with several product lines in one industry. Employees tend to be specialists in the business functions that are important to that industry, such as manufacturing, marketing, finance, and human resources. Divisional Structure: Is appropriate for a large corporation with many product lines in several related industries. Employees tend to be functional specialists organized according to product/market distinctions. The Clorox company is made up of 5 big divisions. Ex, cleaning and household.

International Entry Options for Horizontal Growth

Exporting: A good way to minimize risk and experiment with a specific product is exporting, shipping goods produced in the company's home country to other countries for marketing.

Finding a Propitious Niche (Strategic Window)

Finding such a niche or sweet spot is not easy. A firm's management must continually look for a strategic window - that is, a unique market opportunity that is available only for a particular time. The first firm through a strategic window can occupy a propitious niche and discourage competition (if the firm has the required internal strengths). One company that successfully found a propitious niche was Frank J. Zamboni & Company, the manufacturer of the machines that smooth the ice at ice skating rinks. Frank Zamboni invented the unique tractor-like machine in 1949 and no one has found a substitute for what it does. Before the machine was invented, people had to clean and scrape the ice by hand to prepare the surface for skating. Now hockey fans look forward to intermissions just to watch "the Zamboni" slowly drive up and down the ice rink, turning rough, scraped ice into a smooth mirror surface- almost like magic. So long as Zamboni's company was able to produce the machines in the quantity and quality desired, at a reasonable price, it was not worth another company's while to go after Frank Zamboni & Company's propitious niche. Example: To the window, to the wall.

Business Strategy

Focuses on improving the competitive position of a company's or business unit's products or services within the specific industry or market segment that the company or business unit serves.

Hypercompetition

In hypercompetition the frequency, boldness, and aggressiveness of dynamic movement by the players accelerates to create a condition of constant disequilibrium and change. Market stability is threatened by short product life cycles, short product design cycles, new technologies, frequent entry by unexpected outsiders, repositioning by incumbents, and tactical redefinitions of market boundaries as diverse industries merge. In other words, environments escalate toward higher and higher levels of uncertainty, dynamism, heterogeneity of the players and hostility.

Identifying External Environmental Variables

In undertaking environmental scanning, strategic managers must first be aware of the many variables within a corporation's natural, societal, and task environments.

Regional Industries

In which MNCs primarily coordinate their activities within regions, such as the Americas or Asia.

Natural Environment

Includes physical resources, wildlife, and climate that are an inherent part of existence on Earth. These factors form an ecological system of interrelated life.

Task Environment

Includes those elements or groups that directly affect a corporation and, in turn, are affected by it. These are governments, local communities, suppliers, competitors, customers, creditors, employees/labor unions, special-interest groups, and trade associations. A corporation's task environment is typically focused on the industry within which the firm operates.

Global Industries

Industry in which companies manufacture and sell the same products, with only minor adjustments made for individual countries around the world. Automobiles Tires Television sets Operate worldwide, with MNCs making only small adjustments for country-specific circumstances. In a global industry an MNCs activities in one country are significantly affected by its activities in other countries. MNCs in global industries produce products or services in various locations throughout the world and sell them, making only minor adjustments for specific country requirements. Example of global industries: Commercial aircraft, television sets, semiconductors, copiers, automobiles, watches, and tires. The factors that tend to determine whether an industry will be primarily multi domestic or primarily global are: 1. Pressure for coordination within the MNCs operating in that industry. 2. Pressure of local responsiveness on the part of individual country markets. To the extent that the pressure for coordination is strong and the pressure for local responsiveness is weak for MNCs within a particular industry, that industry will tend to become global. In contrast, when the pressure for local responsiveness is strong and the pressure for coordination is weak for multinational corporations in an industry, that industry will tend to be multidomestic.

Acquisition

Is a 100% purchase of another company. In some cases, the company continues to operate as an independent entity and in other it is completely absorbed as an operating subsidiary or division of the acquiring corporation.

Policy

Is a broad guideline for decision making that links the formulation of a strategy with its implementation. Companies use policies to make sure that employees throughout the firm make decisions and take actions that support the corporation's mission, objectives, and strategies.

Strategic Type

Is a category of firms based on a common strategic orientation and a combination of structure, culture and processes consistent with that strategy.

Core and Distinctive Competencies (Core Competency)

Is a collection of competencies that crosses divisional boundaries, is widespread within the corporation, and is something that the corporation can do exceedingly well. Thus, new product development is a core competency if it goes beyond one division. For example, a core competency of Avon Products is its expertise in door to door selling. FedEx has a core competency in its application of information technology to all its operations. A company must continually reinvest in a core competency or risk its becoming a core rigidity or deficiency -- that is, a strength that over time matures and may become a weakness.

Complementor

Is a company or industry whose product works well with a firm's product and without which the product would lose much of its value.

Joint Venture

Is a cooperative business activity, formed by two or more separate organizations for strategic purposes, that creates an independent business entity and allocates ownership, operational responsibilities, and financial risks and rewards to each member, while preserving their separate identity/autonomy. The disadvantages of joint ventures include loss of control, lower profits, profitability of conflicts with partners, and the likely transfer of technological advantage to the partner. Joint ventures are often meant to be temporary, especially by some companies that may view them as a way to rectify a competitive weakness until they can achieve long-term dominance in the partnership. Partially for this reason, joint ventures have a high failure rate.

Core and Distinctive Competencies (Competency)

Is a cross-functional integration and coordination of capabilities. For example, a competency in new product development in one division of a corporation may be the consequence of integrating information systems capabilities, marketing capabilities, R&D capabilities, and production capabilities within the division.

Industry Scenario

Is 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. The process may operate as follows: 1. 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 (that is, 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 competitor's 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. (Think of "Situation" Jersey Shore.

Industry

Is a group of firms that produces a similar product or service, such as soft drinks or financial services. An examination of the important stakeholder groups, like suppliers and customers, in a particular corporation's task environment is a part of industry analysis.

A hierarchy of strategy

Is a grouping of strategy types by level in the organization. Is a nesting of one strategy within another so that they complement and support one another. Example: Corporate Strategy (top) - Overall direction of Company and Management of its Businesses Business Strategy (Middle) - Competitive and Cooperative Strategies Functional Strategy: (Bottom) - Maximizing Resource Productivity

Value Chain

Is a linked set of value-creating activities that begin with basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marketing a product or service, and ending with distributors getting the final goods into the hands of the ultimate consumer.

Strategic Alliances

Is a long-term cooperative arrangement between two or more independent firms or business units that engage in business activities for mutual economic gain. Each of the top 500 global business firms now average 60 major alliances. Many alliances do increase profitability of the members and have a positive effect on firm value. A study by Cooper & Lybrand found that firms involved in strategic alliances had 11% higher revenue and a 20% higher growth rate than did companies not involved in alliances.

Cost Focus

Is a low-cost competitive strategy that focuses on a particular buyer group or geographic market and attempts to serve only this niche, to the exclusion of others. A good example of this strategy is Potlach Corporation, a manufacturer of toilet tissue. Rather than compete directly against Procter and Gamble's Chairman, Potlach makes the house brands for Albertson's, Safeway, Jewel, and many other grocery store chains. It matches the quality of the well known brands, but keeps costs low by eliminating advertising and promotion expenses. As a result, Spokane-based Potlach makes 92% of the private-label bathroom tissue and one-third of all bathroom tissue sold in Western U.S. grocery stores. The phenomenon growth of store brand purchases is a testament to the power of a cost focus as a means to sell at lower prices.

Cost leadership

Is a lower-cost competitive strategy that aims at the broad mass market and requires "aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R&D, service, sales force, advertising, and so on. Because of its lower costs, the cost leader is able to charge a lower price for its products than its competitors and still make a satisfactory profit. As a result cost leaders are likely to earn above-average returns on investment.

Brand

Is a name given to a company's product which embodies all of the characteristics of that item in the mind of the consumer.

Mutual Service Consortium

Is a partnership of similar companies in similar industries that pool their resources to gain a benefit that is too expensive to develop alone, such as access to advanced technology. For example, IBM established a research alliance with Sony Electronics and Toshiba to build its next generation of computer chips. The result was the cell chip, a microprocessor running at 256 gigaflops around 10 times the performance on a chip. Cell chips were to be used by Sony in its PlayStation 3, by Toshiba in its high-definition televisions, and by IBM in its super computers.

Strategy Implementation

Is a process by which strategies and policies are put into action through the development of programs, budgets, and procedures. This process might involve changes within the overall culture, structure, and/or management system of the entire organization. Except when such drastic corporatewide changes are needed. Implementation of strategy is typically conducted by middle- and lower-level managers, with review by top management. Sometimes referred to as operational planning, strategy implementation often involves day-to-day decisions in resource allocation.

Evaluation and Control

Is a process in which corporation activities and performance results are monitored so that actual performance can be compared with desired performance. Although evaluation and control is the final major element of strategic management, it can also pinpoint weaknesses in previously implemented strategic plans and thus stimulates the entire process to begin again.

Substitute Product

Is a product that appears to be different but can satisfy the same need as another product. Threat of Substitute Products or Services For example, texting is a substitute for e-mail, Nutrasweet is a substitute for sugar, the Internet is a substitute for video stores, and bottled water is a substitute for a cola. Tea can be considered a substitute for coffee. If the price of coffee goes up high enough, coffee drinkers will slowly begin switching to tea. The price of tea thus puts a price ceiling on the price of coffee. Sometimes a difficult task, the identification of possible substitute products or services means searching for products or services that can perform the same function, even though they have a different appearance and may not appear to be easily substitutable. According to Porter, "Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge."

Strategic Group

Is a set of business units or firms that "pursue similar strategies with similar resources." Research shows that some strategic groups in the same industry are more profitable than others. Because a corporation's structure and culture tend to reflect the kinds of strategies it follows, companies or business units belonging to a particular strategic group within the same industry tend to be strong rivals and tend to be more similar to each other than to competitors in other strategic groups within the same industry. For example, although McDonald's and Olive Garden are a part of the same industry, the restaurant industry, they have different missions, objectives, and strategies, and thus they belong to different strategic groups. They generally have very little in common and pay little attention to each other when planning competitive actions. Burger Kind and Wendy's, however, have a great deal in common with McDonald's in terms of their similar strategy of producing a high volume of low-priced meals targeted for sale to the average family. Consequently, they are strong rivals and organized to operate similarly.

Budget

Is a statement of a corporation's programs in terms of dollars. Used in planning and control, a budget lists the detailed cost of each program. Many corporations demand a certain percentage return on investment, often called a "hurdle rate," before management will approve a new program. - This is done so that the new program has the potential to significantly add to the corporation's profit performance and this build shareholder value. - The budget thus not only serves as a detailed plan of the new strategy in action, it also specifies through pro forma financial statements the expected impact on the firm's financial future.

Program or a tactic

Is a statement of the activities or steps needed to support a strategy. In practice, a program is a collection of tactics where a tactic is the individual action taken by the organization as an element of the effort to accomplish a plan. A program or tactic makes a strategy action-oriented. It may involve restructuring the corporation, changing the company's internal culture, or beginning a new research effort. For example: Boeing's strategy to regain industry leadership with its new 787 Dreamliner meant that the company had to increase its manufacturing efficiency in order to keep the price low. To significantly cut costs, management decided to implement a series of tactics: - Outsource approximately 70% of manufacturing - Reduce final assembly time to 3 days (compared to 20 for its 737 plane) by having suppliers build completed plane sections. - Use new, lightweight composite materials in place of aluminum to reduce inspection time. - Resolve poor relations with labor unions caused by downsizing and outsourcing.

Value Chain Partnerships

Is a strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage.

Corporate Brand Corporate Reputation

Is a type of brand in which the company's name serves as the brand. Is a widely held perception of a company by the general public. It consists of two attributes: (1) stakeholders' perceptions of a corporation's ability to produce quality goods and (2) a corporation's prominence in the minds of stakeholders.

Differentiation

Is aimed at the broad mass market and involves the creation of a product or service that is perceived throughout its industry as unique. The company or business unit may then charge a premium for its product. This specialty can be associated with design or brand image, technology, features, a dealer network, or customer service. Example of companies that successfully use a differentiation strategy are Walt Disney Company (entertainment), BMW (automobiles), Apple (computer, tablets, and cell phones), and Five Guys (fast food). Research does suggest that a differentiation strategy is more likely to generate higher profits than does a lower-cost strategy because differentiation creates a better entry barrier.

Licensing Arrangements

Is an agreement in which the licensing firm grants rights to another firm in another country or market to produce and/or sell a product. Licensing is an especially useful strategy is the trademark or brand name is well know but the MNC does not have sufficient funds to finance its entering the country directly.

Entry Barrier

Is an obstruction that makes it difficult for a company to enter an industry. For example, no new, full-line domestic automobile companies have been successfully established in the U.S. since the 1930s because of the high capital requirements to build production facilities and to develop a dealer distribution network. Some of the possible barriers to entry are: - Economies of scale: Scale economies in the production and sale of microprocessors, for example, gave Intel a significant cost advantage over any new rival. - Product differentiation: Corporations such as Procter & Gamble and General Mills, which manufacture products such as Tide and Cheerios, create high entry barriers through their high levels of advertising and promotion. - Capital requirements: The need to invest huge financial resources in manufacturing facilities in order to produce large commercial airplanes creates a significant barrier to entry to any competitor for Boeing and Airbus. - Switching costs: Once a software program such as Excel or Word becomes established in an office, office managers are very reluctant to switch to a new program because of the high training costs. - Access to distribution channels: Smaller new firms often have difficulty obtaining supermarket shelf space for their goods because large retailers charge for space on their shelves and give priority to the established firms who can pay for the advertising needed to generate high customer demand. - Cost disadvantage independent of size: Once a new product earns sufficient market share to be accepted as the standard for that type of product, the maker has a key advantage. Microsoft's development of the first widely adopted operating system (MS-DOS) for the IBM-type personal computer give it a significant competitive advantage over potential competitors. Its introduction of Windows helped to cement that advantage so that the Microsoft operating system is now on more than 90% of personal computers worldwide. - Government policy: Governments can limit entry into an industry through licensing requirements by restricting access to raw materials, such as oil-drilling sites in protected areas.

Basic Organizational Structures (Conglomerate Structure)

Is appropriate for a large corporation with many product lines in several unrelated industries. A variant of the divisional structure, the conglomerate structure (sometimes called a holding company) is typically an assemblage of legally independent firms (subsidiaries) operating under one corporate umbrella but controlled through the subsidiaries' boards of directors. The unrelated nature of the subsidiaries prevents any attempt at gaining synergy among them.

Organizational Analysis

Is concerned with identifying, developing, and taking advantage of an organization's resources and competencies.

Societal Environment

Is mankind's social system that includes general forces that do not directly touch on the short-run activities of the organization, but that can influence its long-term decisions. These factors affect multiple industries and are as follows: - Economic forces: That regulate the exchange of materials, money, energy, and information. - Technological forces: That generate problem-solving inventions. - Political legal forces: That allocate power and provide constraining and protecting laws and regulations. - Socioculture Forces: That regulate the values, mores, and customs of society.

Corporate Strategy

Is primarily about the choice of direction for a firm as a whole and the management of its business or product portfolio. The vignette about Pfizer illustrates the importance of corporate strategy to a firm's survival and success. Corporate strategy addresses three key issues facing the corporation as a whole: 1. The firm's overall orientation toward growth, stability, or orientation (directional strategy) 2. The industries or markets in which the firm competes through its products and business units (portfolio analysis) 3. The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units (parenting strategy)

Triggering Event

Is something that acts as a stimulus for a change in strategy. Some possible triggering event are: - New CEO: By asking a series of embarrassing questions, a new CEO cuts through the veil of complacency and forces people to question the very reason for the corporation's existence. - External intervention: A firm's bank suddenly refuses to approve a new loan or suddenly demands payment in full on an old one. A key customer complains about a serious product defect. - Threat of a change in ownership: Another firm may initiate a takeover by buying a company's common stock. - Performance gap: A performance gap exists when performance does not meet expectations. Sales and profits either are no longer increasing or may even be falling. Strategic inflection point: Coined by Andy Grove, past-CEO of Intel Corporation, a strategic inflection point is what happens to a business when a major change takes place due to introduction of new technologies, a different regulatory environment, a change in customers' values, or a change in what customers prefer.

Functional Strategy

Is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage. In terms of marketing functional strategies, Procter and Gamble (P&G) is a master of marketing "pull" --the process of spending huge amounts on advertising in order to create customer demand. This supports P&G's competitive strategy of differentiating its products from those of its competitors.

Performance

Is the end result of activities. It includes the actual outcomes of the strategic management process. The practice of strategic management is justified in terms of its ability to improve an organization's performance, typically measured in terms of profits and return on investment. For evaluation and control to be effective, managers must obtain clear, prompt, and unbiased information from the people below them in the corporation's hierarchy. The evaluation and control of performance completes the strategic management model.

Environmental Scanning

Is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation. - It's purpose is to identify strategic factors. - The simplest way to to conduct environmental scanning is through SWOT.

Strategy formulation

Is the process of investigation, analysis, and decision making that provides the company with the criteria for attaining a competitive advantage. It includes defining the competitive advantages of the business (Strategy), crafting the corporate mission, specifying achievable objectives, and setting policy guidelines.

Determining the Sustainability of and Advantage (Explicit knowledge and Tacit Knowledge)

It is relatively easy to learn and imitate another company's core competency or capability if it comes from explicit knowledge. Explicit knowledge - Knowledge that can be easily articulated and communicated. This is the type of knowledge that competitive intelligence activities can quickly identify and communicate. Tacit knowledge, in contrast, is knowledge that is not easily communicated because it is deeply rooted in employee experience or in a corporation's culture. Tacit knowledge is more valuable and more likely to lead to a sustainable competitive advantage than is explicit knowledge because it is much harder for competitors to imitate. The knowledge may be complex and combined with other types of knowledge in an unclear fashion in such a way that even management cannot clearly explain the competency.

Impact of Globalization

Jobs, knowledge, and capital are now able to move across boarders with far greater speed and far less friction than was possible only a few years ago. - For companies seeking a low-cost approach, the internationalization of business has been a new avenue for competitive advantage. - Instead of using one international division to manage everything outside the home country, large corporations are now using matrix structures in which product units are interwoven with country or region units. - As more industries become global, strategic management is becoming an increasingly important way to keep track of international developments and position a company for long-term competitive advantage. For example, General Electric moved a major research and development lab for its medical system division from Japan to China in order to learn more about developing new products for developing economies. Microsoft's largest research center outside Redmond, Washington, is in Beijing. The formation of region trade association and agreements, such as the European Union, NAFTA, Mercosur, Andean Community, CAFTA, and ASEAN, is changing how international business is being conducted. - These associations have led to the increasing harmonization of standards so that products can more easily be sold and moved across national boundaries.

Directional Strategy

Just as every product or business unit must follow a business strategy to improve its competitive position, every corporation must decide its orientation toward growth by asking the following 3 questions 1. Should we expand, cut back, or continue our operations unchanged? 2. Should we concentrate our activities within our current industry, or should we diversify into other industries? 3. If we want to grown and expand nationally and/or globally, should we do so through international development or through external acquisition, merges, or strategic alliance? A corporation's directional strategy is composed of three general orientations (sometimes called grand strategies): Growth Strategies: Expand the company's activities Stability strategies: Make no change to the company's current activities. Retrenchment strategies: Reduce the company's level of activities.

Determining the Sustainability of and Advantage (Durability & Imitability)

Just because a firm is able to use its resources, capabilities, and competencies to develop a competitive advantage does not mean it will be able to sustain it. Two characteristics determine the sustainability of a firm's distinctive competencies: Durability and Imitability. Definition: Durability - Is the rate at which a firm's underlying resources, capabilities, or core competencies depreciate in value or become obsolete. - New technology can make a company's core competency obsolete or irrelevant. However, more often we simply see that, over time, any core competency that is not continually updated and reinforced is likely to depreciate to the mean expectation in the industry and therefore cease to exist as an advantage. Definition: Imitability - Is the rate at which a firm's underlying resources, capabilities, or core competencies can be duplicated by others. To the extent that a firm's distinctive competency gives it competitive advantage in the marketplace, competitors will do what they can to learn and imitate that set of skills and capabilities. Competitors' efforts may range from reverse engineering (which involves taking apart a competitor's product in order to find out how it works), to hiring employees from the competitor, to outright patent infringement. A core competency can be easily imitated to the extent that it is transparent, transferable, and replicable. Transparency- is the speed with which other firms can understand the relationship of resources and capabilities supporting a successful firm's strategy. Transferability- Is the ability of competitors to gather the resources and capabilities necessary to support a competitive challenge. Replicability- Is the ability of competitors to use duplicated resources and capabilities to imitate the other firm's success.

Exit Barriers

Keep a company from leasing an industry.

Differentiation Focus

Like cost focus, concentrates on a particular buyer group, product line segment, or geographic market.

Innovation

Meant to describe new products, services, methods and organizational approaches that allow the business to achieve extraordinary returns. - Innovation has become such an important part of business that Bloomberg Business week has a weekly section of articles on the topic.

Porter's Approach to Industry Analysis

Michael Porter, an authority on competitive strategy, contends that a corporation is most concerned with the intensity of competition within its industry. "The collective strength of these forces," he contends, "determines the ultimate profit potential in the industry, where profit potential is measured in terms of long-run return on invested capital." In carefully scanning its industry, a corporation must assess the importance to its success of each of six forces: threat of new entrants, rivalry among existing firms, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and relative power of other stakeholders. - The stronger each of these forces are, the more limited companies are in their ability to raise prices and earn greater profits. Although Porter mentions only five forces, a sixth other stakeholders is added here to reflect the power that governments, local communities, and other groups from the task environment wield over industry activities. Using model in Figure 4-2, a high force can be regarded as a threat because it is likely to reduce profits. A low force, in contrast, can be viewed as an opportunity because it may allow the company to earn greater profits. - In the short run, these forces act as constraints on a company's activities. In the long run, however, it may be possible for a company, through its choice of strategy, to change the strength of one or more of the forces to the company's advantage.

Risks in Competitive Strategies

No one competitive strategy is guaranteed to achieve success, and some companies that have successfully implemented one of Porter's competitive strategies have found that they could not sustain the strategy. Each of the generic strategies has risks. For example, a company following a differentiation strategy must ensure that the higher price it charges for its higher quality is not too far above the price of the competition, otherwise customers will not see the extra quality as work the extra cost.

Feedback/Learning Process

Note: In the strategic management model depicted in Figure 1-2 includes a feedback/learning process. Arrows are drawn coming out of each part of the model and taking information to each of the previous parts of the model. As a firm or business unit develops strategies, programs, and the like, it often must go back to revise or correct decisions made earlier in the process.

Finding a Propitious Niche

One desired outcome of analyzing strategic factors is identifying a niche where an organization can use its core competencies to take advantage of a particular market opportunity. Definiton: A niche is a need in the marketplace that is currently unsatisfied. The goal is to find a propitious niche - an extremely favorable niche that is so well suited to the firm's internal and external environment that other corporations are not likely to challenge or dislodge it. A niche is propitious to the extent that it currently is just large enough for one firm to satisfy its demand. After a firm has found and filled that niche, it is not worth a potential competitor's time or money to also go after the same niche.

Industry Evolution

Over time, most industries evolve through a series of stages form growth through maturity to eventual decline. The strength of each of the six forces mentioned earlier varies according to the stage of industry evolution. The industry life cycle is useful for explaining and predicting trends among the six forces that drive industry competition. For example, when an industry is new, people often buy the product, regardless of price, because it uniquely fulfills an existing need.

Phases of Strategic Management

Phase 1: Basic financial planning Phase 2: Forecast-based planning Phase 3: Externally oriented (strategic) planning Phase 4: Strategic Management

Issues in Competitive Strategies

Porter argues that to be successful, a company or business unit must achieve one of the previously mentioned generic competitive strategies. Otherwise, the company or business unit is stuck in the middle of the competitive marketplace with no competitive advantage and is doomed to below-average performance. A classic example of a company that found itself stuck in the middle was K-Mart. The company spent a lot of money trying to imitate both Wal-Mart's low-cost strategy and Target's quality differentiation strategy. The result was a bankruptcy filing and its continuation today as a floundering company with poor performance and no clear strategy.

Transaction Cost Economies

Proposes that vertical integration is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying goods on the open market become too great.

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.

Porter's Competitive Strategies (Competitive Strategy)

Raises the following questions: - Should we compete on the basis of lower cost (and thus price), or should we differentiate our products or services on some basis other than cost, such as quality or service? - Should we compete head to head with our major competitors for the biggest but most sough-after share of the market, or should we focus on a niche in which we can satisfy a less sought-after but also profitable segment of the market? Michael Porter proposed three "generic" competitive strategies for outperforming other corporations in a particular industry: Overall cost leadership, differentiation, and focus. - Cost leadership: Is the ability of a company or a business unit to design, produce, and market a comparable product more efficiently than its competitors. - Differentiation: Is the ability of a company to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale service. - Focus: Is the ability of a company to provide unique and superior value to a particular buyer group, segment of the market line, or geographic market. Porter proposed that a firm's competitive advantage in an industry is determined by its competitive scope - That is, the breadth of the company's or business unit's target market. Simply put, a company or business unit can choose a broad target (that is, aim at the middle of the mass market) or a narrow target (that is, aim at a market niche). Combining these two types of target markets with the three competitive strategies results in the four variations of generic strategies. When the lower-cost and differentiation strategies have a broad mass-market target, they are simply called cost leadership and differentiation. When they are focused on a market niche (narrow target), however, they are called cost focus and differentiation focus. Research does indicate that established firms pursuing broad-scope strategies outperform firms following narrow-scope strategies in terms of ROA (Return on Assets)

Core and Distinctive Competencies (Capabilities)

Refer to a corporation's ability to exploit its resources. They consist of business processes and routines that manage the interaction among resources to turn inputs into outputs. For example, a company's marketing capability can be based on the interaction among its marketing specialists, distribution channels, and salespeople. A capability is functionally based and is resident in a particular function. Thus, there are marketing capabilities, manufacturing capabilities, and human resource management capabilities. When these capabilities are constantly being changed and reconfigured to make them more adaptive to an uncertain environment, they are called dynamic capabilities.

Sustainability

Refers to the use of business practices to manage the triple bottom line as was discussed earlier. The triple bottom line involves: 1. The management of traditional profit/loss 2. The management of the company's social responsibility 3. The management of its environmental responsibility.

SWOT analysis

SWOT is an acronym used to describe the particular Strengths, Weaknesses, Opportunities, and Threats that are strategic factors for a specific company.

Table 4-1 Politcal-Legal Variables

Some important Variables in the Societal Environment. - Antitrust regulations - Environmental protection laws - Global warming legislation - Immigration laws - Tax laws - Special incentives - Foreign trade regulations - Attitudes toward foreign companies - Laws on hiring and promotion - Stability of government - Outsourcing regulation - Foreign "sweatshops"

Table 4-1 Ecological Variables

Some important Variables in the Societal Environment. - Environmental protection laws - Global warming impacts - Non-governmental organizations - Pollution impacts - Reuse - Triple bottom line - Recycling

Table 4-1 Economic Variables

Some important Variables in the Societal Environment. - GDP trends - Interest rates - Money supply - Inflation rates - Unemployment levels - Wage/price controls - Devaluation/revaluation - Energy alternatives - Energy availability and cost - Disposable and discretionary income - Currency markets - Global financial system

Table 4-1 Technological Variables

Some important Variables in the Societal Environment. - Total government spending for (Research & Development) - Total industry spending for (Research & Development) - Focus of technological efforts - Patent protection - New products - New developments in technology transfer from lab to marketplace - Productivity improvements through automation - Internet availability - Telecommunication infrastructure - Computer hacking activity

Table 4-1 Sociocultural Variables

Some important Variables in the Societal Environment. Lifestyle changes Carrer expectations Consumer activism Rate of family formation Growth rate of population Age distribution of population Regional shifts in population Life expectancies Birthrates Pension plans Health care Level of education Living wage Unionization

Procedures

Sometimes termed Standard Operating Procedures (SOP), are a system of sequential steps or techniques that describe in detail how a particular task or job is to be done. For example: When the home improvement retailer Home Depot noted that ales were lagging because its stores were full of clogged aisles, long checkout times, and too few salespeople, management changed its procedures for restocking shelves and pricing the products. Instead of requiring its employees to do these activities at the same time they were working with customers, management moved these activities to when the stores were closed at night. Employees were then able to focus on increasing customer sales during the day.

What are the Benefits of Strategic Management?

Strategic management emphasizes long-term performance. - To be successful in the long-run, companies must not only be able to execute current activities to satisfy an existing market, but they must also adapt those activities to satisfy new and changing markets - Research reveals that org. that engage in strategic management generally outperform those the do not. - Strategic management becomes increasingly important as the environment becomes more unstable. A survey of nearly 50 corporations in a variety of countries and industries found the three most highly rated benefits of strategic management to be: - A clearer sense of strategic vision for the firm - A sharper focus on what is strategically important - An improved understanding of a rapidly changing environment. Bain & Co. 2011 Management tools and trends survey of 1,230 global executives revealed that benchmarking had replaced strategic planning as the perennial number 1 tool used by businesses. - Strategic planning was listed as second and was said to be particularly effective at identifying new opportunities for growth and in ensuring that all managers have the same goals. - Other highly ranked strategic management tools were mission and vision statements, core competencies, change management programs, and balanced scorecards. A study by Joyce, Nohria, and Roberson of 200 firms in 50 subindustries found that devising and maintaining an engaged, focused strategy was the first of four essential management practices that best differentiate between successful and unsuccessful companies. Research into the planning practices of companies in the oil industry concludes that the real value of modern strategic planning is more in the strategic thinking and organizational learning that is part of a future-oriented planning process than in any resulting written strategic plan. For example, strategic plans in the global oil industry tend to cover 4 to 5 years. The planning for oil exploration is even longer-- up to 15 years. Because of the relatively large number of people affected by a strategic decision in a large firm, a formalized, more sophisticated system is needed to ensure that strategic planning leads to successful performance. Otherwise, top management becomes isolated from developments in the business units, and lower-level managers lose sight of the corporate mission and objectives.

Situational Analysis: SWOT Approach Strategy Formulation

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. SWOT is an acronym used to describe the particular Strengths, Weaknesses, Opportunities, and Threats that are potential strategic factors for a specific company. It can be said that the essence of strategy is opportunity divided by capacity. An opportunity itself has no real value unless a company has the capacity (resources) to take advantage of that opportunity. SWOT can thus be used to take a broader view of strategy through the formula SA = O/(S-W) that is, Strategic Alternative equals Opportunity divided by Strengths minus Weaknesses. SWOT, by itself, is just a start to a strategic analysis. Some of the primary criticisms of SWOT are: - 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.

The Bargaining Power of Suppliers

Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services. A supplier or supplier group is powerful if some of the following factors apply: - The supplier industry is dominated by a few companies, but it sells to many (for example, the petroleum industry). - Its product or service is unique and/or it has built up switching costs (for example, word processing software). - Substitutes are not readily available (for example, electricity). - Suppliers are able to integrate forward and compete directly with their present customers for example, a microprocessor producer such as Intel can make PCs). - A purchasing industry buys only a small portion of the supplier group's goods and services and is thus unimportant to the supplier (for example, sales of lawn mower tires are less important to the tire industry than are sales of auto tires).

Globalization

The integrated internationalization of markets and corporations, has changed the way modern corporations do business.

Strategic Marketing Issues

The marketing managers is a company's primary link to the customer and the competition. Market position and Segmentation: Market position deals with the question, "who are our customers?" It refers to the selection of specific areas for marketing concentration and can be expressed in terms of market, product, and geographic locations. Through market research, corporations are able to practice market segmentation with various products or services so that managers can discover what niches to seek, which new types of products to develop, and how to ensure that a company's many products do not directly compete with one another. Marketing Mix: Marketing mix refers to the particular combination of key variables under a corporation's control that can be used to affect demand and to gain competitive advantage. These variables are product, place, promotion, and price. Product Life Cycle: Is a graph showing time plotted against the sales of a product as it moves from introduction through growth and maturity to decline. This concept is used by marketing managers to discuss the marketing mix of a particular product of group of products in terms of where it might exist in the life cycle.

Identifying External Strategic Factors

The origin of competitive advantage lies in the ability to identify and respond to environmental change well in advance of competition. Although this seems obvious, why are some companies better able to adapt than others? One reason is because of differences in the ability of managers to recognize and understand external strategic issues and factors. Booz & company found that companies that are most successful at avoiding surprises had a well-defined system that integrated planning, budgeting, and business reviews. No firm can successfully monitor all external factors. Choices must be made regarding which factors are important and which are not.

Industry Value-Chain Analysis

The value chains of most industries can be split into two segments, upstream and downstream. In the petroleum industry, for example, upstream refers to oil exploration, drilling, and moving the crude oil to the refinery, and downstream refers to refining the oil plus transporting and marketing gasoline and refined oil to distributors and gas station retailers.

Strategic Myopia

The willingness to reject unfamiliar as well as negative information. If a firm needs to change its strategy, it might not be gathering the appropriate external information to change strategies successfully

Corporate Culture: The Company Way

There are three ways to do the job-- the right way, the wrong way, and the company way. Around here we always do things the company way. In most organizations, the "company way" is derived from the corporation's culture. Corporate Culture: Is the collection of beliefs, expectations, and values learned and shared by a corporation's members and transmitted from one generation of employees to another. The corporate culture generally reflects the values of the founders and the mission of the firm. Corporate culture has two distinct attributes, intensity and integration. Cultural intensity is the degree to which members of a unit accept the norms, values, or other cultural content associated with the unit. Cultural integration is the extent to which units throughout an organization share a common culture. Corporate culture fulfills several important functions in an organization: 1. Conveys a sense of identity for employees 2. Helps generate employee commitment to something greater than themselves. 3. Adds to the stability of the organization as a social system. 4. Serves as a frame of reference for employees to use to make sense of organizational activities and to use as a guide for appropriate behavior.

Strategic Factors

Those external and internal elements that will assist in the analysis in deciding the strategic decisions of the corporation.

New Entrants

To an industry typically bring to it new capacity, a desire to gain market share, and potentially substantial resources. They are, therefore, threats to an established corporation. The threat of entry depends on the presence of entry barriers and the reaction that can be expected from existing competitors.

Strategic Decision-Making Process

To improve the making of strategic decisions. 8 Steps 1. Evaluate current performance results: In terms of (a) return on investment, profitability, and so forth, and (b) the current mission, objectives, strategies, and policies. 2. Review corporate governance: That is, the performance of the firm's board of directors and top management. 3. Scan and assess the external environment: To determine the strategic factors that pose Opportunities and Threats. 4. Scan and assess the internal corporate environment: To determine the strategic factors that are Strengths (especially core competencies) and Weaknesses. 5. Analyze strategic factors: To (a) pinpoint problem areas and (b) review and revise the corporate mission and objectives, as necessary. 6. Generate, evaluate, and select the best alternative strategy: In light of the analysis conducted in step 5. 7. Implement selected strategies: Via programs, budgets, and procedures. 8. Evaluate implemented strategies: Via feedback systems, and the control of activities to ensure their minimum deviation from plans.

Merger

Transaction involving two or more corporations in which both companies exchange stock in order to create one new corporation. Mergers that occur between firms of somewhat similar size are referred to as a "merger of equals." Most mergers are "friendly" --that is, both parties believe it is in their best interest to combine their companies.

Licensing:

Under a license agreement, the licensing firm grants rights to another firm in the host country to produce and/or sell a product.

Business Strategy

Usually occurs at the business unit or product level, and it emphasizes improvement of the competitive position of a corporation's products or services in the specific industry or market segment served by that business unit. Business strategies may fit within the two overall categories: Competitive and cooperative strategies. For example: Staples, the U.S. office supply store chain, has used a competitive strategy to differentiate its retail stores from its competitors by adding services to its stores, such as copying, UPS shipping, and hiring mobile technicians who can fix computers and install networks.

VRIO

Value, Rareness, Imitability, and Organization.

Vertical Growth results in

Vertical integration: The degree to which a firm operated vertically in multiple locations on an industry's value chain from extracting raw materials to manufacturing to retailing.

Fragmented Industry

Where no firm has large market share, and each firm serves only a small piece of the total market in competition with others (for example, cleaning services).

Using key success factors to create an industry matrix

Within any industry, there are usually certain variables key success factors that company's management must understand in order to be successful. Key Success Factors - are variables that can significantly affect the overall competitive positions of companies within any particular industry. They typically vary from industry to industry and are crucial to determining a company's ability to succeed within that industry. They are usually determined by the economic and technological characteristics of the industry and by the competitive weapons on which the firms in the industry have built their strategies. Industry Matrix - Summarizes they key success factors within a particular industry. The total weighted score indicates how well each company is responding to current and expected key success factors in the industry's environment. (An average company should have a total weighted score of 3.)