Chapter 4 Reviews and Refreshers
CONCENTRATION IS
A concentration strategy focuses on a single business competing in a single industry. Example: In the food retailing industry, Kroger, Safeway, and A&P all pursue concentration strategies. Frequently, companies pursue concentration strategies to gain entry into an industry when industry growth is good or when the company has a narrow range of competencies
One method for aligning the organization's strategic and operational goals is a strategy map.
A strategy map provides a tool managers can use to communicate their strategic goals and enable members of the organization at every level to understand the parts they will play in helping to achieve them. The strategy map shows the relationship between a firm's practices and its long-term success.
Step 6: Monitor and Control
Although it is sometimes ignored, the sixth step in the formal planning process---monitoring and controlling---is essential.
A successful strategy must ask itself five specific questions
An effective strategy provides a basis for answering five broad questions about how the organization will meet its objectives: (1) Where will we be active? (2) How will we get there (e.g., by increasing sales or acquiring another company)? (3) How will we win in the marketplace (e.g., by keeping prices low or offering the best service)? (4) How fast will we move and in what sequence will we make changes? (5) How will we obtain financial returns (low costs or premium prices)?
Step 1: Situational Analysis
As the contingency approach advocates, planning begins with a situational analysis. Within their time and resource constraints, planners should gather, interpret, and summarize all information relevant to the planning issue in question. A thorough situational analysis studies past events, examines current conditions, and attempts to forecast future trends. It focuses on the internal forces at work in the organization or work unit and, consistent with the open-systems approach, examines influences from the external environment. The outcome of this step is the identification and diagnosis of planning assumptions, issues, and problems.
A vertical integration strategy involves expanding the domain of the organization into supply channels or to distributors.
At one time, Henry Ford had fully integrated his company from the ore mines needed to make steel all the way to the showrooms where his cars were sold. Vertical integration generally is used to eliminate uncertainties and reduce costs associated with suppliers or distributors.
Step 2: Alternative Goals and Plans
Based on the situational analysis, the planning process should generate alternative goals that may be pursued in the future and the alternative plans that may be used to achieve those goals. Goals are the target or ends the manager wants to reach. To be effective, goals should have certain qualities, which are easy to remember with the acronym SMART. At a minimum, planning should outline alternative actions that may lead to the attainment of each goal, the resources required to reach the goal through those means, and the obstacles that may develop.
A strategy of concentric diversification involves moving into new businesses that are related to the company's original core business.
Because the businesses are related, the products, markets, technologies, or capabilities used in one business can be transferred to another. Success in a concentric diversification strategy requires adequate management and other resources for operating more than one business
There are four types of corporate strategies organizations can use.
Concentration, vertical integration, concentric diversification, conglomerate diversification
One of the most popular techniques for analyzing a corporation's strategy for managing its portfolio is the BCG matrix, developed by the Boston Consulting Group.
Each business in the corporation is plotted on the matrix on the basis of the growth rate of its market and the relative strength of its competitive position in that market (market share). The business is represented by a circle whose size depends on the business's contribution to corporate revenues. It is a corporate planning tool to help with long-term strategic planning by reviewing it's business portfolio. The BCG matrix is not intended as a substitute for management judgment, creativity, insight, or leadership. But it is a tool that can, along with other techniques, help managers of the firm as a whole and of its individual businesses evaluate their strategy alternatives.
The final step in strategy formulation is to establish the major functional strategies. Functional strategies are implemented by each functional area of the organization to support the business strategy.
Functional strategies typically are developed by functional area executives with input of and approval from the executives responsible for business strategy. Senior strategic decision makers review the functional strategies to ensure that each major department is operating consistently with the business strategies of the organization.
What does strategic planning involve?
It involves making decisions about the organization's LONG TERM goals and strategies.
Characteristics of CASH COW
Low-growth, strong-competitive-position businesses are called cash cows. These businesses generate revenues in excess of their investment needs and therefore fund other businesses.
Step 3: Goal and Plan Evaluation
Next, managers will evaluate the advantages, disadvantages, and potential effects of each alternative goal and plan. They consider the implications of alternative plans for meeting high-priority goals.
Step 4: Goal and Plan Selection
Once managers have assessed the various goals and plans, they will select the one that is most appropriate and feasible.
Step 5: Implementation
Once managers have selected the goals and plans, they must implement the plans designed to achieve the goals.
Operational planning
Operational Planning identifies the specific procedures and processes required at lower levels of the organization.
The definition of PLANS are
Plans are the actions or means the manager intends to use to achieve goals. At a minimum, planning should outline alternative actions that may lead to the attainment of each goal, the resources required to reach the goal through those means, and the obstacles that may develop.
Core capability is the center of these resource qualities:
Resources are rare. Resources are organized. Resources are inimitable. Resources are valuable.
Step 4: SWOT Analysis and Strategy Formulation
SWOT: the process of assessing how well one company's basic functions and skills compare with those of another company or set of companies -summarize relevant important tasks -formulate strategy with use of advantages HOW IT IS USED: Helps managers summarize the relevant, important facts from their external and internal analyses. Then they can identify the primary and secondary strategic issues their organization faces based on summaries Then formulate a strategy that will build on the SWOT analysis to take advantage of available opportunities by capitalizing on the organization's -strengths -neutralizing its weakness -countering potential threats
Internal analysis gives strategic decision makers an inventory of the organization's existing functions, skills, and resources as well as its overall performance level. Many of your other business courses will prepare you to conduct an internal analysis.
Some major components of an internal analysis include: Financial Analysis: examines financial strengths/weaknesses through financial statements like comparing trends to numbers. Marketing Audit: examines strengths/weaknesses of major marketing activities and identifies marketing and position of the company. The marketing is in line with marketing and corporate goals. Operations Analysis: examines strengths/weaknesses of the manufacturing, production, or service delivery activities of the organization. Human Resources Audit: examines strengths/weaknesses of all levels of management and quality of work life.
Let's back up one second. Step 2 had the acronym SMART. Smart stands for...
Specific - When goals are precise, describing particular behaviors and outcomes, employees can more easily determine whether they are working toward the goals. Measurable¬ ¬¬-- As much as possible, each goal should quantify the desired results so there is no doubt whether it has been achieved. Attainable (but challenging) — Employees need to recognize that they can attain the goals they are responsible for, or else they are likely to become discouraged. However, they should also feel challenged to work hard and be creative. Relevant - Each goal should contribute to the organization's overall mission while being consistent with its values, including the ethical standards. Goals are more likely to be relevant to the organizations overall objectives if they are consistent within and among work groups. Time-bound - Effective goals specify a target date for completion. Besides knowing what to do, employees should know when they need to deliver results.
Step 5: Strategy Implementation
Step 1: Define strategic tasks. Articulate in simple language what a particular business must do to create or sustain a competitive advantage. Define strategic tasks to help employees understand how they contribute to the organization, including redefining relationships among the parts of the organization. Step 2: Assess organization capabilities. Evaluate the organization's ability to implement the strategic tasks. A task force typically interviews employees and managers to identify specific issues that help or hinder effective implementation. Then the results are summarized for top management. Step 3: Develop an implementation agenda. Management decides how it will change its own activities and procedures; how critical interdependencies will be managed; what skills and individuals are needed in key roles; and what structures, measures, information, and rewards might ultimately support the needed behavior. A philosophy statement, communicated in terms of value, is the outcome of this process. Step 4: Create an implementation plan. The top management team, the employee task force, and others develop the implementation plan. The top management team then monitors progress. The employee task force continues its work by providing feedback about how others in the organization are responding to the changes.
Just a refresher, the six steps are
Step 1: Situational Analysis Step 2: Alternative Goals and Plans Step 3: Goal and Plan Evaluation Step 4: Goal and Plan Selection Step 5 Implementation Step 6: Monitor and Control
The Basic Planning Process Steps has SIX steps.
Step 1: Situational Analysis Step 2: Alternative Goals and Plans Step 3: Goal and Plan Evaluation Step 4: Goal and Plan Selection Step 5 Implementation Step 6: Monitor and Control
Strategic Goals are
Strategic goals are major targets or results that related to the long-term survival, value, and growth of the organization.
Strategic management involves managers from all parts of the organization in the formulation and implementation of strategic goals and strategies. It integrates strategic planning and management into a single process. Strategic planning becomes an ongoing activity in which all managers are encouraged to think strategically and focus on long-term, externally oriented issues as well as short-term tactical and operational issues.
Strategic management has SIX MAJOR COMPONENTS: 1. Establishment of mission, vision, and goals. 2. Analysis of external opportunities and threats. 3. Analysis of internal strengths and weaknesses. 4. SWOT (strengths, weaknesses, opportunities, and threats) analysis and strategy formulation. 5. Strategy implementation. 6. Strategic control.
Strategy is
Strategy is a pattern of actions and resources allocations designed to achieve the organization's goals.
Tactical planning
Tactical planning is a set of procedures for translating broad strategic goals and plans into specific goals and plans that are relevant to a distinct portion of the organization, such as functional area like marketing.
Step 2: Analysis of External Opportunities and Threats
The analysis begins with an examination of the industry. Next, organizational stakeholders are examined. Stakeholders are groups and individuals who affect and are affected by the achievement of the organization's mission, goals, and strategies. They include buyers, suppliers, competitors, government and regulatory agencies, unions and employee groups, the financial community, owners and shareholders, and trade associations. The environmental analysis provides a map of these stakeholders and the ways they influence the organization
Step 3: Analysis of Internal Strengths and Weaknesses
The analysis includes: Internal Analysis Resources Core Capability Benchmarking
Step 6: Strategic Control
The final component of the strategic management process is strategic control. A strategic control system is designed to support managers in evaluating the organization's progress with its strategy and, when discrepancies exist, taking corrective action. The system must encourage efficient operations that are consistent with the plan while allowing flexibility to adapt to changing conditions. As with all control systems, the organization must develop performance indicators, an information system, and specific mechanisms to monitor progress.
Step 1: Establishment of Mission, Vision, and Goals
The first step in strategic planning is establishing a mission, a vision, and goals for the organization. The mission is a clear and concise expression of the basic purpose of the organization. It describes what the organization does, for whom it does it, its basic good or service, and its values. The mission describes the organization as it currently operates. The strategic vision points to the future—it provides a perspective on where the organization is headed and what it can become. Ideally, the vision statement clarifies the long-term direction of the company and its strategic intent. Here are some actual vision statements Where leadership is strong, statements of visions and goals clarify the organization's purpose to key constituencies outside the organization. They also help employees focus their talent, energy, and commitment in pursuit of the organization's goals. When the time comes for you to seek employment with a firm, reviewing the firm's statements of mission, vision, and goals is a good first step in determining whether the firm's purposes and values will be compatible with your own.
Understand the two kinds of business strategies that companies can use to gain competitive advantage
The major actions by which an organization builds and strengthens its competitive position in the marketplace. Low-cost strategies -standard, no frills, economies of scale, must be leader in market segment Companies that succeed with a low-cost strategy often are large and try to take advantage of economies of scale in production or distribution. In many cases, their scale allows them to buy and sell their goods and services at a lower price, which leads to higher market share, volume, and ultimately profits. To succeed, an organization using this strategy generally must be the cost leader in its industry or market segment. Differentiation strategy -unique, high product quality, superior service, difficult for competitors to imitate With a differentiation strategy, a company attempts to be unique in its industry or market segment along some dimensions that customers value. This unique or differentiated position within the industry often is based on high product quality, excellent marketing and distribution, or superior service.
Benchmarking
To assess and improve performance, some companies use benchmarking, the process of assessing how well one company's basic functions and skills compare with those of another company or set of companies. The goal of benchmarking is to understand the "best practices" of other firms thoroughly and to undertake actions to achieve both better performance and lower costs.
In contrast to concentric diversification, conglomerate diversification is a corporate strategy that involves expansion into unrelated businesses.
Typically, companies pursue a conglomerate diversification strategy to minimize risks due to market fluctuations in one industry.
Resources and Core Capabilities
Without question, strategic planning has been strongly influenced in recent years by a focus on internal resources. Resources are inputs to production (recall systems theory) that can be accumulated over time to enhance the performance of a firm. Resources can take many forms, but they tend to fall into two broad categories: (1) tangible assets such as real estate, production facilities, raw materials, and so on, and (2) intangible assets such as company reputation, culture, technical knowledge, and patents as well as accumulated learning and experience. Simply stated, a core capability (also referred to as "competence") is something a company does especially well relative to its competitors.
