Strategy formulation

includes developing a vision and mission, identifying an organizations external

opportunities and threats, determining internal strengths and weaknesses,
establishing long-term objectives, generating alternative strategies, and choosing
particular strategies to pursue.
Strategy Formulation
Deciding what new businesses to enter What businesses to abandon How to
allocate resources Whether to expand operations or diversify Whether to
enter international markets Whether to merge or form a joint venture How to
avoid a hostile takeover.

Strategy implementation
requires a firm to establish annual objectives, devise policies, motivate
employees, and allocate resources so that formulated strategies can be executed
often called the action stage.

Policies
the means by which annual objectives will be achieved include guidelines,
rules, and procedures established to support efforts to achieve stated objectives
guides to decision making and address repetitive or recurring situations

The Strategic-Management Model

Where are we now?
Where do we want to go?
How are we going to get there?

Financial Benefits
Businesses using strategic-management concepts show significant
improvement in sales, profitability, and productivity compared to firms without
systematic planning activities High-performing firms seem to make more
informed decisions with good anticipation of both short- and long-term
consequences
Nonfinancial Benefits
Enhanced awareness of external threats, Improved understanding of
competitors strategies, Increased employee productivity, Reduced resistance
to change, Clearer understanding of performancereward relationships.
Increased discipline Improved coordination Enhanced communication
Increased forward thinking Improved decision-making Increased synergy
Effective allocation of time and resources.

Social Responsibility, Environmental Sustainability

Social responsibility actions an organization takes beyond what is legally
required to protect or enhance the well-being of living things Sustainability
the extent that an organizations operations and actions protect, mend, and
preserve rather than harm or destroy the natural environment.
Business Ethics
Business ethics principles of conduct within organizations that guide decisionmaking and behavior

An Ethics Culture
Whistle-blowing refers to policies that require employees to report any
unethical violations they discover or see in the firm

Bribery
the offering, giving, receiving, or soliciting of any item of value to influence the
actions of an official or other person in discharge of a public or legal duty is a
crime in most countries of the world, including the United States
Social policy
concerns what responsibilities the firm has to employees, consumers,
environmentalists, minorities, communities, shareholders, and other groups
Firms should strive to engage in social activities that have economic benefits
Lack of Standards Changing
Uniform standards defining environmentally responsible company actions are
rapidly being incorporated into our legal landscape It has become more and
more difficult for firms to make green claims when their actions are not
substantive, comprehensive, or even true

Reasons Why Firms Should Be Green

1. Consumer demand for environmentally safe products and packages is
high. 2. Public opinion demanding that firms conduct business in ways
that preserve the natural environment is strong. 3. Environmental
advocacy groups now have over 20 million Americans as members. 4.
Federal and state environmental regulations are changing rapidly and
becoming more complex. 5. More lenders are examining the
environmental liabilities of businesses seeking loans. 6. Many consumers,
suppliers, distributors, and investors shun doing business with
environmentally weak firms. 7. Liability suits and fines against firms
having environmental problems are on the rise

The Nature of Long-Term Objectives

Objectives should be: quantitative, measurable, realistic, understandable,
challenging, hierarchical, obtainable, and congruent among organizational
units
The Nature of Long-Term Objectives
Objectives provide direction allow synergy aid in evaluation
establish priorities reduce uncertainty minimize conflicts aid in both
the allocation of resources and the design of jobs

Types of Strategies
Most organizations simultaneously pursue a combination of two or more
strategies, but a combination strategy can be exceptionally risky if carried
too far. No organization can afford to pursue all the strategies that might
benefit the firm. Difficult decisions must be made and priorities must be
established

Integration Strategies
Forward integration involves gaining
ownership or increased control over
distributors or retailers
Backward integration strategy of seeking
ownership or increased control of a firms
suppliers
Horizontal integration a strategy of
seeking ownership of or increased control
over a firms competitors
Forward Integration Guidelines
When an organizations present distributors are
especially expensive When the availability of
quality distributors is so limited as to offer a
competitive advantage When an organization
competes in an industry that is growing When the
advantages of stable production are particularly
high When present distributors or retailers have
high profit margins
Backward Integration Guidelines

When an organizations present suppliers are

especially expensive or unreliable When the
number of suppliers is small and the number of
competitors is large When an organization has
both capital and human resources When the
advantages of stable prices are particularly
important When an organization needs to quickly
acquire a needed resource.
Horizontal Integration Guidelines
When an organization can gain monopolistic
characteristics in a particular area or region without
being challenged by the federal government
When an organization competes in a growing
industry When increased economies of scale
provide major competitive advantages When
competitors are faltering due to a lack of
managerial expertise
Intensive Strategies
Market penetration strategy seeks to increase
market share for present products or services in
present markets through greater marketing efforts
Market development involves introducing present
products or services into new geographic areas
Product development strategy seeks increased
sales by improving or modifying present products
or services
Diversification Strategies
Related diversification value chains possess
competitively valuable cross-business strategic fits
Unrelated diversification

 value chains are so dissimilar that no

competitively valuable cross-business relationships
exist

Michael Porters Five Generic

Strategies
Cost leadership
emphasizes producing standardized products at a
very low per-unit cost for consumers who are pricesensitive
Type 2
best-value strategy that offers products or
services to a wide range of customers at the best
price-value available on the market
Differentiation
strategy aimed at producing products and
services considered unique industry-wide and
directed at consumers who are relatively
priceinsensitive
Type 4
low-cost focus strategy that offers products or
services to a niche group of customers at the
lowest price available on the market
Type 5
best-value focus strategy that offers products or
services to a small range of customers at the best
price-value available on the market
What Do We Want to Become?
A vision statement should answer the basic
question, What do we want to become?
What Is Our Business?
Mission statement

 a declaration of an organizations reason for

being. answers the pivotal question What is our
business? essential for effectively establishing
objectives and formulating strategies
Chapter 6
Key Internal Forces
Distinctive competencies A firms strengths that
cannot be easily matched or imitated by
competitors Building competitive advantages
involves taking advantage of distinctive
competencies

The Resource-Based View (RBV) approach

contends that internal resources are more
important for a firm than external factors in
achieving and sustaining competitive advantage
Functions of Marketing
Customer analysis
Selling products/services
Product and service planning
Pricing /Distribution
Marketing research
Cost benefit analysis
Marketing research
the systematic gathering, recording, and
analyzing of data about problems relating to the
marketing of goods and services can uncover
critical strengths and weaknesses
Finance/Accounting Functions
Investment decision

 the allocation and reallocation of capital and

resources to projects, products, assets, and
divisions of an organization Financing decision
determines the best capital structure for the firm
and includes examining various methods by which
the firm can raise capital
Dividend decisions
concern issues such as the percentage of
earnings paid to stockholders, the stability of
dividends paid over time, and the repurchase or
issuance of stock determine the amount of funds
that are retained in a firm compared to the amount
paid out to stockholders
Finance/Accounting Functions
1. How has each ratio changed over time?
2. How does each ratio compare to industry norms?
3. How does each ratio compare with key
competitors?
Production/Operations
Production/operations function consists of all
those activities that transforms inputs into goods
and services Production/operations management
deals with inputs, transformations, and outputs
that vary across industries and markets.
Management Information Systems
Amanagement information systems purpose is to
improve the performance of an enterprise by
improving the quality of managerial decisions An
effective information system thus collects, codes,
stores, synthesizes, and presents information in

such a manner that it answers important operating

and strategic questions
External audit
focuses on identifying and evaluating trends and
events beyond the control of a single firm reveals
key opportunities and threats confronting an
organization so that managers can formulate
strategies to take advantage of the opportunities
and avoid or reduce the impact of threats
Key External Forces
External forces can be divided into five broad
categories: 1. economic forces 2. social, cultural,
demographic, and natural environment forces 3.
political, governmental, and legal forces 4.
technological forces 5. competitive forces
Competitive intelligence (CI)
a systematic and ethical process for gathering
and analyzing information about the competitions
activities and general business trends to further a
businesss own goals

EFE Matrix Steps

1.
2.
3.
4.
5.

List key external factors

Weight from 0 to 1
Rate effectiveness of current strategies
Multiply weight * rating
Sum weighted scores

 Identifies firms major competitors and their strengths & weaknesses in relation
to a sample firms strategic positions Critical success factors include internal
and external issues

The Process of Generating and Selecting Strategies

Alternative strategies proposed by participants should be considered and
discussed in a series of meetings. Proposed strategies should be listed in
writing. When all feasible strategies identified by participants are given and
understood, the strategies should be ranked in order of attractiveness