Strategic Management & Business Policy: Thomas L. Wheelen J. David Hunger
Strategic Management & Business Policy: Thomas L. Wheelen J. David Hunger
Strategic Management & Business Policy: Thomas L. Wheelen J. David Hunger
12TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
Session 1
2
Strategic Management: a set of managerial decisions
and actions that determines the long-run performance
of a corporation.
Includes:
• Internal and external environment scanning
• Strategy formulation
• Strategy implementation
• Evaluation and control
3
Benefits of Strategic Management:
4
Additional Benefits of Strategic Management:
• Improved organizational • Strategic thinking
performance • Organizational learning
• Achieves a match
between the
organization s
environment and its
strategy, structure and
processes
• Important in unstable
environments
5
Basic Elements of Strategic Management
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Basic Elements of Strategic Management
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Basic Elements of Strategic Management
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Basic Elements of Strategic Management
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Basic Elements of Strategic Management
Strategies- form a comprehensive master plan that
states how the corporation will achieve its mission
and objectives
– Corporate
– Business
– Functional
Policies- the broad guidelines for decision making
that links the formulation of a strategy with its
implementation
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Basic Elements of Strategic Management
• Programs
• Budgets
• Procedures
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Basic Elements of Strategic Management
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Basic Elements of Strategic Management
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Triggering event: something that acts as a stimulus for
a change in strategy and can include:
• New CEO
• External intervention
• Threat of change of ownership
• Performance gap
• Strategic inflection point
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What Makes a Strategic Decision?
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Strategic Decision Making Process:
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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
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Session 2
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STRATEGIC MANAGEMENT & BUSINESS POLICY
12TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
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Environmental scanning- the monitoring, evaluation and
dissemination of information from the external and
internal environments to key people within the
corporation
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Identifying External Environmental Variables
• Natural environment
• Societal environment
• Task environment
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Identifying External Environmental Variables
Natural environment
• Physical resources
• Wildlife
• Climate
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Identifying External Environmental Variables
• Economic forces
• Technological forces
• Political-legal forces
• Sociocultural forces
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Identifying External Environmental Variables
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Identifying External Environmental Variables
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Identifying External Environmental Variables
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Trends in Economic Forces:
• Interest rates
• Home sales
• Oil prices
• Emerging markets
• BRIC countries
• Eastern Europe
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Trends in Technological Forces:
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Trends in Political-Legal Forces:
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Trends in Sociocultural Forces:
– Demographics
– Increasing environmental awareness
– Growing health consciousness
– Expanding seniors market
– Impact of Gen Y
– Declining mass market
– Changing pace and location of life
– Changing household composition
– Increasing diversity of workforce and markets
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Identifying External Strategic Factors:
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Industry- a group of firms that produces a
similar product or service
Porter s 5 forces:
– Threat of new entrants
– Rivalry among existing firms
– Threat of substitute products
– Bargaining power of buyers
– Bargaining power of suppliers
– Relative power of other stakeholders (added)
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Threat of new entrants- new entrants to an industry
bring new capacity, a desire to gain market share
and substantial resources
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Entry barrier- an obstruction that makes it difficult for
a company to enter an industry
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Rivalry Among Existing Firms- new entrants to an
industry bring new capacity, a desire to gain
market share and substantial resources
• Number of competitors
• Rate of industry growth
• Product or service characteristics
• Amount of fixed costs
• Capacity
• Height of exit barriers
• Diversity of rivals
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Threat of Substitute Products or Services-
products that appear different but can satisfy the
same need as another product
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Bargaining Power of Buyers- ability of buyers to
force prices down, bargain for higher quality, play
competitors against each other
• Large purchases
• Backward integration
• Alternative suppliers
• Low cost to change suppliers
• Product represents a high percentage of buyer s
cost
• Buyer earns low profits
• Product is unimportant to buyer
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Bargaining Power of Suppliers- ability of suppliers
to raise prices or reduce quality
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Relative Power of Other Stakeholders
• Government
• Local communities
• Creditors
• Trade associations
• Special interest groups
• Unions
• Shareholders
• Complementors- products that work well with a
firm s product
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Industry Evolution
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STRATEGIC MANAGEMENT & BUSINESS POLICY
12TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
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Organizational analysis- concerned with identifying
and developing an organization s resources and
competencies
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Core and Distinctive Competencies
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Core and Distinctive Competencies
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Core and Distinctive Competencies
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Using Resources to Gain Competitive Advantage
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Access to a Distinctive Competency
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Access to a Distinctive Competency
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Imitability an Advantage
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Determining the Sustainability of an Advantage
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Determining the Sustainability of an Advantage
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5-64
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Business models- a company s method for making
money in the current business environment
Includes
• Who the company serves
• What the company provides
• How the company makes money
• How the company differentiates and sustains
competitive advantage
• How the company provides its product/service
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Business models
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Business models (cont d)
• Efficiency model
• Blockbuster model
• Profit multiplier model
• Entrepreneurial model
• De Facto industry standard model
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Value chain- 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 marking a product or
service, and ending with distributors getting the final
goods into the hands of the ultimate consumer
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Industry Value Chain Analysis
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Corporate Value Chain Analysis
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Corporate Value Chain Analysis
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Basic Organizational Structures
• Simple
• Functional
• Divisional
• Strategic Business Units
• Conglomerate
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Corporate Culture: The Company Way
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Functions of Corporate Culture
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Strategic Marketing Issues
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Product life cycle- product monetary sales over time
from introduction through growth and maturity to
decline
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Brand- a name given to a company s product which
identifies that item in the mind of the consumer
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Corporate reputation- a widely held perception of a
company by the general public
81
Strategic Financial Issues
Financial leverage- ratio of total debt to total assets
• Used to describe how debt is used to increase earnings
available to common shareholders
Capital budgeting- the analyzing and ranking of possible
investments in fixed assets in terms of additional
outlays and receipts that will result from each
investment
• Hurdle point
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Strategic Research and Development Issues
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Strategic Research and Development Issues
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Strategic Research and Development Issues
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Strategic Operations Issues
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Strategic Operations Issues
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Strategic Operations Issues
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Strategic Human Resource Issues
Teams
Autonomous (self-managed)- a group of people
working together without a supervisor to plan,
coordinate and evaluate their work
Cross-functional work teams- various disciplines are
involved in a project from the beginning
Concurrent engineering- specialists work side-by-side
and compare notes constantly to design cost-effective
products with features customers want
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Strategic Human Resource Issues
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Strategic Human Resource Issues
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Strategic Information Systems/Technology Issues
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Strategic Information Systems/Technology Issues
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Strategic Information Systems/Technology Issues
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STRATEGIC MANAGEMENT & BUSINESS POLICY
12TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
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Strategy formulation- concerns developing a
corporation s mission, objectives, strategies and
policies
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SWOT- Strengths-Weaknesses-Opportunities-Threats
Strategy= opportunity/capacity
Opportunity has no real value unless a company has the
capacity to take advantage of that opportunity
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Criticisms of SWOT analysis
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Generating a Strategic Factors Analysis
Summary (SFAS) Matrix
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Review of Mission and Objectives
A re-examination of an organization s current mission
and objectives must be made before alternative
strategies can be generated and evaluated
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TOWS Matrix- illustrates how the external opportunities
and threats can be matched with internal strengths and
weaknesses to result in 4 possible strategic alternatives
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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 it serves
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Business strategy is comprised of:
• Competitive strategy
• Cooperative strategy
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Porter s competitive strategies
Lower cost strategy- the ability of a company or a business
unit to design, produce and market a comparable product
more efficiently than its competitors
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Porter s competitive strategies
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Porter s competitive strategies
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Porter s competitive strategies
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Risks in Competitive Strategies
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Cooperative Strategies- used to gain a competitive
advantage within an industry by working with other
firms
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Collusion- the active cooperation of firms within an
industry to reduce output and raise prices to avoid
economic law of supply and demand
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Strategic Alliances- a long-term cooperative
arrangement between two or more independent firms
or business units that engage in business activities for
mutual economic gain
Used to:
• Obtain or learn new capabilities
• Obtain access to specific markets
• Reduce financial risk
• Reduce political risk
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Types of Cooperative Agreements
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Session 3
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STRATEGIC MANAGEMENT & BUSINESS POLICY
12TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
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Corporate strategy- the choice of direction of the
firm as a whole and the management of its
business or product portfolio and concerns:
• Directional strategy
• Portfolio analysis
• Parenting strategy
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Directional strategy- the firm s overall orientation
toward growth, stability, or retrenchment
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Portfolio analysis- industries or markets in which the
firm competes through its products and business
unites
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Parenting strategy- the manner in which
management coordinates activities and transfers
resources and cultivates capabilities among product
lines and business units
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Growth Strategy:
Concentration and Diversification
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Growth Strategy
Concentration
• Vertical
• Horizontal
Diversification
• Concentric
• Conglomerate
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Concentration strategies
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Concentration strategies
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• Full integration- a firm internally makes 100% of its key
suppliers and completely controls its distributors
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• Quasi-integration- a company does not make any of
its key supplies but purchases most of its
requirements from outside suppliers that are under
its partial control
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Horizontal growth- expansion of operations into other
geographic locations and/or increasing the range of
products and services offered to current markets
• Horizontal growth is achieved through:
– Internal development
– Acquisitions
– Strategic alliances
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International Entry Options for Horizontal Growth
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Diversification Strategies
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Diversification Strategies
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Diversification Strategies
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Controversies in Directional Strategies
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Stability Strategies- continuing activities without any
significant change in direction
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Retrenchment Strategies- used when the firm has a
weak competitive position in some or all of its product
lines from poor performance
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Retrenchment Strategies
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Captive Company Strategy- company gives up
independence in exchange for security
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Bankruptcy- company gives up management of the firm to
the courts in return for some settlement of the
corporation s obligations
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Portfolio analysis- management views its product lines
and business units as a series of investments from
which it expects a profitable return
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BCG Matrix
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BCG Matrix
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BCG Matrix- Limitations
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Advantages and Limitations of Portfolio Analysis
Advantages:
• Encourages top management to evaluate each of the
corporation s businesses individually and to set
objectives and allocate resources for each
• Stimulates the use of externally oriented data to
supplement management s judgment
• Raises the issue of cash flow availability to use in
expansion and growth
149
Advantages and Limitations of Portfolio Analysis
Limitations:
• Defining product/market segments is difficult
• Suggest the use of standard strategies that can miss
opportunities or be impractical
• Provides an illusion of scientific rigor when in reality
positions are based on objective judgments
• Value-laden terms such as cash cow and dog can lead
to self-fulfilling prophecies
• Lack of clarity on what makes an industry attractive or
where a product is in its life cycle
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Managing a Strategic Alliance Portfolio
151
Corporate parenting- views a corporation in terms of
resources and capabilities that can be used to build
business unit value as well as generate synergies
across business units
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STRATEGIC MANAGEMENT & BUSINESS POLICY
12TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
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Functional strategy- the approach a functional area
takes to achieve corporate and business unit
objectives and strategies by maximizing resource
productivity
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Marketing strategy deals with pricing, selling and
distributing a product
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Market development strategy- provides the ability
to:
• Capture a larger market share
– Market saturation
– Market penetration
• Develop new uses and/or markets for current
products
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Product development strategy- provides the ability
to:
• Develop new products for existing markets
• Develop new products for new markets
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• Line extension- using a successful brand name to
market other products
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• Skim pricing- offers the opportunity to skim the
cream from the top of the demand curve with a high
price while the product is novel and competitors are
few
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Financial Strategy- examines the financial implications of
corporate and business-level strategic options and
identifies the best financial course of action
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Leveraged buyout- company is acquired in a transaction
financed largely by debt usually obtained from a third
party
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Research and Development Strategy- deals with
product and process innovation and improvement
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Operations Strategy- determines how and where a
product or service is to be manufactured, the level of
vertical integration in the production process, the
deployment of physical resources and relationships with
suppliers
Manufacturing Types include
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Purchasing Strategy- deals with obtaining raw materials,
parts and supplies needed to perform the operations
function
Options include:
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Logistics Strategy- deals with the flow of products into
and out of the manufacturing process
Trends include:
• Centralization
• Outsourcing
• Internet
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Human Resource Strategy
Trends include:
• Self-managed teams
• 360-degree appraisal
• Diverse workforce
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Information Technology Strategy
Trends include:
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Outsourcing- purchasing from someone else a product or
service that had been previously provided internally
• Avoid outsourcing distinctive competencies
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Disadvantages of outsourcing and offshoring
• Customer complaints
• Long-term contracts
• Ability to learn new skills and develop new core
competencies
• Lack of cost savings
• Poor product quality
• Increased transportation costs
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Errors in Outsourcing Efforts
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Process of Strategic Choice
• Consensus
• Devil s advocate
• Dialectical inquiry
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Process of Strategic Choice
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Effective Policies Accomplish
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STRATEGIC MANAGEMENT & BUSINESS POLICY
12TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
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Strategy implementation- the sum total of all
activities and choices required for the execution of
a strategic plan
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Common Strategy Implementation Problems
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Developing Programs, Budgets and Procedures
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Developing Programs, Budgets and Procedures
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STRATEGIC MANAGEMENT & BUSINESS POLICY
12TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
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Evaluation and Control ensures that a company is
achieving what it set out to accomplish by
comparing performance with desired results and
taking corrective action as needed
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1. Determine what to measure
2. Establish standards of performance
3. Measure actual performance
4. Compare actual performance with the
standard
5. Take corrective action
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Balanced score card– combines financial measures
that tell results of actions already taken with
operational measures on customer satisfaction,
internal processes and the corporation s innovation
and improvement activities
• Financial
• Customer
• Internal business perspective
• Innovation and learning
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Benchmarking- the continual process of measuring
products, services and practices against the
toughest competitors or those companies
recognized as industry leaders
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