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8/17/16

STRATEGIC MANAGEMENT
For Post Graduate Diploma

Goal
To  develop  leaders  capable  of  
creating  a  positive  impact  on  business  
results  on  their  organizations  in  a  
growing  and  changing  global  
marketplace

By  excelling  Strategic  
management  

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Road  Map
Sessions
Chapter/readings
Day   Topic assigned  for  this  
class
Introduction  to  Understanding   Session  1  &  Session  2:    overview  on  the   1
1 Strategic  Management. elements  &  examples
Understanding  the  Business   Session 1  External  Environment 4-­‐5
2 Environment. Session 2  Internal  environment
Strategy  Formulation-­‐part-­‐1 Session 1  moving  from  situational  analysis   6-­‐7
to  strategy  formulation
3
Session 2    Competitive  Strategy/  
Corporate  Strategy
Strategy  Formulation-­‐part-­‐2 Session 1:  Corporate  strategy/  Functional   6,7,8,
strategy
4
Session 2:  Functional  strategy/  Moving  
into  actions  
Implementation  Challenges  &   Session 1    Organizing   9-­‐10
5
Managing  Change. Session 2  Staffing  &  Directing
Monitoring  and  Evaluating   Session 1:  Monitoring  and  Evaluating   11
Strategies  &  case  study Strategies.
6
Session 2  :  Distribution  &  discussion  of  the  
case  study
Written  Exam  & Session 1:  exam
7
Case  study  presentation   Session  2:  presentations  

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Objectives
By  the  end  of  this  session,  participants  will  be  able  to:

vOrganize  environmental  and  organizational  


information  using  SWOT  approach  and  the  SFAS  matrix

vReview  mission  and  objectives  

vDiscuss  and  select  the  business  strategies  available  to  


the  corporation  
vIdentify  the  corporate  strategies

strategy  Formulation
•It  is  developing  the  long-­‐term  plans  that  the  
organization  will  follow  in  the  next  years  to  
gain  a  competitive  advantage  

How you  will  move?  


Where you  want  to  be?  

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Strategy  formulation   How?


• Defining  the  competitive  advantages  of  the  
business  (Strategy)  ….  Situational  analysis  

• Crafting  the  corporate  mission,  

• specifying  achievable  objectives and

• Plan  to  achieve  the  mission  &  objectives  (Strategies

• setting  policy guidelines.


Copyright  ©  2015  Pearson  Education,  Inc.   1-­7

Defining  the  competitive  


advantages  of  the  business  
(Strategy)

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Situational  Analysis:    SWOT  Approach

•Situation  analysis
• the  process  of  finding  a  strategic  fit  between  
external  opportunities  and  internal  strengths  
while  working  around  external  threats  and  
internal  weaknesses

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Situational  Analysis:  SWOT  Approach

•Strategy =  opportunity/  (strengths-­‐ weaknesses)

•S  =  O/(S  -­‐W)

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Generating  a  Strategic  Factors  Analysis  


Summary  (SFAS)  Matrix

•SFAS  (Strategic  Factors  Analysis  


Summary)  Matrix
•summarizes  an  organization’s  strategic  
factors  by  combining  the  external  factors  
from  the  EFAS  Table  with  the  internal  
factors  from  the  IFAS  Table

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Strategic  Factor  Analysis  Summary  (SFAS)  Matrix

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Review  of  vision  /  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.

Copyright  ©  2015  Pearson  Education,  Inc.   6-­13

• Mission = stating the purpose


• Broad Comprehensive Statement of purpose or
reason for organizational existence

• It concentrates on present “what the organization


is now”

• It defines the customer(s), critical processes and it


informs you about the desired level of performance.

• It has to be within the Vision scope.


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Objectives  =  listing  expected  results


• Start by action verbs = action oriented

• Tell What is to be accomplished by


When and quantified if possible
• have to be SMART (Specific,
Measurable , Achievable, Realistic,
Time Framed).

Strategy  Formulation
•Strategy    
•is  a  long  term  plan  of    action (methods /
approaches)  designed  to state  how  the  
corporation  will  achieve  its  mission  and  
objectives

•Three  types  of  strategy:  corporate,  business,  


functional Cop
yrig
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2015  
Pear
son  
Edu
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1-­16
n,  
Inc.  

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Hierarchy  of  Strategy

Copyright  ©  2015  Pearson  Education,  Inc.   1-­17

Exhibit  9-­‐3
Types  of  Organizational  Strategies

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Business  Strategies  
• Focuses  on  improving  the  competitive  position  of  a  
company’s  or  business  unit’s  product  or  services  
within  the  specific  industry  or  market  segment  that  
the  company  serves    

Research  showed  that  business  strategy  effects  


have  double  the  impact  on  overall  company  
performance  than  do  either  corporate  or  
functional  effects        

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Business  strategy  

Competitive   Cooperative  
(compete  head  to  head)  
• Should  we  compete  on  the  basis  of   used  to  gain  a  
lower  cost  ,  or  should  we   competitive  
differentiate our  products  or  
services?
advantage  within  an  
industry  by  working  
• Should  we  compete  head  to  head   with  other  firms
with  our  major  competitors  for  the  
biggest  share  of  the  market,  
or  should  we  focus  on  a  niche  ?

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Porter’s  Competitive  Strategies


• Cost  leadership
• lower-­‐cost competitive  strategy  that  aims  at  the  
broad  mass  market

•Provides  a  defense  against  rivals


•Provides  a  barrier  to  entry
•Generates  increased  market  share  with  
high  bargaining  power    
Copyright  ©  2015  Pearson  Education,  Inc.   6-­23

Porter’s  Competitive  Strategies


• Differentiation
• involves  the  creation  of  a  product  or  service  that  is  
perceived  throughout  the  industry  as  unique.  
• can  be  associated  with  design,  brand  image,  
technology,  features,  dealer  network  or  
customer  service
•Lowers  customers  sensitivity  to  price
•Increases  buyer  loyalty  create  entry  barrier  
•Can  generate  higher  profits
Copyright  ©  2015  Pearson  Education,  Inc.   6-­24

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Porter’s  Competitive  Strategies

•Focus  =  Narrow  competitive  scope  


• ability  of  a  company  to  provide  unique  and  
superior  value  to  a  particular  buyer  group,  
segment  of  the  market  line  or  geographic  market

Cost  focus  
Differentiation  focus  
Copyright  ©  2015  Pearson  Education,  Inc.   6-­25

Porter’s  Competitive  Strategies


• Cost  focus
• 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

• Differentiation  focus
• concentrates  on  a  particular  buyer  group,  product  line  
segment  or  geographic  market  to  serve  the  needs  of  a  
narrow  strategic  market  more  effectively  than  its  
competitors
Copyright  ©  2015  Pearson  Education,  Inc.   6-­26

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Risks  in  Competitive  Strategies

•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  worth  the  extra  cost.

Copyright  ©  2015  Pearson  Education,  Inc.   6-­27

Risks  in  Competitive  Strategies

• Successful  companies  emphasizes  only  one  


strategy.

• Some  combination  of  the  two  competitive  


strategies  may also  be  successful  but  difficult      

Copyright  ©  2015  Pearson  Education,  Inc.   6-­28

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Risks  in  Competitive  Strategies


• Competitive  advantage  erode  over  time

•Firms  must  find  new  ways  to  reduce  costs  


further  AND  to  add  value  to  the  product  or  
service  being  provided  over  time  =  
sequencing  advantages

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Avoid  !!!!!
•Stuck  in  the  middle
•when  a  company  has  no  competitive  
advantage  and  is  doomed  to  below-­‐
average  performance

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Issues  in  Competitive  Strategies


•Successful  entrepreneurial  ventures  follow  focus  
strategies.  

•They  differentiate  their  product  or  service  from  


those  of  others  by  focusing  on  customer  
wants  in  a  segment  of  the  market,  thereby  
achieving  a  dominant  share  of  that  part  of  the  
market.
Copyright  ©  2015  Pearson  Education,  Inc.   6-­31

Industry  Structure  and  Competitive  


Strategy

•Fragmented  industry
• many  small-­‐ and  medium-­‐size  companies  compete  for  
relatively  small  shares  of  the  total  market
•Products  are  typically  in  early  stages  of  
product  life  cycle
•Focus  strategies  are  used
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Industry  Structure  and  Competitive  


Strategy
•Consolidated  industry

•domination  by  a  few  large  companies

•Once  consolidated,  cost  leadership  


AND differentiation  OR combination  to  
various  degrees  
Copyright  ©  2015  Pearson  Education,  Inc.   6-­33

Cooperative  strategies  
• Working  with  other  firms  to  gain  competitive  
advantage  can  be  through  

Collusion  
Alliance  

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Cooperative  Strategies

•Collusion
•the  active  cooperation  of  firms  within  an  
industry  to  reduce  output  and  raise  
prices  to  avoid  economic  law  of  supply  and  
demand

Copyright  ©  2015  Pearson  Education,  Inc.   6-­35

Collusion  strategy  
•GE  wanted  to  ease  price  competition  in  the  
steam  turbine  industry

•It  widely  advertised  its  prices  and  committed  not  


to  sell  below  those  prices

•GE’s  message  was  received  by  the  competitors  to  


follow  GE  prices

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Collusion  strategy  
•Prices  and  profit  remained  stable  in  this  
industry  for  10  years    

•The  department  of  justice  sued  the  firms  for  


engaging  in  “conscious  parallelism”  because  
following  each  other’s  lead  to  reduce  the  level  
of  competition  

Cooperative  Strategies
•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
Figure  6-­2

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Types  of  Alliances


•Mutual  service  consortium
• 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  WITHOUT  
sharing  their  core  competencies  

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Types  of  Alliances


•Joint  venture  
• 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

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Types  of  Alliances

•Licensing  arrangement  
•agreement  in  which  the  licensing  firm  
grants  rights  to  another  firm  (licensee)  in  
another  country  or  market  to  produce  
and/or  sell  a  product

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Types  of  Alliances


•Value-­‐chain  partnership  =    integration    
• 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

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Hierarchy  of  Strategy

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Objectives
By  the  end  of  this  session,  participants  will  be  able  to:

vDiscuss  the  three  aspects  of  corporate  strategy  

vSelect  Directional  strategy  

vDiscuss  the  portfolio  analysis  and  parenting  strategy  

Corporate  strategy  

• It  is  the  choice  of  direction  for  the  firm  as  a  


whole and  the  management  of  its  business  or  product  
portfolio  

• It  is  needed  whether  the  firm  is  a  small  company  or  a  


large  multidivisional    corporation  

• Every  corporation  must  decide  its  orientation  toward  


growth      

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Corporate  strategy  
• In  large  multiple  business  company,  corporate  
strategy  is  concerned  with  managing  various  
product  lines  or  business  unit  “children”  to  
obtain  synergy  among  them,  so  the  corporation  as  a  
whole  succeeds  as  a  “family”        

Multidivisional  corporation  

Business  unit   Business  unit   Business  unit   Business  unit  

Departments  

Corporate  strategy  
• Senior  managers  need  to  consider  the  following  
strategic  issues:

• Should  we  expand,  cut  back  or  continue  our  operations  


unchanged?  

• Should  we  concentrate  our  activities  within our  current  industry,  


or  should  we  diversify into  other  industries?

• If  we  want  to  grow  and  expand,  should  it  be    nationally  and/or  
globally?  Should  we  do  so  through  internal development  or  
external acquisition,  mergers  or  alliances?  

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Corporate  Directional  Strategies


•Growth  strategies  expand  the  company’s  activities
•Stability  strategies  make  no  change  to  the  current  
activities
•Retrenchment  strategies  reduce  the  level  of  activities  

Figure  7-­1
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7-­49

Growth  Strategies
Firms  can  grow  either  internally by  development  of  new  
products  &  services  OR it  can  grow  externally through  
mergers  and  acquisition    

•Merger
• a  transaction  involving  two  or  more  equal  
corporations  in  which  stock  is  exchanged  but  in  which  
only  one  corporation  survives

•Acquisition
• 100%  purchase  of  another  company
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7-­50

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Concentration  Strategies
• Vertical  growth  
• achieved  by  taking  over  a  function  previously  provided  by  a  
supplier  or  distributor  either  internally  or  externally

• Vertical  growth  can  be  done  through  internal  


development  or  externally  through  acquisition  and  
strategic  alliances  

• Vertical  growth  resulted  in  vertical  integration  

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7-­51

Vertical  Integration

•Backward   •Forward
integration integration
• assuming  a  function   •assuming  a  
previously  provided   function  previously  
by  a  supplier provided  by  a  
distributor

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Vertical  Integration  Continuum

Total   No  ownership  at  


ownership   all  =  cooperation  
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7-­53

Vertical  Integration

• Full  integration
• a  firm  internally  makes  100%  of  its  key  supplies  and  
completely  controls  its  distributors

• Taper  integration
• a  firm  internally  produces  less  than  half  of  its  own  
requirements  and  buys  the  rest  from  outside  suppliers

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7-­54

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Vertical  Integration
• 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

• Long-­‐term  contracts
• agreements  between  two  firms  to  provide  agreed-­‐upon  
goods  and  services  to  each  other  exclusively for  a  specific  
period  of  time

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7-­55

Concentration  Strategies
• Horizontal  growth
• expansion  of  operations  into  other  geographic  locations  
and/or  increasing  the  range  of  products  and  services  
offered  to  current  markets

• Horizontal  growth  can  be  done  through  internal  


development  or  externally  through  acquisition  and  strategic  
alliances  

• Horizontal  growth  resulted  in  horizontal  integration

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7-­56

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Diversification  Strategies

• Concentric  (Related)  diversification


• growth  into  a  related  industry  when  a  firm  has  a  strong  
competitive  position  but  attractiveness  is  low
• Synergy
• the  concept  that  two  businesses  will  generate  more  
profits  together  than  they  could  separately

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7-­57

Diversification  Strategies
• Conglomerate  (Unrelated)  diversification
• diversifying  into  an  industry  unrelated  to  its  current  one.  A  cash  rich  
firm  with  few  opportunities  for  growth  in  its  industry

•Management  realizes  that  the  current  


industry  is  unattractive.

•Firm  lacks  outstanding  abilities  or  skills that  it  


could  easily  transfer  to  related  products  or  
services  in  other  industries.
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7-­58

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Stability  Strategies
• Although  it  viewed  as  a  lack  
of  strategy,  the  stability  can  
be  appropriate  for  a  
successful  corporation  
operating  in  a  reasonably  
predictable  environment  

• It  can  be  useful  in  the  


short  run  

7-­59

Stability  Strategies
• Pause/Proceed  with  caution  strategy
• an  opportunity  to  rest  before  continuing  a  growth  or  
retrenchment  strategy

• No-­‐change  strategy
• decision  to  do  nothing  new—a  choice  to  continue  current  
operations  and  policies  for  the  foreseeable  future
• Profit  strategies
• decision  to  do  nothing  new  in  a  worsening  situation  but  
instead  to  act  as  though  the  company’s  problems  are  only  
temporary.  
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Retrenchment  Strategies
• Retrenchment  strategies
• used  when  the  firm  has  a  
weak  competitive  
position  in  some  or  all  of  its  
product  lines  resulting  in  
poor  performance

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Retrenchment  Strategies
•Turnaround  strategy
• emphasizes  the  improvement  of  operational  efficiency  
when  the  corporation’s  problems  are  pervasive  
but  not  critical

•Eliminate  the  weaknesses  that  are  dragging  the  


company  down  by  cutting  costs  and  expenses  and  
by  selling  off  assets    

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Retrenchment  Strategies
•Turnaround  strategy
It  has  two  basic  phases:  

•Contraction
effort  to  quickly  “stop  the  bleeding”  cutback  in  size  
and  costs  =  downsizing  

•Consolidation
stabilization  of  the  new  leaner  corporation  to  be  
stronger  and  improve  its  competitive  position  

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Retrenchment  Strategies
• Captive  company  strategy
• company  gives  up  independence  in  exchange  for  security  
by  integration  with  long  term  contracts  with  stronger  firm

• Sell-­‐out  strategy
• management  can  still  obtain  a  good  price  for  its  
shareholders  and  the  employees  can  keep  their  jobs  by  
selling  the  company  to  another  firm

• Divestment
• sale  of  a  division  with  low  growth  potential

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Retrenchment  Strategies

• Bankruptcy
• company  gives  up  management  of  the  firm  to  the  courts  
in  return  for  some  settlement  of  the  corporation’s  
obligations

• Liquidation
• management  terminates  the  firm

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Portfolio  management  
• How  to  manage  theses  various  product  lines  and  
business  units  to  boost  overall  corporate  performance

• The  top  manager  view  the  its  product  lines  and  


business  units  as  a  series  of  investments  from  which  it  
expect  a  profitable  return    

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Portfolio  management  

•Managers  should  know:

• How  much  of  our  time  and  money  should  we  


spend  on  our  best  products  to  continue  to  be  
successful?

• How  much  of  our  time  and  money  should  we  


spend  developing  new  costly  products  that  will  
never  be  successful  

BCG  Growth—Share  Matrix  /  Portfolio  analysis


Figure  7-­3

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BCG  Matrix
• Question  marks
• new  products  with  the  potential  for  success  but  need  a  
lot  of  cash  for  development

• Called  “problem  children”  or  “wildcats’  

• Money  must  be  taken  from  more  mature  products  


and  spent  in  Qmark.

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BCG  Matrix
• Stars
• market  leaders  that  are  typically  at  or  nearing  the  peak  of  
their  product  life  cycle  and  are  able  to  generate  enough  
cash  to  maintain  their  high  share  of  the  market  and  
usually  contribute  to  the  company’s  profits

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BCG  Matrix
• Cash  cows
• products  that  bring  in  far  more  money  than  is  needed  to  
maintain  their  market  share

• These  products  are  milked  for  cash  that  will  be  invested  in  
new  question  marks  or  in  stars

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BCG  Matrix
• Dogs
• products  with  low  market  share and  do  not  have  the  
potential  to  bring  in  much  cash

• Dogs  should  be  either  sold  off  OR  managed  carefully  for  
the  small  generated  cash  

Copyright  ©  2015  Pearson  Education,  Inc.  


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Portfolio  analysis  and  parenting  strategy  

Generate  synergy  across    product  lines  and  business  


units  by:  

1. Transfer  skills  and  capabilities  (knowledge  


assets)

2. Coordinating  activities  

3. Providing  needed  resources

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Functional  Strategy

•Functional  strategy
• the  approach  a  functional  area  takes  to  achieve  
corporate  and  business  unit  strategies

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Exhibit  9-­‐3
Types  of  Organizational  Strategies

Human  Resource  Management  (HRM)  


Strategy  
Many  Functional  HRM  strategies  may  be  selected:  

• Talent  acquisition  /  recruitment  


• Recruit  from  internal  Vs.  external  sources  
• Hire  low-­‐skilled  employees  who  receive  low  pay  Vs.  skilled  
employees
• Diverse  workforce  

• Training  &  development  


• Training  is  essential  Vs.  training  is  waste  of  time  &  money  
• Career  path  &  succession  planning  

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Human  Resource  Management  (HRM)  


Strategy  
Many  Functional  HRM  strategies  may  be  selected:  

• Work  arrangement  &  relations  


• Individual  jobs  Vs.  work  teams
• Work  designs  :  Highly  specialized  tasks  Vs.  job  enlargement  /  on-­‐
premises  Vs.  telecommuting  
• Conflict  management  

• Compensation  &  Benefits  


• Assessment  for  development  Vs.  assessment  for  rewards  
• 360  degree  appraisal  Vs.  supervisor  appraisal  
• Incentives  for  ideas  &  originality  Vs  for  conformity  

Marketing  strategies  
Many  Functional  marketing  strategies  may  be  selected:  

• Advertising  Vs.  promotion:  pull  Vs  push  strategy

• Distribution  :  Use  mass  merchandisers  Vs.  direct  


selling  to  the  customer  

• Pricing:  Skim  pricing  Vs.  Penetration  pricing  Vs.  


dynamic  pricing      

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Marketing  strategies  
Many  Functional  marketing  strategies  may  be  selected:  

• Market  development  Vs.  product  development  

Financial  Strategy  

• Usually  attempts  to  maximize  the  financial  value  of  


a  firm  by  raising  the  stock  price  and  the  overall  
value  of  the  firm  

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Research  &  Development  strategy  (R&D)  

•Deals  with  product  and  process  innovation  


and  improvement  &  

•How  new  technology  should  be  accessed:  


Internal  development  Vs.  External  acquisition  
or  strategic  alliance  

Research  and  Development  Strategy

• Technological  leader
• pioneering  an  innovation
• Technological  follower
• imitating  the  products  of  competitors
• Open  innovation
• firm  uses  alliances  and  connections  with  corporate,  
government,  academic  labs  and  consumers  to  develop  
new  products  and  processes

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Operational  Strategy  

•determines  the  following  issues:


• 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

Purchasing  Strategy

•Purchasing  Strategy
• deals  with  obtaining  raw  materials,  parts  and  
supplies  needed  to  perform  the  operations  
function

• May  be:    multiple,  sole  and  parallel  sourcing

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Logistics  Strategy
•Logistics  Strategy
• deals  with  the  flow  of  products  into  and  out  of  
the  manufacturing  process
•Trends  include:
• Centralization
• Outsourcing
• Internet

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Information  Technology
•Follow-­‐the-­‐sun  management
• project  team  members  living  in  one  country  can  
pass  their  work  to  team  members  in  another  
country  in  which  the  work  day  is  just  beginning.

• So  night  shifts  are  no  longer  needed  

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Strategies  to  Avoid  =  Dumb  strategies  

Follow  the   Hit  another  


Arms  race
leader home  run

Do  
Losing  hand
everything

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Process  of  Strategic  Choice

• Strategic  choice
• the  evaluation  of  alternative  strategies  and  
selection  of  the  best  alternative

•Failure  almost  always  stems  from  the  actions


of  the  decision  maker,  not  from  bad  luck  or  
situational  limitations.

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Avoiding  the  Consensus  Trap

• Devil’s  advocate  
• assigned  to  identify  potential  pitfalls  and  problems  with  a  
proposed  alternative  strategy  in  a  formal  presentation
• may  be  an  individual  or  a  group

• Dialectical  inquiry  
• requires  that  two  proposals  using  different  assumptions  
be  generated  for  each  alternative  strategy  under  
consideration

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Policy  

• They  are  the  principles  under  which  the  


corporation  operates  on  a  day-­‐to-­‐day  basis  

• Policies  provide  a  basis  for  decisions,  performance  


&  practices.

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