Review for Exam (Strategic Management)

1. Strategic and benefit strategic management Strategic management is art and science of formulating, implementing, and evaluating, crossfunctional decisions that enable an organization to achieve its objectives. Benefits of strategic management Financial benefits o o o Improvement in sales

Improvement in profitability Productivity improvement

Non-Financial benefits o o o o

Improved understanding of competitors strategies Enhanced awareness of threats Reduced resistance to change Enhanced problem-prevention capabilities

2. Vision, mission statements and nine element of component of mission statements Vision statement (What do we want to become?) focuses on the future, it provides a picture of where the organization is going, or what it will look like in the next 5 to 10 years. Examples: General Motor: Our mission is for GM to be the world leader in transportation products and related services Dell Computer Corp.: To become the world leader in computer sales for home, office, and university use. PepsiCos responsibility is to continually improve all aspects of the world in which we operate environment, social, economic creating a better tomorrow than today. 5 10 Mission statement (What is our business?) refers to as creed statement, statement of purpose, statement of philosophy, and statement of business principles. Example: Dells mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet consumer expectations of highest quality; leading technology; competitive pricing; individual and company accountability; best-in-class service and support; flexible customization capability; superior corporate citizenship; financial stability. Nine mission elements: 9 i. ii. iii. iv. Customers Products/services / Markets Technology 1 THUN Kosal

Strategic Management

v. vi. vii. viii. ix.

Survival Growth Profit Philosophy Self-Concept Employees

Public Image

3. General environment (PEST), Five-Forces Model of competition, steps and develop EFE matrix, develop CPM matrix General environment (PEST) can be opportunities and threats. o Politics: related to government law, tax rates on exports and imports, patent, etc. that are barriers to organization. For example, high tax rate is the barrier to imports o Economics: related to income level of population, unemployment, crisis, etc. For example, when the level of income is low, it affects to customer to buy products. o Societies: related to culture, religion, demography, etc. For example, Islamists dont eat pork, so we have to think about this and will not produce food from pork in that society. o Technology: technology is updated everyday. Organization must use up to date technology to satisfy customers need. Five-Force Model of competition

Steps to develop EFE matrix: List key external factors as identified in the external-audit process. Include a total of 10-20 factors from both the opportunities and threats Assign to each factor a weight from .0 (not important) to 1.0 (very important). These weights show the relative importance. The total of all the weights should equal 1.0 Assign a 1-4 rating to each factor to indicate how effectively the firms current response strategy is: 1=the response is poor, 2=the response is average, 3=the response is above average, and 4=the response is superior Multiple each factors weight by its rating to get a weighted score Sum the weighted scores for each variable to determine the total weighted score for the organization EFE matrix: Retail computer store

Strategic Management

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External Factors Opportunities 1. population of city growing 10% 2. Rival computer store opening 1 kilometer away 3. Vehicle traffic passing store up 12% 4. Vendors average six new product per year 5. Senior citizen use of computers up 8% 6. Small business growth in area up 10% 7. desire for web sites up 18% by Realtors 8.Desire for web site up 12% by small firms Threats 1. Best buy opening new store in 1 years nearby 2. Local university offers computer repair 3. New bypass Hwy 34 in 1 year will divert traffic 4. New mall being build nearby 5. Gas price up 14% 6. Vendors raising price 8% Total
BANK

Weight Rating 0.10 0.10 0.08 0.05 0.05 0.10 0.06 0.06 0.10 0.08 0.10 0.05 0.04 0.03 1.00 3 2 3 2 2 3 3 2 1 2 4 2 1 2

Weighted Score 0.30 0.20 0.24 0.10 0.10 0.30 0.18 0.12 0.10 0.16 0.40 0.10 0.04 0.06 2.40

So the total weighted score of BANK on the external factors (Opportunities and Threats) is 3.00. It means that BANK is responding in an outstanding way to existing opportunities and treats. In other word, the BANK strategies effectively take advantage of existing opportunities and minimize the potential adverse effects of external threats. Strategic Management 3 THUN Kosal

CPM Matrix

CSF's Advertising Product quality Price competitiveness Management Financial position Customer loyalty Gobal Exp. Market share Total

Company 1 Company 2 Company 3 Wt Rating Wt'd Score Rating Wt'd Score Rating Wt'd Score 0.20 1 0.20 4 0.80 3 0.60 0.10 4 0.40 3 0.30 2 0.20 0.10 3 0.30 2 0.20 4 0.40 0.10 4 0.40 3 0.30 3 0.30 0.15 4 0.60 2 0.30 3 0.45 0.10 4 0.40 3 0.30 2 0.20 0.20 4 0.80 1 0.20 2 0.40 0.05 1 0.05 4 0.20 3 0.15 1.00 3.15 2.60 2.70

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In this matrix shows that the product and reputation of Bank 2 and Bank 3 are superior and so important critical success factor as indicated rates of 4. For the physical distribution of Bank 1 is effectiveness of sales distribution and for the customer service is attracted the customer more confident and trust on bank. 4. Staff (HMR), motivation, culture product, steps and develop IFE matrix. Staffing: Wage and salary admin, employee benefits, interviewing, hiring, discharging, training, management development, affirmative action, EEO, Labor relations. Motivating: Leadership, communication, work groups, job enrichment, job satisfaction, needs fulfillment, organizational change, morale. Cultural products: Values, beliefs, rites, rituals, myths, symbols, heroes, legends. Steps to develop IFE matrix: List key internal factors, use a total from ten to twenty internal factors including both strengths and weaknesses. Assign a weight ranging from 0 (not important) to 1.0 (very important). The weight indicates the relative importance of the factor to being successful in the firms industry. The sum of all the weights must equal 1.0. Assign a 1-4 rating to each factor to indicate whether that factor represents a o Major weakness o Minor weakness o Minor strength o Major strength Multiply each factors weight by its rating to determine a weighted score for each variable. Sum the weighted scores for each variable to determine the total weighted score for the organization. * Total weighted scores of below 2.5 indicate an internal weak organization. IFE matrix: Retail Computer Store

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Key Internal Factors Strengths 1. Inventory turnover increased from 5.8 to 6.7 2. Average customer purchase increased from $97 to $128 3. Employee morale is excellent 4. In-store promotions resulted in 20 percent increase in sales 5. Newspaper advertising expenditures increased 10 percent 6. Revenues from repair/service segment of store up 16 percent 7. In-store technical support personnel have MIS college degrees 8. Store's debt-to-total assets ratio declined to 34 percent 9. Revenues per employee up 19 percent Weaknesses 1. Revenues for software segment of store down 12 percent 2. Location of store negatively impacted by new Highway 34 3. Carpet and point in store somewhat in disrepair 4. Bathroom in store needs refurbishing 5. Revenues from businesses down 8 percent 6. Store has no Web site 7. Supplier on-time delivery increased to 2.4 days 8. Often customers have to wait to check out Total

Weight Rating 0.05 0.07 0.10 0.05 0.02 0.15 0.05 0.03 0.02 0.10 0.15 0.02 0.02 0.04 0.05 0.03 0.05 1.00 3 4 3 3 3 3 4 3 3 2 2 1 1 1 2 1 1

Weighted Score 0.15 0.28 0.30 0.15 0.06 0.45 0.20 0.09 0.06 0.20 0.30 0.02 0.02 0.04 0.10 0.03 0.05 2.50

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5. Type of Corporate level (corporate strategies), business level (Business strategies) Corporate level Integration strategies/ Vertical integration strategies Forward integration: Increased control distributors (retailer, wholesaler, agent) o Price o High services (training and motivate) o Promotion Backward integration: Increased control supplier o Quality o On time o Cost Horizontal integration: Increased control competitor o Strength o Weakness Concentration/ intensive strategies Market penetration: Increased market share o Present products/services o Present markets o Greater marketing efforts Market development: new markets o Present products/services to new geographic areas Product development: Increased sales o Improving present products/services o Developing new products/services Diversification strategies Concentric diversification: addition new and related products/services Conglomerate diversification: addition new and unrelated products/services Horizontal diversification: addition new and unrelated products/services for current customers Defensive strategies Retrenchment: cost and asset reduction to reverse declining sales and profit Divestiture: selling a division or part of an organization Liquidation: selling companys assets, in parts, for their tangible worth Business level Cost leadership strategies (low-cost and best-value) High capacity utilization (Labor, Raw material, Machinery) Large volume Backward and forward Differentiation strategies Unique (quality, style, feature, packaging, color, brand name ,size, ) Sale force Buying power (income, asset, credit) Focus strategies (low-cost focus and best-value focus) Joint venture/partnering Mergers and acquisitions 6. Steps and develop SWOT matrix, SPACE matrix, BCG matrix, IE matrix Steps and develop SWOT matrix List the firms key external opportunities List the firms key external threats List the firms key internal strengths List the firms key internal weaknesses Match internal strengths with external opportunities and record the resulting SO strategies in the appropriated cell Strategic Management 7 THUN Kosal

 Match internal weaknesses with external opportunities and record the resulting WO strategies Match internal strengths with external threats and record the resulting ST strategies Match internal weaknesses with external threats and record the resulting WT strategies Strengths S Weaknesses W Leave Blank List Strengths List Weaknesses WO SO Strategies Opportunities O Strategies Overcoming weaknesses by List Opportunities Use strengths to take advantage of taking advantage of opportunities opportunities WT ST Threats T Strategies Strategies List Threats Minimize weaknesses and avoid Use strengths to avoid threats threats Steps and develop SPACE matrix Select a set of variables to define FS, CA, ES, and IS Assign a numerical value: 1) Form +1 to +6 to each FS and IS dimension 2) Form 1 to 6 to each ES and CA dimension Compute an average score for each FS, CA, ES, and IS Plot the average score on the appropriate axis Add the two scores on the x-axis and plot the point. Add the two scores on the y-axis and plot the point. Plot intersection of the new xy point Draw a directional vector from the origin through the new intersection point Internal strategic position External Strategic Position Competitive Advantage (CA) Industry Strength (IS) + Market share Growth potential Product quality Profit potential Product life cycle Financial stability Customer loyalty Technological know-how Competitions capacity utilization Resource utilization Technological know-how Ease of entry into market Control over suppliers & distributors Productivity, capacity utilization Environmental Stability (ES) Financial Strength (FS) + Technological changes Return on investment Rate of inflation Leverage Demand variability Liquidity Price range of completing products Working capital Barriers to entry Cash flow Competitive pressure Inventory turnover Price elasticity of demand Earnings per share Ease of exit from market Price earnings ratio Risk involved in business

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Construct SPACE matrix Liquidity = +5 Growth potential = +5 Technological know-how = +6 Cash flow = +6 Barrier to entry = 3 Market share = 3 Financial stability = +4

Product quality = 2 Rate of inflation = 3 Price elasticity of demand = 4 Return on investment = +4 Technological know-how = 2 Customer loyalty = 3

FS: Return on Investment = +4, Liquidity = +5, Cash flow = +6, FS

456 5 3

CA: Market share = 3, Product quality = 2, Customer loyalty = 3, Technological know-how = 2

CA ES

3 2 3 2 2.5 4 3 4 3 3.33 3

ES: Rate of inflation = 3, Price elasticity of demand = 4, Barrier to entry = 3

IS: Growth potential = +5, Technological know-how = +6, Financial stability = +4 IS Y = FS + ES = +5 + (3) = + 2 X = IS + CA = +5 + (2.5) = +2.5

56 4 5 3

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 Develop BCG matrix

BCG Matrix:

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Product Sales Profit Relative market share Industry growth rate IFE weighted scores EFE weighted score

A $600,000 $10,000 0.45 +10 2.5 3.5

B $40,000 $5,000 0.15 0 2.00 1.5 $30,000 $2,000 0.70 12 2.8 3.5

D $20,000 $8,000 0.50 +5 3.5 3.00

High +20 Industry growth Rate

High 1.0 Stars II C

Relative market share Medium 0.5 Question Marks A D I Dogs IV B

Low

0.0

Medium

0 Cash Cows III

Low IE matrix

20

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7. Change strategies, restructuring and reengineering Change strategies: Force change strategy Educative change strategy Rational of Self-Interest Change Restructuring Reducing the size of the firm, number of employees, divisions, and/or units, number of hierarchical levels Downsizing Rightsizing Delayering Reengineering Reconfiguring or redesigning work, job, and process to improve cost quality, service and speed Process management Process innovation Process redesign 8. Marketing issues (market segmentation and product positioning) Market segmentation o Geographic o Demographic Age Family size Family life cycle Income /occupation Education Religion Race/nationality o Psychographic Social class Lifestyle Personality o Behavioral Use occasion Benefits sought User status Usage rate Loyalty status Readiness stage Attitude toward product Product positioning o Customer wants o Customer needs

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