Lecture PPT 11

Strategic Management
BY:
 Girma Tegene (Associate Prof)
1
PART ONE: OVERVIEW OF STRATEGIC MANAGEMENT
Chapter One: The Nature of Strategic Management
1.1 Defining strategic management

1.2 Stages of strategic management
1.3 Key terms in strategic management
1.4 The strategic management model
1.5 Benefits of strategic management
2
Chapter Two: Strategies in Action
2.1 Types of strategies

2.2 Guidelines for pursuing strategies
2.3 Michael Porter’s generic strategies
3
PART TWO: STRATEGY FORMULATION
Chapter Three: The Business Mission and Vision
3.1 The importance of a clear mission

3.2 The nature of business mission
3.3 Components of a mission statement
4
Chapter Four: Environmental Analysis
4.1 The nature of external audit

4.2 Sources of external information
4.3 Forecasting tools and techniques
4.4 Competitive analysis: Porter’s five forces model
5
Chapter Five: The Internal Assessment
5.1 The nature of an internal audit

5.2 Relationship among the functional areas
of business
6
Chapter Six: Strategy Analysis and Choice/Strategy Formulation assessment
6.1 The nature of strategy analysis and choice

6.2 Long term objectives
6.3 A comprehensive strategy formulation
6.4 The decision stage
6.5 BSC model
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PART THREE: STRATEGY IMPLIMENTATION
Chapter Seven: Implementing Strategies Management Issues
7.1 The nature of strategy implementation

7.2 Key concepts in strategy implementation
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PART FOUR: STRATEGY EVALUATION
Chapter Eight: Strategy Review, Evaluation and Control
8.1 The nature of strategy evaluation

8.2 A strategy evaluation framework
8.3 Published sources of strategy evaluation information
8.4 Characteristics of An effective evaluation system
8.5 The contingency plans
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PART ONE: OVERVIEW OF STRATEGIC MANAGEMENT
Chapter One: The Nature of Strategic Management
1.1 Defining strategic management

1.2 Stages of strategic management
1.3 Key terms in strategic management
1.4 The strategic management model
1.5 Benefits of strategic management
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Strategic Management Defined (Cont’d)
SM can better defined as a process that encompasses the

following main activities:
- Strategy formulation(SF) i.e. developing vision, mission
,long term objectives and specific strategies
- Strategy implementation (SI)
- Strategy evaluation(SE)
N.B. Information is a blood in SF decision making
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Stages of SM/Strategic-Management Process:
Three Stages
Strategy Formulation
Strategy Implementation
Strategy Evaluation
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Strategy Formulation
Vision & Mission
Opportunities & Threats
Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
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Strategy Implementation
Annual Objectives
Policies
Motivate Employees
Resource Allocation
14
Strategy Evaluation
Review
External & Internal
Measure Performance
Corrective Action
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Key Strategic Management Terms
1. Strategists
2. Vision statements
3. Mission statements
4. External opportunities and threats
5. Internal strengths and weaknesses
6. Long-term objectives
7. Strategies
8. Annual objectives
9. Policies
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Strategic Management Terms (Cont’d)
Strategists
• Usually found in high levels of management (CEO)
Help organization gather, analyze, and organize

information
Track industry and competitive trends
Develop forecasting model
Evaluate corporate and divisional performance
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Strategic Management Terms
(Cont’d)
Vision Statements
• Answers the question: “What do we want to become?”
First step in strategic planning
Oftentimes a single sentence
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External Opportunities & Threats

• Largely beyond the control of a single organization
 Economic
 Social
 Cultural
 Demographic
 Environmental
 Political
 Technological
N.B. Organizations strive to pursue strategies that exploit opportunities and
minimize threats
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Internal Strengths & Weaknesses

• Controllable activities that are performed well or poorly relative
to competitors
 Based on functional analysis of activities in the firm’s:
 Management
 Marketing
 Finance/accounting
 Production/operations
 Research and development
 Computer information systems
• Organizations strive to pursue strategies that capitalize on
strengths and improve weaknesses
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Long-Term Objectives
• Results to be achieved in pursuing the organization’s
mission. Time frame is beyond one year.
State direction
Aid in evaluation
Create synergy
Reveal priorities
Provide basis for effective management
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Strategies
• Potential actions that require top management decisions and
large amounts of firm’s resources
Mechanisms by which long-term objectives are realized
 Geographic expansion
 Diversification
 Acquisition
 Product development
 Market penetration
 Retrenchment
 Divestiture
 Liquidation
 Joint venture
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Annual Objectives
• Short-term milestones necessary to achieve
long-term objectives.
Represent the basis for allocating resources
Established at corporate, divisional, and functional

levels
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Strategic Management Terms
(Cont’d)
Policies
• Important in strategy implementation as the means by
which annual objectives will be achieved
 Guide to decision making and address repetitive situations

 Allow consistency & coordination within and between
organizational departments
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Comprehensive Strategic Management Model
External
Audit
Long-Term Generate, Implement Implement Measure &

Objectives Evaluate, Strategies: Strategies: Evaluate
Vision Select Mgmt Issues Marketing, Performance
& Strategies Fin/Acct,
Mission R&D, CIS
Statements
Internal
Audit
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Benefits of Strategic Management
• Proactive
 Initiate and influence activities
 Helps shape firm’s own future
• Principal Benefit
 Formulate better strategies
 Systematic, logical, and rational approach
• Communication
 Key to successful strategic management
• Financial Benefits
 More profitable and successful
 Improvements in sales, profitability, and productivity
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Benefits of Strategic Management
(Cont’d)
• Nonfinancial Benefits
Enhanced awareness of external threats
Understanding of competitors’ strategies
Increased employee productivity
Reduced resistance to change
Clear performance-reward relationships
Order and discipline to the firm
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Chapter Two: Strategies in Action
2.1 Types of strategies

2.2 Michael Porter’s generic strategies
2.3 Guidelines for pursuing strategic
management
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Types of Strategies
Forward
Integration
Vertical Backward
Integration Integration
Strategies
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Vertical Integration Strategies
Gaining ownership or increased
Forward
control over distributors or
Integration retailers(EX. franchising)
Backward Seeking ownership or increased

Integration control of a firm’s suppliers
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Horizontal Integration Strategy
Gaining ownership or increased
Horizontal control over competitors through
Integration merger or acquisition . It is taken as
growth strategy
N.B. firm capacity as compared to

competitors and government
monopoly rules are vital to pursue
the above strategy.
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Types of Strategies
Market
Penetration
Intensive Market
Strategies Development
Product
Development
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Intensive Strategies
Seeking increased market share for
Market present products or services in
Penetration present markets through greater
marketing efforts
Market Introducing present products or

Development services into new geographic areas
Seeking increased sales by

Product
improving present products or
Development services or developing new ones
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Types of Strategies
Related
Diversification
Diversification
Strategies
Unrelated
Diversification
34
Diversification Strategies
Related Adding new but related products or

Diversification services
Unrelated
Adding new, unrelated products or
Diversification services
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Types of Strategies
Retrenchment
Defensive Divestiture
Strategies
Liquidation
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Guidelines for pursuing strategic
management
1. It should be a people process more than a paper process.

2. It should be a learning process for all managers and employees.
3. It should challenge the assumptions underlying the current corporate
strategy.
4. It should welcome bad news.
5. It should welcome open-mindness and a spirit of inquiry and learning.
6. It should not be a bureaucratic mechanism.
7. It should not disregard qualitative information.
8. Do not pursue too many strategies at once.
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Levels of Strategies –
Large Company
38
Levels of Strategies –
Small Company
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PART TWO: STRATEGY FORMULATION
Chapter Three: The Business Mission and Vision
3.1 What Is Vision Statement? What Is Mission

Statement?
3.2 The importance of a clear mission
3.3 The nature of business mission
3.4 Components of a mission statement
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Vision Statement
Vision statement answers the question:

“What do we want to become?”
• Vision statement developed first
• Short – preferably one sentence
• Broad management involvement
Vision Statement Examples
Our vision is to be the world’s best quick service
restaurant. (McDonald’s)
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Mission
Mission statement answers the question:

“What is our business?”
• Reveals:
– what the organization doing
whom we want to serve
Mission Statements
– Essential for effectively establishing objectives
and formulating strategies.
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Importance of Mission
Benefits from a strong mission
Resource Allocation
Mission
Organizational Climate
Focal point for work

structure
Ch. 2-43
Components of mission statement
• Clear mission is needed before alternative

strategies can be formulated and
implemented
• Important to have as broad range of
participation as possible among managers
in developing the mission
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Products
Services Markets
Customers
Technology
9 Components
Employees Of Mission
Statement
Survival
Growth
Profit
Public
Image
Self-Concept Philosophy
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Components of Mission (Cont’d)
• Components of mission and corresponding
questions to be answered:
1. Customers:
 “Who are the firm’s customers?”
2. Products or services:
 “What are the firm's major products or services?”
3. Markets:
 “Geographically, where does the firm compete?”
4. Technology:
 “Is the firm technologically current?”
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5. Concern for survival, growth, and profitability:
 “Is the firm committed to growth and financial soundness?”
6. Philosophy:
 “What are the basic beliefs, values, aspirations, and ethical
priorities of the firm?”
7. Self-concept:
 “What is the firm’s distinctive competence or major competitive advantage?”
8. Concern for public image:

 “Is the firm responsive to social, community, and environmental concerns?”
9. Concern for employees:

 “Are employees a valuable asset of the firm?”
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5. Concern for survival, growth, and profitability:
 “Is the firm committed to growth and financial soundness?”
6. Philosophy:
 “What are the basic beliefs, values, aspirations, and ethical
priorities of the firm?”
7. Self-concept:
 “What is the firm’s distinctive competence or major competitive advantage?”
8. Concern for public image:

 “Is the firm responsive to social, community, and environmental concerns?”
9. Concern for employees:

 “Are employees a valuable asset of the firm?”
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Toyota mission statement:
Toyota will lead the way to the future of mobility,
enriching lives around the world(3) with the
safest and most responsible(6) ways of moving
people(1). Through our commitment to quality,
constant innovation(4,7) and respect for the
planet(8), we aim to exceed expectations and be
rewarded with a smile. We will meet challenging
goals (5) by engaging the talent and passion of
people(9), who believe there is always a better
way.(6)
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Chapter Four: Environmental Analysis
4.1 The nature of external audit

4.2 Sources of external information
4.3 Forecasting tools and techniques
4.4 Competitive analysis: Porter’s five forces model
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The Process of Performing an External Audit
1. Gather competitive intelligence and information about

economic, social, cultural, demographic, environmental,
political, governmental, legal, and technological trends
2. Assimilate and evaluate information(A meeting or series
of meetings of managers is needed to collectively identify
the most important opportunities and threats facing the
firm).
3. Resulting in a list of the most important key
external factors
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The Process of Performing an External
Audit(Cont’d)
Freund emphasized that these key external factors should be
1 important to achieving long-term objectives,
2 measurable,
3 applicable to all competing firms, and
4 hierarchical in the sense that some will pertain to the
overall company and others will be more narrowly
focused on functional or divisional areas
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Performing External Audit
Long-term Orientation
Measurable
External
Factors Applicable to
Competing Firms
Hierarchical
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Industrial Organization (I/O) View
Advocators of I/O view promote that

Industry factors are more important
than internal factors
 Performance determined by industry forces
Porter five force model is typical example of
I/O perspective.
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Industrial Organization (I/O) View(Cont’d)
• Firm performance, I/O theorists contend, is primarily

based more on industry properties, such as economies of
scale, barriers to market entry, product differentiation,
the economy, and level of competitiveness than on
internal resources, capabilities, structure, and operations.
• Not withstanding the above it should be noted that
effective integration and understanding of both external
and internal factors is the key to securing and keeping a
competitive advantage.
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I/O Perspective Firm Performance
Industry Properties
Economies of Scale
Barriers to Market Entry
Product Differentiation
The Economy
Level of Competitiveness
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Economic Forces
• GDP
• Trends in the dollar’s value (e.g what is the implication of

rising dollar against Ethiopian birr for those operate in
tourism?)
• Unemployment rates (e.g. increase in unemployment rate in

us create opportunities for many firms to diversify their
business….how?
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Economic Forces
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Social, Cultural, Demographic, and
Natural Environmental Forces
– Household pattern
– Religion and tradition( e.g. MACDONALD IN ETHIOPIA)
– Population pattern( e.g. aging society)
– Norm on gender (e.g affect promotion)
– Language (e.g affect promotion)
• The above forces have Impact on firms decision on –
• Products
• Services
• Markets
• Customers
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Political, Governmental, and
Legal Forces
Government Regulation
Key opportunities & threats

 Antitrust legislation
 Tax rates
 Patent laws
 Protectionist policies
 Governments taking equity stakes in
companies( e,g. bailout in US)
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Technological Forces
Essential for nearly every strategic

decision
- No company or industry today is insulated against
emerging technological developments. E.g online banking, E-
books, wi-fi in airlines and etc….
- In high-tech industries, identification and evaluation of key

technological opportunities and threats can be the most
important part of the external strategic-management audit.
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Competitive Forces
Competition in virtually all industries can be described as intense and
definitely impose influences on firms strategic management endeavor.
Hence, there is a need for competitive force analysis which basically mean
that Identify Rival Firms’(i.e. firms with similar market focus and internal
resource capacity)
•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
The above notwithstanding, competitive forces analysis should aims at
understanding of the nature of competition within the given industry.
Thus, apart from competitors, the influence of other actors i.e. suppliers,
customers , distributers and so on must be analyzed( see porter model).
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Competitive Intelligence
• A systematic and ethical process for
gathering and analyzing information about
the competition’s activities and general
business trends to further a business’s own
goals.
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Objectives of Competitive Intelligence
• Provide a general understanding of industry

and competitors
• Identify areas where competitors are
vulnerable and assess impact of actions on
competitors
• Identify potential moves that a competitor
might make
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Sources of Competitive Intelligence
• Internet • Consultants
• Employees • Trade journals
• Managers • Newspaper articles
• Suppliers • Government filings
• Competitors
• Distributors
• Unethical tactics such as
• Customers bribery, and computer break-
should never be used to obtain
• Creditors information.
68
Competitive Analysis: Porter’s Five-Forces Model
• Porter’s Five-Forces Model of competitive analysis is a

widely used approach for developing strategies in many
industries
• The intensity of competition among firms varies widely
across industries. Intensity of competition is highest in
lower investment return industries(period).
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Porter’s Five-Forces Model of Competition
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The Five-Forces Model
• Rivalry among competing firms

– Most powerful of the five forces
– Focus on competitive advantage of strategies over
other firms
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Conditions that Cause High Rivalry Among
Competing Firms
• High number of competing firms

• Similar size of firms competing
• Similar capability of firms competing
• Falling demand for the industry’s products
• Falling product/service prices in the industry
• Consumers can switch brands easily e.g mobile industry
• Barriers to entering the market are low
• Fixed costs are high among firms competing e.g beer, cement
• The product is perishable
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Sources of External Information: Unpublished
Sources
• Customer surveys
• Market research
• Speeches at professional or shareholder meetings
• Television programs
• Interviews and conversations with stakeholders
73
Sources of External Information: Published Sources
• Periodicals
• Journals
• Reports
• Government documents
• Abstracts
• Books
• Directories
• Newspapers
• Manuals
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Forecasting techniques
• Forecasts are educated assumptions about

future trends and events
– Quantitative techniques – most
appropriate when historical data is
available and there is a constant
relationship
– Qualitative techniques
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Industry Analysis: The External Factor Evaluation
(EFE) Matrix
• An External Factor Evaluation (EFE) Matrix

allows strategists to summarize and
evaluate economic, social, cultural,
demographic, environmental, political,
governmental, legal, technological, and
competitive information.
• The EFE Matrix can be developed in five
steps:
76
EFE Matrix Steps
1. List key external factors (15 to 20 OT factors)

2. Weight from 0 to 1: Assign to each factor a weight that ranges from
0.0 (not important) to 1.0 (very important).
3. Rate effectiveness of current strategies: Assign a rating between 1
and 4 to each key external factor to indicate how effectively the
firm’s current strategies respond to the factor, where 4 = the
response is superior, 3 = the response is above average, 2 = the
response is average, and 1 = the response is poor.
4. Multiply weight * rating i.e Multiply each factor’s weight by its
rating to determine a weighted score
5. Sum weighted scores i.e. Sum the weighted scores for each variable
to determine the total weighted score for the organization.
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EFE Matrix Steps
N.B. Regardless of the number of key opportunities and threats included

in an EFE Matrix, the highest possible total weighted score for an
organization is 4.0 and the lowest possible total weighted score is 1.0.
• The average total weighted score is 2.5.
• A total weighted score of 4.0 indicates that an organization is
responding in an outstanding way to existing opportunities and
threats in its industry. In other words, the firm’s strategies effectively
take advantage of existing opportunities and minimize the potential
adverse effects of external threats.
• A total score of 1.0 indicates that the firm’s strategies are not
capitalizing on opportunities or avoiding external threats.
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79
Industry Analysis: Competitive Profile Matrix
(CPM)
 Identifies firm’s major competitors and their strengths & weaknesses
in relation to a sample firm’s strategic positions
 The weights and total weighted scores in both a CPM and an EFE
have the same meaning. However, critical success factors in a CPM
include both internal and external issues; therefore, the ratings refer
to strengths and weaknesses, where 4 = major strength, 3 = minor
strength, 2 = minor weakness, and 1 = major weakness.
 The critical success factors in a CPM are not grouped into
opportunities and threats as they are in an EFE.
 In a CPM, the ratings and total weighted scores for rival firms can be
compared to the sample firm.
 This comparative analysis provides important internal strategic
information.
80
81
Industry Analysis: Competitive Profile Matrix
(CPM)
 A word on interpretation: Just because one firm

receives a 3.2 rating and another receives a 2.80 rating
in a Competitive Profile Matrix, it does not follow that
the first firm is 10 percent better than the second.
 Numbers reveal the relative strengths of firms, but their
implied precision is an illusion. Numbers are not magic.
 The aim is not to arrive at a single number, but rather to
assimilate and evaluate information in a meaningful
way that aids in decision making.
82
Chapter Five: The Internal Assessment
5.1 The nature of an internal audit

5.2 Relationship among the functional areas
of business
83
Nature of an Internal Audit
All organizations have Strengths and Weaknesses that should

be analyzed while developing strategy.
Basis for objectives & strategies:
– Internal strengths/weaknesses
– External opportunities/threats
– Clear statement of mission
Hence internal audit should be at stake.
84
Nature of an Internal Audit
• Internal audit is all about Identify strengths and

weaknesses in
– Management
– Marketing
– Finance and accounting
– Production and operations
– Research and development
– Management information systems
85
Key Internal Forces
Distinctive Competencies
• A firm’s strengths that cannot be easily matched or
imitated by competitors
• Building competitive advantage involves taking
advantage of distinctive competencies
• Strategies designed in part to improve on a firm’s
weaknesses and turn to strengths
• The Process of Gaining Competitive Advantage that can
be used by Firms
Weaknesses ⇒ Strengths ⇒ Distinctive Competencies ⇒
Competitive Advantage
86
Internal Audit Process
• Parallels process of external audit

• Gather & assimilate information from:
• Management
• Marketing
• Finance/accounting
• Production/operations
• Research & development
• Management information systems
87
Internal Audit Process(Cont’d)
 Managers and employees from all areas

provide information
 A team of managers then selects 10 to 15
key organizational strengths and
weaknesses to focus on
88
Relationship among the functional areas of business
- A key to organizational success is effective coordination

and understanding among managers from all functional
business areas.
- Through involvement in performing an internal strategic-
management audit, managers from different departments
and divisions of the firm come to understand the nature
and effect of decisions in other functional business areas
in their firm.
- Knowledge of these relationships is critical for effectively
establishing objectives and strategies..
89
Relationship among the functional areas of
business(Cont’d)
Functional relationships:
– Number and complexity increases relative to
organization size
Financial Ratio Analysis:
– Exemplifies complexity of relationships among
functional areas of the business
90
Relationship among the functional areas of business
(Cont’d)
• A declining return on investment or profit margin ratio

could be the result of ineffective marketing, poor
management policies, research and development errors,
or a weak management information system.
• The effectiveness of strategy formulation,
implementation, and evaluation activities hinges upon a
clear understanding of how major business functions
affect one another.
• For strategies to succeed, a coordinated effort among all
the functional areas of business is needed
91
Integrating Strategy & Culture (Cont’d)
• Remarkably resistant to change, culture can

represent a major strength or weakness for the
firm. It can be an underlying reason for strengths
or weaknesses in any of the major business
functions.
92
Integrating Strategy & Culture (Cont’d)
Culture can inhibit strategic management:

– Miss changes in external environment because they are blinded by
strongly held beliefs
– When a culture has been effective in the past, natural tendency to

stick with it in future, even during times of major strategic change
In other words, A firm’s culture can become antagonistic to new strategies, with
the result being confusion and disorientation
Hence, Organizational culture significantly affects business decisions and thus
must be evaluated during an internal strategic-management audit.
Example: ROPM and employee culture, serving public with official time and time
orientation culture i.e. early leaving and let arriving
93
94
Internal auditing of Functional areas
• It is recalled that internal audit is all about gathering &

assimilating of information from:
• Management
• Marketing
• Finance/accounting
• Production/operations
• Research & development
• Management information systems
95
Management function: Management Audit Checklist
(management functions: PODSC)
• Does the firm use strategic-management

concepts?
• Are company objectives and goals
measurable and well communicated?
• Do managers at all hierarchical levels plan
effectively?
• Do managers delegate authority well?
• Is the organization’s structure appropriate?
96
Management Audit
Checklist(Cont’d)
• Are job descriptions and job specifications
clear?
• Is employee morale high?
• Are employee turnover and absenteeism
low?
• Are organizational reward and control
mechanisms effective?
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Marketing
Process of defining, anticipating, creating, and

fulfilling customers’ needs and wants for
products and services
98
Marketing functions
1. Customer analysis
2. Selling products/services
3. Product and service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
99
Marketing
Customer surveys
Consumer information
Customer analysis is Market positioning

the examination and strategies
evaluation of consumer
needs, desires, and
wants—involves Customer profiles
Market segmentation
strategies
100
Marketing
Advertising
Sales
Promotion
Selling
Products/services(vi
tal for MKT Publicity
penetration)
Sales force management
Customer relations
Dealer relations
101
Marketing
Test marketing
Brand positioning
Devising warrantees
Product/service Packaging
planning(vital
forPD/DIV) Product features/options
Product style
Quality
102
Marketing
Forward integration
Discounts
Credit terms
Pricing (vital to Condition of sale

MKPENTRATIO
N via price) Markups
Costs
Unit pricing
103
Marketing
Warehousing
Channels
Distribution(vital Coverage
for FINT and Retail site locations
mktdev)
Sales territories
Inventory levels
Transportation
104
Marketing
Data collection
Data input and
Data analysis(about
problems related with
Marketing research
marketing of goods
and services)
Support all business

functions
105
Marketing
Assessing costs
Assessing benefits
Assessing risks(about
marketing decisions
Opportunity/cost- or particular
benefit/ opportunity)
Analysis
In fact it involves three
steps, cost estimate,
benefit estimate and
compare and decide.
106
Marketing Audit
• Are markets segmented effectively?

• Is the organization positioned well among
competitors?
• Has the firm’s market share been increasing?
• Are present channels of distribution reliable and
cost effective?
• Does the firm have an effective sales force?
107
Marketing Audit (Cont’d)
• Does the firm conduct market research?
• Are product quality and customer service
good?
• Are the firm's products/services priced
appropriately?
• Does the firm have an effective promotion,
advertising, and publicity strategy?
108
Marketing Audit(Cont’d)
• Are marketing planning and budgeting

effective?
• Do the firm’s marketing mangers have
adequate experience and training
109
Finance/Accounting
• Financial condition is often considered the single best measure of a
firm’s competitive position.
• Determining an organization’s financial strengths and weaknesses is
essential to effectively formulating strategies.
- the functions of finance/accounting comprise three decisions: :
• Investment decision (Capital budgeting)
• Financing decision
• Dividend decision
- The investment decision, also called capital budgeting, is the allocation
and reallocation of capital and resources to projects, products, assets,
and divisions of an organization.
• Once strategies are formulated, capital budgeting decisions are
required to successfully implement strategies.
110
Finance/Accounting
- The financing decision determines the best capital structure for the firm
and includes examining various methods by which the firm can raise
capital (for example, by issuing stock, increasing debt, selling assets, or
using a combination of these approaches).
- One of the most key financial ratios that indicate whether a firm’s
financing decisions have been effective is the debt-to-total-assets
ratio(Total debt/Total assets- it measure the percentage of total funds
that are provided by creditors.
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Finance/Accounting
- 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.
• Dividend decisions determine the amount of funds that are retained in a firm
compared to the amount paid out to stockholders.
• Three financial ratios that are helpful in evaluating a firm’s dividend decisions
are the earnings-per-share ratio (Net income/Number of shares of common
stock – it measures Earnings available to the owners of common stock, the
dividends-per-share ratio (Annual percentage growth in dividends per share),
and the price-earnings ratio (Market price per share/Earnings per share- it
measure Attractiveness of firm on equity markets.
• The benefits of paying dividends to investors must be balanced against the
benefits of internally retaining funds, and there is no set formula on how to
balance this trade-off.
Why dividends are sometimes paid out even when funds could be better reinvested
in the business?
112
Finance/Accounting
-N.B. Financial ratio analysis is the most widely used method for
determining an organization’s strengths and weaknesses in the
investment, financing, and dividend areas.
• Financial ratios are computed from an organization’s income statement
and balance sheet.
• Computing financial ratios is like taking a picture because the results
reflect a situation at just one point in time. Comparing ratios over time
and to industry averages is more likely to result in meaningful statistics
that can be used to identify and evaluate strengths and weaknesses.
• Key financial ratios can be classified into the following five types:
Liquidity ratios, Leverage ratios, Activity ratios, Profitability ratios and
Growth ratios
113
Basic Financial Ratios
Firm’s ability to meet its short-

term obligations
Ratios
Liquidity ratios Current ratio
Quick
(or acid-test)
ratio
114
• Extent of debt financing or measure
the extent to which a firm has been
financed by debt
Ratios
Debt-to-total-assets
Leverage ratios Debt-to-equity
Long-term debt-to-equity
Times-interest
earned(coverage ratio)
115
• Effective use of firm’s resources or
measure how effectively a firm is
using its resources.
Ratios
Inventory-turnover
Fixed assets turnover

Activity ratios
Total assets turnover
Accounts receivable turnover
Average collection period
116
• Effectiveness shown by returns on
sales and investment
Ratios
Gross profit margin
Operating profit margin
Profitability ratios Net profit margin
Return on total assets (ROA)

Return on stockholders’ equity
(ROE)
Earnings per share (EPS)
Price-earnings ratio
117
• Effectiveness shown by returns on
sales and investment
Ratios
Return on stockholders’ equity

(ROE)
Profitability ratios
Earnings per share
(continued)
Price-earnings ratio
118
Firm’s ability to maintain economic
position in the growth of the economy and
industry.
Ratios
Sales
Net income
Growth ratios
Earnings per share
Dividends per share
119
Finance/Accounting
Audit(Cont’d)
• For details on each ratio calculation and

interpretation, refer page 110-111 of your text
book.
120
Finance/Accounting
Audit(Cont’d)
• Where is the firm strong and weak as indicated by

financial ratio analysis?
• Can the firm raise needed long-term capital
through debt and/or equity? e.g. debt to asset
ratio
• Does the firm have sufficient working capital?
• Are capital budgeting procedures effective?
121
Finance/Accounting Audit
(Cont’d)
• Are dividend payout policies reasonable?

• Does the firm have good relations with its
investors and stockholders?
• Are the firm’s financial managers experienced and
well trained?
122
Production/Operations
The production/operations function of a business consists of all those

activities that transform inputs into goods and services.
This function comprises five functions or decision areas:
• Process
• Capacity
• Inventory
• Workforce
• Quality
123
Design of facility
Choice of technology
Facility layout
Process:
Process flow analysis
decisions
include
Facility location
Line balancing
Process control
124
Forecasting
Facilities planning
Aggregate planning
Capacity :
decisions
Scheduling
include
Capacity planning
Queuing analysis
125
managing Raw material
Inventory : managing Work in

decisions process
include
Finished goods
Materials handling
126
Job design
Workforce :
decisions Work measurement
include
managing Job enrichment
work force
Work standards
Motivation techniques
127
Quality control
Quality: decisions
are aimed at Sampling
ensuring that
high-quality Testing
goods and
services are Quality assurance
produced by
caring for Cost control
128
Production/Operations Audit
• Are suppliers of raw materials, parts, and

subassemblies reliable and reasonable?
• Are facilities, equipment, machinery, and offices
in good condition?
• Are inventory-control policies and procedures
effective?
129
Production/Operations Audit
(Cont’d)
• Are quality-control policies and procedures
effective?
• Are facilities, resources, and markets strategically
located?
• Does the firm have technological competencies?
130
Research and Development
R&D focus:
• Development of new products before
competition
• Improving product quality
• Improving manufacturing processes to
reduce costs
131
Research and Development (Cont’d)
Financing as many
projects as possible
R&D budgets Use percentage-of-sales

approaches method
used to
determine Budgeting relative to
R&D budget competitors
Deciding how many

successful new
products are needed
132
Research and Development Audit
(Cont’d)
• Does the firm have R&D facilities? Are they
adequate?
• If outside R&D firms are used, are they cost
effective?
• Are the organization’s R&D personnel well
qualified?
• Are R&D resources allocated effectively?
133
Management Information Systems
• Information ties all business functions together and provides the basis
for all managerial decisions.
• It is the cornerstone of all organizations. Information represents a
major source of competitive management advantage or disadvantage.
• Assessing a firm’s internal strengths and weaknesses in information
systems is a critical dimension of performing an internal audit.
• A management information system’s purpose is to improve the
performance of an enterprise by improving the quality of managerial
decisions.
• The heart of an information system is a database containing the kinds of
records and data important to managers.
134
Management Information Systems
• A management information system receives raw material from both
the external and internal evaluation of an organization. It gathers data
about marketing, finance, production, and personnel matters internally,
and social, cultural, demographic, environmental, economic, political,
governmental, legal, technological, and competitive factors externally.
• Data are integrated in ways needed to support managerial decision
making.
• An effective information system is like a library, collecting, categorizing,
and filing data for use by managers throughout the organization.
• Information systems are a major strategic resource, monitoring internal
and external issues and trends, identifying competitive threats, and
assisting in the implementation, evaluation, and control of strategy.
135
Management Information
Systems (Cont’d)
• management Information Systems should be based
on computerized system and preferably with use of
software like CheckMATE strategic planning
(personal computer software performs planning
analyses and generates strategies a firm could
pursue).
136
Systems Audit
• Do the firm has MIS?
• Do all managers in the firm use the information
system to make decisions?
• Is there a chief information officer or director of
information systems position in the firm?
• Are data in the information system updated
regularly?
137
Systems Audit (Cont’d)
• Do managers from all functional areas of
the firm contribute input to the information
system?
• Are there effective passwords for entry into
the firm’s information system?
138
Systems Audit (Cont’d)
• Is the information system user-friendly?
• Do all users of the information system
understand the competitive advantages
that information can provide firms?
• Are computer training workshops provided
for users?
• Is the firm’s system being improved?
139
Internal Analysis (IFE)
Five-Step Process:
1. List key internal factors (10-20)
 Strengths & weaknesses
2. Assign weight to each (0 to 1.0) - 0.0 (not important) to 1.0 (all-

important) to each factor. The weight assigned to a given factor
indicates the relative importance of the factor to being successful in
the firm’s industry.
 Sum of all weights = 1.0
140
Internal Analysis (IFE) (Cont’d)
3. Assign a 1-to-4 rating to each factor to indicate whether that factor

represents a major weakness (rating = 1), a minor weakness (rating = 2),
a minor strength (rating = 3), or a major strength (rating = 4).
Note that strengths must receive a 3 or 4 rating and weaknesses must
receive a 1 or 2 rating. Ratings are thus company-based, whereas the
weights in step 2 are industry-based.
4. Multiply each factor’s weight by its rating
 Produces a weighted score
141
Internal Analysis (IFE) (Cont’d)
5. Sum the weighted scores for each

 Determines the total weighted score for the organization
 Highest possible weighted score for the organization is 4.0; the
lowest, 1.0. Average = 2.5
N.B. Total weighted scores well below 2.5 characterize organizations that
are weak internally, whereas scores significantly above 2.5 indicate a
strong internal position.
N.B. Be as quantitative as possible when stating factors. Use monetary
amounts, percentages, numbers, and ratios to the extent possible.
142
IEF- EXAMPLE
143
Internal Analysis (IFE)
• Overall, this store receives a 2.5 total weighted score, which on a 1-to-4
scale is exactly average/halfway, indicating there is definitely room for
improvement in store operations, strategies, policies, and procedures.
• The IFE Matrix provides important information for strategy formulation.
For example, this retail computer store might want to hire another
checkout person and repair its carpet, paint, and bathroom problems.
• Also, the store may want to increase advertising for its repair/services,
because that is a really important (weight 0.15) factor to being
successful in this business.
144
Chapter Six: Strategy Analysis and Choice/Strategy Formulation assessment
6.1 Long term objectives

6.2The nature of strategy analysis and choice
6.3 A comprehensive strategy formulation
6.4 The decision stage
6.5 BSC model
145
Long Term Objectives
• Long-term objectives represent the results expected from pursuing

certain strategies.
• Strategies represent the actions to be taken to accomplish long-term
objectives.
• The time frame for objectives and strategies should be consistent,
usually from two to five years.
• Objectives are commonly stated in terms such as growth in assets,
growth in sales, profitability, market share, degree and nature of
diversification, degree and nature of vertical integration and earnings
per share
146
Long Term Objectives: Nature
• Quantitative • Challenging
• Time line
• Measurable
• Obtainable
• Realistic
• Congruent: e.g. bdu increases PG
admission rate by 500% within 3
• Understandable years. LTO by each faculty on PG
admission rate should be
congruent with the above
objective. The same is true for
Departments.
147
148
The nature of strategy analysis and choice
strategy analysis and choice:

• focuses on generating and evaluating alternative
strategies, as well as selecting strategies to pursue.
• seek to determine alternative courses of action that could
best enable the firm to achieve its mission and objectives.
N.B. The firm’s present strategies, objectives, and mission,
coupled with the external and internal audit information,
provide a basis for generating and evaluating feasible
alternative strategies.
- Participation in generating alternative strategies should be as broad as possible.
149
The Process of Generating and Selecting Strategies
1. Identifying and evaluating alternative strategies should

begin with involvement of many participants (managers
and employees) who earlier assembled the organizational
vision and mission statements, performed the external
audit, and conducted the internal audit.
2. Participants then crystallize in their own minds particular

strategies that they believe could benefit the firm most
and proposed accordingly.
150
The Process of Generating and Selecting Strategies (Cont’d)
3. Alternative strategies proposed by participants then should be

considered and discussed in a meeting or series of meetings.
Proposed strategies should be listed in writing.
4. The strategies should be ranked in order of attractiveness by all

participants, with 1 = should not be implemented, 2 = possibly
should be implemented, 3 = probably should be implemented, and 4
= definitely should be implemented.
N.B The above process will result in a prioritized list of best strategies
that reflects the collective wisdom of the group.
151
Comprehensive Strategy-Formulation Framework
• Important strategy-formulation techniques can be

integrated into a three-stage decision making framework
as shown in next power point.
N.B. The tools presented in this framework are applicable to

all sizes and types of organizations and can help
strategists identify, evaluate, and select strategies.
152
Comprehensive Strategy-Formulation
Framework (Cont’d)
• Stage 1 - Input Stage
– EFE Matrix
– IFE matrix
– CPM
• Stage 2 - Matching Stage
– SWOT
– SPACE matrix
– BCG matrix
– IE Matrix
– Grand strategy matrix
• Stage 3 - Decision Stage
– QSPM
153
The Strategy-Formulation Analytical
Framework (Cont’d)
• Stage 1 (Input Stage) summarizes the basic input
information needed to formulate strategies.
• Stage 2 (Matching Stage) focuses on generating
feasible alternative strategies by aligning key
external and internal factors.
• Stage 3 (Decision Stage) uses the QSPM to
objectively evaluate feasible alternative strategies
identified in Stage 2.
154
Stage 1: The Input Stage
• Stage 1 of the formulation framework

consists of the EFE Matrix, the IFE Matrix,
and the Competitive Profile Matrix (CPM).
• Called the Input Stage, Stage 1 summarizes
the basic input information needed to
formulate strategies.
155
Stage 1: The input stage (Cont’d)
External Factor Evaluation

Matrix (EFE)
Stage 1: Internal Factor Evaluation

The Input Stage Matrix (IFE)
Competitive Profile Matrix

(CPM)
Ch 5 -156
Stage 2: The Matching Stage
• Stage 2, called the Matching Stage, focuses upon

generating feasible alternative strategies by aligning key
external and internal factors.
• Stage 2 techniques include the Strengths-Weaknesses-

Opportunities-Threats (SWOT) Matrix, the Strategic
Position and Action Evaluation (SPACE) Matrix, the Boston
Consulting Group (BCG) Matrix, the Internal-External (IE)
Matrix, and the Grand Strategy Matrix.
157
Stage 2: The Matching Stage
(Cont’d) SWOT Matrix
SPACE Matrix
Stage 2: BCG Matrix

The Matching Stage
IE Matrix
Grand Strategy Matrix
158
Stage 2: The Matching Stage (Cont’d)
SWOT Matrix:
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is an
important matching tool that helps managers develop four types of
strategies:
 Strengths-Opportunities (SO)
 Weaknesses-Opportunities (WO)
 Strengths-Threats (ST)
 Weaknesses-Threats (WT)
159
• SO strategies use a firm’s internal strengths to take

advantage of external opportunities
• WO strategies improve internal weaknesses by taking
advantage of external opportunities
• ST strategies use a firm’s strengths to avoid or reduce the
impact of external threats
• WT strategies defensive tactics aimed at reducing internal
weakness and avoiding external threats
160
Simple Example of SWOT matrices
for beer company
Strengths (S) Weakness(S)
1.stong financial capacity(excess WC&CB) 1.limitation on production staff skill (40% lack
formal training)
2.strong R&D
2.poor RM inventory management(delay in
3.excess production capacity ordering and receiving RM)
3.long distance B/N factory location and

distributors station)
Opportunities(0) SO- strategies WO- strategies
1.30% increase in annual demand 1.add 2 new brand beer(S2,O1) 1.hiring skilled manpower from two major
competitors (W2,O1)
2.two major competitors retrench 2.raises current product production volume by
50% (S3,01) 2.land purchase to build new factory (w3,04)
3abandonment of acquisition low
3. horizontal facilities acquiring (S1,O2)
4.10%land lease price reduction
Threats(T) ST- strategies WT- strategies
1.RM price raise by20% annually 1.forward integration including licensing(S1,T2) 1. in-house training program/center (w1,T3)
2.current distributors also work for major 2. add 5 new markets(S1,O4)

competitors
2.. backward integration 50%(W23,T1)
3. MKT labor cost for skilled production staff
rises by 30% annually.
4.2 giant MNC enter to market
161
SPACE Matrix:
- The Strategic Position and Action Evaluation (SPACE)
Matrix, another important Stage 2 matching tool.
- Its four-quadrant framework indicates whether aggressive,

conservative, defensive, or competitive strategies are
most appropriate for a given organization.
162
SPACE Matrix:
• Its axes represent two internal dimensions (financial
strength/position [FP] and competitive
advantage/position [CP]) and two external dimensions
(environmental stability/position [Sp] and industry
strength [IP]).
• These four factors are perhaps the most important
determinants of an organization’s overall strategic
position
163
SPACE Matrix:
• Depending upon the type of organization, numerous
variables could make up each of the dimensions
represented on the axes of the SPACE matrix.
• Variables that were included in the firm’s EFE and IFE
matrices should be considered in developing a SPACE
matrix.
164
165
SPACE Matrix: Steps to Developing a SPACE Matrix

1. Select a set of variables to define FP, CP, SP, and IP.
2. Assign a numerical value:
- FROM +1 (worst) to +7 (best) to each of the variables that make up the FP
and IP dimensions.
- FROM -1 (best) to -7 (worst) to each of the variables that make up the SP
and CP dimensions.
3. Compute an average score for FP, CP, IP, and SP by summing the values given
to the variables of each dimension and then by dividing by the number of
variables included in the respective dimension.
166
SPACE Matrix: Steps to Developing a SPACE Matrix

4. Plot the average scores for FP, IP, SP, and CP on the appropriate axis in the
SPACE Matrix
5. Add the two scores on the x-axis and plot the resultant point on X. Add the two
scores on the y-axis and plot the resultant point on Y. Plot the intersection of
the new xy point.
6. Draw a directional vector from the origin of the SPACE Matrix through the new
intersection point. This vector reveals the type of strategies recommended
for the organization: aggressive, competitive, defensive, or conservative.
167
168
When a firm’s directional vector is located in the aggressive quadrant (upper-

right quadrant) of the SPACE Matrix, an organization is in an excellent
position to use its internal strengths to (1) take advantage of external
opportunities, (2) overcome internal weaknesses, and (3) avoid external
threats.
Therefore, market penetration, market development, product development,
backward integration, forward integration, horizontal integration, or
diversification, can be feasible, depending on the specific circumstances that
face the firm.
N,B. For example, instead of saying market penetration is a recommended strategy when
your vector goes in the Conservative quadrant, say that adding new stores is a
recommended strategy( BE SPECIFIC TO AVOI VAGUE).
169
Example of SPACE
170
The Boston Consulting Group(BCG) Matrix:

 The BCG matrix helps multi-divisional firms formulate strategies.
 It graphically portrays differences among divisions in terms of

relative market share position and industry growth rate.
 Relative market share position is defined as the ratio of a

division’s own market share (or revenues) in a particular
industry to the market share (or revenues) held by the largest
rival firm in that industry.
171
The Boston Consulting Group(BCG) Matrix is based on two axis i.e. X

and Y
 Relative market share position is given on the x-axis. The mid-
point on the x-axis usually is set at .50, corresponding to a

division that has half the market share of the leading firm in the
industry.
 The y-axis represents the industry growth rate in sales,
measured in percentage terms. The growth rate percentages on

the y-axis could range from -20 to +20%, with 0.0 being the mid-
point.
172
• An example of a BCG matrix appears in the next Power Point.

• Each circle represents a separate division.
• The size of the circle corresponds to the proportion of corporate

revenue generated by that business unit, and the pie slice indicates
the proportion of corporate profits generated by that division.
• Divisions located in Quadrant I are called “Question Marks;”

Quadrant II, “Stars;” Quadrant III, “Cash Cows;” and Quadrant IV,
“Dogs.”
173
174
PART THREE: STRATEGY IMPLIMENTATION
Chapter Seven: Implementing Strategies : Management Issues
7.1 The nature of strategy implementation

7.2 Key concepts in strategy implementation
175
The nature of strategy implementation
• Successful strategy formulation does not guarantee successful

strategy implementation.
• It is always more difficult to do something (strategy implementation)
than to say you are going to do it (strategy formulation)!
• Although inextricably linked, strategy implementation is
fundamentally different from strategy formulation.
• Strategy formulation and implementation can be contrasted in the
following ways:
176
Strategy Formulation vs.
Implementation
Strategy Formulation (SF) Strategy Implementation
• Positioning forces before (SI)
the action • Managing forces during
• Focus on effectiveness the action
• Primarily intellectual • Focus on efficiency
• Requires good intuitive • Primarily operational
and analytical skills • Requires special
motivation and
leadership skills
• Requires coordination
among a few people • Requires coordination
among many people
177
Nature of Strategy Implementation(Cont’d)
SI problems can arise because of the shift in responsibility,

especially if SF decisions come as a surprise to middle- and
lower-level managers. Therefore, it is essential to involve
divisional and functional managers in SF.
• Shift in responsibility
Divisional or
Strategists Functional
Managers
178
Management Issues Central to Strategy
Implementation
• Establish annual objectives • Match managers to strategy
• Devise policies • Develop a strategy-supportive
• Allocate resources culture
• Alter existing organizational • Adapt production/operations
structure processes
• Restructure & reengineer • Develop an effective human
• Revise reward & incentive resources function
plans • Downsize & furlough as needed
• Minimize resistance to • Link performance & pay to
change strategies
179
Purpose of Annual Objectives
 Basis for resource allocation

 Mechanism for management evaluation
 Major instrument for monitoring progress toward
achieving long-term objectives
 Establish priorities (organizational, divisional, and
departmental)
180
Resource Allocation
Four types of resources

1. Financial resources
2. Physical resources
3. Human resources
4. Technological resources
181
Managing Conflict
Conflict – a disagreement between two or more parties.

Interdependency of objectives and competition for limited resources
can cause conflict.
 Conflict not always “bad”
 Lack of conflict may signal apathy
 Can energize opposing groups to action
 May help managers identify problems
182
MATCHING STRUCTURE WITH STRATEGY
• Changes in strategy often require changes in the way an organization is

structured because: (1) structure largely dictates how objectives and
policies will be established (e.g., objectives and policies established under
a geographic organizational structure are couched in geographic terms)
and (2) structure dictates how resources will be allocated (e.g., if an
organization’s structure is based on customer groups, then resources will
be allocated in that manner).
• Structure should be designed to facilitate the strategic pursuit of a firm

and, therefore, follow strategy.
• When a firm changes its strategy, the existing organizational structure

may become ineffective. For example, new strategies to reduce payroll
costs may require a change in span of control.
183
184
Basic Forms of Structure
 Functional Structure
 Divisional Structure
 Strategic Business Unit Structure
(SBU)
 Matrix Structure
185
Functional Structure
• Groups tasks and activities by business

function (e.g., production, finance,
marketing, R&D, HR, IT, etc.).
186
Functional Structure
187
Divisional Structure
• Can be organized in one of four
ways:
– By geographic area
– By product or service
– By customer
– By process
188
Divisional Structure
189
Strategic Business Unit Structure (SBU)
• Groups similar divisions into

strategic business units and
delegates authority and
responsibility for each unit to a
senior executive who reports
directly to the chief executive
officer.
190
Matrix Structure
• The most complex of all structures

because it depends upon both vertical
and horizontal flows of authority and
communication.
191
Matrix Structure
192
Restructuring
 Restructuring - reducing the size of an organization.

Also called:
 Downsizing
 Rightsizing
 Delayering
-These methods involve, respectively, reducing the
number of employees, number of divisions, and number
of hierarchical levels in a firm’s organizational structure.
- Reducing the size of an organization is intended to
improve its efficiency and effectiveness.
N.B. Defensive strategies call for restructuring,
193
Creating a Strategy-Supportive Culture
prevailing organization culture may be supportive or

resistant to the implementation of the new strategy.
Strategists should strive to preserve, emphasize, and

build upon aspects of an existing culture that support
proposed new strategies.
Aspects of an existing culture that are antagonistic

to a proposed strategy should be identified and
changed..for instance poor time management,
bureaucratic orientation, acceptance and expectation of
command based superior subordinate relationship and
soon
194
Creating a Strategy-Supportive
Culture
195
Human Resource Concerns
Assessing staffing needs and costs.
Selection Methods.
Employee Training.
Motivating Employees – Developing
Performance Incentives; Work-Life Balance
Issues; etc.
Selecting Appropriate Leadership Styles.
196
PART FOUR: STRATEGY EVALUATION
Chapter Eight: Strategy Review, Evaluation and Control
8.1 The nature of strategy evaluation

8.2 A strategy evaluation framework
8.3 Published sources of strategy evaluation information
8.4 Characteristics of An effective evaluation system
8.5 The contingency plans
197
VITALS TO BE KNOWN ABOUT STRATEGY EVALUATION
1. The difference between strategy evaluation and ordinary

organization performance evaluation i.e., semi-annual or
annual evaluation.
2. The three activities in strategy evaluation
3. Strategy evaluation framework
4. Strategy evaluation matrix
5. The need for data base- continuous updating of EFEM and
IFEM.
198
The nature of strategy evaluation
- The best formulated and best implemented

strategies become obsolete as a firm’s external and
internal environments change.
- Therefore, it is essential for strategists to

systematically review, evaluate, and control the
execution of strategies.
Vital points
199
- Strategy Evaluation is vital to an organization’s well being.

- Timely evaluations can alert management to potential or
actual problems before a situation becomes critical.
Strategy Evaluation includes three basic activities:

(1) Examining the underlying bases of a firm’s strategy.
(2) Comparing expected results to actual results.
(3) Taking corrective actions to ensure that performance
conforms to plans.
200
Strategy Evaluation
• Adequate and timely feedback is the cornerstone of
effective Strategy Evaluation.
• Strategy Evaluation is important because
organizations face dynamic environments in which
key external and internal factors can change quickly
and dramatically.
• Strategy Evaluation is essential to ensure that the
stated objectives of an organization are being
achieved.
201
The nature of strategy evaluation: Rumelt’s
4 Criteria for strategy evaluation
Consistency
Rumelt’s Consonance
4 Criteria
Feasibility
Advantage
202
4 Criteria for strategy evaluation(Cont’d)
Consistency
• Strategy should not present inconsistent goals

and policies
203
Consonance
• Need for strategists to examine sets of trends,

as well as individual trends
204
Feasibility
• Neither overtax resources nor create

unsolvable subproblems
205
Advantage
• Creation or maintenance of competitive

advantage
206
The nature of strategy evaluation(Cont’d)
Strategy Evaluation Should –
• Initiate managerial questioning of expectations and

assumptions
• Trigger a review of objectives & values
• Stimulate creativity in generating alternative strategies and
formulating criteria for evaluation
• Be performed on a continuing basis, rather than at the end
of specified periods of time or just after problems occur.
207
A strategy evaluation framework
Strategy evaluation framework

elements–
(1) Examining the underlying bases of a firm’s strategy.

(2) Comparing expected results to actual results.
(3) Taking corrective actions to ensure that performance
conforms to plans.
208
A strategy evaluation framework(Cont’d)
1. Review of Underlying Bases of Strategy
• Develop revised IFE Matrix
• Develop revised EFE Matrix
209
Monitor Strengths & Weaknesses;

• Are our strengths still strengths?

• Has our organization added additional strengths?
• Are our weaknesses still weaknesses?
• Has our organization developed other weaknesses?
210
Monitor Strengths & Weaknesses;
• Are our opportunities still opportunities?
• Have other opportunities developed?
• Are our threats still threats?
• Have other threats emerged?
211
• Table 9-3 summarizes strategy evaluation activities in
terms of key questions that should be addressed,
alternative answers to those questions, and
appropriate actions for managers to take.
• Note that corrective actions are needed except when
(1) external and internal factors have not changed
significantly and (2) the firm is making satisfactory
progress toward achieving its objectives.
• Relationships among strategy evaluation activities
are illustrated in Figure 9-2.
212
213
214
2. Measuring Organizational Performance
• Compare expected to actual results

• Investigate deviations from plan
• Evaluate individual performance
• Examine progress toward stated objectives
215
Quantitative Criteria for Strategy Evaluation
Strategists use financial ratios to:

– Compare a firm’s performance over different time periods
– Compare a firm’s performance to competitors’ performance
– Compare a firm’s performance to industry averages
216
Some key financial ratios that are useful for evaluating strategies
are:
• Return on • Debt to equity

investment (ROI) • Earnings per share
• Return on equity (EPS)
(ROE) • Sales growth
• Profit margin • Asset growth
• Market share
217
A strategy evaluation framework (Cont’d)
3. Taking Corrective Action

• Taking corrective action is the final strategy evaluation activity.
• It requires making changes to competitively reposition a firm for the

future. Examples of changes that may be needed are altering an
organization’s structure, replacing one or more key employees, selling a
division, devising new policies, issuing stock to raise capital, allocating
resources differently, or revising the firm’s mission.
• Taking corrective action is necessary to keep an organization on track

toward achieving its objectives.
218
BSC AS Strategy Evaluation tool
The Balanced Scorecard is a strategy evaluation tool. It
uses both quantitative and qualitative measures to
evaluate strategies.
A Balanced Scorecard analysis requires firms to answer
these questions:
1. How well is the firm continually improving and creating
value along measures such as innovation, technological
leadership, product quality, operational process efficiencies,
etc.?
2. How well is the firm sustaining or improving upon its core
competencies and competitive advantages?
3. How satisfied are the firm’s customers?
219
The Balanced Scorecard
• An example of a Balanced Scorecard appears in

Table 9-6. Note that in this example the firm
examines six key issues in evaluating its strategies:
(1) customers, (2) managers/employees, (3)
operations/processes, (4) community/social
responsibility, (5) business ethics/natural
environment, and (6) financial.
• The basic form of a Balanced Scorecard may differ
for different organizations.
220
Table 9-6
221
Published sources of strategy evaluation
information
• A number of publications are helpful in evaluating a firm’s strategies.
• For example, Fortune annually identifies and evaluates the Fortune

1,000 (the largest manufacturers) and the Fortune 50 (the largest
retailers, transportation companies, utilities, banks, insurance
companies, and diversified financial corporations in the United
States).
• Fortune ranks the best and worst performers on various factors, such
as return on investment, sales volume, and profitability.
• FORBES can be another example.
222
Characteristics of An effective evaluation system
Strategy evaluation must meet several basic requirements to be

effective:
1. strategy evaluation activities must be economical; too much
information can be just as bad as too little information; and too many
controls can do more harm than good.
2. Strategy-evaluation activities also should be meaningful; they should
specifically relate to a firm’s objectives. They should provide
managers with useful information about tasks over which they have
control and influence.
3. Strategy-evaluation activities should provide timely information
223
Characteristics of An effective evaluation
system(Cont’d)
4. Strategy evaluation should be designed to provide a true picture of

what is happening.
5. Controls need to be action-oriented rather than information-
oriented.
6. Strategy evaluations should be simple, not too cumbersome, and not
too restrictive. Complex strategy-evaluation systems often confuse
people and accomplish little. The test of an effective evaluation
system is its usefulness, not its complexity.
224
Contingency plans
• Regardless of how carefully strategies are formulated, implemented, and

evaluated, unforeseen events, such as strikes, boycotts, natural disasters,
arrival of foreign competitors, and government actions, can make a strategy
obsolete.
• To minimize the impact of potential threats, organizations should develop
contingency plans as part of their strategy-evaluation process.
• Contingency plans can be defined as alternative plans that can be put into
effect if certain key events do not occur as expected.
• Only high-priority areas require the insurance of contingency plans.
Strategists cannot and should not try to cover all bases by planning for all
possible contingencies.
225
Contingency plans (Cont’d)
• Some contingency plans commonly established by firms include the following:

1. If a major competitor withdraws from particular markets as intelligence reports indicate,
what actions should our firm take?
2. If our sales objectives are not reached, what actions should our firm take to avoid profit
losses?
3. If demand for our new product exceeds plans, what actions should our firm take to meet
the higher demand?
4. If certain disasters occur—such as loss of computer capabilities; a hostile takeover
attempt; loss of patent protection; or destruction of manufacturing facilities because of
earthquakes, tornadoes or hurricanes—what actions should our firm take?
5. If a new technological advancement makes our new product obsolete sooner than
expected, what actions should our firm take?
226
End of the course

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Strategic Management

1.1 Defining strategic management

2.1 Types of strategies

3.1 The importance of a clear mission

4.1 The nature of external audit

5.1 The nature of an internal audit

6.1 The nature of strategy analysis and choice

7.1 The nature of strategy implementation

8.1 The nature of strategy evaluation

1.1 Defining strategic management

SM can better defined as a process that encompasses the

Vision & Mission

Opportunities & Threats

Strengths & Weaknesses

Help organization gather, analyze, and organize

Track industry and competitive trends

Develop forecasting model

Evaluate corporate and divisional performance

First step in strategic planning

Oftentimes a single sentence

External Opportunities & Threats

Internal Strengths & Weaknesses

Represent the basis for allocating resources

Established at corporate, divisional, and functional

 Guide to decision making and address repetitive situations

Long-Term Generate, Implement Implement Measure &

 Improvements in sales, profitability, and productivity

2.1 Types of strategies

Backward Seeking ownership or increased

N.B. firm capacity as compared to

Market Introducing present products or

Seeking increased sales by

Related Adding new but related products or

1. It should be a people process more than a paper process.

3.1 What Is Vision Statement? What Is Mission

Vision statement answers the question:

Mission statement answers the question:

Benefits from a strong mission

Focal point for work

• Clear mission is needed before alternative

8. Concern for public image:

9. Concern for employees:

8. Concern for public image:

9. Concern for employees:

4.1 The nature of external audit

1. Gather competitive intelligence and information about

Advocators of I/O view promote that

• Firm performance, I/O theorists contend, is primarily

Barriers to Market Entry

• Trends in the dollar’s value (e.g what is the implication of

• Unemployment rates (e.g. increase in unemployment rate in

Key opportunities & threats

 Governments taking equity stakes in

companies( e,g. bailout in US)

Essential for nearly every strategic

- In high-tech industries, identification and evaluation of key

• Provide a general understanding of industry

• Porter’s Five-Forces Model of competitive analysis is a

• Rivalry among competing firms

• High number of competing firms