STRATEGY MANAGEMENT

Credit Hours:

By Dereje Muleta (PhD candidate )

Department of Management
Salale University, Fiche, Ethiopia
Email; [email protected]

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 Course Description &Course objectives:

 This strategy course addresses how to assess the performance of a

business, what determines performance, how to conduct a
strategic audit and how to develop a specific course of action to
deal with strategic issues.

Course objectives: After completion of this course, the students

will be able to:

- Discuss the major components of corporate/business strategy;

- Describe the formulation & implementation process of strategy;
-Identify the major environmental forces.

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 Course Contents
 Chapter-1: Nature of strategic management
 Chapter-2: Corporate governance and social
responsibility
 Chapter-3: Strategy formulation
 Chapter-4: Strategies in Action
 Chapter-5: Strategy analysis and choice
 Chapter- 6: Strategy implementation-management
 Chapter-7: Implementing strategies
 Chapter-8: Strategy Evaluation

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 Assessment Scheme:
 Assignment, seminar, group discussion, Case Analysis 50
 Final examination-----50
 Total -100

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 Chapter -One

Introduction to
Strategic Management

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Concepts of Strategic Management
 A strategy is an integrated and coordinated set of commitments and
actions designed to develop and exploit core competencies and
gain a competitive advantage.

 Strategic management is a set of managerial decisions and actions

that determines the long run performance of a corporation.

 It refers to top management’s plans to develop and sustain

competitive advantage
 It includes environmental scanning (both external and internal),
strategy formulation (strategic or long-range planning), strategy
implementation, and evaluation and control 1-6
 Strategic Management
 the art and science of formulating,
implementing, and evaluating cross-
functional decisions that enable an
organization to achieve its objectives (David,
2011)

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Strategic Management: a set of managerial decisions
and actions that determines the long-run
performance of a corporation.
Includes:
 Internal and external environment scanning
 Strategy formulation
 Strategy implementation
 Evaluation and control
Wheelen & Hunger, 2012
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 Therefore, the study of strategic management
emphasizes the monitoring and evaluating of external
opportunities and threats in light of a corporation’s
strengths and weaknesses

 Sometimes the term strategic management is used to

refer to strategy formulation, implementation, and
evaluation, with strategic planning referring only to
strategy formulation.
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 Phases of Strategic Management

Phase 1: Basic Financial Planning: initiate some

planning when they requested to set up their budgets;
considers activities for one year.

Phase 2: Forecast-based Planning: consider projects for

more than a year. The time horizon is usually 3-5
years. Extrapolate current trends in the future.

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Phase 3: Externally Oriented Strategic Planning:
conduct strategic planning by top management and they
leave implementation to low level.

Phase 4: Strategic Management: planning by forming a

team from all levels in the company.

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 The Strategic-Management Model

These are three important questions to answer in developing a

strategic plan:

Where are we now?

Where do we want to go?

How are we going to get there?

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 A Comprehensive Strategic-Management Model
(David,2011)

Feedback

Perform
External
Audit

Develop Establish Generate Establish Allocate Measure &

Mission Long-term Evaluate, Policies & Resources evaluate
Statement Objectives & Select Annual Performance
Strategies Objectives
Perform
Internal
Audit

Strategy Formulation Strategy Implementation Strategy

Evaluation

Fig. 1.1. A comprehensive Strategic Management Model

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Strategic management model (Wheelen & Hunger, 2012)

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 Benefits of Strategic Management
The principal benefit of strategic management has been to enable
the organization to have:
Clearer sense of strategic vision for the firm
Sharper focus on what is strategically important
Improved understanding of a rapidly changing environment

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 Financial Benefits

 Businesses using strategic-management concepts show

significant improvement in sales, profitability, and
productivity compared to firms without systematic
planning activities
 High-performing firms seem to make more informed
decisions with good anticipation of both short- and
long-term consequences. That is, it improved
organizational performance

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 Non-financial Benefits

 It allows for identification, prioritization, and

exploitation of opportunities.
 It provides an objective view of management problems.
 It represents a framework for improved coordination
and control of activities.
 It minimizes the effects of adverse conditions and
changes.
 Achieves a match between the organization’s
environment and its strategy, structure and processes

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 It allows major decisions to better support established
objectives.
 It allows more effective allocation of time and resources
to identified opportunities.
 It allows fewer resources and less time to be devoted to
correcting erroneous or ad hoc decisions.
 It creates a framework for internal communication
among personnel.
 Improve organizational learning and strategic thinking
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Why Some Firms Do No Strategic Planning

 Lack of knowledge in strategic planning

 Poor reward structures
 Firefighting
 Waste of time
 Too expensive
 Laziness
 Content with success 1-19
 Overconfidence
 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion

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Challenges to strategic management

1. Impact of Globalization: the integration and

internationalization of markets and corporations. That
is, global (worldwide) markets rather than national
markets. For example, International consideration have
led Ethiopian Airline to be partner with Star Alliance.

 Thus, globalization refers to the shift toward a more

integrated and interdependent world economy
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Globalization has several facets, including the globalization of
markets and the globalization of production
1. Globalization of Markets: The merging of historically distinct
and separate national markets into one huge global marketplace.
For example: Through the formation of regional trade associations
and agreements, such as the European Union, North American Free
Trade Agreement ( Central American Free
Trade Agreement ( , and ASEAN( Association of Southeast
Asian Nations), WTO etc…..

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2. Globalization of Production: Sourcing goods and services from
locations around the globe to take advantage of national
differences in the cost and quality of various factors of production
(such as labor, energy, land, and capital)

As a result, a firm might design a product in one country, produce

component parts in more other countries, assemble the product in
yet another country, and then export the finished product around
the world.

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3. Impacts of Technology: Basis for competition on a more
strategic level rather than traditional focus on product
features and costs. For example, several research studies
indicated that industry leaders are in the process of moving 60-100%
of their B2B transactions to the internet.
 Internet purchasing beyond traditional boundaries
 Knowledge key asset – source of competitive advantage
 Product life cycles are becoming shorter

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4. Impact of Environmental Sustainability: the use of
business practices to reduce a company’s impact on the
natural, physical environment

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 Pitfalls in Strategic Planning

 Using strategic planning to gain control over decisions

and resources
 Doing strategic planning only to satisfy accreditation
or regulatory requirements
 Too hastily moving from mission development to
strategy formulation
 Failing to communicate the plan to employees, who
continue working in the dark
 Top managers making many intuitive decisions that
conflict with the formal plan
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 Top managers not actively supporting the strategic-
planning process
 Failing to use plans as a standard for measuring
performance
 Delegating planning to a “planner” rather than
involving all managers
 Failing to involve key employees in all phases of
planning
 Failing to create a collaborative climate supportive of
change
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Guidelines for Effective Strategic Management

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 Initiation of Strategy: Triggering Event

Triggering event: something that acts as a stimulus for a change in

strategy and can include:
 New CEO
 External intervention
 Threat of change of ownership
 Performance gap
What happens to a business when a major change takes place due to
the introduction of new technologies, a different regulatory
environment, a change in customers’ values, or a change in what
customers prefer?
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Strategic Audit: Aid to strategic decision making

Strategic audit provides a checklist of questions, by area or

issue, that enables a systematic analysis to be made of
various corporate functions and activities
 It includes elements in strategic making process

 Is extremely useful as a diagnostic

 Is tool to pinpoint corporate wide problem areas and to

highlight organizational strengths and weakness

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 Strategic Decision Making

What Makes A Decision Strategic( characteristics )?

Unlike many other decisions, strategic decisions deal with the long-
run future of an entire organization and have three characteristics:
1. Rare: Strategic decisions are unusual and typically have no
precedent to follow.
2. Consequential: Strategic decisions commit substantial resources
and demand a great deal of commitment from people at all
levels.
3. Directive: Strategic decisions set precedents for lesser decisions
and future actions throughout an organization 1-31
The following eight-steps proposed by different scholars for strategic
decision-making process.
1.Evaluate current performance results in terms of
a) return on investment, profitability, and so forth, and
b) the current mission, objectives, strategies, and policies.

2. Review corporate governance—that is, the performance of the

firm’s board of directors and top management.

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3. Scan and assess the external environment to determine the
strategic factors that pose Opportunities and Threats
4. Scan and assess the internal corporate environment to determine
the strategic factors that are Strengths (especially core
competencies) and Weaknesses.
5. Analyze strategic (SWOT) factors to (a) pinpoint problem areas
and (b) review and revise the corporate mission and objectives,
as necessary.
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6. Generate, evaluate, and select the best alternative
strategy in light of the analysis conducted in step 5
7. Implement selected strategies via programs, budgets, and
procedures.
8. Evaluate implemented strategies via feedback systems,
and the control of activities to ensure their minimum
deviation from plans.

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 Questions
1. What is a learning organization? Is this approach to
strategic management better than the more traditional
top-down approach in which strategic planning is
primarily done by top management?

2. Why are strategic decisions different from other kinds of

decisions? What steps it flows? What is strategic
audit?
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CHAPTER TWO

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 Corporate Governance
Corporate governance is how a company or business is
governed and run and dictates the code of ethics and work
code of the company and its employees.
It shows rights and responsibilities among different
participants in the corporation, such as the board,
managers, shareholders and other stakeholders
It spells out the rules and procedures for making
decisions on corporate affairs
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It is the system by which business corporations are
directed and controlled
It specifies the distribution of provides the structure
through which the company objectives are set, and the
means of attaining those objectives and monitoring
performance
It is important for any business to possess good
corporate governance as this dictates how the company is
controlled, directed an administered.
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 Importance of CG

• Corporate Governance also plays an important role in

maintaining corporate integrity and managing the risk
of corporate fraud, combating against management
misconduct and corruption

• Promote the efficient use of scarce resources

• Promote the trust of investors

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• Good corporate governance has a positive link to
economic development and good corporate
performance

• Funds will flow to entities which are seen to have

internationally accepted standards of corporate
governance

• Corporate Governance supplements the legal

framework

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 Corporate Governance in General
Primary characteristics of good corporate governance
1. Discipline
– Senior management to act correctly/properly
2. Transparency
– Necessary information available in a candid/open,
accurate and timely manner
3. Independence
– Minimize/avoid conflicts of interests
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4. Accountability
– Mechanisms to effectively enforce accountability
5. Fairness
– Balanced treatment of all stakeholders
6. Responsibility
– Procedures to allow for corrective action and
penalizing mismanagement
7. Social responsibility
– Social issues, ethical standards, non-exploitative(fair),
non-discriminatory, responsible with regard to
environment and human rights
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 Corporate Social Responsibility
(CSR)
 An important issue facing today’s managers is
whether corporate sector has some responsibility to
improve the society or only to improve their earnings.
CSR requires decision makers to take actions that
protect and improve the welfare of society as a whole
along with their own interests

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• CSR relates primarily to achieving outcomes from
organizational decisions concerning specific issues
or problems, which by some normative standard
have beneficial rather than adverse effects upon
pertinent corporate stakeholders.

• The normative correctness of the products of

corporate action have been the main focus of CSR

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• CSR mandates that the corporation has not only economic and
legal obligations, but also certain responsibilities to society
that extend beyond these obligations

• According to Carroll, CSR encompasses the economic, legal,

ethical and discretionary (philanthropic) expectations that
society has of organizations at a given point in time

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 Pyramid of CSR

Source: Carroll, 1991. “The Pyramid of Corporate Social Responsibility: Toward the Moral
Management of Organizational Stakeholders
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• React(Reactive): - deny any social responsibility, do
nothing, saying that this is the local authorities
responsibility
• Defend(defensive): - admit that it has responsibility,
but do as little as possible, just enough to maintain its
reputation.
• Accommodate(accommodative): - accept
responsibility, and follow the advice of pressure groups
who want the company to take action.
• Lead(Proactive): - be responsible and take action
before the media gets wind of the story, and go further
than what is expected. 2-47
 Chapter-Three
Strategy Formulation
• Strategy Formulation

– includes developing a vision and mission, identifying

an organization’s external opportunities and threats,
determining internal strengths and weaknesses,
establishing long-term objectives, generating
alternative strategies, and choosing particular
strategies to pursue.
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Strategy Formulation: the development of long-range
plans for the effective management of environmental
opportunities and threats in light of organizational
strengths and weaknesses (SWOT)

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 Environmental Scanning

Environmental Scanning is the monitoring, evaluating and

disseminating of information from the external and internal
environments to key people within the organization.

 An environmental analysis is a critical step in the strategic

management process that must be performed to gather all the
information necessary to develop appropriate strategies.

 Strategic management concerns the organisation’s effectiveness,

measured by the degree of fit between an organisation and its
relevant environments
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Environmental analysis can be widely categorised into
three main parts: namely the external macro or general
environment, the external micro or task environment, and
the internal environment

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Environmental Variables

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 External Environments
The external operating environment is seen as a significant
influence on the performance of companies regardless of
size and type. An external analysis focuses on identifying
and evaluating trends and events beyond the control of a
single firm.
Macro/General Environment
Some research studies use PEST analysis to analyze the
general environment which represents political,
economical, socio-cultural, and technological factors that
can affect the firms businesses.

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Analyzing the Task Environment

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 Internal Environment
The information from an internal analysis will depend on
the age of the company, its size, and the breadth of its
activities.
Several strategic management authors propose that
company’s sustained competitive advantage is primarily
determined by its resource endowments.
For example, David (2011) state that organizational
performance will primarily be determined by internal
resources that can be grouped into three categories:
organizational resources, human resources and physical
resources

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 Human Physical
Organizational

Build
Resources

Shape
Distinctive Strategies Competitive Superior
Competencies Advantage Profitability

Build

Capabilities

Figure : Resources, Competencies, Capabilities and Strategy lead to competitive advantage

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 Vision & Mission

Vision: describes what the organization would like to

become.

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Mission: is the purpose or reason for the organization’s
existence. It tells what the company is providing to
society
A mission may be defined narrowly or broadly in scope
Example of narrowly defined mission ( it focus on
primary business)
“To organize the world’s information and make it
universally accessible and useful.” by Google

“We shall build good ships here—at a profit if we can—

at a loss if we must—but always good ships.” by
Newport News Shipbuilding in 1886

Broadly defined mission

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 Objectives

Objectives are the end results of planned activity. They

should be stated as action verbs and tell what is to be
accomplished by when and quantified if possible. The
achievement of corporate objectives should result in the
fulfilment of a corporation’s mission.
For example, “To increase the firm’s profitability in 2016
by 10% over 2015”

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The term goal is often used interchangeably with the term
objective. But it is slightly different:
In contrast to an objective, we consider a goal as an
openended statement of what one wants to accomplish,
with no quantification of what is to be
achieved and no time criteria for completion.
For example, a simple statement of “increased
profitability” is thus a goal, not an objective

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Level and Types of Strategy
Strategy making is not just a task for top executives,
middle and lower-level managers must be involved in the
strategic-planning process to the extent possible.
In large firms, there are actually four levels of strategies:
corporate, divisional, functional, and operational. However,
in small firms, there are actually three levels of strategies:
company, functional, and operational.

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 Corporate
Level—chief
executive officer

Company
Division Level— Level—owner
division or president
president or
executive
vice president Functional Level—
finance, marketing, R&D,
Functional Level—finance, manufacturing,
marketing, information
R&D, manufacturing, systems, and human
information systems,
resource managers
and human resource managers

Operational Level—plant managers,

Operational Level—plant managers, sales sales
managers, production and department managers, production and
managers department managers

Large Company Small Company

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It is important to note that all persons responsible for
strategic planning at the various levels ideally participate
and understand the strategies at the other organizational
levels to help ensure coordination, facilitation, and
commitment while avoiding inconsistency, inefficiency,
and miscommunication.
Plant managers, for example, need to understand and be
supportive of the overall corporate strategic plan (game
plan) while the president and the CEO need to be
knowledgeable of strategies being employed in various
sales territories and manufacturing plants.

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 Michael Porter’s Business level
Generic Strategies
Broad
Target
1) Cost 2) Differentiation
Leadership

Competitive
Scope

3 a) Cost Focus 3 b) Focused

Differentiation

Narrow
Target

Lower cost Differentiation

Competitive Advantage

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 Different types of strategy

There are three basic or generic strategic alternatives:

1. Stability strategy: mainly focus to maintain operational
efficiency and focus on incremental growth.

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2. Expansion strategy: is implemented by redefining
the business, by adding the scope of the business
substantially increasing the effort of the current
business.
a. Integration strategies
b. Intensive strategies

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 3. Retrenchment strategy
 Many organizations decline due to falling sales, declining
profits and more importantly declining demand.
 Demand in an industry declines for a variety of reasons. New
substitutes emerge, Changing customer needs, Costs of inputs
may increase and reduce demand for products.
 In such situations, top managers must find a strategy that will
stop the organization’s decline and put it back on a successful
path.
 The three major variants of retrenchment strategy are: turn
around, Survival Strategy and Liquidation Strategy.
4. Combination Strategy
 A combination strategy employ any simultaneous combination
of other master strategies. It includes use by a firm of a
different strategy in individual business units or by use of
multiple strategies in a single business unit at the same or
different times 69
Based on the competitive orientation and a combination
of structure, culture and process, we have four types of
strategy
1.Prospectors
2.Defenders
3.Analyzer
4.Reactors

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Analyzing alternative Strategies
and Strategy Choice

Chapter Five
 Nature of Strategy Analysis and choice

• Generating and analyzing alternative strategies and

selecting a set of strategies involve making subjective
decision based on objective information.

• Alternative strategies are derived from the

organization’s vision, mission, objectives, external
audit, and internal audit, and are build on past
strategies that have worked well.
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 Process of Strategy Analysis and Choice

• As it’s not possible to consider infinite number of

alternative strategies, a manageable set of most attractive
alternative strategies are developed.
• Identifying and evaluating alternative strategies should
involve as many managers and employees as possible
from each department who earlier participated in
formulation of organizational vision, mission, internal
and external audits.
• After identifying all feasible strategies, they must be
ranked to arrive at a list of prioritized strategies
reflecting the collective wisdom of the organization.
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A Comprehensive Strategy-Formulation Analytical Framework (SFAF)

Stage 1: Input Stage:

– EFE Matrix,
– IFE (Internal Factor Evaluation) Matrix, and
– CP (Competitive Profile) Matrix
Stage 2: Matching Stage
– SWOT ( Strength-Weakness-Opportunities-Threat) Matrix,
– SPACE (Strategic Position and Action Evaluation) Matrix,
– IE (Internal-External) Matrix,
– GS (Grand Strategy) Matrix
Stage 3: Decision making stage
– QSP (Quantitative Strategic Planning) Matrix

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 EFE Matrix
An EFE (external factor evaluation) Matrix summarizes and
evaluate all the external forces that affect an organization. It is
developed in 5 stages:
1. List key external factors identified in external audit;
2. Assign to each factor weight ranging from say 0.0 (not
important) to 1.0 (very important) indicating relative
importance of that factor to be successful in the industry.
3. Assign rating say between 1 (poor response) and 5
(outstanding response) based on effectiveness of the
organization’s response to that factors.
4. Multiply weight by its rating to get weighted score
5. Sum up to get total weighted score for the organization.

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 Example of EFE Matrix
Key External Factors Weight Rating Weighted
score
Opportunities

1. Domestic demand increasing 10% annually

2. Export demand increasing 15% annually

3. Input price decreasing 5% annually

Threats

1. Rival organizations increasing ad by 20%

annually
2. Govt. Tightening its regulation

3. Interest rates are increasing 3% annually

Total
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 IFE (Internal Factor Evolution) Matrix
• IFE Matrix is a management strategy formulation tool that
summarizes and evaluates major strengths and weaknesses in
functional areas of the organization.

• Five steps to construct IFE Matrix:

1. List key strengths and weaknesses
2. Assign weight ranging from 0.0 (not important) to 1.0 (most
important)
3. Rating each factor from 1 (poor) to 5 (outstanding ) based on
the companies response
4. Multiply weights and rating to get weighted score
5. Sum the weighted score to get total weighted score for the
organization.
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 An example of IFE Matrix
Key Internal Factors Weight Rating Weighted
Score
Strengths

Weaknesses

Total Weighted Score

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 CP (Competitive Profile) Matrix

• CP Matrix identifies an organization’s strategic

competitors and its particular strengths and weakness in
relation to the organization’s strategic position.

• CP Matrix is broader as it includes both internal and

external issues.

• CP Matrix rating refers to strengths and weakness

between 1 (major weakness) and 4 (major strength).
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 Example of CP Matrix
Org A Org B Org C

Critical Success weight rating score rating score Rating score

Factors
Product quality

Price
competitiveness
Advertising

Management

Financial position

Market share

Customer loyalty

Global expansion

Total
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 SWOT Matrix

SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix

IE Matrix

Grand Strategy Matrix

Fig: 1.1 The matching stage of strategy analysis and choice

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 SWOT Matrix
Match between organization’s internal resources & skills
and the opportunities & risks created by its external
factors
Four Types of Strategies
1. Strengths-Opportunities (SO)
2. Weaknesses-Opportunities (WO)
3. Strengths-Threats (ST)
4. Weaknesses-Threats (WT)
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1. SO (Strength-Opportunities) Strategies: intend to
use internal strengths to take advantage of external
opportunities.
2. WO (Weakness-Opportunities) Strategies: aim at
improving internal weakness by taking advantage
of external opportunities.
3. ST (Strengths-Threat) Strategies: intend to use
internal strengths to reduce the impact of external
threats.
4. WT (Weakness-Threat) Strategy: defensive
strategy at reducing internal weakness and
avoiding external threats.

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 SWOT/TOWS Analysis
Strengths – S Weaknesses –W
List Strengths List Weaknesses

Opportunities – O SO - Strategies WO Strategies

Use strengths to take Overcoming weaknesses
List Opportunities advantage of by taking advantage of
opportunities opportunities

Threats – T ST Strategies WT Strategies

List Threats Use strengths to avoid Minimize weaknesses and
threats
avoid threats

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 Limitations with SWOT Matrix

Does not show how to achieve a competitive advantage

 Provides a static assessment in time
 May lead the firm to overemphasize a single internal or
external factor in formulating strategies

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 SPACE (Strategic Position and Action
Evaluation) Matrix
• SPACE Matrix in its four quadrant framework indicates
whether aggressive, conservative, defensive or
competitive strategies are appropriate for an organization.
• Axes of the SPACE Matrix represent 2 internal and 2
external dimensions.
• Internal dimensions are:
– FP (Financial Position)
– CP (Competitive Position)
 External dimensions are:
 SP (Stability Position)
 IP (Industry Position)
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 Factors of SPACE Matrix (contd.)
Internal Strategic Position External Strategic Position
FP (Financial Position) SP (Stability Position)
1. Return on Investment 1. Rate of Inflation
2. Leverage Ratios 2. Price Elasticity of Demand
3. Liquidity Ratios 3. Competitive Pressure
4. Working Capital 4. Price range of competing products
5. Cash Flow 5. Technological change
CP (Competitive Position) IP (Industry Position)
1. Market share 1. Growth potential
2. Product quality 2. Profit potential
3. Customer loyalty 3. Financial stability
4. Control over input suppliers 4. Productivity
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 SPACE Matrix (contd.)
FP +

Conservative Strategies Aggressive Strategies

CP IP
• _ +

Defensive Strategies Competitive Strategies

SP _
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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 to +6 to each FP & IP dimension
• From -1 to -6 to each SP & CP dimension
3. Compute an average score for each FP, CP, SP, and IP.

89
4. Plot the average score on the appropriate axis.
5. 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 the
intersection of the new xy point.
6. Draw a directional vector from the origin through the
new intersection point.

90
Example: the rate depends on evaluating the situation
FP: low capital ratio (1), return on assets (4), cash flow
(4): average= 9\3=3
IP: freedom of product movement(4), high competition(2).
Average = 6\2=3
SP: high inflation rate (-5), depression (-5) political
instability (-2) = -12\3= -4
CP: growing market share (-2), product quality (-2) large
customer base (-2)= -6\3=-2
Directional vector: X-axis: -2+3= +1
Y-axis: -4+3= -1
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 Financial Strength
(FS)

Aggressive
Conservative • Backward, forward, horizontal integration
• Market penetration • Market development
• Market development • Market penetration
• Product development • Product development
• Related diversification • Diversification (related or unrelated)

Competitive Advantage Industry Strength

(CA) (IS)
Defensive Competitive
• Retrenchment • Backward, forward, horizontal integration
• Divestiture • Market penetration
• Market development
• Liquidation
• Product development

Environmental Stability
(ES)

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Boston Consulting Group (BCG Matrix)
The two important dimension of the growth-share
matrix are:

The vertical axis represents market growth rate

and provides a measure of market attractiveness.

The horizontal axis represents relative market

share and serves as a measure of company strength
in the market. 93
94
 Relative Market Share
High Low

Hold Build
High •Backward, Forward, or Horizontal Integration •Market Penetration
•Market Penetration • Market Development
•Market Development • Product Development
•Product Development • Divestiture
Industry sales growth rate

Question Marks

Stars B A
X
Y

Harvest Divest
•Product Development C •Retrenchment
• Diversification • Divestiture
• Retrenchment Z • Liquidation
• Divestiture
Cash Cows
Dogs

Low

Product movement (A to B to C representing the product life cycle)

Cash movement (from products z to x and y)
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Fig. 6.4 product and cash movement of the BCG model
 Limitation of the BCG
Market growth rate is only one factor in industry attractiveness, and
relative market share is only one factor in competitive advantage.
The framework assumes that each business units is independent of the
others
The matrix depends heavily upon the breadth of the definition of the
market. A business unit may dominate its small niche, but have very low
market share in the overall industry.
Difficulty in determining market share
No consideration for experience curve and synergy
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 QSP (Quantitative Strategic Planning)
Matrix
• QSP Matrix is the decision making tool of Stage 3 of
Strategy-Formulation Analytical Framework.
• QSP Matrix determines the relative attractiveness of
various strategies based on the extent to which key
external and internal success factors are capitalized upon
or improved.
• QSP Matrix is prepared using information of stage 1
(input stage) and stage 2 (matching stage) of Strategy
Formulation Analytical Framework.

97
Six steps are required to prepare QSP Matrix:
• Step 1: listing external opportunities/threats and internal
strengths/weakness from stage 1 (input stage) of SFAF;
• Step 2: assigning weights to each external and internal
factors as from stage 1 (input stage) of SFAF;
• Step 3: Identifying alternative strategies from stage 2
(matching stage) of SFAF;
• Step 4: determining strategy Attractiveness Score (AS);
• Step 5: Computing Total Attractiveness Score (TAS);
and
• Step 6: Computing Sum Total Attractiveness Score
(STAS).
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 QSP Matrix (contd.)
Key Factors Weight Strategy 1 Strategy 2 Strategy 3
AS TAS AS TAS AS TAS
Key External Factors
(Opportunities/Threats)

Economy
Political/legal/governance
Technology trends
Competitive environment
Key Internal Factors
(Strengths/Weakness)
Management
Marketing
Finance/Accounting
Production/Operation
R&D
MIS 99
Limitations of the Strategy Formulation
Framework
• Quantitative techniques used in Strategy Formulation
Analytical Framework (SFAF), like any other quantitative
methods are based on simplified assumptions that may
not always realistic;
• SFAF always requires intuitive judgments based on
objective information;
• SFAF can be only as good as the inputs and matching
analysis on which it is based.

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 Chapter –Six

STRATEGIC MANAGEMENT & BUSINESS POLICY

11TH EDITION
Strategy Implementation: Organizing
THOMAS L. WHEELEN J. DAVID HUNGER

for Action
• Strategy implementation
– Requires a firm to establish annual objectives,
devise policies, motivate employees, and allocate
resources so that formulated strategies can be
executed

– It is often called the action stage

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Strategy implementation: the process by which
strategies and policies are put into action through
the development of:

• Programs
• Budgets
• Procedures

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Strategy Formulation Vs. Implementation

Poor
Roulette Failure
Strategy Formulation

Trouble
Good Success

Good Poor

Strategy Implementation

Fig. 7.1 Interrelationship between strategy formulation and implementation

9-104
Combinations of Efficiency & Effectiveness

Strategic Management
Management Effective Ineffective
Efficient
1 2
Thrive Die Slowly
Operational

3 4
Inefficient Survive Die quickly

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 A survey by Fortune 500 firms revealed that more than half of the
corporations experienced the following 10 problems when they
attempted to implement a strategic change:

1. Implementation took more time than originally planned.

2. Unanticipated major problems arose.
3. Activities were ineffectively coordinated.
4. Competing activities and crises took attention away
from implementation.
5. The involved employees had insufficient capabilities to
perform their jobs.
9-106
6. Lower-level employees were inadequately trained.
7. Uncontrollable external environmental factors created
problems.
8. Departmental managers provided inadequate leadership
and direction.
9. Key implementation tasks and activities were poorly
defined.
10. The information system inadequately monitored
activities.
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General Framework for Strategy Implementation

1. Designing strategy supportive structure

2. Building an Organization Capable of Executing the Strategy
3. Establishing a Strategy-Supportive Budget
4. Installing Internal Administrative Support Systems
5. Devising Rewards and Incentives that are tightly linked to
Objectives and Strategy
6. Building a Strategy-Supportive Corporate Culture
7. Having effective Leadership for Strategic Implementation

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The 7’S Model

9-109
B/c of the interconnectedness of the variables, it
would be difficult to make significant progress in one
area without making progress in the others as well.

There is no starting point or implied hierarchy in the

shape of the diagram, and it is not obvious which of
the seven factors would be the driving force in
changing a particular organization at a certain point in
time.
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Considering the links b/n each of the Ss one can
identify strengths and weaknesses of an organization.
No S is strength or a weakness in its own right; it is
only its degree of support, or otherwise, for the other
Ss which is relevant
 It is not obvious which of the seven factors would
be the driving force in changing a particular
organization at a certain point in time.

9-111
 Chapter – Seven

Strategy Evaluation

112
 Evaluation of the Strategy
Any kind of error in the strategic decisions will harm the
organization, which in the long run may be highly
dangerous. Therefore, it is necessary for the management
to have a continuous evaluation system based on which the
corrective actions may be taken.
Strategy evaluation is vital to an organization’s well-
being; timely evaluations can alert management to
problems or potential problems before a situation
becomes critical.
Erroneous strategic decisions can inflict severe
penalties and can be exceedingly difficult, if not
impossible, to reverse.

114
What we Evaluate?

115
Effectiveness is measured by the degree to which the
organization has achieved its objectives while efficiency
refers to the manner of resources utilization for
achieving the output. The two can thus be represented as
follow:
Output
Effectiveness 
Objectives
Output
Efficiency 
Input

116
Johnson and Scholes present a model in
which strategic options are evaluated
against three key success criteria:
1. Suitability
Does it make economic sense?
Would the organization obtain economies of scale,
or experience economy?
Would it be suitable in terms of environment (both
Internal & External)
117
2. Feasibility
Funding/Budget
People(HR-capacity and capability)
Time
Information

118
3. Acceptability
Return
Risk
stakeholder reaction

119
The Basic Activities/Steps in Strategic
Evaluation

1. Examine the underlying bases of a firm’s

strategy

2. Measure the actual results

3. Compare expected/planned to actual results

4. Identify corrective actions to ensure that

performance conforms to plans
120
 Evaluation Framework
I. Review Underlying Bases

Differences? Yes

NO
III.
Take
II. Measure Firm Performance Corrective
Actions
Differences? Yes

NO

Continue present course 121

 Taking Corrective action
• Taking corrective action, requires making changes to
reposition a firm competitively for the future.

• Examples of changes that may be needed are altering an

organization’s structure, replacing one or more key
individuals, selling a division, or revising a business mission.

• Taking corrective action raises employees’ and managers’

anxieties. Research suggests that participation in strategy-
evaluation activities is one of the best ways to overcome
individuals’ resistance to change. 122
 Quantitative Vs. Qualitative
Quantitative Criteria for Strategy Evaluation

• Financial Ratios
– Compare performance over different periods
– Compare performance to competitors
– Compare performance to industry averages

123
 Strategy Review, Evaluation, & Control
Key Financial Ratios
• Return on investment (ROI)
• Return on equity (ROE)
• Profit margin
• Market Share
• Debt to equity
• Earnings per share (EPS)
• Sales growth
• Asset growth

124
Seymour Tilles identified six qualitative questions
that are useful in evaluating strategies:
Is the strategy internally consistent?
Is the strategy consistent with the environment?
Is the strategy appropriate in view of available
resources?
Does the strategy involve an acceptable degree of risk?
Does the strategy have an appropriate time framework?
Is the strategy workable?
125
 Difficulties in Strategy Evaluation

1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy
3. Increasing number of variables

4. Rate of obsolescence of plans

5. Domestic and global events

6. Decreasing time span for planning certainty

126
7. It is very difficult to set “good”, “average”, and
“poor” levels of performance in situations where
the outputs are not very tangible.
8. Employees may consider the system to be unfair
and therefore may not accept it.
9. Overemphasis on measuring short-term
performance may make managers forget about the
strategy which inherently has long connotations. 127
Types of Control

i)Feed forward Control

ii) Concurrent Control
iii) Feedback Control
iv) Multiple Controls

128
The end -----

Thank you !

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