Universidad Autónoma de Nuevo León

Facultad de Contaduría Pública y Administración

International Business

Chapter 5
Strategies, policies, and
planning premises
Arzola Ojeda Andrea. 1948948
Cárdenas López Andy Misael. 1963463
Mendoza Torres Saúl Alejandro.1975649
Rodríguez Ramírez Susana Abigail. 1958627
Zamores Benavides Ayrton Alan. 1930216 1
 Strategic planning is an extremely complex
process that demands a systematic approach for
identifying and analyzing factors external to the
organization and matching them with the firm's
capabilities.

In this chapter, we are going to learn about the

Introduction nature and purpose of strategies and policies,
the strategic planning process, the TOWS Matrix,
the business portfolio matrix, some major kinds
of strategies and policies, the hierarchy of
strategies, and generic strategies. Since plans
are made in an environment of uncertainty, we
will also learn about premising and forecasting.

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 Strategy
Is the determination of the
purpose and the basic long-term
objectives of an enterprise, Policies
Are the statements
The nature followed by the adoption of
courses of action and allocation
or understandings

and of resources necessary to

achieve these aims.
that guide managers'
thinking in decision

purpose of Strategy concerns the direction

making.

The essence of
strategies in which human and material
resources will be applied in
policy is
discretion.
and policies order to increase the chance of
achieving selected objectives.

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 The strategic planning process

Although
specific steps
in the
formulation of
a strategy may
vary, the
process can be
built around
the key
elements shown
in Figure 5-I.

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 Inputs to the
organization
The various organizational
inputs, including the goal
inputs of the claimants, were
discussed in Chapter 1.

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 INDUSTRY ANALYSIS
Michael Porter suggests that the
formulation of a strategy requires the
evaluation of the attractiveness of an
industry by analyzing the external
environment.
The focus should be on the kind of
competition within an industry, the
possibility of new firms entering the
market, the availability of substitute
products or services, and the bargaining
positions of the suppliers as well as the
buyers or customers.

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 ENTERPRISE PROFILE
It is usually the starting point
for determining where the
company is and where it should
go.
Top managers determine the
enterprise's mission and clarify
its geographic orientation. Also
the managers assess the
competitive position of their
firm.

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 The enterprise profile is shaped by
people, especially executives; and
their orientation and values are
important for formulating the
strategy. They set the organizational
Orientation, values and vision climate, and they determine the
direction of the firm through their
of executives
vision that answers the question “What
do we want to become?”. Their values,
their preferences, and their attitudes
toward risks have to be carefully
examined because they have an impact
on the strategy.
 Mission Major objectives
Strategic intent

Mission (purpose), major

Also sometimes Are the end Is the
objectives, and strategic called the points toward
intent commitment to
purpose, is which the win in the
the answer to activities of
the question competitive
the
“What is our enterprise environment.
business?” are directed.
 Present and
future
environment Development
Must be assessed in
of alternative
terms of threats strategies
and opportunities.
The evaluation
Internal Strategic
focuses on the environment alternatives are
developed on the
competitive Should be audited
situation as well basis of an
and evaluated with
as on economic, analysis of the
respect to its
social, political, resources and its external and
legal, demographic weaknesses and internal
and geographic environments.
strengths in
factors. research and
development,
production,
operation,
procurement,
marketing,
products, and
services.
 The various strategies have to be
carefully evaluated before the choice is
made. Strategies choices must be
Evaluatio considered in light of the risks involved
in a particular decision. Some profitable
n and opportunities may not be pursued because
failure in a riske venture could result in
choice of bankruptury of the firm.

strategies Another critical element in choosing a

strategy is timing.Even the best products
may fail if it is introduced to the market
at an inappropriate time.
Moreover, the reaction of competitors must
be taken into consideration.

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 Medium- and short-range planning, implementation
through reengineering, staffing, leadership, and control.
Must be considered during all phases of the
process.
Consistency testing and contingency planning
-The TOWS Matrix. A modern tool for analysis of the situation.
For many years, the SWOT analysis has been used to identify a company’s
strengths, weaknesses, opportunities, and threats. However, this kind of
analysis is static and seldom leads to the development of distinct
alternative strategies based on it.
Therefore the TOWS Matrix has been introduced for analyzing the competitive
situation of the company or even of a nation that leads to the development
of 4 distinct sets of strategic alternatives. Is a conceptual framework for
a systematic analysis that facilitates matching of the external threats and
opportunities with the internal weaknesses and strengths of the
organization.

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 Four alternative strategies
The strategies are based on the analysis of the external environment (threats and
opportunities) and the internal environment (weaknesses and strengths):
1. The WT strategy, aims to minimize both weaknesses and threats and may be called the
Mini-mini (for minimize-minimize) strategy.
2. The WO strategy, attempts to minimize the weaknesses and maximize the
opportunities.
3. The ST strategy, is based on using the organization’s strengths to deal with the
threats in the environment.
4. The SO strategy, which capitalizes on a company’s strengths to take advantage of
opportunities, is the most desirable.

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Time Dimension and
the TOWS Matrix
Some factors change over
time, while others change
every little.Hence, strategy
designers must prepare
several matrices at
different points in time.
Thus, one may start with s
TOWS analysis of the past,
continue with an analysis of
the present, and, perhaps
most important, focus on
different time periods in
the future.

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 The Portfolio Matrix: A Tool for Allocation
Resources
The Boston Consulting Group developed the business
portfolio matrix, a simplified version of the matrix,
shows the linkages between the growth rate of the
business and the relative competitive position of the
firm, identified by the market share.
Businesses in the “question mark” quadrant, with a weak
market share and a high growth rate, usually required
cash investment so that they can become “stars”, the
businesses in the high-growth, strongly competitive
position. These kind of businesses have opportunities
for growth and profit. The “Cash cows”, with a strong
competitive position and a low growth rate, are usually
well established in the market, and such enterprises
are in a position to make their products at low
costs.Therefore, their products provide the cash needed
for their operation. The “dogs” are businesses with a
low growth rate and weak market share. These businesses
are usually not profitable and generally should be
disposed of.

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 Products or services
A business exists to furnish products or services. In a very
real sense, profits are merely a measure of how well a company
serves its customers. New products or services, more than any
other single factor, determine what an enterprise is or will
be.

The key questions in this area can be summarized as follows:

● What is our business?
● Who are our customers?
● What do our customers want?
● How much will our customers buy and at what price?
● Do we wish to be a product leader?
 Marketing
Marketing strategies are designed to guide managers in getting products
or services to customers and in encouraging customers to buy. Marketing
strategies are closely related to product strategies; they must he
interrelated and mutually supportive.

The key questions that serve as guides for establishing a

marketing strategy are these:
● Where are our customers, and why do they buy?
● How do our customers buy?
● How is it best for us to sell?
● Do we have something to offer that competitors do tint?
 Hierarchy of Company
Strategies
LEV LEVE LEVE
EL 1 L2 L3
Diversified companies, the In this level which are Functional strategies
overall strategy may take usually developed by the (or policies) are
the form of a hierarchy. At general manager of a business developed. These
the top of the pyramid is unit. These strategies are strategies are devised
the corporate-level reviewed and approved or for departments or other
strategy. At this level, rejected by the chief organizational units,
executives craft the overall executive. The aim of the such as finance,
strategy for a diversified business strategy is to gain production, marketing,
company. Decisions are made a competitive advantage in a service, and personnel.
as to the industries in particular area. The aim is to support
which the company wants to the business and
compete. corporate strategies.
Porter’s industry analysis and generic
competitive strategies
Industry analysis
In the analysis of the industry, Porter identified five forces:
(I) the competition among companies,
(2) the threat of new companies entering the market.
(3) the possibility of using substitute products or services,
(4) the bargaining power of suppliers, and
(5) the bargaining power of buyers or customers.

On the basis of the industry analysis, a company may adopt

generic strategies. These strategies are generic because they may
be suitable on a broad level for different kinds of
organizations. Any enterprise, however, may use more than one
strategy.
 Overall Cost Leadership
Strategy
This strategic approach aims at reduction in costs,
based to a great extent on experience. Thus, the
emphasis may be on keeping a close watch on costs In
areas such as research and development, operation,
sales, and service. The objective is for a company to
have a low-cost structure compared with its
competitors. This strategy often requires a large
relative market share and cost-efficient operation.
 Differentiation Strategy
A company following a differentiation strategy attempts to offer something
unique in the industry in terms of products or services. Porsche sports
cars are indeed special; so is the Caterpillar Company, which is known for
its prompt service and availability of spare parts. In the broad consumer
market, Dial soap is differentiated from other brands of soap by its use
of deodorants.
The focused differentiation strategy may be exemplified by Cray Research
Inc., which specializes very powerful and s5phi5ticated supercomputers.
The differentiation allows the company to charge premium prices.
 Focused Strategy
A company adopting a focused strategy concentrates on special groups
of customers,"a particular product line, a specific geographic
region, or other aspects that become the focal point of the firm's
efforts. Rather than serving the entire market with its products or
services, an enterprise may emphasize a specific segment of the
market. A low-cost strategy, differentiation, or both may accomplish
this.
Porter illustrates the focused low-cost strategy with the example of
La Quinta Inns, a motel chain that operates in a certain region of
the United States and appeals to traveling business representatives,
such as salespeople.
Premising and forecasting
One of the essential and often overlooked steps in effective
and coordinated anticipated environment planning is
premising, which is the establishment of and the agreement
by managers and planners to utilize consistent assumptions
critical to under consideration.

Planning premises are defined as the anticipated environment

in which plans are expected to operate. They include
assumptions or forecasts of the future and known conditions
that will affect the operation of plans.
 A forecast to determine future business
conditions, sales volume, or political
environment furnishes premises on which to
develop plans. However, a forecast of the costs
or revenues from a new capital investment
translates a planning program into future
expectations.

In the first case, the forecast is a

prerequisite of planning in the second case, the
forecast is a result of planning.
 Environmental forecasting
If the future could be forecast with accuracy, planning
would be relatively simple. Managers would need only to
take into account their human and material resources and
their opportunities and threats, compute the optimum
method of reaching their objective, and proceed with a
relatively high degree of certainty toward it. In
practice, forecasting is much more complicated.
 Values and areas of forecasting

Forecasting has values aside from its use. First, the making of
forecasts and their review by managers compel thinking ahead, looking
to the future, and providing for it. Second, preparation of the
forecast may disclose areas where necessary control is lacking.
Third, forecasting, especially when there is Participation throughout
the organization, helps unify and coordinate plans. By focusing
attention on the future, it assists in bringing a singleness of
purpose to planning.

The environmental areas that are frequently chosen for making

forecasts include the economic, social, political/legal, and
technological environments.

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 Forecasting with the Delphi technique
This technique, developed by Olaf Helmer and his colleagues at the RAND
Corporation, has a degree of scientific respectability and acceptance. A typical
process of the Delphi technique is as follows:

1. A panel of experts on a particular problem area is selected, usually from

both inside and outside the organization.
2. The experts are asked to make (anonymously, so that they will not be
influenced by others) a forecast as to what they think will happen, and when, in
various areas of new discoveries or developments.
3. The answers are compiled, and the composite results are fed back to the panel
members.
4. With this information at hand (but still with individual anonymity), 'further
estimates of the future are made.
5. This process may be repeated several tunes.
6. When a convergence of opinion begins to evolve, the results are then used as
an acceptable forecast.
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