Management Strategic Management

Stages of Managerial Policies

Formulation (Planning Stage) Implementation Evaluation

External Forces

Vision & Mission

Long Term Objectives

Plan Strategies

Short term Objectives

Policies

Implement Internal Forces

Evaluate

Vision
What do you want to become? Should be brief (few words) and to the point Should define core values (innovators, creativity,

social responsibility) and core purpose Vision may be as vague as a dream or as precise as a goal For example
Pure and hygienic milk for everyone Providing medical services with excellence We make the worlds fastest computers

Sample Vision Statments

"GMs vision is to be the world leader in transportation products and
related services. We will earn our customers enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people."

"Black & Decker's objective is to establish itself as the pre-eminent global Toys R Us "Our Vision is to put joy in kids hearts and a smile on parents
faces.

manufacturer and marketer of power tools and accessories, hardware and home improvement products, and technology based fastening systems.

Avon "To be the company that best understands and satisfies the product,
service and self-fulfillment needs of women - globally."

Mission Statement
What is our business? Should not be more than 200 words Provides general direction Not designed to express concrete ends Allows consideration of feasible
alternatives Should be broad to reconcile the differences of stakeholders

Once an aim is cast in concrete, it creates a rigidity in an organization and resists change. Vagueness leaves room for other manager to fill in the details, perhaps even to modify general patterns. Vagueness permits more flexibility in adapting to changing environments and internal operations. It facilitates flexibility in implementation.

Components of Mission Statement

Customer
Product or Services Markets
We believe our first responsibility is to the doctors, nurses, patients, mothers, and all other who use our products and services (J&J)

Technology Concern of survival, growth & Profit Philosophy

Our emphasis is on North American markets, although global opportunities will be explored

Our world class leadership is dedicated to management philosophy that holds people above profit (Kellogs)

Components of Mission Statement

Self-concept
What is firm distinctive competence Major competitive advantage

Concern for Public Image

To Share worlds obligation for the protection of environment

Concern for Employees

Sample Mission Statments

Burger King "We will prepare and sell quick service food to
fulfill our guest's needs more accurately, quickly, courteously, and in a cleaner environment than our competitors. We will conduct all our business affairs ethically, and with the best employees in the mid-south. We will continue to grow profitably and responsibly, and provide career advancement opportunities for every willing member of our organization. highest quality express and logistics solutions based on strong local expertise combined with the most extensive global network presence. Customers trust DHL as the preferred global express and logistics partner, leading the industry in terms of quality, profitability and market share

DHL enhances the business of our customers by offering

Sample Mission Statements

The International Committee of the Red Cross (ICRC) is an impartial, neutral and independent organization whose exclusively humanitarian mission is to protect the lives and dignity of victims of armed conflict and other situations of violence and to provide them with assistance. The ICRC also endeavours to prevent suffering by promoting and strengthening humanitarian law and universal humanitarian principles.

"Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow. The following six guiding principles will help us measure the appropriateness of our decisions: Provide a great work environment and treat each other with respect and dignity. Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time. Contribute positively to our communities and our environment. Recognize that profitability is essential to our future success. "

Process of Developing Vision/Mission statement

Give Background knowledge about vision/mission statement Input from Top, Middle and Lower Management

Evaluation committee

Rough copy of Mission Statement

Circulation of copy to the Management

Finalization of Mission Statement

Continuous review of Mission Statement

Forces affecting Managerial Policy

Forces beyond the control of Organization Forces within the control of Organization

Why Forces Analysis Needed

Globalization Growing Entrepreneurs Free Market Economy

External Forces (external audit)

Economic Forces
Level of disposable income Interest rates GDP trend Unemployment trends Value of currency in world market Stock market trends Foreign countries economic conditions Export of labor and capital Demand shifts for different categories of goods and sevices Tax rates

External Forces (external audit)

Social, Cultural, Demographic & Environmental Forces
Number of marriages Number of divorces Individual/family living Number of births and deaths Lifestyles Use of birth control Average level of education Pollution control Value placed in leisure time Air pollution Water pollution

External Forces (external audit)

Political, Govt. & Legal Forces
Changes in tax laws Patent laws and changes Legislation on equal employment Level of Govt. subsidies Foreign relations Import Export regulations TRIMS & TRIPS

External Forces (external audit)

Technological Forces
Can effect Products Services Markets Suppliers Distributors Manufacturing process Marketing practices

External Forces (external audit)

Competitive Forces
Major Competitors Strength Major Competitors Weaknesses Major Competitor's Objectives and strategies Vulnerability of competitors against our policies Effect of counterattack by our competitors against our policies Position of our products/services to our competitors in the market

-Govt. Policies -Crop Performance -R & D

-International Cotton Scenario -Govt. Policies EU USA Far East Asia China

Agriculture Sector

USA Egypt C. Asia Australia

India WAC

FTAs GSPs WTO Political and Govt. Reg Forces Social & Cultural Practices Countries Economic Condition

Local

Imports Exports

Raw Material

Pakistan Textile Sector

Garments Made ups Fabric Yarn

Textile Competing Countries Technological Forces

Local Market

Per Capita Income Social & cultural Demography

Textile Sector

Govt. Regulations Agriculture Sector and its performance Ongoing Natural Calamities World Cotton Production World Cotton Consumption World wide consumer preferences (manmade or Natural fiber in demand) International Trade Policies (WTO) Individual country Policies (Competing countries) Technology Trends

Study of Competitive Forces

Strengths Weaknesses Opportunities Threats Capabilities Products Objectives Strategies and Policies

Competitive Intelligence Programs

Objectives
Provide general understanding of an Industry and competitors Finding weak areas of competitors Impact of Managerial Policies on competitors To study potential Managerial policies which could be adopted against your decisions for competitive advantage

Five Forces Model of Competition (Porters Model)

Substitute Products

Bargaining Power of Suppliers

Rivalry amongst Competitors

Bargaining Power Of Consumers

Potential Entry of new Competitors

Competitive Forces
Rivalry among Competing Firms
When customers can switch brands To cover the high fixed costs When the product is perishable When Barriers to leave high

Competitive Forces
Potential Entry of New Competitors
Economies of Scale Technology Strong Customer Loyalty Brand Preferences Large Capital Requirement Lack of Access to raw material

Competitive Forces
Substitute Products Bargaining Power of Suppliers
Large No. of Suppliers Few substitute raw material Switching raw material costly

Competitive Forces
Bargaining Power of Consumers
Customers concentrated Buying in volume Standard or undifferentiated products

External Factor Evaluation Matrix

List Key External Factors Assign to each factor a weight (industry based) 0.0 =
not important, 1.0=very important (the sum of weights assigned to the factors must equal 1.0) Assign 1-4 rating to each factor (indicates how effectively the firms business policy respond to the factor, where 4=response is superior, 3=response is above average, 2=response is average, 1=response is poor. (Rates are company based) Find out weighted score Sum the Weighted score

External Factor Evaluation Matrix

Tells us how a particular firm is
responding to threats and opportunities in a particular industry Helps Managers to summarize the different external factors important for the firm and an industry

EFE Matrix For Local Theatre Cinema

Key External Factors Weight Rating Weighted Score

Opportunities
Population is growing 8% annually University is expanding 6% annually Major competitors across town recently ceased operations Demand for going to cinema growing 10% annually Two new neighborhoods being developed within 3 miles Disposable income among citizens grew 5% in prior year Unemployment rate in county declined to 3.1% .05 .08 .08 .07 3.00 4.00 3.00 2.00 0 .15 0.32 0.24 0.14

.09
.06 .03

1.00
3.00 2.00

0.09
0.18 0.06

Threats
Trend towards healthy eroding concession sales .12 .06 .06 4.00 2.00 3.00 0.48 0.12 0.18

Demand for online movies and DVDs growing 19% annully

Commercial property adjacent to cinema for sale University installing on campus movie theatre County and city taxes increasing by 25% this year Local religious groups object to movies being shown Movies rented from local Blockbuster store up 12% Movies rented last quarter from Time Warner up 15% Totals

.04
.08 .04 .08 .06

3.00
2.00 3.00 2.00 1.00

0.12
0.16 0.12 0.16 .06

1.00

2.58

Internal Factors Evaluation

Gives opportunity for integration and interaction of different depts. Creates better understanding of an organization (& its functional areas)

What are Distinctive Competencies

Internal Audit Process

Task Force Equipped with staff and finances List Down all Key Factors Short list them to 10-15 Prioritize them

Internal Factors Evaluation

Management Marketing Finance & Accounting Production & Operation Research & Development Management Information System

Management

Is there proper Planning Activity in the organizational level at different Managerial Levels Are Job Descriptions and Job Specifications Clear How Authority is delegated by the Managers What is ratio of Employee Turnover and Absenteeism What is compensation system Are there any Control Mechanisms Is the Organizations Structure appropriate Are Companies Objectives Measurable and well communicated

Marketing

What is Current market share and how is it growing What are present Channels of distribution and are they reliable and Cost Effective Does the firm conduct Market Research Are the products/services priced properly Do the firm Marketing Managers have Adequate experience Is there any regular training programs

Finance

Where the firm is strong or weak Can firm raise the need capital Is Budgeting Procedure effective Are Financial Managers experienced and Trained

Production/Operations

Are suppliers of raw material reliable Status of machinery and equipment What is current Inventory Control System What is current Quality Control System What is strategic relation of Facilities, Resources and Markets What current technology do we have

Value Chain Analysis

Company performs activities in its Value Chain

Competencies and capabilities gradually emerge in certain competitively important value chain activites

Company Proficiency in performing one or two value chain activities rised to the level of core competence

Company proficiency in performing a core competence continues to build and evolve into distinctive competence

Company gains sustainable competitive advantage

Internal Factor Evaluation Matrix

List Key Internal Factors Assign Wt. that ranges from 0.0=not important to 1.0=very important Assign 1-4 rating 1=major weakness, 2=minor weakness, 3=minor strength, 4=major strength Determine weighted score Determine sum of weighted score

Internal Factor Evaluation Matrix of Gateway Computer

Key Internal Factors Weight Rating Weighted Score

Strength
Several New Senior Executives with world class skills and leadership experience Continuos decline in operating costs and cost of goods sold Well known brand name Consumer Reports (September 2002) recommended Gateway 500X as # 1 As a direct seller, Gateway holds high brand recognition Gateway diversifying into non-PC products Good relationship with its suppliers Economies of scale, the 6th largest PC maker in the world Gateway retail stores excellent 0.050 0.050 0.050 0.100 0.050 0.100 0.050 0.050 0.050 4 3 3 4 3 3 4 4 3 0.20 0.15 0.15 0.40 0.15 0.30 0.20 0.20 0.15

Weaknesses
High operating expense (22% of revenue vs. 10% of Dell) Almost no budget for R & D vs. Dell's 18% of revenue Low return on assets ratio No niche market Shortage of cash due to successive losses Limited number Gateway stores Weak performance in overseas market Total 1.00 2.65

0.050
0.100 0.025 0.025 0.100 0.050 0.100

1
1 2 2 2 2 2

0.05
0.10 0.05 0.05 0.20 0.10 0.20

Long Term Objectives

Nature of Long Term Objectives
Quantitative Measurable Realistic Understandable Challenging Timeline

Long Term Objectives

Long Term Objectives
Provide direction Allow synergy Aid in evaluation Establish priorities Reduce uncertainty Minimizes conflicts Aids in allocation of resources and design of job

Financial Objectives

Strategic Objectives

Growth in Revenues Higher Dividend Bigger Profit Margin Bigger Cash Flows Rising Stock Price

Bigger Market Share Higher Product

Quality than rivals Broader Product Line Superior on time delivery Superior Customer Service

Some Examples of Corporate Objectives

CITIGROUP
To Attain 1 million customers worldwide

MCDONALDS
To Achieve 100 % total customer satisfaction everyday for every customer in every restaurant

MOTROLLA
Self funding revenue growth of 15% annually An average return of assets of 13 -15 % A Strong Balance Sheet

How realistic should be the objectives

1995 has come and gone and despite a heroic effort by our 220,000 employees, we fell short on both measures, achieving a 14.4% operating margin and almost seven turns. But in stretching for these impossible targets we learned to do things faster that we would have going after doable goals, and we have enough confidence now to set new stretch target of at least 16% operating margin and more that 10 turns

Success Comes with Luck

Success Comes with hard work Success Comes with Hard work and clear Direction

Types of Strategies
Integration Strategies Intensive Strategies Diversification Strategies Defensive Strategies Michael Porters Generic Strategies

Integration Strategies
Forward Integration Backward Integration Horizontal Integration

Forward Integration
When distributors expensive, unreliable
or incapable Growing industry Has capital and human resource When present distributors and retailers have higher margin

Backward Integration
When present supplier expensive,
unreliable or incapable When suppliers small and competitors large Organization has both capital and HR When present suppliers have high profit margin

Horizontal Integration
Mergers, Acquisitions and Takeovers
When organization can gain monopolistic characteristics When organization competes in growing industry When increased economies of scale needed When organization has capital and HR

Packing Formulation Manufacturing

Pesticide Industry MNCs National Companies

Intensive Strategies
Market Penetration Market Development Product Development

Market Penetration
Increasing salesperson, advertising
expenditure, sales promotion and publicity
When current markets not saturated When customer usage rate can be increased When correlation between dollar sales and dollar marketing high

Market Development
Introducing present products or services
to new geographic areas
New untapped unsaturated markets exist Has needed capital and resources Has excess production capacity When organization is successful at what it does

Product Development
Strategy that seeks increased sales by
improving or modifying present products or services
When successful products at maturity stage When rapid technological developments taking place Strong R&D

Diversification Strategies
Related
Unrelated
Adding new but related products or services

Adding new unrelated products or services for present customers

Defensive Strategies
Retrenchment
Divestiture
Regroups through cost and asset reduction to reverse declining sales and profits e.g selling of land, building layoffs etc. Selling a division or part of an organzation Selling all of companies assets in part

Liquidation

Retrenchment strategy
When organization has competence but
has failed to meet its objectives When an organization has grown so large so quickly & reorganization needed When organization is weakest competitor in a given industry

Divestiture Strategy
When retrenchment strategy has failed When division needs more resources than the

company can provide When a division is responsible for companys overall poor performance When a division is misfit with the rest of the organization When a large amount of cash is needed immediately

Liquidation
When both the previous strategies have
failed When only alternative is bankruptcy

Michael Porters Generic Strategies

Cost Leadership Strategies Differentiation Strategies Focus Strategies

Michael Porters Generic Strategies

Advantage
Target Scope Low Cost Broad
(Industry wide)

Product Uniqueness

Cost Leadership Differentiation Strategy Strategy

Narrow
(Market Segment)

Focus Strategy (Low Cost)

Focus Strategy (Differentiation)

Cost Leadership Strategies

Primary reason for forward, backward &

horizontal integration Strategies is effective when

Price sensitive buyers Few ways to achieve product differentiation Insensitivity to differences from brand to brand Large No. of buyers with significant bargaining power

Cost Leadership Strategies

Some features linked
High efficiency Intolerance of wastes Intensive screening of budget Reward linked to cost containment Broad Employee participation in cost control

Cost Leadership Strategies

Some Risks
Competitors may imitate and profit margins may drop in industry Technological breakthroughs may make it ineffective Buyer interest may swing to other differentiating features besides price

Differentiation Strategy
Carries Special feature which may be
Superior service Spare parts availability Engineering design Product performance Useful life Gas mileage Ease of use

Focus Strategies
Niche markets
Geographical areas Particular group of customers

Michael Porters Generic Strategies

Industry Force
Entry Barriers Buyer Power

Generic Strategies
Cost Leadership
Ability to cut price in retaliation deters potential entrants Ability to offer lower price to powerful buyers Better insulated from powerful suppliers

Differentiation
Customer loyalty can discourage potential entrant Large buyers have less power to negotiate because of few close alternatives Better able to pass on supplier price increases to customer

Focus
Focusing develops core competencies that can act as an entry barrier Large buyers have less power to negotiate because of few alternatives Suppliers have powers because of low volumes, but a differentiationfocused firm is better able to pass on supplier price increases

Supplier Power

Threat of Substitute
Rivalry

Can use low price to defend against substitutes

Customers get attached to differentiating attributes, reducing threat of substitutes

Brand loyalty to keep customers from rivals

Specialized products & Core competency protect against substitutes

Rivals cannot meet Differentiation-focused Customer Needs

Better able to compete on price

Means of Achieving Strategies

Joint Venture
When two or more firms form a temporary consortium

Partnership
The working on long term basis

Means of Achieving Strategies

Merger
When two organizations of about equal size unit to form one enterprise

Acquisition
When a large organization purchases a smaller firm or vice versa

Takeover/hostile takeover

Strategy Analysis and Choice

Consistent with or build on past strategies
that have worked well

Strategy Formulation
Input Stage
External Factors Evaluation Internal Factor Evaluation

Matching Stage
TOWS Matrix etc

Decision Stage

TOWS Matrix
Four Types of Strategies
SO Strategies WO Strategies ST Strategies WT Strategies

Constructing a TOWS Matrix

List the Firms Key External opportunities List the firms Key External Threats List the firms key internal strengths List the firm's key internal weaknesses Match internal strengths with external
opportunities

Constructing a TOWS Matrix

Match internal weaknesses with external
opportunities Match internal strengths with external threats Match internal weaknesses with external threats

Always leave blank

STRENGHTS-S 1 2 List Strengths 3 SO STRATEGIES Use strengths to take advantage of opportunities ST STATEGIES Use strengths to avoid threats

WEAKNESSES- S 1 2 List Weaknesses 3 WO STRATEGIES Overcome weaknesses by taking advantage of opportunities WT STRATEGIES Minimize weaknesses and avoid threats

OPPORTUNITIES-O 1 2 List opportunities 3

THREATS-T 1 2 List threats 3

SWOT Matrix For Carnival Crusie Lines

STRENGTHS-S 1. Holds 34% market share 2. Largest Fleet of ships 3. Six different cruise lines 4. Innov. In cruise travel Ind. 5. Largest variety of ships 6. Building largest cruise ships 7. High brand recognition 8. Headquartered in Miami 9. Internet friendly booking OPPORTUNITIES-O 1. Air travel has decreased (9/11) 2. Asian market not being served 3. Possible acquisition of princess cruise line 4. New weather forecasting system 5. Rising demand for all inclusive vacation packages 6. Families have increased disposable income 7. Marriage rates are up more honeymoons SO STRATEGIES 1. Increase capacity of ships to obtain travelers from air industry (S6, O1, O3) 2. Display the weather of vacation location on website (S9, O4) 3. Offer Trans-Atlantic cruise (S6,O4) 4. Acquire P&O Princess (S1, O3) WEAKNESSES-W 1. Major loss in affliated operations 2. Increased debt from building new ships 3. Not serving Asian Market

WO STRATAGIES 1. Begin serving Japan and Pacific Islands (W3, O2, O3, O4) 2. Use weather forecastin to alert customers of potential storm during their vacations (W1, O4)

THREATS-T 1. Decrease in travel since 9/11 2. Terrorism 3. Competition within industry 4. Competition among other type of vacations 5. Economic recession 6. Chance of natural disaster

ST STRATAGIES 1. Advertise Carnivals ship variety, brand recognition and safety policies (S3, S7, T1, T2, T5)

WT STRATAGIES 1. Lower prices of cruise during hurricane season (W1, T6)

Decision Stage
Input
Analysis Decision

List all the possible strategies Rate these strategies on a 1 to 4 scale Other method may be QSPM (stage 3 of
strategy formulation analytical Framework)

Quantitative Strategic Planning Matrix (QSPM)

Determine the attractiveness of various
strategies based on key success factors Evaluates strategies within sets (Defensive, Diversification sets etc)

Steps involved in QSPM

Make a list of the firms key external/internal

factors Assign weight to each key external and internal factor (ranging from 0.0 not important to 1.0 very important) Examine Matching matrices and identify alternative strategies that the organization should consider implementing

Quantitative Strategic Planning Matrix (QSPM)

Determine the attractiveness score (AS)
1= 2= 3= 4= Not attractive Somewhat attractive Reasonably attractive Highly attractive

Compute the total attractiveness score Compute the Sum Total Attractiveness
Score

QSPM
STRATEGIC ALTERNATIVES Key Factors Key External Factors Economy Political/legal/Governmental Social/Cultural/Demographic/Environmental Technological Competitive Weight Strategy 1 Strategy 2 Strategy 3

Key Internal Factors Management Marketing Finance/Accounting Production/operation Research & Development Management and Information

Strategy Implementation
Strategic thoughts into strategic actions Requires shift in responsibility from strategist to divisional and functional managers

Strategy Implementation
Strategy Formulation
Positioning forces before actions Focuses on effectiveness

Strategy Implementation
Managing forces during action Focuses on efficiency

An Intellectual Process
Good intuitive and analytical skill Coordination among few individuals

An Operational Process
Motivation and leadership skills Coordination among many individuals

Management issues relating to strategy implementation

Establishing Annual Objectives Devising Policies Allocating Resources Conflict Management Altering an existing organizational structure Restructuring and Reengineering Revising reward and incentive plans Minimizing resistance to change Creating strategy supportive culture Adopting production/operation Processes Developing effective human resource Function

Annual Objectives

Establishing annual objectives is a decentralized activity Serve as a guideline for actions Directs and channels efforts and activities of organization members Serve as standard of performance Serve as an important source of employee motivation and identification Represents the basis for resource allocation Major instrument for monitoring progress toward achieving longterm objectives Establish organizational, divisional and departmental priorities.

Long term company objective Double company revenues in two yrs By market development and Market Penetrations

Divisional 1 Annual objective

Division 2 Annual objective

Division 3 Annual objective

R&D

Produciton

Marketing

Finance

Policies
- Specific guidelines, methods, procedures, rules,
forms and administrative priatices established to support and encourage work toward stated goals

Policies are instruments for strategy implementation -Policies are needed to make strategy work.

Management Policies
To promote on the basis of merit or on the
basis of seniority To use one or more suppliers To operate one, two or more shifts To stress quality control greatly or not To allow much, some or no overtime work

Resource allocation
- Is a central management activity that
allows for strategy execution - May be strategy based, politically based or Personally based

Types of Resources
Financial Resources Physical Resources Human Resources Technological Resources

Managing Conflict
Disagreement between two or more
parties on one or more issues

Managing Conflict
Avoidance Defusion Confrontation

Matching Structure with Strategy

Changes in strategy means changes in
structure

Types of organizational Structures

Functional Structure
Divisional Structure

By By By By

Centralized Groups tasks and activities by business functions Decentralized Organized in four ways
geographic areas product or service Customer process

Strategic Business Unit

Similar divisions into strategic business units

Restructuring
Also called downsizing, rightsizing or
Concerned with Shareholders well being Reducing the size of the firm in terms of:
No. of employees No. of divisions No. of hierarchical levels

delayering

Reengineering
Concerned with employee and customers
well being Also called Process management, Process innovation or Process redesign Involves reconfiguring or redesigning work jobs and processes for the purpose of improving cost, quality and service.

Linking Performance & Pay to Strategy

Profit Sharing Gain Sharing (depends on profit targets) Example:
Dupont Canada has 16 percent return-on-equity objective. If this objective is met, the companys four thousand employees receive a performance sharing cash award equal to 4 percent of pay. If below 11% nothing, if exceeds 28%, bonus is 10%

Managing Resistance to Change

Thought of change raises anxiety? Force Change Strategy
Giving orders and enforcing, is fast has low commitment and high resistance

Educative Change Strategy

Implementation slow and difficult

Rational or Self Interest Change Strategy

Most effective

Strategy Evaluation
The best-formulated and bestimplemented strategies become obsolete as a firms internal and external environment changes

Three basic activities in Strategy evaluation

Examining the underlying basis of a firms
Strategy Comparing expected results with actual results Taking corrective actions to ensure that performance conforms to plans

Activity One: Review Underlying Basis of Strategy Prepare revised Internal Factor Evaluation Matrix Compare revised to existing IFE Prepare revised External factor Evaluation Compare revised to existing EFE

Do Significant Differences occur?

Yes

No Activity three: Take Corrective Action

Activity Two: Measure Organizational Performance Compare Planned to actual progress toward meeting stated objectives

Do Significant Differences occur?

Yes

No

Continue Present Course

Policy of Pakistan for Economic and GDP Growth

What sector to focus? What are our strength? What are our weaknesses? What opportunities do we have? What are the threats for Pakistan?