STRAMA REVIEWER CH. 1-6. BOOK OF JAMES HALL Ch1 - OVERVIEW OF STRAMA
maki making ng deci decisi sion ons s in situ situat atio ions ns of grea great t uncertainty or little precedent.
Ke$ term! i STRAMA
Stage! "# STRAMA 1. Strate Strateg$ g$ #"rm #"rm%&a %&ati" ti" includes developing a vision and miss missio ion, n, iden identi tiy yin ing g an orga organi niza zati tion on’s ’s exte exterrnal nal oppo opport rtun unit itie ies s and and thr threats eats,, det determi ermini ning ng inter nterna nall stren trengt gth hs and and weak weakne ness sses es,, esta establ blis ishi hing ng long long-t -ter erm m obje objec ctiv tives, es, gener enerat atin ing g alter lterna nati tive ve stra trateg tegies, es, and cho choosin osing g part articul icula ar strategies to pursue.
1. C"m(e C"m(etit titi*e i*e A+*a A+*atag tage e !trat trateg egic ic man managem agemen entt is all about gaining and maintaining competitive advantage. %his advantage. %his term can be defned as “any “anyth thin ing g that that a rm rm does does especially well compared to rival rms.” ' frm frm must must striv strive e to achiev achieve e sus sustai tained ned competitive advantage by& contin continual ually ly adapti adapting ng to change changes s in exter xterna nall tren trend ds and and even eventts and internal internal capabili capabilities ties,, competenc competencies, ies, and resources$ and by e"ectively ormulating, implementing, and evaluating strategies that capitalize upon those actors
'. Strateg$ Strateg$ im(&eme im(&emetati tati" " reu euires ires a frm frm to esta estab blis lish annual objectives, devise policies motivat vate employees, and allocate resour resources ces so that ormula ormulated ted strategie strategies s can be executed. !trategy implem implement entati ation on includ includes es develo developin ping g a strategy strategy-sup -support portive ive culture culture,, creatin creating g an e"ec e"ecti tiv ve orga organ nizat izatio iona nall stru tructur cture, e, redire redirectin cting g marketin marketing g e"orts, e"orts, prepari preparing ng budgets ets, developing and utilizing inormation systems, and linking employee compensation
'. Stra Strate teg gi!t! i!t! - the individuals who are most most respo respons nsibl ible e or the the succe success ss or ailure o an organization. !trategists help an organization gather, analyze, and organize inormat inormation. ion. %hey track track industr industry y and competitive trends, develop or orecas ecasti tin ng mode modells and scen scena ario anal analys yses es,, eval evalua uate te corp corpor orat ate e and and divisional perormance, spot emerging market opportunities, identiy business threats threats,, and develop develop creativ creative e action action plans.
). Strate Strateg$ g$ e*a& e*a&%at %ati" i" the fnal stage in strategic management. #anagers desperately need to know when particular strategies are not working working well$ well$ strategy strategy evaluation evaluation is the primary means or obtaining this inormation
Strategic Strategic planners planners usually usually serve serve in a support or sta role
Strategic maagemet - can be defned as the the art art and and scie scienc nce e o orm ormul ulat atin ing, g, impl implem emen enti ting ng,, and and eval evalua uati ting ng cros crosssunc unctio tional nal dec decisi isions ons that that enabl nable e an organization organization to achieve its objectives
%hree undamental strategy evaluation activities& revie eviewi wing ng exte extern rnal al and and inte interrnal nal act actors ors that that are the bases ases or or current strategies measuring perormance, and taking corrective actions •
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!he "#$ is the most visible and critical strategic manager.
). VMS •
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Most Most people people recogn recogniz ize e that that intuition is esse essent ntia iall to maki making ng good good stra strate tegi gic c decisions. Intuition is particularly useful for
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#any organizations today develop a vision vision statem statement ent that that answer answers s the the What +" e at at t" ues uesti tio on ,What ec"me/0 ote oten n cons consid ider ered ed the the frst frst step step in strate strategic gic planni planning, ng, prece precedin ding g even even development o a mission statement. #iss #issio ion n stat statem emen ents ts are are ,e+%rig !tatemet! "# (%r("!e that
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+i!tig%i!h "e %!ie!! #r"m "ther !imi&ar rm!. ' mission statement broadly charts the uture direction o an organization.
2. E3tera& O(("rt%itie! a+ Threat! 4 Itera& !tregth! a+ ea5e!!e! $pportunities and threats are largely beyond the control o a single organization(thus the word e3tera&. )nternal strengths and internal weaknesses are an "rgaiati"7! c"tr"&&a&e acti*itie! that are perormed especially well or poorly.
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1. '. ). 2. 8.
evelop #! +erorm internal audit +erorm external audit stablish long term objectives /enerate, evaluate and select strategies 6. )mplement strategies - #anagement issues :. )mplement strategies 0 #arketing, fnance, accounting, 12, and #)! issues ;. #easure and evaluate perormance
Three im("rtat >%e!ti"! t" a!er i +e*e&"(ig a !trategic (&a ? 3here are we now4 3here do we want to go4 5ow are we going to get there4 • • •
8. L"g-term "9ecti*e!
$b%ectives can be defned as specifc results that an organization seeks to achieve in pursuing its basic mission. &ong'term means more than one year.
6. Strategie! !trategies are the means by which long-term objectives will be achieved. !trategies are potential actions that reuire top management decisions and large amounts o the frm’s resources
Beet! "# STRAMA
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nhanced communication eeper6)mproved understanding o others’ views and o what the frm is doing6planning and why /reater commitment & to achieve objectives, implement strategies, to work hard
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:. A%a& O9ecti*e! (nnual ob%ectives are !h"rtterm mi&e!t"e! that organizations must achieve to reach long-term objectives. *ike long-term objectives, annual objectives should be measurable, uantitative, challenging, realistic, consistent, and prioritized. ;. <"&icie!
Ch' @ FORMLATIO OF VMS Itr" t" VMS i! " (age 1 Characteri!tic! "# a Mi!!i" Statemet? ' eclaration o 'ttitude ' 7ustomer 8rientation 7omponents & 9. C%!t"mer!D 3ho are the frm’s customers4 :.
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+olicies are the means by which annual objectives will be achieved. +olicies include g%i+e&ie!= r%&e!= a+ (r"ce+%re! established to support e"orts to achieve stated objectives. +olicies are guides to decision making and a++re!! re(etiti*e "r rec%rrig !it%ati"!.
The STRAMA m"+e&
the frm committed to growth and fnancial soundness4 >. Philosophy (3hat are the basic belies, values, aspirations, and ethical priorities o the frm4 ?. Self-concept (3hat is the frm’s distinctive competence or major competitive advantage4 @. Concern for public image()s the frm responsive to social, community, and environmental concerns4
A. C"cer #"r em(&"$ee!( 're employees a valuable asset o the frm4
C"m(etiti*e Ite&&igece
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Ch) @ THE ETERAL ASSESSMET The at%re "# a E3tera& A%+it E3tera& !trategic maagemet a%+itG %he purpose o an external audit is to develop a fnite list o opportunities that could beneft a frm and threats that should be avoided. Bot aimed at developing an exhaustive list o every possible actor that could inCuence the business$ rather, it is aimed at identiying key variables that o"er actionable responses •
Mar5et C"mm"a&it$ Simi&arit$ •
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Re!"%rce
Mar5et c"mm"a&it$ - number and signifcance o markets that a frm competes in with rivals Re!"%rce !imi&arit$ - is the extent to which the type and amount o a frm’s internal resources are comparable to a rival.
C"m(etiti*e Aa&$!i!? F"rce! M"+e&
<"rter7!
Fi*e-
Ke$ e3tera& #"rce! xternal orces can be divided into fve broad categories& • •
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economic orces social, cultural, demographic, and natural environment orces political, governmental, and legal orces technological orces competitive orces
The I+%!tria& Orgaiati" I4OG Vie %he )ndustrial 8rganization D)68E approach to competitive advantage advocates that external (industry) factors are more important than internal factors in a frm achieving competitive advantage.
'ccording to +orter, the nature o competitiveness in a given industry can be viewed as a composite o fve orces& 9. 1ivalry among competing frms :. +otential entry o new competitors ;. +otential development o substitute products <. Fargaining power o suppliers =. Fargaining power o consumers I+%!tr$ Aa&$!i!? The E3tera& Fact"r E*a&%ati" EFEG Matri3 - allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive inormation.
The C"m(etiti*e
)))!he weights and total weighted scores in both a "*M and an #+# have the same meaning. owever , critical success factors in a "*M include both internal and e-ternal issues)))
Ch2 @ THE ITERAL ASSESSMET i!ticti*e c"m(etecie! 0 the frm’s strengths that cannot be easily matched or imitated by competitors !he process of advantage in a rm
gaining
competitive
3eaknesses G !trengths G istinctive 7ompetencies G 7ompetitive 'dvantage
Itera& a%+it •
+erorming an internal audit reuires gathering, assimilating, and evaluating inormation about the frm’s operations.
The Re!"%rce-Ba!e+ Vie RBVG •
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%he 1esource-Fased iew D1FE approach to competitive advantage contends that internal resources are more important or a frm than external actors in achieving and sustaining competitive advantage. )n contrast to the )68 theory presented in the previous chapter, proponents o c"te+ that the 1F view "rgaiati"a& (er#"rmace i&& (rimari&$ e +etermie+ $ itera& re!"%rce! that can be gr"%(e+ it" three a&&ec"m(a!!ig categ"rie!? physical resources o o human resources organizational resources o
and to be taught to new members as the correct way to perceive, think, and eel.I
F%cti"! "# maagemet <&aig 0 the essential bridge between the present and the uture that increases the likelihood o achieving desired results. Orgaiig - 8rganizing means determining who does what and who reports to whom. M"ti*atig the process o inCuencing people to accomplish specifc objectives. Stag - also called personnel management or human resource management, includes activities such as recruiting, interviewing, testing, selecting, orienting, training, developing, caring or, evaluating, rewarding, disciplining, promoting, transerring, demoting, and dismissing employees, as well as managing union relations. C"tr"&&ig - to ensure that actual operations conorm to planned operations. •
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Va&%e Chai Aa&$!i! VCAG - reers to the process whereby a frm determines the cost associated with organizational activities rom purchasing raw materials to manuacturing productDsE to marketing those products. 7' aims to identiy where low-cost advantages or disadvantages exist anywhere along the value chain rom raw material to customer service activities.
Bechmar5ig - is an analytical tool used to determine whether a frm’s value chain activities are competitive compared to rivals and thus conducive to winning in the marketplace. %he hardest part o benchmarking can be gaining access to other frms’ value chain activities with associated costs.
Orgaiati"a& c%&t%re - can be defned as Ha pattern o behavior that has been developed by an organization as it learns to cope with its problem o external adaptation and internal integration, and that has worked well enough to be considered valid
Ta!#"rmig Va&%e Chai Acti*itie! it" S%!taie+ C"m(etiti*e A+*atage 9. alue chain activities are identifed and assessed
:. 7ore competencies arise in some activities ;. !ome core competencies evolve into distinctive 7ompetencies <. !ome distinctive competencies yield sustained competitive advantages
The Itera& Fact"r E*a&%ati" IFEG Matri3 - %his strategy-ormulation tool summarizes and evaluates the major strengths and weaknesses in the unctional areas o a business, and it also provides a basis or identiying and evaluating relationships among those areas.
Retrechmet - 1egrouping through cost and asset reduction to reverse declining sales and proft i*e!tit%re - !elling a division or part o an organization Li>%i+ati" - !elling all o a company’s assets, in parts, or their tangible worth
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Michae& <"rter7! Fi*e eeric Strategie!
Ch2 @ STRATEIES I ACTIO T$(e! "# Strategie! Integration Strategies •
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F"rar+ itegrati" /aining ownership or increased control over distributors or retailers Bac5ar+ itegrati" - !eeking ownership or increased control o a frm’s suppliers H"ri"ta& Itegrati" - !eeking ownership or increased control over competitors
Intensive Strategies •
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Mar5et
iversication Strategies •
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Re&ate+ i*er!icati" - 'dding new but related products or services re&ate+ i*er!icati" - 'dding new, unrelated products or services
efensive Strategies
'ccording to +orter, strategies allow organizations to gain competitive advantage rom three di"erent bases& c"!t &ea+er!hi(= +ieretiati"= a+ #"c%!. *orter calls these bases generic strategies
1. C"!t &ea+er!hi( - emphasizes producing standardized products at a very low per-unit cost or consumers who are price-sensitive. %wo alternative types o cost leadership strategies can be defned & •
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T$(e 1 - is a &"-c"!t strategy that o"ers products or services to a wide range o customers at the lowest price available on the market. T$(e ' - is a best-value strategy that o"ers products or services to a wide range o customers at the best pricevalue available on the market$ %he best-value strategy aims to o"er customers a range o products or services at the lowest price available compared to a rival’s products with similar attributes.
!ype / and !ype 0 strategies target a large mar!et
'. ieretiati" - a strategy aimed at producing products and services considered uniue industry wide and directed at consumers who are relatively priceinsensitive. *orter1s !ype dierentiation
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generic
strategy
%wo alternative types o ocus strategies are %ype < and %ype =.& T$(e 2 - is a low-cost ocus strategy that o"ers products or services to a small range Dniche groupE o customers at the lowest price available on the market. T$(e 8 - is a best-value ocus strategy that o"ers products or services to a small range o customers at the best price-value available on the market. 3oth !ype 4 and !ype 5 focus strategies target a small mar!et" I&&%!trati" "# M<7! 8 eeric Strategie!?
J"it Vet%re4
Merger4Ac>%i!iti" #erger and acuisition are two commonly used ways to pursue strategies.
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) the acuisition is +e!ire+ by both frms, it is termed a riendly merger.
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). F"c%! - means producing products and services that ulfll the needs o small groups o consumers.
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3hen a merger or acuisition i! "t +e!ire+ by both parties, it can be called a takeover or hostile takeover.
merger ' occurs when two organizations o about eual size unite to orm one enterprise. 'n ac>%i!iti" occurs when a large organization purchases DacuiresE a smaller frm, or vice versa.
Fir!t M"*er A+*atage! - reer to the benefts a frm may achieve by entering a new market or developing a new product or service prior to rival frms O%t!"%rcig Fusiness-process outsourcing DF+8E is a rapidly growing new business that i*"&*e! c"m(aie! ta5ig "*er the #%cti"a& "(erati"! , such as human resources, inormation systems, payroll, accounting, customer service, and even marketing o other frms.
Ch6 @ STRATE AALSIS A CHOICE
The Stregth!-Wea5e!!e!O(("rt%itie!-Threat! SWOTG Matri3 helps managers develop our types o strategies&
best long-run opportunities growth and proftability.
Korward, backward, and horizontal integration$ market penetration$ market development$ and product development are appropriate strategies or these divisions to consider
1. SO !tregth!-"(("rt%itie!G Strategie! - !8 !trategies use a frm’s internal strengths to take advantage o external opportunities. '. WO ea5e!!e!-"(("rt%itie!G Strategie! - 38 !trategies aim at improving internal weaknesses by taking advantage o external opportunities.
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). ST !tregth!-threat!G Strategie! !% !trategies use a frm’s strengths to avoid or reduce the impact o external threats. 2. WT ea5e!!e!-threat!G Strategie! - are deensive tactics directed at reducing internal weakness and avoiding external threats. The Strategic <"!iti" a+ Acti" E*a&%ati" S
)ts divisions are& %e!ti" Mar5!Ddivisions in Juadrant ) have a low relative market share position, yet they compete in a high-growth industry. /enerally these frms’ cash needs are high and their cash generation is low. •
%hese businesses are called Juestion #arks because the organization m%!t +eci+e whether to strengthen them by pursuing an intensive strategy or to sell them. •
Star!(Juadrant )) businesses D!tarsE represent the organization’s
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Ca!h C"!(ivisions positioned in Juadrant ))) have a high relative market share position but compete in a low-growth industry. 7alled 7ash 7ows because they generate cash in excess o their needs, they are oten milked. +roduct development or diversifcation may be attractive strategies or strong 7ash 7ows. 5owever, as a 7ash 7ow division becomes weak, retrenchment or divestiture can become more appropriate. "g!(Juadrant ) divisions o the organization have a low relative market share position and compete in a slow- or no-market-growth industry$ 3hen a division frst becomes a og, retrenchment can be the best strategy to pursue because many ogs have bounced back, ater strenuous asset and cost reduction, to become viable, proftable divisions.
The Itera&-E3tera& IEG Matri3 positions an organization’s various divisions in a nine-cell display.
The ra+ Strateg$ Matri3 - 'll organizations can be positioned in one o the /rand !trategy #atrix’s our strategy uadrants. ' frm’s divisions likewise could be positioned. %a+rat I 0 /ood strategic position %a+rat ' - need to evaluate their present approach to the marketplace seriously. %a+rat ) - organizations compete in slow-growth industries and have weak competitive positions %a+rat 2 - strong competitive position but are in a slow growth industry
ECISIO STAE
The %atitati*e Strategic <&aig Matri3 S
The S
I&&%!trati" "# SM
I&&%!trati" "# S
