chapter 6 and 7 Flashcards
The three major methods of gathering reliable and relevant
information from a company’s environment are:
ENVIRONMENTAL ANALYSIS
focuses on external events that may influence the present position of a business
ENVIRONMENTAL SCANNING
is primarily concerned with the
trends of events
ENVIRONMENTAL MONITORING
gives preferential importance on
information about competitors.
COMPETITIVE INTELLIGENCE
These elements help in determining strategic factors that influence the direction, growth and success of a company.
Physical Resources Climate Wildlife
To determine the possible strategic factors that can reduce the negative or unfavorable impacts of the expected changes on the physical environment of a company.
PHYSICAL ENVIRONMENT ANALYSIS
The strategic approach that is used to analyze the physical environment is
environmental scanning
Strategic Factors of the Societal Environment
Political or Legal Segment
Economic Segment
Sociocultural Segment
Technological Segment
To determine the trends of the strategic factors that are relevant to the growth of an industry.
SOCIETAL ENVIRONMENT ANALYSIS
To gather, evaluate, and disseminate reliable and relevant information about the societal environment, the approach used is an
ENVIRONMENTAL SCANNING
the specific strategic tool used to scan the societal environment is the
PESTEL or STEEP analysis
Strategic Factors of the Industry Environment
Customers
Suppliers
Creditors
Employees
The Government
Competitors
To determine the different forces that drive competition and the extent of the competition so a company can position itself in an
industry.
OBJECTIVE OF INDUSTRY ANALYSIS
The commonly used tool to analyze the industry environment is
PORTER’S FIVE FORCES of Competition Model.
evaluates the level of competition and assesses the attractiveness of an industry itself.
PORTER’S FIVE FORCES of Competition Model.
Strategic Factors of the Internal Environment
Corporate Culture
Organizational Structure
Business resources
To determine how culture influences
strategy formulation.
Corporate Culture
To determine what structure can effectively and efficiently achieve organizational goals.
Organizational Structure
To determine which business resource contributes to the achievement of competitive advantage.
Business resources
is influenced by the type of strategic factor being analyzed and the strategic tool used in the analysis.
objective of conducting an internal environment analysis
evaluates the internal strengths and weaknesses of a company against what the external opportunities and threats offer.
SWOT (strengths, weaknesses, opportunities, and threats) analysis model
is a strategic management tool that assesses the resources of a company to achieve competitive advantage.
VRIO (value, rareness, imitability, and organization) framework
If it can add value for the customer and if it provides the company the capability to exploit opportunities or defend against threats.
valuable
Only a few company possess it.
Rare
If it can hardly be imitated or is costly to imitate
Imitability
When the activities of different functional units, systems, processes, and structures are coordinated, planned, and arranged properly
Organized
The value chain analysis model, developed by
Michael Porter
is a strategic management tool that evaluates the internal activities of a company when producing goods or delivering services
VALUE CHAIN ANALYSIS MODEL
Inbound logistics Operations Outbound
logistics Marketing Service
Primary Activities
Company infrastructure Human resource management Technology development Procurement
Support Activities
represents the benefits that are derived from a product or service.
Value
can be attained by adopting an efficient manufacturing process.
Creating value
The focus of the analysis is on the activities that create cost to the company and how they can be reduced.
Cost Advantage
The focus of the analysis is on the activities that create value for the customers and how they can be improved.
Differentiation Advantage
The BCG growth-share matrix model, developed by
Bruce Herderson of the Boston Consulting Group (BCG) in 1970,
is a strategic management model that assesses a company’s business units or products in terms of market share and market growth.
The BCG growth-share matrix model
acts as a proxy for competitive advantage,
market share
serves as the proxy for industry attractiveness.
market growth
These are products that have high market shares and growth rates in high growth industries.
STARS
These are products that have low market shares but consume large amount of cash.
question marks
These are leaders in the mature market that generate steady cash flow but utilize small amounts only.
CASH COWS
These are products that have low market shares and growth rates.
DOGS
Company ′s market share or revenue /
Competitor ′s market share or revenue
Relative Market Share
also known as scenario analysis or scenario thinking, is a strategic management technique used by organizations to anticipate and prepare for possible future events and uncertainties. It involves creating a set of alternative scenarios or narratives that describe different plausible future states of the world.
SCENARIO PLANNING
The term “strategy” comes from the Greek word “_______” which
refers to the art of a troop leader or a general.
strategia
defines strategy as the analysis, decision, and action that enables a company to succeed.
Dess et al. (2012)
define it as the comprehensive plan that states how a company will achieve its mission and objectives.
Wheelen and Hunger (2010)
Wheelen and Hunger (2010) referred to them as _______ which represent the category of companies based on their common strategic orientation and combination of structure, culture, and
processes
strategic types
These are businesses with few product lines, and they intend to defend them from new products entering the market. Their foremost concern is how to improve their operating activities in terms of cost reduction. Being cost- and efficiency oriented, they are unlikely to make bolder steps to innovate and move to new areas.
Defenders
These are companies with broad lines of products, product development, innovation, and a new market are the essence of their strategy orientation. Creativity for them is more important than efficiency in operations.
Prospectors
These are multidivisional companies that compete in at least two types of industries, one stable and one variable, while maintaining stability and flexibility.
Analyzers
These are businesses that do not have firm or consistent strategic orientations. They adopt piecemeal or quick response strategies which are oftentimes
Reactors:
Usually formulated by the top level management. It is a comprehensive master plan that describes
the overall direction of a company.
Corporate strategy:
Occurs at the business or product unit and describes how a company improves its competitive position in a specific industry
Business Strategy
A plan taken by functional areas that is intended to maximize the productivity of a resource to achieve competitive advantage.
Functional Strategy
The process of developing a comprehensive plan to effectively manage the external environmental strategic forces.
STRATEGY FORMULATION
The formulation of a ______ is conducted by the top-level management, with inputs from the middle- and lower-level managements and other stakeholders in the form of quantitative or qualitative information
CORPORATE STRATEGY
a corporate strategy that a company may adopt if it aims to expand its present operating activities. In short, the
company intends to grow.
GROWTH STRATEGY
when a company expands its operation domestically or globally
INTERNAL GROWTH
when a company enters into mergers, acquisitions or strategic alliances.
External growth -
appropriate to adopt when a
company can reasonably determine that its current product lines have real growth potentials.
CONCENTRATION STRATEGY -
a business expands its operations by entering into other geographic locations and by increasing the range of product lines for the current market. Strategy results in a horizontal integration where a company operates in various geographic locations.
Horizontal Growth Strategy
A company ships goods to other foreign
countries.
Exporting
A company enters into an agreement with
another company from another country to produce or sell
the product/s of the former.
Licensing -
A company enters into an agreement with a
franchiser to use the name and system of the latter.
Franchising -
A company combines its resources with other companies from foreign countries to produce new
products.
Joint venture -
A company purchases a foreign company.
Acquisition
A company constructs its own plant and invests with other assets in a foreign country.
Green-field development
A company constructs operating
facilities and transfers the same to the host country when completed.
Turnkey operations
A company constructs facilities, operates them when completed, and turns them over to the host country.
BOT (build, operate, transfer) scheme
A company takes over the functions of a supplier and a distributor in a ______. It results in vertical integration where company takes full responsibility of all activities in the value chain.
Vertical Growth Strategy
A company takes 100% control of the value chain.
Full integration
A company acquires not more than 50% of its requirements from outsiders.
Taper integration (backward integration) -
A company
purchases most of its requirements from outsiders.
Quasi-integration (forward integration)
A company enters into an
agreement with other companies to provide goods to each other over a specified period of time.
Long-term contracts -
appropriate growth strategy when the original industry appears to have matured, plateaued, and consolidated already.
DIVERSIFICATION STRATEGY
- more appropriate in a
less attractive industry and for a company with a strong
competitive position. In this case, a company has a greater chance to succeed by utilizing its core competency in exploiting a related industry.
Concentric Diversification Strategy
a company may consider this strategy as its growth strategy when its present industry is no longer attractive
Conglomerate Diversification Strategy
a company plans to continue its current activities without substantial change in its direction. It is effective for short-term planning but may be detrimental if used for long-term planning.
STABILITY STRATEGY
A company
takes a temporary timeout from its major activities while observing changes in its external environment. The pause or proceed-with-caution strategy does not imply that a company will shut down its operations. It only temporarily stops major critical activities before shifting to the growth or retrenchment strategy.
PAUSE OR PROCEED WITH-CAUTION STRATEGY -
Indicates that the company, which has a dominant position in the market, will not take anything new; rather, it will continue implementing its current activities in the near future.
NO-CHANGE STRATEGY
Is a temporary plan to a company in its desire to increase is profits when revenues are declining. It is a cost-cutting mechanism to address a decline in profit because of a decrease in sales.
PROFIT STRATEGY
a strategy to be adopted when a company experiences poor competitive position and operating performance and competitive disadvantage
RETRENCHMENT STRATEGY
Adopted when a company is not yet critically bleeding financially. A company intends to improve its operational efficiency by adopting drastic actions for a leaner organization. In contraction, being the initial stage of this strategy, there is an overall cost reduction in the entire company. In the consolidation stage, resources are consolidated, programs are developed, and the remaining best and qualified personnel are motivated to establish a new look and a strong company that can achieve competitive advantage in an industry.
TURNAROUND STRATEGY
Adopted by a company that has a weak competitive position in an industry and does not have the capability to implement a complete turnaround strategy. In this strategy, a weak company becomes the captive of a strong company, which is usually its customers, in order to have
CAPTIVE COMPANY STRATEGY -
Adopted when a company has a weak competitive position in an industry and is not able to look for a strong partner to whom its business unit can be a captive. A _______ is a favorable option when a company is able to look for a good price for the company.
SELL-OUT OR DIVESTMENT STRATEGY -
-Adopted when a
company that is suffering heavy losses terminates its operations.
BANKRUPTCY OR LIQUIDATION STRATEGY
a company gives up its management to a court and settles some financial obligations in return.
In bankruptcy,
involves the conversion of non-cash assets to cash through selling to settle financial obligations.
liquidation
It is intended for the gathering of reliable and relevant information as basis when making a sound forecast about an industry (e.g., expected trends, growth, and competitive forces and the capability of a company to exploit its resources for competitive advantage.
Conduct a critical environmental analysis.
A company can choose to adopt the growth, stability, or retrenchment strategy. When deciding on the future overall direction of a company, the industry, particularly its growth and life cycle, customer behavior and preferences, societal factors, and internal environment factors, should be highly considered.
Set the overall orientation of the company.
A company cannot serve all types of customers with different tastes, preferences, and priorities. This way, a company will be able to focus its efforts and activities toward its ultimate direction.
Identify the industry or market to compete in.
The last stage of corporate strategy formulation involves a business being able to define how its different functional units create synergy as it transfers
resources from one unit to another.
Define how the company transfers resources to its business or functional units.
