strategic slides-2

1Ch 3 -1

Comprehensive Strategic Management Model

Vision &

MissionStatements

Chapter 2

ExternalAudit

Chapter 3

InternalAudit

Chapter 4

Long-TermObjectives

Chapter 5

Generate,Evaluate,

SelectStrategies

Chapter 6

ImplementStrategies:

Mgmt Issues

Chapter 7

ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8

Measure &Evaluate

Performance

Chapter 9

Dr.Mustafa KILI Ch 4-2

External and Internal Analyses

General

Envi

ronm

ent

General

Environment

Gen

eral

Environment

Sociocultural

GlobalTechnological

Polit

ical/L

egal

Dem

ogra

phic Econom

ic

IndustryEnvironment

CompetitorEnvironment

By studying the external environment, firms identify what they might choose to do

Opportunities and threats


External and Internal AnalysesBy studying the internal environment, firms identify what they can do

Unique resources, capabilities, and core competencies

(sustainable competitive advantage)

External and Internal Analyses


Nature of an Internal Audit

Basis for objectives & strategies:

Internal strengths/weaknesses External opportunities/threats Clear statement of mission


Key Internal Forces

Distinctive Competencies

A firms strengths that cannot be easily matched or imitated by competitors

Building competitive advantage involves taking advantage of distinctive competencies

Strategies designed in part to improve on a firms weaknesses and turn to strengths


Competencies vs. Core Competenciesvs. Distinctive Competencies

A company competence is the product of organizational learning and experience andrepresents real proficiency in performing aninternal activity

A core competence is a well-performed internal activity that is central (not peripheral or incidental) to a companys competitiveness and profitability

A distinctive competence is a competitively valuable activity that a company performs better than its rivals

2Dr.Mustafa KILI Ch 4-8

Strategic Management Principle

A distinctive competence

empowers a company to

build competitive

advantage!


Resource Based View (RBV)

Approach to Competitive Advantage

Internal resources are more important than external factors


Discovering CoreCompetencies

Resources Tangible Intangible

Resources are what a firm has to work with--its assets--including its people and the value of its brand name

Resources represent inputs into a firms production process... such as capital equipment, skills of employees, brand names, finances and talented managers




Tangible Resources Financial Physical Technological Organizational

Intangible Resources Human Resource Innovation Reputation


Components ofInternal Analysis


Capabilities



Capabilities

Capabilities are what a firm does, and represent the firms capacity or ability to integrate individual firm resources to achieve a desired objective



Capabilities

Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage




Capabilities

CoreCompetencies



CoreCompetencies

Core competencies are resources and capabilities that serve as a source of competitive advantage over rivals

Core competencies distinguish a company competitively and make it distinctive





Capabilities

CoreCompetencies

Four Criteriaof SustainableAdvantages

Valuable Rare Costly to Imitate Nonsubstitutable





Capabilities

CoreCompetencies



ValueChain

Analysis

Outsource


Service

Marketing & Sales

Outbound Logistics

Operations

Inbound LogisticsFirm

Infra

stru

ctur

e

Hum

an R

esou

rce

Mgm

t.

Tech

nolo

gica

l Dev

elop

men

t

Pro

cure

men

t

Margi

n Margin

Primary Activities

Supp

ort A

ctiv

ities

The BasicValue Chain


Margi

n Margin

Primary Activities

Supp

ort A

ctiv

ities

OutsourcingOutsourcing is the purchase of some or all of a value-creating activity from an external supplier

Usually this is because the specialty supplier can provide these functions more efficiently

Service

Marketing & Sales

Outbound Logistics

Operations

Inbound LogisticsFirm

Infra

stru

ctur

e

Hum

an R

esou

rce

Mgm

t.

Tech

nolo

gica

l Dev

elop

men

t

Proc

urem

ent





Capabilities

CoreCompetencies

CompetitiveAdvantage

StrategicCompetitiveness



ValueChain

Analysis

Outsource


Performance Implications

Valua

ble?

Rare?

Costl

y to I

mitat

e?

Nonsu

bstitu

table

CompetitiveConsequences

PerformanceImplications

No No No NoCompetitiveDisadvantage

Below AverageReturns

Yes No NoYes/No

CompetitiveParity Average Returns

Yes Yes NoYes/No

Temporary Com-petitive Advantage

Above Average to Average Returns

Yes Yes Yes YesSustainable Com-petitive Advantage

Above Average Returns


A Quick Review of Organizational Resources

OrganizationalResources

Financial assetsPhysical assetsHuman resourcesIntangible assetsStructural-cultural

assets

OrganizationalCapabilities

Organizational processes and routines

Accumulated knowledgeActual work activities

CoreCompetencies

DistinctiveOrganizationalCapabilities

Competitive Advantage

StrategicCompetitiveness


Key Internal Forces

Functional business areas (Avtivity Areas):

Vary by organization Divisions have differing strengths and

weaknesses


Internal Audit

Parallels process of external audit Gather & assimilate information from:

Management Marketing Finance/accounting Production/operations Research & development Management information systems


Internal Audit

Involvement in performing an internal strategic-management audit provides vehicle for understanding nature and effect of decisions in other functional business areas of the firm.


Internal Audit

Key to organizational success:

Coordination and understanding among managers from all functional areas


Integrating Strategy and Culture

Organizational Culture

Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integrationis considered valid and taught to new members



Cultural products

storieslegends sagas

languagesymbolsheroes

Values beliefsrites

ritualsceremonies

myths



Organizational Culture - -

Resistant to change

May represent a strength or weakness of the firm


Functions of Management

Five basic activities

Planning Organizing Motivating Staffing Controlling



Planning

Stage When Most ImportantFunction

Strategy Formulation

Organizing Strategy Implementation

Staffing

Controlling

Strategy Implementation

Strategy Evaluation

Motivating Strategy Implementation



Planning

Start of the process Bridge between present and future Increases likelihood of achieving desired

results


Planning

Planning

Forecasting

Establishing objectives

Devising strategies

Developing policies

Setting goals



Organizing

Achieve coordinated effort Defining task and authority relationships Departmentalization Delegation of authority


What Determines the Best Org. Structure?

Strategy

Size

Technology

EnvironmentDr.Mustafa KILI Ch 4-43

Organizing

Organizing

Organizational designJob specializationJob descriptions

Job specificationsSpan of control

Unity of commandCoordinationJob designJob analysis


Motivating

Motivating

LeadershipCommunication

Work groupsJob enrichmentJob satisfactionNeeds fulfillmentOrganizational

changeMorale


Staffing

Staffing

Wage & salary adminEmployee benefits

InterviewingHiringFiring

TrainingManagement development

SafetyAffirmative action

EEOLabor relations

Career developmentDiscipline procedures

Management


Controlling

Controlling

Quality controlFinancial control

Sales controlInventory controlExpense control

Analysis of variancesRewardsSanctions

Management


Management Audit Checklist

Does the firm use strategic-management concepts?

Are company objectives and goals measurable and well communicated?

Do managers at all hierarchical levels plan effectively?

Do managers delegate authority well? Is the organizations structure

appropriate?


Management Audit Checklist

Are job descriptions and job specifications clear?

Is employee morale high? Are employee turnover and

absenteeism low? Are organizational reward and control

mechanisms effective?


Marketing

1. Customer analysis2. Selling products/services3. Product and service planning4. Pricing5. Distribution6. Marketing research7. Opportunity analysis


Marketing Audit

Are markets segmented effectively? Is the organization positioned well among

competitors? Has the firms market share been increasing? Are present channels of distribution reliable

and cost effective? Does the firm have an effective sales force?


Marketing Audit

Does the firm conduct market research? Are product quality and customer

service good? Are the firm's products/services priced

appropriately? Does the firm have an effective

promotion, advertising, and publicity strategy?


Marketing Audit

Are marketing planning and budgeting effective?

Do the firms marketing mangers have adequate experience and training


Finance/Accounting

Determining financial strengths and weaknesses key to strategy formulation

Investment decision (Capital budgeting) Financing decision Dividend decision


Finance/Accounting

Functions of Finance/Accounting

1. Investment decision (Capital budgeting)2. Financing decision3. Dividend decision


Basic Financial Ratios

Liquidity ratios

Firms ability to meet its short-term obligations

Ratios

Current ratio

Quick (or acid-test)

ratio


Leverage ratios

Extent of debt financing

Ratios

Debt-to-total-assets

Debt-to-equity

Long-term debt-to-equity

Times-interest earned



Activity ratios

Effective use of firms resources

Ratios

Inventory-turnover

Fixed assets turnover

Total assets turnover

Accounts receivable turnover

Average collection period



Profitability ratios

Effectiveness shown by returns on sales and investment

Ratios

Gross profit margin

Operating profit margin

Net profit margin

Return on total assets (ROA)



Profitability ratios(continued)

Effectiveness shown by returns on sales and investment

Ratios

Return on stockholders equity (ROE)

Earnings per share

Price-earnings ratio



Growth ratios

Firms ability to maintain economic position

Ratios

Sales

Net income

Earnings per share

Dividends per share



Where is the firm strong and weak as indicated by financial ratio analysis?

Can the firm raise needed short-term capital? Can the firm raise needed long-term capital

through debt and/or equity? Does the firm have sufficient working capital? Are capital budgeting procedures effective?

Finance/Accounting Audit

10


Are dividend payout policies reasonable? Does the firm have good relations with its

investors and stockholders? Are the firms financial managers experienced

and well trained?

Finance/Accounting Audit


Process Capacity Inventory Workforce Quality

Production/Operations


Are suppliers of raw materials, parts, and subassemblies reliable and reasonable?

Are facilities, equipment, machinery, and offices in good condition?

Are inventory-control policies and procedures effective?

Production/Operations Audit


Are quality-control policies and procedures effective?

Are facilities, resources, and markets strategically located?

Does the firm have technological competencies?

Production/Operations Audit


Development of new products before competition

Improving product quality Improving manufacturing processes to

reduce costs

Research and Development


R&D budgets

Financing as many projects as possible

Use percentage-of-sales method

Budgeting relative to competitors

Deciding how many successful new

products are needed

Research and Development

11


Does the firm have R&D facilities? Are they adequate?

If outside R&D firms are used, are they cost effective?

Are the organizations R&D personnel well qualified?

Are R&D resources allocated effectively?

Research and Development Audit


Are management information and computer systems adequate?

Is communication between R&D and other organizational units effective?

Are present products technologically competitive?

Research and Development Audit


Purpose Improve performance of an enterprise by

improving the quality of managerial decisions.

Management Information Systems


Information Systems CIO/CTO Security User-friendly E-commerce

Management Information Systems


Do all managers in the firm use the information system to make decisions?

Is there a chief information officer or director of information systems position in the firm?

Are data in the information system updated regularly?

Management Information Systems Audit


Do managers from all functional areas of the firm contribute input to the information system?

Are there effective passwords for entry into the firms information system?

Are strategists of the firm familiar with the information systems of rival firms?


12


Is the information system user-friendly? Do all users of the information system

understand the competitive advantages that information can provide firms?

Are computer training workshops provided for users?

Is the firms system being improved?



Internal Analysis (IFE)

Five- Step Process:

List key internal factors (10- 20)Strengths & weaknesses

Assign weight to each (0 to 1.0)Sum of all weights = 1.0


Assign 1-4 rating to each factorFirms current strategies response to the

factor

Multiply each factors weight by its ratingProduces a weighted score



Sum the weighted scores for eachDetermines the total weighted score for the

organization

Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5



.153.05Financial ratios

.153.05Reputation as family-friendly

.204.05Long-range planning

.153.05Minimal comps provided

.153.05Buffets at most facilities

.153.05Strong management team

.604.15Owns 1 mile on Las Vegas strip

.153.05Increasing free cash flows

.404.10Room occupancy rates over 95%

.204.05Largest casino company in world

Weightedscore

RatingWeightMandalay Bay

Internal Strengths



2.751.0TOTAL (including Strengths)

.101.10Recent loss of joint ventures

.101.10Laughlin properties

.102.05Family reputation, not high rollers

.102.05Little diversification

.051.05Most properties located in Las Vegas

Weightedscore

RatingWeightMandalay Bay

Internal Weaknesses


13


Mandalay Bay (in the previous example), has a total weighted score of 2.75 indicating that the firm is above average in its overall internal strength


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