STRAMA REVIEWER CH. 1-6.

BOOK
OF JAMES HALL
Ch1 - OVERVIEW OF STRAMA

making decisions in situations of great

uncertainty or little precedent.
Key terms in STRAMA

Stages of STRAMA
1. Strategy formulation
includes developing a vision and
mission, identifying an organizations
external
opportunities
and
threats,
determining
internal
strengths
and
weaknesses,
establishing
long-term
objectives,
generating
alternative
strategies,
and
choosing
particular
strategies to pursue.

1. Competitive Advantage
Strategic management is all
about
gaining
and
maintaining
competitive advantage. This term can be
defined as anything that a firm does
especially well compared to rival firms.
A firm must strive to achieve sustained
competitive advantage by:
continually adapting to changes in
external trends and events and
internal capabilities, competencies,
and resources; and by
effectively
formulating,
implementing,
and
evaluating
strategies that capitalize upon those
factors

2. Strategy implementation
requires a firm to establish
annual
objectives,
devise
policies
motivate
employees,
and
allocate
resources so that formulated strategies
can
be
executed.
Strategy
implementation includes developing a
strategy-supportive culture, creating an
effective
organizational
structure,
redirecting marketing efforts, preparing
budgets,
developing
and
utilizing
information
systems,
and
linking
employee compensation

2. Strategists - the individuals who are

most responsible for the success or
failure of an organization.
Strategists help an organization
gather,
analyze,
and
organize
information. They track industry and
competitive
trends,
develop
forecasting models and scenario
analyses, evaluate corporate and
divisional performance, spot emerging
market opportunities, identify business
threats, and develop creative action
plans.

3. Strategy evaluation
the final stage in strategic
management. Managers desperately need
to know when particular strategies are not
working well; strategy evaluation is the
primary
means
for
obtaining
this
information

Strategic planners usually serve in a

support or
staff role

Strategic management - can be defined

as the art and science of formulating,
implementing, and evaluating crossfunctional decisions that enable an
organization to achieve its objectives

Three fundamental strategy evaluation

activities:
reviewing external and internal
factors that are the bases for
current strategies
measuring performance, and
taking corrective actions
Most people recognize that intuition
is essential to making good strategic
decisions. Intuition is particularly useful for

The CEO is the most visible and critical

strategic
manager.
3. VMS

Many organizations today develop a

vision statement that answers the
question What do we want to
become?
often considered the first step in
strategic planning, preceding even
development of a mission statement.
Mission statements are enduring
statements
of
purpose
that

distinguish one business from

other similar firms.
A mission statement broadly charts
the
future
direction
of
an
organization.

4. External
Opportunities
and
Threats / Internal strengths and
weaknesses

Opportunities and threats are largely

beyond the control of a single
organizationthus the word external.
Internal
strengths
and
internal
weaknesses are an organizations
controllable activities that are
performed especially well or poorly.

1.
2.
3.
4.
5.

Develop VMS
Perform internal audit
Perform external audit
Establish long term objectives
Generate,
evaluate
and
select
strategies
6. Implement strategies - Management
issues
7. Implement strategies Marketing,
finance, accounting, R&D, and MIS
issues
8. Measure and evaluate performance
Three important questions to answer
in developing a strategic plan :
Where are we now?
Where do we want to go?
How are we going to get there?

5. Long-term objectives

Objectives can be defined as

specific results that an organization seeks
to achieve in pursuing its basic mission.
Long-term means more than one year.
6. Strategies
Strategies are the means by which
long-term objectives will be achieved.
Strategies are potential actions that
require top management decisions and
large amounts of the firms resources
7. Annual Objectives
Annual objectives are shortterm milestones that organizations
must
achieve
to
reach
long-term
objectives. Like long-term objectives,
annual objectives should be measurable,
quantitative,
challenging,
realistic,
consistent, and prioritized.
8. Policies

Policies are the means by which

annual objectives will be achieved.
Policies include guidelines, rules,
and procedures established to
support efforts to achieve stated
objectives.
Policies are guides to decision
making and address repetitive or
recurring situations.

The STRAMA model

Benefits of STRAMA

Enhanced communication
Deeper/Improved understanding of
others views and of what the firm is
doing/planning and why
Greater commitment : to achieve
objectives, implement strategies, to
work hard

Ch2 FORMULATION OF VMS

***Intro to VMS is on page 1***
Characteristics of a Mission Statement:
A Declaration of Attitude
A Customer Orientation
Components :
1. CustomersWho
are
the
firms customers?
2. Products or servicesWhat
are the firms major products
or services?
3. MarketsGeographically,
where does the firm compete?
4. TechnologyIs
the
firm
technologically current?
5. Concern
for
survival,
growth, and profitabilityIs

the firm committed to growth

and financial soundness?
6. PhilosophyWhat are the basic
beliefs, values, aspirations, and
ethical priorities of the firm?
7. Self-conceptWhat is the firms
distinctive competence or major
competitive advantage?
8. Concern for public imageIs
the firm responsive to social,
community, and environmental
concerns?

9. Concern for employees

Are employees a valuable
asset of the firm?
Ch3 THE EXTERNAL ASSESSMENT
The Nature of an External Audit
(External strategic management audit)
The purpose of an external audit is to
develop a finite list of opportunities
that could benefit a firm and threats
that should be avoided.
Not
aimed
at
developing
an
exhaustive list of every possible
factor that could influence the
business; rather, it is aimed at
identifying key variables that offer
actionable responses

Competitive Intelligence Programs - is a

systematic and ethical process for gathering
and
analyzing information
about the
competitions activities and general business
trends to further a businesss own goals
The three basic objectives of a CI
program
to provide a general understanding of
an industry and its competitors
to identify areas in which competitors
are vulnerable and to assess the
impact strategic actions would have
on competitors
to identify potential moves that a
competitor might make that would
endanger a firms position in the
market
Market Commonality
Similarity

External forces can be divided into five

broad categories:

economic forces
social, cultural, demographic, and
natural environment forces
political, governmental, and legal
forces
technological forces
competitive forces

The Industrial Organization (I/O) View

The
Industrial
Organization
(I/O)
approach to competitive advantage
advocates that external (industry)
factors are more important than
internal factors in a firm achieving
competitive advantage.

Resource

Market commonality - number and

significance of markets that a firm
competes in with rivals
Resource similarity - is the extent
to which the type and amount of a
firms
internal
resources
are
comparable to a rival.

Competitive Analysis:
Forces Model
Key external forces

and

Porters

Five-

According
to
Porter,
the
nature
of
competitiveness in a given industry can be
viewed as a composite of five forces:
1. Rivalry among competing firms
2. Potential entry of new competitors
3. Potential development of substitute
products
4. Bargaining power of suppliers
5. Bargaining power of consumers
Industry Analysis: The External Factor
Evaluation (EFE) Matrix
- allows
strategists to summarize and evaluate
economic, social, cultural, demographic,
environmental, political, governmental, legal,
technological, and competitive information.
The Competitive Profile Matrix (CPM) identifies a firms major competitors and its
particular strengths and weaknesses in
relation to a sample firms strategic position.

***The weights and total weighted scores in

both a CPM and an EFE have the same
meaning. However, critical success factors
in a CPM include both internal and external
issues***
Ch4 THE INTERNAL ASSESSMENT
Distinctive competencies the
firms
strengths that cannot be easily matched or
imitated by competitors
The
process
of
advantage in a firm

gaining

competitive

Weaknesses Strengths Distinctive

Competencies Competitive Advantage
Internal audit

Performing an internal audit requires

gathering, assimilating, and evaluating
information
about
the
firms
operations.

The Resource-Based View (RBV)

The
Resource-Based
View
(RBV)
approach to competitive advantage
contends that internal resources are
more important for a firm than
external factors in achieving and
sustaining competitive advantage.
In contrast to the I/O theory presented
in the previous chapter, proponents of
the
RBV
view
contend
that
organizational performance will
primarily
be
determined
by
internal resources that can be
grouped
into
three
allencompassing categories:
o physical resources
o human resources
o organizational resources

Organizational culture - can be defined

as a pattern of behavior that has been
developed by an organization as it learns to
cope with its problem of external adaptation
and internal integration, and that has
worked well enough to be considered valid

and to be taught to new members as the

correct way to perceive, think, and feel.
Functions of management
Planning the essential bridge
between the present and the future
that increases the likelihood of
achieving desired results.
Organizing - Organizing means
determining who does what and who
reports to whom.
Motivating
the
process
of
influencing people to accomplish
specific objectives.
Staffing - also called personnel
management or human resource
management, includes activities such
as recruiting, interviewing, testing,
selecting,
orienting,
training,
developing, caring for, evaluating,
rewarding, disciplining, promoting,
transferring,
demoting,
and
dismissing employees, as well as
managing union relations.
Controlling - to ensure that actual
operations
conform
to
planned
operations.
Value Chain Analysis (VCA) - refers to
the process whereby a firm determines the
cost
associated
with
organizational
activities from purchasing raw materials to
manufacturing product(s) to marketing
those products.
VCA aims to identify where low-cost
advantages
or
disadvantages
exist
anywhere along the value chain from raw
material to customer service activities.
Benchmarking - is an analytical tool used
to determine whether a firms value chain
activities are competitive compared to
rivals and thus conducive to winning in the
marketplace.
The hardest part of benchmarking can be
gaining access to other firms value chain
activities with associated costs.
Tansforming Value Chain Activities into
Sustained Competitive Advantage
1. Value chain activities are identified and
assessed

2. Core competencies arise in some activities

3. Some core competencies evolve into
distinctive
Competencies
4. Some distinctive competencies yield
sustained competitive advantages
The Internal Factor Evaluation (IFE)
Matrix - This strategy-formulation tool
summarizes and evaluates the major
strengths and weaknesses in the functional
areas of a business, and it also provides a
basis
for
identifying
and
evaluating
relationships among those areas.

Retrenchment - Regrouping through

cost and asset reduction to reverse
declining sales and profit
Divestiture - Selling a division or part
of an organization
Liquidation - Selling all of a
companys assets, in parts, for their
tangible worth

Michael Porters Five Generic Strategies

Ch4 STRATEGIES IN ACTION

Types of Strategies
Integration Strategies

Forward
integration
Gaining
ownership or increased control over
distributors or retailers
Backward integration - Seeking
ownership or increased control of a
firms suppliers
Horizontal Integration - Seeking
ownership or increased control over
competitors

Intensive Strategies

Market
Penetration
Seeking
increased market share for present
products or services in present
markets through greater marketing
efforts
Market Development - Introducing
present products or services into new
geographic area
Product Development - Seeking
increased sales by improving present
products or services or developing
new ones

Diversification Strategies

Related Diversification - Adding

new but related products or services
Unrelated Diversification - Adding
new, unrelated products or services

Defensive Strategies

According to Porter, strategies allow

organizations to gain competitive advantage
from three different bases: cost leadership,
differentiation, and focus. Porter calls
these bases generic strategies
1. Cost leadership - emphasizes producing
standardized products at a very low per-unit
cost for consumers who are price-sensitive.
Two alternative types of cost leadership
strategies can be defined :

Type 1 - is a low-cost strategy that

offers products or services to a wide
range of customers at the lowest
price available on the market.
Type 2 - is a best-value strategy that
offers products or services to a wide
range of customers at the best pricevalue available on the market;
The best-value strategy aims to
offer customers a range of products
or services at the lowest price
available compared to a rivals
products with similar attributes.

Type 1 and Type 2 strategies target a large

market

2. Differentiation - a strategy aimed at

producing products and services considered
unique industry wide and directed at
consumers who are relatively priceinsensitive.
Porters Type
differentiation

generic

strategy

When a merger or acquisition is not

desired by both parties, it can be called a
takeover or hostile takeover.
If the acquisition is desired by both firms, it
is termed a friendly merger.

is

3. Focus - means producing products and

services that fulfill the needs of small
groups of consumers.
Two alternative types of focus strategies are
Type 4 and Type 5.:
Type 4 - is a low-cost focus strategy
that offers products or services to a
small
range
(niche
group)
of
customers at the lowest price
available on the market.
Type 5 - is a best-value focus
strategy that offers products or
services to a small range of
customers at the best price-value
available on the market.
Both Type 4 and Type 5 focus strategies
target a small market.
Illustration
of
MPs
5
Generic
Strategies:
Joint Venture/Partnering
- a popular
strategy that occurs when two or more
companies form a temporary partnership or
consortium for the purpose of capitalizing
on some opportunity.
Often, the two or more sponsoring firms
form a separate organization and have
shared equity
ownership in the new entity.
Merger/Acquisition
Merger
and
acquisition are two commonly used ways to
pursue strategies.

A
merger
occurs
when
two
organizations of about equal size
unite to form one enterprise.

An acquisition occurs when a large

organization purchases (acquires) a
smaller firm, or vice versa.

First Mover Advantages - refer to the

benefits a firm may achieve by entering a
new market or developing a new product or
service prior to rival firms
Outsourcing
Business-process
outsourcing (BPO) is a rapidly growing new
business that involves companies taking
over the functional operations, such as
human resources, information systems,
payroll, accounting, customer service, and
even marketing of other firms.

Ch6 STRATEGY ANALYSIS AND CHOICE

The
Strengths-WeaknessesOpportunities-Threats (SWOT) Matrix helps managers develop four types of
strategies:

best
long-run
opportunities
growth and profitability.

Forward,
backward,
and
horizontal
integration;
market
penetration; market development;
and
product
development
are
appropriate strategies for these
divisions to consider

1.
SO
(strengths-opportunities)
Strategies - SO Strategies use a firms
internal strengths to take advantage of
external opportunities.
2.
WO
(weaknesses-opportunities)
Strategies - WO Strategies aim at
improving internal weaknesses by taking
advantage of external
opportunities.

3. ST (strengths-threats) Strategies ST Strategies use a firms strengths to avoid

or reduce the impact of external threats.
4. WT (weaknesses-threats) Strategies
- are defensive tactics directed at reducing
internal weakness and avoiding external
threats.
The Strategic Position and Action
Evaluation (SPACE) Matrix - Its fourquadrant framework indicates whether
aggressive, conservative, defensive, or
competitive strategies are most appropriate
for a given organization.
The Boston Consulting Group (BCG)
Matrix - designed specifically to enhance
a multidivisional firms efforts to formulate
strategies.

Its divisions are:

Question
Marksdivisions
in
Quadrant I have a low relative market
share position, yet they compete in a
high-growth industry. Generally these
firms cash needs are high and their
cash generation is low.
These businesses are called
Question
Marks
because
the
organization must decide whether
to strengthen them by pursuing an
intensive strategy or to sell them.

StarsQuadrant
II
businesses
(Stars) represent the organizations

for

Cash CowsDivisions positioned in

Quadrant III have a high relative
market share position but compete in
a low-growth industry. Called Cash
Cows because they generate cash in
excess of their needs, they are often
milked.
Product
development
or
diversification may be attractive
strategies for strong Cash Cows.
However, as a Cash Cow division
becomes weak, retrenchment or
divestiture
can
become
more
appropriate.
DogsQuadrant IV divisions of the
organization have a low relative
market share position and compete
in a slow- or no-market-growth
industry;
When a division first becomes
a Dog, retrenchment can be the best
strategy to pursue because many
Dogs have bounced back, after
strenuous asset and cost reduction,
to
become
viable,
profitable
divisions.

The Internal-External (IE) Matrix positions

an
organizations
various
divisions in a nine-cell display.

The Grand Strategy Matrix - All

organizations can be positioned in one of
the Grand Strategy Matrixs four strategy
quadrants. A firms divisions likewise could
be positioned.
Quadrant I Good strategic position
Quadrant 2 - need to evaluate their
present approach to the marketplace
seriously.
Quadrant 3 - organizations compete in
slow-growth industries and have weak
competitive positions
Quadrant 4 - strong competitive position
but are in a slow growth industry
DECISION STAGE

The Quantitative Strategic Planning

Matrix (QSPM)
Other than ranking
strategies to achieve the prioritized list,
there is only one analytical technique in the
literature designed to determine the
relative attractiveness of feasible
alternative actions.
This technique objectively indicates
which alternative strategies are best
The QSPM uses inputs from - IFE/EFE,
SWOT, SPACE, BCG,IE and grand strategy
matrix

Illustration of GSM

Illustration of QSPM