1.

Introducing the Concepts

Strategic Management
Strategy A series of goal-directed plans and actions that align an organizations
skills and resources with the opportunities and threats in its environment
Strategic Management A process for situation analysis and strategy formulation,
implementation, and evaluation

Everyone in the organization has a role in strategic management

Enables understanding how strategic decisions made
Establishes an understanding of how work is valued and rewarded
Makes a difference in how well an organization performs

Effective organizations use strategy to

I.
II.
III.
IV.

Impact on bottom line

Adapting to changing situations, internal and external
Coping with uncertainties
Effectively guides organizational decision makers
Four Characteristics of Strategic Management
Interdisciplinary
Focuses on the whole organization, rather than any functional part
External Focus (Interaction of organization with external
environment)
Economy, Competitors, Market demographics
Internal Focus
Understands the resources and capabilities the organization does or does
not have
Future Direction of the Organization
Decisions, Planning, Shifts or changes in products or markets
Strategic Management Process

Strategic Management Process A series of interrelated and continuous steps that

lead to an outcome
Is a continual cycle and not a sequential process
Allows for analysis of the current situation
Enables adjustments to current strategies as necessary, to pursue and achieve
goals
1. Situation Analysis
Required before deciding upon a strategic direction or response and it involve
scanning and evaluating:
Current organizational context
External environment
Organizational environment
2. Strategy Formulation
Developing and choosing appropriate strategies, as guided by the situation analysis
1. Functional Strategies (Operational Strategies)

What resources and capabilities do we have to support the corporate and

competitive strategy?
Goal oriented plans and actions of the functional areas of an organization
(Production-Operations, Marketing, R&D, Human Resources, FinancialAccounting)
2. Competitive Strategies (Business strategy)
How are we going to compete in our chosen business(es)?
Goal directed plans and actions concerned with how an organization
competes in a specific business or industry
Looks at all aspects of strategies and actions
Seeks to determine what the company currently can do and what it
wants to do
Focus is on how it might more effectively compete
3. Corporate Strategies (Guiding strategies by which all efforts are aligned)
What direction are we going and what business(es) are we in or do we want to
be in?
Goal directed plans and actions that are concerned with what business(es) a
firm wants to be in and what to do with those business, e.g.:
FedExs decision to acquire Kinkos
PepsiCos decision to spin off their fast-food division
3. Strategy Implementation
Putting the various stages of strategies into action
4. Strategy Evaluation
Involves evaluating both the outcomes of the strategies and how they have been
implemented
Determine if they produced the expected strategic goals
Helps with the evaluation of results and, if necessary, any modification of
strategies
Involvement in Strategic Management
Board of Directors
Elected group that represents a companys shareholders
Legal obligation to represent and protect the interest of shareholders through
corporate governance
With increasing shareholder activism, boards are more involved in the
strategic process
Typical Board Responsibilities
Review and approve strategic goals and plans
Review and approve organizations financial standards and policies
Monitor organizational performance and regularly review performance results
Role of Top Management (CEO, COO, CFO, CIO)
Responsible for every decision and outcome
Plays most significant role in strategic management process
Effective Strategic Leadership
Determining organization purpose or vision

 Strategic orientations is the ability to be innovative in connecting longrange visions and concept to daily work
Exploiting and maintaining core competencies
A strategic leader considers information about an organizations assets,
resources and
capabilities and evaluates the organizations resources,
capabilities and core competencies
Developing the organizations human capital
Strategic leader work with human resources to understand and develop the
experiences,
knowledge, judgement, skills accumulated wisdom, and
competencies of the organizations
employees
Creating and sustaining strong organizational culture
Strategic leaders align strategy with the corporate culture, a collection of
beliefs, expectations,
and values shared by a corporations members, which act
to shape the behaviour of people in
corporation
Emphasizing ethical decisions and practices
Strategic managers understand that if their corporations are to avoid
increased governmental restrictions on their activities, they will need to be even
more aware of the various needs of their
stakeholder groups
Establishing appropriately balanced organizational controls
Controls provide feedback to the manager. If a process is going slightly off
the desired course,
the manager in charge will have to decide if the deviation
is important enough to correct
Other Mangers and Organizational Employees
Managers and employees at all levels have strategic responsibilities
Strategy implementation Putting strategies into action
Strategy evaluation Determining if the strategies are working
Adjust the strategies to achieve desired ends
2. Environmental Scanning and Industry Analysis
Environmental Scanning
Monitoring, evaluation and dissemination of information from the external and
internal environments to key people within the corporation
Societal environment Social systems that influence long-term decisions
1. Political-legal forces
To what degree the government intervenes in the economy and general
political stability
(Tax policy, labour law, environmental law trade restrictions, tariffs)
2. Economic forces
(GDP trends, Inflation rate, Unemployment levels, Interest rates, Wage/price
controls)
3. Sociocultural forces
(Lifestyle changes, Career expectations, Family demographics, Growth rate of
population)
4. Technological forces
(Total industry spending for R&D, Patent protection, Internet usage)

Task environment Groups that directly affect a corporation and are affected by the
corporation
(Government, Suppliers, Competitors, Customers, Creditors)
Industry Analysis
Industry A group of firms that produces a similar product or service
Porters Forces
1. Threat of new entrants
Entry barrier an obstruction that makes it difficult for a company to enter an
industry
(Economies of scale, Product differentiation, Switching costs, Capital
requirements)
2. Rivalry among existing firms
New entrants to an industry bring new capacity, a desire to gain market
share and substantial resources
(Number of competitors, Rate of industry growth, Product or service
characteristics)
3. Threat of substitute products
Products that appear different but can satisfy the same need as another
product
4. Bargaining power of buyers
Ability of buyers to force prices down, bargain for higher quality, play
competitors against each other
(Large purchases, Alternative suppliers, Low cost to change suppliers, Buyer
earns low profits)
5. Bargaining power of suppliers
Ability of suppliers to raise prices or reduce quality
(Industry is dominated by a few companies, unique product or service)

Industry Evolution
Fragmented Industry No firm has a large market share and each firm only
serves a small piece of the total market in competition with other firms
Consolidated Industry Domination by a few large firms, each struggles to
differentiate products from its competitors
Categorizing International Industries
Multi-domestic Industries Specific to each country or group of countries
Global Industries Operate worldwide with multinational companies making
only small adjustments for country-specific circumstances
Strategic Types
Defenders Focus on improving efficiency
Prospectors Focus on product innovation and market opportunities
Analysers Focus on at least two different product market areas
Reactors Lack a consistent strategy-structure-culture relationship
Hyper competition

 Markets with continuous disequilibrium and change (e.g. popular music or

consumer electronics)
Successful hyper competition demands speed and initiative rather than
defensiveness
Key Principles
1. Cannibalize bases of success
Companies must be willing to cannibalize their own products (replacing
popular product before competitors do) in order to sustain competitive
advantage (e.g. Apple)
2. A series of small moves rather than big moves
Apple, for example tends to make incremental improvements to its products
between the launches of major innovations
3. Be unpredictable
Apple likes to keep competitors guessing about its next major product move
4. Mislead the competition
The organization might signal particular moves, but then do something else
(e.g. talk about alliances, and then make an acquisition)
Competitive Intelligence
A formal program of gathering information on a companys competitors
Sources: Information brokers, Internet, Industrial espionage, Investigatory services
Forecasting
Based on a set of assumptions
Faulty underlying assumptions are the most frequent cause of forecasting errors
Techniques:
Extrapolation
Form an opinion or to make an estimate about something from known facts
Brainstorming
Expert opinion
Idea generation through consultations with expert(s)
Industry Scenario
Qualitative/Quantitative attempts to forecast possible different future
scenarios based on one or more factors and then decide on possible
organization strategies that would be suitable for each scenario
Statistical modelling
Quantitative technique that attempts to forecast future based on two or
more variable (e.g. predicting car sales based on economic growth; population
growth; age distribution)
3. Internal Scanning: Organizational Analysis
Organizational analysis Concerned with identifying and developing an
organizations resources and competencies
Competitive advantage Results from having strong resources and competencies
Can be attained if the current strategy is value-creating, and not currently being
implemented by present or possible future competitors
Resource-Based View

Resource-based view (RBV) A basis for the competitive advantage of a firm lies
primarily in the application of a bundle of valuable tangible or intangible resources
at the firms disposal
Resources
Tangible assets Plant, equipment, finances, location
Human assets Number of employees and their skills
Intangible assets Technology, culture and reputation
Capabilities
A corporations ability to exploit its resources
Consist of business processes and routine that manage the interaction among
resources to turn inputs into outputs
Example: Companys marketing capability Base on the interaction among its
marketing specialist, distribution channels, and sales people
Competency
A cross-functional integration and coordination of capabilities
Example: A competency in new product development in one division of a
corporation may be the consequence of integrating MIS capabilities, marketing
capabilities, R&D capabilities, and production capabilities within the division
Why Do an Internal Analysis?
Enables a firm to identify it strengths and weaknesses
Enables a firm to make good strategic decisions
Information from internal environment provides basis for developing strategic
alternatives
Build
Resources
Distinctive
Competencie
s
Resources

Shape

Strategies

Competitive
Advantage

Superior
Profitability

Build

Strengths Resources that an organization possesses and capabilities that the

organization has developed, that can be exploited and developed into a sustainable
competitive advantage
Weaknesses Resources and capabilities that are lacking or deficiency and, which
prevent an organization from developing a sustainable competitive advantage
VRIO framework

alue

are

mitabilit
y
rganizat
ion

If a resource adds value by enabling a firm to exploit opportunities

or defend against threats
Resources than can only be acquired by one or very few companies
are considered rare.
A resource is costly to imitate if other organizations that doesnt
have it cant imitate, buy or substitute it at a reasonable price
Resources itself do not confer any advantage for a company if its
not organized to capture the value from them.

Using Resources To Gain Competitive Advantage

1.
2.
3.
4.

Identify and classify resources in terms of strengths and weaknesses

Combine the firms strengths into specific capabilities and core competencies
Appraise profit potential Are there any distinctive competencies?
Select the strategy that best exploits the firms capabilities and
competencies relative to external opportunities
5. Identify resource gaps and invest in upgrading weaknesses
Sustainability of an Advantage
Durability The rate at which a firms underlying resources, capabilities, or core
competencies depreciate or become obsolete
Imitability The rate at which a firms underlying resources, capabilities, or core
competencies can be duplicated by others
Imitability Determined By:
Transparency The speed at which other firms under the relationship of
resources and capabilities support a successful strategy
Transferability The ability of competitors to gather the resources and
capabilities necessary to support a competitive challenge
Replicability The ability of competitors to use duplicated resources and
capabilities to imitate the other firms success
Business Models
A companys method for making money in the current business environment
Composed of five elements
1.
2.
3.
4.
5.

Who it serves
What it provides
How it makes money
How it differentiates and sustains competitive advantage
How it provides its product/service

Examples
Customer Solution Model
Understanding the customers problems and then providing them with a
solution to their problem in form of product/services
Example: IBAN (moved from being a producer to a company who sells their
service advice blue ship companies)

Multi-component System
Companies offers base product at low cost and then sell complementary,
necessary products at high margin
Example: Gillette (Razor and blades), HP (Printer and ink)
Switchboard Model
Company who doesnt provide a product, it brings buyer and sellers together
Example: Ebay, Amazon
Value-Chain Analysis

A linked set of value creating activities

1. Begins with raw materials coming from suppliers
2. Moving on to a series of value-added activities involved in producing and
marking a product or service
3. Ending with distributors getting the final goods into the hands of the ultimate
customer
Industry Value Chain
Segments include:
Upstream stage
Searching for and extracting raw materials
Example Petroleum industry locating underground or underwater oil
reserves
Downstream stage
Involves processing the materials collected during the upstream stage
into a finished product
Includes the actual sale of that product to other businesses,
governments or private individuals
Example Oil and gas industry converting crude oil into other products
and then selling those products to customers
Business terms applicable to the production processes that exist within several
industries (Metals industry, oil, gas industries)
Company that combines both upstream and downstream processes is an
integrated company
A firm has an area of expertise where its primary activity lies in the industry.
Centre of gravity is that part of the chain.
Which is most important to the company
Where its greatest expertise and capabilities exists
Corporate Value Chain Analysis
1. Examine each product lines value chain in terms of the various activities
involved in producing the product or service
What are we good at and what not?
2. Examine the linkages within each product lines value chain
What are the possible linkages between the steps?
3. Examine the potential synergies among the value chains of different
product lines or business units

 Synergies Tritt auf wenn der Marktwert aus der gemeinsamen Nutzung
mehrere Aktivitten oder Ressourcen grer ist als die Summe der
einzelnen Marktwerte (2+2=5)
Porters Value Chain
Primary Activities Relate directly
to the physical creation, sale,
maintenance and support of a
product or service
Support Activities Support the
primary activities

Scanning Internal Resources & Capabilities

Basic Organizational Structures
Simple

Functional

Divisional

Strategic
Business
Units

Conglomer
ate

Corporate Culture
Collection of beliefs, expectations and values learned and shared by a
corporations members and transmitted from one generation of employees to
another
Attributes
Cultural intensity Degree of which members of a unit accept the norms,
values and other cultural content associated with the unit Strong intensity
can help organization to achieve their strategy
Cultural integration Extent of which units throughout the organization
share a common culture
Strategic Issues

Marketing
Does the organization currently have a consistent and profitable marketing
mix?

Marketing Mix Product, Price, Place, Promotion

Finance
Is the firm consistently profitable?
What it the firms viability as an ongoing enterprise?
Are the firms debts a serious issue?
Operation
Are the organizations operations carried out in the most efficient manner
possible?
Human Resource
Different types of teamwork
Autonomous (self-managed) Group of people working together
without a supervisor to plan, coordinate and evaluate their work
Cross-functional work teams Various disciplines are involved in a
project from the beginning
Concurrent engineering Specialists work side-by-side and compare
notes constantly to design cost-effective product with features
customer want

4. Strategy Formulation: Situation Analysis and Business Strategy

Situational Analysis
Strategy formulation Concerns developing a corporations mission, objectives,
strategies and policies
Situation Analysis Process of finding a strategic fit between external opportunities
and internal strengths while working around external and internal weaknesses
SWOT
Strengths Weaknesses Opportunities Threats
Criticisms
Generates lengthy lists
Uses no weights to reflect priorities
Uses ambiguous words and phrases
Same factor can be in 2 categories
No logical link to strategy implementation
Finding a Propitious Niche
Propitious Niche Where an organization can use its core competencies to take
advantage of a particular market opportunity and the niche is just large enough for
one firm to satisfy its demand

Strategic Window A unique market opportunity that is available for a particular

time
TOWS Matrix
TOWS Matrix Illustrates how the external opportunities and threats can be
matched with internal strengths and weaknesses to result in 4 possible strategic
alternatives
Provides a means to brainstorm alternative strategies
Forces managers to create various kinds of growth and retrenchment
strategies
Used to generate corporate as well as business strategies
Business Strategies
Business strategy Focuses on improving the competitive position of a companys
or business units products or services within the specific industry or market
segment it serves
Comprised of: Competitive and Cooperative strategy
Business Strategies - Competitive Strategy
Competitive Strategy Long-term action plan that is devised to a help a company
gain a competitive advantage over its rival
Porters competitive strategies
1. Lower cost strategy
Perform activities at a cost lower than competitor
2. Differentiation strategy
Perform activities in a way that clearly differentiates their output from those
of its competitors
Three Generic Business Strategies
Cost Leadership
Producing and
marketing a good
quality product or
service at a lower
cost than your
competitors
Low-cost
competitive strategy

Differentiation
Creating a product
or service that is
perceived as being
unique throughout
the industry

Focus
Addressing a focused segment of the
marketplace, product form or cost
management process
Cost Focus

Differentiation
Focus

Broad mass market

Aimed at broad
mass market

Unique product or
service

Cost reductions/
minimization

Lower customer
sensitivity to price

Low-cost
competitive
strategy
Focus on
particular buyer
group
Niche focused

Focus on particular
group or geographic
market
Seek differentiation
in targeted market
segment
Serve special needs
of narrow target

market
Ikea, Ryanair
BMW
Smart
Craft manufacturers
Issues
Stuck in the middle When a company has no competitive advantage and is
doomed to below-average performance
Example Nokia, Dr. Pepper
Industry Structure and Competitive Strategy
Fragmented industry Many small- and medium-sized companies compete for
relatively small shares of the total market
Products are typically in early stages of product life cycle
Focus strategies are used
Consolidated industry Domination by a few large companies

Emphasis on cost and service

Economies of scale
Regional and national brands
Knowledgeable buyers
Hyper-competition

Competitive advantage in a hyper-competitive market is characterized by a

continuous series of multiple short-term initiatives that replace current
products with new product before competitors can do so
Competitive Tactics
Tactic A specific operating plan that details how a strategy is going to be
implemented in terms of when and where it is to be put into action
Timing Tactics When to Compete
Timing Tactics When a company implements a strategy (First or Late Movers)

Market Location Where to Compete

Offensive tactics
Frontal assault
Encirclement

Guerrilla
warfare

Flanking
manoeuvre

Defensive tactics
Raise structural Increase
barriers
expected
retaliation
Lower the inducement for attack

Business Strategies - Cooperative Strategies

Cooperative Strategies Used to gain a competitive advantage within an industry
by working with other firms

Strategic Alliances
Strategic Alliances A long-term cooperative arrangement between two or more
independent firms or business units that engage in business activities for mutual
economic gain
Reasons
Obtain or learn new capabilities
Obtain access to specific markets

Reduce financial risk

Reduce political risk

Types

Mutual Service Consortia Partnership of similar companies in similar

industries who pool their resources to gain a benefit that is too expensive to
develop alone
Joint Venture A business agreement in which parties agree to develop, for a
finite time, a new entity and new assets by contributing equity
Licensing Arrangements Written contract under which the owner of a
copyright, know how, patent, service mark, trademark, or other intellectual
property, allows a licensee to use, make, or sell copies of the original
Value-Chain Partnerships
Business Strategies - Cooperative vs Competitive

Cooperation access to external

resources
Cooperation business network
development
Cooperation focus of innovation

Competitive about outperforming the

competition
Competitive generic strategies

5. Strategy Formulation: Corporate Strategy

Corporate Strategy
Corporate Strategy Choice of direction of the firm as a whole and the
management of its business or product portfolio
Corporate Strategy - Directional strategy
Directional Strategy Firms overall orientation toward growth, stability, or
retrenchment
Questions Directional Strategy answers
Should we expand, cut back, or continue our operations unchanged?
Should we concentrate our activities within our current industry or should we
diversify into other industry?
If we want to grow and expand, should we do so through internal
development or through external acquisitions, mergers, or strategic alliances
Corporate Directional Strategies Overview

Growth
Concentration
Vertical Growth
Horizontal Growth
Diversification
Concentric
Conglomerate

Stability
Pause/Proceed with
Caution
No Change
Profit

Retrenchment
Turnaround
Captive Company
Sell-Out/Divestment
Bankruptcy/Liquidation

Concentration strategies
Vertical Growth Taking over the function previously provided by a supplier or by a
distributor
Vertical Integration Degree to which a firm operates vertically
Backward integration Coffee blender buys coffee plantations
Forward integration Coffee blender develops retail coffee shops
Horizontal Growth Expansion of operations into other geographic locations and/or
increasing the range of products and services offered to current markets
Acquisition of additional business activities that are at the same level of the
value chain in similar or different industries
Internal Opening more outlets, major marketing/sales campaign, investment
in new projects
Advantages
More likely to be based on some
competence giving competitive
advantage
More likely to fit feel with current
business units/products
Avoids headaches associated with
mergers and takeovers (Power
struggles)

Disadvantages
May take a long time to develop a new
product or new concept (Greenfield
development)
May ignore other uses of money with
quicker return
Favoured program may take time away
from current business

External Acquire a competitor

Advantages
Can grow quickly
Dont have to develop new
businesses from nothing
Can acquire outside expertise

Disadvantages
Power struggles between organizations
New products/services in the acquired
business are often different in nature
to the buying firm
Culture clashes between organizations

Horizontal Integration Degree to which a firm operates in multiple geographic

locations at the same point on an industrys value chain
Advantages
Favourable economies of scale and economies of scope

 Increased market power

Reduction in the costs associated with international trade by operating in
foreign markets
International Entry Options
Exporting
Licensing
Joint Venture
Acquisitions

Production Sharing

Turn-Key Operations

Franchising
Green-Field
Development
Management
Contracts

Diversification strategies
Growth Strategies: Ansoff Matrix

Market penetration Existing product and market

Increase market share (Find new customers (non-users), steal market
share
Increase product usage (Increase frequency of purchase, more usage)
Market development Existing product but new market
New users, develop new sales channels, and new geographical markets
Product development New product but existing market
Product innovation, product line extension
Diversification New product and market
Concentric (related) diversification Growth into a related industry when a
firm has a strong competitive position but industry attractiveness is low in its
existing business
Buy business which has a common threat
Example PepsiCo buys Chips firm
Conglomerate (unrelated) diversification Growth into an unrelated
industry
Management realizes that the current industry is unattractive
Firm lacks outstanding abilities or skills that it could easily transfer to
related products or services in other industries
Example Protect & Gamble Operate in a lot of industries (Hygiene,
Food)
Stability strategies

Stability Strategies Continuing activities without any significant change in

direction
Only temporary, organization cant stay there forever, as customer, market,
etc. changes
Pause/Proceed with caution strategy
Organization pursues stability strategy for a temporary time until the
environmental situation changes, especially if they have been growing too fast
in the previous period. Strategy enables a company to consolidate its resources
after prolonged rapid growth
No change strategy

Decision to do nothing new continue current operations and policies for the
foreseeable future
Profit strategy
Attempt to artificially maintain profits by reducing investments and short-term
expenditures

Retrenchment strategies
Retrenchment Strategies Used when the firm has a weak competitive positions in
some or all of its product lines from poor performance

Turnaround strategy Emphasizes the improvement of operational efficiency

when corporations problems are pervasive but not yet critical
Contraction Getting smaller, gutting down, back to basics
Consolidation Bring what you have left together Make it more
efficiency
Captive Company strategy Company gives up independence in exchange
for security
Sell-out strategy Management can still obtain a good price for its
shareholders and the employees can keep their jobs by selling the company
to another firm
Divestment Sale of a division with low growth potential
Bankruptcy Company gives up management of the firm to the courts in
return for some settlement of the corporations obligations
Liquidation Management terminates the firm
Corporate Strategy - Portfolio analysis

Portfolio analysis Management views its product lines and business units as a
series of investments from which it expects a profitable return
BCG Matrix
By dividing the market growth into high growth and low growth and market
share into high share or low share four categories of products can be identified

Stars Cash neutral Hold

Question Marks Cash absorbing Build
Cash cows Cash generating Harvest
Dogs Cash neutral Divest

Criticism

It is too simplistic
Link between market share and profitability is questionable
Growth rate is only one aspect of industry attractiveness
Only considers one competitor (Market leader)
Market share is only one aspect of overall competitive position
Questionable advice regarding dogs
GE Business Screen

High
Industry
Attractivene
ss

Business Unit Strength

Medium
Low

High
Medium
Low

Industry attractiveness Factors

Market growth rate

Industry profitability

Market size
Industry rivalry

Demand variability
Global opportunities

Brand equity

Profit margins relative

to competitors

Business Unit Strength Factors

Market share

Distribution channel
access

Growth in market
share
Production capacity

Advantages
Encourages top management to
evaluate each of the corporations
business individually and to set
objectives and allocate resources for
each
Stimulates the use of externally
oriented data to supplement
managements judgement
Raises the issue of cash flow availability
to use on expansion and growth

Disadvantages
Lack of clarity on what makes an
industry attractive or where a product is
in its life cycle

Suggest the use of standard strategies

that can miss opportunities or be
impractical
Defining product/market segment is
difficult

Corporate Strategy - Parenting strategy

Corporate Parenting Views a corporation in terms of resources and capabilities
that can be used to build business unit value as well as generate synergies across
business units
Generates corporate strategy by focusing on the core competencies of the
parent corporation and the value created from the relationship between the
parent and its business
Development
1. Examine each business unit in terms of its strategic factors
2. Examine each business unit in terms of areas in which performance can be
improved
3. Analyse how well the parent corporation fits with the business unit

6. Strategy Implementation: Organizing for Action: Organizational

Culture

Organizational Culture Shared values, principles, traditions, and ways of doing

things that influence the way organizational members act
Managerial Decisions Affected by Culture
Planning
Degree of risk that plans should contain
Whether plans should be developed by individuals or teams
Degree of environmental scanning in which management will engage
Organizing
How much autonomy should be designed into employees jobs
Weather tasks should be done by individuals or in teams
Degree to which development managers interact with each other
Leading
Degree to which managers are concerned with increasing employee job
satisfaction
What leadership styles are appropriate
Whether all disagreements should be eliminated
Controlling
Whether to impose external controls or to allow employees to control their
own actions
What criteria should be emphasized in employee performance evaluations
What repercussions will occur from exceeding ones budget
Staffing
Executive types
Dynamic industry expert Attractive industry, good company
Analytical portfolio manager Poor industry, good company
Cautious profit planner Medium industry attractiveness, good to average
company
Turnaround specialist Medium to good industry, poor company
Professional liquidator Bad company, poor industry
Executive succession Replacing a key top manager Issue: Insider versus
Outsider
Downsizing
Downsizing Planned elimination of positions or jobs
Successful Downsizing

Eliminate unnecessary work instead of making across the boards cuts

Contract out work that others can do cheaper
Plan for long-run efficiencies
Communicate the reasons for actions
Leading

Managing Corporate Culture

Strong cultures are resistant to change
Optimal culture supports mission and strategies
Change in strategy should be followed by change in culture
Managing Cultural Change Through Communication
CEO and top management communicate the strategic vision throughout the
organization
Current performance is compared to competition and constantly updated
Vision is translated into key elements needed to accomplish the vision
Managing Diverse Cultures Following an Acquisition
Four different ways of dealing with culture in an acquired firm

Perceptio
n of the
Attractive
ness of
the
Acquire

How much members of the acquired firm value preservation

of their own culture
Very Much
Not at All
Integration
Assimilation
Individual maintains his
Individual gives up his or
or her own cultural
her own cultural identity
Very
identity while at the same and becomes absorbed
Attractive
time becomes a
into the host culture
participant in the host
culture
Separation
Deculturation
Individual maintains his
Individual does not
or her own cultural
identify with or participate
Not at All
identity and rejects
in either his or her own
involvement with host
culture or the host culture
culture

Fit between new strategy and existing culture

Is the planned strategy compatible with the companys current culture?
Can the culture be easily modified to make it more compatible with the new
strategy?
Is management willing and able to make major organizational changes and
accept probable delays and a likely increase in costs?
Embedding and Reinforcing Organizational Culture
Primary Embedding Mechanisms

What leaders notice, measure, and control

Leader reactions to critical incidents and organizational crises
Deliberate role modelling, teaching, and coaching
Criteria for allocation of rewards and status
Criteria for recruiting, selecting, promoting, retiring, and firing

Secondary Reinforcing Mechanisms

Organization design and structure

Organizational systems and procedures
Design of physical space, facades, and buildings
Stories about important events and people
Formal statements of organizational philosophy, creeds, and charters
Putting down in writing what an organization values
Management by Objectives (MBO)

Management by Objectives Management model that aims to improve

performance of an organization by clearly defining objectives that are agreed to by
both management and employees
Encourages the superior to negotiate the subordinates objectives with the
subordinates input
Includes action planning as part of the discussions between a manager and
his/her subordinate
Ties together corporate, business and functional objectives
Takes an organization-wide approach to planning implementation programs
and budget
Encourages participative decision making through shared goal setting and
performance assessment based on achieving stated objectives
MBO process involves
1.
2.
3.
4.

Establishing and communicating organizational objectives

Setting individual objectives
Developing an action plan to achieve objectives
Performance review (periodic and annual)
Total Quality Management (TQM)

Total Quality Management Philosophy that is committed to customer satisfaction

and continuous improvement
Influence the cultural behaviour
Improve quality and reduce costs Through processes
Objectives

Better, less variable quality of the product and service

Quicker less variable response in processes to customer needs
Greater flexibility in adjusting to customers shifting requirements
Lower cost through quality improvement and elimination of non-value added
work

Essential Ingredients of TQM

An intense focus on customer satisfaction

Customers are internal as well as external
Accurate measurement of every critical variable in a companys operations
Continuous improvement of products and services
New work relationships based on trust and teamwork
Strategy and Organizational Change

New strategies inevitably bring change to organisations

When the changes are perceived as negative, senior management attempt to
convince employees that these changes are necessary
However such organisational changes may be resisted by employees
Organizational Conflict and Change
Resistance may occur at any level between middle management and lowerlevel staff
Particularly noticeable when Profit and Turnaround strategies are employed
Retrenchment strategies
Here organisational change initiatives can often be aimed at cutting
organisational costs
Greater productivity may be demanded from incumbent employees
Lower wages may be paid in order to reduce costs
Employee layoffs
However, retrenchment strategies are not the only thing that can be met with
resistance
Any proposed strategy that involves new work practices can also be met with
resistance (New training and development)
Four reasons for resistance to change

Parochial self-interest
Misunderstanding
Low tolerance to change
Different assessments of the situation

Approaches to overcoming resistance

Soft approaches

Education and communication are appropriate where inaccurate or

missing information is contributing to employee resistance
Best way to overcome resistance
Time consuming when a lot of people are involved
Participation and involvement includes presenting the problem to a group
of employees and letting them collect and analyse data then select a solution

Facilitation and support (such as training or emotional support) can reduce

resistance caused by fear and anxiety

Hard approaches

Negotiation and agreement May be appropriate where one group will

clearly lose by the change and that group has considerable power to resist
Manipulation and co-optation (such as giving a key resister a key role in
the change) may work where other tactics fail or are too costly
Coercion Simply forcing the change can be a fast way of pushing through
a change. It is particularly useful when speed is of the essence. But it can
leave influential employees bitter and unfavourably disposed toward the firm
Other factors which impact Organizational Culture

Diversification into new businesses

Expansion into different geographic areas
Rapid growth adding new employees
Merger with or acquisition of another company
External Environmental factors PEST and Industry factors

7. Evaluation and Control