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Abstract

In recent times world economy has witnessed a lot of dynamism and challenges. The success in
corporate sector will depend on managements recognition of the following functions: analyzing
the environmental changes, selecting the strategists, helping them to think creatively, setting
objectives, establishing strategies to achieve objectives, assign responsibilities and implementing
the strategies, measuring success and evaluating results. Strategic management has been the
subject of a substantial literature since the 1950s but has principally focused on the large
corporation. By contrast the literature relating to strategic management within the small firms
sector has remained limited. Much of the existing literature has dealt with business planning
rather than strategic management. This paper outlines a proposed framework for understanding
the strategic management of small entrepreneurial firms and draws upon the literature to
illustrate aspects of the proposed model. Future directions for research using the framework are
discussed.

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Table of Contents
1. Introduction......................................................................................................... 6
1.1 Strategic Management Model............................................................................6
1.2 COMPETITIVE ADVANTAGE...........................................................................6
1.3 Competitive Strategy......................................................................................... 6
1.4 Sustainable Competitive Advantage..................................................................6
1.4.1 Creating Sustainable Competitive Advantage.............................................6
1.5 Building Competitive Advantage.......................................................................7
1.6 Five Major Competitive Strategies.....................................................................7
1.7 Low-Cost Strategy............................................................................................. 8
1.7.1 When to opt for Low-Cost Provider Strategy...............................................8
1.7.2 How to Gain Competitive Advantage via Low-Cost Provider Strategy.........8
1.7.3 Competitive Advantages............................................................................. 9
1.7.4 Cost Drivers................................................................................................. 9
1.7.5 Pitfalls to Avoid in Pursuing Low-Cost Provider Strategy............................10
1.7.6 Keys to Being a Successful Low-Cost Provider...........................................10
1.8 Broad Differentiation Strategies......................................................................10
1.8.1 When a Differentiation Strategy works Best..............................................11
1.8.2 Value Drivers............................................................................................. 11
1.8.3 Cost-Efficient Management of Value Chain Activities................................11
1.8.4 Managing the Value Chain Create the Differentiating Attributes...............12
1.8.5 Pitfalls to Avoid in Pursuing a Differentiation Strategy..............................12
1.8.6 Delivering Superior Value via Broad Differentiation Strategy....................12
1.9 Focused Low-Cost and Focused Differentiation Strategies..............................12
1.10 Best Cost Provider Strategies........................................................................13
1.10.1 Best-Cost Provider Strategy works Best..................................................13
2. STRATEGIC MANAGEMENT PROCESS..............................................................14
2.1 Strategic Management.................................................................................... 14
2.2 Strategy is About Competing Differently from Rivals......................................14
2.3 Strategic Management Process.......................................................................14
2.4 Action Patterns for Strategies..........................................................................15
2.5 A Companys Strategy is Partly Proactive and Partly Reactive.........................16
2.6 Relationship between A Firms Strategy and Business Model..........................16
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2.7 What Makes A Strategy Winner.......................................................................17


3. VISION, MISSION AND OBJECTIVES.....................................................18
3.1 Why Vision Statement is Important.................................................................18
3.1.1 Dos and Donts of a Vision Statement.......................................................19
3.2 Developing a Company Mission Statement.....................................................19
3.3 Core Values...................................................................................................... 19
3.4 Objectives........................................................................................................ 19
3.4.1 Purposes of Setting Objectives..................................................................19
3.5 Classification of Objectives..............................................................................19
3.5.1 Financial Objectives................................................................................... 19
3.5.2 Strategic Objectives..................................................................................19
3.5.3 Short-Term Objectives...............................................................................20
3.5.4 Long-Term Objectives................................................................................ 20
3.6 The Need for a Balanced Approach to Objective Setting.................................20
4. EXTERNAL ANALYSIS..........................................................................20
4.1 PESTEL Analysis............................................................................................... 20
4.2 Five Forces Model............................................................................................ 21
4.2.1 Competitive Pressures Increase Rivalry among Competitive Sellers.........22
4.2.2 Common Weapons for Competing with Rivals........................................23
4.3 The Threat of New Entrants............................................................................. 23
4.3.1 Market Entry Barriers for New Entrants.....................................................24
4.4 Competitive Pressures Stemming from Supplier Bargaining Power.................24
4.5 Competitive Pressures Stemming from Buyer Bargaining Power and Price
Sensitivity.............................................................................................................. 24
4.6 The Value Net.................................................................................................. 25
4.7 Driving Forces of Industry Change...................................................................25
4.8 Strategic Group............................................................................................... 26
4.8.1 Strategic Group Mapping...........................................................................26
4.8.2 Constructing a Strategic Group Map.........................................................26
4.8.3 Guidelines for Creating Group Maps..........................................................26
4.8.4 Typical Variables Used in Creating Group Maps.........................................27
4.9 Competitor Analysis......................................................................................... 28
4.9.1 Competitive Intelligence...........................................................................28
4.9.2 Signals of the Likelihood of Strategic Moves.............................................28
4.9.3 Indicators of a Rival Firms Likely Strategic Moves and Countermoves.....28
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4.9.4 Useful Questions to Help Predict the Likely Actions of Important Rivals....28
4.9.5 Creating Strategic Profile of a Rival Firm...................................................29
4.10 Key Success Factors (KSFs)............................................................................29
4.10.1 Identification of Key Success Factors.......................................................29
4.11 Factors to Consider in Assessing Industry Attractiveness..............................30
5. INTERNAL ANALYSIS..........................................................................30
5.1 Scope of Firms Internal Situation Analysis......................................................30
5.1.1 Firms Present Situation............................................................................. 30
5.2 Key Financial Ratios......................................................................................... 31
5.3 Firms Resources and Capabilities...................................................................32
5.3.1 A Resource................................................................................................ 32
5.3.2 A Capability............................................................................................... 32
5.4 VRIN Testing.................................................................................................... 33
5.5 SWOT Analysis................................................................................................. 33
5.5.1 Potential Strengths and Competitive Assets..............................................33
5.5.2 Potential Weaknesses and Competitive Deficiencies.................................34
5.5.3 Potential Market Opportunities..................................................................34
5.5.4 Potential External Threats to a Company's Future Profitability..................34
5.5.5 Steps Involved in SWOT Analysis..............................................................35
5.6 A Company Value Chain.................................................................................. 35
5.7 An Industry Value Chain.................................................................................. 36
5.8 Improving Internally Performed Value Chain Activities....................................37
5.9 Improving Effectiveness of Customer Value Proposition and Enhancing
Differentiation........................................................................................................ 37
5.10 Improving Supplier-Related Value Chain Activities.........................................37
5.11 Improving Forward Channel Allies Value Chain Activities..............................37
5.12 Translating Company Performance of Value Chain Activities into Competitive
Advantage............................................................................................................. 38
5.13 The Competitive Strength Assessment Process.............................................38
5.14 Strategic How To Issues..............................................................................39
5.15 Strategic Should We Issues........................................................................39
6. STRATEGY IMPLEMENTATION AND EXECUTION PROCESS......................40
6.1 Strategic Plan.................................................................................................. 40
6.2 Principle Aspects of Strategy Execution Process..............................................40
6.3 A Companys Strategy-Making Hierarchy........................................................41
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6.4 Building an Organization Capable of Good Strategy Execution.......................42


6.5 The Three-Stage Process of Developing, Strengthening Competencies &
Capabilities............................................................................................................ 42
7. Recommendations.............................................................................43
7.1 The Imperative of Setting Stretch Objectives..................................................43
7.2 Managing Resources and Capabilities Dynamically.........................................43
7.3 Comparing the Value Chains of Rival Firms.....................................................43
7.4 Places in the Value Chain to Improve Efficiency and Effectiveness.................43
8. Conclusion.......................................................................................................... 44
9. References......................................................................................................... 45

1. Introduction
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Every company has a management structure and model to build up their business and achieve the
business goals. Vision, mission statement is the important statement for any organizations.
Entrepreneurs and industry managers are often so lost in thought with in need of attention issues
that they lose view of their eventual objectives. That is why a business re-evaluates or
groundwork of a strategic plan is a fundamental necessity. This may not be a formula for success,
but not including it, an industry is to a great extent more likely to fail. By applying, any type of
strategic decision company can full fill their vision and mission. Either its big or small
organizations, they have managed to achieve their aspirations, or the management set up a
decision to achieve that aspiration.

1.1 Strategic Management Model

1.2 COMPETITIVE ADVANTAGE


Competitive strategy concerns the specifics of managements game plan for competing
successfully and securing a competitive advantage over rivals. The objective of competitive
strategy is to knock the socks off rival companies by doing a better job of satisfying buyer needs
and preferences.

1.3 Competitive Strategy


Competitive Strategy is defined as the long term plan of a particular company in order to gain
competitive advantage over its competitors in the industry. It is aimed at creating defensive
position in an industry and generating a superior ROI (Return on Investment).

1.4 Sustainable Competitive Advantage


A firm achieves a sustainable competitive advantage if its advantage persists despite the best
efforts of competitors to match or surpass its advantage.

1.4.1 Creating Sustainable Competitive Advantage

Develop valuable expertise and competitive capabilities over the long-term that rivals
cannot readily copy, match or best.
Put the constant quest for sustainable competitive advantage at center stage in crafting
your strategy.

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1.5 Building Competitive Advantage

Building a competitive advantage by:


1. Striving to be the industrys low-cost provider (efficiency).
Achieving lower costs than rivals can produce a durable competitive edge when
rivals find it hard to match the low-cost leaders approach to driving costs out of
the business.
2. Outcompeting rivals on differentiating features (effectiveness).
Differentiating features may be higher quality, wider product selection, added
performance, value-added services, more attractive styling, or technological
superiority.
3. Offering the lowest (best) prices for differentiated goods (best-cost provider).
4. Focusing on a narrow market niche and winning a competitive edge by doing a
better job than rivals of serving the special needs and tastes of buyers comprising
the niche (efficiency and/or effectiveness).

1.6 Five Major Competitive Strategies


1. Low-Cost Provider: Striving to achieve lower overall costs than rivals on products that
attract a broad spectrum of buyers.
2. Broad Differentiation: Differentiating the firms product offering from rivals with
attributes that appeal to a broad spectrum of buyers.
3. Focused Low-Cost: Concentrating on a narrow price-sensitive buyer segment and on
costs to offer a lower-priced product.
4. Focused Differentiation: Concentrating on a narrow buyer segment by meeting specific
tastes and requirements of niche members.
5. Best-Cost Provider: Giving customers more value for the money by offering upscale
product attributes at a lower cost than rivals.

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1.7 Low-Cost Strategy


A firms cumulative costs across its overall value chain must be lower than competitors
cumulative costs.

1.7.1 When to opt for Low-Cost Provider Strategy

When the firm is a start-up and needs to penetrate a highly price sensitive market.
Price competition among rival sellers is vigorous.
Identical products are available from many sellers.
There are few ways to differentiate industry products.
Most buyers use the product in the same ways.
Buyers incur low costs in switching among sellers.

1.7.2 How to Gain Competitive Advantage via Low-Cost Provider Strategy

Perform value chain activities more cost-effectively than rivals.


Pursue cost-savings that are difficult to imitate.
Use low cost structure to induce its customers not to switch.
Avoid reducing product quality to unacceptable levels.
Use cost cutting strategies to make it harder for start-ups to gain profitable margins
Revamp the firms overall value chain to eliminate or bypass cost-producing activities.

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1.7.3 Competitive Advantages

Greater total profits and increased market share gained from underpricing competitors.
Win the business of price-sensitive clients, and survive price wars.
Partial profit-margin protection in bargaining and contracting with large systems.
Larger profit margins when selling products at prices comparable to and competitive with
rivals.

1.7.4 Cost Drivers


Cost Driver

A cost driver is a factor that has a strong influence on a companys costs.


A cost driver can be asset-based or activity-based.

Securing a Cost Advantage

Use lower-cost inputs and hold minimal assets


Offer only essential product features or services
Offer only limited product lines
Use low-cost distribution channels
Use the most economical delivery methods

The Keys to Driving Down Company Costs

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1.7.5 Pitfalls to Avoid in Pursuing Low-Cost Provider Strategy

Engaging in overly aggressive price cutting does not result in unit sales gains large
enough to recoup forgone profits.
Relying on a cost advantage that is not sustainable because rival firms can easily copy or
overcome it.
Becoming too fixated on cost reduction such that the firms offering is too features-poor
to gain the interest of buyers.
Having a rival discover a new lower-cost value chain approach or develop a cost-saving
technological breakthrough.

1.7.6 Keys to Being a Successful Low-Cost Provider


Success in achieving a low-cost edge over rivals comes from out-managing rivals in finding
ways to perform value chain activities faster, more accurately, and more cost-effectively by:

Spending aggressively on resources and capabilities that promise to drive costs out of the
business.
Carefully estimating the cost savings of new technologies before investing in them.
Constantly reviewing cost-saving resources to ensure they remain competitively superior.

1.8 Broad Differentiation Strategies


Effective Differentiation Approaches

Carefully study buyer needs and behaviors, values and willingness to pay for a unique
product or service.
Incorporate features that both appeal to buyers and create a sustainably distinctive
product offering.
Use higher prices to recoup differentiation costs.

Advantages of Differentiation

Command premium prices for the firms products


Increased unit sales due to attractive differentiation
Brand loyalty that bonds buyers to the firms products

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1.8.1 When a Differentiation Strategy works Best

1.8.2 Value Drivers

1.8.3 Cost-Efficient Management of Value Chain Activities


A Uniqueness Driver Can

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Have a strong differentiating effect.


Be based on physical as well as functional attributes of a firms products.
Be the result of superior performance capabilities of the firms human capital.
Have an effect on more than one of the firms value chain activities.
Create a perception of value (brand loyalty) in buyers where there is little reason for it to
exist.

1.8.4 Managing the Value Chain Create the Differentiating Attributes

Create product features and performance attributes that appeal to a wide range of buyers.
Improve customer service or add extra services.
Invest in production-related R&D activities.
Strive for innovation and technological advances.
Pursue continuous quality improvement.
Increase marketing and brand-building activities.
Seek out high-quality inputs.
Emphasize human resource management activities that improve the skills, expertise, and
knowledge of company personnel.

1.8.5 Pitfalls to Avoid in Pursuing a Differentiation Strategy

Relying on product attributes easily copied by rivals.


Introducing product attributes that do not evoke an enthusiastic buyer response.
Eroding profitability by overspending on efforts to differentiate the firms product
offering.
Offering only trivial improvements in quality, service, or performance features vis--vis
the products of rivals.
Over-differentiating the product quality, features, or service levels exceed the needs of
most buyers.
Charging too high a price premium.

1.8.6 Delivering Superior Value via Broad Differentiation Strategy

Incorporate product attributes and user features that lower the buyers overall costs of
using the firms product.
Incorporate tangible features (e.g., styling) that increase customer satisfaction with the
product.
Incorporate intangible features (e.g., buyer image) that enhance buyer satisfaction in
noneconomic ways.
Signal the value of the firms product (e.g., price, packaging, placement, and advertising)
offering to buyers.

1.9 Focused Low-Cost and Focused Differentiation Strategies


When A Focused Low-Cost or a Focused Differentiation Strategy is Attractive
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The target market niche is big enough to be profitable and offers good growth potential.
Industry leaders chose not to compete in the nichefocusers avoid competing against
strong competitors
It is costly or difficult for multi-segment competitors to meet the specialized needs of
niche buyers.
The industry has many different niches and segments.
Rivals have little or no entry interest in the target segment.

Risks of Focused Low-Cost and Focused Differentiation Strategies

Competitors will find ways to match the focused firms capabilities in serving the target
niche.
The specialized preferences and needs of niche members to shift over time toward the
product attributes desired by the majority of buyers.
As attractiveness of the segment increases, it draws in more competitors, intensifying
rivalry and splintering segment profits.

1.10 Best Cost Provider Strategies


Best-cost provider strategies are a hybrid of low-cost provider and differentiation strategies that
aim at providing desirable attributes (quality, features, performance, service) while beating rivals
on price.

1.10.1 Best-Cost Provider Strategy works Best

Product differentiation is the market norm.

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There are a large number of value-conscious buyers who prefer midrange products.
There is competitive space near the middle of the market for a competitor with either a
medium-quality product at a below-average price or a high-quality product at an average
or slightly higher price.
Economic conditions have caused more buyers to become value-conscious.

2. STRATEGIC MANAGEMENT PROCESS


A companys strategy is its action plan for outperforming its competitors and achieving superior
profitability.
What is our present situation?
Business environment and industry conditions.
Firms financial and competitive capabilities.
Where do we want to go from here?
Creating a vision for the firms future direction.
How are we going to get there?
Crafting an action plan for heading the firm in the intended direction, staking out a
market position, attracting customers, achieving the targeted financial and market
performance, and getting the firm where it wants to go.
Strategy is all about How:

How to attract and please customers.


How to compete against rivals.
How to position the firm in the marketplace.
How best to respond to changing economic and market conditions.
How to capitalize on attractive opportunities to grow the business.
How to achieve the firms performance targets.

2.1 Strategic Management


Strategic management process is the pattern or plan of an organization by which the organization
can achieve their desired goal.
Strategic management is defined as the combination of formulating, implementing, evaluating
cross-functional decisions that make possible a company to accomplish its objective.

2.2 Strategy is About Competing Differently from Rivals

Doing what they dont do or doing it better!


Doing what they cant do!
Doing things in ways that attract customers and set a firm apart from its rivals.

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Doing things in a manner calculated to produce a competitive edge over rivals.

2.3 Strategic Management Process


The managerial process of crafting and executing a companys strategy consists of five
integrated tasks:
1. Developing a strategic vision, a mission statement, and a set of core values.
2. Setting objectives for measuring the firm's performance and tracking its progress.
3. Crafting a strategy to move the firm along its strategic course and to achieve its
objectives.
4. Executing the chosen strategy efficiently and effectively.
5. Monitoring developments, evaluating performance, and initiating corrective adjustments.

Fig: Strategic Management Process

2.4 Action Patterns for Strategies


The best indicators of a companys strategy are its actions in the marketplace and the statements
of senior managers about the companys current business approaches, future plans, and efforts to
strengthen its competitiveness and performance.
1. Actions to gain sales and market share via lower prices, more performance features, more
appealing design, better quality or customer service, wider production selection, or other
such actions.
2. Actions to respond to changing market conditions and other external factors.
3. Actions to enter new geographic or product markets or exit existing ones.

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4. Actions to capture emerging market opportunities and defend against external threats to
the companys business prospects.
5. Actions to strengthen market standing and competitiveness by acquiring or merging with
other companies.
6. Actions to strengthen competitiveness via strategic alliances and collaborative
partnerships.
7. Actions and approaches used in managing R&D, production, sales and marketing,
finance, and other key activities.
8. Actions to strengthen competitive capabilities and correct competitive weaknesses.
9. Actions to diversify the company's revenues and earnings by entering new businesses.

2.5 A Companys Strategy is Partly Proactive and Partly Reactive


Typical company strategy (Realized Strategy) is a blend of:
Proactive strategy (deliberate strategy) elements that include both continued and new
initiatives.
Reactive strategy (emergent strategy) elements that are required due to unanticipated
competitive developments and fresh market conditions.

2.6 Relationship between A Firms Strategy and Business Model

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The two elements of a companys business model are:


1. Customer Value Proposition
2. Profit Formula

Customer Value Proposition


a. Satisfying buyer wants and needs at price customers will consider a good value.
b. The greater the value provided (V) and the lower the price (P), the more attractive the
value proposition is to customers.

Profit Formula
a. Creating a cost structure that allows for acceptable profits, given that pricing is tied
to the customer value proposition.
V - the value provided to customers
P - the price charged to customers
C - the firms costs
b. The lower the costs (C) for a given customer value proposition (VP), the greater the
ability of the business model to be a moneymaker.

2.7 What Makes A Strategy Winner

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A winning strategy must pass three tests:


1. The Fit Test: Does it exhibit dynamic fit with the external and internal aspects of the
firms overall situation?
To qualify as a winner, a strategy has to be well matched to industry and
competitive conditions, a companys best market opportunities, and other
pertinent aspects of the business environment.
2. The Competitive Advantage Test: Can it help the firm achieve a significant and
sustainable competitive advantage?
Winning strategies enable a company to achieve a long-lasting competitive
advantage over the key rivals.
3. The Performance Test: Can it produce good performance as measured by the firms
profitability, financial and competitive strengths, and market standing?
Two kinds of performance indicators:
i. Competitive Strength and Market Standing
ii. Profitability and Financial Strength

3. VISION, MISSION AND OBJECTIVES


3.1 Why Vision Statement is Important
1. It crystallizes senior executives own views about the firms long-term direction.
2. It reduces the risk of rudderless decision making.
3. It is a tool for winning the support of organization members to help make the vision a
reality
4. It provides a beacon for lower-level managers in setting departmental objectives and
crafting departmental strategies that are in sync with the firms overall strategy.
5. It helps an organization prepare for the future.

3.1.1 Dos and Donts of a Vision Statement


The Dos
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The Donts
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Paint a clear picture of where the company is


headed.
Describe the strategic course that will help the
company prepare for the future.
Focus on providing managers with guidance in
making decisions and allocating resources.
Language that allows some flexibility allows
the directional course to be adjusted as marketcustomer-technology circumstances change.
The path and direction should be within the
realm of what the company can accomplish.
The directional path should be in the long-term
interests of stakeholders.
It should be reducible to a few choice lines or a
memorable slogan.

Dont be vague about where the company is


headed.
Dont include what the company did in the past
or doing at present.
Dont use overly broad language.
Dont state the vision in bland or uninspiring
terms.
Dont be generic.
Dont rely on superlatives only.
Dont make the vision statement too long and
not to the point.

3.2 Developing a Company Mission Statement


An ideal mission statement:

Identifies the firms product or services.


Specifies the buyer needs it seeks to satisfy.
Identifies the customer groups or markets it is endeavoring to serve.
Specifies its approach to pleasing customers.
Sets the firm apart from its rivals.
Clarifies the firms business to stakeholders.

3.3 Core Values

Core values are the beliefs, traits, and behavioral norms that employees are expected to
display in conducting the firms business and in pursuing its strategic vision and mission.
Core values become an integral part of the firms culture and what makes it tick when
strongly espoused and supported by top management.
Core values match with the firms vision, mission, and strategy contribute to the firms
business success.

3.4 Objective
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Objectives are an organizations performance targetsthe specific results management wants to achieve.

3.4.1 Purposes of Setting Objectives

To convert the vision and mission into specific, measurable, timely performance targets.
To focus efforts and align actions throughout the organization.
To serve as yardsticks for tracking a firms performance and progress.
To provide motivation and inspire employees to greater levels of effort.

3.5 Classification of Objectives


3.5.1 Financial Objectives
Financial objectives relate to the financial performance targets management has established for the
organization to achieve.

Financial Objectives communicate top managements goals for financial performance.


Financial Objectives are focused internally on the firms operations and activities.

3.5.2 Strategic Objectives


Strategic objectives relate to target outcomes that indicate a company is strengthening its market standing,
competitive position, and future business prospects.

Strategic Objectives are the firm's goals related to marketing standing and competitive position.
Strategic Objectives are focused externally on competition vis--vis the firms rivals.

3.5.3 Short-Term Objectives

Focus attention on quarterly and annual performance improvements to satisfy near-term


shareholder expectations.

3.5.4 Long-Term Objectives

Force consideration of what to do now to achieve optimal long-term performance.


Stand as a barrier to an undue focus on short-term results.

3.6 The Need for a Balanced Approach to Objective Setting


Balanced Scorecard is a way of maintaining a balance between short-term and long-term
objectives, financial and nonfinancial measures, and lagging and leading indicators. There are
following four perspectives:
1.
2.
3.
4.

The Customer Perspective


The Financial Perspective
The Internal Business Perspective
The Learning and Growth Perspective

A balanced scorecard measures a firms optimal performance by:

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Placing a balanced emphasis on achieving both financial and strategic objectives.


Tracking both measures of financial performance and measures of whether a firm is
strengthening its competitiveness and market position.
It provides a companys employees with clear guidelines about how their jobs are linked
to the overall objectives of the organization, so that they can contribute most productively
and collaboratively to achieve these goals.

4. EXTERNAL ANALYSIS
4.1 PESTEL Analysis
PESTEL analysis focuses on the six principal components of strategic significance in the macroenvironment:
1. Political: These factors include political policies, including the extent to which a
government intervenes in the economy. They include such matters as tax policy, fiscal
policy, tariffs, the political climate, and the strength of institutions such as the federal
banking system.
2. Economic: Economic conditions include the general economic climate and specific
factors such as interest rates, exchange rates, the inflation rate, the unemployment rate,
the rate of economic growth, trade deficits or surpluses, savings rates, and per-capita
domestic product.
3. Sociocultural: Sociocultural forces include the societal values, attitudes, cultural
influences, and lifestyles that impact demand for particular goods and services, as well as
demographic factors such as the population size, growth rate, and age distribution.
4. Technological: Technological factors include the pace of technological change, R&D
consortia, university-sponsored technology incubators, patent and copyright laws, and
government control over the Internet.
5. Environmental: These include ecological and environmental forces such as weather,
climate, climate change, and associated factors like water shortages.
6. Legal: These factors include the regulations and laws with which companies must
comply, such as consumer laws, labor laws, antitrust laws, and occupational health and
safety regulation.

4.2 Five Forces Model


The Five Competitive Forces:
1.
2.
3.
4.
5.

Competition from Rival Sellers


Competition from Potential New Entrants
Competition from Producers of Substitute Products
Suppliers Bargaining Power
Customers Bargaining Power

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4.2.1 Competitive Pressures Increase Rivalry among Competitive Sellers

Buyer demand is growing slowly or declining.


It is becoming less costly for buyers to switch brands.
Industry products are becoming less differentiated.
There is unused production capacity, and\or products have high fixed costs or high
storage costs.
The number of competitors is increasing and\or they are becoming more equal in size and
competitive strength.
The diversity of competitors is increasing.
High exit barriers keep firms from exiting the industry.

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4.2.2 Common Weapons for Competing with Rivals

Competitive Weapon Types

Primary Effects

Discounting prices, holding


clearance sales

Lowers price (P), increase total sales volume and market


share, lowers profit if price cuts are not offset by large
increases in sales volume

Offering coupons, advertising


items on sale

Increases sales volume and total revenues, lowers price


(P), increases unit costs (C), may lower profit margins per
unit sold (P C)

Advertising product or service


characteristics, using ads to
enhance a companys image

Boosts buyer demand, increases product differentiation and


perceived value (V), increases total sales volume and
market share, but may increase unit costs (C) and/or lower
profit margins per unit sold

Innovating to improve product


performance and quality

Increases product differentiation and value (V), boosts


buyer demand, boosts total sales volume, likely to increase
unit costs (C)

Introducing new or improved


features, increasing the number
of styles to provide greater
product selection

Increases product differentiation and value (V), strengthens


buyer demand, boosts total sales volume and market share,
likely to increase unit costs (C)

Increasing customization of
product or service

Increases product differentiation and value (V), increases


switching costs, boosts total sales volume, often increases
unit costs (C)

Building a bigger, better dealer


network

Broadens access to buyers, boosts total sales volume and


market share, may increase unit costs (C)

Improving warranties, offering


low-interest financing

Increases product differentiation and value (V), increases


unit costs (C), increases buyer costs to switch brands,
boosts total sales volume and market share

4.3 The Threat of New Entrants

Expected defensive reactions of incumbent firms


Strength of barriers to entry
Attractiveness of a particular markets growth in demand and profit potential
Capabilities and resources of potential entrants
Entry of existing competitors into market segments in which they have no current
presence

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4.3.1 Market Entry Barriers for New Entrants

Incumbent cost advantages related to learning and experience, proprietary patents and
technology, favorable locations, and lower fixed costs
Strong brand preferences and customer loyalty
Strong network effects in customer demand
High capital requirements
Building a network of distributors or dealers and securing adequate space on retailers
shelves
Restrictive regulatory and trade policies.

4.4 Competitive Pressures Stemming from Supplier Bargaining Power

Strength of demand for and availability of suppliers products.


Whether suppliers provide a differentiated input that enhances the performance of the
industrys product.
Industry members costs for switching among suppliers
Size and number of suppliers relative to industry members
Possibility of backward integration into suppliers industry
Fraction of the cost of the suppliers product relative to the total cost of the industrys
product
Availability of good substitutes for suppliers products
Whether industry members are major customers of suppliers.

4.5 Competitive Pressures Stemming from Buyer Bargaining Power and Price
Sensitivity

Strength of buyers demand for sellers products


Degree to which industry goods are differentiated
Buyers costs for switching to competing sellers or substitutes
Number and size of buyers relative to number of sellers
Threat of buyers integration into sellers industry
Buyers knowledge of products, costs and pricing
Buyers discretion in delaying purchases
Buyers price sensitivity due to low profits, size of purchase, and consequences of
purchase

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4.6 The Value Net

4.7 Driving Forces of Industry Change


1. Changes in the long-term industry growth rate
2. Increasing globalization
3. Emerging new Internet capabilities and applications
4. Shifts in buyer demographics
5. Technological change and manufacturing process innovation
6. Product and marketing innovation
7. Entry or exit of major firms
8. Diffusion of technical know-how across firms and countries
9. Changes in cost and efficiency
10. Reductions in uncertainty and business risk
11. Regulatory influences and government policy changes
12. Changing societal concerns, attitudes, and lifestyles

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4.8 Strategic Group


A strategic group is a cluster of industry rivals that have similar competitive approaches and
market positions.

Having comparable product-line breadth


Emphasizing the same distribution channels
Depending on identical technological approaches
Offering the same product attributes to buyers
Offering similar services and technical assistance

4.8.1 Strategic Group Mapping


Strategic group mapping is a technique for displaying the different market or competitive
positions that rival firms occupy in the industry.

4.8.2 Constructing a Strategic Group Map

Identify the competitive characteristics that delineate strategic approaches used in the
industry.
Plot the firms on a two-variable map using pairs of the competitive characteristics.
Assign firms occupying about the same map location to the same strategic group.
Draw circles around each strategic group, making the circles proportional to the size of
the groups share of total industry sales revenues.

4.8.3 Guidelines for Creating Group Maps


1. Variables selected as map axes should not be highly correlated.
2. Variables should reflect important (sizable) differences among rival approaches.
3. Variables may be quantitative, continuous, discrete and\or defined in terms of distinct
classes and combinations.
4. Drawing group circles proportional to the combined sales of firms in each group will
reflect the relative sizes of each strategic group.
5. Drawing maps using different pairs of variables will show the different competitive
positioning relationships present in the industrys structure.

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Fig: Comparative Market Positions of Producers in the U.S. Beer Industry: A Strategic Group Map
Footnote: Circles are drawn roughly proportional to the sizes of the chains, based on revenues.

4.8.4 Typical Variables Used in Creating Group Maps

Price/quality range (high, medium, low)


Geographic coverage (local, regional, national, global)
Product-line breadth (wide, narrow)
Degree of service offered (no frills, limited, full)
Distribution channels (retail, wholesale, Internet, multiple)
Degree of vertical integration (none, partial, full)
Degree of diversification into other industries (none, some, considerable)

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4.9 Competitor Analysis


4.9.1 Competitive Intelligence
Information about rivals that is useful in anticipating their next strategic moves.

4.9.2 Signals of the Likelihood of Strategic Moves

Rivals under pressure to improve financial performance


Rivals seeking to increase market standing
Public statements of rivals intentions
Profiles developed by competitive intelligence units

4.9.3 Indicators of a Rival Firms Likely Strategic Moves and Countermoves

4.9.4 Useful Questions to Help Predict the Likely Actions of Important Rivals
1. Which competitors strategies are achieving good results?
2. Which competitors are losing in the marketplace or badly need to increase unit sales and
market share?
3. Which rivals are likely make major moves to enter new geographic markets or to increase
sales and market share in a particular geographic region?
4. Which rivals can expand product offerings to enter new product segments where they do
not have a presence?
5. Which rivals can be acquired? Which rivals are financially able and looking to make an
acquisition?
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4.9.5 Creating Strategic Profile of a Rival Firm


Current Strategy

How is the competitor positioned in the market?


What is the basis for its competitive advantage?
What kinds of investments is it making (as an indicator of its expected growth
trajectory)?

Objectives

What are its financial performance objectives?


What are its strategic objectives?
How well is it performing in meeting its objectives?
Is it under pressure to improve its performance?

Capabilities

What are the competitors current capabilities?


What weaknesses does it have?
Which capabilities is it making efforts to obtain?

Assumptions

What do the competitors top managers believe about their strategic situation?
How will their beliefs affect the competitors behavior in the market?

4.10 Key Success Factors (KSFs)


Key success factors are the strategy elements, product and service attributes, operational
approaches, resources, and competitive capabilities that are essential to surviving and thriving in
the industry.
They vary from industry to industry, and over time within the same industry, and in importance
as drivers of change and competitive conditions change.

4.10.1 Identification of Key Success Factors


1. On what basis do buyers of the industrys product choose between the competing brands
of sellers? That is, what product attributes and service characteristics are crucial to
competitive success?
2. Given the nature of competitive rivalry prevailing in the marketplace, what resources and
competitive capabilities must a firm have to be competitively successful?
3. What shortcomings are almost certain to put a firm at a significant competitive
disadvantage?

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4.11 Factors to Consider in Assessing Industry Attractiveness


An industry environment is fundamentally attractive if it presents a company with good
opportunity for above-average profitability.
An industry environment is fundamentally unattractive if a firms profit prospects in the industry
are unappealingly low.

How the firm is being impacted by the state of the macro-environment.


Whether strong competitive forces are squeezing industry profitability to subpar levels.
Whether the presence of complementors and the possibility of cooperative actions
improve the companys prospects.
Whether industry profitability will be favorably or unfavorably affected by the prevailing
driving forces.
Whether the firm occupies a stronger market position than rivals.
Whether this is likely to change in the course of competitive interactions.
How well the firms strategy delivers on industry key success factors.

5. INTERNAL ANALYSIS
5.1 Scope of Firms Internal Situation Analysis
1.
2.
3.
4.
5.
6.

Firms present situation.


Firms competitively important resources and capabilities.
Firms ability to take advantage of market opportunities and overcome external threats.
Firms attractive price and cost structure compared to its key rivals.
Firms competitive strength compared to its key rivals.
Prime strategic issues and problems that gets managerial attention.

5.1.1 Firms Present Situation


The best indicators of how well a companys strategy is working are:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Whether the company is achieving its stated financial and strategic objectives.
Whether its financial performance is above the industry average
Whether it is gaining customers and increasing its market share.
Trends in the firms sales and earnings growth.
Trends in the firms stock price.
The firms overall financial strength.
The firms customer retention rate.
The rate at which new customers are acquired.
Evidence of improvement in internal processes such as defect rate, order fulfillment,
delivery times, days of inventory, and employee productivity.

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5.2 Key Financial Ratios


Profitability Ratios
1. Gross profit margin
2. Operating profit margin (or return on sales)

3. Net profit margin (or net return on sales)


4. Total return on assets
5. Net return on total assets (ROA)
6. Return on stockholders' equity (ROE)
7. Return on invested capital (ROIC)
sometimes referred to as return on capital
employed (ROCE)

How Calculated
Sales revenues Cost of goods sold
Sales revenues
Sales revenues Operating expenses
Sales revenues
or
Operating income
Sales revenues
Profits after taxes
Sales revenues
Profits after taxes + Interest
Total assets
Profits after taxes
Total assets
Profits after taxes
Total stockholders equity
Profits after taxes
Long-term debt + Total stockholders' equity

Liquidity Ratios

How Calculated

1. Current ratio

Current assets
Current liabilities
Current assets Current liabilities

2. Working capital

Leverage Ratios
1. Total debt-to-assets ratio
2. Long-term debt-to-capital ratio
3. Debt-to-equity ratio
4. Long-term debt-to-equity ratio
5. Times-interest-earned (or coverage) ratio

How Calculated
Total debt
Total assets
Long-term debt
Long-term debt + Total stockholders' equity
Total debt
Total stockholders' equity
Long-term debt
Total stockholders' equity
Operating income
Interest expenses

Activity Ratios
1. Days of inventory
2. Inventory turnover
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How Calculated
Inventory
Cost of goods sold 365
Cost of goods sold
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Inventory
Accounts receivable
Total sales 365
or
Accounts receivable
Average daily sales

3. Average collection period

Other Important Measures of


Financial Performance
1. Dividend yield on common stock
2. Price-to-earnings ratio
3. Dividend payout ratio
4. Internal cash flow
5. Free cash flow

How Calculated
Annual dividends per share
Current market price per share
Current market price per share
Earnings per share
Annual dividends per share
Earnings per share
After tax profits + Depreciation
After tax profits + Depreciation Capital
Expenditures Dividends

5.3 Firms Resources and Capabilities


A firms resources and capabilities represent its competitive assets and are determinants of its
competitiveness and ability to succeed in the marketplace.

5.3.1 A Resource
A productive input or competitive asset that is owned or controlled by a firm (e.g., a fleet of oil
tankers).
Tangible Resources

Physical resources
Financial resources
Technological assets
Organizational resources

Intangible Resources

Human assets and intellectual capital


Brands, company image, and reputational assets
Relationships: alliances, joint ventures, or partnerships
Company culture and incentive system

5.3.2 A Capability
A capability or competence is the capacity of a firm to perform internal activity competently
through deployment of a firms resources.
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An Organizational Capability
An organizational capability is the intangible but observable capacity of a firm to perform a
critical activity proficiently using a related combination (cross-functional bundle) of its
resources.

5.4 VRIN Testing

Identifying the firms resources and capabilities by testing the competitive power of its resources
and capabilities:
Is the resource (or capability) competitively Valuable?
Is the resource Rareis it something rivals lack?
Is the resource hard to copy (Inimitable)?
Is the resource invulnerable to the threat of substitution from different types of resources
and capabilities (Non-substitutable)?

5.5 SWOT Analysis


SWOT analysis is a simple but powerful tool for sizing up a companys:
1.
2.
3.
4.

Internal strengths (the basis for strategy)


Internal weaknesses (deficient capabilities)
Market opportunities (strategic objectives)
External threats (strategic defenses)

5.5.1 Potential Strengths and Competitive Assets

Competencies that are well matched to industry key success factors


Ample financial resources to grow the business
Strong brand-name image and/or company reputation
Economies of scale and/or learning- and experience-curve advantages over rivals
Other cost advantages over rivals
Attractive customer base
Proprietary technology, superior technological skills, important patents

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Strong bargaining power over suppliers or buyers


Resources and capabilities that are valuable and rare
Resources and capabilities that are hard to copy and for which there are no good
substitutes
Superior product quality
Wide geographic coverage and/or strong global distribution capability
Alliances and/or joint ventures that provide access to valuable technology, competencies,
and/or attractive geographic markets

5.5.2 Potential Weaknesses and Competitive Deficiencies

No clear strategic vision


No well-developed or proven core competencies
No distinctive competencies or competitively superior resources
Lack of attention to customer needs
A product or service with features and attributes that are inferior to those of rivals
Weak balance sheet, short on financial resources to grow the firm, too much debt
Higher overall unit costs relative to those of key competitors
Too narrow a product line relative to rivals
Weak brand image or reputation
Weaker dealer network than key rivals and/or lack of adequate distribution capability
Lack of management depth
A plague of internal operating problems or obsolete facilities
Too much underutilized plant capacity
Resources that are readily copied or for which there are good substitutes

5.5.3 Potential Market Opportunities

Sharply rising buyer demand for the industry's product


Serving additional customer groups or market segments
Expanding into new geographic markets
Expanding the company's product line to meet a broader range of customer needs
Utilizing existing company skills or technological know-how to enter new product lines
or new businesses
Falling trade barriers in attractive foreign markets
Acquiring rival firms or companies with attractive technological expertise or capabilities
Entering into alliances or joint ventures to expand the firm's market coverage or boost its
competitive capability

5.5.4 Potential External Threats to a Company's Future Profitability

Increasing intensity of competition among industry rivalsmay squeeze profit margins


Slowdowns in market growth

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Likely entry of potent new competitors


Growing bargaining power of customers or suppliers
A shift in buyer needs and tastes away from the industry's product
Adverse demographic changes that threaten to curtail demand for the industry's product
Adverse economic conditions that threaten critical suppliers or distributors
Changes in technologyparticularly disruptive technology that can undermine the
company's distinctive competencies
Restrictive foreign trade policies
Costly new regulatory requirements
Tight credit conditions
Rising prices on energy or other key inputs

5.5.5 Steps Involved in SWOT Analysis


Identification

Identify company strengths and competitive assets


Identify company weaknesses and competitive deficiencies
Identify the company's market opportunities
Identify external threats to the company's future well-being

Conclusion
Conclusions concerning the company's overall business situation:
Where on the scale from "alarmingly weak" to "exceptionally strong" does the
attractiveness of the company's situation rank?
What are the attractive and unattractive aspects of the company's situation?
Implication/Translation
Implications for improving company strategy:
Use company strengths as the foundation for the company's strategy.
Pursue those market opportunities best suited to company strengths.
Correct weaknesses and deficiencies which impair pursuit of important market
opportunities or heighten vulnerability to external threats.
Use company strengths to lessen the impact of important external threats.

5.6 A Company Value Chain


The Value Chain:

Identifies the primary internal activities that create and deliver customer value and the
requisite related support activities.
Permits a deep look at the firms cost structure and ability to offer low prices.

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Reveals the emphasis that a firm places on activities that enhance differentiation and
support higher prices.

Fig: A Representative Company Value Chain

5.7 An Industry Value Chain


Industry Value Chain

The firms internal value chain


The value chains of industry suppliers
The value chains of channel intermediaries

Effects of the Industry Value Chain

Costs and margins of suppliers and channel partners can affect prices to end consumers.
Activities of channel partners can affect industry sales volumes and customer satisfaction.

Fig: A Representative Industry Value Chain

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5.8 Improving Internally Performed Value Chain Activities

Implement best practices throughout the firm, particularly for high-cost activities.
Eliminate some cost-producing activities altogether by revamping the value chain.
Relocate high-cost activities to areas where they can be performed more cheaply.
Outsource activities that can be performed by vendors or contractors more cheaply than if
done in-house.
Invest in productivity enhancing, cost-saving technological improvements.
Find ways to detour around activities or items where costs are high.
Redesign products and/or components to facilitate speedier and more economical
manufacture or assembly.

5.9 Improving Effectiveness of Customer Value Proposition and Enhancing


Differentiation

Implement best practices for quality for high-value activities.


Adopt best practices and technologies that spur innovation, improve design, and enhance
creativity.
Implement the best practices in providing customer service.
Reallocate resources to activities having the most impact on value for the customer and
their most important purchase criteria.
For intermediate buyers, gain an understanding of how the activities the firm performs
impact the buyers value chain.
Adopt best practices for marketing, brand management, and enhancing customer
perceptions.

5.10 Improving Supplier-Related Value Chain Activities

Pressure suppliers for lower prices.


Switch to lower-priced substitute inputs.
Collaborate closely with suppliers to identify mutual cost-saving opportunities.
Work with suppliers to enhance the firms differentiation.
Select and retain suppliers who meet higher-quality standards.
Coordinate with suppliers to enhance design or other features desired by customers.
Provide incentives to suppliers to meet higher-quality standards, and assist suppliers in
their efforts to improve.

5.11 Improving Forward Channel Allies Value Chain Activities


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Pressure forward channel allies to reduce their costs and markups.


Collaborate with forward channel allies to identify win-win opportunities to reduce costs.
Change to a more economical distribution strategy, including switching to cheaper
distribution channels.

5.12 Translating Company Performance of Value Chain Activities into


Competitive Advantage

5.13 The Competitive Strength Assessment Process


Step 1: Make a list of the industrys key success factors and measures of competitive strength or
weakness (6 to 10 measures usually suffice).
Step 2: Assign a weight to each competitive strength measure based on its perceived importance.
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Step 3: Rate the firm and its rivals on each competitive strength measure and multiply by each
measure by its corresponding weight.

5.14 Strategic How To Issues

How to meet challenges of new foreign competitors.


How to combat the price discounting of rivals.
How to both reduce high costs and prepare for price reductions.
How to sustain growth as buyer demand slows.
How to adapt to the changing demographics of the firms customer base.

5.15 Strategic Should We Issues

Expand rapidly or cautiously into foreign markets.


Reposition the firm to move to a different strategic group.
Counter increasing buyer interest in substitute products.
Expand of the firms product line.
Correct the firms competitive deficiencies by acquiring a rival firm with the missing
strengths.

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6. STRATEGY IMPLEMENTATION AND EXECUTION PROCESS


6.1 Strategic Plan
Developing a strategic vision and mission, setting objectives, and crafting a strategy are basic
direction-setting tasks. They map out where a company is headed, its purpose, the targeted
strategic and financial outcomes, the basic business model, and the competitive moves and
internal action approaches to be used in achieving the desired business results. Together, they
constitute a strategic plan for coping with industry conditions, outcompeting rivals, meeting
objectives, and making progress toward the strategic vision. Typically, a strategic plan includes a
commitment to allocate resources to the plan and specifies a time period for achieving goals
(usually three to five years).

6.2 Principle Aspects of Strategy Execution Process


In most situations, managing the strategy execution process includes the following principal
aspects:
1.
2.
3.
4.
5.
6.
7.

Staffing the organization to obtain needed skills and expertise.


Developing and strengthening strategy-supporting resources and capabilities.
Creating a strategy-supporting structure.
Allocating ample resources to the activities critical to strategic success.
Ensuring that policies and procedures facilitate effective strategy execution.
Organizing the work effort along the lines of best practice.
Installing information and operating systems that enable company personnel to perform
essential activities.
8. Motivating people and tying rewards directly to the achievement of performance
objectives.
9. Creating a company culture and work climate conducive to successful strategy execution.
10. Exerting the internal leadership needed to propel implementation forward.
11. Building effective management control system.

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6.3 A Companys Strategy-Making Hierarchy


Orchestrated by the
CEO and other
senior executives.

Corporate Strategy
(For the set of businesses as a
whole)
How to gain advantage from
managing a set of businesses
Two-Way
Influence

Orchestrated by the
general managers
of each of the
company's different
Ones of business,
often with advice
and input from
more senior
executives and the
heads of functional

Business Strategy
(One for each business the
company has diversified
into)
HOW to gain and sustain a
competitive advantage for a

Orchestrated by the
heads of major
functional activities
within a particular
business, often in
collaboration with
other key people.

Functional Area Strategies


(Within each business)
How to manage a particular
activity within a business in
ways that support the business
strategy

Orchestrated by
brand managers,
the operating
managers of plants,
distribution centers,
and purchasing
centers and the
managers of
strategically
important activities
like web site
operations, often in

In the case of a
single-business
company, these two
levels of the
strategy-making
hierarchy merge
into one level
Business strategy
that is orchestrated
by the company's

Two-Way
Influence

Two-Way
Influence
Operating Strategies
(Within each functional
area)
How to manage activities of
strategic significance within
each functional area, adding

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6.4 Building an Organization Capable of Good Strategy Execution


Proficient strategy execution depends heavily on competent personnel, better-than adequate
competitive capabilities, and effective internal organization. Building a capable organization is
thus always a top priority in strategy execution. As shown in Figure three types of organizationbuilding actions are:
1. Staffing the organization-putting together a strong management team, and recruiting and
retaining employees with the needed experience, technical skills, and intellectual capital.
2. Building core competencies and competitive capabilities-developing proficiencies in
performing strategy-critical value chain activities and updating them to match changing
market conditions and customer expectations.
3. Structuring the organization and work effort-organizing value chain activities and
business processes and deciding how much decision-making authority to push down to
lower-level managers and frontline employees.

6.5 The Three-Stage Process of Developing, Strengthening Competencies &


Capabilities
Stage 1: First, the organization must develop the ability to do something, however imperfectly or
inefficiently. This entails selecting people with the requisite skills and experience, upgrading or
expanding individual abilities as needed, and then molding the efforts and work products of
individuals into a collaborative effort to create organizational ability.
Stage 2: As experience grows and company personnel learn how to perform the activity
consistently well and at an acceptable cost, the ability evolves into a tried and-true competence
or capability.
Stage 3: Should company personnel continue to polish and refine their knowhow and otherwise
sharpen their performance of an activity such that the company eventually becomes better than
rivals at performing the activity, the core competence rises to the rank of a distinctive
competence (or the capability becomes a competitively superior capability), thus providing a
path to competitive advantage.

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7. Recommendations
7.1 The Imperative of Setting Stretch Objectives

Stretch the firm to perform at its full potential and deliver the best possible results.
Push a firm to be more inventive.
Increase the urgency for improving financial performance and competitive position.
Cause the firm to be more intentional and focused in its actions.
Act to prevent internal inertia and contentment with modest to average gains in performance.

7.2 Managing Resources and Capabilities Dynamically


A dynamic capability is the ongoing capacity of a firm to modify its existing resources and
capabilities or create new ones by:

Improving existing resources and capabilities incrementally.


Adding new resources and capabilities to the firms competitive asset portfolio.

Threats to Resources and Capabilities

Rivals providing better substitutes over time


Capabilities decaying from benign neglect
Disruptive competitive environment change

Managing Capabilities Dynamically

Attending to the ongoing modification of existing competitive assets.


Taking advantage of any opportunities to develop totally new kinds of capabilities.

7.3 Comparing the Value Chains of Rival Firms


Value Chain Analysis

Facilitates a comparison, activity-by-activity, of how effectively and efficiently a firm


delivers value to its customers, relative to its competitors.

The Value Chain Analysis Process

Segregate the firms operations into different types of primary and secondary activities to
identify the major components of its internal cost structure.
Use activity-based costing to evaluate the activities.
Do the same for significant competitors.

7.4 Places in the Value Chain to Improve Efficiency and Effectiveness


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1. The firms own internal activity segments


2. The suppliers part of the overall value chain system
3. The forward channel portion of the value chain system.

8. Conclusion
Crating and executing strategy are core management functions. Among all the things managers
do, nothing affects a companys ultimate success or failure more fundamentally than how well its
management team charts the company's direction, develops competitively effective strategic
moves and business approaches, and pursues what needs to be done internally to produce good
day-in, day-out strategy execution and operating excellence. The rationale for using the twin
standards of good strategy making and good strategy execution to determine whether a company
is well managed is therefore compelling: The better conceived a companys strategy and the
more competently it is executed, the more likely the company will be a standout performer in the
marketplace. In stark contrast, a company that lacks clear-cut direction, has a awed strategy, or
cant execute its strategy competently is a company whose nancial performance is probably
suffering, whose business is at long-term risk, and whose management is sorely lacking.

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9. References
1. Crafting and Executing Strategy, The Quest for Competitive Advantage by Arthur A

Thompson, Jr, Margaret A. Peteraf, John E.Gamble.

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