Strategic Management

Chapter 1  It requires long-term commitments

that are not easily reversible.
Understanding Strategy

What Strategy is Not

Basic Concepts of Strategy
Strategy - an action that managers take
to attain one or more of the
organization’s goals. Strategy can also be
defined as “A general direction set for the
company and its various components to
achieve a desired state in the future.
Strategy results from the detailed
strategic planning process”.
▪ Strategy describes the goal-directed
actions a firm intends to take in its quest
to gain and sustain competitive Strategy vs Objective
advantage.
Strategy
▪ The firm that possesses competitive
 Overarching approach taken to
advantage provides superior value to
meet or exceed goals
customers at a competitive price.
 Actions taken must relate to the
▪ Profitability and market share are the original set by management
consequences of superior value creation
Objective
 A measurable action taken to
execute the strategy agreed on by
management and the rest of the
organization
 Follows SMART formula

Strategy is the quest to gain and sustain

competitive advantage.
 It is the managers’ theories about
how to gain and sustain
competitive advantage.
 It is about being different from your
rivals.
 It is about creating value while
containing cost.
 It is deciding what to do, and what
not to do.
 It combines a set of activities to
stake out a unique position.
Key difference organization needs to meet its
goals and objectives.
Purpose: to use and create new and
different opportunities

strategic plan is a company’s game

plan.

BENEFITS OF STRATEGIC
MANAGEMENT
 Competitive Advantage
-Anything that a firm does especially well
The Different Views/Approaches of compared to rival firms.
Strategy  Achieving Goals
1. Classical Administrator - Helps keep goals achievable by using a
2. Design planner clear and dynamic process for
3. Role Player formulating steps and implementation.
4. Competitive Positioner  Sustainable Growth
5. Visionary Transformer - Lead to more efficient organizational
6. Self-Organizer performance, which leads to
7. Turnaround Strategist manageable growth.
 Cohesive Organization
- Necessitates communication and goal
Choosing the RIGHT Approach implementation company-wide.
 Increased Managerial Awareness
 Gathering the right information; - Strategic management means looking
 Developing market awareness; toward the company’s future.
 Deciding what action needs to be
taken;
 Assessing risk; Basic Strategic Management
 Thinking critically; Concepts
 Taking into account of unexpected Mission Statement
● A mission statement
identifies the scope of a firm’s
Chapter 2 operations in product and market
THE NATURE OF STRATEGIC terms
MANAGEMENT Vision Statement
● Answers the question
Strategic Management ● “ what do we want to become”
● Strategic management is both ● Where it wants to be in the future
an art and science of formulating, Values
implementing, and evaluating, ● that will guide its action
cross-functional decisions that Process
facilitate an organization to ● requires a commitment to strategic
accomplish its objectives. planning
● Is the ongoing planning, Strategic Planning
monitoring, analysis and ● includes the planning of strategic
assessment of all necessities an decisions, activities, and resource
 allocation needed to achieve those
goals.

Strategic Management can be:

Prescriptive Strategic Management
- means developing strategies in
advance of an organizational issue.
Descriptive Strategic Management
- means putting strategies into practice
when needed.
THE FOUR PERSPECTIVES AND
PERFORMANCE MEASURES
Types of Strategic Management a. The Financial Perspectives
● SWOT ANALYSIS ● Establishes long and short-term
- Comprehensive evaluation of all financial performance objectives
strengths, weaknesses, opportunities, ● Concerned with the global financial
and threats of the strategy you consequences
● Has three strategic themes:
-revenue growth
- cost reduction
- asset utilization
b. Customer Perspectives
● Source of the revenue component
for the financial objectives
● Defines and selects the customers
and market segment in which the
company chooses to compete
c. Process Perspectives
compose. ● Entails the identification of the
processes needed to achieve the
● Balanced Scorecard customer and financial objectives.
- is a strategic management system ● Process Value Chain is made up of
that translate the vision and strategy three processes:
of an organization into operational  Innovation process
objectives and measures.  Operations process
 Post-sales process
d. Learning and Growth (infrastructure)
Perspectives
● The source of the capabilities that
enable the accomplishment of the
other three perspectives.
● It has 4 major objectives:
- increase employee capabilities
-increase motivation
-empowerment and alignment
-increase information systems
capabilities
Basic Principles that can Help
Strategic Management to be
Strategy Translation Process Successful
 Creating a unique strategic position “what” of a business. It is different from
for the proposition a mission statement, which describes the
 Consider the availability or potential purpose of an organization and more
availability of resources about the “how” of a business.
 Understand the importance of Values Example:
and incentives
 Gain’s people emotional commitment
to the strategy
 Be open to strategic ideas whenever
they originate
 Keep the strategy flexible
IMPORTANCE OF A VISION STATEMENT
1. A vision statement should answer
Chapter 3 the basic question, “What do we
THE STRATEGIC MANAGEMENT PROCESS want to become?”
 A clear vision provides the
Strategic Management Process foundation for developing a
- describes its methods by which comprehensive mission
managers conceived of and statement.
implement a strategy that can lead 2. Many organizations have both a vision
to a sustainable competitive and a mission statement, but the vision
advantage. statement should be established first and
- Managers ask the following foremost.
questions:  The vision statement should be
● What do we want to accomplish short, preferably one sentence, and
ultimately? What is our vision? as many managers as possible
● What are we about? What is our should have input into developing
mission? the statement.
● How do we accomplish our goals?
What are our values? MISSION STATEMENT
● Distinguishes one firm from
VISION, MISSION, VALUES another
VISION STATEMENT ● Declares the firm’s reason for
A vision statement provides the direction being
and describes what the founder wants ● Reveal what an organization wants
the to be and whom it wants to serve
● Essential for effectively
establishing objectives and
formulating strategies
● Also referred to as:
 Creed statement
 Statement of purpose
organization  Statement of philosophy
to achieve in  Statement of business
the future; principles
it’s more Example:
about the MISSION STATEMENT COMPONENTS
 Customers: Who are the firm’s
customers?
 Products or services: What are the
firm’s major products or services?
  Markets: Geographically, where pursuing its quest for
does the firm compete? competitive advantage.
 Technology: Is the firm STEPS IN THE STRATEGIC
technologically current? MANAGEMENT PROCESS
 Concern for survival, growth,
and profitability: Is the firm
committed to growth and
financial soundness?
 Philosophy: What are the basic
beliefs, values, aspirations, and
ethical priorities of the firm?
 Self-concept: What is the firm’s
distinctive competence or major
competitive advantage? What is strategy formulation?
 Concern for public image: Is  includes developing a vision and
the firm responsive to social, mission
community, and environmental  identifying an organization's
concerns? external opportunities and threats,
 Concern for employees: Are  determining internal strengths and
employees a valuable asset of the weaknesses,
firm?  establishing long-term objectives,
 creating alternative strategies, and
ROLES PLAYED BY MISSION AND  choosing particular strategies to
VISION pursue.
Mission and vision statements play three
critical roles: Strategy Formulation
(1) communicate the purpose of the  Deciding what new businesses to
organization to stakeholders, enter
(2) inform strategy development, and  What businesses to abandon
(3) develop the measurable goals and  How to allocate resources
objectives by which to gauge the success  Whether to expand operations or
of the organization’s strategy. diversify
 Whether to enter international
Key Roles of Vision and Mission markets
 Whether to merge or form a joint
Living the Ethical Values venture
 Organizational Values are the  How to avoid a hostile takeover
ethical standards and norms that
govern the behavior of individuals Strategy Implementation
within a firm or organization and  requires a firm to establish annual
within society. objectives, devise policies,
 Strong ethical values have two
important functions:
 They form a solid foundation
on which a firm can build its
mission and long-term
success.
 They serve as the guardrails
put in place so the company motivate employees, and allocate
can stay on track when resources so that formulated
strategies can be implemented
  developing a strategy-supportive Strategists
culture, - Help an organization gather, analyze,
 creating an effective organizational and organize information
structure, Vision Statement
 redirecting marketing efforts, - “what do we want to become?”
 preparing budgets, External Opportunities and Threats
 developing and utilizing - are factors which could harm or benefit
information systems, and the organization in the future
 relating employee reward to Internal Strengths and Weaknesses
organizational performance. -Controllable activities that are
 Often called the action stage performed especially well or poorly.

Strategy Evaluation Long-term Objectives

Three fundamental strategy-evaluation - essential for organizational success
activities are:
1) Reviewing external and internal Annual Objectives
factors that are the bases for current - are short term milestones that
strategies organizations must achieve to reach long
2) Measuring performance term objectives.
3) Taking corrective actions
Policies
Integrating Intuition and Analysis -annual objectives will be achieved.
 Most organizations can benefit
gtom strategic management, which Levels of Strategies
is based upon integrating intution  Corporate Strategy
and analysis in decision making  Business Strategy
 Intuition is particularly useful for  Functional strategy
making decisions in situations of  Operational Strategy
great uncertainty or little
precedeent Benefits of Strategic Management
 Nonfinancial Benefits
Adapting to Change  Enhanced awareness of threats
 The second largest bookstore chain  Improved understanding of
in the United States, Borders competitors’ strategies
Group, declared bankruptcy in  Increased employee productivity
2011 as the firm had not adapted  Reduced resistance to change
well to changes in book retailing  Clearer understanding of
from traditional bookstore performance-reward relationship
shopping to customers buying  Enhanced problem-prevention
online, preferring digital books to capabilities
hard copies.
 Borders was on the brink of
financial collapse before being
acquired in July 2011 by Direct
Brands
WHY SOME FIRMS DO NO STRATEGIC
KEY TERMS IN STRATEGIC PLANNING
MANAGEMENT  Lack of knowledge of strategic
Competitive Advantage planning
- anything that a firm does especially
well compared to rival firms.  Poor reward structures
 Fire fighting possible factor that could influence the
business.
 Waste of time  It is aimed at identifying key variables
 Too expensive that offer actionable responses.
 Firms should be able to respond to the
 Laziness factors by formulating strategies that
 Content with success take advantage of external
opportunities or that minimize the
 Fear of failure impact of potential threats.
 Overconfidence
KEY EXTERNAL FORCES
 Prior bad experience 1. ECONOMIC FORCES
2. POLITICAL, GOVERNMENTAL, AND
 Self-interest LEGAL FORCES
 Fear of the unknown 3. TECHNOLOGICAL FORCES
4. SOCIAL, CULTURAL,
 Honest difference of opinion DEMOGRAPHIC, AND NATURAL
 Suspicion ENVIRONMENT FORCES
5. COMPETITVE FORCES

The PESTEL model

Political (p)
CHAPTER 4 • The political environment dscribes
The External Assessment the processes and actions of
government bodies that can
INTRODUCTION influence the decision and behavior
 This chapter examines the tools and of firms.
concepts needed to conduct an Economic (e)
external strategic management audit • The economic factor in the external
(sometimes called environmental environment are largely
scanning or industry analysis). macroeconomic, affecting
 An external audit focuses on economy-wide phenomena.
identifying and evaluating trends and Sociocultural (s)
events beyond the control of a single • Sociocultural factors capture a
firm. society’s cultures, norms, and
 An external audits reveals key values.
opportunities and threats confronting • Demographic trends are also
an organization so that managers can important sociocultural forces.
formulate strategies to take advantage Technological (t)
of the opportunities and avoid or • Technological factors capture the
reduce the impact of threats. application of knowedge to creatre
new processes and products.
NATURE OF EXTERNAL AUDITS Ecological factors (e)
 The purpose of an external audit is to • Ecological factors concern broad
develop a finite list of opportunities environmental issues such as the
that could benefit a firm and threats natural environment, global
that should be avoided. warming, and sustainable
 As the term finite suggests, the economic growth
external audit is not aimed at • Three diemsions- economic, social,
developing an exhaustive list of every and ecological- make up the triple
bottom line.
 • Using triple bottom line approach,  Social, cultural, demographic, and
managers audit their company’s environmental changes have a
fulfillment of its social and major impact on virtually all
ecological obligations to products, services, markets, and
stakeholders. customers.
Legal factors (l) Small
• The legal environment captures the Small, large, for-profit, and non-
official outcomes of the political profit organizations in all industries
processes as manifested in laws, are being staggered and
mandates regulations, and court challenged by the opportunities
decisions. and threats arising from changes in
social, cultural, demographic, and
ECONOMIC FORCES environmental variables.
• Five macroeconomic factors
 Growth rates KEY SOCIAL, CULTURAL, DEMOGRAPHIC,
 Interest rates AND NATURAL ENVIRONMENT VARIABLES
 Levels of employment  Number of marriages
 Price stability (inflation and deflation)  Number of divorces
 Currency exchange rates  Number of births

 An economic variable of significant POLITICAL, GOVERNMENTAL, AND

importance in strategic planning is LEGAL FORCES
Gross Domestic Product (GDP), • Federal, state, local, and foreign
especially across countries. Trends governments are major regulators,
in the dollar’s value have significant deregulators, subsidizers,
and unequal effects on companies in employers, and customers of
different countries and in different organizations.
locations. Political, governmental, and legal
factors, therefore, can represent
 For example, the pharmaceutical, key opportunities and threats for
tourism, entertainment, motor both small and large organizations.
vehicle, aerospace, and forest
products industries benefit greatly • For industries and firms that
when the dollar falls against the depend heavily on government
yen and euro. contracts or subsidies, political
 Agricultural and petroleum forecasts can be the most
industries are hurt by the dollar’s important part of an external audit.
rise against the currencies of Changes in patents, laws, antitrust
Mexico, Brazil, Venezuela, and legislation, tax rates, and lobbying
Australia. activities can affect firms
 When the value of dollar falls, significantly.
tourism-oriented firms enefits
because Americans do not travel • The increasing global
abroad as much when the value of interdependence among
the dollar is low; rather, foreigners economies, markets, governments,
visit and vacation more in the and organizations makes it
United States. imperative that firms consider the
possible impact of political
SOCIAL, CULTURAL, DEMOGRAPHIC, variables on the formulation and
AND NATURAL ENVIRONMENT implementation of competitive
FORCES strategies.
 1. Airlines – Many airlines now offer
SOME POLITICAL, GOVERNMENTAL, AND wireless technology in flight.
LEGAL VARIABLES 2. Automotive – Vehicles are
 Governmental regulations or becoming wireless.
deregulations 3. Banking – Visa sends text message
 Changes in Tax Laws alerts after unusual transactions.
 Specil tariffs 4. Education – Many secondary ( and
 Changes in patent laws even college) students may use
 Number of patents smart phones for math because
 Environmental protection research shows this to be greatly
laws helpful.
 Legislations on equal 5. Health Care – Patients use mobile
employment devices to monitor their own
 Lobbying activities health, such as calories consumed.
 Political conditions in foreign 6. Politics – President Obama won the
countries election partly by mobilizing
 This trend reflects the growing Facebook and Myspace users,
importance of information revolutionizing political campaigns.
technology (IT) in strategic Obama announced his vice
management presidential selection of Joe Biden
 A CIO and CTO work together to by a text message.
ensure that information needed 7. Publishing – e-books are
to formulate, implement, and increasingly available.
evaluate strategies is available
where and when it is needed. COMPETITIVE FORCES AND FIRM’S
 These individuals are responsible STRATEGY:
for developing, maintaining, and the five forces model
updating a company's information  Collecting and evaluating
database. information on competitors is
essential for successful strategy
TECHNOLOGICAL FORCES formulation.
 Revolutionary technological  Identifying major competitors is not
changes and discoveries are always easy because many firms
having a dramatic impact on have divisions that compete in
organizations. different industries.
 The Internet has changed the  Many mulyidivisional firms do not
nature of opportunities and threats provide sales and profit information
by altering the life cycles of on a divisional basis for
products, increasing the speed of competitive reasons.
distribution, creating new products
and services. The nature of competition
 To effectively capitalize on e-  Competitiveness is closely linked
commerce, a number of with customer focus.
organizations are establishing two  A business must be competitive
new positions in their firms: Chief because this enables it to undrtake
Information Officer (CIO) and Chief activities central to its strategy.
Technology Officer (CTO) They include:
 Developing customer loyalty
EXAMPLES OF THE IMPACT OF WIRELESS  Increasing sales to existing
TECHNOLOGY customers
  Enhancing the strength and value  Powerful suppliers can raise the
of its brand cost of production by demanding
 Developing new product and higher prices or delivering lower-
product extensions quality products.
 Increasing market effectiveness  Supplier power is enhanced when
the supplied product is unique and
Chapter 5 differentiated.
FIVE FORCES AFFECTING
COMPETITION IN AN INDUSTRY 3. Power of Buyers
 The bargaining power of buyers
 concerns the pressure buyers can
 put on the margins of producers in
 the industry.
  Backward integration occurs when
 a buyer moves upstream in the
 industry value chain, into the
 seller’s business.
  Power of buyers is HIGH when:
 - There are a few large buyers.
 - Each buyer purchases large
Developed by Michael Porter quantities relative to the size of a
 Poster’s model aims to enable single seller.
managers not only to understand - The industry’s products are
their industry environment but also standardized or undifferentiated
to shape their firm’s strategy. commodities.
 As a rule of thumb, the stronger - Buyer’s face little or no switching
the five forces, the lower the costs.
industry’s potential-making the - Buyer’s can credibly threaten to
industry less attractive to backward-integrate into the
competitors. industry.
 The weaker the five forces, the
greater the industry’s profit 4. Threat of Substitutes
potential- making the industry  The threat of substitutes is the
more attractive data that products or services
available from outside the given
1. Threat of entry industry will come close to meeting
 Entry barriers are obstacles that the needs of current customers.
determine how easily a firm can  Threat of substitute is hugh WHEN:
enter an industry. - The substitute offers an attractive
 Threats of entry is High when: price-performance trade-off.
- Customer switching costs are low - The buyer’s cost of switching to the
- Capital requirements are low substitute is low.
- Incumbents do not posses:
Proprietary technology and 5. Rivalry among existing competitors
 The rivalry among existing
established brand equity
competitors is HIGH when:
 New entrants expect that
- There are many competitors in the
incumbent will not or cannot
industry.
retaliate. - The competitors are roughly of
equal size.
2. Power of Suppliers
 - Industry growth is slow, zero, or factors should not be given too much
even negative. emphasis (assigning a weight of 0.30 or
- Exit barriers are high. more) because the success in an industry
- Products and services are direct is rarely determined by one or few
substitutes. factors.
3. Ratings
THE STRATEGIC ROLE OF The ratings in external matrix refer to
COMPONENTS: ADDING A SIXTH how effectively company’s current
FORCE strategy responds to the opportunities
 A complement is a product, and threats. The numbers range from 4
service or competency that adds to 1, where 4 means a superior response,
value to the original product 3 – above average response, 2 – average
offering when the two are used in response and 1 – poor response. Ratings,
tandem. as well as weights, are assigned
 A compny is a complementor to subjectively to each factor. In our
your company if customers value example, we can see that the company’s
your product orservice offering response to the opportunities is rather
more when they are able to poor, because only one opportunity has
combine it with the other received a rating of 3, while the rest
company’s product or service. have received the rating of 1. The
company is better prepared to meet the
threats, especially the first threat.
EXTERNAL FACTOR EVALUATION 4. Weighted Score
(EFE) MATRIX The score is the result of weight
External Factor Evaluation (EFE) Matrix is multiplied by rating. Each key factor
a strategy tool used to examine must receive a score. Total weighted
company’s external environment and to score is simply the sum of all individual
identify the available opportunities and weighted scores. The firm can receive
threats. the same total score from 1 to 4 in both
1. Key External Factors matrices. The total score of 2.5 is an
When using the EFE matrix we identify average score. In external evaluation a
the key external opportunities and low total score indicates that company’s
threats that are affecting or might affect strategies aren’t well designed to meet
a company. By analyzing the external the opportunities and defend against
environment with the tools like PESTLE threats. In internal evaluation a low score
analysis, Porter’s Five Forces or Profile indicates that the company is weak
Matrix, the key external factors can be against its competitors.
identified. The general rule is to identify
as many key external and internal factors COMPETITIVE PROFILE MATRIX
as possible. (CPM)
2. Weights Competitive profile matrix is an essential
Each key factor should be assigned a strategic management tool to compare
weight ranging from 0.0 (low importance) the firm with the major players of the
to 1.0 (high importance). The number industry. Competitive profile matrix show
indicates how important the factor is if a the clear picture to the firm about their
company wants to succeed in an strong points and weak points relative to
industry. If there were no weights their competitors.
assigned, all the factors would be equally
important, which is an impossible The benefits to using Competitive Profile
scenario in the real world. The sum of all Matrix (CPM) for rivals analysis are:
the weights must equal 1.0. Separate
  The same factors are used to  Intangible Resources
compare the firms. This makes the
comparison more accurate Capabilities – are the organizational and
 The analysis displays the managerial skills necessary to
information on a matrix, which orchestrate a diverse set of resources
makes it easy to compare the and to deploy them strategically.
companies visually
 The results of the matrix facilitate Activities – enable firms to add value by
decision-making. Companies can transforming inputs into goods or
easily decide which areas they services.
should strengthen, protect or what
strategies they should pursue Core Competencies – are unique
CHAPTER 6 strengths, embedded deep within a firm,
The Internal Assessment that allow a firm to differentiate its
products and sources from those of its
Nature of an Internal Audit rivals, creating a higher value for the
Basis for objectives and strategies customer or offering products and
 Internal strengths/weaknesses services of comparable value at lower
 External opportunities/threats cost.
 Clear statement of mission
All organizations have strengths and KEY INTERNAL FORCES
weaknesses in the functional areas of  For different types of organizations
business. No enterprise is equally strong such as hospitals, universities, and
or weak in all areas. Example: LG government agencies, the functional
Electronics is known for excellent business areas differ.
appliance production and product design;  Functional areas of a university can
include athletic programs, placement
Procter & Gamble is known for superb
services, fundraising, academic
marketing
research, counseling and intramural
programs.
Figure 1: Creating a Strategic Fit to DISTINCTIVE COMPETENCIES
Leverage a Firm’s Internal Strenghts  A firm’s strengths that cannot be
to exploit external opportunities easily matched or imitated by
competitors.
 Building competitive advantages

ASSESSMENT OF THE FIRMS involves taking advantage of

RESOURCES distinctive competencies
Resources – are assets such as cash,  Strategies are designed to improve
buildings, or intellectual property that a on a firm’s weaknesses, turning
company can draw on when crafting and them into strengths---- and maybe
executing a strategy. even into distinctive competencies

Resources can either be: THE PROCESS OF PERFORMING AN

 Tangible Resources INTERNAL AUDIT
 Closely parallels the process of DOMESTIC versus FOREIGN
performing an external audit CULTURES
information from:  In Japan – business relations operate
 Management within the context of “Wa”, which
 Marketing stresses social harmony and group
 Finance/accounting cohesion.
 Production/operations
 Research & Development  In China – business behavior revolves
 Management Information Systems around “guanxi”-or personal relations.
communication maybe the most
important word in management  In Korea – “inhwa” – or harmony based
on respect of hierarchical relationships,
Resource Based View (RBV) including obedience to authority.
 Approach to Competitive
Advantage
- Internal resources are more
important than external factors
in achieving and sustaining
competitive advantage
 Three All Encompassing Categories
1. Physical resources –include all plant &
equipment, location, technology, raw
materials, machines
2. Human resources - include all
employees, training, experience,
intelligence, skills, knowledge, abilities MARKETING
3. Organizational resources - include firm Customer Needs/Wants for
structures, planning processes, Products/Services
information system, patents, 1. Defining
trademark, copyrights, databases, etc 2. Anticipating
3. Creating
4. Fulfilling
 Empirical Indicators – three Marketing functions
characteristics of resources enable 1. CUSTOMER ANALYSIS – the
a firm to implement strategies that examination and evaluation of
improve its efficiency and consumer needs, desires and wants
effectiveness and lead to —involves administering surveys,
analyzing consumer information,
sustainable competitive advantage
evaluating market positioning
 Rare
strategies, developing customer
 Hard to imitate profiles and determining optimal
 Not easily substitutable market segmentation strategies.
The more a resources(s) is rare, non- 2. SELLING- includes many
imitable, and non- substitutable, the marketing strategies such as
advertising, sales promotion,
stronger a firm’s competitive advantage
publicity, personal selling, sales
will be and the longer will it last.
force management, customer
relations and dealer relations.
3. PRODUCT AND SERVICE
PLANNING – activities such as test
 marketing; product and brand Five Types of Financial Ratios:
positioning; devising warranties; 1. Liquidity Ratios – measures a firm’s
packaging, determining product ability to meet maturing short-term
options, product features, product obligations.
styles and product quality, deleting 2. Leverage ratios – measure the
old products; and providing for extent to which a firm has been
customer service. financed by debt.
4. PRICING – Five major stakeholders 3. Activity Ratios –measure how
affect pricing decisions: effectively a firm is using its
consumers, governments, resources.
suppliers, distributors, and 4. Profitability ratios – measure
competitors. management’s overall
5. DISTRIBUTION – includes effectiveness as shown by returns
warehousing, distribution channels, generated on sales and
distribution coverage, retail site investments.
locations, sales territories, 5. Growth ratios – measures the firm’s
inventory levels and locations, ability to maintain its economic
transportation carriers, position in the growth of the
wholesaling, and retailing. economy and industry
6. MARKETING RESEARCH – is the Organizations invest in R&D because
systematic gathering, recording,
and analyzing of data about
problems relating to the marketing
of goods and services.
7. OPPORTUNITY ANALYSIS –
involves assessing the costs,
benefits, and risks associated with
marketing decisions.
THREE STEPS IN COST/BENEFIT
ANALYSIS:
1. Compute the total costs associated
with a decision
2. Estimate the total benefits from the
decision
3. Compare the total costs with the
total benefits

they believe that such an investment

will lead to a superior product or
service and will give them a
competitive advantage.

VALUE CHAIN ANALYSIS (VCA)

 According to Porter, the business of
a firm can be described as a value
chain, in which total revenues minus
total costs of all activities
undertaken to develop and market a
product or services yields value.
 VCA refers to a process whereby a
firm determines the costs associated
with organizational activities from
purchasing raw materials to
manufacturing products to
marketing those products.
 VCA aims to identify where low-cost
advantages or disadvantages exists
anywhere along the value chain from
raw material to customer service
activities.
BENCHMARKING
 Is an analytical tool used to
determine whether a firm’s value
chain activities are competitive
compared to rivals and thus
conducive to winning in the
marketplace.
 Determines “best practices” among
competing firms for the purpose of
duplicating or improving

INTERNAL FACTOR EVALUATION (IFE)

MATRIX
 This strategy formulation tool
summarizes and evaluates the major
strengths and weaknesses in the
functional areas of a business, and it
also provides a basis for identifying
and evaluating relationships among
those areas.