POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Office of the Vice President for Academic Affairs

College of Business Administration

INSTRUCTIONAL MATERIALS FOR

(BUMA 20023: STRATEGIC MANAGEMENT)

COMPILED BY:

DR. LEOPOLDO FRANCISCO T. BRAGAS

PUP A. Mabini Campus, Anonas Street, Sta. Mesa, Manila 1016

Direct Line: 335-1730 | Trunk Line: 335-1787 or 335-1777 local 000
Website: www.pup.edu.ph | Email: [email protected]

THE COUNTRY’S 1st POLYTECHNIC U

 TABLE OF CONTENTS

Introduction ................................................................................................................................. 3
Course Outcomes ......................................................................................................................... 3

LESSON 1: INTRODUCTION TO STRATEGIC MANAGEMENT AND BUSINESS POLICY ..... 4

I: Basic Concepts of Strategic Management ............................................................................. 4
II: Corporate Governance ........................................................................................................... 7
III: Ethics and Social Responsibility in Strategic Management .................................................... 8
IV. Social Responsibility and Corporate Performance .................................................................. 9
V. Different views and Ethics ..................................................................................................... 10
Assessments ............................................................................................................................. 11

LESSON 2: SCANNING THE ENVIRONMENT ......................................................................... 12

I: Organizational Strengths and Weaknesses .......................................................................... 12
II: Porter‘s Five Forces ............................................................................................................. 17
III: Organizational Competencies and Profitability...................................................................... 19
IV: Building Competitive Advantage ........................................................................................... 20
Assessments ............................................................................................................................. 21

LESSON 3: FORMULATING STRATEGIES .............................................................................. 22

I: Organizational Competitive Positioning ................................................................................ 22
II: Competitive Strategies in Different Types of Industries ........................................................ 25
III: Strategy and Technology ...................................................................................................... 28
IV: Global Strategy ..................................................................................................................... 30
Assessments ............................................................................................................................. 35

LESSON 4: IMPLEMENTING STRATEGY AND CONTROL .................................................... 36

I: Strategy Implementation ....................................................................................................... 37
II: Managing Corporate Global Strategy.................................................................................... 42
III: Strategic Management Evaluation and Control ..................................................................... 45

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GRADING SYSTEM

REFERENCES

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 INTRODUCTION

Strategy is arguably the most important concept in management studies. Strategy making is arguably the
most important activity of a practising manager. Yet it is a concept difficult to define, and an activity
difficult to pursue with effectiveness. There are many people involved in the process of strategy making.
There are also many different ways of interpreting what strategy is. There are different possible meanings
of strategy and to highlight the practical constraints on what strategists and strategy can do and there are
clear practical limitations on what is possible which must be understood by the management of the firm.

Strategy of an organization consists of what management decides about the future direction and scope of
the business. It entails managerial choice among alternative action programmes, commitment to specific
product markets, competitive moves and business approaches to achieve enterprise objective. In short, it
may be called the game plan of management. The decisions constituting strategy ideally involve
matching of enterprise resources to the changing environment, and determining what the organization
ought to be engaged in doing in future and how it should position itself to take advantage of the future
market opportunities.

Strategic Management is a very broad discipline, its scope spanning the entire strategic decision-making
structure of the organization, from the management processes and decisions to the activities performed
in all its functional units. The primary focus of this discipline is the conduct of the strategic management
process, which pretty much covers all the activities and functions performed to enable the organization to
cope well with change over the long term.

COURSE OUTCOMES

After successfully completed this module, students will be able to:

 Understand and Discuss the Strategic Management Process

 Apply the Environmental Scanning techniques used in formulating strategies

 Apply the Strategic Management Process in different business situations

 Evaluate an effective and efficient strategic plan in different business situations

 Create an effective and efficient strategic plan in different business situations

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 LESSON ONE
INTRODUCTION TO STRATEGY AND BUSINESS POLICY

OVERVIEW

Business strategy and policy is a study that deals with the nature and processes appropriate for
rendering good decisions, purposely to achieve the goals and objectives of the firm. However, in practice,
such job is delegated to managers and the manner by which managers perform their individual tasks can
significantly influence the result in as far as achieving the objectives of the business is concern. Since the
road towards achieving corporate goals and objectives especially on profit is bumpy and painstaking,
managerial abilities must be able to surpass all these things to ensure success. Since managers‘ tasks
by nature are complicated because of the fact that problems in the firm are vague and interrelated and
the presence of a wide-array of choices makes decision-making a complex task that requires enormous
effort, experience, and extensive knowledge of factors which affect every decision to make. For example
if we are to make a decision under the present situation; that is whether to continue doing business in the
Philippines or not or probably decide to relocate business to a much acceptable place such as: Vietnam,
Thailand or Cambodia. Whatever decision we make is painstaking because of stakes involve; a mistake
can threaten the firm financially or even bankruptcy. At the other point of the decision involved crucial
issues like; growth, diversification, internationalization, devolution, merger and acquisition. However,
whatever problems or issues the company will decide, all must be in line with the strategy and policy of
the company.

Learning Outcomes:

 Discuss and explain the concept of strategic management, benefits, basic model and its
component and the impact of globalization
 Identify and explain the role, responsibilities and degree of involvement of the board of directors in
strategic management in the strategic management
 Discuss and explain the traditional and contemporary view of social responsibility
 Explain the relationship of social responsibility and corporate performance
 Discuss and explain the different views of ethics

COURSE MATERIALS

I. INTRODUCTION TO STRATEGIC MANAGEMENT

Basics concepts of strategic management

Strategic management is the set of managerial decision and action that determines the long-run
performance of a corporation. It includes environmental scanning (both external and internal), strategy
formulation (strategic or long range planning), strategy implementation, and evaluation and control. The

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study of strategic management therefore emphasizes the monitoring and evaluating of external
opportunities and threats in lights of a corporation‘s strengths and weaknesses.

Evolution of strategic management from his extensive work in the field, Bruce Henderson of the Boston
Consulting Group concluded that intuitive strategies cannot be continued successfully if (1) the
corporation becomes large, (2) the layers of management increase, or (3) the environment changes
substantially. The following are the four phases of strategic management:

Phase 1: Basic financial planning – seeks better operational control by trying to meet budgets.

Phase 2: Fore-cast based planning – seeking more effective planning for growth by trying to
predict the future beyond next year.

Phase 3: Externally oriented planning (strategic planning) – seek in increasing responsiveness to

markets and competition by trying to think strategically.

Phase 4. Strategic management – seeking a competitive advantage and a successful future by

managing all resources.

In the evolution of the strategic management includes a consideration of strategy implementation and
evaluation and control, in addition to the emphasis on the strategic planning in Phase 3.

General Electric, one of the pioneers of the strategic planning, led the transition from the strategic
planning to strategic management during the 1980s. By the 1990s, most corporations around the world
had also begun the conversion to strategic management.

Learning-A part of strategic management

Strategic management has now evolved to the point that it is primary value is to help the organization
operate successfully in dynamic, complex environment.

To be competitive in dynamic environment, corporations have to become less bureaucratic and more
flexible. In stable environments such as those that have existed in the past, a competitive strategy simply
involved defining a competitive position and then defending it. Because it takes less and less time for one
product or technology to replace another, companies are finding that there are no such thing as
competitive advantage.

Corporations must develop strategic flexibility: the ability to shift from one dominant strategy to another.
Strategic flexibility demands a long term commitment to the development and nurturing of critical
resources. It also demands that the company become a learning organization; organization skilled at
creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge
and insights. Learning organizations avoid stability through continuous self-examinations and
experimentations. People at all levels, not just top the management, need to be involved in strategic
management: scanning the environment for critical information, suggesting changes to strategies and
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programs to take advantage of environmental shifts, and working with others to continuously improve
work methods, procedures and evaluation techniques. At Xerox, for example, all employees have been
trained in small-group activities and problem solving techniques. They are expected to use the
techniques at all meetings and at all levels, with no topic being off-limits.

Initiation of strategy: Triggering Events A triggering event is something that stimulates a change in
strategy .Some of the possible triggering events is: New CEO: By asking a series of embarrassing
questions, the new CEO cuts through the veil of complacency and forces people to question the very
reason for the corporation‘s existence. Intervention by an external institution: The firm‘s bank suddenly
refuses to agree to a new loan or suddenly calls for payment in full on an old one. Threat of a change in
ownership: Another firm may initiate a takeover by buying the company‘s common stock. Management‘s
recognition of a performance gap: A performance gap exists when performance does not meet
expectations. Sales and profits either are no longer increasing or may even be falling.

Basic model of Strategic Management

Strategic management consists of four basic elements – (1) Environmental scanning, (2) Strategy
Formulation, (3) Strategy Implementation, and (4) Evaluation and control.

Management scans both the external environment for opportunities and threats and the internal
environmental for strengths and weakness. The following factors that are most important to the
corporation‘s future are called strategic factors: strengths, weakness, opportunities and threats (SWOT)

Impact of Globalization

Globalization is the process of international integration resulting from continuous interchange of ideas,
cultural aspects, products and other world views. The process of globalization in the modern day has
been caused by the advancement in transport, infrastructure and telecommunication sector. The
invention of the internet has led to the massive international integration promoting trade and various
political interests. The development of global monetary systems such as PayPal and Visa has
accelerated economic integration among several countries in the world. The continued growth in mobile
telephony has also provided convenience in the globalization process through allowing global routing of
voice and data. In the modern day, people are able to network and conduct business across the globe
from the comfort of their homes.

The process of globalization has greatly influenced the normal business and organization‘s operations
with several organizations being forced to adjust to several changes in order to remain relevant and
profitable in the current global markets. The research question the report will be seeking to explore is: –
what are the effects of globalization to an organization?

Considering the numerous international changes that have taken place because of globalization in
political and economic front, it is very paramount to establish the response of various organizations to the
same changes. Therefore, this report is very appropriate because it seeks to expand the study and focus
on individual firms.

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Globalization has brought about a sea of opportunities for organizations to exploit, but has also brought
about several challenges too. There have been reported cases of loss of culture, insecurity and
unemployment among many other challenges. This research will seek to identify several negative and
positive effects of globalization in the context of an organization.

II. CORPORATE GOVERNANCE

The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management
that can deliver the long-term success of the company. Corporate governance is the system by which
companies are directed and controlled. Boards of directors are responsible for the governance of their
companies. The shareholders‘ role in governance is to appoint the directors and the auditors and to
satisfy themselves that an appropriate governance structure is in place.

The responsibilities of the board include setting the company‘s strategic aims, providing the leadership to
put them into effect, supervising the management of the business and reporting to shareholders on their
stewardship.

Corporate governance is therefore about what the board of a company does and how it sets the values of
the company, and it is to be distinguished from the day to day operational management of the company
by full-time executives. In some countries like the US and the United Kingdom corporate governance is
part of the legal system and the board is legally bound to the outcome of their decision and that the
decide according to law.

We can define also corporate governance as a mechanism established to allow different parties to
contribute capital, expertise and labour for their mutual benefit the investor or shareholder participates in
the profits of the enterprise without taking responsibility for the operations. Management runs the
company without being personally responsible for providing the funds. So as representatives of the
shareholders, directors have both the authority and the responsibility to establish basic corporate policies
and to ensure that they are followed. The board of directors has, therefore, an obligation to approve all
decisions that might affect the long run performance of the corporation. The term corporate governance
refers to the relationship among these three groups (board of directors, management and shareholders)
in determining the direction and performance of the corporation Responsibilities of the board Specific
requirements of board members of board members vary, depending on the state in which the corporate
charter is issued. The following are the five responsibilities of the board of directors listed in order of
importance

 Setting corporate strategy, overall direction, mission and vision

 Succession: hiring and firing the CEO and top management
 Controlling , monitoring or supervising top management
 Reviewing and approving the use of resources
 Caring for stockholders interests Role of board in strategic management

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The roles of board of directors (BODs) are to carry out three basic tasks such as to – monitor, evaluate
and influence, and lastly initiate and determine. When a firm has a good governance system it can have
wider impacts to all its stakeholders because it is fundamentally about improving transparency and
accountability within the existing legal systems.

III. ETHICS AND SOCIAL RESPONSIBILITY

Social responsibility means that individuals and companies have a duty to act in the best interests of their
environment and society as a whole. Social responsibility, as it applies to business, is known
as corporate social responsibility (CSR).

The crux of this theory is to enact policies that promote an ethical balance between the dual mandates of
striving for profitability and benefiting society as a whole. These policies can be either ones of
commission (philanthropy - donations of money, time, or resources) or omission (e.g., "go green"
initiatives like reducing greenhouse gases or abiding by EPA regulations to limit pollution). Many
companies, such as those with "green" policies, have made social responsibility an integral part of their
business models, and they have done so without compromising profitability. In 2018, Forbes named the
top socially responsible companies in the world. Topping the list is technology giant Google, followed
closely by The Walt Disney Company and Lego, who announced in March 2018 that it would begin
manufacturing its pieces from plant-based sources.

Additionally, more and more investors and consumers are factoring in a company's commitment to
socially responsible practices before making an investment or purchase. As such, embracing social
responsibility can benefit the prime directive - maximization of shareholder value. There is a moral
imperative, as well. Actions, or lack thereof, will affect future generations. Put simply, being socially
responsible is just good business practice, and a failure to do so can have a deleterious effect on the
balance sheet.

In general, social responsibility is more effective when a company takes it on voluntarily, as opposed to
being required by the government to do so through regulation. Social responsibility can boost company
morale, and this is especially true when a company can engage employees with its social causes. Some
crucial arguments about CSR are specified as follows:

 Social responsibility means that businesses, in addition to maximizing shareholder value, should
act in a manner that benefits society.
 Critics assert that being socially responsible is the opposite of why businesses exist.
 Socially responsible companies should adopt policies that promote the well-being of society and
the environment while lessening negative impacts on them.
 Companies can act responsibly in many ways, such as promoting volunteering, making changes
that benefit the environment, and engaging in charitable giving.

Social responsibility is an ethical theory in which individuals are accountable for fulfilling their civic duty,
and the actions of an individual must benefit the whole of society. In this way, there must be a balance

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between economic growth and the welfare of society and the environment. If this equilibrium is
maintained, then social responsibility is accomplished.

What it Means to be Socially Responsible and Ethical?

 The theory of social responsibility is built on a system of ethics, in which decisions and actions
must be ethically validated before proceeding. If the action or decision causes harm to society or
the environment, then it would be considered to be socially irresponsible.

 Moral values that are inherent in society create a distinction between right and wrong. In this way,
social fairness is believed (by most) to be in the ―right‖, but more frequently than not this ―fairness‖
is absent. Every individual has a responsibility to act in manner that is beneficial to society and
not solely to the individual.

IV. SOCIAL RESPONSIBILITY AND CORPORATE PERFORMANCE

The International Organization for Standardization (ISO) emphasizes that a business's ability to maintain
a balance between pursuing economic performance and adhering to societal and environmental issues is
a critical factor in operating efficiently and effectively.

Social responsibility takes on different meanings within industries and companies. For example,
Starbucks Corp. and Ben & Jerry's Homemade Holdings Inc. have blended social responsibility into the
core of their operations. Both companies purchase Fair Trade Certified ingredients to manufacture their
products and actively support sustainable farming in the regions where they source ingredients. Big-box
retailer Target Corp., also well known for its social responsibility programs, has donated money to
communities in which the stores operate, including education grants.

Social Responsibility and Good Governance are used interchangeably worldwide by individuals and
organizations showing their associations with the actions carried out for the betterment of the modern
culture. Although from appearance both terminologies similar in a variety of aspects but there are huge
distinctions between them when their fundamentals are studied in detail; with the passage of time, the UK
administration has performed numerous legal decisions to aid the concept of sustainability, good
governance and sociable responsibility According to Robinson and Dowson (2011), the cultural
responsibility is described as an ethical theory in which an entity that can be a person or an organisation
has a responsibility of functioning on behalf of the culture. The cultural responsibility is recognized as an
obligation that each organisation or person must perform for keeping equilibrium between your
ecosystem and the current economic climate. The main purpose of the public responsibility is to ensure
equilibrium between the environment and population; the government has to impose certain constraints
by expanding code of business ethics that allows every company and specific to fulfil its social
responsibilities.

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 V. DIFFERENT VIEWS OF ETHICS

There are several well-respected ways of looking at ethical issues. Some of them have been around for
centuries. It is important to know that many who think a lot about business and ethics have deeply held
beliefs about which perspective is best. Others would recommend considering ethical problems from a
variety of different perspectives. Here, we take a brief look at (1) utilitarianism, (2) deontology, (3) social
justice and social contract theory, and (4) virtue theory. We are leaving out some important perspectives,
such as general theories of justice and ―rights‖ and feminist thought about ethics and patriarchy.

Utilitarianism. Utilitarianism is a prominent perspective on ethics, one that is well aligned with
economics and the free-market outlook that has come to dominate much current thinking about business,
management, and economics. Jeremy Bentham is often considered the founder of utilitarianism, though
John Stuart Mill (who wrote On Liberty and Utilitarianism) and others promoted it as a guide to what is
good. Utilitarianism emphasizes not rules but results. An action (or set of actions) is generally deemed
good or right if it maximizes happiness or pleasure throughout society. Originally intended as a guide for
legislators charged with seeking the greatest good for society, the utilitarian outlook may also be
practiced individually and by corporations.

Rules and Duty: Deontology. In contrast to the utilitarian perspective, the deontological view presented
in the writings of Immanuel Kant purports that having a moral intent and following the right rules is a
better path to ethical conduct than achieving the right results. A deontologist like Kant is likely to believe
that ethical action arises from doing one‘s duty and that duties are defined by rational thought. Duties,
according to Kant, are not specific to particular kinds of human beings but are owed universally to all
human beings. Kant therefore uses ―universalizing― as a form of rational thought that assumes the
inherent equality of all human beings. It considers all humans as equal, not in the physical, social, or
economic sense, but equal before God, whether they are male, female, Pygmy, Eskimoan, Islamic,
Christian, gay, straight, healthy, sick, young, or old.

Social Justice Theory and Social Contract Theory. Social justice theorists worry about ―distributive
justice‖—that is, what is the fair way to distribute goods among a group of people? Marxist thought
emphasizes that members of society should be given goods to according to their needs. But this
redistribution would require a governing power to decide who gets what and when. Capitalist thought
takes a different approach, rejecting any giving that is not voluntary. Certain economists, such as the late
Milton Friedman (see the sidebar in Section 2.4 "Corporations and Corporate Governance") also reject
the notion that a corporation has a duty to give to unmet needs in society, believing that the government
should play that role. Even the most dedicated free-market capitalist will often admit the need for some
government and some forms of welfare—Social Security, Medicare, assistance to flood-stricken areas,
help for AIDs patients—along with some public goods (such as defense, education, highways, parks, and
support of key industries affecting national security).

Aristotle and Virtue Theory. Virtue theory, or virtue ethics, has received increasing attention over the
past twenty years, particularly in contrast to utilitarian and deontological approaches to ethics. Virtue
theory emphasizes the value of virtuous qualities rather than formal rules or useful results. Aristotle is
often recognized as the first philosopher to advocate the ethical value of certain qualities, or virtues, in a
person‘s character. As LaRue Hosmer has noted, Aristotle saw the goal of human existence as the

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active, rational search for excellence, and excellence requires the personal virtues of honesty,
truthfulness, courage, temperance, generosity, and high-mindedness.

Aristotle named fourteen virtues: (1) courage, particularly in battle; (2) temperance, or moderation in
eating and drinking; (3) liberality, or spending money well; (4) magnificence, or living well; (5) pride, or
taking pleasure in accomplishments and stature; (6) high-mindedness, or concern with the noble rather
than the petty; (7) unnamed virtue, which is halfway between ambition and total lack of effort; (8)
gentleness, or concern for others; (9) truthfulness; (10) wit, or pleasure in group discussions; (11)
friendliness, or pleasure in personal conduct; (12) modesty, or pleasure in personal conduct; (13)
righteous indignation, or getting angry at the right things and in the right amounts; and (14) justice.

ASSESMENTS:

1. Discuss the importance of strategy in achieving organizational goals and objectives in the
global perspective.

2. How do BODs govern the day-to-day operations of the business organization?

3. Specify philanthropic works of at least 10 companies in the Philippines and how such
assistance improves the lives of those beneficiaries.

4. Provide some ideas on how a company‘s CSR may have impacted its sales.

5. Describe how an organization can be ethical in a manner that it can reconcile economic
and legal responsibilities. Explain your answer using the major ethical perspectives.

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 LESSON TWO
SCANNING THE ENVIRONMENT

OVERVIEW

Business environment in the third world wherein unemployment, high inflation rate
currency devaluation, etc. are normal occurrences, mandates constant policy review
especially if the firm has substantial interest in the local market. But taken for granted that
the country serves only as a manufacturing base; still a constant review of policy has to
be initiated especially on matters relating to government‘s economic and monetary
policies. When the government is posturing control over the foreign exchange market, the
company may have to revise its policy on dollar accounts; that maintaining huge amount
of dollars in its own vault rather than relying on banks would be highly preferable.
Moreover, having stake in the local market requires adoption of stringent measures
design to safeguard possible losses from economic uncertainties. These include a review
of credit, production, personnel, and investment policies (Edwards and Thomas, 1982).

Learning Outcomes:

 Identify and discuss the opportunities and threat of the industry

 Explain the industry life cycle, Porter‘s five forces model and the new force‘s.
 Discuss and explain the competitive advantage, value chain, building block of competitive
advantage, generic distinctive competencies and durability of competitive advantage
 Explain and discuss achieving superior efficiency, quality, innovation and responsiveness to
customer

I. ORGANIZATIONAL OPPORTUNITIES AND THREATS

These can be examined in two areas, the level of resources and competencies, and the opportunities
and threats that affect the firm‘s business activities. With opportunities knocking at its door, a review of
policy regarding a shift is appropriate. Since business opportunities as in any other cases may come only
once, immediate action should be made whether committing company‘s resources is advisable. The firm
has to asses the resources needed including the required competencies, and possible sources of
drawbacks or its weaknesses. To safeguard the company against imminent failure appropriate policies
have to initiate. If a company is considering a shift into ship building because of enormous opportunities
from a liberalized business environment, a policy review for investment priority must be undertaken.
Questions to emerge would be the available resources to finance the project including manpower
requirement. Normally, the investment requirements of such a scale need substantial funding. If the firm

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is a closed corporation, it should make the necessary adjustment in policy and open the firm to outside
ownership.
Perceived threat must also be taken into account like the possible slump in demand for ships, including
the level of unionism in the industry. Policies to be considered are strong research department which the
firm has to fund massively in order to attain good quality production, and strict hiring policy that would
encourage the formation of union.

Primarily the intentof a strategicpolicy analysis is to specify appropriate strategic option that can optimize
the use of resources in achieving desired goals. The firm may employ various methods to identify the
strategic policy; these include;SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis,
PEST (Political, Economic, Social, and Technological) analysis, and decision tree analysis. These
techniques basically employ graphical methods to evaluate policy considerations appropriate to attain
strategic goals.

SWOT Analysis

SWOT analysis is a simple technique which can provide a comprehensive method of assessing a
particular situation which is instrumental in the consideration of strategies/policies. It is seen to be
effective for strategies/policies consideration in both the corporate level and business unit level which
usefulness is mostly seen in the formulation of marketing plans. The origin of this method may be traced
from the work of Edmund P. Learned, C. Roland Christiansen, Kenneth Andrews and William D. Guth in
the late 1960‘s.The relevance of this method to analyze crucial factors in business decision-making
earned credibility when General Electric used it in the 1980's. Because the SWOT method aims for a
complete dimension to analyze the firm‘s net capabilities vis-à-vis hindrances against an opportunity; and
that its simplicity may require less time to mobilize to address a complex strategic situation. The
suitability of SWOT analysis to address a certain strategic situation may be explained by the following
diagram.

Situation Analysis

Internal Analysis External Analysis

Strengths Weaknesses Opportunities Threats

SWOT Profile

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When conducting the situation analysis, basically crucial information is needed that can provide us more
concrete information about a particular situation. The situation being studied can be supplied with
sufficient information by conducting external and internal analysis. Since there could be voluminous
information gathered as this would always be the case; the manager shall only consider the ones that
may have strong bearing on the situation being studied. We can consider internal analysis as means to
uncover and measure the firm‘s strength and weaknesses; basically in terms of its technological,
financial, and managerial capabilities. While the external analysis deals with environmental factors that
may comprise the firm‘s opportunities and threats. Analyzing the firm‘s position in the context of these
factors is termed as SWOT analysis.

INTERNAL ANALYSIS

This is a method to profile the elements of the firm‘s internal environment which should be done
extensively to identify probable strengths and weaknesses. Factors which can influence in one way or the
other firm‘s level of strength and weaknesses are identified as follows:

Company’s Orientation. This has something to do with firm‘s vision, mission statement and core values
it practiced. But why these may have some sort of implications on its strength and weaknesses?
Precisely, because everything the firm does is based on its vision and mission and for as long as it lived
with it and practiced it; the probability to succeed in its goal would be greater. But of course the theme of
the mission must embody sentiments of stakeholders more particularly consumers and the external
environment. For example, if we look at the way small players compete in the oil industry, their mission is
basically to seize up more market share through low pricing, and it seems that they are succeeding.

 Company image – the way the public perceived about a company can create enormous impact
on its operation more specifically economic viability. If perception of the buying public is good,
then it enjoys bigger support and so with its products. For example San Miguel Corporation is
successful in building a good image to the buying public by creating good quality products at
affordable prices so that the public pictures the company as one which is reputable, trustworthy
and customers‘ friendly.

 Managerial competency –is the ability of top management primarily to steer the company
towards achieving its goals and objectives more specifically financial goals. This is mostly done
through effective and efficient use of its resources by rendering good strategic decisions on all
aspects of management; especially one that induces profitability like customers‘ satisfaction, good
HR policies, and effective investment policies.

 Production and operating costs – costs are determinant of the firm‘s profitability. The extent by
which firms can reduce its costs would constitute a sort of strength and can make it more
competitive.

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Resources and Strategy. Strategic resources are the building blocks of competitive advantage in
business. Three standard company resources that combine to create competitive advantage are a
company‘s financial strength, its enterprise knowledge and its workforce. If financial resources are weak,
the company is not able to produce enough to grow. Without enterprise knowledge such as proprietary
processes or patents, the company cannot differentiate itself from its competition. Without a skilled
workforce, the operations and management of the company is inefficient.

Competitive Advantage. This results from the combination of a company's resources with its
capabilities. When these are optimally combined, they produce either a price-based competitive
advantage or a differentiation-based advantage. When resources are used optimally, the company is
likely to be operating at peak efficiency. This efficiency either creates a lower cost of producing a product
or differentiates the company product by superior quality, enhanced availability or greater brand
awareness. Competitive advantage is particularly important in small business where the competition is
intense for a larger share of a limited marketplace.

Financial Resources. In small business, obtaining bank funding can be difficult. A company that has
sufficient revenue to support the development of new products and revenue streams has a significant
advantage over one that must finance every project. When such a company needs funding for a large
project, it has the credit quality to make the task of finding funding somewhat easier than competing
companies that carry a higher debt load. A strong financial position allows a company to take advantage
of opportunities that arise, which contributes to its competitive advantage.

Intellectual Property. Patents, trademarks and proprietary processes are what helps a company out-
produce its competition. Intellectual property also adds to asset value and makes obtaining financing
easier. A company that has developed a more efficient and cost-effective way of producing a better
product than its competition captures a strong market position because customers favor the product that
represents the best quality for the money. A reputation for high quality also enhances a company's brand
recognition, giving it further competitive advantage.

Human Capital. In a small business, management can't make mistakes or the company will flounder and
possibly fail. Competitive advantage doesn't depend on good management alone, though. The workforce
must be skilled, loyal to the company and stable. A company that is always looking to replace key
workers spends valuable time training new hires. This presents significant opportunity cost as production
slows to enable the new hires to develop the skill to work at peak production.

The SWOT analysis summarizes the internal factors of the firm as a list of strengths and weaknesses.

EXTERNAL ANALYSIS

An opportunity is the chance to introduce a new product or service that can generate superior returns.
Opportunities can arise when changes occur in the external environment. Many of these changes can be
perceived as threats to the market position of existing products and may necessitate a change in product
specifications or the development of new products in order for the firm to remain competitive. Changes in
the external environment may be related to:
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  Customers
 Competitors
 Market trends
 Suppliers
 Partners
 Social changes
 New technology
 Economic environment
 Political and regulatory environment

SWOT PROFILE

When the analysis has been completed, a SWOT profile can be generated and used as the basis of goal
setting, strategy formulation, and implementation. The completed SWOT profile sometimes is arranged
as follows:

Strengths Weaknesses
1. 1.
2. 2.
3. 3.
. .
. .
. .

Opportunities Threats
1. 1.
2. 2.
3. 3.
. .
. .
. .

When formulating strategy, the interaction of the quadrants in the SWOT profile becomes important. For
example, the strengths can be leveraged to pursue opportunities and to avoid threats, and managers can
be alerted to weaknesses that might need to be overcome in order to successfully pursue opportunities.

Multiple Perspectives Needed

The method used to acquire the inputs to the SWOT matrix will affect the quality of the analysis. If the
information is obtained hastily during a quick interview with the CEO, even though this one person may
have a broad view of the company and industry, the information would represent a single viewpoint. The

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quality of the analysis will be improved greatly if interviews are held with a spectrum of stakeholders such
as employees, suppliers, customers, strategic partners, etc.

SWOT Analysis Limitations

While useful for reducing a large quantity of situational factors into a more manageable profile, the SWOT
framework has a tendency to oversimplify the situation by classifying the firm's environmental factors into
categories in which they may not always fit. The classification of some factors as strengths or
weaknesses, or as opportunities or threats is somewhat arbitrary. For example, a particular company
culture can be either a strength or a weakness. A technological change can be a either a threat or an
opportunity. Perhaps what is more important than the superficial classification of these factors is the
firm's awareness of them and its development of a strategic plan to use them to its advantage. SWOT is
a method of analysis that surveys an organization's internal and external environment. Under this
process, the organization classifies internal factors as either strengths or weaknesses. Analysts then
classify external factors as opportunities or threats. After assessing and classifying internal and external
factors, analysts construct a 2-by-2 matrix with the following four cells: strengths-opportunities (S-O),
weaknesses-opportunities (W-O), strengths-threats (S-T), and weaknesses-threats (W-T). This analysis
helps organizations match their capacities to the environment in which they operate.

II. PORTER’S FIVE FORCES

Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every
industry and helps determine an industry's weaknesses and strengths. Five Forces analysis is frequently
used to identify an industry's structure to determine corporate strategy. Porter's model can be applied to
any segment of the economy to understand the level of competition within the industry and enhance a
company's long-term profitability. The Five Forces model is named after Harvard Business School
professor, Michael E. Porter.

Porter's Five Forces is a business analysis model that helps to explain why various industries are able to
sustain different levels of profitability. The model was published in Michael E. Porter's book, "Competitive
Strategy: Techniques for Analyzing Industries and Competitors" in 1980. The Five Forces model is widely
used to analyze the industry structure of a company as well as its corporate strategy. Porter identified five
undeniable forces that play a part in shaping every market and industry in the world, with some caveats.
The five forces are frequently used to measure competition intensity, attractiveness, and profitability of an
industry or market. Five Forces analysis can be used to guide business strategy to increase competitive
advantage.

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Porter's five forces are:

1. Competition in the Industry. The first of the five forces refers to the number of competitors and
their ability to undercut a company. The larger the number of competitors, along with the number
of equivalent products and services they offer, the lesser the power of a company. Suppliers and
buyers seek out a company's competition if they are able to offer a better deal or lower prices.
Conversely, when competitive rivalry is low, a company has greater power to charge higher prices
and set the terms of deals to achieve higher sales and profits.

2. Potential of New Entrants into an Industry. A company's power is also affected by the force of new
entrants into its market. The less time and money it costs for a competitor to enter a company's
market and be an effective competitor, the more an established company's position could be
significantly weakened. An industry with strong barriers to entry is ideal for existing companies
within that industry since the company would be able to charge higher prices and negotiate better
terms.

3. Power of Suppliers. The next factor in the five forces model addresses how easily suppliers can
drive up the cost of inputs. It is affected by the number of suppliers of key inputs of a good or
service, how unique these inputs are, and how much it would cost a company to switch to another
supplier. The fewer suppliers to an industry, the more a company would depend on a supplier. As
a result, the supplier has more power and can drive up input costs and push for other advantages
in trade. On the other hand, when there are many suppliers or low switching costs between rival
suppliers, a company can keep its input costs lower and enhance its profits.

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 4. Power of Customers. The ability that customers have to drive prices lower or their level of power
is one of the five forces. It is affected by how many buyers or customers a company has, how
significant each customer is, and how much it would cost a company to find new customers or
markets for its output. A smaller and more powerful client base means that each customer has
more power to negotiate for lower prices and better deals. A company that has many, smaller,
independent customers will have an easier time charging higher prices to increase profitability.

5. Threat of Substitutes. The last of the five forces focuses on substitutes. Substitute goods or
services that can be used in place of a company's products or services pose a threat. Companies
that produce goods or services for which there are no close substitutes will have more power to
increase prices and lock in favorable terms. When close substitutes are available, customers will
have the option to forgo buying a company's product, and a company's power can be weakened.

The Five Forces model can help businesses boost profits, but they must continuously monitor any
changes in the five forces and adjust their business strategy.Understanding Porter's Five Forces and how
they apply to an industry, can enable a company to adjust its business strategy to better use its
resources to generate higher earnings for its investors.

III. ORGANIZATIONAL COMPETENCIES AND PROFITABILITY

Starting on distinctive competencies, we can differentiate its products from its rivals, in order
to determine our/them strengths, including two complementary sources: tangible resources and
intangible resources, which in turn are referred to the assets of a company; following this complementary
sources, are the capabilities of the company, which coordinates the company‘s skills, the resources,
capabilities and competencies, which in turn generates the true distinctive competency. Now, all this
distinctive competencies shapes the strategies that the company pursues; however, is critical to realize
that the strategies a company adopts can build brand new resources.

The firm‘s competitive advantage refers to factors that allow a company to produce goods or services
better or more cheaply than its rivals. These factors allow the productive entity to generate more sales or
superior margins compared to its market rivals. Competitive advantages are attributed to a variety of
factors including cost structure, branding, and the quality of product offerings, the distribution network,
intellectual property, and customer service.

There are three main reasons for failure over time, which are inertia, prior strategic commitments. The
first one is related to the problematic situation changing their strategies for new and fresh ones, even
more, to adapt the whole company or vision of the company, to the new competitive and environmental
conditions; the second one is referring to the actual market‘ limitations of the company to compete with its
rivals is the main cause of competitive disadvantage, so the main point on this is timing; and the last one,
is referring to the paradox of the greatest company assets, are the main cause of failure, if is not updated
over time. Danny Miller, author of this statement, refers that many companies can become overwhelmed
by their early success, as a result, they become so specialized that mislead the time-changing markets,
leading to failure in most cases.

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Talking now about the lower-cost producers, I would like to add the Toyota case, not because is
referred on the text book, but mainly due that I am currently involved on automotive market, so this case
of success, is a great example of how a company can be a lower cost producer and at the same time can
have an output for the final client, the customers. Offering customers value they cannot get elsewhere,
this advantage can be economic or psychological such as better customer services, better after sale
services, also, subsequent purchasing parts, maintenance and services by calling to remind customers
for follow-up (the Chrysler is doing it now).

The drivers of profitability have to be well known by all the managers who leads its departments or
operations, managers needs to be able to compare, benchmark and performance the company against
its competitors, and internally against the own historic performance itself; thus, will help to
determine where and how the deterioration is, how the strategies are managed and/or maximized, how
the cost structure is, and so on. According to the chapter, and other related articles, profitability it can
be resumed as the net result of a number of policies and decisions made by the management; and to
obtain a narrow ratio of profits we have to exclude the discontinued operations and the extraordinary
items, because these does not represent the daily operations of a company. The insights provided by Du
Pont model are valuable, and it can be used for ―quick and dirt‖ estimates of the impact that operating
changes have on returns.

The Return on Investment, helps to evaluate companies‘ performances, and measures the ability of the
companies to reward funding-providers and to attract new ones for future funding; also, it evaluates the
performance of the company and how is the company

IV. BUILDING COMPETITIVE ADVANTAGE

Competitive advantage results from the combination of a company's resources with its capabilities. When
these are optimally combined, they produce either a price-based competitive advantage or a
differentiation-based advantage. When resources are used optimally, the company is likely to be
operating at peak efficiency. This efficiency either creates a lower cost of producing a product or
differentiates the company product by superior quality, enhanced availability or greater brand awareness.
Competitive advantage is particularly important in small business where the competition is intense for a
larger share of a limited marketplace. To have superior profitability, a company must lower its costs or
differentiate its product, or do both simultaneously, so that it creates more value and can charge a higher
price.

The four building blocks of competitive advantage are efficiency, quality, innovation, and customer
responsiveness.

Superior efficiency enables a company to lower its costs; superior quality allows it to charge a higher
price and lower its costs; and superior customer service lets it charge a higher price. Superior innovation
can lead to higher prices, particularly in the case of product innovations, or to lower unit costs, particularly
in the case of process innovations. Innovation can result in new products that better satisfy customer
needs improve the quality of existing products. Innovation can be imitated so it must be continuous.
Successful new product launches are major drivers of superior profitability

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The term value chain refers to the idea that a company is a chain of activities for transforming inputs into
outputs valued by customers. The process of transforming inputs into outputs is composed of a number
of primary activities and support activities. Each activity adds value to the product. Actions taken by
functional managers at every step in the value chain---functional-level strategies---can increase the
efficiency, quality, innovation, and customer responsiveness of a company.

Distinctive competencies are the firm-specific strengths of a company. Valuable distinctive competencies
enable a company to generate superior profitability. The distinctive competencies of an organization arise
from its resources and capabilities. In order to achieve a competitive advantage, a company needs to
pursue strategies that build on its existing resources and capabilities and to formulate strategies that
build additional resources and capabilities (develop new competencies) and the durability of a company‘s
competitive advantage depends on the height of barriers to imitation.

ASSESSMENTS:

1. Identify the competitive advantages of the following companies and how such competencies
contribute to profitability:

a. Jollibee
b. Apple
c. Starbucks
d. Lazada
e. Toyota
f. BDO

2. How Porter‘s concept on competiveness may be applied during this time of COVID-19 pandemic?
Cite an instance to justify your answer.

3. Explain the importance of SWOT analysis in achieving organizational competitive advantage.

4. Explain how innovations help an organization to maintain its competitive advantage in a very stiff
competition in the market.

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 LESSON THREE
FORMULATING STRATEGIES

OVERVIEW

Primarily every big firm usually corporate in structure and size should have to operate based on
a system adopted to ensure its smooth operation,based on its given objectives and the plan needed to
achieve it. It is also imperative that the firm should think about the strategy to consider for the realization
of such plan.When a firm makes the necessary strategies to accomplish its plan some factors need to be
taken into account namely the industry environment and the technological aspect which under the current
condition, technology cannot be ignored in achieving a competitive edge. The firm need to craft two types
of strategy one which is the basis of all its strategies , the corporate strategy and the other one which
every business unit has it-the business level strategy. When the firm operates internationally, it has to
craft strategies suited abroad which of course, the environment; legal, political, economic and cultural are
different.

Learning Outcomes:

 Discuss the competitive positioning and the business model, business level strategy, generic
business level strategies and the dynamics of the competitive positioning.
 Identify and explain the strategies in fragmented, embryonic and growth, mature and declining
industries.
 Explain the strategies for winning a format war, cost in high-technology industries and the
technological paradigm shift.
 Discuss and explain the increasing profitability and profit growth through global expansion,
choosing global strategy, the choice of entry mode and the global strategic alliances.

I. ORGANIZATIONAL COMPETITIVE POSITIONING

The systematic nature of the strategic management process is apparent in how it was split into three
stages: Strategy Formulation, Strategy Implementation, and Strategy Evaluation and Control. In this
discussion, we will take an in-depth look at Strategy Formulation that will propel the organization forward,
far ahead of your competitors and rivals.

Strategy formulation is the process of determining and establishing the goals, mission and objectives of
an organization, and identifying the appropriate and best courses or plans of action among all available
alternative strategies to achieve them.

Always, there is an end in sight, and that is the organizational goals of the firm. The organization
anticipates specific results, which they can only achieve by following a specific route, or acting within the

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confines or parameters of a specific framework. That route or framework will be created through strategy
formulation.

The main reason that the strategy formulation is also referred to at times as ―strategic planning‖ is
because they basically follow the same concept. Through strategic planning, management is able to
evaluate its resources and determine the best ways to maximize the company‘s return on investment
(ROI). The output – the strategic plan – will serve as the framework or guide for the members of the
organization in carrying out their respective roles.

Therefore, it is important to note that, although the two phrases are sometimes used interchangeably,
and although they are similar in a lot of ways, they are not exactly the same. Strategy formulation has
three levels or aspects, with the resulting recommendations in each level being consistent in order to
ensure the formulation of strategies that are cohesive, realistic and viable.

A competitive analysis is the process of categorizing and evaluating competitors and understands
organizational strengths and weaknesses. This analysis can cover a whole range of areas, metrics, and
disciplines. Some of these will be more important, but the more exhaustive the firm, are the more
effective your analysis will be. Competitive positioning articulates posture in the business environment
the firm operates in. The following are the types of competitive positioning:

 Aggressive position: If your company has a competitive advantage in an attractive and relatively
stable industry, this should be the competitive positioning. In this case, the firm should protect its
position and set up potential entry barriers for new competitors. Alternately, the firm may even
consider new acquisitions, increasing market share, or launch competitive products.

 Competitive position: If company has a competitive advantage in an attractive, but relatively

unstable industry, this should be your competitive positioning. In this case, the firm‘s financial
strength plays a significant role in establishing and maintaining your position. The company
should look for ways for horizontal and vertical integration, increasing production efficiency, and
strengthening cash position.

 Conservative position: If the company has a competitive advantage in a stable industry with low
growth rate, it should assume this competitive position. In this case, company product / service
competitiveness are in critical success factors. It should protect its successful products / services
and develop new ones. Develop strategies to penetrate the industry with attractive offerings and
find ways to reduce costs.

 Defensive position: If the company does not have a competitive advantage, the firm is in an
unattractive industry, lack competitive products, and financial resources; the company should
assume a defensive position; should find ways to reduce costs and investments. If possible,
consider leaving the industry.

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Business Model Strategies

A business model in a simple perspective is the story of how a company operates. In slightly more detail,
it describes how a company competes, uses it resources, structures its relationships, interfaces with
customers, and creates and captures value to sustain itself. The key elements in a business model
include the following:

 The customer value proposition – how will the company create value, and for whom?
 The profit model – how will the company make money?
 The key resources needed to deliver the customer value proposition.
 The company‘s core competences – internal capabilities or skill sets that enable the company to
manage the business in a way that delivers value.

There are various generic forms of business model. But ultimately every company‘s business model is
unique because it is dependent on the collection of resources it controls and the capabilities that is
possesses. Copying another company‘s business model is unlikely to be successful. However, over time
competitors will be able to emulate the distinctive features of an innovative business model. Changes in
the external environment may also reduce a business model‘s effectiveness. Companies therefore need
to continually review and refine their own business model.

Porter’s Competitive Strategies

Michael Porter described a category scheme consisting of three general types of strategies commonly
used by businesses to achieve and maintain competitive advantage. These three strategies are defined
along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side
dimension and considers the size and composition of the market the business intends to target. Strategic
strength is a supply-side dimension and looks at the strength or core competency of the firm.

Porter identifies two competencies as most important: product differentiation and product cost
(efficiency). He originally ranked each of the three dimensions (level of differentiation, relative product
cost, and scope of target market) as low, medium, or high and juxtaposed them in a three-dimensional
matrix. That is, the category scheme was displayed as a 3x3x3 cube; however, most of the twenty-seven
combinations were not viable.

Cost Leadership, Differentiation, and Market Segmentation

Porter simplified the scheme by reducing it to the three most effective strategies: cost leadership,
differentiation, and market segmentation (or focus). He characterizes each as the following:

 Cost leadership pertains to a firm's ability to create economies of scale though extremely efficient
operations that produce a large volume. Cost leaders include organizations like Procter &
Gamble, Walmart, McDonald's and other large firms generating a high volume of goods that are
distributed at a relatively low cost (compared to the competition).

 Differentiation is less tangible and easily defined, yet still represents an extremely effective
strategy when properly executed. Differentiation refers to a firm's ability to create a good that is

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 difficult to replicate, thereby fulfilling niche needs. This strategy can include creating a powerful
brand image, which allows the organization to sell its products or services at a premium. Coach
handbags are a good example of differentiation; the company's margins are high due to the
markup on each bag (which mostly covers marketing costs, not production).

 Market segmentation is narrow in scope (both cost leadership and differentiation are relatively
broad in scope) and is a cross between the two strategies. Segmentation targets finding specific
segments of the market which are not otherwise tapped by larger firms.

II. COMPETITIVE STRATEGIES IN DIFFERENT TYPES OF INDUSTRIES

Industry environment can be classified on the basis of certain dimensions: Industry concentration, state
of industry maturity, and exposure to international competition. The intensity of competition in the industry
also depends on these dimensions; hence, the need to consider these dimensions when formulating
strategy. Industries can be divided into 4 namely fragmented, emerging, maturing and declining
industries

1. FRAGMENTED INDUSTRIES: In fragmented industries, no firm has significant market share.

However the majority of firms can strongly influence the outcome of the industry. These industries
contain privately owned small-and medium sized companies. Such industries can be found in
service, retailing, distribution, furniture and metal fabrications, agricultural products and creative
business sectors.

Reasons why industries become fragmented

 Low overall entry barriers

 Absence of economies of scale or experience curve
 High transportation costs
 High inventory costs or erratic sales fluctuations
 No advantages of size in dealing with buyers or suppliers
 Diseconomies of scale in some important aspect. Low overheads, highly diverse product line,
diverse market needs, high product differentiation, particularly if based on image, exit barriers,
local regulation, and newness.

Formulating Strategies in Fragmented Industries

The following questions should be addressed in formulating strategies:

 What is the structure of the industry and the positions of competitors?

 Why is the industry fragmented?
 Can fragmentation be overcome? How?
 Is overcoming fragmentation profitable? Where the firm should be positioned to do so?
 If fragmentation is inevitable, what is the best alternative for coping with it?

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2. EMERGING INDUSTRIES: Emerging industries are created by technological innovations,
emergence of new consumer needs, or shifts in relative cost relationships. In these industries
fundamental rules of the competition change due to changes in the environment. Primary
characteristic of this type of industries from the point of view of formulating strategies is that there are
no rules. e.g. 3G-Telecom services , convergence of telecom and IT , Bio-tech.

Common Structural Characteristics of Emerging Industries Technological uncertainty Strategic

uncertainty High initial costs but steep cost reduction Embryonic companies and spin-offs First time
buyers Short time horizons Subsidies No common standards. Formulating strategies in the emerging
industry can be shaping industry structure-becoming the pioneer/ first mover externalities in industry
development- advocacy and self interest changing role of suppliers and channels shifting mobility
barriers- after technology, marketing clout may take place.

3. MATURING INDUSTRIES: Industries in which the growth rates are reaching saturation stage are
called maturing industries. This maturity stage is not reached at a fixed point in time and can be
delayed by innovations and other events that fuel continuous growth for industry players. Strategic
breakthroughs may also cause mature industries to regain their rapid growth. e.g. 2G –Telecom
services in urban areas.

Characteristics of A Maturing Industry

 Slowing growth means more competition for market share.

 Firms in the industry sell to experienced, repeat buyers.
 Competition is concentrated on cost and service.
 Industry profits often fall.

Formulating Strategies in Maturing Industries:

 Sophisticated cost analysis.

 Rationalizing the product mix.
 Correct pricing.
 Process innovation and design for manufacture
 Increasing scope of purchases.
 Buyer selection.

4. DECLINING INDUSTRIES: Declining industries are industries that have experienced an absolute
decline in unit sales over a sustained period. The decline in these industries results due to slower
economic growth, product substitution and continued technological changes in areas such as
electronics, computers and chemicals. e.g. typewriter , jute , ceramic industries

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Formulating Strategies in declining industries

 Leadership. ―Seek a leadership position regarding market share.‖ Porter stated that a company
which follows the market-share leadership strategy tries to reap above-average profitability by
becoming one of the few companies remaining in a declining industry. ―Once a company attains
this position, it turns into holding or controlled harvest position based on the subsequent pattern of
industry sales.‖ Under this strategy, the company‘s dominant position should give it cost
leadership or differentiation. Managers can achieve a leadership position via several tactical
steps. It includes:

 Aggressive Actions in pricing and marketing and retiring competitor‘s capacity;

 Purchasing market share by acquiring competitor‘s product line which reduces the exit
barriers;
 ―Reducing competitor‘s exit barriers in many ways like providing spare parts for competitor‘s
products, producing private label goods and taking over long-term contracts.‖
 ―Demonstrating a strong commitment to staying in the business.‖
 ―Developing and disclosing credible information which reduces uncertainty;‖
 Raising the cost of competitors staying in business by reinvestment in new products or
process improvements.

 Niche: ―Create or defend a strong position in a particular segment.‖ Porter said that this strategy‘s
objective is to Identify and invest in a demand pocket using some of the tactics mentioned above
for a leadership strategy to reduce uncertainty or exit barriers.

 Harvest: ―Manage a controlled disinvestment, taking advantage of the firms‘ strengths.‖ A harvest
strategy is difficult to manage but includes an attempt to optimize cash flow, along with tactics
such as ―eliminating or limiting investment, reducing the number of models and channels,
eliminating small customers, and reducing service‖ (delivery time, repair, sales assistance, etc.).

 Quick Divestment: ―Liquidate as early in the decline phase as possible.‖ ―Selling the business
early usually maximizes the value the firm,‖ Porter claimed that the earlier you sell the business,
the higher the potential buyer‘s uncertainty. ―Once it‘s clear that the industry is waning, buyers for
the assets will be in a strong bargaining position.‖ Exit barriers such as image and
interrelationships may be a problem but are less for those who divest early.

III. STRATEGY AND TECHNOLOGY

The pressure on today‘s corporate managers to maximize short-term profits often seems at odds with the
need for a research and development program that will sustain company value over the long term. The
solution to this apparent dilemma starts with the recognition that a business enterprise‘s value depends
on the level and rate of growth of its cash flow. A firm‘s ability to maintain an advantage in market value
depends on whether investors perceive that the rate of cash flow growth will be sustained.
The goal of strategic technology management is to contribute to the value of the enterprise by helping
assure that the cash flow on which this value depends will be sustained and will continue to grow.
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Effective management of this kind can help a firm gain and sustain competitive advantages, ranging from
incremental improvements in product quality or cost to major breakthroughs that create new market
opportunities. Management of technology must, however, be purposeful rather than hopeful or ―hands off‘
and must always be connected with the firm‘s overall business strategy.

Five sets of questions are useful in systematically examining the relationship of a company‘s program of
managing technology to its business strategy:

 Does the company have a clear product and market strategy? What markets does it want to
attack? How? What markets does it intend to defend? What product and service attributes will
accomplish these goals?
 What technologies support the product and market strategy? Which ones produce competitive
advantage in existing markets by adding value or lowering costs? Which ones promise to support
new market initiatives or to define a new plateau of product performance?
 What technological successes can the company support or exploit?
 Does the R&D program focus on developing capability in technologies that will, or may, support
its product and market strategy? Are options for technology acquisition (in-house development,
licensing, academic support, etc.) being examined in relation to the company‘s immediate product
and market strategy as well as its future vision?
 Does the company have the means to answer, and keep reviewing the answers to, these
questions? Does the R&D staff have access to the firm‘s key customers? Do the R&D staff,
manufacturing engineers, and marketing people work together to ensure that R&D ideas can be
made into high-quality, low-cost products that will meet customers‘ needs?
These questions cannot be answered in a facile or casual way. Answering them requires work,
understanding, and realism. Corporate leadership that presses for answers can, however, help to
assure itself and its stakeholders that the R&D program will sustain growth in company value.

Approaches to Managing Technology

The meaning of technology is straightforward: knowing how to do something well. Here‘s a more
elaborate definition: the ability to create a reproducible way to generate improved products, processes,
and services. In fact, a modern manufacturing business must have a substantial portfolio of individual
technologies. The management of technology should ensure that the firm maintains command of the
technologies relevant to its purposes and that these technologies support the firm‘s business strategy
and shareholder value.

Technology management for strategic advantage is difficult and often frustrating. The central issue is the
need to reconcile the unpredictability of discovery with the desire to fit technical programs into orderly
management of the business. The traditional approach to managing technology has been largely
intuitive. Research and development is treated as an overhead item, with budgets set in relation to some
business measure (for example, sales) and at a level deemed reasonable by industry practice. Budgets
may be projected several years ahead, but are usually set annually. Within this budget framework,
decisions about areas of concentration and project continuations may be left largely to R&D

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management. There is no assurance that the R&D organization, left to its own devices, will pursue
programs related to corporate strategy, either in focus or in degree of innovation and risk.

In response to this unsatisfactory situation, many firms have become somewhat more sophisticated.
Managers outside the technology area participate in suggesting or reviewing projects, but the connection
to company strategy is still casual or haphazard. Some firms subject R&D programs to a rigorous
financial justification process based on net present value. Arguing that research and development
projects are investments—as in a sense they are—corporate management seeks justification based on
rate of return or payout. But it is difficult to project financial returns on an R&D project, especially if the
project is focused on achieving a significant innovation. As a result, the program may be pushed toward
conservative, incremental projects; the results will be more predictable, but the program will have limited
strategic impact.

Clearly, then, there is a need for a measured, genuinely sophisticated approach to R&D management.
Interest in a better approach has been stimulated by various developments. First, many corporate
leaders have moved beyond the financially driven planning characteristic of the 1970s. Second, the
success of entrepreneurial, high-technology companies has excited interest in the potential of technology
to build company value. Third, firms have seen that industry leaders give high priority to technology
management. Fourth, quality and manufacturing capability are now considered strategic business
weapons. Together these developments have helped to create a desire to manage technology in a way
that is congruent with business strategy.

Linking Technology Management to Strategy

A firm‘s development and use of technology can be managed so that it effectively supports the firm‘s
business strategy. Think for a moment about managing financial investments. The effective investment
manager must first help the client think through appropriate investment goals, such as a stable income,
security, or accumulation of wealth. The investment manager then selects a portfolio of investments with
the best chance of accomplishing those goals in the face of future uncertainties. The manager seeks
balance among such characteristics as current yield, growth in value or yield, and safety, and tries to
manage risk through diversity. Investments are changed to reflect changes in the client‘s goals and to
take advantage of new investment opportunities that are appropriate. The investment manager can be
judged on two bases. First, are the type, balance, and diversity of investments appropriate to the client‘s
goals? Second, is the program well executed with respect to the particular choices made, including the
changes in the portfolio, and the results achieved? This assessment process should be interactive; that
is, it should look not just at results, but also at whether changes in the financial markets dictate changes
in strategies to achieve the investor‘s goals.

The management of technology is analogous to the management of investment. The development and
use of technology must be guided explicitly by the business strategy of the firm; at the same time,
technological developments should help define the opportunities and threats to which the strategy should
then respond. Thus, the strategic management of technology involves a dialogue—a process through
which both the strategic targets of the enterprise and the goals of its technology program are regularly
reviewed and revised.

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In looking more thoroughly at that process, it is important to clarify what ―management of technology‖
really entails. The management of technology encompasses the management of research, product and
process development, and manufacturing engineering. Put simply, research expands the firm‘s grasp of
science and engineering skills. Development makes this knowledge relevant to part of the firm‘s
business. Engineering translates technology into products that are useful or desirable to customers. It is
important, however, to think of these functions as forming a spectrum. In fact, one pitfall in managing
technology is to see these as separate functions to be managed in a compartmental fashion. Many
Japanese companies have shown the power of integrating all phases of the product creation process. By
contrast, some U.S. manufacturers have suffered because they separate product development from
manufacturing engineering; this results in poor manufacturability, with cost and quality problems and
delays in product introduction. Effective management requires integrating these phases of the product
creation process.

IV. THE GLOBAL STRATEGY

In developing ‗global strategy‘, it is useful to distinguish between three forms of international expansion
that arise from a company‘s resources, capabilities and current international position. If the company is
still mainly focused on its home markets, then its strategies outside its home markets can be seen
as international. For example, a dairy company might sell some of its excess milk and cheese supplies
outside its home country. But its main strategic focus is still directed to the home market.

In South Korea, international and global soft drinks strategy will involve mixing both the global brands
like Coke and Sprite with the local brands like Pocara Sweat. However, the Apple iPod was essentially
following the same strategy everywhere in the world: in this case, the advertising billboard was in North
America but it could have been anywhere. One of the basic decisions in global strategy begins by
considering just how much local variation, if any, there might be for a brand. Another more basic decision
might be whether to undertake any branding at all. Branding is expensive. It might be better to
manufacture products for other companies that then undertake the expensive branding. Apple iPods are
made in China with the Chinese company manufacturing to the Apple specification. The Chinese
company then avoids the expense of building a brand. But faces the strategic problem that Apple could
fail to renew its contract with the Chinese company, which might then be in serious financial difficulty.
As international activities have expanded at a company, it may have entered a number of different
markets, each of which needs a strategy adapted to each market. Together, these strategies form a
multinational strategy. For example, a car company might have one strategy for the USA – specialist
cars, higher prices – with another for European markets – smaller cars, fuel efficient – and yet another for
developing countries – simple, low priced cars.

For some companies, their international activities have developed to such an extent that they essentially
treat the world as one market with very limited variations for each country or world region. This is called a
global strategy. For example, the luxury goods company Gucci sells essentially the same products in
every country. Importantly, global strategy on this website is shorthand for all three strategies above.
Implications of the three definitions within global strategy:

 International strategy: the organization‘s objectives relate primarily to the home market.
However, we have some objectives with regard to overseas activity and therefore need an

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 international strategy. Importantly, the competitive advantage – important in strategy development
– is developed mainly for the home market.

 Multinational strategy: the organization is involved in a number of markets beyond its home
country. But it needs distinctive strategies for each of these markets because customer demand
and, perhaps competition, are different in each country. Importantly, competitive advantage is
determined separately for each country.

 Global strategy: the organization treats the world as largely one market and one source of supply
with little local variation. Importantly, competitive advantage is developed largely on a global
basis.

Companies talk about ‗going global‘ when what they really mean is that they are moving internationally,
outside their home countries. It is important to clarify precisely what is meant by such wording because
the strategic implications are completely different. The business resources needed to sell internationally
might typically include a sales team, brochures of products in various languages and an office team to
handle sales orders back in the home country.

The business resources in going global are much greater. Typically, companies need manufacturing
plant in various low labour cost countries, global branding and advertising, sales teams in every major
country, expensive patent and intellectual property registration in many countries, etc. So, why ‗go global‘
if the required resources are much greater and, incidentally, more complex to manage? Because the
business rewards are supposed to be much greater for a global strategy. And so are the risks!

Hence, many companies do not have a ‗global strategy‘ in the way that it is defined in international
business literature. Even some major multinationals do not have a true global strategy in the sense of
completely integrated production, no localized brands, et

For example, the highly successful multinational company PepsiCo dominates savoury snack products
around the world. However, it still has local brands like Walkers Crisps in the UK. It does not use its Lays
brand name in the UK, but employs Lays in much of the rest of the world. Why? Historical reasons that
began with the PepsiCo acquisition of Walkers, which was already UK market leader.

Even if companies have a global strategy, this takes years to develop and requires substantial resources.
It needs many millions of US$ and substantial management time and expertise. For example, Coca Cola
took many years to develop its current position in the world soft drinks market.

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Why is global strategy important?

There are at least four answers to this question depending on the context:

1. From a company perspective, international expansion provides the opportunity for new sales
and profits. In some cases, it may even be the situation that profitability is so poor in the home
market that international expansion may be the only opportunity for profits.

2. From a customer perspective, international trade should – in theory at least – lead to lower
prices for goods and services because of the economies of scale and scope that will derive from a
larger global base. For example, Nike sources its sports shoes from low labour cost countries like
the Philippines and Vietnam. In addition, some customers like to purchase products and services
that have a global image. For example, Disney cartoon characters or ‗Manchester United‘
branded soccer shirts.

3. From the perspective of international governmental organisations – like the World Bank –
the recent dominant thinking has been to bring down barriers to world trade while giving some
degree of protection to some countries and industries. Thus global strategy is an important aspect
of such international negotiations.

4. From the perspective of some international non-governmental organizations, the global

strategies of some – but not necessarily all – multinational companies are regarded with some
suspicion. Such companies have been accused of exploiting developing countries – for example
in terms of their natural mineral resources – in ways that are detrimental to those countries. This
important aspect of global strategy is explored in the separate web section on Globalization.

Benefits of a global strategy

A business strategy that prods the firm to operate globally, can essentially accrue the following benefits:

Economies of scope: the cost savings developed by a group when it shares activities or transfers
capabilities and competencies from one part of the group to another – for example, a biotechnology
sales team sells more than one product from the total range.

Economies of scale: the extra cost savings that occur when higher volume production allows unit costs
to be reduced – for example, an Arcelor Mittal steel mill that delivers lower steel costs per unit as the
size of the mill is increased.

Global brand recognition: the benefit that derives from having a brand that is recognized throughout
the world – for example, Disney.
Global customer satisfaction: multinational customers who demand the same product, service and
quality at various locations around the world – for example, customers of the Sheraton Hotel chain
expect and receive the same level of service at all its hotels around the world.

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 Lowest labor and other input costs: these arise by choosing and switching manufacturers with low(er)
labour costs – for example, computer assembly from imported parts in Thailand and Malaysia where
labour wages are lower than in countries making some sophisticated computer parts (such as high-
end computer chips) in countries like the USA

Recovery of research and development (R&D) costs and other development costs across the maximm
number of countries – new models, new drugs and other forms of research often amounting to billions
of US dollars. The more countries of the world where the goods can be sold means the greater
number of countries that can contribute to such costs. For example, the Airbus Jumbo A380 launched
in 2008 where development costs have exceeded US$ 10 billion.

Emergence of new markets: means greater sales from essentially the same products. The Japanese
car company, Toyota, has built itself into the world‘s largest car company. It has developed this
through a global strategy that includes economies of scale and scope, branding, customer recognition
and the recovery of its extensive research and development costs in many markets around the world.
Yet it has also been cautious in its global strategy. For example, its strategy in the People‘s Republic
of China has been through joint ventures with the local car companies FAW and Guangzhou Auto.
Whereas, its main strategies in Europe have been partly through wholly-owned ventures and partly
through co-operation with other European car companies on some joint production.

The Cost of Global Strategy

The costs of operating a global strategy may be greater than the benefits. The following are costs of
global strategy that firms have to face:

Lack of sensitivity to local demand: Leavitt argued that people would be prepared to compromise on
their individual tastes if the product was cheap enough deriving from economies of scale and scope. Is
this really correct? Other writers argued that there could be costs in adapting products to match local
tastes, local conditions like the climate and other local factors like special laws on environmental
issues.

Transport and logistics costs: if manufacturing takes place in one country, then it will be necessary to
transport the finished products to other countries. The costs for some heavy products, like steel bars,
may be greater than the economies of scale from centralized production in one country.

Economies of scale benefits may be difficult to obtain in practice: plant takes time to commission, local
competitors still using old plant and cheap labour may still be competitive.

Communications costs will be higher: standardization of products and services needs to be

communicated to every country. In virtually every case, it will also be necessary to monitor and control
the result. All this is time consuming, expensive and at the mercy of local managers who may have
their own agendas and interests.

Management coordination costs: in practice, managers and workers in different countries often need
to be consulted, issues need to be explored and discussed, local variations in tax and legal issues

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 need to be addressed. This means that senior managers operating a global strategy need to spend
time visiting countries. It cannot all be done on the telephone and worldwide web. This takes a
tremendous toll of people personally.

Barriers to trade: taxes and other restrictions on goods and services set by national governments as
the goods cross their national borders.

Other costs imposed by national governments to protect their home industries – like special taxes or
restrictions on share holdings.

In practice, the business case for a global strategy will vary with the product category. The real issue for
many companies is what decisions are treated globally and what locally. This is explored in the separate
section on this website: ‗How do you balance global and local?‘

Types of International Strategies

A firm that has operations in more than one country is known as a multinational corporation (MNC).The
largest MNCs are major players within the international arena. Walmart’s annual worldwide sales, for
example, are larger than the dollar value of the entire economies of Austria, Norway, and Saudi Arabia.
Although Walmart tends to be viewed as an American retailer, the firm earns more than one-quarter of its
revenues outside the United States. Walmart owns significant numbers of stores, as of mid-2014, in Mexico
(2,207), Brazil (556), Japan (437), the United Kingdom (577), Canada (390), Chile (386), Argentina (105),
and China (400). Walmart also participates in joint ventures in China (328 stores) and India (5). Even more
modestly sized MNCs are still very powerful. If Kia were a country, its current sales level of approximately
$42 billion (in 2012) would place it in the top 75 among the more than 180 nations in the world (Wal-Mart
Stores Inc., 2014).

Multinationals such as Kia and Walmart have chosen an international strategy to guide their efforts across
various countries. There are three main international strategies available: (1) multidomestic, (2) global, and
(3) transnational (Figure 7.23 “International Strategy”). Each strategy involves a different approach to trying
to build efficiency across nations while remaining responsive to variations in customer preferences and
market conditions.

Multi-domestic Strategy. A firm using a multidomestic strategy sacrifices efficiency in favor of

emphasizing responsiveness to local requirements within each of its markets. Rather than trying to force all
of its American-made shows on viewers around the globe, MTV customizes the programming that is shown
on its channels within dozens of countries, including New Zealand, Portugal, Pakistan, and India. Similarly,
food company H. J. Heinz adapts its products to match local preferences. Because some Indians will not
eat garlic and onion, for example, Heinz offers them a version of its signature ketchup that does not include
these two ingredients.

International Strategy. A firm using a global strategy sacrifices responsiveness to local requirements
within each of its markets in favor of emphasizing efficiency. This strategy is the complete opposite of a
multidomestic strategy. Some minor modifications to products and services may be made in various
markets, but a global strategy stresses the need to gain economies of scale by offering essentially the
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same products or services in each market. Microsoft, for example, offers the same software programs
around the world but adjusts the programs to match local languages. Similarly, consumer goods maker
Procter & Gamble attempts to gain efficiency by creating global brands whenever possible. Global
strategies also can be very effective for firms whose product or service is largely hidden from the
customer‘s view, such as silicon chip maker Intel. For such firms, variance in local preferences is not very
important.

Transnational Strategy. A firm using a transnational strategy seeks a middle ground between a multi-
domestic strategy and a international strategy. Such a firm tries to balance the desire for efficiency with the
need to adjust to local preferences within various countries. For example, large fast-food chains such as
McDonald‘s and KFC rely on the same brand names and the same core menu items around the world.
These firms make some concessions to local tastes too. In France, for example, wine can be purchased at
McDonald‘s. This approach makes sense for McDonald‘s because wine is a central element of French
diets.

Organizations may have come up with very good strategies, but they will be completely wasted and will
benefit no one unless they are implemented. Identify the tactics or methods that will be used in the
implementation of the chosen strategies. As the implementation moves forward, management may spot
some methods or tactics that are not working, or they may realize that another tactic may work better. In
that case, the corresponding adjustments may be made. At this point, it is possible that the company was
able to come up with several strategies. However, as much as they‘d want to implement all these
strategies, that is not just possible. Review of the strategies will

ASSESSMENTS:

1. What are the bases or considerations in formulating strategies? Explain each.

2. How do you assess Porter‘s idea on the relevance of environmental factors in evaluating on the
firm‘s level of strategic competitive positioning especially when it comes to cost leadership?

3. Discuss a company that achieves superior competitive advantage because of its technological
paradigm shift.

4. Enumerate at least 5 MNCs using each of the three international strategies other than those
described above. Which company do you think is best positioned to compete in international
markets?

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 LESSON FOUR
IMPLEMENTING STRATEGY AND CONTROL

OVERVIEW

Implementing policies/strategies is the most complex part of policy/strategy formulation and

implementation; especially for large corporations (Ackerman, 1975). This is basically due to the
enormous impact it creates upon which considerable changes can happen in the organization. These
changes could have produced unpleasant consequences upon personnel; to some extent managers, or
maybe some stakeholders. This will of course trigger a negative response from affected parties.

When the newly installed operations manager of General Motors-North American Division instituted
massive changes in the purchasing policies to reflect enormous transparency and dropped the seasoned
suppliers ( because of their unreasonable prices ) he had hard time implementing the new policy because
of strong opposition from purchasing department, mostly from people affected negatively by the new
policy. The new policy did curtail improper behavior by lower level managers who receive enormous
commission from suppliers.

Similarly, when Mr. Tan (PAL‘s owner) started to implement downsizing policy in the financially-strapped
airline in 1997 to reduce cost and improve the carrier‘s profitability, strong opposition was encountered
from affected employees headed by the three union groups. Even executives who lost their jobs due to
the implemented downsizing also joined the strike. The crippling strike had resulted to the cessation of
the company‘s operation for almost a year in 1998. Implementing a strategy or policy is a process not
only because of the strategy itself which is constrained by environmental factors but most especially
obstacles from within the firm. Normally it takes time, effort, and money for these obstacles to diminish
and pave the way for the smooth implementation of policies and strategies.

In order to generate good results from policies and strategies, it is imperative for every firm to think about
appropriate management design and system necessary to achieve success from such policy /strategy.
The systems and management design must be able to attain to the fullest the integration of resources,
structure and processes.

Learning Outcomes:

 Explain the implementing strategies through organizational design, strategic control system,
building distinctive competencies at the functional level, and implementing strategy in single
industry
 Discuss the managing corporate strategy through multidivisional structure, implementing strategy
across countries, and the entry mode and implementation.
 Discuss and explain the evaluation and control in strategic management, measuring performance,
problems in measuring performance and guidelines for proper control

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 I. THE STRATEGY IMPLEMENTATION

The essential role of organizational structure in achieving strategic capability can be verified from the
work of Lenz ( 1980 ) which says that both formal and informal structure are instrumental in the
implementation stage of strategies/Policies. In implementing policies/strategies, the structure plays a
crucial role because appropriate coordination, influence, and control of the activities necessary for the
said policies or strategies are needed to realize most if not all of what have been desired from the said
policies/strategies.

Policies on price discount for example should be coordinated with production and finance department.
Any decision on this matter must not be purely marketing because of the cost spent for the products
which obviously more of a production function; no department knows best the actual production cost
except the production department. On the other hand, finance department should be consulted whether
such policy is consonant to the financial objectives of the company.

The structure must have the capability to influence the outcome of the policy by exerting pressure on
subordinates to implement a certain policy religiously hence the structure defines the confines of
authority in implementing a policy or strategy. For example, a sales policy on price discount rest in the
hands of the sales manager and in order to achieve what has been desired from the policy in terms of
enhanced sales, the manager is provided the power to influence the outcome by putting pressure on
salesmen through their respective supervisors.

The control function in the structure would serve to limit the activities needed for the policies only to such
which are relevant to the success of the said policies or strategies. For example, to enforce effectively a
policy of 15 minutes break time at noon and morning, 100% obedience cannot be expected unless there
is a structure that relegate power to the supervisors to control their men from exceeding the prescribed
break period. The structure identifies which functions and authority a certain policy lies including
responsibilities.

Major Managerial Responsibilities in Implementing Policies

The implementation phase of a policy is primarily a managerial function hence each manager is expected
to perform the following responsibilities:

1. Identify the specific task and its sequence necessary in achieving the objectives of the policy
based on required orderly fashion.

2. Identify the individual responsible for each task including decisions and steps involving the said
tasks.

3. Determine the appropriate organizational structure conducive to attaining success in the required
tasks.

4. Determine the amount and type of resources needed including assurance of adequacy during the
implementation stage.

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 5. Promulgate a performance standard fro all organizational units and individuals and the dates of
completion of a specific task.

6. Identify the incentive system and personal motivation appropriate for each task.

7. Ensure that proper coordination is emphasized by all units involved in the task.

8. Ensure that the required degree of participation from each involved units is satisfied.

9. Undertake a performance valuation regularly to ensure that tasks are done within the prescribed
standard and make corrective measures if necessary.

10. Adopt training program to upgrade technical and managerial skills necessary in the
implementation.

11. Assure management of adequate leadership in motivating and leading the implementation of the
policies in an orderly fashion as required by the policy

The Management System Required for Implementing Policies

It has been pointed out that the success of a policy depends so much on the system that governs
its implementation. The system serves to guide the policies in the course of its implementation so that a
system that lacks the substance of a framework would surely produce a failed policy. A policy for
instance on promotion; that with endorsement from the immediate supervisor and a 5-year tenure in the
company, an employee can be promoted to one step higher of his present rank. The system needed to
implement this policy should be able to determine the manner by which the process of promotion be
initiated, how the supervisor evaluates the performance of the employee in such a way that an employee
will be evaluated only on the basis of merit and performance and any other personal factor to influence
the evaluation is avoided. Failure to clarify this matter when the required system is written would put the
success of the policy in a precarious condition.

In the study conducted by Lorsch and Allen (1973) involving four companies of decentralized
structure found that the success of a policy on matters relating to corporate-divisional relationship
hinges on the following systems – annual budgeting system, a formal goal setting, performance
evaluation, incentive compensation system, cash management system, etc. This has indicated that since
divisions are still part of the mother unit, it is essential that to attain financial success for the entire
company, uniformity in the above systems must be observed.

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 The Management Control Process

In order to realize effectively the goal of each policy, managers must institute appropriate
measures. These measures intend to safeguard possible deviations and lapses in the implementation
phase which could compromise the success of a policy. Primarily, the measures desire to achieve a
certain level of standards which the manager thinks desirable for the success of the policy. The concept
is provided details in figure 1. To ensure compliance to the approved implementation system, the
following steps shall be observed:

1. Establish standards

2. Measure the performance against standards

3. Correcting measures for lapses against standards

The Management Control Process

Measure of
Standard of
Performance performance
Performance
Policies against
standards

If there is
deviation

Correct
performance
Change
standards
Alter
policies

Figure 1

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Establishment of Standards. This is important that key variables on standards must be determined in
order to identify the specific standards that the firm wishes to establish. The variables should set to
determine the things that should be measured. If the firm needs to measure the change in net income
after implementing a policy on forced retrenchment of direct labor in auxiliary departments, the change
should be seen in the context of net income rather than gross profit. This is because after gross profit the
firm has still to deal with a lot of costs before arriving at final result.

It is also important that the standard must be specific and clear as portrayed in this illustration, the
standard could be set at more specific and concrete terms e.g. 10% increase in net profit.

It is also important that before the firm sets any standard for its policy, it must clarify first if it has
the means to attain such standard. It is extremely problematic that the firm establishes a goal which is not
within its means to achieve. This normally happens to every firm because of its failure to measure or
determine capabilities accurately; it may overstate or understate its level of capabilities. It is extremely
necessary for the manager to have a system where its capabilities and that of its resources can be
precisely determined to enable it to set the correct standard. For example, requiring each salesman to
generate 50,000Php sales per day to entitle to a regular pay is improbable because there is no way to
verify if such level is theoretically doable.

Institutions of Corrective Actions. After the evaluation of performance, the firm may take two decisions
in relation to the evaluation. Firstly, the evaluation may provide the firm with information about impending
problems to come but thorough and effective scanning may forewarn the firm about possible problem to
encounter. The manager should have the correct interpretation of warning signals so as to avoid
formulation of unsuitable remedies. It must be remembered that no amount of corrective action can
douse-off the consequences of a decision generated from a wrong interpretation of events in the
environment.

When corrective action is instituted, correction may either be individual-based or policy- based. If
failure is caused by technical and physical inability, then the firm would either train or replace the
employee. But if the problem originates from the policy itself so that no matter how effective and talented
are the doers, all are doom to fail. In this case, a review of policy is necessary.

Example:

The new management of a bus company has issued instruction to all drivers and dispatchers that
beginning December 20, all buses must take a minimum of 40 hours travel per week to be able to entitle
to a basic pay. The new policy was circulated to all units of the company and covers everybody not only
drivers but also conductors and inspectors. A month, after the implementation, three of the company‘s
buses was involved in accidents that have resulted to the death of scores of passengers. Never in its 35
years of existence has that it met such tragic incident. Six months later, another evaluation was made
and further minor accidents were recorded. Costs were also soaring especially for maintenance but
despite all of these, the management continued to implement the policy.

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Employees and Policy Implementation

When a policy is formulated and decided for implementation, individuals involved in its
implementation must be oriented about how the policy should work and the expectations desired from
them. But employees may not be that accommodating to the policy being instituted; only because of fear
for a possible reprisal from management, so that they accept the policy. But there is a great difference
between a forced acceptance and willingness to implement in terms of outcome that may result from the
policy. When people are intimidated to perform a certain task although they know that such is a part of
their duties, however, we should bear in mind, that we do not monitor their activities keenly; we do not
know for sure what they think, what they planned, and what they intend to do? This is because some do
not show any sign of resentment against the policy. What managers can do in this regard is to have a
lengthy discussion on the policy before it is implemented. If he thinks that there is broad opposition from
employees and this to his assessment may never change, then the best thing for him to do is re-write the
policy, and provide them greater involvement in its formulation.

Managers should understand that human behavior is shrouded with complexities, and that
understanding these complexities allows the manager to have greater view on how to deal employees
more effectively. Doing this requires the manager to think about employees‘ level of education, cultural
and political orientation, and socio-economic status. This should be fully understood by the manager so
as not to consider a policy that is difficult to implement. For instance, a well-educated staff may dislike a
policy that makes payment of overtime pay every 22nd and 7th of the month instead of the regular 15th and
30th. For less educated, it‘s their ignorance and fear of losing their job that make them to accept almost all
policies; no matter how bad it is. The condition presented may create the impression that educational
background would make the individual more critical of vague policies than when his knowledge is limited;
although this could be true but not all instances because of differences in educational orientation and
values. Individuals who are educated in progressive universities tend to act more this way. Other
factors may also have their own bearing on human behavior especially economic but essentially, they are
not as worrisome as education because “education teaches everything”.

Remedies to behavioral problems in policy implementation

1. Employee Involvement. When a policy is still in the process of formulation, management must
exert all efforts to get the support of employees by consultation and ideas‘ solicitation. This would
at least make them feel of their importance and possible resentment may be traced out and
deliberated immediately. This is less problematic than when opposition happens at the time of
implementation.

2. Organizational Commitment. Since all goals and objectives of any company are generally
directed towards satisfying corporate interests, in this regard it would be quite difficult for a
company to make employees believed that what it aspires for would also be for their benefit. This
condition is a bit difficult to address because literally, in would mean sharing what the firm
generates. But management should also understand that employees know the limits of their
participation in the company‘s profit and a crunch of it I suppose would really provide them
satisfaction. The firm can engage in programs like housing, emergency loans, medical assistance,

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 rice allowance, if not profit-sharing scheme. Dong these would make employees identify their
interest as synonymous to that of the company and would then be easier to obtain their support
for any policy to be implemented.

II. MANAGING CORPORATE GLOBAL STRATEGY

International business is a complex field where business managers are required to coordinate input from
multiple teams from several different locations around the world. Although there is not a single universally
accepted definition of a ―global business manager‖, Christopher Bartlett, an authority in global business
management, proposes one of the most commonly adopted models. Bartlett‘s model defends that there
is ―no such thing‖ as a general, all-encompassing global business manager. Rather, Bartlett divided the
role of Global Manager into several distinct manager types that, together, compose the global business
management team.

According to Bartlett, business managers, country managers, and functional managers provide the
majority of the direction while senior executives coordinate the entire management team. Together, these
four types of managers overview strategy, country profiling, local regulation, resource management,
worker performance, and overall production. Bartlett‘s model of global management exposes the first
challenge of global management: a high level of coordination.

Another challenge of international business is balancing the market expectations of multiple countries at
once. Every national business operation needs to understand its domestic demand for current and
upcoming products. For each new country a business enters, an additional set of demands and market
conditions need to be considered, increasing the complexity of managing the business at the global level.

Three Keys to a Winning Global Business Strategy

The first key is to define the core business strategy for each strategic business unit in a company.

The second key is to adapt the core business strategy to each national market, to internationalize the
core strategy. It is also important to take in consideration that the internationalization process typically
results in local business strategies with large differences between countries. These differences affect the
business‘ cost position, product quality and competitive differentials at the global level.

The third key to a successful global business strategy is to counteract the weaknesses created by the
internationalization of the core strategy by incorporating the original unique characteristics of the
business into each local national strategy. This process can be called ―globalization‖. A global business
should balance global consistency (globalization) with local responsiveness (internationalization). While
global consistency can significantly increase leverage and competitive advantage for the firm at the
global level, local responsiveness (internationalization) can improve competitiveness at the local level.
Therefore, it is crucial to avoid ―over globalizing‖ or ―under globalizing‖.

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Benefits of a Successful Global Strategy

Although defining and implementing a winning global strategy can be a challenging task, the benefits of a
successful global business strategy clearly outweigh the effort. One important benefit is cost reduction. A
global business can assign different tasks to the national teams that are the most efficient in
accomplishing each task. If each team focuses on the area for which it is most suited, overall efficiency
rises and costs in terms of time are reduced.

A second important benefit of implementing a successful global strategy is the reduction of product
development time. When a product is designed by several specialized teams, each working at their
maximum capacity, the overall time-to-market for a particular product can be significantly reduced.

A third significant benefit is a creative input from different international teams. Releasing a product into
several different national markets without understanding the culture and demand of each national market
can lead to disappointing sales results. By incorporating the input of international teams, a global product
may be developed to fulfill customer expectations in multiple countries.

Creating and executing a global business strategy may be an intricate enterprise, but with the increasing
payoff for companies expanding their business to international markets, the effort can be worthwhile. A
skilled global management team can effectively coordinate the input from several different national teams
which can result in significant gains by successfully expanding the business to the global level.

Corporate Strategies across Countries

Due to increasing globalization the past decades, even smaller companies have been able to cross
national borders and do business abroad. Consequently, many terms have been given to companies
operating in multiple countries: multinationals, global businesses, transnational companies, international
firms et cetera. The aim of this article is to clearly define these different terms and see how they differ
from each other, because they do differ! An often used framework to distinguish multiple forms of
internationally operating businesses is the Bartlett & Ghoshal Matrix (1989). Bartlett and Ghoshal
clustered these businesses based on two criteria: global integration and local responsiveness.
Businesses that are highly globally integrated have the objective to reduce costs as much as possible by
creating economies of scale through a more standarized product offering worldwide. Business that are
highly locally responsive have as extra objective to adapt products and services to specific local needs. It
seems that these strategic options are mutually exclusive, but there are companies trying to be both
globally integrated and locally responsive as can be seen in some examples below. Together these two
factors generate four types of strategies that internationally operating businesses can pursue:
Multidomestic, Global, Transnational and International strategies.

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Multidomestic: Low Integration and High Responsiveness

Companies with a multidomestic strategy have as aim to meet the needs and requirements of the local
markets worldwide by customizing and tailoring their products and services extensively. In addition, they
have little pressure for global integration. Consequently, multidomestic firms often have a very
decentralized and loosely coupled structure where subsidiaries worldwide are operating relatively
autonomously and independent from the headquarter. A great example of a multidomestic company is
Nestlé. Nestlé uses a unique marketing and sales approach for each of the markets in which it operates.
Furthermore, it adapts its products to local tastes by offering different products in different markets.

Global: High Integration and Low Responsiveness

Global companies are the opposite of multidomestic companies. They offer a standarized product
worldwide and have the goal to maximize efficiencies in order to recude costs as much as possible.
Global companies are highly centralized and subsidiaries are often very dependent on the HQ. Their
main role is to implement the parent company‘s decisions and to act as pipelines of products and
strategies. This model is also known as the hub-and-spoke model. Pharmaceutical companies such as
Pfizer can be considered global companies.

Transnational: High Integration and High Responsiveness

The transnational company has characteristics of both the global and multidomestic firm. Its aim is to
maximize local responsiveness but also to gain benefits from global integration. Even though this seems
impossible, it is actually perfectly doable when taking the whole value chain into considerations.
Transnational companies often try to create economies of scale more upstream in the value chain and be
more flexible and locally adaptive in downstream activities such as marketing and sales. In terms of
organizational design, a transnational company is characterized by an integrated and interdependent
network of subsidiaries all over the world. These subsidiaries have strategic roles and act as centres of
excellence. Due to efficient knowledge and expertise exchange between subsidiaries, the company in
general is able to meet both strategic objectives. A great example of a transnational company is Unilever.

International: Low Integration and Low Responsiveness

An international company therefore has little need for local adaption and global integration. The majority
of the value chain activities will be maintained at the headquarter. This strategy is also often referred to
as an exporting strategy. Products are produced in the company‘s home country and send to customers
all over the world. Subsidiaries, if any, are functioning in this case more like local channels through which
the products are being sold to the end-consumer. Large wine producers from countries such as France
and Italy are great examples of international companies.

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III. STRATEGIC MANAGEMENT EVALUATION AND CONTROL

An organization's effectiveness is in major part a measure of the effectiveness of its master strategy.
Selection of the appropriate basis for assessing organizational effectiveness presents a challenging
problem for managers and researchers. There are no generally accepted conceptualizations prescribing
the best criteria. Different organizational situations - pertaining to the performance of the organization's
structure, the performance of the organization's human resources, and the impact of the organization's
activities -require different criteria.

Strategic controls are intended to steer the company towards its long-term strategic direction. After a
strategy is selected, it is implemented over time so as to guide a firm within a rapidly changing
environment. Strategies are forward-looking, and based on management assumptions about numerous
events that have not yet occurred. Traditional approaches to control seek to compare actual results
against a standard. The work is done, the manager evaluates the work and uses the evaluation as input
to control future efforts. While this approach is not useless, it is inappropriate as a means to control a
strategy.

4 Major Types of Strategic Control

Experts on strategic management process have identified certain types of strategic controls. According to
them, there are four types of strategic controls.

1. Premise Control: Every strategy is founded on certain assumptions relating to environmental and
organizational forces. Certainly some of these forces or factors are very sharp and any change in
them is sure to affect the strategy to a great extent. Hence, premise control is a must to identify
the key postulations and keep track of any change in them in order to assess their impact on
strategy and, therefore, its implementation. For example, these presumptions may relate to
changing government policies, market competition. Change in composition due to sudden killing
virus or widespread war conditions or natural calamities and organizational factors such as
improvising production technology, VRS scheme to get high tech employees, market innovation
strategies. Here, premise control serves to test continuously these assumptions to determine
whether they are still valid or not. This facilitates the strategists to take necessary corrective
action at the right time than just pulling on with the strategy based on vitiated or invalid
postulations. The responsibility for premise control is generally assigned to the corporate planning
department that identifies the key assumptions and keeps a regular check on their validity.

2. Implementation Control: In order to implement a chosen strategy, there is need for preparing
quite good number of plans, programs and projects. Again resources are allocated for
implementing these plans, programs and projects. The purpose of implementation control is to
evaluate as to whether these plans, programs and projects are actually guiding the organisation
towards its pre-determined goals or not. In case it is felt, at any time, the commitment of
resources to a plan, program or project is not yielding the fruits as expected, there is need for
matching revision. That is implementation control is nothing but rethinking or strategic rethinking
to avoid wastes of all kinds.

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 3. Strategic Surveillance: If premise and implementation strategic controls are more specific by
nature, strategic surveillance is more generalized and overriding control which is designed to
monitor a broad range of events both inside and outside the organization which are likely to
threaten the very course of a firm‘s strategy. Such strategic surveillance can be done through a
broad- based, general monitoring based on selected information sources to uncover events that
are likely to affect the strategy of an organization. Aker (1984) suggests a ―formal yet simple
strategic information scanning system which can enhance the effectiveness of the scanning effort
and preserve much of the information now lost within the organization.‖

4. Special Alert Control: This special alert control is based on a trigger mechanism for a rapid
response and immediate reassessment of a given strategy in the light of a sudden and
unexpected event. Special alert control can be exercised via the formulation of contingency
strategies and assigning the responsibility of handling unforeseen events to crisis management
teams. The instances of such sudden and unexpected events can be say, sudden fall of
government at centre or even state, terrorist attacks, industrial disaster or any natural calamity of
earthquake, floods, fire and so on.

Evaluating Organizational Strategic Effectiveness

Management can evaluate its strategic effectiveness through the following models:

The Rational Goal Model. The rational goal approach focuses on the organization's ability to achieve its
goals. An organization's goals are identified by establishing the general goal, discovering means or
objectives for its accomplishment, and defining a set of activities for each objective. The organization is
evaluated by comparing the activities accomplished with those planned for. These criteria are determined
by various factors.

The Systems Resource Model. The systems resource model analyzes the decision-makers's capability
to efficiently distribute resources among various subsystem's needs. The systems resources model
defines the organization as a network of interrelated subsystems. These subsystems needs may be
classified as: bargaining position -ability of the organization to exploit its environment in acquisition of
scarce and valued resources;

 ability of the systems' decision-makers to perceive, and correctly interpret, the real properties of
the external environment;
 ability of the system to produce a certain specified output;
 maintenance of internal day-to-day activities;
 ability of the organization to co-ordinate relationships among the various subsystems;
 ability of the organization to respond to feedback regarding its effectiveness in the environment.
 ability of the organization to evaluate the effect of its decisions;
 ability of the organization' system to accomplish its goals.

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The Bargaining Model. Each organizational problem requires a specific allocation of resources. The
bargaining model presumes that an organization is a cooperative, sometimes competitive, resource
distributing system. Decisions, problems and goals are more useful when shared by a greater number of
people. Each decision-maker bargains with other groups for scarce resources which are vital in solving
problems and meeting goals.

The overall outcome is a function of the particular strategies selected by the various decision-makers in
their bargaining relationships. This model measures the ability of decision-makers to obtain and use
resources for responding to problems important to them. Each of the subsystems' needs should be
evaluated from two focal points: efficiency and stress. Efficiency is an indication of the organization's
ability to use its resources in responding to the most subsystems' needs. Stress is the tension produced
by the system in fulfilling or not fulfilling its needs.

The Managerial Process Model. The managerial process model assesses the capability an productivity
of various managerial processes -decision making, planning, budgeting, and the like -for performing
goals.

The managerial process model is based on the intuitive concept of substantial rationality, which
interrelates the drives, impulses, wishes, feelings, needs, and values of the individuals to the functional
goals of the organization.

The Organizational Development Model. This model appraises the organization's ability to work as a
team and to fit the needs of its members. The model focuses on developing practices to foster:

 supervisory behavior manifesting interest and concern for workers;

 team spirit, group loyalty, and teamwork among workers and between workers and management;
 confidence, trust and communication among workers and between workers and management;
 more freedom to set their own objectives.
This model is concerned with changing beliefs, attitudes, values, and organizational structures so that
individuals can be better adopt to new technologies and challenges. It is a process of management by
objectives in contrast to management by control.

The Structural Functional Model. The structural functional approach tests the durability and flexibility of
the organization's structure for responding to a diversity of situations and events.

According to this model, all systems need maintenance and continuity. The following aspects define this:

 security of the organization as whole in relation to the social forces in its environment (this relates
to ability to forestall threatened aggressions or deleterious consequences from the actions of
others);
 stability of lines of authority and communication (this refers to the continued capacity of leadership
to control and have access to individuals in the system);
 stability of informal relations within the organization;
 continuity of policy making (this refers to the ability to reexamine policy an a continuing basis);

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  homogeneity of outlook (this refers the ability to effectively orient members to organization norms
and beliefs).

The Functional Model. In the functional approach an organization's effectiveness is determined by the
social consequences of its activities. The crucial question to be answered is: how well do the
organization's activities serve the needs of its client groups?

The appraisal of an organization's effectiveness should consider whether these activities are function or
dysfunctions in fulling the organization's goals. These seven models have their strengths and
shortcomings depending upon the organizational situation being evaluated. The choice of evaluation
approach usually hinges on the organizational situation that needs to be addressed.

Strategic Control Process

Although control systems must be tailored to specific situations, such systems generally follow the same
basic process. Regardless of the type or levels of control systems an organization needs, control may be
depicted as a six-step feedback model):

1. Determine what to control. What are the objectives the organization hopes to accomplish?
2. Set control standards. What are the targets and tolerances?
3. Measure performance. What are the actual standards?
4. Compare the performance the performance to the standards. How well does the actual match the
plan?
5. Determine the reasons for the deviations. Are the deviations due to internal shortcomings or due
to external changes beyond the control of the organization?
6. Take corrective action. Are corrections needed in internal activities to correct organizational
shortcomings, or are changes needed in objectives due to external events?

Feedback from evaluating the effectiveness of the strategy may influence many of other phases on the
strategic management process.

A well-designed control system will usually include feedback of control information to the individual or
group performing the controlled activity. Simple feedback systems measure outputs of a process and
feed into the system or the inputs of system corrective actions to obtain desired outputs. The
consequence of utilizing the feedback control systems is that the unsatisfactory performance continues
until the malfunction is discovered. One technique for reducing the problems associated with feedback
control systems is feedforward control. Feed forward systems monitor inputs into a process to ascertain
whether the inputs are as planned; if they are not, the inputs, or perhaps the process, are changed in
order to obtain desired results.

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ASSESSMENTS:

1. Among the three steps in the management control process, what do you think is the most crucial
steps for the management? Why? Briefly explain your answer.

2. How is globalization and international competitions affect strategic management of the

organization especially management decision-making. Cite an example to justify your answer.

3. Discuss the relevance of feedback in the process of strategic evaluation and control.

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GRADING SYSTEM

Class Standing 70%

 Activities / Assessment
 Project Portfolio

Midterm / Final Examinations 30%

TOTAL 100%

Midterm Grade + Final Term Grade = FINAL GRADE

REFERENCES

An Empirical Analysis and Extension of the Bartlett and Ghoshal Typology of Multinational Companies. Journal of
International Business Studies.

Bartlett, C.A. & Ghoshal, S. (1989). Managing Across Borders. The Transnational Solution. Boston: Harvard
Business School Press.

Bernardin, J. Russell (2013) . Human Resource Management: An Experiential Approach, 6th Edition by J.

Jenning, M. Pfund (2012)Harzing, A.W. (2000). Managing, controlling and Improving Quality, 1st Phil Edition by D.
Montgomery,

Lenz, R.T.: Strategic Capability: A Concept and Framework for Analysis; Academy of Management Review, April
1980

Lorsch, Jay and Allen, Stephen: Managing Diversity and Interdependence: An Organizational Study of
Multidivisional Firms; Harvard University, 1973

Mello (2011) Strategic Management of Human Resources, 3rd Edition .

Robbins, S. Verhulst (2013). Human Resource Management, 11th Edition

nd
Steiner, George et al: Management Policy and Strategy, 2 edition, Macmillan, New York, 1982

Verbeke, A. (2013). International Business Strategy. Cambridge University Press.

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https://www.strategic-control.24xls.com/en126

https://www.michiganstateuniversityonline.com/resources/leadership/creating-successful-global-business-strategy/

https://www.b2binternational.com/publications/competitive-advantage/

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