Strategic Management Exam Notes

INTRO TO STRATEGIC MANGEMENT (LECTURE 1).

YOUR THOUGHTS PLEASE.
– WHAT IS ‘TECHNIQUE’ AND WHAT DOES IT MEAN TO YOUR COMPANY?

– SOME COMMON RESPONSES Method?
Means several things to several people at different points of time. (‘ Technique is a series of objectives and goals that is utilized to run company’ (Strategy is an effort to combine organizations activity and available resources to achieve stated goals. (Method is the roadmap we utilize to get to where we wish to go’ (Method is the framework that helps us attain our Vision and Objective.

(Our Method is what our Employer wishes to attain!).

– SOME EXTREME REACTIONS.
Public Sector Planning:.
Economic Sector Preparation:.
Not Real! Outstanding Public Sector Strategic Plans.

TACTICAL PREPARATION IN MALAYSIA.

Secret Public Sector Plans and Policies:.
( Vision 2020 (1991– 2020): 9 obstacles efforts are determined essential for developing a really progressive and contemporary Malaysian society in 2020. (National Vision Policy (NVP) [2001– 2010]: The policy intends to construct a durable and competitive country that in turn will result in a prosperous and progressive ‘BangsaMalaysia’.

The policy will stress core strategies of Unity, Poverty obliteration and restructuring society. (Outline Point Of View Plan 3 (2001– 2010): Though it has comparable objectives as the NVP, the OPP 3 focuses on the advancement of an understanding society and an environmentally sustainable advancement effort.

VIEWS OF LEADING THINKERS

Strategy
‘The art of the employment of battles as a means to gain the object of war’ B. H. Liddell Hart, Strategy (1967) ‘…the employment of battles to gain the
end of war.’ Carl von Clausewitz ‘What one does to counter a competitor’s actual and predicted moves’ George Steiner, Strategic Planning (1979)

Strategy is a plan, a how, a means of getting from here to there Rise and Fall of ing(1 (Competitive strategy is ‘about being different’.

It means deliberately choosing a different set of activities to deliver a unique mix of value.’ Michael Porter, ‘What is Strategy?’ Harvard Business Review (Jan/Feb 1993)

Emergence of Strategy

Where did it come from:
(A military concept and discipline
(The term ‘Strategy’ comes from Greek word ‘strategia’ –generalship i.e. stratos (the army) and ago (to lead). (Military and business strategy aims to gain competitive edge. (Both try to use their strengths to take advantage of the competitors or opponents weaknesses. (Success is the result of careful planning, close monitoring of environmental changes and good intelligence network.)

(Strategic Management Creation of a ‘route map’in a journey to a destination (objective). A conscious and rational management exercise involving planning activities like defining, achieving the organizations objectives and implementing its missions. Reflects the organizations response to environmental pressures. Strategic management integrates management, marketing, finance, production and information systems to achieve organizational success.

STRATEGIC MANAGEMENT

Strategic management is a set of decisions and actions that result in the formulation and implementation of plans designed to achieve an organizations objectives.’ John A Pearce II & Richard Robinson Strategic Management, McGraw Hill, 2007

Formulation will involve defining vision & mission, doing a situational analysis, determining objectives and formulating strategies.

Strategy implementation will involve marshaling the required resources, establishing policy and allocating resources.

Strategy evaluation involves appraising how well the organization has performed

Strategic Planning

Strategic planning is a process to determine the organizations game plan (direction and path) including establishing long range objectives the abilities and opportunities. (Strategic planning may involve personnel at three tiers:

a. Corporate level. –involves whole enterprise

b. Business Unit or Department level –product or service based

c. Functional level

 Strategic management processes:
-Strategy formulation
-Strategy implementation
-Strategy evaluation

•Benefits of Strategic Management
Financial Benefit:
-Improvement in sales
-Improvement in profitability
-Productivity improvement

Benefits of Strategic Management
Non-Financial Benefits:
•Improved understanding of competitors strategies

•Mission congruence

•Enhanced awareness of threats

•Reduced resistance to change

•Enhanced problem-prevention capabilities

Key Strategic Management Questions
•  What kind of business should we become?
•  Are we in the right field?
•  Are there new competitors?
•  What strategies should we pursue?
•  How are our customers changing?

The Fundamentals
Key Question in Strategic Management
Peter Drucker: –Think through the overall mission of a business. Ask the key question: “What is our Business?”

Vision, Mission, Values –link to Strategy
Defining vision, mission & values-foundation for the Strategy

Comprehensive Strategic Management Model
Fred David ©

Formulation Implementation Evaluation

STRATEGIC MANAGEMENT PROCESS

•Strategic Management is an analytical, dynamic and creative process. The Eight Step Strategic Management Process:

Stage 1 Modality

Stage 2 Modality

Stage 3 Modality

Experiential Learning Exercise
Experiential Exercise 1E –Strategic Planning at a Local Company. Fred David Pg. 78 (12 th .ed) Surf the Internet and find an organization that does strategic planning. Examine the written mission statement and do a critique that answers the question if the mission statement adequately reflects the business activities. To answer this question students are encouraged to read further on the characteristics of a good mission statement. Answers to typed out and presented at the next class.

Key Terms
Vision Statement – What do we want to become?
Mission Statement – What is our business?
Values -Our Ethos?

Vision, Mission, Values –Link to Strategy
By defining our Vision, identifying the Mission and establishing the Values of the organization, we are consciously placing our planning initiatives on a firm footing and linking it to the Strategic direction. Vision –what we want to be

Mission – why we exist (business)
Values – what we believe in
Strategy- How are we going to get there

The Mission Statement
•Mission Statements usually contain four different parts:
•Who You Are
•What You Offer
•Who You Serve
•How You Serve

3 Key Conditions for Success:
(Widespread Strategic Thinking: Organization to develop capable planners through training and rotation of personnel including line managers and division heads. (Reinforced Management Process: Long Range Planning and strategy formulation processes, budgets, market goals, appraisals and management incentives to ensure goal congruence. (Supportive Value Systems: The organizations value system and quality of work should be part of the management process. But flexible enough to cope with changes in the environment

Mission Statement
Benefits of a strong mission statement

MAF DIRECTION STATEMENT

Vision:
The Malaysian Armed Forces to be a Credible Armed Force.
Mission:
To realize and deliver Combat ready Forces in order to protect national sovereignty and integrity

VISION & MISSION (LECTURE 2)
STRATEGIC MANAGEMENT

-define Strategic management is a set of decisions and actionsthat result in the formulation and implementation of plans designed to achieve an organizations objectives.’ John A Pearce II & Richard Robinson Strategic Management, McGraw Hill, 2007

DEFINING A PLAN

-A Plan is a deliberate, conscious, organized attempt to change the future by taking action in the present. -It involves ends, or objectives, actions to reach those objectives, resources to make actions possible, and a strategy or approach for doing this in the most effective way. Graduate School of Public and International Affairs University of Pittsburg.

WHY PLAN?

-desire to change the status quo and refocus our objectives.-control uncertainty and turbulence in the environment -to control the future through action of the -achieve consensus on goals and strategies.-to meet challenges posed by competitors.

THE VISION STATEMENT

(What is a Vision Statement’?
(A Vision is a positive statement of ofwhat we would like to be in the future. (It has to be simple, short, understandable and shared by everyone in the organization. (Vision 2020 embodies Malaysia’s desire to be a

(fully developed nation economically and socially by the year 2020.

GOOD VISION STATEMENT

What makes a good Vision Statement?
-Clear and powerful statement of what we want to work towards (bridging the gap between current reality and future potential). -Short, simple, understandable, easily remembered, shared, complete and provides direction for the future. -Long Term-Reflects what the organization will be in five to ten years from now.

COMPONENTS OF THE VISION STATEMENT

(A good vision statement will have two major components:
1.‘Core Purpose: Organization’s reason for existing (purpose). The statement is often open ended . It is a statement about what the organization wants to become eg. Walt Disney –‘To make people happy.’ 3M –‘To solve unsolved problems innovatively.’

Collins C & Porras, J , HBR Oct.1996

COMPONENTS OF THE VISION STATEMENT 2

(Second Component:
2 .‘Core Ideology’ is the glue that holds the organization together as it grows, diversifies and expands . The core ideology consists of core values and core purpose. Core Values are the organizations essential beliefs.

eg. Sony: elevation of Japanese culture and national status. -being a pioneer not a follower
.-encouraging individual ability and creativity.

BUILDING YOUR VISION STATEMENT

Vision Statement Example
To be the first choice in the printed communications business. The first choice is the best choice, and being the best is what Atlanta Web pledges to work hard at being—every day! -Atlanta Web Printers, Inc.

Mission Statement
• The Mission Statement
A mission is concerned with the way an organization is managed today, and also the purpose or reason for it’s existence. ‘What is our business?’

Mission Statements usually contain four different parts:
Who You Are
What You Offer
Who You Serve
How You Serve
differs from vision statement as it refers to the present and not to the future.

Mission Statement Examples
The Bellevue Hospital, with respect, compassion, integrity, and courage, honors the individuality and confidentiality of our patients, employees, and community, and is progressive in anticipating and providing future health care services.–The Bellevue Hospital

Importance of Mission
Benefits Of A Strong Mission

Mission Elements

Mission Statement Evaluation Matrix

Mission Statement & Customer Orientation

Ben & Jerry’s Mission Statement
Mission:
-To make, distribute and sell the finest quality all-natural ice cream and related products in a wide variety of innovative flavors made from Vermont dairy products. -To operate the Company on a sound financial basis of profitable growth, increasing value for our shareholders, and creating career opportunities and financial rewards for our employees. -To operate the Company in a way that actively recognizes the central role that business plays in the structure of society by initiating innovative ways to improve the quality of life of a broad community—local, national and international.

MAF DIRECTION STATEMENT

Vision: The Malaysian Armed Forces to be a Credible Armed Force. Mission: To realize and deliver Combat ready Forces in order to protect national sovereignty and integrity. MAF HQ Strat. MgmtSys. (2008)

OBJECTIVE

Objective: the planned outcome or ‘goal’ of an activity that has to be achieved in a given time frame.

•Used to reflect profitability, efficiency, growth, contribution to society, market position etc. •Objectives should be measurable, suitable, feasible, acceptable, motivate, flexible and encourage ‘buy in’.

STRATEGY

Organization’s Strategy is often reflected as a master plan containing the planned objectives, the organizational values and the resources available to achieve it. (Reflects directional decisions!

(Answers questions like -‘What are the organizational goals and how is it to be achieved? (3 levels of strategy: Corporate; Business (competition); Functional (departmental)

CONCEPT OF STAKEHOLDER

Stakeholder Defined: Any individual or group of people who have an interest, a stake or are affected by the activities, decisions or policies of the organization.

(2 Categories:
a. Primary Stakeholders –have direct interest (customers, suppliers, creditors, employees and shareholders). b. Secondary Stakeholders –non market stake holders with no direct economic transaction eg. media, community, business support groups & NGO’s.

Epilogue
Experiential Learning Exercise 2
Experiential Exercise 2 –Writing a Vision and a Mission Statement for My University. -Most universities have a vision and mission statement.
-As part of the exercise, write a vision and mission
-statement for your university.
-Your mission statement should follow the characteristics you have been taught and present your justification. -To answer this question students are encouraged to read further on the characteristics of a good mission statement. -Answers are to be typed out and presented at the next class.

EXTERNAL AUDIT (LECTURE 3)

oThe external environment represents factors which are beyond the control of an organization. oThis analysis provides information on key environmental trends: (Demographic movements & changes(e.g. aging population)

(Information technology usage
(New government regulations

ENVIRONMENTAL AUDIT

For effective formulation of strategy –Managers need to evaluate, understand and take cognizance of the External Environmental Factors and trends.

Two levels :
(General (Macro) Environment Environmental factors that impact all organizations or countries Political, Economic, Social, Technology and Environment. (PESTE).

(Sectoral or Industry Environment (Micro Environment) Core business or core activity zone of the organization that directly effects organization and ability to compete. Influenced by policies, networks, suppliers, clients, competitors and the influence of substitutes. Michael Porter’s 5 Forces Model is sometimes used to explain the dynamics of the situation.

Purpose of External Audit
To Identify

Opportunities -factors which can help improve performance and achieve its strategic objectives

Threats -factors which can hinder an organization’s progress

External Environmental Audit
(Allows managers to formulate strategies that:
(Take advantage of opportunities
(Avoid/reduce impact of threats
(Information source for external environmental analysis (customer surveys, market surveys, periodicals, journals, reports, books, newspapers, conferences and the Internet.

Key External Forces
PESTE
-Political, governmental & legal forces
-Economic and competitive forces
-Social, cultural & demographic forces
-Technological forces
-Ecological forces

MACRO ENVIRONMENTAL SCANNING

Macro Environmental Factors (PESTE ) affects productivity and performance.
(Social Factors
Beliefs, values, attitudes, opinions and lifestyles, is often the result of cultural, ecological, demographic, religious, educational and ethnic conditioning. Technological Factors Concerns technological change -should avoid obsolescence and promote innovation. Adopting new technologies help improve productivity. (Ecological Factors

Ecology is the relationship between man, other living things and the natural environment involving the soil, water and air. Issues like pollution (oil spills), impact air pollution, environmental impact (open burning) and soil
stability can affect productivity, general health and project completion. ‘It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.’ –Charles Darwin

Key External Forces & the Organization

ORGANIZATION’S EXTERNAL ENVIRONMENT

Macro Environment Political, Economic, Social, Technological, Ecological

MICRO / INDUSTRY ANALYSIS

oFactors that directly affect the organization ( micro environment) oAnalysis determines how the immediate environmental forces affect the success, profitability or growth potential of the firm. oMichael Porter’s Five Forces Model is the best known conceptual framework in use for this analysis.

The Five-Forces Model of Competition
-Porters Five Forces Model of competitive analysis is used to develop strategies in many industries. -The intensity of competition among industries varies depending on the industry. (Aim is to cope with competition) -The collective impact of the five forces may be so brutal that the industry may be clearly unattractive for profit taking -To determine if a firm can make acceptable profit: 1.Identify key competitive elements 2.Evaluate how strong these elements are

3.Determine if it is worthwhile for the for firm to continue operating

The Five-Forces Model of Competition

Michael E Porter’s ‘Five Forces Model’
Explains the competitive forces that shape strategy.

(The Five Forces that affect competition are:
1. Threats of new entrants:(Trade Barriers; Economies of scale; Brand identity; Capital requirements; Cost disadvantage; access to distribution
channels ; government policy etc).

2. Bargaining power of customers: (Buying power; buyer volume; switching costs; buyer information; substitutes etc.)

3. Bargaining power of suppliers: (Number of suppliers; switching costs; importance of volume; threat of forward integration etc.)

4. Threat of substitute products or services(Price of substitute; switching costs; propensity to substitute)

5. Rivalry among competing firms(Bargaining power of the buyers and the suppliers.)

The Five-Forces Model
Potential Development of Substitute Products

The Five-Forces Model
Rivalry Among Competing Firms

The Five-Forces Model
Bargaining Power of Consumers

The Five-Forces Model
Bargaining Power of Suppliers

The Five-Forces Model
Potential Entry of New Competitors

Data Mining
Collection & evaluation of data on competitors is essential for successful strategy formulation

EXTERNAL FACTOR EVALUATION MATRIX (EFE)

The EFE Matrix allows strategists to summarize and evaluate the factors that
would influence strategic policy formulation.

Five steps to construct the EFE Matrix:

1. List the key external factorsidentified (10 to 20 factors) in the external audit process including the opportunities and threats.

2. Assign each factor a weight ranging from 0.0 (not important) to 1.0 (very important) –the weight indicates the relative importance of each factor. Opportunities often receive higher weighted scores than threats.

3.Assign a rating 1 to 4 to each key external factor to indicate how effective current strategies can respond to these factors. The scale 4 represents superior response; 3 to represent above average

4.Multiply each factor’ by its ratingto determine the total weighted score.

5. 5.Sum the weighted scoresfor each variable to determine the total weighted score for the organization.

EFE MATRIX

Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.

SAMPLE EFE MATRIX

WHAT THE WEIGHTED SCORES MEAN
Total weighted score of 4.0
(Organization response is outstanding to threats and weaknesses

Competitive Profile Matrix (CPM)

Industry Analysis CPM

Important: Just because one firm receives a 3.2 rating and another
receives a 2.8 rating, it does not follow that the first firm is 20 percent better than the second.

Experiential Learning Exercise 3

INTERNAL AUDIT (LECTURE 4)

MODUS OPERANDI
Internal evaluation (audit) of the organization’s management, finance, operations and marketing capabilities aim’s to establish its strengths & weaknesses. The evaluation starts with the analysis of information obtained from the organization itself.

Key Internal Forces
Functional Business Areas:
•Vary with organizations
•Divisions have differing strengths & weaknesses
Distinctive Competencies:
(Organization’s strengths that cannot be easily matched or imitated by competitors (Building competitive advantage involves taking advantage of distinctive competencies (build on your strengths)

Internal Audit
Performing an internal strategic-management audit provides a good opportunity for understanding the nature and effect of decisions on other functional areas of the organization.

Internal Audit
Internal Audit ‘… focuses on the identifying and evaluating the functional areas of any organization for it’s internal strengths and weaknesses …including the process activities and the support activities.’

PUBLIC SECTOR SYSTEMS FRAMEWORK
UPNM ORGANIZATIONAL FRAMEWORK

Training, Consultation, Research, Publication.

PROCESS ACTIVITIES (PUBLIC SECTOR)

Process Activities …relates to core business functions that have an external client. In a training organization like UPNM they are: (Training
(Consulting
(Research
(Publications
When evaluating the strengths and weakness of the processes it is important to pay attention to individual and group skills, its functioning and the use of technology.

SUPPORT ACTIVITIES (PUBLIC SECTOR)

Support Activities …….
relate to activities that do not have an external client but are important for the efficient functioning of the core business.

for UPNM it would be the support activities or staff functions like administration, finance and technical matters (IT networks) …eg. Library, scientific and engineering labs.

Management
Functions of Management
•Planning
•Organizing
•Motivating
•Staffing
•Controlling

MANAGEMENT FUNCTIONS

•Five basic functions:
i.Planning
Involves setting vision, mission and goals, strategic plan, action plans and policies including doing risk analysis.

ii.Organizing

iii. Identify job scope, role and tasks, delegation of powers, establishing a chain of command and coordinating training requirements.

iii.Motivating –Effective Leadership by motivating staff to get the jobs done under minimal supervision. Also establishing effective communication and conflict management.

iv.Staffing –Human Resource management -recruiting, selecting, training, career development and compensation.

. v.Controlling –Setting performance standards, measuring actual performance, standard deviation and taking remedial action.

Management
Marketing
•Marketing –Is transferring of products or services from the producer to the user at a pre-determined price, quantity and quality.

•Marketing Mix –The Marketing mix is a blend of product, distribution, promotion and pricing strategies (based on 4Ps -product, price, place and promotion) that can give the organization the competitive edge.

Marketing
(Product
( –The marketing mix is essentially geared towards marketing the product or output of the organization. –Products will undergo four life cycle phases: introductory stage, growth stage, maturity stage, and decline stage. Product Life Cycle

Phase 1. -Introductory stage:a new product could face high-failure rate, little competition, frequent product modification and limited distribution

Phase 2 -Growth stage:. In this stage, sales typically grow at an increasing rate and competitors may enter the market but existing competitive edge will see profits rise rapidly in this stage.

Phase 3 -Maturity stage: the longest stage of the product life cycle when sales rate decreases due to the emergence of niches marketers who concentrate on specific segments of a market.

Phase 4 –Declining stage: features a long-run drop in sales due to changing consumer tastes and the emergence of substitutes.

PRODUCT LIFE CYCLE

Marketing
Opportunity Analysis

Finance/Accounting
Determining financial strengths & weaknesses key to strategy formation

Finance/Accounting Audit

Financial Ratios

Financial Ratios
ii.Leverage ratio measures the extent to which the firm has been financed by debt. Examples: Debt-to-asset ratio, Long-term debt-to-equity ratio

iii.Activity ratio measures how effectively the firm uses its resources. Examples: Inventory turnover, Fixed assets turnover

iv.Profitability ratio measures the returns generated on sales and investment. Examples: Gross profit margin, Return on total assets

v.Growth ratio measures the performance of the company as compared to industry. Examples: Sales, Net income Production/Operations
Production/Operations Functions Operations is the process of transforming or value adding to input / raw material resources (e.g. steel, oil, etc.) to produce marketable products/outputs for consumers. Operations function include:

(Processing
(Capacity building
(Inventory control
(Workforce
(Quality Assuarance

BREAK EVEN POINT ANALYSIS

BEP analysis indicates the optimum sales volume for break even to take place when total costs equal total revenues (no profits no loss).

Strength and Weakness Analysis
1.List all the internal factors (management, marketing, financial, and operation/production) of the organization.

2.Assign an ‘Importance Score’ to each internal factor (1–10) with most important factors given higher scores.

3.Do‘Weighted Average’ : Importance Score = 1.0 Sum of Importance Scores

4.Assign a‘Capability Score’* to each internal factor –again follow a range 1–10 with high score for high capability.

5.EstablishWeighted Capability : * Refers to Org. ability to deal with factors Weighted Average x Capability, Sum of Importance Scores.

6.The 5 top factors (highest weighted capability) become ‘Internal Strengths’.

7.Determine the difference gap between the importance score and the capability score for the remaining internal factors. ( outside top 5 weighted capability scores).

8.Select 5 factors with largest positive difference gap as “weaknesses”. These internal factors are not only important but the company has problems
in overcoming them.

INTERNAL FACTOR ANALYSIS MATRIX

Production/Operations
Production/Operations Audit
-Are quality-control policies & procedures effective?
-Are facilities, resources, and markets strategically located? -Does the firm have technological competencies?

Research & Development
Research & Development Functions
-Development of new products before
-CompetitorsImproving product quality
-Improving manufacturing processes to reduce costs

Research & Development Audit
Are the R&D facilities adequate?
If R&D is outsourced, is it cost effective?
Are the R&D personnel well qualified?
Are R&D effectively?
Research & Development Audit
Are MIS and computer systems adequate?
Is communication between R&D & other organizational units effective? Are present products technologically competitive?
Purpose

Improve performance of an enterprise by improving the quality of managerial decisions.

Management Audit Checklist
-Does the firm use strategic management concepts?
-Are objectives/goals measurable?
-Well communicated?
-Do managers at all levels plan effectively?
-Is employee absenteeism low?
-Is employee turnover low?
-Are the reward mechanisms effective?
-Are the organization’s control mechanisms effective?

ACTIONABLE STRATEGIES (LECTURE 5)

Lesson Outline
-Levels of Strategy –Corporate, Business & Functional Levels -Types of Strategies
-Integration Strategies
-Intensive Strategies
-Diversification Strategies

Strategies in Action
Organizations Embrace Strategic Planning
Quest for higher revenues
Quest for higher profits
Quest for lower costs of operations

Strategic Decision Levels
The decision-making process is done at three different levels or under three different circumstances within the organization.

The three broad levels of decision making are:
–Corporate level strategies (Grand)
–Business level strategies (Secondary)
–Functional level strategies (Tactical)

Strategic Decision Levels
Corporate Level Strategies can be grouped as follows:
Grand strategies:
Growth
Stable growth
Turnaround
Combination

Secondary level strategies:
Expand
Integrate
Diversify

Strategic Decision Levels
–Tactical level strategies:
Organic
Joint venture
Merger
Acquisition
Reverse takeover
Strategic alliance
Licensing/Franchising

Strategic Decision Levels

Strategic Decision Levels

Corporate Level Strategies
oThese strategies are often designed to benefit the whole organization o oInvolves the top management level
o oOften focus is on the future welfare of the whole corporation to achieve higher profit, return on investment, improved market position and improved overall performance.

RELATIONSHIPS BETWEEN LEVELS OF STRATEGIES

The Grand Strategies
Most organizations will choose from any one ot the following four strategies in the beginning: –Growth strategy
–Stable growth strategy
–Turnaround strategy
–Combination strategy

The Grand Strategies
1.The Growth Strategy -Designed to ensure each year’s growth rate is higher that of the previous year

2.The Stable Growth Strategy. This strategy is selected when the company is facing bad times or needs to consolidate its operations. The aim of this strategy is to maintain the same growth rate as in the past year.

3.The Turnaround Strategy Strategy of choice when a company has negative growth and needs to do a turnaround for positive growth.

4.The Combination Strategy Sometimes large organizations may need to divest some part of its structure (low growth potential subsidiaries) to achieve a turnaround. This Strategy involves sacrificing the weak to help the strong.

The Secondary Level Strategies
(Having decided on the Grand Strategy, the management has to decide on an appropriate secondary level strategy.

(4 Secondary Level Strategies:
–Expansion
–Integration
–Diversification
–Turnaround

The Secondary Level Strategies
1. The Expansion Strategy
(This strategy is essentially designed for growth and market expansion through the efficient use of existing resources. (There will be no new inputs into the production process and the success of this measure will be the increase in activity level when compared to past years performance. •Eg: Hypermarkets –Tesco, Carefour; Fast Food Outlets –KFC, Starbucks & Kenny Rodgers; Banks –CIMB, Maybank;

2.The Integration Strategy

3. Organizations in aiming to control the supply chain activities from raw materials through manufacturing to marketing the product will favour this strategy. A Local Tyre Manufacturer for example, would like to control the supply of inputs to some of the processes, like raw rubber, steel cords, carbon black etc in the production of radial tyres. This will give the company better control of supply, price and quality of the critical input into the tyre making process.

INTEGRATION STRATEGIES

The forward, backward and horizontal integration strategies are sometimes labelled as Vertical Integration Strategy

(a) Backward integration strategy: control the availability of resources/raw material supplies in terms of pricing, quality, delivery, choice of material, source of supply, etc.

(b) Forward integration strategy: control of down line value-added activities after the manufactured products is sold to the wholesaler, e.g. packaging, transporting, warehousing, setting up retail outlets, etc.

Forward Integration Strategies
Gain Control Over
If:
Current distributors – expensive or unreliable
Availability of quality distributors – limited
Firm competing in industry expected to grow markedly
Firm has both capital & HR to manage new business of distribution Current distributors have high profit margins

(c) Horizontal integration strategy :
This strategy aims to reduce the number of competitors as the company would choose an acquisition, joint venture or strategic alliance to reduce competition. Malaysian Plantation and Banking sectors have adopted this strategy to reduce competition and achieve competitive strength in overseas markets.

Horizontal Integration Strategies
Ownership or Control of –
Firm’s competitors

Backward Integration Strategies
Producer controls the availability of raw material supplies in terms of pricing, quality, supply and choice. Guidelines –

3.The Diversification Strategy
Diversification is basically increasing the number of outputs produced or services rendered. Key question is how to increase the variety of activities in its present operations. There are four decisions that come under this category:

a.Concentric diversification strategy -increase the variety of its manufactured products, related to its present operations. E.g. Bata shoes produces shoe polish

b. Conglomerate diversification strategy is adding variety in a different or unrelated sector. Penang Port Corp also operates NDSB, Ferry Co & a small Nigerian shipyard. a.

c. Horizontal diversification strategy–often having to diversify due to requests by regular clients to provide additional service. Eg. Air Asia has Tune hotels and tour facilities. Goodyear ServitcarTyreShop also provides one stop automobile repair services.

4.Turnaround Strategies These strategies are actions commonly used by corporations facing negative growth. -negative growth rate, rate of return, making loss with no dividend payout. Retrenchment Strategy – Option to cut overhead costs without forsaking increase in productivity and efficiency. Divestiture strategy involves supporting onlythose making profits while non-profitable activities are closed and sold off. Liquidation Strategy – closing down / retrenchment