1. BUS 411
DAY 11

2. Agenda Question? Assignment 3 (re) corrected Assignment 4 posted
1 B, 3 C’s, 3 D’s and 2 F’s
Major problems with financial ratios and interpreting financial documents
Assignment 4 posted
Due March 6 (next Class)
assignment 4 SP14.pdf
Assignment 5 will be posted by next class.
Today 
Finish Chap 6 Strategic Analysis and Choice
Begin Chap 7 Management and Operations Issues

3. Strategy Analysis and Choice
Chapter Six

4. Chapter Objectives
Describe a three-stage framework for choosing among alternative strategies.
Explain how to develop a SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, Grand Strategy Matrix and QSPM.
Identify important behavioral, political, ethical, and social responsibility considerations in strategy analysis and choice.

5. Chapter Objectives
Discuss the role of intuition in strategic analysis and choice.
Discuss the role of organizational culture in strategic analysis and choice.
Discuss the role of a board of directors in choosing among alternative strategies.

6. A Comprehensive Strategic-Management Model

7. The Strategy-Formulation Analytical Framework
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

8. SWOT Matrix Copyright 2012, Tony Gauvin, UMFK Strengths Weaknesses
Sells essential items with relatively inelastic demand
Healthy gross profit margin
Accepts food stamps
Lower than industry average leverage ratio
Being able to raise its dividends
Better than industry average total asset turnover
Its return on assets of 1.84% is higher than the industry average
Its return on equity is 4%, higher than the industry average
Approximately 90% of the company's products are priced below $10
In the past year, the company's stock has outperformed the average retail industry
Does not do much advertising
Limited market, solely in the only
In the year 2008, the company's market share dropped from 1.85% to 1.75%
The company's EPS is only 72% of the industry average and is not growing as quickly as the industry average
Limited in variety of products being offered
For the year 2008, the company's overall sales only grew by 2.18% whereas the average industry sales grew by 5.31%
Does not generate enough sales from its web site due to limited technology
Higher than industry average quick ratio, indicating lack of long term re-investment
The company's long-term debt to equity ratio is only 31.4% of the industry average
Opportunities
S-O Strategies
W-O Strategies
The income for the middle class is diminishing, causing them to be more cautious with their expenditures
The average household income is dropping due to weak economy
The demand for low-priced items is growing
The unemployment rate is increasing
Smaller retailers are closing their stores and some have filed for bankruptcy
Implement some price cuts to improve sales (S2, O1, S9, O3)
Advertise to improve product variety and offerings (S1, S2, S3, O4, O5)
Increase number of stores in low income areas (O2, O1, W3, W2)
Expand product offerings such fruits and other perishable products (W3, W5, O3, O4, O5)
Threats
S-T Strategies
W-T Strategies
High competition among large discount retailers
Dollar General has higher market share compare to Family Dollar
Per square foot, Dollar General is creating more sales
The industry is sensitive to economic conditions
Change in demographics due to purchasing habits
Increase in tariffs and trade barriers
Lack of quality control in products due to being imported from and other countries
Due to better return on assets ratio, the company can invest in technology, promoting online selling (S6, T1, T5)
Increase advertising by offering discounts, coupons, and other special offerings (W1, W2, W3, T1, T2, T3, T4)
Copyright 2012, Tony Gauvin, UMFK

9. SPACE MATRIX 11/16/2018 FP CP SP IP Copyright 2012, Tony Gauvin, UMFK-1 -2 -3 -4 -5 -6 6 5 4 3 2 1
Conservative
Aggressive
Competitive
Defensive
Copyright 2012, Tony Gauvin, UMFK
11/16/2018

10. The BCG Matrix

11. The IE Matrix

12. The Grand Strategy Matrix
based on two evaluative dimensions: competitive position and market (industry) growth

13. Grand Strategy Matrix 3/25/2013 Possible Strategies
Backwards, Forward, Horizontal Integration
Market Penetration
Market Development
Productions Development
Diversification (related)
3/25/2013

14. Matrix Analysis Summary
Alternative Strategies IE
SPACE
GRAND
BCG
COUNT
Forward Integration x X 2
Backward Integration
Horizontal Integration
Market Penetration 4
Market Development 3
Product Development
Concentric Diversification
Conglomerate Diversification 1
Horizontal Diversification
Retrenchment
Divestiture
Liquidation
Copyright 2012, Tony Gauvin, UMFK

15. The Quantitative Strategic Planning Matrix (QSPM)
objectively indicates which alternative strategies are best
uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies

16. The Quantitative Strategic Planning Matrix (QSPM)

17. Steps in a QSPM
Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM (from SWOT)
Assign weights to each key external and internal factor (taken from IFE and EFE)
Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing

18. Steps in a QSPM (cont.) Determine the Attractiveness Scores (AS)
Compute the Total Attractiveness Scores
Compute the Sum Total Attractiveness Score
QSPM Matrix.xlt

19. A QSPM for a Retail Computer Store

20. A QSPM for a Retail Computer Store

21. Increase number of stores in low income areas
QSPM
Increase number of stores in low income areas
Increase advertising by offering discounts, coupons, and other special offerings
Key Factors
Weight AS
TAS
Opportunities  1.
The income for the middle class is diminishing, causing them to be more cautious with their expenditures
0.1 3
0.3 2
0.2 2.
The average household income is dropping due to weak economy 4
0.4 3.
The demand for low-priced items is growing
0.07
0.21
0.14 4.
The unemployment rate is increasing
0.09
0.18
0.27 5.
Smaller retailers are closing their stores due to lower sales
0.08
0.24
0.16
Threats
High competition among large discount retailers 1
0.10
0.20
Dollar General has higher market share compare to Family Dollar
---
Per square foot, Dollar General is creating more sales
The industry is sensitive to economic conditions
Change in demographics due to purchasing habits
0.05
0.15 6.
Increase in tariffs and trade barriers 7.
Lack of quality control in products due to being imported from and other countries
TOTAL
1.00
1.96
1.52
Strengths 
Sells essential items with relatively inelastic demand
Healthy gross profit margin
Accepts food stamps
0.32
Lower than industry average leverage ratio
Being able to raise its dividends
0.03
Better than industry average total asset turnover
Its return on assets of 1.84% is higher than the industry average
0.02 8.
Its return on equity is 4%, higher than the industry average 9.
Approximately 90% of the company's products are priced below $10
0.28
10.
In the past year, the company's stock has outperformed the average retail industry
0.06
Weaknesses
Does not do much advertising
Limited market, solely in the only
In the year 2008, the company's market share dropped from 1.85% to 1.75%
The company's EPS is only 72% of the industry average and is not growing as quickly as the industry average
Limited in variety of products being offered
For the year 2008, the company's overall sales only grew by 2.18% whereas the average industry sales grew by 5.31%
Does not generate enough sales from its web site due to limited technology
Higher than industry average quick ratio, indicating lack of long term re-investment
The company's long-term debt to equity ratio is only 31.4% of the industry average
0.04
SUBTOTAL
2.06
1.91
SUM TOTAL ATTRACTIVENESS SCORE
4.02
3.43

22. Positive Features of the QSPM
Sets of strategies can be examined sequentially or simultaneously
Requires strategists to integrate pertinent external and internal factors into the decision process
Can be adapted for use by small and large for-profit and nonprofit organizations

23. Limitations of the QSPM
Always requires intuitive judgments and educated assumptions
Only as good as the prerequisite information and matching analyses upon which it is based

24. The Politics of Strategy Choice
Political maneuvering consumes valuable time, subverts organizational objectives, diverts human energy, and results in the loss of some valuable employees
Political biases and personal preferences get unduly embedded in strategy choice decisions

25. The Politics of Strategy Choice
The hierarchy of command in an organization, combined with the career aspirations of different people and the need to allocate scarce resources, guarantees the formation of coalitions of individuals who strive to take care of themselves first and the organization second, third, or fourth

26. Tactics to Aid Strategists
Equifinality
Satisfying
Generalization
Focus on Higher-Order Issues
Provide Political Access on Important Issues

27. Governance Issues Board of directors
a group of individuals who are elected by the ownership of a corporation to have oversight and guidance over management and who look out for shareholders’ interests

28. Board of Director Duties and Responsibilities

29. Principles of Good Governance
No more than two directors are current or former company executives
The audit, compensation, and nominating committees are made up solely of outside directors
Each director owns a large equity stake in the company, excluding stock options
Each director attends at least 75 percent of all meetings

30. Principles of Good Governance
The board meets regularly without management present and evaluates its own performance annually
The CEO is not also the chairperson of the board
Stock options are considered a corporate expense
There are no interlocking directorships (where a director or CEO sits on another director’s board)

31. Implementing Strategies: Management and Operations Issues
Chapter Seven

33. Chapter Objectives
Explain why strategy implementation is more difficult than strategy formulation.
Discuss the importance of annual objectives and policies in achieving organizational commitment for strategies to be implemented.
Explain why organizational structure is so important in strategy implementation.
Compare and contrast restructuring and reengineering.

34. Chapter Objectives (cont.)
Describe the relationships between production/operations and strategy implementation.
Explain how a firm can effectively link performance and pay to strategies.
Discuss employee stock ownership plans (ESOPs) as strategic management concept.
Describe how to modify an organizational culture to support new strategies.

35. Comprehensive Strategic-Management Model

36. The Nature of Strategy Implementation
Strategy formulation is positioning forces before the action.
Strategy implementation is managing forces during the action.
Strategy formulation focuses on effectiveness.
Strategy implementation focuses on efficiency.

37. The Nature of Strategy Implementation
Strategy formulation is primarily an intellectual process.
Strategy implementation is primarily an operational process.
Strategy formulation requires good intuitive and analytical skills.
Strategy implementation requires special motivation and leadership skills.

38. Some Management Issues Central to Strategy Implementation

39. Annual Objectives Annual objectives:
represent the basis for allocating resources
are a primary mechanism for evaluating managers
are the major instrument for monitoring progress toward achieving long-term objectives
establish organizational, divisional, and departmental priorities

40. The Stamus Company’s Hierarchy of Aims

41. Policies
Policy
specific guidelines, methods, procedures, rules, forms, and administrative practices established to support and encourage work toward stated goals
instruments for strategy implementation

42. Policies
Policies
set boundaries, constraints, and limits on the kinds of administrative actions that can be taken to reward and sanction behavior
clarify what can and cannot be done in pursuit of an organization’s objectives

43. A Hierarchy of Policies

44. Some Issues That May Require a Management Policy

45. Resource Allocation Resource allocation
central management activity that allows for strategy execution
often based on political or personal factors
Strategic management enables resources to be allocated according to priorities established by annual objectives

46. Types of Resources
Financial
Physical
Human
Technological

47. Managing Conflict Conflict
disagreement between two or more parties on one or more issues
Establishing annual objectives can lead to conflict because individuals have different expectations and perceptions, schedules create pressure, personalities are incompatible, and misunderstandings occur between line managers and staff managers

48. Managing Conflict Avoidance Defusion
includes such actions as ignoring the problem in hopes that the conflict will resolve itself or physically separating the conflicting individuals
Defusion
includes playing down differences between conflicting parties while accentuating similarities and common interests

49. Managing Conflict Confrontation
exemplified by exchanging members of conflicting parties so that each can gain an appreciation of the other’s point of view or holding a meeting at which conflicting parties present their views and work through their differences

50. Some Management Trade-Off Decisions Required in Strategy Implementation

51. Matching Structure With Strategy
Structure largely dictates how objectives and policies will be established
Structure dictates how resources will be allocated

53. Symptoms of an Ineffective Organizational Structure

54. The Functional Structure
groups tasks and activities by business function, such as production/operations, marketing, finance/accounting, research and development, and management information systems

55. Advantages and Disadvantages of a Functional Organizational Structure

56. The Divisional Structure
functional activities are performed both centrally and in each separate division
Geographic area, product or service, customer, process

57. Advantages and Disadvantages of a Divisional Organizational Structure

58. The Strategic Business Unit (SBU) Structure
groups similar divisions into strategic business units and delegates authority and responsibility for each unit to a senior executive who reports directly to the chief executive officer
can facilitate strategy implementation by improving coordination between similar divisions and channeling accountability to distinct business units

59. Sonoco Products’ SBU Organizational Chart
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

60. The Matrix Structure Matrix structure
most complex of all designs because it depends upon both vertical and horizontal flows of authority and communication

62. The Matrix Structure
For a matrix structure to be effective, organizations need participative planning, training, clear mutual understanding of roles and responsibilities, excellent internal communication, and mutual trust and confidence

63. Advantages and Disadvantages of a Matrix Structure

64. Typical Top Managers of a Large Firm

65. Restructuring Restructuring
involves reducing the size of the firm in terms of number of employees, number of divisions or units, and number of hierarchical levels in the firm’s organizational structure
also called downsizing, rightsizing, or delayering

66. Reengineering Reengineering
involves reconfiguring or redesigning work, jobs, and processes for the purpose of improving cost, quality, service, and speed
also called process management, process innovation, or process redesign

67. Linking Performance and Pay to Strategies
Provide full transparency to all stakeholders
Reward long-term performance with long-term pay, rather than annual incentives
Base executive compensation on actual company performance, rather than on stock price

68. Linking Performance and Pay to Strategies
Extend the time-horizon for bonuses. Replace short-term with long-term incentives
Increase equity between workers and executives. Delete many special perks and benefits for executives

69. Linking Performance and Pay to Strategies
Does the plan capture attention?
Do employees understand the plan?
Is the plan improving communication?
Does the plan pay out when it should?
Is the company or unit performing better?

70. Managing Resistance to Change
Force change strategy
involves giving orders and enforcing those orders
Educative change strategy
one that presents information to convince people of the need for change
Self-interest change strategy
one that attempts to convince individuals that the change is to their personal advantage

71. Creating a Strategy-Supportive Culture
Formal statements of organizational philosophy, charters, creeds, materials used for recruitment and selection, and socialization
Designing of physical spaces, facades, buildings
Deliberate role modeling, teaching, and coaching by leaders
Explicit reward and status system, promotion criteria
Stories, legends, myths, and parables about key people and events

72. Creating a Strategy-Supportive Culture
What leaders pay attention to, measure, and control
Leader reactions to critical incidents and organizational crises
How the organization is designed and structured
Organizational systems and procedures
Criteria used for recruitment, selection, promotion, leveling off, retirement, and “excommunication” of people

73. Ways and Means for Altering an Organization’s Culture

74. Production Management and Strategy Implementation

75. Labor Cost-Saving Tactics

76. The Key to Staying Healthy, Living to 100, and Being a “Well” Employee