Porter’s Five-Forces Model

Former chair and CEO of PepsiCo Wayne Calloway said, “Nothing focuses the mind better than the constant sight of a competitor that wants to wipe you off the map.” As illustrated in Figure 3-3, Porter’s Five-Forces Model of competitive analysis is a widely used approach for developing strategies in many industries. The intensity of

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Sources of External Information

A wealth of strategic information is available to organizations from both published and unpub­lished sources. Unpublished sources include customer surveys, market research, speeches at pro­fessional and shareholders’ meetings, television programs, interviews, and conversations with stakeholders. Published sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals. A company

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Forecasting Tools and Techniques

Forecasts are educated assumptions about future trends and events. Forecasting is a complex activity because of factors such as technological innovation, cultural changes, new products, improved services, stronger competitors, shifts in government priorities, changing social values, unstable economic conditions, and unforeseen events. Managers often must rely on published forecasts to effectively identify key external

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The External Factor Evaluation Matrix

An External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, techno­logical, and competitive information, illustrated earlier in Figure 3-2. The EFE Matrix can be developed in five steps: List 20 key external factors as identified in the external-audit process, including both opportunities and threats

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The Competitive Profile Matrix

The Competitive Profile Matrix (CPM) identifies a firm’s major competitors and its par­ticular strengths and weaknesses in relation to a sample firm’s strategic position. The weights and total weighted scores in both a CPM and an EFE have the same meaning. However, criti­cal success factors in a CPM include both internal and external issues;

The Nature of an Internal Audit

All organizations have strengths and weaknesses in the functional areas of business. No enter­prise is equally strong or weak in all areas. Maytag, for example, is known for excellent produc­tion and product design, whereas Procter & Gamble is known for superb marketing. Internal strengths and weaknesses, coupled with external opportunities and threats and clear

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Integrating Strategy and Culture

Every business entity has a unique organizational culture that impacts strategic-planning activi­ties. Organizational culture is “a pattern of behavior that has been developed by an organization as it learns to cope with its problem of external adaptation and internal integration, and that has worked well enough to be considered valid and to be taught

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Management

The functions of management consist of five basic activities: planning, organizing, motivating, staffing, and controlling. An overview of these activities is provided in Table 4-3. These activities must be examined in strategic planning because an organization should continually capitalize on its strengths and improve on its weaknesses in these five areas. 1. Planning The

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Marketing

Marketing can be described as the process of defining, anticipating, creating, and fulfill­ing customers’ needs and wants for products and services. There are seven basic functions of marketing: (1) customer analysis, (2) selling products and services, (3) product and service planning, (4) pricing, (5) distribution, (6) marketing research, and (7) cost/benefit analysis.15 Understanding these

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Finance and Accounting

Financial condition is often considered the single-best measure of a firm’s competitive posi­tion and overall attractiveness to investors. Determining an organization’s financial strengths and weaknesses is essential to effectively formulating strategies. A firm’s liquidity, leverage, working capital, profitability, asset utilization, cash flow, and equity can eliminate some strate­gies as being feasible alternatives. Financial factors

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Production/Operations

The production/operations function of a business consists of all those activities that transform inputs into goods and services. production/operations management deals with inputs, transforma­tions, and outputs that vary across industries and markets. A manufacturing operation transforms or converts inputs such as raw materials, labor, capital, machines, and facilities into finished goods and services. The

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Management Information Systems

Billions of bits of information are now “in the cloud.” Information ties all business functions together and provides the basis for all managerial decisions. It is the cornerstone of all organiza­tions. Information represents a major source of competitive management advantage or disadvan­tage. Assessing a firm’s internal strengths and weaknesses in information systems is a

Value Chain Analysis

According to Porter, the business of a firm can best be described as a value chain, in which total revenues minus total costs of all activities undertaken to develop and market a product or service yields value.31 All firms in a given industry have a similar value chain, which includes activities such as obtaining

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The Internal Factor Evaluation Matrix

A summary step in conducting an internal strategic-management audit is to construct an Internal Factor Evaluation (IFE) Matrix. this strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas. Intuitive judgments are required

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Long-Term Objectives

Long-term objectives represent the results expected from pursuing certain strategies. Strategies represent the actions to be taken to accomplish long-term objectives. The time frame for objec­tives and strategies should be consistent, usually from 2 to 5 years. Without long-term objectives, an organization would drift aimlessly toward some unknown end. It is hard to imagine

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Types of Strategies

The model illustrated in Figure 5-1 provides a conceptual basis for applying strategic manage­ment. Defined and exemplified in Table 5-4, alternative strategies that an enterprise could pursue can be categorized into 11 actions: forward integration, backward integration, horizontal inte­gration, market penetration, market development, product development, related diversification, unrelated diversification, retrenchment, divestiture, and liquidation. Each

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Integration Strategies

Forward integration and backward integration are sometimes collectively referred to as vertical integration. Vertical integration strategies allow a firm to gain control over distributors and suppli­ers, whereas horizontal integration refers to gaining ownership and/or control over competitors. Vertical and horizontal actions by firms are broadly referred to as integration strategies. 1. Forward Integration Forward

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Intensive Strategies

Market penetration, market development, and product development are sometimes referred to as intensive strategies because they require intensive efforts if a firm’s competitive position with existing products is to improve. 1. Market Penetration A market penetration strategy seeks to increase market share for present products or services in present markets through greater marketing efforts.

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Diversification Strategies

The two general types of diversification strategies are related diversification and unrelated diversification. Businesses are said to be related when their value chains possess competitively valuable cross-business strategic fits; businesses are said to be unrelated when their value chains are so dissimilar that no competitively valuable cross-business relationships exist.11 Most com­panies favor related diversification

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Defensive Strategies

In addition to integrative, intensive, and diversification strategies, organizations also could pursue defensive strategies such as retrenchment, divestiture, or liquidation. 1. Retrenchment Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits. Sometimes called a turnaround or reorganizational strategy, retrench­ment is designed to fortify an organization’s basic

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