Seminar Objectives for Tonight
 Unit 4 feedback and questions
 Review Unit 5 assignments/discussion questions
 Unit 5: Internal Analysis and Long Term Objectives
and Strategies
Unit 4 Feedback
Unit 5- To Do List
 Read
 Chapter 6, Internal Analysis
 Chapter 7, Long-Term Objectives and Strategies
 Complete and upload your Case Analysis Assignment
 Case 28, Section B, Comprehensive Cases, Whole Foods Market 2007:
Will There Be Enough Organic Food to Satisfy the Growing Demand?’s
 Respond to the Discussion Question
 Explain how you might use VCA, (value chain analysis) RBV, (resource based
view) and SWOT analyses to get a better sense of what might be a firm’s key
building blocks for a successful strategy. Choose a Fortune 1000 company to
demonstrate these analyses mentioned.
Chapter 6
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
SWOT Analysis
A traditional approach to internal analysis:
SWOT is an acronym for the internal Strengths and
Weaknesses of a firm and the environmental
Opportunities and Threats facing that firm.
 SWOT analysis is a historically popular
technique through which managers create a quick
overview of a company’s strategic situation.
6-6
SWOT Components




An opportunity is a major favorable situation in a
firm’s environment
A threat is a major unfavorable situation in a firm’s
environment
A strength is a resource or capability controlled by
or available to a firm that gives it an advantage
relative to its competitors in meeting the needs of
the customers it serves
A weakness is a limitation or deficiency in one or
more of a firm’s resources or capabilities relative to
its competitors that create a disadvantage in
effectively meeting customer needs
6-7
Ex. 6.2
SWOT Analysis Diagram
6-8
Limitations of SWOT Analysis




A SWOT analysis can overemphasize
internal strengths and downplay external
threats
A SWOT analysis can be static and can risk
ignoring changing circumstances
A SWOT analysis can overemphasize a single
strength or element of strategy
A strength is not necessarily a source of
competitive advantage
6-9
Value Chain Analysis (VCA)



The term value chain describes a way of looking
at a business as a chain of activities that
transform inputs into outputs that customers
value
Value chain analysis (VCA) attempts to
understand how a business creates customer
value by examining the contributions of different
activities within the business to that value
VCA takes a process point of view
6-10
Ex. 6.3
The Value Chain
6-11
Conducting a VCA
1.
2.

Identify activities
Allocate costs
VCA proponents hold that the
activity-based VCA approach
would provide a more meaningful
analysis of the procurement
function’s costs and consequent
value added than the traditional
cost accounting approach
6-12
Ex. 6.5 Traditional
Cost Accounting VS Activity
Based Cost Accounting
6-13
Difficulty in Activity-Based Cost Accounting



It is important to note that existing financial
management and accounting systems in many firms
are not set up to easily provide activity-based cost
breakdowns
The information requirements to support activitybased cost accounting can create redundant work
The time and energy to change to an activity-based
approach can be formidable
6-14
Three Circles Analysis
 An internal analysis technique wherein strategists
examine customers’ needs, company offerings,
and competitor’s offerings to more clearly
articulate what their company’s competitive
advantage is and how it differs from those of
competitors.
6-13
Ex. 6.7
Three Circles Analysis
6-14
Resource-Based View (RBV)
1.
2.
3.
RBV is a method of analyzing and
identifying a firm’s strategic advantages
based on examining its distinct combination
of assets, skills, capabilities, and intangibles
The RBV’s underlying premise is that firms
differ in fundamental ways because each firm
possesses a unique “bundle” of resources
Each firm develops competencies from these
resources, and these become the source of
the firm’s competitive advantages
6-17
Three Basic Resources
1.
2.
3.
Tangible assets are the easiest “resources” to
identify and are often found on a firm’s balance
sheet
Intangible assets are “resources” such as brand
names, company reputation, organizational
morale, technical knowledge, patents and
trademarks, and accumulated experience
Organizational capabilities are not specific
“inputs.” They are the skills that a company uses to
transform inputs into outputs
6-18
What makes a resource valuable?
4 Guidelines:
Is the resource or skill critical to fulfilling a
customer’s need better than that of the firm’s
competitors?
2. Is the resource scarce? Is it in short supply or not
easily substituted for or imitated?
3. Appropriability: Who actually gets the profit
created by a resource?
4. Durability: How rapidly will the resource
depreciate?
1.
6-19
Elements of Scarcity


Short Supply
Availability of Substitutes
Imitation

Isolating Mechanisms:

 Physically Unique Resources
 “Path-Dependent” Resources
 Casual Ambiguity
 Economic Deterrence
6-20
Using RBV in Internal Analysis
It is helpful to:
 Disaggregate resources
 Utilize a functional perspective
 Look at organizational processes
 Use the value chain approach
6-21
Ex. 6.11
Applying the Resource Based View
6-22
Making Meaningful Comparisons



Managers need objective standards to use when
examining internal resources and value-building
activities
Strategists use the firm’s historical experience as a
basis for evaluating internal factors
Benchmarking, or comparing the way “our”
company performs a specific activity with a
competitor or other company doing the same
thing, has become a central concern of managers
in quality commitment companies worldwide
6-23
Comparison with Success Factors in the Industry
 The key determinants of success in an
industry may be used to identify a firm’s
internal strengths and weaknesses
 A strategist seeks to determine whether a
firm’s current internal capabilities
represent strengths or weaknesses in
new competitive arenas
6-24
Chapter 7
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Long-Term Objectives

Strategic managers recognize that short-run profit
maximization is rarely the best approach to
achieving sustained corporate growth and
profitability
To achieve long-term prosperity, strategic
planners commonly establish long-term
objectives in seven areas:





Profitability
Competitive Position
Employee Relations
Tech Leadership
–
–
–
–
Productivity
Employee Development
Productivity
Public Responsibility
7-26
Qualities of Long-Term Objectives

There are five criteria that should be used in
preparing long-term objectives:





Flexible
Measurable
Motivating
Suitable
Understandable
7-27
The Balanced Scorecard

The balanced scorecard is a set of measures that
are directly linked to the company’s strategy


Developed by Robert S. Kaplan and David P. Norton, it
directs a company to link its own long-term strategy
with tangible goals and actions.
The scorecard allows managers to evaluate the
company from four perspectives:




financial performance
customer knowledge
internal business processes
learning and growth
7-28
Ex. 7.1
The Balanced Scorecard
7-29
Generic Strategies

A long-term or grand strategy must be based on
a core idea about how the firm can best compete
in the marketplace. The popular term for this
core idea is generic strategy.

3 Generic Strategies:
1. Striving for overall low-cost leadership in the industry.
2. Striving to create and market unique products for
varied customer groups through differentiation.
3. Striving to have special appeal to one or more groups
of consumers or industrial buyers, focusing on their
cost or differentiation concerns.
7-30
Low-Cost Leadership



Low-cost producers usually excel at cost
reductions and efficiencies
They maximize economies of scale, implement
cost-cutting technologies, stress reductions in
overhead and in administrative expenses, and use
volume sales techniques to propel themselves up
the earning curve
A low-cost leader is able to use its cost advantage
to charge lower prices or to enjoy higher profit
margins
7-31
Differentiation




Strategies dependent on differentiation are designed
to appeal to customers with a special sensitivity for a
particular product attribute
By stressing the attribute above other product
qualities, the firm attempts to build customer loyalty
Often such loyalty translates into a firm’s ability to
charge a premium price for its product
The product attribute also can be the marketing
channels through which it is delivered, its image for
excellence, the features it includes, and its service
network
7-32
Focus



A focus strategy, whether anchored in a low-cost base
or a differentiation base, attempts to attend to the
needs of a particular market segment
A firm pursuing a focus strategy is willing to service
isolated geographic areas; to satisfy the needs of
customers with special financing, inventory, or
servicing problems; or to tailor the product to the
somewhat unique demands of the small- to mediumsized customer
The focusing firms profit from their willingness to
serve otherwise ignored or underappreciated
customer segments
7-33
The Value Disciplines


Operational Excellence

This strategy attempts to
lead the industry in price
and convenience by
pursuing a focus on lean
and efficient operations
Customer Intimacy

Customer intimacy means
continually tailoring and
shaping products and
services to fit an
increasingly refined
definition of the customer
 Product Leadership
 Companies that pursue
the discipline of product
leadership strive to
produce a continuous
state of state-of-the-art
products and services
7-34
Grand Strategies




Grand strategies, often called master or
business strategies, provide basic direction for
strategic actions
Indicate the time period over which long-rang
objectives are to be achieved
Any one of these strategies could serve as the
basis for achieving the major long-term objectives
of a single firm
Firms involved with multiple industries,
businesses, product lines, or customer groups
usually combine several grand strategies
7-35
Concentrated Growth




Concentrated growth is the strategy of the firm that
directs its resources to the profitable growth of a
dominant product, in a dominant market, with a
dominant technology
Concentrated growth strategies lead to enhanced
performance
Specific conditions favor concentrated growth
The risks and rewards vary
7-36
Market Development



Market development commonly ranks second
only to concentration as the least costly and least
risky of the 15 grand strategies
It consists of marketing present products, often
with only cosmetic modifications, to customers
in related market areas by adding channels of
distribution or by changing the content of
advertising or promotion
Frequently, changes in media selection,
promotional appeals, and distribution are used to
initiate this approach
7-37
Product Development
 Product development
involves the substantial
modification of existing
products or the creation of
new but related products
that can be marketed to
current customers through
established channels
7-38
Innovation



These companies seek to reap the initially high
profits associated with customer acceptance of a
new or greatly improved product
Then, rather than face stiffening competition as
the basis of profitability shifts from innovation to
production or marketing competence, they
search for other original or novel ideas
The underlying rationale of the grand strategy of
innovation is to create a new product life cycle
and thereby make similar existing products
obsolete
7-39
Horizontal Integration


When a firm’s long-term strategy is based on
growth through the acquisition of one or more
similar firms operating at the same stage of the
production-marketing chain, its grand strategy is
called horizontal integration
Such acquisitions eliminate competitors and
provide the acquiring firm with access to new
markets
7-40
Vertical Integration


When a firm’s grand strategy is to acquire firms
that supply it with inputs (such as raw materials)
or are customers for its outputs (such as
warehouses for finished products), vertical
integration is involved
The main reason for backward integration is the
desire to increase the dependability of the supply
or quality of the raw materials used as production
inputs
7-41
Ex. 7.7
Vertical and Horizontal Integrations
7-42
Concentric Diversification



Concentric diversification involves the
acquisition of businesses that are related to the
acquiring firm in terms of technology, markets,
or products
With this grand strategy, the selected new
businesses possess a high degree of
compatibility with the firm’s current businesses
The ideal concentric diversification occurs when
the combined company profits increase the
strengths and opportunities and decrease the
weaknesses and exposure to risk
7-43
Conglomerate Diversification



Occasionally a firm, particularly a very large one,
plans acquire a business because it represents the
most promising investment opportunity available.
This grand strategy is commonly known as
conglomerate diversification.
The principal concern of the acquiring firm is the
profit pattern of the venture
Unlike concentric diversification, conglomerate
diversification gives little concern to creating
product-market synergy with existing businesses
7-44
Turnaround
The firm finds itself with declining profits
 Among the reasons are economic recessions,
production inefficiencies, and innovative
breakthroughs by competitors
 Strategic managers often believe the firm can
survive and eventually recover if a concerted
effort is made over a period of a few years to
fortify its distinctive competences. This is
turnaround.
 Two forms of retrenchment:


Cost reduction
Asset reduction
7-45
Elements of Turnaround




A turnaround situation represents absolute and relativeto-industry declining performance of a sufficient
magnitude to warrant explicit turnaround actions
The immediacy of the resulting threat to company survival
is known as situation severity
Turnaround responses among successful firms typically
include two stages of strategic activities: retrenchment
and the recovery response
The primary causes of the turnaround situation have been
associated with the second phase of the turnaround
process, the recovery response
7-46
Divestiture



A divestiture strategy involves the sale of a firm or
a major component of a firm
When retrenchment fails to accomplish the desired
turnaround, or when a nonintegrated business
activity achieves an unusually high market value,
strategic managers often decide to sell the firm
Reasons for divestiture vary
7-47
Liquidation


When liquidation is the grand strategy, the firm
typically is sold in parts, only occasionally as a
whole—but for its tangible asset value and not as
a going concern
Planned liquidation can be worthwhile
7-48
Bankruptcy

Liquidation bankruptcy—agreeing to a complete
distribution of firm assets to creditors, most of
whom receive a small fraction of the amount they
are owed
Reorganization bankruptcy—the managers
believe the firm can remain viable through
reorganization
Two notable types of bankruptcy




Chapter 7
Chapter 11
7-49
Joint Ventures



Occasionally two or more capable firms lack a
necessary component for success in a particular
competitive environment
The solution is a set of joint ventures, which are
commercial companies (children) created and
operated for the benefit of the co-owners (parents)
The joint venture extends the supplier-consumer
relationship and has strategic advantages for both
partners
7-50
Strategic Alliances



Strategic alliances are distinguished from joint
ventures because the companies involved do not
take an equity position in one another
In some instances, strategic alliances are
synonymous with licensing agreements
Outsourcing arrangements vary
7-51
Consortia, Keiretsus, and Chaebols



Consortia are defined as large interlocking
relationships between businesses of an industry
In Japan such consortia are known as keiretsus, in
South Korea as chaebols
Their cooperative nature is growing in evidence as
is their market success
7-52
Selection of Long-Term Objectives and Grand Strategy Sets



When strategic planners study their
opportunities, they try to determine which are
most likely to result in achieving various longrange objectives
Almost simultaneously, they try to forecast
whether an available grand strategy can take
advantage of preferred opportunities so the
tentative objectives can be met
In essence, then, three distinct but highly
interdependent choices are being made at one
time
7-53
Sequence of Selection and Strategy Objectives


The selection of long-range objectives and
grand strategies involves simultaneous, rather
than sequential, decisions
While it is true that objectives are needed to
prevent the firm’s direction and progress from
being determined by random forces, it is
equally true that objectives can be achieved
only if strategies are implemented
7-54