KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: ERIKA B. LAYA, CAT
A.Y. 2ND SEMESTER, 2020-2021
SUBJECT CODE: MNGT. 8
MODULE NO: Module 2
SUBJECT NAME: STRATEGIC COST MANAGEMENT
TOPIC: BUSINESS TRATEGY- Part 2
OBJECTIVE/S:
At the end of the lecture/discussion/week, the student should be able to:
 Identify the difference between strategic decision, strategic position and strategic Choice.
 Understand strategy into action.
 Know the different classes of Multi Business Firm
PART 1. LECTURE/DISCUSSION
1.5 Strategic Decision
Organization is a goal seeking entity or a firm is a goal seeking organization. It seeks goals through
two distinct processes.
(i) Logistic process
(ii) Management process
Logistic process is the process that deals with the conversion of resources like man, material,
money, resources taken from environment into goods and services that are once again returned back
to environment.
This logistic process is guided by management process. As a result of the above, two process we get
three decision.
(i) Strategic Decision
(ii) Administrative Decision
(iii) Operating Decision
(ii)Strategic Decision:
Decision that are concerned with the linkage of the firm with its environment.
Strategic decisions are concerned with the selection of product mix which the firm will produce and
selection of markets in which it will sell its products.
(ii) Administrative Decision: Decision relating to the co-ordination of activities – who reports to
whom– how tasks are coordinated and integrated – organization structure – Administrative set up. i.e.
Administrative Decisions are concerned with establishing authority – responsibility relationship,
location of facilities, personnel training, distribution channels etc.
(iii) Operating Decision: Decision relating to the determination of operating level of the
organization i.e. Operating Decisions are concerned with day to day operations of resource allocation,
applying controls etc.
1.6 Strategic Position
Page 1 of 5
KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: ERIKA B. LAYA, CAT
A.Y. 2ND SEMESTER, 2020-2021
Definition
The strategic position is concerned with the impact on strategy of the external
environment, internal resources and competences, and the expectations and influence of
stakeholders. Together, a consideration of the environment, strategic capability, the expectations
and the purposes within the cultural and political framework of the organization provides a basis
for understanding the strategic position of an organization.
Gary Stern identifies the six P’s of positioning as Product, Public, Price, Place, Production, and
Promotion .The Department of Human Services adds a seventh P –People
1.7 Strategic choice
Strategic choices concern the “decisions about an organization’s future and the way in which it
needs to respond to pressures and influences” (p. 235, Macmillan & Tampoe 2000).
Strategic choice is a part of the strategic process and involves elements like the identification and
evaluation of alternatives which then leads to a choice.
Identification Generic strategies
The generic strategies function as a foundation when you choose a future strategy. There are
three generic strategies; overall cost leadership, differentiation, and focus. These strategies can be
used to develop the future strategy.
 If you follow the cost leadership strategy, basically you sell your products cheaper than your
competitors. This requires that the overall cost level in the organization is kept at a minimum.
 Cost leaders that you probably have heard about are companies like IKEA and Wal-Mart.
Differentiation involves the offering of a unique product, where the brand or service offering makes
the product unique. These two strategies are usually not compatible.
 Focus is about focusing on a single segment or market. This strategy can be combined with the other
two and create a focused cost leadership or focused differentiation.
Directions
Page 2 of 5
KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: ERIKA B. LAYA, CAT
A.Y. 2ND SEMESTER, 2020-2021
A company can choose four different directions that can be based on the product-market grid.
1. The market penetration is for companies who are already present with a product in a market who wish
to penetrate the market more and turn more customers into regular customers.
2. The market development focuses on breaking new grounds for existing products. Exporting is one
option.
3. Product development is about offering new or improved products in existing markets.
4. Diversification is the last direction available where a company offers new products in new markets.
1.8 Strategy into action
Strategy into Action is an embedded business process for deploying strategic goals deep into the heart
of an organization, whilst aligning leaders and engaging employees to achieve the strategic intent.
7 phases of strategy-in-action
(i)
Shared understanding
(ii)
Strategic intent
(iii)
Strategic objectives
(iv) Indicators of success
(v) Leadership
(vi) Catalytic action
(vii) Sustaining momentum
1.9 Multi-Business Firm
A Multi-Business or diversified firm is a collection of individual businesses. In a multi-business firm
corporate strategy takes a broad overview role that is more encompassing than crafting strategy for a
single business.
Rumelt’s category scheme for multi-business firms
The most detailed framework for categorizing multi business firms was developed by Richard Rumelt
in his Harvard dissertation, published in 1974 as Strategy, Structure and Economic Performance. Building
on earlier research by Leonard Wrigley, Rumelt uses three ratios to categorize firms: the specialization
ratio, the related ratio, and the vertical ratio.
These are calculated as follows:
1. Specialization Ratio: the proportion of a firm’s revenues that can be attributed to its largest single
business in a given year.
2. Related Ratio: the proportion of a firm’s businesses that are attributable to its largest group of
related businesses, where “related” means sharing markets or sharing value chain activities such as
technology, operations, logistics or procurement.
3. Vertical Ratio: the proportion of a firm’s revenues that arise from by-products, intermediate
products and end products of a vertically integrated sequence of processing activities.
Page 3 of 5
KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: ERIKA B. LAYA, CAT
A.Y. 2ND SEMESTER, 2020-2021
Using these ratios, Rumelt creates nine classes of multi-business firm in the following way:
1. Single businesses – firms with a specialization ratio between 0.95 and 1.00 and a vertical ratio greater
than or equal to 0.7.
2. Dominant Vertical firms – firms whose specialization ratio lies between 0.75 and 0.9 and whose
vertical ratio is greater than 0.7.
3. Dominant Constrained corporations – firms whose specialization ratio lies between 0.75 and 0.9 and
whose businesses are in general closely related to each other.
4. Dominant Linked corporations – companies whose specialization ratio is between 0.75 and 0.9 and
whose businesses are not closely packed in terms of their interrelationships.
5. Dominant Unrelated companies - firms with a specialization ratio lying between 0.75 and 0.9 and a
related ratio less than one half the specialization ratio plus one (RR< ½ (SR+1)).
6. Related Constrained firms – companies whose specialization ratio is less than 0.7, related ratio is
greater than 0.7, vertical ratio is less than 0.7 and whose businesses are densely related to each other.
7. Related Linked firms – firms with specialization ratios less than 0.7, related ratios greater than 0.7,
vertical ratios less than 0.7, and businesses that are loosely tied to each other.
8. Acquisitive Conglomerate firms – companies with specialization ratios less than 0.7, vertical ratios
less than 0.7, related ratios less than 0.7, and a history of growth through acquisition.
9. Passive Unrelated companies – conglomerate firms, as in (8) above, without an aggressive history of
growth.
PART II. ASSESSMENT
Identification.
1. Firms with a specialization ratio between 0.95 and 1.00 and a vertical ratio greater than or equal to 0.7.
2. An embedded business process for deploying strategic goals deep into the heart of an organization, whilst
aligning leaders and engaging employees to achieve the strategic intent
3. It focuses on breaking new grounds for existing products.
4. He developed the most detailed framework for categorizing multi business firms.
5. It concerned with the impact on strategy of the external environment, internal resources and competences,
and the expectations and influence of stakeholders.
6. A part of the strategic process and involves elements like the identification and evaluation of alternatives
which then leads to a choice.
7. Concerned with day to day operations of resource allocation, applying controls etc
8. The process that deals with the conversion of resources like man, material, money, resources taken from
environment into goods and services that are once again returned back to environment.
9. It concerned with the selection of product mix which the firm will produce and selection of markets in which
it will sell its products.
10. Companies whose specialization ratio is between 0.75 and 0.9 and whose businesses are not closely
packed in terms of their interrelationships
Page 4 of 5
KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/887-2051
Business Department
korbelbusinessdepartment@gmail.com
Lecturer: ERIKA B. LAYA, CAT
A.Y. 2ND SEMESTER, 2020-2021
PART III. SOURCES/REFERENCES
From Internet: Institute of Cost Accountant of India- Paper 15-Edition 2014
Final-Paper15.pdf (icmai.in)
Page 5 of 5