CHAPTER II
LITERATURE REVIEW
2.1 Business Definition
Based on Hughes and Kapoor as cited in (Sugiyono, 2003 p20) “Business is
an individual business activities organized to produce and sells goods and
services in order to gain advantage in meeting the needs of society:.
A whole complete running series of business, will complete activity groups
based on their functions, so that each group activities is called business function.
Based on the definitions, it can be concluded that the business activites can be
done by individuals or groups within a single institution, which aims to produce
services or goods for public to gain profit. The actual business activities include 2
main things, which is :
1. The production process
2. Marketing of goods or services
So, business is an activity carried out by individuals or groups with the aim to
make a profit and market goods and services to fulfill the needs of the customer.
2.2 Strategy Definition
Thompson JR, Strickland III and Gamble (2008) defined company’s strategy
is management’s action plan for running the business and conductin operations.
The crafting of a strategy represents a managerial commitment to pursue a
particular set of actions growing in business, attracting and pleasing customers,
competing successfully, conducting operations, and improving the company’s
financial and market performance.
Henry Mintzberg (2010,online) defined strategy as "a pattern in a
stream of decisions" to contrast with a view of strategy as planning.
Max McKeown (2011,online) argues that "strategy is about shaping
the future" and is the human attempt to get to "desirable ends with available
means".
Olga Faltejskova and Lilia Dvorakova(2013,online) The essence of
strategic analysis, according to Johnson & Scholes (2000) is understanding the
relationship between the different forces influencing company/society and
strategy choice.
While analyzing the corporate environment can to detect threats and
opportunities in the firms surroundings, the purpose of internal business
environment analysis is to identify its strengths and weaknesses, which, together
with the results of the analysis of sector environment, revealing threats and
opportunities results in a SWOT analysis
Based on Sugiyono (2006,p12) descriptive analysis is an research
used to analyse statistic of the research but aren’t used to make further decision.
Research doesn’t use any sample. The analysis will use descriptive anaylsis
2.3 Strategic Management Definition
Based on Robbins and Coulter (2012, p12) Strategic Management is
what managers do to develop the organization’s strategies. It’s and important task
involving all the basic management functions such as planning, organizing,
leading and controlling.
Based on Goetsch and Davis (2013, p.36), strategic management is
management that bases all actions, activities and decisions on what is most
likely-within an ethical framework-to ensure successful performance in market
place. From the strategic manager’s perspective, resources are wasted unless they
contribute to success in marketplace, and the more direct the contribution, the
better.
2.4 Types of Strategy
Based on Griffin and Ebert (2010, p153), there are 3 business strategy
types, which are :
1. Corporate Strategy : determine the firm’s overall attitude toward
growth and the way it will manage its business or product lines.
2. Business( or competitive) strategy : takes place at the level of the
business unit or product line, focuses on improving the company’s
competitive position
3. Functional Strategy : managers in specific areas decide how best
to achieve corporate goals by being as productive as possible.
Based on Robbins and Coulter (2012, p256) Corporate strategy is
what
determines what businesses a company is in or wants to be in, and what it
wants
to do with those businesses. Competitive strategy is a strategy for how an
organization will compete in its business(es).
Based on Thompson JR, Strickland III and Gamble (2008, p.235),
strategies to compete in rapidly growing markets must include :
1. Driving down costs per unit so as enable price reductions that
attract doves of new customers. Charging a lower price always has
strong appeal in markets where customers are price-sensitive and
lower prices can help push up buyers demand by drawing new
customers to the marketplace
2. Pursuing rapid product innovation, both to set a company’s
product offering apart from rivals and to incorporate attributes that
appeal to growing numbers of customers
3. Gaining acces to additional distribution channels and sales outlets.
Pursuing wider distribution acces so as to reach more potential
buyers is a particularly good strategic approach for realizing
above-average sales gains. But usually this requires a company to
be a first-mover in positioning itself in new distribution channels
and forcing rivals into playing catch-up
4. Expanding the company’s geographic coverage. Expanding into
new areas, either domestic or foreign, where the company does
not have a market presence can also be an effective way to reach
more potential buyers
5. Expanding the product line to add models/styles that appeal to a
wider range of buyers. Offering buyers a wider selection can be an
effective way to draw new customers in number sufficient to
realize above-average sales gains.
Alternative strategies that can be done by companies based on David (2004)
are :
1. Integration Strategy
a. Forward Integration
A business strategy that involves a form of vertical integration
whereby activities are expanded to include control of the direct
distribution of its products. A good example of forward integration is
when a farmer sells his/her crops at the local market rather than to a
distribution center.
b.
Backward Integration
A form of vertical integration that involves the purchase of suppliers.
Companies will pursue backward integration when it will result in
improved efficiency and cost savings. For example, backward integration
might cut transportation costs, improve profit margins and make the firm
more competitive. By way of contrast, forward integration is a type of
vertical integration that involves the purchase or control of distributors..
c.
Horizontal Integration
The acquisition of additional business activities that are at the same
level of the value chain in similar or different industries. This can be
achieved by internal or external expansion. Because the different firms
are involved in the same stage of production, horizontal integration allows
them to share resources at that level. If the products offered by the
companies are the same or similar, it is a merger of competitors. If all of
the producers of a particular good or service in a given market were to
merge, it would result in the creation of a monopoly. Also called lateral
integration.
2. Intensive Strategy
a. Market Penetration
The activity or fact of increasing the market share of an existing
product, or promoting a new product, through strategies such as bundling,
advertising, lower prices, or volume discounts. The amount of sales or
adoption can be an individual company's sale or industry while the
theoretical market can be the total population or an estimate of total
potential consumers for the product.
b.
Market Development
Market development is a marketing technique aimed at increasing a
company's market in order to widen the customer base for the purpose of
selling more products. There are several approaches that can be used to
make a market larger, ranging from capturing customers of rival
companies to expanding to a previously unserved segment of the market..
c.
Product Development
Product Development is a creation, innovation, utility enhancement or
continuous improvement of earlier features (design, service, etc.) of an
existing product or developing (manufacturing) an entirely new kind of
product to satisfy the requirements of its end-users (consumers).
3. Diversification Strategy
a. Concentric Diversification
Concentric diversification is one of several different diversification
strategies used by companies to increase their appeal to consumers. With
this particular approach, the business will attempt to increase market
share by introducing a range of new products that are likely to not only
attract the attention of existing clients but also draw in new customers.
Sometimes referred to as convergent diversification, the goal is to
motivate current customers to keep purchasing the company’s older
products while also choosing to purchase the newer products.
b. Horizontal Diversification
Horizontal Diversification is a growth strategy in which a company
seeks to add to its existing product lines with improved versions of the
originals or with new products that add value and appeal for its current
customers. .
c. Conglomerate Diversification
Conglomerate Diversification is a type of diversification whereby a
firm enters, through acquisition or merger, an entirely different market
that has little or no synergy with its core business or
technology”.Conglomerate diversification helps in strengthening the
internal structure of a company and it is an essential form of
diversification. Based on the financial position, conglomerate
diversification helps in evaluating the company`s portfolio. Here, the
newly developed products are not directly related with existing
technologies, markets and the products. This is more related to the
financial condition and stability of the company.
4. Defensive Strategy
a. Retrenchment
Retrenchment is something similar to downsizing. When a company
or government goes through retrenchment, it reduces outgoing money or
expenditures or redirects focus in an attempt to become more financially
solvent. Many companies that are being pressured by stockholders or
have had flagging profit reports may resort to retrenchment to shore up
their operations and make them more profitable
b. Divestiture
The partial or full disposal of an investment or asset through sale,
exchange, closure or bankruptcy. Divestiture can be done slowly and
systematically over a long period of time, or in large lots over a short time
period. For a business, divestiture is the removal of assets from the books.
Businesses divest by the selling of ownership stakes, the closure of
subsidiaries, the bankruptcy of divisions, and so on.
c. Liquidation
Creditors liquidate assets to try and get as much of the money owed to
them as possible. They have first priority to whatever is sold off. After
creditors are paid, the shareholders get whatever is left with preferred
shareholders having preference over common shareholders..
2.5 Strategic Management Steps
Based on David(2009,p.6-7) Strategic Management Process has 3 steps which
are Strategy Formulation, Strategy Implementation and Strategy Evaluation.
Those 3 steps are:
1. Strategy Formulation
It has few steps :
a. State vision and mission
b. Identify company’s external factors
c. Identify company’s internal factors
d. State long term goal
e. State alternative strategies
f. Choosing some strategies to achieve goals
2. Strategy Implementation
a. State the goal
b. Create, choose and review company’s policies about other
policies that has been implemented
c. Allocate the resources correctly
3. Evaluation Strategy
It is the final steps in strategic management. It is the main tool for
manager to know whether this strategy are going well or not. All the
strategies could be modified based on the internal and external factors
in the future.
The evaluation activities are :
a. Evaluate whether the internal and external factors still
useful for creating the strategies in that condition
b. Evaluate the company’s performance
c. Evaluate and correcting the taken actions
Based on Jones and Hill (2010, p.12), the formal strategic process has
five main steps :
1. Select the corporate mission and major corporate goals.
2. Analyze the organization’s external competitive environment to
identify opportunities and threats
3. Analyze the organization’s internal operating environment to
identify the organization’s strengths and weaknesses
4. Select strategies that build on the organization’s strengths and
correct its weaknesses in order to take advantage of external
opportunities and counter external threats. These strategies
should be consistent with the mission and major goals of the
organization. They should be congruent and constitute a viable
business model
5. Implement the strategies.
2.6 Strategy Formulation
Based on Jones and Hill (2010, p.4) Strategic formulation is the task of
selecting strategies, whereas strategy implementation is the task of putting
strategies into action, which includes designing, delivering and supporting
products.
Steven French (2009,p.4 online)The Ginter et al. (1985) paper described the
strategic process as containing eight elements:
(1) vision and mission;
(2) objective setting;
(3) external environmental scanning;
(4) internal environmental scanning;
(5) strategic alternatives (crafting strategy);
(6) strategy selection;
(7) implementation; and
(8) control.
Based on Jones and Hill (2008, p.287), horizontal integration is the process of
acquiring or merging with industry competitors to achieve the competitive
advantages that arise from a large size and scope of operations. An acquisition
occurs when one company uses its capital resources, such as stock, debt, or cash,
to purchase another company, and a merger is an agreement between equals to
pool their operations and create new entity.
2.6.1 Company’s Vision And Mission
Based on Purwanto (2006, p77) Vision is a wide goal from the
management and is an ideal condition that the company wanna achieve in the
future. Meanwhile, Kuncoro (2008, p58) said that Vision is a comprehensive
statement about: what the owner wants, why the company exist and what is the
future goal of the company.
Based on David (2009, p84), Mission statement is an declaration about
the existence of the company. Question about mission must answer “ what is
our business?”. A clear mission question will help to formulate strategy and
goal statement.
Based on Pearce II and Robinson ( 2008, p31), company’s mission is
about what is the desire of the company. This mission includes the decision
makers philosophy, how they want to see the company’s image and also what
product we produce and how well we serve our customers.
Based on Stutely (2007, p.57), to define mission, it should describe
exactly what you will be doing for the next three to five years (
why,where,how) and what you want to achieve. It should be a statement of
purpose with specific goals. Generally, it works best to focus on business and
on customer needs and benefits rather than your product themselves.
Remember the old adage that people do not want shovels, they want holes in
the ground.
Based on Thompson JR, Strickland III and Gamble (2008, p.24), the
distinction between a strategic vision and a mission statement is clearly cut:
A strategic vision portrays a company’s future business scope (“where we are
going”), whereas a company’s mission typically describes its present business
and purpose (“who we are, what we do, and why we are here”)
Based on Goetsch and Davis (2013, p.39), a well-written vision
statement has the following characteristics:
1. Is easily understood by all stakeholders
2. Is briefly stated, yet clear and comprehensive in meaning
3. Is challenging, yet attainable
4. Is lofty, yet tangible
5. Is capable of stirring excitement for all stakeholders
6. Is capable of creating unity of purpose among all stakeholders
7. Is not concerned with numbers
8. Sets the tone for employees
2.6.2 External Audit
Based on Sartono (2000,p39), identyfing opportunities and threats
will require the analysis of company’s external factors. Analysing external
factors can also be done by monitoring, evaluating, and give that information to
the company’s employee. That information can be useful for the company’s
keyperson.
Based on Pearce II and Robinson (2008, p112) External environment
is factors outside the company that may
impact to the decision making,
structure and company’s internal process. Meanwhile, David (2009, p120) said
that external audit’s goal is to create a list of opportunites that the company can
use and also the threats that the company must prevent. The main external
factors are:
1. Economical power
2. Social, cultural, demography and environment power
3. Government and political power
4. Technological power
5. Competitive power
2.6.3 Internal Audit
Based on Purwanto (2006, p94) internal environment analysis
includes marketing, human resource management, financial management,
research and development, operational management and also production
factors.
Based on Jones and Hill (2010, p19) internal analysis focuses
on reviewing the resources, capabilities and competencies of a company. The
goal is to identigy the strengths and weakneses of the company.
Based on David (2009, p177) Internal factors are categorized to :
1. Management Power
2. Marketing Power
3. Financial Power
4. Operational Power
5. Resource and Development Power
6. Management Information System Power
2.6.4 Choosing Long Term Goal
Based on Pearce II and Robinson (2008, p250) Long term goal is an
statement about what company wanna achieve at some period. Meanwhile,
David (2009, p244-245) Long term goal is an interpretation of the expected
result from the implementation of some strategy. Strategy represent any kind of
action to achieve goals. Goals must be quantitif, which means can be
calculated, realistic, easy to understand, challenging, possible to achieve and
hierarchic.
Based on Assauri (2013, p.32-33), strategy that are formulated and
chosen by the company is an decision for a long term goal that will impact to
the overall company activities, like investment or new product innovation.To
choose the long term goal, it has to undergo a long and company overall
process to get the best options and best implementations.
2.6.5 Summarizing, Evaluating and Choosing Strategy
Based on David (2009, p324), summarizing strategy can be done by
three stage :

Stage 1 includes EFE Matrix, IFE Matrix, dan CPM Matrix. This step is
defined as Input Stage. This stage used to formulate the best strategy.

Stage 2 is Matching Stage, focus on creating alternatives by seeing the
main internal and external factors. This stage includes SWOT (StrengthWeakness-Opportinity-Threats) Matrix, Evaluation Matrix and Strategy
Position (Strategic Position and Action Evaluation-SPACE), Boston
Consulting Group (BCG) Matrix, Internal External (IE) Matrix and Grand
Strategy Matrix.

Stage 3 is Decision Stage, only include Quantitative Strategy Planning
(QSPM) Matrix. QSPM use the information from Stage 1 objectively to
evaluate the strategy that has been defined at Stage 2.

3 steps above will be explained later in Chapter 3
2.7 Porter’s Five-Forces Model
Based on Porter as cited by David (2009, p145) Porter’s Five-Forces Model
about competitive analysis is an approach to define strategies in many industries, The
intensity among rivalries varies from one rival to another. According to Porter, the
nature of competition in a given industry can be viewed as a combination of five
forces:
1. Supplier Power: Here you assess how easy it is for suppliers to drive up
prices. This is driven by the number of suppliers of each key input, the
uniqueness of their product or service, their strength and control over you, the
cost of switching from one to another, and so on. The fewer the supplier
choices you have, and the more you need suppliers' help, the more powerful
your suppliers are.
2. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices
down. Again, this is driven by the number of buyers, the importance of each
individual buyer to your business, the cost to them of switching from your
products and services to those of someone else, and so on. If you deal with
few, powerful buyers, then they are often able to dictate terms to you.
3. Competitive Rivalry: What is important here is the number and capability of
your competitors. If you have many competitors, and they offer equally
attractive products and services, then you'll most likely have little power in
the situation, because suppliers and buyers will go elsewhere if they don't get
a good deal from you. On the other hand, if no-one else can do what you do,
then you can often have tremendous strength.
4. Threat of Substitution: This is affected by the ability of your customers to
find a different way of doing what you do – for example, if you supply a
unique software product that automates an important process, people may
substitute by doing the process manually or by outsourcing it. If substitution
is easy and substitution is viable, then this weakens your power.
5. Threat of New Entry: Power is also affected by the ability of people to enter
your market. If it costs little in time or money to enter your market and
compete effectively, if there are few economies of scale in place, or if you
have little protection for your key technologies, then new competitors can
quickly enter your market and weaken your position. If you have strong and
durable barriers to entry, then you can preserve a favorable position and take
fair advantage of it.
These forces can be neatly brought together in a diagram like the one below
Threat of
Substitutions
Supplier Power
Competitive Rivalry
Buyer Power
Threat of New
Entry
2.9 Studies Relevant to Topic
According to Journal by Lawrence G Fine, Before you start a business, you
should consider completing a SWOT analysis. If you plan on buying a business,
use the SWOT analysis to answer various questions you will have regarding the
running of the business, and the profitability of the business. However, you will
find the benefit when writing a business plan. It should also be included in all
your strategic planning.Have you ever considered using SWOT to look at your
competitor? It is an exercise which will prove to be profitable to your business, if
you act on the results. Marketing is an area which many people are not experts in,
but you can take your marketing to a new level, when you add SWOT into your
thinking. You will discover how business never stays static. The business should
either be moving forward, or the business will be moving backwards. Just look at
companies who refuse to move forward with the changes in the way people shop,
and see how many stores on the “High Street” are now closed. As you look to
change your business or create a new product, a SWOT analysis is imperative to
ensure you don’t waste time and energy on a product which isn’t needed or
wanted in the marketplace. For businesses who are involved in research, a SWOT
analysis again is crucial as the results are recorded and “White Papers” are
written.
According to journal by Fred Nickols, Strategy refers to a general plan of
action for achieving one’s goals and objectives. A strategy or general plan of
action might be formulated for broad, long - term, corporate goals and objectives,
for more specific business unit goals and objectives, or for a functional unit, even
one as small as a cost center. Such goals might or might not address the nature of
the organization, its culture, the kind of company its leadership wants it to be, the
markets it will or won’t enter, the basis on which it will compete, or any other
attribute, quality or characteristic of the organization. As my definition implies, it
is my view that strategy (and tactics) relate to how a given end is to be attained.
Together, strategy and tactics bridge the gap between ends and means. Resources
are allocated or deployed and then employed in the course of executing a given
strategy so as to realize the end in view. The establishment of the ends to be
attained does indeed call for strategic thinking, but it is separate from settling on
the strategy that will realize them.
According to journal by Saylor Foundation, Strategy formulation is the
course of action companies take to achieve their defined goals.
o All employees of an organization should be aware of the
company’s objectives, mission, and purpose.
o A strategic plan enables a company to evaluate resources, allocate
budgets, and maximize ROI (return on investment).
o The lack of a strategic plan will result in an organization being
without direction or focus. The company will be reactive rather
than proactive.
o The sixsteps for strategy formulation are: define the organization,
define the strategic mission, define the strategic objectives, define
the competitive strategy, implement strategies, and evaluate
progress
o Defining the organization requires a company to identify its
customers by end benefits sought, by specific target markets, or by
technology.
o Defining the strategic mission ensures that the company is able to
identify its values, the nature of its business, its competitive
advantage, and its vision for the future.
o Strategic objectives should be defined based on performance
targets an may include increases in market share, customer service
improvements, corporate expansion, sales increases, production
methods, etc.
o Competitive strategy includes an evaluation of the overall industry
and marketplace, the nature of the competition’s position, and the
company’s internal strengths and weaknesses.
o A company must implement its strategic plan in order to
achievesuccess. It must develop appropriate tactic s, which are the
action steps for meeting the strategies directives.
o Strategies must be evaluated and revised on a regular basis in
order to meet the changing needs and challenges of the
marketplace and business environment
According to journal by Meredith E. David,Forest R. David and Fred R.
David, Developing a QSPM makes it less likely that key external/internal factors
will be overlooked or weighted inappropriately in deciding which alternative
strategies to pursue. Although developing a QSPM requires a number of
subjective decisions, making small decisions along the way enhances the
probability that the final strategic decisions will be best for the firm. A limitation
of the QSPM is that it can be only as good as the prerequisite information and
matching analyses upon which it is based. Another limitation is that it requires
good judgment in assigning attractiveness scores. Also, the sum total
attractiveness scores can be really close such that a final decision is not clear.
Like all analytical tools however, the QSPM should not dictate decisions but
rather should be developed as input into the owner’s final decision.

Based on journal by Dan Bobinski, Vision statements tell us where an
organization wants to be. Usually a vision statement is:
o rooted in values (what drives the organization)
o best if it’s brief (easy to remember)
Mission statements tell us what an organization intends to do to
get where it wants to be (to achieve its vision).Like vision
statements, they should be brief (easy to understand/remember),
but flexible (can accommodate change), and distinctive(make the
company stand out)
2.10 Theoritical Framework
To make clear of the research purpose and also to make it easy to
understand, theoretical framework is needed. The theoretical framework of
this research is :
PT. JAGAKARSA
MOTOR
Stage 1 : Input Stage
EFE
MATRIX
SWOT
MATRIX
CPM
MATRIX
Stage 2 : Matching
Stage
GRAND
STRATEGY
MATRIX
Stage 3 : Decision Stage
QSPM MATRIX
Effective Business
Strategy
Figure 2.1 Theoritical Framework
IFE MATRIX
IE MATRIX