CHAPTER ONE

STRATEGIC MANAGEMENT
Concept, Meaning, and Definition of Strategic Management

Origin of Strategy: The word strategy comes from the Greek word "Strategoes" meaning
generalship. Initially used in military science, it refers to actions taken in response to an opponent’s
move. In management, it now means making deliberate decisions to guide organizations through
uncertainties and competition.

Strategic Management Defined: Strategic management is both an art and science of

formulating, implementing, and evaluating decisions across all departments to meet organizational
goals. It integrates all functional areas like marketing, finance, HR, and operations under top-level
management to drive long-term success. Key Features:

• It's broader than any single department.

• Involves top executives like the CEO, MD, and planners.

• Sets the vision, mission, and objectives, which guide lower-level planning.

Strategic Management Model / Planning Process

Steps in Strategic Management:

a) Strategic Intent

• Describes long-term direction and stretch goals. Focuses more on future opportunities than
present problems. Example: A local startup aims to become East Africa's top e-commerce
platform in five years.

b) Environmental Scan

• Internal Analysis: Strengths and Weaknesses. External Analysis: Opportunities and

Threats (PEST & Industry using Porter’s Five Forces). Example: A soap factory identifies
low production cost (strength) and rising imports (threat).

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c) Strategy Formulation; Involves setting mission, objectives, strategies, and policies.

o Mission: Reason for existence (e.g., “to provide clean energy solutions”).

o Objectives: Specific, measurable goals (e.g., “increase sales by 20% in 2025”).

o Strategies: Plans to reach goals (e.g., expand to new markets).

o Policies: Guidelines to ensure decisions align with strategy.

d) Strategy Implementation; Converts plans into action via:

o Programs: Action plans (e.g., launch a new product line).

o Budgets: Cost breakdowns of programs.

o Procedures (SOPs): Step-by-step methods to carry out tasks.

o May involve restructuring or changing company culture.

e) Evaluation and Control; Ongoing monitoring to keep the strategy on track:

o Set measurable parameters. o Compare performance with targets.

o Make adjustments as needed.

• Example: A bank revises its digital strategy based on quarterly app usage reports.

Benefits of Strategic Management

Strategic management brings both financial and non-financial benefits:

1. Improved Financial Performance; Well-structured strategies help firms meet goals and
improve profits. Example: Awash Bank's branch strategy to target SMEs boosts revenue.

2. Framework for Operational Planning; Strategies guide day-to-day decisions and align
resource use with goals. Example: If a firm wants to innovate, it invests more in R&D.

3. Clear Direction of Activities; Makes objectives more specific and achievable. Example:
Instead of a vague goal like “increase profit,” a strategy may aim for “10% increase in
quarterly profit via market expansion.”

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 4. Increased Organizational Effectiveness; Ensures resources are used efficiently to meet
objectives. Example: A university allocates more budget to online learning after identifying
digital education as a growth area.

5. Personnel Satisfaction

o Clear roles reduce confusion and enhance motivation.

o Strategic planning encourages teamwork, communication, and innovation.

o Without a clear strategy, organizations drift aimlessly like a ship without a rudder.

Levels/Types of Strategy; Strategic planning happens at three key levels in an organization:

i. Corporate-Level Strategy; This is crafted by top executives (e.g., CEOs, board members) to
guide the overall direction of a company. It focuses on what industries or markets the firm should
compete in, often involving diversification—moving from one product line or market into others.
Example: When Ethiopian Airlines expanded from passenger flights into cargo services and
hospitality (like hotels), it was executing a corporate strategy.

ii. Business-Level Strategy; This strategy focuses on how each business unit competes in its
market. It addresses:

• Who the customers are, • How the firm will meet those needs.

• What their needs are, and

Firms can compete through cost leadership (lower prices) or differentiation (unique offerings).
Example: A soap company may choose to serve budget-conscious rural customers with low-cost
soaps, or urban premium customers with herbal, organic soaps.

iii. Functional-Level Strategy; These strategies are set at departmental levels (marketing, HR,
operations, finance) to support business-level strategies by improving internal processes.
Example: The marketing department might launch a promotional campaign targeting eco-
conscious consumers if the company is pursuing a differentiation strategy for organic products.

Michael Porter’s Generic Strategies; Michael Porter proposed three generic strategies
for gaining competitive advantage: Cost Leadership, Differentiation, and Focus. A fourth,
integrated strategy combines the first two.

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 • Cost Leadership; Firms aim to produce standard goods at the lowest cost to outperform
rivals. Example: Shamu Soap cutting packaging costs to sell at a lower price than
competitors. Risks: Competitors might copy cost-saving techniques or introduce better
technology.
• Differentiation; Firms offer unique products valued by customers (e.g., better quality,
design, or features). Example: A leather shoe brand charging a premium for handcrafted
quality. Risks: Customers may stop valuing the difference, or cheaper imitators might
emerge.
• Focus Strategy; Firms target a specific market segment (e.g., age group, region, product
type), using either a cost or differentiation approach. Example: A fashion brand designing
clothes only for teens or a company selling only vegetarian foods. Risks: Broader
competitors may also begin targeting that niche.
• Integrated Cost Leadership/Differentiation; Firms try to offer both low prices and
some unique features. Example: A smartphone brand offering competitive prices while
providing unique features like long battery life. Risk: The firm may fail to achieve either
goal and get “stuck in the middle.”

Generic Building Blocks of Competitive Advantage

Companies can build a lasting edge through four key factors:

1. Efficiency; Doing more with less—using fewer resources for the same output. Example: A
factory improving worker output through automation.

2. Innovation; Creating new products (product innovation) or better ways to produce them
(process innovation). Example: A detergent company introducing waterless laundry soap.

3. Customer Responsiveness; Meeting and exceeding customer expectations, especially through

speed, service, and customization. Example: A bank reducing loan approval time from days to
hours.

4. Quality (Excellence & Reliability); Excellence: Superior design, features, and appeal (e.g.,
luxury cars). Reliability: Consistently performs well (e.g., a refrigerator that rarely breaks down).
Higher quality allows firms to charge premium prices and build customer loyalty.

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 CHAPTER TWO:

VISION, MISSION, OBJECTIVES & GOALS

Vision Statement

A vision is the long-term dream of what the organization wants to become. It is broad, futuristic,
and motivational.

• Kotter (1990): A future description of an organization.

• Miller & Dess (1996): A broad and forward-thinking intention.

• Vision connects the present situation, future possibilities, and desired outcomes based on
core values and competencies.

Example: Arba Minch University aims to be a leader in education, especially in water resource
fields in East Africa.

Benefits of a Good Vision:

• Inspires and motivates.

• Guides strategic direction.

• Encourages innovation and long-term thinking.

• Promotes unity and resilience during crises.

• Supports partnerships and risk-taking.

Mission Statement

A mission defines the organization's core purpose—why it exists, what it does, whom it serves,
and how it operates.

• Thompson (1997): The essential purpose and the customers it aims to serve.

• Hunger & Wheelen (1999): The reason for the organization’s existence.

Examples: Arba Minch University: Promoting democratic thinking, education, research, and
community service.

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Importance of a Clear Mission:

• Sets unified direction and focus. • Encourages commitment.

• Guides resource allocation. • Helps in planning and control.

• Builds professional culture. • Motivates workforce to meet goals.

Nature of a Business Mission

A strong mission reflects an organization's values, identity, and strategic intent. A good mission
should be:

• Feasible – Ambitious but achievable. • Distinctive – Unique to the

organization.
• Precise – Clear wording to avoid
confusion. • Strategic – Shows key strategic
components.
• Clear – Easily understood by all.
• Actionable – Explains how
• Motivating – Inspires staff and
objectives will be met.
stakeholders.

Components of a Mission Statement

A complete mission includes these 9 components:

1. Customers – Who is served? 6. Philosophy – Core beliefs and ethics.

2. Products/Services – What is offered? 7. Self-concept – Unique strengths and

edge.
3. Markets – Where does it operate?
8. Public Image – Concern for society
4. Technology – Is it up to date?
and environment.
5. Survival/Growth/Profitability –
9. Employees – Value and treatment of
Commitment to sustainability.
staff.

Vision vs. Mission: Key Differences

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 Vision Mission

Broad, long-term intentions Specific reason for existence

Asks “what do we want to become?” Asks “what do we do?”

Dreamy and aspirational Clear and action-oriented

Futuristic Present-focused

Guides mission Guides goals and actions

Goals and Objectives

Goals: General future outcomes the organization hopes to achieve.

Objectives: Specific, actionable steps to achieve goals—more concrete and measurable.

Differences:

• Goals: Broad, intangible, abstract.

• Objectives: Specific, tangible, measurable.

SMART Characteristics of Objectives:

• Specific: Clear and unambiguous.

• Measurable: Progress can be tracked.

• Achievable: Within available resources.

• Realistic: Not idealistic or impossible.

• Time-bound: With a clear deadline.

Example: “Reduce student dropout by 15% in the 2025 academic year.”

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 CHAPTER THREE:

ENVIRONMENTAL ANALYSIS
Environment means the surrounding conditions that influence an organization. It includes
everything outside and inside the organization that affects its operations. Analyzing this
environment helps organizations identify their strengths, weaknesses, opportunities, and threats
(SWOT) and develop better strategies.

Example: A soap company should monitor changes in consumer preferences and regulations to
stay competitive.

What is Environmental Analysis

Environmental analysis (or scanning) is the process of gathering and interpreting information
about internal and external factors that affect a business. It helps leaders make informed decisions
and prepare for future challenges.

Companies that ignore environmental changes—like Nokia ignoring smartphone trends—risk

failure.

Characteristics of Environment

• Complex: Many factors interact, making it hard to predict change.

• Multi-dimensional: One change may affect some businesses positively and others
negatively.

• Dynamic: Business environments change constantly.

• Strategy-sensitive: A poor understanding can lead to failed strategies.

• Partially controllable: Internal factors can be managed, but external ones mostly cannot.

Example: COVID-19 affected all industries but benefited some like online education and delivery
services.

Approaches to Environmental Scanning

• Systematic: Regular data collection from all sources.

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 • Ad hoc: One-time studies for specific issues.

• Processed: Using existing data (e.g., government reports).

Sources of Information

• Secondary: Books, newspapers, journals, websites.

• Internal: Company records, employee feedback.

• External: Customers, suppliers, competitors, consultants.

• Other: Market research, social media, even spying.

Example: Ethiopian Airlines might study competitors’ prices via online data or passenger reviews.

SWOT Analysis

• Strengths: Internal capabilities (e.g., skilled workforce).

• Weaknesses: Internal problems (e.g., outdated machinery).

• Opportunities: External trends to benefit from (e.g., rise in eco-products).

• Threats: External risks (e.g., new market entrants).

Macro Environmental Analysis (PEST or PESTL)

Macro (remote) environment includes broad external forces that affect all organizations. Use
PEST to analyze:

1. Political/Legal; Government policies, taxes, trade laws, political stability. Example:

Government incentives for electric vehicles help car companies shift production.

2. Economic; GDP growth, inflation, income levels, interest/exchange rates. Example: High
inflation reduces consumers' spending power, affecting product sales.

3. Socio-cultural; Demographics, education, social values, work ethics, media influence.

Example: Rising health awareness boosts demand for organic foods.

4. Technological; Innovations, automation, R&D, digital transformation. Example: Adoption of

mobile banking technology by Ethiopian banks enhanced financial access.

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Industry and Task Environment Analysis

Michael Porter’s Five Forces Model helps assess industry competition:

A. Rivalry among competitors D. Bargaining power of buyers

B. Threat of new entrants E. Bargaining power of suppliers

C. Threat of substitute products

Example: In Ethiopia's telecom sector, liberalization increased rivalry (e.g., Ethio Telecom vs.
Safaricom).

A. Threat of New Entrants; New competitors bring extra capacity and aim to gain market share,
which can pressure prices and profits.

Barriers to Entry:

• Economies of scale – Large firms like Coca-Cola produce at lower unit costs, discouraging
small entrants.

• Cost advantages – Existing firms may have patents, better locations, or raw material
access.

• Product differentiation – Strong brand loyalty (e.g., iPhone) makes switching harder.

• Capital requirements – High startup costs limit new players in industries like airlines.

• Switching costs – If it’s costly to change suppliers, customers stay loyal.

• Distribution access – Big brands dominate shelf space (e.g., Unilever in supermarkets).

• Government policy – Licensing rules can block new firms (e.g., telecom or mining).

High threat when: low brand loyalty, low startup cost, minimal regulation, easy customer access,
low economies of scale.

B. Threat of Substitutes; Substitute products serve similar needs (e.g., tea vs. coffee). Their
presence limits pricing power.

Stronger threat when:

• Little product differentiation

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 • Easy to switch (e.g., newspapers vs. online news)

• Low brand loyalty

• Substitutes offer better price or performance

How to reduce threat: Differentiate your product (branding, innovation) or align with customer
preferences.

C. Bargaining Power of Buyers; Powerful buyers can demand lower prices or better quality.

Buyers gain power when:

• Products are undifferentiated (e.g., grains or cement)

• Few buyers but many suppliers (e.g., supermarket chains vs. small farmers)

• Threat of backward integration (e.g., Amazon selling its own brands)

• They have pricing knowledge

• They are price sensitive

How to reduce power: Build customer loyalty, offer direct sales, or increase product value
through branding.

D. Bargaining Power of Suppliers; Suppliers can raise prices or lower quality, affecting profits.

Suppliers are powerful when:

• Few substitutes exist (e.g., rare minerals)

• Buyer’s industry is not important to them

• High switching costs (e.g., changing ERP software vendors)

• Threat of forward integration (e.g., suppliers launching own products)

• Buyers lack market knowledge

How to reduce power: Build supplier partnerships or look for alternative sources.

E. Intensity of Rivalry among Competitors; High rivalry limits profit potential and leads to price
wars or innovation races.

Factors increasing rivalry:

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 • Equally matched competitors (e.g., Pepsi vs. Coca-Cola)

• Slow industry growth

• High fixed costs (e.g., auto or airline industry)

• Low product differentiation or switching cost

• Sudden capacity increase

• High stakes (e.g., high profit potential)

• High exit barriers (e.g., sunk costs, emotional attachment)

How to reduce rivalry: Differentiate your product, innovate, or focus on niche markets.

Internal Environment Scanning

Internal analysis helps firms understand their strengths and weaknesses.

Why it matters:

• Most competitive advantages come from within the company.

• Helps identify improvement areas and supports better decision-making.

Firms analyze to:

• Identify resources, competencies, and advantages

• Evaluate internal operations and performance

• Spot weaknesses and set strategic priorities

• Compare financial performance with competitors

• Assess product and investment effectiveness

Example: A soap factory may assess its production efficiency, brand strength, and cost control to
refine its strategy.

Components of Internal Analysis

Organizations must analyze their internal environment to understand their resources, capabilities,
core competencies, and competitive advantage.

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1. Resources; Resources are inputs used in business activities and can be grouped into:

• Human (e.g., employees, skills) • Physical/Tangible (e.g., buildings)

• Financial (e.g., capital, revenue) • Intangible (e.g., brand, patents)

Example: A soap factory like Shamu Soap needs raw materials (tangible), skilled workers
(human), and brand reputation (intangible) to operate successfully.

2. Capabilities; Capabilities are a firm’s ability to use resources effectively. Two companies with
the same resources may achieve different results because of varying capabilities. Key types:

• Financial – Capital structure, budgeting, investments

• Marketing – Product mix, pricing, promotion, distribution

• Production/Operations – Capacity, layout, raw material use

• Personnel – Skilled staff, recruitment, training, retention

• Management – Planning, coordination, stakeholder relations

Example: Ethiopian Airlines excels because of strong operational capability (fleet use) and skilled
personnel (trained pilots and crew).

3. Core Competencies; These are unique strengths that give a firm a competitive edge. They
emerge from integrating multiple technologies and skills.

Features of core competencies:

• Valuable (add real value)

• Rare (not common among rivals)

• Costly to imitate (hard or expensive to copy)

• Non-substitutable (no easy replacement)

Example: Apple's design innovation and brand loyalty are core competencies that make its
products distinct in the tech market.

4. Competitive Advantage; A firm has competitive advantage if it earns higher profits or retains
more customers than competitors. It can be achieved by:

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 • Cost leadership (offering lower prices)

• Differentiation (offering unique products/services)

Example: Southwest Airlines in the U.S. uses cost leadership by keeping operational costs low,
leading to affordable ticket prices.

Value Chain Analysis

This tool helps businesses understand how much value each activity adds to their product/service
and how to improve efficiency.

The value chain consists of:

• Primary activities – Directly involved in creating and delivering the product

• Support activities – Enable or support the primary activities

Primary Activities:

1. Inbound logistics – Receiving/storing raw materials. Example: Warehousing soap

ingredients

2. Operations – Turning inputs into final products. Example: Mixing, molding, and
packaging soap

3. Outbound logistics – Distributing finished goods. Example: Delivering soap to

supermarkets

4. Marketing and Sales – Promoting and selling the product. Example: Advertising Shamu
Soap on TV

5. Service – After-sale support. Example: Handling customer complaints or feedback

Support Activities:

1. Procurement – Buying raw materials, tools, etc.

2. Technology development – Innovating processes/products. Example: Improving soap

formula for better quality

3. HR management – Recruiting, training, and retaining staff

4. Infrastructure – Admin, finance, legal, and planning functions

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 CHAPTER FOUR:

STRATEGY FORMULATION, ANALYSIS AND CHOICE

Organizations choose from various strategic alternatives based on their internal
strengths/weaknesses and external opportunities/threats. Strategies are developed at three levels:

• Corporate Level (overall direction)

• Business/SBU Level (specific product/market focus)

• Functional Level (departmental strategies)

1. Corporate Level Strategies

Key Question: In which industries/markets should we compete?

These strategies guide the overall direction of the firm, resource allocation, and business portfolio
management. According to Glueck (1988), there are three main types:

A. Growth/Expansion Strategies; Used when a firm wants to grow significantly.

1. Concentration; Focuses on expanding current products/markets using existing resources and

expertise. Example: A coffee shop opens more branches in the same city. Methods: Increase
usage by current customers, attract competitors' customers, bring in new users.

2. Integration; Involves expanding by controlling supply chains or similar businesses.

• Vertical Integration:

o Backward: Gaining control over suppliers (e.g., a bakery buying a wheat farm).

o Forward: Gaining control over distribution (e.g., a clothing brand opening its own stores).

• Horizontal Integration: Acquiring competitors to expand at the same stage of production.

o Example: A local beer company buys another local beer company.

3. Diversification; Entering new industries or markets outside current business areas.

• Concentric Diversification: Related new business (e.g., a camera company starting

smartphone production).

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 • Conglomerate Diversification: Completely unrelated business (e.g., a car company
launching a food brand).

4. Cooperation; Working with competitors for mutual benefit.

• Merger: Two companies form a new one together.

• Takeover/Acquisition: One company buys and controls another.

• Strategic Alliance: Partnership to share resources or capabilities (e.g., joint R&D project).

B. Stability Strategies; Used when a company wants to maintain its current position without
major changes.

A. Pause and Proceed: Temporary slowdown to consolidate before future growth.

B. No Change: Continue existing strategies due to a stable environment.

C. Profit Strategy: Maintain short-term profits by cutting costs during tough times (e.g.,
reduce marketing and investment while waiting for the economy to improve).

C. Retrenchment (Defensive) Strategies; Used when a company faces declining sales,

profits, or market relevance.

A. Turnaround: Cutting costs and resizing to recover. Example: Closing underperforming

stores and focusing on profitable ones.

B. Captive Company: Becomes dependent on a larger partner for survival. Example: A small
supplier signs a long-term exclusive contract with a big customer.

C. Sell Out: Selling the company to a buyer.

D. Liquidation: Shutting down and selling assets, often as a last resort.

2. Business Level Strategies

Key Question: How should we compete in a specific industry or market?

Business-level strategies are plans designed to gain competitive advantage in a specific market by
serving targeted customer groups and adding value. According to Michael Porter (1985), a firm's
success depends on choosing a strategy that fits the industry environment and organizing its
activities to support that choice. Porter identifies three generic business-level strategies:

MELAKU BESHAW (MBA) 16

A. Cost Leadership Strategy; Compete by offering the lowest cost for similar value.

Key Tactics:

• Use inexpensive materials, simple product design, and minimize frills.

• Achieve economies of scale through mass production and bulk buying.

• Locate operations in low-cost areas or where subsidies exist.

Example: A local detergent factory using recycled plastic packaging and mass-producing basic
soap bars to keep prices low.

Benefits:

• Defends market share from buyers and suppliers.

• Builds barriers to entry through scale and technology.

• Supports expansion into new or price-sensitive markets.

• Increases profitability by keeping costs lower than competitors.

Risks:

• Competitors can copy cost-saving techniques.

• Excessive focus on cutting costs may reduce product appeal.

• Changes in technology may render current methods obsolete.

B. Differentiation Strategy; Compete by offering unique products that customers value.

Forms of Differentiation:

• Design: Unique product design (e.g., Apple phones).

• Quality: Durable and high-performing products.

• Price: Sometimes includes premium pricing for unique value.

• Branding & Service: Strong brand image, after-sales service, innovative packaging.

Example: Ethiopian Airlines differentiates itself by offering superior service, safety, and regional
connectivity.

Benefits:
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 • Builds brand loyalty, reducing price sensitivity.

• Protects against rivals and new entrants.

• Enables premium pricing and better margins.

Risks:

• Differentiation can be copied.

• Customers may not value certain features.

• Too high pricing may deter buyers.

• Poor communication of product value may hurt sales.

C. Focus Strategy

Compete in a specific market segment, either through low cost or differentiation.

Key Requirements:

• Identify a unique, underserved customer group.

• Offer specialized products that meet their needs.

• Choose between cost or differentiation within the niche.

Example: A coffee brand that serves only highland organic coffee to eco-conscious buyers in
Addis Ababa.

Benefits:

• Requires fewer resources than targeting broad markets.

• Enables deeper understanding and better service of niche customers.

• Reduces competition from broad-market players.

Risks:

• Niche may be too small or disappear over time.

• Bigger competitors may enter the niche.

• High costs due to limited scale.

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3. Functional Level Strategies

Key Question: How do we best use our resources to implement business strategy?

Functional strategies break down business strategies into specific actions for departments like
marketing, finance, R&D, production, and HR.

Key Functional Areas:

• Marketing: Decide on product features, pricing, distribution channels, and promotion

using the 4Ps. Example: A shoe company decides to promote its eco-friendly materials via
social media.

• Finance: Manage short- and long-term resources, investments, and capital structure.
Example: A company may raise funds through equity to expand internationally.

• Research & Development (R&D): Invest in innovation to create new products or improve
existing ones. Example: A tech firm allocates 10% of revenue to develop smart home
devices.

• Production: Ensure efficient, cost-effective, and quality manufacturing. Example: A

textile firm installs automation to reduce labor costs and improve quality.

• Personnel (HR): Recruit, train, and retain staff aligned with strategy. Example: A hotel
chain provides customer service training to staff to support its brand promise of superior
service.

Strategic Analysis and Choice

Strategic choice is selecting the best strategy from alternatives to meet business goals. This
includes narrowing down options, evaluating them based on key criteria, and deciding which path
to follow.

Example: A start-up may choose between a low-cost app development strategy or one focused on
premium enterprise clients.

 Corporate Portfolio Analysis

Corporate portfolio analysis could be defined as a set of techniques that help strategists’ decisions
with regard to individual product or business in a firm’s portfolio. It is primarily used for

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competitive analysis and corporate strategic planning in multi-product and multi business firms.
There are a number of techniques that could be considered as corporate portfolio analysis
techniques. Among these techniques, the most popular is the Boston Consulting Group (BCG)
matrix. Below, each of these methods is discussed in greater detail.

BCG Matrix (Boston Consulting Group Matrix)

The BCG Matrix helps companies evaluate their business units or products based on market
growth rate and market share. It classifies them into four categories:

1. Stars; High growth, high market share.

• Represent fast-growing, strong-performing products (e.g., smartphones).

• Require heavy investment but offer long-term growth and profitability.

• Strategy: Expand through integration or partnerships.

2. Cash Cows; High market share, low growth.

• Mature products generating more cash than needed (e.g., detergent brands like Omo).

• Support other units financially.

• Strategy: Maintain and use profits to fund other businesses; retrench if declining.

3. Question Marks (Problem Children); Low market share, high growth.

• New products with potential but need major investment (e.g., electric vehicles in
developing countries).

• Can become Stars with support or Dogs if ignored.

• Strategy: Decide to invest (grow) or divest (exit).

4. Dogs; Low market share, low growth.

• Often outdated products or services (e.g., traditional jute bags).

• Usually don’t make or need much cash.

• Strategy: Liquidate or divest, unless supported by policy or niche demand.

Overall Portfolio Strategy

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 • Maintain enough Cash Cows to fund growth.

• Develop Stars for future revenue.

• Manage Question Marks wisely.

• Avoid or justify keeping Dogs.

SWOT Matrix for Generating Strategies

The SWOT Matrix helps businesses create strategies by matching:

• Strengths (internal capabilities), • Opportunities (external chances for growth),

• Weaknesses (internal limitations), • Threats (external challenges).

Four Strategy Types:

1. SO (Strength-Opportunity): Use strengths to exploit opportunities (e.g., a strong brand

launching a new product in an emerging market).

2. WO (Weakness-Opportunity): Improve weaknesses to benefit from opportunities (e.g.,

training staff to enter a booming sector).

3. ST (Strength-Threat): Use strengths to counteract threats (e.g., a large logistics network

tackling new competitors).

4. WT (Weakness-Threat): Defensive strategy—minimize risks and losses (e.g., cutting

costs or forming alliances to survive).

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 CHAPTER FIVE

STRATEGY IMPLEMENTATION
Nature of Strategy Implementation

Strategy implementation is the execution of a strategic plan, translating objectives, strategies, and
policies into actions. This process includes the development of programs, budgets, and procedures.
It involves managing changes in the organization’s culture, structure, and systems. Though often
considered after strategy formulation, both are equally important. While formulation is about
planning, implementation is about action and requires managing people and resources efficiently.

Strategy Formulation vs. Implementation

• Formulation: Positioning forces before action, focusing on effectiveness, and requiring

analytical skills.

• Implementation: Managing forces during action, focusing on efficiency, and requiring

motivation and leadership.

Who Implements Strategy?

In large organizations, everyone from top management to frontline employees plays a role in
implementing strategy. While senior leaders may formulate strategies, the success of
implementation relies heavily on communication and involvement across all organizational levels.

Key Elements for Successful Strategy Implementation

1. Achieving Synergy: Synergy is achieved when combined units or divisions perform better
together than they would independently. Types of synergy include:

o Shared Know-How: Leveraging skills, like Procter & Gamble combining knowledge
of female and male consumers.

o Coordinated Strategies: Aligning strategies across units, such as Arcelor and Mittal
Steel merging to enhance R&D.

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 o Shared Tangible Resources: Sharing resources to save costs, like Renault and Nissan
building joint factories.

o Economies of Scale: Reducing costs through coordination, e.g., Delta Airlines merging
with Northwest Airlines.

o Pooled Negotiating Power: Combining purchasing power to gain better deals, like
Federated Department Stores (Macy’s) merging with May Company.

o New Business Creation: Creating new products through collaboration, like Oracle’s
Project Fusion.

2. Management Issues in Strategy Implementation; Several factors are critical in executing

strategy effectively:

o Establishing Annual Objectives: These are crucial for allocating resources,

evaluating managers, and measuring progress. Clear objectives help align personal and
organizational goals.

o Developing Policies: Policies guide daily operations and decision-making, helping

implement strategy by setting boundaries and expectations.

o Resource Allocation: Resources should align with strategic priorities. Effective

allocation ensures that strategies are supported by the necessary resources.

o Matching Structure with Strategy: Organizational structure should support the

strategy. As strategy changes, so must the structure to enable efficient execution.

Types of Organizational Structures

1. Functional Structure: This is the most common and simplest structure, organizing
activities by function (e.g., marketing, finance). It promotes specialization but can limit
employee morale and cross-functional coordination.

2. Divisional Structure: Suitable for organizations with diverse products or markets.

Divisions may be organized by geography, product, customer, or process. This structure
promotes accountability but can be costly and lead to internal competition.

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 3. Matrix Structure: A more complex design combining functional and divisional structures.
Employees report to both a product/project manager and a functional manager. While it
enhances flexibility, it can lead to confusion, increased overhead, and conflicts in authority.

Arranging a Program for Strategy Implementation

Strategy implementation involves organizing structure, staffing with the right people, and ensuring
effective communication. Programs like job design, reengineering, Six Sigma, MBO, TQM, and
action planning can help execute a new strategy.

i. Reengineering and Strategy Implementation; Reengineering involves redesigning business

processes for significant improvements in cost, service, or time. It breaks away from outdated
processes and questions existing policies. Michael Hammer's principles for reengineering focus
on designing jobs around outcomes, empowering those who use processes to manage them, and
centralizing resources for flexibility. Reengineering enhances efficiency and customer satisfaction
without altering the organizational structure.

ii. Restructuring to Implement Strategy; Restructuring involves redesigning job functions to

implement strategy, with a focus on efficiency and reducing costs. It may require downsizing,
broadening job scopes, and using cross-functional teams. Job design techniques like job
enlargement, rotation, and enrichment promote better job performance. Restructuring aims at
shareholder benefits by improving company performance.

iii. Human Resource Management for Strategy Implementation; HR plays a crucial role in
strategy implementation, requiring staffing decisions such as hiring new people, firing
underperforming employees, or training existing staff. A growth strategy may involve hiring and
promoting, while retrenchment may require layoffs, guided by clear criteria to avoid bias or
unfairness.

iv. Managing Resistance to Change; Resistance to change is common due to fear of loss,
inconvenience, or uncertainty. Strategies to manage this resistance include force, educative, and
rational change strategies. Force change is quick but met with resistance; educative change takes
longer but builds commitment; rational change appeals to self-interest, making it easier to
implement.

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v. Leading Strategy Implementation; Leading involves guiding employees to align their work
with organizational goals. Leadership provides direction, whether through management
leadership, corporate culture, or action planning. Programs like MBO and TQM help ensure that
employees work toward the company’s objectives.

vi. Management by Objectives (MBO); MBO encourages participative decision-making,

aligning personal and organizational goals. The process includes setting objectives, developing
action plans, and regularly reviewing performance. MBO connects individual and corporate
objectives, reducing internal politics and focusing on measurable outcomes.

vii. Total Quality Management (TQM); TQM focuses on continuous improvement and customer
satisfaction. It emphasizes reducing costs and improving quality. TQM involves employee
empowerment, teamwork, and process improvements to prevent defects. Key components include
customer focus, accurate measurement, continuous improvement, and internal relationships based
on trust.

viii. Action Planning; Action plans link strategy to implementation, specifying actions,
responsibilities, timelines, and expected results. They help monitor progress and evaluate
performance. Action plans are essential for successful strategy execution and evaluation.

ix. Six Sigma; Six Sigma is a methodology for reducing defects to near perfection (3.4 defects per
million). It applies to production, sales, and R&D to increase quality and efficiency. The process
includes defining the problem, measuring performance, analyzing data, improving processes, and
establishing controls to prevent defects.

x. Managing Corporate Culture; Corporate culture significantly influences strategy

implementation. A mismatch between culture and strategy can hinder change. Managing culture
involves assessing how a strategic change impacts it and deciding whether cultural adjustments
are needed to align with the new strategy. Modifying culture takes time but is necessary for
successful strategy execution.

Assessing Strategy-Culture Compatibility

When implementing a new strategy, it's important to assess its compatibility with the company's
culture by addressing the following:

MELAKU BESHAW (MBA) 25

 1. Is the strategy compatible with the current culture? If yes, align the strategy with the
culture, emphasizing how it will better achieve the company's mission. If not, proceed to
the next step.

2. Can the culture be modified to fit the strategy? If yes, carefully introduce changes like
structural adjustments, training, or hiring managers who align with the strategy. If not,
move to step 3.

3. Is management ready to make major changes and accept potential delays and higher
costs? If yes, consider creating a new unit to manage the strategy. If not, explore alternative
strategies.

4. Is management still committed to implementing the strategy? If yes, consider

partnerships or outsourcing. If not, develop a new strategy.

International Issues in Strategy Implementation

An international company engages in global activities like exporting or manufacturing in foreign

countries, while a Multinational Corporation (MNC) operates worldwide with a global
perspective. The challenge for global MNCs is balancing standardization for scale economies with
responding to local customer needs.

Forces driving standardization include:

• Convergence of customer preferences • Economies of scale

• Global product competition • Reduced trading costs

• Awareness of international brands • Cultural exchanges

Forces driving local customization include:

• Differences in customer preferences and income

• Need to build local brands

• Competition from innovative domestic companies

• Variations in trading costs

• Local regulations

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Factors Causing Unsuccessful Strategy Implementation

1. Unsatisfactory Strategy-Action Alignment; Strategy failure often arises when actions

required to implement the strategy don’t align with the organization's goals. This
misalignment can happen when the organization resists change, or when strategists
misjudge the effort needed to implement the strategy. Furthermore, strategists may have a
different focus than implementers, leading to alienation between the two groups.
Successful implementation requires strong collaboration.

2. Insufficient Attention to External Factors; A strategy's success depends not only on

aggressive execution but also on adapting to changes in the external environment. If
decision situations change, the strategy should evolve accordingly. Continuous attention to
the external context is essential for successful strategy execution.

3. Defective Strategy; A strategy may fail if it is unrealistic given the organization's

resources. The classic story of the rats trying to bell the cat illustrates how an impractical
strategic decision can hinder implementation. Without the necessary resources and
commitment, even a well-conceived strategy may be impossible to implement.

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 CHAPTER SIX:

STRATEGY REVIEW, EVALUATION, AND CONTROL

Strategic management without evaluation and control is ineffective, like playing football without
goalposts. A business's success is measured by profit, and if the product or service doesn’t generate
more revenue than it costs to produce, the business will fail. Strategic evaluation is a phase in
which top managers assess if their strategies are meeting the company’s goals. The process
provides valuable feedback for strategic adjustments to ensure alignment with internal and external
conditions. In essence, strategic evaluation ensures the strategy is working and allows for
corrective actions if needed.

Importance of Strategic Evaluation

• Coordinates tasks across individuals, divisions, or departments, ensuring consistency with

organizational goals.

• Provides feedback on performance, linking performance to rewards.

• Validates the continued relevance of strategic choices.

• Assesses if managerial decisions align with strategic objectives.

• Helps in refining future strategic planning by offering insights from the evaluation process.

Participants in Strategic Evaluation and Control

Those involved in strategy formulation and implementation should also partake in the evaluation
process, except for advisors. Key participants include:

• Board of Directors: Evaluates long-term performance, focusing on financial results, social

concerns, and key management practices.

• Chief Executive: Oversees critical variations between planned and actual performance,
focusing on high-level indicators like return on investment (ROI).

• Finance Managers: Measure financial deviations between planned and actual

performance.

• SBU Managers: Responsible for evaluation and control of their respective units.
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 • Middle-Level Managers: Handle day-to-day operational control, preparing reports for
higher management.

Strategic Control and Evaluation Process

The strategic evaluation process consists of five steps:

1. Determine What to Measure: Identify key implementation processes and results for
consistent evaluation.

2. Establish Performance Standards: Set clear standards of acceptable performance,

including tolerance ranges.

3. Measure Actual Performance: Regularly monitor performance.

4. Compare Actual Performance with Standards: If results align with desired

performance, the process ends.

5. Take Corrective Action: If deviations occur, determine the cause and implement
corrective measures.

Measuring Performance;

Performance measures assess the outcomes of activities based on established objectives, such as
profitability, market share, and cost reduction. Key metrics like ROI and earnings per share (EPS)
are used to evaluate profitability. However, steering controls should be used to predict future
profitability.

Strategic Control

Strategic control monitors and adjusts strategies as they are implemented, ensuring assumptions
made during formulation remain valid. This is a proactive process, unlike post-action controls that
only evaluate results after implementation.

Stages of Control

1. Feed Forward Control: Evaluates inputs before the operation begins to prevent future
deviations.

2. Concurrent Control: Monitors processes during operation to make real-time adjustments.

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 3. Feedback Control: Reviews past performance and takes corrective actions to align future
actions with standards.

Barriers in Strategic Evaluation and Control

Motivational Problems:

• Psychological Barriers: Managers may resist evaluating their strategies due to fear of
admitting mistakes.

• Lack of Direct Relationship Between Performance and Rewards: Managers may be

less motivated to evaluate strategies when performance is not directly tied to rewards,
common in family-run businesses.

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