Chapter 2:

The Business Vision &

Mission
Arranged and completed by : Mitzi Baccush
Live discussion : Mitzi Baccush / Edwin Pagobo
09 OCTOBER 2019
 Chapter Objectives:
 Describe the nature and role of vision and mission statements
in strategic management.

 Discuss why the process of developing a mission statement is

as important as the resulting document.

 Identify the components of mission statements

 Discuss how clear vision and mission statements can benefit

other strategic management activities.

 Evaluate mission statement of different organizations.

 Write good vision and mission statements.

 “Notable Quotes”

 “WHERE THERE IS NO VISION, THE PEOPLE PERISH.” – PROVERBS

29:18

 "A business is not defined by its name, statutes, or articles of

incorporation. It is defined by the business mission. Only a clear
definition of the mission and purpose of the organization makes
possible clear and realistic business objectives.” - Peter Drucker

 "That business mission is so rarely given adequate thought is

perhaps the most important single cause of business frustration." -
Peter Drucker

 "A strategist’s job is to see the company not as it is . . . but as it can

become.” - John W. Teets, Chairman of Greyhound, Inc.

 "The very essence of leadership is that you have to have vision. You
can’t blow an uncertain trumpet.” - Theodore Hesburgh
 In this chapter, we will focus on the concepts and tools
needed to evaluate and write business vision and mission
statements.

 A practical framework for developing mission statements is

provided.

 Actual mission statements from large and small organizations

and for-profit and nonprofit enterprises are presented and
critically examined.

 The process of creating a vision and mission statement is

discussed.
Note:

 In the beginning, a new business is simply a collection of ideas.

Starting a new business rests on a set of beliefs that the new
organization can offer some product or service to some customers.

 When the set of beliefs about a business at its inception is put into
writing, the resulting document mirrors the same basic ideas that
underlie the vision and mission statements. As a business grows,
owners or managers find it necessary to revise the founding set of
beliefs, but those original ideas usually are reflected in the revised
statements of vision and mission.

 Vision and mission statements often can be found in the front of

annual reports. They often are displayed throughout a firm’s
premises and are distributed with company information sent to
constituencies.
 Vision Statement
 A vision statement should answer this basic question. “What
do we want to become?”

 Many organizations have both a vision and mission statement,

but the vision statement should be established first and
foremost.

 A clear vision provides the foundation for developing a

comprehensive mission statement.

 The vision statement should be short, preferably one

sentence, and as many managers as possible should have
input into developing the statement.
 Table 2-1 Example Vision Statements
 General Motors’ vision is to be the world leader in transportation products and
related services. (Author comment: Good statement)

 PepsiCo’s responsibility is to continually improve all aspects of the world in which we

operate - environment, social, economic - creating a better tomorrow than today.
(Statement is too vague; it should reveal beverage and food business).

 Dell’s vision is to create a company culture where environmental excellence is second

nature. (Statement is too vague; it should reveal computer business in some
manner; the word environmental is generally used to refer to natural environment
so is unclear in its use here).

 The vision of First Reliance Bank is to be recognized as the largest and most profitable
bank in South Carolina. (This is a very small new bank headquartered in Florence,
South Carolina, so this goal is not achievable in five years; the statement is too
futuristic).

 Samsonite’s vision is to provide innovative solutions for the traveling world.

(Statement needs to be more specific, perhaps mention luggage; statement as is
could refer to air carriers or cruise lines, which is not good).

 Procter & Gamble’s vision is to be, and be recognized as, the best consumer products
company in the world. (Statement is too vague and readability is not that good).
 Mission Statement
Peter Drucker : is called “the father of modern management” for his
pioneering studies at General Motors Corporation and for his 22 books and
hundreds of articles. Harvard Business Review has called Drucker “the
preeminent management thinker of our time.”

 Drucker says that asking the question “What is our business?” is

synonymous with asking the question “What is our mission?”

 What is our mission is an enduring statement of purpose that

distinguishes one organization from other similar enterprises. It is a
declaration of an organization’s “reason for being.” It answers the pivotal
question “What is our business?”

 A clear mission statement is essential for effectively establishing

objectives and formulating strategies.

 Sometimes called a creed statement, a statement of purpose, a

statement of philosophy, a statement of beliefs, a statement of business
principles, or a statement “defining our business.

 A mission statement reveals what an organization wants to be and

whom it wants to serve.
Three dimensions used in defining a business :

o who is being satisfied (what customer groups);

o what is being satisfied (what customer needs);

o and how customers’ needs are being satisfied (by what skills,
knowledge, or distinctive competencies).

 This approach stresses the need for a customer-oriented

rather than a product- oriented business definition.
Note: A product-oriented business definition focuses on the
characteristics of the products sold and the markets served, not
on which kinds of customer needs the products are satisfying.

Such an approach obscures the company’s true mission because

a product is only the physical manifestation of applying a
particular skill to satisfy a particular need for a particular
customer group.

A broad customer-oriented business definition that identifies

these ways can safeguard companies from being caught
unaware by major shifts in demand.

By helping anticipate demand shifts, a customer-oriented

mission statement can also assist companies in capitalizing on
changes in their environments. This helps to answer the
question “ What will out business be?”.
 Business Mission
 Is the foundation for priorities, strategies, plans, and work assignments.

 It is the starting point for the design of managerial jobs and, above all, for
the design of managerial structures.

 A major reason for developing a business mission statement is to attract

customers who give meaning to an organization. What a business thinks it
produces is not of first importance, especially not to the future of the
business and to its success. The customer is the foundation of a business
and keeps it in existence.

 Some companies develop mission statements simply because they feel it

is fashionable, rather than out of any real commitment. However, as
described in this chapter, firms that develop and systematically revisit
their vision and mission statements, treat them as living documents, and
consider them to be an integral part of the firm’s culture realize great
benefits. Johnson & Johnson (J&J) is an example firm.

 J&J managers meet regularly with employees to review, reword, and

reaffirm the firm’s vision and mission. The entire J&J workforce recognizes
the value that top management places on this exercise, and these
employees respond accordingly.
TABLE 2-2 Example Mission Statements
 Dell’s mission is to be the most successful computer company in the world
at delivering the best customer experience in markets we serve. In doing
so, Dell will meet customer expectations of highest quality; leading
technology; competitive pricing; individual and company accountability;
best-in-class service and support; flexible customization capability; superior
corporate citizenship; financial stability. (Statement lacks only one
component: Concern for Employees)
 At L’Oreal, we believe that lasting business success is built upon ethical
standards which guide growth and on a genuine sense of responsibility to
our employees, our consumers, our environment and to the communities in
which we operate. (Statement lacks six components: Customers,
Products/Services, Markets, Technology, Concern for
Survival/Growth/Profits, Concern for Public Image).
 Procter & Gamble will provide branded products and services of superior
quality and value that improve the lives of the world’s consumers. As a
result, consumers will reward us with industry leadership in sales, profit,
and value creation, allowing our people, our shareholders, and the
communities in which we live and work to prosper. (Statement lacks three
components: Products/Services, Technology, and Philosophy)
 Vision versus Mission
 The mission statement answers the question “What is our
business?”

 The vision statement answers the question “What do we want to

become?”

 It can be argued that profit, not mission or vision, is the primary

corporate motivator. But profit alone is not enough to motivate
people.

 When employees and managers together shape or fashion the

vision and mission statements for a firm, the resultant documents
can reflect the personal visions that managers and employees have
in their hearts and minds about their own futures.

 Shared vision creates a commonality of interests that can lift

workers out of the monotony of daily work and put them into a
new world of opportunity and challenge.
 The Process of Developing Vision and
Mission Statements
 Clear vision and mission statements are needed before alternative
strategies can be formulated and implemented.
 As many managers as possible should be involved in the process of
developing these statements because through involvement, people become
committed to an organization.
 Select several articles about these statements and ask all managers to read
these as background information.
 Ask managers themselves to prepare a vision and mission statement for
the organization. A committee of top managers, should then merge these
statements into a single document and distribute the draft statements to all
managers.
 A request for modifications, additions, and deletions is needed next, along
with a meeting to revise the document.
 All managers have input into and support the final documents,
organizations can more easily obtain managers’ support for other strategy
formulation, implementation, and evaluation activities. Thus, the process of
developing a vision and mission statement represents a great opportunity
for strategists to obtain needed support from all managers in the firm.
 Campbell & Yeung

emphasizes that the process of developing a mission

statement should create an “emotional bond” and “sense
of mission” between the organization and its employees.
These researchers stress that an emotional bond comes
when an individual personally identifies with the
underlying values and behavior of a firm, thus turning
intellectual agreement and commitment to strategy into a
sense of mission.
They also differentiate between the terms vision and
mission, saying that vision is “a possible and desirable
future state of an organization” that includes specific
goals, whereas mission is more associated with behavior
and the present.
 Importance ( Benefits) of Vision and
Mission Statements
To ensure unanimity of purpose within the organization.
To provide a basis, or standard, for allocating organizational
resources.
To establish a general tone or organizational climate.
To serve as a focal point for individuals to identify with the
organization’s purpose and direction, and to deter those who
cannot from participating further in the organization’s
activities.
To facilitate the translation of objectives into a work structure
involving the assignment of tasks to responsible elements
within the organization.
To specify organizational purposes and then to translate
these purposes into objectives in such a way that cost, time,
and performance parameters can be assessed and controlled.
Remarks from Reuben Mark – Former CEO of Colgate

 When it comes to rallying everyone to the corporate banner,

it’s essential to push one vision globally rather than trying to
drive home different messages in different cultures.

 The trick is to keep the vision simple but elevated: “We make
the world’s fastest computers” or “Telephone service for
everyone.”

 You’re never going to get anyone to charge the machine guns

only for financial objectives. It’s got to be something that
makes people feel better, feel a part of something.
 A Resolution of Divergent Views
 Benefit : Divergent views among managers can be revealed and
resolved through the process of developing a comprehensive
mission statement.

 “What is our mission?” is a genuine decision; and a genuine

decision must be based on divergent views to have a chance to be a
right and effective decision.

 What is our business? Raising this question often reveals

differences among strategists in the organization. Negotiation,
compromise, and eventual agreement on important issues are
needed before people can focus on more specific strategy
formulation activities.

 Developing a business mission is a big step toward management

effectiveness. Hidden or half-understood disagreements on the
definition of a business mission underlie many of the personality
problems, communication problems, and irritations that tend to
divide a top-management group.
 Establishing a mission should never be made on plausibility alone,
should never be made fast, and should never be made painlessly.

 A change in mission always leads to changes in objectives,

strategies, organization, and behavior.

 According to Drucker, the most important time to ask seriously,

“What do we want to become?” and “What is our business?”is
when a company has been successful. Why? Because success
always obsoletes the very behavior that achieved it, always creates
new realities, and always creates new and different problems.

 Considerable disagreement among an organization’s strategists

over vision and mission statements can cause trouble if not
resolved.
 An organization that fails to develop a vision statement as
well as a comprehensive and inspiring mission statement
loses the opportunity to present itself favorably to existing
and potential stakeholders.

 All organizations need customers, employees, and managers,

and most firms need creditors, suppliers, and distributors. The
vision and mission statements are effective vehicles for
communicating with important internal and external
stakeholders.

 The principal benefit of these statements as tools of strategic

management is derived from their specification of the
ultimate aims of a firm:
 They provide managers with a unity of direction that
transcends individual, parochial, and transitory needs.

 They promote a sense of shared expectations among all levels

and generations of employees.

 They consolidate values over time and across individuals and

interest groups.

 They project a sense of worth and intent that can be

identified and assimilated by company outsiders.

 Finally, they affirm the company’s commitment to responsible

action, which is symbiotic with its need to preserve and
protect the essential claims of insiders for sustained survival,
growth, and profitability of the firm.
 A Customer Orientation
 A good mission statement describes an organization’s purpose,
customers, products or services, markets, philosophy, and basic
technology.

According to Vern McGinnis, a mission statement should:

(1) define what the organization is and what the organization aspires to
be
(2) be limited enough to exclude some ventures and broad enough to
allow for creative growth
(3) distinguish a given organization from all others
(4) serve as a framework for evaluating both current and prospective
activities, and
(5) be stated in terms sufficiently clear to be widely understood
throughout the organization.

 A good mission statement reflects the anticipations of customers.

Rather than developing a product and then trying to find a market, the
operating philosophy of organizations should be to identify customers’
needs and then provide a product or service to fulfill those needs.
 Ten Benefits of Having a Clear Mission and Vision

1. Achieve clarity of purpose among all managers and employees.

2. Provide a basis for all other strategic planning activities, including
the internal and external assessment, establishing objectives,
developing strategies, choosing among alternative strategies,
devising policies, establishing organizational structure, allocating
resources, and evaluating performance.
3. Provide direction.
4. Provide a focal point for all stakeholders of the firm.
5. Resolve divergent views among managers.
6. Promote a sense of shared expectations among all managers and
employees.
7. Project a sense of worth and intent to all stakeholders.
8. Project an organized, motivated organization worthy of support.
9. Achieve higher organizational performance.
10. Achieve synergy among all managers and employees.
 Nine Mission Statement Components
1. Customers : Who are the firm’s customers?
2. Products or services : What are the firm’s major products or
services?
3. Markets : Geographically, where does the firm compete?
4. Technology : Is the firm technologically current?
5. Concern for survival, growth, and profitability : Is the firm
committed to growth and financial soundness?
6. Philosophy : What are the basic beliefs, values, aspirations, and
ethical priorities of the firm?
7. Self-concept : What is the firm’s distinctive competence or major
competitive advantage?
8. Concern for public image : Is the firm responsive to social,
community, and environmental concerns?
9. Concern for employees : Are employees a valuable asset of the
firm?
 Characteristics of a Mission Statement
Broad in scope; do not include monetary amounts, numbers,
percentages, ratios, or objectives.
Less than 250 words in length.
Inspiring.
Identify the utility of a firm’s products.
Reveal that the firm is socially responsible.
Reveal that the firm is environmentally responsible.
Include nine components : customers, products or services,
markets, technology, concern for survival/growth/ profits,
philosophy, self-concept, concern for public image, concern
for employees.
Reconciliatory.
Enduring.
 Writing and Evaluating Mission Statements

The best way to develop a skill for writing and evaluating

mission statements is to study actual company missions.

There is no one best mission statement for a particular

organization, so good judgment is required in evaluating
mission statements.

 Realize that some individuals are more demanding than

others in assessing mission statements in this manner.

Evaluation of a mission statement regarding inclusion of the

nine components is just the beginning of the process to
assess a statement’s overall effectiveness.
 Conclusion
 Every organization has a unique purpose and reason for being. This
uniqueness should be reflected in vision and mission statements.
 The nature of a business vision and mission can represent either a
competitive advantage or disadvantage for the firm.
 A good mission statement reveals an organization’s customers;
products or services; markets; technology; concern for survival,
growth, and profitability; philosophy; self-concept; concern for
public image; and concern for employees.
 Well-designed vision and mission statements are essential for
formulating, implementing, and evaluating strategy.
 Vision and mission statements always should be subject to
revision, but, if carefully prepared, they will require infrequent
major changes.
 Organizations usually reexamine their vision and mission
statements annually. Effective mission statements stand the test of
time.
 Vision and mission statements are essential tools for strategists.
  Issues for Review and Discussion

1. Explain how developing a mission statement can help resolve divergent

views among managers in a firm.

2. Drucker says the most important time to seriously re-examine the firm’s
vision/mission is when the firm is very successful. Why is this?

3. Explain why a mission statement should not include monetary amounts,

numbers, percentages, ratios, goals, or objectives.

4. Discuss the meaning of the following statement: “Good mission

statements identify the utility of a firm’s products to its customers.”

5. Do local service stations need to have written vision and mission

statements? Why or why not?

1. Why do you think organizations that have a comprehensive mission tend

to be high performers? Does having a comprehensive mission cause high
performance?
  Issues for Review and Discussion
7. Explain the principal value of a vision and a mission statement.

8. Explain why a mission statement should not include strategies and

objectives.

7. Why is it important for a mission statement to be reconciliatory?

8. In your opinion, what are the three most important components that
should be included when writing a mission statement? Why?

9. How would the mission statements of a for-profit and a nonprofit

organization differ?

10. How often do you think a firm’s vision and mission statements should be
changed?
 Book References

 Strategic Management Theory - Charles W.L. Hill

An Integrated Approach Gareth R. Jones
9th Edition

 Strategic Management - Fred R. David

Concept and Cases Francis Marion University
13th Edition Florence, South Carolina
Internal Assessment
 Internal Assessment

IS AN EXPLORATION OF ORGANIZATION’S COMPETENCY, COST

POSITION AND COMPETITIVE VIABILITY IN THE MARKETPLACE. IT
PROVIDES USEFUL INFORMATION ABOUT YOUR ORGANIZATION’S
STRENGTHS, WEAKNESS, OPPORTUNITIES AND THREATS.
REAL ESTATE
 NATURE OF AN INTERNAL AUDIT

- To provide the basis for establishing objectives and strategies.

• INTERNAL STREGTHS AND WEAKNESSES

• EXTERNAL OPPORTUNITIES AND THREATS
• CLEAR STATEMENT OF MISSION
STRENGTH OPPORTUNITY

PROVIDES CAPITAL APPRECIATION PROVIDE INCOME IN THE FORM OF RENT OR

INCREASE IN CAPITAL
EXCELLENT BRAND NAME
COMPETITORS ‘S WEAK IN A PARTICULAR AREA.
HIGH RATE OF RETURN POSSIBLE
FLEXIBLE PAYMENT OPTION
GOOD LOCATION
MORE ADVERTISING CAN BE DONE
LARGE MARKET SALES

WEAKNESSES THREATS

HIGH RISK INVESTMENT OPTION

LARGE NUMBER OF COMPETITORS
TECHNOLOGY/ SYSTEMS NEED UPDATING

NO SECURITY OR GUARANTEE OF RETURNS THE RETURNS MAY NOT BE ABLE TO BEAT

INFLATION
POOR CONSTRUCTION

POOR MARKETING SALES CALAMITIES CAN DESTRUCT OR DAMAGE

PROPERTY
 KEY INTERNAL FORCES
MANAGEMENT
INFORMATION SYSTEM PRODUCTION

MANAGEMENT
FINANCE AND ACCOUNTING

MARKETING RESEARCH AND

DEVELOPMENT
MANAGEMENT FUNCTION
PLANNING

ORGANIZING

MOTIVATING

CONTROLLING

STAFFING
 MARKETING

DEFINING ANTICIPATING CREATING FULL FILLING

CUSTOMER’S NEEDS
7 BASIC FUNCTION OF MARKETING
• SELLING PRODUCTS/ SERVICES
• PRODUCT AND SERVICE PLANNING
• PRICING
• DISTRIBUTION
• MARKETING RESEARCH
• OPPORTUNITY ANALYSIS
 FINANCE / ACCOUNTING
Importance of Finance and Accounting
1. Financial condition is often considered the single best
measure of a firm’s competitive position and overall
attractiveness to investors.
2. A firm’s liquidity, leverage, working capital, profitability,
asset utilization, cash flow, and equity can eliminate some
strategies as being feasible alternatives.
 FINANCE / ACCOUNTING

Determining an organization’s financial strengths and

weaknesses is essential to formulating strategies
effectively.
 BASIC FINANCIAL RATIOS
• Liquidity Ratios – this shows how easily a company can
pay its debt in a short period of time (12 months)
Current Assets
Current ratio =
Current Liabilities
*The higher the current ratio, the lesser the risk.
 BASIC FINANCIAL RATIOS
• Leverage Ratios – this shows how much debt a company is
using to make it run and be kept upfloat.
Assets − Equity
Debt Ratio =
Assets
*A company is considered safer if the Debt Ratio is low
 BASIC FINANCIAL RATIOS
• Activity Ratios – this shows the efficiency of using the
firm’s available resources
• It is also called Turnover Ratio because it measures how
quickly a company can convert certain assets into cash.
 BASIC FINANCIAL RATIOS
• Activity Ratios – this shows the efficiency of using the
firm’s available resources
Sales
Capital Turnover Ratio = Equity

*The higher the ratio the better because it means that the company is
utilizing the amount of capital they have.
 BASIC FINANCIAL RATIOS
• Profitability Ratios – this shows us how good a company
is at making money.
Gross Profit
Profit Margin Ratio =
Gross Sales
*The higher Profit Margin Ratio the better because a company would
want to earn more profit for every peso of sale
 BASIC FINANCIAL RATIOS
• Growth Ratios – this shows the ability of a company to
maintain economic position.
Net Profit
Earnings per share (EPS) ratio =
Shares
*The higher the EPS ratio the better because it means that the
company is profitable enough to pay more money to its share holders.
 FINANCE / ACCOUNTING
CHECKLIST
• Can this project raise short term capital?
• Are the Project’s financial manager’s experienced and
well trained?
• Does the project have sufficient working capital?
 PRODUCTION
1. The production/operations functions of a business consist
of all those activities that transform inputs into goods and
services.
2. Production/operations management deals with inputs,
transformations, and outputs that vary across industries
and markets.
3. The production/operations activities often represent the
largest part of an organization’s human and capital assets.
 PRODUCTION FUNCTIONS
• Process – This is to determine the right design of the
physical production system. They must decide about the
type of technology, facility layout, process flow, process
control, etc..
• Capacity – This is to determine the optimal output levels
for the organization. This includes forecasting, scheduling,
planning, capacity planning, queuing analysis.
 PRODUCTION FUNCTIONS
• Inventory – This is done to manage the level of inventories
from raw materials to finished goods. There must be neither
over stocking nor under stocking of inventories.
• Workforce – This is done to manage personnel from skilled,
unskilled, clerical to managerial employees. Human resource
development is also important
• Quality – This is to ensure high-quality goods and services
being produced. This includes quality control, sampling,
testing, quality assurance, and cost control
 PRODUCTION/OPERATIONS
CHECKLIST
• Are suppliers of materials, parts, etc. reliable and
reasonable?
• Are facilities, equipment, and machinery in good condition?
• Are inventory-control policies and procedures effective?
• Are quality-control policies & procedures effective?
• Are facilities, resources, and markets strategically located?
• Does the firm have technological competencies?
RESEARCH AND DEVELOPMENT

• Lead to a superior product or service and will give

them competitive advantages
• Directed at developing new products
• At improving product quality
• At improving manufacturing processes to reduce
costs.
 MANAGEMENT INFORMATION
SYSTEM
• INFORMATION TIES ALL BUSINESS FUNCTIONS TOGETHER AND
PROVIDES THE BASIS FOR ALL MANAGERIAL DECISIONS.

• IT IS THE CORNERSTONE OF ORGANIZATIONS. INFORMATION

REPRESENTS A MAJOR SOURCE OF COMPETITIVE MANAGEMENT
ADVANTAGE OR DISADVANTAGE
EXTERNAL
ASSESMENT
JENEVY GILLEGO & JOCEL COSTILLAS
Discussion for today:

1. Identify Opportunities and Threats

2. Macro-environment: P.E.S.T.L.E
Analysis and Demographics
3. Micro-environment: Porter’s Five
Competitive Forces
4. Competitive Analysis: Competitive
Profile Matrix (CPM)
5. External Factor Evaluation Matrix

2
SWOT ANALYSIS

3
S.W.O.T. Analysis
(External)
● Opportunities

○ Favorable external factors that an organization can use to

give it a competitive advantage.
○ Examples:
▻ A developing market such as the Internet.
▻ Mergers, joint ventures or strategic alliances.
▻ Moving into new market segments that offer improved
profits.
▻ A new international market.
▻ A market vacated by an ineffective competitor.
S.W.O.T. Analysis
(External)
● Threats

○ External factors that have the potential to harm an

organization or a company.
○ Unlike weaknesses, usually threats are those that the
organization/company has no control over.
○ Examples:
▻ chocolate milk company - global cocoa supply deficit
▻ car companies - new automotive excise tax as of 2017
6
Macro-environment
● Demographics
● Political
● Economic
● Socio-cultural
● Technological
● Legal
● Environment

7
Macro-environment
● Demographics

○ It relates to PEOPLE
○ It includes population, current growth patterns, ethnicity, age mix,
education, household patterns
○ Driving force for the development of the markets

Thus, Changing DEMOGRAPHICS = Changing MARKETS

8
Macro-environment
● Demographics

○ 6 Factors:
■ Age
■ Gender
■ Education
■ Income
■ Occupation
■ Location

9
Macro-environment
● Political/Legal
○ Legal & regulatory boundaries for organizations
○ Composed of laws, government agencies, and pressure groups
○ Firms must abide by the local rules and regulations of the countries in
which they operate
○ Includes:
■ ● Product regulations
■ ● Competitive regulations
■ ● Health and safety regulations
■ ● Government policies
■ ● Taxes laws and tariff
■ ● Entry mode regulations
■ ● Stability of government 10
Macro-environment
● Political/Legal
○ Example:
■ Higher taxes on goods (cigarettes & alcohol)
■ No plastic policy and no styrofoam in certain cities
■ Advertising Policies (cannot advertise cigarettes, cannot be
misleading)

11
Macro-environment
● Economic
○ Affect Consumer Purchasing Power and Spending Patterns
○ Influence Consumer Demand for a product or service and the company’s
or individual’s access to Capital Resources
○ Includes:
■ Consumption Patterns
■ Availability of Credit
■ Disposable Income
■ Employment &
■ Unemployment
■ Inflation
■ Taxes
■ GDP 12
Macro-environment
● Social – Cultural ○ Includes:
● Beliefs
○ It refers to the structure and ● Values
dynamics of individuals and ● Religion
groups ● Ethics
○ It is formed by the fact that ● Culture/Tradition
people are part of a society and ● Behavior
cultural group that shape their ● Lifestyle
beliefs and values ● Thought pattern
○ There are foreign cultural ● Status
differences around the world ● Customs
● Attitude
● Reference group 13
Macro-environment
● Natural / Environment ○ Includes:
○ It refers to the ● Air/water pollution
ecological/environmental ● Fossil fuels
concerns ● Greenhouse gases
○ It comprises of the availability ● Global warming
or lack of natural resources ● Weather/Climate
that can hinder your ● Water conservation
production ● Waste management
○ It has been a crucial factor to
consider since it has grown
strongly in recent years

14
Macro-environment
● Technological

○ Deals with trends and factors

○ Influence the direction of the industry ● Can stimulate innovation with
new products, services, or improved efficiency → new market
opportunities
○ Includes:
● Skill & Knowledge
● New ideas and techniques
● Research
● Cost
● Business Processes
15
The Five
Competitive Forces
that Shape Strategy

16
The Five
Competitive
Forces that
Shape Strategy

17
The Five Competitive Forces that
Shape Strategy
1. Supplier Power 2. Buyer Power 3. Competitive rivalry
This force analyzes how This force examines the
much a power a business’s This force is about the
power of the consumer and competition based on price,
has and how much control their effect on pricing and
they have over the price advertising wars and new
quality. products.

4. Threats of Substitution 5. Threat of new entry

This force studies how easy it This force considers how
is for the consumers to easy or difficult it is for
switch from business’s competitors to join the
product to service to that of a market place in the industry
competitor. being examined. 18
Porter’s Five Competitive Forces

EXAMPLE : The Healthy Crafters

PRODUCT : Smoothie
and
Smoothie Bowl

19
Competitive Profile Matrix

It is a strategic analysis that allows you

To compare your company to your compe-
Titors by their strength and weaknesses

FOR RATING
4 ----- Major Strength
3 ----- Minor Strength
2 ----- Minor Weakness
1 ----- Major Weakness

20
External Factor
Evaluation
Matrix (EFE Matrix)
● Purpose:
○ A strategic-
management tool
often used for
assessment of
current business
conditions.
○ The EFE matrix is a
good tool to
visualize and
prioritize the
opportunities and
threats that a
business is facing 21
External Factor
Evaluation Matrix
(EFE Matrix)

22
External Factor
Evaluation Matrix
(EFE Matrix)
● Steps in developing
EFE Matrix:

1. List key external

factors as identified in the
External audit process

23
External Factor Evaluation
Matrix (EFE Matrix)
● Steps in developing EFE Matrix:
2. Assign to each factor a weight that ranges from 0.0(not important) to 1.0(very
important)
● The weight indicates the relative importance of that factor to being
successful in the firm’s Industry.
● Opportunities often receive higher weights than threats, but threats too can
receive high weights if they are especially severe or threatening
● Appropriate weights can be determined by comparing successful with
unsuccessful competitors or discussing a factor (reaching a consensus)
● The sum of all weights assigned to the factors must equal 1.0

24
External Factor
Evaluation Matrix
(EFE Matrix)
● Steps in developing
EFE Matrix:

2. Assign to each
factor a weight that ranges
from 0.0(not important) to
1.0(very important)
25
External Factor Evaluation
Matrix (EFE Matrix)
● Steps in developing EFE Matrix:
3. Assign rating between 1&4 to each key external factor indicate how effectively the
firm’s current strategies respond to the factor, where:
4= the response is superior
3= response is above average
2=average
1=poor
● Ratings are based on effectiveness of the firm’s strategies
● Ratings are company based, whereas the weights in step 2 are industry
based
● Both threats & opportunities can receive a 1,2,3 or 4

26
 External Factor Evaluation
Matrix (EFE Matrix)
● Steps in developing EFE Matrix:
3. Assign rating between 1&4 to each key
external factor indicate how effectively the
firm’s current strategies respond to the
factor, where:
4= the response is superior
3= response is above average
2=average
1=poor

27
 External Factor Evaluation
Matrix (EFE Matrix)
● Steps in developing EFE Matrix:
4. Multiply each factor’s weight by its rating to
determine a weighted score
5. Add the weighted score for each variable
to determine total weighted score for the
organization

28
External Factor Evaluation
Matrix (EFE Matrix)
● High Matrix Score:
○ Organization response is outstanding to threats and weaknesses
○ Firms strategy effectively taking advantage of existing opportunities and minimizing the
effects of external threats

● Low Matrix Score:

○ Firm’s strategies not capitalizing on opportunities or avoiding threats.

29
Strategies in
Action

Chapter Five
 Chapter Objectives

1. Discuss the value of establishing long-term objectives.

2. Identify 16 types of business strategies.
3. Identify numerous examples of organizations pursuing
different types of strategies.
4. Discuss guidelines when particular strategies are most
appropriate to pursue.
5. Discuss Porter’s five generic strategies.
6. Describe strategic management in nonprofit,
governmental, and small organizations.
7. Discuss joint ventures as a way to enter the Russian
market.
5-2
Copyright ©2013 Pearson Education
 Chapter Objectives (cont.)

8. Discuss the Balanced Scorecard.

9. Compare and contrast financial with strategic
objectives.
10. Discuss the levels of strategies in large versus
small firms.
11. Explain the First Mover Advantages concept.
12. Discuss recent trends in outsourcing.
13. Discuss strategies for competing in turbulent,
high-velocity markets.
5-3
Copyright ©2013 Pearson Education
 The Nature of Long-Term
Objectives
 Objectives should be:
 quantitative, measurable, realistic,
understandable, challenging, hierarchical,
obtainable, and congruent among
organizational units

5-4
Copyright ©2013 Pearson Education
 The Nature of Long-Term
Objectives
 Objectives
 provide direction
 aid in evaluation
 establish priorities
 reduce uncertainty
 minimize conflicts
 aid in both the allocation of resources and
the design of jobs

5-5
Copyright ©2013 Pearson Education
Varying Performance Measures
by Organizational Level

5-6
Copyright ©2013 Pearson Education
 The Desired Characteristics
of Objectives

5-7
Copyright ©2013 Pearson Education
Not Managing by Objectives

Managing by Extrapolation

Managing by Crisis

Managing by Subjectives

Managing by Hope
5-8
Copyright ©2013 Pearson Education
 The Balanced Scorecard

 Balanced Scorecard
 derives its name from the perceived need of
firms to “balance” financial measures that are
oftentimes used exclusively in strategy
evaluation and control with nonfinancial
measures such as product quality and
customer service

5-9
Copyright ©2013 Pearson Education
A Comprehensive Strategic-
Management Model

5-10
Copyright ©2013 Pearson Education
 Types of Strategies

 Most organizations simultaneously pursue a

combination of two or more strategies, but a
combination strategy can be exceptionally
risky if carried too far.
 No organization can afford to pursue all the
strategies that might benefit the firm.
 Difficult decisions must be made and
priorities must be established.

5-11
Copyright ©2013 Pearson Education
Alternative Strategies Defined
and Exemplified

5-12
Copyright ©2013 Pearson Education
Alternative Strategies Defined
and Exemplified

5-13
Copyright ©2013 Pearson Education
Levels of Strategies With Persons
Most Responsible

5-14
Copyright ©2013 Pearson Education
 Integration Strategies

 Forward integration
 involves gaining ownership or increased
control over distributors or retailers
 Backward integration
 strategy of seeking ownership or increased
control of a firm’s suppliers
 Horizontal integration
 a strategy of seeking ownership of or increased
control over a firm’s competitors
5-15
Copyright ©2013 Pearson Education
 Forward Integration Guidelines

 When an organization’s present distributors

are especially expensive
 When the availability of quality distributors is
so limited as to offer a competitive
advantage
 When an organization competes in an
industry that is growing
 When present distributors or retailers have
high profit margins
5-16
Copyright ©2013 Pearson Education
 Backward Integration Guidelines

 When an organization’s present suppliers

are especially expensive or unreliable
 When the number of suppliers is small and
the number of competitors is large
 When the advantages of stable prices are
particularly important
 When an organization needs to quickly
acquire a needed resource

5-17
Copyright ©2013 Pearson Education
Horizontal Integration Guidelines

 When an organization can gain monopolistic

characteristics in a particular area or region
without being challenged by the federal
government
 When an organization competes in a growing
industry
 When increased economies of scale provide
major competitive advantages
 When competitors are faltering due to a lack of
managerial expertise
5-18
Copyright ©2013 Pearson Education
 Intensive Strategies

 Market penetration strategy

 seeks to increase market share for present
products or services in present markets
through greater marketing efforts
 Market development
 involves introducing present products or
services into new geographic areas
 Product development strategy
 seeks increased sales by improving or
modifying present products or services
5-19
Copyright ©2013 Pearson Education
 Market Penetration Guidelines

 When current markets are not saturated with a

particular product or service
 When the usage rate of present customers
could be increased significantly
 When the market shares of major competitors
have been declining while total industry sales
have been increasing
 When increased economies of scale provide
major competitive advantages

5-20
Copyright ©2013 Pearson Education
 Market Development Guidelines

 When new channels of distribution are

available that are reliable, inexpensive, and of
good quality
 When an organization is very successful at
what it does
 When new untapped or unsaturated markets
exist
 When an organization has excess production
capacity

5-21
Copyright ©2013 Pearson Education
Product Development Guidelines

 When an organization has successful products

that are in the maturity stage of the product life
cycle
 When an organization competes in an industry
that is characterized by rapid technological
developments
 When major competitors offer better-quality
products at comparable prices
 When an organization competes in a high-
growth industry
5-22
Copyright ©2013 Pearson Education
 Diversification Strategies

 Related  Unrelated
diversification diversification
 value chains  value chains are
possess so dissimilar that
competitively no competitively
valuable cross- valuable cross-
business strategic business
fits relationships exist

5-23
Copyright ©2013 Pearson Education
 Synergies of Related
Diversification
 Transferring competitively valuable
expertise, technological know-how, or other
capabilities from one business to another
 Combining the related activities of separate
businesses into a single operation to
achieve lower costs
 Exploiting common use of a well-known
brand name

5-24
Copyright ©2013 Pearson Education
Related Diversification Guidelines

 When an organization competes in a no-

growth or a slow-growth industry
 When adding new, but related, products
would significantly enhance the sales of
current products
 When new, but related, products could be
offered at highly competitive prices
 When an organization has a strong
management team
5-25
Copyright ©2013 Pearson Education
 Unrelated Diversification
Guidelines
 When revenues derived from an organization’s
current products would increase significantly by
adding the new, unrelated products
 When an organization’s present channels of
distribution can be used to market the new
products to current customers
 When an organization’s basic industry is
experiencing declining annual sales and profits

5-26
Copyright ©2013 Pearson Education
 Unrelated Diversification
Guidelines (cont.)
 When an organization has the opportunity to
purchase an unrelated business that is an
attractive investment opportunity
 When existing markets for an organization’s
present products are saturated
 When antitrust action could be charged
against an organization that historically has
concentrated on a single industry

5-27
Copyright ©2013 Pearson Education
 Defensive Strategies

 Retrenchment
 occurs when an organization regroups
through cost and asset reduction to reverse
declining sales and profits
 also called a turnaround or reorganizational
strategy
 designed to fortify an organization’s basic
distinctive competence

5-28
Copyright ©2013 Pearson Education
 Retrenchment Guidelines

 When an organization is one of the weaker

competitors in a given industry
 When an organization is plagued by
inefficiency, low profitability, and poor
employee morale
 When an organization has grown so large so
quickly that major internal reorganization is
needed

5-29
Copyright ©2013 Pearson Education
 Defensive Strategies

 Divestiture
 Selling a division or part of an organization
 often used to raise capital for further strategic
acquisitions or investments

5-30
Copyright ©2013 Pearson Education
 Divestiture Guidelines

 When an organization has pursued a

retrenchment strategy and failed to accomplish
needed improvements
 When a division needs more resources to be
competitive than the company can provide
 When a division is responsible for an
organization’s overall poor performance
 When a division is a misfit with the rest of an
organization

5-31
Copyright ©2013 Pearson Education
 Defensive Strategies

 Liquidation
 selling all of a company’s assets, in parts, for
their tangible worth
 can be an emotionally difficult strategy

5-32
Copyright ©2013 Pearson Education
 Liquidation Guidelines

 When an organization has pursued both a

retrenchment strategy and a divestiture
strategy, and neither has been successful
 When an organization’s only alternative is
bankruptcy
 When the stockholders of a firm can
minimize their losses by selling the
organization’s assets

5-33
Copyright ©2013 Pearson Education
Porter’s Five Generic Strategies

5-34
Copyright ©2013 Pearson Education
 Michael Porter’s Five
Generic Strategies
 Cost leadership
 emphasizes producing standardized products
at a very low per-unit cost for consumers who
are price-sensitive

5-35
Copyright ©2013 Pearson Education
 Michael Porter’s Five
Generic Strategies
 Type 1  Type 2
 low-cost strategy  best-value
that offers strategy that offers
products or products or
services to a wide services to a wide
range of range of
customers at the customers at the
lowest price best price-value
available on the available on the
market market
5-36
Copyright ©2013 Pearson Education
 Michael Porter’s Five
Generic Strategies
 Differentiation
 strategy aimed at producing products and
services considered unique industry-wide
and directed at consumers who are relatively
price-insensitive

5-37
Copyright ©2013 Pearson Education
 Michael Porter’s Five
Generic Strategies
 Type 4  Type 5
 low-cost focus  best-value focus
strategy that offers strategy that offers
products or products or
services to a niche services to a small
group of range of
customers at the customers at the
lowest price best price-value
available on the available on the
market market
5-38
Copyright ©2013 Pearson Education
 Cost Leadership Strategies

 To employ a cost leadership strategy

successfully, a firm must ensure that its
total costs across its overall value chain
are lower than competitors’ total costs

5-39
Copyright ©2013 Pearson Education
 Cost Leadership Strategies

Two ways:
1.Perform value chain activities more
efficiently than rivals and control the factors
that drive the costs of value chain activities
2.Revamp the firm’s overall value chain to
eliminate or bypass some cost-producing
activities

5-40
Copyright ©2013 Pearson Education
 Cost Leadership Guidelines

 When price competition among rival sellers is

especially vigorous
 When there are few ways to achieve product
differentiation that have value to buyers
 When most buyers use the product in the same
ways
 When buyers incur low costs in switching their
purchases from one seller to another

5-41
Copyright ©2013 Pearson Education
 Differentiation Strategies

 Differentiation strategy should be pursued

only after a careful study of buyers’ needs
and preferences to determine the
feasibility of incorporating one or more
differentiating features into a unique
product that features the desired
attributes

5-42
Copyright ©2013 Pearson Education
 Differentiation

 When there are many ways to

differentiate the product
 When buyer needs and uses are diverse
 When few rival firms are following a
similar differentiation approach
 When technological change is fast paced

5-43
Copyright ©2013 Pearson Education
 Focus Strategies

 Successful focus strategy depends on an

industry segment that is of sufficient size,
has good growth potential, and is not
crucial to the success of other major
competitors
 Most effective when consumers have
distinctive preferences

5-44
Copyright ©2013 Pearson Education
 Focus Strategy Guidelines

 When the target market niche is large,

profitable, and growing
 When industry leaders do not consider the
niche to be crucial to their own success
 When the industry has many different niches
and segments
 When few, if any, other rivals are attempting to
specialize in the same target segment

5-45
Copyright ©2013 Pearson Education
 Means for Achieving Strategies

 Cooperation Among Competitors

 Joint Venture/Partnering
 Merger/Acquisition
 Private-Equity Acquisitions
 First Mover Advantages
 Outsourcing

5-46
Copyright ©2013 Pearson Education
Key Reasons Why Many Mergers
and Acquisitions Fail

5-47
Copyright ©2013 Pearson Education
Potential Benefits of Merging With
or Acquiring Another Firm

5-48
Copyright ©2013 Pearson Education
 Benefits of a Firm Being
the First Mover

5-49
Copyright ©2013 Pearson Education
 Strategy
Analysis and
Choice

Chapter Six
 Chapter Objectives

Describe a three-stage framework for

choosing among alternative strategies.
Explain how to develop a SWOT Matrix,
SPACE Matrix, BCG Matrix, IE Matrix, and
QSPM.
Identify important behavioral, political,
ethical, and social responsibility
considerations in strategy analysis and
choice.
6-2
 Chapter Objectives

Discuss the role of intuition in strategic

analysis and choice.
Discuss the role of organizational culture
in strategic analysis and choice.
Discuss the role of a board of directors in
choosing among alternative strategies.

6-3
 A Comprehensive
Strategic-Management Model

6-4
 The Process of Generating and
Selecting Strategies
❖ Nature of Strategy Analysis & Choice
Establishing long-term objectives
• Generating alternative strategies
• Selecting strategies to pursue
• Best alternative – achieve mission & objectives

6-5
❖ Vision
❖ Mission
❖ Objectives
❖ External audit
❖ Internal audit
❖ Past successful strategies
• Participation in generating alternative strategies should
be as broad as possible
• Alternative strategies proposed by participants should be
considered, discussed, and ranked in order of
attractiveness

Ch 6 -7
The Strategy-Formulation
Analytical Framework

6-8
Ch 6 -9
 A Comprehensive
Strategy-Formulation Framework
❖ Stage 1 - Input Stage
summarizes the basic input information
needed to formulate strategies
consists of the EFE Matrix, the IFE Matrix,
and the Competitive Profile Matrix (CPM)

6-10
Ch 6 -11
 A Comprehensive
Strategy-Formulation Framework
❖ Stage 2 - Matching Stage
focuses on generating feasible alternative
strategies by aligning key external and internal
factors
techniques include the
Strengths-Weaknesses-Opportunities-Threats
(SWOT) Matrix, the Strategic Position and
Action Evaluation (SPACE) Matrix, the Boston
Consulting Group (BCG) Matrix, the
Internal-External (IE) Matrix, and the Grand
Strategy Matrix 6-12
Ch 6 -13
Matching Key External and Internal Factors
to Formulate Alternative Strategies

6-14
 SWOT Matrix

List the firm’s key external opportunities

List the firm’s key external threats
List the firm’s key internal strengths
List the firm’s key internal weaknesses
Match internal strengths with external
opportunities

6-15
 The Matching Stage

❖ The
Strengths-Weaknesses-Opportunities-
Threats (SWOT) Matrix helps managers
develop four types of strategies:
SO (strengths-opportunities) Strategies
WO (weaknesses-opportunities) Strategies
ST (strengths-threats) Strategies
WT (weaknesses-threats) Strategies

6-16
SO Strategies
WO Strategies
ST Strategies
WT Strategies
 SWOT Matrix
Strengths – Weaknesses –
S W

List Strengths List Weaknesses

Opportunities – SO WO Strategies
O Strategies
Overcoming
weaknesses by taking
Use strengths to
List Opportunities advantage of
take advantage of
opportunities
opportunities

Threats – T ST WT Strategies
Strategies
List Threats Minimize weaknesses
and avoid threats
Use strengths to
avoid threats

Ch 6 -21
A SWOT Matrix for a Retail
Computer Store

6-22
A SWOT Matrix for a Retail
Computer Store

6-23
 Limitations with SWOT Matrix

❖ Does not show how to achieve a

competitive advantage

❖ Provides a static assessment in time

❖ May lead the firm to overemphasize a

single internal or external factor in
formulating strategies
Ch 6 -25
 4-quadrants indicate whether the most appropriate
strategy is:
• Aggressive
• Conservative
• Defensive
• Competitive

Ch 6 -26
The SPACE Matrix

6-27
 The Strategic Position and Action
Evaluation (SPACE) Matrix
❖ Two internal dimensions (financial
position [FP] and competitive position
[CP])
❖ Two external dimensions (stability
position [SP] and industry position [IP])
❖ Most important determinants of an
organization’s overall strategic position

6-28
Factors That Make Up the
SPACE Matrix Axes

6-29
Factors That Make Up the
SPACE Matrix Axes

6-30
Steps to Develop a SPACE Matrix

Select a set of variables to define

financial position (FP), competitive
position (CP), stability position (SP), and
industry position (IP)

6-31
Steps to Develop a SPACE Matrix

Assign a numerical value ranging from +1

(worst) to +7 (best) to each of the
variables that make up the FP and IP
dimensions.
Assign a numerical value ranging from –1
(best) to –7 (worst) to each of the
variables that make up the SP and CP
dimensions

6-32
Steps to Develop a SPACE Matrix

Compute an average score for FP, CP, IP, and

SP
Plot the average scores for FP, IP, SP, and CP
on the appropriate axis in the SPACE Matrix
Add the two scores on the x-axis and plot the
resultant point on X. Add the two scores on the
y-axis and plot the resultant point on Y. Plot the
intersection of the new xy point

6-33
Steps to Develop a SPACE Matrix

Draw a directional vector from the origin

of the SPACE Matrix through the new
intersection point
This vector reveals the type of strategies
recommended for the organization:
aggressive, competitive, defensive, or
conservative

6-34
Example Strategy Profiles

6-35
Example Strategy Profiles

6-36
Ch 6 -37
 The Boston Consulting Group
(BCG) Matrix
❖ BCG Matrix
graphically portrays differences among
divisions in terms of relative market share
position and industry growth rate
allows a multidivisional organization to
manage its portfolio of businesses by
examining the relative market share position
and the industry growth rate of each division
relative to all other divisions in the
organization
6-38
The BCG Matrix

6-39
 The BCG Matrix

❖ Question marks – Quadrant I

Organization must decide whether to
strengthen them by pursuing an intensive
strategy (market penetration, market
development, or product development) or to
sell them

6-40
•

Ch 6 -41
•

Ch 6 -42
•

Ch 6 -43
 The BCG Matrix

❖ The major benefit of the BCG Matrix is

that it draws attention to the cash flow,
investment characteristics, and needs of
an organization’s various divisions

6-44
Ch 6 -45
 The Internal-External Matrix
❖ Positions an organization’s various
divisions in a nine-cell display

❖ Similar to BCG Matrix except the IE Matrix:

Requires more information about the divisions
Strategic implications of each matrix are
different
The Internal-External (IE) Matrix

6-47
 IE Matrix

❖ Based on two key dimensions

The IFE total weighted scores on the x-axis
The EFE total weighted scores on the y-axis

❖ Divided into three major regions

Grow and build – Cells I, II, or IV
Hold and maintain – Cells III, V, or VII
Harvest or divest – Cells VI, VIII, or IX
The IE Matrix

6-49
Ch 6 -51
 The Grand Strategy Matrix

❖ Grand Strategy Matrix

based on two evaluative dimensions:
• competitive position and
• market (industry) growth

6-52
The Grand Strategy Matrix

6-53
 The Grand Strategy Matrix

❖ Quadrant I
continued concentration on current markets
(market penetration and market development)
and products (product development) is an
appropriate strategy
❖ Quadrant II
unable to compete effectively
need to determine why the firm’s current
approach is ineffective and how the company
can best change to improve its competitiveness
6-54
 The Grand Strategy Matrix

❖ Quadrant III
must make some drastic changes quickly to
avoid further decline and possible liquidation
Extensive cost and asset reduction
(retrenchment) should be pursued first
❖ Quadrant IV
have characteristically high cash-flow levels and
limited internal growth needs and often can
pursue related or unrelated diversification
successfully
6-55
Ch 6 -56
 A Comprehensive
Strategy-Formulation Framework
❖ Stage 3 - Decision Stage
involves the Quantitative Strategic Planning
Matrix (QSPM)
reveals the relative attractiveness of
alternative strategies and thus provides
objective basis for selecting specific
strategies

6-57
 The Quantitative Strategic
Planning Matrix (QSPM)
❖ Quantitative Strategic Planning Matrix
(QSPM)
objectively indicates which alternative
strategies are best
uses input from Stage 1 analyses and
matching results from Stage 2 analyses to
decide objectively among alternative
strategies

6-58
The Quantitative Strategic
Planning Matrix (QSPM)

6-59
 Steps in a QSPM

Make a list of the firm’s key external

opportunities/threats and internal
strengths/weaknesses in the left column of the
QSPM
Assign weights to each key external and
internal factor
Examine the Stage 2 (matching) matrices, and
identify alternative strategies that the
organization should consider implementing
6-60
 Steps in a QSPM (cont.)

Determine the Attractiveness Scores (AS)

Compute the Total Attractiveness Scores
Compute the Sum Total Attractiveness
Score

6-61
 Positive Features of the QSPM

❖ Sets of strategies can be examined

sequentially or simultaneously
❖ Requires strategists to integrate pertinent
external and internal factors into the
decision process
❖ Can be adapted for use by small and
large for-profit and nonprofit organizations

6-62
 Limitations of the QSPM

❖ Always requires intuitive judgments and

educated assumptions
❖ Only as good as the prerequisite
information and matching analyses upon
which it is based

6-63
A QSPM for a Retail
Computer Store

6-64
A QSPM for a Retail
Computer Store

6-65
 The Politics of Strategy Choice

❖ Political maneuvering consumes valuable

time, subverts organizational objectives,
diverts human energy, and results in the
loss of some valuable employees
❖ Political biases and personal preferences
get unduly embedded in strategy choice
decisions

6-66
 The Politics of Strategy Choice

❖ The hierarchy of command in an

organization, combined with the career
aspirations of different people and the
need to allocate scarce resources,
guarantees the formation of coalitions of
individuals who strive to take care of
themselves first and the organization
second, third, or fourth

6-67
Tactics to Aid Strategists

6-68
 Governance Issues

❖ Board of directors
a group of individuals who are elected by the
ownership of a corporation to have oversight
and guidance over management and who
look out for shareholders’ interests

6-69
Board of Director Duties and
Responsibilities

6-70
Principles of Good Governance

No more than two directors are current or

former company executives
The audit, compensation, and nominating
committees are made up solely of outside
directors
Each director owns a large equity stake in
the company, excluding stock options
Each director attends at least 75 percent of
all meetings 6-71
Principles of Good Governance

The board meets regularly without

management present and evaluates its own
performance annually
The CEO is not also the chairperson of the
board
Stock options are considered a corporate
expense
There are no interlocking directorships (where a
director or CEO sits on another director’s
board) 6-72