Ahmed Adel Strategic Management

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Comprehensive ExamRoadmap

This document is the roadmap of the comprehensive Exam the pages

is from the strategic management concepts and cases book thirteen

edition by Fred R.David

6/9/2011


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ContentsAnalyze the company's history, development, and growth: ...................................................................... 3

Company history: .................................................................................................................................... 3

Company Development: ......................................................................................................................... 3

Company Growth: .................................................................................................................................. 3

Identify the company's status: ................................................................................................................... 3

Identify the company's vision & mission & strategies:........................................................................... 3

Identify the company's business & geographical domains: ................................................................... 3

Identify and analyze the financial status page 141,142,143: ................................................................. 3

Liquidity ratios .................................................................................................................................... 3

Profitability ratios ............................................................................................................................... 4

Activity ratios ...................................................................................................................................... 5

Leverage ratios ................................................................................................................................... 5

Shareholder return ratios ................................................................................................................... 6

Identify structure and control systems: ................................................................................................. 7

Structure ............................................................................................................................................. 7

Control system .................................................................................................................................... 9

Analyze the external environment: ...................................................................................................... 10

Macro Environment (PEST): .............................................................................................................. 10

Task Environment ............................................................................................................................. 11Identify the company's internal strengths and weaknesses: ............................................................... 13

Internal strengths and weaknesses: ................................................................................................. 13

Identify the competitors and their strengths and weaknesses: ........................................................... 15

Industry structure ............................................................................................................................. 15

Competitive forces page 104 ............................................................................................................ 16

Evaluate the company status: .................................................................................................................. 16

Evaluate the company's vision & mission & strategies: ....................................................................... 16

Vision ................................................................................................................................................ 16

Mission.............................................................................................................................................. 16

Strategies .......................................................................................................................................... 16

Evaluate the company's internal and external environment: .............................................................. 18

Evaluate the competitors and their strengths and weaknesses: ......................................................... 18

Strategy formulation ................................................................................................................................ 18

Strategies page 166, 169 ...................................................................................................................... 18

Porters Five Generic Strategies: .......................................................................................................... 20


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Means of Achieving Strategies: ............................................................................................................ 21

The Strategy Formulation Analytical Framework Page 209: ................................................................ 22


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CASE STUDYANALYSIS

Analyze the company's history, development, and growth:

Company history:

Chart the critical incidents in its history.

Company Development:

Chart the events that were the most unusual or the most essential for its development.

What is its founding? What are its initial products? How it makes new-product market decisions? How it developed and chose functional competencies to pursue?

Company Growth:

What is its entry into new businesses? What are shifts in its main lines of business?

Identifythe company's status:

Identify the company's vision & mission & strategies:

What is the company vision? What is the company mission? What are the company strategies?

Identify the company's business & geographical domains:

What is the company business & portfolio? What is the company geographical domain?

Identify and analyze the financial status page 141,142,143:

These ratios should be compared with the industry average or the company's prior years of

performance.Liquidity ratios

A company's liquidity is a measure of its ability to meet short-term obligations. An

asset is deemed liquid if it can be readily converted into cash. Liquid assets are current

assets such as cash, marketable securities, accounts receivable, and so on.

Current ratio:

A short-term indicator of the companysability to pay its short-term

liabilitiesfrom short-term assets; howmuch of current assets are available

tocover each dollar of current liabilities.


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Most companies should have a ratio of at least 1, because failure to meet

these commitments can lead to bankruptcy. The ratio is defined as follows:

Quick ratio:

Quick ratio. The quick ratio measures a company's ability to pay off the claims

of short-term creditors without relying on the sale of its inventories. This is a

valuable measure since in practice the sale of inventories is often difficult. It is

defined as follows:

Cash ratio:

Measures the extent to which the companys capital is in cash or cash

equivalents; shows how much of the current obligations can be paid from cash

or near-cash assets.

Profitability ratios

Such a comparison tells whether the company is operating more or less efficiently than

its rivals.

The change in a company's profitability ratios over time tells whether its performance

is improving or declining.

Net profit margin

Shows how much after-tax profits are generated by each dollar of sales. It is

defined as follows:

Gross profit margin

Indicates the total margin available to cover other expenses beyond cost of

goods sold, and still yield a profit. It is defined as follows:

Return on investment (ROI)

This ratio measures the profit earned on the employment of assets. It is

defined as follows:


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Return on equity (ROE)

Measures the rate of return on the book value of shareholders

totalinvestment in the company.

Earnings per share (EPS)Shows the after-tax earnings generated for each share of common stock.

Activity ratios

Activity ratios indicate how effectively a company is managing its assets.Inventory turnover

Measures the number of times that average inventory offinished goods was turned over or sold during a period of

time, usually a year. It is defined as follows:

Days of inventory

Measures the number of one days worth of inventory that a company has on

hand at any given time.

Asset turnover

Measures the utilization of all the companys assets; measures how many sales

are generated by each dollar of assets.

Fixed asset turnover

Measures the utilization of the companys fixed assets (i.e., plant and

equipment); measures how many sales are generated by each dollar of fixedassets.

Days of cash

It indicates the number of days of cash on hand.

Leverage ratios


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A company is said to be highly leveraged if it uses more debt than equity, including

stock and retained earnings.

Debt to assets ratio

Measures the extent to which borrowed funds have been used to finance the

companys assets.

Debt to equity ratio

Measures the funds provided by creditors versus the funds provided by

owners.

Current liabilities to equity

It measures the short-term financing portion versus that provided by owners.

Shareholder return ratios

Price/earnings ratio

Shows the current markets evaluation of a stock, based on its earnings; shows

how much the investor is willing to pay for each dollar of earnings.

Dividend payout ratioIt indicates the percentage of profit that is paid out as dividends.

Dividend yield on common stock

It indicates the dividend rate of return to common shareholders at the current

market price.

Calculate Ratios
http://localhost/var/www/apps/conversion/tmp/scratch_7/Ratio_analysis.xlshttp://localhost/var/www/apps/conversion/tmp/scratch_7/Ratio_analysis.xls


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Identify structure and control systems:

Structure

The organization is the process of arranging people and other resources to work

together to accomplish a goal as a result of the company strategy the organizationstructure must be adjusted to cope with the new strategy and achieve its goals.

Simple structure

Owner-manager makes decisions. Little specialization of tasks. Few rules, little formalization.Advantages

Provides high flexibility Rapid product introduction Few coordination problems

Functional structure

The company rather being led by an entrepreneur, he is replaced by as team of

managers who have functional specializations. The entrepreneur must learnnow to

delegate his responsibilities; otherwise, the new structure will yield no benefit

Advantages

Centralized control of operations Promotes in-depth functional expertise Enhances operating efficiency where tasks are routine

Disadvantages

Functional coordination problems Inter-functional rivalry

Overspecialization and narrow viewpoints Hinders development of cross-functional experience Slower to respond in turbulent environments

Divisional structure:

It occurs especially when the organization is managing diverse product line or

when the organization is expanding to cover wider geographical areas

Advantages:

Decentralized decision making Each business is organized around products Puts profit/loss accountability on manager Facilitates rapid response to environmental changes


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Allows efficient management of a large number of units

Disadvantages

May lead to costly duplication of functions Inter-divisional rivalry Corporate managers may lose in-depth understanding

MatrixStructure

The matrix structure (sometimes called the matrix organization) it combines the

functional and divisional structure. It is designed to gain the advantage and

minimize the disadvantages of the functional and divisional structures.

Network structure

many activities are outsource series of independent firms or business units that are linked together by

computers in an IS

Used when the environment is unstableAdvantages

Rapid response time Firms emphasize their own core competencies Very flexible Reduces capital intensity


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Control system

Human resource management is one of the most important key success factors inorganization, which is not totally implemented in Egypt, and its improvement will

greatly improve the organization performance

Leadership Style

Laissez-faire:shows low concern for both people and task. Directive or Autocratic:High concern for task and low concern for people Supportive or human relations leader:shows high concern for people and low

concern for tasks.

Participative or democratic:shows high concern for both people and task.Human Resource Objectives

The human resource objective reflects the intention of the senior management

(strategy) with a balance to the related topics such as HR functions, society,

governing rules, etc.

There are four major objectives for the Human resource management;

Organizational objectives: to achieve the required organizationeffectiveness and objectives and ensure that the organization always

has people with the right abilities available to do the right work

Functional Objectives: maintain the departments contribution at alevel appropriate to the org. needs

Societal Objective : respond ethically and socially to the challenges ofthe environment while minimizing the negative impact of such

demands on the organizations

Personal objectives: to assist retain and motivate the employees forachieving their personal goals and guide them to better achievement

(most important )

Human Resource Policies and Programs

Preparation and selection: Review of the employees' job description,job specification and job performance standard to match the change

of the organization.

Succession Planning: the preparation of the company succession planwill enable the organization to stand any future challenges.


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Career Path and development: the preparation of the career path forthe employees will help the stability and minimize the turnover of the

employees.

Recruitment: designing a good recruitment process (Selection,interviews) with a high level of orientation to ensure the compatibility

of the new recruited employees with the existing culture to achieve

organizational objectives. Training and development: on-the- job training, Off-the-Job training

and Provide career planning assistance for employees.

Incentive system will ensure the motivation of the employees to betterperformance (linking incentive to production)

Compensation Policies and protection: What employees get inexchange for their contribution to the organization maintains,

retain productive workforce, achieve the org. objectives.

Managing workforce diversity ( if the organization is goinginternationally)

Enhance employee participation: in implementing our strategy, allemployees from different organizational levels must make a

meaningful contribution in decision-making .this will increase

employee's involvement and enhance their working life balance.

Enhance employee organizational commitment: by increasing jobinvolvement, which results in lower levels of absenteeism and

turnover.

Implementing employee recognition programs: starting with personalattention and ending with appreciation for a job well done.

Develop effective staffing plans supporting the organizationalstrategies by allowing to fill job openings proactively (in terms of

number and the quality of the workforce for the short and long term)

VIP in case of international operations.( if the company is

multinational)

Analyze the external environment:

Macro Environment (PEST):

Economic forces page 96

Availability of credit Level of disposable income Interest rates Inflation rates Unemployment Stock Market trend Foreign countries economic conditions Monetary policies Investment laws and regulations. The GDP and income level (which directly reflects on consumer

spending power)

The currency depreciation or appreciation Wages level

price elasticity of demand


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Social, cultural, demographic and natural environmental forces page

99

Number of marriages, divorces, births, and deaths. Social security programs Per capita Income Lifestyle Traffic congestion Trust in government Average level of education Population changes by race, age, and sex Air pollution Size, structure, and regional distribution of the population Cultural fear or freedom level Cultural symbol (status) Whats socially acceptable? The attitudinal changes towards business ( product / services)

produced

Political, governmental and legal forces page 101

Government regulations & deregulations. Changes in tax laws. Changes in patents( ) laws Level of government subsidies Country to other countries relationships Import-export regulations Political conditions in foreign countries Size of government budgets Political stability. Trading policies& Import-export regulations Facilities for the entrance for new foreign investment The relations with other countries Deregulation trend

Technological forces

Internet availability and usage E-commerce The rate of development The presence of skilled persons Presence of technological capabilities. Substitute might replace the organizations product. The place of technological change.

Task Environment


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Porters five forces model:

Rivalry among competing firm page 108

Number of firms, few equally balanced giants Industry growth rate Very high or fixed storage cost Commoditization, low differentiation Capacity Diversity of rivalry High exit barriers Number of competitors. Product or service characteristics. Amount of fixed costs. Diversity of rivals.

Potential entry of new competitors page 108

The need to gain economic of scale quickly The need to gain technology and specialized knowhow The lack of experience Strong customer loyalty Strong brand preference Large capital requirements Lack of adequate distribution channels The potential saturation of market. Government regulatory

Potential development of substitute products (plastic container by

glass container)

Availability of substitute products Relative price of substitute products declines Consumers switching cost decreases

Bargaining power of suppliers

Product Dominated by few companies, more concentratedthan the target industry

The target industry is NOT important to the supplier Supplier product is unique, or high switching cost Substitutes are not easily available Product is critical for the business Real threat of backward integration from buyer Few suppliers who supply the required products The products have few substitutes The switching cost is relatively high

Bargaining power of consumers page 110

When customers are:


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o concentratedo largeo buy in volumeo Buyer is in low profit business (sensitive to cost)

Product standards (undifferentiated)Identify the company's internal strengths and weaknesses:

Internal strengths and weaknesses:

Culture page130

Strong work ethic High ethical beliefs Formal dress Informal dress Socialize together outside work

Management page 131, => page 135

Planning Organizing Motivating Staffing ControllingThe following chick list questions can help determine specific strengths

and weaknesses in the functional area of business. If the answer of any

question is no; this might indicates a potential weakness.

Does the firm use strategic management concept? Are company objectives and goals measurable and well

communicated?

Do managers at all hierarchical levels plan effectively? Is the organizations structure appropriate? Are job descriptions and job specifications clear? Is employee morale high? Are employee turnover and absenteeism low? Are organizational reward and control mechanisms

effective?

Marketing page 135, =>page 138

Customer analysis Selling products Product planning Pricing Distribution Marketing research Opportunity analysisMarketing audit check list

Are market segmented effectively?


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Is the organization positioned well among competitors? Has the firms market share been increased? Are present channel of distribution reliable and cost

effective?

Does the firm have an effective sales organization? Does the firm conduct market research? Are product quality and customer service good? Are the firms products and services priced appropriately? Does the firm have an effective promotion strategy? Are marketing planning and budgeting effective? Do the firms marketing managers have adequate

experience and training?

Finance page 145

Liquidity Ratios Leverage Ratios Activity Ratios Profitability Ratios Growth RatiosFinancial audit check list

Where is the firm financially strong and weak as indicatingby financial ratio analysis?

Can the firm raise needed short-term capital? Can the firm raise needed long-term capital through debt

and/or equity?

Does the firm have sufficient working capital? Are the firms financial managers experienced and well

trained?

Production/Operations page 147

Process Capacity Inventory Workforce QualityProduction/Operations audit check list

Are suppliers of materials, parts, etc. reliable andreasonable?

Are facilities, equipment & 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?

R&D page 149

Research & Development audit check list

Are the R&D facilities adequate?


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If R&D is outsourced, is it cost effective? Are the R&D personnel well qualified? Are R&D resources allocated effectively?

MIS page 151

Management Information Systems Audit check list

Do managers use the information system to makedecisions?

Is there a CIO or Director of information systems positionin the firm?

Is data updated regularly? Do managers from all functional areas contribute input to

the information system?

Are there effective passwords for entry into the firmsinformation system?

Are strategists of the firm familiar with the informationsystems of rival firms?

Is the information system user-friendly? Do all users understand the competitive advantages that

information can provide?

Are computer training workshops provided for users? Is the firms system being improved?

Identify thecompetitors and their strengths and weaknesses:

Industry structure

Pure monopoly(one seller):

price is high little advertising low service level barriers to entry exist

Differentiated oligopoly (automotive industry)

differentiated achieved few sellers pursuing a strategy of quality, adding features or styling

Pure oligopoly (oil and steel industry)

differentiated is difficult to achieve few sellers prices are set on the going rate competitive advantage is achieved by cost reduction

Monopolistic competition (restaurant and beauty shops industry)

focus on particular market segment many sellers high service level command a prices are premium


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Pure competition (commodity market industry)

Competitors offer the same product many sellers profit are determine by the ability to manage costs

Competitive forces page 104

Size and relative market share Marketing mix strategy Degree of geographical coverage Number and type of market segments served The type of distribution channels. Objectives (profit maximization, technological, leadership, market share

growth)

Evaluate the company status:Evaluate the company's vision & mission & strategies:

Vision

What do we want to become? Page 76Mission

What is our business? Page 78, 83, 84

Customers: Who are the firms customers?

Product: What are the firms major products or services? Markets: Geographically, where does the firm compete? Technology Concern for survival and growth: Is the firm committed to growth and

financial soundness?

Philosophy: What are the basic beliefs, values, aspirations, & ethicalpriorities of the firm?

Self-concept: What is the firms distinctive competence or majorcompetitive advantage?

Concern for public image: Is the firm responsive to social, community& environmental concerns?

Concern for employee: Are employees a valuable asset of the firm?Strategies

Marketing Mix

Product Features Style Quality Packaging

Brand positioning


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Price Corporate objectives Product cost Consumer respond pattern (price sensitivity) Distribution cost Product life cycle( introduction, growth, maturity, decline)

Place (distribution)

Warehousing Distribution channels Distribution coverage

Promotion Ads Promotions Publicity Personal selling

Market share

Draw market share Pie

Portfolio

Identify product portfolio of the company

Market Segmentation Page 290, 291:

Mass (undifferentiated) marketing The same offer with the a advantage of economic of scale Segment (differentiated) marketing Several segment with offer for each Concentrated (niche) marketing Target Singles with a single marketing mix Local marketing Tailoring products for the local customer group needs Customization Tailoring products for the small group of people or specific individuals

needs.

Product Positioning Page 292, 293:

Begin by the differentiating the companys marketing offer that will

deliver more value than the competitors thus gaining competitive

advantage

Choose a broad poisoning for the product

Become best at one of the three value disciplines. Achieve an adequate performance level in the other two

disciplines.

Keep improving ones superior position in the chosen disciplineso as not to lose out to a competitor.

Keep becoming more adequate in the other two disciplines,since competitors keep raising customers expectations about

what is adequate.


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Choose a specific poisoning for the product

Best quality Best performance Most reliable Most durable Safest Fastest Best value for the money Least expensive Most prestigious Best designed or styled Easiest to use Most convenient

Choose a value poisoning for the product

More for More More for the Same The Same for Less Less for Much Less More for Less

Evaluate the company's internal and external environment:

EFE Matrix Page 112: Greater than 2.5 doing well

IFE Matrix page 155.

Evaluate thecompetitors and their strengths and weaknesses:

CPM Matrix Page 113, 114:

Strategy formulation

Strategies page 166, 169

Forward Integration Page 171: (Gain Control OverDistributors, Retailers)

Current distributors expensive or unreliable Availability of quality distributors limited Firm competes in industry expected to grow markedly Firm has both capital & HR to manage new business of distribution Current distributors have high profit margins

Backward Integration Page 172:(Ownership or Control --Firms suppliers)

Current suppliers expensive or unreliable # of suppliers is small; # competitors is large High growth in industry sector Firm has both capital & HR to manage new business Stable prices are important


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Current suppliers have high profit marginsHorizontal Integration Page 173:(Ownership or ControlFirms competitors)

Gain monopolistic characteristics w/o federal government challenge Competes in growing industry Increased economies of scale major competitive advantages

Faltering due to lack of managerial expertise or need for particular resource

Market Penetration Page 173:(Increased Market Share)

Current markets not saturated Usage rate of present customers can be increased significantly Shares of competitors declining; industry sales increasing Increased economies of scale provide major competitive advantage

Market Development Page 174: (New MarketsPresent products to new geographic

areas)

New channels of distribution reliable, inexpensive, good quality Firm is successful at what it does Untapped/unsaturated markets Excess production capacity Basic industry rapidly becoming global

Product Development Page 175:(Increased Sales, Improving present products,

developing new products)

Products in maturity stage of life cycle Industry characterized by rapid technological development Competitors offer better-quality products @ comparable prices Compete in high-growth industry Strong R&D capabilities

Related Diversification Page 176:(New & related products)

Compete in no/slow growth industry New & related products increases sales of current products New & related products offered at competitive prices Current productsdecline stage of product life cycle Strong management team

Unrelated Diversification Page 177:(New & unrelated products)

Declining annual sales & profits Capital & managerial ability to compete in new industry Financial synergy between acquired and acquiring firms Current markets for present products saturated

Retrenchment Page 178, 179:(Regrouping, Cost & asset reduction to reverse

declining sales & profit)

Failed to meet objectives & goals consistency; has distinctive competencies Firm is one of weaker competitors Inefficiency, low profitability, poor employee morale, pressure for stockholders Strategic managers have failed Rapid growth in size; major internal reorganization necessary


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Divestiture Page 180: (Selling a division or part of an organization)

Retrenchment failed to attain improvements Division needs more resources than are available Division responsible for firms overall poor performance Division is fit with organization Large amount of cash is needed and cannot be raised through other sources

Liquidation Page 181:(Selling,Companys assets, in parts, for their tangible worth)

Retrenchment & divestiture failed Only alternative is bankruptcy Minimize stockholder loss by selling firms assets

Market

PRODUCTS

Existing Modified New

Existing Sell more of our existing products

to our existing types of customers.

(Market penetration)

Modify our current products

and sell more of them to our

existing customers.(Product modification)

Design new products that will

appeal to our existing

customers. (New productdevelopment)

Markets

Modified

Enter and sell our products in

other geographical areas.

(Geographical expansion)

Offer and sell modified

products to new

geographical markets.

Design new products for

prospects in new geographic

areas.

New Sell our existing products to new

types of customers. (Segment

invasion)

Offer and sell modified

products to new types of

customers.

Design new products to sell to

new types of customers.

(Diversification)

Porters Five Generic Strategies:

Cost Leadership Low Cost Cost Leadership Best Value Page 185. Differentiation Page 186. Focus Strategies - Low Cost. Focus Strategies - Best Value Page 187


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Means of Achieving Strategies:

Cooperating Among Competitors Page 187

Joint Venture/ Partnering Page 189

Two or more companies form a temporary partnership or consortium for

purpose of capitalizing on some opportunity.

Why Joint Ventures Fail

Managers who must collaborate daily; not involved in developing theventure

Benefits the company not the customers Not supported equally by both partners May begin to compete with one of the partners

Joint Ventures Guidelines

Synergies between private and publicly held Domestic with foreign firm, local management can reduce risk Complementary distinctive competencies Resources & risks where project is highly profitable (e.g. Alaska

Pipeline)

Two or more smaller firms competing w/larger firm Need to introduce new technology quickly

Merger/Acquisition Page 190, 191, 192

Provide improved capacity utilization Better use of existing sales force Reduce managerial staff


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Gain economies of scale Smooth out seasonal trends in sales Gain new technology Access to new suppliers, distributors, customers, products, creditors

First over Advantages Page 193

Benefits a firm may achieve by entering a new market or developing a new

product or service prior to rival firms.

First over Advantages

Securing access to rare resources Gaining new knowledge of key factors & issues Carving out market share Easy to defend position & costly for rival firms to overtake

OutsourcingCompanies taking over the functional operations of other firms

Outsourcing Benefits

Less expensive Allows firm to focus on core business Enables firm to provide better services

The Strategy Formulation Analytical Framework Page 209:

SWOT (TOWS) Matrix Page 211,212. Space Matrix Page 213, 214, 215, 216. BCG Matrix Page 219. IE Matrix Page 222. Grand Strategy Matrix Page 223. QSPM Matrix Page 225, 226, 227.

Ahmed Adel Strategic Management

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