Business Policy & Strategy: Chapter Five

Current Issues in

Strategic Management

Murdick, Moor, Babson & Tomlinson, Sixth Edition, 2000

Current Issues

Review company vision Review company mission Industry Analysis – one tool is the

FIVE FORCES model developed by Michael Porter, a Harvard Business School Professor

Porter’s Five Forcessee ingrid

Porter’s Five Forces

Power of suppliers of key inputs – are there many suppliers who can provide what the firm needs, if so, their power is relatively low; alternatively, few suppliers increases their power over the firm;

Power of buyers-many buyers have low power; few customers buying large quantities from the firm increases the customers’ power; more than one buyer group

Porter’s Five Forces

Threat of new entrants-profitable & growing industries tend to attract new players; high rivalry among firms discourages entrants, also consider barriers to entry;

Threat of substitute products/services – new methods of accomplishing the same outcome (e.g. contact lenses as a substitute for eye glasses), how likely is this to occur?

Rivalry among firms – the stronger it is, the higher the level of competition and retaliation by other firms

Globalization

Internationalization can help firms reduce their costs (labor, raw materials, shipping), increase their market share, achieve economies of scale, or defend themselves against their rivals.

Regional trade agreements such as NAFTA, EU, MERCOSUR, and ASEAN have forced firms to locate plants in each of those areas.

Benchmarking

Deming & Juran- two Americans working in Japan who increased the attention to details and developed a culture of doing things right along the production process the first time. Quality inspection rather than inspection AFTER the product is made.

Quality

US National Quality Award is known as the Malcolm Baldrige National Quality Award. It may be awarded annually in these categories: small business, production, services, health care and education. There are seven major criteria for earning this award. Many firms get the criteria as a form of measurement when they don’t really intend to apply.

US Malcolm Baldrige National Quality Award

Quality week is celebrated each October

The US does not have a winner in each category every year

We have selected winners that have subsequently gone out of business

Does tend to increase consistency among the final product or service

ISO Certification

Another measure of consistency in production is the International Standards Organization’s certification. It can be achieved in various levels such as 9000, 9001, 14000, etc. for firms that can document processes and procedures with planning in all areas of operations.

Outsourcing

Generally done to reduce costs although it also allows firms to focus on their core activities.

Nike and Reebok are major firms that outsource almost all activities other than accounting, marketing, and corporate activities. They award short-term production contracts to Asian producers but are still highly criticized for their ‘sweat shops’.

Culture

Five dimensions identified by Hofstede in a large study of IBM employees. Individual-collective – do people from a

nation prefer to work alone or in groups? Masculinity-femininity – masculine cultures

tend to be aggressive, competitive and very egotistical while highly feminine cultures are nurturing, cooperation, and supportive of others’ efforts.

Culture

Power distance – the degree to which people accept differences in status among the workforce. Is it an informal relationship with the manager or great distances and formality?

Uncertainty avoidance – how do people feel about risk taking? Do they like to know what will happen?

Time orientation – past, present or future orientation? Do the people tend to have a short-term or long-term time orientation as they consider alternatives?

Mergers & Acquisitions

Over $3 TRILLION dollars of mergers and acquisitions occurred in 1999.

Almost half of these deals have not met their goals or are unsuccessful.

Examples include Quaker Oats bought Snapple for $1.7B in 1994 and sold it three years later for a mere $300M

Another example is when AT&T bought NCR in 1991 for $7.4B and sold it in 1995 for only $3.4B!