Textbook notes Ch.6-Managing the Business Enterprise

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9 Aug 2010
CHAPTER 6 Managing the Business Enterprise
Who are managers:
- work involve developing strategic and tactical plans
- analyze their competitive environments and plan, organize, direct and control day-to-day
- same kind of skills: the ability to make decisions and respond to a variety of challenges
Setting goals and formulating strategy:
- starting pnt of effective management is setting goals
goals: objectives that a business hopes and plans to achieve
1) what it intends to do
2) make decisions about actions will and will not achieve its goals
3) strategy is the broad program that underlies those decisions
Setting goals
- goals are performance targets, by which organizations and their managers measure success or
failure at every level
Purpose of goal setting
1) goal setting provides direction, guidance and motivation for all managers: if managers knew
precisely where the company is heard, there is less potential for error in the different units of the
2) goal setting helps firms allocate resources: areas that are expected to grow will get first
priority. The company allocates more resources to new projects with large sales potential than it
allocates to mature products with established but stagnant sales potential
3) goal setting helps to define corporate culture
4) goal setting helps managers assess performance: if a company sets a goal to increase sales by
10% in a given year, managers in units who attain or exceed those goals can be rewarded
Kinds of goals
- goals differ depending on purpose and mission
environment in which it conducts its business
- 2 companies can have the same purpose but different mission statements
long term goals: goals set for extended periods of time, typically five years or more into the
intermediate goals: goals set for a period of one to five years
Æ companies usually have intermediate goals in several areas. Ex. Marketing, production
short-term goals: goals set for the very near future, typical less than one year
Ædeveloped for several different areas
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Formulating strategy
1) setting strategic goals
swot analysis: identification and analysis of organizational strengths and weaknesses and
environmental opportunities and treats as part of strategy formulation
- strength and weakness are internal
- opportunities and threats are external
- companies attempt to capitalize on organizational strengths and take advantages of
environmental opportunities
- seek ways to overcome organizational weaknesses and cope with environmental threats
2) analyzing organization and its environment
environmental analysis: the process of scanning the environment for threats and opportunities
Æ external factors
threats: changing consumer taste, hostile takeovers offers, new gov regulations, new products,
new competitors
opportunities: areas in which the firm can expand, grow or take advantage of existing strengths
organizational analysis: the proFHVVRIDQDO\]LQJDILUP¶VVWUHQJWKVDQGZHDNQHVV
strength: surplus cash, a dedicated workforce, an ample supply of managerial talent, technical
expertise, weak competition
3) Matching the organization and its environment
- matching process is the heart of strategy formulation: matching companies with their
environments lays the foundation foe successfully planning and conducting business
- over the long run, process may also determine whether a firm typically takes ricks or behaves
more conservatively
- firm has resisted the temptation to expand too quickly
- its success is based on product freshness and frequent deliveries strength that may suffer if the
company grows too large
A hierarchy of plans
strategic plans: plans that reflect decisions about resource allocations, company priorities, and
steps needed to meet strategic goals
- usually set by BOD and top management
tactical plans: generally, short range plans concerned with implementing specific aspects of a
- typically involve upper and middle management
operational plans: plans setting short-term targets for daily, weekly, or monthly performance
- middle and lower management
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Levels of strategies
A) corporate level strategy: identifies the various business that a company will be in, and how
these businesses will relate to each other
1) concentration
concentration strategy: involves focussing the company on one product or product line
adv: company can focus its strengths on the one business it knows well
2) growth: companies have several growth strategies all of which focus on internal activities
that will result in growth
market penetration : boosting sales of present products b more aggressive selling iQWKHILUP¶V
current markets
product development: developing improved products for current markets
geographic expansion: expanding operations in new geographic areas or countries
3) integration: external activities
horizontal integration: acquiring control of competitors int eh same or similar markets with the
same or similar products
through which the products or services are distributed
4) diversification: expanding intro related or unrelated products or market segments
- helps the firm avoid the problem of having all its eggs in one basket by spreading risk among
several products or markets
related diversification: adding new, but related products or services to an existing business
conglomerate diversification: diversifying into products or markets that are not related to the
retrenchment reduction of activity or operations
divestment: involves selling or liquidating one or PRUHRIDILUP¶VEXVLQHVV
B) business-level (competitive) strategy: identifies the ways a business will compete in its
chosen line of products or service
Æ a plan to establish a profitable and sustainable competitive position against the forces that
determine industry competition
1) cost leadership: becoming the low cost leader in an industry
2)differentiation strategy: a firm seeks to be unique in its industry along some dimension that is
valued by buyers
3) focus strategy: selecting a market segment and serving the customers in that market niche
better than competitors
C) functional strategies: identify the basic course of action that each department in the firm will
pursue so that it contributes to the attainment of the businesses overall goals
translated into supporting functional strategies for each of its departments to pursue
- a functional strategy is the basic course of action that each department follows so that the
business accomplishes its overall goals
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