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Chapter 6

Chapter 6 Notes

Management (MGT)
Course Code
Chris Bovaird

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Chapter 6 Business Strategy Notes
Setting Goals and Formulating Strategy
x goals : objectives that a business hopes and plans to achieve
Setting Goals
The Purposes of Goal Setting
1. Goal setting provides direction, guidance, and motivation for all managers. If managers know precisely where the company is
headed, there is less potential for error in the different units of the company.
2. Goal setting helps firms allocate resources. Areas that are expected to grow will get priority. 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 the goal can be rewarded. Units failing to reach the goal will also be compensated accordingly.
Kinds of Goals
x mission statement : organization’s statement of how it will achieve its purpose in environment in which it conducts its business
x regardless of a company’s purpose and mission, every firm needs long – term, intermediate, and short – term goals
x long – term goals : goals set for extended period of time, typically five years or more into the future
x intermediate goals : goals set for a period of one to five years
x short – term goals : goals set for the very near future, typically less than one year
Formulating Strategy
x strategy formulation : creation of a broad program for defining and meeting an organization’s goals
Setting Strategic Goals
x strategic goals : long – term goals derived directly from a firm’s mission statement
x SWOT analysis : identification and analysis of organizational Strengths and Weaknesses and environmental Opportunities and
Threats as part of strategy formulation
Analyzing the Organization and Its Environment
x environmental analysis : the process of scanning the environment for threats and opportunities
x changing consumer tastes, hostile takeover offers, new government regulations, new products, new competitors are all threats
x opportunities, meanwhile, are areas in which the firm can potentially expand, grow, or take advantage of existing strengths
x organizational analysis : the process of analyzing a firm’s strengths and weaknesses
Matching the Organization and its Environment
x final step in strategy formulation is matching environmental threats and opportunities with corporate strengths and weaknesses
x matching process is the heart of strategy formulation: more than any other facet of strategy, matching companies with their
environments lays the foundation for successful planning and conducting business
A Hierarchy of Plans
x plans can be viewed on three levels: strategic, tactical, and operational
x strategic plans : plans that reflect decisions about resource allocations, company priorities, steps needed to meet strategic goals
x tactical plans : generally, short – range plans concerned with implementing specific aspects of a companys strategic plans
x operational plans : plans setting short – term targets for daily, weekly, or monthly performance
Levels of Strategies
x corporate – level strategy : identifies various businesses that company will be in, how these businesses will relate to each other
x business – level (competitive) strategy : identifies the ways a business will compete in its chosen line of products or services
x functional strategies : identify the basic courses of action that each department in the firm will pursue so that it contributes to
the attainment of the business’s overall goals
Corporate – Level Strategies
x strategies that a company might pursue, including concentration, growth, integration, diversification, and investment reduction
x concentration strategy : involves focussing the company on one product or product line
x market penetration : boosting sales of present products by more aggressive selling in the firm’s current markets
x product development : developing improved products for current markets
x geographic expansion : expanding operations in new geographic areas or countries
x horizontal integration : acquiring control of competitors in the same or similar markets with the same or similar products
x vertical integration : owning or controlling the inputs in the firm’s processes and/or the channels through which the products or
services are distributed
x diversification : expanding into related or unrelated products or market segments
x investment reduction : reducing the company’s investment in one or more of its lines of businesses
Business – Level (Competitive) Strategies
x a competitive strategy is a plan to establish a profitable and sustainable competitive position against the forces that determine
industry competition; three competitive strategies are cost leadership, differentiation, and focus
x cost leadership : becoming the low cost leader in an industry
x differentiation strategy : a firm seeks to be unique in its industry along some dimension that is valued by buyers
x focus strategy : selecting a market segment and serving the customers in that market niche better than competitors
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