CHAPTER 6:

SETTING OBJECTIVES AND MAKING STRATEGIC CHOICES

 INTRODUCTION
• Setting objectives and choosing a strategy is the third step
in the strategic management framework. As a firm’s
internal and external situation changes, its objectives and
strategies may also have to change.
Setting Objectives:
• Objectives – define what the organization wants to achieve.
• Strategies – represent the pathways by which the organization will achieve the
objectives.
• Strategic objectives – are targets set to both motivate and direct organizational activity.

Long-term and Short-term Objectives:

• Long-term objectives – broadly specify the major direction of the organization and link the
mission of the organization to organizational actions. They are stated for a planning period of
more than 1 year.
• Short-term objectives – establish specific performance targets for a period of 1 year or less.
They may focus on the rate of sales growth, market share targets, profitability measures, or
other targets.
WRITING STRATEGIC OBJECTIVES:
SMART format reflects that objectives must be stated for specific
• Specific dimension of performance, in quantitative terms, and for a
defined time period, must be realistic or attainable given our
• Measurable asset and resource base and with a reasonable level of effort, yet
• Aggressive challenging and motivating.

• Realistic Performance areas – Managers set long-term objectives in

• Time-bound several key performance areas, including profitability,
productivity, growth, market position, shareholder wealth,
technological position, employees, organizational reputation,
and social responsibility.
STRATEGIC CHOICE: 6 ELEMENTS OF STRATEGY:

1. The product market in which the business

• Strategic choice – involves identifying will compete.
alternative courses of action designated to 2. The level of investment made in the
move the firm toward its strategic objectives, business.
and to assist in the selecting the course of 3. The functional area strategies needed to
action deemed most appropriate. compete in a market.
• Strategic alternatives – courses of action 4. The strategic assets or competencies that
identified to move the firm towards strategic underlie a strategy and provide sustainable
objectives. competitive advantage.
5. The allocation of financial and nonfinancial
resources over the business units.
6. The development of synergistic effects
across businesses.
TOOLS FOR CORPORATE LEVEL STRATEGIC CHOICE
• Corporate level strategy – focuses on determining the organization’s business scope and how
organizational resources are allocated to these businesses.
• Underlying bias toward growth exists and drives strategic choice.
• Once the orientation toward growth is established, managers select strategies consistent with that
approach.
• Portfolio theory – is applicable as an analytical tool in addressing corporate level strategic
decisions involving multiple, interrelated business units.

PORTFOLIO MODELS
• Portfolio models use two-dimensional grid with dimensions representing internal and external
factors. The two most popular portfolio models are the Boston Consulting Group (BCG) Matrix
and the GE-McKinsley Business Screen.
BOSTON CONSULTING
GROUP (BGC) MATRIX
Question
High Star
• It uses single-criterion dimensions of Mark
market growth rate and relative
market share. Market Growth Rate is Market
defined as the growth rate of the Cash
Growth Low Dog
industry and also an indicator of the Cow
attractiveness of the industry, while Rate
Relative Market Share is defined as
the ratio of the firm’s share of market High Low
to that of its largest competitor in the
industry and also an indicator of the Relative Market Share
strength of the business.
• Star – Businesses labelled as star are profitable but they need heavy infusions of investment capital to
continue strengthening their competitive position.
• Cash Cow – Businesses labelled as cash cow are profitable and have low demand for cash.
• Question Mark – Businesses classified as question mark have a relatively weak position in high-growth
industries and also demands a lot of cash.
• Dog – Represents potential cash traps due to having little return.

The GE-McKinsley Business Screen:

This matrix is also known as the market attractiveness-business strength matrix. It uses composite
dimensions and a three-by-three matrix for a more comprehensive analysis of both internal and external
factors. It contains two dimensions, namely Market Attractiveness and Business Strength.
MARKET ATTRACTIVENESS AND BUSINESS STRENGTHS

Market Attractiveness: Business Strengths

• Market Size • Relative Market Share
• Market Growth Rate • Price Competitiveness
• Profit Margin • Product Quality
• Competitive Intensity • Knowledge of Customer/Market
• Cyclicality • Sales Effectiveness
• Seasonability • Geography
• Scale Economics
 GE – MCKINSLEY BUSINESS SCREEN

Business Strength

Strong Average Weak

Market
High Premium Selective Protect/Refocus
Attractiveness

Medium Challenge Prime Restructure

Opportunistic – Opportunistic – Harvest or

Low
Selective Preserve Divest
ADVANTAGES AND LIMITATIONS OF PORTFOLIO MODELS
Advantages: Limitations:
• Encourages top management to evaluate • The analysis is static because it is based on a
each business individually and to set view of internal and external factors at a
objectives and consider resources. point in time.
• Market definitions can be somewhat
• Helps managers to recognize the inherent arbitrary and therefore misleading.
financial relationship between different • Using standardized strategies may lead to
business units. both missed opportunities and impractical
• Requires the use of external data to or even dangerous strategies.
supplement managerial judgement. • Portfolio analysis may give strategists an
illusion of scientific rigor or objective
• Graphic representation makes analysis, when in fact it is the opposite.
interpretation and communication • Some of the posited relationships may be
straightforward. outdated because of changes in production
technology.
TOOLS FOR BUSINESS LEVEL STRATEGIC CHOICE
• Business level strategy focuses on how to compete within an
industry. The goal is to gain a competitive advantage that allows the
firm to outperform its competitors and achieve above average
returns. Business strategies must build on internal strengths and
overcome or minimize internal weaknesses, take advantage of
opportunities and avoid environmental threats.
 THE SWOT MATRIX
Strengths Weaknesses
(S) (W)
• A simple tool that may be used to generate
Opportunities alternative business level strategies.
WO Strategies
(O) SO Strategies • It is a straightforward process of listing
organization’s key strengths, weaknesses,
Threats (T) ST Strategies WT Strategies
opportunities and threats.
• SO Strategies – Use strengths to take advantage • Its purpose is to generate strategies
of opportunities. alternatives, not to make strategic purpose,
• WO Strategies – Overcome weaknesses by taking by matching strengths and weaknesses with
advantage of opportunities. opportunities and threats.
• ST Strategies – Use strengths to avoid threats.
• WT Strategies – Minimize weaknesses and avoid
threats.
 SCENARIO PLANNING STEPS IN DEVELOPING A SCENARIO
• A tool to generate strategic alternatives based on 1. Identify the variables in the macro-environment and in the
varying assumptions about the future. task environment that have the greatest potential impact
on firm’s strategy.
• Advantage: Helps organization prepare for different
2. Analyze the variables and develop assumptions about
contingencies, including unexpected.
future trends and possible shifts in the variables.
• Scenario – Possible set of environmental 3. Combine assumptions about individual trends or shifts
circumstances, that is, what the environment look into plausible and internally consistent scenarios.
like in the future. 4. Forecast/estimate the likelihood of each scenario.
5. Monitor the environment to assess the likelihood of each
scenario materializing, and have contingency plans in
place in the event that the predicted scenario does not
occur.

Strategic choice, using scenario planning is based on the expected payoff under each scenario. As events
unfold, we gain clearer picture of the environment and which scenario are more likely to emerge. From
this, strategic plan will be made for each scenario that can potentially develop.
CRITERIA FOR STRATEGIC PLAN
• Fit with the company’s vision, mission, and objectives.
• Consistency with the realities of the external audit.
• Feasibility, give the firm’s internal audit and its competencies and resources.
• Vulnerability to changes in the environment.
• Potential rewards
• Appropriate risk for the company.
GLOBAL DIMENSION OF STRATEGIC CHOICE

Multinational Strategy – Also Global Strategy – Include

known as multi domestic coordinated rather than
strategy means that separate independent strategies for
strategies for different different countries or parts of
countries or parts of the world the world. Its primary focus is
are developed and product or service.
implemented. Its primary focus
is location or geography.
REASONS FOR CHOOSING A GLOBAL STRATEGY
1. Scale economies, to the extent that firms can standardize product design, brands, production, distribution,
and/or marketing programs across different countries or regions of the world.
2. Global brand associations that communicate positive attributes such as innovativeness and product
quality.
3. Low-cost sourcing of raw materials and production due to lower labor rates and/or comparative advantage
of the region.
4. Investment and tax incentives in foreign countries.
5. Cross-subsidization that allows for firms to use cash generated in one market to compete and build
position in another.
6. Avoidance of trade barriers by locating manufacturing or assembly plants in a host country.
7. Competitors who already have or will soon globalize.
8. Access to specific markets that demonstrate significant potential.
9. Use of common technical platforms.
STANDARDIZATION VS CUSTOMIZATION
Standardization: Customization:
• "localization"
• "globalization"
• to be locally responsive
• to reduce costs • differentiation of products and
• low-cost locations for value-added marketing strategies
activities and standardization • to meet individual country demand
(homogenous) of products and patterns as well as market and
marketing strategies accross countries competetive conditions, distribution
channels, business practices, and
• to achieve scale and experience
government policies
efficiencies
GLOBAL- LOCAL FRAMEWORK

Behavioral Aspects Of Strategic Choice

• People are a critical part of the implementation of any strategy. Their
contribution and consideration are required to form a strategic choice of any
level (corporate, business,functional, global) thus, human behavior has a
profound influence on strategy.
 TYPES OF
Global Mixed Multinational
STRATEGY
Conditions and High Some mixed for Low
Forces require: standardization and both standardization and
low customization standardization and high customization
customization
Industry Examples Aerospace Pharmaceuticals Food retailing
Electronics Automobiles Banking
Chemicals Legal Service

Senior Management Team

• Highest ranked executives that are ultimately responsible for determining the firm's strategic
direction.
FACTORS THAT INFLUENCE A SENIOR MANAGEMENT'S
DECISION MAKING:
1. PERSONAL ATTRIBUTES 3. DECISION-MAKING PROCESS
 Demographic characteristics of team  Involves several steps that require senior
members themselves (age, education, management team to work together to identify
gender, work experience, and firm and clarify strategic issue and then generate and
tenure) choose among alternative solutions
 Degree to which team members are  Political maneuvering"- some team members try
similar or different from one another to gain special advantage over other team
attitude toward risk members

2. THE ORGANIZATIONAL CONTEXT 4. SENIOR MANAGEMENT TEAM AND

 Contextual conditions ORGANIZATIONAL OUTCOME
 Organizational resources ( Financial,  Senior management team are the ones who set
physical and human ) the organization's strategy, thus, they can have a
 Firm's past performance long-term impact on organizational outcomes
 Organization's culture (financial performance, employee satisfaction,
societal well- being)
 MODEL OF SENIOR MANAGEMENT
TEAM DECISION MAKING

Personal Attributes
of Senior Management
Team Members

Senior Management
Organizational
Team Decision
Outcome
Making Process

Organizational Context
Conditions
ORGANIZATIONAL CULTURE
 “Shared values, beliefs, attitudes, customs, norms, personalities and heroes that describe a firm"
 Binds the organization and provides an identity for its people
 Some common factors that distiguish cultures are the extent to which they exhibit the following
characteristics:
 innovation
 risk-taking
 team orientation
 people orientation
 technological sophistication
 attention to detail
 aggressiveness
 stability
 Strategies that fall within the accepted range of behavior will likely be supported while those that violate the
corporate norms will be very difficult to implement
 “Subcultures" are smaller groups of people in an organization bonded by a set of common values that are
different from those held by the majority of people within a firm
PERSONAL ETHICS AND SOCIAL RESPONSIBILITY
• Personal Ethics - are the moral principles that define the behavior that a person
believes is acceptable or right.
 ETHICAL FRAMEWORKS
It is ethical if:
• Utilitarian view- it represents the greatest good for the greatest number of people
• Golden rule view- your behavior results in implications for others that you would not mind for yourself
• Individualism view- it serves your self-interests
• Moral rights view- it protects and respects basic human rights
• Justice view- it treats people fairly based on basic standards, rules and laws

BUSINESS ETHICS- are moral principles that define the behavior that the organization as a while views as acceptable.
it drives the organization's CORPORATE SOCIAL RESPONSIBILTY
 economic responsibilities- organization's obligation toy be profitable and stay in business
• legal responsibilities- organization's obligation to obey the law and other external regulations
• ethical responsibilities- organization's obligation to respond to situations based on what it believes is right, just and fair
• voluntary responsibilities- doing what is right, just and fair, but not just responding to situations

CORPORATE SOCIAL RESPONSIBILTY influences strategic choice because the strategy chosen will depend on an organization's sense of
responsibility.
THANK YOU!
ALFONSO, LAICA
BONIFACIO, JOSHUA NOEL
BULAONG, RICHARD
GONZALES, MARY JANE
GUEVARA, LIANA MARGARITA
MANALO, JENSEN
SANTOS, TEODORA ROSE