Firms that anticipate economic change and identify the constituents through which that change will be applied; can better adapt goals and action plans. Shareholder expectations of financial return are dictated in part by alternative investments and their associated return and risks. Interest rates, tax policies, shareholder incomes, availability of funds for margin-purchased equity investments, and expectations of future economic circumstances will shape changes in equity investor profiles and/or the financial performance expectations of the firm’s owners. Personal income, savings, employment, and price-level trends can have dramatic effects on the attractiveness of a firm’s products or services in output markets–not only final markets, but intermediate markets as well. Similarly, total sectoral outputs, movements in private-sector capital replacement and expansion, government spending, and the allocation of the consumer dollar can have dramatic impacts between and within industrial sectors. Each can be set off macroeconomic changes well outside the control of the firm, Continue reading
Strategic Management Tools
Case Study of Lenovo: Project Management Improves Strategy Execution and Core Competitiveness
I. Background In recent years, the personal computer (PC) industry has been developing by leaps and bounds. Global sales of PCs totaled 230 million units in 2006, representing a 9 percent increase over the previous year. Lenovo has a product line that includes everything from servers and storage devices to printers, printer supplies, projectors, digital products, computing accessories, computing services and mobile handsets, all in addition to its primary PC business, which made up 96 percent of the company’s turnover as of the second quarter of 2007. Since its acquisition of IBM’s Personal Computing Division in May 2005, Lenovo has been accelerating its business expansion into overseas markets. The company transferred its corporate headquarters from Beijing, China to Raleigh, North Carolina, USA. Today, the group has branch offices in 66 countries around the globe. It conducts business in 166 countries and employs over 25,000 people worldwide. Lenovo is organized into Continue reading
Internal Factor Evaluation (IFE) Matrix
An Internal Factor Evaluation (IFE) Matrix is a strategy formulation tool that summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas. Intuitive judgments are required in developing an IFE Matrix, so the appearance of a scientific approach should not be interpreted to mean this is an all €‘powerful technique. A thorough understanding of the factors included is more important than the actual numbers. An Internal Factor Evaluation (IFE) Matrix can be developed in five steps: List key internal factors as identified in the internal €‘audit process. Use a total of from ten to twenty internal factors, including both strengths and weaknesses. List strengths first and then weaknesses. Be as specific as possible, using percentages, ratios, and comparative numbers. Assign a weight that ranges from 0.0 (not important) to 1.0 (all Continue reading
McKinsey’s Three Horizons Framework
Mehrdad Baghai, Stephen Coley and David White in their book “The Alchemy of Growth” define the three horizons for growth. The book was based on a study of 40 growth companies, where the authors tried to identify how these successful companies approach and implement growth strategies. The key pattern that the authors identified is one of a step-by-step approach, a “staircase of initiatives.” Companies certainly keep an eye on the longer term strategy, but also simultaneously manage the near term. Each time a short term target is reached, a new capability is developed, a small acquisition is integrated, successful growers look at this as a platform for the next step. This may be a platform to continue to execute towards a strategic goal that had been set in the past. But it may also be a stage where new opportunities arise, that the company may not have been aware of Continue reading
Financial Evaluation of a Divestiture
A divestiture involves the sale of a division or plant or unit of one firm to another. From the seller’s perspective, it is a form of contraction; from the buyer’s point of view it represents expansion. Hence a divestiture is the obverse of a purchase. It is important to recognize that companies often achieve external expansion by acquiring an operating unit — plant, division, product line, subsidiary, etc — of another company. In such a case the seller generally believes that the value of the firm will be enhanced by converting the unit into cash or some other more productive asset. The selling of some of a firm’s assets is called divestiture. Unlike business failure, the motive for divestiture is often positive; to generate cash for expansion of other product lines, to get rid of a poorly performing operation, to streamline the corporation, or restructure the corporation’s business consistent with Continue reading
Porter’s Model of the Five Competitive Forces
The nature of competition in an industry in large part determines the content of strategy, especially business-level strategy. Based as it is on the fundamental economics of the industry, the very profit potential of an industry is determined by competitive interactions. Where these interactions are intense, profits tend to be whittled away by the activities of competing. Where they are mild and competitors appear docile, profit potential tends to be high. Yet a full understanding of the elements of competition within an industry is easy to overlook and often difficult to comprehend. Porter’s Competitive Forces Model is one of the most recognized framework for the analysis of business strategy. It is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on an understanding of industry structures and the way they change. Porter’s Competitive Forces Model Continue reading