Description
Description explain on strategies and actions of enterprise.
On Strategies and Actions of Enterprise
Masami Nishikado
Preface
Needless to say, it is indispensable for the companies as well as any other living
creatures to adapt themselves to the environment, in order to survive and continue
their lives. In addition, they are always required to develop the revolutional behavior
for their growth in the competitive market.
Such a revolutional behavior comes from management system which enables
company to research the opportunity and avoid the risk. In other words top
management must formulate the strategy, which is excuted by co-operation of all
organization perticipants to get the good result.
From the recognition to this fact, thought of strategic management prevails
recently instead of management strategy.
In this paper concepts and terms on problem solving, innovation, and corporate
strategy will be introduced from some literatures and discussed.
1. Environment and Enterprise
1-], Various Impacts to Management
There are brought many impacts to management by the change of society, which
may bring influence to company in the future.
One of them is the development of technology which changes the production type
from merchandise to service by information or other technology, it is so called soft
economy.
-163-
164
Second, having to enlarge their business field from domestic market to
international owing to growth, companies must change the business type of foreign
trade themselves from export of merchandise to tramsfer of capital and technology,
and migration of people with them. Also political and social environment will
influence to the company.
In the case of japan there are many other problems to effect for management,
l. e. increasement of the aged in population. Furthermore following problems will
bring a large scale of change of econmic circumstance to overcome for the japanese
companies.
1-2. Countermeasure to Environmental Change
japanese company has some problem to solve now, as follows:
(1) Follow up by Asian Newly 1ndustrializing Countries (NICS)
Already companies with large equipment, such as Iron and Steel, or Ship
Building, transfered their technology to the developing countries, and can not compete
to them at the price by lower wage. So, large scale equipment companies are forced
reduction of production activity, retirement, or change to other type of industry.
(2) Fluctuation of Foreign Exchange Rate
Since 1985, foreign exchange rate of japanese Yen coutinues to rise, many
companies which depends chiefly on export, are suffered heavy damage, and going to
try to produce their products in foreign countries. We can find the behavior in not
only large scale companies, but also middle or small scale factories. These
circumstances came through enlargement of foreign market by cost reduction with the
effect of mass production.
(3) Variety or Change of Value Conception
Economic growth and development by information technology in japan brought
change of value conception to peoples. Each one came to have own thought on daily
living. At the effect of this fact companies must offer the goods or service, which
satisfy each consumer's need, instead of mass production of one or two line products.
Now companies are required to adjust their business behavior to small market.
-164-
On Strategies and Actions of Enterprise 165
1-3. Problem Solving on Business
Corporate behavior to adjust itself to environment seems to be action of solving
problem arised from change of circumstance in management of business. Every
company has many problems to be solved usually, large or small. Without solve these
problems company cannot achieve the goal and accomplish the expected performance.
There are two kind of problem in business management. One is brought by
change of circumstance around the company, we name it type "A" here. The other
is created positively by management for growth of company in future, name it type
"B".
For instance the case of type "A" is the problem which management can not
achieve the goal of sales by any reason outside of company. On the contrary if
impossible to accomplish the goal of sales owing to possitive revise of goal, problem is
type "B" at that case.
Each of the problems has different contents. The former is the problem brought
from circumstance around the company, the later is problem brought by management
possitively in order to try development of the company. At any case, both of them
must be solved, if the problem cannot be solved by the usuasl means, management
must reinforce the means or reduce the level of goal, but this way is not effective or
suitable for the business to growth, so new or original means, i. e. strategy is required
at that time.
For growth and prosperity of the company, management has to establish always
the type "B" problems and resolve them one after another. This shows that
management has to search the opportunity for growth of business usually and avoid
the risk, and the means, used by management, is management strategy. Also it is
required to be established the system which enable management to take such a
behavior in business activity on the other sideO)
To find opportunity for the type "B" problem is the important function of top
management, and such a management behavior is revolution of business which leads
the company to prosperity in future.
-165-
166
1-4. Management strategy for business revolution
Establishment and solution of problems by management strategy in business are
indispensable to the revolution for growth and prosperity of company. There are
opportunities for business revolution to researcch the new needs of consumers, such as
anticipating the trend of the times, opening the new market, etc.,
J. A. Schumpeter required the following innovation to entrepreneur (a) production
of new goods or goods of new quality, (b) introduction of new production method, (c)
opening new market, (d) acquisition of supplier of row material and halfproducts, (e)
actualization of new organization. In other words needs of innovation can be find not
by the impact from outside, but in circle of economic activity of company itself. And
driving force of innovation is the entrepreneur who excutes innovation arise from
creative destruction or realization of new combination(2) Entrepreneur is top
management of the company at present.
2. Innovation and Strategy
2- 1. Opportunities of Innovation
Entrepreneurs have to innovate the company. Innovation is the specific
instrument of entrepreneurship. It is the act that endows ressources with a new
capacity to create wealth. Innovation, indeed, creates resources. There is no such
thing as a 'res6uce' until man finds a use for something in nature and thus endows it
with economic value.
'Innovation', then, is an economic or social rather than a technical term. And it is
change that always provides the opportunity for the new and different. Systematic
innovation therefore consists in the purposeful and organized search fo changes, and in
the systematic analysis of the opportunities such changes might offer for economic or
social innovation.
Most successful innovations' are far more prosaic; they exploit change. And thus
the discipline of innovation (and it is the knowledge base of entrepreneurship) is a
diagnostic discipline: a systematic examination of the areas of change that typically
-166-
On Strategies and Actions of Enterprise 167
offer entrepreneurial opportunities.
Specifically, systematic innovation means monitoring seven sources for innovative
opportunity. The first four sources lie within the enterprise, whether bussiness or
public-service institution, or within an industry or service sector.
1. The unexepected--the unexpected success, the unexpected failure, the
, unexpected outside event;
2. The incongruity--between reality as it actually is and reality as it is assumed
to be or as it 'ought to be';
3. Innovation bassed on process need;
4. Changes in industry structure or market structure that catch everyone
unawares.
5. Demographics (population changes);
6. Changes in perception, mood, and meaning;
7. New knowledge, both scientific and nonscientific(3)
2-2. Concept of Management Strategy
According to K. R. Andrews, corporate strastegy is the pattern of decision in
company that determines and reveals its objectives, purposes, or goals, and major
policies and plans for achieving these goals, stated in such a way as to define what
business the company is in or is to be in and the kind of company it is or is to be(4)
This is introduced from the following two concepts: First, P. F. Drucker
addressed an organizatinal strategy to be the answer to the duel questions: "What is
our business? And what should it be?,,(5) Second, A. D. Chandler defines "the
determination of the basic long-term goals and objective of as enterprise, and the
adoption of courses of action and the allocation of resources necessary for carrying out
these goals." The former is focused on the concept, and the later on the process. K.
R. Andrew combined with and developed them.
For this definition C. W. Hofer and D. Schendel state that there is another view
of strategy.(7) That is, by contrust, H. I. Ansoff(8) viewed strategy as the "common
thread" among organization's activities and product/market that defined the essential
-167-
168
nature of the business that the organizaion was in and planned to be in the future.
2-3. Hierarchy of Management Strategy
Whatever quick the speed may be, all companies have to adjust themselves to the
change of environment to survive and continue to growth. If new or revolutional
means that have never been used are required to overcome the problem arise from
the changes of circumstances, that is very management strategy, which must bring
effectiveness and efficiency to company.
There are hierarchies of strategies which differentiate between three major levels
or organizaional strategy(9)
(I) Corporate Strategy--concerned primarily with answering the question what
set of businesses should we be in? Consequently, scope and resource developme-
nts among businesses are the primary components of corporate strategy.
The two major types of functional area policy decisions that are universally
important at the corporate level involve financial structure and basic design of
organizational structure and process.
(2) Business Strategy--At the business level, strategy focuses on how to compete
in a particular industry or product/market segment. Thus, distinctive
competences and competitive advantage are usually the most important
components of strategy at this level.
It focuses on the integration of different functional area activities within a
single business. For most businesses, the major functional area policy decisions
include product line, market, development, distribution, financial, manpower, and R
& D policies, plus major manufacturing system design choices.
(3) Functional Area Strategy--At the functional area level, the principal focus of
strategy is on the maximization of resource productivity. Synergy and the
development of distinctive competences, therefore, become the key components,
while scope drops sharply in importance. Here, synergy involves the coordination
and integration of activities within a single function.
Strategy for innovation is at the corporate level by top management, but problem
-168-
On Strategies and Actions of Enterprise 169
solving or innovation behavior for corporate growth must be done in every
management level.
Characteristics of Corporate-, Business-, and Functional-Level Strategies are stated
by L. W. Rue and P. G. Holland as follows;(lO)
Corporate Business Functional
Level of manage- Top Upper middle Operating
ment responsi- corporate-level business- or functional-level
bility managers divisional-level managers
managers managers; or
top, in a single
business- or
product company
Scope Entire SBU or single- Functional area,
organization business or pro- geographic area
duct company product area,
customer area
Time spun Long range Intermediate Short range
(0-5 years) range (0- I year)
(I -3 years)
Specificity General state- Concrete and ope- Action and Imple
ment of direc- rationally ori- mentation ori-
tion and intent ented ented
3. Strategy Alternatives
3-1. Alternative and complementary strategic postures
The goals and action plans are labeled strategic postures. They classify in two
types. The offensive types are appropriate for growth related goals; the defensive for
goals that require constricting operations because.of inefficiencies. R. A. Comaford
and D. W. Callaghan show these strategic postures and give precise comment as
follows
ll)
-169-
170
Offensive
1. Concentration
a. Market penetration
b. Market development
c. Product development
d. Horizontal merger
2. Integrative growth
a. Backward integration
b. Forward integration
3. Diversificatiion Growth
a. Concentric diversiification
b. Conglomerate diversification
4. Joint venture
a. Unrelated partners
b. Related partners
c. Dual-nationality partners
3- 2. Concept of Strategies
(I) Offensive Postures
Defensive
I. Retrenchment/turnaround
a. Shallow retrenchment
b. Deep retrenchment
c. Reorganization
2. Divestiture
a. Sell-off
b. Spin-off
c. Sprit-off
3. Liquidation
a. Voluntary closure
b. Assignment
c. Bankruptcy
4. Harvesting
5. Captive company
Offensive postures are employed by management to reach goals related to
increases in sales or market share, and in some cases, profitability. There are
following four types.
I) Concentration Post ures
Concentration postures are primarily marketing moves attempted to improve sales
or profitability by getting more out of resources currently available within the firm.
Market penetration.. ····This posture is followed to increase sales within the firm's
present markets with its present products. It is essentially an advertising
action that would normally follow a market analysis undertaken to gain
insight into user and nonuser characteristics, as well as their perceptions of
the product and its attributes.
Market Development· .. ·.. Firms with strategies aimed at market development seek
to expand either the geographical regions or the number or market segments
they serve with their product.
-170-
On Strategies and Actions of Enterprise 171
Product Development······Product development is a way to increase sales in
present segments by augmenting the present product line.
Horizontal Merger and Acq uisition...... This action involves merging with or
acquiring another company in the same industry. It involves increasing the
firm's level of activity in its present products, markets, or both.
2) Integrative Growth
Integration strategies seek mainly, but not exclusively, incresed profitability. They
accomplish it by expanding the scope of a company's operations to include the
activities of the firms that supply its inputs or purchase its outputs.
Backward Integration.. ·· .. Backward integration entails gaining increased control
over the firm's supply (or input) activities. It can be implemented through
merger with or acquisition of the firm that produces the company's inputs or
by "growing one's own" supply systems.
Foward Integration...... Foward integration consists of obtaining control over the
external portions of the firm's marketing systems. In most cases this means
either acquiring a distribution system or establishing one internally.
3) Diversification Growth
Diversification has the best chance of success when the business chosen fits the
strategy and when it is attempted by managements who have mastered their current
strategies.
Concentric Diversificatiow.. · .. This is the development of a business with products
that have marketing or technological synergies with the firm's present
products. New c1assees of customers will be sought for these products.
Conglomerate Diversification...... This is the combination of business units with
products that (I) represent no marketing, technological, or other synergies and
(2) appeal to new customer class. It would be viewed as an investment of
company funds in a firm with a correctable deficiency or in an environmental
opportunity.
4) Joint Venture
-171-
172
A joint venture is a business unit established for a specific purpose and the
ownership of which is shared by two or more businesses. It can be used as a way to
own and control a business, product line, market, or activity that does not really fit
the strategy of either parent.
Unrelated Partners.. ·· .. These are firms that are independent and usually are in
different industries. They pool their respective contributions - resources,
skills, technologies, and so on - in the joint venture and share contractually in
the results of its operation.
Related Partners......Joint ventures by related partners are aggregations of similar
activities or business units that could not survive alone.
Dual Nationality...... Firms join forces to overcome political, social, or cultural
obstacles. Many foreign governments allow firms to do business on their soil
only as partners with local firms in joint ventures. So joint venture is the
dual-nationality combination.
(2) Difensive Postures
Firm's owner simplify their lives by shrinking their business's size, contraction is
usually a defensive response to adversity.
I) Retrenchment Strategies
These strategies are attempts to regain control of a faltering business or to
prevent it from faltering in the first place by temporarily "reining in" its operations.
Shallow Retrenchment ...... This is a response to adversity characterized by small
but significant cutbacks in expenditures for expense items, asset investment,
or both. It would normally follow a decision to lighten emphasis on sales
growth for a certain time period.
Deep Retrenchment ...... This involves severely curtailing operations as a defense
against major economic adversity, financial reverses, competitive disadvantage,
or, genarally, a drastic treat to sales growth or profitability. Deep
retrenchment is characterized by the intention to change at least part of
strategy, usually by surgery in the product, market, or business definition
-172-
On Strategies and Actions of Enterprise 173
area.
2) Divesture
Profitability shrinkages, sales declines, and other operational problems of a
diversified firm, may be curable by devestment when at the root of the problem is an
ill-fitting subsidiary or business unit. Actually divestment is more a matter of
abandoning a misfit than it is a strategic orientation, except in instances where it is
part of a strategy designed to rehabilitate ailing acquisitions subsequently to be spun
off.
Sell-off······The distinction between a sell-off and a spin-off is blurred because
both can be accomplished by the sale of a subsidiary. About the only
consistent differnce seems to be in the intentions of the parent firm. If sit
sells a business unit that it had originally intended to keep, it is typically a
sell-off.
Spin-off······A spin-off divestiture is usually one in which the business unit stands
on its own after being separated from the parent.
Split-off······A split-off is a divorce of two approximately equalsized business unit.
3) Liq uidation
When a firm or unit of a firm is worth more dead than alive, it can be liq uidated.
Of course when this happens, the firm ceases to exist; its assets are sold item by item
and the proceeds distributed among creditors. The case of the firm in United States
is below stated, but in other countries differ from them. Companies take different
behavior under the low or regulation of each countries.
Voluntary Closure····· ·This takes place when a firm simply pays off its creditors,
closes its doors, and quietly goes out of business. Voluntary closure implies
that the firm or its owner has sufficient cash or liquid assets to payoff
creditors.
Assignment······This involves the transfer of title to assets to a third party. This
trustee or assignee then sells the assets and distributes the proceeds among
creditors, according to the magnitude of their claims.
-173-
174
There are three types of assignments: common-law assignment, satutory
assignment, and assignment plus settlement.
Bankruptcy····"Liquidation under the Federal Bankruptcy Act is appropriate when
the liquidating value of assets is exceeded by debt; that is, when the firm is
insolvent and the market (appraised) value of assets is insufficient to pay
outstanding debt.
4) Harvesting
Harvesting is the strategy of deliberately exchanging (percentage) points of
market share for higher short-term cash flow and/or profits. In other words
harvesting is the practice of squeezing cash from products or SBUs for which growth
has been ruled out as a possible strategy.
5) Captive Company
A captive company is a subcontractor that derives the majority of its sales from
one buyer (the captor). Although being tightly linked to a source of a large proportion
of sales may seems to be a comfortable situation, captives run the risk of being
dropped as supplier.
Strategies for corporate growth like as intergative growth require the merger or
aquisition. There are four legal type of mergers(12)
Statutory Merger" .. "Statutory merger is the absorption of one firm's assets,
debts, and common stock by another firms. The buyer assumes all legal
responsibility for the absorbed firm, which ceases to exist as a legal entity.
The buyer also assumes the seller's debts and pays off the seller's
stockholders with whatever form of exchange was agreed upon, and
continues to operate with title to the seIler's assets.
Consolidation"""When two firms are combined such that a new, third legal entity
is formed, it is calied a consolidation.
Holding Company"· .. ·A Holding company is a legal form of business organization
in which a firm owns (holds) common stock of other firms. The holding
company (parent firm) can gain control of a subsidiary by owning enough of
-174-
On Strategies and Actions of Enterprise 175
its stock.
Asset Acquisition.. · .. ·This is normally a simple buy-sell transaction. Some firms
purchase assets of other firm in exchange for assumption of certain of the
seller'a debts.
Takeover· .... ·The foregoing types of merger are dubbed "friendly mergers" when
terms are approved by the management groups of both parties. However,
when the parties are unable to reach agreement on terms, two things can
happen. Negotiations can be broken off and the proposed merger terminated,
or the acquiring firm can attempt a takeover.
Strategic reasons for merger are as follows
l31
Synergy--to spread fixed costs over a larger number of units produced.
Tax'Saving--to take advantage of the seller's tax-loss carry foward.
Acquisition of Resources--market access, production capabilities, patent
rights, physical assets, etc.
Increased Debt Capacity--to increase the combined entity's debt/equity
ratio and its borrowing capacity.
Advantages over Internal Growth--to enter a new market or introduce a
new product line faster than internal expansion, or other scale merits.
Short-Term Earnings--to change earnings per share in the short term, and
to enhancing future earnings and dividend streams.
Risk Reduction--business risk, financial risk, and marketability risk.
4. Strategic Managements
4- I. Concept of Strategic Management
However superior the strategy may be, it is vain to the performance, if the
strategy does not go to implementation.
According to G. Boseman, A Phatak and R. E. Schelenberger strategic
management is the process which has two major dimensions: (1) strategic planning,
and (2) strategy implementation and control, but the process consists of following
-175-
Formulation of the organization mission.
Formulation of the organization philosophy and policies.
Determination of the strategic objectives.
Determination of the organization strategy.
fmplementation of organization strategy.
176
seven interrelated subprocesses
14)
(I) Assessment of organization strenghts, weeknesses, opportunities, and threats
(SWOT).
(2)
(3)
(4)
(5)
(6)
(7) Control of organization strategy.
For the above concept F. R. David defines strategic management from the
following three phases as the formulation, implementation, and evaluation of actions
that will enable an organization to achieve its objectives(l5)
Strategy formulation includes identifying an organization's internal strengths and
weaknesses, determining a firm's external opportunities and threats, establishing a
company mission, setting objectives, developing alternative strategies, analyzing these
alternatives, and deciding which ones to execute.
Strategy implementation requires that a firm establish goals, devise policies,
motivate employees, and allocate resources in a manner that wilJ allow formulated
strategies to be pursued successfully.
Strategy evaluation monitors the results of formulation and implementation
activities.
4-2. Strategy formulation
Strategy formulation consisits of two stage: the first section is goal formulation,
and the second is action plans are enumerated(l6)
4-2-1. Goal formulation
First of alL goal, target, and objective have distinct meanings as follows
17)
A goal is an expected result and thus is a general term that is more inclusive
than objective and target. Synonyms for goal include the words aim and end.
An objective is an aspiration toward which effort is directed; a goal to be reached
-176-
On Strategies and Actions of Enterprise 177
for but not necessarily grasped, rather than a quantitative level of a certain variable.
A target is a goal to be reached, a quantified expected result. There are two
types of targets: (a) a hurdle target is a certain level of a target that is to be
exceeded (synonyms for hurdle target include instrumental target and interim target);
(b) a final or overall target is a value that should be achieved. A final target could be
established without hurdle targets or it could be the value achieved after all
appropriate hurdle targets have been reached.
4-2-2. Mission and hierarchy of goal
Mission should address the basic purpose of the firm, the reason for which it
exists, so mission must state and answer to (1) Who are the enterprise's customers?
(2) What are the firm's major products or service? (3) Where does the firm compete
geographically? (4) What is the firm's basic technology? (5) What is the firm's attitude
toward economic goal? (6) What are the fundamental beliefs, values, aspirations, and
philosophical priorities of the firm? (7) What are the firm's major strength and
competitive advantages? (8) What is the firm's desired public image? (9) Does the
mission statement effectively address the desire of key stockholders? (10) Does the
mission statement motivate and stimulate its reader to action?(l8}
Including mission as a societal goal, there are four levels of goals appropriate for
an organization(l9)
(a) Societal goal· .. ·.. These mainly address expectations about the firm's societal
legitimacy. Sometimes included In statements called creeds or guiding
philosophies, societal goals identify the major ways in which the organization
will operate so as to stay within the legal, ethical, and cultural constraints
placed on it by society.
(b) Corporate-level goals.... "Corporate-level goals consist of objectives and
targets that encompass management's expectations about the optimal
combination and types of business that make up the company.
(c) Business-level goals.. ·.. ·Business-level goals specify the performance
objectives and targets of each strategic business unit.
-177-
178
(d) Functional-level goals· .. ··· The point of this goal is to define several aims for
each department in such a way that their achievement of business-level goals.
Goal Levels
Societal
Corporate
Business
Functional
Integrates
Organization with environment
Business units
Functional departments
Work units
Guide Behavior of
Corporate leaders
Corporate staff
Business managers
Functional managers
4- 2- 3. Internal and external audit
Proceed to settlement of goals it IS required to audit internal and external
environments to take assessment of an organization's strength, weaknesses,
opportunities, and threats (commonly referred to as SWOT analysis).
External environments consist of political, economic, technological, and
sociocultural factors, from which threats and opportunities for company are found.
Internal diagnosis is required to the functional areas of marketing, personnel and
union relations, production, research and development, etc., especially financial
dimensions, as to financial ratio, liquidity, coverage, profitability, leverage, and
activity(20}
4-2-4. Formulation of Policy
Owing to formulate strategy the policy must be prepared. Policies were defined
as guides to action within which goals established and strategies are determined. So
policies tend to limit the scope of alternatives that must be considered In
implementing of strategies(21}
F. R. David defines policies as the means by which stated goals will be achieved,
or as guidelines established to support efforts to achieve stated goals, so policies have
two distinguishing characteristics: (l) they are guides to decision making, and (2) they
are established for situations that are repetitive or recurring in the life of a strategy.
Policy can be established at the corporate level and apply to an entire organization, or
they can be established at the divisional level and apply to a single division, or they
can be established at the functional level and apply to only certain operational
-178-
On Strategies and Actions of Enterprise 179
asctivities or departments, and policies, like goals, are particularly important In the
strategy implementation process(22)
4-2-5. Strategic alternatives
Company has a wide variety of options to choose a strategy, as the above
mentioned (section 3), L. L. Byars shows from another demensions as follows
23)
1 . Stable growth strategies
2. Growth strategies
a. Concentration on a single prod uct or service
b. Concentric diversification
c. Vertical integration
d. Horizontal diversification
e. Conglomerate diversificaion
3. Mergers
4. Joint ventures
5 . Harvesting strategies
6. Retrenchment strategies
a. Turnaround strategies
b. Divestment strategies
c. Liquidation strategies
7 . Combination strategies
Also G. Boseman, A. Phatak and R. E. Schellenberger show the type of
strategies, and when they are usueful(24)
(Strategy)
Stability
Growth
(Substrategy)
Internal
Penetration
Expansion
External
Integration
-179-
180
Diversification
Retrenchment
Combination
Cutback and Turnaroud
Divestment
Liq uidation
Stability······In mature industry; environment of firm is changing slowly; firm is
currently.
Penetration...... Firms has small market,share operating in an expanding market.
Expansion...... Firm is early in product life-cicle; firm has resources to move into
new geographical areas or modify current product(s) or service(s).
Integration ...... Company needs to control finished products or raw materials.
Requires massive capital.
Diversification...... Firm has excess cash flow; product has become obsolete; new
tax legislation implemented; competition has increased.
Cutback and Turnaround...... Firm IS faced with short-term environmental
changes.
Divestment ...... Short-term environmental changes become permanent.
Liquidation.. · .. ·Firm no longer competes effectively.
Combination...... Firm faces enonomic transition; firm IS in transition for new
product or service offered.
4-3. Strategy Implementation
Strategy implementation is also a process that establish goals and policies for
setting strategies in business and functional levels to excute the corporate strategy for
attainment of upper goals. So following actions are characterized.
4-3-1. Matching organizatinal structure with strategy
To excute the strategies in each functional department organization structure
must be fit and suitable to strategy implementation. So it is required to change from
the traditional organizational structure as functional- or divisional to project team,
strategic business unit or matrix structure.
-180-
On Strategies and Actions of Enterprise 181
4-3-2. Creating an organizational climate
In order to gain the better performance from the labor, it is indispensable to get
the best contribution from individual in organization. So corporate culture favorable to
individual is required as well as training or education.
L. W. Rue and P. G. Hollands define that corporate culture is a unique set of
characteristics which makes it possible to distinguish one organization from another,
and show four generic culture from two dimensions as follows
25)
Degree of Risk
(High) (Low)
(Rapid) Tough-guy Work-hard-play-
Speed of macho culture hard culture
Feedback (Slow) Bet-your-company Process
culture culture
Tough Guy, Macho Culture...... When stakes are high and feeddback is rapid, the
ability to make quick decisions and to live with the risks requires toughness.
Teamwork is not important, and every cohort is ignored, and there is no
opportunity to learn from mistakes. It tends to reward individuals who are
temperamental and shortsighted.
Work-Hard-Play-Hard Culture...... When risks are small and feedback is rapid,
activity is the key to success. Rewards accrue to persistence and the ability
to find a need and fill it. Because of the need for volume, team players who
thrive are friendly and outgoing.
Bet-Your-Company Cluture...... In this situation, large investments must be made
in long-term projects. It is vital to make the right decisions, so the company
moves slowly and deliberately.
Process Cluture...... In low-risk situations with little feedback, employees must
focus on the way things are done rather than on the outcome of what is
done. Workers in this atomosphere become cautious and protective. Those
-181-
182
who thrive are orderly, punctual, and detail-oriented.
4-3-3. Allocating Resources
Types of resources available in an organization are classified as bellow:
Financial ...... liquid assets, liabilities, and equity which include cash, receivables,
marketable securities, bonds, stock, bank notes, working capital, retained
earnings, and net income.
Physical ...... tangible assets, which include plants, equipment, land, inventorry, raw
materials, facilities, and machinery.
Human...... people, such as top managers, divisional managers, department
managers, engineers, scientists, lawyers, accountants, skilled employees, and
unskilled.
Technological ...... · knowledge, skills, methods, and tools that enable a firm to
carryon its chosen activities, which includes the quality control systems,
computer systems, accounting systems, management information systems,
engineering, R&D, and communication systems.
Resource allocation consist of four basic steps, as follows(26)
1 . Develop an inventory of the total resources available to the firm.
2. Develop an inventory of each division's resources and each department's
resources.
3 . Develop division and departmental resource request.
4. Allocate resources appropriately to each division and department.
4-4. Evaluation
Control of the organization within a strategic management system is concerned
with achieving goals by carrying out strategies effectively and efficiently.
Effectiveness refers to how well an organization achieves its goals - produces
expected results. Efficiency, however, is the amount of output per unit of input and
relates more to the nature of internal operastions.
Evaluation process consits of the following four phases
J27
) (I) Select key valuables
that will become the major evaluative criteria for determining whether goals have
-182-
On Strategies and Actions of Enterprise 183
been achieved and strategies appropriately carried out. (2) Set standards for key
valiables that represent levels of satisfactory performance. (3) Measure performance
against standards to detect deviations. (4) Take action either to reinforce correct
performance or to correct substandard performance.
Conclusion
Every company has always many problems to solve, which are brought through
the change of environment. Under the circumstance especially management must
innovate the company to growth, so they have to catch the opportunities of
innovation, for which formulate the strategy to get good result, in other words to solve
type "B" problem.
Strategy, formulated by top management, must be excuted correctly by all
participants of organization. From this point of view strategic management is
emphasised recently.
At the same time not only management but also all participants must solve the
problems may be happened at any place and time, type "A" problems with strategic
behavior, happen to tempolary and occationally.
Strategic management is the strategic behavior by all participants of organization
for the company growth to solve both problem type "A" and "B".
Notes:
e1) Masami Nishikado, Strategic Management in Modern Enterprise, Hakutoh
Shobou, 1984, pp. 11-14
e2) Joseph A. Schumpeter, Theorie der Wirtschajtlichen Entwicklung, 1912,
e3) Peter F. Drucker, Innovation and Entrepreneurship, William Heinemann Ltd.,
1985, pp. 27-32
e4) Kemmeth R. Andrews, Business Policy: Text and Case, Richard D. Irwin, Inc.,
1965, p.3
-183-
184
(5) Peter F. Drucker, The Practice of Management, William Heineman Ltd., 1954
( 6) Alfred D. Chandler Jr., Strategy and Structure: The History of the Industrial
Enterprise, 1962, p. 11
( 7) Charles W. Hofer & Dan Schendel, Strategy Formulation: Analytical
Concepts, West Publishing Company, 1978, pp.16-17
(8) H. Igor Ansoff, Corporate Strategy, McGraw-Hill, Inc., 1965
(9) Charles W. Hofer & Dan. Schendel, op. cit., pp.27-29
(10) Leslie W. Rue and Phyllis G. Holland, Strategic Management: Concepts and
Experiences, McGraw-Hill Book Company, 1986, p.12
(1) Robert A. Comerford and Dennis W. Callaghan, Strategic Management: Text,
Tools, and Cases for Business Policy, Kent Publishing Co., 1985, pp. 98-110
(2) Ibid., pp.1l5-116
(3) Ibid., p. 117
(4) Glenn Boseman, Arvind Phatak and Robert E. Schellenberger, Strategic
Management: Text and Cases, John Wiley & Sons, Inc., 1986, pp.5-1O
(5) Fred R. Dvid, Fundamentals of Strategic Management, Merrill Publishing
Company, 1986, pp.4-6
(16) Ibid, pp.88-90
(7) Robert A. Comaford amd Dennis W. Callaghan, op. cit., p.85
(8) Fred R. David, op. cit., pp. 88-90
(9) Robert A. Comerford and Dennis W. Callaghan, op. cit., pp.90-91
(20) Glenn Boseman et al., op. cit., pp. 116-119
(21) Fred R. David, op. cit., chapter 4 and 5
(22) Ibid., p. 13
(23) Lloyd 1. Byars, Strategic Management - Planning and Implementation:
Concepts and Cases, Harper & Row Publishers, 1984, p. 78
(24) Glenn Boseman et a!., op. cit., p.69
(25) Lesllie W. Rue and Phyllis G. Holland., op. cit., pp.437-445
(26) Fred R.David, op. cit., pp.311-312
-184-
On Strategies and Actions of Enterprise 185
(27) Robert A. Comaford and Dennis W. Callaghan, op. cit., pp.205-210
* This paper is prepared to offer a preliminary information on managemant strategy
and strategic management for foreign student in our seminar.
-185-
doc_918370251.pdf
Description explain on strategies and actions of enterprise.
On Strategies and Actions of Enterprise
Masami Nishikado
Preface
Needless to say, it is indispensable for the companies as well as any other living
creatures to adapt themselves to the environment, in order to survive and continue
their lives. In addition, they are always required to develop the revolutional behavior
for their growth in the competitive market.
Such a revolutional behavior comes from management system which enables
company to research the opportunity and avoid the risk. In other words top
management must formulate the strategy, which is excuted by co-operation of all
organization perticipants to get the good result.
From the recognition to this fact, thought of strategic management prevails
recently instead of management strategy.
In this paper concepts and terms on problem solving, innovation, and corporate
strategy will be introduced from some literatures and discussed.
1. Environment and Enterprise
1-], Various Impacts to Management
There are brought many impacts to management by the change of society, which
may bring influence to company in the future.
One of them is the development of technology which changes the production type
from merchandise to service by information or other technology, it is so called soft
economy.
-163-
164
Second, having to enlarge their business field from domestic market to
international owing to growth, companies must change the business type of foreign
trade themselves from export of merchandise to tramsfer of capital and technology,
and migration of people with them. Also political and social environment will
influence to the company.
In the case of japan there are many other problems to effect for management,
l. e. increasement of the aged in population. Furthermore following problems will
bring a large scale of change of econmic circumstance to overcome for the japanese
companies.
1-2. Countermeasure to Environmental Change
japanese company has some problem to solve now, as follows:
(1) Follow up by Asian Newly 1ndustrializing Countries (NICS)
Already companies with large equipment, such as Iron and Steel, or Ship
Building, transfered their technology to the developing countries, and can not compete
to them at the price by lower wage. So, large scale equipment companies are forced
reduction of production activity, retirement, or change to other type of industry.
(2) Fluctuation of Foreign Exchange Rate
Since 1985, foreign exchange rate of japanese Yen coutinues to rise, many
companies which depends chiefly on export, are suffered heavy damage, and going to
try to produce their products in foreign countries. We can find the behavior in not
only large scale companies, but also middle or small scale factories. These
circumstances came through enlargement of foreign market by cost reduction with the
effect of mass production.
(3) Variety or Change of Value Conception
Economic growth and development by information technology in japan brought
change of value conception to peoples. Each one came to have own thought on daily
living. At the effect of this fact companies must offer the goods or service, which
satisfy each consumer's need, instead of mass production of one or two line products.
Now companies are required to adjust their business behavior to small market.
-164-
On Strategies and Actions of Enterprise 165
1-3. Problem Solving on Business
Corporate behavior to adjust itself to environment seems to be action of solving
problem arised from change of circumstance in management of business. Every
company has many problems to be solved usually, large or small. Without solve these
problems company cannot achieve the goal and accomplish the expected performance.
There are two kind of problem in business management. One is brought by
change of circumstance around the company, we name it type "A" here. The other
is created positively by management for growth of company in future, name it type
"B".
For instance the case of type "A" is the problem which management can not
achieve the goal of sales by any reason outside of company. On the contrary if
impossible to accomplish the goal of sales owing to possitive revise of goal, problem is
type "B" at that case.
Each of the problems has different contents. The former is the problem brought
from circumstance around the company, the later is problem brought by management
possitively in order to try development of the company. At any case, both of them
must be solved, if the problem cannot be solved by the usuasl means, management
must reinforce the means or reduce the level of goal, but this way is not effective or
suitable for the business to growth, so new or original means, i. e. strategy is required
at that time.
For growth and prosperity of the company, management has to establish always
the type "B" problems and resolve them one after another. This shows that
management has to search the opportunity for growth of business usually and avoid
the risk, and the means, used by management, is management strategy. Also it is
required to be established the system which enable management to take such a
behavior in business activity on the other sideO)
To find opportunity for the type "B" problem is the important function of top
management, and such a management behavior is revolution of business which leads
the company to prosperity in future.
-165-
166
1-4. Management strategy for business revolution
Establishment and solution of problems by management strategy in business are
indispensable to the revolution for growth and prosperity of company. There are
opportunities for business revolution to researcch the new needs of consumers, such as
anticipating the trend of the times, opening the new market, etc.,
J. A. Schumpeter required the following innovation to entrepreneur (a) production
of new goods or goods of new quality, (b) introduction of new production method, (c)
opening new market, (d) acquisition of supplier of row material and halfproducts, (e)
actualization of new organization. In other words needs of innovation can be find not
by the impact from outside, but in circle of economic activity of company itself. And
driving force of innovation is the entrepreneur who excutes innovation arise from
creative destruction or realization of new combination(2) Entrepreneur is top
management of the company at present.
2. Innovation and Strategy
2- 1. Opportunities of Innovation
Entrepreneurs have to innovate the company. Innovation is the specific
instrument of entrepreneurship. It is the act that endows ressources with a new
capacity to create wealth. Innovation, indeed, creates resources. There is no such
thing as a 'res6uce' until man finds a use for something in nature and thus endows it
with economic value.
'Innovation', then, is an economic or social rather than a technical term. And it is
change that always provides the opportunity for the new and different. Systematic
innovation therefore consists in the purposeful and organized search fo changes, and in
the systematic analysis of the opportunities such changes might offer for economic or
social innovation.
Most successful innovations' are far more prosaic; they exploit change. And thus
the discipline of innovation (and it is the knowledge base of entrepreneurship) is a
diagnostic discipline: a systematic examination of the areas of change that typically
-166-
On Strategies and Actions of Enterprise 167
offer entrepreneurial opportunities.
Specifically, systematic innovation means monitoring seven sources for innovative
opportunity. The first four sources lie within the enterprise, whether bussiness or
public-service institution, or within an industry or service sector.
1. The unexepected--the unexpected success, the unexpected failure, the
, unexpected outside event;
2. The incongruity--between reality as it actually is and reality as it is assumed
to be or as it 'ought to be';
3. Innovation bassed on process need;
4. Changes in industry structure or market structure that catch everyone
unawares.
5. Demographics (population changes);
6. Changes in perception, mood, and meaning;
7. New knowledge, both scientific and nonscientific(3)
2-2. Concept of Management Strategy
According to K. R. Andrews, corporate strastegy is the pattern of decision in
company that determines and reveals its objectives, purposes, or goals, and major
policies and plans for achieving these goals, stated in such a way as to define what
business the company is in or is to be in and the kind of company it is or is to be(4)
This is introduced from the following two concepts: First, P. F. Drucker
addressed an organizatinal strategy to be the answer to the duel questions: "What is
our business? And what should it be?,,(5) Second, A. D. Chandler defines "the
determination of the basic long-term goals and objective of as enterprise, and the
adoption of courses of action and the allocation of resources necessary for carrying out
these goals." The former is focused on the concept, and the later on the process. K.
R. Andrew combined with and developed them.
For this definition C. W. Hofer and D. Schendel state that there is another view
of strategy.(7) That is, by contrust, H. I. Ansoff(8) viewed strategy as the "common
thread" among organization's activities and product/market that defined the essential
-167-
168
nature of the business that the organizaion was in and planned to be in the future.
2-3. Hierarchy of Management Strategy
Whatever quick the speed may be, all companies have to adjust themselves to the
change of environment to survive and continue to growth. If new or revolutional
means that have never been used are required to overcome the problem arise from
the changes of circumstances, that is very management strategy, which must bring
effectiveness and efficiency to company.
There are hierarchies of strategies which differentiate between three major levels
or organizaional strategy(9)
(I) Corporate Strategy--concerned primarily with answering the question what
set of businesses should we be in? Consequently, scope and resource developme-
nts among businesses are the primary components of corporate strategy.
The two major types of functional area policy decisions that are universally
important at the corporate level involve financial structure and basic design of
organizational structure and process.
(2) Business Strategy--At the business level, strategy focuses on how to compete
in a particular industry or product/market segment. Thus, distinctive
competences and competitive advantage are usually the most important
components of strategy at this level.
It focuses on the integration of different functional area activities within a
single business. For most businesses, the major functional area policy decisions
include product line, market, development, distribution, financial, manpower, and R
& D policies, plus major manufacturing system design choices.
(3) Functional Area Strategy--At the functional area level, the principal focus of
strategy is on the maximization of resource productivity. Synergy and the
development of distinctive competences, therefore, become the key components,
while scope drops sharply in importance. Here, synergy involves the coordination
and integration of activities within a single function.
Strategy for innovation is at the corporate level by top management, but problem
-168-
On Strategies and Actions of Enterprise 169
solving or innovation behavior for corporate growth must be done in every
management level.
Characteristics of Corporate-, Business-, and Functional-Level Strategies are stated
by L. W. Rue and P. G. Holland as follows;(lO)
Corporate Business Functional
Level of manage- Top Upper middle Operating
ment responsi- corporate-level business- or functional-level
bility managers divisional-level managers
managers managers; or
top, in a single
business- or
product company
Scope Entire SBU or single- Functional area,
organization business or pro- geographic area
duct company product area,
customer area
Time spun Long range Intermediate Short range
(0-5 years) range (0- I year)
(I -3 years)
Specificity General state- Concrete and ope- Action and Imple
ment of direc- rationally ori- mentation ori-
tion and intent ented ented
3. Strategy Alternatives
3-1. Alternative and complementary strategic postures
The goals and action plans are labeled strategic postures. They classify in two
types. The offensive types are appropriate for growth related goals; the defensive for
goals that require constricting operations because.of inefficiencies. R. A. Comaford
and D. W. Callaghan show these strategic postures and give precise comment as
follows

-169-
170
Offensive
1. Concentration
a. Market penetration
b. Market development
c. Product development
d. Horizontal merger
2. Integrative growth
a. Backward integration
b. Forward integration
3. Diversificatiion Growth
a. Concentric diversiification
b. Conglomerate diversification
4. Joint venture
a. Unrelated partners
b. Related partners
c. Dual-nationality partners
3- 2. Concept of Strategies
(I) Offensive Postures
Defensive
I. Retrenchment/turnaround
a. Shallow retrenchment
b. Deep retrenchment
c. Reorganization
2. Divestiture
a. Sell-off
b. Spin-off
c. Sprit-off
3. Liquidation
a. Voluntary closure
b. Assignment
c. Bankruptcy
4. Harvesting
5. Captive company
Offensive postures are employed by management to reach goals related to
increases in sales or market share, and in some cases, profitability. There are
following four types.
I) Concentration Post ures
Concentration postures are primarily marketing moves attempted to improve sales
or profitability by getting more out of resources currently available within the firm.
Market penetration.. ····This posture is followed to increase sales within the firm's
present markets with its present products. It is essentially an advertising
action that would normally follow a market analysis undertaken to gain
insight into user and nonuser characteristics, as well as their perceptions of
the product and its attributes.
Market Development· .. ·.. Firms with strategies aimed at market development seek
to expand either the geographical regions or the number or market segments
they serve with their product.
-170-
On Strategies and Actions of Enterprise 171
Product Development······Product development is a way to increase sales in
present segments by augmenting the present product line.
Horizontal Merger and Acq uisition...... This action involves merging with or
acquiring another company in the same industry. It involves increasing the
firm's level of activity in its present products, markets, or both.
2) Integrative Growth
Integration strategies seek mainly, but not exclusively, incresed profitability. They
accomplish it by expanding the scope of a company's operations to include the
activities of the firms that supply its inputs or purchase its outputs.
Backward Integration.. ·· .. Backward integration entails gaining increased control
over the firm's supply (or input) activities. It can be implemented through
merger with or acquisition of the firm that produces the company's inputs or
by "growing one's own" supply systems.
Foward Integration...... Foward integration consists of obtaining control over the
external portions of the firm's marketing systems. In most cases this means
either acquiring a distribution system or establishing one internally.
3) Diversification Growth
Diversification has the best chance of success when the business chosen fits the
strategy and when it is attempted by managements who have mastered their current
strategies.
Concentric Diversificatiow.. · .. This is the development of a business with products
that have marketing or technological synergies with the firm's present
products. New c1assees of customers will be sought for these products.
Conglomerate Diversification...... This is the combination of business units with
products that (I) represent no marketing, technological, or other synergies and
(2) appeal to new customer class. It would be viewed as an investment of
company funds in a firm with a correctable deficiency or in an environmental
opportunity.
4) Joint Venture
-171-
172
A joint venture is a business unit established for a specific purpose and the
ownership of which is shared by two or more businesses. It can be used as a way to
own and control a business, product line, market, or activity that does not really fit
the strategy of either parent.
Unrelated Partners.. ·· .. These are firms that are independent and usually are in
different industries. They pool their respective contributions - resources,
skills, technologies, and so on - in the joint venture and share contractually in
the results of its operation.
Related Partners......Joint ventures by related partners are aggregations of similar
activities or business units that could not survive alone.
Dual Nationality...... Firms join forces to overcome political, social, or cultural
obstacles. Many foreign governments allow firms to do business on their soil
only as partners with local firms in joint ventures. So joint venture is the
dual-nationality combination.
(2) Difensive Postures
Firm's owner simplify their lives by shrinking their business's size, contraction is
usually a defensive response to adversity.
I) Retrenchment Strategies
These strategies are attempts to regain control of a faltering business or to
prevent it from faltering in the first place by temporarily "reining in" its operations.
Shallow Retrenchment ...... This is a response to adversity characterized by small
but significant cutbacks in expenditures for expense items, asset investment,
or both. It would normally follow a decision to lighten emphasis on sales
growth for a certain time period.
Deep Retrenchment ...... This involves severely curtailing operations as a defense
against major economic adversity, financial reverses, competitive disadvantage,
or, genarally, a drastic treat to sales growth or profitability. Deep
retrenchment is characterized by the intention to change at least part of
strategy, usually by surgery in the product, market, or business definition
-172-
On Strategies and Actions of Enterprise 173
area.
2) Divesture
Profitability shrinkages, sales declines, and other operational problems of a
diversified firm, may be curable by devestment when at the root of the problem is an
ill-fitting subsidiary or business unit. Actually divestment is more a matter of
abandoning a misfit than it is a strategic orientation, except in instances where it is
part of a strategy designed to rehabilitate ailing acquisitions subsequently to be spun
off.
Sell-off······The distinction between a sell-off and a spin-off is blurred because
both can be accomplished by the sale of a subsidiary. About the only
consistent differnce seems to be in the intentions of the parent firm. If sit
sells a business unit that it had originally intended to keep, it is typically a
sell-off.
Spin-off······A spin-off divestiture is usually one in which the business unit stands
on its own after being separated from the parent.
Split-off······A split-off is a divorce of two approximately equalsized business unit.
3) Liq uidation
When a firm or unit of a firm is worth more dead than alive, it can be liq uidated.
Of course when this happens, the firm ceases to exist; its assets are sold item by item
and the proceeds distributed among creditors. The case of the firm in United States
is below stated, but in other countries differ from them. Companies take different
behavior under the low or regulation of each countries.
Voluntary Closure····· ·This takes place when a firm simply pays off its creditors,
closes its doors, and quietly goes out of business. Voluntary closure implies
that the firm or its owner has sufficient cash or liquid assets to payoff
creditors.
Assignment······This involves the transfer of title to assets to a third party. This
trustee or assignee then sells the assets and distributes the proceeds among
creditors, according to the magnitude of their claims.
-173-
174
There are three types of assignments: common-law assignment, satutory
assignment, and assignment plus settlement.
Bankruptcy····"Liquidation under the Federal Bankruptcy Act is appropriate when
the liquidating value of assets is exceeded by debt; that is, when the firm is
insolvent and the market (appraised) value of assets is insufficient to pay
outstanding debt.
4) Harvesting
Harvesting is the strategy of deliberately exchanging (percentage) points of
market share for higher short-term cash flow and/or profits. In other words
harvesting is the practice of squeezing cash from products or SBUs for which growth
has been ruled out as a possible strategy.
5) Captive Company
A captive company is a subcontractor that derives the majority of its sales from
one buyer (the captor). Although being tightly linked to a source of a large proportion
of sales may seems to be a comfortable situation, captives run the risk of being
dropped as supplier.
Strategies for corporate growth like as intergative growth require the merger or
aquisition. There are four legal type of mergers(12)
Statutory Merger" .. "Statutory merger is the absorption of one firm's assets,
debts, and common stock by another firms. The buyer assumes all legal
responsibility for the absorbed firm, which ceases to exist as a legal entity.
The buyer also assumes the seller's debts and pays off the seller's
stockholders with whatever form of exchange was agreed upon, and
continues to operate with title to the seIler's assets.
Consolidation"""When two firms are combined such that a new, third legal entity
is formed, it is calied a consolidation.
Holding Company"· .. ·A Holding company is a legal form of business organization
in which a firm owns (holds) common stock of other firms. The holding
company (parent firm) can gain control of a subsidiary by owning enough of
-174-
On Strategies and Actions of Enterprise 175
its stock.
Asset Acquisition.. · .. ·This is normally a simple buy-sell transaction. Some firms
purchase assets of other firm in exchange for assumption of certain of the
seller'a debts.
Takeover· .... ·The foregoing types of merger are dubbed "friendly mergers" when
terms are approved by the management groups of both parties. However,
when the parties are unable to reach agreement on terms, two things can
happen. Negotiations can be broken off and the proposed merger terminated,
or the acquiring firm can attempt a takeover.
Strategic reasons for merger are as follows

Synergy--to spread fixed costs over a larger number of units produced.
Tax'Saving--to take advantage of the seller's tax-loss carry foward.
Acquisition of Resources--market access, production capabilities, patent
rights, physical assets, etc.
Increased Debt Capacity--to increase the combined entity's debt/equity
ratio and its borrowing capacity.
Advantages over Internal Growth--to enter a new market or introduce a
new product line faster than internal expansion, or other scale merits.
Short-Term Earnings--to change earnings per share in the short term, and
to enhancing future earnings and dividend streams.
Risk Reduction--business risk, financial risk, and marketability risk.
4. Strategic Managements
4- I. Concept of Strategic Management
However superior the strategy may be, it is vain to the performance, if the
strategy does not go to implementation.
According to G. Boseman, A Phatak and R. E. Schelenberger strategic
management is the process which has two major dimensions: (1) strategic planning,
and (2) strategy implementation and control, but the process consists of following
-175-
Formulation of the organization mission.
Formulation of the organization philosophy and policies.
Determination of the strategic objectives.
Determination of the organization strategy.
fmplementation of organization strategy.
176
seven interrelated subprocesses

(I) Assessment of organization strenghts, weeknesses, opportunities, and threats
(SWOT).
(2)
(3)
(4)
(5)
(6)
(7) Control of organization strategy.
For the above concept F. R. David defines strategic management from the
following three phases as the formulation, implementation, and evaluation of actions
that will enable an organization to achieve its objectives(l5)
Strategy formulation includes identifying an organization's internal strengths and
weaknesses, determining a firm's external opportunities and threats, establishing a
company mission, setting objectives, developing alternative strategies, analyzing these
alternatives, and deciding which ones to execute.
Strategy implementation requires that a firm establish goals, devise policies,
motivate employees, and allocate resources in a manner that wilJ allow formulated
strategies to be pursued successfully.
Strategy evaluation monitors the results of formulation and implementation
activities.
4-2. Strategy formulation
Strategy formulation consisits of two stage: the first section is goal formulation,
and the second is action plans are enumerated(l6)
4-2-1. Goal formulation
First of alL goal, target, and objective have distinct meanings as follows

A goal is an expected result and thus is a general term that is more inclusive
than objective and target. Synonyms for goal include the words aim and end.
An objective is an aspiration toward which effort is directed; a goal to be reached
-176-
On Strategies and Actions of Enterprise 177
for but not necessarily grasped, rather than a quantitative level of a certain variable.
A target is a goal to be reached, a quantified expected result. There are two
types of targets: (a) a hurdle target is a certain level of a target that is to be
exceeded (synonyms for hurdle target include instrumental target and interim target);
(b) a final or overall target is a value that should be achieved. A final target could be
established without hurdle targets or it could be the value achieved after all
appropriate hurdle targets have been reached.
4-2-2. Mission and hierarchy of goal
Mission should address the basic purpose of the firm, the reason for which it
exists, so mission must state and answer to (1) Who are the enterprise's customers?
(2) What are the firm's major products or service? (3) Where does the firm compete
geographically? (4) What is the firm's basic technology? (5) What is the firm's attitude
toward economic goal? (6) What are the fundamental beliefs, values, aspirations, and
philosophical priorities of the firm? (7) What are the firm's major strength and
competitive advantages? (8) What is the firm's desired public image? (9) Does the
mission statement effectively address the desire of key stockholders? (10) Does the
mission statement motivate and stimulate its reader to action?(l8}
Including mission as a societal goal, there are four levels of goals appropriate for
an organization(l9)
(a) Societal goal· .. ·.. These mainly address expectations about the firm's societal
legitimacy. Sometimes included In statements called creeds or guiding
philosophies, societal goals identify the major ways in which the organization
will operate so as to stay within the legal, ethical, and cultural constraints
placed on it by society.
(b) Corporate-level goals.... "Corporate-level goals consist of objectives and
targets that encompass management's expectations about the optimal
combination and types of business that make up the company.
(c) Business-level goals.. ·.. ·Business-level goals specify the performance
objectives and targets of each strategic business unit.
-177-
178
(d) Functional-level goals· .. ··· The point of this goal is to define several aims for
each department in such a way that their achievement of business-level goals.
Goal Levels
Societal
Corporate
Business
Functional
Integrates
Organization with environment
Business units
Functional departments
Work units
Guide Behavior of
Corporate leaders
Corporate staff
Business managers
Functional managers
4- 2- 3. Internal and external audit
Proceed to settlement of goals it IS required to audit internal and external
environments to take assessment of an organization's strength, weaknesses,
opportunities, and threats (commonly referred to as SWOT analysis).
External environments consist of political, economic, technological, and
sociocultural factors, from which threats and opportunities for company are found.
Internal diagnosis is required to the functional areas of marketing, personnel and
union relations, production, research and development, etc., especially financial
dimensions, as to financial ratio, liquidity, coverage, profitability, leverage, and
activity(20}
4-2-4. Formulation of Policy
Owing to formulate strategy the policy must be prepared. Policies were defined
as guides to action within which goals established and strategies are determined. So
policies tend to limit the scope of alternatives that must be considered In
implementing of strategies(21}
F. R. David defines policies as the means by which stated goals will be achieved,
or as guidelines established to support efforts to achieve stated goals, so policies have
two distinguishing characteristics: (l) they are guides to decision making, and (2) they
are established for situations that are repetitive or recurring in the life of a strategy.
Policy can be established at the corporate level and apply to an entire organization, or
they can be established at the divisional level and apply to a single division, or they
can be established at the functional level and apply to only certain operational
-178-
On Strategies and Actions of Enterprise 179
asctivities or departments, and policies, like goals, are particularly important In the
strategy implementation process(22)
4-2-5. Strategic alternatives
Company has a wide variety of options to choose a strategy, as the above
mentioned (section 3), L. L. Byars shows from another demensions as follows

1 . Stable growth strategies
2. Growth strategies
a. Concentration on a single prod uct or service
b. Concentric diversification
c. Vertical integration
d. Horizontal diversification
e. Conglomerate diversificaion
3. Mergers
4. Joint ventures
5 . Harvesting strategies
6. Retrenchment strategies
a. Turnaround strategies
b. Divestment strategies
c. Liquidation strategies
7 . Combination strategies
Also G. Boseman, A. Phatak and R. E. Schellenberger show the type of
strategies, and when they are usueful(24)
(Strategy)
Stability
Growth
(Substrategy)
Internal
Penetration
Expansion
External
Integration
-179-
180
Diversification
Retrenchment
Combination
Cutback and Turnaroud
Divestment
Liq uidation
Stability······In mature industry; environment of firm is changing slowly; firm is
currently.
Penetration...... Firms has small market,share operating in an expanding market.
Expansion...... Firm is early in product life-cicle; firm has resources to move into
new geographical areas or modify current product(s) or service(s).
Integration ...... Company needs to control finished products or raw materials.
Requires massive capital.
Diversification...... Firm has excess cash flow; product has become obsolete; new
tax legislation implemented; competition has increased.
Cutback and Turnaround...... Firm IS faced with short-term environmental
changes.
Divestment ...... Short-term environmental changes become permanent.
Liquidation.. · .. ·Firm no longer competes effectively.
Combination...... Firm faces enonomic transition; firm IS in transition for new
product or service offered.
4-3. Strategy Implementation
Strategy implementation is also a process that establish goals and policies for
setting strategies in business and functional levels to excute the corporate strategy for
attainment of upper goals. So following actions are characterized.
4-3-1. Matching organizatinal structure with strategy
To excute the strategies in each functional department organization structure
must be fit and suitable to strategy implementation. So it is required to change from
the traditional organizational structure as functional- or divisional to project team,
strategic business unit or matrix structure.
-180-
On Strategies and Actions of Enterprise 181
4-3-2. Creating an organizational climate
In order to gain the better performance from the labor, it is indispensable to get
the best contribution from individual in organization. So corporate culture favorable to
individual is required as well as training or education.
L. W. Rue and P. G. Hollands define that corporate culture is a unique set of
characteristics which makes it possible to distinguish one organization from another,
and show four generic culture from two dimensions as follows

Degree of Risk
(High) (Low)
(Rapid) Tough-guy Work-hard-play-
Speed of macho culture hard culture
Feedback (Slow) Bet-your-company Process
culture culture
Tough Guy, Macho Culture...... When stakes are high and feeddback is rapid, the
ability to make quick decisions and to live with the risks requires toughness.
Teamwork is not important, and every cohort is ignored, and there is no
opportunity to learn from mistakes. It tends to reward individuals who are
temperamental and shortsighted.
Work-Hard-Play-Hard Culture...... When risks are small and feedback is rapid,
activity is the key to success. Rewards accrue to persistence and the ability
to find a need and fill it. Because of the need for volume, team players who
thrive are friendly and outgoing.
Bet-Your-Company Cluture...... In this situation, large investments must be made
in long-term projects. It is vital to make the right decisions, so the company
moves slowly and deliberately.
Process Cluture...... In low-risk situations with little feedback, employees must
focus on the way things are done rather than on the outcome of what is
done. Workers in this atomosphere become cautious and protective. Those
-181-
182
who thrive are orderly, punctual, and detail-oriented.
4-3-3. Allocating Resources
Types of resources available in an organization are classified as bellow:
Financial ...... liquid assets, liabilities, and equity which include cash, receivables,
marketable securities, bonds, stock, bank notes, working capital, retained
earnings, and net income.
Physical ...... tangible assets, which include plants, equipment, land, inventorry, raw
materials, facilities, and machinery.
Human...... people, such as top managers, divisional managers, department
managers, engineers, scientists, lawyers, accountants, skilled employees, and
unskilled.
Technological ...... · knowledge, skills, methods, and tools that enable a firm to
carryon its chosen activities, which includes the quality control systems,
computer systems, accounting systems, management information systems,
engineering, R&D, and communication systems.
Resource allocation consist of four basic steps, as follows(26)
1 . Develop an inventory of the total resources available to the firm.
2. Develop an inventory of each division's resources and each department's
resources.
3 . Develop division and departmental resource request.
4. Allocate resources appropriately to each division and department.
4-4. Evaluation
Control of the organization within a strategic management system is concerned
with achieving goals by carrying out strategies effectively and efficiently.
Effectiveness refers to how well an organization achieves its goals - produces
expected results. Efficiency, however, is the amount of output per unit of input and
relates more to the nature of internal operastions.
Evaluation process consits of the following four phases
J27
) (I) Select key valuables
that will become the major evaluative criteria for determining whether goals have
-182-
On Strategies and Actions of Enterprise 183
been achieved and strategies appropriately carried out. (2) Set standards for key
valiables that represent levels of satisfactory performance. (3) Measure performance
against standards to detect deviations. (4) Take action either to reinforce correct
performance or to correct substandard performance.
Conclusion
Every company has always many problems to solve, which are brought through
the change of environment. Under the circumstance especially management must
innovate the company to growth, so they have to catch the opportunities of
innovation, for which formulate the strategy to get good result, in other words to solve
type "B" problem.
Strategy, formulated by top management, must be excuted correctly by all
participants of organization. From this point of view strategic management is
emphasised recently.
At the same time not only management but also all participants must solve the
problems may be happened at any place and time, type "A" problems with strategic
behavior, happen to tempolary and occationally.
Strategic management is the strategic behavior by all participants of organization
for the company growth to solve both problem type "A" and "B".
Notes:
e1) Masami Nishikado, Strategic Management in Modern Enterprise, Hakutoh
Shobou, 1984, pp. 11-14
e2) Joseph A. Schumpeter, Theorie der Wirtschajtlichen Entwicklung, 1912,
e3) Peter F. Drucker, Innovation and Entrepreneurship, William Heinemann Ltd.,
1985, pp. 27-32
e4) Kemmeth R. Andrews, Business Policy: Text and Case, Richard D. Irwin, Inc.,
1965, p.3
-183-
184
(5) Peter F. Drucker, The Practice of Management, William Heineman Ltd., 1954
( 6) Alfred D. Chandler Jr., Strategy and Structure: The History of the Industrial
Enterprise, 1962, p. 11
( 7) Charles W. Hofer & Dan Schendel, Strategy Formulation: Analytical
Concepts, West Publishing Company, 1978, pp.16-17
(8) H. Igor Ansoff, Corporate Strategy, McGraw-Hill, Inc., 1965
(9) Charles W. Hofer & Dan. Schendel, op. cit., pp.27-29
(10) Leslie W. Rue and Phyllis G. Holland, Strategic Management: Concepts and
Experiences, McGraw-Hill Book Company, 1986, p.12
(1) Robert A. Comerford and Dennis W. Callaghan, Strategic Management: Text,
Tools, and Cases for Business Policy, Kent Publishing Co., 1985, pp. 98-110
(2) Ibid., pp.1l5-116
(3) Ibid., p. 117
(4) Glenn Boseman, Arvind Phatak and Robert E. Schellenberger, Strategic
Management: Text and Cases, John Wiley & Sons, Inc., 1986, pp.5-1O
(5) Fred R. Dvid, Fundamentals of Strategic Management, Merrill Publishing
Company, 1986, pp.4-6
(16) Ibid, pp.88-90
(7) Robert A. Comaford amd Dennis W. Callaghan, op. cit., p.85
(8) Fred R. David, op. cit., pp. 88-90
(9) Robert A. Comerford and Dennis W. Callaghan, op. cit., pp.90-91
(20) Glenn Boseman et al., op. cit., pp. 116-119
(21) Fred R. David, op. cit., chapter 4 and 5
(22) Ibid., p. 13
(23) Lloyd 1. Byars, Strategic Management - Planning and Implementation:
Concepts and Cases, Harper & Row Publishers, 1984, p. 78
(24) Glenn Boseman et a!., op. cit., p.69
(25) Lesllie W. Rue and Phyllis G. Holland., op. cit., pp.437-445
(26) Fred R.David, op. cit., pp.311-312
-184-
On Strategies and Actions of Enterprise 185
(27) Robert A. Comaford and Dennis W. Callaghan, op. cit., pp.205-210
* This paper is prepared to offer a preliminary information on managemant strategy
and strategic management for foreign student in our seminar.
-185-
doc_918370251.pdf