Business Finance
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Case Summary

1. In a narrative format, discuss FedEx from a strategic perspective. Information concerning recent changes in the firms is readily available online and should be accessed. Strategic issues should be discussed in “real time.”

Case Analysis

2. How has Fedex managed to maintain technical superiority (i.e., reliability, service, package tracking, etc.) in its industry? Can Fedex continue to do so in the future? Why or why not?

Case Analysis

3. Give examples of two prominent crises FedEx could face in the future. What steps should the company take to prepare for these crises?


4. Suppose you are the CEO of a start-up firm in the package delivery industry. You have plenty of capital to work with, but little infrastructure and no management team in place. What strategy would you pursue and why?

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Strategy Formulation 9 Chapter Outline W 9-1 Strengths and Weaknesses R9-2 Human Resources I 9-2a Board of Directors G 9-2b Top Management H 9-2c Middle Management, Supervisors, and Employees T9-3 Organizational Resources 9-4 Physical Resources , 9-5 Opportunities and Threats 9-6 The SW/OT Matrix S9-7 Issues in Strategy Formulation H 9-7a Evaluating Strategic Change E 9-7b Social Responsibility and Managerial Ethics R 9-7c Effects on Organizational Resources 9-7d Anticipated Responses from Competitors and Customers R9-8 Summary YKey Terms Review Questions and Exercises 2Practice Quiz 7Notes 9Reading 9-1 3 B U 9781111219802, Strategic Management: Theory and Practice, John Parnell - © Cengage Learning 200 Chapter 9 A SWOT Analysis An analysis intended to match the firm’s strengths and weaknesses (the S and W in the acronym) with the opportunities and threats (the O and T ) posed by the environment. Gap Analysis Identifying the distance between a firm’s current position and its desired position with regard to an internal weakness. All things equal, it is desirable to take action to close a gap, especially when it leaves a firm vulnerable to external threats in its environment. Value Chain A useful tool for analyzing a firm’s strengths and weaknesses and understanding how they might translate into competitive advantage or disadvantage. The value chain describes the activities that comprise the economic performance and capabilities of the firm. Strategic Capabilities The mechanism through which individuals in an organization coordinate efforts along one or more resources to solve a particular problem. fter a firm’s external and internal environments have been analyzed, it is necessary to review its stated mission and goals to ensure that they are compatible with the firm’s internal characteristics and its external environment. Reconsidering the firm’s current strategic initiatives is the first step in evaluating its activities and thinking about what the firm should be doing. After the firm’s mission and ongoing strategic directions are well understood, the organization can begin to craft a strategy. The first step in this process, a SWOT (strengths, weaknesses, opportunities, and threats) analysis, enables the firm to position itself to take advantage of select opportunities in the environment while avoiding or minimizing environmental threats.1 In doing so, the organization attempts to emphasize its strengths and moderate the potential negative consequences of its weaknesses. Sometimes referred to as TOWS, the SWOT analysis also helps uncover strengths that have not yet been fully utilized and identify weaknesses that can be corrected. Matching information about the environment with knowledge of the organization’s capabilities enables management to formulate realistic strategies for attaining its goals.2 W R 9-1 Strengths and Weaknesses I The first two elements of the SWOT analysis—strengths and weaknesses—represent internal firm attributes.GIn addition, a firm’s strengths and weaknesses are considered relative to key competitors in its industry. In other words, customer loyalty would H be viewed as a strength or weakness for an organization if it is believed to be greater T in that firm than in most others in the industry. Hence, strengths can be viewed as artifacts of past success ,in an organization, whereas weaknesses can be seen as gaps between an organization’s current position and the industry norm. As an extension of this logic, the notion of gap analysis seeks to identify the distance between a firm’s current position and itsS desired position with regard to an internal weakness. When possible, a firm should H take action to close the gap, especially when the gap leaves a firm vulnerable to external threats in its environment. The value chain is aE useful tool for analyzing a firm’s strengths and weaknesses and understanding how R they might translate into competitive advantage or disadvantage. The value chain describes the activities that comprise the economic R performance and capabilities of the firm. Specifically, the value chain identifies primary activities (i.e.,Y those directly related to the firm’s product or service) and support activities (i.e., those that assist the primary activities) which create value for customers. As such, the value chain is a conceptual foundation for assessing firm strengths and weaknesses. 2 By considering all of the firm’s processes from the procurement of raw materials 7 product or service, strategic managers can identify disto the delivery of a final crete activities performed 9 along the way that may add exceptional value to the end product or detract from it.3 For example, in March 2002, after a gradual decline 3 in travel agency commissions throughout the industry, Delta Airlines announced an end to most of the B commissions it pays to travel agents. With Delta’s ability to trim sales costs through direct selling, the airline no longer believed that domestic U travel agents were adding sufficient value to justify the expense. As is often true with such moves in the airline industry, most other major airlines followed suit.4 Firm resources—both tangible and intangible—ultimately constitute the firm’s strengths and weaknesses.5 Merely possessing a resource, however, does not always result in any tangible benefit to the organization. Resources are translated into desired results by strategic capabilities, the mechanism through which individuals in an organization coordinate efforts along one or more resources to 9781111219802, Strategic Management: Theory and Practice, John Parnell - © Cengage Learning Strategy Formulation 201 solve a particular problem. Although resources and capabilities are sometimes used interchangeably, the distinction between the two is an important one.6 The three broad categories of firm resources are as follows: • Human resources: the experience, capabilities, knowledge, skills, and judgment of all the firm’s employees • Organizational resources: the firm’s systems and processes, including its strategies at various levels, structure, and culture • Physical resources: plant and equipment, geographic locations, access to raw materials, distribution network, and technology In an optimal setting, all three types of resources work together to provide the firm with a competitive advantage that can be sustained. According to the resource-based perspective discussed in Chapter 1, a firm must utilize resources that are long lasting and not easily acquired by rivals through imitation, transfer, or replication if it is to sustain competitive advantage. When a firm’s strategic success is dependent on resources that can readily be acquired by competitors, that success is likely to be temporary. A consideration of an organization’s strengths W and weaknesses is a means of objectively assessing its resource base. R 9-2 Human ResourcesI G The most attractive organizational and physical resources are useless without a H competent workforce of managers and employees. A firm’s human resources can be examined at three levels: (1) the boardT of directors, (2) top management, and (3) middle management, supervisors, and employees. , 9-2a Board of Directors Because board members are becoming increasingly involved in corporate affairs, S they can materially influence the firm’s effectiveness. In examining their strengths and weaknesses, one should consider the H following issues. E members. Strong board members pos1. Prospective contributions of corporate board sess considerable experience, knowledge, and judgment, as well as valuable outside R political connections. 2. Tenure (experience) as members of the R corporate board. Long-term stability enables board members to gain organizational knowledge, but some turnover is beneficial Y because new members often bring a fresh perspective to strategic issues. 3. Connection to the firm (i.e., internal or external) and ability to represent various stakeholders. Although it is common for several 2 top managers to be board members, a disproportionate representation of them diminishes the identity of the board as a group apart from top management. Ideally,7board members should represent diverse stakeholders, including minorities, creditors, customers, and the local community. A 9 diverse board membership can contribute to the health of the firm. 3 cant stock ownership may increase the 4. Present level of investment in the firm. Signifi board’s responsiveness to shareholders, while significant bond holdings may heighten B its concern for creditworthiness and result in a risk-averse posture on strategic issues. U 9-2b Top Management Three issues should be considered relative to the strengths and weaknesses of any firm’s top management. 1. Backgrounds and capabilities of top managers. Comprehending their strengths and weaknesses in experience, managerial style, decision-making capability, and team building is useful. Although having executives who possess an intimate knowledge of 9781111219802, Strategic Management: Theory and Practice, John Parnell - © Cengage Learning Source: 202 Chapter 9 the firm and its industry can be advantageous, managers from diverse and complementary backgrounds may generate innovative strategic ideas. In addition, an organization’s management needs may change as the firm grows and matures. Because firms are often started by innovative entrepreneurs who happen to be poor administrators, they often add key administrators to the top management team, which includes the group of top-level executives—headed by the CEO—all of whom play instrumental roles in the strategic management process. 2. Tenure (experience) as members of top management. Although lengthy tenure can mean consistent and stable strategy development and implementation, low turnover may breed conformity, complacency, and a failure to explore new opportunities. CEO turnover is even desirable when the firm is unable to meet its performance targets. 3. Strengths and weaknesses of individual top managers. Some executives may excel in strategy formulation, for instance, but be weak in implementation. Some may spend considerable time on internal stakeholders and operations, whereas others may concentrate on external constituents. As with the board of directors, it is helpful for board members to possess complementary skills to function well as a team. In addition, several large companies offer financial incentives to sign and retain top executives with W knowledge critical to the firm. R 9-2c Middle Management, Supervisors, and Employees I Even the best strategies will fail without a talented workforce to implement them. G A firm’s personnel and their knowledge, abilities, commitment, and performance tend to reflect H the firm’s HR programs. These factors can be explored by considering five key issues. T 1. Existence of a comprehensive HR planning program. Developing such a program requires that the firm, forecast its personnel needs, including types of positions and requisite qualifications, for the next several years based on its strategic plan. 2. Strategically relevant knowledge or expertise possessed by members of the firm. S emphasis on retaining high-quality individuals in critical areas Many firms place a great such as R&D or sales. HThis is a vital issue when a firm is heavily involved in global competition. Interestingly, all companies claim to have the best workforce, but clearly this is not always the E case. 3. Emphasis on trainingRand development. Some firms view training and development as a strategic issue and seek long-term benefits from its training programs. In contrast, R as a short-term necessity and emphasize cost minimization in other firms view training their programs. Y 4. Turnover. High turnover relative to levels among close competitors generally reflects personnel problems such as poor management–employee relations, low compensation or benefits, or low2job satisfaction due to other causes. 5. Emphasis on effective performance appraisal (PA). Progressive firms utilize PA 7 to provide accurate feedback to managers and employees, link rewards to actual performance, and show 9 managers and employees how to improve performance, as well as comply with all equal employment opportunity requirements. Firms that 3 do not adequately appraise high performers—and reward them—are more likely to lose them. B U 9-3 Organizational Resources The alignment between organizational resources and business strategy is critical for long-term success. Researchers have utilized the term dynamic capabilities to refer to the set of specific and identifiable processes controlled by an organization, such as product development and strategic decision making.7 In this regard, seven key issues are noteworthy. 9781111219802, Strategic Management: Theory and Practice, John Parnell - © Cengage Learning Strategy Formulation 1. Consistency among corporate, business, and functional strategies. To facilitate strategy integration, managers at the corporate, business unit, and functional level should be represented at each level of strategic planning. The strategy at each level should influence and be influenced by the strategy at the other levels. 2. Consistency between organizational strategies and the firm’s mission and goals. The mission, goals, and strategies must be compatible and integrated to reflect a clear sense of identity and purpose for the organization. 3. Consistency between the firm’s strategies and its culture. For a strategy to be effective, it must be supported by an organizational culture that emphasizes values that support it. 4. Consistency between the firm’s strategies and its structure. It is important to note any structural changes that might be required should the organization seek to implement a major change in strategy. 5. Position in the industry. All things equal, firms that possess strong market positions are in a better position to implement strategic changes than those in weak positions. For firms operating globally, this assessment must be made in the various nations in W which the firm operates. 6. Product and service quality. It is importantRto comprehend how quality levels of the firm’s products and services compare with those of rival firms. 7. Reputation of the firm and/or brand. Many Ifirms have established reputations for factors such as high quality and customer service. G A 2004 Financial Times global survey identified strength in brands such as General Electric, Microsoft, Toyota, IBM, and WalH on scandal-ridden firms such as Enron, Mart. In contrast, little confidence was placed 8 Parmalat, and WorldCom. T , 9-4 Physical Resources Physical resources can differ considerably from S one organization to another, even among close competitors. For example, requires different physical H plants than a software consulting firm. Nonetheless, five issues concerning the strengths and weaknesses of physical resources E should be considered. 1. Currency of technology. All things equal, R competitors with superior technology and the ability to use it have a decided competitive advantage in the marketplace. This R be assessed in each of the nations in is especially true in global markets and should which the firm operates. Y 2. Quality and sophistication of distribution network. Distribution networks apply to both manufacturing and service concerns. The American Airlines domination of passenger gates at Dallas–Fort Worth Airport and Delta’s 2 similar control in Atlanta give both of these service companies a competitive advantage. 3. Production capacity. A continual backlog 7 of orders may indicate a growing market acceptance of a firm’s product, or it may9depict serious problems associated with insufficient capacity. Capacity may be expanded by increasing production shifts or 3 can be costly. obtaining additional facilities, but such measures 4. Reliable access to cost-effective sourcesB of supplies. Suppliers who are unreliable, lack effective quality control programs, or cannot control their costs well do not foster U a competitive advantage for the buying firm. 5. Favorable location(s). Ideally, the organization should be located where skilled labor, suppliers, and customers are readily accessible. The unique combination of a firm’s human, organizational, and physical resources—as transformed into capabilities—should be emphasized in its strategy. As the firm acquires additional resources, unique synergies occur between its new and existing resources. Because each firm possesses its own distinct 9781111219802, Strategic Management: Theory and Practice, John Parnell - © Cengage Learning 203 204 Chapter 9 Case Analysis 9-1 Step 16: What Strengths Exist for the Organization? Step 17: What Weaknesses Exist for the Organization? Although resources and strategic capabilities are the foundation for a firm’s strengths and weaknesses, it is not necessary to discuss the transition from resources to strengths and weaknesses in this section. Rather, the organization’s strengths and weaknesses should be listed, each with as much depth and justification as possible. Many possible organizational strengths and weaknesses can emanate from its resource base, including but not limited to the following: 1. Advertising 19. Labor relations 2. Brand names 20. Leadership 3. Channel management 21. Location 4. Company reputation W 5. Computer information system R 6. Control systems I 7. Costs 8. Customer loyalty G 9. Decision making H 10. Distribution T 11. Economies of scale , 22. Management 12. Environmental scanning 30. Public relations 13. Financial resources 31. Purchasing 23. Manufacturing and operations 24. Market share 25. Organizational structure 26. Physical facilities and equipment 27. Product/service differentiation 28. Product/service quality 29. Promotion S 14. Forecasting 32. Quality control H 15. Government lobbying 33. Research and development 16. Human resources E 34. Sales 17. Inventory management 35. Technology and patents R 18. Internet presence R To set the stage for the remainder of the analysis, it is important to state clearly how Y the organization and how each weakness has hindered it. In each strength has helped many instances, the strengths are the primary catalysts for the organization’s successes, and its weaknesses are the main reasons why it has failed in certain endeavors. 2 7 9 the particular types of synergies that occur will differ combination of resources, from one firm to another. 3 Leveraging these synergies into sustained competitive advantages is a key task of top management (see Case Analysis 9-1). B U 9-5 Opportunities and Threats The last two elements of the SWOT analysis—opportunities and threats—are associated with factors outside the organization. As such, they emerge from the earlier analyses of the industry and the macroenvironment (i.e., political-legal, economic, social, and technological forces). Although an industry-level analysis may identify general factors, this stage moves to the firm level and considers how the external forces could affect the organization under consideration. For example, an analysis 9781111219802, Strategic Management: Theory and Practice, John Parnell - © Cengage Learning Strategy Formulation of the social forces affecting investment houses may identify consumer acceptance of the Internet as a social force affecting the industry. Considering online broker Ameritrade, this force may be translated into both opportunities (e.g., a growing market of potential online investors who are still utilizing traditional brokers) and threats (e.g., intense competition from the myriad of Internet sources that may erode the loyalty of current customers to Ameritrade offerings). External opp ...
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