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Balanced Scorecard

By: Tawatao, Christelle Joyce Y.


Balanced Scorecard is Kaplan and Nortons organization performance management tool. What exactly is a
Balanced Scorecard? A definition often quoted is: 'A strategic planning and management system used to align
business activities to the vision statement of an organization'. More cynically, and in some cases realistically, a
Balanced Scorecard attempts to translate the sometimes vague, pious hopes of a company's vision/mission statement
into the practicalities of managing the business better at every level. In other words, it enables the company to clarify
their vision and strategy, and translate them into action.

Introduction of the Types of Strategies


Integration happens when one company owns another business in the chain.
Forward Integration- involves the control over the direct distribution of its products. A good example of
forward integration is when a farmer sells his/her crops at the local market rather than to a distribution
center. Another example is
Backward Integration- involves the purchase of suppliers. Companies will pursue backward integration when
it will result in improved efficiency and cost savings. For example, backward integration might cut
transportation costs, improve profit margins and make the firm more competitive.
Horizontal Integration- seeking ownership or increased control over competitors. For example, mergers,
acquisition and takeover among competitors.
Market Penetration- the activity or fact of increasing the market share of an existing product, or promoting a new
product, through strategies such as bundling, advertising, lower prices, or volume discounts.
Market Development- introducing present products or services into new geographic area
Product Development- seeking increased sales by improving present product or services or
developing new
ones. For example, book publishers who began producing books wherein you can also download it.
Related Diversification- it is when a business adds or expands its existing product lines or markets. For example, a
phone company that adds or expands its wireless products and services by purchasing another wireless company
is engaging in related diversification.
Unrelated Diversification- adding new, unrelated products or services. For example, if a shoe manufacturer enters
the industry of garments manufacturing.
Retrenchment- regrouping through cost and asset reduction to reverse declining sales
Divestitures- involve a sale, spinoff or liquidation of a business unit, line or subsidiary. For example, a company
sells or liquidate one of its branches thats not going well to lessen the expenses.
Liquidation- involves shutting down a business and selling off or distributing its assets. Many small business
owners exit their businesses through liquidation. For example, a retailer that suffered a loss on its business may
find no one interested in buying the company as a going concern.

Levels of Strategies
In large firms, there are actually four levels of strategies: corporate, divisional, functional, and operational. However,
in small firms, there are actually three levels of strategies: company, functional and operational.
a. Corporate Levelthis strategy seeks to determine what businesses a company should be in or wants to be
in which the CEO is responsible of. Corporate strategy determines the direction that the organization is going
and the roles that each business unit in the organization will plan in pursuing that direction.

b. Divisional/Business Unit Levelsometimes called business strategy or business unit strategy, the second
level of strategy is concerned with directing the divisions within the organization. Its important, however, that
divisional strategies work in line with the overall corporate strategy in order to achieve organizational goals.
This is the responsibility of the executive vice president.
c. Functional Levelfunctional level strategies in marketing, finance, operations, human resources, and R&D
involve the development and coordination of resources through which business unit level strategies can be
executed efficiently and effectively.
d. Operational Levelthis strategy seeks to determine the methods that the companies should use to reach
their objectives. By developing operational strategies, a company can examine and implement effective and
efficient systems for using resources, personnel and the work process. The persons primarily responsible of this
strategy includes the plant managers, sales managers, production and department managers.

Diversification Strategies
By: Montemayor, Jasmin L.
Diversification is the art of entering product markets different from those in which the firm is currently
engaged in.
Reasons for diversification include:
(1) Reducing risk of relying on only one or few income sources, (2) Avoiding cyclical or seasonal fluctuations by
producing goods or services with different demand cycles,
(3) Achieving a higher growth rate, and
(4) Countering a competitor by invading the competitor's core industry or market.

Many companies appreciate the need to diversify but few use it as a way of relating to their markets.
Fundamentally, this strategy is about creating new products with new product life cycles and making the existing
ones obsolete.
By doing so, firms launch new products that are developed not just for current customers but for new ones,
too. To execute this strategy, you usually manage a merger, an acquisition, or a completely new business venture.
Well-known, highly innovative companies include Intel, Google, DuPont, and all the pharmaceutical
companies. A companys diversification strategy can be either related or unrelated to its original business. Related
diversification makes more sense than unrelated because the company shares assets, skills, or capabilities. But many
successful companies, such as Tyco and GE, continue to buy unrelated businesses.

Types of Diversification Strategy

1. Related diversification is one in which the two involved businesses have meaningful commonalties,
which provide the potential to generate economies of scale or synergies based upon the exchange of skills or
resources. In a related diversification the resulting combined business should be able to achieve improved Return on
Investment because of increased revenues, decreased costs, or reduced investment, which are attributable to the
commonalties.
An important issue in any diversification decision is whether, in fact, there is a real and meaningful area of
commonality that will benefit the ultimate Return on Investment. If such a meaningful commonality is lacking, the
diversification may still be justifiable, but the rationale will need to be different.
Reasons for Related Diversification
A.) Exchanging skill and resources.
Related diversification provides the potential to attain synergies by the exchanged or sharing of skills or
resources. One business unit must have skills or resources that are exportable to another company or business unit.
Thus, a first condition for successful related diversification is to identify skills or resources that are exportable or that
are needed and can be imported!
The second condition is to find a partner or business unit that can either provide or use them. The third is to ascertain
whether the organizational integration needed to accomplish the exchange is feasible. Skills or resources that can be
usefully imported or exported can take a variety of forms.

B.) Leveraging a brand name.


One commonly found resource that is exportable is a strong established brand name like Coca-Cola,
Microsoft, Pepsi, Puma, BMW, or Nivea. For instance, Puma extended its presence to the sunglass market in 20082009.
C.) Using shared marketing skills and knowledge.
Usually a firm will either possess or lack a strong skill in marketing for a particular market. Thus, a frequent
motive to diversify is to export or import a marketing talent.
D.) Service.
A small company can often create or enter a market area and do well with an innovative product. As the
market matures, however, the necessity for a strong service organization becomes important. The smaller firm might
then consider joining forces with a larger firm which has a service organization that can be adapted to the involved
product. Typical example is the Bluetooth technology of Blackberry.
E.) Access to research and development and new product capabilities.

A firm may be highly skilled at R&D and new product development, but it may lack skills in either
marketing or production. Godrej is marketing the mosquito repellent Good knight and mango juice jumpin, which
are typical products of small entrepreneurs. Sun silk shampoo of HUL is manufactured in SSI units of Pondicherry.
F.) Achieving economies of scale.
Related diversification can sometimes provide economies of scale. Two smaller consumer product firms, for
example, may not be able to afford an effective sales force, new product development or testing program, or
warehousing and logistics systems. However, the two firms together may be able to operate at an efficient level.
Similarly, two firms when combined may be able to justify an expensive piece of automated production equipment.
G.) Risks of related diversification.
Even related diversification can be risky. There are three major problems. First, relatedness and potential
synergy simply dont exist. Strategists delude themselves that there is a synergistic justification not on the basis of
judgement supported by a thorough external and self-analysis, but by manipulating semantics.
Second, potential synergy may exist but is never realized because of implementation problems. This happens when
the diversification move involves integrating two organizations that have fundamental differences and/or because
one of the two organizations lacks the ability or motivation to undertake necessary programs to make the
diversification work.
Third, possible violations of antitrust laws in the west and MRTP (Monopolies and Restrictive Trade Practice) law in
India create an additional risk when an acquisition or merger is involved. Ironically, as the degree of relatedness and
the synergy potential increase so does the possibility of an antitrust or MRTP problem. Jet Airways and Sahara deal
is a typical example.
2. Unrelated Diversification
Unrelated diversification has nothing to do with leveraging your current business strengths or weaknesses. Its more
about not putting all your eggs in one basket. For example, an investor diversifies his financial portfolio to protect
against losses. Many entrepreneurs execute this strategy unknowingly by becoming involved in multiple, unrelated
businesses. Unrelated diversification is the most risky of all the market level strategies.
Reasons for Unrelated Diversification
A.) Entering business areas with high ROI prospects.
A basic diversification motivation is to improve ROI by moving into business areas with high ROI prospects.
One approach is to enter high growth business areas. According to life style consumption study by Edelweiss
Securities, organized retail trade in India is now finding its feet. Its share in the total retail pie is set to increase from
the current 2 per cent to about 10 per cent by 2010. This will translate into approximately, 400 billion of retail trade
by 2010.
B.) Obtaining a bargain price for a business.
Another way to improve the ROI is to acquire a business at a bargain price so the involved investment is low
and the associated ROI is therefore high.

C.) The potential to restructure a firm.


Allen, Oliver, and Schwallie, three Booz Allen acquisition specialists have suggested another possibility: that
an acquisition can provide the basis for a restructuring of the acquired firm, the acquiring firm, or both.
D.)Reducing risk.
The reduction of risk can be another motivation for unrelated diversification. The heavy reliance upon a single
product line can stimulate a diversification move. Reducing risk can also lead to entering into businesses that will
counter or reduce the cyclical nature of the existing earnings.
E.) Risks of unrelated diversification:
The very concept of an unrelated business, where by definition there is no possibility to improve that
business through synergy, suggests risk and difficulty. Many knowledgeable people have made blanket statements
warning against unrelated diversification. Peter Drucker claims that all successful diversification requires a common
core or unity represented by common markets, technology, or production processes. He states that without such a
unity, diversification can never work; financial ties alone are insufficient.

Michaels Porters Five Generic Strategies


By: Co, Erika Mae
Probably the three most widely read books on competitive analysis in the 1980s were Michaels Porters
Competitive Strategy, Competitive Advantage and Competitive Advantage of Nations. According to porter, strategies
allow organizations to gain competitive advantage from the three different bases: cost leadership, differentiation, and
focus.
Cost leadership emphasizes producing standardized products at a very low per-unit cost of consumers who are price
sensitive.
Types of cost leadership
1 Low-cost strategy that offers products or services to a wide range of customers at the lowest price available
on the market.
2 Best-value strategy that offers product or services to a wide range of customers at the best price value
available on the market.
Differentiation is a strategy aimed at producing products and services considered unique industry wide and directed
customers at customers who are relatively price insensitive.
Focus means producing of products and services that fulfill the needs of small groups of consumers.
a Low-cost focus strategy that offers products or services to a small range of consumers at the lowest price
available in the market.
b Best value focus strategy that offers products or services to a small range of customers at the best price
available in the market.

Porters Five Generic Strategies


Type 1: Cost Leadership Low Cost
Type 2: Cost Leadership Best Value
Type 3: Differentiation
Type 4: FocusLow Cost

Type 4: Focus Best Value

Porter's Generic Strategies

Designed by Michael Porter in 1979, Porters Generic Strategies is a frameworks used to outline the three
major strategic options open to organizations that wish to achieve a sustainable competitive advantage. Each of the
three options needs to be considered within the context of two aspects of the competitive environment. Firstly, the
sources of competitive advantage which establish whether the products are differentiated in any way, or if they are
the lowest cost producer in the industry. Secondly, the competitive scope of the market determines if the company
targets a wide market or if it focuses on a very narrow niche market.
The three generic strategies which this creates are cost leadership, differentiation and focus represented
diagrammatically as shown in Figure above.
Cost Leadership Strategies
The cost leader in any market gains competitive advantage from being able to produce products at the lowest cost. To
achieve success by using this strategy, the company has to be the cost leader, rather than one of the firms trying to
achieve the position. Some ways to obtain these low costs include unique access to sources of low cost materials,
outsourcing, efficient manufacturing and avoiding supplementary costs. Usually low cost companies adopt this
principle for all their activities and departments. A low cost producer usually finds and exploits all sources of cost
advantage, including selling a standard, no frills product.

When employing a cost leadership strategy, a firm must be careful not to use such aggressive price cuts that their
own profits are low or non existent. Constantly be mindful of cost-saving technological breakthroughs or any other
value chain advancements that could erode or destroy the firms competitive advantage, a type 1 and 2 cost
leadership strategy can be specially effective under the ff conditions:

1
2

When price competition among rival sellers is especially vigorous.


When the products or rival sellers are essentially identical and suppliers are readily available from any of
several eager sellers.
3 When there are few ways to achieve product differentiation that have value to buyers.
4 When most buyers use the product in the same ways.
5 When buyers incur low costs in switching their purchases from one seller to another.
6 When buyers are large and have significant power to bargain down prices.
7 When industry new comers use introductory low prices to attract buyers and build a customers base.
A differentiation strategy focuses on designing a product or service with unique qualities that customers perceive as
being better than the products of the competition. This allows companies to desensitize prices and to focus on those
features which generate value. This leads to higher prices as creating a competitive advantage requires additional
costs which the company will hope to recover through higher prices. Additionally, producers need to segment
markets in order to target goods and services for each specific segment, thus generating a higher price than the
average. The downside to this strategy is that these unique features will eventually be copied by the competition or
customers could change their tastes and options, so there is a constant pressure to innovate and continuously
improve.
A type 3 differentiation strategy can be especially effective under the ff conditions:
1 When there are many ways to differentiate the product or services and ,any buyers perceive these differences as
having value.
2 When buyers needs and uses are diverse.
3 When few rival firms are following a similar differentiation approach.
4 When technological change id fast paced and competition resolves around rapidly evolving product features
Finally, the focus strategy applies to a narrow segment that is concentrated neither on cost advantage nor on
differentiation. Usually companies using this strategy have a reduced size, focus all their resources and efforts on a
narrow and well defined segment of market, and have the advantage of a high degree of customer loyalty. They can
therefore pass higher costs on to their customers because close substitute products or services are less likely to exist.
Disadvantages are that these small specialized niches may disappear over the longer term and it is also possible that
some broad market cost-leader companies start imitating or adapting their products in order to compete directly.
Porter also mentions that in order to achieve success on a long term, a company must select only one of these
generic strategies. Otherwise, there is the danger of trying all and achieving none, thus creating a confusing image
and remaining stuck in the middle, without being able to create a true competitive advantage.
A low cost and best value focus strategy can be especially attractive under the following conditions:
1 When the target market niche is large, profitable, and growing.
2 When industry leaders do not consider the niche to be crucial to their own success.
3 When industry leaders consider is too costly or difficult to meet the specialized needs of the target market
niche while taking care of their mainstream customers.
4 When the industry has many different niches and segments, thereby allowing a focuser to pick a
competitively attractive niche suited to its own resources.
5 When few, if any, other rivals are attempting to specialize in the same target segment.

Means for Achieving Strategies


By: Pingol, Janella Mae V.

Strategies that are categorized under the goals are the means of achieving.
Cooperation among Competitors
Firms are moving to compete as groups within alliances more and more as it becomes increasingly difficult to
survive alone in some industries. An example of this is Collaboration; it is a joint effort of multiple individuals or
work groups to accomplish a task or project. Both firms must contribute something distinctive, such as technology,
basic research or manufacturing capacity. One of the risks of doing this kind of strategy is that firms often give away
too much information to rival firms when operating under cooperative agreements. Therefore, tighter formal
agreements are needed.
Joint Venture/Partnering
Joint Venture/ Partnering are a business agreement in which the parties agree to develop, for a finite time, a new
entity and new assets by contributing equity. They exercise control over the enterprise and consequently share
revenues, expenses and assets. Joint ventures and cooperative arrangements are being used increasingly because they
allow companies to improve communications and networking, to globalize operations, and to minimize risk.
Joint ventures and partnerships are often used to pursue an opportunity that is too complex, uneconomical or risky
for a single firm to pursue alone. A major reason why firms are using partnering as means to achieve strategies is
Globalization. Globalization is a product of technology which triggers the urge of a company to form alliances with
others.
Why some Joint Venture fails?

Managers who must collaborate daily in operating the venture are not involved in forming or shaping the
venture
The partnering may benefit the company and not the customers
The Venture may not be supported equally by both partners
May begin to compete with one of the partners

Six Guidelines for when a Joint Venture maybe an especially effective means for pursuing Strategies

Synergies between privately owned organization and publicly owned organization held
Domestic with foreign firm, local management can reduce risk such as harassment by host country officials
Complementary distinctive competencies. Where both firms complement each other especially well
Resources and risks where project is highly profitable. The higher the risk, the higher the return
Two or more smaller firms competing with larger firm

Merger/Acquisition
Merger and Acquisition is a general term used to refer to the consolidation of companies.
A Merger is a combination of two companies to form a new company,
while an
Acquisition is the purchase of one company by another in which no new company is formed.

Hostile Takeover occurs when a merger/acquisition is not desired by both parties. In contrast, if it is desired by both
parties, it is called Friendly Merger.

Parties to the acquisitions:


1. The target company (or target) is the company being acquired.
2. The acquiring company (or acquirer) is the company acquiring the target.
An example of Target-Acquirer relationship is when the company's stock prices have plunged in
many companies; their rivals with cash are eyeing them as a target.
3. The White knight is a term that refers to a firm that agrees to acquire another firm when that other firm is
facing a hostile takeover.

Potential Benefits of Merging with or Acquiring another Firm


1. To provide improved capacity utilization
2. To reduce managerial staff
3. Gain economies of scale
4. to smooth out season trends in sale
5. to gain new access to suppliers
6. to gain new technology
7. to reduce tax obligation

Key Reasons Why many Mergers and Acquisitions Fail:


Explanation

Integration Difficulties

Difficulties with bringing together smaller components into


a single system that functions as one.

Inadequate evaluation of target

Acquirers may pay more for the target firm than its worth

Large or extraordinary debt

If the acquisition is financed with debt, the costs related to


significant increase in debt may squeeze firm's cash flows

Inability to achieve synergy

The value to be gained from synergy is overestimated


because of failure to consider the integration and
coordination costs that may be incurred

Too much diversification

The businesses that the firm owns is beyond the expertise of


managers, they depend too much on financial control rather
than more effective strategic control.

Managers overly
acquisitions

focused

Too large an acquisition

Difficult to integrate
organizational cultures

on The managers may neglect the firm's core businesses

The combined firm may become too large to manage


efficiently and effectively
different Both companies fundamental ways of working are so
different and so easily misinterpreted by one another which
leads to misunderstanding among the organization

Reduced employee morale due to Employee downsizing which is commonly feared by many
layoffs and relocation
employees working in the corporate world.

Leveraged Buyout (LBO) refers to the acquisition or takeover of a company where a significant amount of
money is borrowed to meet the acquisition cost.

First Mover Advantages


First Mover Advantages refer to the benefits a firm may achieve by entering a new market or developing a new
product or service prior to rival firms.
Slow mover also called as the fast follower or late mover, These kind of firms/strategy can only be effective when
the first mover's products or services can be copied or imitate easily. They can leapfrog the first mover's products
with improved second-generation products. However since they just relied on to the first mover, they often make
strategic and tactical mistakes.

Potential Advantages
1. Securing access to rare resources

2. Gaining new knowledge of key factors and issues


3. Carving out Market Share
4. Easy to defend position and costly for rival firms to overtake

Outsourcing
Business-Process Outsourcing (BPO) is a subset of outsourcing that involves the contracting of operations and
responsibilities of specific functions such as human resources, information systems, payroll, accounting, customer
services, etc. to a third party service provider.

Reasons why companies choose to outsource their functional operations:


1. It is less Expensive
2. Allow firms to focus on core businesses
Since there is a division of labor, managers can focus more or even enhance their specialties more.

3. It enables firm to provide better services


The company are able to focus on specializing their products and services to provide them at its best
quality

Strategic Management for NGOs


By: Bermachea, Noemi S.
A nonprofit organization is formed for the purpose of serving a public or mutual benefit other than the
pursuit or accumulation of profits for owners or investors. "The nonprofit sector is a collection of entities that are
organizations; private as opposed to governmental; non-profit distributing; self-governing; voluntary; and of public
benefit" (Solamon 10). The nonprofit sector is often referred to as the third sector, independent sector, voluntary
sector, philanthropic sector, social sector, tax-exempt sector, or the charitable sector.
Strategic management is a process in which an organization determines what it wants to accomplish in the
future, what actions need to be taken to achieve these goals and what resources the organization needs to reach its
goals, which include people, capital and facilities. The planning process is equally beneficial to organizations in
business to make a profit and nonprofit organizations.
Differences with For-Profit Companies
Strategic management in for-profit companies is focused on how to successfully compete against other
companies seeking the same customers. Success is measured in revenue growth and increased profitability, which

demonstrates that the company was able to provide an acceptable return on investment for its shareholders.
Nonprofit organizations also want to increase their cash flow, but their overall goal is to increase the number of
people they serve.
Why Strategic Management/Planning Is Necessary
Strategic planning allows the nonprofit entity to utilize its human and financial resources more effectively.
Expenditures are prioritized based on judgments about the impact they will have on improving service quality.
Nonprofits often are asked to provide a strategic plan to large potential donors, similar to how business enterprises
present their plans to venture capital sources. The strategic plan serves as a guide to the nonprofits management
group and ensures that all members of the team are working toward the same goals, with the same priorities.
Who Should Participate
The organizations executive director and other senior staff members should be involved in the strategic
planning process, as well as the board of directors. Key donors may also be consulted, and representatives of the
client groups the organization serves. Strategic planning works best when there is an open exchange of ideas and
input is solicited from everyone with a stake in the organizations progress.
Mission Statement
A nonprofit organization has a mission statement that defines its reason for being--whom it intends to serve
and what good it seeks to accomplish for society. The scope of the mission changes over time. Each year the
organization should revisit its mission statement and revise it if necessary so it accurately reflects the organizations
current objectives.
Current Environment and Future Vision
The organization scans its current environment for new opportunities to serve the community and tries to
anticipate threats, such as the potential for declining donations due to an economic recession. Future vision means
looking ahead three to five years, and defining what the organization will look like at the end of that time--how it
will have grown and what it will have achieved.
Goals and Strategies
Goals chart a course for taking the organization from where it is now to the more successful future it
envisions. A nonprofit organization that serves meals to the homeless could have numerical goals for increasing the
number of meals it serves by 20 percent, doubling the number of volunteers and raising the level of donations by 25
percent. Strategies address what actions are required to reach each of the goals.
Financial Forecast
The financial forecast is an important element of a nonprofits strategic plan, because even though success is
not measured in profits, efficient use of cash keeps the organization running smoothly. The forecast helps the
organization avoid cash shortfalls that could lead to having to cut back on programs or critically needed services.
Some examples of Nonprofit and Governmental Organizations
1 Bureau of Customs Department of finance
2 Government Service Insurance System
3 Social Security System
4 Government-owned and controlled corporations
5 ABS-CBN Lingkod Kapamilya Foundation, Inc. - Outreach programs for children, their families, the
environment, and community.