Sam’s Club in the United States has struggled to attract affluent shoppers. However, in China, Sam’s Club targets high-income consumers, and specifically affluent mothers with young children. Sam’s Club does a great job at positioning itself for the wealthy Chinese target market. Advertised as a trusted place with imported goods and high-quality foods, Sam’s Club stores are located in China’s most affluent cities. Its success thus far in China can be attributed largely to its effective market seg- mentation, targeting, and positioning.
Many large firms have trouble doing business in China despite the country’s high GDP, rising levels of disposable income, shift to becoming a high-tech nation, and growing middle class. But Walmart’s Sam’s Clubs are booming in China. Three of the top five Sam’s Clubs by sales are located in China. Rather than positioning itself as a place for bulk items and closeouts, Sam’s Clubs in China are positioned as a place for high-quality products and foods. For example, eggs are guaranteed to be less than 12 days old and all have a serial number that customers can enter into their smartphone and see the production date and origin.
Sam’s in China benefits from not having to “do battle” with Costco Wholesale; Costco does no business in China. Sam’s has roughly 2 million members in China, many whom are affluent moms age 35 to 40, a primary target group. The number of Sam’s stores in China is expected to increase from 20 at the start of 2018 to 40 by 2020. Sam’s in China recently provided “two-kid seat” carts in all stores to take advantage of China recently relaxing its “one-child policy.”
Another feature of Sam’s stores in China is extra large parking lots; nearly all customers drive to Sam’s and ample parking is greatly appreciated in a country where crowded and expensive parking is the norm otherwise. Sam’s strategies in China are an excellent example of how a firm must adapt it policies,
Kevin Foy/Shutterstock
Opportunity 1 Threat 1
Opportunity 3 Threat 3
RATINGS High
High
Low
Low
WEIGHTS
Middle
Opportunity 2 Threat 2
Opportunity 4 Threat 4
FIGURE 3- 5
A Weights-by-Ratings Matrix to Exemplify EFE Matrix Logic
1. http://finance.yahoo.com 2. www.hoovers.com 3. www.morningstar.com
4. www,mergentonline.com
5. http://globaledge.msu.edu/industries/
6. See Table 3-7 for Excellent Library Databases
Web Resources
Current Readings
Aggarwal, Vikas A., Hart E. Posen, and Maciej Workiewicz.
“Adaptive Capacity to Technological Change: A Microfoundational Approach.” Strategic Management Journal 38, no. 6 (June 2017): 1212–1231.
Cattani, Gino, Joseph F. Porac, and Howard Thomas.
“Categories and Competition.” Strategic Management Journal 38, no. 1 (January 2017): 64–92.
Chin, M. K. and Matthew Semadeni. “CEO Political Ideologies and Pay Egalitarianism within Top Management Teams.”
Strategic Management Journal 38, no. 8 (August 2017):
1608–1625.
Dowell, Glen W. S. and Suresh Muthulingam. “Will Firms Go Green if It Pays? The Impact of Disruption, Cost, and External Factors on the Adoption of Environmental procedures, features, and actions when it enters a foreign land to capitalize on external opportunities and threats in that country. What works in one country quite likely needs changing in another; pushing the same business model globally has spelled doom for many firms that enter China, and then soon withdraw.
Questions
1. Consider the following two-dimensional matrix with weights on the y -axis and ratings on the x -axis, as given in Figure 3- 5 . What are example opportunities and threats that could possi- bly characterize Sam’s Club in China in the four corners of the matrix? Develop a hypotheti- cal opportunity and threat for Sams’s that could be positioned in each of the four corners of the matrix. Give a supporting rationale for each factor. Which corner of the matrix do you think characterizes factors most commonly in an EFE Matrix? Why? Which corner of the matrix do you think characterizes factors least commonly in an EFE Matrix? Why? What could you say about the middle of the matrix in terms of factors commonly included in an EFE Matrix?
Note: A purpose of this mini-case is to give students practice thinking about when, in developing an EFE Matrix, could a particular factor receive the following weights and ratings:
1. a low weight and high rating 2. a high weight and high rating 3. a low weight and low rating 4. a high weight and low rating
Source; Based on Wayne Ma, “In China, Sam’s Goes Up Market and Scores,” Wall Street Journal , (December 8, 2017): B1.
Initiatives.” Strategic Management Journal 38, no. 6 (June 2017): 1287–1304.
Guo, Yidi, Quy Nguyen Huy, and Zhixing Xiao. “How Middle Managers Manage the Political Environment to Achieve Market Goals: Insights from China’s State-Owned Enterprises.” Strategic Management Journal 38, no. 3 (March 2017): 676–696.
Jia, Nan and Kyle J. Mayer. “Political Hazards and Firms’
Geographic Concentration.” Strategic Management Journal 38, no. 2 (February 2017): 203–231.
Li, Jing, Jun Xia, and Edward Zajac. “On the Duality of Political and Economic Stakeholder Influence on Firm Innovation Performance: Theory and Evidence from Chinese Firms.” Strategic Management Journal 39, no. 1, (January 2018): 193–216.
Madsen, Tammy L. and Gordon Walker. “Competitive Heterogeneity, Cohorts, and Persistent Advantage.”
Strategic Management Journal 38, no 2 (February 2017):
184–202.
Ocasio, William, Tomi Laamanen, and Eero Vaara.
“Communication and Attention Dynamics: An Attention- Based View of Strategic Change.” Strategic Management Journal 39, no. 1 (January 2018): 155–167.
Oehmichen, Jana, Sebastian Schrapp, and Michael Wolff.
“Who Needs Experts Most? Board Industry Expertise and
Strategic Change—A Contingency Perspective.” Strategic Management Journal 38, no. 3 (March 2017): 645–656.
Shepherd, Dean A., Jeffery S. McMullen, and William Ocasio.
“Is That an Opportunity? An Attention Model of Top Managers’ Opportunity Beliefs for Strategic Action.”
Strategic Management Journal 38, no. 3 (March 2017):
626–644.
Souder, David, Akbar Zaheer, Harry Sapienza, and Rebecca Ranucci. “How Family Influence, Socioemotional Wealth, and Competitive Conditions Shape New Technology Adoption.” Strategic Management Journal 38, Issue 9 (September 2017): 1774–1790.
Tan, David and Christopher I. Rider. “Let Them Go? How Losing Employees to Competitors Can Enhance Firm Status.” Strategic Management Journal 38, Issue 9 (September 2017): 1848–1874.
Verhaal, J. Cameron, Jake Hoskins, and Leif Lundmark. “Little Fish in a Big Pond: Legitimacy Transfer, Authenticity, and Factors of Peripheral Firm Entry and Growth in the Market Center.” Strategic Management Journal 38, Issue 12 (December 2017): 2532–2552.
Wei, Shi, Yan Zhang, and Robert E. Hoskisson. “Ripple Effects of CEO Awards: Investigating the Acquisition Activities of Superstar CEOs’ Competitors.” Strategic Management Journal 38, Issue 10 (October 2017): 2080–2102.
Endnotes
1. Josh Zumbrun, “Global Economic Expansion Exceeds Forecasts, IMF Says,” Wall Street Journal, (October 11, 2017): A8.
2. Mike Colias, “Ford Set to Shirt $7 Billion Toward Trucks and SUVs,” Wall Street Journal, (October 4, 2017): B3.
3. Shelly Banjo and Paul Ziobro, “Shoppers Flee Physical Stores,” Wall Street Journal, (August 6, 2014): B1.
4. Based on Vanessa Fuhrmans, “A Future Without Jobs? Think Again,” Wall Street Journal, (November 16, 2017): B5.
5. Arthur Thompson, Jr., A. J. Strickland III, and John Gamble, Crafting and Executing Strategy: Text and Read- ings (New York: McGraw-Hill/Irwin, 2005): 63.
6. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980): 24–27.
7. Dale McConkey, “Planning in a Changing Environment,”
Business Horizons 31, no. 5 (September–October 1988): 67.
4
Strategy Formulation
Feedback Loop
Strategy Implementation
Strategy Evaluation Chapter 10: Business Ethics, Environmental Sustainability, and Social Responsibility
Chapter 11: Global and International Issues
Strategy Evaluation
and Governance
Chapter 9 Implementing
Strategies:
Finance and Accounting
Issues Chapter 8 Implementing
Strategies:
Management and Marketing
Issues Chapter 7 Business
Vision and Mission Chapter 2
Strategies in Action Chapter 5
Strategy Analysis and
Choice Chapter 6
The Internal Assessment
Chapter 4 The External
Assessment Chapter 3
FIGURE 4- 1
The Comprehensive, Integrative Strategic-Management Model
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 1 (February 1989): 91. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna,
“Balance Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics and Technology , no. 4 (October 2010): 20.
123
ASSURANCE-OF-LEARNING EXERCISES
The following exercises are found at the end of this chapter:
SET 1 : Strategic Planning for Coca-Cola
EXERCISE 4A : Perform a Financial Ratio Analysis for Coca-Cola
EXERCISE 4B : Develop an IFE Matrix for Coca-Cola
SET 2 : Strategic Planning for My University
EXERCISE 4C : Construct an IFE Matrix for Your College or University
SET 3 : Strategic Planning for Myself
EXERCISE 4D : Construct an IFE Matrix for Yourself
SET 4 : Individual versus Group Strategic Planning
EXERCISE 4E : What Internal Functional Areas Are Most Important to Examine in Strategic Planning?
LEARNING OBJECTIVES
After studying this chapter, you should be able to do the following:
4- 1. Describe the nature and role of an internal assessment in formulating strategies.
4- 2. Discuss the nature and role of management in formulating strategies.
4- 3. Discuss the nature and role of marketing in formulating strategies.
4- 4. Discuss the nature and role of finance and accounting in formulating strategies.
4- 5. Discuss management information systems (MIS) in terms of formulating strategies.
4- 6. Explain how to develop and use an Internal Factor Evaluation (IFE) Matrix.
The Internal Assessment
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T
his chapter focuses on identifying and evaluating a firm’s strengths and weaknesses in the functional areas of business, including management, marketing, finance, accounting, and management information systems (MIS). Careful evaluation of a business’ functional areas is necessary to determine the firm’s core competencies and understand whether the firm’s current strategy is effectively working to provide a sustainable competitive advantage. One ex- cellent way to evaluate the effectiveness of a firm’s strategy is to study the firm’s financial per- formance relative to competitors and industry averages. Financial information alone, however, cannot provide a complete assessment of the effectiveness of a firm’s strategy, and strategists as well as students of strategy must dig deep into management, marketing, finance, accounting, and MIS issues simultaneously to fully understand why a firm’s strategy is effective or not.The first two-thirds of this chapter address potential strengths and weaknesses in the func- tional areas cited in terms of what, where, how, and why to obtain this information; the latter one-third of this chapter explains how to assimilate and use this information through develop- ment and evaluation of an Internal Factor Evaluation (IFE) Matrix.
Showcased as an exemplary strategist, Elon Musk does an excellent job using his company’s internal strengths to capitalize on external opportunities. Elon Musk has founded four different billion-dollar companies, PayPal, SolarX, Solar City, and Tesla. Once called a “technologist,”
Musk is revolutionizing the power and transportation industries and changing the world as we know it today.
The Internal Assessment Phase of Strategy Formulation
All organizations have strengths and weaknesses in the functional areas of business. No enter- prise is equally strong or weak in all areas. Objectives and strategies are established with the intention of capitalizing on internal strengths and overcoming weaknesses. The internal-audit part of the strategic-management process is illustrated in Figure 4-1 with white shading.
LO 4.1
Musk told his more than 17 million Twitter followers in late 2017 that Tesla in 2020 would manufacture an F-150–type pickup truck except all electric, following the company’s 2019 release of an all-electric com- mercial semitrailer truck.
Source: Based on Brian Deagon, “The New Space Race,” Investor’s Business Daily, September 11, 2017, B1 & B6. Also based on: http://www.rollingstone .com/culture/features/elon-musk-inventors-plans-for-outer-space-cars-finding- love-w511747 and https://www.cnbc.com/2017/11/21/how-tesla-and-elon- musk-became-household-names.html
EXEMPLARY STRATEGIST SHOWCASED
Elon Musk, CEO and Cofounder of Tesla, Inc. and Space
Exploration Technologies Corporation (SpaceX)
For more than a decade, Elon Musk has been a U.S. exemplary strategist on a mission to develop his rocket-ship company SpaceX and send humans on a 7-month, 34-million-mile journey to Mars.
Headquartered in Los Angeles County, Musk’s SpaceX already fer- ries supplies to and from the International Space Station. While pio- neering private space exploration and preparing to colonize planets, Musk has also catapulted Tesla to be the world’s leader in batteries that supply energy for cars, trucks, homes, businesses, and rockets.
SpaceX and Tesla aren’t the only companies started by Musk; he also started two other billion-dollar companies, PayPal and Solar City. Named the “Architect of the Future,” Musk was recently featured as a Rolling Stones Magazine cover story, highlighting his “world-changing plans to inhabit outer space, revolutionize high-speed transportation, and rein- vent cars.” As explained in Musk’s own words, his ambition stems in part by his unfettered optimism for the future of human existence:
Fundamentally, the future is vastly more exciting and interesting if we are a space-faring civilization and multi-planetary species than if we are not.
NASA
On the way to Mars?
Some researchers emphasize the importance of the internal-audit part of the strategic- management process by comparing it to the external audit in importance. Robert Grant, for example, concluded that the internal audit is more important, saying:
In a world where customer preferences are volatile, the identity of customers is chang- ing, and the technologies for serving customer requirements are continually evolving, an externally focused orientation does not provide a secure foundation for formulating long- term strategy. When the external environment is in a state of flux, the firm’s own resources and capabilities may be a much more stable basis on which to define its identity. Hence, a definition of a business in terms of what it is capable of doing may offer a more durable basis for strategy.1
Resource-Based View
The resource-based view (RBV) approach to competitive advantage contends that internal resources are more important for a firm than external factors in achieving and sustaining compet- itive advantage. Proponents of RBV theory contend that a firm’s performance is primarily deter- mined by internal resources that enable the firm to exploit opportunities and neutralize threats. A firm’s resources can be tangible, such as labor, capital, land, plant, and equipment, or intangible, such as culture, knowledge, brand equity, reputation, and intellectual property. Because tangible resources can more easily be bought and sold, intangible resources are often more important for gaining and sustaining competitive advantages.
A resource can be considered valuable to the extent that it is (1) rare, (2) hard to imitate, or (3) not easily substitutable. Often called empirical indicators, these three characteristics of resources enable a firm to implement strategies that improve its efficiency and effectiveness and lead to a sustainable competitive advantage. The more a resource(s) is rare (not held by many firms in the industry), hard to imitate (hard to copy or achieve), and not easily substitutable (invulnerable to threat of substitution from different products), the stronger a firm’s competitive advantage will be and the longer the advantage will last. Valuable resources comprise strengths that a firm can capitalize on to prosper in a given industry.
The basic premise of RBV theory is that the mix, type, amount, and nature of a firm’s internal resources should be considered first and foremost in devising strategies that can lead to sustainable competitive advantage. Managing strategically according to the RBV involves devel- oping and exploiting a firm’s unique resources and capabilities, and continually maintaining and strengthening those resources.
As indicated in the Ethics Capsule 4, exploiting a firm’s unique resources and capabilities can present ethical dilemmas.
Key Internal Forces
An internal strategic-management assessment includes analysis of how strong or weak a firm is in each functional area of business, including management, marketing, finance, accounting, and MIS. Uniqueness or distinctive competences a firm has or lacks in each area provides the foundation for identifying strength and weakness factors. Strengths that cannot be easily matched or imitated by competitors are called distinctive competencies. It is of paramount importance in strategic planning to capitalize on and nurture strengths because competitive advantages generally arise more from strengths, uniqueness, and distinctive competencies than from weaknesses. Improving on weaknesses, however, is a vital task for all organizations and generally helps to improve efficiencies, weaknesses are unlikely to develop into sustainable competitive advantages, thus stressing the importance of nurturing strengths.
It is impossible in a strategic-management text to review in depth all the material pre- sented in prior business courses; there are many subareas within these functions, such as customer service, warranties, advertising, packaging, and pricing under marketing. However, strategic planning must include a detailed assessment of how the firm is doing in all internal areas. Thus, an overview of each of the functional business areas from a strategy perspective is provided here. Regardless of the type or size of firm, effective strategic planning hinges on identification and prioritization of internal strengths and weaknesses because a firm must
continually capitalize on its strengths and improve on its weaknesses to gain and sustain com- petitive advantage.
Management
There are four basic activities that comprise management: planning, organizing, motivating, and controlling. An overview of these activities is provided in Table 4-1 because an organization should continually capitalize on its strengths and improve on its weaknesses in these four areas.
LO 4.2