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Strategic Planning Strategic Planning for Managers for Managers
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ContentsContents
1.1. Five Tasks of Strategic PlanningFive Tasks of Strategic Planning
2.2. Factors Shaping the Choice of StrategyFactors Shaping the Choice of Strategy
3.3. Three Tests of Best Strategy Three Tests of Best Strategy
4.4. Analyzing Industry Environment and Crafting Analyzing Industry Environment and Crafting
Competitive StrategyCompetitive Strategy
5.5. Strategy Implementation and ExecutionStrategy Implementation and Execution
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Five Tasks of Five Tasks of Strategic PlanningStrategic Planning
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Five Tasks of Strategic PlanningFive Tasks of Strategic Planning
Forming a
strategic
vision
Setting
objectives
Crafting a
strategy to
achieve the
desired
outcomes
Implementing
and executing
the chosen
strategy
Evaluating
performance,
monitoring new
developments,
and initiating
corrective
adjustments
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Forming a Strategic VisionForming a Strategic Vision
Forming a
strategic
vision
• Very early in the strategy-making
process, company managers need to
pose a set of questions:
• "What is our vision for the company
— where should the company be
headed, what should its future
technology-product-customer focus
be, what kind of enterprise do we
want to become, what industry
standing do we want to achieve in
five years?"
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Setting ObjectivesSetting Objectives
Setting
objectives
• The purpose of setting objectives is
to convert managerial statements of
strategic vision and business mission
into specific performance targets —
results and outcomes the
organization wants to achieve.
• Setting objectives and then
measuring whether they are
achieved or not help managers track
an organization's progress.
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Improve Cost Efficiency
Enhance Long-term Shareholder Value
Increase Revenue Growth
Enhance Brand Image
Build High Performance Products
Achieve Operational Excellence
Develop Strategic Competencies
Drive Demand through Customer
Relation Management
Manage Dramatic Growth through
Innovation
Implement GoodEnvironmental
Policy
Build Learning Culture
Expand Capabilities with Technology
Strategic Objectives in Four PerspectivesStrategic Objectives in Four Perspectives
Financial
Customer
Internal Process
Learning & Growth
Expand Market Share
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Crafting StrategyCrafting Strategy
Crafting a
strategy to
achieve the
desired
outcomes
• A company's strategy represents
management's answers to such fundamental
business questions as :
• whether to concentrate on a single business or build
a diversified group of businesses
• whether to cater to a broad range of customers or
focus on a particular market niche
• whether to develop a wide or narrow product line
• how to respond to changing buyer preferences
• how big a geographic market to try to cover
• how to react to newly emerging market and
competitive conditions
• how to grow the enterprise over the long term.
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What Does a Company's Strategy Consist Of?What Does a Company's Strategy Consist Of?
Crafting a
strategy to
achieve the
desired
outcomes
• Company strategies concern Company strategies concern how: how:
• how to grow the business
• how to satisfy customers
• how to outcompete rivals
• how to respond to changing market
conditions
• how to manage each functional piece of
the business and develop needed
organizational capabilities
• how to achieve strategic and financial
objectives
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Strategy Implementation and ExecutionStrategy Implementation and Execution
• Strategy implementation concerns the
managerial exercise of putting a freshly
chosen strategy into place
• Strategy execution deals with the managerial
exercise of supervising the ongoing pursuit of
strategy, making it work, and showing
measurable progress in achieving the
targeted results.
Implementing
and executing
the chosen
strategy
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Strategy Evaluation and MonitoringStrategy Evaluation and Monitoring
• It is management's duty to stay on top of
the company's situation, deciding
whether things are going well internally,
and monitoring outside developments
closely.
• Marginal performance or too little
progress, as well as important new
external circumstances, will require
corrective actions and adjustments.
Evaluating
performance,
monitoring new
developments,
and initiating
corrective
adjustments
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Strategy HierarchyStrategy Hierarchy
Corporate
Strategy
Business
Strategies
Functional Strategies (R&D,
Marketing, Manufacturing, HR,
Finance, etc.
Operating Strategies (regions,
plants, departments within
functional areas)
Strategy Strategy
hierarchy for hierarchy for
a diversified a diversified
companycompany
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Strategy HierarchyStrategy Hierarchy
Business
Strategies
Functional Strategies (R&D,
Marketing, Manufacturing, HR,
Finance, etc.
Operating Strategies (regions,
plants, departments within
functional areas)
Strategy hierarchy Strategy hierarchy
for for
a single-business a single-business
companycompany
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Strategy HierarchyStrategy Hierarchy
Corporate Corporate
Strategic VisionStrategic Vision
Functional Functional
Areas VisionsAreas Visions
Operating Unit VisionsOperating Unit Visions
Business-Level Business-Level
Strategic VisionStrategic Vision
Corporate Corporate
Strategic ObjectivesStrategic Objectives
Functional Functional
Areas ObjectivesAreas Objectives
Operating Unit Operating Unit
ObjectivesObjectives
Business-Level Business-Level
Strategic ObjectivesStrategic Objectives
Corporate Corporate
Strategic StrategyStrategic Strategy
Functional Functional
Areas StrategiesAreas Strategies
Operating Unit Operating Unit
StrategiesStrategies
Business-Level Business-Level
StrategyStrategy
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Factors Shaping Factors Shaping the Choice of Strategythe Choice of Strategy
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Factors Shaping the Choice of StrategyFactors Shaping the Choice of Strategy
Economic, Economic,
societal, political, societal, political,
and government and government
regulationsregulations
Competitive Competitive
conditions and conditions and
industry industry
attractivenessattractiveness
Company Company
opportunity and opportunity and
threatthreat
Company strengths Company strengths
and weaknesses, and weaknesses,
competencies and competencies and
capabilitiescapabilities
Personal ambitions Personal ambitions
and business and business
philosophies of key philosophies of key
executivesexecutives
Shared values and Shared values and
company culturecompany culture
External FactorsExternal Factors
Internal FactorsInternal Factors
The mix of considerations that determines
a company’s strategic situation
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Factors Shaping the Choice of StrategyFactors Shaping the Choice of Strategy
Economic, Economic,
societal, political, societal, political,
and government and government
regulationsregulations
• What an enterprise can and cannot do
strategywise is always constrained by
what is legal, by what complies with
government policies and regulatory
requirements, by what is considered
ethical, and by what is in accord with
societal expectations and the standards
of good social and community
citizenship.
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Factors Shaping the Choice of StrategyFactors Shaping the Choice of Strategy
• An industry's competitive conditions
and overall attractiveness are big
strategy-determining factors.
• A company's strategy has to be tailored
to the nature and mix of competitive
factors in play—price, product quality,
performance features, service, war
ranties, and so on.
Competitive Competitive
conditions and conditions and
industry industry
attractivenessattractiveness
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Factors Shaping the Choice of StrategyFactors Shaping the Choice of Strategy
• A company's strategy needs to be
deliberately aimed at capturing its best
growth opportunities, especially the
ones that hold the most promise for
building sustainable competitive
advantage and enhancing profitability.
• Strategy should also provide a defense
against external threats to the
company's well-being and fu ture
performance.
Company Company
opportunity and opportunity and
threatthreat
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Factors Shaping the Choice of StrategyFactors Shaping the Choice of Strategy
• One of the most pivotal strategy-shaping
internal considerations is whether a
company has or can acquire the
resources, competencies, and capabilities
needed to execute a strategy proficiently.
• The best path to competitive advantage is
found where a firm has competitively
valuable resources and competencies,
where rivals can't develop comparable
capabilities except at high cost or over an
extended period of time.
Company Company
strengths and strengths and
weaknesses, weaknesses,
competencies and competencies and
capabilitiescapabilities
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Factors Shaping the Choice of StrategyFactors Shaping the Choice of Strategy
• Managers do not dispassionately assess
what strategic course to steer.
• Their choices are typically influenced by
their own vision of how to compete and
how to position the enterprise and by what
image and standing they want the
company to have.
Personal Personal
ambitions and ambitions and
business business
philosophies of philosophies of
key executiveskey executives
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Factors Shaping the Choice of StrategyFactors Shaping the Choice of Strategy
• An organization's policies, practices,
traditions, philosophical beliefs, and ways
of doing things combine to create a
distinctive culture.
• The stronger a company's culture, the
more that culture is likely to shape the
company's strategic actions, sometimes
even dominating the choice of strategic
moves.
Shared values Shared values
and company and company
cultureculture
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Strategic Analysis and Strategic ChoicesStrategic Analysis and Strategic Choices
Analyzing Analyzing
strategically strategically
about industry about industry
and competitive and competitive
conditionsconditions
Analyzing Analyzing
strategically strategically
about a about a
company’s own company’s own
situationsituation
What strategic What strategic
options does the options does the
company company
realistically realistically
have?have?
What is the best What is the best
strategy?strategy?
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Strategic Analysis and Strategic ChoicesStrategic Analysis and Strategic Choices
Analyzing Analyzing
strategically strategically
about industry about industry
and competitive and competitive
conditionsconditions
The Key Questions
• What are the industry’s dominant economic
features?
• What is causing the industry’s competitive
structure and business environment to change?
• Which companies are in the strongest/weakest
positions?
• What strategic moves are rivals likely to make
next?
• What are the key factors for competitive success?
• Is the industry attractive and what are the
prospects for above-average profitability?
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Strategic Analysis and Strategic ChoicesStrategic Analysis and Strategic Choices
Analyzing Analyzing
strategically strategically
about a about a
company’s own company’s own
situationsituation
The Key Questions
• How well is the company’s present
strategy working?
• What are the company’s strengths,
weaknesses, opportunities, and threats?
• Are the company’s prices and costs
competitive?
• How strong is the company’s competitive
position?
• What strategic issues does the company
face?
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Three Tests of Best StrategyThree Tests of Best Strategy
The The Performance Performance
TestTest
The The Competitive Competitive Advantage Advantage
TestTest
The The Goodness of Goodness of
Fit TestFit Test
The Best The Best
StrategyStrategy
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• A good strategy has to be well matched
to industry and competitive conditions,
market opportunities and threats, and
other aspects of the enterprise's
external environment.
• At the same time, it has to be tailored to
the company's resource strengths and
weaknesses, competencies, and
competitive capabilities.
Three Tests of Best StrategyThree Tests of Best StrategyThe The
Goodness of Goodness of Fit TestFit Test
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• A good strategy leads to sustainable
competi tive advantage.
• The bigger the competitive edge that
a strategy helps build, the more
powerful and effective it is.
Three Tests of Best StrategyThree Tests of Best StrategyThe The
Competitive Competitive Advantage Advantage
TestTest
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• A good strategy boosts company
performance.
• Two kinds of performance
improvements are the most telling of
a strategy's caliber: gains in
profitability and gains in the
company's competitive strength and
long-term mar ket position.
Three Tests of Best StrategyThree Tests of Best StrategyThe The
Performance Performance TestTest
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Analyzing Industry Environment Analyzing Industry Environment
and Designing Competitive Strategyand Designing Competitive Strategy
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Porter’s Five ForcesPorter’s Five Forces
RivalryRivalry
Buyer Buyer PowerPower
Supplier Supplier PowerPower
Threats of Threats of SubstitutesSubstitutes
Barriers to Barriers to EntryEntry
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The Intensity of RivalryThe Intensity of Rivalry
1. A larger number of firms
2. Slow market growth
3. High fixed cost
4. High storages costs or highly
perishable products
5. Low switching cost
6. Low level of product differentiation
7. Strategic stakes are high
8. High exit barriers
9. A diversity of rivals
10. Industry shakeout
The intensity of
rivalry is influenced
by the following
industry
characteristics:
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Barriers to EntryBarriers to Entry
Entry barriers
are influenced by
the following
factors :
1. Absolute cost advantages
2. Proprietary learning curve
3. Access to inputs
4. Government policy
5. Economies of scale
6. Capital requirements
7. Brand identity
8. Switching costs
9. Access to distribution
10. Expected retaliation
11. Proprietary products
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Threats of SubstitutesThreats of Substitutes
Threats of
substitutes
are influenced by
the following
factors :
1. Switching costs
2. Buyer inclination to
substitute
3. Price-performance trade-off
of substitutes
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Buyer PowerBuyer Power
Buyer power
is influenced by
the following
factors :
1. Bargaining leverage
2. Buyer volume
3. Buyer information
4. Brand identity
5. Price sensitivity
6. Threat of backward integration
7. Product differentiation
8. Buyer concentration vs. industry
9. Substitutes available
10. Buyers' incentives
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Supplier PowerSupplier Power
Supplier power
is influenced by
the following
factors :
1. Supplier concentration
2. Importance of volume to supplier
3. Differentiation of inputs
4. Impact of inputs on cost or
differentiation
5. Switching costs of firms in the
industry
6. Presence of substitute inputs
7. Threat of forward integration
8. Cost relative to total purchases
in industry
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Dominant Economic Characteristics of the Industry Environment (market size and growth rate,
geographic scope, number and sizes of buyers and sellers, pace of technological change and
innovation, scale economies, experience curve effects, capital requirements, and so on)
Competitive Analysis Rivalry among competing sellers Threat of potential entry Competition from substitutes Power of suppliers Power of consumers
Competitive Position of Major Companies/ Strategic Groups. Those that are favorably positioned, and why Those that are unfavorably positioned, and why
Competitor Analysis Strategic approaches/predicated moves of key competitors Whom to watch, and why
Industry Key Success Factors
Industry Prospects and Overall Attractiveness Factors making the industry attractive Factors making the industry unattractive Special industry issues/problems Profit outlook (favorable/unfavorable)
Sample Form for an Industry and Competitive Analysis SummarySample Form for an Industry and Competitive Analysis Summary
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Five Generic Competitive StrategiesFive Generic Competitive Strategies
Overall Low Cost
Leadership Strategy
Overall Low Cost
Leadership StrategyDifferentiation
Strategy
Differentiation
Strategy
Focused Low Cost
Strategy
Focused Low Cost
StrategyFocused
Differentiation
Strategy
Focused
Differentiation
Strategy
Low CostLow CostLow CostLow Cost DifferentiationDifferentiationDifferentiationDifferentiation
Broad Market Broad Market SegmentSegment
Narrow Market Narrow Market SegmentSegment
Best Cost Strategy
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Five Generic Competitive StrategiesFive Generic Competitive Strategies
Overall Low Cost
Leadership
Strategy
Overall Low Cost
Leadership
Strategy
Broad
Differentiation
Strategy
Broad
Differentiation
Strategy
Appealing to a broad spectrum of customers
based on being the overall low-cost provider
of product and service
A differentiation strategy calls for the
development of a product or service that
offers unique attributes that are valued by
customers and that customers perceive to
be better than or different from the products
of the competition
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Five Generic Competitive StrategiesFive Generic Competitive Strategies
Overall Low Cost
Leadership
Strategy
Overall Low Cost
Leadership
Strategy
Broad
Differentiation
Strategy
Broad
Differentiation
Strategy
Appealing to a broad spectrum of customers
based on being the overall low-cost provider
of product and service
A differentiation strategy calls for the
development of a product or service that
offers unique attributes that are valued by
customers and that customers perceive to
be better than or different from the products
of the competition
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Five Generic Competitive StrategiesFive Generic Competitive Strategies
Best Cost StrategyBest Cost Strategy • Giving customers more value for the
money by incorporating good-to-
excellent product attributes at a lower
cost than rivals
• The target is to have the lowest (best)
costs and prices compared to rivals
offering products with comparable
upscale attributes
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Generic Strategies and Industry ForcesGeneric Strategies and Industry Forces
IndustryForce
Generic Strategies
Cost Leadership Differentiation Focus
EntryBarriers
Ability to cut price in retaliation deters potential entrants.
Customer loyalty can discourage potential entrants.
Focusing develops core competencies that can act as an entry barrier.
BuyerPower
Ability to offer lower price to powerful buyers.
Large buyers have less power to negotiate because of few close alternatives.
Large buyers have less power to negotiate because of few alternatives.
SupplierPower
Better insulated from powerful suppliers.
Better able to pass on supplier price increases to customers.
Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.
Threat ofSubstitutes
Can use low price to defend against substitutes.
Customer's become attached to differentiating attributes, reducing threat of substitutes.
Specialized products & core competency protect against substitutes.
RivalryBetter able to compete on price.
Brand loyalty to keep customers from rivals.
Rivals cannot meet differentiation-focused customer needs.
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Strategy Implementation and Strategy Implementation and ExecutionExecution
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Strategy ImplementationStrategy Implementation
Building a capable
organization
Designing strategy-
supportive reward system
Creating a strategy-
supportive corporate
culture
Exerting strategic
leadership
Linking budget to strategy
Establishing strategy-
supportive policies and
procedures
Instituting best practices and
commitment to continuous
improvement
Installing information system
to support strategy execution
HR & Organization HR & Organization Development FactorDevelopment Factor
System FactorSystem Factor
Effective
Strategy
Execution
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Building a Capable OrganizationBuilding a Capable Organization
Building a Building a
capable capable
organizationorganization
Building a Building a
capable capable
organizationorganization
Staffing the organizationStaffing the organization• Putting together a strong management team• Recruiting and retaining talented employees
Staffing the organizationStaffing the organization• Putting together a strong management team• Recruiting and retaining talented employees
Building Core Competencies and Capabilities Building Core Competencies and Capabilities • Developing competence/capability portfolio
suited to current strategy • Updating and reshaping the portfolio as external
conditions and strategy change
Building Core Competencies and Capabilities Building Core Competencies and Capabilities • Developing competence/capability portfolio
suited to current strategy • Updating and reshaping the portfolio as external
conditions and strategy change
Structuring the Organization and Work Effort Structuring the Organization and Work Effort • Organizing business function and processes,
value chain activities, and decision making
Structuring the Organization and Work Effort Structuring the Organization and Work Effort • Organizing business function and processes,
value chain activities, and decision making
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Strategy-supportive Reward SystemStrategy-supportive Reward System
Designing Designing
strategy-strategy-
supportive supportive
reward reward
systemsystem
• Strategy-supportive motivational practices
and reward systems are powerful
management tools for gaining employee
buy-in and commitment.
• The key to creating a reward system that
promotes good strategy execution is to
make strategically relevant measures of
performance the dominating basis for
designing incentives, evaluating individual
and group efforts, and handing out
rewards.
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Strategy-supportive Corporate CultureStrategy-supportive Corporate Culture
Creating a Creating a
strategy-strategy-
supportive supportive
corporate corporate
cultureculture
• Building a strategy-supportive culture is
important to successful strategy execution
because it produces a work climate and
organizational esprit de corps that thrive
on meeting performance targets and
being part of a winning effort.
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Strategic LeadershipStrategic Leadership
Exerting Exerting
strategic strategic
leadershipleadership
• Strategic leaders encourage people to be
innovative in order to keep the
organization responsive to changing
conditions, alert to new opportunities, and
anxious to pursue fresh initiatives.
• Strategic leaders also actively push
corrective actions to improve strategy
execution and overall strategic
performance.
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Linking Budget to StrategyLinking Budget to Strategy
Linking Linking
budget to budget to
strategystrategy
• Reworking the budget to make it more
strategy-supportive is a crucial part of the
implementation process because every
organization unit needs to have the
people, equipment, facilities, and other
resources to carry out its part of the
strategic plan.
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Strategy-supportive PolicyStrategy-supportive Policy
Establishing Establishing
strategy-strategy-
supportive supportive
policies and policies and
proceduresprocedures
• Prescribing new or freshly revised policies
and operating procedures aids the task of
implementation (1) by promoting
consistency in how particular strategy-
critical activities are performed in
geographically scattered operating units
and (2) by helping to create a strategy-
supportive work climate and corporate
culture.
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Continuous Improvement Continuous Improvement
Instituting Instituting
best practices best practices
and and
commitment commitment
to continuous to continuous
improvementimprovement
• Competent strategy execution entails
visible, unyielding managerial commitment
to best practices and continuous
improvement.
• Benchmarking, the discovery and
adoption of best practices, and six sigma
initiatives all aim at improved efficiency,
better product, and greater customer
satisfaction.
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Information Support System Information Support System
Installing Installing
information information
system to system to
support support
strategy strategy
executionexecution
• Company strategies can’t be implemented
well without a number of support system
to carry on business operations.
• Well-conceived, state-of-the-art support
system not only facilitate better strategy
execution but can also strengthen
organizational capabilities enough to
provide a competitive edge over rivals.
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Recommended Further ReadingsRecommended Further Readings
1. Arthur Thompson and A.J. Strickland III, Strategic Management :
Concept and Cases, McGraw-Hill
2. Michael Porter, Competitive Strategy : Techniques for Analyzing
Industries and Competitors, Free Press
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