Alternatives Are Analysed On The Basis Of – Strategic options are developed to determine the direction in which a firm’s human and physical resources will be used for greater probability of achieving selected objectives. Strategy is a unified concept and for this reason, it is often used in different ways.
But this difference creates a big problem when some authors focus on the end point (mission, goals, objectives) and the means to achieve it (policies and plans), while others emphasize only the means and not the ends of the strategic process.
Alternatives Are Analysed On The Basis Of
Strategy, as already stated, refers to defining a business’s goal or mission and major long-term goals and adopting a course of action and allocating the resources necessary to achieve those goals.
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Policies are general statements that guide managers’ thinking in making decisions. They provide a broad boundary within which decisions must be made.
Refers to the direction in which human and material resources will be used with the aim of increasing the probability of achieving the chosen objectives.
The basic function of strategies and policies is integrated and direct planning. But if one of them is alone, he can hardly ensure that an organization achieves its goals.
Strategic planning appears to be a simple exercise. Analyzes current and anticipated future conditions, determines business direction and develops means to achieve goals.
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Strategic planning is a very complex process that requires a systematic approach to identify and analyze factors external to the organization and match them with the company’s capabilities.
Strategy making is involved in determining the ways an organization can take to achieve its performance goals, undermine competitors, gain competitive advantage and ensure the long-term survival of the organization.
In a diversified company, a company that has different business areas under one umbrella, strategies start at four levels.
Corporate strategy is formulated at the highest level by the top management of a diversified company (in our country, a diversified company is known as a “group of companies”, such as Alphabet Inc.). Such a strategy describes the company’s overall direction regarding its various business and product lines.
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A corporate strategy, for example, might be to acquire major tissue paper companies in Canada to make P&G the undisputed market leader.
Corporate-level strategy is the set of strategic options that an organization chooses from as it manages its operations in multiple industries and multiple markets simultaneously.
It is a strategy at the business unit level, formulated by the unit’s senior management. This strategy focuses on strengthening the company’s competitive position in products or services.
Business strategy includes all actions and approaches to compete with competitors and ways management solves various strategic problems.
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As observed by Hitt and Jones, business strategy consists of plans of action by strategic managers to use a firm’s resources and specific capabilities to gain a competitive advantage over competitors in the market.
Business strategy is often shaped by corporate strategy. The main objectives of business strategy are product development, innovation, integration (vertical, horizontal), market development, differentiation and the like.
And competitive advantage comes from strategies that bring some uniqueness to the market. Winning competitive strategies are based on sustainable competitive advantage.
Business strategy is about actions taken by managers to improve the company’s market position through customer satisfaction. Improving market position involves taking action against competitors in the industry.
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Thus, the concept of competitive strategy (as opposed to cooperative strategy) is competition oriented. The objective of competitive strategy is to win the hearts of customers by satisfying their needs and ultimately surpass competitors (or rival companies) and gain competitive advantages.
The success of a competitive strategy depends on the company’s capabilities, strengths, and the capabilities, strengths, and weaknesses of its competitors.
In doing business, companies face many strategic issues. Management has to deal effectively with all these issues to survive in the market. Business strategy deals with these issues, besides how to compete.
Firm-level strategy is the set of strategic options from which an organization conducts business in a particular industry or market.
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Such options help the organization to focus its efforts on each industry or market in a targeted manner.
Thus, there may be product strategy, marketing strategy, advertising strategy, sales strategy, human resource strategy, inventory strategy, financial strategy, training strategy, etc.
Functional strategy refers to a strategy that emphasizes a specific functional area of an organization. It is designed to achieve specific objectives of the business unit by increasing the productivity of resources.
For example, the production department of a manufacturing company develops a product strategy as a departmental strategy, or a training department develops a “training strategy” to train employees.
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Functional strategy is the development of specific capabilities to give a business unit a competitive advantage.
Each business unit or company has its own divisions and each division has an operational strategy. Operational strategies are adopted to support competitive strategy.
For example, a company pursuing a low-cost competitive strategy needs a product strategy that emphasizes on reducing the cost of operations and also a human resource strategy that emphasizes on keeping the least number of highly qualified employees to work for the organization.
Other operational strategies such as marketing strategy, advertising strategy and financial strategy should also be properly shaped to support the firm’s competitive strategy.
Solved 1 Compare The Alternatives C And D On The Basis Of A
Business strategy is formulated in the functional units of the organization. A company may develop an operations strategy, for example, for its plant, region, or small divisions of a division.
Typically, field-level operators/managers develop business strategies to achieve immediate goals. In large organizations, operations managers are usually assisted by middle managers in developing operations strategy.
In some companies; Managers “develop an operating strategy for each set of annual objectives within a division or divisions.
So; While they develop business-level strategies for each industry or market, they also develop an overall strategy that helps define the industry and the mix of markets the firm is interested in. 2 The objective of Chapter 6 is to properly evaluate capital investment options. Value for money is the main influence.
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In this chapter we examine viable design options. Deliberative decisions are those that choose between a set of mutually exclusive alternatives – when the choice of one precludes the choice of any of the others.
We only consider them based on financial reasons. Options may have different initial investments and may have different annual income and expenses. Alternatives must provide comparable “usefulness”: performance, quality, etc. The basic methods in Chapter 5 provide the basis for economic comparison of alternatives.
As long as the option requires the least capital investment and produces satisfactory operating results, the increased capital associated with the higher investment option cannot be justified relative to its increased benefits. This option is the default option.
If the additional benefits from investing the additional capital are better than the benefits that could be obtained from investing the same capital elsewhere in the firm at MARR, then the investment should be made. (Note that there are some caveats when considering more than two options, which will be discussed later.)
Solved Problem 2:(17 Points) Compare The Alternatives A And
Alternative investments that have an initial (or upfront) capital investment that generates positive cash flow from increased revenue, savings through reduced costs, or both. Expenditure alternatives that have all negative cash flows except the potential positive cash flows from asset disposal at the end of the project’s useful life.
For an alternative investment, the PW of all cash flows must be positive at the MARR to be attractive. Select the option with the largest PW. For cost alternatives, the PW of all cash flows will be negative. Select the option with the largest (smallest in absolute value) PW.
Use a MARR of 10% and a useful life of 5 years to choose from the following alternative investment options. Alternative A B Capital investment – $100,000 – $125,000 Annual revenue minus expenses $34,000 $41,000 Both options are attractive, but alternative B provides a greater present value, so it is financially sound.
Use a 12% MARR and a useful life of 4 years and choose from the costing options given below. Alternative C D Capital Investment – $80,000 – $60,000 Annual Cost – $25,000 – $30,000 Alternative D costs less than Alternative C, PW is higher, so economically sound.
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11 Pause and Fix Your local foundry adds a new furnace. There are many styles and types of furnaces, so a foundry must choose from a set of mutually exclusive options. The initial capital investment and annual costs for each option are given in the table below. None has a market value at the end of its useful life. Using a MARR of 15%, which furnace should be selected? Furnace F1 F2 F3 Investment $110,000 $125,000 $138,000 Useful life 10 years Total annual cost $53,800 $51,625 $45,033
12 Solutions Using a MARR of 15%, show the PW for each of the three solutions