Unit III – Strategic Management

Unit

III
Strategic Management

3.1. Organizational Strategy

All organizations aspire to achieve success. The constant evolutions of

markets make it essential to invest in innovation, technological modernization, and
professional training - essential for increasing competitiveness.
Reinforcing the competitiveness of any organization depends not only on the attractiveness
of the businesses where it operates, but also the strategies it adopts for each business.
Thus, the success of any organization is primarily a function of its
strategic orientation, as it defines the nature of the relationship between the organization, the
customers and the competition. The strategy is the chosen path to achieve the objectives.
[Freire, 1997].
The organizational strategy is based on the management of its distinctive resources to
create products and services that achieve a market acceptance superior to that of the competition.

STRATEGY OF STRATEGY OF
COMPANY COMPETITOR
PRODUCTS MIDDLE PRODUCTS
RESOURCES E ENVELOPING RESOURCES E
SERVICES MARKET SERVICES

Figure 3.1 - Competition Strategies

Source: Adapted from Freire, Adriano (1997) "Strategy - Success in Portugal", Editorial Verbo, p. 18.

A competitive strategy must be comprehensive and fundamentally focus on the

opportunities and demands of the market, as well as the skills and resources that the
the organization must possess to adequately serve this market, allowing to define the place
busy by the organization in its competitive environment and the way in which it will be able to
improve your positioning against your competitors [McGee et al., 1993].
In this context, the strategy must be a revolution, seeking to create an advantage.
sustainable competitive. Therefore, strategic and tactical actions, together, aim to

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ensure that the company provides customers with more value than offered by
competitors [Freire, 1997].
Previously, Ansoff, in his work 'Corporate Strategy,' defined the concept of
strategy as being the best positioning of the set of products and markets of
company, in the systemic and competitive environment. The operationalization of the strategy was
carried out through the following elements: set of products and markets, the vector
growth, competitive advantage, and synergy.
The set of products and markets, vector of
growth and competitive advantage describe the
company's trajectory in its external environment,
in which the first describes the extent of the search, the
the second indicates the direction taken and the third the
characteristics of the most attractive opportunities.
Ansoff concludes that the strategy and the
objectives (attributes, properties, and goals)
they jointly describe the concept of field
of the company's operation, specifying the areas,
growth direction and the goals of
profitability.
Many authors argue that the mission,
objectives and strategies must be defined beforehand
from the phase of Strategic Analysis. However, today's society demands a different approach,
positioning this stage after the analysis of the environment and the company, for which
here the approach presented by the author Adriano Freire is adopted.

ENVIRONMENTAL ANALYSIS ANALYSIS

ANALYSIS ENVELOPE Organizational
STRATEGIC

MISSION
AND STRATEGY

PRODUCTS
MARKETS
FORMULATION
YES
STRATEGY INTEGRATION DEVELOPMENT
INTERNATIONALIZATION
VERTICAL ORGANIZATIONAL

DIVERSIFICATION

ORGANIZATION
E STRUCTURE
MANAGEMENT POLICY
IMPLEMENTATION ORGANIZATIONAL
YES
STRATEGY

Figure 3.2 - Organizational Strategy Model

Source: Adapted from Freire, Adriano (1997) 'Strategy - Success in Portugal', Editorial Verbo, p. 44.

Any organization must adapt its actions to the competitive conditions of

surrounding environment, using its different types of resources flexibly. Note that
that if a strategic plan is not flexible enough to adjust to the evolution of

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environmental context and could not be well implemented by the executors themselves, its
utility for the company is reduced.
Thus, strategy, before being a plan, is just a set of visions.
integrated into the company's actions, resulting from the strategic thinking of any member
of the organization. Strategic planning should contribute to the formulation of guidelines
strategic, but the origin of strategy lies in the strategic thinking of the members of
organization [Freire, 1997]. However, strategic thinking does not end with the conception
of the strategy. All members of the company must maintain a flexible strategic attitude
in the face of the constant evolution of the surrounding environment, with a view to continuously identifying new
opportunities. The strategic plan must, therefore, provide an integrated perspective
the dynamic of the company's future performance, helping to strengthen the competitive spirit
of the organization. Naturally, the strategic plan must be reviewed periodically in order to
to verify if it continues to reflect strategic thinking.
In summary, the philosophy of strategic management continues to be based on the analysis of the environment.
involving and the company, in the formulation of the mission, objectives and strategy, in the organization of
structure and the respective implementation of the defined strategic guidelines.
Compared to the traditional approach, the main difference lies not in
content of strategic management, but in the planned and contingent process that it is
underlying. In this way, the strategic management cycle becomes an open system,
sensitive to the evolution of the surrounding environment, as well as to the evolution of strategic thinking of
members of the organization [Freire, 1997].

ORGANIZATION
FORMULATION E
THOUGHT ANALYSIS THOUGHT
YES IMPLEMENTATION
STRATEGIC STRATEGIC STRATEGIC
STRATEGY YES
STRATEGY

CONTROL RETROACTION
YES
STRATEGY

Evolution of the surrounding environment

Figure 3.3 - Strategic Management Cycle

This process should result in a strategic plan that reflects in a way

synthetic and complete the strategic thinking of all members of the different
subsystems of the organization system. Therefore, it is important that it is structured accordingly.
with the three components of strategic reflection: strategic analysis, formulation of
strategy and its organization, implementation and respective control.
The first part, related to strategic analysis, should address the interaction between the
organization and its environment, as well as the adequacy of this to the requirements
competitors of your business. Naturally, this should be specifically repeated for each
one of the divisions of the organization. Example: Strategic analysis of the IPB and strategic analysis
of its divisions (ESA, ESE, ESTIG, Social Services, and Library). To do this, a must be generated
table synthesis of macroenvironment analysis (economic factors, socio-factors
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cultural, political-legal factors and technological factors that constitute what is called the analysis
of PEST. In order to explain the origins of the structural profitability of a given industry
It is convenient to resort to Michael Porter's five forces model, which focuses on the
microenvironment of the organization. Subsequently, the identification of the factors must be carried out.
critics of success and key or central competencies resulting essentially from
identification of the organization's resources and their comparison with the resources of
competition. In this line, the critical products and services will also be identified.
organization. Finally, it is necessary to conduct a SWOT analysis in order to relate the points
weaknesses and strengths with the opportunities and threats of the surrounding environment. But the threats constitute
latent opportunities. Therefore, the SWOT analysis should migrate to the New SWOT Analysis,
with a view to defining strategic alternatives for the company's progression over time.
The second part, related to the formulation of the strategy, should clarify the mission, the
objectives and strategic orientations of the organization. In broad terms, the lines are defined.
masters, whether of corporate strategy or of the strategy of each division or each
business. Once the scope of the company's operations is defined, it is necessary to determine the type of
competitive advantage(s) that the organization intends to exploit. To do so, a plan must be developed.
a synthesis of the strategic guidelines arising, more specifically, from:
Product-market matrix referring to the positioning of all products of
organization in the corresponding target markets.
Vertical integration, in which the organization will have to choose between performing the activities
internally or hire them in the market, (analyze the potential of outsourcing
strategic).
Internationalization also involves the identification or adaptation of various
entry modalities in foreign markets.
Diversification, which constitutes the central element of the corporate strategy, complementing
the business strategies of the various activities of the organization. For this, we have as an example
BCG (Boston Consulting Group) model that allows for planning
business portfolios. Consequently, the organization should identify the options
(alternatives) different strategic positioning in the market.
Organizational development, which integrates the strategic orientation resulting from the
the above-mentioned processes with the various modalities of organizational development.
Typically, the organization's final strategy consists of the combination of options.
made in each of the four dimensions analyzed, in light of the trends in the surrounding environment
and the capabilities of the organization. It is therefore advisable to assess the joint nature of the
defined guidelines, in order to ensure that their subsequent execution will allow for achieving the
desired success [Freire, 1997].
Finally, the third part, related to the organization and implementation of the strategy,
must translate the strategic guidelines outlined into concrete measures to achieve the
objectives. The organizational structure, management policies are outlined, and for
last, the control, suitable, whether to the headquarters or to each of the divisions. Accepting the
organization as an open system, the very regulatory mechanisms of the system
The organization and its subsystems should be reviewed in order to ensure homeostasis.1.
Organizations have traditionally been seen as hierarchical institutions.
that function according to a top-down command structure: strategic plans
they are formulated at the top and implemented for a cascade of instructions through queues
arranged in layers. It is now widely confirmed that this mode is too slow and

1
Homeostasis is the property of open systems, despite variations in the environment,
to maintain balance in all its functions and its integrity [Bertalanffy, 1968].
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inflexible to successfully face the increasingly large proportion of change and complexity
surrounding many organizations.

3.2. Strategic Analysis

The increasing pace of change, the rise of competitiveness and demands from
consumers are some of the characteristics of the environmental context in which organizations
current ones are inserted. These circumstances require an understanding of the evolution of the environment
envelope or environment, in order to identify the opportunities and threats that it
closes. Those circumstances or variables that affect the social system in which the
organization is inserted constitutes the general environment; those that are directly
related to the organization's activity constitute the specific environment. But a
An opportunity detected in the environment can be an opportunity for an organization and may not be.
for the others. Such assessment should be based on organizational analysis or internal diagnosis.
This analysis should serve as the starting point for the formulation of the strategy.
organizational.

3.2.1. Analysis of the Surrounding Environment

The constant evolution of markets and industries generates multiple opportunities and
threats that organizations must identify and to which they must know how to respond. In this
unstable context, the survival of any organization depends, first of all, on the
your ability to interact with the surrounding environment.
The analysis of the surrounding environment consists of identifying trends and in
recognition of its implications for the industry, both of the general environment
macroenvironment, whether specific environment or microenvironment (Figure 3.4).

VARIABLES
TECHNOLOGICAL

VARIABLES VARIABLES
ECONOMIC COMPETITORS SUPPLIERS POLICIES

VARIABLES VARIABLES
SOCIOCULTURAL LEGAL
ORGANIZATION

VARIABLES CLIENTS COMMUNITY VARIABLES

ECOLOGICAL DEMOGRAPHICS
MICROENVIRONMENT

MACROENVIRONMENT

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Figure 3.4 - Organizational Enveloping Environment

Source: Adapted from Chiavenato, Idalberto (1982) 'Business Administration', McGraw-Hill, p. 105.
The macroenvironment, common to all organizations, is made up of a vast and
a complex set of conditions and external factors that influence, in the long term, the
activities of the organization, while the microenvironment, specific to each industry, is
consisting of the elements that interact directly with the industry.
The organization is therefore situated in a context of change and in an environment
turbulent and competitive, with profound transformations occurring at very fast paces
They are originated by economic, technological, political, and social issues.
Identified these broader environmental aspects that influence the
businesses in which the company is involved should then be dynamically
analyzed the attractiveness of the industry, the competitive structure, and the critical factors of
success of each target market segment.
In order to explain the origins of the structural profitability of a certain industry,
it is convenient to resort to the five forces model. According to this model, the
the long-term attractiveness of a certain industry results from the joint action of the
factors mentioned in figure 3.5.
This model allows, on one hand, to analyze the degree of competitive rivalry in
industry that determines the ability to generate profits, on the other hand, can be applied
focusing more directly on the company, its suppliers and customers, as well as the
current and potential competition in the segments the company is targeting.
The analysis of the attractiveness of the industry must therefore be dynamic, identifying, not
not only the current configuration of the five forces but also their future evolution and the way
how companies are positioning themselves in response to new trends.

Threat of new ones

competitors

RIVALRY
Negotiating Power NA Negotiating Power
of Suppliers INDUSTRY two clients

Threat of Products
Substitutes

Figure 3.5 - Five Forces Model

Source: Adapted from Porter, Michael (1980) “Competitive Strategy”, The Free Press, p. 4.

The analysis of the sector would be complete once the role of the State, which affects
each of the five competitive forces through a direct or indirect intervention. In
In the case of IPB, or another institution in the same sector, this evaluation is fundamental.
As far as the structure of the industry is concerned, its competitiveness can be translated.
in function of the life cycle of the industry2Throughout the lifecycle of an industry, the

2
According to Michael Porter (1980), the concept of the life cycle can be applied to individual products.
like the industries.
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 Unit III - Strategic Management

competitors' sales usually go through four distinct phases: introduction, growth

maturity and decline.

SALES
YES
INDUSTRY

Figure 3.6 - Life Cycle Stages

INTRODUCTION GROWTH MATURITY DECLINE
from the Industry
Source: Freire, Adriano (1997) "Strategy - Success"
TIME
in Portugal”, Editorial Verbo, p. 89.

While in the first and last phases the structure of the industry is very variable, in the
remaining phases the majority of sectors shows a concentrated or nature
fragmented over long periods of time. Therefore, based on the evolution in the life cycle,
industries can be emerging, fragmented, concentrated or declining.
Once the trends of the environment have been analyzed, the attractiveness and structure
from the industry, it is necessary to identify the activities that, by themselves, ensure the good
performance of the organization in its business - the critical success factors.
The critical success factors are, then, the activities or management variables that
but provide more value to customers and better differentiate competitors in creation
of this value [Freire, 1997].
Thus, this analysis must be dynamic, following the evolution of
customer needs and competitors' initiatives.
In summary, the analysis of the macro environment and the analysis of the attractiveness of
industry, to the competitive structure and to the critical success factors of each segment of
market, provides a comprehensive overview of the business and the opportunities or threats that
we face all the competitors.

3.2.2. Organizational analysis

Despite the similarities regarding the trends of the surrounding environment of a

certain industry, some companies that operated in this industry can obtain
systematically better performance than others. This difference results, essentially, from
different levels of management capacity, derived from the use of more and better resources.
The quality and quantity of the company's resources is, therefore, decisive for its
competitive performance [Freire, 1997]. In this context, it is necessary to be informed about the
capabilities of the organization.
In many circumstances, it happens to consider the study of an organization as the
determination of its value, at a certain moment, a value that corresponds to the sum of
accounting values of the different equity elements evidenced by the balance sheet. But the
the analysis of a company should consist not only of the analysis of these same values, but also
mainly, in assessing the quality of your management, identifying its capabilities and its
problems, taking into account the diagnosed symptoms. After the environmental analysis, it intends to
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Yes, now, to obtain an objective and well-founded understanding of the organization's situation.
through an internal diagnosis - the organizational analysis.
What do we have in the organization? To answer this question, the analysis of
organization should start by identifying the main resources it has and by the
evaluation of their respective merits, in order to ascertain their real value. Despite its
diversity, there are three basic categories of resources [Freire, 1997]:
• Human resources, whose effectiveness, efficiency, evolution, and interaction are decisive in
long-term success of the organization (number of workers, qualifications, etc.);
• Financial resources that directly affect organizational growth
(capitalization, solvency and efficiency, degree of liquidity, etc.);
• Organizational resources, reflected in the value of the organization's intangible assets
(management systems, functional processes, management control, etc.).

Currently, information is considered an essential factor for success of

organizations, as it came to be seen as a resource, playing a role
preponderant on management aspects, in order to reduce risks and uncertainties associated
to the decision-making process. In this context, it would not be unreasonable to include as a basic category of
resources, or the resource information.

Let's see:
The value of all the elements of the company derives from its integration capacity.
of the three types of referred resources:

• The acquisition of good raw materials, good equipment, and well-located land.
localized require a combination of human and financial resources [Freire, 1997]. In
Meanwhile, timely and correct information will be necessary for the success of this interaction.
right person at the right time.

• The conception of effective strategies, organic structures, management policies

efficient and management control systems will not also be supported by the resource
information regarding the combination of human and organizational resources?

• And in the measures of vertical integration, internationalization, diversification and

acquisitions and mergers, which usually result from the combination of organizational resources and
financial, will the information not have a predominant role?

The answer can be found in figure 3.7, where the multiples are framed.
resources of any organization.
Currently, information is considered a resource that must be managed with the
same determination as the other resources of an organization. In any
organization, information is necessary for guiding operational activities and
management activities.
Information is, therefore, a support for decision-making, but also an envelope of it.
decision, that is, a management tool. Therefore, it is essential to have
an activity that focuses on Information Management (IM). This activity could be a
Information Systems Management.
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Raw materials RESOURCES Strategy

Equipment HUMANS Organizational structure
Lands Management policies
RESOURCE RECOURSE
Management Control
INFORMATION INFORMATION

G.I.
RESOURCE
INFORMATION
RESOURCES RESOURCES
FINANCIAL ORGANIZATIONAL Vertical integration
Internationalization
Diversification
Acquisitions / mergers

Figure 3.7 - The Integration of the Organization's Resources

But abundance and quality of resources are not enough to ensure a

sustained superiority over competitors, it is necessary that these be utilized from
efficient manner. With equal levels of resources, the more efficient organization incurs in
lower costs, which gives it a competitive advantage.
Identified the value of the various resources of the organization, their assessment must be carried out.
comparison with competitors' resources, in order to know what the points are
weaknesses and strengths of the organization and, within these, what are its key competencies.
A strength is an activity or resource of the company that contributes better than the
competition, for customer satisfaction. Thus, the most relevant strengths
constitute the key competencies or core competencies of this company. Based on the
from their core competencies, companies develop critical products and services. The
core competencies and the products or services are at the origin of the final products of
success. It is then possible to assess the current degree of strategic adequacy of the organization and
determine your strategic intent for the future. The strategic fit of the company is
function of the correspondence between key competencies and critical success factors of
business. Today's companies, especially large ones, have not managed
purely and simply survive in this period of rapid change and innovation if not
acquire or consolidate their key skills. Naturally, many companies do not
they already possess key competencies in all critical success factors from the outset. In these cases,
one should value current core competencies and strengthen the poorly developed competencies in the long term.
pull-ups. This dynamic perspective of strategic fit reflects the notion of intent
strategic for the future [Freire, 1997].
In this sense, it is appropriate to frame the company's strengths and weaknesses in the
main trends of the environment, namely regarding threats and
identified opportunities. For this, it is advisable to use the well-known SWOT analysis.
A análise SWOT (Strenghts: Forças,Weaknesses: Fraquezas, Opportunities:
Opportunities and Threats: Threats) is a technique especially suitable for synthesizing the
results of previous analyses related to the external environment and the capabilities of
organization. The idea is not just a simple listing of the subjective perceptions of management, but a
structured data evaluation, as far as possible, objectives.

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 Unit III - Strategic Management

Strengths: Weak Points:

Opportunities:

Suggestions Suggestions

Threats:

Suggestions Suggestions

Table 3.1 - SWOT Analysis Model

Source: Adapted from Freire, Adriano (1997) “Strategy - Success in Portugal”, Editorial Verbo, p. 143.

The SWOT analysis will involve the following steps:

1. Synthetic identification of the current strategy that the company is actually following;
2. Identify the changes in the external environment;
3. Identify the key capabilities (strengths) and key deficiencies (weaknesses)
(weak) of the organization, as much as possible, objectively and not in number
greater than eight.

They will thus be able to identify more clearly and in a synthetic way the issues.
crucial strategic challenges faced by the organization. This analysis will also allow for the identification of the
core competencies that, if available to the company to a greater degree than
what happens with your competitors will allow you to identify the segments that are most relevant to you
favorable and those that should be avoided.

However, for a good strategist, threats are always opportunities.

latent [Freire, 1997], for this should know how to take advantage of the opportunities reflected in
new trends in the environment and transforming apparent threats into new opportunities over time
more appropriate, instead of declaring a state of crisis3. In this context, Adriano Freire
presents a new SWOT Analysis, relating the strengths and weaknesses of the company with
the opportunities of the environment and over time.

However, beyond the knowledge of strengths, weaknesses, resources

available, skills, potentialities, capacities, and key competencies of the organization,
there is also a need to understand, in a broad sense, its structure and culture and assess the quality of
respective information system. The structure is how the company is organized in
terms of authority and communication, adequacy and flexibility, generically represented
through an organizational chart. Organizational culture is the set of beliefs, expectations
common practices and shared values among the members of an organization.

3
Moreover, when written in Chinese, the word 'crisis' is formed by two characters - one represents
danger is the other represents opportunity. Therefore, its concept represents change (John F. Kennedy).
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Opportunities & Time

Short and medium term Medium and long term

Strengths:

Suggestions Suggestions

Weak Points:

Suggestions Suggestions

Table 3.2 - New SWOT Analysis Model

Source: Adapted from Freire, Adriano (1997) 'Strategy - Success in Portugal', Editorial Verbo, p. 144.

In summary, it is convenient to relate the organization's strengths and weaknesses with the
previously identified opportunities in the context of a SWOT analysis, aiming to
define strategic alternatives for progression for the organization over time.

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3.3. Strategy Formulation

The formulation of the strategy of any organization originates from the conjunction
of the analysis of the surrounding environment and the internal competencies of the organization. It is not about
strategy formulation developed at the top of the organization, but for strategic innovation
developed by the entire organization. Based on the vision of its future strategic intent, are
So the mission, objectives, and strategy of the organization are clarified.
This approach contradicts, then, the sequence of the strategic management model.
proposed by Luís Cardoso, in 'Strategic Management of Organizations - in search of the 3rd'
millennium", where the first step in formulating the strategy is the identification of the mission and
two objectives, after which it is necessary to analyze the environment and carry out the internal diagnosis.
Now, if the definition of the organization's objectives and strategic guidelines cannot
only shows the satisfaction of the interests of your administration, then the governance of the company
it must also consider the interests of other internal and external elements. In this sense,
It is from the conjunction of the analyses of the surrounding environment and the organization that the strategy is born.
organizational [Freire, 1997].

3.3.1. Mission, objectives and strategy

The mission, the objectives, and the strategy form a logical sequence.
of strategic reasoning framed within the global vision of the organization.
MISSION This vision expresses, in broad terms, the intentions and aspirations for the
future, without specifying concretely how they should be achieved.
OBJECTIVES The mission of an organization explicitly states its reason for being.
existence and legitimizes its function in society. The mission must be
a statement of meaning, social posture, image, and character of
STRATEGY organization [Cardoso, 1997]. But the mission must also involve the
business concept. The definition of the business should be taken care of and
broad, as it influences the strategic guidelines to be developed.
However, it should be noted that different companies within an economic group must have
distinct missions. For example, for the IPB, a mission should be conceived or reformulated.
general, while for the schools, central library and social services that constitute it
more specific missions should be designed or reformulated. It should also be noted that the
the mission of managers should override the mission of employees, as it is necessary to create the future of
the company needs to reinvent a puzzle where trust cannot be a piece in
missing [Covey, 1997].
In accordance with the mission, the organization must establish objectives.
measurable, prioritized, and scheduled, ensuring that they do not become mere expressions
of good intentions and that they are, in fact, achieved.
The objectives thus clarify what the organization aims to achieve through
your activities in pursuing the desirable future scenario presented in the mission.

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Finally, in order to achieve the desired objectives, it must be designed a

organizational strategy, both for the organization as a whole and for each of its
individual businesses.
The organizational strategy defines the path to be followed by the organization, indicating
where and how it should compete. Essentially, it is necessary to define in which sectors the
the organization must act and identify, for each business, what the key competencies are
strengthen with a view to improving relative performance in the critical success factors of
target segments.
In this context, an organizational strategy integrates two distinct but
interrelated: corporate strategy and business strategy4For
For example, while the corporate strategy is composed of decisions regarding the action
in IPB, taken at the level of the institution's administration, the business strategy is
constituted by the decisions made at the level of each of the three Schools, Library and
Social Services.
In determining the mission, objectives, and strategy, it is also advisable to identify,
the relative importance of the various constituents of the organization: shareholders, employees,
clients, suppliers, financiers, and community, in order to define a style of
governance consistent with the promotion of its interests.
Therefore, the choice of strategy involves the selection among the various alternatives.
strategic, of the organizational strategy that will predictably allow achieving the
defined objectives. Consequently, alignment must be achieved between the
organization's strategy and the personal objectives of the management and top executives,
motivating them, through the creation of an incentive system, to carry out the
established guidelines [Freire, 1997].

3.3.2. Products - Markets

Once the scope of the organization's action is defined, it is necessary to determine the
type of competitive advantage that the company will explore to overcome the competition in
chosen segments.
In general, the strategy aims to ensure that the company meets the
customer needs better than the competition. Thus, the competitive advantage of
organization should be manifested in the differentiation of its range of products and services.
The monitoring of the dynamics of customer needs and new
competition initiatives lead to the launch of new products or entry into new
markets, which results in a permanent reinforcement of the adequacy of the organizational strategy.
The product and market strategy begins with the conception of the so-called matrix of
products-markets, which relates the products or services of the organization with its
target markets. Subsequently, the competitive advantages to be adopted should be identified.
in each segment of operation, in order to achieve levels of operational profitability
higher than the industry average in which the organization operates.

4
Corporate strategy, business strategy, in English literature.
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Finally, the product-market strategy must also be consistent with the

selection of the differentiation path of the range of organizational products and services and to adapt
the evolution of customers and competition [Freire, 1997].

3.3.3. Vertical integration

After deciding which products and services to offer and in which target segments,
the organization has to choose between carrying out operational activities internally or
hire them in the market. The vertical integration strategy defines, therefore, what the
value chain activities that should be internal or external, depending on your tax
for the competitive performance of the organization.
Vertical integration can be total or partial, upstream or downstream.
Naturally, it is necessary to assess the specific benefits, costs, and risks of each.
mode of vertical integration. In this context, the potentialities should be analyzed.
strategic outsourcing.
Finally, the vertical integration strategy must evolve in tune with the
product-market strategy and be flexible to the evolution of the surrounding environment.

3.3.4. Internationalization

Once the strategic guidelines for the country of origin are defined, the organization
should explore the possibility of transferring its activities to other markets
geographical. To this end, it is appropriate to frame the internationalization process of the organization
with its performance in the domestic market, in order to ensure the utilization of
competencies and competitive advantages already developed over time [Freire, 1997].
The internationalization process begins with the identification of the various
entry modes in foreign markets. The most appropriate ways for the company
they will be a function of the analysis of the respective benefits, costs, and risks.
Finally, the level of internationalization of the company should evolve in parallel.
with market trends and internal competencies, to contribute to the constant
strengthening competitiveness in international markets.

3.3.5. Diversification

Diversification is a growth strategy, as the organization diversifies to

new products or new markets, varying the degree of vertical integration and increasing the
penetration into external markets.
Diversification is the critical element of corporate strategy, which
complements the business strategies of each sector of the organization's activity and
contributes to its long-term sustainable growth [Freire, 1997].

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Organizational diversification can be partially or totally related to the

business base of the organization, making it possible to explore commercial and technological synergies
among the various businesses, or, on the contrary, not related, in which the synergies present
a more financial character.
Just like any other strategic alternative, the organization must choose the
diversification modality that best fits your strategic objectives,
according to the analysis of benefits, costs, and risks.
Once a diversified business portfolio is created, it is advisable to resort to models of
portfolio planning to assess the performance of the various sectors of activity
company and monitor its progression. Portfolio planning models allow
align the corporate strategy with the different business strategies. In this way, it is
possible to obtain a comprehensive view of the extent of the organization's activities and verify
to what extent is the organizational strategy consistent. We have, as an example of this
models, the BCG model, which relates market growth rate with market share
relative market of the company. According to this model, there are four typical positions that a
business may take on:

RELATIVE MARKET SHARE

High (>1) Reduced (<1)

Elevated STAR POINT OF

Growth INTERROGATION
of the market
Reduced DAIRY COW DOG

Table 3.3 - BCG Model (Boston Consulting Group)

Source: Adapted from Freire, Adriano (1997) 'Strategy - Success in Portugal', Editorial Verbo, p. 380.

Table 3.4 - BCG Matrix - Business Evolution and Financial Flows

• Question mark (question mark or problem child) – businesses at a high

growth, where the organization is not a market leader, which usually generates
very negative financial flows. The strategic recommendation for this situation is
abandon the activity or increase market share to rise to leadership
commercial and thus achieve a better cost position in the star position.

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• Star – high growth businesses in which the company is a market leader,

therefore, typically generate little significant financial flows. The recommendation
strategic to take the lead, in order to evolve to the highest position
favorable for dairy cows when market growth slows down.
• Dairy cow (cash cow) – businesses with reduced growth rates in which the
the company is a market leader. Typically, they generate considerable financial flows.
A strategic recommendation for such a case is to monetize the business by maximizing gains.
to support the growth of question marks and stars.
• Dog – businesses with low growth rates where the company is not a leader
of the market. Typically, they generate insignificant financial flows. The recommendation
strategic for the positions is to abandon the activity or reformulate the business to
evolve towards sectors with greater growth and become a question mark.

In order to refine and reduce some of the limitations of the BCG Matrix, the Matrix emerged.
from GE/McKinsey. This matrix consists of nine cells (instead of the four of the matrix
BCG) with the industry's attractiveness and competitive position determined based on
a set of appropriately weighted variables. Note that the area of the circles continues to
correspond to the relative dimension of their respective businesses in the company. However, each
the circle also presents a shaded segment that represents its market share.
Considering the structure (Structure), the strategy (Strategy), the systems (Systems),
the technicians and staff, the skills, the style and the shared values
(Shared Values) as the fundamental attributes of strategy formulation, is also
proposal for analysis using the McKinsey 7S model.

Table 3.5 – GE/McKinsey Matrix Figure 3.8 - The 7 S of McKinsey

Once the company's diversification strategy is conceived, it is necessary to frame it.

with the product-market strategy and with the competitive nature of the product range
offered. It is therefore advisable to determine not only the development alternatives of
organization, as well as the most appropriate positioning to meet needs
future of the clients.

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Finally, the process of diversification must evolve according to the

market trends and the evolution of the organization's skills, in order to
sustainably reinforce your competitiveness.

3.3.6. Organizational development

Defining the organization's main strategic options, it is necessary

decide on the organizational development paths to adopt, that is, identify the best one.
way to implement the planned strategic measures.
After defining the strategic orientation that the organization follows, it is necessary
integrate it with the modalities of internal or external development: acquisitions and mergers,
strategic alliances and market transactions. Obviously, the final decision to opt for
any of the modalities of organizational development must be based on
analysis of benefits, costs, and risks.
Finally, the organization must flexibly assess the benefits and
potential disadvantages of the various organizational development pathways throughout the
time. Thus, this management of organizational development ensures continuous
framing of the strategy with the evolution of the environment and competencies of
organization.
However, on the one hand, the aspects previously mentioned are important in
formulation of the strategy, on the other hand, one of the key points for this formulation to be
effective is the development and use of an Information System, including support for
strategic decision-making that allows not only for monitoring the surrounding environment, but
also the establishment of a prospective vision of the set of challenges with which the
organization will be confronted in the future.

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3.4. Organization and Implementation of the Strategy

Once the strategy is formulated, the decision-making process is not yet finished.
now involving your organization, implementation and control. In an environmental context of
accelerated change and high competitiveness, special attention must be given to
implementation of the chosen strategy, that is, to seek the ideal conditions of
functioning of the organization with a view to success.
In recent decades, various theoretically sound strategies can be found.
outlined, but which, in practice, ended in enormous failures. This happens when there is no
a careful organization and implementation of the outlined strategic guidelines. Thus,
the organizational and behavioral aspects are important [Cardoso, 1997]. In this
meaning, as will be seen below, it is necessary to adapt the organizational structure and
to achieve the implementation of management policies that motivate effective performance of the
organization.

3.4.1. Organizational structure

The structure emerges in organizations as a tool for coordinating activities.

and control of the actions of its members [Camara, 1996].
For the structural organization, as mentioned in the previous chapter, they have
contributed various theories: the classical theories of Taylor, Fayol, and Max Weber, and some
modern theories with great acceptance.
The present is a competitive and constantly changing context, so the
organizations are faced with the urgent need to adapt to such changes.
Thus, organizations feel the need to reformulate their strategies with
quality and speed. Once the strategy is outlined, it is then necessary to proceed with the creation
of the structure that will support the implementation of the corresponding guidelines.
Already in the 70s, the studies of Professor Alfred Chandler5they announced the importance
of the alignment between strategy and organizational structure. Therefore, an evolution of the
the strategy must lead to a corresponding evolution in the organizational structure, whether
through changes to the existing structure, whether by adopting a new structure.

5
Chandler's reflections marked a certain era and represented a stage in the reflection on structure.
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More recently, the contingency approaches (Lawrence and Lorsch) confirm

this relationship, while highlighting other influences such as dimension, technology, the
behaviors and organizational culture.
Whatever the mode of evolution, it is concluded that the relationship between strategy and the
the structure is verified in both directions (figure 3.9):

HALF
ENVELOPE

STRATEGY

STRUCTURE
Figure 3.9 - Alignment between strategy and structure

In this way, given that the surrounding environment is different, it becomes necessary
Clarify the organization seeking flexibility. The company's organizational chart should exist,
but to be understood in dynamic terms, that is to say, at the moment, corresponds to the option more
adequate organization of human resources so that organizations achieve their
objectives. Changes in the environmental context may regularly justify changes in
strategy and, consequently, in its structure [Cardoso, 1997]. However, the structure
also conditions the strategic choices [Strategor61997]. For example, the administration
At IPB, even realizing the developments, it cannot react in time, as one of the
components of the structure, namely the information transmission circuits,
hold back the decision making.
Therefore, it is of interest, in this part of the report, to study the structure
organizational, not only in relation to its strategy but also regarding its
nature, type and characteristics.

An organizational structure is, therefore, made up of a set of relationships

that unite all organizational resources with the aim of carrying out the guidelines
chosen strategies.

Characteristics of the organizational structure

The absence of a consistent structure leads to strategic disorientation and to

reduction of the effectiveness and efficiency of the organization. Therefore, after the formulation of the strategy, it is
It is necessary to design the organizational structure appropriate to the objectives of the organization.
Consequently, the organizational structure must be analyzed in terms of its
degree of de-formalization, centralization and complexity [Camara, 1996]:

; The formalization is the degree to which positions are standardized, or degree of precision, in
definition of functions or relationships, revealing the relative importance of the rules and

6
Strategoré is the name of a team of teachers from the Department of Strategy and Business Policy of
HEC Group - Higher Commercial Studies of Jouy-en-Josas.
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 Unit III - Strategic Management

explicit procedures in a company. The degree of formalism varies within each

organization and from company to company. If the level of formality is high, then the
employees have a minimum margin of autonomy regarding the execution of their
work. Thus, this factor contributes to minimizing uncertainty, but restricts
the initiative and creativity of human resources.
; Centralization reveals the organizational level at which decisions are made, that is, it refers to
if to the extent that decision-making is concentrated in a single point of the organization.
The greater the degree of centralization of the organization, the less weight will be
control and coordination mechanisms. However, it will increase the response time to
it will dishearten the human resources of the organization gradually. Thus, it is said
that an organization is centralized if top management makes all key decisions with
little or no participation from middle managers. On the contrary, the greater it is
the autonomy or the participation in the decision-making of middle managers, more decentralized
it will be the organization.

; The complexity of a company refers to the number of components and variables with
that the organization has to deal with. It is a function of its spatial dispersion, vertical differentiation
horizontal differentiation [Freire, 1997]:
The greater the spatial dispersion (number of locations and geographical markets)
the more complex the organization's management will be;
The greater the vertical differentiation (number of existing hierarchical levels)
the more complex the management will be.
Flatter structures would provide a more decentralized management.
In this sense, there has been a reduction in the level of vertical differentiation of the
organizations and the assignment of greater responsibilities to members of the levels
lower levels of the hierarchy through downsizing or rightsizing processes;
The greater the horizontal differentiation (level of task specialization
carried out by groups of members of the organization), the greater the complexity of
management, as it becomes more difficult to coordinate and control the various activities. By
On the other hand, vertical differentiation creates a slowdown in the decision-making process, unless
that there is delegation of powers, which rarely happens in organizations
strongly hierarchized. Examples of hierarchical organizations are the
Public Administration.

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Spatial Dispersion

Horizontal Dispersion

Vertical Dispersion

COMPLEXITY
Autonomy Power of
Individual decision

Regulation STRUCTURE Delegation

Internal ORGANIZATIONAL of Power

Content Management
Functional Participatory

Figure 3.10 - Characteristics of the Organizational Structure

It is noteworthy that, on one hand, the way the formalization characteristics,

centralization and complexity of the organizational structure can combine into a
a certain organization varies from case to case; and, on the other hand, that these three components
structural aspects should be related to the competitive advantages that the organization has
It follows that different characteristics correspond to competitive advantages.
different [Freire, 1997].
Aware of the need and advantage of structuring organizations, it interests
now identify its functional content. This content is based on two aspects
essentials:
• What is the authority and responsibility of each of the elements of the organization;
• What is the autonomy, flexibility, and freedom of action of each of the elements of the
organization.
In comparative terms, these are the aspects of understanding between the schools.
classic and modern management trends that currently point to the
empowerment at the lowest level of the organization, which has to interface with the
clients or the market.

Types of organizational structures

The organization presents itself, apparently, as a whole, whose functioning

denotes a single structure or constitutes a complex system of overlapping structures and
crossed, interests and relations, whose management requires a concerted dynamic harmonization.
The characteristics fundamentals of any organizational structure,
namely the nature of horizontal differentiation of the organization, allow to divide the
organization structure in two aspects: macrostructure and microstructure [Freire,
1997.
The Polytechnic Institute of Bragança can very well be an example of this vision:

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HEADQUARTERS
IPB

SERVICES
LIBRARY ESA THIS ESTG
SOCIAL

Figure 3.11 - Macrostructure and Microstructure

Consequently, and according to the types of structures described in the chapter

previously, we can essentially identify:
• In the context of the basic macrostructures resulting from classical theories: the
simple or informal structure, linear or hierarchical structure, functional structure and
divisional structure.
• In the context of advanced macrostructures arising from modern theories: the
project structure, structure by strategic business units, structure
matrix, the network structure, finally, the free or organic structure.

While the macrostructure of an organization is related to the whole

organization, the microstructure refers to how tasks are structured within
the divisions or departments of the organization, with a view to improving overall performance.

Thus, in the context of microstructures, it is necessary to define the modality of

more appropriate structuring of activities in companies or divisions
individuals.
In this context, we move on to the analysis of the microstructure that should be in tune,
either with the organization's strategy or with its macrostructure.
Thus, there are four types of microstructures, in accordance with the
levels of management complexity [Freire, 1997]:

; Departmental Group Structure:

This solution is adopted in small organizations, particularly when there is no
need for great interaction between the various departments. The activities of each
department or section are performed autonomously by each of its
members, with the management of it being the responsibility of the head of section or department.

; Structure of the Link Group:

This approach is suitable for situations where departmental autonomy must be
preserved, but where the constant coordination between departmental groups is
essential. To this end, some members of the departments, in addition to maintaining the
their functions, represent their department in committees or councils. Example: IPB.

; Project Unit Structure:

This type of microstructure is adopted when there is a need to redirect resources.
for a new project, during a given period of time. Thus, some of the members of
companies have a dual responsibility: on one hand, they must perform the functions
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related to the department they are assigned to and managed by their respective supervisor
departmental hierarchy, on the other hand, must participate in specific projects of
interdepartmental character, managed by a senior appointed member.

; Structure of the Independent Team:

This perspective is adopted to carry out activities outside the context of
departments of the company. To this end, an autonomous entity is created, using temporary
you definitely have the total commitment of certain members of others
departments, under the direction of their own leader. While in groups
departmental actions of each member are relatively autonomous, in teams
independent interaction between all members and the complementarity of
competencies are fundamental to good performance.

Selection of the organizational structure

Once the most common organizational structures have been described, a question arises:
- What is the ideal? Surely, the answer will be: - None.
The justification for this statement is related to the fact that the choice of structure
organizational is of a contingency nature. The environment influences and motivates the strategy. The
strategy, adapting to the circumstances surrounding the organization, defines how the work
it must be done. Thus, when choosing the structure, the knowledge of the different types of
organizational structures and their characteristics will facilitate decision making, in
compliance with the organization's objectives and strategy and with its environment.
In short, when the environment is stable, the diversity of businesses is low.
emphasized and if the organization's size is small, the structures tend to be more
centralized. However, in very dynamic environments characterized by change
constant and in organizations with diversified activities, it becomes more necessary the
existence of more decentralized and flexible structures.
It should also be noted that, in modern companies, the structure should not constitute a
hindrance to the advancement of the potential of IT, needing to evolve interactively so as to
legitimize technology in this domain [Zorrinho, 1991].
Whichever mode of structuring is chosen, it is therefore of utmost importance.
that this does not remain static, at the risk of not adapting in the medium to long term
evolution of the surrounding environment or of the organization's own strategy. Therefore, it is essential
maintain a dynamic view of the organization of activities, adjusting the macrostructures and
microstructures as circumstances warrant [Freire, 1997].
The organizational structure must therefore be reviewed frequently, in order to
evolve, keeping up with the evolution of the organization's strategy and the surrounding environment,
namely regarding information technologies. Only then will it be possible to align the
strategy with the structure and create conditions for the implementation of the respective guidelines.
However, the structure adopted by any organization has an important impact.
in the behavior and attitude of its members. Therefore, in order to ensure viability
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From structural evolution, it is necessary to develop, in parallel, an organizational culture.

flexible and comprehensive.

Currently, there has been an emergence of alternative approaches to

structures resulting from classical theories and, in a certain way, more suitable than the structures
resulting from modern theories themselves. One of the examples could be the VSM (Viable System Model)
Model), as it is a methodology that meets the new demands
structural: decentralization and flexibility of the organizational structure, in order to make the
organizations that are more efficient in adapting to constant change.

3.4.2. Management Policy

After the planning and organization phases, the implementation process begins.
effective the strategic guidelines outlined. The management policy then comes,
complement the organizational strategy and structure.
Thus, the management policies, whose conception begins with the characterization of
different activities of the value chain of the organization operationalize the strategy
organizational.

ORGANIZATION INFRASTRUCTURE

HUMAN RESOURCES MANAGEMENT

TECHNOLOGICAL DEVELOPMENT

PURCHASES

LOGISTICS MARKETING LOGISTICS SERVICE

DE OPERATIONS DE E
ENTRY EXIT SALES

Figure 3.12 - Value Chain

Source: Adapted from Porter, Michael (1985) 'Competitive Advantage', The Free Press, p.37.

The set of management activities, primary activities, and support activities

of any organization can be represented in the form of a value chain
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generic. It is worth noting that the information system function, which includes the activities of
collection, processing, and distribution of information essentially supports the activities
of support.
Naturally, each of the activities involves costs and should contribute to the
creating value for customers. Therefore, it is advisable to investigate which activities that
they should be aligned with the outlined strategic guidelines.
Depending on the adopted strategy, the activities of the value chain of a
organizations can be [Freire, 1997]:
• Strategic activities: essential for the implementation of the strategy, both in
quantity as in quality, since they directly affect performance
two critical success factors;
• Tactical activities: complement or support the action of the activities
strategies, being necessary but not sufficient for the implementation of
outlined strategy;
• Base activities: are necessary for the functioning of the company, regardless of which
as strategic guidelines. However, its influence on performance
competition is reduced, so they should involve the minimum possible costs to
the desired level of quality.
Likewise, the management of value chain activities must be aligned with the
organizational structure. In this sense, the organization may embark on the definition of
functional policies for personnel, research and development, operations,
marketing, finance, and information systems, or, alternatively, by acting through
interfunctional processes.
The recognition of process management has currently led to a
increasing transformation of functional systems into process systems. This evolution
has been supported, essentially, by Reengineering and Quality Management
Total.
When well implemented, process management allows for drastic improvements in
usual performance evaluations and criticisms, such as costs, speed, and quality of
tasks executed. However, process management is very difficult to reconcile with the
hierarchical structure and conventional functional policies. The traditional orientation of the manager
the tasks, people, and structures must be replaced by the orientation towards activities that use
one or more inputs to create an output that adds value for the consumer.
In this sense, the organizational structure highlights three levels: coordination of the process
(coordinator responsible for process development), line management (executive
responsible for the development of individual capabilities) and top management (leader
responsible for creating the organizational culture and the vision for the future). The latter must
to contribute to the creation of enthusiasm and motivation in people and work teams,
creation of "Gung Ho"7It is not about changing the organizational culture, what changes are the
management practices, but rather to make cultures allow a change in practices
for the survival of the organization.
In addition, it is also essential to identify alternative ways to deal with
unexpected occurrences of the surrounding environment or specific situations of uncertainty in
implementation of strategic guidelines.

7
Gung Ho is a Chinese expression associated with the concepts of motivation, collaboration, and mutual assistance. It was,
also, with this expression that Ken Blanchard titled his most recent book.
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Naturally, the different ways of managing uncertainty focus on different factors.

of the environment and the organization [Freire, 1997]:
• Technocratic management of uncertainty: it is based on forecasting alternative developments of the environment.
engaging. To identify these future trends, management includes gathering information
Additionally, the forecast by cases, the timely warning systems, and planning of
contingency.
• Political management of uncertainty: it is based on the action and control of the surrounding environment. To this end,
this management includes institutional campaigns, strategic alliances, legal action, etc.
• Structural management of uncertainty: it is based on increasing flexibility and competitiveness of
organization with the aim of immunizing it against any type of uncertainty. Thus, any
Whatever the evolution of the markets and competition, the company will always succeed.
achieve your goals. To do this, sequential decision-making and review can be used
plans, diversification, and consolidation of the competitive position.

Finally, the strategic management cycle must ensure management control that
allows, on one hand, to assess the degree of integration and success of the implemented strategy and,
on the other hand, identify ways to renew the strategic and operational management attitudes of
organization.

Strategy control

Currently, the success of any organization is essentially a function of

formulation of competitive strategies. However, the strategies formulated at the moment
currently, in light of environmental developments, quickly lose their competitiveness.
As previously mentioned, any of the components of the reflection
strategy must evolve with the trends of the surrounding environment. In this context, the control of
the strategy must ensure, first and foremost, the return to the previous component whenever
necessary in order to reformulate the respective models. Subsequently, it should
to ensure the success of the implementation of the strategy, renewing the plan whenever necessary
strategic of the organization.
In this perspective, and in accordance with what was mentioned at the beginning of this chapter, the
strategic management will have to become an open system, sensitive to both the evolution of
engaging environment, wants the evolution of the strategic thinking of the organization's members.
In fact, looking at the organization through the lens of systemic theories allows for a better understanding.
the interrelations of the various subsystems within the organization and its relation to the various
systems with which it interacts. We speak, more specifically, of the feedbacks that regulate the
system life. Thus, external communication channels assume particular importance and
internals that, enabling relevant information, at the right time, to the subsystem that
Needs provide assistance for the development of more effective decision-making processes.
The set of signals that reach the system allows it, in this way, to position itself
in a homeostatic situation, a type of dynamic equilibrium that allows the system
adapt one's activity to the effective and potential demands of their environment8.
Consequently, the IF function, in addition to the essential design and management of
information flows corresponding to the activities of collection, processing, and distribution
from information, supporting the decision-making of all members of the organization, must
ensure the consistent creation of regulation mechanisms.

8
See Systemic Theories.
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In the current environmental context, organizations cannot afford to

to refrain from the attitude of constant control, so they must equip themselves with the mechanisms
necessary in order to ensure the control of strategic management.

75