PROTON HOLDINGS CASE STUDY

_____________________________________________________
AZMAN HASHIM INTERNATIONAL BUSINESS SCHOOL
TOPIC:
A CRITICAL ANALYSIS ON THE STRATEGIES IMPLEMENTED
BY PROTON HOLDINGS MALAYSIA
PROJECT PAPER:
LECTURER NAME:
SIR LOKMAN BIN ALI
PREPARE BY:
NAMES: MATRIC NO:
NURHIMA BINTI HASSAN A17HA0196
ASYSYUARAH BINTI TUAH A17HA0016
ZULPADHLI BIN SALUDIN A17HA0296
DATE SUBMISSION:
18 DECEMBER 2018
SM/SHAD/S01/G10

i
TOPIC : TYPES OF STRATEGY
1.0 OVERVIEW : 1
1.1 Company Background 1
1.2 Company History 1 – 3
1.3 Company Vision and Mission 4
2.0 INTRODUCTION : 4
2.1 Example : PROTON Holdings Berhad 4
2.2 The Flow of this project paper 4
2.3 Example : Executive Summary PROTON Holdings Berhad 5
3.0 LONG TERM OBJECTIVES : 5
3.1 Introduction 5
3.1.1 Theory of long-term objectives 5
3.1.2 Theory of strategy 5
3.1.3 Time frame for objectives and strategies 5
3.1.4 The setback of not having long-term objectives 6
3.1.5 Example : PROTON Holdings Berhad 6
3.1.6 Long-term Objectives and Organizational Level 6 - 7
3.1.6.1
Example: PROTON Long term
Objective
7
3.2 Characteristics and Benefits of Objectives 7
3.2.1 The characteristics of Objectives 7
3.2.2 The Benefits of Having Clear Objectives 7 - 8
3.3 Financial versus Strategic Objectives 8
3.3.1 Financial Objectives 8
3.3.2 Strategic objectives 8
3.3.3
Trade-Off between Financial and Strategic
Objectives
8
3.3.3.1
Example 1 : Maximize short-term vs
harming long-term objectives
8 - 9
3.3.3.2 Example 2 : Concern for Business Ethics 9
3.3.3.3 Conclusion 9
3.4 Avoid Not Managing by Objectives 10
3.4.1 Introduction 10
3.4.2 Managing by Extrapolation 10
3.4.3 Managing by Crisis 10
3.4.4 Managing by Subjective 10
3.4.5 Managing by Hope 10
4.0 TYPES OF STRATEGIES : 10
4.1 Introduction : 10 - 11
4.1.1 The risk of combination strategy 11
4.2 Levels of Strategies 12

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5.0 INTEGRATION STRATEGIES : 12
5.1 Introduction 12
5.2 Forward Integration 12
5.2.1 Theory 12
5.2.2 Example : PROTON , DRB-HICOM and Suzuki 12 - 13
5.2.3 Example : Geely Holding 13
5.2.4 Example : PROTON and EON 13
5.2.5 Franchising 13
5.2.5.1 Introduction 13
5.2.5.2 The practice of franchising in USA 13
5.2.5.3 Franchisees : The Trend 13
5.2.5.4 Pressure to own few location 13
5.2.5.5
Example : PROTON and PROTON
Cars Australia
13 - 14
5.2.5.6
Guidelines for effective forward
integration strategy
14
5.3 Backward Integration 14
5.3.1 Theory of Backward Integration 14
5.3.1.1
Example 1 : PROTON and Goodyear
Tyres
14
5.3.2 De-integration 15
5.3.2.1 Example 1 : Ford and Chrysler 15
5.3.3
Seven Guidelines indicates Backward Integration
as effective strategy
15
5.4 Horizontal Integration 15
5.4.1 Theory of Horizontal Integration 15
5.4.1.1 Example 1 : Proton Singapore 15
5.4.1.2
Example 2 : Dollar General and Dollar
Tree
16
5.4.1.3 Example 3 : Charter Communications 16
5.4.2
Five Guidelines indicates Horizontal Integration as
effective strategy
16
6.0 INTENSIVE STRATEGIES : 16
6.1 Market Penetration 16
6.1.1 Theory of market penetration 16 - 17
6.1.2 Example : PROTON and Geely 17
6.1.3
Five Guidelines indicates market penetration as
effective strategy
17
6.2 Market Development 17
6.2.1 Theory of Market Development 17
6.2.2 Example 1 : Proton Saga 17
6.2.3 Example 2 : Netflix 17 - 18
6.2.4
Six Guidelines indicates market development as
effective strategy
18
6.3 Product Development 18
6.3.1 Theory of Product Development 18
6.3.2 Example 1 : Proton Holdings Berhad 18
6.3.3
Five Guidelines indicates product development as
effective strategy
18 - 19

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7.0 DIVERSIFICATION STRATEGIES: 19
7.1 Introduction: 19
7.1.1 Types of diversification strategies 19
7.2 Related Diversification 19
7.2.2
Guidelines indicates Related Diversification as
effective strategy
19
7.3 Unrelated Diversification 20
7.3.1 Example 1 : Mars Inc. 20
7.3.2 Example 2 : Google 20
7.3.3 Example 3 : Honda Motor Company 20
7.3.4
Ten Guidelines indicates Unrelated Diversification
as effective strategy
20 - 21
8.0 DEFENSIVE STRATEGIES : 21
8.1 Types of Defensive Strategies 21
8.2 Retrenchment 21
8.2.1 Theory of Retrenchment 21
8.2.3
Five Guidelines indicates Retrenchment as effective
strategy
21 - 22
8.3 Divestiture 22
8.3.1 Theory of Divestiture 22
8.3.3 Guidelines indicates Divestiture as effective strategy 22
8.4 Liquidation 22
8.4.1 Theory of Liquidation 22 - 23
8.4.2 Example 1 : Alco Store 23
8.4.3 Example 2 : Source Interlink Distribution 23
8.4.4
Three Guidelines indicates Liquidation as effective
strategy
23
9.0 MICHAEL PORTER’S FIVE GENERIC STRATEGIES: 23
9.1 Introduction: 23 - 24
9.1.1 Cost Leadership 24
9.1.2 Differentiation 24
9.1.3 Focus 24 - 25
9.2 Cost Leadership Strategies (Type 1 and Type 2): 25
9.2.1
Ways to employ a cost leadership strategy
successfully
25
9.2.2
Conditions to ensure effectiveness in cost leadership
strategy
25
9.3 Differentiation Strategies (Type 3): 26
9.3.1
Conditions to ensure effectiveness in differentiation
strategy
26
9.4 Focus Strategies (Type 4 and Type 5): 26
9.4.1 Example: Clorox Company and Marriot 26 - 27
9.4.2 Conditions to ensure effectiveness in focus strategy 27

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10.0 MEANS FOR ACHIEVING STRATEGIES : 27
10.1 Cooperation among Competitors 27
10.1.1 Example 1 : Proton and Geely 27 - 28
10.1.2 Conclusions 28
10.2 Joint Venture and Partnering 28
10.2.1 Theory of Joint Venture 28
10.2.2 Four primary reasons joint venture not succeed 28
10.2.3 Example 1 : Proton joint venture with Geely 28 - 29
10.2.4 Example 2 : Proton partnership with Honda 29
10.2.5
Example 3 : Proton partnership with LG
Electronics
29
10.2.6
Six Guidelines indicates Joint Venture as effective
strategy
29
10.3 Merger or Acquisition 30
10.3.1 Theory of Merger and Acquisition 30
10.3.1.1 Hostile Takeover and Friendly Merger 30
10.3.1.2 Leveraged Buyout (LBO) 30
10.3.2 Example: Proton acquired Lotus 30
10.3.3 Contributory Reasons for Merger and Acquisition 30 - 31
10.3.4
Nine Reasons Why Many Mergers and Acquisitions
fail
31
10.3.5
Eleven Potential Benefits of Merging with or
Acquiring Another Firm
31
10.4 Private-Equity Acquisition 31
10.4.1 Example 1 : Apollo Global Management LLC 31- 32
10.4.2 Example 2 : Kohlberg Kravis Robert (KKR) 32
10.4.3 Secondary Buyout 32
10.4.4 Dividend Recapitalizations 32
11.0 TACTICS TO FACILITATE STRATEGIES : 32
11.1 First Mover Advantages: 32
11.1.1 Theory 32
11.1.2 Strategy of Being First Advantages 32
11.1.3 Benefits of Firm Being the First Mover 33
11.1.4 Example : PROTON 33
11.2 Outsourcing: 33
11.2.1 Theory 33
11.2.2 Thirteen Potential Benefit Outsourcing 33 – 34
11.2.3 Example : Proton outsource from Mitsubishi 34
11.3 Reshoring: 34
11.3.1 Theory 34
11.3.2 Benefits of Reshoring 34 - 35
11.3.3 Example: Walmart 35
12.0
STRATEGIC MANAGEMENT IN NONPROFIT,
GOVERNMENTAL AND SMALL FIRMS :
35
12.1 Introduction: 35
12.1.1 Differences of Nonprofit organization 35
12.2 Educational Institutional 35

v
12.2.2 Current situation of world higher education 35
12.2.3 Example : Online courses and degrees 36
12.3 Medical Organizations 36
12.3.2 The importance of Health industry 36
12.3.3
Example : Home nursing and Rehabilitation
Centers
36
12.3.4 Example : Backward integration strategies 36
12.3.5 Conclusion 36
12.4 Governmental Agencies and Departments 36
12.4.2 Issues 37
12.4.3 Conclusion 37
12.5 Small Firms 37
12.5.2 Strategic management in small firms 38
12.5.3 Issue 38
12.5.4 Key attributes of great entrepreneurs 38
13.0 CONCLUSION 39
14.0 REFERENCES

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1.0 OVERVIEW :
1.1 Company Background
PROTON Holdings Berhad (PHB), informally known, as PROTON is a
Malaysia based corporation active in automobile design, manufacturing,
distribution and sales. PROTON established in 1983 as the sole national
badged car company until the advent of Perodua in 1993. The company
headquartered is in Shah Alam, Selangor and operates additional facilities at
PROTON City, Perak. ‘ PROTON’ is a Bahasa Malaysia acronym for
Perusahaan Otomobil Nasional (National Automobile Company).
On 16 February 2016, PROTON unveiled its new corporate logo and a new
slogan, "It's in the Drive!"
Illustration 1.0: The Logo of PROTON Holdings Berhad
The roaring tiger is PROTON symbol of passion and commitment. Simple
and clean, this evolved logo represents the transformation journey of
PROTON. It reflects PROTON readiness to take on new challenges and
possibilities into the future. Passionate and committed as ever, but even
stronger and bolder. This is manifested in PROTON brand promise of
Quality, Safety and Value.
1.2 Company History
It all began in 1979, when Tun Mahathir Mohamad, the then Deputy Prime
Minister of Malaysia, mooted the idea of establishing an automotive
assembling and manufacturing industry in country. It was his dream to
accelerate Malaysia's industrialization capabilities to match those of
developed nations. The dream came one-step closer to reality when the
Cabinet approved the National Car Project in 1982.

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The dream was fulfilled when PROTON was officially incorporated on May
7, 1983. PROTON very first model, the PROTON Saga, was commercially
launched on July 9, 1985. The name Saga was given by Ismail Jaafar, a retired
military soldier, during a nationwide contest to name PROTON’s first car. It
is derived from "Saga" (Adenanthera pavonina), a type of seed commonly
found in Malaysia. The first new market for the PROTON Saga was
Singapore, right across the Straits of Johor.
In 1986, barely a year after PROTON first car was launched; PROTON
celebrated the official rollout of the 10,000th PROTON. The following year,
PROTON launched the PROTON Saga 1.5L sedan and aeroback models. By
then, over 50,000 units of the PROTON Saga had been produced and sold in
Bangladesh, Brunei, New Zealand, Malta and Sri Lanka. Soon after,
PROTON cars PROTONre distributed in the United Kingdom.
In 1988, PROTON debuted at the British International Motorshow, walking
away successfully with three prestigious awards for quality, coachwork and
ergonomics. In 1996, PROTON produced PROTON 1 millionth car.
PROTON progressed towards in-house engine operations in 1989. In
PROTON quest to upgrade PROTON technological prowess, a Transmission
Assembly Plant was set up in Shah Alam. In 1996, PROTON produced
PROTON one-millionth car. This achievement was buoyed by several
significant new model launches including the PROTON Tiara, PROTON
Wira 2.0 Diesel and the two-door PROTON Putra, in addition to PROTON
existing lineup of the PROTON Wira, PROTON Satria and PROTON
Perdana. In the same year, PROTON acquired a controlling stake in Group
Lotus.
Even as the new millennium dawned, PROTON showed no signs of slowing
down. In 2000, PROTON unveiled PROTON prototype CamPro engine at
the Lotus factory in Norwich, England. The CamPro engine showcased
PROTON's ability to produce engines with good power output and meet
newer emission standards. The first model to incorporate the CamPro engine
was the Gen-2 which was launched in 2004. The variants of CamPro - CPS
and IAFM - made their debut in 2008. The CPS was first introduced in the
PROTON Waja and facelifted Gen-2 while the IAFM was incorporated in the
2nd generation PROTON Saga.
In 2008, PROTON launched the latest iteration of PROTON logo, in
conjunction with the rollout of PROTON three millionth car. The 2nd
generation Saga was the first model to use the black and chrome logo. In
2009, PROTON Edar Sdn. Bhd. and Edaran Otomobil Nasional Berhad
entered into a new Master Dealership Agreement. The aim was to rationalise
the sales and services network of PROTON vehicles to ensure a more
efficient nationwide distribution.
PROTON further cemented its success in 2009 with the introduction of its
first MPV – the Exora. It was widely accepted both domestically and in
Thailand. In light of the growing concerns about environmentally-friendly
vehicles, PROTON attempted to develop its electric vehicles to manage

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carbon footprints and provide an alternative to volatile fuel prices. In 2012,
PROTON introduced the turbo variant of the CamPro engine; the 1.6-litre
CamPro Charge Fuel Efficiency (CFE) engine performs like a 2-litre engine.
It was first introduced in the Exora Bold and Exora Prime.
In 2012 marked a new phase for PROTON when it became a private entity
after DRB-Hicom Berhad held 100% shares in PROTON. As the largest
manufacturer of automobiles, DRB-HICOM was confident in transforming
PROTON and LOTUS to become globally-recognised automotive players.
Determined to capture the international market, PROTON introduced the
Prevé. It achieved a 5-Star safety rating by the Australasian New Car
Assessment Programme (ANCAP) in 2013, a historical first for PROTON.
In August 2013, PROTON launched another global car, the Suprima S: a
youthful hatchback with a dynamic and sporty stance.
In May 2014, both the Prevé and Suprima S obtained a 5-Star safety rating
from ASEAN NCAP, promoting PROTON as the national car company to
champion the use of safer cars in Malaysia. In September 2014, the Iriz
received a 5-Star safety rating from ASEAN NCAP, making it the first car in
Malaysia to receive a full safety rating before its launch. During this time,
PROTON forged collaborations with Honda in 2012 and Suzuki Motor
Corporation Japan in 2015.
PROTON forged forward to become a respectable automotive player in the
region. 2016 started with a major progressive development of the Suzuki
collaboration with Suzuki outlets converted into PROTON Edar outlets.
In its bid to revive its market share and manage perception, PROTON
unveiled a fresh logo and 10 initiatives to improve and enhance customer
experience. PROTON re-entered Chile by exporting the Prevé, Exora and
Saga left-hand drive as part of a Free Trade Agreement. Tun Dr Mahathir
Mohamad, founder and Chairman of PROTON stepped down as Chairman
in March 2016, paving the way for new leadership. Under the new
management, PROTON launched 4 new cars in 2016 to propel itself back to
capture a significant amount of market share.
On 24 May 2017, Zhejiang Geely Holding Group Co, Ltd (Geely) won the
bid to acquire a 49.9% stake in PROTON. PROTON had sold 100% of its
stake in Group LOTUS plc with 51% stake acquired by Geely and 49% by
Etika Automobile Sdn Bhd. On 23 June 2017, Geely and DRB-HICOM
firmed up the partnership, with a 49.9% stake for Geely. The Boyue, Geely’s
SUV that would be PROTON’s first SUV was displayed at the signing
ceremony, marking a new era for PROTON with its new partner. On 1
October 2017, Geely officially came on board with the new CEO, Dr Li
Chunrong appointed to helm the management team of PROTON. Today,
PROTON is constantly seeking progress that drives PROTON as a brand that
not only makes the best quality cars that are affordable to Malaysians, but
also aspire to be a fast growing global player in the market.

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1.3 Company Vision and Mission
The vision of PROTON is as shown as below:
‘A Leading Global Mobility Solutions Provider’
The mission of PROTON is as shown as below:
‘Continuously Create Innovative Processes, Products, and Services that
Win People’s Heart and Minds.’
2.0 INTRODUCTION :
Hundreds of companies today have embraced strategic planning in their quest
for higher revenues and profits.
According to Bateman and Snell (2009), strategic planning is involves
making decisions about the organization’s long-term goals and strategies.
2.1 Example : PROTON Holdings Berhad
According to The Star (10 Jun 2014), PROTON’s immediate plan would be
to change its strategy from being a maker of cheap cars to become a world-
standard car manufacturer, said newly appointed chairman Tun Dr Mahathir
Mohamad. The fourth prime minister said PROTON had always been
labelled as a cheap or poor quality carmaker.
“Now PROTON wants to produce cars which are of world standard, but you
have to pay a higher price. “You can’t have a good car and pay a bad car
price,” said PM when asked about his immediate plan for PROTON.
According to Press Release (15th September 2017). Foreign Strategic partner
between PROTON, DRB-HICOM and Zhejiang Geely Holding are working
towards completion of the corporate transaction, which expected to
materialize very soon. Currently, both DRB-HICOM and Geely Holding are
intensifying efforts to finalize the detailed business plan for PROTON
Group.
The detailed business plan is vital towards producing a solid “road-map” for
PROTON Group for the years ahead; and is one of the key items to be
conclude as part of the completion exercise. The business plan will
incorporate strategies for both companies to develop new vehicles together
for the global market (Press Release, 15th September 2017).
2.2 The Flow of this project paper
This chapter brings strategic management to life with many contemporary
examples. Sixteen types of strategies are defined and exemplified, including
Michael Porter’s generic strategies:
i. Cost leadership
ii. Differentiation
iii. Focus.
Guidelines presented for determining when each strategy is most appropriate
to pursue.

5
2.3 Example : Executive Summary PROTON Holdings Berhad
Being the first national badged car company in Malaysia, PROTON Holdings
Berhad or widely known as PROTON, is a homegrown automotive brand
that is close to the hearts of Malaysians. PROTON launched in 1983 and its
first car, PROTON Saga, became an instant hit. Business was great for a
decade until the Asian financial crisis in 1997.
1985 marked a momentous year in Malaysia’s history. The country’s first
national car, the PROTON Saga, rolled out to the masses. An elusive dream
for most nations, PROTON made it a reality for Malaysia. Since its inception,
PROTON has become a key driver of national development as it paves the
way forward with technology transfer, strategic partnerships and technical
collaborations.
Ever since then, PROTON has been in a roller-coaster ride, with declining
sales and reducing market share. PROTON’s market share in Malaysia fell
from its grace of 74% in 1993 to the lowest of 8.8% in December 2017. At
its peak in 2002, PROTON sold 214,373 units, down to just 72,290 in 2016.
This is far below its break-even of 100,000 to 120,000 cars per year. By end
of March 2016, PROTON reported a net loss of RM1.46 billion. Therefore,
last year, 2017, DRB-HICOM sold-off 49.9 per cent stake of PROTON to a
Chinese automaker, Zhejiang Geely Holdings Group.
Today, with the collaboration of our strategic partner, Geely, PROTON
continues to design and build cars as it helps shape the landscape of
Malaysia’s automotive industry, while it aims to grow big internationally.
3.0 LONG TERM OBJECTIVES :
3.1 Introduction
3.1.1 Theory of long-term objectives
Long-term objectives represent the result expected from pursuing
certain Strategies.
3.1.2 Theory of strategy
According to David (2017), strategies represent the action to taken
to accomplish long-term objectives and strategies should be
consistent.
A strategy is a guideline for decision-making based on the
determinants market scope, growth rate, competitive advantage, and
synergy (Ansoff, 1969).
According to Alfred D. Chandler (1962), strategy is the formulation
basic long-term goals and objectives of an organization and the
implementation of course of actions and the allocation of necessary
resources for carrying out these goals.
3.1.3 Time frame for objectives and strategies
The time frame for objectives and strategies should be consistent,
usually from two to five years.

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3.1.4 The setback of not having long-term objectives
Without long-term objectives, an organization would drift aimlessly
toward some unknown end. It is hard to imagine and organization
or an individual being successful without clear objectives.
3.1.5 Example : PROTON Holdings Berhad
PROTON is currently undergoing a transformation process as part
of a long-term turnaround plan. PROTON's tie up with Geely is
expected to return the company into profitability and regaining an
international presence, betting on the introduction of the much-
anticipated SUV planned to be launched by the end of 2018.
According to New Straits Times (12 December 2018), PROTON
Holdings Bhd’s much anticipated sports utility vehicle (SUV) X70
was launched tonight by Prime Minister Tun Dr Mahathir Mohamad
after months of anticipation. The X70 is billed as the first premium
SUV by a Malaysian automotive brand, and was jointly developed
by PROTON with partner Geely. PROTON is targeting a new
market segment with the launch of the SUV, and it has been hailed
by the carmaker as the key catalyst for the ‘total rejuvenation’ of the
brand.
“The PROTON X70 is the result of more than one year of hard work
by PROTON and Geely engineers, designers and hundreds of other
people working together to develop the first premium SUV by a
Malaysian car manufacturer. PROTON is proud of our
achievement and it is our belief Malaysian car buyers will be
equally proud to own an SUV that will help to transform the
PROTON brand. With over 10,000 bookings, it already has a good
start so we will work hard to deliver on our product and brand
promise,” said PROTON chief executive officer Dr Li Chunrong.
3.1.6 Long-term Objectives and Organizational Level
Long-term objectives are need at the corporate, divisional, and
functional levels of an organization. They are an important measure
of managerial performance.
Many practitioners and academicians attribute a significant part of
U.S. industry’s competitive decline to the short-term, rather than
long-term, strategy orientation of managers in the United States.
Arthur D. Little argues that bonuses or merit pay for managers today
must base largely on long-term objectives and strategies.
An example framework for relating objectives to performance
evaluation provided in Table 4-1.
A particular organization could tailor these guidelines to meet its
own needs, but incentives should attached to both long-term and
annual objectives.

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3.1.6.1 Example: PROTON Long term Objective
1) To implement and strengthen more on the marketing
strategies in order to become world class service
manufacturing.
2) To develop more on designing and supporting for
component of services advanced technology.
3.2 Characteristics and Benefits of Objectives
3.2.1 The characteristics of Objectives
Objectives should be quantitative, measurable, realistic,
understandable, challenging, hierarchical, obtainable, and
congruent among organizational units. Each objective should also
be associated with a timeline.
Objectives are commonly state in terms such as growth in assets,
growth in sales, profitability, market share, degree and nature of
diversification, degree and nature of vertical integration, earnings
per share, and social responsibility.
Table 4-2 reveals the desired characteristics of objectives.
3.2.2 The Benefits of Having Clear Objectives
Clearly established objectives offer many benefits. They provide
direction, allow synergy, assist in evaluation, establish priorities,
reduce uncertainty, minimize conflicts, stimulate exertion, and aid
in both the allocation of resources and the design of jobs.
Objectives provide a basis for consistent decision making by
managers whose values and attitudes differ. Objectives serve as
standards by which individuals, groups, departments, divisions, and
entire organizations can evaluated.

8
Table 4-3 summarizes the benefits of having clear objectives:
3.3 Financial versus Strategic Objectives
3.3.1 Financial Objectives
Financial objectives include those associated with growth in
revenues, growth in earnings, higher dividends, larger profit
margins, and greater return on investment, higher earnings per
share, a rising stock price, and improved cash flow and so on.
3.3.2 Strategic objectives
Strategic objectives include things such as a larger market share,
quicker on-time delivery than rivals, shorter design-to-market times
than rivals, lower costs than rivals do, higher product quality than
rivals, wider geographic coverage than rivals, achieving
technological leadership, consistently getting new or improved
products to market ahead of rivals and so on.
3.3.3 Trade-Off between Financial and Strategic Objectives
Although financial objectives are especially important in firms,
oftentimes there is a trade-off between financial and strategic
objectives such that crucial decisions have to make.
There are other trade-offs between financial and strategic
objectives, related to riskiness of actions, concern for business
ethics, the need to preserve the natural environment, and social
responsibility issues.
3.3.3.1 Example 1 : Maximize Short-Term Vs Harming
Long-Term Objectives
After its incorporation in 1983, PROTON’s sales grew
steadily and the future looked very promising. PROTON
was very ambitious that it bought Lotus Cars in 1996 to
leverage on Lotus’ solid engineering capabilities that
PROTON could not have developed on its own. Sadly,
the investment was not a good move because of the
financial crisis. Since 1996, Lotus Cars have lost money
amounting to an estimated of RM6 billion for over 20
years.

9
Nowadays, with the help of this external financing,
LOTUS look forward to introducing exciting new models
to the world, which will complement current product
range.
Group Lotus Chief Executive Officer Dany Bahar said.
“I am confident that the execution of our business plan
will mark the return of the iconic Lotus brand into the
elite ranks of the world's premium sportscar
manufacturers and generate greater profitability and long-
term financial sustainability for the company and its
stakeholders”
“I would like to thank our shareholders PROTON for the
unwavering support and confidence in Lotus. I believe
Lotus has a lot to offer to PROTON moving forward. As
the future plans bear fruit, I am confident that PROTON
will benefit in terms of branding, product development,
and sales and marketing." (Press Release, 15th APRIL
2011)
The company show that there are related trade-offs
between financial and strategic objectives, related to
riskiness of actions.
3.3.3.2 Example 2: Concern For Business Ethics.
According to Press Release (1 October 2018), after three
consecutive months of posting record numbers in 2018,
car sales in Malaysia shrank for September as the new
Sales Service Tax (SST) came into force. PROTON was
no exception as a 36-month high of 9,501 units was
followed up by sales of 4,524 units. However, although
there was a drop in overall unit sales, market share as a
percentage of the Total Industry Volume (TIV) increased
to 15%, a new high point for the year and the highest
share percentage since May 2017.
The company show that there are related trade-offs
between financial and strategic objectives, related to
concern for business ethics.
3.3.3.3 Conclusion
Both financial and strategic objectives should include
both annual and long-term performance target.
Ultimately, the best way to sustain competitive advantage
over the long run is relentlessly pursue strategic
objectives that strengthen a firm’s business position over
rivals. Financial objectives can best met by focusing
primarily on achieving strategic objectives that improve
firm’s competitiveness and market strength.

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3.4 Avoid Not Managing by Objectives
3.4.1 Introduction
Mr. Derek Bok, former President of Harvard University, once said,
“If you think education is expensive, try ignorance.” The idea
behind this saying also applies to establishing objectives, because
strategists should avoid the following ways of “not managing by
objectives.”
3.4.2 Managing by Extrapolation
Adheres to the principle “If it ain’t broke, don’t fix it.” The idea
is to keep on doing the same things in the same ways because things
are going well.
3.4.3 Managing by Crisis
Based on the belief that the true measure of a good strategist is the
ability to solve problems. Because there are plenty of crises and
problems to go around for every person and organization, strategists
ought to bring their time and creative energy to bear on solving the
most pressing problems of the day. Managing by crisis is actually a
form of reacting, letting events dictate the what and when of
management decisions.
3.4.4 Managing by Subjective
Built on the idea that there is no general plan for which way to go
and what to do; just do the best you can to accomplish what you
think should be done. In short, “Do your own thing, the best way
you know how” (sometimes referred to as the mystery approach to
decision making because subordinates are left to figure out what is
happening and why).
3.4.5 Managing by Hope
Because the future is laden with great uncertainty and that if we try
and do not succeed, then we hope our second (or third) attempt will
succeed. Decisions are predicate on the hope that they will work and
that good times are just around the corner, especially if luck and
good fortune are on our side.
4.0 TYPES OF STRATEGIES :
4.1 Introduction :
The model illustrated in Figure 4-1 provides a conceptual basis for
applying strategic management.

11
Defined and exemplified in Table 4-4, alternative strategies that an
enterprise could pursue can categorized into 11 actions.
4.1.1 The risk of combination strategy
Most organizations simultaneously pursue a combination of two or
more strategies, but combination strategy can be exceptionally risky
if carried too far. No organization can afford to pursue all the
strategies that might benefit the firm. Difficult decisions must made.
Priorities must established. Organizations, like individuals, have
limited resources. Both organizations and individuals must choose
among alternative strategies and avoid excessive indebtedness.

12
4.2 Levels of Strategies
Strategy making is not just a task for top executives. Middle and
lower level managers must also be involved in the strategic planning
process to the extent possible.
It is important that all managers at all levels participate and
understand the firm’s strategic plan to help ensure coordination,
facilitation, and commitment, while avoiding inconsistency,
inefficiency, and miscommunication.
5.0 INTEGRATION STRATEGIES :
5.1 Introduction
There are three type of integration strategies, which is Forward integration,
backward integration, and horizontal integration. Forward integration and
backward integration also known as Vertical integration strategies allow a
firm to gain control over distributors and suppliers. Where horizon integration
refers to gaining ownership and/or control over competitors. Vertical and
horizontal actions by firms broadly referred to as integration strategies.
5.2 Forward Integration
5.2.1 Theory
Forward integration involves gaining ownership or increased
control over distributors or retailers. Increasing numbers of
manufacturers (suppliers) are pursuing a forward integration
strategy by establishing websites to sell their products directly to
consumers.
5.2.2 Example : PROTON, DRB-HICOM and Suzuki
PROTON, DRB-HICOM and Suzuki Motor Corporation, Japan
today signed a Memorandum of Understanding (“MoU”) and
License Agreement (“LA”) to form a long-term strategic
collaboration and partnership between the three companies.
The spirit of the collaboration encompasses four main areas, which
are products, technology, people and market. With this
collaboration, it would allow PROTON to have access to the
models, platforms, powertrain and automotive technology of

13
Suzuki. Suzuki will then provide the specific technical assistance
for the products and scope selected. (Press Release, 15 June 2015)
5.2.3 Example : Geely Holding
DRB-HICOM has reached an agreement with Geely Holding for the
Chinese car group to acquire 49.9% equity in PROTON Holdings
Berhad. DRB-HICOM currently owns 100% of the manufacturer of
the ﬁrst national car. The deal will enable PROTON to tap into
Geely Holding’s vast range of platforms and power trains, and will
enable PROTON to have access to existing markets of the Chinese
carmaker, as well as right-hand drive markets in southeast Asia.
(Press Release, 24 May 2017)
5.2.4 Example : PROTON and EON
PROTON as owner and controller of the distributorship of
PROTON cars can increase its control over its distributor, Edaran
Otomobil Nasional (EON), by increasing its shares in EON. By
doing this, PROTON will have more say in the business of EON.
(The Star, 5 April 2003)
5.2.5 Franchising
5.2.5.1 Introduction
An effective means of implementing forward integration
is franchising.
5.2.5.2 The practice of franchising in USA
Approximately 2000 companies in about 50 different
industries in the United States use franchising to distribute
their products or services. Businesses can expand rapidly
by franchising because costs and opportunities spread
among many individuals. Total sales by franchises in the
United States are annually about SI trillion. There are
about 800,000 franchise businesses in the United States.
5.2.5.3 Franchisees : The Trend
However, a growing trend is for franchisees, who, for
example, may operate 10 franchised restaurants, stores, or
whatever to buy out their part of the business from their
franchiser (corporate owner). A growing rift between
franchisees and franchisers is escalating as the offspring
often outperforms the parent.
5.2.5.4 Pressure to own few location
Restaurant chains increasingly pressured to own fewer of
their locations.
5.2.5.5 Example : PROTON and PROTON Cars Australia
Despite supply difficulties in the first quarter, PROTON
Cars Australia successfully increased its sales by 10% and
the introduction of the Savvy model in the early part of

14
2006 resulted in incremental sales, as the vehicle was well-
received by both the franchised dealers and public at large.
The subsequent release of Satria Neo in 2007 was also well
received with press reports complementing the vehicle on
its class leading ride and handling capabilities. Market
competition has increased due to slowing sales resulting in
heavy discounting in an effort to maintain market share.
Reductions in overheads have allowed PROTON Cars
Australia to maintain the profit forecasts. (Annual Report,
2007)
5.2.5.6 Guidelines for effective forward integration strategy
Six guidelines indicate when forward integration may be
an especially effective strategy
i. An organization's present distributors are especially
expensive, unreliable, or incapable of meeting the
firm's distribution needs.
ii. The availability of quality distributors is so limited as
to offer a competitive advantage to those firms that
promote forward integration.
iii. An organization competes in an industry that is
growing and expected to continue to grow markedly;
this is a factor because forward integration reduces an
organization's ability to diversify if its basic industry
falters.
iv. An organization has both the capital and human
resources needed to manage the new business of
distributing its own products.
v. The advantages of stable production are particularly
high; this is a consideration because an organization
can increase the predictability of the demand for its
output through forward integration.
vi. Present distributors or retailers have high profit
margins; this situation suggests that company could
profitably distribute its own products and price them
more competitively by integrating forward.
5.3 Backward Integration
5.3.1 Theory of Backward Integration
As a strategy of seeking ownership or increased control of a firm’s
suppliers. This strategy can be especially appropriate when a firm’s
current suppliers are unreliable, too costly, or cannot meet the firm’s
needs.
5.3.1.1 Example 1 : PROTON and Goodyear Tyres
PROTON can have a backward integration, if it purchases
substantial shares in one of its suppliers such as Goodyear
Tyres. By doing so, PROTON can have more say in the
supply of tires by Goodyear Tyres to build PROTON cars.

15
5.3.2 De-integration
5.3.2.1 Example 1 : Ford and Chrysler
Ford and Chrysler buy more than half of their component
parts from outside suppliers such as TRW, Eaton, General
Electric (GE), and Johnson Controls.
5.3.3 Seven Guidelines indicates Backward Integration as effective
strategy
i. An organization’s present suppliers are especially
expensive, unreliable, or incapable of meeting the firm’s
needs for parts, components, assemblies, or raw materials.
ii. The number of suppliers is small and the number of
competitors is large.
iii. An organization competes in an industry that is growing
rapidly; this is a factor because integrative-type strategies
(forward, backward, and horizontal) reduce an
organization’s ability to diversify in a declining industry.
iv. An organization has both capital and human resources to
manage the new business of supplying its own raw
materials.
v. The advantages of stable prices are particularly important;
this is a factor because an organization can stabilize the cost
of its raw materials and the associated price of its product(s)
through backward integration.
vi. Present suppliers have high profit margins, which suggest
that the business of supplying products or services in a given
industry is a worthwhile venture.
vii. An organization needs quickly acquire a needed resource.
5.4 Horizontal Integration
5.4.1 Theory of Horizontal Integration
Seeking ownership of or control over a firm’s competitors,
horizontal integration is arguably the most common growth
strategy. Thousands of mergers, acquisitions, and takeovers among
competitors consummated annually. Nearly all these transactions
aim for increased economies of scale and enhanced transfer of
resources and competencies.
5.4.1.1 Example 1 : Proton Singapore
The dealer for PROTON in Singapore is Proton Singapore
and Proton. Then, if Proton Singapore takes over the
dealership from Proton to have more control over
dealership of PROTON cars Singapore, this is known as
horizontal integration.

16
5.4.1.2 Example 2 : Dollar General and Dollar Tree
Both Dollar General and Dollar Tree recently competed
for months to acquire Family Dollar. The winner, Dollar
Tree, is reducing prices and converting Family Dollar
stores into bright, clean, friendly places. Dollar Tree still
sells more items for a dollar or less, whereas Family Dollar
sells more branded merchandise. About 5,000 Dollar Tree
stores and 8,300 Family Dollar stores now compete with
industry leader Dollar General’s 11,500 stores.
5.4.1.3 Example 3 : Charter Communications
Charter Communications (CHTR) recently acquired (1)
Time Warner Cable (TWC) for $55.33 billion and (2)
Bright House Networks for $10.4 billion, creating a giant
U.S. TV and Internet firm. The new Charter has nearly 24
million customers, below the leader Comcast’s (CMCSK)
27.2 million customers. Comcast owns NBC Universal.
Charter also lags AT&T (T), whose recent merger with
DirecTV (DTV) gave AT&T 26.4 million TV customers
and 16.1 million fixed Internet customers, as well as tens
of millions of wireless customers.
5.4.2 Five Guidelines indicates Horizontal Integration as effective
strategy
i. An organization can gain monopolistic characteristics in a
particular area or region without being challenged by the
federal government for “tending substantially” to reduce
competition.
ii. An organization competes in a growing industry.
iii. Increased economies of scale provide major competitive
advantages.
iv. An organization has both the capital and human talent needed
successfully manage an expanded organization.
v. Competitors are faltering because of a lack of managerial
expertise or a need for particular resources that an organization
possesses; note that horizontal integration would not be
appropriate if competitors are doing poorly because in that case
overall industry sales are declining.
6.0 INTENSIVE STRATEGIES :
6.1 Market Penetration
6.1.1 Theory of market penetration
Market penetration strategy seeks to increase market share for
present products or services in present markets through greater
marketing efforts. This strategy is widely used alone and in
combination with other strategies. Market penetration includes
increasing the number of salespersons, increasing advertising
expenditures, offering extensive sales promotion items, or
increasing publicity efforts.

17
Ansoff (1969) claimed that this strategy focuses on increasing the
volume of sales of existing products to the organization’s existing
market.
6.1.2 Example : PROTON and Geely
According to Press Release (24 May 2017), Geely Holding acquire
49.9% equity in PROTON Holdings Berhad. The deal will enable
PROTON to tap into Geely Holding’s vast range of platforms and
power trains, and will enable PROTON to have access to existing
markets of the Chinese carmaker, as well as right-hand drive
markets in southeast Asia.
Within the next 10 years, PROTON wants to grab a 30% market
share in Malaysia and 10% of the Asean market share.
6.1.3 Five Guidelines indicates market penetration as effective
strategy
i. Current markets not saturated with a particular product or
service.
ii. The usage rate of present customers could increase
significantly.
iii. The market shares of major competitors have been declining
while total industry sales have been increasing.
iv. The correlation between dollar sales and dollar marketing
expenditures historically has been high.
v. Increased economies of scale provide major competitive
advantages.
6.2 Market Development
6.2.1 Theory of Market Development
Market development involves introducing present products or
services into new geographic areas.
According to Ansoff (1969), Market Development focuses on
reaching new markets with existing products in the portfolio.
6.2.2 Example 1 : Proton Saga
Proton Saga is the local car that categorize among the lowest price
vehicles, is saturated in Malaysia. After sign deal with Geely,
PROTON might want to sell Proton Saga to consumer in China in
order to increase the sales of Proton Saga and to gain market share
in China.
6.2.3 Example 2 : Netflix
The largest online video-streaming company, Netflix, recently
launched it services into France, Germany, Belgium, and
Switzerland, as well as eastern and southern Europe, and expects to
be a global service provider by 2018. Netflix’s major rival in Europe

18
is Vivendi SA’s pay-tv unit Canal Plus that offers Netflix-like
services through its Canal Play services.
6.2.4 Six Guidelines indicates market development as effective
strategy
i. New channels of distribution are available that are reliable,
inexpensive, and of good quality.
ii. An organization is successful at what it does.
iii. New untapped or unsaturated markets exist.
iv. An organization has the needed capital and human resources to
manage expanded operations.
v. An organization has excess production capacity.
vi. An organization’s basic industry is rapidly becoming global in
scope.
6.3 Product Development
6.3.1 Theory of Product Development
Product development is a strategy that seeks increased sales by
improving or modifying present products or services. Product
development usually entails large research and development
expenditures.
According to Ansoff (1969), this strategy focuses on reaching the
existing market with new products.
6.3.2 Example 1 : Proton Holdings Berhad
Malaysian automaker Proton Holdings Berhad is using Autodesk
digital prototyping to accelerate its automotive design process and
create a distinct design identity across its latest car models. By using
Autodesk Digital Prototyping technology, companies can design,
visualize and stimulate techniques to help produce products rapidly
and cost effectively. The use of prototyping technology in product
development offers the power and flexibility that manufacturers
need to help solve their most pressing business challenges. All
recent Proton car models. Such as the Suprima S, Preve, Exora, Saga
FLX,Persona and Satria Neo, including the Proton Iriz, were
designed using Autodesk technology.
6.3.3 Five Guidelines indicates product development as effective
strategy
i. An organization has successful products that are in the maturity
stage of the product life cycle; the idea here is to attract satisfied
customers to try new (improved) products because of their
positive experience with the organization’s present products or
services.
ii. An organization competes in an industry that characterized by
rapid technological developments.

19
iii. Major competitors offer better-quality products at comparable
prices.
iv. An organization competes in a high-growth industry.
v. An organization has especially strong research and
development capabilities.
7.0 DIVERSIFICATION STRATEGIES:
7.1 Introduction:
The two general types of diversification strategies are related diversification
and unrelated diversification. Businesses said to related when their value
chains possess competitively valuable cross business strategic fits; businesses
is said to be unrelated when their value chains are so dissimilar that no
competitively valuable cross-business relationships exist.
However, in Proton Holdings Berhad, they never applied unrelated
diversification strategies in their company.
7.1.1 Types of diversification strategies
i. Transferring competitively valuable expertise, technological
know-how, or other capabilities from one business to another
ii. Combining the related activities of separate businesses into a
single operation to achieve lower costs
iii. Exploiting common use of a well-known brand name
iv. Cross-business collaboration to create competitively valuable
resource strengths and capabilities.
7.2 Related Diversification
National automaker Proton Holdings Berhad is investing a further
RM1.2 billion for the expansion of its existing plant in Tanjung
Malim to produce new car models. Proton has committed to increase
sales and export of the cars and this factory in Tanjung Malim will
also be the global production hub for Geely’s right-hand drive
models. In other words, Proton and Geely will share the same
manufacturing process in order for them to produce automobile
parts.
7.2.2 Guidelines indicates Related Diversification as effective strategy
i. An organization competes in a no-growth or a slow-growth
industry.
ii. Adding new, but related, products would significantly enhance
the sales of current products.
iii. New, but related, products could offered at highly competitive
prices.
iv. New, but related, products have seasonal sales levels that
counterbalance an organization’s existing peaks and valleys.
v. An organization’s products are currently in the declining stage
of the product’s life cycle.
vi. An organization has a strong management team.

20
7.3 Unrelated Diversification
7.3.1 Example 1 : Mars Inc.
Privately held Mars Inc., best known for its M&M chocolates and
its Mars and Snickers candy bars, recently became the world’s
largest pet-food company, purchasing 80 percent of Procter &
Gamble’s pet-food brands for $2.9 billion, to go with its own
Whiskas, Pedigree, and Royal Canin pet brands. Mars has over 25
percent market share in the global pet-food industry, slightly ahead
of Nestlé S.A., which owns Purina and Friskies.
7.3.2 Example 2 : Google
Google now offers an electric-powered driverless car that has no
steering wheel, brake, or gas pedal; rather, the car is equipped with
buttons for go and stop, and travels at a top speed of 25 mph. Further
diversifying, Google recently acquired Skybox Imaging to collect
and provide data from the sky using satellites that collect daily
photos and video of the Earth. With the acquisition, Google is also
trying to cover the globe with fast Internet access from the sky,
using balloons, drones, and satellites.
7.3.3 Example 3 : Honda Motor Company
Honda Motor Company diversified in 2015 by developing,
producing, and marketing its first business jet, named the Honda Jet
HA-420 that has a range of 1,180 miles and a top speed of 420 knots,
and can carry seven passengers. This new product competes directly
with the Cessna Citation M2 and Embraer Phenom 100E business
jets. These business jets sell for about $4.5 million each.
7.3.4 Ten Guidelines indicates Unrelated Diversification as effective
strategy
i. Revenues derived from an organization’s current products or
services would increase significantly by adding the new,
unrelated products.
ii. An organization competes in a highly competitive or a no-
growth industry, as indicated by low industry profit margins
and returns.
iii. An organization’s present channels of distribution can used to
market the new products to current customers.
iv. New products have countercyclical sales patterns compared to
an organization’s present products.
v. An organization’s basic industry is experiencing declining
annual sales and profits
vi. An organization has the capital and managerial talent needed to
compete successfully in a new industry.
vii. An organization has the opportunity to purchase an unrelated
business that is an attractive investment opportunity.
viii. Financial synergy exists between the acquired and acquiring
firm. (Note that a key difference between related and unrelated
diversification is that the former should base on some

21
commonality in markets, products, or technology, whereas the
latter based more on profit considerations.)
ix. Existing markets for an organization’s present products are
saturated.
x. Antitrust action could charge against an organization that
historically has concentrated on a single industry.
8.0 DEFENSIVE STRATEGIES :
8.1 Types of Defensive Strategies
In addition to integrative, intensive, and diversification strategies,
organizations also could pursue defensive strategies such as retrenchment,
divestiture, or liquidation.
8.2 Retrenchment
8.2.1 Theory of Retrenchment
Retrenchment occurs when an organization regroups through cost
and asset reduction to reverse declining sales and profits.
Sometimes called a turnaround or reorganizational strategy,
retrenchment designed to fortify an organization’s basic distinctive
competence. During retrenchment, strategists work with limited
resources and face pressure from shareholders, employees, and the
media. Retrenchment can involve selling off land and buildings to
raise needed cash, pruning product lines, closing marginal
businesses, closing obsolete factories, automating processes,
reducing the number of employees, and instituting expense control
systems.
According to Brahmana (2016), retrenchment strategy is a strategy
used by corporations to reduce the diversity or the overall size of the
operations of the firms to prevent decline of corporate value.
Proton Holdings Berhad has given assurance that there will be no
retrenchment at the car maker, despite the changes in stakeholders
and the entry of China’s Zhejiang,Geely Holding Group Co. Ltd.
Deputy International Trade and Industry Minister Datuk Ahmad
Maslan said the new Proton management under CEO Dr. Li
Chunrong has decided not to retrench any of its 9,600 employees.
8.2.3 Five Guidelines indicates Retrenchment as effective strategy
i. An organization has a clearly distinctive competence but has
failed consistently to meet its objectives and goals over time.
ii. An organization is one of the weaker competitors in a given
industry.
iii. An organization is plague by inefficiency, low profitability,
poor employee morale, and pressure from stockholders to
improve performance.
iv. An organization has failed to capitalize on external
opportunities, minimize external threats, take advantage of

22
internal strengths, and overcome internal weaknesses over
time; that is, when the organization is strategic managers have
failed (and possibly will replaced by more competent
individuals).
v. An organization has grown so large so quickly that major
internal reorganization is need.
8.3 Divestiture
8.3.1 Theory of Divestiture
Selling a division or part of an organization called divestiture. It
often used to raise capital for further strategic acquisitions or
investments. Divestiture can be part of an overall retrenchment
strategy to rid an organization of businesses that are unprofitable,
that require too much capital, or that do not fit well with the firm is
other activities. Divestiture has also become a popular strategy for
firms to focus on their core businesses and become less diversified.
According to Brahmana (2016), asset divestiture is the partial or
complete sale or disposal of physical and organization assets, shut
down of facilities, and reduction of work forces of target or acquirer
businesses.
DRB-Hicom partially divest Proton to Geely, through new share
issurance and fully divest Lotus to Geely and Etika Strategy. DRB-
Hicom and Geely will own 50.1% and 49.9% stake respectively in
Proton.
8.3.3 Guidelines indicates Divestiture as effective strategy
i. An organization has pursued a retrenchment strategy and failed
to accomplish needed improvements.
ii. To be competitive, a division needs more resources than the
company can provide.
iii. A division is responsible for an organization’s overall poor
performance.
iv. A division is a misfit with the rest of an organization; this can
result from radically different markets, customers, managers,
employees, values, or needs.
v. A large amount of cash needed quickly and cannot obtained
reasonably from other sources.
vi. Government antitrust action threatens an organization.
8.4 Liquidation
8.4.1 Theory of Liquidation
Selling all of a company’s assets, in parts, for their tangible worth
called liquidation. Liquidation is a recognition of defeat and
consequently can be an emotionally difficult strategy. However, it

23
may be better to cease operating than to continue losing large sums
of money.
Proton Holdings Berhad have not done liquidation yet.
8.4.2 Example 1 : Alco Store
The Midwestern retailer, Alco Stores, in early 2015 liquidated
(closed) all its stores after earlier operating under Chapter 2
bankruptcy. Founded in 1901 as a general-merchandising store in
Abilene, Kansas, Alco had major offices both in Abilene and in
Coppell, Texas. More than 3,000 employees lost their job as Alco
liquidated its assets.
8.4.3 Example 2 : Source Interlink Distribution
Based in Bonita Springs, Florida, one of the largest distributors of
magazines in the United States, Source Interlink Distribution,
recently liquidated, laying off its 6,000 employees and forgoing its
$750 million a year in revenue. Source Interlink had played a major
role in arranging for printed magazines distribution to retailers,
large and small.
8.4.4 Three Guidelines indicates Liquidation as effective strategy
i. An organization has pursued both a retrenchment strategy and
a divestiture strategy, and neither has been successful.
ii. An organization’s only alternative is bankruptcy. Liquidation
represents an orderly and planned means of obtaining the
greatest possible amount of cash for an organization’s assets. A
company can legally declare bankruptcy first and then liquidate
various divisions to raise needed capital.
iii. The stockholders of a firm can minimize their losses by selling
the organization’s assets.
9.0 MICHAEL PORTER’S FIVE GENERIC STRATEGIES:
9.1 Introduction:
Probably the three most widely read books on competitive analysis in the
1980s were Michael Porter’s Competitive Strategy (1980), Competitive
Advantage (1985), and Competitive Advantage of Nations (1989). According
to Porter, strategies allow organizations to gain competitive advantage from
three different bases: cost leadership, differentiation, and focus. Porter calls
these bases generic strategies.
Porter’s five strategies imply different organizational arrangements, control
procedures, and incentive system. Larger firms with greater access to
resources typically compete on a cost-leadership of differentiation basis,
whereas smaller firms often compete on a focus basis. Porter’s five generic
strategies illustrated in Figure 4-3.

24
9.1.1 Cost Leadership
Cost leadership emphasizes producing standardized products at a
low per- unit cost for consumers who are price sensitive. Two
alternative types of cost leadership can defined. Type 1 is a low-cost
strategy and Type 2 is a best-value strategy that offer product or
services to a wide range of customers at the lowest price (type 1)
and the best price-value (type 2) available on the market.
9.1.2 Differentiation
Porter’s Type 3 generic strategy is differentiation, a strategy aimed
at producing products and services considered unique to the industry
and directed at consumers who are relatively price insensitive.
According to Neil Ritson in his Strategic Management book,
differentiation enables the firm to attempt efforts to distinguish its
products from those of its rivals.
9.1.3 Focus
Focus means producing products and services that fulfill needs of
small groups of consumers. Two alternative types of focus are Type
4 and Type 5. Type 4 is a low cost focus strategy that offers products
or services to a small range (niche group) of consumers. Type 5 is a
best-value focus strategy that offers products or services to a small
range of customers at the best-price value available on the market.
Sometimes called “focused differentiation,” the best-value focus

25
strategy aims to offer niche group of customers the products or
services that meet their tastes and requirements better than rivals’
products do.
9.2 Cost Leadership Strategies (Type 1 and Type 2):
A primary reason for pursuing forward, backward and horizontal integration
strategies is to gain low-cost or best-value cost leadership benefits. However,
cost leadership generally must pursued in conjunction with differentiation.
The basic idea is to underprice competitors and thereby gain market share and
sales, entirely driving some competitors out of the market. Companies
employing a low-cost (Type 1) or best-value (Type 2) cost leadership strategy
must achieve their competitive advantage in ways that are difficult for
competitors to copy or match.
9.2.1 Ways to employ a cost leadership strategy successfully
To employ a cost leadership strategy successfully, a firm must
ensure that its total costs across its overall value chain are lower
than competitors’ total costs.
There are two ways to accomplish this.
i. Perform value chain activities more efficiently than rivals
and control the factors that drive the costs of value chain
activities. Such activities could include altering the plant
layout, mastering newly introduced technologies, using
common parts or components in different products,
simplifying product design, finding ways to operate close
to full capacity year-round, and so on.
ii. 2. Revamp the firm’s overall value chain to eliminate or
bypass some cost-producing activities. Such activities
could include securing new suppliers or distributors, selling
products online, relocating manufacturing facilities,
avoiding the use of labor union, and so on.
9.2.2 Conditions to ensure effectiveness in cost leadership strategy
A Type 1 or Type 2 cost leadership strategy can be especially
effective under the following conditions:
i. Price competition among rival sellers is especially vigorous.
ii. Products of rival sellers are essentially identical and supplies
are readily available from any of several eager sellers.
iii. Few ways to achieve product differentiation have values to
buyers.
iv. Most buyers use the product in the same ways.
v. Buyer incurs low costs in switching their purchases form one
seller to another.
vi. Buyers are large and have significant power to bargain down
prices.
vii. Industry newcomers use introductory low prices to attract
buyers and build a customer base.

26
9.3 Differentiation Strategies (Type 3):
Different strategies offer different degrees of differentiation. Differentiation
does not guarantee competitive advantage, especially if standard products
sufficiently meets customer needs or if rapid imitation by competitors is
possible.
A differentiation strategy should be pursue only after a careful study of
buyers’ needs and preferences to determine the feasibility of incorporating
one or more differentiating features into a unique product that displays the
desired attributes. A risk of pursuing a differentiation strategy is that the
unique product may not be valued highly enough by customers to justify the
higher price.
Common organizational requirements for a successful differentiation strategy
include strong coordination among the R&D and marketing functions and
substantial amenities to attract scientists and creative people. The most
effective differentiation bases are those that are hard or expensive for rivals
to duplicate.
9.3.1 Conditions to ensure effectiveness in differentiation strategy
A Type 3 differentiation strategy can be especially effective under
the following under the following four conditions:
i. There are many ways to differentiate the product or service
and many buyers perceive these differences as having
value.
ii. The buyer’s needs and uses are diverse.
iii. Few rival firms are following a similar differentiation
approach.
iv. Technological change is fast pace and competition revolves
around rapidly evolving product features.
9.4 Focus Strategies (Type 4 and Type 5):
A successful focus strategy depends on an industry segment that is of
sufficient size, has good growth potential, and is not crucial to the success of
other major competitors. Focus strategies are most effective when consumers
have distinctive preferences of requirements and when rivals firms are not are
not attempting to specialize in the same target segment. Risk of pursuing a
focus strategy include the possibility that the numerous competitors will
recognize the successful focus strategy and copy it or that consumer
preferences will drift towards the product attributes desired by the market as
a whole.
9.4.1 Example: Clorox Company and Marriot
i. Clorox Company, which obtains 80 percent of its revenue
from the United States, is focusing on brands viewed as
environmental friendly.

27
ii. Marriot continues to focus on its Hotel business by
announcing plans to double its hotel in Asia to 275 by
2017, especially growing its China-based hotels to about 125
from 60 and covering nearly 75 percent of Chinese
provinces. Reasoning from Marriot’s strategy is that
Chinese tourists are travelling at home and abroad in
dramatically increased numbers, up to 21 percent on average
year after year.
9.4.2 Conditions to ensure effectiveness in focus strategy
A low-cost (Type 4) or best-value (Type 5) focus strategy can be
especially attractive under these conditions:
i. The target market niche is large, profitable, and growing.
ii. Industry leaders do not consider the niche crucial to their
own success.
iii. Industry leaders consider it too costly or difficult to meet
the specialized needs of the target market niche while
taking care of their mainstream customers.
iv. The industry has many different niches and segments,
thereby allowing a focuser to pick a competitively
attractive niche suited to its own resources.
v. Few, if any, other rivals are attempting to specialize in the
same target segment.
10.0 MEANS FOR ACHIEVING STRATEGIES :
10.1 Cooperation among Competitors
Strategies that stress cooperation among competitors are being use more. For
collaboration between competitors to succeed, both firms must contribute
something distinctive, such as technology, distribution, basic research, or
manufacturing capacity. However, a major risk is that unintended transfers of
important skills or technology may occur at organizational levels below
where the deal was sign.
Perhaps the best example of rival firms in an industry forming alliances to
compete against each other is the airline industry. Today, there are three major
alliances: Star, SkyTeam, and Oneworld. Joint venture and cooperative
arrangements among competitors demand a certain amount of trust if
companies are to combat paranoia about whether one firm will injured the
other.
10.1.1 Example 1 : Proton and Geely
The move by DRB Hicom in choosing Zhejiang Geely Holding
Group (Geely) as a strategic partner is apt in ensuring Proton, the
national car manufacturer, continues to be competitive locally and
at international level, said Ex-Prime Minister Datuk Seri Najib
Abdul Razak. He said there was no intervention from the
government in the matter, and that the decision was made by the

28
management of DRB Hicom and Proton based on Geely's merit in
dominating most of the world's leading automotive company shares.
10.1.2 Conclusions
Often, U.S. companies enter alliances primarily to avoid
investments, being more interested in reducing the costs and risks
of entering new businesses or markets than in acquiring new skills.
In contrast, learning from the partner is a major reason why Asian
and European firms enter into cooperative agreements.
10.2 Joint Venture and Partnering
10.2.1 Theory of Joint Venture
Joint venture is a popular strategy that occurs when two or more
companies form a temporary partnership or consortium for
capitalizing on some opportunity.
According to Kogut (2018), joint venture is used for the transfer of
organizationally embedded knowledge, which cannot be easily
blueprinted or packaged through licensing or market transactions.
10.2.2 Four primary reasons joint venture not succeed
Although joint ventures and partnerships are increasingly preferred
over mergers as a means for achieving strategies, they are not
always successful, for four primary reasons:
i. Managers who must collaborate daily in operating the
venture are not involved in forming or shaping the venture.
ii. The venture may benefit the partnering companies but may
not benefit customers, who then complain about the
companies in other ways.
iii. Both partners, if supported unequally may not support the
venture equally, problems arises.
iv. The venture may begin to compete more with one of the
partners than the other does.
10.2.3 Example 1 : Proton joint venture with Geely
Proton Holdings and Zhejiang Geely Holding Group signed a Heads
of Agreement to set up a joint venture (JV) that will pave the way
for Malaysian automaker Proton to assemble and market its cars in
China.
Both companies will take up equal equity in the yet-to-be-named JV
company and target to incorporate the JV within the first half of
2019, subject to obtaining all regulatory approvals.
In a statement, DRB-HICOM, which owns Proton with China's
Geely, said the venture includes the setting up of a production

29
facility in China to assemble vehicles, and the development of a
network of dealers to market the Proton range in China.
10.2.4 Example 2 : Proton partnership with Honda
In 2017, Proton Holdings Bhd (Proton) has signed on Honda Motor
Co Ltd as its strategic partner as part of its post-privatisation
reorganisation.
Proton parent, DRB-Hicom Bhd, said Proton and Honda will
explore collaboration opportunities in technology, new products as
well as share platforms and facilities.
10.2.5 Example 3 : Proton partnership with LG Electronics
Proton partnership with LG Electronics in the development of
autonomous safety technology. In September 2014, Proton
previewed an Iriz prototype with LG's Advanced Drive Assistance
System (ADAS). With the LG ADAS implementation, new
autonomous safety features like:
i. Autonomous Emergency Braking (AEB),
ii. Forward Collision Warning (FCW),
iii. Adaptive Cruise Control (ACC),
iv. Cross Traffic Assist (CTA),
v. Lane Departure Warning (LDW),
vi. Traffic Sign Recognition (TSR)
vii. High Beam Assist (HBA)
The inclusion of autonomous safety features has become a
prerequisite for a full 5-Star Euro NCAP and ANCAP rating.
10.2.6 Six Guidelines indicates Joint Venture as effective strategy
Six guidelines for when a joint venture may be an especially
effective means for achieving strategies are:
i. A privately owned organization is forming a joint with a
publicly owned organization.
ii. A domestic organization is forming a joint venture with a
foreign company.
iii. The distinct competencies of two or more firms complement
each other especially well.
iv. Some project is potentially profitable but requires
overwhelming resources and risk.
v. Two or more smaller firms have trouble competing with a
large firm.
vi. There is a needed quickly introduce a new technology.

30
10.3 Merger or Acquisition
10.3.1 Theory of Merger and Acquisition
Merger and Acquisition are two commonly used ways to pursue
strategies. A merger occurs when two organizations of about equal
size unite to form one enterprise. An acquisition occurs when a
large organizations purchases (acquires) a smaller firm or vice
versa.
According to Alam (2014), a merger is a strategy of joining two
businesses. A merger occurs when two companies join or merge to
form one single company but with a new name. Meanwhile,
acquisition refers to a situation where one firm acquires another and
the latter ceases to exist.
10.3.1.1 Hostile Takeover and Friendly Merger
If both parties do not desire a merger or acquisition, it
called a hostile takeover, as opposed to a friendly
merger.
10.3.1.2 Leveraged Buyout (LBO)
A leveraged buyout (LBO) occurs when a
corporation’s shareholders are bought (hence buyout) by
the company’s management and other private investors
using borrowed funds (hence leverage).
10.3.2 Example: Proton acquired Lotus
On 30 October 1996, Proton acquired an 80% stake in the British
company, Lotus Group International Limited, valued at £51
million. The controlling interest was purchased from A.C.B.N.
Holdings S.A. of Luxembourg, a company controlled by Italian
businessman Romano Artioli, then also the owner of Bugatti.
Proton's stake in Lotus was increased to 100% in 2003. Lotus has
been involved in the development of suspension and handling
elements of all Proton cars launched since 1996.
In May 2017, DRB-HICOM announced plans to sell a 49.9% stake
in Proton and a 51% stake in Lotus to Geely Automobile Holdings.
The deal was signed in June 2017, and since then, Lotus ceased to
be a unit of Proton.
10.3.3 Contributory Reasons for Merger and Acquisition
There were far more mergers that are global and acquisitions in
2014 than in any year since 2007, exceeding $3.5 billion. Three
contributory reasons for this trend are:
i. The desire of diversified firms to “spin-off” segments into
separate companies that are then acquire by other firms.

31
ii. The desire of firms to acquire similar companies in countries
with low corporate tax rates and to shift company profits
from the United States to those countries.
iii. The desire of shareholders for firm continually grow
revenues.
10.3.4 Nine Reasons Why Many Mergers and Acquisitions fail
A merger between two firms can yield great benefits, but the price
and reasoning must be right. Some key reasons why many mergers
and acquisitions fail provided in Table 4-5.
10.3.5 Eleven Potential Benefits of Merging with or Acquiring
Another Firm
Table 4-6 presents the potential benefits of merging with or
acquiring another firm.
10.4 Private-Equity Acquisition
Private equity (PE) firms are acquiring and taking private a wide
variety of companies almost daily in the business world. It is an
integral part of the business world. Private equity firms are an
integral part of the business world, especially in the United States
but also in Europe, Asia, and more recently, Latin America.
10.4.1 Example 1 : Apollo Global Management LLC
One of the world’s largest private-equity firms, Apollo Global
Management LLC, acquired 577 Chuck E. Cheese stores, the party

32
pizza and arcade game venues, in 47 states and 10 foreign countries
and territories. Apollo paid about $950 million for the parent
company, CEC Entertainment, or a 12 percent premium over the
company’s stock price. Chuck E. Cheese’s profit and revenue has
been on a decline of late and the number of birthday parties hosted
falling.
10.4.2 Example 2 : Kohlberg Kravis Robert (KKR)
KKR have jumped aggressively back into the business of acquiring
and selling firms, and releasing new initial public offerings (IPO).
A large PE firm, Cerberus Capital Management, recently bought the
second-largest U.S. grocery store chain, Safeway Inc., based in
Pleasanton, California, for $9.4 billion. Cerberus already owns
Albertsons, the fifth-largest U.S. grocery store chain. Cerberus
plans to unite the two companies’ distribution and purchasing
operations to save money and compete better with major rivals,
Wal-Mart Stores and Kroger.
10.4.3 Secondary Buyout
PE-to-PE acquisitions called secondary buyouts.
10.4.4 Dividend Recapitalizations
PE firms especially, but other firms too, sometimes borrow money
simply to fund dividend payouts to themselves, a controversial
practice known as dividend recapitalizations. Critics say dividend
recapitalization saddles a company with debt, thus burdening its
operations.
11.0 TACTICS TO FACILITATE STRATEGIES :
11.1 First Mover Advantages:
11.1.1 Theory
First Mover advantages refer to the benefits a firm may achieve by
entering a new market or developing a new product or services prior
to rival firms
11.1.2 Strategy of Being First Advantages
Being the first mover can be an excellent strategy when such
actions:
i. Build a firm image and reputation with buyers.
ii. Produce cost advantages over rivals in term of new
technologies, new components, new distribution
channels, and so on.
iii. Create strongly loyal customer.
iv. Make imitation or duplication by a rival difficulty or
unlikely.

33
11.1.3 Benefits of Firm Being the First Mover
11.1.4 Example : PROTON
Proton was established in 1983 as the sole national badged car
company. Where proton is the first mover for car manufacturer in
Malaysia. There was a huge opportunity for PROTON to make
profit because it created demand for Malaysians to buy local
national cars, rather than competing with imported Japanese cars.
PROTON’s cars were reasonably priced making it affordable for
Malaysian families to buy. PROTON also received strong
government support, after all, PROTON was the brainchild of the
then prime minister, Tun Dr. Mahathir. PROTON maintained its
number one standing for two decades, market share reached the
peak in 1993 at 74%9 (NST, 1995) and number of cars sold reached
the highest in 2002 at 214,373 units 10 (MAA, 2002).
11.2 Outsourcing:
11.2.1 Theory
Outsourcing involves companies hiring other companies to take
over various parts of their functional operations, such as human
resources, information system, payroll, accounting, customer
services, and even marketing.
According to Mweru (2016), outsourcing is a tool that enables
organizations to leverage value from virtually anywhere in the
world. Although outsourcing is a popular topic in many academic
articles, a clear definition of outsourcing is rarely given.
Outsourcing deals with the delegation of operations from internal
production to an external party, or parties.
11.2.2 Thirteen Potential Benefit Outsourcing
Table 4-8 reveals some of the potential benefits that firms strive to
achieve through outsourcing. Notice that benefit #1 is that
outsourcing oftentimes used to access lower wages in foreign
countries.

34
11.2.3 Example: Proton outsource from Mitsubishi
Proton has outsourced many critical parts to vendors especially on
the first Saga model (launched in 1985). At that time, Proton was
still new and had no capability to develop high technical parts.
Therefore, Proton had outsourced to vendors from abroad and relies
on joint venture partner, Mitsubishi Motor Corporation (MMC).
Proton outsource engines and transmission from Mitsubishi for its
vehicle which is Iswara, Saga, Wira, Satria, Arena, Waja and
Perdana. The Wira saloon and hatchback shared six different
engines by 1996, all of which were outsourced from Mitsubishi
Motors.
11.3 Reshoring:
11.3.1 Theory
Reshoring is a new term that refers to U.S. companies planning to
move some of their manufacturing back to the United States.
Reshoring as a voluntary decision on the part of a company to
relocate its activities back to the home country after having
implemented an offshoring decision in the past, regardless of the
ownership of the activities reshored (Ellram, 2013; Gray,
Skowronski, Esenduran, & Rungtusanatham, 2013).
11.3.2 Benefits of Reshoring
Seven benefits of reshoring back into the United States are as
follows:
i. Stable wages
ii. Reduce gas and electricity costs
iii. Excellent security to protect designs from oversea copycats
iv. Enable closer tabs on quality control and supply chains

35
v. Excellent economy with consumers purchasing more
vi. Less shipment costs with consumers nearby
Excellent human rights, education, legal, and political systems that
promote freedom and opportunity for citizens.
11.3.3 Example: Walmart
Walmart is spending an added $250 billion in the next 10 years on
USA-made goods. Consequently, numerous Walmart suppliers,
such as Element Electronics based in Eden Prairie, Minnesota, are
bringing manufacturing and assembly operations back to the United
States.
12.0 STRATEGIC MANAGEMENT IN NONPROFIT, GOVERNMENTAL AND
SMALL FIRMS:
12.1 Introduction :
The strategic-management process is being use effectively by countless
nonprofit and governmental organizations. The nonprofit sector,
surprisingly, is by far the largest employer in the United States. Many
nonprofit and governmental organizations outperform private firms and
corporations on innovativeness, motivation, productivity, and strategic
management. Compared to for-profit firms, nonprofit and governmental
organizations may be very dependent on outside financing.
12.1.1 Differences of Nonprofit organization
Nonprofit organizations are basically just like for-profit companies
except for two major differences:
i. Nonprofits do not pay taxes
ii. Nonprofits do not have shareholders to provide capital.
In virtually all other ways, these two types of organizations are like
one another.
12.2 Educational Institutional
12.2.1 Introduction
Educational institutions are more frequently using strategic
management techniques and concepts.
12.2.2 Current situation of world higher education
Population shifts nationally from the Northeast and Midwest to the
Southeast and West are but one factor-causing trauma for
educational institutions that have not planned for changing
enrollments. Ivy League schools in the Northeast are recruiting
more heavily in the Southeast and West. This trend represents a
significant change in the competitive climate for attracting the best
high school graduates each year. Reduced state and federal funding
for higher education has resulted in more aggressive fund raising by
colleges and universities.

36
12.2.3 Example : Online courses and degrees
The world of higher education is rapidly moving to online courses
and degrees. The American Council on Education, an association
for higher education presidents, is considering allowing free, online
courses to be eligible for credit toward a degree and eligible for
transfer credit. However, online degrees are a threat to traditional
colleges and universities.
12.3 Medical Organizations
12.3.1 Introduction
Declining occupancy rates deregulation, and accelerating growth of
health maintenance organizations, preferred provider organizations,
urgent care centers, outpatient surgery centers, diagnostic centers,
specialized clinics, and group practices are other major threats
facing hospitals today.
12.3.2 The importance of Health industry
Many private and state-supported medical institutions are in
financial trouble because of traditionally taking a reactive rather
than a proactive approach in dealing with their industry.
Originally intended to be warehouses for people dying of
tuberculosis, smallpox, cancer, pneumonia, and infectious disease,
hospitals are creating new strategies today as advances in the
diagnosis and treatment of chronic diseases are undercutting that
previous mission.
12.3.3 Example : Home nursing and Rehabilitation Centers
Hospitals are beginning to bring services to the patient as much as
bringing the patient to the hospital; health care is more and more
being concentrated in the home and in the residential community
rather than on the hospital campus.
12.3.4 Example : Backward integration strategies
Backward integration strategies that some hospitals are pursuing
include acquiring ambulance services, waste disposal services, and
diagnostic services.
12.3.5 Conclusion
Millions of people annually research medical ailments online,
causing a dramatic shift in the balance of power between doctor,
patient, and hospitals.
12.4 Governmental Agencies and Departments
12.4.1 Introduction
Federal, state, county, and municipal agencies and departments,
such as police departments, chambers of commerce, forestry
associations, and health departments, are responsible for

37
formulating, implementing, and evaluating strategies that use
taxpayers’ dollars in the most cost-effective way to provide services
and programs.
Strategic-management concepts are generally required and thus
widely used to enable governmental organizations to be more
effective and efficient.
12.4.2 Issues
Strategists in governmental organizations operate with less strategic
autonomy than their counterparts in private firms.
Public enterprises generally cannot diversify into unrelated
businesses or merge with other firms. Governmental strategists
usually enjoy little freedom in altering the organizations’ missions
or redirecting objectives. Legislators and politicians often have
direct or indirect control over major decisions and resources.
Strategic issues being discussed and debated in the media and
legislatures. Issues became politicize, resulting in fewer strategic
choice alternatives. There is now more predictability in the
management of public sector enterprises.
12.4.3 Conclusion
Government agencies and departments are finding that their
employees get excited about the opportunity to participate in the
strategic-management process and thereby have an effect on the
organization’s mission, objectives, strategies, and policies.
In addition, government agencies are using a strategic-management
approach to develop and substantiate formal requests for additional
funding.
12.5 Small Firms
12.5.1 Introduction
“Becoming your own boss” is a dream for millions of people and a
reality for millions more. Almost everyone wants to own a
business—from teens and college students, who are signing up for
entrepreneurial courses in record numbers, to those older than age
65, who are forming more companies every year. However, the
January 3, 2015, issue of the Wall Street Journal (page A1) reported
that the percentage of people under age 30 who own private
businesses has reached a 24-year low in the United States, to about
3.6 percent, down from 10.6 percent in 1989.
The stereotype that 20-somethings are entrepreneurial risk-takers is
simply false, as millions of young adults struggle in underpaid jobs
to maintain their own household, rather than living with their
parents. Reasons for the decline vary, but reduced bank lending for

38
small business startups, more indebtedness among young people,
and increasing numbers of competitors due to the Internet, all
contribute to a more risk-averse, under-30 age group for becoming
entrepreneur strategists.
12.5.2 Strategic management in small firms
The strategic-management process is just as vital for small
companies as it is for large firms. From their inception, all
organizations have a strategy, even if the strategy just evolves from
day-to-day operations. Even if conducted informally or by a single
owner or entrepreneur, the strategic-management process can
significantly enhance small firms’ growth and prosperity.
12.5.3 Issue
A lack of strategic-management knowledge is a serious obstacle for
many small business owners, as is a lack of sufficient capital to
exploit external opportunities and a day-to-day cognitive frame of
reference.
Research indicates that strategic management in small firms is more
informal than in large firms, but small firms that engage in strategic
management generally outperform those that do not.
12.5.4 Key attributes of great entrepreneurs
Academic Research Capsule 4-2 reveals the key attributes of great
entrepreneurs, many of whom never went to college and never were
an expert at their trade.

39
13.0 CONCLUSION
The main appeal of any managerial approach is the expectation that it will enhance
organizational performance. This is especially true of strategic management.
Through involvement in strategic-management activities, managers and employees
achieve a better understanding of an organization’s priorities and operations.
Strategic management allows organizations to be efficient, but more important; it
allows them to be effective. Although strategic management does not guarantee
organizational success, the process allows proactive rather than reactive decision-
making. Strategic management may represent a radical change in philosophy for
some organizations, so strategists must trained to anticipate and constructively
respond to questions and issues as they arise. The strategies discussed in this chapter
can represent a new beginning for many firms, especially if managers and employees
in the organization understand and support the plan for action.

40
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