Strategic management

STRATEGICMANAGEMENT

© Prentice Hall, 2002 8-8-11

Learning ObjectivesLearning Objectives You should learn to:You should learn to:

– Explain the importance of strategic Explain the importance of strategic managementmanagement

– Describe the steps in the strategic Describe the steps in the strategic management processmanagement process

– Explain SWOT analysisExplain SWOT analysis– Differentiate corporate-, business-, and Differentiate corporate-, business-, and

functional-level strategiesfunctional-level strategies– Explain what competitive advantage is Explain what competitive advantage is

and why it’s important to organizationsand why it’s important to organizations© Prentice Hall, 2002 8-8-22

Learning Objectives (cont.)Learning Objectives (cont.) You should learn to:You should learn to:

– Describe the five competitive forcesDescribe the five competitive forces– Identify the various competitive Identify the various competitive

strategiesstrategies


The Importance Of Strategic ManagementThe Importance Of Strategic Management

What Is Strategic Management?What Is Strategic Management?– A set of managerial decisions and actions A set of managerial decisions and actions

that determines the long-run performance of that determines the long-run performance of an organizationan organization

Purposes of Strategic ManagementPurposes of Strategic Management– involved in many decisions that managers involved in many decisions that managers

makemake– companies with formal strategic management companies with formal strategic management

systems have higher financial returns than systems have higher financial returns than companies with no such systemcompanies with no such system

– important in profit and not-for-profit important in profit and not-for-profit organizationsorganizations


The Strategic Management ProcessThe Strategic Management Process


The Strategic Management The Strategic Management ProcessProcess

1. Identifying the Organization’s Current 1. Identifying the Organization’s Current Mission, Objectives, and StrategiesMission, Objectives, and Strategies– missionmission - statement of the purpose of - statement of the purpose of

an organizationan organization important in profit and not-for-profit important in profit and not-for-profit

organizationsorganizations important to identify the goals currently in important to identify the goals currently in

place and the strategies currently being place and the strategies currently being pursuedpursued


Components of a Mission StatementComponents of a Mission Statement


The Strategic Management Process (cont.)The Strategic Management Process (cont.)

2. Analyzing the Environment2. Analyzing the Environment– successful strategies are aligned with the successful strategies are aligned with the

environmentenvironment– examine both the specific and general examine both the specific and general

environments to determine what trends and environments to determine what trends and changes are occurringchanges are occurring

3. Identifying Opportunities and Threats3. Identifying Opportunities and Threats– opportunit iesopportunit ies - positive trends in the external - positive trends in the external

environmentalenvironmental– threatsthreats - negative trends in the external - negative trends in the external

environmentenvironment© Prentice Hall, 2002 8-8-88

The Strategic Management The Strategic Management Process (cont.)Process (cont.)

4. Analyzing the Organization’s Resources 4. Analyzing the Organization’s Resources and Capabilitiesand Capabilities– examine the inside of the organizationexamine the inside of the organization– available resources and capabilities available resources and capabilities

always constrain the organization in always constrain the organization in some waysome way

– core competence - a unique and core competence - a unique and exceptional capability or resourceexceptional capability or resource the organization’s major value-creating, the organization’s major value-creating,

competitive weaponcompetitive weapon© Prentice Hall, 2002 8-8-99


5. Identifying Strengths and Weaknesses5. Identifying Strengths and Weaknesses– strengthsstrengths - activities the organization does well or - activities the organization does well or

any unique resourceany unique resource– weaknessesweaknesses - activities the organization does not - activities the organization does not

do well or resources it needs but does not possessdo well or resources it needs but does not possess– organization’s culture has its strengths and organization’s culture has its strengths and

weaknessesweaknesses strong culture - new employees easily identify the strong culture - new employees easily identify the

organization’s core competenciesorganization’s core competencies– may serve as a barrier to accepting changemay serve as a barrier to accepting change

influence managers’ preferences for certain strategiesinfluence managers’ preferences for certain strategies– SWOT analysisSWOT analysis - analysis of the organization’s - analysis of the organization’s

strengths, weaknesses, opportunities, and threatsstrengths, weaknesses, opportunities, and threats© Prentice Hall, 2002 8-8-1010

Identifying the Organization’s OpportunitiesIdentifying the Organization’s Opportunities

Organization’sOpportunities

Organization’sResources/Abilities

Opportunities inthe Environment



6. 6. Formulating StrategiesFormulating Strategies– require strategies at the corporate, business, and require strategies at the corporate, business, and

functional levels of the organizationfunctional levels of the organization– strategy formulation follows the decision-making strategy formulation follows the decision-making

processprocess 7. Implementing Strategies7. Implementing Strategies

– a strategy is only as good as its implementationa strategy is only as good as its implementation 8. Evaluating Results8. Evaluating Results

– control process to determine the effectiveness of a control process to determine the effectiveness of a strategystrategy


Levels of Organizational StrategyLevels of Organizational Strategy


Types Of Organizational StrategiesTypes Of Organizational Strategies

Corporate-Level StrategyCorporate-Level Strategy– determines determines

what businesses a company should be in or wants what businesses a company should be in or wants to be into be in

the direction that the organization is goingthe direction that the organization is going the role that each business unit will playthe role that each business unit will play

– Grand Strategy - Stabil i tyGrand Strategy - Stabil i ty no significant change is proposedno significant change is proposed organization’s performance is satisfactoryorganization’s performance is satisfactory environment appears to be stable and unchangingenvironment appears to be stable and unchanging few organizations today pursue this strategy few organizations today pursue this strategy © Prentice Hall, 2002 8-8-1414

Types Of Organizational Strategies (cont.)Types Of Organizational Strategies (cont.)

Corporate-Level Strategy (cont.)Corporate-Level Strategy (cont.)– Grand Strategy - GrowthGrand Strategy - Growth

seeks to increase the level of the organization’s seeks to increase the level of the organization’s operationsoperations

concentrat ionconcentrat ion - growth through direct expansion of - growth through direct expansion of organization’s own business operationsorganization’s own business operations

vertical integrationvertical integration – backwardbackward - become your own supplier - become your own supplier– forwardforward - become your own distributor - become your own distributor

horizontal integrationhorizontal integration - grow by combining with other - grow by combining with other organizations in the same industryorganizations in the same industry

– needs approval by U.S. Federal Trade Commissionneeds approval by U.S. Federal Trade Commission



Corporate-Level Strategy (cont.)Corporate-Level Strategy (cont.)– Grand Strategy - Growth Grand Strategy - Growth (cont.)(cont.)

related diversif icationrelated diversif ication - grow by - grow by merging with or acquiring firms in different, merging with or acquiring firms in different, but related, industriesbut related, industries

– ““strategic fit”strategic fit” unrelated diversificationunrelated diversification - grow by - grow by

merging with or acquiring firms in different merging with or acquiring firms in different and unrelated industriesand unrelated industries



Corporate-Level Strategy (cont.)Corporate-Level Strategy (cont.)– Grand Strategy - Growth Grand Strategy - Growth (cont.)(cont.)

retrenchmentretrenchment - designed to address - designed to address organizational weaknesses that are leading organizational weaknesses that are leading to performance declinesto performance declines

– intended to:intended to: stabilize operationsstabilize operations revitalize organizational resources and revitalize organizational resources and

capabilitiescapabilities prepare to compete once againprepare to compete once again


SWOT Analysis And Grand SWOT Analysis And Grand StrategiesStrategies

CorporateGrowth

Strategies

CorporateStability

Strategies

CorporateRetrenchment

Strategies

AbundantEnvironmentalOpportunities

CriticalEnvironmental

Threats

CorporateStability

Strategies

Cri

tica

lW

eakn

esse

sV

alua

ble

Str

engt

hs

Environmental Status

Fir

m S

tatu

s


Types of Organizational Strategies (cont.)Types of Organizational Strategies (cont.)

Corporate-Level Strategy (cont.)Corporate-Level Strategy (cont.)– Corporate Portfolio AnalysisCorporate Portfolio Analysis - used when - used when

corporate strategy involves a number of businesscorporate strategy involves a number of business Boston Consult ing Group (BCG) matrixBoston Consult ing Group (BCG) matrix - provides - provides

a framework for understanding diverse businessesa framework for understanding diverse businesses– helps managers establish priorities for making resource helps managers establish priorities for making resource

allocation decisionsallocation decisions– businesses classified in terms of businesses classified in terms of

market share market share anticipated market growthanticipated market growth


The BCG MatrixThe BCG Matrix

Stars

CashCows

Dogs

QuestionMarks

Market Share

High Low

Hig

hL

ow

AnticipatedGrowth

Rate



Corporate-Level Strategy (cont.)Corporate-Level Strategy (cont.)– BCG matrixBCG matrix (cont.) (cont.)

strategic implications of the matrixstrategic implications of the matrix– cash cowscash cows - “milk” - “milk”

use cash to invest in stars and question marksuse cash to invest in stars and question marks– starsstars - require heavy investment - require heavy investment

eventually will become cash cowseventually will become cash cows– question marksquestion marks - two strategies - two strategies

invest to transform them into starsinvest to transform them into stars divestdivest

– dogsdogs - sold off or liquidated - sold off or liquidated



Business-Level StrategyBusiness-Level Strategy– determines how an organization should compete in determines how an organization should compete in

each of its businesseseach of its businesses– strategic business unitsstrategic business units - independent - independent

businesses that formulate their own strategiesbusinesses that formulate their own strategies– Role of Competit ive AdvantageRole of Competit ive Advantage

competit ive advantagecompetit ive advantage - sets an organization apart by - sets an organization apart by providing a distinct edgeproviding a distinct edge

– comes from the organization’s core competenciescomes from the organization’s core competencies– not every organization can transform core competencies into a not every organization can transform core competencies into a

competitive advantagecompetitive advantage– once created, must be able to sustain itonce created, must be able to sustain it



Business-Level Strategy (cont.)Business-Level Strategy (cont.)– Competit ive StrategiesCompetit ive Strategies

Michael PorterMichael Porter - industry analysis based on - industry analysis based on five competitive forcesfive competitive forces

– Threat of new entrantsThreat of new entrants - affected by barriers to - affected by barriers to entryentry

– Threat of substitutesThreat of substitutes - affected by buyer loyalty - affected by buyer loyalty and switching costsand switching costs

– Bargaining power of buyersBargaining power of buyers - affected by number - affected by number of customers, availability of substitute productsof customers, availability of substitute products


Business-Level Strategy (cont.)Business-Level Strategy (cont.)– Competit ive StrategiesCompetit ive Strategies (cont.) (cont.)

Porter’s competitive forces analysis (cont.)Porter’s competitive forces analysis (cont.)– Bargaining power of suppliersBargaining power of suppliers - affected - affected

by degree of supplier concentrationby degree of supplier concentration– Exist ing rivalryExist ing rivalry - affected by industry growth - affected by industry growth

rate, demand for firm’s product or service, and rate, demand for firm’s product or service, and product differencesproduct differences

Types Of Organizational Types Of Organizational Strategies (cont.)Strategies (cont.)


Current Rivalry

IndustryCompetitors

Forces In The Industry AnalysisForces In The Industry Analysis

Suppliers

NewEntrants

Buyers

Substitutes

Threat ofNew Entrants

Threat ofSubstitutes

BargainingPower orBuyers

BargainingPower orSuppliers



Business-Level Strategy (cont.)Business-Level Strategy (cont.)– Competit ive strategiesCompetit ive strategies (cont.) (cont.)

Porter’s three generic strategiesPorter’s three generic strategies– cost leadershipcost leadership - goal is to become the lowest-cost - goal is to become the lowest-cost

producer in the industryproducer in the industry tries to identify efficiencies in all operationstries to identify efficiencies in all operations overhead kept to a minimumoverhead kept to a minimum product or service must be perceived to be of product or service must be perceived to be of

comparable quality to that offered by competitorscomparable quality to that offered by competitors




Porter’s three generic strategies (cont.)Porter’s three generic strategies (cont.)– differentiat ion differentiation - offer unique products that are - offer unique products that are

widely valued by customerswidely valued by customers sets the firm apart from competitorssets the firm apart from competitors differentiation based on quality, service, product differentiation based on quality, service, product

design, brand imagedesign, brand image customers must be willing to pay a price premium customers must be willing to pay a price premium

that exceeds the cost of differentiationthat exceeds the cost of differentiation




Porter’s three generic strategies (cont.)Porter’s three generic strategies (cont.)– focus focus - aims at a cost advantage or - aims at a cost advantage or

differentiation advantage in a narrow segmentdifferentiation advantage in a narrow segment no attempt to serve the broad marketno attempt to serve the broad market feasibility of strategy depends on the size of feasibility of strategy depends on the size of

the segment and the ability of the firm to the segment and the ability of the firm to support the cost of focusingsupport the cost of focusing


Requirements for Successfully Pursuing Porter’s Requirements for Successfully Pursuing Porter’s Competit ive StrategiesCompetit ive Strategies


Types Of Organizational Types Of Organizational Strategies (cont.)Strategies (cont.)

Functional-Level Strategy (cont.)Functional-Level Strategy (cont.)– used to support the business-level used to support the business-level

strategystrategy– creates an appropriate supporting role creates an appropriate supporting role

for each functional area of the for each functional area of the organizationorganization e.g., manufacturing, marketing, human e.g., manufacturing, marketing, human

resourcesresources
