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The Strategic Management Process
It is the job of top level management to chart the course of the entire enterprise.
It consists of: Analysis of the internal and external environment of the
firm. Definition of the firm’s mission. Formulation and implementation of strategies to create or
continue a competitive advantage.
The Strategic Management Process (continued)
Strategic management involves both long-range thinking and adaptation to changing conditions.
Strategies should be designed to generate a sustainable competitive advantage.
Competitors should be unable to duplicate what the firm has done or should find it too difficult or expensive.
Analyze the external and Analyze the external and internal environmentsinternal environments
Define strategic intent Define strategic intent and missionand mission
Formulate strategiesFormulate strategies
Implement strategiesImplement strategies
Assess strategic Assess strategic outcomesoutcomes
Components of the Strategic ManagementComponents of the Strategic Management Process:Process:
SWOT Analysis
Commonly used strategy tool: SWOT Strengths, Weaknesses, Opportunities, Threats
Step 1: Analyze the organization’s internal environment, identifying its strengths and weaknesses.
Step 2: Analyze the organization’s external environment, identifying its opportunities and threats.
Step 3: Cross-match Strengths with opportunities Weaknesses with threats Strengths with threats Weaknesses with opportunities
The External Environment Company leaders must study the external
environment in order to: Identify opportunities and threats in the marketplace. Avoid surprises. Respond appropriately to competitors’ moves.
A major challenge is to gather accurate market intelligence in a timely fashion, and transform it into usable knowledge to gain a competitive advantage.
Components of External Analysis
ScanningScanning MonitoringMonitoring
ForecastingForecastingAssessingAssessing
Scope of the External Analysis
General General EnvironmentEnvironment
The IndustryThe Industry
Strategic Strategic GroupsGroups
Competitor Competitor AnalysisAnalysis
The Segments of the General Environment
DemographyDemographyEconomic Economic
ConditionsConditions
Political/Legal Political/Legal
ForcesForces
Socio-cultural Socio-cultural ConditionsConditions
Technological Technological Changes
Changes
Globalization
Globalization
Porter’s Framework for Analyzing
the Industry EnvironmentThreat of new Threat of new
entrantsentrants Threat of Threat of substitutessubstitutes
SuppliersSuppliers
CustomersCustomersIntensity of rivalryIntensity of rivalry
among competitorsamong competitors
The Internal Environment
Each company has something that it does well. These are called “core competencies.”
Company executives should identify the resources, capabilities, and knowledge the firm has that may be used to exploit market opportunities and avoid potential threats.
Resource-based view: Basing the strategy on what the firm is capable of doing
ResourcesResources
CapabilitiesCapabilities
StrategyStrategy
Potential for Potential for sustainable sustainable competitive competitive advantageadvantage
1.1. Identify the firm’s Identify the firm’s resources and locate resources and locate areas of strength and areas of strength and weakness relative to weakness relative to competitors.competitors.
2.2. Identify the firm’s Identify the firm’s capabilitiescapabilities
(What can the firm do?)(What can the firm do?)
3.3. Appraise the profit Appraise the profit generating potential of generating potential of resources/capabilities in resources/capabilities in terms of creating, terms of creating, sustaining, and exploiting sustaining, and exploiting competitive advantage.competitive advantage.
4.4. Select a strategy that best Select a strategy that best exploits the firm’s exploits the firm’s capabilities relative to capabilities relative to external opportunities.external opportunities.
5.5. Identify Identify resource gapsresource gaps that need to be filled. that need to be filled. Invest in replenishing Invest in replenishing and augmenting the and augmenting the firm’s resource base.firm’s resource base.
Core Competencies and Core Competencies and Market OpportunitiesMarket Opportunities
Resource Types: Tangible Resources
Assets that can be quantified and observed.
Include financial resources, physical assets, and workers.
Strategic assessment of tangible resources should enable management to efficiently use tangible resources to support the company and to expand the volume of business.
l
Resource Types: Intangible Resources
Difficult to quantify and included on a balance sheet
Often provides the firm with a strong competitive advantage.
Competitors find it difficult to purchase or imitate these resources.
Strategically most important intangibles: Reputation Technology Human Capital
Analyzing the Firm’s Capabilities
Functional Functional AnalysisAnalysis
Value Chain Value Chain AnalysisAnalysis
BenchmarkingBenchmarking
Analyzing Capabilities by Functional Areas
Functional Area Capability
Corporate Management Effective financial control systemsExpertise in strategic control of diversified corporationEffectiveness in motivating and coordinating divisional and business-unit managementManagement of acquisitionsValues-driven, in-touch corporate leadership
Information Management Comprehensive and effective MIS network, with strong central coordination
Research and Development Capability in basic research
Ability to develop innovative new products
Speed of new product development
Analyzing Capabilities by Functional Areas (continued)
Functional Area Capability
Manufacturing Efficiency in volume manufacturingCapacity for continual improvements in production processesFlexibility and speed of response
Product Design Design capability
Marketing Brand management and brand promotion
Promoting and exploiting reputation for quality
Responsive to market trends
Sales and Distribution Effectiveness in promoting and executing sales
Efficiency and speed of distribution
Quality and effectiveness of customer service
A Simple Value Chain
TechnologyTechnology Product Product DesignDesign ManufacturingManufacturing MarketingMarketing DistributionDistribution ServiceService
SourceSource
SophisticationSophistication
PatentsPatents
Product ProcessProduct Process
Product ChoicesProduct Choices
FunctionFunction
Physical Physical CharacteristicsCharacteristics
AestheticsAesthetics
QualityQuality
IntegrationIntegration
Raw MaterialsRaw Materials
CapacityCapacity
LocationLocation
ProcurementProcurement
Parts ProductionParts Production
AssemblyAssembly
PricesPrices
AdvertisingAdvertising
PromotionPromotion
Sales ForceSales Force
PackagePackage
BrandBrand
ChannelsChannels
IntegrationIntegration
InventoryInventory
WarehousingWarehousing
TransportTransport
WarrantyWarranty
Dealer SupportDealer Support
AvailabilityAvailability
SpeedSpeed
PricesPrices
Benchmarking Involves Four Stages:
Identifying activities or functions that are weak and need improvement.
Identifying firms that are known to be at the leading edge of these activities or functions.
Studying the leading-edge firms by visiting them, talking to managers and employees, and reading trade publications.
Using the information gathered to redefine goals, modify processes, and acquire new resources to improve the firm’s functions.
Strategic Intent and Mission
The primary guides to strategic management are formal statements of strategic intent and mission.
Strategic intent is internally focused, defining how the firm uses its resources, capabilities, and core competencies.
Strategic mission is externally focused, defining what will be to produced and marketed, utilizing its internal core competencies.
.
Strategy Formulation
The design of an approach to achieve the firm’s mission.
Takes place at: Corporate-Level Business-Level
Corporate-Level Strategy
The corporation’s overall plan concerning the: Number of businesses the corporation holds. Variety of markets or industries it serves. Distribution of resources among those businesses.
This diversification strategy may be analyzed in terms of: Portfolio mix Type of diversification Process of diversification
Portfolio Analysis
The basic idea is to classify the businesses of a diversified company within a single framework.
Two of the most widely applied include: The McKinsey-General Electric Portfolio Analysis
Matrix The Boston Consulting Group’s Growth Share Matrix
The McKinsey-General Electric Portfolio Analysis Matrix
1)
Harvest
2) 3)
4) 5)
Hold
6)
7) 8) 9)
Build
Low Medium High
Business-Unit Position
High
Medium
Low
IndustryAttractiveness
The Boston Consulting Group’s Growth Share Matrix
Earnings: high stable, growing
Cash Flow: neutral
Strategy: invest for growth
STAR
Earnings: low, unstable, growing
Cash Flow: negative
Strategy: analyze to determine whether business can be grown into a star, or will degenerate into a dog
?
Earnings: high, stable
Cash Flow: high stable Strategy: milk
COW
Earnings: low, unstable
Cash Flow: neutral or negative
Strategy: divest
DOG
Relative Market Share
Annual RealRate of MarketGrowth
Diversification Strategy
Type of Diversification Concentration strategy Vertical integration
strategy Concentric
diversification strategy Conglomerate
diversification
Process of Diversification Acquisition and
restructuring strategies Acquisition Merger
International strategy
Business-Level Strategy
Deals with how to compete in each business area or market segment.
Firms have two basic choices: Cost leadership strategy Differentiation strategy
Strategy Implementation
OrganizationOrganizational Structure al Structure and Controlsand Controls
Cooperative Cooperative StrategiesStrategies
Human Human Resource Resource StrategiesStrategies
Strategic Strategic LeadershipLeadership
Corporate Corporate EntrepreneursEntrepreneurs
hip and hip and InnovationInnovation
Strategic Outcomes
Company leaders should periodically assess whether the outcomes meet expectations.
A firm must first and foremost cater to the desires of its primary stakeholders.
The firm should also consider the desires of other stakeholders affected by its performance.
Some of the standard measures of strategic success includes: Profits Growth of sales/market share Growth of corporate assets Reduced competitive threats Innovations
Applications: Management Is Everyone’s Business—For the Manager
An effective manager must be proactive in responding to evolving challenges and opportunities rather than being overtaken by events.
Learning to think strategically forces managers to: Be alert for changes in the external and internal environments. Modify the firm’s strategic intent, mission, and formulated strategy when
necessary. Effectively implement the new or redesigned strategies.
Applications: Management Is Everyone’s Business—For Managing
Teams
The strategic management process generally involves teams of managers and employees from different areas who bring their perspectives and expertise to bear on issues facing the firm.
A key factor is how well the firm can mobilize and integrate the efforts of team members.
Applications: Management Is Everyone’s Business—For Individuals
Individual employees are more likely to make greater contributions to the firm if they engage in activities that have strategic value.
Employees can be attuned to changes in their area of expertise and advise management on the strategic implications of those changes.
Employee success depends on the ability to adapt to the firm’s strategic change.