THE STRATEGIC MANAGEMENT PROCESS[or How to Analyze a Case]

Dr. Laura Whitcomb

Mgmt 497

Strategic Management Definition

= The process whereby managers establish an organization’s long-term direction. This involves:

1) Setting Mission & Goals

2) Strategy Formation

--internal capabilities

--external environment

--selection of strategy

3) Strategy Implementation

4) Strategy Evaluation

How to Analyze a Case

• Mission/Vision & Objectives

• Current Strategy

• Industry Analysis

• S.W.O.T. Analysis

• Recommendations

MISSION Defined

Answers the question “What business are we in?” or “Why do we exist?”

--Customer Needs: What is being satisfied?

--Customer Groups: Who is being satisfied?

--Distinctive Competencies: How are customer needs being satisfied?

Pepsico vs. Coke?

• To be the world's premier consumer products company focused on convenient foods and beverages. 

• To Refresh the World...in body, mind, and spirit.

• To Inspire Moments of Optimism... through our brands and our actions.

• To Create Value and Make a Difference... everywhere we engage.

Vision Statements

• Future-oriented; transformative

• Mission = what is; vision = what will be

• Companies may have mission or vision or both

• Mission and/or vision often accompanied by statement of company values

GOALS

= a desired future state that a company attempts to realize.

Should be:

- precise & measurable

- addressing important issues

- challenging but realistic

- set for a specific time period

- consistent with each other

Types of Goals• Financial

– Profitability– Revenue growth– Long-term shareholder value

• Customer– Product/service attributes; relationship; image

• Internal Process– Operations, customers, innovation– Corporate social responsibility

• Learning & growth– Human, information, & organization resources

Levels of Strategy & Organization Structure

• Corporate Strategy------>Corporate Head Office

• Business Strategy------>Business Divisions

• Functional Strategy

------>R&D, HR, Finance, Operations, Marketing/Sales

Corporate StrategyGeneric Alternatives/Grand Strategies

• Stability

• Expansion

• Retrenchment

• Combination

Expansion/RetrenchmentGeneric Choices

• How?– Internal– External– Alliances

• What?– Vertical integration– Horizontal integration– Diversification: related/unrelated

Nestle’s Corporate Strategy• 2001 Acquired Purina pet food• 2002/5 Acquired Dreyer’s Ice Cream• 2006 Acquired Novartis nutrition business & Jenny Craig

diet products• 2007 Acquired Gerber baby foods

Porter’s Generic Competitive Strategies

Purpose: achieve above-average long-run ROI for your industry.

• Competitive Advantage– Cost Leadership– Differentiation

• Competitive Scope– Broad Target– Narrow Target (Focus/Niche)

Porter’s Generic Competitive Strategies

CompetitiveAdvantage/Scope

Lower Cost Differentiation

Broad Target CostLeadership

Differentiation

Narrow Target Cost Focus FocusedDifferentiation

Tesla Goals & Strategy (summer 2007)

Auto co. based in Silicon Valley

• Begin producing $98,000 electric sports car in Oct. 2007

• Tesla engineers focus on the battery, computer software, & proprietary motor; outsource the rest– Uses lithium ion batteries, used in laptops, vs. nickel

metal hydride– Development center in Detroit, with engineers hired

away from Big 3

• Future: Sedan called White Star, $55-68,000; in 5 years, Blue Star, $30,000

Corporate Culture

= Collection of beliefs, expectations, and values learned and shared by members and transmitted from one generation of employees to another.

= Collective mental programming.

Functions of Corporate Culture

• Conveys a sense of identity

• Generates employee commitment

• Adds to organizational stability

• Serves as a frame of reference

Industry Analysis:Porter’s 5 Competitive Forces

Purpose: understand why some industries have higher profit margins & what factors can change long-run industry profitability.

• Risk of New Entry

• Rivalry Among Established Firms

• Bargaining Power of Buyers

• Bargaining Power of Suppliers

• Threat of Substitute Products

ENTRY Barriers

• Brand Loyalty

• Absolute Cost Advantages– patents– access to raw materials– superior production techniques

• Economies of Scale

• Government Regulation

Factors Affecting Intensity of RIVALRY

• Competitive Structure– number of firms– relative market share

• Demand conditions– growth– decline

• Exit barriers

Factors Affecting BARGAINING POWER

• Number of firms in buyer vs. supplier industries

• Quantity or % of total orders

• Switching costs

• Standardization vs. specialization of input

• Threat of vertical integration

SUBSTITUTES

= products from OTHER industries that serve consumers’ needs in a way that is similar to those being served by your industry.

Example: coffee vs. tea vs. soft drinks

NOTE: Substitutes are very difficult to monitor, because they can involve technological changes in industries that did not pose any threat in the past.

Company Situation Analysis

• INTERNAL: Strengths & Weaknesses– financial position: relative & changes over

time– functional capabilities: sustainable?

distinctive?

• EXTERNAL: Opportunities & Threats– demographic & socio-cultural changes– economic & political/legal changes– industry & technological changes

RECOMMENDATIONS

Shift from Analysis--->Synthesis

• Is a fundamental shift in strategy required or not?

• How do your recommendations line up with your SWOT analysis?

• Is this a feasible, creative solution that is supported by your analysis?