Strategic Management

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L E A R N I N G O U T L I N E
Follow this Learning Outline as you read and study this chapter.
The Importance of Strategic Management
Explain why strategic management is important.
Discuss what studies of the effectiveness of strategic management have shown.
The Strategic Management Process
List six steps in the strategic management process.
Describe what managers do when they do external and internal analyses.
Explain the role of resources, capabilities, and core competencies in the internal analysis.

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L E A R N I N G O U T L I N E (cont’d)
Follow this Learning Outline as you read and study this chapter.
Types of Organizational Strategies
Explain the three growth strategies.
Discuss the BCG matrix and how it’s used.
Define SBUs and business-level strategies.
Describe the role of competitive advantage in business-level strategies.
Explain Porter’s five forces model.
Describe three generic competitive strategies.

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L E A R N I N G O U T L I N E (cont’d)
Follow this Learning Outline as you read and study this chapter.
Strategic Management in Today’s Environment
Discuss the implications of dynamic and uncertain environments on organizational strategy.
Explain the rule of three and its significance to strategic management.
Describe strategies applying e-business techniques.
Explain what strategies organization might use to become more customer oriented to be more innovative.

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Strategic Management
The set of managerial decisions
and actions that determines
the long-run performance
of an organization.

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Why Strategic Management Is Important
It results in higher organizational performance.
It requires that managers examine and adapt to business environment changes.
It coordinates diverse organizational units, helping them focus on organizational goals.
It is very much involved in the managerial decision-making process.

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Exhibit 8.1
The Strategic Management Process

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Strategic Management Process
Step 1: Identifying the organization’s current mission, objectives, and strategies
Mission: the firm’s reason for being
The scope of its products and services
Goals: the foundation for further planning
Measurable performance targets
Step 2: Conducting an external analysis
The environmental scanning of specific and general environments
Focuses on identifying opportunities and threats

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Exhibit 8.2
Components of a Mission Statement
Customers: Who are the organization’s customers?
Products or services: What are the organization’s major products or services?
Markets: Where does the organization compete geographically?
Technology: How technologically current is the organization?
Concern for survival growth, and profitability: Is the organization committed to growth and financial stability?
Philosophy: What are the organization’s basic beliefs, values, aspirations, and ethical priorities?
Self-concept: What is the organization’s major competitive advantage and core competencies?
Concern for public image: How responsive is the organization to societal and environmental concerns?
Concern for employees: Does the organization consider employees a valuable asset?
Source: Based on F. David, Strategic Management, 8th ed. (Upper Saddle River, NJ: Prentice Hall, 2001), pp. 65–66.

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Strategic Management Process (cont’d)
Step 3: Conducting an internal analysis
Assessing organizational resources, capabilities, activities, and culture:
Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm.
Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage.
Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)

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Exhibit 8.3
Identifying the Organization’s Opportunities

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Strategic Management Process (cont’d)
Step 4: Formulating strategies
Develop and evaluate strategic alternatives
Select appropriate strategies for all levels in the organization that provide relative advantage over competitors
Match organizational strengths to environmental opportunities
Correct weaknesses and guard against threats

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Strategic Management Process (cont’d)
Step 5: Implementing strategies
Implementation: effectively fitting organizational structure and activities to the environment
The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements.
Step 6: Evaluating Results
How effective have strategies been?
What adjustments, if any, are necessary?

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Types of Organizational Strategies
Corporate-Level Strategies
Top management’s overall plan for the entire organization and its strategic business units
Types of Corporate Strategies
Growth: expansion into new products and markets
Stability: maintenance of the status quo
Renewal: redirection of the firm into new markets

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Exhibit 8.4
Levels of Organizational Strategy

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Corporate-Level Strategies
Growth Strategy
Seeking to increase the organization’s business by expansion into new products and markets.
Types of Growth Strategies
Concentration
Vertical integration
Horizontal integration
Diversification

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Growth Strategies
Concentration
Focusing on a primary line of business and increasing the number of products offered or markets served.
Vertical Integration
Backward vertical integration: attempting to gain control of inputs (become a self-supplier).
Forward vertical integration: attempting to gain control of output through control of the distribution channel and/or provide customer service activities (eliminating intermediaries).

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Growth Strategies (cont’d)
Horizontal Integration
Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals.
Related Diversification
Expanding by merging with or acquiring firms in different, but related industries that are “strategic fits”.
Unrelated Diversification
Growing by merging with or acquiring firms in unrelated industries where higher financial returns are possible.

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Growth Strategies (cont’d)
Stability Strategy
A strategy that seeks to maintain the status quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons.

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Growth Strategies (cont’d)
Renewal Strategies
Developing strategies to counter organization weaknesses that are leading to performance declines.
Retrenchment: focusing of eliminating non-critical weaknesses and restoring strengths to overcome current performance problems.
Turnaround: addressing critical long-term performance problems through the use of strong cost elimination measures and large-scale organizational restructuring solutions.

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Corporate Portfolio Analysis
BCG Matrix
Developed by the Boston Consulting Group
Considers market share and industry growth rate
Classifies firms as:
Cash cows: low growth rate, high market share
Stars: high growth rate, high market share
Question marks: high growth rate, low market share
Dogs: low growth rate, low market share

Copyright © 2005 Prentice Hall, Inc. All rights reserved.
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Exhibit 8.5
The BCG Matrix

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Business-Level Strategy
Business-Level Strategy
A strategy that seeks to determine how an organization should compete in each of its SBUs (strategic business units).

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The Role of Competitive Advantage
Competitive Advantage
An organization’s distinctive competitive edge that is sourced and sustained in its core competencies.
Quality as a Competitive Advantage
Differentiates the firm from its competitors.
Can create a sustainable competitive advantage.
Represents the company’s focus on quality management to achieve continuous improvement and meet customers’ demand for quality.

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The Role of Competitive Advantage (cont’d)
Sustainable Competitive Advantage
Continuing over time to effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry competitors.

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Exhibit 8.6
Forces in the Industry
Analysis
Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980).

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Five Competitive Forces
Threat of New Entrants
The ease or difficulty with which new competitors can enter an industry.
Threat of Substitutes
The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitutes products and services.
Bargaining Power of Buyers
The degree to which buyers have the market strength to hold sway over and influence competitors in an industry.

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Five Competitive Forces
Bargaining Power of Suppliers
The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship.
Current Rivalry
Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend.

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Competitive Strategies
Cost Leadership Strategy
Seeking to attain the lowest total overall costs relative to other industry competitors.
Differentiation Strategy
Attempting to create a unique and distinctive product or service for which customers will pay a premium.
Focus Strategy
Using a cost or differentiation advantage to exploit a particular market segment rather a larger market.

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Strategic Management Today
The Rule of Three
The competitive forces in an industry, if unfettered, will inevitably create a situation where three companies (full-line generalists) will dominate any given market
Some firms in the same market become super niche players and while others end up as “stuck-in-the-ditch” bottom dwellers.

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Strategies for Applying e-Business Techniques
Cost Leadership
On-line activities: bidding, order processing, inventory control, recruitment and hiring
Differentiation
Internet-based knowledge systems, on-line ordering and customer support
Focus
Chat rooms and discussion boards, targeted web sites

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Customer Service Strategies
Giving the customers what they want.
Communicating effectively with them.
Providing employees with customer service training.

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Innovation Strategies
Possible Events
Radical breakthroughs in products.
Application of existing technology to new uses.
Strategic Decisions about Innovation
Basic research
Product development
Process innovation
First Mover
An organization that brings a product innovation to market or use a new process innovations