Chapter 7 Strategic Management Chapter Objectives: Define the term strategic management and explain its relationship to strategic planning, implementation, and control. Explain the concept of synergy and identify four kinds of synergy. Describe Porter’s model of generic competitive strategies Identify and discuss the major contribution the business ecosystems model makes to strategic thinking. Identify and discuss at least four strategic lessons from the e-commerce revolution. Identify and describe the four steps in the strategic management process. Explain the nature and purpose of a SWOT analysis. Describe the three types of forecasts.

Important Objective #1 – Define the term strategic management and explain it’s relationship to strategic planning, implementation, and control. Strategic Management: - Ongoing process of ensuring a competitively superior fit between an organization and its changing environment. Strategy: - the patterns of decisions a firm makes.

Strategic Management (cont’d) Strategic Management = Strategic Planning + Implementation + Control Strategic planning (from Ch. 6): - process of determining how to pursue the organizations long-term goals with the resources expected to be available. Formulating plan without continually updating is not good enough in today’s changing environment.

Important Objective (cont’d) The Strategic Management Process Figure 7.2 on page 211 Formulation of Grand Strategy Situational analysis Capability profile The strategic need for speed Formulation of Strategic Plans Implementation of Strategic Plans A systematic filtering-down process Building middle-manager commitment Strategic control

Subheading: Thinking Strategically Four alternative perspectives for thinking innovatively about strategy in today’s fast-paced global economy: - Synergy - Porter’s generic strategies - Business ecosystems - E-commerce strategy

Synergy - occurs when two or more variables interact to produce an effect greater than the sum of the effects of the variables acting independently - also called the 1 + 1 = 3 effect or the whole is greater than the sum of its parts Four types of synergies 1) Market synergy - when one product or service fortifies the sales of one or more other products or services 2) Cost synergy - when two or more products can be designed by engineers, produced in the same facilities, distributed through the same channels, or sold by the same salespeople, overall costs will be lower than if each product received separate treatment 3) Technological synergy - involves transferring technology from one application to another, thus opening up new markets 4) Management synergy - occurs when a management team is more productive because it members have complementary rather then identical skills

Porter’s Generic Competitive Strategies (Figure 7.1, page 205) - encompasses four generic strategies 1) cost leadership strategy - an overriding concern for keeping costs, and therefore prices, lower than those of competitors. 2) differentiation strategy - a company’s product or service must be considered unique by most of the customers in its industry. Advertising and promotion help the product to stand out from the crowd. 3) cost focus strategy - attempt to gain a competitive edge in a narrow or regional market by exerting strict control 4) focused differentiation strategy - involves achieving a competitive edge by delivering a superior product and/or service to a limited audience

- Porter’s model combined two variable, competitive advantage and competitive scope - On the horizontal axis is competitive advantage, which is achieved via low costs or differentiation - is the ability to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale service. On the vertical axis is competitive scope. Is the firm’s target market broad or narrow?

Business Ecosystems - is an economic community of organizations and all their stakeholders, including suppliers and customers - “organizations need to be as good at cooperating as they are at competing if they are to succeed.” 1) A Business Ecosystem in Action - key organizations selectively cooperate and compete to achieve both their individual and collective goals. 2) Needed: More Strategic Cooperation - a call for greater cooperation, even among the toughest of competitors.

Strategy.com - explores key realities and challenges for developing strategy in the Internet age. Circumstances are too new and changing too rapidly to yield a cookbook approach to building Internet strategy. - General Signposts, pointing the way toward competitive advantage in e-commerce: 1) There Are Lots of Ways to Make Money on the Web 2) Customer Loyalty Is Built with Reliable Brand Names and “Sticky” Web Sites 3) Bricks and Mortar Must Earn Their Keep 4) Cannibalism Can Pay 5) E-commerce Partnering Should Not Dilute Strategic Control or Ethical Standards 6) Everyone Is a Potential Competitor

Sub-Headings (cont’d) Types of Forecast Event Outcome Forecast Event Timing Forecast Time Series Forecast Forecasting Techniques Informed Judgement Scenario Analysis Longitudinal Analysis Cross-Sectional Scenario Surveys Trend Analysis 

Managing Diversity: “Diversity Boosts Allstate’s Bottom Line” Allstate, a national insurance company, uses diversity as the main objective of its business culture and strategy. The word “diversity” means more than just ethnicity and gender, it includes a wider perspective like age, religion, sexual orientation, disability, etc. Allstate uses the “diversity” strategy to reach out to customer base. - If customers want to deal with workers who are like themselves, diversity gives customers the absolute best services and products. With Allstate’s diversity.

Managing Diversity (cont’d) Initiative, it shows Allstate’s commitment to a diverse marketplace. Allstate also helps local communities (especially diverse communities) through community outreach programs. There aim is to capture a larger market share with these programs. “Diversity” plays a big role in Allstate’s culture. It also plays a tremendous role in its strategy: “Our diverse workforce has allowed us to establish relationships in communities and allowed us to shorten the acquisition curves for new customers.”

Unclear/Don’t Understand The Levi’s cartoon on page 220. We know it has something to do with trend analysis, but we just don’t get it!!