Strategic Management: Planning for Long-Term Success Chapter Seven Strategic Management: Planning for Long-Term Success

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 explain the major contribution the business ecosystems model makes to strategic thinking.

Chapter Objectives (cont’d) Identify seven basic Internet business models and four Internet strategy lessons. Identify and describe the four steps in the strategic management process. Explain the nature and purpose of SWOT analysis. Describe the three types of forecasts.

Why All Managers Need an Understanding of Strategic Management A strategic orientation encourages far-sightedness in managers. Employees who think in strategic terms tend to understand better how top managers think and why they make the decisions they do. The trend toward greater teamwork and cooperation throughout the planning cycle is eroding the traditional distinction between those who plan and those who implement plans.

Strategic Management = Strategic Planning + Implementation + Control The ongoing process of ensuring a competitively superior fit between an organization and its changing environment Includes budget control, long-range planning, and strategic planning Merges strategic planning, implementation, and control to create a dynamic process Requires every employee to consider the “big picture” Involves strategy innovation in rethinking the basis for competition (business model) in the industry

Strategic Management = Strategic Planning + Implementation + Control (cont’d) Strategy An integrated externally oriented perception of how to achieve the organization’s mission Strategic Planning The process of determining how to pursue the organization’s long-term goals with resources expected to be available

Thinking Strategically (Including E-Business Strategies) Synergy The concept that the whole is greater than the sum of the parts Types of Synergy Market synergy: Extending products to new markets Cost synergy: Savings from combinations of common-base operations, resources, and facilities Technological synergy: The transfer and application of technologies to new markets Management synergy: Complementary skills that make for more effective overall management

Porter’s Generic Competitive Strategies Model’s Competitive Variables Competitive advantage: How to compete in a market Competitive scope: How broad of a market to target Cost Leadership Strategy Having the lowest overall cost in a market to provide a competitive advantage in pricing over competitors Differentiation Strategy Providing unique and superior value for the customer that builds brand loyalty

Figure 7.1: Porter’s Generic Competitive Strategies Source: Reprinted with the permission of The Free Press, a division of Simon & Schuster from THE COMPETITIVE ADVANTAGE OF NATIONS by Michael E. Porter. Copyright © l990, 1998 by Michael E. Porter.

Porter’s Generic Competitive Strategies (cont’d) Cost Focus Strategy Attempting to gain a competitive edge in a narrow (or regional) market segment by controlling (competitively dominating) the segment Focused Differentiation Achieving a competitive edge by delivering a superior product and/or service to a limited audience

Business Ecosystems Business Ecosystem A business ecosystem 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. Coevolving: Key organizations selectively cooperate and compete to achieve both their individual and collective goals, which they could not achieve on their own. Greater strategic cooperation is needed to foster the the spread of realized innovation.

E-Business Strategies for the Internet Internet Strategy Lessons The Internet changes everything, but it doesn’t change everything overnight. Some of the old rules still apply. An investment should still either save you money or make you money. First, we overestimated the Internet; don’t underestimate it now. Its long-term impact will likely exceed expectations. Evolving Internet technologies are still emerging. There is no one-size-fits-all Internet strategy.

E-Business Strategies for the Internet (cont’d) Internet Strategy Lessons (cont’d) Customer loyalty is built with reliable brand names and “sticky” web sites. Bricks and clicks: Blending the best of two worlds E-business partnering should not dilute strategic control or ethical standards.

The Strategic Management Process Four Steps in the Strategic Management Process Formulation of a grand strategy Formulation of strategic plans Implementation of strategic plans Strategic control

Figure 7.2: The Strategic Management Process

Formulation of a Grand Strategy A general explanation of how the organization’s mission is to be accomplished Situational Analysis Finding the organization’s niche by performing a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to match unfolding opportunities with resources being acquired Capability profile: Identifying the organization’s strengths and weaknesses

Figure 7.3: Determining Strategic Direction Through Situational (SWOT) Analysis

Formulation of a Grand Strategy (cont’d) Situational Analysis (cont’d) Key capabilities for today’s companies Quick response to market trends Rapid product development Rapid production and delivery Continuous cost reduction Continuous improvement of processes, human resources, and products Greater flexibility of operations

Formulation of a Grand Strategy (cont’d) The Need for Speed Speed has become an important competitive advantage. Speed involves more than just doing the same old things faster. Reengineering: Radically redesigning the entire business cycle for greater strategic speed

Criteria for Formulating Strategic Plans Develop clear results-oriented objectives stated in measurable terms. Identify activities required to accomplish the objectives. Assign specific responsibilities to the appropriate personnel. Estimate times to accomplish activities and their appropriate sequencing. Determine resources required to accomplish the activities. Communicate and coordinate the above elements and complete the action plan.

Strategic Implementation and Control Implementation of Strategic Plans Developing a systematic filtering-down process that facilitates the implementation process and builds middle-manager commitment requires a company to consider: Organizational structure People Culture Control systems

Strategic Implementation and Control (cont’d) A formal control system should be developed that helps keep strategic plans on track by Setting up and testing channels for information on progress, problems, and the fit of strategic assumptions to the environment Using software programs for real-time tracking of production, financial, and marketing reports

Strategic Implementation and Control (cont’d) Corrective Action Based on Evaluation and Feedback Negative feedback should prompt corrective action at the step immediately before the problem occurs. Possible corrective actions include: Updating strategic assumptions Reformulating strategic plans Rewriting policies Making personnel changes Modifying budget allocations

Forecasting Forecasts Types of Forecasts Predictions, projections, or estimates of future situations Types of Forecasts Event outcome forecasts: Predictions of the outcome (effects) of highly probable future events Event timing forecasts: Predictions of when a given event will occur Time series forecasts: Estimates of future values in a statistical sequence (e.g., sales forecast)

Forecasting Techniques Informed Judgment Forecasts relying on intuitive judgments that are based on how well informed the forecaster is Scenario Analysis Preparing written descriptions of alternative but equally likely future situations Longitudinal scenarios: Describing how the future situations will evolve from the present Cross-sectional scenarios: Describing future situations at a given point in time

Forecasting Techniques (cont’d) Surveys A forecasting technique involving face-to-face interviews and mail or e-mail questionnaires Problems with surveys Construction of the survey instrument Cost of administration Errors in data collection and interpretation Trend Analysis The hypothetical extension of a past series of events into the future

Summary Strategic management sets the stage for virtually all managerial activity. Strategic thinking is necessary for successful strategic management and planning. Porter’s generic competitive strategies model helps managers create a profitable “fit” between the organization and its environment. Competitors coevolve into business ecosystems when they use both competition and cooperation. Effective use of the correct Internet strategies affords opportunities for competitive advantage.

Terms to Understand Strategic management Strategy Synergy Differentiation Business ecosystem Grand strategy Situational analysis Capability profile Reengineering Forecasts Event outcome forecasts Event timing forecasts Time series forecasts Scenario analysis Longitudinal scenarios Cross-sectional scenarios Trend analysis