© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1

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. Identify seven basic Internet business models and discuss the strategic significance of social media. 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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

4 Table 7.2: Five Different Strategy-Making Modes

Strategic Management = Strategic Planning + Implementation + Control Strategy Integrated, externally oriented perception of how to achieve the organization’s mission Strategic Management 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 a holistic view from a longer-term perspective © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

Figure 7.2: The Strategic Management Process © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8

Formulation of a Grand Strategy 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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11

Formulation of 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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13

Strategic Implementation and Control (cont’d) Strategic Control A formal control system should be developed that helps keep strategic plans on track Setting up and testing channels for information on progress, problems, and the fit of strategic assumptions to the environment Ultimate goal: Detect and correct downstream problems in order to keep strategies updated and on target © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15

Forecasting 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) © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16

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 Surveys A forecasting technique involving face-to-face interviews and mail or e- mail questionnaires Problems with surveys Trend Analysis The hypothetical extension of a past series of events into the future © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17

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 evolve into business ecosystems when they use both competition and cooperation. Seven basic Internet business models are the commission-based, advertising based, markup-based, production-based, referral-based, subscription-based, and fee-for-service-based models. The strategic management process consists of four major steps: (1) formulation of a grand strategy, (2) formulation of strategic plans, (3) implementation of strategic plans, and (4) strategic control. Strategists formulate the organization’s grand strategy after conducting a SWOT analysis. Event outcome, event timing, and time series forecasts help strategic planners anticipate and prepare for future environmental circumstances. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19