Strategic Management

Strategic Planning Process Identify Mission and Objectives Analyze Internal and External Environment Formulate Strategy Implement Strategy Evaluate Results and Control

Figure 9.1: Strategy formulation and implementation in the strategic management process.

2. Analyze Internal and External Environment The SWOT Analysis provides information that is helpful in matching the firm’s resources and capabilities to the competitive environment Identifies: Strengths Weaknesses Opportunities Threats

SWOT Strengths Resources and capabilities that can be used as a basis for developing its competitive advantage Examples: Manufacturing efficiency Skilled workforce Superior reputation among customers Good market share Strong financing Patents Strong brand names Favourable access to distribution networks Exclusive access to high grade natural resources

SWOT Weaknesses The absence of certain strengths may be viewed as a weakness Examples: Lack of patent protection Weak brand name Inexperienced staff Limited storage space Outdated facilities Obsolete technologies May be the flip side of a Strength Poor reputation among customers High cost structure Lack of access to the best natural resources Lack of access to key distribution channels A large amount of manufacturing capacity may be considered a weakness if the large investment in it prevents the company from reacting quickly to changes in the strategic enviroment

SWOT Opportunities The external environment analysis may reveal certain new opportunities for profit and growth. Examples: An unfulfilled customer need Arrival of new technologies Loosening of regulatuions Removal of international trade barriers Weak market rivals Growing geographical area

SWOT Threats Changes in the external environment also present threats to firms Example: Shifts in consumer tastes Emergence of substitute products New competitors Increased trade barriers Economical/World issues New regulations

SWOT Matrix A competitive advantage can be developed by : Finding a fit between a business’ strengths and upcoming opportunities Using their strengths to create strategies that take advantage of these opportunities and minimize threats

SWOT Matrix S-O Strategies W-O Strategies S-T Strategies Pursue opportunities that are a good fit with company’s strengths W-O Strategies Overcome weaknesses to pursue opportunities S-T Strategies Identify ways that the company can use its strengths to reduce its vulnerability to external threats W-T Strategies Establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats

Personal SWOT Analysis - Example For Career Planning Internal Your Strengths Your Weaknesses External Opportunities in your career field Threats in your career field Complete table Answer the following questions How can you capitalize on your strengths and pursue opportunities? How can you overcome your weaknesses to be able to pursue opportunities? Identify ways that you can use your strengths to reduce vulnerability to external threats? What can you do to prevent your weaknesses from making you susceptible to external threats? Example SWOT Analysis A start-up small consultancy business might draw up the following SWOT Analysis: Strengths: We are able to respond very quickly as we have no red tape, and no need for higher management approval. We are able to give really good customer care, as the current small amount of work means we have plenty of time to devote to customers. Our lead consultant has strong reputation in the market. We can change direction quickly if we find that our marketing is not working. We have low overheads, so we can offer good value to customers. Weaknesses: Our company has little market presence or reputation. We have a small staff, with a shallow skills base in many areas. We are vulnerable to vital staff being sick, and leaving. Our cash flow will be unreliable in the early stages. Opportunities: Our business sector is expanding, with many future opportunities for success. Local government wants to encourage local businesses. Our competitors may be slow to adopt new technologies. Threats: Developments in technology may change this market beyond our ability to adapt. A small change in the focus of a large competitor might wipe out any market position we achieve. As a result of their SWOT Analysis, the consultancy may decide to specialize in rapid response, good value services to local businesses and local government. Marketing would be in selected local publications to get the greatest possible market presence for a set advertising budget, and the consultancy should keep up-to-date with changes in technology where possible.

PEST Analysis - Link  is a tool to examine the external factors that provide opportunities and threats to an organization that are beyond the organization’s control.  measures the market potential and situation, particularly indicating growth or decline, and thereby market attractiveness, business potential, and suitability of access - market potential and 'fit' in other words.

PEST Analysis Political factors include: political stability, trade regulations, taxation, labour laws, and safety regulations. These factors vary widely from country to country. Economic factors include: economic growth, stagnation, recession, interest rates, exchange rates, and inflation. Social factors include: demographics and cultural aspects, e.g., health consciousness, population growth, age distribution, education, and attitudes to work and leisure. Technological factors include: new discoveries and developments, rates of technological obsolescence, changes in information technology, and research and development activity.

PEST Analysis is useful for four main reasons: It helps you to spot business or personal opportunities, and it gives you advanced warning of significant threats. It reveals the direction of change within your business environment. This helps you shape what you're doing, so that you work with change, rather than against it. It helps you avoid starting projects that are likely to fail, for reasons beyond your control. It can help you break free of unconscious assumptions when you enter a new country, region, or market; because it helps you develop an objective view of this new environment.

Figure 9.4 Porter’s model of five strategic forces affecting industry competition. LINK Source: Developed from Michael E. Porter, Competitive Strategy (New York: Free Press, 1980).VIDEO

Porter's Five Forces Porter’s model develops strategies to meet opportunities and threats in the organization’s external environment.   Five competitive forces that shape every industry and every market. Competitors are the existing competitive rivalry within the industry. New entrants involve the threat from new market entrants. Customers mean the bargaining power of buyers. Suppliers are the bargaining power of suppliers. Substitutes are the threat of substitute products which includes technology change

Types of strategic plans Growth Strategy  involves expanding current operations. Concentration - expanding in the same industry, e.g., Tim Horton’s opens more stores, all of them selling the same products. Vertical integration which means expansion by buying suppliers or distributors, e.g., a meat processing company buying farms (suppliers) or grocery stores (distributors). Diversification which means buying or starting businesses in other industries. Rogers Communications Inc. is an example of a diversified Canadian corporation. Rogers Communications Inc. owns Canada's largest wireless telecommunications company, the country's largest cable company, the Toronto Blue Jays, Rogers Centre (formerly the SkyDome), 52 radio stations, several television properties including five CityTV outlets, five OMNI multicultural stations, Rogers Sportsnet, the Shopping Channel, and more than 70 consumer and trade magazines.

Types of strategic plans Retrenchment Strategy  used when an organization is in crisis. It seeks to correct weaknesses by making changes to current business practices.  Restructuring and downsizing are two commonly used terms for retrenchment strategies.

Types of strategic plans e-business Strategy the use of the Internet to become more successful. Businesses can use Internet technology to buy materials from their suppliers and to sell products to their customers. Even businesses who don’t sell goods or services online will use the Internet for advertising, collecting information, and distributing information.

3. Strategy Formulation Where are the major opportunities for achieving sustainable competitive advantage? Cost and Quality Knowledge (innovation) and Speed Barriers to Entry Financial resources

Source of the competitive advantage 3. Strategy Formulation Differentiation – make our products appear different from competitors Cost Leadership – minimize costs to operate more efficiently than the competition. Focused Differentiation - concentrate on one special market segment to offer a unique product Focused low cost – concentrate on one special market segment and be the provider with the lowest cost Market Scope Source of the competitive advantage

4. Strategy Implementation Involves organization of the firms resources and motivation of the staff to achieve objectives Care must be taken to communicate the strategy and reasoning behind it CARE – In a large company, those who implement the strategy likely will be different people from those who formulated it. Lower level managers could resist its implementation because they do not understand why the particular strategy was selected.

5. Evaluation and Control Define parameters to be measured Define target values for those parameters Perform measurements Compare measured results to the pre- defined standard Make necessary changes

Critical tasks of Strategic Leadership Be a guardian of tradeoffs Create a sense of urgency Ensure that everyone understands the strategy Be a teacher Be a great communicator

Case Studies Read the case study assigned to your group. As a group, discuss the answers to the questions included at the end of each case. Decide on a format to present the results of your work to your teacher and peers. website, a slideshow presentation, or a video. The presentation must present a brief introduction to the business and its situation, as well as answers to the questions. Be sure to use the concepts and terms you studied.