Strategic Management: How Star Managers Realize a Grand Design Chapter Six Strategic Management: How Star Managers Realize a Grand Design

Strategy, Strategic Management, Strategic Planning Strategy: is a large scale action plan that sets the direction for the organization. Strategic Management: is a process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals. Strategic Planning: determines not only the organization’s long-term goals for the next 1-5 year regarding growth and profits, but also the ways the organization should achieve them Why Strategic Management and Strategic Planning are Important Providing direction & momentum Encouraging new ideas Developing a sustainable competitive advantage Forecasting Forecasting: is a vision or projection of the future—two types: Trend Analysis: is a hypothetical extension of a past series of events into the future. Contingency Planning: also known as scenario planning & scenario analysis is the creation of alternative hypothetical but equally likely future conditions. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

The Five Steps of the Strategic Management Process 2. Establish the grand strategy (using SWOT and forecasting) 3. Formulate the strategic plans (using e.g. Porter) 4. Carry out the strategic plan 5. Maintain strategic control Establish the mission and vision Feedback: Revise actions, if necessary, based on feedback McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

SWOT Analysis Inside Matters: analysis of internal strengths & weaknesses 3. Formulate the strategic plans (using e.g. Porter) 4. Carry out the strategic plan S—Strengths: inside matters W—Weaknesses: inside matters O—Opportunities: outside matters T—Threats: outside matters Outside Matters: analysis of external Opportunities & Threats McGraw-Hill/Irwin

Porter’s Four Competitive Strategies Strategy Wide Narrow √ 1. Cost-leadership 3. Formulate the strategic plans (using e.g. Porter) 4. Carry out the strategic plan √ 2. Differentiation √ 3. Cost focus √ 4. Focused-differentiation McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

The Product Life Cycle Stage 1 Introduction Stage 2 Growth Stage 3 Maturity Stage 4 Decline 3. Formulate the strategic plans (using e.g. Porter) 4. Carry out the strategic plan McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Single-Product Strategy versus Diversification Strategy Single Product Strategy: a company makes and sells only one product within its market. Diversification Strategy: operating several businesses in order to spread the risk. Competitive Intelligence Competitive Intelligence: means gaining information about one’s competitors’ activities so that you can anticipate their moves and react appropriately. Gaining Competitive Intelligence: Public and print advertising Investor information Informal sources The Balanced Scorecard Balanced Scorecard: gives top managers a fast but comprehensive view of the organization via four indicators: Customer satisfaction Internal processes The organization’s innovation and improvement activities Financial measures McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

The Balanced Scorecard Financial Perspective “How do we look to shareholders?” Goals Measures 2. Customer Perspective “Ho do customers see us?” Goals Measures 3. Internal Business Perspective “What must we excel at?” Goals Measures 4. Innovation & Learning Perspective “Can we continue to improve and create value? Goals Measures McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Successful Measure Management Top executives agree on strategy Communication is clear There is better focus and alignments The organizational culture emphasizes teamwork and allows risk taking Barriers to Effective Measurement Objectives are fuzzy Managers put too much trust in informal feedback systems Employees resist new measurement systems Companies focus too much on measuring activities instead of results McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.