5 Strategic Management CHAPTER Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Chapter Objectives After studying this chapter and the case exercises at the end, you should be able to: Develop a workable strategic plan for an organization using SWOT analysis. Identify a company’s current corporate strategies, and list its strategic options. Develop a vision and mission statement. Accurately identify a company’s “core competence.” Explain each of the strategic planning tools you think the CEO should use, and why. Copyright © 2004 Prentice Hall. All rights reserved.

Checklist 5.1 The Strategic Management Process Define the business and its mission. Perform external and internal audits. Translate the mission into strategic goals. Generate and select strategies to reach strategic goals. Implement the strategy. Evaluate performance. Copyright © 2004 Prentice Hall. All rights reserved.

A Comprehensive Strategic-Management Model Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 5–1 Source: Adapted from Fred David, Strategic Management (Upper Saddle River, NJ: Prentice-Hall, 2001), p. 77.

Examples of Mission Statements APEX ELEVATOR To provide a high-reliability, error-free method for moving people and products up, down, and sideways within a building. UNITED TELEPHONE CORPORATION OF DADE To provide information services in local-exchange and exchange-access markets within its franchised area, as well as cellular phone and paging services. JOSEPHSON DRUG COMPANY, INC. To provide people with longer lives and higher-quality lives by applying research efforts to develop new or improved drugs and health-care products. GRAY COMPUTER, INC. To transform how educators work by providing innovative and easy-to-use multimedia-based computer systems. Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 5–2

Strategies in Brief COMPANY STRATEGIC PRINCIPLE America Online Consumer connectivity first—anytime, anywhere Dell Be direct eBay Focus on trading communities General Electric Be number one or number two in every industry in which we compete, or get out Southwest Airlines Meet customers’ short-haul travel needs at fares competitive with the cost of automobile travel Vanguard Unmatchable value for the investor-owner Wal-Mart Low prices, every day Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 5–3 Source: Arit Gadiesh and James Gilbert, “Frontline Action,” Harvard Business Review, May 2001, p. 74.

Checklist 5.2 How to Test the Quality of Your Strategy Does your strategy fit with what’s going on in the environment? Does your strategy exploit your key resources? Will competitors have difficulty keeping up with you? Are the elements of your strategy internally consistent? Do you have enough resources to pursue this strategy? Can your strategy be implemented? Copyright © 2004 Prentice Hall. All rights reserved.

Relationships Among Strategies in Multiple-Business Firms Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 5–4

Forces Driving Industry Competition Source: Source: Reprinted with the permission of The Free Press, a division of Simon & Schuster from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980 by The Free Press. Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 5–5

How the Internet Influences Industry Structure Source: Adapted from Michael Porter, “Strategy and the Internet,” Harvard Business Review, March 2001, p. 67. Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 5–6

Examples of a Company’s Strengths, Weaknesses, Opportunities, and Threats Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 7–7

Worksheet for Environmental Scanning Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 5–8

Checklist 5.3 How to Benchmark Focus on a specific problem and define it carefully Use employees who will actually implement changes to identify the best-practices companies and to conduct on-site studies. Be willing to share information with others. Avoid sensitive issues such as pricing, and don’t look for new product information. Keep information you receive confidential. Copyright © 2004 Prentice Hall. All rights reserved.

Cineplex Odeon TOWS Matrix FIGURE 5–9 Source: Fred David, Strategic Management (Upper Saddle River, NJ: Prentice-Hall, 2001), p. 207. Copyright © 2004 Prentice Hall. All rights reserved.

BCG Matrix Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 5–10

Checklist 5.4 Scenario Planning Principles Scenarios inform decision makers and influence decision making. Scenarios add value to decision making only when managers and others use them. In developing scenarios, the emphasis is on improving managers’ mindsets and knowledge. Copyright © 2004 Prentice Hall. All rights reserved.

Checklist 5.4 (cont’d) Scenario Planning Principles Alternative projections must challenge managers’ current mental models. The consideration of alternative futures directly affects managers’ knowledge. Scenarios must include indicators so that managers can track how the future is evolving. Copyright © 2004 Prentice Hall. All rights reserved.

Checklist 5.4 Scenario Planning Principles Scenarios have value only to the extent that they inform decision makers and influence decision making. Scenarios add value to decision making only when managers and others use them to systematically shape questions about the present and the future, and to guide how to go about answering them. In each step of developing scenarios, the emphasis must be on identifying, challenging, and refining the substance of managers’ mindsets and knowledge. Copyright © 2004 Prentice Hall. All rights reserved.

Checklist 5.4 (cont’d) Scenario Planning Principles Alternative projections about a given future must challenge managers’ current mental models by creating tension among ideas, hypotheses, perspectives, and assumptions. The dialogue and discussion spawned by the consideration of alternative futures should directly affect managers’ knowledge. Scenarios should include enough indicators so that managers can track how the future is actually evolving so that the learning and adaptations stimulated by the scenarios are continuous. Copyright © 2004 Prentice Hall. All rights reserved.

Southwest Airlines’ Activity System Source: Reprinted by permission of Harvard Business Review. From “What Is Strategy?” by Michael E. Porter, November–December 1996. Copyright © 1996 by the President and Fellows of Harvard College; all rights reserved. Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 5–11