1. Chapter 8
STRATEGIC
MANAGEMENT
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2. Learning Objectives You should learn to:
Explain the importance of strategic management
Describe the steps in the strategic management process
Explain SWOT analysis
Differentiate corporate-, business-, and functional-level strategies
Explain what competitive advantage is and why it’s important to organizations
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3. Learning Objectives (cont.)
You should learn to:
Describe the five competitive forces
Identify the various competitive strategies
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4. The Importance Of Strategic Management
What Is Strategic Management?
A set of managerial decisions and actions that determines the long-run performance of an organization
Purposes of Strategic Management
involved in many decisions that managers make
companies with formal strategic management systems have higher financial returns than companies with no such system
important in profit and not-for-profit organizations
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5. The Strategic Management Process
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6. The Strategic Management Process
1. Identifying the Organization’s Current Mission, Objectives, and Strategies
mission - statement of the purpose of an organization
important in profit and not-for-profit organizations
important to identify the goals currently in place and the strategies currently being pursued
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7. Components of a Mission Statement
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8. The Strategic Management Process (cont.)
2. Analyzing the Environment
successful strategies are aligned with the environment
examine both the specific and general environments to determine what trends and changes are occurring
3. Identifying Opportunities and Threats
opportunities - positive trends in the external environmental
threats - negative trends in the external environment
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9. The Strategic Management Process (cont.)
4. Analyzing the Organization’s Resources and Capabilities
examine the inside of the organization
available resources and capabilities always constrain the organization in some way
core competence - a unique and exceptional capability or resource
the organization’s major value-creating, competitive weapon
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10. The Strategic Management Process (cont.)
5. Identifying Strengths and Weaknesses
strengths - activities the organization does well or any unique resource
weaknesses - activities the organization does not do well or resources it needs but does not possess
organization’s culture has its strengths and weaknesses
strong culture - new employees easily identify the organization’s core competencies
may serve as a barrier to accepting change
influence managers’ preferences for certain strategies
SWOT analysis - analysis of the organization’s strengths, weaknesses, opportunities, and threats
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11. Identifying the Organization’s Opportunities
Resources/Abilities
Organization’s
Opportunities
Opportunities in
the Environment
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12. The Strategic Management Process (cont.)
6. Formulating Strategies
require strategies at the corporate, business, and functional levels of the organization
strategy formulation follows the decision-making process
7. Implementing Strategies
a strategy is only as good as its implementation
8. Evaluating Results
control process to determine the effectiveness of a strategy
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13. Levels of Organizational Strategy
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14. Types Of Organizational Strategies
Corporate-Level Strategy
determines
what businesses a company should be in or wants to be in
the direction that the organization is going
the role that each business unit will play
Grand Strategy - Stability
no significant change is proposed
organization’s performance is satisfactory
environment appears to be stable and unchanging
few organizations today pursue this strategy
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15. Types Of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)
Grand Strategy - Growth
seeks to increase the level of the organization’s operations
concentration - growth through direct expansion of organization’s own business operations
vertical integration
backward - become your own supplier
forward - become your own distributor
horizontal integration - grow by combining with other organizations in the same industry
needs approval by U.S. Federal Trade Commission
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16. Types Of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)
Grand Strategy - Growth (cont.)
related diversification - grow by merging with or acquiring firms in different, but related, industries
“strategic fit”
unrelated diversification - grow by merging with or acquiring firms in different and unrelated industries
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17. Types Of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)
Grand Strategy - Growth (cont.)
retrenchment - designed to address organizational weaknesses that are leading to performance declines
intended to:
stabilize operations
revitalize organizational resources and capabilities
prepare to compete once again
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18. SWOT Analysis And Grand Strategies
Weaknesses
Critical
Valuable
Strengths
Firm Status
Corporate
Growth
Strategies
Corporate
Stability
Strategies
Corporate
Stability
Strategies
Corporate
Retrenchment
Strategies
Environmental Status
Abundant
Environmental
Opportunities
Critical
Threats
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19. Types of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)
Corporate Portfolio Analysis - used when corporate strategy involves a number of business
Boston Consulting Group (BCG) matrix - provides a framework for understanding diverse businesses
helps managers establish priorities for making resource allocation decisions
businesses classified in terms of
market share
anticipated market growth
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20. The BCG Matrix Market Share Question Stars Marks Anticipated Growth
High
Low
High
Low
Anticipated
Growth
Rate
Stars
Question
Marks
Cash
Cows
Dogs
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21. Types of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)
BCG matrix (cont.)
strategic implications of the matrix
cash cows - “milk”
use cash to invest in stars and question marks
stars - require heavy investment
eventually will become cash cows
question marks - two strategies
invest to transform them into stars
divest
dogs - sold off or liquidated
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22. Types Of Organizational Strategies (cont.)
Business-Level Strategy
determines how an organization should compete in each of its businesses
strategic business units - independent businesses that formulate their own strategies
Role of Competitive Advantage
competitive advantage - sets an organization apart by providing a distinct edge
comes from the organization’s core competencies
not every organization can transform core competencies into a competitive advantage
once created, must be able to sustain it
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23. Types Of Organizational Strategies (cont.)
Business-Level Strategy (cont.)
Competitive Strategies
Michael Porter - industry analysis based on five competitive forces
Threat of new entrants - affected by barriers to entry
Threat of substitutes - affected by buyer loyalty and switching costs
Bargaining power of buyers - affected by number of customers, availability of substitute products
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24. Types Of Organizational Strategies (cont.)
Business-Level Strategy (cont.)
Competitive Strategies (cont.)
Porter’s competitive forces analysis (cont.)
Bargaining power of suppliers - affected by degree of supplier concentration
Existing rivalry - affected by industry growth rate, demand for firm’s product or service, and product differences
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25. Forces In The Industry Analysis
New
Entrants
Threat of
New Entrants
Bargaining
Power or
Suppliers
Industry
Competitors
Suppliers
Buyers
Current Rivalry
Bargaining
Power or
Buyers
Threat of
Substitutes
Substitutes
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26. Types of Organizational Strategies (cont.)
Business-Level Strategy (cont.)
Competitive strategies (cont.)
Porter’s three generic strategies
cost leadership - goal is to become the lowest-cost producer in the industry
tries to identify efficiencies in all operations
overhead kept to a minimum
product or service must be perceived to be of comparable quality to that offered by competitors
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27. Types of Organizational Strategies (cont.)
Business-Level Strategy (cont.)
Competitive strategies (cont.)
Porter’s three generic strategies (cont.)
differentiation - offer unique products that are widely valued by customers
sets the firm apart from competitors
differentiation based on quality, service, product design, brand image
customers must be willing to pay a price premium that exceeds the cost of differentiation
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28. Types of Organizational Strategies (cont.)
Business-Level Strategy (cont.)
Competitive strategies (cont.)
Porter’s three generic strategies (cont.)
focus - aims at a cost advantage or differentiation advantage in a narrow segment
no attempt to serve the broad market
feasibility of strategy depends on the size of the segment and the ability of the firm to support the cost of focusing
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29. Requirements for Successfully Pursuing Porter’s Competitive Strategies
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30. Types Of Organizational Strategies (cont.)
Functional-Level Strategy (cont.)
used to support the business-level strategy
creates an appropriate supporting role for each functional area of the organization
e.g., manufacturing, marketing, human resources
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