1. Chapter 7 Strategic Management
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

2. Defining Strategic Management
“It’s the art & science of formulating, implementing and evaluating cross functional decisions that enable an organization to achieve it’s objectives”
Strategies: are the means by which long term objectives will be reached for example: product development, market penetration, diversification, acquisition etc.
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

3. Example
Campbell Soup Co’s Board of Directors are intensely involved in the company plans, goals and performance. The Board reviews and approves annually Campbell’s three year strategic plans and one year operating goals. The board evaluates the performance of the CEO at least annually without the CEO present. In 1995 self-evaluation, the board concluded that there was a need for broadening and diversifying the skills of the directors, spend more time on long-range strategic planning and improve its quality of director participation. The company has implemented these directives by rotating directors on committees and upgrading the quality of reports, increasing the frequency of strategy sessions and called for active, constructive and objective director participation. It made a remarkable change.
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Mattheve and objectws, Martin

4. Comprehensive strategic management model
External
Audit
Vision
&
Mission
Long-Term
Objectives
Generate,
Evaluate,
Select
Strategies
Implement
Strategies:
Mgmt Issues
Implement
Strategies:
Marketing,
Fin/Acct,
R&D, CIS
Measure &
Evaluate
Performance
Internal
Audit
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

5. Strategy Implementation
Strategy Formulation
Strategy Implementation
Strategy Evaluation
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

6. LEVELS OF STRATEGY
1) Corporate level Strategy: associated with the growth and development of a business
e.g. Diversification: acquiring additional businesses
“The distinctive core competency enables a business to strengthen it’s competitive advantage”
2) Business Level-SBU’s:
Competitive Advantage in terms of:
High Differentiation
Low cost
Focus/Quick Response
e.g. developing new products, exiting product lines that are not performing well.
3) Functional Strategy: coordination of all the departments
within the firm.
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

7. Strategy Formulation SWOT Analysis
SWOT analysis is a tool for auditing an organization and its environment.
It is the first stage of planning and helps marketers to focus on key issues.
SWOT stands for strengths, weaknesses, opportunities, and threats.
Strengths and weaknesses are internal factors.
Opportunities and threats are external factors
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

8. Strengths and weaknesses are internal factors: A strength could be:
your specialist marketing expertise.
a new, innovative product or service
location of your business
quality processes and procedures
any other aspect of your business that adds value to your product or service.
A weakness could be:
lack of marketing expertise
undifferentiated products or services (i.e. in relation to your competitors)
poor quality goods or services
damaged reputation
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

9. Opportunities and threats are external factors :
An opportunity could be:
a developing market such as the Internet.
mergers, joint ventures or strategic alliances
moving into new market segments that offer improved profits
a new international market
a market vacated by an ineffective competitor
A threat could be:
a new competitor in your home market
price wars with competitors
a competitor has a new, innovative product or service
competitors have superior access to channels of distribution
taxation is introduced on your product or service
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

10. The Five-Forces Model of Competition
Potential development
of substitute products
Rivalry among
competing firms
Bargaining power
of suppliers
Bargaining power
of consumers
Potential entry of new competitors
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

11. 1) Rivalry Among Competing Firms
The Five-Forces Model
1) Rivalry Among Competing Firms
Counter Moves
Focus on competitive advantage of strategies
It tend to increase as the number of competitors increases
Price cutting become common
It tend to increase when consumers can switch brands easily
When barriers to leave are high
Telecom industry------Rivalry is High
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

12. 2)Threats of new Entrants
Barriers to entry are important
Quality, pricing, and marketing can overcome barriers
Strategists job is to identify Potential entry competitors & plan countermoves accordingly example Warid Telenor Launch
Potential Entry LOW in Telecom, but High in Milk Industry
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

13. 3) Threats of Substitute Products
Pressures increase when consumer’s switching costs decrease
Firm’s plans for increased capacity & market penetration
Presence of substitute products puts a ceiling on price tea price puts a ceiling on coffee price
Example: Paper bags is a substitute for Plastic bags
Substitute threat is Low in Telecom Industry
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

14. 4) Bargaining Power of Suppliers
Few suppliers-----Petroleum industry
Few substitutes
Forward integration can gain control over their distributors
e.g. a farmer sells his/her crops at the local market rather than to a distribution center.
It is High in Telecom Industry
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

15. 5) Bargaining Power of Buyers
Buyers concentrated or buying in volume affects intensity of competition
Buyers power is higher where products are standard or undifferentiated ( motorists can choose among many gas stations)
In Milk Industry Bargaining Power of Buyers is High
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

16. Formulating Corporate-Level strategy GRAND STRATEGIES
Growth strategy
A strategy in which an organization attempts to increase the level of its operations.
Stability strategy
A strategy that is characterized by an absence of significant change.
Retrenchment strategy
A strategy characteristic of a company that is reducing its size, usually in an environment of decline.
Combination strategy
The simultaneous pursuit by an organization of two or more of growth, stability, and retrenchment strategies.
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

17. Horizontal Integration Conglomerate Diversification
GROWTH STRATEGIES
Product
Development OR
Horizontal Integration
Market
Development
Concentration
Vertical
Integration
Forward Integration
Backward Integration
Diversification
Concentric
Diversification
Conglomerate Diversification
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

18. Examples
Forward integration: An example of this is a movie studio that also owns a chain of theaters.
Backward integration: For example, an automobile company may own a tire company, a glass company, and a metal company
Conglomerate Diversification: The merger of Brooke Bond Lipton with Hindustan Lever (HLL). The former was mostly into foods, the latter was into detergents and personal care.
Concentric diversification: Coca-Cola and Diet Coke, Clinic All Clear and Clinic Plus.
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

19. Defensive strategies Retrenchment Divestiture Liquidation
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

20. Portfolio –Strategy approaches
1)BCG Matrix
Boston Consulting Group Matrix
Enhances multi-divisional firm in formulating strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry growth rate
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

21. BCG MATRIX
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

22. Question Marks
Low relative market share – compete in high-growth industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive strategies) or divest
Example:
Gerewal & Eagle Cement ( Low relative mkt. share)
Cement Industry ( High Growth Industry)
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

23. Stars Examples: a) Nestle Pure life ( High mkt. share)
High relative market share and high growth industry
Best long-run opportunities for growth & profitability
Substantial investment to maintain or strengthen dominant position
Integration strategies, intensive strategies, joint ventures
Examples: a) Nestle Pure life ( High mkt. share)
Bottled Water industry ( High Growth)
b) Suzuki ( High mkt.share)
Automobile Industry ( High Growth)
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

24. Cash Cows High relative market share, competes in low-growth industry
Generate cash in excess of their needs
Milked for other purposes
Maintain strong position as long as possible
Product development, concentric diversification
If weakens—retrenchment or divestiture
Example: Tapal ( High mkt. share)
Tea industry ( Low Growth)
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

25. Dogs Low relative market share & compete in slow or no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Example: Tetley ( Low mkt. share)
Tea industry ( Low growth)
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

26. FORMULATING BUSINESS –LEVEL STRATEGY
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

27. STRATEGY IMPLEMENTATION
Carry out Strategic
Plans:
Technology
Human Resource
Reward Systems
Decision Process
Structure
Strategy
Formulation
Maintain
Strategic
Control
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin