1. Chapter 7
Strategic
Management

2. Learning Objectives After reading this chapter, you should be able to:
Explain how the firm’s external environment should be examined as part of the strategic management process.
Explain how the firm’s internal environment should be examined as part of the strategic management process.
State the meaning and purpose of the firm’s strategic intent and mission.
Understand how the strategy formulation process helps the firm achieve its mission.
Describe the issues that should be considered in strategy implementation.
Understand how the outcomes of the strategic management process should be assessed.

3. iPod Universe Critical Thinking Questions focus on
Apple’s strategy of encouraging the manufacture of Ipod accessories
Role of strategic management in encouraging other manufacturers to ride on iPod’s success
Possible results of Apple’s aggressive entry into accessory market

4. The Strategic Management Process
It is the job of top level management to chart the course of the entire enterprise.
It consists of:
Analysis of the internal and external environment of the firm.
Definition of the firm’s mission.
Formulation and implementation of strategies to create or continue a competitive advantage.

5. The Strategic Management Process (cont)
Strategic management involves both long-range thinking and adaptation to changing conditions.
Strategies should be designed to generate a sustainable competitive advantage.
Competitors should be unable to duplicate what the firm has done or should find it too difficult or expensive.

6. Components of the Strategic Management Process:
Analyze the external and internal environments
Define strategic intent and mission
Formulate strategies
Implement strategies
Assess strategic outcomes

7. SWOT Analysis Commonly used strategy tool: SWOT
Strengths, Weaknesses, Opportunities, Threats
External Environment
Internal Environment
Components
Scanning
Monitoring
Forecasting
Assessing
Scope
General environment
Industry environment
Strategic groups
Direct competitors
Resource types
Tangible
Intangible
Firm capabilities
Functional
Value Chain
Benchmarking

8. The External Environment
Company leaders must study the external environment in order to:
Identify opportunities and threats in the marketplace.
Avoid surprises.
Respond appropriately to competitors’ moves.
A major challenge is to gather accurate market intelligence in a timely fashion, and transform it into usable knowledge to gain a competitive advantage.

9. Components of External Analysis
Scanning
Monitoring
Assessing
Forecasting 3

10. Scope of the External Analysis
General Environment
The Industry
Competitor Analysis
Strategic Groups 3

11. The Segments of the General Environment
Economic Conditions
Demography
Globalization
Political/Legal Forces
Socio-cultural Conditions
Technological Changes

12. Porter’s Analyzing the Industry Environment
Threat of new entrants
Threat of substitutes
Suppliers
Customers
Intensity of rivalry among competitors

13. Focusing on the Future (p. 300)
Refer to Focusing on the Future in Chapter 5 (p.215)

14. The Internal Environment
Each company has something that it does well. These are called “core competencies.”
Company executives should identify the resources, capabilities, and knowledge the firm has that may be used to exploit market opportunities and avoid potential threats.
Resource-based view: Basing the strategy on what the firm is capable of doing

15. Resource Types: Tangible Resources
Assets that can be quantified and observed.
Include financial resources, physical assets, and workers.
Strategic assessment of tangible resources should enable management to efficiently use tangible resources to support the company and to expand the volume of business.

16. Resource Types: Intangible Resources
Difficult to quantify and included on a balance sheet
Often provides the firm with a strong competitive advantage.
Competitors find it difficult to purchase or imitate these resources.
Strategically most important intangibles:
Reputation
Technology
Human Capital

17. Analyzing the Firm’s Capabilities
Functional Analysis
Value Chain Analysis
Benchmarking

18. Analyzing Capabilities by Functional Areas
Capability
Corporate Management
Effective financial control systems
Expertise in strategic control of diversified corporation
Effectiveness in motivating and coordinating divisional and business-unit management
Management of acquisitions
Values-driven, in-touch corporate leadership
Information Management
Comprehensive and effective MIS network, with strong central coordination
Research and Development
Capability in basic research
Ability to develop innovative new products
Speed of new product development

19. Analyzing Capabilities by Functional Areas (cont.)
Capability
Manufacturing
Efficiency in volume manufacturing
Capacity for continual improvements in production processes
Flexibility and speed of response
Product Design
Design capability
Marketing
Brand management and brand promotion
Promoting and exploiting reputation for quality
Responsive to market trends
Sales and Distribution
Effectiveness in promoting and executing sales
Efficiency and speed of distribution
Quality and effectiveness of customer service

20. Value-Chain Analysis
Breaks down the firm into a sequential series of activities and attempts to identify the value added of each activity

21. Benchmarking Involves Four Stages:
Identifying activities or functions that are weak and need improvement.
Identifying firms that are known to be at the leading edge of these activities or functions.
Studying the leading-edge firms by visiting them, talking to managers and employees, and reading trade publications.
Using the information gathered to redefine goals, modify processes, and acquire new resources to improve the firm’s functions.

22. Strategic Intent and Mission
The primary guides to strategic management are formal statements of strategic intent and mission.
Strategic intent is internally focused, defining how the firm uses its resources, capabilities, and core competencies.
Strategic mission is externally focused, defining what will be to produced and marketed, utilizing its internal core competencies.

23. Strategic Intent and Mission (cont.)
Intent: How firm would like to use
Resources
Capabilities
Core competencies
Mission: Determine the firm’s external focus on
Products
Markets

24. Strategy Formulation
The design of an approach to achieve the firm’s mission.
Takes place at:
Corporate-Level
Business-Level

25. Corporate-Level Strategy
The corporation’s overall plan concerning the:
Number of businesses the corporation holds.
Variety of markets or industries it serves.
Distribution of resources among those businesses.
This diversification strategy may be analyzed in terms of:
Portfolio mix
Type of diversification
Process of diversification

26. Portfolio Analysis
The basic idea is to classify the businesses of a diversified company within a single framework.
Two of the most widely applied include:
The McKinsey-General Electric Portfolio Analysis Matrix
The Boston Consulting Group’s Growth Share Matrix

27. The McKinsey-General Electric Portfolio Analysis Matrix
Business-Unit Position
Low
Medium
High 1)
Harvest 2) 3) 4) 5)
Hold 6) 7) 8) 9)
Build
Low
Industry
Attractiveness
Medium
High

28. The Boston Consulting Group’s Growth Share Matrix
Relative Market Share
Earnings: high stable, growing
Cash Flow: neutral
Strategy: invest for growth
STAR
Earnings: low, unstable, growing
Cash Flow: negative
Strategy: analyze to determine whether business can be grown into a star, or will degenerate into a dog ?
Earnings: high, stable
Cash Flow: high stable Strategy: milk
COW
Earnings: low, unstable
Cash Flow: neutral or negative
Strategy: divest
DOG
Annual Real
Rate of Market
Growth

29. Diversification Strategy
Type of Diversification
Concentration strategy
Vertical integration strategy
Concentric diversification strategy
Conglomerate diversification
Process of Diversification
Acquisition and restructuring strategies
Acquisition
Merger
International strategy

30. Business-Level Strategy
Deals with how to compete in each business area or market segment.
Firms have two basic choices:
Cost leadership strategy
Differentiation strategy

31. Strategy Implementation
Organizational Structure and Controls
Corporate Entrepreneurship and Innovation
Cooperative Strategies
Human Resource Strategies
Strategic Leadership 3

32. Strategic Outcomes
Company leaders should periodically assess whether the outcomes meet expectations.
A firm must first and foremost cater to the desires of its primary stakeholders.
The firm should also consider the desires of other stakeholders affected by its performance.
Some of the standard measures of strategic success includes:
Profits
Growth of sales/market share
Growth of corporate assets
Reduced competitive threats
Innovations

33. iPod Universe Critical Thinking Questions focus on
iPod sales benefitted from the availability of ipod accessories.
The concept of complementors (accessories in this case) and their role in increasing the popularity of a new technology is a key concept in strategic management (in high technology industries)
Because accessories manufacturers have increased iPod popularity, Apple’s entry into accessories should prove beneficial

34. Video: Developing the golden parachute
Discuss the three questions on p. 276

35. In-class writing Refer to Focusing on the Future p. 300
Write on a sheet of paper, what are you not clear on and what aspect needs clarification?
Exchange with your neighbor.
Write your clarification to his or her question.
Exchange and discuss.
Do you agree?