1. McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, All Rights Reserved. Chapter Six Strategic Management How Star Managers Realize a Grand Design

2. 6 - 2 Key Points Competitive Advantage Effective Strategy Strategic Process Different forms of Grand Strategies SWOT Predictive Tools Porter Five Strategic Forces Porter Strategies Product Life Cycle Competitve Intelligence

3. 6 - 3 Major Questions You Should Be Able to Answer 6.1 Am I really managing if I don’t have a strategy? 6.2 What’s the five-step recipe for the strategic management process? 6.3 How can SWOT and forecasting help me establish my strategy?

4. 6 - 4 Major Questions You Should Be Able to Answer 6.4 How can two techniques-Porter’s competitive strategies and the product life cycle-help me formulate strategy? 6.5 How does effective execution help managers during the strategic- management process?

5. 6 - 5 The Dynamics of Strategic Planning Strategy  large-scale action plan that sets the direction for an organization Strategic management  process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals

6. 6 - 6 Why Strategic Management & Strategic Planning are Important 1.Provide direction and momentum 2.Encourage new ideas 3.Develop a sustainable competitive advantage

7. 6 - 7 Why Strategic Management & Strategic Planning are Important Sustainable competitive advantage occurs when an organization can stay ahead in four areas: Being responsive to customers Innovation Quality Effectiveness

8. 6 - 8 Example: Staples Simplifies Its Shopping Experience Staples remodeled stores Removed superfluous items from inventory Retrained salespeople to walk customers to the correct aisle Launched the “Easy Button” In 2007, profit was up 7%

9. 6 - 9 What Is an Effective Strategy? Strategic positioning  attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company

10. 6 - 10 What Is an Effective Strategy? 1.Strategy is the creation of a unique & valuable position 2.Strategy requires trade-offs in competing 3.Strategy involves creating a “fit” among activities

11. 6 - 11 The Strategic Management Process Figure 6.1

12. 6 - 12 The Strategic Management Process Step 1: Establish the mission & the vision Step 2: Establish the grand strategy Step 3: Formulate strategic plans Step 4: Carry out the strategic plan Step 5: Maintain strategic control: the feedback loop

13. 6 - 13 Common Grand Strategies Growth strategy  involves expansion Stability  involves little or no significant change Defensive  involves reduction in the organization’s efforts

14. 6 - 14 The Strategic Management Process Strategy formulation  process of choosing among different strategies and altering them to best fit the organization’s needs Strategy implementation  putting strategic plans into effect

15. 6 - 15 The Strategic Management Process Strategic control  consists of monitoring the execution of strategy and making adjustments, if necessary Engage people Keep it simple Stay focused Keep moving

16. 6 - 16 SWOT Analysis Figure 6.2

17. 6 - 17 SWOT Analysis Organizational strengths  skills and capabilities that give the organization special competencies and competitive advantages in executing strategies in pursuit of its mission

18. 6 - 18 SWOT Analysis Organizational weaknesses  drawbacks that hinder an organization in executing strategies in pursuit of its mission

19. 6 - 19 SWOT Analysis Organizational opportunities  environmental factors that the organization may exploit for competitive advantage Organizational threats  environmental factors that hinder an organization’s achieving a competitive

20. 6 - 20 Example: How Would You Analyze Starbucks Coffee? Strengths – much of success is based on loyalty of staff Weaknesses – too fast growth Opportunities – numerous overseas opportunities Threats – national chains, mom & pop coffeehouses

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22. 6 - 22 Forecasting: Predicting the Future Trend analysis  hypothetical extension of a past series of events into the future Contingency planning  creation of alternative hypothetical but equally likely future conditions  Also called scenario planning and scenario analysis

23. 6 - 23 Porter’s Five Competitive Forces 1.Threat of new entrants 2.Bargaining power of suppliers 3.Bargaining power of buyers 4.Threat of substitute products or services 5.Rivalry among competitors

24. 6 - 24 Porter’s Four Competitive Strategies Figure 6.3 X X X X

25. 6 - 25 Porter’s Four Competitive Strategies Cost-leadership strategy  keep the costs, and hence prices, of a product or service below those of competitors and to target a wide market

26. 6 - 26 Porter’s Four Competitive Strategies Differentiation strategy  offer products that are of unique and superior value compared to those of competitors but to target a wide market

27. 6 - 27 Porter’s Four Competitive Strategies Cost-focus strategy  keep the costs of a product below those of competitors and to target a narrow market Focused-differentiation  offer products that are of unique and superior value compared to those of competitors and to target a narrow market

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29. 6 - 29 The Product Life Cycle Figure 6.4

30. 6 - 30 The Product Life Cycle Stage 1: Introduction  the new product is introduced into the marketplace Stage 2: Growth  most profitable stage  period in which customer demand increases, the product’s sales grow, and competitors may enter the market

31. 6 - 31 The Product Life Cycle Stage 3: Maturity  period in which the product starts to fall out of favor and sales and profit begin to fall off Stage 4: Decline  period in which the product falls out of favor and the organization withdraws from the marketplace

32. 6 - 32 Where is the Iphone?

33. 6 - 33 Single-Product versus Diversification Single-product strategy  company makes and sells only one product within its market  Benefit-focus  Risk-vulnerability

34. 6 - 34 Niche Marketing - Peter Limmer and Sons – Intervale, New Hampshire 34

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39. 6 - 39 Niche Player in Florence Italy

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42. 6 - 42 Single-Product versus Diversification Diversification  operating several businesses under one ownership that are not related to one another  Related, unrelated

43. 6 - 43 Competitive Intelligence Competitive intelligence  gaining information about one’s competitors’ activities so that you can anticipate their moves and react appropriately

44. 6 - 44 Sources of Competitive Intelligence Public prints and advertising Investor information Informal sources  Trade shows, salespeople, marketers

45. 6 - 45 Execution: Getting Things Done Execution  consists of using questioning, analysis, and follow-through in order to mesh strategy with reality, align people with goals, and achieve results promised  central part of any company’s strategy

46. 6 - 46 The Three Core Processes of Business People Strategy Operations

47. 6 - 47 Building a Foundation of Execution Know your people & your business Insist on realism Set clear goals & priorities Follow through Reward the doers Expand the capabilities Know yourself

48. 6 - 48 Flying in Brazil