Dan C. Lungescu, PhD, assistant professor2015-2016

ManagementPart II: Planning

Ch. 6. Strategic management

Course outline

Part I: Introduction

Part II: Planning

Part III: Organizing

Part IV: Leading

Part V: Controlling

Management

Part II outline

Part II: Planning

Ch. 5. Organizational goals and plans

Ch. 6. Strategic management

Ch. 7. Decision making

Ch. 8. Managing innovation and change

Management

Learning objectives

After studying this chapter, you should:

Explain the concept of strategic management and differentiate among the three main levels of strategy.

Outline the major components of the strategic management process.

Describe the role of competitive analysis in strategy formulation and explain the major approaches to such analysis.

Enumerate the main generic strategies available at the corporate level.

Explain the three major portfolio strategy approaches for use at the corporate level.

Describe Porter’s competitive strategies for the business level. Explain the role of strategies at the functional level.

Chapter 6 outline

A. The concept of strategic management

B. The competitive analysis

C. Corporate-level strategy

D. Business-level strategy

E. Functional-level strategy

A. The concept of strategic management

Outline » A. The concept of strategic management

Large-scale action plan for interacting with the environment in orderto achieve long-term goals.

Strategy

A process through which managers formulate and implementstrategies geared toward optimizing strategic goal achievement,given available environmental and internal conditions.

Strategic management

The process of identifying the mission and strategic goals,conducting competitive analysis, and developing specific strategies.

1. Strategy formulation

The process of carrying out strategic plans and maintaining controlover how those plans are carried out.

2. Strategy implementation

Strategic management process

Outline » A. The concept of strategic management » Strategic management process

Identify current mission and strategic goals

Conduct competitive analysis:SWOT

Develop specific strategies: Corporate Business Functional

Carry out strategic plans

Maintain strategic control

Assess organizational factors

Assess environmental factors

Strategy formulation Strategyimplementation

Importance of strategic management

Outline » A. The concept of strategic management » Importance of strategic management

The process helps organizations identify and develop a significantedge over the competition in dealing with competitive forces.

Competitive advantage

Organization members know where to expend their efforts.

Sense of direction

Strategic management can help highlight the need for innovationand provide an organized approach for encouraging new ideasrelated to strategies.

Innovation

The process can be used to involve managers at various levels inplanning, thus making it more likely that they will understand theresulting plans and be committed to their implementation.

Involvement and commitment

Levels of strategy

Outline » A. The concept of strategic management » Levels of strategy

Addresses what business the organization will operate, how the strategiesof those businesses will be coordinated to strengthen the organization’scompetitive position, and how resources will be allocated among thebusinesses.

1. Corporate-level strategy

Concentrates on the best means of competing within a particular business(strategic business unit) while also supporting the corporate-level strategy.

2. Business-level strategy

Focuses on action plans for managing a particular functional area within abusiness in a way that supports the business-level strategy.

3. Functional-level strategy

A distinct business, with its own set of competitors, that can be managedrelatively independently of other businesses within the organization.

Strategic business unit

Levels of strategy (2)

Outline » A. The concept of strategic management » Levels of strategy (2)

Corporate strategy

Business 1 strategy

Business 2 strategy

Business 3 strategy

Operations management

strategy

R & D strategy

Financial / accounting

strategy

Marketing strategy

Human resources strategy

Corporate level

Business level

Functional level

B. The competitive analysis

Outline » B. The competitive analysis

A method of analyzing an organization's competitive situation thatinvolves assessing organizational strengths (S) and weaknesses (W),as well as environmental opportunities (O) and threats (T).

SWOT analysis

An internal characteristic that has the potential of improving the organization’scompetitive situation.

Strength

An environmental condition that offers significant prospects for improving anorganization’s situation relative to competitors.

Opportunity

An internal characteristic that leaves the organization potentially vulnerable tostrategic moves by competitors.

Weakness

An environmental condition that offers significant prospects for undermining anorganization’s competitive situation.

Threat

Environmental assessment

Outline » B. The competitive analysis » Environmental assessment

An approach to analyzing the nature and intensity of competition ina given industry.

Michael Porter’s 5 competitive forces model

1. Rivalry

2. Bargaining power of customers

3. Bargaining power of suppliers

4. Threat of new entrants

5. Threat of substitute products

C. Corporate-level strategy

Outline » C. Corporate-level strategy

The development of corporate-level strategy generally involves:

I. Selecting a grand strategy

II. Using portfolio strategy approaches

A master strategy that provides the basic strategic direction at thecorporate level.

I. Grand strategy

A method of analyzing an organization’s mix of businesses in termsof both individual and collective contributions to strategic goals.

II. Portfolio strategy approach

I. Grand strategies

Outline » C. Corporate-level strategy » I. Grand strategies

Grand strategies

a. Growth

b. Stability

c. Defense

Concentration

Vertical integration

Diversification

Harvest

Turnaround

Divestiture

Bankruptcy

Liquidation

a. Growth strategies

Outline » C. Corporate-level strategy » I. Grand strategies » a. Growth strategies

Grand strategies that involve organizational expansion along somemajor dimensions.

Growth strategies

Effecting the growth of a single product or service or a small number ofclosely related products or services.

1. Concentration

Effecting growth through the production of inputs previously provided bysuppliers (backward integration) or through the replacement of a customerrole by disposing of one’s own outputs (forward integration).

2. Vertical integration

Effecting growth through the development of new areas that are clearlydistinct from current businesses (through acquisition, merger, or jointventure). [types]

3. Diversification

Diversification

Outline » C. Corporate-level strategy » I. Grand strategies » a. Growth strategies » Diversification

The purchase of all or part of one organization by another.

Acquisition

The combining of two or more companies into one organization.

Merger

Two or more organizations provide resources to support a givenproject or product offering.

Joint venture

b. Stability strategies

Outline » C. Corporate-level strategy » I. Grand strategies » b. Stability strategies

A strategy that involves maintaining the status quo or growing in amethodical, but slow, manner.

Stability strategy

c. Defensive strategies

Outline » C. Corporate-level strategy » I. Grand strategies » c. Defensive strategies

Strategies that focus on the desire or need to reduce organizationaloperations, usually through cost and/or asset reduction.

Defensive strategies

Minimizing investments while attempting to maximize short-run profits and cashflow, with the long-run intention of exiting the market.

1. Harvest

Reverse a negative trend and restore the organization to appropriate profitability.

2. Turnaround

Organization’s selling or divesting of a business or part of a business.

3. Divestiture

An organization unable to pay its debts can seek court protection from creditors andfrom certain contract obligations while it attempts to regain financial stability.

4. Bankruptcy

Selling or dissolving an entire organization.

4. Liquidation

II. Portfolio strategies

Outline » C. Corporate-level strategy » II. Portfolio strategies

Help managers determine the types of businesses in which theorganization should be engaged.

Portfolio strategies

The most frequently used portfolio approaches:

1. BCG growth-share matrix [Boston Consulting Group]

2. GE business screen [General Electric]

2. Product/market evolution matrix

1. BCG growth-share matrix

Outline » C. Corporate-level strategy » II. Portfolio strategies » 1. BCG growth-share matrix

low

high

Mar

ket g

row

th ra

te

cash cows

stars question marks

dogs

(net suppliersof resources)

(net usersof resources)

harvested,divested,or liquidated

remainder divesteda select few

The circle:the business’s percent revenue relative to the revenues generated by other portfolio business.

high lowRelative competitive position (market share)

2. GE business screen

Outline » C. Corporate-level strategy » II. Portfolio strategies » 2. GE business screen

low

high

Long

-term

indu

stry

att

ract

iven

ess High priority for

investment

Medium priority for investment

Low priority for investment

The circle:the size is proportionalto the size of the industry.

The pie slice:the business’s market share within the industry.

med

ium

high low

Business strength comparative position

average

3. Product/market evolution matrix

Outline » C. Corporate-level strategy » II. Portfolio strategies » 3. Product/market evolution matrix

strong weak

development

Business unit’s competitive position

Indu

stry

stag

e in

the

evol

utio

nary

life

cyc

leThe circle:the size is proportionalto the size of the industry.

The pie slice:the business’s market share within the industry.

average

growth

competitiveshakeout

maturitysaturation

decline

D. Business-level strategy

Outline » D. Business-level strategy

The best-known approach:Porter’s competitive strategies:

Involves emphasizing organizational efficiency so that the overallcosts of providing products and services are lower than those ofcompetitors.

Cost leadership strategy

Involves attempting to develop products and services that areviewed as unique in the industry.

Differentiation strategy

Entails specializing by establishing a position of overall costleadership, differentiation, or both, but only within a particularportion, or segment, of an entire market.

Focus strategy

E. Functional-level strategy

Outline » E. Functional-level strategy

Spell out the specific ways that functional areas can be used tobolster the business-level strategy.

Functional-level strategies

Example

Under a product differentiation strategy, the R&Ddepartment might be called upon to accelerate the

innovation process in order to provide new products in advance of the competition, marketing might develop a plan that calls for premium prices, distribution through prestigious locations, and a special promotion scheme

aimed at targeted market segments and so forth.

Dan C. Lungescu, PhD, assistant professor2015-2016