chapter 8 strategic management © prentice hall, 20028-1
TRANSCRIPT
Chapter 8
STRATEGICMANAGEMENT
© Prentice Hall, 2002 8-8-11
Learning ObjectivesYou 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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Learning Objectives (cont.)You should learn to:
– Describe the five competitive forces
– Identify the various competitive strategies
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The Importance Of Strategic ManagementWhat 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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The Strategic Management Process
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The Strategic Management Process1. 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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Components of a Mission Statement
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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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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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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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Identifying the Organization’s Opportunities
Organization’sOpportunities
Organization’sResources/Abilities
Opportunities inthe Environment
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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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Levels of Organizational Strategy
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Types Of Organizational StrategiesCorporate-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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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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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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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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SWOT Analysis And Grand Strategies
CorporateGrowth
Strategies
CorporateStability
Strategies
CorporateRetrenchment
Strategies
AbundantEnvironmentalOpportunities
CriticalEnvironmental
Threats
CorporateStability
Strategies
Cri
tical
Wea
knes
ses
Val
uabl
eS
tren
gths
Environmental Status
Fir
m S
tatu
s
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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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The BCG Matrix
Stars
CashCows
Dogs
QuestionMarks
Market Share
High Low
Hig
hL
ow
AnticipatedGrowth
Rate
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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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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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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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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
Types Of Organizational Strategies (cont.)
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Current Rivalry
IndustryCompetitors
Forces In The Industry Analysis
Suppliers
NewEntrants
Buyers
Substitutes
Threat ofNew Entrants
Threat ofSubstitutes
BargainingPower orBuyers
BargainingPower orSuppliers
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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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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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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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Requirements for Successfully Pursuing Porter’s Competitive Strategies
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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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