strategic management
TRANSCRIPT
Learning ObjectivesLearning Objectives You should learn to:You should learn to:
– Explain the importance of strategic Explain the importance of strategic managementmanagement
– Describe the steps in the strategic Describe the steps in the strategic management processmanagement process
– Explain SWOT analysisExplain SWOT analysis– Differentiate corporate-, business-, and Differentiate corporate-, business-, and
functional-level strategiesfunctional-level strategies– Explain what competitive advantage is Explain what competitive advantage is
and why it’s important to organizationsand why it’s important to organizations© Prentice Hall, 2002 8-8-22
Learning Objectives (cont.)Learning Objectives (cont.) You should learn to:You should learn to:
– Describe the five competitive forcesDescribe the five competitive forces– Identify the various competitive Identify the various competitive
strategiesstrategies
© Prentice Hall, 2002 8-8-33
The Importance Of Strategic ManagementThe Importance Of Strategic Management
What Is Strategic Management?What Is Strategic Management?– A set of managerial decisions and actions A set of managerial decisions and actions
that determines the long-run performance of that determines the long-run performance of an organizationan organization
Purposes of Strategic ManagementPurposes of Strategic Management– involved in many decisions that managers involved in many decisions that managers
makemake– companies with formal strategic management companies with formal strategic management
systems have higher financial returns than systems have higher financial returns than companies with no such systemcompanies with no such system
– important in profit and not-for-profit important in profit and not-for-profit organizationsorganizations
© Prentice Hall, 2002 8-8-44
The Strategic Management The Strategic Management ProcessProcess
1. Identifying the Organization’s Current 1. Identifying the Organization’s Current Mission, Objectives, and StrategiesMission, Objectives, and Strategies– missionmission - statement of the purpose of - statement of the purpose of
an organizationan organization important in profit and not-for-profit important in profit and not-for-profit
organizationsorganizations important to identify the goals currently in important to identify the goals currently in
place and the strategies currently being place and the strategies currently being pursuedpursued
© Prentice Hall, 2002 8-8-66
The Strategic Management Process (cont.)The Strategic Management Process (cont.)
2. Analyzing the Environment2. Analyzing the Environment– successful strategies are aligned with the successful strategies are aligned with the
environmentenvironment– examine both the specific and general examine both the specific and general
environments to determine what trends and environments to determine what trends and changes are occurringchanges are occurring
3. Identifying Opportunities and Threats3. Identifying Opportunities and Threats– opportunit iesopportunit ies - positive trends in the external - positive trends in the external
environmentalenvironmental– threatsthreats - negative trends in the external - negative trends in the external
environmentenvironment© Prentice Hall, 2002 8-8-88
The Strategic Management The Strategic Management Process (cont.)Process (cont.)
4. Analyzing the Organization’s Resources 4. Analyzing the Organization’s Resources and Capabilitiesand Capabilities– examine the inside of the organizationexamine the inside of the organization– available resources and capabilities available resources and capabilities
always constrain the organization in always constrain the organization in some waysome way
– core competence - a unique and core competence - a unique and exceptional capability or resourceexceptional capability or resource the organization’s major value-creating, the organization’s major value-creating,
competitive weaponcompetitive weapon© Prentice Hall, 2002 8-8-99
The Strategic Management Process (cont.)The Strategic Management Process (cont.)
5. Identifying Strengths and Weaknesses5. Identifying Strengths and Weaknesses– strengthsstrengths - activities the organization does well or - activities the organization does well or
any unique resourceany unique resource– weaknessesweaknesses - activities the organization does not - activities the organization does not
do well or resources it needs but does not possessdo well or resources it needs but does not possess– organization’s culture has its strengths and organization’s culture has its strengths and
weaknessesweaknesses strong culture - new employees easily identify the strong culture - new employees easily identify the
organization’s core competenciesorganization’s core competencies– may serve as a barrier to accepting changemay serve as a barrier to accepting change
influence managers’ preferences for certain strategiesinfluence managers’ preferences for certain strategies– SWOT analysisSWOT analysis - analysis of the organization’s - analysis of the organization’s
strengths, weaknesses, opportunities, and threatsstrengths, weaknesses, opportunities, and threats© Prentice Hall, 2002 8-8-1010
Identifying the Organization’s OpportunitiesIdentifying the Organization’s Opportunities
Organization’sOpportunities
Organization’sResources/Abilities
Opportunities inthe Environment
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The Strategic Management Process (cont.)The Strategic Management Process (cont.)
6. 6. Formulating StrategiesFormulating Strategies– require strategies at the corporate, business, and require strategies at the corporate, business, and
functional levels of the organizationfunctional levels of the organization– strategy formulation follows the decision-making strategy formulation follows the decision-making
processprocess 7. Implementing Strategies7. Implementing Strategies
– a strategy is only as good as its implementationa strategy is only as good as its implementation 8. Evaluating Results8. Evaluating Results
– control process to determine the effectiveness of a control process to determine the effectiveness of a strategystrategy
© Prentice Hall, 2002 8-8-1212
Types Of Organizational StrategiesTypes Of Organizational Strategies
Corporate-Level StrategyCorporate-Level Strategy– determines determines
what businesses a company should be in or wants what businesses a company should be in or wants to be into be in
the direction that the organization is goingthe direction that the organization is going the role that each business unit will playthe role that each business unit will play
– Grand Strategy - Stabil i tyGrand Strategy - Stabil i ty no significant change is proposedno significant change is proposed organization’s performance is satisfactoryorganization’s performance is satisfactory environment appears to be stable and unchangingenvironment appears to be stable and unchanging few organizations today pursue this strategy few organizations today pursue this strategy © Prentice Hall, 2002 8-8-1414
Types Of Organizational Strategies (cont.)Types Of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)Corporate-Level Strategy (cont.)– Grand Strategy - GrowthGrand Strategy - Growth
seeks to increase the level of the organization’s seeks to increase the level of the organization’s operationsoperations
concentrat ionconcentrat ion - growth through direct expansion of - growth through direct expansion of organization’s own business operationsorganization’s own business operations
vertical integrationvertical integration – backwardbackward - become your own supplier - become your own supplier– forwardforward - become your own distributor - become your own distributor
horizontal integrationhorizontal integration - grow by combining with other - grow by combining with other organizations in the same industryorganizations in the same industry
– needs approval by U.S. Federal Trade Commissionneeds approval by U.S. Federal Trade Commission
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Types Of Organizational Strategies (cont.)Types Of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)Corporate-Level Strategy (cont.)– Grand Strategy - Growth Grand Strategy - Growth (cont.)(cont.)
related diversif icationrelated diversif ication - grow by - grow by merging with or acquiring firms in different, merging with or acquiring firms in different, but related, industriesbut related, industries
– ““strategic fit”strategic fit” unrelated diversificationunrelated diversification - grow by - grow by
merging with or acquiring firms in different merging with or acquiring firms in different and unrelated industriesand unrelated industries
© Prentice Hall, 2002 8-8-1616
Types Of Organizational Strategies (cont.)Types Of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)Corporate-Level Strategy (cont.)– Grand Strategy - Growth Grand Strategy - Growth (cont.)(cont.)
retrenchmentretrenchment - designed to address - designed to address organizational weaknesses that are leading organizational weaknesses that are leading to performance declinesto performance declines
– intended to:intended to: stabilize operationsstabilize operations revitalize organizational resources and revitalize organizational resources and
capabilitiescapabilities prepare to compete once againprepare to compete once again
© Prentice Hall, 2002 8-8-1717
SWOT Analysis And Grand SWOT Analysis And Grand StrategiesStrategies
CorporateGrowth
Strategies
CorporateStability
Strategies
CorporateRetrenchment
Strategies
AbundantEnvironmentalOpportunities
CriticalEnvironmental
Threats
CorporateStability
Strategies
Cri
tica
lW
eakn
esse
sV
alua
ble
Str
engt
hs
Environmental Status
Fir
m S
tatu
s
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Types of Organizational Strategies (cont.)Types of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)Corporate-Level Strategy (cont.)– Corporate Portfolio AnalysisCorporate Portfolio Analysis - used when - used when
corporate strategy involves a number of businesscorporate strategy involves a number of business Boston Consult ing Group (BCG) matrixBoston Consult ing Group (BCG) matrix - provides - provides
a framework for understanding diverse businessesa framework for understanding diverse businesses– helps managers establish priorities for making resource helps managers establish priorities for making resource
allocation decisionsallocation decisions– businesses classified in terms of businesses classified in terms of
market share market share anticipated market growthanticipated market growth
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The BCG MatrixThe BCG Matrix
Stars
CashCows
Dogs
QuestionMarks
Market Share
High Low
Hig
hL
ow
AnticipatedGrowth
Rate
© Prentice Hall, 2002 8-8-2020
Types of Organizational Strategies (cont.)Types of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)Corporate-Level Strategy (cont.)– BCG matrixBCG matrix (cont.) (cont.)
strategic implications of the matrixstrategic implications of the matrix– cash cowscash cows - “milk” - “milk”
use cash to invest in stars and question marksuse cash to invest in stars and question marks– starsstars - require heavy investment - require heavy investment
eventually will become cash cowseventually will become cash cows– question marksquestion marks - two strategies - two strategies
invest to transform them into starsinvest to transform them into stars divestdivest
– dogsdogs - sold off or liquidated - sold off or liquidated
© Prentice Hall, 2002 8-8-2121
Types Of Organizational Strategies (cont.)Types Of Organizational Strategies (cont.)
Business-Level StrategyBusiness-Level Strategy– determines how an organization should compete in determines how an organization should compete in
each of its businesseseach of its businesses– strategic business unitsstrategic business units - independent - independent
businesses that formulate their own strategiesbusinesses that formulate their own strategies– Role of Competit ive AdvantageRole of Competit ive Advantage
competit ive advantagecompetit ive advantage - sets an organization apart by - sets an organization apart by providing a distinct edgeproviding a distinct edge
– comes from the organization’s core competenciescomes from the organization’s core competencies– not every organization can transform core competencies into a not every organization can transform core competencies into a
competitive advantagecompetitive advantage– once created, must be able to sustain itonce created, must be able to sustain it
© Prentice Hall, 2002 8-8-2222
Types Of Organizational Strategies (cont.)Types Of Organizational Strategies (cont.)
Business-Level Strategy (cont.)Business-Level Strategy (cont.)– Competit ive StrategiesCompetit ive Strategies
Michael PorterMichael Porter - industry analysis based on - industry analysis based on five competitive forcesfive competitive forces
– Threat of new entrantsThreat of new entrants - affected by barriers to - affected by barriers to entryentry
– Threat of substitutesThreat of substitutes - affected by buyer loyalty - affected by buyer loyalty and switching costsand switching costs
– Bargaining power of buyersBargaining power of buyers - affected by number - affected by number of customers, availability of substitute productsof customers, availability of substitute products
© Prentice Hall, 2002 8-8-2323
Business-Level Strategy (cont.)Business-Level Strategy (cont.)– Competit ive StrategiesCompetit ive Strategies (cont.) (cont.)
Porter’s competitive forces analysis (cont.)Porter’s competitive forces analysis (cont.)– Bargaining power of suppliersBargaining power of suppliers - affected - affected
by degree of supplier concentrationby degree of supplier concentration– Exist ing rivalryExist ing rivalry - affected by industry growth - affected by industry growth
rate, demand for firm’s product or service, and rate, demand for firm’s product or service, and product differencesproduct differences
Types Of Organizational Types Of Organizational Strategies (cont.)Strategies (cont.)
© Prentice Hall, 2002 8-8-2424
Current Rivalry
IndustryCompetitors
Forces In The Industry AnalysisForces In The Industry Analysis
Suppliers
NewEntrants
Buyers
Substitutes
Threat ofNew Entrants
Threat ofSubstitutes
BargainingPower orBuyers
BargainingPower orSuppliers
© Prentice Hall, 2002 8-8-2525
Types of Organizational Strategies (cont.)Types of Organizational Strategies (cont.)
Business-Level Strategy (cont.)Business-Level Strategy (cont.)– Competit ive strategiesCompetit ive strategies (cont.) (cont.)
Porter’s three generic strategiesPorter’s three generic strategies– cost leadershipcost leadership - goal is to become the lowest-cost - goal is to become the lowest-cost
producer in the industryproducer in the industry tries to identify efficiencies in all operationstries to identify efficiencies in all operations overhead kept to a minimumoverhead kept to a minimum product or service must be perceived to be of product or service must be perceived to be of
comparable quality to that offered by competitorscomparable quality to that offered by competitors
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Types of Organizational Strategies (cont.)Types of Organizational Strategies (cont.)
Business-Level Strategy (cont.)Business-Level Strategy (cont.)– Competit ive strategiesCompetit ive strategies (cont.) (cont.)
Porter’s three generic strategies (cont.)Porter’s three generic strategies (cont.)– differentiat ion differentiation - offer unique products that are - offer unique products that are
widely valued by customerswidely valued by customers sets the firm apart from competitorssets the firm apart from competitors differentiation based on quality, service, product differentiation based on quality, service, product
design, brand imagedesign, brand image customers must be willing to pay a price premium customers must be willing to pay a price premium
that exceeds the cost of differentiationthat exceeds the cost of differentiation
© Prentice Hall, 2002 8-8-2727
Types of Organizational Strategies (cont.)Types of Organizational Strategies (cont.)
Business-Level Strategy (cont.)Business-Level Strategy (cont.)– Competit ive strategiesCompetit ive strategies (cont.) (cont.)
Porter’s three generic strategies (cont.)Porter’s three generic strategies (cont.)– focus focus - aims at a cost advantage or - aims at a cost advantage or
differentiation advantage in a narrow segmentdifferentiation advantage in a narrow segment no attempt to serve the broad marketno attempt to serve the broad market feasibility of strategy depends on the size of feasibility of strategy depends on the size of
the segment and the ability of the firm to the segment and the ability of the firm to support the cost of focusingsupport the cost of focusing
© Prentice Hall, 2002 8-8-2828
Requirements for Successfully Pursuing Porter’s Requirements for Successfully Pursuing Porter’s Competit ive StrategiesCompetit ive Strategies
© Prentice Hall, 2002 8-8-2929
Types Of Organizational Types Of Organizational Strategies (cont.)Strategies (cont.)
Functional-Level Strategy (cont.)Functional-Level Strategy (cont.)– used to support the business-level used to support the business-level
strategystrategy– creates an appropriate supporting role creates an appropriate supporting role
for each functional area of the for each functional area of the organizationorganization e.g., manufacturing, marketing, human e.g., manufacturing, marketing, human
resourcesresources
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