Strategic ManagementPrepard by : Hamzah Elrehail

Girne American University

Business Management Department

Presentation Include

1. Overview of Strategic Management

2. Competitive Dynamics

Strategic Management Art & science of formulating, implementing, and

evaluating, cross-functional decisions that enable an organization to achieve its objectives.

Is the continuous process of creating, implementing and evaluating decisions that enable an organization to achieve its objectives.

Strategic management consists of the analysis, decisions, and actions within organization undertakes in order to create and sustain competitive advantages.

Purpose of Strategic ManagementTo exploit and create new and different opportunities for

tomorrow.To make managers and organizational members more

alert about the opportunities and threatening development in their corresponding field.

To help the entrepreneur to unify its managerial and organizational efforts. 

To provide the opportunities to managers for evaluating the company's budget according to the situation.

3 Stages of the Strategic Management ProcessStrategy Formulation

Strategy formulation is the process of establishing the organization's mission, objectives, and choosing among alternative strategies. Sometimes strategy formulation is called "strategic planning."

Strategy Implementation Strategy implementation is the action stage of strategic management. It

refers to decisions that are made to apply new strategy or reinforce

existing strategy. 

Strategy Evaluation In the strategy evaluation and control process managers determine

whether the chosen strategy is achieving the organization's objectives.

Vision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Vision & Mission Vision Statement (your dream):

What do we want to become?

Mission Statement:What is our business?what the organization wants to be?whom we want to serve?

Vision Statement Example Dell’s vision is to create a company culture where

environmental excellence is second nature.

General Motors’ vision is to be the world leader in transportation products and related services.

Mission Statement Example Dell’s mission is to be the most successful computer

company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet consumer expectations of highest quality; leading technology; competitive pricing; individual and company accountability; best-in-class service and support; flexible customization capability; superior corporate citizenship; financial stability.

Mission Statement ExampleG.M. is a multinational corporation engaged in socially

responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stock-holders will receive a sustained superior return on their investment.

External Opportunities and Threats

Analysis of TrendsEconomicSocialCulturalDemographic/EnvironmentalPolitical, Legal, GovernmentalTechnologicalCompetitors

External Opportunities and Threats

Internal Strengths and Weaknesses

Controllable activities performed especially well or poorly

Determined relative to competitorsTypically located in functional areas of the firm

ManagementMarketingFinance/AccountingProduction/OperationsResearch & DevelopmentManagement Information Systems

Long-Term Objectives Essential for ensuring the firm’s success

Provide directionAid in evaluationCreate synergyReveal prioritiesFocus coordinationProvide basis for planning, organizing,

motivating, and controlling

Strategies Means by which long-term objectives are achieved.Examples

Geographic expansionDiversificationAcquisitionProduct developmentMarket penetrationRetrenchmentDivestitureLiquidationJoint venture

Strategy Implementation Implementation Process Questions:

Who are the people to carry out the strategic plan?

What must be done to align operations with new direction?

How is work going to be coordinated?Purpose is to make the strategy “action-

oriented.” Compare proposed programs and activities with current

programs and activities.

Strategy Implementation StepsDeveloping a strategy-supportive cultureCreating an effective organizational structureRedirecting marketing effortsPreparing budgetsDeveloping and utilizing information systemsLinking employee compensation to organizational

performance

Issues in Strategy Implementation

Action Stage of Strategic Management

Mobilization of employees & managers

Most difficult stage

Interpersonal skills critical

Strategy Evaluation And Control

Purpose of Strategic EvaluationThe purpose of strategic evaluation is to evaluate the

effectiveness of strategy in achieving organizational objectives.

Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed

Porter Five Forces Model

Porters Five Forces … Threat of EntryBargaining Power of SuppliersBargaining Power of BuyersDevelopment of Substitute Products or ServicesRivalry among Competitors

Barriers to Entry …large capital requirements or the need to

gain economies of scale quickly.strong customer loyalty or strong brand

preferences.lack of adequate distribution channels or

access to raw materials.

Power of Suppliers … … high when

A small number of dominant, highly concentrated suppliers exists.

Few good substitute raw materials or suppliers are available.

The cost of switching raw materials or suppliers is high.

Power of Buyers … … high when

Customers are concentrated, large or buy in volume .

The products being purchased are standard or undifferentiated making it easy to switch to other suppliers.

Customers purchases represent a major portion of the sellers total revenue.

Substitute Products … … competitive strength high whenThe relative price of substitute products declines .Consumers’ switching costs decline. Competitors plan to increase market penetration

or production capacity.

Rivalry Among Competitors … intensity increases as

The number of competitors increases or they become equal in size.

Demand for the industry’s products declines or industry growth slows.

Fixed costs or barriers to leaving the industry are high.

Summary For Porter Model… As rivalry among competing firms

intensifies, industry profits decline, in some cases to the point where an industry becomes inherently unattractive.

Management and Strategic Management

Part 2 Competitive Dynamics

What is Competitive Dynamics? Competitive Dynamics

Total set of actions and responses of all firms competing within a market.

Competitive DynamicsOngoing actions and responses taking place between all

firms competing within a market for advantageous positions.

Model of Competitive Dynamics

Why Do Companies Launch New Competitive Actions?Improve market positionCapitalize on growing demandExpand production capacityProvide an innovative new solutionObtain first mover advantages

Threat AnalysisThreat Analysis

A firm’s awareness of its closest competitors and the kinds of competitive actions they might be planning.

Competitor Analysis Is the first step to understanding competitive rivalry and identifying who your

direct competitors are Involves collecting competitive intelligenceFocuses on trying to predict competitors’ behavior The question: ‘To what extent are firms competitors’?2 components to assess

Market Commonality Resource Similarity

Direct competitors have high market commonality & high resource similarity

Market Commonality

Market CommonalityThe number of markets with which the firm and a competitor are

jointly involved and the degree of importance of the individual markets to each

Each industry composed of various markets which can be subdivided into segments Example: Automobile industry

Greater market commonality results in greater rivalryFirms may also compete against one another in several or many

product and geographic markets Multimarket Competition

Firms with greater multimarket contact are less likely to attack but more likely to respond when attacked

Resource Similarity

Resource Similarity Extent to which firm’s tangible/intangible resources are

comparable to competitor’s in type and amount.Can result in similar strengths and weaknesses and similar

strategies being pursued.The more similar the types and amounts of resources the

more direct the competition is between two firms.

3 Drivers of Competitive Actions/Responses Awareness

Extent competitors recognize degree of mutual interdependence that results from market commonality and resource similarity

Greatest when firms have highly similar resourcesAffects the extent to which the firm understands the

consequences of its competitive actions and responsesA lack of awareness

3 Drivers of Competitive Actions/Responses Motivation

Firm's incentive to take action, or to respond to a competitor's attack, as it relates to perceived gains and losses

A firm is more likely to attack a rival with whom it has low market commonality

Responses are more likely to occur when market commonality is high

AbilityFirm's resources that allow competitive action and flexibility to

respondWithout available resources a firm lacks the ability to respond

Drivers of Competitive Behavior

AwarenessDo managers understand the key characteristics of

competitors?

MotivationDoes the firm have appropriate incentives to attack or

respond?

CapabilityDoes the firm have the necessary resources to attack or

respond?

Strategic VS TacticalWhat are the strategic and tactical actions?

Strategic actions/responses: market-based moves that signify a significant commitment of organizational resources to pursue a specific strategy Difficult to implement and reverse

Tactical actions/responses: market-based moves that involve fewer resources to fine-tune a strategy that is already in place Easier to implement and reverse

First Mover

Firms that take an initial competitive action.Generally possess the resources and capabilities that

enable them to be pioneers in new products, new markets or new technologies.Can earn above average profits until competitors

respondGain customer loyalty, helping to create a barrier to

entry by competitorsAdvantage depends upon difficulty of imitation

Second Mover

Firms that respond to a First Mover’s actionsSecond Movers frequently imitate First MoversSpeed of response often dictates success

Should evaluate customers’ response before moving“Fast” Second Movers can capture some of initial

customers and develop some brand loyaltyAvoid some of the risks associated with First MoveMust possess necessary capabilities to imitate

Summary Of Movers First Mover Incentives

Firm that takes an initial competitive action to build or to defend its competitive advantages or to improve its market positionSecond MoversLate Movers

QualityCustomer perception that the firm's goods or services

perform in ways that are important to customers, meeting or exceeding expectationsLower quality = lower attack/response likelihood

Organizational size and competitive actions

Small firmsMore likely to launch competitive actionsAre more flexible, nimble, and quicker Initiate a greater variety of competitive actions

Large firms Initiate more competitive actions with more strategic

actions during a given periodTend to limit the types of competitive actions used

Actor’s Reputation

Actor’s Reputation Actor: Firm taking an action or response Reputation: positive or negative attribute ascribed by one rival to

another based on past competitive behaviorFirms are more likely to respond to market leaders (firms

with good reputations)Past behavior is also a useful predictor of future behaviorFirms are less likely to respond to a company with a

reputation for risky, complex, and unpredictable behavior

Slow-Cycle Markets

Markets in which the firm's competitive advantages are shielded from imitation for long periods of time, and in which imitation is costly

Build a one-of-a-kind competitive advantage which creates sustainability

Once a proprietary advantage is developed, competitive behavior should be oriented to protecting, maintaining, and extending that advantage

Fast-Cycle Markets

Markets in which the firm's capabilities that contribute to competitive advantages are not shielded from imitation and where imitation is often rapid and inexpensive.

Competitive advantages are not sustainable in fast-cycle markets.

Focus: learning how to rapidly and continuously develop new competitive advantages that are superior to those they replace (creating innovation ).

Continually try to move on to another temporary competitive advantage before competitors can respond to the first one.

Standard-Cycle Markets

Markets where firm’s competitive advantages are moderately shielded from imitation and where imitation is moderately costly.

Competitive advantages partially sustained as quality is continuously upgraded.

Seek to serve many customers and gain a large market share.

Gain brand loyalty through brand names.Careful operational control / manage a consistent

experience for the customer.

The End