Strategic Management

Learning Outcomes

1. Strategic Management

• Define strategic management, strategy, and business model.
• Give three reasons why strategic management is important.

2. The Strategic Management Process

• Describe the six steps in the strategic management process.
• Define SWOT (strengths, weaknesses, opportunities, and threats).

3. Corporate Strategies

• Describe the three major types of corporate strategies.
• Explain the BCG matrix and how it’s used to manage corporate strategies.

4. Competitive Strategies

• Describe the role of competitive advantage.
• Explain Porter’s five forces model.
• Describe Porter’s three competitive strategies.

5. Current Strategic Management Issue

• Discuss what strategies organizations might use to become more customer-oriented and to be more innovative.

Strategic Management

Effective strategies result in high organizational performance

• What managers do to develop an organization’s Strategie

Strategies

• The decisions and actions that determine the long-run/sustained performance of an organization.

Business Model

• Is a strategic design for how a company intends to profit from its strategies, work processes, and work activities.
• Focuses on two things:
  • Whether customers will value what the company is providing.
  • Whether the company can make any money doing that.

Why Is Strategic Management Important?

1. It results in higher organizational performance.
2. It requires that managers examine and adapt to business environment changes.
3. It coordinates diverse organizational units, helping them focus on organizational goals.

The Strategic Management Process

Step 1: Identifying the organization’s current mission, goals, and strategies

• Mission: a statement of the purpose of an organization
• • The scope of its products and services
• Goals: the foundation for further planning
  • Measurable performance targets

Step 2: Doing an external analysis

• The environmental scanning of specific and general environments
  • Focuses on identifying opportunities and threats focuses on identifying opportunities and threats

Step 3: Doing an internal analysis

• Assessing organizational resources, capabilities, and activities:
  • Strengths create value for the customer and strengthen the competitive position of the firm.
  • Weaknesses can place the firm at a competitive disadvantage.
• Analyzing financial and physical assets is fairly easy, but assessing intangible assets (employee’s skills, culture, corporate reputation, and so forth) isn’t as easy.

Steps 2 and 3 combined are called a SWOT analysis)(Strengths, Weaknesses, Opportunities, and Threats)

Step 4: Formulating strategies

• Develop and evaluate strategic alternatives
• Select appropriate strategies for all levels in the organization that provide a relative advantage over competitor
• Match organizational strengths to environmental opportunities
• Correct weaknesses and guard against threats

Step 5: Implementing strategies

• Implementation: effectively fitting organizational structure and activities to the environment.
• The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements.

Step 6: Evaluating results

• How effective have strategies been?
• What adjustments, if any, are necessary?

Types of Organizational Strategies:

1. Corporate Strategy
2. Competitive Strategy
3. Functional Strategy

Corporate Strategies: Top management’s overall plan for the entire organization and its strategic business units

Types of Corporate Strategies

1. Growth: expansion into new products and markets
2. Stability: maintenance of the status quo:
3. Renewal: an examination of organizational weaknesses that are leading to performance declines

Corporate Strategies: Growth Strategy

Seeking to increase the organization’s business by expansion into new products and markets.

Types of Growth Strategies

• Concentration: Focusing on a primary line of business and increasing the number of products offered or markets served (Apple, Google)
• Vertical integration:

• • • Backward vertical integration: attempting to gain control of inputs (become a self-supplier).
    • Forward vertical integration: attempting to gain control of output through control of the distribution channel or provide customer service activities (eliminating intermediaries).
    • Horizontal integration: Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals (M&A).
• Diversification:
• • • • Related Diversification: Expanding by combining with firms in different, but related industries that are “strategic fits.”
      • Unrelated Diversification: Growing by combining with firms in unrelated industries where higher financial returns are possible.

Corporate Strategies: Stability Strategy

A strategy that seeks to maintain the status quo to deal with;

• The uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or
• if the owners of the firm elect not to grow for personal

 Corporate Strategies: Renewal Strategies

Developing strategies to counter organization weaknesses that are leading to performance declines.

• Retrenchment: focusing on eliminating non-critical weaknesses and restoring strengths to overcome current performance problems.
• Turnaround: addressing critical long-term performance problems through the use of strong cost elimination measures and large-scale organizational restructuring

Corporate Portfolio Analysis:

Managers manage the portfolio (or collection) of businesses using a corporate portfolio matrix such as the BCG Matrix.

BCG Matrix

• Developed by the Boston Consulting Group
• Considers market share and industry growth rate
• Classifies firms as:
  • Cash cows: low growth rate, high market share
  • Stars: high growth rate, high market share
  • Question marks: high growth rate, low market share
  • Dogs: low growth rate, low market share

 Competitive Strategies

• A strategy focused on how an organization will compete in each of its SBUs (strategic business units).

The Role of Competitive Advantage

• Competitive Advantage:
  • An organization’s distinctive competitive edge.
• Quality as a Competitive Advantage
  • Differentiates the firm from its competitors.
  • Can create a sustainable competitive advantage.
  • Represents the company’s focus on quality management to achieve continuous improvement and meet customers’ demand for quality.
• Sustainable Competitive Advantage
  • Continuing over time to effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry

Five Competitive Forces Model

1. Threat of New Entrants: The ease or difficulty with which new competitors can enter an industry.
2. Threat of Substitutes: The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitute products and services.
3. Bargaining Power of Buyers: The degree to which buyers have the market strength to hold sway over and influence competitors in an (e.g. real estate sector)
4. Bargaining Power of Suppliers: The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship.
5. Current Rivalry: Intensity among rivals increases when industry growth rates slow, demand falls, and product prices

Types of Competitive Strategies:

1. Cost Leadership Strategy: Seeking to attain the lowest total overall costs relative to other industry competitors.
2. Differentiation Strategy: Attempting to create a unique and distinctive product or service for which customers will pay a premium.or service for which customers will pay a premium.
3. Focus Strategy: Using a cost or differentiation advantage to exploit a particular market segment rather than a larger market.

Innovation Strategies

• Possible Events:
  • Radical breakthroughs in products.
  • Application of existing technology to new uses.
• Strategic Decisions about Innovation
  • Basic research
  • Product development
  • Process innovation
• First Mover: An organization that brings a product innovation to market or use new process innovations.

Exhibit 8–7 First-Mover Advantages–Disadvantages

Advantages:

1. Reputation for being innovative and industry leader
2. Cost and learning benefits
3. Control over scarce resources and keeping competitors from having access to them
4. Opportunity to begin building customer relationships and customer loyalty

Disadvantages

1. Uncertainty over the exact direction technology and the market will go
2. Risk of competitors imitating innovations
3. Financial and strategic risks
4. High development costs