- Define strategic management, strategy, and business model.
- Give three reasons why strategic management is important.
The Strategic Management Process
- Describe the six steps in the strategic management process.
- Define SWOT (strengths, weaknesses, opportunities, and threats).
- Describe the three major types of corporate strategies.
- Explain the BCG matrix and how it’s used to manage corporate strategies.
- Describe the role of competitive advantage.
- Explain Porter’s five forces model.
- Describe Porter’s three competitive strategies.
Current Strategic Management Issue
- Discuss what strategies organizations might use to become more customer-oriented and to be more innovative.
Effective strategies result in high organizational performance
- What managers do to develop an organization’s Strategie
- The decisions and actions that determine the long-run/sustained performance of an organization.
- 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?
- It results in higher organizational performance.
- It requires that managers examine and adapt to business environment changes.
- 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:
- Corporate Strategy
- Competitive Strategy
- Functional Strategy
Corporate Strategies: Top management’s overall plan for the entire organization and its strategic business units
Types of Corporate Strategies
- Growth: expansion into new products and markets
- Stability: maintenance of the status quo:
- 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).
- 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.
- 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
- 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
- Threat of New Entrants: The ease or difficulty with which new competitors can enter an industry.
- Threat of Substitutes: The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitute products and services.
- 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)
- Bargaining Power of Suppliers: The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship.
- Current Rivalry: Intensity among rivals increases when industry growth rates slow, demand falls, and product prices
Types of Competitive Strategies:
- Cost Leadership Strategy: Seeking to attain the lowest total overall costs relative to other industry competitors.
- 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.
- Focus Strategy: Using a cost or differentiation advantage to exploit a particular market segment rather than a larger market.
- 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
- Reputation for being innovative and industry leader
- Cost and learning benefits
- Control over scarce resources and keeping competitors from having access to them
- Opportunity to begin building customer relationships and customer loyalty
- Uncertainty over the exact direction technology and the market will go
- Risk of competitors imitating innovations
- Financial and strategic risks
- High development costs