MGMT Chapter 9 Summary Strategy and Strategic Management

Study Question Study Question One Two Strategic Foundations of Management Strategic Analysis Competitive Analysis of advantage. mission, values, Strategy and objectives. strategic intent. SWOT analysis of Levels of organisation strategy. and The strategic environment. management Analysis of process. rivalry and industry attractivenes s. Study Question Three Corporate-Level Strategy Formulation Grand or master strategies. Growth and diversification strategies. Restructuring strategies. Global strategies. Cooperation strategies. E-business strategies. Strategic portfolio planning. Study Question Four Business-Level Strategy Formulation Competitive strategies. Cost leadership strategies. Differentiation strategy. Focus strategy. Strategic incrementalis m. Study Question Five Strategy Implementation Management practices and systems. Corporate governance. Strategic control. Strategic leadership.

Strategic Management Competitive Advantage Competitive advantage is the ability to do something so well that one outperforms competitors. Typical sources of competitive advantage include: Cost and quality where strategy drives an emphasis on operating efficiency and product or service quality. Knowledge and speed where strategy drives an emphasis on innovation and speed of delivery to market for new ideas. Barriers to entry where strategy drives an emphasis on creating a market stronghold that is protected from entry by others. Financial resources where strategy drives an emphasis on investments or loss absorption that competitors cant match. Organisations pursue competitive advantage in different ways. In order to reduce the likelihood of another business copying yours, it is important to not just have competitive advantage, but sustainable competitive advantage, the ability to outperform rivals in ways that are difficult or costly to imitate. Strategy and Strategic Intent If sustainable competitive advantage is the goal, strategy is the means to its achievement.

A strategy is a comprehensive action plan that identifies the long-term direction for an organisation and guides resource utilisation to achieve sustainable competitive advantage. The long-term aspect of strategy is becoming even shorter in a world of globalisation and changing technologies.

Levels of Strategies Figure 9.1 Three levels of strategy in organisations corporate, business, and functional strategies.

CORPORATE-LEVEL STRATEGY In what industries and markets should we compete? A corporate strategy sets the long-term direction for the total enterprise. Typical strategic decisions at the corporate level relate to things like acquisitions, expansions, and cutbacks. BUSINESS-LEVEL STRATEGY How are we going to compete for customers in this industry and market? A business strategy identifies how a division or strategic business unit will compete in its product or service domain. FUNCTIONAL STRATEGY How can we best utilise resources within a function to implement our business strategy? Functional strategy guides the use of organisational resources to implement business strategy. Typically involves the choice of management practices within each function that improve operating efficiency, product or service quality, customer service, or innovations. The Strategic Management Process Figure 9.2 Major elements in the strategic management process.

Developing a strategy involves: Finding out what customers want. Providing it for them at the best price and service. Making sure competitors cant copy what you are doing well. Strategic management is the process of formulating and implementing strategies. The strategic management process begins with a strategic analysis to assess the organisation, its environment, its competitive positioning, and its current strategies. Strategy formulation is the process of crafting strategies to guide the allocation of resources. The final stage is strategy implementation, using resources to put strategies into action and then evaluating results.

Essentials of Strategic Management Questions Peter Drucker often asked when consulting his clients about strategic management: What is your business mission? Who are your customers? What do your customers value? What have been your results? What is your plan? Analysis of Mission, Values, and Objectives The strategic management decision begins with a review of clarification of mission, values and objectives. This sets the stage for assessing the organisations resources and capabilities, as well as competitive opportunities and threats in its external environment. MISSION AND STAKEHOLDERS A statement of mission expresses the organisations reason for existence in society. What are we moving to? What is our dream? What kind of difference do we want to make in the world? What do we want to be known for? A clear sense of mission helps managers keep organisations on track and use resources with strategic intent. Figure 9.3 External stakeholders as strategic constituencies in an organisations mission statement.

An organisation needs to take into consideration their stakeholders, the individuals and groups directly affected by the organisation and its strategic accomplishments. A strategic constituencies analysis assesses interests of stakeholders and how well the organisation is responding to them.

CORE VALUES Core values are broad beliefs about what is or it not appropriate behaviour. Organisational culture is the predominant value system for the organisation as a whole. Core values and the organisational culture should be assessed to determine how well they align with and support the organisations mission. OBJECTIVES Operating objectives are specific results that organisations try to accomplish. Typical operating objectives include: Profitability operating with a net profit. Financial health acquiring capital; earning positive returns. Cost efficiency using resources well to operate at low cost. Customer service meeting customer needs and maintaining loyalty. Product quality producing high-quality goods or services. Market share gaining a specific share of possible customers. Human talent recruiting and maintaining a high-quality workforce. Innovation developing new products and processes. Social responsibility making a positive contribution to society. SWOT Analysis of Organisation and Environment A SWOT analysis examines the organisational strengths, weaknesses, opportunities and threats. Figure 9.4 SWOT analysis.

Analysis of Rivalry and Industry Attractiveness There are three main environments a business can operate in: Monopoly where the business is the only player in the industry; that is, to have no rivals to compete with for resources or customers. This environment is ideal but rare except in highly regulated conditions. Oligopoly where the business faces just a few competitors, e.g. the airline industry. Hyper-competition facing multiple competitors, e.g. the fast-food industry. PORTERS FIVE FORCES MODEL Porter developed a model as a framework for competitive industry analysis. Figure 9.5 Porters model of five strategic forces affecting industry competition.

INDUSTRY ATTRACTIVENESS An unattractive industry is one in which rivalry among competitors is intense. An attractive industry, by contrast, has less competition, few threats from new entrants or substitutes, and low bargaining power among suppliers and buyers. Corporate-Level Strategy Formulation Grand or Master Strategies GROWTH STRATEGY A growth strategy involves expansion of the organisations current operations. Considers things like total sales, market shares, and operating locations. Include terms like acquisition, merger, and global expansion. STABILITY STRATEGY A stability strategy maintains current operations without substantial changes. RENEWEL STRATEGY Renewal strategies are also called retrenchment strategies or defensive strategies.

A renewal strategy tries to solve problems and overcome weaknesses that are hurting performance. Include terms like restructuring, divestiture, and bankruptcy. The most extreme form of retrenchment is liquidation, where business ceases and assets are sold to pay creditors.

COMBINATION STRATEGY Combination strategies pursue two or more of the other strategies at the same time. Combination strategies are common in complex and diverse firms, which may be retrenching in one major business line while seeking growth in another, and operating with stability still in another. e.g., Delta Airlines planned to reduce domestic capacity at the same time as increasing international capacity. Growth and Diversification Strategies Growth is one of the most common and popular of the grand strategies as it is viewed as necessary for long-run survival. One approach to growth is through concentration, where expansion is within the same business area. e.g. McDonalds expands into other cities and countries but focuses on the same industry. Growth through diversification is by acquisition of or investment in new and different business areas. Growth through vertical integration is by acquiring suppliers or distributors. Restructuring Strategies A restructuring strategy tries to correct weaknesses by changing the mix or reducing the scale of operations. The idea is to reverse or change an approach that isnt working, and reorganise to compete better in the future. Restructuring by turn-around focuses on fixing specific performance problems. Restructuring by downsizing decreases the size of operations, often by reducing the workforce. Restructuring by diversification also reduces size, this time by selling off parts of the organisation to refocus on core competencies, cut costs, and improve operating efficiency. Global Strategies Many businesses interact with the global economy these days. A globalisation strategy tends to reflect an ethnocentric view where everyone everywhere wants the same thing, and will adopt standardised products and advertising for use worldwide. Firms using a multi-domestic strategy try to customise products and their advertising as much as possible to fit the local needs of different countries or regions. A transactional strategy seeks efficiencies of global operations with attention to local markets. Cooperate Strategies In a strategic alliance, organisations join together in partnership to pursue an area of mutual interest. Methods to cooperate strategically are: Outsourcing alliances contracting to purchase important services from another organisation. Supplier alliances where preferred supplier relationships guarantee a smooth and timely flow of quality supplies among alliance partners. This occurs in the supply chain.

Distribution alliances where firms join together to accomplish sales and distribution of products or services. Co-opetition is the strategy of working with rivals on projects of mutual benefit.

E-Business Strategies An e-business strategy strategically uses the Internet to gain competitive advantage. A B2B business strategy uses IT and Web portals to link organisations vertically with members of their supply chains. A B2C business strategy uses IT and Web portals to link businesses with customers. Strategic Portfolio Planning Portfolio planning seeks the best mix of investments among alternative business opportunities. Figure 9.6 The BCG matrix approach for portfolio planning in corporate-level strategy formulation.

The BCG (Boston Consulting Group) matrix analyses business opportunities according to market growth rate and market share. Stars are high-market-share businesses in high-growth markets. They produce large profits through substantial penetration of expanding markets. The preferred strategy for stars is growth, and further resource investments in them are recommended. Question marks are low-market-share businesses in high-growth markets. They do not produce much profit, but they compete in rapidly growing markets. The preferred strategy is growth, but the risk exists that further investments will not result in improved market share. Only the most promising question markets should be targeted for growth; others are candidates for retrenchment by restructuring or divestiture. Cash cows are high-market-share businesses in low-growth markets. They produce large profits and a strong cash flow. Because the markets offer little growth opportunity, the preferred strategy is stability or modest growth. Cows should be milked to generate cash that can be used to support investments in stars and question marks. Dogs are low-market-share businesses in low-growth markets. They do not produce much profit, and they show little potential for future improvement. The preferred strategy for dogs is retrenchment by divestiture.

Business-Level Strategy Formulation Competitive Strategies