Chapter 6: Strategic

Management:
how exceptional managers realize a
grand design
Business plan: a document that outlines a
proposed firms goals, the strategy for achieving
them, and the standards for measuring success

1)
2)
3)
4)

Define strategy and strategic management

Explain why strategic planning is important
Describe 3 key principles that underlie strategic positioning
Discuss strategic management in large vs small firms

Strategy
-

A large scale action plan that sets the direction for an

organization
Find out what customers want, then provide it to them as
cheaply and quickly as possible Walmart
Needs to be revisited from time to time, every year or two

Strategic management
-

A process that involves managers from all parts of the

organization in the formulation and the implementation of
strategies and strategic goals

Strategic planning
-

Determines not only the organizations long term goals for the
next 1-5 years regarding growth and profits
But also how to achieve them

3 reasons:
1) Provide direction and momentum
2) Encourage new ideas
3) Develop a sustainable competitive advantage

Why strategic management and

strategic planning are important
Provide
direction and
momentum

Encouraging
new ideas

Help people focus

on the most critical

problems, choices
and opportunities
Strategy can
determine the very
structure of an
organization
Unless a strategic

plan is in place,
managers may just
focus on whatever is
in front of them,
until they get an
unpleasant jolt when
a competitor moves
out in front because
it has been able to
take a long-range
view of things

Strategic
planning can
help encourage
ideas by
stressing the
importance of
innovation in
achieving longrange success
Strategic
innovation, is
the ability to
reinvent the
basis of
competition
within existing
industries

Developing a
sustainable
competitive
advantage

The ability of an
organization to
produce goods or
services more
effectively than its
competitors,
thereby
outperforming them
Stay ahead in 4
areas:
1) In being
responsive to
customers
2) In innovating
3) In quality
4) In
effectiveness

Bad planning usually

results from faulty
assumptions about
the future, poor
assessment of an
organisations
capabilities,
ineffective group
dynamics, and
information overload

What is an effective strategy?

3 principles
-

Strategic positioning :
o attempts to achieve sustainable competitive
advantage by preserving what is distinctive about the
company

3 principles underline strategic positioning:

1)
-

Strategy is the creation of a unique and valuable position

Serve a few needs of many customers
Serve the broad needs of a few customers
Serve the broad needs of many customers

2) Strategy requires trade-offs in competing

- A company has to choose not only which strategy to follow, but
also, what not to follow
3) Strategy involves creating a fit among activities
- Fit has to do with the ways a companys activities interact and
reinforce one another.

Does strategic management work for small as

well as large firms?
-

Companies with fewer than 100 employees could benefit as well

Although the improvement in financial performance was small
the small improvement in performance is not worth the effort
involved in strategic planning unless a firm is in a very
competitive industry where small differences in performance
may affect the firms survival potential

5 steps in the strategic management process

1.Establish the mission and the vision

-

Mission: reason for being/purpose

Vision: Long term goal, describing what it wants to become
vision statement. Should be positive and inspiring

2.Establish the grand strategy

-

Grand strategy, which, after an assessment of current

organizational performance, then explains how the organisations
mission is to be accomplished
1) First determine where it is presently headed
2) Determine where it should be headed

3 COMMON GRAND STRATEGIES: Growth Stability Defensive

Growth

Stability
Defensive

Grand strategy that involves expansion

Sales revenues, market share, number of employees,
number of customers or nonprofit clients served
Involves little or no significant change
Also known as retrenchment strategy
Reduction in organisations efforts

3.Formulate strategic plans

The grand strategy must be translated into more specific

strategic plans
o Determine the organisations long-term goals should be
for the next 1-5 years
o Like all goals, they should be SMART: Specific,
Measurable, Attainable, Results-oriented, and specifying
Target dates

Strategy Formulation: process of choosing among different

strategies and altering them to best fit the organisations
needs.
o Time consuming process
o Use porters competitive forces and strategies

4.Carry out the strategic plans

Strategy implementation

Need to overcome resistance from people who feel that the

plans threaten their livelihood or influence
Especially so when the plans must be implemented rapidly

5.Strategic control

Consists of monitoring the execution of strategy and making

adjustments, if necessary
Control systems: Constitutes a feedback loop in which a
problem requires that managers return to an earlier step to
rethink policies
Need to do the following:
o Engage people
o Keep planning simple
o Stay focused, stay concentrated on the important things
o Keep moving: move towards your vision of the future

Establishing the grand strategy

3 Kinds of Strategic-planning tools and
Techniques
1) Competitive intelligence
2) SWOT
3) Forecasting

Competitiv
e
intelligenc
e

SWOT

Gaining information about ones competitors

activities so that you can anticipate their
moves and react appropriately
o Public sources(prints and advertising)
o Investor relations (reports filed with the
Securities and Exchange commission and
through corporate annual reports)
o Informal sources (Trade shows,
International Consumer Electronics
Show)
Environmental scanning (careful monitoring of
an organisations internal and external
environments to detect early signs of
opportunities and threats that may influence
the firms plans )
Situational analysis, Strengths Weakenesses

Forecastin
g

Opportunities Threats
Trend analysis and contingency planning

Strengths

Weaknesses

-Organisational strengths: The

skills and capabilities that give the
organization special competencies
and competitive advantages in
executing strategies in pursuit of
its mission
(INTERNAL)

- Organisational weaknesses:
Drawbacks that hinder an
organization in executing
strategies in pursuit of its mission

Opportunities

Threats

- Environmental factors that the

organization may exploit for
competitive advantage
(EXTERNAL)

(INTERNAL)
-

Environmental factors that

hinder an organisations
achieving a competitive
advantage
(EXTERNAL)

Forecast: predicting the future

-

Forecast Definition A vision or projection of the future

Trend analysis: A hypothetical extension of a past series of events into

the future
-Basic assumption: The picture of the present can be projected into the
future. However, it is subjected to surprises
-Time-series forecast: Predicts future data based on patterns of
historical data.
-Used to predict long-term trends, cyclic patterns, and seasonal
variations

Contingency planning: Predicting alternative

futures
-Also known as scenario planning and scenario analysis: the creation of
alternative hypothetical but equally likely future conditions

- May be created with spreadsheet software such as Microsoft Excel to

present alternative combinations of different factors- different
economic pictures, different strategies by competitors, different
budgets etc

Porters 5 competitive forces

-Business level strategies originate in 5 primary competitive forces in
the firms environment

Threats of new entrants

Bargaining power of
suppliers
Bargaining power of
buyers

Threats of substitute
products or services

Rivalry among
competitors

New competitors can affect an

industry overnight, taking away
customers from existing
organizations
Some companies are readily
able to switch suppliers to get
component or services, but
others are not
Customers who buy a lot of
products or services from an
organization have more
bargaining power than those
who dont
Customers who use the internet
to shop around also can
negotiate a better price
Because of the internet, an
organization is in a better
position to switch to other
products or services when
circumstances threaten their
usual channels
Internet has intensified rivalries
among all kinds of organizations

Porters 4 competitive
strategies

Cost leadership

Differentiation

Cost focus

Focused
differentiation

To keep the costs, and hence

prices, of a product or service
below those of competitors and
to target a wide market
Pressure on R&D managers to
develop products or services
that can be created cheaply
Product managers to reduce
costs
Marketing: to reach a wide
variety of customers as
inexpensively as possible
Offer products or services that
are unique and superior value
compared with those of
competitors but to target a wide
market
Creating brands to differentiate
themselves from competitors
To keep the costs, and hence
prices, of a product or service
below those of competitors and
to target a narrow market
Eg, low-end products sold in
discount stores
To offer products or services
that are of unique and superior
value compared to those of
competitors
To target a narrow market

Single-product strategy vs
diversification strategy
The single-product strategy: focused but
vulnerable
-

A company makes and sells only 1 product within its market

Eg, small retail businesses in a small town

Benefits

Detrimen
ts

Focus marketing and manufacturing efforts on just

that product
Become savvy about repairing defects, upgrading
production lines, scouting the competition, doing
highly focused advertising and sales
Vulnerability. If you do not focus on all aspects of
that business, natural disasters or rivals sudden
competitive action may cause the business to go
under.

Diversification strategy: operating different

businesses to spread the risk
-

2 kinds: related and unrelated

Related
diversificati
on

Unrelated

An organization under one ownership operates

separate businesses that are related to one
another
Advantages:
1) Reduced risk, due to more than 1 product
2) Management efficiencies: administration spread
over several businesses. EG: obligatory
administrative costs- accounting, legal, taxes and
so on
3) Synergy- the sum is greater than the parts: Eg,
when a company is special strengths in 1
business, it can apply those to its other related
businesses
Synergy: the economic value of separate, related
businesses under one ownership and management
is greater together than the businesses are worth
separately
- Operating several businesses under one

diversificati
on

ownership that are not related to one another

BCG matrix
-Evaluate strategic business units on the basis of
1) Their business growth rates
2) Their share of the market
Stars:
Cashcows:
Slow
Question marks:
Dogs:

High growth, high market share

growth, high market share
High growth, low market share
Low growth, low market share

How does effective execution help managers

during the strategic management process?
Strategic implementation
-

Larry Bossidy and Ram Charan:

o Execution is not simply tactics, it is a central part of any
companys strategy.

o It consists of using questioning, analysis and follow-through

to
mesh strategy with reality,
align people with goals, and
achieve the results promised

3 Core Processes of Business:

A companys overall ability to execute is a function of effectively
executing according to 3 processes: People, Strategy, Operations.

People

Strategy

Operations

You need to consider who

will benefit you in future
An effective leader
evaluates talent by linking
people to particular
strategic milestones,
developing future leaders,
dealing with nonperformers, and
transforming the mission
and operations of the
human resource department
Organization will take a
realistic and critical view of
its capabilities and
competencies
Need to consider what path
will be followed
Defines where an
organization wants to go,
and the people process
defines whos going to get it
done

Foundation of execution
1) Know your people and your business, engage intensely with
your employees

2)
3)
4)
5)
6)
7)

Insist on realism Dont let others avoid reality

Set clear priorities focus on a few rather than many goals
Follow through Establish accountability and check on results
Reward the doers Show top performers that they matter
Expand peoples capabilities develop the talent
Know yourself Do the hard work of understanding who you are
o Leaders must develop emotional fortitude based on honest
self-assessments.
o 4 core qualities are authenticity, self-awareness, selfmastery and humility