Strategic Management

Chapter 6
 Every organization needs to have a “big
picture” about where it is going and how it will
get there.
 Strategy
 Strategic Management
 Strategic Planning
Strategic Positioning
(Michael Porter)
 Attemptsto achieve sustainable competitive
advantage by preserving what is distinctive
about a company.
Strategy is the creation of a
unique and valuable position
 Few needs, many customers
 Broad needs, few customers

 Broad needs, many customers

Three key principles underlie
strategic positioning:
 Strategy is the creation of a unique and
valuable position.
 Strategy require payoffs in competing

 Strategy involves creating a “fit” among

activities.

 Company’s activities must interact with and reinforce

one another
Five steps in the strategic
management process
Competitive Intelligence
 Gaining information about one’s competitors’
activities so that you can anticipate their
moves and react appropriately.
Two kinds of strategic
planning tools and techniques
 SWOT

 Forecasting
SWOT Analysis
 Environmental scanning
 Careful monitoring of an organization’s
internal and external environments to detect
early signs of opportunities and threats that
may influence the firm’s plans.
SWOT Analysis = Situational
Analysis
A search for
 Strengths
 Weaknesses
 Opportunities
 Threats
Analysis of Internal Strengths
and Weaknesses
 Organizational Strengths – the skills and
capabilities that give the organization special
competencies and competitive advantages in
executing strategies in pursuit of its mission.
 Organizational Weaknesses – the
drawbacks that hinder an organization in
executing strategies in pursuit of its mission.
Analysis of External
Opportunities and Threats
 Organizational Opportunities –
environmental factors that the organization
may exploit for competitive advantage.
 Organizational Threats – environmental
factors that hinder an organization’s
achieving a competitive advantage.
Strategy
A large-scale action plan that sets the
direction for an organization.

 Example: “Find out what the customer want, then

provide it to them as cheaply and quickly as possible.”
Strategy of Wal-Mart
Organizational Strengths
 The skills and capabilities that give the
organization special competencies and
competitive advantages in executing
strategies in pursuit of its vision.
 Organizational Weaknesses – the
drawbacks that hinder an organization in
executing strategies in pursuit of its vision.
Organizational Opportunities
 Environmental factors that the organization
may exploit for competitive advantage.
 Organizational Threats – environmental
factors that hinder an organization’s
achieving a competitive advantage.
Benchmarking
A process by which a company compares its
performance with that of high-performing
organizations.
Porter’s Five Competitive
Forces
 Threats of new entrants
 Bargaining power of suppliers

 Bargaining power of buyers

 Threats of substitute products or services

 Rivalry among competitors

Porter’s Four Competitive
Strategies
 Cost-leadership Strategy – keeping
costs, and hence prices, or a product or
service below those of competitors and to
target a wide market.
 Differentiation Strategy – to offer
products or services that are of unique and
superior value compared to those of
competitors but to target a wide market.
 Cost-focus Strategy – to keep the
costs, and hence prices, of a product or
service below those of competitors and to
target a narrow market.
 Focused-Differentiation Strategy –
to offer products or services that are of
unique and superior value compared to those
of competitors and to target a narrow market.
Grand Strategy
 Explains
how the organization’s mission is to
be accomplished.
 Three common grand strategies are:
 Growth
 Stability
 Defensive
Growth Strategy
A grand strategy that involves expansion
 Revenue
 Employees
 Number of
customers/clients
Stability Strategy
A grand strategy that involves little or no
significant change.
Defensive Strategy
A grand strategy that involves reduction in
the organization’s efforts.
Single-Product Strategy
A company makes and sells only one product
within its market.
 The benefit – FOCUS

 The risk - VULNERABILITY

The Diversification Strategy
 Diversification
– operating several
businesses in order to spread the risk.
Single-Product Strategy
A company makes and sells only one product
within its market.
 Flower shop,
security systems

 The benefit: FOCUS

 The risk: VULNERABILITY
Diversification Strategy
 Operating several businesses in order to spread the
risk.

Unrelated Diversification – operating several businesses

under one ownership that are not related to one another.
(G.E. – started w/ lighting and then went to plastics,
financial services, broadcasting.

Related Diversification – an organization under one ownership

operates separate businesses that are related to one
another.
Synergy
 Theeconomic value of separate, related
businesses under one ownership and
management is greater together than the
businesses are worth separately.
The BCG Matrix
A means of evaluating strategic business
units on the basis of:
 Their business growth rates
 Their share of the market
Execution
 Not simply tactics
 It is a central part of any company’s strategy

 It consists of using questioning, analysis, and

follow-through in order to mesh strategy with
reality, align people with goals, and achieve
results promised.
Maintaining Strategic Control
 Engage people
 Keep it simple

 Stay focused

 Keep moving
Three Core Processes of
Business
 People

 Strategy

 Operations