STRATEGIC MANAGEMENT

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 Strategic Management
Strategy: The unifying theme that gives coherence and
direction to the decisions of an organization
Strategic Management: Consisting of the analysis,
decisions, and actions an organization undertakes in
order to create and sustain competitive advantages.

Strategic Management basically seeks to answer the question: How

and why do some firms outperform others?

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 Other Definitions of Strategy
Oxford Dictionary: The art of war, especially the planning of
movements of troops and ships etc., into favorable positions; plan of
action or policy in business or politics etc.
Alfred D. Chandler Jr.: The determination of the long run goals and
objectives of an enterprise, and the adoption of courses of action
and the allocation of resources necessary for carrying out these
goals.
Kenneth Andrews: Strategy is the pattern of objectives, purposes or
goals and the major policies and plans for achieving these goals,
stated in such a way as to define what business the company is in or
is to be in and the kind of company it is or is to be.

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 The Origins of Strategy
Know the other and know yourself: Triumph without peril.
Know Nature and know the Situation: Triumph completely.
- Sun Tzu (~360 B.C.)
• Business strategy is a relatively young field of study – but its
roots go back to early military strategy.

• Strategy comes from the Latin word strategia, which means

art of general.

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 The Evolution of Strategic Management
1950s 1960s-early 70s Mid-70s-mid-80s Late 80s –1990s 2000s

Budgetary Corporate Positioning Competitive Strategic

DOMINANT
THEME planning & planning advantage innovation
control

MAIN
Financial Planning Selecting Focusing on Reconciling
ISSUES control growth &- sectors/markets. sources of size with
diversification Positioning for competitive flexibility &
leadership advantage agility

Capital Forecasting. Industry analysis Resources & Cooperative

KEY
CONCEPTS budgeting. Corporate Segmentation capabilities. strategy.
& Financial planning. Experience curve Shareholder Complexity.
TOOLS planning Synergy Portfolio analysis value. Owning
E-commerce. standards.
— Knowledge Management—

Coordination Corporate Diversification. Restructuring. Alliances &

MANAGE- & control by planning depts. Global strategies. Reengineering. networks
MENT
Budgeting created. Rise of Matrix structures Refocusing. Self -organiz
IMPLIC-
systems corporate Outsourcing. ation & virtual
ATIONS
planning organization

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 STRATEGY FORMULATION TECHNIQUES

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 Selecting Strategies:
Managerial Techniques
Corporate performance objectives (Profits, Sales…)
Portfolio analysis (complex analysis of corporate units)
 BCG Matrix
 GE Matrix
 Ansoff Matrix
SWOT Analysis
PLC (Product Life Cycle)
Gap Analysis (comparing goals vs. actual results)
80/20 rule: focus on 20% of products / customers that provide
about 80% of sales volume and profits

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 Portfolio Analysis
SBU: Strategic Business Unit, any part of the
company that can be managed separately
SBUs are often called divisions or departments
In Marketing a product, product line, or a brand
may be an SBU

Portfolio Management: management of SBUs

according to organizational objectives and the SBU’s
contribution to the company’s performance
Ex: investing in selected SBUs vs. eliminating SBUs

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 The G.E. Matrix:
Indexes of SBU Performance •Market share
•Customer knowledge
•Customer satisfaction
•Cost efficiency
•Market size •Product quality
•Market growth •Financial strength
•Comp. pressure
•Price level Index of Business Strength
•Regulation
Strong Average Weak

High Green Green Yellow?

Market Medium Green Yellow? Red
Attractiveness
Index Low Yellow? Red Red

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 GE Matrix
• Green SBU – go ahead and invest in the long-run
• Yellow SBU – be cautious, SBU “maintenance”
• Red SBU – stop, drive SBU out of market

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 SWOT Analysis
SWOT is a universal analytical tool developed by the military:
Matching corporate skills and resources with forecasted market
opportunities
1. Strengths: Internal Positives (available skills & competencies)
2. Weaknesses: Internal Negatives (poor use or lack of skills)
3. Opportunities: External Positives (evaluating areas where
advantages may be gained, ex: add a new product, target new
segments)
4. Threats: External Negatives (evaluating forces that may prevent the
company from accomplishing its objectives, ex: competition,
regulation, customer preferences)

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 What can we do today and in response to the
external environment?

Positive Negative

Internal Strengths Weaknesses

External Opportunities Threats

1-12 The Concept of Corporate Strategy, K.R. Andrews

 Examples
Strengths and Weaknesses
Potential Strengths
• A distinctive competence
• Good competitive skills
• Well thought of by others
• Better advertising campaign
• Product innovation skills
• Proven management
• Ahead on experience curve
• Better production facilities
• Superior technological skills
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Potential Weaknesses
• No clear strategic direction
• Obsolete facilities
• Lack of managerial talent
• Falling behind in R&D
• Too narrow a product line
• Weak market image
• Weaker distribution network
• Higher overall unit costs
• Poor marketing skills
 Examples
Opportunities and Threats
Potential Opportunities
• Additional customer groups
• Entry into new market
• Diversity into related
products or services
• Falling trade barriers
• Faster market growth
• Complacency among rivals
• Expansion of product line or
services to meet customer
needs
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Potential Threats
• Entry of low-cost competitors
• Rising sales of substitute
• Slower market growth
• Adverse shift in exchange rates
• Policies of foreign government
• Costly regulatory requirements
• Vulnerability to recession cycle
• Growing bargaining powers of
customers or suppliers
• Changing buyer needs and
tastes
 Ansoff’s Matrix
Present New
Product Product

Present Market Product

Market Penetration Development

New Market
Diversification
Market Development

*.

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 Ansoff-Matrix or
Product-Market Expansion Grid
Dimensions Existing Products New Products

Existing 1.1.Do nothing

Markets 2. Withdraw Product Development
3. Consolidate (risky + expensive)
4. Penetrate

New Market
Markets Development Diversification
(when product is (assuming new
very competitive) activities)

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 Ansoff-Matrix
Improving the performance of existing businesses
• “Do Nothing” if the environment is static (short-run only)
• “Withdraw” when there is an irreversible decline in demand or
opportunity costs of staying in a market are too high
• “Consolidation” means concentration of resources and focusing on
existing competitive advantages
• “Penetration” means gaining market share

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 BCG’s Matrix

High Low
Share Share

High
Growth Star
Question
Mark
?
Bark!!
Slow Cash
Dog
Growth Cow

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 BCG: Boston Consulting Group
BCG’s Growth-Share Matrix
High Market QUESTION MARKS: STARS:
Growth Rate Earnings are low & Earnings are high,
unstable, but growing stable, and growing.
Strategy: ? Strategy: Invest or
extend product lines

Low Market DOGS: CASH COWS:

Growth Rate Earnings are low & Earnings are high &
unstable. stable
Strategy: Divest? Strategy: “Milk” =
harvest revenues

Dimensions Low relative market High relative market

share share

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 BCG Matrix
• Star: Sony Playstation 2 (trendy products)
• Cash Cow: Ivory soap for Procter & Gamble (old, stable brands)
• ???: MP3 players (relatively new products)
• Dogs: Playboy – the magazine (lossmakers to keep or )

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 Forms of Strategy

Realized
Unrealized Strategy
Strategy

Emergent .
Strategy
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 Porter’s Generic Strategies
Competitive Advantage
Lower Cost Differentiation

Strategy 1 Strategy 2
Broad
Target Cost Differentiation
Leadership
Competitive
Scope Strategy 3A Strategy 3B

Narrow
Cost Focus Differentiation
Target Focus

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 Why is SM, as a field of study, necessary?
Why are all these theories/tools needed ?

• Provides a framework for thinking about the “business”

• Creates a fit between the organization and its external
environment.
• Provides a process of coping with change and organizational
renewal
• Fosters anticipation, innovation, and excellence
• Facilitates consistent decision-making
• Creates organizational focus
• Acts as a process of organizational leadership.
• Finally and most importantly: To help the organization to
succeed (outperform) against its competition!!
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 Formulating Directions Organizational Culture
- Develop Vision/Mission (1) Stakeholder Influence
-Set Objectives (2) Values / Ethics
Strategic Control (6)

Opportunities and Threats

Strategic Analyses (3) from Economic, Political,
Technological etc Sources
External Environment
Opportunities and Threats
Competitor/Stakeholder from Competition and
Key Stakeholders

Internal Organization Organizational Culture

Stakeholder Influence
Values / Ethics
Strategy Formulation (4)
-Formulate and Consider Context of Strategy
(type of organization, culture, values,
Alternatives life cycle competitive position)
-Make Strategy Choice
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 The Strategy Concept
Levels of Analysis
Corporate
• Where to Compete? Strategy

• How to Compete? Business

Strategy

• How to Contribute?
Functional
Strategy

Choice of Products
Choice of Markets
Choice of Competitors

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 Key Elements of a
Strategic Vision
• Delineates management’s aspirations for the
business –
• Charts a strategic path for the future
“Where are we going?”
• Steers energies of employees
in a common direction
• Molds organizational identity
• Is distinctive and specific to
a particular organization
• Avoids use of generic language
• Triggers strong emotions
• Is challenging, uncomfortable, nail biting
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 Strategic Vision vs. Mission
• A strategic vision concerns a
firm’s future business path -
“where we are going”
– Markets to be pursued
– Future technology-
product-customer focus
– Kind of company
management is
trying to create
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• The mission statement of
most companies focuses on
current business activities -
“who we are and what we
do”
– Current product and
service offerings
– Customer needs being
served
– Technological
and business
capabilities
 Examples of vision statements

A telecommunication services supplier:

“To become the most successful worldwide
telecommunications group”

A life assurance company:

“First Choice for Life”

A car manufacturer:
“To be the world’s most desired and
successful specialty car brand”
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 Characteristics of
a Mission Statement
• Defines current business activities, highlighting
boundaries of current business
– Present products and services
– Types of customers served
• Conveys
– Who we are,
– What we do, and
A–company’s
Why we mission is not to make a profit! Its true mission
are here
is its answer to “What will we do to make a profit?”
Making is profit is an objective or intended outcome!
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 Key Elements of
a Mission Statement
• Three factors to consider

– Customer needs –
What is being satisfied

– Customer groups –
Who is being satisfied

– Technologies/resources/business approaches used and

activities performed –
How customer needs are satisfied

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 BUSINESS DEFINITION BY ABELL
• To manage hospital
• To collect contributions and
manage social security fund
• To produce perfectly
engineered cars
• To provide secured
electricity supply with due
regard to the environment
• To fly airplanes
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• To provide healthcare
• To provide social security
benefits to insured persons
• To satisfy customers’ needs
for medium-sized cars
• To be the leader in the
energy market
• To fly people
 Examples of mission statements

Cadillac Motor Co.

“To engineer, produce and market the world’s
finest automobiles, known for uncompromised
levels of distinctiveness, comfort, convenience,
and refined performance.”

A pharmaceutical company:
“To extend and enhance human life.”

British Airways:
“To be the undisputed leader in world travel.”
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 Examples of mission statements
(cont.)

3M:
“To solve unsolved problems innovatively”
Wal-Mart:
“To give ordinary folks the chance to buy the same
things as rich people”
Walt Disney:
“To make people happy”
Marriott:
“To make people away from home feel that they
are among friends and are really wanted”
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 Examples of mission statements
(cont.)

Newport News Shipbuilding (1886):

“We shall build good ships here – at profit if we

can – at loss if we must – but always good ships

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 Linking the Vision
With Company Values
• A statement of values is often provided to guide
the company’s pursuit of its vision
• Values – Beliefs, business principles, and ways of
doing things that are incorporated into
– Company’s operations
– Behavior of workforce
• Values statements
– Contain between four and eight values
– Are ideally tightly connected to and reinforce
company’s vision, strategy, and operating practices
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 Overcoming Resistance to
a New Strategic Vision
• Mobilizing support for a new vision entails
– Reiterating basis for the new direction

– Addressing employee concerns head-on

– Calming fears

– Lifting spirits

– Providing updates and progress

reports as events unfold

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 Setting Objectives
Phase 2 of the Strategy-Making Process
• Purpose of setting objectives
– Converts vision into specific performance targets
– Creates yardsticks to track performance
– Pushes firm to be inventive, intentional, and
focused in its actions
• Setting challenging, achievable
objectives guards against
– Complacency
– Internal confusion
– Status quo performance
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 Characteristics of Objectives
• Represent commitment to achieve specific
performance targets
• Spell out how much of what kind
of performance by when
• Well-stated objectives are
– Quantifiable
– Measurable
– Contain a deadlineobjectives
Establishing for achievement
converts the
vision into concrete performance outcomes!
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 Types of Objectives Required
Financial Objectives Strategic Objectives
Outcomes focused Outcomes focused on
on improving financial improving long-term
performance competitive business
position

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 Examples of Financial Objectives
• Grow earnings per share 15% annually
• Boost annual return on investment (or EVA) from 15% to 20% within
three years
• Increase annual dividends per share
to stockholders by 5% each year
• Strive for stock price appreciation
equal to or above the S&P 500 average
• Maintain a positive cash flow every year
• Achieve and maintain a AA bond rating

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 Examples of Strategic Objectives
• Increase firm’s market share
• Overtake key rivals on quality or customer service or product
performance
• Attain lower overall costs than rivals
• Boost firm’s reputation with customers
• Attain stronger foothold in international markets
• Achieve technological superiority
• Become leader in new product introductions
• Capture attractive growth opportunities

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 Example: Financial and
Strategic Objectives
3M Corporation

 Annual growth in earnings per share of 10% or better, on

average;
 A return on stockholders’ equity of 20-25%;

 A return on capital employed of 27% or better; and

 Have at least 30% of sales come from products introduced in the

past four years.

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 Balanced Scorecard
Financial
Sales Growth
Return on Equity
Customer EVA, CFROI, etc.
Customer Satisfaction
New Customers/Month
Customer Profitability

Internal
Process
Defects
Administrative Expense
Ratio
New Product Launches

Learning and
Growth
Employee Retention
Training Levels
Customer Database Accuracy

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 Short-Term vs.
Long-Term Objectives
• Short-term objectives
– Targets to be achieved soon
– Milestones or stair steps for reaching long-range
performance
• Long-term objectives
– Targets to be achieved within
3 to 5 years
– Prompt actions now that will
permit reaching targeted
long-range performance later

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 Objectives Are Needed
at All Levels
1. First, establish organization-wide objectives and
performance targets

2. Next, set business and

product line objectives

3. Then, establish functional

and departmental objectives

4. Individual objectives are established last

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 THANKS

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