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HANDOUTS
STRATEGIC MANAGEMENT
Process of Strategic Management
Definitions
Corporate Strategy
Defines in what businesses or industries the
firm will operate.
Functional strategies
Each SBU has functional areas such as
finance, marketing, operations, and human
resources. It is here where core competencies
are likely to be created and maintained.
Corporate Strategy
2. The producer who fails to reduce costs along the characteristic experience curve
will eventually be non competitive.
3. The producer with the largest cumulative market share (for the given product
should always be able to maintain the lowest cost.
4. New products must nearly always be sold at price below costs until volume builds
up.
5. Price must eventually go down as fast as costs, if there is any competitions at all
in the industry.
6. Market share is unstable until one producer clearly dominates the market and his
prices are low enough to inhibit growth in the relative market share of any
significant competitor, or until growth stops.
See Figure 1
*
Figure 1
*Circle size defines the size of each of the firm's SBU's relative to its others in terms of
revenues.
The Experience Curve
The Experience Curve defines the relationship between the total accumulated output a
firm has produced and its costs per unit of production. If a firm is in an industry with a
significant experience curve effect (i.e., the experience curve coefficient is significantly
less than 1), then it is important for the firm to be an industry leader in terms of
production in order to achieve a competitive cost structure.
See Figure 2
2. Learning on the part of management. Members of the
management and engineering team come to learn about the
production process and find way to remove impediments to
production (e.g., better work flow design, plant layout,
clearing up bottlenecks).
See Figure 2
Figure 2
An Experience Curve
Relationship between long-run and short-run average
and marginal cost curves
$/unit
Quantity
qminimum
Economies of Size
Limitations to this approach include the fact that concepts like market
share and growth rate are not easy to measure and that the dividing line
between being judged "high" and "low" is arbitrary.
Figure 3
The Revised BCG Matrix
Forward: to gain control of customers and capture profits that might have been
forgone. Risk: may not know what you're doing.
Backward: to insure supply, and maybe convert cost center into a profit
source.
But again, may not know what you're doing.
Level of diversification
4. TURNAROUND/RETRENCHMENT STRATEGY—
Steps: 1. Reduce fixed costs in order to lower the firm's break-even point.
2. Sell non-core assets in order to raise money.
3. Launch new products/services in order to grow revenues.
--means producing products or services that are distinguished by quality features and
amenities, and known by brand names, thus commanding higher prices; usually supported
with significant advertising and promotion.
Niche strategy:
--producing a product or service which meets the unique needs of a relatively small
segment of a larger market with needs which are not being met by products available in
the market.
Low-cost/differentiation strategy:
--means producing quality, brand name products that result in large market share and
thus lower unit costs.
Combination strategies
--Some corporate level managers develop SBU’s that pursue 2 or 3 of the above
strategies in order to exploit opportunities in various market segments.
Product-Market Strategies
3. FOCUS ON INTANGIBLE RESOURCES: They are less subject to imitation, and they
cannot usually be purchased on the open market.
7. LEAD BY EXAMPLE: The CEO should serve as a role model and convey the
message that "we're all in this together."
Source: C. Pringle & M. Kroll. "Lessons in Resource-based Theory from the Royal Navy." Academy
of Management Executive, 1998.
Return to Index.
Corporate
Strategy