Strategic Management

Chapter Eight

Strategic Management

The set of managerial decisions and actions that determines the long-run performance of an organization.

Why Is Strategic Management Important?

Positive relationship between strategic planning and performance Better cope with uncertain environments Helps coordinate and focus the organization on its goals

Strategic Management Process

A six-step process that encompasses strategic planning, implementation, and evaluation.

Strategic Management Process

External Analysis Opportunities Threats Formulate Strategies Implement Strategies Evaluate Results

Identify the organizations current mission, goals, and strategies

SWOT Analysis

Internal Analysis Strengths Weaknesses

Step 1: Identifying the Current Mission, Goals, and Strategies

Mission
States the purpose of the organization. Identifies the scope of its products/services. eBay: To provide a global trading platform where practically anyone can trade practically anything.

Step 2: External Analysis

Examine the external environment to see what trends and changes are occurring.

Specificcustomers, competition, suppliers, public pressure groups Generaldemographics, legal/political, economic, global, technological, sociolcultural Enronderegulation of the energy industry Automobile industryprice of gasoline

Assess for opportunities.

Assess for threats.

Step 3: Internal Analysis

Assess the organizations resources such as financial capital, technical expertise, and human resources. Assess the organizations capabilities with performing different functional activities such as marketing, manufacturing, information systems.

Step 3: Internal Analysis continued

Determine strengths.

Coca colas brand and marketing prowess.

American made minivans poor reliability.

Determine weaknesses.

Determine core competenciesthe major value-creating skills and resources that determine its competitive weapons.

Fedexreliability

Step 4: Formulating Strategies

Develop and evaluate strategic alternatives. Select strategies that capitalize on the organizations strengths and exploit environmental opportunities or that correct the organizations weaknesses and buffer against threats.

Step 5: Implementing Strategies

A strategy is only as good as its implementation. Issues related to strategy implementation include organizational structure, using teams, and leadership.

Step 6: Evaluating Results

How effective are the strategies? What adjustments are necessary?

SWOT Analysis
Worcester State College

Strategic Management Process

External Analysis Opportunities Threats Formulate Strategies Implement Strategies Evaluate Results

Identify the organizations current mission, goals, and strategies

SWOT Analysis

Internal Analysis Strengths Weaknesses

Types of Organizational Strategies

Corporate Level StrategySeeks to determine what businesses a company should be in. Business Level StrategySeeks to determine how an organization should compete in each of its businesses. Functional Level StrategySupports the business-level strategy (marketing, HR, manufacturing, finance, R&D).

Corporate Level Strategy

Growth strategySeeks to increase the organizations operations by expanding the number of products offered or markets served. ConcentrationGrow by focusing on the organizations primary line of business.

BoseBillion dollar company that focuses on innovative audio products.

Other Growth Strategies

Vertical integrationChoose to grow by controlling inputs (backward integration), outputs (forward integration), or both.

Gatewayforward integration failed Montessori schoolforward integration

Horizontal integrationChoose to grow by combining with other organizations in the same industry. Monitored by Federal Trade Commission because decreases competition.

AOL and Time Warner merger.

Other Growth Strategies continued.

Related diversificationGrow by merging with, or acquiring, firms in related industries.

New York Times Company

Unrelated diversificationGrow by merging with, or acquiring, firms in unrelated industries.

Lancaster Colonysalad dressing, car mats

Combination ApproachGrow by combining the various growth strategies.

McDonaldsconcentration plus purchasing Boston Market and Domino Pizza chains

Corporate Level Strategy continued.

StabilityStrategy characterized by an absence of significant change such as offering the same product or service, and maintaining market share. Useful strategy when an industry is in a period of upheaval or if the industry is facing slow or no growth opportunities.

Corporate Level Strategy continued.

Renewal strategy

Designed to address organizational weaknesses that are leading to performance declines. Cut costs and restructure operations.
1.

Retrenchmentshort-run renewal strategy.

Kodak, P&G, AT&T, IBM, Reebok Sears, Apple, DaimlerChrysler

2.

Turnaroundmajor renewal strategy

Corporate Portfolio Analysis

Used when an organizations corporate strategy involves a number of businesses. Provides a framework for understanding diverse businesses. Helps managers establish priorities for making resource allocation decisions.

Corporate Portfolio Analysis continued.

The BCG Matrix
High

Market Share

Low

Anticipated Growth Rate

High

Stars

Question Marks

Cash Cows
Low

Dogs

Business Level Strategy

How an organization should compete in each of its businesses. Strategic business unitssingle businesses that are independent and formulate their own strategy.

Competitive Advantage
What sets an organization apart. Comes from its core competencies.

From organizational capability:

Dells ability to create a direct selling channel thats highly responsive to its customers. Walmarts ability to monitor and control inventories and supplier relations more efficiently through the use of its information systems .

From organizational assets or resources:

The Right Competitive Strategy

According to Michael Porter, the right strategy fits the organizations strengths (resources and capabilities) and its industry.

Five Factors in Industry Analysis

1.

Threat of new entrants

Economies of scale, brand loyalty, and capital requirements Switching costs, buyer loyalty
Number of customers in the market, customer information, availability of substitutes

2. 3.

Threat of substitutes

Bargaining power of buyers

Factors in Industry Analysis continued.

4.

Bargaining power of suppliers

Degree of supplier concentration and availability of substitute inputs

Industry growth rate, increasing or falling demand, and product differences

5.

Current rivalry

Three Business Level Strategies

1.

Cost leadership strategythe lowest cost producer in the industry.

1.

Walmart, Southwest Airlines

2.

Differentiation strategyunique products that are widely valued by customers.

1.

Coach handbags, Kimberly-Clark Huggies Pullups

3.

Focus strategypursues cost or differentiation advantage in a narrow industry segment.

1.

A wood product manufacturer that sells chopsticks in Japan

Functional Level Strategies

Support business-level strategies (cost leadership, differentiation, focus). Operate from functional department level.
Marketing Human Resources Finance Manufacturing Research & Development

Southwest Airlines, Ben & Jerrys

Strategic Management in Todays Environment

Rule of Three

Competitive forces in an industry, if kept relatively free of government interference or other special circumstances, will inevitably create a situation where three companies dominate any given market.

The Rule of Three (continued).

Three dominant players hold most of the industry market share.

Fast foodMcDonalds, Wendys, Burger King Credit cardsVISA, MasterCard, Amex U.S. AutomakersGeneral Motors, Ford, DaimlerChrysler Global Food ProductsNestle, Unilever, Kraft

Two companies tend to lead to monopolistic pricing or mutual destruction. Four companies tend to lead to continual price wars which can be detrimental.

The Rule of Three (continued)

Super-niche playersspecialize through product or market segmentation. Ditch dwellersnot one of the efficient, big three; not a highly focused niche player. Discount Retail Industry

Big three (Wal-Mart, Costco, Target) Super-niche (Kohls, TJ Maxx, Marshalls) Ditch dweller (Kmart)

Strategies Using e-Business Techniques

Applying the Internets Capabilities

Create knowledge bases that employees can tap into anytime, anywhere. Turn customers into collaborative partners who help design, test, and launch new products. Become virtually paperless in specific tasks such as purchasing and filing expense reports.

Strategies Using e-Business Techniques (continued.)

Cost-leadership strategyuse e-business techniques to reduce costs.

Implement a Web-based inventory control system to reduce storage costs.

Differentiation strategyuse e-business techniques to allow product customization.

Provide an online sales configurator that allows customers to build their own products.

Focus strategyuse e-business techniques to build community among your customers.

Provide chat rooms or discussion boards for customers to interact with others who have common interests.

The Fall and Rise of Strategic Planning

Strategic Planning Versus Strategic Thinking

Strategic planning is analysis.

Breaking down a goal or a set of intentions into steps, formalizing and implementing those steps, and anticipating the results of each step. Rearranging established categories. Involves intuition and creativity. Outcome is a nottoo-precisely articulated vision of direction for the organization. Inventing new categories. Synthesizing experiences into a novel strategy. (Polaroid)

Strategic thinking is synthesis.

Fallacies of Strategic Planning

1.

Prediction is possible. Certain repetitive patterns, such as seasons, my be predictable. Forecasting discontinuities, such as a technological innovation or a price increase, is virtually impossible.

Fallacies of Strategic Planning (continued.)

2.

Strategists can be detached from the subjects of their strategies. Need soft data, including gossip and other intangible scraps of information. Inadvertent strategies emerge through the learning process.

Sales rep convinces a different type of customer to try the product.

Real strategists dig for ideas.

Fallacies of Strategic Planning (continued.)

3.

The strategy-making process can be formalized. Formal procedures never will be able to forecast discontinuities, inform detached managers, or create novel strategies. Formalization implies a rational sequence from analysis to action. Often, however, organizations learn by doing.

Usefulness of Planning
Planning as strategic programming. Plans as tools to coordinate, communicate and control. Planners as strategy finders. Planners as analysts. Planners as catalysts.

Loosen Up Strategy Making

Strategy making is not an isolated process. Its interwoven with all it takes to manage an organization. Systems do not think. They can facilitate human thinking or they can prevent it.