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Chapter 8
Strategic Management
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Strategic Management
• The set of managerial decisions and actions that determines
the long-run performance of an organization.
• The art and science of
formulating, implementing
and evaluating strategies.
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Exhibit 7.1 The Strategic Management Process
SWOT Analysis
Identify theorganization's
current mission, goals,and strategies
Internal Analysis• strengths• weaknesses
External Analysis• opportunities• threats
FormulateStrategies
ImplementStrategies
EvaluateResults
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Strategic Management Process
• Step 1: Identify the Organization’s Current Mission, Objectives, and Strategies– Mission: the firm’s reason for being
• The scope of its products and services
– Goals: the foundation for further planning• Measurable performance targets
• Step 2: Conduct an External Analysis• Focuses on identifying opportunities and threats
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Exhibit 7.2 Components of a Mission Statement
• Customers: Who are the organization’s customers?
• Products or services: What are the organization’s major products or services?
• Markets: Where does the organization compete geographically?
• Technology: How technologically current is the organization?
• Concern for survival growth, and profitability: Is the organization committed to growth and financial stability?
Source: Based on F. David, Strategic Management, 8th ed. (Upper Saddle River, NJ: Prentice Hall, 2001), pp. 65–66.
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Exhibit 7.2 Components of a Mission Statement (cont’d)
• Philosophy: What are the organization’s basic beliefs, values, aspirations, and ethical priorities?
• Self-concept: What is the organization’s major competitive advantage and core competencies?
• Concern for public image: How responsive is the organization to societal and environmental concerns?
• Concern for employees: Does the organization consider employees a valuable asset?
Source: Based on F. David, Strategic Management, 8th ed. (Upper Saddle River, NJ: Prentice Hall, 2001), pp. 65–66.
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Strategic Management Process (cont’d)
• Step 3: Conduct an Internal Analysis– Assessing organizational resources, capabilities, activities,
and culture:• Strengths (core competencies) create value for the customer
and strengthen the competitive position of the firm
• Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage.
• Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)
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Strategic Management Process (cont’d)
• Step 4: Formulate Strategies– Develop and evaluate strategic alternatives
– Select appropriate strategies for all levels in the organization that provide relative advantage over competitors
– Match organizational strengths to environmental opportunities
– Correct weaknesses and guard against threats
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Strategic Management Process (cont’d)
• Step 5: Implement Strategies– Implementation: effectively fitting organizational
structure and activities to the environment
• Step 6: Evaluate Results– How effective have strategies been?
– What adjustments, if any, are necessary?
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Types of Organizational Strategies
• Corporate-level Strategies– Top management’s overall plan for the entire organization
and its strategic business units
• Types of Corporate Strategies– Growth: expansion into new products and markets
– Stability: maintenance of the status quo
– Retrenchment: addresses organizational weaknesses that are leading to performance declines
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Exhibit 7.4 Levels of Organizational Strategy
Research andDevelopment
Manufacturing Marketing HumanResources
Finance
StrategicBusiness Unit 1
StrategicBusiness Unit 2
StrategicBusiness Unit 3
MultibusinessCorporation
FunctionalLevel
BusinessLevel
CorporateLevel
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Corporate-Level Strategies
• Growth Strategy– Seeking to increase the organization’s business
by expansion into new products and markets
• Types of Growth Strategies– Integration
– Diversification
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Growth Strategies (cont’d)
• Diversification– Related Diversification
• Adding new but related products and services.
– Unrelated Diversification• Adding new, unrelated products and services.
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Corporate-Level Strategies (cont’d)
• Corporate Portfolio Analysis
• BCG Matrix
– Developed by the Boston Consulting Group
– Considers market share and industry growth rate
– Classifies firms as:
• Cash cows: low growth rate, high market share
• Stars: high growth rate, high market share
• Question marks: high growth rate, low market share
• Dogs: low growth rate, low market share
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Exhibit 7.5 The BCG Matrix
Stars
Heavily invest
QuestionMarks
Sell off orturn into stars
CashCows
Milk for cash
Dogs
Sell off orliquidate
High Low
Market ShareH
igh
Lo
w
An
tic
ipa
ted
G
row
th R
ate
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Business-Level Strategy
• Business-Level Strategy– A strategy that seeks to determine how an
organization should compete in each of its SBUs (strategic business units)
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The Role of Competitive Advantage
• Competitive Advantage– An organization’s distinctive competitive edge
that is sourced and sustained in its core competencies
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Five Competitive Forces
• Threat of New Entrants– The ease or difficulty with which new competitors can
enter an industry
• Threat of Substitutes– The extent to which switching costs and brand loyalty
affect the likelihood of customers adopting substitute products and services
• Bargaining Power of Buyers– The degree to which buyers have the market strength to
hold sway over and influence competitors in an industry
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Five Competitive Forces (cont’d)
• Bargaining Power of Suppliers– The relative number of buyers to suppliers and
threats from substitutes and new entrants affect the buyer-supplier relationship
• Current Rivalry– Intensity among rivals increases when industry
growth rates slow, demand falls, and product prices descend
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Competitive Strategies
• Cost Leadership Strategy– Seeking to attain the lowest total overall costs relative
to other industry competitors
• Differentiation Strategy– Attempting to create a unique and distinctive product
or service for which customers will pay a premium
• Focus Strategy– Using a cost or differentiation advantage to exploit a
particular market segment rather than a larger market
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Functional-Level Strategy
• Functional-level strategies support the business-level strategy– i.e., Marketing, human resources, research and
development, and finance all support the business-level strategy
– Problems occur when employees or customers don’t understand a company’s strategy