STRATEGIC

MANAGEMENT
Prentice Hall, 2002

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Learning Objectives
You

should learn to:

Explain the importance of strategic
management
Describe the steps in the strategic
management process
Explain SWOT analysis
Differentiate corporate-, business-, and
functional-level strategies
Explain what competitive advantage is
and why its important to organizations

Prentice Hall, 2002

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Learning Objectives (cont.)

You

should learn to:

Describe the five competitive
forces
Identify the various competitive
strategies

Prentice Hall, 2002

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The Importance Of Strategic

Management
What

Is Strategic Management?
A set of managerial decisions and actions that
determines the long-run performance of an
organization
Purposes of Strategic Management
involved in many decisions that managers make
companies with formal strategic management
systems have higher financial returns than
companies with no such system
important in profit and not-for-profit
organizations
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The Strategic Management Process

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The Strategic Management

Process
1.

Identifying the Organizations Current

Mission, Objectives, and Strategies
mission - statement of the purpose of
an organization
important in profit and not-for-profit
organizations
important to identify the goals currently
in place and the strategies currently
being pursued

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Components of a Mission Statement

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The Strategic Management Process (cont.)

2. Analyzing the Environment

successful strategies are aligned with the
environment
examine both the specific and general
environments to determine what trends and
changes are occurring
3. Identifying Opportunities and Threats
opportunities - positive trends in the
external environmental
threats - negative trends in the external
environment

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The Strategic Management

Process (cont.)
4.

Analyzing the Organizations Resources

and Capabilities
examine the inside of the organization
available resources and capabilities
always constrain the organization in some
way
core competence - a unique and
exceptional capability or resource
the organizations major value-creating,
competitive weapon

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The Strategic Management Process (cont.)

5.

Identifying Strengths and Weaknesses

strengths - activities the organization does well

or any unique resource
weaknesses - activities the organization does
not do well or resources it needs but does not
possess
organizations culture has its strengths and
weaknesses
strong culture - new employees easily identify the
organizations core competencies
may serve as a barrier to accepting change

influence managers preferences for certain strategies

SWOT analysis - analysis of the organizations

strengths, weaknesses, opportunities, and threats
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Identifying the Organizations Opportunities

Organizations
Organizations
Resources/Abilities Opportunities

Prentice Hall, 2002

Opportunities in
the Environment

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The Strategic Management Process (cont.)

6. Formulating Strategies
require strategies at the corporate, business,
and functional levels of the organization
strategy formulation follows the decisionmaking process
7. Implementing Strategies
a strategy is only as good as its
implementation
8. Evaluating Results
control process to determine the effectiveness
of a strategy

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Levels of Organizational Strategy

Prentice Hall, 2002

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Types Of Organizational Strategies

Corporate-Level

Strategy

determines
what businesses a company should be in or wants
to be in
the direction that the organization is going
the role that each business unit will play

Grand Strategy - Stability

no significant change is proposed
organizations performance is satisfactory
environment appears to be stable and unchanging
few organizations today pursue this strategy
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Types Of Organizational Strategies (cont.)

Corporate-Level Strategy (cont.)

Grand Strategy - Growth
seeks to increase the level of the organizations
operations
concentration - growth through direct expansion
of organizations own business operations
vertical integration
backward - become your own supplier
forward - become your own distributor

horizontal integration - grow by combining with

other organizations in the same industry
needs approval by U.S. Federal Trade Commission
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Types Of Organizational Strategies

(cont.)
Corporate-Level

Strategy (cont.)
Grand Strategy - Growth (cont.)
related diversification - grow by
merging with or acquiring firms in
different, but related, industries
strategic fit

unrelated diversification - grow by

merging with or acquiring firms in
different and unrelated industries
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Types Of Organizational Strategies (cont.)

Corporate-Level

Strategy (cont.)
Grand Strategy - Growth (cont.)
retrenchment - designed to address
organizational weaknesses that are
leading to performance declines
intended to:
stabilize operations
revitalize organizational resources and
capabilities
prepare to compete once again

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Critical
Weaknesses

Firm Status

Valuable
Strengths

SWOT Analysis And Grand

Strategies
Corporate
Growth
Strategies

Corporate
Stability
Strategies

Corporate
Stability
Strategies

Corporate
Retrenchment
Strategies

Abundant
Environmental
Opportunities
Prentice Hall, 2002

Environmental Status
Critical
Environmental
Threats
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Types of Organizational Strategies

(cont.)

Corporate-Level Strategy (cont.)

Corporate Portfolio Analysis - used when
corporate strategy involves a number of
business
Boston Consulting Group (BCG) matrix - provides
a framework for understanding diverse businesses
helps managers establish priorities for making resource
allocation decisions
businesses classified in terms of
market share
anticipated market growth
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The BCG Matrix

Market Share
Low

High

High

Stars

Question
Marks

Cash
Cows

Dogs

Low

Anticipated
Growth
Rate

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Types of Organizational Strategies

(cont.)
Corporate-Level

Strategy (cont.)

BCG matrix (cont.)

strategic implications of the matrix
cash cows - milk
use cash to invest in stars and question marks
stars - require heavy investment
eventually will become cash cows
question marks - two strategies
invest to transform them into stars
divest
dogs - sold off or liquidated
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Types Of Organizational Strategies (cont.)

Business-Level Strategy
determines how an organization should
compete in each of its businesses
strategic business units - independent
businesses that formulate their own strategies
Role of Competitive Advantage
competitive advantage - sets an organization
apart by providing a distinct edge
comes from the organizations core competencies
not every organization can transform core competencies
into a competitive advantage
once created, must be able to sustain it

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Types Of Organizational Strategies (cont.)

Business-Level

Strategy (cont.)
Competitive Strategies
Michael Porter - industry analysis based
on five competitive forces
Threat of new entrants - affected by barriers
to entry
Threat of substitutes - affected by buyer
loyalty and switching costs
Bargaining power of buyers - affected by
number of customers, availability of substitute
products

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Types Of Organizational
Strategies (cont.)
Business-Level

Strategy (cont.)
Competitive Strategies (cont.)
Porters competitive forces analysis
(cont.)
Bargaining power of suppliers affected by degree of supplier
concentration
Existing rivalry - affected by industry
growth rate, demand for firms product or
service, and product differences

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Forces In The Industry Analysis

New
Entrants
Bargaining
Power or
Suppliers

Threat of
New Entrants

Industry
Competitors

Suppliers

Current Rivalry

Threat of
Substitutes
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Buyers
Bargaining
Power or
Buyers

Substitutes
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Types of Organizational Strategies

(cont.)
Business-Level

Strategy (cont.)
Competitive strategies (cont.)
Porters three generic strategies
cost leadership - goal is to become the
lowest-cost producer in the industry
tries to identify efficiencies in all operations
overhead kept to a minimum
product or service must be perceived to be
of comparable quality to that offered by
competitors

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Types of Organizational Strategies (cont.)

Business-Level Strategy (cont.)

Competitive strategies (cont.)
Porters three generic strategies (cont.)
differentiation - offer unique products that are
widely valued by customers
sets the firm apart from competitors
differentiation based on quality, service,
product design, brand image
customers must be willing to pay a price
premium that exceeds the cost of
differentiation

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Types of Organizational Strategies

(cont.)
Business-Level

Strategy (cont.)
Competitive strategies (cont.)
Porters three generic strategies (cont.)
focus - aims at a cost advantage or
differentiation advantage in a narrow
segment
no attempt to serve the broad market
feasibility of strategy depends on the
size of the segment and the ability of
the firm to support the cost of focusing

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Requirements for Successfully Pursuing

Porters Competitive Strategies

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Types Of Organizational
Strategies (cont.)
Functional-Level

Strategy (cont.)
used to support the business-level
strategy
creates an appropriate supporting
role for each functional area of the
organization
e.g., manufacturing, marketing,
human resources

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