Chapter Six

Strategic
Management: How
Star Managers Realize
a Grand Design

E6-1

Strategy, Strategic Management,

Strategic Planning

Strategy: is a large scale action plan that sets the

direction for the organization.
Strategic Management: is a process that involves
managers from all parts of the organization in the
formulation and the implementation of strategies and
strategic goals.
Strategic Planning: determines not only the
organizations long-term goals for the next 1-5 year
regarding growth and profits, but also the ways the
organization should achieve them
McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

E6-2

Why Strategic Management and

Strategic Planning are Important

1)

Providing direction & momentum

2)

Encouraging new ideas

3)

Developing a sustainable competitive advantage

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

E6-3
Panel 6-1

1. Establish
the mission
and vision

The Five Steps of the Strategic

Management Process

2. Establish the
grand strategy
(using SWOT
and
forecasting)

3. Formulate
the strategic
plans (using
e.g. Porter)

4. Carry out
the strategic
plan

5. Maintain
strategic
control

Feedback: Revise actions, if necessary, based on feedback

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Example of mission & vision

Limited Brands (2002)
Mission Sustained growth of shareholder value by focusing its time,
talent, and capital on the highest return opportunities.
Vision family of the worlds best fashion brands.
America Red Cross
Mission - The American Red Cross, a humanitarian organization led
by volunteers and guided by its Congressional Charter and the
Fundamental Principles of the International Red Cross Movement,
will provide relief to victims of disasters and help people prevent,
prepare for, and respond to emergencies.
Vision - May we touch every household, workplace and organization
with highly-skilled and impassioned professionals.
May we always be the trusted pacesetter and organization of choice
in readiness and response.
May we exceed the expectations of our culturally diverse
community.

E6-4

Mission Statements

Panel 6.2

Does your companys mission statement answer the following

questions?

Who are our customers?

What are our major products and services?
In what geographical areas do we compete?
What is our basic technology?
What is our commitment to economic objectives?
What are our basic beliefs, values, aspirations, and philosophical priorities?
What are our major strengths and competitive advantages?
What are our public responsibilities?
What is our attitude toward our employees?

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Vision Statements

E6-5
Panel 6.2

Does your companys vision statement answer yes to

the following questions?

Is it appropriate for the organization and for the times?

Does it set standards of excellence that reflect high ideals?
Does it clarify purpose and direction?
Does it inspire enthusiasm and encourage commitment?
Is it well articulated and easily understood?
Does it reflect the uniqueness of the organization, its distinctive
competence, what it stands for, what its able to achieve?
It is ambitious?

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Grand Strategies
Growth strategy
- involves expansion in sales revenues,
market share, number of employees or
number of customers.

Stability strategy
-

involves little or no significant change.

Defensive strategy
-

involves reduction in the organizations

efforts.

E6-6
Panel 6.3

How Companies Can Implement

Grand Strategies

Growth Strategy

McGraw-Hill/Irwin

It can improve an existing product or service to attract more

buyers
It can increase its promotion and marketing efforts to try to
expand its market share
It can expand its operations, as in taking over distribution or
manufacturing previously handled by someone else
It can expand into new products or services
It can acquire similar or complementary businesses
It can merge with another company to form a larger company

2006 The McGraw-Hill Companies, Inc. All rights reserved.

E6-7
Panel 6.3

Stability Strategy

How Companies Can Implement

Grand Strategies (Cont.)

It can go for a no-change strategy

It can go for a little-change strategy

Defensive Strategy

It can reduce costs

It can sell off assets

It can gradually phase out product lines or services

It can divest part of its business

It can declare bankruptcy

It can attempt a turnaround

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

SWOT Analysis

E6-9
Panel 6.4

Inside Matters: analysis of internal strengths & weaknesses

SStrengths: inside
matters

OOpportunities:
outside matters

3. Formulate
4. Carry out
WWeaknesses:
the strategic
the strategic inside
matters
plans (using
plan
e.g. Porter)

TThreats: outside
matters

Outside Matters: analysis of external Opportunities & Threats

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

SWOT Analysis

Things
Thingsthe
thecompany
companydoes
doeswell.
well.Example:
Example:Market
Market
leadership,
leadership,strong
strong research
researchand
and development,
development,
high
highquality
qualityproducts,
products,patents
patents&& etc
etc

Things
Thingsthe
thecompany
companydoes
doesnot
notdo
dowell.
well.Example:
Example:
Large
Largeinventories,
inventories,management
managementturnover,
turnover,weak
weak
market
market image
image&& etc.
etc.

Conditions
Conditionsin
inthe
theexternal
externalenvironment
environmentthat
that
favor
favorstrengths.
strengths.Example:
Example:New
New overseas
overseasmarket,
market,
competitors
competitorsfailing,
failing,status
status&&etc.
etc.

Conditions
Conditionsin
inthe
theexternal
externalenvironment
environmentthat
that do
do
not
notrelate
relateto
tostrengths
strengths or
orfavor
favorareas
areasof
ofcurrent
current
weakness.
weakness.Example:
Example:Slower
Slowermarket
marketgrowth,
growth,
South-Western
College
Publishing
growing
growinggovernment
government regulation
regulation&& etc.
etc.

Internal

External

E6-11

Forecasting

Forecasting: is a vision or projection of the future

two types:
Trend Analysis: is a
hypothetical extension of a past
series of events into the future

McGraw-Hill/Irwin

Contingency Planning:
also known as scenario
planning & scenario
analysis is the creation of
alternative hypothetical but
equally likely future
conditions

2006 The McGraw-Hill Companies, Inc. All rights reserved.

E6-12

Porters Four Competitive Strategies

Panel 6.5

Strategy
1. Cost-leadership
2. Differentiation

Wide
3. Formulate
the strategic
plans (using
e.g. Porter)

Narrow

4. Carry out
the strategic
plan

3. Cost focus

4. Focused-differentiation

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Cost-leadership strategy
Selling products at a very low per-unit cost for
customers who are price sensitive.
Target - large/wide markets/customers.
This puts pressure on R&D managers to develop
products that can be created cheaply.

Differentiation strategy
Offer products or services that are unique and
directed at consumers who are price insensitive.
Managers may have to spend more on R&D,
marketing and customer service.
Target - large/wide markets/customers.
Companies use the strategy of differentiation to
create a brand - they hope will differentiate them
from their competitors.

Cost-focus strategy
Selling products at a very low per-unit cost for
customers who are price sensitive.
Target - small/narrow markets/customers.

Focused-differentiation strategy
Offer products or services that are unique and
directed at consumers who are price insensitive.
Target - small/narrow markets/customers.

E6-13

The Product Life Cycle

Panel 6.6

Stage 1 Introduction

Stage 2 Growth

Stage 3 Maturity

3. Formulate
the strategic
plans (using
e.g. Porter)

McGraw-Hill/Irwin

Stage 4 Decline

4. Carry out
the strategic
plan

2006 The McGraw-Hill Companies, Inc. All rights reserved.

E6-14

Single-Product Strategy versus

Diversification Strategy

Single Product
Strategy: a company
makes and sells only one
product within its market.

McGraw-Hill/Irwin

The benefit: making just

one product allows you to
focus your manufacturing
and marketing efforts just
on that product.
The risk: problems with the
only product can destroy
the entire firm.

Diversification
Strategy: operating
several businesses in
order to spread the
risk.

advantages:
- reduced risk with more than
one product

2006 The McGraw-Hill Companies, Inc. All rights reserved.

E6-15

Competitive Intelligence

Competitive Intelligence: means gaining

information about ones competitors activities so that
you can anticipate their moves and react
appropriately.
Sources of competitive intelligence:
Public and print advertising
Investor information
Informal sources

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.