Strategic management:

1. Efforts to Build Competitive Advantage

 Explanation: This section highlights different ways a company can gain an edge over its
competitors. Competitive advantage means having something better or unique that sets
the company apart.
 Key Points:
o Lower costs relative to rivals: The Company can focus on minimizing costs to
offer cheaper products than competitors.
o A different or better product offering: Offering unique features or higher
quality to stand out.
o Superior ability to serve a market niche: Focusing on a specific customer
segment or niche.
 Example: Walmart’s strategy is to have lower costs and offer products at the cheapest
price possible. This attracts price-sensitive customers. Another example is Apple, which
 focuses on premium quality and unique design, making its products highly attractive to a
particular niche of tech enthusiasts.

2. Planned, Proactive Moves to Outcompete Rivals

 Explanation: This involves taking active steps to be better than competitors, like
designing better products, adding valuable features, and using superior technology.
 Examples:
o Better product design and added features: Tesla continuously improves its
electric car technology to offer longer battery life and advanced self-driving
features.
o Improved quality or service: Amazon invests in fast delivery and customer
service, which keeps it ahead of other online retailers.
o E-commerce capabilities: Traditional retail stores like Target have invested
heavily in online sales channels to compete with pure e-commerce players like
Amazon.

3. Moves to Respond and React to Changing Conditions

 Explanation: This block represents the company’s need to adapt to changes in the
market, economy, or industry. It’s about staying flexible and responsive to external
factors.
 Example: During the COVID-19 pandemic, many restaurants shifted to online ordering
and delivery to adapt to changing conditions. Similarly, car manufacturers are investing
in electric vehicles as regulations push for more environmentally friendly options.

4. Scope of Geographic Coverage

 Explanation: The Company decides the regions where it will operate. This could be
local, regional, national, or even global.
 Example: Starbucks operates globally but tailors its menu to local tastes in different
countries. For example, in Japan, it offers unique flavors that appeal to Japanese
customers. In contrast, a small bakery might only serve a local city area and have no
plans to expand nationally or internationally.

5. Collaborative Partnerships and Strategic Alliances

 Explanation: Forming partnerships with other companies can help a business gain access
to resources, markets, or technologies it doesn’t have.
 Example: Spotify has partnerships with companies like Hulu and Uber to expand its user
base and increase customer loyalty. Similarly, an automobile company might partner with
a technology firm to improve its in-car software and stay competitive.
Key Functional Strategies to Build Competitively Valuable Resource Strengths
and Capabilities

This section identifies different functional areas within a company where strategies can be
implemented to support the overall business strategy.

1. R&D, Technology, Engineering Strategy

o Explanation: Research and development (R&D) focuses on creating new
products or improving existing ones, while technology and engineering ensure
these innovations are feasible and competitive.
o Example: Pharmaceutical companies invest heavily in R&D to develop new
drugs. For instance, Pfizer’s R&D strategy led to the development of the COVID-
19 vaccine.
2. Supply Chain Management Strategy
o Explanation: This strategy focuses on managing the flow of goods from suppliers
to the company and eventually to the customers. A well-managed supply chain
can reduce costs and ensure timely delivery.
o Example: Amazon’s highly efficient supply chain allows it to deliver products
quickly, which is a key part of its competitive advantage.
3. Manufacturing Strategy
o Explanation: Manufacturing strategy involves deciding how and where to
produce goods. This includes decisions about quality, speed, and cost-efficiency
in the production process.
o Example: Toyota uses a lean manufacturing strategy to reduce waste and improve
efficiency. This helps Toyota deliver high-quality cars at competitive prices.
4. Sales, Marketing, Promotion, and Distribution Strategies
o Explanation: These strategies focus on how the company will reach customers,
promote its products, and deliver them. Strong sales and marketing efforts help a
company build brand recognition and attract customers.
o Example: Coca-Cola’s aggressive marketing and global distribution network
make it one of the most recognized brands worldwide. Its marketing strategy
includes sponsorships, promotions, and ads to stay top-of-mind for consumers.
5. Human Resources Strategy
o Explanation: The HR strategy ensures that the company hires, trains, and retains
the right talent. A motivated and skilled workforce supports the overall business
strategy.
o Example: Google’s HR strategy includes offering a unique work culture,
attractive benefits, and career development opportunities to attract top talent,
which supports its focus on innovation and excellence.
6. Financial Strategy
o Explanation: Financial strategy involves managing funds, investments, and costs
to ensure the company remains profitable and can invest in growth.
o Example: Apple has a financial strategy focused on maintaining a large cash
reserve, which allows it to invest in new technologies and acquisitions without
needing loans.
Business Strategy (Center Circle)

 Explanation: All the strategies mentioned work together to create a cohesive Business
Strategy. This is the company's comprehensive plan to compete, grow, and succeed in
the market.
 Example: For a company like Nike, the business strategy combines innovative product
development (R&D), aggressive marketing (sales/marketing strategy), and strong brand
partnerships (collaborative partnerships) to stay a leader in the athletic wear industry.
Strategy-Shaping Factors External to the Company

1. Economic, Societal, Political, Regulatory, and Community Citizenry Considerations

o Explanation: These are broad, external factors like the state of the economy,
social trends, political laws, and the company’s relationship with the community.
Companies need to consider these to make decisions that fit well with the external
environment.
o Example: If a new environmental law restricts plastic use, a packaging company
might switch to sustainable materials. Or, if the economy is in a downturn, a
company might focus on cost-saving strategies.

2. Competitive Conditions in the Industry and attractiveness

o Explanation: This refers to the level and nature of competition within the
industry. Companies assess how strong their competitors are and what strategies
they’re using to stay relevant. And we see how good this particular sector is doing
right now, is it profitable or not doing well or not this analysis is important before
investing or starting any new business.
o Example: In the smartphone industry, if competitors are lowering prices, a
company like Samsung may need to either lower its prices or highlight unique
features that justify a higher cost.

3. Company Opportunities and Threats to Profitability and Market Position

o Explanation: These are specific chances (opportunities) or risks (threats) that
could impact the company’s ability to earn profits or maintain a strong market
position.
o Example: An opportunity could be a new technology that the company could
adopt to improve efficiency. A threat might be a new competitor entering the
market with a better product at a lower price.

The Mix of Considerations That Determines a Company's Strategic Situation

 Explanation: This central block suggests that all the factors—both external and internal
—combine to shape the company’s strategic direction. Companies must look at the big
picture and integrate these factors to create a cohesive strategy.

1. Company Resource Strengths, Weaknesses, Competencies, and Competitive

Capabilities
 Explanation: This includes both the strengths and weaknesses within a company’s
resources, skills, and abilities. Strengths might be unique products, specialized expertise,
or advanced technology that give the company an advantage. Weaknesses, on the other
hand, are internal limitations that could hold the company back, such as outdated
technology, skill gaps, or inefficient processes. Recognizing these areas allows the
company to capitalize on strengths while addressing or mitigating weaknesses.

 Example: A software company with a highly skilled engineering team (strength) and
proprietary software may focus on innovation as a key strategy. However, if the same
company struggles with an outdated marketing approach (weakness), it may need to
invest in marketing improvements to better promote its products and compete effectively.

1. Strengths

 Definition: Internal advantages that set the company apart, like unique resources, strong
brand, or skilled workforce.
 Example: Apple’s brand loyalty and design.
 Purpose: Leverage these to gain a competitive edge.

2. Weaknesses

 Definition: Internal limitations that may hinder success, such as outdated tech or skill
gaps.
 Example: Blockbuster’s lack of digital streaming.
 Purpose: Identify and address weaknesses to avoid barriers to growth.

3. Competencies

 Definition: Core skills and expertise that enable efficient, quality output.
 Example: Toyota’s expertise in lean manufacturing.
 Purpose: Build on these to maintain operational excellence.

4. Competitive Capabilities

 Definition: The ability to effectively use strengths and competencies to outperform

competitors.
 Example: Amazon’s logistics and delivery speed.
 Purpose: Develop these capabilities to achieve long-term competitive advantage.
 2. Personal Ambitions, Business Philosophies, and Ethical Principles of Company
Executives
o Explanation: The values, goals, and beliefs of top executives play a role in
shaping the strategy. Executives’ personal and professional values can influence
company decisions.
o Example: If a CEO strongly believes in sustainability, the company might
prioritize eco-friendly practices even if they cost more. Conversely, a CEO
focused on rapid growth may push for aggressive expansion.

3. Shared Values and Company Culture

o Explanation: This represents the collective values and behaviors that characterize
the company’s internal environment. A positive culture can support strategic
goals, while a negative one can hinder them.
o Example: A tech company with a culture of innovation (like Google) might
encourage employees to spend time on creative projects, aligning with a strategy
of constant innovation.

Conclusions Concerning How Internal and External Factors Stack Up; Their Implications
for Strategy

 Explanation: After analyzing both internal and external factors, the company reaches
conclusions about its strategic position—what it’s good at, what threats it faces, and
where it stands in the market. This helps guide the overall strategic approach.

Identification and Evaluation of Strategy Alternatives

 Explanation: This is the stage where the company identifies and assesses different
strategies it could pursue. These could be new products, entering new markets, or
improving operational efficiency.
 Example: A retail company might evaluate whether to expand online, open new stores,
or diversify its product lines. Each option has different risks and rewards.

Crafting a Strategy That Fits the Overall Situation

 Explanation: Finally, based on all these factors and evaluations, the company crafts a
strategy that best fits its unique situation. This involves choosing the path that aligns with
internal strengths, external opportunities, and overall goals.
 Example: After assessing all factors, a tech startup may decide to focus on a niche
market where it can be a leader rather than competing directly with large companies in a
crowded market.
Each of these blocks contributes to creating a strategy that aligns the company’s resources and
strengths with market opportunities, while also being mindful of external pressures and internal
values. This structured approach helps in making balanced and well-informed strategic decisions.
1. Whether Diversification is based on a Few Industries or Many

 Explanation: This aspect of the strategy considers whether the company’s diversification
is focused on a limited number of related industries or spread across many different
sectors.
 Example: General Electric (GE) operates in a wide range of industries, including
aviation, healthcare, and energy, showing a broad diversification strategy. On the other
hand, Johnson & Johnson focuses on a smaller set of related sectors like pharmaceuticals,
medical devices, and consumer health products.

2. Whether the Businesses are Related, Unrelated, or a Mix of Both

 Explanation: This part focuses on whether the company’s various businesses have
something in common (related) or are entirely different (unrelated).
 Example: Disney’s businesses are mostly related, as it operates in entertainment sectors
like movies, theme parks, and streaming. In contrast, Berkshire Hathaway owns
companies in unrelated industries, including insurance (GEICO), railroads (BNSF), and
even consumer goods (Dairy Queen).

3. Whether the Scope of Company Operations is Mostly Domestic, International, or Global

 Explanation: Here, the strategy considers the geographic reach of the company’s
operations—whether it mainly operates within one country, internationally, or on a global
scale.
 Example: McDonald's operates globally, with restaurants in many countries worldwide.
In contrast, a smaller diversified company may operate only within its home country or
region.

4. Moves to Strengthen or Broaden Positions in Existing Businesses via New Acquisitions

 Explanation: This strategy involves acquiring other companies to increase the

company’s market share in existing business areas or to add new capabilities.
 Example: Facebook (now Meta) acquired Instagram and WhatsApp to strengthen its
position in social media and broaden its influence across multiple platforms.

5. Moves to Build Positions in New Industries through New Acquisitions, Mergers, Internal
Start-Ups, or Alliances

 Explanation: This involves entering entirely new industries either by acquiring

businesses, forming alliances, or starting from scratch.
 Example: Amazon started as an online bookstore, but through acquisitions and internal
expansion, it moved into cloud computing (AWS), grocery (Whole Foods), and
entertainment (Prime Video).
6. Moves to Divest Weak or Unattractive Businesses

 Explanation: A diversified company may choose to sell off or close down divisions that
are underperforming or no longer align with its strategic goals.
 Example: IBM sold its personal computer business to Lenovo in 2005 to focus on more
profitable areas like cloud computing and IT services. This divestiture allowed IBM to
streamline its focus and resources.

7. Efforts to Capture Cross-Business Strategic Fits

 Explanation: This strategy looks for synergies between different business units, where
combining resources or capabilities can create additional value.
 Example: Apple leverages its hardware, software, and services across products, creating
a cohesive ecosystem (iPhone, iPad, Mac, and services like iCloud) that encourages
customers to use multiple Apple products.

8. Approach to Allocating Investment Capital and Resources among Businesses

 Explanation: This involves deciding how much money and resources to allocate to each
business unit based on its potential for growth or profitability.
 Example: Alphabet (Google’s parent company) allocates more resources to Google’s
core business (advertising and search) while funding high-potential projects like Waymo
(self-driving cars) and Google Cloud. Less profitable or riskier projects receive less
funding.

Summary of the Diagram

In summary, this diagram shows that a diversified company’s strategy is complex and
multifaceted. It involves making decisions about where to operate, which businesses to invest in
or exit, and how to leverage the strengths of each unit to create synergy across the company. The
ultimate goal is to manage a portfolio of businesses effectively so that the whole company
benefits from the strengths of each part, leading to sustainable growth and profitability.

This strategic approach is necessary for large, diversified companies as it allows them to adapt to
changing market conditions, capitalize on new opportunities, and maintain competitiveness
across multiple industries.