10.

MANAGING STRATEGY

Strategic management = formulation and implementation of initiatives by

top management that will allow the organisation to achieve its goals.
Strategy = the plans for how the organisation will do, how it will compete
successfully, and how it will attract and satisfy its customers to achieve its goals.
Strategy has military roots.
Business Model = how a company is going to make money.

Importance of Strategic Management

 It can make a difference in how well an organisation
performs – why are some businesses more successful than others, and
why some develop and prosper, while others stagnate or even fail in the
same environmental conditions.
 Managers in organisations of all types & sizes face
continually changing situations – mitigating the destructive impact
of risks and promote discipline in managing the organisation because of
the environment.
 Organisations are complex & diverse – active participation of a
firm in its own future development and in the effort to achieve an
understanding of all subjects participating in the organisation's activities.

Strategic Management Process

A 6-step process that includes strategic planning, implementation, and
evaluation.

1. Identifying the organisation’s current mission, goals, and

strategies
Mission is a statement of its purpose, and should include the following
information about:
 2. External Analysis
+ Opportunities – positive trends in the external environment, which
organisation may use for its growth.
- Threats – negative trends in the external environment, which are
threats for the organisation and the organisation should be aware of
these threats.
3. Internal Analysis
SWOT Resources – organization's assets that are used to develop,
Analysi manufacture and deliver products to its customer.
s Capabilities – organization skills and abilities in doing the work
activities needed in its business.
Core Competencies – special abilities, organization's major value
creating capabilities that determine its competitive weapons.
From this analysis, we may find some:
+ Strengths – any activities the organization does well or it's unique
resources.
- Weaknesses – any activities the organization does not do well or
resources it needs but does not process.
4. Formulating Strategies
As managers formulate strategies, they need to consider the realities of
the external environment and their available resources and capabilities
to design strategies that will help an organization achieve its goals.
There are three main types of strategies managers can formulate,
including corporate strategies, competitive and functional.
5. Implementing Strategies
Once strategies are formulated, they must be also implemented. No
matter how effectively an organization has planned its strategies,
performers will suffer if the strategies aren't implemented properly.
6. Evaluating Results
So how effective had the strategies been at helping the organization
reach its goals? What adjustments are necessary to be done?

Types of Organisational Strategies

Corporate Strategy
Organisational strategy that determines what businesses a company is in or
wants to be in and what it wants to do with those businesses. Handled by top
level managers.
There are 3 types:
1) Growth – ways how to grow a business. Used when an organisation wants
to expand the number of markets served or products offered, either
through its current businesses or through new businesses. There are ways
how to do it:
- Concentration - focusing on one business activity allows the
organization to fully concentrate on the maximum use of all its
resources to ensure competitiveness in its market. Growth is
achieved by increasing sales, production capacity or increasing the
number of employees.
(McDonald's carries out concentrated growth while focusing on one
business activity, providing fast food by providing franchising to
those people who are willing to undergo training and work under the
name of the company.)
- Integration - enlarging the company through the merger or
acquisition of other companies or their parts.
There are 2 types:
Vertical integration: Backward vertical integration occurs when
the organisation decides to de integrate into its activities, though as
those activities that precede the production of the current products
or service. It represents the organization's efforts to gain control
over inputs. The organization does become its own supplier. (bicycle
distributors invests in its own bicycle manufacturing organization)
Forward vertical integration, the organisation owns or controls the
organisations that place the product on the market or use it
themselves. It is about outputs. (bicycle distributor start selling
bicycles through network of retailers or over the Internet)
Horizontal integration: strategy by which an organisation ensures
its growth in the form of integrating another organisation or
organisations engaged in the same activity.
(a clothing company that integrates other organizations in the
closing industry)
- Diversification - if the company has enough money, it can diversify
into other business activities.
Related diversification: the organization expands its activities into
the creating of new products, lines or services related or like the
current areas of business. (Rossignol company produces not only
skis, but also ski routes, sportswear, and various accessories.)
Unrelated diversification: the organisation expands is business
activities to areas that are not related to the previous activity.
 (shoe manufacturing organization expands its activity into activities
that are completely new, for example perfume production)
2) Stability – a strategy in which an organisation continues to do what it is
currently doing. Sometimes the organization is interested in giving
preference to the continuation of the current activities without significant
change. Referred to as temporary strategy, because i tis usually used
during a short period when the organization needs peace and stability after
a previous more intensive growth or is preparing for future expansion.
3) Renewable – a strategy designed to address declining performance.
These are used when the company's products and markets are in a
declining stage of the life cycle. With this strategy, the company can
cancel the production of its products, leave some markets, close some of
its plans, or lay off employees and limit its activities.
- Retrenchment strategy: a short-run renewal strategy used for
minor performance problems. This strategy helps an organization
stabilize operation, revitalize organizational resources and
capabilities, and prepare to compete once again.
- Turnaround strategy: used when the organization's problems are
more serious, and this is more drastic strategy compared to
retrenchment strategy. Managers do 2 things for both renewable
strategies cut costs and restructure organizations operations, but in
this one it is more drastic.

How to choose the correct corporate strategy?

BCG matrix = a strategy tool that guides resource allocation decisions based
on market share and growth rate of strategic business units.

There are 4 categories of products

Stars – high market share/high anticipated growth rate. Having investment in
stars will help take advantage of the markets growth and help maintain high
market share. The stars of course will eventually develop into cash cows as their
markets mature and sales growth slows.
Cash cows - high market share/low anticipated growth rate. Managers should
milk cash cows for as much as they can, limit any new investments in them and
use the large amounts of cash, cash generated to invest in stars and question
parks with strong potential to improve market share.
Question marks - low market share/high anticipated growth rate. The hardest
decision for managers relates mainly to the question marks. After careful
analysis, some will be sold off and other strategically turned into stars.
Dogs - low market share/low anticipated growth rate. They should be sold as
they have low market share in markets with low growth potential.

The horizontal axis represents market share, low or high and the vertical axis
indicates anticipated markets grow.
Competitive Strategy
An organisational strategy for how an organization will compete in its business or
businesses. Handled by middle management.
Strategic business units (SBU) – the single independent business of an
organization that formulates their own competitive strategies.
Competitive advantage – what sets an organisation apart, its distinctive
edge. The distinctive edge can come from the organization score competencies
or by doing something that others cannot do.
Economic moat – maintaining a competitive advantage over competitors and
protecting long term profits and market share.

Models to help us find competitive advantage

Five-Forces Model (Michael Porter)
Based on the industry analysis. In any industry, 5 competitive forces dictate the
rules of competition. Together, these five forces determine industrial
attractiveness and profitability.
1) Threat of new entrants – how likely is that new competitors will come
into the industry?
2) Threat of substitutes – how likely is that other industries products can
be substituted for our industry’s products?
3) Bargaining power of buyers – how much bargaining power do buyers
customers have?
4) Bargaining power of suppliers – how much bargaining power do
suppliers have?
5) Current rivalry – how intense is the rivalry among current industry
competitors?

Once managers have assessed the five forces and done the SWOT analysis, they
are ready to select an appropriate competitive strategy that is one that fits the
competitive strengths F of the organization and the industry it's in.

Cost Leadership Strategy

Having the lowest costs (costs or expenses, NOT prices) in its industry and being
highly efficient. It consists in the organization's efforts to use all available means,
leading to the fact that the organization will have low production, distribution or
other costs in the given industry.

Differentiation Strategy
Offering unique products that are widely valued by customers. This strategy aims
to obtain a competitive advantage due to the uniqueness of the product or
service. The difference which attracts customers to buy thus enables an increase
in sales and can be reflected in higher prices of product or services.
Differentiation in organization's offering can come also from variety of sources
such as brand image, technology, better customer service.
Differentiation can be based on:
- Quality
- Innovation
- Customer service
- Mass customisation
- Social media.
Product and services can also be differentiated based on tangible, for example,
size, colour, design and intangible properties, for example, exclusivity, brand
image, safety, environmental friendliness, etc.

Focus Strategy
Involves a cost advantage (cost focus) or a differentiation advantage
(differentiation focus) in a narrow segment or niche.
Can be based on:
- Product variety
- Customer type
- Distribution channel
- Geographical location.
It addressed the customer's interest in a specific type of product or service and
adapts the product or service to this target segment which is not sufficiently
satisfied by other competitors within the given industry.

Functional Strategy
These are created mainly by lower-level managers and they are mostly about the
specific functions of the company. For example, it can be the strategy about
research and development, manufacturing, marketing, human resources or
finance.