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Chapter

Strategic Management

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 Learning Objectives
After reading this chapter, you should be able to:

z Implement the steps in the strategic management

process.
z Conduct an analysis of the firm’s strengths,
weaknesses, opportunities, and threats.
z Identify the factors that create a sustained competitive
advantage.
z Link external and internal environment data to
determine a firm’s strategic intent and mission.
z Choose appropriate business strategies at the
corporate and business-unit levels.
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 The Strategic Management Process

z It is the job of top level management to

chart the course of the entire enterprise.

z It consists of:
¾ Analysis of the internal and external environment of the
firm.
¾ Definition of the firm’s mission.
¾ Formulation and implementation of strategies to create or
continue a competitive advantage.

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 The Strategic Management Process
(continued)

z Strategic management involves both long-range

thinking and adaptation to changing conditions.

z Strategies should be designed to generate a

sustainable competitive advantage.

z Competitors should be unable to duplicate what

the firm has done or should find it too difficult or
expensive.

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 Components of the Strategic Management
Process:
Analyze the external and
internal environments

Define strategic intent

and mission

Formulate strategies

Implement strategies

Assess strategic
outcomes
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 SWOT Analysis
z Commonly used strategy tool: SWOT
¾ Strengths, Weaknesses, Opportunities, Threats
z Step 1: Analyze the organization’s internal environment,
identifying its strengths and weaknesses.
z Step 2: Analyze the organization’s external environment,
identifying its opportunities and threats.
z Step 3: Cross-match
¾ Strengths with opportunities
¾ Weaknesses with threats
¾ Strengths with threats
¾ Weaknesses with opportunities

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 The External Environment
z Company leaders must study the external
environment in order to:
¾ Identify opportunities and threats in the marketplace.
¾ Avoid surprises.
¾ Respond appropriately to competitors’ moves.

z A major challenge is to gather accurate market

intelligence in a timely fashion, and transform it
into usable knowledge to gain a competitive
advantage.

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 Components of External Analysis

Scanning M onitoring

A ssessing Forecasting

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 Scope of the External Analysis

G eneral The Industry

Environm ent

C om petitor Strategic
A nalysis G roups

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 The Segments of the General Environment

c on o m ic
Demography E
o n di ti o ns
C

a t i o n
b a l iz Political/
G lo Legal
Forces

Techno Socio-
logical cultura
Condit l
Chang ions
es
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 Porter’s Framework for Analyzing
the Industry Environment
Threat of new
entrants Threat of
substitutes

Suppliers

Customers
Intensity of rivalry
among competitors

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 The Internal Environment
z Each company has something that it does well.
These are called “core competencies.”

z Company executives should identify the resources,

capabilities, and knowledge the firm has that may
be used to exploit market opportunities and avoid
potential threats.

z Resource-based view: Basing the strategy on what

the firm is capable of doing

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 Core Competencies and
4. Select a strategy that best Market Opportunities
exploits the firm’s Strategy
capabilities relative to
external opportunities.

3. Appraise the profit

generating potential of Potential for 5. Identify resource gaps
resources/capabilities in sustainable that need to be filled.
terms of creating, competitive Invest in replenishing
sustaining, and exploiting advantage and augmenting the
competitive advantage.
firm’s resource base.

2. Identify the firm’s

capabilities
Capabilities
(What can the firm do?)

1. Identify the firm’s

resources and locate
areas of strength and Resources
weakness relative to
competitors.
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 Resource Types:
Tangible Resources
z Assets that can be quantified and observed.

z Include financial resources, physical assets, and

workers.

z Strategic assessment of tangible resources should

enable management to efficiently use tangible
resources to support the company and
to expand the volume of business.

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 Resource Types:
Intangible Resources
z Difficult to quantify and included on a balance
sheet

z Often provides the firm with a strong competitive

advantage.

z Competitors find it difficult to purchase or imitate

these resources.

z Strategically most important intangibles:

¾ Reputation
¾ Technology
¾ Human Capital
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 Analyzing the Firm’s Capabilities

FunctionalA nalysis

Value C hain A nalysis

B enchm arking

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 Analyzing Capabilities by
Functional Areas
Functional Area Capability

Corporate Management Effective financial control systems

Expertise in strategic control of diversified corporation
Effectiveness in motivating and coordinating divisional and
business-unit management
Management of acquisitions
Values-driven, in-touch corporate leadership
Information Management Comprehensive and effective MIS network, with strong central
coordination

Research and Development Capability in basic research

Ability to develop innovative new products
Speed of new product development

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 Analyzing Capabilities by
Functional Areas (continued)
FunctionalA rea C apability

Manufacturing Efficiency in volume manufacturing

Capacity for continual improvements in production processes
Flexibility and speed of response

Product Design Design capability

Marketing Brand management and brand promotion
Promoting and exploiting reputation for quality
Responsive to market trends

Sales and Distribution Effectiveness in promoting and executing sales

Efficiency and speed of distribution
Quality and effectiveness of customer service

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 A Simple Value Chain

Product
Technology Manufacturing Marketing Distribution Service
Design

Source Function Integration Prices Channels Warranty

Sophistication Physical Raw Materials Advertising Integration Dealer Support
Characteristics
Patents Capacity Promotion Inventory Availability
Aesthetics
Product Process Location Sales Force Warehousing Speed
Quality
Product Choices Procurement Package Transport Prices
Parts Production Brand
Assembly
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 Benchmarking Involves Four Stages:
„ Identifying activities or functions that are weak
and need improvement.

„ Identifying firms that are known to be at the

leading edge of these activities or functions.

„ Studying the leading-edge firms by visiting them,

talking to managers and employees, and reading
trade publications.

„ Using the information gathered to redefine goals,

modify processes, and acquire new resources to
improve the firm’s functions.
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 Strategic Intent and Mission

z The primary guides to strategic management are

formal statements of strategic intent and mission.

z Strategic intent is internally focused, defining how

the firm uses its resources, capabilities, and core
competencies.

z Strategic mission is externally focused, defining what

will be to produced and marketed, utilizing its internal
core competencies.

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 Strategy Formulation
z The design of an approach to achieve the firm’s
mission.

z Takes place at:

¾ Corporate-Level
¾ Business-Level

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 Corporate-Level Strategy

z The corporation’s overall plan concerning the:

¾ Number of businesses the corporation holds.
¾ Variety of markets or industries it serves.
¾ Distribution of resources among those businesses.

z This diversification strategy may be analyzed in terms

of:
¾ Portfolio mix
¾ Type of diversification
¾ Process of diversification

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 Portfolio Analysis

z The basic idea is to classify the businesses of a

diversified company within a single framework.

z Two of the most widely applied include:

¾ The McKinsey-General Electric Portfolio Analysis
Matrix
¾ The Boston Consulting Group’s Growth Share Matrix

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 The McKinsey-General Electric
Portfolio Analysis Matrix
Business-Unit Position
Low Medium High
1) 2) 3)
Low
Harvest

4) 5) 6) Industry
Medium
Attractiveness
Hold

7) 8) 9)
High
Build

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 The Boston Consulting Group’s
Growth Share Matrix
Relative Market Share
Earnings: high stable, Earnings: low, unstable,
growing growing
Cash Flow: neutral Cash Flow: negative
Strategy: analyze to determine
Strategy: invest for growth
whether business can be grown
Annual Real STAR into a star, or will degenerate
Rate of Market into a dog
Growth
?

Earnings: high, stable Earnings: low, unstable

Cash Flow: high stable Cash Flow: neutral or
Strategy: milk negative
COW Strategy: divest
DOG
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 Diversification Strategy

Type of Diversification Process of Diversification

z Concentration strategy z Acquisition and
z Vertical integration restructuring strategies
strategy ¾ Acquisition
z Concentric ¾ Merger
diversification strategy z International strategy
z Conglomerate
diversification

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 Business-Level Strategy

z Deals with how to compete in each business area

or market segment.

z Firms have two basic choices:

¾ Cost leadership strategy
¾ Differentiation strategy

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 Strategy Implementation
O rganizational
Structure and
C ontrols
C orporate C ooperative
Entrepreneurship Strategies
and Innovation

H um an
Strategic
R esource
Leadership
Strategies

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 Strategic Outcomes
z Company leaders should periodically assess
whether the outcomes meet expectations.
z A firm must first and foremost cater to the desires
of its primary stakeholders.
z The firm should also consider the desires of other
stakeholders affected by its performance.
z Some of the standard measures of strategic success
includes:
¾ Profits
¾ Growth of sales/market share
¾ Growth of corporate assets
¾ Reduced competitive threats
¾ Innovations
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 Applications: Management Is Everyone’s
Business—For the Manager
z An effective manager must be proactive in responding
to evolving challenges and opportunities rather than
being overtaken by events.

z Learning to think strategically forces managers to:

¾ Be alert for changes in the external and internal environments.
¾ Modify the firm’s strategic intent, mission, and formulated strategy when
necessary.
¾ Effectively implement the new or redesigned strategies.

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 Applications: Management Is Everyone’s
Business—For Managing Teams
z The strategic management process generally
involves teams of managers and employees from
different areas who bring their perspectives and
expertise to bear on issues facing the firm.

z A key factor is how well the firm can mobilize and

integrate the efforts of team members.

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 Applications: Management Is Everyone’s
Business—For Individuals
z Individual employees are more likely to make
greater contributions to the firm if they engage in
activities that have strategic value.

z Employees can be attuned to changes in their area

of expertise and advise management on the
strategic implications of those changes.

z Employee success depends on the ability to adapt

to the firm’s strategic change.

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