Strategic Management

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Strategic Management

• Chapter Eight

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Strategic Management

• The set of managerial decisions and actions that
  determines the long-run performance of an
  organization.

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Why Is Strategic Management Important?

• Positive relationship between strategic planning
  and performance
  
• Better cope with uncertain environments
• Helps coordinate and focus the organization on
  its goals
  

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Strategic Management Process

• A six-step process that encompasses strategic
  planning, implementation, and evaluation.

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Strategic Management Process

• External Analysis
• Opportunities
• Threats

Identify the organizations current mission,
goals, and strategies
Evaluate Results
Formulate Strategies
Implement Strategies
SWOT Analysis

• Internal Analysis
• Strengths
• Weaknesses

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Step 1 Identifying the Current Mission, Goals,
and Strategies

• Mission
• States the purpose of the organization.
• Identifies the scope of its products/services.
• eBay To provide a global trading platform
  where practically anyone can trade practically
  anything.

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Step 2 External Analysis

• Examine the external environment to see what
  trends and changes are occurring.
  
• Specificcustomers, competition, suppliers,
  public pressure groups
  
• Generaldemographics, legal/political, economic,
  global, technological, sociolcultural
  
• Assess for opportunities.
• Enronderegulation of the energy industry
• Assess for threats.
• Automobile industryprice of gasoline

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Step 3 Internal Analysis

• Assess the organizations resources such as
  financial capital, technical expertise, and human
  resources.
  
• Assess the organizations capabilities with
  performing different functional activities such
  as marketing, manufacturing, information systems.

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Step 3 Internal Analysis continued

• Determine strengths.
• Coca colas brand and marketing prowess.
• Determine weaknesses.
• American made minivans poor reliability.
• Determine core competenciesthe major
  value-creating skills and resources that
  determine its competitive weapons.
  
• Fedexreliability

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Step 4 Formulating Strategies

• Develop and evaluate strategic alternatives.
• Select strategies that capitalize on the
  organizations strengths and exploit
  environmental opportunities or that correct the
  organizations weaknesses and buffer against
  threats.

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Step 5 Implementing Strategies

• A strategy is only as good as its implementation.
  
  
• Issues related to strategy implementation include
  organizational structure, using teams, and
  leadership.

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Step 6 Evaluating Results

• How effective are the strategies?
• What adjustments are necessary?

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SWOT Analysis

• Worcester State College

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Strategic Management Process

• External Analysis
• Opportunities
• Threats

Identify the organizations current mission,
goals, and strategies
Evaluate Results
Formulate Strategies
Implement Strategies
SWOT Analysis

• Internal Analysis
• Strengths
• Weaknesses

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Types of Organizational Strategies

• Corporate Level StrategySeeks to determine what
  businesses a company should be in.
  
• Business Level StrategySeeks to determine how an
  organization should compete in each of its
  businesses.
  
• Functional Level StrategySupports the
  business-level strategy (marketing, HR,
  manufacturing, finance, RD).

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Corporate Level Strategy

• Growth strategySeeks to increase the
  organizations operations by expanding the number
  of products offered or markets served.
  
• ConcentrationGrow by focusing on the
  organizations primary line of business.
  
• BoseBillion dollar company that focuses on
  innovative audio products.

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Other Growth Strategies

• Vertical integrationChoose to grow by
  controlling inputs (backward integration),
  outputs (forward integration), or both.
  
• Gatewayforward integration failed
• Montessori schoolforward integration
• Horizontal integrationChoose to grow by
  combining with other organizations in the same
  industry. Monitored by Federal Trade Commission
  because decreases competition.
• AOL and Time Warner merger.

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Other Growth Strategies continued.

• Related diversificationGrow by merging with, or
  acquiring, firms in related industries.
  
• New York Times Company
• Unrelated diversificationGrow by merging with,
  or acquiring, firms in unrelated industries.
  
• Lancaster Colonysalad dressing, car mats
• Combination ApproachGrow by combining the
  various growth strategies.
  
• McDonaldsconcentration plus purchasing Boston
  Market and Domino Pizza chains
  

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Corporate Level Strategy continued.

• StabilityStrategy characterized by an absence of
  significant change such as offering the same
  product or service, and maintaining market
  share.
• Useful strategy when an industry is in a period
  of upheaval or if the industry is facing slow or
  no growth opportunities.

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Corporate Level Strategy continued.

• Renewal strategy
• Designed to address organizational weaknesses
  that are leading to performance declines.
  
• Cut costs and restructure operations.
• Retrenchmentshort-run renewal strategy.
• Kodak, PG, ATT, IBM, Reebok
• Turnaroundmajor renewal strategy
• Sears, Apple, DaimlerChrysler

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Corporate Portfolio Analysis

• Used when an organizations corporate strategy
  involves a number of businesses.
  
• Provides a framework for understanding diverse
  businesses.
  
• Helps managers establish priorities for making
  resource allocation decisions.

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Corporate Portfolio Analysis continued.
The BCG Matrix
Market Share
High
Low
High
Question Marks
Stars
Anticipated Growth Rate
Cash Cows
Dogs
Low
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Business Level Strategy

• How an organization should compete in each of its
  businesses.
  
• Strategic business unitssingle businesses that
  are independent and formulate their own strategy.
  
  

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Competitive Advantage

• What sets an organization apart.
• Comes from its core competencies.
• From organizational capability
• Dells ability to create a direct selling channel
  thats highly responsive to its customers.
  
• From organizational assets or resources
• Walmarts ability to monitor and control
  inventories and supplier relations more
  efficiently through the use of its information
  systems .

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The Right Competitive Strategy

• According to Michael Porter, the right strategy
  fits the organizations strengths (resources and
  capabilities) and its industry.

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Five Factors in Industry Analysis

• Threat of new entrants
• Economies of scale, brand loyalty, and capital
  requirements
  
• Threat of substitutes
• Switching costs, buyer loyalty
• Bargaining power of buyers
• Number of customers in the market, customer
  information, availability of substitutes
  

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Factors in Industry Analysis continued.

• Bargaining power of suppliers
• Degree of supplier concentration and availability
  of substitute inputs
  
• Current rivalry
• Industry growth rate, increasing or falling
  demand, and product differences

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Three Business Level Strategies

• Cost leadership strategythe lowest cost producer
  in the industry.
  
• Walmart, Southwest Airlines
• Differentiation strategyunique products that are
  widely valued by customers.
  
• Coach handbags, Kimberly-Clark Huggies Pull-ups
• Focus strategypursues cost or differentiation
  advantage in a narrow industry segment.
  
• A wood product manufacturer that sells chopsticks
  in Japan

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Functional Level Strategies

• Support business-level strategies (cost
  leadership, differentiation, focus).
  
• Operate from functional department level.
• Marketing
• Human Resources
• Finance
• Manufacturing
• Research Development
• Southwest Airlines, Ben Jerrys

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Strategic Management in Todays Environment
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Rule of Three

• Competitive forces in an industry, if kept
  relatively free of government interference or
  other special circumstances, will inevitably
  create a situation where three companies dominate
  any given market.

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The Rule of Three (continued).

• Three dominant players hold most of the industry
  market share.
  
• Fast foodMcDonalds, Wendys, Burger King
• Credit cardsVISA, MasterCard, Amex
• U.S. AutomakersGeneral Motors, Ford,
  DaimlerChrysler
  
• Global Food ProductsNestle, Unilever, Kraft
• Two companies tend to lead to monopolistic
  pricing or mutual destruction.
  
• Four companies tend to lead to continual price
  wars which can be detrimental.

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The Rule of Three (continued)

• Super-niche playersspecialize through product
  or market segmentation.
  
• Ditch dwellersnot one of the efficient, big
  three not a highly focused niche player.
  
• Discount Retail Industry
• Big three (Wal-Mart, Costco, Target)
• Super-niche (Kohls, TJ Maxx, Marshalls)
• Ditch dweller (Kmart)

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Strategies Using e-Business Techniques

• Applying the Internets Capabilities
• Create knowledge bases that employees can tap
  into anytime, anywhere.
  
• Turn customers into collaborative partners who
  help design, test, and launch new products.
  
• Become virtually paperless in specific tasks such
  as purchasing and filing expense reports.
  

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Strategies Using e-Business Techniques
(continued.)

• Cost-leadership strategyuse e-business
  techniques to reduce costs.
  
• Implement a Web-based inventory control system to
  reduce storage costs.
  
• Differentiation strategyuse e-business
  techniques to allow product customization.
  
• Provide an online sales configurator that allows
  customers to build their own products.
  
• Focus strategyuse e-business techniques to build
  community among your customers.
  
• Provide chat rooms or discussion boards for
  customers to interact with others who have common
  interests.
  

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The Fall and Rise of Strategic Planning
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Strategic Planning Versus Strategic Thinking

• Strategic planning is analysis.
• Breaking down a goal or a set of intentions into
  steps, formalizing and implementing those steps,
  and anticipating the results of each step.
  
• Rearranging established categories.
• Strategic thinking is synthesis.
• Involves intuition and creativity. Outcome is a
  not-too-precisely articulated vision of direction
  for the organization.
  
• Inventing new categories. Synthesizing
  experiences into a novel strategy. (Polaroid)
  

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Fallacies of Strategic Planning

• Prediction is possible.
• Certain repetitive patterns, such as seasons, my
  be predictable.
  
• Forecasting discontinuities, such as a
  technological innovation or a price increase, is
  virtually impossible.

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Fallacies of Strategic Planning (continued.)

• Strategists can be detached from the subjects of
  their strategies.
  
• Need soft data, including gossip and other
  intangible scraps of information.
  
• Inadvertent strategies emerge through the
  learning process.
  
• Sales rep convinces a different type of customer
  to try the product.
  
• Real strategists dig for ideas.

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Fallacies of Strategic Planning (continued.)

• The strategy-making process can be formalized.
• Formal procedures never will be able to forecast
  discontinuities, inform detached managers, or
  create novel strategies.
  
• Formalization implies a rational sequence from
  analysis to action. Often, however,
  organizations learn by doing.
  

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Usefulness of Planning

• Planning as strategic programming.
• Plans as tools to coordinate, communicate and
  control.
  
• Planners as strategy finders.
• Planners as analysts.
• Planners as catalysts.

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Loosen Up Strategy Making

• Strategy making is not an isolated process. Its
  interwoven with all it takes to manage an
  organization.
  
• Systems do not think. They can facilitate human
  thinking or they can prevent it.