Chapter 8

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Chapter 8 Strategic Management

• Importance of strategic management
• Strategic management process
• Components of a mission statement
• Levels of strategy
• Corporate level strategies
• Growth strategies
• Renewal strategies
• Corporate portfolio matrix
• Competitive advantage
• Business level strategy (cost, differentiation,
  etc.)
• Rule of Three

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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 Strategic Management Is Important

1. It results in higher organizational performance.
2. It requires that managers examine and adapt to
   business environment changes.
3. It coordinates diverse organizational units,
   helping them focus on organizational goals.
4. It is very much involved in the managerial
   decision-making process.

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The Strategic Management Process
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Step 1 ID Current Mission, Goals, Strategies

• You know what goals and strategies look like from
  Ch. 7 what do missions look like?
• A mission is the firms reason for being, and
  usually includes some of the following items

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Components of a Mission Statement

• Customers Who are the organizations customers?
• Products or services What are the
  organizations major products or services?
• Markets Where does the organization compete
  geographically?
• Technology How technologically current is the
  organization?
• Concern for survival growth, and profitability
  Is the organization committed to growth and
  financial stability?
• Philosophy What are the organizations basic
  beliefs, values, aspirations, and ethical
  priorities?
• Self-concept What is the organizations major
  competitive advantage and core competencies?
• Concern for public image How responsive is the
  organization to societal and environmental
  concerns?
• Concern for employees Does the organization
  consider employees a valuable asset?

Exhibit 8.2
Source Based on F. David, Strategic Management,
8th ed. (Upper Saddle River, NJ Prentice Hall,
2001), pp. 6566.
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Steps 2 and 3 SWOT ANALYSIS
Strengths (internal) What does well? What is
its competitive advantage (core
strength)? What resources possess?
Opportunities (external) (positive trends)
Weaknesses (internal) What does poorly? What
resources dont have?
Threats (external) (negative trends)
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CSUN SWOT
Strengths Low cost Focus on teaching
Opportunities Growing demographics Web-based
technology
Weaknesses Inadequate resources Too long to
graduate Cant get classes
Threats Tough economy Emerging competitors (UOP)
Strategy Offer on-line courses which are
inexpensive, can enroll masses of students, and
will help students get classes they need
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Your Personal SWOT Managing Your Career
Opportunities What positive trends are affecting
this industry? (job openings, new technologies,
etc.)

• Strengths
• Talents, skills, abilities?
• What activities do you enjoy?
• What are you good at?

• Weaknesses
• What arent you so good at?
• What do you dislike doing?

Threats What negative trends are affecting this
industry? (e.g., layoffs, outsourcing,
cut-throat competition, etc.)
Pick 2-3 industries you are interested in, and
evaluate for each
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Identifying the Organizations Opportunities
Exhibit 8.3
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Steps 4, 5, 6

• Step 4 Formulate strategy (develop strategic
  alternatives and pick best one)
• Step 5 Implement strategy
• Step 6 Evaluate strategy (how effective were
  they? What adjustments are needed?

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The Golf Network Questions

1. How did the company start?
2. What were its strengths (internal)
3. What were its weaknesses (internal)
4. What were the opportunities (external)
5. What were the threats (external)
6. What strategy is it using to succeed?
7. Do you think it will succeed?

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Levels of Organizational Strategy
Exhibit 8.4
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Levels of Organizational Strategies

• Corporate what businesses should we be in?
• Business How should we compete in each of our
  businesses?
• Functional-Level Strategies How can we support
  the business-level strategy?

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Types of Corporate Strategies

• Growth
• Stability
• Renewal

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Types of Growth Strategies

• Concentration
• Vertical integration
• Forward, backward
• Horizontal integration
• Diversification
• Related, unrelated

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Stability Strategy

• Seeks to maintain the status quo possibly to
• Deal with the uncertainty of a dynamic
  environment
• Cope with industry slow- or no-growth
• Owners of firm dont want to grow for personal
  reasons

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Renewal Strategies

• Strategies to counter organization weaknesses
  that are leading to performance declines.
• Retrenchment eliminate non-critical weaknesses
  and restoring strengths
• Turnaround strong cost elimination measures and
  large-scale organizational restructuring solutions

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The BCG Matrix
Exhibit 8.5
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Forces in the Industry Analysis
Source Based on M.E. Porter, Competitive
Strategy Techniques for Analyzing Industries and
Competitors (New York The Free Press, 1980).
Exhibit 8.6
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Five Competitive Forces

• Threat of New Entrants
• The ease or difficulty with which new competitors
  can enter an industry.
• Threat of Substitutes
• The extent to which switching costs and brand
  loyalty affect the likelihood of customers
  adopting substitutes products and services.
• Bargaining Power of Buyers
• The degree to which buyers have the market
  strength to hold sway over and influence
  competitors in an industry.
• Bargaining Power of Suppliers
• The relative number of buyers to suppliers and
  threats from substitutes and new entrants affect
  the buyer-supplier relationship.
• Current Rivalry
• Intensity among rivals increases when industry
  growth rates slow, demand falls, and product
  prices descend.

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Competitive Basic Strategies

• Cost Leadership Strategy
• Seeking to attain the lowest total overall costs
  relative to other industry competitors.
• Differentiation Strategy
• Attempting to create a unique and distinctive
  product or service for which customers will pay a
  premium.
• Focus Strategy
• Using a cost or differentiation advantage to
  exploit a particular market segment rather a
  larger market.

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The Rule of Three

• The competitive forces in an industry, if
  unfettered, will inevitably create a situation
  where three companies (full-line generalists)
  will dominate any given market
• Some firms in the same market become super niche
  players and while others end up as
  stuck-in-the-ditch bottom dwellers.

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First-Mover AdvantagesDisadvantages

• Advantages
• Reputation for being innovative and industry
  leader
• Cost and learning benefits
• Control over scarce resources and keeping
  competitors from having access to them
• Opportunity to begin building customer
  relationships and customer loyalty

• Disadvantages
• Uncertainty over exact direction technology and
  market will go
• Risk of competitors imitating innovations
• Financial and strategic risks
• High development costs

Exhibit 8.8