Lecture 3 Strategic Management (Std)

8/3/2019 Lecture 3 Strategic Management (Std)

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F202B3

Foundations of Management

Lecture 3

Strategic Management


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Learning Objectives

Define strategic management, strategy and businessmodel

Explain the importance of strategic management

Describe the steps in the strategic managementprocess

Explain SWOT analysis

Differentiate corporate-, business-, and functional-level strategies

Explain what competitive advantage is and why it isimportant to organizations

Identify the various competitive strategies


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Strategic Management

What Is Strategic Management?

SM involves managers from all parts of theorganisation in the formulation and

implementation of strategic goals and strategies(Bateman & Snell, 2011).

It is a set of related actions that managers take toincrease their companys performance (Hill &

Jones, 2008) The game plan or roadmap


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For a strategy to be successful, a firm must beflexible and make changes to the plan basedon experience

Strategies should be designed to generate asustainable competitive advantage.

Competitive advantage: anything that a firm

does especially well compare to rival firms Success is 10% formulation and 90%

implementation

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Importance of SM It explains why do some companies fail whereas

others succeed

Managers use SM to make decisions in order to copewith uncertain environments

SM helps organizations co-ordinate differentdepartments and functions and direct employeesfocus on achieving organizational goals.

It allows an organization to be more proactive in

shaping its own future; initiate influence and exertcontrol over its own destiny


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The Strategic Management Process

PLANNING, IMPLEMENTATION, EVALUATION

Establishment of vision,mission and goals

Feedback


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Step 1: Identify Current Vision,Mission, Values,

Goals and Strategies

Vision - Statement of future desired state

Mission - The reason for its existenceValues - A statement of key values that

an organization is committed to

Goals - The measurable desired future

state that an organization

attempts to realize


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Example Air Asia

Vision:

To be the largest low cost airline in Asia and

serving the 3 billion people who are currentlyunderserved with poor connectivity and high

fares.


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Air Asia

Mission:

To be the best company to work for wherebyemployees are treated as part of a big family

Create a globally recognized ASEAN brand

To attain the lowest cost so that everyone canfly with AirAsia

Maintain the highest quality product,embracing technology to reduce cost andenhance service levels


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Air Asia

Values:

We make the low fare model possible through the implementation of the following key

strategies,

Safety First:

Partnering with the worlds most renowned maintenance providers and complying with the

with world airline operations. High Aircraft Utilisation:

Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs

and higher productivity.

Low Fare, No Frills:

Providing guests with the choice of customizing services without compromising on quality

and services.

Streamline Operations:

Making sure that processes are as simple as possible.

Lean Distribution System:

Offering a wide and innovative range of distribution channels to make booking and travelling

easier.

Point to Point Network:

Applying the point-to-point network keeps operations simple and costs low.


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Step 2: Doing an External Analysis

Analysis of the organizations external operating

environment

successful strategies are aligned with theenvironment

Opportunities: Positive trends in external

environmental factors (Favorable conditions) Threats: Negative trends in external

environmental factors


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How to identify opportunities and threats?

- The general environment (PESTEL analysis)

- The industry environment (Porters 5 forcesanalysis)

- Strategic group

- Competitor analysis

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Step 2: Doing an External Analysis


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Step 3: Doing an Internal Analysis

To identify the resources and capabilities of the organization

Resources: tangible and intangible

Capabilities: companys skills at coordinating its resources andputting them into productive use.

When a firm has company-specific and valuable resources andcapabilities, it creates distinctive competencies.

Distinctive/core competencies- a unique and exceptional

capability or resource the organizations major value-creating, competitive

weapon


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Strengths: unique resources or activities which

the organization does well

Weaknesses: resources an organization needsbut does not possess, activities which the

organization does not do well

Combined internal & external analysis SWOT

analysis


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Strengths: unique resources or activities which

the organization does well

Weaknesses: resources an organization needsbut does not possess, activities which the

organization does not do well

Combined internal & external analysis SWOT

analysis


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Step 4: Formulating

Strategies

Consider the realities of the external

environment & the available resources &

capabilities design strategies that will helpthe organization achieving its mission and

vision.

There are three types of organizational strategies


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Types of Organizational Strategies


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Corporate-Level Strategy

Aim Maximizing profitability and profit growth

Determines

what businesses a company should be in or wants to be in

the direction that the organization is going

the role that each business unit will play

There are three types of corporate strategies :

- Growth- Stability

- Renewal


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Growth seeks to increase the level of the organizations operations

1. concentration - growth through direct expansion of organizations ownbusiness operations

2. vertical integration

backward- become your own supplier

forward- become your own distributor

3. horizontal integration - grow by combining with other organizations inthe same industry

4. diversification

Concentric/related diversification - grow by merging with or acquiringfirms in different, but related, industries

strategic fit

Conglomerate/unrelated diversification - grow by merging with oracquiring firms in different and unrelated industries


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Stability

no significant change is proposed

organizations performance is satisfactory

environment appears to be stable and unchanging

few organizations today pursue this strategy

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Renewal designed to address organizational weaknesses that are leading to

performance declines

Retrenchmentshort run renewal strategy used in situations whenperformance problems are not so serious, e.g. declining profits

intended to:

stabilise operations

revitalise organizational resources and capabilities

prepare to compete once again

Turnaround renewal strategy where performance problems arecritical e.g. loses

Managers cut costs, restructure organizational operations


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Corporate Portfolio Analysis - used when corporate strategyinvolves a number of businesses

Portfolio analysis helps to classify businesses into a single framework

Boston Consulting Group (BCG) matrix

helps managers establish priorities for making resource

allocation decisions

businesses classified in terms of

current market share

anticipated market growth


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BCG Matrix


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BCG Matrix

Cash cows: (low growth, high market share) generate

large amounts of cash, prospects for growth limited

Stars: (high growth, high market share) fast growing,

hold dominant share of that market

?: (high growth, low market share) attractive industry

but small market share percentage

Dogs: (low growth, low market share) do notproduce or consume much cash, no promise of

improved performance.


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BCG Matrix

strategic implications of the matrix

cash cows - milk

use cash to invest in stars and question marks

stars - require heavy investment

eventually will become cash cows

question marks - two strategies

invest to transform them into stars divest

dogs - sold off or liquidated


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Business-Level Strategy

determines how an organization should compete ineach of its businesses

strategic business units - independent businessesthat formulate their own strategies (for org withmultiple businesses)

Role ofCompetitive Advantage competitive advantage - sets an organization apart by

providing a distinct edge comes from the organizations core competencies

not every organization can transform core competencies into acompetitive advantage

once created, must be able to sustain it


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Competitive Strategy

Porters three generic strategies

cost leadership - goal is to become the

lowest-cost producer in the industry tries to identify efficiencies in all operations

overhead kept to a minimum

product or service must be perceived to be of

comparable quality to that offered by

competitors


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differentiation - offer unique products

that are widely valued by customers

sets the firm apart from competitors

differentiation based on quality, service,

product design, brand image

customers must be willing to pay a pricepremium that exceeds the cost of

differentiation


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focus - aims at a cost advantage or

differentiation advantage in a narrow

segment no attempt to serve the broad market

feasibility of strategy depends on the size of

the segment and the ability of the firm tosupport the cost of focusing


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Functional-Level Strategy

used to support the business-level

strategy

creates an appropriate supporting rolefor each functional area of the

organisation

e.g., manufacturing, marketing, humanresources


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Step 5: Implementing Strategies

A strategy is only as good as its

implementation

Involves adjustments of

Structure

Human resources

Management leadership


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Step 6: Evaluating Results

control process to determine the

effectiveness of a strategy

Have the goals been achieved?

What adjustments, if any, are necessary?


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Readings

Bateman & Snell, Chapter 4

Robbins, Chapter 8

Gomez-Mejia,3rd

ed, Chapter7

Lecture 3 Strategic Management (Std)

Documents

Transcript of Lecture 3 Strategic Management (Std)