Strategic Management

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True or False

Strategic management involves major decisions, business choices, and actions that charter the course of the entire enterprise starting with the analysis of both the internal and external environments.

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The Strategic The Strategic Management ProcessManagement Process

It is the job of top level management to chart the course of the entire enterprise.

It consists of:Analysis of the internal and external

environment of the firm.Definition of the firm’s mission.Formulation and implementation of

strategies to create or continue a competitive advantage.

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The Strategic The Strategic Management ProcessManagement Process (cont)(cont)

Strategic management involves both long-range thinking and adaptation to changing conditions.

Strategies should be designed to generate a sustainable competitive advantage.

Competitors should be unable to duplicate what the firm has done or should find it too difficult or expensive.

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Analyze the external and internal environments

Define strategic intent and mission

Formulate strategies

Implement strategies

Assess strategic outcomes

Components of the Strategic Components of the Strategic ManagementManagement Process:Process:

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SWOT AnalysisSWOT AnalysisCommonly used strategy tool: SWOTStrengths, Weaknesses, Opportunities, ThreatsExternal Environment Internal Environment

Components

•Scanning

•Monitoring

•Forecasting

•Assessing

Scope

•General environment

•Industry environment

•Strategic groups

•Direct competitors

Resource types

•Tangible

•Intangible

Firm capabilities

•Functional

•Value Chain

•Benchmarking

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The External EnvironmentThe External EnvironmentCompany leaders must study the

external environment in order to:Identify opportunities and threats in the

marketplace.Avoid surprises.Respond appropriately to competitors’

moves.

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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ScanningScanning MonitoringMonitoring

ForecastingForecastingAssessingAssessing

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General General EnvironmentEnvironment The IndustryThe Industry

Strategic Strategic GroupsGroups

Competitor Competitor AnalysisAnalysis

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From an external analysis From an external analysis perspective, the aging perspective, the aging population in Western population in Western countries demonstrates a ___. countries demonstrates a ___.

A)demographic trendsB)political/legal forcesC)socio-cultural

conditionsD)technological change

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DemographyEconomic

Conditions

Political/Legal Forces

Socio-cultural Conditions

Technological Changes

Globalization

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What barriers to entry did Preston have to overcome in order to make it in the parachute Industry?

Describe the type of internal resources that give Preston’s business its advantage over competitors.

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Threat of new entrants Threat of

substitutes

Suppliers

CustomersIntensity of rivalry

among competitors

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How would you group these hotel How would you group these hotel chains? chains?

Days InnHoliday InnSuper 8Hampton InnWestinOmni HotelHomewood

SuitesEmbassy Suites

Days InnHoliday InnSuper 8Hampton InnWestinOmni HotelHomewood

SuitesEmbassy Suites

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The Internal EnvironmentThe Internal EnvironmentEach company has something that it does

well. These are called “core competencies.”

Company executives should identify the resources, capabilities, and knowledge the firm has that may be used to exploit market opportunities and avoid potential threats.

Resource-based view: Basing the strategy on what the firm is capable of doing

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Resource Types: Resource Types: Tangible ResourcesTangible Resources

Assets that can be quantified and observed.

Include financial resources, physical assets, and workers.

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: Resource Types: Intangible ResourcesIntangible Resources

Difficult to quantify and include on a balance sheet

Often provides the firm with a strong competitive advantage.

Competitors find it difficult to purchase or imitate these resources.

Strategically most important intangibles:ReputationTechnologyHuman Capital

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Functional Analysis

Value Chain Analysis

Benchmarking

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Analyzing Capabilities by Analyzing Capabilities by Functional AreasFunctional Areas

Functional Area Capability

Corporate Management

Effective financial control systemsExpertise in strategic control of diversified corporationEffectiveness in motivating and coordinating divisional and business-unit managementManagement of acquisitionsValues-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 19

Analyzing Capabilities by Analyzing Capabilities by Functional AreasFunctional Areas (cont.)(cont.)

Functional Area

Capability

Manufacturing Efficiency in volume manufacturingCapacity for continual improvements in production processesFlexibility and speed of response

Product Design Design capabilityMarketing Brand management and brand promotion

Promoting and exploiting reputation for qualityResponsive to market trends

Sales and Distribution

Effectiveness in promoting and executing salesEfficiency and speed of distributionQuality and effectiveness of customer service

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Value-Chain AnalysisValue-Chain Analysis

Breaks down the firm into a sequential series of activities and attempts to identify the value added of each activity

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Benchmarking Involves Benchmarking Involves Four Stages: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 MissionStrategic Intent and Mission

Strategic Intent and Mission

Intent: How firm would like to use

•Resources

•Capabilities

•Core competencies

Mission: Determine the firm’s external focus on

•Products

•Markets

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Strategy FormulationStrategy Formulation

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

Takes place at:Corporate-LevelBusiness-Level

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Corporate-Level StrategyCorporate-Level Strategy

The corporation’s overall plan concerning the:Number of businesses the corporation holds.Variety of markets or industries it serves.Distribution of resources among those

businesses.

This diversification strategy may be analyzed in terms of:Portfolio mixType of diversificationProcess of diversification

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Diversification StrategyDiversification StrategyType of

DiversificationConcentration

strategyVertical integration

strategyConcentric

diversification strategy

Conglomerate diversification

Process of Diversification

Acquisition and restructuring strategiesAcquisitionMerger

International strategy

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Business-Level StrategyBusiness-Level Strategy

Deals with how to compete in each business area or market segment.

Firms have two basic choices:Cost leadership strategyDifferentiation strategy

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Preston’s parachute Preston’s parachute company has a business company has a business strategy based on ____.strategy based on ____.

A)low cost production

B)price controlC)differentiationD)focus cost

advantage 28

Organizational Structure and Controls

Cooperative Strategies

Human Resource Strategies

Strategic Leadership

Corporate Entrepreneurs

hip and Innovation

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Strategic OutcomesStrategic OutcomesCompany leaders should periodically

assess whether the outcomes meet expectations.

A firm must first and foremost cater to the desires of its primary stakeholders.

The firm should also consider the desires of other stakeholders affected by its performance.

Some of the standard measures of strategic success includes:ProfitsGrowth of sales/market shareGrowth of corporate assetsReduced competitive threatsInnovations

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Discussion Question Discussion Question Management minicase 7.1Management minicase 7.1

1. Based on what you have learned in this chapter, why would a company such as Microsoft develop, produce, and sell a product at a loss? Do you think this is a deliberate strategy? If so, is it rational?

2. Do you think demographic trends are likely to support or hinder the market for this type of product? More broadly, what do you see as opportunities and threats in the market?

3. From a resource-based perspective, do you think Microsoft’s core competencies are likely to give the company a competitive advantage in the game consoles market in the future?

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