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Chapter 8. STRATEGIC MANAGEMENT. © Prentice Hall, 2002. 8- 1. Learning Objectives. You should learn to: Explain the importance of strategic management Describe the steps in the strategic management process Explain SWOT analysis

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Chapter 8

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Strategic management

Chapter 8

STRATEGIC

MANAGEMENT

© Prentice Hall, 2002

8-1


Learning objectives

Learning Objectives

You should learn to:

Explain the importance of strategic management

Describe the steps in the strategic management process

Explain SWOT analysis

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

Explain what competitive advantage is and why it’s important to organizations

© Prentice Hall, 2002

8-2


Learning objectives cont

Learning Objectives (cont.)

You should learn to:

Describe the five competitive forces

Identify the various competitive strategies

© Prentice Hall, 2002

8-3


The importance of strategic management

The Importance Of Strategic Management

What Is Strategic Management?

A set of managerial decisions and actions that determines the long-run performance of an organization

Purposes of Strategic Management

involved in many decisions that managers make

companies with formal strategic management systems have higher financial returns than companies with no such system

important in profit and not-for-profit organizations

© Prentice Hall, 2002

8-4


The strategic management process

The Strategic Management Process

© Prentice Hall, 2002

8-5


The strategic management process1

The Strategic Management Process

1. Identifying the Organization’s Current Mission, Objectives, and Strategies

mission - statement of the purpose of an organization

important in profit and not-for-profit organizations

important to identify the goals currently in place and the strategies currently being pursued

© Prentice Hall, 2002

8-6


Components of a mission statement

Components of a Mission Statement

© Prentice Hall, 2002

8-7


The strategic management process cont

The Strategic Management Process (cont.)

2. Analyzing the Environment

successful strategies are aligned with the environment

examine both the specific and general environments to determine what trends and changes are occurring

3. Identifying Opportunities and Threats

opportunities - positive trends in the external environmental

threats - negative trends in the external environment

© Prentice Hall, 2002

8-8


The strategic management process cont1

The Strategic Management Process (cont.)

4. Analyzing the Organization’s Resources and Capabilities

examine the inside of the organization

available resources and capabilities always constrain the organization in some way

core competence - a unique and exceptional capability or resource

the organization’s major value-creating, competitive weapon

© Prentice Hall, 2002

8-9


The strategic management process cont2

The Strategic Management Process (cont.)

5. Identifying Strengths and Weaknesses

strengths - activities the organization does well or any unique resource

weaknesses - activities the organization does not do well or resources it needs but does not possess

organization’s culture has its strengths and weaknesses

strong culture - new employees easily identify the organization’s core competencies

may serve as a barrier to accepting change

influence managers’ preferences for certain strategies

SWOT analysis - analysis of the organization’s strengths, weaknesses, opportunities, and threats

© Prentice Hall, 2002

8-10


Identifying the organization s opportunities

Identifying the Organization’s Opportunities

Organization’s

Resources/Abilities

Organization’s

Opportunities

Opportunities in

the Environment

© Prentice Hall, 2002

8-11


The strategic management process cont3

The Strategic Management Process (cont.)

6. Formulating Strategies

require strategies at the corporate, business, and functional levels of the organization

strategy formulation follows the decision-making process

7. Implementing Strategies

a strategy is only as good as its implementation

8. Evaluating Results

control process to determine the effectiveness of a strategy

© Prentice Hall, 2002

8-12


Levels of organizational strategy

Levels of Organizational Strategy

© Prentice Hall, 2002

8-13


Types of organizational strategies

Types Of Organizational Strategies

Corporate-Level Strategy

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

Grand Strategy - Stability

no significant change is proposed

organization’s performance is satisfactory

environment appears to be stable and unchanging

few organizations today pursue this strategy

© Prentice Hall, 2002

8-14


Types of organizational strategies cont

Types Of Organizational Strategies (cont.)

Corporate-Level Strategy (cont.)

Grand Strategy - Growth

seeks to increase the level of the organization’s operations

concentration - growth through direct expansion of organization’s own business operations

vertical integration

backward - become your own supplier

forward - become your own distributor

horizontal integration - grow by combining with other organizations in the same industry

needs approval by U.S. Federal Trade Commission

© Prentice Hall, 2002

8-15


Types of organizational strategies cont1

Types Of Organizational Strategies (cont.)

Corporate-Level Strategy (cont.)

Grand Strategy - Growth (cont.)

related diversification - grow by merging with or acquiring firms in different, but related, industries

“strategic fit”

unrelated diversification - grow by merging with or acquiring firms in different and unrelated industries

© Prentice Hall, 2002

8-16


Types of organizational strategies cont2

Types Of Organizational Strategies (cont.)

Corporate-Level Strategy (cont.)

Grand Strategy - Growth (cont.)

retrenchment- designed to address organizational weaknesses that are leading to performance declines

intended to:

stabilize operations

revitalize organizational resources and capabilities

prepare to compete once again

© Prentice Hall, 2002

8-17


Swot analysis and grand strategies

SWOT Analysis And Grand Strategies

Valuable

Strengths

Firm Status

Critical

Weaknesses

Environmental Status

Abundant

Environmental

Opportunities

Critical

Environmental

Threats

Corporate

Growth

Strategies

Corporate

Stability

Strategies

Corporate

Stability

Strategies

Corporate

Retrenchment

Strategies

© Prentice Hall, 2002

8-18


Types of organizational strategies cont3

Types of Organizational Strategies (cont.)

Corporate-Level Strategy (cont.)

Corporate Portfolio Analysis - used when corporate strategy involves a number of business

Boston Consulting Group (BCG) matrix - provides a framework for understanding diverse businesses

helps managers establish priorities for making resource allocation decisions

businesses classified in terms of

market share

anticipated market growth

© Prentice Hall, 2002

8-19


The bcg matrix

The BCG Matrix

Market Share

Low

High

High

Anticipated

Growth

Rate

Low

Stars

Question

Marks

Cash

Cows

Dogs

© Prentice Hall, 2002

8-20


Types of organizational strategies cont4

Types of Organizational Strategies (cont.)

Corporate-Level Strategy (cont.)

BCG matrix (cont.)

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

© Prentice Hall, 2002

8-21


Types of organizational strategies cont5

Types Of Organizational Strategies (cont.)

Business-Level Strategy

determines how an organization should compete in each of its businesses

strategic business units - independent businesses that formulate their own strategies

Role of Competitive Advantage

competitive advantage - sets an organization apart by providing a distinct edge

comes from the organization’s core competencies

not every organization can transform core competencies into a competitive advantage

once created, must be able to sustain it

© Prentice Hall, 2002

8-22


Types of organizational strategies cont6

Types Of Organizational Strategies (cont.)

Business-Level Strategy (cont.)

Competitive Strategies

Michael Porter - industry analysis based on five competitive forces

Threat of new entrants - affected by barriers to entry

Threat of substitutes - affected by buyer loyalty and switching costs

Bargaining power of buyers - affected by number of customers, availability of substitute products

© Prentice Hall, 2002

8-23


Types of organizational strategies cont7

Business-Level Strategy (cont.)

Competitive Strategies (cont.)

Porter’s competitive forces analysis (cont.)

Bargaining power of suppliers - affected by degree of supplier concentration

Existing rivalry - affected by industry growth rate, demand for firm’s product or service, and product differences

Types Of Organizational Strategies (cont.)

© Prentice Hall, 2002

8-24


Forces in the industry analysis

Forces In The Industry Analysis

New

Entrants

Threat of

New Entrants

Bargaining

Power or

Suppliers

Industry

Competitors

Suppliers

Buyers

Current Rivalry

Bargaining

Power or

Buyers

Threat of

Substitutes

Substitutes

© Prentice Hall, 2002

8-25


Types of organizational strategies cont8

Types of Organizational Strategies (cont.)

Business-Level Strategy (cont.)

Competitive strategies (cont.)

Porter’s 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

© Prentice Hall, 2002

8-26


Types of organizational strategies cont9

Types of Organizational Strategies (cont.)

Business-Level Strategy (cont.)

Competitive strategies (cont.)

Porter’s three generic strategies (cont.)

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 price premium that exceeds the cost of differentiation

© Prentice Hall, 2002

8-27


Types of organizational strategies cont10

Types of Organizational Strategies (cont.)

Business-Level Strategy (cont.)

Competitive strategies (cont.)

Porter’s three generic strategies (cont.)

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 to support the cost of focusing

© Prentice Hall, 2002

8-28


Requirements for successfully pursuing porter s competitive strategies

Requirements for Successfully Pursuing Porter’s Competitive Strategies

© Prentice Hall, 2002

8-29


Types of organizational strategies cont11

Types Of Organizational Strategies (cont.)

Functional-Level Strategy (cont.)

used to support the business-level strategy

creates an appropriate supporting role for each functional area of the organization

e.g., manufacturing, marketing, human resources

© Prentice Hall, 2002

8-30


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