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Strategic Management

Strategic Management. Chapter Eight. Strategic Management. The set of managerial decisions and actions that determines the long-run performance of an organization. Why Is Strategic Management Important?. Positive relationship between strategic planning and performance

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Strategic Management

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  1. Strategic Management Chapter Eight

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

  3. 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

  4. Strategic Management Process A six-step process that encompasses strategic planning, implementation, and evaluation.

  5. Strategic Management Process • External Analysis • Opportunities • Threats Identify the organization’s current mission, goals, and strategies Evaluate Results Formulate Strategies Implement Strategies SWOT Analysis • Internal Analysis • Strengths • Weaknesses

  6. 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.”

  7. Step 2: External Analysis • Examine the external environment to see what trends and changes are occurring. • Specific—customers, competition, suppliers, public pressure groups • General—demographics, legal/political, economic, global, technological, sociolcultural • Assess for opportunities. • Enron—deregulation of the energy industry • Assess for threats. • Automobile industry—price of gasoline

  8. Step 3: Internal Analysis • Assess the organization’s resources such as financial capital, technical expertise, and human resources. • Assess the organization’s capabilities with performing different functional activities such as marketing, manufacturing, information systems.

  9. Step 3: Internal Analysis continued… • Determine strengths. • Coca cola’s brand and marketing prowess. • Determine weaknesses. • American made minivans poor reliability. • Determine core competencies—the major value-creating skills and resources that determine its competitive weapons. • Fedex—reliability

  10. Step 4: Formulating Strategies • Develop and evaluate strategic alternatives. • Select strategies that capitalize on the organization’s strengths and exploit environmental opportunities or that correct the organization’s weaknesses and buffer against threats.

  11. 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.

  12. Step 6: Evaluating Results • How effective are the strategies? • What adjustments are necessary?

  13. SWOT Analysis Worcester State College

  14. Strategic Management Process • External Analysis • Opportunities • Threats Identify the organization’s current mission, goals, and strategies Evaluate Results Formulate Strategies Implement Strategies SWOT Analysis • Internal Analysis • Strengths • Weaknesses

  15. Types of Organizational Strategies • Corporate Level Strategy—Seeks to determine what businesses a company should be in. • Business Level Strategy—Seeks to determine how an organization should compete in each of its businesses. • Functional Level Strategy—Supports the business-level strategy (marketing, HR, manufacturing, finance, R&D).

  16. Corporate Level Strategy • Growth strategy—Seeks to increase the organization’s operations by expanding the number of products offered or markets served. • Concentration—Grow by focusing on the organization’s primary line of business. • Bose—Billion dollar company that focuses on innovative audio products.

  17. Other Growth Strategies • Vertical integration—Choose to grow by controlling inputs (backward integration), outputs (forward integration), or both. • Gateway—forward integration failed • Montessori school—forward integration • Horizontal integration—Choose to grow by combining with other organizations in the same industry. Monitored by Federal Trade Commission because decreases competition. • AOL and Time Warner merger.

  18. Other Growth Strategies continued…. • Related diversification—Grow by merging with, or acquiring, firms in related industries. • New York Times Company • Unrelated diversification—Grow by merging with, or acquiring, firms in unrelated industries. • Lancaster Colony—salad dressing, car mats • Combination Approach—Grow by combining the various growth strategies. • McDonalds—concentration plus purchasing Boston Market and Domino Pizza chains

  19. Corporate Level Strategy continued…. • Stability—Strategy 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.

  20. Corporate Level Strategy continued…. • Renewal strategy • Designed to address organizational weaknesses that are leading to performance declines. • Cut costs and restructure operations. • Retrenchment—short-run renewal strategy. • Kodak, P&G, AT&T, IBM, Reebok • Turnaround—major renewal strategy • Sears, Apple, DaimlerChrysler

  21. Corporate Portfolio Analysis • Used when an organization’s corporate strategy involves a number of businesses. • Provides a framework for understanding diverse businesses. • Helps managers establish priorities for making resource allocation decisions.

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

  23. Business Level Strategy • How an organization should compete in each of its businesses. • Strategic business units—single businesses that are independent and formulate their own strategy.

  24. Competitive Advantage • What sets an organization apart. • Comes from its core competencies. • From organizational capability: • Dell’s ability to create a direct selling channel that’s highly responsive to its customers. • From organizational assets or resources: • Walmart’s ability to monitor and control inventories and supplier relations more efficiently through the use of its information systems .

  25. The Right Competitive Strategy • According to Michael Porter, the right strategy fits the organization’s strengths (resources and capabilities) and its industry.

  26. 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

  27. 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

  28. Three Business Level Strategies • Cost leadership strategy—the lowest cost producer in the industry. • Walmart, Southwest Airlines • Differentiation strategy—unique products that are widely valued by customers. • Coach handbags, Kimberly-Clark Huggies Pull-ups • Focus strategy—pursues cost or differentiation advantage in a narrow industry segment. • A wood product manufacturer that sells chopsticks in Japan

  29. 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 & Jerry’s

  30. Strategic Management in Today’s Environment

  31. 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.

  32. The Rule of Three (continued)…. • Three dominant players hold most of the industry market share. • Fast food—McDonalds, Wendy’s, Burger King • Credit cards—VISA, MasterCard, Amex • U.S. Automakers—General Motors, Ford, DaimlerChrysler • Global Food Products—Nestle, 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.

  33. The Rule of Three (continued) • “Super-niche players”—specialize through product or market segmentation. • “Ditch dwellers”—not one of the efficient, big three; not a highly focused niche player. • Discount Retail Industry • Big three (Wal-Mart, Costco, Target) • Super-niche (Kohl’s, TJ Maxx, Marshall’s) • Ditch dweller (Kmart)

  34. Strategies Using e-Business Techniques • Applying the Internet’s 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.

  35. Strategies Using e-Business Techniques (continued….) • Cost-leadership strategy—use e-business techniques to reduce costs. • Implement a Web-based inventory control system to reduce storage costs. • Differentiation strategy—use e-business techniques to allow product customization. • Provide an online sales configurator that allows customers to “build” their own products. • Focus strategy—use 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.

  36. The Fall and Rise of Strategic Planning

  37. 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)

  38. 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.

  39. 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.

  40. 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.

  41. 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.

  42. Loosen Up Strategy Making • Strategy making is not an isolated process. It’s interwoven with all it takes to manage an organization. • Systems do not think. They can facilitate human thinking or they can prevent it.

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