Part Three: Management Strategy and Decision Making

Chapter 7: Strategic
Management

Chapter 8: Managing the

Planning Process Chapter 9: Decision Making

Chapter 7
Strategic Management

Management Challenges

After reading this chapter, you should be able to:

Understand how to implement the steps in the strategic management process. Identify the factors that account for a firms sustained superior performance. Link external and internal environment data to determine a firms strategic intent and mission.
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Management Challenges (continued)

Conduct an analysis of the firms strengths, weaknesses, opportunities, and threats. Evaluate the firms internal resources and capabilities. Chose an appropriate business strategy at the corporate and business-unit level of analysis.
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The Strategic Management Process

Strategic management involves the major decisions, business choices, and actions that chart the course of the entire enterprise. It consists of:
Analysis

of the internal and external environment of the firm. Definition of the firms mission. Formulation and implementation of strategies to provide a competitive advantage.
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The Strategic Management Process (continued)

Strategic management involves both longrange thinking and adaptation to changing conditions. A strategy is successful if it provides the firm with sustainable competitive advantage.
Competitors

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

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Components of the Strategic Management Process:

Analyze internal and external environment Define strategic intent and mission Formulate strategies

Implement strategies
Assess strategic outcomes
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Skills for strategic management:

Environmental assessment and scanning skills.

Strategy formulation skills. Mapping strategic intent and defining mission skills.

Strategy implementation skills.

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SWOT Analysis

Commonly used strategy tool:

Strengths Weaknesses

Opportunities
Threats

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SWOT Analysis (continued)

Step 1: Analyze the organizations internal environment, identifying its strengths and weaknesses. Step 2: Analyze the organizations external environment, identifying its opportunities and threats. Step 3: Cross-match
Strengths with opportunities Weaknesses with threats Strengths with threats Weaknesses with opportunities

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Analyzing the external environment:

Firms 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 over other firms.
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Components of External Analysis:

Scanning Monitoring

Assessing

Forecasting

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Scope of the External Analysis:

General Environment Industry Environment

Competitor Analysis

Strategic Groups

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Porters framework for analyzing the industry environment:

Threat of new entrants

Threat of substitutes

Suppliers

Customers
Intensity of rivalry among competitors
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Analyzing the Internal Environment

Each firm possesses core competence (internal resources) that are unique to it. A firm should identify what resources, capabilities, and knowledge it has that may be used to exploit market opportunities and avoid potential threats. Resource-based view.

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4.

Select a strategy that best exploits the firms capabilities relative to external opportunities.

Core Competencies and Market Opportunities

Strategy

3.

Appraise the profit generating potential of resources/capabilities in terms of creating, sustaining, and exploiting competitive advantage.
Identify the firms capabilities (What can the firm do?)

Potential for sustainable competitive advantage

5.

Identify resource gaps that need to be filled. Invest in replenishing and augmenting the firms resource base.

2.

Capabilities

1.

Identify the firms resources and locate areas of strength and weakness relative to competitors.

Resources
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Resource Types: Tangible Resources

Assets that can be quantified and observed. Include financial resources, physical assets, and workers. Strategic assessment of tangible resources should enable a firm to use fewer tangible resources to support the same level of business or to use the same resources to expand the volume of business.
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Resource Types: Intangible Resources

Difficult to quantify. Often provide the firm with strong competitive advantage. Competitors find it difficult to purchase or imitate these resources. Most strategically important intangibles:
Reputation
Technology Human

Capital
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Analyzing the firms capabilities:

Functional Analysis

Value Chain Analysis

Benchmarking
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Analyzing Capabilities by Functional Areas

Functional Area Corporate Management Capability Effective financial control systems Expertise in strategic control of diversified corporation Effectiveness in motivating and coordinating divisional and business-unit management Management of acquisitions Values-driven, in-touch corporate leadership Comprehensive and effective MIS network, with strong central coordination Capability in basic research Ability to develop innovative new products Speed of new product development
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Information Management

Research and Development

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Analyzing Capabilities by Functional Areas

(continued) Functional Area Manufacturing Capability Efficiency in volume manufacturing Capacity for continual improvements in production processes Flexibility and speed of response

Product Design
Marketing

Design capability
Brand management and brand promotion Promoting and exploiting reputation for quality Responsive to market trends Effectiveness in promoting and executing sales Efficiency and speed of distribution Quality and effectiveness of customer service
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Sales and Distribution

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A Simple Value Chain

Technology
Source Sophistication

Product Design
Function

Manufacturing
Integration

Marketing
Prices Advertising Promotion Sales Force Package

Distribution
Channels Integration Inventory Warehousing Transport

Service
Warranty Dealer Support Availability Speed Prices

Physical Raw Materials Characteristics Patents Capacity Aesthetics Product Process Location Quality Product Choices Procurement Assembly

Parts Production Brand

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Benchmarking involves four stages:

Identifying activities or functions that are weak and need improvement. 2. Identifying firms that are known to be at the leading edge of these activities or functions. 3. Studying the leading-edge firms by visiting them, talking to managers and employees, and reading trade publications. 4. Using the information gathered to redefine goals, modify processes, and acquire new resources to improve the firms functions.
1.
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Strategic Intent and Mission

Based on analysis of the external and internal environment. Strategic intent is internally focused, defining how the firm intends to use its resources, capabilities, and core competencies to win competitive battles. Strategic mission is externally focused, defining what the firm plans to produce and market, utilizing its internal core competence.
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Strategy Formulation

The design of an approach to achieve the firms mission. Takes place at:
Corporate-Level Business-Level

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Corporate-Level Strategy

The corporations overall plan concerning the:

Number

of businesses the corporation holds Variety of markets or industries it serves Distribution of resources among those businesses

Diversification strategy
Type

of diversification Process of diversification

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Diversification Strategy

Type of Diversification Concentration strategy Vertical integration strategy Concentric diversification strategy Conglomerate diversification

Process of Diversification Acquisition and restructuring strategies

Acquisition Merger

International strategy

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Business-Level Strategy

How the firm will compete in each business area or market segment.

Firms have two basic choices:

Cost

leadership strategy Differentiation strategy

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Strategy Implementation
Organizational Structure and Controls Corporate Entrepreneurship and Innovation Strategic Leadership Cooperative Strategies

Functional Strategies

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Strategic Outcomes

Firms need to 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.

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Applications of Management Perspectives:

For the Manager

An effective manager must be proactive in responding to evolving challenges and opportunities rather than being overtaken by events. Learning to think strategically forces managers to:
Be alert for changes in the external and internal environments. Modify the firms strategic intent, mission, and formulated strategy when necessary. Effectively implement the new or redesigned strategies.

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Applications of Management Perspectives:

For Managing Teams

The strategic management process generally involves teams of managers and employees from different areas who bring their perspectives and expertise to bear on issues facing the firm. A key factor is how well the firm can mobilize and integrate the efforts of team members.

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Applications of Management Perspectives:

For Individuals

Individual employees are more likely to make greater contributions to the firm if they engage in activities that have strategic value. Employees can be attuned to changes in their area of expertise and advise management on the strategic implications of those changes. Employee success depends on the ability to adapt to the firms strategic change.

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