Strategic Management Strategic Management What managers do to develop the organizations strategies.

s. The decisions and actions that determine the long-run performance of an organization. Business Model (Term used in conjunction with strategic management and strategies) Is a strategic design for how a company intends to profit from its strategies, work processes, and work activities. Focuses on two things: Whether customers will value what the company is providing. Whether the company can make any money doing that. Why is Strategic Management Important 1. It results in higher organizational performance. 2. It requires that managers examine and adapt to business environment changes. 3. It coordinates diverse organizational units, helping them focus on organizational goals. 4. It is very much involved in the managerial decision-making process. Exhibit 81 The Strategic Management Process Strategies

Strategic Management Process Step 1: Identifying the organizations current mission, goals, and strategies Mission: the firms reason for being The scope of its products and services Goals: the foundation for further planning Measurable performance targets Step 2: Doing an external analysis The environmental scanning of specific and general environments Focuses on identifying opportunities and threats

Strategic Management Exhibit 82 Components of a Mission Statement

Step 3: Doing an internal analysis Assessing organizational resources, capabilities, and activities: Strengths create value for the customer and strengthen the competitive position of the firm. Weaknesses can place the firm at a competitive disadvantage. Analyzing financial and physical assets is fairly easy, but assessing intangible assets (employees skills, culture, corporate reputation, and so forth) isnt as easy. Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Step 4: Formulating strategies Develop and evaluate strategic alternatives Select appropriate strategies for all levels in the organization that provide relative advantage over competitors Match organizational strengths to environmental opportunities Correct weaknesses and guard against threats Step 5: Implementing strategies Implementation: effectively fitting organizational structure and activities to the environment. The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements. Step 6: Evaluating results How effective have strategies been? What adjustments, if any, are necessary? Types of Organizational Strategies Corporate Strategies Top managements overall plan for the entire organization and its strategic business units Types of Corporate Strategies Growth: expansion into new products and markets Stability: maintenance of the status quo Renewal: redirection of the firm into new markets

Opportunities, and Threats)

Strategic Management Exhibit 84 Levels of Organizational Strategy

Corporate Strategies Growth Strategy Seeking to increase the organizations business by expansion into new products and markets. Types of Growth Strategies Concentration Vertical integration Horizontal integration Diversification Growth Strategies Concentration Focusing on a primary line of business and increasing the number of products offered or markets served. Vertical Integration Backward vertical integration: attempting to gain control of inputs (become a self-supplier). Forward vertical integration: attempting to gain control of output through control of the distribution channel or provide customer service activities (eliminating intermediaries). Horizontal Integration Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals. Related Diversification Expanding by combining with firms in different, but related industries that are strategic fits. Unrelated Diversification Growing by combining with firms in unrelated industries where higher financial returns are possible. Stability Strategy A strategy that seeks to maintain the status quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons. Renewal Strategies Developing strategies to counter organization weaknesses that are leading to performance declines. Retrenchment: focusing of eliminating non-critical weaknesses and restoring strengths to overcome current performance problems.

Strategic Management Turnaround: addressing critical long-term performance problems through the use of strong cost elimination measures and large-scale organizational restructuring solutions. Corporate Portfolio Analysis Managers manage portfolio (or collection) of businesses using a corporate portfolio matrix such as the BCG Matrix. BCG Matrix Developed by the Boston Consulting Group Considers market share and industry growth rate Classifies firms as: Cash cows: low growth rate, high market share Stars: high growth rate, high market share Question marks: high growth rate, low market share Dogs: low growth rate, low market share Exhibit 85 The BCG Matrix

Business (or Competitive) Strategy A strategy focused on how an organization should compete in each of its SBUs (strategic business units). The Role of Competitive Advantage Competitive Advantage An organizations distinctive competitive edge. Quality as a Competitive Advantage Differentiates the firm from its competitors. Can create a sustainable competitive advantage. Represents the companys focus on quality management to achieve continuous improvement and meet customers demand for quality. Sustainable Competitive Advantage Continuing over time to effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry competitors. Five Competitive Forces Threat of New Entrants The ease or difficulty with which new competitors can enter an industry. Threat of Substitutes The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitutes products and services.

Strategic Management Bargaining Power of Buyers The degree to which buyers have the market strength to hold sway over and influence competitors in an industry. Bargaining Power of Suppliers The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship. Current Rivalry Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend. Exhibit 86 Forces in the Industry Analysis

Types of Competitive Strategies Cost Leadership Strategy Seeking to attain the lowest total overall costs relative to other industry competitors. Differentiation Strategy Attempting to create a unique and distinctive product or service for which customers will pay a premium. Focus Strategy Using a cost or differentiation advantage to exploit a particular market segment rather a larger market The Rule of Three Similar to Porters generic competitive strategies The competitive forces in an industry will create a situation where three companies (full-line generalists) will dominate a market. Some firms in the market become super niche players and while others end up as ditch dwellers. Firms unable to develop either a cost or differentiation advantage become stuck in the middle and lack prospects for long-term success. A few firms successfully pursue both differentiation and cost advantages. Strategic Management Today Strategic Flexibility New Directions in Organizational Strategies e-business customer service innovation

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Exhibit 87 Creating Strategic Flexibility

How the Internet Has Changed Business The Internet allows businesses to: 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. Manage logistics in real time Change the nature of work tasks throughout the organization. Strategies for Applying e-Business Techniques Cost Leadership On-line activities: bidding, order processing, inventory control, recruitment and hiring Differentiation Internet-based knowledge systems, on-line ordering and customer support Focus Chat rooms and discussion boards, targeted web sites Customer Service Strategies Giving the customers what they want. Communicating effectively with them. Providing employees with customer service training. Innovation Strategies Possible Events Radical breakthroughs in products. Application of existing technology to new uses. Strategic Decisions about Innovation Basic research Product development Process innovation First Mover An organization that brings a product innovation to market or use a new process innovations

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Exhibit 88 First-Mover AdvantagesDisadvantages