CHAPTER 5

STRATEGIC MANAGEMENT
•Define strategic management and explain why it’s
important.
•Explain what managers do during the six steps of the
strategic management process.
•Describe the three types of corporate strategies.
•Describe competitive advantage and the competitive
strategies organizations use to get it.
•Discuss current strategic management issues.
What Is Strategic Management?
• Strategic management - what managers do to
develop the organization’s strategies.
• Strategies - the plans for how the organization
will do what it’s in business to do, how it will
compete successfully, and how it will attract
and satisfy its customers in order to achieve
its goals.
• Business model - how a company is going to
make money.
 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.
 What is the Strategic
Management Process?

• Strategic management process - a six-step

process that encompasses strategic planning,
implementation, and evaluation.
Exhibit 9-1: Strategic Management Process
 Strategic Management Process
• Step 1: Identifying the organization’s current mission, goals, and
strategies
– Mission: a statement of the purpose of an organization
• The scope of its products and services
– Goals: the foundation for further planning
• Measurable performance targets

• PIA Mission Statement

Employee teams will contribute towards making PIA a global airline of choice:
 Offering quality customer services and innovative products
 Participating in global alliances
 Using state-of-the-art technologies
 Ensuring cost-effective measures in procurement and operations
COMPONENTS OF A MISSION STATEMENT
• Step 2: Doing an external analysis
– The environmental scanning of specific and general environments
• Focuses on identifying opportunities and threats
OPPORTUNITIES-O

1. Travelling in Asia will increase.

2. Cargo requirement will increase in future
3. Use of alternative fuel
4. Merger & acquisitions
5. New destinations in other continents
6. Air travelling increasing in Pakistan

THREATS-T
1. Foreign exchange risk
2. Weak economic conditions world wide
3. Global terrorism may reduce travelling.
4. Threat of new entrants of low cost airlines.
5. Fluctuations in oil prices
6. Shortage of empty slots of runways in Europe
7. Political interference
8. Existing competitors
Strategic Management Process
• 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 (employee skills, culture, corporate reputation, etc.)
isn’t as simple.

• Steps 2 and 3 combined are called a SWOT analysis. (Strengths,

Weaknesses, Opportunities, and Threats)
 STRENGHTS-S WEAKNESSES-W
1. Strong brand 1. High costs.
2. Monopoly on Haj Flights from 2. Overstaffing
Pakistan 3. Weak governance structure
3. Strong customer loyalty 4. Market share declining
4. Owner ship of Roosevelt Hotel 5. File culture
in New York worth $ 1 billion. 6. Sifarish culture
5. High domestic market share 7. Shortage of pilots
6. E- ticketing 8. Aging planes
7. 37 destinations worldwide 9. Huge losses and weak financial
position
10.4500 contract employees
made permanent
11.Low motivation in employees
SWOT Analysis
• SWOT analysis - an analysis of the
organization’s strengths, weaknesses,
opportunities, and threats.
• Resources - an organization’s assets that are
used to develop, manufacture, and deliver a
product to its customers.
• Capabilities - an organization’s skills and
abilities in doing the work activities needed in
its business.
Strengths and Weaknesses
• Strengths - any activities the organization
does well or any unique resources that it has.
• Weaknesses - activities the organization does
not execute well or needed resources it does
not possess.
• Core competencies - the organization’s major
value-creating capabilities that determine its
competitive weapons.
Strategic Management Process
• 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.
Strategic Management Process
• 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?
 1. CORPORATE STRATEGIES
• Corporate strategy - an organizational strategy that
determines what businesses a company is in or
wants to be in, and what it wants to do with those
businesses.

• PepsiCo mission: To be the world’s premier consumer products

company focused on convenient foods and beverages.
• Company is in different businesses including PepsiCo Beverages,
PepsiCo Foods and PepsiCo International. The other part of
corporate strategy is when top managers decide what to do with
those businesses : grow them, keep them the same, or renew them.
Corporate Strategies (cont.)
• Growth strategy - a corporate strategy that’s
used when an organization wants to expand
the number of markets served or products
offered, through either its current business(es)
or new business(es).

• Organizations grow by using concentration,

vertical integration, horizontal integration, or
diversification.
Corporate Strategies (cont.)

• Stability strategy - a corporate strategy in which an

organization continues to do what it is currently
doing.

• Renewal strategy - a corporate strategy designed to

address declining performance.
The two main types of renewal strategies are
retrenchment and turnaround strategies.
 Exhibit 9-3: Types of
Organizational Strategies
 How Are Corporate
Strategies Managed?
• Strategic Business Unit (SBU) - the single
independent businesses of an organization
that formulate their own competitive
strategies.
• BCG matrix - a strategy tool that guides
resource allocation decisions on the basis of
market share and growth rate of SBUs.
Exhibit 9-4: BCG Matrix
2. The Role of Competitive Advantage
• Competitive advantage - what sets an
organization apart; its distinctive edge.

• Competitive strategy - an organizational

strategy for how an organization will compete
in its business(es).
SUSTAINING COMPETITIVE ADVANTAGE

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 substitute products and services
• Bargaining Power of Buyers
– The degree to which buyers have the market strength to hold sway
over and influence competitors in an industry
 Five Competitive Forces
• 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 9-5: Five Forces Model
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 as opposed to a larger market
3. What is a Functional Strategy?

• Functional strategy -
the strategies used by
an organization’s
various functional
departments to support
the competitive
strategy.
CURRENT STRATEGIC MANAGEMENT
ISSUES

The Need for Strategic Leadership

• Strategic leadership - the ability to anticipate,
envision, maintain flexibility, think
strategically, and work with others in the
organization to initiate changes that will
create a viable and valuable future for the
organization.
Exhibit 9-6: Effective Strategic Leadership
The Need for Strategic Flexibility

• Strategic flexibility - the

ability to recognize
major external changes,
to quickly commit
resources, and to
recognize when a
strategic decision was a
mistake.
Exhibit 9-7: Developing Strategic Flexibility
Important Organizational Strategies for
Today’s Environment

Strategies for Applying e-Business

Techniques
• Cost Leadership
– On-line activities: bidding, order processing, inventory
control, recruitment and hiring
• Differentiation
– Internet-based knowledge systems, online 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 the market or uses new process
innovations.
Exhibit 9-8: First-Mover Advantages
and Disadvantages