Chapter 7


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Chapter 7

  1. 1. Chapter Seven Strategic Management: Planning for Long-Term Success
  2. 2. Chapter Objectives <ul><li>Define the term strategic management and explain its relationship to strategic planning, implementation, and control. </li></ul><ul><li>Explain the concept of synergy and identify four kinds of synergy. </li></ul><ul><li>Describe Porter’s model of generic competitive strategies. </li></ul><ul><li>Identify and explain the major contribution the business ecosystems model makes to strategic thinking. </li></ul>
  3. 3. Chapter Objectives (cont’d) <ul><li>Identify seven basic Internet business models and four Internet strategy lessons. </li></ul><ul><li>Identify and describe the four steps in the strategic management process. </li></ul><ul><li>Explain the nature and purpose of SWOT analysis. </li></ul><ul><li>Describe the three types of forecasts. </li></ul>
  4. 4. Why All Managers Need an Understanding of Strategic Management <ul><li>A strategic orientation encourages far-sightedness in managers. </li></ul><ul><li>Employees who think in strategic terms tend to understand better how top managers think and why they make the decisions they do. </li></ul><ul><li>The trend toward greater teamwork and cooperation throughout the planning cycle is eroding the traditional distinction between those who plan and those who implement plans. </li></ul>
  5. 7. Strategic Management = Strategic Planning + Implementation + Control <ul><li>Strategic Management </li></ul><ul><ul><li>The ongoing process of ensuring a competitively superior fit between an organization and its changing environment </li></ul></ul><ul><ul><ul><li>Includes budget control, long-range planning, and strategic planning </li></ul></ul></ul><ul><ul><ul><li>Merges strategic planning, implementation, and control to create a dynamic process </li></ul></ul></ul><ul><ul><ul><li>Requires every employee to consider the “big picture” </li></ul></ul></ul><ul><ul><ul><li>Involves strategy innovation in rethinking the basis for competition (business model) in the industry </li></ul></ul></ul>
  6. 8. Strategic Management = Strategic Planning + Implementation + Control (cont’d) <ul><li>Strategy </li></ul><ul><ul><li>An integrated externally oriented perception of how to achieve the organization’s mission </li></ul></ul><ul><li>Strategic Planning </li></ul><ul><ul><li>The process of determining how to pursue the organization’s long-term goals with resources expected to be available </li></ul></ul>
  7. 9. Thinking Strategically (Including E-Business Strategies) <ul><li>Synergy </li></ul><ul><ul><li>The concept that the whole is greater than the sum of the parts </li></ul></ul><ul><li>Types of Synergy </li></ul><ul><ul><li>Market synergy: Extending products to new markets </li></ul></ul><ul><ul><li>Cost synergy: Savings from combinations of common-base operations, resources, and facilities </li></ul></ul><ul><ul><li>Technological synergy: The transfer and application of technologies to new markets </li></ul></ul><ul><ul><li>Management synergy: Complementary skills that make for more effective overall management </li></ul></ul>
  8. 10. Porter’s Generic Competitive Strategies <ul><li>Model’s Competitive Variables </li></ul><ul><ul><li>Competitive advantage: How to compete in a market </li></ul></ul><ul><ul><li>Competitive scope: How broad of a market to target </li></ul></ul><ul><li>Cost Leadership Strategy </li></ul><ul><ul><li>Having the lowest overall cost in a market to provide a competitive advantage in pricing over competitors </li></ul></ul><ul><li>Differentiation Strategy </li></ul><ul><ul><li>Providing unique and superior value for the customer that builds brand loyalty </li></ul></ul>
  9. 11. Figure 7.1: Porter’s Generic Competitive Strategies Source: Reprinted with the permission of The Free Press, a division of Simon & Schuster from THE COMPETITIVE ADVANTAGE OF NATIONS by Michael E. Porter. Copyright © l990, 1998 by Michael E. Porter.
  10. 12. Porter’s Generic Competitive Strategies (cont’d) <ul><li>Cost Focus Strategy </li></ul><ul><ul><li>Attempting to gain a competitive edge in a narrow (or regional) market segment by controlling (competitively dominating) the segment </li></ul></ul><ul><li>Focused Differentiation </li></ul><ul><ul><li>Achieving a competitive edge by delivering a superior product and/or service to a limited audience </li></ul></ul>
  11. 13. Business Ecosystems <ul><li>Business Ecosystem </li></ul><ul><ul><li>A business ecosystem is an economic community of organizations and all their stakeholders, including suppliers and customers. </li></ul></ul><ul><ul><li>Organizations need to be as good at cooperating as they are at competing if they are to succeed. </li></ul></ul><ul><ul><ul><li>Coevolving: Key organizations selectively cooperate and compete to achieve both their individual and collective goals, which they could not achieve on their own. </li></ul></ul></ul><ul><ul><li>Greater strategic cooperation is needed to foster the the spread of realized innovation. </li></ul></ul>
  12. 14. E-Business Strategies for the Internet <ul><li>Internet Strategy Lessons </li></ul><ul><ul><li>The Internet changes everything, but it doesn’t change everything overnight. </li></ul></ul><ul><ul><li>Some of the old rules still apply. An investment should still either save you money or make you money. </li></ul></ul><ul><ul><li>First, we overestimated the Internet; don’t underestimate it now. Its long-term impact will likely exceed expectations. </li></ul></ul><ul><ul><li>Evolving Internet technologies are still emerging. </li></ul></ul><ul><ul><li>There is no one-size-fits-all Internet strategy. </li></ul></ul>
  13. 16. E-Business Strategies for the Internet (cont’d) <ul><li>Internet Strategy Lessons (cont’d) </li></ul><ul><ul><li>Customer loyalty is built with reliable brand names and “sticky” web sites. </li></ul></ul><ul><ul><li>Bricks and clicks: Blending the best of two worlds </li></ul></ul><ul><ul><li>E-business partnering should not dilute strategic control or ethical standards. </li></ul></ul>
  14. 17. The Strategic Management Process <ul><li>Four Steps in the Strategic Management Process </li></ul><ul><ul><li>Formulation of a grand strategy </li></ul></ul><ul><ul><li>Formulation of strategic plans </li></ul></ul><ul><ul><li>Implementation of strategic plans </li></ul></ul><ul><ul><li>Strategic control </li></ul></ul>
  15. 18. Figure 7.2: The Strategic Management Process
  16. 19. Formulation of a Grand Strategy <ul><li>Grand Strategy </li></ul><ul><ul><li>A general explanation of how the organization’s mission is to be accomplished </li></ul></ul><ul><li>Situational Analysis </li></ul><ul><ul><li>Finding the organization’s niche by performing a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to match unfolding opportunities with resources being acquired </li></ul></ul><ul><ul><li>Capability profile: Identifying the organization’s strengths and weaknesses </li></ul></ul>
  17. 20. Figure 7.3: Determining Strategic Direction Through Situational (SWOT) Analysis
  18. 21. Formulation of a Grand Strategy (cont’d) <ul><li>Situational Analysis (cont’d) </li></ul><ul><ul><li>Key capabilities for today’s companies </li></ul></ul><ul><ul><ul><li>Quick response to market trends </li></ul></ul></ul><ul><ul><ul><li>Rapid product development </li></ul></ul></ul><ul><ul><ul><li>Rapid production and delivery </li></ul></ul></ul><ul><ul><ul><li>Continuous cost reduction </li></ul></ul></ul><ul><ul><ul><li>Continuous improvement of processes, human resources, and products </li></ul></ul></ul><ul><ul><ul><li>Greater flexibility of operations </li></ul></ul></ul>
  19. 22. Formulation of a Grand Strategy (cont’d) <ul><li>The Need for Speed </li></ul><ul><ul><li>Speed has become an important competitive advantage. </li></ul></ul><ul><ul><li>Speed involves more than just doing the same old things faster. </li></ul></ul><ul><ul><li>Reengineering: Radically redesigning the entire business cycle for greater strategic speed </li></ul></ul>
  20. 23. Criteria for Formulating Strategic Plans <ul><li>Develop clear results-oriented objectives stated in measurable terms. </li></ul><ul><li>Identify activities required to accomplish the objectives. </li></ul><ul><li>Assign specific responsibilities to the appropriate personnel. </li></ul><ul><li>Estimate times to accomplish activities and their appropriate sequencing. </li></ul><ul><li>Determine resources required to accomplish the activities. </li></ul><ul><li>Communicate and coordinate the above elements and complete the action plan. </li></ul>
  21. 24. Strategic Implementation and Control <ul><li>Implementation of Strategic Plans </li></ul><ul><ul><li>Developing a systematic filtering-down process that facilitates the implementation process and builds middle-manager commitment requires a company to consider: </li></ul></ul><ul><ul><ul><li>Organizational structure </li></ul></ul></ul><ul><ul><ul><li>People </li></ul></ul></ul><ul><ul><ul><li>Culture </li></ul></ul></ul><ul><ul><ul><li>Control systems </li></ul></ul></ul>
  22. 25. Strategic Implementation and Control (cont’d) <ul><li>A formal control system should be developed that helps keep strategic plans on track by </li></ul><ul><ul><li>Setting up and testing channels for information on progress, problems, and the fit of strategic assumptions to the environment </li></ul></ul><ul><ul><li>Using software programs for real-time tracking of production, financial, and marketing reports </li></ul></ul>
  23. 26. Strategic Implementation and Control (cont’d) <ul><li>Corrective Action Based on Evaluation and Feedback </li></ul><ul><ul><li>Negative feedback should prompt corrective action at the step immediately before the problem occurs. </li></ul></ul><ul><ul><li>Possible corrective actions include: </li></ul></ul><ul><ul><ul><li>Updating strategic assumptions </li></ul></ul></ul><ul><ul><ul><li>Reformulating strategic plans </li></ul></ul></ul><ul><ul><ul><li>Rewriting policies </li></ul></ul></ul><ul><ul><ul><li>Making personnel changes </li></ul></ul></ul><ul><ul><ul><li>Modifying budget allocations </li></ul></ul></ul>
  24. 27. Forecasting <ul><li>Forecasts </li></ul><ul><ul><li>Predictions, projections, or estimates of future situations </li></ul></ul><ul><li>Types of Forecasts </li></ul><ul><ul><li>Event outcome forecasts: Predictions of the outcome (effects) of highly probable future events </li></ul></ul><ul><ul><li>Event timing forecasts: Predictions of when a given event will occur </li></ul></ul><ul><ul><li>Time series forecasts: Estimates of future values in a statistical sequence (e.g., sales forecast) </li></ul></ul>
  25. 29. Forecasting Techniques <ul><li>Informed Judgment </li></ul><ul><ul><li>Forecasts relying on intuitive judgments that are based on how well informed the forecaster is </li></ul></ul><ul><li>Scenario Analysis </li></ul><ul><ul><li>Preparing written descriptions of alternative but equally likely future situations </li></ul></ul><ul><ul><ul><li>Longitudinal scenarios: Describing how the future situations will evolve from the present </li></ul></ul></ul><ul><ul><ul><li>Cross-sectional scenarios: Describing future situations at a given point in time </li></ul></ul></ul>
  26. 30. Forecasting Techniques (cont’d) <ul><li>Surveys </li></ul><ul><ul><li>A forecasting technique involving face-to-face interviews and mail or e-mail questionnaires </li></ul></ul><ul><ul><li>Problems with surveys </li></ul></ul><ul><ul><ul><li>Construction of the survey instrument </li></ul></ul></ul><ul><ul><ul><li>Cost of administration </li></ul></ul></ul><ul><ul><ul><li>Errors in data collection and interpretation </li></ul></ul></ul><ul><li>Trend Analysis </li></ul><ul><ul><li>The hypothetical extension of a past series of events into the future </li></ul></ul>
  27. 31. Summary <ul><li>Strategic management sets the stage for virtually all managerial activity. </li></ul><ul><li>Strategic thinking is necessary for successful strategic management and planning. </li></ul><ul><li>Porter’s generic competitive strategies model helps managers create a profitable “fit” between the organization and its environment. </li></ul><ul><li>Competitors coevolve into business ecosystems when they use both competition and cooperation. </li></ul><ul><li>Effective use of the correct Internet strategies affords opportunities for competitive advantage. </li></ul>
  28. 32. Terms to Understand <ul><li>Strategic management </li></ul><ul><li>Strategy </li></ul><ul><li>Synergy </li></ul><ul><li>Differentiation </li></ul><ul><li>Business ecosystem </li></ul><ul><li>Grand strategy </li></ul><ul><li>Situational analysis </li></ul><ul><li>Capability profile </li></ul><ul><li>Reengineering </li></ul><ul><li>Forecasts </li></ul><ul><li>Event outcome forecasts </li></ul><ul><li>Event timing forecasts </li></ul><ul><li>Time series forecasts </li></ul><ul><li>Scenario analysis </li></ul><ul><li>Longitudinal scenarios </li></ul><ul><li>Cross-sectional scenarios </li></ul><ul><li>Trend analysis </li></ul>