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Chapter 7


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