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Strategic management involves both long-range thinking and adaptation to changing conditions.
Strategies should be designed to generate a sustainable competitive advantage.
Competitors should be unable to duplicate what the firm has done or should find it too difficult or expensive.
Analyze the external and internal environments Define strategic intent and mission Formulate strategies Implement strategies Assess strategic outcomes Components of the Strategic Management Process:
Difficult to quantify and included on a balance sheet
Often provides the firm with a strong competitive advantage.
Competitors find it difficult to purchase or imitate these resources.
Strategically most important intangibles:
Analyzing the Firm’s Capabilities Functional Analysis Value Chain Analysis Benchmarking
Analyzing Capabilities by Functional Areas Capability in basic research Ability to develop innovative new products Speed of new product development Research and Development Comprehensive and effective MIS network, with strong central coordination Information Management 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 Corporate Management Capability Functional Area
Analyzing Capabilities by Functional Areas (cont.) Effectiveness in promoting and executing sales Efficiency and speed of distribution Quality and effectiveness of customer service Sales and Distribution Brand management and brand promotion Promoting and exploiting reputation for quality Responsive to market trends Marketing Design capability Product Design Efficiency in volume manufacturing Capacity for continual improvements in production processes Flexibility and speed of response Manufacturing Capability Functional Area
The basic idea is to classify the businesses of a diversified company within a single framework.
Two of the most widely applied include:
The McKinsey-General Electric Portfolio Analysis Matrix
The Boston Consulting Group’s Growth Share Matrix
The McKinsey-General Electric Portfolio Analysis Matrix Low Medium High Business-Unit Position High Medium Low Industry Attractiveness 9) Build 8) 7) 6) 5) Hold 4) 3) 2) 1) Harvest
The Boston Consulting Group’s Growth Share Matrix Relative Market Share Annual Real Rate of Market Growth Earnings: low, unstable Cash Flow: neutral or negative Strategy: divest DOG Earnings: high, stable Cash Flow: high stable Strategy: milk COW Earnings: low, unstable, growing Cash Flow: negative Strategy: analyze to determine whether business can be grown into a star, or will degenerate into a dog ? Earnings: high stable, growing Cash Flow: neutral Strategy: invest for growth STAR