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  • Copyright © 2008 by The McGraw-Hill Companies, Inc. All ...

    1. 1. Chapter 7 Strategic Management
    2. 2. Learning Objectives After reading this chapter, you should be able to: <ul><li>Explain how the firm’s external environment should be examined as part of the strategic management process. </li></ul><ul><li>Explain how the firm’s internal environment should be examined as part of the strategic management process. </li></ul><ul><li>State the meaning and purpose of the firm’s strategic intent and mission. </li></ul><ul><li>Understand how the strategy formulation process helps the firm achieve its mission. </li></ul><ul><li>Describe the issues that should be considered in strategy implementation. </li></ul><ul><li>Understand how the outcomes of the strategic management process should be assessed. </li></ul>
    3. 3. The Strategic Management Process <ul><li>It is the job of top level management to chart the course of the entire enterprise . </li></ul><ul><li>It consists of: </li></ul><ul><ul><li>Analysis of the internal and external environment of the firm. </li></ul></ul><ul><ul><li>Definition of the firm’s mission. </li></ul></ul><ul><ul><li>Formulation and implementation of strategies to create or continue a competitive advantage. </li></ul></ul>
    4. 4. The Strategic Management Process (cont) <ul><li>Strategic management involves both long-range thinking and adaptation to changing conditions. </li></ul><ul><li>Strategies should be designed to generate a sustainable competitive advantage. </li></ul><ul><li>Competitors should be unable to duplicate what the firm has done or should find it too difficult or expensive. </li></ul>
    5. 5. Analyze the external and internal environments Define strategic intent and mission Formulate strategies Implement strategies Assess strategic outcomes Components of the Strategic Management Process:
    6. 6. SWOT Analysis <ul><li>Commonly used strategy tool: SWOT </li></ul><ul><ul><li>S trengths, W eaknesses, O pportunities, T hreats </li></ul></ul>External Environment Internal Environment <ul><li>Components </li></ul><ul><li>Scanning </li></ul><ul><li>Monitoring </li></ul><ul><li>Forecasting </li></ul><ul><li>Assessing </li></ul><ul><li>Scope </li></ul><ul><li>General environment </li></ul><ul><li>Industry environment </li></ul><ul><li>Strategic groups </li></ul><ul><li>Direct competitors </li></ul><ul><li>Resource types </li></ul><ul><li>Tangible </li></ul><ul><li>Intangible </li></ul><ul><li>Firm capabilities </li></ul><ul><li>Functional </li></ul><ul><li>Value Chain </li></ul><ul><li>Benchmarking </li></ul>
    7. 7. The External Environment <ul><li>Company leaders must study the external environment in order to: </li></ul><ul><ul><li>Identify opportunities and threats in the marketplace. </li></ul></ul><ul><ul><li>Avoid surprises. </li></ul></ul><ul><ul><li>Respond appropriately to competitors’ moves. </li></ul></ul><ul><li>A major challenge is to gather accurate market intelligence in a timely fashion, and transform it into usable knowledge to gain a competitive advantage. </li></ul>
    8. 8. Components of External Analysis Scanning Monitoring Forecasting Assessing
    9. 9. Scope of the External Analysis General Environment The Industry Strategic Groups Competitor Analysis
    10. 10. The Segments of the General Environment Demography Economic Conditions Political/Legal Forces Socio-cultural Conditions Technological Changes Globalization
    11. 11. Porter’s Analyzing the Industry Environment Threat of new entrants Threat of substitutes Suppliers Customers Intensity of rivalry among competitors
    12. 12. The Internal Environment <ul><li>Each company has something that it does well. These are called “core competencies.” </li></ul><ul><li>Company executives should identify the resources, capabilities, and knowledge the firm has that may be used to exploit market opportunities and avoid potential threats. </li></ul><ul><li>Resource-based view: Basing the strategy on what the firm is capable of doing </li></ul>
    13. 13. Resource Types: Tangible Resources <ul><li>Assets that can be quantified and observed. </li></ul><ul><li>Include financial resources, physical assets, and workers. </li></ul><ul><li>Strategic assessment of tangible resources should enable management to efficiently use tangible resources to support the company and to expand the volume of business. </li></ul>
    14. 14. Resource Types: Intangible Resources <ul><li>Difficult to quantify and included on a balance sheet </li></ul><ul><li>Often provides the firm with a strong competitive advantage. </li></ul><ul><li>Competitors find it difficult to purchase or imitate these resources. </li></ul><ul><li>Strategically most important intangibles: </li></ul><ul><ul><li>Reputation </li></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><li>Human Capital </li></ul></ul>
    15. 15. Analyzing the Firm’s Capabilities Functional Analysis Value Chain Analysis Benchmarking
    16. 16. 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
    17. 17. 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
    18. 18. Value-Chain Analysis <ul><li>Breaks down the firm into a sequential series of activities and attempts to identify the value added of each activity </li></ul>
    19. 19. Benchmarking Involves Four Stages: <ul><li>Identifying activities or functions that are weak and need improvement. </li></ul><ul><li>Identifying firms that are known to be at the leading edge of these activities or functions. </li></ul><ul><li>Studying the leading-edge firms by visiting them, talking to managers and employees, and reading trade publications. </li></ul><ul><li>Using the information gathered to redefine goals, modify processes, and acquire new resources to improve the firm’s functions. </li></ul>
    20. 20. Strategic Intent and Mission <ul><li>The primary guides to strategic management are formal statements of strategic intent and mission. </li></ul><ul><li>Strategic intent is internally focused, defining how the firm uses its resources, capabilities, and core competencies. </li></ul><ul><li>Strategic mission is externally focused, defining what will be to produced and marketed, utilizing its internal core competencies. </li></ul>
    21. 21. Strategic Intent and Mission (cont.) Strategic Intent and Mission <ul><li>Intent: How firm would like to use </li></ul><ul><li>Resources </li></ul><ul><li>Capabilities </li></ul><ul><li>Core competencies </li></ul><ul><li>Mission: Determine the firm’s external focus on </li></ul><ul><li>Products </li></ul><ul><li>Markets </li></ul>
    22. 22. Strategy Formulation <ul><li>The design of an approach to achieve the firm’s mission. </li></ul><ul><li>Takes place at: </li></ul><ul><ul><li>Corporate-Level </li></ul></ul><ul><ul><li>Business-Level </li></ul></ul>
    23. 23. Corporate-Level Strategy <ul><li>The corporation’s overall plan concerning the: </li></ul><ul><ul><li>Number of businesses the corporation holds. </li></ul></ul><ul><ul><li>Variety of markets or industries it serves. </li></ul></ul><ul><ul><li>Distribution of resources among those businesses. </li></ul></ul><ul><li>This diversification strategy may be analyzed in terms of: </li></ul><ul><ul><li>Portfolio mix </li></ul></ul><ul><ul><li>Type of diversification </li></ul></ul><ul><ul><li>Process of diversification </li></ul></ul>
    24. 24. Portfolio Analysis <ul><li>The basic idea is to classify the businesses of a diversified company within a single framework. </li></ul><ul><li>Two of the most widely applied include: </li></ul><ul><ul><li>The McKinsey-General Electric Portfolio Analysis Matrix </li></ul></ul><ul><ul><li>The Boston Consulting Group’s Growth Share Matrix </li></ul></ul>
    25. 25. 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
    26. 26. 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
    27. 27. Diversification Strategy <ul><li>Type of Diversification </li></ul><ul><li>Concentration strategy </li></ul><ul><li>Vertical integration strategy </li></ul><ul><li>Concentric diversification strategy </li></ul><ul><li>Conglomerate diversification </li></ul><ul><li>Process of Diversification </li></ul><ul><li>Acquisition and restructuring strategies </li></ul><ul><ul><li>Acquisition </li></ul></ul><ul><ul><li>Merger </li></ul></ul><ul><li>International strategy </li></ul>
    28. 28. Business-Level Strategy <ul><li>Deals with how to compete in each business area or market segment. </li></ul><ul><li>Firms have two basic choices: </li></ul><ul><ul><li>Cost leadership strategy </li></ul></ul><ul><ul><li>Differentiation strategy </li></ul></ul>
    29. 29. Strategy Implementation Organizational Structure and Controls Cooperative Strategies Human Resource Strategies Strategic Leadership Corporate Entrepreneurship and Innovation
    30. 30. Strategic Outcomes <ul><li>Company leaders should periodically assess whether the outcomes meet expectations. </li></ul><ul><li>A firm must first and foremost cater to the desires of its primary stakeholders . </li></ul><ul><li>The firm should also consider the desires of other stakeholders affected by its performance. </li></ul><ul><li>Some of the standard measures of strategic success includes: </li></ul><ul><ul><li>Profits </li></ul></ul><ul><ul><li>Growth of sales/market share </li></ul></ul><ul><ul><li>Growth of corporate assets </li></ul></ul><ul><ul><li>Reduced competitive threats </li></ul></ul><ul><ul><li>Innovations </li></ul></ul>