Analyze the external and internal environments Define strategic intent and mission Formulate strategies Implement strategies Assess strategic outcomes Components of the Strategic Management Process:
Commonly used strategy tool: SWOT
S trengths, W eaknesses, O pportunities, T hreats
External Environment Internal Environment
The External Environment
Company leaders must study the external environment in order to:
Identify opportunities and threats in the marketplace.
Respond appropriately to competitors’ moves.
A major challenge is to gather accurate market intelligence in a timely fashion, and transform it into usable knowledge to gain a competitive advantage.
Components of External Analysis Scanning Monitoring Forecasting Assessing
Scope of the External Analysis General Environment The Industry Strategic Groups Competitor Analysis
The Segments of the General Environment Demography Economic Conditions Political/Legal Forces Socio-cultural Conditions Technological Changes Globalization
Porter’s Analyzing the Industry Environment Threat of new entrants Threat of substitutes Suppliers Customers Intensity of rivalry among competitors
The Internal Environment
Each company has something that it does well. These are called “core competencies.”
Company executives should identify the resources, capabilities, and knowledge the firm has that may be used to exploit market opportunities and avoid potential threats.
Resource-based view: Basing the strategy on what the firm is capable of doing
Resource Types: Tangible Resources
Assets that can be quantified and observed.
Include financial resources, physical assets, and workers.
Strategic assessment of tangible resources should enable management to efficiently use tangible resources to support the company and to expand the volume of business.
Resource Types: Intangible Resources
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
Breaks down the firm into a sequential series of activities and attempts to identify the value added of each activity
Benchmarking Involves Four Stages:
Identifying activities or functions that are weak and need improvement.
Identifying firms that are known to be at the leading edge of these activities or functions.
Studying the leading-edge firms by visiting them, talking to managers and employees, and reading trade publications.
Using the information gathered to redefine goals, modify processes, and acquire new resources to improve the firm’s functions.
Strategic Intent and Mission
The primary guides to strategic management are formal statements of strategic intent and mission.
Strategic intent is internally focused, defining how the firm uses its resources, capabilities, and core competencies.
Strategic mission is externally focused, defining what will be to produced and marketed, utilizing its internal core competencies.
Strategic Intent and Mission (cont.) Strategic Intent and Mission
Intent: How firm would like to use
Mission: Determine the firm’s external focus on
The design of an approach to achieve the firm’s mission.
Takes place at:
The corporation’s overall plan concerning the:
Number of businesses the corporation holds.
Variety of markets or industries it serves.
Distribution of resources among those businesses.
This diversification strategy may be analyzed in terms of:
Type of diversification
Process of diversification
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
Type of Diversification
Vertical integration strategy
Concentric diversification strategy
Process of Diversification
Acquisition and restructuring strategies
Deals with how to compete in each business area or market segment.
Firms have two basic choices:
Cost leadership strategy
Strategy Implementation Organizational Structure and Controls Cooperative Strategies Human Resource Strategies Strategic Leadership Corporate Entrepreneurship and Innovation
Company leaders should periodically assess whether the outcomes meet expectations.
A firm must first and foremost cater to the desires of its primary stakeholders .
The firm should also consider the desires of other stakeholders affected by its performance.
Some of the standard measures of strategic success includes: