Strategic Management


Published on

Introduction to strategic management

Published in: Business
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Strategic Management

  1. 1. Strategic ManagementSummarized by: Mohamed EL-Sayed
  2. 2. Introduction of Concepts Strategic Management: The set of managerial decisions and actions that determines the long-run performance of an organization. Strategic Planning: The process of determining a companys long-term goals and then identifying the best approach for achieving those goals
  3. 3. Why is strategic management important? Gives everyone a role Makes a difference in performance levels Provides systematic approach to uncertainties Coordinates and focuses employees
  4. 4. Strategic Management Model
  5. 5. Basic Elements of Strategic ManagementA- Environmental Scanning: is the monitoring, evaluating and disseminating of information from the external and internal environments to key people within the organizationB- Strategy Formulation: is the development of long-range plans for the effective management of environmental opportunities and threats in light of organizational strengths and weaknesses (SWOT)
  6. 6. Basic Elements of Strategic ManagementC- Strategy implementation: the process by which strategies and policies are put into action through the development of: Programs Budgets ProceduresD- Evaluation and control: the process in which corporate activities and performance results are monitored so that actual performance can be compared to desired performanceE- Feedback/Learning Process: revise or correct decisions based on performance
  7. 7. Strategic Management Process
  8. 8. Strategic Management Process Step 1: Identifying the organizations current mission, objectives, and strategies  Mission: the firm’s reason for being • Who we are, • What we do, and • Where we are now  Goals: the foundation for further planning • Measurable performance targets Step 2: Conducting an external analysis  The environmental scanning of specific and general environments  Focuses on identifying opportunities and threats
  9. 9. Strategic Management Process (cont’d) Step 3: Conducting an internal analysis  Assessing organizational resources, capabilities, activities and culture: • Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm. • Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage.Steps 2 and 3 combined are called a SWOT analysis (Strengths,Weaknesses, Opportunities, and Threats)
  10. 10. Strategic Management Process (cont’d) Step 4: Formulating strategies  Develop and evaluate strategic alternatives  Select appropriate strategies for all levels in the organization that provide relative advantage over competitors  Match organizational strengths to environmental opportunities  Correct weaknesses and guard against threats
  11. 11. Strategic Management Process (cont’d) Step 5: Implementing strategies  Implementation: effectively fitting organizational structure and activities to the environment  Effective strategy implementation requires an organizational structure matched to its requirements. Step 6: Evaluating results  How effective have strategies been?  What adjustments, if any, are necessary?
  12. 12. Key terms of Strategic ManagementMission- the purpose or reason for the organization’s existenceVision- describes what the organization would like to becomeObjectives- the end results of planned activity
  13. 13. Key terms of Strategic ManagementStrategies- form a comprehensive master plan that states how the corporation will achieve its mission and objectives  Corporate  Business  FunctionalPolicies- the broad guidelines for decision making that links the formulation of a strategy with its implementation
  14. 14. A- Environmental ScanningEnvironmental scanning- the monitoring, evaluation and dissemination of information from the external and internal environments to key people within the corporationEnvironmental Scanning is performed through 2-level analysis:1- Organization’s Analysis. (SWOT)2- External Analysis, which is divided into: A- Macro level (Market Societal analysis) (PESTEL) B- Micro level ( Industry analysis) (Porter 5 forces)
  15. 15. Environmental Variables
  16. 16. 1- Organization’s Analysis (SWOT) Commonly used strategy tool:  Strengths  Weaknesses  Opportunities  Threatso Controllable activities performed especially well or poorlyo Determined relative to competitors
  17. 17. 1- Organization’s Analysis (SWOT) Step 1: Analyze the organization’s internal environment, identifying its strengths and weaknesses. Step 2: Analyze the organization’s external environment, identifying its opportunities and threats. Step 3: Cross-match  Strengths with opportunities  Weaknesses with threats  Strengths with threats  Weaknesses with opportunities
  18. 18. Internal Strengths and Weaknesses Typically located in functional areas of the firm  Management  Marketing  Finance/Accounting  Production/Operations  Research & Development  Management Information Systems
  19. 19. Internal Strengths and WeaknessesAssessing the Internal Environment Ratios Performance Measures Internal Factors Industry Averages Survey Data
  20. 20. S.W.O.T. Analysis Example
  21. 21. 2- External Analysis External Environmental Variables Natural environment Societal environment Task environment
  22. 22. 2- External Analysis (cont’d)Natural environment Physical resources Wildlife Climate
  23. 23. 2- External Analysis (cont’d)A- Societal environment- social systems that influence long-term decisions Economic forces Technological forces Political-legal forces Socio-cultural forces
  24. 24. Societal Environmental Variables
  25. 25. 2- External Analysis (cont’d)B- Task environment- groups that directly affect a corporation and are affected by the corporation Government Local communities Suppliers Competitors Customers Creditors Unions Special interest groups/trade associations
  26. 26. Industry Analysis (Task Environment)
  27. 27. Industry Analysis (Task Environment)1- Threat of new entrants- new entrants to an industry bring new capacity, a desire to gain market share and substantial resourcesEntry barrier- an obstruction that makes it difficult for a company to enter an industry Economies of scale Product differentiation Capital requirements Switching costs
  28. 28. Industry Analysis (Task Environment)2- Rivalry Among Existing Firms- new entrants to an industry bring new capacity, a desire to gain market share and substantial resources Number of competitors Rate of industry growth Product or service characteristics Amount of fixed costs Capacity Height of exit barriers Diversity of rivals
  29. 29. Industry Analysis (Task Environment)3- Threat of Substitute Products or Services- products that appear different but can satisfy the same need as another product
  30. 30. Industry Analysis (Task Environment)4- Bargaining Power of Buyers- ability of buyers to force prices down, bargain for higher quality, play competitors against each other Large purchases Backward integration Alternative suppliers Low cost to change suppliers Product represents a high percentage of buyer’s cost Buyer earns low profits Product is unimportant to buyer
  31. 31. Industry Analysis (Task Environment)5- Bargaining Power of Suppliers- ability of suppliers to raise prices or reduce quality Industry is dominated by a few companies Unique product or service Substitutes are not readily available Ability to forward integrate Unimportance of product or service to the industry
  32. 32. Industry Analysis (Task Environment)6- Relative Power of Other Stakeholders Government Local communities Creditors Trade associations Special interest groups Unions Shareholders Complementary products that work well with a firm’s product
  33. 33. Initiating Strategy: Triggering EventsTriggering event: something that acts as a stimulus for a change in strategy and can include:• New CEO• External intervention• Threat of change of ownership• Performance gap• Strategic inflection point
  34. 34. B- Strategy Formulation Strategy is comprehensive plan that states how the company will achieve its mission & objectives. 3 Levels of Business strategy:1- Corporate Strategy2- Business (Competitive) Strategy3- Functional Strategy
  35. 35. Levels of strategy
  36. 36. Levels of strategy1) Corporate Strategy 2) Business Strategy 3) Functional StrategyAttitude towards growth Competitive Strategy Productivity& management of Special Business line, It Benchmark – Standardvarious business & has touch to Cost,product lines, it has to Customer (Pull Strategy) Differentiation & Focustouch stability, growth, Lower Costretrenchment Integrated Process Quality Assurance Supply Chain Marketing oriented company
  37. 37. 1- Corporate Strategy (Directional)Directional strategy- the firm’s overall orientation toward growth, stability, or retrenchment
  38. 38. 1.1 Growth Strategy Growth Strategy  Seeking to increase the organization’s business by expansion into new products and markets.A- Concentration (Integration) • Vertical • HorizontalB- Diversification (Penetration) • Concentric • Conglomerate
  39. 39. 1.1 Growth StrategyConcentration and Diversification Merger- a transaction involving two or more corporations in which stock is exchanged but in which only one corporation survives Acquisition- the purchase of a company that is completely absorbed by the subsidiary or division of the acquiring corporation
  40. 40. 1.1 Growth Strategy (Concentration)A- Concentration strategiesVertical growth- taking over the function previously provided by a supplier or by a distributor Vertical integration- the degree to which a firm operates vertically in multiple locations on an industry’s value chain from extracting raw materials to manufacturing to retailing  Backward integration- assuming a function previously provided by a supplier  Forward integration- assuming a function previously provided by a distributor
  41. 41. Vertical Growth
  42. 42. Vertical Growth Full integration- a firm internally makes 100% of its key suppliers and completely controls its distributors Taper integration- a firm internally produces less than half of its own requirements and buys the rest from outside suppliers Quasi-integration- a company does not make any of its key supplies but purchases most of its requirements from outside suppliers that are under its partial control Long-term contracts- agreements between 2 firms to provide agreed-upon goods and services to each other for a specific period of time
  43. 43. 1.1 Growth Strategy (Concentration)A- Concentration strategiesHorizontal growth- expansion of operations into other geographic locations and/or increasing the range of products and services offered to current markets Horizontal growth is achieved through:  Internal development  Acquisitions  Strategic alliancesHorizontal integration- the degree to which a firm operates in multiple geographic locations at the same point on an industry’s value chain
  44. 44. Horizontal GrowthInternational Entry Options for Horizontal Growth Exporting  Green-Field Development Licensing  Production Sharing Franchising Turn-key Operations Joint Venture BOT Concept Acquisitions Management Contracts
  45. 45. 1.1 Growth Strategy (Diversification)B- Diversification StrategiesConcentric (Related) Diversification- growth into a related industry when a firm has a strong competitive position but attractiveness is lowConglomerate (Unrelated) Diversification- growth into an unrelated industry Management realizes that the current industry is unattractive Firm lacks outstanding abilities or skills that it could easily transfer to related products or services in other industries
  46. 46. 1.1 Growth Strategy (Diversification)
  47. 47. 1.2 Stability StrategyStability Strategies- continuing activities without any significant change in direction Pause/Proceed with caution strategy- an opportunity to rest before continuing a growth or retrenchment strategy No change strategy- continuance of current operations and policies Profit Strategies- to do nothing new in a worsening situation but instead to act as though the company’s problems are only temporary
  48. 48. 1.3 Retrenchment StrategyRetrenchment Strategies- used when the firm has a weak competitive position in some or all of its product lines from poor performance
  49. 49. 1.3 Retrenchment Strategy (Turnaround)Turnaround strategy- emphasizes the improvement of operational efficiency when the corporation’s problems are pervasive but not critical Contraction- effort to quickly “stop the bleeding” across the board but in size and costs Consolidation- stabilization of the new leaner corporation
  50. 50. 1.3 Retrenchment Strategy (cont’d)Captive Company Strategy- company gives up independence in exchange for securitySell-out strategy- management can still obtain a good price for its shareholders and the employees can keep their jobs by selling the company to another firmDivestment- sale of a division with low growth potential
  51. 51. 2- Business Strategy (Competitive) Business (or Competitive) Strategy  A strategy focused on how an organization should compete in each of its SBUs (strategic business units).
  52. 52. 2- Business Strategy (Competitive) Cost Leadership Strategy  Seeking to attain the lowest total overall costs relative to other industry competitors. Differentiation Strategy  Attempting to create a unique and distinctive product or service for which customers will pay a premium. Focus Strategy  Using a cost or differentiation advantage to exploit a particular market segment rather a larger market.
  53. 53. 2.1 Competitive Strategy (Cost Leadership)Cost leadership- a lower-cost competitive strategy that aims at the broad mass market and requires efficient scale facilities, cost reductions, cost and overhead control; avoids marginal customers, cost minimization in R&D, service, sales force and advertising Provides a defense against competitors Provides a barrier to entry Generates increased market share
  54. 54. 2.2 Competitive Strategy (Differentiation)Differentiation- involves the creation of a product or service that is perceived throughout the industry as unique. Can be associated with design, brand image, technology, features, dealer network, or customer service Lowers customers sensitivity to price Increases buyer loyalty Barrier to entry Can generate higher profits
  55. 55. 2.3 Competitive Strategy (Focus)Cost Focus- low-cost competitive strategy that focuses on a particular buyer group or geographic market and attempts to serve only this niche to the exclusion of othersDifferentiation Focus- concentrates on a particular buyer group, product line segment, or geographic market to serve the needs of a narrow strategic market more effectively than its competitors
  56. 56. Competitive Strategies
  57. 57. Competitive Strategies Risks
  58. 58. 3- Functional StrategyFunctional strategy- the approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivityo Marketing strategy deals with pricing, selling and distributing a producto Financial Strategy- examines the financial implications of corporate and business-level strategic options and identifies the best financial course of action
  59. 59. 3- Functional Strategyo Operations Strategy- determines how and where a product or service is to be manufactured, the level of vertical integration in the production process, the deployment of physical resources and relationships with supplierso Logistics Strategy- deals with the flow of products into and out of the manufacturing processo Human Resource Strategyo Information Technology Strategy
  60. 60. C- Strategy ImplementationStrategy implementation- the sum total of all activities and choices required for the execution of a strategic plan Who are the people to carry out the strategic plan? What must be done to align company operations in the intended direction? How is everyone going to work together to do what is needed?
  61. 61. Strategy Implementation Steps Developing a strategy-supportive culture Creating an effective organizational structure Redirecting marketing efforts Preparing budgets Developing and utilizing information systems Linking employee compensation to organizational performance
  62. 62. Strategy Implementation (cont’d) Developing Programs, Budgets and ProceduresPrograms- make strategies action-orientedMatrix of Change- provides guidance on where, when and how fast to implement changeBudget- provides the last real check on the feasibility of the strategyProcedures (organizational routines)- detail the various activities that must be carried out to complete a corporation’s programs
  63. 63. Strategy Implementation ProgramsReengineering- the radical redesign of business processes to achieve major gains in cost, service, or time Program to implement a turnaround strategyLean Six Sigma- incorporates Six Sigma with lean manufacturing- removes unnecessary production steps and fixes the remaining stepsJob Design- the study of individual tasks in an attempt to make them more relevant to the company and to the employees Job enlargement Job rotation Job enrichment model
  64. 64. Strategy Implementation Problems1. Took more time than planned2. Unanticipated major problems3. Poor coordination4. Competing activities and crises created distractions5. Employees with insufficient capabilities6. Poor subordinate training7. Uncontrollable external environmental factors8. Poor departmental leadership and direction9. Inadequately defined implementation tasks and activities10. Inefficient information system to monitor activities
  65. 65. D- Strategy Evaluation & ControlEvaluation and Control ensures that a company is achieving what it set out to accomplish by comparing performance with desired results and taking corrective action as needed1. Determine what to measure2. Establish standards of performance3. Measure actual performance4. Compare actual performance with the standard5. Take corrective action
  66. 66. Evaluation & Control Process
  67. 67. Measuring PerformancePrimary Measures of Corporate Performance Return on Investment (ROI) Earnings per share (EPS) Return on equity (ROE) Operating cash flow
  68. 68. Measuring PerformanceShareholder Value- the present value of the anticipated future streams of cash flows from the business plus the value of the company if liquidatedEconomic Value Added (EVA)- measures the difference between the pre-strategy and post-strategy values for the businessMarket Value Added (MVA)- measures the difference between the market value of a corporation and the capital contributed by shareholders and lenders
  69. 69. Measuring PerformanceBalanced score card– combines financial measures that tell results of actions already taken with operational measures on customer satisfaction, internal processes and the corporation’s innovation and improvement activities Financial Customer Internal business perspective Innovation and learningBenchmarking- the continual process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders
  70. 70. E- Feedback & Learning Periodic review of the implementation process Obtain feedback from staff/clients/stakeholders Provide regular feedback to major stakeholders, including staff Document and communicate the lessons learnt Acknowledge and share results - achievements and failures Continuous monitoring and review of objectives Remember that the Strategic Management process is a continuous cycle. It does not end. The real objective is continual improvement!
  71. 71. STRATEGIC ACTION PLANNING Summary The reason for the existence of the organization & MISSION establishes the values, beliefs & guidelines for the conduct of business The long range objectives VISION that will drive the development process and stretch the organization to achieve them. SWOT AnalysisInternal Environment External EnvironmentStrengths OpportunitiesWeaknesses Threats- Value systems - The changing environment- Culture - The demand for new products- Staffing - The economic environment- Support systems, operating environment - Availability of resources STRATEGIC AREAS FOR DEVELOPMENT STRATEGIC OBJECTIVES Strategic Strategic Strategic Strategic Action 1 Action 2 Action 3 Action 4 EVALUATION/FEEDBACK
  72. 72. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall