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Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
Chapter 8
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Chapter 8

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  1. Chapter 8 STRATEGIC MANAGEMENT © Prentice Hall, 2002 8-
  2. Learning Objectives <ul><li>You should learn to: </li></ul><ul><ul><li>Explain the importance of strategic management </li></ul></ul><ul><ul><li>Describe the steps in the strategic management process </li></ul></ul><ul><ul><li>Explain SWOT analysis </li></ul></ul><ul><ul><li>Differentiate corporate-, business-, and functional-level strategies </li></ul></ul><ul><ul><li>Explain what competitive advantage is and why it’s important to organizations </li></ul></ul>© Prentice Hall, 2002 8-
  3. Learning Objectives (cont.) <ul><li>You should learn to: </li></ul><ul><ul><li>Describe the five competitive forces </li></ul></ul><ul><ul><li>Identify the various competitive strategies </li></ul></ul>© Prentice Hall, 2002 8-
  4. The Importance Of Strategic Management <ul><li>What Is Strategic Management? </li></ul><ul><ul><li>A set of managerial decisions and actions that determines the long-run performance of an organization </li></ul></ul><ul><li>Purposes of Strategic Management </li></ul><ul><ul><li>involved in many decisions that managers make </li></ul></ul><ul><ul><li>companies with formal strategic management systems have higher financial returns than companies with no such system </li></ul></ul><ul><ul><li>important in profit and not-for-profit organizations </li></ul></ul>© Prentice Hall, 2002 8-
  5. The Strategic Management Process © Prentice Hall, 2002 8-
  6. The Strategic Management Process <ul><li>1. Identifying the Organization’s Current Mission, Objectives, and Strategies </li></ul><ul><ul><li>mission - statement of the purpose of an organization </li></ul></ul><ul><ul><ul><li>important in profit and not-for-profit organizations </li></ul></ul></ul><ul><ul><ul><li>important to identify the goals currently in place and the strategies currently being pursued </li></ul></ul></ul>© Prentice Hall, 2002 8-
  7. Components of a Mission Statement © Prentice Hall, 2002 8-
  8. The Strategic Management Process (cont.) <ul><li>2. Analyzing the Environment </li></ul><ul><ul><li>successful strategies are aligned with the environment </li></ul></ul><ul><ul><li>examine both the specific and general environments to determine what trends and changes are occurring </li></ul></ul><ul><li>3. Identifying Opportunities and Threats </li></ul><ul><ul><li>opportunities - positive trends in the external environmental </li></ul></ul><ul><ul><li>threats - negative trends in the external environment </li></ul></ul>© Prentice Hall, 2002 8-
  9. The Strategic Management Process (cont.) <ul><li>4. Analyzing the Organization’s Resources and Capabilities </li></ul><ul><ul><li>examine the inside of the organization </li></ul></ul><ul><ul><li>available resources and capabilities always constrain the organization in some way </li></ul></ul><ul><ul><li>core competence - a unique and exceptional capability or resource </li></ul></ul><ul><ul><ul><li>the organization’s major value-creating, competitive weapon </li></ul></ul></ul>© Prentice Hall, 2002 8-
  10. The Strategic Management Process (cont.) <ul><li>5. Identifying Strengths and Weaknesses </li></ul><ul><ul><li>strengths - activities the organization does well or any unique resource </li></ul></ul><ul><ul><li>weaknesses - activities the organization does not do well or resources it needs but does not possess </li></ul></ul><ul><ul><li>organization’s culture has its strengths and weaknesses </li></ul></ul><ul><ul><ul><li>strong culture - new employees easily identify the organization’s core competencies </li></ul></ul></ul><ul><ul><ul><ul><li>may serve as a barrier to accepting change </li></ul></ul></ul></ul><ul><ul><ul><li>influence managers’ preferences for certain strategies </li></ul></ul></ul><ul><ul><li>SWOT analysis - analysis of the organization’s strengths, weaknesses, opportunities, and threats </li></ul></ul>© Prentice Hall, 2002 8-
  11. Identifying the Organization’s Opportunities Organization’s Opportunities Organization’s Resources/Abilities Opportunities in the Environment © Prentice Hall, 2002 8-
  12. The Strategic Management Process (cont.) <ul><li>6. Formulating Strategies </li></ul><ul><ul><li>require strategies at the corporate, business, and functional levels of the organization </li></ul></ul><ul><ul><li>strategy formulation follows the decision-making process </li></ul></ul><ul><li>7. Implementing Strategies </li></ul><ul><ul><li>a strategy is only as good as its implementation </li></ul></ul><ul><li>8. Evaluating Results </li></ul><ul><ul><li>control process to determine the effectiveness of a strategy </li></ul></ul>© Prentice Hall, 2002 8-
  13. Levels of Organizational Strategy © Prentice Hall, 2002 8-
  14. Types Of Organizational Strategies <ul><li>Corporate-Level Strategy </li></ul><ul><ul><li>determines </li></ul></ul><ul><ul><ul><li>what businesses a company should be in or wants to be in </li></ul></ul></ul><ul><ul><ul><li>the direction that the organization is going </li></ul></ul></ul><ul><ul><ul><li>the role that each business unit will play </li></ul></ul></ul><ul><ul><li>Grand Strategy - Stability </li></ul></ul><ul><ul><ul><li>no significant change is proposed </li></ul></ul></ul><ul><ul><ul><li>organization’s performance is satisfactory </li></ul></ul></ul><ul><ul><ul><li>environment appears to be stable and unchanging </li></ul></ul></ul><ul><ul><ul><li>few organizations today pursue this strategy </li></ul></ul></ul>© Prentice Hall, 2002 8-
  15. Types Of Organizational Strategies (cont.) <ul><li>Corporate-Level Strategy (cont.) </li></ul><ul><ul><li>Grand Strategy - Growth </li></ul></ul><ul><ul><ul><li>seeks to increase the level of the organization’s operations </li></ul></ul></ul><ul><ul><ul><li>concentration - growth through direct expansion of organization’s own business operations </li></ul></ul></ul><ul><ul><ul><li>vertical integration </li></ul></ul></ul><ul><ul><ul><ul><li>backward - become your own supplier </li></ul></ul></ul></ul><ul><ul><ul><ul><li>forward - become your own distributor </li></ul></ul></ul></ul><ul><ul><ul><li>horizontal integration - grow by combining with other organizations in the same industry </li></ul></ul></ul><ul><ul><ul><ul><li>needs approval by U.S. Federal Trade Commission </li></ul></ul></ul></ul>© Prentice Hall, 2002 8-
  16. Types Of Organizational Strategies (cont.) <ul><li>Corporate-Level Strategy (cont.) </li></ul><ul><ul><li>Grand Strategy - Growth (cont.) </li></ul></ul><ul><ul><ul><li>related diversification - grow by merging with or acquiring firms in different, but related, industries </li></ul></ul></ul><ul><ul><ul><ul><li>“ strategic fit” </li></ul></ul></ul></ul><ul><ul><ul><li>unrelated diversification - grow by merging with or acquiring firms in different and unrelated industries </li></ul></ul></ul>© Prentice Hall, 2002 8-
  17. Types Of Organizational Strategies (cont.) <ul><li>Corporate-Level Strategy (cont.) </li></ul><ul><ul><li>Grand Strategy - Growth (cont.) </li></ul></ul><ul><ul><ul><li>retrenchment - designed to address organizational weaknesses that are leading to performance declines </li></ul></ul></ul><ul><ul><ul><ul><li>intended to: </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>stabilize operations </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>revitalize organizational resources and capabilities </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>prepare to compete once again </li></ul></ul></ul></ul></ul>© Prentice Hall, 2002 8-
  18. SWOT Analysis And Grand Strategies Corporate Growth Strategies Corporate Stability Strategies Corporate Retrenchment Strategies Corporate Stability Strategies © Prentice Hall, 2002 8- Abundant Environmental Opportunities Critical Environmental Threats Critical Weaknesses Valuable Strengths Environmental Status Firm Status
  19. Types of Organizational Strategies (cont.) <ul><li>Corporate-Level Strategy (cont.) </li></ul><ul><ul><li>Corporate Portfolio Analysis - used when corporate strategy involves a number of business </li></ul></ul><ul><ul><ul><li>Boston Consulting Group (BCG) matrix - provides a framework for understanding diverse businesses </li></ul></ul></ul><ul><ul><ul><ul><li>helps managers establish priorities for making resource allocation decisions </li></ul></ul></ul></ul><ul><ul><ul><ul><li>businesses classified in terms of </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>market share </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>anticipated market growth </li></ul></ul></ul></ul></ul>© Prentice Hall, 2002 8-
  20. The BCG Matrix Stars Cash Cows Dogs Question Marks © Prentice Hall, 2002 8- Market Share High Low High Low Anticipated Growth Rate
  21. Types of Organizational Strategies (cont.) <ul><li>Corporate-Level Strategy (cont.) </li></ul><ul><ul><li>BCG matrix (cont.) </li></ul></ul><ul><ul><ul><li>strategic implications of the matrix </li></ul></ul></ul><ul><ul><ul><ul><li>cash cows - “milk” </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>use cash to invest in stars and question marks </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>stars - require heavy investment </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>eventually will become cash cows </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>question marks - two strategies </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>invest to transform them into stars </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>divest </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>dogs - sold off or liquidated </li></ul></ul></ul></ul>© Prentice Hall, 2002 8-
  22. Types Of Organizational Strategies (cont.) <ul><li>Business-Level Strategy </li></ul><ul><ul><li>determines how an organization should compete in each of its businesses </li></ul></ul><ul><ul><li>strategic business units - independent businesses that formulate their own strategies </li></ul></ul><ul><ul><li>Role of Competitive Advantage </li></ul></ul><ul><ul><ul><li>competitive advantage - sets an organization apart by providing a distinct edge </li></ul></ul></ul><ul><ul><ul><ul><li>comes from the organization’s core competencies </li></ul></ul></ul></ul><ul><ul><ul><ul><li>not every organization can transform core competencies into a competitive advantage </li></ul></ul></ul></ul><ul><ul><ul><ul><li>once created, must be able to sustain it </li></ul></ul></ul></ul>© Prentice Hall, 2002 8-
  23. Types Of Organizational Strategies (cont.) <ul><li>Business-Level Strategy (cont.) </li></ul><ul><ul><li>Competitive Strategies </li></ul></ul><ul><ul><ul><li>Michael Porter - industry analysis based on five competitive forces </li></ul></ul></ul><ul><ul><ul><ul><li>Threat of new entrants - affected by barriers to entry </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Threat of substitutes - affected by buyer loyalty and switching costs </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Bargaining power of buyers - affected by number of customers, availability of substitute products </li></ul></ul></ul></ul>© Prentice Hall, 2002 8-
  24. <ul><li>Business-Level Strategy (cont.) </li></ul><ul><ul><li>Competitive Strategies (cont.) </li></ul></ul><ul><ul><ul><li>Porter’s competitive forces analysis (cont.) </li></ul></ul></ul><ul><ul><ul><ul><li>Bargaining power of suppliers - affected by degree of supplier concentration </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Existing rivalry - affected by industry growth rate, demand for firm’s product or service, and product differences </li></ul></ul></ul></ul>Types Of Organizational Strategies (cont.) © Prentice Hall, 2002 8-
  25. Forces In The Industry Analysis Current Rivalry Industry Competitors Suppliers New Entrants Buyers Substitutes Threat of New Entrants Threat of Substitutes Bargaining Power or Buyers Bargaining Power or Suppliers © Prentice Hall, 2002 8-
  26. Types of Organizational Strategies (cont.) <ul><li>Business-Level Strategy (cont.) </li></ul><ul><ul><li>Competitive strategies (cont.) </li></ul></ul><ul><ul><ul><li>Porter’s three generic strategies </li></ul></ul></ul><ul><ul><ul><ul><li>cost leadership - goal is to become the lowest-cost producer in the industry </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>tries to identify efficiencies in all operations </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>overhead kept to a minimum </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>product or service must be perceived to be of comparable quality to that offered by competitors </li></ul></ul></ul></ul></ul>© Prentice Hall, 2002 8-
  27. Types of Organizational Strategies (cont.) <ul><li>Business-Level Strategy (cont.) </li></ul><ul><ul><li>Competitive strategies (cont.) </li></ul></ul><ul><ul><ul><li>Porter’s three generic strategies (cont.) </li></ul></ul></ul><ul><ul><ul><ul><li>differentiation - offer unique products that are widely valued by customers </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>sets the firm apart from competitors </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>differentiation based on quality, service, product design, brand image </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>customers must be willing to pay a price premium that exceeds the cost of differentiation </li></ul></ul></ul></ul></ul>© Prentice Hall, 2002 8-
  28. Types of Organizational Strategies (cont.) <ul><li>Business-Level Strategy (cont.) </li></ul><ul><ul><li>Competitive strategies (cont.) </li></ul></ul><ul><ul><ul><li>Porter’s three generic strategies (cont.) </li></ul></ul></ul><ul><ul><ul><ul><li>focus - aims at a cost advantage or differentiation advantage in a narrow segment </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>no attempt to serve the broad market </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>feasibility of strategy depends on the size of the segment and the ability of the firm to support the cost of focusing </li></ul></ul></ul></ul></ul>© Prentice Hall, 2002 8-
  29. Requirements for Successfully Pursuing Porter’s Competitive Strategies © Prentice Hall, 2002 8-
  30. Types Of Organizational Strategies (cont.) <ul><li>Functional-Level Strategy (cont.) </li></ul><ul><ul><li>used to support the business-level strategy </li></ul></ul><ul><ul><li>creates an appropriate supporting role for each functional area of the organization </li></ul></ul><ul><ul><ul><li>e.g., manufacturing, marketing, human resources </li></ul></ul></ul>© Prentice Hall, 2002 8-

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