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Chapter 8 Chapter 8 Presentation Transcript

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