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Strategic management
1.
ninth edition STEPHEN P.
ROBBINS PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook The University of West AlabamaThe University of West Alabama MARY COULTER © 2007 Prentice Hall, Inc.© 2007 Prentice Hall, Inc. All rights reserved.All rights reserved. StrategicStrategic ManagementManagement
2.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–2 Strategic ManagementStrategic Management • What managers do to develop theWhat managers do to develop the organization’s strategies.organization’s strategies. StrategiesStrategies • The decisions and actions that determine theThe decisions and actions that determine the long-run performance of an organization.long-run performance of an organization.
3.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–3 Strategic Management (cont’d)Strategic Management (cont’d) • Business ModelBusiness Model Is a strategic design for how a company intends toIs a strategic design for how a company intends to profit from its strategies, work processes, and workprofit from its strategies, work processes, and work activities.activities. Focuses on two things:Focuses on two things: Whether customers will value what the company is providing.Whether customers will value what the company is providing. Whether the company can make any money doing that.Whether the company can make any money doing that.
4.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–4 Why is Strategic Management ImportantWhy is Strategic Management Important 1.1. It results in higher organizational performance.It results in higher organizational performance. 2.2. It requires that managers examine and adaptIt requires that managers examine and adapt to business environment changes.to business environment changes. 3.3. It coordinates diverse organizational units,It coordinates diverse organizational units, helping them focus on organizational goals.helping them focus on organizational goals. 4.4. It is very much involved in the managerialIt is very much involved in the managerial decision-making process.decision-making process.
5.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–5 Exhibit 8–1Exhibit 8–1 The Strategic Management ProcessThe Strategic Management Process
6.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–6 Strategic Management ProcessStrategic Management Process • Step 1: Identifying the organization’s currentStep 1: Identifying the organization’s current mission, goals, and strategiesmission, goals, and strategies Mission:Mission: the firm’s reason for beingthe firm’s reason for being The scope of its products and servicesThe scope of its products and services Goals:Goals: the foundation for further planningthe foundation for further planning Measurable performance targetsMeasurable performance targets • Step 2: Doing an external analysisStep 2: Doing an external analysis The environmental scanning of specific and generalThe environmental scanning of specific and general environmentsenvironments Focuses on identifying opportunities and threatsFocuses on identifying opportunities and threats
7.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–7 Exhibit 8–2Exhibit 8–2 Components of a Mission StatementComponents of a Mission Statement Source: Based on F. David, Strategic Management, 11 ed. (Upper Saddle River, NJ: Prentice Hall, 2007), p.70.
8.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–8 Strategic Management Process (cont’d)Strategic Management Process (cont’d) • Step 3: Doing an internal analysisStep 3: Doing an internal analysis Assessing organizational resources, capabilities, and activities:Assessing organizational resources, capabilities, and activities: Strengths create value for the customer and strengthen theStrengths create value for the customer and strengthen the competitive position of the firm.competitive position of the firm. Weaknesses can place the firm at a competitive disadvantage.Weaknesses can place the firm at a competitive disadvantage. Analyzing financial and physical assets is fairly easy, butAnalyzing financial and physical assets is fairly easy, but assessing intangible assets (employee’s skills, culture, corporateassessing intangible assets (employee’s skills, culture, corporate reputation, and so forth) isn’t as easy.reputation, and so forth) isn’t as easy. • Steps 2 and 3 combined are called a SWOT analysis.Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)(Strengths, Weaknesses, Opportunities, and Threats)
9.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–9 Exhibit 8–3Exhibit 8–3 Corporate Rankings (partial lists)Corporate Rankings (partial lists) Sources: “America’s Most Admired Companies,” Fortune, February 22, 2006, p. 65; “The 100 Best Companies to Work For,” Fortune, January 11, 2006, p. 89; R. Alsop, “Ranking Corporate Reputations,” Wall Street Journal, December 6, 2005, p. B1; and “The 100 Top Brands,” BusinessWeek, August 1, 2005, p. 90. Interbrand/BusinessWeek 100 Top Global Brands (2005) 1. Coca-Cola 2. Microsoft 3. IBM 4. General Electric 5. Intel Harris Interactive/Wall Street Journal National Corporate Reputation (2005) 1. Johnson & Johnson 2. Coca-Cola 3. Google 4. United Parcel Service 5. 3M Company Hay Group/Fortune America’s Most Admired Companies (2006) Great Place to Work Institute/Fortune 100 Best Companies to Work For (2006) 1. General Electric 2. FedEx 3. Southwest Airlines 4. Procter & Gamble 5. Starbucks 1. Genentech 2. Wegman’s Food Markets 3. Valero Energy 4. Griffin Hospital 5. W. L. Gore & Associates
10.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–10 Strategic Management Process (cont’d)Strategic Management Process (cont’d) • Step 4: Formulating strategiesStep 4: Formulating strategies Develop and evaluate strategic alternativesDevelop and evaluate strategic alternatives Select appropriate strategies for all levels in theSelect appropriate strategies for all levels in the organization that provide relative advantage overorganization that provide relative advantage over competitorscompetitors Match organizational strengths to environmentalMatch organizational strengths to environmental opportunitiesopportunities Correct weaknesses and guard against threatsCorrect weaknesses and guard against threats
11.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–11 Strategic Management Process (cont’d)Strategic Management Process (cont’d) • Step 5: Implementing strategiesStep 5: Implementing strategies Implementation:Implementation: effectively fitting organizationaleffectively fitting organizational structure and activities to the environment.structure and activities to the environment. The environment dictates the chosen strategy;The environment dictates the chosen strategy; effective strategy implementation requires aneffective strategy implementation requires an organizational structure matched to its requirements.organizational structure matched to its requirements. • Step 6: Evaluating resultsStep 6: Evaluating results How effective have strategies been?How effective have strategies been? What adjustments, if any, are necessary?What adjustments, if any, are necessary?
12.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–12 Types of Organizational StrategiesTypes of Organizational Strategies • Corporate StrategiesCorporate Strategies Top management’s overall plan for the entireTop management’s overall plan for the entire organization and its strategic business unitsorganization and its strategic business units • Types of Corporate StrategiesTypes of Corporate Strategies Growth: expansion into new products and marketsGrowth: expansion into new products and markets Stability: maintenance of the status quoStability: maintenance of the status quo Renewal: redirection of the firm into new marketsRenewal: redirection of the firm into new markets
13.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–13 Exhibit 8–4Exhibit 8–4 Levels of Organizational StrategyLevels of Organizational Strategy
14.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–14 Corporate StrategiesCorporate Strategies • Growth StrategyGrowth Strategy Seeking to increase the organization’s business bySeeking to increase the organization’s business by expansion into new products and markets.expansion into new products and markets. • Types of Growth StrategiesTypes of Growth Strategies ConcentrationConcentration Vertical integrationVertical integration Horizontal integrationHorizontal integration DiversificationDiversification
15.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–15 Growth StrategiesGrowth Strategies • ConcentrationConcentration Focusing on a primary line of business and increasingFocusing on a primary line of business and increasing the number of products offered or markets served.the number of products offered or markets served. • Vertical IntegrationVertical Integration Backward vertical integration: attempting to gainBackward vertical integration: attempting to gain control of inputs (become a self-supplier).control of inputs (become a self-supplier). Forward vertical integration: attempting to gain controlForward vertical integration: attempting to gain control of output through control of the distribution channel orof output through control of the distribution channel or provide customer service activities (eliminatingprovide customer service activities (eliminating intermediaries).intermediaries).
16.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–16 Growth Strategies (cont’d)Growth Strategies (cont’d) • Horizontal IntegrationHorizontal Integration Combining operations with another competitor in theCombining operations with another competitor in the same industry to increase competitive strengths andsame industry to increase competitive strengths and lower competition among industry rivals.lower competition among industry rivals. • Related DiversificationRelated Diversification Expanding by combining with firms in different, butExpanding by combining with firms in different, but related industries that are “strategic fits.”related industries that are “strategic fits.” • Unrelated DiversificationUnrelated Diversification Growing by combining with firms in unrelatedGrowing by combining with firms in unrelated industries where higher financial returns are possible.industries where higher financial returns are possible.
17.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–17 Growth Strategies (cont’d)Growth Strategies (cont’d) • Stability StrategyStability Strategy A strategy that seeks to maintain the status quo toA strategy that seeks to maintain the status quo to deal with the uncertainty of a dynamic environment,deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growthwhen the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not toconditions, or if the owners of the firm elect not to grow for personal reasons.grow for personal reasons.
18.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–18 Growth Strategies (cont’d)Growth Strategies (cont’d) • Renewal StrategiesRenewal Strategies Developing strategies to counter organizationDeveloping strategies to counter organization weaknesses that are leading to performance declines.weaknesses that are leading to performance declines. Retrenchment:Retrenchment: focusing of eliminating non-criticalfocusing of eliminating non-critical weaknesses and restoring strengths to overcome currentweaknesses and restoring strengths to overcome current performance problems.performance problems. Turnaround:Turnaround: addressing critical long-term performanceaddressing critical long-term performance problems through the use of strong cost eliminationproblems through the use of strong cost elimination measures and large-scale organizational restructuringmeasures and large-scale organizational restructuring solutions.solutions.
19.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–19 Corporate Portfolio AnalysisCorporate Portfolio Analysis • Managers manage portfolio (or collection) of businessesManagers manage portfolio (or collection) of businesses using a corporate portfolio matrix such as the BCGusing a corporate portfolio matrix such as the BCG Matrix.Matrix. • BCG MatrixBCG Matrix Developed by the Boston Consulting GroupDeveloped by the Boston Consulting Group Considers market share and industry growth rateConsiders market share and industry growth rate Classifies firms as:Classifies firms as: Cash cows:Cash cows: low growth rate, high market sharelow growth rate, high market share Stars:Stars: high growth rate, high market sharehigh growth rate, high market share Question marks:Question marks: high growth rate, low market sharehigh growth rate, low market share Dogs:Dogs: low growth rate, low market sharelow growth rate, low market share
20.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–20 Exhibit 8–5Exhibit 8–5 The BCG MatrixThe BCG Matrix
21.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–21 Business or Competitive StrategyBusiness or Competitive Strategy • Business (or Competitive) StrategyBusiness (or Competitive) Strategy A strategy focused on how an organization shouldA strategy focused on how an organization should compete in each of its SBUs (strategic businesscompete in each of its SBUs (strategic business units).units).
22.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–22 The Role of Competitive AdvantageThe Role of Competitive Advantage • Competitive AdvantageCompetitive Advantage An organization’s distinctive competitive edge.An organization’s distinctive competitive edge. • Quality as a Competitive AdvantageQuality as a Competitive Advantage Differentiates the firm from its competitors.Differentiates the firm from its competitors. Can create a sustainable competitive advantage.Can create a sustainable competitive advantage. Represents the company’s focus on qualityRepresents the company’s focus on quality management to achieve continuous improvement andmanagement to achieve continuous improvement and meet customers’ demand for quality.meet customers’ demand for quality.
23.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–23 The Role of Competitive AdvantageThe Role of Competitive Advantage (cont’d)(cont’d) • Sustainable Competitive AdvantageSustainable Competitive Advantage Continuing over time to effectively exploit resourcesContinuing over time to effectively exploit resources and develop core competencies that enable anand develop core competencies that enable an organization to keep its edge over its industryorganization to keep its edge over its industry competitors.competitors.
24.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–24 Five Competitive ForcesFive Competitive Forces • Threat of New EntrantsThreat of New Entrants The ease or difficulty with which new competitors canThe ease or difficulty with which new competitors can enter an industry.enter an industry. • Threat of SubstitutesThreat of Substitutes The extent to which switching costs and brand loyaltyThe extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitutesaffect the likelihood of customers adopting substitutes products and services.products and services. • Bargaining Power of BuyersBargaining Power of Buyers The degree to which buyers have the market strengthThe degree to which buyers have the market strength to hold sway over and influence competitors in anto hold sway over and influence competitors in an industry.industry.
25.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–25 Five Competitive ForcesFive Competitive Forces • Bargaining Power of SuppliersBargaining Power of Suppliers The relative number of buyers to suppliers andThe relative number of buyers to suppliers and threats from substitutes and new entrants affect thethreats from substitutes and new entrants affect the buyer-supplier relationship.buyer-supplier relationship. • Current RivalryCurrent Rivalry Intensity among rivals increases when industryIntensity among rivals increases when industry growth rates slow, demand falls, and product pricesgrowth rates slow, demand falls, and product prices descend.descend.
26.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–26 Exhibit 8–6Exhibit 8–6 Forces in the Industry AnalysisForces in the Industry Analysis Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980).
27.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–27 Types of Competitive StrategiesTypes of Competitive Strategies • Cost Leadership StrategyCost Leadership Strategy Seeking to attain the lowest total overall costs relativeSeeking to attain the lowest total overall costs relative to other industry competitors.to other industry competitors. • Differentiation StrategyDifferentiation Strategy Attempting to create a unique and distinctive productAttempting to create a unique and distinctive product or service for which customers will pay a premium.or service for which customers will pay a premium. • Focus StrategyFocus Strategy Using a cost or differentiation advantage to exploit aUsing a cost or differentiation advantage to exploit a particular market segment rather a larger market.particular market segment rather a larger market.
28.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–28 The Rule of ThreeThe Rule of Three • Similar to Porter’s generic competitive strategiesSimilar to Porter’s generic competitive strategies The competitive forces in an industry will create aThe competitive forces in an industry will create a situation where three companies (full-line generalists)situation where three companies (full-line generalists) will dominate a market.will dominate a market. Some firms in the market become “super nicheSome firms in the market become “super niche players” and while others end up as “ditch dwellers.”players” and while others end up as “ditch dwellers.” Firms unable to develop either a cost or differentiationFirms unable to develop either a cost or differentiation advantage become “stuck in the middle” and lackadvantage become “stuck in the middle” and lack prospects for long-term success.prospects for long-term success. A few firms successfully pursue both differentiationA few firms successfully pursue both differentiation and cost advantages.and cost advantages.
29.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–29 Strategic Management TodayStrategic Management Today • Strategic FlexibilityStrategic Flexibility • New Directions in Organizational StrategiesNew Directions in Organizational Strategies e-businesse-business customer servicecustomer service innovationinnovation
30.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–30 Exhibit 8–7Exhibit 8–7 Creating Strategic FlexibilityCreating Strategic Flexibility • Know what’s happening with strategies currently being used by monitoring and measuring results. • Encourage employees to be open about disclosing and sharing negative information. • Get new ideas and perspectives from outside the organization. • Have multiple alternatives when making strategic decisions. • Learn from mistakes. Source: Based on K. Shimizu and M. A. Hitt, “Strategic Flexibility: Organizational Preparedness to Reverse Ineffective Strategic Decisions,” Academy of Management Executive, November 2004, pp. 44–59.
31.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–31 How the Internet Has Changed BusinessHow the Internet Has Changed Business • The Internet allows businesses to:The Internet allows businesses to: Create knowledge bases that employees can tap intoCreate knowledge bases that employees can tap into anytime, anywhere.anytime, anywhere. Turn customers into collaborative partners who helpTurn customers into collaborative partners who help design, test, and launch new products.design, test, and launch new products. Become virtually paperless in specific tasks such asBecome virtually paperless in specific tasks such as purchasing and filing expense reports.purchasing and filing expense reports. Manage logistics in real timeManage logistics in real time Change the nature of work tasks throughout theChange the nature of work tasks throughout the organization.organization.
32.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–32 Strategies for Applying e-BusinessStrategies for Applying e-Business TechniquesTechniques • Cost LeadershipCost Leadership On-line activities: bidding, order processing, inventoryOn-line activities: bidding, order processing, inventory control, recruitment and hiringcontrol, recruitment and hiring • DifferentiationDifferentiation Internet-based knowledge systems, on-line orderingInternet-based knowledge systems, on-line ordering and customer supportand customer support • FocusFocus Chat rooms and discussion boards, targeted webChat rooms and discussion boards, targeted web sitessites
33.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–33 Customer Service StrategiesCustomer Service Strategies • Giving the customers what they want.Giving the customers what they want. • Communicating effectively with them.Communicating effectively with them. • Providing employees with customer serviceProviding employees with customer service training.training.
34.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–34 Innovation StrategiesInnovation Strategies • Possible EventsPossible Events Radical breakthroughs in products.Radical breakthroughs in products. Application of existing technology to new uses.Application of existing technology to new uses. • Strategic Decisions about InnovationStrategic Decisions about Innovation Basic researchBasic research Product developmentProduct development Process innovationProcess innovation • First MoverFirst Mover An organization that brings a product innovation toAn organization that brings a product innovation to market or use a new process innovationsmarket or use a new process innovations
35.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–35 Exhibit 8–8Exhibit 8–8 First-Mover Advantages–DisadvantagesFirst-Mover Advantages–Disadvantages • AdvantagesAdvantages Reputation for beingReputation for being innovative and industryinnovative and industry leaderleader Cost and learning benefitsCost and learning benefits Control over scarceControl over scarce resources and keepingresources and keeping competitors from havingcompetitors from having access to themaccess to them Opportunity to beginOpportunity to begin building customerbuilding customer relationships and customerrelationships and customer loyaltyloyalty • DisadvantagesDisadvantages Uncertainty over exactUncertainty over exact direction technology anddirection technology and market will gomarket will go Risk of competitorsRisk of competitors imitating innovationsimitating innovations Financial and strategic risksFinancial and strategic risks High development costsHigh development costs
36.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–36 Terms to KnowTerms to Know • strategic managementstrategic management • strategiesstrategies • business modelbusiness model • strategic management processstrategic management process • missionmission • opportunitiesopportunities • threatsthreats • resourcesresources • capabilitiescapabilities • core competenciescore competencies • strengthsstrengths • weaknessesweaknesses • SWOT analysisSWOT analysis • corporate strategycorporate strategy • growth strategygrowth strategy • related diversificationrelated diversification • unrelated diversificationunrelated diversification • stability strategystability strategy • renewal strategyrenewal strategy • retrenchment strategyretrenchment strategy • turnaround strategyturnaround strategy • BCG matrixBCG matrix • business or competitivebusiness or competitive strategystrategy • strategic business unitsstrategic business units • competitive advantagecompetitive advantage
37.
© 2007 Prentice
Hall, Inc. All rights reserved. 8–37 Terms to Know (cont’d)Terms to Know (cont’d) • cost leadership strategycost leadership strategy • differentiation strategydifferentiation strategy • focus strategyfocus strategy • stuck in the middlestuck in the middle • functional strategiesfunctional strategies • strategic flexibilitystrategic flexibility • first moverfirst mover
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