3. Strategic Management
Art & science of formulating, implementing, and
evaluating, cross-functional decisions that enable an
organization to achieve its objectives.
Is the continuous process of creating, implementing
and evaluating decisions that enable an organization to
achieve its objectives.
Strategic management consists of the analysis,
decisions, and actions within organization undertakes
in order to create and sustain competitive advantages.
4. Purpose of Strategic
Management
To exploit and create new and different opportunities for
tomorrow.
To make managers and organizational members more alert
about the opportunities and threatening development in
their corresponding field.
To help the entrepreneur to unify its managerial
and organizational efforts.
To provide the opportunities to managers for evaluating
the company's budget according to the situation.
5. 3 Stages of the Strategic
Management Process
Strategy Formulation
Strategy formulation is the process of establishing the organization's
mission, objectives, and choosing among alternative strategies.
Sometimes strategy formulation is called "strategic planning."
Strategy Implementation
Strategy implementation is the action stage of strategic
management. It refers to decisions that are made to apply new
strategy or reinforce existing strategy.
Strategy Evaluation
In the strategy evaluation and control process managers determine
whether the chosen strategy is achieving the organization's
objectives.
7. Vision & Mission
Vision Statement (your dream):
What do we want to become?
Mission Statement:
What is our business?
what the organization wants to be?
whom we want to serve?
8. Vision Statement Example
Dell’s vision is to create a company culture where
environmental excellence is second nature.
General Motors’ vision is to be the world leader in
transportation products and related services.
9. Mission Statement Example
Dell’s mission is to be the most successful computer
company in the world at delivering the best customer
experience in markets we serve. In doing so, Dell will
meet consumer expectations of highest quality; leading
technology; competitive pricing; individual and company
accountability; best-in-class service and support; flexible
customization capability; superior corporate citizenship;
financial stability.
10. Mission Statement Example
G.M. is a multinational corporation engaged in socially
responsible operations, worldwide. It is dedicated to
provide products and services of such quality that our
customers will receive superior value while our employees
and business partners will share in our success and our
stock-holders will receive a sustained superior return on
their investment.
11. External Opportunities and Threats
Analysis of Trends
Economic
Social
Cultural
Demographic/Environmental
Political, Legal, Governmental
Technological
Competitors
13. Internal Strengths and Weaknesses
Controllable activities performed especially well or poorly
Determined relative to competitors
Typically located in functional areas of the firm
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
Management Information Systems
14. Long-Term Objectives
Essential for ensuring the firm’s success
Provide direction
Aid in evaluation
Create synergy
Reveal priorities
Focus coordination
Provide basis for planning, organizing,
motivating, and controlling
15. Strategies
Means by which long-term objectives are achieved.
Examples
Geographic expansion
Diversification
Acquisition
Product development
Market penetration
Retrenchment
Divestiture
Liquidation
Joint venture
16. Strategy Implementation
Implementation Process Questions:
Who are the people to carry out the strategic
plan?
What must be done to align operations with new
direction?
How is work going to be coordinated?
Purpose is to make the strategy “action-
oriented.”
Compare proposed programs and activities with current
programs and activities.
17. 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
18. Issues in Strategy Implementation
Action Stage of Strategic Management
Mobilization of employees & managers
Most difficult stage
Interpersonal skills critical
20. Purpose of Strategic Evaluation
The purpose of strategic evaluation is to evaluate the
effectiveness of strategy in achieving organizational
objectives.
Organizations should continually monitor internal and
external events and trends so that timely changes can
be made as needed
22. Porters Five Forces …
Threat of Entry
Bargaining Power of Suppliers
Bargaining Power of Buyers
Development of Substitute Products or Services
Rivalry among Competitors
23. Barriers to Entry …
large capital requirements or the need to
gain economies of scale quickly.
strong customer loyalty or strong brand
preferences.
lack of adequate distribution channels or
access to raw materials.
24. Power of Suppliers …
… high when
A small number of dominant, highly concentrated
suppliers exists.
Few good substitute raw materials or suppliers are
available.
The cost of switching raw materials or suppliers is
high.
25. Power of Buyers …
… high when
Customers are concentrated, large or buy in
volume .
The products being purchased are standard or
undifferentiated making it easy to switch to other
suppliers.
Customers purchases represent a major portion of
the sellers total revenue.
26. Substitute Products …
… competitive strength high when
The relative price of substitute products declines .
Consumers’ switching costs decline.
Competitors plan to increase market penetration
or production capacity.
27. Rivalry Among Competitors
… intensity increases as
The number of competitors increases or they
become equal in size.
Demand for the industry’s products declines or
industry growth slows.
Fixed costs or barriers to leaving the industry are
high.
28. Summary For Porter Model…
As rivalry among competing firms
intensifies, industry profits decline, in
some cases to the point where an
industry becomes inherently
unattractive.
31. What is Competitive Dynamics?
Competitive Dynamics
Total set of actions and responses of all firms competing
within a market.
Competitive Dynamics
Ongoing actions and responses taking place between all
firms competing within a market for advantageous
positions.
33. Why Do Companies Launch New
Competitive Actions?
Improve market position
Capitalize on growing demand
Expand production capacity
Provide an innovative new solution
Obtain first mover advantages
34. Threat Analysis
Threat Analysis
A firm’s awareness of its closest competitors and the kinds of
competitive actions they might be planning.
Competitor Analysis
Is the first step to understanding competitive rivalry and identifying who
your direct competitors are
Involves collecting competitive intelligence
Focuses on trying to predict competitors’ behavior
The question: ‘To what extent are firms competitors’?
2 components to assess
Market Commonality
Resource Similarity
Direct competitors have high market commonality & high resource
similarity
35. Market Commonality
Market Commonality
The number of markets with which the firm and a competitor are
jointly involved and the degree of importance of the individual
markets to each
Each industry composed of various markets which can be
subdivided into segments
Example: Automobile industry
Greater market commonality results in greater rivalry
Firms may also compete against one another in several or many
product and geographic markets
Multimarket Competition
Firms with greater multimarket contact are less likely to attack
but more likely to respond when attacked
36. Resource Similarity
Resource Similarity
Extent to which firm’s tangible/intangible resources are
comparable to competitor’s in type and amount.
Can result in similar strengths and weaknesses and similar
strategies being pursued.
The more similar the types and amounts of resources the
more direct the competition is between two firms.
37. 3 Drivers of Competitive
Actions/Responses
Awareness
Extent competitors recognize degree of mutual
interdependence that results from market commonality and
resource similarity
Greatest when firms have highly similar resources
Affects the extent to which the firm understands the
consequences of its competitive actions and responses
A lack of awareness
38. 3 Drivers of Competitive
Actions/Responses
Motivation
Firm's incentive to take action, or to respond to a competitor's
attack, as it relates to perceived gains and losses
A firm is more likely to attack a rival with whom it has low
market commonality
Responses are more likely to occur when market commonality is
high
Ability
Firm's resources that allow competitive action and flexibility to
respond
Without available resources a firm lacks the ability to respond
39. Drivers of Competitive Behavior
Awareness
Do managers understand the key characteristics of
competitors?
Motivation
Does the firm have appropriate incentives to attack or
respond?
Capability
Does the firm have the necessary resources to attack or
respond?
40. Strategic VS Tactical
What are the strategic and tactical actions?
Strategic actions/responses: market-based moves that
signify a significant commitment of organizational resources
to pursue a specific strategy
Difficult to implement and reverse
Tactical actions/responses: market-based moves that
involve fewer resources to fine-tune a strategy that is
already in place
Easier to implement and reverse
41. First Mover
Firms that take an initial competitive action.
Generally possess the resources and capabilities that
enable them to be pioneers in new products, new
markets or new technologies.
Can earn above average profits until competitors
respond
Gain customer loyalty, helping to create a barrier to
entry by competitors
Advantage depends upon difficulty of imitation
42. Second Mover
Firms that respond to a First Mover’s actions
Second Movers frequently imitate First Movers
Speed of response often dictates success
Should evaluate customers’ response before moving
“Fast” Second Movers can capture some of initial
customers and develop some brand loyalty
Avoid some of the risks associated with First Move
Must possess necessary capabilities to imitate
43. Summary Of Movers
First Mover Incentives
Firm that takes an initial competitive action to build or to
defend its competitive advantages or to improve its market
position
Second Movers
Late Movers
Quality
Customer perception that the firm's goods or services
perform in ways that are important to customers, meeting or
exceeding expectations
Lower quality = lower attack/response likelihood
44. Organizational size and
competitive actions
Small firms
More likely to launch competitive actions
Are more flexible, nimble, and quicker
Initiate a greater variety of competitive actions
Large firms
Initiate more competitive actions with more strategic
actions during a given period
Tend to limit the types of competitive actions used
45. Actor’s Reputation
Actor’s Reputation
Actor: Firm taking an action or response
Reputation: positive or negative attribute ascribed by one rival to
another based on past competitive behavior
Firms are more likely to respond to market leaders (firms
with good reputations)
Past behavior is also a useful predictor of future behavior
Firms are less likely to respond to a company with a
reputation for risky, complex, and unpredictable behavior
46. Slow-Cycle Markets
Markets in which the firm's competitive advantages are
shielded from imitation for long periods of time, and in
which imitation is costly
Build a one-of-a-kind competitive advantage which creates
sustainability
Once a proprietary advantage is developed, competitive
behavior should be oriented to protecting, maintaining, and
extending that advantage
47. Fast-Cycle Markets
Markets in which the firm's capabilities that contribute to
competitive advantages are not shielded from imitation and
where imitation is often rapid and inexpensive.
Competitive advantages are not sustainable in fast-cycle
markets.
Focus: learning how to rapidly and continuously develop
new competitive advantages that are superior to those they
replace (creating innovation ).
Continually try to move on to another temporary
competitive advantage before competitors can respond to
the first one.
48. Standard-Cycle Markets
Markets where firm’s competitive advantages are
moderately shielded from imitation and where imitation is
moderately costly.
Competitive advantages partially sustained as quality is
continuously upgraded.
Seek to serve many customers and gain a large market
share.
Gain brand loyalty through brand names.
Careful operational control / manage a consistent experience
for the customer.
Strategy formulation is the process of establishing the organization's mission, objectives, and choosing among alternative strategies. Sometimes strategy formulation is called "strategic planning.“
Strategy implementation is the action stage of strategic management. It refers to decisions that are made to install new strategy or reinforce existing strategy. The basic strategy - implementation activities are establishing annual objectives, devising policies, and allocated resources. Strategy implementation also includes the making of decisions with regard to matching strategy and organizational structure; developing budgets, and motivational systems.
The final stage in strategic management is strategy evaluation and control. All strategies are subject to future modification because internal and external factors are constantly changing. In the strategy evaluation and control process managers determine whether the chosen strategy is achieving the organization's objectives. The fundamental strategy evaluation and control activities are: reviewing internal and external factors that are the bases for current strategies, measuring performance, and taking corrective actions.
Determine what to measure: Top managers and operational managers must specify implementation process and results to be monitored and evaluated. The processes and results must be measurable in a reasonably objective and consistent manner. The focus should be on the most significant elements in a process – the ones that account for the highest proportion of exposure or the greatest no. of problems.
2. Establish standards of Performance: Standards used to measure performance are detailed expressions of strategic objectives. They are measures of acceptable performance results. Each standard can be usually includes a tolerance range, which defines any acceptable deviations. Standards can be set not only for final output, but also for intermediate stages of production output.
3. Measure actual performance. Measurements must be made at predetermined times.
4. Compare actual performance with the standard – if the actual performance results are within the desired tolerance range, the measurement process stops here.
5. Take corrective action: If the actual results fall outside the desired tolerance range, action must be taken to correct the deviation. The action must not only correct the deviation but also prevent its recurrence.
The following issues must be resolved:
• Is the deviation only a chance fluctuation?
• Are the processes being carried out in correctly?
• Are the processes appropriate for achieving the desired standards?