Copyright © 2008 by The McGraw-Hill Companies, Inc. All ...

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved

McGraw-Hill/Irwin

Chapter 7

StrategicManagement


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Learning ObjectivesAfter reading this chapter, you should be able to:

• Explain how the firm’s external environment should be examined as part of the strategic management process.

• Explain how the firm’s internal environment should be examined as part of the strategic management process.

• State the meaning and purpose of the firm’s strategic intent and mission.

• Understand how the strategy formulation process helps the firm achieve its mission.

• Describe the issues that should be considered in strategy implementation.

• Understand how the outcomes of the strategic management process should be assessed.


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The Strategic Management Process

• It is the job of top level management to chart the course of the entire enterprise.

• It consists of:Analysis of the internal and external

environment of the firm.Definition of the firm’s mission.Formulation and implementation of

strategies to create or continue a competitive advantage.


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The Strategic Management Process (cont)

• Strategic management involves both long-range thinking and adaptation to changing conditions.

• Strategies should be designed to generate a sustainable competitive advantage.

• Competitors should be unable to duplicate what the firm has done or should find it too difficult or expensive.


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Analyze the external and Analyze the external and internal environmentsinternal environments

Define strategic intent and Define strategic intent and missionmission

Formulate strategiesFormulate strategies

Implement strategiesImplement strategies

Assess strategic outcomesAssess strategic outcomes

Components of the Strategic Components of the Strategic ManagementManagement Process:Process:


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SWOT Analysis

• Commonly used strategy tool: SWOTStrengths, Weaknesses, Opportunities, Threats

External Environment Internal Environment

Components

•Scanning

•Monitoring

•Forecasting

•Assessing

Scope

•General environment

•Industry environment

•Strategic groups

•Direct competitors

Resource types

•Tangible

•Intangible

Firm capabilities

•Functional

•Value Chain

•Benchmarking


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The External Environment

• Company leaders must study the external environment in order to: Identify opportunities and threats in the marketplace.Avoid surprises.Respond appropriately to competitors’ moves.

• A major challenge is to gather accurate market intelligence in a timely fashion, and transform it into usable knowledge to gain a competitive advantage.


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Components of External Analysis

ScanningScanning MonitoringMonitoring

ForecastingForecastingAssessingAssessing


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Scope of the External Analysis

General General EnvironmentEnvironment The IndustryThe Industry

Strategic Strategic GroupsGroups

Competitor Competitor AnalysisAnalysis


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The Segments of the General Environment

DemographyDemographyEconomic Economic

ConditionsConditions

Political/Legal Political/Legal

ForcesForces

Socio-cultural Socio-cultural ConditionsConditions

Technological Technological Changes

Changes

Globalization

Globalization


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Porter’s Analyzing the Industry Environment

Threat of new Threat of new entrantsentrants Threat of Threat of

substitutessubstitutes

SuppliersSuppliers

CustomersCustomersIntensity of rivalryIntensity of rivalry

among competitorsamong competitors


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The Internal Environment

• Each company has something that it does well. These are called “core competencies.”

• Company executives should identify the resources, capabilities, and knowledge the firm has that may be used to exploit market opportunities and avoid potential threats.

• Resource-based view: Basing the strategy on what the firm is capable of doing


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Resource Types: Tangible Resources

• Assets that can be quantified and observed.

• Include financial resources, physical assets, and workers.

• Strategic assessment of tangible resources should enable management to efficiently use tangible resources to support the company and to expand the volume of business.


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Resource Types: Intangible Resources

• Difficult to quantify and included on a balance sheet

• Often provides the firm with a strong competitive advantage.

• Competitors find it difficult to purchase or imitate these resources.

• Strategically most important intangibles:ReputationTechnologyHuman Capital


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Analyzing the Firm’s Capabilities

Functional Functional AnalysisAnalysis

Value Chain Value Chain AnalysisAnalysis

BenchmarkingBenchmarking


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Analyzing Capabilities by Functional Areas

Functional Area Capability

Corporate Management Effective financial control systemsExpertise in strategic control of diversified corporationEffectiveness in motivating and coordinating divisional and business-unit managementManagement of acquisitionsValues-driven, in-touch corporate leadership

Information Management Comprehensive and effective MIS network, with strong central coordination

Research and Development

Capability in basic research

Ability to develop innovative new products

Speed of new product development


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Analyzing Capabilities by Functional Areas (cont.)

Functional Area Capability

Manufacturing Efficiency in volume manufacturingCapacity for continual improvements in production processesFlexibility and speed of response

Product Design Design capability

Marketing Brand management and brand promotionPromoting and exploiting reputation for qualityResponsive to market trends

Sales and Distribution Effectiveness in promoting and executing salesEfficiency and speed of distributionQuality and effectiveness of customer service


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Value-Chain Analysis

• Breaks down the firm into a sequential series of activities and attempts to identify the value added of each activity


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Benchmarking Involves Four Stages:

Identifying activities or functions that are weak and need improvement.

Identifying firms that are known to be at the leading edge of these activities or functions.

Studying the leading-edge firms by visiting them, talking to managers and employees, and reading trade publications.

Using the information gathered to redefine goals, modify processes, and acquire new resources to improve the firm’s functions.


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Strategic Intent and Mission

• The primary guides to strategic management are formal statements of strategic intent and mission.

• Strategic intent is internally focused, defining how the firm uses its resources, capabilities, and core competencies.

• Strategic mission is externally focused, defining what will be to produced and marketed, utilizing its internal core competencies.


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Strategic Intent and Mission(cont.)

Strategic Intent and Mission

Intent: How firm would like to use

•Resources

•Capabilities

•Core competencies

Mission: Determine the firm’s external focus on

•Products

•Markets


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Strategy Formulation

• The design of an approach to achieve the firm’s mission.

• Takes place at:Corporate-LevelBusiness-Level


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Corporate-Level Strategy

• The corporation’s overall plan concerning the:Number of businesses the corporation holds.Variety of markets or industries it serves.Distribution of resources among those businesses.

• This diversification strategy may be analyzed in terms of:Portfolio mixType of diversificationProcess of diversification


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Portfolio Analysis• The basic idea is to classify the businesses of a

diversified company within a single framework.

• Two of the most widely applied include:The McKinsey-General Electric Portfolio Analysis

MatrixThe Boston Consulting Group’s Growth Share

Matrix


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The McKinsey-General Electric Portfolio Analysis Matrix

1)

Harvest

2) 3)

4) 5)

Hold

6)

7) 8) 9)

Build

Low Medium High

Business-Unit Position

High

Medium

Low

IndustryAttractiveness


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The Boston Consulting Group’s Growth Share Matrix

Earnings: high stable, growing

Cash Flow: neutral

Strategy: invest for growth

STAR

Earnings: low, unstable, growing

Cash Flow: negative

Strategy: analyze to determine whether business can be grown into a star, or will degenerate into a dog

?

Earnings: high, stable

Cash Flow: high stable Strategy: milk

COW

Earnings: low, unstable

Cash Flow: neutral or negative

Strategy: divest

DOG

Relative Market Share

Annual RealRate of MarketGrowth


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Diversification Strategy

Type of Diversification• Concentration

strategy• Vertical integration

strategy• Concentric

diversification strategy

• Conglomerate diversification

Process of Diversification

• Acquisition and restructuring strategiesAcquisitionMerger

• International strategy


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Business-Level Strategy

• Deals with how to compete in each business area or market segment.

• Firms have two basic choices:Cost leadership strategyDifferentiation strategy


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Strategy ImplementationOrganizationOrganizational Structure al Structure and Controlsand Controls

Cooperative Cooperative StrategiesStrategies

Human Human Resource Resource StrategiesStrategies

Strategic Strategic LeadershipLeadership

Corporate Corporate EntrepreneursEntrepreneurs

hip and hip and InnovationInnovation


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Strategic Outcomes• Company leaders should periodically assess

whether the outcomes meet expectations.• A firm must first and foremost cater to the desires

of its primary stakeholders.• The firm should also consider the desires of other

stakeholders affected by its performance.• Some of the standard measures of strategic

success includes:ProfitsGrowth of sales/market shareGrowth of corporate assetsReduced competitive threats Innovations

Copyright © 2008 by The McGraw-Hill Companies, Inc. All ...

Documents

strategic management

firms external environment

firms internal environment

level management

firms strategic intent

strategic outcomes components

distribution brand management

swot analysis