Part Three: Management Part Three: Management Strategy and Decision MakingStrategy and Decision Making

Chapter 7: Chapter 7: StrategicStrategic ManagementManagement

Chapter 8: Chapter 8: Managing the Managing the Planning ProcessPlanning Process

Chapter 9:Chapter 9: Decision Making Decision Making

Chapter 7Chapter 7

Strategic ManagementStrategic Management

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Management ChallengesManagement ChallengesAfter reading this chapter, you should be able to:After reading this chapter, you should be able to:

Understand how to implement the steps in Understand how to implement the steps in the strategic management process.the strategic management process.

Identify the factors that account for a firm’s Identify the factors that account for a firm’s

sustained superior performance.sustained superior performance.

Link external and internal environment data Link external and internal environment data

to determine a firm’s strategic intent and to determine a firm’s strategic intent and

mission.mission.

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Management Challenges Management Challenges (continued)(continued)

Conduct an analysis of the firm’s strengths, Conduct an analysis of the firm’s strengths, weaknesses, opportunities, and threats.weaknesses, opportunities, and threats.

Evaluate the firm’s internal resources and Evaluate the firm’s internal resources and

capabilities.capabilities.

Chose an appropriate business strategy at Chose an appropriate business strategy at

the corporate and business-unit level of the corporate and business-unit level of

analysis.analysis.

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The Strategic Management ProcessThe Strategic Management Process

Strategic managementStrategic management involves the major involves the major decisions, business choices, and actions that decisions, business choices, and actions that chart the course of the entire enterprise.chart the course of the entire enterprise.

It consists of:It consists of: Analysis of the internal and external Analysis of the internal and external

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

to provide a competitive advantage.to provide a competitive advantage.

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The Strategic Management Process The Strategic Management Process (continued)(continued)

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

A strategy is successful if it provides the firm A strategy is successful if it provides the firm with sustainable competitive advantage.with sustainable competitive advantage. Competitors will be unable to duplicate what Competitors will be unable to duplicate what

the firm has done or will find it too difficult or the firm has done or will find it too difficult or expensive.expensive.

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Analyze internal and Analyze internal and external environmentexternal environment

Define strategic intent Define strategic intent and missionand mission

Formulate strategiesFormulate strategies

Implement strategiesImplement strategies

Assess strategic Assess strategic outcomesoutcomes

Components of the Strategic Management Process:Components of the Strategic Management Process:

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Skills for strategic management:Skills for strategic management:

Environmental assessment and Environmental assessment and scanning skills.scanning skills.

Strategy formulation skills.Strategy formulation skills. Mapping strategic intent and defining Mapping strategic intent and defining

mission skills.mission skills. Strategy implementation skills.Strategy implementation skills.

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SWOT AnalysisSWOT Analysis

Commonly used strategy tool:Commonly used strategy tool:SStrengthstrengthsWWeaknesseseaknessesOOpportunitiespportunitiesTThreatshreats

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SWOT Analysis SWOT Analysis (continued)(continued)

Step 1:Step 1: Analyze the organization’s internal Analyze the organization’s internal environment, identifying its strengths and environment, identifying its strengths and weaknesses.weaknesses.

Step 2:Step 2: Analyze the organization’s external Analyze the organization’s external environment, identifying its opportunities and environment, identifying its opportunities and threats.threats.

Step 3:Step 3: Cross-matchCross-match Strengths with opportunitiesStrengths with opportunities Weaknesses with threatsWeaknesses with threats Strengths with threatsStrengths with threats Weaknesses with opportunitiesWeaknesses with opportunities

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Analyzing the external environment:Analyzing the external environment:

Firms study the external environment in Firms study the external environment in order to:order to: Identify opportunities and threats in the Identify opportunities and threats in the

marketplace.marketplace. Avoid surprises.Avoid surprises. Respond appropriately to competitors’ moves.Respond appropriately to competitors’ moves.

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

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ComponentsComponents of External Analysis: of External Analysis:

ScanningScanning MonitoringMonitoring

ForecastingForecastingAssessingAssessing

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ScopeScope of the External Analysis: of the External Analysis:

General General EnvironmentEnvironment

Industry Industry EnvironmentEnvironment

Strategic Strategic GroupsGroups

Competitor Competitor AnalysisAnalysis

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Porter’s framework for analyzing the industry Porter’s framework for analyzing the industry environment:environment:

Threat of new Threat of new entrantsentrants Threat of Threat of

substitutessubstitutes

SuppliersSuppliers

CustomersCustomersIntensity of rivalry Intensity of rivalry

among competitorsamong competitors

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Analyzing the Internal EnvironmentAnalyzing the Internal Environment

Each firm possesses core competence Each firm possesses core competence (internal resources) that are unique to it.(internal resources) that are unique to it.

A firm should identify what resources, A firm should identify what resources, capabilities, and knowledge it has that may capabilities, and knowledge it has that may be used to exploit market opportunities and be used to exploit market opportunities and avoid potential threats.avoid potential threats.

Resource-based view.Resource-based view.

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ResourcesResources

CapabilitiesCapabilities

StrategyStrategy

Potential for Potential for sustainable sustainable competitive competitive advantageadvantage

1.1. Identify the firm’s Identify the firm’s resources and locate resources and locate areas of strength and areas of strength and weakness relative to weakness relative to competitors.competitors.

2.2. Identify the firm’s Identify the firm’s capabilitiescapabilities

(What can the firm do?)(What can the firm do?)

3.3. Appraise the profit Appraise the profit generating potential of generating potential of resources/capabilities in resources/capabilities in terms of creating, terms of creating, sustaining, and exploiting sustaining, and exploiting competitive advantage.competitive advantage.

4.4. Select a strategy that best Select a strategy that best exploits the firm’s exploits the firm’s capabilities relative to capabilities relative to external opportunities.external opportunities.

5.5. Identify Identify resource gapsresource gaps that need to be filled. that need to be filled. Invest in replenishing Invest in replenishing and augmenting the and augmenting the firm’s resource base.firm’s resource base.

Core Competencies and Core Competencies and Market OpportunitiesMarket Opportunities

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Resource Types: Resource Types: Tangible ResourcesTangible Resources

Assets that can be quantified and observed.Assets that can be quantified and observed. Include financial resources, physical assets, Include financial resources, physical assets,

and workers.and workers. Strategic assessment of tangible resources Strategic assessment of tangible resources

should enable a firm to use fewer tangible should enable a firm to use fewer tangible resources to support the same level of resources to support the same level of business or to use the same resources to business or to use the same resources to expand the volume of business.expand the volume of business.

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Resource Types: Resource Types: Intangible ResourcesIntangible Resources

Difficult to quantify.Difficult to quantify. Often provide the firm with strong competitive Often provide the firm with strong competitive

advantage.advantage. Competitors find it difficult to purchase or Competitors find it difficult to purchase or

imitate these resources.imitate these resources. Most strategically important intangibles:Most strategically important intangibles:

ReputationReputation TechnologyTechnology Human CapitalHuman Capital

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Analyzing the firm’s capabilities:Analyzing the firm’s capabilities:

Functional Functional AnalysisAnalysis

Value Chain Value Chain AnalysisAnalysis

BenchmarkingBenchmarking

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Analyzing Capabilities by Functional AreasAnalyzing Capabilities by Functional Areas

Functional AreaFunctional Area CapabilityCapability

Corporate ManagementCorporate Management Effective financial control systemsEffective financial control systemsExpertise in strategic control of diversified corporationExpertise in strategic control of diversified corporationEffectiveness in motivating and coordinating divisional Effectiveness in motivating and coordinating divisional and business-unit managementand business-unit managementManagement of acquisitionsManagement of acquisitionsValues-driven, in-touch corporate leadershipValues-driven, in-touch corporate leadership

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

Research and Research and DevelopmentDevelopment

Capability in basic researchCapability in basic research

Ability to develop innovative new productsAbility to develop innovative new products

Speed of new product developmentSpeed of new product development

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Analyzing Capabilities by Functional Areas Analyzing Capabilities by Functional Areas (continued)(continued)

Functional AreaFunctional Area CapabilityCapability

ManufacturingManufacturing Efficiency in volume manufacturingEfficiency in volume manufacturingCapacity for continual improvements in production Capacity for continual improvements in production processesprocessesFlexibility and speed of responseFlexibility and speed of response

Product DesignProduct Design Design capabilityDesign capability

MarketingMarketing Brand management and brand promotionBrand management and brand promotion

Promoting and exploiting reputation for qualityPromoting and exploiting reputation for quality

Responsive to market trendsResponsive to market trends

Sales and DistributionSales and Distribution Effectiveness in promoting and executing salesEffectiveness in promoting and executing sales

Efficiency and speed of distributionEfficiency and speed of distribution

Quality and effectiveness of customer serviceQuality and effectiveness of customer service

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A Simple Value ChainA Simple Value Chain

TechnologyTechnology Product Product DesignDesign ManufacturingManufacturing MarketingMarketing DistributionDistribution ServiceService

SourceSource

SophisticationSophistication

PatentsPatents

Product ProcessProduct Process

Product ChoicesProduct Choices

FunctionFunction

Physical Physical CharacteristicsCharacteristics

AestheticsAesthetics

QualityQuality

IntegrationIntegration

Raw MaterialsRaw Materials

CapacityCapacity

LocationLocation

ProcurementProcurement

Parts ProductionParts Production

AssemblyAssembly

PricesPrices

AdvertisingAdvertising

PromotionPromotion

Sales ForceSales Force

PackagePackage

BrandBrand

ChannelsChannels

IntegrationIntegration

InventoryInventory

WarehousingWarehousing

TransportTransport

WarrantyWarranty

Dealer SupportDealer Support

AvailabilityAvailability

SpeedSpeed

PricesPrices

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Benchmarking involves four stages:Benchmarking involves four stages:

1.1. Identifying activities or functions that are weak Identifying activities or functions that are weak and need improvement.and need improvement.

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

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

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

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Strategic Intent and MissionStrategic Intent and Mission

Based on analysis of the external and Based on analysis of the external and internal environment.internal environment.

Strategic intentStrategic intent is internally focused, is internally focused, defining how the firm intends to use its defining how the firm intends to use its resources, capabilities, and core resources, capabilities, and core competencies to win competitive battles.competencies to win competitive battles.

Strategic missionStrategic mission is externally focused, is externally focused, defining what the firm plans to produce and defining what the firm plans to produce and market, utilizing its internal core competence.market, utilizing its internal core competence.

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Strategy FormulationStrategy Formulation

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

Takes place at:Takes place at:Corporate-LevelCorporate-LevelBusiness-LevelBusiness-Level

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Corporate-Level StrategyCorporate-Level Strategy

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

businessesbusinesses Diversification strategyDiversification strategy

Type of diversificationType of diversification Process of diversificationProcess of diversification

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Diversification StrategyDiversification Strategy

Type of DiversificationType of Diversification Concentration strategyConcentration strategy Vertical integration Vertical integration

strategystrategy Concentric Concentric

diversification strategydiversification strategy Conglomerate Conglomerate

diversificationdiversification

Process of DiversificationProcess of Diversification Acquisition and Acquisition and

restructuring strategiesrestructuring strategies AcquisitionAcquisition MergerMerger

International strategyInternational strategy

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Business-Level StrategyBusiness-Level Strategy

How the firm will compete in each business How the firm will compete in each business area or market segment.area or market segment.

Firms have two basic choices:Firms have two basic choices: Cost leadership strategyCost leadership strategy Differentiation strategyDifferentiation strategy

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Strategy ImplementationStrategy Implementation

OrganizationOrganizational Structure al Structure and Controlsand Controls

Cooperative Cooperative StrategiesStrategies

Functional Functional StrategiesStrategies

Strategic Strategic LeadershipLeadership

Corporate Corporate EntrepreneursEntrepreneurs

hip and hip and InnovationInnovation

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Strategic OutcomesStrategic Outcomes

Firms need to periodically assess whether Firms need to periodically assess whether the outcomes meet expectations.the outcomes meet expectations.

A firm must first and foremost cater to the A firm must first and foremost cater to the desires of its primarydesires of its primary stakeholders stakeholders..

The firm should also consider the desires of The firm should also consider the desires of other stakeholders affected by its other stakeholders affected by its performance.performance.

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Applications of Management Perspectives:Applications of Management Perspectives:For the ManagerFor the Manager

An effective manager must be proactive in An effective manager must be proactive in responding to evolving challenges and opportunities responding to evolving challenges and opportunities rather than being overtaken by events.rather than being overtaken by events.

Learning to think strategically forces managers to:Learning to think strategically forces managers to: Be alert for changes in the external and internal Be alert for changes in the external and internal

environments.environments. Modify the firm’s strategic intent, mission, and Modify the firm’s strategic intent, mission, and

formulated strategy when necessary.formulated strategy when necessary. Effectively implement the new or redesigned Effectively implement the new or redesigned

strategies.strategies.

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Applications of Management Perspectives:Applications of Management Perspectives:For Managing TeamsFor Managing Teams

The strategic management process generally The strategic management process generally involves teams of managers and employees from involves teams of managers and employees from different areas who bring their perspectives and different areas who bring their perspectives and expertise to bear on issues facing the firm.expertise to bear on issues facing the firm.

A key factor is how well the firm can mobilize and A key factor is how well the firm can mobilize and integrate the efforts of team members.integrate the efforts of team members.

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Applications of Management Perspectives:Applications of Management Perspectives:For IndividualsFor Individuals

Individual employees are more likely to make Individual employees are more likely to make greater contributions to the firm if they engage in greater contributions to the firm if they engage in activities that have strategic value.activities that have strategic value.

Employees can be attuned to changes in their area Employees can be attuned to changes in their area of expertise and advise management on the of expertise and advise management on the strategic implications of those changes.strategic implications of those changes.

Employee success depends on the ability to adapt Employee success depends on the ability to adapt to the firm’s strategic change.to the firm’s strategic change.