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Ch08 Summary

Ch08 Summary

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CHAPTER SUMMARY – CHAPTER 8The Importance of Strategic Management
Define strategic management, strategy, and business model.
Explain why strategic management is important.Strategic management is what managers do to develop the organization’s strategies.Strategies are the decisions and actions that determine the long-run performance of theorganization. A business model is a strategic design for how a company intends to profitfrom its strategies, work processes, and work activities.Strategic management is important for four reasons. First, it makes a difference inhow well organizations perform. Second, it’s important for helping managers cope withcontinually changing situations. Third, strategic management helps coordinate diversedivisions, departments, functions, and work activities, and keeps all focused on achievingthe organization’s goals. Finally, it’s important because it’s involved in many of thedecisions that managers make.
The Strategic Management Process
List the six steps in the strategic management process.
Describe what managers do during external and internal analyses.
Explain the role of resources, capabilities, and core competencies.
Define strengths, weaknesses, opportunities, and threats.The six steps in the strategic management process are: (1) identify the currentmission, goals, and strategies; (2) do an external analysis; (3) do an internal analysis – steps 2 and 3 collectively are known as SWOT analysis; (4) formulate strategies; (5)implement strategies; and (6) evaluate strategies. (See Exhibit 8-1.)During an internal analysis, managers assess the organization’s resources (assets) andcapabilities (how work is done). The major value-creating skills and capabilities are the
 
organization’s core competencies. Any activities the organization does well or any uniqueresources it has are its strengths. Activities the organization doesn’t do well or resourcesit needs but doesn’t have are its weaknesses. During an external analysis, managersassess the specific and general environments to determine opportunities (positive trends)and threats (negative trends).
Types of Organizational Strategies
Describe the three major types of corporate strategies.
Discuss the BCG matrix and how it’s used.
Describe the role of competitive advantage in business strategies.
Explain Porter’s five forces model.
Describe Porter’s three generic competitive strategies and the rule of three.The three major types of corporate strategies are growth, stability, and renewal. (SeeExhibit 8-4.) A growth strategy is used when an organization wants to grow its businessand does so by expanding the number of products offered or markets served. The types of growth strategies include concentration, vertical integration (backward and forward),horizontal integration, and diversification (related and unrelated). A stability strategy iswhen an organization stays as it is; that is, it makes no significant change in what it’sdoing. Renewal strategies address organizational weaknesses that are leading to performance declines. The two types of renewal strategies are retrenchment andturnaround.The BCG matrix is a way to analyze a company’s portfolio of businesses. Theanalysis is based on a business’s market share and its industry’s anticipated growth rate.The four categories of the BCG matrix are cash cows, stars, question marks, and dogs.(See Exhibit 8-5.)
 
An organization’s competitive advantage is what sets it apart, its distinctive edge. Acompany’s competitive advantage becomes the basis for choosing an appropriate business or competitive strategy.Porter’s five forces model assesses the five competitive forces that dictate the rules of competition in an industry. These five forces are threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and currentrivalry. (See Exhibit 8-6.)Porter’s three generic competitive strategies are as follows: cost leadership(organization competes on the basis of having the lowest costs in the industry);differentiation (organization competes on the basis of having unique products that arewidely valued by customers); and focus (organization competes in a narrow segment witheither a cost advantage or a differentiation advantage). The rule of three concept explainshow, in many industries, three major players (highly-efficient, full-line generalists)emerge to dominate the market. An industry also has the highly-focused super-niche players. Any firm that doesn’t fit into one of these categories is “in the ditch.”
Strategic Management in Today’s World
Explain why strategic flexibility is important.
Describe e-business strategies.
Explain what strategies organizations might use to become more customer oriented and to be more innovative.Strategic flexibility—that is, the ability to recognize major external environmentalchanges, to quickly commit resources, and to recognize when a strategic decision isn’tworking—is important because managers oftentimes face highly uncertain and changingenvironments. (See Exhibit 8-7.)

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