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DEFINITIONS
Strategic Management is a process for conducting the entrepreneurial activities of a firm for organizational renewal, growth, and transformation. The major tasks are: (1) set a mission and goals, (2) assess the environment, (3) appraise company capabilities, (4) craft the strategy, (5) implement the strategy, and (6) evaluate and control the strategy. Business Policy is a set of prescribed and discretionary statements, limiting actions of individuals in the firm, as set forth in directives and guides. Mission is the reason for which the firm exists, and what it will do. Basically, it describes the products/services to be supplied, the markets to be served, and the technology applied (if important). Vision Statement answers the question, What do we want to become? Goals express the aspirations of the firm, general ends that cannot be measured. Ex. “In unrelenting pursuit of perfection.” Objectives are specific targets to be accomplished by a specified time. Ex. “Profits will grow at the rate of 5% annually for the next five years.” Long-term objectives (5 years or more) are strategic objectives and define the desired character of the company, at the specified time. Strategy is simply the means or general actions to be taken to achieve long-term objectives. Strategic management is the work of the General Manager. General Manager is a person who is responsible for a profit center, as opposed to a functional manager who is responsible only for a cost or revenue center. Generic Strategy is the name for a group of similar specific strategies. Levels of Strategy 1. Corporate level. What types of businesses should we be in? 2. Business level. How do we compete? 3. Functional component level. What should our organization do to synchronize with the business-level strategy? Opportunity is a set of circumstances that, if acted upon at the right moment, will produce a gain. Threat is the probability of a future event and its potentially harmful impact on the firm.

COMPANY MISSION: WHAT IS OUR BUSINESS?
1. 2. 3. 4. 5. 6. Basic product or service Primary markets Principal technology used (if relevant) Customer satisfaction, quality, and societal goals Company philosophy Self-concept (identity)

THE ENVIRONMENT
THE REMOTE (MACRO) ENVIRONMENTAL FACTORS

2. Advances in technology, e.g., fiber optics, gene manipulation. 3. A misfortune befalls a major competitor who then shuts down, liquidates, or goes bankrupt. 4. A competing company is put up for sale at a good price. 5. A chance occurs for you to hire a noted expert that you need. 6. A breakthrough in your product or process (“Research & Development”) that makes possible a gain in market share.
THREAT

1. 2. 3. 4. 5. 6.

Economic Social-demographic Political-legal Technological Cultural Ecological-natural

TASK (IMMEDIATE, OPERATING) ENVIRONMENTAL FACTORS

1. The task environment comprises all persons, groups, or entities that have an interest in the company. These are called stakeholders. 2. A narrower definition refers to those stakeholders with whom the firm has contact from time to time, as follows: a. Customers b. Suppliers c. Financial institutions d. Competitors e. Trade associations f. Activist groups g. Federal, state, and local government agencies h. Media representatives i. Unions
DEFINING AN INDUSTRY

A threat is an event, as defined by its impact on your company and the probability of its occurrence, that will result in harm to your company. It is an attack on company underpinnings, such as: 1. Support of stakeholder groups 2. Resources: human, financial 3. Customer base 4. Capabilities, such as technology, products, processes, management, and functional 5. Artificial barriers to competition: laws, regulations, patents, and licenses 6. Social changes and customer preferences 4. Potential computer entrants 2. Buyers 1. Rivalry among existing firms

Mission & Vision Evaluation Capabilities Forecast the Environment

1. Products 2. Competitors 3. Structure (number, size, relative strength, market share of competitors, product differentiation) 4. Economic traits 5. Critical success factors 6. Entry barriers
COMPETITIVE ENVIRONMENT: MICHAEL E. PORTER’S 5-FORCE MODEL

3.

Suppliers 5. Potential competitive substitutive products from firms in other industries

Strengths Weaknesses Set Long-Term Objectives

Opportunities Threats

Craft the Strategy Implement the Strategy Evaluate & Control Strategy Fig. 1, The Strategic Management Model

See Figure 2. As Porter says, the nature and intensity of competition in an industry is a composite of five competitive forces: 1. Rivalry among competitors in the industry 2. The bargaining power of buyers 3. The bargaining power of suppliers 4. The potential entry of new competitors 5. The power of firms with substitute products Industry-driving forces increase incentive for the industry to change. Examples of driving forces are industry growth rate, product innovation, customer preferences, firms entering and leaving the industry, cost and productivity, and increasing globalization.
OPPORTUNITY

Fig. 2, Porter’s Force Model

EVOLUTION OF COMPANY CAPABILITIES
SITUATION ANALYSIS 1. 2. 3. 4. How well is the company’s strategy working? What are the company’s strengths and weaknesses? What are its core products and competencies? What benchmarks are being used for measuring its situation?

An opportunity is a combination of events or circumstances that arise, which, if acted upon at a certain time, will result in profit, gain, or victory. Such circumstances may be caused by changes in the environment or by changes in the company, relative to the environment. Examples: 1. Opportunities arise for the firm as it is. These include product and market extensions through mergers, failures of competitors, and legal change.
1

APPROACHES TO INTERNAL SCANNING & ANALYSIS Value Chain Analysis 1. Basic concept: Value analysis identifies the primary and support activities that create value. 2. It may be used to analyze and reduce business costs and compare one business’ value chain with those of competing companies. See Fig. 3 (next page).

Concentric diversification . and organizational structure RESOURCE-BASED ANALYSIS This approach to strengths and weaknesses is based on two fundamental assumptions: (1) resource heterogeneity .two or more companies combine equity in a new company to gain an advantage or minimize individual weaknesses. B. 1.the company decides to diversify into products related to its present products through similar marketing methods. Generic Strategy is a group of corporate-level strategies that are first determined so that the decision maker is guided toward making an appropriate specific strategy (See Fig. Operations/Production c. by using a weighted rating system for the factors shown. Portfolio of businesses = answers to the origin of the question Fig. 3. Clearly measurable against specified criterion 4.diversification into products unrelated to the firm’s present products. 4. Their research is directed at identifying principles that will guide companies in establishing successful strategies.Evolution of Company Capabilities (continued) Functional Analysis of Strengths & Weaknesses of the Firm 1. Sources of. Establish a table with column headings: Factors. Information systems f. Synergy 9. as well as those which need to be reorganized and obtain additional capital. Suggest investment priorities. 5. 4. Such a set represents a strategic option. Corporate Strategy Formulation ANALYSIS & EVALUATION OF THE PORTFOLIO Technology development and product and process improvement Purchased supplies and inbound logistics Operations Outbound logistics Sales and Marketing Service Profit Margin Human Resources Management Corporate-level strategy is directed toward: 1. Liquidation . The segments represent market share. Reducing financial risk by building a balanced portfolio of businesses with a balanced portfolio of advantages. Adaptable to extraordinary changes in the environment 3. Strengths/Weaknesses. industry attractiveness.a company sells off. etc. or otherwise competes with. Find a number of strategic options and select. Feasible corporate-level strategies. 4. Motivating .Culture 2. 5. Choose final generic strategy option. Indication of possible life-cycle stages of the SBUs. its suppliers. industry attractiveness matrix. 2. Standards and Comparison.a defensive strategy followed by a company in need of immediate improvement. . Bankruptcy .Images 3.Leadership 5. Choose SPECIFIC corporate-level strategy. production processes. This will give you your final feasible generic strategies. A previously set objective e. a competitive strength vs. expenditures. Finance and accounting d. Marketing b. Turnaround/Restructuring . d. 3. Human resources. competitive strength industry attractiveness 2. Investing in core competencies for the businesses (usually called Strategic Business Units or SBUs).the company sells its assets and goes out of business. or quantitatively. Leveraging resources for long-range goals. Human capital 4. 1. Find a match of an opportunity.Mission. Corporate strategy implications from the matrix are: a.Identity 4. offered by the Strategic Planning Institute. Select feasible corporate-level generic strategies from the cells in which the SBUs fall. is based on a database of about 3. a set of long-term objectives. objectives. 2. Ideological leadership Corporate Level What business should we be in? A. Competitive edge 4. The industry average for the factor being evaluated b.the company buys companies that are customer businesses. goals called strategic intent. they are a potential source of competitive advantage. Fig. Maintaining corporate-wide consistency of direction of the total company toward long-range.000 businesses. and (2) resource immobility. For each factor to be evaluated. and deployment of. 6 shows a 9-cell matrix of the positioning of SBUs. 6 & 7). which says that if these resources are difficult to copy. guide by final generic strategy to yield. The best value of any firm on each criterion d. 2. Financial capital 2. 4 and explained as follows: CHOOSE GENERIC CORPORATE-LEVEL STRATEGIES Fig. Functional factors should be selected from the following functional areas: a. and a generic strategy from Fig. Quality of all transactions. a portion or an entire SBU. especially management and organization e.5. Plot the company’s current (and potential) SBUs on Fig. spins off in various ways. Indicate balance or lack of balance in the portfolio. Options Opportunity Long-term objectives Generic strategy (appropriate feasible) CRAFTING CORPORATELEVEL STRATEGY OBJECTIVES Select options to get final gene strategies. Each circle (area) is proportional to the sales of the particular SBU (See Fig. Legitimacy (satisfaction of stakeholders) 11. corporate strategy is designed to answer the question: What businesses should we be in? THE PROCESS General Administration The process of developing corporate-level strategy is shown in Fig. In general. c. e.An 2 General Electric 9-Cell Business Screen 1. A list of generic strategies generally used is as follows: Concentration . goals. Profitability 3.the company buys.a firm is a bundle of resources and these resources are different for each firm. Standards or criteria may be: a. Conglomerate diversification .the corporation concentrates its efforts and resources on current business or businesses. the ones that your resources can support.a means for getting respite from creditors and used by very healthy companies. or products. Risk 10. 4. b. Vertical backward integration . Incorporate a wide variety of strategic variables (others in addition to those shown may be incorporated). in terms of competitive strength vs. The Value Chain MATCH OF STRATEGY & STRUCTURE 1. and outputs Support activities and costs Primary activities and costs SETTING STRATEGIC (LONG-TERM) OBJECTIVES Characteristics of Long-Term Objectives 1. A previous forecast 3. specific objectives may be selected. 3. Joint ventures . Forward integration . The areas of the circles represent the sales of each SBU. or evaluating their own. 5. Divestiture . 3. judgmentally. Lists of firm attributes that may be thought of as resources may be divided into four categories: 1. Compare performance among business units. the question must be asked. Acceptable to managers 2. Choose GENERIC corporate-level strategies. “Compared to what?” 2. Employee development/Productivity 7. The position of a business on the grid may be determined either subjectively. relationships. net worth.not too high and not too low 5. Understandable GENERIC GROUPS OF LONG-TERM OBJECTIVES Within each generic strategy objective group below. 5. Financial specifications. 5. Innovation and technology 6. resources 8. 5). Plant capital 3. usually global. SELECTING A GENERIC STRATEGY 1. Organizational capital PIMS ANALYSIS Profit Impact of Marketing Strategy. The best firm’s values c. Product/Market scope 2.

Turnaround 2. Conglomerate diversification 4. but in the strong competitive position. Divestment Cell F 1. Mergers 2. Divestment 2. decide the business. M. and threats vs. J. weaknesses. SWOT Portfolio Framework STRATEGIC FIT ANALYSIS Critical environmental threats 1. 2. Does each business fit with other businesses in the portfolio? Compare the value analysis chains of each. Place each SBU in a cell. rather than the industry attractiveness. Matrix. For each generic strategy. Small sales at the beginning and end of the life cycle. 7. the companies remaining represent your portfolio and set the direction for the total company. For example. Horizontal integration 4. Concentric diversification 2. Horizontal integration 3. Liquidation 1. High Shakeout Maturity Saturation Decline Relative market share Profit margins Cost position Level of differentiation Technological capability Response time Financial strength Human assets Fig. Stability Cell I 1. opportunities. Joint ventures Cell C 1. Liquidation Market size and growth rate Industry profit margins Competitive intensity Bargaining power of customers and supplier Invest aggressively Invest selectively Harvest or divest Cyclicality of demand Financial norms Economies of scale Barriers to entry Capital intensity 1. Strategic Management. 1982 p. Horizontal-related diversification 3. you might select the purchase of a power lawn mower company to add to your portfolio. Horizontal diversification Average Cell D 1. Horizontal-unrelated diversification 4. Threats) to derive generic corporate strategies (P. with a strong competitive position. Parnell) SWOT analysis ties together strengths. GE 9-Cell Screening Grid 3 Fig. Vertical integration 3. Feasible Corporate Generic Strategies CHOOSE THE SPECIFIC CORPORATE-LEVEL STRATEGY (PORTFOLIO OF BUSINESS UNITS) 1. Turnaround 2. LIFE CYCLE MATRIX Fig. Life Cycle Matrix . Turnaround or retrenchment 2. Fig. Kroll. Concentric diversification Specialty Shop Group Competitive Status of the Corporation’s Business Units Strong Cell A Many environmental opportunities 1. may be considered favorable. Divestiture 4. Robinson. Does each business fit the strategic direction of the total company? Does each business contribute heavily to corporate financial performance? Industry Attractiveness High Business Strength Low Medium Low Development Competitive Position Strong Average Weak Stage of Product/Market Evolution Medium Growth The Life Cycle Matrix is similar to the G. Concentration 2. if you were a manufacturer of golf carts and decided to follow a concentric diversification strategy. Reformation of concentration 2. 7. Specific Corporate-Level Strategy answers the question: “What businesses should we be in?” 2. Strategic alliances 5. Using SWOT (Strength. 3. Vertical integration of unrelated businesses 4. Horizontal-unrelated diversification (conglomerate) 3. giving recommended feasible generic strategies (Fig 5. this may also be a favorable condition.. Opportunities. Liquidation 1. 210. except that it focuses on the life cycles of the products. Conglomerate diversification 3. Inc. If all SBUs are in different stages of the life cycle. if any. for example.5). the competitive position is shown for each SBU. Illinois: Irwin. Horizontal related diversification Cell E 1.Rapid Market Growth 1. In Fig. Divestment Cell H 1. Internal growth 2. Horizontal-related diversification 2. but the stage of the SBU’s life cycle is also shown. Mergers 3. When you have reviewed all your feasible generic strategies and made such decisions. Concentric diversification 3. Divestment Strong Competitive Position Moderate environmental opportunities and threats Weak Competitive Position State of the External Environment Supermarket Group Drug Store Group Cell B 1. competitive position.5. Pearce & Richard B. Vertical integration of related businesses 2. 6. Mergers 4. this indicates trouble later. Vertical integration of related businesses 3. and J. Wright. Divestiture 5. Stability 2. that you wish to add to or subtract from your portfolio. Strategic alliances Weak Cell G 1. Homewood. 5. Divestment Slow Market Growth Source: John A. 5. Horizontal integration 3. because no new businesses are in the company’s portfolio.E. Weaknesses. If all SBUs are in the strong competitive position and maturity stage.

2. or any information storage and retrieval system. Prepare and disseminate a list of major annual objectives for the organization. production planning. 3.quality control. See Fig. mass communications. 8. work methods. 3.230. as well as after implementation at selected times. 8. Staff the organization with committed leaders capable of driving implementation. The first part consists of: Foundation for Evaluation of Strategy The basis for evaluation is to compare strategy with quantitative or qualitative criteria. 4. Thomas Fenik PRICE U.” Harvard Business Review 41 (1963): 111-121. continuing education of creative workers. Select the option or options to obtain the final generic strategies. taxes. a long-term business objective. but must represent good citizenship. In addition. profit margin. quality and cost balance in design. The Strategic Management Model CREDITS Layout: A. outsourcing of design work.800. 3. Is the strategy consistent with the environment? 3. and other currencies. 6. Prepare an organization STRUCTURE that matches the new strategy (portfolio and SBUs). as indicated in Fig. The generic strategies and long-term objectives restrict the statement of the business-level strategy. The typical functional areas are shown with examples of a few issues that may arise in implementation: 1. market share. Differentiation of a product can command a premium price for its product. Is the strategy appropriate in view of the available resources? 4. Quantitative Criteria 1. ENVIRONMENTAL & SOCIAL CONCERNS Options Opportunities Long-term objectives Generic strategies (feasible) Competitor-Directed Market-Directed Product-Directed Select options to get final generic strategies Year 1 2 3 4 5 Marketing Production Research & Development Finance Generic Strategies Long-term objectives Fig. * Source: Seymour Tilles. Does the strategy have an appropriate time framework? 6. 2. economic value added. promotions and dismissals. Time of implantation vs. Brand loyalty can be won over. based on the value chain and benchmarks. Due to its condensed format. 2. 2. 1. 4. Overall financial performance. or by any means. There are few ways to differentiate the products that have value to the user. Price competition among rival sellers is especially intense. increasing sales expense. Corporate information and communication systems: management information system. Buyers have low switching costs and can change to lower-priced sellers.com Customer Hotline # 1. S. Tilles *) 1. The basic four generic strategies that may be used are shown in Fig. Avoid “stuck-in-the-middle” strategies that lead to engaging in each generic strategy. Avoid resistance to change through employee development and communication with employees. Increase in productivity. 2. and a generic strategy. The company can provide excellent service and goodwill within the segment. Install best practices for each department. electronic or mechanical. outsourcing. Use differentiation strategy when: 1. 3. All rights reserved. 5. Qualitative Criteria (from S. transfer pricing. such as ROI. 4. the generic strategy is honed by deciding on the emphasis to be placed on or allocation of resources to: competitor orientation. Choose final generic business strategy option. 8 (this page. 4. distribution policies. recruitment and selection. Production/operations: equipment. Establish policies and procedures for actions. The product is essentially a commodity with many sellers. ©2001 BarCharts. (3) niche or focus market segment with low cost. At this point. earnings per share. Is the strategy workable? Stage Criteria The strategy may be evaluated at each stage of its development shown in Fig. 2. These are reconciled and approved by the business managers and upper management. 5. salary and bonus payments. 3. The segment of the market focused on is large enough to be profitable. communicating policies. A business generic strategy option consists of a match of an opportunity. IMPLEMENTING WITH CONCERN FOR LAWS. 4. 4. including photocopy. 5. quality. Accounting/finance: increasing labor costs. IMPLEMENTING WITH THE FUNCTIONAL COMPONENTS OF STRATEGY Business Level How should we compete? A.BUSINESS STRATEGIES FOR SBUS & SINGLE-PRODUCT COMPANIES THE FIRST STEP IN CRAFTING THE COMPETITIVE STRATEGY FOR SBU Decide on the generic strategy or strategies to follow. strategy may be evaluated at different stages.Choose GENERIC business-level strategies. Implementation must be carried out with concern for factors that may not always be spelled out. 3. Human Resource management: assignment of people to new projects. Feasible business strategies Low-cost leadership Differentiation Niche low Focused differentiation cost 2. 3. at right). personalcommunications. use it as a study guide but not as a replacement for assigned class work. Does the strategy involve an acceptable degree of risk? 5. Use low-cost leadership when: 1. 3. 1. The cost of differentiation is less than the premium price that can be obtained. major human errors. The specific business strategy describes specifically what the firm will do to compete. The segment has good potential for growth. exchange rate between U. customer relations. No part of this publication may be reproduced or transmitted in any form. 8 (below) as (1) low-cost leadership. number of employees. without written permission from the publisher. market orientation. Inc. layout. 0508 1. 3.S. Marketing: product policies. GENERIC BUSINESS STRATEGY OPTIONS 1. 1. Each functional manager prepares his/her component of the total business strategy. ROE. STRATEGY EVALUATION FOUNDATION FOR STRATEGY EVALUATION ISBN-13: 978-142320707-8 ISBN-10: 142320707-6 IMPLEMENTING THE STRATEGY IMPLEMENTING WITH STRUCTURE Implementing strategy is the conversion of concepts into action and results. The General Manager then directs the reconciliation of all functional programs and budgets. DEVELOP THE SPECIFIC BUSINESS-LEVEL STRATEGY Each functional manager should prepare his/her functional component of the business strategy and plans for execution. 2. and thereby failing to achieve any of them. recording. Develop a strategy-supporting culture. “How to Evaluate Corporate Strategy. 6. and product/service orientation. Tie rewards and incentives to achievement of performance objectives. Is the strategy internally consistent? 4 free downloads & quickstudy. Use focus strategy when: 1. Business Strategy Formation Fig. and (4) focus on a market segment using differentiation. ethics. (2) differentiation. Buyers are large and can bargain down prices. R&D/design: estimating the time for new product development.50 NOTE TO STUDENT This QUICKSTUDY® guide is an outline of the basic topics taught in Management courses. 1 (see page 1). method of delivery of services.9522 hundreds of titles at . pricing policies. showing major additions and programs for the next f ive years. 4. Communicating the strategy to the organization to prepare every employee with an understanding of what will follow and the things in general that must be done. 1. $ 4. 2.95 CAN $ 7. Prepare annual plans and budgets for resource allocations. etc. 2. The segment is not important to the success of major competitors. planned time. It is the total and detailed activities to fulfill the strategy and achieve the longterm objectives. IMPLEMENTING WITH ORGANIZATIONAL LEADERSHIP 2.