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 firms mission.
Formulation and implementation of strategies to create or
continue a competitive advantage.

The Strategic Management

Process (continued)
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.

Components of the Strategic Management

Process:
Analyze the external and
internal environments
Define strategic intent
and mission
Formulate strategies

Implement strategies
Assess strategic
outcomes

SWOT Analysis
Commonly

used strategy tool: SWOT

Strengths, Weaknesses, Opportunities, Threats

Step

1: Analyze the organizations internal environment,

identifying its strengths and weaknesses.
Step 2: Analyze the organizations external environment,
identifying its opportunities and threats.
Step 3: Cross-match

Strengths with opportunities

Weaknesses with threats
Strengths with threats
Weaknesses with opportunities

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.

Components of External
Analysis
Scanning

Assessing

Monitoring

Forecasting

Scope of the External

Analysis
General
Environment

Competitor
Analysis

The Industry

Strategic
Groups

The Segments of the General

Environment
Demography

on
i
t
a
z
li
a
b
o
Gl

Techno
logical
Chang
es

ic
Econom
s
n
o
i
t
i
d
n
Co

Political/L
egal
Forces
Sociocultura
l
Condit
ions

Porters Framework for

Analyzing
the Industry Environment
Threat of new
entrants

Threat of
substitutes

Suppliers

Customers
Intensity of rivalry
among competitors

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

Core Competencies and

Market Opportunities

4.

Select a strategy that best

exploits the firms
capabilities relative to
external opportunities.

Strategy

3.

Appraise the profit

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

Potential for
sustainable
competitive
advantage

2.

Identify the firms

capabilities
(What can the firm do?)

1.

Identify the firms

resources and locate
areas of strength and
weakness relative to
competitors.

Capabilities

Resources

5.

Identify resource gaps

that need to be filled.
Invest in replenishing
and augmenting the
firms resource base.

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.

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:

Reputation
Technology
Human Capital

Analyzing the Firms

Capabilities
Functional
Analysis
Value Chain
Analysis
Benchmarking

Analyzing Capabilities by
Functional Areas
Functional Area

Capability

Corporate Management

Effective financial control systems

Expertise in strategic control of diversified corporation
Effectiveness in motivating and coordinating divisional and
business-unit management
Management of acquisitions
Values-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

Analyzing Capabilities by
Functional Areas (continued)
Functional Area

Capability

Manufacturing

Efficiency in volume manufacturing

Capacity for continual improvements in production processes
Flexibility and speed of response

Product Design

Design capability

Marketing

Brand management and brand promotion

Promoting and exploiting reputation for quality
Responsive to market trends

Sales and Distribution

Effectiveness in promoting and executing sales

Efficiency and speed of distribution
Quality and effectiveness of customer service

A Simple Value Chain

Technology
Source

Product
Design
Function

Manufacturing
Integration

Sophistication

Physical
Raw Materials
Characteristics
Patents
Capacity
Aesthetics
Product Process
Location
Quality
Product Choices
Procurement

Marketing

Service

Prices

Channels

Warranty

Advertising

Integration

Dealer Support

Promotion

Inventory

Availability

Sales Force

Warehousing

Speed

Package

Transport

Prices

Parts Production Brand

Assembly

Distribution

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 firms functions.

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.

Strategy Formulation
The

design of an approach to achieve the firms

mission.

Takes

place at:

Corporate-Level
Business-Level

Corporate-Level Strategy
The

corporations overall plan concerning the:

Number of businesses the corporation holds.

Variety of markets or industries it serves.
Distribution of resources among those businesses.

This

of:

diversification strategy may be analyzed in terms

Portfolio mix
Type of diversification
Process of diversification

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

Matrix
The Boston Consulting Groups Growth Share Matrix

The McKinsey-General Electric

Portfolio Analysis Matrix
Business-Unit Position
Low

1)

Medium

High

2)

3)

5)

6)

Low

Harvest

Medium

4)

Industry
Attractiveness

Hold
7)

8)

9)

High

Build

The Boston Consulting Groups

Growth Share Matrix
Relative Market Share

Annual Real
Rate of Market
Growth

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

Diversification Strategy
Type of Diversification
Concentration strategy
Vertical integration
strategy
Concentric
diversification strategy
Conglomerate
diversification

Process of Diversification
Acquisition and
restructuring strategies
Acquisition
Merger
International strategy

Business-Level Strategy
Deals

with how to compete in each business area or

market segment.

Firms

have two basic choices:

Cost leadership strategy

Differentiation strategy

Strategy Implementation

Corporate
Entrepreneurs
hip and
Innovation
Strategic
Leadership

Organization
al Structure
and Controls
Cooperative
Strategies
Human
Resource
Strategies

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:

Profits
Growth of sales/market share
Growth of corporate assets
Reduced competitive threats
Innovations

Applications: Management Is
Everyones BusinessFor the Manager
An

effective manager must be proactive in responding

to evolving challenges and opportunities rather than
being overtaken by events.

Learning

to think strategically forces managers to:

Be alert for changes in the external and internal environments.

Modify the firms strategic intent, mission, and formulated strategy when
necessary.
Effectively implement the new or redesigned strategies.

Applications: Management Is
Everyones BusinessFor Managing
Teams

The

strategic management process generally

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

A key

factor is how well the firm can mobilize and

integrate the efforts of team members.

Applications: Management Is
Everyones BusinessFor Individuals
Individual

employees are more likely to make

greater contributions to the firm if they engage in
activities that have strategic value.

Employees

can be attuned to changes in their area

of expertise and advise management on the
strategic implications of those changes.

Employee

success depends on the ability to adapt

to the firms strategic change.