Strategic Management

Chapter 8

Strategic Management

What is Strategic Management?

 Strategic Management = what managers do to develop the organisation’s

strategies
– Strategies: the decisions and actions that determine the long-run
performance of an organisation
– Business model: a strategic design for how a company intends to
profit from its strategies, work processes and work activities
 Business models focus on 2 things:
– Whether the customers will value what the company
is providing
– Whether the company can make any money doing
that

Why is Strategic Management Important?

 Makes a difference on how well a company performs

– Study why firms succeed and fail in the same environment
 Organisations are facing continually changing situations
– When managers use the strategic management process they cope
better with the uncertain environment
 The multi-faceted nature of organisations – diverse divisions, units,
functions and work activities
 It is involved in many of the decisions that managers make

What Does Strategic Management Involve?

 The strategic management process = a six-step process that encompasses

strategic planning, implementation and evaluation

The Strategic Management Process

1. Identify current mission, goals and strategies

 Mission = a statement of the purpose of the organisation
 ***Intangible Assets = employees’
skills, talents and knowledge,
– The reason for being in databases and other IT assets;
business organisational culture; etc.
2. Analyse the external environment for:
a. Opportunities: positive trends
b. Threats: Negative trends
3. Analyse the organisation’s resources, capabilities and core
competencies
 Resources = am organisation’s assets (financial physical, human,
SWOT Analysis

intangible) that are used to develop, manufacture and deliver

products or services to its customers
 Capabilities = an organisation’s skills and abilities in doing work
activities needed in its business
 Core Competencies = the organisation’s major value-creating skills
and capabilities that determine its competitive weapons.
 Despite the size or success of a business they are always
constrained by their resources and capabilities
a. Strengths: activities the organisation does well or unique
b. Weaknesses: activities the organisation doesn’t do well, or
resources it needs, but lacks
4. Select appropriate strategies to use
a. Corporate strategies (what businesses a company is in, should be in
or wants to be in, and what it wants to do with those businesses)
i. Growth: concentration, vertical or horizontal integration
 Seeks to increase the level of the organisation’s
operations
 Concentration: achieved when an organisation
concentrates on its primary line of business and
increase the number of products offered or markets
served
 Vertical Integration: gain control of inputs, outputs
or both
 Horizontal Integration: growth through combining
with other organisations in the same industry
– Combining with competitors can lead to
monopolies and decrease industry
competition - the ACCC is a ‘watchdog’ and
controls this
 Related Diversification: when a company grows by
merging with or acquiring firms in different but
related industries
 Unrelated Diversification: … unrelated industries
ii. Stability: stay the same, absence of significant change
 Serve the same clients by offering the same product
or service
 Often occurs when the industry is in a period
of rapid upheaval, drastically changing
external forces, uncertain future
 OR industry facing slow or no-growth
opportunities
 iii. Renewal: retrenchment, turnaround
 Renewal strategies: designed to address organisational
weaknesses that are leading to performance declines
(profits declining)
 Retrenchment Strategy: a short-run renewal strategy
 Turnaround Strategy: a renewal strategy for where
situations when the organisation’s performance problems
are more serious (no profits)
iv. Analyse corporate portfolio of business using BCG matrix
(cash cows, stars, question marks, dogs)
 When there are a number of businesses in an
organisations corporate strategy a corporate
portfolio matrix can be used. (e.g. BCG)
 BCG (Boston Consulting Group): a strategy tool that
guides resource allocation decisions on the basis of
market share and growth rate of strategic business
units

b. Business or competitive strategies (how the organisation will

compete in each business)
 Strategic Business Units (SBUs) = the single and
independent businesses that formulate their own
strategies. When an organisation has several different
businesses
i. Determine competitive advantage (what sets the
organisation apart; competitive edge and then determine
the best competitive strategy)
ii. Porter’s five forces model
 Some industries are inherently more
profitable (and therefore more attractive to
enter and remain in)
1. Threat of new entrants
– New competitors in the industry
 2. Threat of substitutes
– Substitution of other industries products for
own industry’s products
3. Bargaining power of buyers
4. Bargaining power of suppliers
5. Existing Rivalry
– The intensity of the rivalry of current
industry competitors
ii. Porter’s 3 Competitive Strategies
 Cost leadership: the organisation is the
lowest-cost producer in its industry
 Differentiation: the company offers unique
products that are widely valued by customers
 Focus (cost or differentiation): a company
pursues a cost or differentiation advantage in
a narrow industry segment
i. Stuck in the middle (cannot develop
cost or differentiation advantage) = a
situation where a company has not
been able to develop either a low cost
or differentiation competitive
advantage
c. Functional Strategies (strategies used by various functional areas
to support competitive advantage)
– Seeks to determine how to support the
business-level strategy
5. Implement Strategies (through organising and leading)
6. Evaluate Strategies (through controlling)

What current strategy strategies challenges do managers face?

 Must have strategic flexibility (ability to recognise major challenges and to

quickly respond to them)
 The Rule of Three
– Similar to Porter’s 3 competitive strategies
– Competitive forces in an industry, if kept free of government
interference or other special circumstances, will inevitable create a
situation where three companies dominate any given market.
i. Full-line Generalists
 Dominate market
 Highly efficient
i. Super Niche Players
 Specialise through wither product or market
segmentation
ii. Ditch Dwellers
i. Neither a full-line generalist nor a niche player
 Important new strategies (e-business, customer service, innovation and
sustainability)