Formulating strategy

Created @September 29, 2023 8:54 PM

Class MANAGEMENT CONCEPTS THEORIES AND PRINCIPLES

Reviewed

Four step strategic management process

Step 1: Establish organization’s mission and vision
- Mission statement: on-going purpose of organization

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 - Vision statement: what organization is striving to become

FBL, TBL, & SET approaches to Step 1 (mission & vision)

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 Step 2: Analyze strengths and weaknesses

Strengths - refer to valuable or unique resources that an organization has or any activities that it
does particularly well
Weaknesses - refer to a lack of specific resources or abilities that an organization needs in order
for it to do well

Resources - are assets, capabilities, processes, attributes and information that are controlled by
an organization and that enable it to formulate and implement a strategy

Three types of internal resources (ie, strengths/weaknesses)

1. Physical resources - refer to material assets an organization owns or has access to, such as
its factories and equipment, its financial assets (e.g., cash), its real estate, and its inventory

2. Human resources - refer to specific competencies held by an organization’s members

3. Intangible resources refer to an organization’s structures and systems

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 Four characteristics of strategic resources

According to the Resource Based View (RBV), the key to formulating effective strategies is
to identify resources that, on their own or bundled together in a group, have four key
characteristics: they must be valuable, relatively rare, inimitable, and non-substitutable (VRIN)

Valuable resources - are those that managers can use to neutralize threats or to exploit
opportunities to meet their organization’s mission in light of conditions in the external
environment

Rare resources - are those that few other organizations have

Inimitable resources - cannot be copied or developed by other organizations, or it is costly or
difficult to do so

Non-substitutable resources - cannot be easily substituted by other resources

VRIN and the three approaches to management

Step 3: Analyze opportunities and threats

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 Managers attend to the context and stakeholders of their organization’s industry to identify
opportunities and threats

Opportunities - are conditions in the external environment that have the potential to help
managers meet or exceed organizational goals
Threats - are conditions in the external environment that have the potential to prevent managers
from meeting organizational goals

Industry - refers to all organizations that are active in the same sector of social, political, and/or
economic activity

Components of the Five forces model (Michael Porter)

Supplier power - describes how much influence suppliers have over an organization
Customer power - describes how much influence customers have on an organization

Substitutes - refer to products or services that are similar or that meet the same needs of a
customer, but come from a different industry
Threat of new entrants - refers to the extent to which conditions make it easy for other
organizations to enter or compete in a particular industry

Intensity of rivalry - refers to the extent or strength of competition among the organizations in
an industry

Three approaches to the Five forces model

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 Step 3: Example of the Five forces model in practice

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 STEP 4: Choose and develop strategy (at organization level)

Generic business level strategies: the combination of goals, actions, and plans used by an
organization in a specific industry to accomplish its mission.

Strategic tools for diversified organizations

Related diversification means expanding an organization’s activity in industries that are related
to its current activities.

Horizontal integration - is evident when an organization’s services or product lines are

expanded or offered in new markets.

Vertical integration - occurs when an organization produces its own inputs (upward
integration) or sells its own outputs (downward integration).

Unrelated diversification occurs when an organization grows by investing in or establishing

Strategic Business Units (SBUs) in unrelated industries.

An industry refers to all organizations that are active in the same sector of social,
political, and/or economic activity.

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 Portfolio matrices are used by managers of conglomerate, diversified organizations
that have SBUs in unrelated industries.

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