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Chapter Six Strategic Management: How Star Managers Realize a Grand Design

Chapter Six

Strategic Management: How Star Managers Realize a Grand Design

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Strategy, Strategic Management, Strategic Planning

Strategy: is a large scale action plan that sets the direction for the organization.

Strategic Management: is a process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals.

Strategic Planning: determines not only the organization’s long-term goals for the next 1-5 year regarding growth and profits, but also the ways the organization should achieve them

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Why Strategic Management and Strategic Planning are Important

1)

Providing direction & momentum

2)

Encouraging new ideas

3)

Developing a sustainable competitive advantage

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Panel 6-1

The Five Steps of the Strategic Management Process

E6-3 Panel 6-1 The Five Steps of the Strategic Management Process 1. Establish 2. Establish the

1.

Establish

2. Establish the

3. Formulate

4. Carry out

5. Maintain

grand strategy (using SWOT

the strategic plans (using

e.g. Porter)

the strategic
plan

strategic
control

the mission and vision

  • and forecasting)

E6-3 Panel 6-1 The Five Steps of the Strategic Management Process 1. Establish 2. Establish the
E6-3 Panel 6-1 The Five Steps of the Strategic Management Process 1. Establish 2. Establish the
E6-3 Panel 6-1 The Five Steps of the Strategic Management Process 1. Establish 2. Establish the
E6-3 Panel 6-1 The Five Steps of the Strategic Management Process 1. Establish 2. Establish the
E6-3 Panel 6-1 The Five Steps of the Strategic Management Process 1. Establish 2. Establish the
E6-3 Panel 6-1 The Five Steps of the Strategic Management Process 1. Establish 2. Establish the
E6-3 Panel 6-1 The Five Steps of the Strategic Management Process 1. Establish 2. Establish the
E6-3 Panel 6-1 The Five Steps of the Strategic Management Process 1. Establish 2. Establish the
E6-3 Panel 6-1 The Five Steps of the Strategic Management Process 1. Establish 2. Establish the

Feedback: Revise actions, if necessary, based on feedback

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Example of mission & vision

Limited Brands (2002)

Mission – “Sustained growth of shareholder value by focusing its time, talent, and capital on the highest return opportunities.”

Vision – “family of the world’s best fashion brands”.

America Red Cross

Mission - The American Red Cross, a humanitarian organization led by volunteers and guided by its Congressional Charter and the Fundamental Principles of the International Red Cross Movement, will provide relief to victims of disasters and help people prevent, prepare for, and respond to emergencies.

Vision - May we touch every household, workplace and organization with highly-skilled and impassioned professionals. May we always be the trusted pacesetter and organization of choice in readiness and response. May we exceed the expectations of our culturally diverse community.

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Panel 6.2

Mission Statements

Does your company’s mission statement answer the following questions?

Who are our customers?

What are our major products and services?

In what geographical areas do we compete?

What is our basic technology?

What is our commitment to economic objectives?

What are our basic beliefs, values, aspirations, and philosophical priorities?

What are our major strengths and competitive advantages?

What are our public responsibilities?

What is our attitude toward our employees?

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Panel 6.2

Vision Statements

Does your company’s vision statement answer “yes” to the following questions?

Is it appropriate for the organization and for the times?

Does it set standards of excellence that reflect high ideals?

Does it clarify purpose and direction?

Does it inspire enthusiasm and encourage commitment?

Is it well articulated and easily understood?

Does it reflect the uniqueness of the organization, its distinctive competence, what it stands for, what it’s able to achieve?

It is ambitious?

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Grand Strategies

Growth strategy

  • - involves expansion in sales revenues, market share, number of employees or number of customers.

Stability strategy

  • - involves little or no significant change.

Defensive strategy

  • - involves reduction in the organization’s efforts.

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Panel 6.3

How Companies Can Implement Grand Strategies

Growth Strategy

It can improve an existing product or service to attract more buyers

It can increase its promotion and marketing efforts to try to expand its market share

It can expand its operations, as in taking over distribution or manufacturing previously handled by someone else

It can expand into new products or services

It can acquire similar or complementary businesses

It can merge with another company to form a larger company

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Panel 6.3

How Companies Can Implement Grand Strategies (Cont.)

Stability Strategy

It can go for a no-change strategy

It can go for a little-change strategy

Defensive Strategy

 

It can reduce costs

It can sell off assets

It can gradually phase out product lines or services

It can divest part of its business

It can declare bankruptcy

It can attempt a turnaround

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Panel 6.4

SWOT Analysis

Inside Matters: analysis of internal strengths & weaknesses

E6-9 Panel 6.4 SWOT Analysis Inside Matters: analysis of internal strengths & weaknesses S—Strengths: inside matters

S—Strengths: inside matters

3. Formulate the strategic plans (using e.g. Porter)

E6-9 Panel 6.4 SWOT Analysis Inside Matters: analysis of internal strengths & weaknesses S—Strengths: inside matters

4. Carry out

W—Weaknesses: inside

the strategic

matters

plan

O—Opportunities:

outside matters

E6-9 Panel 6.4 SWOT Analysis Inside Matters: analysis of internal strengths & weaknesses S—Strengths: inside matters

T—Threats: outside matters

E6-9 Panel 6.4 SWOT Analysis Inside Matters: analysis of internal strengths & weaknesses S—Strengths: inside matters

Outside Matters: analysis of external Opportunities & Threats

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SWOT Analysis

SS

Internal

Internal

WW

OO

External

External

TT

Things the company does well. Example: Market

Things the company does well. Example: Market

leadership, strong research and development,

leadership, strong research and development,

high quality products, patents & etc

high quality products, patents & etc

Things the company does not do well. Example:

Things the company does not do well. Example:

Large inventories, management turnover, weak

Large inventories, management turnover, weak

market image & etc.

market image & etc.

Conditions in the external environment that

Conditions in the external environment that

favor strengths. Example: New overseas market,

favor strengths. Example: New overseas market,

competitors failing, status & etc.

competitors failing, status & etc.

Conditions in the external environment that do

Conditions in the external environment that do

not relate to strengths or favor areas of current

not relate to strengths or favor areas of current

weakness. Example: Slower market growth,

weakness. Example: Slower market growth,

©South-Western College Publishing

growing government regulation & etc.

growing government regulation & etc.

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Forecasting

E6-11 Forecasting  Forecasting: is a vision or projection of the future— two types:  Trend

Forecasting: is a vision or projection of the future—

two types:

Trend Analysis: is a

hypothetical extension of a past

series of events into the future

Contingency Planning:

also known as scenario

planning & scenario

analysis is the creation of

alternative hypothetical but

equally likely future

conditions

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Panel 6.5

Porter’s Four Competitive Strategies

Strategy

  • 1. Cost-leadership

  • 2. Differentiation

3. Formulate the strategic plans (using e.g. Porter)

  • 3. Cost focus

  • 4. Focused-differentiation

Wide

Narrow

4. Carry out

the strategic plan

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Cost-leadership strategy

Selling products at a very low per-unit cost for customers who are price sensitive.

Target - large/wide markets/customers.

This puts pressure on R&D managers to develop products that can be created cheaply.

Differentiation strategy

Offer products or services that are unique and directed at consumers who are price insensitive.

Managers may have to spend more on R&D, marketing and customer service.

Target - large/wide markets/customers.

Companies use the strategy of differentiation to create a brand - they hope will differentiate them from their competitors.

Cost-focus strategy

Selling products at a very low per-unit cost for customers who are price sensitive.

Target - small/narrow markets/customers.

Focused-differentiation strategy

Offer products or services that are unique and directed at consumers who are price insensitive.

Target - small/narrow markets/customers.

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Panel 6.6

The Product Life Cycle

Stage 1 Introduction Stage 2 Growth Stage 3 Maturity Stage 4 Decline 3. Formulate the strategic
Stage 1 Introduction
Stage 2 Growth
Stage 3 Maturity
Stage 4 Decline
3. Formulate
the strategic
plans (using
e.g. Porter)
4. Carry out
the strategic
plan

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Single-Product Strategy versus Diversification Strategy

Single Product Strategy: a company makes and sells only one product within its market.

The benefit: making just one product allows you to focus your manufacturing and marketing efforts just on that product.

The risk: problems with the only product can destroy the entire firm.

Diversification

Strategy: operating

several businesses in

order to spread the

risk.

advantages:

- reduced risk with more than

one product

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Competitive Intelligence

Competitive Intelligence: means gaining

information about one’s competitors’ activities so that

you can anticipate their moves and react

appropriately.

Sources of competitive intelligence:

Public and print advertising

Investor information

Informal sources

E6-15 Competitive Intelligence  Competitive Intelligence: means gaining information about one’s competitors’ activities so that you

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