Principles of

Management II
:Chapter One
Strategic Management
Lecturer: Dr. Mazen Rohmi
 ?What Is Strategic Management

 Strategic management is what managers do to

develop the organization‘s strategies.

 Strategic management is "A unified,

comprehensive and integrated plan designed to
assure that the basic objectives of the enterprise
are achieved."
 Strategic management is “ the process through
which organization analyze and learn from their
internal and external environments, establish
strategic direction; create strategies that are
intended to help achieve establish goals and
executes; - strategies, all in an effort to satisfy key
organizational stakeholders.”
 It is an important task involving all the basic
management functions—planning, organizing,
leading, and controlling.
 What are an organization’s
?strategies
 They are the plans for how the organization will
do whatever it’s in business to do, how it will
compete successfully, and how it will attract and
satisfy its customers in order to achieve its goals.
 Business Model
 One term often used in strategic management is
business model, which simply is how a company
is going to make money.
business model focuses on two things:
 (1) whether customers will value what the
company is providing, and
 (2) whether the company can make any money
doing that.
 An Example
 Dell pioneered a new business model for selling
computers to consumers directly online instead of
selling through computer retailers like other
manufacturers. Did customers ―value that? Did
Dell make money doing it that way? Definitely, as
managers think about strategies, they need to think
about the economic viability of their company‘s
business model.
 The Importance of Strategic
Management
Strategic Management is important due to the
following main reasons:
 It results in higher organizational performance.
 It requires that managers examine and adapt to
business environment changes.
 It coordinates diverse organizational units, helping
them focus on organizational goals.
 It is very much involved in the managerial decision-
making process.
 The Strategic Management
Process
 The strategic management process is a six-step
process that encompasses strategy planning,
implementation, and evaluation.
 Although the first four steps describe the planning
that must take place, implementation and
evaluation are just as important! Even the best
strategies can fail if management does not
implement or evaluate them properly.
Step 1: Identifying the Organization’s
Current Mission, Goals, and Strategies
 Every organization needs a mission—a statement
of its purpose. Defining the mission forces
managers to identify what it is in business to do.
 For instance, the mission of BPC (Birzeit
Pharmaceutical Company) is ―to be the backbone
of the health care security system in Palestine and
the region with superior quality products" .
 The mission of Facebook is ―a social utility that
connects you with the people around you.
 Components of a Mission Statement

Customers: Who are the firm‘s customers?

Markets: Where does the firm compete geographically?
Concern for survival, growth, and profitability: Is the firm committed
to growth and financial stability?
Philosophy: What are the firm‘s basic beliefs, values, and ethical
priorities?
Concern for public image: How responsive is the firm to societal and
environmental concerns?
Products or services: What are the firm‘s major products or services?
Technology: Is the firm technologically current?
Self-concept: What are the firm‘s major competitive advantage
Step 2: Doing an External Analysis
 Analyzing that environment is a critical step in the
strategic management process.
 Managers do an external analysis so they know, for
instance, what the competition is doing, what awaiting
legislation might affect the organization, or what the
labor supply is like in locations where it operates.
 In an external analysis, managers should examine the
economic, demographic, political/legal, sociocultural,
technological, and global components to see the trends
and changes.
 Once they have analyzed the environment,
managers need to pinpoint opportunities that the
organization can exploit and threats that it must
counteract or defense against.
 Opportunities are positive trends in the external
environment;
 threats are negative trends.
 Step 3: Doing an Internal Analysis

Assessing organizational resources, capabilities, and

activities:
 Strengths create value for the customer and
strengthen the competitive position of the firm.
 Weaknesses can place the firm at a competitive
disadvantage.
 Analyzing financial and physical assets is fairly
easy, but assessing intangible assets (employee‘s
skills, culture, corporate reputation, and so forth)
isn‘t as easy.

 Steps 2 and 3 combined are called a SWOT

analysis. (Strengths, Weaknesses, Opportunities,
and Threats).
 Step 4: Formulating Strategies

 As managers formulate strategies, they should

consider the realities of the external environment
and their available resources and capabilities in
order to design strategies that will help an
organization achieve its goals.
 The three main types of strategies managers will
formulate include corporate, competitive, and
functional.
 Step 5: Implementing Strategies

 Once strategies are formulated, they must be

implemented. No matter how effectively an
organization has planned its strategies,
performance will suffer if the strategies are not
implemented properly.
 Step 6: Evaluating Results

 The final step in the strategic management process

is evaluating results. How effective have the
strategies been at helping the organization reach its
goals? What adjustments are necessary?
Types of Organizational Strategies
 Organizations use three types of strategies: corporate,
competitive, and functional.

 Top-level managers typically are responsible for

corporate strategies.

 Middle-level managers for competitive strategies.

 Lower-level managers for the functional strategies.

 ?What Is Corporate Strategy

 A corporate strategy is one that determines what

businesses a company is in or wants to be in, and
what it wants to do with those businesses. It is
based on the mission and goals of the organization
and the roles that each business unit of the
organization will play.
 What Are the Types of Corporate
?Strategy
 The three main types of corporate strategies are growth,
stability, and renewal.
 A growth strategy is when an organization expands the
number of markets served or products offered, either
through its current business or through new business.
Because of its growth strategy, an organization may
increase revenues, number of employees, or market
share. Organizations grow by using concentration,
vertical integration, horizontal integration, or
diversification.
An organization that grows using concentration
focuses on its primary line of business and increases
the number of products offered or markets served in
this primary business.
A company also might choose to grow by vertical
integration, either backward, forward, or both.

In backward vertical integration, the organization

becomes its own supplier so it can control its inputs.
In forward vertical integration, the organization
becomes its own distributor and is able to control its
outputs. For example, Apple has more than 287 retail
stores worldwide to distribute its product.
 In horizontal integration, a company grows by
combining with competitors. For instance, French
cosmetics giant L‘Oreal acquired The Body Shop.

 An organization can grow through diversification,

either related or unrelated.
 Related diversification happens when a company
combines with other companies in different, but
related, industries.
 An example
 American Standard Cos., is in a variety of
businesses including bathroom fixtures, air
conditioning and heating units, plumbing parts,
and air-filled brakes for trucks. Although this mix
of businesses seems odd, the company‘s
―strategic fit is the efficiency-oriented
manufacturing techniques developed in its primary
business of bathroom fixtures, which it has
transferred to all its other businesses.
 Unrelated diversification is when a company
combines with firms in different and unrelated
industries.
 An example: the Tata Group of India has
businesses in chemicals, communications and IT,
consumer products, energy, engineering, materials,
and services. Again, an odd mix. In this case, there
is no strategic fit among the businesses.
 A Stability Strategy

 stabilitystrategy is a corporate strategy in which

an organization continues to do what it is currently
doing.
 Examples of this strategy include continuing to
serve the same clients by offering the same
product or service, maintaining market share, and
sustaining the organization‘s current business
operations. The organization does not grow, but
does not fall behind, either
 Renewal Strategy
 When an organization is in trouble, something needs to be done.
Managers need to develop strategies, called renewal strategies that
address declining performance.
 The two main types of renewal strategies are retrenchment and
turnaround strategies.

 A retrenchment strategy is a short-run renewal strategy used for

minor performance problems. This strategy helps an organization
stabilize operations, invigorate organizational resources and
capabilities, and prepare to compete once again.
 When an organization‘s problems are more serious, more drastic
action—the turnaround strategy—is needed.
 Managers do two things for both renewal strategies: cut costs and
restructure organizational operations.
 How Are Corporate Strategies
?Managed
 When an organization‘s corporate strategy
encompasses a number of businesses, managers
can manage this collection, or portfolio, of
businesses using a tool called a corporate portfolio
matrix.
 This matrix provides a framework for
understanding diverse businesses and helps
managers establish priorities for allocating
resource.
 BCG Matrix
 The first portfolio matrix—the BCG matrix—was
developed by the Boston Consulting Group and
introduced the idea that an organization‘s various
businesses could be evaluated and designed using a 2 * 2
matrix
 BCG Matrix

BCG Matrix classifies firms as:

 Cash cows: low growth rate, high market share.
 Stars: high growth rate, high market share.
 Question marks: high growth rate, low market share.
 Dogs: low growth rate, low market share.
A competitive strategy
 A competitive strategy is a strategy for how an
organization will compete in its business.
 For a small organization in only one line of business or a
large organization that has not diversified into different
products or markets, its competitive strategy describes
how it will compete in its primary or main market.
 For organizations in multiple businesses, however, each
business will have its own competitive strategy that
defines its competitive advantage, the products or services
it will offer, the customers it wants to reach, and the like.
 The Role of Competitive Advantage
 Developing an effective competitive strategy requires an understanding
of competitive advantage, which is what sets an organization apart—
that is, its distinctive edge. That distinctive edge can come from the
organization‘s core competencies by doing something that others
cannot do or doing it better than others can do it.
 For example, Fly Emirates Airlines has a competitive advantage
because of its skills at giving passengers what they want—convenient
and inexpensive air passenger service.
 On the other hand, competitive advantage can come from the
company‘s resources because the organization has something that its
competitors do not have. For instance, Wal-Mart's state-of-the-art
information system allows it to monitor and control inventories and
supplier relations more efficiently than its competitors, which Wal-
Mart has turned into a cost advantage
Quality as a Competitive Advantage
That emphasis on quality is still important today.
Every employee has a responsibility to maintain the
high quality.
 If implemented properly, quality can be a way for
an organization to create a sustainable competitive
advantage. That’s why many organizations apply
quality management concepts in an attempt to set
themselves apart from competitors.
Michael Porter - The Five Forces Model
 Many important ideas in strategic management
have come from the work of Michael Porter.
 One of his major contributions was explaining
how managers can create a sustainable competitive
advantage. An important part of doing this is an
industry analysis, which is done using the five
forces model.
Five Forces Model
 In any industry, five competitive forces dictate the rules of
competition. Together, these five forces determine industry
attractiveness and profitability, which managers assess using these
five factors:
1. Threat of new entrants. How likely is it that new competitors will
come into the industry?
2. Threat of substitutes. How likely is it that other industries’ products
can be substituted for our industry’s products?
3. Bargaining power of buyers. How much bargaining power do buyers
(customers) have?
4. Bargaining power of suppliers. How much bargaining power do
suppliers have?
5. Current rivalry. How intense is the rivalry among current industry
competitors?
The Need for Strategic Leadership

 Strategic leadership - the ability to anticipate,

envision, maintain flexibility, think strategically,
and work with others in the organization to initiate
changes that will create a viable and valuable
future for the organization.
How can top managers provide effective
?strategic leadership
 Eight key dimensions have been identified
 Types of Competitive Strategies
 Cost Leadership Strategy: Seeking to attain the lowest
total overall costs relative to other industry competitors.

 Differentiation Strategy: Attempting to create a

unique and distinctive product or service for which
customers will pay a premium.

 Focus Strategy: Using a cost or differentiation

advantage to exploit a particular market segment as
opposed to a larger market.
The Need for Strategic Flexibility
Strategic flexibility: the ability to recognize major external changes, to
quickly commit resources, and to recognize when a strategic decision was
a mistake.
Developing Strategic Flexibility: the following points are key and crucial
factors to set it into effect:
 Encourage leadership unit by making sure everyone is on the same page.
 Keep resources fluid and move them as circumstances warrant.
 Have the right mindset to explore and understand issues and challenges.
 Know what's happening with strategies currently being used by monitoring
and measuring results.
 Encourage employees to be open about disclosing and sharing negative
information.
 Get new ideas and perspectives from outside the organization.
 Have multiple alternatives when making strategic decisions.
 Learn from mistakes.
 First Mover
 FirstMover- an organization that brings a product
innovation to the market or uses new process
innovations.
 An organization that’s first to bring a product
innovation to the market or to use a new process
innovation is called a first mover.
 Being a first mover has certain strategic
advantages and disadvantages .