Part Three: Management

Strategy and Decision Making

Chapter 7: Strategic
Management
Chapter 8: Managing the
Planning Process
Chapter 9: Decision Making
Chapter 7
Strategic Management
Management Challenges
After reading this chapter, you should be able to:
 Understand how to implement the steps in
the strategic management process.
 Identify the factors that account for a firm’s
sustained superior performance.
 Link external and internal environment data
to determine a firm’s strategic intent and
mission.

Copyright © 2002 by The McGraw-Hill 7-3

Management Challenges (continued)
 Conduct an analysis of the firm’s strengths,
weaknesses, opportunities, and threats.
 Evaluate the firm’s internal resources and
capabilities.
 Chose an appropriate business strategy at
the corporate and business-unit level of
analysis.

Copyright © 2002 by The McGraw-Hill 7-4

The Strategic Management Process
 Strategic management involves the major
decisions, business choices, and actions that
chart the course of the entire enterprise.
 It consists of:
 Analysis of the internal and external
environment of the firm.
 Definition of the firm’s mission.

 Formulation and implementation of strategies

to provide a competitive advantage.

Copyright © 2002 by The McGraw-Hill 7-5
The Strategic
(continued)
Management Process
 Strategic management involves both long-
range thinking and adaptation to changing
conditions.
 A strategy is successful if it provides the firm
with sustainable competitive advantage.
 Competitors will be unable to duplicate what
the firm has done or will find it too difficult or
expensive.

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 Components of the Strategic Management Process:

Analyze internal and

external environment

Define strategic intent and

mission

Formulate strategies

Implement strategies

Assess strategic outcomes

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Skills for strategic management:
 Environmental assessment and
scanning skills.
 Strategy formulation skills.
 Mapping strategic intent and defining
mission skills.
 Strategy implementation skills.

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SWOT Analysis
 Commonly used strategy tool:
Strengths

Weaknesses

Opportunities

Threats

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SWOT Analysis (continued)
 Step 1: Analyze the organization’s internal
environment, identifying its strengths and
weaknesses.
 Step 2: Analyze the organization’s external
environment, identifying its opportunities and
threats.
 Step 3: Cross-match
 Strengths with opportunities
 Weaknesses with threats
 Strengths with threats

 Weaknesses with opportunities

Copyright © 2002 by The McGraw-Hill 7-10

Analyzing the external environment:
 Firms 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 over other firms.
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Components of External Analysis:

Scanning Monitoring

Assessing Forecasting

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Scope of the External Analysis:

General Industry
Environment Environment

Competitor Strategic Groups

Analysis

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Porter’s framework for analyzing the industry
environment:
Threat of new
entrants Threat of substitutes

Suppliers

Customers
Intensity of rivalry
among competitors
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Analyzing the Internal Environment
 Each firm possesses core competence
(internal resources) that are unique to it.
 A firm should identify what resources,
capabilities, and knowledge it has that may
be used to exploit market opportunities and
avoid potential threats.
 Resource-based view.

Copyright © 2002 by The McGraw-Hill 7-15

 Core Competencies and
1. Select a strategy that best Market Opportunities
exploits the firm’s
capabilities relative to
Strategy
external opportunities.

1. Appraise the profit

generating potential of Potential for 1. Identify resource gaps that
resources/capabilities in sustainable need to be filled. Invest in
terms of creating, competitive replenishing and
sustaining, and exploiting advantage augmenting the firm’s
competitive advantage.
resource base.

1. Identify the firm’s

capabilities
Capabilities
(What can the firm do?)

1. Identify the firm’s

resources and locate
areas of strength and Resources
weakness relative to
competitors.
Copyright © 2002 by The McGraw-Hill 7-16
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 a firm to use fewer tangible
resources to support the same level of
business or to use the same resources to
expand the volume of business.

Copyright © 2002 by The McGraw-Hill 7-17

Resource Types: Intangible Resources
 Difficult to quantify.
 Often provide the firm with strong competitive
advantage.
 Competitors find it difficult to purchase or
imitate these resources.
 Most strategically important intangibles:
 Reputation

 Technology

 Human Capital
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Analyzing the firm’s capabilities:

Functional Analysis

Value Chain Analysis

Benchmarking

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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 Capability in basic research

Development Ability to develop innovative new products
Speed of new product development
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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

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A Simple Value Chain

Product
Technology Manufacturing Marketing Distribution Service
Design

Source Function Integration Prices Channels Warranty

Sophistication Physical Raw Materials Advertising Integration Dealer Support
Characteristics
Patents Capacity Promotion Inventory Availability
Aesthetics
Product Process Location Sales Force Warehousing Speed
Quality
Product Choices Procurement Package Transport Prices
Parts Production Brand
Assembly
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Benchmarking involves four stages:
1. Identifying activities or functions that are weak
and need improvement.
2. Identifying firms that are known to be at the
leading edge of these activities or functions.
3. Studying the leading-edge firms by visiting
them, talking to managers and employees,
and reading trade publications.
4. Using the information gathered to redefine
goals, modify processes, and acquire new
resources to improve the firm’s functions.
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Strategic Intent and Mission
 Based on analysis of the external and
internal environment.
 Strategic intent is internally focused,
defining how the firm intends to use its
resources, capabilities, and core
competencies to win competitive battles.
 Strategic mission is externally focused,
defining what the firm plans to produce and
market, utilizing its internal core competence.
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Strategy Formulation
 The design of an approach to achieve
the firm’s mission.

 Takes place at:

Corporate-Level

Business-Level

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Corporate-Level Strategy
 The corporation’s overall plan concerning the:
 Number of businesses the corporation holds
 Variety of markets or industries it serves

 Distribution of resources among those

businesses
 Diversification strategy
 Type of diversification
 Process of diversification

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Diversification Strategy
Type of Diversification Process of Diversification
 Concentration strategy  Acquisition and

 Vertical integration restructuring strategies

strategy  Acquisition
 Merger
 Concentric
diversification strategy  International strategy
 Conglomerate
diversification

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Business-Level Strategy
 How the firm will compete in each business
area or market segment.

 Firms have two basic choices:

 Cost leadership strategy
 Differentiation strategy

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Strategy Implementation
Organizational
Structure and
Controls
Corporate Cooperative
Entrepreneurship Strategies
and Innovation

Strategic Functional
Leadership Strategies

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Strategic Outcomes
 Firms need to 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.

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Applications of Management Perspectives:
For 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 firm’s strategic intent, mission, and

formulated strategy when necessary.

 Effectively implement the new or redesigned

strategies.
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Applications of Management Perspectives:
For 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.

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Applications of Management Perspectives:
For 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 firm’s strategic change.

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