3. Exhibit 7.1 The Strategic Management Process SWOT Analysis Identify the organization's current mission, goals, and strategies Internal Analysis • strengths • weaknesses External Analysis • opportunities • threats Formulate Strategies Implement Strategies Evaluate Results
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11. Exhibit 7.4 Levels of Organizational Strategy Research and Development Manufacturing Marketing Human Resources Finance Strategic Business Unit 1 Strategic Business Unit 2 Strategic Business Unit 3 Multibusiness Corporation Functional Level Business Level Corporate Level
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15. Exhibit 7.5 The BCG Matrix Stars Heavily invest Question Marks Sell off or turn into stars Cash Cows Milk for cash Dogs Sell off or liquidate High Low Market Share High Low Anticipated Growth Rate
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Editor's Notes
The role that the environment plays has influenced managers in developing a systematic means of analyzing the environment, assessing their organization’s strengths and weaknesses, identifying opportunities that would give the organization a competitive advantage, and incorporating these findings into their planning. The value of thinking strategically has an important impact on organization performance. 1. Strategic management is that set of managerial decisions and actions that determines the long-run performance of an organization. 2. It entails all of the basic management functions—planning, organizing, leading, and controlling.
The strategic management process is a six-step process that encompasses strategic planning, implementation, and evaluation (see Exhibit 7.1 ).
Step 1 : Identifying the Organization’s Current Mission, Objectives, and Strategies. 1. Every organization needs a mission, which defines the purpose of the organization. What is the organization’s reason for being in business? Exhibit 7.2 describes some common components found in organizational mission statements. 2. It’s also important to identify the organization’s current objectives and strategies. Step 2 : External Analysis . 1. Managers in every organization need to do an external analysis. Factors such as competition, pending legislation, and labour supply could have an impact. 2. After analyzing the environment, managers need to assess what they have learned in terms of opportunities and threats. Opportunities are positive trends in external environmental factors; threats are negative trends. 3. The same environment can present opportunities to one organization and pose threats to another in the same industry because of different resources and capabilities.
Every organization needs a mission , which defines the purpose of the organization. What is the organization’s reason for being in business? Exhibit 7.2 describes some common components found in organizational mission statements.
Step 3: Internal Analysis. 1. Should lead to a clear assessment of the organization’s resources and capabilities. 2. Any activities the organization does well or any unique resources that it has are called strengths . 3. Weaknesses are activities the organization does not do well or resources it needs but does not possess. If any of the organizational capabilities or resources are exceptional or unique, they’re called the organization’s core competencies . 4. Organizational culture is important in internal analysis. It can promote or hinder an organization’s strategic actions. 5. Combined external and internal analyses are called SWOT analysis because it’s an analysis of the organizations’ strengths, weaknesses, opportunities, and threats.
Step 4 : Formulating Strategies. 1. After the SWOT, managers develop and evaluate strategic alternatives and select strategies that are appropriate. 2. Strategies need to be established for corporate, business, and functional levels.
Step 5 : Implementing Strategies. 1. A strategy is only as good as its implementation. Step 6 : Evaluating Results . 1. How effective have the strategies been? Are adjustments necessary?
There are three different and distinct levels of strategy: corporate, business, and functional (see Exhibit 7.4 ). A. Corporate-level Strategy : The corporate-level strategy seeks to determine what businesses a corporation should be in or wants to be in. 1. Growth . A growth strategy seeks to increase the organization’s business by expanding the number of products offered or markets served. 2. Stability . A stability strategy is characterized by an absence of significant change. 3. Retrenchment . Retrenchment strategies are deployed when the organization is in trouble. Retrenchment strategies reduce the company’s activities or operations. 4. Corporate Portfolio Analysis . Corporate portfolio analyses are used when an organization’s corporate strategy involves a number of businesses.
There are three different and distinct levels of strategy: corporate, business, and functional (see Exhibit 7.4 ).
1. Growth. A growth strategy seeks to increase the organization’s business by expanding the number of products offered or markets served. a. Types of Growth Strategies 1) Concentration : Focusing on a primary line of business and increasing the number of products offered or markets served 2) Vertical Integration : Attempting to gain control of inputs or outputs 3) Horizontal Integration : Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals. 4) Diversification : Expanding operations
Horizontal Integration : Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals. Diversification Related Diversification : Expanding by merging with or acquiring firms in different, but related industries that are “strategic fits.” Unrelated Diversification : Growing by merging with or acquiring firms in unrelated industries where higher financial returns are possible.
Corporate Portfolio Analysis. Used when an organization’s corporate strategy involves a number of businesses. BCG Matrix helps to identify which businesses offer high potential and which are a drain on organizational resources.
The first portfolio matrix—the BCG matrix —developed by the Boston Consulting Group, introduced the idea that an organization’s businesses could be evaluated and plotted using a 2 x 2 matrix (see Exhibit 7.5 ) to identify which ones offered high potential and which were a drain on organizational resources. The horizontal axis represents market share , which was evaluated as either low or high; and the vertical axis indicates anticipated market growth, which also was evaluated as either low or high. Based on its evaluation, businesses can be placed in one of four categories.
A business-level strategy seeks to determine how an organization should compete in each of its businesses. For organizations in multiple businesses, each division will have its own strategy that defines the products or services it will offer, the customers it wants to reach, and the like. When an organization is in several different businesses, these single businesses that are independent and formulate their own strategies are often called strategic business units (SBUs).
Competitive advantage is what sets an organization apart, that is, its distinct edge. These come from the firm’s core competencies. Quality as a Competitive Advantage . If implemented properly, quality can be a way for an organization to create a sustainable competitive advantage.
Competitive strategies developed out of the work of Michael Porter. His framework suggests that managers can choose from among three generic strategies. Porter’s major contribution has been to carefully outline how managers can create and sustain a competitive strategy in order to earn above-average profitability. a. Industry analysis is an important step in Porter’s framework. He says there are five competitive forces at work in an industry (see Exhibit 7.6 ). 1) Threat of new entrants is determined by barriers to entry, which are factors that determine how easy or hard it is for new competitors to enter an industry. 2) Threat of substitutes is a factor that determines whether or not customers will switch their business to a competitor. 3) Bargaining power of buyers is a factor that determines the amount of influence that buyers have in an industry.
4. Bargaining power of suppliers is a force that determine the power that suppliers have over firms in the industry. 5. Current rivalry includes factors that determine how intense the competitive rivalry will be among firms currently in the industry.
Porter then goes on to state that management must choose a strategy that will give it a competitive advantage over its rivals. There are three generic competitive strategies. Which one managers select depends on the organization’s strengths and core competencies and its competitors’ weaknesses. A. A cost leadership strategy is the strategy an organization follows when it wants to be the lowest-cost producer in the industry. B. The differentiation strategy is the strategy a firm follows when it wants to be unique in its industry along dimensions valued by buyers. C. The focus strategy is the strategy a company follows when it pursues a cost or differentiation advantage in a narrow industry segment. D. Porter proposed that a firm could not successfully pursue a combination of these competitive strategies and used the term stuck in the middle to describe organizations that cannot compete through cost leadership, differentiation, or focus strategies. However, a growing number of research studies have shown that a dual emphasis on low costs and differentiation can result in high performance. This approach isn’t easy to implement, however.
The functional-level strategy seeks to determine how to support the business-level strategy.
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