Strategic Management

Action plan to develop advantages, core competitive edges (to out-smart rivals and
strengthen competitive position), and ensure success
Organizational strategy is a plan of action for investing resources to develop core
competencies in the value chain to achieve an organizations long-term goals and
objectives.
For example, to invest in R&D to develop superior or differentiated products to
meet customer needs and gain market share.
Sequential Phases of Strategic Planning
Long-term Performance Planning, Core Competencies Planning (key success factors
[KSFs] for functions/departments) , Basic Financial Planning & Forecasting
Benefits of Strategic Management
1. Clearer sense of strategic vision 2. Sharper focus on what is strategically
important 3. Improved understanding of rapidly changing environment
Why has strategic management become so important to today's
organizations?
Organizations generally outperform, Positive effects on the organization's
performance, To make dynamic environment more manageable.
Why are strategic decisions different from other types of decisions?
Deals with the long-run future of the entire organization, 3 differences are as under,
Rare- Unusual, Consequential substantial resources and great deal of
commitment, Directive
Challenges to Strategic Management
1. Impact of Electronic Commerce:
Electronically networking customers, suppliers, and partners is now a reality.
Changing market access and branding, causing the disintermediation of traditional
distribution channels (Ex. Online retailing/etailing). , Now having unlimited access
to information on the internet, customers are much more demanding., New
technology driven firms as well as the traditional firms are exploiting internet to
become more innovative and efficient. Many rapidly growing companies are going
global.
Why Do Strategies Evolve?

Changes may be necessary to react to shifting market conditions, Technological

breakthroughs, Fresh moves of competitors, Evolving customer preferences,
Emerging market opportunities, New ideas to improve strategy, Crisis situations,
etc.
Environmental Variables

Societal Environment

Sociocultural
Forces

Economic
Forces

Task
Environment
(Industry)
Shareholders

Governments
Special
Interest
Groups

Suppliers
Internal
Environment
Structure
Culture
Resources

Employees/
Labor Unions

Competitors

Customers
Trade Associations
Creditors
Political-Legal
Forces

Communities

Technological
Forces

Four Best Strategic Approaches to Build Sustainable Competitive

Advantage
Low-cost strategy (a cost-based competitive advantage)
Differentiation strategy (a superior product with added features, higher
quality, and better performance, and services)
Low-cost differentiation or best cost/value strategy (low cost solution with
differentiated features)

Niche market strategy (focusing on a narrow segment of market and

implementing either a low-cost or differentiation strategy)
What Is a Business Model?
A business model addresses the question: How do we make money in this
business?
Revenue-cost-profit economics

Look at revenue streams the strategy is expected to produce, measure

associated cost structure, and potential profit margins.

Is the strategy capable of delivering good bottom-line results?

Do resulting earnings streams and ROI indicate that the strategy

makes sense and the company has a viable business model for making
money?

The Strategy-Making, Strategy-Executing Process

Relationship Between Strategy and Business Model

Strategy Deals with a companys competitive initiatives and business
Business Model Concerns whether revenues and costs flowing from the strategy
demonstrate a business profitable and viable
Tests of a Winning Strategy

GOODNESS OF FIT TEST, COMPETITIVE ADVANTAGE TEST, PERFORMANCE TEST

Strategy Making Process
Phase 1 Developing a Strategic Vision
Future direction of company, Changes in companys product/market/customer
technology to improve
Phase 2 Setting Objectives- Financial and marketing- Future directionShort term / long term
Purpose of setting objectives - To track performance, converts mission into
specific performance targets objectives should be SMART objectives
Phase 3 Crafting a Strategy
Phase 4 Implementing and Executing Strategy
Allocating resources, strategy-supportive policies and corporate culture, best
practices for continuous improvement, Installing information, communication, and
operating systems, Motivating people to pursue the target objectives, Tying rewards
to achievement of results, Exerting the leadership necessary to drive the process
forward and keep improving.
Phase 5 Evaluating Performance and Making Corrective Adjustments
What Is a Strategic Plan?
The plan is consisted of strategic vision and business mission, strategic and
financial objectives, strategy
The Basis for Good Strategic Decisions
Intuition + Analysis = Effective Strategic Decisions
Understanding the Environment
Assessing the companys external or macro-environment , Assessing the companys
internal or micro-environment (task environment)
From Thinking Strategically about the Companys Situation to Choosing a
Strategy

The Components for a Companys Macro-environment

The Five Forces Model of Competition

Identifying the Components of a Single-Business Companys Strategy (by

analyzing internal & external environment)

Key Success Factors (KSFs)

Key success factors affect the ability of industry members to prosper in

market place

On what basis do customers chose between the competing brands of sellers?

What must seller do to be competitively successful- what resources and

competitive capabilities does it need?

What does it take for sellers to achieve a sustainable competitive advantage?

Industry Matrix/Competitive Profile Matrix (CPM)

(A) Strategic factor (B) weight (C) Company Rating (D) Company Weighted
Score = B*C
External Factor Analysis Summary (EFAS) / External Factor Evaluation
Matrix (EFEM)
(A)External Strategic factor( Opportunities & Threats) (B) Weight (C) Company
Rating (D) Company Weighted Score= B*C
The higher the weight the more important is this factor, weights must sum
to 1.0 regardless of the number of factors. Assign a rating to each factor from
5.0 (outstanding) to 1.0 (poor), The weighted score of 3 = average, 4 =
above average, less than 2.5 as below average.
Internal Factor Analysis Summary (IFAS)
(A)Internal Strategic factor( Strengths & Weakness ) (B) Weight (C) Company Rating
(D) Company Weighted Score= B*C
How Well is the Companys Present Strategy Working?
1. Qualitative assessment Is the strategy well-conceived? Covers all
the bases?, Internally consistent?, Makes sense?, Timely and in step with
marketplace?
2. Quantitative assessment What are the results? Is company achieving
its financial and strategic objectives? Is company an above-average industry
performer?
What Are the Companys Strengths, Weaknesses, Opportunities, and
Threats (SWOT)?

TOWS Matrix
Internal factors / External Factors
Strengths
OPP.
(SO) Strength takes advantage of opp.
Overcome weakness
TH.
(ST) Use strength to avoid threat
weakness and avoid threat

Weakness
(WO) Take oppor.
(WT) Minimise

Company Value Chain

A companys business consists of all activities undertaken in designing, producing,
marketing, delivering, and supporting its product or service. All these activities that
a company performs internally combine to form a value chain so-called because a
companys activities ultimately create value for buyers.

The value chain contains two types of activities Primary activities where most of the
value for customers is created. Support activities that facilitate performance of the
primary activities.

Representative Value Chain for an Entire Industry

Levels & Types of Strategy & Strategic Management

Corporate-level strategy
Corporate-level strategy is a plan of action to use and develop core competencies,
so that a company can not only enlarge and protect its existing domain but also
expands into new domains. For example, Coca-Cola used its marketing skills to
launch juices and mineral water, and penetrated into global soft-drinks industry. In
other words, it is a plan of action to enlarge and protect each business of the
company it has diversified into.
Business-level strategy
Business-level strategy is a plan of action for each strategic business unit (SBU) or
divisional-level.
Corporate & Business-level Strategies for Enlarging Domain of the
Organization
Market penetration strategy, Product development strategy, Market
development strategy

 Diversification strategy
The 1st three are also called intensity strategies, while all these are also called
growth strategies.
Corporate-level Strategies for Entering New Domains
Vertical integration (backward & forward), Related diversification ,
Unrelated diversification , Global expansion strategy
Global expansion strategies
International strategy, Multi-domestic strategy, Global strategy,
Transnational strategy, Functional-level strategy
Functional-level strategy is a plan of action for each individual department, finance,
marketing, R&D, operations, etc.
Operational-level strategy
Operational-level strategy is a plan of action for the front line operations (related
with production, sales, and supplies) within functions/departments like raw
materials, procurement, plant related issues, logistics, sales, shipping, distribution,
etc.
Porters 5-Generic Strategies
Low-cost strategy (when does low cost strategy work best ?)
Price competition is stiff, Product is a commodity, or standardized, or is readily
available from many suppliers, there are few ways to achieve differentiation that
have value to buyers, most buyers use product in some ways, buyers incur low
switching costs, buyers are large-sized and have significant bargaining power,
industry newcomers use introductory low prices to attract buyers and build
customer base.
Pitfalls of Low Cost strategy
Being overly aggressive in cutting price, low cost methods are easily imitated by
rivals, Becoming too fixated on reducing costs, technological breakthroughs open up
cost reductions for rivals.
Differentiation strategy
Incorporate differentiating features that cause buyers to prefer firms product or
service over brands of rivals, Find ways to differentiate that create value for buyers
and are not easily matched or cheaply copied by rivals, Do not spend more than the
premium price that can be charged per unit to achieve differentiation.

Benefits of Differentiation Strategy

A product with unique, appealing attributes allows a firm to: Command a premium
price and/or, Increase unit sales and/or, Build brand loyalty = Competitive
Advantage

Types of Differentiation Themes

Unique taste Dr. Pepper, Multiple features Microsoft Windows and Office, Wide
selection and one-stop shopping ebay, Amazon.com, Aghas, Superior service
FedEx, Ritz-Carlton, Spare parts availability Caterpillar, Engineering design and
performance Mercedes, BMW, Prestige Rolex, Lawrancepur, Product reliability
Johnson & Johnson, Quality manufacture Karastan, Michelin, Honda, Technological
leadership 3M Corporation, Top-of-line image Ralph Lauren, Starbucks, Chanel
When does differentiation strategy work best
Buyer needs and uses are diverse; Few rivals are following a similar differentiation
approach; & Technological change and product innovation are fast-paced
Pitfalls of Differentiation Strategies
Appealing product features are easily copied by rivals. Often, buyers see little value
in unique attributes of product. Overspending on efforts to differentiate the product
offering, thus eroding profitability. Over-differentiating such that product features
exceed buyers needs. Charging a price premium buyers perceive as too high. Not
striving to open up meaningful gaps in quality, service, or performance features vis-vis rivals products.
Low-cost differentiation or best-cost/value strategy
Combine a strategic emphasis on low-cost with a strategic emphasis on
differentiation, Make an upscale product at a lower cost. Give customers more value
for the money. Deliver superior value by meeting or exceeding buyer expectations
on product attributes and beating their price expectations. Be the low-cost provider
of a product with good-to-excellent product attributes, then use cost advantage to
under-price comparable brands.
When Does a Best-Cost Provider Strategy Work Best?
Where buyer diversity makes product differentiation as the norm; and Where many
buyers are also sensitive to price and value.
Risks of best cost provider

A best-cost provider may get squeezed between strategies of firms using low-cost
and differentiation strategies. Low-cost leaders may be able to siphon customers
away with a lower price. High-end differentiators may be able to steal customers
away with better product attributes.
Focus low-cost strategy
Involve concentrated attention on a narrow piece or segment of the total market.
Serve niche buyers better than rivals. Choose a market niche where buyers have
distinctive preferences, special requirements, or unique needs. Develop unique
capabilities
to
serve
needs of target buyer segment.
Focus differentiation strategy

Specialization Strategies
Focus/Concentration strategy
Achieving specialization in one segment of a market (eg. K&NS); producing
differentiated or low-cost products to better meet customer needs; usually this
strategy is adopted by smaller companies
Horizontal integration
Through acquiring competing firms (eg. through mergers and takeovers; joint
ventures or consolidation strategies)
Defensive Strategies
Retrenchment strategy is about cutting costs and assets to reverse declining profits.

Divestiture strategy is about selling a division or part of an organization, usually

when it is in losses.
Liquidation strategy is about selling an entire business, usually when its a total
failure. Immense care is taken in divestiture and liquidation to ensure minimum
losses and making gains when possible.
Except the defensive strategies, the rest of the strategies designed to enhance
competitive edge and market share are termed as offensive strategies.