The Strategic Management Process

It is the job of top level management to chart the course of the entire enterprise. It consists of:

Analysis of the internal and external environment of the firm. Definition of the firms mission. Formulation and implementation of strategies to create or continue a competitive advantage.

The Strategic Management Process

(continued)

Strategic management involves both long-range thinking and adaptation to changing conditions.
Strategies should be designed to generate a sustainable competitive advantage. Competitors should be unable to duplicate what the firm has done or should find it too difficult or expensive.

Components of the Strategic Management Process:

Analyze the external and internal environments Define strategic intent and mission Formulate strategies

Implement strategies
Assess strategic outcomes

SWOT Analysis

Commonly used strategy tool: SWOT

Strengths, Weaknesses, Opportunities, Threats

Step 1: Analyze the organizations internal environment, identifying its strengths and weaknesses. Step 2: Analyze the organizations external environment, identifying its opportunities and threats. Step 3: Cross-match

Strengths with opportunities Weaknesses with threats Strengths with threats Weaknesses with opportunities

The External Environment

Company leaders must 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.

Components of External Analysis

Scanning Monitoring

Assessing

Forecasting

Scope of the External Analysis

General Environment The Industry

Competitor Analysis

Strategic Groups

The Segments of the General Environment

Porters Framework for Analyzing the Industry Environment

Threat of new entrants

Threat of substitutes

Suppliers

Customers
Intensity of rivalry among competitors

The Internal Environment

Each company has something that it does well. These are called core competencies. Company executives should identify the resources, capabilities, and knowledge the firm has that may be used to exploit market opportunities and avoid potential threats. Resource-based view: Basing the strategy on what the firm is capable of doing

4.

Select a strategy that best exploits the firms capabilities relative to external opportunities.

Core Competencies and Market Opportunities

Strategy

3.

Appraise the profit generating potential of resources/capabilities in terms of creating, sustaining, and exploiting competitive advantage.
Identify the firms capabilities (What can the firm do?)

Potential for sustainable competitive advantage

5.

Identify resource gaps that need to be filled. Invest in replenishing and augmenting the firms resource base.

2.

Capabilities

1.

Identify the firms resources and locate areas of strength and weakness relative to competitors.

Resources

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 management to efficiently use tangible resources to support the company and to expand the volume of business.

Resource Types: Intangible Resources

Difficult to quantify and included on a balance sheet Often provides the firm with a strong competitive advantage. Competitors find it difficult to purchase or imitate these resources.

Strategically most important intangibles:

Reputation Technology Human Capital

Analyzing the Firms Capabilities

Functional Analysis

Value Chain Analysis

Benchmarking

Analyzing Capabilities by Functional Areas

Functional Area
Corporate Management

Capability
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 Comprehensive and effective MIS network, with strong central coordination

Information Management

Research and Development

Capability in basic research Ability to develop innovative new products Speed of new product development

Analyzing Capabilities by Functional Areas (continued)

Functional Area Manufacturing Capability Efficiency in volume manufacturing Capacity for continual improvements in production processes Flexibility and speed of response Design capability Brand management and brand promotion Promoting and exploiting reputation for quality Responsive to market trends

Product Design Marketing

Sales and Distribution

Effectiveness in promoting and executing sales Efficiency and speed of distribution Quality and effectiveness of customer service

A Simple Value Chain

Technology
Source Sophistication

Product Design
Function

Manufacturing
Integration

Marketing
Prices Advertising Promotion Sales Force Package

Distribution
Channels Integration Inventory Warehousing Transport

Service
Warranty Dealer Support Availability Speed Prices

Physical Raw Materials Characteristics Patents Capacity Aesthetics Product Process Location Quality Product Choices Procurement Assembly

Parts Production Brand

Benchmarking Involves Four Stages:

Identifying activities or functions that are weak and need improvement. Identifying firms that are known to be at the leading edge of these activities or functions. Studying the leading-edge firms by visiting them, talking to managers and employees, and reading trade publications. Using the information gathered to redefine goals, modify processes, and acquire new resources to improve the firms functions.

Strategic Intent and Mission

The primary guides to strategic management are formal statements of strategic intent and mission. Strategic intent is internally focused, defining how the firm uses its resources, capabilities, and core competencies. Strategic mission is externally focused, defining what will be to produced and marketed, utilizing its internal core competencies.

Strategy Formulation

The design of an approach to achieve the firms mission. Takes place at:

Corporate-Level Business-Level

Corporate-Level Strategy

The corporations overall plan concerning the:

Number of businesses the corporation holds. Variety of markets or industries it serves. Distribution of resources among those businesses.

This diversification strategy may be analyzed in terms of:

Portfolio mix Type of diversification Process of diversification

Portfolio Analysis

The basic idea is to classify the businesses of a diversified company within a single framework.

Two of the most widely applied include:

The McKinsey-General Electric Portfolio Analysis Matrix The Boston Consulting Groups Growth Share Matrix

The McKinsey-General Electric Portfolio Analysis Matrix

Business-Unit Position Low

Medium

High

1)
Low

2)

3)

Harvest
4)
Medium

5)

6)

Industry Attractiveness

Hold
7)
High

8)

9) Build

The Boston Consulting Groups Growth Share Matrix

Relative Market Share

Annual Real Rate of Market Growth

Earnings: high stable, growing Cash Flow: neutral Strategy: invest for growth STAR

Earnings: low, unstable, growing Cash Flow: negative Strategy: analyze to determine whether business can be grown into a star, or will degenerate into a dog

? Earnings: high, stable Cash Flow: high stable Strategy: milk COW Earnings: low, unstable Cash Flow: neutral or negative Strategy: divest DOG

Diversification Strategy
Type of Diversification Concentration strategy Vertical integration strategy Concentric diversification strategy Conglomerate diversification Process of Diversification Acquisition and restructuring strategies Acquisition Merger International strategy

Business-Level Strategy

Deals with how to compete in each business area or market segment. Firms have two basic choices:

Cost leadership strategy Differentiation strategy

Strategy Implementation
Organizational Structure and Controls Cooperative Strategies Human Resource Strategies

Corporate Entrepreneurship and Innovation Strategic Leadership

Strategic Outcomes

Company leaders should 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. Some of the standard measures of strategic success includes:

Profits Growth of sales/market share Growth of corporate assets Reduced competitive threats Innovations

Applications: Management Is Everyones BusinessFor 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 firms strategic intent, mission, and formulated strategy when necessary. Effectively implement the new or redesigned strategies.

Applications: Management Is Everyones BusinessFor 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.

Applications: Management Is Everyones BusinessFor 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 firms strategic change.