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Learning ObjectivesAfter reading this chapter, you should be able to:
Explain how the firm’s external environment should be examined as part of the strategic management process.
Explain how the firm’s internal environment should be examined as part of the strategic management process.
State the meaning and purpose of the firm’s strategic intent and mission.
Understand how the strategy formulation process helps the firm achieve its mission.
Describe the issues that should be considered in strategy implementation.
Understand how the outcomes of the strategic management process should be assessed.
iPod Universe Critical Thinking Questions focus on
Apple’s strategy of encouraging the manufacture of Ipod accessories
Role of strategic management in encouraging other manufacturers to ride on iPod’s success
Possible results of Apple’s aggressive entry into accessory market
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 firm’s mission. Formulation and implementation of
strategies to create or continue a competitive advantage.
The Strategic Management Process (cont)
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.
Analyze the external and Analyze the external and internal environmentsinternal environments
Define strategic intent and Define strategic intent and missionmission
Formulate strategiesFormulate strategies
Implement strategiesImplement strategies
Assess strategic outcomesAssess strategic outcomes
Components of the Strategic Components of the Strategic ManagementManagement Process:Process:
SWOT Analysis Commonly used strategy tool: SWOT
Strengths, Weaknesses, Opportunities, Threats
External Environment Internal Environment
Components
•Scanning
•Monitoring
•Forecasting
•Assessing
Scope
•General environment
•Industry environment
•Strategic groups
•Direct competitors
Resource types
•Tangible
•Intangible
Firm capabilities
•Functional
•Value Chain
•Benchmarking
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
ScanningScanning MonitoringMonitoring
ForecastingForecastingAssessingAssessing
Scope of the External Analysis
General General EnvironmentEnvironment The IndustryThe Industry
Strategic Strategic GroupsGroups
Competitor Competitor AnalysisAnalysis
The Segments of the General Environment
DemographyDemographyEconomic Economic
ConditionsConditions
Political/Legal Political/Legal
ForcesForces
Socio-cultural Socio-cultural ConditionsConditions
Technological Technological Changes
Changes
Globalization
Globalization
Porter’s Analyzing the Industry Environment
Threat of new Threat of new entrantsentrants Threat of Threat of
substitutessubstitutes
SuppliersSuppliers
CustomersCustomersIntensity of rivalryIntensity of rivalry
among competitorsamong 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
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 Firm’s Capabilities
Functional Functional AnalysisAnalysis
Value Chain Value Chain AnalysisAnalysis
BenchmarkingBenchmarking
Analyzing Capabilities by Functional Areas
Functional Area Capability
Corporate Management
Effective financial control systemsExpertise in strategic control of diversified corporationEffectiveness in motivating and coordinating divisional and business-unit managementManagement of acquisitionsValues-driven, in-touch corporate leadership
Information Management
Comprehensive and effective MIS network, with strong central coordination
Research and Development
Capability in basic researchAbility to develop innovative new productsSpeed of new product development
Analyzing Capabilities by Functional Areas (cont.)
Functional Area Capability
Manufacturing Efficiency in volume manufacturingCapacity for continual improvements in production processesFlexibility 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
Value-Chain Analysis Breaks down the firm into
a sequential series of activities and attempts to identify the value added of each activity
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 firm’s 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.
Strategic Intent and Mission(cont.)
Strategic Intent and Mission
Intent: How firm would like to use
•Resources
•Capabilities
•Core competencies
Mission: Determine the firm’s external focus on
•Products
•Markets
Strategy Formulation The design of an approach to achieve
the firm’s mission.
Takes place at: Corporate-Level Business-Level
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.
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 Group’s Growth
Share Matrix
The McKinsey-General Electric Portfolio Analysis Matrix
1) Harvest
2) 3)
4) 5)
Hold
6)
7) 8) 9)
Build
Low Medium High
Business-Unit Position
High
Medium
Low
IndustryAttractiveness
The Boston Consulting Group’s Growth Share Matrix
Earnings: high stable, growingCash Flow: neutralStrategy: invest for growthSTAR
Earnings: low, unstable, growingCash Flow: negativeStrategy: analyze to determine whether business can be grown into a star, or will degenerate into a dog?
Earnings: high, stableCash Flow: high stable Strategy: milkCOW
Earnings: low, unstableCash Flow: neutral or negativeStrategy: divestDOG
Relative Market Share
Annual RealRate of MarketGrowth
Diversification StrategyType 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
OrganizationOrganizational Structure al Structure and Controlsand Controls
Cooperative Cooperative StrategiesStrategies
Human Human Resource Resource StrategiesStrategies
Strategic Strategic LeadershipLeadership
Corporate Corporate EntrepreneursEntrepreneurs
hip and hip and InnovationInnovation
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
iPod Universe Critical Thinking Questions focus on
iPod sales benefitted from the availability of ipod accessories.
The concept of complementors (accessories in this case) and their role in increasing the popularity of a new technology is a key concept in strategic management (in high technology industries)
Because accessories manufacturers have increased iPod popularity, Apple’s entry into accessories should prove beneficial