Chapter Six

Strategic Management:

How Star Managers Realize a Grand

Design

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Strategy, Strategic Management, Strategic Planning

Strategy: is a large scale action plan that sets the direction for the organization. Strategic Management: is a process that involves managers from all parts of the organization in the

formulation and the implementation of strategies and strategic goals. Strategic Planning: determines not only the organization’s long-term goals for the next 1-5 year

regarding growth and profits, but also the ways the organization should achieve themWhy Strategic Management and Strategic Planning are Important

1) Providing direction & momentum

2) Encouraging new ideas

3) Developing a sustainable competitive advantage

Forecasting Forecasting: is a vision or projection of the future—two types:• Trend Analysis: is a hypothetical extension of a past series of

events into the future.• Contingency Planning: also known as scenario planning &

scenario analysis is the creation of alternative hypothetical but equally likely future conditions.

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The Five Steps of the Strategic Management Process

1. Establish

the mission

and vision

2. Establish the grand strategy (using SWOT and forecasting)

3. Formulate the strategic plans (using e.g. Porter)

4. Carry out the strategic plan

5. Maintain strategic control

Feedback: Revise actions, if necessary, based on feedback

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SWOT Analysis

3. Formulate the strategic plans (using e.g. Porter)

4. Carry out the strategic plan

Inside Matters: analysis of internal strengths & weaknesses

S—Strengths: inside matters

W—Weaknesses: inside matters

O—Opportunities: outside matters

T—Threats: outside matters

Outside Matters: analysis of external Opportunities & Threats

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Porter’s Four Competitive Strategies

3. Formulate the strategic plans (using e.g. Porter)

4. Carry out the strategic plan

√4. Focused-differentiation

√3. Cost focus

√2. Differentiation

√1. Cost-leadership

NarrowWideStrategy

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The Product Life Cycle

3. Formulate the strategic plans (using e.g. Porter)

4. Carry out the strategic plan

Stage 1 Introduction Stage 2 Growth Stage 3 Maturity Stage 4 Decline

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Single-Product Strategy versus Diversification Strategy

Single Product Strategy: a company makes and sells only one product within its market.

Diversification Strategy: operating several businesses in order to spread the risk. Competitive Intelligence

Competitive Intelligence: means gaining information about one’s competitors’ activities so that you can anticipate their moves and react appropriately.

Gaining Competitive Intelligence: Public and print advertising Investor information Informal sources

The Balanced Scorecard

Balanced Scorecard: gives top managers a fast but comprehensive view of the organization

via four indicators: Customer satisfaction Internal processes The organization’s innovation and improvement activities Financial measures

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The Balanced Scorecard1. Financial Perspective

“How do we look to shareholders?”

Goals MeasuresGoals Measures

3. Internal Business Perspective

“What must we excel at?”

Goals MeasuresGoals Measures

2. Customer Perspective

“Ho do customers see us?”

Goals MeasuresGoals Measures

4. Innovation & Learning Perspective

“Can we continue to improve and create value?

Goals MeasuresGoals Measures

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Successful Measure Management

Top executives agree on strategy Communication is clear There is better focus and alignments The organizational culture emphasizes teamwork and allows risk taking

Barriers to Effective Measurement Objectives are fuzzy Managers put too much trust in informal feedback systems Employees resist new measurement systems Companies focus too much on measuring activities instead of results