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Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
Chapter 7
StrategicManagement
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
Slide 2
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.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
Slide 3
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.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 4
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.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
Slide 5
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:
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 6
SWOT Analysis
• Commonly used strategy tool: SWOTStrengths, 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
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 7
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.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 8
Components of External Analysis
ScanningScanning MonitoringMonitoring
ForecastingForecastingAssessingAssessing
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Slide 9
Scope of the External Analysis
General General EnvironmentEnvironment The IndustryThe Industry
Strategic Strategic GroupsGroups
Competitor Competitor AnalysisAnalysis
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Slide 10
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
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 11
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
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 12
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
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 13
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.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 14
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:ReputationTechnologyHuman Capital
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Slide 15
Analyzing the Firm’s Capabilities
Functional Functional AnalysisAnalysis
Value Chain Value Chain AnalysisAnalysis
BenchmarkingBenchmarking
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Slide 16
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 research
Ability to develop innovative new products
Speed of new product development
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Slide 17
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 promotionPromoting and exploiting reputation for qualityResponsive to market trends
Sales and Distribution Effectiveness in promoting and executing salesEfficiency and speed of distributionQuality and effectiveness of customer service
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 18
Value-Chain Analysis
• Breaks down the firm into a sequential series of activities and attempts to identify the value added of each activity
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Slide 19
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.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 20
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.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 21
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
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Slide 22
Strategy Formulation
• The design of an approach to achieve the firm’s mission.
• Takes place at:Corporate-LevelBusiness-Level
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Slide 23
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 mixType of diversificationProcess of diversification
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Slide 24
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
MatrixThe Boston Consulting Group’s Growth Share
Matrix
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Slide 25
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
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Slide 26
The Boston Consulting Group’s Growth Share Matrix
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
Relative Market Share
Annual RealRate of MarketGrowth
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Slide 27
Diversification Strategy
Type of Diversification• Concentration
strategy• Vertical integration
strategy• Concentric
diversification strategy
• Conglomerate diversification
Process of Diversification
• Acquisition and restructuring strategiesAcquisitionMerger
• International strategy
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Slide 28
Business-Level Strategy
• Deals with how to compete in each business area or market segment.
• Firms have two basic choices:Cost leadership strategyDifferentiation strategy
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Slide 29
Strategy ImplementationOrganizationOrganizational 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
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved
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Slide 30
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:ProfitsGrowth of sales/market shareGrowth of corporate assetsReduced competitive threats Innovations