Lecture Four Strategic Management

Lecture Four

Strategic Management

The Strategic-Management The Strategic-Management ProcessProcess

Step 1Step 1:Establish The Mission & The :Establish The Mission & The VisionVision

A good A good mission statementmission statement expresses the expresses the organization’s purpose or reason for beingorganization’s purpose or reason for being

A good A good vision statementvision statement describes the long- describes the long-term goal of what the organization wants to term goal of what the organization wants to becomebecome

Mission Statement

Does your company’s mission statement answer these questions? Who are our customers? What are our major products or services? What is our basic technology? What is our commitment to economic objectives? What are our basic beliefs and values? What are our major strengths and competitive advantages? What are our public responsibilities? What is our attitude toward our employees?

Vision Statement

Does your company’s vision statement answer “yes” to these questions?

Is it appropriate for organization and for the times? Does it set standards of excellence and reflect high ideals? Does it clarify purpose and direction? Does it inspire enthusiasm and encourage commitment? Is it well articulated and easily understood? Is it ambitious?

Step 2Step 2:Establish The Grand Strategy:Establish The Grand Strategy

The The grand strategygrand strategy explains how the organization’s explains how the organization’s mission is to be accomplishedmission is to be accomplished

Three common grand strategies are Three common grand strategies are growthgrowth (involves (involves expansion of sales revenue, market share, number of expansion of sales revenue, market share, number of employees, or number of customers served), employees, or number of customers served), stabilitystability (involves little or no significant change), and (involves little or no significant change), and defensivedefensive (involves reduction in the organization’s efforts) (involves reduction in the organization’s efforts)

Establishing The Grand StrategyEstablishing The Grand Strategy

SWOT AnalysisSWOT Analysis

Forecasting: Predicting the FutureForecasting: Predicting the Future

After completing the SWOT analysis, managers need After completing the SWOT analysis, managers need to make to make forecastsforecasts (visions or projections of the future) (visions or projections of the future)

There are two types of forecasts:There are two types of forecasts:A hypothetical extension of a past series of events A hypothetical extension of a past series of events into the future is a into the future is a trend analysistrend analysis The creation of alternative hypothetical but equally The creation of alternative hypothetical but equally likely future conditions is likely future conditions is contingency planningcontingency planning or or scenario planningscenario planning

Boston Consulting Group Matrix Boston Consulting Group Matrix (BCG Matrix)(BCG Matrix)

Boston Consulting Group Matrix Boston Consulting Group Matrix (BCG Matrix)(BCG Matrix) Stars have a high share of a high-growth market. They

typically need large amount of cash to support their rapid and significant growth. They also generate large amount of cash for the organization and usually areas in which management can make additional investments and earn attractive returns.

Cash Cows have a large share of a market that is growing only slightly. Naturally, these units provide organization with large amounts of cash. Since the market is not growing significantly, this cash is generally used to meet financial demands of the organization in other areas, such as in the expansion of a “star” units.

Boston Consulting Group Matrix Boston Consulting Group Matrix (BCG Matrix)(BCG Matrix) Question marks have a small share of a high-growth

market. These units are called question marks because it’s uncertain whether management should invest more cash in them to get a large share of the market, or whether management should de-emphasize or eliminate them because such an investment would be ineffective. Naturally, through further investment, management attempts to turn “question marks” into “stars”.

Dogs have a relatively small share of a low-growth market. These units may barely support themselves, or they may even drain cash resources that other units have generated.

BCG Matrix BCG Matrix Sample Organizational StrategiesSample Organizational Strategies

Growth— “Stars” & “Question marks”(which hold the potential of being “Stars”)

Stability— “Cash Cow” Retrenchment— “Cash Cow” & “Stars”(which

begin to lose market share) Divestiture— “Dogs” & “Question

marks”(which have failed to increase market share but still require a big amount of cash)

Step 3Step 3:Formulate Strategic Plans:Formulate Strategic Plans

The process of choosing among different strategies The process of choosing among different strategies and altering them to best fit the organization’s needs is and altering them to best fit the organization’s needs is strategy formulationstrategy formulation

The strategy formulation process can be completed The strategy formulation process can be completed using techniques like Porter’s competitive forces and using techniques like Porter’s competitive forces and strategies, and product life cycles strategies, and product life cycles

Porter’s Five Competitive ForcesPorter’s Five Competitive Forces

Porter’s Five Competitive ForcesPorter’s Five Competitive Forces include: include:

1.1. The threat of new entrants The threat of new entrants New competitors can shake-up an industry virtually New competitors can shake-up an industry virtually

overnightovernight

2.2. The bargaining power of suppliers The bargaining power of suppliers Companies that rely on a single supplier are vulnerable Companies that rely on a single supplier are vulnerable

Porter’s Five Competitive ForcesPorter’s Five Competitive Forces

3.3. The bargaining power of buyersThe bargaining power of buyers Major customers, and customers that shop around can Major customers, and customers that shop around can

negotiate better pricesnegotiate better prices

4.4. The threat of substitute products or services The threat of substitute products or services When there are substitute products or services available, When there are substitute products or services available,

firms have less powerfirms have less power

5.5. Rivalry among competitors Rivalry among competitors Intense rivalry is a threat to companiesIntense rivalry is a threat to companies

Porter’sPorter’s four competitive four competitive strategiesstrategies or or generic strategiesgeneric strategies

1.1. The The cost leadership strategycost leadership strategy - - involves trying to keep involves trying to keep costs and prices below those of competitors and targeting a costs and prices below those of competitors and targeting a wide marketwide market

Examples of companies with this strategy include Bic, Examples of companies with this strategy include Bic, Home Depot, and DellHome Depot, and Dell

2.2. The The differentiation strategydifferentiation strategy - offer products or services - offer products or services that are of unique and superior value compared to those of that are of unique and superior value compared to those of competitors, and sell to a wide marketcompetitors, and sell to a wide market

Examples of companies using a differentiation Examples of companies using a differentiation strategy include Nordstrom and Ritz-Carlton Hotelsstrategy include Nordstrom and Ritz-Carlton Hotels

Porter’sPorter’s four competitive four competitive strategiesstrategies or or generic strategiesgeneric strategies

3.3. The The cost-focuscost-focus strategystrategy - - keep costs and prices keep costs and prices below those of competitors and target a narrow marketbelow those of competitors and target a narrow market

Examples of companies with a cost-focus strategy include Examples of companies with a cost-focus strategy include regional gas stationsregional gas stations

4.4. The The focused-differentiation strategyfocused-differentiation strategy - - offer products offer products or services that are of unique and superior value or services that are of unique and superior value compared to those of competitors, and sell to a narrow compared to those of competitors, and sell to a narrow marketmarket

Examples of companies with this strategy include Ferrari Examples of companies with this strategy include Ferrari and Lamborghini and Lamborghini

Product Life CycleProduct Life Cycle

Introduction stageIntroduction stage, the product is introduced , the product is introduced to the marketplace to the marketplace

Example?Example? Strategy: differentiation or a focus (cost-focus or Strategy: differentiation or a focus (cost-focus or

differentiation) strategy differentiation) strategy


Growth stageGrowth stage,, customer demand increases, customer demand increases, sales grow, and competitors may enter the sales grow, and competitors may enter the market market

Example? Example? Strategy: differentiation or a focus (cost-focus or Strategy: differentiation or a focus (cost-focus or

differentiation) strategydifferentiation) strategy


Maturity stageMaturity stage, , the product starts to fall out of the product starts to fall out of favor and sales and profits dropfavor and sales and profits drop Example?Example? Strategy: cost leadership or a focus (cost-focus or Strategy: cost leadership or a focus (cost-focus or

differentiation) strategydifferentiation) strategy


Decline stageDecline stage, the product falls out of favor , the product falls out of favor and is withdrawn from the marketplaceand is withdrawn from the marketplace Example?Example?

Diversification and SynergyDiversification and Synergy

A company that makes and sells only one product in A company that makes and sells only one product in its market follows a its market follows a single-product strategysingle-product strategy

This strategy has both benefits (the firm can focus on This strategy has both benefits (the firm can focus on just one product) and risks (the firm is vulnerable to just one product) and risks (the firm is vulnerable to competitors) competitors)


The The diversification strategydiversification strategy involves involves operating several businesses in order to operating several businesses in order to spread the riskspread the risk

There are two kinds of diversification: There are two kinds of diversification: unrelatedunrelated (operating several businesses that are (operating several businesses that are

not related to each other) not related to each other) relatedrelated (operating several businesses that are (operating several businesses that are

related)related)

Unrelated DiversificationUnrelated Diversification

General Electric

Lighting products

Plastics Broadcasting Financial Services


There are three advantages to related There are three advantages to related diversification:diversification:

1.1. reduced risk because the firm sells more than one reduced risk because the firm sells more than one productproduct

2.2. management efficiencies because administration management efficiencies because administration is spread over several businessesis spread over several businesses

3.3. synergysynergy because the economic value of separate, because the economic value of separate, related companies operating under one roof is related companies operating under one roof is greater than the companies are worth separatelygreater than the companies are worth separately

Competitive IntelligenceCompetitive Intelligence

When companies gain information about their When companies gain information about their competitors so that they can anticipate their moves competitors so that they can anticipate their moves and react appropriately, the companies are practicing and react appropriately, the companies are practicing competitive intelligence competitive intelligence

Companies can collect information on their Companies can collect information on their competitors through public prints and advertising, competitors through public prints and advertising, through investor information, and through informal through investor information, and through informal sourcessources

Step 4Step 4:Carry Out The Strategic :Carry Out The Strategic PlanPlan

Strategy implementationStrategy implementation involves putting strategic involves putting strategic plans into effectplans into effect

Managers need to ensure that the right people and Managers need to ensure that the right people and control systems are in place to execute the plans control systems are in place to execute the plans

Strategy ImplementationStrategy Implementation

The execution stage of strategy involves getting The execution stage of strategy involves getting things done things done

ExecutionExecution is a central part of strategy that is a central part of strategy that consists of using questioning, analysis, and consists of using questioning, analysis, and follow-through to mesh strategy with reality, follow-through to mesh strategy with reality, align people with goals, and achieve promised align people with goals, and achieve promised resultsresults


There are three building blocks underlying effective There are three building blocks underlying effective execution:execution:

1.1. Develop seven essential leader behaviors Develop seven essential leader behaviors know your people and your businessknow your people and your business insist on realisminsist on realism set clear goals and prioritiesset clear goals and priorities follow throughfollow through reward the doersreward the doers expand people’s capabilitiesexpand people’s capabilities know yourselfknow yourself


2.2. Create a framework for cultural changeCreate a framework for cultural change Leaders must understand how to change the behavior Leaders must understand how to change the behavior

and beliefs of people who are directly linked to and beliefs of people who are directly linked to bottom-line resultsbottom-line results

To do this, tell people what results are necessary, how To do this, tell people what results are necessary, how to get the results, and what the reward is for achieving to get the results, and what the reward is for achieving the results the results

3.3. Select & evaluate people Select & evaluate people Leaders should personally select the right people to Leaders should personally select the right people to

get the job done get the job done


The three building blocks are the foundation for the three The three building blocks are the foundation for the three core processes of executioncore processes of execution

The First Core ProcessThe First Core Process: People: PeopleEffective leaders evaluate talent using specific Effective leaders evaluate talent using specific milestones, develop future leaders, and deal with non-milestones, develop future leaders, and deal with non-performers—they get the people part rightperformers—they get the people part right

The Second Core ProcessThe Second Core Process: Strategy: StrategyA good strategic plan considers the “how” of executionA good strategic plan considers the “how” of execution


The Third Core ProcessThe Third Core Process: Operations: OperationsStrategy defines where the organization wants to go, the Strategy defines where the organization wants to go, the people process assigns responsibility for getting there, and people process assigns responsibility for getting there, and the operating plan shows how to get there the operating plan shows how to get there

The success of strategy execution depends on how well The success of strategy execution depends on how well leaders manage the three processes of strategy, people, leaders manage the three processes of strategy, people, and operationsand operations

Step 5Step 5:Maintain Strategic Control: :Maintain Strategic Control: The Feedback LoopThe Feedback Loop

Monitoring the execution of strategy and Monitoring the execution of strategy and making necessary adjustments is making necessary adjustments is strategic strategic controlcontrol

To keep strategic plans on track, managers To keep strategic plans on track, managers need to encourage people, keep planning need to encourage people, keep planning simple, stay focused, and keep moving simple, stay focused, and keep moving

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Lecture Four Strategic Management