Strategic Management

Strategic management requires an understanding of:

• Strategic management process

• How to develop an overall strategy

• Intended targets of the strategy

Competitive Advantage

Competitive advantage

• The ability of a firm to win consistently over the long term in a competitive situation

• Competitive advantage is created through the achievement of four qualities

Superior ValueSuperior Value

RarityRarity

Difficult to ImitateDifficult to Imitate

Non-substitutabilityNon-substitutability

• A competitive advantage should generate above-average returns: profits that are greater than the average for a comparable set of firms

Strategic Management Process: Setting Direction

Strategic management process is a planning process in which managers:

1. Set the organization's general direction and objectives

2. Formulate a specific strategy

3. Plan and carry out the strategy’s implementation

4. Monitor results and make necessary adjustments

Strategic Management Process

Determine strategic visionDetermine strategic vision

Establish objectivesEstablish objectives

Formulate strategyFormulate strategy

Implement strategy• Action plans

• Implement plans• Monitor outcomes

Implement strategy• Action plans

• Implement plans• Monitor outcomes

Analyze internal resourcesAnalyze internal resourcesAnalyze external environmentAnalyze external environment

Adapted from Exhibit 5.1

Define organizational missionDefine organizational mission

Determining the Strategic Vision

Strategic vision: provides a view of the firm over the long term and what it should achieve in the future.

• Strategic vision:– Provides general identity, direction, and level

of aspirations – Is the heart of the strategy and strategic plan– Is short and compelling

Mission Statement

Mission statement articulates fundamental purpose of the organization• Company philosophy• Company identity, or self-concept• Principal products or services• Customers and markets• Geographic focus• Obligations to shareholders• Commitment to employees

External Environmental Analysis

Managers must conduct an analysis of the firm’s general environment:

• Social/cultural

• Technological

• Economic

• Political/legal

• Global

TheFirm

Social/Cultural

Environment

Techno-logicalEnvironment

Political/Legal

Environment

GlobalEnvironment

EconomicEnvironment

Industry and Competitive Environment

SuppliersSuppliers CustomersCustomers

New EntrantsNew Entrants

Industrycompetitors

Rivalry amongexisting firms

SubstitutesSubstitutes

Profits and Industry Forces

• Few competitors• Quality-based

competition• High entry barriers• Few new entrants• Many customers• Fragmented

customers• Many suppliers

• Many competitors• Price-based

competition• Low entry barriers• Many new entrants• Many substitutes• Few customers• United customers• Few suppliers

• Many competitors• Price-based

competition• Low entry barriers• Many new entrants• Many substitutes• Few customers• United customers• Few suppliers

Hig

her

Pro

fits

Lo

wer

Pro

fits

Adapted from Exhibit 5.4

The Value Chain

Primary Activities

Su

pp

ort

Act

ivit

ies

Integrating Internal and External Analyses

Internal environment• Strengths• Weaknesses• Tools

– Core competencies framework

– Resource analysis framework

– Value chain framework

Internal Environment

SWOTSWOT

Integrating Internal and External Analyses

External environment

• Opportunities

• Threats

• Tools– Product life cycle analysis– Portfolio analysis– Five forces framework External Environment

SWOTSWOT

Strategic Objectives

Strategic objectives translate the strategic intent and mission into concrete and measurable goals

• Facilitates a firm's ability to

– Allocate resources appropriately

– Reach a shared understanding of priorities

– Delegate responsibilities

– Hold people accountable for results

Strategic objectives translate the strategic intent and mission into concrete and measurable goals

• Facilitates a firm's ability to

– Allocate resources appropriately

– Reach a shared understanding of priorities

– Delegate responsibilities

– Hold people accountable for results

Formulating a Strategy

Competitive strategy: determining how the company is going to compete and achieve its strategic objectives, mission, and ultimate strategic intent

• Generic strategies

• Techniques and tools

Formulating a Strategy

Generic competitive strategies

• Cost leadership

• Differentiation

• Focus

Other generic competitive strategies

• Integrated Differentiation-Cost Leadership

• Multipoint Competition

Generic Strategies and Scope

General player whose productor service features commandindustry average prices but

whose costs are significantlybelow the industry average

Example: Wal-Mart

General player whose productor service features commandindustry average prices but

whose costs are significantlybelow the industry average

Example: Wal-Mart

Niche player with average Prices and below-average costs

That focuses on a segment ofcustomers or a specific

geography

Example: Columbia Sports

Niche player with average Prices and below-average costs

That focuses on a segment ofcustomers or a specific

geography

Example: Columbia Sports

General player whose productor service features commandpremium prices and whose

costs are at the industryaverage

Example: Sony

General player whose productor service features commandpremium prices and whose

costs are at the industryaverage

Example: Sony

Niche player with average costsbut commanding premium

prices that focuses on the highend and customers in a general

or specific geography

Example: Morgan Motors

Niche player with average costsbut commanding premium

prices that focuses on the highend and customers in a general

or specific geography

Example: Morgan Motors

ScopeScope

GeneralGeneral FocusedFocused

Dif

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ren

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Co

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ader

ship

Co

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ship

Str

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Strategy Implementation

StrategyStrategy

StructureStructure

SystemsSystems

SharedValuesSharedValues

SkillsSkills

StaffStaff

StyleStyle