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STRATEGIC MANAGEMENT
Business Strategy
 Disney is capitalizing on the Toy Story franchise by
opening Toy Story attractions as its theme parks.
 Gas price are forcing Toyota to cut back on SUV and
truck production.
 Vedanta Resources, a metals and mining company
located in India, will invest $9.8 billion dollars to
increase its aluminum-smelting capacity, a move
that will make it one of the world largest metal
producer.
 “Find out what customers want, then provide it to
them as cheaply and quickly as possible’’ is strategy
of Wal-Mart.
What is strategy?
 A large-scale action plan that sets the
direction for an organization
 Plans for how an organization will do what it’s
in business to do, how it will compete
successfully, and how it attract and satisfy its
customers in order to achieve its goals.
 It represent “educated guess” about what
must be done in the long term for survival or
the prosperity of organization or its principal
parts.
Can org. uses its specific
strategy forever?
 According to fast-changing conditions,
strategy can’t be decided on just once, it
needs to be revisited from time to time.
What is strategic
management?
 It is a process that involves managers from all
parts of organization in the formulation and
the implementation of strategies and
strategic goals.
 It is what managers do to develop an
organization’s strategies.
What is strategic planning?
 It is not only the organization’s long-term
goals for the next 1-5 years regarding growth
and profits but also the ways the organization
should achieve them.
 It is the process of determining what your
organization intends to accomplish, and how
you will direct organization and its resources
toward accomplishing these goals in the
coming months and years.—Bryan W. Barry
Why strategic management is
important?
1. It can make difference in how well organization
performs even organizations are in the same
environmental conditions but their
performances are different
2. It helps managers cope with uncertainty from
continually changing situations to examine
relevant factors and decide what actions to take
3. It helps people focus on the ways and direction
to achieve org.’s goals in each part of
organization
The Strategic Management
Process 2
1
Identify the
organization’s
current mission,
goals, and
strategies
External Analysis
•Opportunities
•Threats
SWOT
Analysis
3
Internal Analysis
•Strengths
•Weaknesses
4
Formulate
Strategies
5
Implement
Strategies
6
Evaluate
Results
STEP1: Identify Org. Current
Mission, Goals, and Strategy
Examples
 L’Oreal mission is “The right to be beautiful
day after day.”
 Facebook mission is “a social utility that
connects you with the people around you.”
 The National Heart Foundation of Australia
mission is to “reduce suffering and death
from heart, stroke, and blood vessel disease
in Australia.”
Components of a Mission
Statement
 Customers: Who are the firm’s customers?
 Markets: Where does the firm compete geographically?
 Concern for survival, growth, and profitability: Is the firm
committed to growth and financial stability?
 Philosophy: What are the firm’s basic beliefs, values, and ethical
priorities?
 Concern for public image: How responsive is the firm to societal and
environmental concerns?
 Products or services: What are the firm’s major products or services?
 Technology: Is the firm technologically current?
 Self-concept: What are the firm’s major competitive advantage and
core competencies?
 Concern for employees: Are employees a valuable asset of the firm?
STEP2: Doing an External
Analysis
Examples
 What the competition is doing?
 What pending legislation might affect the
organization?
 What the labor supply is like in locations where it
operates?
*Managers need to point out opportunities
(positive trends) that organization can exploit
and threats (negative trends) it must counteract
or buffer against
STEP3: Doing an Internal
Analysis
Examples
 Organization’s resources which are its assets use for
develop, manufacture, and deliver products to
customers i.e. financial, physical, human, and
intangible
 Organization’s capabilities (skills and abilities) in
doing work activities needed in its business
 Organization’s major value-creating capabilities that
determine its competitive weapons called ‘core
competencies’
Managers identify organizational strengths (positive
factors) and weaknesses (negative factors)
Complete SWOT Analysis
1. Combine external and internal analyses
which includes organization’s strengths,
weaknesses, opportunities, and threats
2. Formulate appropriate strategies which:
 Exploit organization’s strengths and external
opportunities
 Buffer or protect organization from external
threats
 Correct critical weaknesses
Example of Marketing SWOT
Analysis (Internal Factors)
A strength could be:
A weakness could be:
 Your specialist marketing
 Lack of marketing




expertise.
A new, innovative product
or service.
Location of your business.
Quality processes and
procedures.
Any other aspect of your
business that adds value to
your product or service.




expertise.
Undifferentiated products
or services (i.e. in relation
to your competitors).
Location of your business.
Poor quality goods or
services.
Damaged reputation.
Example of Marketing SWOT
Analysis (External Factor)
An opportunity could be:
A threat could be:
 A developing market such as
 A new competitor in your
the Internet.
 Mergers, joint ventures or
strategic alliances.
 Moving into new market
segments that offer improved
profits.
 A new international market.
 A market vacated by an
ineffective competitor.
home market.
 Price wars with competitors.
 A competitor has a new,
innovative product or service.
 Competitors have superior
access to channels of
distribution.
 Taxation is introduced on
your product or service.
Ex. Marketing SWOT Analysis
Simple rules for successful
SWOT analysis
 Be realistic about the strengths and weaknesses of
your organization when conducting SWOT analysis.
 SWOT analysis should distinguish between where
your organization is today, and where it could be in
the future.
 SWOT should always be specific. Avoid grey areas.
 Always apply SWOT in relation to your competition
i.e. better than or worse than your competition.
 Keep your SWOT short and simple. Avoid
complexity and over analysis
Example 1 - Wal-Mart SWOT
Analysis.
 Strengths - Wal-Mart is a
powerful retail brand. It
has a reputation for value
for money, convenience
and a wide range of
products all in one store.
 Opportunities - To take
over, merge with, or form
strategic alliances with
other global retailers,
focusing on specific
markets such as Europe or
the Greater China Region.
 Weaknesses - Wal-Mart is
the World's largest grocery
retailer and control of its
empire, despite its IT
advantages, could leave it
weak in some areas due to
the huge span of control.
 Threats - Being number
one means that you are the
target of competition,
locally and globally.
SWOT Analysis
 SWOT analysis is a tool for auditing an
organization and its environment.
 It is the first stage of planning and helps
managers to focus on key issues.
http://www.marketingteacher.com/Lessons/lesson_swot.htm
STEP4: Formulate Strategies
 Managers need to consider the realities of
external environment , their available
resources , capabilities, and design strategies
that will help the organization achieve its
goals
STEP5: Implementing Strategies
 No matter how great the organization’s
strategies are planned, performance will
suffer if those strategies are not implemented
properly
STEP6: Evaluate Results
 Managers need to evaluate on:
 How effective have strategies been at helping
organization reach its goals?
 What adjustments are necessary?
Example:
Anne Mulcahy, Xerox’s CEO, made strategic
adjustments to regain market share and improve
her company bottom line by cutting jobs, sold
assets, and reorganized management
Types of Organizational Strategies
1) Corporate ->
Multi-business
Corporation
2) Competitive or Business ->
Strategic Business
Unit 1
Strategic Business
Unit 2
Strategic Business
Unit 3
3) Functional ->
Research &
Development
Manufacturing
Marketing
Human
Resources
Finance
I. Corporate Strategy
1) Corporate ->
Multi-business
Corporation
2) Competitive or Business ->
Strategic Business
Unit 1
Strategic Business
Unit 2
Strategic Business
Unit 3
3) Functional ->
Research &
Development
Manufacturing
Marketing
Human
Resources
Finance
What is Corporate Strategy?
 It specifies what businesses a company is in
or wants to be in and what it wants to do with
those businesses.
 It’s based on the missions and goals of org.
and the roles that each business unit of org.
will play.
Example: PepsiCo
 Mission: “to be the world’s premier consumer
products company focused on convenient foods and
beverages…”
 It pursues its mission with corporate strategy which
is decided by top manager what to do in different
businesses:
 PepsiCo Americas Beverages: PepsiCo North American
Beverages (PNAB), Latin Americas Beverages
 PepsiCo Americas Foods: Frito-Lay North America, Quaker
Foods North America, Sabritas, Gamesa, Latin Americas
Foods
 PepsiCo International
Example: Unilever
 Our mission is to add vitality to life. We meet
everyday needs for nutrition, hygiene and
personal care with brands that help people
look good, feel good and get more out of life.
 It divides its business units as:
 Food brands: Lipton, Knorr, Bertolli, Flora,…
 Home care brands: Comfort, Sunlight, Omo, Cif,
Surf,…
 Personal care brands: Axe, Dove, Lux, Lifebuoy,
Pond’s, Rexona, Vaseline, Sunsilk, Closeup
Types of Corporate Strategy
1. Growth Strategies
2. Stability Strategies
3. Renewal Strategies
Corporate Strategy: Growth
 A corporate strategy that’s used when
organization wants to expand the number of
markets served or products offered, either
through its current business(es) or through
new business(es).
 It is a grand strategy that involves
expansion—as in sales revenues, market
share, number of employees, or number of
customers or (for nonprofits) clients served.
Types of Growth Strategies
1) Concentration or Intensive Growth Strategy
1) Market Development
2) Product Development
3) Market Penetration
2) Integrative Growth Strategy
1) Forward Vertical Integration
2) Backward Vertical Integration
3) Horizontal Integration
3) Diversification Growth Strategy
1) Conglomerate Diversification
2) Concentric Diversification
1) Concentration or Intensive
Growth Strategy
 Focuses on its primary line of business by doing:
 Market Development: increases the number of market
served in primary business (existing products for new
markets/ customers)
 Product Development: increases the number of products
offered by developing better quality products or innovate
new products offerings in primary business (new products
for existing customers)
 Market Penetration: increases corporate revenue by
promoting products, i.e. increased frequency or quantity of
using products, or repositioning the brand (existing
products for existing customers)
2) Integrative Growth Strategy
 A strategy for growth in which a firm acquires some
other element of the chain of distribution of which it is a
member
 3 main types of integration:
 Backward Vertical Integration: controls subsidiaries that
produce some of the inputs used in the production of its
products, e.g., an automobile company may own a tire
company, a glass company, and a metal company (combine
with input supplier)
 Forward Vertical Integration: controls distribution centers
and retailers where its products are sold which enable firm
control its output (combine with output distributor/retailer)
 Horizontal Integration: occurs when a firm is being taken
over by, or merged with, another firm which is in the same
industry and in the same stage of production as the merged
firm, e.g. a car manufacturer merging with another car
manufacturer. (combine with competitor)
3) Diversification Growth Strategy
 It is a strategy of firm that expand its business
into new market(s) in order to gain new
customers.
 2 main types of diversification strategies:
 Concentric Diversification: combines with firms in
different but remains in a market or industry which firm is
familiar with (related diversification)
 Conglomerate Diversification: combines with firms in
different and never have previous experience before
(unrelated diversification)
Corporate Strategy
Market Development
Product Development
Intensive
Market Penetration
Backward Vertical
Growth
Integration
Forward Vertical
Horizontal
Conglomerate
Diversification
Corporate
Level
Stability
Renewal
Concentric
Corporate Strategy: Stability
 It is a corporate strategy in which an
organization continues to do what it is
currently doing
 It involves little or no significant change
 It includes continuing to serve the same
clients by offering the same product or
service, maintain market share, and
sustaining org’s current business operations.
Example of Market Share
Search Engine Market Share
By U.S. Monthly Visitors and
Search Queries in April 2008
The four major search engines
stack up as follows:
1. Google: 67.9%
2. Yahoo: 20.3% (unrounded,
20.28%)
3. Microsoft: 6.3%
(unrounded, 6.26%)
4. Ask: 4.2% (unrounded,
4.17%)
http://searchengineland.com/hitwise-google-again-hits-new-high-microsoft-yahoo-again-new-lows-13998
Corporate Strategy: Renewal
Strategy (or Retrenchment or
Defensive Strategy)
 A corporate strategy designed to address
declining performance which normally
involve with cutting costs and restructuring
organizational operations.
 2 main types of renewal strategies:
 Retrenchment Strategy: a short-run renewal
strategy used for minor performance problems
 Turnaround Strategy: a strategy used for more
serious problems
Summary of Corporate Strategy
1) Growth Strategy
 It can improve an existing product or service to attract





more buyers
It can increase its promotion and marketing efforts to try
to expand its market share.
It can expand its operations, as in taking over distribution
or manufacturing previously handled by someone else.
It can expand into new products or services.
It can acquire similar businesses.
It can merge with another company to form a larger
company.
Summary of Corporate Strategy
(Con’t)
2) Stability Strategy
 It can go for no-change strategy (if, for example, it has
found that too fast growth leads to foul-ups (misdoing)
with orders and customer complaints)
 It can go for a little-change strategy (if, for example, the
company is growing at breakneck (very fast & dangerous)
speed and feels it needs a period of consolidation)
Summary of Corporate Strategy
(Con’t)
3) Renewal Strategy
 It can reduce costs, as by freezing hiring or tightening





expenses.
It can sell off (liquidate) assets—land, buildings,
inventories, and etc.
It can gradually phase out product lines or services.
It can divest part of its business, as in selling off entire
divisions or subsidiaries.
It can declare bankruptcy.
It can attempt a turnaround—do some retrenching, with a
view toward restoring profitability.
II. Business or Competitive
Strategy
1) Corporate ->
Multi-business
Corporation
2) Competitive or Business ->
Strategic Business
Unit 1
Strategic Business
Unit 2
Strategic Business
Unit 3
3) Functional ->
Research &
Development
Manufacturing
Marketing
Human
Resources
Finance
II. Business or Competitive
Strategy
 It is a strategy for how org. will compete in its
business(es).
 Org. that has 1 main line of business => strategy describes
on how it will compete in its primary or main market
 Org. that has more than 1 line of business => strategy
defines its competitive advantage, offered products or
services, target customers, etc.
 Org. can formulate different types of strategy such
as cost leadership, differentiation, or focus.
II. Business or Competitive
Strategy (Con’t)
Example:
 LVMH-Moet Hennessy Louis Vuitton SA has
different competitive strategies for its
businesses which includes:






Donna Karan fashions
Louis Vuitton leather goods
Guerlain perfume
TAG Heuer watches
Dom Perignon champagne
And other luxury products
SBUs = Strategic Business Units
 Single businesses in an organization that are
independent and formulate their own
competitive strategies
II. Business or Competitive
Strategy (Con’t)
 It refers to the aggregated (total, sum) strategies of
single business firm or a SBU in a diversified
corporation.
 According to Michael Porter, to achieve a sustainable
competitive advantage and long-term success, a firm
must formulate a business strategy that
incorporates:
 Cost leadership: keeping costs & prices low for a market
such as Dell computer, Timex watch, Home Depot
hardware retailer
 Differentiation: offering unique & superior value for a wide
market such as Ritz-Carlton hotels, Lexus automobiles
 Focus: offering unique & superior value for a narrow market
such as Rolls-Royce, Ferrari, Lamborghini, Cartier jewelry
Source: http://en.wikipedia.org/wiki/Strategic_management
II. Functional Strategy
1) Corporate ->
Multi-business
Corporation
2) Competitive or Business ->
Strategic Business
Unit 1
Strategic Business
Unit 2
Strategic Business
Unit 3
3) Functional ->
Research &
Development
Manufacturing
Marketing
Human
Resources
Finance
III. Functional Strategy
 Functional strategies are used by org’s various
functional departments to support the competitive
strategy which include marketing strategies, new
product development strategies, human resource
strategies, financial strategies, legal strategies, supplychain strategies, and information technology
management strategies.
 Each functional department attempts to do its part in
meeting overall corporate objectives, and hence to
some extent their strategies are derived from broader
corporate strategies.
 The emphasis is on short and medium term plans and
is limited to the domain of each department’s
functional responsibility.
Source: http://en.wikipedia.org/wiki/Strategic_management
Analytical Tools in Strategic
Management
 5 Forces Analysis
 BCG Growth-Share Matrix
 Product Life Cycle
Five Force Model
 5 competitive forces determine business
attractiveness and profitability which
manager assess using them
Any possibility?
How much?
Any
possibility?
How much?
How intense ?
BCG Growth-Share Matrix

The overall goal of this ranking was to help corporate analysts decide which of their business
units to fund, and how much; and which units to sell.

Managers were supposed to gain perspective from this analysis that allowed them to plan
with confidence to use money generated by the cash cows to fund the stars and, possibly,
the question marks
BCG Growth-Share Matrix
 The natural cycle for most business units is that they start as question
marks, then turn into stars. Eventually the market stops growing thus
the business unit becomes a cash cow. At the end of the cycle the cash
cow turns into a dog.
Stars & Question Marks
 Stars are units with a high market



share in a fast-growing industry.
The hope is that stars become the
next cash cows.
Sustaining the business unit's
market leadership may require
extra cash, but this is worthwhile if
that's what it takes for the unit to
remain a leader.
When growth slows, stars become
cash cows if they have been able to
maintain their category leadership,
or they move from brief stardom to
dogdom
 Question marks (also known as



Source: http://en.wikipedia.org/wiki/Growth-share_matrix
problem child) are growing rapidly
and thus consume large amounts of
cash, but because they have low
market shares they do not
generate much cash. The result is a
large net cash consumption.
A question mark has the potential
to gain market share and become a
star, and eventually a cash cow
when the market growth slows.
If the question mark does not
succeed in becoming the market
leader, then after perhaps years of
cash consumption it will degenerate
into a dog when the market growth
declines.
Question marks must be analyzed
carefully in order to determine
whether they are worth the
investment required to grow
market share.
Cash Cows & Dogs
 Cash cow are units with high



market share in a slow-growing
industry.
These units typically generate cash
in excess of the amount of cash
needed to maintain the business.
They are regarded as staid and
boring, in a "mature" market, and
every corporation would be thrilled
to own as many as possible.
They are to be "milked"
continuously with as little
investment as possible, since such
investment would be wasted in an
industry with low growth.
Source: http://en.wikipedia.org/wiki/Growth-share_matrix
 Dogs, also can called as pets, are



units with low market share in a
mature, slow-growing industry.
These units typically "break even",
generating barely enough cash to
maintain the business's market
share.
Though owning a break-even unit
provides the social benefit of
providing jobs and possible
synergies that assist other business
units, from an accounting point of
view such a unit is worthless, not
generating cash for the company.
They depress a profitable
company's return on assets ratio,
used by many investors to judge
how well a company is being
managed. Dogs, it is thought,
should be sold off.
How to use it?




To use the chart, analysts plot a
scatter graph to rank the business
units (or products) on the basis of
their relative market shares and
growth rates.
When the organization has a lot
business units fall in “question
marks” and “stars”, that
organization tends to apply growth
strategy as a corporate strategy.
For the organization that has most
of its business units fall in “cash
cows”, organization tends to apply
stability strategy to remain its profit
status as long as it can.
For the organization that has a lot
of “dog”, may need to use renewal
strategy to find any solutions for
the particular bad-performance
product.
Source: http://en.wikipedia.org/wiki/Growth-share_matrix
Product Life Cycle
1.
Introduction -- A product is developed
and comes to market.
2.
Growth -- Consumers learn about it and
more people buy it. It becomes more
competitive through modification, price
adjustments, wider distribution and
other initiatives.
3.
Maturity -- The product generates
profits with more professional
productivity learning from experience.
But problems can arise, such as the
arrival of competing products in the
marketplace. The product maybe
modified or marketed in a new way to
keep profits strong.
Decline -- Sales decrease because of
market saturation, obsolescence or
other factors.Placing a product on this
timeline suggests strategies for keeping
its profitability high.
Example: If profits sag (decrease) during the
Maturity stage, the manufacturer might
offer discounted pricing or wider
distribution.
4.

It uses to analyze the
profitability of a product at
different stages of its life cycle.
Source: http://www.trumpuniversity.com/business-briefings/post/2008/04/product-life-cycle.cfm
End of Chapter5