Transcript Chapter 4

Chapter
4
Strategic Management
Learning Outcomes
1. Define strategy, and explain its importance
to organizational success
2. Explain the three levels of strategy that exist
in an organization
3. Discuss the stages of the strategic
management process
Learning Outcomes
4. Define organizational mission, and explain
how mission relates to long- and short-range
objectives
5. Discuss the components of a SWOT analysis
6. Explain how strategic alternatives are
identified and selected
What is Strategy?
• Outlines the basic steps that
management plans to take to reach an
objective or goal
• 3 levels of Strategy:
– Corporate Strategies
– Business Strategies
– Functional Strategies
Corporate Strategies
1. Growth
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Trying to expand
– Concentration of current businesses
– Vertical integration
– Diversification
2. Stability
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Satisfied with present course
Maintain status quo
Usually elected by default
Corporate Strategies
3. Defensive
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Wants or needs to reduce its operations
Turnaround
Reverse a negative trend
Divestiture
Liquidation
Company is sold or dissolved
4. Combination
• Employing different strategies for different parts of company
Business Strategies
• Also called competitive strategies
• Provides a focus on how to compete in a
given business
• Applies to a single business unit
Business Strategies
• Overall cost leadership
– Produce and deliver goods or services for lower
cost than competition (i.e., Wal-Mart)
• Differentiation
– Make the product unique in its category, allowing
higher than average prices (i.e., Rolex)
• Focus
– Direct attention to a narrow market segment (i.e.,
a tall men’s clothing store)
Strategy
• Functional Business Strategies
– Narrow in scope
– Production
– Marketing
– Short term
The Strategic Management Process
• Application of the basic planning process
• Determines the long term direction &
performance of the organization
• Performed at the highest levels of
organization
– Requires input from middle & lower managers
The Strategic Management Process
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Has 3 phases:
1. Formulation
2. Implementation
3. Evaluation
Strategic Management Process: Formulation
Phase
• Set the Mission
– Broadest and highest level objectives
– Defines the purpose of the organization
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Why does the organization exist?
Describes the products/services
Defines the markets or sources or revenue
Identifies what the future business will be
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Market potential
Changes in market structure
Alterations that may occur to buying habits
What needs are not being met
Strategic Management Process: Formulation
Phase
• Identify past and present strategies to see if
change is needed
• Past and present performance
– Review what did and did not go well
• Setting objectives
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Look at internal and external environments
Long-range, (derived from mission statement
intermediate,
short-range objectives
– Then, set objectives for division / departments
Strategic Management Process: Formulation
Phase
• SWOT Analysis
– Strengths, Weaknesses, Opportunities and Threats
– Used for drawing conclusions about organization’s
current state from data
– Internal analysis used to determine strengths &
weaknesses
– Assess external environment to determine threats and
opportunities
• Broad environment (economy, social, political, technology)
• Competitive environment
Strategic Management Process: Formulation
Phase
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SWOT Analysis
– Competitive environment
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5 Forces Model of Competition (Michael Porter)
– Analyze competition by looking at:
1. Suppliers
2. Buyers
3. Competitive rivalry
4. Product or service substitutes
5. Potential entrants into the industry
Strategic Management Process: Formulation
Phase
• Comparing strategic alternatives
– SWOT analysis limits alternatives
– Select the corporate strategy that gives the best
chance of achieving the mission and objectives
– Being able to prioritize with limited resources
• Strategic Business Unit (SBU)
– A distinct business that has its own set of
competitors and can be managed independently
of other businesses (i.e., SBU might be a product
line)
– Small businesses ARE SBUs
Strategic Management Process: Implementation
Phase
• Organizational structure
– Understanding how structure, policies and
systems already in place will be impacted with
new strategy
– Costs of altering structure
• Might mean more training required
• reorganization
• Functional strategies’ impact
– Understand how the functional areas will be
impacted by overall strategic plan
Strategic Management Process:
Evaluation Phase
• Constantly evaluate
– Companies should constantly evaluate their
strategy to determine if it is working
– Make changes if it isn’t working
• Respond to internal and environmental
changes
– As things change, such as environment or
economy, readjust strategy