2. Introduction of Concepts
Strategic Management: The set of managerial decisions and
actions that determines the long-run performance of an
organization.
Strategic Planning: The process of determining a company's
long-term goals and then identifying the best approach for
achieving those goals
3. Why is strategic management important?
Gives everyone a role
Makes a difference in performance levels
Provides systematic approach to uncertainties
Coordinates and focuses employees
5. Basic Elements of Strategic Management
A- Environmental Scanning: is the monitoring, evaluating and
disseminating of information from the external and internal
environments to key people within the organization
B- Strategy Formulation: is the development of long-range plans
for the effective management of environmental opportunities
and threats in light of organizational strengths and
weaknesses (SWOT)
6. Basic Elements of Strategic Management
C- Strategy implementation: the process by which strategies and
policies are put into action through the development of:
Programs
Budgets
Procedures
D- Evaluation and control: the process in which corporate
activities and performance results are monitored so that
actual performance can be compared to desired performance
E- Feedback/Learning Process: revise or correct decisions based
on performance
8. Strategic Management Process
Step 1: Identifying the organization's current mission,
objectives, and strategies
Mission: the firm’s reason for being
• Who we are,
• What we do, and
• Where we are now
Goals: the foundation for further planning
• Measurable performance targets
Step 2: Conducting an external analysis
The environmental scanning of specific and general
environments
Focuses on identifying opportunities and threats
9. Strategic Management Process (cont’d)
Step 3: Conducting an internal analysis
Assessing organizational resources, capabilities, activities
and culture:
• Strengths (core competencies) create value for the
customer and strengthen the competitive position of
the firm.
• Weaknesses (things done poorly or not at all) can
place the firm at a competitive disadvantage.
Steps 2 and 3 combined are called a SWOT analysis (Strengths,
Weaknesses, Opportunities, and Threats)
10. Strategic Management Process (cont’d)
Step 4: Formulating strategies
Develop and evaluate strategic alternatives
Select appropriate strategies for all levels in the
organization that provide relative advantage over
competitors
Match organizational strengths to environmental
opportunities
Correct weaknesses and guard against threats
11. Strategic Management Process (cont’d)
Step 5: Implementing strategies
Implementation: effectively fitting organizational structure
and activities to the environment
Effective strategy implementation requires an
organizational structure matched to its requirements.
Step 6: Evaluating results
How effective have strategies been?
What adjustments, if any, are necessary?
12. Key terms of Strategic Management
Mission- the purpose or reason for the organization’s existence
Vision- describes what the organization would like to become
Objectives- the end results of planned activity
13. Key terms of Strategic Management
Strategies- form a comprehensive master plan that states how the
corporation will achieve its mission and objectives
Corporate
Business
Functional
Policies- the broad guidelines for decision making that links the
formulation of a strategy with its implementation
14. A- Environmental Scanning
Environmental scanning- the monitoring, evaluation and
dissemination of information from the external and
internal environments to key people within the corporation
Environmental Scanning is performed through 2-level analysis:
1- Organization’s Analysis. (SWOT)
2- External Analysis, which is divided into:
A- Macro level (Market Societal analysis) (PESTEL)
B- Micro level ( Industry analysis) (Porter 5 forces)
16. 1- Organization’s Analysis (SWOT)
Commonly used strategy tool:
Strengths
Weaknesses
Opportunities
Threats
o Controllable activities performed especially well or poorly
o Determined relative to competitors
17. 1- Organization’s Analysis (SWOT)
Step 1: Analyze the organization’s internal environment,
identifying its strengths and weaknesses.
Step 2: Analyze the organization’s external environment,
identifying its opportunities and threats.
Step 3: Cross-match
Strengths with opportunities
Weaknesses with threats
Strengths with threats
Weaknesses with opportunities
18. Internal Strengths and Weaknesses
Typically located in functional areas of the firm
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
Management Information Systems
19. Internal Strengths and Weaknesses
Assessing the Internal Environment
Ratios
Performance Measures
Internal Factors
Industry Averages
Survey Data
25. 2- External Analysis (cont’d)
B- Task environment- groups that directly affect a corporation
and are affected by the corporation
Government
Local communities
Suppliers
Competitors
Customers
Creditors
Unions
Special interest groups/trade associations
27. Industry Analysis (Task Environment)
1- Threat of new entrants- new entrants to an industry bring new
capacity, a desire to gain market share and substantial
resources
Entry barrier- an obstruction that makes it difficult for a
company to enter an industry
Economies of scale
Product differentiation
Capital requirements
Switching costs
28. Industry Analysis (Task Environment)
2- Rivalry Among Existing Firms- new entrants to an industry
bring new capacity, a desire to gain market share and
substantial resources
Number of competitors
Rate of industry growth
Product or service characteristics
Amount of fixed costs
Capacity
Height of exit barriers
Diversity of rivals
29. Industry Analysis (Task Environment)
3- Threat of Substitute Products or Services- products that
appear different but can satisfy the same need as another
product
30. Industry Analysis (Task Environment)
4- Bargaining Power of Buyers- ability of buyers to force prices
down, bargain for higher quality, play competitors against
each other
Large purchases
Backward integration
Alternative suppliers
Low cost to change suppliers
Product represents a high percentage of buyer’s cost
Buyer earns low profits
Product is unimportant to buyer
31. Industry Analysis (Task Environment)
5- Bargaining Power of Suppliers- ability of suppliers to raise
prices or reduce quality
Industry is dominated by a few companies
Unique product or service
Substitutes are not readily available
Ability to forward integrate
Unimportance of product or service to the industry
32. Industry Analysis (Task Environment)
6- Relative Power of Other Stakeholders
Government
Local communities
Creditors
Trade associations
Special interest groups
Unions
Shareholders
Complementary products that work well with a firm’s
product
33. Initiating Strategy: Triggering Events
Triggering event: something that acts as a stimulus for a change
in strategy and can include:
• New CEO
• External intervention
• Threat of change of ownership
• Performance gap
• Strategic inflection point
34. B- Strategy Formulation
Strategy is comprehensive plan that states how the company
will achieve its mission & objectives.
3 Levels of Business strategy:
1- Corporate Strategy
2- Business (Competitive) Strategy
3- Functional Strategy
36. Levels of strategy
1) Corporate Strategy 2) Business Strategy 3) Functional Strategy
Attitude towards growth Competitive Strategy Productivity
& management of Special Business line, It Benchmark – Standard
various business & has touch to Cost,
product lines, it has to Customer (Pull Strategy)
Differentiation & Focus
touch stability, growth, Lower Cost
retrenchment Integrated Process
Quality Assurance
Supply Chain
Marketing oriented
company
37. 1- Corporate Strategy (Directional)
Directional strategy- the firm’s overall orientation toward
growth, stability, or retrenchment
38. 1.1 Growth Strategy
Growth Strategy
Seeking to increase the organization’s business by
expansion into new products and markets.
A- Concentration (Integration)
• Vertical
• Horizontal
B- Diversification (Penetration)
• Concentric
• Conglomerate
39. 1.1 Growth Strategy
Concentration and Diversification
Merger- a transaction involving two or more corporations in
which stock is exchanged but in which only one corporation
survives
Acquisition- the purchase of a company that is completely
absorbed by the subsidiary or division of the acquiring
corporation
40. 1.1 Growth Strategy (Concentration)
A- Concentration strategies
Vertical growth- taking over the function previously provided
by a supplier or by a distributor
Vertical integration- the degree to which a firm operates
vertically in multiple locations on an industry’s value
chain from extracting raw materials to manufacturing to
retailing
Backward integration- assuming a function
previously provided by a supplier
Forward integration- assuming a function previously
provided by a distributor
42. Vertical Growth
Full integration- a firm internally makes 100% of its key
suppliers and completely controls its distributors
Taper integration- a firm internally produces less than half
of its own requirements and buys the rest from outside
suppliers
Quasi-integration- a company does not make any of its
key supplies but purchases most of its requirements from
outside suppliers that are under its partial control
Long-term contracts- agreements between 2 firms to
provide agreed-upon goods and services to each other for
a specific period of time
43. 1.1 Growth Strategy (Concentration)
A- Concentration strategies
Horizontal growth- expansion of operations into other
geographic locations and/or increasing the range of
products and services offered to current markets
Horizontal growth is achieved through:
Internal development
Acquisitions
Strategic alliances
Horizontal integration- the degree to which a firm operates in
multiple geographic locations at the same point on an
industry’s value chain
44. Horizontal Growth
International Entry Options for Horizontal Growth
Exporting Green-Field Development
Licensing Production Sharing
Franchising Turn-key Operations
Joint Venture BOT Concept
Acquisitions Management Contracts
45. 1.1 Growth Strategy (Diversification)
B- Diversification Strategies
Concentric (Related) Diversification- growth into a related
industry when a firm has a strong competitive position but
attractiveness is low
Conglomerate (Unrelated) Diversification- growth into an
unrelated industry
Management realizes that the current industry is unattractive
Firm lacks outstanding abilities or skills that it could easily
transfer to related products or services in other industries
47. 1.2 Stability Strategy
Stability Strategies- continuing activities without any significant
change in direction
Pause/Proceed with caution strategy- an opportunity to rest
before continuing a growth or retrenchment strategy
No change strategy- continuance of current operations and
policies
Profit Strategies- to do nothing new in a worsening situation
but instead to act as though the company’s problems are
only temporary
48. 1.3 Retrenchment Strategy
Retrenchment Strategies- used when the firm has a weak
competitive position in some or all of its product lines from
poor performance
49. 1.3 Retrenchment Strategy (Turnaround)
Turnaround strategy- emphasizes the improvement of
operational efficiency when the corporation’s problems are
pervasive but not critical
Contraction- effort to quickly “stop the bleeding” across
the board but in size and costs
Consolidation- stabilization of the new leaner corporation
50. 1.3 Retrenchment Strategy (cont’d)
Captive Company Strategy- company gives up independence in
exchange for security
Sell-out strategy- management can still obtain a good price for
its shareholders and the employees can keep their jobs by
selling the company to another firm
Divestment- sale of a division with low growth potential
51. 2- Business Strategy (Competitive)
Business (or Competitive) Strategy
A strategy focused on how an organization should
compete in each of its SBUs (strategic business units).
52. 2- Business Strategy (Competitive)
Cost Leadership Strategy
Seeking to attain the lowest total overall costs relative to
other industry competitors.
Differentiation Strategy
Attempting to create a unique and distinctive product or
service for which customers will pay a premium.
Focus Strategy
Using a cost or differentiation advantage to exploit a
particular market segment rather a larger market.
53. 2.1 Competitive Strategy (Cost Leadership)
Cost leadership- a lower-cost competitive strategy that aims at
the broad mass market and requires efficient scale facilities,
cost reductions, cost and overhead control; avoids marginal
customers, cost minimization in R&D, service, sales force
and advertising
Provides a defense against competitors
Provides a barrier to entry
Generates increased market share
54. 2.2 Competitive Strategy (Differentiation)
Differentiation- involves the creation of a product or service that
is perceived throughout the industry as unique. Can be
associated with design, brand image, technology, features,
dealer network, or customer service
Lowers customers sensitivity to price
Increases buyer loyalty
Barrier to entry
Can generate higher profits
55. 2.3 Competitive Strategy (Focus)
Cost Focus- low-cost competitive strategy that focuses on a
particular buyer group or geographic market and attempts to
serve only this niche to the exclusion of others
Differentiation Focus- concentrates on a particular buyer group,
product line segment, or geographic market to serve the
needs of a narrow strategic market more effectively than its
competitors
58. 3- Functional Strategy
Functional strategy- the approach a functional area takes to
achieve corporate and business unit objectives and
strategies by maximizing resource productivity
o Marketing strategy deals with pricing, selling and
distributing a product
o Financial Strategy- examines the financial implications of
corporate and business-level strategic options and identifies
the best financial course of action
59. 3- Functional Strategy
o Operations Strategy- determines how and where a product
or service is to be manufactured, the level of vertical
integration in the production process, the deployment of
physical resources and relationships with suppliers
o Logistics Strategy- deals with the flow of products into and
out of the manufacturing process
o Human Resource Strategy
o Information Technology Strategy
60. C- Strategy Implementation
Strategy implementation- the sum total of all activities and
choices required for the execution of a strategic plan
Who are the people to carry out the strategic plan?
What must be done to align company operations in the
intended direction?
How is everyone going to work together to do what is
needed?
61. Strategy Implementation Steps
Developing a strategy-supportive culture
Creating an effective organizational structure
Redirecting marketing efforts
Preparing budgets
Developing and utilizing information systems
Linking employee compensation to organizational
performance
62. Strategy Implementation (cont’d)
Developing Programs, Budgets and Procedures
Programs- make strategies action-oriented
Matrix of Change- provides guidance on where, when and how
fast to implement change
Budget- provides the last real check on the feasibility of the
strategy
Procedures (organizational routines)- detail the various activities
that must be carried out to complete a corporation’s
programs
63. Strategy Implementation Programs
Reengineering- the radical redesign of business processes to
achieve major gains in cost, service, or time
Program to implement a turnaround strategy
Lean Six Sigma- incorporates Six Sigma with lean
manufacturing- removes unnecessary production steps and
fixes the remaining steps
Job Design- the study of individual tasks in an attempt to make
them more relevant to the company and to the employees
Job enlargement
Job rotation
Job enrichment model
64. Strategy Implementation Problems
1. Took more time than planned
2. Unanticipated major problems
3. Poor coordination
4. Competing activities and crises created distractions
5. Employees with insufficient capabilities
6. Poor subordinate training
7. Uncontrollable external environmental factors
8. Poor departmental leadership and direction
9. Inadequately defined implementation tasks and activities
10. Inefficient information system to monitor activities
65. D- Strategy Evaluation & Control
Evaluation and Control ensures that a company is achieving
what it set out to accomplish by comparing performance
with desired results and taking corrective action as
needed
1. Determine what to measure
2. Establish standards of performance
3. Measure actual performance
4. Compare actual performance with the standard
5. Take corrective action
67. Measuring Performance
Primary Measures of Corporate Performance
Return on Investment (ROI)
Earnings per share (EPS)
Return on equity (ROE)
Operating cash flow
68. Measuring Performance
Shareholder Value- the present value of the anticipated future
streams of cash flows from the business plus the value of
the company if liquidated
Economic Value Added (EVA)- measures the difference
between the pre-strategy and post-strategy values for the
business
Market Value Added (MVA)- measures the difference
between the market value of a corporation and the
capital contributed by shareholders and lenders
69. Measuring Performance
Balanced score card– combines financial measures that tell results
of actions already taken with operational measures on
customer satisfaction, internal processes and the corporation’s
innovation and improvement activities
Financial
Customer
Internal business perspective
Innovation and learning
Benchmarking- the continual process of measuring products,
services and practices against the toughest competitors or
those companies recognized as industry leaders
70. E- Feedback & Learning
Periodic review of the implementation process
Obtain feedback from staff/clients/stakeholders
Provide regular feedback to major stakeholders, including staff
Document and communicate the lessons learnt
Acknowledge and share results - achievements and failures
Continuous monitoring and review of objectives
Remember that the Strategic Management process is a
continuous cycle. It does not end. The real objective is
continual improvement!
71. STRATEGIC ACTION PLANNING Summary
The reason for the
existence of the
organization & MISSION
establishes the values,
beliefs & guidelines for
the conduct of business The long range objectives
VISION that will drive the
development process and
stretch the organization to
achieve them.
SWOT Analysis
Internal Environment External Environment
Strengths Opportunities
Weaknesses Threats
- Value systems - The changing environment
- Culture - The demand for new products
- Staffing - The economic environment
- Support systems, operating environment - Availability of resources
STRATEGIC AREAS FOR DEVELOPMENT
STRATEGIC OBJECTIVES
Strategic Strategic Strategic Strategic
Action 1 Action 2 Action 3 Action 4
EVALUATION/FEEDBACK