1. STRATEGIC
MANAGEMENT
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2. Learning Objectives
 You should learn to:
– Explain the importance of strategic
management
– Describe the steps in the strategic
management process
– Explain SWOT analysis
– Differentiate corporate-, business-, and
functional-level strategies
– Explain what competitive advantage is
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and why it’s important to organizations8-2

3. Learning Objectives (cont.)
 You should learn to:
– Describe the five competitive forces
– Identify the various competitive
strategies
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4. The Importance Of Strategic Management
 What Is Strategic Management?
– A set of managerial decisions and actions
that determines the long-run performance of
an organization
 Purposes of Strategic Management
– involved in many decisions that managers
make
– companies with formal strategic management
systems have higher financial returns than
companies with no such system
– important in profit and not-for-profit
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organizations

5. The Strategic Management Process
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6. The Strategic Management
Process
 1. Identifying the Organization’s Current
Mission, Objectives, and Strategies
– mission - statement of the purpose of
an organization
 important in profit and not-for-profit
organizations
 important to identify the goals currently in
place and the strategies currently being
pursued
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7. Components of a Mission Statement
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8. The Strategic Management Process (cont.)


2. Analyzing the Environment
– successful strategies are aligned with the
environment
– examine both the specific and general
environments to determine what trends and
changes are occurring
3. Identifying Opportunities and Threats
– opportunities - positive trends in the external
environmental
– threats - negative trends in the external
environment
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9. The Strategic Management
Process (cont.)
 4. Analyzing the Organization’s Resources
and Capabilities
– examine the inside of the organization
– available resources and capabilities
always constrain the organization in
some way
– core competence - a unique and
exceptional capability or resource
 the organization’s major value-creating,
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competitive weapon
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10. The Strategic Management Process (cont.)
 5. Identifying Strengths and Weaknesses
– strengths - activities the organization does well or
any unique resource
– weaknesses - activities the organization does not
do well or resources it needs but does not possess
– organization’s culture has its strengths and
weaknesses
 strong culture - new employees easily identify the
organization’s core competencies
– may serve as a barrier to accepting change
 influence managers’ preferences for certain strategies
– SWOT analysis - analysis of the organization’s
strengths, weaknesses, opportunities, and threats
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11. Identifying the Organization’s Opportunities
Organization’s
Organization’s
Resources/Abilities Opportunities
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Opportunities in
the Environment
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12. The Strategic Management Process (cont.)
 6. Formulating Strategies


– require strategies at the corporate, business, and
functional levels of the organization
– strategy formulation follows the decision-making
process
7. Implementing Strategies
– a strategy is only as good as its implementation
8. Evaluating Results
– control process to determine the effectiveness of a
strategy
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13. Levels of Organizational Strategy
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14. Types Of Organizational Strategies
 Corporate-Level Strategy
– determines
 what businesses a company should be in or wants
to be in
 the direction that the organization is going
 the role that each business unit will play
– Grand Strategy - Stability
 no significant change is proposed
 organization’s performance is satisfactory
 environment appears to be stable and unchanging
© Prentice Hall,few organizations today pursue this strategy
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 2002

15. Types Of Organizational Strategies (cont.)

Corporate-Level Strategy (cont.)
– Grand Strategy - Growth
 seeks to increase the level of the organization’s
operations
 concentration - growth through direct expansion of
organization’s own business operations
 vertical integration
– backward - become your own supplier
– forward - become your own distributor
 horizontal integration - grow by combining with other
organizations in the same industry
– needs approval by U.S. Federal Trade Commission
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16. Types Of Organizational Strategies (cont.)
 Corporate-Level Strategy (cont.)
– Grand Strategy - Growth (cont.)
 related diversification - grow by
merging with or acquiring firms in different,
but related, industries
– “strategic fit”
 unrelated diversification - grow by
merging with or acquiring firms in different
and unrelated industries
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17. Types Of Organizational Strategies (cont.)
 Corporate-Level Strategy (cont.)
– Grand Strategy - Growth (cont.)
 retrenchment - designed to address
organizational weaknesses that are leading
to performance declines
– intended to:
 stabilize operations
 revitalize organizational resources and
capabilities
 prepare to compete once again
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18. Critical
Weaknesses
Firm Status
Valuable
Strengths
SWOT Analysis And Grand
Strategies
Corporate
Growth
Strategies
Corporate
Stability
Strategies
Corporate
Stability
Strategies
Corporate
Retrenchment
Strategies
Abundant
Environmental
Opportunities
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Environmental Status
Critical
Environmental
Threats
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19. Types of Organizational Strategies (cont.)

Corporate-Level Strategy (cont.)
– Corporate Portfolio Analysis - used when
corporate strategy involves a number of business
 Boston Consulting Group (BCG) matrix - provides
a framework for understanding diverse businesses
– helps managers establish priorities for making resource
allocation decisions
– businesses classified in terms of
 market share
 anticipated market growth
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20. The BCG Matrix
Market Share
Low
High
High
Stars
Question
Marks
Cash
Cows
Dogs
Low
Anticipated
Growth
Rate
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21. Types of Organizational Strategies (cont.)
 Corporate-Level Strategy (cont.)
– BCG matrix (cont.)
 strategic implications of the matrix
– cash cows - “milk”
 use cash to invest in stars and question marks
– stars - require heavy investment
 eventually will become cash cows
– question marks - two strategies
 invest to transform them into stars
 divest
– dogs - sold off or liquidated
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22. Types Of Organizational Strategies (cont.)

Business-Level Strategy
– determines how an organization should compete in
each of its businesses
– strategic business units - independent
businesses that formulate their own strategies
– Role of Competitive Advantage
 competitive advantage - sets an organization apart by
providing a distinct edge
– comes from the organization’s core competencies
– not every organization can transform core competencies into a
competitive advantage
– once created, must be able to sustain it
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23. Types Of Organizational Strategies (cont.)
 Business-Level Strategy (cont.)
– Competitive Strategies
 Michael Porter - industry analysis based on
five competitive forces
– Threat of new entrants - affected by barriers to
entry
– Threat of substitutes - affected by buyer loyalty
and switching costs
– Bargaining power of buyers - affected by number
of customers, availability of substitute products
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24. Types Of Organizational
Strategies (cont.)
 Business-Level Strategy (cont.)
– Competitive Strategies (cont.)
 Porter’s competitive forces analysis (cont.)
– Bargaining power of suppliers - affected
by degree of supplier concentration
– Existing rivalry - affected by industry growth
rate, demand for firm’s product or service, and
product differences
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25. Forces In The Industry Analysis
New
Entrants
Bargaining
Power or
Suppliers
Threat of
New Entrants
Industry
Competitors
Suppliers
Current Rivalry
Threat of
Substitutes
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Buyers
Bargaining
Power or
Buyers
Substitutes
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26. Types of Organizational Strategies (cont.)
 Business-Level Strategy (cont.)
– Competitive strategies (cont.)
 Porter’s three generic strategies
– cost leadership - goal is to become the lowest-cost
producer in the industry
 tries to identify efficiencies in all operations
 overhead kept to a minimum
 product or service must be perceived to be of
comparable quality to that offered by competitors
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27. Types of Organizational Strategies (cont.)
 Business-Level Strategy (cont.)
– Competitive strategies (cont.)
 Porter’s three generic strategies (cont.)
– differentiation - offer unique products that are
widely valued by customers
 sets the firm apart from competitors
 differentiation based on quality, service, product
design, brand image
 customers must be willing to pay a price premium
that exceeds the cost of differentiation
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28. Types of Organizational Strategies (cont.)
 Business-Level Strategy (cont.)
– Competitive strategies (cont.)
 Porter’s three generic strategies (cont.)
– focus - aims at a cost advantage or
differentiation advantage in a narrow segment
 no attempt to serve the broad market
 feasibility of strategy depends on the size of
the segment and the ability of the firm to
support the cost of focusing
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29. Requirements for Successfully Pursuing Porter’s
Competitive Strategies
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30. Types Of Organizational
Strategies (cont.)
 Functional-Level Strategy (cont.)
– used to support the business-level
strategy
– creates an appropriate supporting role
for each functional area of the
organization
 e.g., manufacturing, marketing, human
resources
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