Chapter 5
Strategy
PowerPoint Presentation by Charlie Cook
Copyright © 2005 South-Western.
All rights reserved.
Strategic Planning
• Strategic planning
 Developing a strategic orientation for an organization
that culminates in the formulation and implementation
of a multilevel strategy for achieving organizational
goals.
 The
process of examining the organization’s
environment, establishing a mission, setting goals and
objectives, and developing an operating plan.
 A cyclical process governed by competitiveness,
analysis, and innovation.
Copyright © 2005 South-Western. All rights reserved.
5–2
Strategic Planning (cont’d)
Strategic Planning Process
Exhibit 5 . 1
Copyright © 2005 South-Western. All rights reserved.
5–3
Strategic Planning (cont’d)
• Developing a mission statement
 Mission statement answers question: “What is this
organization’s purpose?”
 Incorporates the “vision”: values, competencies of the
organization, and future opportunities that create
value for the firm.
• An effective mission statement is:
 Customer-focused
 Challenging and achievable
 Motivational and inspirational
 Specific
Copyright © 2005 South-Western. All rights reserved.
5–4
Strategic Planning (cont’d)
Establishing Goals and Objectives
Mission (Strategic Intent)
Long-term Goals
Short-term Objectives
Specific Actions
Copyright © 2005 South-Western. All rights reserved.
5–5
Strategic Planning (cont’d)
• Strategic terminology
 Core competencies: activities done well, or skills that
the organization possesses; sources of competitive
advantage.
 Distinctive competence: a unique strength that allows
a company to achieve superior efficiency, quality,
innovation, or customer responsiveness.
 Competitive advantage: attaining greater profits than
competitors through:
 Greater
efficiencies—input and process cost savings.
 Differentiation—superior, different products/services.
Copyright © 2005 South-Western. All rights reserved.
5–6
Strategic Planning (cont’d)
Source: Adapted from: Joan Magretta, “Why Business Models Matter” Harvard Business Review, May 2002, pp. 3–8;
Richard Hammermesh, “Making Planning Strategic,” Harvard Business Review, July–August 1986, pp. 3–9; and Henry
Mintzberg, “The Rise and Fall of Strategic Planning,” Harvard Business Review, January–February 1994, pp. 107–14.
Copyright © 2005 South-Western. All rights reserved.
Management Highlight
Strategic Terminology
5–7
Strategic Planning (cont’d)
Quality
Building Blocks of
Competitive Advantage
Innovativeness
Competitive
Advantage
Efficiency
Customer
Responsiveness
Copyright © 2005 South-Western. All rights reserved.
5–8
Strategic Planning (cont’d)
• Strategic terminology (cont’d)
 Industry environment: the competition, products,
customers, and any unique characteristics of a
particular industry
 Strategic intent: The overall meaning or interpretation
of actions, behaviors, formal communications, and
decisions of an organization’s decision makers
 Strategic thinking: The mental ability of a strategic
manager to synthesize competitive implications of
diverse information
Copyright © 2005 South-Western. All rights reserved.
5–9
Strategic Planning (cont’d)
• Strategic terminology (cont’d)
 Business model: a description of the organizational
processes an organization intends to use in
conducting a viable business
 Business model components:
 A narrative
test that sensibly describes what the
organization hopes to accomplish.
 A numbers test that projects financial information based
on assumptions about demand and costs that indicate
profitability.
Copyright © 2005 South-Western. All rights reserved.
5–10
Environmental Analysis Process
• Managerial responsibilities:
 Providing information and suggestions relating to their
particular areas of responsibility.
 Monitoring the process and responding to strategic
planning documents to accomplish their department’s
role in the strategy.
 Ensuring that their departments have resources to
support the strategy.
Copyright © 2005 South-Western. All rights reserved.
5–11
Environmental Analysis Process (cont’d)
• SWOT analysis
 Strengths—internal resources (core competencies)
that can be used to gain competitive advantage.
 Weaknesses—internal resources that are insufficient
to support the firm’s strategy.
 Opportunities—external matters that offer the
potential for increased competitive advantage.
 Threats—external events that endanger the firm or its
competitive position.
Copyright © 2005 South-Western. All rights reserved.
5–12
Environmental Analysis Process (cont’d)
SWOT Analysis for Starbucks Corporation
Exhibit 5 . 2
Copyright © 2005 South-Western. All rights reserved.
5–13
Environmental Analysis Process (cont’d)
Analyzing the External Environment
Sociocultural
Environment
Competitive
Environment
Technological
Developments
External
Environment
Economic
Conditions
Political
Climate
Copyright © 2005 South-Western. All rights reserved.
5–14
Environmental Analysis Process (cont’d)
• Analyzing the external environment
 Sociocultural environment
 Environmental
scanning: acquiring and using
information about events and trends in an
organization’s external environment.
 Issues management: focusing on a single issue of
strategic importance.
 Technological developments
 Anticipating
technological changes
 Adapting to their implementation in the workplace
 Exploiting them for competitive advantage
Copyright © 2005 South-Western. All rights reserved.
5–15
Environmental Analysis Process (cont’d)
• Analyzing the external environment (cont’d)
 Economic conditions
 The
dynamic economic environment includes:
– Global economic considerations.
– Downward cost pressures.
– Specialization of resources, location, or knowledge.
 Political climate
 Instability
in governments and laws.
 Competitive environment
 The
mix of opportunities, constraints, and threats.
Copyright © 2005 South-Western. All rights reserved.
5–16
Environmental Analysis Process (cont’d)
Stakeholder Analysis
Employees
Community
Customers
Stakeholders
Suppliers
Stockholders
Copyright © 2005 South-Western. All rights reserved.
5–17
Corporate-Level Strategy
The Big Picture
Concentration on
a Single Business
Diversification
Corporate-Level
Strategy
Vertical
Integration
Copyright © 2005 South-Western. All rights reserved.
5–18
Corporate-Level Strategy (cont’d)
• The Portfolio Matrix Model
 Developed to help large diversified organizations
strategically manage their holdings.
 First step in this approach is to identify strategic
business units (SBUs).
Copyright © 2005 South-Western. All rights reserved.
5–19
Corporate-Level Strategy (cont’d)
• Strategic business unit (SBU)
 Product or service division within a company that
establishes goals and objectives in harmony with the
firm’s overall mission and is responsible for its own
profits and losses.
 Each SBU:
 Has
a distinct mission.
 Has its own competitors.
 Is a single business or collection of businesses.
 Can be planned for independently of the other
businesses of the total organization.
Copyright © 2005 South-Western. All rights reserved.
5–20
Corporate-Level Strategy (cont’d)
• SBU classifications
 Star—has a high share of a high-growth market.
 Cash cow—has a high share of a low-growth market.
 Question mark—has a low share of a high-growth
market.
 Dog—has a low share of a low-growth market.
Copyright © 2005 South-Western. All rights reserved.
5–21
Corporate-Level Strategy (cont’d)
BCG Portfolio Matrix
Exhibit 5 . 3
Copyright © 2005 South-Western. All rights reserved.
5–22
Corporate-Level Strategy (cont’d)
• Strategic SBU choices:
 Build—for stars or potential stars, invest financial
resources.
 Hold—for cash cows, hold or preserve market share
to take advantage of their positive cash flows.
 Harvest—use when increasing short-term cash
returns is needed for investment in other businesses.
 Divest—clearing the portfolio of SBUs with low shares
in low-growth markets is often a good move.
Copyright © 2005 South-Western. All rights reserved.
5–23
Business-Level Strategy
• Porter’s five competitive forces
 Threat of new entrants
 Threat of substitute products or services,
 Bargaining power of suppliers
 Bargaining power of buyers
 Rivalry among existing competitors.
Copyright © 2005 South-Western. All rights reserved.
5–24
Business-Level
Strategy (cont’d)
Porter’s Five
Forces Model
Adapted from: Michael E. Porter. Competitive
Strategy, New York: Free Press, 1980.
Exhibit 5 . 4
Copyright © 2005 South-Western. All rights reserved.
5–25
Business-Level Strategy (cont’d)
• Porter’s generic competitive strategies
 Cost leadership: creating value while maintaining the
competitive advantage of a lower than average cost
structure.
 Differentiation: offering a higher-priced product with
more product-enhancing features than competitors’
products to gain and maintain high levels of customer
loyalty.
 Focus: creating a niche or target market for products
or services by either cost leadership or differentiation.
Copyright © 2005 South-Western. All rights reserved.
5–26
Business-Level Strategy (cont’d)
Porter’s Competitive Strategies
Exhibit 5 . 5
Copyright © 2005 South-Western. All rights reserved.
5–27
Functional-Level Strategy
Value Chain Analysis
Exhibit 5 . 6
Copyright © 2005 South-Western. All rights reserved.
5–28
Strategy Implementation: McKinsey’s 7-S Model
Exhibit 5 . 7
Copyright © 2005 South-Western. All rights reserved.
5–29
Strategic Planning for the Internet
• Organizations use the Internet in two ways:
 To support ongoing (current) business activities.
 To conduct a core business activity entirely and solely
on the Internet.
• Criteria for successful e-commerce:
 Reach means access—who can access your site?
 Richness is a measure of the depth of information
available on the site.
 Affiliation concerns who benefits from the site.
Copyright © 2005 South-Western. All rights reserved.
5–30