Announcements
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Quiz 2 availability – check calendar
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Chapters 5, 6, 7, 8
10 multiple choice questions per chapter
Chapter 7
Strategic
Management
Learning Objectives
After reading this chapter, you should be able to:

Explain how the firm’s external environment should be
examined as part of the strategic management process.

Explain how the firm’s internal environment should be
examined as part of the strategic management process.

State the meaning and purpose of the firm’s strategic intent
and mission.

Understand how the strategy formulation process helps the
firm achieve its mission.

Describe the issues that should be considered in strategy
implementation.

Understand how the outcomes of the strategic management
process should be assessed.
iPod Universe

Critical Thinking Questions focus on
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Apple’s strategy of encouraging the
manufacture of Ipod accessories
Role of strategic management in encouraging
other manufacturers to ride on iPod’s success
Possible results of Apple’s aggressive entry into
accessory market
The Strategic
Management Process

It is the job of top level management
to chart the course of the entire
enterprise.

It consists of:



Analysis of the internal and external
environment of the firm.
Definition of the firm’s mission.
Formulation and implementation of
strategies to create or continue a
competitive advantage.
The Strategic
Management Process (cont)

Strategic management involves both
long-range thinking and adaptation to
changing conditions.

Strategies should be designed to
generate a sustainable competitive
advantage.

Competitors should be unable to
duplicate what the firm has done or
should find it too difficult or
expensive.
Components of the Strategic
Management Process:
Analyze the external and
internal environments
Define strategic intent and
mission
Formulate strategies
Implement strategies
Assess strategic outcomes
SWOT Analysis

Commonly used strategy tool: SWOT

Strengths, Weaknesses, Opportunities,
Threats
External Environment
Internal Environment
Components
Scope
Resource types
Firm capabilities
•Scanning
•General environment
•Tangible
•Functional
•Monitoring
•Industry environment
•Intangible
•Value Chain
•Forecasting
•Strategic groups
•Assessing
•Direct competitors
•Benchmarking
The External Environment

Company leaders must study the external
environment in order to:




Identify opportunities and threats in the
marketplace.
Avoid surprises.
Respond appropriately to competitors’ moves.
A major challenge is to gather accurate
market intelligence in a timely fashion, and
transform it into usable knowledge to gain a
competitive advantage.
Components of External
Analysis
Scanning
Assessing
Monitoring
Forecasting
Scope of the
External Analysis
General
Environment
Competitor
Analysis
The Industry
Strategic
Groups
The Segments of the
General Environment
Porter’s Analyzing
the Industry Environment
Threat of new
entrants
Threat of
substitutes
Suppliers
Customers
Intensity of rivalry
among competitors
Focusing on the Future (p. 300)

Refer to Focusing on the Future in Chapter
5 (p.215)
The Internal Environment
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Each company has something that it
does well. These are called “core
competencies.”

Company executives should identify
the resources, capabilities, and
knowledge the firm has that may be
used to exploit market opportunities
and avoid potential threats.

Resource-based view: Basing the
strategy on what the firm is capable of
doing
Resource Types:
Tangible Resources

Assets that can be quantified and
observed.

Include financial resources, physical
assets, and workers.

Strategic assessment of tangible
resources should enable management
to efficiently use tangible resources to
support the company and to expand
the volume of business.
Resource Types:
Intangible Resources

Difficult to quantify and included on a
balance sheet

Often provides the firm with a strong
competitive advantage.

Competitors find it difficult to purchase or
imitate these resources.

Strategically most important intangibles:



Reputation
Technology
Human Capital
Analyzing the Firm’s
Capabilities
Functional Analysis
Value Chain Analysis
Benchmarking
Analyzing Capabilities by
Functional Areas
Functional Area
Capability
Corporate
Management
Effective financial control systems
Expertise in strategic control of diversified
corporation
Effectiveness in motivating and coordinating
divisional and business-unit management
Management of acquisitions
Values-driven, in-touch corporate leadership
Information
Management
Comprehensive and effective MIS network, with
strong central coordination
Research and
Development
Capability in basic research
Ability to develop innovative new products
Speed of new product development
Analyzing Capabilities by
Functional Areas (cont.)
Functional Area
Capability
Manufacturing
Efficiency in volume manufacturing
Capacity for continual improvements in production processes
Flexibility and speed of response
Product Design
Design capability
Marketing
Brand management and brand promotion
Promoting and exploiting reputation for quality
Responsive to market trends
Sales and Distribution
Effectiveness in promoting and executing sales
Efficiency and speed of distribution
Quality and effectiveness of customer service
Value-Chain Analysis

Breaks down the firm into
a sequential series of
activities and attempts to
identify the value added
of each activity
Benchmarking Involves
Four Stages:

Identifying activities or functions that are
weak and need improvement.

Identifying firms that are known to be at
the leading edge of these activities or
functions.

Studying the leading-edge firms by visiting
them, talking to managers and employees,
and reading trade publications.
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Using the information gathered to redefine
goals, modify processes, and acquire new
resources to improve the firm’s functions.
Strategic Intent and Mission

The primary guides to strategic management
are formal statements of strategic intent and
mission.

Strategic intent is internally focused, defining
how the firm uses its resources, capabilities,
and core competencies.

Strategic mission is externally focused,
defining what will be to produced and
marketed, utilizing its internal core
competencies.
Strategic Intent and Mission
(cont.)
Strategic Intent and
Mission
Intent: How firm would
like to use
Mission: Determine the
firm’s external focus on
•Resources
•Products
•Capabilities
•Markets
•Core competencies
Strategy Formulation

The design of an approach to achieve
the firm’s mission.

Takes place at:


Corporate-Level
Business-Level
Corporate-Level Strategy
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The corporation’s overall plan concerning
the:

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Number of businesses the corporation holds.
Variety of markets or industries it serves.
Distribution of resources among those
businesses.
This diversification strategy may be
analyzed in terms of:
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

Portfolio mix
Type of diversification
Process of diversification
Portfolio Analysis
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The basic idea is to classify the
businesses of a diversified company
within a single framework.

Two of the most widely applied
include:


The McKinsey-General Electric Portfolio
Analysis Matrix
The Boston Consulting Group’s Growth
Share Matrix
The McKinsey-General Electric
Portfolio Analysis Matrix
Business-Unit Position
Low
1)
2)
3)
High
Harvest
Low
4)
5)
Medium
6)
Industry
Attractiveness
Hold
7)
High
Medium
8)
9)
Build
The Boston Consulting
Group’s Growth Share Matrix
Relative Market Share
Earnings: high stable, growing
Cash Flow: neutral
Strategy: invest for growth
STAR
Earnings: low, unstable, growing
Cash Flow: negative
Strategy: analyze to determine
whether business can be grown
into a star, or will degenerate into
a dog
?
Earnings: high, stable
Cash Flow: high stable Strategy:
milk
COW
Earnings: low, unstable
Cash Flow: neutral or negative
Strategy: divest
DOG
Annual Real
Rate of Market
Growth
Diversification Strategy
Type of Diversification
 Concentration strategy
 Vertical integration
strategy
 Concentric
diversification strategy
 Conglomerate
diversification

Process of
Diversification
Acquisition and
restructuring
strategies



Acquisition
Merger
International strategy
Business-Level Strategy

Deals with how to compete in each
business area or market segment.

Firms have two basic choices:


Cost leadership strategy
Differentiation strategy
Strategy Implementation
Corporate
Entrepreneurship
and Innovation
Strategic
Leadership
Organizational
Structure and
Controls
Cooperative
Strategies
Human
Resource
Strategies
Strategic Outcomes
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Company leaders should periodically assess
whether the outcomes meet expectations.
A firm must first and foremost cater to the
desires of its primary stakeholders.
The firm should also consider the desires of
other stakeholders affected by its
performance.
Some of the standard measures of strategic
success includes:
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Profits
Growth of sales/market share
Growth of corporate assets
Reduced competitive threats
Innovations
iPod Universe

Critical Thinking Questions focus on


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iPod sales benefitted from the availability of
ipod accessories.
The concept of complementors (accessories in
this case) and their role in increasing the
popularity of a new technology is a key
concept in strategic management (in high
technology industries)
Because accessories manufacturers have
increased iPod popularity, Apple’s entry into
accessories should prove beneficial
Video: Developing the golden parachute
In-class writing
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Refer to Focusing on the Future p. 300