Management: Arab World Edition Robbins, Coulter, Sidani, Jamali Chapter 8: Strategic Management Dr Sara Odat Learning Outcomes Follow this Learning Outline as you read and study this chapter. 8.1 Strategic Management • Define • Give strategic management, strategy, and business model. three reasons why strategic management is important. • Describe strategic planning in Arab organizations. 8.2 The Strategic Management Process • Describe the six steps in the strategic management process. • Define SWOT (strengths, weaknesses, opportunities, and threats). 8-3 Copyright © 2011 Pearson Education Learning Outcomes 8.3 Corporate Strategies • Describe the three major types of corporate strategies. • Explain how the BCG matrix is used to manage corporate strategies. 8.4 Competitive Strategies • Describe • Explain Porter’s five forces model. • Describe 8-4 the role of competitive advantage. Porter’s three competitive strategies. Copyright © 2011 Pearson Education Learning Outcomes 8.5 Current Strategic Management Issues • Explain why strategic flexibility is important. • Describe e-business strategies. • Discuss what strategies organizations might use to become more customer oriented and to be more innovative. 8-5 Copyright © 2011 Pearson Education Strategic Management 1. Define strategic management, strategy, and business model. 2. Give three reasons why strategic management is important. 3. Describe strategic planning in Arab organizations. 8-6 Copyright © 2011 Pearson Education What is Strategic Management? • Strategic management • Strategies • 8-7 Is what managers do to develop an organization’s strategies. The decisions and actions that determine the long-run performance of an organization. Business Model Is a strategic design for how a company intends to profit from its strategies, work processes, and work activities. Focuses on two things: • Whether customers will value what the company is providing. • Whether the company can make any money doing that. Copyright © 2011 Pearson Education Why Is Strategic Management Important? 1. It results in higher organizational performance. 2. It requires that managers examine and adapt to business environment changes. 3. It coordinates diverse organizational units, helping them focus on organizational goals. 8-8 Copyright © 2011 Pearson Education Strategic Management in Arab Organizations • Formal strategic planning exists but is rather limited. • Lack of confidence in the impact of formal strategic planning. • The trend for formal strategic planning is on the rise. 8-9 Copyright © 2011 Pearson Education The Strategic Management Process 1. Describe the six steps in the strategic management process. 2. Define SWOT (strengths, weaknesses, opportunities, and threats). 8-10 Copyright © 2011 Pearson Education The Strategic Management Process The strategic management process is a six-step process that encompasses: - strategy planning - implementation - evaluation. 8-11 Copyright © 2011 Pearson Education Exhibit 8–1 8-12 Copyright © 2011 Pearson Education The Strategic Management Process Step 1: Identifying the Current Mission, Goals, and Strategies Mission: a statement of the purpose of an organization • The scope of its products and services Goals: the foundation for further planning • Measurable performance targets 8-13 Copyright © 2011 Pearson Education Exhibit 8–2 Components of a Mission Statement 8-14 Copyright © 2011 Pearson Education Step 2: Doing an external analysis The environmental scanning of specific and general environments • Focuses on identifying opportunities and threats 8-15 Copyright © 2011 Pearson Education Exhibit 8–3 Value of Petroleum Exports in U.S. Billions (2008) X 8-16 Copyright © 2011 Pearson Education Step 3: Doing an internal analysis Assessing organizational resources, capabilities, and activities: • Strengths create value for the customer and strengthen the competitive position of the firm. • Weaknesses can place the firm at a competitive disadvantage. Analyzing financial and physical assets is fairly easy, but assessing intangible assets (employee’s skills, culture, corporate reputation, and so forth) isn’t as easy. 8-17 Copyright © 2011 Pearson Education Steps 2 and 3 combined are called a SWOT analysis: Strengths Weaknesses Opportunities Threats 8-18 Copyright © 2011 Pearson Education 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. 8-19 Copyright © 2011 Pearson Education Step 5: Implementing strategies Implementation: effectively fitting organizational structure and activities to the environment. The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements. 8-20 Copyright © 2011 Pearson Education Step 6: Evaluating results How effective have strategies been? What adjustments, if any, are necessary? 8-21 Copyright © 2011 Pearson Education Corporate Strategies 1. Describe the three major types of corporate strategies. 2. Explain how the BCG matrix is used to manage corporate strategies. 8-22 Copyright © 2011 Pearson Education Exhibit 8–4 8-23 Copyright © 2011 Pearson Education Types of Organizational Strategies What is a Corporate Strategy? A corporate strategy is one that specifies what businesses a company is in or wants to be in and what it wants to do with those businesses. 8-24 Copyright © 2011 Pearson Education Types of Corporate Strategies 1. Growth: expansion into new products and markets 2. Stability: maintenance of the status quo 3. Renewal: 8-25 examination of organizational weaknesses that are leading to performance declines Copyright © 2011 Pearson Education 1. Growth Strategy (corporate strategy) Seeking to increase the organization’s business by expansion into new products and markets. 4 Types of Growth Strategies Raw materials (suppliers) Concentration Vertical integration Horizontal integration Diversification Delivery End users 8-26 Copyright © 2011 Pearson Education 1. Growth Strategy types: A. Concentration Focusing on a primary line of business and increasing the number of products offered or markets served. B. Vertical Integration Backward vertical integration: attempting to gain control of inputs (become a self-supplier). Forward vertical integration: attempting to gain control of output through control of the distribution channel or provide customer service activities (eliminating intermediaries). 8-27 Copyright © 2011 Pearson Education 1. Growth Strategy types: C. Horizontal Integration Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals. D. Diversification Related Diversification Expanding by combining with firms in different, but related industries that are “strategic fits”. Unrelated Diversification Growing by combining with firms in unrelated industries where higher financial returns are possible. 8-28 Copyright © 2011 Pearson Education 2. Stability Strategy (corporate strategy) This strategy is appropriate if: Managers want to maintain the status quo to deal with the uncertainty of a dynamic environment. The If 8-29 industry is experiencing slow- or no-growth conditions. the owners of the firm elect not to grow for personal reasons. Copyright © 2011 Pearson Education 3. Renewal Strategies • Developing strategies to counter organization weaknesses that are leading to performance declines. • Retrenchment: – focusing of eliminating non-critical weaknesses and restoring strengths to overcome current performance problems. • Turnaround: – 8-30 addressing critical long-term performance problems through the use of strong cost elimination measures and large-scale organizational restructuring solutions. Copyright © 2011 Pearson Education X How are Corporate Strategies Managed? Managers manage a portfolio (or collection) of businesses using a corporate portfolio matrix such as the BCG Matrix. BCG Matrix • Developed by the Boston Consulting Group. • Considers market share and industry growth rate. • Classifies firms as: • Cash cows: • Stars: • Question high growth rate, high market share marks: • Dogs: 8-31 low growth rate, high market share Copyright © 2011 Pearson Education high growth rate, low market share low growth rate, low market share X Exhibit 8–5 8-32 Copyright © 2011 Pearson Education The BCG Matrix Competitive Strategies 1. Describe the role of competitive advantage. 2. Explain Porter’s five forces model. 3. Describe Porter’s three competitive strategies. 8-33 Copyright © 2011 Pearson Education What is a Competitive Strategy? A strategy focused on how an organization will compete in its business(es). 8-34 For an organization in only one line of business, the competitive strategy describes how it will compete in its primary or main market. For organizations in multiple businesses, however, each business has its own competitive strategy that defines its competitive advantage, the products or services it will offer, the customers it wants to reach, and the like. Copyright © 2011 Pearson Education The Role of Competitive Advantage 1. Competitive Advantage sets an organization’s distinctive competitive edge. 2. That distinctive edge comes from the organization’s core competencies because the organization does something that others cannot do or does it better than others can do it. 8-35 Copyright © 2011 Pearson Education Quality as a Competitive Advantage • Differentiates the firm from its competitors. • Can create a sustainable competitive advantage. • Represents the company’s focus on quality management to achieve continuous improvement and meet customers’ demand for quality. 8-36 Copyright © 2011 Pearson Education Sustaining Competitive Advantage 8-37 • Continuing over time to effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry competitors. • It is not easy to create a sustainable competitive advantage? due to market instabilities, new technology, and other changes. • By using strategic management, managers can better position their organizations to get a sustainable competitive advantage. Copyright © 2011 Pearson Education Exhibit 8–6 Five Forces Model Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980). 8-38 Copyright © 2011 Pearson Education Five Competitive Forces 1. Threat of New Entrants The ease or difficulty with which new competitors can enter an industry. 2. Threat of Substitutes The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitute products and services. 3. Bargaining Power of Buyers 8-39 The degree to which buyers have the market strength to hold sway over and influence competitors in an industry. Copyright © 2011 Pearson Education Five Competitive Forces (cont’d) 4. Bargaining Power of Suppliers The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer– supplier relationship. 5. Current Rivalry 8-40 Intensity among rivals increases ? when industry growth rates slow, demand falls, and product prices descend. Copyright © 2011 Pearson Education Choosing a Competitive Strategy Cost Leadership Strategy • Seeking to attain the lowest total overall costs relative to other industry competitors. a larger market. Differentiation Strategy • Attempting to create a unique and distinctive product or service for which customers will pay a premium. a larger market. Focus Strategy • 8-41 Using a cost or differentiation advantage to exploit a particular market segment rather than a larger market. Copyright © 2011 Pearson Education Current Strategic Management Issues 1. Explain why strategic flexibility is important. 2. Describe e-business strategies. 3. Discuss what strategies organizations might use to become more customer oriented and to be more innovative. 8-42 Copyright © 2011 Pearson Education Strategic Flexibility Involves the ability 1. to recognize major external changes 2. to quickly commit resources 3. to recognize when a strategic decision is not working 8-43 Copyright © 2011 Pearson Education Exhibit 8–7 Creating Strategic Flexibility • Know what’s happening with strategies currently being used by monitoring and measuring results. • Encourage employees to be open about disclosing and sharing negative information. • Get new ideas and perspectives from outside the organization. • Have multiple alternatives when making strategic decisions. • Learn from mistakes. Source: Based on K. Shimizu and M. A. Hitt, “Strategic Flexibility: Organizational Preparedness to Reverse Ineffective Strategic Decisions,” Academy of Management Executive, November 2004, pp. 44–59. 8-44 Copyright © 2011 Pearson Education New Directions: Strategies for Applying e-Business Techniques Cost Leadership • On-line activities: bidding, order processing, inventory control, recruitment and hiring Differentiation • Internet-based knowledge systems, online ordering and customer support Focus • 8-45 Chat rooms and discussion boards, targeted Web sites Copyright © 2011 Pearson Education New Directions: Customer Service Strategies Giving the customers what they want. Communicating effectively with them. Providing employees with customer service training. 8-46 Copyright © 2011 Pearson Education New Directions: Innovation Strategies Possible Events Radical breakthroughs in products. Application of existing technology to new uses. Strategic Decisions about Innovation Basic research Product development Process innovation First Mover 8-47 An organization that is first to bring a product innovation to market or use a new process innovation. Copyright © 2011 Pearson Education Exhibit 8–8 First-Mover Advantages–Disadvantages Advantages Reputation for being innovative and industry leader Uncertainty over exact direction technology and market will go Cost and learning benefits Risk of competitors imitating innovations Control over scarce resources and keeping competitors from having access to them Opportunity to begin building customer relationships and customer loyalty 8-48 Disadvantages Copyright © 2011 Pearson Education Financial and strategic risks High development costs Terms to Know 8-49 strategic management SWOT analysis strategies corporate strategy business model growth strategy strategic management process stability strategy mission renewal strategy opportunities BCG matrix threats competitive strategy resources strategic business units capabilities competitive advantage core competencies functional strategies strengths strategic flexibility weaknesses first mover Copyright © 2011 Pearson Education This work is protected by local and international copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. 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