PRINCIPLES OF MANAGEMENT II
UNIT II
STRATEGIC MANAGEMENT
BABY THOMAS OCMT
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Learning Objectives
1. Introduction to strategy, strategic management,
strategic competitiveness
2. Strategic management process
3. SWOT analysis
4. Levels of strategy, Types of strategies
5. Growth and diversification strategies,
Restructuring and divestiture strategies
6. Cooperative and e-business strategies, strategic
leadership
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Introduction to Strategy
Origin: The term strategy has been derived from the Greek word ‘strategos’ that
means general. The meaning of strategy is, thus, portrayed as ‘the art of general’.
What is a strategy? Strategy is a plan, derived from the objectives of an
organization, that means ‘what to do’ for achieving those objectives.
Examples of strategy: Examples of strategy are geographic expansion,
diversification, acquisition, product development, market pénétration,
retrenchment, divestiture, liquidation, and joint ventures
Strategic competitiveness: Strategic competitiveness is one that is
difficult for competitors to imitate.
Competitive advantage: Competitive advantage is anything that a firm does
especially well compared to rival firms
Stakeholders in business: The most important stakeholders in business are owners,
customers, suppliers, employees, and society at large.
Why some firms outperform
others in the marketplace?
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What is strategic management?
• Strategic management is the art and science of
formulating, implementing and evaluating
strategies that enable an organization to achieve its
objectives.
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Strategic management process
Strategy
formulation
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Strategy
implementation
Strategy
evaluation
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Strategy Formulation
 Strategy formulation includes developing a vision and mission,
identifying an organization’s external opportunities and threats,
determining internal strengths and weaknesses, establishing longterm objectives, generating alternative strategies, and choosing
particular strategies to pursue
Vision is the guiding philosophy that clearly defines the firm’s “reason” for being in
business. Where the organization wants to be or how it wants to
be viewed at some point in the future.
Mission is a statement that clearly defines the firm’s “reason” for being in business.
Mission is an organization’s basic purpose and scope of operations.
Distinction between a strategic vision and a mission:
A strategic vision portrays a company’s future business scope (“where we are going”)
whereas a company’s mission typically describes its present business and purpose
(“who we are, what we do, and why we are here”).
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Strategy implementation
– Strategy implementation requires a firm to
establish annual objectives, devise policies,
motivate employees, and allocate resources so
that formulated strategies can be executed
– often called the action stage
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Strategy evaluation
Strategy evaluation reviews external and internal factors
that are the bases for current strategies, measuring
performance, and taking corrective actions.
 Strategy formulation, implementation, and evaluation activities
occur at three hierarchical levels in a large organization:
corporate, divisional or strategic business unit, and functional
 Strategic management helps a firm function as a competitive
team.
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Levels of Strategy
1.
2.
3.
4.
Corporate level strategies
Business level strategies
Functional level strategies
Operational level strategies
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1. Corporate Level Strategy
• What businesses are we in? What businesses should
we be in?
• Four areas of focus
– Diversification management (acquisitions and divestitures
– Divestiture is the partial or full disposal of an investment
or asset through sale, exchange, closure or bankruptcy.)
– Synergy between units
– Investment priorities
– Business level strategy approval (but not crafting)
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2. Business Level Strategy
• How do we support the corporate strategy?
• How do we compete in a specific business arena?
• Three types of business level strategies:
– Low cost producer
– Differentiator
• Three areas of focus
– Generate sustainable competitive advantages
– Respond to environmental changes
– Approval of functional level strategies
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Functional / Operational Level Strategy
• Functional: How do we
support the business
level strategy?
• An example.
• Operational: How do we
support the functional
level strategy?
• Functional L.S. (Mfg.): Reduce
manufacturing costs by 10%
• Business L.S.: Become the low
cost producer of widgets
• Operational (Plant #1):
Increase worker productivity
by 15%
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Types of strategies
VERTICAL INTEGRATION STRATEGIES
Forward Integration
Strategy
Backward Integration
Strategy
INTENSIVE STRATEGIES
Market Penetration
Strategy
Market Development
Strategy
Product Development
Strategy
DIVERSIFICATION STRATEGIES
Concentric
Diversification Strategy
Conglomerate
Diversification Strategy
Horizontal
Diversification Strategy
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Forward Integration Strategy
• Forward integration strategy is the strategy that
controls the direct distribution of products.
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Backward Integration Strategy
• Backward integration strategy is the strategy that controls
the suppliers.
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Market Penetration Strategy
• Market penetration strategy deals with enhancing
the share of market by effective and innovative
strategies in order to make the present product
more effective and attractive.
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Market Development Strategy
• Market development strategy is the strategy
that deals with adding products in different
geographic areas.
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Product Development Strategy
• Product development strategy is the strategy that
deals with increasing the sales as well as revenues
by enhancing the quality of existing products. The
quality of existing products can be easily enhanced
by adding different flavors in it .
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Concentric Diversification Strategy
• A company acquires or develops new products
(closely related to its core business or technology)
to enter one or more new markets.
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Conglomerate Diversification Strategy
Conglomerate diversification strategy is the strategy
that continues to grow after a core business has
matured or started to decline.
• To reduce cyclical fluctuations in sales revenues and
cash flows.
Conglomerate diversification is a marketing strategy used by companies to diversify
their product and customer base. This diversification is sometimes carried out by
buying other companies which have products that the bigger company does not
have, therefore increasing the bigger company's product and customer base. An
example of conglomerate diversification is if an electronics company buys out an
appliance company. Another example would be if a television company were to buy
out a telephone company.
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Horizontal Diversification Strategy
• Horizontal diversification strategy is the strategy
that adds related or similar product lines to existing
core business, either through acquisition of
competitors or through internal development of
new products.
One example of horizontal diversification can be seen with a local retailer who has an
established reputation for selling quality pieces of jewelry. As a means of increasing
business, the retailer may decide to carry a line of scents in the shop. This approach
creates opportunities to sell perfumes, cologne, and aftershave lotion to the patrons
who already frequent the shop in search of quality jewelry for personal use or as gifts.
When the strategy works, a customer who comes in to select a necklace as a birthday
present may also notice the line of scents and choose to purchase a bottle of perfume
along with the necklace, allowing the shop owner to earn a return from both product
lines
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Horizontal Diversification Strategy
• Horizontal diversification is when an investor or company
picks similar investments to try to appeal to new or current
customers. Horizontal diversification is used to sell new
products through an existing distribution. Often times well
known companies will sell products based off similar
interests or needs to current consumers. An example of
horizontal diversification would be when a company that is
well known for making winter clothing decides to start
investing money into manufacturing summer clothing.
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Retrenchment Defensive Strategy
• Retrenchment defensive strategy is a corporatelevel strategy that seeks to reduce the size or
diversity of operations of an organization, reduction
of expenditures in order to become financially
stable or pulls back or a withdraws from offering
some current products or serving some markets.
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Divestiture Defensive Strategy
• Divestiture defensive strategy is the strategy that
sells a division or a part of an organization, raises
capital for further strategic acquisitions or
investments or lessens the level of diversifications
when firms try to focus on their core strengths.
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Liquidation Defensive Strategy
• Liquidation defensive strategy is the strategy that
sells all assets of a company, in parts, for their
tangible worth recognizing defeat and ceases to
operate than to continue losing large sums of
money.
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PRINCIPLES OF MANAGEMENT II
UNIT II
STRATEGIC MANAGEMENT
BABY THOMAS OCMT
9/13/2015
BABY THOMAS-2015-16
26