Chapter Seven
Strategic Management:
Planning for Long-Term
Success
Chapter Objectives
• Define the term strategic management and
explain its relationship to strategic planning,
implementation, and control.
• Explain the concept of synergy and identify four
kinds of synergy.
• Describe Porter’s model of generic competitive
strategies.
• Identify and explain the major contribution the
business ecosystems model makes to strategic
thinking.
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Chapter Seven | 2
Chapter Objectives (cont’d)
• Identify seven basic Internet business models and
four Internet strategy lessons.
• Identify and describe the four steps in the
strategic management process.
• Explain the nature and purpose of SWOT
analysis.
• Describe the three types of forecasts.
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Why All Managers Need an
Understanding of Strategic Management
• A strategic orientation encourages farsightedness in managers.
• Employees who think in strategic terms tend
to understand better how top managers think
and why they make the decisions they do.
• The trend toward greater teamwork and
cooperation throughout the planning cycle is
eroding the traditional distinction between
those who plan and those who implement
plans.
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Strategic Management = Strategic
Planning + Implementation + Control
• Strategic Management
– The ongoing process of ensuring a
competitively superior fit between an
organization and its changing environment
• Includes budget control, long-range planning,
and strategic planning
• Merges strategic planning, implementation, and
control to create a dynamic process
• Requires every employee to consider the “big
picture”
• Involves strategy innovation in rethinking the
basis for competition (business model) in the
industry
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Strategic Management = Strategic
Planning + Implementation + Control
(cont’d)
• Strategy
– An integrated externally oriented perception of how to
achieve the organization’s mission
• Strategic Planning
– The process of determining how to pursue the
organization’s long-term goals with resources expected
to be available
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Thinking Strategically
(Including E-Business Strategies)
• Synergy
– The concept that the whole is greater than the sum of
the parts
• Types of Synergy
– Market synergy: Extending products to new markets
– Cost synergy: Savings from combinations of commonbase operations, resources, and facilities
– Technological synergy: The transfer and application of
technologies to new markets
– Management synergy: Complementary skills that make
for more effective overall management
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Porter’s Generic
Competitive Strategies
• Model’s Competitive Variables
– Competitive advantage: How to compete in a market
– Competitive scope: How broad of a market to target
• Cost Leadership Strategy
– Having the lowest overall cost in a market to provide a
competitive advantage in pricing over competitors
• Differentiation Strategy
– Providing unique and superior value for the customer
that builds brand loyalty
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Figure 7.1: Porter’s Generic
Competitive Strategies
Source: Reprinted with the permission of The Free Press, a division of Simon & Schuster from THE COMPETITIVE
ADVANTAGE OF NATIONS by Michael E. Porter. Copyright © l990, 1998 by Michael E. Porter.
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Porter’s Generic
Competitive Strategies (cont’d)
• Cost Focus Strategy
– Attempting to gain a competitive edge in a narrow (or
regional) market segment by controlling (competitively
dominating) the segment
• Focused Differentiation
– Achieving a competitive edge by delivering a superior
product and/or service to a limited audience
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Business Ecosystems
• Business Ecosystem
– A business ecosystem is an economic community of
organizations and all their stakeholders, including
suppliers and customers.
– Organizations need to be as good at cooperating as
they are at competing if they are to succeed.
• Coevolving: Key organizations selectively cooperate and
compete to achieve both their individual and collective goals,
which they could not achieve on their own.
– Greater strategic cooperation is needed to foster the
the spread of realized innovation.
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E-Business Strategies for the Internet
• Internet Strategy Lessons
– The Internet changes everything, but it doesn’t change
everything overnight.
– Some of the old rules still apply. An investment should
still either save you money or make you money.
– First, we overestimated the Internet; don’t
underestimate it now. Its long-term impact will likely
exceed expectations.
– Evolving Internet technologies are still emerging.
– There is no one-size-fits-all Internet strategy.
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E-Business Strategies for the Internet (cont’d)
• Internet Strategy Lessons (cont’d)
– Customer loyalty is built with reliable brand names and
“sticky” web sites.
– Bricks and clicks: Blending the best of two worlds
– E-business partnering should not dilute strategic control
or ethical standards.
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The Strategic
Management Process
• Four Steps in the Strategic Management
Process
1.
2.
3.
4.
Formulation of a grand strategy
Formulation of strategic plans
Implementation of strategic plans
Strategic control
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Figure 7.2: The Strategic Management
Process
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Formulation of a Grand Strategy
• Grand Strategy
– A general explanation of how the organization’s mission
is to be accomplished
• Situational Analysis
– Finding the organization’s niche by performing a SWOT
(Strengths, Weaknesses, Opportunities, and Threats)
analysis to match unfolding opportunities with
resources being acquired
– Capability profile: Identifying the organization’s
strengths and weaknesses
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Figure 7.3: Determining Strategic
Direction Through Situational (SWOT)
Analysis
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Formulation of a Grand Strategy (cont’d)
• Situational Analysis (cont’d)
– Key capabilities for today’s companies
•
•
•
•
•
Quick response to market trends
Rapid product development
Rapid production and delivery
Continuous cost reduction
Continuous improvement of processes, human
resources, and products
• Greater flexibility of operations
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Formulation of a Grand Strategy (cont’d)
• The Need for Speed
– Speed has become an important competitive
advantage.
– Speed involves more than just doing the same old
things faster.
– Reengineering: Radically redesigning the entire
business cycle for greater strategic speed
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Criteria for Formulating Strategic Plans
• Develop clear results-oriented objectives stated in
measurable terms.
• Identify activities required to accomplish the
objectives.
• Assign specific responsibilities to the appropriate
personnel.
• Estimate times to accomplish activities and their
appropriate sequencing.
• Determine resources required to accomplish the
activities.
• Communicate and coordinate the above elements
and complete the action plan.
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Strategic Implementation and Control
• Implementation of Strategic Plans
– Developing a systematic filtering-down process
that facilitates the implementation process and
builds middle-manager commitment requires a
company to consider:
•
•
•
•
Organizational structure
People
Culture
Control systems
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Strategic Implementation
and Control (cont’d)
• A formal control system should be
developed that helps keep strategic plans
on track by
– Setting up and testing channels for information
on progress, problems, and the fit of strategic
assumptions to the environment
– Using software programs for real-time tracking
of production, financial, and marketing reports
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Strategic Implementation
and Control (cont’d)
• Corrective Action Based on Evaluation and
Feedback
– Negative feedback should prompt corrective
action at the step immediately before the
problem occurs.
– Possible corrective actions include:
•
•
•
•
•
Updating strategic assumptions
Reformulating strategic plans
Rewriting policies
Making personnel changes
Modifying budget allocations
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Forecasting
• Forecasts
– Predictions, projections, or estimates of future
situations
• Types of Forecasts
– Event outcome forecasts: Predictions of the outcome
(effects) of highly probable future events
– Event timing forecasts: Predictions of when a given
event will occur
– Time series forecasts: Estimates of future values in a
statistical sequence (e.g., sales forecast)
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Forecasting Techniques
• Informed Judgment
– Forecasts relying on intuitive judgments that are based
on how well informed the forecaster is
• Scenario Analysis
– Preparing written descriptions of alternative but equally
likely future situations
• Longitudinal scenarios: Describing how the future situations will
evolve from the present
• Cross-sectional scenarios: Describing future situations at a
given point in time
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Forecasting Techniques (cont’d)
• Surveys
– A forecasting technique involving face-to-face
interviews and mail or e-mail questionnaires
– Problems with surveys
• Construction of the survey instrument
• Cost of administration
• Errors in data collection and interpretation
• Trend Analysis
– The hypothetical extension of a past series of events
into the future
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Summary
• Strategic management sets the stage for virtually
all managerial activity.
• Strategic thinking is necessary for successful
strategic management and planning.
• Porter’s generic competitive strategies model
helps managers create a profitable “fit” between
the organization and its environment.
• Competitors coevolve into business ecosystems
when they use both competition and cooperation.
• Effective use of the correct Internet strategies
affords opportunities for competitive advantage.
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Chapter Seven | 31
Terms to Understand
•
•
•
•
•
•
•
•
•
Strategic management
Strategy
Synergy
Differentiation
Business ecosystem
Grand strategy
Situational analysis
Capability profile
Reengineering
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• Forecasts
• Event outcome
forecasts
• Event timing forecasts
• Time series forecasts
• Scenario analysis
• Longitudinal scenarios
• Cross-sectional
scenarios
• Trend analysis
Chapter Seven | 32