Strategic Management
Chapter 4
Mr. Sherpinsky
Business Management Class
Council Rock School District
Goals & Objectives
1.
2.
3.
4.
5.
6.
Define strategy, and explain its importance to
organizational success
Explain the three levels of strategy that exist in an
organization
Discuss the stages of the strategic management process
Define organizational mission, and explain how mission
relates to long- and short-range objectives
Discuss the components of a SWOT analysis
Explain how strategic alternatives are identified and
selected
What is Strategic Management?
• The word “Strategy” originated with the
Greeks about 400B.C.
• “Strategy” outlines the basic steps that
management plans to take to reach an objective
or set of objectives… How management
intends to achieve its objectives
Levels of Strategy
• Three primary levels in an
organization.
• Classified according to the scope of what
they intended to accomplish.
–Corporate
–Business
–Functional
What is Strategic Management?
• Most important part is developing strategic
plans
– Plans must remain current as changes occur
inside and outside the company
• Involves many levels of management
– Top level formally develops basic plans
– Different departments may be asked to develop
plans for their own areas
– A solid plan guarantees that plans are
coordinated and are supported by everyone in
the company
Corporate Strategies
• Developed at the highest levels of the
company
• Usually involve a long range time horizon
• Provide overall direction for the company
• Deal with most important aspects of the
company’s operations
• Specifically tied to mission statement
• Four types:
– Growth,
– Stability
– Retrenchment
– Combination
Grand Strategies
• Growth strategy
– Plans developed when a company tries to
expand sales, products, or number of
employees
• Concentration strategy
• Vertical integration
• Diversification
Grand Strategies
• Stability strategy
– Plan to keep the company operating
at the same level that it has for
several years
• Used when a company is satisfied with
its profits and not seeking growth
• Company growth is possible, but will
be very slow, methodical, nonagressive
• Most successful in unchanging or very
slowly changing environment
Grand Strategies
• Retrenchment (defensive) strategy
– Plan to reverse negative trends in a company
• Such as losses in sales or to reduce its costs
– Used to overcome a crisis or problem
(competition)
• Turnaround: regain success
• Divestiture: company sells some part of its
business
• Liquidation: entire company is sold or dissolved
Grand Strategies
• Chrysler corporation was on the verge of
bankruptcy when it hired Lee Iacocca as their
new CEO. He let go of a large number of
employees and closed 20 plants. Remaining
workers agreed to give up part of their salaries
and benefits to save the company and by 1982
Chrysler began to show profit.
• What kind of strategy did Iacocca
implement?
Turnaround Strategy
Grand Strategies
• Combination strategy
– A plan that employs several
different strategies at once
– It’s possible that all issues cannot
be addressed by implementing
just one strategy
– Coca Cola, 1989
• Divested Columbia Pictures division and
expanded its soft-drink and orange juice
businesses at the same time
Business Strategies
• Business Strategies, the second primary
level of strategy formulation
– Also called competitive strategies
– Narrower in scope and usually applies to a
single department or business unit
– Three (3) types:
• Overall cost leadership
• Differentiation
• Focus strategies
Business Strategies
• Overall cost leadership
– Designed to produce and deliver
a product or service for a lower
cost than the competition
– Can be very effective when there
are many buyers who are pricesensitive
– Requires close attention to
production methods, overhead,
& overall cost minimization in
sales & R&D
• Wal-Mart, Home Depot
Business Strategies
• Differentiation
– Strives to make the product or service unique
– Companies can charge higher prices for
unique products/services
– Can be achieved through a design or brand
image, quality, technology, customer service,
or dealer network
– Basic purpose: Gain brand loyalty/lower
sensitivity to price
• Gillette, Jaguar, Adidas sportswear
Business Strategies
• Focus
– Directs marketing and sales
towards a small segment of
the market
– Company can serve a welldefined market better than
competitors that serve a
broader market
– Rolex, Mercedes-Benz, Ralph
Lauren
Business Strategies
• Colgate-Palmolive has a 70 percent
market share of toothpaste sold to
Hispanics. This is attributed to an
understanding that three-quarters of the
Hispanics who watch TV or listen to the
radio do so with Spanish-language
stations.
• What kind of business strategy does
this illustrate?
Focus Strategy
Functional Strategies
• Narrower in scope
• Short-range
operational plans
(one-year or less)
that support business
strategies by
emphasizing practical
implementation
• Function or use often
defines plans
–
–
–
–
Sales and marketing
Production
Financial
Research and
development
– Personnel
Strategic Management Process
• Three phases critical to the success
of the process
– Formulation
• Developing the strategic plan
– Implementation
• Putting the formulated plan to work
– Evaluation
• Continuously evaluating and updating the strategic
plan
Formulating Strategy
• Mission
– Broadest and highest level objectives
• Past and present strategies
– Look at past strategy to see what did
and did not work
• Past and present performance
– Review what did and did not go well
– Using data to determine next steps
Formulating Strategy
• Setting objectives
– Look at internal and external
environments
– Long-range, intermediate,
short-range objectives
• SWOT Analysis
– Strengths, Weaknesses,
Opportunities and Threats
– Used for drawing conclusions
about current state from data
Formulating Strategy
• Identify the mission statement
– Outlines why the company exists
– Describes the company’s basic
products and/or services and defines
markets and sources of revenue
– Designed to accomplish several goals
and ensures a common purpose
within the company
Formulating Strategy
• Comparing strategic alternatives
– Based on data garnered
– Knowing which direction is best to go
– Being able to prioritize with limited resources
• Strategic Business Unit (SBU)
– A distinct business that has its own set of
competitors and can be managed
independently of other businesses
– Small businesses ARE SBUs
Implementation Phase
• Organizational structure
– Understanding how structure,
policies and systems already in
place will be impacted with new
strategy
– Might mean more training required
• Functional strategy’s impact
– Understand how the functional
areas will be impacted by overall
strategic plan
Evaluation Phase
• Constantly evaluate
– Companies should constantly
evaluate their strategy to
determine if it is working
– Make changes if it isn’t working
• Respond to internal and
environmental changes
– As things change, such as
environment or economy,
readjust strategy