Lecture Four
Strategic Management
The Strategic-Management
Process
Step 1:Establish The Mission & The
Vision
A
good mission statement expresses the
organization’s purpose or reason for being
A
good vision statement describes the longterm goal of what the organization wants to
become
Mission Statement
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Does your company’s mission statement answer these questions?
Who are our customers?
What are our major products or services?
What is our basic technology?
What is our commitment to economic objectives?
What are our basic beliefs and values?
What are our major strengths and competitive advantages?
What are our public responsibilities?
What is our attitude toward our employees?
Vision Statement
Does your company’s vision statement answer “yes”
to these questions?
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Is it appropriate for organization and for the times?
Does it set standards of excellence and reflect high ideals?
Does it clarify purpose and direction?
Does it inspire enthusiasm and encourage commitment?
Is it well articulated and easily understood?
Is it ambitious?
Step 2:Establish The Grand Strategy
grand strategy explains how the organization’s
mission is to be accomplished
The
Three
common grand strategies are growth (involves
expansion of sales revenue, market share, number of
employees, or number of customers served), stability
(involves little or no significant change), and defensive
(involves reduction in the organization’s efforts)
Establishing The Grand Strategy
SWOT Analysis
Forecasting: Predicting the Future
After
completing the SWOT analysis, managers need
to make forecasts (visions or projections of the future)
There are two types of forecasts:
A hypothetical extension of a past series of events
into the future is a trend analysis
The creation of alternative hypothetical but equally
likely future conditions is contingency planning or
scenario planning
Boston Consulting Group Matrix
(BCG Matrix)
Boston Consulting Group Matrix
(BCG Matrix)
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Stars have a high share of a high-growth market. They
typically need large amount of cash to support their rapid
and significant growth. They also generate large amount
of cash for the organization and usually areas in which
management can make additional investments and earn
attractive returns.
Cash Cows have a large share of a market that is
growing only slightly. Naturally, these units provide
organization with large amounts of cash. Since the
market is not growing significantly, this cash is generally
used to meet financial demands of the organization in
other areas, such as in the expansion of a “star” units.
Boston Consulting Group Matrix
(BCG Matrix)
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Question marks have a small share of a high-growth
market. These units are called question marks because
it’s uncertain whether management should invest more
cash in them to get a large share of the market, or
whether management should de-emphasize or eliminate
them because such an investment would be ineffective.
Naturally, through further investment, management
attempts to turn “question marks” into “stars”.
Dogs have a relatively small share of a low-growth
market. These units may barely support themselves, or
they may even drain cash resources that other units
have generated.
BCG Matrix
Sample Organizational Strategies
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Growth— “Stars” & “Question marks”(which
hold the potential of being “Stars”)
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Stability— “Cash Cow”
Retrenchment— “Cash Cow” & “Stars”(which
begin to lose market share)
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Divestiture— “Dogs” & “Question
marks”(which have failed to increase market
share but still require a big amount of cash)
Step 3:Formulate Strategic Plans
The process of choosing among different strategies
and altering them to best fit the organization’s needs is
strategy formulation
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The strategy formulation process can be completed
using techniques like Porter’s competitive forces and
strategies, and product life cycles
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Porter’s Five Competitive Forces
Porter’s Five Competitive Forces include:
1. The threat of new entrants
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New competitors can shake-up an industry virtually
overnight
2. The bargaining power of suppliers
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Companies that rely on a single supplier are vulnerable
Porter’s Five Competitive Forces
3. The bargaining power of buyers
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Major customers, and customers that shop around can
negotiate better prices
4. The threat of substitute products or services
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When there are substitute products or services available,
firms have less power
5. Rivalry among competitors
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Intense rivalry is a threat to companies
Porter’s four competitive
strategies or generic strategies
1. The cost leadership strategy - involves trying to keep
costs and prices below those of competitors and targeting a
wide market
 Examples of companies with this strategy include Bic,
Home Depot, and Dell
2. The differentiation strategy - offer products or services
that are of unique and superior value compared to those of
competitors, and sell to a wide market
 Examples of companies using a differentiation
strategy include Nordstrom and Ritz-Carlton Hotels
Porter’s four competitive
strategies or generic strategies
3. The cost-focus strategy - keep costs and prices
below those of competitors and target a narrow market
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Examples of companies with a cost-focus strategy include
regional gas stations
4. The focused-differentiation strategy - offer products
or services that are of unique and superior value
compared to those of competitors, and sell to a narrow
market
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Examples of companies with this strategy include Ferrari
and Lamborghini
Product Life Cycle
Introduction
stage, the product is introduced to
the marketplace
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Example?
Strategy: differentiation or a focus (cost-focus or
differentiation) strategy
Product Life Cycle
Growth
stage, customer demand increases,
sales grow, and competitors may enter the
market
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Example?
Strategy: differentiation or a focus (cost-focus or
differentiation) strategy
Product Life Cycle
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Maturity stage, the product starts to fall out of
favor and sales and profits drop
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Example?
Strategy: cost leadership or a focus (cost-focus or
differentiation) strategy
Product Life Cycle
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Decline stage, the product falls out of favor
and is withdrawn from the marketplace
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Example?
Diversification and Synergy
A
company that makes and sells only one product in
its market follows a single-product strategy
This
strategy has both benefits (the firm can focus on
just one product) and risks (the firm is vulnerable to
competitors)
Diversification and Synergy
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The diversification strategy involves operating
several businesses in order to spread the risk
There are two kinds of diversification:
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unrelated (operating several businesses that are
not related to each other)
related (operating several businesses that are
related)
Unrelated Diversification
General
Electric
Lighting
products
Plastics
Broadcasting
Financial
Services
Diversification and Synergy
1.
2.
3.
There are three advantages to related
diversification:
reduced risk because the firm sells more than one
product
management efficiencies because administration
is spread over several businesses
synergy because the economic value of separate,
related companies operating under one roof is
greater than the companies are worth separately
Competitive Intelligence
When
companies gain information about their
competitors so that they can anticipate their moves
and react appropriately, the companies are practicing
competitive intelligence
Companies
can collect information on their
competitors through public prints and advertising,
through investor information, and through informal
sources
Step 4:Carry Out The Strategic
Plan
Strategy implementation involves putting strategic
plans into effect
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Managers need to ensure that the right people and
control systems are in place to execute the plans
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Strategy Implementation
The execution stage of strategy involves getting
things done
Execution
is a central part of strategy that
consists of using questioning, analysis, and
follow-through to mesh strategy with reality,
align people with goals, and achieve promised
results
Strategy Implementation
There are three building blocks underlying effective
execution:
1. Develop seven essential leader behaviors
 know your people and your business
 insist on realism
 set clear goals and priorities
 follow through
 reward the doers
 expand people’s capabilities
 know yourself
Strategy Implementation
2. Create a framework for cultural change
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Leaders must understand how to change the behavior
and beliefs of people who are directly linked to
bottom-line results
To do this, tell people what results are necessary, how
to get the results, and what the reward is for achieving
the results
3. Select & evaluate people
 Leaders should personally select the right people to
get the job done
Strategy Implementation
The three building blocks are the foundation for the three
core processes of execution
The First Core Process: People
Effective leaders evaluate talent using specific milestones,
develop future leaders, and deal with non-performers—they
get the people part right
The Second Core Process: Strategy
A good strategic plan considers the “how” of execution
Strategy Implementation
The Third Core Process: Operations
Strategy defines where the organization wants to go, the
people process assigns responsibility for getting there, and
the operating plan shows how to get there
The
success of strategy execution depends on how well
leaders manage the three processes of strategy, people,
and operations
Step 5:Maintain Strategic Control:
The Feedback Loop
Monitoring the execution of strategy and
making necessary adjustments is strategic
control
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To keep strategic plans on track, managers
need to encourage people, keep planning
simple, stay focused, and keep moving
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