Strategic Management

The set of decisions and actions used to formulate and
implement strategies that will provide a competitively
superior fit between the organization and its
environment so as to achieve organizational goals.

The general plan of major action by
which an organization intends to
achieve its long-term goals.
Three general categories:
1.
2.
3.
Growth – can be promoted internally by investing in
expansion or externally by acquiring additional business
divisions.
Stability (pause strategy) – that the organization wants
to remain the same size or grow slowly and in a
controlled fashion.
Retrenchment – that the organization goes through
period of forced decline by either shrinking current
business units or selling off or liquidating entire business.

a separate grand strategy as the focus of
global business.
Three global strategies:
1.
Globalization – the standardization of product design and
advertising strategies throughout the world.
2.
Multidomestic strategy – the modification of product
design and advertising strategies to suit the specific needs of
individual countries.
3.
Transnational strategy – a strategy that combines global
coordination to attain efficiency with flexibility to meet
specific needs in various countries.

Choosing how the organization will be
different.
Strategy
 The
plan of action that prescribes resource
allocation and other activities for dealing with the
environment and helping the organization attain
its goals.
To remain competitive, companies develop
strategies that focus on:
1.
Core competence

2.
Synergy

3.
A business activity that an
organization does particularly well in
comparison to competitors.
The condition that exists when the
organization’s parts interact to
produce a joint effect that is greater
than the sum of the parts acting
alone.
Value Creation


The heart of strategy.
Value can be defined as the
combination of benefits received and
costs paid by the customers.
 Corporate-Level

The level of strategy concerned with the question,
“What business are we in?”. Pertains to the
organization as a whole and the combination of
business units and product lines that make it up.
 Business-Level

Strategy
The level of strategy concerned with the question,
“How do we compete?”. Pertains to each business
unit or product line within the organization.
 Functional-Level

Strategy
Strategy
The level of strategy concerned with the question,
“How do we support the business-level strategy?”.
Pertains to all of the organization’s major
departments.
1.What is Ansoff matrix?
 The
Ansoff Growth matrix is a tool that helps
businesses decide their product and market
growth strategy.
 Ansoff’s product/market growth matrix
suggests that a business’ attempts to grow
depend on whether it markets new or
existing products in new or existing markets.

Market Penetration: Here we market our
existing products to our existing customers.
This means increasing our revenue by, for
example, promoting the product, repositioning
the brand, and so on. However, the product is
not altered and we do not seek any new
customers.

This is usually used for increasing the market
share of a company.For example if Pepsi can
market their product better than Coca-Cola
they will make a better profit than Coca-Cola
and they will increase their market share.



Market Development Here we market our existing
product range in a new market. This means that
the product remains the same, but it is marketed
to a new audience. Exporting the product, or
marketing it in a new region, are examples of
market development.
This strategy can be exampled like this if ColaTurca a Turkish company who decides to expend
their product to a new region such as England so
they start to sell their cola in there
This is a weak strategy if there is so many rival
companies at the place such as Pepsi and Cola in
England




Product Development This is a new product to be marketed
to our existing customers. Here we develop and innovate
new product offerings to replace existing ones. Such
products are then marketed to our existing customers. This
often happens with the auto markets where existing models
are updated or replaced and then marketed to existing
customers.
This one in Coke companies came up with pepsi with Pepsi
Blue and Pepsi Twist
This development
increased pepsi’s
Profit by %15

Diversification This is where we market completely new
products to new customers. There are two types of
diversification, namely related and unrelated
diversification. Related diversification means that we
remain in a market or industry with which we are
familiar. For example, a soup manufacturer diversifies
into cake manufacture (i.e. the food industry).
Unrelated diversification is where we have no previous
industry nor market experience. For example a soup
manufacturer invests in the rail business.
Porter's Generic Strategies
A
firm positions itself by leveraging its
strengths
 Michael
Porter has argued that a firm's
strengths ultimately fall into one of two
headings: cost advantage and differentiation.
 By
applying these strengths in either a broad
or narrow scope, three generic strategies result:
cost leadership, differentiation, and focus
 This
generic strategy calls for being the low
cost producer in an industry for a given
level of quality.
 The
firm sells its products either at average
industry prices to earn a profit higher than
that of rivals, or below the average
industry prices to gain market share.
 In
the event of a price war, the firm can maintain
some profitability while the competition suffers
losses
 Even
without a price war, as the industry matures
and prices decline, the firms that can produce
more cheaply will remain profitable for a longer
period of time
 The
cost leadership strategy always targets a
broad market.
 Access
to the capital required to make a
significant investment in production assets;
this investment represents a barrier to entry
that many firms may not overcome.
 Skill in designing products for efficient
manufacturing.
 High level of expertise in manufacturing
process engineering.
 Efficient distribution channels
 Other
firms may be able to lower their
costs as well.
 As technology improves, the competition
may be able to leapfrog the production
capabilities, thus eliminating the
competitive advantage.
 Several
firms following a focus strategy and
targeting various narrow markets may be
able to achieve an even lower cost within
their segments and as a group gain
significant market share.
A
leading cost strategy for McDonalds is
the ability to purchase the land and
buildings of its restaurants
 McDonalds also developed a strong
division of labor for its production
processes, tight management control and
product development strategy. Creating a
strong top-down style of management is
another leading cost strategy for
McDonalds
 Using fewer in-store managers allows the
company to hire lower-wage workers to
complete tasks.
 After
nearing complete bankruptcy in the
1980s, Apple clawed its way back into the
personal electronic industry through smart
business practices and highly desirable
consumer goods.
 Apple uses low-cost direct materials to
develop the cheapest consumer goods
possible.
 Creating long-standing business agreements
with companies like AT&T for web hosting
and other applications helps Apple stay
focused on developing products rather than
Internet hosting or access
A
differentiation strategy calls for the
development of a product or service that
offers unique attributes that are valued by
customers and that customers perceive to
be better than or different from the
products of the competition.
 The
value added by the uniqueness of the
product may allow the firm to charge a
premium price for it. The firm hopes that
the higher price will more than cover the
extra costs incurred in offering the unique
product.
 Access
to leading scientific research.
 Highly
skilled and creative product
development team.
 Strong
sales team with the ability to
successfully communicate the perceived
strengths of the product.
 Corporate
reputation for quality and
innovation.
 Imitation
by competitors and changes in
customer tastes
 Various
firms pursuing focus strategies may be
able to achieve even greater differentiation in
their market segments.
 Medimix
herbal soap differentiated itself
on the herbal plank two decades back
when there were only synthetic soaps.
 A new brand of herbal soap launched in
today’s context has to probably define the
herbal qualities through an enhanced mix
of ingredients to convey the differentiation
because `herbal’ is the proposition of
several brands both new and old.
 The established Medimix brand is currently
running a campaign, which conveys the
brand benefits through appropriate
imagery.
 The
focus strategy concentrates on a
narrow segment and within that segment
attempts to achieve either a cost advantage
or differentiation.
 The
premise is that the needs of the group
can be better serviced by focusing entirely
on it
A
firm using a focus strategy often enjoys a
high degree of customer loyalty, and this
entrenched loyalty discourages other firms
from competing directly.
 Because
of their narrow market focus, firms pursuing
a focus strategy have lower volumes and therefore
less bargaining power with their suppliers
 However,
firms pursuing a differentiation-focused
strategy may be able to pass higher costs on to
customers since close substitute products do not exist.
 The
firm is able to tailor a broad range of
product development strengths to a relatively
narrow market segment that they know very
well.
 Imitation
segments
and changes in the target
 It
may be fairly easy for a broad-market
cost leader to adapt its product in order to
compete directly
 Other
focusers may be able to carve out
sub-segments that they can serve even
better.
 By
successfully adopting the 'focus' strategy
since 1997, PepsiCo has emerged as the
second largest consumer packaged goods
company
 The
company has significantly strengthened
its competitive position in the beverages
segment.
 By
acquiring leading beverages' company
like Tropicana products (July 1998), South
Beach Beverage Company (October 2000)
and Quaker Oats (December 2000)
Industry Cost
Force
Leadership
Differentiation Focus
Entry
Barriers
Ability to cut price Customer loyalty can
in retaliation deters discourage potential
potential entrants. entrants
Buyer
Power
Ability to offer
lower price to
powerful buyers.
Large buyers have less
Large buyers have less power
power to negotiate because to negotiate because of few
of few close alternatives.
alternatives.
Supplier
Power
Better insulated
from powerful
suppliers.
Better able to pass on
through suppliers, price
increases to customers.
Suppliers have power
because of low volumes
Customer's become
attached to differentiating
attributes, reducing threat
of substitutes.
Specialized products &
core competency protect
against substitutes.
Brand loyalty to keep
customers from rivals.
Rivals cannot meet
differentiation-focused
customer needs.
Threat of Can use low price
Substitute to defend against
substitutes.
Rivalry
Better able to
compete on price.
Focusing develops core
competencies that can act
as an entry barrier.