STRATEGIC

MANAGEMENT

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 Strategic Management Process
The set of decisions and actions used to formulate
and implement strategies that will provide a
competitively superior fit between the organization
and the environment so as to achieve organizational
goals.
• Strategy Analysis
• Strategic Formulation
• Strategic Implementation

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 Strategic Analysis
• Introduction and Analyzing Goals and Objectives
• Analyzing the External Environment
• Analyzing the Internal Environment
• Assessing Intellectual Capital

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 Strategy Formulation
• The stage of strategic management that involves the
planning and decision making that lead to the
establishment of the organization’s goals and of a
strategic plan.

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 Strategy Implementation
• The stage of strategic management that involves the
use of managerial and organizational tools to direct
resources toward achieving strategic outcomes.

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 Strategy
• The plan of action that prescribes resource
allocation and other activities for dealing with the
environment and helping the organization attain its
goals.

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 Grand Strategy
• It is a general plan of major action by which a firm
intends to achieve its long term goals.
• Three General Categories:
• Growth
• Stability
• Retrenchment

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 Three Categories of Grand Strategy
• Growth
• Internal Growth – by investing in expansion
• External Growth – by acquiring additional business
divisions; diversification
• Acquisition of businesses that are related to current
product lines or that take the corporation into new areas.

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 Three Categories of Grand Strategy
2. Stability (pause strategy)means that the corporation
wants to remain the same size or grow slowly and
in a controlled fashion.

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 Three Categories of Grand Strategy
3. Retrenchment (Downsizing) means that the
organization goes through a period of forced
decline by either shrinking current business unit or
selling of or liquidating entire businesses.

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 Global Strategy
• Globalization Strategy
• Multi-domestic Strategy
• Transnational Strategy

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 Global Strategy
• Globalization Strategy
• It is the standardization of product design and
advertising strategies throughout the world.
• This approach is based on the assumption that a single
global market exists for most consumers and industrial
products.
• Cost effective in terms of savings on designing unique
models.
• Ex. Coca-cola and Levis Jeans

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 Global Strategy
• Multi-domestic Strategy
• It is the modification of product design and advertising
strategies to suit the specific needs of individual
countries.
• Competition in each country is handled independently.
• Rejects the idea of single global market.
• French do not drink orange juice for breakfast
• Laundry detergent is used to wash dishes in Mexico
• Middle East prefers toothpaste that is spicy.

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 Global Strategy
• Transnational Strategy
• It is a strategy that combines global coordination to
attain efficiency with flexibility to meet specific needs
in various countries.
• It is difficult to achieve because one goal requires
global coordination while some require local
flexibility.
• Partly multi-domestic and partly globalization.

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 Purpose of Strategy
• Core Competence
• A business activity that an organization does
particularly well in comparison to competitors.
• It represents a competitive advantage because the
company acquires expertise that competitors do not
have.
• Superior research and development
• Mastery of technology
• Manufacturing efficiency
• Customer service

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 Core Competence
• As an example of core competencies, Walt Disney
World Parks and Resorts has three main core
competencies:
• Animatronics and Show Design
• Storytelling, Story Creation and Themed Atmospheric
Attractions
• Efficient operation of theme parks

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 Purpose of Strategy
• Synergy
• Greek “synergos” - working together
• 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.
• The organization may attain a special advantage with
respect to cost, market power, technology, or
management skill.

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 Synergy
• It can be attained by good relations between
suppliers and customers, and by strong alliances
among companies.
• Ex. Airline Industry:
• Sky Team (20-member airlines)

• Star Alliance (26-member airlines)

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 Purpose of Strategy
• Value Creation
• A combination of benefits received and costs paid by
the customers.
• Delivering value to the customer should be at the
heart of strategy.
• Ex. McDonalds:
• Extra Value Meals
• McDonalds Stores inside Wal-mart and Sears

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 Levels of Strategy
• Corporate-level Strategy
• “What business are we in?”
• It pertains to the organization as a whole and the
combination of business units and product lines that
make it up.
• Acquisition of new businesses
• Addition or divestment of business units, plants or
product lines.
• Joint ventures with other corporations in new areas.

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 Level of Strategy
2. Business-level strategy
• “How do we compete?”
• It pertains to each business unit or product line within
the organization.
• It focuses on how the business unit competes within its
industry for customers

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 Business-level Strategy
• Strategic decisions at this level concern:
• Amount of advertising
• Direction and extent of R & D
• Product changes
• New product development
• Equipment and facilities
• Expansion or contraction of product lines

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 Business-level Strategy
Ex. Hyatt Hotels
It trimmed on management staff
and cut on unnecessary services
but increased focus on marketing and
advertising.

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 Levels of Strategy
• Functional-level Strategy
• How do we support the business-level strategy?”
• It pertains to all the organization’s major
departments/ functions such as finance, R & D,
marketing and manufacturing.

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 Formulating Corporate-level
Strategy
• Portfolio Strategy
• It pertains to the mix of business units and product
lines that fit together in a logical way to provide
synergy and competitive advantage for the corporation.

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 BCG Matrix
• A concept developed by the Boston Consulting
Group that evaluate SBUs with respect to the
dimensions of business growth rate and market
share.
• Business growth rate pertains to how rapidly the
entire industry is increasing.
• Market share defines whether a business unit has a
larger or smaller share than competitors.

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 Four Categories of a Corporate
Portfolio
• Star
• It has a large market share in a rapidly growing
industry;
• Visible and attractive;
• Generates profits and a positive cash flow even as
the industry matures and market growth slows

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 Four Categories of a Corporate
Portfolio
• Cash Cow
• Exists in a mature, slow growth industry but is a
dominant business in the industry, with a large
market share;
• Heavy investment in advertising and plant expansion
are no longer required.

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 Four Categories of a Corporate
Portfolio
• Question Mark
• Exists in a new, growing industry but has only a
small market share.

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 Four Categories of a Corporate
Portfolio
4. Dog
• Poor performer;
• Has a small market share of a slow-growth market.

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 Corporate-level diversification
initiatives
• Mergers and acquisitions
• Strategic Alliances and Joint Ventures
• Internal Development

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 Diversification
• Related Businesses
• Horizontal relationships – sharing of intangible and
tangible resources
• Vertical Integration – represents an expansion or
extension of the firm by integrating preceding or
successive productive processes
• Backward Integration – toward raw materials
• Forward Integration- toward the ultimate consumers

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 Diversification
• Unrelated Businesses
• Corporate Parenting and Restructuring

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 Formulating Business-level
strategies
• Porter’s Competitive Strategies
• Differentiation
• Cost Leadership
• Focus

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 Porter’s Five Forces Model of Competition
35
Substitute Products
(of firms in
other industries)

Rivalry
Suppliers of Among
Buyers
Key Inputs Competing
Sellers

Potential
New
Entrants

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 Buyer Power
36
• Fundamental questions: How badly does a buyer
need your products or services?
• Buyer power – ability of buyers to bargain down

prices charged by companies in the industry

• Industry buyers:

Individual Customers- ultimately consumer

Companies that distribute: retailers and
wholesalers
• e.g

P&G and Unilever>supermarkets>resell

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 Competitive Rivalry
37
• Fundamental question: how intense is
competition in the industry?
• Factors leading to high competitive rivalry:
• Numerous or equally balanced competitors
• High fixed costs
• Slow industry growth
• Lack of differentiation or switching costs
• High strategic stakes
• High exit barriers

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 Supplier Power
• Fundamental question: how badly does a
supplier need your business?
• Factors giving power to supplier:
◦ Supplier industry dominated by few firms
◦ Buyer is not important to customer
◦ Supplier’s product is important input to buyer’s
product
◦ Supplier’s products have high switching costs
◦ Supplier can “integrate forward” and become
competitor of buyer 38

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 Threat of New Entrants
39
• Fundamental question: how easy is it for another
company to enter the industry?
• Factors making easy entry to industry
• Low economies of scale
• Low product differentiation
• Low capital requirements
• No switching costs for buyer
• Easy access to distribution channels
• Little government regulation

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 Threat of Substitutes
40

• Fundamental question: what other products or

services could perform the same function as your
products or services?
• Factors indicating high threat of substitutes:
• Few switching costs for buyer
• Price of substitute lower or quality higher than for
your products
• Firms offering substitutes have high profitability

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 Strategic Implications of the
Five Competitive Forces
41

• Competitive environment is unattractive from the

standpoint of earning good profits when:
– Rivalry is strong
– Entry barriers are low and entry is likely
– Competition from substitutes is strong
– Suppliers and customers have considerable
bargaining power

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 Strategic Implications of the
Five Competitive Forces
• Competitive environment is ideal from a profit-
making standpoint when:
– Rivalry is moderate
– Entry barriers are high and no firm is likely
to enter
– Good substitutes do not exist
– Suppliers and customers are in a weak
bargaining position

42

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 Strategic Groups
43

• Companies do not compete against all companies in

an industry
• Companies compete against several other
companies that follow similar strategies
• A strategic group consists of those rivals with
similar competitive approaches in an industry
• Examples ways of competing:
◦ Price
◦ Range of products
◦ Innovation
◦ Customers served
◦ Research

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 Generic Strategies
8-44

• Overall cost leadership

A type of competitive strategy with which the
organization aggressively seeks efficient facilities,
cuts costs, and employs tight cost control to be
more efficient than
competitors.

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 Generic Strategies
8-45

• Differentiation
• A type of competitive strategy with which the
organization seeks to distinguish it products or
services from competitors.
• Focus
• A type of competitive strategy that emphasizes
concentration on a specific regional market or
buyer group.

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 Combination Strategies
8-46

• Entrepreneurial firms are often in a strong

position to offer a combination strategy
• Combine best features of low-cost, differentiation,
and focus strategies
• Flexibility and quick decision-making ability of a
small firm not laden with layers of bureaucracy

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 Integrated Low Cost/Differentiation Strategy

Southwest
Low Airlines Differentiation
Cost
Use a single aircraft model Focus on customer
(Boeing 737) satisfaction
Use secondary airports
High level of employee
Fly short dedication
routes
No New flight services for
meals
15 minute turnaround time business travelers
No reserved seats (Phones and faxes)
No travel agent reservations

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