Chapter 7

(Lecture Outline and Line Art Presentation)

Strategic Management
Planning for Long-Term Success

Chapter Objectives
1. Define the term strategic management and explain its relationship to strategic planning, implementation, and control. 2. Explain the concept of synergy and identify four kinds of synergy.

3. Describe Porters model of generic competitive strategies. 4. Identify and explain the major contribution the business ecosystems model makes to strategic thinking.

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Chapter Objectives (contd)

5. Identify and discuss at least four e-business lessons from the Internet revolution. 6. Identify and describe the four steps in the strategic management process. 7. Explain the nature and purpose of SWOT analysis.

8. 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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Insert Table 7.1 here

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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 (contd)

Strategy
An integrated externally-oriented perception of how to achieve the organizations mission.

Strategic Planning
The process of determining how to pursue the organizations long-term goals with resources expected to be available.

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Thinking Strategically
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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Porters Generic Competitive Strategies

Models 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 provides 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
Porters 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 by Michael E. Porter.

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Porters Generic Competitive Strategies (contd)

Cost Focus Strategy
Attempting to gain a competitive edge in a narrow (or regional) market segment by controlling (competitively dominating) the segment.

Focused Differentiation
Involves achieving a competitive edge by delivering a superior product and/or service to a limited audience.

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Business Ecosystems
Business Ecosystem
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 cooperating and competing 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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Thinking Strategically (contd)

E-Business Strategies for the Internet
The Internet changes everythingbut it doesnt change everything overnight. Some of the old rules still applyan investment should still either save you money or make you money.

First, we overestimated the Internet; dont underestimate it nowits 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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Thinking Strategically (contd)

Five Lessons from the Dot-com World
There are still a lot of ways to make money on the Internet. Customer loyalty is built with reliable brand names and sticky web sites.

Bricks and mortar must earn their keep.

Cannibalism can pay. 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. Formulation of a grand strategy. 2. Formulation of strategic plans. 3. Implementation of strategic plans. 4. 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 organizations mission is to be accomplished.

Situational Analysis
Finding the organizations niche by performing a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to match unfolding opportunities with resources being acquired.

Capability profile: identifying the organizations 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 (contd)

Situational Analysis (contd)
Key capabilities for todays 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 Strategic Plans

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 considering 1. organizational structure.

2. people.
3. culture. 4. control systems.

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Strategic Implementation and Control (contd)

Strategic Control
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 (contd)

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 (contd)

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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