Strategic Management Chapter 6

Every organization needs to have a “big picture” about where it is going and how it will get there. Strategy Strategic Management Strategic Planning

Strategic Positioning (Michael Porter) Attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company.

Strategy is the creation of a unique and valuable position Few needs, many customers Broad needs, few customers Broad needs, many customers

Three key principles underlie strategic positioning: Strategy is the creation of a unique and valuable position. Strategy require payoffs in competing Strategy involves creating a “fit” among activities. Company’s activities must interact with and reinforce one another

Five steps in the strategic management process

Competitive Intelligence Gaining information about one’s competitors’ activities so that you can anticipate their moves and react appropriately.

Two kinds of strategic planning tools and techniques SWOT Forecasting

SWOT Analysis Environmental scanning Careful monitoring of an organization’s internal and external environments to detect early signs of opportunities and threats that may influence the firm’s plans.

SWOT Analysis = Situational Analysis A search for S trengths W eaknesses O pportunities T hreats

Analysis of Internal Strengths and Weaknesses Organizational Strengths – the skills and capabilities that give the organization special competencies and competitive advantages in executing strategies in pursuit of its mission. Organizational Weaknesses – the drawbacks that hinder an organization in executing strategies in pursuit of its mission.

Analysis of External Opportunities and Threats Organizational Opportunities – environmental factors that the organization may exploit for competitive advantage. Organizational Threats – environmental factors that hinder an organization’s achieving a competitive advantage.

Strategy A large-scale action plan that sets the direction for an organization. Example: “Find out what the customer want, then provide it to them as cheaply and quickly as possible.” Strategy of Wal-Mart

Organizational Strengths The skills and capabilities that give the organization special competencies and competitive advantages in executing strategies in pursuit of its vision. Organizational Weaknesses – the drawbacks that hinder an organization in executing strategies in pursuit of its vision.

Organizational Opportunities Environmental factors that the organization may exploit for competitive advantage. Organizational Threats – environmental factors that hinder an organization’s achieving a competitive advantage.

Benchmarking A process by which a company compares its performance with that of high-performing organizations.

Porter’s Five Competitive Forces Threats of new entrants Bargaining power of suppliers Bargaining power of buyers Threats of substitute products or services Rivalry among competitors

Porter’s Four Competitive Strategies Cost-leadership Strategy – keeping costs, and hence prices, or a product or service below those of competitors and to target a wide market. Differentiation Strategy – to offer products or services that are of unique and superior value compared to those of competitors but to target a wide market.

Cost-focus Strategy – to keep the costs, and hence prices, of a product or service below those of competitors and to target a narrow market. Focused-Differentiation Strategy – to offer products or services that are of unique and superior value compared to those of competitors and to target a narrow market.

Grand Strategy Explains how the organization’s mission is to be accomplished. Three common grand strategies are:  Growth  Stability  Defensive

Growth Strategy A grand strategy that involves expansion Revenue Employees Number of customers/clients

Stability Strategy A grand strategy that involves little or no significant change.

Defensive Strategy A grand strategy that involves reduction in the organization’s efforts.

Single-Product Strategy A company makes and sells only one product within its market. The benefit – FOCUS The risk - VULNERABILITY

The Diversification Strategy Diversification – operating several businesses in order to spread the risk.

Single-Product Strategy A company makes and sells only one product within its market. Flower shop, security systems The benefit: FOCUS The risk:VULNERABILITY

Diversification Strategy Operating several businesses in order to spread the risk. Unrelated Diversification – operating several businesses under one ownership that are not related to one another. (G.E. – started w/ lighting and then went to plastics, financial services, broadcasting. Related Diversification – an organization under one ownership operates separate businesses that are related to one another.

Synergy The economic value of separate, related businesses under one ownership and management is greater together than the businesses are worth separately.

The BCG Matrix A means of evaluating strategic business units on the basis of: Their business growth rates Their share of the market

Execution Not simply tactics It is a central part of any company’s strategy It consists of using questioning, analysis, and follow-through in order to mesh strategy with reality, align people with goals, and achieve results promised.

Maintaining Strategic Control Engage people Keep it simple Stay focused Keep moving

Three Core Processes of Business People Strategy Operations