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Effective managers recognize the
role that strategic management plays in their organization’s performance.
Throughout this chapter, students discover that good strategies can lead to high
organizational performance.
Managers must carefully consider
their organization’s internal and external environments as they develop
strategic plans. They should have a systematic means of analyzing the environment,
assessing their organization’s strengths and weaknesses, identifying
opportunities that would give the organization a competitive advantage, and
incorporating these findings into their planning. The value of thinking strategically has an important
impact on organization performance.
A. What
Is Strategic Management?
1. Strategic management is what managers
do to develop the organization’s strategies.
2. Strategic
management involves all four of the basic management functions—planning,
organizing, leading, and controlling.
B. Why
Is Strategic Management Important?
1. Strategic
management has a significant impact on how well an organization performs.
2. In
today’s business world, organizations of all types and sizes must manage
constantly changing situations.
3. Today’s
companies are composed of diverse divisions, units, functions, and work
activities that must be coordinated.
4. Strategic management is involved in
many of the decisions that managers make.
The strategic management process is a six-step process that encompasses
strategic planning, implementation, and evaluation. (See Exhibit 8-1 and PowerPoint
slide 8-8.)
A. Step 1:
Identifying the Organization’s Current Mission
1.
Every organization needs a mission, which is a statement of the
purpose of an organization. The mission statement addresses the question: What
is the organization’s reason for being in business? (See Exhibit 8-2 and PowerPoint
slide 8-10.)
2. The
organization must identify its current objectives and strategies, as well.
B. Step 2: External Analysis
1. Managers
in every organization need to conduct an external analysis. Influential factors
such as competition, pending legislation, and labor supply are included in the
external environment.
2. After
analyzing the external environment, managers must assess what they have learned
in terms of opportunities and threats. Opportunities are positive trends in
external environmental factors; threats
are negative trends in environmental factors.
3. Because
of different resources and capabilities, the same external environment can
present opportunities to one organization and pose threats to another.
C. Step 3: Internal Analysis
1. Internal
analysis should lead to a clear assessment of the organization’s resources and
capabilities.
2. Any
activities the organization does well or any unique resources that it has are
called strengths.
3. Weaknesses are activities the
organization does not do well or resources it needs but does not possess.
4. The
organization’s major value-creating skills and capabilities that determine its
competitive weapons are the organization’s core
competencies.
5. Organizational
culture is important in internal analysis; the company’s culture can promote or
hinder its strategic actions.
6. SWOT analysis is an analysis of the
organization’s strengths, weaknesses, opportunities, and threats.
D. Step 4:
Formulating Strategies
1. After
the SWOT, managers develop and evaluate strategic alternatives and select
strategies that are appropriate.
2. Strategies
need to be established for corporate, business, and functional levels.
E. Step 5:
Implementing Strategies
1. A
strategy is only as good as its implementation.
F.
Step 6:
Evaluating Results
1. How effective have the strategies been? Are adjustments necessary?
Strategic planning takes place on
three different and distinct levels:
corporate, business, and functional. (See Exhibit 8-4 and PowerPoint
slide 8-16).
A. Corporate
Strategy
Corporate strategy is an organizational
strategy that determines what businesses a company is in, should be in, or
wants to be in, and what it wants to do with those businesses.
1.
There are three main types of
corporate strategies:
a.
A growth strategy is a corporate strategy that is used when an organization wants to grow and does
so by expanding the number of products offered or markets served, either
through its current business(es) or through new business(es).
b.
A stability strategy is a corporate strategy characterized by an
absence of significant change in what the organization is currently doing.
c.
A renewal strategy is a corporate strategy designed to address
organizational weaknesses that are leading to performance declines. Two such
strategies are retrenchment strategy and turnaround strategy.
2.
Corporate Portfolio Analysis is used
when an organization’s corporate strategy involves a number of businesses.
Managers can manage this portfolio of businesses using a corporate portfolio
matrix, such as the BCG matrix.
a.
The BCG matrix is a strategy tool that guides resource allocation
decisions on the basis of market share and growth rate of SBUs. (See Exhibit 8-5 and PowerPoint slide 8-23.)
B.
Business
(Competitive) Strategy
A business strategy (also known as a competitive strategy) is an
organizational strategy focused on how the organization will compete in each of
its businesses.
1.
The Role of
Competitive Advantage. A competitive advantage is what sets an
organization apart, that is, its distinctive edge. An organization’s competitive advantage can
come from its core competencies.
2.
Quality as a
Competitive Advantage. If implemented
properly, quality can be one way for an organization to create a sustainable
competitive advantage.
3.
Sustaining Competitive Advantage. An organization must be able to sustain its
competitive advantage; it must keep its edge despite competitors’ action and
regardless of major changes in the organization’s industry.
4. Michael
Porter’s work explains how managers can create and sustain a competitive
advantage that will give a company above-average profitability.
a. Industry
analysis is an important step in Porter’s framework. He says there are five
competitive forces at work in an industry; together, these five forces determine
industry attractiveness and profitability.
(See Exhibit 8-6 and PowerPoint slide 8-29). Porter proposes
that the following five factors can be used to assess an industry’s
attractiveness:
1) Threat of new entrants. How likely is it
that new competitors will come into the
industry? Managers should assess barriers to entry, which are factors that
determine how easy or difficult it would be for new competitors to enter the
industry.
2) Threat of substitutes. How likely is it
that products of other industries could be substituted for a company’s
products?
3) Bargaining power of buyers. How much
bargaining power do buyers (customers) have?
4) Bargaining power of suppliers. How much
bargaining power do a company’s suppliers have?
5) Current rivalry. How intense is the
competition among firms that are currently in the industry?
5. According
to Porter, managers must choose a strategy that will give their organization a
competitive advantage. Porter identifies three generic competitive strategies.
Which strategy managers select depends on the organization’s strengths and core
competencies and the particular weaknesses of its competitor(s).
a. A cost leadership strategy is a business
or competitive strategy in which the organization competes on the basis of having
the lowest costs in its industry.
b. A differentiation strategy is a business
or competitive strategy in which a company offers unique products that are widely valued by customers.
c. A focus strategy is a business or
competitive strategy in which a company pursues a cost or differentiation
advantage in a narrow industry segment.
6. An
organization that has been not been able to develop either a low cost or a
differentiation competitive advantage is said to be “stuck in the middle.”
7. Subsequent
research indicates that it is possible, though very difficult, for
organizations that are stuck in the middle to achieve high performance.
C. Functional
Strategy
Functional strategy is the strategies
used by an organization’s various functional departments to support the
business or competitive strategy.
A. The
Rule of Three. Competitive forces in an
industry, if kept relatively free from government interference or other special
circumstances, will inevitably create a situation where three companies
dominate any given market.
B. New
Directions in Organizational Strategies
1. E-Business
Strategies. Using the Internet,
companies have created knowledge bases that employees can tap into anytime,
anywhere. E-business as a strategy can
be used to develop a sustainable competitive advantage; it can also be used to
establish a basis for differentiation or focus.
2. Customer Service Strategies.
These strategies give customers what they want, communicate effectively with
them, and provide employees with customer service training.
3. Innovation Strategies. These strategies focus on breakthrough
products and can include the application of existing technology to new uses. An
organization that is first to bring a product innovation to the market or to
use a new process innovation is called a first
mover.
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