CHAPTER 6
STRATEGIC MANAGEMENT
Lecturer: Dr. Ong Quoc Cuong
Learning Outline
The Importance of Strategic Management
• Define strategic management, strategy, and business model.
• Explain why strategic management is important.
The Strategic Management Process
• List the six steps in the strategic management process.
• Describe what managers do during external and internal
analyses.
• Explain the role of resources, capabilities, and core
competencies.
• Define strengths, weaknesses, opportunities, and threats.
Learning Outline
Types of Organizational Strategies
• Describe the three major types of corporate strategies.
• Discuss the BCG matrix and how it’s used.
• Describe the role of competitive advantage in business-
level strategies.
• Explain Porter’s five forces model.
What is Strategic Management
• Strategic management: What managers do to develop the
organization’s strategies.
• Strategies: The plans for how the organization will do what
it’s in business to do, how it will compete successfully, and
how it will attract and satisfy its customers in order to
achieve its goals.
• Business model: How a company is going to make money
Why is Strategic Management Important
1. It results in higher organizational performance.
2. It requires that managers examine and adapt to
business environment changes.
3. It coordinates diverse organizational units,
helping them focus on organizational goals.
4. It is very much involved in the managerial
decision-making process.
Exhibit 6–1 The Strategic Management Process
Strategic Management Process
• Step 1: Identifying the organization’s current
mission, goals, and strategies
– Mission: the firm’s reason for being
• The scope of its products and services
– Goals: the foundation for further planning
• Measurable performance targets
• Step 2: Doing an external analysis
– The environmental scanning of specific and general
environments
• Focuses on identifying opportunities and threats
Exhibit 8–2 Components of a Mission Statement
Source: Based on F. David, Strategic Management, 11 ed. (Upper Saddle River, NJ: Prentice Hall, 2007), p.70.
Strategic Management Process (cont’d)
• Step 3: Doing an internal analysis
– Assessing organizational resources, capabilities, and activities:
• Strengths create value for the customer and strengthen the
competitive position of the firm.
• Weaknesses can place the firm at a competitive disadvantage.
– Analyzing financial and physical assets is fairly easy, but
assessing intangible assets (employee’s skills, culture, corporate
reputation, and so forth) isn’t as easy.
• Steps 2 and 3 combined are called a SWOT analysis. (Strengths,
Weaknesses, Opportunities, and Threats)
Strategic Management Process (cont’d)
• Step 4: Formulating strategies
– Develop and evaluate strategic alternatives
– Select appropriate strategies for all levels in the
organization that provide relative advantage over
competitors
– Match organizational strengths to environmental
opportunities
– Correct weaknesses and guard against threats
SWOT analysis
Opportunities (O) Threats (T)
1. 1.
2. 2.
3. 3.
……… ………
Strengths (S) SO strategies ST strategies
1.
2.
3.
………
Weaknesses (W) WO strategies WT strategies
1.
2.
3.
………
Strategic Management Process (cont’d)
• Step 5: Implementing strategies
– Implementation: effectively fitting organizational
structure and activities to the environment.
– The environment dictates the chosen strategy; effective
strategy implementation requires an organizational
structure matched to its requirements.
• Step 6: Evaluating results
– How effective have strategies been?
– What adjustments, if any, are necessary?
Types of Organizational Strategies
• Corporate Strategies
– Top management’s overall plan for the entire
organization and its strategic business units
• Types of Corporate Strategies
– Growth: expansion into new products and markets
– Stability: maintenance of the status quo
– Renewal: developing strategies to counter organization
weaknesses that are leading to performance declines
Exhibit 6-2 Levels of Organizational Strategy
Corporate Strategies
• Growth Strategy
– Seeking to increase the organization’s business by
expansion into new products and markets.
• Types of Growth Strategies
– Concentration
– Vertical integration
– Horizontal integration
– Diversification
Growth Strategies
• Concentration
– Focusing on a primary line of business and increasing the
number of products offered or markets served.
• Vertical Integration
– Backward vertical integration: attempting to gain
control of inputs (become a self-supplier).
– Forward vertical integration: attempting to gain control
of output through control of the distribution channel or
provide customer service activities (eliminating
intermediaries).
Growth Strategies (cont’d)
• Horizontal Integration
– Combining operations with another competitor in the
same industry to increase competitive strengths and
lower competition among industry rivals.
• Related Diversification
– Expanding by combining with firms in different, but
related industries that are “strategic fits.”
• Unrelated Diversification
– Growing by combining with firms in unrelated
industries where higher financial returns are possible.
Corporate Strategies (cont’d)
• Stability Strategy
– A strategy that seeks to maintain the status quo to deal
with the uncertainty of a dynamic environment, when
the industry is experiencing slow- or no-growth
conditions, or if the owners of the firm elect not to
grow for personal reasons.
Corporate Strategies (cont’d)
• Renewal Strategies
– Developing strategies to counter organization weaknesses that
are leading to performance declines.
• Retrenchment: focusing of eliminating non-critical
weaknesses and restoring strengths to overcome current
performance problems.
• Turnaround: addressing critical long-term performance
problems through the use of strong cost elimination
measures and large-scale organizational restructuring
solutions.
Corporate Portfolio Analysis
• Managers manage portfolio (or collection) of businesses using a
corporate portfolio matrix such as the BCG Matrix.
• BCG Matrix
– Developed by the Boston Consulting Group
– Considers market share and industry growth rate
– Classifies firms as:
• Cash cows: low growth rate, high market share
• Stars: high growth rate, high market share
• Question marks: high growth rate, low market share
• Dogs: low growth rate, low market share
Exhibit 6-3 The BCG Matrix
BCG Matrix
• Cash cows: Businesses in this category generate large amount of
cash, but their prospects for future growth are limited.
• Stars: These businesses are in a fast-growing market, and hold a
dominant share of that market. Their contribution to cash flow
depends on their need for resources.
• Question marks: These businesses are in an attractive industry
but hold a small market share percentage.
• Dogs: Businesses in this category do not produce, or consume,
much cash. However, they hold no promise for improved
performance.
BCG Matrix
Business or Competitive Strategy
• Business (or Competitive) Strategy
– A strategy focused on how an organization should
compete in each of its SBUs (strategic business units).
• Strategic business units
– The single independent businesses of an organization
that formulate their own competitive strategies.
The Role of Competitive Advantage
• Competitive Advantage
– An organization’s distinctive competitive edge.
• Quality as a Competitive Advantage
– Differentiates the firm from its competitors.
– Can create a sustainable competitive advantage.
– Represents the company’s focus on quality
management to achieve continuous improvement
and meet customers’ demand for quality.
The Role of Competitive Advantage (cont’d)
• Sustainable Competitive Advantage
– Continuing over time to effectively exploit resources
and develop core competencies that enable an
organization to keep its edge over its industry
competitors.
Five Competitive Forces
• Threat of New Entrants
– Factors such as economies of scale, brand loyalty, and capital
requirements determine how easy or hard it is for new competitors
to enter am industry.
• Threat of Substitutes
– Factors such as switching costs and brand loyalty determine the
degree to which customers are likely to buy a substitute product.
• Bargaining Power of Buyers
– Factors such as number of customers in the market, customer
information, and the availability of substitutes determine the
amount of influence that buyers have in an industry.
Five Competitive Forces
• Bargaining Power of Suppliers
– Factors such as the degree of supplier concentration, and
the availability of substitute inputs determine the amount
of power that suppliers have over firms in the industry.
• Current Rivalry
– Factors such as industry growth rates, increasing or
falling demand falls, and product differences determine
how intense the competitive rivalry will be among firms
currently in the industry.
Exhibit 6-4 Forces in the Industry Analysis
Source: Based on M.E. Porter, Competitive Strategy: Techniques for
Analyzing Industries and Competitors (New York: The Free Press, 1980).
Types of Competitive Strategies
• Cost Leadership Strategy
– Seeking to attain the lowest total overall costs relative to
other industry competitors.
• Differentiation Strategy
– Attempting to create a unique and distinctive product or
service for which customers will pay a premium.
• Focus Strategy
– Using a cost or differentiation advantage to exploit a
particular market segment rather a larger market.
Functional-level strategy
• The strategies used by an organization’s various
functional departments to support the competitive
strategy (business-level strategy).
• Traditional functional departments: manufacturing,
marketing, human resources, research and development,
and finance.
The end