V.
Strategy
V.1 Strategic Management
What is strategic management?
Strategic management is what managers do to develop the organization’s strategies. It’s an important
task involving all the basic management functions—planning, organizing, leading, and controlling.
Organization’s strategies are the plans for:
- how the organization will do whatever it’s in business to do
- how it will compete successfully
- how it will attract and satisfy its customers in order to achieve its goals.
One term often used in strategic management is business model, which simply is how a company is
going to make money. It focuses on two things: (1) whether customers will value what the company is
providing, and (2) whether the company can make any money doing that.
Why is it important?
There are three reasons. The most significant one is that it can make a difference in how well an
organization performs. Research has found a generally positive relationship between strategic
planning and performance. In other words, it appears that organizations that use strategic
management do have higher levels of performance.
Another reason it’s important has to do with the fact that managers in organizations of all types and
sizes face continually changing situations. They cope with this uncertainty by using the strategic
management process to examine relevant factors and decide what actions to take.
Finally, strategic management is important because organizations are complex and diverse. Each part
needs to work together toward achieving the organization’s goals; strategic management helps do
this.
Strategic Management Process (SWOT: internal/external analysis)
This is a six-step process. Strategy planning, implementation, and evaluation. Although the first four
steps describe the planning that must take place, implementation and evaluation are just as
important!
Step 1: Identifying the Organization’s Current Mission, Goals, and Strategies
Every organization needs a mission—a statement of its purpose. Defining the mission forces
managers to identify what it’s in business to do.
Step 2: Doing an External Analysis
Managers do an external analysis so they know, for instance, what the competition is doing, what
pending legislation might affect the organization, or what the labor supply is like in locations where it
operates.
In an external analysis, managers should examin:
- the economic
- demographic
- political/legal
- sociocultural
- technological, and
- global components to see the trends and changes.
Once they’ve analyzed the environment, managers need to pinpoint opportunities that the
organization can exploit and threats that it must counteract or buffer against. Opportunities are
positive trends in the external environment; threats are negative trends.
Step 3: Doing an Internal Analysis
Now we move to the internal analysis, which provides important information about an organization’s
specific resources and capabilities.
After completing an internal analysis, managers should be able to identify organizational strengths
and weaknesses. Any activities the organization does well or any unique resources that it has are
called strengths. Weaknesses are activities the organization doesn’t do well or resources it needs but
doesn’t possess.
Step 2 and step 3 are called the SWOT analysis, which is an analysis of the organization’s strengths,
weaknesses, opportunities, and threats.
Step 4: Formulating Strategies
As managers formulate strategies, they should consider the realities of the external environment and
their available resources and capabilities in order to design strategies that will help an organization
achieve its goals. The three main types of strategies managers will formulate include corporate,
competitive, and functional.
Step 5: Implementing Strategies
Once strategies are formulated, they must be implemented. No matter how effectively an
organization has planned its strategies, performance will suffer if the strategies aren’t implemented
properly.
Step 6: Evaluating Results
The final step in the strategic management process is evaluating results. How effective have the
strategies been at helping the organization reach its goals? What adjustments are necessary?
V.2 Corporate Strategies
What is meant by corporate strategies?
A corporate strategy is one that determines what businesses a company is in or wants to be
in, and what it wants to do with those businesses. It’s based on the mission and goals of the
organization and the roles that each business unit of the organization will play. The other
part of corporate strategy is when top managers decide what to do with those businesses:
grow them, keep them the same, or renew them.
Three types of corporate strategies (growth, stability, renewal)
The three main types of corporate strategies are growth, stability, and renewal.
A growth strategy is when an organization expands the number of markets served or products
offered, either through its current business(es) or through new business(es). Because of its growth
strategy, an organization may increase revenues, number of employees, or market share.
Organizations grow by using concentration, vertical integration, horizontal integration, or
diversification.
- An organization that grows using concentration focuses on its primary line of business and
increases the number of products offered or markets served in this primary business.
- A company also might choose to grow by vertical integration, either backward, forward, or
both. In backward vertical integration, the organization becomes its own supplier so it can
control its inputs. In forward vertical integration, the organization becomes its own
distributor and is able to control its outputs.
- In horizontal integration, a company grows by combining with competitors.
- Finally, an organization can grow through diversification, either related or unrelated. Related
diversification happens when a company combines with other companies in different, but
related, industries. Unrelated diversification is when a company combines with firms in
different and unrelated industries.
A stability strategy is a corporate strategy in which an organization continues to do what it is
currently doing. Examples of this strategy include continuing to serve the same clients by offering the
same product or service, maintaining market share, and sustaining the organization’s current business
operations. The organization doesn’t grow, but doesn’t fall behind, either.
Renewal strategies, that address declining performance. The two main types of renewal strategies
are retrenchment and turnaround strategies.
- A retrenchment strategy is a short-run renewal strategy used for minor performance
problems. This strategy helps an organization stabilize operations, revitalize organizational
resources and capabilities, and prepare to compete once again.
- When an organization’s problems are more serious, more drastic action—the turnaround
strategy—is needed. Managers do two things for both renewal strategies: cut costs and
restructure organizational operations. However, in a turnaround strategy, these measures are
more extensive than in a retrenchment strategy.