Define the strategic management. In order, discuss what happens in each of the steps in the strategic management process.

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Managing Strategy 9

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Strategic Management

Strategic

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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 – the rationale on how a company is going to make money.

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. What are an organization’s strategies? They’re the plans for how the organization will do whatever 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.

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 Strategic Management Important? Why care?

It results in higher organizational performance.

It requires that managers examine and adapt to business environment changes.

It coordinates diverse organizational units, helping them focus on organizational goals.

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Why is strategic management so important? There are three reasons. The most significant one is that it can make a difference in how well an organization performs. In other words, it appears that organizations that use strategic management do have higher levels of performance. And that fact makes it pretty important for managers.

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.

Exhibit 9-1 Strategic Management Process: A six-step process that encompasses strategic planning, implementation, and evaluation

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The Strategic Management Process

Step 1: Identifying the organization’s current mission, goals, and strategies

Mission: a statement of the purpose of an organization

The scope of its products and services;

Vision Statement: What the organization hopes to achieve…not the same as mission statement

Goals: the foundation for further planning

Measurable performance targets, based on facts, specifics and substance, not emotions and symbolism

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Every organization needs a mission—a statement of its purpose. Defining the mission forces managers to identify what it’s in business to do. But sometimes that mission statement can be too limiting. For example, the co-founder of the leading Internet search engine Google says that while the company’s purpose of “organizing the world’s information and making it universally accessible and useful” has served them well, they failed to see the whole social side of the Internet and have been playing catch-up.

Exhibit 9-2: Components of a Mission Statement

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What should a mission statement include? Exhibit 9-2 describes some typical components.

The Strategic Management Process (cont.)

Step 2: Doing an external analysis (O&T)

The environmental scanning of specific and general external environments opportunities and threats

Focuses on identifying opportunities (i.e. market positive trends) and threats (i.e. competitors)

Step 3: Doing an internal analysis (S&W)

Assessing internal organizational resources, capabilities, and activities:

Internal strengths create value for the customer and strengthen the competitive position of the firm.

Internal weaknesses can place the firm at a competitive disadvantage.

NOTE: Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)

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Analyzing that environment is a critical step in the strategic management process. 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 examine 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.

SWOT Analysis

SWOT

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analysis – an analysis of the organization’s strengths, weaknesses, opportunities, and threats.

Resources – an organization’s assets that are used to develop, manufacture, and deliver a product to its customers.

Capabilities – an organization’s skills and abilities in doing the work activities needed in its business.

The combined external and internal analyses are called the SWOT analysis, an analysis of the organization’s strengths, weaknesses, opportunities, and threats. After completing the SWOT analysis, managers are ready to formulate appropriate strategies—that is, strategies that (1) exploit an organization’s strengths and external opportunities, (2) buffer or protect the organization from external threats, or (3) correct critical weaknesses.

Strengths and Weaknesses

Strengths

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- any activities the organization does well or any unique resources that it has.

Weaknesses – activities the organization does not execute well or needed resources it does not possess.

Core competencies – the organization’s major value-creating capabilities that determine its competitive weapons.

The Strategic Management Process (cont.)

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.

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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.

The Strategic Management Process (cont.)

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 (Measuring to the standard)

How effective have strategies been?

What adjustments, if any, are necessary?

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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.

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?

Exhibit 9-3 Three Types of Organizational Strategies

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What Is Corporate Strategy?(9.2)

Corporate strategy – an organizational strategy that determines what businesses a company is in or wants to be in, and what it wants to do with those businesses.

Strategic Business Unit (SBU) – the single independent businesses of an organization that formulate their own competitive strategies.

Functional Strategy - the strategies used by an organization’s various functional departments to support the competitive strategy.

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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.

When an organization is in several different businesses, those single businesses that are independent and that have their own competitive strategies are referred to as strategic business units (SBUs).

Three Main Types of Corporate Strategies (9.2+)

Growth - expansion into new products and markets: Used when an organization wants to expand the number of markets served or products offered, through either its current business(es) or new business(es).

Stability - maintenance of the status quo: Used when an organization continues to do what it is currently doing.

Renewal - examination of organizational weaknesses that are leading to performance declines: Addresses declining performance.

Retrenchment strategy - a short-run renewal strategy used for minor performance problems.

Turnaround strategy - when an organization’s problems are more serious, more drastic action is needed.

The three main types of corporate strategies are growth, stability, and renewal. Let’s look at each type.

Three types of Growth Strategies Growth Strategy: expansion into new products and markets through current business(es) or new business(es).

Concentration - focuses on its primary line of business and increases the number of products offered or markets served in this primary business

2. Integration

Vertical:

Backward vertical integration - the organization becomes its own supplier

Forward vertical integration - the organization becomes its own distributor

Horizontal - a company grows by combining with competitors.

3. Diversification

Related diversification - when a company combines with other companies in different, but related, industries

Unrelated diversification - when a company combines with firms in different and unrelated industries

Competitive Strategies (9.4)

Competitive strategy – an organizational strategy for how an organization will compete in its business(es).

Competitive advantage – what sets an organization apart; its distinctive edge.

Quality as a Competitive Advantage

Design Thinking as a Competitive Advantage

Sustaining Competitive Advantage

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Developing an effective competitive strategy requires an understanding of competitive advantage, which is what sets an organization apart—that is, its distinctive edge

Main Competitive Strategy Types

Cost leadership strategy - when an organization competes on the basis of having the lowest costs (costs or expenses, not prices) in its industry

Differentiation strategy - a company that competes by offering unique products that are widely valued by customers

Focus strategy - involves a cost advantage (cost focus) or a differentiation advantage (differentiation focus) in a narrow segment or niche.

Stuck in the middle - when costs are too high to compete with the low-cost leader or when its products and services aren’t differentiated enough to compete with the differentiator

When an organization competes on the basis of having the lowest costs (costs or expenses, not prices) in its industry, it’s following a cost leadership strategy. A low-cost leader is highly efficient. Overhead is kept to a minimum, and the firm does everything it can to cut costs.

A company that competes by offering unique products that are widely valued by customers is following a differentiation strategy. Product differences might come from exceptionally high quality, extraordinary service, innovative design, technological capability, or an unusually positive brand image. Practically any successful consumer product or service can be identified as an example of the differentiation strategy.

Current Strategic Management Issues

Strategic leadership - the ability to anticipate, envision, maintain flexibility, think strategically, and work with others in the organization to initiate changes that will create a viable and valuable future for the organization.

Strategic flexibility - the ability to recognize major external changes, to quickly commit resources, and to recognize when a strategic decision was a mistake.

An organization’s strategies are usually developed and overseen by its top managers. An organization’s top manager is typically the CEO (chief executive officer). This individual usually works with a top management team that includes other executive or senior managers such as a COO (chief operating officer), CFO (chief financial officer), CIO (chief information officer), and other individuals who may have various titles. Traditional descriptions of the CEO’s role in strategic management include being the “chief ” strategist, structural architect, and developer of the organization’s information/control systems. strategic leadership? It’s the ability to anticipate, envision, maintain flexibility, think strategically, and work with others in the organization to initiate changes that will create a viable and valuable future for the organization.

Exhibit 9-4 Effective Strategic Leadership: How it is done

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How can top managers provide effective strategic leadership? Eight key dimensions have been identified. (See Exhibit 9-4.) These dimensions include determining the organization’s purpose or vision, exploiting and maintaining the organization’s core competencies, developing the organization’s human capital, creating and sustaining a strong organizational culture, creating and maintaining organizational relationships, reframing prevailing views by asking penetrating questions and questioning assumptions, emphasizing ethical organizational decisions and practices, and establishing appropriately balanced organizational controls. Each dimension encompasses an important part of the strategic management process.

Exhibit 9-5 Developing Strategic Flexibility…How it is done

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Important Organizational Strategies for Today’s Environment

e-Business strategies

Cost Leadership – online activities: bidding, order processing, inventory control, recruitment and hiring.

Differentiation – Internet-based knowledge systems, online ordering and customer support.

Focus – chat rooms and discussion boards, targeted Web sites.

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Managers use e-business strategies to develop a sustainable competitive advantage. Cost leaders can use e-business to lower costs in a variety of ways. For instance, it might use online bidding and order processing to eliminate the need for sales calls and to decrease sales force expenses; it could use Web-based inventory control systems that reduce storage costs; or it might use online testing and evaluation of job applicants. A differentiator needs to offer products or services that customers perceive and value as unique. For instance, a business might use Internet-based knowledge systems to shorten customer response times, provide rapid online responses to service requests, or automate purchasing and payment systems so that customers have detailed status reports and purchasing histories. Finally, because the focuser targets a narrow market segment with customized products, it might provide chat rooms or discussion boards for customers to interact with others who have common interests, design niche Web sites that target specific groups with specific interests, or use Web sites to perform standardized office functions such as payroll or budgeting.