-sm7 mid revision.ppt

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The Strategic Management Process It is the job of top level management to chart the course of the entire enterprise. It consists of: Analysis of the internal and external environment of the firm. Definition of the firm’s mission. Formulation and implementation of strategies to create or continue a competitive advantage.

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Page 1: -SM7 Mid Revision.ppt

The Strategic Management Process

It is the job of top level management to chart the course of the entire enterprise.

It consists of: Analysis of the internal and external environment of the

firm. Definition of the firm’s mission. Formulation and implementation of strategies to create or

continue a competitive advantage.

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The Strategic Management Process (continued)

Strategic management involves both long-range thinking and adaptation to changing conditions.

Strategies should be designed to generate a sustainable competitive advantage.

Competitors should be unable to duplicate what the firm has done or should find it too difficult or expensive.

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Analyze the external and Analyze the external and internal environmentsinternal environments

Define strategic intent Define strategic intent and missionand mission

Formulate strategiesFormulate strategies

Implement strategiesImplement strategies

Assess strategic Assess strategic outcomesoutcomes

Components of the Strategic ManagementComponents of the Strategic Management Process:Process:

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SWOT Analysis

Commonly used strategy tool: SWOT Strengths, Weaknesses, Opportunities, Threats

Step 1: Analyze the organization’s internal environment, identifying its strengths and weaknesses.

Step 2: Analyze the organization’s external environment, identifying its opportunities and threats.

Step 3: Cross-match Strengths with opportunities Weaknesses with threats Strengths with threats Weaknesses with opportunities

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The External Environment Company leaders must study the external

environment in order to: Identify opportunities and threats in the marketplace. Avoid surprises. Respond appropriately to competitors’ moves.

A major challenge is to gather accurate market intelligence in a timely fashion, and transform it into usable knowledge to gain a competitive advantage.

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Components of External Analysis

ScanningScanning MonitoringMonitoring

ForecastingForecastingAssessingAssessing

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Scope of the External Analysis

General General EnvironmentEnvironment

The IndustryThe Industry

Strategic Strategic GroupsGroups

Competitor Competitor AnalysisAnalysis

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The Segments of the General Environment

DemographyDemographyEconomic Economic

ConditionsConditions

Political/Legal Political/Legal

ForcesForces

Socio-cultural Socio-cultural ConditionsConditions

Technological Technological Changes

Changes

Globalization

Globalization

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Porter’s Framework for Analyzing

the Industry EnvironmentThreat of new Threat of new

entrantsentrants Threat of Threat of substitutessubstitutes

SuppliersSuppliers

CustomersCustomersIntensity of rivalryIntensity of rivalry

among competitorsamong competitors

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The Internal Environment

Each company has something that it does well. These are called “core competencies.”

Company executives should identify the resources, capabilities, and knowledge the firm has that may be used to exploit market opportunities and avoid potential threats.

Resource-based view: Basing the strategy on what the firm is capable of doing

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ResourcesResources

CapabilitiesCapabilities

StrategyStrategy

Potential for Potential for sustainable sustainable competitive competitive advantageadvantage

1.1. Identify the firm’s Identify the firm’s resources and locate resources and locate areas of strength and areas of strength and weakness relative to weakness relative to competitors.competitors.

2.2. Identify the firm’s Identify the firm’s capabilitiescapabilities

(What can the firm do?)(What can the firm do?)

3.3. Appraise the profit Appraise the profit generating potential of generating potential of resources/capabilities in resources/capabilities in terms of creating, terms of creating, sustaining, and exploiting sustaining, and exploiting competitive advantage.competitive advantage.

4.4. Select a strategy that best Select a strategy that best exploits the firm’s exploits the firm’s capabilities relative to capabilities relative to external opportunities.external opportunities.

5.5. Identify Identify resource gapsresource gaps that need to be filled. that need to be filled. Invest in replenishing Invest in replenishing and augmenting the and augmenting the firm’s resource base.firm’s resource base.

Core Competencies and Core Competencies and Market OpportunitiesMarket Opportunities

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Resource Types: Tangible Resources

Assets that can be quantified and observed.

Include financial resources, physical assets, and workers.

Strategic assessment of tangible resources should enable management to efficiently use tangible resources to support the company and to expand the volume of business.

l

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Resource Types: Intangible Resources

Difficult to quantify and included on a balance sheet

Often provides the firm with a strong competitive advantage.

Competitors find it difficult to purchase or imitate these resources.

Strategically most important intangibles: Reputation Technology Human Capital

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Analyzing the Firm’s Capabilities

Functional Functional AnalysisAnalysis

Value Chain Value Chain AnalysisAnalysis

BenchmarkingBenchmarking

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Analyzing Capabilities by Functional Areas

Functional Area Capability

Corporate Management Effective financial control systemsExpertise in strategic control of diversified corporationEffectiveness in motivating and coordinating divisional and business-unit managementManagement of acquisitionsValues-driven, in-touch corporate leadership

Information Management Comprehensive and effective MIS network, with strong central coordination

Research and Development Capability in basic research

Ability to develop innovative new products

Speed of new product development

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Analyzing Capabilities by Functional Areas (continued)

Functional Area Capability

Manufacturing Efficiency in volume manufacturingCapacity for continual improvements in production processesFlexibility and speed of response

Product Design Design capability

Marketing Brand management and brand promotion

Promoting and exploiting reputation for quality

Responsive to market trends

Sales and Distribution Effectiveness in promoting and executing sales

Efficiency and speed of distribution

Quality and effectiveness of customer service

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A Simple Value Chain

TechnologyTechnology Product Product DesignDesign ManufacturingManufacturing MarketingMarketing DistributionDistribution ServiceService

SourceSource

SophisticationSophistication

PatentsPatents

Product ProcessProduct Process

Product ChoicesProduct Choices

FunctionFunction

Physical Physical CharacteristicsCharacteristics

AestheticsAesthetics

QualityQuality

IntegrationIntegration

Raw MaterialsRaw Materials

CapacityCapacity

LocationLocation

ProcurementProcurement

Parts ProductionParts Production

AssemblyAssembly

PricesPrices

AdvertisingAdvertising

PromotionPromotion

Sales ForceSales Force

PackagePackage

BrandBrand

ChannelsChannels

IntegrationIntegration

InventoryInventory

WarehousingWarehousing

TransportTransport

WarrantyWarranty

Dealer SupportDealer Support

AvailabilityAvailability

SpeedSpeed

PricesPrices

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Benchmarking Involves Four Stages:

Identifying activities or functions that are weak and need improvement.

Identifying firms that are known to be at the leading edge of these activities or functions.

Studying the leading-edge firms by visiting them, talking to managers and employees, and reading trade publications.

Using the information gathered to redefine goals, modify processes, and acquire new resources to improve the firm’s functions.

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Strategic Intent and Mission

The primary guides to strategic management are formal statements of strategic intent and mission.

Strategic intent is internally focused, defining how the firm uses its resources, capabilities, and core competencies.

Strategic mission is externally focused, defining what will be to produced and marketed, utilizing its internal core competencies.

.

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Strategy Formulation

The design of an approach to achieve the firm’s mission.

Takes place at: Corporate-Level Business-Level

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Corporate-Level Strategy

The corporation’s overall plan concerning the: Number of businesses the corporation holds. Variety of markets or industries it serves. Distribution of resources among those businesses.

This diversification strategy may be analyzed in terms of: Portfolio mix Type of diversification Process of diversification

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Portfolio Analysis

The basic idea is to classify the businesses of a diversified company within a single framework.

Two of the most widely applied include: The McKinsey-General Electric Portfolio Analysis

Matrix The Boston Consulting Group’s Growth Share Matrix

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The McKinsey-General Electric Portfolio Analysis Matrix

1)

Harvest

2) 3)

4) 5)

Hold

6)

7) 8) 9)

Build

Low Medium High

Business-Unit Position

High

Medium

Low

IndustryAttractiveness

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The Boston Consulting Group’s Growth Share Matrix

Earnings: high stable, growing

Cash Flow: neutral

Strategy: invest for growth

STAR

Earnings: low, unstable, growing

Cash Flow: negative

Strategy: analyze to determine whether business can be grown into a star, or will degenerate into a dog

?

Earnings: high, stable

Cash Flow: high stable Strategy: milk

COW

Earnings: low, unstable

Cash Flow: neutral or negative

Strategy: divest

DOG

Relative Market Share

Annual RealRate of MarketGrowth

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Diversification Strategy

Type of Diversification Concentration strategy Vertical integration

strategy Concentric

diversification strategy Conglomerate

diversification

Process of Diversification Acquisition and

restructuring strategies Acquisition Merger

International strategy

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Business-Level Strategy

Deals with how to compete in each business area or market segment.

Firms have two basic choices: Cost leadership strategy Differentiation strategy

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Strategy Implementation

OrganizationOrganizational Structure al Structure and Controlsand Controls

Cooperative Cooperative StrategiesStrategies

Human Human Resource Resource StrategiesStrategies

Strategic Strategic LeadershipLeadership

Corporate Corporate EntrepreneursEntrepreneurs

hip and hip and InnovationInnovation

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Strategic Outcomes

Company leaders should periodically assess whether the outcomes meet expectations.

A firm must first and foremost cater to the desires of its primary stakeholders.

The firm should also consider the desires of other stakeholders affected by its performance.

Some of the standard measures of strategic success includes: Profits Growth of sales/market share Growth of corporate assets Reduced competitive threats Innovations

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Applications: Management Is Everyone’s Business—For the Manager

An effective manager must be proactive in responding to evolving challenges and opportunities rather than being overtaken by events.

Learning to think strategically forces managers to: Be alert for changes in the external and internal environments. Modify the firm’s strategic intent, mission, and formulated strategy when

necessary. Effectively implement the new or redesigned strategies.

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Applications: Management Is Everyone’s Business—For Managing

Teams

The strategic management process generally involves teams of managers and employees from different areas who bring their perspectives and expertise to bear on issues facing the firm.

A key factor is how well the firm can mobilize and integrate the efforts of team members.

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Applications: Management Is Everyone’s Business—For Individuals

Individual employees are more likely to make greater contributions to the firm if they engage in activities that have strategic value.

Employees can be attuned to changes in their area of expertise and advise management on the strategic implications of those changes.

Employee success depends on the ability to adapt to the firm’s strategic change.