STRATEGY MANAGEMENT

W h a t i s s t r a t e g y ?
Overall Definition:
 "Strategy is the direction and scope of an organization over the long-term:
 Strategy, a word of militaryorigin, refers to a planof action designed to achieve a  particular goal. In
military usage strategy is distinct from tactics, which are concerned with the conduct of an engagement,
while strategy is concerned with how different engagements are linked.
 Strategy at Different Levels of a Business
 Strategies exist at several levels in any organization - ranging from the overall business (or groupof
businesses) through to individuals working in it.
Corporate Strategy- is concerned with the overall purpose and scope of the business to meet stakeholder
expectations. This is a crucial level since it is heavily influenced by investors in the business and acts
to guide strategic decision-making throughout the business. Corporate strategy is often stated clearly
in a "mission statement".
 Business Unit Strategy- is concerned more with how a business competes successfully in a particular market.
It concerns strategic decisions about choice of products, meeting needs of customers, gaining
advantage over competitors, exploiting or creating new opportunities etc.
Operational Strategy- is concerned with how each part of the business is organised to deliver the corporate
and business-unit level strategic direction. Operational strategy therefore focuseson issues of
resources, processes, people etc.

THE IMPORTANCE OF STRATEGIC MANAGEMENT

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.

3. THE STRATEGIC MANAGEMENT PROCESS

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, Objectives, and Strategies

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?
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?
4. TYPES OF ORGANIZATIONAL STRATEGIES

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.
B. The BCG matrix is a strategy tool that guides resource allocation decisions on the
basis of market share and growth rate of SBUs

C. 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.
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.
5. STRATEGIC MANAGEMENT IN TODAY’S ENVIRONMENT
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.