Management: Arab World Edition

Robbins, Coulter, Sidani, Jamali

Chapter 8: Strategic Management

Lecturer: Hussein AlJardali, PhD

 What is Strategic Management?

• Strategic management
- Is what managers do to develop an organization’s strategies.
• Strategies
- The decisions and actions that determine the long-run
performance of an organization.
• Business Model
- Is a strategic design for how a company intends to profit from its
strategies, work processes, and work activities.
- Focuses on two things:
• Whether customers will value what the company is providing.
• Whether the company can make any money doing that.

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 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.

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 Strategic Management
in Arab Organizations
• Formal strategic planning exists but is rather limited.
• Lack of confidence in the impact of formal strategic planning.
• The trend for formal strategic planning is on the rise.

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 Exhibit 8–1 The Strategic Management Process

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 Step 1: Identifying the Current
Mission, Goals, and Strategies
Ø Mission: a statement of the
purpose of an organization
• The scope of its products and
services
Ø Goals: the foundation for further
planning
• Measurable performance targets

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 Exhibit 8–2 Components of a Mission Statement

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 Step 2: Doing an external analysis
Ø The environmental scanning of
specific and general
environments
• Focuses on identifying
opportunities and threats

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 Step 3: Doing an internal analysis
Ø 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.
Ø 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.

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 Step 4: Formulating strategies
Ø Develop and evaluate strategic
alternatives.
Ø Select appropriate strategies for all
levels in the organization that provide
relative advantage over competitors.
Ø Match organizational strengths to
environmental opportunities.
Ø Correct weaknesses and guard
against threats.
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 Step 5: Implementing strategies
Ø Implementation: effectively fitting
organizational structure and activities
to the environment.
Ø Effective strategy implementation
requires an organizational structure
matched to its requirements.

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 Step 6: Evaluating results
Ø How effective have strategies
been?
Ø What adjustments, if any, are
necessary?

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 Exhibit 8–4 Types of Organizational Strategies

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 What is a Corporate Strategy?

A corporate strategy is one that specifies what businesses a

company is in or wants to be in and what it wants to do with those
businesses.
1. Growth:
- expansion into new products and markets
2. Stability:
- maintenance of the status quo
3. Renewal:
- examination of organizational weaknesses that are leading to
performance declines

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 1. 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

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 1. Growth Strategy (cont’d)

Concentration
- Focusingon a primary line of business and increasing the number of
products offered or markets served.
Vertical Integration
- Backwardvertical 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).

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 1. Growth Strategy (cont’d)

Horizontal Integration
- Combiningoperations 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
- Growingby combining with firms in unrelated industries where
higher financial returns are possible.

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 2. Stability Strategy

This strategy is appropriate if:

- Managers want to maintain the status quo to deal with the
uncertainty of a dynamic environment.
- The industry is experiencing slow- or no-growth conditions.
- If the owners of the firm elect not to grow for personal reasons.

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 3. 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.

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 Exhibit 8–5 The BCG Matrix

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 What is a Competitive Strategy?

A strategy focused on how an organization will compete in its

businesses.
- For an organization in only one line of business, the competitive
strategy describes how it will compete in its primary or main
market.
- For organizations in multiple businesses, however, each
business has its own competitive strategy that defines its
competitive advantage, the products or services it will offer, the
customers it wants to reach, and the like.

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 Competitive Advantage

1. Competitive Advantage sets an organization’s distinctive

competitive edge.
2. That distinctive edge comes from the organization’s core
competencies because the organization does something that
others cannot do or does it better than others can do it.
• Continuing over time to effectively exploit resources and develop
core competencies that enable an organization to keep its edge
over its industry competitors.
• It is not easy to create a sustainable competitive advantage due
to market instabilities, new technology, and other changes.

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 Exhibit 8–6 Five Forces Model

Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980).

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 Five Competitive Forces

Threat of New Entrants

- The ease or difficulty with which new competitors can enter an
industry.
Threat of Substitutes
- The extent to which switching costs and brand loyalty affect
the likelihood of customers adopting substitute products and
services.
Bargaining Power of Buyers
- The degree to which buyers have the market strength to hold
sway over and influence competitors in an industry.

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 Five Competitive Forces (cont’d)

Bargaining Power of Suppliers

- The relative number of buyers to suppliers and threats
from substitutes and new entrants affect the buyer–
supplier relationship.
Current Rivalry
- Intensity among rivals increases when industry growth rates
slow, demand falls, and product prices descend.

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 Choosing a Competitive Strategy

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 than a larger market.

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 Strategic Flexibility

Involves the ability

1. to recognize major external changes
2. to quickly commit resources
3. to recognize when a strategic decision is not working

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 New Directions

E-business
- Cost leader
- Differentiator

Customer Service
- Giving the customers what they want.
- Communicating effectively with them.
- Providing employees with customer service training.

Innovation
- First-mover advantage

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 Exhibit 8–8 First-Mover Advantages–Disadvantages

Advantages Disadvantages
Ø Reputation for being Ø Uncertainty over exact
innovative and industry direction technology and
leader market will go
Ø Cost and learning benefits Ø Risk of competitors
Ø Control over scarce imitating innovations
resources and keeping Ø Financial and strategic
competitors from having risks
access to them Ø High development costs
Ø Opportunity to begin building
customer relationships
and customer loyalty

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