1 I CONTENT

1. Introduction to management and organisations

Content
2. Models of management

3. Organisational culture and environment

4. Managing in a global environment

5. Corporate responsibility

6. Planning

7. Decision making

8. Strategic management

9. Organisational structure and design

10. Information systems and e-business

11. Creativity, innovation and change

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8. Strategic management

Principles of Management
2017/18

Prof. Dr. Maud H. Schmiedeknecht

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Learning Objective

1. Define strategic management and explain why it`s important

2. Explain what managers do during the six steps of the strategic management process

3. Describe the three types of corporate strategies

4. Describe competitive advantage and the competitive strategies organizations use to

get it
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Strategic management enables companies to be clear

about how they will add value to resources
Examples of organisations making strategic changes

Organisation and strategic issue Strategic decisions or moves

Tesco: In 2005 opens Fresh and Easy chain in US. Invests over
wanting to widen overseas £1 billion but makes no profit. In 2012 begins strategic
business to achieve faster growth review – may lead to closure

Changed from focus on people in rich economies to

Procter and Gamble: those in poor countries – affects R&D, market research
how to ensure long term growth and manufacturing to identify and make suitable
products

Nestlé: Increased emphasis on healthy foods, by adapting

how to stimulate sales and profits current products and buying companies with
in a mature business established reputations for healthy products

CP. BODDY (2014), P.235

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Strategy is something people do (their strategy process)

and that organisations have (their strategy content)
Strategy – process, content and context
Strategy: Is about how people decide to organise major resources to enhance
performance of an enterprise

Elaborating on the definition

• People: Strategy is typically the responsibility of senior management, but some believe
that in time of rapid change engaging more people in decisions will improve the results
• Decide: In formal planning processes and/or informal conversations amongst
managers
• Organise: How to divide and coordinate activities to add most value
• Major: Significant, expensive, visible – decisions with long-term implications
• Resources: Inputs the enterprise needs – including those in other organisations
• To enhance performance: The intended outcome of strategic decisions
• Enterprise: All kinds of organisation can benefit from managing their strategy
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The organisation‘s context affects the issues those

managing strategy will face
Examples of strategic issues in different settings

Type of organisation Distinctive strategic issues

Large multinational Structure and control of global activities;
corporations (MNCs) allocating resources between units

Small and medium Strongly influenced by founders or owners;

enterprises (SMEs) lack of capital limits choices
Relative contribution to competitive advantage of the manufacturing or service
Manufacturing aspect of the offer
Firms in innovative Adding value depends on rapid innovation, so strategy aims to create a culture
sectors of questioning and challenge
Competing for resources, and so aim to demonstrate best value in outputs;
Public sector most problems require co-operation between agencies, complicating strategy
Voluntary and Non for Balancing ideology and values with intersts of funding sources; balancing
profit sector central control (consistency) with local commitment (volunteers and local staff)

CP. BODDY (2014), P.236

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Complexity of strategic decisions requires formal approaches

to guide managers through the process of making them
Strategy process – planning view

Those favouring this method assume that events and facts can be expressed objectively,
and that people respond rationally to such information.
CP. BODDY (2014), P.238
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The essence of the learning view is adaptation, reacting to

unexpected events, experimenting with new ideas
Strategy process – learning view

Five forms of strategy

Realised
Unrealised strategy
strategy

Emergent strategies are those that result from actions taken one by one that converge in
time in some sort of consistent pattern.
CP. BODDY (2014), P.238
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Managers develop and evaluate strategic alternatives

Identifying the organisation’s opportunities

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Managers try to identify key issues from each and draw out
the strategic implications
Step 1: Identifying the organisation’s current mission, objectives, & strategies
Mission: the firm’s reason for being (the scope of its products and services)
Goals: the foundation for further planning (measurable performance targets)

SWOT-ANALYSIS
Step 2: Conducting an internal analysis
Assessing organisational resources, capabilities, activities, and culture:
• Strengths (core competencies) create value for the customer and strengthen the
competitive position of the firm
• Weaknesses (things done poorly or not at all) can place the firm at a competitive
disadvantage
Step 3:Conducting an external analysis
The environmental scanning of specific and general environments: Focuses on
identifying opportunities and threats
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Strategic capabilities contribute to its long-term survival or

competitive advantage
Internal analysis: Resources, competences and capabilities

Tangible resources
Land
Buildings
Equipment
Materials
Money (what we have) (what we do well)
Patents Resource base + Competences Strategic
= capabilities
(unique or not) activities
processes
Intangible resources attitudes
Relational
Reputational

CP. BODDY (2014), P.246

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A value chain is a set of activities that a company performs

to deliver a valuable product or service for the market
Internal analysis: Value chain (Porter)

Firm infrastructure

Human resource management

Support
activities Technology development

Margin
Procurement

Inbound Outbound Marketing

Operations Service
logistics logistics and sales

Primary activities

CP. PORTER (1985)

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Managers are most directly affected by forces in their

immediate competitive environment
The competitive environment – Porters Five Forces of industry competition

Potential entrants

Threat of
new entrants

Bargaining power Industry competitors Bargaining power

of suppliers of buyers
Suppliers Buyers
Rivalry among
existing firms

Threat of
substitutes

Substitutes

It is a technique for identifying and listing those aspects of the Five Forces most relevant to
the profitability of an organisation at that time.
CP. PORTER (1980), P.5
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At corporate level strategy reflects the overall direction of

the organisation & the part which the business unit will play
Step 4: Formulating strategies
• Develop and evaluate strategic alternatives
• Select appropriate strategies for all levels in the organisation that provide relative
advantage over competitors
• Match organisational strengths to environmental opportunities
• Correct weaknesses and guard against threats
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Deciding strategy at corporate level:

Strategies can aim for growth, stability or renewal…
Strategy development directions

Corporate-Level Strategies
• Top management’s overall plan for the entire organisation and its strategic business
units

Types of Corporate Strategies

• Growth: expansion into new products and markets
• Stability: maintenance of the status quo
• Renewal: redirection of the firm into new markets

CP. JOHNSON ET AL (2011)

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Organisations grow by using concentration, vertical

integration, horizontal integration, or diversification
Types of growth strategies
Concentration:
• Focusing on a primary line of business and increasing the number of products offered or
markets served
Vertical integration
• Backward vertical 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 and/or provide customer service activities (eliminating intermediaries)
Horizontal integration
• Combining operations with another competitor in the same industry to increase competitive
strengths and lower competition among industry rivals
Diversification
• Related Diversification: Expanding by merging with or acquiring firms in different, but related
industries that are “strategic fits”
• Unrelated Diversification: Growing by merging with or acquiring firms in unrelated industries
where higher financial returns are possible
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Deciding strategy at business unit level:

Porter identified two types of competitive advantages
Generic competitive strategies

Competitive advantage
Cost leadership strategy: Lower cost Differentiation
uses low price as the main
competitive weapon 1 2 Differentiation strategy:
Cost offering product or service
leadership Differentiation that is perceived as
Broad target
unique or distinctive on a
basis other than price
Competitive scope
3 3
a b
Differentiation
Narrow target Cost focus
focus

Focus strategy: competes by

targeting very specific segments of
the market
CP. PORTER (1985)
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To portray alternative growth strategies, Ansoff’s matrix

focuses on present and potential products and markets
The product/market matrix (Ansoff Matrix)

Existing products/services New products/services

Market penetration
Consolidation Product/service
Existing development
markets Withdrawal

Market development: Diversification:

• New territories • Horizontal
New • New segments • Vertical
markets
• New uses • unrelated

CP. JOHNSON ET AL (2011), ANSOFF (1988)

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Portfolio-Management is a central element of corporate

strategic planning
The Boston-Consulting-Group (BCG) Portfolio

Offensive strategy:
Investments in order to
generate growth and Growth strategy:
expansion of market high Strengthen competitive
position if product is QUESTION advantage and position
STAR
Market growth rate

supposed to be MARK
successful
low

POOR DOG CASH COW

Divestment Strategy: Milk Strategy:

no or minimum low high Hold position and carry
investment, retreat as out only necessary
Relative Market Share investments
soon as Cash Flow
becomes negative;
eventually sell
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Implementation turns strategy into action, moving from

corporate to operational levels
Step 5: Implementing strategies
• Implementation: effectively fitting organisational structure and activities to the
environment
• The environment dictates the chosen strategy; effective strategy implementation
requires an organisational structure matched to its requirements

Step 6: Evaluating Results

• How effective have strategies been?
• What adjustments, if any, are necessary?

Organisations deliver their strategies by internal development, acquisition, or alliance – or

a combination: the choice affects the success of the strategy.
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Activity: Critical reflection on strategy

 Gather evidence to help you decide which generic strategy your chosen
companies are following.
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Key terms

 strategies  growth strategy

 business model  concentration
 strategic management process  vertical/horizontal diversification
 mission  related/unrelated diversification
 resources  cost leadership strategy
 capabilities  differentiation strategy
 core competencies  focus strategy
 SWOT analysis  product/market matrix (Ansoff)
 Porters Five Forces  BCG matrix
 corporate strategy