Strategic Management

Prof. Liziel Villavicencio MBA, CDMP, MScCM

STRATEGIC MANAGEMENT 2020

STRATEGIC MANAGEMENT

Strategic Management
Strategic management requires managers to take an integrative view of the
organization and assess how all of the functional areas and activities fit together
to help an organization achieve its goals and objectives.

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Everyone must be involved in the strategic management process.
There is a critical need for three types of leaders:

Local line leaders Executive leaders Internal networkers

who have significant profit-and- who champion and guide ideas, who, although they have little
loss responsibility. create a learning infrastructure, positional power and formal
and authority, generate their power
establish a domain for taking through the conviction and
action. clarity of their ideas.

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Example: Virgin Group
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Top-level executives are key in setting the tone for the empowerment of employees. Consider
Richard Branson, founder of the Virgin Group, whose core businesses include retail operations,
hotels, communications, and an airline. He is well known for creating a culture and an informal
structure where anybody in the organization can be involved in generating and acting upon new
business ideas. In an interview, he stated: “If someone has an idea, they can pick up the phone
and talk to me. I can vote, ‘Done, let’s do it.’ Or, better still, they can just go ahead and do it. They
know that they are not going to get a mouthful from me if they make a mistake.”

STRATEGIC MANAGEMENT
STRATEGY AND THE VALUE
OF INEXPERIENCE
Peter Gruber, chairman of Mandalay Entertainment, discovered that great ideas can come
from the least expected sources. During the filming of the movie Gorillas in the Mist, his
production company faced many problems. Rwanda—the site of the filming—was on the
verge of revolution, the film needed to use 200 animals, and the screenplay required the
gorillas to follow a script, that is, do what the script called fo and “act.” If that failed, the
fallback position was to use dwarfs in gorilla suits on a soundstage—a strategy that usually
failed.

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STRATEGY AND THE VALUE
OF INEXPERIENCE
Gruber explains how the “day was saved” by someone with very limited experience:
We called an emergency meeting to solve these problems. In the middle of it, a young intern asked,
“What if you let the gorillas write the story?” Everyone laughed and wondered what she was doing in the meeting with
experienced filmmakers. Hours later, someone casually asked her what she had meant. She said, “What if you send a
really good cinematographer into the jungle with a ton of film to shoot the gorillas, then you could write a story around
what the gorillas did on film.” It was a brilliant idea. And we did exactly what she suggested: We sent Alan Root, an
Academy Award–nominated cinematographer into the jungle for three weeks. He came back with phenomenal footage
that practically wrote the story for us.

The upshot? The film cost $20 million to shoot—half the original budget. And it was nominated for five Academy Awards—
including Sigourney Weaver for best actress—and it won two Golden Globe Awards.

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Source: Gruber, P. 1998. My greatest lesson. Fast Company, 14: 88–90; and imdb.com.
Case Sample:

At Netflix, leading people is not based on one’s position in the hierarchy, nor an individual trait that is
taught to people identified as “high potentials.” The expectation is that anyone can take initiative, make
decisions, and influence others consistent with the firm’s strategy. Everyone gets—and receives—
feedback from team members, supervisors, managers, and customers. As part of the overall system that
emphasizes transparency, there is the shared belief at Netflix that good results depend on people
providing their insights and perspectives. Getting alignment, direction, and obtaining results the right way
is essential. Those who fail to achieve this are asked to leave the firm.

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ENHANCING AWARENESS OF THE EXTERNAL ENVIRONMENT

Perceptual Acuity
The ability to sense what is coming before the fog clears.

How can perceptual acuity be improved? Although many CEOs may complain that the top job is a lonely
one, they can’t do it effectively by sitting alone in their office. Instead, high-performing CEOs are constantly
meeting with people and searching out information. Charan provides three examples:

• One CEO gets together with his critical people for half a day every eight weeks to discuss what’s new
and what’s going on in the world. The setting is informal, and outsiders often attend. The participants
look beyond the lens of their industry because some trends that affect one industry may impact others
later on.

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• Another CEO meets four times a year with about four other CEOs of large, but noncompeting, diverse
global companies. Examining the world from multiple perspectives, they share their thinking about how
different trends may develop. The CEO then goes back to his own weekly management meeting and
throws out “a bunch of hand grenades to shake up people’s thinking.”

• Two companies ask outsiders to critique strategy during their board’s strategy sessions. Such input
typically leads to spirited discussions that provide valued input on the hinge assumptions and options
that are under consideration. Once, the focus was on pinpointing the risk inherent in a certain strategy.
Now, discussions have led to finding that the company was missing a valuable opportunity.

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Exhibit 2.1 Inputs to Forecasting

Environmental Scanning

Forecas

Scanning Monitoring t

Competitive Intelligence

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 The Role of Scanning, Monitoring,
Competitive Intelligence, and Forecasting
Environmental Scanning Environmental Monitoring Competitive Intelligence

Surveillance of a firm’s external A firm’s analysis of the external A firm’s activities of collecting
environment to predict environment that tracks the and interpreting data on
environmental changes and evolution of environmental competitors, defining and
detect changes already under way. trends, sequences of events, understanding the industry, and
or streams of activities. identifying competitors’
strengths and weaknesses.

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Keeping track of competitors has become easier today with the amount of information
that is available on the Internet. The following are examples of some websites that companies routinely use for
competitive intelligence gathering.

Slide Share Ispionage

A website for publicly sharing PowerPoint A site that reveals the ad words that companies are 10
presentations. Marketing teams have embraced the buying, which can often shed light on new campaigns
platform and often post detail-rich presentations about being launched.
their firms and products.

Quora YouTube
A question-and-answer site popular among industry Great for finding interviews with executives at trade
insiders who embrace the free flow of information about shows.
technical questions.
ssss

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Environmental Forecasting
The development of plausible projections about the direction, scope, speed, and
intensity of environmental change

Scenario Analysis 11

An in-depth approach to environmental forecasting that involves experts detailed

assessments of societal trends, economics, politics, technology, or other
dimensions of the external environment.

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SWOT ANALYSIS
A framework for analyzing a company’s internal and external environments and that stands for strengths,
weaknesses, opportunities, and threats.

The Strengths and Weaknesses refer to the internal conditions of the firm—where your firm excels
(strengths) and where it may be lacking relative to competitors (weaknesses).

Opportunities and Threats are environmental conditions external to the firm. These could be factors in 12
either the general or the competitive environment
The general idea of SWOT analysis is that a firm’s strategy must:

• Build on its strengths.

• Remedy the weaknesses or work around them.
• Take advantage of the opportunities presented by the environment.
• Protect the firm from the threats.

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The General Environment
Is composed of factors that can have dramatic effects on firm strategy.

Exhibit 2.2 General Environment Key Trends and Events

Demographic
• Aging Population
• Rising Affluence
• Changes in ethnic composition 13
• Geographic distribution of population
• Greater disparities in income levels
Socio Cultural
• More women in the workforce
• Increase in temporary workers

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The Competitive Environment
The competitive environment consists of many factors that are
particularly relevant to a firm’s strategy. These include
competitors (existing or potential), customers, and suppliers.
Potential competitors may include a supplier considering forward 14
integration, such as an automobile manufacturer acquiring a
rental car company, or a firm in an entirely new industry
introducing a similar product that uses a more efficient
technology.

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The “five forces” model developed by Michael E. Porter has been the most commonly
used analytical tool for examining the competitive environment.
It describes the competitive environment in terms of five basic competitive forces:55
Porter’s Five Forces Model of Industry Competition

• The threat of new entrants.

• The bargaining power of buyers.
• The bargaining power of suppliers.
• The threat of substitute products and services.
• The intensity of rivalry among competitors in an industry.

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Threat of New Entrants
The possibility that the profits of established firms in the industry may be eroded
by new competitors.

Economies of scale
Refers to spreading the costs of production over the number of units produced.
The cost of a product per unit declines as the absolute volume per period
increases.
Product Differentiation
When existing competitors have strong brand identification and customer loyalty,
product differentiation creates a barrier to entry by forcing entrants to spend
heavily to overcome existing customer loyalties.

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Capital Requirements
The need to invest large financial resources to compete creates a barrier to entry,
especially if the capital is required for risky or unrecoverable up-front advertising
or research and development (R&D).
Switching Costs
A barrier to entry is created by the existence of one-time costs that the buyer
faces when switching from one supplier’s product or service to another.

Access to Distribution Channels

The new entrant’s need to secure distribution for its product can create a barrier
to entry.

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Cost Disadvantages Independent of Scale

Some existing competitors may have

advantages that are independent of size or
economies of scale.

These derive products

• Proprietary from:
• Favorable access to raw materials
• Government subsidies
• Favorable government policies

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Exhibit 2.4 Porter's Five Forces Model of Industry Competition

POTENTIAL Threat of substitute products

ENTRANTS or services
Bargaining power of
suppliers Bargaining power
of buyers

INDUSTRY
SUPPLIER COMPETITORS BUYER
S Rivalry among S
Existing Forms

Threat of new
entrants

SUBSTITUTE
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S
The Bargaining Power of Buyers
Buyers threaten an industry by forcing down prices, bargaining for higher quality or more
services, and playing competitors against each other.
• It is concentrated or purchases large volumes relative to seller sales. If a large percentage of a supplier’s sales are purchased by a
single buyer, the importance of the buyer’s business to the supplier increases. Large-volume buyers also are powerful in industries
with high fixed costs (e.g., steel manufacturing).
• The products it purchases from the industry are standard or undifferentiated. Confident they can always find alternative suppliers,
buyers play one company against the other, as in commodity grain products.
• The buyer faces few switching costs. Switching costs lock the buyer to particular sellers. Conversely, the buyer’s power is enhanced if
the seller faces high switching costs.
• It earns low profits. Low profits create incentives to lower purchasing costs. On the other hand, highly profitable buyers are generally
less price-sensitive.
• The buyers pose a credible threat of backward integration. If buyers either are partially integrated or pose a credible threat of
backward integration, they are typically able to secure bargaining concessions.
• The industry’s product is unimportant to the quality of the buyer’s products or services. When the quality of the buyer’s products is not
affected by the industry’s product, the buyer is more price-sensitive.
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Thank you for joining today's
class.