McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. 7 Chapter Strategic Management Strategic Management McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives After reading this chapter, you should be able to: z Implement the steps in the strategic management process. z Conduct an analysis of the firm’s strengths, weaknesses, opportunities, and threats. z Identify the factors that create a sustained competitive advantage. z Link external and internal environment data to determine a firm’s strategic intent and mission. z Choose appropriate business strategies at the corporate and business-unit levels. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. The Strategic Management Process z It is the job of top level management to chart the course of the entire enterprise. z It consists of: ¾ Analysis of the internal and external environment of the firm. ¾ Definition of the firm’s mission. ¾ Formulation and implementation of strategies to create or continue a competitive advantage . McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. The Strategic Management Process (continued) z Strategic management involves both long-range thinking and adaptation to changing conditions. z Strategies should be designed to generate a sustainable competitive advantage. z Competitors should be unable to duplicate what the firm has done or should find it too difficult or expensive. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Analyze the external and Analyze the external and internal environments internal environments Define strategic intent Define strategic intent and mission and mission Formulate strategies Formulate strategies Implement strategies Implement strategies Assess strategic Assess strategic outcomes outcomes Components of the Strategic Management Components of the Strategic Management Process: Process: McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. SWOT Analysis z Commonly used strategy tool: SWOT ¾ Strengths, Weaknesses, Opportunities, Threats z Step 1: Analyze the organization’s internal environment, identifying its strengths and weaknesses. z Step 2: Analyze the organization’s external environment, identifying its opportunities and threats. z Step 3: Cross-match ¾ Strengths with opportunities ¾ Weaknesses with threats ¾ Strengths with threats ¾ Weaknesses with opportunities McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. The External Environment z Company leaders must study the external environment in order to: ¾ Identify opportunities and threats in the marketplace. ¾ Avoid surprises. ¾ Respond appropriately to competitors’ moves. z A major challenge is to gather accurate market intelligence in a timely fashion, and transform it into usable knowledge to gain a competitive advantage. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Components of External Analysis Scanning Scanning Monito ring Monito ring Forecasting Forecasting A ssessing A ssessing McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Scope of the External Analysis General General Enviro n m e n t Enviro n m e n t The Industry The Industry Strategic Strategic Groups Groups Com petito r Com petito r Analysis Analysis McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. [...]... produced and marketed, utilizing its internal core competencies McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved Strategy Formulation The design of an approach to achieve the firm’s mission Takes place at: Corporate-Level Business-Level McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved Corporate-Level Strategy The corporation’s overall plan concerning the: Number... arki ng McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved Analyzing Capabilities by Functional Areas Functional Area Capability Corporate Management Effective financial control systems Expertise in strategic control of diversified corporation Effectiveness in motivating and coordinating divisional and business-unit management Management of acquisitions Values-driven, in-touch corporate... of diversification McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved 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 McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All... diversification McGraw-Hill Process of Diversification Acquisition and restructuring strategies Acquisition Merger International strategy © 2004 The McGraw-Hill Companies, Inc All rights reserved 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 McGraw-Hill © 2004 The McGraw-Hill Companies,... assets Reduced competitive threats Innovations McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved 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... G lo Techno logical Chang es McGraw-Hill conomic E s ondition C Political/ Legal Forces Sociocultura l Condit ions © 2004 The McGraw-Hill Companies, Inc All rights reserved Porter’s Framework for Analyzing the Industry Environment Threat of new entrants Threat of substitutes Suppliers Customers Intensity of rivalry among competitors McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved... Growth Share Matrix McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved The McKinsey-General Electric Portfolio Analysis Matrix Business-Unit Position Low 1) Medium High 2) 3) 5) 6) Low Harvest 4) Industry Attractiveness Medium Hold 7) 8) 9) High Build McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved The Boston Consulting Group’s Growth Share Matrix Relative Market... Parts Production Brand Assembly McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved 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... McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved 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 McGraw-Hill © 2004 The McGraw-Hill... 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 McGraw-Hill © 2004 The McGraw-Hill Companies, Inc All rights reserved 4 3 2 Select a strategy that best exploits the firm’s capabilities relative to external opportunities Strategy . McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. 7 Chapter Strategic Management Strategic Management McGraw-Hill © 2004 The McGraw-Hill Companies, Inc and business-unit levels. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. The Strategic Management Process z It is the job of top level management to chart the course of. service McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. A Simple Value Chain Technology Technology Product Product Design Design Manufacturing Manufacturing Marketing Marketing Distribution Distribution Service Service Channels Channels Integration Integration Inventory Inventory Warehousing Warehousing Transport Warranty Warranty Dealer