EightStrategic Management1. INTRODUCTION.Effective managers recognize the role that strategic management plays in their organization’s performance. An underlying theme of this chapter is that good strategies can lead to high organizational performance.2. THE IMPORTANCE OF STRATEGIC MANAGEMENT.The role that the environment plays has influenced managers in developing 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 that set of managerial decisions andactions that determines the long-run performance of anorganization.2. It entails all of the basic management functions—planning,organizing, leading, and controlling.B. Why is Strategic Management Important?1. One reason strategic management is important is because it canmake a difference in how well an organization performs.2. Another reason has to do with the fact that organizations of alltypes and sizes face continually changing situations.3. Strategic management is also important because of the nature oforganizations. They are composed of diverse divisions, units,functions and work activities that need to be coordinated.4. Strategic management is also important because it’sinvolved in many of the decisions that managers make.3. THE STRATEGIC MANAGEMENT PROCESS.The strategic management process is s six-step process that encompasses strategic planning, implementation, and evaluation. (See Exhibit 8.1)A. Step 1: Identifying the Organization’s Curre nt Mission, Objectives, andStrategies.1.Every organization needs a mission,which defines the purpose ofthe organization. What is the organization’s reason for being inbusiness? Exhibit 8.2 describes some common components found inorganizational mission statements.2. It’s also important to identify the organization’s currentobjectives and strategies, as well.B. Step 2: External Analysis.1. Managers in every organization need to do an external analysis.Factors such as competition, pending legislation, and laborsupply could have an impact.2. After analyzing the environment, managers need to assess whatthey have learned in terms of opportunities and threats.Opportunities are positive trends in external environmentalfactors; threats are negative trends.3. The same environment can present opportunities to oneorganization and pose threats to another in the same industrybecause of different resources and capabilities.C. Step 3: Internal Analysis.1. Should lead to a clear assessment of the organi zation’s resourcesand capabilities.2. Any activities the organization does well or any uniqueresources that it has are called strengths.3. Weaknesses are activities the organization does not do well orresources it needs but does not possess.If any of the organizational capabilities or resources areexceptional or unique, they’re called the organization’s corecompetencies.anizational culture is important in internal analysis. It canpromote or hinder an organization’s strategic actions.5. Combined external and internal analyses are called SWOTanalysis because it’s an analysis of the organizations’ strengths,weaknesses, opportunities and threats.D. Step 4: Formulating Strategies.1. After the SWOT, managers develop and evaluate strategicalternatives and select strategies that are appropriate.2. Strategies need to be established for corporate, business andfunctional levels.E. Step 5: Implementing Strategies.1. A strategy is only as good as it implementation.F.Step 6:Evaluating Results.1. How effective have the strategies been? Are adjustmentsnecessary?4. TYPES OF ORGANIZATIONAL STRATEGIES.There are three different and distinct levels of strategy: corporate, business, and functional. (See Exhibit 8.4)A. Corporate Level StrategyThe corporate-level strategy seeks to determine what businesses acorporation should be in or wants to be in.1.Three main corporate strategies:a.Growth: growth strategy seeks to increase theorganization’s business by expanding the number ofproducts offered or markets served.b.Stability. A stability strategy is characterized by anabsence of significant change.c.Renewal. Renewal strategies are deployed when theorganization is in trouble. Two such strategies areretrenchment strategy and turnaround strategy.1.Corporate Portfolio Analysis. Used when an organization’scorporate strategy involves a number of businesses.a.BCG Matrix helps to identify which businesses offer highpotential and which are a drain on organizational resources. B.Business-Level StrategySeeks to determine how an organization should compete in each of itsbusinesses.1.The Role of Competitive Advantage. Competitive advantage iswhat sets an organization apart, that is, its distinct edge. Thesecome from the firm’s core co mpetencies.2.Quality as a Competitive Advantage. If implemented properly,quality can be a way for an organization to create a sustainablecompetitive advantage.1. Sustaining Competitive Advantage. Enables the organization tokeep its edge despi te competitors’ actions or evolutionarychanges in the industry.4. Competitive strategies developed out of the work of MichaelPorter. His framework suggests that managers can choose fromamong three generic strategies. Porter’s major contribution hasbeen to carefully outline how managers can create and sustain acompetitive strategy in order to earn above-average profitability.a. Industry analysis is an important step in Porter’sframework. He says there are five competitive forces atwork in an industry. (See Exhibit 8.7).1) Threat of new entrants is determined by barriersto entry, which are factors that determine howeasy or hard it is for new competitors to enter anindustry.2) Bargaining power of buyers are factors thatdetermine the amount of influence that buyershave in an industry.3) Threat of substitutes is a factor that determineswhether or not customers will switch theirbusiness to a competitor.4) Bargaining power of suppliers are forces thatdetermine the power that suppliers have overfirms in the industry.5) Existing rivalry includes factors that determinehow intense the competitive rivalry will beamong firms currently in the industry.5. Porter then goes on to state that management must choose astrategy that will give it a competitive advantage over its rivals.There are three generic competitive strategies. Which onemanagers select depends on the organization’s strengths andcore competencies and its competitors’ weaknesses.a. A cost leadership strategy is the strategy anorganization follows when it wants to be the lowest-costproducer in the industry.b. The differentiation strategy is the strategy a firmfollows when it wants to be unique in its industry alongdimensions valued by buyers.c. The focus strategy is the strategy a company followswhen it pursues a cost or differentiation advantage in anarrow industry segment.6. Porter proposed that a firm could not successfully pursue acombination of these competitive strategies and used the termstuck in the middle to describe organizations that cannotcompete through cost leadership, differentiation, or focusstrategies.7. However, a growing number of research studies have shown thata dual emphasis on low costs and differentiation can result inhigh performance. This app roach isn’t easy to implement,however.C. Functional Level StrategyThe functional-level strategy seeks to determine how to support thebusiness-level strategy.B. New Directions in Organizational Strategies.1. Strategies for Applying e-Business Techniques. Using theInternet, companies have created knowledge bases thatemployees can tap into anytime, anywhere. E-Business as astrategy can develop a sustainable competitive advantage, beused as a differentiator, or act as a focuser.2. Customer Service Strategies. These strategies give customerswhat they want, communicate effectively with them, and provideemployees with customer service training.3. Innovation Strategies. Can focus on breakthrough products orthen can include the application of existing technology to newuses. An organization that is first to bring a product innovationto the market or to use a new process innovation is called a firstmover.1. Perform a SWOT analysis on a local business you think you know well. What, ifany, competitive advantage has this organization staked out?Answers to this question will vary. Depending on the number of “available”businesses to study, you might need to assign this question to teams of students.Encourage them to thoroughly cover each area of the SWOT. To save time and hassle, you might want to discuss with students ways to find information for doing a SWOT before sending them out to do this assignment.2. How might the processes of strategy formulation, implementation, andevaluation differ for (a) large businesses, (b) small businesses, (c) not-for-profit organizations, and (d) global businesses?Hopefully, students will recognize that the processes of strategy formulation, implementation, and evaluation won’t differ for these differe nt types of organizations, but the content of the processes will very likely differ.3.“The concept of competitive advantage is as important for not-for-profitorganizations as it is for for-profit organization.” Do you agree or disagree with this statement? Explain, using examples to make your case.Students should be able to recognize that although the not-for-profit organizations are not attempting to make a profit, they are attempting to be successful and remain productive, and that the correct strategy is what will allow this existence.4. Should ethical considerations be included in the analyses of an organization’sinternal and external environments? Why or why not?Ethical considerations should be included in every activity of an organization.Another question to pose to students is what would ethical considerations include?5. How could the Internet be helpful to managers as they follow the steps in thestrategic management process?The Internet allows the manager access to so much more information almost instantaneously about competitors, environmental factors, and customers. This information improves the manager’s ability to make sound strategic management decisions.6.Find examples of five different organizational mission statements. Using themission statements, describe what types of corporate-level and business-level strategies each organization might use to fulfill that mission statement. Explain your rationale for choosing each strategy.Students will select a wide range of companies and mission statements. This is an excellent opportunity for students to differentiate between corporate-level and business-level strategies. You may want to “assign” at least one firm that has several business units associated with it.。
