1, The Strategic Management Model Set Long-Term Objectives Mission & Vision Forecast the Environment Evaluation Capabilities Strengths Weaknesses Implement the Strategy Craft the Strateg
Trang 1BarCharts, Inc. WORLD’S #1QUICK REFERENCE GUIDE
THE ENVIRONMENT
Strategic Management is a process for conducting the
entrepreneurial activities of a firm for organizational
renewal, growth, and transformation The major tasks
are: (1) set a mission and goals, (2) assess the
environment, (3) appraise company capabilities, (4)
craft the strategy, (5) implement the strategy, and (6)
evaluate and control the strategy.
Business Policy is a set of prescribed and discretionary
statements, limiting actions of individuals in the firm,
as set forth in directives and guides
Mission is the reason for which the firm exists, and what
it will do Basically, it describes the products/services
to be supplied, the markets to be served, and the
technology applied (if important)
Vision Statement answers the question, What do we
want to become?
Goals express the aspirations of the firm, general ends
that cannot be measured Ex “In unrelenting pursuit of
perfection.”
Objectives are specific targets to be accomplished by a
specified time Ex “Profits will grow at the rate of 5%
annually for the next five years.” Long-term objectives
(5 years or more) are strategic objectives and define the
desired character of the company, at the specified time
Strategy is simply the means or general actions to be
taken to achieve long-term objectives Strategic
management is the work of the General Manager
General Manager is a person who is responsible for a
profit center, as opposed to a functional manager who
is responsible only for a cost or revenue center
Generic Strategy is the name for a group of
similar specific strategies
Levels of Strategy
1 Corporate level What types of businesses
should we be in?
2 Business level How do we compete?
3 Functional component level What should our
organization do to synchronize with the
business-level strategy?
Opportunity is a set of circumstances that, if acted upon
at the right moment, will produce a gain
Threat is the probability of a future event and its
potentially harmful impact on the firm
1 Basic product or service
2 Primary markets
3 Principal technology used (if relevant)
4 Customer satisfaction, quality, and societal goals
5 Company philosophy
6 Self-concept (identity)
1 Economic
2 Social-demographic
3 Political-legal
4 Technological
5 Cultural
6 Ecological-natural
1 The task environment comprises all persons, groups, or entities that have an interest in the company These are called stakeholders
2 A narrower definition refers to those stakeholders with whom the firm has contact from time to time, as follows:
a Customers
b Suppliers
c Financial institutions
d Competitors
e Trade associations
f Activist groups
g Federal, state, and local government agencies
h Media representatives
i Unions
1 Products
2 Competitors
3 Structure (number, size, relative strength, market share of competitors, product differentiation)
4 Economic traits
5 Critical success factors
6 Entry barriers
See Figure 2
As Porter says, the nature and intensity of competition
in an industry is a composite of five competitive forces:
1 Rivalry among competitors in the industry
2 The bargaining power of buyers
3 The bargaining power of suppliers
4 The potential entry of new competitors
5 The power of firms with substitute products
Industry-driving forces increase incentive for the
industry to change Examples of driving forces are industry growth rate, product innovation, customer preferences, firms entering and leaving the industry, cost and productivity, and increasing globalization
An opportunity is a combination of events or circumstances that arise, which, if acted upon at a certain time, will result in profit, gain, or victory Such circumstances may be caused by changes in the environment or by changes in the company, relative to the environment Examples:
1 Opportunities arise for the firm as it is These include product and market extensions through mergers, failures of competitors, and legal change
2 Advances in technology, e.g., fiber optics, gene manipulation
3 A misfortune befalls a major competitor who then shuts down, liquidates, or goes bankrupt
4 A competing company is put up for sale at a good price
5 A chance occurs for you to hire a noted expert that you need
6 A breakthrough in your product or process (“Research & Development”) that makes possible a gain in market share
A threat is an event, as defined by its impact on your company and the probability of its occurrence, that will result in harm to your company It is an attack on company underpinnings, such as:
1 Support of stakeholder groups
2 Resources: human, financial
3 Customer base
4 Capabilities, such as technology, products, processes, management, and functional
5 Artificial barriers to competition: laws, regulations, patents, and licenses
6 Social changes and customer preferences
DEFINITIONS
EVOLUTION OF COMPANY CAPABILITIES
1 How well is the company’s strategy working?
2 What are the company’s strengths and weaknesses?
3 What are its core products and competencies?
4 What benchmarks are being used for measuring its situation?
Value Chain Analysis
1 Basic concept: Value analysis identifies the primary and support activities that create value
2 It may be used to analyze and reduce business costs and compare one business’ value chain with those of competing companies See Fig 3 (next page)
COMPANY MISSION:
WHAT IS OUR BUSINESS?
THE REMOTE (MACRO) ENVIRONMENTAL FACTORS
TASK (IMMEDIATE, OPERATING) ENVIRONMENTAL FACTORS
COMPETITIVE ENVIRONMENT:
MICHAEL E PORTER’S 5-FORCE MODEL DEFINING AN INDUSTRY
OPPORTUNITY
THREAT
SITUATION ANALYSIS
Fig 2, Porter’s Force Model
APPROACHES TO INTERNAL SCANNING & ANALYSIS
Fig 1, The Strategic Management Model
Set Long-Term Objectives
Mission
& Vision
Forecast the Environment
Evaluation
Capabilities
Strengths
Weaknesses
Implement
the Strategy
Craft the Strategy
Evaluate &
Control Strategy
Opportunities Threats
4 Potential
computer entrants
2 Buyers
1.
Rivalry among existing firms
3.
Suppliers
5. Potential competitive substitutive products from firms in other industries
1
Trang 2CRAFTING CORPORATE-LEVEL STRATEGY
Corporate-level strategy is directed toward:
1 Maintaining corporate-wide consistency of direction of the total company toward long-range,
usually global, goals called strategic intent.
2 Leveraging resources for long-range goals
3 Reducing financial risk by building a balanced portfolio of businesses with a balanced portfolio
of advantages
4 Investing in core competencies for the businesses
(usually called Strategic Business Units or SBUs)
5 In general, corporate strategy is designed to
answer the question: What businesses should we
be in?
General Electric 9-Cell Business Screen
1 Fig 6 shows a 9-cell matrix of the positioning of SBUs, in terms of competitive strength vs industry attractiveness
2 The areas of the circles represent the sales of each SBU The segments represent market share
3 The position of a business on the grid may be determined either subjectively, or quantitatively,
by using a weighted rating system for the factors shown
4 Corporate strategy implications from the matrix are:
a Suggest investment priorities
b Incorporate a wide variety of strategic variables (others in addition to those shown may be incorporated)
c Indication of possible life-cycle stages of the SBUs
d Indicate balance or lack of balance in the portfolio
e Compare performance among business units
Fig 4, Corporate Strategy Formulation
Functional Analysis of Strengths & Weaknesses of the Firm
1 Establish a table with column headings: Factors,
Strengths/Weaknesses, Standards and Comparison
For each factor to be evaluated, the question must be
asked, “Compared to what?”
2 Standards or criteria may be:
a The industry average for the factor being evaluated
b The best firm’s values
c The best value of any firm on each criterion
d A previously set objective
e A previous forecast
3 Functional factors should be selected from the
following functional areas:
a Marketing
b Operations/Production
c Finance and accounting
d Human resources, especially management and
organization
e Information systems
f Quality of all transactions, relationships, and
outputs
1.Culture
2.Images
3.Identity
4.Leadership
5.Mission, goals, objectives, and organizational
structure
This approach to strengths and weaknesses is based on
two fundamental assumptions: (1) resource heterogeneity
- a firm is a bundle of resources and these resources are
different for each firm, and (2) resource immobility,
which says that if these resources are difficult to copy,
they are a potential source of competitive advantage Lists
of firm attributes that may be thought of as resources may
be divided into four categories:
1 Financial capital
2 Plant capital
3 Human capital
4 Organizational capital
Profit Impact of Marketing Strategy, offered by the
Strategic Planning Institute, is based on a database of
about 3,000 businesses Their research is directed at
identifying principles that will guide companies in
establishing successful strategies, or evaluating their own
SETTING STRATEGIC (LONG-TERM) OBJECTIVES
GENERIC GROUPS OF LONG-TERM OBJECTIVES
ANALYSIS & EVALUATION
OF THE PORTFOLIO
RESOURCE-BASED ANALYSIS
PIMS ANALYSIS
OBJECTIVES
THE PROCESS
SELECTING A GENERIC STRATEGY
MATCH OF STRATEGY & STRUCTURE
The process of developing corporate-level strategy is shown in Fig 4 and explained as follows:
Generic Strategy is a group of corporate-level strategies that are first determined so that the decision maker is guided toward making an appropriate specific
strategy (See Fig 5.5, 6 & 7) A list of generic
strategies generally used is as follows:
Concentration - the corporation concentrates its
efforts and resources on current business or businesses
Concentric diversification - the company decides to
diversify into products related to its present products
through similar marketing methods, production
processes, or products.
Conglomerate diversification - diversification
into products unrelated to the firm’s present
products
Vertical backward integration - the company
buys, or otherwise competes with, its suppliers
Forward integration - the company buys companies that are customer businesses
Joint ventures - two or more companies combine
equity in a new company to gain an advantage or minimize individual weaknesses
Divestiture - a company sells off, spins off in various
ways, a portion or an entire SBU
Turnaround/Restructuring - a defensive strategy
followed by a company in need of immediate improvement
Bankruptcy - a means for getting respite from
creditors and used by very healthy companies, as well as those which need to be reorganized and obtain additional capital
Liquidation - the company sells its assets and goes
out of business.An
1 Plot the company’s current (and potential) SBUs
on Fig 5, a competitive strength vs industry attractiveness matrix Each circle (area) is proportional to the sales of the particular SBU (See Fig 5)
2 Select feasible corporate-level generic strategies from the cells in which the SBUs fall
3 Find a match of an opportunity, a set of long-term objectives, and a generic strategy from Fig 5 Such a set represents
a strategic option.
4 Find a number of strategic options and select, judgmentally, the ones that your resources can support This will give you your final feasible generic strategies
Technology
development
and product
and process
improvement
Human Resources
Management
General
Administration
Purchased supplies and inbound logistics Operations Outbound logistics Sales and Marketing Service Profit Margin
Support
activities
and costs
Primary activities and costs
Fig 3, The Value Chain
Corporate Level What business should we be in?
A Choose GENERIC corporate-level strategies.
1 Feasible corporate-level strategies.
competitive strength
industry attractiveness
2 Choose final generic strategy option.
Select options to get final gene strategies.
B Choose SPECIFIC corporate-level strategy, guide by final generic strategy to yield.
Portfolio of businesses
= answers to the origin of the question
Options
Opportunity Long-term objectives Generic strategy (appropriate feasible)
CHOOSE GENERIC CORPORATE-LEVEL STRATEGIES
Within each generic strategy objective group below, specific objectives may be selected
1 Product/Market scope
2 Profitability
3 Competitive edge
4 Financial specifications, expenditures, net worth, etc
5 Innovation and technology
6 Employee development/Productivity
7 Sources of, and deployment of, resources
8 Synergy
9 Risk
10 Legitimacy (satisfaction of stakeholders)
11 Ideological leadership
Characteristics of Long-Term Objectives
1 Acceptable to managers
2 Adaptable to extraordinary changes in the environment
3 Clearly measurable against specified criterion
4 Motivating - not too high and not too low
5 Understandable
2
Evolution ofCompany Capabilities (continued)
Trang 31 Specific Corporate-Level Strategy
answers the question: “What businesses
should we be in?”
2 For each generic strategy, decide the business, if
any, that you wish to add to or subtract from your
portfolio For example, if you were a
manufacturer of golf carts and decided to follow
a concentric diversification strategy, you might
select the purchase of a power lawn mower
company to add to your portfolio
3 When you have reviewed all your feasible generic
strategies and made such decisions, the
companies remaining represent your portfolio
and set the direction for the total company.
Using SWOT (Strength, Weaknesses,
Opportunities, Threats) to derive generic
corporate strategies (P Wright, M J Kroll,
and J Parnell)
SWOT analysis ties together strengths, weaknesses,
opportunities, and threats vs competitive position
Place each SBU in a cell, giving recommended
feasible generic strategies (Fig 5.5)
The Life Cycle Matrix is similar to the G.E Matrix,
except that it focuses on the life cycles of the
products, rather than the industry attractiveness In
Fig 7, the competitive position is shown for each
SBU, but the stage of the SBU’s life cycle is also
shown Small sales at the beginning and end of the life
cycle, with a strong competitive position, for
example, may be considered favorable If all
SBUs are in different stages of the life cycle, but
in the strong competitive position, this may also be a
favorable condition If all SBUs are in the strong
competitive position and maturity stage, this indicates
trouble later, because no new businesses are in the
company’s portfolio
Fig 5, Feasible Corporate Generic Strategies
Fig 7, Life Cycle Matrix
1 Does each business fit with other businesses in the portfolio? Compare the value analysis chains of each
2 Does each business fit the strategic direction of the total company? Does each business contribute heavily to corporate financial performance?
CHOOSE THE SPECIFIC CORPORATE-LEVEL
STRATEGY (PORTFOLIO OF BUSINESS UNITS)
LIFE CYCLE MATRIX
STRATEGIC FIT ANALYSIS
Fig 5.5, SWOT Portfolio Framework
Cell A
1 Internal growth
2 Vertical integration
of related businesses
3 Mergers
4 Horizontal diversification
Cell D
1 Mergers
2 Horizontal integration
3 Strategic alliances
Cell G
1 Turnaround
2 Divestment
Cell B
1 Vertical integration
of related businesses
2 Horizontal related diversification
Cell E
1 Stability
2 Mergers
3 Horizontal integration
4 Strategic alliances
5 Divestment
Cell H
1 Turnaround
2 Divestment
Cell C
1 Horizontal-related diversification
2 Horizontal-unrelated diversification (conglomerate)
3 Vertical integration of unrelated businesses
4 Divestment
Cell F
1 Divestment
2 Horizontal-related diversification
3 Horizontal-unrelated diversification
4 Stability
Cell I
1 Liquidation
Competitive Status of the Corporation’s Business Units
Specialty Shop Group Supermarket
Group
Drug Store Group Rapid Market Growth
Slow Market Growth
Source: John A Pearce & Richard B Robinson, Strategic Management,
Homewood, Illinois: Irwin, Inc., 1982 p 210.
1 Reformation of
concentration
2 Horizontal
integration
3 Divestiture
4 Liquidation
1 Concentration
2 Vertical integration
3 Concentric diversification
Strong Competitive Position
Weak
Competitive
Position
1 Turnaround or
retrenchment
2 Concentric
diversification
3 Conglomerate
diversification
4 Divestiture
5 Liquidation
1 Concentric diversification
2 Conglomerate diversification
3 Joint ventures
Strong
Development
Growth
Shakeout
Maturity Saturation
Decline
Average Weak
Competitive Position
Fig 6, GE 9-Cell Screening Grid
Invest aggressively Invest selectively Harvest or divest
High Medium Low Industry Attractiveness
Business Strength
Market size and growth rate Industry profit margins Competitive intensity Bargaining power of customers and supplier
Cyclicality
of demand Financial norms Economies of scale Barriers to entry Capital intensity
Relative market share Profit margins Cost position Level of differentiation Technological capability Response time Financial strength Human assets
3
Trang 4ISBN-13: 978-142320707-8 ISBN-10: 142320707-6
NOTE TO STUDENT
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BUSINESS STRATEGIES FOR SBUS
& SINGLE-PRODUCT COMPANIES
THE FIRST STEP IN CRAFTING THE
COMPETITIVE STRATEGY FOR SBU
Decide on the generic strategy or strategies to follow
The basic four generic strategies that may be used are
shown in Fig 8 (below) as (1) low-cost leadership, (2)
differentiation, (3) niche or focus market segment
with low cost, and (4) focus on a market segment using
differentiation
Use low-cost leadership when:
1 Price competition among rival sellers is
especially intense
2 The product is essentially a commodity with
many sellers
3 There are few ways to differentiate the products
that have value to the user
4 Buyers have low switching costs and can change
to lower-priced sellers
5 Buyers are large and can bargain down prices
Use differentiation strategy when:
1 Differentiation of a product can command a
premium price for its product
2 Brand loyalty can be won over
3 The cost of differentiation is less than the
premium price that can be obtained
Use focus strategy when:
1 The segment of the market focused on is large
enough to be profitable
2 The segment is not important to the success of
major competitors
3 The segment has good potential for growth
4 The company can provide excellent service and
goodwill within the segment
1 A business generic strategy option consists of a
match of an opportunity, a long-term business
objective, and a generic strategy See Fig 8.
2 At this point, the generic strategy is honed by
deciding on the emphasis to be placed on or
allocation of resources to: competitor orientation,
market orientation, and product/service
orientation
3 Avoid “stuck-in-the-middle” strategies that lead
to engaging in each generic strategy, and thereby
failing to achieve any of them
4 Select the option or options to obtain the final
generic strategies
1 The specific business strategy describes
specifically what the firm will do to compete
2 The generic strategies and long-term
objectives restrict the statement of the
business-level strategy
3 Each functional manager prepares his/her
component of the total business strategy,
showing major additions and programs for
the next f ive years
4 The General Manager then directs the
reconciliation of all functional programs and
budgets, as indicated in Fig 8 (this page, at right)
Implementing strategy is the conversion of concepts
into action and results It is the total and detailed
activities to fulfill the strategy and achieve the
long-term objectives The first part consists of:
1 Communicating the strategy to the organization
to prepare every employee with an understanding
of what will follow and the things in general that must be done
2 Prepare and disseminate a list of major annual objectives for the organization
3 Establish policies and procedures for actions
4 Prepare annual plans and budgets for resource allocations
5 Prepare an organization STRUCTURE that matches the new strategy (portfolio and SBUs)
6 Install best practices for each department, based
on the value chain and benchmarks
1 Staff the organization with committed leaders capable of driving implementation
2 Avoid resistance to change through employee development and communication with employees
3 Tie rewards and incentives to achievement of performance objectives
4 Develop a strategy-supporting culture
Each functional manager should prepare his/her functional component of the business strategy and plans for execution These are reconciled and approved
by the business managers and upper management The typical functional areas are shown with examples of a few issues that may arise in implementation:
1 Marketing: product policies, distribution policies, ethics, customer relations, pricing policies
2 Production/operations: equipment, layout, method of delivery of services, work methods, production planning,quality control, outsourcing
3 R&D/design: estimating the time for new product development, quality and cost balance in design, continuing education of creative workers, outsourcing of design work
4 Accounting/finance: increasing labor costs, increasing sales expense, economic value added, taxes, exchange rate between U S and other currencies, transfer pricing
5 Human Resource management: assignment of people to new projects, salary and bonus payments, promotions and dismissals, major human errors, recruitment and selection
6 Corporate information and communication systems: management information system, personalcommunications, mass communications, communicating policies
Implementation must be carried out with concern for factors that may not always be spelled out, but must
represent good citizenship.
Fig 1, The Strategic Management Model
IMPLEMENTING
THE STRATEGY
Foundation for Evaluation of Strategy
The basis for evaluation is to compare strategy with quantitative or qualitative criteria In addition, strategy may be evaluated at different stages
Quantitative Criteria
1 Overall financial performance, such as ROI, ROE, profit margin, market share, earnings per share
2 Time of implantation vs planned time
3 Increase in productivity, quality, number of employees, etc
Qualitative Criteria (from S Tilles *)
1 Is the strategy internally consistent?
STRATEGY EVALUATION
FOUNDATION FOR STRATEGY EVALUATION
2 Is the strategy consistent with the environment?
3 Is the strategy appropriate in view of the available resources?
4 Does the strategy involve an acceptable degree of risk?
5 Does the strategy have an appropriate time framework?
6 Is the strategy workable?
Stage Criteria
The strategy may be evaluated at each stage of its development shown in Fig 1 (see page 1), as well
as after implementation at selected times
* Source: Seymour Tilles, “How to Evaluate Corporate Strategy,” Harvard Business Review 41 (1963): 111-121.
GENERIC BUSINESS STRATEGY OPTIONS
DEVELOP THE SPECIFIC
BUSINESS-LEVEL STRATEGY
IMPLEMENTING WITH ORGANIZATIONAL LEADERSHIP
IMPLEMENTING WITH THE FUNCTIONAL COMPONENTS OF STRATEGY
IMPLEMENTING WITH CONCERN FOR LAWS, ENVIRONMENTAL & SOCIAL CONCERNS
IMPLEMENTING WITH STRUCTURE
Fig 8, Business Strategy Formation
Opportunities Long-term objectives Generic strategies (feasible)
Competitor-Directed Market-Directed Product-Directed
Year 1 2 3 4 5 Marketing
Production Research & Development Finance
Business Level
How should we compete?
A.Choose GENERIC business-level strategies.
1 Feasible business strategies
Differentiation Low-cost
leadership
Focused differentiation
Niche low cost
2 Choose final generic business strategy option. Options
Generic Strategies
Long-term objectives Select options to get final generic strategies
4
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