Strategic
Management
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True or False
Strategic management involves major
decisions, business choices, and
actions that charter the course of the
entire enterprise starting with the
analysis of both the internal and
external environments.
2
The Strategic
Management Process

It is the job of top level management to
chart the course of the entire enterprise.

It consists of:
Analysis of the internal and external environment
of the firm.
Definition of the firm’s mission.
Formulation and implementation of strategies to
create or continue a competitive advantage.
3
The Strategic
Management Process (cont)

Strategic management involves both longrange thinking and adaptation to changing
conditions.

Strategies should be designed to generate a
sustainable competitive advantage.

Competitors should be unable to duplicate
what the firm has done or should find it too
difficult or expensive.
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Components of the Strategic
Management Process:
Analyze the external and
internal environments
Define strategic intent and
mission
Formulate strategies
Implement strategies
Assess strategic outcomes
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SWOT Analysis
 Commonly used strategy tool: SWOT
Strengths, Weaknesses, Opportunities, Threats
External Environment
Internal Environment
Components
Scope
Resource types
Firm capabilities
•Scanning
•General environment
•Tangible
•Functional
•Monitoring
•Industry environment
•Intangible
•Value Chain
•Forecasting
•Strategic groups
•Assessing
•Direct competitors
•Benchmarking
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The External Environment

Company leaders must study the external
environment in order to:
Identify opportunities and threats in the marketplace.
Avoid surprises.
Respond appropriately to competitors’ moves.

A major challenge is to gather accurate market
intelligence in a timely fashion, and transform it
into usable knowledge to gain a competitive
advantage.
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Components of External
Analysis
Scanning
Assessing
Monitoring
Forecasting
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Scope of the
External Analysis
General
Environment
Competitor
Analysis
The Industry
Strategic
Groups
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From an external analysis perspective,
the aging population in Western
countries demonstrates a ___.
A) demographic
trends
B) political/legal forces
C)socio-cultural conditions
D)technological change
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The Segments of the
General Environment
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Developing a Golden Parachute
What barriers to entry did
Preston have to overcome in
order to make it in the parachute
Industry?
Describe the type of internal
resources that give Preston’s
business its advantage over
competitors.
12
Porter’s Analyzing
the Industry Environment
Threat of new
entrants
Threat of
substitutes
Suppliers
Customers
Intensity of rivalry
among competitors
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How would you group these hotel chains?
Days Inn
 Holiday Inn
 Super 8
 Hampton Inn
 Westin
 Omni Hotel
 Homewood Suites
 Embassy Suites

Days Inn
 Holiday Inn
 Super 8
 Hampton Inn
 Westin
 Omni Hotel
 Homewood Suites
 Embassy Suites

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The Internal Environment

Each company has something that it does
well. These are called “core competencies.”

Company executives 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
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Resource Types:
Tangible Resources

Assets that can be quantified and observed.

Include financial resources, physical assets,
and workers.

Strategic assessment of tangible resources
should enable management to efficiently use
tangible resources to support the company
and to expand the volume of business.
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Resource Types:
Intangible Resources

Difficult to quantify and include 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
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Analyzing the Firm’s Capabilities
Functional Analysis
Value Chain Analysis
Benchmarking
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Analyzing Capabilities by
Functional Areas
Functional Area
Corporate
Management
Capability
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 leadership
Information
Management
Comprehensive and effective MIS network, with
strong central coordination
Research and
Development
Capability in basic research
Ability to develop innovative new products
Speed of new product development
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Analyzing Capabilities by
Functional Areas (cont.)
Functional Area Capability
Efficiency in volume manufacturing
Manufacturing
Capacity for continual improvements in production
processes
Flexibility and speed of response
Product Design
Design capability
Marketing
Brand management and brand promotion
Promoting and exploiting reputation for quality
Responsive to market trends
Sales and
Effectiveness in promoting and executing sales
Distribution
Efficiency and speed of distribution
Quality and effectiveness of customer service
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Value-Chain Analysis

Breaks down the firm
into a sequential series
of activities and
attempts to identify the
value added of each
activity
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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 publications.

Using the information gathered to redefine
goals, modify processes, and acquire new
resources to improve the firm’s functions.
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Strategic Intent and Mission
Strategic Intent and
Mission
Intent: How firm would
like to use
Mission: Determine the
firm’s external focus on
•Resources
•Products
•Capabilities
•Markets
•Core competencies
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Strategy Formulation
 The
design of an approach to
achieve the firm’s mission.
 Takes
place at:
Corporate-Level
Business-Level
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Corporate-Level Strategy

The corporation’s overall plan concerning the:
Number of businesses the corporation holds.
Variety of markets or industries it serves.
Distribution of resources among those businesses.

This diversification strategy may be analyzed
in terms of:
Portfolio mix
Type of diversification
Process of diversification
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Diversification Strategy
Type of Diversification
 Concentration
strategy
 Vertical integration
strategy
 Concentric
diversification
strategy
 Conglomerate
diversification
Process of
Diversification
 Acquisition and
restructuring
strategies
Acquisition
Merger
 International strategy
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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
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Preston’s parachute company has a
business strategy based on ____.
A)low
cost production
B) price control
C)differentiation
D)focus cost advantage
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Strategy Implementation
Corporate
Entrepreneurship
and Innovation
Strategic
Leadership
Organizational
Structure and
Controls
Cooperative
Strategies
Human
Resource
Strategies
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Strategic Outcomes
Company leaders should periodically assess
whether the outcomes meet expectations.
 A firm must first and foremost cater to the
desires of its primary stakeholders.
 The firm should also consider the desires of
other stakeholders affected by its performance.
 Some of the standard measures of strategic
success includes:

Profits
Growth of sales/market share
Growth of corporate assets
Reduced competitive threats
Innovations
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Discussion Question
Management minicase 7.1
1. Based on what you have learned in this chapter, why would
a company such as Microsoft develop, produce, and sell a
product at a loss? Do you think this is a deliberate
strategy? If so, is it rational?
2. Do you think demographic trends are likely to support or
hinder the market for this type of product? More broadly,
what do you see as opportunities and threats in the
market?
3. From a resource-based perspective, do you think
Microsoft’s core competencies are likely to give the
company a competitive advantage in the game consoles
market in the future?
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