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Strategic management

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Title: Strategic management


1
Strategic management
2
Business Strategy
  • Disney is capitalizing on the Toy Story franchise
    by opening Toy Story attractions as its theme
    parks.
  • Gas price are forcing Toyota to cut back on SUV
    and truck production.
  • Vedanta Resources, a metals and mining company
    located in India, will invest 9.8 billion
    dollars to increase its aluminum-smelting
    capacity, a move that will make it one of the
    world largest metal producer.
  • Find out what customers want, then provide it to
    them as cheaply and quickly as possible is
    strategy of Wal-Mart.

3
What is strategy?
  • A large-scale action plan that sets the direction
    for an organization
  • Plans for how an organization will do what its
    in business to do, how it will compete
    successfully, and how it attract and satisfy its
    customers in order to achieve its goals.
  • It represent educated guess about what must be
    done in the long term for survival or the
    prosperity of organization or its principal parts.

4
Can org. uses its specific strategy forever?
  • According to fast-changing conditions, strategy
    cant be decided on just once, it needs to be
    revisited from time to time.

5
What is strategic management?
  • It is a process that involves managers from all
    parts of organization in the formulation and the
    implementation of strategies and strategic goals.
  • It is what managers do to develop an
    organizations strategies.

6
What is strategic planning?
  • It is not only the organizations long-term goals
    for the next 1-5 years regarding growth and
    profits but also the ways the organization should
    achieve them.
  • It is the process of determining what your
    organization intends to accomplish, and how you
    will direct organization and its resources toward
    accomplishing these goals in the coming months
    and years.Bryan W. Barry

7
Why strategic management is important?
  1. It can make difference in how well organization
    performs even organizations are in the same
    environmental conditions but their performances
    are different
  2. It helps managers cope with uncertainty from
    continually changing situations to examine
    relevant factors and decide what actions to take
  3. It helps people focus on the ways and direction
    to achieve org.s goals in each part of
    organization

8
The Strategic Management Process
2
  • External Analysis
  • Opportunities
  • Threats

1
4
5
6
Identify the organizations current mission,
goals, and strategies
SWOT Analysis
Formulate Strategies
Implement Strategies
Evaluate Results
3
  • Internal Analysis
  • Strengths
  • Weaknesses

9
STEP1 Identify Org. Current Mission, Goals, and
Strategy
  • Examples
  • LOreal mission is The right to be beautiful day
    after day.
  • Facebook mission is a social utility that
    connects you with the people around you.
  • The National Heart Foundation of Australia
    mission is to reduce suffering and death from
    heart, stroke, and blood vessel disease in
    Australia.

10
Components of a Mission Statement
  • Customers Who are the firms customers?
  • Markets Where does the firm compete
    geographically?
  • Concern for survival, growth, and profitability
    Is the firm committed to growth and financial
    stability?
  • Philosophy What are the firms basic beliefs,
    values, and ethical priorities?
  • Concern for public image How responsive is the
    firm to societal and environmental concerns?
  • Products or services What are the firms major
    products or services?
  • Technology Is the firm technologically current?
  • Self-concept What are the firms major
    competitive advantage and core competencies?
  • Concern for employees Are employees a valuable
    asset of the firm?

11
STEP2 Doing an External Analysis
  • Examples
  • What the competition is doing?
  • What pending legislation might affect the
    organization?
  • What the labor supply is like in locations where
    it operates?
  • Managers need to point out opportunities
    (positive trends) that organization can exploit
    and threats (negative trends) it must counteract
    or buffer against

12
STEP3 Doing an Internal Analysis
  • Examples
  • Organizations resources which are its assets use
    for develop, manufacture, and deliver products to
    customers i.e. financial, physical, human, and
    intangible
  • Organizations capabilities (skills and
    abilities) in doing work activities needed in its
    business
  • Organizations major value-creating capabilities
    that determine its competitive weapons called
    core competencies
  • Managers identify organizational strengths
    (positive factors) and weaknesses (negative
    factors)

13
Complete SWOT Analysis
  • Combine external and internal analyses which
    includes organizations strengths, weaknesses,
    opportunities, and threats
  • Formulate appropriate strategies which
  • Exploit organizations strengths and external
    opportunities
  • Buffer or protect organization from external
    threats
  • Correct critical weaknesses

14
Example of Marketing SWOT Analysis (Internal
Factors)
  • A strength could be
  • A weakness could be
  • Your specialist marketing expertise.
  • A new, innovative product or service.
  • Location of your business.
  • Quality processes and procedures.
  • Any other aspect of your business that adds value
    to your product or service.
  • Lack of marketing expertise.
  • Undifferentiated products or services (i.e. in
    relation to your competitors).
  • Location of your business.
  • Poor quality goods or services.
  • Damaged reputation.

15
Example of Marketing SWOT Analysis (External
Factor)
  • An opportunity could be
  • A threat could be
  • A developing market such as the Internet.
  • Mergers, joint ventures or strategic alliances.
  • Moving into new market segments that offer
    improved profits.
  • A new international market.
  • A market vacated by an ineffective competitor.
  • A new competitor in your home market.
  • Price wars with competitors.
  • A competitor has a new, innovative product or
    service.
  • Competitors have superior access to channels of
    distribution.
  • Taxation is introduced on your product or
    service.

16
Ex. Marketing SWOT Analysis
17
Simple rules for successful SWOT analysis
  • Be realistic about the strengths and weaknesses
    of your organization when conducting SWOT
    analysis.
  • SWOT analysis should distinguish between where
    your organization is today, and where it could be
    in the future.
  • SWOT should always be specific. Avoid grey areas.
  • Always apply SWOT in relation to your competition
    i.e. better than or worse than your competition.
  • Keep your SWOT short and simple. Avoid complexity
    and over analysis

18
Example 1 - Wal-Mart SWOT Analysis.
  • Strengths - Wal-Mart is a powerful retail brand.
    It has a reputation for value for money,
    convenience and a wide range of products all in
    one store.
  • Opportunities - To take over, merge with, or form
    strategic alliances with other global retailers,
    focusing on specific markets such as Europe or
    the Greater China Region.
  • Weaknesses - Wal-Mart is the World's largest
    grocery retailer and control of its empire,
    despite its IT advantages, could leave it weak in
    some areas due to the huge span of control.
  • Threats - Being number one means that you are the
    target of competition, locally and globally.

19
Example 2 - Starbucks SWOT Analysis.
  • Strengths - Starbucks Corporation is a very
    profitable organization, earning in excess of
    600 million in 2004.
  • Opportunities - New products and services that
    can be retailed in their cafes, such as Fair
    Trade products.
  • Weaknesses - Starbucks has a reputation for new
    product development and creativity.
  • Threats - Starbucks are exposed to rises in the
    cost of coffee and dairy products.

20
Example 3 - Nike SWOT Analysis.
  • Strengths - Nike is a very competitive
    organization. Phil Knight (Founder and CEO) is
    often quoted as saying that 'Business is war
    without bullets.
  • Opportunities - Product development offers Nike
    many opportunities.
  • Weaknesses - The organization does have a
    diversified range of sports products.
  • Threats - Nike is exposed to the international
    nature of trade.

21
SWOT Analysis
  • SWOT analysis is a tool for auditing an
    organization and its environment.
  • It is the first stage of planning and helps
    managers to focus on key issues.

http//www.marketingteacher.com/Lessons/lesson_swo
t.htm
22
STEP4 Formulate Strategies
  • Managers need to consider the realities of
    external environment , their available resources
    , capabilities, and design strategies that will
    help the organization achieve its goals

23
STEP5 Implementing Strategies
  • No matter how great the organizations strategies
    are planned, performance will suffer if those
    strategies are not implemented properly

24
STEP6 Evaluate Results
  • Managers need to evaluate on
  • How effective have strategies been at helping
    organization reach its goals?
  • What adjustments are necessary?
  • Example
  • Anne Mulcahy, Xeroxs CEO, made strategic
    adjustments to regain market share and improve
    her company bottom line by cutting jobs, sold
    assets, and reorganized management

25
Group Assignment (Randomly select by lecturer)
  • Make the SWOT analysis for KKUIC
  • Guess the definition of 3 different strategies
    managers can formulate corporate, business, and
    functional

26
IA IM
  • G1 Babs Kik Som-O
  • G2 Pang Ryan SangKhum
  • G3 Phu NamFon Kulthida
  • G4 Bawk View Win
  • G5 Sandi Tum Preaw
  • G6 Mike Nu Kean
  • G7 MiKay Chris Tin

27
GB
  • G1 Sim Care Yaya
  • G2 Kwang Chris Lek Pond
  • G3 Amm Saly Yok
  • G4 BaiToi Mooyor Mon
  • G5 Jam Namtarn Oh
  • G6 Toe Taa Ploy

28
Types of Organizational Strategies
1) Corporate -gt
2) Competitive or Business -gt
3) Functional -gt
29
I. Corporate Strategy
1) Corporate -gt
2) Competitive or Business -gt
3) Functional -gt
30
What is Corporate Strategy?
  • It specifies what businesses a company is in or
    wants to be in and what it wants to do with those
    businesses.
  • Its based on the missions and goals of org. and
    the roles that each business unit of org. will
    play.

31
Example PepsiCo
  • Mission to be the worlds premier consumer
    products company focused on convenient foods and
    beverages
  • It pursues its mission with corporate strategy
    which is decided by top manager what to do in
    different businesses
  • PepsiCo Americas Beverages PepsiCo North
    American Beverages (PNAB), Latin Americas
    Beverages
  • PepsiCo Americas Foods Frito-Lay North America,
    Quaker Foods North America, Sabritas, Gamesa,
    Latin Americas Foods
  • PepsiCo International

32
Example Unilever
  • Our mission is to add vitality to life. We meet
    everyday needs for nutrition, hygiene and
    personal care with brands that help people look
    good, feel good and get more out of life.
  • It divides its business units as
  • Food brands Lipton, Knorr, Bertolli, Flora,
  • Home care brands Comfort, Sunlight, Omo, Cif,
    Surf,
  • Personal care brands Axe, Dove, Lux, Lifebuoy,
    Ponds, Rexona, Vaseline, Sunsilk, Closeup

33
Types of Corporate Strategy
  1. Growth Strategies
  2. Stability Strategies
  3. Renewal Strategies

34
Corporate Strategy Growth
  • A corporate strategy thats used when
    organization wants to expand the number of
    markets served or products offered, either
    through its current business(es) or through new
    business(es).
  • It is a grand strategy that involves expansionas
    in sales revenues, market share, number of
    employees, or number of customers or (for
    nonprofits) clients served.

35
Types of Growth Strategies
  1. Concentration or Intensive Growth Strategy
  2. Market Development
  3. Product Development
  4. Market Penetration
  5. Integrative Growth Strategy
  6. Forward Vertical Integration
  7. Backward Vertical Integration
  8. Horizontal Integration
  9. Diversification Growth Strategy
  10. Conglomerate Diversification
  11. Concentric Diversification

36
1) Concentration or Intensive Growth Strategy
  • Focuses on its primary line of business by doing
  • Market Development increases the number of
    market served in primary business (existing
    products for new markets/ customers)
  • Product Development increases the number of
    products offered by developing better quality
    products or innovate new products offerings in
    primary business (new products for existing
    customers)
  • Market Penetration increases corporate revenue
    by promoting products, i.e. increased frequency
    or quantity of using products, or repositioning
    the brand (existing products for existing
    customers)

37
2) Integrative Growth Strategy
  • A strategy for growth in which a firm acquires
    some other element of the chain of distribution
    of which it is a member
  • 3 main types of integration
  • Backward Vertical Integration controls
    subsidiaries that produce some of the inputs used
    in the production of its products, e.g., an
    automobile company may own a tire company, a
    glass company, and a metal company (combine with
    input supplier)
  • Forward Vertical Integration controls
    distribution centers and retailers where its
    products are sold which enable firm control its
    output (combine with output distributor/retailer)
  • Horizontal Integration occurs when a firm is
    being taken over by, or merged with, another firm
    which is in the same industry and in the same
    stage of production as the merged firm, e.g. a
    car manufacturer merging with another car
    manufacturer. (combine with competitor)

38
3) Diversification Growth Strategy
  • It is a strategy of firm that expand its business
    into new market(s) in order to gain new
    customers.
  • 2 main types of diversification strategies
  • Concentric Diversification combines with firms
    in different but remains in a market or industry
    which firm is familiar with (related
    diversification)
  • Conglomerate Diversification combines with firms
    in different and never have previous experience
    before (unrelated diversification)

39
Corporate Strategy
Market Development
Product Development
Intensive
Market Penetration
Backward Vertical
Growth
Integration
Forward Vertical
Horizontal
Conglomerate
Diversification
Corporate Level
Stability
Concentric
Renewal
40
Corporate Strategy Stability
  • It is a corporate strategy in which an
    organization continues to do what it is currently
    doing
  • It involves little or no significant change
  • It includes continuing to serve the same clients
    by offering the same product or service, maintain
    market share, and sustaining orgs current
    business operations.

41
Example of Market Share
  • Search Engine Market Share By U.S. Monthly
    Visitors and Search Queries in April 2008
  • The four major search engines stack up as
    follows
  • Google 67.9
  • Yahoo 20.3 (unrounded, 20.28)
  • Microsoft 6.3 (unrounded, 6.26)
  • Ask 4.2 (unrounded, 4.17)

http//searchengineland.com/hitwise-google-again-h
its-new-high-microsoft-yahoo-again-new-lows-13998
42
Corporate Strategy Renewal Strategy (or
Retrenchment or Defensive Strategy)
  • A corporate strategy designed to address
    declining performance which normally involve with
    cutting costs and restructuring organizational
    operations.
  • 2 main types of renewal strategies
  • Retrenchment Strategy a short-run renewal
    strategy used for minor performance problems
  • Turnaround Strategy a strategy used for more
    serious problems

43
Summary of Corporate Strategy
  • 1) Growth Strategy
  • It can improve an existing product or service to
    attract more buyers
  • It can increase its promotion and marketing
    efforts to try to expand its market share.
  • It can expand its operations, as in taking over
    distribution or manufacturing previously handled
    by someone else.
  • It can expand into new products or services.
  • It can acquire similar businesses.
  • It can merge with another company to form a
    larger company.

44
Summary of Corporate Strategy (Cont)
  • 2) Stability Strategy
  • It can go for no-change strategy (if, for
    example, it has found that too fast growth leads
    to foul-ups (misdoing) with orders and customer
    complaints)
  • It can go for a little-change strategy (if, for
    example, the company is growing at breakneck
    (very fast dangerous) speed and feels it needs
    a period of consolidation)

45
Summary of Corporate Strategy (Cont)
  • 3) Renewal Strategy
  • It can reduce costs, as by freezing hiring or
    tightening expenses.
  • It can sell off (liquidate) assetsland,
    buildings, inventories, and etc.
  • It can gradually phase out product lines or
    services.
  • It can divest part of its business, as in selling
    off entire divisions or subsidiaries.
  • It can declare bankruptcy.
  • It can attempt a turnarounddo some retrenching,
    with a view toward restoring profitability.

46
II. Business or Competitive Strategy
1) Corporate -gt
2) Competitive or Business -gt
3) Functional -gt
47
II. Business or Competitive Strategy
  • It is a strategy for how org. will compete in its
    business(es).
  • Org. that has 1 main line of business gt strategy
    describes on how it will compete in its primary
    or main market
  • Org. that has more than 1 line of business gt
    strategy defines its competitive advantage,
    offered products or services, target customers,
    etc.
  • Org. can formulate different types of strategy
    such as cost leadership, differentiation, or
    focus.

48
II. Business or Competitive Strategy (Cont)
  • Example
  • LVMH-Moet Hennessy Louis Vuitton SA has different
    competitive strategies for its businesses which
    includes
  • Donna Karan fashions
  • Louis Vuitton leather goods
  • Guerlain perfume
  • TAG Heuer watches
  • Dom Perignon champagne
  • And other luxury products

49
SBUs Strategic Business Units
  • Single businesses in an organization that are
    independent and formulate their own competitive
    strategies

50
II. Business or Competitive Strategy (Cont)
  • It refers to the aggregated (total, sum)
    strategies of single business firm or a SBU in a
    diversified corporation.
  • According to Michael Porter, to achieve a
    sustainable competitive advantage and long-term
    success, a firm must formulate a business
    strategy that incorporates
  • Cost leadership keeping costs prices low for a
    market such as Dell computer, Timex watch, Home
    Depot hardware retailer
  • Differentiation offering unique superior value
    for a wide market such as Ritz-Carlton hotels,
    Lexus automobiles
  • Focus offering unique superior value for a
    narrow market such as Rolls-Royce, Ferrari,
    Lamborghini, Cartier jewelry

Source http//en.wikipedia.org/wiki/Strategic_man
agement
51
II. Functional Strategy
1) Corporate -gt
2) Competitive or Business -gt
3) Functional -gt
52
III. Functional Strategy
  • Functional strategies are used by orgs various
    functional departments to support the competitive
    strategy which include marketing strategies, new
    product development strategies, human resource
    strategies, financial strategies, legal
    strategies, supply-chain strategies, and
    information technology management strategies.
  • Each functional department attempts to do its
    part in meeting overall corporate objectives, and
    hence to some extent their strategies are derived
    from broader corporate strategies.
  • The emphasis is on short and medium term plans
    and is limited to the domain of each departments
    functional responsibility.

Source http//en.wikipedia.org/wiki/Strategic_man
agement
53
Strategy Implementation
54
The 7-S McKinsey Model
  • McKinsey developed a framework for analyzing and
    improving organizational effectiveness.
  • The basic premise of the model is that there are
    7 internal aspects of an organization that need
    to be aligned if it is to be successful.

Source www.transess.com/news_7smodel.html
55
3Ss Hard Ss
  • "Hard" elements are easier to define or identify
    and management can directly influence them.
  • These are strategy statements organization
    charts and reporting lines and formal processes
    and IT systems
  • Strategy The direction and scope of the company
    over the long term.
  • Structure The basic organization of the company,
    its departments, reporting lines, areas of
    expertise, and responsibility (and how they
    inter-relate).
  • Systems Formal and informal procedures that
    govern everyday activity, covering everything
    from management information systems, through to
    the systems at the point of contact with the
    customer (retail systems, call centre systems,
    online systems, etc).

Source www.transess.com/news_7smodel.html
56
4Ss Soft Ss
  • "Soft" elements, on the other hand, can be more
    difficult to describe, and are less tangible and
    more influenced by culture.
  • Skills The capabilities and competencies that
    exist within the company. What it does best.
  • Shared values The values and beliefs of the
    company. Ultimately they guide employees towards
    'valued' behavior.
  • Staff The company's people resources and how
    they are developed, trained, and motivated.
  • Style The leadership approach of top management
    and the company's overall operating approach.

Source www.transess.com/news_7smodel.html
57
Analytical Tools in Strategic Management
  • 5 Forces Analysis
  • BCG Growth-Share Matrix
  • Product Life Cycle

58
Five Force Model
  • 5 competitive forces determine business
    attractiveness and profitability which manager
    assess using them

Any possibility?
How much?
Any possibility?
How much?
How intense ?
59
BCG Growth-Share Matrix
  • The overall goal of this ranking was to help
    corporate analysts decide which of their business
    units to fund, and how much and which units to
    sell.
  • Managers were supposed to gain perspective from
    this analysis that allowed them to plan with
    confidence to use money generated by the cash
    cows to fund the stars and, possibly, the
    question marks

60
BCG Growth-Share Matrix
  • The natural cycle for most business units is that
    they start as question marks, then turn into
    stars. Eventually the market stops growing thus
    the business unit becomes a cash cow. At the end
    of the cycle the cash cow turns into a dog.

61
Stars Question Marks
  • Stars are units with a high market share in a
    fast-growing industry.
  • The hope is that stars become the next cash cows.
  • Sustaining the business unit's market leadership
    may require extra cash, but this is worthwhile if
    that's what it takes for the unit to remain a
    leader.
  • When growth slows, stars become cash cows if they
    have been able to maintain their category
    leadership, or they move from brief stardom to
    dogdom
  • Question marks (also known as problem child) are
    growing rapidly and thus consume large amounts of
    cash, but because they have low market shares
    they do not generate much cash. The result is a
    large net cash consumption.
  • A question mark has the potential to gain market
    share and become a star, and eventually a cash
    cow when the market growth slows.
  • If the question mark does not succeed in becoming
    the market leader, then after perhaps years of
    cash consumption it will degenerate into a dog
    when the market growth declines.
  • Question marks must be analyzed carefully in
    order to determine whether they are worth the
    investment required to grow market share.

Source http//en.wikipedia.org/wiki/Growth-share_
matrix
62
Cash Cows Dogs
  • Cash cow are units with high market share in a
    slow-growing industry.
  • These units typically generate cash in excess of
    the amount of cash needed to maintain the
    business.
  • They are regarded as staid and boring, in a
    "mature" market, and every corporation would be
    thrilled to own as many as possible.
  • They are to be "milked" continuously with as
    little investment as possible, since such
    investment would be wasted in an industry with
    low growth.
  • Dogs, also can called as pets, are units with low
    market share in a mature, slow-growing industry.
  • These units typically "break even", generating
    barely enough cash to maintain the business's
    market share.
  • Though owning a break-even unit provides the
    social benefit of providing jobs and possible
    synergies that assist other business units, from
    an accounting point of view such a unit is
    worthless, not generating cash for the company.
  • They depress a profitable company's return on
    assets ratio, used by many investors to judge how
    well a company is being managed. Dogs, it is
    thought, should be sold off.

Source http//en.wikipedia.org/wiki/Growth-share_
matrix
63
How to use it?
  • To use the chart, analysts plot a scatter graph
    to rank the business units (or products) on the
    basis of their relative market shares and growth
    rates.
  • When the organization has a lot business units
    fall in question marks and stars, that
    organization tends to apply growth strategy as a
    corporate strategy.
  • For the organization that has most of its
    business units fall in cash cows, organization
    tends to apply stability strategy to remain its
    profit status as long as it can.
  • For the organization that has a lot of dog, may
    need to use renewal strategy to find any
    solutions for the particular bad-performance
    product.

Source http//en.wikipedia.org/wiki/Growth-share_
matrix
64
Product Life Cycle
  • Introduction -- A product is developed and comes
    to market.
  • Growth -- Consumers learn about it and more
    people buy it. It becomes more competitive
    through modification, price adjustments, wider
    distribution and other initiatives.
  • Maturity -- The product generates profits with
    more professional productivity learning from
    experience. But problems can arise, such as the
    arrival of competing products in the marketplace.
    The product maybe modified or marketed in a new
    way to keep profits strong.
  • Decline -- Sales decrease because of market
    saturation, obsolescence or other factors.Placing
    a product on this timeline suggests strategies
    for keeping its profitability high.
  • Example If profits sag (decrease) during the
    Maturity stage, the manufacturer might offer
    discounted pricing or wider distribution.
  • It uses to analyze the profitability of a product
    at different stages of its life cycle.

Source http//www.trumpuniversity.com/business-br
iefings/post/2008/04/product-life-cycle.cfm
65
End of Chapter5
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