STRATEGIC MANAGEMENT
Managers must carefully consider their organization’s internal and external environments as they develop strategic plans. They should have 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 what managers do to develop the organization’s strategies.
2. Strategic management involves all four of the basic management functions—planning, organizing, leading, and controlling.
B. Why Is Strategic Management Important?
1. Strategic management has a significant impact on how well an organization performs.
2. In today’s business world, organizations of all types and sizes must manage constantly changing situations.
3. Today’s companies are composed of diverse divisions, departments, functions, and work activities that must be coordinated.
4. Strategic management is involved in many of the decisions that managers make.
THE STRATEGIC MANAGEMENT PROCESS
The strategic management process is a six-step process that encompasses strategic planning, implementation, and evaluation.
Step 1: Identifying the Organization’s Current Mission, Goals, and Strategies
Every organization needs a mission which is a statement of the purpose of an organization. The mission statement addresses the question: What is the organization’s reason for being in business?
The organization must also identify its current goals and strategies.
Step 2: Doing an External Analysis
Managers in every organization need to conduct an external analysis. Influential factors such as competition, pending legislation, and labor supply are included in the external environment.
After analyzing the external environment, managers must assess what they have learned in terms of opportunities and threats. Opportunities are positive trends in external environmental factors; threats are negative trends in environmental factors.
Because of different resources and capabilities, the same external environment can present opportunities to one organization and pose threats to another.
Step 3: Doing an Internal Analysis
Internal analysis should lead to a clear assessment of the organization’s resources and capabilities.
The organization’s major value-creating skills and capabilities that determine its competitive weapons are the organization’s core competencies.
Any activities the organization does well or any unique resources that it has are called strengths.
Weaknesses are activities the organization does not do well or resources it needs but does not possess.
Organizational culture is important in internal analysis; the company’s culture can promote or hinder its strategic actions.
SWOT analysis is an analysis of the organization’s strengths, weaknesses, opportunities, and threats.
Step 4: Formulating Strategies
After the SWOT, managers develop and evaluate strategic alternatives and select strategies that are appropriate.
Strategies need to be established for corporate, business, and functional levels.
Step 5: Implementing Strategies
A strategy is only as good as its implementation.
Step 6: Evaluating Results
Strategic planning takes place on three different and distinct levels: corporate, business, and functional strategies.
CORPORATE STRATEGIES
Corporate strategy is an organizational strategy that determines what businesses a company is in, should be in, or wants to be in, and what it wants to do with those businesses.
1. There are three main types of corporate strategies:
a. A growth strategy is a corporate strategy that is used when an organization wants to grow and does so by expanding the number of products offered or markets served, either through
its current business(es) or through new business(es).
b. A stability strategy is a corporate strategy characterized by an absence of significant change in what the organization is currently doing.
c. A renewal strategy is a corporate strategy designed to address organizational weaknesses that are leading to performance declines. Two such strategies are retrenchment strategy and turnaround strategy.
How are corporate strategies managed? Corporate Portfolio Analysis is used when an organization’s corporate strategy involves a number of businesses. Managers can manage this portfolio of businesses using a corporate portfolio matrix, such as the BCG matrix. The BCG matrix is a strategy tool that guides resource allocation decisions on the basis of market share and growth rate of SBUs.
COMPETITIVE STRATEGY
A business strategy (also known as a competitive strategy) is strategy focused on how the organization will compete in each of its businesses.
The Role of Competitive Advantage. A competitive advantage is what sets an organization apart, that is, its distinctive edge. An organization’s competitive advantage can come from its core competencies.
Quality as a Competitive Advantage. If implemented properly, quality can be one way for an organization to create a sustainable competitive advantage.
Sustaining Competitive Advantage. An organization must be able to sustain its competitive advantage; it must keep its edge despite competitors’ action and regardless of evolutionary changes in the organization’s industry.
Michael Porter’s work explains how managers can create and sustain a competitive advantage that will give a company above-average profitability. Industry analysis is an important step in Porter’s framework. He says there are five competitive forces at work in an industry; together, these five forces determine industry attractiveness and profitability. Porter proposes that the following five factors can be used to assess an industry’s attractiveness:
1) Threat of new entrants. How likely is it that new competitors will come into the industry?
2) Threat of substitutes. How likely is it that products of other industries could be substituted for a company’s products?
3) Bargaining power of buyers. How much bargaining power do buyers (customers) have?
4) Bargaining power of suppliers. How much bargaining power do a company’s suppliers have?
5) Current rivalry. How intense is the competition among current industry competitors?
B. Choosing A Competitive Strategy. According to Porter, managers must choose a strategy that will give their organization a competitive advantage. Porter identifies three generic competitive strategies. Which strategy managers select depends on the organization’s strengths and core competencies and the particular weaknesses of its competitor(s).
a. A cost leadership strategy is a business or competitive strategy in which the organization competes on the basis of having the lowest costs in its industry.
b. A differentiation strategy is a business or competitive strategy in which a company offers unique products that are widely valued by customers.
c. A focus strategy is a business or competitive strategy in which a company pursues a cost or differentiation advantage in a narrow industry segment.
d. An organization that has not been able to develop either a cost or differentiation advantage is said to be “stuck in the middle.”