Strategic Management: An Overview

Strategic Management

• Strategic management defines what managers do to develop an organization's strategies.
• Strategies entail the decisions and actions determining an organization's long-run performance.
• A business model is a strategic design for how a company intends to profit from its strategies, work processes, and work activities.
• Value for customers and the ability to make money are focused on by business models
• Strategic management leads to higher organizational performance.
• Strategic management involves managers examining and adapting to changes in the business environment.
• Strategic management coordinates various organizational units and helps them concentrate on organizational goals.

The Strategic Management Process

• The strategic management process is a six-step process that encompasses strategy planning, implementation, and evaluation.

Identifying the Current Mission, Goals, and Strategies

• The first step in the strategic management process is identifying the current mission, goals, and strategies
• A mission statement describes an organization's purpose, including the scope of its products and services.
• Goals lay the foundation for further planning and define measurable performance targets.
• Components of a Mission Statement include customers, products or services, markets, technology, survival, growth and profitability, philosophy, self-concept, public image, and employees.

External and Internal Analysis

• The second step is doing an external analysis which focuses on identifying opportunities and threats by environmental scanning of the specific and general environments
• The third step, doing an internal analysis, assesses organizational resources, capabilities, and activities.
• Strengths create value for customers and enhance the firm's competitive position, while weaknesses can create a competitive disadvantage.
• An internal audit identifies strengths and weaknesses in management, marketing, production and operations, research and development, financial and accounting, and management information systems
• Analyzing financial and physical assets is relatively straightforward, but evaluating intangible assets like employee skills, culture, and corporate reputation can be more difficult.
• Steps 2 and 3 in the strategic management process are combined and called a SWOT analysis
• The four elements of a SWOT analysis are strengths, weaknesses, opportunities, and threats.
• SO strategies leverage a firm's internal strengths to capitalize on external opportunities.
• WO strategies address internal weaknesses by taking advantage of external opportunities.
• ST strategies utilize a firm's strengths to minimize the impact of external threats.
• WT strategies involve defensive measures to reduce internal weaknesses and avoid external threats.

Formulating and Implementing Strategies

• The fourth step of the Strategic Management Process is to formulate strategies
• This stage involves developing and evaluating strategic alternatives, selecting appropriate strategies for all organizational levels, and matching strengths with opportunities while correcting weaknesses and guarding against threats.
• The fifth step in the Strategic Management Process involves implementing strategies, effectively fitting the organizational structure and activities to the external environment
• The environment drives the chosen strategy, and effective implementation requires aligning the organizational structure with the strategy's requirements.

Evaluating Results

• The final step is evaluating results by determining how effective strategies have been and if they require adjustments

Corporate Strategies

• A corporate strategy specifies what businesses a company is in or wants to be in, along with what it wants to do with those businesses.
• The three main types of corporate strategies include growth, stability, and renewal.

Types of Corporate Strategies

• Growth strategies involve expansion into new products and markets.
• Stability strategies focus on maintaining the status quo.
• Renewal strategies address organizational weaknesses that lead to performance declines.
• Growth strategy types include concentration, vertical integration, horizontal integration, and diversification.
• Concentration focuses on a primary line of business to increase products or markets served.
• Vertical integration involves gaining control of inputs through backward integration (becoming a self-supplier) or controlling output through forward integration (eliminating intermediaries).
• Horizontal integration combines operations with a competitor in the same industry to increase competitive strengths and reduce rivalry.
• Related diversification expands by combining with firms in different but related industries with strategic fits.
• Unrelated diversification grows by combining with firms in unrelated industries where higher financial returns are possible.
• Stability strategies become useful when managers want to keep the status quo, if there is a slowly growing industry, or if owners elect to not grow the company
• Renewal strategies focus on countering organizational weaknesses that lead to performance declines and involve retrenchment and turnaround.
• Retrenchment focuses on eliminating non-critical weaknesses and restoring strengths to improve current performance.
• Turnaround addresses critical long-term performance problems through cost elimination and organizational restructuring.
• The BCG matrix, developed by the Boston Consulting Group, is used to manage corporate strategies and considers market share and industry growth rate.
• The BCG Matrix classifies firms as cash cows, stars, question marks, or dogs.
  • Cash cows involve low growth rate, and high market share,
  • Stars involve high growth rate, and high market share
  • Question marks involve high growth rate, and low market share
  • Dogs involve low growth rate, and low market share

Competitive Strategies

• Competitive strategy focuses on how an organization will compete in its business(es).
• A competitive strategy describes how a single-business organization will compete in its primary or main market.
• In organizations with multiple businesses, each business has its own competitive strategy defining its advantage, products, customers, etc.

Competitive Advantage

• Competitive advantage gives an organization a distinctive competitive edge.
• This edge comes from core competencies because the organization does something others cannot do or does better.
• Differentiating the firm from its competitors can create a competitive advantage, including by having a great quality management system
• Competitive advantage involves continuing to effectively exploit resources and develop core competencies, which should be achieved with strategic management

Porter's Five Forces Model

• Porter's five forces model assesses industry attractiveness and competitive intensity, based on:
  • Threat of new entrants (ease or difficulty)
  • Threat of substitutes (switching costs and brand loyalty)
  • Bargaining power of buyers (market strength)
  • Bargaining power of suppliers (number of buyers, threats from substitutes and new entrants)
  • Current rivalry (industry growth rates, demand, and product prices)