Chapter 9 Strategic Management

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice©2012 HallPearson Education, Inc. publishing as Prentice Hall

Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter

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•Define strategic management and explain why it’s important •Explain what managers do during the six steps of the strategic management process •Describe the three types of corporate strategies •Describe competitive advantage and the competitive strategies organizations use to get it •Discuss current strategic management issues Copyright © 2012 Pearson Education, Inc. ©2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall


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What Is Strategic Management? • Strategic management - what managers do to develop the organization’s strategies.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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What Is Strategic Management? • Strategies - the plans for how the organization will its business, how it will compete successfully, and how it will attract and satisfy its customers in order to achieve its goals.



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What Is Strategic Management? • Business model - how a company is going to make money. It focuses on: (1) whether customers will value what the company is providing, and (2) whether the company can make any money doing that



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Why Is Strategic Management Important? 1. It results in higher organizational performance.

2. It requires that managers examine and adapt to business environment changes. 3. It coordinates diverse organizational units, helping them focus on organizational goals.



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What is the Strategic Management Process? • Strategic management process - a six-step process that encompasses strategic analysis, formulation and implementation.



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Strategic Management Process 1.

2.

3.

Strategic Analysis • Analyzing organizational goals • Analyzing the external environment • Analyzing the internal environment • Assessing intellectual capital Strategic Formulation • Formulating Corporate-level strategies • Formulating business-level strategies • Formulating functional strategies • Formulating international strategies Strategy Implementation • Strategic control & governance • Creating effective organizational design • Strategic leadership, excellence & social responsibility Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Strategic Analysis Analyzing organizational goals • Hierarchy of goals (vision, mission statement, strategic objectives)



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Strategic Analysis Analyzing external environment • Macroenvironment (general) – PESTLE (tool) • Microenvironment (specific) – Michael Porter’s 5 competitive forces



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Porter’s 5 Competitive Forces Model



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Five Competitive Forces • Threat of New Entrants – The ease or difficulty with which new competitors can enter an industry

• Threat of Substitutes – The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitute products and services

• Bargaining Power of Buyers – The degree to which buyers have the market strength to hold sway over and influence competitors in an industry Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Five Competitive Forces • Bargaining Power of Suppliers – The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship.

• Current Rivalry – Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend.



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Strategic Analysis Analyzing the internal environment • Value chain analysis • Resource-Capabilities-Core competencies



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Strategic Analysis Analyzing the internal environment • Value chain analysis (the series of internal departments that carry out value-creating activities to design, produce, market, deliver & supports a firm’s products) – Primary Activities (The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin.) – Support Activities (facilitates the primary activities)



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Value Chain Analysis



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Example of a Value Chain



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Strategic Analysis Analyzing the internal environment • Resource-Capabilities-Core competencies Resource - an organization’s assets that are used to develop, manufacture, and deliver a product to its customers. It can be tangible (Financial, Physical, Human resources, Organizational)/intangible (Technological, Innovation, Reputation) Capabilities - an organization’s skills and abilities in doing the work activities needed in its business. Core competencies - the organization’s major value-creating capabilities that determine its competitive advantage Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Competitive advantage – rare, inimitable (Unique historical conditions - e.g., founder, culture), valuable & non-substitutable (Trust-based working relationships between managers and non-managerial personnel) Competitive advantage - what sets an organization apart; its distinctive edge.



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Resource-Capabilities-Competitive Advantage RESOURCES

CAPABILITIES

CORE COMPETENCIES

Numerous plants, facilities Ability to expand, acquire or and equipments penetrating merge mining sites around the globe

Production of quality products

Possess high degree of expertise of the operation in the industry

Ability to maintain its quality of operation

Know-how of the business operation

Managerial Capabilities

Ability to sustain its efficient and Knowledge and learning in the effective operation diamond industry

Readily accessible funding

Ability to create business connections globally

Affordability to sustain its operation

Strong brandname

Ability to attract more consumers

Consumers trust is established

Strong network of connections globally

Ability to sustain its global competitiveness

Establish partnership easily



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SWOT Analysis - an analysis of the organization’s strengths, weaknesses, opportunities, and threats - SW (analysis of the internal environment) - OT (analysis of the external environment)



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Strategic Analysis Assessing intellectual capital Intellectual capital – knowledge of international business & the capacity to understand how business works in a global scale

Human capital - the stock of competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Strategic Analysis Tool Balanced Scorecard • A top-down management system that organizations can use to clarify their vision, strategy & transform them into action • Introduced by Robert Kaplan & David Norton • The idea was to move away from purely financial perspective & integrate other perspectives such as customers, internal business processes and learning & growth Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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BALANCED SCORECARD



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BALANCED SCORECARD 4 most commonly used perspectives: • Financial Perspective - Employs financial measures • Customer Perspective - Evaluates how well the company is performing from the viewpoint of those who buy & use its products • Internal Business Process Perspective - evaluates all critical aspects of the value chain (product development, production, delivery & after-sale service) to ensure that the company is operating effectively & efficiently • Learning & growth perspective - evaluates how well the company develops & retains its employees by evaluating employee skills & satisfaction, training programs & information dissemination Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Types of Organizational Strategies



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Strategic Formulation Formulating corporate-level strategies Corporate strategies - an organizational strategy that determines what businesses a company is in or wants to be in, and what it wants to do with those businesses. • Directional Strategies - the game plan a company decides on and implements to grow business, increase profits, and accomplish goals and objectives. • Portfolio Analysis • Corporate Parenting



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Types of corporate directional strategies • Growth strategy - a corporate strategy that’s used when an organization wants to expand the number of markets served or products offered, through either its current business(es) or new business(es). • Stability strategy - Continuing its current activities without any significant change in direction • Retrenchment strategy - a corporate strategy designed to address declining performance.



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Growth strategies • Merger - combining of two firms in which only one of the firms remains. (ex: BDO & Equitable PCI Bank) • Acquisition - one firm takes over another firm. • Strategic Alliance - a partnership between an organization and one or more foreign company partner(s) in which both share resources and knowledge in developing new products or building production facilities. (ex: Myphone Cellphones are manufactured in China, then products are sold in the Philippines) Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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2 basic growth strategies 1. Concentration : • Vertical growth • Horizontal growth 2. Diversification • Concentric • Conglomerate Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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2 basic growth strategies Concentration : • Vertical Growth - taking over a function previously provided by a supplier or by distributor – can be either internally or externally Vertical growth results in vertical integration – the degree to which a firm operates vertically in multiple locations on and industry’s value chain backward integration forward integration producer)

supplier (Meat shop to Piggery) distributor (Maker of wheels to car



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2 basic growth strategies Concentration : • Horizontal growth - expanding the firm’s products into other geographic locations and/or services offered to current markets Horizontal growth results in horizontal integration – a company acquires competitors in the same industry doing the same stage of production Ex: A car manufacturer acquiring its competitor who does exactly the same thing. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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2 basic growth strategies 1. Concentration : • Vertical growth • Horizontal growth 2. Diversification • Concentric • Conglomerate Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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2 basic growth strategies Concentric (Related Diversification) - appropriate corporate strategy when a firm has a strong competitive position but industry attractiveness is low search for synergy Ex: The addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialities Ltd. is an example of technological-related concentric diversification.



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2 basic growth strategies Conglomerate (Unrelated diversification) - adds new products or services that are often technologically or commercially unrelated to current products but that may appeal to current customers. Ex: JG Summit owns Robinsons Land, Robinsons Bank, Cebu Pacific, Go Hotels



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Stability strategies 1. Pause/Proceed with caution strategy 2. No change strategy 3. Profit strategy



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Stability strategies • Pause/Proceed with Caution strategy - It is employed by firms that wish to test ground before moving ahead with a full-fledged grand strategy. Ex: Dell Computer Corporation. In 1996, Dell began selling computers through its website, and in 2002, it expanded its product line to include televisions, handhelds, digital audio players, and printers.



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Stability Strategies • No change strategy - a decision to do nothing new a choice to continue current operations and policies for the foreseeable future Ex: Most small-town businesses in Tacloban City probably follow this strategy before Robinsons moves into the area



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Stability Strategies • Profit strategy - a decision to do nothing new in a worsening situation, but instead to act as though the company’s problems are only temporary attempting to artificially support profits when company’s sales are declining by reducing investment and short-term discretionary expenditures. The company is doing cost cutting measures.



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Retrenchment strategies 1. 2. 3. 4.

Turnaround Sell-Out/divestment Bankruptcy Liquidation



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Retrenchment strategies • Turnaround strategy - emphasizes the improvement of operational efficiency and probably most appropriate when a corporation’s problems are pervasive. It involves: 1. Contraction : the initial effort to quickly “stop the bleeding” with a general across-the-board cutback in size and costs 2. Consolidation : implements a program to stabilize the now-leaner corporation to streamline the company, plans are developed to reduce unnecessary overhead and to make functional activities cost-justified



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Retrenchment strategies • Sell – Out / Divestment Strategy - If weak and unable either to pull itself up or to find customer to which it can become a captive company – sell out and leave the industry completely



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Retrenchment strategies • Bankruptcy strategy : giving up management of the firm to the courts in return for some settlement of the corporation’s obligations • Liquidation : the termination of the firm (convert as many saleable assets as possible to cash benefit). The top management makes the decision instead of court Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Strategic Formulation Formulating corporate-level strategies Corporate strategies - an organizational strategy that determines what businesses a company is in or wants to be in, and what it wants to do with those businesses. • Directional Strategies • Portfolio Analysis - one of the most popular aids to developing corporate strategy in a multi-business corporation. The top management views its product lines and business unit as a series of investments from which it expects a profitable return • Corporate Parenting Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Portfolio analysis approach: • BCG Growth-Share Matrix



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Portfolio analysis • BCG Growth-Share Matrix - each of the corporation’s product lines or business units is plotted on the matrix according to both the growth rate of the industry in which it competes and its relative market share



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Portfolio analysis • Boston Consultancy Group (BCG) Growth-Share Matrix - each of the corporation’s product lines or strategic business units (SBUs) is plotted on the matrix according to both the growth rate of the industry in which it competes and its relative market share SBUs - it can be a company division, a product line within a division or sometimes a single product or brand - ex: San Miguel Corporation (San Miguel Brewery, Inc., Ginebra San Miguel, Inc., San Miguel-Purefoods Co. Inc., San Miguel Packaging Products & San Miguel Properties, Inc.) Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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The BCG Growth-Share Matrix



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The BCG Growth-Share Matrix Stars - often need heavy investments to finance rapid growth. Eventually their growth will slow down & they will turn into cash cows Cash Cows - established & successful SBUs need less investment to hold their market share. They produce a lot of cash that the company uses to pay its bills & to support other SBUs that need investment Question Marks - requires a lot of cash to hold their share. Management has to think hard which question marks it should try to build into stars & which should be phased out Dogs - may generate enough cash to maintain themselves but do not promise to be large sources of cash Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Strategic Formulation Formulating corporate-level strategies Corporate strategies - an organizational strategy that determines what businesses a company is in or wants to be in, and what it wants to do with those businesses. • Directional Strategies • Portfolio Analysis • Corporate parenting- views the corporation in terms of resources and capabilities that can be used to build business units value as well as generate synergies across business units



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Developing a corporate parenting strategy 1. Examine each strategic business unit (or target firm in the case of acquisition) in terms of it critical success factors (CSF – Those elements of a company that determine its strategic success or failure) 2. Examine each business unit (or target firm) in terms of areas in which performance can be improved - these are considered to be parenting opportunities – i.e. can gain economies of scope by combining their sales forces or share manufacturing and logistics skills 3. Analyze how well the parent corporation fits with the business unit (or target firm) must be aware of its own strengths and weaknesses in terms of resources, skills, and capabilities Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Strategic Formulation Formulating business-level strategies Business-level/competitive strategies -Seeks to determine how a corporation should compete in each of its businesses.



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Types of Businesslevel/Competitive Strategies • Cost Leadership Strategy – Seeking to attain the lowest total overall costs relative to other industry competitors

• Differentiation Strategy – Attempting to create a unique and distinctive product or service for which customers will pay a premium

• Focus Strategy – Using a cost or differentiation advantage to exploit a particular market segment as opposed to a larger market Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Strategic Formulation Formulating functional strategies Functional strategy - the strategies used by an organization’s various functional departments to support the competitive strategy. Strategies for different business functions: • Finance • Marketing (ex: pricing strategy, promotion strategy) • Human Resources • Operations



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Strategic Formulation Formulating international strategies International strategies – companies going global • Licensing - an organization gives another organization the right to make or sell its products using its technology or product specifications. • Franchising - an organization gives another organization the right to use its name and operating methods. • Joint venture - a specific type of strategic alliance in which the partners agree to form a separate, independent organization for some business purpose. (ex: Hewlett-Packard has had numerous joint ventures with various suppliers around the globe to develop different components for its computer equipment) • Outsourcing - purchasing materials or labor from around the world wherever it is cheapest. • Exporting - making products domestically and selling them abroad. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Strategic Implementation • Strategic control & corporate governance – strategic decisions are made directly towards the goal of the organization • Creating effective organizational design • Strategic leadership, excellence & social responsibility - a business’s intention to do the right things and act in ways that are good for society Copyright © 2012 Pearson Education, Inc. Publishing as Prentice ©2012 Hall Pearson Education, Inc. publishing as Prentice Hall


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Chapter 9 Strategic Management

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