STRATEGIC MANAGEMENT
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.
What is strategy? A large-scale action plan that sets the direction for an organization Plans for how an organization will do what it’s 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.
Can org. uses its specific strategy forever? According to fast-changing conditions, strategy can’t be decided on just once, it needs to be revisited from time to time.
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 organization’s strategies.
What is strategic planning? It is not only the organization’s 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
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
The Strategic Management Process 2 1 Identify the organization’s current mission, goals, and strategies External Analysis • Opportunities • Threats SWOT Analysis 3 Internal Analysis • Strengths • Weaknesses 4 Formulate Strategies 5 Implement Strategies 6 Evaluate Results
STEP 1: Identify Org. Current Mission, Goals, and Strategy Examples L’Oreal 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. ”
Components of a Mission Statement Customers: Who are the firm’s 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 firm’s 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 firm’s major products or services? Technology: Is the firm technologically current? Self-concept: What are the firm’s major competitive advantage and core competencies? Concern for employees: Are employees a valuable asset of the firm?
STEP 2: 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
STEP 3: Doing an Internal Analysis Examples Organization’s resources which are its assets use for develop, manufacture, and deliver products to customers i. e. financial, physical, human, and intangible Organization’s capabilities (skills and abilities) in doing work activities needed in its business Organization’s major value-creating capabilities that determine its competitive weapons called ‘core competencies’ Managers identify organizational strengths (positive factors) and weaknesses (negative factors)
Complete SWOT Analysis 1. Combine external and internal analyses which includes organization’s strengths, weaknesses, opportunities, and threats 2. Formulate appropriate strategies which: Exploit organization’s strengths and external opportunities Buffer or protect organization from external threats Correct critical weaknesses
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.
Example of Marketing SWOT Analysis (External Factor) An opportunity could be: A threat could be: A developing market such as the Internet. A new competitor in your home market. Mergers, joint ventures or strategic alliances. Price wars with competitors. Moving into new market segments that offer improved profits. A competitor has a new, innovative product or service. A new international market. Competitors have superior access to channels of distribution. A market vacated by an ineffective competitor. Taxation is introduced on your product or service.
Ex. Marketing SWOT Analysis
Simple rules for successful SWOT analysis Be realistic about the strengths and weaknesses of your organization when conducting 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
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. 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. 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. Threats - Being number one means that you are the target of competition, locally and globally.
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_swot. htm
STEP 4: 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
STEP 5: Implementing Strategies No matter how great the organization’s strategies are planned, performance will suffer if those strategies are not implemented properly
STEP 6: 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, Xerox’s CEO, made strategic adjustments to regain market share and improve her company bottom line by cutting jobs, sold assets, and reorganized management
Types of Organizational Strategies 1) Corporate -> Multi-business Corporation 2) Competitive or Business -> Strategic Business Unit 1 Strategic Business Unit 2 Strategic Business Unit 3 3) Functional -> Research & Development Manufacturing Marketing Human Resources Finance
I. Corporate Strategy 1) Corporate -> Multi-business Corporation 2) Competitive or Business -> Strategic Business Unit 1 Strategic Business Unit 2 Strategic Business Unit 3 3) Functional -> Research & Development Manufacturing Marketing Human Resources Finance
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. It’s based on the missions and goals of org. and the roles that each business unit of org. will play.
Example: Pepsi. Co Mission: “to be the world’s 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: Pepsi. Co Americas Beverages: Pepsi. Co North American Beverages (PNAB), Latin Americas Beverages Pepsi. Co Americas Foods: Frito-Lay North America, Quaker Foods North America, Sabritas, Gamesa, Latin Americas Foods Pepsi. Co International
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, Pond’s, Rexona, Vaseline, Sunsilk, Closeup
Types of Corporate Strategy 1. Growth Strategies 2. Stability Strategies 3. Renewal Strategies
Corporate Strategy: Growth A corporate strategy that’s 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 expansion —as in sales revenues, market share, number of employees, or number of customers or (for nonprofits) clients served.
Types of Growth Strategies 1) Concentration or Intensive Growth Strategy 1) 2) 3) Market Development Product Development Market Penetration 2) Integrative Growth Strategy 1) 2) 3) Forward Vertical Integration Backward Vertical Integration Horizontal Integration 3) Diversification Growth Strategy 1) 2) Conglomerate Diversification Concentric Diversification
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)
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)
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)
Corporate Strategy Intensive Market Development Product Development Market Penetration Backward Vertical Growth Integration Forward Vertical Horizontal Conglomerate Corporate Level Diversification Stability Renewal Concentric
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 org’s current business operations.
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: 1. Google: 67. 9% 2. Yahoo: 20. 3% (unrounded, 20. 28%) 3. Microsoft: 6. 3% (unrounded, 6. 26%) 4. Ask: 4. 2% (unrounded, 4. 17%) http: //searchengineland. com/hitwise-google-again-hits-new-high-microsoft-yahoo-again-new-lows-13998
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
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.
Summary of Corporate Strategy (Con’t) 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)
Summary of Corporate Strategy (Con’t) 3) Renewal Strategy It can reduce costs, as by freezing hiring or tightening expenses. It can sell off (liquidate) assets—land, 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 turnaround—do some retrenching, with a view toward restoring profitability.
II. Business or Competitive Strategy 1) Corporate -> Multi-business Corporation 2) Competitive or Business -> Strategic Business Unit 1 Strategic Business Unit 2 Strategic Business Unit 3 3) Functional -> Research & Development Manufacturing Marketing Human Resources Finance
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 => strategy describes on how it will compete in its primary or main market Org. that has more than 1 line of business => 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.
II. Business or Competitive Strategy (Con’t) 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
SBUs = Strategic Business Units Single businesses in an organization that are independent and formulate their own competitive strategies
II. Business or Competitive Strategy (Con’t) 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_management
II. Functional Strategy 1) Corporate -> Multi-business Corporation 2) Competitive or Business -> Strategic Business Unit 1 Strategic Business Unit 2 Strategic Business Unit 3 3) Functional -> Research & Development Manufacturing Marketing Human Resources Finance
III. Functional Strategy Functional strategies are used by org’s various functional departments to support the competitive strategy which include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supplychain 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 department’s functional responsibility. Source: http: //en. wikipedia. org/wiki/Strategic_management
Analytical Tools in Strategic Management 5 Forces Analysis BCG Growth-Share Matrix Product Life Cycle
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 ?
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
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.
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 Source: http: //en. wikipedia. org/wiki/Growth-share_matrix 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.
Cash Cows & Dogs Cash cow are units with high Dogs, also can called as pets, are 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. Source: http: //en. wikipedia. org/wiki/Growth-share_matrix 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.
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
Product Life Cycle 1. Introduction -- A product is developed and comes to market. 2. Growth -- Consumers learn about it and more people buy it. It becomes more competitive through modification, price adjustments, wider distribution and other initiatives. 3. 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. 4. It uses to analyze the profitability of a product at different stages of its life cycle. Source: http: //www. trumpuniversity. com/business-briefings/post/2008/04/product-life-cycle. cfm
End of Chapter 5
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