Lecture # 8 & 9

1. Lecture # 8 & 9 Chapter 7 – Strategic Management

2. Concept of Strategic Management • Strategy: large-scale action plan which helps in achieving long-term goals. • Strategic management: process through which managers formulate and implement strategies in order to achieve strategic goals, given available environmental and internal conditions.

3. Strategic Management Process • Identifying organization’s mission and strategic goals • Next is competitive situation analysis, considering both external environment and organizational factors. • Formulation of strategies to reach goals • Then is strategy implementation

4. Strategy formulation: process of identifying mission and strategic goals, conducting competitive analysis and then developing strategies. • Competitive advantage: significant edge over your competitor. • Strategy implementation: process of carrying out strategic plans and maintaining control over how those plans are carried out.

5. Levels of Strategy • Corporate-level strategy: addresses what business the organization will operate, how strategies will be co-ordinated to strengthen the organization’s competitive position, and how resources will be allocated among businesses. • Business-level strategy: concentrates on the best means of competing within a particular business while also supporting corporate level strategy.

6. Functional-level strategy: focuses on action plans for managing a particular functional area within a business in a way that supports business-level strategy. • SBU: distinct business, with its own set of competitors, which can be managed independently within the organization.

7. Competitive Analysis SWOT Analysis: method of analyzing an organization’s competitive situation involving assessing organizational strengths (S), weaknesses (W), environmental opportunities (O) and threats (T).

8. Porter’s 5 Competitive Forces • Rivalry: various competitive tactics among rivals lower prices that can be charged for doing a business. • Bargaining power of customers: customers force price reductions or negotiate increases in product quality and service at the same price. • Bargaining power of suppliers: suppliers threaten price increases or reductions in quality of goods and services.

9. Threat of new entrants: new entrants bid prices down or cause incumbents to increase costs to maintain market position. • Threat of substitute products or services: availability of substitutes limits the prices that can be charged.

10. Porter’s 5 Competitive Forces Model

11. Formulating Corporate-level Strategy Grand strategy is a master strategy which provides the basic strategic direction at corporate level. In grand strategies, there are three basic categories: • Growth • Stability • Defensive grand strategy

12. Growth Strategies Growth strategy: is a grand strategy involving organizational expansion. • Concentration: focuses on growing a single product or service, or a small number of closely related products. • Vertical integration: growth through production of inputs previously provided by suppliers, by disposing off one’s own outputs. • Diversification: growing into areas clearly distinct from current businesses.

13. Concentration can occur through: • Market development: increasing current market share or expanding into new ones. • Product development: improving a product or service or expanding into closely related areas. • Horizontal integration: adding one or more similar businesses, usually by purchase.

14. Forms of vertical integration: • Backward integration: when a business grows by becoming its own supplier. • Forward integration: when organizational growth includes occupying a role previously fulfilled by a distributor.

15. Types of Diversification: • Conglomerate: occurs when an organization diversifies into unrelated main business areas. • Concentric: occurs when an organization diversifies into related, but distinct, businesses.

16. Stability Strategy Stability strategy: strategy involving maintaining the status quo or growing in a methodical but slow manner.

17. Defensive Strategies Defensive strategy: strategies focusing on the desire or need to reduce organizational operations, usually through costs or asset reduction.

18. Types of Defensive strategies: • Harvest: minimizing investments while attempting to maximize short-run profits and cash flows, with the long-run intention of exiting the market. • Turnaround: designed to reverse a negative trend and restore the organization to appropriate levels of profitability. • Divestiture: involves an organization’s selling or divesting of a business or part of a business. • Liquidation: selling or dissolving an entire organization.

19. Portfolio-strategy Approaches

21. Formulating Business-level Strategy Porter’s competitive strategies are: • Cost leadership strategy: it emphasizes on organizational efficiency so overall costs of providing products and services are lower than those of competitors. • Differentiation strategy: this involves attempting to develop products and services viewed as unique in the industry. • Focus strategy: this specializes by establishing a position of overall cost leadership, differentiation or both, but only within a particular portion or segment of an entire market.