BA 210: Strategic Management

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BA 210 Strategic Management
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Part Two Organizations and Environment
Environment
Organization
Organizational Culture
Ethics
Strategy
Global Mgmt
Organizational Structure
Organizational Design
Human Resources Mgmt
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Todays Roadmap

• Objective To better understand key elements of
  strategic management
• The Strategic Management Process
• Organizational Mission Goals
• SWOT Analysis
• Levels of Strategy
• Corporate Strategies
• Porters 5-forces industry analysis model
• Porters Generic Strategies

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What is Strategy?

• Strategy
• That is, a cluster of decisions about
• What organizational goals to pursue
• What broad actions to take
• How to use resources
• Strategic Management
• Encompasses the decisions and action that
  determine the long-run performance of an
  organization.
• What isnt strategic management, then?
• Strategic Management process Encompasses
  strategy, formulation, implementation, and
  evaluation
• Today is all about strategy formulation.

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The Strategic Management Process
Exhibit 8.1
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Determining the Organizations Mission and Goals

• Mission A statement of the purpose of the
  organization. While doing so, it usually
• Identifies the organizations products
• Identifies the organizations customers markets
• Distinguishes the organization from its
  competitors
• Organizational Goals Desired outcomes
• Provides the organization with a sense of
  direction
• Stretches the organization to higher levels of
  performance.
• Goals should be challenging but realistic, with a
  definite period in which they are to be achieved.

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Sample Mission Statements
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The Strategic Management Process
Exhibit 8.1
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Key Strategic Concepts

• Core competence
• Fundamentally, a unique and exceptional
  capability or resource
• Competitive Advantage -What sets an organization
  apart by providing a distinct edge
• comes from the organizations core competencies
• not every organization can transform core
  competencies into a competitive advantage
• once created, must be able to sustain it

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Examples Core Competence and Competitive
Advantage

• Corning (formerly Corning Glass Works)
• Core competence Unmatched capabilities in glass
  research, development, manufacturing.
• Competitive Advantage Either unique
  (glass-based) products and/or particularly
  efficient manufacturing
• Result If and while glass represents a key
  challenge in a market, Corning has done well.
• Light bulbs TV tubes Corell Pyrex Optical
  Fiber Medical
• Honda
• Dell v. Compaq

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Analyse the External Environment
Exhibit 3.5
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SWOT Analysis

• SWOT strengths, weaknesses, opportunities, and
  threats
• Internal (organizational)
• Strengths what we do well, unique resources
  (e.g., Superior marketing skills)
• Weaknesses what we dont do well, resources that
  are lacking (e.g., Outdated production
  facilities)
• External (environment)
• Opportunities (e.g., Entry into new related
  markets).
• Threats (increased competition)

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SWOT Example Crown Dental Systems, Boston, MA,
1984

• Software is highly capable for its time.
• When it works.
• Firm has four people,led by a twenty-year old
  with no business experience.
• Customer needs same across the U.S.
• Market growing rapidly
• Several new players entering dental computer
  market.

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The Strategic Management Process
Exhibit 8.1
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Linking SWOT and Strategy Formulation
Sustainable Competitive Advantage

• Strategy How the organization is going to
  compete
• Key concept How to generate sustainable
  competitive advantage
• Key concept Alignment between the organizations
  strategy and the external environment.
• How do strengths align with opportunities in
  environment, such that you can generate a
  sustainable competitive advantage?
• Do weaknesses prevent taking advantage of
  opportunities because competitive advantage can
  not be gained?
• Will threats negate current or contemplated
  competitive advantages?

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Levels of Strategy

• Recall Strategy How the organization is going to
  compete
• Corporate-Level Strategy
• Which industries and national markets an
  organization intends to compete in and what
  commonalities there will be in the strategy
• Business-Level Strategy
• A plan that indicates how a strategic business
  unit intends to compete against its rivals in an
  industry
• Strategic business units -
• Functional-Level Strategy
• How the function (marketing, manufacturing, etc.)
  will support the business level strategy.

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Example Levels of Strategy at General Electric
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Corporate-Level Strategies

• Corporate strategies are dynamic
• Corporations enter and exit businesses
  simultaneously
• Growth Make the corporation larger. Grow each
  business. Enter more businesses and markets than
  you are exit.
• Stability Essentially sticking with the current
  businesses
• Retrenchment Make the corporation smaller.
  Prune unprofitable parts of each business. Exit
  more businesses than you are entering.
• Big Question Why should there be corporate-level
  strategies at all? Why shouldnt the businesses
  compete on their own?
• Usually, there must be a core competency that can
  be translated into competitive advantage within
  the different businesses

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Corporate-Level Growth Strategies

• Concentration (focus on existing businesses)
• Grow existing business units, often by entering
  new markets
• Integration
• Vertical or horizontal
• Can be organic (own unit) or acquisition
• Diversification
• Related or unrelated
• Explicitly about acquisition
• International Expansion
• Existing business units enter new markets
• Can be organic (own unit) or acquisition

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Growth through diversification

• Diversification is explicitly about acquiring or
  merging with other corporations or business
  units.
• Related diversification - grow by merging with or
  acquiring firms in different, but related,
  industries
• Goal strategic fit that allows synergy
• Synergy
• Unrelated diversification - grow by merging with
  or acquiring firms in different and unrelated
  industries
• Goal ? reduce cyclicality
• On average less successful than related
  diversification

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Corporate Tinkertoys in the airline industry
American Airlines
United Airlines
National Rent-a-Car
Boeing
Chrysler
.
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Vertical Integration

• Vertical Integration
• A strategy that allows an organization to create
  value by producing its own inputs or distributing
  its own products.
• Backward vertical integration
• occurs when a firm seeks to reduce its input
  costs by producing its own inputs (generics).
• Forward vertical integration
• occurs when a firm performs functions its
  customers did, itself for example, distributes
  its outputs or products to lower distribution
  costs and ensure quality service to customers
  (Compaq vs. Dell).

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International Expansion To customize or not to
customize?

• Global product strategy Same product, same
  marketing approach everywhere.
• Standardization provides for lower production
  cost.
• Ignores national differences that local
  competitors can address to their advantage.
• Multidomestic product strategy Customize
  products, marketing in each national market
• Helps gain local market share.
• Raises production costs.
• Which one? how much do national environments
  differ?

Multinational / Ethnocentric Transnational /
Polycentric
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Example What corporate strategies are in use?
B

• Dell acquires Gateway.
• Dell acquires Intel.
• Microsoft acquires Prentice-Hall.
• Microsoft acquires Dell.
• Intel acquires Dell.
• Microsoft dominates the PC operating system
  business.
• Gateway (PC company) closes 35 retail stores to
  restore profitability.
• Intel discontinues selling PCs to avoid
  competing with customers.
• Procter Gamble sells Tide detergent in Italy
• Procter Gamble sells Joy dishwashing liquid
  virtually worldwide and Salvo dishwashing liquid
  in Latin America.

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Retrenchment and Exit
BX

• Retrenchment action to address weaknesses that
  are leading to performance declines, to
• stabilize operations (shutting retail stores)
• revitalize organizational resources and
  capabilities
• prepare to compete effectively once again
• Exit shutting down or selling the business
• (e.g., steel, flag carriers)

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Business-Level Strategy and Competitive Advantage

• Business-Level Strategy how an organization
  should compete in each of its businesses
• Understand yourself (competitive advantage) SW
• Understand others (industry analysis5 forces) OT
• Choice of specific strategy (generic strategies)

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The Strategic Management Process
Exhibit 8.1
5 Forces Industry Analysis
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Porters Five Forces Model
Exhibit 8.7
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Assessing the 5 Forces and their consequences
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Example Changes in industry forces in
book-publishing industry

• Introduction of lower-capital-cost digital
  publishing technology
• Introduction of e-books
• Consolidation in paper industry
• Growing dominance of large bookstore chains
• Another example Airline competition based on
  service vs. price wars

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The Strategic Management Process
Exhibit 8.1
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Porters Generic Strategies
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Notes on Porters Generic Strategies

• Low-Cost (Cost Leadership) Strategy Drive
  costs below rivals
• Be super-efficient Manufacturing at lower costs,
  reducing waste, reduce overhead but have a
  comparable product
• Can sell for less and still be profitable.
• Differentiation
• Through quality, service, product design, brand
  image
• Must be valued by the customer to succeed
• Stuck in the Middle Trying to do both
  simultaneously
• Recipe for failure low-cost producers will beat
  your costs, and your products will be trumped by
  differentiators though there are exceptions.

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Generic Strategies Examples

• Porsche
• Mercedes
• Hyundai
• Chevrolet
• Toyota

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Requirements for Successfully Pursuing Porters
Competitive Strategies (Exh 8.8)
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Functional-level Strategies

• How each department adds value to a good or
  service. Marketing, service, and production
  functions can all add value to a good or service
  through
• Lowering the costs of providing the value in
  products.
• Adding new value to the product by
  differentiating.
• Functional strategies must fit (align with and
  support) with business level strategies.

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The Strategic Management Process
Exhibit 8.1
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Strategy Major Points

• Core competencies lead to sustainable competitive
  advantage
• SWOT
• Corporate level strategy choice of businesses
  vs. Business level strategy how to compete v.
  rivals.
• Corporate strategies Stability, Growth
  (Diversification, integration, international),
  Retrenchment and Exit.
• 5-forces industry analysis of industry
  attractiveness Suppliers, Buyers, Substitutes,
  New Entrants, Rivalry.
• Generic strategies low cost or differentiated,
  broad or focused dont get stuck in the middle.

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Next Up Organizational Structure

• Chapter 10 Organizational Structure and Design
• T123 1-3, 13-17 Skip 18 Defer 4-6, 7-12, 19-21
• Defer Organizational Design decisions, (p.
  263-267) Boundaryless and Learning organizations
  (p. 271-274).
• Chapter 16 Job Design (p. 433-437)
• T123 7 and 8
• Mastering Management Job Design module
• Complete the introduction, concepts, exercises
  and resolution sections of the Job Design module