Essentials of Strategic Management

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Essentials of Strategic Management

• Internal Scanning Organizational Analysis
• Strategy Formulation Situational Analysis and
  Business Strategy

Group B Matt, Ted, Joe, Shon, Farisa, Aaron,
Prabhakara
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Introduction

• Scanning and analyzing the external environment
  for opportunities and treats is not enough to
  provide an organization a competitive advantage.
• Managers must identify internal strategic
  factors Those critical strengths and weaknesses
  that are likely to determine if the firm will be
  able to take advantage of opportunities while
  avoiding threats.
• Strategy Formulation is often referred to as
  strategic planning or long-range planning and is
  concerned with developing a corporation's
  mission, objectives, strategies, and policies. It
  begins with a situation analysis.

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Internal Scanning Organizational Analysis
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Internal Scanning Organizational Analysis

• Internal scanning is often referred to as
  organizational analysis and is concerned with
  identifying and developing an organizations
  resources.
• A resource is an asset, process, skill, or
  knowledge controlled by the corporation.

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Strategy Analysis How do resources determine
competitive advantage ?

• Grant proposes that a companys sustained
  competitive advantage is primarily determined by
  its resource endowments.
• Further, resource based strategy analysis can be
  broken down into five steps

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Strategy Analysis (cont.)

• Identify and classify the firms resources in
  terms of strengths and weaknesses.
• Combine the firms strengths into specific
  capabilities known as core competencies. Core
  competencies are the activities that a
  corporation can do exceedingly well.
• Appraise the profit potential of these resources
  and competencies in terms of their potential for
  sustainable competitive advantage and the ability
  to harvest the profits resulting from the use of
  these resources and capabilities.
• Select the strategy that best exploits the firms
  resources and competencies relative to external
  opportunities.
• Identify resource gaps and invest in upgrading
  weaknesses.

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What determines the sustainability of an
advantage?

• When an corporations core competencies are
  superior to those of its competition they are
  called distinctive competencies.
• Two characteristics determine the sustainability
  of a firms distinctive competencies durability
  and imitability

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What determines the sustainability of an
advantage? (cont.)

• Durability is the rate at which a firms
  underlying resources and capabilities (core
  competencies) depreciate or become obsolete.
• Imitability is the rate at which a firms
  underlying resources and capabilities an be
  duplicated by others.

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What determines the sustainability of an
advantage? (cont.)

• It is relatively easy to learn to imitate another
  companys distinctive competency if it comes from
  explicit knowledge, that is knowledge that can be
  easily articulated and communicated.
• In contrast, tacit knowledge is knowledge that is
  not easily communicated because it is deeply
  rooted in employee experience or in a
  corporation's culture

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What determines the sustainability of an
advantage? (cont.)

• A distinctive competency can be easily imitated
  to the extent that it is transparent,
  transferable, and replicable
• Transparency The speed with which other firms
  can understand the relationship of resources and
  capabilities supporting a successful firms
  strategy
• Transferability The ability of competitors to
  gather the resources and capabilities necessary
  to support a competitive advantage.
• Replicability The ability of competitors to use
  duplicated resources and capabilities to imitate
  the other firms success.

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Value Chain Analysis

• A value chain is a linked set of value-created
  activities beginning with basic raw materials
  coming from suppliers, to a series of value-added
  activities involved in producing and marketing a
  product or service, and ending with distributors
  getting the final goods into the hands of the
  ultimate consumer.
• The focus of value-chain analysis is to examine
  the corporation in the context of the overall
  chain of value-creating activities, of which the
  firm may only be a small part.

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Industry Value Chain Analysis

• The value chain of most industries can be spilt
  into two segments, upstream and downstream
  halves.
• In analyzing the complete value chain of a
  product, note that even if a firm operates up and
  down the entire industry chain, it usually has an
  area of primary expertise where its primary
  activities lie.

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Industry Value Chain Analysis (cont.)

• A companys center of gravity is the part of the
  chain that is most important to the company and
  the point where its greatest expertise and
  capabilities, or core competencies lie.
• After a firm successfully establishes its center
  of gravity by obtaining a competitive advantage,
  one of its first strategic moves is to move
  forward or backward along the value chain in
  order to reduce costs, guarantee access to key
  raw materials, or to guarantee distribution. This
  process is called vertical integration.

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Corporate Value Chain Analysis

• The systematic examination of individual value
  activities can lead to a better understanding of
  a corporations strengths and weaknesses
• Corporate value chain analysis involves the
  following steps
• Examine each product lines value chain in terms
  of the various activities involved in producing
  that product or service.
• Examine the linkages within each product lines
  value chain. Linkages are the connections between
  the way one value activity is preformed and the
  cost of performance of another activity.
• Examine the potential synergies among the value
  chains of different product lines or business
  units. This is the way to achieve economies of
  scope.

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Scanning Internal Resources

• The simplest way to begin an analysis of a
  corporations value chain is by carefully
  examining its traditional functional areas for
  strengths and weaknesses.
• Functional resources include not only the
  financial, physical, and human assets in each
  area, but also the ability of the people in each
  area to formulate and implement the necessary
  functional objectives, strategies, and policies.

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Organizational Structures

• There are three basic organizational structures
  and each structure tends to support some
  corporate strategies over others.
• The structures are
• Simple structure Has no functional or product
  categories and is appropriate for a small,
  entrepreneur-dominated company with one or two
  product lines that operate in a reasonably small,
  easily identifiable market niche.
• Functional structure Is appropriate for a
  medium-sized firm with several product lines in
  one industry.
• Divisional structure Is appropriate for a large
  corporation with many product lines in several
  related industries.
• Strategic business units (SBUs) Are a recent
  modification to the divisional structure,
  strategic business units are divisions or groups
  of divisions composed of independent product
  market segments that are given primary
  responsibility and authority for the management
  of their own functional area.

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Organizational Structures (cont.)

• An SBU must have
• A unique mission.
• Identifiable competitors.
• An external market focus.
• Control of its business functions.
• Conglomerate Structure Another variant of the
  divisional structure, the conglomerate structure
  (sometimes called a holding company) is typically
  an assemblage of legally independent firms
  (subsidiaries) operating under one corporate
  umbrella but controlled though the subsidiaries
  board of directors.

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Corporate Culture

• Corporate culture is the collection of beliefs,
  expectations, and values learned and shared by a
  corporations members and transmitted from one
  generation of employees to another.
• Corporate culture has two distinct attributes
• Cultural intensity (or depth) The degree to
  which members of a unit accept the norms, values,
  or other culture content associated with the
  unit.
• Cultural Integration (or breadth) The extent to
  which units throughout an organization share a
  common culture.

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Corporate Culture (cont.)

• Corporate culture fulfills several important
  functions in an organization
• Culture conveys a sense of identity for
  employees.
• Culture helps generate employees commitment to
  something greater than themselves.
• Culture adds to the stability of the organization
  as a social system.
• Culture serves as a frame of reference for
  employees to use to make sense out of
  organizational activities and to use as a guide
  for appropriate behavior?
• Corporate culture shapes the behavior of the
  people in the organization. Because these
  cultures have a powerful influence on the
  behavior of managers at all levels, they can
  strongly affect a corporations ability to shift
  its strategic direction.

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Strategic Marketing Issues

• The marketing manager is the companys primary
  link to the customer and the competition. The
  manager must therefore be especially concerned
  with the firms market position and marketing
  mix.
• Market position refers to the section of specific
  areas for marketing concentration and can be
  expressed in terms of market, product, and
  geographical locations

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Strategic Marketing Issues (cont.)

• The marketing mix is the particular combination
  of key variables under the corporations control
  that it can used to affect demand and to gain
  competitive advantage.
• One of the most useful concepts in marketing
  insofar as strategic management is concerned is
  that of the product life cycle.
• The product life cycle is, time plotted against
  the dollar sales of a product as it moves from
  introduction through growth, maturity, and into
  decline. This concept enables a marketing manager
  to examine the marketing mix of a particular
  product or group of products in terms of its
  position in its lifecycle.

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Strategic Financial Issues

• The financial manager must ascertain the best
  sources of funds, uses of funds, and control of
  funds. The flow of funds in the operations of the
  organization must be monitored.
• The mix of externally generated short-term and
  long-term funds in relation to the amount and
  timing of internally generated funds should be
  appropriate to the corporations objectives,
  strategies, and policies.

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Strategic Financial Issues (cont.)

• The concept of financial leverage (the ratio of
  total debt to total assets) helps describe the
  use of debt (verses equity) to finance the
  companys programs from outside.
• Capital budgeting is the analysis and ranking of
  possible investments in fixed assets such as
  land, building, and equipment in terms of the
  additional outlays and additional receipts that
  will result from each investment.

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Strategic RD Issues

• The RD manger is responsible for suggesting and
  implementing a companys technological strategy
  in light of its corporate objectives and
  policies.
• A companys RD intensity (its spending on RD
  as a percentage of sales revenue) is a principal
  means of gaining market share in global
  competition.

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Strategic RD Issues (cont.)

• A companys RD unit should be evaluated for
  technological competence, the proper management
  of technology, in both the development and the
  use of innovative technology.
• If a company is not proficient in technology
  transfer, the process of taking a new technology
  from the laboratory to the marketplace, it will
  not gain much advantage from new technological
  advances.

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Strategic RD Issues (cont.)

• The RD Mix is the balance of the three types of
  research. The mix should be appropriate to the
  strategy being considered and to each products
  life cycle.
• Research and development includes
• Basic RD Research focused on theoretical
  problem areas and is typically undertaken by
  scientists in well equipped laboratories.
• Product RD Research that concentrates on
  marketing and is concerned with product or
  product packaging improvements.
• Engineering or Process RD Research that is
  concerned with engineering and concentrates on
  improving quality control, design specifications,
  and production equipment.

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Strategic RD Issues (cont.)

• The RD manager must determine when to abandon
  present technology and when to develop or adopt
  new technology.
• Technology discontinuity is the displacement of
  one technology by another. It is a frequent and
  strategically important phenomenon. Such
  discontinuity occurs when a new technology cannot
  simply be used to enhance the current technology
  but actually substitutes for that technology to
  yield better performance.

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Strategic Operations Issues

• The primary task of the operations (manufacturing
  or service) manager is to develop and operate a
  system that will produce the required number of
  products or services, with a certain quality, at
  a given cost, within an allotted time.
• The type of manufacturing system that a
  corporation uses determines divisional or
  corporate strategy.
• In general terms, manufacturing can be
• Intermittent (job shops) Items are normally
  processed sequentially, but the work and sequence
  of the process vary.
• Continuous (assembly line) Systems that are laid
  out as lines on which products can be
  continuously assembled or processed.

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Strategic Operations Issues (cont.)

• The experience curve suggests that unit
  production costs decline by some fixed percentage
  each time the total accumulated volume of
  production (in units) doubles.
• Management commonly uses the experience curve to
  estimate the production costs of
• A product never before made with the present
  techniques and processes.
• Current products produced by newly introduced
  techniques or processes.

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Strategic Operations Issues (cont.)

• Economies of scope Common parts of the
  manufacturing activities of various products are
  combined to gain economies even though small
  numbers of each product are made.
• Economies of scale Unit costs are reduced by
  making large numbers of the same product.
• Flexible manufacturing Permits the low-volume
  output of custom-tailored products at relatively
  low unit costs through economies of scope. It is
  thus possible to have the cost advantages of
  continuous systems with the customer-oriented
  advantages of intermittent systems.

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Strategic Human Resource Issues

• The primary task of the manager of human
  resources is to improve the match between
  individuals and jobs.
• Human resource manages should know about work
  options such as part-time work, job sharing,
  flextime, extended leaves, contract work, and the
  proper use of teams.

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Strategic Human Resource Issues (cont.)

• Autonomous work teams A group of people working
  together without supervision to plan, coordinate,
  and evaluate its own work.
• Cross-functional work teams A Cross-Functional
  Team consists of members from different
  organizational units brought together in order to
  accomplish a task.

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Strategic Human Resource Issues (cont.)

• Concurrent engineering Concurrent Engineering is
  a "systematic approach to the integrated
  concurrent design of products and their related
  processes, including manufacturing and support".
• Human diversity The mix in the workplace of
  people from different races, cultures, and
  backgrounds.

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Strategic Information Systems Issues

• The primary task of the manager of information
  systems (also called information technology) is
  to design and manage the flow of information in
  an organization in ways that improve productivity
  and decision making.
• Information must be collected, stored, and
  synthesized in such a manner that it can answer
  important operating and strategic questions.

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Strategic Information Systems Issues (cont.)

• A corporations information system can be a
  strength or a weakness in all three elements of
  strategic management.
• Not only can it aid in environmental scanning and
  in controlling a companys many activities, it
  can also be used as a strategic weapon in gaining
  competitive advantage.

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Strategy Formulation Situational Analysis
Business Strategy
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Strategy Formulation Situational Analysis

• Situation analysis is the process of finding a
  strategic fit between external opportunities and
  internal strengths while working around external
  threats and internal weaknesses.
• The following factors summarize the strategic
  factors for a specific company Strengths,
  Weaknesses, Opportunities, and Threats (SWOT).

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Strategy Formulation Situational Analysis (cont.)

• The SWOT analysis has proven to be the most
  widely used and enduring analytical technique in
  strategic management.
• SWOT analysis should not only result in
  identifying a corporation's distinctive
  competencies, the particular capabilities and
  resources a firm possesses, and the superior way
  in which they are used, but also in identifying
  opportunities that the firm is not currently able
  to take advantage of due to a lack of appropriate
  resources.

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Strategy Formulation Situational Analysis (cont.)

• Some of the primary criticisms of the SWOT
  analysis are
• It generates lengthy lists.
• It uses no weights to reflect priorities.
• It uses ambiguous words or phrases.
• The same factor can be placed in two categories.
• There is no obligation to verify opinions with
  data or analysis.
• It only requires a single level of analysis.
• There is no logical link to strategy
  implementation.

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Strategy Formulation Situational Analysis (cont.)

• The EAFS and IFAS Tables have been developed to
  deal with many of the criticisms of the SWOT
  analysis. When used together, they are a powerful
  analytical set of tools for strategic analysis.
• The Strategic Factors Analysis Summary (SFAS)
  Matrix, summarizes a corporations strategic
  factors by combining the external factors from
  the EFAS Table with the Internal factors from the
  IFAS Table.

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Strategy Formulation Situational Analysis (cont.)

• The SFAS Matrix requires the strategic decision
  maker to condense these strengths, weaknesses,
  opportunities, and threats into 10 or fewer
  strategic factors. This is done by reviewing each
  of the weights for the individual factors in the
  EFAS and IFAS Tables.
• The resulting SFAS Matrix is a listing of the
  firms external and internal strategic factors in
  one table. The SFAS Matrix includes only the most
  important factors and provides the basis for
  strategy formulation.

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Strategy Formulation Situational Analysis (cont.)

• One desired outcome of analyzing strategic
  factors is identifying a propitious niche where
  an organization could use its distinctive
  competence to take advantage of a particular
  opportunity.
• A propitious niche is a company's specific
  competitive role that is so well suited to the
  firms internal and external environment that
  other corporations are not likely to challenge or
  dislodge it.
• A firms management must always be looking for
  strategic windows, that is, unique market
  opportunities at a particular time. The first one
  through the strategic window can occupy a
  propitious niche and discourage competition.

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Review of Mission Objectives

• A corporation must reexamine its current mission
  and objectives before it can generate and
  evaluate alternative strategies.
• In the end managers often chose strategies that
  set their objectives for them, rather than having
  their choices incorporate clear objectives and a
  mission statement.

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Review of Mission Objectives (cont.)

• Problems in performance can be derive from an
  inappropriate mission statement that is too
  narrow or too broad. If the mission does not
  provide a common thread (a unifying theme) for a
  corporations business managers may be unclear
  about where the company is heading.
• Objectives and strategies might be in conflict
  with each other. To the detriment of the
  corporation as a whole, divisions might be
  competing against each one another rather than
  against outside competition.

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Review of Mission Objectives (cont.)

• A companys objectives can also be
  inappropriately stated. They can either focus too
  much on short term operational goals or be so
  general that they provide little real guidance.
  There may be gaps between planned and achieved
  objectives.
• When such a gap occurs, either the strategies
  have to be changed to improve performance or the
  objectives need to be adjusted downward to be
  more realistic. Consequently, objectives should
  be constantly reviewed to ensure their
  usefulness.