Strategic Management QuickStudy .pdf
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Titre: Strategic Management
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WORLD’S #1 QUICK REFERENCE GUIDE
Strategic Management is a process for conducting the
entrepreneurial activities of a firm for organizational
renewal, growth, and transformation. The major tasks
are: (1) set a mission and goals, (2) assess the
environment, (3) appraise company capabilities, (4)
craft the strategy, (5) implement the strategy, and (6)
evaluate and control the strategy.
Business Policy is a set of prescribed and discretionary
statements, limiting actions of individuals in the firm,
as set forth in directives and guides.
Mission is the reason for which the firm exists, and what
it will do. Basically, it describes the products/services
to be supplied, the markets to be served, and the
technology applied (if important).
Vision Statement answers the question, What do we
want to become?
Goals express the aspirations of the firm, general ends
that cannot be measured. Ex. “In unrelenting pursuit of
Objectives are specific targets to be accomplished by a
specified time. Ex. “Profits will grow at the rate of 5%
annually for the next five years.” Long-term objectives
(5 years or more) are strategic objectives and define the
desired character of the company, at the specified time.
Strategy is simply the means or general actions to be
taken to achieve long-term objectives. Strategic
management is the work of the General Manager.
General Manager is a person who is responsible for a
profit center, as opposed to a functional manager who
is responsible only for a cost or revenue center.
Generic Strategy is the name for a group of
similar specific strategies.
Levels of Strategy
1. Corporate level. What types of businesses
should we be in?
2. Business level. How do we compete?
3. Functional component level. What should our
organization do to synchronize with the
Opportunity is a set of circumstances that, if acted upon
at the right moment, will produce a gain.
Threat is the probability of a future event and its
potentially harmful impact on the firm.
WHAT IS OUR BUSINESS?
Basic product or service
Principal technology used (if relevant)
Customer satisfaction, quality, and societal goals
THE REMOTE (MACRO)
TASK (IMMEDIATE, OPERATING)
1. The task environment comprises all persons,
groups, or entities that have an interest in the
company. These are called stakeholders.
2. A narrower definition refers to those
stakeholders with whom the firm has contact
from time to time, as follows:
c. Financial institutions
e. Trade associations
f. Activist groups
g. Federal, state, and local government agencies
h. Media representatives
Fig. 1, The Strategic Management Model
A threat is an event, as defined by its impact on your
company and the probability of its occurrence, that
will result in harm to your company. It is an attack on
company underpinnings, such as:
1. Support of stakeholder groups
2. Resources: human, financial
3. Customer base
4. Capabilities, such as technology, products,
processes, management, and functional
5. Artificial barriers to competition: laws,
regulations, patents, and licenses
6. Social changes and customer preferences
DEFINING AN INDUSTRY
3. Structure (number, size, relative strength, market
share of competitors, product differentiation)
4. Economic traits
5. Critical success factors
6. Entry barriers
MICHAEL E. PORTER’S 5-FORCE MODEL
See Figure 2.
As Porter says, the nature and intensity of competition
in an industry is a composite of five competitive
1. Rivalry among competitors in the industry
2. The bargaining power of buyers
3. The bargaining power of suppliers
4. The potential entry of new competitors
5. The power of firms with substitute products
Industry-driving forces increase incentive for the
industry to change. Examples of driving forces are
industry growth rate, product innovation, customer
preferences, firms entering and leaving the industry,
cost and productivity, and increasing globalization.
2. Advances in technology, e.g., fiber optics, gene
3. A misfortune befalls a major competitor who
then shuts down, liquidates, or goes bankrupt.
4. A competing company is put up for sale at a good
5. A chance occurs for you to hire a noted expert
that you need.
6. A breakthrough in your product or process
(“Research & Development”) that makes
possible a gain in market share.
An opportunity is a combination of events or
circumstances that arise, which, if acted upon at a
certain time, will result in profit, gain, or victory. Such
circumstances may be caused by changes in the
environment or by changes in the company, relative to
the environment. Examples:
1. Opportunities arise for the firm as it is. These
include product and market extensions through
mergers, failures of competitors, and legal change.
5. Potential competitive
from firms in other
Fig. 2, Porter’s Force Model
How well is the company’s strategy working?
What are the company’s strengths and weaknesses?
What are its core products and competencies?
What benchmarks are being used for measuring its
APPROACHES TO INTERNAL
SCANNING & ANALYSIS
Value Chain Analysis
1. Basic concept: Value analysis identifies the primary
and support activities that create value.
2. It may be used to analyze and reduce business costs
and compare one business’ value chain with those of
competing companies. See Fig. 3 (next page).
Evolution of Company Capabilities (continued)
Functional Analysis of Strengths & Weaknesses of the Firm
1. Establish a table with column headings: Factors,
Strengths/Weaknesses, Standards and Comparison.
For each factor to be evaluated, the question must be
asked, “Compared to what?”
2. Standards or criteria may be:
a. The industry average for the factor being evaluated
b. The best firm’s values
c. The best value of any firm on each criterion
d. A previously set objective
e. A previous forecast
3. Functional factors should be selected from the
following functional areas:
c. Finance and accounting
d. Human resources, especially management and
e. Information systems
f. Quality of all transactions, relationships, and
Fig. 3, The Value Chain
MATCH OF STRATEGY & STRUCTURE
5.Mission, goals, objectives, and organizational
This approach to strengths and weaknesses is based on
two fundamental assumptions: (1) resource heterogeneity
- a firm is a bundle of resources and these resources are
different for each firm, and (2) resource immobility,
which says that if these resources are difficult to copy,
they are a potential source of competitive advantage. Lists
of firm attributes that may be thought of as resources may
be divided into four categories:
1. Financial capital
2. Plant capital
3. Human capital
4. Organizational capital
Profit Impact of Marketing Strategy, offered by the
Strategic Planning Institute, is based on a database of
about 3,000 businesses. Their research is directed at
identifying principles that will guide companies in
establishing successful strategies, or evaluating their own.
Characteristics of Long-Term Objectives
1. Acceptable to managers
2. Adaptable to extraordinary changes in the environment
3. Clearly measurable against specified criterion
4. Motivating - not too high and not too low
GENERIC GROUPS OF
Within each generic strategy objective group below,
specific objectives may be selected.
1. Product/Market scope
3. Competitive edge
4. Financial specifications, expenditures, net worth, etc.
5. Innovation and technology
6. Employee development/Productivity
7. Sources of, and deployment of, resources
10. Legitimacy (satisfaction of stakeholders)
11. Ideological leadership
CRAFTING CORPORATELEVEL STRATEGY
What business should we be in?
A. Choose GENERIC corporate-level strategies.
1. Feasible corporate-level strategies.
2. Choose final generic strategy option.
Generic strategy (appropriate feasible)
Select options to get final gene strategies.
Corporate-level strategy is directed toward:
1. Maintaining corporate-wide consistency of
direction of the total company toward long-range,
usually global, goals called strategic intent.
2. Leveraging resources for long-range goals.
3. Reducing financial risk by building a balanced
portfolio of businesses with a balanced portfolio
4. Investing in core competencies for the businesses
(usually called Strategic Business Units or SBUs).
5. In general, corporate strategy is designed to
answer the question: What businesses should we
The process of developing corporate-level strategy is
shown in Fig. 4 and explained as follows:
Generic Strategy is a group of corporate-level
strategies that are first determined so that the decision
maker is guided toward making an appropriate specific
strategy (See Fig. 5.5, 6 & 7). A list of generic
strategies generally used is as follows:
Concentration - the corporation concentrates its
efforts and resources on current business or
Concentric diversification - the company decides to
diversify into products related to its present products
through similar marketing methods, production
processes, or products.
Conglomerate diversification - diversification
into products unrelated to the firm’s present
Vertical backward integration - the company
buys, or otherwise competes with, its suppliers.
Forward integration - the company buys
companies that are customer businesses.
Joint ventures - two or more companies combine
equity in a new company to gain an advantage or
minimize individual weaknesses.
Divestiture - a company sells off, spins off in various
ways, a portion or an entire SBU.
Turnaround/Restructuring - a defensive strategy
followed by a company in need of immediate
Bankruptcy - a means for getting respite from
creditors and used by very healthy companies, as
well as those which need to be reorganized and
obtain additional capital.
Liquidation - the company sells its assets and goes
out of business.An
B. Choose SPECIFIC corporate-level strategy,
guide by final generic strategy to yield.
Portfolio of businesses
answers to the origin of the question
Fig. 4, Corporate Strategy Formulation
ANALYSIS & EVALUATION
OF THE PORTFOLIO
General Electric 9-Cell Business Screen
1. Fig. 6 shows a 9-cell matrix of the
positioning of SBUs, in terms of competitive
strength vs. industry attractiveness.
2. The areas of the circles represent the sales of
each SBU. The segments represent market share.
3. The position of a business on the grid may be
determined either subjectively, or quantitatively,
by using a weighted rating system for the factors
4. Corporate strategy implications from the matrix
a. Suggest investment priorities.
b. Incorporate a wide variety of strategic
variables (others in addition to those shown
may be incorporated).
c. Indication of possible life-cycle stages of the
d. Indicate balance or lack of balance in the
e. Compare performance among business units.
SELECTING A GENERIC STRATEGY
1. Plot the company’s current (and potential) SBUs
on Fig. 5, a competitive strength vs. industry
attractiveness matrix. Each circle (area) is
proportional to the sales of the particular SBU
(See Fig. 5).
2. Select feasible corporate-level generic strategies
from the cells in which the SBUs fall.
3. Find a match of an opportunity, a set of
long-term objectives, and a generic
strategy from Fig. 5. Such a set represents
a strategic option.
4. Find a number of strategic options and select,
judgmentally, the ones that your resources can
support. This will give you your final feasible
Rapid Market Growth
1. Turnaround or
3. Joint ventures
Slow Market Growth
Source: John A. Pearce & Richard B. Robinson, Strategic Management,
Homewood, Illinois: Irwin, Inc., 1982 p. 210.
1. Internal growth
2. Vertical integration
of related businesses
Fig. 5, Feasible Corporate Generic Strategies
2. Horizontal integration
3. Strategic alliances
1. Vertical integration
of related businesses
2. Horizontal related
State of the External Environment
1. Reformation of
Competitive Status of the Corporation’s Business Units
3. Horizontal integration
4. Strategic alliances
3. Vertical integration of
CHOOSE THE SPECIFIC CORPORATE-LEVEL
STRATEGY (PORTFOLIO OF BUSINESS UNITS)
STRATEGIC FIT ANALYSIS
and growth rate
Industry profit margins
Bargaining power of
customers and supplier
Economies of scale
Barriers to entry
Harvest or divest
Strong Average Weak
Relative market share
Level of differentiation
Fig. 6, GE 9-Cell Screening Grid
Stage of Product/Market Evolution
LIFE CYCLE MATRIX
The Life Cycle Matrix is similar to the G.E. Matrix,
except that it focuses on the life cycles of the
products, rather than the industry attractiveness. In
Fig. 7, the competitive position is shown for each
SBU, but the stage of the SBU’s life cycle is also
shown. Small sales at the beginning and end of the life
cycle, with a strong competitive position, for
example, may be considered favorable. If all
SBUs are in different stages of the life cycle, but
in the strong competitive position, this may also be a
favorable condition. If all SBUs are in the strong
competitive position and maturity stage, this indicates
trouble later, because no new businesses are in the
1. Does each business fit with other businesses in
the portfolio? Compare the value analysis
chains of each.
2. Does each business fit the strategic direction of
the total company? Does each business
contribute heavily to corporate financial
2. For each generic strategy, decide the business, if
any, that you wish to add to or subtract from your
portfolio. For example, if you were a
manufacturer of golf carts and decided to follow
a concentric diversification strategy, you might
select the purchase of a power lawn mower
company to add to your portfolio.
3. When you have reviewed all your feasible generic
strategies and made such decisions, the
companies remaining represent your portfolio
and set the direction for the total company.
Using SWOT (Strength, Weaknesses,
Opportunities, Threats) to derive generic
corporate strategies (P. Wright, M. J. Kroll,
and J. Parnell)
SWOT analysis ties together strengths, weaknesses,
opportunities, and threats vs. competitive position.
Place each SBU in a cell, giving recommended
feasible generic strategies (Fig 5.5).
Fig. 5.5, SWOT Portfolio Framework
answers the question: “What businesses
should we be in?”
Fig. 7, Life Cycle Matrix
BUSINESS STRATEGIES FOR SBUS
& SINGLE-PRODUCT COMPANIES
THE FIRST STEP IN CRAFTING THE
COMPETITIVE STRATEGY FOR SBU
Decide on the generic strategy or strategies to follow.
The basic four generic strategies that may be used are
shown in Fig. 8 (below) as (1) low-cost leadership, (2)
differentiation, (3) niche or focus market segment
with low cost, and (4) focus on a market segment using
Use low-cost leadership when:
1. Price competition among rival sellers is
2. The product is essentially a commodity with
3. There are few ways to differentiate the products
that have value to the user.
4. Buyers have low switching costs and can change
to lower-priced sellers.
5. Buyers are large and can bargain down prices.
Use differentiation strategy when:
1. Differentiation of a product can command a
premium price for its product.
2. Brand loyalty can be won over.
3. The cost of differentiation is less than the
premium price that can be obtained.
Use focus strategy when:
1. The segment of the market focused on is large
enough to be profitable.
2. The segment is not important to the success of
3. The segment has good potential for growth.
4. The company can provide excellent service and
goodwill within the segment.
GENERIC BUSINESS STRATEGY OPTIONS
1. A business generic strategy option consists of a
match of an opportunity, a long-term business
objective, and a generic strategy. See Fig. 8.
2. At this point, the generic strategy is honed by
deciding on the emphasis to be placed on or
allocation of resources to: competitor orientation,
market orientation, and product/service
3. Avoid “stuck-in-the-middle” strategies that lead
to engaging in each generic strategy, and thereby
failing to achieve any of them.
4. Select the option or options to obtain the final
DEVELOP THE SPECIFIC
1. The specific business strategy describes
specifically what the firm will do to compete.
2. The generic strategies and long-term
objectives restrict the statement of the
3. Each functional manager prepares his/her
component of the total business strategy,
showing major additions and programs for
the next f ive years.
4. The General Manager then directs the
reconciliation of all functional programs and
budgets, as indicated in Fig. 8 (this page, at right).
IMPLEMENTING WITH STRUCTURE
Implementing strategy is the conversion of concepts
into action and results. It is the total and detailed
activities to fulfill the strategy and achieve the longterm objectives. The first part consists of:
1. Communicating the strategy to the organization
to prepare every employee with an understanding
of what will follow and the things in general that
must be done.
2. Prepare and disseminate a list of major annual
objectives for the organization.
3. Establish policies and procedures for actions.
4. Prepare annual plans and budgets for resource
5. Prepare an organization STRUCTURE that
matches the new strategy (portfolio and SBUs).
6. Install best practices for each department, based
on the value chain and benchmarks.
2. Is the strategy consistent with the environment?
3. Is the strategy appropriate in view of the
4. Does the strategy involve an acceptable degree of
5. Does the strategy have an appropriate time
6. Is the strategy workable?
The strategy may be evaluated at each stage of
its development shown in Fig. 1 (see page 1), as well
as after implementation at selected times.
* Source: Seymour Tilles, “How to Evaluate Corporate Strategy,” Harvard
1. Staff the organization with committed leaders
capable of driving implementation.
2. Avoid resistance to change through employee
3. Tie rewards and incentives to achievement of
4. Develop a strategy-supporting culture.
IMPLEMENTING WITH THE FUNCTIONAL
COMPONENTS OF STRATEGY
Each functional manager should prepare his/her
functional component of the business strategy and
plans for execution. These are reconciled and approved
by the business managers and upper management. The
typical functional areas are shown with examples of a
few issues that may arise in implementation:
1. Marketing: product policies, distribution
policies, ethics, customer relations, pricing
2. Production/operations: equipment, layout,
method of delivery of services, work methods,
production planning,quality control, outsourcing.
3. R&D/design: estimating the time for new
product development, quality and cost balance in
design, continuing education of creative workers,
outsourcing of design work.
4. Accounting/finance: increasing labor costs,
increasing sales expense, economic value added,
taxes, exchange rate between U. S. and other
currencies, transfer pricing.
5. Human Resource management: assignment of
people to new projects, salary and bonus
payments, promotions and dismissals, major
human errors, recruitment and selection.
6. Corporate information and communication
systems: management information system,
personalcommunications, mass communications,
IMPLEMENTING WITH CONCERN FOR LAWS,
ENVIRONMENTAL & SOCIAL CONCERNS
Implementation must be carried out with concern for
factors that may not always be spelled out, but must
represent good citizenship.
Business Review 41 (1963): 111-121.
How should we compete?
A.Choose GENERIC business-level strategies.
1. Feasible business strategies
Niche low Focused
2. Choose final generic business strategy option.
Generic strategies (feasible)
Select options to get final generic strategies
Year 1 2 3 4 5
Research & Development
Fig. 8, Business Strategy Formation
Fig. 1, The Strategic Management Model
Layout: A. Thomas Fenik
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NOTE TO STUDENT
This QUICKSTUDY® guide is an outline of the
basic topics taught in Management courses.
Due to its condensed format, use it as a study
guide but not as a replacement for assigned
All rights reserved. No part of this publication may be reproduced or transmitted in any form, or by any means,
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written permission from the publisher.
©2001 BarCharts, Inc. 0508
Foundation for Evaluation of Strategy
The basis for evaluation is to compare strategy with
quantitative or qualitative criteria. In addition, strategy
may be evaluated at different stages.
1. Overall financial performance, such as ROI, ROE,
profit margin, market share, earnings per share.
2. Time of implantation vs. planned time.
3. Increase in productivity, quality, number of
Qualitative Criteria (from S. Tilles *)
1. Is the strategy internally consistent?
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