GMS 200 Lecture Notes - Swot Analysis, Strategic Management, Competitive Advantage

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Chapter Seven Strategy and Strategic Management
Strategic Management
Competitive Advantage:
The ability to do something so well that one outperforms competitors. Typical sources of
competitive advantage include:
o Cost and quality Where strategy drives an emphasis on operating efficiency and
product or service quality
o Knowledge and speed Emphasis on innovation and speed of delivery to market for
new ideas
o Barriers to Entry Emphasis on creating a market stronghold that protects from entry
by others.
o Financial Resources Emphasis on investments or loss absorption that competitors
can’t match.
The goal becomes creating sustainable competitive advantage the ability to outperform rivals
in ways that are difficult or costly to imitate.
Strategy and Strategic Intent:
Strategy is the way of achievement for sustainable competitive advantage.
A strategy is a comprehensive plan guiding resource allocation to achieve long-term
organization goals.
o Best guess of what should be done for the future.
Strategic Intent Focuses and applies organizational energies on a unifying and compelling
goal.
Levels of Strategy:
Three levels of strategy guide the activities of most enterprises:
o Corporate strategy What businesses are we in?
o Business strategy How do we compete in each of our major businesses?
o Functional strategy How do we best support each of our business strategies?
Corporate-level strategy: Directs the organization as a whole toward sustainable competitive
advantage. It sets long-term direction for the total enterprise.
o “In what industries and markets should we compete?”
Business-level strategy: Strategy for a single business unit or product line. The selection of
strategy at the business level involves answering this question: “How are we going to compete
for customers in this industry and market?”
Functional strategy: Guides activities within one specific area of operations. Guides the use of
organizational resources to implement business strategy. This level of strategy focuses on
activities within a specific functional area such as marketing.
The Strategic Management Process:
Developing a strategy: find out what customers want, provide at the best prices and services,
and make sure that competitors cant copy what you’re doing well.
o Strategies must be well implemented
Strategic management is the process of formulating and implementing strategies to accomplish
long-term goals and sustain competitive advantage.
Strategic analysis is the process of analyzing the organization, the environment, and the
organizations competitive position and current strategies.
o Identify and analyze: missions and stakeholders, core values, and objectives.
Strategy formulation is the process of crafting strategies to guide the allocation of resources
o Revise objectives and select new strategies
Strategy implementation is the process of putting strategies into action and then evaluating
results.
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Essentials of Strategic Analysis:
When consulting about strategic management:
o What is your business mission?
o Who are your customers?
o What do your customers value?
o What have been your results?
o What is your plan?
Analysis of Mission, values, and objectives:
Strategic management process begins with a review and clarification of mission, values, and
objectives.
o A mission statement expresses the organization’s reason for existence in society.
Mission and Stakeholders:
A mission should represent what the strategy or underlying business model is trying to
accomplish.
To clarify mission: What are we moving to? What is our dream? What kind of a difference do
we want to make in the world? What do we want to be known for?
A clear sense of mission helps managers keep organizations on track and use resources with
strategic intent.
A clear sense of mission also helps managers inspire the support and respect of organizations
stakeholders.
o Individuals and groups directly affected by the organization and its strategic
accomplishments.
A strategic constituencies analysis assesses interests of stakeholders and how well the
organization is responding to them.
Core Values:
Broad beliefs about what is and is not appropriate behavior.
Corporate responsibility is making sure everyone has a good place to work that adds to the
quality of his or her life.
Organizational culture is the predominant value system for the organization as a whole.
Objectives:
A mission statement sets forth an organizations purpose, core values establish standards for
accomplishing the mission statement.
Operating objectives are specific results that organizations try to accomplish they turn a
broad sense of mission into specific performance targets.
o Profitability Operating with a net profit
o Financial health Acquiring capital; earning positive returns
o Cost efficiency Using resources well to operate at low cost
o Customer service meeting customer needs and maintaining loyalty
o Product quality producing high quality goods or services
o Market share gaining a specific share of possible customers
o Human talent recruiting and maintaining a high quality workplace
o Innovation developing new products/services
o Social responsibility making a positive contribution to society.
SWOT Analysis of Organization and Environment:
After the assessment of mission, values, and objectives, the next step in the strategic
management process is to analyze the organization and its environment using a technique
known as SWOT analysis (review page 195).
Organizational Strengths and Weaknesses:
A SWOT analysis begins with a systematic evaluation of the organizations resources and
capabilities its basic strengths and weaknesses.
A major goal in assessing strengths is to identify core competencies:
o A special strength that gives an organization a competitive advantage.
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Environmental Opportunities and Threats:
A SWOT analysis is not complete until opportunities and threats in the external environment
are also analyzed.
Environmental threats may be: emergence of new competitors, resource scarcities, changing
customer tastes, new government regulations, and a weak economy.
Analysis of Rivalry and Industry Attractiveness:
Harvard Scholar (Michael Porter) points his attention towards what he calls rivalry and
competition within the industry.
Ideal for firms to operate under monopoly conditions only player in the industry (rare)
Oligopoly facing just a few competitors, such as in a airline industry
Hyper-competition facing several direct competitors, such as in the fast-food industry.
Porters Five Forces Model:
Uses this as a framework for competitive industry analysis. Can help managers make strategic
choices that best position a firm within its industry.
o Industry competition The intensity of rivalry among firms in the industry and the
ways they behave competitively toward one another
o New entrants The threat of new competitors entering the market, based on the
presence of barriers to entry
o Substitute products or services the threat of substitute products/services based on the
ability of consumers to find what they want from sellers.
o Bargaining power of suppliers The ability of resource suppliers to influence the price
that one has to pay for their products or services
o Bargaining power of customers The ability of customers to influence the price that
they will pay for the firm’s products or services.
Industry Attractiveness:
The five competitive forces constitute what Porter calls the “industry structure” it establishes
the industry’s attractiveness or potential to general long-term returns.
Unattractive industry one in which rivalry among competitors is intense, substantial threats
exist in the form of possible new entrants and substitute products.
Attractive industry less existing competition, few threats from new entrants of substitutes +
low bargaining for power among suppliers/buyers.
Corporate-level Strategy Formulations:
Plot the overall direction of the organization in the competitive setting of its industry
Grand or Master Strategies:
Growth Strategy Involves expansion of the organization’s current operations. Seeks to
expand the size and scope of operations in respect to: sales, market shares, and operating
locations.
o An expansion trap is when growth outruns an organizations capacity to run effectively.
Stability Strategy Maintains current operations without substantial changes. Try to maintain
a existing course of action without major changes. Stability is pursued when an organization is
performing well operating at a capacity environment is either stable or risky.
Renewal Strategy Tries to solve problems and overcome weaknesses that are hurting
performance. Also referred to as: retrenchment strategies or defensive strategies.
o Most severe form of retrenchment (renewal) is: liquidation business operations cease
and assets are sold to pay creditors.
Combination Strategy Pursues one or more of the other strategies at the same time. Pursues
growth, stability, and retrenchment in some combination.
Growth and Diversification Strategies:
Concentration growth through concentration is growth within the same business area.
Diversification growth by acquisition of investment in new and different business areas
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