Chapter 7 Strategy and Strategic Management
Todays management environment places a great premium on “competitive advantage”
and how it is achieved, or not, through “strategy” and “strategic management”.
Competitive advantage is the ability to do something so well that one outperforms
Typical sources of competitive advantage include:
• Cost and quality- where strategy drives an emphasis on operating efficiency and
product or service quality.
• Knowledge and speed- where strategy drives an emphasis on innovation and speed of
delivery to market for new ideas.
• Barriers to entry- where strategy drives an emphasis on creating a market stronghold
that is protected from enrty by others.
• Financial resources- where strategy drives an emphasis on investment or loss
absorption that competitiors can’t match.
The goal becomes creating sustainable competitive advantage, one that is difficult or
costly for other to copy or imitate.
Strategy and Strategic Intent:
A strategy is a comprehensive action plan that identifies the long-term direction for an
organization and guides resources utilization to achieve sustainable competitive
It is a best guess about what must be done for future success in the face of rivalry and
A strategy helps ensure that resources are used with consistent strategic intent, that is,
with all energies directed toward accomplishing a long-term target or goal.
Level of strategy:
3 levels of strategy guide the activities of most enterprises: they are corporate strategy,
business strategy, and functional strategy.
• The level of corporate strategy directs the organization as a whole toward sustainable
competitive advantage. • The purpose of corporate strategy is to set direction and guide resources allocations
for the enterprise.
• In large, complex organizations, corporate strategy identifies how the company
intends to compete across multiple industries and markets.
• Business strategy is the strategy for a single business unit or product line.
• Typical business strategy decision include choice about product and service mix,
facilities locations, new technologies, and the like.
• In a single product enterprises, business strategy is the corporate strategy. But in
large conglomerates , a varierty of business strategies will be followed.
• The term strategic business unit (SBU) is often used to describe a single business firm
within a large enterprises.
• Is guides the use of organizational resources to implement business strategy.
• It focuses on activities within a specific functional area such as marketing,
manufacturing finance, or human resources.
The Strategic Management Process:
Strategic management is the process of formulation and implementing strategies to
accomplish long-term goals and sustain competitive advantage.
The process begins with strategic analysis to assess the organization, its environment, its
competitive positioning, and its current strategies.
Next is strategy formulation, developing a new or revised strategy with the goal of
sustainable competitive advantage.
The final phase in the process is strategy implementation, using resources to put
strategies into action, and then evaluating results.
Essentials of Strategic Analysis
Analysis of Mission, Value, and Objectives:
The strategic management process begins with a review and clarification of mission,
values, and objectives.
Mission and Stakeholders:
• 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 and respect of an
• Stakeholders are individuals and groups who are directly affected by the
organization and its accomplishments.
• A strategic constituencies analysis is a useful tool in the strategic management
process. It assesses the specific interest of each stakeholders, along with the
organization’s record in responding to them.
• Behavior in and by organizations will always be affected in part by core values,
which are broad beliefs about what is or is not appropriate behavior.
• Organizational culture is the predominant value system for the organization as a
• Core value and organizational culture should be assessed to determine how
well they align with and support the organization’s mission.
• Whereas a mission statement sets forth an organization’s purpose, and core
values establish standards for accomplishing it, operating objectives direct
activities toward key performance areas.
• Although organizations pursue a wide variety of operating objectives, those
typical of a business often include the following:
Profitability- operating with a net profit
Financial health- acquiring capital; earning positive returns
Cost efficiency- using resources well to operate at low cost
Customer service- meeting customer needs and maintaining loyalty
Product quality- producing high quality goods and services
Market share- gaining a specific share of possible customers
Human talent- recruiting and maintaining a high-quality workforce
Innovation- developing new products and processes
Social responsibility- making a positive contribution to society
SWOT Analysis of organization and environment
SWOT analysis is an internal analysis of organizational strengths and weaknesses as
well as the external analysis of environment opportunities and threats. Organizational Strengths and Weaknesses:
• A SWOT analysis begins with a systematic evaluation of the organization’s
resources and capabilities- its basic strengths and weaknesses.
• A major goal in assessing strengths is to identify core competencies- things that
the organization has or does exceptionally well in comparison with competitiors.
Environmental Opportunities and Threats
Analysis of Rivalry and Industry Attractiveness:
Porter’s Five Forces Model:
1) Industry competition
2) New entrants
3) Substitute products or services
4) Bargaining power of suppliers
5) Bargaining power of customers
• The five competitive forces constitute what Porter calls the “industry structure”,
and it establishes the industry’s attractiveness or potential to generate long-term
• The less attractive the industry structure, the harder it will be to make good
strategic choice and realize a sustained competitive advantage relative to riva