Management: Second Arab World Edition

Management: Second Arab World Edition
Robbins, Coulter, Sidani, Jamali

Chapter 8: Strategic Management

Lecturer: Alaa Hamade

What is Strategic Management?

Exhibit 8–1 The Strategic Management Process

Exhibit 8–2 Components of a Mission Statement

Exhibit 8–4 Levels of Organizational Strategies

What is a Corporate Strategy?

A corporate strategy is one that specifies what businesses a company is in or wants to be in and what it wants to do with those businesses.

What Are the Types of Corporate Strategies?

1. Growth:

expansion into new products and markets

2. Stability:

maintenance of the status quo

3. Renewal:

examination of organizational weaknesses that are leading to performance declines

1. Growth Strategy

Seeking to increase the organization’s business by expansion into new products and markets.

Types of Growth Strategies

Concentration

Vertical integration

Horizontal integration

Diversification

Concentration

Focusing on a primary line of business and increasing the number of products offered or markets served.

Vertical Integration

Backward vertical integration: attempting to gain control of inputs (become a self-supplier).

Forward vertical integration: attempting to gain control of output through control of the distribution channel or provide customer service activities (eliminating intermediaries).

1. Growth Strategy (cont’d)

Horizontal Integration

Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals.

Related Diversification

Expanding by combining with firms in different, but related industries that are “strategic fits”.

Unrelated Diversification

Growing by combining with firms in unrelated industries where higher financial returns are possible.

1. Growth Strategy (cont’d)

2. Stability Strategy

This strategy is appropriate if:

Managers want to maintain the status quo to deal with the uncertainty of a dynamic environment.

The industry is experiencing slow- or no-growth conditions.

If the owners of the firm elect not to grow for personal reasons.

3. Renewal Strategies

Developing strategies to counter organization weaknesses that are leading to performance declines.
Retrenchment:
focusing of eliminating non-critical weaknesses and restoring strengths to overcome current performance problems. Related to a non-core business process or function.
Turnaround:
addressing critical long-term performance problems through the use of strong cost elimination measures and large-scale organizational restructuring solutions. Related to a core business process or function.

How are Corporate Strategies Formulated?

Managers manage a portfolio (or collection) of businesses using a corporate portfolio matrix such as the BCG Matrix.

BCG Matrix

Developed by the Boston Consulting Group.
Considers market share and industry growth rate.
Classifies firms as:
Cash cows: low growth rate, high market share
Stars: high growth rate, high market share
Question marks: high growth rate, low market share
Dogs: low growth rate, low market share

Exhibit 8–5 BCG Matrix

How are Corporate Strategies Formulated?
(cont’d)

Possible strategies:
Cash cows: They are milked for as much as they can, limit any new investment, and use the cash to invest in stars and questions marks that have strong potential for higher market share.
Stars: Ese cash from cash cows to invest heavily in stars and take advantage of market growth and maintain market share. Could develop into cash cow as growth slows.
Question marks: The hardest decisions are for question marks. Some will be sold off and others invested heavily to turn into stars – depending on potential for growth in market share.
Dogs: They should be sold off or liquidated

Competitive Strategies

A competitive strategy is focused on how an organization will compete in its business(es).

For an organization in only one line of business, the competitive strategy describes how it will compete in its primary or main market.

When an organization is in several different businesses, those single businesses that are independent and formulate their own competitive strategies are often called strategic business units (SBUs).

Each SBU has its own competitive strategy that defines its competitive advantage, the products or services it will offer, the customers it wants to reach, and the like.

The Role of Competitive Advantage

1. Competitive Advantage sets an organization’s distinctive competitive edge.

2. That distinctive edge comes from the organization’s core competencies because the organization does something that others cannot do or does it better than others can do it.

Quality as a Competitive Advantage

Differentiates the firm from its competitors.
Can create a sustainable competitive advantage.
Represents the company’s focus on quality management to achieve continuous improvement and meet customers’ demand for quality.

Sustaining Competitive Advantage

Continuing over time to effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry competitors.
It is not easy to create a sustainable competitive advantage due to market instabilities, new technology, and other changes.
By using strategic management, managers can better position their organizations to get a sustainable competitive advantage.

How are Competitive Strategies Formulated?

Porters Five Forces Model

Threat of New Entrants

The ease or difficulty with which new competitors can enter an industry.

Threat of Substitutes

The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitute products and services. Substitutes are products a completely different product from a different industry that could replace the organizations core offering. sway over and influence competitors in an industry.

Bargaining Power of Buyers

The degree to which buyers have the market strength to hold

Bargaining Power of Suppliers

The power suppliers have over organizations in determining the price and quality of the products and services being supplied.

Current Rivalry

Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend.

How are Competitive Strategies Formulated? (cont’d)

Exhibit 8–6 Five Forces Model

Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980).

Choosing a Competitive Strategy

Cost Leadership Strategy

Seeking to attain the lowest total overall costs relative to other industry competitors.

Differentiation Strategy

Attempting to create a unique and distinctive product or service for which customers will pay a premium.

Focus Strategy

Using a cost or differentiation advantage to exploit a particular market segment rather than a larger market.

Stuck in the Middle

When an organization cannot develop a cost or differentiation advantage.

Functional Strategy

Used by an organization’s various functional departments to support the competitive strategy

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Management: Second Arab World Edition

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