STRATEGIC

MANAGEMENT
 DEFINITIONSOF STRATEGIC MANAGEMENT
1 Henry Mintzberg

“Strategic management is the process of formulating and

implementing major goals and initiatives, taking into account
resources and internal/external environments.”

2. Michael Porter
“Strategic management involves creating a unique and valuable
position in the market, establishing a competitive advantage
through tailored HR practices.”
3. Dave Ulrich

“Strategic HRM is about aligning human resources with business

strategy to create value, emphasizing the role of HR in driving
organizational success.”

4. Gary Dessler
“Strategic management in HRM involves integrating HRM with
strategic planning to ensure that HR policies and practices
support the organization’s mission and objectives.
5. John P. Kotter

“Strategic management is the continuous process of aligning organizational

goals with the capabilities of the workforce, driving change and adaptation.”

6. Peter Drucker
“Management is doing things right; leadership is doing the right things.
Strategic HRM involves ensuring that HR aligns with leadership’s vision.”

7. Sharon Parker
“Strategic HRM is about understanding the organizational context and
leveraging employee capabilities to foster innovation and adaptability.”
8. Patrick Wright

“Strategic HRM is the proactive management of human capital to optimize

organizational performance and create a sustainable competitive advantage.”

Strategic management in Human Resource Management (HRM) is the

process of aligning human resources with business strategies to achieve
organizational goals. It involves formulating and implementing major
initiatives that consider both internal and external environments. Strategic
HRM focuses on fostering a culture of adaptability, innovation, and alignment
with leadership’s vision, ultimately driving organizational success and
sustainability.
 CONCEPTUAL FRAMEWORK FOR STRATEGIC MANAGEMENT
A conceptual framework for strategic management provides a structured approach
to formulating, implementing, and evaluating strategies within an organization.
Here’s an overview of the key components:
1. Strategic Analysis
External Analysis:
• PESTEL Analysis: Examines Political, Economic, Social, Technological,
Environmental, and Legal factors affecting the organization.
• Porter’s Five Forces: Analyzes industry competition and market dynamics.
2. Internal Analysis:
 SWOT Analysis: Identifies Strengths, Weaknesses, Opportunities, and Threats.
 Resource-Based View: Evaluates the organization’s resources and capabilities.
2.Strategic Formulation
Vision and Mission:
Define the organization’s purpose, values, and long-term goals.
Objectives:
Set specific, measurable, achievable, relevant, and time-bound (SMART)
objectives.
3. Strategy Development:
 Corporate-Level Strategy: Decisions regarding overall scope and direction
(e.g., diversification, mergers).
 Business-Level Strategy: Competitive positioning within the market (e.g.,
cost leadership, differentiation).
 Functional-Level Strategy: Specific actions taken by departments to
support business-level strategies.
3. Strategy Implementation
Action Plans:
Develop detailed plans and timelines for executing strategies.
Resource Allocation:
Allocate necessary resources (human, financial, technological) to support
strategic initiatives.
Change Management:
Prepare for and manage organizational change effectively during
implementation.
4. Strategy Evaluation and Control
Performance Metrics:
Establish key performance indicators (KPIs) to measure success against
objectives.
Feedback Mechanisms:
Implement processes to gather feedback and assess progress, allowing for
adjustments as needed.
Continuous Improvement:
Foster a culture of continuous improvement to adapt strategies based on
performance and changing conditions.
5. Strategic Renewal
Innovation:
Encourage innovation to adapt to market changes and enhance
competitive advantage.
Strategic Review:
Regularly revisit and revise strategies to align with evolving internal and
external environments.
 Elements of Strategic Management
1.Mission and Vision:

Define the organization's purpose and long-term aspirations.

Mission Statement
A mission statement defines the organization's core purpose and primary
objectives. It answers the question: What do we do?

Vision Statement
A vision statement outlines the desired future state of the organization. It
answers the question: Where do we want to be?
2. Strategic Objectives:
Set specific goals that guide decision-making and resource allocation. SMART
(Specific, Measurable, Attainable, Relevant, Timely).

3. Environmental Analysis:
Assess internal and external factors (SWOT analysis) that impact the
organization.(Strength, weakness, Opportunities, Threat).

4. Strategy Formulation:
Develop plans and strategies to achieve objectives based on analysis.
5. Strategy Implementation:
Put the formulated strategies into action through effective resource
management.
6. Performance Evaluation:
Monitor and assess outcomes to ensure goals are being met and strategies
are effective.
7. Feedback and Control:

Use feedback to adjust strategies and improve performance continuously.

Stakeholders are individuals or groups that have an interest in the success and
operations of a business. They can influence or be affected by the company’s
actions, objectives, and policies. Here’s a breakdown of the main types of
stakeholders:
1. Internal Stakeholders
Employees:
•Directly involved in day-to-day operations and are concerned about job
security, pay, and working conditions.
Management:
•Includes executives and managers responsible for strategic decision-making
and overall organizational performance.
Owners/Shareholders:
•Individuals or entities that own shares in the company and are interested in
profitability and return on investment.
2. External Stakeholders
Customers:
•Purchase and use products or services, influencing business decisions based
on their needs and preferences.
Suppliers:
•Provide necessary materials and services; interested in fair trading terms and
long-term relationships.
Creditors:
•Lenders or financial institutions that provide loans; concerned about the
company’s ability to repay debts.
Investors:
Individuals or organizations that invest capital in the business and are focused
on financial returns and business growth.
Competitors:
Other businesses in the same market; influence industry standards and pricing
strategies.
3. Broader Stakeholders
Community:
Local residents and organizations that may be affected by the business’s
operations and practices, including environmental impacts.
Government:
Regulatory bodies that set laws and regulations; interested in compliance
and economic contributions.
Media:
Outlets that report on business activities, influencing public perception and
brand reputation.
•Non-Governmental Organizations (NGOs):
Organizations focused on social or environmental issues; may influence
business practices and policies.
 What Is A Strategic
Framework?
A strategic framework is a tool that assists you at a specific stage
of the strategic management cycle, most commonly during the
strategy formulation and evaluation stage. These frameworks offer
insights into a business environment, helping to identify strengths,
weaknesses, and the best course of action. By selecting or blending
the most suitable strategic frameworks, organizations can sharpen
their focus, navigate real-world complexities, and chart a path to
sustainable success.
1. McKinsey’s Strategic Horizons
McKinsey's Three Strategic Horizons keep you focused on growth and
innovation. This strategy framework requires you to categorize your goals
into 3 different focus areas:

•Horizon 1: Maintain and defend the core business

•Horizon 2: Nurture emerging business
•Horizon 3: Create genuinely new business

When to use this framework:

McKinsey's Strategic Horizons is a great strategic framework that keeps

you focused on constantly growing your organization and creating future
revenue streams. While many organizations prioritize short-term profits,
doing so can expose them to market, customer, or competitive risks.
2. Value Disciplines
Using the Value Disciplines, organizations can bolster their competitive advantage by building
on their strengths. Choose one core value discipline and align your strategy to it:
•Operational excellence: Focused on delivering high-quality products/services at competitive
prices. This discipline aims to create a competitive advantage through streamlined processes,
reduced errors, and maximized efficiency.
Examples: Dell, Wal-Mart, IKEA, EasyJet and RyanAir.
•Customer intimacy: By prioritizing customer relationships, organizations can create a
sustainable competitive advantage by understanding and meeting their unique needs. This
approach values long-term bonds over one-time transactions and employs robust CRM
strategies. Examples: Home Depot, Staples, Kraft, Ciba-Geigy, and Frito-Lay.
•Product leadership: Organizations can achieve a competitive advantage through continuous
product innovation to stand out as market leaders. Significant investment in R&D and fostering
employee creativity are essential. Updated products often have superior features and
improvements. Examples: Apple, Bang & Olufsen, and Philips.
When to use this framework:
The Value Disciplines framework emphasizes choosing one core business model to excel in,
concentrating resources, and avoiding distractions.
3. The Stakeholder Theory
Though not a well-known model in the broader business world, the Stakeholder
Theory focuses on adding value to specific groups:

•​​Employees: Prioritizes their well-being through financial benefits like salary hikes, and
intangible perks such as training and facilities.
•Customers: Targets improvements in products and accessibility.
•Community: Ranges from benefits like job creation to more significant community
enhancement initiatives.
•Shareholders: While often used by non-profits, for-profit organizations also use this to
enhance their bottom line.
•Society: Beyond the local community, this focuses on broader societal benefits, such as
technology advancements or environmental efforts.
When to use this framework:
Use this framework if you're aiming for a holistic approach that considers the interests of all
groups impacted by your organization, not just shareholders. It will help you identify and
address potential risks arising from neglecting any key stakeholder group, thereby ensuring
sustainability and long-term success.
4. The Balanced Scorecard
The Balanced Scorecard is built on the premise that your business strategy should be equally
divided into 4 quadrants to ensure successful strategy execution:
•Financial: Addresses goals for the bottom line and other crucial financial KPIs like liquidity or
margin.
•Customer: Focuses on understanding and enhancing customer satisfaction and meeting their
needs with your product or service.
•Internal business process: Concentrates on measuring and optimizing processes vital to
customer satisfaction.
•Learning and growth: Also known as the people quadrant, it underscores employee education,
knowledge management, and leveraging these for a competitive edge.

When to use this framework:

Use the Balanced Scorecard to understand your organization's performance beyond financial
metrics. This framework facilitates regular performance evaluation against set targets, drives
continuous improvement, and ensures that the needs and expectations of various stakeholders,
such as customers and employees, are met.
5. The Ansoff Matrix
1.Market development: Expanding your existing product to new audiences,
like entering new geographies or using online sales channels.
2.Market penetration: Boosting sales of current products to existing
customers by intensifying marketing efforts or offering purchase incentives.
3.Product development: Introducing new products to existing customers,
like sports shoe companies venturing into sportswear.
4.Diversification: Launching new products in new markets is the riskiest
strategy due to unfamiliarity with both product and market.

When to use this framework:

People often see “growth” as a single part of their strategic roadmap. The
Ansoff Matrix, however, forces you to think more deeply about exactly how
you're going to achieve that growth. Your risk appetite will largely dictate
which components of the matrix you will attack.
6. Porter’s Five Forces
1. Threat of new entrants
2. Bargaining power of suppliers
3. Bargaining power of buyers (customers)
4. Threat of substitutes
5. Competitive rivalry

When to use this framework:

Companies use this framework to assess an industry's competitive landscape

and inform their decision-making. It's particularly useful:

Before entering a new market to gauge its profitability potential.

In strategic planning process to identify threats or opportunities.
When facing challenges in an existing industry to adapt strategies.
7. SWOT Analysis
• Strengths: What your business does well.
• Weaknesses: Where it might be lacking.
• Opportunities: Chances out there for growth.
• Threats: Things that can cause problems.
When to use this framework:

Use SWOT analysis as a way to get a clear picture of your business's current
situation. It's great for when you're planning to launch a new product,
entering a new market, or just trying to improve your business overall.
8. Growth Share Matrix
• Stars: The primary strategy for Stars is to invest in them to maintain or increase
market share until the market growth rate slows.
• Cash Cows: Companies usually prioritize harvesting profits from Cash Cows and
invest them in other areas of the business.
• Dogs: Businesses typically consider divesting, discontinuing, or restructuring Dog
units to free up resources for more promising areas of the business.
• Question Marks: Management needs to evaluate Question Marks carefully and decide
whether to invest in them to pursue market leadership or to divest.

When to use this framework:

Organizations should use the Growth Share Matrix when they need to allocate resources
among multiple products or business units. It's ideal for prioritizing investments and
making decisions based on market growth and share.
9. Blue Ocean Strategy
When to use this framework:

Companies use this strategic framework when the current supply in their
existing market exceeds demand or if turnover has increased and profit
margins are diminishing.

What kind of organizations might use the Blue Ocean Strategy:

Blue Ocean Strategy helps organizations, whether startups, established

firms, or non-profits, find untapped market spaces to avoid intense
competition. It's versatile but should be tailored to each organization's
unique needs for best results.
10. Value Chain Analysis
When to use this framework:

Use value chain analysis to identify areas for cost savings and opportunities to add value.
According to the value chain framework, companies can increase their competitive
advantage by differentiating products or services or lowering costs.

What kind of organizations might use the Value Chain Analysis:

Organizations, regardless of size, that are looking to optimize their operations and
enhance the value they deliver to customers can benefit from Value Chain Analysis. This
includes manufacturers, service providers, and businesses in competitive industries
seeking a competitive edge or cost efficiencies.
11. PEST Analysis
When to use this framework:
Use a PEST (or PESTLE) analysis when you want to understand and
evaluate the external macro-environmental factors that could impact your
business or industry. It's especially helpful during strategic planning,
entering a new market, or launching a new product, as it highlights potential
challenges and opportunities in the broader environment.

What kind of organizations might use the PEST Analysis:

PEST analysis helps businesses operating in rapidly changing
environments or those subject to significant political, economic, social, or
technological shifts. By understanding these external factors, companies can
better position themselves for success and mitigate potential risks.
 core competencies of strategic management
1. Strategic Vision and Leadership
•Visionary Thinking: The ability to define and articulate a clear, long-term
vision for the organization.
•Leadership: The capability to inspire and motivate teams to align with the
strategic vision and work towards common goals.
•Decision-Making: Competence in making informed, timely decisions that
steer the organization toward its strategic objectives.
2. Analytical and Critical Thinking
•Environmental Scanning: Proficiency in analyzing the external and internal
environments to identify opportunities, threats, strengths, and weaknesses.
•Strategic Analysis: The ability to use tools such as SWOT analysis, PEST
analysis, and Porter’s Five Forces to assess the competitive landscape.
•Problem-Solving: Skill in identifying strategic challenges and developing
innovative solutions.
3. Resource Allocation and Management
•Resource Optimization: Competence in allocating financial, human, and
technological resources efficiently to support strategic initiatives.
•Budgeting and Forecasting: Ability to create realistic budgets and
forecasts that align with strategic priorities.
•Risk Management: Skill in identifying, assessing, and mitigating risks
associated with strategic decisions.
4. Strategic Implementation and Execution
•Project Management: The capability to translate strategic plans into
actionable projects and ensure successful execution.
•Performance Monitoring: Competence in setting key performance
indicators (KPIs) and tracking progress toward strategic goals.
•Adaptability: The ability to adjust strategies in response to changing
market conditions and organizational needs.
5. Innovation and Change Management
•Innovative Thinking: The capacity to foster a culture of innovation,
encouraging the development of new ideas, products, and processes.
•Change Management: Skill in managing organizational change, ensuring
smooth transitions while minimizing disruption.
•Continuous Improvement: Commitment to ongoing assessment and
refinement of strategies to enhance organizational performance.
6. Communication and Stakeholder Engagement
•Effective Communication: The ability to communicate strategic goals and
plans clearly to all stakeholders, ensuring alignment and understanding.
•Stakeholder Management: Competence in managing relationships with
key stakeholders, including employees, customers, investors, and partners.
•Negotiation Skills: The ability to negotiate effectively to secure resources,
partnerships, and agreements that support strategic goals.
7. Ethical and Social Responsibility
•Corporate Governance: Commitment to ethical decision-making and
adherence to corporate governance principles.
•Social Responsibility: The ability to integrate social and environmental
considerations into strategic planning and decision-making.
•Sustainability: Competence in developing strategies that promote long-
term sustainability and positive social impact.
8. Technological Integration and Digital Competence
•Digital Strategy: Ability to leverage technology to enhance strategic
initiatives, including digital transformation and data analytics.
•IT Alignment: Competence in aligning information technology with
strategic goals to drive innovation and efficiency.
•Cybersecurity: Skill in ensuring that strategic decisions consider the
security of digital assets and data.
9. Global Perspective and Cultural Competence
•Global Market Understanding: The capability to analyze and respond to
global market trends and challenges.
•Cultural Competence: The ability to navigate cultural differences and
manage diverse teams effectively.
•International Strategy: Skill in developing and executing strategies that
consider global opportunities and risks.
10. Customer and Market Focus
•Customer-Centricity: The ability to understand customer needs and
preferences and incorporate them into strategic planning.
•Market Analysis: Competence in analyzing market trends and competitive
dynamics to inform strategic decisions.
•Brand Management: Skill in managing the organization’s brand and
reputation in alignment with strategic goals.
 Theories or models of strategic management core competencies
1. Hamel and Prahalad's Core Competence Model
•Key Concept: Introduced by Gary Hamel and C.K. Prahalad in their 1990 article "The
Core Competence of the Corporation," this model emphasizes that core competencies are
the collective learning and coordination skills behind a company’s product lines.
•Core Competence Criteria:
• Provides Access to a Wide Variety of Markets: A core competence should
enable the company to enter and compete in various markets.
• Contributes Significantly to Customer Benefits: It should add value to the
product from the customer's perspective.
• Difficult to Imitate: It should be unique and challenging for competitors to
replicate.
•Strategic Implication: Companies should focus on identifying and nurturing their core
competencies, rather than just focusing on products or business units.
2. Resource-Based View (RBV)
•Key Concept: The Resource-Based View (RBV) of the firm suggests that a
company’s competitive advantage lies in its unique resources and
capabilities, which are valuable, rare, inimitable, and non-substitutable
(VRIN).
•VRIN Criteria:
• Valuable: Resources should add value by enabling the firm to exploit
opportunities or neutralize threats.
• Rare: Resources should be scarce relative to demand.
• Inimitable: Resources should be difficult for competitors to replicate.
• Non-Substitutable: Resources should not have strategically equivalent
substitutes.
•Strategic Implication: Firms should focus on acquiring and developing
resources and capabilities that meet the VRIN criteria to achieve a
sustainable competitive advantage.
3. Dynamic Capabilities Framework
•Key Concept: Introduced by David Teece, Gary Pisano, and Amy Shuen,
the Dynamic Capabilities Framework emphasizes the importance of a firm's
ability to adapt, integrate, and reconfigure internal and external
competencies in response to rapidly changing environments.
•Key Components:
• Sensing: The ability to identify opportunities and threats in the
environment.
• Seizing: The ability to mobilize resources to capture value from
opportunities.
• Transforming: The ability to continuously renew and reconfigure
resources to maintain competitiveness.
•Strategic Implication: Firms must develop dynamic capabilities to remain
agile and competitive in fast-paced markets.
4. Value Chain Analysis (Porter)
•Key Concept: Michael Porter’s Value Chain model focuses on identifying
and optimizing activities within a firm that contribute to creating value for
customers. Core competencies are often embedded within these activities.
•Primary Activities: Inbound logistics, operations, outbound logistics,
marketing and sales, and service.
•Support Activities: Firm infrastructure, human resource management,
technology development, and procurement.
•Strategic Implication: By analyzing the value chain, firms can identify
activities that contribute most to competitive advantage and should focus on
strengthening these core areas.
5. Blue Ocean Strategy
•Key Concept: Developed by W. Chan Kim and Renée Mauborgne, Blue
Ocean Strategy encourages firms to create new market space (blue oceans)
rather than competing in existing markets (red oceans). Core competencies
in innovation and creativity are central to this approach.
•Key Frameworks:
• Value Innovation: The simultaneous pursuit of differentiation and low
cost.
• Four Actions Framework: Reduce, eliminate, raise, and create to
reshape industry factors.
•Strategic Implication: Firms should develop competencies in identifying
and exploiting untapped markets, creating value in novel ways that set them
apart from competitors.
6. Core Competence Tree
•Key Concept: This visual model represents the relationship between a firm’s core competencies
and its products and services. The roots represent the core competencies, the trunk represents the
core products, and the branches represent business units, with leaves or fruits symbolizing end
products.
•Strategic Implication: This model helps firms visualize how core competencies feed into
various products and services, emphasizing the importance of nurturing these foundational
capabilities.
7. Balanced Scorecard (BSC)
•Key Concept: Developed by Robert Kaplan and David Norton, the Balanced Scorecard is a
strategic planning and management system that focuses on aligning business activities with the
organization’s vision and strategy. It incorporates financial and non-financial performance
measures across four perspectives: Financial, Customer, Internal Business Processes, and
Learning and Growth.
•Learning and Growth Perspective: This specifically focuses on developing competencies that
drive future performance, such as employee training, knowledge management, and innovation.
•Strategic Implication: Organizations should continuously invest in core competencies that will
lead to long-term success, as measured across multiple dimensions.
Low cost and differentiation generic building blocks of competitive advantage

1. Low-Cost Strategy
•Key Concept: The low-cost strategy involves becoming the lowest-cost
producer in the industry. This strategy allows a company to offer products or
services at lower prices than competitors, attracting price-sensitive
customers and gaining market share.
•Key Components:
• Economies of Scale: Achieving lower costs by producing large
volumes, which spreads fixed costs over more units.
• Cost Control: Strict management of operational expenses, including
supply chain efficiency, lean production methods, and cost-effective
resource allocation.
• Process Optimization: Streamlining processes and reducing waste to
minimize production costs.
 • Outsourcing: Leveraging outsourcing or offshoring to reduce labor
and material costs.
•Strategic Implication: By maintaining a cost advantage, companies can
either lower their prices to attract more customers or maintain higher
profit margins at competitive prices.
•Examples:
• Walmart: Achieves low costs through efficient supply chain
management, bulk purchasing, and tight control over operating
expenses.
• Southwest Airlines: Focuses on point-to-point routes, quick
turnaround times, and no-frills service to keep costs low.
2. Differentiation Strategy
•Key Concept: The differentiation strategy involves offering unique products or services
that stand out from competitors. This uniqueness can justify a premium price, as
customers perceive added value in the differentiated offering.
•Key Components:
• Product Innovation: Developing new or improved products with features that
meet specific customer needs better than competitors.
• Branding: Building a strong brand that is associated with quality, exclusivity, or
other desirable attributes.
• Customer Service: Providing superior service that enhances the customer
experience and creates loyalty.
• Technology and R&D: Investing in technology and research and development to
create innovative solutions that set the company apart.
• Quality: Ensuring high-quality standards that differentiate the product from lower-
cost alternatives.
•Strategic Implication: Differentiation allows companies to target specific
customer segments willing to pay a premium for unique features, higher
quality, or better service. This can lead to increased customer loyalty and
reduced price sensitivity.
•Examples:
•Apple: Differentiates its products through innovative design, user-friendly
interfaces, and a strong brand identity associated with premium quality.
•BMW: Focuses on luxury, performance, and engineering excellence to
differentiate its vehicles in the automotive market.
Combining Low-Cost and Differentiation Strategies
While low-cost and differentiation are often viewed as distinct strategies, some
companies successfully combine elements of both. This approach is known as an
integrated cost leadership and differentiation strategy. Companies that achieve
this can offer unique products at lower prices, appealing to a broader range of
customers.
•Example:
• IKEA: Combines low-cost production and supply chain efficiencies with
unique, functional design, creating a differentiated product offering at an
affordable price.
Strategic Trade-Offs
Porter emphasizes that pursuing both strategies simultaneously can be challenging
due to potential trade-offs. Companies that attempt to straddle both strategies
without a clear focus may risk becoming "stuck in the middle," offering neither the
lowest costs nor the highest differentiation, which can lead to underperformance.
1. Globalization and Industry Structure
•Globalization: Refers to the increasing interconnectedness of markets,
economies, and cultures worldwide. It has profound implications for
industry structure, as companies can now access global markets, resources,
and talent, but also face heightened competition from international firms.
•Impact on Industry Structure:
• Increased Competition: Globalization intensifies competition as firms
from different countries enter each other's markets. This can lead to
industry consolidation and the emergence of global players who
dominate the market.
• Market Expansion: Firms have opportunities to enter new markets
and grow their customer base, but must also navigate different
regulatory environments, customer preferences, and competitive
landscapes.
 • Supply Chain Integration: Globalization encourages firms to develop
complex, international supply chains to reduce costs and improve
efficiency. However, this also increases exposure to global risks, such
as geopolitical instability or supply chain disruptions.
• Technological Advancements: Globalization accelerates the diffusion
of technology across borders, enabling firms to innovate and improve
operational efficiency. However, it also leads to faster technological
obsolescence and shorter product life cycles.
•Strategic Implication: Companies must adapt their strategies to compete in
a globalized industry. This might involve leveraging global supply chains,
understanding and meeting the needs of diverse markets, or engaging in
strategic alliances with international partners.
2. National Context and Competitive Advantage
•Porter’s Diamond Model: Michael Porter’s Diamond Model explains how
national context influences a firm’s competitive advantage. According to this
model, four key factors determine a nation’s competitive advantage:
• Factor Conditions: The nation’s resources, such as skilled labor,
infrastructure, and technological capabilities.
• Demand Conditions: The nature and size of the local market demand
for a firm's products or services.
• Related and Supporting Industries: The presence of robust, related
industries and suppliers that can enhance a firm’s innovation and
efficiency.
 • Firm Strategy, Structure, and Rivalry: The competitive environment
within the country, including the strategies and organizational
structures that firms adopt and the intensity of domestic competition.
•Government and Chance: Porter also recognizes the role of government
policies and chance events in shaping national competitive advantage.
•Strategic Implication: Companies can leverage their home country’s
strengths (e.g., skilled labor, technological expertise) to build competitive
advantages on the global stage. Understanding the national context allows
firms to tailor their strategies to exploit local strengths and overcome
weaknesses.
3. Resources and Sustaining Competitive Advantage
•Resource-Based View (RBV): As mentioned earlier, the Resource-Based View
(RBV) suggests that a firm's competitive advantage is derived from its unique
resources and capabilities that are valuable, rare, inimitable, and non-substitutable
(VRIN).
• Valuable: Resources that help a firm exploit opportunities or neutralize
threats.
• Rare: Resources that are not widely possessed by competitors.
• Inimitable: Resources that are difficult for competitors to replicate or
substitute.
• Non-Substitutable: Resources that cannot be easily replaced by other
resources.
•Dynamic Capabilities: In addition to having valuable resources, firms must
develop dynamic capabilities – the ability to integrate, build, and reconfigure
internal and external competencies to address rapidly changing environments.
•Sustaining Competitive Advantage:
• Continuous Innovation: Firms must continually innovate to sustain
their competitive advantage, whether through new product
development, process improvements, or adopting new technologies.
• Resource Renewal: Regularly reassessing and renewing resources to
ensure they remain valuable and aligned with market demands is
critical. This might involve investing in new technologies, acquiring
talent, or developing new capabilities.
• Protecting Core Competencies: Ensuring that the firm’s core
competencies are protected from imitation by competitors. This can be
achieved through intellectual property rights, maintaining proprietary
technologies, or cultivating a strong corporate culture.
• Global Positioning: Leveraging globalization to access new markets,
resources, and partnerships can help sustain competitive advantage by
diversifying revenue streams and spreading risk.
4. Strategic Implications of Globalization, National Context, and Resources
•Global Integration vs. Local Responsiveness: Firms must balance the need for global
integration with the need to be responsive to local market conditions. This may involve
adopting a transnational strategy that combines global efficiencies with local
responsiveness.
•Adapting to Industry Changes: As globalization alters industry structures, companies
must adapt their strategies to maintain their competitive positions. This might involve
mergers and acquisitions, strategic alliances, or shifting focus to emerging markets.
•Leveraging National Strengths: Firms should leverage their home country’s strengths
in resources, innovation, and industry networks while expanding globally. This can
provide a foundation for building and sustaining competitive advantage in international
markets.
•Dynamic Resource Management: Continuously managing and upgrading resources
and capabilities is essential for sustaining competitive advantage over time. Firms must
be agile and proactive in recognizing when their resources need to be replenished or
reconfigured.
 Stability, expansion, retrenchment and combination strategies

1. Stability Strategy
•Objective: Maintain the current business operations and performance
levels.
•Approach: Focus on reinforcing existing products, markets, and
competitive positions without seeking significant changes or expansion.
•When to Use:
• When the external environment is stable or predictable.
• The business is performing well, and there's little need for change.
• The company wants to consolidate its gains before moving to a new
strategy.
•Example: A company maintaining its market position by focusing on
customer retention rather than expanding into new markets.
2. Expansion (Growth) Strategy
•Objective: Achieve significant growth in terms of revenue, market share, or
product offering.
•Approach: Expanding operations, introducing new products, entering new
markets, or acquiring other businesses.
•Types:
• Market Penetration: Increasing market share in existing markets.
• Market Development: Entering new geographical markets.
• Product Development: Launching new products or services.
• Diversification: Expanding into new industries or unrelated business areas.
•When to Use:
• When the company seeks to grow in response to market opportunities.
• The firm has surplus resources or a competitive edge in expanding.
•Example: Amazon expanding from being an online retailer to offering cloud
computing services (AWS) and entering various industries.
3. Retrenchment Strategy
•Objective: Reduce the scale or scope of the business to address performance
declines or financial losses.
•Approach: Cutting costs, restructuring, selling off unprofitable segments, or
downsizing.
•Types: Turnaround: Implementing measures to restore profitability by
improving efficiency and cutting costs.
• Divestment: Selling off underperforming business units or divisions.
• Liquidation: Closing down parts of the business that are no longer viable.
•When to Use: When the company is facing financial difficulties, declining sales,
or competitive pressure.
• As a temporary measure to stabilize the company before pursuing growth
strategies again.
•Example: General Motors' decision to sell off its European brands Opel and
Vauxhall to focus on more profitable markets.
4. Combination Strategy
•Objective: Use multiple strategies simultaneously in different parts of the
business or at different times.
•Approach: Combining stability, expansion, and retrenchment in different
divisions or regions based on their specific needs.
•When to Use:
• When different business units face different market conditions.
• As a complex response to a dynamic business environment.
•Example: A multinational corporation like Samsung might expand in its
mobile phone division while retrenching in its home appliance segment and
maintaining stability in its semiconductor business.
 Environmental threat and opportunity profile (ETOP)
The Environmental Threat and Opportunity Profile (ETOP) is a strategic
management tool used to systematically assess the external environment of an
organization. It helps identify key opportunities and threats from the external
environment and their potential impact on the organization’s strategy. The ETOP
provides a structured way to evaluate external factors and understand their
implications for business decision-making.
Components of ETOP
The ETOP process involves breaking down the external environment into
different sectors and evaluating the impact of each on the business. These sectors
may include economic, political, social, technological, and environmental factors,
among others. The analysis is typically divided into two categories:
1.Opportunities: Favorable external conditions that can be leveraged for growth
or competitive advantage.
2.Threats: External conditions that pose risks or challenges to the business and its
objectives.
Steps to Create an ETOP
1.Identify Environmental Segments: Break down the external environment into
different segments that affect the business. These segments are often based on:
• Economic Environment: Interest rates, inflation, GDP growth, and overall
economic health.
• Political and Legal Environment: Government policies, regulations,
political stability, and international relations.
• Socio-Cultural Environment: Demographic changes, social values,
consumer preferences, and lifestyle trends.
• Technological Environment: Technological advances, innovation trends,
R&D, and disruptions.
• Environmental/Natural Environment: Climate change, sustainability,
resource availability, and environmental regulations.
• Competitive Environment: Competitive landscape, market trends, barriers
to entry, and competitor actions.
2. Analyze Opportunities and Threats: For each segment, identify and assess
specific opportunities and threats. Consider how they may impact the
organization in terms of growth potential, risks, or market positioning.

3. Rank or Prioritize Factors: Not all environmental factors will have the
same level of impact. Rank the opportunities and threats in terms of their
significance to the business. Consider factors such as:
• Magnitude: How large or small is the impact of this factor on the business?
• Probability: How likely is this factor to affect the business?

4. Develop the ETOP Table: Summarize the findings in a structured ETOP

table. Each environmental segment is categorized, and key opportunities and
threats are listed along with their potential impact.
ETOP Table Example
Environmental Segment Opportunities Threats Impact

- Growing GDP in target - High inflation may increase

Economic Environment High
market operational costs

- Government tax incentives - Regulatory hurdles in

Political/Legal Environment Medium
for renewable energy international markets

- Changing consumer
- Shift toward eco-friendly
Socio-Cultural Environment preferences in favor of High
products
competitors

- Rapid advancements in - Technology becoming

Technological Environment Medium
automation obsolete quickly

Natural/Environmental - Increased demand for - Resource scarcity and rising

High
Factors sustainable practices costs for raw materials

- Few competitors in the - New entrants may disrupt

Competitive Environment Medium
premium product segment market share
Benefits of ETOP
•Comprehensive Overview: ETOP provides a broad and structured understanding of the
external environment, helping firms to anticipate and respond to changes.
•Focus on Strategy: By distinguishing between opportunities and threats, it helps businesses
align their strategies to leverage positive factors while mitigating risks.
•Prioritization: ETOP allows managers to prioritize issues based on their significance and
relevance to the organization, enabling focused action.
•Informed Decision-Making: Helps managers make more informed and proactive decisions by
understanding how external factors could impact their business performance.
Limitations of ETOP
•Dynamic Nature of the Environment: The external environment is constantly changing, and
factors identified as threats or opportunities may shift quickly.
•Subjectivity: The ranking and assessment of factors may be subjective, based on the judgment
of managers or analysts.
•Limited Internal Focus: ETOP is primarily focused on external factors and may not address
internal strengths or weaknesses directly, requiring integration with tools like SWOT analysis.
 Organizational Capability Profile (OCP)

An Organizational Capability Profile (OCP) is a strategic management

tool used to evaluate a company's internal strengths and weaknesses by
assessing its core capabilities. These capabilities include resources, skills,
processes, and competencies that enable the organization to execute its
strategy effectively and compete in the market. The profile provides a
comprehensive overview of what the company is good at, where it lacks, and
areas where it can improve to enhance performance and competitiveness.
Key Components of Organizational Capability Profile
1.Resources:
1.Tangible Resources: Physical assets such as infrastructure, machinery,
financial capital, technology, and raw materials.
2.Intangible Resources: Non-physical assets such as brand reputation, patents,
intellectual property, and goodwill.
3.Human Resources: The skills, experience, and expertise of the workforce,
along with leadership capabilities and organizational culture.
2.Processes:
1.Operational Processes: The efficiency and effectiveness of core business
processes, including production, distribution, and supply chain management.
2.Innovation Processes: The organization’s ability to innovate, develop new
products or services, and adapt to changing market demands.
3.Customer Relationship Processes: How well the company interacts with and
manages its relationships with customers, including marketing, sales, and after-
sales support.
3. Core Competencies:
•The unique strengths that differentiate the organization from competitors.
Core competencies should provide value to customers, be difficult for
competitors to imitate, and apply across various products or markets.
•Examples: Expertise in product design, advanced technological
capabilities, or exceptional customer service.
4. Leadership and Management Capabilities:
•The ability of top management to define and execute strategy, lead change,
and inspire the workforce. Strong leadership is critical for guiding the
organization in a competitive landscape.
•Decision-Making Capabilities: The speed and effectiveness of decision-
making processes at all levels of the organization.
5. Organizational Culture:
•The collective values, beliefs, and behaviors that shape how work is done in the
organization. A positive culture that encourages innovation, collaboration, and
accountability can be a key capability.
6. Strategic Alignment:
•The degree to which the organization’s capabilities are aligned with its strategic
objectives. A well-aligned organization has its resources and processes directed
toward achieving the company’s goals efficiently.
7. Learning and Development:
•The organization’s capacity to develop its workforce and enhance its
capabilities over time. Continuous learning, employee training programs, and
knowledge management systems are crucial for maintaining competitiveness.
1.Technological Capabilities:
1.The ability to leverage technology to drive productivity, improve operations,
or create new products and services. This includes the organization's IT
infrastructure, data management systems, and research and development
(R&D) capabilities.
Steps to Create an Organizational Capability Profile
1.Identify Key Capabilities:
• List the critical capabilities that contribute to the organization’s success. These
can be related to resources, processes, or competencies that have a significant
impact on performance.
2. Evaluate Strengths and Weaknesses:
• Assess each capability to determine whether it is a strength, a weakness, or
neutral. This analysis should be based on factors such as effectiveness,
efficiency, and how the organization compares to competitors in those areas.
3. Prioritize Capabilities:
•Rank capabilities based on their importance to the organization's strategy
and objectives. Focus on those that provide the most competitive
advantage or are crucial for achieving long-term goals.
4. Develop the Capability Profile:
•Organize the results into a comprehensive profile that outlines the
organization's strengths, weaknesses, and gaps in capability. The profile
provides a clear picture of areas where the organization excels and where
it needs improvement.
Benefits of an Organizational Capability Profile
1.Strategic Insight: Provides a clear understanding of the organization’s
internal strengths and weaknesses, guiding better strategic decisions.
2.Resource Allocation: Helps identify which capabilities need more
investment or improvement, ensuring resources are allocated efficiently.
3. Competitive Advantage: By focusing on core strengths and addressing
weaknesses, companies can strengthen their competitive position in the market.
4. Alignment: Ensures that capabilities are aligned with business goals, improving
the organization’s ability to execute its strategy effectively.
5. Continuous Improvement: Highlights areas for development, encouraging
continuous learning and improvement across the organization.
Limitations of an Organizational Capability Profile
•Subjectivity: Evaluating capabilities may involve subjective judgments, making
it difficult to get an entirely accurate assessment.
•Dynamic Environment: The business environment is constantly changing, so
capabilities that are strengths today may not remain competitive in the future.
•Focus on Internal Factors: The OCP primarily focuses on internal capabilities
and may not fully account for external market dynamics or threats.
Strategic Advantage Profile (SAP)
The Strategic Advantage Profile (SAP) is a tool used to identify an organization's internal
strengths and weaknesses across various functional areas. It systematically analyzes the
organization's capabilities to determine its strategic advantage in the competitive landscape. SAP
is often used alongside external analysis tools like PESTEL and ETOP to develop a
comprehensive view of a company's position.

Key Features of SAP:

1.Internal Focus: SAP primarily focuses on internal capabilities such as production, marketing,
finance, human resources, and technology.
2.Functional Area Analysis: Each functional area of the business is assessed for strengths and
weaknesses, providing a detailed overview of the company’s internal capabilities.
3.Strategic Relevance: The identified strengths and weaknesses are evaluated based on their
relevance to the organization's strategic objectives.
4.Foundation for Strategic Decisions: The insights from SAP can guide the organization in
leveraging its strengths, addressing weaknesses, and identifying opportunities for improvement.
Steps in Developing a Strategic Advantage Profile:

1.Identify Key Functional Areas:

1.The first step is to break down the organization into its core functions,
such as production, marketing, finance, research and development, and
human resources.

2.Assess Strengths and Weaknesses:

1.Each functional area is then evaluated to determine the organization’s
strengths and weaknesses. For example, strengths could be advanced
technology, efficient supply chains, or skilled employees, while
weaknesses could be poor financial management or outdated
equipment.
•Rank or Prioritize:
•Once the strengths and weaknesses are identified, they are ranked based on their
impact on the company's overall strategy and market positioning.
•Align with Strategy:
•After identifying internal strengths and weaknesses, the organization aligns its
strategic goals to capitalize on its strengths and mitigate its weaknesses.

Corporate Portfolio Analysis

Corporate Portfolio Analysis is a tool used to evaluate and manage an

organization's portfolio of business units or product lines. It helps senior
management allocate resources, determine investment priorities, and identify
which units are growing or declining. Two common frameworks used for
corporate portfolio analysis are the BCG Matrix and the GE/McKinsey Matrix.
1. BCG Matrix (Boston Consulting Group Matrix)

The BCG Matrix helps companies allocate resources across their business units
or product lines based on market growth and market share. It classifies business
units into four categories:

•Stars: High market share in a fast-growing industry. These units require heavy
investment but have the potential to generate high returns.
•Cash Cows: High market share in a slow-growing industry. These units
generate stable cash flow and require little investment.
•Question Marks: Low market share in a high-growth industry. They have
potential but require significant investment to grow or should be divested.
•Dogs: Low market share in a slow-growth industry. These units typically
generate low returns and may be divested or shut down.
2. GE/McKinsey Matrix

The GE/McKinsey Matrix is a more sophisticated version of the BCG

Matrix, allowing for a multi-dimensional analysis of business units. It
evaluates business units based on two factors:

•Industry Attractiveness: Includes factors like market growth rate,

profitability, and competition intensity.
•Business Strength: Refers to the competitive position of the business unit,
including its market share, brand strength, and operational efficiency.
The matrix divides business units into nine cells, where the company can
decide to invest, selectively grow, or harvest/divest based on their position.
Using Corporate Portfolio Analysis with SAP
Corporate Portfolio Analysis complements the Strategic Advantage Profile (SAP) by
focusing on external factors like market growth and competition, while SAP focuses on internal
capabilities. Together, they provide a holistic view of the company’s strategic position:
•SAP helps companies understand their internal strengths and weaknesses across various
functions.
•Portfolio Analysis helps companies decide how to allocate resources across different business
units or product lines based on market conditions and competitive positioning.

Benefits of Corporate Portfolio Analysis

1.Resource Allocation: Ensures that resources are directed toward high-potential business units
(e.g., Stars in the BCG Matrix) and away from low-performing ones (e.g., Dogs).
2.Strategic Focus: Helps senior management identify which business units are crucial for future
growth and which should be divested.
3.Balanced Growth: Enables companies to maintain a balanced portfolio with both high-growth
and stable cash-generating units.
 GAP analysis

•Current State: This is the present condition of the organization or process. It

involves understanding where the company currently stands, such as current
performance, market share, or operational efficiency.
•Desired Future State: This is the target or goal the organization wants to
achieve. It can include financial targets, customer satisfaction levels, or
improvements in process efficiencies.
•Gaps: These are the differences or discrepancies between the current state and
the desired state. The gap can be related to resources, skills, processes, or
capabilities.
•Action Plan: Once the gaps are identified, a clear strategy is developed to
bridge them. This might involve new investments, training, process
improvements, or implementing new technologies.
Benefits of GAP Analysis

1.Improved Strategic Planning: By identifying gaps, companies can

prioritize actions that will help them achieve their long-term goals.

2.Resource Allocation: It helps businesses understand where to allocate

resources efficiently, ensuring that the most critical areas get the necessary
support.

3.Performance Improvement: GAP Analysis helps identify weaknesses in

processes, which can be addressed to improve overall performance.

4.Informed Decision-Making: It provides a clear picture of what needs to

change, enabling management to make data-driven decisions.
 McKinsey 7S Framework

The McKinsey 7-S Model is a change framework based on a company’s

organizational design and coordination. It aims to depict how to manage
organizational change by strategizing around the interactions of seven key
elements: Structure, Strategy, System, Shared Values, Skill, Style, and Staff.

The 7-S model highlights that there exists a domino effect when any one
element is transformed to restore effective balance. The central placement of
shared values emphasizes that a substantial change culture impacts all the
other elements to drive change.
The seven elements are categorized into two groups: Hard elements and Soft
elements.
1. Hard Elements:
These are easier to define and influence because they are more tangible and
directly impact the organization's operations.
1.Strategy: The plan or course of action a company follows to achieve its long-
term objectives. This includes competitive advantage, market positioning, and
resource allocation.
2.Structure: The organizational hierarchy or arrangement that defines roles,
responsibilities, and authority. This includes reporting lines, departmental
functions, and decision-making processes.
3.Systems: The daily processes and procedures used to accomplish tasks within the
organization. Systems could include IT infrastructure, performance tracking, and
workflow processes.
2. Soft Elements:
These are more difficult to manage, as they are less tangible and more
influenced by organizational culture.

4.Shared Values (Superordinate Goals):

4.The core values that are central to the company’s culture and guide
employee behavior. These values reflect the purpose and direction of
the organization and form the foundation of the framework.

5.Style:
4.The management and leadership style, as well as the overall corporate
culture. This includes how managers interact with employees and the
broader organizational climate.
4.Staff:
4.The people and their general capabilities, competencies, and roles within the
organization. This also includes recruitment, development, and retention
strategies.
5.Skills:
4.The actual competencies of employees and the organization as a whole. This
refers to the technical and interpersonal skills necessary for the company's
success.

How the 7S Framework Works:

•The McKinsey 7S model stresses that all seven elements are interconnected and
a change in one element requires changes in others. For example, if a company
revises its strategy, it may need to adjust its structure, systems, or even develop
new skills to align with the new strategic goals.
Uses of McKinsey’s 7S Framework:

1.Change Management: Helps organizations align all elements when

undergoing changes like restructuring, mergers, or new business strategies.

2.Performance Improvement: Identifies areas that are out of alignment and

need adjustment to improve efficiency or effectiveness.

3.Mergers & Acquisitions: Assesses how two companies can integrate their
structures, systems, and values post-merger.
 GE9 cell model
The GE 9-Cell Model, also known as the GE-McKinsey Matrix, is a strategic
business portfolio analysis tool used to prioritize investments among business
units. It was developed by General Electric (GE) in collaboration with
McKinsey & Company in the 1970s. The model helps businesses evaluate their
business units or product lines based on two key dimensions: industry
attractiveness and business unit strength.

Concept and Structure of the GE 9-Cell Model

The matrix is a 3x3 grid, consisting of nine cells formed by the combination of
three levels for each dimension:
1.Industry Attractiveness (high, medium, low)
2.Business Unit Strength (strong, medium, weak)
Each business unit or product line is plotted on this grid based on its assessment
in these two areas. The grid allows companies to visualize which business units to
invest in, maintain, or divest.
Key Elements of the GE 9-Cell Model
1.Industry Attractiveness:
1.This dimension assesses how attractive an industry is for investment. Factors
include market size, growth rate, profitability, competition, and technological
advancement.
2.Business Unit Strength:
1.This dimension measures how well a business unit is positioned within its
industry. Factors include market share, competitive position, brand strength,
and operational efficiency.
Nine Cells and Strategic Recommendations
•Top left (Invest/Grow): These are high-potential business units in attractive
industries, where companies should invest heavily to maximize growth.
•Middle cells (Selectively Invest): These units may require selective investments,
depending on specific circumstances. If strengths can be improved or industry
conditions change, they may become high performers.
• Bottom right (Divest/Harvest): These units have weak positions in
unattractive industries. The best strategy here is often to divest or minimize
investment.

Benefits of the GE 9-Cell Model

•Provides a more nuanced view compared to simpler models like the BCG
Matrix by using two dimensions.
•Encourages deeper strategic thinking by evaluating both the market and internal
business strengths.
•Allows organizations to allocate resources effectively among different business
units.