What is strategy?

Overall Definition:

"Strategy is the direction and scope of an organization over the long-term:

Strategy, a word of militaryorigin, refers to a planof action designed to achieve a particular goal. In

military usage strategy is distinct from tactics, which are concerned with the conduct of an
engagement,

while strategy is concerned with how different engagements are linked.

Strategy at Different Levels of a Business

Strategies exist at several levels in any organization - ranging from the overall business (or groupof

businesses) through to individuals working in it.

Corporate Strategy- is concerned with the overall purpose and scope of the business to meet
stakeholder

expectations. This is a crucial level since it is heavily influenced by investors in the business and acts

to guide strategic decision-making throughout the business. Corporate strategy is often stated clearly

in a "mission statement".

Business Unit Strategy- is concerned more with how a business competes successfully in a particular
market.

It concerns strategic decisions about choice of products, meeting needs of customers, gaining

advantage over competitors, exploiting or creating new opportunities etc.

Operational Strategy- is concerned with how each part of the business is organised to deliver the
corporate

and business-unit level strategic direction. Operational strategy therefore focuseson issues of

resources, processes, people etc.

THE IMPORTANCE OF STRATEGIC MANAGEMENT

Managers must carefully consider their organization’s internal and external

environments as they develop strategic plans. They should have a systematic means

of analyzing the environment, assessing their organization’s strengths and

weaknesses, identifying opportunities that would give the organization a competitive

advantage, and incorporating these findings into their planning. The value of thinking

strategically has an important impact on organization performance.

A. What Is Strategic Management?

1. Strategic management is what managers do to develop the

organization’s strategies.

2. Strategic management involves all four of the basic management

functions—planning, organizing, leading, and controlling.

B. Why Is Strategic Management Important?

1. Strategic management has a significant impact on how well an

organization performs.

2. In today’s business world, organizations of all types and sizes must

manage constantly changing situations.

3. Today’s companies are composed of diverse divisions, units,

functions, and work activities that must be coordinated.

4. Strategic management is involved in many of the decisions that managers

make.

3. THE STRATEGIC MANAGEMENT PROCESS

The strategic management process is a six-step process that encompasses

strategic planning, implementation, and evaluation. (See Exhibit 8-1 and

PowerPoint slide 8-8.)

A. Step 1: Identifying the Organization’s Current Mission, Objectives, and

Strategies

1. Every organization needs a mission, which is a statement of the

purpose of an organization. The mission statement addresses the

question: What is the organization’s reason for being in business?

2. The organization must identify its current objectives and strategies, as

well.

B. Step 2: External Analysis

1. Managers in every organization need to conduct an external analysis.

Influential factors such as competition, pending legislation, and labor

supply are included in the external environment.

2. After analyzing the external environment, managers must assess what

they have learned in terms of opportunities and threats.

Opportunities are positive trends in external environmental factors;

threats are negative trends in environmental factors.

3. Because of different resources and capabilities, the same external

environment can present opportunities to one organization and pose

threats to another.

C. Step 3: Internal Analysis

1. Internal analysis should lead to a clear assessment of the

organization’s resources and capabilities.

2. Any activities the organization does well or any unique resources that

it has are called strengths.

3. Weaknesses are activities the organization does not do well or

resources it needs but does not possess.

4. The organization’s major value-creating skills and capabilities that

determine its competitive weapons are the organization’s core

competencies.

5. Organizational culture is important in internal analysis; the company’s

culture can promote or hinder its strategic actions.

6. SWOT analysis is an analysis of the organization’s strengths,

weaknesses, opportunities, and threats.

D. Step 4: Formulating Strategies

1. After the SWOT, managers develop and evaluate strategic

alternatives and select strategies that are appropriate.

2. Strategies need to be established for corporate, business, and

functional levels.

E. Step 5: Implementing Strategies

1. A strategy is only as good as its implementation.

F. Step 6: Evaluating Results

1. How effective have the strategies been? Are adjustments

necessary?

4. TYPES OF ORGANIZATIONAL STRATEGIES

Strategic planning takes place on three different and distinct levels: corporate,

business, and functional. (See Exhibit 8-4 and PowerPoint slide 8-16).

A. Corporate Strategy

Corporate strategy is an organizational strategy that determines what

businesses a company is in, should be in, or wants to be in, and what it wants

to do with those businesses.

1. There are three main types of corporate strategies:

a. A growth strategy is a corporate strategy that is used when

an organization wants to grow and does so by expanding the

number of products offered or markets served, either through

its current business(es) or through new business(es).

b. A stability strategy is a corporate strategy characterized by

an absence of significant change in what the organization is

currently doing.

c. A renewal strategy is a corporate strategy designed to

address organizational weaknesses that are leading to

performance declines. Two such strategies are retrenchment

strategy and turnaround strategy.

2. Corporate Portfolio Analysis is used when an organization’s

corporate strategy involves a number of businesses. Managers can

manage this portfolio of businesses using a corporate portfolio matrix,

such as the BCG matrix.

B. The BCG matrix is a strategy tool that guides resource allocation decisions

on the basis of market share and growth rate of SBUs

C. Business (Competitive) Strategy

A business strategy (also known as a competitive strategy) is an

organizational strategy focused on how the organization will compete in each

of its businesses.

1. The Role of Competitive Advantage. A competitive advantage is

what sets an organization apart, that is, its distinctive edge. An

organization’s competitive advantage can come from its core

competencies.

2. Quality as a Competitive Advantage. If implemented properly, quality

can be one way for an organization to create a sustainable

competitive advantage.

3. Sustaining Competitive Advantage. An organization must be able to

sustain its competitive advantage; it must keep its edge despite

competitors’ action and regardless of major changes in the

organization’s industry.

4. Michael Porter’s work explains how managers can create and sustain

a competitive advantage that will give a company above-average

profitability.

a. Industry analysis is an important step in Porter’s framework.

He says there are five competitive forces at work in an

industry; together, these five forces determine industry

attractiveness and profitability. Porter proposes that the

following five factors can be used to assess an industry’s

attractiveness:

1) Threat of new entrants. How likely is it that new

competitors will come into the industry? Managers

should assess barriers to entry, which are factors that

determine how easy or difficult it would be for new

competitors to enter the industry.

2) Threat of substitutes. How likely is it that products of

other industries could be substituted for a company’s

products?

3) Bargaining power of buyers. How much bargaining

power do buyers (customers) have?

4) Bargaining power of suppliers. How much bargaining

power do a company’s suppliers have?

5) Current rivalry. How intense is the competition among

firms that are currently in the industry?

5. According to Porter, managers must choose a strategy that will give

their organization a competitive advantage. Porter identifies three

generic competitive strategies. Which strategy managers select

depends on the organization’s strengths and core competencies and

the particular weaknesses of its competitor(s).

a. A cost leadership strategy is a business or competitive

strategy in which the organization competes on the basis of

having the lowest costs in its industry.

b. A differentiation strategy is a business or competitive

strategy in which a company offers unique products that are

widely valued by customers.

c. A focus strategy is a business or competitive strategy in

which a company pursues a cost or differentiation advantage

in a narrow industry segment.

6. An organization that has been not been able to develop either a low

cost or a differentiation competitive advantage is said to be “stuck in

the middle.”

7. Subsequent research indicates that it is possible, though very difficult,

for organizations that are stuck in the middle to achieve high

performance.

C. Functional Strategy

Functional strategy is the strategies used by an organization’s various

functional departments to support the business or competitive strategy.

5. STRATEGIC MANAGEMENT IN TODAY’S ENVIRONMENT

A. The Rule of Three. Competitive forces in an industry, if kept relatively free

from government interference or other special circumstances, will inevitably

create a situation where three companies dominate any given market.

B. New Directions in Organizational Strategies

1. E-Business Strategies. Using the Internet, companies have created

knowledge bases that employees can tap into anytime, anywhere. E-

business as a strategy can be used to develop a sustainable

competitive advantage; it can also be used to establish a basis for

differentiation or focus.

2. Customer Service Strategies. These strategies give customers what

they want, communicate effectively with them, and provide employees

with customer service training.

3. Innovation Strategies. These strategies focus on breakthrough products

and can include the application of existing technology to new uses. An

organization that is first to bring a product innovation to the market or to

use a new process innovation is called a first mover.