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Chapter 4

Chapter 4. Strategic Management. Learning Outcomes. Define strategy , and explain its importance to organizational success Explain the three levels of strategy that exist in an organization Discuss the stages of the strategic management process. Learning Outcomes.

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Chapter 4

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  1. Chapter4 Strategic Management

  2. Learning Outcomes • Define strategy, and explain its importance to organizational success • Explain the three levels of strategy that exist in an organization • Discuss the stages of the strategic management process

  3. Learning Outcomes • Define organizational mission, and explain how mission relates to long- and short-range objectives • Discuss the components of a SWOT analysis • Explain how strategic alternatives are identified and selected

  4. What is Strategy? • Outlines the basic steps that management plans to take to reach an objective or goal • 3 levels of Strategy: • Corporate Strategies • Business Strategies • Functional Strategies

  5. Corporate Strategies Growth Trying to expand Concentration of current businesses Vertical integration Diversification Stability Satisfied with present course Maintain status quo Usually elected by default

  6. Corporate Strategies 3. Defensive • Wants or needs to reduce its operations • Turnaround • Reverse a negative trend • Divestiture • Liquidation • Company is sold or dissolved 4. Combination • Employing different strategies for different parts of company

  7. Business Strategies • Also called competitive strategies • Provides a focus on how to compete in a given business • Applies to a single business unit

  8. Business Strategies • Overall cost leadership • Produce and deliver goods or services for lower cost than competition (i.e., Wal-Mart) • Differentiation • Make the product unique in its category, allowing higher than average prices (i.e., Rolex) • Focus • Direct attention to a narrow market segment (i.e., a tall men’s clothing store)

  9. Strategy • Functional Business Strategies • Narrow in scope • Production • Marketing • Short term

  10. The Strategic Management Process • Application of the basic planning process • Determines the long term direction & performance of the organization • Performed at the highest levels of organization • Requires input from middle & lower managers

  11. The Strategic Management Process Has 3 phases: Formulation Implementation Evaluation

  12. Strategic Management Process: Formulation Phase Set the Mission Broadest and highest level objectives Defines the purpose of the organization Why does the organization exist? Describes the products/services Defines the markets or sources or revenue Identifies what the future business will be Market potential Changes in market structure Alterations that may occur to buying habits What needs are not being met

  13. Strategic Management Process: Formulation Phase • Identify past and present strategies to see if change is needed • Past and present performance • Review what did and did not go well • Setting objectives • Look at internal and external environments • Long-range, (derived from mission statement • intermediate, • short-range objectives • Then, set objectives for division / departments

  14. Strategic Management Process: Formulation Phase SWOT Analysis Strengths, Weaknesses, Opportunities and Threats Used for drawing conclusions about organization’s current state from data Internal analysis used to determine strengths & weaknesses Assess external environment to determine threats and opportunities Broad environment (economy, social, political, technology) Competitive environment

  15. Strategic Management Process: Formulation Phase SWOT Analysis Competitive environment 5 Forces Model of Competition (Michael Porter) Analyze competition by looking at: Suppliers Buyers Competitive rivalry Product or service substitutes Potential entrants into the industry

  16. Strategic Management Process: Formulation Phase • Comparing strategic alternatives • SWOT analysis limits alternatives • Select the corporate strategy that gives the best chance of achieving the mission and objectives • Being able to prioritize with limited resources • Strategic Business Unit (SBU) • A distinct business that has its own set of competitors and can be managed independently of other businesses (i.e., SBU might be a product line) • Small businesses ARE SBUs

  17. Strategic Management Process: Implementation Phase • Organizational structure • Understanding how structure, policies and systems already in place will be impacted with new strategy • Costs of altering structure • Might mean more training required • reorganization • Functional strategies’ impact • Understand how the functional areas will be impacted by overall strategic plan

  18. Strategic Management Process:Evaluation Phase • Constantly evaluate • Companies should constantly evaluate their strategy to determine if it is working • Make changes if it isn’t working • Respond to internal and environmental changes • As things change, such as environment or economy, readjust strategy

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