LECTUREPEDIA - Ajarn Paul Tanongpol, J.D.; M.B.A.;B.A.; CBEST
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LECTUREPEDIA - Ajarn Paul Tanongpol, J.D.; M.B.A.;B.A.; CBEST
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CHAPTER 8 Strategic Management
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i. Mission ii. Core values iii. Objectives
i. Industry competitors ii. New entrants iii. Suppliers iv. Customers v. Substitutes
i. Business strategy ii. Functional strategy
i. Growth ii. Concentration iii. Diversification iv. Vertical integration
i. Rerenchment ii. Restructuring iii. Downsizing iv. Divestiture
i. Differentiation ii. Cost leadership iii. Focused differentiation iv. Focused cost leadership
i. BCG matrix ii. GE business screen
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Strategy is defined as a comprehensive plan guiding resource allocation to achieve long-term organization goals. Can there be a case where strategic planning does not involves resource allocation, but involves the aiming to achieve long-term corporate goal? In a case of networking, what corporate resource do we expend? At most it is minimal, yet it is part of the over all corporate strategic planning to have as many contacts as possible to help achieve its goals.
Strategic intent focuses and applies organizational energies on unifying and compelling goals. This is corporate commitment to achieve corporate objective.
i. Strategic management is the process of formulating and implementing strategies. This definition is too skimpy.
ii. Management involves three functions: organizing, planning and controlling. The definition of strategic management should encompass these three elements: 1. Organizing: the corporation should organize its resources in such a way so as to mobilize its energies towards achieving the corporate long-term objective.
2. Planning: Strategic management requires a long term plan. This master plan must be clear and flexible. The requirement of clarity allows all participants to know exactly what the organization tries to achieve in the long run. The Flexibility element of this strategic planning allows the organization to adjust its goals, objective, and resource commitment according to changes in circumstance.
3. Controlling: Part of this control function to ensure that everything must go according to plan.
i. Michael Porter argues for superior profitability as the ultimate goal for strategic management. However, this is contrary to modern and current management outlook. Although profit is part of the overall strategic goal of the company, current management theory now encompasses the human element into the equation: human capital, welfare of workers, ethical soundness, etc.
ii. In today’s global economy, we are faced with hypercompetition. If this is true than Michael Porter’s emphasis on profitability is wrong. See (i) above.
Strategic management is successful when the organization gain profit and sustain that profit over time in a hypercompetitive environment. In order to be successful in strategic management, the following must be present: (1) strategy formulation, and (2) strategy implementation.
i. Mission ii. Core values iii. Objectives
i. Industry competitors ii. New entrants iii. Suppliers iv. Customers v. Substitutes
i. Business strategy Describes the strategic intent to compete within a specific industry or market.
ii. Functional strategy This is the guidance on the use of the organization’s resources within a specific functional areas or units.
i. Growth àààààààà Expand ii. Concentration àààààààà Focus iii. Diversification àààààààà Reduce risk iv. Vertical integration àààààààà Channel control 1. Forward vertical integration 2. Backward vertical integration
i. Retrenchment 1. The expansion of the business may meet challenges that the management is not able to resolve. Continue in that same cause will cause the company to fail. One solution is to retrench or curtail expansion and re-focus on the core business of the company.
2. There may be two sources of the causes for retrenchment: (1) the company may be expanding to fast and spread its resources too thin. The management is cannot cope with the problem of growth. (2) Retrenchment may come from changes in the market. Outside threats posed from competitors or changes in the market condition forces the company to rethink its operation and change its strategy, or downsizing.
ii. Restructuring 1. Changes in sizes, i.e. reduction of staff, to increase efficiency. The company may be too fat and wasteful in resource allocation. The purpose of restructuring is to improve performance and returns to profitability, if the company is losing money.
2. Restructuring may also come about as a result of a change in ownership. For instance, when a company is merged or acquired by another entity. The dominant entity may restructure the acquired entity in order to achieve uniformity and obtain efficient resource management.
iii. Downsizing 1. Reduce the size of operations in order to be more efficient. Efficiency here means saving money. When a company downsizes, employees are let go. There is a staff reduction. 2. Reduction in size of operation means that the resource allocation has been shifted. The allocation of resources is tightened.
iv. Divestiture Divesting from an operation means getting out of that business. It does not mean going out of business, buy divest or get out of a certain field of operation. Usually, when a company grow, it tends to expand its operation. The new expanded operation may move away from the company’s core competence. When this expanded operation as a problem, the company tends to divest from the periphery operation and refocus on the core operation of the company. Do what you can do best.
i. Companies may come together and share their core competence through strategic alliance. Organizations come together to pursue a mutual interest.
ii. This type of alliances may take place in a form of supplier alliance or distribution alliance where firms come together to accomplish sales, distribution, and customer service.
This is about using the Internet to gain competitive advantage. Remember that competitive advantage comes from (1) differentiation, and (2) proprietary. i. B2B 1. Use the Internet to vertically link the organization with suppliers. In the old days, we use the preferred supplier system; however, today companies are moving towards auction. This is called outsourcing alliances.
2. The Internet opens up many opportunities for companies. Companies can now access suppliers from all over the world. The channel power may also be affected. Now, it is the suppliers who are competing for business with the companies. In the old days, companies would have to go out and look for preferred suppliers.
ii. B2C 1. Use the Internet to link the company or organization to customers. One strategy in this area is called e-tailing or selling goods directly to customers. 2. For the new economy companies, e-tailing is all that the company depends on when selling to customers. For old economy companies, e-tailing provides the company with business strategy mix.
i. Differentiation ii. Cost leadership iii. Focused differentiation iv. Focused cost leadership
Portfolio planning is seeking the best mix of investment among alternative business opportunities.
i. BCG matrix 1. BCG stands for Boston Consulting Group. It analyzes business opportunities according to market growth rate and market share. 2. In the BCG model, there are 4 types of types of business conditions: a. Stars b. Cash cows c. Question marks d. Dogs
ii. GE business screen 1. The key planning dimensions are business strength and industry attractiveness. Analysis is undertaken similar to SWOT analysis.
2. Use a two-way table plotting industry attractiveness against business strength & competitive position.
i. Prospector strategy ii. Defender strategy iii. Analyzer strategy
The managers actually don’t know what they are doing. They learn over time and develop their strategies over time.
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