Introduction to strategic management

1. Strategic Management
Summarized by: Mohamed EL-Sayed

2. Introduction of Concepts
 Strategic Management: The set of managerial decisions and
actions that determines the long-run performance of an
organization.
 Strategic Planning: The process of determining a company's
long-term goals and then identifying the best approach for
achieving those goals

3. Why is strategic management important?
 Gives everyone a role
 Makes a difference in performance levels
 Provides systematic approach to uncertainties
 Coordinates and focuses employees

4. Strategic Management Model

5. Basic Elements of Strategic Management
A- Environmental Scanning: is the monitoring, evaluating and
disseminating of information from the external and internal
environments to key people within the organization
B- Strategy Formulation: is the development of long-range plans
for the effective management of environmental opportunities
and threats in light of organizational strengths and
weaknesses (SWOT)

6. Basic Elements of Strategic Management
C- Strategy implementation: the process by which strategies and
policies are put into action through the development of:
 Programs
 Budgets
 Procedures
D- Evaluation and control: the process in which corporate
activities and performance results are monitored so that
actual performance can be compared to desired performance
E- Feedback/Learning Process: revise or correct decisions based
on performance

7. Strategic Management Process

8. Strategic Management Process
 Step 1: Identifying the organization's current mission,
objectives, and strategies
 Mission: the firm’s reason for being
• Who we are,
• What we do, and
• Where we are now
 Goals: the foundation for further planning
• Measurable performance targets
 Step 2: Conducting an external analysis
 The environmental scanning of specific and general
environments
 Focuses on identifying opportunities and threats

9. Strategic Management Process (cont’d)
 Step 3: Conducting an internal analysis
 Assessing organizational resources, capabilities, activities
and culture:
• Strengths (core competencies) create value for the
customer and strengthen the competitive position of
the firm.
• Weaknesses (things done poorly or not at all) can
place the firm at a competitive disadvantage.
Steps 2 and 3 combined are called a SWOT analysis (Strengths,
Weaknesses, Opportunities, and Threats)

10. Strategic Management Process (cont’d)
 Step 4: Formulating strategies
 Develop and evaluate strategic alternatives
 Select appropriate strategies for all levels in the
organization that provide relative advantage over
competitors
 Match organizational strengths to environmental
opportunities
 Correct weaknesses and guard against threats

11. Strategic Management Process (cont’d)
 Step 5: Implementing strategies
 Implementation: effectively fitting organizational structure
and activities to the environment
 Effective strategy implementation requires an
organizational structure matched to its requirements.
 Step 6: Evaluating results
 How effective have strategies been?
 What adjustments, if any, are necessary?

12. Key terms of Strategic Management
Mission- the purpose or reason for the organization’s existence
Vision- describes what the organization would like to become
Objectives- the end results of planned activity

13. Key terms of Strategic Management
Strategies- form a comprehensive master plan that states how the
corporation will achieve its mission and objectives
 Corporate
 Business
 Functional
Policies- the broad guidelines for decision making that links the
formulation of a strategy with its implementation

14. A- Environmental Scanning
Environmental scanning- the monitoring, evaluation and
dissemination of information from the external and
internal environments to key people within the corporation
Environmental Scanning is performed through 2-level analysis:
1- Organization’s Analysis. (SWOT)
2- External Analysis, which is divided into:
A- Macro level (Market Societal analysis) (PESTEL)
B- Micro level ( Industry analysis) (Porter 5 forces)

15. Environmental Variables

16. 1- Organization’s Analysis (SWOT)
 Commonly used strategy tool:
 Strengths
 Weaknesses
 Opportunities
 Threats
o Controllable activities performed especially well or poorly
o Determined relative to competitors

17. 1- Organization’s Analysis (SWOT)
 Step 1: Analyze the organization’s internal environment,
identifying its strengths and weaknesses.
 Step 2: Analyze the organization’s external environment,
identifying its opportunities and threats.
 Step 3: Cross-match
 Strengths with opportunities
 Weaknesses with threats
 Strengths with threats
 Weaknesses with opportunities

18. Internal Strengths and Weaknesses
 Typically located in functional areas of the firm
 Management
 Marketing
 Finance/Accounting
 Production/Operations
 Research & Development
 Management Information Systems

19. Internal Strengths and Weaknesses
Assessing the Internal Environment
Ratios
Performance Measures
Internal Factors
Industry Averages
Survey Data

20. S.W.O.T. Analysis Example

21. 2- External Analysis
External Environmental Variables
 Natural environment
 Societal environment
 Task environment

22. 2- External Analysis (cont’d)
Natural environment
 Physical resources
 Wildlife
 Climate

23. 2- External Analysis (cont’d)
A- Societal environment- social systems that influence long-term
decisions
 Economic forces
 Technological forces
 Political-legal forces
 Socio-cultural forces

24. Societal Environmental Variables

25. 2- External Analysis (cont’d)
B- Task environment- groups that directly affect a corporation
and are affected by the corporation
 Government
 Local communities
 Suppliers
 Competitors
 Customers
 Creditors
 Unions
 Special interest groups/trade associations

26. Industry Analysis (Task Environment)

27. Industry Analysis (Task Environment)
1- Threat of new entrants- new entrants to an industry bring new
capacity, a desire to gain market share and substantial
resources
Entry barrier- an obstruction that makes it difficult for a
company to enter an industry
 Economies of scale
 Product differentiation
 Capital requirements
 Switching costs

28. Industry Analysis (Task Environment)
2- Rivalry Among Existing Firms- new entrants to an industry
bring new capacity, a desire to gain market share and
substantial resources
 Number of competitors
 Rate of industry growth
 Product or service characteristics
 Amount of fixed costs
 Capacity
 Height of exit barriers
 Diversity of rivals

29. Industry Analysis (Task Environment)
3- Threat of Substitute Products or Services- products that
appear different but can satisfy the same need as another
product

30. Industry Analysis (Task Environment)
4- Bargaining Power of Buyers- ability of buyers to force prices
down, bargain for higher quality, play competitors against
each other
 Large purchases
 Backward integration
 Alternative suppliers
 Low cost to change suppliers
 Product represents a high percentage of buyer’s cost
 Buyer earns low profits
 Product is unimportant to buyer

31. Industry Analysis (Task Environment)
5- Bargaining Power of Suppliers- ability of suppliers to raise
prices or reduce quality
 Industry is dominated by a few companies
 Unique product or service
 Substitutes are not readily available
 Ability to forward integrate
 Unimportance of product or service to the industry

32. Industry Analysis (Task Environment)
6- Relative Power of Other Stakeholders
 Government
 Local communities
 Creditors
 Trade associations
 Special interest groups
 Unions
 Shareholders
 Complementary products that work well with a firm’s
product

33. Initiating Strategy: Triggering Events
Triggering event: something that acts as a stimulus for a change
in strategy and can include:
• New CEO
• External intervention
• Threat of change of ownership
• Performance gap
• Strategic inflection point

34. B- Strategy Formulation
 Strategy is comprehensive plan that states how the company
will achieve its mission & objectives.
 3 Levels of Business strategy:
1- Corporate Strategy
2- Business (Competitive) Strategy
3- Functional Strategy

35. Levels of strategy

36. Levels of strategy
1) Corporate Strategy 2) Business Strategy 3) Functional Strategy
Attitude towards growth Competitive Strategy Productivity
& management of Special Business line, It Benchmark – Standard
various business & has touch to Cost,
product lines, it has to Customer (Pull Strategy)
Differentiation & Focus
touch stability, growth, Lower Cost
retrenchment Integrated Process
Quality Assurance
Supply Chain
Marketing oriented
company

37. 1- Corporate Strategy (Directional)
Directional strategy- the firm’s overall orientation toward
growth, stability, or retrenchment

38. 1.1 Growth Strategy
 Growth Strategy
 Seeking to increase the organization’s business by
expansion into new products and markets.
A- Concentration (Integration)
• Vertical
• Horizontal
B- Diversification (Penetration)
• Concentric
• Conglomerate

39. 1.1 Growth Strategy
Concentration and Diversification
 Merger- a transaction involving two or more corporations in
which stock is exchanged but in which only one corporation
survives
 Acquisition- the purchase of a company that is completely
absorbed by the subsidiary or division of the acquiring
corporation

40. 1.1 Growth Strategy (Concentration)
A- Concentration strategies
Vertical growth- taking over the function previously provided
by a supplier or by a distributor
 Vertical integration- the degree to which a firm operates
vertically in multiple locations on an industry’s value
chain from extracting raw materials to manufacturing to
retailing
 Backward integration- assuming a function
previously provided by a supplier
 Forward integration- assuming a function previously
provided by a distributor

41. Vertical Growth

42. Vertical Growth
 Full integration- a firm internally makes 100% of its key
suppliers and completely controls its distributors
 Taper integration- a firm internally produces less than half
of its own requirements and buys the rest from outside
suppliers
 Quasi-integration- a company does not make any of its
key supplies but purchases most of its requirements from
outside suppliers that are under its partial control
 Long-term contracts- agreements between 2 firms to
provide agreed-upon goods and services to each other for
a specific period of time

43. 1.1 Growth Strategy (Concentration)
A- Concentration strategies
Horizontal growth- expansion of operations into other
geographic locations and/or increasing the range of
products and services offered to current markets
 Horizontal growth is achieved through:
 Internal development
 Acquisitions
 Strategic alliances
Horizontal integration- the degree to which a firm operates in
multiple geographic locations at the same point on an
industry’s value chain

44. Horizontal Growth
International Entry Options for Horizontal Growth
 Exporting  Green-Field Development
 Licensing  Production Sharing
 Franchising Turn-key Operations
 Joint Venture BOT Concept
 Acquisitions Management Contracts

45. 1.1 Growth Strategy (Diversification)
B- Diversification Strategies
Concentric (Related) Diversification- growth into a related
industry when a firm has a strong competitive position but
attractiveness is low
Conglomerate (Unrelated) Diversification- growth into an
unrelated industry
 Management realizes that the current industry is unattractive
 Firm lacks outstanding abilities or skills that it could easily
transfer to related products or services in other industries

46. 1.1 Growth Strategy (Diversification)

47. 1.2 Stability Strategy
Stability Strategies- continuing activities without any significant
change in direction
 Pause/Proceed with caution strategy- an opportunity to rest
before continuing a growth or retrenchment strategy
 No change strategy- continuance of current operations and
policies
 Profit Strategies- to do nothing new in a worsening situation
but instead to act as though the company’s problems are
only temporary

48. 1.3 Retrenchment Strategy
Retrenchment Strategies- used when the firm has a weak
competitive position in some or all of its product lines from
poor performance

49. 1.3 Retrenchment Strategy (Turnaround)
Turnaround strategy- emphasizes the improvement of
operational efficiency when the corporation’s problems are
pervasive but not critical
 Contraction- effort to quickly “stop the bleeding” across
the board but in size and costs
 Consolidation- stabilization of the new leaner corporation

50. 1.3 Retrenchment Strategy (cont’d)
Captive Company Strategy- company gives up independence in
exchange for security
Sell-out strategy- management can still obtain a good price for
its shareholders and the employees can keep their jobs by
selling the company to another firm
Divestment- sale of a division with low growth potential

51. 2- Business Strategy (Competitive)
 Business (or Competitive) Strategy
 A strategy focused on how an organization should
compete in each of its SBUs (strategic business units).

52. 2- Business Strategy (Competitive)
 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 a larger market.

53. 2.1 Competitive Strategy (Cost Leadership)
Cost leadership- a lower-cost competitive strategy that aims at
the broad mass market and requires efficient scale facilities,
cost reductions, cost and overhead control; avoids marginal
customers, cost minimization in R&D, service, sales force
and advertising
 Provides a defense against competitors
 Provides a barrier to entry
 Generates increased market share

54. 2.2 Competitive Strategy (Differentiation)
Differentiation- involves the creation of a product or service that
is perceived throughout the industry as unique. Can be
associated with design, brand image, technology, features,
dealer network, or customer service
 Lowers customers sensitivity to price
 Increases buyer loyalty
 Barrier to entry
 Can generate higher profits

55. 2.3 Competitive Strategy (Focus)
Cost Focus- low-cost competitive strategy that focuses on a
particular buyer group or geographic market and attempts to
serve only this niche to the exclusion of others
Differentiation Focus- concentrates on a particular buyer group,
product line segment, or geographic market to serve the
needs of a narrow strategic market more effectively than its
competitors

56. Competitive Strategies

57. Competitive Strategies Risks

58. 3- Functional Strategy
Functional strategy- the approach a functional area takes to
achieve corporate and business unit objectives and
strategies by maximizing resource productivity
o Marketing strategy deals with pricing, selling and
distributing a product
o Financial Strategy- examines the financial implications of
corporate and business-level strategic options and identifies
the best financial course of action

59. 3- Functional Strategy
o Operations Strategy- determines how and where a product
or service is to be manufactured, the level of vertical
integration in the production process, the deployment of
physical resources and relationships with suppliers
o Logistics Strategy- deals with the flow of products into and
out of the manufacturing process
o Human Resource Strategy
o Information Technology Strategy

60. C- Strategy Implementation
Strategy implementation- the sum total of all activities and
choices required for the execution of a strategic plan
 Who are the people to carry out the strategic plan?
 What must be done to align company operations in the
intended direction?
 How is everyone going to work together to do what is
needed?

61. Strategy Implementation Steps
 Developing a strategy-supportive culture
 Creating an effective organizational structure
 Redirecting marketing efforts
 Preparing budgets
 Developing and utilizing information systems
 Linking employee compensation to organizational
performance

62. Strategy Implementation (cont’d)
Developing Programs, Budgets and Procedures
Programs- make strategies action-oriented
Matrix of Change- provides guidance on where, when and how
fast to implement change
Budget- provides the last real check on the feasibility of the
strategy
Procedures (organizational routines)- detail the various activities
that must be carried out to complete a corporation’s
programs

63. Strategy Implementation Programs
Reengineering- the radical redesign of business processes to
achieve major gains in cost, service, or time
 Program to implement a turnaround strategy
Lean Six Sigma- incorporates Six Sigma with lean
manufacturing- removes unnecessary production steps and
fixes the remaining steps
Job Design- the study of individual tasks in an attempt to make
them more relevant to the company and to the employees
 Job enlargement
 Job rotation
 Job enrichment model

64. Strategy Implementation Problems
1. Took more time than planned
2. Unanticipated major problems
3. Poor coordination
4. Competing activities and crises created distractions
5. Employees with insufficient capabilities
6. Poor subordinate training
7. Uncontrollable external environmental factors
8. Poor departmental leadership and direction
9. Inadequately defined implementation tasks and activities
10. Inefficient information system to monitor activities

65. D- Strategy Evaluation & Control
Evaluation and Control ensures that a company is achieving
what it set out to accomplish by comparing performance
with desired results and taking corrective action as
needed
1. Determine what to measure
2. Establish standards of performance
3. Measure actual performance
4. Compare actual performance with the standard
5. Take corrective action

66. Evaluation & Control Process

67. Measuring Performance
Primary Measures of Corporate Performance
 Return on Investment (ROI)
 Earnings per share (EPS)
 Return on equity (ROE)
 Operating cash flow

68. Measuring Performance
Shareholder Value- the present value of the anticipated future
streams of cash flows from the business plus the value of
the company if liquidated
Economic Value Added (EVA)- measures the difference
between the pre-strategy and post-strategy values for the
business
Market Value Added (MVA)- measures the difference
between the market value of a corporation and the
capital contributed by shareholders and lenders

69. Measuring Performance
Balanced score card– combines financial measures that tell results
of actions already taken with operational measures on
customer satisfaction, internal processes and the corporation’s
innovation and improvement activities
 Financial
 Customer
 Internal business perspective
 Innovation and learning
Benchmarking- the continual process of measuring products,
services and practices against the toughest competitors or
those companies recognized as industry leaders

70. E- Feedback & Learning
 Periodic review of the implementation process
 Obtain feedback from staff/clients/stakeholders
 Provide regular feedback to major stakeholders, including staff
 Document and communicate the lessons learnt
 Acknowledge and share results - achievements and failures
 Continuous monitoring and review of objectives
Remember that the Strategic Management process is a
continuous cycle. It does not end. The real objective is
continual improvement!

71. STRATEGIC ACTION PLANNING Summary
The reason for the
existence of the
organization & MISSION
establishes the values,
beliefs & guidelines for
the conduct of business The long range objectives
VISION that will drive the
development process and
stretch the organization to
achieve them.
SWOT Analysis
Internal Environment External Environment
Strengths Opportunities
Weaknesses Threats
- Value systems - The changing environment
- Culture - The demand for new products
- Staffing - The economic environment
- Support systems, operating environment - Availability of resources
STRATEGIC AREAS FOR DEVELOPMENT
STRATEGIC OBJECTIVES
Strategic Strategic Strategic Strategic
Action 1 Action 2 Action 3 Action 4
EVALUATION/FEEDBACK

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