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Chapter 6 - Management: a Practical Introduction

Prins Of Management (University of Florida)

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Chapter 6: Strategic Management – How Exceptional Managers Realize a Grand Design

6.1 Strategic Positioning and Levels of Strategy

- Strategic positioning (Porter): attempts to achieve sustainable competitive advantage by
preserving what is distinctive about a company
- 3 key principles underlying strategic positioning:
1. Strategy is the creation of a unique and valuable position
● Few needs, many customers
● Broad needs, few customers
● Browd needs, many customers
2. Strategy requires trade-offs in competing
3. Strategy involves creating a “fit” among activities
● Fit has to do with the ways a company’s activities interact and reinforce
one another
● Misfit between a firm’s activities can negatively affect its performance
- Levels of strategy
1. Level 1: corporate level strategy
● Corporate level strategy: focuses on the organization as a whole
● Conducted by most senior level executives, answer questions like “what
business are we in?” “what should we offer?”
2. Level 2: business level strategy
● business level strategy: focuses on individual units or product/service
lines
● Senior level managers below C-suite are responsible for this level
3. Level 3: functional level strategy
● Functional level strategy: plan of action by each functional area of the org
to support higher level strategies
● Functional managers lead planning discussions, focus on tactical issues
- Many small businesses do not engage in strategic management techniques

6.2 The Strategic-Management Process

- Orgs in fast changing markets (tech, tourism) need to reevaluate their strategy more
often than every few years
- Crisis is often catalyst for strategic planning
- 5 steps of strategic management process
1. Establish mission, vision, and values statement
● Mission statement - reason for being/purpose
● Vision statement - what the org wants to become
● Values statement - what the org stands for
2. Assess current reality
● Current reality assessment (organizational assessment): looks at where
the organization stands and sees what is working and what could be
different to maximize efficiency and effectiveness in achieving the org’s
mission

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● Tools include SWOT analysis, VIRO analysis, forecasting, and

benchmarking
3. Formulate corporate, business, and functional level strategies
● 3 common grand strategies include growth, stability, and defensive
● Strategy formulation: the process of choosing among different strategies
and altering them to best fit the organization’s needs
● Strategic plans - determine what the org’s long-term goals should be for
the next 1-5 years
4. Strategic implementation
● Strategy implementation: putting strategic plans into effect
● Strategic plans arent effective unless they can be translated into lower-
level plans within the organization
5. Maintain strategic control
● Strategic control: consists of monitoring the execution of strategy and
making adjustments, if necessary
● Corrective action constitutes a feedback loop in which a problem requires
that managers return to an earlier step to rethink policies, redo budgets,
or revise perosnnel arrangements

6.3 Assessing the Current Reality

- This is the second step in the strategic management process
- Sustainable competitive advantage: exists when other companies cannot duplicate the
value delivered to customers
- SWOT analysis: a situational analysis in which a company assesses its strengths,
weaknesses (internal) and opportunities, threats (external)
● Should be conducted frequently in today’s competitive environment
● organizational strenghts: the skills and capabilities that give the organization
special competencies and competitive advantages in executing strtategies in
pursuit of its vision
● Organizational weaknesses: the drawbacks that hinder an organization in
executing strategies in pursuit of its vision
● Organizational opportunities: environmental factors that the organization may
exploit for competitve advantage
● Organizational threats: environmental factors that hinder an organization’s
achieving a competitive advantage
- VRIO analysis: a framework for analyzing a resource or capability to determine its
competitive strategic potential by answering 4 questions about its value, rarity, imitability,
and organization
1. Is the resource valuable? Yes → next question, No → you have
competitive disadvantage
2. Is the resource rare? Yes → next question, No → You are about equal
competitive
3. Is the resource costly to imitate? Yes → next question, No → You have
temporary competitive advantage

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4. Is the firm organized to exploit value, rarity, and imitability? No → you

have unexploited competitive advantage
→ YES TO ALL: sustained competitive advantage
- Forecasting: a vision or projection of the future
● Help for long-term strategy
● The farther into the future the prediction, the less likely it is accurate
● Trend analysis: hypothetical extension of a past series of events into the future
● Contingency planning (scenario analysis): creation of alternative hypothetical but
equally likely future conditions
- Benchmarking: a process by which a company compares its performance with that of
high-performing organizations
● Objective is to find examples of superior performance and understand the
processes/practices driving that performance

6.4 Establishing Corporate-Level Strategy

- This is part of step 3 in the strategic management process
- 3 overall types of corporate strategies are growth, stability, and defensive
1. Growth strategy: a grand strategy that involves expansion – as in sales
revenues, market share, number of employees, or number of customers
● Often takes the form of innovation strategy: growing market share of
profits by innovwting improvements in products or services
2. Stability strategy: grand strategy that involves little or no significant change
3. Defensive strategy (retrenchment strategy): grand strategy that involves
reduction in the organization’s efforts
- 3 methods to udnetstand corporate level strategies are common grand strategies, BCG
matrix, and diversification
1. BCG Matrix: a management strategy used by companies to evaluate their
strategic business units on the basis of 1) their business growth rates and 2) their
market share
● Stars- high growth rate, high market share, strategy- invest
● Question marks- high growth rate, low market share, strategy- analyze if
will grow to star or degenerate to dog
● Cash cow- low growth rate, high market share, strategy- milk
● Dogs- low growth rate, low market share, strategy- divest
2. Diversification strategy
● Diversification: the strategy of moving into new lines of business
● Companies generally diversify to grow revenue or reduce risk
→ Related diversification: when a company purchases a new business
that is related to the company’s existing business portfolio
→ Unrelated diversification: when a company acquires another company
in a completely unrelated business
● Vertical integration: when a firm expands into business that provide the
supplies it needs to make its products or that distribute and sell products

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6.5 Establishing Business-Level Strategy

- This is part of step 3 in the strategic management process
- Porter’s model for industry analysis (5 competitve forces): the idea that business-level
strategies originate in 5 primary competitive forces in the firm’s environment
1. Threats of new entrants
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threats of substitute products or services
5. Rivalry among competitors
- Porter’s four competitive (generic) strategies
1. Cost leadership: keep costs (and prices) below competitors and reach a wide
market
2. Differentiation: offer products or services that are of unique and superior value
compared to competitors but in a wide market
3. Cost-focus: keep costs (and prices) below comeptotirs and reach a narrow
market
4. Focus-differentiation: offer products or services that are of unique and superior
value compared to competitors but in a narrow market
- Jack Welch (former CEO for GE) asked 5 questions to senior executives in the company
to create business-level strategies:
1. What does the playing field look like now?
2. What has the competition been up to?
3. What have you been up to?
4. What’s around the corner?
5. What’s your winning move?

6.6 Strategic Implementation: Creating, Executing, and Controlling Functional-Level

Strategies
- This is the 4th and 5th steps in thestrategic management process
- Functional strategies are used to put strategic plans into effect
- Functional strategy: a plan of action by each functional area of the organization to
support higher-level strategies flow down to the functional strategy
- Execution: using questioning, analysis, and follow-through to mesh strategy with reality,
align people with goals, and achieve results promised
- 3 core processes of business: people, strategy, operations (people is the most
important)
- Execution roadblocks may occur and may be associated with organizational culture
- Maintaining strategic control consists of monitoring the execution of strategy and taking
corrective action, if necessary
● Engage people
● Keep it simple
● Stay focused
● Keep moving

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