Download Principles of Strategic analysis

PRINCIPLES OF STRATEGIC
MANAGEMENT
ENVIRONMENTAL SCANNING AND STRATEGY FORMULATION
OVERVIEW
 Business management levels
 What is strategic management?
 Strategic management process
 Environmental scanning
 Strategy formulation
 Corporate strategy alternatives
 Selection, implementation, and evaluation
QUESTIONS
 What are the three levels of management and decision making in a business
organization?
 What is the relationship between decisions made at the three levels?
WHAT IS STRATEGIC MANAGEMENT?
 The goal of strategic management is to select overall organizational strategies to
achieve competitive advantage
 The overall corporate strategy is then implemented at the tactical (functional)
and operational levels
 The strategic management process is described in the next slide
STRATEGIC MANAGEMENT PROCESS
Environmental
Scanning
Strategy
Formulation
Strategy
Implementation
Evaluation and
Control
ENVIRONMENTAL SCANNING
 In undertaking environmental scanning, strategic managers must first be aware of
the many variables within a corporation’s societal and task environments
 The three environments that are analyzed during the strategic management
process include:

Societal environment

Task (industry) environment

Internal environment
SOCIETAL ENVIRONMENT
 The societal environment includes the more general forces that do not directly
touch on the short-run activities of the organization but than can, and often do,
influence its long-run decisions
 The societal environment can be broken into four categories:

Economic forces

Technological forces

Political-legal forces

Sociocultural forces
ECONOMIC FORCES
 Regulate the exchange of materials, money, energy, and information
 Examples include:

GNP trends

Interest rates

Unemployment rates

Wage/price controls

Energy availability and cost

Disposable and discretionary income
TECHNOLOGICAL FORCES
 Generate problem-solving inventions and communications infrastructure
 Examples include:

Total federal spending on R&D

Total industry spending on R&D

Patent protection

Productivity improvements

Internet and Web infrastructure and characteristics

Internet access and online consumer behavior

New digital technologies
POLITICAL-LEGAL FORCES
 Allocate power and provide constraining and protecting laws and regulations
 Examples include:

Antitrust regulations

Environmental protection laws

Tax laws

Foreign trade regulations

Laws on hiring and promotion

Stability of government

Intellectual property laws
SOCIOCULTURAL FORCES
 Regulate the values, mores, and customs of society
 Examples include:

Life-style changes

Career expectations

Consumer activism

Growth rate of population

Age distribution of population

Life expectancies

Birth rates
TASK (INDUSTRY) ENVIRONMENT
 The task environment includes issues that directly affect the industry/industries
in which we currently operate or may join in the future
 What is the expected growth rate in the industry?
 Who are the competitors and how do they compare to us?
 Forces impacting industry competition include:

Threat of new entrants

Rivalry among existing firms

Threat of substitute products or services

Bargaining power of buyers

Bargaining power of suppliers

Relative power of other stakeholders
OTHER STAKEHOLDERS
 Other stakeholders may or may not be relevant to strategy selection for an
organization
 Other stakeholders may include:

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
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


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
Stockholders
Unions
Governments
Suppliers
Creditors
Customers/Distributors
Trade associations
Communities
Special-interest groups
INTERNAL ENVIRONMENT
 Corporate structure
 Corporate culture
 Resources

marketing

finance

research and development

operations

human resources

information systems

other functional area resources
STRATEGY FORMULATION (SWOT ANALYSIS)
 Take findings from environmental analysis and make judgments about whether
the issues are expected to be positive or negative for our firm
 External issues are classified as either opportunities (O) or threats (T)
 Internal issues are classified as either strengths (S) or weaknesses (W)
 Match external and internal analysis findings when generating strategic
alternatives
 Strategic alternatives

Match one internal issue (S or W) with one external issue (O or T)

Each alternative is an SO, WO, ST, or WT strategy

the strategy chosen incorporates one of the following corporate strategies
CORPORATE STRATEGY ALTERNATIVES

Growth

vertical integration

horizontal integration


expand into new geographic markets

expand into related (complementary) products or services
diversification
Stability



maintain current products and market while focusing on changing some facet of the firm’s
operations such as website enhancements, changes within tactical areas, etc.
Retrenchment

turnaround (focus on improved efficiency)

captive company or divestment (search for a partner to take over some part of our business)

bankruptcy or liquidation
STRATEGY SELECTION, IMPLEMENTATION, AND
EVALUATION AND CONTROL
 What are the expected benefits associated with each strategy alternative?
 What are the expected costs and risks associated with each strategy alternative?
 Is the strategy sustainable for the long-term?
 Choose the alternative that has the greatest benefits when compared with the
costs/risks
 Implementation issues should also be considered when choosing an appropriate
strategy (functional/tactical level changes, programs, budgets, and procedures)
 Performance is monitored and evaluated which provides input into the next
strategic management process