2016

STRATEGIC MANAGEMENT
COLIZZI, C. (15112810)
Summary IBMS YEAR 2 – TP1 EXAM
Version 2016

THE HAGUE UNIVERSITY OF APPLIED SCIENCES |

Table of Contents
1 Basic Concepts of Strategic Management .................................................................... 2
a. Phases of Strategic Management ............................................................................ 2
b. Benefits of Strategic Management .......................................................................... 2
c. Basic Model of Strategic Management ..................................................................... 3
d. Hierarchy of Strategy ............................................................................................. 4
4 Environmental Scanning and Industry Analysis............................................................. 5
a. Industry Analysis ................................................................................................... 5
b. Industry Evolution ................................................................................................. 6
c. Monitoring Competitors ......................................................................................... 7
5 Internal Scanning: Organizational Analysis .................................................................. 7
a. Business Models .................................................................................................... 7
b. Value Chain Analysis ............................................................................................ 10
6 Strategy Formulation: Situation Analysis and Business Strategy .................................. 11
a. Situational Analysis SWOT Approach .................................................................... 11
b. Hypercompetition................................................................................................ 16
7 Strategy Formulation: Corporate Strategy ..................................................................17
a. Diversification Strategies ......................................................................................17
b. Portfolio Analysis..................................................................................................17
c. Directional Strategies; Growth Strategies .............................................................. 18
d. Stability Strategies .............................................................................................. 18
e. Retrenchment Strategies ................................................ Error! Bookmark not defined.
f. Horizontal Growth .......................................................... Error! Bookmark not defined.
8 Strategy Formulation: Functional Strategies .............................................................. 19
a. Functional Strategy ............................................................................................. 19
12 Suggestions for Case Analysis ................................................................................... 20

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1 Basic Concepts of Strategic Management

a. Phases of Strategic Management

Basic Financial Planning

Forecast-based Planning

Externally oriented Planning

Strategic Management

b. Benefits of Strategic Management

‘be able to execute current activities to satisfy an existing market, but also adapt
to satisfy new and changing markets.’
1. Clearer Sense of Strategic Vision
2. Sharper Focus on what is important
3. Improved understanding of rapidly changing environment

Strategic Audit.
The strategic decision-making process is put into action through a technique known as the
Strategic audit. A strategic audit provides a checklist of questions, by area or issue that enables
a systematic analysis to be made of various corporate functions and activities.

A strategic audit is a type of management audit and is extremely useful as a diagnostic

tool to pinpoint corporate wide problem areas and to highlight organizational strengths
and weaknesses. A strategic audit can help determine why a certain area is creating problems
for a corporation and help generate solutions to the problem.

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c. Basic Model of Strategic Management

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 d. Hierarchy of Strategy

Corporate Business Functional

• Overall Direction • Improvement of • Maximizing Resource
Competitive Position Productivity
• 1 Growth
• Competitive: • R&D: Technological
• 2 Stability Differentiate Leadership/
• 3 Retrenchment • Cooperative: Forming Fellowship
Alliances • Marketing: Pull/ Push

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4 Environmental Scanning and Industry Analysis

a. Industry Analysis

Porter’s Five Forces Approach

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 Threat of New Entrants

• Barriers:
• Economies of Scale
• Product Differentiation (High levels of Advertising)
• Capital Requirements
• Switching Costs
• Access to Distribution Channels

Rivalry

• # of Competitors
• % of Industry Growth

Threat of Substitute Products

• Product that appears to be different but can satisfy the same need as another product

Bargaining Power of Buyers

• Ability to force down prices

Bargaining Power of Suppliers

• Ability to raise prices or reduce Quality

b. Industry Evolution

Fragmented Industry
Reducing costs to Example:
No firm has a large Fierce Price
offer lowest prices Cleaners, Nail
market share Competition
and become leader Salons

Consolidated Industry
Mature Industry, dominated by a few Example: Fast Food, Consumer
large firms Electronics etc.

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c. Monitoring Competitors

Competitive intelligence is a formal program of gathering information on a

company’s competitors.
The primary activity of a competitive intelligence unit is to monitor competitor’s
organizations that offer same, similar, or substitutable products or services in the
business area in which a particular company operates.

 Why do they exist? (Profit/ Support Unit?)

 Customer Value? (Quality/ Price?)
 Which customers?
 Etc.

A strategic group is a set of business units or firms that “pursue similar

strategies with similar resources. Categorizing firms in any one industry into a set
of strategic groups is very useful as a way of better understanding the
competitive environment.

5 Internal Scanning: Organizational Analysis

a. Core and Distinctive Competencies

Using Resources to Gain

Competitive Advantage

• Identify a firm's
• resources
• capabilities
• competencies
• What are the core competencies? Any
distinctive competencies?
• Identify gaps and invest in upgrading
weaknesses.

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 VRIO FRAMEWORK
• Value: Does it provide customer value and competitive advantage?
• Rareness: Do other competitors to the same?
• Imitability: Is it costly for others to imitate?
• Organization: Is the firm capable to exploit the resource?

b. Business Models
A business model is a company’s method for making money in the current
business environment. It includes the key structural and operational
characteristics of a firm. Usually composed of 5 Elements:

 Who it serves
 What it provides
 How it makes money
 How it differentiates and sustains competitive advantage
 How it provides its products/ service

See Models On Next Page

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 • Selling Expertise
Customer • IBM uses this model to make money not by selling
IBM products, but by selling its expertise to improve
Solutions Model its customers’ operations. Profit Pyramid Model

Profit Pyramid • Fill every niche from low-priced, low-margin to high-

priced, high-margin products
Model Example: General Motors

Multi-Component • Example: Gillette sells razors at break-even pricing in

order to make money on higher-margin razor blades.
System Or: HP, Printers & Cartridges

Advertising • Basic Product free, make money on advertising.

• Example: Newspapers, Google
Model

Switchboard • Firm is intermediary to connect multiple sellers to

multiple buyers
Model • Examples: Ebay, Amazon

• right time, fast, first

Time Model • Example: google

• Firm waits until product becomes standardized

Efficiency Model toenter market with a low-prices product
• Example: Wal-Mart

• Profitability by few key products that promises high

Blockbuster investment, high payoffs
• Example: Pharmaceuticals and Motion Picture
Model Studios

• Develop concept that can spin off many profitable

products
Profit Multiplier • Example: Disney theme parks, merchandise,
licensing

• Specialized products to niches with potential growth

• De Facto
Entrepreneurial •Free base products, offer high margin products
afterwards - Zynga, mobile games, in-app
purchases
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c. Value Chain Analysis

A value chain is a linked set of value-creating activities that begin with basic raw
materials coming from suppliers, moving on to a series of value-added activities
involved in producing and marketing a product or service, and ending with
distributors getting the final goods into the hands of the ultimate consumer. 


The value chains of most industries can be split into two segments, upstream
and downstream
segments. In the petroleum industry, for example, upstream refers to oil
exploration, drilling, and moving of the crude oil to the refinery, and downstream
refers to refining the oil plus
transporting and marketing gasoline and refined oil to distributors and gas station
retailers.

According to Porter, “Differences among competitor value chains are a key

source of competitive advantage. Corporate value chain analysis involves the
following three steps:

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 1. Examine each product line’s value
chain in terms of the various activities
involved in producing that product or
service

2. Examine the “linkages” within each

product line’s value chain

3. Examine the potential synergies

among the value chains of different
product lines or business units

6 Strategy Formulation: Situation Analysis and Business Strategy

a. Porter’s Competitive Business Strategies

Competitive strategy raises the following questions: 

. Should we compete on the basis of lower cost (and thus price), or should
we differentiate our products or services on some basis other than cost,
such as quality or service? 


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PAGE 12
 Cost Leadership Differentiation Focus

• to design, • to provide • to provide

produce, unique & unique &
market a superior value superior value
comparable to the buyers in to a particular
product more terms of buyer group,
efficiently than product quality, segment of a
others special market
features, after-
sale service etc.

COMPETITIVE SCOPE

Cost Leadership Differentiation

• Broad mass market • broad mass market
• efficient-scale fac. • creation of unique product
• cost reduction • charge premium
• cost minimization in R&D, Service, Marketing etc • design, brand image, technology, features,
• High bargaining power to suppliers bc of large dealer network, customer service
quantities bought • earning above average returns customer loyalty
• Increases more marketshare than differentiation makes them less price sensitive
• buyer loyalty as entry barrier
• generates higher profit than low-cost

Cost Focus Differentiation Focus

•Low cost strategy. particular buyer group •Particular buyer group/ product
•Cost advantage in buyer group segment
•eliminating advertising expenses •seeks differentiation in a targeted
•store brands market segment

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Useful Things to know:

 Company that focuses its efforts is better able to serve special needs of
narrow strategic market
 Competition shifts to greater emphasis on cost & service in a consolidated
industry
 Knowledgeable buyers evaluate alternatives constantly
 R&D shifts from product to process improvement in a consolidated
industry

Once an industry becomes consolidated, companies should combine cost

leadership and differentiation, while one of them is primarily emphasized.

a. Situational Analysis SWOT Approach

Some of the primary criticisms of SWOT analysis are:
 It generates lengthy lists.
 It uses no weights to reflect priorities.
 It uses ambiguous words and phrases.
 The same factor can be placed in two categories (e.g., a strength may also be a
weakness).
 There is no obligation to verify opinions with data or analysis.
 It requires only a single level of analysis.
 There is no logical link to strategy implementation
. The SFAS (Strategic Factors Analysis Summary) Matrix summarizes an
organization’s strategic factors by combining the external factors from the EFAS
Table with 

.
The SFAS Matrix requires a strategic decision maker to condense these strengths,
weaknesses, opportunities, and threats into fewer than 10 strategic factors. This is done by
reviewing and revising the weight given each factor. The revised weights reflect the priority of
each factor as a determinant of the company’s future success. The highest-weighted EFAS
and IFAS factors should appear in the SFAS Matrix.
As shown in Figure 6–1, you can create an SFAS Matrix by following these steps:
1. In Column 1 (Strategic Factors), list the most important EFAS and IFAS items.
After each factor, indicate whether it is a Strength (S), Weakness (W), an
Opportunity (O), or a Threat (T). 

2. InColumn2(Weight) As with the EFAS and IFAS Tables presented earlier, the
weight column must total 1.00. This means that the weights calculated earlier
for EFAS and IFAS will probably have to be adjusted. 

3. In Column 3 (Rating), assign a rating of how the company’s management is
responding to each of the strategic factors. These ratings will probably (but
not always) be the same as those listed in the EFAS and IFAS Tables. 

4. In Column 4 (Weighted Score), multiply the weight in Column 2 for each factor
by its rating in Column 3 to obtain the factor’s rated score. 


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5. In Column 5 (Duration), depicted in Figure 6–1, indicate short-term (less than
one year), intermediate-term (one to three years), or long-term (three years and
beyond). 

6. InColumn6 (Comments) the previous EFAS and IFAS Tables. The total
weighted score for the average firm in an industry is always 3.0. 


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b. Hypercompetition
It is becoming increasingly difficult to sustain a competitive advantage. You have
to continuously improve, further reduce costs and add value to the
product/service provided to survive the hypercompetition within an industry.

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7 Strategy Formulation: Corporate Strategy

Corporate strategy deals with three key issues facing the corporation as a whole:
1. The firm’s overall orientation toward growth, stability, or retrenchment (directional
strategy)
2. The industries or markets in which the firm competes through its products and
business units (portfolio analysis)
3. The manner in which management coordinates activities and transfers resources and
cultivates capabilities among product lines and business units (parenting strategy)

a. Diversification Strategies

Concentric (related)

• if firm has a strong, competitive position but the industry

attractiveness is low.
• tries to secure strategic fit in a new industry that is similar and
more attractive

Conglomerate (unrelated)

• if firm has a weak position

• aims to diversify into an industry unrelated to its current one

b. Portfolio Analysis
In portfolio analysis, top management views its product lines and business
units as a series of investments from which it expects a profitable return.

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c. Directional Strategies

GROWTH STRATEGIES
Concentration
A. Vertical Growth
(a) Taking over functions of suppliers = Backward Integration
(b) Taking over functions of distributors = Forward Integration
B. Horizontal Growth
(a) Expanding into other markets / increasing range of products

Diversification see Figure on previous page.

STABILITY STRATEGIES
Pause/ Proceed with Caution
 Timeout
 Temporary solution until environment changes
 Improve structure
No Change
 Continue operations
Profit
 Artificially support profits when company’s sales are declining by reducing
investment

RETRENCHMENT STRATEGIES
Turnaround Strategy
 Improvement of operational efficiency by cutting costs and selling off assets.
Captive Company
 Involves giving up independence in exchange for security

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8 Strategy Formulation: Functional Strategies
a. Functional Strategy
Functional strategy is the approach a functional area takes to achieve corporate and business
unit objectives and strategies by maximizing resource productivity.

Marketing
Deals with pricing, selling, distributing a product using a
1. Market Development Strategy
a. Capture a larger share of an existing market through market saturation and market
penetration
b. Develop new uses and/or markets for current products.

2. Product Development Strategy

a. Develop new Products for existing markets
b. Develop new Products for new markets

Finance
examines the financial implications of corporate and business-level strategic options and
identifies the best financial course of action.

1. Leveraged Buyout
company is acquired in a transaction financed largely by debt , usually obtained from a
third party, such as an insurance company or an investment banker

Research and Development

deals with product and process innovation and improvement. R&D choice can either be,
1. Technological Leader or
pioneering an innovation

2. Technological Follower
Imitating the products of competitors

Operations

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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 re- sources, and
relationships with suppliers

Purchasing
deals with obtaining the raw materials, parts, and supplies needed to per- form the
operations function. Purchasing strategy is important because materials and compo- nents
purchased from suppliers comprise 50% of total manufacturing costs of manufacturing
companies

1. Multiple Sourcing (ordering parts from several vendors)

a. Forces suppliers to compete for business, thus reducing costs
b. If one cannot deliver, another usually can

Logistics
deals with the flow of products into and out of the manufacturing process. Three trends
related to this strategy are evident: centralization, outsourcing, and the use of the
Internet.

Human Resource Management

addresses the issue of whether a company or business unit should hire a large number of
low-skilled employees who receive low pay, perform repetitive jobs, and are most likely
quit after a short time (the McDonald’s restaurant strategy) or hire skilled employees who
receive relatively high pay and are cross-trained to participate in self-managing work teams.

Information Technology
to provide business units with competitive advantage.
Use of Intranet for excellent internal communication

1. Follow-The-Sun Management, in which project team members living in one country

can pass their work to team members in another country in which the work day is just
beginning. Thus, night shifts are no longer needed.

12 Suggestions for Case Analysis

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