What Is Strategic Management?
Strategic management is what managers do to develop the organization’s strategies. It’s an important task involving all the basic management functions—planning, organizing, leading, and controlling. What are an organization’s strategies? They’re the plans for how the organization will do whatever it’s in business to do, how it will compete successfully, and how it will attract and satisfy its customers in order to achieve its goal.
Strategic management is important because organizations are complex and diverse. Each part needs to work together toward achieving the organization’s goals; strategic management helps do this. For example, with more than 2.1 million employees worldwide working in various departments, functional areas, and stores, Walmart Stores, Inc., uses strategic management to help coordinate and focus employees’ e�orts on what’s important as determined by its goals.
THE STRATEGIC management process
Step 1: Identifying the Organization’s Current Mission, Goals, and Strategies.
Every organization needs a mission—a statement of its purpose. Dening the mission forces managers to identify what it’s in business to do. But sometimes that mission statement can be too limiting. For example, Nike’s mission is to “bring inspiration and innovation to every athlete in the world.
Step 2: Doing an External Analysis
What impact might the following trends have for businesses? • With the passage of the national health care legislation, every big restaurant chain must now post calorie information on their menus and drive-through signs. • Cell phones are now used by customers more for data transmittal and retrieval than for phone calls and the number of smartphones and tablet computers continues to soar. • The unemployment rate has been declining.
Step 3: Doing an Internal Analysis
Now we move to the internal analysis, which provides important information about an organization’s specic resources and capabilities. An organization’s resources are its assets—nancial, physical, human, and intangible—that it uses to develop manufacture, and deliver products to its customers.
Step 4: Formulating Strategies
As managers formulate strategies, they should consider the realities of the external environment and their available resources and capabilities in order to design strategies that will help an organization achieve its goals. The three main types of strategies managers will formulate include corporate, competitive, and functional. We’ll describe each shortly.
Step 5: Implementing Strategies
Once strategies are formulated, they must be implemented. No matter how e�ectively an organization has planned its strategies, performance will su�er if the strategies aren’t implemented properly.
Step 6: Evaluating Results.
The nal step in the strategic management process is evaluating results. How efective have the strategies been at helping the organization reach its goals? What adjustments are necessary? For example, after assessing the results of previous strategies and determining that changes were needed, Xerox CEO Ursula Burns made strategic adjustments to regain market share and improve her company’s bottom line. The company cut jobs, sold assets, and reorganized management.
What Is Corporate Strategy? A corporate strategy is one that determines what businesses a company is in or wants to be in and what it wants to do with those businesses. It’s based on the mission and goals of the organization and the roles that each business unit of the organization will play.
What Are the Types of Corporate Strategy? The three main types of corporate strategies are growth, stability, and renewal. Let’s look at each type.
growth strategy A corporate strategy that’s used when an organization wants to expand the number of markets served or products o ered, either through its current business(es) or through new business(es).
stability strategyA corporate strategy in which an organization continues to do what it is currently doing.
Renewal strategyA corporate strategy designed to address declining performance.
How Are Corporate Strategies Managed?
When an organization’s corporate strategy encompasses a number of businesses, managers can manage this collection, or portfolio, of businesses using a tool called. a corporate portfolio matrix. This matrix provides a framework for understanding diverse businesses and helps managers establish priorities for allocating resources.The rst portfolio matrix—the BCG matrix—was developed by the Boston Consulting Group and introduced the idea that an organization’s various businesses could be evaluated and plotted using a 2 × 2 matrix to identify which ones o�ered high potential and which were a drain on organizational resources.25 The horizontal axis represents market share.
A competitive strategy is a strategy for how an organization will compete in its business(es). For a small organization in only one line of business or a large organization that has not diversied into di�erent products or markets, its competitive strategy describes how it will compete in its primary or main market. For organizations in multiple businesses, however, each business will have its own competitive strategy that denes its competitive advantage, the products or services it will o�er, the customers it wants to reach, and the like. For example, GE has diferent competitive strategies for its businesses, which include GE Aviation (aircraft engines), GE Healthcare (ultrasound equipment), consumer appliances (washers and dryers), and many products in diverse industry sectors. When an organization is in several different businesses, those single businesses that are independent and that have their own competitive strategies are referred to as strategic business units (SBUs).
The Role of Competitive Advantage
Michelin has mastered a complex technological process for making superior radial tires. Apple has created the world’s best and most powerful brand using innovative design and merchandising capabilities.26 The Ritz-Carlton hotels have a unique ability to deliver personalized customer service. Each of these companies has created a competitive advantage.
The Need for Strategic Flexibility
Not surprisingly, the economic recession changed the way that many companies approached strategic planning.50 For instance, at Spartan Motors, a maker of specialty vehicles, managers used to draft a one-year strategic plan and a three-year nancial plan, reviewing each one every nancial quarter.
Competitive advantage and the competitive strategies organizations use to get it.
An organization’s competitive advantage is what sets it apart, its distinctive edge. A company’s competitive advantage becomes the basis for choosing an appropriate competitive strategy. Porter’s ve forces model assesses the ve competitive forces that dictate the rules of competition in an industry: threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and current rivalry. Porter’s three competitive strategies are as follows: cost leadership (competing on the basis of having the lowest costs in the industry), diferentiation (competing on the basis of having unique products that are widely valued by customers), and focus (competing in a narrow segment with either a cost advantage or a diferentiation advantage).