1. Strategic Management
Dr. John Humphreys
Fall 2022

2. I Like Strategy
And by the way, HOPE is not a strategy!

3. STAKEHOLDERS & THE STRATEGIC
MANAGEMENT PROCESS
The Strategic Management Process
 Organizational and Environmental Analysis
 Strategic Direction
 Strategy Formulation
 Strategy Implementation and Control
 Strategic Restructuring

4. Concept and Definition
 A company’s strategy consists of the competitive
moves and business approaches devised by
management to produce successful performance.
 Strategy is management’s “game plan” for running
the business, strengthening the company’s
competitive position, satisfying customers, and
achieving performance targets.

5.  No well-defined business path to follow
 No roadmap to manage by
 No cohesive, reasoned action plan to
produce successful performance
Without a strategy, managers have:

6. The Three Big Strategic Questions
1. Where are we now?
This involves thinking about the company’s
external market environment and internal
situation and capabilities
2. Where do we want to go?
This involves thinking about what top
management wants the company to be like
in 5 to 10 years

7. Continued…
3. How will we get there?
This involves thinking about what
STRATEGY the company should
pursue to perform successfully and get
from where it is to where it wants to go.
This third step is where companies often:

8. SCREW IT UP !!!

9. THE FIVE TASKS OF STRATEGIC
MANAGEMENT
1. Defining the business, stating a mission, and
forming a strategic vision
2. Setting measurable objectives and performance
targets
3. Crafting a strategy to achieve the objectives
4. Implementing and executing the strategy
5. Evaluating performance, reviewing new
developments, and initiating corrective adjustments
in long-term direction, objectives, strategy, or
implementation approaches

10. Definition of Strategic Management
STRATEGIC MANAGEMENT is the process through
which organizations:
 Analyze and learn from the stakeholders inside and
outside the organization,
 Establish strategic direction,
 Create strategies that are intended to help achieve
established goals,
 Execute strategies,
 All in an effort to satisfy KEY STAKEHOLDERS.

11. Stakeholder Approach
Stakeholders …
 are groups or individuals who can
significantly affect or are significantly affected
by an organization’s activities such as
customers, employees, stockholders,
communities, suppliers, etc.
 have, or believe they have, a legitimate claim
on some aspects of the organization or its
activities

12. THE ORGANIZATION AND
ENVIRONMENT
Organizational Environment –
 Groups, individuals, and forces outside of the
traditional boundaries of the organization that
are significantly influenced by or have a major
impact on the organization.
 This includes both the operating and broad
environments:

13. Continued…
 OPERATING ENVIRONMENT – employees,
competitors, customers, suppliers, lenders,
unions, gov’t agencies, local communities,
etc.
 BROAD ENVIRONMENT – global economic
forces, sociocultural forces, technological
change, and global political and legal forces.

14. How do we deal with the
environment?

15. Continued…
 ADAPTATION – The process of responding
to the environment.
 ENACTMENT – The process of influencing
the environment to make it less hostile and
more conducive to organizational success.

16. Strategic Direction
MISSION STATEMENT
 Statement describing the organization’s
overall purpose, broad goals, and the scope
of it’s operations.
VISION STATEMENT
 Statement expressing management’s view of
what the organization can or should become
in the future

17. Strategy Formulation
1. Corporate-Level Strategy
 Concerned with the selection of business areas in
which the organization will compete
 Referred to as domain definition
2. Business-Level Strategy
 Concerned with how businesses compete in the
areas they have selected
 Referred to as domain direction and navigation
3. Functional-Level Strategy
 Provides details of how functional areas work
together to achieve business-level strategy

18. Strategic Implementation and
Control
 Strategy Implementation –
 Creating the functional strategies, systems,
structures, and processes needed by the
organization to achieve strategic ends
 Strategic Control –
 The processes that lead to adjustments in
strategic direction, strategies, or the
implementation plan, when necessary

19. Strategic Restructuring
 Restructuring –
 Involves renewed emphasis on the things an
organization does well, combined with a variety of
tactics to revitalize the organization and strengthen its
competitive position
*****None of the tasks of strategic management are a
one-time only exercise. Times change. Conditions
change. Events unfold. Better ways to do things
become evident. Things happen that require new
initiatives and actions. New leadership emerges

20. Alternative Perspectives on Strategy
Development
ENVIRONMENTAL DETERMINISM
The environment is the primary determinant of
strategy. The most successful organization
will be the one that best ADAPTS to existing
forces.

21. STRATEGIC CHOICE –
Organizations do not have to submit to forces
in the environment, they can create their
environments through relationships with
stakeholders and other activities.

22. STAKEHOLDER VIEW –
Compromise between determinism and choice.
Through stakeholder analysis and management
processes, organizations can better understand and
influence their environments.

23. DELIBERATE VS EMERGENT
STRATEGY
 Deliberate Strategy – an intended strategic
course planned and pursued by managers.
 Emergent Strategy – an unplanned strategy
that emerges from a stream of managerial
decisions.
**** In reality, both processes must be present
for an organization to truly excel.

24. RESOURCE-BASED VIEW OF THE
FIRM
An organization is a bundle of financial, human,
physical, and organizational resources. Resources
that create value for customers but are difficult for
competitors to imitate provide the basis for a
sustainable competitive advantage.
What are these resources?

25. STAKEHOLDER ANALYSIS AND
MANAGEMENT
 STAKEHOLDER ANALYSIS –
 Involves identifying and prioritizing key stakeholders,
assessing their needs, collecting ideas from them, and
integrating this knowledge into strategic management
processes.
 STAKEHOLDER MANAGEMENT –
 Includes communicating, negotiating, contracting,
and managing relationships with stakeholders and
motivating them to behave in ways that are
beneficial to the organization and its other
stakeholders.

26. The Broad Environment

27. Fig. 3-1: The External Environment
Remote Environment (Global and Domestic)
Industry Environment (Global and Domestic)
Operating Environment (Global and Domestic)
• Economic
• Social
• Political
• Technological
• Entry barriers
• Supplier power
• Buyer power
• Substitute availability
• Competitive rivalry
• Competitors
• Creditors
• Customers
• Labor
• Suppliers
THE FIRM

28. The Broad Environment
 Sociocultural forces
 Global economic forces
 Global political forces
 Technological forces

29. Socio-cultural Trends
Analysis of societal trends is important from at
least four perspectives:
1. The values and beliefs of key stakeholders
are derived from broader societal influences,
which can create opportunities and threats
for the firm.

30. Major Sociocultural Issues in the U.S.
 Declining education
 Role of government (health & child care)
 Legality of abortion
 Crime
 Pollution
 Increase in environmentalism
 Drug addiction
 Migration to the Sunbelt
 Immigration
 Aids and other health concerns
 Graying of America
 Levels of foreign investment
 Role of the military
 Social costs of restructuring
In addition, company strategy must be adapted to each geographic region, not just
by country!

31. Socio-cultural Trends
2. Awareness of and compliance with the attitudes of
society can help an organization avoid problems
associated with being a “bad corporate citizen.”
Reputation is important as it can’t be imitated! Therefore,
corporate image can become a competitive advantage.

32. Socio-cultural Trends
3. Correct assessment of social trends can help
businesses avoid restrictive legislation.

33. 4. Changes in society can create opportunities
and threats to an organization’s revenue
growth and profit prospects.
These changes can often help to predict future
demand.
Socio-cultural Trends

34. Global Economic Forces
1. Economic growth

35. Global Economic Forces
2. Interest rates

36. Global Economic Forces
3. Inflation

37. Global Economic Forces
4. Exchange rates

38. Global Economic Forces
5. Trade deficits

39. Technological Forces
Technological change creates new products,
processes, and services, and, in some cases,
entire new industries. It can also change the
way society behaves and what society
expects.

40. Technological Forces
 Technology – refers to human knowledge
about products and services and the way
they are made and delivered.
 Invention – a new idea or technology proven
to work in the laboratory.
 Innovation – An invention that can be
replicated reliably on a meaningful scale.

41. Technological Forces
Basic Innovation – An invention that
impacts more than one product category or
industry.
What would be some basic innovations?

42. Technological Forces
Radical innovations usually
originate outside of the
industry boundaries!
What are the implications of this?

43. Political/Legal Forces
 According to some, political/legal forces are
often the most significant determinants of
organizational success.
Do you agree? Why or why not?

44. Political/Legal Forces
 For example, did you know that lenders are
held liable when their customers are guilty of
polluting the environment?

45. Political/Legal Forces
Even in the U.S., which is considered a “free
market” economy, no organization is allowed
the privilege of total autonomy from
government regulations.

46. The Operating Environment

47. The Operating Environment
Includes stakeholders such as:
 Customers
 Suppliers
 Competitors
 Government Agencies
 Local Communities
 Activist groups
 Unions

48. The Operating Environment
Which of these
stakeholders are
primary forces that drive
competition in an
industry?

49. Primary Stakeholders
 Customers
 Suppliers
 Competitors

50. Stakeholder Analysis
Analysis of these stakeholders can
result in the identification of
opportunities and threats that can
help managers establish, develop
and implement organizational
strategies.

51. Are all stakeholders of equal value
to the firm?

52. No !!!
One key factor in determining the
priority of a particular stakeholder is
the influence on the environmental
uncertainty facing the firm.

53. An Important Point
Although environmental uncertainty often
originates in the broad environment,
firms feel most of its influence through
external stakeholders in the operating
environment.

54. Environmental Uncertainty
Although Political/Legal Influence
contributes greatly to environmental
uncertainty, Economic power is often
the most important influence in
understanding the nature and level of
environmental uncertainty.

55. Porter’s Five-Forces Model
 Customers
 Suppliers
 Industry Competitors
a) existing competitors
b) potential competitors
c) substitutes

56. Fig. 3-4: Forces Driving Industry
Competition
Potential
entrants
Threat of new
entrants
Suppliers
Bargaining power
of suppliers
Buyers
Bargaining power
of buyers
Substitutes
Threat of substitute
products or services
Industry
competitors
Rivalry Among
Existing Firms

57. Customers are a force when …
 There are a small number of them
 They make high volume purchases
 The purchases they make represent a large
percentage of their total costs
 The sellers’ products are plentiful and/or
undifferentiated
 They earn low profits

58. Customers are a force when …
 They can easily integrate backward and
become their own suppliers
 Sellers’ products don’t have much influence
on the quality of their customer’s products
 Information on sellers’ costs and demand is
readily available to buyers

59. In combination, these forces determine the
bargaining power of customers
Obviously, the greater their power,
the higher the priority customers
should be given in the strategic
management process.

60. Suppliers are a force when …
 There are only a few suppliers
 There are few or no substitutes
 Suppliers do not sell a large percentage of
their products to the buying industry
 The buying industry must have the product
that suppliers provide in order to manufacture
its own product

61. Suppliers are a force when …
 Suppliers have differentiated their products or
made it costly to switch suppliers
 Suppliers can easily integrate forward and
compete directly with former buyers

62. In combination, these forces determine the
bargaining power of suppliers
Obviously, the greater their power,
the higher the priority suppliers
should be given in the strategic
management process.

63. Competitors
Rivalry among existing competitors WILL incite
retaliation or counter moves. These moves
typically include things like:
 Advertising programs
 Sales force and/or capacity expansions
 New product introductions
 Long-term contracts with customers

64. Major Forces That Lead To High
Levels Of Competition
 Slow industry growth
 High fixed costs
 Lack of product differentiation
 A large number of competitors
 High exit barriers

65. Hypercompetition …
A condition of rapidly escalating competition.
What would be an industry today that faces
hypercompetition?

66. Firms often keep track of the activities and
capabilities of their competitors through …
Competitive benchmarking – a tool in which
management uses the best practices of
competitors in setting objectives to
encourage improvement in performance.
What is the fallacy of benchmarking and how
could it actually harm your strategy?

67. Potential Competitors
Entry barriers prevent firms from freely moving into an
industry. They include:
 Economies of scale
 Capital requirements
 Product differentiation
 Switching costs
 Access to distribution channels
 Other cost advantages such as proprietary
technology
 Government policy

68. Indirect Competitors
If organizations provide goods that are readily
substitutable for the goods provided by an
industry, these organizations become indirect
competitors. This leads to …
 A ceiling on the price for the good
 Can create new expectations

69. What do we do with this model?
 Use it to understand how the firm should
position itself relative to these forces
(reactive)
 Use it to influence the forces by actions such
as erecting high entry barriers through
economies of scale or differentiation
(proactive)
 Use it to decide whether or not to enter or
leave a particular industry

70. Basic Postures
Firms use two primary postures when dealing with
external stakeholders:
 Buffering – techniques designed to stabilize and
predict environmental influences (PR, market
research, lobbying, etc.)
 Bridging (also referred to as boundary spanning) –
techniques that build on interdependencies (joint
ventures, strategic alliances, partnering, industry
level lobbying, extranets, etc.)

71. Internal Analysis

72. From a resource-based perspective -
Strengths – are firm resources and capabilities
that can lead to a competitive advantage.
Weaknesses – are resources and capabilities
that the firm does not possess but that are
necessary, resulting in a competitive
disadvantage.

73. From a resource-based perspective -
Opportunities – are conditions in the broad and
operating environments that allow a firm to take
advantage of organizational strengths, overcome
organizational weaknesses, and/or neutralize
environmental threats.

74. From a resource-based perspective -
Threats – are conditions in the broad and operating
environments that may stand in the way of
organizational competitiveness or the achievement of
stakeholder satisfaction.

75. Numerous environmental
opportunities
Major environmental
threats
Substantial
internal
strengths
Critical
internal
weaknesses
Cell 3: Supports
a turnaround-
oriented strategy
Cell 1: Supports
an aggressive
strategy
Cell 4: Supports
a defensive
strategy
Cell 2: Supports
a diversification
strategy
Fig. 6-6: SWOT Analysis Diagram

76. Primary Activities
Support
Activities
Research, technology, and
systems development
Human resource management
General administration
Procurement
Inbound
Logistics
Operations
Outbound
logistics
Marketing
and
sales
Service
Fig. 6-7: The Value Chain

77. Value can be created -
 In any primary or support activity
 In the way they are combined
 In the way internal activities are linked to the
external environment

78. Value Chain Analysis
Value chain analysis may be combined with stakeholder
analysis to identify strengths and weaknesses and to
uncover opportunities for savings or ways to add
value for customers.

79. Plus …
The combination of stakeholder analysis with value
chain analysis holds great potential for developing
strategies that are both efficient and effective.

80. Strategic Direction

81. Where the heck are we going?

82. To often the answer is this …

83. Strategic Direction
Strategic direction requires managers to provide
long-term direction while balancing the
competing interests of key stakeholders.

84. Strategic Direction
Strategic direction is established and communicated
through tools such as visions, missions, business
definitions, enterprise strategies, and long-term
goals.

85. Finally …
This is where the rubber meets the road!

86. Unless …
Of course, you are Firestone. ;-)

87. Structural Inertia
… forces within the organization that work to maintain
the status quo.

88. Business Definition
What is our business? …
Should be addressed from four perspectives:
1. Who is being satisfied?
2. What is being satisfied?
3. How are customer needs satisfied?
4. What are our products and/or services?
Plus …

89. What do we stand for?

90. Important point …
This is the critical link between ethics and strategy and
is referred to as enterprise strategy.

91. Theoretical Models
 Economic foundations
 Legal foundations
 Religious foundations
 Utilitarian foundations

92. An organization’s mission …
 Reflects management’s vision of what the
organization seeks to do and to become
 Provides a clear view of what the
organization is trying to accomplish
 Indicates an intent to stake out a particular
position

93. Specific questions that help form
strategic vision -
 What business are we in now?
 What business do we want to be in?
 What will our customers want in the future?
 What are the expectations of our
stakeholders?

94. Questions, con’t.
 Who will be our future competitors?
Suppliers? Partners?
 What should our competitive scope be?
 How will technology impact our industry?
 What environmental scenarios are possible?

95. Examples
AVIS
 Our business is renting cars. Our mission is
total customer satisfaction.
Eastman Kodak
 To be the world’s best in chemicals and
electronic imaging.

96. Examples
SATURN
 To market vehicles developed and
manufactured in the United States that are
world leaders in quality, cost, and customer
satisfaction through the integration of people,
technology, and business systems and to
transfer knowledge, technology, and
experience throughout General Motors.

97. Formula
 Key Market: To offer the fast food
customer
 Contribution: food prepared in the same
high-quality manner world-wide, tasty and
reasonably priced,
 Distinction: delivered in a consistent, low-
key décor and friendly atmosphere.

98. Goals in most companies …
 Maximize long-term shareholder wealth
 Optimize employee potential
 Customer orientation
 Build competencies
 Global
 Citizenship
 Technology
 Productivity

99. Corporate-Level Strategy

100. Corporate-Level Strategy …
Selection of business areas in which the
organization will compete.
 Concentration
 Vertical Integration
 Diversification

101. Concentration
– the organization produces a single or a small group of
products or services.

102. Concentration Positives
 Allows the firm to master the business
 Better positioned to develop sustainable
competitive advantages
 Places organizational resources under less
strain
 Clear strategic direction
 Easier for external stakeholders to
understand the firm’s mission

103. Concentration Negatives
 Is risky when environments are unstable
 Makes the firm vulnerable to product
obsolescence and industry maturity
 Can lead to cash problems, both negative
and positive
 May not provide stimulation for management

104. Vertical Integration
The extent to which a firm is involved in several stages
of the industry supply chain.

105. Market Failure
– occurs when transaction costs are high
enough to encourage an organization to
produce a good or service in-house instead of
buying from the open market.

106. Taper Integration
- Occurs when an organization produces part of its
requirements in-house and buys the rest of what it
needs on the open market.

107. Diversification
 Related Diversification – firm’s involvement in
other businesses related to its core business.
 Unrelated Diversification – firm’s involvement
in businesses not related to its core business.

108. Business-Level Strategy

109. Generic Business Strategies
1. Cost Leadership
2. Differentiation
3. Best Cost
4. Cost Focus
5. Differentiation Focus

110. Creating Low-Cost Positions
 Capacity utilization
 Economies of scale
 Cost-saving technologies
 Learning/experience curve effects

111. Creating Low-Cost Positions
*** A cost leader does not
have to be a price leader !

112. Differentiation Tactics
Quality
Innovation and research
Speed and flexibility
Organizational reputation and
brand name

113. Best Cost Strategy
*** The essence of a best cost
strategy is to find a level of
differentiation that will bring a
premium price while doing so at
a reasonable cost.

114. Focus Strategies
*** The key to a focus strategy is catering
to a particular segment in the market.
Low-cost focus
Differentiation focus

115. The Issue of Tradeoffs
A sustainable strategic position requires tradeoffs. If a
company moves upscale, it repositions itself away
from its current customer base.

116. Tradeoffs arise for three reasons …
 Inconsistency of image or reputation - a firm can’t
go in different directions without confusing the
customers.
 Need for different types of resources - different
positions require different equipment, employee
behaviors, skills, product configurations, and
management systems.
 Overall costs - internal coordination and control can
be very expensive.

117. Five Fatal Strategy Flaws
 Misreading Industry Attractiveness
 Possessing No True Competitive
Advantage
 Pursuing A Competitive Advantage That Is
Not Sustainable
 Compromising A Strategy In Order To Grow
Faster
 Not Making Your Strategy Explicit And Not
Communicating It To Your Employees

118. Growth Strategies
Internal
 Market penetration
 Market/applications development
 Product/service development
External
 Mergers/integration
 Joint ventures/strategic alliances

119. Positioning Competitive Strategies
in a Dynamic Environment

120. Industry Life Cycle
Introduction
Growth
Maturity
Decline (commodity)

121. Functional-Level Strategies

122. Functional Strategies
 Collective patterns of decisions made and actions
taken by employees that implement the growth and
competitive strategies of the organization.
 Do you see any potential conflict in this statement?

123. Marketing Strategy
– a plan to promote, price, and distribute the products
and services of an organization, as well as how to
identify and service customer groups.

124. Operations Strategy
- a plan to design and manage the processes needed to
create the products and services of the organization.

125. Research and Development Strategy
– a plan that guides basic research of the organization
as well as its development of more effective and
efficient applications, products, and processes.

126. Information Systems Strategy
– a plan to provide the organization with the information
technology necessary for the operation, planning,
and control of business activities.

127. Human Resources Strategy
– a plan that guides the recruiting, hiring, training, and
compensating of employees as well as organizational
change efforts.

128. Financial Strategy
– a plan to provide the organization with the capital
structure and funds appropriate for implementing
growth and competitive strategies.

129. Functional Strategies MUST …
be consistent in three important areas:
1. Within function
2. Between function
3. With the generic-level strategy

130. Example
MISSION/VISION
 FCS will be the lender and employer of
choice in our marketplace.
GOAL
 Optimizing employee potential

131. Example, con’t.
OBJECTIVE
 Increase employee morale through continuous
training and increased incentive opportunities.
STRATEGIES
 Implement a quarterly pay-for-performance plan for
every position in the organization.
 Implement training and educational development
standards and opportunities for every position in the
organization.

132. Example, con’t.
POLICIES/TACTICS
 Finance – designate $3.8 million for
employee training for year 2008.
 Marketing – offer a quarterly rotation of
effective sales training programs for all sales
personnel.

133. Strategic Control

134. STRATEGIC CONTROL
Strategic Control System – organizational
system by which top management can
evaluate the progress of the organization in
accomplishing its goals, as well as point out
areas in need of attention.

135. STRATEGIC CONTROL
These are often accounting-based
measures. Why can accounting-based
measures be problematic?

136. STRATEGIC CONTROL
Control systems should be comprehensive and
designed to include input from internal and
external stakeholders and from organizational
processes.

137. STRATEGIC CONTROL
Financial
 ROI
 Cash flow
 Stock price
 Earnings stability

138. STRATEGIC CONTROL
Customer
 Pricing
 Innovation
 Quality
 Value
 Customer service

139. STRATEGIC CONTROL
Internal Business
 Cost controls
 Skill levels
 Product line breadth
 Safety
 On-time delivery
 Quality

140. STRATEGIC CONTROL
Innovation and Learning
 Workforce morale
 Innovation
 Investments in R & D
 Continuous improvement

141. CRITICAL RESULT AREAS
Organizational areas that are key to ensuring
that the organization accomplishes its goals
and its vision.
Examples:
 Improvement in worker skill levels
 Product redesign
 Creation of new process controls

142. Continued…
Once identified, the critical result areas
become the objectives and targets that
pace strategy implementation.

143. GOAL SETTING
 Bottom-Up Approach – goal setting
begins in functional areas, which
translates into business-level goals of
the various divisions that are combined
to form the corporate-level goals.

144. Continued…
 Top-Down Approach – the corporate
level essentially determines and then
dictates what lower-level goals should
be.

145. FEEDBACK CONTROL
SYSTEMS
 Budgets – feedback controls that provide
revenue and expense targets.
 Financial Ratios – feedback controls used to
control organizational processes and
behavior (Current ratio, quick ratio, etc.).
 Audits – a type of feedback control system
used to provide information to support
financial, customer, or internal perspectives.
Firm conduct and outcomes are measured
against established guidelines.

146. FEEDBACK CONTROL
SYSTEMS
Customer Surveys – a type of feedback
control system used to measure how well
established standards for customer
satisfaction are being met.
See any problems with these?

147. FEEDBACK CONTROL
SYSTEMS
 Concurrent Controls – very similar to
feedback controls, except that the time
horizon is shortened to “real time.”
 Process Control – controls associated with
production and service processes and with
quality standards (i.e., making sure things
meet specifications).

148. ORGANIZATIONAL CRISES
A better definition:
When the feces hits the fast-moving, rotary
bladed instrument. In other words, when the
@$%&*# hits the fan!

149. CRISIS-PRONE
ORGANIZATIONS
 If they prepare at all, they prepare for too few
contingencies. Further, preparation is
fragmented.
 They focus on only one aspect of a crisis, and
only after it has occurred.
 They only consider technical factors in the
cause or prevention of crises.
 They don’t explicitly consider the
ramifications to key stakeholders.