Introduction to strategic management
• Strategy – a plan, a pattern, a ploy???
• -A description or declaration of why a company is in operation
• •Competitive advantage
• –A firm’s profitability is greater than the average profitability for all firms in its industry
Determinants of Shareholder Value
To increase shareholder value, managers must pursue strategies that increase the profitability of the company and grow the profits.
Differences in Industry
A Company’s Profitability and
Profit Growth are determined by two main factors:
1. The overall performance of its industry relative to other industries.
2. Its relative success in its industry as compared to the competitors
The Five Steps of the Strategy Making
Select the corporate vision, mission, and values and the major corporate goals and objectives.
Analyze the external competitive environment to identify opportunities and threats.
Analyze the organization’s internal environment to identify its strengths and weaknesses.
Select strategies that:
Build on the organization’s strengths and correct its weaknesses – in order to take advantage of external opportunities and counter external threats Are consistent with organization’s vision, mission, and values and major goals and objectives
Are congruent and constitute a viable business model
Implement the strategies.
Crafting the Organization’s Mission
Provides a framework or context within which strategies are formulated, including:
The reason for existence – what an organization does
A statement of some desired future state
A statement of key values that an organization is committed to
Major Goals –
The measurable desired future state that an organization attempts to realize
A goal is a precise and measurable desired future state that a company must realize if it is to attain its vision or mission.
Key characteristics of well-constructed goals:
Precise and measurable – to provide a yardstick or standard to
Address crucial issues – with a limited
number of key goals that
Challenging but realistic – to provide
employees with incentive
help to maintain focus for improving
Specify a time period – to motivate and inject a sense of urgency into goal attainment
Purpose is to identify the strategic opportunities and threats in the organization’s operating environment that will affect how it pursues its mission.
External Analysis requires an assessment of:
• Industry environment in which company operates
– Competitive structure of industry
– Competitive position of the company
– Competitiveness and position of major rivals
• The country or national environments in which company competes • The wider socioeconomic or macro-environment that may affect the company and its industry
Purpose is to pinpoint the strengths and weaknesses of the organization. Strengths lead to superior performance and weaknesses to inferior performance.
Internal analysis includes an assessment of:
• Quantity and quality of a company’s resources and capabilities • Ways of building unique skills and company-specific or distinctive competencies
• After choosing a set of congruent strategies to achieve competitive advantage, managers