Chapter 9: Strategic Management

Question 1

What Is Strategic Management?

Answer 1

• Strategic management - what managers do to develop the organization’s strategies.

• Strategies - the plans for how the organization will do
what 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 goals.
– The decisions and actions that determine the long-run performance of an organization

• Business model - how a company is going to make
money from its strategies. It focuses on:
– whether customers will value what the company is providing
– whether the company can make any money doing it

Question 2

Explain what managers do during the six steps of the strategic management process

Answer 2

1. Identifying the organization’s current mission, goals, and strategies
   Mission - statement of the purpose of an organization
   Goals - foundation for further planning
2. Doing an external analysis
3. Doing an internal analysis
   - analyse resources, capabilities and core competencies
4. Formulating strategies
   - Select appropriate strategies for all levels in the organization
   - Match organizational strengths to environmental opportunities
5. Implementing strategies
   Effectively fitting organizational structure and activities to the environment
6. Evaluating results

Question 3

Describe the three types of corporate strategies

Answer 3

1. Growth Strategy
   - organization wants to expand the number of markets served or products offered

Types of Growth strategies
•Concentration
•Vertical integration
•Horizontal integration
•Diversification

2. Stability strategy
   - organization continues to do what it is currently doing.
3. Renewal strategy - a corporate strategy designed to address declining performance.

Types of Renewal strategies:
•Retrenchment strategy
•Turnaround strategy

Question 4

Describe the role of competitive advantage in developing a competitive strategy

Answer 4

-Quality as a Competitive Advantage
•Differentiates the firm from its competitors.
•can attract a loyal customer base
•Can create a sustainable competitive advantage.
•Represents the company’s focus on continuous improvement in the quality and reliability of products and services to meet customers’ expectations.

• Sustainable Competitive Advantage
  •Continuing over time to effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry competitors.

Question 5

What are the Porter’s Five Forces?

Answer 5

• Threat of New Entrants
• Threat of Substitutes
• Bargaining Power of Buyers
• Bargaining Power of Suppliers
• Current Rivalry

Question 6

Identify Porter’s three competitive strategies.

Answer 6

•Cost Leadership Strategy
–Attain the lowest total overall costs relative to other industry competitors

•Differentiation Strategy
–Create a unique and distinctive product or service

•Focus Strategy
–Using a cost or differentiation advantage to exploit a particular market segment as opposed to a larger market

Question 7

What are the growth strategies?

Answer 7

1. Concentration
   Focusing on a primary line of business and increasing number of products offered
2. Vertical integration
   Backward vertical integration - gain control of inputs by becoming its own supplier
   Forward vertical integration - gain control of output through control of distribution channel - eliminating intermediaries
3. Horizontal integration
   Combining operations with another competitor
4. Related diversification
   Expanding by combining with firms in different but related industries
5. Unrelated diversification
   Growing by combining with forks in unrelated industries with higher financial returns

Question 8

What are the renewal strategies?

Answer 8

1. Retrenchment
   Focusing on eliminating non critical weaknesses and restoring strengths to overcome minor performance problems.
2. Turnaround
   Addressing critical long term performance problems through use of strong cost elimination measures and large scale organizational restructuring solutions.

Question 9

What are the types of organization strategies?

Answer 9

Corporate strategy - an organizational strategy that determines what business a company is in or wants to be in, and what it wants to do with those businesses.

Competitive strategy - an organizational strategy for how an organization will compete in its business.

Functional strategy - strategies used by an organization’a various functional departments to support the competitive strategy.

Question 10

Describe competitive strategy.

Answer 10

• Competitive strategy - an organizational
strategy for how an organization will compete
in its business(es).
– The purpose is to gain competitive advantage
against its competitors.
• Competitive advantage - what sets an
organization apart; its distinctive edge.
– A distinctive edge is created by core competencies
of an organisation

Question 11

Describe SWOT Analysis.

Answer 11

• SWOT analysis - an analysis of the organization’s
strengths, weaknesses, opportunities, and threats.
• SWOT analysis helps in formulating appropriate strategies that
1. Exploit an organisation’s strengths and external opportunities
2. Buffer or protect the organisation from external threats
3. Correct critical weaknesses
• Strengths - any activities the organization does well or any
unique resources that it has.
• Weaknesses - activities the organization does not execute
well or needed resources it does not possess.