Strategic Management

Prof. Dr. Azahari Jamaludin

1. Introduction To Strategic Management
Defining Strategic Management
• Strategic management
– Is about formulating, implementing, and
evaluating cross-functional decisions to achieve
organization objectives

Strategy Strategy Strategy

formulation implementation evaluation

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 Stages of Strategic Management
• Strategy formulation  Deciding what new businesses
– Develop a vision to enter and to abandon
and mission,  How to allocate resources
– do SWOT analysis,  To expand operations (i.e.
– set long-term international markets) or
objectives, diversify
– generate alternative  Whether to merge or form a
strategies, and joint venture,
choose strategies to  How to avoid a hostile takeover.
pursue

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 Stages of Strategic Management
• Strategy • Strategy evaluation
implementation – reviewing external
– to establish annual and internal factors
objectives, devise that are the bases for
policies, motivate current strategies,
employees, and measuring
allocate resources so performance, and
that formulated taking corrective
strategies can be actions
executed.

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 The Strategic-Management Model

Where are we now?

Where do we want to go?

How are we going to get there?

Copyright ©2013 Pearson Education 1-5
A Comprehensive Strategic-Management
Model

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2. Developing Vision & Mission Statements
Business Vision and Mission
What Do We Want to What is our business?
Become? • Mission statement
• The vision statement – a declaration of
“reason for being.”
should be short,
– answers the question
preferably one
“What is our
sentence. business?”
– What we wants to be
and whom we wants to
serve

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 Mission Statement Components

1. Customers—Who are the firm’s customers?

2. Products or services—What are the firm’s major products/services?
3. Markets—Geographically, where does the firm compete?
4. Technology—Is the firm technologically current?
5. Concern for survival, growth, and profitability—Is the firm
committed to growth and financial soundness?
6. Philosophy—What are the basic beliefs, values, aspirations, and
ethical priorities of the firm?
7. Self-concept—What is the firm’s distinctive competence or
competitive advantage?
8. Concern for public image—Is the firm responsive to social,
community, and environmental concerns?
9. Concern for employees—Are employees a valuable asset of the
firm?
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 Example Mission Statements

• Dell’s mission is to be the most successful computer

company (2) in the world (3) at delivering the best
customer experience in markets we serve (1). In doing so,
Dell will meet customer expectations of highest quality;
leading technology (4); competitive pricing; individual and
company accountability (6); best-in-class service and
support (7); flexible customization capability (7); superior
corporate citizenship (8); financial stability (5).

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 3. External Assessment/Audit
Relationships Between Key External
Forces and an Organization

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The Five-Forces Model of Competition

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 EFE Matrix Steps

1. List key external factors

2. Weight from 0 to 1
3. Rate effectiveness of current strategies
4. Multiply weight * rating
5. Sum weighted scores

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EFE Matrix for a Local Ten-Theater
Cinema Complex

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Industry Analysis: Competitive Profile Matrix
(CPM)

• Identifies major competitors and their strengths

& weaknesses in relation to a sample firm’s
strategic positions

• Critical success factors include internal and

external issues

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An Example Competitive Profile Matrix

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 4. Internal Assessment
Value Chain Analysis (VCA)
• Value chain analysis (VCA)
– refers to the process whereby a firm determines the
costs associated with organizational activities from
purchasing raw materials to manufacturing product(s)
to marketing those products
– aims to identify where low-cost advantages or
disadvantages exist anywhere along the value chain
from raw material to customer service activities

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 Transforming Value Chain Activities
into Sustained Competitive Advantage

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 The Internal Factor Evaluation (IFE)
Matrix
1. List key internal factors as identified in the internal-audit
process
2. Assign a weight that ranges from 0.0 (not important) to
1.0 (all-important) to each factor
3. Assign a 1-to-4 rating to each factor to indicate whether
that factor represents a strength or weakness
4. Multiply each factor’s weight by its rating to determine a
weighted score for each variable
5. Sum the weighted scores for each variable to determine
the total weighted score for the organization

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A Sample Internal Factor Evaluation
Matrix for a Retail Computer Store

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5. Long Term Objectives (Strategies In
Actions)
Alternative Strategies Defined and
Exemplified

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Alternative Strategies Defined and
Exemplified

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Porter’s Five Generic Strategies

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Michael Porter’s Five Generic Strategies

• Cost leadership: emphasizes producing standardized

products at a very low per-unit cost for consumers who
are price-sensitive.
– Type 1: low-cost strategy that offers products or
services to a wide range of customers at the lowest
price available on the market.

– Type 2: best-value strategy that offers products or

services to a wide range of customers at the best
price-value available on the market

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 Michael Porter’s Five Generic Strategies

• Differentiation: strategy aimed at producing products

and services considered unique industry-wide and
directed at consumers who are relatively price-insensitive

• Type 4: Focus - low-cost strategy that offers products or

services to a niche group of customers at the lowest price
available on the market

• Type 5: Focus - best-value strategy that offers products

or services to a small range of customers at the best
price-value available on the market

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 Means for Achieving Strategies

• Cooperation Among Competitors

• Joint Venture/Partnering
• Merger/Acquisition
• Private-Equity Acquisitions
• First Mover Advantages
• Outsourcing

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6. Generate, Evaluate, & Select Strategies
The Strategy-Formulation Analytical
Framework

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Matching Key External and Internal
Factors to Formulate Alternative
Strategies

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 The Matching Stage

• The Strengths-Weaknesses-Opportunities-Threats
(SWOT) Matrix helps managers develop four types of
strategies:
– SO (strengths-opportunities) Strategies
– WO (weaknesses-opportunities) Strategies
– ST (strengths-threats) Strategies
– WT (weaknesses-threats) Strategies

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 The Matching Stage
• SO Strategies • WO Strategies
– use internal strengths – improving internal
to take advantage of weaknesses by taking
external opportunities advantage of external
opportunities

• ST Strategies • WT Strategies
– use strengths to avoid – defensive tactics at
or reduce the impact reducing internal
of external threats weakness and
avoiding external
threats
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 SWOT Matrix
1. List key external opportunities
2. List key external threats
3. List key internal strengths
4. List key internal weaknesses
5. Match internal strengths with external opportunities (SO
Strategies)
6. Match internal weaknesses with external opportunities,
and record the resultant WO Strategies
7. Match internal strengths with external threats, and
record the resultant ST Strategies
8. Match internal weaknesses with external threats, and
record the resultant WT Strategies
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A SWOT Matrix for a Retail Computer
Store

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A SWOT Matrix for a Retail Computer
Store

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The SPACE Matrix

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 The Strategic Position and Action
Evaluation (SPACE) Matrix
• Consists of four-quadrant framework indicates whether
aggressive, conservative, defensive, or competitive
strategies are most appropriate for a given organization

• Two internal dimensions (financial position [FP] and

competitive position [CP])
• Two external dimensions (stability position [SP] and
industry position [IP])
• Most important determinants of an organization’s overall
strategic position

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Factors That Make Up the SPACE Matrix
Axes

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 Steps to Develop a SPACE Matrix
1. Select a set of variables to define financial position (FP), competitive
position (CP), stability position (SP), and industry position (IP).
2. Assign a numerical value ranging from +1 (worst) to +7 (best) to
each of the variables that make up the FP and IP dimensions. Assign
a numerical value ranging from –1 (best) to –7 (worst) to each of the
variables that make up the SP and CP dimensions
3. Compute an average score for FP, CP, IP, and SP
4. Plot the average scores for FP, IP, SP, and CP on the appropriate
axis in the SPACE Matrix
5. Add the two scores on the x-axis and plot the resultant point on X.
Add the two scores on the y-axis and plot the resultant point on Y.
Plot the intersection of the new xy point.
6. Draw a directional vector from the origin of the SPACE Matrix
through the new intersection point
– This vector reveals the type of strategies recommended for the
organization: aggressive, competitive, defensive, or conservative
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Example Strategy Profiles

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 The BCG Matrix
BCG Matrix
• graphically portrays
differences among
divisions in terms of
relative market share
position and industry
growth rate

• allows a multidivisional
organization to manage
its portfolio of
businesses by
examining the relative
market share position
and the industry growth
rate of each division
relative to all other
divisions in the
organization 6-38
 The BCG Matrix
• Question marks – Quadrant I
– Organization must decide whether to strengthen them by pursuing an
intensive strategy (market penetration, market development, or product
development) or to sell them
• Stars – Quadrant II
– represent the organization’s best long-run opportunities for growth and
profitability
• Cash Cows – Quadrant III
– generate cash in excess of their needs
– should be managed to maintain their strong position for as long as
possible
• Dogs – Quadrant IV
– compete in a slow- or no-market-growth industry
– businesses are often liquidated, divested, or trimmed down through
retrenchment

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 The Grand Strategy Matrix

• Based on
two
evaluative
dimensions:
competitive
position and
market
(industry)
growth
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 The Grand Strategy Matrix
• Quadrant I
– continued concentration on current markets (market penetration
and market development) and products (product development) is
an appropriate strategy
• Quadrant II
– unable to compete effectively thus, need to determine why current
approach is ineffective and how the company can best change to
improve its competitiveness
• Quadrant III
– must make some changes quickly to avoid further decline and
possible liquidation
– Extensive cost and asset reduction (retrenchment) should be pursued
first
• Quadrant IV
– have characteristically high cash-flow levels and limited internal
growth needs and often can pursue related or unrelated
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 The Quantitative Strategic Planning
Matrix (QSPM)
• Quantitative Strategic Planning Matrix (QSPM)
– objectively indicates which alternative strategies are
best
– uses input from Stage 1 analyses and matching results
from Stage 2 analyses to decide objectively among
alternative strategies

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The Quantitative Strategic Planning
Matrix (QSPM)

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 Steps in a QSPM

1. Make a list of the firm’s key external opportunities/threats

and internal strengths/weaknesses in the left column of
the QSPM
2. Assign weights to each key external and internal factor
3. Examine the Stage 2 (matching) matrices, and identify
alternative strategies that the organization should
consider implementing
4. Determine the Attractiveness Scores (AS)
5. Compute the Total Attractiveness Scores (TAS)
6. Compute the Sum Total Attractiveness Score

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A QSPM for a Retail Computer Store

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A QSPM for a Retail Computer Store

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 Resource Allocation
Types of Resources

Financial Physical

Human Technological

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 Key Questions to Address in Evaluating
Strategies
1. Are our internal strengths still strengths?
2. Have we added other internal strengths? If so, what are they?
3. Are our internal weaknesses still weaknesses?
4. Do we now have other internal weaknesses? If so, what are
they?
5. Are our external opportunities still opportunities?
6. Are there now other external opportunities? If so, what are
they?
7. Are our external threats still threats?
8. Are there now other external threats? If so, what are they?
9. Are we vulnerable to a hostile takeover?
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 Measuring Organizational Performance

Strategists use common quantitative criteria to

make three critical comparisons:

1. Comparing the firm’s performance over

different time periods
2. Comparing the firm’s performance to
competitors’
3. Comparing the firm’s performance to industry
averages

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 Additional Key Questions
• How good is the firm’s balance of investments
between high-risk and low-risk projects?
• How good is the firm’s balance of investments
between long-term and short-term projects?
• How good is the firm’s balance of investments
between slow-growing markets and fast-growing
markets?
• How good is the firm’s balance of investments
among different divisions?
• How are major competitors likely to respond to
particular strategies?
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Corrective Actions

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 Q&A

Thank you