BarCharts quickstudy strategic management

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DEFINITIONS
Strategic Management is a process for conducting the
entrepreneurial activities of a firm for organizational
renewal, growth, and transformation. The major tasks
are: (1) set a mission and goals, (2) assess the
environment, (3) appraise company capabilities, (4)
craft the strategy, (5) implement the strategy, and (6)
evaluate and control the strategy.
Business Policy is a set of prescribed and discretionary
statements, limiting actions of individuals in the firm,
as set forth in directives and guides.
Mission is the reason for which the firm exists, and what
it will do. Basically, it describes the products/services
to be supplied, the markets to be served, and the
technology applied (if important).
Vision Statement answers the question, What do we
want to become?
Goals express the aspirations of the firm, general ends
that cannot be measured. Ex. “In unrelenting pursuit of
perfection.”
Objectives are specific targets to be accomplished by a
specified time. Ex. “Profits will grow at the rate of 5%
annually for the next five years.” Long-term objectives
(5 years or more) are strategic objectives and define the
desired character of the company, at the specified time.
Strategy is simply the means or general actions to be
taken to achieve long-term objectives. Strategic

management is the work of the General Manager.
General Manager is a person who is responsible for a
profit center, as opposed to a functional manager who
is responsible only for a cost or revenue center.
Generic Strategy is the name for a group of
similar specific strategies.
Levels of Strategy
1. Corporate level. What types of businesses
should we be in?
2. Business level. How do we compete?
3. Functional component level. What should our
organization do to synchronize with the
business-level strategy?
Opportunity is a set of circumstances that, if acted upon
at the right moment, will produce a gain.
Threat is the probability of a future event and its
potentially harmful impact on the firm.

Mission
& Vision
Evaluation
Capabilities

Forecast the
Environment

Strengths

Opportunities

Weaknesses

Threats
Set
Long-Term
Objectives

Craft
the Strategy

COMPANY MISSION:
WHAT IS OUR BUSINESS?
1.
2.
3.
4.
5.
6.

Basic product or service
Primary markets
Principal technology used (if relevant)
Customer satisfaction, quality, and societal goals
Company philosophy
Self-concept (identity)

THE ENVIRONMENT
THE REMOTE (MACRO)
ENVIRONMENTAL FACTORS

1.
2.
3.
4.
5.
6.

Economic
Social-demographic
Political-legal
Technological
Cultural
Ecological-natural

TASK (IMMEDIATE, OPERATING)
ENVIRONMENTAL FACTORS

1. The task environment comprises all persons,
groups, or entities that have an interest in the
company. These are called stakeholders.
2. A narrower definition refers to those
stakeholders with whom the firm has contact
from time to time, as follows:
a. Customers
b. Suppliers
c. Financial institutions
d. Competitors
e. Trade associations
f. Activist groups
g. Federal, state, and local government agencies

h. Media representatives
i. Unions

Evaluate &
Control
Strategy
Fig. 1, The Strategic Management Model

THREAT

A threat is an event, as defined by its impact on your
company and the probability of its occurrence, that
will result in harm to your company. It is an attack on
company underpinnings, such as:
1. Support of stakeholder groups
2. Resources: human, financial
3. Customer base
4. Capabilities, such as technology, products,
processes, management, and functional
5. Artificial barriers to competition: laws,
regulations, patents, and licenses
6. Social changes and customer preferences
4. Potential
computer
entrants
2. Buyers
1.

DEFINING AN INDUSTRY

1. Products
2. Competitors
3. Structure (number, size, relative strength, market
share of competitors, product differentiation)
4. Economic traits
5. Critical success factors
6. Entry barriers

Rivalry among
existing firms

3.

COMPETITIVE ENVIRONMENT:
MICHAEL E. PORTER’S 5-FORCE MODEL

See Figure 2.
As Porter says, the nature and intensity of competition
in an industry is a composite of five competitive
forces:
1. Rivalry among competitors in the industry
2. The bargaining power of buyers
3. The bargaining power of suppliers
4. The potential entry of new competitors
5. The power of firms with substitute products
Industry-driving forces increase incentive for the
industry to change. Examples of driving forces are
industry growth rate, product innovation, customer
preferences, firms entering and leaving the industry,
cost and productivity, and increasing globalization.

OPPORTUNITY

Implement
the Strategy

2. Advances in technology, e.g., fiber optics, gene
manipulation.
3. A misfortune befalls a major competitor who
then shuts down, liquidates, or goes bankrupt.
4. A competing company is put up for sale at a good
price.
5. A chance occurs for you to hire a noted expert
that you need.
6. A breakthrough in your product or process
(“Research & Development”) that makes
possible a gain in market share.

An opportunity is a combination of events or
circumstances that arise, which, if acted upon at a
certain time, will result in profit, gain, or victory. Such
circumstances may be caused by changes in the
environment or by changes in the company, relative to
the environment. Examples:
1. Opportunities arise for the firm as it is. These
include product and market extensions through
mergers, failures of competitors, and legal change.
1

Suppliers
5. Potential competitive

substitutive products
from firms in other
industries

Fig. 2, Porter’s Force Model

EVOLUTION OF
COMPANY CAPABILITIES
SITUATION ANALYSIS
1.
2.
3.
4.

How well is the company’s strategy working?
What are the company’s strengths and weaknesses?
What are its core products and competencies?
What benchmarks are being used for measuring its
situation?

APPROACHES TO INTERNAL
SCANNING & ANALYSIS
Value Chain Analysis
1. Basic concept: Value analysis identifies the primary
and support activities that create value.
2. It may be used to analyze and reduce business costs
and compare one business’ value chain with those of
competing companies. See Fig. 3 (next page).

Evolution of Company Capabilities (continued)
Functional Analysis of Strengths & Weaknesses of the Firm
1. Establish a table with column headings: Factors,
Strengths/Weaknesses, Standards and Comparison.
For each factor to be evaluated, the question must be
asked, “Compared to what?”
2. Standards or criteria may be:
a. The industry average for the factor being evaluated
b. The best firm’s values
c. The best value of any firm on each criterion
d. A previously set objective
e. A previous forecast
3. Functional factors should be selected from the
following functional areas:
a. Marketing
b. Operations/Production
c. Finance and accounting
d. Human resources, especially management and
organization
e. Information systems
f. Quality of all transactions, relationships, and
outputs
Support
activities
and costs

Technology
development
and product
and process

improvement

Human Resources
Management

General
Administration

Primary
activities
and costs

Purchased
supplies and
inbound
logistics
Operations
Outbound
logistics
Sales and
Marketing
Service
Profit
Margin

Fig. 3, The Value Chain
MATCH OF STRATEGY & STRUCTURE

1.Culture
2.Images

3.Identity
4.Leadership
5.Mission, goals, objectives, and organizational
structure
RESOURCE-BASED ANALYSIS
This approach to strengths and weaknesses is based on
two fundamental assumptions: (1) resource heterogeneity
- a firm is a bundle of resources and these resources are
different for each firm, and (2) resource immobility,
which says that if these resources are difficult to copy,
they are a potential source of competitive advantage. Lists
of firm attributes that may be thought of as resources may
be divided into four categories:
1. Financial capital
2. Plant capital
3. Human capital
4. Organizational capital
PIMS ANALYSIS
Profit Impact of Marketing Strategy, offered by the
Strategic Planning Institute, is based on a database of
about 3,000 businesses. Their research is directed at
identifying principles that will guide companies in
establishing successful strategies, or evaluating their own.

SETTING STRATEGIC
(LONG-TERM) OBJECTIVES
Characteristics of Long-Term Objectives
1. Acceptable to managers
2. Adaptable to extraordinary changes in the environment
3. Clearly measurable against specified criterion

4. Motivating - not too high and not too low
5. Understandable
GENERIC GROUPS OF
LONG-TERM OBJECTIVES
Within each generic strategy objective group below,
specific objectives may be selected.
1. Product/Market scope
2. Profitability
3. Competitive edge
4. Financial specifications, expenditures, net worth, etc.
5. Innovation and technology
6. Employee development/Productivity
7. Sources of, and deployment of, resources
8. Synergy
9. Risk
10. Legitimacy (satisfaction of stakeholders)
11. Ideological leadership

CRAFTING CORPORATELEVEL STRATEGY
OBJECTIVES

Corporate Level
What business should we be in?
A. Choose GENERIC corporate-level strategies.
1. Feasible corporate-level strategies.

competitive
strength

industry

attractiveness
2. Choose final generic strategy option.

Options
Opportunity
Long-term objectives
Generic strategy (appropriate feasible)

Select options to get final gene strategies.

Corporate-level strategy is directed toward:
1. Maintaining corporate-wide consistency of
direction of the total company toward long-range,
usually global, goals called strategic intent.
2. Leveraging resources for long-range goals.
3. Reducing financial risk by building a balanced
portfolio of businesses with a balanced portfolio
of advantages.
4. Investing in core competencies for the businesses
(usually called Strategic Business Units or SBUs).
5. In general, corporate strategy is designed to
answer the question: What businesses should we
be in?
THE PROCESS

The process of developing corporate-level strategy is
shown in Fig. 4 and explained as follows:
CHOOSE GENERIC
CORPORATE-LEVEL STRATEGIES

Generic Strategy is a group of corporate-level
strategies that are first determined so that the decision
maker is guided toward making an appropriate specific
strategy (See Fig. 5.5, 6 & 7). A list of generic
strategies generally used is as follows:
Concentration - the corporation concentrates its
efforts and resources on current business or
businesses.
Concentric diversification - the company decides to
diversify into products related to its present products
through similar marketing methods, production
processes, or products.
Conglomerate diversification - diversification
into products unrelated to the firm’s present
products.
Vertical backward integration - the company
buys, or otherwise competes with, its suppliers.
Forward integration - the company buys
companies that are customer businesses.
Joint ventures - two or more companies combine
equity in a new company to gain an advantage or
minimize individual weaknesses.
Divestiture - a company sells off, spins off in various
ways, a portion or an entire SBU.
Turnaround/Restructuring - a defensive strategy
followed by a company in need of immediate
improvement.
Bankruptcy - a means for getting respite from
creditors and used by very healthy companies, as
well as those which need to be reorganized and

obtain additional capital.
Liquidation - the company sells its assets and goes
out of business.An
2

B. Choose SPECIFIC corporate-level strategy,
guide by final generic strategy to yield.
Portfolio of businesses
=
answers to the origin of the question
Fig. 4, Corporate Strategy Formulation
ANALYSIS & EVALUATION
OF THE PORTFOLIO

General Electric 9-Cell Business Screen
1. Fig. 6 shows a 9-cell matrix of the
positioning of SBUs, in terms of competitive
strength vs. industry attractiveness.
2. The areas of the circles represent the sales of
each SBU. The segments represent market share.
3. The position of a business on the grid may be
determined either subjectively, or quantitatively,
by using a weighted rating system for the factors
shown.
4. Corporate strategy implications from the matrix
are:
a. Suggest investment priorities.
b. Incorporate a wide variety of strategic
variables (others in addition to those shown
may be incorporated).

c. Indication of possible life-cycle stages of the
SBUs.
d. Indicate balance or lack of balance in the
portfolio.
e. Compare performance among business units.
SELECTING A GENERIC STRATEGY

1. Plot the company’s current (and potential) SBUs
on Fig. 5, a competitive strength vs. industry
attractiveness matrix. Each circle (area) is
proportional to the sales of the particular SBU
(See Fig. 5).
2. Select feasible corporate-level generic strategies
from the cells in which the SBUs fall.
3. Find a match of an opportunity, a set of
long-term objectives, and a generic
strategy from Fig. 5. Such a set represents
a strategic option.
4. Find a number of strategic options and select,
judgmentally, the ones that your resources can
support. This will give you your final feasible
generic strategies.


Rapid Market Growth

1. Turnaround or
retrenchment
2. Concentric
diversification

3. Conglomerate
diversification
4. Divestiture
5. Liquidation

Drug
Store
Group

Strong
Competitive
Position

1. Concentric
diversification
2. Conglomerate
diversification
3. Joint ventures

Slow Market Growth
Source: John A. Pearce & Richard B. Robinson, Strategic Management,
Homewood, Illinois: Irwin, Inc., 1982 p. 210.

Many
environmental
opportunities

1. Internal growth
2. Vertical integration
of related businesses

3. Mergers
4. Horizontal
diversification

Cell B
Moderate
environmental
opportunities
and threats

Weak
Competitive
Position

Specialty
Shop
Group

Fig. 5, Feasible Corporate Generic Strategies

1. Mergers
2. Horizontal integration
3. Strategic alliances

1. Turnaround
2. Divestment

Cell E

1. Vertical integration

of related businesses
2. Horizontal related
diversification

Cell C

Critical
environmental
threats

Supermarket
Group

Weak
Cell G

Average
Cell D

Strong
Cell A

1. Concentration
2. Vertical
integration
3. Concentric
diversification

State of the External Environment

1. Reformation of
concentration
2. Horizontal
integration
3. Divestiture
4. Liquidation

Competitive Status of the Corporation’s Business Units

Cell H

1. Stability
2. Mergers
3. Horizontal integration
4. Strategic alliances
5. Divestment

1. Turnaround
2. Divestment

Cell I

Cell F

1. Horizontal-related
diversification
2. Horizontal-unrelated
diversification
(conglomerate)
3. Vertical integration of

unrelated businesses
4. Divestment

1. Divestment
2. Horizontal-related
diversification
3. Horizontal-unrelated
diversification
4. Stability

1. Liquidation

CHOOSE THE SPECIFIC CORPORATE-LEVEL
STRATEGY (PORTFOLIO OF BUSINESS UNITS)

STRATEGIC FIT ANALYSIS

Market size
and growth rate
Industry profit margins
Competitive intensity
Bargaining power of
customers and supplier

Cyclicality
of demand
Financial norms
Economies of scale
Barriers to entry
Capital intensity

Invest aggressively
Invest selectively
Harvest or divest

Competitive
Position

Industry Attractiveness
High

Strong Average Weak

Low
Development

High
Relative market share
Profit margins
Cost position
Level of differentiation
Technological capability
Response time
Financial strength
Human assets
Fig. 6, GE 9-Cell Screening Grid
3

Stage of Product/Market Evolution

Business
Strength

Medium

LIFE CYCLE MATRIX

The Life Cycle Matrix is similar to the G.E. Matrix,
except that it focuses on the life cycles of the
products, rather than the industry attractiveness. In
Fig. 7, the competitive position is shown for each
SBU, but the stage of the SBU’s life cycle is also
shown. Small sales at the beginning and end of the life
cycle, with a strong competitive position, for
example, may be considered favorable. If all
SBUs are in different stages of the life cycle, but
in the strong competitive position, this may also be a
favorable condition. If all SBUs are in the strong
competitive position and maturity stage, this indicates
trouble later, because no new businesses are in the
company’s portfolio.

1. Does each business fit with other businesses in
the portfolio? Compare the value analysis
chains of each.
2. Does each business fit the strategic direction of
the total company? Does each business
contribute heavily to corporate financial
performance?

Low

2. For each generic strategy, decide the business, if
any, that you wish to add to or subtract from your
portfolio. For example, if you were a
manufacturer of golf carts and decided to follow
a concentric diversification strategy, you might
select the purchase of a power lawn mower
company to add to your portfolio.
3. When you have reviewed all your feasible generic
strategies and made such decisions, the
companies remaining represent your portfolio
and set the direction for the total company.
Using SWOT (Strength, Weaknesses,
Opportunities, Threats) to derive generic
corporate strategies (P. Wright, M. J. Kroll,
and J. Parnell)
SWOT analysis ties together strengths, weaknesses,
opportunities, and threats vs. competitive position.
Place each SBU in a cell, giving recommended
feasible generic strategies (Fig 5.5).

Fig. 5.5, SWOT Portfolio Framework

Medium

1. Specific
Corporate-Level
Strategy
answers the question: “What businesses

should we be in?”

Growth

Shakeout
Maturity
Saturation
Decline

Fig. 7, Life Cycle Matrix


BUSINESS STRATEGIES FOR SBUS
& SINGLE-PRODUCT COMPANIES
THE FIRST STEP IN CRAFTING THE
COMPETITIVE STRATEGY FOR SBU

Decide on the generic strategy or strategies to follow.
The basic four generic strategies that may be used are
shown in Fig. 8 (below) as (1) low-cost leadership, (2)
differentiation, (3) niche or focus market segment
with low cost, and (4) focus on a market segment using
differentiation.
Use low-cost leadership when:
1. Price competition among rival sellers is
especially intense.
2. The product is essentially a commodity with
many sellers.
3. There are few ways to differentiate the products
that have value to the user.

4. Buyers have low switching costs and can change
to lower-priced sellers.
5. Buyers are large and can bargain down prices.
Use differentiation strategy when:
1. Differentiation of a product can command a
premium price for its product.
2. Brand loyalty can be won over.
3. The cost of differentiation is less than the
premium price that can be obtained.
Use focus strategy when:
1. The segment of the market focused on is large
enough to be profitable.
2. The segment is not important to the success of
major competitors.
3. The segment has good potential for growth.
4. The company can provide excellent service and
goodwill within the segment.
GENERIC BUSINESS STRATEGY OPTIONS

1. A business generic strategy option consists of a
match of an opportunity, a long-term business
objective, and a generic strategy. See Fig. 8.
2. At this point, the generic strategy is honed by
deciding on the emphasis to be placed on or
allocation of resources to: competitor orientation,
market orientation, and product/service
orientation.
3. Avoid “stuck-in-the-middle” strategies that lead
to engaging in each generic strategy, and thereby
failing to achieve any of them.

4. Select the option or options to obtain the final
generic strategies.
DEVELOP THE SPECIFIC
BUSINESS-LEVEL STRATEGY

1. The specific business strategy describes
specifically what the firm will do to compete.
2. The generic strategies and long-term
objectives restrict the statement of the
business-level strategy.
3. Each functional manager prepares his/her
component of the total business strategy,
showing major additions and programs for
the next f ive years.
4. The General Manager then directs the
reconciliation of all functional programs and
budgets, as indicated in Fig. 8 (this page, at right).

IMPLEMENTING
THE STRATEGY
IMPLEMENTING WITH STRUCTURE

Implementing strategy is the conversion of concepts
into action and results. It is the total and detailed
activities to fulfill the strategy and achieve the longterm objectives. The first part consists of:

1. Communicating the strategy to the organization
to prepare every employee with an understanding
of what will follow and the things in general that
must be done.

2. Prepare and disseminate a list of major annual
objectives for the organization.
3. Establish policies and procedures for actions.
4. Prepare annual plans and budgets for resource
allocations.
5. Prepare an organization STRUCTURE that
matches the new strategy (portfolio and SBUs).
6. Install best practices for each department, based
on the value chain and benchmarks.

2. Is the strategy consistent with the environment?
3. Is the strategy appropriate in view of the
available resources?
4. Does the strategy involve an acceptable degree of
risk?
5. Does the strategy have an appropriate time
framework?
6. Is the strategy workable?
Stage Criteria
The strategy may be evaluated at each stage of
its development shown in Fig. 1 (see page 1), as well
as after implementation at selected times.
* Source: Seymour Tilles, “How to Evaluate Corporate Strategy,” Harvard

IMPLEMENTING WITH
ORGANIZATIONAL LEADERSHIP

1. Staff the organization with committed leaders
capable of driving implementation.
2. Avoid resistance to change through employee

development
and
communication
with
employees.
3. Tie rewards and incentives to achievement of
performance objectives.
4. Develop a strategy-supporting culture.
IMPLEMENTING WITH THE FUNCTIONAL
COMPONENTS OF STRATEGY

Each functional manager should prepare his/her
functional component of the business strategy and
plans for execution. These are reconciled and approved
by the business managers and upper management. The
typical functional areas are shown with examples of a
few issues that may arise in implementation:
1. Marketing: product policies, distribution
policies, ethics, customer relations, pricing
policies.
2. Production/operations: equipment, layout,
method of delivery of services, work methods,
production planning,quality control, outsourcing.
3. R&D/design: estimating the time for new
product development, quality and cost balance in
design, continuing education of creative workers,
outsourcing of design work.
4. Accounting/finance: increasing labor costs,
increasing sales expense, economic value added,
taxes, exchange rate between U. S. and other

currencies, transfer pricing.
5. Human Resource management: assignment of
people to new projects, salary and bonus
payments, promotions and dismissals, major
human errors, recruitment and selection.
6. Corporate information and communication
systems: management information system,
personalcommunications, mass communications,
communicating policies.
IMPLEMENTING WITH CONCERN FOR LAWS,
ENVIRONMENTAL & SOCIAL CONCERNS

Implementation must be carried out with concern for
factors that may not always be spelled out, but must
represent good citizenship.

Business Review 41 (1963): 111-121.

Business Level
How should we compete?
A.Choose GENERIC business-level strategies.
1. Feasible business strategies
Low-cost
leadership

Differentiation

Niche low Focused
differentiation
cost

2. Choose final generic business strategy option.

Options
Opportunities
Long-term objectives
Generic strategies (feasible)
Competitor-Directed
Market-Directed
Product-Directed

Select options to get final generic strategies
Year 1 2 3 4 5
Marketing
Production
Research & Development
Finance

Long-term
objectives

Generic
Strategies

Fig. 8, Business Strategy Formation
Fig. 1, The Strategic Management Model

CREDITS
Layout: A. Thomas Fenik

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NOTE TO STUDENT
This QUICKSTUDY® guide is an outline of the
basic topics taught in Management courses.
Due to its condensed format, use it as a study
guide but not as a replacement for assigned
class work.
All rights reserved. No part of this publication may be reproduced or transmitted in any form, or by any means,
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written permission from the publisher.
©2001 BarCharts, Inc. 0508

ISBN-13: 978-142320707-8
ISBN-10: 142320707-6

STRATEGY
EVALUATION
FOUNDATION FOR
STRATEGY EVALUATION

Foundation for Evaluation of Strategy
The basis for evaluation is to compare strategy with
quantitative or qualitative criteria. In addition, strategy
may be evaluated at different stages.
Quantitative Criteria
1. Overall financial performance, such as ROI, ROE,
profit margin, market share, earnings per share.
2. Time of implantation vs. planned time.

3. Increase in productivity, quality, number of
employees, etc.
Qualitative Criteria (from S. Tilles *)
1. Is the strategy internally consistent?
4

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