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#3 - Strategic Management (Chapter 5)

Principles of Management (香港中文大學)

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MGNT 1020 – CHAPTER 3: Strategic Management

A. What is Strategy?
 Strategy – Plans for how the organization will do and what it’s in business
to do, how it will compete successfully, and how it will attract its customers
in order to achieve its goals
B. Why is Strategy important?
1. Can make a difference in how well an organization performs (Better
financial results)
 Competitive Advantage – Distinctive edge coming from the
organization’s core competencies by doing something that others
can’t do or doing it better than others
2. Managers continually face mercurial situations and they are able to
cope with uncertainty by using strategic management process to
examine relevant factors in planning future actions
3. Since organizations are complex and diverse, strategic management
helps the organization work together achieve goal
C. Levels of Strategy
 Corporate Strategy – An organizational strategy that specifies what
business a company is in or wants to be in and what it wants to do with
those business
1. Growth Strategy: When an organization expands the number of
markets served or products offered either through its current business
or through new business
2. Stability Strategy: When an organization continues to do what it is
currently doing
3. Renewal Strategy: When an organization addresses declining
organizational performance
 BCG Growth-Share Matrix – A tool that displays various business units on
a graph of the market growth rate vs. market share relative to competitors
1. Dog – Low market share and Mature Industry (May not require
substantial cash, but ties up capital that could be better deployed
elsewhere)
2. Cash Cows – High market share and Mature Industry (Requires little
investment and generate cash that can be used to invest in other
business units)
3. Stars – High market share and Fast growing industry (Generates cash,
but requires investment to maintain their lead)

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4. Question Mark – Low market share and High growth market (Requires
resources to grow market share, but whether it succeeds is unknown
 Product Market Growth Matrix – A marketing tool that allows marketers to
consider ways to grow business via existing and new products in existing
and new markets. This matrix helps companies decide what course of
action should be taken in current performance.
1. Market Penetration – Occurs when a company enters a market with
current products by gaining competitor’s customers and advertisement.
2. Product Development – When a company develops other products in
a same market, in order to gain new customers.
3. Market Development – When an established product in a marketplace
is targeted to a different customer segment, as a strategy to earn more
revenue.
4. Diversification – When a company dominate a specific market, it would
branch out into a new market to provide a new line of product that differ
from an existing product.

 Competitive (Business) Strategy – A strategy for how an organization will

compete in its business. In order to build a competitive strategy, there must
be an understanding of competitive advantage
 Competitive Advantage – Distinctive edge coming from the
organization’s core competencies by doing something that others can’t
do or doing it better than others
 The Five Generic Competitive (Business) Strategies
 Cost Leadership – Striving to achieve lower overall cost than rivals on
products that attract a broad spectrum of buyers
 Differentiation – Differentiating the firm’s product offering from rivals’
with attributes that appeal to broad spectrum of buyers
 Cost Focus – Concentrating on a narrow price-sensitive buyer segment
and on costs to offer a lower-priced product

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 Differentiation Focus – Concentrating on a narrow buyer segment by

meeting specific tastes and requirement of niche members
 HYBRID Best-Cost Provider – Giving customers more value for money
by offering upscale product attributes at a lower cost than rivals
 Functional Strategy – Strategy that’s used in an organization’s various
functional departments to support the competitive strategy
 Research Development Plans: Developing battery for electric vehicles
 Human Resource Plans: Hire new designers
 Marketing Plans: Launch a new promotional campaign
D. Three Tests for a Strategy to be a Winning Strategy
 Strategic Fit Test – Tests whether it considers external and internal aspect
of firm’s overall situation
 Competitive Advantage Test – Tests whether it can help the firm achieve a
significant and sustainable competitive advantage
 Performance Test – Tests whether it can produce good performance
according to the firm’s profitability, financial and competitive strengths, and
market standing
E. The Critical Success Factors
 Customer Value: Value for the money, in terms of its emotion value, brand
value (Ex: I prefer Burberry Jacket rather than the Coach’s Jacket)
1. Customer Value = Customer Benefit – Customer Costs
2. Customer Benefits are emotional satisfaction associated with owning,
experiencing, or possessing a product
3. Customer Costs are monetary costs, time, and effort expended to
procure the product
 Happy Employees
 Innovation (Ex: Apple is more successful and draws more attention
compared to Samsung because it pursues innovation)
F. Strategic Management
 Strategic Management – The art and science of analyzing, formulating,
implementing, and evaluating business decisions that will enable
organization to achieve its long-term objectives
 In the First Step, Situation Analysis, there are things to consider
1. Current Performance
2. Market Demand

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3. Competition and Industry

4. Market Share
5. Customer Needs
6. Competitive Position and Value
 In the Second Step, Strategy Formulation, we must choose one of the
recommended Generic Strategies to ensure competitive advantage
1. Why this is the best to compete with rivals?
2. Illustrate high level solutions to address identified problems
 Next steps include Strategy Implementation and Results Evaluation
1. Responses from Key Players

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