Strategic Management and Analysis

Syllabus Objectives

6.1 What is strategic management?

6.1.1 Understanding what strategic management is

• the meaning of corporate strategy, tactics and strategic management

• the need for strategic management

• Chandler’s assertion that strategy should determine organisational structure

• how business strategy determines competitive advantage in an increasingly competitive world

6.2 Strategic analysis

6.2.1 SWOT analysis

• undertake and interpret SWOT (strengths, weaknesses, opportunities, threats) analysis in a given situation

• development of the outcome of a SWOT analysis into strategic objectives

6.2.2 PEST or External Environment analysis

• undertake and interpret PEST (political, economic, social, technological) analysis in a given situation

6.2.3 Business vision/mission statement and objectives

• evaluation of the role of business vision/mission statements and objectives in strategic analysis

6.2.4 Boston Matrix

• undertake and interpret Boston Matrix analysis on the product portfolio of a business

6.2.5 Porter’s Five Forces

• use Porter’s Five Forces analysis as a framework for business strategy

6.2.6 Core Competencies

• use Prahalad and Hamel’s Core Competencies analysis as a framework for business strategy

What is strategic management?

Strategic management is the analysis, decisions and actions an organisation in order to create and sustain a
competitive advantage.

Corporate strategy, tactics and strategic management

Strategic management begins by setting out a vision and objectives for the business. This will help deter mind the
route taken through the strategic decision-making framework.
Levels of strategic management

Strategic thinking takes place at three different levels – corporate, business and functional. These have to be
integrated and work together to reach the overall corporate objective. Communication between the different parts
of the business is essential for success.

Corporate Strategy

Corporate strategy sets out the overall objective and questions for the business in working through the overall
objective and questions for the business in working through the strategic framework. All parts of the business then
have to plan their actions in the light of this overall strategic thinking.

Examples of corporate strategy issues are:

 Should we grow by integration or by increasing sales?

 Does our future lie in domestic or export markets?

Business strategy

Business strategy applies to a part of the whole business – for instance, the domestic building department of a
business. Each part of the business must make decisions that will lead to the overall corporate objective being
reached.

Functional strategy

Functional strategy applies to each functional area – that is, marketing, finance or production. Decisions in these
areas must take account of the corporate objective and work towards achieving it.

Strategic management and tactics

Strategic management gives the framework for the way a business will develop. Tactics are the methods used to
achieve each method in the framework. They provide the means by which the strategy is implemented and are
usually carried out by divisions or functional areas. Tactics can be altered withing a strategy framework when
needed. For example:

 Objective to become the third largest retail store in the world by 2023
 Strategy to open branches in ten new countries
  Tactic to position new stores in the five larges cities in each country

The need for strategic management

Strategic management enables a business to decide essential information about:

 The reasons it exists

 The market environment it operates in
 The opportunities and threats facing it
 The possibilities for achieving objectives

It then enables a business to:

 Plan and carry out methods to achieve objectives

 Coordinate activities of departments and functional areas
 Detect and respond flexibly to changes
 Evaluate and review progress towards objectives

Strategic management enables a business to have clarity and vertainty about what it is doing. It enables a clear,
planned response to change and effective use of recourses. Each stage of the framework is key to this process.

Stage Content Result

Vision, mission, Sets out purpose Gives a measure to Gives purpose to Defines clear goals
objectives check progress employees
Analysis of external Sets out legal, Sets outs Sets out customer Informed decisions
environment political and competitor’s actions information
economics
framework and
changes
Analysis of internal Defines business Defines resources Enables Informed Decisions
resources strengths and available understanding of
weaknesses factors within
control
Strategic choice Sets out possible Considers Ensures recourses Informed Decisions
actions advantages and match activities
disadvanatages
Strategic Planned actions Matches palns to Tactics carry out Planned actions
Implementation taken market conditions strategy
Evaluation Measures degress of Gives flexibility in Continuous Better decisions
success change feedback

Chandler’s assertion that strategy should determines organisations structure

According to Chandler, strategic management is ‘the determination of the basic long-term goals and objectives of an
enterprise and the adoptions of courses of action and the allocation of resources necessary for carrying out the
goals’ while an organisation structure is ‘ the design of organisation through which the enterprise is administered’

Chandler’s study of large businesses made himbelieve that once strategic management was in place, the
organisation structure was changed to reflect how the strategy would be conducted. His key findings were:

 Strategic management shoud be decided at the top or centre of an organisation

 Individual business units then decided tactics to carry out the strategy
 Structure follows stratey

He studied US conglomerates and found every one had grown by diversification – that is, by entering successive new
different product markets. All adopted a similar strcuture that Chandler called the ‘M form’ where:

 Corporate strategy was set by top management

 Product or geographic business units adopted their own tactisc
 Central management coordinated

How business startegy determined competitive advantage

On the world scale, globalisation is making markets more competitive with improved communications, freer trade
and businesses entering international markets. Domestic markets are becoming more consumer driven, with existing
firms facing new competitors, more widespread and sophisticated marketing methods and wider consumer choise.
Being successful involved meeting consumer needs with a competitive advantage.

This advantage is what strategic management can give a business by providing planned methods to achieve
appropriate objectives linked to a full understanding of market conditionds, internal resources and possible actions.
If there is no strategic management, a business will not know its strengths and weaknesses, be able to detect
opportunites or threats, or be effective in its choice of methods.

Strategic Analysis
Undertaking and interpreting SWOT analysis

SWOT analysis examines the internal strengths and weaknessess of a business and the non-controllable external
threats and opportunities facing a business. It should be undertaken as part of a strategic planning process. Once it
has been carried out, a business can use it to build on the strengths, minimise weaknesses, take advanatage of
opportunities and avoid or minimise threats.
The SWOT factors must be drawn from the actual situation facing a business. They can be assigned different degrees
of importance. This means that specific strategies or tactics can be identified to enhance or minimise the effect of
the factors. SWOT analysis can identify factors but cannot give specific guidance on what to do in response to them.

Advantages of SWOT analysis

 It is relativley quick, cheap and easy to understand

 It can generate specific objectives and actions as part of strategic planning

Disadvantages of SWOT analysis

 It may become out-dated quickly

 Simple conclusions may be misleading – the situation may be more complex
 It is subjective and depends on the person undertaking it

Developing a SWOT analysis into strategic objectives

Once all the relevant SWOT factors have been set out, they must be ranked in terms of importance. This can be used
to develop plans for action, starting with setting objectves that relate to the most important factors. If poor
motivation and high labour turnover have been indetified as a major weakness, objectives such as lower labour
turnover, fewer complaints and higher employee satisfaction must be set.

https://bigmacvswhooper.wordpress.com/2013/11/01/swot-analysis/

PEST or external environment analysis

Undertake and interpret PEST

PEST analysis examines the external environment consisting of political and legal, economic, social and
technological factors facing a business. It should be undertaken as part of a strategic planning process.
Environmental factors may be included in social factors. Once carried out, a business can use it to see how these
non-controllable factors might be important, especially if changes are being considered. This can then generate ideas
about how to deal with these factors.
The PEST factors must be drawn from the actual situation facing a business. They can be assigned different degrees
of importance. This means that specific strategies or tactics can be identified to enhance or minimise the effects of
the factors. PEST analysis can identify factors but not give specific guidance on what to do in response to them.

Advantages of PEST analysis

 Relatively quick and cheap to carry out and present

 Encourgaes strategic thinking
 Can develop strategic responses to change

Disdavantages of PEST analysis

 Might date quickly

 Too simple analysis or conclusions may lead to poor decisions
 Relied on assumptions that may be incorrect or change

The role of business vision/mission statement and objectives

Make notes from Stimpson

What are they ? What/how are they used ? Advantages and Disadvantages ? Evaluation of the role of business
vision/mission statements and objectives in strategic analysis

Boston matrix – product portfolio analysis

The Boston matrix is useful for a business with a number of product is useful for a business with a number of
products to assess its position. The matrix uses a compariosn of market share and rate of market growth for each
product. It provides pointers for marketing decisions for products, and considers what might happen if there are too
many products in one element, leading to possible problems in the future.
Undertaking and interpreting Boston matrix analysis

Rising star: high market share in a fast-growing market

 Often new products in a new market

 Likely to have high marketing costs and face strong competition
 Likely to face falling unit costs of production
 Possibility of large revenues and profits if all goes well

Cash cow: high market share in slow-growing market

 Generates large revenues and profits in a mature, saturated market

 High share might reflect past marketing and R&D spending
 Customer loyalty so reminder advertising is often used to maintain this
 Might need extension strategies if there is a possibility of competition or consumer tiredness