Principles of Strategic Management: Introduction to Strategy Strategic Management Process Analysis Formulation Implementation Evaluation

What This Is

The Strategic Management Process is a systematic approach to analyzing, formulating, implementing, and evaluating a company's strategy. It involves understanding the external environment, identifying opportunities and threats, and developing a plan to achieve the company's objectives. For example, Apple's strategic management process helped the company transition from a personal computer manufacturer to a diversified technology giant, with a strong focus on innovation and customer experience.

Key Frameworks & Tools

• Porter's Five Forces: Threat of new entrants, buyer power, supplier power, threat of substitutes, and rivalry among existing competitors.
• VRIO Framework: Resource is Valuable, Rare, Inimitable, and the Organization is able to capture value.
• BCG Matrix: Market growth rate vs. business unit market share to categorize businesses as Stars, Cash Cows, Dogs, or Question Marks.
• Ansoff Matrix: Market penetration, market development, product development, and diversification to expand a company's business.
• Balanced Scorecard: Financial, customer, internal processes, and learning and growth perspectives to measure a company's performance.
• SWOT Analysis: Strengths, weaknesses, opportunities, and threats to identify a company's internal and external factors.
• Competitive Advantage: Sustained superior performance relative to competitors, achieved through factors like cost leadership, differentiation, or focus.
• Value Chain Analysis: A company's primary and support activities to identify areas for cost reduction and improvement.
• PESTEL Analysis: Political, economic, social, technological, environmental, and legal factors to analyze a company's external environment.
• McKinsey 7S Framework: Strategy, structure, systems, skills, style, staff, and shared values to align a company's internal and external factors.

Step-by-Step Application

1. Conduct a SWOT Analysis:
   • Identify a company's strengths and weaknesses.
   • Analyze the external environment to identify opportunities and threats.
   • Use the SWOT matrix to prioritize and categorize the factors.
2. Build a Balanced Scorecard:
   • Define the company's vision and objectives.
   • Identify the key performance indicators (KPIs) for each perspective (financial, customer, internal processes, and learning and growth).
   • Set targets and metrics for each KPI.
3. Use the BCG Matrix:
   • Plot the company's business units on the matrix based on market growth rate and market share.
   • Categorize the business units as Stars, Cash Cows, Dogs, or Question Marks.
   • Develop strategies for each category (e.g., invest in Stars, harvest Cash Cows, divest Dogs, and improve Question Marks).
4. Analyze Porter's Five Forces:
   • Assess the threat of new entrants, buyer power, supplier power, threat of substitutes, and rivalry among existing competitors.
   • Use the analysis to identify opportunities and threats, and develop strategies to mitigate or leverage them.
5. Conduct a Value Chain Analysis:
   • Identify a company's primary and support activities.
   • Analyze the activities to identify areas for cost reduction and improvement.
   • Develop strategies to improve the value chain.

Common Mistakes

1. Mistake: Confusing industry attractiveness with competitive position.
   • Correction: Industry attractiveness refers to the overall attractiveness of the industry, while competitive position refers to a company's relative position within the industry.
2. Mistake: Using the wrong level of strategy.
   • Correction: A company should use a combination of corporate, business unit, and functional strategies to achieve its objectives.
3. Mistake: Failing to consider the external environment.
   • Correction: A company should conduct a thorough analysis of the external environment, including PESTEL factors, to identify opportunities and threats.
4. Mistake: Ignoring the importance of innovation.
   • Correction: Innovation is critical for companies to stay competitive and achieve long-term success.

Case Interview / Exam Tips

1. Common question pattern: "What is the company's competitive strategy?" or "How can the company improve its competitive position?"
   • Answer: Use Porter's Five Forces analysis to identify the company's competitive position and develop strategies to improve it.
2. Tricky distinction: Differentiation vs. low cost.
   • Answer: Differentiation involves creating a unique value proposition, while low cost involves reducing costs to achieve a competitive advantage.
3. Tricky distinction: Blue ocean vs. red ocean.
   • Answer: Blue ocean involves creating a new market or industry, while red ocean involves competing in an existing market or industry.

Quick Practice Scenario

A company has low market share in a high-growth industry – where does it sit on the BCG matrix?

Answer: The company would sit in the Question Mark category, as it has low market share in a high-growth industry.

Last-Minute Cram Sheet

1. Porter's Five Forces: Threat of new entrants, buyer power, supplier power, threat of substitutes, and rivalry among existing competitors.
2. VRIO Framework: Resource is Valuable, Rare, Inimitable, and the Organization is able to capture value.
3. BCG Matrix: Market growth rate vs. business unit market share to categorize businesses as Stars, Cash Cows, Dogs, or Question Marks.
4. Ansoff Matrix: Market penetration, market development, product development, and diversification to expand a company's business.
5. Balanced Scorecard: Financial, customer, internal processes, and learning and growth perspectives to measure a company's performance.
6. SWOT Analysis: Strengths, weaknesses, opportunities, and threats to identify a company's internal and external factors.
7. Competitive Advantage: Sustained superior performance relative to competitors, achieved through factors like cost leadership, differentiation, or focus.
8. Value Chain Analysis: A company's primary and support activities to identify areas for cost reduction and improvement.
9. PESTEL Analysis: Political, economic, social, technological, environmental, and legal factors to analyze a company's external environment.
10. McKinsey 7S Framework: Strategy, structure, systems, skills, style, staff, and shared values to align a company's internal and external factors.