Strategic Management

STRATEGIC MANAGEMENT AND
COMPANY COMPETITIVENESS
Project „Joint Degree Study programme
“Technology and Innovation Management“
No. VP1-2.2-ŠMM-07-K-02-087
The nature of strategic management
Strategy is about two things: deciding where

you want your business to go, and deciding how
to get there.
The Five Tasks of Strategic Management:
1. Forming a strategic vision of what the
company’s future business makeup will be and
where the organization is headed – so as to
provide long-term direction, delineate what kind
of enterprise the company is trying to become,
and infuse the organization with a sense of
purposeful action.
2. Setting objectives – converting the strategic
vision into specific performance outcomes for
the company to achieve.
3. Crafting a strategy to achieve the desired
outcomes.
4. Implementing and executing the chosen
strategy efficiently and effectively.
5. Evaluating performance and initiating
corrective adjustments in vision, long-term
direction, objectives, strategy, or
implementation in light of actual experience,
changing conditions, new ideas, and new
opportunities.
Strategic management can be defined as the art
and science of formulating, implementing, and
evaluating cross-functional decisions that
enable and organisation to achieve its
objectives.
Sometimes the term strategic management is
used to refer to strategy formulation,
implementation, and evaluation, with strategic
planning referring only to strategy formulation.
The purpose of strategic management is to
exploit and create new and different
opportunities for tomorrow; long-range
planning, in contrast, tries to optimize for
tomorrow the trends of today.
The term strategic planning originated in the
1950s and was very popular between the mid
1960s and the mid 1970s. During these years,
strategic planning was widely believed to be the
answer for all problems.
At the time, much of corporate America was
‘obsessed’ with strategic planning. Following
that “boom,” however, strategic planning was
cast aside during the 1980s as various planning
models did not yield higher returns. The 1990s,
however, brought the revival of strategic
planning, and the process is widely practiced
today in the business world.
A strategic plan is, in essence, a organisations
game plan. Just as a football team needs a good
game plan to have a chance for success, a
company must have a good strategic plan to
compete successfully.
A strategic plan results from tough managerial
choices among numerous good alternatives, and
it signals commitment to specific markets,
policies, procedures, and operations in lieu of
other, ‘less desirable’ courses of action.
Stages of Strategic Management
The strategic management process consists of
three stages: formulation, strategy
implementation, and strategy evaluation.
Strategy formulation includes developing a
vision and mission, identifying an organisations
external opportunities and threats, determining
internal strengths and weaknesses, establishing
long-term objectives, generating alternative
strategies, and choosing particular strategies to
pursue.
Strategy formulation issues include deciding
what new businesses to enter, what businesses
to abandon, how to allocate resources, whether
to expand operations or diversify, whether to
enter international markets, to merge or form a
joint venture, and how to avoid a hostile
takeover.
Strategy-formulation decisions commit an
organization to specific products, markets,
resources, and technologies over an extended
period of time. Strategies determine long-term
competitive advantages.
Strategy implementation requires a firm to
establish annual objectives, devise policies,
motivate employees, and allocate resources so
that formulated strategies can be executed.
Strategy implementation includes developing a
strategy-supportive culture, creating an effective
organizational structure, redirecting marketing
efforts, preparing budgets, developing and
utilizing information systems, and linking
employee compensation to organizational
performance
Strategy implementation often is called the
“action stage” of strategic management.
Implementing strategy means mobilizing
employees and managers to put formulated
strategies into action.
Interpersonal skills are especially critical for

successful strategy implementation. Strategy
implementation activities affect all employees
and managers in an organization.
Strategy evaluation is the final stage in strategic

management. Managers desperately need to
know when particular strategies are not working
well; strategy evaluation is the primary means
for obtaining this information.
Strategy formulation, implementation, and

evaluation activities occur at three hierarchical
levels in a large organization: corporate,
divisional or strategic business unit, and
functional.
By fostering communication and interaction

among managers and employees across
hierarchical levels, strategic management helps
a firm function as a competitive team. Most
small businesses and some large businesses do
not have divisions or strategic business units;
they have only the corporate and functional
levels.
Competitive Advantage
Strategic management is all about gaining and

maintaining competitive advantage. This term
can be defined as “anything that a firm does
especially well compared to rival firms.”
Normally, a firm can sustain a competitive

advantage for only a certain period due to rival
firms imitating and undermining that advantage.
Thus it is not adequate to simply obtain
competitive advantage.
Strategists are the individuals who are most

responsible for the success or failure of an
organization. Strategists have various job titles,
such as chief executive officer, president, owner,
chair of the board, executive director,
chancellor, dean, or entrepreneur.
Strategists help an organization gather, analyze,

and organize information. They track industry
and competitive trends, develop forecasting
models and scenario analyses, evaluate
corporate and divisional performance, spot
emerging market opportunities, identify
business threats, and develop creative action
plans.
Strategists differ as much as organizations

themselves, and these differences must be
considered in the formulation, implementation,
and evaluation of strategies. Some strategists
will not consider some types of strategies
because of their personal philosophies.
Strategists differ in their attitudes, values, ethics

willingness to take risks, concern for social
responsibility, concern for profitability, concern
for short-run versus long-run aims, and
management style.
Vision and Mission Statements
Many vision statements are a single sentence.

Mission statements are enduring statements of
purpose that distinguish one business from
other similar firms. A mission statement
identifies the scope of a firm’s operations in
product and market terms.
Vision and Mission Statements
Developing a mission statement compels

strategists to think about the nature and scope
of present operations and to assess the
potential attractiveness of future markets and
activities. A mission statement broadly charts
the future direction of an organization.
External Opportunities and Threats
External opportunities and external threats refer

to economic, social, cultural,
demographic, environmental, political, legal,
governmental, technological, and competitive
trends and events that could significantly
benefit or harm an organization in the future.
Opportunities and threats are largely beyond

the control of a single organization—thus the
word external. The wireless revolution,
biotechnology, population shifts, very high gas
prices, changing work values and attitudes,
illegal immigration issues, and increased
competition from foreign companies are
examples of opportunities or threats for
companies.
These types of changes are creating a different

type of consumer and consequently a need for
different types of products, services, and
strategies. Many companies in many industries
face the severe external threat of online sales
capturing increasing market share in their
industry.
Other opportunities and threats may include the

passage of a law, the introduction of a new
product by a competitor, a national catastrophe,
or the declining value of the dollar. A
competitor’s strength could be a threat.
A basic tenet of strategic management is that

firms need to formulate strategies to take
advantage of external opportunities and to
avoid or reduce the impact of external threats.
For this reason, identifying, monitoring , and
evaluating external opportunities and threats
are essential for success.
This process of conducting research and

gathering and assimilating external information
is sometimes called environmental scanning or
industry analysis. Lobbying is one activity that
some organizations utilize to influence external
opportunities and threats.
Internal Strengths and Weaknesses
Internal strengths and internal weaknesses are

an organization’s controllable activities that are
performed especially well or poorly. They arise
in the management, marketing,
finance/accounting, production/operations,
research and development, and management
information systems activities of a business.
Identifying and evaluating organizational

strengths and weaknesses in the functional
areas of a business is an essential strategic-
management activity. Organizations strive to
pursue strategies that capitalize on internal
strengths and eliminate internal weaknesses.
Strengths and weaknesses are determined

relative to competitors. Relative deficiency or
superiority is important information. Also,
strengths and weaknesses can be determined by
elements of being rather than performance. For
example, a strength may involve ownership of
natural resources or a historic reputation for
quality.
Strengths and weaknesses may be determined

relative to a firm’s own objectives. For example,
high levels of inventory turnover may not be a
strength to a firm that seeks never to stock-out.
Internal factors can be determined in a number
of ways, including computing ratios, measuring
performance, and comparing to past periods
and industry averages.
Various types of surveys also can be developed

and administered to examine internal factors
such as employee morale, production efficiency,
advertising effectiveness, and customer loyalty.
Long-Term Objectives
Objectives can be defined as specific results that

an organisation seeks to achieve in pursuing its
basic mission. Long-term means more than one
year. Objectives are essential for organizational
success because they state directions; aid in
evaluation; create synergy; reveal priorities;
focus coordination; and provide a basis for
effective planning, organizing, motivating, and
controlling activities.
Long-Term Objectives
Objectives should be challenging, measurable,

consistent, reasonable, and clear. In a
multidimensional firm, objectives should be
established for the overall company and for
each division.
Strategies
Strategies are the means by which long-term

objectives will be achieved. Business strategies
may include geographic expansion,
diversification, acquisition, product
development, market penetration,
retrenchment, divestiture, liquidation, and joint
ventures.
Strategies
Strategies are potential actions that require top

management decisions and large amounts of
the firm’s resources. In addition, strategies
affect an organization’s long-term prosperity,
typically for at least five years, and thus are
future-oriented. Strategies have multifunctional
or multidivisional consequences and require
consideration of both the external and internal
factors facing the firm.
Annual Objectives
Annual objectives are short-tem milestones that

organizations must achieve to reach long-term
objectives. Like long-term objectives, annual
objectives should be measureable, quantitative,
challenging, realistic, consistent, and prioritized.
Annual Objectives
Annual objectives represent the basis for

allocating resources. Policies are the means by
which annual objectives will be achieved.
Policies include guidelines, rules, and
procedures established to support efforts to
achieve stated objectives. Policies are guides to
decision making and address repetitive or
recurring situations.
The Strategic-Management Model
The strategic-management process can best be

studied and applied using a model. Every model
represents some kind of process. Identifying an
organization’s existing vision, mission,
objectives, and strategies is the logical starting
point for strategic management because a firm’s
present situation and condition may preclude
certain strategies and may even dictate a
particular course of action.
Every organization has a vision, mission,

communicated. The strategic management
process is dynamic and continuous. A change in
any one of the major components in the model
can necessitate a change in any or all of the
other components.
The strategic-management process is not as

cleanly divided and neatly performed in practice
as the strategic-management model suggests.
Strategists do not go through the process in
lockstep fashion. Generally, there is give-and-
take among hierarchical levels of an
organization.
Greater formality in applying the strategic-

management process is usually positively
associated with the cost, comprehensiveness,
accuracy, and success of planning across all
types and sizes of organizations.
Benefits of Strategic Management
Strategic management allows an organization to

be more proactive than reactive in shaping its
own future; it allows an organization to initiate
and influence (rather than just respond to)
activities---and thus to exert control over its
own destiny.
Historically, the principal benefit of strategic

management has been to help organizations
formulate better strategies through the use of a
more systematic, logical, and rational approach
to strategic choice.
The manner in which strategic management is

carried out is thus exceptionally important. A
major aim of the process is to achieve the
understanding of and commitment from all
managers and employees. Understanding may
be the most important benefit of strategic
management, followed by commitment.
Managers and employees become surprisingly

creative and innovative when they understand
and support the firm’s mission, objectives, and
strategies. A great benefit of strategic
management, then, is the opportunity that the
process provides to empower individuals.
The Five Generic Competitive Strengths
When one strips away the details to get at the

real substance the biggest and most important
differences among competitive strategies boil
down to (1) whether a company’s market target
is broad or narrow and (2) whether it is pursuing
a competitive advantage linked to low costs or
product differentiation.
Five distinct approaches stand out:
1. A low-cost leadership strategy – Appealing to

a broad spectrum of customers based on being
the overall low cost provider of a product or
service.

2. A broad differentiation strategy – Seeking to
differentiate the company’s product offering
from rivals’ in ways that will appeal to a broad
spectrum of buyers.
3. A best-cost provider strategy – Giving
customers more value for the money by
combining an emphasis on low cost with an
emphasis on upscale differentiation;
4. A focused or market niche strategy based on
lower cost – Concentrating on a narrow buyer
segment and outcompeting rivals by serving
niche members at a lower cost than rivals.
5. A focused or market niche strategy based on
differentiation – Concentrating on a narrow
buyer segment and outcompeting rivals by
offering niche members a customized product
or service that meets their tastes.
Low Cost Provider Strategies
Striving to be the industry’s overall low-cost
provider is a powerful competitive approach in
markets where many buyers are price sensitive.
The aim is to operate the business in a highly
cost-effective manner and open up a sustainable
cost advantage over rivals.
Low Cost Provider Strategies
A low cost leader has two options for achieving
superior profit performance:
1. Use the lower cost edge to underprice
competitors and attract price sensitive buyers in
great enough numbers to increase total profits.
2. Refrain from price cutting altogether, be
content with the present market share, and use
the lower cost edge to earn a higher profit
margin on each unit sold.
Differentiation Strategies
Differentiation strategies are an attractive
competitive approach when buyer preferences
are too diverse to be fully satisfied by a
standardized product or when buyer
requirements are too diverse to be fully satisfied
by sellers with identical capabilities.
To be successful with a differentiation strategy, a
company has to study buyers’ needs and
behavior carefully to learn what they consider
important, what they think as value, and what
they are willing to pay for. Competitive
advantage results once a sufficient number of
buyers become strongly attached to the
differentiated attributes, features or capabilities.
Successful differentiation allows a firm to:
•Command a premium price for its product
•Increase unit sales
•Gain buyer loyalty to its brand
Differentiation enhances profitability whenever
the extra price the product commands
outweighs the added costs of achieving
differentiation.
The most appealing approaches to
differentiation are those that are hard or
expensive for rivals to duplicate.
Matching Strategy to a Company’s Situation
The most important drivers shaping a company’s
best strategic options fall into two broad
categories:
•The nature of industry and competitive
conditions
•The firm’s own resources and competitive
capabilities, market position, and best
opportunities
The dominant strategy shaping industry and
competitive conditions revolve around what
stage in the life cycle the industry is in
(emerging, rapid growth, mature, declining), the
industry’s structure (fragmented versus
concentrated), the relative strength of the five
competitive forces, the impact of industry
driving forces, and the scope of competitive
rivalry (particularly whether the company’s
market is globally competitive).
The pivotal company specific considerations are:
•Whether the company is an industry leader,
and up and coming challenger, a content runner
up, or an also ran struggling to survive
•The company’s set of resource strengths and
weaknesses, competitive capabilities, and
market opportunities and threats
The two critical strategic issues confronting
firms in an emerging industry are (1) how to
finance start up and initial operations until sales
take off and (2) what market segments and
competitive advantages to go after in trying to
secure a leading position.
Some companies find themselves in markets
characterized by rapid-fire technological change,
short product lifecycles entry of important new
rivals, frequent launches of new competitive
moves by rivals, and rapidly evolving customer
requirements and expectations – all at once.
When a fast evolving market environment
entails many technological areas and product
categories, competitors have little choice but to
employ some type of focus strategy and
concentrate on being the leader in a particular
category.
There are several strategic moves that firms can
initiate to strengthen their positions:
•Pruning the Product Line
•More emphasis on Process Innovations
•A stronger focus on cost reduction
• Increasing sales to present customers
• Purchasing rival firms at bargain prices
• Expanding internationally
• Building new or more flexible capabilities
Strategic Pitfalls
Perhaps the greatest strategic mistake a
company can make as an industry matures is
steering a middle course between low cost,
differentiation, and focusing. Such strategic
compromises typically result in a firm ending up
“stuck in the middle”.
Strategic Pitfalls
Other strategic pitfalls include being slow to
adapt to changing customer expectations,
concentrating more on short term profitability
than on building or maintaining long term
competitive position, waiting too long to
respond to price cutting, getting caught with too
much capacity as growth slows, overspending
on marketing efforts to boost sales growth, and
failing to pursue cost reduction soon enough
and aggressively enough.
Strategies for Firms in Stagnant or Declining
Industries
Companies that succeed in stagnant industries
employ one of three strategic themes:
1. Pursue a focused strategy by identifying,
creating, and exploiting the growth segments
within the industry.
2. Stress differentiation based on quality
improvement and product innovation
3. Work diligently and persistently to drive costs
down
Industries
The most common strategic mistakes companies
make in stagnating or declining markets are:
1. Getting trapped in a profitless war of
attrition
2. Diverting too much cash out of the business
too quickly
3. Being overly optimistic about the industry’s
future and spending too much on
improvements in anticipation that things will
get better
Industries
Any of several reasons can account for why the
supply side of an industry is fragmented:
•Low entry barriers allow small firms to enter
quickly and cheaply
•The technologies embodied in the value chain
are exploding into so many new areas and along
so many different paths that specialization is
essential just to keep abreast on any one area of
expertise
Industries
•An absence of large scale production
economies
•Buyers require relatively small quantities of
customized products
•The market for the industry’s product/service is
becoming more global, allowing competitors in
more and more countries to be drawn into the
same competitive market arena
Industries
•Market demand is so large and so diverse that
it take very large numbers of firms to
accommodate buyer requirements
•The industry is so new that no firms have yet
developed their resource base and competitive
capabilities to command a significant market
share
Industries
Competitive strategies based either on low cost
or product differentiation are viable unless the
industry’s product is highly standardized or a
commodity. Focusing on a well defined market
niche or buyer segment usually offers more
competitive advantage potential than striving
for broad market appeal.
Industries
Suitable options in a fragmented industry
include:
•Constructing and operating “formula” factories
•Becoming a low cost operator
•Increasing customer value through integration
•Specializing by product type
•Specialization by customer type
•Focusing on a limited geographic area
Strategies for Competing in International
Markets
Multicountry (or multidomestic) competition
exists when competition in one national market
is independent of competition in another
national market – there is not “international
market”, just a collection of self-contained
country markets.
Markets
Global competition exists when competitive
conditions across national markets are linked
strongly enough to form a true international
market and when leading competitors compete
head to head in many different countries.
Markets
In multicountry competition, rival firms vie for
national market leadership. In globally
competitive industries, rival firms vie for
worldwide leadership.
A global competitor’s market strength is directly
proportional to its portfolio of country based
competitive advantages.
Markets
Types of International Strategies:
1. License foreign firms to use the company’s
technology or produce and distribute the
company’s products
2. Maintain a national (one-country) production
base and export goods to foreign markets
3. Follow a multicountry strategy, varying the
company’s strategic approach from country
to country in accordance with the same basic
competitive theme
Markets
Types of International Strategies:
4. Follow a global low cost strategy
5. Follow a global differentiation strategy
6. Follow a global focus strategy, serving the
same identifiable niche in each country
market
7. Follow a global best cost provider strategy
Markets
Licensing makes sense when a firm with

valuable technical know how or a unique
patented product has neither the internal
capability nor the resources to compete
effectively in foreign markets.
Strategies for Industry Leaders
Three contrasting strategic positions are open to
industry leaders and dominant firms:
1. Stay on the offensive strategy – The theme of
a stay on the offensive strategy is relentless
pursuit of continuous improvement and
innovation.
2. Follow the leader strategy – The leader uses
its competitive muscle to encourage runner
up firms to be content followers rather than
aggressive challengers.
3. Fortify and defend strategy – Make it harder
for new firms to enter and for challengers to
gain ground:
•Attempting to raise the competitive ante by
increasing spending for advertising, higher levels of
customer service, and bigger R&D outlays
•Introducing more product versions or brands
•Adding personalized services and other “extras”
that boost customer loyalty
• Keeping prices reasonable and quality
attractive
• Building new capacity ahead of market
demand
• Investing enough to remain cost competitive
and technologically progressive
• Patenting the feasible alternative
technologies
• Signing exclusive contracts with the best
suppliers, distributors, and dealers
Strategies for Runner Up Firms
Runner up firms have smaller market shares
than the industry leader(s). A challenger firm
interested in improving its market standing
needs a strategy aimed at building a
competitive advantage of its own.
Rarely can a runner up firm improve its
competitive position by imitating the
strategies of leading firms.
Strategies for Runner Up Firms
In industries where large size yields significantly
lower unit costs and gives large-share
competitors an important cost advantage,
small share firms only have two viable
strategic options:
1. Initiate offensive moves to gain sales and
market share
2. Withdraw from the business
Strategies for Weak Businesses
Harvesting is a phasing down or endgame
strategy that involves sacrificing market
position in return for bigger near term cash
flows or profits. The overriding financial
objective is to reap the greatest possible
harvest of cash to use in other business
endeavors.
Strategies for Weak Businesses
Harvesting is a reasonable strategic option for a
weak business in the following
circumstances:
• When the industry’s long term prospects are
unattractive
• When rejuvenating the business would be
too costly or at best marginally profitable
• When the firm’s market share is becoming
more costly to maintain or defend
Turnaround Strategies for Businesses in
Crisis
Turnaround strategies are needed when a
business worth rescuing goes into crisis; the
objective is to arrest the reverse the sources
of competitive and financial weaknesses as
quickly as possible. Management’s first task
to is to diagnose what lies at the root of poor
performance.
Crisis
Curing these kinds of problems and turning the
firm around can involve any of the following
actions:
• Selling off assets to raise cash to save the
remaining part of the business
• Revising the existing strategy
• Launching efforts to boost revenues
• Pursuing cost reduction
• Using a combination of these efforts
Crisis
Thirteen Commandments for Crafting Successful
Business Strategies:
• Place top priority on crafting and executing
strategic moves that enhance the company’s
competitive position for the long term
• Understand that a clear, consistent
competitive strategy, when well crafted and
well executed, builds reputation and
recognizable industry position;
Crisis
• Avoid “stuck in the middle” strategies that
represent compromises between lower costs
and greater differentiation and between
broad and narrow market appeal
• Invest in creating sustainable competitive
advantage
• Play aggressive offense to build competitive
advantage and aggressive defense to protect
it
Crisis
• Avoid strategies capable of succeeding only
in the most optimistic circumstances
• Be cautious in pursuing a rigid or inflexible
strategy that locks the company in for the
long term with little room to maneuver –
inflexible strategies can be made obsolete by
changing market conditions
• Don’t underestimate the reactions and the
commitment of rival firms
Crisis
• Avoid attacking capable, resourceful rivals
without solid competitive advantage and
financial strength
• Consider that attacking competitive
weakness is usually more profitable and less
risky than attacking competitive strength
Crisis
• Be judicious in cutting prices without an
established cost advantage
• Be aware that aggressive moves to wrest
market share away from rivals often provoke
retaliation in the form of a marketing “arms
race” and/or price wars
• Strive to open up vary meaningful gaps in
quality or service or performance features
when pursuing a differentiation strategy

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STRATEGIC MANAGEMENT AND

Strategy is about two things: deciding where

Interpersonal skills are especially critical for

Strategy evaluation is the final stage in strategic

Strategy formulation, implementation, and

By fostering communication and interaction

Strategic management is all about gaining and

Normally, a firm can sustain a competitive

Strategists are the individuals who are most

Strategists help an organization gather, analyze,

Strategists differ as much as organizations

Strategists differ in their attitudes, values, ethics

Many vision statements are a single sentence.

Developing a mission statement compels

External opportunities and external threats refer

Opportunities and threats are largely beyond

These types of changes are creating a different

Other opportunities and threats may include the

A basic tenet of strategic management is that

This process of conducting research and

Internal strengths and internal weaknesses are

Identifying and evaluating organizational

Strengths and weaknesses are determined

Strengths and weaknesses may be determined

Various types of surveys also can be developed

Objectives can be defined as specific results that

Objectives should be challenging, measurable,

Strategies are the means by which long-term

Strategies are potential actions that require top

Annual objectives are short-tem milestones that

Annual objectives represent the basis for

The strategic-management process can best be

Every organization has a vision, mission,

The strategic-management process is not as

Greater formality in applying the strategic-

Strategic management allows an organization to

Historically, the principal benefit of strategic

The manner in which strategic management is

Managers and employees become surprisingly

When one strips away the details to get at the

Five distinct approaches stand out:

1. A low-cost leadership strategy – Appealing to

Five distinct approaches stand out:

Licensing makes sense when a firm with

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