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Strategic Management
VOLUME 4
Management of People
and Organizations
A. MIHIOTIS
Note
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MANAGEMENT OF PEOPLE AND ORGANIZATIONS
Strategic Management
Note
The Hellenic Open University is responsible for the editing of this publication and the development of the text
in accordance with the Methodology of Distance Learning. The scientific accuracy and completeness of the
written materials are the exclusive responsibility of the authors, scientific reviewers, and academic supervisors
who undertook this project.
Copyright © 2005For Greece and the world
HELLENIC OPEN UNIVERSITY16, Sahtouri Str. & Ag. Andreou Str., 26222 Patras
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PREPARATION OF THE TEACHING MATERIAL of the Volume
Strategic Management
Academic Supervisor for the Development of the Program and the Textbooks George Agiomirgianakis
Author Scientific ReviewerAthanassios Mihiotis . . . . . . . . . . George Dalakas
Supervision of the Methodology of Distance LearningGeorge Spais
Language EditingEvi Plomaritou
Artistic LayoutArtemis Glarou
Layout / ProductionArtemis Glarou
Coordination of the development of the educational materialand overall supervision of the publications
HOU PROJECT TEAM /1997-2005
ISBN: 960-538-568-6
In accordance with Law 2121/1993,the partial or total republishing, or reproduction
by any means, of this book is prohibited without the permission of the publisher.
SCHOOL OF SOCIAL SCIENCES
PROGRAM OF STUDIESMasters in Business Administration
MODULE
Management of People and Organizations
VOLUME 4
STRATEGIC MANAGEMENT
PATRAS 2005
Preface 15
Introduction 16
C H A P T E R 1The strategic management process 19
The Scope of the Chapter...................................................................................................19
Learning Objectives............................................................................................................19
Key Words ...........................................................................................................................19
Introductory Comments.....................................................................................................19
1.1 The tasks of strategic management ...........................................................................21
1.1.1 Strategic vision and mission settings ..................................................................21
1.1.2 Long-term and short-term objectives setting.....................................................22
1.1.3 Developing a strategy to achieve objectives.......................................................23
1.1.4 Implementing the strategy efficiently.................................................................24
1.1.5 Evaluate performance and apply corrective actions .........................................24
1.2 Who performs the tasks of strategic management...................................................25
1.2.1 The role of CEO and other senior executives....................................................25
1.2.2 Levels of strategy managers ................................................................................25
1.3 The benefits of strategic management.......................................................................27
1.3.1 Business benefits..................................................................................................27
1.3.2 Financial benefits.................................................................................................28
Synopsis-Conclusions........................................................................................................31
Bibliography ........................................................................................................................32
Recommended Readings ...................................................................................................32
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CONTENTS
C H A P T E R 2Establishing company direction 33
The Scope of the Chapter...................................................................................................33
Learning Objectives............................................................................................................33
Key Words ...........................................................................................................................33
Introductory Comments.....................................................................................................33
2.1 Developing a strategic vision ......................................................................................35
2.1.1 Vision setting........................................................................................................35
2.1.2 The mission statement.........................................................................................36
2.1.3 Importance of mission and vision statements....................................................37
2.1.4 Characteristics of mission statement..................................................................37
2.1.5 Components of mission statement .....................................................................39
2.1.6 Examples of mission statements .........................................................................39
2.2 Setting objectives .........................................................................................................41
2.2.1 Types of objectives...............................................................................................41
2.2.2 Strategic vs. financial objectives .........................................................................42
2.2.3 Setting objectives top down.................................................................................43
2.3 Strategy formulation ...................................................................................................44
2.3.1 Characteristics of strategy formulation..............................................................44
2.3.2 The strategy formulation hierarchy....................................................................44
2.3.3 Integrating the strategy formulation process.....................................................47
2.4 Factors that shape a company’s strategy ..................................................................48
2.4.1 External factors....................................................................................................48
2.4.2 Internal factors.....................................................................................................49
2.5 Tests of a winning strategy .........................................................................................50
Synopsis-Conclusions........................................................................................................54
Bibliography ........................................................................................................................55
Recommended Readings ...................................................................................................55
C H A P T E R 3Industry and competition analysis 57
The Scope of the Chapter...................................................................................................57
Learning Objectives............................................................................................................57
Key Words ...........................................................................................................................57
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Introductory Comments.....................................................................................................57
3.1 External forces .............................................................................................................59
3.1.1 Economic forces...................................................................................................60
3.1.2 Social, cultural, demographic and environmental forces .................................61
3.1.3 Political, governmental and legal forces ............................................................62
3.1.4 Technological forces............................................................................................63
3.2 Competitive and industry forces ................................................................................65
3.2.1 Industry’s dominant economic characteristics ..................................................65
3.2.2 Competitive forces at work in industry and their strength ...............................66
3.2.3 Assessing competitive positions: Strategic group mapping..............................71
3.2.4 Industry Key Success Factors..............................................................................72
3.2.5 Industry attractiveness.........................................................................................73
Synopsis-Conclusions........................................................................................................77
Bibliography ........................................................................................................................78
Recommended Readings ...................................................................................................78
C H A P T E R 4Evaluating company resources
and competitive capabilities 79
The Scope of the Chapter...................................................................................................79
Learning Objectives............................................................................................................79
Key Words ...........................................................................................................................79
Introductory Comments.....................................................................................................79
4.1 Basic concepts ..............................................................................................................81
4.2 Assessment of the company’s present strategy ........................................................83
4.3 Company’s resource strengths and weaknesses and its external opportunities
and threats ...................................................................................................................84
4.3.1 Identifying company’s strengths and weaknesses..............................................84
4.3.2 Market opportunities and threats.......................................................................85
4.3.3 SWOT analysis value ...........................................................................................86
4.4 Assessing competitor’s strengths and weaknesses; prices and costs.....................87
4.4.1 Strategic cost analysis and value chain ...............................................................87
4.4.2 Benchmarking the costs of key activities............................................................89
4.4.3 Strategic options for cost competitiveness.........................................................90
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4.5 Evaluating company’s competitive position .............................................................91
4.6 Deciding the strategic challenges ..............................................................................92
Synopsis-Conclusions........................................................................................................96
Bibliography ........................................................................................................................97
Recommended Readings ...................................................................................................97
C H A P T E R 5Generic strategies 99
The Scope of the Chapter...................................................................................................99
Learning Objectives............................................................................................................99
Key Words ...........................................................................................................................99
Introductory Comments.....................................................................................................99
5.1 Generic strategies ......................................................................................................101
5.2 Broad low cost leadership strategy ..........................................................................103
5.2.1 How to achieve low cost leadership..................................................................103
5.2.2 Characteristics of successful low cost leadership strategies ...........................107
5.2.3 When low cost strategy works best ...................................................................107
5.2.4 Drawbacks to a low cost strategy ......................................................................108
5.3 Broad differentiation strategy..................................................................................109
5.3.1 Approaches to differentiation ..........................................................................109
5.3.2 Sources for differentiation opportunities ........................................................109
5.3.3 How to create differentiation based competitive advantage..........................110
5.3.4 Importance of perceived and signalling value .................................................110
5.3.5 Strengths of differentiation strategy.................................................................110
5.3.6 When differentiation works best ......................................................................111
5.3.7 Drawbacks to differentiation strategy..............................................................111
5.4 Best cost strategy .......................................................................................................112
5.5 Focused (market niche) strategies ..........................................................................113
5.5.1 Strengths of focus strategy ................................................................................113
5.5.2 When focus strategy works best and its drawbacks or risks ............................114
Synopsis-Conclusions......................................................................................................118
Bibliography ......................................................................................................................119
Recommended Readings .................................................................................................119
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C H A P T E R 6Strategies for global markets 121
The Scope of the Chapter.................................................................................................121
Learning Objectives..........................................................................................................121
Key Words .........................................................................................................................121
Introductory Comments...................................................................................................121
6.1 Factors for expanding into foreign markets ...........................................................123
6.2 Risks in expanding into foreign countries ..............................................................124
6.3 Options for entering a foreign market ....................................................................125
6.3.1 Indirect exporting ..............................................................................................125
6.3.2 Direct exporting .................................................................................................126
6.3.3 Licensing.............................................................................................................126
6.3.4 Strategic alliances and joint ventures ...............................................................127
6.4 Multi-country or global strategy ..............................................................................128
6.5 Competitive advantage achievement in case of multinational competition .......129
6.6 Profit sanctuaries and cross-market subsidization...............................................131
6.7 Generic strategies for domestic firms in emerging markets.................................131
Synopsis-Conclusions......................................................................................................134
Bibliography ......................................................................................................................135
Recommended Readings .................................................................................................135
C H A P T E R 7Other types of strategies 137
The Scope of the Chapter.................................................................................................137
Learning Objectives..........................................................................................................137
Key Words .........................................................................................................................137
Introductory Comments...................................................................................................137
7.1 Strategies that best fit specific types of industry ...................................................139
7.1.1 Strategies for emerging industries of the future..............................................139
7.1.2 Strategies for turbulent, high velocity markets................................................140
7.1.3 Strategies for maturing industries ....................................................................140
7.1.4 Strategies for stagnant or declining industries ................................................141
7.1.5 Strategies for fragmented industries ................................................................141
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7.2 Strategies in the internet era ....................................................................................143
7.2.1 Impact of internet technology...........................................................................143
7.2.2 Strategic mistakes made by early internet companies.....................................144
7.2.3 Strategic moves for pure dot com companies ..................................................144
7.2.4 Strategic initiatives for traditional companies.................................................145
7.3 Market leader strategies ...........................................................................................146
7.3.1 Expanding total market demand ......................................................................146
7.3.2 Defending market share....................................................................................147
7.3.3 Increasing market share further .......................................................................150
7.4 Market challenger strategies....................................................................................151
7.5 Market follower strategies ........................................................................................152
7.6 Market nichers...........................................................................................................153
7.7 Methods of developing a strategy ............................................................................154
7.7.1 Vertical integration ...........................................................................................154
7.7.2 Horizontal integration.......................................................................................157
7.8 Diversification strategies ..........................................................................................159
7.8.1 Related - Concentric diversification.................................................................159
7.8.2 Related - Horizontal diversification.................................................................160
7.8.3 Strategic fit and related diversified strategies..................................................160
7.8.4 Unrelated - Conglomerate diversification.......................................................161
7.9 Analysis and evaluation of diversified companies’ strategies ..............................162
7.9.1 Identification of present strategy......................................................................162
7.9.2 Evaluation of industry attractiveness ...............................................................162
7.9.3 Evaluation of the competitive strength of each business unit........................163
7.9.4 Resource allocation decisions...........................................................................164
7.10 Mergers and acquisitions........................................................................................165
7.11 Defensive strategies .................................................................................................166
7.11.1 Restructuring ...................................................................................................166
7.11.2 Divestiture........................................................................................................166
7.11.3 Liquidation.......................................................................................................167
7.12 Principles for developing successful strategies ....................................................168
Synopsis-Conclusions......................................................................................................172
Bibliography ......................................................................................................................174
Recommended Readings .................................................................................................174
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C H A P T E R 8The role of management in the strategy implementation 175
The Scope of Chapter .......................................................................................................175
Learning Objectives..........................................................................................................175
Key Words .........................................................................................................................175
Introductory Comments...................................................................................................175
8.1 The principal strategy implementation tasks ........................................................177
8.2 Building a capable organization ..............................................................................178
8.2.1 Selecting able people for key positions ............................................................178
8.2.2 Developing skills, core competences and competitive capabilities................179
8.2.3 Creating strategy-supportive organization structure ......................................179
8.3 Managing the internal organization to achieve better strategy
implementation ..........................................................................................................180
8.3.1 Linking budgets to strategy ...............................................................................180
8.3.2 Developing strategy-supportive policies and procedures...............................180
8.3.3 Instituting best practices and a commitment to continuous improvement ...181
8.3.4 Installing support systems .................................................................................182
8.3.5 Designing strategy reward systems ...................................................................182
8.4 Corporate culture and leadership ...........................................................................184
8.4.1 Why culture matters ..........................................................................................184
8.4.2 Creating a strong fit between strategy and culture..........................................184
Synopsis-Conclusions......................................................................................................186
Bibliography ......................................................................................................................187
Recommended Readings .................................................................................................187
Appendix ...........................................................................................................................188
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