Question

• Describe the six steps of the strategic management process and the purpose of each step.
• Describe the four growth strategies an organization can use to expand its business.
• List and explain Porter’s five competitive forces that describe the relative competiveness of an industry.
• List and explain, with examples, the three competitive strategies an organization could use to give them the best competitive advantage.
• Explain the Boston Consulting Group matrix that analyzes business based on market share and growth rate.

Answer 1

1. Six steps in strategic management process

1. Developing Organization’s Vision and Mission

First the strategies developers a vision for the organization and then formulate the mission.

Vision: A vision statement is a declaration of an organization's objectives, intended to guide its internal decision-making. A vision statement is not limited to business organizations and may be use by non-profit or governmental entities.

Mission: A mission statement is a short statement of why an organization exists, what its overall goal is, identifying the goal of its operations: what kind of product or service it provides, its primary customers or market, and its geographical region of operation.

2. Strategic Analysis of the organization

For setting objectives, the strategists conduct the thorough analysis of the external and internal environment and collect all the necessary information for setting the business objectives.

3. Establishing Objectives

In this, phase strategists set objectives and these objectives afterwards used for measuring the organization’s performance and progress.

4. Strategic Evaluation and Control

They focus and start with the most important task and formulate strategies to achieve objectives in third phase.

5. Strategy Implementation

In this phase manager’s, accomplish all the necessary organizational tasks to implementation of the viable chosen strategy.

6. Strategy Formulation

Managers monitor developments, evaluate the performance of all those involved with implementing a strategy, and make corrective adjustments in the organization’s objectives, strategy or in the implementation plan on the basis of actual situations, including new developments in the environment as well new ideas and opportunities. That means, strategic evaluation and control attempts to establish standards of performance, monitors progress during the implantation strategy, and (if anything goes wrong) intimate corrective adjustments.

2. Four Growth Strategies are;

1. Market Penetration

2. Market Development

3. Product Development

4. Differentiation

Market Penetration: The aim of this strategy is to increase the sale of existing product in the existing market and through this you can increase your market share. For market penetration you can do price decrease, an increase in promotion and distribution support, you can attract the customer from the competitors and make sure that they buy your existing product more often.

Market Development: This means increase your sale or services of an existing product or service in a new or unexplored market. It involves the analysis of how a company can offer the existing product in the new market or how to grow in the new market. This can be accomplished by different customer segments ;industrial buyers for a good that was previously sold only to the households.

Product Development: The aim of this strategy is to develop a new product or service in the existing market This strategy is used to give the offer to the current customer to increase the turnover.

Diversification: It means that develop new product or service in the new market. This is the riskiest strategy because we don't know that developed product will be able to perform in the new market or not.

Horizontal Diversification: Selling the new developed product to the existing customer segment.

Vertical Diversification: The company enters the sector of it suppliers or its customers.

Conglomerate Diversification: Adding new product or services that are different from the organisation's existing product.

  Concentric Diversification: A type of diversification which a company acquires or develops new products or services (closely related to its core business or technology) to enter one or more new markets.

3. Porter's five competitive Forces

1 Bargaining Power of Suppliers:

This force states that how much power and control a company’s supplier has over the potential to raise its prices or to reduce the quality of purchased goods or services, which in turn would lower an industry’s profitability potential. Suppliers and the availability of substitute suppliers are important factors in determining supplier power. Less suppliers means more power.

2. Bargaining Power of Buyers:

Buyers are the important force of the industry it states that how much power they have to put the price down of the product in the industry they can hurt the profitability of the market.

3. Competitor Rivalry:

It focuses on the number and the capability of the competitors in the market.Rivalry is high when there are a lot of competitors that are roughly equal in size and power, when the industry is growing slowly and when consumers can easily switch to a competitors offering for little cost.

4. Threats of new entrants:

If the market is in profitable state then it attracts more new entrants and it leads to lower the profitability of the market.

5. Threats of Substitution:

When there are large number of substitute products in the market then there are high chances that the consumer will switch to the other alternative unless the other providing the lower price product with high quality. This reduce both the market attractiveness and the power of suppliers.

4. 3 competitive Strategies

1. Cost Leadership: In this strategy the company establishing a competitive advantage by having the lowest cost of operation in the industry. For example, McDonalds.

2. Differentiation: In this strategy firm seeks to be unique in its industry along some dimensions of the industry which most valued by the customer. It chooses one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price.

3. Focus: Narrow competitiveness scope within the industry.

It has two variants.

1. Cost focus: Gaining cost advantage in the target segment.

2. Differentiate Focus: Targeting small group of customers with differentiated products.

5. BCG matrix

Stars: They have high market share and high market growth therefore they generate high amount of cash and consume high amount of cash.Generally stars get same amount of cash coming in that is going out. If the stat only have large amount of market share then they become cash cows.

Cash Cows: Basically they are the mature market leaders they generate more cash than they consume because they have high market share and low market growth. Cash cow give cash to the question mark to become a market leader to cover the administrative costs of the company, fund research and development, service the corporate debt, and pay dividends to shareholders. Companies are advised to invest in cash cows to maintain the current level of productivity, or to "milk" the gains passively.

Question Mark: Question Marks growing rapidly and consume large amount of cash because they have low market share and high market growth they consume a lot cash than they generate so they need more cash to develop themselves and to sustain in the market.

Dogs: Dogs have low market share and low market growth thus they neither generate cash nor they consume basically they are the break even point. They have invested in projects which have little potential.