Strategic management Study Guide

📖 Core Concepts Strategic Management – Ongoing process of formulating + implementing major goals to create value for stakeholders. Levels of Strategy – Corporate (what businesses to be in), Business (how to compete), Operational (efficiency within the chosen strategy). Formulation vs. Implementation – Formulation = analysis & choice (PEST, Five Forces, SWOT, Ansoff, etc.). Implementation = aligning structure, people, processes, incentives, and monitoring. Porter’s Three Principles – (1) Unique, valuable market position, (2) Trade‑offs (decide what NOT to do), (3) Fit (align activities with the chosen position). External Analysis Frameworks – PEST/PESTLE (political‑economic‑social‑technological‑legal‑environmental), Porter’s Five Forces, Six Forces (adds complementors/government). Internal Analysis – Strengths & weaknesses of resources, people, processes, IT; leads to core competence and the resource‑based view (Barney). Generic Competitive Strategies – Cost Leadership, Differentiation, Focus (Cost Focus or Differentiation Focus). Value Chain – Primary activities (inbound logistics → service) + support activities (infrastructure, HR, tech, procurement) to locate cost or differentiation sources. Growth‑Share (BCG) Matrix – Plots Business Units by market share (relative) and industry growth → Stars, Cash Cows, Question Marks, Dogs. Ansoff Matrix – Growth options: Market Penetration, Product Development, Market Development, Diversification. Balanced Scorecard – Translates vision/strategy into performance measures across financial, customer, internal‑process, and learning‑growth perspectives. Dynamic Capabilities – Ability to integrate, build, reconfigure competencies to meet rapid change (Teece). Strategic Windows / Inflection Points – Moments when trends shift enough to require a new strategic direction (Grove). --- 📌 Must Remember Three Porter Principles → Position, Trade‑offs, Fit. Five Forces: Buyer Power, Supplier Power, Threat of New Entrants, Threat of Substitutes, Rivalry. Generic Strategies: Cost‑leadership → lowest cost; Differentiation → unique value; Focus → narrow segment. BCG Quadrants: Stars: high growth + high share → invest. Cash Cows: low growth + high share → harvest. Question Marks: high growth + low share → decide invest or divest. Dogs: low growth + low share → consider exit. Ansoff Options – Remember the four “‑development” words. Value Chain – Primary vs. Support activities; cost advantage ↔ efficient primary activities; differentiation ↔ unique support activities. Balanced Scorecard Perspectives – Finance, Customer, Internal Process, Learning & Growth. Dynamic Capability Definition – Integrate, build, reconfigure internal/external competencies. Strategic Inflection Point – When a new trend makes the old business model obsolete. PIMS Finding – Higher market share → higher profit (via economies of scale & experience curve). Competitor‑oriented Objective Myth – High market share isn’t always required; niche players can earn outsized returns. --- 🔄 Key Processes Strategic Management Cycle Scan external environment (PEST/PESTLE). Conduct industry analysis (Porter’s Five/Six Forces). Perform internal audit (SWOT, resources, value chain). Formulate strategy (choose corporate/business level, select generic strategy, apply Ansoff growth option). Set short‑ and long‑term objectives & performance measures. Implement: design structure, assign leadership, create incentives, launch communication plan, set monitoring mechanisms. Evaluate & feed back → adjust. Scenario Planning Identify driving uncertainties. Build 3‑4 plausible future scenarios. Assess strategic implications of each. Choose robust actions that perform well across scenarios. Balanced Scorecard Development Translate vision into strategic objectives per perspective. Define leading & lagging metrics. Link measures to initiatives (projects). Review quarterly; adjust targets. Portfolio Allocation (BCG Matrix) Plot each business unit. Prioritize investment: Stars → grow, Cash Cows → fund others, Question Marks → evaluate potential, Dogs → divest. Dynamic Capability Building Sense: monitor market/technology signals. Seize: allocate resources to promising opportunities. Transform: reconfigure assets & processes. --- 🔍 Key Comparisons Corporate vs. Business vs. Operational Strategy Corporate: “What businesses should we be in?” (portfolio). Business: “How do we compete in this market?” (generic strategy). Operational: “How do we execute efficiently?” (processes, cost control). Cost Leadership vs. Differentiation vs. Focus Cost: Compete on price; scale & efficiency. Differentiation: Unique attributes valued by customers; often higher price. Focus: Target narrow segment; can be cost‑focused or differentiation‑focused. Strategic Planning vs. Strategic Thinking Planning: Analytical data collection, formal reports. Thinking: Synthesis, insight, “connecting the dots”. Linear (Planned) vs. Adaptive Strategy Model Linear: Long‑range, top‑down, fixed plans. Adaptive: Continuous learning, flexible response, less centralization. Market‑Share‑Driven Profit (PIMS) vs. Competitor‑Oriented Objectives PIMS: Higher share → higher profit (scale/experience). Armstrong & Greene: Niche focus can beat share‑driven approach. --- ⚠️ Common Misunderstandings “More market share always means higher profit.” – True only when scale economies and experience‑curve effects exist; niche firms can earn higher returns. “Structure always follows strategy.” – Chandler’s view is useful, but feedback loops mean structure can also shape strategy. “Strategic planning = strategy.” – Planning provides inputs; the actual strategy emerges from strategic thinking. “Focus strategy is only cost‑focused.” – It can be differentiation focus as well. “Porter’s Five Forces includes government as a separate force.” – Government influence is usually embedded in supplier or buyer power; only a Sixth Force model adds it explicitly. --- 🧠 Mental Models / Intuition Trade‑off Lens – Every strategic choice forces you to give up something else; ask “What are we NOT doing?” Fit Puzzle – Visualize the firm as a jigsaw; each activity must interlock with the others to create a coherent picture. Value‑Chain Flow – Follow the product/service from inbound logistics to after‑sale service; spot where cost can be cut or uniqueness added. Dynamic Capability Cycle – Sense → Seize → Transform – think of it as a living organism constantly adapting. Strategic Window – Imagine a door that opens briefly; the sooner you notice and walk through, the larger the advantage. --- 🚩 Exceptions & Edge Cases Niche High‑Return Firms – Small market share but superior margins (e.g., luxury brands). BCG Matrix Limitations – High‑growth industries may still be unattractive if barriers are low; market share alone doesn’t guarantee profitability. Focus Strategy Pitfalls – Over‑specialization can expose the firm to demand shocks in the narrow segment. PEST vs. STEEPLE – Some frameworks add Ethical or Environmental dimensions; choose the version that matches the exam’s emphasis. Dynamic Capabilities Require Resources – Firms lacking absorptive capacity cannot reconfigure quickly, even if they recognize the need. --- 📍 When to Use Which Porter’s Five Forces – Assess industry attractiveness before choosing a generic strategy. SWOT – Quick internal‑external alignment; best early in formulation. Ansoff Matrix – When deciding growth direction (penetrate existing market vs. new product/market). BCG Matrix – Portfolio decisions across multiple business units; allocate capital. Value Chain Analysis – Diagnose cost vs. differentiation sources; decide where to invest in process improvement or technology. Balanced Scorecard – Translate strategy into measurable targets across the organization. Scenario Planning – High uncertainty (technological disruption, regulatory change). Resource‑Based View – When the firm’s unique assets are the main source of advantage. Adaptive Strategy Model – Rapidly changing environments where flexibility outweighs detailed long‑range plans. --- 👀 Patterns to Recognize “Fit, Trade‑offs, Position” appears together when discussing Porter’s principles. Feedback Loop – Any diagram showing formulation → implementation → monitoring → revision. “Strength‑Opportunity” Pairings in SWOT often lead to growth strategies; “Weakness‑Threat” pairs signal defensive actions. “Stars → Cash Cows → Dogs” progression in BCG over time; watch for language indicating movement between quadrants. “Learning Organization” → presence of the five disciplines (personal mastery, mental models, shared vision, team learning, systems thinking). --- 🗂️ Exam Traps Distractor: “The best strategy is always the one with the highest market share.” – Wrong; niche can beat share‑driven profit. Distractor: “Porter’s Five Forces includes a sixth force for government.” – Only the Six Forces extension adds it; standard model has five. Distractor: “Strategic planning is the same as strategy.” – Planning = data; strategy = the chosen direction. Distractor: “Focus strategy only uses cost advantage.” – It can also be a differentiation focus. Distractor: “Dynamic capabilities are a fixed set of skills.” – They are processes that enable continual reconfiguration, not static assets. Distractor: “Ansoff’s market development means selling existing products to existing customers.” – That’s market penetration; market development targets new customers/segments. ---