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MGT 201 – Fundamentals of Management
Di Fara Discussion Case
You have been asked to consult by the owners of Di Fara, New York City’s best pizza! They
have heard of the growth of the restaurant industry in the Middle East and specifically in
Dubai. The reputation of the expansion of all the burger joints in Dubai has reached New
York. Di Fara wants to capitalize on that and have a presence in Dubai.
The owners have called you in to
consult them on what they should
do. You need to provide them with
two recommendations for their
strategy. First, how should they grow
internationally? Second, what
corporate and competitive strategy
should they implement?
Follow these steps:
1. Do some research on the
restaurant – learn more about it.
2. Generate ideas about the alternative recommendations that the members think will
be most likely to succeed. Be as innovative and creative and no suggestion should be
criticized
3. List and explain the pros and cons of the alternatives.
4. Select one of the alternatives with an explanation why you think it is the best.
Management: Second Arab World Edition
Robbins, Coulter, Sidani, Jamali
Chapter 8: Strategic Management
Lecturer: Alaa Hamade
What is Strategic Management?
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Exhibit 8–1 The Strategic Management Process
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Step 1: Identifying the Current Mission, Goals, and Strategies
Mission: a statement of the purpose of an organization
The scope of its products and services
Goals: the foundation for further planning
Measurable performance targets
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Exhibit 8–2 Components of a Mission Statement
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Step 2: Doing an external analysis
The environmental scanning of specific and general environments
Focuses on identifying opportunities and threats
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Step 3: Doing an internal analysis
Assessing organizational resources, capabilities, and core competencies:
Resources: Assets that are used to develop and deliver products to customers.
Capabilities: Skills and abilities in doing the work activities.
Core competencies: The major value-creating capabilities of the organization.
Focuses on identifying strengths and weaknesses
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Step 4: Formulating strategies
Develop and evaluate strategic alternatives.
Select appropriate strategies for all levels in the organization that provide relative advantage over competitors (3 types of strategies for the levels)
Match organizational strengths to environmental opportunities.
Correct weaknesses.
Guard against threats.
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Step 5: Implementing strategies
Effectively fitting organizational structure and activities to the environment.
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Step 6: Evaluating results
How effective have strategies been?
What adjustments, if any, are necessary?
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Exhibit 8–4 Levels of Organizational Strategies
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What is a Corporate Strategy?
A corporate strategy is one that specifies what businesses a company is in or wants to be in and what it wants to do with those businesses.
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What Are the Types of Corporate Strategies?
1. Growth:
expansion into new products and markets
2. Stability:
maintenance of the status quo
3. Renewal:
examination of organizational weaknesses that are leading to performance declines
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1. Growth Strategy
Seeking to increase the organization’s business by expansion into new products and markets.
Types of Growth Strategies
Concentration
Vertical integration
Horizontal integration
Diversification
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Concentration
Focusing on a primary line of business and increasing the number of products offered or markets served.
Vertical Integration
Backward vertical integration: attempting to gain control of inputs (become a self-supplier).
Forward vertical integration: attempting to gain control of output through control of the distribution channel or provide customer service activities (eliminating intermediaries).
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1. Growth Strategy (cont’d)
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Horizontal Integration
Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals.
Related Diversification
Expanding by combining with firms in different, but related industries that are “strategic fits”.
Unrelated Diversification
Growing by combining with firms in unrelated industries where higher financial returns are possible.
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1. Growth Strategy (cont’d)
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2. Stability Strategy
This strategy is appropriate if:
Managers want to maintain the status quo to deal with the uncertainty of a dynamic environment.
The industry is experiencing slow- or no-growth conditions.
If the owners of the firm elect not to grow for personal reasons.
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3. Renewal Strategies
Developing strategies to counter organization weaknesses that are leading to performance declines.
Retrenchment:
focusing of eliminating non-critical weaknesses and restoring strengths to overcome current performance problems. Related to a non-core business process or function.
Turnaround:
addressing critical long-term performance problems through the use of strong cost elimination measures and large-scale organizational restructuring solutions. Related to a core business process or function.
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How are Corporate Strategies Formulated?
Managers manage a portfolio (or collection) of businesses using a corporate portfolio matrix such as the BCG Matrix.
BCG Matrix
Developed by the Boston Consulting Group.
Considers market share and industry growth rate.
Classifies firms as:
Cash cows: low growth rate, high market share
Stars: high growth rate, high market share
Question marks: high growth rate, low market share
Dogs: low growth rate, low market share
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Exhibit 8–5 BCG Matrix
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How are Corporate Strategies Formulated?
(cont’d)
Possible strategies:
Cash cows: They are milked for as much as they can, limit any new investment, and use the cash to invest in stars and questions marks that have strong potential for higher market share.
Stars: Ese cash from cash cows to invest heavily in stars and take advantage of market growth and maintain market share. Could develop into cash cow as growth slows.
Question marks: The hardest decisions are for question marks. Some will be sold off and others invested heavily to turn into stars – depending on potential for growth in market share.
Dogs: They should be sold off or liquidated
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Competitive Strategies
A competitive strategy is focused on how an organization will compete in its business(es).
For an organization in only one line of business, the competitive strategy describes how it will compete in its primary or main market.
When an organization is in several different businesses, those single businesses that are independent and formulate their own competitive strategies are often called strategic business units (SBUs).
Each SBU has its own competitive strategy that defines its competitive advantage, the products or services it will offer, the customers it wants to reach, and the like.
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The Role of Competitive Advantage
1. Competitive Advantage sets an organization’s distinctive competitive edge.
2. That distinctive edge comes from the organization’s core competencies because the organization does something that others cannot do or does it better than others can do it.
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Quality as a Competitive Advantage
Differentiates the firm from its competitors.
Can create a sustainable competitive advantage.
Represents the company’s focus on quality management to achieve continuous improvement and meet customers’ demand for quality.
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Sustaining Competitive Advantage
Continuing over time to effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry competitors.
It is not easy to create a sustainable competitive advantage due to market instabilities, new technology, and other changes.
By using strategic management, managers can better position their organizations to get a sustainable competitive advantage.
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How are Competitive Strategies Formulated?
Porters Five Forces Model
Threat of New Entrants
The ease or difficulty with which new competitors can enter an industry.
Threat of Substitutes
The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitute products and services. Substitutes are products a completely different product from a different industry that could replace the organizations core offering. sway over and influence competitors in an industry.
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Bargaining Power of Buyers
The degree to which buyers have the market strength to hold
Bargaining Power of Suppliers
The power suppliers have over organizations in determining the price and quality of the products and services being supplied.
Current Rivalry
Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend.
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How are Competitive Strategies Formulated? (cont’d)
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Exhibit 8–6 Five Forces Model
Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980).
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Choosing a Competitive Strategy
Cost Leadership Strategy
Seeking to attain the lowest total overall costs relative to other industry competitors.
Differentiation Strategy
Attempting to create a unique and distinctive product or service for which customers will pay a premium.
Focus Strategy
Using a cost or differentiation advantage to exploit a particular market segment rather than a larger market.
Stuck in the Middle
When an organization cannot develop a cost or differentiation advantage.
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Functional Strategy
Functional Strategy
Used by an organization’s various functional departments to support the competitive strategy
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