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Chapter 8

Strategic Management

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Strategic Management

• The set of managerial decisions and actions that determines

the long-run performance of an organization.

• The art and science of

formulating, implementing

and evaluating strategies.

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Exhibit 7.1 The Strategic Management Process

SWOT Analysis

Identify theorganization's

current mission, goals,and strategies

Internal Analysis• strengths• weaknesses

External Analysis• opportunities• threats

FormulateStrategies

ImplementStrategies

EvaluateResults

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Strategic Management Process

• Step 1: Identify the Organization’s Current Mission, Objectives, and Strategies– Mission: the firm’s reason for being

• The scope of its products and services

– Goals: the foundation for further planning• Measurable performance targets

• Step 2: Conduct an External Analysis• Focuses on identifying opportunities and threats

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Exhibit 7.2 Components of a Mission Statement

• Customers: Who are the organization’s customers?

• Products or services: What are the organization’s major products or services?

• Markets: Where does the organization compete geographically?

• Technology: How technologically current is the organization?

• Concern for survival growth, and profitability: Is the organization committed to growth and financial stability?

Source: Based on F. David, Strategic Management, 8th ed. (Upper Saddle River, NJ: Prentice Hall, 2001), pp. 65–66.

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Exhibit 7.2 Components of a Mission Statement (cont’d)

• Philosophy: What are the organization’s basic beliefs, values, aspirations, and ethical priorities?

• Self-concept: What is the organization’s major competitive advantage and core competencies?

• Concern for public image: How responsive is the organization to societal and environmental concerns?

• Concern for employees: Does the organization consider employees a valuable asset?

Source: Based on F. David, Strategic Management, 8th ed. (Upper Saddle River, NJ: Prentice Hall, 2001), pp. 65–66.

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Strategic Management Process (cont’d)

• Step 3: Conduct an Internal Analysis– Assessing organizational resources, capabilities, activities,

and culture:• Strengths (core competencies) create value for the customer

and strengthen the competitive position of the firm

• Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage.

• Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)

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Strategic Management Process (cont’d)

• Step 4: Formulate Strategies– Develop and evaluate strategic alternatives

– Select appropriate strategies for all levels in the organization that provide relative advantage over competitors

– Match organizational strengths to environmental opportunities

– Correct weaknesses and guard against threats

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Strategic Management Process (cont’d)

• Step 5: Implement Strategies– Implementation: effectively fitting organizational

structure and activities to the environment

• Step 6: Evaluate Results– How effective have strategies been?

– What adjustments, if any, are necessary?

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Types of Organizational Strategies

• Corporate-level Strategies– Top management’s overall plan for the entire organization

and its strategic business units

• Types of Corporate Strategies– Growth: expansion into new products and markets

– Stability: maintenance of the status quo

– Retrenchment: addresses organizational weaknesses that are leading to performance declines

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Exhibit 7.4 Levels of Organizational Strategy

Research andDevelopment

Manufacturing Marketing HumanResources

Finance

StrategicBusiness Unit 1

StrategicBusiness Unit 2

StrategicBusiness Unit 3

MultibusinessCorporation

FunctionalLevel

BusinessLevel

CorporateLevel

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Corporate-Level Strategies

• Growth Strategy– Seeking to increase the organization’s business

by expansion into new products and markets

• Types of Growth Strategies– Integration

– Diversification

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Growth Strategies (cont’d)

• Diversification– Related Diversification

• Adding new but related products and services.

– Unrelated Diversification• Adding new, unrelated products and services.

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Corporate-Level Strategies (cont’d)

• Corporate Portfolio Analysis

• 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 7.5 The BCG Matrix

Stars

Heavily invest

QuestionMarks

Sell off orturn into stars

CashCows

Milk for cash

Dogs

Sell off orliquidate

High Low

Market ShareH

igh

Lo

w

An

tic

ipa

ted

G

row

th R

ate

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Business-Level Strategy

• Business-Level Strategy– A strategy that seeks to determine how an

organization should compete in each of its SBUs (strategic business units)

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The Role of Competitive Advantage

• Competitive Advantage– An organization’s distinctive competitive edge

that is sourced and sustained in its core competencies

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Five Competitive Forces

• 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

• Bargaining Power of Buyers– The degree to which buyers have the market strength to

hold sway over and influence competitors in an industry

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Five Competitive Forces (cont’d)

• Bargaining Power of Suppliers– The relative number of buyers to suppliers and

threats from substitutes and new entrants affect the buyer-supplier relationship

• Current Rivalry– Intensity among rivals increases when industry

growth rates slow, demand falls, and product prices descend

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Competitive Strategies

• 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

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Functional-Level Strategy

• Functional-level strategies support the business-level strategy– i.e., Marketing, human resources, research and

development, and finance all support the business-level strategy

– Problems occur when employees or customers don’t understand a company’s strategy