Strategic

Management

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2012 Pearson Education,
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Define strategic management and explain why it’s
important.
Explain what managers do during the six steps of
the strategic management process.
Describe the three types of corporate strategies.
Describe competitive advantage and the
competitive strategies organizations use to get
it.
Discuss current strategic management issues.

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 What Is Strategic Management?

• Strategic management - what managers do to

develop the organization’s strategies.
• Strategies - the plans for how the organization
will do what it’s in business to do, how it will
compete successfully, and how it will attract and
satisfy its customers in order to achieve its
goals.
• Business model - how a company is going to
make money.

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 Why Is Strategic Management
Important?

1. It results in higher organizational

performance.
2. It requires that managers examine and
adapt to business environment changes.
3. It coordinates diverse organizational units,
helping them focus on organizational
goals.

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 The Strategic Management Process

• Strategic management process - a six-

step process that encompasses strategic
planning, implementation, and evaluation.

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 Exhibit 9-1
Strategic Management Process

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 The Strategic Management Process
(cont.)

• Step 1: Identifying the organization’s

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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 The Strategic Management Process
(cont.)

• Step 2: Doing an external analysis

– The environmental scanning of specific and
general environments
• Focuses on identifying opportunities and threats

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 Exhibit 9-2
Components of a Mission Statement

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 The Strategic Management Process
(cont.)

• Step 3: Doing an internal analysis

– Assessing organizational resources, capabilities, and
activities:
• Strengths create value for the customer and
strengthen the competitive position of the firm.
• Weaknesses 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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 SWOT Analysis

• SWOT analysis - an analysis of the

organization’s strengths, weaknesses,
opportunities, and threats.
• Resources - an organization’s assets that
are used to develop, manufacture, and
deliver a product to its customers.
• Capabilities - an organization’s skills and
abilities in doing the work activities needed
in its business.
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 Strengths and Weaknesses

• Strengths - any activities the organization

does well or any unique resources that it
has.
• Weaknesses - activities the organization
does not execute well or needed
resources it does not possess.
• Core competencies - the organization’s
major value-creating capabilities that
determine its competitive weapons.
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 The Strategic Management Process
(cont.)

• Step 4: Formulating 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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 The Strategic Management Process
(cont.)
• Step 5: Implementing strategies
– Implementation - effectively fitting organizational
structure and activities to the environment.
– The environment dictates the chosen strategy;
effective strategy implementation requires an
organizational structure matched to its requirements.
• Step 6: Evaluating results
– How effective have strategies been?
– What adjustments, if any, are necessary?

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 What Is Corporate Strategy?

• Corporate strategy - an organizational

strategy that determines what businesses
a company is in or wants to be in, and
what it wants to do with those businesses.
• Strategic Business Unit (SBU) - the
single independent businesses of an
organization that formulate their own
competitive strategies.

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 Types of Corporate Strategies

• Growth - expansion into new products

and markets.
• Stability - maintenance of the status quo.
• Renewal - examination of organizational
weaknesses that are leading to
performance declines.

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 Exhibit 9-3
Types of Organizational Strategies

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 Growth Strategies

• Growth strategy - a corporate strategy

that’s used when an organization wants to
expand the number of markets served or
products offered, through either its current
business(es) or new business(es).

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 Types of Growth Strategies

• Concentration - focuses on its primary line

of business and increases the number of
products offered or markets served in this
primary business
• Vertical integration
– Backward vertical integration - the
organization becomes its own supplier
– Forward vertical integration - the organization
becomes its own distributor
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 Types of Growth Strategies (cont.)

• Horizontal integration - a company grows

by combining with competitors.
• Diversification
– Related diversification - when a company
combines with other companies in different,
but related, industries
– Unrelated diversification - when a company
combines with firms in different and unrelated
industries

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 Corporate Strategies (cont.)

• Stability strategy - a
corporate strategy in
which an organization
continues to do what it is
currently doing.

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 Corporate Strategies (cont.)

• Renewal strategy - a corporate strategy

designed to address declining
performance.
– Retrenchment strategy - a short-run renewal
strategy used for minor performance
problems.
– Turnaround strategy - when an organization’s
problems are more serious, more drastic
action is needed.

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 How Are Corporate
Strategies Managed?

• BCG matrix - a strategy tool that guides

resource allocation decisions on the basis
of market share and growth rate of SBUs.
• Four Categories
– Stars
– Cash Cows
– Question Marks
– Dogs

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 Competitive Strategies

• Competitive strategy - an organizational

strategy for how an organization will
compete in its business(es).
• Competitive advantage - what sets an
organization apart; its distinctive edge.
– Quality as a Competitive Advantage
– Design Thinking as a Competitive Advantage
– Sustaining Competitive Advantage

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 Five Forces Model

• Five forces determine industry

attractiveness and profitability;
1. Threat of new entrants - how likely is it
that new competitors will come into the
industry?
2. Threat of substitutes - how likely is it that
other industries’ products can be
substituted for our industry’s products?

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 Five Forces Model (cont.)

3. Bargaining power of buyers. How much

bargaining power do buyers (customers)
have?
4. Bargaining power of suppliers. How much
bargaining power do suppliers have?
5. Current rivalry. How intense is the rivalry
among current industry competitors?

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 Choosing a Competitive Strategy

• Cost leadership strategy - when an

organization competes on the basis of
having the lowest costs (costs or
expenses, not prices) in its industry
• Differentiation strategy - a company that
competes by offering unique products that
are widely valued by customers

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 Choosing a Competitive Strategy
(cont.)

• Focus strategy—involves a cost

advantage (cost focus) or a differentiation
advantage (differentiation focus) in a
narrow segment or niche.
• Stuck in the middle - when costs are too
high to compete with the low-cost leader
or when its products and services aren’t
differentiated enough to compete with the
differentiator
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 Functional Strategy

• Functional strategy
- the strategies used
by an organization’s
various functional
departments to
support the
competitive strategy.

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 Current Strategic Management Issues

• Strategic leadership - the ability to

anticipate, envision, maintain flexibility,
think strategically, and work with others in
the organization to initiate changes that
will create a viable and valuable future for
the organization.

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 Exhibit 9-4
Effective Strategic Leadership

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Current Strategic Management Issues
(cont.)

• Strategic flexibility - the ability to

recognize major external changes, to
quickly commit resources, and to
recognize when a strategic decision was a
mistake.

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 Exhibit 9-5
Developing Strategic Flexibility

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Important Organizational Strategies for
Today’s Environment

• e-Business strategies
– Cost Leadership - on-line activities: bidding,
order processing, inventory control,
recruitment and hiring
– Differentiation - Internet-based knowledge
systems, online ordering and customer
support
– Focus - chat rooms and discussion boards,
targeted Web sites

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Important Organizational Strategies for
Today’s Environment (cont.)

• Customer Service Strategies - companies

emphasizing excellent customer service
need strategies that cultivate that
atmosphere from top to bottom
• Innovation Strategies
– First Mover - an organization that brings a
product innovation to the market or uses new
process innovations.

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 Exhibit 9-6
First-Mover Advantages and Disadvantages

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 Review Learning Outcome 9.1

• Explain strategic management and explain

why it’s important.
– Strategies are the plans for how the
organization will do whatever it’s in business
to do, how it will compete successfully, and
how it will attract and satisfy its customers in
order to achieve its goals
– A business model is how a company is going
to make money

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2012 Pearson Education,
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 Review Learning Outcome 9.2

• Explain what managers do during the six

steps of the strategic management
process
1. Identify the current mission, goals, and
strategies
2. Do an external analysis
3. Do an internal analysis (steps 2 and 3
collectively are known as SWOT analysis);

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 Review Learning Outcome 9.2 (cont.)

4. Formulate strategies
5. Implement strategies; and (6) evaluate
strategies
• Strengths - any activities the organization does
well or its unique resources.
• Weaknesses - activities the organization doesn’t
do well or resources it needs.
• Opportunities are positive trends in the external
environment.
• Threats are negative trends.
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 Review Learning Outcome 9.3

• Describe the three types of corporate

strategies
– Growth strategy - when an organization
expands the number of markets served or
products offered, either through current or
new businesses.
• Concentration, vertical integration (backward and
forward), horizontal integration, and diversification
(related and unrelated).

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 Review Learning Outcome 9.3
(cont.)

• Stability strategy - when an organization

makes no significant changes in what it’s
doing.
• Renewal strategies—retrenchment and
turnaround—address organizational
weaknesses leading to performance
declines.

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 Review Learning Outcome 9.3
(cont.)

• The BCG matrix is a way to analyze a

company’s portfolio of businesses by
looking at a business’s market share and
its industry’s anticipated growth rate. The
four categories of the BCG matrix are
– Cash cows
– Stars
– Question marks
– Dogs
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 Review Learning Outcome 9.4

• Describe competitive advantage and the

competitive strategies organizations use to
get it.
– Competitive advantage is what sets an
organization apart, its distinctive edge
– Porter’s five forces model assesses the five
competitive forces that dictate competition in
an industry:
• Threat of new entrants, threat of substitutes,
bargaining power of buyers, bargaining power of
suppliers, and current rivalry
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 Review Learning Outcome 9.4 (cont.)

• Porter’s three competitive strategies are

as follows:
– Cost leadership (competing on the basis of
having the lowest costs in the industry)
– Differentiation (competing on the basis of
having unique products that are widely valued
by customers)
– Focus (competing in a narrow segment with
either a cost advantage or a differentiation
advantage).
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 Review Learning Outcome 9.5

• Discuss current strategic management

issues
– Strategic leadership is the ability to anticipate,
envision, maintain flexibility, think
strategically, and work with others in the
organization to initiate changes that will create
a viable and valuable future for the
organization

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Review Learning Outcome 9.5 (cont.)

– Strategic flexibility—that is, the ability to

recognize major external environmental
changes, to quickly commit resources, and to
recognize when a strategic decision isn’t
working
– Managers can use e-business strategies to
reduce costs, to differentiate their firm’s
products and services, to target (focus on)
specific customer groups, or to lower costs by
standardizing certain office functions

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 Copyright
Copyright © 2014 © Education,
Pearson 2012 [Link],
publishingInc.
as Prentice Hall 9-47
Publishing as Prentice Hall