Management
Stephen P. Robbins Mary Coulter
Chapter
Strategic
4 Management
8–1
Strategic Management
What managers do to develop an organization’s
strategies
• Strategies
The decisions and actions that determine the long-run
performance of an organization.
• Business Model
Is a strategic design for how a company intends to profit from its
strategies, work processes, and work activities.
Focuses on two things:
Whether customers will value what the company is providing.
Whether the company can make any money doing that.
8–2
Exhibit: The Strategic Management Process
8–3
Strategic Management Process
• 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
• Step 2: Doing an external analysis
The environmental scanning of specific and general
environments
Focuses on identifying opportunities and threats
8–4
Strategic Management Process
• 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.
Analyzing financial and physical assets is fairly easy, but
assessing intangible assets (employee’s skills, culture, corporate
reputation, and so forth) isn’t as easy.
• Steps 2 and 3 combined are called a SWOT analysis.
(Strengths, Weaknesses, Opportunities, and Threats)
8–5
Strategic Management Process
• 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
8–6
Strategic Management Process
• 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?
8–7
Exhibit: Types of Organizational Strategies
8–8
Types of Organizational
Strategies
• Corporate Strategies
Top management’s overall plan for the entire
organization and its strategic business units
• 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
8–9
Corporate Strategies
• 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
8–10
• 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).
8–11
• 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.
8–12
• 2-Stability Strategy
A strategy that seeks to maintain the status quo to
deal with the uncertainty of a dynamic environment,
when the industry is experiencing slow- or no-growth
conditions, or if the owners of the firm elect not to
grow for personal reasons.
8–13
• 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.
Turnaround: addressing critical long-term performance
problems through the use of strong cost elimination
measures and large-scale organizational restructuring
solutions.
8–14
Corporate Portfolio Analysis
• Managers manage 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
8–15
Exhibit: The BCG Matrix
8–16
Competitive Strategies
• Competitive Strategy
A strategy focused on how an organization will
compete in each of its SBUs (strategic business
units).
8–17
Porter’s Model to evaluate Five competitive
Forces
8–18
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 substitutes
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.
8–19
Five Competitive Forces
• 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.
8–20
Types of 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 a larger market.
8–21