Chapter 9
Managing Strategy
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Strategic Management
The set of managerial decisions
and actions that determines
the long-run performance
of an organization
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Why Strategic Management Is Important
It results in higher organizational performance
It requires that managers examine and adapt to
business environment changes
It coordinates diverse organizational units, helping
them focus on organizational goals
It is very much involved in the managerial decision-
making process
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The Strategic Management Process
External Analysis
• opportunities
• threats
Identify the
organization's Formulate Implement Evaluate
current mission, goals, SWOT Analysis Strategies Strategies Results
and strategies
Internal Analysis
• strengths
• weaknesses
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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
The environmental scanning of specific and general
environments
Focuses on identifying opportunities and threats
Opportunities are positive trends in external environment
Threats are negative trends
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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
The environment dictates the chosen strategy; effective
strategy implementation requires an organizational
structure matched to its requirements
Step 6: Evaluate Results
How effective have strategies been?
What adjustments, if any, are necessary?
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Levels of Organizational Strategy
Corporate Multibusiness
Level Corporation
Business Strategic Strategic Strategic
Level Business Unit 1 Business Unit 2 Business Unit 3
Functional Research and Manufacturing Marketing Human Finance
Level Development Resources
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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
Corporate portfolio analysis: involves a number of
businesses; guides resource allocation
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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
Concentration
Vertical integration
Horizontal integration
Diversification
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Growth Strategies
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
and/or provide customer service activities (eliminating
intermediaries)
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Growth Strategies (cont’d)
Horizontal Integration
Combining operations with another competitor in the
same industry to increase competitive strengths and
lower competition among industry rivals
Diversification
Related Diversification
Expanding by merging with or acquiring firms in different, but
related industries that are “strategic fits”
Unrelated Diversification
Growing by merging with or acquiring firms in unrelated
industries where higher financial returns are possible
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Corporate-Level Strategies (cont’d)
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
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Corporate-Level Strategies (cont’d)
Retrenchment Strategy
Reduces the company’s activities or operations
Retrenchment strategies include:
Cost reductions
Layoffs
Closing underperforming units
Closing entire product lines or 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
High High Low
Market Share
Question
Stars Marks
Sell off or
Growth Rate
Heavily invest
Anticipated
turn into stars
Cash Dogs
Cows
Sell off or
Milk for cash liquidate
Low
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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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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
Stuck in the Middle
Organizations that are unable to develop a cost or
differentiation advantage
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Forces in an Industry Analysis
New
Entrants
Threat of
New Entrants
Bargaining
Power of
Intensity of Buyers
Rivalry Among
Suppliers Current Buyers
Competitors
Bargaining
Power of
Suppliers
Threat of
Substitutes
Substitutes
Source: Based on M.E. Porter, Competitive Strategy: Techniques for
Analyzing Industries and Competitors (New York: The Free Press, 1980).
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Michael Porter’s Five Competitive Force
Model
Threat of New Entrants
The ease or difficulty with which new competitors can enter an industry
Initial Investment
Growth Rate
Threat of Substitutes
A factor that determines whether or not customers will switch to a
substitute product and service of a competitor industry
Switching costs and
Brand loyalty
Bargaining Power of Buyers
Bargaining power of buyers (customers) is a factor that determines the
amount of influence that buyers have in an industry
The number of buyers and
The number of sellers
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Five Competitive Forces (cont’d)
Bargaining Power of Suppliers
Bargaining power of suppliers determine the power that
suppliers have over firms in the industry
Number of buyers and
Number of suppliers
Current Rivalry
Includes factors that determine how intense the
competitive rivalry will be among firms currently in the
industry
Number of competitors
Growth Rate
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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
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