Chapter 5: Strategizing
5.1 Strategizing
Strategic Management?
• It’s about making choices on what an organization will do or avoid to reach its goals.
• These choices help achieve the organization’s mission (purpose) and vision (future goal).
Part of P-O-L-C:
• Strategy is a big part of Planning in the P-O-L-C framework
Competitive Advantage:
• Strategy helps an organization stand out and stay ahead of competitors.
Two Parts of Strategy:
Formulation: Deciding the plan (What should we do?).
Implementation: Putting the plan into action (How do we do it?).
5.3 Strategic Management in the P-
O-L-C Framework
What Is Strategic Management?
• Explained in the previous slide
Strategic Management in the P-O-L-C Framework
• Vision and Mission: These are the heart and soul of planning.
• Strategy: Acts as the brain—deciding how to achieve the vision and mission.
• Goal of Strategy: Connects vision and mission with specific goals and objectives to stay on the
right path.
2. Types of Strategy
A. Corporate Strategy
B. Business Strategy
Corporate Strategy
• Definition: Focuses on deciding what businesses the
organization should operate in.
• Examples:
• McDonald’s: Previously owned Chipotle but sold it to focus
solely on its main brand.
• YUM! Brands: Owns multiple restaurants like Taco Bell, Pizza
Hut, and KFC to create value by sharing resources.
Understanding Corporate Strategy: Synergy
and Diversification
Synergy
• Synergy happens when businesses under the same ownership work
together to share resources or processes, making them more effective
or efficient.
• Example: YUM! Brands uses shared suppliers and marketing strategies
across its different restaurants, like Taco Bell and KFC, to reduce costs
and maintain consistency.
Understanding Corporate Strategy: Synergy
and Diversification
Diversification:
• Diversification involves owning different types of businesses to spread
risk across various sectors. This strategy allows companies to operate
in different markets and industries, reducing vulnerability to economic
downturns in any single sector.
• Example: Maui Jim (sunglasses) diversified into insurance, allowing it
to benefit from stable returns in a different market.
Understanding Corporate Strategy: Synergy
and Diversification
• Three Diversification Strategies:
• Concentric Diversification:
• Adding new products that are similar to current ones but aimed at new customers.
• Example: A sportswear brand starting a line of fitness equipment.
• Horizontal Diversification:
• Adding products unrelated to current ones but for the same customers.
• Example: A bakery launching a coffee line.
• Conglomerate Diversification:
• Entering completely different industries with unrelated products for new
customers.
• Example: A car manufacturer starting a tech company.
Understanding Corporate Strategy: Synergy and
Diversification
Business Strategy
• Definition: Business strategy is about how a specific business
competes and succeeds within its industry. It involves making
decisions that will lead to growth and profitability.
Key Goals:
• Retain current customer.
• Expand into new market.
• Outperform competitors.
Strategic Inputs
What Are Strategic Inputs?
Strategic inputs are the information and analysis needed to create a strategy.
These involve looking at both internal and external factors through SWOT
analysis:
• Strengths
• Weaknesses
• Opportunities
• Threats
Strategic Inputs
Internal and External Appraisals:
Internal Appraisal:
• Focuses on the organization’s strengths and weaknesses.
• Includes things the company can control, like resources and processes.
External Appraisal:
• Looks at opportunities and threats in the market or environment.
• Involves factors the company has less control over, like competition and economic trends.
Purpose of SWOT Analysis:
• Helps connect internal strengths to external opportunities.
• Aims to minimize weaknesses and manage threats effectively.
Goal of Strategy:
• Use strengths to take advantage of opportunities.
• Reduce the risks of threats and limit the impact of weaknesses.
Strengths and Weaknesses
• Assess Strengths and Weaknesses: Identify what the organization
does well and where it struggles. Good strategies use strengths and
address weaknesses.
• Competitive Advantage: Strengths that set an organization apart
create a competitive edge. Sustaining this advantage means making it
hard for others to copy or reduce its value over time.
• Key Example: Michael Jordan excelled in many sports, but his true
strength—and competitive advantage—was in basketball.
Opportunities and Threats
• Opportunities:
• These are attractive external factors that support the business’s growth and
success.
• They represent market or environmental conditions that the organization can
benefit from.
• Threats:
• These are external risks or challenges beyond the organization’s control.
• While managers can’t stop them, having contingency plans helps reduce their
impact.
Value Chain and VRIO
• Value Chain as Capabilities:
• Value chain functions, or capabilities, are the activities that help a business operate and
compete.
• What is VRIO?
• VRIO stands for Valuable, Rare, Inimitable, and Organization.
• A resource or capability provides a competitive advantage if it:
• V: Adds value.
• R: Is rare.
• I: Is hard to imitate.
• O: Is supported by the organization.
• How VRIO Works:
• It helps determine if a strength in the value chain can lead to a competitive edge.
• Example:
• Disney’s strong marketing and design are valuable, rare, hard to copy, and fully supported by its
organization, giving it a clear advantage
External Analysis Tools
PESTEL Analysis: Focuses on the broader environment affecting the organization.
• Political
• Economic
• Sociocultural
• Technological
• Environmental
• Legal
• Identifies external threats and opportunities across these dimensions.
Industry Analysis: Examines the organization’s relationships with suppliers, customers, and
competitors.
Purpose:
• PESTEL: Provides insights into the broader macro-environment.
• Industry Analysis: Focuses on the competitive environment and industry-specific factors
influencing success.
5.4 How Do Strategies Emerge?
Intended Strategy:
• Created by top management.
• Involves negotiation, bargaining, and compromise.
• Often only 10%–30% is fully realized, according to Mintzberg.
Realized Strategy:
• The actual strategy that is implemented.
• A mix of deliberate plans and adaptations to changing circumstances.
Emergent Strategy:
• Develops as managers adapt the intended strategy to new external situations.
• Key factor in shaping the realized strategy.
Design vs. Emergence in Strategy
Design and Emergence Combined:
• Design: Formal, top-down strategy planning.
• Emergence: Decentralized, bottom-up decision-making leading to strategy adaptation.
Interactions of Design and Emergence:
• Decisions often originate at lower levels (divisional or plant-level) and are later formalized by top
management.
• Example: Intel’s shift from memory chips to microprocessors arose from decentralized decisions
recognized by leadership.
Strategy at All Levels:
• Top management sets directives, while business units develop and refine plans.
• Opportunism by CEOs can lead to deviations from intended strategies.
Role of Environment:
• Stable environments allow for detailed, planned strategies.
• Volatile environments require flexibility, allowing strategies to emerge over time.