Chapter 8
STRATEGIC
MANAGEMENT
© 2003 Pearson Education Canada Inc.
8.1
LEARNING OBJECTIVES
• You should be able to:
– Explain the importance of strategic
management
– Describe the steps in the strategic
management process
– Explain SWOT analysis
– Differentiate corporate-, business-, and
functional-level strategies
© 2003 Pearson Education Canada Inc.
8.2
LEARNING OBJECTIVES
(continued)
• You should be able to (continued):
– Explain what competitive advantage is
and why it’s important to organizations
– Describe the five competitive forces
– Identify the various competitive strategies
© 2003 Pearson Education Canada Inc.
8.3
THE IMPORTANCE OF
STRATEGIC MANAGEMENT
• What Is Strategic Management?
– A set of managerial decisions and actions that determines
the long-run performance of an organization
• Purposes of Strategic Management
– Involved in many decisions that managers make
– Companies with formal strategic management systems
have higher financial returns than companies with no such
system
Important in profit and not-for-profit organizations
© 2003 Pearson Education Canada Inc.
8.4
THE STRATEGIC
MANAGEMENT PROCESS
(Exhibit 8.1)
© 2003 Pearson Education Canada Inc.
8.5
THE STRATEGIC
MANAGEMENT PROCESS
• Step 1: Identifying the Organization’s
Current Mission, Objectives, and Strategies
– Mission
•
•
•
statement of the purpose of an organization
important in profit and not-for-profit
organizations
important to identify the goals currently in
place and the strategies currently being
pursued
© 2003 Pearson Education Canada Inc.
8.6
COMPONENTS OF A MISSION
STATEMENT (Exhibit 8.2)
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8.7
THE STRATEGIC
MANAGEMENT PROCESS
(continued)
• Step 2: Analyzing the Environment
– successful strategies are aligned with the environment
– examine both the specific and general environments
to determine what trends and changes are occurring
• 3. Identifying Opportunities and Threats
– opportunities - positive trends in the external
environmental
– threats - negative trends in the external environment
© 2003 Pearson Education Canada Inc.
8.8
THE STRATEGIC
MANAGEMENT PROCESS
(continued)
• Step 4: Analyzing the Organization’s Resources
and Capabilities
– examine the inside of the organization
– available resources and capabilities always
constrain the organization in some way
– core competencies - major value-creating skills,
capabilities and resources that determine the
organization’s competitive weapons
© 2003 Pearson Education Canada Inc.
8.9
THE STRATEGIC
MANAGEMENT PROCESS
(continued)
• Step 5: Identifying Strengths and Weaknesses
– Strengths - activities the organization does well or
any unique resource
– Weaknesses - activities the organization does not
do well or resources it needs but does not possess
– organization’s culture has its strengths and
weaknesses
– SWOT analysis - analysis of the organization’s
strengths, weaknesses, opportunities, and threats
© 2003 Pearson Education Canada Inc.
8.10
IDENTIFYING THE
ORGANIZATION’S
OPPORTUNITIES (Exhibit 8.3)
Organization’s
Organization’s
Resources/Abilities Opportunities
© 2003 Pearson Education Canada Inc.
Opportunities in
the Environment
8.11
THE STRATEGIC
MANAGEMENT PROCESS
(continued)
• Step 6: Formulating Strategies
– Require strategies at the corporate, business, and
functional levels of the organization
– Strategy formulation follows the decision-making
process
• Step 7: Implementing Strategies
– A strategy is only as good as its implementation
• Step 8: Evaluating Results
– Control process to determine the effectiveness of a
strategy
© 2003 Pearson Education Canada Inc.
8.12
TYPES OF ORGANIZATIONAL
STRATEGIES
• Corporate-Level Strategy
–
Determines
• what businesses a company should be in or
wants to be in
• the direction that the organization is going
• the role that each business unit will play
© 2003 Pearson Education Canada Inc.
8.13
LEVELS OF ORGANIZATIONAL
STRATEGY (Exhibit 8.4)
© 2003 Pearson Education Canada Inc.
8.14
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Corporate-level Strategy (continued)
–
Grand Strategy - Stability
• no significant change is proposed
• organization’s performance is satisfactory
• environment appears to be stable and
unchanging
© 2003 Pearson Education Canada Inc.
8.15
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Corporate-level Strategy (continued)
–
–
Grand Strategy - Growth
• seeks to increase the level of the organization’s operations
• related diversification - grow by merging with or acquiring
firms in different but related industries
• unrelated diversification - grow by merging with or
acquiring firms in different and unrelated industries
Grand Strategy - Retrenchment - designed to address
organizational weaknesses that are leading to performance
declines
© 2003 Pearson Education Canada Inc.
8.16
Critical
Weaknesses
Firm Status
Valuable
Strengths
SWOT ANALYSIS AND GRAND
STRATEGIES (Exhibit 8.5)
Abundant
Environmental
Opportunities
Corporate
Growth
Strategies
Corporate
Stability
Strategies
Corporate
Stability
Strategies
Corporate
Retrenchment
Strategies
Environmental Status
© 2003 Pearson Education Canada Inc.
Critical
Environmental
Threats
8.17
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Corporate-Level Strategy (continued)
– Corporate Portfolio Analysis - used when
corporate strategy involves a number of
business
• Boston Consulting Group (BCG) matrix-strategy tool that guides resource allocation
decisions on basis of market share and
growth rate of SBU
© 2003 Pearson Education Canada Inc.
8.18
THE BCG MATRIX (Exhibit 8.6)
Market Share
Low
High
High
Stars
Question
Marks
Cash
Cows
Dogs
Low
Anticipated
Growth
Rate
© 2003 Pearson Education Canada Inc.
8.19
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Corporate-Level Strategy (continued)
–
BCG matrix (continued)
• strategic implications of the matrix
– cash cows - “milk”
– stars - require heavy investment
– question marks - attractive but hold a
small market share
– dogs - sold off or liquidated
© 2003 Pearson Education Canada Inc.
8.20
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Business-Level Strategy
– Determines how an organization should compete in
each of its businesses
– Strategic business units - independent businesses that
formulate their own strategies
– Role of Competitive Advantage
•
competitive advantage - sets an organization apart by
providing a distinct edge
–
–
–
comes from the organization’s core competencies
not every organization can transform core competencies into
a competitive advantage
once created, must be able to sustain it
© 2003 Pearson Education Canada Inc.
8.21
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Business-Level Strategy (continued)
– Competitive Strategies
• industry analysis based on five competitive forces
– Threat of new entrants - affected by barriers to
entry
– Threat of substitutes - affected by buyer loyalty
and switching costs
– Bargaining power of buyers - affected by number
of customers, availability of substitute products
© 2003 Pearson Education Canada Inc.
8.22
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Business-Level Strategy (continued)
–
Competitive Strategies (continued)
•
industry analysis based on five
competitive forces
–
–
Bargaining power of suppliers - affected
by degree of supplier concentration
Existing rivalry - affected by industry
growth rate, demand for firm’s product or
service, and product differences
© 2003 Pearson Education Canada Inc.
8.23
FORCES IN THE INDUSTRY
ANALYSIS (Exhibit 8.7)
New
Entrants
Bargaining
Power or
Suppliers
Suppliers
Threat of
New Entrants
Industry
Competitors
Buyers
Current Rivalry
Threat of
Substitutes
© 2003 Pearson Education Canada Inc.
Bargaining
Power or
Buyers
Substitutes
8.24
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Business-Level Strategy (continued)
– Competitive strategies (continued)
• Porter’s three generic strategies
– cost leadership - goal is to become the
lowest-cost producer in the industry
– differentiation - offer unique products
that are widely valued by customers
– focus - aims at a cost advantage or
differentiation advantage in a narrow
segment
© 2003 Pearson Education Canada Inc.
8.25
REQUIREMENTS FOR SUCCESSFULLY
PURSUING PORTER’S COMPETITIVE
STRATEGIES (Exhibit 8.8)
© 2003 Pearson Education Canada Inc.
8.26
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Functional-Level Strategy
– used to support the business-level
strategy
– creates an appropriate supporting role for
each functional area of the organization
© 2003 Pearson Education Canada Inc.
8.27