Chapter Eight
Managing Strategy
and Strategic
Planning
Slide content created by Charlie Cook, The University of West Alabama
Copyright © Houghton Mifflin Company. All rights reserved.
Learning Objectives
After studying this chapter, you should be able to:
1.
Discuss the components of strategy, types of strategic
alternatives, and the distinction between strategy formulation
and strategy implementation.
2.
Describe how to use SWOT analysis in formulating strategy.
3.
Identify and describe various alternative approaches to
business-level strategy formulation.
4.
Describe how business-level strategies are implemented.
5.
Identify and describe various alternative approaches to
corporate-level strategy formulation.
6.
Describe how corporate-level strategies are implemented.
7.
Discuss international and global strategies.
Copyright © Houghton Mifflin Company. All rights reserved.
8–2
The Nature of Strategic
Management
• Strategy
– A comprehensive plan for accomplishing an
organization’s goals.
• Strategic Management
– A way of approaching business opportunities and
challenges aimed at formulating and implementing
effective strategies.
• Effective Strategies
– Strategies that promote a superior alignment
between the organization and its environment and
the achievement of its goals.
Copyright © Houghton Mifflin Company. All rights reserved.
8–3
Components of Strategy
• Distinctive Competence
– Something an organization
does exceptionally well.
• Scope
– Range of markets in which
an organization will
compete.
• Resource Deployment
– How an organization will
distribute its resources
across the areas in which it
competes.
Copyright © Houghton Mifflin Company. All rights reserved.
8–4
Types of Strategic Alternatives
• Business-Level Strategy
– The set of strategic alternatives that an
organization chooses from as it conducts business
in a particular industry or a particular market.
• Corporate-Level Strategy
– The set of strategic alternatives that an
organization chooses from as it manages its
operations simultaneously across several
industries and several markets.
Copyright © Houghton Mifflin Company. All rights reserved.
8–5
Strategy Formulation and
Implementation
• Strategy Formulation
– The set of processes involved in creating or
determining the organization’s strategies; it
focuses on the content of strategies.
• Strategy Implementation
– The methods by which strategies are
operationalized or executed within the
organization; it focuses on the processes through
which strategies are achieved.
Copyright © Houghton Mifflin Company. All rights reserved.
8–6
Strategy Formulation and
Implementation (cont’d)
• Deliberate Strategy
– A plan, chosen and implemented to
support specific goals, that is the result of a
rational, systematic, and planned process
of strategy formulation and implementation.
• Emergent Strategy
– A pattern of action that develops over time
in the absence of goals or missions, or
despite goals and missions.
Copyright © Houghton Mifflin Company. All rights reserved.
8–7
Figure 8.1: SWOT ANALYSIS
Copyright © Houghton Mifflin Company. All rights reserved.
8–8
Using SWOT Analysis to
Formulate Strategy
• Evaluating Organizational Strengths
– Organizational strengths
• are skills and abilities enabling an organization to
conceive of and implement strategies.
– Common organizational strengths
• are organizational capabilities possessed by numerous
competing firms.
– Distinctive competencies
• are useful for competitive advantage and superior
performance.
– Imitation of distinctive competencies
• is duplicating another firm’s distinctive competence.
Copyright © Houghton Mifflin Company. All rights reserved.
8–9
Using SWOT Analysis to
Formulate Strategy (cont’d)
• Evaluating Organizational Strengths (cont’d)
– Sustained competitive advantage
• occurs when a distinctive competence cannot be easily
duplicated.
• is what remains after all attempts at strategic imitations
have ceased.
– Strategic imitation is difficult when:
• Distinctive competence is based on unique historical
circumstances.
• Competitors do not understand the nature or character of
a firm’s competence.
• The competence is based on a complex phenomenon,
such as organizational culture.
Copyright © Houghton Mifflin Company. All rights reserved.
8–10
Using SWOT Analysis to
Formulate Strategy (cont’d)
• Evaluating Organizational Weaknesses
– Organizational weaknesses
• Skills and capabilities that do not enable an organization
to choose and implement strategies that support its
mission.
– Weaknesses can be overcome by:
• investments to obtain the strengths needed.
• modification of the organization’s mission so it can be
accomplished with the current workforce.
– Competitive disadvantage
• A situation in which an organization fails to implement
strategies being implemented by competitors.
Copyright © Houghton Mifflin Company. All rights reserved.
8–11
Using SWOT Analysis to
Formulate Strategy (cont’d)
• Evaluating an Organization’s
Opportunities and Threats
– Organizational opportunities
• Areas in the organization’s environment that
may generate high performance.
– Organizational threats
• Are areas in the organization’s environment
that make it difficult for the organization to
achieve high performance.
Copyright © Houghton Mifflin Company. All rights reserved.
8–12
Formulating
Business-Level Strategies
• Porter’s Generic Strategies
– Differentiation strategy
• An organization seeks to distinguish itself from
competitors through the quality of its products or
services.
– Overall cost leadership strategy
• An organization attempts to gain competitive advantage
by reducing its costs below the costs of competing firms.
– Focus strategy
• An organization concentrates on a specific regional
market, product line, or group of buyers.
Copyright © Houghton Mifflin Company. All rights reserved.
8–13
Table 8.1: Porter’s
Generic Strategies
Copyright © Houghton Mifflin Company. All rights reserved.
8–14
Table 8.2: The Miles
and Snow Typology
Copyright © Houghton Mifflin Company. All rights reserved.
8–15
Figure 8.2: The
Product Life Cycle
Copyright © Houghton Mifflin Company. All rights reserved.
8–16
Implementing Business-Level
Strategies (cont’d)
• Implementing Miles and Snow’s Strategies
– Prospector
• Encourage creativity to seek out new market
opportunities and to take risks.
• Develop the flexibility to meet changing market
conditions by decentralizing its organizational structure.
– Defender
• Focus on defending its current markets by lowering its
costs and/or improving the performance of current
products.
– Analyzer
• Incorporate elements of both the prospector and the
defender strategies maintain business and to be
somewhat innovative.
Copyright © Houghton Mifflin Company. All rights reserved.
8–17
Implementing Business-Level
Strategies (cont’d)
• Implementing Porter’s Generic Strategies
– Differentiation
• Marketing and sales must emphasize high-quality, highvalue image of the organization’s products or services.
– Overall Cost Leadership
• Marketing and sales focus on simple product attributes
and how these product attributes meet customer needs
in a low-cost and effective manner.
– Focus
• Either differentiation or cost leadership, depending on
which one is the proper basis for competing in or for a
specific market segment, product category, or group
buyers.
Copyright © Houghton Mifflin Company. All rights reserved.
8–18
Formulating Corporate-Level
Strategies
• Strategic Business Units
– Each business or group of businesses within an
organization is engaged in serving the same
markets, customers, or products.
• Diversification
– The number of businesses an organization is
engaged in and the extent to which these
businesses are related to one another
Copyright © Houghton Mifflin Company. All rights reserved.
8–19
Formulating Corporate-Level
Strategies (cont’d)
• Single-Product Strategy
– An organization manufactures one product or
service and sells it in a single geographic market.
• Related Diversification
– A strategy in which an organization operates in
several different businesses, industries, or
markets that are somehow linked.
– Avoids the disadvantages and risks of a singleproduct strategy.
Copyright © Houghton Mifflin Company. All rights reserved.
8–20
Table 8.3: Bases of
Relatedness in Implementing
Related Diversification
Copyright © Houghton Mifflin Company. All rights reserved.
8–21
Formulating Corporate-Level
Strategies (cont’d)
• Advantages of Related Diversification
– Reduces an organization’s dependence on any
one of its business activities and thus reduces
economic risk.
– Reduces overhead costs associated with
managing any one business through economies of
scale and economies of scope.
– Allows an organization to exploit its strengths and
capabilities in more than one business.
– Synergy exists among a set of businesses when
the businesses’ value together is greater than their
economic value separately.
Copyright © Houghton Mifflin Company. All rights reserved.
8–22
Formulating Corporate-Level
Strategies (cont’d)
• Unrelated Diversification
– An organization operates multiple businesses that
are not logically associated with one another.
– Advantages
• Stable of performance over time due to business cycle
differences among the multiple businesses.
• Allocation of resources to areas with the highest return
potentials to maximize corporate performance.
– Disadvantages
• Poor performance due to the complexity of managing a
diversity of businesses.
• Failing to exploit key synergies puts the firm at a
competitive disadvantage to firms with related
diversification strategies.
Copyright © Houghton Mifflin Company. All rights reserved.
8–23
Implementing Corporate-Level
Strategies
• Becoming a Diversified Firm
– Internal development of new products
• Developing products and services within the boundaries
of traditional business operations.
– Replacement of suppliers and customers
• Backward vertical integration
– Beginning a business that furnishes resources previously
handled
by a supplier.
• Forward vertical integration
– Beginning a business previously handled by an
intermediary and
selling more directly to customers.
Copyright © Houghton Mifflin Company. All rights reserved.
8–24
Implementing Corporate-Level
Strategies (cont’d)
• Becoming a Diversified Firm (cont’d)
– Merger
• Purchase of one firm by another firm of approximately
the same size.
– Acquisition
• Purchase of a firm by another firm that is considerably
larger.
– Purposes of mergers and acquisitions
• To diversify through vertical integration.
• To acquire complementary products or services linked by
a common technology and common customers.
• To create or exploit synergies that reduce the combined
organizations’ costs of doing business to increase
revenues.
Copyright © Houghton Mifflin Company. All rights reserved.
8–25
Managing Diversification
• Major Tools for Managing Diversification
– Organization structure
• A detailed discussion of organization structure is
contained in
Chapter 12.
– Portfolio management techniques
• Methods that diversified organizations use to make
decisions about what businesses to engage in and how
to manage these multiple businesses to maximize
corporate performance.
– Two important portfolio management techniques
• The BCG Matrix
• The GE Business Screen
Copyright © Houghton Mifflin Company. All rights reserved.
8–26
Managing Diversification
(cont’d)
• BCG Matrix
– A method of evaluating businesses relative to the
growth rate of their market and the organization’s
share of the market.
– The matrix classifies the types of businesses that
a diversified organization can engage as:
• “Dogs” have small market shares and no growth
prospects.
• “Cash cows” have large shares of mature markets.
• “Question marks” have small market shares in quickly
growing markets.
• “Stars” have large shares of rapidly growing markets.
Copyright © Houghton Mifflin Company. All rights reserved.
8–27
Figure 8.3: The BCG Matrix
Source: Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from The Boston Consulting Group, Inc., 1970.
Copyright © Houghton Mifflin Company. All rights reserved.
8–28
Managing Diversification
• GE Business Screen
– A method of evaluating business in a diversified
portfolio along two dimensions, each of which
contains multiple factors:
• Industry attractiveness.
• Competitive position (strength) of each firm in the
portfolio.
– In general, the more attractive the industry and the
more competitive a business is, the more
resources an organization should invest in that
business.
Copyright © Houghton Mifflin Company. All rights reserved.
8–29
Figure 8.4: The GE
Business Screen
Copyright © Houghton Mifflin Company. All rights reserved.
8–30
International and
Global Strategies
• Developing International and Global
Strategies
– Global efficiencies
• Location efficiencies—seeking lower input cost locations
• Economies of scale—larger facilities result in lower costs
• Economies of scope—broadening pro
– Multimarket flexibility
• International businesses may respond to a change in one
country by implementing a change in another country.
– Worldwide learning
• The diverse operating environments of multinational
corporations (MNCs) contribute to organizational learning
that can be transferred to other operating environments.
Copyright © Houghton Mifflin Company. All rights reserved.
8–31
Strategic Alternatives for
International Business
• Home Replication
– Utilizing a core competency or firm specific
advantage developed at home as a main
competitive weapon in foreign markets.
• Multi-Domestic Strategy
– Managing a corporation as a collection of
independent operating subsidiaries frees it to
customize its products, its marketing campaigns,
and operating techniques to meet local customer
needs.
Copyright © Houghton Mifflin Company. All rights reserved.
8–32
Strategic Alternatives for
International Business (cont’d)
• Global Strategy
– Viewing the world as a single marketplace and
having as a primary goal the creation of
standardized goods
and services that will address the needs of
customers worldwide.
• Transnational Strategy
– Attempting to combine the benefits of scale
efficiencies pursued by a global corporation, with
the benefits and advantages of local
responsiveness of a multi-domestic corporation.
Copyright © Houghton Mifflin Company. All rights reserved.
8–33
Key Terms
•
•
•
•
•
•
•
•
•
•
•
strategy
strategic management
distinctive competence
scope
resource deployment
business-level strategy
corporate-level strategy
strategy formulation
strategy implementation
deliberate strategy
emergent strategy
Copyright © Houghton Mifflin Company. All rights reserved.
•
•
•
•
•
•
•
•
•
SWOT
organizational strength
common strength
strategic imitation
sustained competitive
advantage
organizational
weaknesses
competitive
disadvantage
organizational threat
organizational
opportunity
8–34
Key Terms (cont’d)
• differentiation strategy
• overall cost leadership
strategy
• focus strategy
• prospector strategy
• defender strategy
• analyzer strategy
• reactor strategy
• product life cycle
• diversification
• single-product strategy
• related diversification
Copyright © Houghton Mifflin Company. All rights reserved.
• unrelated diversification
• backward vertical
integration
• forward vertical
integration
• merger
• acquisition
• BCG matrix
• GE Business Screen
• home replication
strategy
• multidomestic strategy
• global strategy
• transnational strategy
8–35