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Chapter 8
STRATEGICMANAGEMENT
© 2003 Pearson Education Canada Inc. 8.18.1
© 2003 Pearson Education Canada Inc.
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
8.28.2
© 2003 Pearson Education Canada Inc.
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
8.38.3
© 2003 Pearson Education Canada Inc.
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
8.48.4
© 2003 Pearson Education Canada Inc.
THE STRATEGIC MANAGEMENT PROCESS
(Exhibit 8.1)
8.58.5
© 2003 Pearson Education Canada Inc.
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
8.68.6
© 2003 Pearson Education Canada Inc.
COMPONENTS OF A MISSION STATEMENT (Exhibit 8.2)
8.78.7
© 2003 Pearson Education Canada Inc.
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
8.88.8
© 2003 Pearson Education Canada Inc.
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
8.98.9
© 2003 Pearson Education Canada Inc.
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
8.108.10
IDENTIFYING THE ORGANIZATION’S
OPPORTUNITIES (Exhibit 8.3)
Organization’sOpportunities
Organization’sResources/Abilities
Opportunities inthe Environment
© 2003 Pearson Education Canada Inc. 8.118.11
© 2003 Pearson Education Canada Inc.
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
strategy8.128.12
© 2003 Pearson Education Canada Inc.
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
8.138.13
LEVELS OF ORGANIZATIONAL STRATEGY (Exhibit 8.4)
© 2003 Pearson Education Canada Inc. 8.148.14
© 2003 Pearson Education Canada Inc.
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
8.158.15
© 2003 Pearson Education Canada Inc.
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
8.168.16
SWOT ANALYSIS AND GRAND STRATEGIES (Exhibit 8.5)
CorporateGrowth
Strategies
CorporateStability
Strategies
CorporateRetrenchment
Strategies
AbundantEnvironmentalOpportunities
CriticalEnvironmental
Threats
CorporateStability
Strategies
Cri
tical
Wea
knes
ses
Val
uabl
eS
tren
gths
Environmental Status
Fir
m S
tatu
s
© 2003 Pearson Education Canada Inc. 8.178.17
© 2003 Pearson Education Canada Inc.
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
8.188.18
THE BCG MATRIX (Exhibit 8.6)
Stars
CashCows
Dogs
QuestionMarks
Market Share
High Low
Hig
hL
ow
AnticipatedGrowth
Rate
8.198.19© 2003 Pearson Education Canada Inc.
© 2003 Pearson Education Canada Inc.
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
8.208.20
© 2003 Pearson Education Canada Inc.
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
8.218.21
© 2003 Pearson Education Canada Inc.
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
8.228.22
© 2003 Pearson Education Canada Inc.
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
8.238.23
Current Rivalry
IndustryCompetitors
FORCES IN THE INDUSTRY ANALYSIS (Exhibit 8.7)
Suppliers
NewEntrants
Buyers
Substitutes
Threat ofNew Entrants
Threat ofSubstitutes
BargainingPower orBuyers
BargainingPower orSuppliers
© 2003 Pearson Education Canada Inc. 8.248.24
© 2003 Pearson Education Canada Inc.
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
8.258.25
© 2003 Pearson Education Canada Inc.
REQUIREMENTS FOR SUCCESSFULLY PURSUING PORTER’S COMPETITIVE
STRATEGIES (Exhibit 8.8)
8.268.26
© 2003 Pearson Education Canada Inc.
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
8.278.27