chapter 8 strategic management

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

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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

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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

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THE STRATEGIC MANAGEMENT PROCESS

(Exhibit 8.1)

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• 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

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COMPONENTS OF A MISSION STATEMENT (Exhibit 8.2)

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(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

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(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

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(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

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IDENTIFYING THE ORGANIZATION’S

OPPORTUNITIES (Exhibit 8.3)

Organization’sOpportunities

Organization’sResources/Abilities

Opportunities inthe Environment




(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


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

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LEVELS OF ORGANIZATIONAL STRATEGY (Exhibit 8.4)



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

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• 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

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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




• 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

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THE BCG MATRIX (Exhibit 8.6)

Stars

CashCows

Dogs

QuestionMarks

Market Share

High Low

Hig

hL

ow

AnticipatedGrowth

Rate

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• 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

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• 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

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• 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

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• 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

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Current Rivalry

IndustryCompetitors

FORCES IN THE INDUSTRY ANALYSIS (Exhibit 8.7)

Suppliers

NewEntrants

Buyers

Substitutes

Threat ofNew Entrants

Threat ofSubstitutes

BargainingPower orBuyers

BargainingPower orSuppliers




• 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

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REQUIREMENTS FOR SUCCESSFULLY PURSUING PORTER’S COMPETITIVE

STRATEGIES (Exhibit 8.8)

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• Functional-Level Strategy

– used to support the business-level strategy

– creates an appropriate supporting role for each functional area of the organization

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