CHAPTER 5: STRATEGY AND
STRATEGIC
MANAGEMENT
Business Leadership: Management Fundamentals
John R. Schermerhorn, Jr., Barry Wright, and Lorie Guest
© John Wiley & Sons Canada, Ltd.
PLANNING
AHEAD —
CHAPTER 5
LEARNING
GOALS
o Understand the meaning of strategic
management
o Identify and apply the essentials of
strategic analysis
o Understand what corporate strategies
are and how are they formulated
STRATEGIC MANAGEMENT
• Basic concepts of strategy:
– Competitive advantage: operating with an attribute or set of
attributes that allows an organization to outperform its
rivals.
• Cost and quality
• Knowledge and speed
• Barriers to entry
• Financial resources
– Sustainable competitive advantage: one that is difficult for
competitors to imitate.
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BASIC CONCEPTS OF STRATEGY
• Strategy: a comprehensive action plan that identifies long-
term direction for an organization and guides resource
utilization to accomplish organizational goals with
sustainable competitive advantage.
• Strategic intent: focusing all organizational energies on a
unifying and compelling goal.
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FIGURE 5.2 THREE LEVELS OF
STRATEGY CORPORATE, BUSINESS, AND
FUNCTIONAL STRATEGIES
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LEVELS OF STRATEGIES
• Corporate strategy:
– sets long-term direction for the total enterprise
• Business strategy:
– identifies how a division or strategic business unit will
compete in products or services
• Functional strategy:
– guides activities within one specific area of operations
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STRATEGIC MANAGEMENT PROCESS
• Goal of strategic management is to create above-average returns
for investors
– Returns exceeding those for alternative opportunities at
equivalent risk
– Earning above-average returns depends in part on the
organization’s competitive environment
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STRATEGIC MANAGEMENT PROCESS
(CONT’D)
• Strategic management: the process of formulating and
implementing strategies to accomplish long-term goals and
sustain competitive advantage
• Strategic analysis: process of analyzing the organization, the
environment, its competitive position and current strategies
• Strategy formulation: the process of crafting strategies to guide
allocation of resources
• Strategy implementation: putting strategies into action
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FIGURE 5.3 STRATEGY FORMULATION
AND IMPLEMENTATION IN THE
STRATEGIC MANAGEMENT PROCESS.
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ESSENTIALS OF STRATEGIC
ANALYSIS
• Drucker’s strategic questions for strategy formulation:
– What is our business mission?
– Who are our customers?
– What do our customers consider valuable?
– What have been our results?
– What is our plan?
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ESSENTIALS OF STRATEGIC
ANALYSIS (CONT’D)
• Analysis of mission:
– The reason for an organization’s existence
– An important test of the mission is how well it serves the
organization’s stakeholders
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FIGURE 5.4 HOW EXTERNAL STAKEHOLDERS CAN
BE VALUED AS STRATEGIC CONSTITUENCIES OF
ORGANIZATIONS
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ESSENTIALS OF STRATEGIC
ANALYSIS (CONT’D)
• Analysis of core values:
– Values are broad beliefs about what is or is not appropriate
– Organizational culture reflects the predominant value
system of the organization as a whole
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ORGANIZATIONAL CULTURE
• Strong core values:
– Helps build organizational identity
– Gives character to the organization in the eyes of employees
and external stakeholders
– Backs up the mission statement
– Guides the behaviour of organizational members in
meaningful and consistent ways
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ORGANIZATIONAL CULTURE
• Observable Culture:
– Visible actions and events
• Heroes
• Ceremonies, rites, rituals
• Legends and stories
• Metaphors and symbols
• Core Culture:
– Underlying values
• Innovation and risk-taking
• Ethics and integrity
• Social responsibility
• Customer service
• Performance and teamwork
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(CONT’D)
ORGANIZATIONAL CULTURE
(CONT’D)
• Analysis of objectives:
– Operating objectives direct activities toward key and specific
performance results
– Typical operating objectives:
• Profitability
• Financial health
• Cost efficiency
• Customer service
• Product quality
• Market share
• Human talent
• Innovation
• Social responsibility
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SWOT ANALYSIS
• What are our
Strengths?
– Manufacturing
efficiency?
– Skilled workforce?
– Good market share?
– Strong financing?
– Superior
reputation?
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• What are our Weaknesses
– Outdated facilities?
– Inadequate research
and development?
– Obsolete
technologies?
– Weak management?
– Past planning
failures?
SWOT ANALYSIS
• What are our
Opportunities?
•
•
•
•
Possible new markets?
Strong economy?
Weak market rivals?
Emerging
technologies?
• Growth of existing
market?
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(CONT’D)
• What are our Threats?
• New competitors?
• Shortage of resources?
• Changing market
tastes?
• New regulations?
• Substitute products?
FIGURE 5.6 SWOT ANALYSIS OF
STRENGTHS, WEAKNESSES,
OPPORTUNITIES, AND THREATS
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P.E.S.T. ANALYSIS
• Political: laws and regulations, government policies.
• Economic: general environment influenced by
customer spending, resource supplies, and
investment capital.
• Socio-Cultural: norms, customs, social values, gender roles.
• Technological: developments in technology and the edge of
another technology revolution.
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PORTER’S FIVE FORCES MODEL
• Porter’s model of five strategic forces affecting competition:
– Industry competition:
• The intensity of rivalry among firms and their competitive
behaviour
– New entrants:
• the threat of new competitors entering the market
– Substitute products or services:
• the threat of substitute products or services
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PORTER’S FIVE FORCES MODEL
(CONT’D)
• Porter’s model of five strategic forces affecting competition:
– Bargaining power of suppliers:
• the ability of resource suppliers to influence the cost of
products or services
– Bargaining power of customers:
• the ability of customers to influence the price they will
pay for products or services
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FIGURE 5.8 PORTER’S MODEL OF FIVE
STRATEGIC FORCES AFFECTING
INDUSTRY COMPETITION
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CORPORATE-LEVEL STRATEGY
FORMULATION
• Grand or master strategies:
– Growth strategies:
• seek an increase in size and the expansion of current
operations
– Stability strategy:
• maintains current operations without substantial
changes
– Renewal strategy:
• tries to solve problems and overcome weaknesses that
are hurting performance
– Combination strategy:
• pursues growth, stability, or retrenchment in some
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CORPORATE-LEVEL STRATEGY
FORMULATION (CONT’D)
• Growth and diversification strategies:
– Growth strategies
• Seek an increase in size and the expansion of current
operations.
– Types of growth strategies:
• Concentration strategies
• Diversification strategies
– Related diversification
– Unrelated diversification
– Vertical integration
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CORPORATE-LEVEL STRATEGY
FORMULATION (CONT’D)
• Restructuring strategies:
– Tries to correct weaknesses by changing the mix or reducing
the scale of operations by:
• Restructuring through turnaround
• Restructuring through downsizing
• Restructuring through divestiture
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CORPORATE-LEVEL STRATEGY
FORMULATION (CONT’D)
• Global strategies:
– Globalization strategy
• World is one large market; standardize products and
advertising as much as possible
• Ethnocentric view
– Multidomestic strategy
• Customize products and advertising to local markets as
much as possible
• Polycentric view
– Transnational strategy
• Balance efficiencies in global operations and
responsiveness to local markets
• Geocentric view
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CORPORATE-LEVEL STRATEGY
FORMULATION (CONT’D)
• Co-operative strategies
– Strategic alliances: two or more organizations partner to
pursue an area of mutual interest
– Types of strategic alliances:
• Outsourcing alliances
• Supplier alliances
• Distribution alliances
• Co-opetition
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CORPORATE-LEVEL STRATEGY
FORMULATION (CONT’D)
• E-business strategies
– The strategic use of the Internet to gain competitive
advantage
– Popular e-business strategies
• Business-to-business (B2B) strategies
• Business-to-customer (B2C) strategies
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CORPORATE-LEVEL STRATEGY
FORMULATION (CONT’D)
• Web-based business models:
– Brokerage model
– Advertising model
– Merchant model
– Subscription model
– Infomediary model
– Community model
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CORPORATE-LEVEL STRATEGY
FORMULATION (CONT’D)
• Strategic portfolio planning:
– Portfolio planning seeks the best mix of investments among
alternative business opportunities
• BCG Matrix analyzes business opportunities according to
market growth rate and market share
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BOSTON CONSULTING GROUP
(BCG) MATRIX
• BCG matrix:
– Ties strategy formulation to analysis of business
opportunities according to …
• Industry or market growth rate
– Low versus high
• Market share
– Low versus high
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FIGURE 5.9 THE BCG MATRIX APPROACH
TO CORPORATE STRATEGY
FORMULATION
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BCG MATRIX
(CONT’D)
• Business conditions and related strategies:
– Stars
• High share/high growth businesses
• Preferred strategy: growth
– Cash cows
• High share/low growth businesses
• Preferred strategy: stability or modest growth
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BCG MATRIX
(CONT’D)
– Question marks
• Low share/high growth businesses
• Preferred strategy: growth for promising question marks
and restructuring or divestiture for others
– Dogs
• Low share/low growth businesses
• Preferred strategy: retrenchment by divestiture
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