Management 11e
John Schermerhorn
Chapter 9
Strategy and
Strategic Management
Planning Ahead — Chapter 9 Study Questions
1. What is strategic management?
2. What are the essentials of strategic analysis?
3. What are corporate-level strategies, and how
are they formulated?
4. What are business-level strategies and how
are they formulated?
5. What are the foundations for strategy
implementation?
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Study Question 1: What is strategic management?
 Basic concepts of strategy:
 Competitive advantage — operating with an
attribute or set of attributes that allows an
organization to outperform its rivals
 Sustainable competitive advantage — one
that is difficult for competitors to imitate
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Study Question 1: What is strategic management?
 Types of competitive advantage




Cost and quality
Knowledge and speed
Barriers to entry
Financial resources
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Study Question 1: What is strategic management?
 Basic concepts of strategy
 Strategy
 a comprehensive action plan that identifies longterm 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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Study Question 1: What is strategic management?
 Levels of strategies
 Corporate
 Sets long-term direction for the total enterprise
 Business
 How a division or strategic business unit will
compete in its product or service domain
 Functional
 Guides activities within one specific area of
operations
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Figure 9.1 Three levels of strategy in organizations- corporate,
business, functional strategies
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Study Question 1: What is strategic management?
 Strategic Management Process:
 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
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Figure 9.2 Strategy formulation and implementation in the strategic
management process
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Study Question 1: What is strategic management?
 Strategic Management Process:
 Strategy formulation
 the process of crafting strategies to guide
allocation of resources
 Strategy implementation
 putting strategies into action
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Study Question 1: What is strategic management?
 Strategy formulation
 The process of creating strategy
 Involves assessing existing strategies,
organization, and environment to develop
new strategies and strategic plans capable of
delivering future
competitive advantage
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Study Question 1: What is strategic management?
 Strategy implementation
 The process of allocating resources and
putting strategies into action
 All organizational and management systems
must be mobilized to support and reinforce
the accomplishment of strategies
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Study Question 2: What are the 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 value?
What have been our results?
What is our plan?
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Study Question 2: What are the essentials of strategic analysis?
 Analysis of mission:
 The reason for an organization’s existence
 Good mission statements identify:
 Customers
 Products and/or services
 Location
 Underlying philosophy
 An important test of the mission is how well it
serves the organization’s stakeholders
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Study Question 2: What are the essentials of strategic analysis?
 Stakeholders
 Individuals and groups directly affected by
the organization and its strategic
accomplishments
 An important test of the mission is how well it
serves the organization’s stakeholders
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Figure 9.3 How external stakeholders can be valued as strategic
constituencies of organizations
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Study Question 2: What are the essentials of strategic analysis?
 Analysis of Core values:
 Broad beliefs about what is
or is not appropriate
 Organizational culture
reflects the dominant value
system of the organization as
a whole
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Study Question 2: What are the essentials of strategic analysis?
 Analysis of objectives:
 Operating objectives direct activities toward
key and specific performance results
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Study Question 2: What are the essentials of strategic analysis?
Typical operating objectives:
•
•
•
•
•
•
•
•
•
Profitability
Market share
Human talent
Financial health
Cost efficiency
Product quality
Innovation
Social responsibility
Customer Service
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Study Question 2: What is the strategic management process?
 Analysis of organizational resources and
capabilities:
 Core competency is a special strength that
gives an organization competitive advantage
 Important goal of assessing core
competencies
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Study Question 2: What is the strategic management process?
Potential core competencies:
•
•
•
•
Special knowledge or expertise
Superior technology
Efficient manufacturing approaches
Unique product distribution systems
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Study Question 2: What is the strategic management process?
 SWOT Analysis
 Examination of an organization’s current
position by looking at
 Internal strengths and weaknesses
 Environmental opportunities and threats
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Figure 9.4 SWOT analysis of strengths, weaknesses, opportunities,
and threats
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Study Question 2: What is the strategic management process?
 Porter’s Model of Five Strategic Forces Affecting
Competition:
Industry
competition
Intensity of
rivalry
among
firms and
their
competitive
behavior
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New
entrants
Threat of
new
competitors
entering
the market
Substitute
products or
services
Bargaining
power of
suppliers
Bargaining
power of
customers
Threat of
substitute
products or
services
Ability of
resource
suppliers to
influence
the cost of
products or
services
Ability of
customers
to influence
the price
they will
pay for
products or
services
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Figure 9.5 Porter’s model of five strategic forces affecting industry
competition
Source: Developed from Michael E. Porter, Competitive Strategy (New York: Free Press, 1980).
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Study Question 3: What are corporate-level strategies and how are
they formulated?
 Corporate-level strategy formulation
 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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Study Question 3: What are corporate-level strategies and how are
they formulated?
 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 9.6 The BCG matrix approach to corporate strategy
formulation
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Study Question 3: What are corporate-level strategies and how are
they formulated?
 BCG matrix — 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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Study Question 3: What are corporate-level strategies and how are
they formulated?
 BCG matrix—business conditions and
related strategies (cont.):
 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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Study Question 3: What are corporate-level strategies and how are
they formulated?
 Growth strategies
 Seek an increase in size and the expansion of
current operations
 Types of growth strategies:
 Concentration strategies
 Grow within the same business area
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Study Question 3: What are corporate-level strategies and how are
they formulated?
 Types of growth strategies continued
 Diversification strategies
 Grow by acquiring or investing in new and
different business areas
 Related diversification
 Unrelated diversification
 Vertical integration
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Study Question 3: What are corporate-level strategies and how are
they formulated?
 Retrenchment and restructuring
strategies:
 Readjusting operations when an organization
is in trouble
 Chapter 11 bankruptcy
 Protects a firm from creditors while
management re-organizes to
restore solvency
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Study Question 3: What are corporate-level strategies and how are
they formulated?
 Types of retrenchment and
restructuring strategies
 Liquidation
 Business closes and sells assets to pay
creditors
 Downsizing
 Decreases size of
operations
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Study Question 3: What are corporate-level strategies and how are
they formulated?
 Types of retrenchment and restructuring
strategies
 Divestiture
 Sells off parts of the organization to refocus
attention on core business areas
 Turnaround Strategy
 Tries to fix specific performance problems
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Study Question 3: What are corporate-level strategies and how are
they formulated?
 Global strategies:
Globalization
strategy
Multidomestic
strategy
Transnational
strategy
World is one large
market; standardize
products and
advertising as much
as possible
Customize products
and advertising to
local markets as
much as possible
Balance efficiencies
in global operations
and responsiveness
to local markets
Ethnocentric view
Polycentric view
Geocentric view
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Study Question 3: What are corporate-level strategies and how are
they formulated?
 Cooperative 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
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Study Question 3: What are corporate-level strategies and how are
they formulated?
 Co-opetition – working with rivals on
projects of mutual benefit
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Study Question 4: What are business-level strategies and how are
they formulated?
 Business-level strategy formulation
 Good strategies help achieve above average
returns
 Key question is “How can we best compete
for customers in our market and with our
products or services?”
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Study Question 4: What are business-level strategies and how are
they formulated?
 Porter’s competitive strategies model
 Business-level strategic decisions are driven
by:
 Market scope
 Source of competitive advantage
 Market scope and source of competitive
advantage combine to generate four generic
strategies
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Figure 9.7 Porter’s competitive strategies framework: soft-drink
industry examples
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Study Question 4: What are business-level strategies and how are
they formulated?
 Porter’s generic strategies for gaining
competitive advantage:




Differentiation strategy
Cost leadership strategy
Focused differentiation strategy
Focused cost leadership strategy
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Study Question 5: What are the foundations for strategy
implementation?
 Strategy implementation
 Must be supported in every aspect of
management
 Planning
 Controlling
 Organizing
 Leading
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Study Question 5: What are the foundations for strategy
implementation?
 Strategic planning failures that hinder
strategy implementation:
 Failures of substance
 Inadequate attention to major strategic planning
elements
 Failures of process
 Poor handling of strategy implementation
 Lack of participation error
 Goal displacement error
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Study Question 5: What are the foundations for strategy
implementation?
 Corporate governance:
 System of control and performance
monitoring of top management
 Done by boards of directors and other major
stakeholder representatives
 Controversies regarding roles of inside
directors and outside directors
 Increasing emphasis on corporate
governance in contemporary businesses
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Study Question 5: What are the foundations for strategy
implementation?
 Strategic control
 Makes sure strategies are well implemented
and that poor strategies are scrapped or
modified
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Study Question 5: What are the foundations for strategy
implementation?
 Strategic leadership
 Inspires people to continually change, refine,
and improve strategies and their
implementation
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Study Question 5: What are the foundations for strategy
implementation?
 Critical tasks of strategic leadership
 Be a guardian of trade-offs
 Create a sense of urgency
 Ensure that everyone understands the
strategy
 Be a teacher
 Be a great communicator
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Chapter 9 Case
 Dunkin’ Donuts: Betting dollars on donuts
For activities and assessments, please visit…
 www.wiley.com/college/schermerhorn