Mgmt 371
Chapter Eight
Managing Strategy and Strategic
Planning
Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.©
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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.
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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.
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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.
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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.

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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.
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SWOT ANALYSIS
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SWOT Analysis: Environmental
Scanning
The process of studying the environment
of the organization to identify strengths,
weakness, opportunities, and threats.
Internal Environment
Strengths
Weaknesses
External Environment
Opportunities
Threats
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Internal Environment
 Strengths – those internal factors that give
the organization a competitive advantage and
help it seize an opportunity or reduce a
threat from its external environment.

Proprietary technology



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Pharmaceutical cure for cancer.
iPhone
Financial resources
KSA that creates a competitive advantage
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Internal Environment
 Weaknesses – those internal factors that
place the organization a disadvantage and
preclude it from seizing an opportunity or
avoiding a threat from its external
environment.
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Obsolete skills
Financial constraints
Poor planning & forecasting
Lack of management skills
Shortage of critical KSA
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External Environment
 Opportunities –factors in the organization’s
external environment that, if exploited, may
generate higher organizational performance.


New markets
New Technologies



Product
Production
Research subsidies
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External Environment
 Threats –factors in the organization’s
external environment that increase the
difficulty of that organization performing at a
higher level, or threaten the organization’s
very existence.


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New entrants
Government regulation
Increase energy costs
Change in consumer demand
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SWOT Matrix
 Helps develop strategies by linking Strengths and
Opportunities (SO), Strengths and Threats (ST),
Weaknesses and Opportunities (WO), and
Weaknesses and Threats (WT).


SO Strategies – are developed by identifying ways by
which the organization can use its Strengths to seize
given Opportunities.
ST Strategies – are developed by identifying ways by
which the organization can use its Strengths to avoid
given Threats.
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SWOT Matrix


WO Strategies – an organization attempts to take
advantage of Opportunities by overcoming its
Weaknesses.
WT Strategies – defensive strategies that attempt to
identify ways by which the organization can minimize its
Weaknesses to avoid Threats.
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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.
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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.
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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.
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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.
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Porter’s
Generic Strategies
 Cost Leadership – focus on efficiency,
stability, and cost control.

Low cost producer of its good or service.
 Differentiation – distinguishing your product
or service from your competition usually by
quality).
 Focus – concentrating on a specific regional
market, market segment, or set of customers.
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Business Level Strategies
Strategy
Cost Leadership
Focused Cost
Differentiation
Focused Differentiation
# of Market Segments
Many
Few
X
X
X
X
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Implementing Business-Level
Strategies (cont’d)
 Implementing Porter’s Generic Strategies
 Differentiation
 Marketing and sales must emphasize high-quality,
high-value 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.
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Miles & Snow Typology
 Prospector - innovative and growth oriented
firm, strategies focus on identifying and
entering new markets. Risk taker.
 Defender – operating in a stable
environment, strategies.

Focus on protecting current markets and
maintaining stable growth. Risk averse.
 Analyzer – a firm wishing to maintain current
markets but also enter new ones. Has
elements of prospectors and defenders.
 Reactor – no strategy or plan.
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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
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somewhat innovative.
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
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Corporate Level Strategies
 Concentration in a single-product
(McDonalds)
 Diversification

Related diversification - similar industry (CSX=
Chessie System and Seaboard Coast Line
Industries)
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Common technology
Common Distribution/marketing skills
Common reputation
Common customers
Unrelated (a.k.a. conglomerate) diversification
different industry (Sears and Allstate Insurance)
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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.
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Formulating Corporate-Level
Strategies
 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.
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Corporate Level Strategies
 International Expansion
 Global strategy – product has transnational
appeal
 Multi domestic – customizing product to
meet local preferences.
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The
Product Life Cycle
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Implementing Corporate-Level
Strategies (Diversification)
 Becoming a Diversified Firm

Internal development of new products

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Developing products and services within the
boundaries of traditional business operations.
Vertical Integration – an organization
becomes its own supplier and/or
distributor.
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Backward vertical integration becoming ones
own supplier (Gallo acquires own bottling).
Forward vertical integration – becoming ones
own distributor (Tandy and Radio Shack)
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Implementing Corporate-Level
Strategies (Diversification)
 Becoming a Diversified Firm 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.
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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
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Managing Diversification: 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.
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Market Growth Rate
Managing Diversification
BCG Matrix
Stars
Question Marks
Cash Cows
Dogs
Relative Market Share
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Managing Diversification
 GE Business Screen
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
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.
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Industry Attractiveness
 Market growth
 Market size
 Capital requirements
 Competitive intensity
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Competitive Position
 Market Share
 Technological know-how
 Product quality
 Service network
 Price competitiveness
 Operating costs
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Industry Attractiveness
Managing Diversification
GE Business Screen
Winner
Winner
?
Winner
Average
Business
Loser
Profit
Producer
Loser
Loser
Competitive Position
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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
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learning that can be transferred to other operating
environments.
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.

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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 multidomestic corporation.
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