Management: Arab World Edition
Robbins, Coulter, Sidani, Jamali
Chapter 8: Strategic Management
Dr Sara Odat
Learning Outcomes
Follow this Learning Outline as you read and study this chapter.
8.1 Strategic Management
• Define
• Give
strategic management, strategy, and business model.
three reasons why strategic management is important.
• Describe
strategic planning in Arab organizations.
8.2 The Strategic Management Process
• Describe
the six steps in the strategic management process.
• Define
SWOT (strengths, weaknesses, opportunities, and
threats).
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Learning Outcomes
8.3 Corporate Strategies
• Describe
the three major types of corporate strategies.
• Explain
how the BCG matrix is used to manage corporate
strategies.
8.4 Competitive Strategies
• Describe
• Explain
Porter’s five forces model.
• Describe
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the role of competitive advantage.
Porter’s three competitive strategies.
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Learning Outcomes
8.5 Current Strategic Management Issues
• Explain
why strategic flexibility is important.
• Describe
e-business strategies.
• Discuss
what strategies organizations might use to become
more customer oriented and to be more innovative.
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Strategic Management
1. Define strategic management, strategy, and business model.
2. Give three reasons why strategic management is important.
3. Describe strategic planning in Arab organizations.
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What is Strategic Management?
•
Strategic management

•
Strategies

•
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Is what managers do to develop an organization’s strategies.
The decisions and actions that determine the long-run
performance of an organization.
Business Model

Is a strategic design for how a company intends to profit from its
strategies, work processes, and work activities.

Focuses on two things:
•
Whether customers will value what the company is providing.
•
Whether the company can make any money doing that.
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Why Is Strategic Management Important?
1. It results in higher organizational performance.
2. It requires that managers examine and adapt to business
environment changes.
3. It coordinates diverse organizational units, helping them focus
on organizational goals.
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Strategic Management
in Arab Organizations
•
Formal strategic planning exists but is rather limited.
•
Lack of confidence in the impact of formal strategic planning.
•
The trend for formal strategic planning is on the rise.
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The Strategic Management
Process
1. Describe the six steps in the strategic management
process.
2. Define SWOT (strengths, weaknesses, opportunities,
and threats).
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The Strategic Management Process
The strategic management process is a six-step process that
encompasses:
- strategy planning
- implementation
- evaluation.
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Exhibit 8–1
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The Strategic Management Process
Step 1: Identifying the Current
Mission, Goals, and Strategies
 Mission: a statement of the
purpose of an organization
• The scope of its products and
services
 Goals: the foundation for further
planning
• Measurable performance targets
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Exhibit 8–2 Components of a Mission Statement
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Step 2: Doing an external analysis
 The environmental scanning
of specific and general
environments
• Focuses on identifying
opportunities and threats
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Exhibit 8–3 Value of Petroleum Exports in U.S.
Billions (2008)
X
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Step 3: Doing an internal analysis
 Assessing organizational resources,
capabilities, and activities:
• Strengths create value for the
customer and strengthen the
competitive position of the firm.
• Weaknesses can place the firm
at a competitive disadvantage.
 Analyzing financial and physical
assets is fairly easy, but assessing
intangible assets (employee’s
skills, culture, corporate reputation,
and so forth) isn’t as easy.
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Steps 2 and 3 combined are
called a SWOT analysis:
Strengths
Weaknesses
Opportunities
Threats
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Step 4: Formulating strategies
 Develop and evaluate strategic
alternatives.
 Select appropriate strategies for all
levels in the organization that provide
relative advantage over competitors.
 Match organizational strengths to
environmental opportunities.
 Correct weaknesses and guard
against threats.
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Step 5: Implementing strategies
 Implementation: effectively fitting
organizational structure and activities
to the environment.
 The environment dictates the chosen
strategy; effective strategy
implementation requires an
organizational structure matched to
its requirements.
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Step 6: Evaluating results
 How effective have strategies
been?
 What adjustments, if any, are
necessary?
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Corporate Strategies
1. Describe the three major types of corporate strategies.
2. Explain how the BCG matrix is used to manage corporate
strategies.
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Exhibit 8–4
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Types of Organizational Strategies
What is a Corporate Strategy?
A corporate strategy is one that specifies what businesses a
company is in or wants to be in and what it wants to do with those
businesses.
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Types of Corporate Strategies
1. Growth:

expansion into new products and markets
2. Stability:

maintenance of the status quo
3. Renewal:

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examination of organizational weaknesses that are leading to
performance declines
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1. Growth Strategy (corporate strategy)
Seeking to increase the organization’s business by expansion into
new products and markets.
4 Types of Growth Strategies
Raw materials
(suppliers)
 Concentration
 Vertical
integration
 Horizontal
integration
 Diversification
Delivery
End users
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1. Growth Strategy types:
A. Concentration
 Focusing
on a primary line of business and increasing the number of
products offered or markets served.
B. Vertical Integration
 Backward
vertical integration: attempting to gain control of inputs
(become a self-supplier).
 Forward
vertical integration: attempting to gain control of output
through control of the distribution channel or provide customer
service activities (eliminating intermediaries).
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1. Growth Strategy types:
C. Horizontal Integration
 Combining
operations with another competitor in the same
industry to increase competitive strengths and lower competition
among industry rivals.
D. Diversification
Related Diversification
 Expanding
by combining with firms in different, but related
industries that are “strategic fits”.
Unrelated Diversification
 Growing
by combining with firms in unrelated industries where
higher financial returns are possible.
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2. Stability Strategy (corporate strategy)
This strategy is appropriate if:
 Managers
want to maintain the status quo to deal with the
uncertainty of a dynamic environment.
 The
 If
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industry is experiencing slow- or no-growth conditions.
the owners of the firm elect not to grow for personal reasons.
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3. Renewal Strategies
•
Developing strategies to counter organization weaknesses that are
leading to performance declines.
• Retrenchment:
–
focusing of eliminating non-critical weaknesses and restoring
strengths to overcome current performance problems.
• Turnaround:
–
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addressing critical long-term performance problems through
the use of strong cost elimination measures and large-scale
organizational restructuring solutions.
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X
How are Corporate Strategies Managed?
Managers manage a portfolio (or collection) of businesses using a
corporate portfolio matrix such as the BCG Matrix.
BCG Matrix
•
Developed by the Boston Consulting Group.
•
Considers market share and industry growth rate.
•
Classifies firms as:
• Cash
cows:
• Stars:
• Question
high growth rate, high market share
marks:
• Dogs:
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low growth rate, high market share
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high growth rate, low market share
low growth rate, low market share
X
Exhibit 8–5
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The BCG Matrix
Competitive Strategies
1. Describe the role of competitive advantage.
2. Explain Porter’s five forces model.
3. Describe Porter’s three competitive strategies.
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What is a Competitive Strategy?
A strategy focused on how an organization will compete in its
business(es).
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
For an organization in only one line of business, the competitive
strategy describes how it will compete in its primary or main
market.

For organizations in multiple businesses, however, each
business has its own competitive strategy that defines its
competitive advantage, the products or services it will offer, the
customers it wants to reach, and the like.
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The Role of Competitive Advantage
1. Competitive Advantage sets an organization’s distinctive
competitive edge.
2. That distinctive edge comes from the organization’s core
competencies because the organization does something that
others cannot do or does it better than others can do it.
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Quality as a Competitive Advantage
•
Differentiates the firm from its competitors.
•
Can create a sustainable competitive advantage.
•
Represents the company’s focus on quality management to
achieve continuous improvement and meet customers’ demand
for quality.
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Sustaining Competitive Advantage
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•
Continuing over time to effectively exploit resources and develop
core competencies that enable an organization to keep its edge
over its industry competitors.
•
It is not easy to create a sustainable competitive advantage? due
to market instabilities, new technology, and other changes.
•
By using strategic management, managers can better position
their organizations to get a sustainable competitive advantage.
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Exhibit 8–6
Five Forces Model
Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980).
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Five Competitive Forces
1. Threat of New Entrants

The ease or difficulty with which new competitors can enter an
industry.
2. Threat of Substitutes

The extent to which switching costs and brand loyalty affect
the likelihood of customers adopting substitute products and
services.
3. Bargaining Power of Buyers

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The degree to which buyers have the market strength to hold
sway over and influence competitors in an industry.
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Five Competitive Forces (cont’d)
4. Bargaining Power of Suppliers

The relative number of buyers to suppliers and threats
from substitutes and new entrants affect the buyer–
supplier relationship.
5. Current Rivalry

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Intensity among rivals increases ? when industry growth rates
slow, demand falls, and product prices descend.
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Choosing a Competitive Strategy
Cost Leadership Strategy
•
Seeking to attain the lowest total overall costs relative to other
industry competitors. a larger market.
Differentiation Strategy
•
Attempting to create a unique and distinctive product or service
for which customers will pay a premium. a larger market.
Focus Strategy
•
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Using a cost or differentiation advantage to exploit a particular
market segment rather than a larger market.
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Current Strategic
Management Issues
1. Explain why strategic flexibility is important.
2. Describe e-business strategies.
3. Discuss what strategies organizations might use to become
more customer oriented and to be more innovative.
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Strategic Flexibility
Involves the ability
1. to recognize major external changes
2. to quickly commit resources
3. to recognize when a strategic decision is not working
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Exhibit 8–7
Creating Strategic Flexibility
• Know what’s happening with strategies currently being used
by monitoring and measuring results.
• Encourage employees to be open about disclosing and
sharing negative information.
• Get new ideas and perspectives from outside the
organization.
• Have multiple alternatives when making strategic decisions.
• Learn from mistakes.
Source: Based on K. Shimizu and M. A. Hitt, “Strategic Flexibility: Organizational Preparedness to Reverse
Ineffective Strategic Decisions,” Academy of Management Executive, November 2004, pp. 44–59.
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New Directions: Strategies for Applying
e-Business Techniques
Cost Leadership
•
On-line activities: bidding, order processing, inventory control,
recruitment and hiring
Differentiation
•
Internet-based knowledge systems, online ordering and customer
support
Focus
•
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Chat rooms and discussion boards, targeted Web sites
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New Directions: Customer Service Strategies

Giving the customers what they want.

Communicating effectively with them.

Providing employees with customer
service training.
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New Directions: Innovation Strategies
Possible Events

Radical breakthroughs in products.

Application of existing technology to new uses.
Strategic Decisions about Innovation

Basic research

Product development

Process innovation
First Mover

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An organization that is first to bring a product innovation to market
or use a new process innovation.
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Exhibit 8–8 First-Mover Advantages–Disadvantages
Advantages
 Reputation for being
innovative and industry
leader
 Uncertainty over exact
direction technology and
market will go
 Cost and learning benefits
 Risk of competitors
imitating innovations
 Control over scarce
resources and keeping
competitors from having
access to them
 Opportunity to begin building
customer relationships
and customer loyalty
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Disadvantages
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 Financial and strategic
risks
 High development costs
Terms to Know
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strategic management
SWOT analysis
strategies
corporate strategy
business model
growth strategy
strategic management process
stability strategy
mission
renewal strategy
opportunities
BCG matrix
threats
competitive strategy
resources
strategic business units
capabilities
competitive advantage
core competencies
functional strategies
strengths
strategic flexibility
weaknesses
first mover
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