Management, 7e
Schermerhorn
Prepared by
Michael K. McCuddy
Valparaiso University
John Wiley & Sons, Inc
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Chapter 8
Strategic Management
 Planning ahead—study questions
– What are the foundations of strategic
competitiveness?
– What is the strategic management process?
– What types of strategies are used by
organizations?
– How are strategies formulated?
– What are current issues in strategy
implementation?
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What are the foundations of strategic
competitiveness?
 Basic concepts of strategy:
– Competitive advantage—operating in a
successful way that is difficult for competitors
to imitate.
– Sustainable competitive advantage—
consistently dealing with market and
environmental forces better than competitors.
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What are the foundations of strategic
competitiveness?
 Basic concepts of strategy:
– Strategy—a comprehensive action plan
providing long-term direction and guiding
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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What are the foundations of strategic
competitiveness?
 Basic concepts of strategy:
– Strategic management—the process of
formulating and implementing strategies to
accomplish long-term goals and sustain
competitive advantage.
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What are the foundations of strategic
competitiveness?
 Strategic management goals
– Formulate and implement strategies that yield
long-term, sustainable competitive advantage.
– Create above-average returns for investors.
• Earning above-average returns depends in part on
the organization’s environment.
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What are the foundations of strategic
competitiveness?
 Environments and competitive advantage
– Monopoly
• Only one player and no competition
• Creates absolute competitive advantage
– Oligopoly
• Few players not directly competing against each other
• Long-term competitive advantage in defined market segment.
– Hypercompetition
• Several players directly competing against each other
• Any competitive advantage is only temporary
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What is the strategic management
process?
 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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What is the strategic management
process?
 The strategy formulation process (Drucker)
• 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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What is the strategic management
process?
 Strategy implementation
– The process of allocating resources and putting
strategies into action.
– All organizational and management systems
must be mobilized to support the
accomplishment of strategies.
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What is the strategic management
process?
 Essential tasks for strategy implementation …
– Identify organizational mission and objectives.
– Assess current performance vis-à-vis mission and
objectives.
– Create strategic plans to accomplish purpose and
objectives.
– Implement the strategic plans
– Evaluate results; change strategic plans and/or
implementation processes as necessary.
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What is the strategic management
process?
 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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What is the strategic management
process?
 Analysis of values
– Values are 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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What is the strategic management
process?
 Analysis of objectives
– Operating objectives direct activities toward key and
specific performance results.
– Typical operating objectives:
•
•
•
•
•
•
•
•
Profitability
Market share
Human talent
Financial health
Cost efficiency
Product quality
Innovation
Social responsibility
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What is the strategic management
process?
 Analysis of organizational resources and
capabilities
– Assessing organizational Strengths and Weaknesses
within SWOT analysis
– Identifying core competencies
• Technology
• Human resources
• Manufacturing approaches
• Management talent
• Financial strength
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What is the strategic management
process?
 Analysis of industry and environment
– Assessing Opportunities and Threats within
SWOT analysis
– Assessment of actual and future environmental
conditions
• Macro environment
• Industry environment
– Unattractive industry
– Attractive industry
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What types of strategies are used by
organizations?
 Levels of strategy
– Corporate strategy—directs the organization as
a whole toward sustainable competitive
advantage.
– Business strategy—sets the strategic direction
for a single business unit or product line.
– Functional strategy—guides the use of
resources to implement business strategy,
focusing on activities within a specific area of
operations.
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What types of strategies are used by
organizations?
 Growth and diversification strategies
– Growth strategies—seek an increase in size and
the expansion of current operations.
– Concentration strategies—growth occurs
through expansion in the same business area.
– Diversification strategies—growth occurs
through acquisition of or investment in new
and/or different business areas.
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What types of strategies are used by
organizations?
 Restructuring and divestiture strategies
– Liquidation—operations cease due to sale of
assets or bankruptcy.
– Restructuring—changes in the scale and/or mix
of operations to gain efficiency and improve
performance.
– Divestiture—selling off parts of the
organization to refocus on core competencies.
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What types of strategies are used by
organizations?
 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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What types of strategies are used by
organizations?
 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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What types of strategies are used by
organizations?
 Web-based business models:
– Brokerage model
– Advertising model
– Merchant model
– Subscription model
– Infomediary model
– Community model
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How are strategies formulated?
 Opportunities for achieving sustainable
competitive advantage:
– Cost and quality
– Knowledge and speed
– Barriers to entry
– Financial resources
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How are strategies formulated?
 Business-level strategy formulation
– Focus on finding ways to do a better job of
attracting customers within a given business or
industry.
– Helpful planning tools in formulating businesslevel strategies:
• Porter’s generic strategies
• Product life cycle
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How are strategies formulated?
 Porter’s generic strategies model
– Business-level strategic decisions are driven by:
• Competitive scope
• Source of competitive advantage
– Competitive scope and source of competitive
advantage combine to generate four generic
strategies.
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How are strategies formulated?
 Porter’s generic strategies model
– Generic strategies for gaining competitive
advantage:
• Differentiation strategy
• Cost leadership strategy
• Focused differentiation strategy
• Focused cost leadership strategy
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How are strategies formulated?
 Product life cycle
– A series of stages that a product or service goes
through during the life of its marketability.
– Stages of the life cycle:
• Introduction
• Growth
• Maturity
• Decline
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How are strategies formulated?
 Product life cycle
– Introduction and growth stages
• Use differentiation and prospector strategies
– Maturity stage
• Use focus and/or cost leadership strategies
– Decline stage
• Use defender or analyzer strategies
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How are strategies formulated?
 Corporate-level strategy formulation
– Key issue is the selection and refinement of the
organization’s mix of businesses.
– Approaches to formulating business-level
strategies:
• Portfolio planning
• Adaptive strategies
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How are strategies formulated?
 Portfolio planning approach
– Designed to help managers decide on investing
scarce organizational resources among
competing business opportunities.
– Useful for multibusiness or multiproduct
situations.
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How are strategies 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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How are strategies formulated?
 BCG matrix—business conditions and
related strategies:
– Stars
• High share/high growth businesses
• Preferred strategy—growth
– Question marks
• Low share/high growth businesses
• Preferred strategy—growth for promising question
marks and restructuring or divestiture for others
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How are strategies formulated?
 BCG matrix—business conditions and
related strategies:
– Cash cows
• High share/low growth businesses
• Preferred strategy—stability or modest growth
– Dogs
• Low share/low growth businesses
• Preferred strategy—retrenchment by divestiture
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How are strategies formulated?
 GE Business Screen …
– Business strengths:
• Market share, technological advantage, product quality,
operating costs, and price competitiveness.
– Industry attractiveness:
• Market size and growth, capital requirements, and competitive
intensity.
– Combining business strength and industry
attractiveness yields a matrix that identifies business
units as:
• Winners, question marks, average businesses, profit producers,
or losers.
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How are strategies formulated?
 Adaptive strategies
– Miles and Snow model
– Organizations should pursue product/market
strategies that are congruent with their external
environments.
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How are strategies formulated?
 Types of adaptive strategies:
– Prospector strategy
• Appropriate in dynamic, high-potential environments
– Defender strategy
• Appropriate in stable or declining environments
– Analyzer strategy
• Following leading competitors in high-potential environments
– Reactor strategy
• Following competitors as a last resort regardless of
environment
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How are strategies formulated?
 Incrementalism
– Modest and incremental changes in strategy
occur as managers learn from experience.
 Emergent strategies
– Develop progressively over time in the streams
of decisions that managers make.
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What are current issues in strategy
implementation?
 Common strategic planning failures
– 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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What are current issues in strategy
implementation?
 Guidelines for double-checking strategy
– Is the strategy consistent with your mission and values?
– Is the strategy feasible, given strengths and
weaknesses?
– Is the strategy responsive to opportunities and threats?
– Does the strategy offer a sustainable competitive
advantage?
– Is the risk in the strategy a “reasonable” risk?
– Is the strategy flexible enough?
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What are current issues in strategy
implementation?
 Corporate governance
– System of control and performance
monitoring of top management.
– Done by boards of directors and other
major stakeholder representatives.
– Increasing emphasis on corporate
governance in contemporary businesses.
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What are current issues in strategy
implementation?
 Strategic leadership
– Strategic management is a leadership
responsibility.
– The capability to get people to successfully
engage in the continuous change, refinement,
and implementation of strategies.
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What are current issues in 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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