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
 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 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
 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
 Strategy formulation
 the process of crafting strategies to guide allocation of
resources
 Strategy implementation
 putting strategies into action
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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?
 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
 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
 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
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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
 Analysis of objectives:
 Operating objectives direct activities toward key and
specific performance results
 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 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?
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
 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
 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
Management11e
Chapter 9 strategy — retrenchment by divestiture
Preferred
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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
 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.
 Types of retrenchment and restructuring strategies
 Liquidation: Business closes and sells assets to pay creditors
 Downsizing: Decreases size of operations
 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
 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?”
 Porter’s competitive strategies model
 Business-level strategic decisions are driven by:
 Market scope
 Source of competitive advantage
 Porter’s generic strategies for gaining competitive advantage:
 Differentiation strategy
 Cost leadership strategy
 Focused differentiation strategy
 Focused cost leadership strategy
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Figure 9.7 Porter’s competitive strategies framework: soft-drink
industry examples
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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
 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
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 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
 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
 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