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
 The 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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Classifications 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 autism.
Touch screen technology
Financial resources
KSA that creates a competitive advantage
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Internal Environment
 Weaknesses – those internal factors that
place the organization at 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

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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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Using SWOT Analysis to
Formulate Strategy
 Evaluating Organizational Strengths
 Organizational strengths enable an
organization to conceive of and implement
strategies?
 Considerations in Classifying Strengths

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Common organizational strengths are
organizational capabilities possessed by numerous
competing firms (good credit).
Distinctive competencies are useful for
competitive advantage and superior performance
(state-of-the-art production facilities).
Imitation of distinctive competencies is
duplicating another firm’s distinctive competence. 13
Using SWOT Analysis to
Formulate Strategy (cont’d)
 Evaluating Organizational Strengths :

Sustained competitive advantage occurs when a
distinctive competence cannot be easily duplicated.
 It is what remains after all attempts at strategic
imitations have ceased.
 Strategic imitation is difficult when:
 Distinctive competence is based on unique historical
circumstances [economies of scale, e.g.].
 Competitors do not understand the nature or character
of a firm’s competence (George Lucas’ Industrial Light
& Magic safeguards its special effects).
 The competence is based on a complex phenomenon,
such as organizational culture (Southwest Airlines –
employee centric; Ikea - thrift and teamwork, e.g.).
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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.
 May result in entropy (think Blockbuster Video).
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Michael Porter’s Generic
Strategies (Business Level)
 Cost Leadership – focus on efficiency, stability,
and cost control.

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Low cost producer of its good or service.
Marketing and sales focus on simple product attributes
and how these product attributes meet customer needs
in a low-cost and effective manner,
 Differentiation – distinguishing your product or
service from your competition usually by quality).

Marketing and sales must emphasize high-quality, highvalue image of the organization’s products or services.
 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
Scope (number of market
segments)
Many
Few
X
X
X
X
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Miles & Snow’s 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
 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 (SBUs)

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 or
industry (McDonalds)
 Diversification

Related (a.k.a. concentric) 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 (LTV: aerospace, electronics,
steel manufacturing, sporting goods, airlines, meat
packing, car rentals & pharmaceuticals,)
 International Expansion
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Corporate Level Strategies:
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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Corporate-Level Strategies:
Unrelated Diversification
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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
 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
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Acquisition
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Purchase of one firm by another firm of approximately the
same size.
Purchase of a firm by another firm that is considerably larger.
Purposes of mergers and acquisitions
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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
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Portfolio management techniques
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A detailed discussion of organization structure is
contained in Chapter 12.
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

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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. Market growth rate &
size

Competitive position (strength) market share
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
 Incentives for International and Global Strategies

Global efficiencies
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Multimarket flexibility
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Location efficiencies—seeking lower input cost locations
Economies of scale—larger facilities result in lower costs
Economies of scope—broadening product offerings result
in lower costs
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 learning
that can be transferred to other operating environments.
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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. (Bayer
aspirin, e.g.)
 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
 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. Note: differs from home replication in that
there is NO home country.
 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.

Mix of centralization and decentralization with local
subsidiaries.
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