Principles of
Management 2.0
Mason Carpenter, Talya Bauer, Berrin Erdogan, and Jeremy Short
©2013 Flat World Knowledge, Inc.
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Chapter 5
Strategic Management
Learning Objectives
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 See how strategy fits in the
planning-organizing-leadingcontrolling (P-O-L-C)
framework
 Better understand how strategies
emerge
 Understand strategy as tradeoffs, discipline, and focus
 Conduct internal analysis to
develop strategy
 Conduct external analysis to
develop strategy
 Formulate organizational and
personal strategy with the
strategy diamond
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Understand How Strategy Fits in the
P-O-L-C Framework
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Definition: Strategy
Strategy is the pattern of decisions in a company that
determines and reveals its objectives, purposes, or
goals, produces the principal policies and plans for
achieving those goals, and defines the range of
business the company is to pursue, the kind of
economic and human organization it is or intends to
be, and the nature of the economic and noneconomic
contribution it intends to make to its shareholders,
employees, customers, and communities.
Kenneth Andrews, The Concept of Corporate Strategy
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The Strategist’s Challenge
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Strategic Management Process
The process by which a firm
manages the formulation and
implementation of its strategy
• The coordinated means by which an
organization achieves its goals and
objectives
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Strategic Management Process
Strategy
Formulation
Strategy
Implementation
• The set of processes
involved in creating or
determining the strategies
of the organization
• The methods by which
strategies are
operationalized or executed
within the organization
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Strategizing in P-O-L-C
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Corporate and Business Strategy
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The strategy Hierarchy
• Corporate strategy refers to the overarching strategy of the diversified firm.
Such a corporate strategy answers the questions of "in which businesses
should we compete?" and "how does being in these business create
synergy and/or add to the competitive advantage of the corporation as a
whole?"
• Business strategy refers to the aggregated strategies of single business
firm or a strategic business unit (SBU) in a diversified corporation. According
to Michael Porter, a firm must formulate a business strategy that
incorporates either cost leadership, differentiation or focus in order to
achieve a sustainable competitive advantage and long-term success in its
chosen arenas or industries.
• Functional strategies include marketing strategies, new product
development strategies, human resource strategies, financial strategies,
legal strategies, supply-chain strategies, and information technology
management strategies. The emphasis is on short and medium term plans
and is limited to the domain of each department’s functional responsibility.
http://en.wikibooks.org/wiki/Business_Strategy/Approaches_to_Strategic_Management
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Diversification
• Related
Diversification
• Unrelated
Diversification
Synergy
Corporate
Strategy
Focus: McDonald
Diversify Yum! Brands
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(Link)
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Asking/Answering 4 Basic Questions Before or After
SWOT Analysis
An assessment of strengths, weaknesses, opportunities and threats
What can
we do?
What do
we want to
do?
What
might we
do?
What do
others
expect us
to do?
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http://en.wikipedia.org/wiki/SWOT_analysis
SWOT Analysis
• Strengths
• Weaknesses
• Opportunities
• Threats
Suggest
strategies
that should
be tested
against
•
•
•
•
•
•
•
•
•
•
•
Vision
Goals
Company Values
Financial Status
Cash Position
ROI Position
Societal Demands
Competition
Core Competencies
People Skills
Overall Resources
Comparative and Competiveness Study
Know the enemy and
know yourself;
in a hundred battles
you will never be in peril.
Internal
Analysis Tools
External
Analysis Tools
Value
chain
PESTEL
VRIO
Industry
analysis
http://en.wikipedia.org/wiki/PEST_analysis
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PESTEL Analysis
Political, Economic, Social (Demographic),
Technological, Environmental, and Legal (Ethical)
http://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.html
http://en.wikipedia.org/wiki/PEST_analysis
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Discussion
• What is the difference between strategy formulation and
strategy implementation?
• What is the difference between business strategy and
corporate strategy?
• What are some of the forms of diversification and what
do they mean?
• What do you learn from a SWOT analysis?
• In SWOT analysis, what are some of the tools you might
use to understand the internal environment (identify
strengths and weaknesses)?
• In SWOT analysis, what are some of the tools you might
use to understand the external environment (identify
opportunities and threats)?
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Various Factors Can Undermine a Strategy
The plan is poorly constructed
Competitors undermine the advantages
envisioned by the plan
The plan was good, but poorly executed
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Intended, Deliberate, Realized, and
Emergent Strategies
10%~30%
The primary determinant of
realized strategy is
emergent strategy
The decisions that emerge from the
complex processes in which
individual managers interpret the
intended strategy and adapt to
changing external circumstances.
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Pivoting
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Discussion
• What is an intended strategy?
• What is a realized strategy?
• Why is it important to understand the
difference between intended and realized
strategies?
• Why is there not a perfect match-up between
realized and intended strategies?
• What might interfere with the realization of an
intended strategy?
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What is Strategic Focus?
Strategic focus is seen
when an organization
is very clear about its
mission and vision,
and has a coherent,
well-articulated
strategy for achieving
those.
strategy as
discipline
strategy as
trade-offs
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Porter’s Generic Strategies
Differentiation
Focus
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Focus: Gain Relative Superiority
• By discovering the enemy's dispositions and
remaining invisible ourselves, we can keep our
forces concentrated,
• while the enemy's must be divided.
(The Art of War: Chapter 6)
• Divide and conquer (各個擊破)
• 我專而敵分
Differentiation or Price Leadership Strategy?
Southwest Airlines has
combined cost
cutting measures
with differentiation,
proving that it is
possible to succeed
using combination
strategies
© Jupiterimages Corporation
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Discussion
• What is strategic focus and why is it
important?
• What are Porter’s three generic
strategies?
• Can a firm simultaneously pursue a lowcost and a differentiation strategy?
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Developing Strategy Through Internal Analysis
The primary purpose for internal analysis is to
understand the unique
•resources,
•capabilities, and
•core competencies
of organizations that may enable them to
outperform their competitors overtime.
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Measuring Value with
Core Competencies
Product’s
performance
characteristics
Value
Attributes for
which
customers are
willing to pay
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Resources and Capabilities
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Resources and Capabilities
Capabilities
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The Value Chain
Vertical Integration
Or
Outsourcing
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Adding
Value Within
a Value
Chain
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VRIO Analysis
Value
Rarity
Inimitability
Organization
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VRIO
• Value: "Is the firm able to exploit an opportunity or
neutralize an external threat with the
resource/capability?"
• Rarity: "Is control of the resource/capability in the
hands of a relative few?"
• Imitability: "Is it difficult to imitate, and will there
be significant cost disadvantage to a firm trying to
obtain, develop, or duplicate the
resource/capability?"
• Organization: "Is the firm organized, ready, and able
to exploit the resource/capability?"
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(defensive
strategy)
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http://www.businessdictionary.com/definition/competitive-parity.html
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Valuable?
Rare?
Costly to
imitate?
Exploited by
the
organization?
Competitive
disadvantage
No
Yes
Yes
Yes
Yes
Competitive
implication
No
Competitive
parity
Yes
No
Temporary
competitive
advantage
Yes
No
Unexploited
competitive
advantage
Yes
Sustained
competitive
advantage
Yes
Yes
Yes
http://en.wikipedia.org/wiki/VRIO
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Discussion
• What is the objective of internal analysis?
• What is the difference between a resource and a
capability?
• What is the difference between a tangible and an
intangible resource or capability?
• What is a core competency?
• What framework helps you identify those
resources, capabilities, or core competencies that
provide competitive advantage?
• Why might competitive advantage for a firm be
fleeting?
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DEVELOPING STRATEGY THROUGH
EXTERNAL ANALYSIS
An external
analysis tells
the strategist •Begin with
the general
what is
environment
outside the
organization.
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Six General Environment Segments
PESTLE Analysis
legal
political
environmental
technical
economic
social
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AN ORGANIZATION’S
MICROENVIRONMENT
Industry
• A group of firms producing products that are close
substitutes
• Upstream Markets: industries that provide the raw
material or inputs for the focal industry
• Downstream Markets: industries (sometimes
consumer segments) that consume the industry outputs
Industry
Microenvironment
• Consists of stakeholder groups that a firm has
regular dealings with.
• The way these relationships develop can affect
the costs, quality, and overall success of a
business.
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Porter’s Competitive Analysis
Source: http://bcs.wiley.com/he-bcs/Books?action=resource&bcsId=4903&itemId=0470343818&resourceId=16146
Porter’s Five Forces
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Porter’s Attractiveness and
Profitability Analysis
Likely to Profit
 Is the industry difficult to
enter?
 Is there limited rivalry?
 Are buyers relatively
weak?
 Are suppliers relatively
weak?
 Are there few
substitutes?
Challenges to Profit
 Is the industry easy to
enter?
 Is there a high degree of
rivalry between firms
within the industry?
 Are buyers strong?
 Are suppliers strong?
 Is it easy to switch to
alternatives?
When the answer is YES
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Discussion
• What are the six dimensions of the environment
that are of broad concern when you conduct a
PESTLE analysis?
• Which of the PESTLE dimensions do you believe
to be most important, and why?
• What are the key dimensions of a firm’s
microenvironment?
• What are the five forces referred to in the Porter
framework?
• Is there a dimension of industry structure that
Porter’s model appears to omit?
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The Strategy Diamond
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Planning and Your Personal
Growth and Development Strategy
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Personal Arenas and
Differentiators
Personal Vehicles
• What type of work do I want to
do?
• What leisure activities do I
like?
• Where do I want to live?
• What capabilities
(differentiators) do I need to
participate in these arenas?
• What organizations value these
capabilities (differentiators)
• What capabilities
(differentiators) do I want to
have and excel in?
• What do I need to accomplish
on my own?
• What do I want to accomplish
on my own?
• What do I need to accomplish
with the help of others?
• Who are they?
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Personal Staging and Pacing
• What sequence of events does my
strategy require?
• What are the financial
requirements and consequences
of each event?
• What is my deadline for the first
event?
• Is the deadline flexible? Can I
manage the pacing of the
achievement of each event?
• How will timing affect
achievement of my personal
growth and development strategy
• Do some events provide an
opportunity to reconsider or
adjust my strategy?
Personal Economic Logic
• How does achievement of my
strategy help me pay the bills?
• What dimensions of my strategy,
like arenas or differentiators, is
the economic logic of my strategy
most dependent on?
• How sustainable is the economic
logic of my strategy?
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Discussion
• What are the five facets of the Hambrick & Fredrickson
strategy diamond?
• What is the relationship between arenas and
differentiators if the strategy yields a positive economic
logic?
• If a firm is performing poorly financially, what might
this say about the differentiators, arenas, or both?
• Why is it important to consider vehicles as part of an
organization’s strategy?
• What is the difference between staging and pacing in
terms of the strategy diamond?
• What are some ways that you might apply staging and
pacing to an organization’s strategy?
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