PowerPoint Presentation
to Accompany
Management
Third Canadian Edition
John R. Schermerhorn, Jr.
Barry Wright
Prepared by: Jim LoPresti
University of Colorado, Boulder
Revised by: Dr. Shavin Malhotra
Ryerson University, Toronto, Ontario
Chapter 7:
Strategy and Strategic
Management
Management 3e - Chapter 7
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Chapter 7 Learning Objectives
• 7.1 Describe what is strategic management.
• 7.2 Identify the essentials of strategic
analysis.
• 7.3 Identify the various corporate strategies
and explain how each is formulated.
• 7.4 Identify the various business strategies
and explain how each is formulated.
• 7.5 Identify and describe some current issues
in strategy implementation.
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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.
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Strategic Management
 Typical source of competitive advantage:
•
•
•
•
•
Cost and quality
Knowledge and speed
Barriers to entry
Financial resources
Technology
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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.
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Strategic Management

Goal of strategic management is to create
above-average returns for investors.
• Returns exceeding those for alternative
opportunities at equivalent risk.
• Earning above-average returns depends in part
on the organization’s competitive environment.
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Corporate-Level Strategy Formulation

Levels of strategies:
• Corporate strategy
• sets long-term direction for the total enterprise
• Business strategy
• identifies how a division or strategic business
unit will compete in products or services
• Functional strategy
• guides activities within one specific area of
operations
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Corporate-Level Strategy Formulation

Questions addressed by different strategic
level:
• Corporate strategy
• In what industries and markets should we compete?
• Business strategy
• How are we going to compete for customers in this
•
industry and market?
Functional strategy
• How can we best utilize resources to implement our
business strategy?
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Figure 7.3 Major elements in the strategic
management process
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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
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Strategic Management
 Strategic Management Process:
• Strategy formulation – the process of crafting
strategies to guide allocation of resources
• Strategy implementation – putting strategies
into action
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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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Essentials of Strategic Analysis
 Analysis of mission:
• The reason for an organization’s existence.
• An important test of the mission is how well it
serves the organization’s stakeholders.
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Figure 7.4 External stakeholders as strategic constituencies
in an organization’s mission statement.
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Essentials of Strategic Analysis
 Analysis of core 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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Essentials of Strategic Analysis

Strong core values
• Helps build organizational identity.
• Gives character to the organization in the
eyes of employees and external
stakeholders.
• Backs up the mission statement.
• Guides the behaviour of organizational
members in meaningful and consistent
ways.
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Essentials of Strategic Analysis

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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Essentials of Strategic Analysis
What are our
Weaknesses
 What are our
Strengths?
• Manufacturing
efficiency?
• Skilled workforce?
• Good market share?
• Strong financing?
• Superior reputation?
Outdated facilities?
Inadequate research and
development?
Obsolete technologies?
Weak management?
Past planning failures?
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Essentials of Strategic Analysis
 What are our
Opportunities?
Possible new markets?
Strong economy?
Weak market rivals?
Emerging
technologies?
• Growth of existing
market?
•
•
•
•
What are our Threats?
•
•
•
•
•
New competitors?
Shortage of resources?
Changing market tastes?
New regulations?
Substitute products?
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Figure 7.5 SWOT analysis of strengths, weaknesses,
opportunities, and threats.
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Essentials of Strategic Analysis

Analysis of organizational resources and
capabilities:
Core competency is a special strength that
gives an organization competitive advantage
• Important goal of assessing core
competencies.
• Potential core competencies:
• Special knowledge or expertise.
• Superior technology.
• Efficient manufacturing approaches.
• Unique product distribution systems.
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Essentials of Strategic Analysis

Porter’s Model of Five Strategic Forces
Affecting Competition:
• Industry competition: the intensity of rivalry among
•
•
•
•
firms and their competitive behaviour
New entrants: the threat of new competitors entering
the market
Substitute products or services: the threat of substitute
products or services
Bargaining power of suppliers: the ability of resource
suppliers to influence the cost of products or services
Bargaining power of customers: the ability of
customers to influence the price they will pay for
products or services
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Figure 7.5 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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Corporate-Level Strategy Formulation
 Grand or master strategies:
• Growth strategies: seek an increase in size
and the expansion of current operations.
• Stability strategy: maintains current
operations without substantial changes
• Renewal strategy: tries to solve problems and
overcome weaknesses that are hurting
performance.
• Combination strategy: pursues growth,
stability, or retrenchment in some
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Corporate-Level Strategy Formulation
 Growth and diversification strategies:
• Growth strategies
• Seek an increase in size and the expansion of
current operations.
• Types of growth strategies:
• Concentration strategies
• Diversification strategies
• Related diversification
• Unrelated diversification
• Vertical integration
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Corporate-Level Strategy Formulation

Restructuring strategies:
• Tries to correct weaknesses by changing the
mix or reducing the scale of operations.
• Restructuring through turnaround
• Restructuring through downsizing
• Restructuring through divestiture
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Corporate-Level Strategy Formulation

Global strategies:
• Globalization strategy.
• World is one large market; standardize
products and advertising as much as possible.
• Ethnocentric view.
• Multidomestic strategy.
• Customize products and advertising to local
markets as much as possible.
• Polycentric view.
• Transnational strategy.
• Balance efficiencies in global operations and
responsiveness to local markets.
• Geocentric view.
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Corporate-Level Strategy Formulation

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
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Corporate-Level Strategy Formulation

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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Corporate-Level Strategy Formulation

Web-based business models:
•
•
•
•
•
•
Brokerage model
Advertising model
Merchant model
Subscription model
Infomediary model
Community model
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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
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Corporate-Level Strategy Formulation
 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 7.7 The BCG matrix approach to corporate strategy
formulation.
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Corporate-Level Strategy Formulation
 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.
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Corporate-Level Strategy Formulation
 BCG matrix—business conditions and
related strategies (cont.):
• 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.
• Preferred strategy — retrenchment by
divestiture.
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Business-Level Strategy Formulation
 Porter’s generic strategies model
• Business-level strategic decisions are driven by:
• Market scope
• Source of competitive advantage
• Market scope and source of competitive
advantage combine to generate four generic
strategies.
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Figure 7.8 Porter’s generic strategies framework: soft-drink
industry examples.
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Business-Level Strategy Formulation
 Porter’s generic strategies for
gaining competitive advantage:
•
•
•
•
Differentiation strategy
Cost leadership strategy
Focused differentiation strategy
Focused cost leadership strategy
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Strategy Implementation
 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
• Goal displacement error
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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.
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Strategy Implementation
 Strategic control
• Making sure strategies are well implemented
and that poor strategies are scrapped or
modified.
• The top leadership of a firm or organization is
expected to exercise strategic control of the
enterprise.
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Strategy Implementation
 Strategic leadership
• The capability to inspire people to successfully
engage in a process of continuous change,
performance enhancement, and
implementation of organizational strategies.
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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.
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