Chapter 9 Strategic Management

In this chapter, we look at an important part of the planning that managers do: developing
organizational strategies. Every organization has strategies for doing what its in business to do. And
managers must manage those strategies effectively. Focus on the following learning outcomes as you
read and study this chapter.
LEARNING OUTCOMES
9.1
9.2
9.3
9.4
9.5

Define strategic management and explain why its important.

Explain what managers do during the six steps of the strategic management process.
Describe the three types of corporate strategies.
Describe competitive advantage and the strategies organizations use to get it.
Discuss current strategic management issues.

A MANAGERS DILEMMA
Mergers. Strategic alliances. Downsizing. Spin-offs. Global expansion and contraction. Todays news is
filled with examples of changing organizational strategies. In the chapter-opening A Managers
Dilemma, students learn about the challenges facing Addicting Games, a supplier of online cell phone
games for teens. Addicting Games, which was acquired by MTV Networks in 2005, hosts 5.3 million
unique monthly visitors. Now Vice President, Kate Connally, is faced with the strategic challenge of
how to sustain this level of energy.
In this chapter, we examine the strategic management process as it relates to the planning function.
As you introduce this chapter and share this case, have students discuss the importance of an
organizations environment to their goals and plans. Also, what role does national culture play in
setting goals and strategy? Ms. Connally must design effective strategies to successfully implement
the mission of Addicting Games in a dynamic environment. Students are asked to imagine themselves
in his role and to consider the value of using SWOT analysis in planning effective strategies that will
lead to high performance and continued success. How can the principles of strategic management
guide Ms. Connally as she develops this new strategy?

CHAPTER OUTLINE
INTRODUCTION
Effective managers recognize the role that strategic management plays in their organizations
performance. Throughout this chapter, students discover that good strategies can lead to high
organizational performance.
1. STRATEGIC MANAGEMENT
Managers must carefully consider their organizations internal and external environments as they
develop strategic plans. They should have a systematic means of analyzing the environment,
assessing their organizations strengths and weaknesses, identifying opportunities that would give the
organization a competitive advantage, and incorporating these findings into their planning. The value
of thinking strategically has an important impact on organization performance.

A. What Is Strategic Management?

1. Strategic management is what managers do to develop the organizations strategies.
2. Strategic management involves all four of the basic management functionsplanning, organizing,
leading, and controlling.
B. Why Is Strategic Management Important?
1. Strategic management has a significant impact on how well an organization performs.
2. In todays business world, organizations of all types and sizes must manage constantly changing
situations.
3. Todays companies are composed of diverse divisions, departments, functions, and work activities
that must be coordinated.
4. Strategic management is involved in many of the decisions that managers make.
2. THE STRATEGIC MANAGEMENT PROCESS
The strategic management process is a six-step process that encompasses strategic planning,
implementation, and evaluation. (See Exhibit 9-1)
A. Step 1: Identifying the Organizations Current Mission, Goals, and Strategies
1. Every organization needs a mission which is a statement of the purpose of an organization. The
mission statement addresses the question: What is the organizations reason for being in business?
2. The organization must also identify its current goals and strategies.
B. Step 2: Doing an External Analysis
1. Managers in every organization need to conduct an external analysis. Influential factors such as
competition, pending legislation, and labor supply are included in the external environment.
2. After analyzing the external environment, managers must assess what they have learned in terms of
opportunities and threats. Opportunities are positive trends in external environmental factors; threats
are negative trends in environmental factors.
3. Because of different resources and capabilities, the same external environment can present
opportunities to one organization and pose threats to another.
C. Step 3: Doing an Internal Analysis
1. Internal analysis should lead to a clear assessment of the organizations resources and capabilities.
2. The organizations major value-creating skills and capabilities that determine its competitive
weapons are the organizations core competencies.
3. Any activities the organization does well or any unique resources that it has are called strengths.
4. Weaknesses are activities the organization does not do well or resources it needs but does not
possess.
5. Organizational culture is important in internal analysis; the companys culture can promote or hinder
its strategic actions.
6. SWOT analysis is an analysis of the organizations strengths, weaknesses, opportunities, and
threats.
D. Step 4: Formulating Strategies
1. After the SWOT, managers develop and evaluate strategic alternatives and select strategies that are
appropriate.
2. Strategies need to be established for corporate, business, and functional levels.
E. Step 5: Implementing Strategies
1. A strategy is only as good as its implementation.
F. Step 6: Evaluating Results
3. CORPORATE STRATEGIES
Strategic planning takes place on three different and distinct levels: corporate, business, and
functional. (See Exhibit 9-3).

A. Corporate Strategy. Corporate strategy is an organizational strategy that determines what

businesses a company is in, should be in, or wants to be in, and what it wants to do with those
businesses.
1. There are three main types of corporate strategies:
a. A growth strategy is a corporate strategy that is used when an organization wants to grow and does
so by expanding the number of products offered or markets served, either through its current
business(es) or through new business(es).
b. A stability strategy is a corporate strategy characterized by an absence of significant change in what
the organization is currently doing.
c. A renewal strategy is a corporate strategy designed to address organizational weaknesses that are
leading to performance declines. Two such strategies are retrenchment strategy and turnaround
strategy.
a. How are corporate strategies managed? Corporate Portfolio Analysis is used when an organizations
corporate strategy involves a number of businesses. Managers can manage this portfolio of businesses
using a corporate portfolio matrix, such as the BCG matrix. The BCG matrix is a strategy tool that
guides resource allocation decisions on the basis of market share and growth rate of SBUs. (See Exhibit
9-4)
LEADERS WHO MAKE A DIFFERENCE
Ursula Burns, CEO of Xerox, was the first African-American woman to lead a Fortune 500 Company.
Starting as a summer engineering intern more than 30 years ago, Ms. Burns has a reputation for being
bold. She took on the established culture of Xerox, known for being polite, courteous, and discreet
with her bold talk and blunt attitude. Her challenge at Xerox is crafting strategies that will help it
prosper and be an industry leader in a digital age where change is continual.

4. COMPETITIVE STRATEGY
A business strategy (also known as a competitive strategy) is strategy focused on how the organization
will compete in each of its businesses.
A. The Role of Competitive Advantage. A competitive advantage is what sets an organization apart,
that is, its distinctive edge. An organizations competitive advantage can come from its core
competencies.
1. Quality as a Competitive Advantage. If implemented properly, quality can be one way for an
organization to create a sustainable competitive advantage.
2. Sustaining Competitive Advantage. An organization must be able to sustain its competitive
advantage; it must keep its edge despite competitors action and regardless of evolutionary changes in
the organizations industry.
3. Michael Porters work explains how managers can create and sustain a competitive advantage that
will give a company above-average profitability. Industry analysis is an important step in Porters
framework. He says there are five competitive forces at work in an industry; together, these five forces
determine industry attractiveness and profitability. (See Exhibit 9-5). Porter proposes that the
following five factors can be used to assess an industrys attractiveness:
1) Threat of new entrants. How likely is it that new competitors will come into the industry?
2) Threat of substitutes. How likely is it that products of other industries could be substituted for a
companys products?
3) Bargaining power of buyers. How much bargaining power do buyers (customers) have?
4) Bargaining power of suppliers. How much bargaining power do a companys suppliers have?
5) Current rivalry. How intense is the competition among current industry competitors?
B. Choosing A Competitive Strategy. According to Porter, managers must choose a strategy that will
give their organization a competitive advantage. Porter identifies three generic competitive strategies.

Which strategy managers select depends on the organizations strengths and core competencies and
the particular weaknesses of its competitor(s).
a. A cost leadership strategy is a business or competitive strategy in which the organization competes
on the basis of having the lowest costs in its industry.
b. A differentiation strategy is a business or competitive strategy in which a company offers unique
products that are widely valued by customers.
c. A focus strategy is a business or competitive strategy in which a company pursues a cost or
differentiation advantage in a narrow industry segment.
d. An organization that has been not been able to develop either a cost or differentiation advantage is
said to be stuck in the middle.
e. Subsequent research indicates that it is possible, though very difficult, for organizations that are
stuck in the middle to achieve high performance.
f. Functional strategy is the strategies used by an organizations various functional departments to
support the business or competitive strategy.
5. CURRENT STRATEGIC MANAGEMENT ISSUES
A. The Need for Strategic Leadership. Strategic leadership is defined as the ability to anticipate,
envision, maintain flexibility, think strategically, and work with others in the organization to initiate
changes that will create a viable and valuable future for the organization. Top managers can provide
effective strategic leadership by eight principles including: determining the organizations purpose or
vision, exploiting and maintaining the organizations core competencies, developing the organizations
human capital, creating and sustaining a strong organizational culture, creating and maintaining
organizational relationships, reframing prevailing views by asking penetrating questions and
questioning assumptions, emphasizing ethical organizational decisions and practices, and establishing
appropriately balanced organizational controls. (See Exhibit 9-6.)
B. The Need for Strategic Flexibility. There is guarantee that a well thought out strategy will lead to
positive outcomes. A key element to the strategic management process is the, the ability to
recognize major external changes, to quickly commit resources, and to recognize when a strategic
decision isnt working. Exhibit 96 provides suggestions for developing strategic flexibility.
C. New Directions in Organizational Strategies
1. E-Business Strategies. Using the Internet, companies have created knowledge bases that
employees can tap into anytime, anywhere. E-business as a strategy can be used to develop a
sustainable competitive advantage; it can also be used to establish a basis for differentiation or focus.
2. Customer Service Strategies. These strategies give customers what they want, communicate
effectively with them, and provide employees with customer service training.
3. Innovation Strategies. These strategies focus on breakthrough products and can include the
application of existing technology to new uses. An organization that is first to bring a product
innovation to the market or to use a new process innovation is called a first mover. Exhibit 9-7 lists the
advantages and disadvantages associated with being a first mover.