Management, 2/e: Strategy and Strategic Management

PowerPoint Presentation
to Accompany
Management, 2/e
John R. Schermerhorn, Jr .
and Barry Wright
Chapter 7:
Strategy and Strategic Management
Prepared by: Jim LoPresti

University of Colorado, Boulder
Revised by: Dr. Shavin Malhotra
Ryerson University, Toronto, Ontario
Published by: John Wiley & Sons Canada, Ltd.
Planning Ahead — Chapter 7 Study Questions
 What is strategic management?

 What are the essentials of strategic
analysis?
 What are corporate strategies and how are
they formulated?
 What are business strategies and how are
they formulated?
 What are current issues in strategy
implementation?
Management 2e – Chapter 7 2
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.
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.
Management 2e - Chapter 7 4
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.
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
management?
 Strategic Management Process:
• Strategy formulation – the process of crafting

strategies to guide allocation of resources
• Strategy implementation – putting strategies

into action
Figure 7.2 Strategy formulation and implementation
in the strategic management process.
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?
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.
Figure 7.3 How external stakeholders can be
valued as strategic constituencies of
organizations.
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.
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.
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
analysis?
 What are our  What are our

Strengths? Weaknesses
• Manufacturing • Outdated facilities?
efficiency? • Inadequate research
and development?
• Skilled workforce?
• Obsolete
• Good market share? technologies?
• Strong financing? • Weak management?
• Superior reputation? • Past planning
failures?
analysis?
 What are our  What are our

Opportunities? Threats?
• Possible new • New competitors?
markets? • Shortage of
• Strong economy? resources?
• Weak market rivals? • Changing market
• Emerging tastes?
technologies? • New regulations?
• Growth of existing • Substitute products?
market?
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.
Figure 7.4 SWOT analysis of strengths, weaknesses,
opportunities, and threats.
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
analysis?
 Porter’s Model of Five Strategic Forces

Affecting Competition:
• 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
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).
Study Question 3: What are corporate strategies and how
are they formulated?
 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
Management 2e - Chapter7 22
 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?
Figure 7.1 Three levels of strategy in organizations-
corporate, business, functional strategies.
Study Question 3: What are corporate strategies and
how are they formulated?
 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
 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
 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
 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.
 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
 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
 Web-based business models:

• Brokerage model
• Advertising model
• Merchant model
• Subscription model
• Infomediary model
• Community model
 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
Figure 7.6 The BCG matrix approach to corporate
strategy formulation.
Study Question 3: What are corporate 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.
Study Question 3: What are corporate strategies
 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.
Study Question 4: What are business strategies
 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.
Figure 7.7 Porter’s generic strategies framework: soft-
drink industry examples.
Study Question 4: What are business strategies
 Porter’s generic strategies for gaining

competitive advantage:
• Differentiation strategy
• Cost leadership strategy
• Focused differentiation strategy
• Focused cost leadership strategy
Study Question 5: What are current issues in 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
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.
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.
implementation?
 Strategic leadership
• The capability to inspire people to successfully
engage in a process of continuous change,
performance enhancement, and
implementation of organizational strategies.
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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PowerPoint Presentation

Prepared by: Jim LoPresti

 What is strategic management?

 Basic concepts of strategy:

 Basic concepts of strategy

 Goal of strategic management is to create

 Strategic Management Process:

• Strategic management — the process of formulating

• Strategic analysis – process of analyzing the

 Strategic Management Process:

• Strategy formulation – the process of crafting

• Strategy implementation – putting strategies

 Drucker’s strategic questions for strategy

• The reason for an organization’s existence.

• An important test of the mission is how well it

 Analysis of core values:

• Values are broad beliefs about what is or is not

• Organizational culture reflects the dominant

 Strong core values

 What are our  What are our

 What are our  What are our

 Analysis of organizational resources and

 Porter’s Model of Five Strategic Forces Affecting

 Porter’s Model of Five Strategic Forces

 Questions addressed by different strategic level:

 Grand or master strategies:

 Growth and diversification strategies:

 Web-based business models:

 Strategic portfolio planning:

 BCG matrix — business conditions and

 BCG matrix—business conditions and

 Porter’s generic strategies model

 Porter’s generic strategies for gaining

 Strategic planning failures that hinder

 Critical tasks of strategic leadership

• Create a sense of urgency.

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