Management

Fourteenth Edition

Chapter 9
Managing Strategy

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Learning Objectives
9.1 Define strategic management and explain why it’s
important.
9.2 Explain what managers do during the six steps of the
strategic management process.
Know how to identify your own personal strengths and
weaknesses and deal with them.
Develop your skill at strategic planning.
9.3 Describe the three types of corporate strategies.
9.4 Describe competitive advantage and the competitive
strategies organizations use to get it.
9.5 Discuss current strategic management issues.
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Introduction
• Japan’s NTT Data Corporation plans to purchase Dell’s information
technology service, which will expand sales outside Japan.
• Amazon, Google, and Microsoft are waging a price war on cloud
services.
• Al Jazeera is closing its American cable channel and laying off 10
percent of its workforce to lower operating costs.
• Blackberry successfully sold cellular products in the 1990s that
appealed to the business market. In 2007, the introduction of Apple’s
iPhone posed a significant threat to Blackberry’s success. The quality of
the iPhone’s hardware was vastly superior to Blackberry smartphones,
and Apple enabled developers to create a diverse set of apps,
• making the iPhone more appealing to a broader audience
• These are just a few of the business news stories from a single week,
and each one is about a company’s strategies. Strategic management is
very much a part of what managers do

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What is Strategic Management?
• Strategic management: what managers do to develop the
organization’s strategies.
– It’s an important task involving all the basic management
functions—planning, organizing, leading, and controlling.
• Strategies: the plans for how the organization will do what
it’s in business to do, how it will compete successfully, and
how it will attract and satisfy its customers in order to
achieve its goals
• Strategic intent
§ focusing all organizational energies on a unifying and
compelling goal
• Business model: how a company is going to make money
– (1) whether customers will value what the company is
providing and
– (2) whether the company can make any money doing
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What is Strategic Management?
• Basic concepts of strategy:
– Competitive advantage — ability to do something
so well that one outperforms competitors
– Sustainable competitive advantage — one that is
difficult or costly for competitors to imitate
• Sources of competitive advantage
– Technology
– Cost and quality
– Knowledge and speed
– Barriers to entry
– Financial resources
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 Strategic Management
• Levels of strategies
– Corporate
§ Sets long-term direction for the total
enterprise
– Business/Competitive
§ How a division or strategic business unit
will compete in its product or service
domain
– Functional
§ Guides activities within one specific area
of operations

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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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Why is Strategic Management Important?
• Has a positive impact on performance
• Helps managers decide how to act in face of
change and uncertainty
• Helps complex and diverse organizations work
together

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Exhibit 9-1
Strategic Management Process

Exhibit 9-1 illustrates the six-step process of strategic management, which encompasses
strategy planning, implementation, and evaluation.
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Step 1: Identifying the Organization’s Current
Mission, Goals, Values, and Strategies
• Mission: the purpose of an organization, the
reason for an organization’s existence
• Defining the mission forces managers to identify
what it’s in business to do.
• But sometimes that mission statement can be too
limiting.
– Good mission statements identify:
§ What are we moving to?
§ What is our dream?
§ What kind of difference do we make?
§ What do we want to be known for?
– An important test of the mission is how well it
serves the Copyright
organization’s stakeholders
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 Exhibit 9-2
Components of a Mission Statement
Component Question
Customers Who are the firm’s customers?
Market Where does the firm compete geographically?
Concern for Survival, Is the firm committed to growth and financial stability?
Growth, and Profitability
Philosophy What are the firm’s basic beliefs, values, and ethical
priorities?
Concern for Public Image How responsive is the firm to societal and
environmental concerns?
Products or Services What are the firm’s major products or services?
Technology Is the firm technologically current?
Self-Concept What are the firm’s major competitive advantage and
core competencies?
Concern for Employees Are employees a valuable asset of the firm?
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Essentials of Strategic Analysis
Strategic Questions

• What is our business mission?

• Who are our customers?
• What do our customers value?
• What have been our results?
• What is our plan?

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Figure 10.3 How external stakeholders can be valued
as strategic constituencies in an organization’s
mission statement

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Analysis of Core values:
– Broad beliefs about what is or is not
appropriate behavior
– Organizational culture reflects the
predominant value system of the
organization as a whole

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Analysis of objectives/Goals:
– Operating objectives are specific results that
organizations try to accomplish

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Step 2: Doing an External Analysis
• Managers do an external analysis so they know, for
instance, what the competition is doing, what pending
legislation might affect the organization, or what the labor
supply is like in locations where it operates.
• In an external analysis, managers should examine the
economic, demographic, political/legal, sociocultural,
technological, and global components to see the trends
and changes.
• Opportunities: positive trends in the external environment
• Threats: negative trends in the external environment

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Step 3: Doing an Internal Analysis
• Provides important information about an organization’s
specific resources and capabilities.
• An organization’s resources are its assets—financial,
physical, human, and intangible—that it uses to develop,
manufacture, and deliver products to its customers.
They’re “what” the organization has.
• On the other hand, its capabilities are its skills and
abilities in doing the work activities needed in its
business—“how” it does its work.
• The major value-creating capabilities of the organization
are known as its core competencies.
• Both resources and core competencies determine the
organization’s competitive weapons.

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Potential core
competencies:
• Special knowledge or expertise
• Superior technology
• Efficient supply chains
• Unique product distribution systems

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Internal Analysis
• Strengths: any activities the organization does well
or its unique resources
• Weaknesses: activities the organization does not
do well or resources it needs but does not possess
• SWOT analysis: an analysis of the organization’s
strengths, weaknesses, opportunities, and threat
• After completing the SWOT analysis, managers are
ready to formulate appropriate strategies-that is,
strategies that
– (1) exploit an organization’s strengths and external
opportunities,
– (2) buffer or protect the organization from external
threats, or
– (3) correct critical weaknesses.
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SWOT analysis of strengths, weaknesses,
opportunities, and threats

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Step 4: Formulating Strategies
• Three main types of strategies managers will
formulate:
– Corporate
– Competitive
– Functional
Analysis of organizational resources and capabilities:
– Core competency is a special strength that gives an
organization competitive advantage
– Important goal of assessing core competencies

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Step 5: Implementing Strategies
• No matter how effectively an organization has
planned its strategies, performance will suffer if
the strategies aren’t implemented properly.

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Step 6: Evaluating Results
• How effective have strategies been at helping the
organization achieve its goals
• What adjustments are necessary?

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 Figure 10.1 Three levels of strategy in
organizations- corporate, business, functional
strategies

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What is Corporate Strategy?
• Corporate strategy: an organizational strategy that
determines what businesses a company is in or wants to
be in, and what it wants to do with those businesses
• Exp:
– PepsiCo mission: To be the world’s premier consumer products
company focused on convenient foods and beverages.
– It pursues that mission with a corporate strategy that has put it in
different businesses, including its PepsiCo Americas Beverage
(beverage business), PepsiCo Americas Foods (snack and
prepared foods businesses including Frito-Lay and Quaker Oats),
and then its global businesses—PepsiCo Europe and PepsiCo
Asia/ Middle East/Africa.
– The other part of corporate strategy is when top managers decide
what to do with those businesses: grow them, keep them the
same, or renew them.
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What Are the Types of Corporate Strategy?
• Growth strategy: a corporate strategy that’s used
when an organization wants to expand the
number of markets served or products offered,
either through its current business(es) or through
new business(es)
– Concentration
– Vertical integration
– Horizontal integration
– Diversification
• Example: Amazon
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Stability and Renewal Strategies
• Stability strategy: a corporate strategy in which an
organization continues to do what it is currently doing
– Serve the same clients by offering the same product or service,
maintaining market share, and sustaining the organization’s current
business operations. The organization doesn’t grow, but doesn’t fall
behind, either.
• Renewal strategy: a corporate strategy designed to
address declining performance
– A retrenchment strategy is a short-run renewal strategy used for
minor performance problems. Stabilize operations, revitalize
organizational resources and capabilities, and prepare to compete
once again. Biogen reduced its workforce by 11 percent to cut costs.
– When an organization’s problems are more serious, more drastic
action—the turnaround strategy—is needed. Managers do two
things for both renewal strategies: cut costs and restructure
organizational operations. However, in a turnaround strategy, these
measures are more extensive than in a retrenchment strategy.
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How Are Corporate Strategies Managed?
• BCG matrix: a strategy tool that guides resource
allocation decisions on the basis of market share
and growth rate of SBUs
– Stars
– Cash cows
– Question marks
– Dogs

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The BCG matrix approach to corporate
strategy formulation

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Corporate-Level Strategy Formulation
Growth strategies
§ Seek an increase in size and the expansion of
current operations
– Types of growth strategies:
§ Concentration strategies
– Grow within the same business area
§ Diversification and integration strategies
¢Diversification: Grow by acquiring or investing in
new and different business areas
¢Related diversification
¢Unrelated diversification
¢Integration: Acquiring suppliers or distributors
¢Vertical integration – (backward or forward)
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Corporate-Level Strategy Formulation
Types of retrenchment and restructuring
strategies
– Liquidation
§ Business closes and sells assets to pay
creditors
– Downsizing
§ Decreases size of operations
– Divestiture
§ Sells off parts of the organization to refocus
attention on core business areas
– Turnaround Strategy
§ Tries to fix specific performance problems
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Competitive Strategies

• Competitive strategy: an organizational strategy

for how an organization will compete in its
business(es)
• Strategic business unit (SBU): the single
independent businesses of an organization that
formulate their own competitive strategies
• Good strategies help achieve above average
returns
• Key question is “How can we best compete for
customers in our market and with our products or
services?”
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The Role of Competitive Advantage
• Competitive advantage: What sets an organization apart;
its distinctive edge
• That distinctive edge can come from the organization’s
core competencies by doing something that others cannot
do or doing it better than others can do it.
– For example, Rolls-Royce has a competitive advantage because
of its skills at giving customers exactly what they want—a hand-
crafted, ultra luxurious automobile, which can be customized to
suit unique color, interior, and equipment preferences
• Competitive advantage can come from the company’s
resources because the organization has something its
competitors do not have.
– For instance, Walmart’s state-of-the-art information system allows
it to monitor and control inventories and supplier relations more
efficiently than its competitors,

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Types of Competitive Advantage
• Quality
– W. K. Kellogg started manufacturing his cornflake cereal in 1906,
his goal was to provide his customers with a high quality, nutritious
product that was enjoyable to eat
• Design thinking
– Approaching management problems the way designers approach
design problems.
– Using design thinking means thinking in unusual ways about what
the business is and how it’s doing what it’s in business to do—or
as one person said, “solving wicked problems with creative
resolutions by thinking outside existing alternatives and creating
new alternatives.
• Social media
– Successful social media strategies should (1) help people—inside
and outside the organization—connect and (2) reduce costs or
increase revenue possibilities or both. As managers look at how to
strategically use social media, it’s important to have goals and a
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Sustaining Competitive Advantage
• Every organization has resources (assets) and capabilities
(how work gets done). So what makes some organizations
more successful than others?
• The answer is that not every organization is able to
effectively exploit its resources and to develop the core
competencies that can provide it with a competitive
advantage
• The organization must be able to sustain that advantage;
that is, to keep its edge despite competitors’ actions or
evolutionary changes in the industry.
• But that’s not easy to do! Market instabilities, new
technology, and other changes can challenge managers’
attempts at creating a long-term, sustainable competitive
advantage Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Sustaining Competitive Advantage
• Porter’s Five Forces Model:
– Threat of new entrants
– Threat of substitutes
– Bargaining power of buyers
– Bargaining power of suppliers
– Current rivalry

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Porter’s model of five strategic forces
affecting industry competition

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 Essentials of Strategic Analysis
Porter’s Model of Five Strategic Forces Affecting
Competition:

Substitute Bargaining Bargaining

Industry New
products or power of power of
competition entrants
services suppliers customers

Ability of
Intensity of Ability of
Threat of customers
rivalry Threat of resource to influence
among new suppliers to
competitors substitute the price
firms and products or influence they will
their entering the cost of
the market services pay for
competitive products or products or
behavior services
services

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 Choosing a Competitive Strategy
• Cost leadership strategy
– A low-cost leader is highly efficient. Overhead is kept to a minimum,
and the firm does everything it can to cut costs.
• Differentiation strategy
– Product differences might come from exceptionally high quality,
extraordinary service, innovative design, technological capability, or an
unusually positive brand image.
• Focus strategy
– The final type of competitive strategy—the focus strategy—involves a
cost advantage (cost focus) or a differentiation advantage
(differentiation focus) in a narrow segment or niche. Segments can be
based on product variety, customer type, distribution channel, or
geographical location.
• Stuck in the middle
– When its costs are too high to compete with the low-cost leader or
when its products and services aren’t differentiated enough to
compete with the differentiator. Getting unstuck means choosing which
competitive advantage to pursue and then doing so by aligning
resources, capabilities, and core competencies.
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Business-Level Strategy Formulation
Porter’s competitive 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 three generic
strategies

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Figure 10.7 Porter’s competitive strategies
framework: soft-drink industry examples

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Functional Strategies
• Functional strategies: a strategy used by an
organization’s various functional departments to
support the competitive strategy

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The Need for Strategic Leadership
• By definition, top managers are ultimately responsible for
every decision and action of every organizational
employee.
• One important role that top managers play is that of
strategic leader.
• Organizational researchers study leadership in relation to
strategic management because an organization’s top
managers must provide effective strategic leadership.
• Strategic leadership: 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

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Effective Strategic Leadership

Exhibit 9-4 shows the eight key dimensions of strategic leadership.

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The Need for Strategic Flexibility
• When managers use the strategic management process,
there’s no guarantee that the chosen strategies will lead to
positive outcomes
– Berkshire Hathaway CEO Warren Buffett is known for admitting his
mistakes. He said “I will commit more errors; you can count on that.”
– Amazon’s Jeff Bezos told company shareholders that Amazon is the
“best place in the world to fail at,” while adding that negative
outcomes are inevitable in experimentation: “Given a 10 percent
chance of a 100 times payoff, you should take that bet every time.
But you’re still going to be wrong nine times out of ten.”

• But the key is responding quickly when it’s obvious the

strategy isn’t working
• Strategic flexibility: the ability to recognize major external
changes, to quickly commit resources, and to recognize
when a strategic decision was a mistake
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 Exhibit 9-5
Developing Strategic Flexibility
Technique
Encourage leadership unity by making sure everyone is on the same page.
Keep resources fluid and move them as circumstances warrant.
Have the right mindset to explore and understand issues and challenges.
Know what’s happening with strategies currently being used by monitoring and
measuring results.
Encourage employees to be open about disclosing and sharing negative
information.
Get new ideas and perspectives from outside the organization.
Have multiple alternatives when making strategic decisions.
Learn from mistakes.

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Important Organizational Strategies for
Today’s Environment
• E-Business strategies
• Customer service strategies
• Innovation strategies
– innovation strategies aren’t necessarily focused on just
the radical, breakthrough products. They can include
applying existing technology to new uses.
– What types of innovation strategies do organizations
need in today’s environment?
– Those strategies should reflect their innovation
philosophy, which is shaped by two strategic decisions:
innovation emphasis and innovation timing
– First mover: an organization that’s first to bring a
product innovation to the market or to use a new
process innovation
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First Mover Advantages and Disadvantages

Exhibit 9-6 shows the strategic advantages and disadvantages of being a first mover.
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Review Learning Objective 9.1
• Define strategic management and explain why
it’s important.
– Strategic management is what managers do to develop
the organization's strategies
– A business model is how a company is going to make
money.

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Review Learning Objective 9.2
• Explain what managers do during the six steps
of the strategic management process.
1. Identify the current mission, goals, and strategies
2. Do an external analysis
3. Do an internal analysis
4. Formulate strategies
5. Implement strategies
6. Evaluate strategies

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Review Learning Objective 9.3
• Describe the three types of corporate
strategies.
– Growth strategies: concentration, vertical integration,
horizontal integration, and diversification
– Stability strategies
– Renewal strategies: retrenchment and turnaround
– BCG matrix

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Review Learning Objective 9.4
• Describe competitive advantage and the
competitive strategies organizations use to get
it.
– Competitive advantage
– Porter’s five forces model
– Porter’s three competitive strategies:
§ Cost leadership
§ Differentiation
§ Focus

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Review Learning Objective 9.5
• Discuss current strategic management issues.
– Strategic leadership
– Strategic flexibility
– E-Business strategies

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Copyright

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