Chap-9 (MGT)

CHAPTER 9: Managing Strategy
Robbins, S. P. & Coulter, M. (2016)

Management (13th Edition), Pearson
Education Limited
Copyright © 2012 Pearson Education, Inc.

Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter
Publishing as Prentice©2012
HallPearson Education, Inc. publishing as Prentice Hall 9-1
•Define strategic management and explain why it’s
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 competitive
strategies organizations use to get it
•Discuss current strategic management issues

Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter ©2012 Pearson Education, Inc. publishing as Prentice Hall
Publishing as Prentice Hall 9-2
What Is Strategic Management?
• Strategic management - what managers do to
develop the organization’s strategies.
• 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.

Publishing as Prentice ©2012
Hall Pearson Education, Inc. publishing as Prentice Hall 9-3
What Is Strategic Management?
• Business model - how a company is going to
make money.
• Focus of Business model
– whether customers will value what the company
is providing
– whether the company can make any money doing
that

Why Is Strategic
Management Important?
1. It results in higher organizational

performance.
2. It requires that managers examine and adapt
to business environment changes.
3. It coordinates diverse organizational units,
helping them focus on organizational goals.

What is the Strategic
Management Process?
• Strategic management process - a six-step
process that encompasses strategic planning,
implementation, and evaluation.

Exhibit 9-1: Strategic
Management Process

Strategic Management Process
• Step 1: Identifying the organization’s current
mission, goals, and strategies
– Mission: a statement of the purpose of an organization
• The scope of its products and services
– Goals: the foundation for further planning
• Measurable performance targets
– Knowing company’s current goals gives managers a basis
for assessing where the goals need to be changed. For the
same reason, it is important for managers to identify
current strategies

Exhibit 9-2: Components of a
Mission Statement

Components of a Mission Statement

Publishing as Prentice©2012 10Hall
HallPearson Education, Inc. publishing as Prentice 9-10
• Step 2: Doing an external analysis
– The environmental scanning of specific and general
environments
• Focuses on identifying opportunities and threats
– In an external analysis, managers should examine the
economic, demographic, political/legal, sociocultural,
technological, and global components to see the trends
and changes.
– Managers need to know what the competitors are doing,
what pending legislations might effect the organization
and what is the labor supply like

• Step 2: Doing an external analysis (contd.)
− After analyzing the environment, managers need to assess
what they have learned in terms of:
• Opportunities they can exploit (+ve trends in external
env factors)
• Threats they may face (-ve trend in external env
factors)
− The same environment can present opportunity to one
organization and pose threat to the other in the same
industry because of their different resources and
capabilities

• Step 3: Doing an internal analysis
– Assessing organizational resources, capabilities, and activities:
• Strengths create value for the customer and strengthen the competitive
position of the firm.
• Weaknesses can place the firm at a competitive disadvantage.
– Analyzing financial and physical assets is fairly easy, but assessing

intangible assets (employee skills, culture, corporate reputation, etc.)
isn’t as simple.
• Steps 2 and 3 combined are called a SWOT analysis. (Strengths,

Weaknesses, Opportunities, and Threats)

SWOT Analysis
• SWOT analysis - an analysis of the
organization’s strengths, weaknesses,
opportunities, and threats.
• Resources - an organization’s assets that are
used to develop, manufacture, and deliver a
product to its customers.
• Capabilities - an organization’s skills and
abilities in doing the work activities needed in
its business.
Strengths and Weaknesses
• Strengths - any activities the organization
does well or any unique resources that it has.
• Weaknesses - activities the organization does
not execute well or needed resources it does
not possess.
• Core competencies - the organization’s major
value-creating capabilities that determine its
competitive weapons.

• Step 4: Formulating strategies
− Once SWOT analysis is complete, managers need
to
• Develop and evaluate strategic alternatives
and then
• Select strategies that –
▪ capitalize on organization’s strength,
▪ exploit environmental opportunities,
▪ correct organization’s weaknesses
▪ buffer against threats

• Step 4: Formulating strategies (contd.)
– Select appropriate strategies for all levels in the
organization
− Strategies need to be established for the
corporate, business and functional levels of the
organizations
− This step is complete when managers have
developed a set of strategies that give the
organization a relative advantage over its rivals

• Step 5: Implementing strategies
− After strategies are formulated, they must be
implemented
− Strategy is only as good as its implementation
− Effective strategy implementation requires an
organizational structure matched to its requirements
– The environment dictates the chosen strategy;
effective strategy implementation requires an
organizational structure matched to its
requirements.

• Step 6: Evaluating results
– How effective have strategies been?
– What adjustments, if any, are necessary?

Exhibit 9-3: Types of
Organizational Strategies
• Organizational strategies includes strategies at:
− Corporate level
− Business level
− Functional level

Corporate Strategies
• Corporate strategy - An organizational strategy that
determines what businesses a company is in or wants
to be in
• Reflects the direction in which the organization is
going and the role each business unit will play in
pursuing that direction
• Types of Corporate Strategies
• Growth: expansion into new products and markets.
• Stability: maintenance of the status quo.
• Renewal: examination of organizational weaknesses that
are leading to performance declines.
Corporate Strategies (cont.)
• Growth strategy - a corporate strategy that’s
used when an organization wants to expand
the number of markets served or products
offered, through either its current
business(es) or new business(es).
− By pursuing a growth strategy, an organization may
− Increase sales revenue
− Increase number of employees
− Increase market share
− Other quantitative measures

• Growth strategy (contd.)
– Types of growth strategies
•Concentration
•Vertical integration
•Horizontal integration
•Diversification

Types of Growth Strategies
• Concentration
– focuses on its primary line of business and
increases the number of products offered or
markets served in this primary business.
− No mergers or acquisitions
− Company grows by increasing its own business
operation
− Eg. Bose Corporation

• Vertical Integration
– A company also might choose to grow either
backward or forward or both.
− Backward – become your own supplier
− Forward – become your own distributor
• Horizontal Integration: company grows by
combining with organizations in the same
industry – combining operations with its
competitors
− Needs approval by US Federal Trade Commission (in USA)
• Diversification
– Related diversification happens when a company
combines with other companies in different, but
related, industries.
– Unrelated diversification is when a company
combines with firms in different and unrelated
industries.
• Many companies use a combination of these
approaches to grow

• Stability strategy - a corporate strategy in which an
organization continues to do what it is currently
doing.
− A corporate level strategy characterized by an
absence of significant change
− Includes
Serving the same client by
Offering the same product or services
Maintaining market share
Sustaining the organization’s return on investment results

• Stability strategy (contd.)
− Why?
Organizations resources, capabilities, core
competencies are stretched to their limits
Industry’s external forces rapidly changing and
making the future uncertain
Industry is facing slow or no growth opportunities
Owners or mangers of small business are satisfied
with organization’s performance

• Renewal strategy - a corporate strategy designed to
address declining performance.
− Mainly two types:
− Retrenchment strategy: a short-run renewal
strategy used in situations when performance
problems aren’t as serious
• When an organization is facing minor performance
setbacks, retrenchment strategy helps to stabilize
operation, revitalize organizational resources and
capabilities and prepare to compete once again
• Eg. Proctor & Gamble, Reebok, Kodak, IBM, etc.
Types of Renewal Strategies
− Turn-around strategy: a renewal strategy for
situations in which the organization’s performance
problems are more serious – declining or no profits
at all
• Eg. Sears, Apple, Daimler-Chrysler, Mitsubishi,
etc.
• Managers do two things for both renewal strategies:
– cut costs
– restructure organizational operations.

Competitive/Business Level Strategy
• Competitive strategy - an organizational strategy for
how an organization will compete in each of its
business(es).
– Smalls organizations in only one line of business or
large organizations that has not diversified into
different products or markets, the business level
strategy typically overlaps with the organization’s
corporate level strategy
• Competitive advantage - what sets an organization
apart; its distinctive edge.

The Role of Competitive Advantage
− Competitive advantage - what sets an
organization apart; its distinctive edge. – comes
from organization’s core competencies
− Developing an effective business level strategy
requires an understanding of competitive
advantage
• Competitive advantage is a capability or
circumstance that enables a corporation to earn
higher than average profits in a particular industry

The Role of Competitive Advantage
− Quality as a competitive advantage
− Differentiates the firm from its competitors.
− Can create a sustainable competitive advantage
− Represents the company’s focus on quality management
to achieve continuous improvement and meet customers’
demand for quality.
− Sustainable Competitive Advantage
− It is not enough for an organization simply to create a
competitive advantage; it must be able to sustain it. A
sustainable competitive advantage enables the
organization to keep its edge despite competitors’ actions
or evolutionary changes in the industry
SBU
• Strategic Business Unit (SBU) - the single
independent businesses of an organization
that formulate their own competitive
strategies.
• BCG matrix - a strategy tool that guides
resource allocation decisions on the basis of
market share and growth rate of SBUs.

Corporate Portfolio Analysis
• Corporate Portfolio Analysis
− When an organization’s corporate strategy
involves a number of businesses, managers can
manage this collection or portfolio of business by
using a corporate portfolio matrix
− The first portfolio matrix developed by the Boston
Consulting Group (BCG matrix)
− Organizations business can be evaluated in a 2x2
matrix to identify which ones offer high potential
and which are a drain on organization’s resources
Exhibit 9-4: BCG Matrix

− Cash Cows: low growth, high market share
− Generate large amount of cash but prospects of future growth
are limited
− Strategic implication: milk cash cows, limit new investment in
them, use the money generated in Stars and Question Marks
− Stars: high growth, high market share
− Their contribution to cash flow depends on their need for
resources
− Strategic implication: heavy investment in Stars will help take
advantage of market growth and maintain high market share
− Stars will eventually develop into cash cows as their market
mature and growth slows

− Question Mark: high growth, low market share
− Business in attractive industry but holds low market share
− Strategic implication: hard decision for managers – need careful
analysis
− Some will be sold-off, some will become Stars
− Dogs: low growth, low market share
− Business in this category do not produce or consume much cash.
No promise for improved performance
− Strategic implication: should be sold-off or liquidated
− BCG very useful strategic management tool. Provides a
framework for understanding diverse business and help
managers establish priorities for resource allocation decisions
Five Competitive Forces
• Many important ideas in strategic management have
come from the work of Michael Porter.
• Porter’s Five Forces Model – Industry analysis based
on five competitive forces
• In any industry, five competitive forces dictate the
rules of competition.
• Together, these five forces determine industry
attractiveness and profitability, which managers
assess using these five factors:

Exhibit 9-5: Five Forces Model

• Threat of New Entrants
– The ease or difficulty with which new competitors can
enter an industry
• Threat of Substitutes
– The extent to which switching costs and brand loyalty
affect the likelihood of customers adopting substitute
products and services
• Bargaining Power of Buyers
– The degree to which buyers have the market strength
to hold sway over and influence competitors in an
industry

• Bargaining Power of Suppliers
– The relative number of buyers to suppliers and
threats from substitutes and new entrants affect
the buyer-supplier relationship.
• Current Rivalry
– Intensity among rivals increases when industry
growth rates slow, demand falls, and product
prices descend.
• Once managers assess the five forces and determined
what threats and opportunities exists, they are ready to
select the appropriate competitive strategy
Types of Competitive Strategies
− Porter proposes that managers select a
strategy that will give the organization a
competitive advantage, which arises out of
either having lower cost than all other
competitors or by being significantly different
from competitors
− On that basis, managers can choose one of
three strategies

Types of Competitive Strategies
– Cost Leadership Strategy
• Seeking to attain the lowest total overall costs relative
to other industry competitors
– Differentiation Strategy
• Attempting to create a unique and distinctive product
or service for which customers will pay a premium
– Focus Strategy
• Using a cost or differentiation advantage to exploit a
particular market segment as opposed to a larger
market

What is a Functional Strategy?
• Functional strategy - the

strategies used by an
organization’s various
functional departments to
support the competitive
strategy.
Creates an appropriate supporting
role for each functional area of
the organization. Eg.
Manufacturing, marketing,
finance, etc.

The Need for Strategic Flexibility
• 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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CHAPTER 9: Managing Strategy

Robbins, S. P. & Coulter, M. (2016)

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

• Strategies - the plans for how the organization

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

1. It results in higher organizational

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

– Analyzing financial and physical assets is fairly easy, but assessing

• Steps 2 and 3 combined are called a SWOT analysis. (Strengths,

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

Copyright © 2012 Pearson Education, Inc.

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Copyright © 2012 Pearson Education, Inc.

• Functional strategy - the

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• Strategic flexibility - the

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