Chapter 9

Managing Strategy

1
Strategic Management

• The set of managerial decisions

and actions that determines
the long-run performance
of an organization

2
Why Strategic Management Is Important

• It results in higher organizational performance

• It requires that managers examine and adapt to business
environment changes
• It coordinates diverse organizational units, helping them focus on
organizational goals
• It is very much involved in the managerial decision-making process

3
 The Strategic Management Process

External Analysis
• opportunities
• threats

Identify
Identifythe
the Formulate Implement Evaluate
organization’s
organization’scurrent
current SWOT Analysis Strategies Strategies Results
vision, mission and
vision, mission and
goals
goals
Internal Analysis
• strengths
• weaknesses

4
Strategic Management Process

• Step 1: Identify the Organization’s Current Mission, Objectives, and

Strategies
• Mission: the firm’s reason for being
• The scope of its products and services
• Goals: the foundation for further planning
• Measurable performance targets
• Step 2: Conduct an External Analysis
• The environmental scanning of specific and general environments
• Focuses on identifying opportunities and threats
• Opportunities are positive trends in external environment
• Threats are negative trends

5
Strategic Management Process (cont’d)

Step 3: Conduct an Internal Analysis

◦ Assessing organizational resources, capabilities, activities, and culture:
 Strengths (core competencies) create value for the customer and strengthen the
competitive position of the firm
 Weaknesses (things done poorly or not at all) can place the firm at a competitive
disadvantage.

Steps 2 and 3 combined are called a SWOT analysis.

(Strengths, Weaknesses, Opportunities, and Threats)

6
Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy
Langton, Management, Eighth Canadian Edition. 7
Copyright © 2005 Pearson Education Canada Inc.
Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy
Langton, Management, Eighth Canadian Edition. 8
Copyright © 2005 Pearson Education Canada Inc.
Strategic Management Process (cont’d)

• Step 4: Formulate Strategies

• Develop and evaluate strategic alternatives
• Select appropriate strategies for all levels in the organization that provide
relative advantage over competitors
• Match organizational strengths to environmental opportunities
• Correct weaknesses and guard against threats

9
Strategic Management Process (cont’d)

• Step 5: Implement Strategies

• Implementation: effectively fitting organizational structure and activities to
the environment
• The environment dictates the chosen strategy; effective strategy
implementation requires an organizational structure matched to its
requirements
• Step 6: Evaluate Results
• How effective have strategies been?
• What adjustments, if any, are necessary?

10
 Levels of Organizational Strategy

Corporate Multibusiness
Level Corporation

Business Strategic Strategic Strategic

Level Business Unit 1 Business Unit 2 Business Unit 3

Functional Research and Manufacturing Marketing Human Finance

Level Development Resources

11
Types of Organizational Strategies

• Corporate-level Strategies
• Top management’s overall plan for the entire organization and its strategic
business units
• Types of Corporate Strategies
• Growth: expansion into new products and markets
• Stability: maintenance of the status quo
• Retrenchment: addresses organizational weaknesses that are leading to
performance declines
• Corporate portfolio analysis: involves a number of businesses; guides
resource allocation

12
Corporate-Level Strategies

• Growth Strategy
• Seeking to increase the organization’s business by expansion into new
products and markets
• Types of Growth Strategies
• Concentration
• Vertical integration
• Horizontal integration
• Diversification

13
Growth Strategies

• Concentration
• Focusing on a primary line of business and increasing the number of products
offered or markets served
• Vertical Integration
• Backward vertical integration: attempting to gain control of inputs (become a
self-supplier)
• Forward vertical integration: attempting to gain control of output through
control of the distribution channel and/or provide customer service activities
(eliminating intermediaries)

14
Forward Integration strategy explained

Car Car
After-Sales Service Insurance Insurance

Sales Car Showroom Car Showroom

Automobile Automobile
Manufacturing Assembly Assembly

Intermediate Goods Car Components Car Components

Raw Materials Steel/ Metal Steel/ Metal

Makers Makers

15
Backward Integration strategy explained

Car Car
After-Sales Service Insurance Insurance

Sales Car Showroom Car Showroom

Automobile Automobile
Manufacturing Assembly
Assembly

Intermediate Goods Car Components Car Components

Raw Materials Steel/ Metal Steel/ Metal

Makers Makers

16
Horizontal Integration strategy explained

Car Car
After-Sales Service Insurance Insurance

Sales Car Showroom Car Showroom

Automobile Automobile
Manufacturing Assembly Assembly

Intermediate Goods Car Components Car Components

Raw Materials Steel/ Metal Steel/ Metal

Makers Makers

17
Growth Strategies (cont’d)

• Horizontal Integration
• Combining operations with another competitor in the same industry to
increase competitive strengths and lower competition among industry rivals
• Diversification
• Related Diversification
• Expanding by merging with or acquiring firms in different, but
related industries that are “strategic fits”
• Unrelated Diversification
• Growing by merging with or acquiring firms in unrelated
industries where higher financial returns are possible

18
19
Corporate-Level Strategies (cont’d)

• Stability Strategy
• A strategy that seeks to maintain the status quo to deal with the uncertainty
of a dynamic environment, when the industry is experiencing slow- or no-
growth conditions, or if the owners of the firm elect not to grow for personal
reasons

20
Corporate-Level Strategies (cont’d)

• Retrenchment Strategy
• Reduces the company’s activities or operations
• Retrenchment strategies include:
• Cost reductions
• Layoffs
• Closing underperforming units
• Closing entire product lines or services

21
Corporate-Level Strategies (cont’d)

• Corporate Portfolio Analysis

• BCG Matrix
• Developed by the Boston Consulting Group
• Considers market share and industry growth rate
• Classifies firms as:
• Cash cows: low growth rate, high market share
• Stars: high growth rate, high market share
• Question marks: high growth rate, low market share
• Dogs: low growth rate, low market share

22
Exhibit 7.5 The BCG Matrix
High High Low

Market Share

Question
Stars Marks

Sell off or
Growth Rate

Heavily invest
Anticipated

turn into stars

Cash Dogs
Cows
Sell off or
Milk for cash liquidate
Low

23
Business-Level Strategy

• Business-Level Strategy
• A strategy that seeks to determine how an organization should compete in
each of its SBUs (strategic business units)

24
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 rather than a larger market
• Stuck in the Middle
• Organizations that are unable to develop a cost or differentiation advantage

25
 Forces in an Industry Analysis

New
Entrants

Threat of
New Entrants
Bargaining
Power of
Intensity of Buyers
Rivalry Among
Suppliers Current Buyers
Competitors
Bargaining
Power of
Suppliers
Threat of
Substitutes

Substitutes

Source: Based on M.E. Porter, Competitive Strategy: Techniques for

Analyzing Industries and Competitors (New York: The Free Press, 1980).

26
Michael Porter’s Five Competitive Force
Model
• Threat of New Entrants
• The ease or difficulty with which new competitors can enter an industry
• Initial Investment
• Growth Rate

• Threat of Substitutes
• A factor that determines whether or not customers will switch to a substitute
product and service of a competitor industry
• Switching costs and
• Brand loyalty

• Bargaining Power of Buyers

• Bargaining power of buyers (customers) is a factor that determines the
amount of influence that buyers have in an industry
• The number of buyers and
• The number of sellers

27
Five Competitive Forces (cont’d)

• Bargaining Power of Suppliers

• Bargaining power of suppliers determine the power that suppliers have over
firms in the industry
• Number of buyers and
• Number of suppliers
• Current Rivalry
• Includes factors that determine how intense the competitive rivalry will be
among firms currently in the industry
• Number of competitors
• Growth Rate

28
Functional-Level Strategy

• Functional-level strategies support the business-level strategy

• i.e., Marketing, human resources, research and development, and finance all
support the business-level strategy
• Problems occur when employees or customers don’t understand a
company’s strategy

29