Chapter 8

STRATEGIC
MANAGEMENT
8.1
LEARNING OBJECTIVES
• You should be able to:
• Explain the importance of strategic
management
• Describe the steps in the strategic
management process
• Explain SWOT analysis
• Differentiate corporate-, business-, and
functional-level strategies

8.2
LEARNING OBJECTIVES (continued)

• You should be able to (continued):

• Explain what competitive advantage is and
why it’s important to organizations
• Describe the five competitive forces
• Identify the various competitive strategies

8.3
THE IMPORTANCE OF STRATEGIC
MANAGEMENT
• What Is Strategic Management?
• A set of managerial decisions and actions that determines
the long-run performance of an organization
• Purposes of Strategic Management
• Involved in many decisions that managers make
• Companies with formal strategic management systems
have higher financial returns than companies with no such
system
• Important in profit and not-for-profit organizations

8.4
THE STRATEGIC MANAGEMENT
PROCESS (Exhibit 8.1)

8.5
THE STRATEGIC MANAGEMENT
PROCESS

• Step 1: Identifying the Organization’s Current Mission,

Objectives, and Strategies
• Mission
• statement of the purpose of an organization
• important to identify the goals currently in
place
• the strategies currently being pursued
• important in profit and not-for-profit
organizations

8.6
COMPONENTS OF A MISSION
STATEMENT (Exhibit 8.2)
THE STRATEGIC MANAGEMENT
PROCESS (continued)

• Step 2: Analyzing the Environment

• successful strategies are aligned with the environment
• examine both the specific and general environments to
determine what trends and changes are occurring

• 3. Identifying Opportunities and Threats

• opportunities - positive trends in the external environmental
• threats - negative trends in the external environment

8.8
THE STRATEGIC MANAGEMENT
PROCESS (continued)

• Step 4: Analyzing the Organization’s Resources

and Capabilities
• examine the inside of the organization
• available resources and capabilities always constrain the
organization in some way
• core competencies - major value-creating skills,
capabilities and resources that determine the
organization’s competitive advantage

8.9
THE STRATEGIC MANAGEMENT
PROCESS (continued)

• Step 5: Identifying Strengths and Weaknesses

• Strengths - activities the organization does well or any
unique resource
• Weaknesses - activities the organization does not do well or
resources it needs but does not possess
• organization’s culture has its strengths and weaknesses
• SWOT analysis - analysis of the organization’s strengths,
weaknesses, opportunities, and threats

8.10
IDENTIFYING THE ORGANIZATION’S OPPORTUNITIES (Exhibit
8.3)

Organization’s Organization’s Opportunities in

Resources/Abilities Opportunities the Environment

© Tania Hasan 8.11

THE STRATEGIC MANAGEMENT
PROCESS (continued)
• Step 6: Formulating Strategies
• Require strategies at the corporate, business, and
functional levels of the organization
• Strategy formulation follows the decision-making
process
• Step 7: Implementing Strategies
• A strategy is only as good as its implementation

• Step 8: Evaluating Results

• Control process to determine the effectiveness of a
strategy

8.12
 TYPES OF ORGANIZATIONAL
STRATEGIES
• Corporate-Level Strategy
• Determines

• what businesses a company should be in or wants

to be in
• the direction that the organization is going
• the role that each business unit will play

8.13
 LEVELS OF ORGANIZATIONAL
STRATEGY (Exhibit 8.4)

© Tania Hasan 8.14

TYPES OF ORGANIZATIONAL
STRATEGIES (continued)

• Corporate-level Strategy (continued)

• Grand Strategy - Stability
• no significant change is proposed
• organization’s performance is satisfactory
• environment appears to be stable and
unchanging

8.15
 TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Corporate-level Strategy (continued)
• Grand Strategy - Growth
• seeks to increase the level of the organization’s operations
• related diversification - grow by merging with or acquiring
firms in different but related industries
• unrelated diversification - grow by merging with or acquiring
firms in different and unrelated industries
• Grand Strategy - Retrenchment - designed to address
organizational weaknesses that are leading to performance
declines

8.16
 SWOT ANALYSIS AND GRAND
STRATEGIES (Exhibit 8.5)

Strengths
Valuable
Corporate Corporate
Growth Stability
Firm Status

Strategies Strategies

Corporate Corporate
Weaknesses

Stability Retrenchment
Critical

Strategies Strategies

Abundant Environmental Status Critical

Environmental Environmental
Opportunities Threats
© Tania Hasan 8.17
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)

• Corporate-Level Strategy (continued)

• Corporate Portfolio Analysis - used when corporate
strategy involves a number of business
• Boston Consulting Group (BCG) matrix--
strategy tool that guides resource allocation
decisions on basis of market share and growth
rate of SBU

8.18
 THE BCG MATRIX (Exhibit 8.6)
Market Share
High Low
High

Question
Stars
Marks
Anticipated
Growth
Rate
Cash
Dogs
Cows
Low

© Tania Hasan 8.19

BCG MATRIX
BCG MATRIX
 TYPES OF ORGANIZATIONAL
STRATEGIES (continued)

• Corporate-Level Strategy (continued)

• BCG matrix (continued)
• strategic implications of the matrix
• cash cows - “milk”
• stars - require heavy investment
• question marks - attractive but hold a small
market share
• dogs - sold off or liquidated

8.20
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Business-Level Strategy
• Determines how an organization should compete in
each of its businesses
• Strategic business units - independent businesses that
formulate their own strategies
• Role of Competitive Advantage
• competitive advantage - sets an organization apart by
providing a distinct edge
• comes from the organization’s core competencies
• not every organization can transform core competencies into a
competitive advantage
• once created, must be able to sustain it

8.21
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Business-Level Strategy (continued)
• Competitive Strategies

• industry analysis based on five competitive forces

• Threat of new entrants - affected by barriers to entry
• Threat of substitutes - affected by buyer loyalty and
switching costs
• Bargaining power of buyers - affected by number of
customers, availability of substitute products

8.22
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Business-Level Strategy (continued)
• Competitive Strategies (continued)
• industry analysis based on five competitive forces
• Bargaining power of suppliers - affected by

degree of supplier concentration

• Existing rivalry - affected by industry growth

rate, demand for firm’s product or service,

and product differences

8.23
FORCES IN THE INDUSTRY ANALYSIS
 FORCES IN THE INDUSTRY
ANALYSIS (Exhibit 8.7)
New Threat of
Entrants New Entrants
Bargaining
Power or
Suppliers Industry
Suppliers Competitors

Buyers
Current Rivalry
Bargaining
Power or
Threat of Buyers
Substitutes Substitutes

© Tania Hasan 8.24

TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Business-Level Strategy (continued)
• Competitive strategies (continued)
• Porter’s three generic strategies
• cost leadership - goal is to become the
lowest-cost producer in the industry
• differentiation - offer unique products that
are widely valued by customers
• focus - aims at a cost advantage or
differentiation advantage in a narrow
segment

8.25
REQUIREMENTS FOR SUCCESSFULLY
PURSUING PORTER’S COMPETITIVE
STRATEGIES (Exhibit 8.8)

8.26
TYPES OF ORGANIZATIONAL
STRATEGIES (continued)
• Functional-Level Strategy
• used to support the business-level
strategy
• creates an appropriate supporting role for
each functional area of the organization

8.27
• End of Chapter