MANAGEMENT
Chapter
13
Strategic
Management
LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter.
The Importance of Strategic Management
• Define strategic management, strategy, and business
model.
• Explain why strategic management is important.
The Strategic Management Process
• List the six steps in the strategic management process.
• Describe what managers do during external and internal
analyses.
• Explain the role of resources, capabilities, and core
competencies.
• Define strengths, weaknesses, opportunities, and threats.
L E A R N I N G O U T L I N E (cont’d)
Follow this Learning Outline as you read and study this chapter.
Types of Organizational Strategies
• Describe the three major types of corporate strategies.
• Discuss the BCG matrix and how it’s used.
• Describe the role of competitive advantage in business-
level strategies.
• Explain Porter’s five forces model.
• Describe Porter’s three generic competitive strategies and
the rule of three.
L E A R N I N G O U T L I N E (cont’d)
Follow this Learning Outline as you read and study this chapter.
Strategic Management in Today’s Environment
• Explain why strategic flexibility is important.
• Describe strategies applying e-business techniques.
• Explain what strategies organizations might use to
become more customer oriented and to be more
innovative.
What is an organogram?
Organogram help in organizational planning
and management
organogram help in
organizational planning and
management
organogram help in organizational planning
and management (VSTCCS)
Strategic Management
• What managers do to develop the organization’s strategies.
Strategies
• The decisions and actions that determine the long-run performance of an organization.
Why is Strategic Management Important
Exhibit 7–1 The Strategic Management Process
Strategic Management Process
Components of Mission Statement
Strategic Management Process
• Step 2: Doing an external analysis
The environmental scanning of specific and general
environments
Focuses on identifying opportunities and threats by exploring three
layers of environment;
Natural environment
Societal environment
Task environment
Strategic Management Process (cont’d)
• 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’s skills, culture, corporate reputation, and so
forth) isn’t as easy.
• Steps 2 and 3 combined are called a SWOT analysis.
SWOT analysis
• SWOT matrix is a strategic planning technique used to help a
person or organization identify strengths, weaknesses,
opportunities, and threats related to business competition or
project planning.
SWOT analysis
• Strengths: characteristics of the business or project
that give it an advantage over others.
• Weaknesses: characteristics of the business that place
the business or project at a disadvantage relative to
others.
SWOT analysis
• Opportunities: elements in the environment that the business
or project could exploit to its advantage.
• Threats: elements in the environment that could cause trouble
for the business or project.
SWOT analysis
Strategic Management Process (cont’d)
Strategic Management Process (cont’d)
• Step 5: Implementing 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.
Strategic Management Process (cont’d)
• Step 6: Evaluating results
How effective have strategies been?
What adjustments, if any, are necessary?
Types of Organizational Strategies
• Organizations use three types of strategies:
Corporate Strategies
Competitive Strategies
Functional Strategies
Types of Organizational Strategies
Types of Organizational Strategies
• Top level managers typically are responsible for
corporate strategies.
• Middle managers are responsible for competitive
strategies.
• Lower level managers are responsible for functional
strategies.
Corporate Strategies
• Corporate strategy is one that determines what
businesses a company is in or want to be in and what it
wants to do with those businesses.
• 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
• Renewal: redirection of the firm into new markets
Corporate Strategies Growth Strategy
• Growth Strategy:
• A growth strategy is when an organization expands the
number of market served or products offered, either through
its current business(es) or through new business(es).
Seeking to increase the organization’s business by
expansion into new products and markets.
Corporate Strategies Growth Strategy
• Because of growth strategy, an organization may
increase its:
Revenues
Number of employees
Market shares
Corporate Strategies Growth Strategy
• Types of Growth Strategies
Concentration
Vertical integration
Horizontal integration
Diversification
Growth Strategies
Growth Strategies
• Vertical Integration
• Backward vertical integration: attempting to gain control of
inputs (become a self-supplier).
For instance, Walmart plans to build a dairy-processing
plant in Indiana to supply private-label milk to hundreds of
its stores at a lower cost than purchasing milk from an
outside supplier.
Growth Strategies
• Vertical Integration
• Forward vertical integration: attempting to gain control of
output through control of the distribution channel or provide
customer service activities (eliminating intermediaries).
For example, Apple has more than 400 retail stores
worldwide to distribute its products.
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.
For instance, Bank of America has acquired MBNA,
Summit Bancorp, NationsBank, U.S. Trust, and Fleet
Financial.
Growth Strategies (cont’d)
• Diversification
• Finally, an organization can grow through diversification, either
related or unrelated.
• Related Diversification
• Expanding by combining with firms in different, but related
industries that are “strategic fits.”
For example, Google has acquired a number of businesses
(some 150 total), including YouTube, DoubleClick, Nest, and
Motorola Mobility.
Growth Strategies (cont’d)
• Diversification:
• Unrelated Diversification:
• Growing by combining with firms in unrelated industries
where higher financial returns are possible.
For instance, the Tata Group of India has businesses in
chemicals, communications and IT, consumer products,
energy, engineering, materials, and services.
Corporate Strategies Stability Strategy
• Stability Strategy
• A corporate strategy in which an organization continues to do
what it is currently doing
Examples of this strategy include continuing to 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.
Corporate Strategies Renewal Strategy
Corporate Strategies Renewal Strategy
• Renewal Strategies
Turnaround: addressing critical long-term performance problems
through the use of strong cost elimination measures and large-scale
organizational restructuring solutions.
For example, the CIT Group’s declining profits prompted
management to cut costs by $125 million and sell the company’s
aircraft financing business unit to more effectively focus on
commercial lending and leasing.
How Are Corporate Strategies Managed?
• When an organization’s corporate strategy
encompasses a number of businesses,
managers can manage this collection, or
portfolio, of businesses using a tool called
corporate portfolio matrix.
How Are Corporate Strategies Managed?
• The first portfolio matrix—the BCG matrix—introduced the
idea that an organization’s various businesses could be
evaluated, to identify which ones offered high potential and
which were a drain on organizational resources.
• A business unit is evaluated using a SWOT analysis and
placed in one of the four categories of BCG matrix.
Corporate Portfolio Analysis
• Managers manage portfolio (or collection) of businesses using
a corporate portfolio matrix such as the BCG Matrix.
• 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
Exhibit 7–2 The BCG Matrix
What are the strategic implications of the
BCG matrix?
• The dogs should be sold off or liquidated as they have low
market share in markets with low growth potential.
• Managers should “milk” cash cows for as much as they can,
limit any new investment in them, and use the large amounts
of cash generated to invest in stars and question marks with
strong potential to improve market share.
What are the strategic implications of the
BCG matrix?
• Heavy investment in stars will help take advantage of the
market’s growth and help maintain high market share. The
stars, of course, will eventually develop into cash cows as
their markets mature and sales growth slows.
• The hardest decision for managers relates to the question
marks. After careful analysis, some will be sold off and others
strategically nurtured into stars.
Competitive Strategy
• Competitive Strategy
A strategy focused on how an organization should compete
in each of its SBUs (strategic business units).
SBUs : The single independent businesses of an
organization that formulate their own competitive
strategies
The Role of Competitive Advantage
• Competitive Advantage
• An organization’s distinctive competitive edge.
Apple has created the world’s best and most powerful
brand using innovative design and merchandising
capabilities
Types of Competitive Strategies
• Once managers have assessed the five forces and done a SWOT analysis,
they’re ready to select an appropriate competitive strategy.
• Cost Leadership Strategy
Seeking to attain the lowest total overall costs relative to other industry
competitors.
For example, you won’t find many embellishments in Ross Stores.
Low overhead costs allow Ross to sell quality apparel and home items
at 20 to 60 percent less than most department store prices, and the
company is profitable
Types of Competitive Strategies
• Differentiation Strategy
Attempting to create a unique and distinctive product or service
for which customers will pay a premium.
[Link] (customer service) is best example of differentiation
strategy.
[Link] (clothing and shoe company) allows customers to
return merchandise at any time if not completely satisfied.
Types of Competitive Strategies
• Focus Strategy
involves a cost advantage (cost focus) or a differentiation
advantage (differentiation focus) in a narrow segment or niche.
For example, Denmark’s Bang & Olufsen, whose revenues
exceed $490 million, focuses on high-end audio equipment
sales. Whether a focus strategy is feasible depends on the size of
the segment and whether the organization can make money
serving that segment.
Functional Strategy
