Management

Stephen P. Robbins Mary Coulter

Chapter
Strategic
9 Management
 LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter

Strategic Management
 Define strategic management, strategy, and
business model.
 Give three reasons why strategic management is
important.
The Strategic Management Process
 Describe the six steps in the strategic management process.
 Define SWOT (strengths, weaknesses, opportunities, and
threats).
 LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter

Corporate Strategies
 Describe the three major types of corporate strategies.
 Explain how the BCG matrix and how it’s used to manage
corporate strategies

Competitive Strategies
 Describe the role of competitive advantage.
 Explain Porter’s five forces model.
 Describe Porter’s three competitive strategies
 LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter

Current Strategic Management Issues

 Explain why strategic flexibility is important.
 Describe e-business strategies.
 Discuss what strategies organizations might use to
become more customer oriented and to be more
innovative.
 Strategic Management
What managers do to develop an organization’s strategies

Strategies
 The decisions and actions that determine the long-run
performance of an organization.

Business Model
 Is a strategic design for how a company intends to profit from
its strategies, work processes and work activities.
 Focuses on two things:
 Whether customers will value what the company is providing.
 Whether the company can make any money doing that.
Why Is Strategic Management 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.
The 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
• Avon’s Mission “To be the company that best understands and
satisfies the product, service, and self fulfillment needs of women
on a global level.”
• The mission of Facebook is “a social utility that connects you with
the people around you.”

Goals: the foundation for further planning

 Measurable performance targets
Components of a 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
Strategic Management Process

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.

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.
Strategic Management Process

Step 4: Formulating 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

Strategic Management Process

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

Step 6: Evaluating results

 How effective have strategies been?

 What adjustments, if any, are necessary?

Types of Organizational Strategies
Types of Organizational Strategies

Corporate 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
 Renewal: examination of organizational weaknesses that are
leading to performance declines
Corporate 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
Corporate 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 or provide
customer service activities (eliminating intermediaries).
Corporate Strategies

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

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.
Corporate Strategies

Renewal Strategies
 Developing strategies to counter organization weaknesses
that are leading to performance declines.
 Retrenchment: focusing of eliminating non-critical
weaknesses and restoring strengths to overcome
current performance problems.
 Turnaround: addressing critical long-term
performance problems through the use of strong
cost elimination measures and large-scale
organizational restructuring solutions.
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
The BCG Matrix
Competitive Strategies

Competitive Strategy
 For a small organization in only one line of business
or a large organization that has not diversified into
different products or markets, its competitive
strategy describes how it will compete in its
primary or main market.
 A strategy focused on how an organization will
compete in each of its SBUs (strategic business
units).
The Role of Competitive Advantage

Competitive Advantage
 An organization’s distinctive competitive edge.

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.
Five Forces Model
Five Competitive Forces

Threat of New Entrants

 The ease or difficulty with which new competitors can enter
an industry.

Threat of substitute
 The extent to which switching costs and brand loyalty affect
the likelihood of customers adopting substitutes products and
services.
Bargaining Power of Buyers
 Pressure that customers/consumers can put on businesses to
get them to provide higher quality products, better customer
service, and/or lower prices
Five Competitive Forces

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.
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 rather a larger market.
Customer Service Strategies

 Giving the customers what they want.

 Communicating effectively with them.
 Providing employees with customer service
training.
Innovation Strategies

Possible Events
 Radical breakthroughs in products.
 Application of existing technology to new uses.

Strategic approaches of Innovation

 Basic research
 Product development
 Process innovation

First Mover
 An organization that brings a product innovation to market or
use a new process innovations
 First-Mover Advantages–Disadvantages

Advantages Disadvantages
 Reputation for being  Uncertainty over exact
innovative and industry direction technology and
leader market will go
 Cost and learning  Risk of competitors
benefits imitating innovations
 Control over scarce  Financial and
resources and keeping strategic risks
competitors from having  High development
access to them
costs
 Opportunity to begin
building customer
relationships and customer
loyalty