Strategy and Strategic Management Exploring Management Chapter 7 Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved. Strategy and Strategic Management

Chapter 7 “Strategic thinkers question the status quo. They challenge their own and others’ assumptions and encourage divergent points of view… This requires patience, courage and an open mind.” Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

Learning Objectives Chapter 7 What types of strategies are used by organizations? (7.1) How do managers formulate and implement strategies? (7.2) Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Takeaway – answers to come Strategy is a comprehensive plan for achieving competitive advantage. Organizations use corporate, business, and functional strategies. Growth strategies focus on expansion. Restructuring and divestiture strategies focus on consolidation. Global strategies focus on international business initiatives. Cooperative strategies focus on alliances and partnerships. E-business strategies focus on using the Internet for business success. Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Competitive Advantage Strategy a comprehensive plan guiding resource allocation to achieve long-term organization goals. Strategic Intent focuses organizational energies on achieving a compelling goal. Competitive Advantage operating in successful ways that are difficult to duplicate. Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Corporate Strategy directions and guidelines for use of resources Business Strategy identifies how a strategic business unit or division will compete in its product or service domain Functional Strategy guides activities within one specific area of operations Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Growth and Diversification Strategies Growth Strategy expansion through current operations Concentration expansion within an existing business area Diversification expansion occurs by entering new business areas Vertical Integration expansion by acquiring existing suppliers or distributors Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Restructuring and Divestiture Retrenchment changes operations to correct weaknesses Liquidation an extreme form of retrenchment wherein the business closes and sells off its assets Restructuring reduces the scale or mix of operations Chapter 11 bankruptcy Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Restructuring and Divestiture Downsizing decreases the size of operations Divestiture sells off part of the organization to focus on core businesses Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Global Strategies Globalization Strategy adopts standardized products and advertising for use worldwide Multidomestic Strategy customizes advertising and products to best fit local needs Transnational Strategy seeks efficiencies of global operations with attention to local markets Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Cooperative Strategies Strategic Alliances partnership between organizations to pursue mutual interests or strengthen competitive advantage Supply Chain Supplier and Distribution alliances Co-opetition competitors share information or technology Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 E-business E-business Strategies Focus on using the Internet for business transactions B2B Business Strategies Use IT and Web portals to vertically link organizations with members of their supply chains. B2C Business Strategies Use IT and Web portals to vertically link organizations with members of their customers. Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 E-business Advertising model: Providing free information or services and then generating revenues from paid advertising to viewers (e.g., Yahoo!, Google) Brokerage model: Bringing buyers and sellers together for online business transactions and taking a percentage from the sales (e.g., eBay, Priceline) Community model: Providing a meeting point sold by subscription or supported by advertising (e.g., eHarmony, Facebook) Freemium model: Offering a free service and encouraging users to buy extras (e.g., Skype, Zynga) Infomediary model: Providing free service in exchange for collecting information on users and selling it to other businesses (e.g., Epinions, Yelp) Merchant model: E-tailing, or selling products direct to customers through the Web (e.g., Amazon, Apple, iTunes Store) Referral model: Providing free listings and getting referral fees from online merchants for directing potential customers to them (e.g., Shopzilla, PriceGrabber) Subscription model: Selling access to high-value content through a subscription Web site (e.g., Wall Street Journal Interactive, Netflix) Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 E-business Social Media Strategy Use of Facebook, Twitter and others to engage customers Crowdsourcing Interactive social media strategy that becomes an interactive idea exchange with customers Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Study Guide for 7.1 Rapid Review: A strategy is a comprehensive plan that sets long-term direction for an organization and guides resource allocations to achieve competitive advantage, operating in ways that outperform the competition. Corporate strategy sets the direction for an entire organization; business strategy sets the direction for a large business unit or product division; functional strategy sets the direction within business functions. Growth strategies seek to expand existing business areas through concentration or add new ones by related or unrelated diversification. Retrenchment strategies try to streamline or consolidate organizations for better performance through restructuring and divestiture. Global strategies pursue international business opportunities. Cooperative strategies make business use of alliances and partnerships. E-business strategies use the Internet to pursue competitive advantage. Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Study Guide for 7.1 Questions for Discussion: With things changing so fast today, is it really possible for a business to achieve “sustainable” competitive advantage? Why is growth such a popular business strategy? Is it good news or bad news for investors when a business announces that it is restructuring? Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

TYPES OF STRATEGIES 7.1 Be Sure You Can…for 7.1 differentiate strategy, strategic intent, and competitive advantage differentiate corporate, business, and functional levels of strategy list and explain major types of growth and diversification strategies list and explain restructuring and divestiture strategies explain alternative global strategies differentiate B2B and B2C as e-business strategies Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 Takeaway – answers to come The strategic management process formulates and implements strategies. Strategy formulation begins with the organization’s mission and objectives. SWOT analysis identifies strengths, weaknesses, opportunities, and threats. Porter’s five forces model examines industry attractiveness. Porter’s competitive strategies model examines business or product strategies. Portfolio planning examines strategies across multiple businesses or products. Strategic leadership ensures strategy implementation and control. Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 Strategic Management Process the process of formulating and implementing strategies Strategy Formulation the process of creating strategies. Strategy Implementation the process of putting strategies into action. Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 Strategic Management Process Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved. Figure 7.1

STRATEGIC MANAGEMENT 7.2 Strategy Formulation Mission Statement The reason for the organization’s existence in society Operating Objectives Specific results that organizations attempt to achieve Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 Strategy Formulation Common Operating Objectives of Organizations Profitability Market share High-quality workforce Cost efficiency Product and service quality Innovativeness Social responsibility Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.  

STRATEGIC MANAGEMENT 7.2 SWOT Analysis SWOT analysis is a tool used in strategic planning to determine the current status of the organization. Internal assessment of the organizational strengths and weaknesses External assessment of environmental opportunities and threats Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 SWOT Analysis Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved. Figure 7.2

STRATEGIC MANAGEMENT 7.2 SWOT Analysis Core Competency A special strength that gives an organization a competitive advantage Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 Porter’s Five Forces Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved. Figure 7.3

STRATEGIC MANAGEMENT 7.2 Porter’s Competitive Strategies Differentiation Strategy Offers products and services that are uniquely different from the competition. Focused Differentiation Strategy offers a unique product to a special market segment. Cost Leadership Strategy Seeks to operate at lower costs than competitors. Focused Cost Leadership Strategy uses cost leadership and target needs of a special market. Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 Porter’s Competitive Strategies Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved. Figure 7.4

STRATEGIC MANAGEMENT 7.2 Portfolio Planning BCG Matrix Analyzes business opportunities according to growth rate and market share Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved. Figure 7.5

STRATEGIC MANAGEMENT 7.2 Strategic Leadership The capability to inspire people to successfully engage in a process of continuous change, performance enhancement, and implementation of organizational strategies. Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 Strategic Leadership Strategic Control Responsibility of management to stay on top of strategy, how it’s being implemented, and if it needs to be adjusted to be more effective in accomplishing the mission. Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 Study Guide for 7.2 Rapid Review: Strategic management is the process of formulating and implementing strategies to achieve a sustainable competitive environment. A SWOT analysis sets a foundation for strategy formulation by systematically assessing organizational strengths and weaknesses as well as environmental opportunities and threats. Porter’s five forces model analyzes industry attractiveness in terms of competitors, threat of new entrants, substitute products, and the bargaining powers of suppliers and buyers. Porter’s competitive strategies describes business and product strategies based on differentiation (distinguishing one’s products from the competition), cost leadership (minimizing costs relative to the competition), and focus (concentrating on a special market segment). The BCG Matrix is a portfolio-planning approach that describes strategies for businesses classified as stars, cash cows, question marks, or dogs. Strategic leadership is the responsibility for activating people, organizational resources, and management systems to continually pursue and fully accomplish strategy implementation. Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 Study Guide for 7.2 Questions for Discussion: Can an organization have a good strategy but a poor sense of mission? Would a monopoly receive a perfect score for industry attractiveness in Porter’s five forces model? Does the BCG Matrix oversimplify a complex strategic management problem? Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.

STRATEGIC MANAGEMENT 7.2 Be Sure You Can…for 7.2 describe the strategic management process explain Porter’s five forces model explain Porter’s competitive strategies model describe the purpose and use of the BCG Matrix explain the responsibilities of strategic leadership Schermerhorn, Exploring Management, Fourth Edition, © John Wiley & Sons, Inc. All rights reserved.