ninth edition STEPHEN P. ROBBINS PowerPoint Presentation by Charlie Cook The University of West Alabama MARY COULTER © 2007 Prentice Hall, Inc. All rights reserved. Strategic Management Chapter 8

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–2

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–3 Strategic Management: “The ongoing process of ensuring a competitively superior fit between an organization and its changing environment.”

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–4 Strategic Management Business ModelBusiness 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.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–5 Why Strategic Management is Important 1.It results in higher organizational performance. 2.It requires that managers examine and adapt to business environment changes. 3.It coordinates diverse organizational units, helping them focus on organizational goals. 4.It is very much involved in the managerial decision-making process.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–6 Exhibit 8–4Levels of Organizational Strategy

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–7 Strategy Marriott Opportunities High growth in market for low-cost lodging. Environmental Analysis Strengths Solid hotel business Solid food service business Organizational analysis Threats Low growth in market for high-cost lodging Weaknesses Poor performance from cruise ship, travel agency, and theme park businesses Weak cash position

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–8 Growth Strategy Concentration in single business (e.g., Bose) Can become very strong but risky.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–9 Growth Strategy (cont’d) Integration: firms seek to add more value by producing its own inputs or distributing its own products – three basic options:  Backward vertical integration: the firm produces its own inputs – seeks to lower cost of supplies.  Forward vertical integration: firm distributes its own products – seeks to pick profit associated with retailing.  Horizontal integration: company grows by combining with competitors in the same industry.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–10 Growth Strategy (cont’d) Related diversification: firm diversifies in similar areas to obtain some synergies (e.g., mfg. facilities, purchasing might, distribution channels, advertising expertise, etc.) Examples... P&G – paper towel + disposable diapers; Marie Callender’s – restaurants + frozen food; Disney – animated movies & theme parks + merchandise & cruise lines

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–11 Growth Strategy (cont’d) Unrelated diversification: buy businesses in different industries. Build a portfolio (mutual fund approach) of unrelated firms to reduce risk or trouble in one industry. Hard to manage.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–12 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.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–13 Renewal Strategy Addresses organizational weaknesses that have led to declines in performance. Goal: “... helps [the business] stabilize operations, revitalize organizational resources, and capabilities, and prepare to compete again.”

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–14 Renewal Strategy (cont’d) Two main options Retrenchment: focusing of eliminating non- critical weaknesses and restoring strengths to overcome current performance problems. Examples: P&G, Reebok, IBM. 2. Turnaround: addressing critical long-term performance problems through the use of strong cost elimination measures and large-scale organizational restructuring solutions. Examples: Sears and Kodak

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–15 Corporate Portfolio Analysis Managers manage portfolio (or collection) of businesses using a corporate portfolio matrix such as the BCG Matrix.Managers manage portfolio (or collection) of businesses using a corporate portfolio matrix such as the BCG Matrix. BCG MatrixBCG 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

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–16 Exhibit 8–5The BCG Matrix

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–17 Business or Competitive Strategy Business (or Competitive) StrategyBusiness (or Competitive) Strategy  A strategy focused on how an organization should compete in each of its SBUs (strategic business units).

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–18 The Role of Competitive Advantage Competitive Advantage (p. 222)Competitive Advantage (p. 222)  An organization’s distinctive competitive edge that is sourced and sustained in its core competencies (or organizational capability).  A core competency could translate to a competitive advantage if it is…  valued by customers  rare or difficult to imitate, and  nonsubstitutable

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–19 The Role of Competitive Advantage (cont’d) Sustainable Competitive AdvantageSustainable Competitive Advantage  Continuing over time to effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry competitors.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–20 Exhibit 8–6Forces in the Industry Analysis Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980).

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–21 Five Competitive Forces Threat of New EntrantsThreat of New Entrants  The ease or difficulty with which new competitors can enter an industry. Threat of SubstitutesThreat of Substitutes  The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitutes products and services. Bargaining Power of BuyersBargaining Power of Buyers  The degree to which buyers have the market strength to hold sway over and influence competitors in an industry.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–22 Five Competitive Forces Bargaining Power of SuppliersBargaining Power of Suppliers  The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship. Current RivalryCurrent Rivalry  Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–23 Types of Competitive Strategies Cost Leadership StrategyCost Leadership Strategy  Seeking to attain the lowest total overall costs relative to other industry competitors. Differentiation StrategyDifferentiation Strategy  Attempting to create a unique and distinctive product or service for which customers will pay a premium. Focus StrategyFocus Strategy  Using a cost or differentiation advantage to exploit a particular market segment rather a larger market.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–24 Porter’s Generic Business-level Strategies Number of Market Segments Many Few Strategy Low CostDifferentiation Low-CostDifferentiation Focused Low-Cost Focused Differentiated Nordstrom Cray Inc. La Quinta Inns Ivory Soap

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–25 Stuck in the Middle? Q: What happens if a company fails to develop a cost or a differentiation advantage? A: Such a business is almost guaranteed low profits...  They lose the high-volume customers that demand low price, and ….  They lose the high-margin customers to the firms that have achieved differentiation.

Bzupages.com © 2007 Prentice Hall, Inc. All rights reserved.8–26 The Rule of Three Similar to Porter’s generic competitive strategiesSimilar to Porter’s generic competitive strategies  The competitive forces in an industry will create a situation where three companies (full-line generalists) will dominate a market.  Some firms in the market become “super niche players” and while others end up as “ditch dwellers.”  Firms unable to develop either a cost or differentiation advantage become “stuck in the middle” and lack prospects for long-term success.  A few firms successfully pursue both differentiation and cost advantages.