1. Managing Strategy and Strategic Planning
Chapter Eight
Managing Strategy and Strategic Planning

2. Learning Objectives
After studying this chapter, you should be able to:
Discuss the components of strategy, types of strategic alternatives, and the distinction between strategy formulation and strategy implementation.
Describe how to use SWOT analysis in formulating strategy.
Identify and describe various alternative approaches to business-level strategy formulation.
Describe how business-level strategies are implemented.
Identify and describe various alternative approaches to corporate-level strategy formulation.
Describe how corporate-level strategies are implemented.
Discuss international and global strategies.
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3. The Nature of Strategic Management
Strategy
A comprehensive plan for accomplishing an organization’s goals.
Strategic Management
A way of approaching business opportunities and challenges aimed at formulating and implementing effective strategies.
Effective Strategies
Strategies that promote a superior alignment between the organization and its environment and the achievement of its goals.
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4. Components of Strategy
Distinctive Competence
Something an organization does exceptionally well.
Scope
Range of markets in which an organization will compete.
Resource Deployment
How an organization will distribute its resources across the areas in which it competes.
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5. Types of Strategic Alternatives
Business-Level Strategy
The set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or a particular market.
Corporate-Level Strategy
The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets.
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6. Strategy Formulation and Implementation
The set of processes involved in creating or determining the organization’s strategies; it focuses on the content of strategies.
Strategy Implementation
The methods by which strategies are operationalized or executed within the organization; it focuses on the processes through which strategies are achieved.
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7. Strategy Formulation and Implementation (cont’d)
Deliberate Strategy
A plan, chosen and implemented to support specific goals, that is the result of a rational, systematic, and planned process of strategy formulation and implementation.
Emergent Strategy
A pattern of action that develops over time in the absence of goals or missions, or despite goals and missions.
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8. Figure 8.1: SWOT ANALYSIS
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9. Using SWOT Analysis to Formulate Strategy
Evaluating Organizational Strengths
Organizational strengths
are skills and abilities enabling an organization to conceive of and implement strategies.
Common organizational strengths
are organizational capabilities possessed by numerous competing firms.
Distinctive competencies
are useful for competitive advantage and superior performance.
Imitation of distinctive competencies
is duplicating another firm’s distinctive competence.
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10. Using SWOT Analysis to Formulate Strategy (cont’d)
Evaluating Organizational Strengths (cont’d)
Sustained competitive advantage
occurs when a distinctive competence cannot be easily duplicated.
is what remains after all attempts at strategic imitations have ceased.
Strategic imitation is difficult when:
Distinctive competence is based on unique historical circumstances.
Competitors do not understand the nature or character of a firm’s competence.
The competence is based on a complex phenomenon, such as organizational culture.
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11. Using SWOT Analysis to Formulate Strategy (cont’d)
Evaluating Organizational Weaknesses
Organizational weaknesses
Skills and capabilities that do not enable an organization to choose and implement strategies that support its mission.
Weaknesses can be overcome by:
investments to obtain the strengths needed.
modification of the organization’s mission so it can be accomplished with the current workforce.
Competitive disadvantage
A situation in which an organization fails to implement strategies being implemented by competitors.
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12. Using SWOT Analysis to Formulate Strategy (cont’d)
Evaluating an Organization’s Opportunities and Threats
Organizational opportunities
Areas in the organization’s environment that may generate high performance.
Organizational threats
Are areas in the organization’s environment that make it difficult for the organization to achieve high performance.
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13. Formulating Business-Level Strategies
Porter’s Generic Strategies
Differentiation strategy
An organization seeks to distinguish itself from competitors through the quality of its products or services.
Overall cost leadership strategy
An organization attempts to gain competitive advantage by reducing its costs below the costs of competing firms.
Focus strategy
An organization concentrates on a specific regional market, product line, or group of buyers.
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14. Table 8.1: Porter’s Generic Strategies
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15. Table 8.2: The Miles and Snow Typology
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16. Figure 8.2: The Product Life Cycle
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17. Implementing Business-Level Strategies (cont’d)
Implementing Miles and Snow’s Strategies
Prospector
Encourage creativity to seek out new market opportunities and to take risks.
Develop the flexibility to meet changing market conditions by decentralizing its organizational structure.
Defender
Focus on defending its current markets by lowering its costs and/or improving the performance of current products.
Analyzer
Incorporate elements of both the prospector and the defender strategies maintain business and to be somewhat innovative.
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18. Implementing Business-Level Strategies (cont’d)
Implementing Porter’s Generic Strategies
Differentiation
Marketing and sales must emphasize high-quality, high-value image of the organization’s products or services.
Overall Cost Leadership
Marketing and sales focus on simple product attributes and how these product attributes meet customer needs in a low-cost and effective manner.
Focus
Either differentiation or cost leadership, depending on which one is the proper basis for competing in or for a specific market segment, product category, or group buyers.
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19. Formulating Corporate-Level Strategies
Strategic Business Units
Each business or group of businesses within an organization is engaged in serving the same markets, customers, or products.
Diversification
The number of businesses an organization is engaged in and the extent to which these businesses are related to one another
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20. Formulating Corporate-Level Strategies (cont’d)
Single-Product Strategy
An organization manufactures one product or service and sells it in a single geographic market.
Related Diversification
A strategy in which an organization operates in several different businesses, industries, or markets that are somehow linked.
Avoids the disadvantages and risks of a single-product strategy.
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21. Table 8.3: Bases of Relatedness in Implementing Related Diversification
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22. Formulating Corporate-Level Strategies (cont’d)
Advantages of Related Diversification
Reduces an organization’s dependence on any one of its business activities and thus reduces economic risk.
Reduces overhead costs associated with managing any one business through economies of scale and economies of scope.
Allows an organization to exploit its strengths and capabilities in more than one business.
Synergy exists among a set of businesses when the businesses’ value together is greater than their economic value separately.
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23. Formulating Corporate-Level Strategies (cont’d)
Unrelated Diversification
An organization operates multiple businesses that are not logically associated with one another.
Advantages
Stable of performance over time due to business cycle differences among the multiple businesses.
Allocation of resources to areas with the highest return potentials to maximize corporate performance.
Disadvantages
Poor performance due to the complexity of managing a diversity of businesses.
Failing to exploit key synergies puts the firm at a competitive disadvantage to firms with related diversification strategies.
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24. Implementing Corporate-Level Strategies
Becoming a Diversified Firm
Internal development of new products
Developing products and services within the boundaries of traditional business operations.
Replacement of suppliers and customers
Backward vertical integration
Beginning a business that furnishes resources previously handled by a supplier.
Forward vertical integration
Beginning a business previously handled by an intermediary and selling more directly to customers.
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25. Implementing Corporate-Level Strategies (cont’d)
Becoming a Diversified Firm (cont’d)
Merger
Purchase of one firm by another firm of approximately the same size.
Acquisition
Purchase of a firm by another firm that is considerably larger.
Purposes of mergers and acquisitions
To diversify through vertical integration.
To acquire complementary products or services linked by a common technology and common customers.
To create or exploit synergies that reduce the combined organizations’ costs of doing business to increase revenues.
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26. Managing Diversification
Major Tools for Managing Diversification
Organization structure
A detailed discussion of organization structure is contained in Chapter 12.
Portfolio management techniques
Methods that diversified organizations use to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance.
Two important portfolio management techniques
The BCG Matrix
The GE Business Screen
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27. Managing Diversification (cont’d)
BCG Matrix
A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the market.
The matrix classifies the types of businesses that a diversified organization can engage as:
“Dogs” have small market shares and no growth prospects.
“Cash cows” have large shares of mature markets.
“Question marks” have small market shares in quickly growing markets.
“Stars” have large shares of rapidly growing markets.
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28. Figure 8.3: The BCG Matrix
Source: Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from The Boston Consulting Group, Inc., 1970.
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29. Managing Diversification
GE Business Screen
A method of evaluating business in a diversified portfolio along two dimensions, each of which contains multiple factors:
Industry attractiveness.
Competitive position (strength) of each firm in the portfolio.
In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business.
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30. Figure 8.4: The GE Business Screen
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31. International and Global Strategies
Developing International and Global Strategies
Global efficiencies
Location efficiencies—seeking lower input cost locations
Economies of scale—larger facilities result in lower costs
Economies of scope—broadening pro
Multimarket flexibility
International businesses may respond to a change in one country by implementing a change in another country.
Worldwide learning
The diverse operating environments of multinational corporations (MNCs) contribute to organizational learning that can be transferred to other operating environments.
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32. Strategic Alternatives for International Business
Home Replication
Utilizing a core competency or firm specific advantage developed at home as a main competitive weapon in foreign markets.
Multi-Domestic Strategy
Managing a corporation as a collection of independent operating subsidiaries frees it to customize its products, its marketing campaigns, and operating techniques to meet local customer needs.
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33. Strategic Alternatives for International Business (cont’d)
Global Strategy
Viewing the world as a single marketplace and having as a primary goal the creation of standardized goods and services that will address the needs of customers worldwide.
Transnational Strategy
Attempting to combine the benefits of scale efficiencies pursued by a global corporation, with the benefits and advantages of local responsiveness of a multi-domestic corporation.
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34. Key Terms strategy strategic management distinctive competence scope
resource deployment
business-level strategy
corporate-level strategy
strategy formulation
strategy implementation
deliberate strategy
emergent strategy
SWOT
organizational strength
common strength
strategic imitation
sustained competitive advantage
organizational weaknesses
competitive disadvantage
organizational threat
organizational opportunity
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35. Key Terms (cont’d) differentiation strategy
overall cost leadership strategy
focus strategy
prospector strategy
defender strategy
analyzer strategy
reactor strategy
product life cycle
diversification
single-product strategy
related diversification
unrelated diversification
backward vertical integration
forward vertical integration
merger
acquisition
BCG matrix
GE Business Screen
home replication strategy
multidomestic strategy
global strategy
transnational strategy
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