1. © 2003 Pearson Education Canada Inc.
Chapter 8
STRATEGIC
MANAGEMENT
© Pearson Education Canada Inc.
8.1 1

2. LEARNING OBJECTIVES You should be able to:
Explain the importance of strategic management
Describe the steps in the strategic management process
Explain SWOT analysis
Differentiate corporate-, business-, and functional-level strategies
8.2 2

3. LEARNING OBJECTIVES (continued)
You should be able to (continued):
Explain what competitive advantage is and why it’s important to organizations
Describe the five competitive forces
Identify the various competitive strategies
8.3 3

4. THE IMPORTANCE OF STRATEGIC MANAGEMENT
What Is Strategic Management?
A set of managerial decisions and actions that determines the long-run performance of an organization
Purposes of Strategic Management
Involved in many decisions that managers make
Companies with formal strategic management systems have higher financial returns than companies with no such system
Important in profit and not-for-profit organizations
8.4 4

5. THE STRATEGIC MANAGEMENT PROCESS (Exhibit 8.1)
8.5 5

6. THE STRATEGIC MANAGEMENT PROCESS
Step 1: Identifying the Organization’s Current Mission, Objectives, and Strategies
Mission
statement of the purpose of an organization
important in profit and not-for-profit organizations
important to identify the goals currently in place and the strategies currently being pursued
8.6 6

7. COMPONENTS OF A MISSION STATEMENT (Exhibit 8.2)
8.7 7

8. THE STRATEGIC MANAGEMENT PROCESS (continued)
Step 2: Analyzing the Environment
successful strategies are aligned with the environment
examine both the specific and general environments to determine what trends and changes are occurring
3. Identifying Opportunities and Threats
opportunities - positive trends in the external environmental
threats - negative trends in the external environment
8.8 8

9. THE STRATEGIC MANAGEMENT PROCESS (continued)
Step 4: Analyzing the Organization’s Resources and Capabilities
examine the inside of the organization
available resources and capabilities always constrain the organization in some way
core competencies - major value-creating skills, capabilities and resources that determine the organization’s competitive weapons
8.9 9

10. THE STRATEGIC MANAGEMENT PROCESS (continued)
Step 5: Identifying Strengths and Weaknesses
Strengths - activities the organization does well or any unique resource
Weaknesses - activities the organization does not do well or resources it needs but does not possess
organization’s culture has its strengths and weaknesses
SWOT analysis - analysis of the organization’s strengths, weaknesses, opportunities, and threats
8.10 10

11. © 2003 Pearson Education Canada Inc.
IDENTIFYING THE ORGANIZATION’S OPPORTUNITIES (Exhibit 8.3)
Organization’s
Resources/Abilities
Organization’s
Opportunities
Opportunities in
the Environment
© Pearson Education Canada Inc.
8.11 11

12. THE STRATEGIC MANAGEMENT PROCESS (continued)
Step 6: Formulating Strategies
Require strategies at the corporate, business, and functional levels of the organization
Strategy formulation follows the decision-making process
Step 7: Implementing Strategies
A strategy is only as good as its implementation
Step 8: Evaluating Results
Control process to determine the effectiveness of a strategy
8.12 12

13. TYPES OF ORGANIZATIONAL STRATEGIES
Corporate-Level Strategy
Determines
what businesses a company should be in or wants to be in
the direction that the organization is going
the role that each business unit will play
8.13 13

14. © 2003 Pearson Education Canada Inc.
LEVELS OF ORGANIZATIONAL STRATEGY (Exhibit 8.4)
© Pearson Education Canada Inc.
8.14 14

15. TYPES OF ORGANIZATIONAL STRATEGIES (continued)
Corporate-level Strategy (continued)
Grand Strategy - Stability
no significant change is proposed
organization’s performance is satisfactory
environment appears to be stable and unchanging
8.15 15

16. TYPES OF ORGANIZATIONAL STRATEGIES (continued)
Corporate-level Strategy (continued)
Grand Strategy - Growth
seeks to increase the level of the organization’s operations
related diversification - grow by merging with or acquiring firms in different but related industries
unrelated diversification - grow by merging with or acquiring firms in different and unrelated industries
Grand Strategy - Retrenchment - designed to address organizational weaknesses that are leading to performance declines
8.16 16

17. © 2003 Pearson Education Canada Inc.
SWOT ANALYSIS AND GRAND STRATEGIES (Exhibit 8.5)
Weaknesses
Critical
Valuable
Strengths
Firm Status
Corporate
Growth
Strategies
Corporate
Stability
Strategies
Corporate
Stability
Strategies
Corporate
Retrenchment
Strategies
Abundant
Environmental
Opportunities
Critical
Threats
Environmental Status
© Pearson Education Canada Inc.
8.17 17

18. TYPES OF ORGANIZATIONAL STRATEGIES (continued)
Corporate-Level Strategy (continued)
Corporate Portfolio Analysis - used when corporate strategy involves a number of business
Boston Consulting Group (BCG) matrix-- strategy tool that guides resource allocation decisions on basis of market share and growth rate of SBU
8.18 18

19. © 2003 Pearson Education Canada Inc.
THE BCG MATRIX (Exhibit 8.6)
Market Share
High
Low
High
Low
Anticipated
Growth
Rate
Stars
Question
Marks
Cash
Cows
Dogs
© Pearson Education Canada Inc.
8.19 19

20. TYPES OF ORGANIZATIONAL STRATEGIES (continued)
Corporate-Level Strategy (continued)
BCG matrix (continued)
strategic implications of the matrix
cash cows - “milk”
stars - require heavy investment
question marks - attractive but hold a small market share
dogs - sold off or liquidated
8.20 20

21. TYPES OF ORGANIZATIONAL STRATEGIES (continued)
Business-Level Strategy
Determines how an organization should compete in each of its businesses
Strategic business units - independent businesses that formulate their own strategies
Role of Competitive Advantage
competitive advantage - sets an organization apart by providing a distinct edge
comes from the organization’s core competencies
not every organization can transform core competencies into a competitive advantage
once created, must be able to sustain it
8.21 21

22. TYPES OF ORGANIZATIONAL STRATEGIES (continued)
Business-Level Strategy (continued)
Competitive Strategies
industry analysis based on five competitive forces
Threat of new entrants - affected by barriers to entry
Threat of substitutes - affected by buyer loyalty and switching costs
Bargaining power of buyers - affected by number of customers, availability of substitute products
8.22 22

23. TYPES OF ORGANIZATIONAL STRATEGIES (continued)
Business-Level Strategy (continued)
Competitive Strategies (continued)
industry analysis based on five competitive forces
Bargaining power of suppliers - affected by degree of supplier concentration
Existing rivalry - affected by industry growth rate, demand for firm’s product or service, and product differences
8.23 23

24. © 2003 Pearson Education Canada Inc.
FORCES IN THE INDUSTRY ANALYSIS (Exhibit 8.7)
New
Entrants
Threat of
New Entrants
Bargaining
Power or
Suppliers
Suppliers
Industry
Competitors
Buyers
Current Rivalry
Substitutes
Bargaining
Power or
Buyers
Threat of
Substitutes
© Pearson Education Canada Inc.
8.24 24

25. TYPES OF ORGANIZATIONAL STRATEGIES (continued)
Business-Level Strategy (continued)
Competitive strategies (continued)
Porter’s three generic strategies
cost leadership - goal is to become the lowest-cost producer in the industry
differentiation - offer unique products that are widely valued by customers
focus - aims at a cost advantage or differentiation advantage in a narrow segment
8.25 25

26. REQUIREMENTS FOR SUCCESSFULLY PURSUING PORTER’S COMPETITIVE STRATEGIES (Exhibit 8.8)
8.26 26

27. TYPES OF ORGANIZATIONAL STRATEGIES (continued)
Functional-Level Strategy
used to support the business-level strategy
creates an appropriate supporting role for each functional area of the organization
8.27 27