Chapter Eight

Managing Strategy and Strategic Planning

Learning Objectives
After studying this chapter, you should be able to:
1.

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 businesslevel strategy formulation. Describe how business-level strategies are implemented. Identify and describe various alternative approaches to corporatelevel strategy formulation. Describe how corporate-level strategies are implemented. Discuss international and global strategies.

2. 3. 4. 5. 6. 7.

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The Nature of Strategic Management

Strategy
A comprehensive plan for accomplishing an organizations 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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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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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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Strategy Formulation and Implementation

Strategy Formulation
The set of processes involved in creating or determining the organizations 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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Strategy Formulation and Implementation (contd)

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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Figure 8.1: SWOT Analysis

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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 firms distinctive competence.
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Using SWOT Analysis to Formulate Strategy (contd)

Evaluating Organizational Strengths (contd)

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 firms competence. The competence is based on a complex phenomenon, such as organizational culture. Copyright Houghton Mifflin
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Using SWOT Analysis to Formulate Strategy (contd)

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 organizations 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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Using SWOT Analysis to Formulate Strategy (contd)

Evaluating an Organizations Opportunities and Threats

Organizational opportunities
Areas in the organizations environment that may generate high performance.

Organizational threats
Are areas in the organizations environment that make it difficult for the organization to achieve high performance.
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Formulating Business-Level Strategies

Porters 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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Implementing Business-Level Strategies (contd)

Implementing Miles and Snows 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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Implementing Business-Level Strategies (contd)

Implementing Porters Generic Strategies

Differentiation
Marketing and sales must emphasize high-quality, highvalue image of the organizations 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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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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Formulating Corporate-Level Strategies (contd)

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 singleproduct strategy.

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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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Implementing Corporate-Level Strategies (contd)

Becoming a Diversified Firm (contd)

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. Copyright Houghton Mifflin
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