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JOHN R. SCHERMERHORN, JR.

MANAGEMENT
12 Edition
th

Chapter 10

Strategy and Strategic

Management
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Ahead Text Here 10 Study Questions
Chapter

1. What is strategic management?

2. What are the essentials of strategic analysis?
3. What are corporate-level strategies, and how are
they formulated?
4. What are business-level strategies and how are
they formulated?
5. What are the foundations for strategy
implementation?

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Learning

1. Strategic Management
1. Competitive advantage
2. Strategy and strategic intent
3. Levels of strategy
4. Strategic management process

2. Essentials of Strategic Analysis

1. Analysis of mission, values, objectives
2. SWOT analysis of organization and environment
3. Five forces analysis of industry attractiveness
4. Strategic management process

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3. Corporate-Level Strategy Formulation

1. Portfolio planning model
2. Growth and diversification strategies
3. Retrenchment and restructuring strategies
4. Global strategies
5. Cooperative strategies

4. Business-Level Strategy Formulation

1. Competitive strategies model
2. Differentiation strategy
3. Cost leadership strategy
4. Focus strategy

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5. Strategy Implementation
1. Management practices and systems
2. Strategic control and corporate governance
3. Strategic leadership

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Text Here Management
Strategic

• Basic concepts of strategy:

– Competitive advantage — ability to do something
so well that one outperforms competitors
– Sustainable competitive advantage — one that is
difficult or costly for competitors to imitate

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Strategic

• Sources of competitive advantage

– Technology
– Cost and quality
– Knowledge and speed
– Barriers to entry
– Financial resources

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Slide Title 1:
Text Here Management
Strategic

• Basic concepts of strategy:

– Strategy
• a comprehensive plan guiding resource allocation to
achieve long-term organization goals
– Strategic intent
• focusing all organizational energies on a unifying and
compelling goal

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Strategic

• Levels of strategies
– Corporate
• Sets long-term direction for the total enterprise
– Business
• How a division or strategic business unit will compete
in its product or service domain
– Functional
• Guides activities within one specific area of operations

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Figure 10.1 Three levels of strategy in organizations-
corporate, business, functional strategies

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Text Here Management
Strategic

• Strategic Management Process:

– Strategic management
• the process of formulating and implementing
strategies to accomplish long-term goals and sustain
competitive advantage
– Strategic analysis
• process of analyzing the organization, the
environment, its competitive position and current
strategies

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Figure 10.2 Strategy formulation and implementation
in the strategic management process

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Strategic

• Strategy formulation
– The process of creating strategy
– Involves assessing existing strategies,
organization, and environment to develop new
strategies and strategic plans capable of
delivering future competitive advantage

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Text Here Management
Strategic

• Strategy implementation
– The process of allocating resources and putting
strategies into action
– All organizational and management systems must
be mobilized to support and reinforce the
accomplishment of strategies

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2: Essentials of Strategic Analysis

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2: Essentials of Strategic Analysis

• Analysis of mission:
– The reason for an organization’s existence
– Good mission statements identify:
• What are we moving to?
• What is our dream?
• What kind of difference do we make?
• What do we want to be known for?
– An important test of the mission is how well it
serves the organization’s stakeholders

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2: Essentials of Strategic Analysis

• Stakeholders
– Individuals and groups directly affected by the
organization and its strategic accomplishments
– An important test of the mission is how well it
serves the organization’s stakeholders

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Figure 10.3 How external stakeholders can be valued as strategic
constituencies in an organization’s mission statement

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2: Essentials of Strategic Analysis

• Analysis of Core values:

– Broad beliefs about what is or is not
appropriate behavior
– Organizational culture reflects the
predominant value system of the
organization as a whole

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2: Essentials of Strategic Analysis

• Analysis of objectives:
– Operating objectives are specific results that
organizations try to accomplish

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2: Essentials of Strategic Analysis

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2: Essentials of Strategic Analysis

• Analysis of organizational resources and

capabilities:
– Core competency is a special strength that gives
an organization competitive advantage
– Important goal of assessing core competencies

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Takeaway Text Here
2: Essentials of Strategic Analysis

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2: Essentials of Strategic Analysis

• SWOT Analysis
– Examination of an organization’s current position
by looking at
• Internal strengths and weaknesses
• Environmental opportunities and threats

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Figure 10.4 SWOT analysis of strengths, weaknesses,
opportunities, and threats

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Figure 10.5 Porter’s model of five strategic forces
affecting industry competition

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2: Essentials of Strategic Analysis

Porter’s Model of Five Strategic Forces Affecting Competition:

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Takeaway Text Here Strategy Formulation
Corporate-Level

• Corporate-level strategy formulation

– Portfolio planning model:
• Portfolio planning seeks the best mix of investments
among alternative business opportunities
– BCG Matrix analyzes business opportunities according to
market growth rate and market share

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Takeaway Text Here Strategy Formulation
Corporate-Level

BCG matrix
– Ties strategy formulation to analysis of business
opportunities according to …
• Industry or market growth rate
– Low versus high
• Market share
– Low versus high

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Figure 10.6 The BCG matrix approach to corporate
strategy formulation

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Takeaway Text Here Strategy Formulation
Corporate-Level

BCG matrix — business conditions and related

strategies:
– Stars
• High share/high growth businesses
• Preferred strategy — growth
– Cash cows
• High share/low growth businesses
• Preferred strategy — stability or modest growth

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Takeaway Text Here Strategy Formulation
Corporate-Level

BCG matrix—business conditions and related

strategies (cont.):
– Question marks
• Low share/high growth businesses
• Preferred strategy — growth for promising question
marks and restructuring or divestiture for others
– Dogs
• Low share/low growth businesses
• Preferred strategy — retrenchment/divestiture

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Takeaway Text Here Strategy Formulation
Corporate-Level

Growth strategies
• Seek an increase in size and the expansion of current
operations
– Types of growth strategies:
• Concentration strategies
– Grow within the same business area

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Takeaway Text Here Strategy Formulation
Corporate-Level

Types of growth strategies continued

– Diversification and integration strategies
• Diversification: Grow by acquiring or
investing in new and different business areas
– Related diversification
– Unrelated diversification
• Integration: Acquiring suppliers or
distributors
– Vertical integration – (backward or forward)

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Takeaway Text Here Strategy Formulation
Corporate-Level

Retrenchment and restructuring strategies:

– Pursue radical changes to solve problems
– Chapter 11 bankruptcy
• Protects a firm from creditors while management re-
organizes to restore solvency

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Takeaway Text Here Strategy Formulation
Corporate-Level

Types of retrenchment and restructuring

strategies
– Liquidation
• Business closes and sells assets to pay creditors
– Downsizing
• Decreases size of operations

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Takeaway Text Here Strategy Formulation
Corporate-Level

Types of retrenchment and restructuring

strategies
– Divestiture
• Sells off parts of the organization to refocus attention
on core business areas
– Turnaround Strategy
• Tries to fix specific performance problems

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Takeaway Text Here Strategy Formulation
Corporate-Level

Global strategies:

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Corporate-Level

Cooperative strategies
– Strategic alliances — two or more organizations
partner to pursue an area of mutual interest
– Types of strategic alliances:
• Outsourcing alliances
• Supplier alliances
• Distribution alliances

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Takeaway Text Here Strategy Formulation
Corporate-Level

Co-opetition – working with rivals on

projects of mutual benefit

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Takeaway Text Here Strategy Formulation
Business-Level

Business-level strategy formulation

– Good strategies help achieve above average
returns
– Key question is “How can we best compete for
customers in our market and with our products
or services?”

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Takeaway Text Here Strategy Formulation
Business-Level

Porter’s competitive strategies model

– Business-level strategic decisions are driven by:
• Market scope
• Source of competitive advantage
– Market scope and source of competitive
advantage combine to generate three generic
strategies

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Figure 10.7 Porter’s competitive strategies framework:
soft-drink industry examples

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Takeaway Text Here Strategy Formulation
Business-Level

Porter’s generic strategies for gaining competitive

advantage:
– Differentiation strategy
– Cost leadership strategy
– Focus strategy:
Focused cost leadership
Focused differentiation

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Business-Level

• Differentiation strategy
– Seeks competitive advantage through uniqueness
• Cost leadership strategy
– Seeks competitive advantage by operating with
lower costs than competitors

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Business-Level

Focus strategy
– Concentrates on a special market segment
– Two types:
Focused differentiation – offers a unique product
to a special market segment
Focused cost leadership – seeks the lowest cost
of operations within a special market segment

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Strategy

Strategy implementation
– Must be supported in every aspect of
management
• Planning
• Controlling
• Organizing
• Leading

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Strategy

• Strategic planning failures that hinder

strategy implementation:
– Failures of substance
• Inadequate attention to major strategic planning
elements
– Failures of process
• Poor handling of strategy implementation
– Lack of participation error
– Goal displacement error

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Strategy

Corporate governance:
– System of control and performance monitoring of
top management
– Done by boards of directors and other major
stakeholder representatives
– Controversies regarding roles of inside directors
and outside directors
– Increasing emphasis on corporate governance in
contemporary businesses

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Strategy

• Strategic control
– Makes sure strategies are well implemented and
that poor strategies are scrapped or modified
• Corporate governance
– Control and monitoring of top management

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Strategy

Strategic leadership
– Inspires people to continually change, refine, and
improve strategies and their implementation

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Strategy

Critical tasks of strategic leadership

– Maintain strategic control
– Be the guardian of trade-offs
– Create a sense of urgency
– Ensure that everyone understands the strategy
– Be a teacher

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