Management, 7e

Schermerhorn
Prepared by
Michael K. McCuddy
Valparaiso University
John Wiley & Sons, Inc

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Chapter 8

Strategic Management
Planning aheadstudy questions
What are the foundations of strategic
competitiveness?
What is the strategic management process?
What types of strategies are used by
organizations?
How are strategies formulated?
What are current issues in strategy
implementation?
Schermerhorn - Chapt
er 8

What are the foundations of strategic

competitiveness?
Basic concepts of strategy:
Competitive advantageoperating in a

successful way that is difficult for competitors

to imitate.
Sustainable competitive advantage

consistently dealing with market and

environmental forces better than competitors.
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er 8

What are the foundations of strategic

competitiveness?
Basic concepts of strategy:
Strategya comprehensive action plan

providing long-term direction and guiding

resource utilization to accomplish
organizational goals with sustainable
competitive advantage.
Strategic intentfocusing all organizational
energies on a unifying and compelling goal.
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er 8

What are the foundations of strategic

competitiveness?
Basic concepts of strategy:
Strategic managementthe process of

formulating and implementing strategies to

accomplish long-term goals and sustain
competitive advantage.

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er 8

What are the foundations of strategic

competitiveness?
Strategic management goals
Formulate and implement strategies that yield
long-term, sustainable competitive advantage.
Create above-average returns for investors.
Earning above-average returns depends in part on
the organizations environment.
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er 8

What are the foundations of strategic

competitiveness?
Environments and competitive advantage
Monopoly
Only one player and no competition
Creates absolute competitive advantage

Oligopoly
Few players not directly competing against each other
Long-term competitive advantage in defined market segment.

Hypercompetition
Several players directly competing against each other
Any competitive advantage is only temporary

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er 8

What is the strategic management

process?
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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er 8

What is the strategic management

process?
The strategy formulation process (Drucker)
What is our business mission?
Who are our customers?
What do our customers consider value?
What have been our results?
What is our plan?
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10

What is the strategic management

process?
Strategy implementation
The process of allocating resources and putting
strategies into action.
All organizational and management systems
must be mobilized to support the
accomplishment of strategies.
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11

What is the strategic management

process?
Essential tasks for strategy implementation
Identify organizational mission and objectives.
Assess current performance vis--vis mission and
objectives.
Create strategic plans to accomplish purpose and
objectives.
Implement the strategic plans
Evaluate results; change strategic plans and/or
implementation processes as necessary.

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12

What is the strategic management

process?
Analysis of mission
The reason for an organizations existence.
Good mission statements identify:

Customers
Products and/or services
Location
Underlying philosophy

An important test of the mission is how well it

serves the organizations stakeholders
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13

What is the strategic management

process?
Analysis of values
Values are broad beliefs about what is or is not
appropriate.
Organizational culture reflects the dominant
value system of the organization as a whole.

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14

What is the strategic management

process?
Analysis of objectives
Operating objectives direct activities toward key and
specific performance results.
Typical operating objectives:

Profitability
Market share
Human talent
Financial health
Cost efficiency
Product quality
Innovation
Social responsibility

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er 8

15

What is the strategic management

process?
Analysis of organizational resources and

capabilities

Assessing organizational Strengths and Weaknesses

within SWOT analysis
Identifying core competencies
Technology
Human resources
Manufacturing approaches
Management talent
Financial strength
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16

What is the strategic management

process?
Analysis of industry and environment
Assessing Opportunities and Threats within
SWOT analysis
Assessment of actual and future environmental
conditions
Macro environment
Industry environment
Unattractive industry
Attractive industry

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er 8

17

What types of strategies are used by

organizations?
Levels of strategy
Corporate strategydirects the organization as a
whole toward sustainable competitive advantage.
Business strategysets the strategic direction for
a single business unit or product line.
Functional strategyguides the use of resources
to implement business strategy, focusing on
activities within a specific area of operations.

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er 8

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What types of strategies are used by

organizations?
Growth and diversification strategies
Growth strategiesseek an increase in size and
the expansion of current operations.
Concentration strategiesgrowth occurs
through expansion in the same business area.
Diversification strategiesgrowth occurs
through acquisition of or investment in new
and/or different business areas.
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What types of strategies are used by

organizations?
Restructuring and divestiture strategies
Liquidationoperations cease due to sale of
assets or bankruptcy.
Restructuringchanges in the scale and/or mix
of operations to gain efficiency and improve
performance.
Divestitureselling off parts of the
organization to refocus on core competencies.
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20

What types of strategies are used by

organizations?
Cooperative strategies
Strategic alliancestwo 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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What types of strategies are used by

organizations?
E-business strategies
The strategic use of the Internet to gain
competitive advantage.
Popular e-business strategies
Business-to-business (B2B) strategies
Business-to-customer (B2C) strategies
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What types of strategies are used by

organizations?
Web-based business models:
Brokerage model
Advertising model
Merchant model
Subscription model
Infomediary model
Community model
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How are strategies formulated?

Opportunities for achieving sustainable

competitive advantage:
Cost and quality
Knowledge and speed
Barriers to entry
Financial resources
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How are strategies formulated?

Business-level strategy formulation
Focus on finding ways to do a better job of
attracting customers within a given business or
industry.
Helpful planning tools in formulating businesslevel strategies:
Porters generic strategies
Product life cycle
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How are strategies formulated?

Porters generic strategies model
Business-level strategic decisions are driven by:
Competitive scope
Source of competitive advantage

Competitive scope and source of competitive

advantage combine to generate four generic
strategies.
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How are strategies formulated?

Porters generic strategies model
Generic strategies for gaining competitive
advantage:
Differentiation strategy
Cost leadership strategy
Focused differentiation strategy
Focused cost leadership strategy
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How are strategies formulated?

Product life cycle
A series of stages that a product or service goes

through during the life of its marketability.

Stages of the life cycle:
Introduction
Growth
Maturity
Decline
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How are strategies formulated?

Product life cycle
Introduction and growth stages
Use differentiation and prospector strategies

Maturity stage
Use focus and/or cost leadership strategies

Decline stage
Use defender or analyzer strategies
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How are strategies formulated?

Corporate-level strategy formulation
Key issue is the selection and refinement of the
organizations mix of businesses.
Approaches to formulating business-level
strategies:
Portfolio planning
Adaptive strategies
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How are strategies formulated?

Portfolio planning approach
Designed to help managers decide on investing
scarce organizational resources among
competing business opportunities.
Useful for multibusiness or multiproduct
situations.
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How are strategies formulated?

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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How are strategies formulated?

BCG matrixbusiness conditions and

related strategies:
Stars

High share/high growth businesses

Preferred strategygrowth

Question marks
Low share/high growth businesses
Preferred strategygrowth for promising question
marks and restructuring or divestiture for others
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How are strategies formulated?

BCG matrixbusiness conditions and

related strategies:
Cash cows
High share/low growth businesses
Preferred strategystability or modest growth

Dogs
Low share/low growth businesses
Preferred strategyretrenchment by divestiture
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How are strategies formulated?

GE Business Screen
Business strengths:
Market share, technological advantage, product quality,
operating costs, and price competitiveness.

Industry attractiveness:
Market size and growth, capital requirements, and competitive
intensity.

Combining business strength and industry attractiveness

yields a matrix that identifies business units as:
Winners, question marks, average businesses, profit producers,
or losers.

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How are strategies formulated?

Adaptive strategies
Miles and Snow model
Organizations should pursue product/market
strategies that are congruent with their external
environments.

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How are strategies formulated?

Types of adaptive strategies:
Prospector strategy
Appropriate in dynamic, high-potential environments

Defender strategy
Appropriate in stable or declining environments

Analyzer strategy
Following leading competitors in high-potential environments

Reactor strategy
Following competitors as a last resort regardless of
environment

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How are strategies formulated?

Incrementalism
Modest and incremental changes in strategy
occur as managers learn from experience.

Emergent strategies
Develop progressively over time in the streams
of decisions that managers make.
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What are current issues in strategy

implementation?
Common strategic planning failures
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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What are current issues in strategy

implementation?
Guidelines for double-checking strategy
Is the strategy consistent with your mission and values?
Is the strategy feasible, given strengths and
weaknesses?
Is the strategy responsive to opportunities and threats?
Does the strategy offer a sustainable competitive
advantage?
Is the risk in the strategy a reasonable risk?
Is the strategy flexible enough?
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40

What are current issues in strategy

implementation?
Corporate governance

System of control and performance

monitoring of top management.

Done by boards of directors and other
major stakeholder representatives.
Increasing emphasis on corporate
governance in contemporary businesses.
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What are current issues in strategy

implementation?
Strategic leadership
Strategic management is a leadership

responsibility.
The capability to get people to successfully

engage in the continuous change, refinement,

and implementation of strategies.
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What are current issues in strategy

implementation?
Critical tasks of strategic leadership

Be a guardian of trade-offs.
Create a sense of urgency.
Ensure that everyone understands the

strategy.
Be a teacher.
Be a great communicator.
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