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PowerPoint Presentation to Accompany Management, 10/e John R. Schermerhorn, Jr. Chapter 8: The Strategic Management Process Prepared by: Jim LoPresti University of Colorado, Boulder Published by: John Wiley & Sons, Inc. Planning Ahead — Chapter 8 Study Questions  What is strategic management?  What are the foundations of strategic analysis?  What are corporate strategies and how are they formulated?  What are business strategies and how are they formulated?  What are current issues in strategy implementation? Management 10/e - Chapter 8 2 Study Question 1: What is strategic management?  Basic concepts of strategy: Competitive advantage — operating with an attribute or set of attributes that allows an organization to outperform its rivals. Sustainable competitive advantage — one that is difficult for competitors to imitate. Management 10/e - Chapter 8 3 Study Question 1: What is strategic management?  Basic concepts of strategy Strategy — a comprehensive action plan that identifies long-term direction for an organization and guides resource utilization to accomplish organizational goals with sustainable competitive advantage.  Strategic intent — focusing all organizational energies on a unifying and compelling goal. Management 10/e - Chapter 8 4 Study Question 1: What is strategic management?  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 Management 10/e - Chapter 8 5 Figure 8.1 Strategy formulation and implementation in the strategic management process. Management 10/e - Chapter 8 6 Study Question 1: What is strategic management?  Strategic Management Process: Strategy formulation – the process of crafting strategies to guide allocation of resources Strategy implementation – putting strategies into action Management 10/e - Chapter 8 7 Study Question 1: What is strategic management?  Goal of strategic management is to create above-average returns for investors.  Returns exceeding those for alternative opportunities at equivalent risk.  Earning above-average returns depends in part on the organization’s competitive environment. Management 10/e - Chapter 8 8 Study Question 2: What are the foundations of strategic analysis?  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. Management 10/e - Chapter 8 9 Figure 8.1 Three levels of strategy in organizationscorporate, business, functional strategies. Management 10/e - Chapter 8 10 Study Question 2: What are the foundations of strategic analysis?  Drucker’s strategic questions for strategy formulation:  What is our business mission?  Who are our customers?  What do our customers consider value?  What have been our results?  What is our plan? Management 10/e - Chapter 8 11 Study Question 2: What are the foundations of strategic analysis?  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. Management 10/e - Chapter 8 12 Study Question 2: What are the foundations of strategic analysis?  Analysis of mission:  The reason for an organization’s 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 organization’s stakeholders. Management 10/e - Chapter 8 13 Figure 8.2 How external stakeholders can be valued as strategic constituencies of organizations. Management 10/e - Chapter 8 14 Study Question 2: What are the foundations of strategic analysis?  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. Management 10/e - Chapter 8 15 Study Question 2: What are the foundations of strategic analysis?  Organizational culture       Shapes the values of managers and other organization members. Points people in common directions. Helps build institutional identity. Gives character to the organization in the eyes of employees and external stakeholders. Backs up the mission statement. Guides the behavior of organizational members in meaningful and consistent ways. Management 10/e - Chapter 8 16 Study Question 2: What are the foundations of strategic analysis?  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 Management 10/e - Chapter 8 17 Study Question 2: What are the foundations of strategic analysis?  What are our Strengths?      Manufacturing efficiency? Skilled workforce? Good market share? Strong financing? Superior reputation?  What are our Weaknesses      Management 10/e - Chapter 8 Outdated facilities? Inadequate research and development? Obsolete technologies? Weak management? Past planning failures? 18 Study Question 2: What are the foundations of strategic analysis?  What are our Opportunities?      Possible new markets? Strong economy? Weak market rivals? Emerging technologies? Growth of existing market?  What are our Threats?      Management 10/e - Chapter 8 New competitors? Shortage of resources? Changing market tastes? New regulations? Substitute products? 19 Study Question 2: What is the strategic management process?  Analysis of organizational resources and capabilities:    Core competency is a special strength that gives an organization competitive advantage Important goal of assessing core competencies. Potential core competencies:  Special knowledge or expertise.  Superior technology.  Efficient manufacturing approaches.  Unique product distribution systems. Management 10/e - Chapter 8 20 Figure 8.3 SWOT analysis of strengths, weaknesses, opportunities,and threats. Management 10/e - Chapter 8 21 Study Question 3: What are corporate strategies and how are they formulated?  Porter’s Model of Five Strategic Forces Affecting Competition:    Industry competition  The intensity of rivalry among firms and their competitive behavior New entrants  the threat of new competitors entering the market Substitute products or services  the threat of substitute products or services Management 10/e - Chapter 8 22 Study Question 3: What are corporate strategies and how are they formulated?  Porter’s Model of Five Strategic Forces Affecting Competition:  Bargaining  the ability of resource suppliers to influence the cost of products or services  Bargaining  power of suppliers power of customers the ability of customers to influence the price they will pay for products or services Management 10/e - Chapter 8 23 Figure 8.4 Porter’s model of five strategic forces affecting industry competition. Source: Developed from Michael E. Porter, Competitive Strategy (New York: Free Press, 1980). Management 10/e - Chapter 8 24 Study Question 3: What are corporate strategies and how are they formulated?  Levels of strategies:  Corporate  sets long-term direction for the total enterprise  Business  strategy identifies how a division or strategic business unit will compete in products or services  Functional  strategy strategy guides activities within one specific area of operations Management 10/e - Chapter 8 25 Study Question 3: What are corporate strategies and how are they formulated?  Questions addressed by different strategic level:    Corporate strategy  In what industries and markets should we compete? Business strategy  How are we going to compete for customers in this industry and market? Functional strategy  How can we best utilize resources to implement our business strategy? Management 10/e - Chapter 8 26 Figure 8.5 Three levels of strategy in organizations — corporate, business, and functional strategies. Management 10/e - Chapter 8 27 Study Question 3: What are corporate strategies and how are they formulated?  Growth and diversification strategies:  Growth  strategies Seek an increase in size and the expansion of current operations.  Types of growth strategies: Concentration strategies  Diversification strategies  Related diversification  Unrelated diversification  Vertical integration  Management 10/e - Chapter 8 28 Study Question 3: What are corporate strategies and how are they formulated?  Grand or master strategies:  Growth strategies  Seek an increase in size and the expansion of current operations.  Stability  strategy: maintains current operations without substantial changes  Retrenchment  strategy involves reducing the size of, or substantially rearranging current operations Management 10/e - Chapter 8 29 Study Question 3: What are corporate strategies and how are they formulated?  Grand or master strategies:     Growth strategies:  Seek an increase in size and the expansion of current operations. Stability strategy:  maintains current operations without substantial changes Retrenchment strategy:  involves reducing the size of, or substantially rearranging current operations Combination strategy:  pursues growth, stability, or retrenchment in some Management 10/e - Chapter 8 30 Study Question 3: What are corporate strategies and how are they formulated?  Restructuring and divestiture strategies:  Readjusting operations when an organization is in trouble.  Retrenchment  Correcting weaknesses by making changes to current operations.  Liquidation  Restructuring  Downsizing and rightsizing  Restructuring through divestiture Management 10/e - Chapter 8 31 Study Question 3: What are corporate strategies and how are they formulated?  Global strategies:  Globalization strategy.    Multidomestic strategy.    World is one large market; standardize products and advertising as much as possible. Ethnocentric view. Customize products and advertising to local markets as much as possible. Polycentric view. Transnational strategy.   Balance efficiencies in global operations and responsiveness to local markets. Geocentric view. Management 10/e - Chapter 8 32 Study Question 3: What are corporate strategies and how are they formulated?  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 Management 10/e - Chapter 8 33 Study Question 3: What are corporate strategies and how are they formulated?  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 Management 10/e - Chapter 8 34 Study Question 3: What are corporate strategies and how are they formulated?  Web-based business models:  Brokerage model  Advertising  Merchant model model  Subscription model  Infomediary model  Community model Management 10/e - Chapter 8 35 Study Question 3: What are corporate strategies and how are they formulated?  Strategic portfolio planning:  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 Management 10/e - Chapter 8 36 Study Question 3: What are corporate strategies and how are they 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 Management 10/e - Chapter 8 37 Figure 8.6 The BCG matrix approach to corporate strategy formulation. Management 10/e - Chapter 8 38 Study Question 3: What are corporate strategies and how are they formulated?  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.  Management 10/e - Chapter 8 39 Study Question 3: What are corporate strategies and how are they formulated?  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 by divestiture.  Management 10/e - Chapter 8 40 Study Question 4: What are business strategies and how are they formulated?  Opportunities for achieving sustainable competitive advantage:  Cost and quality  Knowledge  Barriers and speed to entry  Financial resources Management 10/e - Chapter 8 41 Study Question 4: What are business strategies and how are they formulated?  Porter’s generic 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 four generic strategies. Management 10/e - Chapter 8 42 Figure 8.7 Porter’s generic strategies framework: soft-drink industry examples. Management 10/e - Chapter 8 43 Study Question 4: What are business strategies and how are they formulated?  Porter’s generic strategies for gaining competitive advantage:  Differentiation  Cost strategy leadership strategy  Focused differentiation strategy  Focused cost leadership strategy Management 10/e - Chapter 8 44 Study Question 4: What are business strategies and how are they formulated?  Portfolio planning approach  Designed to help managers decide on investing scarce organizational resources among competing business opportunities.  Useful for multibusiness or multiproduct situations. Management 10/e - Chapter 8 45 Study Question 5: What are current issues in strategy implementation?  Strategic planning failures that hinder strategy implementation:  Failures  Inadequate attention to major strategic planning elements  Failures  of substance of process Poor handling of strategy implementation  Lack of participation error  Goal displacement error Management 10/e - Chapter 8 46 Study Question 5: 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.  Controversies regarding roles of inside directors and outside directors.  Increasing emphasis on corporate governance in contemporary businesses. Management 10/e - Chapter 8 47 Study Question 5: What are current issues in strategy implementation?  Strategic leadership The capability to inspire people to successfully engage in a process of continuous change, performance enhancement, and implementation of organizational strategies. Management 10/e - Chapter 8 48 Study Question 5: 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. Management 10/e - Chapter 8 49 COPYRIGHT Copyright 2009© John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written permission of the copyright owner is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. 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