The Strategic Management Process

Introduction to Management 11e
John Schermerhorn
Chapter 9Chapter 9
The Strategic Management ProcessThe Strategic Management Process

Planning Ahead — Chapter 9 Study Questions
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?
Management 11e Chapter 9 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

 Types of competitive advantage
 Cost and quality
 Knowledge and speed
 Barriers to entry
 Financial resources

 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

 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

Figure 9.1 Three levels of strategy in organizations- corporate,
business, functional strategies

 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

Figure 9.2 Strategy formulation and implementation in the strategic
management process

 Strategic Management Process:
 Strategy formulation
 the process of crafting strategies to guide
allocation of resources
 Strategy implementation
 putting strategies into action

 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

 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

Study Question 2: What are the essentials 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

 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

Figure 9.3 How external stakeholders can be valued as strategic
constituencies of organizations

 Analysis of Core values:
 Broad beliefs about what is
or is not appropriate
 Organizational culture
reflects the dominant value
system of the organization as
a whole

 Analysis of objectives:
 Operating objectives direct activities toward
key and specific performance results

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

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

Figure 9.4 SWOT analysis of strengths, weaknesses, opportunities,
and threats

 Porter’s Model of Five Strategic Forces Affecting
Competition:

Figure 9.5 Porter’s model of five strategic forces affecting industry
competition
Source: Developed from Michael E. Porter, Competitive Strategy (New York: Free Press, 1980).

Study Question 3: What are corporate-level strategies and how are
they formulated?
 Corporate-level strategy formulation
 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

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

Figure 9.6 The BCG matrix approach to corporate strategy
formulation

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

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

they formulated?
 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

they formulated?
 Types of growth strategies continued
 Diversification strategies
 Grow by acquiring or investing in new and
different business areas
 Related diversification
 Unrelated diversification
 Vertical integration

they formulated?
 Retrenchment and restructuring
strategies:
 Readjusting operations when an organization
is in trouble
 Chapter 11 bankruptcy
 Protects a firm from creditors while
management re-organizes to
restore solvency

they formulated?
 Types of retrenchment and
restructuring strategies
 Liquidation
 Business closes and sells assets to pay
creditors
 Downsizing
 Decreases size of
operations

they formulated?
 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

they formulated?
 Global strategies:

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

they formulated?
 Co-opetition – working with rivals on
projects of mutual benefit

Study Question 4: What are business-level strategies and how are
they formulated?
 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?”

they formulated?
 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 four generic
strategies

Figure 9.7 Porter’s competitive strategies framework: soft-drink
industry examples

they formulated?
 Porter’s generic strategies for gaining
competitive advantage:
 Differentiation strategy
 Cost leadership strategy
 Focused differentiation strategy
 Focused cost leadership strategy

Study Question 5: What are the foundations for strategy
implementation?
 Must be supported in every aspect of
management
 Planning
 Controlling
 Organizing
 Leading

implementation?
 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

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

implementation?
 Strategic control
 Makes sure strategies are well implemented
and that poor strategies are scrapped or
modified

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

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

Chapter 9 Case
 Sony Corporation: An Evolution of
Technology

The Strategic Management Process

The Strategic Management Process

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