Strategic Management

Management
Chapter 8
Management


Stephen P. Robbins Mary Coulter


tenth edition

Outcomes Follow this Learning Outline as you read and study this

chapter.

8.1 Strategic Management
Define strategic management, strategy, and business model.
Give three reasons why strategic management is important.
8.2 The Strategic Management Process
Describe the six steps in the strategic management process.
Define SWOT (strengths, weaknesses, opportunities, and threats).

Outcomes
8.3 Corporate Strategies
Describe the three major types of corporate strategies.
Explain

how the BCG matrix and how it’s used to manage corporate strategies.
8.4 Competitive Strategies
Describe the role of competitive advantage.
Explain Porter’s five forces model.
Describe Porter’s three competitive strategies.

Outcomes
8.5 Current Strategic Management Issues
Explain why strategic flexibility is important.
Describe

e-business strategies.
Discuss what strategies organizations might use to become more customer oriented and to be more innovative.

Management

What managers do to develop an organization’s strategies
Strategies
The decisions and

actions that determine the long-run performance of an organization.
Business Model
Is a strategic design for how a company intends to profit from its strategies, work processes, and work activities.
Focuses on two things:
Whether customers will value what the company is providing.
Whether the company can make any money doing that.

Is Strategic Management Important?
It results in higher organizational performance.
It requires

that managers examine and adapt to business environment changes.
It coordinates diverse organizational units, helping them focus on organizational goals.

8–1 The Strategic Management Process

Management Process
Step 1: Identifying the organization’s current mission, goals, and

strategies
Mission: a statement of the purpose of an organization
The scope of its products and services
Goals: the foundation for further planning
Measurable performance targets
Step 2: Doing an external analysis
The environmental scanning of specific and general environments
Focuses on identifying opportunities and threats

8–2 Components of a Mission Statement

Management Process
Step 3: Doing an internal analysis
Assessing organizational resources,

capabilities, and activities:
Strengths create value for the customer and strengthen the competitive position of the firm.
Weaknesses can place the firm at a competitive disadvantage.

Analyzing financial and physical assets is fairly easy, but assessing intangible assets (employee’s skills, culture, corporate reputation, and so forth) isn’t as easy.

Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)

Management Process
Step 4: Formulating strategies
Develop and evaluate strategic alternatives
Select

appropriate strategies for all levels in the organization that provide relative advantage over competitors
Match organizational strengths to environmental opportunities
Correct weaknesses and guard against threats

Management Process
Step 5: Implementing strategies
Implementation: effectively fitting organizational structure

and activities to the environment.
The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements.
Step 6: Evaluating results
How effective have strategies been?
What adjustments, if any, are necessary?

8–3 Types of Organizational Strategies

of Organizational Strategies
Corporate Strategies
Top management’s overall plan for the entire

organization and its strategic business units
Types of Corporate Strategies
Growth: expansion into new products and markets
Stability: maintenance of the status quo
Renewal: examination of organizational weaknesses that are leading to performance declines

Strategies
Growth Strategy
Seeking to increase the organization’s business by expansion into

new products and markets.
Types of Growth Strategies
Concentration
Vertical integration
Horizontal integration
Diversification

Strategies
Concentration
Focusing on a primary line of business and increasing the

number of products offered or markets served.
Vertical Integration
Backward vertical integration: attempting to gain control of inputs (become a self-supplier).
Forward vertical integration: attempting to gain control of output through control of the distribution channel or provide customer service activities (eliminating intermediaries).

Strategies
Horizontal Integration
Combining operations with another competitor in the same

industry to increase competitive strengths and lower competition among industry rivals.
Related Diversification
Expanding by combining with firms in different, but related industries that are “strategic fits.”
Unrelated Diversification
Growing by combining with firms in unrelated industries where higher financial returns are possible.

Strategies
Stability Strategy
A strategy that seeks to maintain the status

quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons.

Strategies
Renewal Strategies
Developing strategies to counter organization weaknesses that are

leading to performance declines.
Retrenchment: focusing of eliminating non-critical weaknesses and restoring strengths to overcome current performance problems.
Turnaround: addressing critical long-term performance problems through the use of strong cost elimination measures and large-scale organizational restructuring solutions.

Portfolio Analysis
Managers manage portfolio (or collection) of businesses using a

corporate portfolio matrix such as the BCG Matrix.
BCG Matrix
Developed by the Boston Consulting Group
Considers market share and industry growth rate
Classifies firms as:
Cash cows: low growth rate, high market share
Stars: high growth rate, high market share
Question marks: high growth rate, low market share
Dogs: low growth rate, low market share

8–4 The BCG Matrix

Strategies
Competitive Strategy
A strategy focused on how an organization will compete

in each of its SBUs (strategic business units).

Role of Competitive Advantage
Competitive Advantage
An organization’s distinctive competitive edge.
Quality as

a Competitive Advantage
Differentiates the firm from its competitors.
Can create a sustainable competitive advantage.
Represents the company’s focus on quality management to achieve continuous improvement and meet customers’ demand for quality.

Role of Competitive Advantage (cont’d)
Sustainable Competitive Advantage
Continuing over time to

effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry competitors.

8–5 Five Forces Model
Source: Based on M.E. Porter, Competitive Strategy: Techniques

for Analyzing Industries and Competitors (New York: The Free Press, 1980).

Competitive Forces
Threat of New Entrants
The ease or difficulty with which

new competitors can enter an industry.
Threat of Substitutes
The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitutes products and services.
Bargaining Power of Buyers
The degree to which buyers have the market strength to hold sway over and influence competitors in an industry.

Competitive Forces
Bargaining Power of Suppliers
The relative number of buyers to

suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship.
Current Rivalry
Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend.

of Competitive Strategies
Cost Leadership Strategy
Seeking to attain the lowest total

overall costs relative to other industry competitors.
Differentiation Strategy
Attempting to create a unique and distinctive product or service for which customers will pay a premium.
Focus Strategy
Using a cost or differentiation advantage to exploit a particular market segment rather a larger market.

Management Today
Strategic Flexibility
New Directions in Organizational Strategies
e-business
customer service
innovation

8–6 Creating Strategic Flexibility
Know what’s happening with strategies currently being used

by monitoring and measuring results.
Encourage employees to be open about disclosing and sharing negative information.
Get new ideas and perspectives from outside the organization.
Have multiple alternatives when making strategic decisions.
Learn from mistakes.

Source: Based on K. Shimizu and M. A. Hitt, “Strategic Flexibility: Organizational Preparedness to Reverse Ineffective Strategic Decisions,” Academy of Management Executive, November 2004, pp. 44–59.

for Applying e-Business Techniques
Cost Leadership
On-line activities: bidding, order processing, inventory

control, recruitment and hiring
Differentiation
Internet-based knowledge systems, online ordering and customer support
Focus
Chat rooms and discussion boards, targeted Web sites

Service Strategies
Giving the customers what they want.
Communicating effectively with them.
Providing

employees with customer service training.

Strategies
Possible Events
Radical breakthroughs in products.
Application of existing technology to new

uses.
Strategic Decisions about Innovation
Basic research
Product development
Process innovation
First Mover
An organization that brings a product innovation to market or use a new process innovations

8–7 First-Mover Advantages–Disadvantages
Advantages
Reputation for being innovative and industry leader
Cost and learning

benefits
Control over scarce resources and keeping competitors from having access to them
Opportunity to begin building customer relationships and customer loyalty

Disadvantages
Uncertainty over exact direction technology and market will go
Risk of competitors imitating innovations
Financial and strategic risks
High development costs

to Know
strategic management
strategies
business model
strategic management process
mission
opportunities
threats
resources
capabilities
core competencies
strengths
weaknesses
SWOT analysis
corporate strategy
growth strategy
stability

strategy
renewal strategy
BCG matrix
competitive strategy
strategic business units
competitive advantage
functional strategies
strategic flexibility
first mover

rights reserved. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.