1. Chapter 5: strategy and strategic management
Business Leadership: Management Fundamentals John R. Schermerhorn, Jr., Barry Wright, and Lorie Guest
© John Wiley & Sons Canada, Ltd.

2. Planning Ahead — Chapter 5 Learning Goals
Understand the meaning of strategic management
Identify and apply the essentials of strategic analysis
Understand what corporate strategies are and how are they formulated

3. Strategic Management Basic concepts of strategy:
Competitive advantage: operating with an attribute or set of attributes that allows an organization to outperform its rivals.
Cost and quality
Knowledge and speed
Barriers to entry
Financial resources
Sustainable competitive advantage: one that is difficult for competitors to imitate.
© John Wiley & Sons Canada Ltd.

4. 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.
© John Wiley & Sons Canada Ltd.

5. Figure 5.2 Three levels of strategy corporate, business, and functional strategies
© John Wiley & Sons Canada Ltd.

6. Levels of strategies Corporate strategy:
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:
guides activities within one specific area of operations
© John Wiley & Sons Canada Ltd.

7. Strategic Management Process
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
© John Wiley & Sons Canada Ltd.

8. Strategic Management Process (cont’d)
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
Strategy formulation: the process of crafting strategies to guide allocation of resources
Strategy implementation: putting strategies into action
© John Wiley & Sons Canada Ltd.

9. Figure 5.3 Strategy formulation and implementation in the strategic management process.
© John Wiley & Sons Canada Ltd.

10. Essentials of Strategic Analysis
Drucker’s strategic questions for strategy formulation:
What is our business mission?
Who are our customers?
What do our customers consider valuable?
What have been our results?
What is our plan?
© John Wiley & Sons Canada Ltd.

11. Essentials of Strategic Analysis (cont’d)
Analysis of mission:
The reason for an organization’s existence
An important test of the mission is how well it serves the organization’s stakeholders
© John Wiley & Sons Canada Ltd.

12. Figure 5.4 How external stakeholders can be valued as strategic constituencies of organizations
© John Wiley & Sons Canada Ltd.

13. Essentials of Strategic Analysis (cont’d)
Analysis of core values:
Values are broad beliefs about what is or is not appropriate
Organizational culture reflects the predominant value system of the organization as a whole
© John Wiley & Sons Canada Ltd.

14. Organizational Culture
Strong core values:
Helps build organizational identity
Gives character to the organization in the eyes of employees and external stakeholders
Backs up the mission statement
Guides the behaviour of organizational members in meaningful and consistent ways
© John Wiley & Sons Canada Ltd.

15. Organizational Culture (cont’d)
Observable Culture:
Visible actions and events
Heroes
Ceremonies, rites, rituals
Legends and stories
Metaphors and symbols
Core Culture:
Underlying values
Innovation and risk-taking
Ethics and integrity
Social responsibility
Customer service
Performance and teamwork
© John Wiley & Sons Canada Ltd.

16. Organizational Culture (cont’d)
Analysis of objectives:
Operating objectives direct activities toward key and specific performance results
Typical operating objectives:
Profitability
Financial health
Cost efficiency
Customer service
Product quality
Market share
Human talent
Innovation
Social responsibility
© John Wiley & Sons Canada Ltd.

17. SWOT Analysis What are our Strengths? Manufacturing efficiency?
Skilled workforce?
Good market share?
Strong financing?
Superior reputation?
What are our Weaknesses
Outdated facilities?
Inadequate research and development?
Obsolete technologies?
Weak management?
Past planning failures?
© John Wiley & Sons Canada Ltd.

18. SWOT Analysis (cont’d)
What are our Opportunities?
Possible new markets?
Strong economy?
Weak market rivals?
Emerging technologies?
Growth of existing market?
What are our Threats?
New competitors?
Shortage of resources?
Changing market tastes?
New regulations?
Substitute products?
© John Wiley & Sons Canada Ltd.

19. Figure 5.6 SWOT analysis of strengths, weaknesses, opportunities, and threats
© John Wiley & Sons Canada Ltd.

20. P.E.S.T. Analysis
Political: laws and regulations, government policies.
Economic: general environment influenced by customer spending, resource supplies, and investment capital.
Socio-Cultural: norms, customs, social values, gender roles.
Technological: developments in technology and the edge of another technology revolution.
© John Wiley & Sons Canada Ltd.

21. Porter’s Five Forces Model
Porter’s model of five strategic forces affecting competition:
Industry competition:
The intensity of rivalry among firms and their competitive behaviour
New entrants:
the threat of new competitors entering the market
Substitute products or services:
the threat of substitute products or services
© John Wiley & Sons Canada Ltd.

22. Porter’s Five Forces Model (cont’d)
Porter’s model of five strategic forces affecting competition:
Bargaining power of suppliers:
the ability of resource suppliers to influence the cost of products or services
Bargaining power of customers:
the ability of customers to influence the price they will pay for products or services
© John Wiley & Sons Canada Ltd.

23. Figure 5.8 Porter’s model of five strategic forces affecting industry competition
© John Wiley & Sons Canada Ltd.

24. Corporate-Level Strategy Formulation
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
Renewal strategy:
tries to solve problems and overcome weaknesses that are hurting performance
Combination strategy:
pursues growth, stability, or retrenchment in some
© John Wiley & Sons Canada Ltd.

25. Corporate-Level Strategy Formulation (cont’d)
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
© John Wiley & Sons Canada Ltd.

26. Corporate-Level Strategy Formulation (cont’d)
Restructuring strategies:
Tries to correct weaknesses by changing the mix or reducing the scale of operations by:
Restructuring through turnaround
Restructuring through downsizing
Restructuring through divestiture
© John Wiley & Sons Canada Ltd.

27. Corporate-Level Strategy Formulation (cont’d)
Global strategies:
Globalization strategy
World is one large market; standardize products and advertising as much as possible
Ethnocentric view
Multidomestic strategy
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
© John Wiley & Sons Canada Ltd.

28. Corporate-Level Strategy Formulation (cont’d)
Co-operative 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
Co-opetition
© John Wiley & Sons Canada Ltd.

29. Corporate-Level Strategy Formulation (cont’d)
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
© John Wiley & Sons Canada Ltd.

30. Corporate-Level Strategy Formulation (cont’d)
Web-based business models:
Brokerage model
Advertising model
Merchant model
Subscription model
Infomediary model
Community model
© John Wiley & Sons Canada Ltd.

31. Corporate-Level Strategy Formulation (cont’d)
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
© John Wiley & Sons Canada Ltd.

32. Boston Consulting Group (BCG) Matrix
Ties strategy formulation to analysis of business opportunities according to …
Industry or market growth rate
Low versus high
Market share
© John Wiley & Sons Canada Ltd.

33. Figure 5.9 The BCG matrix approach to corporate strategy formulation
© John Wiley & Sons Canada Ltd.

34. BCG Matrix (cont’d) 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
© John Wiley & Sons Canada Ltd.

35. BCG Matrix (cont’d) 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
© John Wiley & Sons Canada Ltd.

36. COPYRIGHT
Copyright © 2013 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.
© John Wiley & Sons Canada Ltd.