Management, 7e Schermerhorn Prepared by Michael K. McCuddy Valparaiso University John Wiley & Sons, Inc

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Schermerhorn - Chapter 83 Chapter 8 Strategic Management  Planning ahead—study 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 - Chapter 84 What are the foundations of strategic competitiveness?  Basic concepts of strategy: – Competitive advantage—operating in a successful way that is difficult for competitors to imitate. – Sustainable competitive advantage— consistently dealing with market and environmental forces better than competitors.

Schermerhorn - Chapter 85 What are the foundations of strategic competitiveness?  Basic concepts of strategy: – Strategy—a comprehensive action plan providing long-term direction and guiding resource utilization to accomplish organizational goals with sustainable competitive advantage. –Strategic intent—focusing all organizational energies on a unifying and compelling goal.

Schermerhorn - Chapter 86 What are the foundations of strategic competitiveness?  Basic concepts of strategy: – Strategic management—the process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage.

Schermerhorn - Chapter 87 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 organization’s environment.

Schermerhorn - Chapter 88 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

Schermerhorn - Chapter 89 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.

Schermerhorn - Chapter 810 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?

Schermerhorn - Chapter 811 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.

Schermerhorn - Chapter 812 What is the strategic management process?  Essential tasks for strategy implementation … –Identify organizational mission and objectives. –Assess current performance vis-à-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.

Schermerhorn - Chapter 813 What is the strategic management process?  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

Schermerhorn - Chapter 814 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.

Schermerhorn - Chapter 815 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

Schermerhorn - Chapter 816 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

Schermerhorn - Chapter 817 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

Schermerhorn - Chapter 818 What types of strategies are used by organizations?  Levels of strategy –Corporate strategy—directs the organization as a whole toward sustainable competitive advantage. –Business strategy—sets the strategic direction for a single business unit or product line. –Functional strategy—guides the use of resources to implement business strategy, focusing on activities within a specific area of operations.

Schermerhorn - Chapter 819 What types of strategies are used by organizations?  Growth and diversification strategies –Growth strategies—seek an increase in size and the expansion of current operations. –Concentration strategies—growth occurs through expansion in the same business area. –Diversification strategies—growth occurs through acquisition of or investment in new and/or different business areas.

Schermerhorn - Chapter 820 What types of strategies are used by organizations?  Restructuring and divestiture strategies –Liquidation—operations cease due to sale of assets or bankruptcy. –Restructuring—changes in the scale and/or mix of operations to gain efficiency and improve performance. –Divestiture—selling off parts of the organization to refocus on core competencies.

Schermerhorn - Chapter 821 What types of strategies are used by organizations?  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

Schermerhorn - Chapter 822 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

Schermerhorn - Chapter 823 What types of strategies are used by organizations?  Web-based business models: –Brokerage model –Advertising model –Merchant model –Subscription model –Infomediary model –Community model

Schermerhorn - Chapter 824 How are strategies formulated?  Opportunities for achieving sustainable competitive advantage: –Cost and quality –Knowledge and speed –Barriers to entry –Financial resources

Schermerhorn - Chapter 825 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 business- level strategies: Porter’s generic strategies Product life cycle

Schermerhorn - Chapter 826 How are strategies formulated?  Porter’s 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.

Schermerhorn - Chapter 827 How are strategies formulated?  Porter’s generic strategies model –Generic strategies for gaining competitive advantage: Differentiation strategy Cost leadership strategy Focused differentiation strategy Focused cost leadership strategy

Schermerhorn - Chapter 828 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

Schermerhorn - Chapter 829 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

Schermerhorn - Chapter 830 How are strategies formulated?  Corporate-level strategy formulation –Key issue is the selection and refinement of the organization’s mix of businesses. –Approaches to formulating business-level strategies: Portfolio planning Adaptive strategies

Schermerhorn - Chapter 831 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.

Schermerhorn - Chapter 832 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

Schermerhorn - Chapter 833 How are strategies formulated?  BCG matrix—business conditions and related strategies: –Stars High share/high growth businesses Preferred strategy—growth –Question marks Low share/high growth businesses Preferred strategy—growth for promising question marks and restructuring or divestiture for others

Schermerhorn - Chapter 834 How are strategies formulated?  BCG matrix—business conditions and related strategies: –Cash cows High share/low growth businesses Preferred strategy—stability or modest growth –Dogs Low share/low growth businesses Preferred strategy—retrenchment by divestiture

Schermerhorn - Chapter 835 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.

Schermerhorn - Chapter 836 How are strategies formulated?  Adaptive strategies –Miles and Snow model –Organizations should pursue product/market strategies that are congruent with their external environments.

Schermerhorn - Chapter 837 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

Schermerhorn - Chapter 838 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.

Schermerhorn - Chapter 839 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

Schermerhorn - Chapter 840 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?

Schermerhorn - Chapter 841 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.

Schermerhorn - Chapter 842 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.

Schermerhorn - Chapter 843 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.