Management: Principles and Practices

11e
Ricky W. Griffin

CHAPTER 8
Managing Strategy and
Strategic Planning

PART 3
Planning and Decision Making

PowerPoint Presentation by Charlie Cook

The University of West Alabama
 The Nature of Strategic Management

Strategy
Is a comprehensive plan for accomplishing an
organizations goals.
Strategic Management
Involves formulating and implementing strategies to
take advantage of business opportunities and meet
competitive challenges.
Effective Strategies
Promote superior alignment between an organization,
its environment, and its goals.

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 Components of Strategy
Components of Effective Strategies

Distinctive Competitive Resource

Competence Scope Deployment

Something the Specify the range of How to distribute resources

organization does market in which it across the areas in which it
exceptionally well will compete competes

Abercrombie and fetch Mars has adopted a GE uses its profit from US
speed in moving

broader scope by operation to invest in new

Track customer preference competing in the pet business of Europe and
Transmits order to supplier food business and the Asia
inventory

electronics industry
Charters 747 to fly Products

Stores Products in 48 hours

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 Types of Strategic Alternatives

Business-Level Strategy
The set of strategic alternatives that an organization
chooses from as it conducts business in a particular
industry or a particular market.

or
Corporate-Level Strategy
The set of strategic alternatives that an organization
chooses from as it manages its operations
simultaneously across several industries and several
markets.

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 Strategy Formulation and Implementation

Strategy Formulation
The set of processes involved in creating or
determining the organizations strategies; it focuses
on the content of strategies.
Strategy Implementation
The methods by which strategies are operationalized
or executed within the organization; it focuses on the
processes through which strategies are achieved.

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Types of Strategies Formulation & Implementation

Deliberate Strategy
A plan, chosen and implemented to support specific
goals, that is the result of a rational, systematic, and
planned process of strategy formulation and
implementation.
Emergent Strategy
A pattern of action that develops over time in the
absence of goals or missions, or despite goals and
missions.

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8.1 SWOT Analysis

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 SWOT Analysis and Strategy

Evaluating Organizational Strengths

Organizational strengths
are skills and abilities enabling an organization to conceive of
and implement strategies.
Common organizational strengths
are organizational capabilities possessed by numerous
competing firms.
Distinctive competencies
are useful for competitive advantage and superior
performance.
Imitation of distinctive competencies
removes the competitive advantage of the competency.

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 SWOT Analysis and Strategy (contd)

Evaluating Organizational Strengths (contd)

Sustained competitive advantage
occurs when a distinctive competence cannot be easily
duplicated.
is what remains after all attempts at strategic imitations
cease.
Strategic imitation of a distinctive competence is
difficult when:
it is based on unique historical circumstances.
it is difficult for competitors to understand its nature or
character.
it is based on a complex phenomenon (e.g., organizational
culture).

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 SWOT Analysis and Strategy (contd)

Evaluating Organizational Weaknesses

Organizational weaknesses
Skills and capabilities that do not enable an organization to
choose and implement strategies that support its mission.
Weaknesses can be overcome by:
investments to obtain the strengths needed.
modification of the organizations mission so it can be
accomplished with the current workforce.
Competitive disadvantage
occurs when an organization fails to implement strategies
being implemented by competitors.

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 SWOT Analysis and Strategy (contd)

Evaluating an Organizations Opportunities and

Threats
Organizational opportunities
are areas in the organizations environment that may
generate high performance.
Organizational threats
are areas in the organizations environment that make it
difficult for the organization to achieve high performance.

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Formulating Business-Level Strategies

Porters Generic
Strategies

Overall cost
Differentiation Focus
leadership
strategy strategy
strategy

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 Formulating Business-Level Strategies

Porters Generic Strategies

Differentiation strategy
An organization seeks to distinguish itself from competitors
through the quality of its products or services.
Overall cost leadership strategy
An organization attempts to gain competitive advantage by
reducing its costs below the costs of competing firms.
Focus strategy
An organization concentrates on a specific regional market,
product line, or group of buyers.

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 8.1 Porters Generic Strategies

Strategy Type Definition Examples

Differentiation Distinguish products Rolex (watches)
or services Godiva (chocolate)
Mercedes-Benz (automobiles)
Nikon (cameras)
Cross (writing instruments
Overall cost Reduce manufacturing Timex (watches)
leadership and other costs Hershey (chocolate)
Kia (automobiles)
Kodak (cameras)
BIC (writing instruments)
Focus Concentrate on specific Tag Heuer (watches)
regional market, product Vosges (chocolate)
market, or group of buyers Fiat, Alfa Romeo (automobiles)
Hasselblad (cameras)
Waterman (writing instruments)
Fisher-Price (handheld calculators)

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Implementing Porters Generic Strategies
Differentiation
Marketing and sales emphasize HIGH-QUALITY, high-value
image of the organizations products or services.
Overall Cost Leadership
Marketing and sales focus on simple product attributes and how
these product attributes meet customer needs in A LOW-COST
and effective manner.
Focus
Either differentiation or cost leadership, depending on which
one is the proper basis for competing in or for a specific market
segment, product category, or group buyers.

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 Miles and Snows Strategy Types

Strategic Types of Organizations

Prospectors Defenders Analyzers Reactors

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 Miles and Snows Strategy Types
Prospector
Encourages creativity to seek out new market opportunities and to take
risks.
Develops the flexibility to meet changing market conditions by
decentralizing its organizational structure.
Example: Amazon.com, 3M
Defender
Focuses on defending its current markets by lowering its costs and/or
improving the performance of its current products.
Example: ebay.com, BIC

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 Analyzer
Incorporates elements of both the prospector and the defender
strategies to maintain business and to be somewhat innovative.
IBM, DuPont

DuPont was founded in 1802 by leuthre Irne du Pont, using capital raised in
France and gunpowder machinery imported from France
DuPont businesses are organized into the following five categories, known as
marketing "platforms": Electronic and Communication Technologies, Performance
Materials, Coatings and Color Technologies, Safety and Protection, and
Agriculture and Nutrition.
Reactor
Has no clear strategy, reacts to changes and events.

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 8.2 The Miles and Snow Typology

Strategy Type Definition Examples

Prospector Is innovative and growth oriented, Amazon.com
searches for new markets and new growth 3M
opportunities, encourages risk taking Rubbermaid
Defender Protects current markets, maintains stable BIC
growth, serves current customers eBay
Mrs. Fields
Analyzer Maintains current markets and current DuPont
customer satisfaction with moderate IBM
emphasis on innovation Yahoo!
Reactor No clear strategy, reacts to changes in the International Harvester
environment, drifts with events (now doing business as Navistar)
Joseph Schlitz Brewing Co.
Kmart
Montgomery Ward
(no longer in business)

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8.2 The Product Life Cycle

High Stages

Introduction Growth Maturity Decline

Sales Volume

Low
Time

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 Formulating Corporate-Level Strategies

Strategic Business Units

Each business or group of businesses within an
organization is engaged in serving the same markets,
customers, or products.
Diversification
The number of businesses an organization is engaged
in and the extent to which these businesses are
related to one another

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 Corporate-Level Strategies

Strategic Choices

Single-product Related Unrelated

strategy diversification diversification
(simplicity) (synergy) (risk/return)

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 Corporate-Level Strategies

Single-Product Strategy
An organization manufactures one product or service
and sells it in a single geographic market.
Related Diversification
A strategy in which an organization operates in
several different businesses, industries, or markets
that are somehow linked.
Avoids the disadvantages and risks of a single-
product strategy.

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 Advantages of Related Diversification

Reduces economic risk by avoiding dependence

on a specific business or activity.
Reduces overhead costs through economies of
scale and economies of scope.
Increases overall economic value through
complementary strengths and capabilities
synergies gained by managing the set of
businesses together rather than separately.

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 Unrelated Diversification

Unrelated Diversified Organization

Operates multiple businesses that are not logically
associated with one another.
Advantages
Stable performance over time due to business cycle
differences among the multiple businesses.
Allocation of resources to areas with the highest return
potentials to maximize corporate performance.
Disadvantages
Poor performance due to the complexity of managing a
diversity of businesses.
Failing to exploit key synergies puts the firm at a competitive
disadvantage to firms with related diversification strategies.

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 Becoming a Diversified Firm

Diversification Alternatives

Development of Vertical Merger with Acquisition of

new products integration another firm another firm

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 Becoming a Diversified Firm

Replacement of Suppliers And Customers

Backward vertical integration
Beginning a business that furnishes resources previously
handled by a supplier.
Forward vertical integration
Beginning a business previously handled by an intermediary
and selling more directly to customers.

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 Becoming a Diversified Firm (contd)

Purposes of Mergers and Acquisitions

To diversify through vertical integration.
To acquire complementary products or services linked
by a common technology and common customers.
To create or exploit synergies that reduce the
combined organizations costs of doing business to
increase revenues.

828
 Managing Diversification

Major Tools for Managing Diversification

Organization structure
A detailed discussion of organization structure
is contained in Chapter 12.
Portfolio management techniques
Methods used by diversified firms to make decisions
about what businesses to engage in and how to manage
these businesses to maximize corporate performance.
Two important portfolio management techniques
The BCG Matrix
The GE Business Screen

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 Managing Diversification (contd)

BCG Matrix
Evaluates a portfolio of businesses on the growth rate
of their respective markets and each businesss
relative share of its market.
Classifies the types of businesses in a diversified
firms portfolio as:
Dogs have small market shares and no growth prospects.
Cash cows have large shares of mature markets.
Question marks have small market shares in quickly
growing markets.
Stars have large shares of rapidly growing markets.

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8.3 The BCG Matrix

High

Question
Market Growth Rate
Stars
marks

Cash Cows Dogs

Low

High Relative Market Share Low

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 Managing Diversification (contd)

GE Business Screen
A method of evaluating businesses in a diversified
portfolio along two dimensions, each of which
contains multiple factors:
Industry attractiveness.
Competitive position (strength) of each firm in the portfolio.

In general, the more attractive the industry and the

more competitive a business is, the more resources
an organization should invest in that business.

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8.4 The GE Business Screen

Question
Industry Attractiveness
High Winner Winner
mark

Medium Average
Winner Loser
business

Profit
Low Loser Loser
producer

Good Medium Poor

Competitive Position

Competitive Position Industry Attractiveness

1. Market share 1. Market growth

2. Technological know-how 2. Market size
3. Product quality 3. Capital requirements
4. Service network 4. Competitive intensity
5. Price competitiveness
6. Operation costs

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