Exploring management 6th by schermerhornch07

Exploring Management
John Schermerhorn, Jr. and Daniel G. Bachrach
Sixth Edition

Chapter 7

Strategy and Strategic Management


Insight and Hard Work Deliver Results
“There is a fundamental disconnect between the
providers of education and the consumers of
education . . . this whole online debate or what’s
happening now is actually starting to clarify things.
At Khan Academy we’re 100% focused on the
learning side . . .”
-Salman Khan, founder of the Khan Academy

Copyright © 2018 John Wiley & Sons, Inc.

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Your Chapter 7 Takeaways

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Identify the types of strategies used by organizations (7.1)

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Understand how managers formulate and implement strategies (7.2)

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Takeaway 7.1 – answers to come

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Strategy is a comprehensive plan for achieving competitive advantage.
Organizations use corporate, business, and functional strategies.
Growth strategies focus on expansion.
Restructuring and divestiture strategies focus on consolidation.
Global strategies focus on international business opportunities.
Cooperative strategies focus on alliances and partnerships.
E-business strategies focus on using the Internet for business success.

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Achieving Competitive Advantage
Strategy

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a comprehensive plan guiding resource allocation to achieve long-term organization goals.
focuses on the competitive environment

Mission

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A good strategy provides a plan for allocating and using resources with a consistent sense of mission – a
sense of purpose and why you exist

Strategic Intent

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focuses organizational energies on achieving a compelling goal.

Competitive Advantage

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operating in successful ways that are difficult to duplicate.

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Achieving Competitive Advantage

Copyright ©2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Various Strategies
Corporate Strategy

• directions and guidelines for use of resources
Business Strategy

• identifies how a strategic business unit or division will compete in its product or service
domain
Functional Strategy

• guides activities within one specific area of operations

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Growth Strategies
Growth Strategy

• expansion through current operations
Concentration

• expansion within an existing business area
Diversification

• expansion occurs by entering new business areas
Vertical Integration

• expansion by acquiring existing
suppliers or distributors
Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Restructuring and Divestiture

Retrenchment
changes operations to correct weaknesses
Liquidation
an extreme form of retrenchment wherein the business closes and sells off its
assets
Restructuring
reduces the scale or mix of operations
Chapter 11 bankruptcy
Downsizing
decreases the size of operations
Divestiture
sells off part of the organization
to focus on core businesses

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Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Global Strategies

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Globalization Strategy

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Multidomestic Strategy

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• adopts standardized products and advertising for use worldwide
• customizes advertising and products to best fit local needs
Transnational Strategy

• seeks efficiencies of global operations with attention to local markets

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Cooperation Strategies

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Strategic Alliances

• partnership between organizations to pursue mutual interests or strengthen competitive
advantage

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Supply Chain

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Co-opetition

• Supplier and Distribution alliances
• competitors share information or technology

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

E-Business
E-business Strategies

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C2B Business Strategies

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The strategic use of the Web and mobile apps
to gain competitive advantage

businesses

B2C Business Strategies

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C2C Business Strategies

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Use Web and apps to link organizations directly
with customers.

Use web and apps to link customers with
each other

B2B Business Strategies

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Use web and apps to link customers with

P2P Business Strategies

They link organizations with members of their
supply chains.

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Use web and apps to link persons in need of
services with those willing to provide them .

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Sample Web-Based Business Models
Advertising model: Provides free information or services and then generates revenues from paid advertising to viewers (e.g., Yahoo!, Google)
Brokerage model: Brings buyers and sellers together for online business transactions and takes a percentage from the sales (e.g., eBay, Priceline)
Community model: Provides a meeting point sold by subscription or supported by advertising (e.g., eHarmony, Facebook)

Freemium model: Offers a free service and encourages users to buy extras (e.g., Skype, Zynga)

Infomediary model: Provides a free service while collecting information on users and selling it to other businesses (e.g., Epinions, Yelp)

Merchant model: Sells products directly to customers through e-tailing (e.g., Amazon, Apple iTunes Store)

Referral model: Provides free listings and gets referral fees from online merchants after directing customers to them (e.g., Shopzilla, PriceGrabber)

Subscription model: Sells access to high-value content through a subscription Web site (e.g., Netflix, Wall Street Journal Interactive

Copyright ©2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Social Media Strategy

• Uses social media to better engage with an organization’s customers, clients, and
external audiences in general.

• Crowdsourcing
• Interactive social media strategy that

uses the Web to allow customers to provide opinions and suggestions on
products and their designs.

Copyright ©2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT 7.1

Study Guide for Takeaway 7.1
Rapid Review:

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A strategy is a comprehensive plan that sets long-term direction for an organization and guides resource allocations to achieve
competitive advantage, operating in ways that outperform the competition.

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Corporate strategy sets the direction for an entire organization; business strategy sets the direction for a large business unit or product
division; functional strategy sets the direction within business functions.

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Growth strategies seek to expand existing business areas through concentration or add new ones by related or unrelated diversification.
Retrenchment strategies try to streamline or consolidate organizations for better performance through restructuring and divestiture.
Global strategies pursue international business opportunities.
Cooperative strategies make business use of alliances and partnerships.
E-business strategies use the Internet to pursue competitive advantage.

Copyright ©2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT

Study Guide for Takeaway 7.1
Questions for Discussion:

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With things changing so fast today, is it really possible for a business to achieve
“sustainable” competitive advantage?
Why is growth such a popular business strategy?
Is it good news or bad news for investors when a business announces that it is
restructuring?

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGY AND STRATEGIC MANAGEMENT

Be Sure You Can…for Takeaway 7.1

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differentiate strategy, strategic intent, and competitive advantage
differentiate corporate, business, and functional levels of strategy
list and explain major types of growth and diversification strategies
list and explain restructuring and divestiture strategies
explain alternative global strategies
differentiate B2B and B2C as e-business strategies

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGIC MANAGEMENT 7.2

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Takeaway 7.2 – answers to come
The strategic management process formulates and implements strategies.

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SWOT analysis identifies strengths, weaknesses, opportunities, and threats.

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Porter’s five forces model examines industry attractiveness.

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Porter’s competitive strategies model examines business or product strategies.

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Portfolio planning examines strategies across multiple businesses or products.

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Strategic leadership ensures strategy implementation and control.

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGIC MANAGEMENT 7.2

Strategic Management Process
Strategic management

• the process of formulating and implementing strategies
Strategy Formulation

• the process of creating strategies.
Strategy Implementation

• the process of putting strategies into action.

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGIC MANAGEMENT 7.2

Strategic Management Process

Figure 7.1 What Are the Steps in the Strategic Management Process?

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGIC MANAGEMENT 7.2

Key Operating Objectives
Tips to Remember
Profits—operating with revenues greater than costs
Cost efficiency—operating with low costs; finding ways to lower costs
Market share—having a solid and sustainable pool of customers
Product quality—producing goods and services that satisfy customers
Talented workforce—attracting and retaining high-quality employees
Innovation—using new ideas to improve operations and products
Social responsibility—earning the respect of multiple stakeholders
Sustainability—developing sustainable processes, products, and supply chains

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGIC MANAGEMENT 7.2

SWOT Analysis
SWOT analysis is a tool used in strategic planning to determine the current status of the organization.

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Internal assessment determines organizational strengths and weaknesses
External assessment offers environmental opportunities and threats

Core Competency

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A special strength that gives an organization a competitive advantage

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGIC MANAGEMENT 7.2

SWOT Analysis

FIGURE 7.2
What Does a SWOT Analysis Try To Discover?
Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGIC MANAGEMENT 7.2

Porter’s Five Forces Model

Porter’s Five Forces Model
Force 1: Competitors—intensity of rivalry among firms in the industry
Force 2: New entrants—threat of new competitors entering the market
Force 3: Suppliers—bargaining power of suppliers
Force 4: Customers—bargaining power of buyers
Force 5: Substitutes—threat of substitute products or services

Copyright © 2018 John Wiley & Sons, Inc.

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STRATEGIC MANAGEMENT 7.2

Porter’s Five Forces Model

FIGURE 7.3 What Is Porter’s Five Forces Model of Industry Attractiveness?

Copyright © 2018 John Wiley & Sons, Inc.

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