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Chapter EightManaging Strategy and Strategic Planning
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Learning ObjectivesAfter studying this chapter, you should be able to:
1. Discuss the components of strategy, types of strategicalternatives, and the distinction between strategy formulation andstrategy implementation.
2. Describe how to use SWOT analysis in formulating strategy.
3. Identify and describe various alternative approaches to business-level strategy formulation.
4. Describe how business-level strategies are implemented.
5. Identify and describe various alternative approaches to corporate-level strategy formulation.
6. Describe how corporate-level strategies are implemented.
7. Discuss international and global strategies.
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The Nature of Strategic
Management Strategy
A comprehensive plan for accomplishing anorganizations goals.
Strategic Management A way of approaching business opportunities and
challenges aimed at formulating andimplementing effective strategies.
Effective Strategies
Strategies that promote a superior alignmentbetween the organization and its environmentand the achievement of its goals.
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Components of Strategy
Distinctive Competence Something an organization
does exceptionally well.
Scope Range of markets in which
an organization will compete.
Resource Deployment How an organization will
distribute its resourcesacross the areas in which itcompetes.
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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.
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 throughwhich strategies are achieved.
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Strategy Formulation and
Implementation (contd)
Deliberate StrategyA plan, chosen and implemented to
support specific goals, that is the result of
a rational, systematic, and plannedprocess of strategy formulation andimplementation.
Emergent StrategyA pattern of action that develops over timein the absence of goals or missions, ordespite goals and missions.
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Using SWOT Analysis to
Formulate Strategy
Evaluating Organizational Strengths Organizational strengths
are skills and abilities enabling an organization toconceive 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 is duplicating another firms distinctive competence.
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Using SWOT Analysis to
Formulate Strategy (contd)
Evaluating Organizational Strengths(contd) Sustained competitive advantage
occurs when a distinctive competence cannot be easilyduplicated.
is what remains after all attempts at strategic imitationshave ceased.
Strategic imitation is difficult when:
Distinctive competence is based on unique historicalcircumstances.
Competitors do not understand the nature or character ofa firms competence.
The competence is based on a complex phenomenon,such as organizational culture.
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Using SWOT Analysis to
Formulate Strategy (contd)
Evaluating Organizational Weaknesses Organizational weaknesses
Skills and capabilities that do not enable an organizationto 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 beaccomplished with the current workforce.
Competitive disadvantage A situation in which an organization fails to implement
strategies being implemented by competitors.
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Using SWOT Analysis to
Formulate Strategy (contd)
Evaluating an Organizations
Opportunities and Threats
Organizational opportunities
Areas in the organizations environment that
may generate high performance.
Organizational threats
Are areas in the organizations environmentthat make it difficult for the organization to
achieve high performance.
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Formulating
Business-Level Strategies
Porters Generic Strategies Differentiation strategy
An organization seeks to distinguish itself fromcompetitors through the quality of its products or
services. Overall cost leadership strategy
An organization attempts to gain competitive advantageby 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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Implementing Business-Level
Strategies (contd)
Implementing Miles and Snows Strategies Prospector
Encourage creativity to seek out new marketopportunities and to take risks.
Develop the flexibility to meet changing marketconditions by decentralizing its organizational structure.
Defender Focus on defending its current markets by lowering its
costs and/or improving the performance of current
products. Analyzer
Incorporate elements of both the prospector and thedefender strategies maintain business and to besomewhat innovative.
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Implementing Business-Level
Strategies (contd)
Implementing Porters Generic Strategies Differentiation
Marketing and sales must 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 needsin 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 aspecific market segment, product category, or groupbuyers.
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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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Formulating Corporate-Level
Strategies (contd)
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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Implementing Corporate-Level
Strategies
Becoming a Diversified Firm Internal development of new products
Developing products and services within the boundariesof traditional business operations.
Replacement of suppliers and customers Backward vertical integration
Beginning a business that furnishes resources previouslyhandledby a supplier.
Forward vertical integration Beginning a business previously handled by an intermediary
andselling more directly to customers.
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Implementing Corporate-Level
Strategies (contd)
Becoming a Diversified Firm (contd) Merger
Purchase of one firm by another firm of approximatelythe same size.
Acquisition Purchase of a firm by another firm that is considerably
larger.
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 combinedorganizations costs of doing business to increaserevenues.