CHAPTER SUMMARY – CHAPTER 8

The Importance of Strategic Management

 Define strategic management, strategy, and business model.

 Explain why strategic management is important.

Strategic management is what managers do to develop the organization’s strategies.

Strategies are the decisions and actions that determine the long-run performance of the

organization. A business model is a strategic design for how a company intends to profit

from its strategies, work processes, and work activities.

Strategic management is important for four reasons. First, it makes a difference in

how well organizations perform. Second, it’s important for helping managers cope with

continually changing situations. Third, strategic management helps coordinate diverse

divisions, departments, functions, and work activities, and keeps all focused on achieving

the organization’s goals. Finally, it’s important because it’s involved in many of the

decisions that managers make.

The Strategic Management Process

 List the six steps in the strategic management process.

 Describe what managers do during external and internal analyses.
 Explain the role of resources, capabilities, and core competencies.
 Define strengths, weaknesses, opportunities, and threats.

The six steps in the strategic management process are: (1) identify the current

mission, goals, and strategies; (2) do an external analysis; (3) do an internal analysis –

steps 2 and 3 collectively are known as SWOT analysis; (4) formulate strategies; (5)

implement strategies; and (6) evaluate strategies. (See Exhibit 8-1.)

During an internal analysis, managers assess the organization’s resources (assets) and

capabilities (how work is done). The major value-creating skills and capabilities are the
organization’s core competencies. Any activities the organization does well or any unique

resources it has are its strengths. Activities the organization doesn’t do well or resources

it needs but doesn’t have are its weaknesses. During an external analysis, managers

assess the specific and general environments to determine opportunities (positive trends)

and threats (negative trends).

Types of Organizational Strategies

 Describe the three major types of corporate strategies.

 Discuss the BCG matrix and how it’s used.
 Describe the role of competitive advantage in business strategies.
 Explain Porter’s five forces model.
 Describe Porter’s three generic competitive strategies and the rule of three.

The three major types of corporate strategies are growth, stability, and renewal. (See

Exhibit 8-4.) A growth strategy is used when an organization wants to grow its business

and does so by expanding the number of products offered or markets served. The types of

growth strategies include concentration, vertical integration (backward and forward),

horizontal integration, and diversification (related and unrelated). A stability strategy is

when an organization stays as it is; that is, it makes no significant change in what it’s

doing. Renewal strategies address organizational weaknesses that are leading to

performance declines. The two types of renewal strategies are retrenchment and

turnaround.

The BCG matrix is a way to analyze a company’s portfolio of businesses. The

analysis is based on a business’s market share and its industry’s anticipated growth rate.

The four categories of the BCG matrix are cash cows, stars, question marks, and dogs.

(See Exhibit 8-5.)

 An organization’s competitive advantage is what sets it apart, its distinctive edge. A

company’s competitive advantage becomes the basis for choosing an appropriate

business or competitive strategy.

Porter’s five forces model assesses the five competitive forces that dictate the rules of

competition in an industry. These five forces are threat of new entrants, threat of

substitutes, bargaining power of buyers, bargaining power of suppliers, and current

rivalry. (See Exhibit 8-6.)

Porter’s three generic competitive strategies are as follows: cost leadership

(organization competes on the basis of having the lowest costs in the industry);

differentiation (organization competes on the basis of having unique products that are

widely valued by customers); and focus (organization competes in a narrow segment with

either a cost advantage or a differentiation advantage). The rule of three concept explains

how, in many industries, three major players (highly-efficient, full-line generalists)

emerge to dominate the market. An industry also has the highly-focused super-niche

players. Any firm that doesn’t fit into one of these categories is “in the ditch.”

Strategic Management in Today’s World

 Explain why strategic flexibility is important.

 Describe e-business strategies.
 Explain what strategies organizations might use to become more customer
oriented and to be more innovative.

Strategic flexibility—that is, the ability to recognize major external environmental

changes, to quickly commit resources, and to recognize when a strategic decision isn’t

working—is important because managers oftentimes face highly uncertain and changing

environments. (See Exhibit 8-7.)

 Managers can use e-business strategies to reduce costs, to differentiate their firm’s

products and services, or to target (focus on) specific customer groups or to lower costs

by standardizing certain office functions. Another important e-business strategy is the

clicks-and-bricks strategy, which combines online and traditional stand-alone locations.

Strategies managers can use to become more customer-oriented include giving

customers what they want, communicating effectively with them, and having a culture

that emphasizes customer service. Strategies managers can use to become more

innovative include deciding their organization’s innovation emphasis (basic scientific

research, product development, or process development) and its innovation timing (first

mover or follower). (See Exhibit 8-8.)