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Chapter 9
Managing Strategy
In this chapter, we look at an important part of the planning that managers do:
developing organizational strategies. Every organization has strategies for doing what
it’s in business to do. And managers must manage those strategies effectively. Focus on
the following learning objectives as you read and study this chapter.
LEARNING OBJECTIVES
LEARNING OBJECTIVES
1. Define strategic management and explain why it’s important.
2. Explain what managers do during the six steps of the strategic management
process.
3. Describe the three types of corporate strategies.
5. Discuss current strategic management issues.
It’s Your Career
It’s Your Career
Learning Your Strengths and Weaknesses: Accentuate the Positive
Interviewers often ask important questions; like “Do you know your individual personal
strengths and weaknesses?” Interviewers commonly ask what you consider your
1. Focus first on identifying your strengths. Your strengths are your individual
personal positive attributes and characteristics.
2. Take a look at your weaknesses. Your weaknesses are your individual
4. Update your list of strengths and weaknesses periodically. As you gain new
experiences and as your life circumstances change, you’ll want to revise your list
of strengths and weaknesses.
9.1 STRATEGIC MANAGEMENT
Managers must carefully consider their organization’s internal and external
environments as they develop strategic plans. They should have a systematic
means of analyzing the environment, assessing their organization’s strengths
and weaknesses, identifying opportunities that would give the organization a
competitive advantage, and incorporating these findings into their planning. The
value of thinking strategically has an important impact on organization
performance.
3. A business model is simply how a company is going to make
money. It focuses on two things: (1) whether customers will value
what the company is providing and (2) whether the company can
make any money doing that.
B. Why Is Strategic Management Important?
2. In today’s business world, organizations of all types and sizes
must manage constantly changing situations.
3. Today’s companies are composed of diverse divisions,
managers make.
9.2 THE STRATEGIC MANAGEMENT PROCESS
The strategic management process is a six-step process that encompasses
1. Every organization needs a mission, which is a statement of the
purpose of an organization. The mission statement addresses the
question: What is the organization’s reason for being in business?
2. The organization must also identify its current goals and
1. Managers in every organization need to conduct an external
2. After analyzing the external environment, managers must assess
3. Because of different resources and capabilities, the same external
1. Internal analysis should lead to a clear assessment of the
organization’s resources and capabilities.
2. The organization’s major value-creating skills and capabilities that
4. Weaknesses are activities the organization does not do well or
resources it needs but does not possess.
6. SWOT analysis is an analysis of the organization’s strengths,
1. After the SWOT, managers develop and evaluate strategic
alternatives and select strategies that are appropriate.
2. Strategies need to be established for corporate, business, and
1. The final step in the strategic management process is evaluating
results. How effective have the strategies been at helping the
organization reach its goals?
9.3 CORPORATE STRATEGIES
Strategic planning takes place on three different and distinct levels: corporate,
business, and functional. (See Exhibit 9-3)
A. What Is Corporate Strategy? Corporate strategy is an organizational
1. There are three main types of corporate strategies:
a. A growth strategy is a corporate strategy that is used when
an organization wants to grow and does so by expanding the
number of products offered or markets served, either through
its current business(es) or through new business(es).
b. A stability strategy is a corporate strategy characterized by
an absence of significant change in what the organization is
currently doing.
c. A renewal strategy is a corporate strategy designed to
address organizational weaknesses that are leading to
performance declines. Two such strategies are retrenchment
strategy and turnaround strategy.
C. How Are Corporate Strategies Managed?
1. Corporate portfolio analysis is used when an organization’s
corporate strategy involves a number of businesses. Managers
2. A business unit is evaluated using a SWOT analysis and placed in
one of the four categories, which are as follows:
a. Stars: High market share/High anticipated growth rate
b. Cash Cows: High market share/Low anticipated growth
rate
c. Question Marks: Low market share/High anticipated
growth rate
d. Dogs: Low market share/Low anticipated growth rate
LEADER MAKING A DIFFERENCE
In this section, students are asked what they can learn from Mary Barra, the CEO of
General Motors (GM). Barra assumed the top spot at the automaker in 2014 while the
company was trying to recover from a bankruptcy and government bailout. Soon after
taking on the spot, the company also faced a massive vehicle recall.
As the first female CEO of a major automaker, Barra has successfully helped to turn
things around at GM laying out a clear strategic direction for the company. Barra’s
strategy has focused on growing the organization not by focusing solely on cars but on
personal mobility. The company is now exploring the idea of car sharing, alternate
transportation options, zero emissions, and autonomous driving.
Well-liked and recognized as a change agent within GM, Barra was featured as the top
Most Powerful Woman in Fortune’s 2015 list.
What can you learn from this leader making a difference?
9.4 COMPETITIVE STRATEGY
A competitive strategy s strategy focused on how the organization will compete
in each of its businesses. When an organization is in several different
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135
organization’s competitive advantage can come from its core
competencies.
1. Quality as a Competitive Advantage. If implemented properly,
2. Design Thinking as a Competitive Advantage. A company’s ability
to use design thinking in the way its employees and managers
3. Social Media as a Competitive Advantage. Investments in social
4. Sustaining Competitive Advantage. An organization must be able
5. Five Forces Model. Michael Porter’s work explains how managers
can create and sustain a competitive advantage that will give a
1. Threat of new entrants. How likely is it that new
competitors will come into the industry?
2. Threat of substitutes. How likely is it that products of other
industries could be substituted for a company’s products?
3. Bargaining power of buyers. How much bargaining power
do buyers (customers) have?
4. Bargaining power of suppliers. How much bargaining
power do a company’s suppliers have?
5. Current rivalry. How intense is the competition among
current industry competitors?
FUTURE VISION: Big Data As a Strategic Weapon
Big data can be an effective counterpart to the information
exchange generated through social media. All the enormous amounts of data
collected about customers, partners, employees, markets, and other quantifiables can
be used to respond to the needs of these same stakeholders. With big data,
managers can measure and know more about their businesses and “translate that
knowledge into improved decision-making and performance.”
When Walmart began looking at its enormous database, it noticed
that when a hurricane was forecasted, not only did sales of flashlights and batteries
increase, but so did sales of Pop-Tarts. Now, when a hurricane is threatening, stores
stock Pop-Tarts with other emergency
storm supplies at the front entrance. This helps them better serve customers and
drive sales.
The following discussion questions are posed:
Talk About It 1: What strategic connection(s) do you see between big data and social
media?
Talk About It 2: What ethical obstacles might big data present? How can managers
overcome those obstacles?
Student answers to these questions will vary.
FUTURE VISION: Big Data As a Strategic Weapon
Big data can be an effective counterpart to the information
exchange generated through social media. All the enormous amounts
of data collected about customers, partners, employees, markets, and
other quantifiables can be used to respond to the needs of these
same stakeholders. With big data, managers can measure and know
more about their businesses and “translate that knowledge into
improved decision-making and performance.”
When Walmart began looking at its enormous database, it noticed
that when a hurricane was forecasted, not only did sales of flashlights
and batteries increase, but so did sales of Pop-Tarts. Now, when a
hurricane is threatening, stores stock Pop-Tarts with other emergency
storm supplies at the front entrance. This helps them better serve
customers and drive sales.
The following discussion questions are posed:
Talk About It 1: What strategic connection(s) do you see between big
data and social media?
Talk About It 2: What ethical obstacles might big data present? How
can managers overcome those obstacles?
Student answers to these questions will vary.
Copyright © 2018 Pearson Education, Inc.
137
b. A differentiation strategy is a business or competitive strategy in
which a company offers unique products that are widely valued by
customers.
c. A focus strategy is a business or competitive strategy in which a
company pursues a cost or differentiation advantage in a narrow
industry segment.
d. An organization that has been not been able to develop either a
cost or differentiation advantage is said to be “stuck in the middle.”
e. Subsequent research indicates that it is possible, though very
difficult, for organizations that are stuck in the middle to achieve
high performance.
f. Functional strategy is the strategies used by an organization’s
various functional departments to support the business or
competitive strategy.
9.5 CURRENT STRATEGIC MANAGEMENT ISSUES
A. The Need for Strategic Leadership. Strategic leadership is defined as
the ability to anticipate, envision, maintain flexibility, think strategically,
and work with others in the organization to initiate changes that will create
a viable and valuable future for the organization. Top managers can
1. E-Business Strategies. Using the Internet, companies have
created knowledge bases that employees can tap into anytime,
2. Customer Service Strategies. These strategies give customers
3. Innovation Strategies. These strategies focus on breakthrough
products and can include the application of existing technology to
new uses. An organization that is first to bring a product
9-1. Why is strategic management important for organizations? Can an organization be
successful without a strategic plan? Why or why not?
9-2. Describe the six steps in the strategic management process.
The six steps in the strategic management process encompass strategy planning,
implementation, and evaluation. These steps include the following: (1) identify the
9-3. How might the process of strategy formulation, implementation, and evaluation differ
for (a) large businesses, (b) small businesses, (c) not-for-profit organizations, and (d)
global businesses?
9-4. Should ethical considerations be included in analyses of an organization’s internal
and external environments? Why or why not?
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the six steps of the strategic management process, AACSB: Ethical understanding and
reasoning)
9-5. Describe the three major types of corporate strategies and how the BCG matrix is
used to manage those corporate strategies.
A growth strategy is when an organization expands the number of markets served or
products offered, either through current or new businesses. The types of growth
9-6. Describe the role of competitive advantage and how Porter’s competitive strategies
help an organization develop competitive advantage.
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
9-7. “The concept of competitive advantage is as important for not-for-profit
organizations as it is for profit organizations.” Do you agree or disagree with this
statement? Explain, using examples to make your case.
9-8. Describe e-business, customer service, and innovation strategies.
Using the Internet, companies have created knowledge bases that employees can tap
into anytime, anywhere. E-business as a strategy can be used to develop a sustainable
competitive advantage; it can also be used to establish a basis for differentiation or
focus. Customer service strategies give customers what they want, communicate
effectively with them, and provide employees with customer service training. Innovation
strategies focus on breakthrough products and can include the application of existing
technology to new uses. An organization that is first to bring a product innovation to the
market or to use a new process innovation is called a first mover. (LO: 5, Discuss current
strategic management issues, AACSB: Analytical thinking)
PERSONAL INVENTORY ASSESSMENTS
PERSONAL INVENTORY ASSESSMENTS
Student answers to these questions will vary.
ETHICS DILEMMA
ETHICS DILEMMA
Student answers to these questions will vary.
This ethical dilemma brings up the issue of sharing information about a former employer
with a new employer. While employees sometimes sign non-compete agreements these
sort of agreements are not standard policy leaving new employees open to potentially
troubling situations. Do you have an ethical responsibility to your former employer to
keep your knowledge of that organization to yourself? Is it possible to completely avoid
sharing details of your past company with your current employer?
9-11. What do you think? Should you follow the CEO’s instructions?
9-12. What ethical dilemmas are involved with sharing competitive intelligence?
9-13. What factors would influence the CEO’s request? (Think in terms of the various
stakeholders who might be affected by this decision.)
Results from a survey conducted in (LO: 4, Describe competitive advantage and the
strategies organizations use to get it, AACSB: Ethical understanding and reasoning)
SKILLS EXERCISE: DEVELOPING YOUR BUSINESS PLANNING SKILL
SKILLS EXERCISE: DEVELOPING YOUR
BUSINESS PLANNING SKILL
This section describes the process for putting together a business plan. An important
part of the plan is to determine the strategic direction of the business. A business plan
aids in thinking about strategic issues and provides a sound basis to ask for funding for a
• Describe the legal form of the business.
• Identify the critical risks and contingencies facing the organization.
• Put the business plan together.
Students are asked to create a business plan for a bank by choosing from the
alternatives listed below:
1. Haircuts at home (you make house calls)
3. Online apartment rental listing
4. Voice-activated house alarm
(LO: 1, Define strategic management and explain why it’s important, AACSB: Analytical
thinking)
WORKING TOGETHER: TEAM EXERCISE
WORKING TOGETHER: TEAM EXERCISE
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instance, if you choose customer service, find an example of (a) giving
customers what they want, (b) communicating effectively with them, and (c)
providing employees with customer service training. Write a report describing
your examples. (LO: 5, Discuss current strategic management issues, AACSB:
Analytical thinking)
ANSWERS TO CASE APPLICATION 1
9-14. How is strategic management illustrated by this case story?
2. The formulation of strategy—to use technology to produce designs within two
weeks
4. The evaluation of results—the constant evaluation of designs to see which are
9-15. How might SWOT analysis be helpful to Inditex executives? To Zara store
managers?
9-16. What competitive advantage do you think Zara is pursuing? How does it exploit
that competitive advantage?
9-17. Do you think Zara’s success is due to external or internal factors or both? Explain.
9-18. What strategic implications does Zara’s move into online retailing have? (Hint:
ANSWERS TO CASE APPLICATION 2
QUESTIONS
ANSWERS TO CASE APPLICATION 2
QUESTIONS
Student answers to these questions will vary.
A Simple Strategy at Costco
9-19. How is Costco’s business model different from other retailers such as Walmart and
Sam’s Club? Why do you think Costco’s strategy works?
9-20. Beyond lower turnover, how else does Costco benefit from treating its employees
well?
9-21. Are you surprised that Costco sells cars? How does offering diverse products help
the company attract new members?
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purchase in person, it can attract customers to the store increasing membership and
sales. The goal for Costco is to establish itself as the go-to location for these types of
purchases. (LO: 4, Describe competitive advantage and the strategies organizations use
to get it, AACSB: Analytical thinking)
9-22. Costco now has a comprehensive website and sells online. Is this a threat to
Costco’s business model? Is there a downside to selling online?
