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
2. Explain what managers do during the six steps of the strategic management
process.
4. Describe competitive advantage and the strategies organizations use to get it.
5. Discuss current strategic management issues.
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
strengths and weaknesses and you want to be prepared to answer those questions and
demonstrate your level of self-knowledge and self-awareness. Here are some
suggestions to help you learn your strengths and weaknesses so you can accentuate
your positive attributes and minimize or compensate for your weaknesses:
2. Take a look at your weaknesses. Your weaknesses are your individual
3. Develop a strategy to do something about your strengths and weaknesses.
You want to leverage, emphasize, and capitalize on your strengths.
4. Update your list of strengths and weaknesses periodically. As you gain new
CHAPTER OUTLINE
INTRODUCTION
Effective managers recognize the role that strategic management plays in their
organization’s performance. Throughout this chapter, students discover that good
strategies can lead to high organizational performance.
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.
A. What Is Strategic Management?
2. Strategies are the plans for how the organization will do whatever
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?
1. Strategic management has a significant impact on how well an
organization performs.
3. Today’s companies are composed of diverse divisions,
4. Strategic management is involved in many of the decisions that
managers make.
9.2 THE STRATEGIC MANAGEMENT PROCESS
The strategic management process is a six-step process that encompasses
strategic planning, implementation, and evaluation. (See Exhibit 9-1)
A. Step 1: Identifying the Organization’s Current Mission, Goals, and
Strategies
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
statement.
B. Step 2: Doing an External Analysis
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
pose threats to another.
C. Step 3: Doing an Internal Analysis
2. The organization’s major value-creating skills and capabilities that
3. Any activities the organization does well or any unique resources
that it has are called strengths.
5. Organizational culture is important in internal analysis; the
company’s culture can promote or hinder its strategic actions.
D. Step 4: Formulating Strategies
2. Strategies need to be established for corporate, business, and
E. Step 5: Implementing Strategies
1. A strategy is only as good as its implementation.
F. Step 6: Evaluating Results
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. Corporate Strategy. Corporate strategy is an organizational strategy
that determines what businesses a company is in, should be in, or wants
to be in, and what it wants to do with those businesses.
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).
a. How are corporate strategies managed? Corporate Portfolio
Analysis is used when an organization’s corporate strategy
involves a number of businesses. Managers can manage this
portfolio of businesses using a corporate portfolio matrix, such
LEADER MAKING A DIFFERENCE
In this section, students are asked what they can learn from Jenna Lyons, Creative
Director and President at J. Crew. Lyons has helped J.Crew find a profitable niche,
positioned between fast-fashion chains such as Zara (see end–of-chapter Case
Application #1) and H&M and high-fashion designer lines.
As the company’s creative visionary, her focus is not just on financial concerns (price,
units sold, etc.) but on whether products are beautiful and whether she and her team
love them. Before Lyons, designers were told to develop products that would meet
The next global strategic push is Hong Kong, where J.Crew is opening two stores. This
move presents its own unique set of problems, as Asian consumers are extremely logo-
conscious. That will be a real strategic test for Lyons and her team.
What can you learn from this leader making a difference?
Student answers to this question will vary.
9.4 COMPETITIVE STRATEGY
A business strategy (also known as a competitive strategy) is strategy focused
on how the organization will compete in each of its businesses.
A. The Role of Competitive Advantage. A competitive advantage is
what sets an organization apart, that is, its distinctive edge. An
organization’s competitive advantage can come from its core
competencies.
1. Quality as a Competitive Advantage. If implemented properly,
2. Sustaining Competitive Advantage. An organization must be able
3. Michael Porter’s work explains how managers can create and
sustain a competitive advantage that will give a company above-
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?
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
When Walmart began looking at its enormous database, it noticed
that when a hurricane was forecasted, not only did sales of flashlights
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.
B. Choosing A Competitive Strategy. According to Porter, managers must
choose a strategy that will give their organization a competitive
advantage. Porter identifies three generic competitive strategies. Which
strategy managers select depends on the organization’s strengths and
core competencies and the particular weaknesses of its competitor(s).
a. A cost leadership strategy is a business or competitive strategy
in which the organization competes on the basis of having the
lowest costs in its industry.
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
provide effective strategic leadership using eight principles including:
B. The Need for Strategic Flexibility. There is no guarantee that a well
thought out strategy will lead to positive outcomes. A key element to the
strategic management process is the ability to recognize major external
C. Important Organizational Strategies for Today’s Environment
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
Student answers to these questions will vary.
9-1. 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
9-2. How could the Internet be helpful to managers as they follow the steps in the
strategic management process?
The Internet provides voluminous information conveniently and quickly about
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?
All companies, large or small, profit or not-for-profit, domestic or global benefit from the
process of strategy formulation. The major difference that exists between the different
9-4. Should ethical considerations be included in analyses of an organization’s internal
and external environments? Why or why not?
Ethical considerations should permeate every activity of an organization. As a firm’s
strategy is the basis for their plans, when ethics are not considered then the organization
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.
Not-for-profit and for-profit companies compete for customers. In the case of not-for-
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
PERSONAL INVENTORY ASSESSMENTS
Student answers to these questions will vary.
ETHICS DILEMMA
Student answers to these questions will vary.
This ethical dilemma brings up the idea that retailers often spy upon their customers as
they shop. Although most of us “accept” the fact that when we shop online, we’re
“allowing” the online retailer to install its cookies and to track our every move and click.
Now, however, technology is being used more frequently in the physical retail
environment. Many retailers are using cell phone tracking technology,
personalized advertising, and super spy cams. Why? To track your behavior and to get
9-11. What do you think? Are you more “accepting” of tracking shopping behavior online
than you are of tracking shopping behavior in a physical store?
9-12. What ethical dilemmas are involved with this strategy of retail consumer tracking?
9-13. What factors would influence a business’s decision to use it? (Think in terms of the
various stakeholders who might be affected by this decision.)
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
new business. Here are the steps in the process:
• Describe your company’s background and purpose.
• Identify your short- and long-term goals.
• Do a thorough market analysis.
Students are asked to create a business plan for a bank by choosing from the
alternatives listed below:
WORKING TOGETHER: TEAM EXERCISE
This exercise asks students to work in small groups of three to four to find examples of
company mission statements. Once these mission statements are found, students
should evaluate them on the information presented in Exhibit 9-2 and then come up with
different types of strategies to accomplish those missions. Mission statements can be
found by going to company Web sites or through other publications (i.e. annual reports).
Finding mission statements for companies is not always easy. Some companies do not
use the words ‘mission statement’ and instead use terms like ‘statement of goals’ or
‘objectives.’ This exercise should be used as an out-of-class assignment.
My Turn to be a Manager
• Do a personal SWOT analysis. Assess your personal strengths and weaknesses
(skills, talents, abilities). What are you good at? What are you not so good at?
What do you enjoy doing? What don’t you enjoy doing? Then, identify career
opportunities and threats by researching job prospects in the industry you’re
interested in. Look at trends and projections. You might want to check out the
information the Bureau of Labor Statistics provides on job prospects. Once you
• Using current business periodicals, find two examples of each of the corporate
and competitive strategies. Write a description of what these businesses are
• Pick five companies from the latest version of Fortune’s “Most Admired
Companies” list. Research these companies and identify, for each, its (a) mission
• Steve’s and Mary’s suggested readings: Adrian Slywotzky and Richard Wise,
How to Grow When Markets Don’t (Warner Business Books, 2003); Jim Collins,
Good to Great: Why Some Companies Make the Leap…and Others Don’t
(Harper Business, 2001); Michael E. Porter, On Competition (Harvard Business
School Press, 1999); James C. Collins and Jerry I. Porras, Built to Last:
Successful Habits of Visionary Companies (Harper Business, 1994); and Gary
Hamel and C. K. Prahalad, Competing for the Future (Harvard Business School
Press, 1994). (LO: 1, Define strategic management and explain why it’s
• Customer service, e-business, and innovation strategies are particularly
important to managers today. We described in the chapter specific ways that
companies can pursue these strategies. Your task is to pick customer service, e-
business, or innovation and find one example for each of the specific approaches
• In your own words, write down three things you learned in this chapter about
being a good manager. (LO: 1, Define strategic management and explain why it’s
important, AACSB: Analytical thinking) (LO: 2, Explain what managers do during
• Self-knowledge can be a powerful learning tool. Go to mymanagementlab and
complete these self-assessment exercises: How Well Do I Handle Ambiguity?
How Creative Am I? and How Well Do I Respond to Turbulent Change? Using
the results of your assessments, identify personal strengths and weaknesses.
What will you do to reinforce your strengths and improve your weaknesses? (LO:
ANSWERS TO CASE APPLICATION 1
QUESTIONS
Student answers to these questions will vary.
Fast Fashion
9-14. How is strategic management illustrated by this case story?
According to the case, Zara’s plan ‘involves a clear and focused understanding of
fashion, technology, and their market, and the ability to adapt quickly to trends.’ Inditex is
practicing strategic management and it is evident starting in:
1. Setting goals – the owner’s goals to produce ‘fast fashion’
2. The formulation of strategy – to use technology to produce designs within two
weeks
3. The implementation of strategy – building the design processes to take
advantage of computer-aided technologies
4. The evaluation of results – the constant evaluation of designs to see which are
successful.
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:
think in terms of resources and capabilities.)
ANSWERS TO CASE APPLICATION 2
QUESTIONS
Student answers to these questions will vary.
Rewind and Replay
9-19. Using Porter’s framework, describe Netflix’s competitive strategy. Explain your
choice.
Netfix’s strategy is best described as a focus or segmented strategy. They have taken a
9-20. What competitive advantage(s) do you think Netflix has? Have its resources,
capabilities, or core competencies contributed to its competitive advantage(s)? Explain.
9-21. How will Netflix’s functional strategies have to support its competitive strategy?
9-22. What do you think Netflix is going to have to do to maintain its competitive position,
especially as its industry changes?
Students should recognize that Netflix operates in a highly competitive and fast changing
ADDITIONAL CHAPTER INFORMATION
The Strategy + Business Web site features valuable sources for strategic management