The Nature of Strategic Management The Components of Strategy Types of Strategic Alternatives Strategy Formulation and Implementation Using SWOT Analysis to Formulate Strategy Evaluating Strengths Evaluating Weaknesses Evaluating Opportunities and Threats Formulating Business-Level Strategies Porter’s Generic Strategies The Miles and Snow Topology Product Life Cycle Strategies Implementing Business-Level Strategies Implementing Porter’s Generic Strategies Implementing Miles and Snow’s Strategies Formulating Corporate-Level Strategies Single-Product Strategy Related Diversification Unrelated Diversification Implementing Corporate-Level Strategies Becoming a Diversified Firm Managing Diversification

1. • The Nature of StrategicThe Nature of Strategic
ManagementManagement
– The Components of StrategyThe Components of Strategy
– Types of Strategic AlternativesTypes of Strategic Alternatives
– Strategy Formulation andStrategy Formulation and
ImplementationImplementation
• Using SWOT Analysis toUsing SWOT Analysis to
Formulate StrategyFormulate Strategy
– Evaluating StrengthsEvaluating Strengths
– Evaluating WeaknessesEvaluating Weaknesses
– Evaluating Opportunities andEvaluating Opportunities and
ThreatsThreats
• Formulating Business-LevelFormulating Business-Level
StrategiesStrategies
– Porter’s Generic StrategiesPorter’s Generic Strategies
– The Miles and Snow TopologyThe Miles and Snow Topology
– Product Life Cycle StrategiesProduct Life Cycle Strategies
• Implementing Business-LevelImplementing Business-Level
StrategiesStrategies
– Implementing Porter’s GenericImplementing Porter’s Generic
StrategiesStrategies
– Implementing Miles and Snow’sImplementing Miles and Snow’s
StrategiesStrategies
• Formulating Corporate-LevelFormulating Corporate-Level
StrategiesStrategies
– Single-Product StrategySingle-Product Strategy
– Related DiversificationRelated Diversification
– Unrelated DiversificationUnrelated Diversification
• Implementing Corporate-LevelImplementing Corporate-Level
StrategiesStrategies
– Becoming a Diversified FirmBecoming a Diversified Firm
– Managing DiversificationManaging Diversification
Managing Strategy and Strategic PlanningManaging Strategy and Strategic Planning

2. The Nature of Strategic ManagementThe Nature of Strategic Management
• StrategyStrategy
– A comprehensive plan for accomplishing an organization’sA comprehensive plan for accomplishing an organization’s
goals.goals.
• Strategic ManagementStrategic Management
– A way of approaching business opportunities andA way of approaching business opportunities and
challenges.challenges.
– A comprehensive and ongoing management process aimedA comprehensive and ongoing management process aimed
at formulating and implementing effective strategies whichat formulating and implementing effective strategies which
align the organization with its environment to achieve majoralign the organization with its environment to achieve major
organizational goals.organizational goals.
• Effective StrategiesEffective Strategies
– Strategies that promote a superior alignment between theStrategies that promote a superior alignment between the
organization and its environment and the achievement of itsorganization and its environment and the achievement of its
goals.goals.

3. Components of StrategyComponents of Strategy
• Distinctive CompetenceDistinctive Competence
– Something an organization does exceptionally well.Something an organization does exceptionally well.
• ScopeScope
– Range of markets in which an organization will compete.Range of markets in which an organization will compete.
• Resource DeploymentResource Deployment
– How an organization will distributeHow an organization will distribute
its resources across the areas inits resources across the areas in
which it competes.which it competes.

4. Types of Strategic AlternativesTypes of Strategic Alternatives
• Business-level StrategyBusiness-level Strategy
– The set of strategic alternatives that an organization choosesThe set of strategic alternatives that an organization chooses
from as it conducts business in a particular industry or afrom as it conducts business in a particular industry or a
particular market.particular market.
• Corporate-level StrategyCorporate-level Strategy
– The set of strategic alternatives that anThe set of strategic alternatives that an
organization chooses from as it managesorganization chooses from as it manages
its operations simultaneously across severalits operations simultaneously across several
industries and several markets.industries and several markets.

5. Strategy FormulationStrategy Formulation
and Implementationand Implementation
• Strategy FormulationStrategy Formulation
– The set of processes involved in creating or determining theThe set of processes involved in creating or determining the
organization’s strategies; it focuses on the content oforganization’s strategies; it focuses on the content of
strategies.strategies.
• Strategy ImplementationStrategy Implementation
– The methods by which strategies are operationalized orThe methods by which strategies are operationalized or
executed within the organization; it focuses on theexecuted within the organization; it focuses on the
processes through which strategies are achieved.processes through which strategies are achieved.

6. Strategy Formulation andStrategy Formulation and
Implementation (cont’d)Implementation (cont’d)
• Deliberate StrategyDeliberate Strategy
– A plan, chosen and implemented to support specific goals,A plan, chosen and implemented to support specific goals,
that is the result of a rational, systematic, and plannedthat is the result of a rational, systematic, and planned
process of strategy formulation and implementation.process of strategy formulation and implementation.
• Emergent StrategyEmergent Strategy
– A pattern of action that develops over timeA pattern of action that develops over time
in the absence of goals or missions,in the absence of goals or missions,
or despite goals and missions.or despite goals and missions.

7. SWOTSWOT
AnalysisAnalysis
• Strengths
• Weaknesses
• Opportunities
• Threats
MissionMission
An organization’s fundamental purposeAn organization’s fundamental purpose
Good StrategiesGood Strategies
SWOT AnalysisSWOT Analysis
To formulate strategies that support the missionTo formulate strategies that support the mission
Those that support the mission andThose that support the mission and
• exploit opportunities and strengthsexploit opportunities and strengths
• neutralize threatsneutralize threats
• avoid weaknessesavoid weaknesses
Internal AnalysisInternal Analysis
StrengthsStrengths
(distinctive(distinctive
competencies)competencies)
WeaknessesWeaknesses ThreatsThreats
External AnalysisExternal Analysis
OpportunitiesOpportunities

8. Using SWOT Analysis toUsing SWOT Analysis to
Formulate StrategyFormulate Strategy
• Evaluating Organizational StrengthsEvaluating Organizational Strengths
– Organizational strengthsOrganizational strengths
• are skills and abilities enabling an organization to conceive of andare skills and abilities enabling an organization to conceive of and
implement strategies.implement strategies.
– Common organizational strengthsCommon organizational strengths
• are organizational capabilities possessed by numerous competingare organizational capabilities possessed by numerous competing
firms.firms.
– Distinctive competenciesDistinctive competencies
• are useful for competitive advantage and superior performance.are useful for competitive advantage and superior performance.
– Imitation of distinctive competenciesImitation of distinctive competencies
• is duplicating another firm’s distinctive competence.is duplicating another firm’s distinctive competence.

9. Using SWOT Analysis to FormulateUsing SWOT Analysis to Formulate
Strategy (cont’d)Strategy (cont’d)
• Evaluating Organizational Strengths (cont’d)Evaluating Organizational Strengths (cont’d)
– Sustained competitive advantageSustained competitive advantage
• occurs when a distinctive competence cannot be easily duplicated.occurs when a distinctive competence cannot be easily duplicated.
• is what remains after all attempts at strategic imitations haveis what remains after all attempts at strategic imitations have
ceased.ceased.
– Strategic imitation is difficult whenStrategic imitation is difficult when
• Distinctive competence is based on unique historicalDistinctive competence is based on unique historical
circumstances.circumstances.
• Competitors do not understand the nature or character of aCompetitors do not understand the nature or character of a
firm’s competence.firm’s competence.
• The competence is based on a complex phenomenon, such asThe competence is based on a complex phenomenon, such as
organizational culture.organizational culture.

10. Using SWOT Analysis to FormulateUsing SWOT Analysis to Formulate
Strategy (cont’d)Strategy (cont’d)
• Evaluating Organizational WeaknessesEvaluating Organizational Weaknesses
– Organizational weaknesses are skills and capabilities that doOrganizational weaknesses are skills and capabilities that do
not enable an organization to choose and implementnot enable an organization to choose and implement
strategies that support its mission.strategies that support its mission.
– Weaknesses can be overcome byWeaknesses can be overcome by
• investments to obtain the strengths needed.investments to obtain the strengths needed.
• modification of the organization’s missionmodification of the organization’s mission
so it can be accomplished with the currentso it can be accomplished with the current
workforce.workforce.
– Competitive disadvantage is a situationCompetitive disadvantage is a situation
in which an organization fails to implementin which an organization fails to implement
strategies being implemented by competitors.strategies being implemented by competitors.

11. Using SWOT Analysis to FormulateUsing SWOT Analysis to Formulate
Strategy (cont’d)Strategy (cont’d)
• Evaluating an Organization’s OpportunitiesEvaluating an Organization’s Opportunities
and Threatsand Threats
– Organizational opportunities areOrganizational opportunities are
areas in the organization’s environmentareas in the organization’s environment
that may generate high performance.that may generate high performance.
– Organizational threats are areas in theOrganizational threats are areas in the
organization’s environment that makeorganization’s environment that make
it difficult for the organization toit difficult for the organization to
achieve high performance.achieve high performance.

12. Formulating Business-Level StrategiesFormulating Business-Level Strategies
• Porter’s Generic StrategiesPorter’s Generic Strategies
– Differentiation strategyDifferentiation strategy
• An organization seeks to distinguish itself from competitorsAn organization seeks to distinguish itself from competitors
through the quality of its products or services.through the quality of its products or services.
– Overall cost leadership strategyOverall cost leadership strategy
• An organization attempts to gain competitive advantage byAn organization attempts to gain competitive advantage by
reducing its costs below the costs of competing firms.reducing its costs below the costs of competing firms.
– Focus strategyFocus strategy
• An organization concentrates on a specific regional market,An organization concentrates on a specific regional market,
product line, or group of buyers.product line, or group of buyers.

13. Porter’s Generic StrategiesPorter’s Generic Strategies
Strategy Type Definition Examples
Differentiation Distinguish products or
services
Rolex (watches)
Mercedes-Benz (automobiles)
Nikon (cameras)
Cross (writing instruments)
Hewlett-Packard (hand-held calculators)
Overall cost leadership Reduce manufacturing
and other costs
Timex
Hyundai
Kodak
Bic
Texas Instruments
Focus Concentrate on specific
regional market, product
market, or group of buy-
ers
Tag Heuer
Fiat, Alfa Romeo
Polaroid
Waterman Pens
Fisher Price

14. The Miles and Snow TopologyThe Miles and Snow Topology
Strategy Type Definition Examples
Prospector Is innovative and growth oriented,
searches for new markets and new
growth opportunities, encourages
risk taking
Amazon.com
3M
Rubbermaid
Defender Protects current markets, main-
tains stable growth, serves current
customers
Bic
eBay.com
Mrs. Fields
Analyzer Maintains current markets and
current customer satisfaction with
moderate emphasis on innovation
Dupont
IBM
Yahoo
Reactor No clear strategy, reacts to
changes in the environment, drifts
with events
International Harvester
(in the 1960s and 1970s)
Joseph Schlitz Brewing Co.
W. T. Grant

15. Strategies Based on Product LifeStrategies Based on Product Life
CycleCycle
• The Product Life Cycle
Introduction
Time
Stages
Growth Maturity Decline
High
Low
SalesVolume

16. Implementing Business-Level StrategiesImplementing Business-Level Strategies
• Implementing Porter’s Generic StrategiesImplementing Porter’s Generic Strategies
– Differentiation StrategyDifferentiation Strategy
• Marketing and sales must emphasize high-quality, high-valueMarketing and sales must emphasize high-quality, high-value
image of the organization’s products or services.image of the organization’s products or services.
– Overall Cost Leadership StrategyOverall Cost Leadership Strategy
• To support cost leadership, marketing and sales are likely toTo support cost leadership, marketing and sales are likely to
focus on simple product attributes and how these productfocus on simple product attributes and how these product
attributes meet customer needs in a low-cost and effectiveattributes meet customer needs in a low-cost and effective
manner.manner.
– Focus StrategyFocus Strategy
• This strategy is implemented via the same approaches used forThis strategy is implemented via the same approaches used for
differentiation and cost leadership, depending on which onedifferentiation and cost leadership, depending on which one
(differentiation or cost leadership) is the proper basis for(differentiation or cost leadership) is the proper basis for
competing in or for a specific market segment, product category,competing in or for a specific market segment, product category,
or group buyers.or group buyers.

17. Implementing Business-LevelImplementing Business-Level
Strategies (cont’d)Strategies (cont’d)
• Implementing Miles and Snow’s StrategiesImplementing Miles and Snow’s Strategies
– Prospector StrategyProspector Strategy
• An organization using this strategy must encourage creativity toAn organization using this strategy must encourage creativity to
seek out new market opportunities and to take risks.seek out new market opportunities and to take risks.
• An organization can develop the flexibility to meet changingAn organization can develop the flexibility to meet changing
market conditions by decentralizing its organizational structure.market conditions by decentralizing its organizational structure.
– Defender StrategyDefender Strategy
• To support this strategy, an organization will focus on defendingTo support this strategy, an organization will focus on defending
its current markets by lowering its costs and/or improving theits current markets by lowering its costs and/or improving the
performance of current products.performance of current products.
– Analyzer StrategyAnalyzer Strategy
• Organizations using this strategy incorporate elements of bothOrganizations using this strategy incorporate elements of both
the prospector and the defender strategies in an attempt tothe prospector and the defender strategies in an attempt to
maintain current business and to be somewhat innovative.maintain current business and to be somewhat innovative.

18. Formulating Corporate-Level StrategiesFormulating Corporate-Level Strategies
• Strategic Business UnitsStrategic Business Units
– Each business or group of businesses within an organizationEach business or group of businesses within an organization
engaged in serving the same markets, customers, orengaged in serving the same markets, customers, or
products.products.
• DiversificationDiversification
– The number of businesses an organization is engaged in andThe number of businesses an organization is engaged in and
the extent to which these businesses are related to onethe extent to which these businesses are related to one
another.another.
• Single Product StrategySingle Product Strategy
– A strategy in which an organization manufactures oneA strategy in which an organization manufactures one
product or service and sells it in a single geographic market.product or service and sells it in a single geographic market.

19. Related DiversificationRelated Diversification
• Related DiversificationRelated Diversification
– A strategy in which an organization operates in several
different businesses, industries, or markets that are
somehow linked.
• Bases of Relatedness in ImplementingBases of Relatedness in Implementing
Related DiversificationRelated Diversification
Basis of Relatedness Examples
Similar technology Phillips, Boeing, Westinghouse, Compaq
Common distribution and marketing skills RJR Nabisco, Phillip Morris, Procter & Gamble
Common name brand and reputation Disney, Universal
Common customers Merck, IBM, AMF-Head

20. Related Diversification (cont’d)Related Diversification (cont’d)
• Advantages of Related DiversificationAdvantages of Related Diversification
– Reduces organization’s dependence on any one of itsReduces organization’s dependence on any one of its
business activities and thus reduces economic risk.business activities and thus reduces economic risk.
– Reduces overhead costs associated with managing any oneReduces overhead costs associated with managing any one
business through economies of scale and economies ofbusiness through economies of scale and economies of
scope.scope.
– Allows an organization to exploit its strengths andAllows an organization to exploit its strengths and
capabilities in more than one business.capabilities in more than one business.
– SynergySynergy exists among a set of businesses when theexists among a set of businesses when the
businesses’ value together is greater than their economicbusinesses’ value together is greater than their economic
value separately.value separately.

21. Formulating Corporate-LevelFormulating Corporate-Level
Strategies (cont’d)Strategies (cont’d)
• Unrelated DiversificationUnrelated Diversification
– A strategy in which an organization operates multipleA strategy in which an organization operates multiple
businesses that are not logically associated with one another.businesses that are not logically associated with one another.
• AdvantagesAdvantages
– Stable corporate-level performance over time due to businessStable corporate-level performance over time due to business
cycle differences among the multiple businesses.cycle differences among the multiple businesses.
– Resources can be allocated to areas with the highest returnResources can be allocated to areas with the highest return
potentials to maximize corporate performance.potentials to maximize corporate performance.
• DisadvantagesDisadvantages
– Strategy does not usually lead to high performance due to theStrategy does not usually lead to high performance due to the
complexity of managing a diversity of businesses.complexity of managing a diversity of businesses.
– Firms with unrelated strategies fail to exploit importantFirms with unrelated strategies fail to exploit important
synergies, putting them at a competitive disadvantage to firmssynergies, putting them at a competitive disadvantage to firms
with related diversification strategies.with related diversification strategies.

22. Implementing Corporate-Level StrategiesImplementing Corporate-Level Strategies
• Becoming a Diversified FirmBecoming a Diversified Firm
– Internal Development of New ProductsInternal Development of New Products
• Developing products and services within the boundaries ofDeveloping products and services within the boundaries of
traditional business operations.traditional business operations.
– Replacement of Suppliers and CustomersReplacement of Suppliers and Customers
• Backward Vertical IntegrationBackward Vertical Integration
– Beginning a business that furnishesBeginning a business that furnishes
resources previously handledresources previously handled
by a supplier.by a supplier.
• Forward Vertical IntegrationForward Vertical Integration
– Beginning a business previouslyBeginning a business previously
handled by an intermediary andhandled by an intermediary and
selling more directly to customers.selling more directly to customers.

23. Implementing Corporate-LevelImplementing Corporate-Level
Strategies (cont’d)Strategies (cont’d)
• Becoming a Diversified FirmBecoming a Diversified Firm
– Merger and AcquisitionsMerger and Acquisitions
• A merger is the purchase of one firm by another firm ofA merger is the purchase of one firm by another firm of
approximately the same size.approximately the same size.
• An acquisition is the purchase of a firm by another firm that isAn acquisition is the purchase of a firm by another firm that is
considerably larger.considerably larger.
– Purposes of Mergers and AcquisitionsPurposes of Mergers and Acquisitions
• To diversify through vertical integration.To diversify through vertical integration.
• To acquire complementary products or services linked by aTo acquire complementary products or services linked by a
common technology and common customers.common technology and common customers.
• To create or exploit synergies that reduce the combinedTo create or exploit synergies that reduce the combined
organizations’ costs of doing business to increase revenues.organizations’ costs of doing business to increase revenues.

24. Managing DiversificationManaging Diversification
• Major Tools for Managing DiversificationMajor Tools for Managing Diversification
– Organization structureOrganization structure
• Detailed discussion of organization structure is contained inDetailed discussion of organization structure is contained in
Chapter 12.Chapter 12.
– Portfolio management techniquesPortfolio management techniques
• Methods that diversified organizations use to make decisionsMethods that diversified organizations use to make decisions
about what businesses to engage in and how to manage theseabout what businesses to engage in and how to manage these
multiple businesses to maximize corporate performance.multiple businesses to maximize corporate performance.
– Two important portfolio management techniques are theTwo important portfolio management techniques are the
BCG Matrix and the GE Business Screen.BCG Matrix and the GE Business Screen.

25. Managing Diversification (cont’d)Managing Diversification (cont’d)
• BCG MatrixBCG Matrix
– A method of evaluating businesses relative to the growth rateA method of evaluating businesses relative to the growth rate
of their market and the organization’s share of the market.of their market and the organization’s share of the market.
– The matrix classifies the types of businesses that aThe matrix classifies the types of businesses that a
diversified organization can engage as:diversified organization can engage as:
• ““Dogs”Dogs”—have small market shares and no growth prospects.—have small market shares and no growth prospects.
• ““Cash cows”—have large shares of mature markets.Cash cows”—have large shares of mature markets.
• ““Question marks”—have small market shares in quickly growingQuestion marks”—have small market shares in quickly growing
markets.markets.
• ““Stars”—have large shares of rapidly growing markets.Stars”—have large shares of rapidly growing markets.

26. The BCG MatrixThe BCG Matrix
Relative market share
Cash cows Dogs
High
Low
High Low
Question
marks
Stars
Marketgrowthrate
Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from The Boston Consulting Group, Inc., 1970.

27. Managing DiversificationManaging Diversification
• GE Business ScreenGE Business Screen
– A method of evaluating business in a diversified portfolioA method of evaluating business in a diversified portfolio
along two dimensions, each of which contains multiplealong two dimensions, each of which contains multiple
factors:factors:
• Industry attractiveness.Industry attractiveness.
• Competitive position (strength) of each firm in the portfolio.Competitive position (strength) of each firm in the portfolio.
– In general, the more attractive the industry and the moreIn general, the more attractive the industry and the more
competitive a business is, the more resources ancompetitive a business is, the more resources an
organization should invest in that business.organization should invest in that business.

28. The GE Business ScreenThe GE Business Screen
Competitive position
Low
Winner
Medium
High
Good
Competitive position
1. Market share
2.Technological know-how
3. Product quality
4. Service network
5. Price competitiveness
6. Operating costs
Industry attractiveness
1. Market growth
2. Market size
3. Capital requirements
4. Competitive intensity
PoorMedium
Winner
Profit
producer
Winner
Average
business
Loser
Question
mark
Loser
Loser
Industrygrowthrate
Source: From Strategy Formulation:
Analytical Concepts, by Charles W. Hofer
and Dan Schendel. Copyright 1978 West
Publishing. Used by permission of South-
Western College Publishing, a division of
International Thomson Publishing, Inc.,
Cincinnati, Ohio, 45227.