Chapter 9 Managing Strategy

It’s Your Career

Learning Your Strengths
and Weaknesses: Accentuate
the Positive
Do you know your individual personal strengths and
weaknesses? You need to! Why? One important
reason is that 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. Another reason is that in
today’s knowledge-work world, you need to find,
know, and leverage your workplace strengths so
you can be the best employee possible. Finally,
by knowing your strengths and weaknesses you
can size up where you stand in your career and
Source: Login/Fotolia
make good decisions about what you need to do to keep
advancing. So, here are some suggestions to help you learn your strengths and
A key to success in weaknesses so you can accentuate your positive attributes and minimize or
management and in your compensate for your weaknesses:
career is knowing how
to identify, evaluate, and 1. Focus first on identifying your strengths. Your strengths are your
make the best use of your individual personal positive attributes and characteristics. As you look at your
personal strengths and strengths, assess the following: skills (what you are good at), interests (what
weaknesses. you enjoy doing), educational background (what qualifications you have),
your values (what things are important to you), and your personality (what
characteristics you have). As you evaluate these, think in terms of what sets
you apart. What things do you like to do? What things do you do well? What
things do you do better than others? It’s also helpful to ask others you trust
what they see as your strengths.
2. Take a look at your weaknesses. Your weaknesses are your individual
personal negative attributes and characteristics, and it’s never easy to look for
those. Nobody likes to admit that they have weaknesses. But it is important to
know the areas where you need improvement. What things could you improve
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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.
Know how to identify your own personal strengths and weaknesses and deal with them.
●

● Develop your skill at strategic planning.

3 Describe the three types of corporate strategies.

4 Describe competitive advantage and the competitive strategies organizations
use to get it.
5 Discuss current strategic management issues.

about yourself? What are your negative personal/ founder Drew Houston, “The most successful people
work habits? What things do you not like to do? are obsessed with solving an important problem,
What professional or career skills/training/education/ something that matters to them. They remind me of
qualifications are you lacking that would make you a dog chasing a tennis ball.”1 What’s your tennis ball?
a more valuable employee? Are you lacking career What things grab your attention in a way you can’t
direction or focus? What things do others do better resist and how can you exploit those passions in your
than you do? Again, it’s helpful to ask others you trust work life and career?
what they see as your weaknesses. Minimize or compensate for your weaknesses.
3. Develop a strategy to do something about Improve upon your weaker skills, attitudes, habits, or
your strengths and weaknesses. What actions can qualifications to increase your present and future job
you take to get the job you want or to best meet the opportunities.
requirements of your current job or a promotion you’re 4. Update your list of strengths and
seeking? Accentuate your positives! You want to weaknesses periodically. As you gain new experiences
leverage, emphasize, and capitalize on your strengths. and as your life circumstances change, you’ll want to
This might involve strengthening a specific skill or revise your list of strengths and weaknesses. Sharpen
attribute. Or it could mean following the great advice your self-awareness so you can craft the kind of life—
given in a commencement speech at MIT by Dropbox professionally and personally—you want to live.

The importance of having good strategies can be seen daily if you pay attention to
what’s happening in the world of business. Managers must recognize market oppor-
tunities to exploit, take steps to correct company weaknesses, or formulate new and
hopefully more effective strategies to be strong competitors. How they manage those
267
268 Part 3 Planning

strategies will play an important role in a company’s ability to reach its goals. An
underlying theme in this chapter is that effective strategies can result in high organi-
zational performance.

STRATEGIC Management
LO1
selling more pizzas but selling more pizza ingredients.

care product lines, are waging a shampoo price war.

struggling video game maker.

-
agers do. In this section, we want to look at what strategic management is and why it’s
important.

What Is Strategic Management?

The discount retail industry is a good place to see what strategic management is all

have other similarities: store atmosphere, names, markets served, and organizational

Kmart. Walmart is the world’s largest retailer and Kmart was the largest retailer ever to

different strategies and competitive abilities. Walmart has excelled by effectively manag-
ing strategies while Kmart has struggled by not effectively managing its strategies.
strategic management Strategic management is what managers do to develop the organization’s
What managers do to develop the strategies. It’s an important task involving all the basic management functions—plan-
organization’s strategies ning, organizing, leading, and controlling. What are an organization’s strategies
strategies They’re the plans for how the organization will do whatever it’s in business to do, how
The plans for how the organization will it will compete successfully, and how it will attract and satisfy its customers in order
do what it’s in business to do, how it will to achieve its goals.
compete successfully, and how it will One term often used in strategic management is business model, which simply
attract and satisfy its customers in order
to achieve its goals
-

business model make any money doing that.5

How a company is going to make money for selling books to consumers directly online instead of selling through bookstores.

the world’s biggest everything store. As managers think about strategies, they need to

on p.

Why Is Strategic Management Important?

American Idol soon

its audience has been declining and there are a number of competitor shows airing,
The Voice. However, American Idol’s executive producer
 Chapter 9 Managing Strategy 269

Idol Price is Right.

The managers behind
Idol seem to understand the importance of strategic
management. Now, their challenge is to keep the
franchise a strong presence in the market by making
strategic changes.

are three reasons. The most significant one is that it

can make a difference in how well an organization per-
forms. Why do some businesses succeed and others fail,
even when faced with the same environmental condi-

between strategic planning and performance. In other

words, it appears that organizations that use strategic
management do have higher levels of performance.
Hasbro achieves high organizational performance
Another reason it’s important has to do with the fact that managers in organiza- with a strategy focused on innovation in developing
tions of all types and sizes face continually changing situations (as we discussed in new toys and games and in growing its core brands
to meet the changing demands of all age groups
. They cope with this uncertainty by using the strategic management pro- worldwide. Vital to Hasbro’s continued success is
- launching app-enhanced classic board games such
ness executives across a wide spectrum of industries coped with the global recession, as The Game of Life, debuted by demonstrators at
an international toy fair.
store managers throughout the company told corporate managers that cash-strapped Source: Ray Stubblebine/AP Images

packages of paper, half the size of the normal big box of paper.

diverse. Each part needs to work together toward achieving the organization’s goals;
-
ees worldwide working in various departments, functional areas, and stores, Walmart

on what’s important as determined by its goals.

If your professor has assigned this, go to www.mymanagementlab.com to watch a

video titled: Rudi’s Bakery: Strategic Management and to respond to questions.
Watch It 1!

Today, both business organizations and not-for-profit organizations use strategic

battles with overnight package delivery companies, telecommunications companies’

possible action plan is a revised service level schedule: six-day package delivery and
five-day mail delivery. Others include streamlining and consolidating mail processing

next decade.
Five Year Business Plan, which outlines its internal plan
for the future. Although strategic management in not-for-profits hasn’t been as
well researched as it has been for for-profit organizations, we know it’s important for
them as well.
270 Part 3 Planning

Exhibit 9-1
Strategic Management Process

External Analysis

eats

Identify the
organization’s Formulate Evaluate
current mission, goals, SWOT Analysis Strategies Strategies Results
and strategies

Internal Analysis
engths
eaknesses

THE STRATEGIC Management Process

The strategic management process
strategic management process
A six-step process that encompasses LO2 process that encompasses strategy planning, implementation, and evalu-
strategic planning, implementation, and ation. Although the first four steps describe the planning that must take place, imple-
evaluation

management doesn’t implement or evaluate them properly.

Step 1: Identifying the Organization’s Current Mission,

Goals, and Strategies
mission Every organization needs a mission -
The purpose of an organization -

have been playing catch-up. What should

describes some typical components.

Exhibit 9-2
Components of a Mission Customers: Who are the firm’s customers?
Statement
Markets: Where does the firm compete geographically?
Source: Based on Strategic Management,
13th edition, by Fred R. David. (Upper Concern for survival,
Saddle River: Pearson Education, Inc., 2011.) Is the firm committed to growth and financial stability?
growth, and profitability:
Philosophy: What are the firm’s basic beliefs, values, and ethical priorities?
How responsive is the firm to societal and
Concern for public image:
environmental concerns?
Products or services: What are the firm’s majorproducts or services?

Technology: Is the firm technologically current?

Self-concept: What are the firm’s major competitive advantage and

core competencies?
Concern for employees: Are employees a valuable asset of the firm?
 Chapter 9 Managing Strategy 271

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FYI
Step 2: Doing an External Analysis

must now post calorie information on their menus and drive-through signs. Only 41 percent of employees
know what their company
than for phone calls and the number of smartphones and tablet computers stands for.13
continues to soar.

We described the external environment s an important constraint on a opportunities

manager’s actions. Analyzing that environment is a critical step in the strategic man- Positive trends in the external
agement process. Managers do an external analysis so they know, for instance, what environment
the competition is doing, what pending legislation might affect the organization, or threats
what the labor supply is like in locations where it operates. In an external analysis, Negative trends in the external
managers should examine the economic, demographic, political/legal, sociocultural, environment
technological, and global components to see the trends and changes. resources
Once they’ve analyzed the environment, managers need to pinpoint opportuni- An organization’s assets that are used
ties that the organization can exploit and threats that it must counteract or buffer to develop, manufacture, and deliver
against. Opportunities are positive trends in the external environment; threats are products to its customers
negative trends. capabilities
An organization’s skills and abilities in
Step 3: Doing an Internal Analysis doing the work activities needed in its
business
Now we move to the internal analysis, which provides important information about an
organization’s specific resources and capabilities. An organization’s resources are its core competencies
assets—financial, physical, human, and intangible—that it uses to develop, manufac- The organization’s major value-
creating capabilities that determine its
competitive weapons
the other hand, its capabilities are its skills and abilities in doing the work activities
strengths
of the organization are known as its core competencies. Any activities the organization does well
competencies determine the organization’s competitive weapons. or its unique resources
After completing an internal analysis, managers should be able to identify weaknesses
organizational strengths and weaknesses. Any activities the organization does well or Activities the organization does not do
any unique resources that it has are called strengths. Weaknesses are activities the well or resources it needs but does not
organization doesn’t do well or resources it needs but doesn’t possess. possess

Personal Strengths/Weaknesses—If your instructor is using MyManagementLab,

log onto www.mymanagementlab.com and test your knowledge about learning your It’s Your Career
personal strengths/weaknesses. Be sure to refer back to the chapter opener!

The combined external and internal analyses are called the SWOT analysis, SWOT analysis
an analysis of the organization’s strengths, weaknesses, opportunities, and threats. An analysis of the organization’s
strengths, weaknesses, opportunities,
and threats
-
272 Part 3 Planning

let’s
get REAL
The Scenario:
Johan Nilsson started his architectural firm in Stockholm more than
15 years ago. His business has grown to where he now employs eight
architects in addition to himself and an office staff of four. Like many
other companies, Johan’s business suffered through the global economic
downturn. However, now that things are starting to turn around, he feels
it’s important to re-establish his company’s strategic direction. And he also
believes that his job as a leader is to make sure his employees understand
the strategic goals of the company.
What advice might you give Johan about sharing his organization’s strategy
and getting his employees to “buy into” the company’s future?
The firm is small enough that Johan can take staff
feedback into consideration as the new
strategy is developed and get them involved
in implementing that strategy. Buy-in is
best achieved when stakeholders are kept
informed throughout the process and it’s
even better when they can be part of the

Source: Maribel Lara

implementation.
Maribel Lara
Director, Account Management

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Step 4: Formulating Strategies

As managers formulate strategies, they should consider the realities of the external envi-
ronment and their available resources and capabilities in order to design strategies that
will help an organization achieve its goals. The three main types of strategies managers
will formulate include corporate, competitive, and functional. We’ll describe each shortly.

Step 5: Implementing Strategies

Once strategies are formulated, they must be implemented. No matter how effectively
an organization has planned its strategies, performance will suffer if the strategies
aren’t implemented properly.

Step 6: Evaluating Results

The final step in the strategic management process is evaluating results. How effec-
-

If your professor has assigned this, go to www.mymanagementlab.com to complete the

Write It 3!
 Chapter 9 Managing Strategy 273

Exhibit 9-3
Types of Organizational Strategies

Corporate Multibusiness
Corporation

Competitive Strategic Strategic Strategic

Business Unit 1 Business Unit 2 Business Unit 3

Functional Research and Manufacturing Marketing Human Finance

Development Resources

CORPORATE Strategies
As we said earlier, organizations use three types of strategies: corporate,
LO3 -
cally are responsible for corporate strategies, middle-level managers for competitive
strategies, and lower-level managers for the functional strategies. In this section, we’ll
look at corporate strategies.

What Is Corporate Strategy?

A corporate strategy is one that determines what businesses a company is in or corporate strategy
wants to be in and what it wants to do with those businesses. It’s based on the mission An organizational strategy that
and goals of the organization and the roles that each business unit of the organiza- determines what businesses a company
is in or wants to be in, and what it wants
- to do with those businesses
sion: To be the world’s premier consumer products company focused on convenient
foods and beverages. It pursues that mission with a corporate strategy that has put it

Middle East/Africa. The other part of corporate strategy is when top managers decide
what to do with those businesses: grow them, keep them the same, or renew them.

What Are the Types of Corporate Strategy?

The three main types of corporate strategies are growth, stability, and renewal. Let’s
look at each type.

GROWTH
growth strategy is when an orga- growth strategy
nization expands the number of markets served or products offered, either through A corporate strategy that’s used when
an organization wants to expand the
number of markets served or products
an organization may increase revenues, number of employees, or market share. Orga- offered, either through its current
nizations grow by using concentration, vertical integration, horizontal integration, or business(es) or through new business(es)
diversification.
An organization that grows using concentration focuses on its primary line of busi-
ness and increases the number of products offered or markets served in this primary
-
tion has used concentration to become one of the world’s largest medical diagnostics
and research equipment companies. Another example of a company using concentra-
-
ing innovative audio products. It has become one of the world’s leading manufacturers
of speakers for home entertainment, automotive, and pro audio markets with annual
 274 Part 3 Planning

LEADER making a A company also might choose to grow

by vertical integration, either backward, for-
DIFFERENCE ward, or both. In backward vertical inte-
gration, the organization becomes its own
Under the guidance and leadership of Creative Director
and President Jenna Lyons, J.Crew has become a fash- -
ion force. Positioned between fast-fashion chains such ment business that helps it provide more
secure transactions and control one of its
as Zara (see end-of-chapter Case Application #1) and
most critical processes. In forward vertical
H&M and high-fashion designer lines, Lyons has helped integration, the organization becomes its
J.Crew find a profitable niche. Although it’s not as big own distributor and is able to control its
Source: Neil Rasmus/BFAnyc/Sipa USA/Newscom

as Gap, J.Crew is making strategic inroads. Lyons’s philosophy is that

“Style is for everyone. We don’t talk down to our customers. We want
people to be excited about clothes.” 16 As the company’s creative visionary, product.
her focus is not just on financial concerns (price, units sold, etc.) but on In horizontal integration, a company grows
whether products are beautiful and whether she and her team love them.
Financial decisions and creative decisions have equal weight. Following a
strategic approach where design is supreme means running the business in
a completely different way. Before Lyons, designers were told to develop
-
products that would meet specific merchandising goals. Now, designers
are free to, well, design. When their experiments don’t work, all Lyons -
asks is for her staff to take responsibility. Then together, they try to fix it. 17 tion has been used in a number of industries
They’ve had steady growth—the company has over 446 stores in the United in the last few years—financial services, con-
States and Canada, and 2014 revenues were up 9 percent. In late 2013, sumer products, airlines, department stores,
J.Crew’s three new London stores opened. In 2014, J.Crew plans to con-
tinue developing its new store format—J.Crew Mercantile—targeted to
budget-conscious shoppers.18 The next global strategic push is Hong Kong, combinations closely to see if consumers might
be harmed by decreased competition. Other
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? -
tion of the body and laundry care units of

diversification, either related or unre-

-

IT, consumer products, energy, engineering, materials, and services. Again, an odd

STABILITY

stability strategy from chocolate—maintained things as they were. A stability strategy is a corporate
A corporate strategy in which an strategy in which an organization continues to do what it is currently doing. Examples
organization continues to do what it is of this strategy include continuing to serve the same clients by offering the same prod-
currently doing
uct or service, maintaining market share, and sustaining the organization’s current busi-
ness operations. The organization doesn’t grow, but doesn’t fall behind, either.

RENEWAL
 Chapter 9 Managing Strategy 275

and technology services companies faced serious financial issues

with huge losses. When an organization is in trouble, something
needs to be done. Managers need to develop strategies, called
renewal strategies, that address declining performance. The
two main types of renewal strategies are retrenchment and turn-
around strategies. A retrenchment strategy is a short-run renew-
al strategy used for minor performance problems. This strategy
helps an organization stabilize operations, revitalize organiza-
tional resources and capabilities, and prepare to compete once
again. When an organization’s problems are more serious, more
drastic action—the turnaround strategy—is needed. Managers
do two things for both renewal strategies: cut costs and restruc-
ture organizational operations. However, in a turnaround strat-
egy, these measures are more extensive than in a retrenchment
strategy. After nearly collapsing in 2003, the Danish firm
Lego named Jorgen Vig Knudstorp as CEO to lead
How Are Corporate Strategies Managed? a new team of managers in developing a renewal
strategy. Part of Knudstorp’s successful turnaround
When an organization’s corporate strategy encompasses a number of businesses, man- strategy included cutting costs by trimming Lego’s
agers can manage this collection, or portfolio, of businesses using a tool called a cor- product line, restructuring its supply chain, and
porate portfolio matrix. This matrix provides a framework for understanding diverse refocusing on the company’s core product of unique
plastic bricks.
businesses and helps managers establish priorities for allocating resources. The first
Source: Reuters
portfolio matrix—the BCG matrix
and introduced the idea that an organization’s various businesses could be evaluated
renewal strategy
× A corporate strategy designed to
which were a drain on organizational resources. The horizontal axis represents mar- address declining performance

BCG matrix
A strategy tool that guides resource
four categories, which are as follows:
allocation decisions on the basis of
Stars: High market share/High anticipated growth rate market share and growth rate of SBUs
Cash Cows: High market share/Low anticipated growth rate
Question Marks: Low market share/High anticipated growth rate
Dogs: Low market share/Low anticipated growth rate

sold off or liquidated as they have low market share in markets with low growth

investment in them, and use the large amounts of cash generated to invest in stars
and question marks with strong potential to improve market share. Heavy invest-
ment in stars will help take advantage of the market’s growth and help maintain high
market share. The stars, of course, will eventually develop into cash cows as their
markets mature and sales growth slows. The hardest decision for managers relates to
the question marks. After careful analysis, some will be sold off and others strategi-
cally nurtured into stars.

COMPETITIVE Strategies
A competitive strategy is a strategy for how an organization will
LO4 competitive strategy
An organizational strategy for how
business or a large organization that has not diversified into different products or an organization will compete in its
business(es)
markets, its competitive strategy describes how it will compete in its primary or main

own competitive strategy that defines its competitive advantage, the products or ser-

-
276 Part 3 Planning

luxury products. When an organization is in several different businesses, those single

businesses that are independent and that have their own competitive strategies are
strategic business unit (SBU) referred to as strategic business units (SBUs).
The single independent businesses of
an organization that formulate their own
competitive strategies The Role of Competitive Advantage
Michelin has mastered a complex technological process for making superior radial
tires. Apple has created the world’s best and most powerful brand using innovative
design and merchandising capabilities.
to deliver personalized customer service. Each of these companies has created a com-
petitive advantage.

competitive advantage competitive advantage, which is what sets an organization apart—that is, its
What sets an organization apart; its distinctive edge. That distinctive edge can come from the organization’s core com-
distinctive edge petencies by doing something that others cannot do or doing it better than others

its skills at giving passengers what they want—convenient and inexpensive air pas-
senger service. Or competitive advantage can come from the company’s resources

Walmart’s state-of-the-art information system allows it to monitor and control

inventories and supplier relations more efficiently than its competitors, which
Walmart has turned into a cost advantage.

QUALITY AS A COMPETITIVE ADVANTAGE When W. K. Kellogg started

quality is still important today. Every employee has a responsibility to maintain the
high quality of Kellogg products. If implemented properly, quality can be a way for
an organization to create a sustainable competitive advantage. That’s why many
organizations apply quality management concepts in an attempt to set themselves
apart from competitors. If a business is able to continuously improve the quality
and reliability of its products, it may have a competitive ad-
vantage that can’t be taken away.

DESIGN THINKING AS A COMPETITIVE ADVANTAGE In

want online. And those consumers also expect a greater variety

of choices and faster service when ordering online than ever
before. One company that recognized the opportunities—
Kiva makes au-
tonomous robots used in flexible automation systems that are

this efficiently, the company’s robots can gather goods within

minutes of an order and deliver them to warehouse pickwork-
ers, who can then ship up to four times more packages in an
Giving customers the convenience of mobile
payments is a competitive advantage for Uber
Technologies, Inc., a transportation service
firm that makes mobile application software
gift-wrapping.
to connect passengers with drivers of vehicles Here’s a company that understands the power of design thinking—defined in
for hire and ridesharing services. Customers as approaching management problems the way designers approach design
value Uber’s mobile payment system, which also -
calculates and includes a tip, over the cash or
credit transactions of traditional transportation
service firms.
wicked problems with creative resolutions by thinking outside existing alternatives
Source: Junko Kimura-Matsumoto/Bloomberg
via Getty Images to help wrap gifts so that e-commerce warehouse fulfillment could be made even more
 Chapter 9 Managing Strategy 277

FUTU RE VISION Big Data As a Strategic Weapon

Big data can be an effective counterpart to the in- better serve customers and drive sales.28 By helping
formation exchange generated through social media. a business do what it’s in business to do—compete
All the enormous amounts of data collected about successfully—and attract and satisfy its customers in
customers, partners, employees, markets, and other order to achieve its goals, big data is a critical strategic
quantifiables can be used to respond to the needs of weapon for organizations in the future.
these same stakeholders. With big data, managers can
measure and know more about their businesses and If your professor has chosen to assign this, go to
“translate that knowledge into improved decision mak- www.mymanagementlab.com to discuss the follow-
ing and performance.”27 Case in point: When Walmart ing questions.
began looking at its enormous database, it noticed
TALK ABOUT IT 1: What strategic connection(s)
that when a hurricane was forecasted, not only did
do you see between big data and social media?
sales of flashlights and batteries increase, but so did
sales of Pop-Tarts. Now, when a hurricane is threat- TALK ABOUT IT 2: What ethical obstacles might
ening, stores stock Pop-Tarts with other emergency big data present? How can managers overcome those
storm supplies at the front entrance. This helps them obstacles?

for any organizational work problems that can arise. That’s why a company’s ability
to use design thinking in the way its employees and managers strategically manage
can be a powerful competitive tool.

SOCIAL MEDIA AS A COMPETITIVE ADVANTAGE

-
cial media.

-
pany chefs have used tips and suggestions from customer feedback and from store

FYI
managers to tweak the recipe.

As managers look at how to strategically use social media, it’s important to have goals
- 52 percent of managers say
social media are important/
somewhat important to their
uses blogs, wikis, and other social media tools for a variety of specific needs that align business.
with their business goals.

media strategies. Many are finding that social media tools can boost productivity.
-

men’s clothes shopping service that sends out, on request, trunks to clients with new

personal shoppers know about hot new shipments of shoes or clothes. He says that

When used strategically, social

278 Part 3 Planning

SUSTAINING COMPETITIVE ADVANTAGE Every organization has resources (as-

to effectively exploit its resources and to develop the core competencies that can
provide it with a competitive advantage. And it’s not enough simply to create a com-
petitive advantage. The organization must be able to sustain that advantage; that is,
to keep its edge despite competitors’ actions or evolutionary changes in the industry.

can challenge managers’ attempts at creating a long-term, sustainable competitive

advantage. However, by using strategic management, managers can better position
their organizations to get a sustainable competitive advantage.
Many important ideas in strategic management have come from the work of

create a sustainable competitive advantage. An important part of doing this is an

industry analysis, which is done using the five forces model.

FIVE FORCES MODEL In any industry, five competitive forces dictate the rules of
competition. Together, these five forces determine industry attractiveness and profit-
ability, which managers assess using these five factors:
1. Threat of new entrants. How likely is it that new competitors will come into the

2. Threat of substitutes. How likely is it that other industries’ products can be

3. Bargaining power of buyers. How much bargaining power do buyers

4. Bargaining power of suppliers.

5. Current rivalry.

Choosing a Competitive Strategy

to select an appropriate competitive strategy—that is, one that fits the competitive

He proposed that managers select a strategy that will give the organization a compet-
itive advantage, either from having lower costs than all other industry competitors or
by being significantly different from competitors.
When an organization competes on the basis of having the lowest costs (costs or
cost leadership strategy. A low-cost
leader is highly efficient. Overhead is kept to a minimum, and the firm does every-
thing it can to cut costs. You won’t find expensive art or interior décor at offices of

office furnishings are functional, not elaborate, maybe not what you’d expect for the
world’s largest retailer. Although a low-cost leader doesn’t place a lot of emphasis

rivals or at least be acceptable to buyers.

A company that competes by offering unique products that are widely valued by
customers is following a differentiation strategy.
exceptionally high quality, extraordinary service, innovative design, technological

product or service can be identified as an example of the differentiation strategy; for

 Chapter 9 Managing Strategy 279

Although these two competitive strategies are aimed at the broad market, the
final type of competitive strategy—the focus strategy—involves a cost advantage (cost

strategy is feasible depends on the size of the segment and whether the organization
can make money serving that segment.
What happens if an organization can’t develop a cost or a differentiation advan-
stuck in the middle and warned that’s not a good place to
be. An organization becomes stuck in the middle when its costs are too high to com-
pete with the low-cost leader or when its products and services aren’t differentiated

competitive advantage to pursue and then doing so by aligning resources, capabilities,

and core competencies.

advantage to prevent being stuck in the middle, more recent research has shown that
organizations can successfully pursue both a low cost and a differentiation advantage
and achieve high performance.
keep costs low and

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-
tional strategy, the functional strategies, which are the strategies used by an or- functional strategy
A strategy used by an organization’s
various functional departments to
support the competitive strategy
to become more competitive and invested in high-tech digital printing methods, its
marketing department had to develop new sales plans and promotional pieces, the
production department had to incorporate the digital equipment in the printing
plants, and the human resources department had to update its employee selection and
training programs. We don’t cover specific functional strategies in this book because
you’ll cover them in other business courses you take.

If your professor has assigned this, go to www.mymanagementlab.com to complete the

Try It!
of managing strategy in organizations.

CURRENT Strategic Management Issues

There’s no better example of the strategic challenges faced by manag-
LO5 ers in today’s environment than the recorded music industry. Overall,
Billboard magazine article title
Not only has this trend
280 Part 3 Planning

national electronics retailer, experimented with selling musical instruments. Other

-
gling to find strategies that will help their organizations succeed in such an environ-
ment. Many have had to shift into whole new areas of business.
music industry that’s dealing with strategic challenges. Managers everywhere face
increasingly intense global competition and high performance expectations by inves-

we look at three current strategic management issues, including the need for strategic
leadership, the need for strategic flexibility, and how managers design strategies to
emphasize e-business, customer service, and innovation.

The Need for Strategic Leadership

An organization’s strategies are usually developed and overseen by its top manag-

individual usually works with a top management team that includes other executive

let’s
get REAL
The Scenario:
Caroline Fulmer was just promoted to
executive director of a municipal art museum
in a medium-sized city in the Midwest.
Although she’s very excited about her new
Source: Denise Nueva

position and what she hopes to accomplish

there, she knows the museum’s board is
adamant about solidifying the organization’s
strategic future. Although she knows they
feel she’s capable of doing so since they
hired her for the position, she wants to be an Denise Nueva
effective strategic leader. Art Director
What skills do you think Caroline will need to be an effective
strategic leader?
To be an effective strategic leader, Caroline must be able to manage
day-to-day processes of the museum while keeping in mind the big
picture of the organization’s mission. With this mission in mind, Caroline
must align her team of likewise talented individuals to share her
passion and commitment. Lastly, it is important for Caroline to remain
an unbiased leader and quickly identify and work through issues that
may arise.
 Chapter 9 Managing Strategy 281

Exhibit 9-4
Determining the organization’s
purpose or vision Effective Strategic Leadership
Sources: Based on J. P. Wallman,
Exploiting and maintaining “Strategic Transactions and Managing
Establishing appropriately
the organization’s core the Future: A Druckerian Perspective,”
balanced organizational controls
competencies Management Decision, vol. 48, no. 4,
2010, pp. 485–499; D. E. Zand, “Drucker’s
Emphasizing ethical EFFECTIVE Strategic Thinking Process: Three Key
Developing the organization’s Techniques,” Strategy & Leadership, vol.
organizational decisions STRATEGIC
human capital 38, no. 3, 2010, pp. 23–28; and R. D. Ireland
and practices LEADERSHIP
and M. A. Hitt, “Achieving and Maintaining
Strategic Competitiveness in the 21st
Reframing prevailing views Creating and sustaining Century: The Role of Strategic Leadership,”
by asking penetrating questions a strong organizational culture Academy of Management Executive,
and questioning assumptions
February 1999, pp. 43–57.

Creating and maintaining

organizational relationships

information/control systems.

interpreter of environment changes, and strategy designer.

action of every organizational employee. One important role that top managers play
is that of strategic leader. Organizational researchers study leadership in relation to
strategic management because an organization’s top managers must provide effective
strategic leadership. What is strategic leadership - strategic leadership
sion, maintain flexibility, think strategically, and work with others in the organization The ability to anticipate, envision,
to initiate changes that will create a viable and valuable future for the organization. maintain flexibility, think strategically, and
work with others in the organization to
initiate changes that will create a viable
have been identified. and valuable future for the organization
organization’s purpose or vision, exploiting and maintaining the organization’s core
competencies, developing the organization’s human capital, creating and sustaining a
strong organizational culture, creating and maintaining organizational relationships,
reframing prevailing views by asking penetrating questions and questioning assump-
tions, emphasizing ethical organizational decisions and practices, and establishing
appropriately balanced organizational controls. Each dimension encompasses an
important part of the strategic management process.

The Need for Strategic Flexibility

Not surprisingly, the economic recession changed the way that many companies
approached strategic planning. -
cialty vehicles, managers used to draft a one-year strategic plan and a three-year

Now, the company uses a three-year strategic plan that the top management team
updates every month. -

plan worked as the company improved its profit margins and did not have to lay off
any employees.

was . . . move as fast as you can and [if] you indeed make mistakes, you have to correct
them. . . . It’s much better to move fast, and make mistakes occasionally, than move
You wouldn’t think that smart individuals who are paid lots of money
to manage organizations would make mistakes when it comes to strategic decisions.
282 Part 3 Planning

Exhibit 9-5
Developing Strategic Flexibility Encourage leadership unity by making sure everyone is on the same page.
Keep resources fluid and move them as circumstances warrant.
Have the right mindset to explore and understand issues and challenges.
monitoring
and measuring results.
be open about disclosing and sharing negative
information.
Get new ideas and perspectives from outside the organization.
multiple alternatives when making strategic decisions.
Learn from mistakes.

Sources: Based on Y. L. Doz and M. Kosonen, “Embedding Strategic Agility: A Leadership Agenda for
Accelerating Business Model Renewal,” Long Range Planning, April 2010, pp. 370–382; E. Lewis, D.
Romanaggi, and A. Chapple, “Successfully Managing Change During Uncertain Times,” Strategic HR Review,
vol. 9, no. 2, 2010, pp. 12–18; and K. Shimizu and M. Hitt, “Strategic Flexibility: Organizational Preparedness to
Reverse Ineffective Strategic Decisions,” Academy of Management Executive, November 2004, pp. 44–59.

-
ing quickly when it’s obvious the strategy isn’t working. In other words, they need
strategic flexibility strategic flexibility
The ability to recognize major external quickly commit resources, and to recognize when a strategic decision isn’t working.
changes, to quickly commit resources, -
and to recognize when a strategic
decision was a mistake
strategic flexibility.

If your professor has assigned this, go to www.mymanagementlab.com to watch a video

Watch It 2! titled: CH2MHill: Strategic Management and to respond to questions.

Important Organizational Strategies for Today’s

Environment

local sports coverage.

strategies are important in today’s environment: e-business, customer service, and

innovation.

E-BUSINESS STRATEGIES Managers use e-business strategies to develop a sustain-

able competitive advantage. A cost leader can use e-business to lower costs in a vari-

the need for sales calls and to decrease sales force expenses; it could use Web-based
inventory control systems that reduce storage costs; or it might use online testing and

A differentiator needs to offer products or services that customers perceive

 Chapter 9 Managing Strategy 283

systems to shorten customer response times, provide rapid on-

line responses to service requests, or automate purchasing and
payment systems so that customers have detailed status reports
and purchasing histories.
-
ment with customized products, it might provide chat rooms
or discussion boards for customers to interact with others who
have common interests, design niche Web sites that target spe-
cific groups with specific interests, or use Web sites to perform
standardized office functions such as payroll or budgeting.
-
egy might be a clicks-and-bricks strategy. A clicks-and-bricks

of its customers who placed orders on the Web preferred to

pick up their prescriptions at a nearby store rather than have The four cofounders of Warby Parker developed a
competitive advantage by launching an innovative
and customer-focused eyeglass business. The
their stores into extensions of their online operations by adding Web return centers, company sells stylish eyewear quickly, easily,
directly, and inexpensively at a uniform price of
pickup locations, free shipping outlets, and payment booths.
$95. Warby Parker sources and designs its own
products and donates one pair of glasses to the
CUSTOMER SERVICE STRATEGIES needy for every pair purchased.
- Source: Carly Otness/BFAnyc/Sipa USA/Newscom
gies involve giving customers what they want, communicating effectively with them,
and providing employees with customer service training. Let’s look first at the strategy
of giving customers what they want.
It shouldn’t surprise you that an important customer service strategy is giving
-

unique product: shoes in varying widths. No other athletic shoe manufacturer has
shoes for narrow or wide feet and in practically any size.
Having an effective customer communication system is an important customer
service strategy. Managers should know what’s going on with customers. They need
to find out what customers liked and didn’t like about their purchase encounter—
from their interactions with employees to their experience with the actual product
or service. It’s also important to let customers know if something is going on with

culture is important to providing excellent customer service. This typically requires

tations as far as how to treat customers.

Employees
-
FYI
INNOVATION STRATEGIES Only 43 percent of companies
have someone at the executive
business, it did what it always does—used its renowned research division to look for level who is formally accountable
ways to transfer technology from its other divisions to make new products. One for innovation.
outcome of this cross-divisional combination: a new tartar-fighting ingredient from Only 42 percent of organizations
toothpaste that’s included in all of its dry adult pet foods. have an explicit innovation
strategy.
the radical, breakthrough products. They can include applying existing technology to Only 25 percent of executives
new uses. And organizations have successfully used both approaches. What types of say that most of their company’s
innovation efforts have a positive
should reflect their innovation philosophy, which is shaped by two strategic decisions: impact on business results.53
innovation emphasis and innovation timing.
284 Part 3 Planning

Managers must first decide where the emphasis of their innovation efforts will be.
Is the organization going to focus on basic scientific research, product development, or

because it involves the nuts-and-bolts work of scientific research. In numerous indus-

tries (for instance, genetics engineering, pharmaceuticals, information technology, or
-
petitive advantage. However, not every organization requires this extensive commit-
ment to scientific research to achieve high performance levels. Instead, many depend
on product development strategies. Although this strategy also requires a significant
resource investment, it’s not in areas associated with scientific research. Instead, the
organization takes existing technology and improves on it or applies it in new ways,

-
ferentiation, which can be a significant source of competitive advantage.

its work processes. The organization innovates new and improved ways for employees to
do their work in all organizational areas. This innovation strategy can lead to lower costs,
which, as we know, also can be a significant source of competitive advantage.
Once managers have determined the focus of their innovation efforts, they must

innovations whereas others are content to follow or mimic the innovations. An or-
ganization that’s first to bring a product innovation to the market or to use a new
first mover process innovation is called a first mover
An organization that’s first to bring a
product innovation to the market or to this route, hoping to develop a sustainable competitive advantage. Others have suc-
use a new process innovation
cessfully developed a sustainable competitive advantage by being the followers in the
industry. They let the first movers pioneer the innovations and then mimic their prod-
ucts or processes. Which approach managers choose depends on their organization’s
innovation philosophy and specific resources and capabilities.

Exhibit 9-6
First Mover Advantages
and Disadvantages
Advantages

Reputation for being

innovative and industry
leader
Cost and learning bene ts Disadvantages
Control over scarce Uncertainty over exact
resources and keeping direction technology and
competitors from having market will go
access to them
Risk of competitors
Opportunity to begin imitating innovations
building customer relation-
ships and customer loyalty Financial and
strategic risks
High development costs
 Chapter 9 Managing Strategy 285

Chapter 9 PREPARING FOR: Exams/Quizzes

CHAPTER SUMMARY by Learning Objectives

LO1 DEFINE strategic management and explain why it’s important.

do, how it will compete successfully, and how it will attract and satisfy its customers
in order to achieve its goals. A business model is how a company is going to make
-

-
dinate and focus employee efforts on what’s important.

LO2 EXPLAIN what managers do during the six steps of the strategic
management process.
The six steps in the strategic management process encompass strategy planning,

the organization does well or its unique resources. Weaknesses are activities the orga-
nization doesn’t do well or resources it needs. Opportunities are positive trends in the
external environment. Threats are negative trends.

LO3 DESCRIBE the three types of 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
-

strategies—retrenchment and turnaround—address organizational weaknesses lead-

portfolio of businesses by looking at a business’s market share and its industry’s

question marks, and dogs.

LO4 DESCRIBE competitive advantage and the competitive strategies

organizations use to get it.
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

that dictate the rules of competition in an industry: threat of new entrants, threat of
substitutes, bargaining power of buyers, bargaining power of suppliers, and current

(competing in a narrow segment with either a cost advantage or a differentiation

286 Part 3 Planning

LO5 DISCUSS current strategic management issues.

Managers face three current strategic management issues: strategic leadership, stra-

leadership is the ability to anticipate, envision, maintain flexibility, think strategi-

cally, and work with others in the organization to initiate changes that will create a
viable and valuable future for the organization and includes eight key dimensions.

changes, to quickly commit resources, and to recognize when a strategic decision isn’t
working—is important because managers often face highly uncertain environments.
Managers can use e-business strategies to reduce costs, to differentiate their firm’s

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

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

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

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

MyManagementLab
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REVIEW AND DISCUSSION QUESTIONS

9-1. 9-6.
process.
9-2. develop competitive advantage.
opportunities and its threats. 9-7.
9-3. There are three different types of corporate important for not-for-profit organizations as it is for

your case.
9-4.
analyses of an organization’s internal and external 9-8.
examples.
9-5.
examples of the different types of competitive
advantage.

MyManagementLab
If your professor has assigned these, go to www.mymanagementlab.com for the
following Assisted-graded writing questions:

9-9. Explain why strategic management is important.

9-10. Explain why strategic leadership and strategic flexibility are important.