Chapter 7 strategy and strategic management
What is strategic management?
Competitive advantage: is the ability to do something so well that one outperforms competitors.
Typical sources of competitive advantage include:
Cost and quality
Knowledge and speed
Barriers to entry
Sustainable competitive advantage: is the ability to outperform rivals in ways that are difficult or costly
Strategy and strategic intent;
Strategic intent: all energies directed toward accomplishing a long-term target or goal.
Levels of strategy;
3 levels of strategy:
Corporate-level strategy: sets long term direction for the total enterprise. What business are we in?
Business-level strategy: Identifies how a division or strategic business unit will compete in its
product or service domain. How do we compete in each of our major businesses? Large enterprises
have SBU’s strategic business units.
Functional strategy: guides activities within specific area of operations. How do we best support
each of our business strategies?
The strategic management process;
Strategic management: is the process of formulating and implementing strategies.
3 part to process:
Strategic analysis: is the process of analyzing the organization, the environment, and the
organization’s competitive position and current strategies.
Strategy formulation: is the process of crafting strategies to guide the allocation of resources.
Strategy implementation: is the process of putting strategies into action.
What are the essentials of strategic analysis?
Analysis of mission, values, and objectives; Mission and stakeholders: A mission should represent what the strategy or underlying business model is
trying to accomplish. A clear sense of mission helps managers keep organizations on track and use
resources with strategic intent.
Stakeholders: are individuals and groups directly affected by the organization and its strategic
Strategic constituencies’ analysis: assesses interests of stakeholders and how well the organization is
responding to them.
The mission model shows that employees, communities, suppliers, customers, and shareholders are all
Core values: are broad beliefs about what is and what not appropriate behavior is.
Organizational culture: is the predominant value system for the organization as a whole.
Operating objectives: are specific results that organizations try to accomplish.
SWOT analysis of organization and environment;
Core competency: is a special strength that gives an organization a competitive advantage.
Analysis of rivalry and industry attractiveness;
Porter’s five forces model:
Industry competition: rivalry among competing firms
New entrants: threat of potential new competitors
Substitute products or services: threat of substitute products or services
Suppliers: Bargaining power of suppliers Customers: bargaining power of buyers
What are corporate strategies and how are they formulated?
The goal at this level of strategic analysis is to plot overall direction of the organization in the
competitive setting of its industry.
Grand or master strategies;
Growth strategy: involves expansion of the organization’s current operations.
Stability strategy: maintains current operations without substantial changes.
Renewal strategy: tries to solve problems and overcome weaknesses that are hurting performance.
Combination strategy: pursues growth, stability, and/or retrenchment in some combination. Pursues
one or more of the other strategies at the same time.
Growth and diversification strategies;
Growth is most popular, partly because it helps industries for long-term survival. One approach to
growth is through concentration where expansion is within the same area. Growth can also be pursued
through diversification, where expansion takes place in new and different business areas. Related
diversification is expansion through acquiring new business areas related to old ones. Unrelated
diversification pursues growth by acquiring business areas that are different from what one already
does. Diversification can also take the form of vertical integration, where business acquires suppliers or
Restructuring strategies; (renewal)
Restructuring by turnaround focuses on fixing specific performance problems. Restructuring by
downsizing decreases the size of operations, often by reducing the workforce. Restructuring by
divestiture also reduces size, this time by selling off parts of the organization to refocus on core
competencies, cut costs, and improve operating efficiency.
Globalization strategy: adopts standardized products and advertising for use worldwide.
Multi-domestic strategy: customizes products and advertising to best fit local needs.
Transnational strategy: seeks efficiencies of global operations with attention to local markets.
Strategic alliance: organizations join together in partnership to pursue an area of mutual interest. One way to cooperate strategically is through outsourcing alliances – contracting to purchase important
services from another organization. Cooperation in the supply chain takes the form of supplier alliance,
in which preferred supplier relationships guarantee a smooth and timely flow of quality supplies among
alliance partners. Another common approach today is cooperation in distribution alliances, in which
firms join together to accomplish sales and distribution of products or services.
Co-opetition: is the strategy of working with rivals on projects of mutual benefit.
E-business strategy: strategically uses the internet to gain competitive advantage.
B2B (business to business) business strategy: uses IT and web portals to link organizations vertically in
B2C (Business to consumer) business strategy: uses IT and web portals to link business with customers.
Strategic Portfolio Planning;
Portfolio planning: approach seeks the best mix of investments among alternative business alternatives.
BCG Matrix (Boston consulting group): analyzes business opportunities according to market growth rate
and market share. It offers 4 possible business conditions:
Stars: are high-market-share businesses in high-growth markets.
Question Marks: are low-market-share businesses in high-growth markets.
Cash cows: are high-market-share businesses in low-growth markets.
Dogs: are low-market-share businesses in low-growth markets.
What are business strategies and how are they formulated?
broad Cost leadership strategy Differentiation strategy
(Sam’s choice cola) (Coke, Pepsi) narrow Focused low-cost strategy Focused differentiation strategy
(president choice cola) (A&W root beer)
^market scope Low price Unique product
^ Source of competitive advantage
Differentiation strategy: Offers products that are different from competition.
Cost leadership strategy;
Cost leadership strategy: seeks to operate with low costs so that products can be sold at low prices.
Focus strategy: concentrates on serving a unique market segment better than anyone else.
Focused differentiation: strategy offers a unique product to a special market segment.
Focused cost leadership: strategy seeks the lowest costs of operations within a special market segment.
Strategic Incrementalism: makes modest changes in strategy as experience builds over time.
Emergent strategy: unfolds over time as managers learn from and respond to experience.
What are some current issues in strategy implementation?
Among the current issues in strategy implementation are needs for excellence in all management
systems and practices, the responsibilities of corporate governance, and the importance of strategic
control and leadership.
Management practices and systems;
Lack of participation error: a failure to include key persons in strategic planning.
Failures of substance: they reflect inadequate attention to the major strategic planning elements,
resulting in poor strategic analysis and bad strategy formulation.
Failures of process: they reflect poor handling of the ways in which strategic management is
Goal displacement: This is the tendency to get so bogged down in details that the planning process
becomes an end in itself, instead of means to an end.
Corporate governance; Corporate governance: is the system of control and performance monitoring of top management.
Strategic control: makes sure strategies are well implemented and that poor strategies are scrapped or
Strategic leadership: inspires people to continuously change, refine, and improve strategies and their
Chapter 8 Organization structures and design
What is organizing as a management function?
Organizing as a management Function;
Organizing is a management function along with planning, leading and controlling. Organizing creates
structures which divides work, arranges resources and coordinates activities.
Organization structure: A structure that is performing well does both of these of things; Designate tasks
through a division of labor and provide for the coordination of performance results. Organization
structure is a system of tasks, reporting relationships, and communication linkage.
Formal Structures: A formal structure is the official structure of the organization. Structure concepts are
similar to organizing charts which describe the arrangement of work positions within an organization. By
reading an organizing chart you can learn these basics of an organizations formal structure: Division of
work, Supervisory relationships, communication channels, major subunits, and levels of management.
Informal structure: Is the set of unofficial relationships among an organization’s members. This is a
“shadow” organization looking at the workers footsteps that way all no information is spared or
disregarded. A tool for identifying the informal structures and their embedded social relationships that
are active in an organization is the social network analysis. This typically involves asking people whom
they turn to for help the most, who they communicate regularly, and who energize and de-energize
them. Informal structures and social networks are essential to organizations during times of change;
out-of-date formal structures may fail to help people deal with new or unusual situations. Potential
disadvantages are that informal structures are susceptible to rumor, carry inaccurate information, breed
resistance to change, and even divert work efforts from important objectives.
What are traditional organization structures?
Traditional organization structures;
A basic principle of organizing is that performance improves when people are allowed to specialize and
become experts. This involves departmentalization which is the process of grouping people and jobs into work units. This process has resulted in structuring organization into 3 major types of structure:
Functional, divisional, and matrix.
Functional Structures: This group’s together people with similar skills who perform similar tasks.
Members share technical expertise, interest, and responsibilities.
Advantages of Functional Structures:
Economies of scale with efficient use of resources
Task assignments consistent with expertise and training
High-quality technical problem solving
In-depth training and skill development within functions
Clear career paths within functions
Disadvantages of Functional Structures:
Difficulties in pinpointing responsibilities for things like cost containment, product or service
quality, and innovation.
Concerns with functional chimneys problem, a lack of communication and coordination across
People’s cooperation can break-down as everyone goes about their daily work because
functions are formalized not only on the organization chart but also in mindset.
The sense of common purpose gets lost to self-centered and narrow viewpoints.
The slow decision making can harm organizational performance.
Divisional structures: Groups together people working on the same product, in the same area, with
similar customers, or on similar processes. There are 2 types of divisional structure: Product,
Geographical, customer, and work process structures. Product structures; group’s together people and
jobs focused on a single product or service. Geographical structures: group’s together people and jobs
performed in the same location. Customer structure: group’s together people and jobs that serve the
same customers or clients. Process structures: Is a group of related tasks that collectively creates a
valuable work product.
Advantages of divisional structure:
More flexibility in responding to environmental changes
Improved coordination across functional departments
Clear points of responsibility for product or service delivery
Expertise focused on specific customer, products, and regions
Greater ease in changing size by adding or closing down divisions
Disadvantages of divisional structure:
They can reduce economies of scale and increase costs through the duplication of resources and
efforts across divisions They can create unhealthy rivalries as divisions compete for resources and top management
They can also emphasize division needs to the detriment of the goals of the organization as a
Matrix structures: This combines functional and divisional approaches to emphasize project or program
teams. This structure is found in settings like manufacturing, service industries, professional fields, and
the non-profit sector.
Advantages of the Matrix structures:
Better cooperation across functions
Improved decision making; problem solving takes place at the team level where the best
information is available
Increased flexibility in adding, removing, or changing operations to meet changing demands
Better customer service; there is always a program, product, or project manager informed and
available to answer questions
Better performance accountability through the program, product, or project managers.
Improved strategic management; top managers are freed from lower-level problem solving to
focus more time on strategic issues
Disadvantages of the Matrix structure:
the 2-boss system is susceptible to power struggles, as functional supervisors and team leaders
vie with one another to exercise authority
The 2-boss system can also be frustrating if it creates task confusion and conflicting work
Team meetings can take a lot of time, and team may develop “groupitis” – strong team loyalties
that cause a loss of focus on larger organizational goals.
Adding team leaders can also result in higher costs
What are the newer types of organization structures?
Horizontal organization structures;
Horizontal structures try to improve communication and flexibility by decreasing hierarchy, increasing
empowerment, and better mobilizing human talents.
Team structures: Uses permanent or temporary cross-functional teams to improve lateral relations.
Team structures use cross-functional teams to bring together members from different functional
departments. Also many project teams are convened for a particular task or project and disband once it
Advantages of Team structures: Help eliminate difficulties with communication and decision-making that result from the
functional chimneys problem.
Team assignments break down barriers between departments as people from different parts of
an organization get to know one another. This boosts morale, increasing their enthusiasm for
Because teams focus on shared knowledge and expertise on specific problems the can also
improve the speed and quality of decisions in many situations.
Disadvantages of team structures:
Conflicting loyalties for personas with both team and functional assignments.
This also includes issues of time management and group process.
Teams spend a lot of time in meetings.
Network structures: Uses information technologies to link with networks of outside suppliers and service
contractors. The new model is to own only the most essential components of the business, and then use
strategic alliances and outsourcing to provide the rest.
Advantages of network structure:
The more complex the business or mission of the organization, the more complicated it is to
control and coordinate the network of contracts and alliances.
If one part of the network breaks down or fails to deliver, the entire system suffers.
There is the potential to lose control over activities contracted out, and to experience a lack of
loyalty among contractors who are used infrequently rather than on a long-term basis.
Some worry that outsourcing can become so aggressive as to be dangerous to the firm,
especially when critical activities such as finance, logistics, and human resources management
Boundary-less structures: Eliminates internal boundaries among subsystems and external boundaries
with the external environment. Internal boundaries are eliminated as people work together as needed.
External boundaries vary as alliances change with shifting needs/opportunities.
Virtual organization: Uses IT and the Internet to engage a shifting network of strategic alliances.
How are organizational designs changing the workplace?
Organizational design is the