CH. 7 – Strategy and 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, and
financial resources. However the ultimate goal is creating sustainable competitive advantage: the ability
to outperform rivals in ways that are difficult or costly to imitate.
Strategy and Strategic Intent: A strategy is a comprehensive action plan that identifies the long-term
direction for an organization and guides resource utilization to achieve sustainable competitive
advantage. A strategy helps ensure that resources are used with consistent strategic intent, which
focuses and applies organizational energies on a unifying and compelling goal.
Levels of Strategy
Corporate-Level Strategy: A corporate strategy sets long-term direction for the total enterprise.
Business-Level Strategy: a business strategy identifies how a division or strategic business unit will
compete in its product or service domain.
Functional Strategy: A functional strategy guides activities within one specific area of operations.
The Strategic Management Process: Strategic management is the process of formulating and
implementing strategies to accomplish long-term goals and sustain competitive advantage. It begins
with strategic analysis: the process of analyzing the organization, the environment, and the
organization’s competitive position and current strategies. Next is strategy formulation: the process of
crafting strategies to guide the allocation of resources. And finally, strategy implementation: the process
of putting strategies into action.
Essentials of Strategic Analysis
Analysis of Mission, Values, and Objectives
A mission statement expresses the organization’s reason for existence in society.
Mission and Stakeholders: Stakeholders are individuals and groups directly affected by the organization
and its strategic accomplishments. Strategic constituencies’ analysis assesses interest of stakeholders
and how well the organization is responding to them.
Core Values: Are broad beliefs about what is or is not appropriate behaviour. Personal values of a
founder/leader can become part of the organizational culture, which is the predominant value system
for the organization as a whole.
Objectives: operating objectives are specific results that organizations try to accomplish; some typical
ones include: profitability, financial health, cost efficiency, customer service, product quality, market
share, human talent, innovation and social responsibility.
SWOT Analysis of Organization and Environment
SWOT analysis examines organizational strengths and weaknesses and environmental opportunities
and threats (Strengths, Weaknesses, Opportunities, and Threats).
Organizational Strengths and Weaknesses: assessing strengths helps identify core competencies—a
special strength that gives an organization a competitive advantage. In assessing weaknesses, it helps
to identify things that inhibit performance and hold the organization back from fully accomplishing its
Environmental Opportunities and Threats: some external opportunities can be new markets, strong
economy, weaknesses in competitors and emerging technology and threats can be new competitors,
resource scarcities, changing customer tastes, new gov’t regulations and a weak economy.
Analysis of Rivalry and Industry Attractiveness
Porter’s Five Forces Model:
1) Industry competition: the intensity of rivalry among firm in the industry and the ways they
behave competitively toward one another
2) New entrants: the threat of new competitors entering the market, based on the presence or
absence of barriers to entry 3) Substitute products or services: the threat of substitute products or services, based on the ability
of consumers to find what they want from other sellers
4) Bargaining power of suppliers: the ability of resource suppliers to influence the price that one
has to pay for their products or services
5) Bargaining power of customers: the ability of customers to influence the price they will pay for
the firm’s products/services.
Industry Attractiveness: The five competitive forces establish the industry’s attractiveness or potential tp
generate long-term returns. The less attractive the structure, the harder it is to make good strategic
choices and realize a sustained competitive advantage relative to rivals. An unattractive industry is one
in which rivalry among competitors is intense, substantial threats exist in the form of possible new
entrants and substitute products, and suppliers and buyer are very powerful in bargaining over such
things as prices and quality. An attractive industry has less existing competition, few threats from new
entrants or substitutes, and low bargaining power among suppliers and buyers.
Corporate-Level Strategy Formulation
CEO + Senior management team focus on this and its goal is to plot the 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 in such things like total
sales, market shares, and operating locations.
Stability Strategy maintains current operations without substantial changes.
Renewal Strategy (also called retrenchment or defensive strategy): tries to solve problems and
overcome weaknesses that are hurting performance. The most extreme form of retrenchment is
liquidation, where business operations cease and assets are sold to pay creditors.
Combination Strategy: pursu