Strategy Formulation

Strategy Formulation and Implementation
Learning Objectives

Define the components of strategic management. Describe the strategic planning process and SWOT analysis. Understand grand strategies for domestic and international operations. Define corporate-level strategies and explain the portfolio approach.
Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Learning Objectives (contd.)
Describe business-level strategies, including Porters competitive forces and strategies and partnership strategies. Explain the major considerations in formulating functional strategies. Discuss the organizational dimensions used for implementing strategy.
Strategic Management
Set of decisions and actions used to implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals Responsibility = top managers and chief executive
Strategic Management
Managers ask such questions as...
What changes and trends are occurring? Who are our customers? What products or services should we offer? How can we offer these products or services most efficiently?
5 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Grand Strategy

General plan of major action to achieve long-term goals Falls into three general categories 1. Growth 2. Stability 3. Retrenchment
A separate grand strategy can be defined for global operations
Grand Strategy: Growth
Growth can be promoted internally by investing in expansion or externally by acquiring additional business divisions
-
Internal growth = can include development of new or changed products External growth = typically involves diversification businesses related to current product lines or into new areas
Grand Strategy: Stability
Stability, sometimes called a pause strategy, means that the organization wants

to remain the same size or to grow slowly and in a controlled fashion
Grand Strategy: Retrenchment
Retrenchment = the organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses Liquidation = selling off a business nit for the cash value of the assets, thus terminating its existence Divestiture = involves selling off of businesses that no longer seem central to the corporation
Global Corporate Strategies

Exhibit 8.1
High
Globalization Strategy
Treats world as a single global market Standardizes global products/advertising strategies
Transnational Strategy
Seeks to balance global efficiencies and local responsiveness Combines standardization and customization for product/advertising strategies
Need for Global Integration
Export Strategy
Domestically focused Exports a few domestically produced products to selected countries
Multi-domestic Strategy Handles markets independently for each country Adapts product/advertising to local tastes and needs
Low
Low
10
Need for National Responsiveness
High
Global Strategy
Globalization = product design and advertising strategies are standardized around the world Multi-domestic = adapt product and promotion for each country Transnational = combine both globalization and national responsiveness
11
Purpose of Strategy
The plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization attain its goals
Strategies focus on: Core competencies Developing synergy Creating value for customers
12
Three Levels of Strategy in Organizations

Three Levels of Strategy in Organizations
Exhibit 8.2
13
Strategic Management Process

Exhibit 8.3
Scan External Environment National, Global Evaluate Current Mission, Goals, Strategies Scan Internal Environment Core Competence, Synergy, Value Creation
Identify Strategic Factors Opportunities, Threats Formulate Strategy Corporate, Business, Functional
SWOT
Define new Mission Goals, Grand Strategy
Identify Strategic Factors Strengths, Weaknesses
Implement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systems
14
Strategy Formulation vs. Implementation
Strategy Formulation = stage of strategic management that involves planning and decision making that lead to the establishment of the organizations goals and of a specific strategic plan Strategy Implementation = stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes
15
Checklist for Analyzing Organizational Strengths and Weaknesses

Exhibit 8.4
16
CORPORATE-LEVEL STRATEGY
17
Pertains o the organization as a whole and the combination of business units and product lines that make up the corporate entity Strategic actions at this level usually relate to the acquisition of new businesses; additions or divestments of business units, plants or product lines; and joint ventures with other corporations in new areas
18
Portfolio Strategy Diversification Strategy
19
Portfolio Strategy
Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage
BCG Matrix
Exhibit 8.5
20
Portfolio Strategy
The Boston Consulting Group Approach
STARS
Stars are high-growth, high-share businesses or products. They often need heavy investments to finance their rapid growth. EvenStars are high-growth, high-share businesses or products. They often need heavy investments to finance their rapid growth.
CASH COWS
Cash cows are low-growth, high-share businesses or products. These established and successful SBUs need less investment to hold their market share. Thus, they produce a lot of the cash that the company uses to pay its bills and support other SBUs that need investment.
Portfolio Strategy
The Boston Consulting Group Approach QUESTION MARKS

Question marks are low-share business units in highgrowth markets. They require a lot of cash to hold their share, let alone increase it. Management has to think hard about which question marks it should try to build into stars and which should be phased out.
DOGS
Dogs are low-growth, low-share businesses and products. They may generate enough cash to maintain themselves but do not promise to be large sources of cash.
DIVERSIFICATION STRATEGY
The strategy of moving into new lines of business
Related diversification Unrelated diversification Vertical integration
23
Unrelated diversification When an organization expands into a totally new line of business
24
Related diversification When the new business is related to the companys existing business activities
25
Vertical integration Means the company expands into businesses either produce the supplies needed to make products or than distribute and sell those products to consumer
BUSINESS-LEVEL STRATEGY
27
Five Forces Affecting Industry Competition

Exhibit 8.6 Internet reduces barriers to entry
Potential New Entrants
Internet blurs differences among competitors in an industry
Threat of Substitute Products

Internet expands market size, but creates new substitution threats
Rivalry among Competitors
Bargaining Power of Buyers

Internet shifts greater power to end consumers
Internet tends to increase the bargaining power of suppliers
Bargaining Power of Suppliers
Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980). 28 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Competitive Edge Through Competitive Strategies
Differentiation = attempt to distinguish products or services from that of competitors
Cost leadership = aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors Focus = concentrates on a specific regional market or buyer group
29
Continuum of Partnership Strategies

Exhibit 8.8
Organizational Combination
Mergers
Acquisitions
Joint Ventures
Strategic Alliances
Strategic Business Partnering
Preferred Supplier Arrangements Low
Degree of Collaboration
High
Implementing Strategy Tools
Leadership Structural design Information and control systems Human resources
31
Tools for Putting Strategy into Action

Environment Organization
Leadership Persuasion Motivation Culture/values Structural Design Organization Chart Teams Centralization Decentralization, Facilities, task design Human Resources Recruitment/selection Transfers/promotions Training Layoffs/recalls
Exhibit 8.9
Strategy
Performance
Information and Control Systems Pay, reward system Budget allocations Information systems Rules/procedures
Source: Adapted from Jay R. Galbraith and Robert K. Kazanjian, strategy Implementation: Structure, Systems and Process, 2d ed. (St. Paul, Minn.: West, 1986), 115, Used with permission. 32 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

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Strategy Formulation and Implementation

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Learning Objectives (contd.)

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

5 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Grand Strategy: Growth

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Grand Strategy: Stability

to remain the same size or to grow slowly and in a controlled fashion

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Grand Strategy: Retrenchment

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Global Corporate Strategies

Need for Global Integration

Need for National Responsiveness

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Three Levels of Strategy in Organizations

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Strategic Management Process

Define new Mission Goals, Grand Strategy

Identify Strategic Factors Strengths, Weaknesses

Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.