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strategy)
Strategy Formulation
Managers analyze the current situation to
develop strategies achieving the mission.
SWOT analysis: a planning to identify:
External Analysis
Analyzing the dynamics of the industry in
which an organization competes to help
identify:
Opportunities: conditions in the environment
that a company can take advantage to
become more profitable
Threat of
Entry
Bargaining
Power
Competitive
Rivalry
Suppliers
Bargaining
Power
Buyers
Threat of
Entry
Substitutes
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Barriers to entry
Brand loyalty
Absolute cost advantage
Superior production operations and processes
Control of particular inputs required for production
Access to cheaper funds because existing companies
represent lower risks than new entrants
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Barriers to entry
Economies of scale
Cost reductions from mass production of standardized output
Discounts on bulk purchases of inputs
Advantages of spreading fixed costs over a large production
volume
Cost savings from marketing and advertising for a large
volume of output
Substitute Products
Substitutes: More available substitutes tend to
drive down prices and profits.
Many substitute products
Are a threat and limit the price that companies in one
industry can charge for their product, and thus industry
profitability
Internal analysis
Identify organizational strengths and
weaknesses
Sources of competitive advantage:
superior efficiency
quality
innovation, and
responsiveness to customers
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Competitive Advantage
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Internal Analysis
Identifying strength and weakness of company
Managers must understand
The role of resources, capabilities, and distinctive
competencies in the process by which companies
create value and profit
Distinctive competencies
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Low-Cost Advantage
Strategy
Option 1: Use lower-cost edge to
Underprice competitors and attract price-sensitive
buyers in enough numbers to increase total profits
Option 2: Maintain present price, be content with present
market share, and use lower-cost edge to
Earn a higher profit margin on each unit sold, thereby
increasing total profits
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Approach 2
Revamp value chain to bypass cost-producing
activities that add little value from buyers
perspective
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Feature broad employee participation in continuous costimprovement efforts and limited perks for executives
Strive to operate with exceptionally small corporate staffs
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Differentiation Strategies
Objective
Incorporate differentiating features that cause buyers to
prefer firms product or service over brands of rivals
(General Motors Automobiles in International
market, Retail superstore like Nandan, Agora,
Mina Bazar etc. in Bangladesh)
Keys to Success
Find ways to differentiate that create value for
buyers and are not easily matched or cheaply
copied by rivals
Not spending more to achieve differentiation than
price premium that can be charged
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brand loyalty
= Competitive Advantage
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Approach 2
Incorporate features/attributes that raise the
performance a buyer gets out of the product (Hybrid car: better
speed, Sony picture tube)
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Approach 4
Compete on the basis of superior capabilities to serve
(CNN to cover breaking news, Unilever through
excellent distribution channel)
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Objectives
Deliver superior value by meeting or exceeding buyer
expectations on product attributes and beating their price
expectations (Toyota)
Be the low-cost provider of a product with good-toexcellent product attributes, then use cost advantage to
under price comparable brands
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Objective
Serve niche buyers better than rivals
Keys to Success
Choose a market niche where buyers have
distinctive preferences, special requirements, or
unique needs
Develop unique capabilities to serve needs of target
buyer segment
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Focus Strategies
eBay
Online auctions
Porsche
Sports cars
Jiffy Lube International
Maintenance for motor vehicles
Pottery Barn Kids
Childrens furniture and accessories
KFC
Rich People
Bangla Link
Young group
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Which hat
is unique?
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Diversification
Diversification
As long as company has strong foothold on its
current industry, there is no urgency to pursue
diversification
It depends on
Partly on companys growth opportunity in
current industry
Partly on the opportunities to utilize its
resources, expertise, and capabilities in other
industries
The question is what kind and how much
diversification?
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Diversification
Diversification
The process of adding new businesses to the
company that are distinct from its established
operations
Acquisitions
Joint ventures
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Cement Industry
Tobacco Industry
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Diversification Strategies
Diversification: Organization moves into
new businesses and services.
Related diversification: firm diversifies in
similar areas to build upon existing divisions.
Synergy: two divisions work together to obtain more
than the sum of each separately.
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