Chapter 08

Transcript Chapter 08

© 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

PowerPoint Presentation by Charlie Cook The University of West Alabama

Learning Objectives

Discuss the components of strategy, the types of strategic alternatives, and the distinction between strategy formulation and strategy implementation.

Describe how to use SWOT (

trengths,

eaknesses,

pportunities, and

hreats) analysis in formulating strategy.

Identify and describe various alternative approaches to business-level strategy formulation.

Describe how business-level strategies are implemented.

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Learning Objectives (cont’d)

Identify and describe various alternative approaches to corporate-level strategy formulation.

Describe how corporate-level strategies are implemented.

Discuss international and global strategies.

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The Nature of Strategic Management

• Strategy  Is a comprehensive plan for accomplishing an organization’s goals.

• Strategic Management  Involves formulating and implementing strategies to take advantage of business opportunities and meet competitive challenges.

• Effective Strategies  Promote superior alignment between an organization, its environment, and its goals.

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Components of Strategy

Components of Effective Strategies Distinctive Competence Competitive Scope Resource Deployment © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Strategic Alternatives

Corporate-level strategy Market A Business-level strategy Market B Business-level strategy Functional-level strategy Functional-level strategy Operations-level strategy Operations-level strategy © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Types of Strategic Alternatives

• Business-Level Strategy  The set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or a particular market.

• Corporate-Level Strategy  The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets.

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Strategy Formulation and Implementation

• Strategy Formulation  The set of processes involved in creating or determining the organization’s strategies; it focuses on the content of strategies.

• Strategy Implementation  The methods by which strategies are operationalized or executed within the organization; it focuses on the processes through which strategies are achieved.

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Management Challenge

• If it is important that all employees be involved in strategy implementation, then what are the most important responsibilities for managers in helping them participate?

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Types of Strategies

• Deliberate Strategy  A plan, chosen and implemented to support specific goals, that is the result of a rational, systematic, and planned process of strategy formulation and implementation.

• Emergent Strategy  A pattern of action that develops over time in the absence of goals or missions, or despite goals and missions.

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8.1

SWOT Analysis

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SWOT Analysis and Strategy

• Evaluating Organizational Strengths  Organizational strengths  are skills and abilities enabling an organization to conceive of and implement strategies.

 Common organizational strengths  are organizational capabilities possessed by numerous competing firms.

 Distinctive competencies  are useful for competitive advantage and superior performance.

 Imitation of distinctive competencies  removes the competitive advantage of the competency.

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SWOT Analysis and Strategy (cont’d)

• Evaluating Organizational Strengths (cont’d)  Sustained competitive advantage  occurs when a distinctive competence cannot be easily duplicated.

 is what remains after all attempts at strategic imitations cease.

 Strategic imitation of a distinctive competence is difficult when:  it is based on unique historical circumstances.

 it is difficult for competitors to understand its nature or character.

 it is based on a complex phenomenon (e.g., organizational culture).

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SWOT Analysis and Strategy (cont’d)

• Evaluating Organizational Weaknesses  Organizational weaknesses  Skills and capabilities that do not enable an organization to choose and implement strategies that support its mission.

 Weaknesses can be overcome by:   investments to obtain the strengths needed.

modification of the organization’s mission so it can be accomplished with the current workforce.

 Competitive disadvantage  occurs when an organization fails to implement strategies being implemented by competitors.

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SWOT Analysis and Strategy (cont’d)

• Evaluating an Organization’s Opportunities and Threats  Organizational opportunities  are areas in the organization’s environment that may generate high performance.  Organizational threats  are areas in the organization’s environment that make it difficult for the organization to achieve high performance.

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Formulating Business-Level Strategies

Porter’s Generic Strategies Differentiation strategy Overall cost leadership strategy Focus strategy © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Formulating Business-Level Strategies

• Porter’s Generic Strategies  Differentiation strategy  An organization seeks to distinguish itself from competitors through the quality of its products or services.

 Overall cost leadership strategy  An organization attempts to gain competitive advantage by reducing its costs below the costs of competing firms.

 Focus strategy  An organization concentrates on a specific regional market, product line, or group of buyers.

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8.1

Porter’s Generic Strategies

Strategy Type Differentiation Overall cost leadership Focus Definition

Distinguish products or services Reduce manufacturing and other costs Concentrate on specific regional market, product market, or group of buyers

Examples

Rolex (watches) Godiva (chocolate) Mercedes-Benz (automobiles) Nikon (cameras) Cross (writing instruments Timex (watches) Hershey (chocolate) Kia (automobiles) Kodak (cameras) BIC (writing instruments) Tag Heuer (watches) Vosges (chocolate) Fiat, Alfa Romeo (automobiles) Hasselblad (cameras) Waterman (writing instruments) Fisher-Price (handheld calculators)

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Implementing Porter’s Generic Strategies

• • • Differentiation  Marketing and sales emphasize high-quality, high-value image of the organization’s products or services.

Overall Cost Leadership  Marketing and sales focus on simple product attributes and how these product attributes meet customer needs in a low-cost and effective manner.

Focus  Either differentiation or cost leadership, depending on which one is the proper basis for competing in or for a specific market segment, product category, or group buyers.

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Miles and Snow’s Strategy Types

Strategic Types of Organizations Prospectors Defenders Analyzers Reactors © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Miles and Snow’s Strategy Types

• • Prospector  Encourages creativity to seek out new market opportunities and to take risks.

 Develops the flexibility to meet changing market conditions by decentralizing its organizational structure.

Defender  Focuses on defending its current markets by lowering its costs and/or improving the performance of its current products.

• Analyzer  Incorporates elements of both the prospector and the defender strategies to maintain business and to be somewhat innovative.

• Reactor  Has no clear strategy, reacts to changes and events.

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8.2

The Miles and Snow Typology

Strategy Type Prospector Defender Analyzer Reactor Definition

Is innovative and growth oriented, searches for new markets and new growth opportunities, encourages risk taking Protects current markets, maintains stable growth, serves current customers Maintains current markets and current customer satisfaction with moderate emphasis on innovation No clear strategy, reacts to changes in the environment, drifts with events

Examples

Amazon.com

3M Rubbermaid BIC eBay Mrs. Fields DuPont IBM Yahoo!

International Harvester (now doing business as Navistar) Joseph Schlitz Brewing Co.

Kmart Montgomery Ward (no longer in business)

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8.2

The Product Life Cycle

High

Introduction Growth

Stages

Maturity Decline

Low

Time

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Management Challenge Questions

• Which of Porter’s generic strategies are best suited for which stages of the product life cycle?

• Which of the Miles and Snow’s types of effective strategic organizations are most appropriate for which stage of the product life cycle?

• Do your answers support the concept that structure must follow strategy?

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Formulating Corporate-Level Strategies

• Strategic Business Units  Each business or group of businesses within an organization is engaged in serving the same markets, customers, or products.

• Diversification  The number of businesses an organization is engaged in and the extent to which these businesses are related to one another

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Corporate-Level Strategies

Strategic Choices Single-product strategy (simplicity) Related diversification (synergy) Unrelated diversification (risk/return) © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Corporate-Level Strategies

• Single-Product Strategy  An organization manufactures one product or service and sells it in a single geographic market.

• Related Diversification  A strategy in which an organization operates in several different businesses, industries, or markets that are somehow linked.

 Avoids the disadvantages and risks of a single product strategy.

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8.3

Bases of Relatedness in Implementing Related Diversification

Basis of Relatedness Similar technology Common distribution and marketing skills Common brand name and reputation Common customers Examples

Philips, Boeing, Westinghouse Kraft Foods, Philip Morris, Procter & Gamble Disney, Universal Merck, IBM, AMF-Head

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Advantages of Related Diversification

• Reduces economic risk by avoiding dependence on a specific business or activity.

• Reduces overhead costs through economies of scale and economies of scope.

• Increases overall economic value through complementary strengths and capabilities synergies gained by managing the set of businesses together rather than separately.

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Unrelated Diversification

• Unrelated Diversified Organization  Operates multiple businesses that are not logically associated with one another.

 Advantages  Stable performance over time due to business cycle differences among the multiple businesses.

 Allocation of resources to areas with the highest return potentials to maximize corporate performance.

 Disadvantages  Poor performance due to the complexity of managing a diversity of businesses.

 Failing to exploit key synergies puts the firm at a competitive disadvantage to firms with related diversification strategies.

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Becoming a Diversified Firm

Diversification Alternatives Development of new products Vertical integration Merger with another firm Acquisition of another firm © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Becoming a Diversified Firm

• Replacement of Suppliers And Customers  Backward vertical integration  Beginning a business that furnishes resources previously handled by a supplier.

 Forward vertical integration  Beginning a business previously handled by an intermediary and selling more directly to customers.

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Becoming a Diversified Firm (cont’d)

• Purposes of Mergers and Acquisitions  To diversify through vertical integration.

 To acquire complementary products or services linked by a common technology and common customers.  To create or exploit synergies that reduce the combined organizations’ costs of doing business to increase revenues.

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Managing Diversification

• Major Tools for Managing Diversification  Organization structure  A detailed discussion of organization structure is contained in Chapter 12.

 Portfolio management techniques  Methods used by diversified firms to make decisions about what businesses to engage in and how to manage these businesses to maximize corporate performance.

 Two important portfolio management techniques  The BCG Matrix  The GE Business Screen

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Managing Diversification (cont’d)

• BCG Matrix  Evaluates a portfolio of businesses on the growth rate of their respective markets and each business’s relative share of its market.

 Classifies the types of businesses in a diversified firm’s portfolio as:  “Dogs” have small market shares and no growth prospects.

 “Cash cows” have large shares of mature markets.

 “Question marks” have small market shares in quickly growing markets.

 “Stars” have large shares of rapidly growing markets.

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8.3

The BCG Matrix

High Stars Question marks Cash Cows Dogs Low High

Relative Market Share

Low © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Managing Diversification (cont’d)

• GE Business Screen  A method of evaluating businesses in a diversified portfolio along two dimensions, each of which contains multiple factors:  Industry attractiveness.

 Competitive position (strength) of each firm in the portfolio.

 In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business.

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8.4

The GE Business Screen

High Winner Winner Question mark Medium Winner Average business Loser Low Profit producer Loser Loser Good Medium

Competitive Position

Competitive Position 1. Market share 2. Technological know-how 3. Product quality 4. Service network 5. Price competitiveness 6. Operation costs Industry Attractiveness 1. Market growth 2. Market size 3. Capital requirements 4. Competitive intensity © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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International and Global Strategies

Developing International and Global Strategies Global efficiencies Multimarket flexibility Worldwide learning © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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International and Global Strategies

• Developing International and Global Strategies  Global efficiencies    Location efficiencies —seeking lower input cost locations Economies of scale —larger facilities result in lower costs Economies of scope —broadening product lines  Multimarket flexibility  International businesses may respond to a change in one country by implementing a change in another country.

 Worldwide learning  The diverse operating environments of multinational corporations (MNCs) contribute to organizational learning that can be transferred to other operating environments.

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Strategic Alternatives for International Businesses

Strategic Alternatives Home replication Multi-domestic strategy Global strategy Transnational strategy © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Strategic Alternatives for International Businesses

• Home Replication  Utilizing a core competency or a firm-specific advantage developed at home as a main competitive weapon in foreign markets.

• Multi-Domestic Strategy  Managing a corporation as a collection of independent operating subsidiaries frees a firm to customize its products, its marketing campaigns, and operating techniques to meet local customer needs.

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Strategic Alternatives for International Businesses (cont’d)

• Global Strategy  Viewing the world as a single marketplace and having as a primary goal the creation of standardized goods and services that will address the needs of customers worldwide.

• Transnational Strategy  Attempting to combine the benefits of scale efficiencies pursued by a global corporation, with the benefits and advantages of local responsiveness of a multi-domestic corporation.

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