What is an Organization
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Transcript What is an Organization
Strategy Formulation And
Implementation
Chapter 8
Story of KMART & Wal-Mart
How did Wal-Mart founder Sam Walton
and his managers formulate and
implement strategies that helped the
company overtake Kmart
If you were stepping in as Kmart’s new
CEO, what strategies might you adopt to
help chain survive?
Wal-Mart formulated & implemented
strategies that have made it one of
America’s most successful companies
While
Kmart failed to cope with increased
competition and changing customer
expectations
“Kmart’s new CEO and other top executives analyze the
situation to formulate a strategy that will suit Org strengths
as well as fit changing economic times if the chain is to
survive in competitive market”
All the Organizations are involved in
Strategic Management
finding ways to respond to competitors
Cope up with environmental changes
Effectively use available resources
Thinking Strategically
Strategic management is considered to be
one specific type of planning
Some Companies hire Strategic Planning
Experts
Thinking Strategically
Continue
Strategic thinking means to take the long
term view and to see the big picture,
including the Organization and the
competitive environment and how they fit
together
What is Strategic Management ?
The set of decisions and actions used to
formulate and implement strategies that
will provide a competitively superior fit
between the organization and its
environment so as to achieve
organizational goals
It is a process to help managers answer
questions such as
where is the organization now
Where does the organization want to be
What changes and trends are occurring in
the competitive environment?
What courses of action will help us achieve
our goals?
What happens after answering these
questions!!
Grand Strategy
General plan of major action by which a firm intends to achieve its longterm goals
Growth
Stability
Retrenchment
Growth Strategy
Promoting internally by investing in expansion or externally
by acquiring additional business divisions
Diversification : acquisition of business that are related
to current product lines or that take the corporation into
new areas: Joint Ventures
Strategy of expanding operations into new business or
industry and producing new goods or services
Examples:
PepsiCo’s diversification into snack food business
Phillip Morris’s tobacco giant diversification with brewing
industry with the acquisition of Miller Beer
GE move into broadcasting with its acquisition of NBC
Stability
Pause strategy : Org wants to remain the same
size or grow slowly and in a controlled fashion
The Corporation wants to stay in its current
business
When Org undergone a turbulent period of rapid
growth, managers focus on a Stability strategy to
integrate strategic business units & ensure that Org
is working efficiently
Example: Allied Tire Stores; motto is “ We just sell
tires”
Retrenchment
Org goes through a period of forced
decline by either shrinking current
business units or selling off or liquidating
entire businesses
Liquidation
Divestiture
Downsizing / Retrenchment
Divestiture: involves selling off businesses that
no longer seem central to the Corporation
When GE sold its family financial services,
corporation were going through periods of
retrenchment, also called downsizing
Liquidation : Selling off a business unit for the
cash value of assets, thus termination its
existence
Dissolve the Co. & sell off all its assets & is
usually done when the company is facing
bankruptcy & needs to repay Loans
Global Strategy
Companies might pursue a separate grand
strategy as the focus of global business
How to compete internationally?
A basic question confronts the managers of
any org that competes in more than one
national market:
To what extent should the org customize
features of its products and marketing
campaign to different national conditions?
Companies Strategic Delima
Global / Globalization Strategy
The standardization of product
design & advertising
strategies throughout the
world
Very little , if any customization to suit the specific
needs of customers in different countries
The theory is that people everywhere want to buy
the same products and live the same way: people
everywhere want to drink Coca Cola & wear Levi
blue jeans
Example: Levi paid an advertising agency
$500,000 to produce a series of TV
commercial to promote its 501 jeans:
using same series in many countries &
simply changing the language: saved
money & keep prices low
Colgate-Palmolive Co. toothpaste sells in
40 countries by running same commercial:
saving $1M-2M in production cost alone
Multi-Domestic Strategy
Competition in each country is handled
independently of industry competition in other
countries
A multinational company is present in many
countries, but it encourages marketing, advertising
and product design to be modified and adapted to
the specific needs of each country
Managers decide to customize products &
marketing strategies to specific national conditions
Companies reject the idea of a
single global market
Example of Multi-domestic Strategy
Unilever :European food &
household products Co. sells a different
range of food products and uses a
different marketing approach than its North
American division
French do not drink orange juice for breakfast
spicy toothpaste preferred in the Middle East
Transnational Strategy
To achieve both global integration & national
responsiveness
Transnational
Strategy
Difficult to achieve, because one goal requires
close global coordination while the other goal
requires local flexibility
Example of Transnational Strategy
Caterpillar’s Tractor (world’s largest
manufacturer of heavy earth-moving
equipment):
Tailored the finished product to local
needs by adding features such as diff
colors of paint or steering wheels on right
or left side: Price pressures in local
market: Government regulations:
Local Customization
Differentiating its product
among local markets
Purpose Of Strategy
The plan of action that prescribes resource
allocation and other activities for dealing
with the environment and helping the
Organization attain its goals
A comprehensive plan for accomplishing
an organizations goals
Core
Competence
Value Creation
Synergy
Through this strategy; executives try to
develop within the Org a core competence
& Synergy, thus creating value for money
Core Competence
Something that Org does especially well in
comparison to its competitors
Represents Competitive advantage because the
company acquires expertise that competitors do
not have
Core Competence maybe in the area of
Synergy
When Org parts interact to produce a joint effect
that is greater than the sum of the parts acting
alone, Synergy occurs
Performance gains that result when individuals
and departments coordinate their actions
Team members share equipment, customer
lists, and other information that enables these
small companies to go after more business than
they ever could have without the team approach
”
Example
AT&T synergy btw communication services
& hardware “One-stop shop
Two or more divisions with in a diversified
company can utilize the same
manufacturing facilities, distribution
channels, advertising campaigns
Share Resources
Reduce Cost
Charge lower Prices
Attract More Customers
Competitors
Value Creation
Value can be defined as the combination of
benefits received and paid by the customer
Exploiting core competencies & attaining synergy
help companies create value for their customers
A product that is low in cost but does not provide
benefits is not a good value
Delivering value to the customer should be at the
heart of strategy
Managers need to understand which parts of the
Co. operation create value & which do not – a Co.
can be profitable only when the value it creates is
greater than the cost of resources
Example: People Express Airlines initially
made a splash-low prices, but traveler’s
couldn’t tolerate consistently late takeoffs
at any price
Macdonald’s used core competencies to
create better value for customers, resulting
in the introduction of “Extra value meals”
& opening restaurants in different
locations: Wal-Mart etc
Levels Of Strategy
Corporate Level Strategy
Business Level Strategy
Functional Level Strategy
Corporate Level Strategy
The level of strategy concerned with the
question What business are we in?
Pertains to Org as a whole and the combination
of business units and product lines
Strategic actions at this level relate to
acquisitions of new businesses; additions or
divestments of business units, plants or product
lines and joint ventures
Examples: Book
Business Level Strategy
The question How do we compete?
Pertains to each business level unit or product
line
It focuses on how the business unit competes
within its industry for customers
Strategic decisions at this level concern amount
of advertising, extent of R&D, product changes,
expansion or contraction of product lines
Example: Cost reduction: To remain competitive
Hyatt hotels trimmed MangT Staff & increased
focus on Marketing & Advertising
Function Level Strategy
The question How do we support the
business level competitive strategy ?
pertains to the major functional
departments within the business unit
Includes all the major functions, marketing,
manufacturing, finance
Example: Hyatt hotels marketing dept is to
focus on frequent business traveler by
putting fax machines & modems in rooms
Strategic Formulation Vs Implementation
Strategy Formulation
planning & decision
making that lead to the
establishment of the
firm’s goals & the
development of a specific
strategic plan
include assessing
external environment &
internal problems &
integrating results into
goals & strategy
Strategy Implementation
Use of managerial &
Organizational tools to
direct resources towards
accomplishing strategic
results
Administration & execution
of the strategic plan
Managers may use
persuasion, new
equipment, changes in Org
structure or reward system
to ensure that employees
and resources are used to
make formulate strategy in
reality
Situation Analysis
Analysis of the strengths, weaknesses, opportunities and
threats (SWOT) that affect organizational performance
Important to all companies but is crucial to those
considering globalization because of the diverse
environments in which they will operate
Info about Opportunities & Threats may be obtained from
variety of sources, including customers, professional
journals, suppliers, friends in other Org, association
meetings
Firms use diff techniques to learn about competitors,
such as asking potential recruits about their visits to
other companies, hiring people away from competitors,
taking plant tours posing as “innocent” visitors and even
buying garbage
Situational Analysis
Continue
Executives acquire info about Internal
Strength & weaknesses executives from
variety of reports, including budgets, profit
& loss statements
Face to face discussions & meetings with
people at all levels of the hierarchy,
executives build an understanding of the
Companies internal strength &
weaknesses
Internal strengths & Weakness
Strengths: Positive internal characteristics that
the organization can exploit to achieve
strategic performance goals
Weaknesses : Internal characteristics that may
restrict the Organization performance
Finance
Marketing
MangT & Org
•Profit Margin
• Return on investment
• Credit Rating
• Distribution channels
• market share
• Customer Satisfaction
•Product Quality
•Degree of Centralization
• Planning, Information & control
System
Managers can determine their strengths or weaknesses via other
companies based on the their understanding of these areas
External Opportunities & Threats
Threats:
characteristics of
external environment
that may prevent the
Org from achieving its
strategic goals
Example: Executives
evaluate the external
environment with info
about the nine sectors
Opportunities
are characteristics of
the external
environment that
have the potential to
help the Org achieve
or exceed its strategic
goals
S & W Kodak
Strengths
Trusted Brand names
70% Market share
Spent Millions on
Research into digital
imaging Tech
Blessed with tech genius
Weaknesses
Dispirited Workforce
Culture focused on
protecting current
businesses rather then
seeking new frontiers
Confused btw imaging
business, healthcare &
household products
Product & market
developed ability illfocused
O & T Kodak
Opportunities
Tech strength & digital
imaging will be fast
growing market
Expansion in Asia while
barely developed markets
such as India, Brazil can
keep traditional business
for least next decade
“ Half of the people in the
world have yet to take a
their first pic”
Threats
Increased competition
Digital imaging arena,
facing giant such as
Canon, Casio, Sony & HP
Smaller competitors
emerging In digital market
What does SWOT analysis
suggest for Kodak’s
Strategy?
To capitalize on the Company’s
Strength & Opportunities
How
………..
Divest or liquidate
Communication & Leadership
Transform Culture
Autonomy at work place
Strategic Alliance
Sell other businesses to focus more on core imaging
business
Improved communication & stronger leadership
improved morale
Transform slow moving culture to prepare for digital
future
Brought together disjointed talent into small
autononomous division & hired former computer
marketing executive to head it
Strategic alliances with IBM, HP, Microsoft so the new
divisions can develop new products in partnership to be
more competitive on global basis
Formulating Corporate Level Strategy
Portfolio Strategy
Pertains to mix of business units and
product lines that fit together in logical way
to provide synergy & competitive
advantage for the corporation
Strategic Business Unit
?
The BCG Matrix
Star
Has large market share
in a rapidly growing
industry
It has additional growth
potential & profits
should be plowed into
this business as
investment for future
growth n profits
Visible & attractive &
will generate profits &
positive cash flow even
as the industry matures
& market growth slows
Cash Cow
Exits in mature, slow
growth industry but is a
dominant business in the
industry with a large
market share
No heavy investments
required (advertising &
plant expansion)
Invest in other riskier
businesses
Question Mark
Exists in new, rapidly
growing industry but has
only small market share
? Business is risky
It could become a star,
but it could also fail
Invest cash earned from
cash cows in ? With the
goal that it will turn into
future STAR
Dogs
Poor performer
Small share in slow
growth market
Provides little profit
Targeted for divestment
or Liquidation if
turnaround is not possible
Gillette Company ?
Formulating Business Level
Strategy
Porter’s Competitive Forces And
Strategies
Five Competitive Forces
1. Potential New Entrants
2. Bargaining Power of buyers
3. Bargaining Power of suppliers
4. Threat of substitute products
5. Rivalry among competitors
Potential New Entrants
Capital Requirement & economies of the
scale, example of two potential barriers to
entry that keep out the new competitors
Threat is high for local hamburger restaurant
than Ford & Toyota
Advent of internet has reduced costs & other
barrier of entry in many market segments
Threat of new entrants has increased for
many firms in recent years
Bargaining Power of buyers
Informed customers become empowered
customers
Advertising & buyer info educate customers
about full range of prices & product options
available thus influence over Co. increases
This is true when Co. relies on one or Two
large, powerful customers for majority of its
sales
Example: Boeing 777– Delta, KLM
Bargaining Power of suppliers
To what extent to which suppliers have the
ability to influence potential buyers
Other factors include whether a supplier can
survive without a particular purchaser or whether
the purchaser can threaten the supplier
Example: The sole supplier of engines to a
manufacturer of small airplanes have great
power
Example : Local electric co. is the only source of
electricity in your community therefore it can
charge what it wants for its product
Rivalry among competitors
Nature of the competitive relationship btw
dominant firms in the industry
Coke & Pepsi ( price wars, comparative
advertising, new product introduction)
American Express & Visa
Fuji & Kodak
“ The more these companies compete
against one another for customers the
lower is the level of industry profits( low
prices means low profits)”
Threat of substitute products
The power of alternatives & substitutes for
a Co. product may be affected by cost
changes OR trends such as increased
health consciousness that will deflect
buyer loyalty to companies
Example : Sugar Co. suffered from the
growth of sugar substitutes
Computers reduced demand for
calculators, typewriters
DVD players for VCR’s
Competitive Strategies
Differentiation
Cost Leadership
Focus
Differentiation Strategy
An attempt to
distinguish a firm’s
product or services
from others in the
industry
To gain competitive
advantage, add value,
through distinctive
product features
(design, quality, after
sale service)
Pepsi & Coca cola
•
Advertise to
differentiate & create
new unique image
Toyota
Appeal customers in
all segments
Basic transportation
Middle of the market
High income
“ Stuck in the Middle “
Managers should choose btw Diff/CLS
Exceptions to this rule :
Example : Cott’s Corp. advertise more / costs will rise
Toyota : Production system is the most efficient in the world
Differentiated cars basis of superior design & quality
Cost Leadership
Attempts to gain
advantage by
reducing cost below
cost of competing
firms
Keeping costs low,
Org still able to sell its
products at low prices
& still make a profit
Cott’s corp. ( doesn’t
advertise which
allows Cott to under
price both coke &
Pepsi
Compaq to overtake
IBM as the world no.1
PC supplier
Low-cost producer, provides a successful strategy to
defend against five competitive forces
Focus
A type of competitive
strategy that
emphasizes
concentration on a
specific regional
market or buyer group
The company will use
either a differentiation
or low-cost approach,
but only for a narrow
target market ????
Example: Enterprise
Rent-A-Car
focused on market
that major companies
like Hertz don’t even
play in
Low budget insurance
replacement market
Focused-Low cost Strategy
Focused-Differentiation
Strategy
Serve one or a few
segments of the overall
Serve just one or few
market & aim to be the
segments of the market &
lowest Co. serving that
aim to be the most
segment
differentiated Co. serving
that segment
Example : Cott Corp. focus
on large retail chains &
Example : BMW
strives to be the lowest Pursue focused strategy &
cost Co. serving that
make cars exclusively for
segment
high income customers
Product Life Cycle
1. Model that shows how sales volume
changes over the life of products
2. Product Life cycle helps managers
recognize that strategies need to evolve
over time
3. Series of stages that a product goes
through in its market acceptance
Formulating Functional-Level Strategy
Differentiation strategy for new product
Human Resources
Marketing
•Recruiting & training middle
managers for moving into new
positions
Aggressive marketing campaigns
Finance
•How to borrow & handle large
cash Investments
•Authorize construction of new
production facilities
Mature products / Low cost Strategy
Human Resources
Marketing
•Develop & retain stable Workforce
•Transfers, advancements,
incentives for efficiency
Stress on brand loyalty
Finance
•Focus on net cash-flows &
positive cash balances
Putting Strategy Into Action
• Parts
Leadership
Structural Design
Information & Control Systems
Human Resources
of firm that
can be adjusted
to put strategy
into action
•Once a new
strategy is selected
its implemented
through changes in
Leadership,
Structure, Info &
Control System and
HR
Tools for Putting strategy into Action
Organization
Leadership
• persuasion
• Motivation
• Culture / Values
Strategy
Performance
Structural Design
•Org Chart
•Teams
•Centralization / decentralization
Human Resource
• Recruitment / Selection
• Transfers / promotions /Training
• Layoffs
Info & Control System
• Pay, reward system
•Budget allocations
•Info systems
•Rules / procedures
Strategic Management
Evaluate Org Mission, goals, strategy
Followed by
SWOT Analysis
Strengths, Weakness, Opportunities, threats
Leads to
Formulation of Explicit Strategic Plans
takes place at three levels
Grand Strategy (growth, stability, Retrenchment, Global
a) Corporate
Framework for accomplishing used BCG
b) Business
c) Functional
Porter’s competitive strategies & Product Life Cycle
Support the above strategies made
Strategy Implementation
Tools used : Leadership, structural design, information & system and HR
Evaluate current :
• Mission
•Goals
•Strategies
Define New
_________
_________
________
________
________
________
Implement
Strategy via
Changes in :
•__________
•__________
•__________
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