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
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Strengths
Trusted Brand names
70% Market share
Spent Millions on
Research into digital
imaging Tech
Blessed with tech genius

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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

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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
_________
_________
________
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________
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Implement
Strategy via
Changes in :
•__________
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•__________
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