Mgmt 371 Chapter Eight

Managing Strategy and Strategic Planning

Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.© 1

The Nature of Strategic Management

  

Strategy

 A comprehensive plan for accomplishing an organization’s goals.

Strategic Management

 A way of approaching business opportunities and challenges aimed at formulating and implementing effective strategies.

Effective Strategies

 Strategies that promote a superior alignment between the organization and its environment and the achievement of its goals.

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Components of Strategy

  

Distinctive Competence

 Something an organization does exceptionally well.

Scope

 Range of markets in which an organization will compete.

Resource Deployment

 How an organization will distribute its resources across the areas in which it competes.

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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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Strategy Formulation and Implementation (cont’d)



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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SWOT ANALYSIS

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SWOT Analysis: Environmental Scanning

The process of studying the environment of the organization to identify strengths, weakness, opportunities, and threats.

Internal Environment

S

trengths

W O

eaknesses

External Environment

pportunities

T

hreats 8

Internal Environment



Strengths

– those internal factors that give the organization a competitive advantage and help it seize an

opportunity

or reduce a

threat

from its external environment.

 Proprietary technology  Pharmaceutical cure for cancer.

 iPhone  Financial resources  KSA that creates a competitive advantage 9

Internal Environment



Weaknesses

environment.

– those internal factors that place the organization a disadvantage and preclude it from seizing an

opportunity

or avoiding a

threat

from its external  Obsolete skills  Financial constraints  Poor planning & forecasting  Lack of management skills  Shortage of critical KSA 10

External Environment



Opportunities

–factors in the organization’s external environment that, if exploited, may generate higher organizational performance.

 New markets  New Technologies  Product  Production  Research subsidies 11

External Environment



Threats

–factors in the organization’s external environment that increase the difficulty of that organization performing at a higher level, or threaten the organization’s very existence.

 New entrants  Government regulation  Increase energy costs  Change in consumer demand 12

SWOT Matrix

 Helps develop strategies by linking

Strengths

and

Opportunities (SO)

,

Strengths

and

Threats (ST)

,

Weaknesses Weaknesses

and and

Opportunities (WO) Threats (WT)

.

, and 

SO Strategies

– are developed by identifying ways by which the organization can use its

Strengths

to seize given

Opportunities

.



ST Strategies

– are developed by identifying ways by which the organization can use its

Strengths

to avoid given

Threats

.

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SWOT Matrix

 

WO Strategies

– an organization attempts to take advantage of

Opportunities

by overcoming its

Weaknesses

.

WT Strategies

– defensive strategies that attempt to identify ways by which the organization can minimize its

Weaknesses

to avoid

Threats

.

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Using SWOT Analysis to Formulate 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  is duplicating another firm’s distinctive competence.

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Using SWOT Analysis to Formulate 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 have ceased.

Strategic imitation is difficult when:    Distinctive competence is based on unique historical circumstances.

Competitors do not understand the nature or character of a firm’s competence.

The competence is based on a complex phenomenon, such as organizational culture.

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Using SWOT Analysis to Formulate 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  A situation in which an organization fails to implement strategies being implemented by competitors.

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Using SWOT Analysis to Formulate Strategy (cont’d)

 Evaluating an Organization’s Opportunities and Threats  Organizational opportunities  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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Porter’s Generic Strategies



Cost Leadership

– focus on efficiency, stability, and cost control.

 Low cost producer of its good or service.



Differentiation

– distinguishing your product or service from your competition usually by quality).



Focus

– concentrating on a specific regional market, market segment, or set of customers.

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Business Level Strategies

Strategy Cost Leadership

Focused Cost

Differentiation

Focused Differentiation

# of Market Segments Many Few X X X X

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Implementing Business-Level Strategies (cont’d)

 Implementing Porter’s Generic Strategies    Differentiation  Marketing and sales must 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 & Snow Typology

 

Prospector

- innovative and growth oriented firm, strategies focus on identifying and entering new markets. Risk taker.

Defender

– operating in a stable environment, strategies.

   Focus on protecting current markets and maintaining stable growth. Risk averse.

Analyzer

– a firm wishing to maintain current markets but also enter new ones. Has elements of prospectors and defenders.

Reactor

– no strategy or plan.

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Implementing Business-Level Strategies (cont’d)

 Implementing Miles and Snow’s Strategies  Prospector   Encourage creativity to seek out new market opportunities and to take risks.

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

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

Analyzer  Incorporate elements of both the prospector and the defender strategies maintain business and to be somewhat innovative.

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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 24

Corporate Level Strategies

 

Concentration in a single-product

(McDonalds)

Diversification

 

Related diversification

Chessie System and Seaboard Coast Line Industries) - similar industry (CSX=     Common technology Common Distribution/marketing skills Common reputation Common customers

Unrelated (a.k.a. conglomerate) diversification

different industry (Sears and Allstate Insurance) 25

Advantages of Related Diversification

 Reduces an organization’s dependence on any one of its business activities and thus reduces economic risk.

 Reduces overhead costs associated with managing any one business through economies of scale and economies of scope.

 Allows an organization to exploit its strengths and capabilities in more than one business.



Synergy

exists among a set of businesses when the businesses’ value together is greater than their economic value separately.

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Formulating Corporate-Level Strategies



Unrelated Diversification

   An organization operates multiple businesses that are not logically associated with one another.

Advantages   Stable of 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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Corporate Level Strategies



International Expansion

 Global strategy – product has transnational appeal  Multi domestic – customizing product to meet local preferences.

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The Product Life Cycle

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Implementing Corporate-Level Strategies (Diversification)

 Becoming a Diversified Firm  Internal development of new products  Developing products and services within the boundaries of traditional business operations .

 Vertical Integration – an organization becomes its own supplier and/or distributor .



Backward vertical integration

becoming ones own supplier (Gallo acquires own bottling).



Forward vertical integration

– becoming ones own distributor (Tandy and Radio Shack) 30

Implementing Corporate-Level Strategies (Diversification)

 Becoming a Diversified Firm Merger    Purchase of one firm by another firm of approximately the same size.

Acquisition  Purchase of a firm by another firm that is considerably larger.

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 that diversified organizations use to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance.

Two important portfolio management techniques   The BCG Matrix The GE Business Screen 32

Managing Diversification: BCG Matrix

  A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the market.

The matrix classifies the types of businesses that a diversified organization can engage 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. 33

Managing Diversification BCG Matrix

Stars Question Marks Cash Cows Dogs Relative Market Share

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Managing Diversification



GE Business Screen

 A method of evaluating business 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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Industry Attractiveness

 Market growth  Market size  Capital requirements  Competitive intensity 36

Competitive Position

 Market Share  Technological know-how  Product quality  Service network  Price competitiveness  Operating costs 37

Managing Diversification GE Business Screen

Winner Winner ?

Winner Loser Profit Producer Average Business Loser Loser

Competitive Position

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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 pro 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 Business



Home Replication

 Utilizing a core competency or 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 it to customize its products, its marketing campaigns, and operating techniques to meet local customer needs.

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Strategic Alternatives for International Business (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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