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Chapter 5

Strategy Formulation: Situation Analysis and Business Strategy

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Situational Analysis

Strategy formulation:– Strategic planning or long-range

planning• Develops mission, objectives, strategies

and policies

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Situational Analysis

Situational Analysis:– Process of finding a strategic fit

between external opportunities and internal strengths while working around external threats and internal weaknesses.

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Situational Analysis

Niche:– A need in the marketplace that is currently

unsatisfied.

Goal for the Corporation– Find a propitious niche

• An extremely favorable niche

– Strategic window• Unique market opportunity available for a limited

time

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Situational Analysis

SWOT analysis:– Internal

• Strengths• Weaknesses

– External• Opportunities• Threats

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TOWS Matrix

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Porter’s Generic Competitive Strategies

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Porter’s Competitive Strategies

Cost Leadership:–Low-cost competitive strategy

–Aimed at broad mass market

–Aggressive construction of efficient-scale facilities

–Cost reductions

–Cost minimization

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Porter’s Competitive Strategies

Differentiation:–Broad mass market

–Unique product or service

–Charge premiums

–Lower customer sensitivity to price

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Porter’s Competitive Strategies

Cost focus:–Low cost competitive strategy

–Focus on particular buyer group or market

–Niche focused

–Seek cost advantage in target market

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Porter’s Competitive Strategies

Differentiation focus:–Focus on particular group or

geographic market

–Seek differentiation in targeted market segment

–Serve special needs of narrow target market

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Porter’s Competitive Strategies

Stuck in the middle:–No competitive advantage

–Below-average performance

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Risks of Generic Competitive Strategies

Risks of Cost Leadership

Cost leadership is not sustained:• Competitors imitate.• Technology changes.• Other bases for cost leadership erode.Proximity in differentiation is lost.Cost focusers achieve even lower cost in segments.

Risks of Differentiation

Differentiation is not sustained:• Competitors imitate.• Bases for differentiation become less important to buyers.Cost proximity is lost.Differentiation focusers achieve even greater differentiation in segments.

Risks of Focus

The focus strategy is imitated:The target segment becomes structurally unattractive:• Structure erodes.• Demand disappears.Broadly targeted competitors overwhelm the segment:• The segment’s differences from other segments narrow.• The advantages of a broad line increase.New focusers subsegment the industry.