Chapter 6 Strategy Formulation; Situation Analysis & Business Strategy

CHAPTER 6

STRATEGY FORMULATION;SITUATION ANALYSIS & BUSINESS STRATEGY

STRATEGIC MANAGEMENT AND BUSINESS POLICY

11th Edition

Thomas L. WheelenJ. David Hunger

Situation Analysis & Business Strategy 2

Strategies in Action

-- Quest for higher revenues

-- Quest for higher profits

Companies Embrace Strategic Planning


Anatomy of Strategic Planning

Vision

Mission

SWOT

Objectives

Strategies

Top-Down NEVER

Bottom-Up

Strategic Planning


Results expected from pursuing certain strategies.

Strategies represent actions to accomplish long-term objectives.

Long-Term Objectives



SMART ObjectivesSome is not a numberSoon is not a time “May be” is not an answer



SMART ObjectivesSpecificMeasurableAchievableRelevantTime-bound



Smarter Objectives Quantifiable Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent Time-line



Objectives Necessary -- Corporate Level Divisional Level Functional Level


Varying Performance Measures by Organizational Level

Organizational Level Basis for Annual Bonus/Merit Pay

Corporate 75% on long-term objectives25% on annual objectives

Division 50% on long-term objectives50% on annual objectives

Function 25% on long-term objectives75% on annual objectives




Strategic Objectives Larger market share Quicker on-time delivery than rivals Quicker design-to-market times than rivals Lower costs than rivals Higher product quality than rivals Wider geographic coverage than rivals


STRENGTHS: is a resource advantage relative to competitors and the needs of the market a firm serves or expects to serve.

SWOT Analysis

WEAKNESSES: is a limitation or deficiency in one or more resources or competencies relative to competitors that obstructs a firms’ effective performance.


OPPORTUNITIES: is a major favorable situation in a firms’ environment; breakthrough technology, improved supplier relationships, changes in regulatory circumstances, identification of a previously overlooked market segment.

SWOT Analysis

THREATS: is a major unfavorable situation in a firms’ environment; entrance of new competitors, slow market growth, increased bargaining power of key suppliers, technological changes, new regulations.


Strategic Factors Analysis Summary (SFAS) Matrix

Generated mainly to deal with the cons of SWOT analysis


Generating Alternative Strategies Using TOWS Matrix

Thus a TOWS Matrix is developed to generate further alternative strategies that might not be considered in a SWOT analysis

SWOT considers only Opportunities and Strengths when thinking of alternative strategies


Generating Alternative Strategies Using TOWS Matrix


Generating Alternative Strategies through Business Strategies

Business Strategy focuses on improving the competitive position of a company

Business strategies could be either:

• Competitive Strategies

• Cooperative Strategies


Porter’s Generic Competitive Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies

Strategies that allows org. to gain competitive advantage



Cost Leadership: Producing standardized products at a low per-unit cost for a broad range of consumers who are price-sensitive.

Considered effective when:• Low switching costs• Buyers have high bargaining power• Rivals introduce low prices to build a customer

base• No product differentiation



Considered effective when: There are many ways to differentiate the product. Buyers needs & uses are diverse Few rival firms are following a similar approach Technological change is fast paced.

DifferentiationProducing P/S considered unique to consumers who are price-insensitive.



• Low-cost focusOffering P/S to a small range of consumers (niche group) at the lowest P available.

• Differentiation Focus (Best-value focus)Offering P/S to a small range of consumers at the best-price value; lowest P available compared to those of rivals’ given the quality attributes.

Focus: Producing P/S that fulfill the needs of small groups of customers, e.g. mkt. penetration, mkt. development strategies. Essential when consumers have distinctive preferences that rivals cannot provide.


Considered effective when: Industry leaders do not consider the niche to be

crucial. The industry has many different niches, thus

allowing focuser to pick a competitive attractive niche.

The target mkt. niche is large, profitable, & growing.



Cooperative Strategies - Means for Achieving Strategies

Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.

Globalization is the major reason why firms use partnering to achieve strategies.

Joint Venture/Partnering



Why Joint Ventures Fail - Managers who must collaborate daily; not

involved in developing the venture Benefits the company not the customers Not supported equally by both partners May begin to compete with one of the

partners

Joint Venture/Partnering


Considered an effective strategy when: Synergies between private and publicly held Domestic with foreign firm, local management can

reduce risk Complementary distinctive competencies Resources & risks where project is highly profitable

(e.g. Alaska Pipeline) Two or more smaller firms competing w/larger firm Need to introduce new technology quickly

Cooperative Strategies - Means for Achieving StrategiesJoint Venture/Partnering



Reasons for M&A: Provide improved capacity utilization Better use of existing sales force Reduce managerial staff Gain economies of scale Smooth out seasonal trends in sales Gain new technology Access to new suppliers, distributors, customers,

products, creditors

Mergers & Acquisitions


Recent Mergers

Acquiring Firm Acquired FirmIBM Rational Software CorpYahoo Inktomi CorpU.S. Steel National Steel CorpPfizer PharmaciaKrispy Kreme Doughnuts Montana MillsOracle People SoftPalm HandspringNike Converse


First Mover Advantages

Potential Advantages Securing access to rare resources Gaining new knowledge of key factors & issues Carving out market share Easy to defend position & costly for rival firms to

overtake


The benefits a firm may achieve by entering a new market or developing a new product/service prior to rival firms.


First Mover Advantages

Considered effective when:• Build a firm’s image with buyers.• Produce cost advantages (new tech., distribution

channels, etc.)• Create strong loyal customers



OutsourcingBusiness-process outsourcing (BPO)


Why Outsourcing? Less expensive Allows firm to focus on core business Enables firm to provide better services

Companies taking over the functional operations of other firms, e.g. HR, customer service.

Chapter 6 Strategy Formulation; Situation Analysis & Business Strategy

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