Chapter4 part2 strategy sv

CHAPTER 4: PLANNING

PART 2: STATEGY FORMULATION AND IMPLEMENTATION

Lecturer: Duong Thi Hoai Nhung (MBA)

Faculty of Business Administration

Foreign Trade University

Email: [email protected]

Mobile: 0985 867 488

Learning objectives

• Define the component of strategic management• Describe the strategic planning process and

SWOT analysis• Define corporate-level strategies and explain

the portfolio approach- the BCG matrix• Describe business- level strategies, including

Porter’s competitive forces and strategies, and cooperative strategies

• Explain the major considerations in formulating functional- level strategies

OUTLINE

1. What is strategic management?

2. Level of strategy

3. Strategy formulation

a. Formulating Corporate-level strategy

b. Formulating Business-level strategy

c. Formulating Functional-level strategy

4. The strategic planning process

Common elements in successful strategies

Simple, consistent,

long-term goals

Profound understanding of

competitive environment

Objective appraisal of resources

Successful strategy

EFFECTIVE IMPLEMENTATION

Source: Robert M. Grant. (2008). Contemporary Strategy Analysis (6th edition)

1. What is strategic management?

• Strategic management is the set of decisions and actions used to formulate and implement environment so as to achieve organizational goals.

• Why Strategic Management is Important?

1. It results in higher organizational performance.

2. It requires that managers examine and adapt to business environment changes.

3. It coordinates diverse organizational units, helping them focus on organizational goals.

4. It is very much involved in the managerial decision-making process.


Corporation

Corporate-level strategy: ‘What business are we in?’

Chemicals unitTextiles unit

HRMR&DFinance

Business- level strategy: ‘How do we compete?’

Functional- level strategy:‘How do we support the business- level strategy?’

Auto parts unit

MarketingManufacturing


• Corporate- level strategy Corporate- level strategy relates to the organization as a whole and to the combination of business units and product lines that make up the corporate entity

• Business- level strategy Business-level strategy relates to each business unit or product line. It focuses on the way the business unit competes within its industry for customers

• Functional- level strategy It relates to the major functions, including finance, research and development, marketing and manufacturing

Types of Growth Strategies

Growth strategy is when an organization expands the number of markets served or products offered, either through its current business(es) or through new business(es).

Concentration focuses on its primary line of business and increases the number of products offered or markets served in this primary business.

Vertical integration

- In backward vertical integration, the organization becomes its own supplier so it can control its inputs.

- In forward vertical integration, the organization becomes its own distributor and is able to control its outputs.

company grows by combining with competitors

- Related diversification happens when a company combines with other companies in different, but related, industries.

- Unrelated diversification is when a company combines with firms in different and unrelated

industries

Horizontal integration

Diversification

Growth Strategies

Corporate level strategies

Renewal strategyWhen an organization is in trouble, something needs to be done. Managers need to develop strategies, called renewal strategies, that address declining performance

Retrenchment strategy A retrenchment strategy is a short-run renewal strategy used for minor performance problems. This strategy helps an organization stabilize operations, revitalize organizational resources and capabilities, and prepare to compete once again.

• Turnaround strategyWhen an organization’s problems are more serious more drastic action—the turnaround strategy—is needed. Manager must to do: cut costs and restructure organizational operations

Corporate level strategies

Stability strategy Stability, sometimes called a pause strategy, means that the organization wants to remain the same size or grow slowly and in a controlled fashion.

Stability


- Portfolio Analysis is used to formulate Corporate-level strategy and relates to the mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage for the organization

- Competitive advantage is an advantage over competitors that cannot easily be imitated, especially advantages that can be sustained over time Sustainable Competitive Advantage (SCA)

The BCG Matrix

• BCG Matrix - Developed by the Boston Consulting Group - Considers market share and industry growth rate + Business growth rate relates to how rapidly the entire industry is increasing. + Market share defines whether a business unit has a larger or smaller share than competitors.- Classifies firms as:

• Cash cows: low growth rate, high market share• Stars: high growth rate, high market share• Question marks: high growth rate, low market

share• Dogs: low growth rate, low market share

The BCG matrix

Stars Question Marks

DogsCash cows

High Market share of SBU Low

High

Low

Business growth

rate

The BCG matrix

Star: dominant competitive position in a growing industry- Recommended strategy= growth; add resources and build the business further based on market projections

Question mark: poor competitive position in a growing industry- Recommended strategy= growth or retrenchment; apply resources to accomplish positive turnaround or pull back if outlook poor

Cash cow: dominant position in low-growth industry- Recommended strategy= stability or modest growth; maintain benefits of strong cash flow while keeping resource investment minimum

Dog: poor competitive position in low-growth industry- Recommended strategy= retrenchment; divest, sell, liquidate the business to eliminate resource drain

High

High

Low

Low

Business growth rate

Market share of SBU products/services


b. Formulating Business-level strategy (Competitive strategy)

Formulating Business-level strategy- Porter’s competitive forces and strategies

• Threat of New Entrants– The ease or difficulty with which new competitors can enter

an industry.• Threat of Substitutes

– The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitutes products and services.

• Bargaining Power of Buyers– The degree to which buyers have the market strength to

hold sway over and influence competitors in an industry. • Bargaining Power of Suppliers

– The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship.

• Current Rivalry– Intensity among rivals increases when industry growth

rates slow, demand falls, and product prices descend.

Porter’s competitive forces and strategies

Analyzing 5 competitive forces

• Porter’s five forces framework was originally developed as a way of assessing the attractiveness (profitability) of different industries. As such it can help in identifying the sources of competition in an industry or sector.

The five forces framework• Must be used at the level of strategic business units (and not at

the level of the whole organization)• Understanding the connections between competitive forces

and the key drivers in the macro-environment is essential• The five forces are not independent

Why does the 5 forces framework determine industry profitability?

Types of Business-level strategy (Competitive strategies)

Differentiation strategy

Cost leadership strategy

Focus strategy

Competitive strategies

Differentiation strategy

- Differentiat ion strategy- the ability of a company or a business unit to provide a unique or superior value to the buyer in terms of product quality, special features, or after sale service.

- The differentiation strategy involves an attempt to distinguish the firm’s products or services from the others in the industry.

Prentice Hall, Inc. ©2009

6-22

Porter’s competitive strategies

Lower cost strategy- the ability of a company or a business unit to design, produce and market a comparable product more eff iciently than its competitors.

The organization aggressively seeks efficient facilities, pursue cost reductions, and use tight cost control to produce products more effectively than competitors

Prentice Hall, Inc. ©2009 6-23


Cost leadership- a lower-cost competitive strategy that aims at

• the broad mass market,• requires efficient scale facilities, • cost reductions, cost and overhead control; • avoids marginal customers, • cost minimization in R&D, service, sales force

and advertising

Prentice Hall, Inc. ©2009

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Cost Focus- low-cost competitive strategy that focuses on a particular buyer group or geographic market and attempts to serve only this niche to the exclusion of others

Differentiation Focus- concentrates on a particular buyer group, product line segment, or geographic market to serve the needs of a narrow strategic market more effectively than its competitors

Organizational characteristics for Porter’s competitive strategies

Differentiation - Acts in a flexible, loosely knit way, with strong coordination among departments.- Strong capability in basic research- Creative flair, think ‘out of the box’- Strong marketing abilities- Rewards employee innovation- Corporate reputation for quality or technological leadership

Cost leadership

- Strong central authority, tight cost controls- Maintain standard operating procedure- Easy to use manufacturing technologies- Highly efficient procurement and distribution system- Close supervision, finite employee empowerment- Frequent, detailed control reports

Focus

- May use combination of above policies directed at particular strategic target- Values and rewards flexibility and customer intimacy- Measures cost of providing service and maintaining customer loyalty- Pushes empowerment to employees with customer contact

Issues in Competit ive Strategies? Is it possible for a company or business unit to follow a

cost leadership strategy and a differentiation strategy simultaneously? Why or why not?

c. Formulating functional-level strategy

c. Formulating functional-level strategy

• Functional- level strategies are the action plan adopted by major departments to support the execution of business- level strategy

• Major organizational functions include o marketing, o production, o finance, o human resources, o research and development (R&D)

4. The strategic planning process

Scan external environment:- National- Global

Identify strategic factors:- Opportunities- Threats

Evaluate current:- Mission- Goals

Implement strategy by changes in:- Leadership/culture- Structure- Human resource- Information & control system

Formulate strategy:- Corporate- Business- Functional

Define new:

- Mission- Goals

Identify strategic factors:- Strengths- Weaknesses

Scan internal environment:- Core competence- Synergy- Value creation

SWOT

Source: Danny and Richard L. Daft; 2009, p.302

Strategic Planning Process

• Step 1: Identifying the organization’s current mission, goals, and strategies

– Mission: the firm’s reason for being

• The scope of its products and services

– Goals: the foundation for further planning

• Measurable performance targets

• Step 2: Scanning an external analysis

– The environmental scanning of specific and general environments

• Focuses on identifying opportunities and threats


• Step 3: Scanning an internal analysis– Assessing organizational resources, capabilities, and

activities:• Strengths create value for the customer and

strengthen the competitive position of the firm.• Weaknesses can place the firm at a competitive

disadvantage.

– Analyzing financial and physical assets is fairly easy, but assessing intangible assets (employee’s skills, culture, corporate reputation, and so forth) isn’t as easy.

• Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats


• Step 4: Formulate Strategies– Develop and evaluate strategic alternatives– Select appropriate strategies for all levels in the

organization that provide relative advantage over competitors

– Match organizational strengths to environmental opportunities

– Correct weaknesses and guard against threats


• Step 5: Implement Strategies– Implementation: effectively fitting organizational

structure and activities to the environment– The environment dictates the chosen strategy;

effective strategy implementation requires an organizational structure matched to its requirements

• Step 6: Evaluate Results– How effective have strategies been?

- What adjustments, if any, are necessary

Case study 1.1: Apple’s profitable but risky strategy

Case questions

1. What do you think of Apple’s strategy? What would you do next if you were responsible for Apple?

2. What lessons can other companies learn from Apple’s strategies over the years?

Chapter4 part2 strategy sv

Economy & Finance

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