Chapter 9
Designing Strategies
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Learning Objectives
Explain how businesses use planning to solve problems and make a difference
Distinguish how planning is different at the organizational, divisional, and functional levels of a business
Explain how senior managers develop organizational strategies and business plans
Outline methods that managers use to understand their industries and competitors
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Learning Objectives (cont.)
Describe how managers assess the organization’s capacity to execute proposed business plans
Demonstrate how managers develop divisional strategies and tactical plans
Compare traditional strategic planning models to an event-based approach
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How Managers Plan to Make a Difference (p. 228)
Designing and developing strategies is a continuous process that helps organizations determine what they do, why they should be in business, how they can win and sustain market share, and how they can continually innovate to keep ahead of the competition
Acquisition (p. 230)• When an organization purchases another
organization or business in order to grow
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Different Levels of Strategy (p. 230)
Strategy• Plan of action for achieving goals• Three levels of strategy
Organizational strategy – corporate level strategy that addresses the question “What business are we in?” and unites all parts of the organization
Divisional strategy – strategy that determines how a business will compete in a particular industry or market
Functional strategy – strategy that determines how employees will implement and achieve a tactical plan
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Different Levels of Strategy (cont.)
Organizational, divisional, and functional strategies are documented using business, tactical, and operational plans, respectively• Business plan – stated actions and goals that support
the organizational strategy (p. 230)• Tactical plan – stated actions and goals that support
achieving the divisional strategy• Operational plan – stated actions and goals that
support achieving the functional strategy
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Different Levels of Strategy (cont.)
Connecting “mission, vision,
and values” to strategies
and plans
Figure 9.1
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Organizational Strategies (p. 231)
Organizational strategies designed to gain a competitive advantage• Characteristics of an organization’s products or services that
distinguish it from competitors and provide an advantage in the market
Reactor • Company that does not follow a consistent strategy but just
responds to changes in the environment Analyzer• Company whose strategies seek to maintain existing products
and services while pursuing limited innovation Often imitate or follow the proven success of prospector organizations
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Organizational Strategies (cont.)
Defender (p. 231)• Company whose strategies support stable growth
and continual improvement of existing products and services
• Stability strategy – organization focuses on processes, products, and services that will sustain it over the long term (p. 232)
• Cost leadership strategy – organization seeks competitive advantage by reducing production costs and therefore consumer prices
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Organizational Strategies (cont.)
Prospector (p. 232)• Company that uses strategies for high-risk, fast
growth through product and market innovation• First mover – company that gains competitive
advantage by being the first to offer a new product or service, or to use a new cost-saving technology
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Industry and Competitive Analysis (p. 232)
Competitive analysis• Process of assessing and monitoring the competition
in order to design more effective strategies
Five forces model (p. 233)• Michael Porter• Allows managers to assess the major threats that an
organization can expect to encounter• Enables continued reinvention and shaping of the
business to reflect market changes
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Industry and Competitive Analysis (cont.)
Five forces model
Figure 8.2
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Industry and Competitive Analysis (cont.)
Five forces model (cont.)• Power of suppliers – ability to increase prices• Power of buyers (customers) – ability to decrease
prices charged by company for its products or services (p. 234)
• Substitute products and services – importance of uniqueness of company’s products or services
• Rivalry – increase in competitors that offer the same products or services (p. 236)
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Industry and Competitive Analysis (cont.)
Five forces model (cont.)• New entrants – new competitors that enter the market
(p. 234) Barriers to entry – obstacle that makes it difficult for an
organization to enter a particular market or replicate a competitor’s service or product offerings
Supply-side economies of scale (p. 235) Demand-side benefits of scale Customer switching costs Capital requirements Incumbent advantages independent of size Unequal access to distribution channels (p. 236) Restrictive government policy
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Industry and Competitive Analysis (cont.)
Five forces model (cont.)• New entrants (cont.)
Expected retaliation (p. 236) Financial resources of incumbent, loyalty of customer base,
and control over distribution channels Incumbent’s ability to reduce prices Industry growth rate
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Organizational Position and Capacity (p. 237)
Resources• Assets, people, processes, and capabilities of an
organization Market position• Honest assessment about how the company
competes in its industry Capacity• Financial and human resources available to the
company which will enable or hinder it to achieve its goals
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Organizational Position and Capacity (p. 237)
Company position• Boston Consulting Group Matrix – framework for
evaluating business units according to growth and market share (p. 237) Largely based on the proportion of the market
controlled by the organization Growth strategy – strategy for increasing revenue,
profits, market share, or territories (p. 238) High growth markets – total business is expanding
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Organizational Position and Capacity (cont.)
BCG Matrix
Figure 8.3
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Organizational Position and Capacity (cont.)
BCG Matrix (cont.)• Business’s position in the matrix determines a strategic
recommendation (p. 238)• Dogs (low market share/low market growth)• Cash cows (high market share/low market growth)• Stars (high market share/high market growth; p. 239)• Question marks (low market share/high market growth
SWOT analysis• Method of assessing an organization’s strengths, weaknesses,
opportunities, and threats
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Organizational Position and Capacity (cont.)
Capabilities and resources (p. 240)• Core capabilities (competencies) – activities and
processes that an organization routinely does well in comparison to its competitors
• Resources – assets, people, and processes of an organization
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Organizational Position and Capacity (cont.)
Growth and underinvestment archetype
Figure 9.4
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Strategies for Performance (p. 245)
Focus strategy (p. 246)• Organization concentrates on a specific target
market• May employ cost leadership and/or differentiation
strategies
Differentiation strategy• Organization seeks competitive advantage by
providing goods or services that are significantly different from the competition
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Strategies for Performance (cont.)
Vertical integration (p. 247)• Diversification method in which an organization
adopts: Backward integration - begins producing its own
supplies Form of diversification strategy in which an organization adds
new kinds of goods, services, or business units Forward integration – takes on the distribution and
selling of its products
Renewal strategy• Addresses declining performance through
retrenchment and regrowth
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