Strategy Formulation And Implementation Ch # Lecture

STRATEGY FORMULATION AND IMPLEMENTATION

STRATEGIC MANAGEMENT  S.M

is art and science of formulating, implementing and evaluating crossfunctional decisions that enable an organization to achieve its objectives.

Stages of S.M • • • • •

STRATEGY FORMULATION: Developing mission SWOT analysis Establish long term objectives Choosing particular strategy to peruse

STRATEGY IMPLEMENTATION  Action

stage (put formulate strategy into

action)  Establish annual objectives  Devise policies  Motivate employees  Redirecting marketing efforts  Prepare budgets

STRATEGY EVALUATION  Final

stage  Measuring performance  Taking corrective action  Providing feed back

Strategy:plan of action dealing with

allocating resources and other activities to attain organization goals. Grand

strategy:general plan of major

action by which organization intend to achieve its long term goals. Grand strategy divide into three categories:  growth strategies  Stability strategies  Consolidation strategies

 FOR

GROWTH STRATEGY

CURRENT MARKET:  PRODUCT DEVELOPMENT:  Increase sales by improving or modifying present product or service.  Meet changing customer needs and wants  Advantages of new technology  Replacing or reformulating existing product.

MARKET

PENETRATION

 Increase

market share for present product or services through greater marketing efforts.

 VERTICAL

INTEGRATION

• FORWARD INTEGRATION • BACK WARD INTEGRATION

FORWARD NTEGRATION: Gaining ownership or increased control over distributors or retailers. BACKWARD INTEGRATION Seeking ownership or increase control of firms suppliers.

For new markets  MARKET

DEVELOPMENT:  Bring current product to new market.  HORIZONTAL INTEGRATION:  Seeking ownership and increase control over firms competitors.  Take over (polka, walls)  Merges (pizza hut , coke)  Acquisition (nestle, Ava)

DIVERSIFICATION STRATEGIES

 CONCENTRIC

DIVERSIFICATION: Adding new but related product t. (tooth paste+ brush) CONGLOMERATE DIVERSIFICATIO. Adding new but unrelated product. (Mercedes +vacuum cleaner) HORIZONTAL DIVERSIFICATION: Adding new but unrelated product. Pepsi, water, beer)

Stability Strategy – A strategy that seeks to maintain the status quo

to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons.

DEFENSIVE OR CONSOLIDATION STRATEGIES – Developing strategies to counter organization

weaknesses that are leading to performance declines.

 RETRENCHMENT:  Reducing

existing product by withdrawing from weaker market. due to decline of sale and profit.  PRUNING: Reduce weak product from market.  DIVESTITURE OR DIVESTMENT  Sell a part of business. (distributor)

 LIQUIDATION:

selling all company assets. JOIN VENTURE: 2 or more companies from temporary partnership.

GLOBAL STRATEGY

 GLOBALIZATION  The

standardization of product design and advertising strategies throughout the world.  MULTIDOMESTIC STRATEGY:  The modification of product design and advertising strategies to suit the specific needs of individual countries.  TRANSNATIONAL STRATEGY:  A strategy that combines global coordination to attain efficiency with flexibility to meet specific needs in various country.

Levels of strategy Corporate-level strategy

Business- level strategy

Function- level strategy

CORPORATE –LEVEL STRATEGY A

level of strategy concerned with the question “what business are we in?”pertains to the organization as a whole and the combination of business units and products lines that makes it up.  Acquisition of new business  Addition or divestment of business unit  Joint venture with other corporations

Business level strategy  The

level of strategy concerned with he question “how do we compete?” pertain to each business unit or product line within the organization.  Advertising  Research and development  New product development  Expansion or contract product line  Reduction of cost

Function- level strategy A

level of strategy concerned with the question “how do we support the business level strategy?” pertain to all organization’s major department.  All major department  Finance. Marketing, HR

SWOT ANALYSIS SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities and threats are external factors.

EXTERNAL FACTORS  In

SWOT, opportunities and threats are external factors. : An opportunity is an area of buyer need in which a company can perform profitability.example:

A

developing market such as the Internet.  mergers, joint ventures or strategic alliances  moving into new market segments that offer improved profits  a new international market  a market vacated by an ineffective competitor

 Environmental

threat is a challenge posed by an

unfavorable trend or development that would lead in the absence of defensive marketing action to deterioration in sales/profits A

threat could be:  a new competitor in your home market  price wars with competitors  a competitor has a new, innovative product or service  competitors have superior access to channels of distribution  taxation is introduced on your product or service

Internal Environment Analysis -Strengths /Weaknesses  In

SWOT, strengths and weaknesses are internal factors. For example:A strength could be:  your specialist marketing expertise.  a new, innovative product or service  location of your business  quality processes and procedures  any other aspect of your business that adds value to your product or service.

weakness could be:  lack

of marketing expertise  undifferentiated products or services (i.e. in relation to your competitors)  location of your business  poor quality goods or services  damaged reputation

PORTFOLIO STRATEGY A

type of corporate – level strategy that pertains to the organization’s mix of SBU and product lines that fit together in such way as to provide the corporation with synergy and competitive advantage.

 STRATEGIC

BUSINESS UNIT:  A division of the organization that’s has a unique business mission, product line, competitors and markets elative to other SBU in the same corporation.  Synergy: the condition that exist when the organization’s parts interact to produce a joint effect that is greater than the sum of the parts acting alone.

The BCG GROWTH MATRIX A

concept developed by the Boston Consulting Group that evaluates SBU’s with respect to the dimension of business growth rate and market share

BCG Growth-Share Matrix Market Share

Cash Cow

Star

High

Problem Child

Dog

Low

Low Growth

High

Market

20%18%16%14%12%10%8%6%4%2%0 10x

Stars

Question marks

4

3

5

?

?2

?

Market Growth Rate

The Boston Consulting Group’s Growth-Share Matrix 1

?

Dogs

Cash cow

8 6

7

4x

2x 1.5x

1x

.5x .4x .3x .2x .1x

Relative Market Share

star  High

growth and high market share  Large market share in rapidly growing market.  Business is likely to generate enough cash to be self sustaining. Recommended tactics:  promote aggressively  expand your product or service  invest in R & D

Cash cow  Compete

in a slow growth industry and have high market share

 Business

can be used to support other business units.  Generate more cash than consume

Question mark  Business

requires a lot of cash to maintain market share.  invest more cash  or, divest  Has potential to gain market share and become star and fail as well.

Dogs/ problem child  Poor

performer  Small share in low growth industry  Business is a cash trap.  focus on short term  avoid risky project  limited future

Porter’s competitive forces Potential new entrant

Power of buyers

Power of suppliers

Threat of substitute product

Rivalry among competitors

Exhibit 8–6 Forces in the Industry Analysis

Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980).

Potential new entrant  Many

problem face by new entrant  Economies of scale  Lack of capital  Access to distribution  Government policies  Access to inputs

Power of buyer  Single

buyer may influence on price and other conditions  Monopsony: many seller but one buyer

Supplier power  One

supplier –many buyers  Influences on price

Threat of substitute  Any

product available in the market may force customer to brand switching.

Rivalry among competitors  Intense

competition between two companies.  Same customer same product  Pepsi and coke  Fight to increase market share

Competitive strategies  Generic

strategies were used initially in the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage.  Cost Leadership  Differentiation  Focus or Niche strategy

Cost Leadership A type of competitive strategy with which the organization aggressively seeks, efficient facilities, cut cost, and employs tight cost control to be more Efficient than competitors.  The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost.  Low cost mean company can undercut competitors.

differentiation A

type of competitive strategy with which the organization seek to distinguish its product or services from competitors.  The organization may use advertising, distinctive product features exceptional service or new technology to achieve a product perceived as unique.  This strategy may be profitable because customer will pay high price for the product.

FOCUS  The

type of competitive strategy that emphasizes concentration on a specific regional market or buyer group.  The premises is that the need of a group can be better serviced by focusing entirely on it.

PRODUCT LIFE CYCLE  The

Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline).

PRODUCT LIFE CYCLE

INTRODUCTION STAGE  In

Introduction stage, sales are low as a new idea is first introduced to a market.  Customers aren't looking for the product, and may not be aware of its benefits or advantages over current offerings.  In fact, they may not even know about it.  Informative promotion is needed to tell potential customers about the new product concept. Even though a firm promotes its new product, it takes time for customers to learn that the product is available. Money is invested in developing the market in anticipation of future profits.

GROWTH STAGE  The

Growth stage, industry sales grow quickly but industry profits rise and then start falling.  The innovator begins to make big profits as more and more customers buy.  But competitors see the opportunity and enter the market.  Some just copy the most successful product, or try to improve it to compete better. Others try to refine their offerings to do a better job of appealing to some target markets. The new entries result in much product variety.

MATURITY STAGE Maturity occurs when industry sales level off.  Competition gets tougher as aggressive competitors have entered the race for profits.  Industry profits continue to go down during maturity because promotion costs rise and competitors continue to cut prices to attract more business. New firms may still enter the market during this stage. These late entries skip the early life cycle stages, including the profitable growth stage. They must try to take market share from established firms, which is difficult and expensive in a saturated, flat market. Customers who are satisfied with their current relationship won't be interested in switching to an unknown brand. 

DECLINE STAGE  During

the Sales Decline stage, new products replace the old.  Price competition from dying products becomes more vigorous, but firms with strong brands may make profits until the end because they successfully differentiated their products. They may also keep some sales by appealing to the most loyal customers or those who are slow to try new ideas. These buyers might switch later, smoothing the sales decline.