Topic 5. Strategy Formulation And Implementation Strategy Strategy Is Your

Topic 5. Strategy Formulation and Implementation Strategy Strategy is your competitive actions in the market Finding ways to respond to competitors, and cope with change is strategy Strategy is the plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization attain its goals. •

 A company’s core competence is something the organization does especially well in comparison to its competitors  A core competence represents a competitive advantage because the company acquires expertise that competitors do not have  A core competence may be in the area of superior research and development, expert technological know-how, process efficiency or exceptional customer service b) Build Synergy

Plan of action

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Resource allocation

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Activities for environment

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Achieving competitive advantage

dealing

with

the

Competitive Advantage Competitive Advantage refers to what sets the organization apart from others and provides it with a distinctive edge in the marketplace. Purpose of Strategy Strategy necessarily changes over time to fit environmental conditions. But to remain competitive, companies develop strategies that focus on: a) Exploit Core Competence

 When organisational parts interact to produce a joint effect that is greater than the sum of the parts acting alone, synergy occurs  The organization may attain a special advantage with respect to cost, market power, technology or management skill  When properly managed, synergy can create additional value with existing resources, providing a bib boost to the bottom line  Synergy can also be obtained by good relationships between organisations  Synergy occurs when organizational parts interact to

produce a joint effect that is greater than the sum of the parts acting alone. The organization may attain a special advantage with respect to cost, market power, technology, or management skill. c) Deliver Value  Delivering customer strategy

value is at

to the heart of

 Value can be defined as the combination of benefits received and costs paid  Managers help their companies create value by devising strategies that exploit core competences and attain synergy Levels of Strategy  Corporate-level strategy  Business-level strategy  Functional-level strategy

a) Corporate Level Strategy  The level of strategy concerned with the question, “What business are we in?” It pertains to the organization as a whole and the combination of business units and product lines that make up the corporate identity.  Strategic actions here are acquisition of new business, addition/divestment of business units, joint ventures b) Business Level Strategy  The level of strategy concerned with the question" How do we compete?” It pertains to each business unit or product line within the organization.  Here the concern will be amount of advertising, direction, R & D, product changes, new product development, expansion/contraction of product lines c) Functional Level Strategy  The level of strategy concerned with the question “How do we support the business–level competitive strategy?” It pertains to the major functional departments within the business unit. 

- Guides the use of resources to implement business strategy

 - Involves all of the major functions including finance, R & D, marketing

Strategic Management  Plans and actions that lead to superior competitive standing ➢ What changes and trends are occurring in the competitive environment? ➢ Who are our competitors and what are their strengths and weaknesses? ➢ Who are our customers? ➢ What products or services should we offer? How can be offer them most efficiently? ➢ What does the future hold for our industry? ➢ How can we change rules of the game?

the

 Set of decisions and actions used to formulate and execute strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals  Responsibility = top managers and chief executive

Situation Analysis Situation analysis typically includes a search for SWOT—strengths, weaknesses, opportunities, and threats—that affect organizational performance. Internal Strengths and Weaknesses  Strengths are positive internal characteristics organizations can exploit to achieve strategic performance goals.  Weaknesses are internal characteristics that may inhibit or restrict the organization’s performance. External Opportunities and Threats  Opportunities are characteristics of the external environment that have the potential to help the organization achieve or exceed its strategic goals.

 Threats are characteristics of the external environment that may prevent the organization from achieving its strategic goals.

The BCG (Boston Consulting Group) Matrix organizes business along two dimensions—business growth rate and market share.

Assessment of internal and external factors

Business growth rate pertains to how rapidly the entire industry is increasing.

 Internal information about Organizational strengths, weaknesses •

Reports

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Budgets

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Financial ratios

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Employee Surveys

 External information opportunities and threats •

Customers

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Government reports

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Professional journals

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Bankers

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Consultants

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Association meetings

Market share defines whether a business unit has a larger or smaller market share than competitors.

Portfolio Strategy

about

The combination of market share and business growth rate provides four categories for a corporate portfolio.

Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage for the corporation. Corporations like to have a balanced mix of business divisions called strategic business units (SBU) An SBU has a unique business mission, product line, competitors, and markets relative to other SBU in the corporation. Senior corporate managers generally define the grand strategy and then bring together a portfolio of SBU to achieve the strategy The goal of portfolio strategy is to identify mix of investments that best serve organizational objectives The approach can help managers decide how the major grand strategies should be applied for the organization The BCG Matrix

Star  When growth is high and share is high, it is called a star. The star has a large market share in a rapidly growing industry.  The star is important because it has additional growth potential and profits should be plowed into this business as investment for future growth and profits.

Cash Cow  When growth is low and share is high, it is known as a cash cow. The cash cow exists in a mature, slowgrowth industry but is a dominant business in the industry, with a larger market share.  Because heavy investment in advertising and plant expansion are no longer required, the corporation earns a positive cash flow.

Unrelated Diversification –

Bargaining power of suppliers

Expanding into a totally new line of business

Vertical Integration –

Expanding into business that either produce the supplies need to make products or that distribute and sell those products

Porter’s Competitive Strategies

Question Mark

 The concentration of suppliers and the availability of substitute suppliers are significant in determining the bargaining power of suppliers. Threat of substitute products  The power of alternatives and substitutes for a company’s product may be affected by cost changes or trends that will deflect buyer loyalty. Rivalry among competitors

 When growth is high but share is low, it is a question mark. The question mark exists in a new, rapidly growing industry, but has only small market share.

 Rivalry among competitors is influenced by the preceding four forces, as well as by cost and product differentiation.

 The question mark business is risky. It could become a star, or it could fail. Dog 

-In the fourth quadrant, growth and share are both low. It has only a small share of a slow-growth market.

 This is the worst situation, and it is a dog. The dog is a poor performer.

Potential new entrants  Capital requirements and economies of scale are examples of barriers to entry that can keep out new competitors.

Diversification Strategy Related Diversification –

Moving into a new business that is related to the company’s existing business activities

Bargaining power of buyers  Informed customers empowered customers.

become

Differentiation

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attempt to distinguish products or services from that of competitors

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Seek competitive through uniqueness

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They try to develop goods/services that are

objective is to attract customers who become loyal to the organization

Cost leadership •

aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors

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- Requires tight costs managerial controls

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Quality must compromised

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advantage

different •

geographical line

not

and be

E.g Wal Mart : keep costs low so can offer customers low price and make profit

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region,

product

The company will use either a differentiation or cost leadership approach, but only for a narrow target market Cathay Pacific : offered dramatic discounts and special travel packages in attempting to bring back customers

Formulating strategy

Functional-

Level

Functional–level strategies are the action plans adopted by major departments to support the execution of business–level strategy to achieve the organization’s strategic goals. Major organizational functions include marketing, production, finance, human resources, and research and development. New Trends in Strategy Enhancing organizational (Innovation from within)

capacity

Strategic partnerships Innovation from Within

Focus •

concentrates on a specific regional market or buyer group

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Focuses organizational resources/expertise on a particular customer group,

The strategic approach referred to as dynamic capabilities means that managers focus on leveraging and developing more from the firm’s existing assets, capabilities and core competencies in a way that will provide a sustained competitive advantage

Learning, reallocation of existing assets and internal innovation are the route to addressing new challenges in the competitive environment and meeting new customer needs Strategic Partnerships In some situations, companies can achieve competitive advantage by cooperating with other firms rather than competing. Partnership strategies are popular as firms in all industries join with other organizations to promote innovation, expand markets, and pursue joint goals. Collaboration with other organisations, sometimes even with competitors, is an important part of how today’s successful companies enter new areas of business. Global Strategies Finding strategies marketplace

in

the

world

Synergy among world operations Organizations differ in their global strategies  Globalization Strategy  Export Strategy  Transnational Strategy  Multidomestic Strategy Global Strategies

Globalization Strategy •

Globalization means that a company's product design and advertising strategies are standardized throughout the world.

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This approach is based on the assumption that a single global market exists for many consumer and industrial products.

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The theory is that people everywhere want to buy the same products and live the same way.

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Multidomestic Strategy •

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Export Strategy •

The first step toward a greater international presence is when companies begin exporting domestically produced products to selected countries

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Because the organisation is domestically focused, with only a few exports, managers have little need to pay attention to issues of either local responsiveness or global intergration

Transnational Strategy •

Transnational strategies seek to achieve both global integration and national responsiveness.

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A true transnational strategy is difficult to achieve, because one goal requires close global coordination while the other goal required local flexibility.

However, many industries are finding that, although increased competition means they must achieve global efficiency, growing pressure to meet local needs demands national responsiveness.

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Multidomestic strategies believe that competition in each country is handled independently of industry competition in other countries. Thus, marketing, advertising, and product design is encouraged to be modified and adapted to the specific needs of each country the company is present in. Many companies reject the idea of a single global market.