STRATEGY STRATEGY FORMULATION AND FORMULATION AND IMPLEMENTATIONIMPLEMENTATION

Learning ObjectivesLearning Objectives Define the components of strategic managementDefine the components of strategic management Describe the strategic planning process and Describe the strategic planning process and

SWOT analysisSWOT analysis Understand Grand Strategies for domestic and Understand Grand Strategies for domestic and

international operationsinternational operations Define corporate-level strategies and explain the Define corporate-level strategies and explain the

portfolio approachportfolio approach Describe business-level strategies, including Describe business-level strategies, including

Porter’s competitive forces and strategies and Porter’s competitive forces and strategies and partnership strategiespartnership strategies

Explain the major considerations in formulating Explain the major considerations in formulating functional strategiesfunctional strategies

Enumerate the organizational dimensions used Enumerate the organizational dimensions used for implementing strategyfor implementing strategy

What is Strategic What is Strategic Management?Management?

Strategic ManagementStrategic Management The set of decisions and actions used to The set of decisions and actions used to

formulate and implement strategies that will formulate and implement strategies that will provide a competitively superior fit between provide a competitively superior fit between the organization and its environment so as to the organization and its environment so as to achieve organizational goals.achieve organizational goals.

Grand StrategyGrand Strategy The general plan of major action by The general plan of major action by

which an organization intends to which an organization intends to achieve its long-term goals.achieve its long-term goals.

Three general categoriesThree general categories::1.1. GrowthGrowth – can be promoted internally by investing in – can be promoted internally by investing in

expansion or externally by acquiring additional expansion or externally by acquiring additional business divisions.business divisions.

2.2. Stability (pause strategy)Stability (pause strategy) – that the organization – that the organization wants to remain the same size or grow slowly and in wants to remain the same size or grow slowly and in a controlled fashion.a controlled fashion.

3.3. RetrenchmentRetrenchment – that the organization goes through – that the organization goes through period of forced decline by either shrinking current period of forced decline by either shrinking current business units or selling off or liquidating entire business units or selling off or liquidating entire business.business.

Global StrategyGlobal Strategy

a separate grand strategy as the a separate grand strategy as the focus of global business.focus of global business.

Three global strategies:Three global strategies:1.1. GlobalizationGlobalization – the standardization of product design – the standardization of product design

and advertising strategies throughout the world.and advertising strategies throughout the world.

2.2. Multidomestic strategyMultidomestic strategy – the modification of product – the modification of product design and advertising strategies to suit the specific design and advertising strategies to suit the specific needs of individual countries.needs of individual countries.

3.3. Transnational strategyTransnational strategy – a strategy that combines – a strategy that combines global coordination to attain efficiency with flexibility global coordination to attain efficiency with flexibility to meet specific needs in various countries.to meet specific needs in various countries.

Purpose of StrategyPurpose of Strategy

Choosing how the organization will be different.Choosing how the organization will be different.

StrategyStrategy The plan of action that prescribes resource The plan of action that prescribes resource

allocation and other activities for dealing allocation and other activities for dealing with the environment and helping the with the environment and helping the organization attain its goals.organization attain its goals.

To remain competitive, companies To remain competitive, companies develop strategies that focus on:develop strategies that focus on:

1.1. Core competenceCore competence A business activity that an organization A business activity that an organization

does particularly well in comparison to does particularly well in comparison to competitors.competitors.

2.2. SynergySynergy The condition that exists when the The condition that exists when the

organization’s parts interact to produce a organization’s parts interact to produce a joint effect that is greater than the sum of joint effect that is greater than the sum of the parts acting alone.the parts acting alone.

3.3. Value CreationValue Creation The heart of strategy.The heart of strategy. Value can be defined as the combination Value can be defined as the combination

of benefits received and costs paid by the of benefits received and costs paid by the customers.customers.

Levels of StrategyLevels of Strategy

Corporate-Level StrategyCorporate-Level Strategy The level of strategy concerned with the question, The level of strategy concerned with the question,

“What business are we in?”“What business are we in?”. Pertains to the . Pertains to the organization as a whole and the combination of organization as a whole and the combination of business units and product lines that make it up.business units and product lines that make it up.

Business-Level StrategyBusiness-Level Strategy The level of strategy concerned with the question, The level of strategy concerned with the question,

“How do we compete?”“How do we compete?”. Pertains to each business . Pertains to each business unit or product line within the organization.unit or product line within the organization.

Functional-Level StrategyFunctional-Level Strategy The level of strategy concerned with the question, The level of strategy concerned with the question,

“How do we support the business-level strategy?”“How do we support the business-level strategy?”. . Pertains to all of the organization’s major Pertains to all of the organization’s major departments.departments.

Three Levels of Strategy in Three Levels of Strategy in OrganizationOrganization

Corporation

Textile Units Chemicals Unit Auto Parts Unit

Finance R & D Manufacturing Marketing

Corporate-Level Strategy:What business are we in?

Business-Level Strategy:How do we compete?

Functional-Level Strategy:How do we support the business-level strategy?

Corporation

Textile Units

Finance R & D Manufacturing Marketing

Corporate-Level Strategy:What business are we in?

Business-Level Strategy:How do we compete?

Functional-Level Strategy:How do we support the business-level strategy?

Strategy Formulation Versus Strategy Formulation Versus ImplementationImplementation

Strategy FormulationStrategy Formulation The stage of strategic management that The stage of strategic management that

involves the planning and decision making involves the planning and decision making that lead to the establishment of the that lead to the establishment of the organization’s goals and of a specific organization’s goals and of a specific strategic plan.strategic plan.

Strategy ImplementationStrategy Implementation The stage of strategic management that The stage of strategic management that

involves the use of managerial and involves the use of managerial and organizational tools to direct resources organizational tools to direct resources toward achieving strategic outcomes.toward achieving strategic outcomes.

The Strategic Management The Strategic Management ProcessProcess

Scan External Environment:• National• Global

Identify Strategic Factors:• Opportunities• Threat

Scan Internal Environment:• Core Competence• Synergy• Value Creation

Identify Strategic Factors:• Strengths• Weaknesses

Define New:• Mission• Goals• Grand Strategy

Formulate Strategy:• Corporate• Business• Functional

Evaluate Current:• Mission• Goals• Strategies

SWOT

Implement Strategy via Changes in:• Leadership /

Culture• Structure• Human Resources• Information

and Control System

Situation AnalysisSituation Analysis Analysis of the strengths, weaknesses, Analysis of the strengths, weaknesses,

opportunities, and threats (SWOT) that opportunities, and threats (SWOT) that affect organizational performance.affect organizational performance.

StrengthsStrengths Positive internal characteristics that the organization can Positive internal characteristics that the organization can

exploit to achieve its strategic performance goals.exploit to achieve its strategic performance goals.

WeaknessesWeaknesses Internal characteristics that might inhibit or restrict the Internal characteristics that might inhibit or restrict the

organization’s performance.organization’s performance.

OpportunitiesOpportunities Characteristics of the external environment that have the Characteristics of the external environment that have the

potential to help the organization achieve or exceed its potential to help the organization achieve or exceed its strategic goals.strategic goals.

ThreatsThreats Characteristics of the external environment that may prevent Characteristics of the external environment that may prevent

the organization from achieving its strategic goals.the organization from achieving its strategic goals.

Formulating Corporate-Level Formulating Corporate-Level StrategyStrategy

Portfolio StrategyPortfolio Strategy A type of corporate-level strategy that A type of corporate-level strategy that

pertains to the organization’s mix of pertains to the organization’s mix of SBUs and product lines that fit together SBUs and product lines that fit together in such a way as to provide the in such a way as to provide the corporation with synergy and corporation with synergy and competitive advantage.competitive advantage.

Strategic Business Unit (SBU)Strategic Business Unit (SBU) A division of the organization that has a A division of the organization that has a

unique business mission, product line, unique business mission, product line, competitors, and markets relative to competitors, and markets relative to other SBUs in the same corporation.other SBUs in the same corporation.

The BCG MatrixThe BCG Matrix A concept developed by the Boston Consulting Group A concept developed by the Boston Consulting Group

that evaluates SBUs with respect to the dimension of that evaluates SBUs with respect to the dimension of business growth rate and market share. business growth rate and market share.

Four Alternative Positions:Four Alternative Positions: Question MarksQuestion Marks

The business unit has low market share The business unit has low market share compared to competitors, however it is doing compared to competitors, however it is doing business in high-growth market. business in high-growth market.

StarsStars The business has high market share compared The business has high market share compared

to competitors and it is doing business in high-to competitors and it is doing business in high-growth market.growth market.

Cash CowsCash Cows The market is not very attractive – low market The market is not very attractive – low market

growth rate, however the business has high growth rate, however the business has high market share compared to competitors. market share compared to competitors.

DogsDogs This business has low market share and This business has low market share and

operates in low-growth market. operates in low-growth market.

Formulating Business-Level Formulating Business-Level StrategyStrategy

it is a strategy formulation within the it is a strategy formulation within the strategic business unit in which the strategic business unit in which the concern is how to compete.concern is how to compete.

the same three generic strategies the same three generic strategies (growth, stability, and retrenchment) (growth, stability, and retrenchment) apply at the business level, but they are apply at the business level, but they are accomplished through competitive actions accomplished through competitive actions rather than the acquisition or divestment rather than the acquisition or divestment of business divisions.of business divisions.

Porter’s Five Competitive Porter’s Five Competitive ForcesForces

Rivalry among

Competitors

Threat of Substitute Products

Potential New Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Internet tends to increase bargaining power of suppliers

Internet reduces barriers to entry

Internet blurs differences among competitors

Internet creates new substitution threats

Internet shifts greater power to end consumers

Competitive StrategiesCompetitive Strategies

1.1. DifferentiationDifferentiation a type of competitive strategy with which a type of competitive strategy with which

the organization seeks to distinguish its the organization seeks to distinguish its products or services from competitors.products or services from competitors.

2.2. Cost LeadershipCost Leadership A type of competitive strategy with which A type of competitive strategy with which

the organization aggressively seeks the organization aggressively seeks efficient facilities, cuts costs, and employs efficient facilities, cuts costs, and employs tight cost controls to be more efficient tight cost controls to be more efficient than competitors.than competitors.

3.3. FocusFocus A type of competitive strategy that A type of competitive strategy that

emphasizes concentration on a specific emphasizes concentration on a specific regional market or buyer group.regional market or buyer group.

Partnership StrategiesPartnership Strategies

Organizational Combination

Strategic Alliances

Acquisitions

Mergers

Joint Ventures

Strategic Business Partnering

Preferred Supplier Arrangements

High

DEGREE

OF

COLLABORATION

Low

Formulating Functional-Level Formulating Functional-Level StrategyStrategy

the action plans adopted by major the action plans adopted by major departments to support the departments to support the execution of business-level strategy.execution of business-level strategy.

major organizational functions major organizational functions include marketing, production, include marketing, production, finance, human resources, and finance, human resources, and research & development.research & development.

Strategy Implementation and Strategy Implementation and ControlControl

Implementation is the final step in the Implementation is the final step in the strategic management process and it strategic management process and it is how strategy put into action.is how strategy put into action.

Some people argue that strategy Some people argue that strategy implementation is the most difficult implementation is the most difficult and important part of strategic and important part of strategic management.management.

STRUCTURAL DESIGN

• Design organization chart• Create teams• Determine centralization• Arrange facilities, task design

LEADERSHIP

• Use persuasion• Motivate employees• Shape culture/values

HUMAN RESOURCES

• Recruit/select employees• Manage transfers/promotions/training• Direct layoffs/recalls

INFORMATION AND CONTROL SYSTEMS• Revise pay, reward system• Change budget allocations• Implement information systems• Apply rules and procedures

OrganizationEnvironment

StrategyPerformance

Tools for Putting Strategy into Tools for Putting Strategy into ActionAction

Implementing Global Implementing Global StrategiesStrategies

In the international arena, flexibility and In the international arena, flexibility and superb communication emerge as mandatory superb communication emerge as mandatory leadership skills.leadership skills.

Structural design must merge successfully with Structural design must merge successfully with foreign cultures as well as link foreign foreign cultures as well as link foreign operations to the home country.operations to the home country.

Information and control systems must fit the Information and control systems must fit the needs and incentives within local cultures.needs and incentives within local cultures.

Recruitment, training, transfer, promotion, and Recruitment, training, transfer, promotion, and layoff of international human resources create layoff of international human resources create array of problems not confronted from other array of problems not confronted from other countries such as labor laws, guaranteed jobs, countries such as labor laws, guaranteed jobs, and cultural traditions of keeping unproductive and cultural traditions of keeping unproductive employees on the job.employees on the job.

THE ENDTHE END

Any clarification?Any clarification?

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