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Business Strategy
Disney is capitalizing on the Toy Story franchise by opening Toy Story attractions as its theme parks.
Gas price are forcing Toyota to cut back on SUV and truck production.
Vedanta Resources, a metals and mining company located in India, will invest $9.8 billion dollars to increase its aluminum-smelting capacity, a move that will make it one of the world largest metal producer.
“Find out what customers want, then provide it to them as cheaply and quickly as possible’’ is strategy of Wal-Mart.
What is strategy?
A large-scale action plan that sets the direction for an organization
Plans for how an organization will do what it’s in business to do, how it will compete successfully, and how it attract and satisfy its customers in order to achieve its goals.
It represent “educated guess” about what must be done in the long term for survival or the prosperity of organization or its principal parts.
Can org. uses its specific strategy forever? According to fast-changing
conditions, strategy can’t be decided on just once, it needs to be revisited from time to time.
What is strategic management? It is a process that involves
managers from all parts of organization in the formulation and the implementation of strategies and strategic goals.
It is what managers do to develop an organization’s strategies.
What is strategic planning? It is not only the organization’s long-term
goals for the next 1-5 years regarding growth and profits but also the ways the organization should achieve them.
It is the process of determining what your organization intends to accomplish, and how you will direct organization and its resources toward accomplishing these goals in the coming months and years.—Bryan W. Barry
Why strategic management is important?1. It can make difference in how well
organization performs even organizations are in the same environmental conditions but their performances are different
2. It helps managers cope with uncertainty from continually changing situations to examine relevant factors and decide what actions to take
3. It helps people focus on the ways and direction to achieve org.’s goals in each part of organization
The Strategic Management Process
Identify the organization’s
current mission,
goals, and strategies
External Analysis
•Opportunities
•Threats
Internal Analysis
•Strengths•Weaknesse
s
SWOT Analy
sis
Formulate
Strategies
Implement
Strategies
Evaluate Results
1
2
3
4 5 6
STEP1: Identify Org. Current Mission, Goals, and StrategyExamples L’Oreal mission is “The right to be
beautiful day after day.” Facebook mission is “a social utility that
connects you with the people around you.”
The National Heart Foundation of Australia mission is to “reduce suffering and death from heart, stroke, and blood vessel disease in Australia.”
Components of a Mission Statement Customers: Who are the firm’s customers? Markets: Where does the firm compete geographically? Concern for survival, growth, and profitability: Is the
firm committed to growth and financial stability? Philosophy: What are the firm’s basic beliefs, values, and
ethical priorities? Concern for public image: How responsive is the firm to
societal and environmental concerns? Products or services: What are the firm’s major products
or services? Technology: Is the firm technologically current? Self-concept: What are the firm’s major competitive
advantage and core competencies? Concern for employees: Are employees a valuable asset
of the firm?
STEP2: Doing an External AnalysisExamples What the competition is doing? What pending legislation might affect
the organization? What the labor supply is like in
locations where it operates?*Managers need to point out
opportunities (positive trends) that organization can exploit and threats (negative trends) it must counteract or buffer against
STEP3: Doing an Internal AnalysisExamples Organization’s resources which are its
assets use for develop, manufacture, and deliver products to customers i.e. financial, physical, human, and intangible
Organization’s capabilities (skills and abilities) in doing work activities needed in its business
Organization’s major value-creating capabilities that determine its competitive weapons called ‘core competencies’
Managers identify organizational strengths (positive factors) and weaknesses (negative factors)
Complete SWOT Analysis
1. Combine external and internal analyses which includes organization’s strengths, weaknesses, opportunities, and threats
2. Formulate appropriate strategies which: Exploit organization’s strengths and external
opportunities Buffer or protect organization from external
threats Correct critical weaknesses
Example of Marketing SWOT Analysis (Internal Factors)A strength could be: A weakness 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.
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.
Example of Marketing SWOT Analysis (External Factor)An opportunity could be: A threat could be:
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.
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.
Ex. Marketing SWOT Analysis
Simple rules for successful SWOT analysis
Be realistic about the strengths and weaknesses of your organization when conducting SWOT analysis.
SWOT analysis should distinguish between where your organization is today, and where it could be in the future.
SWOT should always be specific. Avoid grey areas.
Always apply SWOT in relation to your competition i.e. better than or worse than your competition.
Keep your SWOT short and simple. Avoid complexity and over analysis
Example 1 - Wal-Mart SWOT Analysis. Strengths - Wal-Mart is
a powerful retail brand. It has a reputation for value for money, convenience and a wide range of products all in one store.
Opportunities - To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets such as Europe or the Greater China Region.
Weaknesses - Wal-Mart is the World's largest grocery retailer and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control.
Threats - Being number one means that you are the target of competition, locally and globally.
SWOT Analysis
SWOT analysis is a tool for auditing an organization and its environment.
It is the first stage of planning and helps managers to focus on key issues.
http://www.marketingteacher.com/Lessons/lesson_swot.htm
STEP4: Formulate Strategies Managers need to consider the
realities of external environment , their available resources , capabilities, and design strategies that will help the organization achieve its goals
STEP5: Implementing Strategies No matter how great the
organization’s strategies are planned, performance will suffer if those strategies are not implemented properly
STEP6: Evaluate Results
Managers need to evaluate on: How effective have strategies been at
helping organization reach its goals? What adjustments are necessary?
Example:Anne Mulcahy, Xerox’s CEO, made strategic
adjustments to regain market share and improve her company bottom line by cutting jobs, sold assets, and reorganized management
Types of Organizational Strategies
Multi-business Corporation
Strategic Business Unit 1
Strategic Business Unit 2
Strategic Business Unit 3
Research & Developme
nt
Manufacturing
MarketingHuman
Resources Finance
1) Corporate ->
2) Competitive or Business ->
3) Functional ->
I. Corporate Strategy
Multi-business Corporation
Strategic Business Unit 1
Strategic Business Unit 2
Strategic Business Unit 3
Research & Developme
nt
Manufacturing
MarketingHuman
Resources Finance
1) Corporate ->
2) Competitive or Business ->
3) Functional ->
What is Corporate Strategy? It specifies what businesses a
company is in or wants to be in and what it wants to do with those businesses.
It’s based on the missions and goals of org. and the roles that each business unit of org. will play.
Example: PepsiCo
Mission: “to be the world’s premier consumer products company focused on convenient foods and beverages…”
It pursues its mission with corporate strategy which is decided by top manager what to do in different businesses: PepsiCo Americas Beverages: PepsiCo North American
Beverages (PNAB), Latin Americas Beverages PepsiCo Americas Foods: - Frito Lay North America, Qua
ker Foods North America, Sabritas, Gamesa, Latin Americas Foods
PepsiCo International
Example: Unilever Our mission is to add vitality to life . We
meet everyday needs for nutrition, hygiene and personal care with brands that help people look good, feel good and get more out of life.
It divides its business units as: Food brands: Lipton, Knorr, Bertolli, Flora,… Home care brands: Comfort, Sunlight, Omo, Cif,
Surf,… Personal care brands: Axe, Dove, Lux, Lifebuoy,
Pond’s, Rexona, Vaseline, Sunsilk, Closeup
Types of Corporate Strategy1. Growth Strategies
2. Stability Strategies
3. Renewal Strategies
Corporate Strategy: Growth A corporate strategy that’s used when
organization wants to expand the number of markets served or products offered, either through its current business(es) or through new business(es).
It is a grand strategy that involves expansion—as in sales revenues, market share, number of employees, or number of customers or (for nonprofits) clients served.
Types of Growth Strategies1) Concentration or Intensive Growth
Strategy1) Market Development2) Product Development3) Market Penetration
2) Integrative Growth Strategy1) Forward Vertical Integration2) Backward Vertical Integration3) Horizontal Integration
3) Diversification Growth Strategy1) Conglomerate Diversification2) Concentric Diversification
1) Concentration or Intensive Growth Strategy Focuses on its primary line of business by
doing: Market Development: increases the number of
market served in primary business (existing products for new markets/ customers)
Product Development: increases the number of products offered by developing better quality products or innovate new products offerings in primary business (new products for existing customers)
Market Penetration: increases corporate revenue by promoting products, i.e. increased frequency or quantity of using products, or repositioning the brand (existing products for existing customers)
2) Integrative Growth Strategy A strategy for growth in which a firm acquires so
me other element of the chain of distribution of which it is a member
3 main types of integration: Backward Vertical Integration: controls subsi
diaries that produce some of the inputs used in th e production of its products, e.g. , an automobile c
ompany may own a tire company, a glass compan y, and a metal company (combine with input
supplier) Forward Vertical Integration: controls distribu
tion centers and retailers where its products are sold which enable firm control its output (combine with output distributor/retailer)
Horizontal Integration: occurs when a firm is b eing taken over by, or merged with, another firm
which is in the same industry and in the same sta ge of production as the merged firm, e.g. a car ma
nufacturer merging with another car manufacture r. (combine with competitor)
3) Diversification Growth Strategy
It is a strategy of firm that expand its business into new market(s) in order to gain new customers.
2 main types of diversification strategies: Concentric Diversification: combines with firms
in different but remains in a market or industry whi ch firm is familiar with (related diversification)
Conglomerate Diversification: combines with firms in different and never have previous experience before (unrelated diversification)
Corporate Strategy
Corporate Level
Stability
Growth
Renewal
Integration
Intensive
Diversification
Market Development
Product Development
Market PenetrationBackward Vertical
Forward Vertical
Horizontal
Conglomerate
Concentric
Corporate Strategy: Stability It is a corporate strategy in which an
organization continues to do what it is currently doing
It involves little or no significant change
It includes continuing to serve the same clients by offering the same product or service, maintain market share, and sustaining org’s current business operations.
Example of Market Share
Search Engine Market Share By U.S. Monthly Visitors and Search Queries in April 2008
The four major search engines stack up as follows:1.Google: 67.9%2.Yahoo: 20.3% (unrounded, 20.28%)3.Microsoft: 6.3% (unrounded, 6.26%)4.Ask: 4.2% (unrounded, 4.17%)
http://searchengineland.com/hitwise-google-again-hits-new-high-microsoft-yahoo-again-new-lows-13998
Corporate Strategy: Renewal Strategy (or Retrenchment or Defensive Strategy) A corporate strategy designed to
address declining performance which normally involve with cutting costs and restructuring organizational operations.
2 main types of renewal strategies: Retrenchment Strategy: a short-run
renewal strategy used for minor performance problems
Turnaround Strategy: a strategy used for more serious problems
Summary of Corporate Strategy1) Growth Strategy It can improve an existing product or service to attract
more buyers It can increase its promotion and marketing efforts to
try to expand its market share. It can expand its operations, as in taking over
distribution or manufacturing previously handled by someone else.
It can expand into new products or services. It can acquire similar businesses. It can merge with another company to form a larger
company.
2) Stability Strategy It can go for no-change strategy (if, for
example, it has found that too fast growth leads to foul-ups (misdoing) with orders and customer complaints)
It can go for a little-change strategy (if, for example, the company is growing at breakneck (very fast & dangerous) speed and feels it needs a period of consolidation)
Summary of Corporate Strategy (Con’t)
3) Renewal Strategy It can reduce costs, as by freezing hiring or
tightening expenses. It can sell off (liquidate) assets—land, buildings,
inventories, and etc. It can gradually phase out product lines or
services. It can divest part of its business, as in selling off
entire divisions or subsidiaries. It can declare bankruptcy. It can attempt a turnaround—do some retrenching,
with a view toward restoring profitability.
Summary of Corporate Strategy (Con’t)
II. Business or Competitive Strategy
Multi-business Corporation
Strategic Business Unit 1
Strategic Business Unit 2
Strategic Business Unit 3
Research & Developme
nt
Manufacturing
MarketingHuman
Resources Finance
1) Corporate ->
2) Competitive or Business ->
3) Functional ->
II. Business or Competitive Strategy
It is a strategy for how org. will compete in its business(es). Org. that has 1 main line of business =>
strategy describes on how it will compete in its primary or main market
Org. that has more than 1 line of business => strategy defines its competitive advantage, offered products or services, target customers, etc.
Org. can formulate different types of strategy such as cost leadership, differentiation, or focus.
II. Business or Competitive Strategy (Con’t)Example: LVMH-Moet Hennessy Louis
Vuitton SA has different competitive strategies for its businesses which includes: Donna Karan fashions Louis Vuitton leather goods Guerlain perfume TAG Heuer watches Dom Perignon champagne And other luxury products
SBUs = Strategic Business Units Single businesses in an organization
that are independent and formulate their own competitive strategies
II. Business or Competitive Strategy (Con’t)
It refers to the aggregated (total, sum) strategie s of single business firm or a SBU in a diversifie d corporation.
According to Michael Porter, to achieve a sustainable competitive advantage and long-term success, a firm must formulate a business strategy that incorporates: Cost leadership: keeping costs & prices low for a
market such as Dell computer, Timex watch, Home Depot hardware retailer
Differentiation: offering unique & superior value for a wide market such as Ritz-Carlton hotels, Lexus automobiles
Focus: offering unique & superior value for a narrow market such as Rolls-Royce, Ferrari, Lamborghini, Cartier jewelry
Source: http://en.wikipedia.org/wiki/Strategic_management
II. Functional Strategy
Multi-business Corporation
Strategic Business Unit 1
Strategic Business Unit 2
Strategic Business Unit 3
Research & Developme
nt
Manufacturing
MarketingHuman
Resources Finance
1) Corporate ->
2) Competitive or Business ->
3) Functional ->
III. Functional Strategy Functional strategies are used by org’s
various functional departments to support the competitive strategy which include marketing strategies , new product development strategies,
human resource strategies, financial strategies, l - egal strategies, supply chain strategies, and infor
mation technology management strategies. Each functional department attempts to do its pa
rt in meeting overall corporate objectives, and he nce to some extent their strategies are derived fr om broader corporate strategies.
The emphasis is on short and medium term pl ans and is limited to the domain of each departm ent’s functional responsibility.
Source: http://en.wikipedia.org/wiki/Strategic_management
Analytical Tools in Strategic Management 5 Forces Analysis BCG Growth-Share Matrix Product Life Cycle
Five Force Model 5 competitive forces determine
business attractiveness and profitability which manager assess using them
How much?
How much?
Any possibility?
Any possibility?
How intense ?
BCG Growth-Share Matrix The overall goal of this ranking was to help corporate analysts decide
which of their business units to fund, and how much; and which units to sell .
Managers were supposed to gain perspective from this analysis that allowed them to plan with confidence to use money generated by the cashcows to fund the stars and, possibly, the question marks
BCG Growth-Share Matrix The natural cycle for most business units is that they start
as question marks, then turn into stars . Eventually the market stops growing thus the business unit becomes a c
ash cow . At the end of the cycle the cash cow turns into a dog .
Stars & Question Marks
Stars are units with a high market share in a fast-growing industry .
The hope is that stars become the next cash cows.
Sustaining the business unit's market leadership may require extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader .
When growth slows, stars become cash cows if they have been able to maintain their category leadership, or they move from brief stardom to dogdom
Question marks (also kno wn as problem child) are growin
g rapidly and thus consume lar ge amounts of cash, but becaus
e they have low market shares t hey do not generate much
cash . The result is a large net c ash consumption.
A question mark has the potenti al to gain market share and bec
ome a star , and eventually a ca sh cow when the market growt
h slows. If the question mark does not s
ucceed in becoming the market leader, then after perhaps year
s of cash consumption it will de generate into a dog when the m
arket growth declines. Question marks must be analyz
ed carefully in order to determi ne whether they are worth the i
nvestment required to grow ma rket share.Source: http://en.wikipedia.org/wiki/Growth-share_matrix
Cash Cows & Dogs
Cash cow are units with hig -h market share in a slow growin g industry.
These units typically generate c ash in excess of the amount of
cash needed to maintain the bu siness.
They are regarded as staid and boring, in a "mature" market, a
nd every corporation would be t hrilled to own as many as possi
ble. They are to be "milked" continu
ously with as little investment a s possible, since such investme nt would be wasted in an indust ry with low growth.
Dogs, also can called as pets, are units with low market share in a mature, slow-growing industry .
These units typically "break even", generating barely enough cash to maintain the business's market share .
Though owning a break-even unit provides the social benefit of providing jobs and possible synergies that assist other business units, from an accounting point of view such a unit is worthless, not generating cash for the company .
They depress a profitable company's return on assets ratio, used by many investors to judge how well a company is being managed . Dogs, it is thought, should be sold off.
Source: http://en.wikipedia.org/wiki/Growth-share_matrix
How to use it? To use the chart, analysts plot a
scatter graph to rank the business units (or products ) on the basis of their relative market shares and growth rates.
When the organization has a lot business units fall in “question marks” and “stars”, that organization tends to apply growth strategy as a corporate strategy.
For the organization that has most of its business units fall in “cash cows”, organization tends to apply stability strategy to remain its profit status as long as it can.
For the organization that has a lot of “dog”, may need to use renewal strategy to find any solutions for the particular bad-performance product.
Source: http://en.wikipedia.org/wiki/Growth-share_matrix
Product Life Cycle
It uses to analyze the profitability of a product at different stages of its life cycle.
1. Introduction -- A product is developed and comes to market.
2. Growth -- Consumers learn about it and more people buy it . It becomes more competitive through modification, price adjustments, wider distribution and other initiatives.
3. Maturity -- The product generates profits with more professional productivity learning from experience. But problems can arise, such as the arrival of competing products in the marketplace . The product maybe modified or marketed in a new way to keep profits strong.
4. Decline -- Sales decrease because of market saturation, obsolescence or other factors.Placing a product on this timeline suggests strategies for keeping its profitability high .
Example : If profits sag (decrease) during the Maturity stage, the manufacturer might offer discounted pricing or wider distribution.
Source: http://www.trumpuniversity.com/business-briefings/post/2008/04/product-life-cycle.cfm
End of Chapter5
