chapter 8 types of strategies

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Strategy Formulation andImplementation

Chapter8


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Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.

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Strategic Planning

Strategic planning has taken on new

importance in todays world of

globalization, deregulation, advancing

technology, and changing demographics,

and lifestylesManagers Challenge: Nintendo


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Strategy Formulation and

Implementation

Strategic Management

Definition Components

Model of Strategic Management Process

Models of Strategy Formation

Managerial Tools to Implement Strategic

Plans

Topics:

Chapter 8


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Thinking Strategically

Answers to the following define an overall

direction for the organization's grand strategy Where is the organization now?

Where does the organization want to be?

What changes are among competitors?

What courses of action will help us achieve ourgoals?


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Strategic Management

Managers ask such questions as...

What changes and trends are occurring?

Who are our customers?

What products or services should we offer?

How can we offer these products or

services most efficiently?


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Grand Strategy: Growth

Growthcan be promoted internally by

investing in expansion or externally byacquiring additional business divisions

- Internal growth= can include development of new

or changed products

- External growth= typically involves diversificationbusinesses related to current product lines or

into new areas


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Grand Strategy: Stability

Stability, sometimes called a pause strategy,

means that the organization wants

to remain the same size or

to grow slowly and in a controlled fashion


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Grand Strategy: Retrenchment

Retrenchment= the organization goes through aperiod of forced decline by either shrinking current

business units or selling off or liquidating entirebusinesses

Liquidation= selling off a business nit for the cash

value of the assets, thus terminating its existence

Divestiture= involves selling off of businesses thatno longer seem central to the corporation


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Global Corporate Strategies

Need for National Responsiveness HighLow

Low

High TransnationalStrategy

Seeks to balance global

efficiencies and local

responsiveness

Combines standardization

and customization forproduct/advertising

strategies

GlobalizationStrategy

Treats world as asingle global market

Standardizes globalproducts/advertising

strategies

Multi-domestic Strategy

Handles markets

independently for eachcountry

Adapts product/advertising

to local tastes and needs

NeedforGlobalIntegration

Export

Strategy

Domestically focused

Exports a fewdomestically producedproducts to selectedcountries


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Purpose of Strategy

The plan of action that prescribesresource allocation and other

activities for dealing with theenvironment, achieving acompetitive advantage, that helpthe organization attain its goals

Strategies focus on:

Core competencies

Developing synergy

Creating value for customers


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Three Levels of Strategy in Organizations

Corporate-Level Strategy:

What business are we in?Corporation

Business-Level Strategy:

How do we compete?

Textiles Unit Chemicals Unit Auto Parts Unit

Functional-Level Strategy:

How do we support the business-levelstrategy?

Finance R&D Manufacturing Marketing


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Strategic Management Process

Implement

Strategy via

Changes in:

Leadership

culture,

Structure, HR,

Information &

control

systems

SWOT

Formulate

Strategy

Corporate,

Business,

Functional

Define new

Mission

Goals, Grand

Strategy

Identify Strategic

Factors

Strengths,

Weaknesses

Identify Strategic

Factors

Opportunities,Threats

Scan Internal

EnvironmentCore

Competence,

Synergy, Value

Creation

Evaluate

Current Mission,

Goals,

Strategies

Scan External

Environment

National,Global


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Strategy Formulation vs.

Implementation

Strategy Formulation= stage of strategic

management that involves planning and decision

making that lead to the establishment of theorganizations goals and of a specific strategic plan

Strategy Implementation= stage of strategic

management that involves the use of managerial

and organizational tools to direct resources toward

achieving strategic outcomes

Experiential Exercise: Developing Strategy for a Small Business


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Checklist for AnalyzingOrganizational Strengths and Weaknesses

Sources: Based on Howard H. Stevenson, Defining Corporate Strengths and Weaknesses, Sloan Management Review 17 (spring 1976), 51 -68; and M.L.Kastens,

Long-Range Planning for Your Business (New York: American Management Association, 1976).

Management and Organization

Management quality

Staff quality

Degree of centralization

Organization chartsPlanning, information,

control systems

Finance

Profit margin

Debt-equity ratio

Inventory ratio

Return on investment

Credit rating

Marketing

Distribution channels

Market share

Advertising efficiency

Customer satisfaction

Product quality

Service reputation

Sales force turnover

Production

Plant location

Machinery obsolescence

Purchasing system

Quality control

Productivity/efficiency

Human Resources

Employee experience,

education

Union status

Turnover, absenteeismWork satisfaction

Grievances

Research and Development

Basic applied research

Laboratory capabilities

Research programs

New-product innovations

Technology innovations


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Portfolio Strategy

Mix of business

units and productlines that fit

together in a

logical way to

provide synergyand competitive

advantage

BCG Matrix


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Five Forces Affecting Industry Competition

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

Internet reduces

barriers to entry

Internet expands market size, but

creates new substitution threats

Internet tends to increase the

bargaining power of suppliers

Internet shifts greater power

to end consumers

Internet blurs differences among

competitors in an industry

Bargaining

Power of

Buyers

Bargaining Power of Suppliers

Threat of Substitute

Products

Potential New

Entrants

Rivalry

among

Competitors


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Competitive Edge Through

Competitive Strategies

Differentiation= attempt to distinguish productsor services from that of competitors

Cost leadership= aggressively seeks efficientfacilities, pursues cost reductions, and uses tightcost controls to produceproducts more efficiently

than competitors Focus= concentrates on a specific regional

market or buyer group


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Cost leadership

Strong central authority; tight cost control Maintains standard operating procedures

easy-to-use manufacturing technologies

Highly efficient procurement and distribution

systems Close supervision; finite employee empowerment

Frequent, detailed control reports


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Focus May use combination of above policies directed at

particular strategic target

Values and rewards flexibility and customerintimacy

Measures cost of providing service and

maintaining customer loyalty Pushes empowerment to employees with

customer contact


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Continuum of Partnership Strategies

Organizational Combination

Strategic

Alliances

Preferred Supplier Arrangements

Strategic Business Partnering

Mergers

Acquisitions

Low High

Joint Ventures

Degree of Collaboration


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