mgt strategic management chap 8

8/9/2019 MGT Strategic Management Chap 8

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Strategy Formulation AndImplementation

Chapter 8


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Story of KMART & Wal-Mart

How did Wal-Martfounder Sam Walton andhis managers formulate and implementstrategies that helped the company overtakeKmart

If you were stepping in as Kmarts new CEO,

what strategies might you adopt to help chainsurvive?


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Wal-Mart formulated & implementedstrategies that have made it one ofAmericas most successful companies

WhileKmart failed to cope with increased

competition and changing customer

expectationsKmarts new CEO and other top executives analyze thesituation to formulate a strategy that will suit Org strengths

as well as fit changing economic times if the chain is tosurvive in competitive market


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All the Organizations are involved inStrategic Management

finding ways to respond to competitors

Cope up with environmental changes

Effectively use available resources


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Thinking Strategically

Strategic management is considered to beone specific type of planning

Some Companies hire Strategic Planning

Experts


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Thinking Strategically Continue

Strategic thinking means to take the longterm view and to see the big picture,including the Organization and the

competitive environment and how they fittogether


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What is Strategic Management ?

The set of decisions and actions used to formulateand implement strategies that will provide a

competitively superior fit between the organization andits environment so as to achieve organizational goals


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It is a process to help managers answerquestions such as

where is the organization now

Where does the organization want to beWhat changes and trends are occurring in

the competitive environment?

What courses of action will help us achieveour goals?

What happens after answering these

questions!!


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Grand StrategyGeneral plan of major action by which a firm intends to achieve its long-

term goals

Growth

Stability

Retrenchment


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Stability

Pause strategy : Org wants to remain the same sizeor grow slowly and in a controlled fashion

The Corporation wants to stay in its current business

When Org undergone a turbulent period of rapidgrowth, managers focus on a Stability strategy tointegrate strategic business units & ensure that Org isworking efficiently

Example: Allied Tire Stores; motto is We just sell tires


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Retrenchment

Org goes through a period of forceddecline by either shrinking currentbusiness units or selling off or liquidating

entire businesses

Liquidation

Divestiture

Downsizing / Retrenchment


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Divestiture: involves selling off businesses that nolonger seem central to the Corporation

When GE sold its family financial services, corporationwere going through periods of retrenchment, also calleddownsizing

Liquidation : Selling off a business unit for the cashvalue of assets, thus termination its existence

Dissolve the Co. & sell off all its assets & is usuallydone when the company is facing bankruptcy & needsto repay Loans


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Global Strategy

Companies might pursue a separate grandstrategy as the focus of global business

How to compete internationally?

A basic question confronts the managers of anyorg that competes in more than one nationalmarket:

To what extent should the org customize featuresof its products and marketing campaign to

different national conditions?


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Companies Strategic Delima


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Global / Globalization Strategy

The standardization of productdesign & advertisingstrategies throughout the

worldVery little , if any customization to suit the specific

needs of customers in different countries

The theory is that people everywhere want to buythe same products and live the same way: peopleeverywhere want to drink Coca Cola & wear Levi

blue jeans


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Example: Levipaid an advertising agency$500,000 to produce a series of TVcommercial to promote its 501 jeans: usingsame series in many countries & simply

changing the language: saved money & keepprices low

Colgate-Palmolive Co. toothpaste sells in 40countries by running same commercial:saving $1M-2M in production cost alone


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Multi-Domestic Strategy

Competition in each country is handledindependently of industry competition in othercountries

A multinational company is present in many

countries, but it encourages marketing, advertisingand product design to be modified and adapted tothe specific needs of each country

Managers decide to customize products &

marketing strategies to specific national conditions

Companies reject the idea of asingle global market


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Example of Multi-domestic Strategy

Unilever:European food &household products Co. sells a different

range of food products and uses adifferent marketing approach than itsNorth American division French do not drink orange juice for breakfast

spicy toothpaste preferred in the Middle East


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Transnational Strategy

To achieve both global integration & nationalresponsiveness

Difficult to achieve, because one goal requires

close global coordination while the other goalrequires local flexibility

Transnational

Strategy


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Example of Transnational Strategy

Caterpillars Tractor(worlds largestmanufacturer of heavy earth-movingequipment):

Tailored the finished product to local needsby adding features such as diff colors ofpaint or steering wheels on right or left side:

Price pressures in local market: Governmentregulations:

Differentiating its product

among local markets

Local Customization


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Purpose Of Strategy

The plan of action that prescribesresource allocation and other activities fordealing with the environment and helping

the Organization attain its goals A comprehensive plan for accomplishing

an organizations goals

Core

Competence

Value Creation

Synergy


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Through this strategy; executives try todevelop within the Org a core competence&Synergy, thus creating value for money


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Core Competence

Something that Org does especially well incomparison to its competitors

Represents Competitive advantage because the

company acquires expertise that competitors donot have

Core Competence maybe in the area of


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Synergy

When Org parts interact to produce a joint effectthat is greater than the sum of the parts actingalone, Synergyoccurs

Performance gains that result when individualsand departments coordinate their actions

Team members share equipment, customer lists,

and other information that enables these small

companies to go after more business than theyever could have without the team approach


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Example

AT&T synergy btw communication services& hardware One-stop shop

Two or more divisions with in a diversified

company can utilize the same

manufacturing facilities, distribution

channels, advertising campaigns

Share Resources Reduce Cost Charge lower Prices

Attract More Customers Competitors


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Value CreationValue can be defined as the combination of

benefits received and paid by the customer

Exploiting core competencies & attaining synergyhelp companies create value for their customers

A product that is low in cost but does not providebenefits is not a good value

Delivering value to the customer should be at theheart of strategy

Managers need to understand which parts of theCo. operation create value & which do not a Co.can be profitable only when the value it creates isgreater than the cost of resources


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Example: People Express Airlines initiallymade a splash-low prices, but travelerscouldnt tolerate consistently late takeoffsat any price

Macdonalds used core competencies tocreate better value for customers,resulting in the introduction of Extra

value meals & opening restaurants indifferent locations: Wal-Mart etc


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Levels Of Strategy

Corporate Level Strategy

Business Level Strategy

Functional Level Strategy


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Corporate Level Strategy

The level of strategy concerned with the questionWhat business are we in?

Pertains to Org as a whole and the combination of

business units and product linesStrategic actions at this level relate to acquisitions

of new businesses; additions or divestments ofbusiness units, plants or product lines and joint

venturesExamples: Book


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Business Level Strategy

The question How do we compete?Pertains to each business level unit or product lineIt focuses on how the business unit competes

within its industry for customers

Strategic decisions at this level concern amount ofadvertising, extent of R&D, product changes,expansion or contraction of product lines

Example: Cost reduction: To remain competitive

Hyatt hotels trimmed MangT Staff & increasedfocus on Marketing & Advertising


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Function Level Strategy

The question How do we support the businesslevel competitive strategy ?

pertains to the major functional departments

within the business unitIncludes all the major functions, marketing,

manufacturing, finance

Example: Hyatt hotels marketing dept is to

focus on frequent business traveler by puttingfax machines & modems in rooms


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Strategic Formulation Vs Implementation

Strategy Formulation

planning & decisionmaking that lead to theestablishment of thefirms goals & thedevelopment of a specificstrategic plan

include assessingexternal environment &internal problems &integrating results intogoals & strategy

Strategy ImplementationUse of managerial &

Organizational tools todirect resources towardsaccomplishing strategic

resultsAdministration & execution

of the strategic planManagers may use

persuasion, new

equipment, changes in Orgstructure orreward systemto ensure that employeesand resources are used tomake formulate strategy in

reality


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Situation Analysis

Analysis of the strengths, weaknesses, opportunities andthreats (SWOT) that affect organizational performance

Important to all companies but is crucial to thoseconsidering globalization because of the diverseenvironments in which they will operate

Info about Opportunities & Threats may be obtained fromvariety of sources, including customers, professional

journals, suppliers, friends in other Org, associationmeetings

Firms use diff techniques to learn about competitors,

such as asking potential recruits about their visits toother companies, hiring people away from competitors,taking plant tours posing as innocent visitors and evenbuying garbage


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Situational Analysis Continue

Executives acquire info about InternalStrength & weaknesses executives fromvariety of reports, including budgets, profit

& loss statementsFace to face discussions & meetings with

people at all levels of the hierarchy,executives build an understanding of theCompanies internal strength &weaknesses


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Internal strengths & Weakness

Strengths: Positive internal characteristics thatthe organization can exploit to achievestrategic performance goals

Weaknesses : Internal characteristics that mayrestrict the Organization performance

Finance Marketing MangT & Org

Managers can determine their strengths or weaknesses via othercompanies based on the their understanding of these areas

Profit Margin

Return on investment Credit Rating

Distribution channels

market share Customer Satisfaction

Product Quality

Degree of Centralization

Planning, Information & controlSystem


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External Opportunities & Threats

Threats:characteristics ofexternal environment

that may prevent theOrg from achieving itsstrategic goals

Example: Executives

evaluate the externalenvironment with infoabout the nine sectors

Opportunities

are characteristics ofthe external

environment thathave the potential tohelp the Org achieveor exceed its strategic

goals


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S & W Kodak

StrengthsTrusted Brand names70% Market shareSpent Millions on

Research into digitalimaging Tech

Blessed with tech genius

Weaknesses

Dispirited Workforce

Culture focused on protectingcurrent businesses ratherthen seeking new frontiers

Confused btw imagingbusiness, healthcare &household products

Product & market developedability ill-focused


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O & T Kodak

Opportunities

Tech strength & digitalimaging will be fastgrowing market

Expansion in Asia whilebarely developed marketssuch as India, Brazil cankeep traditional business

for least next decade Half of the people in the

world have yet to take atheir first pic

Threats

Increased competition

Digital imaging arena,facing giant such asCanon, Casio, Sony & HP

Smaller competitorsemerging In digital market


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What does SWOT analysissuggest for Kodaks

Strategy?


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To capitalize on the Companys Strength & Opportunities ..How


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Divest or liquidate

Communication & Leadership

Transform Culture

Autonomy at work place

Strategic Alliance


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Sellother businesses to focus more on core imagingbusiness

Improved communication & stronger leadershipimproved morale

Transform slow moving culture to prepare for digitalfuture

Brought together disjointed talent into smallautononomous division & hired former computermarketing executive to head it

Strategic alliances with IBM, HP, Microsoft so the newdivisions can develop new products in partnership to bemore competitive on global basis


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Formulating Corporate Level Strategy

Portfolio Strategy

Pertains to mix of business units and product lines that fittogether in logical way to provide synergy & competitiveadvantage for the corporation

Strategic Business Unit

?


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The BCG Matrix


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StarHas large market share

in a rapidly growingindustry

It has additional growthpotential & profitsshould be plowed intothis business asinvestment for futuregrowth n profits

Visible & attractive &will generate profits &positive cash flow evenas the industry matures& market growth slows

Cash CowExits in mature, slow

growth industry but is adominant business in theindustry with a large

market share

No heavy investmentsrequired (advertising &plant expansion)

Invest in other riskierbusinesses


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Question Mark

Exists in new, rapidlygrowing industry but hasonly small market share

? Business is risky

It could become a star,but it could also fail

Invest cash earned fromcash cows in ? With thegoal that it will turn intofuture STAR

Dogs

Poor performer

Small share in slowgrowth market

Provides little profit

Targeted for divestmentor Liquidation ifturnaround is not possible


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Gillette Company ?


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Formulating Business LevelStrategy


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Porters Competitive Forces AndStrategies

Five Competitive Forces1. Potential New Entrants

2. Bargaining Power of buyers

3. Bargaining Power of suppliers

4. Threat of substitute products

5. Rivalry among competitors


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Potential New Entrants

Capital Requirement & economies of the scale,

example of two potential barriers to entry that

keep out the new competitors

Threat is high for local hamburger restaurantthan Ford & Toyota

Advent of internet has reduced costs & other

barrier of entry in many market segments

Threat of new entrants has increased for manyfirms in recent years


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Bargaining Power of buyers

Informed customers become empowered

customers

Advertising & buyer info educate customers

about full range of prices & product optionsavailable thus influence over Co. increases

This is true when Co. relies on one or Two

large, powerful customers for majority of its

sales

Example: Boeing 777 Delta, KLM


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Bargaining Power of suppliers

To what extent to which suppliers have theability to influence potential buyers

Other factors include whether a supplier cansurvive without a particular purchaser or whetherthe purchaser can threaten the supplier

Example: The sole supplier of engines to amanufacturer of small airplanes have greatpower

Example : Local electric co. is the only sourceof electricity in your community therefore it cancharge what it wants for its product


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Rivalry among competitors

Nature of the competitive relationship btwdominant firms in the industry

Coke & Pepsi ( price wars, comparative

advertising, new product introduction)American Express & VisaFuji & Kodak

The more these companies competeagainst one another for customers thelower is the level of industry profits( low

prices means low profits)


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Threat of substitute products

The power of alternatives & substitutes fora Co. product may be affected by costchanges OR trends such as increased

health consciousness that will deflectbuyer loyalty to companiesExample : Sugar Co. suffered from the

growth of sugar substitutesComputers reduced demand for

calculators, typewritersDVD players for VCRs


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Competitive Strategies

Differentiation

Cost Leadership

Focus

Differentiation Strategy


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Differentiation Strategy

An attempt to

distinguish a firmsproduct or servicesfrom others in theindustry

To gain competitiveadvantage, add value,through distinctiveproduct features(design, quality, aftersale service)

Pepsi & Coca cola Advertise to

differentiate & createnew unique image

Toyota

Appeal customers inall segments

Basic transportation Middle of the market

High income Stuck in the Middle

Managers should choose btw Diff/CLS Exceptions to this rule :Example : Cotts Corp. advertise more / costs will rise

Toyota : Production system is the most efficient in the world

Differentiated cars basis of superior design & quality

C t L d hi


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Cost Leadership

Attempts to gain

advantage byreducing cost belowcost of competingfirms

Keeping costs low,Org still able to sell itsproducts at low prices& still make a profit

Cotts corp. ( doesnt

advertise whichallows Cott to underprice both coke &Pepsi

Compaq to overtakeIBM as the world no.1PC supplier

Low-cost producer, provides a successful strategy todefend against five competitive forces

F


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Focus

A type of competitivestrategy thatemphasizesconcentration on aspecific regional

market or buyer group

The company will useeither a differentiationor low-cost approach,but only for a narrowtarget market ????

Example: EnterpriseRent-A-Car focused on market

that major companies

like Hertz dont evenplay inLow budget insurance

replacement market


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Focused-Low cost Strategy

Serve one or a fewsegments of the overallmarket & aim to be the

lowest Co. serving thatsegment

Example : Cott Corp. focuson large retail chains &

strives to be the lowest-cost Co. serving thatsegment

Focused-DifferentiationStrategy

Serve just one or fewsegments of the market &

aim to be the mostdifferentiated Co. servingthat segment

Example : BMW

Pursue focused strategy &make cars exclusively forhigh income customers


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Product Life Cycle


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1. Model that shows how sales volumechanges over the life of products

2. Product Life cycle helps managers

recognize that strategies need to evolveover time

3. Series of stages that a product goes

through in its market acceptance


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Formulating Functional-Level StrategyDifferentiation strategy for new product

Human Resources

Marketing

Finance

Recruiting & training middlemanagers for moving into newpositions

Aggressive marketing campaigns

How to borrow & handle largecash InvestmentsAuthorize construction of newproduction facilities


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Mature products / Low cost Strategy

Human Resources

Marketing

Finance

Develop & retain stable WorkforceTransfers, advancements,incentives for efficiency

Stress on brand loyalty

Focus on net cash-flows &positive cash balances

Putting Strategy Into Action


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g gy

Leadership

Structural Design

Information & Control Systems

Human Resources

Parts of firm that

can be adjustedto put strategy

into action

Once a newstrategy is selected

its implementedthrough changes in

Leadership,Structure, Info &

Control System andHR


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Tools for Putting strategy into Action

Organization

Strategy Performance

Leadershippersuasion Motivation Culture / Values

Info & Control System Pay, reward systemBudget allocationsInfo systemsRules / procedures

Human Resource Recruitment / Selection Transfers / promotions /Training Layoffs

Structural DesignOrg ChartTeamsCentralization / decentralization

S


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Strategic Management Followed by

SWOT AnalysisLeads toFormulation of Explicit Strategic Plans

takes place at three levels

a) Corporate

b) Business

c) Functional

Strategy Implementation

Evaluate Org Mission, goals, strategy

Strengths, Weakness, Opportunities, threats

Grand Strategy (growth, stability, Retrenchment, Global

Porters competitive strategies & Product Life Cycle

Support the above strategies made

Framework for accomplishing used BCG

Tools used : Leadership, structural design, information & system and HR


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Evaluate current : MissionGoalsStrategies

________________________________

Define New__________________

ImplementStrategy viaChanges in :

________________________________________

mgt strategic management chap 8

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