Managing Strategy and Strategic Planning CHAPTER 8

The Nature of Strategic Management Strategy A comprehensive plan for accomplishing an organization’s goals. Strategic Management A way of approaching business opportunities and challenges. A comprehensive and ongoing management process aimed at formulating and implementing effective strategies which align the organization with its environment to achieve major organizational goals. Effective Strategies Strategies that promote a superior alignment between the organization and its environment and the achievement of its goals. Management - Chapter 8

Components of Strategy Distinctive Competence Something an organization does exceptionally well. Scope Range of markets in which an organization will compete. Resource Deployment How an organization will distribute its resources across the areas in which it competes. Management - Chapter 8

Types of Strategic Alternatives Business-level Strategy The set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or a particular market. Corporate-level Strategy The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets. Management - Chapter 8

Strategy Formulation and Implementation The set of processes involved in creating or determining the organization’s strategies; it focuses on the content of strategies. Strategy Implementation The methods by which strategies are operationalized or executed within the organization; it focuses on the processes through which strategies are achieved. Management - Chapter 8

Strategy Formulation and Implementation (cont’d) Deliberate Strategy A plan, chosen and implemented to support specific goals, that is the result of a rational, systematic, and planned process of strategy formulation and implementation. Emergent Strategy A pattern of action that develops over time in the absence of goals or missions, or despite goals and missions. Management Fundamentals - Chapter 8

SWOT Analysis Strengths Weaknesses Opportunities Threats Mission An organization’s fundamental purpose Good Strategies SWOT Analysis To formulate strategies that support the mission Those that support the mission and • exploit opportunities and strengths neutralize threats avoid weaknesses Internal Analysis Strengths (distinctive competencies) Weaknesses Threats External Analysis Opportunities Strengths Weaknesses Opportunities Threats Figure 8.1

Using SWOT Analysis to Formulate Strategy Evaluating Organizational Strengths Organizational strengths are skills and abilities enabling an organization to conceive of and implement strategies. Common organizational strengths are organizational capabilities possessed by numerous competing firms. Distinctive competencies are useful for competitive advantage and superior performance. Imitation of distinctive competencies is duplicating another firm’s distinctive competence. Management - Chapter 8 8

Using SWOT Analysis to Formulate Strategy Evaluating Organizational Strengths (cont’d) Sustained competitive advantage occurs when a distinctive competence cannot be easily duplicated. is what remains after all attempts at strategic imitations have ceased. Strategic imitation is difficult when: Distinctive competence is based on unique historical circumstances. Competitors do not understand the nature or character of a firm’s competence. The competence is based on a complex phenomenon, such as organizational culture. Management - Chapter 8 9

Using SWOT Analysis to Formulate Strategy (cont’d) Evaluating Organizational Weaknesses Organizational weaknesses are skills and capabilities that do not enable an organization to choose and implement strategies that support its mission. Weaknesses can be overcome by: investments to obtain the strengths needed. modification of the organization’s mission so it can be accomplished with the current workforce. Competitive disadvantage is a situation in which an organization fails to implement strategies being implemented by competitors

Using SWOT Analysis to Formulate Strategy (cont’d) Evaluating an Organization’s Opportunities and Threats Organizational opportunities are areas in the organization’s environment that may generate high performance. Organizational threats are areas in the organization’s environment that make it difficult for the organization to achieve high performance.

Formulating Business-Level Strategies Porter’s Generic Strategies Differentiation strategy An organization seeks to distinguish itself from competitors through the quality of its products or services. Overall cost leadership strategy An organization attempts to gain competitive advantage by reducing its costs below the costs of competing firms. Focus strategy An organization concentrates on a specific regional market, product line, or group of buyers.

Porter’s Generic Strategies Table 8.1

The Miles and Snow Topology Table 8.2

Strategies Based on Product Life Cycle The Product Life Cycle Introduction Time Stages Growth Maturity Decline High Low Sales Volume Figure 8.2

Implementing Business-Level Strategies Implementing Porter’s Generic Strategies Differentiation Strategy Marketing and sales must emphasize high-quality, high-value image of the organization’s products or services. Overall Cost Leadership Strategy To support cost leadership, marketing and sales are likely to focus on simple product attributes and how these product attributes meet customer needs in a low-cost and effective manner. Focus Strategy This strategy is implemented via the same approaches used for differentiation and cost leadership, depending on which one (differentiation or cost leadership) is the proper basis for competing in or for a specific market segment, product category, or group buyers.

Implementing Business-Level Strategies (cont’d) Implementing Miles and Snow’s Strategies Prospector Strategy An organization using this strategy must encourage creativity to seek out new market opportunities and to take risks. An organization can develop the flexibility to meet changing market conditions by decentralizing its organizational structure. Defender Strategy To support this strategy, an organization will focus on defending its current markets by lowering its costs and/or improving the performance of current products. Analyzer Strategy Organizations using this strategy incorporate elements of both the prospector and the defender strategies in an attempt to maintain current business and to be somewhat innovative.

Formulating Corporate-Level Strategies Strategic Business Units Each business or group of businesses within an organization engaged in serving the same markets, customers, or products. Diversification The number of businesses an organization is engaged in and the extent to which these businesses are related to one another Single Product Strategy A strategy in which an organization manufactures one product or service and sells it in a single geographic market.

Managing Diversification Major Tools for Managing Diversification Organization structure Portfolio management techniques Methods that diversified organizations use to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance. Two important portfolio management techniques are the BCG Matrix and the GE Business Screen.

Strategic Planning Business portfolio: The collection of businesses and products that make up the company. Designing the business portfolio is a key step in the strategic planning process.

Strategic Planning Portfolio Analysis Identify strategic business units (SBUs) Assess each SBU: The BCG growth-share matrix classifies SBUs into one of four categories using: Market growth rate The SBU’s relative market share within the market. Portfolio Analysis Step 1: Analyze the current business portfolio Step 2: Shape the future business portfolio

Growth-Share Matrix

Analyzing the Current Business Portfolio Marketing Management Analyzing the Current Business Portfolio Build Increase market share Works well for question marks Hold Preserve market share Good for cash cow Harvest Increases short-term cash flow Good for weak cash cows, question marks and dogs Divest Sell or liquidate Good for dogs and question marks

Strategic Planning Portfolio Design Determine the future role of each SBU and choose the appropriate resource allocation strategy: Build Hold Harvest Divest SBUs change positions over time Portfolio Design Step 1: Analyze the current business portfolio Step 2: Shape the future business portfolio

Product / Market Expansion Grid

The Marketing Process Key Elements Analyzing marketing opportunities The strategic planning and business portfolio analysis processes help to identify and evaluate marketing opportunities. The purpose of the marketing process is to help the firm plan how to capitalize on these opportunities. Key Elements Analyzing marketing opportunities Selecting target markets Developing the marketing mix Managing the marketing effort

Managing Diversification GE Business Screen A method of evaluating business in a diversified portfolio along two dimensions, each of which contains multiple factors: Industry attractiveness. Competitive position (strength) of each firm in the portfolio. In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business.