Formulation

Formulation Overview Want to create a sustainable competitive advantage Grounded in mission, objectives, and strategies Identify rich range of strategic alternatives Balanced evaluation of + and - of alternatives Decide on alternatives to be implemented/recommended

Three Levels of Strategy Corporate level strategy Competitive (business level) strategy Functional strategies …all need to be consistent and in alignment

Corporate Level Strategy Directional strategy (retrenchment through growth) Portfolio strategy (what LOB’s for future) Parenting strategy (allocation of resources + connections)

Directional Growth Strategies Concentration Vertical integration Horizontal growth Diversification Related (concentric) Unrelated (conglomerate) Mergers, acquisitions, strategic alliances

Other Directional Strategies Stability Retrenchment …often more appropriate than growth strategies, which tend to be overused

Competitive Strategy (Sometimes called business level strategy) How we will compete within each line of business (LOB) or strategic business unit (SBU) We are trying to create a (sustainable) competitive advantage

Porter’s four generic competitive strategies Variations plus tactics Consider our strengths relative to “key success factors” in the industry Uniqueness Imitability Practicality Porter’s four generic competitive strategies Variations plus tactics

Generic Competitive Strategies

Requirements for Price Strategy Industry is largely commodity Buyer switching costs are low Buyers are powerful We have low costs

Requirements for Differentiation Buyers have different needs or uses Buyers are willing to pay for special features Product/technological innovations are important We have some (sustainable) competitive advantages

Functional Level Strategy More localized and shorter-horizon strategies Deal with how each functional area will carry out its activities to be effective and maximize resource productivity

Need to ensure that the set of recommended strategies address all the critical issues well

Exercise in Groups Identify the main competitive strategy of Reebok, with reasons for your conclusion Do the same for Steinway & Sons Do the same for Kroger

Strategic Thinking

Strategic Thinking Identify & focus on important issues Select key, relevant information Recognize systemic properties Understand through: Distinguishing causes from effects Clarifying (tacit) underlying assumptions Considering issue in a larger context Maintaining a long-term view

Strategic Thinking (cont.) Appreciate implications & consequences Generate alternatives & evaluate objectively Integrate logical/rational & creative/generative thinking Remain flexible Act in the face of emotional discomfort

Strategic Thinking (1 page) Identify & focus on important issues Select key, relevant information Recognize systemic properties Understand through: Distinguishing causes from effects or symptoms Clarifying (often tacit) underlying assumptions Considering the issue or situation in a larger context Maintaining a long-term view Appreciate implications & consequences Generate alternatives & evaluate objectively Integrate logical/rational & creative/generative thinking Remain flexible Act in the face of emotional discomfort

Another View of Strategic Thinking Thinking more deeply to distinguish underlying causes and issues from more obvious symptoms Thinking more broadly to recognize systemic linkages, interactions, and patterns Thinking long-term as well as short-term about implications and consequences

Strategic Thinking Case Apply strategic thinking to the case, making notes for yourself Discuss in groups Report out with total class discussion