Strategy Formulation and Implementation Strategy Formulation and Implementation CHAPTER 8

Learning Objectives Define the components of strategic management. Learning Objectives Define the components of strategic management. Describe the strategic planning process and SWOT analysis. Understand grand strategies for domestic and international operations. Define corporate-level strategies and explain the portfolio approach.

Learning Objectives (contd.) Learning Objectives (contd.) Describe business-level strategies, including Porter’s competitive forces and strategies and partnership strategies. Explain the major considerations in formulating functional strategies. Discuss the organizational dimensions used for implementing strategy.

Strategic Management Set of decisions and actions used to implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals Responsibility = top managers and chief executive

Strategic Management Managers ask such questions as... 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?

Grand Strategy General plan of major action to achieve long-term goals Grand Strategy General plan of major action to achieve long-term goals Falls into three general categories 1. Growth 2. Stability 3. Retrenchment A separate grand strategy can be defined for global operations 3

Grand Strategy: Growth Grand Strategy: Growth Growth can be promoted internally by investing in expansion or externally by acquiring additional business divisions Internal growth = can include development of new or changed products External growth = typically involves diversification – businesses related to current product lines or into new areas

Grand Strategy: Stability 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

Grand Strategy: Retrenchment Grand Strategy: Retrenchment Retrenchment = the organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses Liquidation = selling off a business nit for the cash value of the assets, thus terminating its existence Divestiture = involves selling off of businesses that no longer seem central to the corporation

Global Corporate Strategies Global Corporate Strategies Exhibit 8.1 High Transnational Strategy Seeks to balance global efficiencies and local responsiveness Combines standardization and customization for product/advertising strategies Globalization Strategy Treats world as a single global market Standardizes global products/advertising strategies Need for Global Integration Export Strategy Domestically focused Exports a few domestically produced products to selected countries Multi-domestic Strategy Handles markets independently for each country Adapts product/advertising to local tastes and needs Low Low Need for National Responsiveness High

Global Strategy Globalization = product design and advertising strategies are standardized around the world Multi-domestic = adapt product and promotion for each country Transnational = combine both globalization and national responsiveness 7

Purpose of Strategy The plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization attain its goals Strategies focus on: Core competencies Developing synergy Creating value for customers 8

Three Levels of Strategy in Organizations Three Levels of Strategy in Organizations Three Levels of Strategy in Organizations Exhibit 8.2

Strategic Management Process Strategic Management Process Exhibit 8.3 Scan External Environment – National, Global Identify Strategic Factors – Opportunities, Threats Implement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systems Evaluate Current Mission, Goals, Strategies Formulate Strategy – Corporate, Business, Functional Define new Mission Goals, Grand Strategy SWOT Scan Internal Environment – Core Competence, Synergy, Value Creation Identify Strategic Factors – Strengths, Weaknesses

Strategy Formulation vs. Implementation Strategy Formulation vs. Implementation Strategy Formulation = stage of strategic management that involves planning and decision making that lead to the establishment of the organization’s 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

Checklist for Analyzing Organizational Strengths and Weaknesses Checklist for Analyzing Organizational Strengths and Weaknesses Exhibit 8.4

Portfolio Strategy Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage BCG Matrix Exhibit 8.5

Five Forces Affecting Industry Competition Five Forces Affecting Industry Competition Exhibit 8.6 Potential New Entrants Internet reduces barriers to entry Internet blurs differences among competitors in an industry Threat of Substitute Products Rivalry among Competitors Bargaining Power of Buyers Internet expands market size, but creates new substitution threats Internet shifts greater power to end consumers Internet tends to increase the bargaining power of suppliers Bargaining Power of Suppliers Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

Competitive Edge Through Competitive Strategies Competitive Edge Through Competitive Strategies Differentiation = attempt to distinguish products or services from that of competitors Cost leadership = aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors Focus = concentrates on a specific regional market or buyer group

Continuum of Partnership Strategies Continuum of Partnership Strategies Exhibit 8.8 Organizational Combination Acquisitions Mergers Joint Ventures Degree of Collaboration Strategic Alliances Strategic Business Partnering Preferred Supplier Arrangements Low High Degree of Collaboration

Implementing Strategy Tools Implementing Strategy Tools Leadership Structural design Information and control systems Human resources

Tools for Putting Strategy into Action Tools for Putting Strategy into Action Environment Exhibit 8.9 Organization Leadership  Persuasion  Motivation  Culture/values Structural Design  Organization Chart  Teams  Centralization Decentralization, Facilities, task design Human Resources  Recruitment/selection  Transfers/promotions  Training  Layoffs/recalls Strategy Performance Information and Control Systems  Pay, reward system  Budget allocations  Information systems  Rules/procedures Source: Adapted from Jay R. Galbraith and Robert K. Kazanjian, strategy Implementation: Structure, Systems and Process, 2d ed. (St. Paul, Minn.: West, 1986), 115, Used with permission.