Strategy Formulation Corporate Level, Business Unit Level and Functional Level

Strategy Formulation Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of organizational strengths and weaknesses.

Strategy Formulation Mission Statement zPurpose or reason for the org’s existence zPromotes shared expectations among employees zCommunicates a public image important to stakeholders zDefines who we are, what we do, and what we would like to become

Strategy Formulation A goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and no time criteria for completion.

Strategy Formulation An objective are specific and quantifiable, versions of goals.

Strategy Formulation Corporate goals & objectives include: Profitability (net profits in % or $) Growth (increase in assets, net new customers or sales) Utilization of resources (ROI or ROE) Market Leadership (market share)

Goals & Stakeholders zOwners or shareholders zMembers of the board of directors zTop management zEmployees zCustomers zSuppliers zCreditors zDistributors zGeneral Public zGovernment

Specific Strategies Defined: Specific strategies of a corporation form a comprehensive master plan stating how the corporation will achieve its mission and its objectives. It seeks to maximize competitive advantage and minimize competitive disadvantage.

Specific Strategies Three Types of Specific Strategies 1. Corporate Level Strategies (Chap 7) 2. Business Unit Level Strategies (Chap 6) 3. Functional Level Strategies (Chap 5)

Corporate Level Strategy Amounts to determining the overall direction that will enable the organization to best fulfill its purpose and achieve its strategic goals through the business(es) it chooses to be in.

Corporate Level Strategy Growth Strategies zConcentration (internal growth) Products Current New Product-Mrkt Exploitation Market Development Product-Mrkt Diversification Product Development Customers Current New

Corporate Level Strategy Concentration (internal growth) zAdvantage 1. Become very good at what one does 2. Preserves org’s culture, image, efficiency & quality zDisadvantage 1. Slow 2. Subject to environmental shifts 3. Bureaucratic & coordinating costs

Corporate Level Strategy Horizontal Integration Growth through acquisition of other businesses in one’s own industry

Corporate Level Strategy Horizontal Integration of Related Businesses Growth through acquisition of businesses outside one’s present scope of operations, but related to the organization’s core competencies.

Synergy Defined: The higher effectiveness and efficiency yielded by the combination of two firms that is greater than that represented by both firms separately.

Corporate Level Strategy Horizontal Unrelated Diversification Conglomerate Diversifying into completely different industries from an org’s current business.

Corporate Level Strategy Vertical Integration Merging into the org’n various stages of activities backward ito sources of supply or forward in the direction of final consumers.

Corporate Level Strategy Vertical Integration Merging into the org’n various stages of activities backward ito sources of supply or forward in the direction of final consumers.

Corporate Level Strategy International Expansion A firm may expand globally using any one of the previous mentioned growth strategies of concentration (internal growth), horizontal integration, horizontal integration of related or unrelated businesses or though vertical integration.

Benefits & Disadnvantages of International Expansion zEconomies of scale lowering operating costs zSupplements domestic growth zEnables firm to become a stronger competitor z Poses greater financial risks z Managing strategically becomes more complex & challenging z Difficulty in finding similarities in mrkts or operating capabilities z Capturing & exploiting advantages not easy or automatic

Stages of International Development Stage 1: Domestic company Stage 2: Domestic company w/export division Stage 3: Primarily domestic company w/international division Stage 4: Multinational corporation with multidomestic emphasis Stage 5: Global Company Stage 6: Transnational Company

Implementation of Growth Strategies zInternal growth or development zMerger zAcquisition zJoint Venture zLong Term Contract zStrategic Alliance

Stability Strategy zWhen managerial efforts are req’d to enhance competitive postures zWhen sr mgrs consider the cost of adding new businesses to be greater than benefits zWhen the industry is experiencing upheaval zWhen the industry is facing slow or no growth zWhen a firm is large and in the mature stage of the industry life cycle w/good profits zWhen a small entreprenureal or family business is satisfied with status quo

Retrenchment Strategies Turnaround Strategy Purpose is to transform the org’n into a leaner and more effective firm

Retrenchment Strategies Divestment Strategy When an org’n sells or “spins off” any number of its poorer performing business units or those business units that don’t contribute to synergy.

Retrenchment Strategies Liquidation Strategy Amounts to the strategy of “last resort” where turnaround or divestment has failed to succeed and the assets of the org’n are sold off and the org’n ceases to exist.