Prentice Hall, Inc. © STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 6 Strategy Formulation: Situation Analysis & Business Strategy

Prentice Hall, Inc. © Situational Analysis Strategy formulation -- –Strategic planning or long-range planning Develops mission, objectives, strategies, policies

Prentice Hall, Inc. © Situational Analysis -- process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses SWOT -- –Internal Strengths/Weaknesses –External Opportunities/Threats

Prentice Hall, Inc. © Situational Analysis The essence of strategy is related to opportunity and capacity. An opportunity by itself has no real value unless a company has the capacity (i.e., resources) to take advantage of that opportunity

Prentice Hall, Inc. © Situational Analysis This approach, however, considers only opportunities and strengths. It is known that weaknesses in other resource areas can prevent a strategy from being successful. Therefore perform SWOT SA = O / (S-W) But, than; -Should we invest more in our strengths to make them even stronger (a distinctive competence), or, -Should we invest in our weaknesses to at least make them competitive Unfortunately SWOT do not reflect priorities

Prentice Hall, Inc. © IFAS – Maytag as Example

Prentice Hall, Inc. © EFAS – Maytag as Example

Prentice Hall, Inc. © SFAS Matrix

Prentice Hall, Inc. © Situational Analysis Niche -- –Need in the marketplace that is currently unsatisfied Corporate Goal -- –Find propitious niche An extremely favorable niche that is so well suited to the firms internal and external environment that other corporations are not likely to challenge it.

Prentice Hall, Inc. © Situational Analysis Finding a propitious niche is not easy. A firm’s management must be always looking for a STRATEGIC WINDOW, that is, a unique market opportunity that is available only for a particular time. The first firm through a strategic window can occupy a propitious niche and discourage competition (if the firm has required internal strengths).

Prentice Hall, Inc. © TOWS Matrix

Prentice Hall, Inc. © Business Strategy Focuses on improving competitive position of company’s products or services within the specific industry or market segment

Prentice Hall, Inc. © Porter’s Competitive Strategies Competitive Strategy – asks these basic questions : –Low cost –Differentiation –Direct competition –Focus on niche

Prentice Hall, Inc. © Porter’s Competitive Strategies Generic Competitive Strategies -- –Lower Cost strategy Greater efficiencies than competitors –Differentiation strategy Unique/superior value, quality, features, service

Prentice Hall, Inc. © Porter’s Competitive Strategies Competitive Advantage -- –Determined by Competitive Scope Breadth of the target market

Prentice Hall, Inc. © Porter’s Competitive Strategies New entrepreneurial firms have a better chance of surviving if they follow a narrow-scope rather than broad-scope strategy

Prentice Hall, Inc. © Porter’s Competitive Strategies Cost Leadership -- –Low-cost competitive strategy –Broad mass market –Efficient-scale facilities –Cost reductions –Cost minimization (Wal-Mart, Dell, Southwest Airlines)

Prentice Hall, Inc. © Porter’s Competitive Strategies Differentiation – –Broad mass market –Unique product/service –Premiums charged –Less price sensitivity (Nike, Apple Computer, Mercedes-Benz)

Prentice Hall, Inc. © Porter’s Competitive Strategies Cost-Focus – –Low-cost competitive strategy –Focus on market segment –Niche focused –Cost advantage in market segment (Potlatch, Migros branded detergents)

Prentice Hall, Inc. © Porter’s Competitive Strategies Differentiation Focus – –Specific group or geographic market focus –Differentiation in target market –Special needs of narrow target market (Morgan Motor, Nickelodeon TV)

Prentice Hall, Inc. © Porter’s Competitive Strategies Stuck in the middle – –No competitive advantage –Below-average performance ( HP between IBM and Dell)

Prentice Hall, Inc. © Risks of Generic Strategies Risks of Cost Leadership Cost leadership is not sustained: Competitors imitate. Technology changes. Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: Competitors imitate. Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: Structure erodes. Demand disappears. Broadly targeted competitors overwhelm the segment: The segment’s differences from other segments narrow. The advantages of a broad line increase. New focusers subsegment the industry. Risks of Cost Leadership Cost leadership is not sustained: Competitors imitate. Technology changes. Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: Competitors imitate. Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: Structure erodes. Demand disappears. Broadly targeted competitors overwhelm the segment: The segment’s differences from other segments narrow. The advantages of a broad line increase. New focusers subsegment the industry.

Prentice Hall, Inc. © Dimensions of Quality Many different kinds of potentially profitable competitive strategies exist There is room for an almost unlimited number of differentiation and focus strategies. (Depending on the possible desirable features and the number of identifiable market niches) Quality alone has eight different dimensions:

Prentice Hall, Inc. © Dimensions of Quality

Prentice Hall, Inc. © Competitive Strategy Industry Structure -- –Fragmented Industry –Consolidated Industry Once consolidated, an industry has become one in which cost leadership and differentiation tend to be combined to various degrees.

Prentice Hall, Inc. © Competitive Tactics Tactics : A tactic is a specific operating plan that details how a strategy is to be implemented in terms of where and when it is to be put into action. Studies of decision making report that half the decisions made in organizations fail because of poor tactics.

Prentice Hall, Inc. © Competitive Tactics Timing Tactics -- –First mover –Late movers

Prentice Hall, Inc. © Competitive Tactics Market Location Tactics -- –Frontal Assault –Flanking Maneuver –Bypass Attack –Encirclement –Guerrilla Warfare

Prentice Hall, Inc. © Competitive Tactics Defensive Tactics -- –Raise structural barriers –Increase expected retaliation –Lower the inducement for attack

Prentice Hall, Inc. © Cooperative Strategies Collusion Strategic Alliances - To obtain technologies and/or manufacturing capabilities - To obtain access to specific markets - To reduce financial risk - To reduce political risk Mutual service consortia Joint ventures Licensing arrangements Value-chain partnerships