Strategy Formulation and Implementation Chapter 8 Strategy Formulation and Implementation

Strategy Every company is concerned with strategy It determines which organizations succeed and which ones struggle Strategic blunders can hurt a company Strategic management is a specific type of planning Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Thinking Strategically The long-term view of the organization and competition Thinking strategically impacts performance and financial success Today’s environment requires everyone to think strategically Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Strategic Management Decisions and actions used to formulate and execute strategies that will provide competitively superior fit between the organization and its environment to achieve organizational goals Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Purpose of Strategy Explicit strategy is the plan of action Competitive advantage is the organization’s distinctive edge for meeting customer needs Strategies should: Exploit Core Competencies Build Synergy Deliver Value Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

8.1 Levels of Strategy Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Levels of Stratey Corporate Level Strategy-relating to orgz as a whole & combination of business units and product lines that make up the company –What Buss. Are We in? Business Level Strategy-strategic decisions involving each business unit – How Do We Compete? Functional Level Strategy-functional dpmt within business unit-How do We Support Buss Level Strategy? Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

8.2 The Strategic Management Process Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Strategy Formulation versus Execution Assessing the external environment and internal problems to create goals and strategy Execution: the use of managerial and organizational tools to direct resources toward accomplishing strategic results Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

SWOT Analysis Formulating strategy often begins with an audit of internal and external factors Internal Strengths and Weaknesses External Opportunities and Threats Information is acquired from reports, surveys, discussions, and meetings Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

8.3 SWOT: Audit Checklist Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Formulating Corporate-Level Strategy: Portfolio Strategy Strategic Business Units (SBUs) have a unique mission, products, and competitors Companies manage the mix of SBUs for synergy and competitive advantage Organizations should not become too dependent on one business Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Formulating Corporate-Level Strategy: The BCG Matrix Organizes business along two dimensions Business growth rate Market share Four categories for corporate portfolio The combination of high/low market share and high/low business growth Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

8.4 The BCG Matrix Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Formulating Corporate-Level Strategy: Diversification Strategy Moving into new lines of business Expand into new valuable products and services Related Diversification Expand into new business related to existing buss. Unrelated diversification is expansion into new lines of business Can be a difficult strategy Many companies are giving up on unrelated diversification Vertical integration expands into businesses that supply to the business or are distributors Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Formulating Business-Level Strategy Strategy within the business units: How do we compete? Business-level strategies are developed by Porter’s Five Forces But, web technology is impacting all industries in positive and negative ways Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

8.5 Porter’s Five Forces Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Porters Five Forces Potential new entrants-capital requirements, economics of scale Buyers Bargaining power –information Suppliers Bargaining Power-availability of substitute suppliers Threat of Substitute products- changes in trends Competitors Rivalry-influenced by all four &cost & differentiation e.g. Nintendo vs Sony, Coke vs Pepsi etc? Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Porters Competitive Strategies Differentiation- distinguish firms product/services e.g product features, advertising, service examples? Cost Leadership-seeks efficient facilities, cost reductions, tight cost controls examples? Focus-concentrate on specific market/buyer. Will use diff or cost leadership Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

8.6 Porter’s Competitive Strategies Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Formulating Functional-Level Strategy Action plans used by major departments Marketing Production Finance Human Resources Research and Development Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

New Trends in Strategy Strategic Flexibility – managers must be prepared to change and adjust strategy quickly Strategic Partnerships – collaboration with other organizations is important Global Strategy – organizations pursue a distinctive focus for global business Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Strategy Execution The final step! “Strategy is easy, but execution is hard” Most important but most difficult part Strategy must be skillfully executed Alignment requires all aspects of the organization to focus on strategy goals Everyone is moving in the same direction Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.