1. Chapter 6 Strategy Formulation; Situation Analysis & Business Strategy
Strategic Management and Business Policy
11th Edition
Thomas L. Wheelen
J. David Hunger

2. Strategies in Action Companies Embrace Strategic Planning
-- Quest for higher revenues
-- Quest for higher profits
Situation Analysis & Business Strategy

3. Anatomy of Strategic Planning
Vision
Mission
Top-Down NEVER
Bottom-Up
SWOT
Objectives
Strategies
Strategic Planning
Situation Analysis & Business Strategy

4. Long-Term Objectives
Results expected from pursuing certain strategies.
Strategies represent actions to accomplish long-term objectives.
Situation Analysis & Business Strategy

5. Long-Term Objectives SMART Objectives Some is not a number
Soon is not a time
“May be” is not an answer
Situation Analysis & Business Strategy

6. Long-Term Objectives SMART Objectives Specific Measurable Achievable
Relevant
Time-bound
Situation Analysis & Business Strategy

7. Long-Term Objectives Smarter Objectives Quantifiable Measurable
Realistic
Understandable
Challenging
Hierarchical
Obtainable
Congruent
Time-line
Situation Analysis & Business Strategy

8. Objectives Necessary --
Long-Term Objectives
Objectives Necessary --
Corporate Level
Divisional Level
Functional Level
Situation Analysis & Business Strategy

9. Long-Term Objectives
Varying Performance Measures by Organizational Level
Organizational Level
Basis for Annual Bonus/Merit Pay
Corporate
75% on long-term objectives 25% on annual objectives
Division
50% on long-term objectives 50% on annual objectives
Function
25% on long-term objectives 75% on annual objectives
Situation Analysis & Business Strategy

10. Long-Term Objectives Strategic Objectives Larger market share
Quicker on-time delivery than rivals
Quicker design-to-market times than rivals
Lower costs than rivals
Higher product quality than rivals
Wider geographic coverage than rivals
Situation Analysis & Business Strategy

11. SWOT Analysis
STRENGTHS: is a resource advantage relative to competitors and the needs of the market a firm serves or expects to serve.
WEAKNESSES: is a limitation or deficiency in one or more resources or competencies relative to competitors that obstructs a firms’ effective performance.
Situation Analysis & Business Strategy

12. SWOT Analysis
OPPORTUNITIES: is a major favorable situation in a firms’ environment; breakthrough technology, improved supplier relationships, changes in regulatory circumstances, identification of a previously overlooked market segment.
THREATS: is a major unfavorable situation in a firms’ environment; entrance of new competitors, slow market growth, increased bargaining power of key suppliers, technological changes, new regulations.
Situation Analysis & Business Strategy

13. Strategic Factors Analysis Summary (SFAS) Matrix
Generated mainly to deal with the cons of SWOT analysis
Situation Analysis & Business Strategy

14. Generating Alternative Strategies Using TOWS Matrix
SWOT considers only Opportunities and
Strengths when thinking of alternative
strategies
Thus a TOWS Matrix is developed to generate further alternative strategies that might not be considered in a SWOT analysis
Situation Analysis & Business Strategy

15. Generating Alternative Strategies Using TOWS Matrix
Situation Analysis & Business Strategy

16. Generating Alternative Strategies through Business Strategies
Business Strategy focuses on improving the competitive position of a company
Business strategies could be either:
Competitive Strategies
Cooperative Strategies
Situation Analysis & Business Strategy

17. Cost Leadership Strategies Differentiation Strategies
Porter’s Generic Competitive Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Strategies that allows org. to gain competitive advantage
Situation Analysis & Business Strategy

18. Porter’s Generic Competitive Strategies
Cost Leadership:
Producing standardized products at a low per-unit cost for a broad range of consumers who are price-sensitive.
Considered effective when:
Low switching costs
Buyers have high bargaining power
Rivals introduce low prices to build a customer base
No product differentiation
Situation Analysis & Business Strategy

19. Porter’s Generic Competitive Strategies
Differentiation
Producing P/S considered unique to consumers who are price-insensitive.
Considered effective when:
There are many ways to differentiate the product.
Buyers needs & uses are diverse
Few rival firms are following a similar approach
Technological change is fast paced.
Situation Analysis & Business Strategy

20. Porter’s Generic Competitive Strategies
Focus:
Producing P/S that fulfill the needs of small groups of customers, e.g. mkt. penetration, mkt. development strategies. Essential when consumers have distinctive preferences that rivals cannot provide.
Low-cost focus
Offering P/S to a small range of consumers (niche group) at the lowest P available.
Differentiation Focus (Best-value focus)
Offering P/S to a small range of consumers at the best-price value; lowest P available compared to those of rivals’ given the quality attributes.
Situation Analysis & Business Strategy

21. Porter’s Generic Competitive Strategies
Considered effective when:
Industry leaders do not consider the niche to be crucial.
The industry has many different niches, thus allowing focuser to pick a competitive attractive niche.
The target mkt. niche is large, profitable, & growing.
Situation Analysis & Business Strategy

22. Cooperative Strategies - Means for Achieving Strategies
Joint Venture/Partnering
Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.
Globalization is the major reason why firms use partnering to achieve strategies.
Situation Analysis & Business Strategy

23. Cooperative Strategies - Means for Achieving Strategies
Joint Venture/Partnering
Why Joint Ventures Fail -
Managers who must collaborate daily; not involved in developing the venture
Benefits the company not the customers
Not supported equally by both partners
May begin to compete with one of the partners
Situation Analysis & Business Strategy

24. Cooperative Strategies - Means for Achieving Strategies
Joint Venture/Partnering
Considered an effective strategy when:
Synergies between private and publicly held
Domestic with foreign firm, local management can reduce risk
Complementary distinctive competencies
Resources & risks where project is highly profitable (e.g. Alaska Pipeline)
Two or more smaller firms competing w/larger firm
Need to introduce new technology quickly
Situation Analysis & Business Strategy

25. Cooperative Strategies - Means for Achieving Strategies
Mergers & Acquisitions
Reasons for M&A:
Provide improved capacity utilization
Better use of existing sales force
Reduce managerial staff
Gain economies of scale
Smooth out seasonal trends in sales
Gain new technology
Access to new suppliers, distributors, customers, products, creditors
Situation Analysis & Business Strategy

26. Recent Mergers Acquiring Firm Acquired Firm IBM Rational Software Corp
Yahoo
Inktomi Corp
U.S. Steel
National Steel Corp
Pfizer
Pharmacia
Krispy Kreme Doughnuts
Montana Mills
Oracle
People Soft
Palm
Handspring
Nike
Converse
Situation Analysis & Business Strategy

27. Cooperative Strategies - Means for Achieving Strategies
First Mover Advantages
The benefits a firm may achieve by entering a new market or developing a new product/service prior to rival firms.
Potential Advantages
Securing access to rare resources
Gaining new knowledge of key factors & issues
Carving out market share
Easy to defend position & costly for rival firms to overtake
Situation Analysis & Business Strategy

28. Cooperative Strategies - Means for Achieving Strategies
First Mover Advantages
Considered effective when:
Build a firm’s image with buyers.
Produce cost advantages (new tech., distribution channels, etc.)
Create strong loyal customers
Situation Analysis & Business Strategy

29. Outsourcing Cooperative Strategies - Means for Achieving Strategies
Business-process outsourcing (BPO)
Companies taking over the functional operations of other firms, e.g. HR, customer service.
Why Outsourcing?
Less expensive
Allows firm to focus on core business
Enables firm to provide better services
Situation Analysis & Business Strategy