Management Chapter 8
The Elements of Competitive Advantage
-target customers -achieve synergy -create value -exploit core competence
diversification
The strategy of moving into new lines of business.
strategy
A plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage, and attaining goals.
Remember This
Even the most creative strategies have no value if they cannot be translated into action. Execution is the most important, but also the most difficult, part of strategy. One key to effective execution is embeddedness—a deep understanding and acceptance of organizational direction and purpose throughout the organization. With embeddedness, all aspects of the organization are in alignment and moving in the same direction to support strategic intent. Managers use visible leadership, clear roles and accountability, candid communication, and appropriate HR practices to execute strategy effectively. Royal Dutch Shell has linked executive pay and other rewards to meeting ambitious carbon emissions goals to make accountability clear.
Vertical integration example
to gain more control over raw materials, for instance, steelmaker Nucor acquired a major scrap-metal processor, and rival ArcelorMittal bought mines in Brazil, Russia, and the United States. An example of diversifying to distribute products comes from PepsiCo, which began repurchasing bottling companies that it had spun off in the late 1990s. PepsiCo controls marketing, manufacturing, and distribution in 80 percent of North America and is expected to buy the remaining independent bottlers over the next few years.
globalization strategy example
Domino's is using a globalization strategy as it expands into emerging markets such as India, China, Russia, and Brazil. Although local franchisees can modify ingredients to suit local tastes, Domino's managers say the strategy in emerging markets is "to go in there with a tried-and-true business model of delivery and carryout pizza that we deploy around the world." Domino's facilities, packaging, and marketing materials look essentially the same in Russia, India, and the United States.
Vertical integration
A strategy of expanding into businesses that either provide the supplies needed to make products or distribute and sell the company's products
related diversification
Moving into a new business that is related to the corporation's existing business activities.
Pretend that you own a small coffee shop. You have decided that this year is a good time to grow your business, and you have chosen to do so by acquiring a laundromat next door to you. This is an example of
Because a laundromat is a business unrelated to your coffee shop, this is an example of unrelated diversification.
strategic management process
Executives evaluate their current position with respect to mission, goals, and strategies. They then scan the organization's internal and external environments and identify strategic issues that might require change.
multidomestic strategy
Means that competition in each country is handled independently, and product design and advertising are modified to suit the specific needs of individual countries.
target customers
People most likely to buy a business's products and services.
Business-level strategy
Pertains to each business unit or product line within the organization.
Candid communication
Managers openly and avidly promote their strategic ideas, but they also listen to others and encourage disagreement and debate. They create a culture based on openness and honesty, which encourages teamwork and collaboration across hierarchical and departmental boundaries.
multidomestic strategy example
Ashley Furniture is finding that one-size-fits-all furniture doesn't work as it tries to expand globally. Ashley wants to have 1,000 stores in Asia within a decade and is opening stores in the Middle East and Central America as well as in other locations. However, a former consultant for Ashley says the company will have to do more to adapt to local needs and shopping habits if it wants to succeed. A customer at a 35,000-square-foot Ashley store in Shanghai said, "Things are quite affordable here. And the workmanship is fine. But I am afraid I cannot fit them into my apartment. Everything is too big."
SWOT Analysis External Factors: External Opportunities and Threats example
At Kroger, managers saw an opportunity to expand the customer service experience via online ordering, increasing pickup and delivery options, and introducing Home Chef meals and fully cooked heat-and-eat choices. Kroger also introduced the Pickuliar Picks brand, selling "ugly" fruits and vegetables. Selling misshapen or unusual-looking tomatoes, bell peppers, and other produce that would otherwise be thrown out lowers costs for customers and helps Kroger achieve an ambitious goal of zero food waste. A significant threat to Kroger is the aggressive expansion of nontraditional rivals such as Walmart, Target, and Amazon into the grocery business. As competition grows, Kroger may be pushed into cutting prices, which would cut into its profits. Finally, the immense uncertainty associated with the COVID-19 pandemic poses a significant threat to all retailers.
Deliver Value example
Cable companies such as Charter Spectrum and Comcast offer bundled services, sometimes referred to as value packages, that provide a combination of basic cable, phone, digital premium channels, high-speed Internet, Wi-Fi, streaming, and on-demand services for a reduced cost. The CEO of clothing retailer J. Crew hopes to revive the company with a new strategy to deliver value by offering less-expensive clothing options, expanding into more work-appropriate fashions, offering extended women's sizes with more fits and proportions, and incorporating some vintage designs and artisanal products.
glocalization strategy
Combines global coordination and standardization to attain efficiency with local flexibility to meet needs in different countries.
cost leadership strategy example
For example, Family Dollar stores can offer prices on major brands such as Tide or Colgate that are 20 to 40 percent lower than those found in major supermarkets. The company locates its stores on inexpensive, unglamorous real estate such as strip malls to help keep costs low.
During the COVID-19 pandemic, Michael Hansen, the CEO of Cengage, met with his employees every week. His message was straightforward — the company wanted to keep employees safe, and it also wanted to keep the business safe. Keeping the business safe would require that employees change their behaviors because the world of higher education was changing rapidly. Hansen emphasized his expectations for the employees, managers, and the company repeatedly. What technique was he using to execute his strategy? Clear roles and accountability Visible leadership Appropriate HR practices Candid communication
Hansen was using candid communication to execute his strategy. By constantly talking about his expectations, he was helping employees to make those expectations their own.
Unrelated diversification
Refers to expanding into totally new lines of business
Strategic management:
Refers to the set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between an organization and its environment so as to achieve organizational goals.
Competitive advantage
Refers to what sets the organization apart from others and provides it with a distinctive edge in the marketplace.
Candid communication example
Snapchat suffered at one time because of CEO Evan Spiegel's failure to listen to the ideas and opinions of people throughout the organization. Spiegel decided that the popular messaging app needed an overhaul, imposed a strict deadline, failed to listen to concerns among other managers and key designers that the new look wasn't testing well, and rejected the team's requests for more time. When the redesign made its debut, Snapchat lost users for the first time in its history over the next quarter
core competence
Something that the organization does particularly well in comparison to others.
Porter's Five Forces
Potential new entrants. Capital requirements and economies of scale are examples of two potential barriers to entry that can keep out new competitors. It is far more costly to enter the automobile industry, for instance, than to start a specialized mail-order business. In general, Internet technology has made it much easier for new companies to enter an industry by curtailing the need for organizational elements such as an established sales force, physical assets such as buildings and machinery, and access to existing supplier and sales channels. Bargaining power of buyers. Informed customers become empowered customers. The Internet provides easy access to a wide range of information about products, services, and competitors, thereby greatly increasing the bargaining power of consumers. For example, a customer shopping for a car can gather extensive information about various options, such as wholesale prices for new cars or average value for used vehicles, detailed specifications, repair records, and even whether a used car has ever been involved in an accident. Bargaining power of suppliers. The concentration of suppliers and the availability of substitute suppliers are significant factors in determining supplier power. The sole supplier of engines to a manufacturer of small airplanes will have great power, for example. The impact of the Internet in this area can be both positive and negative. That is, procurement over the Web tends to give a company greater power over suppliers, but the Web also gives suppliers access to more customers, as well as the ability to reach users. Overall, the Internet tends to increase the bargaining power of suppliers. Threat of substitute products. The threat posed by alternatives and substitutes for a company's product may be affected by changes in costs or in trends, such as increased health consciousness, that shift buyer loyalty. Companies in the sugar industry suffered from the growth of sugar substitutes; manufacturers of aerosol spray cans lost business as environmentally conscious consumers chose other products. The Internet created a greater threat of new substitutes by enabling new approaches to meeting customer needs. For example, offers of low-cost airline tickets over the Internet hurt traditional travel agencies. Mobile apps for car-hire services such as Uber and Lyft have hurt traditional taxi companies. Rivalry among competitors. As illustrated in Exhibit 8.6, rivalry among competitors is influenced by the preceding four forces, as well as by cost and product differentiation. With the leveling force of the Internet and information technology, it has become more difficult for many companies to find ways to distinguish themselves from their competitors, which intensifies rivalry. Porter referred to the "advertising slugfest" when describing the scrambling and jockeying for position that occurs among fierce rivals within an industry. Uber and Lyft are major rivals in the transportation business. Walt Disney Animation and Pixar compete fiercely in the kids animated entertainment business, even though both are owned by the Walt Disney Corporation. Facebook fights with Snapchat for young social media users; SpaceX and Blue Origin are battling to win the modern space race; and Coke and Pepsi are still slug
Thinking Strategically
Strategic thinking means taking the long-term view and seeing the big picture, including the organization and the competitive environment, and considering how they fit together. Strategic thinking is important for both businesses and nonprofit organizations. In for-profit firms, strategic planning typically pertains to competitive actions in the marketplace. In nonprofit organizations such as the American Red Cross or the Salvation Army, strategic planning pertains to events in the external environment.
Formulating Business-Level Strategy
Successful firms develop bases for sustainable competitive advantage through Cost leadership and/or Differentiation, as well as Focusing on a narrow or industrywide market segment
Synergy example
Technology giant Apple attains synergy by integrating hardware, software, and services centered on the millions of iPhones checked so frequently by their users. In early 2019, Apple announced a string of additional services, including a news-subscription service that offers access to more than 300 magazines and newspapers; a game-subscription service with more than 100 exclusive digital games; a video-subscription service to carry original programming; and a new, mostly digital credit card to easily pay for all these services through the iPhone or other Apple devices.
Visible leadership example
The animation studio Pixar has a rule about leadership that supports its strategy of producing highly creative animated films: no studio executives. Pixar's leaders are the creative artists, an approach that maintains a "film school without the teachers" culture, which gives people maximum freedom to develop and pursue unique, innovative ideas. At Pixar, all employees, from janitors to auditors, are encouraged to submit ideas for new films.
Deliver Value
Value can be defined as the combination of benefits received and costs paid.
Synergy
When organizational parts interact to produce a joint effect that is greater than the sum of the parts acting alone
Three Levels of Strategy in Organizations
corporate level strategy business level strategy functional level strategy
Strategy Execution
the use of managerial and organizational tools to direct resources toward accomplishing strategic results
Corporate-level strategy
Pertains to the organization as a whole and the combination of business units and products that make it up.
BCG matrix
A concept developed by the Boston Consulting Group (BCG) that evaluates strategic business units with respect to two dimensions—business growth rate and market share—and classifies them as cash cows, stars, question marks, or dogs.
strategic business units (SBUs)
A division of the organization that has a unique business, mission, product or service line, competitors, and markets relative to other units of the same organization.
Remember This
A popular model for formulating business-level strategy is Porter's competitive strategies. Managers analyze the competitive environment and adopt one of three types of strategy: differentiation, cost leadership, or focus. With a differentiation strategy, managers seek to distinguish the organization's products and services from those of others in the industry. Products that have benefited from a differentiation strategy include Apple smartphones and tablets, Tesla automobiles, and Gore-Tex fabrics. With a cost leadership strategy, managers aggressively seek efficient facilities, cut costs, and use tight cost controls to be more efficient than others in the industry. With a focus strategy, managers use either a differentiation or a cost leadership approach, but concentrate on a specific regional market or buyer group. Allegiant Air has succeeded with a focused cost leadership strategy by offering bare-bones service and flying people to holiday destinations out of small cities that other carriers have abandoned or never served.
focus strategy
A strategy where managers use either a differentiation or a cost leadership approach, but they concentrate on a specific regional market or buyer group.
globalization strategy
A strategy where product design and advertising are standardized throughout the world.
cost leadership strategy
A strategy with which managers aggressively seek efficient facilities, cut costs, and use tight cost controls to be more efficient than others in the industry.
differentiation strategy
A strategy with which managers seek to distinguish the organization's products and services from those of others in the industry.
Formulating Corporate-Level Strategy
Addresses a firm's portfolio (or group) of businesses What business(es) should we compete in? How can we manage this portfolio of businesses to create synergies?
focus strategy example
As an example, Allegiant Air LLC uses a focused cost leadership strategy. Allegiant specializes in flying people from small, underserved cities to warm-weather tourist destinations such as Fort Lauderdale, Myrtle Beach, Phoenix, San Juan, Palm Springs, and Honolulu. The airline depends largely on word-of-mouth advertising rather than paying travel agent or other third-party fees. It upsells customers on extras like discounted hotel rooms, helicopter tours, and tickets to shows and takes a big cut as the middleman. Allegiant offers a no-frills base fare and charges for nearly everything else, from carry-on luggage to water.
Managers at Annie's, a company that makes organic foods, are considering the best ways for the company to position its products after a great IPO. They decide on a focus strategy, targeting sales at people who care about what's in their food.
Business-level This is a business-level strategy, because the managers at Annie's are not looking at selling new products outside of organic foods (which they already sell). Note that the managers agree on a focus strategy (rather than a low-cost or differentiation strategy) for their products.
Managers for IBM's SPSS statistics software meet to determine how they will market the product in the upcoming year. Their decision is to show potential clients how effective SPSS is at analyzing extremely large data sets, and how the "Direct Marketing" part of the program helps identify which customers will respond to advertisements.
Business-level This is a business-level strategy, because managers are concentrating on how to sell one item, SPSS. They are not looking at all of IBM's businesses in this example.
Which of the following would be effective methods of implementing the new strategy for your business fraternity? Check all that apply. Communicate your strategy to the chapter and allow members to discuss and offer suggestions on how to implement the strategy. Set a goal of completing more projects that will give your members real-world business experience. Talk to your roommates, who are also in the fraternity, about your new strategy and solicit their support. Recruit new members who are interested and excited about gaining real-world business experience.
Communicate your strategy to the chapter and allow members to discuss and offer suggestions on how to implement the strategy. Talk to your roommates, who are also in the fraternity, about your new strategy and solicit their support. Recruit new members who are interested and excited about gaining real-world business experience.
The manufacturer of Chobani Yogurt decided to open a flagship store in Soho, where customers can order special yogurt creations, such as fig and walnut or cucumber and olive oil. Though it was in the business of manufacturing yogurt for 7 years, the company never tried to run a restaurant before.
Corporate-level This is a corporate-level strategy, because Chobani decided to enter a new type of business after looking at the business environment and the company's resources. The hope is that having stores that are dedicated to Chobani sales will increase the attractiveness of Chobani to a wide variety of consumers.
Never previously known as a computer hardware company, Microsoft decides to enter the tablet manufacturing business, producing the Microsoft Surface.
Corporate-level This is a corporate-level strategy, because Microsoft is actually changing the kind of business in which it engages. Although Microsoft has made some hardware in the past, the Surface will be its first complete computer. That changes the nature of Microsoft's industries.
target customers example
Costco's target customer, from its beginning, was a relatively affluent and college-educated customer. In contrast, the original target customer for Sam's Club was the small business owner who would benefit from discount prices. In recent years, both retail chains began targeting the other's customers, with Sam's going after high-income families and Costco increasing its focus on small business owners.
differentiation strategy example
Examples of products that have benefited from a differentiation strategy include Apple smartphones and tablets, Tesla automobiles, and Gore-Tex fabrics, all of which are perceived as distinctive in their markets. Apple's iPhone and iPad, for example, can command significantly higher prices because of their distinctiveness. Apple has never tried to compete on price and likes being perceived as an "elite" brand. Similarly, Tesla is seen as the trendsetter in the new electric vehicle industry.
In this part of the strategic management process, leadership and human resource practices are modified to align with a new strategy:
Executing the strategic plan involves changing leadership and human resource practices. For example, if a company that manufactures solar panels changes its strategy from a direct-to-customer sales approach to a business-to-business sales approach, almost everyone in the company will have to change their activities in one way or another. Manufacturing will have to make larger solar panels, leadership will have to direct people's attention to the business market, human resources will have to ensure that people get compensated for meeting business sales targets, and so on.
Unrelated diversification example
For example, Sara Lee sold the intimate apparel business in 2006. It has since sold or spun off many of its units and been renamed Hillshire Brands.
Thinking Strategically example
For example, as CEO of Disney from 2005 to 2020, Bob Iger successfully strategized the company's astonishing growth, building Disney into the world's biggest and most successful entertainment/media corporate success story until his retirement. Then the COVID-19 pandemic severely disrupted the company's travel and entertainment businesses. Iger's gift for strategic thinking drew him back into action to fight for Disney's life during the COVID-19 shutdown.
related diversification example
For example, both Uber and Lyft have acquired bike-sharing start-ups, giving them access to thousands of bicycles for short-term rentals in cities such as Atlanta, San Francisco, Austin, New York City, and Washington, D.C. Renting bicycles is linked to the existing transportation business of these ride-hailing companies.
Functional-level strategy example
For example, corporate- and business-level strategy at Four Seasons Hotels and Resorts revolves around defining luxury as great service rather than as grand architecture and luxurious décor. The standard hotel HR strategy among Four Seasons' competitors accepts turnover of frontline employees as inevitable and invests in retention and development primarily for general managers. However, to make sure Four Seasons provides exceptional service that makes guests feel completely at home, the HR functional-level strategy at Four Seasons focuses strongly on hiring, training, motivating, developing, and rewarding frontline employees in ways that set the company apart from its competitors.
Corporate-level strategy example
For example, when AT&T (cable TV, telephone, Internet) acquired Time Warner, it obtained three businesses that produced media content: HBO (subscription TV), Turner (CNN, TNT, TBS), and Warner Brothers (movies, animation studios, DC comics). The challenge for senior executives was to organize these businesses into meaningful collaborative groupings that would generate additional efficiencies, synergy, and profits.
Vertical integration
Frameworks for corporate-level strategy include the portfolio strategy, the BCG matrix, and diversification strategy. Portfolio strategy seeks to establish a mix of SBUs and product lines that fit together in a logical way to provide synergy and competitive advantage. A strategic business unit (SBU) is a division of the organization that has a unique business, mission, product or service line, competitors, and markets relative to other units of the same organization. The BCG matrix is a concept developed by the Boston Consulting Group that evaluates SBUs with respect to two dimensions—business growth rate and market share—and classifies them as cash cows, stars, bright prospects, or dogs. The new streaming service Disney+ is a bright prospect for the Walt Disney Company. After magazine publisher Meredith Corporation acquired Time Inc., managers identified Time and Fortune magazines as dogs and put them up for sale. People, in contrast, was seen as a star. The strategy of moving into new lines of business is called diversification. Amazon diversified when it purchased Twitch Interactive, and Facebook diversified by purchasing WhatsApp. Related diversification means moving into a new business that is related to the corporation's existing business activities. Unrelated diversification refers to expanding into totally new lines of business. Some managers pursue diversification through a strategy of vertical integration, which means expanding into businesses that either provide the supplies needed to make the company's products or distribute and sell those products
Think of the primary tools that managers use to implement strategy effectively and choose the word or phrase that best completes the sentence. ____________ is/are effective in training employees to ensure they achieve strategic goals.
Human resources practices must be aligned with the strategy that managers are communicating to employees. This is accomplished through hiring, training, promoting, and even laying off employees in order to achieve the strategic goals. Leadership involves persuading and motivating others to adopt the new behaviors needed for putting the strategy into action. Having clear roles and accountability helps employees understand how their individual actions can contribute to achieving the strategy.
Business-level strategy example
In early 2020, fast-food chain Wendy's implemented a strategic decision to add breakfast to its restaurants nationwide, investing millions of dollars in the operational changes and advertising needed for the breakfast launch. "It has been game-planned to death," CEO Todd Penegor said. For their part, casual dining chains like Red Lobster, Ruby Tuesday, and Applebee's are trying to reinvent themselves with new menus that include healthier dishes, better ingredients, and smaller "tasting plates."
Clear roles and accountability example
In response to growing pressure from investors over climate change, Royal Dutch Shell announced plans to link executive pay and other rewards to ambitious carbon emissions goals. CEO Ben van Beurden and the top executive team decided the change was needed to clarify that managers are accountable for achieving carbon emissions reduction goals. Van Beurden said the plans were "important steps towards turning our Net Carbon Footprint ambition into reality."
In-n-Out Burger acquires an independently owned chicken fast food chain. This is an example of When a company purchases another business that does something similar to what the purchasing company does, the purchasing company is using a strategy of
In-n-Out Burger acquiring an independently owned chicken fast food chain is an example of related diversification. A company that purchases another business that does something similar to what the purchasing company does is using the related diversification strategy. Related diversification is used when a company expands by acquiring a business similar to the one it is already in. Procter & Gamble's purchase of Pantene from Hoffmann-La Roche is an example of related diversification. Unrelated diversification is used when a company expands by acquiring a business that is very different from the business it is already in. Virgin Group's purchase of Euro Belgian Airlines to create Virgin Express is an example of unrelated diversification because Virgin was not in the airline business when it acquired Euro Belgian Airlines. Virgin's later airline acquisitions, especially by Virgin Express, were related diversifications. Vertical integration occurs when an organization acquires a company that was formerly a supplier or a customer. Walt Disney's purchase of ABC Studios (a former distributor of Disney's work) is an example of vertical integration.
How important is strategic management?
It determines which organizations succeed and which ones struggle
SWOT Analysis: Internal Strengths and Weaknesses example
Kroger's strengths include its broad geographic distribution, the range of products and services offered, and a strong line of private-label brands. The company has 2,800 stores in 34 states and the District of Columbia offering a wide range of products and services One weakness for Kroger is that the organization has a high debt load compared to many of its competitors. In addition, Kroger's complicated manufacturing and distribution networks carry inherent risks of logistical breakdowns, food contamination, and bad publicity.
strategic management process example
Managers at J. C. Penney used the strategic management process to formulate and implement a strategic move to stop selling major appliances and furniture and to refocus on apparel and soft home furnishings in Penney stores. Former CEO Marvin Ellison had moved into the appliance and furniture business to try to capitalize on the problems of company rival Sears, but the products didn't fit with Penney's core competency.
core competence example
Managers at companies such as Family Dollar and Dollar General, for example, focus on a core competence of operational efficiency that enables them to keep costs low. Teekay Shipping Corporation, the world's largest tanker company and a leader in the transportation of crude oil and liquefied natural gas, thrives with core competencies of superior and reliable service, expertise with a broad range of shipping vessels to serve both major and niche markets, and strong relationships with stakeholders. Robinson Helicopter succeeds through superior technological know-how for building small, two-seater helicopters used for everything from police patrols in Los Angeles to herding cattle in Australia.
glocalization strategy example
McDonald's franchises to local entrepreneurs, sources many foods locally, and focuses on specific local preferences for restaurant design and menu choices. Customers in Indonesia can order bowls of buryam rice porridge with chicken and fried crisps, for example, and McDonald's restaurants in Hong Kong offer the kao fan burger, a fried chicken patty served in a bun made of rice.
SWOT Analysis External Factors: External Opportunities and Threats
Opportunities are characteristics of the external environment that have the potential to help the organization achieve or exceed its strategic goals. Threats are characteristics of the external environment that may prevent the organization from achieving its strategic goals.
Appropriate HR practices example
PG&E's strategy aimed at turning the firm into the leading utility company in the United States failed partly because of flawed HR practices. Former CEO Tony Earley outlined 17 objectives, starting with "protect both public and employee safety as the first order of business." Earley then brought in hundreds of consultants from Accenture, a firm outside the utility industry, who began overhauling dozens of work processes and systems. The Accenture consultants also pressed the company's HR staff to "turn up the dial" on outsourcing jobs, including using contractors for pipeline construction, gas-leak detection, and damage prevention—programs that were later investigated by state regulators for rules violations. PG&E employees and the union were angry, and customers weren't happy either. Instead of achieving its strategic goals, PG&E has sparked deadly fires and pipeline explosions and left millions of Californians in the dark.
Clear roles and accountability
People need to understand how their individual actions can contribute to achieving the strategy. Managers spell out not just what needs doing, but also the specifics of getting it done. A technique known as "if-then" planning, in which people have clarity about exactly when, where, and how they will accomplish a goal, can significantly improve execution. Managers also make sure strategy doesn't conflict with structural design, particularly in relation to managers' roles, authority, and accountability.
Functional-level strategy
Pertains to the major functional departments within each business unit, such as manufacturing, marketing, and research and development (R&D).
Portfolio strategy
Pertains to the mix of strategic business unit (SBUs) and product lines that fit together in a logical way to provide synergy and competitive advantage.
Remember This
Strategic management refers to the set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals. A strategy is the plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage, and attaining goals. Competitive advantage refers to what sets the organization apart from others and provides it with a distinctive edge in the marketplace. Four elements of competitive advantage are the company's target customer, core competencies, synergy, and value. A core competence is something that the organization does particularly well in comparison to others. Amazon.com has core competencies of operational efficiency and a superb distribution system. Synergy exists when the organization's parts interact to produce a joint effect that is greater than the sum of the parts acting alone. Apple attains synergy with a multitude of services that work with its popular iPhone and a new digital credit card to enable customers to easily charge services through the smartphone. Corporate-level strategy pertains to the organization as a whole and the combination of business units and products that compose it. Business-level strategy pertains to each business unit or product line within the organization. Functional-level strategy pertains to the major functional departments within each business unit, such as manufacturing, marketing, HR, and R&D.
Remember This
Strategy formulation is the stage of strategic management that includes the planning and decision making that lead to the establishment of the organization's goals and a specific strategic plan. Managers often start with a SWOT analysis, an audit or careful examination of strengths, weaknesses, opportunities, and threats that affect organizational performance. Kroger managers saw opportunities to add fully cooked heat-and-eat choices and strengthen online sales and pickup. The aggressive expansion of companies like Walmart and Amazon into grocery sales is a threat to Kroger. Strategy execution is the stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes.
SWOT Analysis: Internal Strengths and Weaknesses
Strengths are positive internal characteristics that the organization can exploit to achieve its strategic performance goals. Weaknesses are internal characteristics that might inhibit or restrict the organization's performance.
Prior to the 1990's, De Beers diamonds maintained a near monopoly on diamond mining and diamond retail. Because they controlled supply and demand and controlled prices the was high.
The bargaining power of suppliers is high when the number of substitute suppliers are low. Supplier power is weak if the product is standardized, like commodities or tires.
Opportunities. Purchase opportunities — Existing cash reserves and the increase in new craft beer and specialty alcoholic beverage companies provide acquisition opportunities for The Boston Beer Company. Changing consumer behavior — Younger drinkers are becoming more interested in low-alcohol beverages like hard cider and hard seltzer. Also, COVID-19 pandemic has increased consumption of alcoholic beverages. Declining interest rates — Allow the Boston Beer Company to borrow money at a lower cost than previously. Given the SWOT analysis above, which of the following strategies makes the most sense for the Boston Beer Company? Purchase a soft drink manufacturer that produces a sugar-free, fruit-flavored soft drink. Invest money in upgrading the distribution system for the Boston Beer Company. Aggressively advertise Sam Adams original beer to compete against mass market beer manufacturers. Purchase a manufacturer of spiked lemonade with a growing customer base.
The best strategy for the Boston Beer Company, given their SWOT analysis, would be to purchase a manufacturer of spiked lemonade with a growing customer base. This gives the company a new and different product so they aren't competing exclusively in the beer market, and they have the cash to make the acquisition. Advertising Sam Adams beer aggressively makes little sense, given the competition from both large and craft brewers, and going into the soft-drink industry does not take advantage of the Boston Beer Companies competitive advantages. The company already has a good distribution system, so it makes no sense to upgrade it.
Portfolio strategy example
The energy revolution isn't being led by tiny, innovative start-ups, but rather by one of the giants. Italy's huge utility company, Enel SpA, number 78 on Fortune's Global 500, operates in 32 countries across five continents. It is the world's largest producer of renewable energy, with more than 50 percent of its energy produced by wind farms, hydroelectric, geothermal, solar, and biomass power plants. Enel's strategy focuses on increasing access to renewable energy around the world. Enel Green Power is the company's fastest-growing division, produces energy at 1,218 plants in 20 countries, and is planning even more such ventures, including those based on solar power in Chile and Mexico, geothermal energy in the United States, wind power in South Africa and Russia, biomass energy in Italy, and hydropower in Columbia. Enel is also setting up shop in Silicon Valley to get a jump-start on the next generation of green technologies.
The last step in the strategic planning process is to
The last step in the strategic planning process is to execute the strategy, or use it to accomplish corporate goals. This stage is also the most difficult part of the process, as it typically involves convincing employees to change their behaviors.
One analyst told the Boston Beer Company that new tax policies which would reduce the company's taxes was a strength. This is incorrect. The new tax policies are an because the policies are to the company.
The new tax policies are an opportunity for the Boston Beer Company because they are external to the company.
Appropriate HR practices.
The organization's human resources are its employees. The HR function recruits, selects, trains, compensates, transfers, promotes, and lays off employees to achieve strategic goals. Managers make sure that HR practices are aligned with the strategy. Changes in HR practices are often crucial to effective strategy execution. Compensation practices may also need to be revised to support the new strategy.
Visible leadership
The primary key to successful strategy execution is good leadership. Leadership is the ability to influence people to adopt the new behaviors needed for putting the strategy into action. Leaders actively use persuasion, motivation techniques, and cultural values that support the new strategy. They might make speeches to employees, build coalitions of people who support the new strategic direction, and persuade middle managers to go along with their vision for the company. Most important, they lead by example
Strategy formulation
The stage of strategic management that includes the planning and decision making that lead to the establishment of the organization's goals and a specific strategic plan.
strategy execution
The stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes.
During a board meeting, the CEO of Tesla, Elon Musk, and his directors discussed whether the company should get into the renewable energy business, along with producing cars. While working on this -level strategy, the directors were considering what proportion of the firm's portfolio of businesses should be in different industries.
The three levels of strategy are corporate, business, and functional. Managers thinking about which industries the firm should invest in and how deeply the firm should be invested in each industry are working on the level of corporate strategy.
When creating a global strategy, effective managers do which of the following activities? Check all that apply. They consider how the company should be organized in every region it wants to enter. They look for the best domestic products, because those are the products that will sell best globally. They see their domestic market as part of a larger environment. They use a glocalization strategy, because it takes advantage of both globalization and responsiveness.
They consider how the company should be organized in every region it wants to enter. They see their domestic market as part of a larger environment. The most effective managers understand that decisions about global strategy must be made carefully. No single strategy is right for all companies or in all circumstances, and products, processes, and structures that work in a domestic environment may not work in other countries or regions. Thus, effective managers will look at the domestic market as a piece of an overall market and carefully consider how overseas operations should be structured, but they will not automatically assume that a domestic product will sell globally, or that a transnational strategy is the best strategy for all companies.
When Uber was experiencing its first wave of tremendous growth, the threat of was a concern as people still use public transportation such as buses and subways.
This is an example of the threat of substitutes. Public transportation is a substitute for Uber. If consumers can meet their need for transportation in a different way other than Uber, then it is a substitute product or service.
Remember This
To think strategically means to take the long-term view and see the big picture. Managers in all types of organizations, including businesses, nonprofit organizations, and government agencies, must think about how the organization fits in the environment. Managers at Hallmark Cards are struggling to adopt an effective strategy that can help the company thrive in a world where people have stopped sending greeting cards.
Remember This
When formulating a strategy as the focus for global operations, managers face a dilemma between the need for global standardization and the need for local responsiveness. With a globalization strategy, product design and advertising are standardized throughout the world. A multidomestic strategy means that competition in each country is handled independently; product design and advertising are modified to suit the specific needs of individual countries. A glocalization strategy combines global coordination to attain efficiency with local flexibility to meet needs in different countries. In Indonesia, McDonald's customers can order bowls of buryam rice porridge with chicken and fried crisps. Most large companies use a combination of global strategies to achieve global standardization and efficiency and to respond to local needs and preferences in various countries.