Week 7 and 8: Strategic Management

corporate strategy

A________________ is a plan that helps an organization decide what markets it wants to enter and how. Businesses often use corporate strategies when they are trying to diversify, or enter a new market. This strategy guides a company's growth.

Decline

At this stage, the sales number drops to very low.

short-term long-term

Business strategies are generally , while corporate strategies are

decline phase

If there is a high rate of technological obsolescence and it does not make sense for existing players to invest in technology or if the demand for the product is going down because the consumer segment is declining, the industry enters the

internationalization marketing differentiation and innovation

In fact, ______________ is treated as a contingency variable in the firm's strategy formulation framework. Specifically, in terms of variables that affect competitiveness, Roth and Morrison found, among other factors, _________________ to be key factors in the hospitality and tourism industry.

Market Differentiation

In order to develop this, firms would need to consider brand identification, advertising, promotion, and distribution in the context of international markets. Note that differentiation has played a key role when firms have launched new products in international markets. It is based on the perception of consumers as well as the potential to use the brand name to generate more returns in the short to medium term. This sometimes creates confusion in the mind of international travelers, which actually reflects the gap between the developed and developing countries in terms of consumers' experience and exposure to goods and services. Note that such differentiation would affect the advertising and promotion strategies in an international context as compared to domestic operations.

Exit, Harvest, Maintain, and Consolidate

In the decline stage; a firm has four strategic options;

• Consumer awareness is maximum, • The firm enjoys an oligopoly market, • Alternatives of the product are little or no, • Industry growth is flat

In the maturity stage;

• Create a clear business plan for employees and department leaders to follow • Assess their products, target audience and competition so they can identify their competitive advantage • Gain a better understanding of their current business model and its strengths, opportunities and areas for improvement • Determine the resources and steps required to be more competitive in the market • Solve common department-level problems • Motivate and inspire their employees through achievable go

Managers can use business strategies to:

WIIFT (What in it for them).

More importantly, a good strategy defines guiding principles such as the objectives, scope, and competitive advantage that the organization is trying to achieve. The strategy should clarify for the employees and the customers where the company is going and

Competitive Advantage

Once the objective is determined, and the scope of the strategy is defined, you now need to consider how you plan to create this. Will you differentiate through innovation, price or customer service or some combination?

Directional Policy Matrix (GE-McKinsey)

Originally developed by McKinsey & Co. consultants, this matrix categorizes business units or products into those with good prospects and those with poorer prospects.

• Having clear direction • Making better business decisions • Gaining a competitive advantage in the market • Improving a product or service's performance • Satisfying customers • Satisfying and retaining employees

The benefits of creating a business strategy include:

• Ensuring efficient operations • Providing long-term sustainability • Ensuring the company follows its vision and mission statement • Maximizing profits • Minimizing risk • Improving management

The benefits of creating a corporate strategy include:

Objective

What are we trying to achieve? Is your company trying to gain market share, launch a new product line, change the culture to focus on customer service? Clearly defining this provides the basis for the organization to move. The clearer you can make this and identify how everyone's actions impact that objective, the more people will buy into what is needed to be done.

1. Select criteria to rate the industry for each product line or business unit. Assess overall industry attractiveness for each product line or business unit on a scale from 1 (very unattractive) to 5 (very attractive). 2. Select the key factors needed for success in each product line or business unit. Assess business strength/competitive position for each product line or business unit on a scale of 1 (very weak) to 5 (very strong). 3. Plot each product lines or business unit's current position on a matrix like that depicted in 4. Plot the firm's future portfolio, assuming that present corporate and business strategies remain unchanged. Is there a performance gap between projected and desired portfolios? If so, this gap should serve as a stimulus to review the organization's current mission, objectives, strategies, and policies.

Wheelen and Hunger (2006) propose four steps to plot business units on the GE Business Screen:

Scope

Where will we compete? You can't be everything to everyone, so will you compete with product/service, geographic location or by being tightly integrated into your customers business?

Business stakeholders and upper-level management

_______________ use corporate strategies to decide what industries they should be involved with and how to acquire business units that can help it be successful.

Good Strategy

consists of guiding principles that define the priorities for the employees and describes how these priorities will lead towards the company achieving its goals. _______________ consider all forces working for and against the company in its efforts to move between its present and future states.

Successful strategies

outline clearly the what, where, when and how the company will compete and create change.

(1) how attractive the relevant market is in which they are operating and (2) the competitive strength of strategic business units in that market.

prospects. Specifically, it positions business units or products according to;

Small businesses

sometimes create corporate strategies to guide their growth and accomplish their goals until they are big enough to need business strategies.

Objective Scope Competitive Advantage

three guiding principles of successful strategies:

Mid-level managers, such as department heads

use business strategies to achieve objectives and goals within their departments or divisions. This strategy is useful for a variety of company units.

Upper-level managers, such as chief executive officers

use corporate strategies to help their companies grow according to their vision. This strategy applies to the entire organization.

introduction or embryonic, growth, shakeout, maturity, and decline

5 stages of industry life cycle

business strategy corporate strategy Corporate strategies business strategies

A ______________ focuses on competing in the marketplace, while a _________________ focuses on business growth and profits._______________function at a higher level than business strategies. Managers should develop ________________, however, with the overall corporate strategy in mind because their decisions affect the entire business plan and reflect the organization's shared goals.

business strategy

A _______________ is a plan for attracting customers, gaining their business and selling a product or service to make a profit. It's designed to help a company be competitive in its marke, to reach specific goals.

• Creating value for the consumer • Being competitive in the market by offering customers a product or service that's unique to their competitors' products • Cost leadership, or having the best prices in the industry

A business strategy focuses on:

• Getting customers • Increasing customer satisfaction • Increasing profits • Choosing which product to offer

A business strategy might be in summary or outline form and include steps for:

• Creating more value for the company • Growing the organization through diversification or expansion • Maximizing profits • Downsizing or reducing spending as needed

A corporate strategy focuses on:

• What market the organization wants to compete in • How different business units can add more value to the organization • How entering a new market can make the company more competitive • The timing and pace of the company's growth

A corporate strategy typically includes:

strategies

All companies need _______________ to achieve their goals and be competitive and successful in their markets.

S-shaped curve

As organizations compete with one another, the competitive dynamics change. There is a change in the number of competitors, the competitive thrust, profitability, intensity of rivalry, and the emphasis on innovation. These changes have been shown in the industry life cycle, which is an ______ similar to the product life cycle curve.

Growth

At this stage, a strong firm's growth rate of sales and market share accelerates. A standard for the product is imposed or agreed upon by the government and other standard-setting agencies. The innovation process is looking for ways to improve the existing product by creating a better manufacturing process, delivery method, and more. Firms try to optimize their marketing, distribution channel, and product to maximize the market share and reduce competition.

Maturity

At this stage, the market reached the maximum size where industry growth is likely zero or negative. Companies that are strong in policy and sales numbers survive and totally dominate the marketplace. The market situation basically becomes an oligopoly where only a few large firms exist. Sales numbers are due to replacement, repeat purchases, there is no other alternative, or people looking to buy older generation products to save a few bucks.

• Clearly define the space the company wants to occupy within an industry • Give managers guidance for reaching long-term goals • Establish and meet stakeholder and investor expectations • Improve efficiency by combining departments, sharing resources or buying or selling business units • Determine the direction, speed, timing and extent of the company's growth • Investigate new business opportunities • Decide what companies to compete with and how to enter and win markets

Company leaders can use corporate strategies to:

profit maximization growth and diversification

Company leaders design corporate strategies to reach competitive in market long-term goals, such as ______________, and solve comprehensive issues affecting the entire organization, like ____. A corporate strategy is usually long-lasting and based on a permanent company vision. The CEO or stakeholders might measure this strategy's success over many years.

flexibility

Developing a competitive corporate strategy requires _____________ in terms of being able to reallocate resources quickly and smoothly among different business units in response to changing market conditions. In order to be able to respond to the dynamism in the business environment and enhance competitiveness, organizations should develop this and identify effective means in order to achieve this flexibility.

Shakeout

During this stage of the cycle, the percentage growth rate declines. Firms face competition for market share from other firms. Firms that are weak in their innovation, marketing, customer support, product quality, and after-sales support; start to lose market share and eventually are forced out of the industry. On the other hand, strong firms start to gain more market share. At this stage, competitors have a fierce battle based on price wars; capacity within the industry grows, but the demand does not keep pace. Unviable organizations lose out in this phase.

Roth and Morrison (1992)

Firms face different task environments in domestic and international markets, and therefore their strategy formulation decisions would be influenced by market-related contextual factors. ____________________________ state that the competitive attributes of firms engaged in international and domestic environments would be significantly different.

Introduction/Embryonic

Firms in this stage are busy creating awareness about the product/service and educating the customers. At this stage, where the firm's competition is none or very low, innovation is at maximum, and investment in distribution channels and marketing is very high. If a firm can develop proper distribution channels, increase consumer awareness, and provide a better quality product or service, then the rest of the competition will see sales numbers grow.

PESTE

For example, at GE-McKinsey, industry attractiveness can be identified by ___________ and the five forces analyses, and it includes market growth rate and industry size, among other possible opportunities and threats. Business strength or competitive position includes market share as well as profitability and size, among other possible strengths and weaknesses.

Easy Jet

In today's world, the majority of H&T organizations offer more than only one product or service, and many serve more than one customer group. ________________ a budget, no- frill airline company in Europe, not only carries passengers between different destinations in Europe but also rents cars, runs hotels and cruises, and manages cinemas. There are very good strategic reasons for this: Relying solely on one activity would expose the organization to the risks of a potential downturn in an area of operations. This would still run its operations if for any reason one of its products and services fails or if its customers go elsewhere.

solve current or routine operations

Managers create business strategies to ______________ issues and reach measurable objectives, such as gaining a certain amount of new customers or revenue. These strategies are valuable for helping teams achieve temporary and continually changing goals that allow them to compete in a certain section of the market.

Portfolio analysis

One of the most popular aids to developing a corporate strategy that addresses the preceding issues in a multi business H&T organization is this. This puts the corporate headquarters into the role of an internal auditor. In portfolio analysis, top management views its product lines and business units as a series of investments that will have a return.

• sales rate increases for strong firms, • market share grows, • industry standards are set, • innovation is for making existing products better

So at the growth stage;

• innovation is the highest, • high focus on distribution channels, • large investment in marketing to establish consumer awareness.

So at the introduction/embryonic stage;

• strong firms start to gain more market share, • and strong innovation, marketing, customer support, product quality, and after-sales support are needed to increase sales, • Competition increases and companies use marketing and pricing techniques to grow among the competition

So at the shakeout stage;

Question Marks

Sometimes called "problem children" or "wildcats," these are new products with the potential for success but that require much effort and resources for development. Their market shares are less dominant, as competition may be more aggressive. The market growth means that it is likely that considerable investment will still be required, and low market share will mean that such business units or products will have difficulty generating substantial cash. Hence, on this basis, these products are likely to be cash users.

Cash Cows

The lower left quadrant shows business units or products with a high market share in low-growth markets. Business units or products in this quadrant are mature, and it is assumed that lower levels of investment will be required. On the other hand, high market share means that the business unit should be profitable. They typically bring in far more money than is needed to maintain their market share.

Stars

The upper left quadrant represents those products or business units with high market shares operating in high-growth markets. The business units or products in this quadrant may be investing heavily to keep up with growth. However, since they have high market shares, it is assumed that these products will have economies of scale and be able to generate large amounts of cash. Therefore, they are asserted that they will be cash neutral and considered as self-sufficient in terms of investment needs.

Dogs

These products or business units have low market share, and since they are in an unattractive industry, they do not have the potential to bring in much cash. These should be either sold off or managed carefully for the small amount of cash they can generate.

• A new alternative product has immersed, • Rules and regulations changes, • Issues with the supply of raw materials, • Increased level of competition from other firms and more.

This drop-in sale could be because of the internal and external environments; such as;

introduction stage

This is the initial stage, where the competition is not severe. The early entrants are busy creating awareness about the product/service and educating the customers. The personal computer industry of the early 1970s was in this stage. Investments go to distribution channels and designs. These help the industry to move forward, grow among the competition and gain market share. Organizations that can set up distribution channels and resolve design problems faster gain an advantage over the other players.

True

True or False: A business strategy should show a company or company unit where it has a competitive advantage and how to benefit from that. It lists the actions needed to reach desired goals, so managers can make smart hiring and resource decisions. Managers can adjust their business strategy depending on market demand.

False

True or False: Basically, a corporate strategy focuses on how a company plans to compete in a market, while a business strategy focuses on the markets it wants to enter and the businesses it wants to compete with.

True

True or False: Relative market share is important because in a competitive environment, it is advantageous to be larger than your rivals. Market growth rate is important because markets that are growing rapidly offer more opportunities for sales than markets with lower growth rates.

True

True or False: The development of a strategy is just the beginning though; the execution of the strategy is where the heavy lifting is because strategies are typically about change and most people are resistant to change.

business strategies and corporate strategies

Two commonly used approaches are _______________ These strategies differ from each other yet work together to improve performance and make companies profitable.

Boston Consulting Group (BCG) Matrix and the Directional Policy Matrix (GE-McKinsey)

Two of the most popular portfolio approaches are _____________________. The simplest way to portray an organization's portfolio of investments. Each of an organization's product lines or business units is plotted on a matrix according to both the growth rate of the industry in which it competes and its relative market share.

lack of strategy

While no strategy is a guarantee of success, a ______________or a strategy that doesn't look at all the moving parts will not lead you towards your organization differentiating its-self and winning.

Strategies

are important to organizations as they provide a way to coordinate activities throughout all the departments within an organization. Not all small businesses with a few employees will agree this is needed as this might seem like overkill, but organizations with hundreds of people, it is a critical element in aligning people and their actions. In either case, defining this is important as it allows you to more efficiently prioritize and utilize limited resources allowing you to get the biggest bang for your buck.

Corporate strategy

is a firm's overall approach to gaining a competitive advantage by operating in several businesses simultaneously. is the overall goal of an organization that reflects the core values and sets a direction about what business the company is in or is to be in, and what kind of company it presently is or is going to be.

Innovation

is also another important element of a firm's competitive posture in international markets. Firms would need to provide different product-service offerings in different contexts based on the market's response. The fact that the local market needs an international market drove the firm to extend its product line while enabling it to compete with local and other international firms in the Indian market. Note that this result in the development of new resources and capabilities, which could be extended to other markets where they could put newly acquired competencies to productive use.

A unit's relative competitive position (market share)

is defined as its market share in the industry divided by that of the largest other competitor.

Large-scale companies

need business strategies to help its various units and departments achieve their specific goals. This is because each department might have different objectives and, therefore, require a different strategy for its products or services.

Industry Life Cycle

shows the five stages the industry goes through. enables managers to understand at what point to alter their strategies.

• Your organization's skills sets • Competition • Economic forces • Customer insights • The political environment

states. Forces that can impact your organization's strategy success could be: (do we have the right skills to compete), (what are they working on that might tip over our apple cart?), (can people afford our new products), (do people want our new idea), (What will the White House do next), etc.

Growth Stage cost-cutting

where the demand is expanding rapidly. Scale economies happen, and prices fall. Customers are more aware of the product, and rivalry is building up though not intense. If the growth is rapid new entrants can be absorbed. As the demand slows and is reduced to replacement demand, companies focus on cost-cutting Those organizations which have been able to have a low-cost position and brand loyalty survive.