Chapter 8 - Strategy Formation
How to go global while thinking local
1. Get the right mix 2. Get the right motivation 3. Get the right perspective 4. Get the right presence 5. Get the right people
Strategy Execution
Administration and implementation of a strategic plan
Strategic Management Process
Begins when executives evaluate their current position with respect to mission, goals, and strategies
SWOT Analysis
Careful assessment of strengths, weaknesses, opportunities, and threats that affect organizational performance
CLEAR ROLES AND ACCOUNTABILITY
Clearly define roles • Delegate authority to individuals and teams who are accountable for results
Strategic partnerships
Collaboration with other organizations is very important • The Internet helps in driving and moving towards partnership thinking
Value
Combination of benefits received and costs paid
Target customers
Define the customers and which of their needs are to served by the company
Cash cow
Exists in a mature, slow-growth industry but us a dominant business in the industry with a large market share § Positive cash flow because advertising and plant expansion are no longer required § Use this cash cow unit to invest in other, riskier businesses
Question Mark
Exists in a new, rapidly growing industry, but has only a small market share § Risky à could become a star or it could fail § Corp. can invesr the cash earned from cash cows to question marks with the goal of nurturing them into future stars
STRATEGY EXECUTION
Final step in strategic management process
Delivering value
Heart of a strategy
Porter's five competitive forces
Illustrates the competitive forces that exist in a company's environment and indicates some ways Internet technology is affecting each area
Strategy Formulation
Includes planning and decision making that lead to the establishment of the firm's goals and the development of a specific strategic plan
Rivalry among competitors
Influenced by the other four forces and by cost and product differentiation
Bargaining power of buyers
Informed customers become empowered customers
Strategic Management process
Internal or external events sometimes indicate a need to redefine the mission or goals or to formulate a new strategy at either corporate, business, or management process
Diferentiation
Involves an attempt to distinguish the firm's products or services from others in the industry
Embeddedness
Key to effective communication, which means there is a deep understanding and acceptance of organizational direction and purpose throughout the organization
Major organizational functions:
Marketing Production Finance Human Resources R&D
Multidomestic strategy
Means that competition in each country is handled independently of industry competition in other countries
Globalization strategy
Means that product design and advertising strategies are standardized throughout the world
Strategic thinking and Planning
Means to take the long-term view and to see the big picture, including the organization and the competitive environment, and consider how they fit together
Task environment sectors
Most relevant to strategic behavior • The general environment have an indirect influence on the organization
Candid communication
Openly and avidly promote strategic ideas • Listen to others and encourage disagreement and debate
Cost leadership
Organization aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors
Focus strategy
Organization concentrates on a specific regional market or buyer group
Business-level strategy
Pertains to each business unit or product line
Functional-level strategy
Pertains to the major functional departments within the business unit
Portfolio Strategy
Pertains to the mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage for the corporation
Corporate level strategy
Pertains to the organization as a whole and the combination of business units and product lines that make up the corporate entity
Dog
Poor performer § Only a small share of a slow-growth market § Provides little profit for the corporation § May be targeted for divestment or liquidation if turnaround is not possible
Potential New Entrants
Potential barriers to entry that can keep out new competitors: Capital requirements and economies of scale
Strategic Management
Refers to the set of decisions and actions used to formulate and execute strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals
Transnational strategy
Seeks to achieve both global standardization and national responsiveness • Difficult to achieve because one goal requires close global coordination while the other goal requires local flexibility
Bargaining power of suppliers
Significant factors in determining supplier power: the concentration of suppliers and availability of substitute suppliers are
Strategic flexibility
Static long-range strategic plans can be a liability in a topsy-turvy world
Strategies that incorporate the element of strategic management
Target customers, focus on core competencies, provide synergy, create value
Define an explicit strategy
The first step in strategic management - Describes resource allocation and activities for dealing with the environment, achieving a competitive advantage, and attaining the organization's goals
Export strategy
The organization is domestically focuses, with only a few exports, managers have little need to pay attention to issues of either local responsiveness or global standardization
Threat of substitute products
The power of alternatives and substitutes for a company's product may be affected by changes in cost or in trends such as increased health consciousness that will deflect buyer loyalty
Strategy Execution
The use of managerial and organizational tools to direct resources toward accomplishing strategic results
APPROPRIATE HUMAN RESOURCE PRACTICES
Training employees à helps people understand the purpose and importance of strategy, overcome resistance, and develop necessary skills and behaviors to implement the strategy
Synergy
When organizational parts interact to produce a joint effect that is greater than the sum of the parts acting alone - Can create additional value with existing resources, providing boost to the bottom line
Evergreen project
a clear strategic direction was a key factor that distinguished winners from losers
Actions of corporate level strategy
acquisition of business units and joint ventures with other corporations
Functional-level strategies
action plans used by major departments to support the execution of business-level strategy
Finance dept
adopt plans to borrow money, handle large cash investments, authorize construction of new facilities
Alignment
all aspects of the organization are in congruence with the strategy and every department and individual's efforts are coordinated toward accomplishing strategic goals
Actions of business level strategy
amount of advertising, direction and extent of research and development, product changes, new-product development, equipment and facilities, and expansion of product and service lines
Internal analysis
assesses overall organization structure, management competence and quality, and human resource characteristics
Main strategic dilemma
between the need for global standardization and national responsiveness
Internal Information about strengths and weaknesses
budgets, financial ratios, profit and statements, and surveys of employee attitudes and satisfaction
Opportunities
characteristics of the external environment that have the potential to help the organization achieve or exceed its strategic goals
Threats
characteristics of the external environment that may prevent the organization from achieving its strategic goals (e.g. Microsoft -à proliferation of cheap or free software available)
Low cost position
company can undercut competitor's prices and still offer comparable quality and earn a reasonable profit (e.g. Comfort Inn and Motel 6) o Most likely to succeed a price war while still making profit
External Information about opportunities and threats
customers, government reports, professional journals, suppliers, bankers, friends in other organizations, consultants, or association meetings
Market share
defines whether a business unit has a larger or smaller share then competitors
Impact of internet to potential new entrants
has made it much easier for new companies to enter an industry
Weaknesses
internal characteristics that might inhibit or restrict the organization's performance
Actions of a functional- level strategy
involve all major functions, including finance, research and development, marketing, and manufacturing
Production dept
long production runs, routinization, cost reduction
Vertical integration
means the company expands into businesses that either produce the supplies needed to make products and services or that distribute and sell those products and services to customers (e.g. steelmaker Nucor acquired scrap-metal processor and rival Arcelor)
Unrelated diversification
occurs when an organization expands into a totally new line of business; company's lines of business aren't logically associated with one another à difficult to make the strategy successful (e.g. GE's entry into consumer finance)
BCG Matrix
organizes businesses along two dimensions
Business growth rate
pertains to how rapidly the entire industry is increasing
Strength
positive internal characteristics that the organization can exploit to achieve its strategic performance goals
Impact of internet to bargaining powers of buyers
provides easy access to wide array of information about products, services, and competitors à increasing the bargaining power of end consumers • e.g. customer shopping for a car can gather information about various options
Competitive advantage
refers to what sets the organization apart from others and provides it with a distinctive edge for meeting customer or client needs in the marketplace
Advertising slugfest
scrambling and jockeying for position that occurs among fierce rivals • e.g. Nintendo vs Sony
Core competence
something the organization does especially well in comparison to its competitors
Strategic thinking for non-profit firms
strategic planning pertains to events in the external environment
Strategic thinking for profit firms
strategic planning typically pertains to competitive actions in the marketplace
HR dept
strategy for growth à recruiting additional personnel and training middle and lowerlevel managers for new positions
HR Dept
strategy for retaining and developing stable workforce
Diversification
strategy of moving into new lines of business (e.g. GE getting into health care)
Marketing dept
stress brand loyalty and development of established, reliable distribution channels
Marketing dept
test marketing, aggressive advertisement, consumer product trials
Leadership
the ability to influence people to adopt the new behaviors needed for putting strategy into action • Use: persuasion, motivation techniques, cultural values • Actions: speeches, build coalitions, persuade middle managers • Lead by example!
Strategic business units
unique business mission, product line, competitors, and markets relative to other SBUs in the corporation
Related diversification
when the new business is related to the company's existing business activities (e.g. GE's move into renewable energy)
Star
§ Large market share in a rapidly growing industry § IMPORTANCE: has additional growth potential and profits should be plowed into this business as investment for future growth and profits § Visible and attractive à will generate profits and a positive cash flow
