Chapter 8 - Strategy Formulation and Execution

Rivalry among competitors

(Internet blurs differences among competitors) 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.

Threat of substitute products

(Internet create new substitution threats) 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.

Purpose of Strategy

- Core competence - Build synergy -Deliver Value

Functional-level strategy

- How do we support the business-level strategy? - pertains to the major functional departments within the business unit. - involve all the major functions, including finance, R&D, marketing, and manufacturing. Ex-- Macy's marketing department is to scout to trends so the company can add merchandise that will attract new customers. Marketing personnel are also monitoring the competition by visiting off-price stores to see how competitors operate and how customers respond to various merchandise display and stores layouts.

Focus Cost Leadership

- Uses characteristics of cost leadership strategy directed at target customer - Frequent detailed control reports - Measures cost of providing product or service and maintaining customer loyalty.

Strategic management

- is a specific type of planning - Decisions and actions used to formulate and execute strategies that will provide a competitively superior fit between the organization and its environment to achieve organizational goals

Porter's Competitive Strategies

Differentiation Cost Leadership Focus Differentiation Focus Cost Leadership

Export Strategy

Domestically focused Exports a few domestically produced products to selected countries

Deliver value

Perceived benefits over costs paid (Cable TV bundles)

Porter's Five Forces

Potential new entrants Bargaining power of suppliers Threat of substitute products Bargaining power of buyers Rivalry among competitors

Related diversification

When the new business is related to the company's existing business activities the organization is implementing a strategy of

Globalization Strategy

an organization reap efficiencies by standardizing product design and manufacturing, using common suppliers, introducing products around the world faster, coordinating prices, and eliminating overlapping facilities.

Strategic Business Units (SBUs)

have a unique mission, products, and competitors

Competitive advantage

is the organization's distinctive edge for meeting customer needs - Exploit Core Competencies - Achieve Synergy - Create Value - Target Customers

Explicit strategy

is the plan of action

Unrelated diversification

occurs when an organization expands into a totally new line of business, such as when food company Sara Lee Corporation moved into the intimate apparel business

Transnational Strategy

seeks to achieve both global standardization and national responsiveness. A standardized product or service is more likely to succeed with some customization for the local culture in which it is sold.

Core competence

something the org. does well in comparison to its competitors (IN n OUT)

Vertical integration

that 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

Multi domestic Strategy

that the competition in each country is handled independently of industry competition in other countries. It encourages marketing, advertising, and product design to be modified and adapted to the specific needs of each country. - Handles markets independently for each country - Adapts product/advertising to local tastes and needs

Strategy Execution

the use of managerial and organizational tools to direct resources toward accomplishing strategic results

Build synergy

then the parts of the organization interact to produce something greater than the sum of parts

Bargaining power of suppliers

(Internet power of suppliers) The concentration of suppliers and the availability of substitute suppliers are significant factors in determining supplier power.

Potential new entrants

(Internet reduces barriers to entry) Capital requirements and economies of scale are examples of 2 potential barriers to entry that can keep out new competitors. It is far more costly to enter the automobile industry than to start a specialized mail-order business.

Bargaining power of buyers

(Internet shifts greater power to end consumers) 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.

Business-level strategy

- How do we compete? - pertains to each business unit or product line. - Strategic decisions at this level concern the amount of advertising, direction, and extend of R&D; product changes; new-product development; equipment and facilities; and expansion or contraction of product and service lines. Ex-- Macy's department stores declined significantly due to online competition, managers decided to open several Macy's Backstage stores that were designed to compete with T.J Maxx and so on.

Differentiation

- an attempt to distinguish the firm's products or services from others in the industry. - The organization may use creative advertising, distinctive product features, exceptional service, or new technology to achieve a product perceived as unique. - A differentiation strategy can reduce rivalry with competitors and fight off the threat of substitute products because customers are loyal to the company's brand.

Corporate level strategy

- pertains to the organization as a whole and the combination of business units and product lines that makes up the corporate entity. - Strategic actions at this level usually relate to the acquisition of new businesses; additions or divestments of business units, plants, or product lines; and joint ventures with other corporations in new areas. Ex-- Amazon recently acquired the online gaming and streaming video company Twitch Interactive and has formed deals with companies such as HBO and Nickelodeon to expand its business of providing games, videos, and original TV show content.

Cost Leadership

- the organization aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors. - Most cost leadership companies keep internal costs low so that they can provide products and services to customers at lower prices and still make a profit. - A cost leadership position means that the company can undercut competitors' prices and still offer comparable quality and earn a reasonable profit. - The cost leadership strategy is concerned with maintaining stability rather than pursuing innovation and growth. Cost leadership can lead to growth.

Focus Differentiation

- the organization concentrates on a specific regional market or buyer group. - Uses characteristics of differentiation strategy directed at targets customer - Values flexibility and customer intimacy - Pushes empowerment to employees with customer contact

3 levels of strategy

1) Corporate Level-strategy 2) Business Level-strategy 3)Functional Level-strategy

Global Corporate Strategies

1. Globalization Strategy 2. Transnational Strategy 3. Export Strategy 4. Multi domestic Strategy

Strategy Formulation

Assessing the external environment and internal problems to create goals and strategy

SWOT analysis

Internal: strengths, weaknesses, external: opportunities, threats

BCG Matrix

a means of evaluating strategic business units on the basis of (1) their business growth rates and (2) their share of the market - STARs( high growth rate, high market share ) - Cash Cows( low growth rate, high market share ) - ?Question Marks( high growth rate, low market share ) - Dogs( low growth rate, low market share)