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Strategy Formulation
What Is Strategy?
The term strategy is derived from a Greek word
‘Strategos’ which means general ship – the actual
direction of military force, as distinct from the policy
governing its deployment. Strategy is a broad game
plant to achieve objectives. It provides direction and scope
to the organization over the long term. Literally the
word strategy means the art of the general.
Strategy::
Strategy
Strategy can be defined as the management action
plan for achieving the chosen objectives. It commits
the organization to specific products, market,
resources and technology. It specifies how the
organization will be operated, run & what
entrepreneur, competitive & functional area approach
& action will be taken to put the organization into
the desired position.
Strategy considers both means & ends. The goals &
decisions making up an organization's strategy may be
planned ahead of time or may just evolve as a pattern
in the stream of significant decisions.
Strategy::
Strategy
It determines the basic long-term goals & objectives
of an enterprise and the adoption of courses of
action and the allocation of resources necessary for
carrying out these goals.
Strategic Management:
Management:
Strategic management is the art and science of
formulating, implementing and evaluating cross-
functional decisions that will enable an organization
to achieve its objectives. It is the process of specifying
the organization's objectives, developing policies and
plans to achieve these objectives, and allocating
resources to implement the policies and plans to
achieve the organization's objectives.
Strategic management, therefore, combines the
activities of the various functional areas of a business
to achieve organizational objectives.
Strategic Management:
Management:
Strategic management is a set of decisions & actions
that result in formulating & implementation of plans
designed to achieve a company’s objectives.
Because it involves long term, future oriented,
complex decision making & requires considerable
resources, top management participation is essential.
Strategic management is a three-tier process
involving corporate, business & functional level
planners, & more specific, narrow, short-term, &
actions oriented, with lower risks but fewer
opportunities for dynamic impact.
Strategic Management:
Management:
The purpose of strategic management is to exploit
and create new and different opportunities for
tomorrow, long range planning, in contrast, tries to
optimize for tomorrow the trends of today.
Strategic management provides overall direction to
the enterprise and is closely related to the field of
Organization Studies. In the field of business
administration it is possible mention to the "strategic
consistency.
.
Strategic Management:
Management:
Strategic Management is simply the art of turning
strategies into action.
Strategy management exploits new opportunities for
tomorrow.
Well implementation of corporate to achieve &
maintain competitive advantage
Strategy management refers to strategic decisions &
actions of the top management.
Strategy management is known as a process of
strategy formulation, implementation, &evaluation &
control.
DIFFERENT LEVELS OF
STRATEGY
Corporate
Operational Business
Functional
DIFFERENT LEVELS OF
STRATEGY:
Corporate
level
Business
level
Operational or
functional level
CORPORATE LEVEL:
CORPORATE STRATEGY
Corporate strategy tells us primarily about
the choice of direction for the firm as a
whole. In a large multi business company,
however, corporate strategy is also about
managing various product lines and business
units for maximum value. Even though each
product line or business unit has its own
competitive or cooperative strategy that it
uses to obtain its own competitive advantage
in the market place, the corporation must
coordinate these difference business
strategies so that the corporation as a whole
succeeds.
Corporate strategy includes decision
regarding the flow of financial and other
resources to and from a company’s product
line and business units. Through a series of
coordinating devices, a company transfers
skills and capabilities developed in one unit to
other units that need such resources
Types of Corporate Strategies:
MERGER ACQUISITION
i. Increase Market
Share.
i. Clash of
ii. Economies of scale
iii. Profit for Research
corporate
and development. cultures
iv. Benefits on account ii. Increased
of tax shields like business
carried forward
losses or unclaimed complexity
depreciation. iii. Employees may
v. Reduction of be resistant to
competition.
change
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ACQUISITION:WHY & WHY
NOT
PROBLEM WITH
WHY IS IMPORTANT ACUIQISITION
i. Increased market
share.
i. Inadequate
ii. Increased speed valuation of
to market target.
iii. Lower risk ii. Inability to
comparing to achieve
develop new
products. synergy.
iv. Increased iii. Finance by
diversification taking huge
v. Avoid excessive debt.
competition
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MEANING OF JOINT VENTURE
liquidation of a portion of
business, or a major
division.
Divestment strategy
TATA group is a highly diversified
At Business-level ALLOCATION
of re-sources among Functional-
level an COORDINATE with the
Corporate level to the
ACHIEVEMENT of the Corporate
level OBJECTIVES.
Business--Level Strategies(cont’d)
Business Strategies(cont’d)
Cost leadership: Attaining, then using the
lowest total cost basis as a competitive
advantage.
target
Broad
Integrated Cost
Leadership/
Differentiation
Narrow
target
Stars Question
High
marks
Industry/
market
growth rate Cash cows Dogs
Low
High Low
Relative market share
BCG Sections
Stars
Business with a high market share and
high growth rate
Generate huge sums of money
Require huge sums of money to cope
with growth
Cash Cows
Businesses with low growth but high
market share
Generate huge sums of money at low
cost
Are used to develop and promote new
businesses (they are “milked”)
BCG Sections – Cont.
Dogs
Have low market share in an aged industry
The strategy is, normally to sell them off.
Question marks (Fledglings)
Sometimes called problem children (they
need to be grown).
They generate low cash but need a lot to
tap the high growth rate.
They can be grown into stars, resources
allowing.
Too much commitment to question marks
can lead lead to liquidity problems.
The General Electrics (GE) Model
This analyses
◦ Long term industry attractiveness and
◦ Business competitive strength
These factors are assigned weights / ratings
based on their perceived importance
The business is rated on each of the factors
A combined rating is determined (factor
importance rating combined with the
business rating on the factor)
Each business result is plotted on a 2-
dimensional matrix
Industry attractiveness Determinants
The factors and their relative weightings are selected. The rating
values for each factor are entered for each SBU and Industry.
GE Nine Cell Matrix
Industry Business Unit Strength
Attractiveness
Weakness
a)It tends to obscure business that are become to winners
because their industries are entering at exit stage.