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STRATEGIC

MANAGEMENT
LECTURE 6

Dr. Mahmoud El Damaty


Consultant Surgeon
AUC & AASTMT Instructor
Lecture Six
• Strategy Formulation

• Reference: Strategic Management


and Business Policy, Thomas L.
Wheelan & J. David Hunger

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Strategic Formulation
• Strategy formulation, often referred to as strategic planning or long-range planning,
is concerned with developing a corporation’s mission, objectives, strategies, and
policies.
• It begins with situation analysis: the process of finding a strategic fit between
external opportunities and internal strengths while working around external threats
and internal weaknesses.

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Swot analysis
• SWOT is an acronym used to describe the particular Strengths, Weaknesses,
Opportunities, and Threats that are strategic factors for a specific company.
• SWOT analysis should not only result in the identification of a corporation’s
distinctive competencies—the particular capabilities and resources that a firm
possesses and the superior way in which they are used—but also in the
identification of opportunities that the firm is not currently able to take advantage
of due to a lack of appropriate resources.

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Criticisms of SWOT
analysis are
• It generates lengthy lists.
• It uses no weights to reflect priorities.
• The same factor can be placed in two categories (e.g., a strength may also be a
weakness).
• There is no obligation to verify opinions with data or analysis.
• There is no logical link to strategy implementation.

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Strategic Factors Analysis
Summary (SFAS)
• The EFAS and IFAS Tables plus the SFAS Matrix have been developed to deal with the
criticisms of SWOT analysis.
• When used together, they are a powerful analytical set of tools for strategic analysis.
• The SFAS (Strategic Factors Analysis Summary) Matrix summarizes an organization’s
strategic factors by combining the external factors from the EFAS Table with the
internal factors from the IFAS Table.

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Strategic Factors Analysis
Summary (SFAS)
1. In Column 1 (Strategic Factors), list the most important EFAS and IFAS items. After
each factor, indicate whether it is a Strength (S), Weakness (W), an Opportunity
(O), or a Threat (T).
2. In Column 2 (Weight), assign weights for all of the internal and external strategic
factors. As with the EFAS and IFAS Tables presented earlier, the weight column
must total 1.00. This means that the weights calculated earlier for EFAS and IFAS
will probably have to be adjusted.
3. In Column 3 (Rating), assign a rating of how the company’s management is
responding to each of the strategic factors. These ratings will probably (but not
always) be the same as those listed in the EFAS and IFAS Tables.

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Strategic Factors Analysis
Summary (SFAS)
4. In Column 4 (Weighted Score), multiply the weight in Column 2 for each factor by
its rating in Column 3 to obtain the factor’s rated score.
5. In Column 5 (Duration), depicted in Figure 6–1, indicate short-term (less than one
year), intermediate-term (one to three years), or long-term (three years and
beyond).
6. In Column 6 (Comments), repeat or revise your comments for each strategic factor
from the previous EFAS and IFAS Tables. The total weighted score for the average
firm in an industry is always 3.0.

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Strategic Sweet Spot

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Review of mission and
objectives
• A reexamination of an organization’s current mission and objectives must be made
before alternative strategies can be generated and evaluated.
• Problems in performance can derive from an inappropriate statement of mission,
which may be too narrow or too broad. If the mission does not provide a common
thread (a unifying theme) for a corporation’s businesses, managers may be unclear
about where the company is heading.
• Objectives and strategies might be in conflict with each other.

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Generating alternative strategies using
“tows”
• SWOT can also be used to generate a number of possible alternative strategies.
• The TOWS Matrix (TOWS is just another way of saying SWOT) illustrates how the
external opportunities and threats facing a particular corporation can be matched
with that company’s internal strengths and weaknesses to result in four sets of
possible strategic alternatives.

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Hoshin Planning
Hoshin Planning : a Japanese term that means policy
deployment.
It is one approach for integration in the
organization where ideas and objectives are
cascaded down through the organization and
passed back up by the lower ranks, i.e. a give
and take process across all levels of the
organization “catch-ball.”
History of Hoshin Kanri
** Hoshin Kanri is used to communicate company
policy to everyone in the organization
** Its primary benefit is to focus activity
key things necessary for successes. on the
“TOWS” matrix

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“TOWS” matrix
This matrix generates a series of possible strategies for the company or business unit
under consideration based on particular combinations of the four sets of factors:
• SO Strategies are generated by thinking of ways in which a company or business unit
could use its strengths to take advantage of opportunities.
• ST Strategies consider a company’s or unit’s strengths as a way to avoid threats.
• WO Strategies attempt to take advantage of opportunities by overcoming
weaknesses.
• WT Strategies are basically defensive and primarily act to minimize weaknesses and
avoid threats.

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Business strategies
• Business strategy focuses on improving the competitive position of a company’s or
business unit’s products or services within the specific industry or market segment
that the company or business unit serves.

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Porter’s Competitive
Strategies
Competitive strategy raises the following question:
• Should we compete on the basis of lower cost (and thus price), or should we
differentiate our products or services on some basis other than cost, such as quality
or service?

Michael Porter proposes two “generic” competitive strategies for outperforming other
corporations in a particular industry: lower cost and differentiation.
These strategies are called generic because they can be pursued by any type or size of
business firm, even by not for profit organizations.

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Porter’s Competitive
Strategies
• Lower cost strategy is the ability of a company or a business unit to design, produce,
and market a comparable product more efficiently than its competitors.
• Differentiation strategy is the ability of a company to provide unique and superior
value to the buyer in terms of product quality, special features, or after-sale service.

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Porter’s Competitive
Strategies
Porter further proposes that a firm’s competitive advantage in an industry is
determined by its competitive scope, that is, the breadth of the company’s or
business unit’s target market.
Before using one of the two generic competitive strategies (lower cost or
differentiation), the firm or unit must choose:
• The range of product varieties it will produce,
• The distribution channels it will employ,
• The types of buyers it will serve,
• The geographic areas in which it will sell, and
• The array of related industries in which it will also compete.
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Porter’s Competitive
Strategies

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Cost leadership
• It’s a lower-cost competitive strategy that aims at the broad mass market.
• Because of its lower costs, the cost leader is able to charge a lower price for its
products than its competitors and still make a satisfactory profit.
• Although it may not necessarily have the lowest costs in the industry, it has lower
costs than its competitors.
• Examples: McDonald’s (fast-food restaurants) and Dell (computers).

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Differentiation
• It’s aimed at the broad mass market and involves the creation of a product or
service that is perceived throughout its industry as unique.
• The company or business unit may then charge a premium for its product.
• This specialty can be associated with design or brand image, technology, features, a
dealer network, or customer service.
• Examples: BMW (automobiles) and Nike (athletic shoes).

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Cost focus
• It’s a low-cost competitive strategy that focuses on a particular buyer group or
geographic market and attempts to serve only this niche, to the exclusion of others.
• In using cost focus, the company or business unit seeks a cost advantage in its target
segment.

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Differentiation focus
• Like cost focus, differentiation focus concentrates on a particular buyer group,
product line segment, or geographic market.
• This strategy is valued by those who believe that a company or a unit that focuses its
efforts is better able to serve the special needs of a narrow strategic target more
effectively than can its competition.
• For example, Orphagenix is a small biotech pharmaceutical company that avoids
head-to-head competition with big companies like AstraZenica and Merck by
developing “orphan” drugs to target diseases that affect fewer than 200,000
people—diseases such as sickle cell anemia and spinal muscular atrophy that big
drug makers are overlooking.

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Risks of generic competitive strategies

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Which Competitive Strategy
Is Best?
• Before selecting one of Porter’s generic competitive strategies for a company or
business unit, management should assess its feasibility in terms of company or
business unit resources and capabilities.
• Porter lists some of the commonly required skills and resources, as well as
organizational requirements.

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Competitive Tactics
• A tactic is a specific operating plan that details how a strategy is to be implemented
in terms of when and where it is to be put into action.
• By their nature, tactics are narrower in scope and shorter in time horizon than are
strategies.
• They link between the formulation and implementation of strategy.
• Some of the tactics available to implement competitive strategies are timing tactics
and market location tactics.

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Timing Tactics:
When to Compete?
• A timing tactic deals with when a company implements a strategy.
• The first company to manufacture and sell a new product or service is called the first
mover (or pioneer).
• Some of the advantages of being a first mover are that the company is able to
establish a reputation as an industry leader.
• A successful first mover can also set the standard for all subsequent products in the
industry.
• A company that sets the standard “locks in” customers and is then able to offer
further products based on that standard.
• Microsoft was able to do this in software with its Windows operating system.
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Market Location Tactics:
Where to Compete?
• A market location tactic deals with where a company implements a strategy.
• A company or business unit can implement a competitive strategy either offensively
or defensively.
• An offensive tactic usually takes place in an established competitor’s market
location.
• A defensive tactic usually takes place in the firm’s own current market position as a
defense against possible attack by a rival.

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THANK YOU
drdamaty@aucegypt.edu

Dr. Mahmoud Mohamed El Damaty

+201222850959