Strategy formulation - is often referred to as strategic
planning or long-range planning and is concerned with
developing a corporation’s mission, objectives, strategies, and policies. Situation analysis – is the process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses. 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. One desired outcome of analysing strategic factors is identifying a niche where organization can use its core competencies to take advantage of a particular market opportunity. A niche is a need in the marketplace that is currently unsatisfied. A re-examination of an organization’s current mission and objectives must be made before alternative strategies can be generated and evaluated. Even when formulating strategy, decision makers tend to concentrate on the alternatives, the action possibilities, rather than on a mission to be fulfilled and objectives to be achieved. Michael Porter proposes two “generic” competitive strategies for outperforming other corporations in a particular industry: lower cost and differentiation. Lower cost strategy – is the ability of a business unit to design, produce, and market a comparable product more efficiently that its competitors. Differentiation strategy – is the ability to provide unique and superior value to the buyer in terms of product quality, special features, or after- sale service. No one competitive strategy is guaranteed to achieve success, and some companies that have successfully implemented one of Porter’s competitive strategies have found that they could not sustain the strategy . Studies of decision making report that half the decisions made in organizations fail because of poor tactics.
Tactics – is a specific operating plan
detailing how a strategy is to be implemented in terms of when where it is to be put into action. 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 firs mover are that the company is able to establish a reputation as an industry leader, move down the learning curve to assume the cost leader position, and earn temporarily high profits from buyers who value the product or service very highly. A company or business unit can implement a competitive strategy either offensively or defensively.
Offensive tactic – usually takes place in
an established competitor’s market location.
Defensive tactics – usually takes place in
the firm’s own current market position as a defence against possible attack by a rival. Offensive tactics are the methods used to attack a competitor’s position:
Frontal Assault – the attacking firm goes head to head
with its competitor. It matches the competitor in every category from price to promotion to distribution channel. Franking Maneuver – rather than going straight for a competitor’s position of strength with a frontal assault, a firm may attack a part of the market where the competitors is weak. Bypass attack – rather than directly attacking the established competitors frontally or on its flanks, a company or business unit may choose to change the rules of the game. Encirclement – usually evolving out of a frontal assault or flanking maneuver, encirclement occurs as an attacking company or unit encircle the competitor’s position in terms of products or markets or both. Guerrilla warfare – instead of a continual and expensive resource-expensive attack on a competitor, a firm or business unit may choose to “hit and run”. Raise Structural Barriers – entry barriers act to block a challenger’s logical avenues of attack. Increase Expected Retaliation – this tactics is any action that increases the perceived threat of retaliation for an attack.
Lower the Inducement for Attack – the
third type of defensive tactic is to reduce a challenger’s expectations of future profits in the industry. Collusion – is the active cooperation of firms within an industry to reduce output and raise prices in order to get around the normal economic law of supply and demand.
Strategic Alliance - is a partnership of two or
more corporations or business units to achieve strategically significant objectives that are mutually beneficial. Competitive strategies and tactics are used to gain competitive advantage within an industry by battling against other firm.
The two type of cooperative are collusion and
strategic alliances. Mutual service consortium – is a partnership of similar companies in similar industries who pool their resources to gain a benefit that is too expensive to develop alone, such as access to advanced technology.
Joint venture – is a cooperative business activity,
formed by two or more separated organizations for strategic purpose, that creates an independent business entity and allocates ownership, operational responsibilities, and financial risk and rewards to each member, while preserving their separate identity/autonomy. Licensing arrangement – is an agreement in which the licensing firm grants rights to another firm in another country or market to produce and sell a product.
Value-Chain partnership – is a strong and
close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage.