Strategy Formulation and Implementation

Chapter 8
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Strategic Planning
l Strategic

planning has taken on new

importance in todays world of globalization, deregulation, advancing technology, and changing demographics, and lifestyles
Managers Challenge: Nintendo

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Strategy Formulation and Implementation

l Strategic

Topics: Chapter 8

Management

Definition Components Model of Strategic Management Process Models of Strategy Formation

l Managerial

Tools to Implement Strategic

Plans
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Thinking Strategically
Answers to the following define an overall direction for the organization's grand strategy F Where is the organization now? F Where does the organization want to be? F What changes are among competitors? F What courses of action will help us achieve our goals?
l

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Strategic Management
l Set

of decisions and actions used to implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals = top managers & chief executive

l l Responsibility

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Strategic Management

Managers ask such questions as...

What changes and trends are occurring? Who are our customers? What products or services should we offer? How can we offer these products or services most efficiently?

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Grand Strategy
General plan of major action to achieve long-term goals l Falls into three general categories 1. Growth A separate grand strategy can be 2. Stability defined for global 3. Retrenchment operations
l
Ethical Dilemma: A Great Deal for Whom?

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Grand Strategy: Growth

l Growth

can be promoted internally by investing in expansion or externally by acquiring additional business divisions
- Internal growth = can include development of new or changed products - External growth = typically involves diversification businesses related to current product lines or into new areas

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Grand Strategy: Stability

l Stability,

sometimes called a pause strategy, means that the organization wants

to remain the same size or to grow slowly and in a controlled fashion

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Grand Strategy: Retrenchment

l

Retrenchment = the organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses Liquidation = selling off a business nit for the cash value of the assets, thus terminating its existence Divestiture = involves selling off of businesses that no longer seem central to the corporation

l l l

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Global Corporate Strategies

High
Treats world as a single global market Standardizes global products/advertising strategies

Globalization Strategy

Need for Global Integration

Seeks to balance global efficiencies and local responsiveness Combines standardization and customization for product/advertising strategies

Transnational Strategy

Export Strategy
Domestically focused Exports a few domestically produced products to selected countries

Multi-domestic Strategy Handles markets independently for each country Adapts product/advertising to local tastes and needs

Low

Low Need for National Responsiveness

High

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Global Strategy
l Globalization

= product design and advertising strategies are standardized around the world l Multi-domestic = adapt product and promotion for each country l Transnational = combine global coordination with flexibility to meet specific needs in various countries
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Purpose of Strategy
The plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization attain its goals Strategies focus on: Core competencies Developing synergy Creating value for customers
l
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Three Levels of Strategy in Organizations

Corporate-Level Strategy: What business are we in? Business-Level Strategy: How do we compete?
Textiles Unit Chemicals Unit

Corporation

Auto Parts Unit

Functional-Level Strategy: How do we support the business-level strategy?

Finance R&D Manufacturing Marketing

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Strategic Management Process

Scan External Environment National, Global Evaluate Current Mission, Goals, Strategies Scan Internal Environment Core Competence, Synergy, Value Creation Identify Strategic Factors Opportunities, Threats Formulate Strategy Corporate, Business, Functional

SWOT

Define new Mission Goals, Grand Strategy

Identify Strategic Factors Strengths, Weaknesses

Implement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systems

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Strategy Formulation vs. Implementation

l

Strategy Formulation = stage of strategic management that involves planning and decision making that lead to the establishment of the organizations goals and of a specific strategic plan Strategy Implementation = stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes
Experiential Exercise: Developing Strategy for a Small Business

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Checklist for Analyzing Organizational Strengths and Weaknesses

Management and Organization Management quality Staff quality Degree of centralization Organization charts Planning, information, control systems Finance Profit margin Debt-equity ratio Inventory ratio Return on investment Credit rating Marketing Distribution channels Market share Advertising efficiency Customer satisfaction Product quality Service reputation Sales force turnover Production Plant location Machinery obsolescence Purchasing system Quality control Productivity/efficiency Human Resources Employee experience, education Union status Turnover, absenteeism Work satisfaction Grievances Research and Development Basic applied research Laboratory capabilities Research programs New-product innovations Technology innovations

Sources: Based on Howard H. Stevenson, Defining Corporate Strengths and Weaknesses, Sloan Management Review 17 (spring 1976), 51-68; and M.L.Kastens, Long-Range Planning for Your Business (New York: American Management Association, 1976). Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.
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Portfolio Strategy
BCG Matrix
l Mix

of business units and product lines that fit together in a logical way to provide synergy and competitive advantage

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Five Forces Affecting Industry Competition

Internet reduces barriers to entry

Potential New Entrants

Internet blurs differences among competitors in an industry

Threat of Substitute Products

Internet expands market size, but creates new substitution threats

Rivalry among Competitors

Bargaining Power of Buyers

Internet shifts greater power to end consumers

Internet tends to increase the bargaining power of suppliers

Bargaining Power of Suppliers

Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980). Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.
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Competitive Edge Through

Competitive Strategies
l Differentiation

= attempt to distinguish products or services from that of competitors l Cost leadership= aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors l Focus = concentrates on a specific regional market or buyer group

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Continuum of Partnership Strategies

Organizational Combination
Mergers Acquisitions

Degree of Collaboration

Strategic Alliances

Joint Ventures

Strategic Business Partnering

Preferred Supplier Arrangements Low

Degree of Collaboration

High

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Implementing Strategy Tools

l Leadership l Structural

design l Information and control systems l Human resources

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Environment Organization

Tools for Putting Strategy into Action

Strategy

Leadership Persuasion Motivation Culture/values Structural Design Human Resources Organization Chart Teams Recruitment/selection Centralization Transfers/promotions nDecentralization, Training nFacilities, task design Layoffs/recalls Information and Control Systems

Performance

Source: Used with permission. Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.
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Pay, reward system Budget allocations Information systems Adapted from Jay R. Galbraith and Robert K. Kazanjian, Rules/procedures strategy Implementation: Structure, Systems and Process, 2d ed. (St. Paul, Minn.: West, 1986), 115,