Strategy Formulation & Business Strategy PDF

Strategy Formulation Business Strategy Wheelen, T.L. and Hunger, J.D. (2015). Strategic Management and Business Policy. 14th Edition, Pearson Education Inc., New York. Basmah Alzamil ...

Strategy Formulation Business Strategy Wheelen, T.L. and Hunger, J.D. (2015). Strategic Management and Business Policy. 14th Edition, Pearson Education Inc., New York. Basmah Alzamil  Learning Objectives Organize environmental and organizational information using a SWOT approach and the SFAS matrix Understand the competitive and cooperative strategies available to corporations List the competitive tactics that would accompany competitive strategies Identify the basic types of strategic alliances Situational Analysis: SWOT Approach  Situational Analysis: SWOT Approach Strategy Formulation: Developing a corporation’s mission, objectives, strategies, and policies. Situation analysis: Finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses. “A SWOT approach 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”.  Situational Analysis: SWOT Approach SA = O/(S−W) (Strategic Alternative equals Opportunity divided by Strengths minus Weaknesses). This reflects an important issue strategic managers face: Should we invest more in our strengths to make them even stronger (a distinctive competence) or should we invest in our weaknesses to at least make them competitive?  Situational Analysis: SWOT Approach Generating a Strategic Factors Analysis Summary (SFAS= Strategic Factors Analysis Summary) Matrix Finding a Propitious Niche Situational Analysis: SWOT Approach  Situational Analysis: SWOT Approach Finding a Propitious Niche A niche is a need in the marketplace that is currently unsatisfied. The goal is to find a propitious niche—an extremely favorable niche—that is so well suited to the firm’s internal and external environment that other corporations are not likely to challenge or dislodge it. Strategic Sweet Spot A firm’s management must be always looking for a strategic window—that is, a unique market opportunity that is available only for a particular time. The first firm through a strategic window can occupy a propitious niche and discourage competition (if the firm has the required internal strengths). 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. Example of too broad mission: Yahoo in the Early 2000s Mission Statement :"We are the world’s premier global media company." Problem: This mission was too vague, as it did not clarify Yahoo's primary focus (e.g., search engines, email, advertising, or content). Consequence: Yahoo struggled to define its core competencies and lost its edge to focused competitors like Google in search and Facebook in social media. Objectives and strategies might be in conflict with each other Example: Objective: Increase market share by 20% within one year. Strategy: Offer steep discounts to attract new customers. A company’s objectives can also be inappropriately stated. They can either focus too much on short-term operational goals or be so general that they provide little real guidance. Objectives should be constantly reviewed to ensure their usefulness. Example: This is what happened at Boeing when management decided to change its primary objective from “being the largest in the industry” to “being the most profitable”. This had a significant effect on its strategies and policies. Following its new objective, the company cancelled its policy of competing with Airbus on price and abandoned its commitment to maintaining a manufacturing capacity that could produce more than half a peak year’s demand for airplanes.  Business Strategies = improving the competitive position Competitive Strategies Cooperative Strategies  Business Strategies Porter’s Competitive Strategies 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: 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.  Business Strategies Porter’s Competitive Strategies Cost Leadership 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. Example: McDonald’s (fast-food restaurants), Dell (computers), Southwest Airlines.  Business Strategies Porter’s Competitive Strategies Differentiation This specialty can be associated with design or brand im- age, technology, features, a dealer network, or customer service. Buyer loyalty also serves as an entry barrier; new firms must develop their own distinctive com- petence to differentiate their products in some way in order to compete successfully. Examples: Walt Disney Productions (entertainment), BMW (automobiles), Nike (athletic shoes), Apple Computer (computers and cell phones).  Business Strategies Porter’s Competitive Strategies Cost Focus In using cost focus, the company or business unit seeks a cost advantage in its target segment. Differentiation Focus In using differentiation focus, a company or business unit seeks differentiation in a targeted market segment.  Business Strategies Risks in Competitive Strategies No one competitive strategy is guaranteed to achieve success some companies that have successfully implemented one of Porter’s competitive strategies have found that they could not sustain the strategy Issues in Competitive Strategies Porter argues that to be successful, a company or business unit must achieve one of the generic competitive strategies. Otherwise, the company or business unit is stuck in the middle of the competitive marketplace with no competitive advantage. Although some studies do support Porter’s argument that companies tend to sort themselves into either lower cost or differentiation strategies and that successful companies emphasize only one strategy, other research suggests that some combination of the two competitive strategies may also be successful.  Business Strategies Industry Structure and Competitive Strategy (Fragmented, consolidated industry, strategic rollup)  Business Strategies Hypercompetition and Competitive Advantage Sustainability Firms initially compete on cost and quality, until an abundance of high-quality, low-priced goods result. In a second stage of competition, the competitors move into untapped markets. Firms then raise entry barriers to limit competitors. “ As industries become hypercompetitive, there is no such thing as a sustainable competitive advantage”  Business Strategies 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. Offensive Tactic: 1. 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. 2. Flanking maneuver: a firm may attack a part of the market where the competitor is weak. 3. Bypass attack: by offering a new type of product that makes the competitor’s product unnecessary. 4. Encirclement: it occurs as an attacking company or unit encircles the competitor’s position in terms of products or markets or both. The encircler has greater product variety (e.g., a complete product line, ranging from low to high price) and/or serves more markets. 5. Guerrilla warfare: a firm or business unit may choose to “hit and run.” Guerrilla warfare is characterized by the use of small, intermittent assaults on different market segments held by the competitor.  Business Strategies Defensive Tactics: 1. Raise structural barriers. Entry barriers act to block a challenger’s logical avenues of attack. 2. Increase expected retaliation: This tactic is any action that increases the perceived threat of retaliation for an attack. 3. Lower the inducement for attack: A third type of defensive tactic is to reduce a challenger’s expectations of future profits in the industry.  Business Strategies Cooperative Strategies Strategic alliances Collusion 1. To obtain or learn new capabilities (1) there are a small number of identifiable 2. To obtain access to specific markets competitors, 3. To reduce financial risk (2) costs are similar among firms, (3) one firm tends to act as the price leader, 4. To reduce political risk (4) there is a common industry culture that accepts cooperation, (5) sales are characterized by a high frequency of small orders, (6) large inventories and order backlogs are normal ways of dealing with fluctuations in demand, and (7) there are high entry barriers to keep out new competitors.