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C HAPTER 6 S TRATEGY F ORMULATION ; S ITUATION A NALYSIS & B USINESS S TRATEGY S TRATEGIC M ANAGEMENT AND B USINESS P OLICY 11 th Edition Thomas L. Wheelen.

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Presentation on theme: "C HAPTER 6 S TRATEGY F ORMULATION ; S ITUATION A NALYSIS & B USINESS S TRATEGY S TRATEGIC M ANAGEMENT AND B USINESS P OLICY 11 th Edition Thomas L. Wheelen."— Presentation transcript:

1 C HAPTER 6 S TRATEGY F ORMULATION ; S ITUATION A NALYSIS & B USINESS S TRATEGY S TRATEGIC M ANAGEMENT AND B USINESS P OLICY 11 th Edition Thomas L. Wheelen J. David Hunger

2 Situation Analysis & Business Strategy 2 Strategies in Action -- Quest for higher revenues -- Quest for higher profits Companies Embrace Strategic Planning

3 Situation Analysis & Business Strategy 3 Anatomy of Strategic Planning VisionMissionSWOTObjectivesStrategies Top-Down NEVER Bottom-Up Strategic Planning

4 Situation Analysis & Business Strategy 4 Results expected from pursuing certain strategies. Strategies represent actions to accomplish long-term objectives. Long-Term Objectives

5 Situation Analysis & Business Strategy 5 Long-Term Objectives SMART Objectives  Some is not a number  Soon is not a time  “May be” is not an answer

6 Situation Analysis & Business Strategy 6 Long-Term Objectives SMART Objectives  Specific  Measurable  Achievable  Relevant  Time-bound

7 Situation Analysis & Business Strategy 7 Long-Term Objectives Smarter Objectives  Quantifiable  Measurable  Realistic  Understandable  Challenging  Hierarchical  Obtainable  Congruent  Time-line

8 Situation Analysis & Business Strategy 8 Long-Term Objectives Objectives Necessary --  Corporate Level  Divisional Level  Functional Level

9 Situation Analysis & Business Strategy 9 Varying Performance Measures by Organizational Level Organizational Level Basis for Annual Bonus/Merit Pay Corporate 75% on long-term objectives 25% on annual objectives Division 50% on long-term objectives 50% on annual objectives Function 25% on long-term objectives 75% on annual objectives Long-Term Objectives

10 Situation Analysis & Business Strategy 10 Long-Term Objectives Strategic Objectives  Larger market share  Quicker on-time delivery than rivals  Quicker design-to-market times than rivals  Lower costs than rivals  Higher product quality than rivals  Wider geographic coverage than rivals

11 Situation Analysis & Business Strategy 11 STRENGTHS: is a resource advantage relative to competitors and the needs of the market a firm serves or expects to serve. SWOT Analysis WEAKNESSES: is a limitation or deficiency in one or more resources or competencies relative to competitors that obstructs a firms’ effective performance.

12 Situation Analysis & Business Strategy 12 OPPORTUNITIES: is a major favorable situation in a firms’ environment; breakthrough technology, improved supplier relationships, changes in regulatory circumstances, identification of a previously overlooked market segment. SWOT Analysis THREATS: is a major unfavorable situation in a firms’ environment; entrance of new competitors, slow market growth, increased bargaining power of key suppliers, technological changes, new regulations.

13 Situation Analysis & Business Strategy 13 Strategic Factors Analysis Summary (SFAS) Matrix Generated mainly to deal with the cons of SWOT analysis

14 Situation Analysis & Business Strategy 14 Generating Alternative Strategies Using TOWS Matrix Thus a TOWS Matrix is developed to generate further alternative strategies that might not be considered in a SWOT analysis SWOT considers only Opportunities and Strengths when thinking of alternative strategies

15 Situation Analysis & Business Strategy 15 Generating Alternative Strategies Using TOWS Matrix

16 Situation Analysis & Business Strategy 16 Generating Alternative Strategies through Business Strategies Business Strategy focuses on improving the competitive position of a company Business strategies could be either: Competitive Strategies Cooperative Strategies

17 Situation Analysis & Business Strategy 17 Porter’s Generic Competitive Strategies Cost Leadership Strategies Differentiation Strategies Focus Strategies Strategies that allows org. to gain competitive advantage

18 Situation Analysis & Business Strategy 18 Porter’s Generic Competitive Strategies Cost Leadership: Producing standardized products at a low per-unit cost for a broad range of consumers who are price-sensitive. Considered effective when: Low switching costs Buyers have high bargaining power Rivals introduce low prices to build a customer base No product differentiation

19 Situation Analysis & Business Strategy 19 Porter’s Generic Competitive Strategies Considered effective when:  There are many ways to differentiate the product.  Buyers needs & uses are diverse  Few rival firms are following a similar approach  Technological change is fast paced. Differentiation Producing P/S considered unique to consumers who are price-insensitive.

20 Situation Analysis & Business Strategy 20 Porter’s Generic Competitive Strategies Low-cost focus Offering P/S to a small range of consumers (niche group) at the lowest P available. Differentiation Focus (Best-value focus) Offering P/S to a small range of consumers at the best- price value; lowest P available compared to those of rivals’ given the quality attributes. Focus: Producing P/S that fulfill the needs of small groups of customers, e.g. mkt. penetration, mkt. development strategies. Essential when consumers have distinctive preferences that rivals cannot provide.

21 Situation Analysis & Business Strategy 21 Considered effective when:  Industry leaders do not consider the niche to be crucial.  The industry has many different niches, thus allowing focuser to pick a competitive attractive niche.  The target mkt. niche is large, profitable, & growing. Porter’s Generic Competitive Strategies

22 Situation Analysis & Business Strategy 22 Cooperative Strategies - Means for Achieving Strategies  Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.  Globalization is the major reason why firms use partnering to achieve strategies. Joint Venture/Partnering

23 Situation Analysis & Business Strategy 23 Cooperative Strategies - Means for Achieving Strategies Why Joint Ventures Fail -  Managers who must collaborate daily; not involved in developing the venture  Benefits the company not the customers  Not supported equally by both partners  May begin to compete with one of the partners Joint Venture/Partnering

24 Situation Analysis & Business Strategy 24 Considered an effective strategy when:  Synergies between private and publicly held  Domestic with foreign firm, local management can reduce risk  Complementary distinctive competencies  Resources & risks where project is highly profitable (e.g. Alaska Pipeline)  Two or more smaller firms competing w/larger firm  Need to introduce new technology quickly Cooperative Strategies - Means for Achieving Strategies Joint Venture/Partnering

25 Situation Analysis & Business Strategy 25 Cooperative Strategies - Means for Achieving Strategies Reasons for M&A:  Provide improved capacity utilization  Better use of existing sales force  Reduce managerial staff  Gain economies of scale  Smooth out seasonal trends in sales  Gain new technology  Access to new suppliers, distributors, customers, products, creditors Mergers & Acquisitions

26 Situation Analysis & Business Strategy 26 Recent Mergers Acquiring FirmAcquired Firm IBMRational Software Corp YahooInktomi Corp U.S. SteelNational Steel Corp PfizerPharmacia Krispy Kreme DoughnutsMontana Mills OraclePeople Soft PalmHandspring NikeConverse

27 Situation Analysis & Business Strategy 27 First Mover Advantages Potential Advantages  Securing access to rare resources  Gaining new knowledge of key factors & issues  Carving out market share  Easy to defend position & costly for rival firms to overtake Cooperative Strategies - Means for Achieving Strategies The benefits a firm may achieve by entering a new market or developing a new product/service prior to rival firms.

28 Situation Analysis & Business Strategy 28 First Mover Advantages Considered effective when: Build a firm’s image with buyers. Produce cost advantages (new tech., distribution channels, etc.) Create strong loyal customers Cooperative Strategies - Means for Achieving Strategies

29 Situation Analysis & Business Strategy 29 Outsourcing Business-process outsourcing (BPO) Cooperative Strategies - Means for Achieving Strategies Why Outsourcing?  Less expensive  Allows firm to focus on core business  Enables firm to provide better services Companies taking over the functional operations of other firms, e.g. HR, customer service.


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