Outline 1. Level of Organization Strategy 2. Identifying Current Corporate Strategy 3. Corporate Strategy Analysis -Techniques for the Analysis of Strategy -The BCG Growth-Share Matrix -The GE Business Portfolio Matrix 4. Business Strategy Analysis -Generic Business Strategies -Strategies for Dominant Firms -Strategies for Low Market-Share Firms -Strategies for Firms in Stagnant Industries --Product Life Cycle 5. Functional Strategy Analysis 6. Choosing an Organization Strategy -Internal Consideration -External Consideration 7. Closing
Review of Previous Presentations A Model of the Strategic Management Assesment of SWOT (Ch. 2) Formulation of Organization Mission (Ch. 3) Formulation of Organization Philosophy and Policies (Ch. 3) Determination of Strategic Objectives (Ch. 3) Determination of Organization Strategy (Ch. 3 & 4) Determination of Organization Strategy (Ch. 3 & 4) Implementation of Organization Strategy (Ch. 5) Control of Organization Strategy (Ch. 5) Feedback, Feedforward, and Recycle
OUTLINE 1: Level of Organization Strategy
Levels of Organization Strategy Four levels in Organization Strategy: Societal Strategy Corporate Strategy Business Strategy Functional Strategies
What is Societal Strategy? Societal Strategy is concerned with the relationships between an organization and its external environment, as well as the board issues of corporate citizenship, social responsibility and accountability, and business ethics. It is formulated by the board of direction.
What is Corporate Strategy? Corporate Strategy is TOP MANAGEMENT’S grand design for managing the whole organization. The aim of corporate strategy is to manage the company’s current and future portfolio of businesses to effect the fulfillment of the company’s strategic objectives.
What is Business Strategy? The Focus of Business Strategy is on “how to compete in a particular industry or product/market segment”. Business Strategy is to provide the firm with the competitive approach that enables it to achieve its business objectives.
What is Functional Strategy? Functional Strategy is concerned with the development of strategies in each the functional areas within a business, for example: production, marketing, finance, and research and development
Hierarchial Strategy Interrelationship Societal Objective Societal Strategy Corporate Objective Corporate Strategy Business Objective Business Strategy Functional Objective Functional Strategy
OUTLINE 2: Identifying Current Corporate Strategy
Identifying Current Corporate Strategy It is important to identify the current corporate strategy of single or multi business enterprise. It is involved the evaluation of the current business and making decision about which business deserves greater or fewer resources in the future.
The Spokes of Corporate Strategy Current Corporate Strategy Organization’s attitude towards risk obtained from liquidity and debt ratios Role assigned to each business in the total business portfolio: growth, stability, retrenchment Types of strategic advantages (if any) in various business Business acquired and why Business divested or liquidated and why Nature of diversification: concentric. conglomerate Strategic objectives of the organization: growth, profitability, financial Degree of diversification Number of different business in the portfolio Products and targeted market segments of each business Relative sizes of different business Profitability prospect of each business Market share each business Growth rate of each business Vertical/horizontal integration consummated Criteria used for allocating investment funds to various business
OUTLINE 3: Corporate Strategy Analysis Techniques for the Analysis of Strategy The BCG Growth-Share Matrix The GE Business Portfolio Matrix
Corporate Strategy Analysis An effective corporate strategy gives the firm balanced portfolio of business that enables it to achieve its strategic objectives, especially those in the areas of profitability, growth, and financial performance. Corporate strategy must decide where to allocate the organization’s resources among the existing business in its portfolio or to enter new business. Corporate Strategy Analysis are meant to help the corporate strategist obtain such business portfolio
Techniques for the Analysis of Corporate Strategy Portfolio analysis is the predominant approach of corporate strategy analysis in diversified firms. -The Boston Consulting Group (BCG) Growth-Share Matrix -The General Electric (GE) Business Portfolio Matrix
The Boston Consulting Group (BCG) Growth-Share Matrix In 1968, BCG created the BCG "Growth- Share Matrix", a simple chart to assist the company in determining how to allocate cash among their business units. BCG matrix is a set of strategies to provide guidance on resource allocation decisions based on market share and growth.
The BCG Growth-Share Matrix STARSQUESTION MARK DOGSCASH COWS High 10% Low Busines Growth rate (percent) HighLow1,0 Relative Market Share
The BCG Growth-Share Matrix STARS A “STARS” is a business that is growing rapidly and has high market-share. When the growth rate of business slows, as it does in al business, the stars drop into “COW CASH” category. And also, it may slip into “DOG” category STARS QUESTION MARK DOGSCASH COWS High 10% Low Busines Growth rate (percent) HighLow1,0 Relative Market Share
The BCG Growth-Share Matrix CASH COW A “CASH COW” business has high market-share position, but it is in low- growth business. STARSQUESTION MARK DOGSCASH COWS High 10% Low Busines Growth rate (percent) HighLow1,0 Relative Market Share
The BCG Growth-Share Matrix QUESTION MARK A “QUESTION MARK” businesses are high-growth businesses, but with a low market-share. Their low share often means low profits and weak cash flows from operation. STARS QUESTION MARK DOGSCASH COWS High 10% Low Busines Growth rate (percent) HighLow1,0 Relative Market Share
The BCG Growth-Share Matrix DOGS A “DOG” business have low growth rate and low market- share. Their poor competitive position puts them in a poor profitability situation. STARSQUESTION MARK DOGS CASH COWS High 10% Low Busines Growth rate (percent) HighLow1,0 Relative Market Share
The Basic Postulate of the BCG Growth-Share Matrix BCG recommends that a company’s business portfolio should be balanced, that is, there should be enough cash cow business to support the star. Furthermore, there should be an ample of number of stars because they will eventually turn into cash cow.
Limitations of the BCG Matrix -The High-low classification system does not give enough attention to businesses in an intermediate position, in other words, not all business fall neatly within one cell -The two factor comparisons do not give explicit considerations to other important strategic factor, such as strategic fit across product, competitive advantage, and the like. -Growth rate and market-share factor are not always good indicator of cash flow, profitability, and business attractiveness. -The matrix is not helpful in comparing relative opportunities across business, for example, is a star always better than cash cow?
The GE Business Portfolio Matrix The GE business portfolio matrix consist of nine cells with long-term product/market attractiveness on one axis and business strength /competitive position on the other axis
The GE Business Portfolio position Green = invest and grow Yellow = selective investment Red = harvest /divest Orange = situational investment
INVEST and GROW A business that fall within the boundaries of those cells that call for an invest and grow strategy is expected to grow and have considerable profit potential
SELECTIVE INVESTMENT A business is that qualifies for a selective investment strategy receives investments in order to maximize the returns nits exiting assets, resources, and skill
HARVEST or DIVEST A business that falls in this group is a loser.it should be harvested by selling idle equipment lightening up spending,cutting cost, aggressively reducing working capital, and investing proceeds in more promising areas.
Situational investment The level of investment in a business that falls in this category is based on the judgment and experience of the manager who make this decision.
OUTLINE 4: Business Strategy Analysis
As stated earlier,the focus of business strategy is how the firm should compete in a particular industry or product/market segment to obtain a strategic advantage over the competition. porter has identified three generic strategy approach to obtain a competitive advantage designed to outperform competitors.
Generic Business Strategies
Overall cost leadership A low cost position yields above average returns in the industry in spite competition. Strategy to obtain cost leadership involves construction of efficient scale facilities.
Differentiation This strategy focuses on creating a product or service perceived by the customer as unique. The idea is to attract the customer and increase sales volume.differentiation can make many forms
Focus This strategy involves focusing the firms attention on particular buyer group, segment of the product line, or graphic area.
Several authors have recommended specific business strategies for firm in specific situation 1. Strategies for dominant firms. 2. Strategies for low market share firms. 3. Strategies for firms in stagnant industries. 4. Stratgies contingent on competitive strenght and product life cycle stage.
Strategies for dominant firms. A firm with dominant position in the industry is concerned mainly about maintaining or improving its position in the industry Philip Kotler suggest the following for dominant firms: Be on the offensive Fortify against enemy Confrontation
Strategies for Low Market Share Firms Companies with low market-share position are most concerned aboout improving their competitive position and market standing. Segment Markets Efficient use of R&D Think Small The Vacant Niche “Our is better than their” Distinctive image Channel innovation
Strategies for Firms in Stagnant Industry Hamermesh and Silk suggest that successful firms in stagnant industries do the following: Identify,create, and exploit the growth segment in the industry Emphasize Systematically and constantly improve efficiency of production and distribution system
Situational Business Strategies Dominant Positition Be on the offensive fortify againts the enemy confrontation Low Market value position Segment markets efficient use of R&D think small fill the vacant niche "Ours is Better than theirs" channel Innovation Stagnant Industry Lowest delivered cost position Product/ service quality differentation Identity and exploit growth segments Emphasize product quality and innovation constantly improve production and distribution efficiency
Strategy Contingencies: Competitive strenght and product life cycle stage Patel and Younger have developed a contingency model that proposes strategies contingent on the position of the business or product in its life cycle and the competitive position of the firm.
Strategy, Product Life Cycle, and Competitive position
OUTLINE 5: Functional Strategy
Functional Strategy Analysis Analysis of fuctional strategy focuses on the evaluation and selection of strategies in areas such as Finance, Production, R&D, marketing, personnel, industrial, and labor relations,goverment affairs, and public relations.
OUTLINE 6: Choosing an Organization Strategy
Choosing An Organization Strategy There were several questions about consideration performed in selecting strategies in this functional level be it internal or external considerations consideration. The question is one of the clues to choose the right strategy for implementation. When these questions give a negative response does not mean that the company chose the wrong strategy to be implemented, there may be no strategy that can be found for each of these questions. Internal considerations reflect the strengths and weaknesses of the company, while the external considerations reflect the opportunities and threats that are likely to be obtained by the company.
Internal Consideration Does the Strategy effectively utilize the financial, human, and physical resources of the company? Is the strategy consistent with the strategic objectives? Is the strategy consistent with the personel value of the managers and employess of the company? Is there a direct relationship between the market expectation resulting from the strategy and the internal capabilities of the company? Does the strategy provide sufficient flexibility to change or alter it if it proves inappropriate? Is the company capable of the planning and development required from the strategy, for example, is the strategy consitent with managerial abilities?
External Consideration Does the strategy lead to a market niche or niches now by unfilled by others? Does the strategy improve competitive conditions for current market or product lines? Is the minimum attainable market sufficient to produce the minimum return of investment? Does the Strategy utilize or take advantage of existing market and product strenght? Does the strategy include product and market outside the current sphere of product and markets so that the risk of threats is spread? Does the strategy fit within the legal and political framework so that the success of the strategy will not raise legal or political questions? Will the strategy be perceived by society as a responsible and ethical ones?
OUTLINE 7: Closing
Summary The focus of this chapter is on corporate and business strategy. Corporate strategy is top management’s grand design for the total organization. There are three generic business strategies: overall cost leadership,differentation, and focus. The key to getting a strategic advantage in the market is to adapt the generic business strategies to the situations of the industry and the firm’s position.