Strategy Formulation and Implementation Chapter 8 Strategy Formulation and Implementation 1

Thinking Strategically To help managers answer questions such as: Where is the organization now? Where does the organization want to be? What changes are among competitors? What courses of action will help us achieve our goals? Answers define an overall direction for the organization's grand strategy. 2

Grand Strategy General plan of action to achieve long-term objectives 1. Growth 2. Stability 3. Retrenchment. 3

Growth Can be promoted internally by investing in expansion or externally by acquiring additional business divisions. 4

Stability Remain same size or grow steadily and in a controlled fashion. 5

Retrenchment Forced decline by either shrinking current business units or selling off or liquidating entire businesses. 6

Global Strategy Globalization: product design and advertising strategies are standardized around the world Multidomestic: adapt product and promotion for each country Transnational: combine global coordination with flexibility to meet specific needs in various countries. 7

Purpose of Strategy CORE COMPETENCE: something the organization does especially well in comparison to its competitors Superior research and development Mastery of a technology Superior customer service. 8

Purpose of Strategy SYNERGY: when organizational parts interact to produce a joint effect that is greater than the sum of its parts acting alone. 9

Purpose of Strategy Value Creation = use core competence and synergy to provide increased benefits received with lower costs paid. 10

Levels of Strategy Corporate Business Functional. 11

Corporate-Level Strategy ("What business are we in?") Acquisition of new businesses Additions or divestment of business units, plants, or product lines Joint ventures with other companies in new areas. 12

Business-Level Strategy ("How do we compete?") Advertising Direction and extent of R&D Product changes New product development Equipment and facilities Expansion or contraction of product lines. 13

Function-Level Strategy ("How do we support business-level strategy?") Production Distribution Finance. 14

Strategy Formulation Development of the firm's goals and a specific strategic plan Assessing the external environment and the internal problems Integrating the results into goals and strategy. 15

Strategy Implementation The accomplishment of the strategic plan. 16

The Strategic Management Process 17

Identify Strategic Factors: Opportunities Threats Identify Strategic Scan External Environment Evaluate Current: Mission Goals Strategies Identify Strategic Factors: Strengths Weaknesses Scan Internal Environment 18

Situation Analysis: SWOT Strengths (Internal) Weaknesses (Internal) Opportunities (External) Threats (External) 19

Identify Strategic Factors: Opportunities Threats Formulate Strategy: Scan External Environment Formulate Strategy: Corporate Evaluate Current: Mission Goals Strategies Define New: Mission Goals Identify Strategic Factors: Strengths Weaknesses Scan Internal Environment 20

Formulating Corporate-Level Strategy 21

Portfolio Strategy The organizational mix of SBUs and product lines to provide synergy and a competitive advantage. 22

The BCG matrix evaluates SBUs along two dimensions: Business growth rate how rapidly the entire industry is growing Market share defines if an SBU has a larger or smaller market share than competitors Provides four categories to judge SBUs. 23

Star Problem Child Cash Cow Dog Market Share High Low Star Problem Child High Business Growth Rate Cash Cow Dog Low 24

Identify Strategic Factors: Opportunities Threats Formulate Strategy: Scan External Environment Formulate Strategy: Corporate Business Evaluate Current: Mission Goals Strategies Define New: Mission Goals Identify Strategic Factors: Strengths Weaknesses Scan Internal Environment 25

Formulating Business-Level Strategy Porter's Competitive Forces 26

Potential New Entrants Threat of new entrants 27

Potential New Entrants Buyers Threat of new entrants Buyers Bargaining power of buyers 28

Potential New Entrants Buyers Suppliers Threat of new entrants Buyers Bargaining power of buyers Bargaining power of suppliers Suppliers 29

Threat of substitute products Bargaining power of buyers Potential New Entrants Threat of new entrants Substitute Products from Other Industries Buyers Threat of substitute products Bargaining power of buyers Bargaining power of suppliers Suppliers 30

Threat of substitute products Bargaining power of buyers Potential New Entrants Threat of new entrants The Firm’s Rivalry versus Industry Competition Substitute Products from Other Industries Buyers Threat of substitute products Bargaining power of buyers Bargaining power of suppliers Suppliers 31

Porter's Competitive Strategies Differentiation Cost Leadership Focus. 32

Product Life Cycle 1. Introduction 2. Growth 3. Maturity 4. Decline. 33

Identify Strategic Factors: Opportunities Threats Formulate Strategy: Scan External Environment Formulate Strategy: Corporate Business Functional Evaluate Current: Mission Goals Strategies Define New: Mission Goals Identify Strategic Factors: Strengths Weaknesses Scan Internal Environment 34

Formulating Functional-Level Strategy Action plans adopted by major departments to support the business-level strategy to achieve the organization's strategic goals. 35

Putting Strategy Into Action 36

Identify Strategic Factors: Opportunities Threats Implement Scan External Environment Implement Strategy via Changes in: Leadership Culture Formulate Strategy: Corporate Business Functional Evaluate Current: Mission Goals Strategies Define New: Mission Goals Identify Strategic Factors: Strengths Weaknesses Scan Internal Environment 37

Leadership The ability to influence employees to support strategy implementation. 38

Structural Design Managers' responsibilities and authority Consolidation of facilities, departments, and divisions Task design Production technology. 39

Identify Strategic Factors: Opportunities Threats Implement Scan External Environment Implement Strategy via Changes in: Leadership Culture Human Resources Formulate Strategy: Corporate Business Functional Evaluate Current: Mission Goals Strategies Define New: Mission Goals Identify Strategic Factors: Strengths Weaknesses Scan Internal Environment 40

Human Resources Recruitment Selection Training Transfers Promotions Layoff or separation. 41

Identify Strategic Factors: Opportunities Threats Implement Scan External Environment Implement Strategy via Changes in: Leadership Culture Human Resources Information and Control Systems Formulate Strategy: Corporate Business Functional Evaluate Current: Mission Goals Strategies Define New: Mission Goals Identify Strategic Factors: Strengths Weaknesses Scan Internal Environment 42

Information and Control Systems Reward systems Pay incentives Budgets Information systems Rules, policies, and procedures. 43

Identify Strategic Factors: Opportunities Threats Implement Scan External Environment Implement Strategy via Changes in: Leadership Culture Human Resources Information and Control Systems Formulate Strategy: Corporate Business Functional Evaluate Current: Mission Goals Strategies Define New: Mission Goals Identify Strategic Factors: Strengths Weaknesses Scan Internal Environment 44

Implementing Global Strategies Flexibility and communication are mandatory skills in the international arena Structural design must merge with foreign cultures and link operations Information and control systems must fit the needs and incentives within local cultures 45

Implementing Global Strategies Human resource management face problems not confronted in North America such as: Labor laws Guaranteed jobs Cultural traditions of keeping unproductive on the job. 46