Strategy and Strategic Management Exploring Management Chapter 7 Strategy and Strategic Management

Chapter 7 What types of strategies are used by organizations? How do managers formulate and implement strategies?

7.1 Types of organizational strategies Strategy is a comprehensive plan for achieving competitive advantage Organizations use corporate, business, and functional strategies Growth strategies focus on expansion Restructuring and divestiture focus on consolidation Keep in mind that a strategy is how to achieve the objective. Many people confuse the strategy with the objective.

7.1 CONTINUED Types of organizational strategies Global strategies focus on international business initiatives Cooperative strategies focus on alliances and partnerships E-business strategies focus on using the Internet for business success

TYPES OF STRATEGIES Competitive Advantage Strategy a comprehensive plan guiding resource allocation to achieve long-term organization goals. Strategic Intent focuses organizational energies on achieving a compelling goal. Competitive Advantage operating in successful ways that are difficult to duplicate. Information technology and the Internet make it easier to quickly duplicate a competitive advantage.

TYPES OF STRATEGIES Corporate Strategy Directions and guidelines for use of resources Business Strategy Identifies how a strategic business unit or division will compete in its product or service domain Functional Strategy Guides activities within one specific area of operations Strategies follow the same organizational structure as objectives

TYPES OF STRATEGIES Growth and Diversification Strategies Growth Strategy Expansion through current operations Concentration Expansion within an existing business area Diversification Expansion occurs by entering new business areas Vertical Integration Expansion by acquiring existing suppliers or distributors All of these are growth strategies. It’s a matter of how you plan to grow.

TYPES OF STRATEGIES Restructuring and Divestiture Retrenchment Changes operations to correct weaknesses Liquidation An extreme form of retrenchment wherein the business closes and sells off its assets Restructuring Reduces the scale or mix of operations Chapter 11 bankruptcy All of these strategies are decline or going-out-of-business strategies. The recession has required many once-strong companies to face radical restructuring in order to survive.

TYPES OF STRATEGIES Restructuring and Divestiture Downsizing Decreases the size of operations Divestiture Sells off part of the organization to focus on core businesses All of these strategies are decline or going out of business strategies. The recession has required many once-strong companies to face radical restructuring in order to survive.

TYPES OF STRATEGIES Global Strategies Globalization Strategy Adopts standardized products and advertising for use worldwide Multidomestic Strategy Customizes advertising and products to best fit local needs Transnational Strategy Seeks efficiencies of global operations with attention to local markets These are all strategies for participating in global markets. Again, it’s a matter of the best fit for your company, your market and your product. This is a good place to begin discussing the Dunkin Donuts case.

TYPES OF STRATEGIES Cooperative Strategies Strategic Alliances Partnership between organizations to pursue mutual interests or strengthen competitive advantage Supply Chain Supplier and Distribution alliances Co-opetition Competitors share information or technology A good example of strategic alliances and supply chain cooperation is how UPS has partnered with Nike and Toshiba to provide order fulfillment or product service.

TYPES OF STRATEGIES E-business E-business Strategies Focus on Using the Internet for Business Transactions B2B Business Strategies Use IT and Web portals to vertically link organizations with members of their supply chains. B2C Business Strategies Use IT and Web portals to vertically link organizations with members of their customers. E-business is fast becoming just “business”.

TYPES OF STRATEGIES E-business Social Media Strategy Use of Facebook, Twitter and others to engage customers Crowdsourcing Interactive social media strategy that becomes an interactive idea exchange with customers Ask students how they interact with their favorite companies online. Possibly take a look at the Facebook sites of products, services or even political candidates.

The strategic management process formulates and implements strategies. Strategy formulation begins with the organization’s mission and objectives. SWOT analysis identifies strengths, weaknesses, opportunities, and threats. Porter’s five forces model examines industry attractiveness. Strategic management considers the organization as an open system and how it interacts with the environment as it develops strategy.

7.2 continued Strategic Management Porter’s competitive strategies model examines business or product strategies. Portfolio planning examines strategies across multiple businesses or products. Strategic leadership activates organizations for strategy implementation.

STRATEGIC MANAGEMENT Strategic Management Process the process of formulating and implementing strategies. Strategy Formulation the process of creating strategies. Strategy Implementation the process of putting strategies into action. There are many processes for developing strategies. Key to which process is used and which strategy is chosen is the ability to implement the strategy.

STRATEGIC MANAGEMENT Strategic Management Process If your business is doing well, there may be no need to changing your strategy. Changing strategies can be very difficult and dangerous.

STRATEGIC MANAGEMENT Strategy Formulation Mission Statement The reason for the organizations existence in society Operating Objectives Specific results that organizations attempt to achieve A mission is at the very heart of the reason an organization exists. What is the mission statement of your college? Consider having the class develop a mission statement for your course or class.

STRATEGIC MANAGEMENT Strategy Formulation Common Operating Objectives of Organizations Profitability Market share High-quality workforce Cost efficiency Product and service quality Innovativeness Social responsibility Many of these objectives depend on whether your goal is growth, status quo or decline.

STRATEGIC MANAGEMENT SWOT Analysis SWOT analysis is a tool used in strategic planning to determine the current status of the organization. Internal assessment of the organizational strengths and weaknesses External assessment of environmental opportunities and threats SWOT analysis has been a much used model. However, with the environment changing more and more rapidly, it must be reassessed more often.

STRATEGIC MANAGEMENT SWOT Analysis

STRATEGIC MANAGEMENT SWOT Analysis Core Competency A special strength that gives an organization a competitive advantage Examples of core competencies include a dominant market share, high product recognition, proprietary technology or selling efficiency as this real estate broker illustrates with a bold SOLD sign.

STRATEGIC MANAGEMENT Porter’s Five Forces Porter’s five forces provide an opportunity to evaluate the attractiveness of an industry for investment.

STRATEGIC MANAGEMENT Porter’s Five Forces Unattractive industry intense rivalry, easy entry, substitute products, powerful suppliers and customers Attractive industry low rivalry, barriers to entry, few or no substitute products, weak supplier and customer power Unattractive industries may require an organization to sell off a division. An attractive industry may induce an organization to diversify into the industry. For example, Apple saw opportunities for growth in the wireless industry and responded with the popular iPhone.

STRATEGIC MANAGEMENT Porter’s Competitive Strategies Differentiation Strategy Offers products and services that are uniquely different from the competition. Focused Differentiation Strategy offers a unique product to a special market segment. Cost Leadership Strategy Seeks to operate at lower costs than competitors. Focused Cost Leadership Strategy uses cost leadership and target needs of a special market. Wal-Mart is the best example of a cost leadership position and they know how to leverage it. Apple is a great example of differentiation in personal computers and phones.

STRATEGIC MANAGEMENT Porter’s Competitive Strategies Wal-Mart gains its cost leadership position through a proprietary inventory and ordering system that allows the company to buy the right products at the right time from the right people.

STRATEGIC MANAGEMENT Portfolio Planning BCG Matrix Analyzes business opportunities according to growth rate and market share It is important to remember that even cash cows need to be fed. Under investing in the cows can be very dangerous.

STRATEGIC MANAGEMENT Strategic Leadership The capability to inspire people to successfully engage in a process of continuous change, performance enhancement, and implementation of organizational strategies. Strategic leadership can be learned. It helps if you are a visionary to begin with.

STRATEGIC MANAGEMENT Strategic Leadership Strategic Control Responsibility of management to stay on top of strategy, how it’s being implemented and if it needs to be adjusted to be more effective in accomplishing the mission. In times such as these, management cannot afford to be complacent. Competitive advantages can be lost overnight.