CHAPTER 6 Strategy Formulation: Situation Analysis & Business Strategy STRATEGIC MANAGEMENT & BUSINESS POLICY 12TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER Prentice Hall 2006

Strategy formulation -- Situational Analysis Strategy formulation -- Strategic planning or long-range planning Develops mission, objectives, strategies, policies --process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses Prentice Hall 2006

IFAS – Maytag as Example Prentice Hall, Inc. © 2008 Prentice Hall 2006

EFAS – Maytag as Example Prentice Hall, Inc. © 2008 Prentice Hall 2006

SFAS Matrix Prentice Hall, Inc. © 2008 Prentice Hall 2006

Niche -- Corporate Goal -- Situational Analysis Niche -- Need in the marketplace that is currently unsatisfied Corporate Goal -- Find propitious niche Strategic window Prentice Hall, Inc. © 2008 Prentice Hall 2006

SWOT -- Internal External Strengths/Weaknesses Opportunities/Threats Situational Analysis SWOT -- Internal Strengths/Weaknesses External Opportunities/Threats Prentice Hall, Inc. © 2008 Prentice Hall 2006

TOWS Matrix Prentice Hall, Inc. © 2008 Prentice Hall 2006

Business Strategy Focuses on improving competitive position of company’s products or services within the specific industry or market segment Prentice Hall, Inc. © 2008 Prentice Hall 2006

Competitive Strategy -- Porter’s Competitive Strategies Competitive Strategy -- Low cost Differentiation Direct competition Focus on niche Prentice Hall, Inc. © 2008 Prentice Hall 2006

Generic Competitive Strategies -- Porter’s Competitive Strategies Generic Competitive Strategies -- Lower Cost strategy Greater efficiencies than competitors Differentiation strategy Unique/superior value, quality, features, service Prentice Hall, Inc. © 2008 Prentice Hall 2006

Competitive Advantage -- Porter’s Competitive Strategies Determined by Competitive Scope Breadth of the target market` Competitive Advantage -- Prentice Hall, Inc. © 2008 Prentice Hall 2006

Cost Leadership -- Low-cost competitive strategy Broad mass market Porter’s Competitive Strategies Cost Leadership -- Low-cost competitive strategy Broad mass market Efficient-scale facilities Cost reductions Cost minimization Prentice Hall, Inc. © 2008 Prentice Hall 2006

Differentiation – Broad mass market Unique product/service Porter’s Competitive Strategies Differentiation – Broad mass market Unique product/service Premiums charged Less price sensitivity Prentice Hall, Inc. © 2008 Prentice Hall 2006

Cost-Focus – Low-cost competitive strategy Focus on market segment Porter’s Competitive Strategies Cost-Focus – Low-cost competitive strategy Focus on market segment Niche focused Cost advantage in market segment Prentice Hall, Inc. © 2008 Prentice Hall 2006

Differentiation Focus – Porter’s Competitive Strategies Differentiation Focus – Specific group or geographic market focus Differentiation in target market Special needs of narrow target market Prentice Hall, Inc. © 2008 Prentice Hall 2006

Stuck in the middle – No competitive advantage Porter’s Competitive Strategies Stuck in the middle – No competitive advantage Below-average performance Prentice Hall, Inc. © 2008 Prentice Hall 2006

Risks of Generic Strategies Risks of Cost Leadership Cost leadership is not sustained: • Competitors imitate. • Technology changes. • Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: • Competitors imitate. • Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: • Structure erodes. • Demand disappears. Broadly targeted competitors overwhelm the segment: • The segment’s differences from other segments narrow. • The advantages of a broad line increase. New focusers subsegment the industry. Risks of Cost Leadership Cost leadership is not sustained: • Competitors imitate. • Technology changes. • Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: • Competitors imitate. • Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: • Structure erodes. • Demand disappears. Broadly targeted competitors overwhelm the segment: • The segment’s differences from other segments narrow. • The advantages of a broad line increase. New focusers subsegment the industry. Prentice Hall, Inc. © 2008 Prentice Hall 2006

8 Dimensions of Quality Prentice Hall, Inc. © 2008 Prentice Hall 2006

Industry Structure -- Fragmented Industry Consolidated Industry Competitive Strategy Industry Structure -- Fragmented Industry Consolidated Industry Prentice Hall, Inc. © 2008 Prentice Hall 2006

Market Location Tactics -- Competitive Tactics Timing Tactics -- First mover Late movers Market Location Tactics -- Frontal Assault Flanking Maneuver Bypass Attack Encirclement Guerrilla Warfare Defensive Tactics -- Raise structural barriers Increase expected retaliation Lower the inducement for attack Prentice Hall, Inc. © 2008 Prentice Hall 2006

Mutual service consortia Joint ventures Licensing arrangements Cooperative Strategies Collusion Strategic Alliances Mutual service consortia Joint ventures Licensing arrangements Value-chain partnerships Prentice Hall, Inc. © 2008 Prentice Hall 2006