Managing Strategy and Strategic Planning Copyright © Houghton Mifflin Company. All rights reserved.

The Nature of Strategic Management Strategy A comprehensive plan for accomplishing an organization’s goals. Strategic Management A way of approaching business opportunities and challenges aimed at formulating and implementing effective strategies. Effective Strategies Strategies that promote a superior alignment between the organization and its environment and the achievement of its goals. Copyright © Houghton Mifflin Company. All rights reserved.

Components of Strategy Distinctive Competence Something an organization does exceptionally well. Scope Range of markets in which an organization will compete. Resource Deployment How an organization will distribute its resources across the areas in which it competes. Copyright © Houghton Mifflin Company. All rights reserved.

Types of Strategic Alternatives Business-Level Strategy The set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or a particular market. Corporate-Level Strategy The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets. Copyright © Houghton Mifflin Company. All rights reserved.

Deliberate Strategy Emergent Strategy A plan, chosen and implemented to support specific goals, that is the result of a rational, systematic, and planned process of strategy formulation and implementation. Emergent Strategy A pattern of action that develops over time in the absence of goals or missions, or despite goals and missions. Copyright © Houghton Mifflin Company. All rights reserved.

SWOT ANALYSIS Copyright © Houghton Mifflin Company. All rights reserved.

Formulating Business-Level Strategies Overall cost leadership strategy Focus strategy Differentiation strategy Porter’s Generic Strategies © 2010 South-Western, Cengage Learning, Inc. All rights reserved.

Porter’s Generic Strategies Business Level Strategies Porter’s Generic Strategies Differentiation – distinguish the company from competitors through the quality of its products or services. If successfully done, firm is able to charge more. Examples: Rolex, Mercedes-Benz, Cross. Overall Cost Leadership – gain a competitive advantage by reducing the firm’s costs below the costs of competing firms. Can sell products at low prices and still make a profit. Examples: Timex, Hyundai, Bic. Focus – concentrates on a specific regional market, product line, or group of buyers. Either differentiation focus or overall cost leadership focus. Examples: Tag Heuer, Fiat, Alfa Romeo Rolex – handmade of precious metals like gold or platinum and stainless steel, subjected to strenuous tests of quality and reliability. Tag Heuer- rugged, waterproof watches to active consumers Fiat - cost leadership by selling its automobiles only in Italy and in selected regions of Europe Alfa Romeo – differencialtion sells its high performance cars in same market. Copyright © Houghton Mifflin Company. All rights reserved.

Formulating Corporate Level Strategies Strategic Business Units Each business or group of businesses within an organization is engaged in serving the same markets, customers, or products. Diversification The number of businesses an organization is engaged in and the extent to which these businesses are related to one another Copyright © Houghton Mifflin Company. All rights reserved.

Corporate-Level Strategies Related diversification (synergy) Unrelated diversification (risk/return) Single-product strategy (simplicity) Strategic Choices © 2010 South-Western, Cengage Learning, Inc. All rights reserved.

Corporate-Level Strategies Single-Product Strategy An organization manufactures one product or service and sells it in a single geographic market. Example: WD40 Related Diversification A strategy in which an organization operates in several different businesses, industries, or markets that are somehow linked. Avoids the disadvantages and risks of a single-product strategy. Examples: Procter & Gamble - common distribution Disney – brand name Boeing – common technology

Advantages of Related Diversification Reduces an organization’s dependence on any one of its business activities and thus reduces economic risk. Reduces overhead costs associated with managing any one business through economies of scale and economies of scope. Allows an organization to exploit its strengths and capabilities in more than one business. Synergy exists among a set of businesses when the businesses’ value together is greater than their economic value separately. Copyright © Houghton Mifflin Company. All rights reserved.

Unrelated Diversification An organization operates multiple businesses that are not logically associated with one another. Example: General Electric Advantages Stable of performance over time due to business cycle differences among the multiple businesses. Allocation of resources to areas with the highest return potentials to maximize corporate performance. Disadvantages Poor performance due to the complexity of managing a diversity of businesses. Failing to exploit key synergies puts the firm at a competitive disadvantage to firms with related diversification strategies. Copyright © Houghton Mifflin Company. All rights reserved.

Becoming a Diversified Firm Development of new products Vertical integration Merger with another firm Acquisition of another firm Diversification Alternatives © 2010 South-Western, Cengage Learning, Inc. All rights reserved.

Becoming a Diversified Firm Replacement of Suppliers And Customers Backward vertical integration Beginning a business that furnishes resources previously handled by a supplier. Forward vertical integration Beginning a business previously handled by an intermediary and selling more directly to customers. Purposes of Mergers and Acquisitions To diversify through vertical integration. To acquire complementary products or services linked by a common technology and common customers. To create or exploit synergies that reduce the combined organizations’ costs of doing business to increase revenues. Copyright © Houghton Mifflin Company. All rights reserved.

Managing Diversification Portfolio management techniques Methods that diversified organizations use to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance. Two important portfolio management techniques The BCG Matrix A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the market. The GE Business Screen A method of evaluating business in a diversified portfolio along two dimensions, each of which contains multiple factors: Industry attractiveness. Competitive position (strength) of each firm in the portfolio. Copyright © Houghton Mifflin Company. All rights reserved.

The BCG Matrix Dogs have small market shares and no growth prospects. Cash cows have large shares of mature markets. Question marks have small market shares in quickly growing markets. Stars have large shares of rapidly growing markets. Source: Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from The Boston Consulting Group, Inc., 1970. Copyright © Houghton Mifflin Company. All rights reserved.

The GE Business Screen Copyright © Houghton Mifflin Company. All rights reserved.

Contingency Planning Crisis Management Alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate Crisis Management Set of procedures the organization will use in the event of a disaster or other unexpected calamity Copyright © Houghton Mifflin Company. All rights reserved.