© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 Strategy and Strategic Planning

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives Describe the nature of strategic planning, including the components and levels of strategy and strategy formulation and implementation. Understand the environmental forces important to strategic planning and how managers position their organizations within those forces.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives Identify major approaches to corporate strategy. Identify major approaches to business strategy. Identify the major functional strategies developed by most organizations. Describe the process of strategy implementation.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Nature of Strategic Planning The Components of Strategy – Scope: position firm wants to have in relation to its environment. – Resource deployment: how organization intends strategically to allocate resources. – Distinctive (core) competency: what advantage(s) firm holds relative to its competitors. – Synergy: extent to which businesses within firm can expect to draw from one another.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Nature of Strategic Planning Strategy Formulation and Implementation – Formulation: processes in creating or developing strategic plans. – Implementation: processes in executing them, or putting them into effect.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Nature of Strategic Planning The Levels of Strategy – Corporate strategy: charts course for entire organization. – Business strategy: charted for each individual business within a company. – Functional strategies: corresponds to each basic functional area within organization.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Environmental Analysis Organizational Position – Strengths and weaknesses [SWot] – Opportunities and threats [swOT] – Organizational strengths: aspects that let it compete effectively. – VRIO framework: whether each identified strength is valuable, rare, difficult to imitate, exploitable.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Environmental Analysis Organizational Position – Organizational weaknesses: aspects that prevent or deter it from competing effectively. – Environmental opportunities: aspects of environment that enable it to achieve higher than planned levels of performance. – Environmental threats: aspects of environment that if not countered would impede its progress in achieving its goals.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Environmental Analysis Critical Environmental Forces – New entrants – Suppliers – Competitors – Substitute products – Buyers

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Environmental Analysis The Organization-Environment Interface – Purpose of strategy: determine what position in environment firm wishes to take. – Key to developing effective strategy: understand environmental opportunities and threats and organizational strengths and weaknesses.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Corporate Strategy Alternative Generic Strategies – Generic (grand) strategy: overall framework for action developed at corporate level. Growth: generate high levels of growth in one or more areas. Retrenchment: shrink operations, cut back in some areas, eliminate unprofitable operations altogether. Stability: maintain its status quo.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Corporate Strategy Portfolio Approaches – Views corporation as collection of different businesses. – Strategic business unit (SBU): autonomous division or business operating within context of another corporation. – Portfolio matrix method: SBUs’ two dimensions ─ market growth rate and relative market share.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Corporate Strategy Portfolio Approaches – Star: product with high share of fast-growing market. – Cash cows: products that control large share of low- growth market. – Question mark: product with small share of growing market. – Dog: product with small share of stable market.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Corporate Strategy Product Life Cycle Approaches – Product life cycle: how sales volume for product changes during existence of product. Development Growth Competitive shakeout Maturity Saturation Decline

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Strategy The Adaptation Model – Problems of management Entrepreneurial Engineering Administrative – Strategic business alternatives Defending Prospecting Analyzing

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Strategy Competitive Strategies – Differentiation: setting firm’s products apart from those of other companies. – Overall cost leadership: keep costs low as possible and increase sales volume and/or market share or charge competitive prices and earn greater profits. – Targeting: firm identifies and focuses on clearly defined and often highly specialized market.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Functional Strategies Marketing Strategy – Promotion, pricing, distribution of products and services by organization. Financial Strategy – Whether to pay out profits to stockholders as dividends, retain most earnings for growth, take position between these extremes.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Functional Strategies Production Strategy – Follows from marketing strategy. – See Table 9.4: Concerns of Basic Functional Strategies. Research and Development Strategy – Invention/development of new products/services.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Functional Strategies Human Resource Strategy – Human resource policies, labor relations, executive development, employee training, government regulation. Organization Design Strategy – How to arrange the various positions and divisions within the organization.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategy Implementation and Control

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Strategic planning is broad planning of top management to guide general direction of organization. Four basic components of strategy: – Scope – Resource deployment – Competitive advantage – Synergy

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Strategy formulation: creating or developing strategic plans. Strategy implementation: executing plans. Three levels of strategy: – Corporate – Business – Functional

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Five critical environmental forces: – Threat of new entrants – Power of suppliers – Competitive rivalry or jockeying among contestants – Threat of substitute products – Power of buyers

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Three generic or grand strategies: – Growth – Retrenchment – Stability Portfolio approach: strategic business units (SBUs). Portfolio matrix: system for analyzing SBUs

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Business strategy: developed for single business within organization. Adaptation model – Entrepreneurial, engineering, administrative managerial problems. – Strategies: defending, prospecting, analyzing. Functional strategies: lowest level of strategy. Strategy implementation: tactical planning, contingency planning, integration of strategy.