1. CHAPTER 6 Strategy Formulation: Situation Analysis & Business Strategy
STRATEGIC MANAGEMENT & BUSINESS POLICY 11TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
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2. Strategy formulation --
Situational Analysis
Strategy formulation --
Strategic planning or long-range planning
(Develops mission, objectives, strategies, policies) Or
process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses
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3. SWOT Criticism Generates lengthy lists No weighted priorities
Situational Analysis
SWOT Criticism
Generates lengthy lists
No weighted priorities
Ambiguous wording
Same factor can be in two categories
No supporting data
Single level analysis
No link to strategy implementation
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4. IFAS – Maytag as Example
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5. EFAS – Maytag as Example
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6. SFAS Matrix
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7. Niche – Corporate Goal –
Situational Analysis
Niche –
Need in the marketplace that is currently unsatisfied
Corporate Goal –
Find propitious niche – market segment big enough for only one company
Strategic window – opportunity available for a limited time
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8. TOWS Matrix
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9. Business Strategy
Business Strategy
Focuses on improving competitive position of company’s products or services within the specific industry or market segment
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10. Competitive Strategy –
Porter’s Competitive Strategies
Competitive Strategy –
Lower Cost strategy
Greater efficiencies than competitors
Differentiation strategy
Unique/superior value, quality, features, service
Competitive Scope -
Direct competition
Focus on niche
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11. Porter’s Competitive Strategies
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12. 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
Potential Outcome
Barriers to entry
Higher ROI
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13. Differentiation – Broad mass market Unique product/service
Porter’s Competitive Strategies
Differentiation –
Broad mass market
Unique product/service
Premiums charged
Less price sensitivity
Potential Outcome
Increase Market Share
Higher Profit
Brand as barrier to entry
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14. Cost-Focus – Low-cost competitive strategy
Porter’s Competitive Strategies
Cost-Focus –
Low-cost competitive strategy
Focus on market segment/Niche
Geographic
Buyer Group
Cost advantage in market segment
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15. Differentiation Focus –
Porter’s Competitive Strategies
Differentiation Focus –
Specific group or geographic market focus
Differentiation in target market
Special needs of narrow target market
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16. Stuck in the middle – No competitive advantage
Porter’s Competitive Strategies
Stuck in the middle –
No competitive advantage
Below-average performance
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17. 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 sub-segment the industry.
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18. Broad versus Focused Strategies
Risks of Generic Strategies
Broad versus Focused Strategies
“Although there is generally room for only one company to successfully pursue the mass-market cost leadership strategy (requires dominant market share), there is room for an almost unlimited number of differentiation and focus strategies (depending on the range of possible features and market niches).”
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19. 8 Dimensions of Quality
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20. Industry Structure – Fragmented Industry Focus Consolidated Industry
Competitive Strategy
Industry Structure –
Fragmented Industry
Focus
Consolidated Industry
Cost/Differentiation through service
Move toward commoditization
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21. Strategic Rollup (industry consolidation)
Competitive Strategy
Strategic Rollup (industry consolidation)
Involve larger numbers of firms
Acquired firms are typically owner operated
Objective is not to gain incremental advantage but to reinvent an entire industry
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22. Competitive Tactics
Tactics
A specific operating plan that details how a strategy is to be implemented in terms of when and where it is to be put into action. (Narrower in scope and shorter time horizons than strategies)
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23. Timing Tactics – First mover advantages Late movers advantages
Competitive Tactics
Timing Tactics –
First mover advantages
Reputation for industry leadership
Cost leadership as product matures
Temporary high profits
10 years for CPG
12 years for Industrial
Late movers advantages
Imitate technology advances
Lower R&D costs
Lower risk
Market segmentation opportunities
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24. Market Location Tactics -- Offensive
Competitive Tactics
Market Location Tactics -- Offensive
Frontal Assault – match the competition
Flanking Maneuver - segmentation
Bypass Attack – change the rules
Encirclement - variety
Guerrilla Warfare – many small initiatives on small market segments
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25. Market Location Tactics -- Defensive
Competitive Tactics
Market Location Tactics -- Defensive
Raise structural barriers
Increase expected retaliation
Lower the inducement for attack
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26. Cooperative Strategies
Collusion
active cooperation of firms within an industry to reduce output and raise prices to get around the economic laws of supply and demand
Implicit or explicit
Generally illegal
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27. Strategic Alliances (Why?)
Cooperative Strategies
Strategic Alliances (Why?)
To obtain technology and/or manufacturing capability
To obtain access to specific markets
To reduce financial risks
To reduce political risk
To learn new capabilities
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28. Mutual service consortia Joint ventures
Cooperative Strategies
Mutual service consortia
Pooled services within an industry
Joint ventures
Creates an independent entity, allocates ownership, financial risk and reward (temporary with high failure rates)
Licensing arrangements
Rights are granted to a firm in another country to produce or sell products
Value-chain partnerships
Alliances among companies and their suppliers and/or distributors
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29. Licensing Arrangement
Cooperative Strategies
Continuum of Strategic Alliances
Mutual Service
Consortium
Joint Venture
Licensing Arrangement
Value Chain
Partnerships
Weak and Distant
Strong and Close
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30. CHAPTER 6 Strategy Formulation: Situation Analysis & Business Strategy
STRATEGIC MANAGEMENT & BUSINESS POLICY 11TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
Prentice Hall, Inc. © 2006
Prentice Hall 2006