1. Strategy Formulation and Implementation
chapter eight
Strategy Formulation and Implementation
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

2. (8) Strategy Formulation and Implementation
Chapter Objectives:
DISCUSS meaning, needs, benefits, approaches of strategic planning process for MNCs
UNDERSTAND tension between pressures for global integration and national responsiveness; 4 basic international strategy options
IDENTIFY basic steps in strategic planning
DESCRIBE how MNCs implement strategic plan
REVIEW three major functions of marketing, production, finance used in strategic plan implementation
EXPLAIN specialized strategies for emerging markets and international new ventures

3. Strategic Management
Strategic Management: the process of determining an organization’s basic mission and long-term objectives, then implementing a plan of action for pursuing the mission and attaining objectives

4. Strategic Management
Growing need for strategic management related to increasingly diversified operations in continuously changing international environment

5. Benefits of Strategic Planning
70 percent of 56 U.S. MNC subsidiaries had comprehensive 5 to 10-year plans according to one study
Evidence for effectiveness of planning is mixed. Strategic planning does not always result in higher profitability

6. Benefits of strategic management
Establish the mission
Formulate philosophy
Establish policies
Setting objectives
Developing strategy
Plan the organizational structure
Provide personnel
Establish procedures
Provide facilities
Provide capital
Set standards
Establish programs and plans
Control information
Activate people
Establish the mission – deciding on the business or businesses that the company or division should engage in and other fundamentals that will guide and characterize the business, such as continuous growth. The company’s mission is usually timeless. In other words, it should not be changed every year. It should, however, guide the changes in the company’s objectives and strategies.
Formulate philosophy – establish the beliefs, values, attitudes, and unwritten guidelines that add up to “the way we do things around here.” This is what makes one company different from other companies.
Establish policies – deciding on the plans of action to guide the performance of major activities in carrying out strategy in accordance with company philosophy
Setting objectives – deciding on achievement targets within a defined time range. Objectives are narrower in scope than the mission, and are designed to aid in making operational plans for carrying out strategy.
Develop strategy – developing concepts, ideas, and plans for achieving objectives successfully and meeting and beathing the competition. Strategic planning is part of the total planning process that includes management, marketing, and operational planning.
Planning the organizational structure – developing the plan of orgaization and the activities that help people work together to perform activities in accordance with strategy, philosophy, and policies.
Provide personnel – recruiting, selecting, and developing people to fill the positions in the organizational plan.
Establish procedures – determining and prescribing how all important and current activities will be carried out.
Provide facilities – providing the plant, equipment, and other physical facilities required to carry on the business.
Provide capital – making sure the business has the money and credit needed for working capital (money to operate on) and physical facilities.
Set standards – establishing measures of performance that will enable business to best achieve its long-term objectives successfully.
Establish management programs and operational plans – developing programs and plans governing activities and the use of resources that, when carried out with accordance with established strategy, policies, procedures, and standards, will enable people to achieve particular objectives. These are phases of the total palnning process, which includes strategic planning.
Provide control information – supplying facts and figures to help people follow the strategies, policies, procedures, and programs; to keep alert to forces at work inside and outside the business; to measure overall company performance against established plans and standards.
Activate people – commanding and motivating people to act in accordance with philosophy, policies, procedures, and standards in carrying out the plans of the company.

7. STRATEGIC MANAGEMENT Types Of Strategies
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
The internet is making it harder to find ways that are difficult to duplicate. Everyone has more easy access to information than ever before.

8. TYPES OF STRATEGIES Corporate Strategies
Corporate Strategy
Sets long-term direction for the total enterprise
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.

9. TYPES OF STRATEGIES Corporate Strategies
It is important that the functional strategies support each other as well as the Division and Corporate strategies.

10. 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.

11. TYPES OF STRATEGIES Restructuring and Retrenchment Strategies
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
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.

12. Steps to strategic management
Environmental analysis
Establish organizational direction
Strategy formulation
Strategy implementation
Strategic control
The strategic management process is a series of steps that not only formalize the process, but also give a clear path to the firm’s management as to how the process should be completed. Each of these steps is discussed in turn.

13. Environmental analysis
Process of examining the organization’s environment to determine:
Strengths
Weaknesses
Opportunities
Threats
While this step is basically the SWOT analysis that many of us have become accustomed to hearing about, it is the engine which drives the strategic management and planning processes. It is impossible for a business to know where it wants to go if it doesn’t know where it is currently at in relation to itself, its products, and other businesses which affect it. These other businesses will not only include competitors, but will also include product substitutes, complementary businesses, etc.

14. STRATEGY FORMULATION SWOT
SWOT Analysis
Identifies Organization’s Strengths, Weaknesses, Opportunities, and Threats
Core Competency
A special strength that gives an organization a competitive advantage
SWOT analysis has been a much used model. However, with the environment changing more and more rapidly, it may be less useful in the future.

15. Environmental structure
General environment
Social, economic, political, legal, technical
Operating environment
International, supplier, labor, competition, customer
Internal environment
Organizational, marketing, financial, personnel, production
The environmental structure of each company is divided into three basic environments with each part having subsectors that should form the major foci of that particular environmental structure. These different environments and their structures are:
General environment – this is the level of an organization’s external environment that is made up of components that are normally broad in scope and have little immediate application for managing an organization
Social component – describes characteristics of the society in which the organization exists such as literacy rates, educational levels, lifestyles, etc.
Economic component – indicates how resources are distributed and used within the environment such as unemployment rates, productivity with a given technology, interest and tax rates, etc.
Political – comprises the eements that are related to government affairs such as lobbying efforts by a particular industry, etc.
Legal – consists of legislation that has been passed such as environmental protection, worker safety, etc.
Technical – consists of new approaches to producing goods and services including new procedures as well as new equipment
Operating Environment – the level of the firm’s external environment that has an immediate impact on the firm’s operations and profitability.
International – comprised of factors related to the international implications of organizational operation. While all firms are not impacted by an international aspect, the number of firms that are impacted by this is increasing. One prime example is the North American Free Trade Association (NAFTA) which had a dramatic impact on vegetable producers and cut-and-sew operations.
Supplier – includes all variables related to those who provide the resources (inputs) for the organization that are purchased and transformed into the final goods and services offered for sale by the business. How many vendors offer specified inputs for sale, the relative quality of these inputs, the reliability of vendor deliveries, and the credit terms offered by the vendors are just some of the variables that impact this environmental level.
Labor – this component is made up of the factors that influence the supply of workers that are available and able to perform specific organizational tasks. Issues which impact this environmental level include skill levels, trainability, desired wage rates, the average age (or average working life) of potential workers, and the desirability of working for a particula organization as perceived by potential workers.
Competition – consists of those with whom a business must compete in order to secure resources and sell products. The business must understand the strengths, weaknesses, and capabilities of existing and potential competitors and predict what strategies they are likely to employ.
Customer – this component reflects the characteristics and behavior of those who buy goods and services provided by the organization. Profiles of likely potential customers should be developed and the company’s customer service and marketing strategies should be tailored to these profiles.
Internal environment – the level which exists inside the organization and has immediate and specific implications for managing the organization.
Organizational – what is the company’s organizational structure and what challenges and opportunities does this structure present with regard to the ability of the company to compete in the overall environment of the industry
Marketing – what marketing strategies are employed by the company to entice existing and potential customers to purchase products and services? Have these marketing strategies been developed in accordance with the customer profiles developed in the operating environment phase?
Financial – what financial position must the firm maintain in order to operate in its environment? What levels are profitability will be required? What level of working capital must be present at specific times during the year in order for the company to pay its bills?
Personnel – what type of worker must the company be able to hire to produce and market its products and/or services? Are the workers in a particular area trainable? What educational opportunities are available for workers in the area? Can the company find another organization to screen and train workers or must these functions be performed by the company itself?
Production – what production methods and equipment is available to the company? Are these methods and equipment efficient to a point where the company can compete in its overall environment?

16. Methods of environmental forecasting
Expert opinion
Trend extrapolation
Trend correlation
Dynamic modeling
Cross-impact analysis
Multiple scenarios
Demand/hazard forecasting
Expert opinion – knowledgeable people are selected and asked to assign importance and probability ranges to various possible future developments. One refined version, the Delphi technique, puts experts thrugh several rounds of event assessment where they keep refining their assumptions and judgments.
Trend extrapolation – researchers fit best-fitting devices (linear, quadratic, or S-shaped growth curves) through past time series to serve as a basis for extrapolation. This method can be very unreliable in that new developments can completely alter the expected direction of movement of these trends. Therefore, it is imperative that these forecasting models be kept up to date.
Trend correlation – researchers correlate various time series in the hope of identifying leading and lagging relationships that can be used for forecasting the trends in a particular industry.
Dynamic modeling – researchers build sets of equations that attempt ot describe the underlying system. The coefficient in the equations are fitted through statistical means.
Cross-impact analysis – a set of key trends (those with a high importance or probability of occurring) are identified. The question is then asked “If event A occurs, what will be the impact on all other trends?” The results are then used to build sets of domino chains with one event triggering others.
Multiple scenarios – pictures of alternative futures are build with each being internally consistent and with a certain probability of happening. These futures are then used as the basis for contingency planning.
Demand/hazard forecasting – major events that would greatly impact the firm are identified. Each event is rated for its convergence with several major trends taking place in society and for its appeal to each major public group in the society. The higher the event’ convergence and appeal, the higher its probability of occurring. The highest-scoring events are then researched further.

17. Establish organizational direction
Establishing an organizational direction for the company involves determining two indicators:
Organizational mission – the reason why the organization exists
Objectives – measurable targets to track the growth of the business
The organizational mission statement is a very broad statement of why the organization exists. Organizational objectives are the targets twoard which the organization directs its efforts. These objectives provide the foundation for planning, communication, motivating, and controlling. Without these objectives, behavior in an organization can stray in almost any direction.

18. Key objective areas Market standing Innovation Productivity
Resource levels
Profitability
Manager performance and development
Worker performance and attitude
Social responsibility
Peter Drucker maintains that there are eight key areas which should be addressed by these objectives. These include market standing, innovation, productivity, resource levels, profitability, manager performance and evaluation, worker performance and attitude, and social responsibility. He outlines defines these key areas as follows:
Market standing – the position of an organization (where it stands) relative to its competitors
Innovation – any change made to imporve methods of conducting organizational business
Productivity – the level of goods or services produced by an organization relative to the resources used in the production process
Resource levels – the relative amoutns of various resources held by an organization, such as inventory, equipment, and cash. Most organizations should set objectives indicating the relative amounts of these assets that should be held.
Profitabilty – the ability of an organization to earn revenue dollars beyond the expenses necessary to generate the revenue
Manager performance and development – the quality of managerial performance and the rate at which managers are developing personally
Worker performance and attitude – the quality of nonmangement performance and such employees’ feelings about their work. These areas are extremely crucial to the long term organizational success.
Social responsibility – the obligation of business to help improve the welfare of society while it strives to reach organizational objectives.

19. Types of objectives Profitability Growth Market share
Social responsibility
Employee welfare
Product Quality
Service
R&D
Diversification
Efficiency
Financial stability
Resource conservation
Mgt & labor development

20. Strategy formulation
What are the purpose(s) and objective(s) of the organization?
Where is the organization presently going?
What critical environmental factors does the organization currently face?
What can be done to achieve organizational objectives more effectively in the future?
What are the purpose(s) and objective(s) of the organization? – The answer to this question tells management where the organization wants to go. As discussed earlier, appropriate strategie reflect the organization’s missin and objectives. Managers who consider this question during the strategy formulation process are more likely to avoid inconsistencies among the company’s mission, objectives, and strategies.
Where is the organization presently going? – This question reveals whether an organization is achieving its goals or at least making satisfactory progress. The first question focuses on where the company wants to go; this question focuses on where the organization is actually going.
What critical environmental factors does the organization currently face? – This question addresses both internal and external environments and the factors that are both inside and outside the organization. For example, if a poorly trained middle-management team (internal environment) and an increase in competitive pressure (external environment) are critical strategic concerns, then any strategy formulated should deal with these issues.
What can be done to achieve organizational objectives more effectively in the future? – The answer to this question results in the formulation of a strategy for the organization. This, it goes beyond environmental analysis and includes the stages of planning and selection. This question should be answered only after managers have had plenty of opportunity to reflect on the answers to the previous questions. In other words, managers can formulate appropriate organizational strategies only when they have a clear understanding of where the company wants to go, where the organization is actually going, and what the environment in which the organization operates is and is likely to be.

21. Growth-share matrix 22 Stars Question Marks 20 18 146 8 10 12 14 18 20 22
Market Growth Rate (percent)
10.0
5.0
2.0
1.0
0.5
0.1
Relative Market Share
Stars
Cash Cows
Dogs
Question Marks
The vertical axis indicates the market growth rate, which is the annual growth percentage of the market in which the business operates. Anything under 10 percent is typically considered to be a low growth market while market growth in excess of 10 percent is considered to be a high growth market.
The horizontal indicates market share dominance or relative market share. It is computed by dividingthe firm’s market share (in units) by the market share of the largest competitor. For example, a relative market share of 0.2 means that the sales volume of the business is only 20 percent of the market leader’s sales volume; a relative market share of 2.0 means that the business has a sales volume twice that of the next largest competitor. A relative market share of 1.0 is set as the dividing line between high and low share.
Each of the circles represents the relative revenue of a single business; that is, a larger circle represents more sales than a smaller circle.
This type of diagram not only can be used to determine a company’s current position in the environment, but also to determine if a potential entrepreneur wants to enter a specified industry.

22. Formulating business strategies
Structural analysis of competitive forces
Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute products
Rivalry among existing competitors
Strategic alternatives
Firms entering an industry bring new capacity and a desire to gain market share and profits, but whether new firms enter an industry depends on the barriers to entry. In addition, established firms in an industry may benefit from “experience curve” effects. That is, their cumulative experience in producing and marketing a product or service often reduces their per-unit costs below those of inexperienced firms. In general, the higher the entry barriers, the less likely outside firms are to enter the industry.
Suppliers can be a threat in an industry because they can rais the price of raw maters or reduce quality of the inputs. Powerful supliers can reduce the profitability of an industry if companies in the industry cannot pay higher prices to cover price increases that the supplier imposes.
Buyers compete with the industry by forcing prices down, bargaining for higher quality or more services, and competitors off against each other – all at the expense of industry profitability.
Substitutes limit the potential return in an industry by placing a ceiling on the prices that firms in the industry can profitably charge. The more attractive the price-performance alternatives offered by substitutes, the tighter the lid on industry profits. For example, the advent of “Raisonettes” may limit the price that can be charged for so-called healthy snacks such as “Strawberry Yogurt Raisons.”
Rivalry among existing competitors is the conventional type of competition in which firms try to take customers from one another. Strategies such as price competition, advertising battles, new product introductions, and increased customer service are commonly used to attract customers from competitors.
Strategic alternatives – These are strategies that can be used by a firm to outperform other firms in the industry. They include:
Overall cost leadership – yields a firm above-average returns in its industry despite the presence ofstrong competitive forces. However, this often requires high relative market share or other advantages such as favorable access to raw materials or the ready availability of cash.
Differentiation involves creating and marketing unique products for the market. The key to successful implementation of this strategy is to obtain a differential advantage that is readily perceived by the consumer.
Focus is essentially a strategy of segmenting markets and appealing to only one or a few groups of consumers or other buyers. The logic of this approach is that a firm that limits its attention to one or a few market segments can better serve those segments than other firmst that seek to influence the entire market.

23. Formulating functional strategies
Operations strategy
Financial strategy
Marketing strategy
Human resource strategy
Operations strategy – this area focuses on making decisions about required plant capacity, plant or building layout, manufacturing and production processes, and inventory requirements. Two important aspects of this strategy are controlling costs and improving the efficiency of plant operations.
Financial strategy – this area focuses on forecasting and financial planning, securing financing, assessing the profit potential of various alternatives, and evaluating the financial condition of the business.
Marketing strategy – this area focuses on determining the appropriate markets for business offerings and on developing effective (profitable) marketing mixes (the marketing mix consists of four strategic elements (price, product, promotion, and channel(s) of distribution).
Human resource strategy – this area is concerned with attracting, assessing, motivating, training, and retaining the number and quality of employees required to run the business efficiently and profitably. This function is also responsible for affirmative action planning and evaluating the safety of the work environment.

24. Strategy implementation
Commander approach
Organizational change approach
Collaborative approach
Cultural approach
Once the strategies have been formulated, then the task remains of implementing those strategies. There are several approaches that can be used either quite successfully or disastrously to change a company’s direction in its industry and environment. These approaches include:

25. Commander approach Manager determines “best” strategy
Manager uses power to see strategy implemented
Three conditions must be met
Manager must have power
Accurate and timely information is available
No personal biases should be present
Commander approach – the manager will determine the “best” strategy either alone or with the help of a group of experts. Once the desired strategy is formulated, the manager passes it along to subordinates who are instructed to execute the strategy. In this scenario, the manager does not take an active role in implementing the strategy, but rather uses explicit or implied power to see that the strategy is implemented. There are three conditions that must be met in order for the new strategy to be implemented. First, the manager must have enough power to command the implementation of the strategy. It shoul be recognized that implementation under this approach is resisted if the new strategy threatens the position of employees. Second, accurate and timely information regarding the strategy must be available, and the environment in which the company operates should be reasonably stable. If the environment is changing so that information becomes dated before it can be assimilated, effective implementation under the approach is unlikely. Finally, the manager formulating the strategy should be insulated from personal biases and political influences that might affect the outcome of the strategy.

26. Commander approach Limitations Advantages
Can reduce employee motivation and innovation
Advantages
Managers focus on strategy formulation
Works well for younger managers
Focuses on objective rather than subjective
One drawback to this approach is that it can reduce employee motivation and employees who feel that they have no say in strategy formulation are unlikely to be very inoovative. However the approach can work in smaller companies within stable industries.
Advocates of this approach say that managers who utilize it can gain a valuable perspective from the company and the approach allows these managers to focus their energies on strategy formulation. Second, young managers in particular seem to prefer this approach since it allows them to focus on the quantitative, objective aspects of a situation rather than on the qualitative, subjective elements of behavioral interactions. Many young managers are better trained to deal with the objective rather than the subjective. Finally, such an approach may make some ambitious managers feel powerful in that their thinking and decision making affects the activities of the workforce (people).

27. Organizational change approach
Focuses on the organization
Behavioral tools are used
Includes focusing on the organization’s staffing and structure
Often more effective than Commander
Used to implement difficult strategies
The Organizational Change approach focuses on how to get an organization to implement a strategy. Managers who implement this approach assume that a good strategy has been formulated and view their task as getting the company moving toward new goals. The tools used to accomplish this approach are largely behavioral and include such things as changing the organizational structure and staffing to focus attention on the organization’s new priorities, revising planning and control systems, and invoking other orgainzational change techniques. Because these behavorial tools are used, this approach is often more effective than the Commander Approach and can be used to implement more difficult strategies.

28. Organizational change approach
Limitations
Managers don’t stay informed of changes occuring within the environment
Doesn’t take politics and personal agendas into account
Imposes strategies in a “top-down” format
Can backfire in rapidly changing industries
However, it does have several limitations that may limit its use to smaller companies in stable industries. It doesn’t help managers stay abreast of rapid changes in the environment. It doesn’t deal with situations where politics and personal agendas discourage objectivity among strategists. And since it imposes strategy in a top down fashion, it is subject to the same motivational problems as the Commander approach. Finally, it can backfire in rapidly changing industries since the manager sacrifices strategic flexibility by manipulating organizational systems and structures that may take a long time to implement.

29. Collaborative approach
Enlarges the Organizational Change Approach
Manager is a coordinator
Management team members provide input
Group wisdom is the goal
Collaborative Approach – The manager in charge of the strategy calls in the rest of the managemetn team to brainstrom strategy formulation and implementation. The role of the manager is that of a coordinator. Other members of the organization’s management team are encouraged to contribute their points of view in order to extract whatever group wisdom may be present. This approach overcomes two key limitations present in the previous two approaches. First, by capturing information contributed by managers close to operations, it can increase the quality and timeliness of the information incorporated in the strategy. Also, it improves the chances of efficient implementation to the degree that participation enhances strategy commitment.

30. Collaborative approach
Advantages
Increased quality and timeliness of information
Improved chances of effective implementation
Limitations
Contributing managers have different points of view and goals
Management retains control over the process
This approach overcomes two key limitations present in the previous two approaches. First, by capturing information contributed by managers close to operations, it can increase the quality and timeliness of the information incorporated in the strategy. Also, it improves the chances of efficient implementation to the degree that participation enhances strategy commitment.
However, it may result in a poorer strategy since the strategy is negotiated among managers with different points of view and possibly different goals. This may reduce the chances of management’s ability to formulate and implement the “best” strategy. Furthermore, it is not really collective decision making from an organizational viewpoint since management retains centralized control over the strategy. This can lead to political problems within the organization that may impede rapid and efficient strategy formulation and implementation.

31. Cultural approach Includes lower levels of the company
Breaks down barriers between manage-ment and workers
Everyone has input into the formulation and implementation of strategies
Works best in high resource firms
Cultural Approach – This approach enlarges the Collaborative Approach by including lower levels of the company. It partially breaks down the barriers between management and workers since each member fo the organization can be involved to some degree in both the formulation and implementation of the strategy. It seems to work best in organizations that have sufficient resources to absorb the cost of building and maintaining a supportive value system. Often these are high-growth firms in high-technology industries.

32. Cultural approach Advantage Limitations
More enthusiastic implementation
Limitations
Workers should be informed, intelligent
Consumes large amounts of time
Strong company identity becomes handicap
Can discourage change and innovation
It has the advantage of more enthusiastic implementation of strategies by all members of the company. Limitations include: 1. It seems to only work in organizations composed primarily of informed, intelligent people; 2. It consumes enormous amounts of time; 3. It can promote such a strong sense of organizational identity that it becomes a handicap (for example, bringing in managers from outside the organization can be difficult because they aren’t accepted by the other members of the organization since they didn’t “grow up” with the organization); 4. It can promote a strong organizational culture to an extent that change and innovation becomes difficult.

33. 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 how you wish to do it.

34. TYPES OF STRATEGIES 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 replacing older technologies such as the fax and telephone as a means of communication.

35. STRATEGIC MANAGEMENT Strategic Management MODULE GUIDE 12.2
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.
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.
Whatever model is used, the strategy chosen must be one that can be implemented with a minimum disruption to the organization.

36. STRATEGIC MANAGEMENT Strategic Management
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.

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

38. STRATEGIC MANAGEMENT Strategy Formulation
Mission Statement
The reason for the organizations existence in society
Operating Objectives
Specific results that organizations attempt to achieve
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.

39. STRATEGY FORMULATION SWOT
SWOT Analysis
Identifies Organization’s Strengths, Weaknesses, Opportunities, and Threats
Core Competency
A special strength that gives an organization a competitive advantage
SWOT analysis has been a much used model. However, with the environment changing more and more rapidly, it may be less useful in the future.

40. STRATEGY FORMULATION Porter’s Five Forces
Porter’s five forces provide a unique and thorough way to view your position. Each of these forces provide different strategies for achieving your objectives.

41. STRATEGY FORMULATION Porter’s Five Forces
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.

42. STRATEGY FORMULATION Porter’s Five Forces COMPETITIVE ANALYSIS
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.

43. STRATEGY FORMULATION Boston Consulting Group (BCG)
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.

44. STRATEGIC MANAGEMENT Strategy Implementation
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 have some natural leadership ability to start with.

45. Approaches to Strategic Planning
Economic Imperative
Administrative Coordination
Political Imperative
Quality Imperative

46. (1) Economic Imperative:
Economic imperative focused MNCs employ worldwide strategy based on cost leadership, differentiation, and segmentation
Strategy also used when product is regarded as generic and therefore is not sold on name brand or support service
Often sell products for which large portion of value is added in upstream activities of industry value chain
Research and development
Manufacturing
Distribution

47. (2) Political Imperative
MNCs using political imperative are country-responsive; approach designed to protect local market niches
These MNCs often use country-centered or multi-domestic strategy
Success of product or service depends heavily on
Marketing
Sales
Service

48. (3) Quality Imperative Quality imperative has 2 paths
Change in attitudes and raising of expectations for service quality
Implementation of management practices designed to make quality improvement an ongoing process
TQM Total Quality Management (see next slide)

49. Total Quality Management
Cross-train personnel to do jobs of all members in work group
Process re-engineering designed to help identify/eliminate redundant tasks
Reward system designed to reinforce quality performance
Quality operationalized by meeting or exceeding customer expectations
Quality strategy formulated at top management level and diffused through organization
TQM techniques: traditional inspection and statistical quality control; cutting edge Human Resource Management techniques such as self-managing teams and empowerment

50. (4) Administrative Coordination Imperative
MNC makes strategic decisions based on merits of individual situation rather than predetermined economic or political strategy
Least common approach to formulation and implementation of strategy
Many large MNCs work to combine all 4 of the approaches to strategic planning

51. Global vs. Regional Strategies
Fundamental Tension: The globalization vs. national responsiveness conflict.
Global integration: Production and distribution of products and services of a homogenous type and quality on a worldwide basis
National responsiveness: need to understand different consumer tastes in segmented regional markets and respond to different national standards and regulations imposed by autonomous governments and agencies

52. Global Integration vs. National Responsiveness

53. Summary: Approaches to Strategic Planning
Appropriateness of each strategy depends on pressures for cost reduction and local responsiveness in each country served:
Global strategy is low-cost strategy attempting to benefit from scale economies in production, distribution, marketing
Transnational strategy pursued when high cost pressures and high demand for local responsiveness

54. Basic Elements in Strategic Planning for International Management

55. Elements of Strategic Planning: Environmental Scanning

56. Elements of Strategic Planning: Environmental Scanning
Provides management with accurate forecasts of trends relating to external changes in geographic areas where firm is doing business or considering doing business
Changes relate to economy, competition, political stability, technology, demographic and consumer data

57. Elements of Strategic Planning: Internal Resource Analysis
Evaluate MNC’s current managerial, technical, material, and financial strengths and weaknesses
Assessment then used to determine ability to take advantage of international market opportunities
Match external opportunities (gained in environmental scan) with internal capabilities (gained through internal resource analysis)
Key question for MNC: Do we have the people and resources that can help us develop and sustain necessary Key Success Factors, or can we acquire them?

58. Elements of Strategic Planning: Strategic Planning Goals
Goal formulation often precedes first two steps (environmental scanning, internal analysis)
More specific goals for strategic plan come from external scan and internal analysis
Goals serve as umbrella beneath which subsidiaries and other international groups operate
Profitability and marketing goals almost always dominate strategic plans
Once set strategic goals, MNC develops specific operational goals and controls for subsidiary or affiliate level

59. Elements of Strategic Planning: Implementation
Provides goods and services in accord with plan of action
Plan often will have overall philosophy or guidelines to direct process
Considerations in selecting country:
Advanced industrialized countries offer largest markets for goods/services
Amount of government control
Restrictions on foreign investment
Specific benefits offered by host countries

60. Elements of Strategic Planning: Implementation (continued)
Local issues
Once country has been decided, firm must choose specific locale
Important factors influence this choice:
Access to markets
Proximity to competitors
Availability of transportation and electric power
Desirability of location for employees coming in from outside

61. Elements of Strategic Planning: Implementation (continued)
Production
When exporting goods to foreign market, production has usually been handled through domestic operations
More recently MNCs have found that whether they export or produce goods locally in host country, consideration of worldwide production is important
Recent trend away from multi-domestic approach and toward global coordination of operations

62. Elements of Strategic Planning: Implementation (continued)
Finance
Transfer funds from once place in world to another, or borrowing funds in international money markets often less expensive than relying on local sources
Issues include
Reevaluation of currencies
Privatization
Strategic issues for base of pyramid
International new ventures and “born global” firms

63. Elements of Strategic Planning: Implementation (continued)
Strategies for “base of pyramid” (BOP)
Emerging market customers
People at bottom of economic pyramid
Marketing at BOP forces consideration of smaller-scale strategies
International new venture and “born-global” firms

64. Elements of Strategic Planning: Implementation (continued)
International new ventures and “born-global” firms
Firms that engage in significant international activity a short time after being established
Successful born-global firms leverage a distinctive mix of orientations and strategies
Global technological competence
Unique product development
Quality focus
Leveraging of foreign distributor competencies

65. Formulation of MNC Goals

66. The Role of Functional Areas in Implementation
Production
Traditionally handled through domestic operations
Increasingly consideration of world wide production is important
Recent trend away from scattered approach and toward global coordination of operations
If product labor intensive, farm out product to low-cost sites (e.g., Mexico)
Marketing
country-by-country basis
built around well-known 4 P’s (product, price, promotion, place)

67. The Role of Functional Areas (continued)
Finance
Normally developed at home office
Carried out by overseas affiliate or branch
MNCs have learned that transferring funds from one place in world to other, or borrowing funds in international money markets often less expensive than reliance on local sources
Major headache is reevaluation of currencies

68. Specialized Strategies
Some circumstances may require specialized strategies:
Strategies for developing and emerging markets
Strategies for international entrepreneurship and new ventures

69. Strategies for Emerging Markets
The big emerging markets: Mexico, Brazil Argentina, South Africa, Poland, Turkey, India, Indonesia, China, South Korea
These nations have captured the bulk of investment and business interest from MNCs and their managers in recent years.
Emerging markets present exceptional risks due to political and economic volatility. These risks show up in corruption, failure to enforce contracts, red tape and bureaucratic costs, and general uncertainty in legal and political environment.

70. Two Unique Strategies for Emerging Markets
First Mover Strategies: significant economies associated with early entry and first-mover positioning
May be a narrow window of opportunity within which these opportunities can be best exploited.
Strategies for Base of Pyramid (BOP): 4-5 billion potential customers around the globe heretofore ignored by global business
BOP forces global business to rethink their strategies. Must consider relationships with local governments, small entrepreneurs, and nonprofits rather than depend on established partners such as central government.
BOP strategies challenging to implement
Represents opportunity to incubate new, leapfrog technologies
Successful BOP strategies can travel profitably to higher income markets

71. The World Population and Income Pyramid

72. (2) Entrepreneurship Strategy and New Ventures
Increasingly small and medium size enterprises, often in the form of new ventures, are becoming involved in international management.
The earlier in its existence an innovative firm internationalizes, the faster it is likely to grow both overall and in foreign markets.
Venture performance (growth and ROE) is improved by technological learning gained from international environments.

73. International Entrepreneurship
Defined as “a combination of innovative proactive, and risk-seeking behavior that crosses national borders and is intended to create value in organizations”

74. International New Ventures and “Born Global” Firms
“Born global”: firms that engage in significant international activity a short time after being established.
Most important business strategies employed by born global firms are global technological competence, unique products development, quality focus, and leveraging of foreign distributor competencies.
Truly born global firms tend to survive longer than other seemingly global companies.

75. Global Management Team
Transnational companies have global management teams because they realize the need for a world view at the level of top management.
A management team too heavily dominated by one country will not have a true global view.
Input from top managers from all countries
A good example is Imperial Chemical Industries (ICI), whose 16-person board was all British until It now includes two Americans, one Canadian, one Japanese, and one German; 35 percent of the top 180 people are non-British.

76. Global management training.
Transnational companies realize that a global culture is needed to compete around the world.
A company cannot attain such a culture without integrating managers from other countries into the system.
Cross-country training and travel are necessary to allow managers and employees to be comfortable in the triad cultures.
GE adapted what it calls a Global Leadership Program. Over a period of ten months, the top 55 people from its U.S., European, and Japanese medical equipment businesses met once on each continent and in Japan for several days at a time.

77. Global travel and assignments.
The key to becoming a global power is to manage by walking around (MBWA) the world.
Top managers cannot understand other cultures unless they spend substantial time in those countries regularly.
Too many companies have top managers travel abroad, or bring managers to headquarters, only as a ceremonial show.
To develop global products, designers and product managers cannot rely on market research data alone.
American designers will have limited ability to create innovate home and office furniture for sale in Europe and Japan if they have never seen homes and offices in these countries. Another way to train people to think globally is to move them across national boundaries.

78. Global Strategy
To be successful in the world market, global firms must pit all their resources against competitors in a highly integrated way.
They must have a centralized global strategy, with various aspects of operations decentralized as economics and effectiveness dictate.
Transnational companies seek to respond to particular local market needs while avoiding a compromise of efficiency of the overall global system.
Successful transnational companies have one global strategy, not separate strategies for each country or profit center.

79. Global coalitions.
The difficulties of gaining access to foreign markets and in surmounting scale and learning thresholds in production, technology, and other activities have led many firms to work cooperatively among themselves.
Penetrating the global market requires coalitions; the go-it-alone approach is ineffective in the world arena.
Coalitions include a wide variety of arrangements, such as swapping of new' products and models, licenses, supply agreements, and cooperative R&D efforts.
Many companies in the automobile, aircraft, robotics, consumer electronics, pharmaceutical, and semiconductor industries have developed complex coalitions to compensate for market share weakness in key nations, fill market niches, and produce global products.

80. Global parochialism.
To go global, companies must overcome parochial attitudes, particularly the "not-invented-here" syndrome.
Managers must search the world, not just their home country, for the best people, technology, and costs.
For example, four of ICI's nine business units are headquartered outside Britain.

81. Global Operations and Products
Multinational companies have major operating facilities throughout the globe to gain market access and for cost advantage.
They have "good citizen" images around the world. Transnational realize that a local presence decreases political and exchange rate risks.
Export firms are often perceived as invaders.
They face protectionism and import restrictions and find the doors to markets closed.
A true insider will remain viable in the country while fellow country export companies are excluded.

82. Global design and product process.
Transnational companies centralize product design to develop global products.
The production process is standardized worldwide to ensure economies of scale.
A Whirlpool study revealed that appliances all over the world, despite differences in consumer preferences, are basically alike in their working components.
Based on that study, Whirlpool is designing global products using components supplied by different international sources, with minor changes for local preferences.
Ideas for improvements from country operations are shared globally to benefit the entire company.

83. Global Technology and R&D
Transnational companies realize that their success depends upon technology and R&D.
Such companies do not adhere to the not-invented-here mentality.
They know that fewer than 50 percent of the world's technological innovations can legitimately lay claim to the "Made in America" slogan (down from 80 percent in the 1950s). Instead, they go to the place in the world that can do the best job.
When conducting R&D, transnational companies focus on global, not local, products.

84. Global Financing Global parochialism also extends to financing.
Multinational organizations search world markets to get the best rates and terms for long-term financing.
Texas Instruments has manufacturing plants in Taiwan, Malaysia, and Japan, where interest rates are half those in the United States, thereby allowing TI to cut capital costs.
Short term financing is done largely in individual countries using local financial institutions.

85. Global Marketing
Transnational companies view North America, Europe, and Japan as one world market, rather than three.
They accentuate the similarities of human beings across the global triad, rather than emphasize differences.
With comparable income levels, education levels, academic and cultural background, lifestyles, and access to information and travel, Americans, Europeans, and Japanese are becoming more and more alike.
Because of global similarities, many products do not need to be localized at all, or need only minor changes to satisfy taste differences.

86. Global products with local adaptations.
Some transnational companies develop global products but adapt them to the needs of local markets.
The changes a product needs to undergo for local markets vary.
Consumer products used in the home, such as Nestle's soups and frozen foods, tend to be more culture-bound than products used outside the home, such as automobiles and credit cards.
Industrial products, such as personal computers, are inherently less culture bound than consumer products.
Experience also suggests that products are less culture-bound if they are used by young people whose cultural norms are not ingrained, people who travel in different countries, and ego-driven consumers who can be appealed to through myths and fantasies shared across cultures.

87. Global introduction of products.
Transnational companies introduce new products simultaneously throughout the world.
Many companies have learned the hard way that introducing a product in one country and then bringing it to another country limits global success.
When an American company introduces a product in the U.S., the Japanese are watching.
They can quickly copy the product and introduce it in Japan and other countries before the American company can, causing the American company to lose its leadership position.
Gillette formally introduced its Sensor razor during the 1990 Super Bowl in America; soon after it took the product to 19 counties simultaneously, using virtually the same commercial.

88. Review and Discuss
Of the four imperatives, which is most important to IBM’s effort to enter the Pacific Rim Market?
Define global integration as used in the context of international strategic management?
Are globalization and national responsiveness diametrically opposed?
Anheuser-Busch is attempting to enter India, where beer is hardly consumed and liquor dominates the market. What areas should be targeted for strategic goals? What are some marketing implications here?
What conditions have allowed some firms to be “born global”?