1. Chapter 9 Designing Strategies

2. 9- 2 Management 1e 9- 2 Management 1e 9- 2 Management 1e Learning Objectives  Explain how businesses use planning to solve problems and make a difference  Distinguish how planning is different at the organizational, divisional, and functional levels of a business  Explain how senior managers develop organizational strategies and business plans  Outline methods that managers use to understand their industries and competitors

3. 9- 3 Management 1e 9- 3 Management 1e Learning Objectives (cont.)  Describe how managers assess the organization’s capacity to execute proposed business plans  Demonstrate how managers develop divisional strategies and tactical plans  Compare traditional strategic planning models to an event-based approach

4. 9- 4 Management 1e 9- 4 Management 1e How Managers Plan to Make a Difference (p. 228)  Designing and developing strategies is a continuous process that helps organizations determine what they do, why they should be in business, how they can win and sustain market share, and how they can continually innovate to keep ahead of the competition  Acquisition (p. 230) When an organization purchases another organization or business in order to grow

5. 9- 5 Management 1e 9- 5 Management 1e Different Levels of Strategy (p. 230)  Strategy Plan of action for achieving goals Three levels of strategy  Organizational strategy – corporate level strategy that addresses the question “What business are we in?” and unites all parts of the organization  Divisional strategy – strategy that determines how a business will compete in a particular industry or market  Functional strategy – strategy that determines how employees will implement and achieve a tactical plan

6. 9- 6 Management 1e 9- 6 Management 1e Different Levels of Strategy (cont.)  Organizational, divisional, and functional strategies are documented using business, tactical, and operational plans, respectively Business plan – stated actions and goals that support the organizational strategy (p. 230) Tactical plan – stated actions and goals that support achieving the divisional strategy Operational plan – stated actions and goals that support achieving the functional strategy

7. 9- 7 Management 1e 9- 7 Management 1e Different Levels of Strategy (cont.)  Connecting “mission, vision, and values” to strategies and plans Figure 9.1

8. 9- 8 Management 1e 9- 8 Management 1e Organizational Strategies (p. 231)  Organizational strategies designed to gain a competitive advantage Characteristics of an organization’s products or services that distinguish it from competitors and provide an advantage in the market  Reactor Company that does not follow a consistent strategy but just responds to changes in the environment  Analyzer Company whose strategies seek to maintain existing products and services while pursuing limited innovation  Often imitate or follow the proven success of prospector organizations

9. 9- 9 Management 1e 9- 9 Management 1e Organizational Strategies (cont.)  Defender (p. 231) Company whose strategies support stable growth and continual improvement of existing products and services Stability strategy – organization focuses on processes, products, and services that will sustain it over the long term (p. 232) Cost leadership strategy – organization seeks competitive advantage by reducing production costs and therefore consumer prices

10. 9- 10 Management 1e 9- 10 Management 1e Organizational Strategies (cont.)  Prospector (p. 232) Company that uses strategies for high-risk, fast growth through product and market innovation First mover – company that gains competitive advantage by being the first to offer a new product or service, or to use a new cost-saving technology

11. 9- 11 Management 1e Industry and Competitive Analysis (p. 232)  Competitive analysis Process of assessing and monitoring the competition in order to design more effective strategies  Five forces model (p. 233) Michael Porter Allows managers to assess the major threats that an organization can expect to encounter Enables continued reinvention and shaping of the business to reflect market changes

12. 9- 12 Management 1e Industry and Competitive Analysis (cont.)  Five forces model Figure 8.2

13. 9- 13 Management 1e Industry and Competitive Analysis (cont.)  Five forces model (cont.) Power of suppliers – ability to increase prices Power of buyers (customers) – ability to decrease prices charged by company for its products or services (p. 234) Substitute products and services – importance of uniqueness of company’s products or services Rivalry – increase in competitors that offer the same products or services (p. 236)

14. 9- 14 Management 1e Industry and Competitive Analysis (cont.)  Five forces model (cont.) New entrants – new competitors that enter the market (p. 234)  Barriers to entry – obstacle that makes it difficult for an organization to enter a particular market or replicate a competitor’s service or product offerings  Supply-side economies of scale (p. 235)  Demand-side benefits of scale  Customer switching costs  Capital requirements  Incumbent advantages independent of size  Unequal access to distribution channels (p. 236)  Restrictive government policy

15. 9- 15 Management 1e Industry and Competitive Analysis (cont.)  Five forces model (cont.) New entrants (cont.)  Expected retaliation (p. 236)  Financial resources of incumbent, loyalty of customer base, and control over distribution channels  Incumbent’s ability to reduce prices  Industry growth rate

16. 9- 16 Management 1e Organizational Position and Capacity (p. 237)  Resources Assets, people, processes, and capabilities of an organization  Market position Honest assessment about how the company competes in its industry  Capacity Financial and human resources available to the company which will enable or hinder it to achieve its goals

17. 9- 17 Management 1e Organizational Position and Capacity (p. 237)  Company position Boston Consulting Group Matrix – framework for evaluating business units according to growth and market share (p. 237)  Largely based on the proportion of the market controlled by the organization  Growth strategy – strategy for increasing revenue, profits, market share, or territories (p. 238)  High growth markets – total business is expanding

18. 9- 18 Management 1e Organizational Position and Capacity (cont.)  BCG Matrix Figure 8.3

19. 9- 19 Management 1e Organizational Position and Capacity (cont.)  BCG Matrix (cont.) Business’s position in the matrix determines a strategic recommendation (p. 238) Dogs (low market share/low market growth) Cash cows (high market share/low market growth) Stars (high market share/high market growth; p. 239) Question marks (low market share/high market growth  SWOT analysis Method of assessing an organization’s strengths, weaknesses, opportunities, and threats

20. 9- 20 Management 1e Organizational Position and Capacity (cont.)  Capabilities and resources (p. 240) Core capabilities (competencies) – activities and processes that an organization routinely does well in comparison to its competitors Resources – assets, people, and processes of an organization

21. 9- 21 Management 1e Organizational Position and Capacity (cont.)  Growth and underinvestment archetype Figure 9.4

22. 9- 22 Management 1e Strategies for Performance (p. 245)  Focus strategy (p. 246) Organization concentrates on a specific target market May employ cost leadership and/or differentiation strategies  Differentiation strategy Organization seeks competitive advantage by providing goods or services that are significantly different from the competition

23. 9- 23 Management 1e Strategies for Performance (cont.)  Vertical integration (p. 247) Diversification method in which an organization adopts:  Backward integration - begins producing its own supplies  Form of diversification strategy in which an organization adds new kinds of goods, services, or business units  Forward integration – takes on the distribution and selling of its products  Renewal strategy Addresses declining performance through retrenchment and regrowth

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