c hapter 6 s trategy f ormulation ; s ituation a nalysis & b usiness s trategy s trategic m...
TRANSCRIPT
CHAPTER 6
STRATEGY FORMULATION;SITUATION ANALYSIS & BUSINESS STRATEGY
STRATEGIC MANAGEMENT AND BUSINESS POLICY
11th Edition
Thomas L. Wheelen
J. David Hunger
Situation Analysis & Business Strategy 2
Strategies in Action
-- Quest for higher revenues
-- Quest for higher profits
Companies Embrace Strategic Planning
Situation Analysis & Business Strategy 3
Anatomy of Strategic Planning
Vision
Mission
SWOT
Objectives
Strategies
Top-Down NEVER
Bottom-Up
Strategic Planning
Situation Analysis & Business Strategy 4
Results expected from pursuing certain strategies.
Strategies represent actions to accomplish long-term objectives.
Long-Term Objectives
Situation Analysis & Business Strategy 5
Long-Term Objectives
SMART Objectives
Some is not a number
Soon is not a time
“May be” is not an answer
Situation Analysis & Business Strategy 6
Long-Term Objectives
SMART Objectives
Specific
Measurable
Achievable
Relevant
Time-bound
Situation Analysis & Business Strategy 7
Long-Term Objectives
Smarter Objectives Quantifiable
Measurable
Realistic
Understandable
Challenging
Hierarchical
Obtainable
Congruent
Time-line
Situation Analysis & Business Strategy 8
Long-Term Objectives
Objectives Necessary -- Corporate Level
Divisional Level
Functional Level
Situation Analysis & Business Strategy 9
Varying Performance Measures by Organizational Level
Organizational Level
Basis for Annual Bonus/Merit Pay
Corporate75% on long-term objectives25% on annual objectives
Division50% on long-term objectives50% on annual objectives
Function25% on long-term objectives75% on annual objectives
Long-Term Objectives
Situation Analysis & Business Strategy 10
Long-Term Objectives
Strategic Objectives
Larger market share
Quicker on-time delivery than rivals
Quicker design-to-market times than rivals
Lower costs than rivals
Higher product quality than rivals
Wider geographic coverage than rivals
Situation Analysis & Business Strategy 11
STRENGTHS: is a resource advantage relative to competitors and the needs of the market a firm serves or expects to serve.
SWOT Analysis
WEAKNESSES: is a limitation or deficiency in one or more resources or competencies relative to competitors that obstructs a firms’ effective performance.
Situation Analysis & Business Strategy 12
OPPORTUNITIES: is a major favorable situation in a firms’ environment; breakthrough technology, improved supplier relationships, changes in regulatory circumstances, identification of a previously overlooked market segment.
SWOT Analysis
THREATS: is a major unfavorable situation in a firms’ environment; entrance of new competitors, slow market growth, increased bargaining power of key suppliers, technological changes, new regulations.
Situation Analysis & Business Strategy 13
Strategic Factors Analysis Summary (SFAS) Matrix
Generated mainly to deal with the cons of SWOT analysis
Situation Analysis & Business Strategy 14
Generating Alternative Strategies Using TOWS Matrix
Thus a TOWS Matrix is developed to generate further alternative strategies that might not be considered in a SWOT analysis
SWOT considers only Opportunities and
Strengths when thinking of alternative
strategies
Situation Analysis & Business Strategy 15
Generating Alternative Strategies Using TOWS Matrix
Situation Analysis & Business Strategy 16
Generating Alternative Strategies through Business Strategies
Business Strategy focuses on improving the competitive position of a company
Business strategies could be either:
• Competitive Strategies
• Cooperative Strategies
Situation Analysis & Business Strategy 17
Porter’s Generic Competitive Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Strategies that allows org. to gain competitive advantage
Situation Analysis & Business Strategy 18
Porter’s Generic Competitive Strategies
Cost Leadership:
Producing standardized products at a low per-unit cost for a broad range of consumers who are price-sensitive.
Considered effective when:
• Low switching costs
• Buyers have high bargaining power
• Rivals introduce low prices to build a customer base
• No product differentiation
Situation Analysis & Business Strategy 19
Porter’s Generic Competitive Strategies
Considered effective when:
There are many ways to differentiate the product.
Buyers needs & uses are diverse
Few rival firms are following a similar approach
Technological change is fast paced.
Differentiation
Producing P/S considered unique to consumers who are price-insensitive.
Situation Analysis & Business Strategy 20
Porter’s Generic Competitive Strategies
• Low-cost focusOffering P/S to a small range of consumers (niche group) at the lowest P available.
• Differentiation Focus (Best-value focus)Offering P/S to a small range of consumers at the best-price value; lowest P available compared to those of rivals’ given the quality attributes.
Focus:
Producing P/S that fulfill the needs of small groups of customers, e.g. mkt. penetration, mkt. development strategies. Essential when consumers have distinctive preferences that rivals cannot provide.
Situation Analysis & Business Strategy 21
Considered effective when:
Industry leaders do not consider the niche to be crucial.
The industry has many different niches, thus allowing focuser to pick a competitive attractive niche.
The target mkt. niche is large, profitable, & growing.
Porter’s Generic Competitive Strategies
Situation Analysis & Business Strategy 22
Cooperative Strategies - Means for Achieving Strategies
Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.
Globalization is the major reason why firms use partnering to achieve strategies.
Joint Venture/Partnering
Situation Analysis & Business Strategy 23
Cooperative Strategies - Means for Achieving Strategies
Why Joint Ventures Fail - Managers who must collaborate daily; not
involved in developing the venture Benefits the company not the customers Not supported equally by both partners May begin to compete with one of the
partners
Joint Venture/Partnering
Situation Analysis & Business Strategy 24
Considered an effective strategy when:
Synergies between private and publicly held
Domestic with foreign firm, local management can reduce risk
Complementary distinctive competencies
Resources & risks where project is highly profitable (e.g. Alaska Pipeline)
Two or more smaller firms competing w/larger firm
Need to introduce new technology quickly
Cooperative Strategies - Means for Achieving Strategies
Joint Venture/Partnering
Situation Analysis & Business Strategy 25
Cooperative Strategies - Means for Achieving Strategies
Reasons for M&A: Provide improved capacity utilization Better use of existing sales force Reduce managerial staff Gain economies of scale Smooth out seasonal trends in sales Gain new technology Access to new suppliers, distributors, customers,
products, creditors
Mergers & Acquisitions
Situation Analysis & Business Strategy 26
Recent Mergers
Acquiring Firm Acquired Firm
IBM Rational Software Corp
Yahoo Inktomi Corp
U.S. Steel National Steel Corp
Pfizer Pharmacia
Krispy Kreme Doughnuts Montana Mills
Oracle People Soft
Palm Handspring
Nike Converse
Situation Analysis & Business Strategy 27
First Mover Advantages
Potential Advantages Securing access to rare resources Gaining new knowledge of key factors & issues Carving out market share Easy to defend position & costly for rival firms to
overtake
Cooperative Strategies - Means for Achieving Strategies
The benefits a firm may achieve by entering a new market or developing a new product/service prior to rival firms.
Situation Analysis & Business Strategy 28
First Mover Advantages
Considered effective when:
• Build a firm’s image with buyers.
• Produce cost advantages (new tech., distribution channels, etc.)
• Create strong loyal customers
Cooperative Strategies - Means for Achieving Strategies
Situation Analysis & Business Strategy 29
Outsourcing
Business-process outsourcing (BPO)
Cooperative Strategies - Means for Achieving Strategies
Why Outsourcing? Less expensive Allows firm to focus on core business Enables firm to provide better services
Companies taking over the functional operations of other firms, e.g. HR, customer service.