STRATEGY FORMULATION STRATEGY FORMULATION AND IMPLEMENTATIONAND IMPLEMENTATION

STRATEGIC MANAGEMENTSTRATEGIC MANAGEMENT

S.M is art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives.

Stages of S.MStages of S.M

• STRATEGY FORMULATION:• Developing mission• SWOT analysis• Establish long term objectives• Choosing particular strategy to peruse

STRATEGY IMPLEMENTATION

Action stage (put formulate strategy into action)

Establish annual objectivesDevise policiesMotivate employeesRedirecting marketing effortsPrepare budgets

STRATEGY EVALUATIONSTRATEGY EVALUATION

Final stageMeasuring performanceTaking corrective action Providing feed back

Strategy:plan of action dealing with allocating resources and other activities to attain organization goals.

Grand strategy:general plan of major action by which organization intend to achieve its long term goals.

Grand strategy divide into three categories: growth strategies Stability strategies Consolidation strategies

GROWTH STRATEGYGROWTH STRATEGYFOR CURRENT MARKET:PRODUCT DEVELOPMENT:Increase sales by improving or modifying

present product or service. Meet changing customer needs and wants Advantages of new technology Replacing or reformulating existing product.

MARKET PENETRATIONIncrease market share for present product or

services through greater marketing efforts.

VERTICAL INTEGRATION• FORWARD INTEGRATION

• BACK WARD INTEGRATION

FORWARD NTEGRATION:

Gaining ownership or increased control over distributors or retailers.

BACKWARD INTEGRATION

Seeking ownership or increase control of firms suppliers.

For new marketsFor new markets

MARKET DEVELOPMENT: Bring current product to new market. HORIZONTAL INTEGRATION: Seeking ownership and increase control over firms

competitors. Take over (polka, walls) Merges (pizza hut , coke) Acquisition (nestle, Ava)

DIVERSIFICATION DIVERSIFICATION STRATEGIESSTRATEGIES

CONCENTRIC DIVERSIFICATION:Adding new but related product t. (tooth

paste+ brush)CONGLOMERATE DIVERSIFICATIO.Adding new but unrelated product. (Mercedes

+vacuum cleaner)HORIZONTAL DIVERSIFICATION:Adding new but unrelated product. Pepsi,

water, beer)

Stability StrategyStability Strategy

– A strategy that seeks to maintain the status quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons.

DEFENSIVE OR DEFENSIVE OR CONSOLIDATION STRATEGIESCONSOLIDATION STRATEGIES

– Developing strategies to counter organization weaknesses that are leading to performance declines.

RETRENCHMENT:Reducing existing product by withdrawing from

weaker market. due to decline of sale and profit.PRUNING: Reduce weak product from market.DIVESTITURE OR DIVESTMENTSell a part of business. (distributor)

LIQUIDATION:

selling all company assets.

JOIN VENTURE:

2 or more companies from temporary partnership.

GLOBAL STRATEGYGLOBAL STRATEGYGLOBALIZATIONThe standardization of product design and

advertising strategies throughout the world.MULTIDOMESTIC STRATEGY:The modification of product design and advertising

strategies to suit the specific needs of individual countries.

TRANSNATIONAL STRATEGY:A strategy that combines global coordination to

attain efficiency with flexibility to meet specific needs in various country.

Levels of strategyLevels of strategy

Corporate-levelstrategy

Business- levelstrategy

Function- levelstrategy

CORPORATE –LEVEL CORPORATE –LEVEL STRATEGYSTRATEGY

A level of strategy concerned with the question “what business are we in?”pertains to the organization as a whole and the combination of business units and products lines that makes it up.

Acquisition of new businessAddition or divestment of business unitJoint venture with other corporations

Business level strategyBusiness level strategy

The level of strategy concerned with he question “how do we compete?” pertain to each business unit or product line within the organization.

Advertising Research and development New product development Expansion or contract product line Reduction of cost

Function- level strategyFunction- level strategy

A level of strategy concerned with the question “how do we support the business level strategy?” pertain to all organization’s major department.

All major departmentFinance. Marketing, HR

SWOT ANALYSISSWOT ANALYSIS

SWOT analysis is a tool for auditing an organization and its environment.

It is the first stage of planning and helps marketers to focus on key issues.

SWOT stands for strengths, weaknesses, opportunities, and threats.

Strengths and weaknesses are internal factors. Opportunities and threats are external factors.

EXTERNAL FACTORSEXTERNAL FACTORSIn SWOT, opportunities and threats are

external factors. : An opportunity is an area of buyer need in which a company can perform profitability.example:

A developing market such as the Internet. mergers, joint ventures or strategic alliances moving into new market segments that offer

improved profits a new international market a market vacated by an ineffective competitor

Environmental threat is a challenge posed by an unfavorable trend or development that would lead in the absence of defensive marketing action to deterioration in sales/profits

A threat could be: a new competitor in your home market price wars with competitors a competitor has a new, innovative product or service competitors have superior access to channels of

distribution taxation is introduced on your product or service

Internal Environment Analysis -Internal Environment Analysis -Strengths /WeaknessesStrengths /Weaknesses

In SWOT, strengths and weaknesses are internal factors. For example:A strength could be:

your specialist marketing expertise. a new, innovative product or service location of your business quality processes and procedures any other aspect of your business that adds

value to your product or service.

weakness could be: lack of marketing expertise undifferentiated products or services

(i.e. in relation to your competitors) location of your business poor quality goods or services damaged reputation

PORTFOLIO STRATEGYPORTFOLIO STRATEGY

A type of corporate – level strategy that pertains to the organization’s mix of SBU and product lines that fit together in such way as to provide the corporation with synergy and competitive advantage.

STRATEGIC BUSINESS UNIT:A division of the organization that’s has a

unique business mission, product line, competitors and markets elative to other SBU in the same corporation.

Synergy: the condition that exist when the organization’s parts interact to produce a joint effect that is greater than the sum of the parts acting alone.

The BCG GROWTH MATRIXThe BCG GROWTH MATRIX

A concept developed by the Boston Consulting Group that evaluates SBU’s with respect to the dimension of business growth rate and market share

BCG Growth-Share MatrixBCG Growth-Share Matrix

Cash Cow Star

Dog Problem Child

Market Share

High

LowLow High Market Growth

The Boston Consulting Group’s The Boston Consulting Group’s Growth-Share MatrixGrowth-Share Matrix

Stars

5

4 3 ?Question marks

? ??2

1

Cash cow

6

Dogs

8

7

20%-20%-18%-18%-16%-16%-14%-14%-12%-12%-10%-10%- 8%-8%- 6%-6%- 4%-4%- 2%-2%- 00M

arke

t G

row

th R

ate

10x 4x 2x 1.5x 1x 10x 4x 2x 1.5x 1x

Relative Market Share.5x .4x .3x .2x .1x .5x .4x .3x .2x .1x

starstar

High growth and high market share Large market share in rapidly growing

market. Business is likely to generate enough

cash to be self sustaining. Recommended tactics:

promote aggressively expand your product or service invest in R & D

Cash cow Cash cow

Compete in a slow growth industry and have high market share

Business can be used to support other business units.

Generate more cash than consume

Question markQuestion mark

Business requires a lot of cash to maintain market share.

invest more cash or, divest Has potential to gain market share

and become star and fail as well.

Dogs/ problem childDogs/ problem child

Poor performerSmall share in low growth industryBusiness is a cash trap. focus on short term avoid risky project limited future

Porter’s competitive forcesPorter’s competitive forces

Potential new entrant

Power of suppliers

Threat of substitute product

Power of buyers

Rivalry among competitors

Exhibit 8–6Exhibit 8–6 Forces in the Industry Forces in the Industry AnalysisAnalysis

Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980).

Potential new entrant

Many problem face by new entrantEconomies of scaleLack of capitalAccess to distributionGovernment policiesAccess to inputs

Power of buyerPower of buyer

Single buyer may influence on price and other conditions

Monopsony: many seller but one buyer

Supplier powerSupplier power

One supplier –many buyersInfluences on price

Threat of substituteThreat of substitute

Any product available in the market may force customer to brand switching.

Rivalry among competitorsRivalry among competitors

Intense competition between two companies.

Same customer same productPepsi and cokeFight to increase market share

Competitive strategiesCompetitive strategiesGeneric strategies were used initially in

the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage.

Cost Leadership Differentiation Focus or Niche strategy

Cost Leadership Cost Leadership

A type of competitive strategy with which the organization aggressively seeks, efficient facilities, cut cost, and employs tight cost

control to be more Efficient than competitors.

The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost.

Low cost mean company can undercut competitors.

differentiationdifferentiation

A type of competitive strategy with which the organization seek to distinguish its product or

services from competitors.The organization may use advertising, distinctive

product features exceptional service or new technology to achieve a product perceived as unique.

This strategy may be profitable because customer will pay high price for the product.

FOCUSFOCUSThe type of competitive strategy that emphasizes

concentration on a specific regional market or buyer group.

The premises is that the need of a group can be better serviced by focusing entirely on it.

PRODUCT LIFE CYCLEPRODUCT LIFE CYCLE

The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline).

PRODUCT LIFE CYCLEPRODUCT LIFE CYCLE

INTRODUCTION STAGE In Introduction stage, sales are low as a new idea

is first introduced to a market.  Customers aren't looking for the product, and

may not be aware of its benefits or advantages over current offerings.

  In fact, they may not even know about it.  Informative promotion is needed to tell potential

customers about the new product concept. Even though a firm promotes its new product, it takes time for customers to learn that the product is available.  Money is invested in developing the market in anticipation of future profits.

GROWTH STAGEGROWTH STAGE

The Growth stage, industry sales grow quickly - but industry profits rise and then start falling. 

The innovator begins to make big profits as more and more customers buy. 

But competitors see the opportunity and enter the market. 

Some just copy the most successful product, or try to improve it to compete better.  Others try to refine their offerings to do a better job of appealing to some target markets.  The new entries result in much product variety.

MATURITY STAGEMATURITY STAGE Maturity occurs when industry sales level off.  Competition gets tougher as aggressive

competitors have entered the race for profits.  Industry profits continue to go down during

maturity because promotion costs rise and competitors continue to cut prices to attract more business. New firms may still enter the market during this stage.  These late entries skip the early life cycle stages, including the profitable growth stage.  They must try to take market share from established firms, which is difficult and expensive in a saturated, flat market.   Customers who are satisfied with their current relationship won't be interested in switching to an unknown brand.

DECLINE STAGEDECLINE STAGE

During the Sales Decline stage, new products replace the old. 

Price competition from dying products becomes more vigorous, but firms with strong brands may make profits until the end because they successfully differentiated their products. They may also keep some sales by appealing to the most loyal customers or those who are slow to try new ideas.  These buyers might switch later, smoothing the sales decline.