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CHAPTER 6 STRATEGY FORMULATION; SITUATION ANALYSIS & BUSINESS STRATEGY STRATEGIC MANAGEMENT AND BUSINESS POLICY 11th Edition Thomas L. Wheelen J. David Hunger Strategies in Action Companies Embrace Strategic Planning -- Quest for higher revenues -- Quest for higher profits Situation Analysis & Business Strategy 2 Anatomy of Strategic Planning Vision Mission SWOT Top-Down NEVER Bottom-Up Objectives Strategies Strategic Planning Situation Analysis & Business Strategy 3 Long-Term Objectives Results expected from pursuing certain strategies. Strategies represent actions to accomplish long-term objectives. Situation Analysis & Business Strategy 4 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 5 Long-Term Objectives SMART Objectives Specific Measurable Achievable Relevant Time-bound Situation Analysis & Business Strategy 6 Long-Term Objectives Smarter Objectives Quantifiable Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent Time-line Situation Analysis & Business Strategy 7 Long-Term Objectives Objectives Necessary -Corporate Level Divisional Level Functional Level Situation Analysis & Business Strategy 8 Long-Term Objectives Varying Performance Measures by Organizational Level Organizational Level Corporate Division Function Basis for Annual Bonus/Merit Pay 75% on long-term objectives 25% on annual objectives 50% on long-term objectives 50% on annual objectives 25% on long-term objectives 75% on annual objectives Situation Analysis & Business Strategy 9 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 10 SWOT Analysis STRENGTHS: is a resource advantage relative to competitors and the needs of the market a firm serves or expects to serve. 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 11 SWOT Analysis 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. 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 12 Strategic Factors Analysis Summary (SFAS) Matrix Generated mainly to deal with the cons of SWOT analysis Situation Analysis & Business Strategy 13 Generating Alternative Strategies Using TOWS Matrix SWOT considers only Opportunities and Strengths when thinking of alternative strategies Thus a TOWS Matrix is developed to generate further alternative strategies that might not be considered in a SWOT analysis Situation Analysis & Business Strategy 14 Generating Alternative Strategies Using TOWS Matrix Situation Analysis & Business Strategy 15 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 16 Porter’s Generic Competitive Strategies Cost Leadership Strategies Differentiation Strategies Focus Strategies Strategies that allows org. to gain competitive advantage Situation Analysis & Business Strategy 17 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 18 Porter’s Generic Competitive Strategies Differentiation Producing P/S considered unique to consumers who are price-insensitive. 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. Situation Analysis & Business Strategy 19 Porter’s Generic Competitive Strategies 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. • Low-cost focus Offering 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 bestprice value; lowest P available compared to those of rivals’ given the quality attributes. Situation Analysis & Business Strategy 20 Porter’s Generic Competitive Strategies 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. Situation Analysis & Business Strategy 21 Cooperative Strategies Means for Achieving Strategies Joint Venture/Partnering 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. Situation Analysis & Business Strategy 22 Cooperative Strategies Means for Achieving Strategies Joint Venture/Partnering 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 Situation Analysis & Business Strategy 23 Cooperative Strategies Means for Achieving Strategies Joint Venture/Partnering 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 Situation Analysis & Business Strategy 24 Cooperative Strategies Means for Achieving Strategies Mergers & Acquisitions 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 Situation Analysis & Business Strategy 25 Recent Mergers Acquiring Firm IBM Yahoo U.S. Steel Pfizer Krispy Kreme Doughnuts Oracle Palm Nike Situation Analysis & Business Strategy Acquired Firm Rational Software Corp Inktomi Corp National Steel Corp Pharmacia Montana Mills People Soft Handspring Converse 26 Cooperative Strategies Means for Achieving Strategies First Mover Advantages The benefits a firm may achieve by entering a new market or developing a new product/service prior to rival firms. 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 Situation Analysis & Business Strategy 27 Cooperative Strategies Means for Achieving Strategies 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 Situation Analysis & Business Strategy 28 Cooperative Strategies Means for Achieving Strategies Outsourcing Business-process outsourcing (BPO) Companies taking over the functional operations of other firms, e.g. HR, customer service. Why Outsourcing? Less expensive Allows firm to focus on core business Enables firm to provide better services Situation Analysis & Business Strategy 29
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