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
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Anatomy of Strategic Planning
Vision
Mission
SWOT
Top-Down
NEVER
Bottom-Up
Objectives
Strategies
Strategic
Planning
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Long-Term Objectives


Results expected from pursuing certain
strategies.
Strategies represent actions to accomplish
long-term objectives.
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Long-Term Objectives
SMART Objectives
Some is not a number
Soon is not a time
“May be” is not an answer
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Long-Term Objectives
SMART Objectives
Specific
Measurable
Achievable
Relevant
Time-bound
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Long-Term Objectives
Smarter Objectives
Quantifiable
Measurable
Realistic
Understandable
Challenging
Hierarchical
Obtainable
Congruent
Time-line
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Long-Term Objectives
Objectives Necessary -Corporate Level
Divisional Level
Functional Level
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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
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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
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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.
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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.
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Strategic Factors Analysis Summary
(SFAS) Matrix
Generated mainly to deal with the cons
of SWOT analysis
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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
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Generating Alternative Strategies Using TOWS Matrix
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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
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Porter’s Generic Competitive Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Strategies that allows org. to gain competitive advantage
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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
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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.
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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.
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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.
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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.
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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
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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
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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
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Recent Mergers
Acquiring Firm
IBM
Yahoo
U.S. Steel
Pfizer
Krispy Kreme Doughnuts
Oracle
Palm
Nike
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Acquired Firm
Rational Software Corp
Inktomi Corp
National Steel Corp
Pharmacia
Montana Mills
People Soft
Handspring
Converse
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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
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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
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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
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