Strategy Formulation And Implementation

2. Strategy Formulation And Implementation Chapter 8

3. Introduction Story of KMART & Wal-Mart • How did Wal-Mart founder Sam Walton and his managers formulate and implement strategies that helped the company overtake Kmart • If you were stepping in as Kmart’s new CEO, what strategies might you adopt to help chain survive?

4. Wal-Mart formulated & implemented strategies that have made it one of America’s most successful companies While • Kmart failed to cope with increased competition and changing customer expectations “Kmart’s new CEO and other top executives analyze the situation to formulate a strategy that will suit Org strengths as well as fit changing economic times if the chain is to survive in competitive market”

5. All the Organizations are involved in Strategic Management • finding ways to respond to competitors • Cope up with environmental changes • Effectively use available resources

6. Thinking Strategically • Strategic management is considered to be one specific type of planning • Some Companies hire Strategic Planning Experts

7. Thinking Strategically Continue Strategic thinking means to take the long term view and to see the big picture, including the Organization and the competitive environment and how they fit together

8. What is Strategic Management ? • The set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals

9. It is a process to help managers answer questions such as • where is the organization now • Where does the organization want to be • What changes and trends are occurring in the competitive environment? • What courses of action will help us achieve our goals? What happens after answering these questions!!

10. Grand StrategyGeneral plan of major action by which a firm intends to achieve its long-term goals • Growth • Stability • Retrenchment

11. Growth Strategy Promoting internally by investing in expansion or externally by acquiring additional business divisions • Diversification : acquisition of business that are related to current product lines or that take the corporation into new areas: Joint Ventures Strategy of expanding operations into new business or industry and producing new goods or services • Examples: PepsiCo’s diversification into snack food business Phillip Morris’s tobacco giant diversification with brewing industry with the acquisition of Miller Beer GE move into broadcasting with its acquisition of NBC

12. Stability • Pause strategy : Org wants to remain the same size or grow slowly and in a controlled fashion • The Corporation wants to stay in its current business • When Org undergone a turbulent period of rapid growth, managers focus on a Stability strategy to integrate strategic business units & ensure that Org is working efficiently Example: Allied Tire Stores; motto is “ We just sell tires”

13. Retrenchment • Org goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses • Liquidation • Divestiture • Downsizing / Retrenchment

14. Divestiture: involves selling off businesses that no longer seem central to the Corporation • When GE sold its family financial services, corporation were going through periods of retrenchment, also called downsizing • Liquidation : Selling off a business unit for the cash value of assets, thus termination its existence • Dissolve the Co. & sell off all its assets & is usually done when the company is facing bankruptcy & needs to repay Loans

15. Global Strategy • Companies might pursue a separate grand strategy as the focus of global business • How to compete internationally? • A basic question confronts the managers of any org that competes in more than one national market: To what extent should the org customize features of its products and marketing campaign to different national conditions?

16. Companies Strategic Delima Globalization Vs Mutlidomestic strategy Global integration & national responsiveness

17. Global / Globalization Strategy The standardization of product design & advertising strategies throughout the world • Very little , if any customization to suit the specific needs of customers in different countries • The theory is that people everywhere want to buy the same products and live the same way: people everywhere want to drink Coca Cola & wear Levi blue jeans

18. Example: Levi paid an advertising agency $500,000 to produce a series of TV commercial to promote its 501 jeans: using same series in many countries & simply changing the language: saved money & keep prices low • Colgate-Palmolive Co. toothpaste sells in 40 countries by running same commercial: saving $1M-2M in production cost alone

19. Multi-Domestic Strategy • Competition in each country is handled independently of industry competition in other countries • A multinational company is present in many countries, but it encourages marketing, advertising and product design to be modified and adapted to the specific needs of each country • Managers decide to customize products & marketing strategies to specific national conditions Companies reject the idea of a single global market

20. Example of Multi-domestic Strategy • Unilever :European food & household products Co. sells a different range of food products and uses a different marketing approach than its North American division • French do not drink orange juice for breakfast • spicy toothpaste preferred in the Middle East

21. Transnational Strategy • To achieve both global integration & national responsiveness • Difficult to achieve, because one goal requires close global coordination while the other goal requires local flexibility Transnational Strategy

22. Example of Transnational Strategy • Caterpillar’s Tractor (world’s largest manufacturer of heavy earth-moving equipment): • Tailored the finished product to local needs by adding features such as diff colors of paint or steering wheels on right or left side: Price pressures in local market: Government regulations: Local Customization Differentiating its product among local markets

23. Purpose Of Strategy • The plan of action that prescribes resource allocation and other activities for dealing with the environment and helping the Organization attain its goals • A comprehensive plan for accomplishing an organizations goals Core Competence Synergy Value Creation

24. Through this strategy; executives try to develop within the Org a core competence &Synergy, thus creating value for money

25. Core Competence • Something that Org does especially well in comparison to its competitors • Represents Competitive advantage because the company acquires expertise that competitors do not have Core Competence maybe in the area of Mastery of technology Customer Service Superior r&d

26. Synergy • When Org parts interact to produce a joint effect that is greater than the sum of the parts acting alone, Synergy occurs • Performance gains that result when individuals and departments coordinate their actions • Team members share equipment, customer lists, and other information that enables these small companies to go after more business than they ever could have without the team approach • ”

27. Example • AT&T synergy btw communication services & hardware “One-stop shop • Two or more divisions with in a diversified company can utilize the same manufacturing facilities, distribution channels, advertising campaigns Share Resources Reduce Cost Charge lower Prices Attract More Customers Competitors

28. Value Creation • Value can be defined as the combination of benefits received and paid by the customer • Exploiting core competencies & attaining synergy help companies create value for their customers • A product that is low in cost but does not provide benefits is not a good value • Delivering value to the customer should be at the heart of strategy • Managers need to understand which parts of the Co. operation create value & which do not – a Co. can be profitable only when the value it creates is greater than the cost of resources

29. Example: People Express Airlines initially made a splash-low prices, but traveler’s couldn’t tolerate consistently late takeoffs at any price • Macdonald’s used core competencies to create better value for customers, resulting in the introduction of “Extra value meals” & opening restaurants in different locations: Wal-Mart etc

30. Levels Of Strategy • Corporate Level Strategy • Business Level Strategy • Functional Level Strategy

31. Corporate Level Strategy • The level of strategy concerned with the question What business are we in? • Pertains to Org as a whole and the combination of business units and product lines • Strategic actions at this level relate to acquisitions of new businesses; additions or divestments of business units, plants or product lines and joint ventures • Examples: Book

32. Business Level Strategy • The question How do we compete? • Pertains to each business level unit or product line • It focuses on how the business unit competes within its industry for customers • Strategic decisions at this level concern amount of advertising, extent of R&D, product changes, expansion or contraction of product lines • Example: Cost reduction: To remain competitive Hyatt hotels trimmed MangT Staff & increased focus on Marketing & Advertising

33. Function Level Strategy • The question How do we support the business level competitive strategy ? • pertains to the major functional departments within the business unit • Includes all the major functions, marketing, manufacturing, finance • Example: Hyatt hotels marketing dept is to focus on frequent business traveler by putting fax machines & modems in rooms

34. Strategy Formulation planning & decision making that lead to the establishment of the firm’s goals & the development of a specific strategic plan include assessing external environment & internal problems & integrating results into goals & strategy Strategy Implementation Use of managerial & Organizational tools to direct resources towards accomplishing strategic results Administration & execution of the strategic plan Managers may use persuasion, new equipment, changes in Org structure or reward system to ensure that employees and resources are used to make formulate strategy in reality Strategic Formulation Vs Implementation

35. Situation Analysis • Analysis of the strengths, weaknesses, opportunities and threats (SWOT) that affect organizational performance • Important to all companies but is crucial to those considering globalization because of the diverse environments in which they will operate • Info about Opportunities & Threats may be obtained from variety of sources, including customers, professional journals, suppliers, friends in other Org, association meetings • Firms use diff techniques to learn about competitors, such as asking potential recruits about their visits to other companies, hiring people away from competitors, taking plant tours posing as “innocent” visitors and even buying garbage

36. Situational Analysis Continue • Executives acquire info about Internal Strength & weaknesses executives from variety of reports, including budgets, profit & loss statements • Face to face discussions & meetings with people at all levels of the hierarchy, executives build an understanding of the Companies internal strength & weaknesses

37. Internal strengths & Weakness Strengths: Positive internal characteristics that the organization can exploit to achieve strategic performance goals Weaknesses : Internal characteristics that may restrict the Organization performance Finance Marketing MangT & Org Managers can determine their strengths or weaknesses via other companies based on the their understanding of these areas • Profit Margin • Return on investment • Credit Rating • Distribution channels • market share • Customer Satisfaction • Product Quality • Degree of Centralization • Planning, Information & control • System

38. Threats: characteristics of external environment that may prevent the Org from achieving its strategic goals Example: Executives evaluate the external environment with info about the nine sectors Opportunities are characteristics of the external environment that have the potential to help the Org achieve or exceed its strategic goals External Opportunities & Threats

39. Strengths Trusted Brand names 70% Market share Spent Millions on Research into digital imaging Tech Blessed with tech genius Weaknesses Dispirited Workforce Culture focused on protecting current businesses rather then seeking new frontiers Confused btw imaging business, healthcare & household products Product & market developed ability ill-focused S & W Kodak

40. Opportunities Tech strength & digital imaging will be fast growing market Expansion in Asia while barely developed markets such as India, Brazil can keep traditional business for least next decade “ Half of the people in the world have yet to take a their first pic” Threats Increased competition Digital imaging arena, facing giant such as Canon, Casio, Sony & HP Smaller competitors emerging In digital market O & T Kodak

41. What does SWOT analysis suggest for Kodak’s Strategy?

42. To capitalize on the Company’s Strength & Opportunities ………..How

43. Divest or liquidate • Communication & Leadership • Transform Culture • Autonomy at work place • Strategic Alliance

44. Sell other businesses to focus more on core imaging business • Improved communication & stronger leadership improved morale • Transform slow moving culture to prepare for digital future • Brought together disjointed talent into small autononomous division & hired former computer marketing executive to head it • Strategic alliances with IBM, HP, Microsoft so the new divisions can develop new products in partnership to be more competitive on global basis

45. Formulating Corporate Level Strategy Portfolio Strategy Pertains to mix of business units and product lines that fit together in logical way to provide synergy & competitive advantage for the corporation • Strategic Business Unit ?

46. The BCG Matrix

47. Star Has large market share in a rapidly growing industry It has additional growth potential & profits should be plowed into this business as investment for future growth n profits Visible & attractive & will generate profits & positive cash flow even as the industry matures & market growth slows Cash Cow Exits in mature, slow growth industry but is a dominant business in the industry with a large market share No heavy investments required (advertising & plant expansion) Invest in other riskier businesses

48. Question Mark Exists in new, rapidly growing industry but has only small market share ? Business is risky It could become a star, but it could also fail Invest cash earned from cash cows in ? With the goal that it will turn into future STAR Dogs Poor performer Small share in slow growth market Provides little profit Targeted for divestment or Liquidation if turnaround is not possible

49. Gillette Company ?

50. Formulating Business Level Strategy