Chapter 6 Strategy Formulation; Situation Analysis & Business Strategy

1. Chapter 6Strategy Formulation;Situation Analysis & Business Strategy Strategic Management and Business Policy 11th Edition Thomas L. Wheelen J. David Hunger

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 Top-Down NEVER Bottom-Up Strategies Objectives Vision Mission SWOT Strategic Planning Situation Analysis & Business Strategy

4. Long-Term Objectives • Results expected from pursuing certain strategies. • Strategies represent actions to accomplish 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. 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. 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

12. 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

13. Strategic Factors Analysis Summary (SFAS) Matrix • Generated mainly to deal with the cons ofSWOT analysis Situation Analysis & Business Strategy

14. Generating Alternative Strategies Using TOWS Matrix • SWOT considers onlyOpportunities 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

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 DifferentiationStrategies 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 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

20. 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 best-price value; lowest P available compared to those of rivals’ given the quality attributes. Situation Analysis & Business Strategy

21. 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

22. 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

23. 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

24. 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

25. 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

26. Recent Mergers Situation Analysis & Business Strategy

27. 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

28. 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

29. 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