Griffin Chap08

CHAPTERCHAPTER

88

Managing Strategy and Strategic Planning

Managing Strategy and Strategic Planning

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Learning ObjectivesLearning Objectives

After studying this chapter, you should be able to:– Discuss the components of strategy, types of strategic

alternatives, and the distinction between strategy formulation and strategy implementation.

– Describe how to use SWOT analysis in formulating strategy.– Describe how business-level strategies are implemented.– Identify and describe various alternative approaches to

corporate-level strategy formulation.– Describe how corporate-level strategies are implemented.

After studying this chapter, you should be able to:– Discuss the components of strategy, types of strategic

alternatives, and the distinction between strategy formulation and strategy implementation.

– Describe how to use SWOT analysis in formulating strategy.– Describe how business-level strategies are implemented.– Identify and describe various alternative approaches to

corporate-level strategy formulation.– Describe how corporate-level strategies are implemented.


Chapter OutlineChapter Outline• The Nature of Strategic

Management– The Components of Strategy– Types of Strategic Alternatives– Strategy Formulation and

Implementation

• Using SWOT Analysis to Formulate Strategy

– Evaluating Strengths– Evaluating Weaknesses– Evaluating Opportunities and

Threats

• Formulating Business-Level Strategies

– Porter’s Generic Strategies– The Miles and Snow Topology– Product Life Cycle Strategies

• The Nature of Strategic Management

– The Components of Strategy– Types of Strategic Alternatives– Strategy Formulation and

Implementation

• Using SWOT Analysis to Formulate Strategy

– Evaluating Strengths– Evaluating Weaknesses– Evaluating Opportunities and

Threats

• Formulating Business-Level Strategies

– Porter’s Generic Strategies– The Miles and Snow Topology– Product Life Cycle Strategies

• Implementing Business-Level Strategies

– Implementing Porter’s Generic Strategies

– Implementing Miles and Snow’s Strategies

• Formulating Corporate-Level Strategies

– Single-Product Strategy– Related Diversification– Unrelated Diversification

• Implementing Corporate-Level Strategies

– Becoming a Diversified Firm– Managing Diversification

• Implementing Business-Level Strategies

– Implementing Porter’s Generic Strategies

– Implementing Miles and Snow’s Strategies

• Formulating Corporate-Level Strategies

– Single-Product Strategy– Related Diversification– Unrelated Diversification

• Implementing Corporate-Level Strategies

– Becoming a Diversified Firm– Managing Diversification


The Nature of Strategic The Nature of Strategic ManagementManagement

• Strategy– A comprehensive plan for accomplishing an organization’s

goals.

• Strategic Management– A way of approaching business opportunities and

challenges.– A comprehensive and ongoing management process aimed

at formulating and implementing effective strategies which align the organization with its environment to achieve major organizational goals.

• Effective Strategies– Strategies that promote a superior alignment between the

organization and its environment and the achievement of its goals.

• Strategy– A comprehensive plan for accomplishing an organization’s

goals.

• Strategic Management– A way of approaching business opportunities and

challenges.– A comprehensive and ongoing management process aimed

at formulating and implementing effective strategies which align the organization with its environment to achieve major organizational goals.

• Effective Strategies– Strategies that promote a superior alignment between the

organization and its environment and the achievement of its goals.


Components of StrategyComponents of Strategy

• Distinctive Competence– Something an organization does exceptionally well.

• Scope– Range of markets in which an organization will compete.

• Resource Deployment– How an organization will distribute

its resources across the areas in which it competes.

• Distinctive Competence– Something an organization does exceptionally well.

• Scope– Range of markets in which an organization will compete.

• Resource Deployment– How an organization will distribute

its resources across the areas in which it competes.


Types of Strategic AlternativesTypes of Strategic Alternatives

• Business-level Strategy– The set of strategic alternatives that an organization chooses

from as it conducts business in a particular industry or a particular market.

• Corporate-level Strategy– The set of strategic alternatives that an

organization chooses from as it manages its operations simultaneously across several industries and several markets.

• Business-level Strategy– The set of strategic alternatives that an organization chooses

from as it conducts business in a particular industry or a particular market.

• Corporate-level Strategy– The set of strategic alternatives that an

organization chooses from as it manages its operations simultaneously across several industries and several markets.


Strategy FormulationStrategy Formulation and Implementation and Implementation

• Strategy Formulation– The set of processes involved in creating or determining the

organization’s strategies; it focuses on the content of strategies.

• Strategy Implementation– The methods by which strategies are operationalized or

executed within the organization; it focuses on the processes through which strategies are achieved.

• Strategy Formulation– The set of processes involved in creating or determining the

organization’s strategies; it focuses on the content of strategies.

• Strategy Implementation– The methods by which strategies are operationalized or

executed within the organization; it focuses on the processes through which strategies are achieved.


Strategy Formulation and Strategy Formulation and Implementation (cont’d)Implementation (cont’d)

• Deliberate Strategy– A plan, chosen and implemented to support specific goals,

that is the result of a rational, systematic, and planned process of strategy formulation and implementation.

• Emergent Strategy– A pattern of action that develops over time

in the absence of goals or missions, or despite goals and missions.

• Deliberate Strategy– A plan, chosen and implemented to support specific goals,

that is the result of a rational, systematic, and planned process of strategy formulation and implementation.

• Emergent Strategy– A pattern of action that develops over time

in the absence of goals or missions, or despite goals and missions.


SWOT SWOT AnalysisAnalysis

• Strengths• Weaknesses• Opportunities• Threats

• Strengths• Weaknesses• Opportunities• Threats

MissionAn organization’s fundamental purpose

Good Strategies

SWOT AnalysisTo formulate strategies that support the mission

Those that support the mission and• exploit opportunities and strengths• neutralize threats• avoid weaknesses

Internal AnalysisStrengths(distinctivecompetencies)

Weaknesses Threats

External AnalysisOpportunities

Figure 8.1


Using SWOT Analysis toUsing SWOT Analysis to Formulate Strategy Formulate Strategy

• Evaluating Organizational Strengths– Organizational strengths

• are skills and abilities enabling an organization to conceive of and implement strategies.

– Common organizational strengths• are organizational capabilities possessed by numerous competing

firms.

– Distinctive competencies• are useful for competitive advantage and superior performance.

– Imitation of distinctive competencies• is duplicating another firm’s distinctive competence.

• Evaluating Organizational Strengths– Organizational strengths

• are skills and abilities enabling an organization to conceive of and implement strategies.

– Common organizational strengths• are organizational capabilities possessed by numerous competing

firms.

– Distinctive competencies• are useful for competitive advantage and superior performance.

– Imitation of distinctive competencies• is duplicating another firm’s distinctive competence.


Using SWOT Analysis to Formulate Using SWOT Analysis to Formulate Strategy (cont’d)Strategy (cont’d)

• Evaluating Organizational Strengths (cont’d)– Sustained competitive advantage

• occurs when a distinctive competence cannot be easily duplicated.

• is what remains after all attempts at strategic imitations have ceased.

– Strategic imitation is difficult when:• Distinctive competence is based on unique historical circumstances.

• Competitors do not understand the nature or character of a firm’s competence.

• The competence is based on a complex phenomenon, such as organizational culture.

• Evaluating Organizational Strengths (cont’d)– Sustained competitive advantage

• occurs when a distinctive competence cannot be easily duplicated.

• is what remains after all attempts at strategic imitations have ceased.

– Strategic imitation is difficult when:• Distinctive competence is based on unique historical circumstances.

• Competitors do not understand the nature or character of a firm’s competence.

• The competence is based on a complex phenomenon, such as organizational culture.



• Evaluating Organizational Weaknesses– Organizational weaknesses are skills and capabilities that do

not enable an organization to choose and implement strategies that support its mission.

– Weaknesses can be overcome by:• investments to obtain the strengths needed.

• modification of the organization’s mission so it can be accomplished with the current workforce.

– Competitive disadvantage is a situation in which an organization fails to implement strategies being implemented by competitors.

• Evaluating Organizational Weaknesses– Organizational weaknesses are skills and capabilities that do

not enable an organization to choose and implement strategies that support its mission.

– Weaknesses can be overcome by:• investments to obtain the strengths needed.

• modification of the organization’s mission so it can be accomplished with the current workforce.

– Competitive disadvantage is a situation in which an organization fails to implement strategies being implemented by competitors.



• Evaluating an Organization’s Opportunities and Threats– Organizational opportunities are

areas in the organization’s environment that may generate high performance.

• Evaluating an Organization’s Opportunities and Threats– Organizational opportunities are

areas in the organization’s environment that may generate high performance.

– Organizational threats are areas in the organization’s environment that make

it difficult for the organization to achieve high performance.

– Organizational threats are areas in the organization’s environment that make

it difficult for the organization to achieve high performance.


Formulating Business-Level Formulating Business-Level StrategiesStrategies

• Porter’s Generic Strategies– Differentiation strategy

• An organization seeks to distinguish itself from competitors through the quality of its products or services.

– Overall cost leadership strategy• An organization attempts to gain competitive advantage by reducing

its costs below the costs of competing firms.

– Focus strategy• An organization concentrates on a specific regional market, product

line, or group of buyers.

• Porter’s Generic Strategies– Differentiation strategy

• An organization seeks to distinguish itself from competitors through the quality of its products or services.

– Overall cost leadership strategy• An organization attempts to gain competitive advantage by reducing

its costs below the costs of competing firms.

– Focus strategy• An organization concentrates on a specific regional market, product

line, or group of buyers.


Porter’s Generic StrategiesPorter’s Generic Strategies

Strategy Type Definition Examples

Differentiation Distinguish products or services

Rolex (watches) Mercedes-Benz (automobiles) Nikon (cameras) Cross (writing instruments) Hewlett-Packard (hand-held calculators)

Overall cost leadership Reduce manufacturing and other costs

Timex Hyundai Kodak Bic Texas Instruments

Focus Concentrate on specific regional market, product market, or group of buy-ers

Tag Heuer Fiat, Alfa Romeo Polaroid Waterman Pens Fisher Price

Table 8.1


The Miles and Snow TopologyThe Miles and Snow Topology

Strategy Type Definition Examples

Prospector Is innovative and growth oriented, searches for new markets and new growth opportunities, encourages risk taking

Amazon.com 3M Rubbermaid

Defender Protects current markets, main-tains stable growth, serves current customers

Bic eBay.com Mrs. Fields

Analyzer Maintains current markets and current customer satisfaction with moderate emphasis on innovation

Dupont IBM Yahoo

Reactor No clear strategy, reacts to changes in the environment, drifts with events

International Harvester (in the 1960s and 1970s) Joseph Schlitz Brewing Co. W. T. Grant

Table 8.2


Strategies Based on Product Life Strategies Based on Product Life CycleCycle

• The Product Life Cycle• The Product Life Cycle

Introduction

Time

Stages

Growth Maturity Decline

High

Low

Sal

es V

olum

e

Figure 8.2


Implementing Business-Level Implementing Business-Level StrategiesStrategies

• Implementing Porter’s Generic Strategies– Differentiation Strategy

• Marketing and sales must emphasize high-quality, high-value image of the organization’s products or services.

– Overall Cost Leadership Strategy• To support cost leadership, marketing and sales are likely to focus on

simple product attributes and how these product attributes meet customer needs in a low-cost and effective manner.

– Focus Strategy• This strategy is implemented via the same approaches used for

differentiation and cost leadership, depending on which one (differentiation or cost leadership) is the proper basis for competing in or for a specific market segment, product category, or group buyers.

• Implementing Porter’s Generic Strategies– Differentiation Strategy

• Marketing and sales must emphasize high-quality, high-value image of the organization’s products or services.

– Overall Cost Leadership Strategy• To support cost leadership, marketing and sales are likely to focus on

simple product attributes and how these product attributes meet customer needs in a low-cost and effective manner.

– Focus Strategy• This strategy is implemented via the same approaches used for

differentiation and cost leadership, depending on which one (differentiation or cost leadership) is the proper basis for competing in or for a specific market segment, product category, or group buyers.


Implementing Business-LevelImplementing Business-LevelStrategies (cont’d)Strategies (cont’d)

• Implementing Miles and Snow’s Strategies– Prospector Strategy

• An organization using this strategy must encourage creativity to seek out new market opportunities and to take risks.

• An organization can develop the flexibility to meet changing market conditions by decentralizing its organizational structure.

– Defender Strategy• To support this strategy, an organization will focus on defending its

current markets by lowering its costs and/or improving the performance of current products.

– Analyzer Strategy• Organizations using this strategy incorporate elements of both the

prospector and the defender strategies in an attempt to maintain current business and to be somewhat innovative.

• Implementing Miles and Snow’s Strategies– Prospector Strategy

• An organization using this strategy must encourage creativity to seek out new market opportunities and to take risks.

• An organization can develop the flexibility to meet changing market conditions by decentralizing its organizational structure.

– Defender Strategy• To support this strategy, an organization will focus on defending its

current markets by lowering its costs and/or improving the performance of current products.

– Analyzer Strategy• Organizations using this strategy incorporate elements of both the

prospector and the defender strategies in an attempt to maintain current business and to be somewhat innovative.


Formulating Corporate-Level Formulating Corporate-Level StrategiesStrategies

• Strategic Business Units– Each business or group of businesses within an organization

engaged in serving the same markets, customers, or products.

• Diversification– The number of businesses an organization is engaged in and

the extent to which these businesses are related to one another

• Single Product Strategy– A strategy in which an organization manufactures one

product or service and sells it in a single geographic market.

• Strategic Business Units– Each business or group of businesses within an organization

engaged in serving the same markets, customers, or products.

• Diversification– The number of businesses an organization is engaged in and

the extent to which these businesses are related to one another

• Single Product Strategy– A strategy in which an organization manufactures one

product or service and sells it in a single geographic market.


Related DiversificationRelated Diversification

• Related Diversification– A strategy in which an organization operates in several

different businesses, industries, or markets that are somehow linked.

• Bases of Relatedness in ImplementingRelated Diversification

• Related Diversification– A strategy in which an organization operates in several

different businesses, industries, or markets that are somehow linked.

• Bases of Relatedness in ImplementingRelated Diversification

Basis of Relatedness Examples

Similar technology Phillips, Boeing, Westinghouse, Compaq

Common distribution and marketing skills RJR Nabisco, Phillip Morris, Procter & Gamble

Common name brand and reputation Disney, Universal

Common customers Merck, IBM, AMF-Head

Table 8.3


Related Diversification (cont’d)Related Diversification (cont’d)

• Advantages of Related Diversification– Reduces organization’s dependence on any one of its

business activities and thus reduces economic risk.– Reduces overhead costs associated with managing any one

business through economies of scale and economies of scope.

– Allows an organization to exploit its strengths and capabilities in more than one business.

– Synergy exists among a set of businesses when the businesses’ value together is greater than their economic value separately.

• Advantages of Related Diversification– Reduces organization’s dependence on any one of its

business activities and thus reduces economic risk.– Reduces overhead costs associated with managing any one

business through economies of scale and economies of scope.

– Allows an organization to exploit its strengths and capabilities in more than one business.

– Synergy exists among a set of businesses when the businesses’ value together is greater than their economic value separately.


Formulating Corporate-LevelFormulating Corporate-LevelStrategies (cont’d)Strategies (cont’d)

• Unrelated Diversification– A strategy in which an organization operates multiple

businesses that are not logically associated with one another.

• Advantages– Stable corporate-level performance over time due to business

cycle differences among the multiple businesses.– Resources can be allocated to areas with the highest return

potentials to maximize corporate performance.

• Disadvantages– Strategy does not usually lead to high performance due to the

complexity of managing a diversity of businesses.– Firms with unrelated strategies fail to exploit important

synergies, putting them at a competitive disadvantage to firms with related diversification strategies.

• Unrelated Diversification– A strategy in which an organization operates multiple

businesses that are not logically associated with one another.

• Advantages– Stable corporate-level performance over time due to business

cycle differences among the multiple businesses.– Resources can be allocated to areas with the highest return

potentials to maximize corporate performance.

• Disadvantages– Strategy does not usually lead to high performance due to the

complexity of managing a diversity of businesses.– Firms with unrelated strategies fail to exploit important

synergies, putting them at a competitive disadvantage to firms with related diversification strategies.


Implementing Corporate-Level Implementing Corporate-Level StrategiesStrategies

• Becoming a Diversified Firm– Internal Development of New Products

• Developing products and services within the boundaries of traditional business operations.

– Replacement of Suppliers and Customers• Backward Vertical Integration

– Beginning a business that furnishes resources previously handled by a supplier.

• Forward Vertical Integration– Beginning a business previously

handled by an intermediary and selling more directly to customers.

• Becoming a Diversified Firm– Internal Development of New Products

• Developing products and services within the boundaries of traditional business operations.

– Replacement of Suppliers and Customers• Backward Vertical Integration

– Beginning a business that furnishes resources previously handled by a supplier.

• Forward Vertical Integration– Beginning a business previously

handled by an intermediary and selling more directly to customers.


Implementing Corporate-LevelImplementing Corporate-LevelStrategies (cont’d)Strategies (cont’d)

• Becoming a Diversified Firm– Merger and Acquisitions

• A merger is the purchase of one firm by another firm of approximately the same size.

• An acquisition is the purchase of a firm by another firm that is considerably larger.

– Purposes of Mergers and Acquisitions• To diversify through vertical integration.

• To acquire complementary products or services linked by a common technology and common customers.

• To create or exploit synergies that reduce the combined organizations’ costs of doing business to increase revenues.

• Becoming a Diversified Firm– Merger and Acquisitions

• A merger is the purchase of one firm by another firm of approximately the same size.

• An acquisition is the purchase of a firm by another firm that is considerably larger.

– Purposes of Mergers and Acquisitions• To diversify through vertical integration.

• To acquire complementary products or services linked by a common technology and common customers.

• To create or exploit synergies that reduce the combined organizations’ costs of doing business to increase revenues.


Managing DiversificationManaging Diversification

• Major Tools for Managing Diversification– Organization structure

• Detailed discussion of organization structure is contained inChapter 12.

– Portfolio management techniques• Methods that diversified organizations use to make decisions about

what businesses to engage in and how to manage these multiple businesses to maximize corporate performance.

– Two important portfolio management techniques are the BCG Matrix and the GE Business Screen.

• Major Tools for Managing Diversification– Organization structure

• Detailed discussion of organization structure is contained inChapter 12.

– Portfolio management techniques• Methods that diversified organizations use to make decisions about

what businesses to engage in and how to manage these multiple businesses to maximize corporate performance.

– Two important portfolio management techniques are the BCG Matrix and the GE Business Screen.


Managing Diversification (cont’d)Managing Diversification (cont’d)

• BCG Matrix– A method of evaluating businesses relative to the growth rate

of their market and the organization’s share of the market.– The matrix classifies the types of businesses that a

diversified organization can engage as:• “Dogs”—have small market shares and no growth prospects.

• “Cash cows”—have large shares of mature markets.

• “Question marks”—have small market shares in quickly growing markets.

• “Stars”—have large shares of rapidly growing markets.

• BCG Matrix– A method of evaluating businesses relative to the growth rate

of their market and the organization’s share of the market.– The matrix classifies the types of businesses that a

diversified organization can engage as:• “Dogs”—have small market shares and no growth prospects.

• “Cash cows”—have large shares of mature markets.

• “Question marks”—have small market shares in quickly growing markets.

• “Stars”—have large shares of rapidly growing markets.


The BCG MatrixThe BCG Matrix

Relative market share

Cash cows Dogs

High

Low

High Low

Questionmarks

Stars

Mar

ket

gro

wth

rat

e

Figure 8.3Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from The Boston Consulting Group, Inc., 1970.


Managing DiversificationManaging Diversification

• GE Business Screen– A method of evaluating business in a diversified portfolio

along two dimensions, each of which contains multiple factors:• Industry attractiveness.

• Competitive position (strength) of each firm in the portfolio.

– In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business.

• GE Business Screen– A method of evaluating business in a diversified portfolio

along two dimensions, each of which contains multiple factors:• Industry attractiveness.

• Competitive position (strength) of each firm in the portfolio.

– In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business.


The GE Business ScreenThe GE Business Screen

Competitive position

Low

Winner

Medium

High

Good

Competitive position1. Market share2. Technological know-how3. Product quality4. Service network5. Price competitiveness6. Operating costs

Industry attractiveness1. Market growth2. Market size3. Capital requirements4. Competitive intensity

PoorMedium

Winner

Profitproducer

Winner

Averagebusiness

Loser

Questionmark

Loser

LoserInd

us

try

gro

wth

ra

te

Figure 8.4

Source: From Strategy Formulation: Analytical Concepts, by Charles W. Hofer and Dan Schendel. Copyright 1978 West Publishing. Used by permission of South-Western College Publishing, a division of International Thomson Publishing, Inc., Cincinnati, Ohio, 45227.