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1
Types of Strategy and Strategy Formulation
Geoff Leese September 2005 revised September 2006, July 2007, August 2008, August
2009
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Evaluate Current:•Mission•Goals•Strategies
•Scan External•Environment
IdentifyStrategicFactors:•Opportunities•Threats
IdentifyStrategicFactors:•Strengths•Weaknesses
Scan InternalEnvironment
The Strategic Management Process
Define New Mission/Goals
FormulateStrategy:•Corporate•Business•Functional
ImplementStrategy viaChanges in:•Leadership•Culture•Structure•HR•Marketing•Finance•Prod/dist•IT&IS•Etc
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Strategy Formulation
• Developing long-range plans to effectively manage environmental opportunities and threats in light of corporate strengths and weaknesses.
• The design of an approach to achieve the firm's mission.
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Thinking Strategically
• To help managers answer questions such as:
• Where is the organization now?• Where does the organization want to
be?• What changes are among competitors?• What courses of action will help us
achieve our goals?• Answers define an overall direction for
the organisation's grand strategy.
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Grand Strategy
General plan of action to achieve long-term objectives
1. Growth2. Stability3. Retrenchment.
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Growth
Can be promoted internally by investing in expansion or externally by acquiring additional business divisions.
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Stability
Remain same size or grow steadily and in a controlled way
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Retrenchment
Forced decline by either shrinking current business units or selling off or liquidating entire businesses.
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Purpose of Strategy
Value Creation = use core competence and synergy to provide increased benefits received with lower costs paid.
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Purpose of Strategy
• CORE COMPETENCE: something the organization does especially well in comparison to its competitors
Superior research and development Mastery of a technology Superior customer service.
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Purpose of Strategy
SYNERGY: when organizational parts interact to produce a joint effect that is greater than the sum of its parts acting alone.
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Strategy Formulation
• Development of the firm's goals and a specific strategic plan
• Assessing the external environment and the internal issues
• Integrating the results into goals and strategy.
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Levels of Strategy
Corporate Business Functional.
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Corporate-Level Strategy
• Acquisition of new businesses• Additions or divestment of
business units, plants, or product lines
• Joint ventures with other companies in new areas.
What business are we in?
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Portfolio Strategy
The organizational mix of Strategic Business Units and product lines to provide synergy and a competitive advantage.
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Business-Level Strategy
• Advertising/marketing• Direction and extent of R&D• Product changes• New product development• Equipment and facilities• Expansion or contraction of
product lines.
How do we compete?
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Formulating Business-Level Strategy
• Porter’s Five Force model
• Competitive strategies• Covered in Lecture 3a
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Function-Level Strategy
• Production• Distribution• Finance.• IS&IT• Marketing• HR• R&D
How do we support business-level strategy?
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Strategic choice
Strategic Intent
Available optionsStrategic
Assessment
B
Context
D
CA
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Choosing an option (1)
• Region A – unidentified• Region B – identified, aligned
and feasible!• Region C – identified, aligned
but not feasible• Region D – identified and
feasible, but not aligned
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Choosing an option (2)
• Three tests• Does it take us towards where we
want to be? (Alignment)• Do we have, or can we obtain, the
resources required to implement it? (Feasibility)
• Will it win the support of those who need to approve it, and those who need to implement it? (Acceptability)
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Choosing an option(3)
• Number of strategic options is rarely large
• If more than one passes all three tests, necessary to evaluate “best”
• Evaluate according to tangible (risk, return, CBA) and intangible (cultural “fit”, matching values and policies) factors.
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Porter’s generic strategies
Market
scope
Broad
Narrow
Basis of competitive advantageCost Differentiation
Cost Leadership Differentiation
Cost Focus Differentiation Focus
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Further Reading
• Strategic Choice – follow the link!
• Johnson and Scholes chapter 7• Bennett Chapters 1 and 3