Griffin Chap 08

8/3/2019 Griffin Chap 08

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Slide content created by Charlie Cook, The University of West Alabama

Copyright Houghton Mifflin Company. All rights reserved.

Chapter Eight

Managing Strategyand Strategic

Planning


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Copyright Houghton MifflinCompany. All rights reserved. 82

Learning Objectives

After studying this chapter, you should be able to:

1. Discuss the components of strategy, types of strategicalternatives, and the distinction between strategy formulationand strategy implementation.

2. Describe how touse SWOT analysis in formulating strategy.

3. Identify and describe various alternative approaches tobusiness-level strategy formulation.

4. Describe how business-level strategies are implemented.

5. Identify and describe various alternative approaches to

corporate-level strategy formulation.6. Describe how corporate-level strategies are implemented.

7. Discuss international and global strategies.


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The Nature of Strategic

Management Strategy

A comprehensive plan for accomplishing anorganizations goals.

Strategic Management A way of approaching business opportunities andchallenges aimed at formulating and implementingeffective strategies.

Effective Strategies Strategies that promote a superior alignment

between the organization and its environment andthe achievement of its goals.


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Components of Strategy

Distinctive Competence Something an organization

does exceptionally well.

Scope Range ofmarkets in whichan organization willcompete.

Resource Deployment How an organization will

distribute its resourcesacross the areas in which itcompetes.


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Types 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 particularmarket. Corporate-Level Strategy

The set of strategic alternatives that an

organization chooses from as it manages its

operations simultaneously across severalindustries and several markets.


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Strategy Formulation and

Implementation

Strategy Formulation

The set ofprocesses involved in creating or

determining the organizations 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 throughwhich strategies are achieved.


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Strategy Formulation and

Implementation (contd)

Deliberate Strategy

A plan, chosen and implemented tosupport specific goals, that is the result of a

rational, systematic, and planned processof strategy formulation and implementation.

Emergent Strategy

A pattern of action that develops over time

in the absence of goals ormissions, ordespite goals and missions.


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Figure 8.1: SWOT ANALYSIS


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Using SWOT Analysis to

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 firms distinctive competence.


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Formulate Strategy (contd) Evaluating Organizational Strengths (contd)

Sustained competitive advantage occurs when a distinctive competence cannot be easily

duplicated.

is what remains after all attempts at strategic imitationshave ceased.

Strategic imitation is difficult when: Distinctive competence is based on unique historical

circumstances.

Competitors do not understand the nature or characterofa firms competence.

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


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Formulate Strategy (contd) Evaluating Organizational Weaknesses

Organizational weaknesses Skills and capabilities that do not enable an organization

to choose and implement strategies that support its

mission. Weaknesses can be overcome by:

investments toobtain the strengths needed.

modification of the organizations mission so it can beaccomplished with the current workforce.

Competitive disadvantage A situation in which an organization fails to implement

strategies being implemented by competitors.


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Formulate Strategy (contd)

Evaluating an Organizations

Opportunities and Threats

Organizational opportunities

Areas in the organizations environment that

may generate high performance.

Organizational threats

Are areas in the organizations environmentthat make it difficult for the organization to

achieve high performance.


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Formulating

Business-Level Strategies Porters 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 advantageby reducing its costs below the costs of competing firms.

Focus strategy

An organization concentrates on a specific regionalmarket, product line, or groupof buyers.


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Table 8.1: Porters

Generic Strategies


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Table 8.2: The Miles

and Snow Typology


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Figure 8.2: The

Product Life Cycle


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Implementing Business-Level

Strategies (contd) Implementing Miles and Snows Strategies

Pr ospector Encourage creativity to seek out new marketopportunities and to take risks.

Develop the flexibility tomeet changing marketconditions by decentralizing its organizational structure.

Defender Focus on defending its current markets by lowering its

costs and/or improving the performance of current

products. Analyzer

Incorporate elements of both the prospector and thedefender strategies maintain business and to besomewhat innovative.


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Implementing Business-Level

Strategies (contd) Implementing Porters Generic Strategies

Differentiation Marketing and salesmust emphasize high-quality, high-

value image of the organizations products or services.

Overall Cost Leadership Marketing and sales focus on simple product attributes

and how these product attributes meet customer needsin a low-cost and effective manner.

Focus

Either differentiation or cost leadership, depending onwhich one is the proper basis for competing in or for aspecific market segment, product category, or groupbuyers.


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Formulating Corporate-Level

Strategies

Strategic Business Units

Each business or groupof businesses within an

organization is engaged in serving the same

markets, customers, orproducts. Diversification

The numberof businesses an organization is

engaged in and the extent to which these

businesses are related toone another


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Strategies (contd)

Single-Product Strategy

An organization manufactures one product or

service and sells it in a single geographic market.

Related Diversification A strategy in which an organization operates in

several different businesses, industries, or

markets that are somehow linked.

Avoids the disadvantages and risks of a single-product strategy.


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Table 8.3: Bases of

Relatedness in Implementing

Related Diversification


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Strategies (contd) Advantages of Related Diversification

Reduces an organizations dependence on anyone of its business activities and thus reduceseconomic risk.

Reduces overhead costs associated withmanaging any one business through economies ofscale and economies of scope.

Allows an organization to exploit its strengths and

capabilities in more than one business.

Synergyexists among a set of businesses whenthe businesses value together is greater than theireconomic value separately.


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Strategies (contd) Unrelated Diversification

An organization operates multiple businesses thatare not logically associated with one another.

Advantages Stable ofperformance over time due to business cycle

differences among the multiple businesses.

Allocation of resources to areas with the highest returnpotentials tomaximize corporate performance.

Disadvantages

Poorperformance due to the complexity ofmanaging adiversity of businesses.

Failing to exploit key synergies puts the firm at acompetitive disadvantage to firms with relateddiversification strategies.


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Implementing Corporate-Level

Strategies Becoming a Diversified Firm

Internal development of new products Developing products and services within the boundariesof traditional business operations.

Replacement of suppliers and customers Backward vertical integration

Beginning a business that furnishes resources previouslyhandledby a supplier.

Forward vertical integration Beginning a business previously handled by anintermediary andsellingmore directly to customers.


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Implementing Corporate-Level

Strategies (contd) Becoming a Diversified Firm (contd)

Merger Purchase ofone firm by another firmof approximately

the same size.

Acquisition Purchase of a firm by another firm that is considerably

larger.

Purposes ofmergers and acquisitions To diversify through vertical integration.

To acquire complementary products or services linked bya common technology and common customers.

To create or exploit synergies that reduce the combinedorganizations costs of doing business to increaserevenues.


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Managing Diversification

Major Tools for Managing Diversification Organization structure

A detailed discussion oforganization structure iscontained in

Chapter12. Portfoliomanagement techniques

Methods that diversified organizations use tomakedecisions about what businesses to engage in and howtomanage these multiple businesses tomaximizecorporate performance.

Two important portfoliomanagement techniques The BCG Matrix

The GE Business Screen


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(contd) BCG Matrix

A method of evaluating businesses relative to thegrowth rate of theirmarket and the organizationsshare of the market.

The matrix classifies the types of businesses thata diversified organization can engage as:

Dogs have small market shares and no growthprospects.

Cash cows have large shares ofmature markets.

Question marks have small market shares in quicklygrowing markets.

Stars have large shares of rapidly growing markets.


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Figure 8.3: The BCG Matrix

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


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GE Business Screen

A method of evaluating business in a diversifiedportfolio along two dimensions, each of whichcontains multiple factors:

Industry attractiveness.

Competitive position (strength) of each firm in theportfolio.

In general, the more attractive the industry and the

more competitive a business is, the moreresources an organization should invest in thatbusiness.


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Figure 8.4: The GE

Business Screen


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International and

Global Strategies Developing International and Global

Strategies Global efficiencies

Location efficienciesseeking lower input cost locations

Economies of scalelarger facilities result in lower costs

Economies of scopebroadening pro

Multimarket flexibility International businesses may respond to a change in one

country by implementing a change in another country.

Worldwide learning The diverse operating environments ofmultinational

corporations (MNCs) contribute toorganizational learningthat can be transferred tootheroperating environments.


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Strategic Alternatives for

International Business

Home Replication

Utilizing a core competency or firm specific

advantage developed at home as a main

competitive weapon in foreign markets. Multi-Domestic Strategy

Managing a corporation as a collection of

independent operating subsidiaries frees it to

customize its products, its marketing campaigns,and operating techniques tomeet local customer

needs.


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Strategic Alternatives for

International Business (contd) Global Strategy

Viewing the world as a single marketplace andhaving as a primary goal the creation ofstandardized goods

and services that will address the needs ofcustomers worldwide.

Transnational Strategy Attempting to combine the benefits of scale

efficiencies pursued by a global corporation, withthe benefits and advantages of localresponsiveness of a multi-domestic corporation.


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Key Terms

strategy

strategic management

distinctive competence

scope

resource deployment

business-level strategy

corporate-level strategy

strategy formulation

strategy implementation

deliberate strategy

emergent strategy

SWOT

organizational strength

common strength

strategic imitation

sustained competitiveadvantage

organizationalweaknesses

competitivedisadvantage

organizational threat

organizationalopportunity


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Key Terms (contd)

differentiation strategy overall cost leadership

strategy

focus strategy

prospector strategy

defender strategy

analyzer strategy

reactor strategy

product life cycle

diversification

single-product strategy

related diversification

unrelated diversification backward vertical

integration

forward verticalintegration

merger

acquisition

BCG matrix

GE Business Screen

home replicationstrategy

multidomestic strategy

global strategy

transnational strategy

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Griffin Chap 08