STRATEGY FORMULATION and STRATEGY FORMULATION and IMPLEMENTATIONIMPLEMENTATION

MANAGEMENT 6MANAGEMENT 6thth Ed. Ed.By: Richard DaftBy: Richard Daft

Prepared by:GREGAR DONAVEN E. VALDEHUEZA, MBALourdes College Instructor

Learning ObjectivesLearning Objectives Define the components of strategic managementDefine the components of strategic management Describe the strategic planning process and SWOT Describe the strategic planning process and SWOT

analysisanalysis Understand Grand Strategies for domestic and Understand Grand Strategies for domestic and

international operationsinternational operations Define corporate-level strategies and explain the portfolio Define corporate-level strategies and explain the portfolio

approachapproach Describe business-level strategies, including Porter’s Describe business-level strategies, including Porter’s

competitive forces and strategies and partnership competitive forces and strategies and partnership strategiesstrategies

Explain the major considerations in formulating functional Explain the major considerations in formulating functional strategiesstrategies

Enumerate the organizational dimensions used for Enumerate the organizational dimensions used for implementing strategyimplementing strategy

What is Strategic Management?What is Strategic Management?

Strategic ManagementStrategic ManagementThe set of decisions and actions used to formulate The set of decisions and actions used to formulate

and implement strategies that will provide a and implement strategies that will provide a competitively superior fit between the organization competitively superior fit between the organization and its environment so as to achieve and its environment so as to achieve organizational goals.organizational goals.

Grand StrategyGrand StrategyThe general plan of major action by which The general plan of major action by which

an organization intends to achieve its long-an organization intends to achieve its long-term goals.term goals.

Three general categoriesThree general categories::1.1. GrowthGrowth – can be promoted internally by investing in – can be promoted internally by investing in

expansion or externally by acquiring additional business expansion or externally by acquiring additional business divisions.divisions.

2.2. Stability (pause strategy)Stability (pause strategy) – that the organization wants to – that the organization wants to remain the same size or grow slowly and in a controlled remain the same size or grow slowly and in a controlled fashion.fashion.

3.3. RetrenchmentRetrenchment – that the organization goes through period – that the organization goes through period of forced decline by either shrinking current business units of forced decline by either shrinking current business units or selling off or liquidating entire business.or selling off or liquidating entire business.

Global StrategyGlobal Strategya separate grand strategy as the focus of a separate grand strategy as the focus of

global business.global business.

Three global strategies:Three global strategies:1.1. GlobalizationGlobalization – the standardization of product design and – the standardization of product design and

advertising strategies throughout the world.advertising strategies throughout the world.

2.2. Multidomestic strategyMultidomestic strategy – the modification of product design – the modification of product design and advertising strategies to suit the specific needs of and advertising strategies to suit the specific needs of individual countries.individual countries.

3.3. Transnational strategyTransnational strategy – a strategy that combines global – a strategy that combines global coordination to attain efficiency with flexibility to meet coordination to attain efficiency with flexibility to meet specific needs in various countries.specific needs in various countries.

Purpose of StrategyPurpose of Strategy

Choosing how the organization will be different.Choosing how the organization will be different.

StrategyStrategyThe plan of action that prescribes resource The plan of action that prescribes resource

allocation and other activities for dealing with the allocation and other activities for dealing with the environment and helping the organization attain its environment and helping the organization attain its goals.goals.

To remain competitive, companies To remain competitive, companies develop strategies that focus on:develop strategies that focus on:

1.1. Core competenceCore competence A business activity that an organization does A business activity that an organization does

particularly well in comparison to competitors.particularly well in comparison to competitors.

2.2. SynergySynergy The condition that exists when the The condition that exists when the

organization’s parts interact to produce a joint organization’s parts interact to produce a joint effect that is greater than the sum of the parts effect that is greater than the sum of the parts acting alone.acting alone.

3.3. Value CreationValue Creation The heart of strategy.The heart of strategy. Value can be defined as the combination of Value can be defined as the combination of

benefits received and costs paid by the benefits received and costs paid by the customers.customers.

Levels of StrategyLevels of Strategy Corporate-Level StrategyCorporate-Level Strategy

The level of strategy concerned with the question, The level of strategy concerned with the question, “What “What business are we in?”business are we in?”. Pertains to the organization as a . Pertains to the organization as a whole and the combination of business units and whole and the combination of business units and product lines that make it up.product lines that make it up.

Business-Level StrategyBusiness-Level StrategyThe level of strategy concerned with the question, The level of strategy concerned with the question, “How “How

do we compete?”do we compete?”. Pertains to each business unit or . Pertains to each business unit or product line within the organization.product line within the organization.

Functional-Level StrategyFunctional-Level StrategyThe level of strategy concerned with the question, The level of strategy concerned with the question, “How “How

do we support the business-level strategy?”do we support the business-level strategy?”. Pertains to . Pertains to all of the organization’s major departments.all of the organization’s major departments.

Three Levels of Strategy in OrganizationThree Levels of Strategy in Organization

Corporation

Textile Units Chemicals Unit Auto Parts Unit

Finance R & D Manufacturing Marketing

Corporate-Level Strategy:What business are we in?

Business-Level Strategy:How do we compete?

Functional-Level Strategy:How do we support the business-level strategy?

Corporation

Textile Units

Finance R & D Manufacturing Marketing

Corporate-Level Strategy:What business are we in?

Business-Level Strategy:How do we compete?

Functional-Level Strategy:How do we support the business-level strategy?

Strategy Formulation Versus ImplementationStrategy Formulation Versus Implementation

Strategy FormulationStrategy FormulationThe stage of strategic management that involves The stage of strategic management that involves

the planning and decision making that lead to the the planning and decision making that lead to the establishment of the organization’s goals and of a establishment of the organization’s goals and of a specific strategic plan.specific strategic plan.

Strategy ImplementationStrategy ImplementationThe stage of strategic management that involves The stage of strategic management that involves

the use of managerial and organizational tools to the use of managerial and organizational tools to direct resources toward achieving strategic direct resources toward achieving strategic outcomes.outcomes.

The Strategic Management ProcessThe Strategic Management ProcessScan External Environment:• National• Global

Identify Strategic Factors:• Opportunities• Threat

Scan Internal Environment:• Core Competence• Synergy• Value Creation

Identify Strategic Factors:• Strengths• Weaknesses

Define New:• Mission• Goals• Grand Strategy

Formulate Strategy:• Corporate• Business• Functional

Evaluate Current:• Mission• Goals• Strategies

SWOT

Implement Strategy via Changes in:• Leadership /

Culture• Structure• Human Resources• Information

and Control System

Situation AnalysisSituation AnalysisAnalysis of the strengths, weaknesses, Analysis of the strengths, weaknesses,

opportunities, and threats (SWOT) that affect opportunities, and threats (SWOT) that affect organizational performance.organizational performance.

StrengthsStrengths Positive internal characteristics that the organization can exploit to Positive internal characteristics that the organization can exploit to

achieve its strategic performance goals.achieve its strategic performance goals. WeaknessesWeaknesses

Internal characteristics that might inhibit or restrict the Internal characteristics that might inhibit or restrict the organization’s performance.organization’s performance.

OpportunitiesOpportunities Characteristics of the external environment that have the potential Characteristics of the external environment that have the potential

to help the organization achieve or exceed its strategic goals.to help the organization achieve or exceed its strategic goals. ThreatsThreats

Characteristics of the external environment that may prevent the Characteristics of the external environment that may prevent the organization from achieving its strategic goals.organization from achieving its strategic goals.

Formulating Corporate-Level StrategyFormulating Corporate-Level StrategyPortfolio StrategyPortfolio Strategy

A type of corporate-level strategy that A type of corporate-level strategy that pertains to the organization’s mix of SBUs pertains to the organization’s mix of SBUs and product lines that fit together in such a and product lines that fit together in such a way as to provide the corporation with way as to provide the corporation with synergy and competitive advantage.synergy and competitive advantage.

Strategic Business Unit (SBU)Strategic Business Unit (SBU)A division of the organization that has a A division of the organization that has a

unique business mission, product line, unique business mission, product line, competitors, and markets relative to other competitors, and markets relative to other SBUs in the same corporation.SBUs in the same corporation.

The BCG MatrixThe BCG MatrixA concept developed by the Boston Consulting Group A concept developed by the Boston Consulting Group

that evaluates SBUs with respect to the dimension of that evaluates SBUs with respect to the dimension of business growth rate and market share. business growth rate and market share.

Four Alternative Positions:Four Alternative Positions: Question MarksQuestion Marks

The business unit has low market share compared to The business unit has low market share compared to competitors, however it is doing business in high-growth competitors, however it is doing business in high-growth market. market.

StarsStarsThe business has high market share compared to The business has high market share compared to

competitors and it is doing business in high-growth competitors and it is doing business in high-growth market.market.

Cash CowsCash CowsThe market is not very attractive – low market growth The market is not very attractive – low market growth

rate, however the business has high market share rate, however the business has high market share compared to competitors. compared to competitors.

DogsDogsThis business has low market share and operates in This business has low market share and operates in

low-growth market. low-growth market.

Formulating Business-Level StrategyFormulating Business-Level Strategy

it is a strategy formulation within the strategic it is a strategy formulation within the strategic business unit in which the concern is how to business unit in which the concern is how to compete.compete.

the same three generic strategies (growth, the same three generic strategies (growth, stability, and retrenchment) apply at the stability, and retrenchment) apply at the business level, but they are accomplished business level, but they are accomplished through competitive actions rather than the through competitive actions rather than the acquisition or divestment of business divisions.acquisition or divestment of business divisions.

Porter’s Five Competitive ForcesPorter’s Five Competitive Forces

Rivalry among

Competitors

Threat of Substitute Products

Potential New Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Internet tends to increase bargaining power of suppliers

Internet reduces barriers to entry

Internet blurs differences among competitors

Internet creates new substitution threats Internet shifts greater

power to end consumers

Competitive StrategiesCompetitive Strategies1.1. DifferentiationDifferentiation

a type of competitive strategy with which the a type of competitive strategy with which the organization seeks to distinguish its products or organization seeks to distinguish its products or services from competitors.services from competitors.

2.2. Cost LeadershipCost Leadership A type of competitive strategy with which the A type of competitive strategy with which the

organization aggressively seeks efficient organization aggressively seeks efficient facilities, cuts costs, and employs tight cost facilities, cuts costs, and employs tight cost controls to be more efficient than competitors.controls to be more efficient than competitors.

3.3. FocusFocus A type of competitive strategy that emphasizes A type of competitive strategy that emphasizes

concentration on a specific regional market or concentration on a specific regional market or buyer group.buyer group.

Partnership StrategiesPartnership Strategies

Organizational Combination

Strategic Alliances

Acquisitions

Mergers

Joint Ventures

Strategic Business Partnering

Preferred Supplier Arrangements

High

DEGREE

OF

COLLABORATION

Low

Formulating Functional-Level StrategyFormulating Functional-Level Strategy

the action plans adopted by major the action plans adopted by major departments to support the execution of departments to support the execution of business-level strategy.business-level strategy.

major organizational functions include major organizational functions include marketing, production, finance, human marketing, production, finance, human resources, and research & development.resources, and research & development.

Strategy Implementation and ControlStrategy Implementation and Control

Implementation is the final step in the Implementation is the final step in the strategic management process and it is strategic management process and it is how strategy put into action.how strategy put into action.

Some people argue that strategy Some people argue that strategy implementation is the most difficult and implementation is the most difficult and important part of strategic management.important part of strategic management.

STRUCTURAL DESIGN

• Design organization chart• Create teams• Determine centralization• Arrange facilities, task design

LEADERSHIP

• Use persuasion• Motivate employees• Shape culture/values

HUMAN RESOURCES

• Recruit/select employees• Manage transfers/promotions/training• Direct layoffs/recalls

INFORMATION AND CONTROL SYSTEMS• Revise pay, reward system• Change budget allocations• Implement information systems• Apply rules and procedures

OrganizationEnvironment

StrategyPerformance

Tools for Putting Strategy into ActionTools for Putting Strategy into Action

Implementing Global StrategiesImplementing Global StrategiesIn the international arena, flexibility and superb In the international arena, flexibility and superb communication emerge as mandatory leadership communication emerge as mandatory leadership skills.skills.

Structural design must merge successfully with foreign Structural design must merge successfully with foreign cultures as well as link foreign operations to the home cultures as well as link foreign operations to the home country.country.

Information and control systems must fit the needs Information and control systems must fit the needs and incentives within local cultures.and incentives within local cultures.

Recruitment, training, transfer, promotion, and layoff of Recruitment, training, transfer, promotion, and layoff of international human resources create array of international human resources create array of problems not confronted from other countries such as problems not confronted from other countries such as labor laws, guaranteed jobs, and cultural traditions of labor laws, guaranteed jobs, and cultural traditions of keeping unproductive employees on the job.keeping unproductive employees on the job.

THE ENDTHE END

Any clarification?Any clarification?

HAVE A NICE DAY!!! HAVE A NICE DAY!!!