Chapter 08 Strategy Formulation and Implementation

Strategy Formulation and Implementation

Chapte

r 8

Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.

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Strategic Planning

Strategic planning has taken on new

importance in today’s world of

globalization, deregulation, advancing

technology, and changing demographics,

and lifestylesManager’s Challenge: Nintendo


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Strategy Formulation and Implementation

Strategic Management

– Definition

– Components

– Model of Strategic Management Process

– Models of Strategy Formation

Managerial Tools to Implement Strategic

Plans

Topics:

Chapter 8


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Thinking Strategically

Answers to the following define an overall

direction for the organization's grand strategy

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?


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Set of decisions and actions used to implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals

Responsibility = top managers &

chief executive


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Managers ask such questions as...

What changes and trends are occurring?

Who are our customers?

What products or services should we offer?

How can we offer these products or

services most efficiently?


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Grand Strategy

General plan of major action to achieve

long-term goals

Falls into three general categories

1. Growth

2. Stability

3. Retrenchment

A separate grand

strategy can be

defined for global

operations

Ethical Dilemma: A Great Deal for Whom?


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Grand Strategy: Growth

Growth can be promoted internally by

investing in expansion or externally by

acquiring additional business divisions

- Internal growth = can include development of new

or changed products

- External growth = typically involves diversification

– businesses related to current product lines or

into new areas


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Grand Strategy: Stability

Stability, sometimes called a pause strategy,

means that the organization wants

– to remain the same size or

– to grow slowly and in a controlled fashion


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Grand Strategy: Retrenchment

Retrenchment = the organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses

Liquidation = selling off a business nit for the cash value of the assets, thus terminating its existence

Divestiture = involves selling off of businesses that no longer seem central to the corporation


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Global Corporate Strategies

Need for National Responsiveness HighLow

Low

High TransnationalStrategy

• Seeks to balance global

efficiencies and local

responsiveness

• Combines standardization

and customization for

product/advertising

strategies

GlobalizationStrategy

• Treats world as a single global market

• Standardizes global products/advertising strategies

Multi-domestic Strategy

• Handles markets

independently for each

country

• Adapts product/advertising

to local tastes and needs

Need

fo

r G

lob

al In

teg

rati

on

Export

Strategy

•Domestically focused

•Exports a few domestically produced products to selected countries


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Global Strategy

Globalization = product design and

advertising strategies are standardized

around the world

Multi-domestic = adapt product and

promotion for each country

Transnational = combine global

coordination with flexibility to meet

specific needs in various countries


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Purpose of Strategy

The plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization attain its goals

Strategies focus on:

● Core competencies

● Developing synergy

● Creating value for customers


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Three Levels of Strategy in Organizations

Corporate-Level Strategy:

What business are we in?Corporation

Business-Level Strategy:

How do we compete?

Textiles Unit Chemicals Unit Auto Parts Unit

Functional-Level Strategy:

How do we support the business-level

strategy?

Finance R&D Manufacturing Marketing


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Strategic Management Process

Implement

Strategy via

Changes in:

Leadership

culture,

Structure, HR,

Information &

control

systems

SWOT

Formulate

Strategy –

Corporate,

Business,

Functional

Define new

Mission

Goals, Grand

Strategy

Identify Strategic

Factors –

Strengths,

Weaknesses

Identify Strategic

Factors –

Opportunities,

Threats

Scan Internal

Environment – Core

Competence,

Synergy, Value

Creation

Evaluate

Current Mission,

Goals,

Strategies

Scan External

Environment –

National,

Global


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Strategy Formulation vs. Implementation

Strategy Formulation = stage of strategic

management that involves planning and decision

making that lead to the establishment of the

organization’s goals and of a specific strategic plan

Strategy Implementation = stage of strategic

management that involves the use of managerial

and organizational tools to direct resources toward

achieving strategic outcomes

Experiential Exercise: Developing Strategy for a Small Business


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Checklist for AnalyzingOrganizational Strengths and Weaknesses

Sources: Based on Howard H. Stevenson, “ Defining Corporate Strengths and Weaknesses,” Sloan Management Review 17 (spring 1976), 51-68; and M.L.Kastens,

Long-Range Planning for Your Business (New York: American Management Association, 1976).

Management and Organization

Management quality

Staff quality

Degree of centralization

Organization charts

Planning, information,

control systems

Finance

Profit margin

Debt-equity ratio

Inventory ratio

Return on investment

Credit rating

Marketing

Distribution channels

Market share

Advertising efficiency

Customer satisfaction

Product quality

Service reputation

Sales force turnover

Production

Plant location

Machinery obsolescence

Purchasing system

Quality control

Productivity/efficiency

Human Resources

Employee experience,

education

Union status

Turnover, absenteeism

Work satisfaction

Grievances

Research and Development

Basic applied research

Laboratory capabilities

Research programs

New-product innovations

Technology innovations


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Portfolio Strategy

Mix of business

units and product

lines that fit

together in a

logical way to

provide synergy

and competitive

advantage

BCG Matrix


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Five Forces Affecting Industry Competition

Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

•Internet reduces

barriers to entry

•Internet expands market size, but

creates new substitution threats

•Internet tends to increase the

bargaining power of suppliers

•Internet shifts greater power

to end consumers

Internet blurs differences among

competitors in an industry

Bargaining

Power of

Buyers

Bargaining Power of Suppliers

Threat of Substitute

Products

Potential New

Entrants

Rivalry

among

Competitors


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Competitive Edge ThroughCompetitive Strategies

Differentiation = attempt to distinguish products or services from that of competitors

Cost leadership = aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors

Focus = concentrates on a specific regional market or buyer group


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Continuum of Partnership Strategies

Organizational Combination

Strategic

Alliances

Preferred Supplier Arrangements

Strategic Business Partnering

Mergers

Acquisitions

Low High

Joint Ventures

Degree of Collaboration


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Implementing Strategy Tools

Leadership

Structural design

Information and control systems

Human resources


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Tools for Putting Strategy into Action

Environment

Organization

Strategy Performance

Leadership

Persuasion

Motivation

Culture/values

Structural Design

Organization Chart

Teams

Centralization

Decentralization,

Facilities, task design

Human Resources

Recruitment/selection

Transfers/promotions

Training

Layoffs/recalls

Source: Adapted from Jay R. Galbraith and Robert K. Kazanjian, strategy Implementation: Structure, Systems and Process, 2d ed. (St. Paul, Minn.: West, 1986), 115,

Used with permission.

Information and Control Systems

Pay, reward system

Budget allocations

Information systems

Rules/procedures

Leadership & Management

Chapter 08 Strategy Formulation and Implementation