Chapter 6Formulating Strategy

PowerPoint byKristopher Blanchard

North Central University

Strategic Planning and Strategy

The process by which a firm’s managers evaluate the future prospects of the firm and decide on appropriate strategies to achieve long-term objectives is called strategic planning.

The basic means by which the company competes – its choice of business or businesses in which to operate and the ways in which it differentiates itself from its competitors – is its strategy.

Reasons for Going International

AOL Europe is emerging as an upbeat counterpoint to AOL’s sagging business in the United States. Partly a matter of timing, as Europe follows the

United States online … but also reflecting differences in strategy and execution. AOL Europe

lobbied hard … to establish rules guaranteeing AOL Europe equal access to telecommunications

networks.

- www.nytimes.com, September 8, 2003

Reasons for Going International

Reactive or defensive

Proactive or aggressive

The threat of decreased competitiveness is the overriding reason many large companies adopt a strategy of aggressive globalization

Strategic Formulation Process

Strategic Formulation Process

First phase is the planning phase – company establishes (or clarifies) its mission and overall objective

Second part is the implementation phase – requires the establishment of the structure, systems, processes suitable to make the strategy work

Mission and Objective

Mission of an organization is its overall raison d’etre or the function it performs in society

Objectives flow from mission and guide the formulation of international strategy

Environmental Assessment

Gathering information and forecasting relevant trends, competitive actions and circumstances that will affect operations in a geographic area; should include:– Political instability

– Currency instability

– Nationalism

– International competition

– Environmental scanning

Internal AnalysisInternal analysis determines which areas of the firm’s operations represent strengths or weaknesses (currently or potentially) compared to competitors, so that the firm may use that information to its strategic advantage

It focuses on the company’s resources and operations, and global synergies

Strengths and weaknesses of the firm’s financial and managerial expertise and functional capabilities are evaluated to determine the key success factors

Competitive Analysis

Assess the firm’s capabilities and key success factors compared to those of its competitorsEnables strategic planners to determine where the firm has distinctive competencies that will give it an advantageMost companies develop strategies around key strengths or core competenciesThis stage is often called a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis

Global/International Strategic Alternatives

Global Strategic Alternatives determines the overall approach to the global marketplace

Entry Strategy Alternatives determine what specific entry strategy is appropriate for each country the firm plans to operate in

Approaches to World Markets

Globalization is a term that refers to the establishment of worldwide operations and the development of standardized products and marketing.

Regionalization (or multi-local) is where local markets are linked together within a region, allowing more local responsiveness and specialization.

Integrative Strategies

Multinational Corporations will develop their operations to the point of being fully integrated– Both vertical and horizontal

– Includes suppliers, productive facilities, marketing and distribution outlets, and contractors

Some move quickly to the stage of integration through acquisition

Other companies use a variety of strategies and enter the country in stages

Entry Strategies

Using E-business for expansion

The real story is the profound impact this medium will have on corporate strategy, organization and business models. Our research reveals that the

Internet is driving global marketplace transformation and paradigm shift in how

companies get things done, how they compete and how they serve their customers.”

- www.IBM.com

Global B2B/B2C Strategy

To assess the potential competitive position of the company, managers must ask themselves the following questions with

respect to B2B/B2C:• Does the exchange provide a technology solution that

helps industry-trading partners to do business more efficiently?

• Is the exchange known to be among the top 3-5 within its vertical industry?

• Does the exchange offer industry-specific technology and expertise that gives it an advantage over generic exchange-builders?

Conditions Favoring E-Global

“The global beachhead strategy makes sense when trade is global in scope; when the business does not involve delivering orders; and when the business model can be hijacked relatively easily by local competitors.”

M. Sawhney and S. Mandal

Conditions Favoring E-Local

“[The e-local/regional approach] is preferable under three conditions: when production and consumption are regional rather than global in scope; when customer behavior and market structures differ across regions but are relatively similar within a region; and when supply-chain management is very important to success.”

Sawhney and Mandal

Entry Strategy Alternatives

Comparative Management in Focus: Planning for the EU Market

As of May 2004 the European Union is:– A 25-nation unified market

– A market of more than 400 million people

With the addition of Central and Eastern European countries companies have access to:– The EU

– Cheaper wages, lower corporate taxes, and educated workforces

– Eliminated currency risk for Europe

Comparative Management in Focus: Planning for the EU Market

The EU has developed a protectionist wall– Tariffs, quotas, local content laws and

competitive tactics– Designed to keep the US and Japan out

The EU has created opportunities for nonmembers as well

Strategic Choice

The strategic choice of one or more of the entry strategies will depend on

– a critical evaluation of the advantages (and disadvantages of each in relation to the firm’s capabilities,

– the critical environmental factors– the contribution that each choice would make

to the overall mission and objectives of the company.

Looking Ahead

Chapter 7 – Global Alliances and Strategy Implementation– Strategic Alliances– Strategic Implementation