chapter 6: formulating strategy -...

© 2008 Pearson Prentice Hall 6-1

Chapter 6:Formulating Strategy

PowerPoint byHettie A. Richardson

Louisiana State University


Opening Profile: Wal-Mart’s Formula Doesn’t Fit

Wal-Mart’s attempts to apply its strategy internationally have not all been successful Germany, South Korea Difficulty dealing with labor unions Lack of scale Inability to compete with established

discounters


Opening Profile: Wal-Mart’s Formula Doesn’t Fit

Wal-Mart is learning from its mistakes Greater acquisitions Asda, Seiyu, Bompreço Smiling clerks in Germany 12% growth internationally


Strategic Planning and Strategy

Strategic planning: 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

Strategy: The basic means by which the firm competes

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Reasons for Going International

Reactive (defensive) reasonsGlobalization of competitorsTrade barriersRegulations and restrictionsCustomer demands Some foreign customers may demand that their supplying

company operate in their local region so that they have better control over their supplies. For example, McDonald’s asks it domestic suppliers to follow it

to foreign ventures.


Reasons for Going International

Proactive (aggressive) reasonsEconomies of scaleGrowth opportunitiesResource access and cost savings Incentives


Strategic Formulation Process: In reality, the stages depicted in this slide are rarely so linear. Instead, the process in continuous and intertwined.


Mission and Objectives Marketing Worldwide,

regional, national market share

Production Production volume Economies of

scale

Finance Tax burden Capital structure

Profitability ROA, ROE, ROI

R & D Global patents


External & Internal Analysis

Key success factors:Technological capability: MicrosoftDistribution channels: Wal-MartPromotion capabilities: Disney

pei wang-nastansky

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pei wang-nastansky

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Competitive Analysis

Distinctive competencies Example: Sony’s ability to miniaturize

SWOT analysis Competitive position analysis


Global Strategy

Treating the world as an undifferentiated worldwide marketplace

The force: Regional trading blocs Declining tariffs Information technology explosion


MNCs

Examples of Stategies: Coca-cola: “To put a Coke within ‘arm’s reach’

of every consumer in the world” (…in greifbarerNähe für alle Verbraucher auf der Welt)

PepsiCo.: “to be the world’s premier consumer products company focused on convenient foods and beverages.” (…sich konzentrierenauf Fertiggerichte & Getränke…)


Regionalization/Localization

Local markets are linked together within a region, allowing local responsiveness

The impetus: Unique consumer preferences Domestic subsidies New production technologies

Pei Wang-Nastansky

Sticky Note

Unilever


Global Integrative Strategies

Full vertical and horizontal integration

Example: Dell Factories in Ireland, Brazil, China, etc. Assembly and delivery system from 47

locations around the world Little inventory, ability to change operations

quickly

Management 9/e - Chapter 9 16

Study Question 2: What is the strategic management process?

Analysis of industry and environment: Assessment of macro environment:

Technology. Government. Social structures and population

demographics. Global economy. Natural environment.

Analysis of industry environment: Resource suppliers. Competitors. Customers.


Figure 9.3 SWOT analysis of strengths, weaknesses, opportunities,and threats.


Study Question 3: What types of strategies are used by organizations?

Questions addressed by different strategic level (e.g. GE – General Electric Company):

Corporate strategy In what industries and markets should we

compete? Business strategy

How are we going to compete for customers in this industry and market?

Functional strategy How can we best utilize resources to

implement our business strategy?


Figure 9.5 Three levels of strategy in organizations —corporate, business, and functional strategies.



Growth and diversification strategies: Growth strategies

Seek an increase in size and the expansion of current operations.

Types of growth strategies: Concentration strategies (e.g./z.B. McDonald’s,

Starbucks)

Diversification strategies Related diversification (e.g. PepsiCo.buys

Tropicana) Unrelated diversification (e.g. GE.) Vertical integration



Retrenchment Strategies – alternative Rückzugsstrategien Correcting weaknesses by making changes to

current operations. Alle alternative Rückzugsstrategien bei der

Bewältigung von Krisen (performance Problems) einer Organisation: Liquidation – Liquidierung (e.g. Hotel Industry – Sale and

Lease-back after 1980’s) Restructuring - Restrukturierung – der umfassende Wechsel

der Organisationsstruktur - mit dem Ziel der Verbesserung der Leistungsergebnisse Downsizing and rightsizing Divestiture – der Verkauf von Unternehmensteilen

.



Global strategies: Globalization strategy (e.g. Gillette Rasierer)

World is one large market; standardize products and advertising as much as possible.

Ethnocentric view.

Multidomestic strategy (e.g. Unilever) Customize products and advertising to local markets

as much as possible. Polycentric view.

Transnational strategy (e.g. IBM) Balance efficiencies in global operations and

responsiveness to local markets. Geocentric view.



Cooperative strategies Strategic alliances — two or more

organizations partner to pursue an area of mutual interest.

Types of strategic alliances: Outsourcing alliances Supplier alliances Distribution alliances



E-business strategies

The strategic use of the Internet to

gain competitive advantage.

Popular e-business strategies

Business-to-business (B2B) strategies

Business-to-customer (B2C) strategies (e.g. Otto Versand, Intershop)


Study Question 4: How are strategies formulated?

Opportunities for achieving sustainable competitive advantage (Chancen für nachhaltigen Wettbewerbsvorteil): Cost and quality

Knowledge and speed

Barriers to entry

Financial resources



Porter’s generic strategies model – "Strategie-Rahmenkonzept“ Business-level strategic decisions are driven by:

Market scope – Marktumfang/die Marktbreite

Source of competitive advantage - die Wettbewerbsvorteile kennzeichnen

Market scope and source of competitive advantage combine to generate four generic strategies.

Porter's "Strategie-Rahmenkonzept" (generic strategies framework) kombiniert den Marktumfang/die Marktbreite (market scope) und Variable, die Wettbewerbsvorteile kennzeichnen, um vier generische Strategien zu entwickeln, die Organisationenverfolgen können, um strategische Vorteile zu erlangen.


Figure 9.6 Porter’s generic strategies framework: automotive & soft-drink industry examples.

VW geg. BMW

PorscheTata Nano

Toyota



Porter’s generic strategies for gaining competitive advantage: Differentiation strategy

Cost leadership strategy

Focused differentiation strategy

Focused cost leadership strategy



BCG matrix – Boston Consulting Group Matrix(als unterschiedliche strategische Geschäftschancen, denen sich ein Unternehmen gegenübersehen kann).

Ties strategy formulation to analysis of business opportunities according to …

Industry or market growth rate Low versus high

Market share Low versus high


Figure 9.7 The BCG matrix approach to corporate strategy formulation.

Stars

(arme) "Hunde"

Fragezeichen

"Milchkühe”



BCG matrix — business conditions and related strategies: Stars

High share/high growth businesses. Preferred strategy — growth.

Cash cows High share/low growth businesses. Preferred strategy — stability or modest

growth.



BCG matrix—business conditions and related strategies (cont.): Question marks

Low share/high growth businesses. Preferred strategy — growth for promising

question marks and restructuring or divestiture for others.

Dogs Low share/low growth businesses. Preferred strategy — retrenchment by

divestiture.


Chapter 7:Global Alliances and Strategy Implementation




Strategic Alliances

Partnerships between two or more firms that combine financial, managerial, and technological resources and their distinctive competitive advantages to pursue mutual goals

Also referred to as cooperative strategies


Categories of Alliances

Joint Ventures: An international joint venture (IJV) is a joint venture among companies in different countries. The JV form for a firm may comprise a majority (more than 50% equity), a minority (less than 50% equity), or may be 50-50 (equal equity).

PSA Peugeot-Citroen Group and Toyota

Equity strategic alliances: two or more partners have different relative ownership shares in the new venture.

Pei Wang-Nastansky

Rectangle


Categories of Alliances Non-equity strategic alliances: agreements are carried out through contract rather than

ownership sharing. suppliers, distributors, or manufacturers, but they also may be for the purposes of

marketing and information sharing. A UPS, which has a non-equity alliance with Nike. Nike contracts with UPS to manage

its entire supply chain from factory, to warehouse, to customer, to repair.

Global strategic alliances: working partnerships between two or more companies across

national boundaries and/or industries. Alliances also can be formed between companies and

governments. Alliances may comprise full global partnerships (e.g., joint ventures

in which two or more companies retain their national identities butdevelop a common, long-term strategy)

they may be more narrow and specific (e.g., aimed at production,marketing, or research and development).

Covisint: a common electronic marketplace an e-business exchange developed by Daimler-Chrysler AG, Ford,

General Motors, Nissan, and Renault.


E-global or E-local?

Going e-global makes sense when: Trade is global in scope:

e.g. steel, plastics, and electronic components

Business does not involve delivering orders

When the business model can be easily hijacked by local competitors


Entry Strategy Alternatives

Exporting Jordan Toothbrush (in Norway)

Licensing: useful in countries where entry by other means is prohibited and

for products in the mature phase of the life-cycle—when competition is intense, margins decline, and production is relatively standardized

useful for firms with rapidly changing technologies, diverse product lines, and small firms with few financial and managerial resources for direct investment abroad. Example: Anheuser-Busch,

Franchising Holiday Inn, McDonald, Subway, etc.


Entry Strategy Alternatives Joint ventures – Gemeinschaftsunternehmen: eine

gemeinsame Tochtergesellschaft von mindestens zwei rechtlichund wirtschaftlich getrennten Unternehmen. StrategischeAllianzen VW in China, started its connection in 1978.

1st joint venture with Shanghai Volkswagen Automotive Co., Ltd., in October 1984.

2nd, FAW-Volkswagen Automotive Co., Ltd. was established in Changchun in February 1991

China, the statement noted, was now VW's largest market, accounting for more than one in five of all vehicles sold.

Oct. 2009, Nine-month sales in China jumped 37 percent. Foreign subsidiaries - ausländischer Tochtergesellschaften


Motivations and Benefits of Global and Cross-Border Alliances To avoid import barriers, licensing requirements, and other

protectionist legislation

To share costs of research and development Toshiba

To gain access to markets that favor domestic companies

To reduce political risk

To gain rapid entry into a new or consolidating industry


Challenges in Implementing Global Alliances

Many alliances fail or end up in takeover

Choosing the right form of governance

The benefits of cooperation vs. the dangers of new competition


Guidelines for Successful Alliances

Choose a partner with compatible strategic goals and objectives

Seek complementary skills, products, and markets

Work out how each partner will deal with proprietary knowledge or competitively sensitive information Trust – contractual agreements

Recognize that most alliances only last a few years

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Ludwig Nastansky

Sticky Note

Unmarked set by Ludwig Nastansky


Strategic Implementation Involves putting decisions about global

alliances and entry strategies into action

Successful implementation requires creating a “system of fits” - The structure, systems, and processes of the firm should be coordinated and mutually reinforce one another. Creating such a system may require altering some of its elements to make them work—such as changing the organizational structure.

Resources must be allocated

Leadership is key


Implementing a Global Sourcing Strategy

Examine your reasons for outsourcing

Evaluate the best outsourcing model

Gain the cooperation of management and staff Consult your alliance partners

Invest in the alliance


Managing Performance in IJVs

IJV control: Ensures that the way a joint venture is managed conforms to the parent company’s interests



Choice of partner

strategic freedom - the relative amount of decision-making power that a JV will have, relative to the parents, when choosing suppliers, product lines, customers, etc. Who makes decisions in daily operations. Management control of local manager has considerable

management control problems—such as staffing friction, blocked communication, and

blurred organizational culture.

Organizational design

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Three complementary dimensions of IJV control: The scope of activities over which parents

have control The extent or degree of control The mechanisms of control


Knowledge Management in IJVs: the active management of creating, disseminating, evolving, and applying knowledge to strategic ends. Tranfering, transformation, and harvesting knowledge among parents and the IJV.

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Chapter 8:Organization Structure and Control Systems




Changing Structures in Emerging Markets

Expansion modes in emerging markets may not fit the mainstream MNC model Many are “born global” Competition is limited in niche

businesses They thrive in old-economy industries

abandoned by established MNCs


Domestic Structure Plus Foreign Subsidiary


International Division

Organized along functional, product, or geographic lines

IBM World Trade

Pepsi Cola International


Global Functional Structure

Designed on the basis of the company’s functions

Allows for functional specialization and economies of scale


Global Product (Divisional) Structure

• Advantages: • market concentration,

innovation, & responsiveness to new opportunities in a particular environment.

• facilitates diversification and rapid growth.

• Disadvantages: • create difficulties in the

coordination of widely dispersed operations.

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Global Geographic (Area) Structure - the most common form of organizing foreign operations

Focusing on marketing and adapting products to local requirements. e.g. Nestle - produce a range of products that can be marketed through similar channels of distribution to similar customers.


Comparative Management in Focus: The Overseas Chinese Global Network

“Chinese commonwealth”

Overseas Chinese Control $2 trillion in liquid assets Contribute 80% of the capital for the PRC Contribute 70% of the private sector in

Malaysia, Thailand, Indonesia, and the Philippines


Comparative Management in Focus: The Overseas Chinese Global Network

The Overseas Chinese business culture Business largely confined to family and

trusted friends—guanxi Adherence to patriarchal authority Thrift and a high savings level Investment in tangible goods Wary outlook


Management Focus: Proctor and Gamble’s Structure

P&G/Gillette merger: Gillette adopts P&G’s organizational structure

P&G’s structure: Global Business Unit (GBU) Market Development Organization (MDO) Global Business Services (GBS)

Sticky Note

Gillette will move from business units based on geographic regions to GBUs based on product lines. P&G 's organizational structure is broadly divided into tbrec heads: GBU (Global Business UnH), MDO (Markl!t Development Organization), and GBS (Global Business Services)

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Emergent Structural Forms Interorganizational networks

The network framework makes clear that the company’s operatingunits link vastly different environmental and operational contextsbased on varied economic, social and cultural milieus

Royal Philips Electronics Philips has operating units in sixty countries. These units range

from large subsidiaries to very small single-function operations.Some have centralized control at Philip’s headquarters; othersare autonomous.

Intel 2005, developed a structural focus called “Platformisation,”

which is customizing a range of chips in a combination suitablefor a particular target market as a response to the need forspeed adaptation


Emergent Structural Forms - global e-corporation network structure


When is Change Needed?

Clashes among divisions, subsidiaries, or individuals over territories or customers

Duplication of administrative or personnel services, sales offices, account executives

An increase in overseas customer service complaints

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When is Change Needed?

A shift in operational scope

Conflict between overseas and domestic staff

Centralization leads to excessive and, thus, misused or misunderstood data

Unclear reporting relationships


Locus of Decision Making

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Monitoring Systems


Direct Coordinating Mechanisms McDonald’s in Moscow

Problem: Quality control Solution: Built processing plant in Moscow and

provided managerial training sent Russian managers for five months of training

in Canada.

Other options: Visits by head-office personnel and regular meetings


Indirect Coordinating Mechanisms

Examples: sales quotas, budgets, and financial tools and reports

Three financial statements One for accounting standards in host

country One for the standards in the home country One for consolidation


Evaluation Variables across Countries

Adjust statements to reflect variables unique to each country

Take nonfinancial measures into account

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