lecture 3 strategy formulation – business strategy
TRANSCRIPT
Outcome of strategic analysisThe goal is to find a propitious niche that is so
well suited to the firm’s internal and external environment that other corporations are not likely to challenge or dislodge it.◦ Look for a strategic window – a unique market
opportunity that is available only for a particular time.
◦ Occupy a propitious niche and discourage competition.
◦ Identify a market opportunity in which the firm can obtain and keep dominant market share.
◦ Niche can change faster than a firm can adapt to that change – thus the firm need to invest heavily in their capabilities to keep strong in a changing niche.
The environment/industry changes◦ The market gets smaller because of factors
beyond the control of the company/SBU.◦ The company/SBU, through its own efforts,
not only fills a demand but actually causes the market to expand.
The company/SBU changes◦ Due to demands for resources elsewhere in
the corporation, the company/SBU may be forced to cut back its activities.
◦ Its own success in the niche may cause the company/SBU to move into nearby niches.
Propitious niche can disappear because of
Mission and ObjectivesFocus on fulfilling a mission
rather than on generating action possibilities
Mission should be a common thread
Gap between planned and achieved objectives
Review of objectives
Generating alternative strategiesUsing TOWS matrix to generate alternative
strategies Strengths – S
List Strengths
Weaknesses – W
List Weaknesses
Opportunities – O
List 5-10 Opportunities
SO Strategies
Use strengths to take advantage of opportunities
WO Strategies
Overcoming weaknesses by taking advantage of
opportunities
Threats – T
List 5-10 Threats
ST Strategies
Use strengths to avoid threats
WT Strategies
Minimize weaknesses and avoid threats
Porters Generic StrategiesCompetitive
StrategyRequired Skills &
ResourcesOrganizational
ElementsAssociated
RisksOverall Cost Leadership
Sustained capital investment and access to capital
Tight cost control Technological change that nullifies past investments or learning
Process engineering skills Frequent, detailed reports Low-cost learning by industry newcomers or followers through imitation, or through their ability to invest in state-of-the-art facilities
Intensive supervision of labor
Structured organization and responsibilities
Inability to see required product or marketing change because of the attention placed on cost
Products designed for ease of manufacture
Incentives based on meeting strict quantitative targets
Inflation in costs that narrow the firm’s ability to maintain enough of a price differential to offset competitors’ brand images or other approaches to differentiation
Low-cost distribution system
Firm Infrastructure – cost-effective management information systems (MIS), few managerial layers, simplified planning practices.
Human Resources: consistent policies to reduce turnover, intense focus on training employees to be efficient and multi-skilled.
Technology: Easy-to-use production technologies,investment in technology that improves production efficiencies.
Procurement: procedures to find the lowest cost inputs, frequentevaluation of suppliers’ performances.
InboundLogisticsEfficient systems to link supplier products with production processes.
OperationsUse of Economies of scale.
Construction of efficient scale facilities.
Outbound LogisticsDelivery schedule that reduces costs.
Selection of low-cost carriers.
Marketing& SalesSmall, highly trained sales force.
Products priced to generate sales volume.
ServiceEfficient qualitycontrol to reduce buyercomplaints.
MA
RG
IN
MA
RG
IN
Value Chain for a Low Cost Strategy
Porters Generic StrategiesCompetitive Strategy
Required Skills & Resources Organizational Elements Associated Risks
Differentiation Strong marketing abilities Strong coordination among functions in R&D, product development, and marketing
The cost differential between low-cost competitors and the differentiated firm becomes too great for differentiation to hold brand loyalty. Buyers thus sacrifice some of the features, services, or image possessed by the differentiated firm for large cost savings.
Product engineering Subjective measurement and
incentives instead of quantitative measures
Buyers’ need for the differentiating factor falls. This can occur as buyers become more sophisticated.
Creative flair Amenities to attract highly skilled labor, scientists, or creative people
Imitation narrows perceived differentiation, a common occurrence as industries mature.
Strong capability in basic research
Corporate reputation for quality or technological leadership
Long tradition in the industry or unique combination of skills drawn from other businesses
Strong cooperation from channels
Value Chain for a Differentiation StrategyFirm Infrastructure – Highly developed MIS to capture
customer preferences, firm-wide focus on high-quality products.
Human Resources: Compensation encourages creativity, subjective performance measures, superior training.
Technology: strong capability in basic research, investment in technologies that allow for production of highly differentiated products.
Procurement: procedures to find the highest quality inputs, purchase ofhighest quality replacement parts, strict standards for suppliers.
InboundLogisticsSuperior handling to minimize damage and improve quality.
OperationsConsistent production of attractive products.Rapid response to customers’ production demands.
Outbound LogisticsAccurate and responsive order processing.
Rapid and timely deliveries.
Marketing& SalesExtensive granting of credit buying.
Extensive personal relationships with buyers.
ServiceExtensive buyertraining to assure max.value fromProduct.
MA
RG
IN
MA
RG
IN
Porters Generic StrategiesCompetitive Strategy
Required Skills & Resources
Organizational Elements
Associated Risks
Focus Combination of the above policies directed at the particular strategic target
Combination of the above policies directed at the particular strategic target
The cost differential between broad-range competitors and the focused firm widens to eliminate the cost advantages of serving a narrow target or to offset the differentiation achieved by focus.
The differences in desired products or services between the strategic target and the market as a whole narrows.
Competitors find submarkets within the strategic target and outfocus the focuser.
Which competitive strategy is best?Competitive Tactics: a tactic is a
specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action◦Timing Tactics (when)◦Market Location Tactics (where)
Timing Tactics◦First Mover◦Late Mover
Which competitive strategy is best?Market Location Tactics
◦Offensive Tactics Frontal Assault: generally expensive
Flanking Maneuver: focus on an unguarded niche
Bypass Attack: change the rules of the game
Encirclement: use a broad product line to annihilate competition
Guerrilla Warfare: patient enough to accept small gains and avoid pushing established competitors too far
◦Defensive Tactics Raise structural barriers Increase expected retaliation Lower the inducement of attack
Which competitive strategy is best?Market Location Tactics
◦ Offensive Tactics: established competitors marketplace Frontal Assault: generally expensive
Flanking Maneuver: focus on an unguarded niche
Bypass Attack: change the rules of the game
Encirclement: use a broad product line to annihilate competition
Guerrilla Warfare: patient enough to accept small gains and avoid pushing established competitors too far
◦ Defensive Tactics: make competitive advantage sustainable, takes place in own market Raise structural barriers: offer full line off products, block channel
access, raise buyer switching costs, raise the cost of gaining trial users, increase scale economies, foreclosure alternative technologies, limit outside access to facilities, tie-up suppliers, avoid suppliers serving competitors,
Increase expected retaliation Lower the inducement of attack
Cooperative strategiesCollusion
◦Explicit mostly illegal◦Tacit favored in certain types of industries
Strategic Alliances: 30% to 50% alliances perform unsatisfactorily
◦Objectives: obtain technology/manufacturing capabilities, obtain access to specific markets, reduce financial risk, reduce political risk, achieve competitive advantage
◦Types of alliances: Mutual Service Consortia Joint Venture Licensing Arrangement Value chain partnership
Strategic PosturesOffensive Defensive
1. Concentration Growth 1. .Retrenchment/TurnaroundA. Market Penetration A. ShallowB. Market Development B. DeepC. Product Development C. BankruptcyD. Horizontal Merger 2. DivestitureE. Niching A. Sell-off1. Low-cost Leadership("Functional Rationalization")
B. Spin-off
2. Cost Focus C. Split-off3. Differentiation 3. Liquidation4. Focused Differentiation A. Voluntary Closure
2. Integrative Growth B. AssignmentA. Backward C. BankruptcyB. Forward 4. Harvesting
3. Diversification Growth A. Concentric B. Conglomerate
4. Joint Ventures