lecture 4 strategy formulation

8/8/2019 Lecture 4 Strategy Formulation

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LEVELS OF STRATEGYLEVELS OF STRATEGY

CORPORATE STRATEGYCORPORATE STRATEGY

BUSINESS (SBU) STRATEGYBUSINESS (SBU) STRATEGY

FUNCTIONAL LEVEL STRATEGYFUNCTIONAL LEVEL STRATEGY


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Corporate-Level StrategyCorporate-Level Strategy

What is Corporate Level Strategy?What is Corporate Level Strategy?

Definition: Action taken to gain a competitiveDefinition: Action taken to gain a competitive

advantage through the selection andadvantage through the selection and

management of a mix of businessesmanagement of a mix of businesses

competing in several industries or productcompeting in several industries or product

markets.markets.


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1. What businesses should the corporation1. What businesses should the corporation

be in?be in?

2. How should the corporate office manage2. How should the corporate office managethe array of business units?the array of business units?

Corporate StrategyCorporate Strategy is what makes the corporate wholeis what makes the corporate whole

add up to more than the sum of its business unit partsadd up to more than the sum of its business unit parts

Key Questions of Corporate StrategyKey Questions of Corporate Strategy


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CORPORATE LEVEL STRATEGIESCORPORATE LEVEL STRATEGIES

1.1. GROWTH STRATEGYGROWTH STRATEGY Market PenetrationMarket Penetration Market DevelopmentMarket Development

Product DevelopmentProduct Development

DiversificationDiversification

2. STABILITY2. STABILITY1.1. HoldingHolding

2.2. BuildingBuilding

3.3. HarvestingHarvesting

4.4. DivestmentDivestment

3. RETRENCHMENT3. RETRENCHMENT1.1. TurnaroundTurnaround

2.2. Selling OutSelling Out

3.3. Investment ReductionInvestment Reduction

4. INTEGRATIVE4. INTEGRATIVE


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Advantages of IntegratedAdvantages of Integrated

StrategyStrategyA firm that successfully uses an integrated costA firm that successfully uses an integrated cost

leadership/differentiation strategy should be in aleadership/differentiation strategy should be in a

better position to:better position to: adapt quickly to environmental changesadapt quickly to environmental changes

learn new skills and technologies more quicklylearn new skills and technologies more quickly

effectively leverage its core competencies whileeffectively leverage its core competencies whilecompeting against its rivalscompeting against its rivals


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Benefits of Integrated StrategyBenefits of Integrated Strategy

Successful firms using this strategy have above-Successful firms using this strategy have above-

average returnsaverage returns

Firm offers two types of values to customersFirm offers two types of values to customers some differentiated features (but less than a truesome differentiated features (but less than a true

differentiated firm)differentiated firm)

relatively low cost (but not as low as the costrelatively low cost (but not as low as the costleaders price)leaders price)


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Business-Level StrategyBusiness-Level Strategy

Business-level strategyBusiness-level strategy: an integrated and: an integrated and

coordinated set of commitments and actions the firmcoordinated set of commitments and actions the firm

uses to gain a competitive advantage by exploitinguses to gain a competitive advantage by exploitingcore competencies in specific product marketscore competencies in specific product markets


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The Central Role of CustomersThe Central Role of Customers

In selecting a business-level strategy, theIn selecting a business-level strategy, the

firm determinesfirm determines

1.1. whowho it will serveit will serve

2.2. whatwhatneeds those target customers have thatneeds those target customers have that

it will satisfyit will satisfy

3.3. howhow those needs will be satisfiedthose needs will be satisfied


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Managing Relationships WithManaging Relationships With

CustomersCustomers Customer relationships are strengthened byCustomer relationships are strengthened by

offering them superior valueoffering them superior value

help customers to develop a new competitive advantagehelp customers to develop a new competitive advantage enhance the value of existing competitive advantagesenhance the value of existing competitive advantages


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MARKET LEADER STRATEGIESMARKET LEADER STRATEGIES

Expanding the total marketExpanding the total market

Use a fortification strategyUse a fortification strategy

Use a confrontation strategyUse a confrontation strategy Use a maintenance strategyUse a maintenance strategy


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Defense StrategyDefense Strategy

A market leader should generally adopt a defenseA market leader should generally adopt a defense

strategystrategy

Six commonly used defense strategiesSix commonly used defense strategies

Position DefensePosition Defense Mobile DefenseMobile Defense

Flanking DefenseFlanking Defense

Contraction DefenseContraction Defense

Pre-emptive DefensePre-emptive Defense

Counter-Offensive DefenseCounter-Offensive Defense


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Defense Strategy (contd)Defense Strategy (contd)

Position DefensePosition Defense Least successful of the defense strategiesLeast successful of the defense strategies

A company attempting a fortress defenseA company attempting a fortress defensewill find itself retreating from line after linewill find itself retreating from line after lineof fortification into shrinking productof fortification into shrinking productmarkets. Saunders (1987)markets. Saunders (1987)

e.g. Mercedes was using a position defensee.g. Mercedes was using a position defensestrategy until Toyota launched a frontalstrategy until Toyota launched a frontalattack with its Lexus.attack with its Lexus.


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Mobile DefenseMobile Defense By market broadening and diversificationBy market broadening and diversification

For marketing broadening, there is a need toFor marketing broadening, there is a need to Redefine the business (principle of objective), andRedefine the business (principle of objective), and

Focus efforts on the competition (the principle ofFocus efforts on the competition (the principle of

mass)mass)

Ex ITC Industries has diversified into food,Ex ITC Industries has diversified into food,

beverages, toilettries etc.beverages, toilettries etc.


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Flanking Defense:Flanking Defense:

Secondary markets (flanks) are the weaker areasSecondary markets (flanks) are the weaker areas

and prone to being attackedand prone to being attacked

Pay attention to the flanksPay attention to the flanks

e.g. HUL has launched Surf Excel for its high-ende.g. HUL has launched Surf Excel for its high-end

Rin middle segmentRin middle segment

Wheellower segment.Wheellower segment.

EgProcter & Gamble- Ariel & TideEgProcter & Gamble- Ariel & Tide


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Contraction DefenseContraction Defense Withdraw from the most vulnerable segmentsWithdraw from the most vulnerable segments

and redirect resources to those that are moreand redirect resources to those that are moredefendabledefendable

By planned contraction or strategic withdrawal

e.g.e.g. Indias TATA Group sold its soaps anddetergents business units to Unilever in 1993


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Pre-emptive DefensePre-emptive Defense Detect potential attacks and attack theDetect potential attacks and attack the

enemies firstenemies first Let it be known how it will retaliateLet it be known how it will retaliate

Product or brand proliferation is a form ofProduct or brand proliferation is a form of

pre-emptive defense e.g. Seiko has overpre-emptive defense e.g. Seiko has over2,000 models2,000 models


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Counter-Offensive DefenseCounter-Offensive Defense Responding to competitors head-on attackResponding to competitors head-on attack

by identifying the attackers weakness andby identifying the attackers weakness andthen launch a counter attackthen launch a counter attack

e.g. Toyota launched the Lexus to responde.g. Toyota launched the Lexus to respond

to Mercedes attackto Mercedes attack


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MARKET CHALLENGER STRATEGYMARKET CHALLENGER STRATEGY

IT CAN ATTACK THE MARKET LEADERIT CAN ATTACK THE MARKET LEADER

PRICE DISCOUNTSPRICE DISCOUNTS

CHEAPER GOODSCHEAPER GOODS PRODUCT INNOVATIONPRODUCT INNOVATION

DISTRIBUTION INNOVATIONDISTRIBUTION INNOVATION

PRESTIGE GOODSPRESTIGE GOODS


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Market Challenger StrategiesMarket Challenger Strategies

(contd)(contd)

Types of Attack StrategiesTypes of Attack Strategies Frontal attackFrontal attack

Flank attackFlank attack

Encirclement attackEncirclement attack

Bypass attackBypass attack

Guerrilla attackGuerrilla attack


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Frontal AttackFrontal Attack

Seldom workSeldom workunlessunless The challenger has sufficient fire-power (a 3:1The challenger has sufficient fire-power (a 3:1

advantage) and staying power, andadvantage) and staying power, and The challenger has clear distinctiveThe challenger has clear distinctive

advantage(s)advantage(s)

e.g. Japanese and Korean firms launchede.g. Japanese and Korean firms launchedfrontal attacks in various ASPAC countriesfrontal attacks in various ASPAC countries

through quality, price and low costthrough quality, price and low cost


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Encirclement attackEncirclement attack

Attack the enemy at many fronts at theAttack the enemy at many fronts at the

same timesame time

Ideal for challenger having superiorIdeal for challenger having superiorresourcesresources

e.g. Seiko attacked on fashion, features,e.g. Seiko attacked on fashion, features,

user preferences and anything that mightuser preferences and anything that mightinterest the consumerinterest the consumer


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Bypass attackBypass attack

By diversifying into unrelated productsBy diversifying into unrelated products

or markets neglected by the leaderor markets neglected by the leader

Could overtake the leader by using newCould overtake the leader by using newtechnologiestechnologies

e.g. Pepsi use a bypass attack strategye.g. Pepsi use a bypass attack strategy

against Coke in China by locating itsagainst Coke in China by locating itsbottling plants in the interior provincesbottling plants in the interior provinces


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MARKET FOLLOWER STRATEGYMARKET FOLLOWER STRATEGY

COUNTERFEITERCOUNTERFEITER

CLONERCLONER

IMITATEIMITATE ADAPTERADAPTER


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ADAPTIVE STRATEGIESADAPTIVE STRATEGIES

Are applicable to business units within theAre applicable to business units within the

organisation.organisation.

PROSPECTORPROSPECTOR

DEFENDERDEFENDER

ANALYZERANALYZER


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GENERIC STRATEGIESGENERIC STRATEGIES

COST LEADERSHIPCOST LEADERSHIP

DIFFERENTIATIONDIFFERENTIATION

FOCUSFOCUS

Fi G i St t iFi G i St t i


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Five Generic StrategiesFive Generic Strategies

Competitive AdvantageCompetitive Advantage

Compe

tit i

veS

co

pe

Compe

tit i

veS

co

pe

CostCost UniquenessUniqueness

Broad

Br

oad

target

target

Narrow

Narrow

target

target

Cost LeadershipCost Leadership DifferentiationDifferentiation

Focused CostFocused Cost

LeadershipLeadership

FocusedFocused

DifferentiationDifferentiation

Integrated CostIntegrated Cost

Leadership/Leadership/

DifferentiationDifferentiation


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Cost Leadership StrategyCost Leadership Strategy

An integrated set of actions designed to produce orAn integrated set of actions designed to produce or

deliver goods or services at thedeliver goods or services at the lowest costlowest cost,, relativerelative

to competitorsto competitors with features that are acceptable towith features that are acceptable tocustomerscustomers

relatively standardized productsrelatively standardized products

features acceptable to many customersfeatures acceptable to many customers

lowest competitive pricelowest competitive price


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Cost Leadership StrategyCost Leadership Strategy

Cost saving actions required by this strategy:Cost saving actions required by this strategy: building efficient scale facilitiesbuilding efficient scale facilities tightly controlling production costs and overheadtightly controlling production costs and overhead minimizing costs of sales, R&D and serviceminimizing costs of sales, R&D and service building efficient manufacturing facilitiesbuilding efficient manufacturing facilities monitoring costs of activities provided by outsidersmonitoring costs of activities provided by outsiders

simplifying production processessimplifying production processes


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Differentiation StrategyDifferentiation Strategy

An integrated set of actions designed by a firm toAn integrated set of actions designed by a firm toproduce or deliver goods or services (at anproduce or deliver goods or services (at anacceptable cost) that customers perceive as beingacceptable cost) that customers perceive as being

different in ways that are important to themdifferent in ways that are important to them price for product can exceed what the firms targetprice for product can exceed what the firms target

customers are willing to paycustomers are willing to pay nonstandardized productsnonstandardized products

customers value differentiated features more than theycustomers value differentiated features more than theyvalue low costvalue low cost


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Differentiation StrategyDifferentiation Strategy

Differentiation actions required by this strategy:Differentiation actions required by this strategy:

developing new systems and processesdeveloping new systems and processes

shaping perceptions through advertisingshaping perceptions through advertising quality focusquality focus

capability in R&Dcapability in R&D

maximize human resource contributionsmaximize human resource contributionsthrough low turnover and high motivationthrough low turnover and high motivation


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Focused Business-LevelFocused Business-Level

StrategiesStrategiesA focus strategy must exploit a narrow targetsA focus strategy must exploit a narrow targetsdifferences from the balance of the industry by:differences from the balance of the industry by:

isolating a particular buyer groupisolating a particular buyer group

isolating a unique segment of a product lineisolating a unique segment of a product line concentrating on a particular geographic marketconcentrating on a particular geographic market finding their nichefinding their niche

lecture 4 strategy formulation

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