2/14 - Strategy


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2/14 - Strategy

  1. 1. Corporate Level What businesses are we in? Business Level How do we compete? Functional Level How do we support business-level strategies? ORGANIZATION Strategic Business Unit 1 Strategic Business Unit 2 Strategic Business Unit 3 LEVELS OF STRATEGY R & D Manufacturing, Distribution, Marketing, Finance, HR Sales Marketing, Customer service Purchasing, Accounting HR MIS, Operations, Forecasting, Finance, Gov’t affairs, HR
  2. 2. Identify Current Mission, Objectives, & Strategy Analyze Environment Analyze Resources Note Threats and Opportunities Note Weaknesses and Strengths Formulate Strategies Implement Strategies Evaluate Results 1 2 4 3 5 6 7 8 THE STRATEGIC MANAGEMENT PROCESS
  3. 3. EXAMPLES OF STRENGTHS, WEAKNESSES, OPPORTUNITIES, & THREATS <ul><li>Potential Strengths </li></ul><ul><li>Market leadership </li></ul><ul><li>Strong reputation </li></ul><ul><li>High-quality products </li></ul><ul><li>Cost advantages </li></ul><ul><li>Patents </li></ul><ul><li>Potential Opportunities </li></ul><ul><li>New untapped markets </li></ul><ul><li>Falling trade barriers </li></ul><ul><li>Competitors failing </li></ul><ul><li>Diversification possibilities </li></ul><ul><li>Economy rebounding </li></ul><ul><li>Potential Threats </li></ul><ul><li>Market saturation, slow growth </li></ul><ul><li>Threat of takeover </li></ul><ul><li>New competition, substitutes </li></ul><ul><li>Poor economic outlook </li></ul><ul><li>Growing gov’t regulation </li></ul><ul><li>Potential Weaknesses </li></ul><ul><li>Large inventories </li></ul><ul><li>Obsolete facilities </li></ul><ul><li>No strategic direction </li></ul><ul><li>Management turnover </li></ul><ul><li>Weak market image </li></ul>
  4. 4. CORPORATE-LEVEL STRATEGIES <ul><li>GROWTH </li></ul><ul><li>Vertical (backward, </li></ul><ul><li>forward), or horizontal </li></ul><ul><li>integration </li></ul><ul><li>Related or conglomerate </li></ul><ul><li>diversification </li></ul>STABILITY <ul><li>INVESTMENT </li></ul><ul><li>REDUCTION </li></ul><ul><li>Retrenchment </li></ul><ul><li>Divestment </li></ul>STABILITY Environmental Status Threats Opportunities Organizational Status Strengths Weaknesses
  5. 5. <ul><li>Vertical Integration: acquiring suppliers or distributors to gain process control </li></ul><ul><ul><li>Forward Integration : enter business of customers, moving closer to ultimate customer </li></ul></ul><ul><ul><li>Backward Integration : enter business of suppliers, to control quality, delivery, or costs </li></ul></ul><ul><li>Horizontal Integration: acquiring competitors to consolidate and extend market share </li></ul><ul><li>Related Diversification: expanding to related products/services or market segments </li></ul><ul><li>Conglomerate Diversification: adding unrelated products/services </li></ul>CORPORATE-LEVEL GROWTH STRATEGIES
  6. 6. BOSTON CONSULTING GROUP FRAMEWORK FOR CORPORATE LEVEL BUSINESS PORTFOLIO <ul><li>QUESTION MARKS </li></ul><ul><li>Small share of </li></ul><ul><li>expanding market </li></ul><ul><li>Risky </li></ul><ul><li>Prize heifer or problem </li></ul><ul><li>child </li></ul><ul><li>STAR </li></ul><ul><li>Large share of expanding </li></ul><ul><li>market </li></ul><ul><li>Rapid growth and </li></ul><ul><li>expansion </li></ul><ul><li>DOG </li></ul><ul><li>Small share of mature </li></ul><ul><li>market </li></ul><ul><li>Consider divestment </li></ul><ul><li>CASH COW </li></ul><ul><li>Large share of mature </li></ul><ul><li>market </li></ul><ul><li>“ Milk” cash to fund new </li></ul><ul><li>venture (question marks) </li></ul>High Low MARKET GROWTH MARKET SHARE Low High
  7. 7. Company Position/ Industry Attractiveness (GE) Business Screen <ul><li>Size, growth, market share </li></ul><ul><li>Profitability </li></ul><ul><li>Competitive position </li></ul><ul><li>(price & quality) </li></ul><ul><li>Strengths/ weaknesses </li></ul><ul><li>Technological capability </li></ul><ul><li>Reputation/presence </li></ul><ul><li>Caliber of management </li></ul>Low Medium High Industry Attractiveness Low Medium High Business Unit Position <ul><li>Industry size </li></ul><ul><li>Market growth, pricing, diversity </li></ul><ul><li>Competitive intensity </li></ul><ul><li>Industry profitability </li></ul><ul><li>Economies of scale </li></ul><ul><li>Industry profit margins </li></ul><ul><li>Technology </li></ul><ul><li>Social, environmental, legal, </li></ul><ul><li>and human resources factors </li></ul>Invest, employ growth strategy Monitor performance, selective strategy based on earnings No growth or investment, consider divestment or liquidation
  8. 8. Broad Target COMPETITIVE SCOPE Narrow Target Lower Cost Uniqueness Cost Leadership tight cost controls efficient productions, sales force, & advertising competitive pricing Differentiation premium quality brand image technological leadership customer service Cost Focus Differentiation Focus PORTER’S BUSINESS-LEVEL COMPETITIVE STRATEGIES Identification of target market (niche) Constant review of customer demand VALUE ADDED
  9. 9. <ul><li>1. Threat of New Entrants </li></ul><ul><ul><li>inversely related to need for investment in plants/equipment, customers’ switching costs </li></ul></ul><ul><li>2. Intensity of Competitor Rivalry </li></ul><ul><ul><li>potential for price wars, advertising wars, customer service battles </li></ul></ul><ul><li>3. Pressure from Substitute Products </li></ul><ul><li> - frozen yogurt for ice cream; Pop Tarts for cereal </li></ul><ul><li>4. Buyers’ Bargaining Power Over Suppliers </li></ul><ul><ul><li>buyers purchase high volume, products are undifferentiated, buyers do not face high switching costs </li></ul></ul><ul><li>5. Suppliers’ Bargaining Power Over Buyers </li></ul><ul><ul><li>few substitutes, buyer not important customer group , supplier’s products important input to buyer’s business </li></ul></ul>FIVE FORCES DRIVING COMPETITON AND BUSINESS-LEVEL STRATEGIES
  10. 10. Example Issues for Developing Functional Strategies <ul><li>Human Resources </li></ul><ul><li>Finance </li></ul><ul><li>Marketing </li></ul><ul><li>What type of reward system is needed? </li></ul><ul><li>How should we recruit talented people? </li></ul><ul><li>What proportion of profits should be reinvested or paid out as dividends? </li></ul><ul><li>What is the criteria for allocating financial resources to projects? </li></ul><ul><li>What goods/services should we emphasize? </li></ul><ul><li>What corporate image or services should we emphasize to customers? </li></ul><ul><li>How should products be distributed (direct selling, wholesalers, retailers)? </li></ul>Goal is to support business-level strategies
  11. 11. HYPERCOMPETITION <ul><li>Hypercompetition A condition of constant disequilibrium and change caused by the frequence, boldness and aggressiveness of competitors </li></ul><ul><li>Hypercompetitive Environments Characterized by high levels of uncertainty, dynamism, hostility and heterogeneity of competition </li></ul>
  12. 12. STRATEGIES IN HYPERCOMPTITIVE ENVIRONMENTS <ul><li>Disrupting the status quo </li></ul><ul><li>Creating transient change </li></ul><ul><li>Sustaining the momentum </li></ul><ul><li>Collective strategies, as appropriate </li></ul>
  13. 13. <ul><li>Differentiate three levels of strategy </li></ul><ul><li>Identify & explain the eight basic steps in strategy formulation </li></ul><ul><li>Know how to conduct a SWOT analysis </li></ul><ul><li>Know what factors affect the development of corporate- and business-level strategies </li></ul><ul><li>Understand BCG & GE Screen Models of corporate-level strategies </li></ul><ul><li>Know generic business-level strategies </li></ul>COMPETITIVE STRATEGY: TAKE HOME POINTS