Strategy Formulation Corporate Level, Business Unit Level and Functional Level
Strategy Formulation <ul><li>Defined: </li></ul><ul><li>Development of long-range plans for the effective management of en...
Strategy Formulation <ul><li>Mission Statement </li></ul><ul><li>Purpose or reason for the org’s existence </li></ul><ul><...
Strategy Formulation <ul><li>A  goal  is an open-ended statement of what one wants to accomplish with no quantification of...
Strategy Formulation <ul><li>An  objective  are specific and quantifiable, versions of goals. </li></ul>
Strategy Formulation <ul><li>Corporate goals & objectives include: </li></ul><ul><li>Profitability (net profits in % or $)...
Goals & Stakeholders <ul><li>Owners or shareholders </li></ul><ul><li>Members of the board of directors </li></ul><ul><li>...
Specific Strategies <ul><li>Defined: </li></ul><ul><li>Specific strategies of a corporation form a comprehensive master pl...
Specific Strategies <ul><li>Three Types of Specific Strategies </li></ul><ul><li>1.  Corporate Level Strategies  (Chap 7) ...
Corporate Level Strategy <ul><li>Amounts to determining the overall direction that will enable the organization to best fu...
Corporate Level Strategy <ul><li>Growth Strategies </li></ul><ul><li>Concentration (internal growth) </li></ul><ul><li>  P...
Corporate Level Strategy <ul><li>Concentration (internal growth) </li></ul><ul><li>Advantage </li></ul><ul><li>1. Become v...
Corporate Level Strategy <ul><li>Horizontal Integration </li></ul><ul><li>Growth through acquisition of other businesses i...
Corporate Level Strategy <ul><li>Horizontal Integration of Related Businesses </li></ul><ul><li>Growth through acquisition...
Synergy <ul><li>Defined: </li></ul><ul><li>The higher effectiveness and efficiency yielded by the combination of two firms...
Corporate Level Strategy <ul><li>Horizontal Unrelated Diversification </li></ul><ul><li>Conglomerate </li></ul><ul><li>Div...
Corporate Level Strategy <ul><li>Vertical Integration </li></ul><ul><li>Merging into the org’n various stages of activitie...
Corporate Level Strategy <ul><li>Vertical Integration </li></ul><ul><li>Merging into the org’n various stages of activitie...
Corporate Level Strategy <ul><li>International Expansion </li></ul><ul><li>A firm may expand globally using any one of the...
Benefits & Disadnvantages of International Expansion <ul><li>Economies of scale lowering operating costs </li></ul><ul><li...
Stages of International Development <ul><li>Stage 1: Domestic company </li></ul><ul><li>Stage 2: Domestic company w/export...
Implementation of Growth Strategies <ul><li>Internal growth or development </li></ul><ul><li>Merger </li></ul><ul><li>Acqu...
Stability Strategy <ul><li>When managerial efforts are req’d to enhance competitive postures </li></ul><ul><li>When sr mgr...
Retrenchment Strategies <ul><li>Turnaround Strategy </li></ul><ul><li>Purpose is to transform the org’n into a leaner and ...
Retrenchment Strategies <ul><li>Divestment Strategy </li></ul><ul><li>When an org’n sells or “spins off” any number of its...
Retrenchment Strategies <ul><li>Liquidation Strategy </li></ul><ul><li>Amounts to the strategy of “last resort” where turn...
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Chapter 7

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  • Although Coulter makes the argument suggesting that functional strategies should come 1st since org’l work at the functional level becomes the basic bldg block for achieving a competitive advantage and for supporting business unit level strategies . . . I adhere to the belief that it all begins at the corporate level whether we’re dealing with a brand new “green field” start up of changing the strategies of an existing org’n . . . In essence, it all must begin at the corporate level.
  • Strategy formation begins with the development of a mission statement which in part . . . Articulates the vision of the CEO and senior management and provides the ground rules for decision making by all organizational members
  • By identifying pertinent goals and objectives Are these the same thing?
  • For example, mgmt may establish a goal of expanding the size of the firm through internal growth . . . And at the business unit level . . . This goal may be translated into an objective of specifying that 25% of each year’s sales be derived from new products developed during the preceeding 3 years. W/o being verifiable, objectives will not provide clear direction to mgrs for decision making or to ascertain org performance
  • Owners = return on equity Board members = keep them directors &amp; for firm to satisfy needs of other stakeholders so they aren’t sued Top mgmt want to benefit personally from the org’n - to see the org’n grow, expand mrkt share, to boost capacity, to make growth oriented acquisitions to to launch new products globally Employee want good working conditions, equitable pay and opportuities for promotion Customers want quality products/services at best prices Suppliers long term relationships at prices that allow reasonable profit margins Creditors want the org to maintain a healthy financial posture to assure dependable payment of interest and prnicipal
  • Most firms start out as single business organizations and some never change.. McDonalds (single) versus General Electirc (multiple) Corp level strategy establishes the overall direction the the org hopes to go in with the business level and functional level strategies providing the means or mechanisms for attaining. Simply speaking Corp Level strategies ,mandate growth, stability, or retrenchment
  • Prod-mrkt: increased mrktg, promotion,find different ways for customers to use product, add distribution outlets or sales people to existing mrkts Prod Develp: new products for existing customers - new and improved - different options Mrkt Develp: expand sales of current products to new territories or mrkt segments prod-mkt diversification: expand into new prods and new mrkts
  • Keeps firm in same industry, but provides it with means of expanding mrkt share and strengthening it’s position. Will be scrutinized by FTC for potential anti-trust consequences. One way Blockbuster grew was internal growth by opening new retail outlets . . . However, in its early days it grew through acquisition of existing video stores before being sold by Huisenga to Viacom.
  • Examples of core competencies might include such things as operations excellence, cutting edge R&amp;D, or effective marketing. The primary motivation for acquiring a horizontally related business is the synergy resulting from the combination of two firms with complementary core competencies to achieve synergy.
  • Advantages accruing to this growth strategy amount to economies of scale arising from the sharing of purchasing, R&amp;D, marketing or other functional activities. Improvements &amp; innovations can easily be transferred or shared among the business units. However, increased bureaucratic costs and greater costs of coordinating the multiple businesses often result.
  • Motivated by financial investment reasons and structuring a portfolio of businesses based on their potential financial benefits to create value. Simpler to analyze since synergist effects not an issue regarding the combining of core competencies Cost of coordinating is low, but bureaucratic costs tend to increase. A desire to reduce risk may lead to conglomerate diversification, but shareholders may prefer to diversify their portfolios instead
  • A single unit business that intergrates vertically is still considered a single business b/c it hasn’t expanded into different industries. Vertical chain economies may result by eliminating production steps, reducing o/h, &amp; coordinating distribution activites to attain synergy. Improvement or innovations may be transferred or shared with members in the distribution channel such as R&amp;D Not predisposed to taking advantage of such potentials developed externally - reduced flexibility &amp; difficulty in integrating various operations
  • A single unit business that intergrates vertically is still considered a single business b/c it hasn’t expanded into different industries. Vertical chain economies may result by eliminating production steps, reducing o/h, &amp; coordinating distribution activites to attain synergy. Improvement or innovations may be transferred or shared with members in the distribution channel such as R&amp;D Not predisposed to taking advantage of such potentials developed externally - reduced flexibility &amp; difficulty in integrating various operations
  • A single unit business that intergrates vertically is still considered a single business b/c it hasn’t expanded into different industries. Vertical chain economies may result by eliminating production steps, reducing o/h, &amp; coordinating distribution activites to attain synergy. Improvement or innovations may be transferred or shared with members in the distribution channel such as R&amp;D Not predisposed to taking advantage of such potentials developed externally - reduced flexibility &amp; difficulty in integrating various operations
  • Stage 1- exports some thru local dealer &amp; dists in foreign countries - export dept @ HQ handles all Stage2- firm established sales co w/offices in other nations to eliminate middleman - export division Stage 3- success in earlier stages leads to opening mfg facilities overseas - adds int’l div with responsibility for most bus functions overseas Stage 4- local operating divisions in host countries to better serve mrkts - mgr functions local - develops strong regional presence Stage 5- worldwide personnel, R&amp;D, &amp; financing strategies - global integration of operations, product design, mfg &amp; mrktg - low local mrkt response Stage 6 - high local mrkt response high global integration of operations
  • Internal - start from scratch when new bus closely related to existing - embryonic stage - willing to accept time - willing to accept risk and low barriers to entry Merger - 2 or more orgs combine thru exchange of stock - usually friendly &amp; of firms of equal size Acquisition - outright purchase of assets or stock - often of unequal size and may be friendly/hostile Joint Venture - 2 or more firms organize an independent org for strategic purposes Long term contract - often between an org’n &amp; its supplier(s) - no need to purchase - helps contract firm Strategic alliance - 2 or more orgs share resources, capabilities or competencies to pursue a mutually advantageous bus purpose
  • A stability strategy should probably be a short-term strategy . . . If the org’n b/comes too complacent, it becomes susceptible to losing its competitive position If during the stability perod that significant org’l weaknesses exist or that performance is declining, then it may be necessary for the org’n to look at other strategic options that may likely include retrenchment strategies.
  • How does it achieve this goal? Cost cutting that is achieved in part by reducing and eliminating certain work tasks and activities or even entire depts, units or divisions by way of downsizing. Reeingineering or the fundamental rethinking and and radical redesign of the org’s business processes to eliminate redundancy and streamline work processes
  • Business units may be sold to investors, other firms, or to the employees themselves. Sometimes a company simply severs its ties with a division and makes it a “stand along” firm that is required to succeed on its own in order to survive much as RJ Reynolds has been spun off from its parent firm Altria b/c of the liability associated with the cigarette industry.
  • Everyone loses! Shareholders Employees Suppliers Creditors Communities
  • Chapter 7

    1. 1. Strategy Formulation Corporate Level, Business Unit Level and Functional Level
    2. 2. Strategy Formulation <ul><li>Defined: </li></ul><ul><li>Development of long-range plans for the effective management of environmental opportunities and threats in light of organizational strengths and weaknesses. </li></ul>
    3. 3. Strategy Formulation <ul><li>Mission Statement </li></ul><ul><li>Purpose or reason for the org’s existence </li></ul><ul><li>Promotes shared expectations among employees </li></ul><ul><li>Communicates a public image important to stakeholders </li></ul><ul><li>Defines who we are, what we do, and what we would like to become </li></ul>
    4. 4. Strategy Formulation <ul><li>A goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and no time criteria for completion. </li></ul>
    5. 5. Strategy Formulation <ul><li>An objective are specific and quantifiable, versions of goals. </li></ul>
    6. 6. Strategy Formulation <ul><li>Corporate goals & objectives include: </li></ul><ul><li>Profitability (net profits in % or $) </li></ul><ul><li>Growth (increase in assets, net new </li></ul><ul><li>customers or sales) </li></ul><ul><li>Utilization of resources (ROI or ROE) </li></ul><ul><li>Market Leadership (market share) </li></ul>
    7. 7. Goals & Stakeholders <ul><li>Owners or shareholders </li></ul><ul><li>Members of the board of directors </li></ul><ul><li>Top management </li></ul><ul><li>Employees </li></ul><ul><li>Customers </li></ul><ul><li>Suppliers </li></ul><ul><li>Creditors </li></ul><ul><li>Distributors </li></ul><ul><li>General Public </li></ul><ul><li>Government </li></ul>
    8. 8. Specific Strategies <ul><li>Defined: </li></ul><ul><li>Specific strategies of a corporation form a comprehensive master plan stating how the corporation will achieve its mission and its objectives. It seeks to maximize competitive advantage and minimize competitive disadvantage. </li></ul>
    9. 9. Specific Strategies <ul><li>Three Types of Specific Strategies </li></ul><ul><li>1. Corporate Level Strategies (Chap 7) </li></ul><ul><li>2. Business Unit Level Strategies (Chap 6) </li></ul><ul><li>3. Functional Level Strategies (Chap 5) </li></ul>
    10. 10. Corporate Level Strategy <ul><li>Amounts to determining the overall direction that will enable the organization to best fulfill its purpose and achieve its strategic goals through the business(es) it chooses to be in. </li></ul>
    11. 11. Corporate Level Strategy <ul><li>Growth Strategies </li></ul><ul><li>Concentration (internal growth) </li></ul><ul><li> Products </li></ul><ul><li>Current New </li></ul>Product-Mrkt Exploitation Market Development Product-Mrkt Diversification Product Development Customers Current New
    12. 12. Corporate Level Strategy <ul><li>Concentration (internal growth) </li></ul><ul><li>Advantage </li></ul><ul><li>1. Become very good at what one does </li></ul><ul><li>2. Preserves org’s culture, image, efficiency & quality </li></ul><ul><li>Disadvantage </li></ul><ul><li>1. Slow </li></ul><ul><li>2. Subject to environmental shifts </li></ul><ul><li>3. Bureaucratic & coordinating costs </li></ul>
    13. 13. Corporate Level Strategy <ul><li>Horizontal Integration </li></ul><ul><li>Growth through acquisition of other businesses in one’s own industry </li></ul>
    14. 14. Corporate Level Strategy <ul><li>Horizontal Integration of Related Businesses </li></ul><ul><li>Growth through acquisition of businesses outside one’s present scope of operations, but related to the organization’s core competencies. </li></ul>
    15. 15. Synergy <ul><li>Defined: </li></ul><ul><li>The higher effectiveness and efficiency yielded by the combination of two firms that is greater than that represented by both firms separately. </li></ul>
    16. 16. Corporate Level Strategy <ul><li>Horizontal Unrelated Diversification </li></ul><ul><li>Conglomerate </li></ul><ul><li>Diversifying into completely different industries from an org’s current business. </li></ul>
    17. 17. Corporate Level Strategy <ul><li>Vertical Integration </li></ul><ul><li>Merging into the org’n various stages of activities backward ito sources of supply or forward in the direction of final consumers. </li></ul>
    18. 18. Corporate Level Strategy <ul><li>Vertical Integration </li></ul><ul><li>Merging into the org’n various stages of activities backward ito sources of supply or forward in the direction of final consumers. </li></ul>
    19. 19. Corporate Level Strategy <ul><li>International Expansion </li></ul><ul><li>A firm may expand globally using any one of the previous mentioned growth strategies of concentration (internal growth), horizontal integration, horizontal integration of related or unrelated businesses or though vertical integration. </li></ul>
    20. 20. Benefits & Disadnvantages of International Expansion <ul><li>Economies of scale lowering operating costs </li></ul><ul><li>Supplements domestic growth </li></ul><ul><li>Enables firm to become a stronger competitor </li></ul><ul><li>Poses greater financial risks </li></ul><ul><li>Managing strategically becomes more complex & challenging </li></ul><ul><li>Difficulty in finding similarities in mrkts or operating capabilities </li></ul><ul><li>Capturing & exploiting advantages not easy or automatic </li></ul>
    21. 21. Stages of International Development <ul><li>Stage 1: Domestic company </li></ul><ul><li>Stage 2: Domestic company w/export division </li></ul><ul><li>Stage 3: Primarily domestic company w/international division </li></ul><ul><li>Stage 4: Multinational corporation with </li></ul><ul><li> multidomestic emphasis </li></ul><ul><li>Stage 5: Global Company </li></ul><ul><li>Stage 6: Transnational Company </li></ul>
    22. 22. Implementation of Growth Strategies <ul><li>Internal growth or development </li></ul><ul><li>Merger </li></ul><ul><li>Acquisition </li></ul><ul><li>Joint Venture </li></ul><ul><li>Long Term Contract </li></ul><ul><li>Strategic Alliance </li></ul>
    23. 23. Stability Strategy <ul><li>When managerial efforts are req’d to enhance competitive postures </li></ul><ul><li>When sr mgrs consider the cost of adding new businesses to be greater than benefits </li></ul><ul><li>When the industry is experiencing upheaval </li></ul><ul><li>When the industry is facing slow or no growth </li></ul><ul><li>When a firm is large and in the mature stage of the industry life cycle w/good profits </li></ul><ul><li>When a small entreprenureal or family business is satisfied with status quo </li></ul>
    24. 24. Retrenchment Strategies <ul><li>Turnaround Strategy </li></ul><ul><li>Purpose is to transform the org’n into a leaner and more effective firm </li></ul>
    25. 25. Retrenchment Strategies <ul><li>Divestment Strategy </li></ul><ul><li>When an org’n sells or “spins off” any number of its poorer performing business units or those business units that don’t contribute to synergy. </li></ul>
    26. 26. Retrenchment Strategies <ul><li>Liquidation Strategy </li></ul><ul><li>Amounts to the strategy of “last resort” where turnaround or divestment has failed to succeed and the assets of the org’n are sold off and the org’n ceases to exist. </li></ul>
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