Strategy, Structure and Effectiveness


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Strategy, Structure and Effectiveness

  1. 1. 3 LEVELS OF STRATEGY How do we compete? BUSINESS UNIT B BUSINESS UNIT C FIN R&D MFRG MKTG How do we support business level strategy? Corporate Level Business Level Functional Level Corporate level examples: Travelers acquires Salomon Brothers, Disney acquires ABC, AT&T acquires TCI, GE sells Kidder Peabody. Business level examples: CBS adopts strategy of trying to capture younger viewers, Pfizer founds a developing “life style” drugs; e.g. Viagra Functional level examples: Cigarette companies adverting campaign to convince people to oppose Tobacco Bill. What businesses are we in? CORPORATION BUSINESS UNIT A
  2. 2. Sources of Superior Profitability RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL How do we make money? INDUSTRY ATTRACTIVENESS Which industries should we be in? COMPETITIVE ADVANTAGE How should we compete? CORPORATE STRATEGY BUSINESS STRATEGY
  3. 3. BOSTON CONSULTING GROUP FRAMEWORK FOR CORPORATE LEVEL BUSINESS PORTFOLIO <ul><li>NEW VENTURE </li></ul><ul><ul><li>Small share of expanding market </li></ul></ul><ul><ul><li>Risky </li></ul></ul><ul><ul><li>May be prize heifer or problem child </li></ul></ul><ul><li>STAR </li></ul><ul><ul><li>Large share of expanding market </li></ul></ul><ul><ul><li>Rapid growth and expansion </li></ul></ul><ul><li>DOG </li></ul><ul><ul><li>Small share of mature market </li></ul></ul><ul><ul><li>Consider divestment </li></ul></ul><ul><li>CASH COW </li></ul><ul><ul><li>Large share of mature market </li></ul></ul><ul><ul><li>Milk cash to fund new venture </li></ul></ul>High Low MARKET GROWTH MARKET SHARE Low High
  4. 4. GE’s Nine-Cell Business Screen Relative market share Profit margins Ability to compete on price and quality Knowledge of customer and market Competitive strengths and weaknesses Technological capability Caliber of management Low Medium High Business Strengths Low Medium High Industry Attractiveness <ul><li>Market size and growth rate </li></ul><ul><li>Industry profit margins </li></ul><ul><li>Competitive intensity </li></ul><ul><li>Seasonality </li></ul><ul><li>Cyclicality </li></ul><ul><li>Economies of scale </li></ul><ul><li>Technology </li></ul><ul><li>Social, environmental, legal, </li></ul><ul><ul><li>and human impacts </li></ul></ul>Invest in, employ growth strategy Monitor performance, selective strategy based on earnings No growth or investment, consider divestment or liquidation
  5. 5. Corporate-Level Strategies for Entering New Domains Core Domain: Input Domains Forward vertical Integration Related diversification Unrelated diversification Backward vertical integration Related Domains Output Domains Unrelated Domains
  6. 6. Input domains (e.g., sugar plantations; bottle makers) Related domains (e.g., snack foods, candy maker) Output domains (e.g., bottling and trucking company that distributes soft drinks; fast-food restaurants) A Soft-Drink Company’s Corporate-Level Strategies for Entering New Domains Unrelated domains (e.g., department stores, financial networks, cable companies) Core Domain: Soft drinks
  7. 8. Rivalry Among Competitors Threat of new entrants Potential New Entrants Substitute Products from Other Industries Buyers Suppliers Threat of substitute products Bargaining power of suppliers Bargaining power of buyers The Five Forces Affecting Industry Competition
  8. 9. Broad Target COMPETITIVE SCOPE Narrow Target PORTER’S GENERIC STRATEGIES Lower Cost Differentiation 1. Cost Leadership 2. Differentiation 3A. Cost Focus 3B. Differentiation Focus COMPETITIVE ADVANTAGE
  9. 11. Characteristic of Organizational Structure Associated with Business-Level Differentiation and Low-Cost Strategies Differentiation Strategy Low-Cost Strategy Complex Structure Decentralized decision making High differentiation High integration Organic structure Simple Structure Centralized decision making Low differentiation Low integration Mechanistic structure Matrix structure Product team structure Product, market, or geographic structure Functional structure
  10. 12. Low-Cost and Differentiation Advantages Resulting From Functional-Level Strategy
  11. 13. Miles and Snow’s Strategic Types Characteristics Defender Analyzer Prospector Reactor Environment: Stable Moderately changing Dynamic, growing Any Strategy: Seal off share of market. Protect turf. Advertise to hold customers Maintain market but innovate at edges. Locate opportunities for expansion while protecting current position. Find and exploit new market opportunities. Scan environment, take risks. No defined strategy. Drift. React to conditions ad hoc. Internal Characteristics: Efficient production. Retrench. Tight control. Centralized, mechanistic. Efficient production, yet flexibility for new lines. Tight control over current activities, looser for new lines. Flexible production. Innovation and coordination. Expansion. Decentralized, organic. Not a defined organizational approach. Depends on immediate circumstances.
  12. 15. Strategic Decision-Making Process Scan external environment. Evaluate current perform- ance results. Analyze strategic factors (S.W.O.T.) in light of current situation <ul><li>Review and </li></ul><ul><li>revise as </li></ul><ul><li>necessary: </li></ul><ul><li>Mission </li></ul><ul><li>Objectives </li></ul>Generate, evaluate, and select best strate- gic alterna- tives. Implement strategies. Evaluate and control. Scan internal environment. <ul><li>Select strategic </li></ul><ul><li>factors: </li></ul><ul><li>Strengths </li></ul><ul><li>Weaknesses </li></ul><ul><li>Select strategic </li></ul><ul><li>factors: </li></ul><ul><li>Opportunities </li></ul><ul><li>Threats </li></ul><ul><li>Examine and </li></ul><ul><li>evaluate the </li></ul><ul><li>current </li></ul><ul><li>Mission </li></ul><ul><li>Objectives </li></ul><ul><li>Strategies </li></ul><ul><li>Policies </li></ul>Strategy Formulation Strategy Implementation Evaluation & Control
  13. 16. Strategic Management Model External Objectives Societal Environ- ment Task Environ- ment Internal Structure Culture Resources Environmental Scanning Strategy Formulation Mission Strategies Policies Programs Budgets Procedures Performance Strategy Implementation Evaluation & Control