What is strategy?A plan of action or policy designedto achieve a major or overall aim.
Business-Level StrategyBusiness-level strategy: an integrated andcoordinated set of commitments and actions thefirm uses to gain a competitive advantage byexploiting core competencies in specific productmarkets
The Central Role of CustomersIn selecting a business-level strategy,the firm determines1. who it will serve2. what needs those target customers have that it will satisfy3. how those needs will be satisfied
Managing Relationships With CustomersCustomer relationships are strengthened byoffering them superior value help customers to develop a new competitive advantage enhance the value of existing competitive advantages
Cost Leadership StrategyAn integrated set of actions designed toproduce or deliver goods or services at thelowest cost, relative to competitors with featuresthat are acceptable to customers relatively standardized products features acceptable to many customers lowest competitive price
Cost Leadership StrategyCost saving actions required by this strategy: building efficient scale facilities tightly controlling production costs and overhead minimizing costs of sales, R&D and service building efficient manufacturing facilities monitoring costs of activities provided by outsiders simplifying production processes
Differentiation StrategyAn integrated set of actions designed by a firmto produce or deliver goods or services (at anacceptable cost) that customers perceive asbeing different in ways that are important tothem price for product can exceed what the firm’s target customers are willing to pay nonstandardized products customers value differentiated features more than they value low cost
Differentiation StrategyValue provided by unique features and valuecharacteristicsCommand premium priceHigh customer serviceSuperior qualityPrestige or exclusivityRapid innovation
Differentiation StrategyDifferentiation actions required by thisstrategy: developing new systems and processes shaping perceptions through advertising quality focus capability in R&D maximize human resource contributions through low turnover and high motivation
Focused Business-Level StrategiesA focus strategy must exploit a narrowtarget’s differences from the balance of theindustry by: isolating a particular buyer group isolating a unique segment of a product line concentrating on a particular geographic market finding their “niche”
Advantages of Integrated StrategyA firm that successfully uses an integratedcost leadership/differentiation strategy shouldbe in a better position to: adapt quickly to environmental changes learn new skills and technologies more quickly effectively leverage its core competencies while competing against its rivals
Benefits of Integrated StrategySuccessful firms using this strategy haveabove-average returnsFirm offers two types of values to customers some differentiated features (but less than a true differentiated firm) relatively low cost (but not as low as the cost leader’s price)
FUNCTIIONAL LEVEL STRATEGIES:-Function strategy is the approach afunctional area takes to achieve acorporate and business unit objectivesand strategies by maximizing resourceand productivity.
Importance of functional level strategy It is important that an organization periodically (at least annually, usually as part of the medium-term planning process) review all functional strategies to assure that they are1. Consistent with the business strategy2. Supportive of the business strategy3. Consistent with other functional strategy
Formulation:-Functional strategies are formulated byspecialists in each area. Functional strategieswork as a backbone of the organization. Itprovides the basic information on resources andcapabilities on which the higher level strategy isdesigned. It involves coordinating the variousfunctions and operations needed to design,manufacture, deliver and support the product orservice of each business with in the corporateportfolio.
Basic Task Of Functional Strategy:- The task of function unit of anyorganization is to formulate higher levelstrategies by providing input into businessunit level and corporate levelstrategy.processing the availableinformation and using it for higher levelstrategy formulation.
Corporate-Level StrategyWhat is Corporate Level Strategy?Definition: Action taken to gain a competitive advantage through the selection and management of a mix of businesses competing in several industries or product markets.
Key Questions of Corporate Strategy 1. What businesses should the corporation be in? 2. How should the corporate office manage the array of business units? Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts
Levels and Types of DiversificationLow Levels of DiversificationSingle business > 95% of revenues from a single A business unitDominant business Between 70% and 95% of A revenues from a single business B unitModerate to High Levels of Diversification ARelated constrained < 70% of revenues from dominant business; all businesses share product, B C technological and distribution linkagesRelated linked (mixed) < 70% of revenues from dominant A business, and only limited links exist B CVery High Levels of Diversification AUnrelated-Diversified Business units not closely related B C
Strategic LeadershipStrategic Leadership involves: The ability to anticipate, envision, maintain flexibility and empower others to create strategic change Multi-functional work that involves working through others Consideration of the entire enterprise rather than just a sub-unit A managerial frame of reference
Strategic Leadership Effective Effectiveand the Strategic Strategic Leadership Strategic LeadershipManagement Process shapes the formulation of Strategic Intent and Strategic Mission Strategic Intent Strategic Mission influence Successful Successful Strategic Actions Strategic Actions Formulation Formulation Implementation Implementation of Strategies of Strategies of Strategies of Strategies Strategic Competitiveness Strategic Competitiveness Above-Average Returns Above-Average Returns
Factors Affecting Managerial DiscretionExternal Environment OrganizationalIndustry Structure CharacteristicsRate of market growth Size and age# and type of competitors CulturePolitical/Legal constraints Resource availabilityProduct differentiation Employee interaction Managerial Discretion Managerial Discretion Characteristics of the Manager Tolerance for ambiguity Aspiration level Commitment to the firm Self-confidence Interpersonal skills
Exercise of Effective Strategic Leadership DeterminingEstablishing strategic Exploiting andbalanced direction maintainingorganizational corecontrols competencies Effective Strategic LeadershipEmphasizing Developingethical Sustaining humanpractice an effective capital organizational culture
Determining Strategic DirectionStrategic direction means the development ofa long-term vision of a firm’s strategic intentA charismatic leader can help achievestrategic intentIt is important not to lose sight of the strengthsof the organization when making changesrequired by a new strategic directionExecutives must structure the firm effectivelyto help achieve the vision
Exploiting and Maintaining Core CompetenciesCore competencies are resources andcapabilities that serve as a source ofcompetitive advantage for a firm over itsrivalsStrategic leaders must verify that the firm’scompetencies are emphasized in strategyimplementation efforts
Exploiting and Maintaining Core CompetenciesIn many large firms, and certainly in related-diversified ones, core competencies areexploited effectively when they are developedand applied across different organizationalunitsCore competencies cannot be developed orexploited effectively without developing thecapabilities of human capital
Developing Human CapitalHuman capital refers to the knowledge andskills of the firm’s entire workforceEmployees are viewed as a capital resourcethat requires investmentNo strategy can be effective unless the firm isable to develop and retain good people tocarry it outThe effective development and managementof the firm’s human capital may be theprimary determinant of a firm’s ability toformulate and implement strategiessuccessfully
Sustaining an Effective Organizational CultureAn organizational culture consists of acomplex set of ideologies, symbols, and corevalues that is shared throughout the firm andinfluences the way it conducts businessShaping the firm’s culture is a central task ofeffective strategic leadership
Sustaining an Effective Organizational CultureAn appropriate organizational cultureencourages the development of anentrepreneurial orientation among employeesand an ability to change the culture asnecessaryReengineering can facilitate this process
Changing Culture and Reengineering The benefits of business reengineering are maximized when employees believe that:Every job in the company is essential andimportantAll employees must create value through theirworkConstant learning is a vital part of every person’sjobTeamwork is essential to implementationsuccessProblems are solved only when teams acceptthe responsibility for the solution.
Emphasizing Ethical Practices Ethical practices increase the effectiveness of strategy implementation processes Ethical companies encourage and enable people at all organizational levels to exercise ethical judgment
Emphasizing Ethical Practices To properly influence employee judgment and behavior, ethical practices must shape the firm’s decision-making process and be an integral part of an organization’s culture Leaders set the tone for creating an environment of mutual respect, honesty and ethical practices among employees
Establishing Balanced Organizational ControlsOrganizational controls provide theparameters within which strategies are to beimplemented and corrective actions takenFinancial controls are often emphasized inlarge corporations and focus on short-termfinancial outcomesStrategic control focuses on the content ofstrategic actions, rather than their outcomes
Establishing Balanced Organizational ControlsSuccessful strategic leaders balance strategiccontrol and financial control (they do noteliminate financial control) with the intent ofachieving more positive long-term returns
Why do a situation analysis?Situation analysis concentrates ongenerating solid answers to a well-defined set of strategic questions andusing these answers to:– Appraise the company’s strategic situation and business position– Craft a suitable strategy
Situation analysis focuses on: –EXTERNAL FACTORS – the firm’s MACRO-environment (industry and competitive conditions) –INTERNAL FACTORS – the firm’s immediate MICRO-environment (its own internal situation and competitive position)
The Key Questions in Company Situation Analysis1. How well is the company’s present strategy working?2. What are the company’s strengths, weaknesses, opportunities, and threats?3. Are the company’s prices and costs competitive?4. How strong is the company’s competitive position?5. What strategic issues does the company face?
SWOT AnalysisSWOT represents the first letter inStrengths, Weaknesses, Opportunities,and Threats.SWOT analysis Involves sizing-up a company’s INTERNAL strengths and weaknesses and its EXTERNAL opportunities and threats Is an easy to use tool for getting a quick overview of a company’s strategic situation
Why SWOT Analysis is Important It is the basis for matching strategy to the company’s situation – To its internal strengths and weaknesses To its external threats and opportunities A winning strategy must always fit the company’s situation.
StrengthsWhat is a company Strength? Something a company is good at doing or a characteristic that gives it an important capability.
WeaknessesWhat are company weaknesses? Something a company lacks or does poorly (in comparison to others) or a condition that puts it at a disadvantage.
OpportunitiesWhat are company opportunities? Those that offer important avenues for profitable growth, those where a company has the most potential for competitive advantage, and those which the company has the financial resources to pursue.
ThreatsWhat are company Threats? Certain factors in a company’s external environment that pose a threat to its well- being.
Some questions to consider once the SWOT listings have been compiled are: Does the company have internal strengths or core competencies an attractive strategy can be built around? Do company weaknesses make a company vulnerable and does it disqualify a company from pursuing industry opportunities? Which weaknesses does a company need to correct?
Some questions to consider once the SWOT listings have been compiled are: Which opportunities does the company have the skills and resources to pursue with a real chance for success? Which opportunities are the best from the company’s standpoint? (Remember: Opportunity without the means to capture is only an illusion.) What external threats should management be worried most about and what strategic moves need to be made to craft a good defense?