It is important that the functional strategies support each other as well as the Division and Corporate strategies.
Corporate strategy – formulated by top management to oversee the interests and operations of organisatiions made up of more than one line of business. Business strategy – is concerned with the managing the interests and operations of a particular line of business – ques like what product services should be offered ? Which customers it needs to serve ? How will resources be distributed in the business? Etc SBU – strategic business units – in this business type various business activities that produce a particular type of product or service are grouped and treated as a single business unit. Functional strategies - strategy formulated by a specific functional area in an effort to carry out business unit strategy.
Question mark category – relatively small market share in a rapidly growing market – can be an uncertain and expensive venture . The strategy here would be to invest simply to maintain its low market share. And to thereby increase the question marks share of market relative to the market leader Star – high relative market share in a rapidly growing market. Here the strategy would be to harvest – i.e – reduce the amount of investment to in order to maximize short term cash flows. Thus turning star into a cash cows Cash cow high relative market share in a slowly growing market – is profitable n is excess cash flow . The strategy here would be to Hold the postion and to invest just as much would be required to maintain the current positon of the SBU Dogs – low relative market share in unattractive low growth markets. Here the strategy would be to divest – i.e phasing it out or selling it so as to use the resources else where.
Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed
Strategic Management summery
Strategic Management –Defined Art & science of formulating, implementing, and evaluating, cross- functional decisions that enable an organization to achieve its objectives.
Comprehensive strategic management model External External Environment Audit Opportunities Threats - The changing environment - The demand for new products - The economic environment - Availability of resources Long-Term Generate, Implement Implement Measure &Vision Objectives Evaluate, Strategies: Strategies: Evaluate & Select Mgmt Issues Marketing, PerformanceMission Strategies Fin/Acct, R&D, CIS Internal Internal Environment Audit Strengths Weaknesses - Value systems - Culture - Staffing - Support systems, operating environment
Key TermsVision Statement – What do we want to become?The long range objectives that will drive thedevelopment process and stretch theorganization to achieve them.Mission Statement – What is our business?The reason for the existence of theorganization & establishes the values,beliefs & guidelines for the conduct ofbusiness
Key TermsOpportunities & Threats (External)Analysis of Trends: • Economic • Social • Cultural • Demographic/Environmental • Political, Legal, Governmental • Technological • Competitors
Key TermsStrengths & Weaknesses (Internal)Typically located in functional areas of the firm • Management • Marketing • Finance/Accounting • Production/Operations • Research & Development • Computer Information Systems
Benefits of StrategicManagementFinancial Benefits • Improvement in sales • Improvement in profitability • Productivity improvement
Benefits of StrategicManagementNon-Financial Benefits• Improved understanding of competitors strategies• Enhanced awareness of threats• Reduced resistance to change• Enhanced problem-prevention capabilities
SBU Strategies Build: Objective is to increase the SBU’s market share, even forgoing short-term earnings. Appropriate for question marks whose market shares must grow if they are to become stars. Hold: Objective is to preserve SBU’s market share. Appropriate for strong cash cows if they are to continue yielding a large positive cash flow.
SBU Strategies Harvest: Objective is to increase the SBU’s short-term cash flow regardless of long-term effect. Involves a decision to eventually withdraw from a business by implementing a program of continuous cost retrenchment. Company plans to milk its business. Hope is to reduce costs at a faster rate than any potential drop in sales thus increasing company’s cash flow. Appropriate for weak cash cows.
SBU Strategies Divest: Here the objective is to sell or liquidate the business because resources can be better used elsewhere. Appropriate for dogs & question marks that are dragging down company’s profits. SBUs start as question marks, become stars, then cash cows & finally dogs.
Porter’s 5 force Corporate strategy Another well known approach to corporate strategy is Michael Porter’s Five Force Model An organizations ability to compete in a given market is determined by the five environmental forces which threatens the organizations venture into the new market.
Example of Porter’s 5 forceFactor Description Impact •adidas’s strength is product innovation and meeting customerThreat of Substitute Products Low expectations •Strong presence of established brands and distribution channelsThreat of New Entrants •Customers already loyal to their brand Low •Huge resources required of new entrants •Huge number of buyers means adidas must market products effectively •Must be able to differentiate from the competitionBargaining Power of Buyers High •Buyers more conscious of their spending •Buyers have access to more information •Multiple sources of materials for shoes and apparel – commodity statusBargaining Power of Suppliers •Suppliers are very dependent on adidas and others Low •Ease in switching suppliers if necessary and can do so globally •Recent acquisitions in industry •All competition has global reach – internet and e-commerceCompetitive Rivalry High •Remaining a leader is expensive – aggressive sales and marketing •Always struggling to get a competitive edge
Business Level Strategy Generic Strategies – Michael Porter identified three generic strategies that can be implemented at the business unit level
GE planning Grid – Overcomes the disadvantages of BCG Matrix Market Attractiveness replaces market growth as the dimension of industry attractiveness Competitive strength replaces market share.
Intensive growth- product market expansion grid (Ansoffs Product Market Expansion Grid) Integrated growth- Business sales and profit can increased by 1. backward Like a car company owning a company which makes tires. 2. forward integration- Like a mobile company opening its own Mobile retail chain. 3. horizontal integration- simply means a strategy to increase your market share by taking over a similar company. ex. Youtube by Google Diversification Growth- 1. concentric-when a firm adds related products or markets. 2. Horizontal- when a firm enters a new business (either related or unrelated) at the same stage of production as its current operations. 3. conglomerate-when a firm diversifies into areas that are unrelated to its current line of business.
Ansoff Matrix Existing PRODUCTS New MARKET PRODUCT DEVELOPMENTExisting PENETRATION Sell new products in existing Sell more in existing markets Markets E.g. Lantus for long term insulin E.g. in 2000, Mitsubishi announced a 10% reduction in prices in the UK in order to encourage purchasesMARKETS MARKET EXTENSION DIVERSIFICATION Achieve higher Sell new products in new sales/market share of markets existing products in E.g. the Virgin group new marketsNew E.g. Indian companies in african market
Functional Level Strategy Mc Kinsey 7S model Framework for change, identifying 7 key factors that can adversely affect successful change in an organization Each of these7 factors is equally important and interacts with all the other factors