The document discusses strategy formulation and situational analysis using the SWOT approach. It describes SWOT analysis as a tool that identifies internal strengths and weaknesses and external opportunities and threats for a company. It also discusses criticisms of SWOT analysis such as using a single point in time and not being connected to customer views. The document then covers generating a strategic factors analysis summary matrix, finding market niches, reviewing mission and objectives, and Porter's competitive strategies of cost leadership, differentiation, cost focus, and differentiation focus. It analyzes industry structures and discusses cooperative strategies like strategic alliances.

1. Strategy
Formulation:
Business
Strategy
Chapter 6

2. Situational Analysis:
SWOT Approach
Strategy formulation
 concerned with developing a corporation’s
mission, objectives, strategies and policies
Situation analysis
 the process of finding a strategic fit between
external opportunities and internal strengths
while working around external and internal
weaknesses
6-2
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3. Situational Analysis:
SWOT Approach
SWOT
 acronym used to describe the particular
Strengths, Weaknesses, Opportunities and
Threats that are potential strategic factors for a
specific company
Strategy = opportunity/capacity
Opportunity has no real value unless a company
has the capacity to take advantage of that
opportunity.
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4. Criticisms of SWOT analysis
It is simply the opinions of those filling out the
boxes.
Virtually everything that is a strength is also a
weakness.
Virtually everything that is an opportunity is also
a threat.
Adding layers of effort does not improve the
validity of the list.
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5. Criticisms of SWOT analysis
It uses a single point in time approach.
There is no tie to the view from the customer.
There is no validated evaluation approach.
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6. Generating a Strategic Factors Analysis
Summary (SFAS) Matrix
SFAS (Strategic Factors Analysis Summary)
Matrix
 summarizes an organization’s strategic factors by
combining the external factors from the EFAS
Table with the internal factors from the IFAS Table
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7. Strategic Factor Analysis Summary
(SFAS) Matrix
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8. Finding a Propitious Niche
Niche is a need in the marketplace that is
currently unsatisfied
Propitious niche- an extremely favorable niche
 so well-suited to the firm’s internal and external
environment that other corporations are not likely to
challenge or dislodge it
Strategic window
 a unique market opportunity that is available for a
particular time
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9. Review of Mission and Objectives
A re-examination of an organization’s current
mission and objectives must be made before
alternative strategies can be generated and
evaluated.
Performance problems can derive from
inappropriate (narrow or too broad) mission
statements and objectives.
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10. Elements of Mission statement
1. Short, so that it can be remembered.
2. Simple and understandable
3. Provide directions to employees.
4. The statement must show what company
does and what it does not.
5. Measurable so that the company can
visibly see progress
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11. Vision
Broad description of a value
organization is providing.
What an org hopes to
become/achieve.
Photograph of your future
business.
It’s more about the “what”
of a business.
It must inspire.
Mission
Specific description of how
value is created in market.
How 1 org in different from
another within the same
industry.
More actionable than vision.
It’s more about the “how” of
a business.
It must direct.

12. Hierarchy of Strategy
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13. Business Strategies
Business strategy
focuses on improving the competitive position of a
company’s or business unit’s products or services
within the specific industry or market segment that
the company or business unit serves.
Entity is also called as SBUs
 Competitive
 cooperative
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14. Porter’s Competitive Strategies
Competitive strategy raises the following
questions:
Should we compete on the basis of lower cost? or
should we differentiate our products or services on
some basis other than cost, such as quality or
service? or
Should we compete head to head with our major
competitors for the biggest, or should we focus on
niche.
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15. Porter’s Competitive Strategies
Cost leadership
 ability of a company or a business unit to design,
produce and market a comparable product more
efficiently than its competitors.
Differentiation
 ability of a company to provide unique and
superior value to the buyer in terms of product
quality, special features or after-sale service
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16. Porter’s Competitive Strategies
Focus
 ability of a company to provide unique and
superior value to a particular buyer group,
segment of the market line or geographic market
• distributor of halal foods,
• a cable channel for children
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17. Porter’s Competitive Advantage
Porter proposed that a firm’s competitive
advantage in an industry is determined by its
competitive scope—that is, the breadth of
the company’s or business unit’s target
market.
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18. Prentice Hall, Inc. © 2008
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Porter’s Competitive Strategies
Competitive
Advantage
--
–Determined
by
Competitive
Scope
•Breadth
of
the
target
market`

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Prentice Hall, Inc. © 2008 Porter’s Competitive Strategies
Cost Leadership --
–Low-cost competitive strategy
–Broad mass market
–Efficient-scale facilities
–Cost reductions
–Cost minimization

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Prentice Hall, Inc. © 2008 Porter’s Competitive Strategies
Differentiation –
–Broad mass market
–Unique product/service
–Premiums charged
–Less price sensitivity

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Prentice Hall, Inc. © 2008 Porter’s Competitive Strategies
Cost-Focus –
–Low-cost competitive strategy
–Focus on market segment
–Niche focused
–Cost advantage in market segment

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Differentiation Focus –
–Specific group or geographic market focus
–Differentiation in target market
–Special needs of narrow target market

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Prentice Hall, Inc. © 2008 Porter’s Competitive Strategies
Stuck in the middle –
–No competitive advantage
–Below-average performance

24. Porter’s Competitive Strategies
Cost focus
 low-cost competitive strategy that focuses on a
particular buyer group or geographic market and
attempts to serve only this niche to the exclusion
of others
Differentiation focus
 concentrates on a particular buyer group, product
line segment or geographic market to serve the
needs of a narrow strategic market more
effectively than its competitors
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25. Issues in Competitive Strategies
Stuck in the middle
 when a company has no competitive advantage
and is doomed to below-average performance
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26. Industry Structure and
Competitive Strategy
Fragmented industry
 many small- and medium-size companies
compete for relatively small shares of the total
market
Products are typically in early stages of product
life cycle
Focus strategies are used
 Sandwich shops, veterinary care, used-car lots,
dry cleaners, and nail salons
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27. Industry Structure and
Competitive Strategy
Consolidated industry
 domination by a few large companies
Growth of fragmented industry to overcome
local or niche market boundaries often
increase the market share of a few
companies.
product quality improves, and costs are
reduced significantly.
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28. Industry Structure and
Competitive Strategy
Strategic rollup
 developed in the mid-1990s as an efficient way to
quickly consolidate a fragmented industry
1. They involve large numbers of firms.
2. The acquired firms are typically owner operated.
3. The objective is to reinvent an entire industry.
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29. Hyper-Competition and Competitive
Advantage Sustainability
Competitive advantage in a hyper-
competitive market is characterized by a
continuous series of multiple short-term
initiatives that replace current products with
new products before competitors can do so.
 Consumer product companies like Procter &
Gamble, Kraft-household products industry
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30. Cooperative Strategies
Cooperative strategies
 used to gain a competitive advantage within an
industry by working with other firms
 collusion, strategic alliances
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31. Cooperative Strategies
Collusion
 Collusion occurs when entities or individuals work
together to influence a market or pricing for their
own advantage.
 Acts of collusion include price fixing, synchronized
advertising, and sharing insider information.
 Antitrust and whistleblower laws help to deter
collusion.
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32. Copyright © 2015 Pearson Education, Inc. 32

33. Competencies
Core competencies
 something that the corporation can do exceptionally
well, and becomes reason for your profitability.
• A core competency of Avon Products is its expertise in door-
to-door selling
Distinctive competencies
 When unique resources and/or core competencies
are superior to those of the competition
• General Electric is well known for its distinctive competency
in management development.
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34. Cooperative Strategies
Strategic alliances
 a long-term cooperative arrangement between
two or more independent firms or business units
that engage in business activities for mutual
economic gain
 Starbucks brews the coffee. Barnes&Noble stocks
books.
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35. Reasons to Form an Alliance
Obtain or learn new capabilities
Obtain access to specific markets
Reduce financial risk
Reduce political risk
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36. Types of Alliances
Mutual service consortium
 partnership of similar companies in similar industries
that pool their resources to gain a benefit that is too
expensive to develop alone, such as access to
advanced technology
 IBM established a research alliance with Sony
Electronics and Toshiba to build its next generation of
computer chips, Referred to as a “supercomputer on
a chip,” Sony in its PlayStation 3, by Toshiba in its
high-definition televisions, and by IBM in its super
computers
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37. Types of Alliances
Joint venture
 cooperative business activity, formed by two or
more separate organizations for strategic
purposes, that creates an independent business
entity and allocates ownership, operational
responsibilities and financial risks and rewards to
each member, while preserving their separate
identity/autonomy
• BMW and Toyota co-operate on research into hydrogen
fuel cells, vehicle electrification and ultra- lightweight
materials
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38. Types of Alliances
Licensing arrangement
 agreement in which the licensing firm grants
rights to another firm in another country or
market to produce and/or sell a product
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39. Types of Alliances
Value-chain partnership
 a strong and close alliance in which one company
or unit forms a long-term arrangement with a key
supplier or distributor for mutual advantage
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40. Strategic Alliance Success Factors
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