Ch 08

Strategy Formulation and Implementation

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Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.

Strategic Planning

Strategic planning has taken on new

importance in today’s world of

globalization, deregulation, advancing

technology, and changing demographics,

and lifestylesManager’s Challenge: Nintendo

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Strategy Formulation and Implementation

Strategic Management– Definition– Components– Model of Strategic Management Process– Models of Strategy Formation

Managerial Tools to Implement Strategic Plans

Topics:Chapter 8

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Thinking Strategically

Answers to the following define an overall direction for the organization's grand strategy

Where is the organization now? Where does the organization want to be? What changes are among competitors? What courses of action will help us achieve our goals?

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Strategic Management

Set of decisions and actions used to implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals

Responsibility = top managers & chief executive

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Strategic Management

Managers ask such questions as... What changes and trends are occurring? Who are our customers? What products or services should we offer? How can we offer these products or

services most efficiently?

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Grand Strategy

General plan of major action to achieve long-term goals

Falls into three general categories

1. Growth

2. Stability

3. Retrenchment

A separate grand strategy can be defined for global operations

Ethical Dilemma: A Great Deal for Whom?

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Grand Strategy: Growth

Growth can be promoted internally by investing in expansion or externally by acquiring additional business divisions- Internal growth = can include development of new

or changed products- External growth = typically involves diversification

– businesses related to current product lines or into new areas

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Grand Strategy: Stability

Stability, sometimes called a pause strategy, means that the organization wants

– to remain the same size or

– to grow slowly and in a controlled fashion

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Grand Strategy: Retrenchment

Retrenchment = the organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses

Liquidation = selling off a business nit for the cash value of the assets, thus terminating its existence

Divestiture = involves selling off of businesses that no longer seem central to the corporation

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Global Corporate Strategies

Need for National Responsiveness HighLow

Low

High Transnational Strategy• Seeks to balance global

efficiencies and local responsiveness

• Combines standardization and customization for product/advertising strategies

Globalization Strategy

• Treats world as a single global market

• Standardizes global products/advertising strategies

Multi-domestic Strategy• Handles markets

independently for each country

• Adapts product/advertising to local tastes and needs

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ExportStrategy

•Domestically focused

•Exports a few domestically produced products to selected countries

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Global Strategy

Globalization = product design and advertising strategies are standardized around the world

Multi-domestic = adapt product and promotion for each country

Transnational = combine global coordination with flexibility to meet specific needs in various countries

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Purpose of Strategy

The plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization attain its goals

Strategies focus on:● Core competencies● Developing synergy● Creating value for customers

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Three Levels of Strategy in OrganizationsCorporate-Level Strategy: What business are we in?

Corporation

Business-Level Strategy: How do we compete?

Textiles Unit Chemicals Unit Auto Parts Unit

Functional-Level Strategy: How do we support the business-level strategy?

Finance R&D Manufacturing Marketing

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Strategic Management Process

Implement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systems

SWOT

Formulate Strategy – Corporate, Business, Functional

Define new Mission Goals, Grand Strategy

Identify Strategic Factors – Strengths, Weaknesses

Identify Strategic Factors – Opportunities, Threats

Scan Internal Environment – Core Competence, Synergy, Value Creation

Evaluate Current Mission, Goals, Strategies

Scan External Environment – National, Global

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Strategy Formulation vs. Implementation

Strategy Formulation = stage of strategic management that involves planning and decision making that lead to the establishment of the organization’s goals and of a specific strategic plan

Strategy Implementation = stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes

Experiential Exercise: Developing Strategy for a Small Business

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Checklist for AnalyzingOrganizational Strengths and Weaknesses

Sources: Based on Howard H. Stevenson, “ Defining Corporate Strengths and Weaknesses,” Sloan Management Review 17 (spring 1976), 51-68; and M.L.Kastens, Long-Range Planning for Your Business (New York: American Management Association, 1976).

Management and Organization

Management qualityStaff quality

Degree of centralization

Organization charts

Planning, information, control systems

Finance

Profit margin

Debt-equity ratio

Inventory ratio

Return on investment

Credit rating

Marketing

Distribution channels

Market share

Advertising efficiency

Customer satisfaction

Product quality

Service reputation

Sales force turnover Production

Plant location Machinery obsolescence

Purchasing system

Quality control

Productivity/efficiency

Human Resources

Employee experience, education

Union status

Turnover, absenteeism

Work satisfaction

Grievances

Research and Development

Basic applied research

Laboratory capabilities

Research programs

New-product innovations

Technology innovations

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Portfolio Strategy

Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage

BCG Matrix

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Five Forces Affecting Industry Competition

Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

•Internet reduces barriers to entry

•Internet expands market size, but creates new substitution threats

•Internet tends to increase the bargaining power of suppliers

•Internet shifts greater power to end consumers

Internet blurs differences among competitors in an industry

Bargaining Power of Buyers

Bargaining Power of Suppliers

Threat of Substitute Products

Potential New Entrants

Rivalry among

Competitors

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Competitive Edge ThroughCompetitive Strategies

Differentiation = attempt to distinguish products or services from that of competitors

Cost leadership = aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors

Focus = concentrates on a specific regional market or buyer group

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Continuum of Partnership StrategiesOrganizational Combination

Strategic Alliances

Preferred Supplier Arrangements

Strategic Business Partnering

Mergers

Acquisitions

Low High

Joint Ventures

Degree of Collaboration

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Implementing Strategy Tools

Leadership Structural design Information and control systems Human resources

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Tools for Putting Strategy into ActionEnvironment

Organization

Strategy Performance

Leadership Persuasion Motivation Culture/values

Structural Design Organization Chart Teams CentralizationDecentralization, Facilities, task design

Human Resources Recruitment/selection Transfers/promotions Training Layoffs/recalls

Source: Adapted from Jay R. Galbraith and Robert K. Kazanjian, strategy Implementation: Structure, Systems and Process, 2d ed. (St. Paul, Minn.: West, 1986), 115, Used with permission.

Information and Control Systems Pay, reward system Budget allocations Information systems Rules/procedures

Ch 08

Business

strategy corporate

apause strategy

purpose of strategy

levels of strategy

global strategy globalization

organizations grand

separate grand strategy

strategic management