' Dr. NÆbrÆdi AndrÆs DE-AVK By: By: Prof. Dr. Andr Prof. Dr. Andr Æ Æ s N s N Æ Æ br br Æ Æ di di PhD, MBA PhD, MBA Strategic Management Process: Strategy formulation 2. Strategy formulation 2. University of Debrecen Faculty Faculty of Ag. Economics and of Ag. Economics and Rural Rural Development Development Dept Dept .: Business Management and Marketing .: Business Management and Marketing HUNGARY HUNGARY
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Strategic Management Process: Strategy formulation 2. · PDF fileStrategic Management Process: Strategy formulation 2. ... term objectives ŁTypes of ... ŁDetermining internal strenghts
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�Developing vision and mission�Indetifying external opportunities and threats�Determining internal strenghts and weaknesses
�Establishing long term objectives
�Generating alternative strategies�Choosing particular strategies to pursue�Deciding what new business to enter
�How to allocate resources�Expand or diversify operations�Entering or not international market�Merge or form joint venture�How to avoid a hostile takeover
Should be:�quantitative ( data, %, )�measurable ( what is now, what will be)�realistic (no politicians promise )�understandable ( clear in different levels of a company � corporate � division � functional � operational CDFO)�challenging (emotional risk)�hierarchical (CDFO)�associated with timeline ( within 3 year, end of the next year)
�Larger market share�Quicker on-time delivery than rivals�Shorter design-to-market times than rivals�Lower costs than rivals�Higher product quality than rivals�Achieving technological leadership�Consistently getting new products to market ahead of rivals
�Growth in revenues�Growth in earnings�Higher dividends�Larger profit margins�Greater return on investment�Higher earnings per share�Rising stock price�Improved cash flow
� present distributors are especially expensive or unreliable� availability of quality distributors is limited� competes in an industry growing and expected to continueto grow � an organization has both capital and HR needed to manage ofdistributing its own products� present distributors or retailers have high profit margin
� present suppliers are especially expensive or unreliable� number of suppliers is small and the number of competitors is large � competes in an industry growing and expected to continue to grow � an organization has both capital and HR to manage new business of supplying its own raw materials� the advantages of a stable raw material price particularly important� present suppliers have high profit margin
� increase economic of scale provide major competitive advantages � competes in an industry growing and expected to continue to grow � an organization has both capital and HR needed to manage an expanded organization
� Current markets are not saturated with a particular product or service� usage rate of present customers could be increasedsignificantly � market share of major competitors have been decliningwhile total industry sales have been increasing�increased economies of scale provide major competitive advantages
present products in present market�Sony co. is spending over $141 million in a new advertising and promotion drive to market its high-definition television named BRAVIA sets in the USA�. 2006
� new channels of distribution are available, inexpensive� an organization is very successful at what it does� new untapped or unsaturated markets exists� an organization has both capital and HR needed to manage an expanded organization�an organization has excess production capacity� an organization�s basic industry is becoming rapidly global is scope
present products in new geographic area
Market development effective when:
Adidas in May 2005 had 1500 stores in China and stated that it wouldopen another 40 stores every month for the next 40 months
� an organization has successful products that are in maturity stage of the product life cycle.�an industry represented by rapid technological developments� major competitors offer better-quality products in comparable prices� an organization competes in a high-growth industry� an organization has especially strong R& D capabilities
improving present products or developing new ones
Product development effective when:
In 2005 Heineken developed and introduced low-calorie low carbohydrate beer � Heineken Light into US. Brad Pitt and John Travolta are promotes its product.
� an organization competes in a no-growth or slow-growth industry� related products would enhance the sales of current products� related products could be offered at highly competitive prices�related products have no seasonal sales level that can balance existing trade problems (grain � flour � bakery)� existing products are in a declining stage of the product�s life cycle
Adding new but related products
Related diversification effective when:
Dell computer Inc. turned to produce flat-panel televisions and MP3 players, and opened an online music-downloading store.
� an organization competes in a highly competitive industry as indicated by low profit margins and returns� present marketing channels can be used to new products to current customers� an organization�s basic industry is experiencing declining sales and profits�an organization has both capital and HR to compete in a new industry� purchase an unrelated business is an attractive investment opportunity
Adding new unrelated products
Unrelated diversification effective when:
Hospitals are creating small malls by offering banks, bookstores, coffeeshops, restaurants, drugstores and other retail stores within their buildings
� an organization has failed consistently to meet its objectives and goals over time� an organization is one of the weaker competitors in a given industry� an organization occurs inefficiency, low profitability, poor employee moral, and pressure from stockholders to improve performance � an organization has grown so large so quickly that major internal reorganization is needed
� a division is responsible for an organization�s poor performance� a division needs more resources to be competitive than company can provide� a large amount of cash needed quickly and cannot be obtained from other sources�a division is a misfit with the rest of an organization
� both a reorganization and a divestiture has not been successful�an organization�s only alternative is bankruptcy� the stockholders can minimize their losses by selling the organization�s assets
To gain competitive advantage from 3 different bases:� Cost leadership: producing standardized products at very low per-unit cost for consumers who are price-sensitive. Two alternatives:
� low cost strategy: concentrate on a low cost � best value: concentrate on best-price-value compared to rival�s
� Differentiation�Considered unique or industrywide products and services
� Focus: fulfill the needs of small groups of consumers Two alternatives
� price competition among rivals vigorous� products of rival sellers are identical� most buyers use the product in same ways� buyers are large and have significant power to bargain down prices
� there are many ways to differentiate the products� few rival firm are following a similar approaches� buyers needs and users are diverse� technological change is fast
� Industry leaders consider it too costly or difficult to meet the specialized needs� few other rivals are attempting to specialize in the same segment