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Chapter 5

Chapter 5. Strategy Formulation: Situation Analysis and Business Strategy. Situational Analysis. Strategy formulation: Strategic planning or long-range planning Develops mission, objectives, strategies and policies. Situational Analysis. Situational Analysis:

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Chapter 5

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  1. Chapter 5 Strategy Formulation: Situation Analysis and Business Strategy Chapter 5 Wheelen/Hunger

  2. Situational Analysis Strategy formulation: • Strategic planning or long-range planning • Develops mission, objectives, strategies and policies Chapter 5 Wheelen/Hunger

  3. Situational Analysis Situational Analysis: • Process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses. Chapter 5 Wheelen/Hunger

  4. Strategic Factor Analysis Summary (SFAS) 1 2 3 4 5 6 Duration Strategic Factors (Select the most important opportunities/threats from EFAS, Table 3.4 and the most important strengths and weaknesses from IFAS, Table 4.2) Total Score Rating Weighted Score INTERMEDIATE Weight Comments SHORT LONG Chapter 5 Wheelen/Hunger

  5. Strategic Factor Analysis Summary (SFAS): Maytag as Example Duration Strategic Factors (Select the most important opportunities/threats from EFAS, Table 3.4 and the most important strengths and weaknesses from IFAS, Table 4.2) S1 Quality Maytag culture (S) S3 Hoover’s international orientation (S) W3 Financial position (W) W4 Global positioning (W) O1 Economic integration of European Community (O) O2 Demographics favor quality (O) O5 Trend to super stores (O + T) T3 Whirlpool and Electrolux (T) T5 Japanese appliance companies (T) Total Score Rating Weighted Score INTERMEDIATE Weight Comments SHORT LONG X X X X X X X X X .10 .10 .10 .15 .10 .10 .10 .15 .10 5 3 2 2 4 5 2 3 2 .50 .30 .20 .30 .40 .50 .20 .45 .20 Quality key to success Name recognition High debt Only in N.A., U.K., and Australia Acquisition of Hoover Maytag quality Weak in this channel Dominate industry Asian presence 1.00 3.05 Chapter 5 Wheelen/Hunger

  6. Situational Analysis Niche: • A need in the marketplace that is currently unsatisfied. Goal for the Corporation • Find a propitious niche • An extremely favorable niche • Strategic window • Unique market opportunity available for a limited time Chapter 5 Wheelen/Hunger

  7. Situational Analysis SWOT analysis: • Internal • Strengths • Weaknesses • External • Opportunities • Threats Chapter 5 Wheelen/Hunger

  8. TOWS Matrix Chapter 5 Wheelen/Hunger

  9. Resource-Based Approach Resource: An asset, competency, process, skill, or knowledge controlled by the corporation. Chapter 5 Wheelen/Hunger

  10. 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 firm serves. Chapter 5 Wheelen/Hunger

  11. Porter’s Competitive Strategies Competitive Strategy: • Low cost? • Differentiation? • Compete head to head in large market? • Focus on niche? Chapter 5 Wheelen/Hunger

  12. Porter’s Competitive Strategies Generic Competitive Strategies: • Lower cost strategy • Design, produce, market more efficiently than competitors • Differentiation strategy • Unique and superior value in terms of product quality, features, service Chapter 5 Wheelen/Hunger

  13. Porter’s Competitive Strategies Competitive Advantage: • Determined by Competitive Scope • Breadth of the company’s target market Chapter 5 Wheelen/Hunger

  14. Porter’s Generic Competitive Strategies Chapter 5 Wheelen/Hunger

  15. Porter’s Competitive Strategies Cost Leadership: • Low-cost competitive strategy • Aimed at broad mass market • Aggressive construction of efficient-scale facilities • Cost reductions • Cost minimization Chapter 5 Wheelen/Hunger

  16. Porter’s Competitive Strategies Differentiation: • Broad mass market • Unique product or service • Charge premiums • Lower customer sensitivity to price Chapter 5 Wheelen/Hunger

  17. Porter’s Competitive Strategies Cost focus: • Low cost competitive strategy • Focus on particular buyer group or market • Niche focused • Seek cost advantage in target market Chapter 5 Wheelen/Hunger

  18. Porter’s Competitive Strategies Differentiation focus: • Focus on particular group or geographic market • Seek differentiation in targeted market segment • Serve special needs of narrow target market Chapter 5 Wheelen/Hunger

  19. Porter’s Competitive Strategies Stuck in the middle: • No competitive advantage • Below-average performance Chapter 5 Wheelen/Hunger

  20. Risks of Generic Competitive Strategies Risks of Cost Leadership Cost leadership is not sustained: • Competitors imitate. • Technology changes. • Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: • Competitors imitate. • Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: • Structure erodes. • Demand disappears. Broadly targeted competitors overwhelm the segment: • The segment’s differences from other segments narrow. • The advantages of a broad line increase. New focusers subsegment the industry. Chapter 5 Wheelen/Hunger

  21. Competitive Strategy Industry Structure: • Fragmented Industry • Many small and medium-sized local companies compete for small shares of total market • Focus strategies predominate Chapter 5 Wheelen/Hunger

  22. Competitive Strategy Industry Structure: • Consolidated industry • Mature industry dominated by a few large companies • Cost Leadership or Differentiation predominate Chapter 5 Wheelen/Hunger

  23. Dimensions of Quality • Performance • Features • Reliability • Conformance • Durability • Serviceability • Aesthetics • Perceived Quality Dimensions Quality Chapter 5 Wheelen/Hunger

  24. Competitive Strategy Strategic rollup: • Quickly consolidate fragmented industry • Money from venture capital • Entrepreneur acquires hundreds of owner-operated firms • Creates large firm with economies of scale Chapter 5 Wheelen/Hunger

  25. Competitive Strategy Strategic rollup: • Differ from Conventional M&A’s • Large number of firms • Owner-operated firms • Goal to reinvent entire industry Chapter 5 Wheelen/Hunger

  26. Competitive Tactics Tactic: • Specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action. • Timing tactics • Market location tactics Chapter 5 Wheelen/Hunger

  27. Competitive Tactics Timing Tactics: • First mover (pioneer) • Reputation as industry leader • High profits • Sets standards for subsequent products in the industry • Late mover • Able to imitate technological advances of others • Keeps R&D costs down • Keeps risks down Chapter 5 Wheelen/Hunger

  28. Competitive Tactics Market Location Tactics: • Offensive Tactics • Frontal assault • Flanking maneuver • Bypass attack • Encirclement • Guerrilla warfare Chapter 5 Wheelen/Hunger

  29. Competitive Tactics Market Location Tactics: • Defensive Tactics • Raise structural barriers • Increase expected retaliation • Lower the inducement for attack Chapter 5 Wheelen/Hunger

  30. Cooperative Strategies Cooperative Strategies: • Collusion • Active cooperation of firms to reduce output and raise prices • Explicit • Tacit Chapter 5 Wheelen/Hunger

  31. Cooperative Strategies Cooperative Strategies: • Strategic Alliance: • Partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial. Chapter 5 Wheelen/Hunger

  32. Cooperative Strategies Obtain technology Access to markets Strategic Alliance Reduce financial risk Reduce political risk Achieve competitive advantage Chapter 5 Wheelen/Hunger

  33. Continuum of Strategic Alliances Mutual Service Joint Venture Value-Chain Consortia Licensing Arrangement Partnership Weak and Distant Strong and Close Source: Suggested by R. M. Kanter, “Collaborative Advantage: The Art of Alliances,” Harvard Business Review (July-August 1994), pp. 96–108. Chapter 5 Wheelen/Hunger

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