Strategy Formulation

1. Strategy Formulation Corporate Level, Business Unit Level and Functional Level

2. Strategy Formulation Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of organizational strengths and weaknesses.

3. Strategy Formulation Mission Statement • Purpose or reason for the org’s existence • Promotes shared expectations among employees • Communicates a public image important to stakeholders • Defines who we are, what we do, and what we would like to become

4. Strategy Formulation A goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and no time criteria for completion.

5. Strategy Formulation An objective are specific and quantifiable, versions of goals.

6. Strategy Formulation • Corporate goals & objectives include: • Profitability (net profits in % or $) • Growth (increase in assets, net new • customers or sales) • Utilization of resources (ROI or ROE) • Market Leadership (market share)

7. Goals & Stakeholders • Owners or shareholders • Members of the board of directors • Top management • Employees • Customers • Suppliers • Creditors • Distributors • General Public • Government

8. Specific Strategies Defined: Specific strategies of a corporation form a comprehensive master plan stating how the corporation will achieve its mission and its objectives. It seeks to maximize competitive advantage and minimize competitive disadvantage.

9. Specific Strategies Three Types of Specific Strategies 1. Corporate Level Strategies (Chap 7) 2. Business Unit Level Strategies (Chap 6) 3. Functional Level Strategies (Chap 5)

10. Corporate Level Strategy Amounts to determining the overall direction that will enable the organization to best fulfill its purpose and achieve its strategic goals through the business(es) it chooses to be in.

11. Corporate Level Strategy Growth Strategies • Concentration (internal growth) Products Current New Product-Mrkt Exploitation Product Development Current Customers Market Development Product-Mrkt Diversification New

12. Corporate Level Strategy Concentration (internal growth) • Advantage 1. Become very good at what one does 2. Preserves org’s culture, image, efficiency & quality • Disadvantage 1. Slow 2. Subject to environmental shifts 3. Bureaucratic & coordinating costs

13. Corporate Level Strategy Horizontal Integration Growth through acquisition of other businesses in one’s own industry

14. Corporate Level Strategy Horizontal Integration of Related Businesses Growth through acquisition of businesses outside one’s present scope of operations, but related to the organization’s core competencies.

15. Synergy Defined: The higher effectiveness and efficiency yielded by the combination of two firms that is greater than that represented by both firms separately.

16. Corporate Level Strategy Horizontal Unrelated Diversification Conglomerate Diversifying into completely different industries from an org’s current business.

17. Corporate Level Strategy Vertical Integration Merging into the org’n various stages of activities backward ito sources of supply or forward in the direction of final consumers.

18. Corporate Level Strategy Vertical Integration Merging into the org’n various stages of activities backward ito sources of supply or forward in the direction of final consumers.

19. Corporate Level Strategy International Expansion A firm may expand globally using any one of the previous mentioned growth strategies of concentration (internal growth), horizontal integration, horizontal integration of related or unrelated businesses or though vertical integration.

20. Economies of scale lowering operating costs Supplements domestic growth Enables firm to become a stronger competitor Poses greater financial risks Managing strategically becomes more complex & challenging Difficulty in finding similarities in mrkts or operating capabilities Capturing & exploiting advantages not easy or automatic Benefits & Disadnvantages of International Expansion

21. Stages of International Development Stage 1: Domestic company Stage 2: Domestic company w/export division Stage 3: Primarily domestic company w/international division Stage 4: Multinational corporation with multidomestic emphasis Stage 5: Global Company Stage 6: Transnational Company

22. Implementation of Growth Strategies • Internal growth or development • Merger • Acquisition • Joint Venture • Long Term Contract • Strategic Alliance

23. Stability Strategy • When managerial efforts are req’d to enhance competitive postures • When sr mgrs consider the cost of adding new businesses to be greater than benefits • When the industry is experiencing upheaval • When the industry is facing slow or no growth • When a firm is large and in the mature stage of the industry life cycle w/good profits • When a small entreprenureal or family business is satisfied with status quo

24. Retrenchment Strategies Turnaround Strategy Purpose is to transform the org’n into a leaner and more effective firm

25. Retrenchment Strategies Divestment Strategy When an org’n sells or “spins off” any number of its poorer performing business units or those business units that don’t contribute to synergy.

26. Retrenchment Strategies Liquidation Strategy Amounts to the strategy of “last resort” where turnaround or divestment has failed to succeed and the assets of the org’n are sold off and the org’n ceases to exist.