Strategy Formulation and Implementation

1. Strategy Formulation and Implementation Chapter 8

2. Strategic Planning • Strategic planning has taken on new importance in today’s world of globalization, deregulation, advancing technology, and changing demographics, and lifestyles Manager’s Challenge: Nintendo

3. Strategy Formulation and Implementation Topics: Chapter 8 • Strategic Management • Definition • Components • Model of Strategic Management Process • Models of Strategy Formation • Managerial Tools to Implement Strategic Plans

4. 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?

5. 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

6. 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?

7. 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?

8. 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

9. 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

10. 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

11. Global Corporate Strategies 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 Need for Global Integration • Export • Strategy • Domestically focused • Exports a few domestically produced products to selected countries • Multi-domestic Strategy • Handles markets independently for each country • Adapts product/advertising to local tastes and needs Low Low Need for National Responsiveness High

12. 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

13. 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

14. Corporate-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 Manufacturing Marketing R&D Three Levels of Strategy in Organizations

15. Strategic Management Process Scan External Environment – National, Global Identify Strategic Factors – Opportunities, Threats Implement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systems Evaluate Current Mission, Goals, Strategies Formulate Strategy – Corporate, Business, Functional Define new Mission Goals, Grand Strategy SWOT Scan Internal Environment – Core Competence, Synergy, Value Creation Identify Strategic Factors – Strengths, Weaknesses

16. 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

17. Distribution channels Market share Advertising efficiency Customer satisfaction Product quality Service reputation Checklist for AnalyzingOrganizational Strengths and Weaknesses Management and Organization Marketing Human Resources Employee experience, education Management quality Staff quality Union status Degree of centralization Organization charts Turnover, absenteeism Planning, information, control systems Work satisfaction Grievances Sales force turnover Finance Production Research and Development Profit margin Plant location Basic applied research Laboratory capabilities Debt-equity ratio Machinery obsolescence Research programs Inventory ratio Purchasing system New-product innovations Return on investment Quality control Technology innovations Productivity/efficiency Credit rating 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).

18. Portfolio Strategy BCG Matrix • Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage

19. Five Forces Affecting Industry Competition Potential New Entrants • Internet reduces barriers to entry Internet blurs differences among competitors in an industry Threat of Substitute Products Bargaining Power of Buyers Rivalry among Competitors • Internet expands market size, but creates new substitution threats • Internet shifts greater power to end consumers • Internet tends to increase the bargaining power of suppliers Bargaining Power of Suppliers Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

20. 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 produceproducts more efficiently than competitors • Focus = concentrates on a specific regional market or buyer group

21. Continuum of Partnership Strategies Organizational Combination Acquisitions Mergers Joint Ventures Strategic Alliances Degree of Collaboration Strategic Business Partnering Preferred Supplier Arrangements Low High Degree of Collaboration

22. Implementing Strategy Tools • Leadership • Structural design • Information and control systems • Human resources

23. Tools for Putting Strategy into Action Environment Organization Leadership  Persuasion  Motivation  Culture/values • Structural Design  Organization Chart  Teams  Centralization • Decentralization, • Facilities, task design Human Resources  Recruitment/selection  Transfers/promotions  Training  Layoffs/recalls Strategy Performance Information and Control Systems  Pay, reward system  Budget allocations  Information systems  Rules/procedures 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.