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Types of Strategy and Strategy Formulation

Geoff Leese September 2005 revised September 2006, July 2007, August 2008, August

2009

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Evaluate Current:•Mission•Goals•Strategies

•Scan External•Environment

IdentifyStrategicFactors:•Opportunities•Threats

IdentifyStrategicFactors:•Strengths•Weaknesses

Scan InternalEnvironment

The Strategic Management Process

Define New Mission/Goals

FormulateStrategy:•Corporate•Business•Functional

ImplementStrategy viaChanges in:•Leadership•Culture•Structure•HR•Marketing•Finance•Prod/dist•IT&IS•Etc

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Strategy Formulation

• Developing long-range plans to effectively manage environmental opportunities and threats in light of corporate strengths and weaknesses.

• The design of an approach to achieve the firm's mission.

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Thinking Strategically

• To help managers answer questions such as:

• 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?• Answers define an overall direction for

the organisation's grand strategy.

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Grand Strategy

General plan of action to achieve long-term objectives

1. Growth2. Stability3. Retrenchment.

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Growth

Can be promoted internally by investing in expansion or externally by acquiring additional business divisions.

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Stability

Remain same size or grow steadily and in a controlled way

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Retrenchment

Forced decline by either shrinking current business units or selling off or liquidating entire businesses.

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Purpose of Strategy

Value Creation = use core competence and synergy to provide increased benefits received with lower costs paid.

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Purpose of Strategy

• CORE COMPETENCE: something the organization does especially well in comparison to its competitors

Superior research and development Mastery of a technology Superior customer service.

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Purpose of Strategy

SYNERGY: when organizational parts interact to produce a joint effect that is greater than the sum of its parts acting alone.

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Strategy Formulation

• Development of the firm's goals and a specific strategic plan

• Assessing the external environment and the internal issues

• Integrating the results into goals and strategy.

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Levels of Strategy

Corporate Business Functional.

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Corporate-Level Strategy

• Acquisition of new businesses• Additions or divestment of

business units, plants, or product lines

• Joint ventures with other companies in new areas.

What business are we in?

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Portfolio Strategy

The organizational mix of Strategic Business Units and product lines to provide synergy and a competitive advantage.

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Business-Level Strategy

• Advertising/marketing• Direction and extent of R&D• Product changes• New product development• Equipment and facilities• Expansion or contraction of

product lines.

How do we compete?

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Formulating Business-Level Strategy

• Porter’s Five Force model

• Competitive strategies• Covered in Lecture 3a

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Function-Level Strategy

• Production• Distribution• Finance.• IS&IT• Marketing• HR• R&D

How do we support business-level strategy?

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Strategic choice

Strategic Intent

Available optionsStrategic

Assessment

B

Context

D

CA

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Choosing an option (1)

• Region A – unidentified• Region B – identified, aligned

and feasible!• Region C – identified, aligned

but not feasible• Region D – identified and

feasible, but not aligned

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Choosing an option (2)

• Three tests• Does it take us towards where we

want to be? (Alignment)• Do we have, or can we obtain, the

resources required to implement it? (Feasibility)

• Will it win the support of those who need to approve it, and those who need to implement it? (Acceptability)

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Choosing an option(3)

• Number of strategic options is rarely large

• If more than one passes all three tests, necessary to evaluate “best”

• Evaluate according to tangible (risk, return, CBA) and intangible (cultural “fit”, matching values and policies) factors.

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Porter’s generic strategies

Market

scope

Broad

Narrow

Basis of competitive advantageCost Differentiation

Cost Leadership Differentiation

Cost Focus Differentiation Focus

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Further Reading

• Strategic Choice – follow the link!

• Johnson and Scholes chapter 7• Bennett Chapters 1 and 3