2 level startegy

2-Level Strategy

A Discussion about Strategy in Business Environment

By

ALVIN PAUL T. RIEL

Definition of Strategy: An Overview

• Logical course of actions at the organizational level

• carried by all members through specific division of labor

• Actions guided by operational goals and objectives

…for the attainment of organizational set goals and objectives, short and long-term (VMGO) (Agustin, 2015).

Levels of Strategy

GOAL SETTING BUSINESS NGO/NPO/GOVERNMENT

SUPERORDINATE CORPORATE -LEVEL ORGANIZATIONAL-LEVEL

SUBORDINATE

BUSINESS-LEVEL OPERATIONAL-LEVEL

FUNCTIONAL/OPERATIONAL-LEVEL FUNCTIONAL-LEVEL

Levels of Strategy Hierarchy of Strategies & Responsible Persons

Chairmen, Presidents, CEO’s,

Executives

Board

Managers, Division

Heads,

Supervisors,

Team Leaders,

Business-level

Functional-/Operational-level

Corporate-level

Business-level Strategy

Corporate-level Strategy

Organizational Structure & Hierarchy of Strategies

Levels of Strategy

Assembly/Finishing

Trng Mgr

Acctnt Purchaser

Board of Directors

CEO/President/Managing Director /General Manager

VP- Sales/ Mktg

Branch Mgr

VP-Prodn

VP-HR VP-Fin VP-

Admin

Chairman

Vision, Mission, Goals, Policies

Corporate-Level Strategy: Defined

…outlines and describes a company’s overall direction and actions towards the realization of Vision, Mission, Goals and objectives (Agustin, 2017).

…determines (plans and actions) how to create value (synergy) through entering (and or creating) new markets, introducing new products, or developing new technologies, central to returns to shareholders (Dess, et al., 2016).

Corporate-Level Strategy Examples of overall direction & commitments:

Vision Statement

• To be the leading company in the industry;

Mission Statement

• of commitment to provide quality products and services to consumers

that create unforgettable experience;

• to deliver profit to Stockholders

• to improve quality of life and economic well-being of employees

• to maintain a good relationship with suppliers and creditors

Corporate-Level Strategy Examples of set of actions:

• To offer the products at highest level of quality and most affordable price to the consumers

• To pay the stockholders the dividends due to their investments in cash or stocks

• To compensate and provide benefits and programs for employees

• To pay ahead of due date the suppliers and creditors the exact amount;

Corporate-Level Strategy(Dess, et al.)

• plans and action Related Diversification (horizontal) Unrelated Diversification (vertical) IPO, Split stocks, Structured Loans, Bonds Etc. • value creation (synergy) Restructuring Corporate Parenting Portfolio Analysis Enabling-environment: e.g. Corporate culture (selfless interest that ensure shareholders’ interests, well-being of human resources including self) (Agustin, 2017).

Business-Level Strategy: Defined

Plans and actions to realize and achieve Corporate-level strategy (goals, objectives, actions, commitment) (Agustin, 2017).

more specific and provide a more direct means as the organization moves towards broader, overall goals (Vision, Mission) to meet the strategic objectives (Corporate-level) (Dess, et, al., 2004).

Business-Level Strategy Examples of more specific actions:

• What are the highest level of quality and most affordable price?

Product features, functions, consumers’ benefits (compare to other

same and or similar products)?

• How much? Compare to other products’ price.

• How much dividends to pay the stockholders? Percentage of profit?

• How much compensation for next 2 years? Increase annually? What

benefits and programs? Health, dental, paternal/maternal holidays

with pay? Housing? Car? Family Vacation with pay?

• How many days or weeks earlier than due date should the

suppliers/creditors be paid?

Business-Level Strategy Examples of Selecting and Managing Groups

• Division of labor. Who will who? Who will what? Who will when? When will

what? How will what?

Strategy (overview)….is a course of Actions guided by operational (business)

goals and objectives .

The divisions, groups, people are tasked to do the job in carrying the

Business-level strategy

(the ff must be defined clearly and specifically):

• the business goals and objectives (sales/revenue target, production volume,

waste/reject max percentage limit, profit optimization

• employees’ safety and productivity, benefits & pay, increases, zero turn-over

• customers (inventory) turn-over

• zero complaint/return/refund/exchange

Business-level Strategy In achieving the Corporate-level Strategy of setting

target sales, market power increase, etc.

Customers: Their Relationship with Business-Level Strategies

The firm determines:

(1) who will be served

(2) what needs the target customers are needing; and

(3) how such needs will be satisfied.

Business-level Strategy Customers: Their Relationship with Business-Level Strategies

The aim to outperform the competitors, strong relationship with the customers is a must.

• To know the “enemies” (rivals) is a must.

• To know the battlefield (market) is a must.

• To know the “enemy’s” arms (product) and own arms is a must.

• To know oneself is a must.


• Who will be served?

1. Target Market--- who are in need of the

products in general point of view

2. Market Segmentation--- clustering the people or subdividing the market by similar needs into individual and identifiable groups

• Market Segmentation Consumer Markets 1. Demographic factors (age, income, sex, etc.) 2. Socioeconomic factors (social class, stage in the family life cycle) 3. Geographic factors (cultural, regional, and national differences) 4. Psychological factors (lifestyle, personality traits) 5. Consumption patterns (heavy, moderate, and light users) 6. Perceptual factors (benefit segmentation, perceptual mapping)


• Market Segmentation

Industrial Markets

1. End-use segments

2. Product segments (based on technological differences or production economics)

3. Geographic segments (defined by boundaries between countries or by regional differences within them)

4. Common buying factor segments (cut across product market and geographic segments)

5. Customers size segment


• What will be served?

1. Benefits

2. Features

3. Price

all must be based from the (targeted/segmented) customers’ wants and desired values and experiences.


• How the product will be served?

1. Core Competencies (Hitt) or Resources and Functional Capabilities (Dess)

2. Value-creating activities (Dess)


Business-level Strategy Different Types of Strategies

Michael Porter’s Framework • Cost Leadership • Differentiation • Focus

Michael Hitt’s Framework • Cost Leadership • Differentiation • Focus Cost Leadership • Focus Differentiation • Integrated cost leadership/differentiation


.

• Cost Leadership Tactics

1. Aggressive construction of efficient- scale facilities

2. Vigorous pursuit of cost reduction from experience

3. Tight cost and overhead control

4. Avoidance of marginal customer accounts

5. Cost minimization in all activities, e,g. R&D, service, technical support, sales force, advertising, etc.


• Differentiation

1. Unique

2. Value


• Focus

• Focused Cost Leadership

• Focused Differentiation


Five forces Affecting Business-level Strategy

Risks Involved in Business-Level Strategy

• Cost Leadership – Competition in material resources – Piracy, infringement of production process

• Differentiation -- Customers’ sudden change of preference -- Piracy, infringement of design, features -- Dilution of brand identification and image • Focus -- Rivals’ similar strategies may come in over time -- Piracy, infringement of design, features -- Tendency to be too narrow

Resources, Capabilities and Value Creation

• Business-Level Strategy is for the realization of Corporate –Level Strategy-

• Business-Level Strategy includes plans and actions---

• Plans and Actions in Business-Level Strategists, managers and executors are not always sufficient

• Resources, Capabilities and Value-creating activities may be available to and may be:

1. Delegated to Functional-Level officers for Functional-Level Strategies; or

2. Returned the undertakings to the Corporate executives for Corporate- Level strategies.


• Resources

1. Financial Capitalization

2. Human Resources

3. Technological know-how

4. Fixed Assets, idle for use or sale


• Capabilities

1. Acquisition/Construction of facilities

2. Technology Development

3. Product Development

4. Cost Efficiency

5. Market Development

6. Service Development

7. etc.


• Value-Creating Activities 1. Capital build-up/growth 2. HR Development and Satisfaction 3. Information Management System 4. Product Development 5. Policy-making 6. Policy implementation 7. Cost efficient raw-materials 8. Accessible Market/Strategic Positioning and value chain 9. Acquisition/Construction of facilities 10. Cost-efficient production


• Business-Level Authority A. Resources 1. Human Resources 2. Technological know-how B. Capabilities 1. Technology Development 2. Product Development 3. Cost Efficiency 4.. Market Development 5. Service Development C. Value-Creating Activities 1. Product Development 2. Policy Implementation 3. Accessible Market/Strategic Positioning and value chain 4. Cost-efficient production


• Functional-Level Authority (delegated by Business-level Authority) A. Resources 1. Human Resources 2. Technological know-how B. Capabilities 1. Technology Development 2. Product Development 3. Cost Efficiency 4.. Market Development 5. Service Development C. Value-Creating Activities 1. Product Development 2. Policy Implementation 3. Accessible Market/Strategic Positioning and value chain 4. Cost-efficient production


• Corporate-Level Authority (part of Business-Level Strategy but beyond its authority)

A. Resources 1. Financial Capitalization 2. Fixed Assets, idle for use or sale B. Capabilities . 1. Acquisition/Construction of facilities 2. Market Development (by diversification) C. Value-creating Activities 1. Capital build-up/growth (IPO, Split stock, Bonds, Borrowings, Merger, Acquisition) 2. Policy-making 3. Policy implementation 4. Cost efficient raw-materials ( by diversification) 5. Accessible Market/Strategic Positioning and value chain (by diversification, Merger, Acquisition) 6. Acquisition/Construction of facilities


Corporate-Level Authority (part of Business-Level Strategy but beyond its authority) C. Value-creating Activities 1. Capital build-up/growth (IPO, Split stock, Bonds, Borrowings, Merger, Acquisition) 2. Policy-making 3. Policy implementation 4. Cost efficient raw-materials ( by diversification) 5. Accessible Market/Strategic Positioning and value chain (by diversification, Merger, Acquisition) 6. Acquisition/Construction of facilities


The Business – Level Strategy Implementation

mentioned as part of Resources, Capabilities and Value-

creating activities are originally part of Corporate-level

strategy which include:

1. Restructuring 2. Corporate Parenting 3. Portfolio Analysis 4. Enabling-environment


• Diversification is the company process of expansion by entering new business.

-- Mergers

-- Acquisition

-- Strategic alliance, sub-contracting

-- Joint-venture

-- Reengineering, downsizing

Corporate-Level Strategy Different Diversifications


• Related diversification--- entering a different business with a lot of horizontal interaction.

---comes from horizontal relationship among business units.

• Unrelated diversification--- entering a different business with a lot of horizontal interaction

---comes from vertical relationship between corporate office and business units.

• Related Diversification--- horizontal relationship

– Leveraging Core Competencies

– Different Business---unique, trade secrets, planning & developing ahead of rivals

– Sharing Activities and resources (commonly used in reengineering, downsizing)


• Horizontal Relationship

• These are not limited to internal dynamics but can be done

through Mergers or Acquisition.


Production Administration Marketing

Marketing Sales Sales &

Marketing

Food Chain Production

Purchasing Meat Shops

• Unrelated Diversification- vertical relationship

-- Parenting

-- Restructuring

-- Portfolio analysis


• Vertical Relationship


Chair/Board/ CEO/Pres./GM/VP-

Admin

Admin-Purchasing

Sales & Marketing

Distributors Dealers

Suppliers


Admin

Sales & Mktg

Admin-Purchasing

Supplies Production

Distributors

Dealers Dealers

Corporate-Level Strategy Primary Reasons of Diversifications

• Value-Creation

• Value-Neutralization

• Value-Reduction (Hitts, 2009)

The primary reasons of diversifications are the competition, constraints, threats caused by external factors in political-legal, economic, socio-cultural, and technological environments (PEST as neoliberals named them, Agustin, 2017).

Corporate-Level strategy Value-creation using Diversification

• Parenting—positive contribution of the corporate office to the new businesses as a result of expertise and supports.

• Restructuring---intervention of the corporate office in new businesses that substantially changes the assets (idle to useful, disposal, etc), capital structure (loans, bonds to stocks, etc), and/or management (dissolution of redundant and overlapping department and job positions)---all for expenses reduction in security, depreciation, interests and patroll.

• Portfolio Analysis---to absorb some risks in business by other businesses with lower risks. Seasonal or occasional businesses are complementing each other during off and peak seasons. (Agustin, 2017).

Corporate-Level Strategy 2-way Value-creation in Unrelated Diversification

• Backward and Forward Value-Creation Through Unrelated Diversification --the Vertical Relationship

• These are not limited to internal dynamics but can be done through Mergers or Acquisition.

Raw Materials Manufacturing

of Goods Distributor/Dealer

Backward Integration Forward Integration

• Vertical Relationship



Admin

Admin-Purchasing

Sales & Marketing

Distributors Dealers

Suppliers


Admin

Sales & Mktg

Admin-Purchasing

Supplies Production

Distributors

Dealers Dealers

Corporate-Level Strategy Motives that can encourage managers to over-diversify

a firm

• Growth is the common Motive of companies in Merger and Acquisition---creation of supply-based and holds, and market expansion and dominance in a market ---domestic of global, full of PEST (Agustin, 2017).

• Expected benefits

1. Obtain valuable resources---supplies and market

2. Opportunities to attain synergy

3. Industry consolidation; and

4. Enter new market segments

THE END

2 level startegy

Leadership & Management