chapter 5

Summary Slide

• Chapter 5• Situational Analysis • Situational Analysis • Situational Analysis • Situational Analysis • TOWS Matrix• Resource-Based Approach • Business Strategies

Summary Slide (cont.)

• Porter’s Competitive Strategies • Porter’s Competitive Strategies • Porter’s Competitive Strategies • Porter’s Generic Competitive Strategies• Porter’s Competitive Strategies • Porter’s Competitive Strategies • Porter’s Competitive Strategies • Porter’s Competitive Strategies

Summary Slide (cont.)

• Porter’s Competitive Strategies • Competitive Strategy • Competitive Strategy • Dimensions of Quality • Competitive Strategy • Competitive Strategy • Competitive Tactics • Competitive Tactics

Summary Slide (cont.)

• Competitive Tactics

• Competitive Tactics

• Cooperative Strategies

• Cooperative Strategies

• Cooperative Strategies

Chapter 5Strategy 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:– Process of finding a strategic fit

between external opportunities and internal strengths while working around external threats and internal weaknesses.

51 2 3 4

Strategic Factor Analysis Summary (SFAS)

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

Weight RatingWeighted Score Comments

SH

OR

T

INT

ER

ME

DIA

TE

LO

NG

Duration 6

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

Weight RatingWeighted Score Comments

1.00

SH

OR

T

INT

ER

ME

DIA

TE

LO

NG

Duration

3.05

.10

.10

.10

.15

.10

.10

.10

.15

.10

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

5

3

2

2

4

5

2

3

2

.50

.30

.20

.30

.40

.50

.20

.45

.20

Strategic Factor Analysis Summary (SFAS): Maytag as Example

X

X

X

X

X

X

X

X

X

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

Situational Analysis

SWOT analysis:– Internal

• Strengths• Weaknesses

– External• Opportunities• Threats

TOWS Matrix

Resource-Based Approach

Resource:

An asset, competency, process, skill, or knowledge controlled by the corporation.

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.

Porter’s Competitive Strategies

Competitive Strategy:–Low cost?

–Differentiation?

–Compete head to head in large market?

–Focus on niche?

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

Porter’s Competitive Strategies

Competitive Advantage:–Determined by Competitive Scope

• Breadth of the company’s target market

Porter’s Generic Competitive Strategies

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

Porter’s Competitive Strategies

Differentiation:–Broad mass market

–Unique product or service

–Charge premiums

–Lower customer sensitivity to price

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

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

Porter’s Competitive Strategies

Stuck in the middle:–No competitive advantage

–Below-average performance

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.

Competitive Strategy

Industry Structure:–Fragmented Industry

• Many small and medium-sized local companies compete for small shares of total market– Focus strategies predominate

Competitive Strategy

Industry Structure:–Consolidated industry

• Mature industry dominated by a few large companies– Cost Leadership or Differentiation predominate

Dimensions of Quality

Quality

• Performance• Features• Reliability• Conformance• Durability• Serviceability• Aesthetics• Perceived Quality

Dimensions

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

Competitive Strategy

Strategic rollup:–Differ from Conventional M&A’s

• Large number of firms• Owner-operated firms• Goal to reinvent entire industry

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

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

Competitive Tactics

Market Location Tactics:–Offensive Tactics

• Frontal assault• Flanking maneuver• Bypass attack• Encirclement• Guerrilla warfare

Competitive Tactics

Market Location Tactics:–Defensive Tactics

• Raise structural barriers• Increase expected retaliation• Lower the inducement for attack

Cooperative Strategies

Cooperative Strategies:–Collusion

• Active cooperation of firms to reduce output and raise prices– Explicit– Tacit

Cooperative Strategies

Cooperative Strategies:–Strategic Alliance:

– Partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial.

Cooperative Strategies

StrategicAlliance

Access to markets

Achieve competitiveadvantage

Obtain technology

Reduce financial risk

Reduce political risk

Continuum of Strategic Alliances

Mutual Service Consortia

Joint Venture Licensing Arrangement

Weak and Distant

Value-Chain Partnership

Strong and Close

Source: Suggested by R. M. Kanter, “Collaborative Advantage: The Art of Alliances,” Harvard Business Review (July-August 1994), pp. 96–108.