managing strategy and strategic planning copyright © houghton mifflin company. all rights...

Managing Strategy and Strategic Planning

Copyright © Houghton Mifflin Company. All rights reserved. 7–1


The Nature of Strategic Management

• Strategy– A comprehensive plan for accomplishing an

organization’s goals.

• Strategic Management– A way of approaching business opportunities and

challenges aimed at formulating and implementing effective strategies.

• Effective Strategies– Strategies that promote a superior alignment

between the organization and its environment and the achievement of its goals.


Components of Strategy

• Distinctive Competence– Something an organization

does exceptionally well.

• Scope– Range of markets in which an

organization will compete.

• Resource Deployment– How an organization will

distribute its resources across the areas in which it competes.


Types of Strategic Alternatives

• Business-Level Strategy– The set of strategic alternatives that an

organization chooses from as it conducts business in a particular industry or a particular market.

• Corporate-Level Strategy– The set of strategic alternatives that an

organization chooses from as it manages its operations simultaneously across several industries and several markets.


• Deliberate Strategy– A plan, chosen and implemented to support

specific goals, that is the result of a rational, systematic, and planned process of strategy formulation and implementation.

• Emergent Strategy– A pattern of action that develops over time in

the absence of goals or missions, or despite goals and missions.


SWOT ANALYSIS

© 2010 South-Western, Cengage Learning, Inc. All rights reserved. 8–7

Formulating Business-Level Strategies

Overall cost leadership strategy

Focus strategy

Differentiation strategy

Porter’s Generic Strategies


Porter’s Generic Strategies

Business Level Strategies

Differentiation – distinguish the company from competitors through the quality of its products or services. If successfully done, firm is able to charge more. Examples: Rolex, Mercedes-Benz, Cross.

Overall Cost Leadership – gain a competitive advantage by reducing the firm’s costs below the costs of competing firms. Can sell products at low prices and still make a profit. Examples: Timex, Hyundai, Bic.

Focus – concentrates on a specific regional market, product line, or group of buyers. Either differentiation focus or overall cost leadership focus.Examples: Tag Heuer, Fiat, Alfa Romeo

Formulating Corporate Level Strategies


• Strategic Business Units– Each business or group of businesses within

an organization is engaged in serving the same markets, customers, or products.

• Diversification– The number of businesses an organization is

engaged in and the extent to which these businesses are related to one another


Corporate-Level Strategies

Related diversification

(synergy)

Unrelated diversification(risk/return)

Single-product strategy

(simplicity)

Strategic Choices

8–11

Corporate-Level Strategies

Single-Product Strategy– An organization manufactures one product or service

and sells it in a single geographic market.

Example: WD40

• Related Diversification– A strategy in which an organization operates in several

different businesses, industries, or markets that are somehow linked.

– Avoids the disadvantages and risks of a single-product strategy.

Examples: Procter & Gamble - common distribution

Disney – brand name

Boeing – common technology


Advantages of Related Diversification

– Reduces an organization’s dependence on any one of its business activities and thus reduces economic risk.

– Reduces overhead costs associated with managing any one business through economies of scale and economies of scope.

– Allows an organization to exploit its strengths and capabilities in more than one business.

– Synergy exists among a set of businesses when the businesses’ value together is greater than their economic value separately.


Unrelated Diversification

– Advantages• Stable of performance over time due to business cycle

differences among the multiple businesses.• Allocation of resources to areas with the highest return

potentials to maximize corporate performance.

– Disadvantages• Poor performance due to the complexity of managing a

diversity of businesses.• Failing to exploit key synergies puts the firm at a

competitive disadvantage to firms with related diversification strategies.

An organization operates multiple businesses that are not logically associated with one another.Example: General Electric


Becoming a Diversified Firm

Development of new products

Vertical integrationMerger with another firm

Acquisition of another firm

Diversification Alternatives

Becoming a Diversified Firm


Replacement of Suppliers And Customers– Backward vertical integration

• Beginning a business that furnishes resources previously handled by a supplier.

– Forward vertical integration• Beginning a business previously handled by an

intermediary and selling more directly to customers.

Purposes of Mergers and Acquisitions

– To diversify through vertical integration.

– To acquire complementary products or services linked by a common technology and common customers.

– To create or exploit synergies that reduce the combined organizations’ costs of doing business to increase revenues.


Managing DiversificationPortfolio management techniques

• Methods that diversified organizations use to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance.

Two important portfolio management techniques• The BCG Matrix

– A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the market.

• The GE Business Screen– A method of evaluating business in a diversified portfolio along

two dimensions, each of which contains multiple factors:» Industry attractiveness.

» Competitive position (strength) of each firm in the portfolio.


The BCG Matrix

Source: Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from The Boston Consulting Group, Inc., 1970.

Dogs have small market shares and no growth prospects.

Cash cows have large shares of mature markets.

Question marks have small market shares in quickly growing markets.

Stars have large shares of rapidly growing markets.


The GE Business Screen

Contingency Planning


Crisis Management

Alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate

Set of procedures the organization will use in the event of a disaster or other unexpected calamity

managing strategy and strategic planning copyright © houghton mifflin company. all rights...

Documents

corporatelevel strategy

emergent strategy

deliberate strategy

strategic business units

business opportunities

set of strategic alternatives

alfa romeo slide

swot analysis slide