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STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 6Strategy Formulation: Situation Analysis & Business Strategy

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Situational Analysis

Strategy formulation --

–Strategic planning or long-range planning•Develops mission, objectives, strategies, policies

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Situational Analysis

--process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses

SWOT --

–Internal•Strengths/Weaknesses

–External•Opportunities/Threats

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Situational Analysis

The essence of strategy is related to opportunity and capacity.

An opportunity by itself has no real value unless a company has the capacity (i.e., resources) to take advantage of that opportunity

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Situational Analysis

This approach, however, considers only opportunities and strengths. It is known that weaknesses in other resource areas can prevent a strategy from being successful.

Therefore perform SWOT

SA = O / (S-W)But, than;-Should we invest more in our strengths to make them even stronger (a distinctive competence), or,-Should we invest in our weaknesses to at least make them competitive

Unfortunately SWOT do not reflect priorities

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IFAS – Maytag as Example

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EFAS – Maytag as Example

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SFAS Matrix

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Situational Analysis

Niche --–Need in the marketplace that is currently unsatisfied

Corporate Goal --–Find propitious nicheAn extremely favorable niche that is so well suited to the firms internal and external environment that other corporations are not likely to challenge it.

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Situational Analysis

Finding a propitious niche is not easy.A firm’s management must be always looking for a STRATEGIC WINDOW, that is, a unique market opportunity that is available only for a particular time.

The first firm through a strategic window can occupy a propitious niche and discourage competition (if the firm has required internal strengths).

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TOWS Matrix

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Business Strategy

Focuses on improving competitive position of company’s products or services within the specific industry or market segment

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Porter’s Competitive Strategies

Competitive Strategy – asks these basic questions :

–Low cost–Differentiation

–Direct competition–Focus on niche

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Porter’s Competitive Strategies

Generic Competitive Strategies --

–Lower Cost strategy•Greater efficiencies than competitors

–Differentiation strategy•Unique/superior value, quality, features, service

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Porter’s Competitive Strategies

Competitive Advantage --

–Determined by Competitive Scope•Breadth of the target market

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Porter’s Competitive Strategies

New entrepreneurial firms have a better chance of surviving if they follow a narrow-scope rather than broad-scope strategy

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Porter’s Competitive Strategies

Cost Leadership --

–Low-cost competitive strategy–Broad mass market–Efficient-scale facilities–Cost reductions–Cost minimization

(Wal-Mart, Dell, Southwest Airlines)

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Porter’s Competitive Strategies

Differentiation –

–Broad mass market–Unique product/service–Premiums charged–Less price sensitivity

(Nike, Apple Computer, Mercedes-Benz)

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Porter’s Competitive Strategies

Cost-Focus –

–Low-cost competitive strategy–Focus on market segment–Niche focused–Cost advantage in market segment

(Potlatch, Migros branded detergents)

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Porter’s Competitive Strategies

Differentiation Focus –

–Specific group or geographic market focus–Differentiation in target market–Special needs of narrow target market

(Morgan Motor, Nickelodeon TV)

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Porter’s Competitive Strategies

Stuck in the middle –

–No competitive advantage–Below-average performance

( HP between IBM and Dell)

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Risks of Generic Strategies

Risks of Cost LeadershipCost 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 DifferentiationDifferentiation 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 FocusThe 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.

Risks of Cost LeadershipCost 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 DifferentiationDifferentiation 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 FocusThe 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.

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8 Dimensions of Quality

Many different kinds of potentially profitable competitive strategies exist

There is room for an almost unlimited number of differentiation and focus strategies. (Depending on the possible desirable features and the number of identifiable market niches)

Quality alone has eight different dimensions:

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8 Dimensions of Quality

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Competitive Strategy

Industry Structure --

–Fragmented Industry–Consolidated Industry

Once consolidated, an industry has become one in which cost leadership and differentiation tend to be combined to various degrees.

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Competitive Tactics

Tactics :

A tactic is a specific operating plan that details how a strategy is to be implemented in terms of where and when it is to be put into action.

Studies of decision making report that half the decisions made in organizations fail because of poor tactics.

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Competitive Tactics

Timing Tactics --

–First mover–Late movers

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Competitive Tactics

Market Location Tactics --

–Frontal Assault–Flanking Maneuver–Bypass Attack–Encirclement–Guerrilla Warfare

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Competitive Tactics

Defensive Tactics --

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

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Cooperative Strategies

•Collusion•Strategic Alliances - To obtain technologies and/or manufacturing capabilities

- To obtain access to specific markets - To reduce financial risk - To reduce political risk

•Mutual service consortia•Joint ventures•Licensing arrangements•Value-chain partnerships