Topic 5.

Strategy Formulation and  A company’s core competence produce a joint effect that is
Implementation is something the greater than the sum of the
organization does especially parts acting alone. The
Strategy well in comparison to its organization may attain a
competitors special advantage with respect
Strategy is your competitive actions in
to cost, market power,
the market  A core competence represents a technology, or management
competitive advantage because skill.
Finding ways to respond to
the company acquires expertise
competitors, and cope with change is
that competitors do not have c) Deliver Value
strategy
 A core competence may be in  Delivering value to the
Strategy is the plan of action that
the area of superior research customer is at heart of
prescribes resource allocation and
and development, expert strategy
other activities for dealing with the
technological know-how,
environment, achieving a  Value can be defined as the
process efficiency or
competitive advantage, that help combination of benefits
exceptional customer service
the organization attain its goals. received and costs paid
b) Build Synergy
• Plan of action  Managers help their companies
 When organisational parts create value by devising
• Resource allocation
interact to produce a joint strategies that exploit core
• Activities for dealing with the effect that is greater than competences and attain
environment the sum of the parts acting synergy
alone, synergy occurs
• Achieving competitive advantage Levels of Strategy
 The organization may attain a
Competitive Advantage special advantage with respect  Corporate-level strategy
to cost, market power,
Competitive Advantage refers to  Business-level strategy
technology or management skill
what sets the organization apart
 Functional-level strategy
from others and provides it with a  When properly managed,
distinctive edge in the synergy can create additional
marketplace. value with existing resources,
providing a bib boost to the
Purpose of Strategy bottom line
Strategy necessarily changes over  Synergy can also be obtained
time to fit environmental conditions. by good relationships between
But to remain competitive, organisations
companies develop strategies that
focus on:  Synergy occurs when
organizational parts interact to
a) Exploit Core Competence
a) Corporate Level Strategy
 The level of strategy concerned
with the question, “What
business are we in?” It pertains
to the organization as a whole
and the combination of business
units and product lines that
make up the corporate identity.
 Strategic actions here are
acquisition of new business,
addition/divestment of business
units, joint ventures
b) Business Level Strategy
 The level of strategy concerned
with the question" How do we
compete?” It pertains to each
business unit or product line
within the organization.
 Here the concern will be amount
of advertising, direction, R & D,
product changes, new product
development,
expansion/contraction of
product lines
c) Functional Level Strategy
 The level of strategy concerned
with the question “How do we
support the business–level
competitive strategy?” It
pertains to the major functional
departments within the
business unit.
 - Guides the use of resources to
implement business strategy
 - Involves all of the major
functions including finance, R &
D, marketing
Strategic Management
 Plans and actions that lead to
superior competitive standing
➢ What changes and trends
are occurring in the
competitive environment?
➢ Who are our competitors and
what are their strengths and
weaknesses?
➢ Who are our customers?
Situation Analysis
➢ What products or services
should we offer? How can be Situation analysis typically includes
offer them most efficiently? a search for SWOT—strengths,
weaknesses, opportunities, and
➢ What does the future hold threats—that affect organizational
for our industry? performance. Internal Strengths and
➢ How can we change the Weaknesses
rules of the game?
 Strengths are positive internal
 Set of decisions and actions characteristics organizations can
used to formulate and execute exploit to achieve strategic
strategies that will provide a performance goals.
competitively superior fit
 Weaknesses are internal
between the organization and its characteristics that may inhibit or
environment so as to achieve
restrict the organization’s
organizational goals performance.
 Responsibility = top managers External Opportunities and Threats
and chief executive
 Opportunities are characteristics
of the external environment that
have the potential to help the
organization achieve or exceed its
strategic goals.
 Threats are characteristics of the The BCG (Boston Consulting
external environment that may Group) Matrix organizes business
prevent the organization from along two dimensions—business
achieving its strategic goals. growth rate and market share.

Assessment of internal and external Business growth rate pertains to

factors how rapidly the entire industry is
increasing.
 Internal information about
Organizational strengths, Market share defines whether a
weaknesses business unit has a larger or smaller
market share than competitors.
• Reports
The combination of market share and
• Budgets business growth rate provides four
Portfolio Strategy categories for a corporate portfolio.
• Financial ratios
Mix of business units and product lines
• Employee Surveys that fit together in a logical way to
provide synergy and competitive
 External information about
advantage for the corporation.
opportunities and threats
Corporations like to have a balanced
• Customers
mix of business divisions called
• Government reports strategic business units (SBU)

• Professional journals An SBU has a unique business mission,

product line, competitors, and markets
• Bankers relative to other SBU in the
corporation. Senior corporate
• Consultants managers generally define the grand
strategy and then bring together a Star
• Association meetings portfolio of SBU to achieve the
strategy  When growth is high and share is
high, it is called a star. The star has
The goal of portfolio strategy is to a large market share in a rapidly
identify mix of investments that best growing industry.
serve organizational objectives
 The star is important because it
The approach can help managers has additional growth potential and
decide how the major grand strategies profits should be plowed into this
should be applied for the organization business as investment for future
growth and profits.
The BCG Matrix
 Cash Cow Unrelated Diversification Bargaining power of suppliers

 When growth is low and share is
high, it is known as a cash cow. The
cash cow exists in a mature, slow-
growth industry but is a dominant
business in the industry, with a
larger market share.
 Because heavy investment in
advertising and plant expansion
are no longer required, the
corporation earns a positive cash
flow.
Question Mark
 When growth is high but share is
low, it is a question mark. The
question mark exists in a new,
rapidly growing industry, but has
only small market share.
– Expanding into a totally new line of  The concentration of suppliers and
business the availability of substitute
suppliers are significant in
Vertical Integration determining the bargaining power
of suppliers.
– Expanding into business that either
produce the supplies need to make Threat of substitute products
products or that distribute and sell
those products  The power of alternatives and
substitutes for a company’s
Porter’s Competitive Strategies product may be affected by cost
changes or trends that will deflect
buyer loyalty.
Rivalry among competitors
 Rivalry among competitors is
influenced by the preceding four
forces, as well as by cost and
product differentiation.

 The question mark business is

risky. It could become a star, or it
could fail.

Dog

 -In the fourth quadrant, growth

and share are both low. It has only Potential new entrants
a small share of a slow-growth
market.  Capital requirements and
economies of scale are examples of
 This is the worst situation, and it is barriers to entry that can keep out
a dog. The dog is a poor performer. new competitors.
Diversification Strategy

Related Diversification Bargaining power of buyers

– Moving into a new business that is  Informed customers become Differentiation
related to the company’s existing empowered customers.
business activities
 • attempt to distinguish products geographical region, product Learning, reallocation of existing
or services from that of line assets and internal innovation are the
competitors route to addressing new challenges in
• The company will use either a the competitive environment and
• Seek competitive advantage differentiation or cost leadership meeting new customer needs
through uniqueness approach, but only for a narrow
target market Strategic Partnerships
• They try to develop
goods/services that are • Cathay Pacific : offered In some situations, companies can
dramatic discounts and special achieve competitive advantage by
different travel packages in attempting cooperating with other firms rather
to bring back customers than competing.
• objective is to attract customers
who become loyal to the Formulating Functional- Level Partnership strategies are popular as
organization strategy firms in all industries join with other
organizations to promote innovation,
Cost leadership Functional–level strategies are the expand markets, and pursue joint
action plans adopted by major goals.
• aggressively seeks efficient
departments to support the execution
facilities, pursues cost
of business–level strategy to achieve Collaboration with other organisations,
reductions, and uses tight cost
the organization’s strategic goals. sometimes even with competitors, is
controls to produce products
an important part of how today’s
more efficiently than Major organizational functions include successful companies enter new areas
competitors marketing, production, finance, human of business.
resources, and research and
• - Requires tight costs and
development. Global Strategies
managerial controls
New Trends in Strategy Finding strategies in the world
• Quality must not be
marketplace
compromised Enhancing organizational capacity
(Innovation from within) Synergy among world operations
• E.g Wal Mart : keep costs low
so can offer customers low price Strategic partnerships Organizations differ in their global
and make profit strategies
Innovation from Within
Focus  Globalization Strategy
The strategic approach referred to as
• concentrates on a specific dynamic capabilities means that  Export Strategy
regional market or buyer group managers focus on leveraging and
developing more from the firm’s  Transnational Strategy
• Focuses organizational
existing assets, capabilities and core
resources/expertise on a  Multidomestic Strategy
competencies in a way that will
particular customer group,
provide a sustained competitive Global Strategies
advantage
Globalization Strategy • However, many industries are
finding that, although increased
• Globalization means that a competition means they must
company's product design and achieve global efficiency, growing
advertising strategies are pressure to meet local needs
standardized throughout the world. demands national responsiveness.
• This approach is based on the Multidomestic Strategy
assumption that a single global
market exists for many consumer • Multidomestic strategies believe
and industrial products. that competition in each country is
handled independently of industry
• The theory is that people competition in other countries.
everywhere want to buy the same • Thus, marketing, advertising, and
products and live the same way. product design is encouraged to be
modified and adapted to the
Export Strategy
specific needs of each country the
• The first step toward a greater company is present in.
international presence is when • Many companies reject the idea of
companies begin exporting a single global market.
domestically produced products to
selected countries

• Because the organisation is

domestically focused, with only a
few exports, managers have little
need to pay attention to issues of
either local responsiveness or
global intergration

Transnational Strategy

• Transnational strategies seek to

achieve both global integration and
national responsiveness.

• A true transnational strategy is

difficult to achieve, because one
goal requires close global
coordination while the other goal
required local flexibility.