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Action plan to develop advantages, core competitive edges (to out-smart rivals and
strengthen competitive position), and ensure success
Organizational strategy is a plan of action for investing resources to develop core
competencies in the value chain to achieve an organizations long-term goals and
objectives.
For example, to invest in R&D to develop superior or differentiated products to
meet customer needs and gain market share.
Sequential Phases of Strategic Planning
Long-term Performance Planning, Core Competencies Planning (key success factors
[KSFs] for functions/departments) , Basic Financial Planning & Forecasting
Benefits of Strategic Management
1. Clearer sense of strategic vision 2. Sharper focus on what is strategically
important 3. Improved understanding of rapidly changing environment
Why has strategic management become so important to today's
organizations?
Organizations generally outperform, Positive effects on the organization's
performance, To make dynamic environment more manageable.
Why are strategic decisions different from other types of decisions?
Deals with the long-run future of the entire organization, 3 differences are as under,
Rare- Unusual, Consequential substantial resources and great deal of
commitment, Directive
Challenges to Strategic Management
1. Impact of Electronic Commerce:
Electronically networking customers, suppliers, and partners is now a reality.
Changing market access and branding, causing the disintermediation of traditional
distribution channels (Ex. Online retailing/etailing). , Now having unlimited access
to information on the internet, customers are much more demanding., New
technology driven firms as well as the traditional firms are exploiting internet to
become more innovative and efficient. Many rapidly growing companies are going
global.
Why Do Strategies Evolve?
Societal Environment
Sociocultural
Forces
Economic
Forces
Task
Environment
(Industry)
Shareholders
Governments
Special
Interest
Groups
Suppliers
Internal
Environment
Structure
Culture
Resources
Employees/
Labor Unions
Competitors
Customers
Trade Associations
Creditors
Political-Legal
Forces
Communities
Technological
Forces
TOWS Matrix
Internal factors / External Factors
Strengths
OPP.
(SO) Strength takes advantage of opp.
Overcome weakness
TH.
(ST) Use strength to avoid threat
weakness and avoid threat
Weakness
(WO) Take oppor.
(WT) Minimise
The value chain contains two types of activities Primary activities where most of the
value for customers is created. Support activities that facilitate performance of the
primary activities.
Diversification strategy
The 1st three are also called intensity strategies, while all these are also called
growth strategies.
Corporate-level Strategies for Entering New Domains
Vertical integration (backward & forward), Related diversification ,
Unrelated diversification , Global expansion strategy
Global expansion strategies
International strategy, Multi-domestic strategy, Global strategy,
Transnational strategy, Functional-level strategy
Functional-level strategy is a plan of action for each individual department, finance,
marketing, R&D, operations, etc.
Operational-level strategy
Operational-level strategy is a plan of action for the front line operations (related
with production, sales, and supplies) within functions/departments like raw
materials, procurement, plant related issues, logistics, sales, shipping, distribution,
etc.
Porters 5-Generic Strategies
Low-cost strategy (when does low cost strategy work best ?)
Price competition is stiff, Product is a commodity, or standardized, or is readily
available from many suppliers, there are few ways to achieve differentiation that
have value to buyers, most buyers use product in some ways, buyers incur low
switching costs, buyers are large-sized and have significant bargaining power,
industry newcomers use introductory low prices to attract buyers and build
customer base.
Pitfalls of Low Cost strategy
Being overly aggressive in cutting price, low cost methods are easily imitated by
rivals, Becoming too fixated on reducing costs, technological breakthroughs open up
cost reductions for rivals.
Differentiation strategy
Incorporate differentiating features that cause buyers to prefer firms product or
service over brands of rivals, Find ways to differentiate that create value for buyers
and are not easily matched or cheaply copied by rivals, Do not spend more than the
premium price that can be charged per unit to achieve differentiation.
A best-cost provider may get squeezed between strategies of firms using low-cost
and differentiation strategies. Low-cost leaders may be able to siphon customers
away with a lower price. High-end differentiators may be able to steal customers
away with better product attributes.
Focus low-cost strategy
Involve concentrated attention on a narrow piece or segment of the total market.
Serve niche buyers better than rivals. Choose a market niche where buyers have
distinctive preferences, special requirements, or unique needs. Develop unique
capabilities
to
serve
needs of target buyer segment.
Focus differentiation strategy
Specialization Strategies
Focus/Concentration strategy
Achieving specialization in one segment of a market (eg. K&NS); producing
differentiated or low-cost products to better meet customer needs; usually this
strategy is adopted by smaller companies
Horizontal integration
Through acquiring competing firms (eg. through mergers and takeovers; joint
ventures or consolidation strategies)
Defensive Strategies
Retrenchment strategy is about cutting costs and assets to reverse declining profits.