Strategy Formulation And

Implementation
Chapter 8
 Story of KMART & Wal-Mart
How did Wal-Mart founder Sam Walton and
his managers formulate and implement
strategies that helped the company overtake
Kmart
If you were stepping in as Kmart’s new CEO,
what strategies might you adopt to help chain
survive?
Wal-Mart formulated & implemented
strategies that have made it one of
America’s most successful companies
While
Kmart failed to cope with increased
competition and changing customer
expectations
“Kmart’s new CEO and other top executives analyze the
situation to formulate a strategy that will suit Org strengths
as well as fit changing economic times if the chain is to
survive in competitive market”
All the Organizations are involved in
Strategic Management

 finding ways to respond to competitors

Cope up with environmental changes
Effectively use available resources
 Thinking Strategically

Strategic management is considered to be

one specific type of planning

Some Companies hire Strategic Planning

Experts
Thinking Strategically Continue

Strategic thinking means to take the long

term view and to see the big picture,
including the Organization and the
competitive environment and how they fit
together
What is Strategic Management ?

 The set of decisions and actions used to formulate

and implement strategies that will provide a
competitively superior fit between the organization and
its environment so as to achieve organizational goals
It is a process to help managers answer
questions such as
 where is the organization now
Where does the organization want to be
What changes and trends are occurring in
the competitive environment?
What courses of action will help us achieve
our goals?
What happens after answering these
questions!!
 Grand Strategy
General plan of major action by which a firm intends to achieve its long-
term goals

 Growth

Stability

Retrenchment
Growth Strategy
Promoting internally by investing in expansion or externally
by acquiring additional business divisions

 Diversification : acquisition of business that are related

to current product lines or that take the corporation into
new areas: Joint Ventures
Strategy of expanding operations into new business or
industry and producing new goods or services
 Examples:
PepsiCo’s diversification into snack food business
Phillip Morris’s tobacco giant diversification with brewing
industry with the acquisition of Miller Beer
GE move into broadcasting with its acquisition of NBC
 Stability

 Pause strategy : Org wants to remain the same size

or grow slowly and in a controlled fashion
The Corporation wants to stay in its current business
When Org undergone a turbulent period of rapid
growth, managers focus on a Stability strategy to
integrate strategic business units & ensure that Org is
working efficiently

Example: Allied Tire Stores; motto is “ We just sell tires”

Retrenchment

Org goes through a period of forced

decline by either shrinking current
business units or selling off or liquidating
entire businesses
Liquidation
Divestiture
Downsizing / Retrenchment
Divestiture: involves selling off businesses that no
longer seem central to the Corporation
 When GE sold its family financial services, corporation
were going through periods of retrenchment, also called
downsizing
Liquidation : Selling off a business unit for the cash
value of assets, thus termination its existence
Dissolve the Co. & sell off all its assets & is usually
done when the company is facing bankruptcy & needs
to repay Loans
 Global Strategy
Companies might pursue a separate grand
strategy as the focus of global business
 How to compete internationally?
 A basic question confronts the managers of any
org that competes in more than one national
market:
To what extent should the org customize features
of its products and marketing campaign to
different national conditions?
Companies Strategic Delima
 Global / Globalization Strategy
The standardization of product
design & advertising
strategies throughout the
world
Very little , if any customization to suit the specific
needs of customers in different countries

The theory is that people everywhere want to buy

the same products and live the same way: people
everywhere want to drink Coca Cola & wear Levi
blue jeans
Example: Levi paid an advertising agency
$500,000 to produce a series of TV
commercial to promote its 501 jeans: using
same series in many countries & simply
changing the language: saved money & keep
prices low

 Colgate-Palmolive Co. toothpaste sells in 40

countries by running same commercial:
saving $1M-2M in production cost alone
 Multi-Domestic Strategy
 Competition in each country is handled
independently of industry competition in other
countries
A multinational company is present in many
countries, but it encourages marketing, advertising
and product design to be modified and adapted to
the specific needs of each country
Managers decide to customize products &
marketing strategies to specific national conditions

Companies reject the idea of a

single global market
Example of Multi-domestic Strategy

Unilever :European food &

household products Co. sells a different
range of food products and uses a
different marketing approach than its
North American division
 French do not drink orange juice for breakfast
 spicy toothpaste preferred in the Middle East
Transnational Strategy
To achieve both global integration & national
responsiveness
Transnational
Strategy

Difficult to achieve, because one goal requires

close global coordination while the other goal
requires local flexibility
Example of Transnational Strategy

Caterpillar’s Tractor (world’s largest

manufacturer of heavy earth-moving
equipment):
Tailored the finished product to local needs
by adding features such as diff colors of
paint or steering wheels on right or left side:
Price pressures in local market: Government
regulations:

Local Customization Differentiating its product

among local markets
Purpose Of Strategy

The plan of action that prescribes

resource allocation and other activities for
dealing with the environment and helping
the Organization attain its goals
 A comprehensive plan for accomplishing
an organizations goals
Core
Synergy
Competence

Value Creation
Through this strategy; executives try to
develop within the Org a core competence
& Synergy, thus creating value for money
Core Competence
Something that Org does especially well in
comparison to its competitors
Represents Competitive advantage because the
company acquires expertise that competitors do
not have

Core Competence maybe in the area of

 Synergy
When Org parts interact to produce a joint effect
that is greater than the sum of the parts acting
alone, Synergy occurs
Performance gains that result when individuals
and departments coordinate their actions
Team members share equipment, customer lists,
and other information that enables these small
companies to go after more business than they
ever could have without the team approach
”
Example
AT&T synergy btw communication services
& hardware “One-stop shop
Two or more divisions with in a diversified
company can utilize the same
manufacturing facilities, distribution
channels, advertising campaigns

Share Resources Reduce Cost Charge lower Prices

Attract More Customers Competitors

 Value Creation
Value can be defined as the combination of
benefits received and paid by the customer

Exploiting core competencies & attaining synergy

help companies create value for their customers

A product that is low in cost but does not provide

benefits is not a good value
Delivering value to the customer should be at the
heart of strategy
Managers need to understand which parts of the
Co. operation create value & which do not – a Co.
can be profitable only when the value it creates is
greater than the cost of resources
Example: People Express Airlines initially
made a splash-low prices, but traveler’s
couldn’t tolerate consistently late takeoffs
at any price
Macdonald’s used core competencies to
create better value for customers,
resulting in the introduction of “Extra
value meals” & opening restaurants in
different locations: Wal-Mart etc
Levels Of Strategy

Corporate Level Strategy

Business Level Strategy

Functional Level Strategy

Corporate Level Strategy
The level of strategy concerned with the question
What business are we in?
Pertains to Org as a whole and the combination of
business units and product lines
Strategic actions at this level relate to acquisitions
of new businesses; additions or divestments of
business units, plants or product lines and joint
ventures
Examples: Book
Business Level Strategy
The question How do we compete?
Pertains to each business level unit or product line
It focuses on how the business unit competes
within its industry for customers
Strategic decisions at this level concern amount of
advertising, extent of R&D, product changes,
expansion or contraction of product lines
Example: Cost reduction: To remain competitive
Hyatt hotels trimmed MangT Staff & increased
focus on Marketing & Advertising
Function Level Strategy
The question How do we support the business
level competitive strategy ?
 pertains to the major functional departments
within the business unit
Includes all the major functions, marketing,
manufacturing, finance
Example: Hyatt hotels marketing dept is to
focus on frequent business traveler by putting
fax machines & modems in rooms
Strategic Formulation Vs Implementation
Strategy Formulation Strategy Implementation
 Use of managerial &
 planning & decision Organizational tools to
making that lead to the direct resources towards
establishment of the accomplishing strategic
firm’s goals & the results
development of a specific  Administration & execution
strategic plan of the strategic plan
 Managers may use
 include assessing persuasion, new
external environment & equipment, changes in Org
internal problems & structure or reward system
integrating results into to ensure that employees
goals & strategy and resources are used to
make formulate strategy in
reality
Situation Analysis
 Analysis of the strengths, weaknesses, opportunities and
threats (SWOT) that affect organizational performance
 Important to all companies but is crucial to those
considering globalization because of the diverse
environments in which they will operate
 Info about Opportunities & Threats may be obtained from
variety of sources, including customers, professional
journals, suppliers, friends in other Org, association
meetings
 Firms use diff techniques to learn about competitors,
such as asking potential recruits about their visits to
other companies, hiring people away from competitors,
taking plant tours posing as “innocent” visitors and even
buying garbage
Situational Analysis Continue

Executives acquire info about Internal

Strength & weaknesses executives from
variety of reports, including budgets, profit
& loss statements
Face to face discussions & meetings with
people at all levels of the hierarchy,
executives build an understanding of the
Companies internal strength &
weaknesses
 Internal strengths & Weakness
Strengths: Positive internal characteristics that
the organization can exploit to achieve
strategic performance goals
Weaknesses : Internal characteristics that may
restrict the Organization performance
Finance Marketing MangT & Org
•Profit Margin • Distribution channels •Degree of Centralization
• Return on investment • market share • Planning, Information & control
• Credit Rating • Customer Satisfaction System
•Product Quality

Managers can determine their strengths or weaknesses via other

companies based on the their understanding of these areas
External Opportunities & Threats

Threats:  Opportunities
characteristics of are characteristics of
external environment the external
that may prevent the environment that
Org from achieving its have the potential to
strategic goals help the Org achieve
Example: Executives or exceed its strategic
evaluate the external goals
environment with info
about the nine sectors
S & W Kodak
Strengths Weaknesses
 Trusted Brand names  Dispirited Workforce
 70% Market share  Culture focused on protecting
current businesses rather
 Spent Millions on then seeking new frontiers
Research into digital  Confused btw imaging
imaging Tech business, healthcare &
 Blessed with tech genius household products
 Product & market developed
ability ill-focused
O & T Kodak
Opportunities Threats
 Tech strength & digital  Increased competition
imaging will be fast  Digital imaging arena,
growing market facing giant such as
 Expansion in Asia while Canon, Casio, Sony & HP
barely developed markets  Smaller competitors
such as India, Brazil can emerging In digital market
keep traditional business
for least next decade
“ Half of the people in the
world have yet to take a
their first pic”
What does SWOT analysis
suggest for Kodak’s
Strategy?
 How
To capitalize on the Company’s Strength & Opportunities ………..
 Divest or liquidate

Communication & Leadership

Transform Culture

 Autonomy at work place

Strategic Alliance
 Sell other businesses to focus more on core imaging
business
 Improved communication & stronger leadership
improved morale
 Transform slow moving culture to prepare for digital
future
 Brought together disjointed talent into small
autononomous division & hired former computer
marketing executive to head it
 Strategic alliances with IBM, HP, Microsoft so the new
divisions can develop new products in partnership to be
more competitive on global basis
Formulating Corporate Level Strategy

Portfolio Strategy
Pertains to mix of business units and product lines that fit
together in logical way to provide synergy & competitive
advantage for the corporation

 Strategic Business Unit

?
The BCG Matrix
 Star Cash Cow
 Has large market share  Exits in mature, slow
in a rapidly growing growth industry but is a
industry dominant business in the
industry with a large
 It has additional growth market share
potential & profits
should be plowed into
this business as  No heavy investments
investment for future required (advertising &
growth n profits plant expansion)
 Visible & attractive &
will generate profits &  Invest in other riskier
positive cash flow even businesses
as the industry matures
& market growth slows
 Question Mark
 Exists in new, rapidly
growing industry but has
only small market share
 ? Business is risky
 It could become a star,
but it could also fail
 Invest cash earned from
cash cows in ? With the
goal that it will turn into
future STAR
 Dogs
 Poor performer
 Small share in slow
growth market
 Provides little profit
 Targeted for divestment
or Liquidation if
turnaround is not possible
Gillette Company ?
Formulating Business Level
Strategy
Porter’s Competitive Forces And
Strategies
 Five Competitive Forces
1. Potential New Entrants

2. Bargaining Power of buyers

3. Bargaining Power of suppliers

4. Threat of substitute products

5. Rivalry among competitors

Potential New Entrants

Capital Requirement & economies of the scale,

example of two potential barriers to entry that
keep out the new competitors
Threat is high for local hamburger restaurant
than Ford & Toyota
Advent of internet has reduced costs & other
barrier of entry in many market segments
Threat of new entrants has increased for many
firms in recent years
Bargaining Power of buyers

Informed customers become empowered

customers
Advertising & buyer info educate customers
about full range of prices & product options
available thus influence over Co. increases
This is true when Co. relies on one or Two
large, powerful customers for majority of its
sales
Example: Boeing 777– Delta, KLM
Bargaining Power of suppliers

To what extent to which suppliers have the

ability to influence potential buyers
Other factors include whether a supplier can
survive without a particular purchaser or whether
the purchaser can threaten the supplier
Example: The sole supplier of engines to a
manufacturer of small airplanes have great
power
 Example : Local electric co. is the only source
of electricity in your community therefore it can
charge what it wants for its product
Rivalry among competitors

Nature of the competitive relationship btw

dominant firms in the industry
Coke & Pepsi ( price wars, comparative
advertising, new product introduction)
American Express & Visa
Fuji & Kodak
“ The more these companies compete
against one another for customers the
lower is the level of industry profits( low
prices means low profits)”
Threat of substitute products

The power of alternatives & substitutes for

a Co. product may be affected by cost
changes OR trends such as increased
health consciousness that will deflect
buyer loyalty to companies
Example : Sugar Co. suffered from the
growth of sugar substitutes
Computers reduced demand for
calculators, typewriters
DVD players for VCR’s
Competitive Strategies

 Differentiation

 Cost Leadership

 Focus
Differentiation Strategy
An attempt to  Pepsi & Coca cola
distinguish a firm’s  Advertise to
product or services differentiate & create
new unique image
from others in the
industry
• Toyota
To gain competitive
 Appeal customers in
advantage, add value, all segments
through distinctive  Basic transportation
product features  Middle of the market
(design, quality, after  High income
sale service)
“ Stuck in the Middle “
Managers should choose btw Diff/CLS Exceptions to this rule :
Example : Cott’s Corp. advertise more / costs will rise
Toyota : Production system is the most efficient in the world
Differentiated cars basis of superior design & quality
Cost Leadership
Attempts to gain Cott’s corp. ( doesn’t
advantage by advertise which
reducing cost below allows Cott to under
cost of competing price both coke &
firms Pepsi
Keeping costs low, Compaq to overtake
Org still able to sell its IBM as the world no.1
products at low prices PC supplier
& still make a profit

Low-cost producer, provides a successful strategy to

defend against five competitive forces
Focus
A type of competitive Example: Enterprise
strategy that Rent-A-Car
emphasizes  focused on market
concentration on a that major companies
specific regional like Hertz don’t even
market or buyer group play in
Low budget insurance
The company will use replacement market
either a differentiation
or low-cost approach,
but only for a narrow
target market ????
Focused-Low cost Strategy Focused-Differentiation
 Serve one or a few Strategy
segments of the overall  Serve just one or few
market & aim to be the segments of the market &
lowest Co. serving that aim to be the most
segment differentiated Co. serving
 Example : Cott Corp. focus that segment
on large retail chains &  Example : BMW
strives to be the lowest-  Pursue focused strategy &
cost Co. serving that make cars exclusively for
segment high income customers
Product Life Cycle
1. Model that shows how sales volume
changes over the life of products
2. Product Life cycle helps managers
recognize that strategies need to evolve
over time
3. Series of stages that a product goes
through in its market acceptance
Formulating Functional-Level Strategy
Differentiation strategy for new product

Human Resources •Recruiting & training middle

managers for moving into new
positions

Marketing
Aggressive marketing campaigns

Finance
•How to borrow & handle large
cash Investments
•Authorize construction of new
production facilities
Mature products / Low cost Strategy

Human Resources •Develop & retain stable Workforce

•Transfers, advancements,
incentives for efficiency

Marketing
Stress on brand loyalty

Finance
•Focus on net cash-flows &
positive cash balances
Putting Strategy Into Action
• Partsof firm that
Leadership can be adjusted
to put strategy
into action
 Structural Design
•Once a new
 Information & Control Systems strategy is selected
its implemented
through changes in
Human Resources Leadership,
Structure, Info &
Control System and
HR
 Tools for Putting strategy into Action
Organization Leadership
• persuasion
• Motivation
• Culture / Values
Strategy Performance
Structural Design
Human Resource
•Org Chart
• Recruitment / Selection
•Teams
• Transfers / promotions /Training
•Centralization / decentralization
• Layoffs

Info & Control System

• Pay, reward system
•Budget allocations
•Info systems
•Rules / procedures
Strategic Management Evaluate Org Mission, goals, strategy
Followed by

SWOT Analysis
Leads to Strengths, Weakness, Opportunities, threats
Formulation of Explicit Strategic Plans
takes place at three levels
a) Corporate
Grand Strategy (growth, stability, Retrenchment, Global

Framework for accomplishing used BCG

b) Business
Porter’s competitive strategies & Product Life Cycle
c) Functional
Support the above strategies made
Strategy Implementation

Tools used : Leadership, structural design, information & system and HR

 Implement
Evaluate current : ________ Strategy via
• Mission
Define New ________ Changes in :
•Goals
•__________
•Strategies _________ ________ •__________
_________ ________ •__________
•__________