Vitale

ano
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dition
2002 E

Chapter 5
Concepts and Context of Business Strategy
Prepared by John T. Drea, Western Illinois University

Business Strategy Basics

Mission

A qualitative description/definition of
who the organization is and what it
expects to accomplish. It is further
defined by goals and objectives.

Goals

A general statement of desirable

outcomes, directly supportive of and
aligned with the mission.

Objectives

Specific, measurable expressions

of the stated goals, with specific
targets and time periods.
2

Key Strategy Concepts:

Fit and Providing Superior Value

1. Business strategy
designers should seek
a fit between the business
strategy and the
environment

2. The key element

of fit in business strategy
revolves around providing
superior value for
customers.

Key Strategy Concepts:

Providing Superior Value,
Differentiation, and Core Competencies
3. Superior value
the offering must be
differentiated from
offerings of competitors
(in the minds of
targeted customers)

4. Differentiation is
produced by using core
competencies to advantage.
As core competencies
become more distinct,
customer value
Increases.

Core competencies: a companys skills, capabilities, and

knowledge assets necessary to compete in its markets.
4

Key Strategy Concepts:

Providing Superior Value, Quality,
Measuring and Tracking Results

5. Quality and process

Improvement are
fundamental to providing
superior value.

6. Measuring and tracking

results creates learning
and sets the stage for
later improvements.

Additional Observations on Strategy

1. Changes in customers, channels and competitors interact
to create discontinuities in industries or markets.
2. Companies may influence how markets change, but they
seldom influence the pace of change.
3. Companies need to look for ways to change the rules of
the markets in which they compete.
4. Changes in the rules are still subject to constraints in the
business environment.
5. Companies need to identify the core competencies that
will translate into advantages in the future.
6. Advantages are not sustainable for long companies
must innovate and change the rules to stay ahead.
6

Hierarchy of Strategy
Corporate Strategy

Business Unit
Strategy

Business Unit
Strategy

Product

Product

Strategies

Strategies

Functional area strategies

Functional area strategies

Strategic Business Units

SBU
Organizational entities within within a
corporation that address a single business.
SBUs must be capable of being planned
and measured separately from the rest of
the organization (though this does not
imply independence from the larger
organization).
8

Business Portfolio

A collection of strategic business units that

serve various needs in the corporate
structure.
An ongoing firm will need
1. Sources of cash to fund investment in
growing markets
2. New possibilities emerging from research
and development that may be valuable
business opportunities in the future.
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Exhibit 5-2 Growth-Share Matrix

10

- Market Growth Rate +

Growth Share Matrix: Stars

+ Relative market share -

Stars

Question
Marks

Cash
Cows

Dogs

StarsMust invest heavily to maintain

position in the growing market.
Likely a SBU with a prominent
position in a market in the growth
stage of the product life cycle
Should be managed with market
ownership as an objective.

11

- Market Growth Rate +

Growth Share Matrix: Cash Cows

+ Relative market share -

Stars

Question
Marks

Cash
Cows

Dogs

Cash CowsFound in slower-growth markets

where the SBU may be the
market owner.
SBUs generate cash that fuels
other parts of the organization.
Cash cows are often found in
the late growth, maturity, or
decline stages of the product life
cycle.
12

- Market Growth Rate +

Growth Share Matrix: Dogs

+ Relative market share -

Stars

Question
Marks

Cash
Cows

Dogs

DogsSlow or negative growth relative

to organizational goals, and a
less than prominent market
share.
Can occur at any stage of the
product life cycle.
Must choose to either divest of
the business or continue to
harvest it for short-term cash.
13

- Market Growth Rate +

Growth Share Matrix: Question Marks

+ Relative market share -

Stars

Question
Marks

Cash
Cows

Dogs

Question MarksSignificant market potential, but the

SBU does not have a significant
share.
The SBU may require significant
investment, may not be associated
with the competencies of the firm,
and may never grow to be
prosperous.
Can exist when a business discovers
an opportunity not aligned with
corporate goals or core lines.
14

Potential Issues with the

Growth-Share Matrix
The relationship between market share
and profitability is suspect.
There is inherent subjectivity in the
analysis of shares and growth.
Investment implications of the
categories are not consistent.
The matrix is a snapshot in time.
15

Exhibit 5-5 Attractiveness-Strength Matrix

Market
attractiveness
High
Medium

Low
Invest/grow
Selectively earn
Harvest/divest

Protect
position

Invest to
build

Build
selectively

Build
selectively

Build selectively
or manage
for earnings

Limited
expansion
or harvest

Protect and
refocus

Manage for
earnings

Divest

Strong

Medium
Weak
Business strength
16

Strategic Management Steps in the

Business-to-Business Company
1. Develop goals
and objectives

2. Environmental
analysis

4. Implementation
plan design

6. Monitoring of
environment and
performance results

3. Strategy
design

5. Strategy
implementation

7. Analysis of
performance

8. Performance

17

Strategydevelopment
development
Strategy
andthe
theInternet
Internet
and

Special
Issues in
Strategy
Development

Volatilityand
anduncertainty
uncertainty
Volatility
requireflexibility
flexibility
require
Strategyimplications
implications
Strategy
ofvalue
value networks
networks
of
Strategicimplications
implicationsof
of
Strategic
market ownership
ownership
market
Strategydevelopment
development
Strategy
innew
new business
business
in

18

Strategy Development and the Internet

The Internet can be used to

Manage customer relationships
Streamline purchasing relationships
Increase the speed with which the
environment changes
Reduce transaction costs, shipping costs,
and inventory costs
19

Volatility and Uncertainty Require Flexibility

Increased uncertainty and speed of
change make visions of the future
increasingly inexact.
Choices of which businesses to pursue
are less enduring as business boundaries
and definitions are blurred.
Budgets are more difficult to set, since it
is difficult to know what investments will be
needed to compete and grow.
20

Strategy Implications of Value Networks

Successful strategies hinge on
developing a portfolio of core
competencies, including changing
strategies and models rapidly: Fast
vertical integration
Identification of SBUs that can generate
cash flow, and identification of SBUs and
markets in which the company can play a
dominant role
21

Strategy Implications of Market Ownership

Developing competencies that are
important in multiple businesses allows a
company to produce value across a range
of possible scenarios.
Companies can strive to shape the
market by taking a proactive approach.
Yearly planning cycles are too slow a
time frame that recognizes the rapid life
cycle of many offerings is needed.
22

Strategy Development in New Business

Some business-to-business Internet startups begin with only one customer but
this can result in becoming too dependent
on a single customer, missing translation
opportunities.
Increased pressures on time and other
resources may make it difficult to get a
strategy developed.

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