strategy formulation and implementation

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Chapter 8Chapter 8

Strategy Formulation and Strategy Formulation and ImplementationImplementation

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Thinking StrategicallyThinking Strategically To help managers answer questions such as:To help managers answer questions such as: Where is the organization now?Where is the organization now? Where does the organization want to be?Where does the organization want to be? What changes are among competitors?What changes are among competitors? What courses of action will help us achieve our What courses of action will help us achieve our

goals?goals? Answers define an overall direction for the Answers define an overall direction for the

organization's grand strategy.organization's grand strategy.

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Grand StrategyGrand Strategy

General plan of action to achieve long-General plan of action to achieve long-term objectivesterm objectives

1. Growth1. Growth

2. Stability2. Stability

3. Retrenchment.3. Retrenchment.

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GrowthGrowth

Can be promoted internally by investing Can be promoted internally by investing in expansion or externally by acquiring in expansion or externally by acquiring additional business divisions.additional business divisions.

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StabilityStability

Remain same size or grow steadily and Remain same size or grow steadily and in a controlled fashion.in a controlled fashion.

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RetrenchmentRetrenchment

Forced decline by either shrinking Forced decline by either shrinking current business units or selling off or current business units or selling off or liquidating entire businesses.liquidating entire businesses.

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Global StrategyGlobal Strategy

GlobalizationGlobalization: product design and : product design and advertising strategies are standardized advertising strategies are standardized around the worldaround the world

MultidomesticMultidomestic: adapt product and : adapt product and promotion for each countrypromotion for each country

TransnationalTransnational: combine global : combine global coordination with flexibility to meet coordination with flexibility to meet specific needs in various countries.specific needs in various countries.

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Purpose of Strategy Purpose of Strategy

CORE COMPETENCE: something the CORE COMPETENCE: something the organization does especially well in organization does especially well in comparison to its competitorscomparison to its competitors

Superior research and developmentSuperior research and development Mastery of a technologyMastery of a technology Superior customer service.Superior customer service.

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Purpose of StrategyPurpose of Strategy

SYNERGY: when organizational parts SYNERGY: when organizational parts interact to produce a joint effect that is interact to produce a joint effect that is greater than the sum of its parts acting greater than the sum of its parts acting alone.alone.

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Purpose of StrategyPurpose of Strategy

Value Creation = use core competence Value Creation = use core competence and synergy to provide increased and synergy to provide increased benefits received with lower costs paid.benefits received with lower costs paid.

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Levels of StrategyLevels of Strategy

CorporateCorporate BusinessBusiness Functional.Functional.

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Corporate-Level Strategy Corporate-Level Strategy ("What business are we in?")("What business are we in?") Acquisition of new businessesAcquisition of new businesses Additions or divestment of business units, Additions or divestment of business units,

plants, or product linesplants, or product lines Joint ventures with other companies in Joint ventures with other companies in

new areas.new areas.

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Business-Level Strategy Business-Level Strategy ("How do we compete?")("How do we compete?")

AdvertisingAdvertising Direction and extent of R&DDirection and extent of R&D Product changesProduct changes New product developmentNew product development Equipment and facilitiesEquipment and facilities Expansion or contraction of product Expansion or contraction of product

lines.lines.

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Function-Level Strategy Function-Level Strategy ("How do we support ("How do we support

business-level strategy?")business-level strategy?") ProductionProduction DistributionDistribution Finance.Finance.

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Strategy FormulationStrategy Formulation

Development of the firm's goals and a Development of the firm's goals and a specific strategic planspecific strategic plan

Assessing the external environment and Assessing the external environment and the internal problemsthe internal problems

Integrating the results into goals and Integrating the results into goals and strategy.strategy.

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Strategy ImplementationStrategy Implementation

The accomplishment of the strategic The accomplishment of the strategic plan.plan.

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The Strategic Management The Strategic Management ProcessProcess

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Evaluate Current:•Mission•Goals•Strategies

•Scan External•Environment

IdentifyStrategicFactors:•Opportunities•Threats

IdentifyStrategicFactors:•Strengths•Weaknesses

Scan InternalEnvironment

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Situation Analysis: SWOT Situation Analysis: SWOT

Strengths (Internal)Strengths (Internal) Weaknesses (Internal)Weaknesses (Internal) Opportunities (External)Opportunities (External) Threats (External)Threats (External)

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Evaluate Current:•Mission•Goals•Strategies

Scan ExternalEnvironment

Define New:•Mission•Goals

IdentifyStrategicFactors:•Opportunities•Threats

IdentifyStrategicFactors:•Strengths•Weaknesses

Scan InternalEnvironment

FormulateStrategy:•Corporate

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Formulating Corporate-Formulating Corporate-Level StrategyLevel Strategy

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Portfolio StrategyPortfolio Strategy

The organizational mix of SBUs and The organizational mix of SBUs and product lines to provide synergy and a product lines to provide synergy and a competitive advantage.competitive advantage.

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The BCG matrix evaluates The BCG matrix evaluates SBUs along two SBUs along two

dimensions:dimensions: Business growth rate how rapidly the Business growth rate how rapidly the

entire industry is growingentire industry is growing Market share defines if an SBU has a Market share defines if an SBU has a

larger or smaller market share than larger or smaller market share than competitorscompetitors

Provides four categories to judge SBUs.Provides four categories to judge SBUs.

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Star

CashCow

Dog

ProblemChild

High

High

Low

Low

Business Business Growth Growth RateRate

Market ShareMarket Share

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Evaluate Current:•Mission•Goals•Strategies

Scan ExternalEnvironment

Define New:•Mission•Goals

IdentifyStrategicFactors:•Opportunities•Threats

IdentifyStrategicFactors:•Strengths•Weaknesses

Scan InternalEnvironment

FormulateStrategy:•Corporate•Business

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Formulating Business-Level Formulating Business-Level StrategyStrategy

Porter's Competitive Forces Porter's Competitive Forces

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Potential NewEntrants

Threat of Threat of new new entrantsentrants

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Potential NewEntrants

BuyersBargaining Bargaining power of power of buyersbuyers

Threat of Threat of new new entrantsentrants

29Suppliers

Potential NewEntrants

Buyers

Bargaining Bargaining power of power of supplierssuppliers

Bargaining Bargaining power of power of buyersbuyers

Threat of Threat of new new entrantsentrants

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Substitute Products

from OtherIndustries

Suppliers

Potential NewEntrants

BuyersThreat of Threat of substitute substitute productsproducts

Bargaining Bargaining power of power of supplierssuppliers

Bargaining Bargaining power of power of buyersbuyers

Threat of Threat of new new entrantsentrants

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Substitute Products

from OtherIndustries

Suppliers

Potential NewEntrants

BuyersThe Firm’s

Rivalry versusIndustry

Competition

Threat of Threat of substitute substitute productsproducts

Bargaining Bargaining power of power of supplierssuppliers

Bargaining Bargaining power of power of buyersbuyers

Threat of Threat of new new entrantsentrants

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Porter's Competitive Porter's Competitive StrategiesStrategies

DifferentiationDifferentiation Cost LeadershipCost Leadership Focus.Focus.

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Product Life CycleProduct Life Cycle

1. Introduction 1. Introduction

2. Growth2. Growth

3. Maturity3. Maturity

4. Decline.4. Decline.

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Evaluate Current:•Mission•Goals•Strategies

Scan ExternalEnvironment

Define New:•Mission•Goals

IdentifyStrategicFactors:•Opportunities•Threats

IdentifyStrategicFactors:•Strengths•Weaknesses

Scan InternalEnvironment

FormulateStrategy:•Corporate•Business•Functional

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Formulating Functional-Formulating Functional-Level StrategyLevel Strategy

Action plans adopted by major Action plans adopted by major departments to support the departments to support the business-level strategy to achieve business-level strategy to achieve the organization's strategic goals.the organization's strategic goals.

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Putting Strategy Into ActionPutting Strategy Into Action

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Evaluate Current:•Mission•Goals•Strategies

Scan ExternalEnvironment

Define New:•Mission•Goals

IdentifyStrategicFactors:•Opportunities•Threats

IdentifyStrategicFactors:•Strengths•Weaknesses

Scan InternalEnvironment

FormulateStrategy:•Corporate•Business•Functional

ImplementStrategy viaChanges in:•Leadership•Culture

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LeadershipLeadership

The ability to influence employees to The ability to influence employees to support strategy implementation.support strategy implementation.

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Structural DesignStructural Design

Managers' responsibilities and authorityManagers' responsibilities and authority Consolidation of facilities, departments, Consolidation of facilities, departments,

and divisionsand divisions Task designTask design Production technology.Production technology.

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Evaluate Current:•Mission•Goals•Strategies

Scan ExternalEnvironment

Define New:•Mission•Goals

IdentifyStrategicFactors:•Opportunities•Threats

IdentifyStrategicFactors:•Strengths•Weaknesses

Scan InternalEnvironment

FormulateStrategy:•Corporate•Business•Functional

ImplementStrategy viaChanges in:•Leadership•Culture•Human Resources

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Human ResourcesHuman Resources

RecruitmentRecruitment SelectionSelection TrainingTraining TransfersTransfers PromotionsPromotions Layoff or separation.Layoff or separation.

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Evaluate Current:•Mission•Goals•Strategies

Scan ExternalEnvironment

Define New:•Mission•Goals

IdentifyStrategicFactors:•Opportunities•Threats

IdentifyStrategicFactors:•Strengths•Weaknesses

Scan InternalEnvironment

FormulateStrategy:•Corporate•Business•Functional

ImplementStrategy viaChanges in:•Leadership•Culture•Human Resources•Information and Control Systems

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Information and Control Information and Control SystemsSystems

Reward systemsReward systems Pay incentivesPay incentives BudgetsBudgets Information systemsInformation systems Rules, policies, and procedures.Rules, policies, and procedures.

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Evaluate Current:•Mission•Goals•Strategies

Scan ExternalEnvironment

Define New:•Mission•Goals

IdentifyStrategicFactors:•Opportunities•Threats

IdentifyStrategicFactors:•Strengths•Weaknesses

Scan InternalEnvironment

FormulateStrategy:•Corporate•Business•Functional

ImplementStrategy viaChanges in:•Leadership•Culture•Human Resources•Information and Control Systems

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Implementing Global Implementing Global StrategiesStrategies

Flexibility and communication are Flexibility and communication are mandatory skills in the international mandatory skills in the international arenaarena

Structural design must merge with Structural design must merge with foreign cultures and link operationsforeign cultures and link operations

Information and control systems must fit Information and control systems must fit the needs and incentives within local the needs and incentives within local culturescultures

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Implementing Global Implementing Global StrategiesStrategies

Human resource management face Human resource management face problems not confronted in North problems not confronted in North America such as:America such as:

Labor lawsLabor laws Guaranteed jobsGuaranteed jobs Cultural traditions of keeping Cultural traditions of keeping

unproductive on the job.unproductive on the job.