ch08-strategy formula c3160

7/28/2019 Ch08-Strategy Formula C3160

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Strategy Formulation andImplementation

Chapter8


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Strategic Planning

Strategic planning has taken on new

importance in todays world of

globalization, deregulation, advancing

technology, and changing demographics,

and lifestylesManagers Challenge: Nintendo


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Strategic Management

Set of decisions and actions used toimplement strategies that will provide acompetitively superior fit between theorganization and its environment so as toachieve organizational goals

Responsibility = top managers &

chief executive


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Strategic Management

Managers ask such questions as...

What changes and trends are occurring?

Who are our customers?

What products or services should we offer?

How can we offer these products or

services most efficiently?


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Core Competency

A companys core competence is something

that the organization does especially well incomparison to its competitors

It can be in the area of R&D, technological

know-how, exceptional customer service.

E.g. HUL Distribution network

Honda gasoline powered engine

Tata Motors providing one of the most

efficient & low cost vehicles.6


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Apple Innovative design & technology

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Building Synergy

When organizational parts interact to

produce a joint effect that is greater than thesum of the parts acting alone.

E.G- PepsiCo to buy Frito Lay

Oracle to buy Sun Microsystem

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Three Levels of Strategy in Organizations

Corporate-Level Strategy:

What business are we in?Corporation

Business-Level Strategy:

How do we compete?

Textiles Unit Chemicals Unit Auto Parts Unit

Functional-Level Strategy:

How do we support the business-level

strategy?

Finance R&D Manufacturing Marketing


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Strategic Management Process

Implement

Strategy via

Changes in:

Leadership

culture,

Structure, HR,

Information &

control

systems

SWOT

Formulate

Strategy

Corporate,

Business,

Functional

Define new

Mission

Goals, Grand

Strategy

Identify Strategic

Factors

Strengths,

Weaknesses

Identify Strategic

Factors

Opportunities,Threats

Scan Internal

Environment Core

Competence,

Synergy, Value

Creation

Evaluate

Current Mission,

Goals,

Strategies

Scan External

Environment

National,Global


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Checklist for AnalyzingOrganizational Strengths and Weaknesses

Sources: Based on Howard H. Stevenson, Defining Corporate Strengths and Weaknesses, Sloan Management Review 17 (spring 1976), 51 -68; and M.L.Kastens,

Long-Range Planning for Your Business (New York: American Management Association, 1976).

Management and Organization

Management quality

Staff quality

Degree of centralization

Organization chartsPlanning, information,

control systems

Finance

Profit margin

Debt-equity ratio

Inventory ratio

Return on investment

Credit rating

Marketing

Distribution channels

Market share

Advertising efficiency

Customer satisfaction

Product quality

Service reputation

Sales force turnover

Production

Plant location

Machinery obsolescence

Purchasing system

Quality control

Productivity/efficiency

Human Resources

Employee experience,

education

Union status

Turnover, absenteeismWork satisfaction

Grievances

Research and Development

Basic applied research

Laboratory capabilities

Research programs

New-product innovations

Technology innovations


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SWOT of Pepsi

Strength:

Pepsi has a broader product line and outstanding reputation.

Merger of Quaker Oats produced synergy across the board.

Record revenues and increasing market share.

Lack of capital constraints (availability of large cash flow).

Great brands, strong distribution, innovative capabilities.

Number of maker of snacks, such as corn chips and potatochips.

PepsiCo sells three products through the same distribution

channel.

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SWOT of Pepsi

Weakness:

Pepsi hard to inspire vision and direction forlarge global company.

Not all PepsiCo products bears the company

name.

PepsiCo is far away from leader Coca-cola in

the international market demand is highly

elastic.

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SWOT of Pepsi

Opportunity:

Food division should expand internationally. Noncarbonated drinks are the fastest-

growing part of the industry.

There are increasing trend towards healthy

foods. Focus on most important customer trend

Convenience

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SWOT of Pepsi

Threats:

F&B industry is mature.

Pepsi is blamed for pesticide residues in theirproducts in one of their promising emerging markete.g. in India.

PepsiCo now competes with Cadbury Schweppes,

Coca-cola, and Kraft foods (because of their broaderproduct line) which are well-run and financially soundcompetitors.

Size of company will demand a varied marketingprogram; Social, cultural, economic, political and

governmental constraints.15


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SWOT of Nokia

STRENGTH

1. Nokia has largest network of distribution and selling as

compared to other mobile phone company in the world.

2.The financial aspect is very strong in case of Nokia as it

has many more profitable businesses.

3.The product being user friendly and have all the

accessories one want. 4. Nokia with wide range of products for all classes.

5.The re-sell value of Nokia phones are high compared to

other companys product

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SWOT of Nokia

WEAKNESS

1.Some of the products are not user friendly. 2.Some of the weakness includes the price of

the product offered by the company.

3.Nokia does not like to adopt change very

quickly.

4.The service canters in third world countries

are very few.

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SWOT of Nokia

OPPORTUNITY

1.Nokia is also thinking of moving frommobile manufacture to personal

computer manufacture.

2.As the standard of living in third world

countries has increased the purchasingpower of the people has increased as well

3.Nokia has to target right customer at right

time to gain the most out of the situation18


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SWOT of Nokia

THREAT

1.The threats like emerging of other mobilecompanies in the market.

2.The new mobile operating systems from

Google and Microsoft.

3.The biggest threat is not adopting new

technology and putting in good use.

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Corporate Level Strategy :PortfolioStrategy

Mix of business

units and productlines that fit

together in a

logical way to

provide synergyand competitive

advantage

BCG Matrix


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BCG MATRIX

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BCG of ITC

STAR Hotels, Paperboards/Packaging,

Agri business Cash Cow Cigarettes

Question mark FMCG others

Dog Maybe ITC Infotech

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BCG of AMUL

STAR Amul Butter, Amul Tazza UTH,

Amulya Dairy Whitner Question Mark Amul Chocolate, Amul

Masti Dahi, Amul Lassi, Mithaimate

Cash Cows Mozarella Cheese, Amul Pizza

base, Amul tazza fresh milk

Dog Infant milk range, nutramul

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Five Forces Affecting Industry Competition

Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

Internet reduces

barriers to entry

Internet expands market size, but

creates new substitution threats

Internet tends to increase the

bargaining power of suppliers

Internet shifts greater power

to end consumers

Internet blurs differences among

competitors in an industry

Bargaining

Power of

Buyers

Bargaining Power of Suppliers

Threat of Substitute

Products

Potential New

Entrants

Rivalry

among

Competitors


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Potential New entrant

Absolute cost advantages

Proprietary learning curve

Access to inputsGovernment policy

Economies of scale

Capital requirements

Brand identitySwitching costs

Access to distribution

Expected retaliation

Products26


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Bargaining Power of supplier

Supplier concentration

Importance of volume to supplier

Differentiation of inputs

Impact of inputs on cost or differentiation

Switching costs of firms in the industry

Presence of substitute inputsThreat of backward integration

Cost relative to total purchases in industry

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Bargaining Power of Buyer

Bargaining leverage

Buyer volume

Buyer information

Brand identity

Price sensitivity

Product differentiationBuyer concentration vs. industry

Substitutes available

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Threat of substitute product

Switching costs

-Buyer inclination to

substitute

-Price-performance

trade-off of substitute

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Rivalry among competitors

Exit barriers

-Industry concentration

-Fixed costs/Value added

-Industry growth

-Product differences

-Switching costs-Brand identity

-Diversity of rivals

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Potential New entrant (coca-cola)

Entry barriers are relatively low for beverage

industry: there is almost 0 consumer switching cost

and very low capital requirement. There are moreand more new brands appearing in the market with

usually lower price than Coke products

However Coca-Cola is seen not only as a beverage

but also as a brand. It has a very significant marketshare for a long time and loyal customers are not

very likely to try a new brand beverage.

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Threat of substitute product

There are many kinds of energy drink and

soda products in the market. Coca-cola

doesnt really have a special flavor. In a blind

taste test, people couldnt tell the difference

between Coca-Cola coke and Pepsi coke.

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Bargaining Power of Buyer

The individual buyer has little to no pressure on

Coca-Cola The main competitor, Pepsi is priced

almost the same as Coca-Cola. Consumer could buy

those new and less popular beverages with lower

price but the flavor is different and the quality is not

guaranteed. Large retailers, like Wal-Mart, have

bargaining power because of the large order

quantity, but the bargaining power is lessened

because of the end consumer brand loyalty. People are getting concerns of negative effects of

carbonated beverages. Increasing number of

consumers begin to drink fruit juice, lemonade and

tea instead of soda products.33


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Bargaining Power of supplier

The main ingredients for soft drink include

carbonated water, phosphoric acid,

sweetener, and caffeine. The suppliers are

not concentrated or differentiated.

Any supplier would not want to lose a huge

customer like Coca-Cola.

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Rivalry among competitors

Currently, the main competitor is Pepsi which also has a wide

range of beverage products under its brand. Both Coca-Cola

and Pepsi are the predominant carbonated beverages andcommit heavily to sponsoring outdoor festivals and activities. As

Coca-Cola has a longer history, it is advertised in a more

classical approach while Pepsi tried to attract younger

generation by using pop stars as brand ambassadors. Currently

Coca-Cola slightly topped Pepsi as the possessor of the most

U.S market share.

There are other soda brands in the market that become

popular, like Dr. Pepper, because of their unique flavors.

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Competitive Edge Through

Competitive Strategies

Differentiation= attempt to distinguish productsor services from that of competitors

Cost leadership = aggressively seeks efficientfacilities, pursues cost reductions, and uses tightcost controls to produceproducts more efficiently

than competitors Focus = concentrates on a specific regional

market or buyer group


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Differentiation

Air Deccan ( Kingfisher red) - focused on

customer service

Ritz carlton Its unique sevice

Ritu berry apparel design & brand image

Liberty comfort & durability of shoes

Apple - product design

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Cost Leadership

Toyota Lexus line

Mc. Donalds Dominos

D Mart

Spice Jet

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Focus

Ferrari Differentiation

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Global Strategy

Globalization strategy

Multidomestic strategy Transnational strategy

Export strategy

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Globalization strategy

Means that product design & advertising

strategies are standardised throughout the

world.

E.g.Mc. Donalds

Ritz - Carlton

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Multidomestic strategy

Handles markets independently for each

country

Adapts product/advertising to local tastes &

needs.

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Transnational strategy

Seeks to balance global efficiencies and

local responsiveness

Combines standardization and customization

for product/advertising strategies.

E.g Coca cola coke, fanta and sprite

globally

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Export Strategy

Domestically focused

Exports a few domestically producedproducts to selected countries

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Implementing Strategy Tools

Leadership

Candid communication

Clear roles & accountability

Human resources

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Tools for PuttingStrategy into Action

Environment

Organization

Strategy Performance

Leadership

Persuasion Motivation Culture/values

Candid Communication Open lines of communication Encourage debate Be honest

Human Resources Recruitment/selection Transfers/promotions Training Layoffs/recalls

Clear roles & AccountabilityDelegate authority &

responsibility

Create team

define roles

ch08-strategy formula c3160

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