Chapter 9

Designing Strategies

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Learning Objectives

Explain how businesses use planning to solve problems and make a difference

Distinguish how planning is different at the organizational, divisional, and functional levels of a business

Explain how senior managers develop organizational strategies and business plans

Outline methods that managers use to understand their industries and competitors

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Learning Objectives (cont.)

Describe how managers assess the organization’s capacity to execute proposed business plans

Demonstrate how managers develop divisional strategies and tactical plans

Compare traditional strategic planning models to an event-based approach

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How Managers Plan to Make a Difference (p. 228)

Designing and developing strategies is a continuous process that helps organizations determine what they do, why they should be in business, how they can win and sustain market share, and how they can continually innovate to keep ahead of the competition

Acquisition (p. 230)• When an organization purchases another

organization or business in order to grow

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Different Levels of Strategy (p. 230)

Strategy• Plan of action for achieving goals• Three levels of strategy

Organizational strategy – corporate level strategy that addresses the question “What business are we in?” and unites all parts of the organization

Divisional strategy – strategy that determines how a business will compete in a particular industry or market

Functional strategy – strategy that determines how employees will implement and achieve a tactical plan

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Different Levels of Strategy (cont.)

Organizational, divisional, and functional strategies are documented using business, tactical, and operational plans, respectively• Business plan – stated actions and goals that support

the organizational strategy (p. 230)• Tactical plan – stated actions and goals that support

achieving the divisional strategy• Operational plan – stated actions and goals that

support achieving the functional strategy

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Different Levels of Strategy (cont.)

Connecting “mission, vision,

and values” to strategies

and plans

Figure 9.1

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Organizational Strategies (p. 231)

Organizational strategies designed to gain a competitive advantage• Characteristics of an organization’s products or services that

distinguish it from competitors and provide an advantage in the market

Reactor • Company that does not follow a consistent strategy but just

responds to changes in the environment Analyzer• Company whose strategies seek to maintain existing products

and services while pursuing limited innovation Often imitate or follow the proven success of prospector organizations

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Organizational Strategies (cont.)

Defender (p. 231)• Company whose strategies support stable growth

and continual improvement of existing products and services

• Stability strategy – organization focuses on processes, products, and services that will sustain it over the long term (p. 232)

• Cost leadership strategy – organization seeks competitive advantage by reducing production costs and therefore consumer prices

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Organizational Strategies (cont.)

Prospector (p. 232)• Company that uses strategies for high-risk, fast

growth through product and market innovation• First mover – company that gains competitive

advantage by being the first to offer a new product or service, or to use a new cost-saving technology

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Industry and Competitive Analysis (p. 232)

Competitive analysis• Process of assessing and monitoring the competition

in order to design more effective strategies

Five forces model (p. 233)• Michael Porter• Allows managers to assess the major threats that an

organization can expect to encounter• Enables continued reinvention and shaping of the

business to reflect market changes

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Industry and Competitive Analysis (cont.)

Five forces model

Figure 8.2

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Industry and Competitive Analysis (cont.)

Five forces model (cont.)• Power of suppliers – ability to increase prices• Power of buyers (customers) – ability to decrease

prices charged by company for its products or services (p. 234)

• Substitute products and services – importance of uniqueness of company’s products or services

• Rivalry – increase in competitors that offer the same products or services (p. 236)

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Industry and Competitive Analysis (cont.)

Five forces model (cont.)• New entrants – new competitors that enter the market

(p. 234) Barriers to entry – obstacle that makes it difficult for an

organization to enter a particular market or replicate a competitor’s service or product offerings

Supply-side economies of scale (p. 235) Demand-side benefits of scale Customer switching costs Capital requirements Incumbent advantages independent of size Unequal access to distribution channels (p. 236) Restrictive government policy

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Industry and Competitive Analysis (cont.)

Five forces model (cont.)• New entrants (cont.)

Expected retaliation (p. 236) Financial resources of incumbent, loyalty of customer base,

and control over distribution channels Incumbent’s ability to reduce prices Industry growth rate

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Organizational Position and Capacity (p. 237)

Resources• Assets, people, processes, and capabilities of an

organization Market position• Honest assessment about how the company

competes in its industry Capacity• Financial and human resources available to the

company which will enable or hinder it to achieve its goals

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Organizational Position and Capacity (p. 237)

Company position• Boston Consulting Group Matrix – framework for

evaluating business units according to growth and market share (p. 237) Largely based on the proportion of the market

controlled by the organization Growth strategy – strategy for increasing revenue,

profits, market share, or territories (p. 238) High growth markets – total business is expanding

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Organizational Position and Capacity (cont.)

BCG Matrix

Figure 8.3

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Organizational Position and Capacity (cont.)

BCG Matrix (cont.)• Business’s position in the matrix determines a strategic

recommendation (p. 238)• Dogs (low market share/low market growth)• Cash cows (high market share/low market growth)• Stars (high market share/high market growth; p. 239)• Question marks (low market share/high market growth

SWOT analysis• Method of assessing an organization’s strengths, weaknesses,

opportunities, and threats

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Organizational Position and Capacity (cont.)

Capabilities and resources (p. 240)• Core capabilities (competencies) – activities and

processes that an organization routinely does well in comparison to its competitors

• Resources – assets, people, and processes of an organization

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Organizational Position and Capacity (cont.)

Growth and underinvestment archetype

Figure 9.4

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Strategies for Performance (p. 245)

Focus strategy (p. 246)• Organization concentrates on a specific target

market• May employ cost leadership and/or differentiation

strategies

Differentiation strategy• Organization seeks competitive advantage by

providing goods or services that are significantly different from the competition

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Strategies for Performance (cont.)

Vertical integration (p. 247)• Diversification method in which an organization

adopts: Backward integration - begins producing its own

supplies Form of diversification strategy in which an organization adds

new kinds of goods, services, or business units Forward integration – takes on the distribution and

selling of its products

Renewal strategy• Addresses declining performance through

retrenchment and regrowth

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