Chapter 8
Strategy Formulation and Implementation
Strategy
• Every company is concerned with strategy
– It determines which organizations succeed and
which ones struggle
– Strategic blunders can hurt a company
• Strategic management is a specific type of
planning
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
2
Thinking Strategically
• The long-term view of the organization and
competition
• Thinking strategically impacts performance and
financial success
• Today’s environment requires everyone to think
strategically
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
3
Strategic Management
Decisions and actions used to formulate and
execute strategies that will provide
competitively superior fit between the
organization and its environment to achieve
organizational goals
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
4
Purpose of Strategy
• Explicit strategy is the plan of action
• Competitive advantage is the organization’s
distinctive edge for meeting customer needs
Strategies should:
 Exploit Core Competencies
 Build Synergy
 Deliver Value
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
5
8.1 Levels of Strategy
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
6
Levels of Stratey
• Corporate Level Strategy-relating to orgz as a whole
& combination of business units and product lines
that make up the company –What Buss. Are We in?
• Business Level Strategy-strategic decisions involving
each business unit – How Do We Compete?
• Functional Level Strategy-functional dpmt within
business unit-How do We Support Buss Level
Strategy?
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
7
8.2 The Strategic Management
Process
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
8
Strategy Formulation
versus Execution
Formulation:
Assessing the external
environment and
internal problems to
create goals and
strategy
Execution:
the use of managerial
and organizational
tools to direct
resources toward
accomplishing
strategic results
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
9
SWOT Analysis
• Formulating strategy often begins with an audit
of internal and external factors
– Internal Strengths and Weaknesses
– External Opportunities and Threats
• Information is acquired from reports, surveys,
discussions, and meetings
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
10
8.3 SWOT: Audit Checklist
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
11
Formulating Corporate-Level
Strategy: Portfolio Strategy
Strategic Business Units (SBUs) have a
unique mission, products, and
competitors
Companies manage the mix of SBUs for
synergy and competitive advantage
Organizations should not become too
dependent on one business
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
12
Formulating Corporate-Level
Strategy: The BCG Matrix
• Organizes business along two dimensions
– Business growth rate
– Market share
• Four categories for corporate portfolio
– The combination of high/low market share and
high/low business growth
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
13
8.4 The BCG Matrix
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
14
Formulating Corporate-Level
Strategy: Diversification Strategy
• Moving into new lines of business
– Expand into new valuable products and services
• Related Diversification
Expand into new business related to existing buss.
Unrelated diversification is expansion into new lines
of business
– Can be a difficult strategy
– Many companies are giving up on unrelated
diversification
• Vertical integration expands into businesses that
supply to the business or are distributors
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
15
Formulating Business-Level
Strategy
Strategy within the business units: How do we
compete?
Business-level strategies are developed by
Porter’s Five Forces
But, web technology is impacting all industries in
positive and negative ways
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
16
8.5 Porter’s Five Forces
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
17
Porters Five Forces
• Potential new entrants-capital requirements,
economics of scale
• Buyers Bargaining power –information
• Suppliers Bargaining Power-availability of
substitute suppliers
• Threat of Substitute products- changes in
trends
• Competitors Rivalry-influenced by all four &cost
& differentiation e.g. Nintendo vs Sony, Coke vs
Pepsi etc?
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
18
Porters Competitive
Strategies
• Differentiation- distinguish firms
product/services e.g product features,
advertising, service examples?
• Cost Leadership-seeks efficient facilities, cost
reductions, tight cost controls examples?
• Focus-concentrate on specific market/buyer.
Will use diff or cost leadership
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
19
8.6 Porter’s Competitive
Strategies
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
20
Formulating Functional-Level
Strategy
Action plans used by major departments
 Marketing
 Production
 Finance
 Human Resources
 Research and Development
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
21
New Trends in Strategy
• Strategic Flexibility – managers must be
prepared to change and adjust strategy quickly
• Strategic Partnerships – collaboration with
other organizations is important
• Global Strategy – organizations pursue a
distinctive focus for global business
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
22
Strategy Execution
The final step!
• “Strategy is easy, but execution is hard”
– Most important but most difficult part
• Strategy must be skillfully executed
• Alignment requires all aspects of the
organization to focus on strategy goals
– Everyone is moving in the same direction
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
23