CHAPTER 6
Strategy Formulation:
Situation Analysis &
Business Strategy
STRATEGIC MANAGEMENT & BUSINESS POLICY
11TH EDITION
THOMAS L. WHEELEN
Prentice Hall, Inc. © 2006
J. DAVID HUNGER
6-1
Situational Analysis
Strategy formulation -–Strategic planning or long-range planning
(Develops mission, objectives, strategies, policies)
Or
–process of finding a strategic fit between external
opportunities and internal strengths while working
around external threats and internal weaknesses
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Situational Analysis
SWOT Criticism
–
–
–
–
–
–
–
Generates lengthy lists
No weighted priorities
Ambiguous wording
Same factor can be in two categories
No supporting data
Single level analysis
No link to strategy implementation
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IFAS – Maytag as Example
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EFAS – Maytag as Example
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SFAS Matrix
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Situational Analysis
Niche –
–Need in the marketplace that is currently
unsatisfied
Corporate Goal –
–Find propitious niche – market segment big
enough for only one company
–Strategic window – opportunity available for a
limited time
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TOWS Matrix
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Business Strategy
Business Strategy
Focuses on improving competitive position of
company’s products or services within the
specific industry or market segment
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Porter’s Competitive Strategies
Competitive Strategy –
–Lower Cost strategy
•Greater efficiencies than competitors
–Differentiation strategy
•Unique/superior value, quality, features, service
Competitive Scope –Direct competition
–Focus on niche
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Porter’s Competitive Strategies
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Porter’s Competitive Strategies
Cost Leadership –
–Low-cost competitive strategy
–Broad mass market
–Efficient-scale facilities
–Cost reductions
–Cost minimization
Potential Outcome
–Barriers to entry
–Higher ROI
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Porter’s Competitive Strategies
Differentiation –
–Broad mass market
–Unique product/service
–Premiums charged
–Less price sensitivity
Potential Outcome
–Increase Market Share
–Higher Profit
–Brand as barrier to entry
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Porter’s Competitive Strategies
Cost-Focus –
–Low-cost competitive strategy
–Focus on market segment/Niche
–Geographic
–Buyer Group
–Cost advantage in market segment
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Porter’s Competitive Strategies
Differentiation Focus –
–Specific group or geographic market focus
–Differentiation in target market
–Special needs of narrow target market
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Porter’s Competitive Strategies
Stuck in the middle –
–No competitive advantage
–Below-average performance
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Risks of Generic Strategies
Risks of Cost Leadership
Risks
of CostisLeadership
Cost
leadership
not
Cost
leadership
is
not
sustained:
• sustained:
Competitors imitate.
•
Competitors
imitate.
• Technology
changes.
Technology
changes.
• •Other
bases for
cost
•leadership
Other bases
for
erode. cost
leadership
erode.
Proximity
in differentiation
is
Proximity
in
differentiation
is
lost.
lost.focusers achieve even
Cost
Costcost
focusers
achieve even
lower
in segments.
lower cost in segments.
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Risks of Differentiation
Risks of Differentiation
Differentiation
is not
Differentiation is not
sustained:
• sustained:
Competitors imitate.
Competitors
imitate.
• •Bases
for differentiation
•become
Bases less
for differentiation
important to
become less important to
buyers.
buyers.
Cost
proximity is lost.
Cost proximity
is lost.
Differentiation
focusers
Differentiation
focusers
achieve
even greater
achieve eveningreater
differentiation
segments.
differentiation in segments.
Risks of Focus
Focusis
TheRisks
focusof
strategy
The focus strategy is
imitated:
Theimitated:
target segment becomes
The target
segment becomes
structurally
unattractive:
structurally
unattractive:
• Structure
erodes.
• Structure
erodes.
• Demand
disappears.
• Demand
disappears.
Broadly
targeted
competitors
Broadly targeted
competitors
overwhelm
the segment:
overwhelm
the segment:
• The
segment’s
• The segment’s
differences
from other
differences
from other
segments
narrow.
narrow.
• Thesegments
advantages
of a
• Theline
advantages
broad
increase.of a
broad line
increase.
New focusers
subsegment
focusers sub-segment
the New
industry.
the industry.
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Risks of Generic Strategies
Broad versus Focused Strategies
“Although there is generally room for only one
company to successfully pursue the massmarket cost leadership strategy (requires
dominant market share), there is room for an
almost unlimited number of differentiation and
focus strategies (depending on the range of
possible features and market niches).”
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8 Dimensions of Quality
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Competitive Strategy
Industry Structure –
–Fragmented Industry
– Focus
–Consolidated Industry
–Cost/Differentiation through service
–Move toward commoditization
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Competitive Strategy
Strategic Rollup (industry consolidation)
– Involve larger numbers of firms
– Acquired firms are typically owner operated
– Objective is not to gain incremental advantage but to
reinvent an entire industry
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Competitive Tactics
Tactics
A specific operating plan that details how a
strategy is to be implemented in terms of when
and where it is to be put into action. (Narrower in
scope and shorter time horizons than strategies)
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Competitive Tactics
Timing Tactics –
–First mover advantages
–Reputation for industry leadership
–Cost leadership as product matures
–Temporary high profits
–10 years for CPG
–12 years for Industrial
–Late movers advantages
–Imitate technology advances
–Lower R&D costs
–Lower risk
–Market segmentation opportunities
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Competitive Tactics
Market Location Tactics -- Offensive
–Frontal Assault – match the competition
–Flanking Maneuver - segmentation
–Bypass Attack – change the rules
–Encirclement - variety
–Guerrilla Warfare – many small initiatives on
small market segments
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Competitive Tactics
Market Location Tactics -- Defensive
–Raise structural barriers
–Increase expected retaliation
–Lower the inducement for attack
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Cooperative Strategies
Collusion
active cooperation of firms within an industry to
reduce output and raise prices to get around the
economic laws of supply and demand
–Implicit or explicit
–Generally illegal
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Cooperative Strategies
Strategic Alliances (Why?)
– To obtain technology and/or manufacturing
capability
– To obtain access to specific markets
– To reduce financial risks
– To reduce political risk
– To learn new capabilities
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Cooperative Strategies
• Mutual service consortia
– Pooled services within an industry
• Joint ventures
– Creates an independent entity, allocates ownership,
financial risk and reward (temporary with high failure rates)
• Licensing arrangements
– Rights are granted to a firm in another country to produce
or sell products
• Value-chain partnerships
– Alliances among companies and their suppliers and/or
distributors
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Cooperative Strategies
Continuum of Strategic Alliances
Mutual Service
Consortium
Weak and Distant
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Joint Venture
Licensing Arrangement
Value Chain
Partnerships
Strong and Close
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CHAPTER 6
Strategy Formulation:
Situation Analysis &
Business Strategy
STRATEGIC MANAGEMENT & BUSINESS POLICY
11TH EDITION
THOMAS L. WHEELEN
Prentice Hall, Inc. © 2006
J. DAVID HUNGER
6-30