CHAPTER 6
Strategy Formulation:
Situation Analysis &
Business Strategy
STRATEGIC MANAGEMENT & BUSINESS POLICY
10TH 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
Prentice Hall, Inc. © 2006
6-2
Situational Analysis
--process of finding a strategic fit
between external opportunities and
internal strengths while working around
external threats and internal weaknesses
SWOT -–Internal
•Strengths/Weaknesses
–External
•Opportunities/Threats
Prentice Hall, Inc. © 2006
6-3
Situational Analysis
The essence of strategy is related to
opportunity and capacity.
An opportunity by itself has no real value
unless a company has the capacity (i.e.,
resources) to take advantage of that
opportunity
Prentice Hall, Inc. © 2006
6-4
Situational Analysis
This approach, however, considers only
opportunities and strengths. It is known that
weaknesses in other resource areas can prevent a
strategy from being successful.
Therefore perform SWOT
SA = O / (S-W)
But, than;
-Should we invest more in our strengths to make them
even stronger (a distinctive competence), or,
-Should we invest in our weaknesses to at least make
them competitive
Unfortunately SWOT do not reflect priorities
Prentice Hall, Inc. © 2006
6-5
IFAS – Maytag as Example
Prentice Hall, Inc. © 2006
6-6
EFAS – Maytag as Example
Prentice Hall, Inc. © 2006
6-7
SFAS Matrix
Prentice Hall, Inc. © 2006
6-8
Situational Analysis
Niche -–Need in the marketplace that is currently
unsatisfied
Corporate Goal --
–Find propitious niche
An extremely favorable niche that is so well
suited to the firms internal and external
environment that other corporations are not
likely to challenge it.
Prentice Hall, Inc. © 2006
6-9
Situational Analysis
Finding a propitious niche is not easy.
A firm’s management must be always
looking for a STRATEGIC WINDOW, that is,
a unique market opportunity that is
available only for a particular time.
The first firm through a strategic window can
occupy a propitious niche and discourage
competition (if the firm has required internal
strengths).
Prentice Hall, Inc. © 2006
6-10
TOWS Matrix
Prentice Hall, Inc. © 2006
6-11
Business Strategy
Focuses on improving competitive
position of company’s products or
services within the specific industry or
market segment
Prentice Hall, Inc. © 2006
6-12
Porter’s Competitive Strategies
Competitive Strategy – asks these basic
questions :
–Low cost
–Differentiation
–Direct competition
–Focus on niche
Prentice Hall, Inc. © 2006
6-13
Porter’s Competitive Strategies
Generic Competitive Strategies -–Lower Cost strategy
•Greater efficiencies than competitors
–Differentiation strategy
•Unique/superior value, quality, features, service
Prentice Hall, Inc. © 2006
6-14
Porter’s Competitive Strategies
Competitive Advantage -–Determined by Competitive Scope
•Breadth of the target market
Prentice Hall, Inc. © 2006
6-15
Porter’s Competitive Strategies
New entrepreneurial firms have a better chance of surviving if they
follow a narrow-scope rather than broad-scope strategy
Prentice Hall, Inc. © 2006
6-16
Porter’s Competitive Strategies
Cost Leadership -–Low-cost competitive strategy
–Broad mass market
–Efficient-scale facilities
–Cost reductions
–Cost minimization
(Wal-Mart, Dell, Southwest Airlines)
Prentice Hall, Inc. © 2006
6-17
Porter’s Competitive Strategies
Differentiation –
–Broad mass market
–Unique product/service
–Premiums charged
–Less price sensitivity
(Nike, Apple Computer, Mercedes-Benz)
Prentice Hall, Inc. © 2006
6-18
Porter’s Competitive Strategies
Cost-Focus –
–Low-cost competitive strategy
–Focus on market segment
–Niche focused
–Cost advantage in market segment
(Potlatch, Migros branded detergents)
Prentice Hall, Inc. © 2006
6-19
Porter’s Competitive Strategies
Differentiation Focus –
–Specific group or geographic market focus
–Differentiation in target market
–Special needs of narrow target market
(Morgan Motor, Nickelodeon TV)
Prentice Hall, Inc. © 2006
6-20
Porter’s Competitive Strategies
Stuck in the middle –
–No competitive advantage
–Below-average performance
( HP between IBM and Dell)
Prentice Hall, Inc. © 2006
6-21
Risks of Generic Strategies
Risks of Cost Leadership
Risks
of Cost Leadership
Cost
leadership
is 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.
Prentice Hall, Inc. © 2006
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.
Costbuyers.
proximity is lost.
Cost
proximity
is lost.
Differentiation
focusers
Differentiation
focusers
achieve
even greater
achieve eveningreater
differentiation
segments.
differentiation in segments.
Risks of Focus
Risks
ofstrategy
Focus is
The
focus
The focus strategy is
imitated:
imitated:
The
target segment becomes
The
targetunattractive:
segment becomes
structurally
unattractive:
• structurally
Structure erodes.
Structure
erodes.
• •Demand
disappears.
• Demand
disappears.
Broadly
targeted
competitors
Broadly
targeted
competitors
overwhelm the segment:
the segment:
• overwhelm
The segment’s
•differences
The segment’s
from other
differences
from other
segments narrow.
segments
narrow.
• The
advantages
of a
•broad
The advantages
of a
line increase.
line subsegment
increase.
Newbroad
focusers
New
focusers subsegment
the
industry.
the industry.
6-22
8 Dimensions of Quality
Many different kinds of potentially profitable competitive
strategies exist
There is room for an almost unlimited
number of differentiation and focus
strategies.
(Depending on the possible desirable
features and the number of identifiable
market niches)
Quality alone has eight different dimensions:
Prentice Hall, Inc. © 2006
6-23
8 Dimensions of Quality
Prentice Hall, Inc. © 2006
6-24
Competitive Strategy
Industry Structure -–Fragmented Industry
–Consolidated Industry
Once consolidated, an industry has
become one in which cost leadership
and differentiation tend to be combined
to various degrees.
Prentice Hall, Inc. © 2006
6-25
Competitive Tactics
Tactics :
A tactic is a specific operating plan
that details how a strategy is to be
implemented in terms of where and
when it is to be put into action.
Studies of decision making report that half the
decisions made in organizations fail because
of poor tactics.
Prentice Hall, Inc. © 2006
6-26
Competitive Tactics
Timing Tactics -–First mover
–Late movers
Prentice Hall, Inc. © 2006
6-27
Competitive Tactics
Market Location Tactics -–Frontal Assault
–Flanking Maneuver
–Bypass Attack
–Encirclement
–Guerrilla Warfare
Prentice Hall, Inc. © 2006
6-28
Competitive Tactics
Defensive Tactics -–Raise structural barriers
–Increase expected retaliation
–Lower the inducement for attack
Prentice Hall, Inc. © 2006
6-29
Cooperative Strategies
•Collusion
•Strategic Alliances
- To obtain technologies and/or manufacturing capabilities
- To obtain access to specific markets
- To reduce financial risk
- To reduce political risk
•Mutual service consortia
•Joint ventures
•Licensing arrangements
•Value-chain partnerships
Prentice Hall, Inc. © 2006
6-30