Chapter 5
Strategy Formulation: Situation
Analysis and Business Strategy
Dr.Vijaya Kumar
Skyline College
Prentice Hall, 2002
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Situational Analysis
Strategy formulation:
– Strategic planning or long-range
planning
• Develops mission, objectives, strategies
and policies
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Situational Analysis
Situational Analysis:
– Process of finding a strategic fit
between external opportunities and
internal strengths while working around
external threats and internal
weaknesses.
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Strategic Factor Analysis Summary
(SFAS)
3
4
Duration
(Select the most important
opportunities/threats from EFAS, Table 3.4
and the most important strengths and
weaknesses from IFAS, Table 4.2)
Weight
Rating
Weighted
Score
SHORT
Strategic Factors
5
LONG
2
INTERMEDIATE
1
6
Comments
Total Score
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Strategic Factor Analysis Summary (SFAS):
Maytag as Example
S1
S3
Quality Maytag culture (S)
Hoover’s international orientation (S)
Weight
.10
.10
Rating
Weighted
Score
5
.50
3
LONG
(Select the most important
opportunities/threats from EFAS, Table 3.4
and the most important strengths and
weaknesses from IFAS, Table 4.2)
SHORT
Strategic Factors
INTERMEDIATE
Duration
Comments
X
Quality key to success
.30
X
Name recognition
X
High debt
W3 Financial position (W)
.10
2
.20
W4 Global positioning (W)
.15
2
.30
.10
4
.40
Only in N.A., U.K., and Australia
O1 Economic integration of
European Community (O)
O2 Demographics favor quality (O)
.10
5
X
.50
O5 Trend to super stores (O + T)
.10
2
.20
X
T3
Whirlpool and Electrolux (T)
.15
3
.45
X
T5
Japanese appliance companies (T)
.10
2
.20
Total Score
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1.00
X
Acquisition of Hoover
X
Maytag quality
X
Weak in this channel
Dominate industry
Asian presence
3.05
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Situational Analysis
Niche:
– A need in the marketplace that is currently
unsatisfied.
Goal for the Corporation
– Find a propitious niche
• An extremely favorable niche
– Strategic window
• Unique market opportunity available for a limited
time
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Situational Analysis
SWOT analysis:
– Internal
• Strengths
• Weaknesses
– External
• Opportunities
• Threats
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TOWS Matrix
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Resource-Based Approach
Resource:
An asset, competency, process, skill,
or knowledge controlled by the
corporation.
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Business Strategies
Business Strategy:
Focuses on improving the competitive
position of a company’s or business
unit’s products or services within the
specific industry or market segment
that the firm serves.
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Porter’s Competitive Strategies
Competitive Strategy:
–Low cost?
–Differentiation?
–Compete head to head in large
market?
–Focus on niche?
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Porter’s Competitive Strategies
Generic Competitive Strategies:
–Lower cost strategy
• Design, produce, market more efficiently
than competitors
–Differentiation strategy
• Unique and superior value in terms of
product quality, features, service
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Porter’s Competitive Strategies
Competitive Advantage:
–Determined by Competitive Scope
• Breadth of the company’s target market
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Porter’s Generic Competitive Strategies
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Porter’s Competitive Strategies
Cost Leadership:
–Low-cost competitive strategy
–Aimed at broad mass market
–Aggressive construction of efficientscale facilities
–Cost reductions
–Cost minimization
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Porter’s Competitive Strategies
Differentiation:
–Broad mass market
–Unique product or service
–Charge premiums
–Lower customer sensitivity to price
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Porter’s Competitive Strategies
Cost focus:
–Low cost competitive strategy
–Focus on particular buyer group or
market
–Niche focused
–Seek cost advantage in target market
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Porter’s Competitive Strategies
Differentiation focus:
–Focus on particular group or
geographic market
–Seek differentiation in targeted market
segment
–Serve 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 Competitive Strategies
Risks of Cost Leadership
Risks of Differentiation
Risks of Focus
Cost leadership is not
sustained:
• Competitors imitate.
• Technology changes.
• Other bases for cost
leadership erode.
Proximity in differentiation is
lost.
Cost focusers achieve even
lower cost in segments.
Differentiation is not
sustained:
• Competitors imitate.
• Bases for differentiation
become less important to
buyers.
Cost proximity is lost.
Differentiation focusers
achieve even greater
differentiation in segments.
The focus strategy is
imitated:
The target segment becomes
structurally unattractive:
• Structure erodes.
• Demand disappears.
Broadly targeted competitors
overwhelm the segment:
• The segment’s
differences from other
segments narrow.
• The advantages of a
broad line increase.
New focusers subsegment
the industry.
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Competitive Strategy
Industry Structure:
–Fragmented Industry
• Many small and medium-sized local
companies compete for small shares of total
market
– Focus strategies predominate
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Competitive Strategy
Industry Structure:
–Consolidated industry
• Mature industry dominated by a few large
companies
– Cost Leadership or Differentiation predominate
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Dimensions of Quality
Dimensions
Quality
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•
•
•
•
•
•
•
Performance
Features
Reliability
Conformance
Durability
Serviceability
Aesthetics
Perceived Quality
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Competitive Strategy
Strategic rollup:
–Quickly consolidate fragmented
industry
–Money from venture capital
–Entrepreneur acquires hundreds of
owner-operated firms
–Creates large firm with economies of
scale
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Competitive Strategy
Strategic rollup:
–Differ from Conventional M&A’s
• Large number of firms
• Owner-operated firms
• Goal to reinvent entire industry
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Competitive Tactics
Tactic:
–Specific operating plan detailing how a
strategy is to be implemented in terms
of when and where it is to be put into
action.
• Timing tactics
• Market location tactics
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Competitive Tactics
Timing Tactics:
–First mover (pioneer)
• Reputation as industry leader
• High profits
• Sets standards for subsequent products in
the industry
–Late mover
• Able to imitate technological advances
of others
– Keeps R&D costs down
– Keeps risks down
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Competitive Tactics
Market Location Tactics:
–Offensive Tactics
•
•
•
•
•
Frontal assault
Flanking maneuver
Bypass attack
Encirclement
Guerrilla warfare
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Competitive Tactics
Market Location Tactics:
–Defensive Tactics
• Raise structural barriers
• Increase expected retaliation
• Lower the inducement for attack
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Cooperative Strategies
Cooperative Strategies:
–Collusion
• Active cooperation of firms to reduce
output and raise prices
– Explicit
– Tacit
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Cooperative Strategies
Cooperative Strategies:
–Strategic Alliance:
– Partnership of two or more corporations or
business units to achieve strategically
significant objectives that are mutually
beneficial.
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Cooperative Strategies
Obtain technology
Access to markets
Strategic
Alliance
Reduce financial risk
Reduce political risk
Achieve competitive
advantage
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Continuum of Strategic
Alliances
Mutual Service
Consortia
Joint Venture
Licensing Arrangement
Weak and Distant
Value-Chain
Partnership
Strong and Close
Source: Suggested by R. M. Kanter, “Collaborative Advantage: The Art of Alliances,” Harvard Business Review (July-August
1994), pp. 96–108.
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