Types of Strategy and
Strategy Formulation
Geoff Leese September 2005 revised
September 2006, July 2007, August 2008,
August 2009
1
The Strategic Management Process
•Scan External
•Environment
Evaluate
Current:
•Mission
•Goals
•Strategies
Scan Internal
Environment
2
Identify
Strategic
Factors:
•Opportunities
•Threats
Define New
Mission/Goals
Identify
Strategic
Factors:
•Strengths
•Weaknesses
Formulate
Strategy:
•Corporate
•Business
•Functional
Implement
Strategy via
Changes in:
•Leadership
•Culture
•Structure
•HR
•Marketing
•Finance
•Prod/dist
•IT&IS
•Etc
Strategy Formulation
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3
Developing long-range plans to
effectively manage environmental
opportunities and threats in light of
corporate strengths and weaknesses.
The design of an approach to achieve
the firm's mission.
Thinking Strategically
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To help managers answer questions such as:
Where is the organization now?
Where does the organization want to be?
What changes are among competitors?
What courses of action will help us achieve
our goals?
Answers define an overall direction for the
organisation's grand strategy.
Grand Strategy
General plan of action to achieve longterm objectives
1. Growth
2. Stability
3. Retrenchment.
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Growth
Can be promoted internally by
investing in expansion or externally by
acquiring additional business
divisions.
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Stability
Remain same size or grow steadily
and in a controlled way
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Retrenchment
Forced decline by either shrinking
current business units or selling off
or liquidating entire businesses.
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Purpose of Strategy
Value Creation = use core
competence and synergy to provide
increased benefits received with lower
costs paid.
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Purpose of Strategy
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CORE COMPETENCE: something the
organization does especially well in
comparison to its competitors
 Superior
research and development
 Mastery of a technology
 Superior customer service.
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Purpose of Strategy
SYNERGY: when organizational parts
interact to produce a joint effect that is
greater than the sum of its parts acting
alone.
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Strategy Formulation
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Development of the firm's goals and a
specific strategic plan
Assessing the external environment
and the internal issues
Integrating the results into goals and
strategy.
Levels of Strategy
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Corporate
Business
Functional.
Corporate-Level Strategy
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Acquisition of new businesses
Additions or divestment of business
units, plants, or product lines
Joint ventures with other companies in
new areas.
What business are we in?
Portfolio Strategy
The organizational mix of Strategic
Business Units and product lines to
provide synergy and a competitive
advantage.
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Business-Level Strategy
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Advertising/marketing
Direction and extent of R&D
Product changes
New product development
Equipment and facilities
Expansion or contraction of product
lines.
How do we compete?
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Formulating Business-Level Strategy
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Porter’s Five Force model
Competitive strategies
Covered in Lecture 3a
Function-Level Strategy
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Production
Distribution
Finance.
IS&IT
Marketing
HR
R&D
How do we support business-level
strategy?
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Strategic choice
Strategic
Intent
Context
A
Strategic
Assessment
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B
D
C
Available
options
Choosing an option (1)
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Region A – unidentified
Region B – identified, aligned and
feasible!
Region C – identified, aligned but not
feasible
Region D – identified and feasible, but
not aligned
Choosing an option (2)
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Three tests
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Does it take us towards where we want to
be? (Alignment)
Do we have, or can we obtain, the
resources required to implement it?
(Feasibility)
Will it win the support of those who need
to approve it, and those who need to
implement it? (Acceptability)
Choosing an option(3)
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Number of strategic options is rarely
large
If more than one passes all three tests,
necessary to evaluate “best”
Evaluate according to tangible (risk,
return, CBA) and intangible (cultural
“fit”, matching values and policies)
factors.
Porter’s generic strategies
Basis of competitive advantage
Cost
Differentiation
Market scope
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Cost Leadership
Differentiation
Cost Focus
Differentiation
Focus
Broad
Narrow
Further Reading
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Strategic Choice – follow the link!
Johnson and Scholes chapter 7
Bennett Chapters 1 and 3