Strategy formulation
•What are the purpose(s) and objective(s) of the organization?
•Where is the organization presently going?
•What critical environmental factors does the organization currently face?
•What can be done to achieve organizational objectives more effectively in the future?

Explanation:

What are the purpose(s) and objective(s) of the organization? – The answer to this question tells management where the organization wants to go. As discussed earlier, appropriate strategie reflect the organization’s missin and objectives. Managers who consider this question during the strategy formulation process are more likely to avoid inconsistencies among the company’s mission, objectives, and strategies.

Where is the organization presently going? – This question reveals whether an organization is achieving its goals or at least making satisfactory progress. The first question focuses on where the company wants to go; this question focuses on where the organization is actually going.

What critical environmental factors does the organization currently face? – This question addresses both internal and external environments and the factors that are both inside and outside the organization. For example, if a poorly trained middle-management team (internal environment) and an increase in competitive pressure (external environment) are critical strategic concerns, then any strategy formulated should deal with these issues.

What can be done to achieve organizational objectives more effectively in the future? – The answer to this question results in the formulation of a strategy for the organization. This, it goes beyond environmental analysis and includes the stages of planning and selection. This question should be answered only after managers have had plenty of opportunity to reflect on the answers to the previous questions. In other words, managers can formulate appropriate organizational strategies only when they have a clear understanding of where the company wants to go, where the organization is actually going, and what the environment in which the organization operates is and is likely to be.

Corporate Strategies
•Growth Strategy
ØSeeking to increase the organization’s business by expansion into new products and markets.

•Types of Growth Strategies
ØConcentration
ØVertical integration
ØHorizontal integration
ØDiversification
ØConcentration
ØFocusing on a primary line of business and increasing the number of products offered or markets served.
ØVertical Integration
ØBackward vertical integration: attempting to gain control of inputs (become a self-supplier).
ØForward vertical integration: attempting to gain control of output through control of the distribution channel or provide customer service activities (eliminating intermediaries).
•Horizontal Integration
ØCombining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals.
•Related Diversification
ØExpanding by combining with firms in different, but related industries that are “strategic fits.”
•Unrelated Diversification
ØGrowing by combining with firms in unrelated industries where higher financial returns are possible.
· Stability Strategy
ØA strategy that seeks to maintain the status quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons.
ØRenewal Strategies
ØDeveloping strategies to counter organization weaknesses that are leading to performance declines.
ØRetrenchment: focusing of eliminating non-critical weaknesses and restoring strengths to overcome current performance problems.
ØTurnaround: addressing critical long-term performance problems through the use of strong cost elimination measures and large-scale organizational restructuring solutions.

Corporate Portfolio Analysis
•Managers manage portfolio (or collection) of businesses using a corporate portfolio matrix such as the BCG Matrix.
•BCG Matrix
ØDeveloped by the Boston Consulting Group
ØConsiders market share and industry growth rate
ØClassifies firms as:
vCash cows: low growth rate, high market share
vStars: high growth rate, high market share
vQuestion marks: high growth rate, low market share
vDogs: low growth rate, low market share







Business or Competitive Strategy
•Business (or Competitive) Strategy
ØA strategy focused on how an organization should compete in each of its SBUs (strategic business units).

The Role of Competitive Advantage
•Competitive Advantage
ØAn organization’s distinctive competitive edge.
•Quality as a Competitive Advantage
ØDifferentiates the firm from its competitors.
ØCan create a sustainable competitive advantage.
ØRepresents the company’s focus on quality management to achieve continuous improvement and meet customers’ demand for quality.
The Role of Competitive Advantage (cont’d)
•Sustainable Competitive Advantage
ØContinuing over time to effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry competitors.
ØSustainable Competitive Advantage
ØContinuing over time to effectively exploit resources and develop core competencies that enable an organization to keep its edge over its industry competitors.

Five Competitive Forces
•Threat of New Entrants
ØThe ease or difficulty with which new competitors can enter an industry.
•Threat of Substitutes
ØThe extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitutes products and services.
•Bargaining Power of Buyers
ØThe degree to which buyers have the market strength to hold sway over and influence competitors in an industry.
ØBargaining Power of Suppliers
ØThe relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship.
ØCurrent Rivalry
ØIntensity among rivals increases when industry growth rates slow, demand falls, and product prices descend.

Types of Competitive Strategies
•Cost Leadership Strategy
ØSeeking to attain the lowest total overall costs relative to other industry competitors.
•Differentiation Strategy
ØAttempting to create a unique and distinctive product or service for which customers will pay a premium.
•Focus Strategy
ØUsing a cost or differentiation advantage to exploit a particular market segment rather a larger market.

Strategic Management Today
•Strategic Flexibility
•New Directions in Organizational Strategies
Øe-business
Øcustomer service
Øinnovation

Creating Strategic Flexibility

• Know what’s happening with strategies currently being used by monitoring and measuring results.
• Encourage employees to be open about disclosing and sharing negative information.
• Get new ideas and perspectives from outside the organization.
• Have multiple alternatives when making strategic decisions.
• Learn from mistakes.

How the Internet Has Changed Business
•The Internet allows businesses to:
ØCreate knowledge bases that employees can tap into anytime, anywhere.
ØTurn customers into collaborative partners who help design, test, and launch new products.
ØBecome virtually paperless in specific tasks such as purchasing and filing expense reports.
ØManage logistics in real time
ØChange the nature of work tasks throughout the organization.


Strategies for Applying e-Business Techniques
•Cost Leadership
ØOn-line activities: bidding, order processing, inventory control, recruitment and hiring
•Differentiation
ØInternet-based knowledge systems, on-line ordering and customer support
•Focus
ØChat rooms and discussion boards, targeted web sites

Customer Service Strategies
•Giving the customers what they want.
•Communicating effectively with them.
•Providing employees with customer service training.

Innovation Strategies
•Possible Events
ØRadical breakthroughs in products.
ØApplication of existing technology to new uses.
•Strategic Decisions about Innovation
ØBasic research
ØProduct development
ØProcess innovation
•First Mover
ØAn organization that brings a product innovation to market or use a new process innovations
ØAdvantages
ØReputation for being innovative and industry leader
ØCost and learning benefits
ØControl over scarce resources and keeping competitors from having access to them
ØOpportunity to begin building customer relationships and customer loyalty
ØDisadvantages
ØUncertainty over exact direction technology and market will go
ØRisk of competitors imitating innovations
ØFinancial and strategic risks
ØHigh development costs

Functional-Level Resource Management
•Functional-level strategy is the collective pattern of day-to-day decisions made and actions taken by managers and employees who are responsible for value-creating activities within a functional area
›Paying attention to the details
›Many companies are successful because of excellence at the functional level
•The following characteristics are essential:
›Decisions made within each function are consistent
›Decisions made within one function are consistent with decisions made within other functions
›Decisions made in all functional areas are consistent with and support the strategies of the business

Conducting a Functional Strategy Audit
•Marketing Strategy
›Target Customers—few vs. many, what groups, what regions
›Product Positioning—premium commodity, multi-use, specialty use
›Product Line Mix—a mix of complementary products
›Product Line Breadth—a full-line offering of products
›Pricing Strategies—discount, moderate, premium prices
›Promotion Practices—direct sales, advertising, direct mail, Internet
›Distribution Channels—few or many, sole contract responsibilities
›Customer Service Policies—flexibility, responsiveness, quality
›Product/Service Image –premium quality, good price, reliable
›Market Research—accuracy, frequency and methods for obtaining marketing information


Conducting a Functional Strategy Audit
•Operations Strategy
›Capacity Planning—lead demand to ensure availability or lag demand to achieve capacity utilization
›Facility Location—near suppliers, customers, labor, natural resources or transportation
›Facility Layout—continuous or intermittent flow
›Technology and Equipment Choices—degree of automation, use of computers and information technology
›Sourcing Arrangements—cooperative arrangements with a few vs. competitive bid
›Planning and Scheduling—make to stock, make to order, flexibility to customer requests
›Quality Assurance—acceptance sampling, process control, standards
›Workforce Policies—training levels, cross-training, rewards, use of teams

Areas of Interdependency and Potential Conflict Between Marketing and Operations
•Facility Size and Process Choice vs. Market Forecasts
•Facility Location vs. Market Planning
•Production Schedules vs. Forecasts, Orders and Promotions
•Operating Policies

• Information Systems Strategy
› Hardware—local area network (LAN), mainframe, minicomputer, internal systems, links to Internet
› Software—data processing, decision support, Web management, computer automated design (CAD), computer integrated manufacturing (CIM), just-in-time inventory
› Personnel—in-house experts, subcontracting or alliances
› Information Security—hardware, software, physical location and layout
› Disaster Recovery—off-site processing, backup procedures, virus protection and treatment
› Business Intelligence—management support, marketing, accounting, operations, R&D, human resources, finance
› Internet—uses of Internet in communications, marketing, resource acquisition, research or management

• R&D/Technology Strategy
› Research Focus—product, process, applications
› Research Orientation—leader, early follower, late follower
› Project Priorities—budget, quality, creativity, time
› Knowledge Creation—training, alliances and ventures, acquisitions, cross-functional teams
› Corporate Entrepreneurship—“seed money” grants, time off to develop a venture, management support, rewards for entrepreneurs, ideas come from everyone


•Human Resources Strategy
›Recruitment—entry level vs. experienced employees, colleges, technical schools, job services
›Selection—selection criteria and methods
›Nature of Work—part-time, full-time, or a combination, on site or off site, domestic or foreign
›Performance Appraisal—appraisal methods and frequency, link to rewards
›Salary and Wages—hourly, piece rate, commission, fixed, relationship to performance, competitiveness
›Other Compensation—stock ownership programs, bonuses
›Management Compensation—stock awards, stock options, bonuses linked to performance, perquisites, low interest loans
›Benefits—medical, dental and life insurance, paid leave, vacations, child care, health club
›Personnel Actions—disciplinary plans, outplacement, early retirements
›Training—types of training, availability of training to employees, tuition reimbursement

•Financial Strategy

›Sources of Capital—debt, equity, or internal financing
›Financial Reporting—frequency, type, government, shareholders, other stakeholders
›Capital Budgeting—system for distributing capital, minimum ROI for investments, payback
›Overhead Costs—allocation of overhead costs based on direct labor, machine use, sales volume, activity
›Financial Control—system to ensure accuracy of internal and external financial information, audits
›Returns to Shareholders—dividends policy, re-purchase of stock, treasury stock, stock splits
›Financial Targets—establishment of financial targets for functional areas and business units, method of reporting on progress

Problems with Capital Budgeting Systems
•Inaccurate Cost Data
•Base Comparisons
•Hurdle Rate
•Qualitative Factors