Chapter 8: Strategy Formulation and Implementation Flashcards
Strategic Management
It refers to the set of decisions and actions used to formulate and execute strategies that will provide a competitively superior fit between the organization and the environment to achieve organizational goals
The purpose of strategy
The essence of formulation strategy is choosing how the company will be different.
Strategy
A plan of action that describes
- resource allocation
- activities for dealing with the environment
- activities for dealing with competitors
- activities for achieving a competitive advantage
- activities for attaining the goals of the organization.
Competitive advantage
Why the company is different from others and provides it with a distinctive edge for meeting customer needs in the market.
Competitive advantage strategies
- target specific customer
- build synergy
- create value
- exploit core competence
Levels of strategy
Strategic managers usually think in three levels of strategy; corporate, business and functional.
The strategic management process
- Identify current mission, goals and strategies
- Scan internal (core competences, synergy, value proposition) and external (National & global) environment.
- Identify strategic factors. Strengths, weaknesses, (Internal) opportunities and threats (external).
- Define new mission, goals and grand strategy
- Formulate strategy: corporate, business, functional
- Execute strategy via changes in: leadership/culture, structure, human resources and communication systems.
SWOT analysis
The SWOT analysis is an assessment of the strengths, weaknesses, opportunities and threats of an organization.
Strengths & weaknesses: internal environment
Opportunities & threats: external environment
Approaches to formulate corporate-level strategy
The three approaches to understand the corporate-level strategy are portfolio strategy, the BCG matrix and diversification.
Portfolio strategy
The portfolio strategy directs to the mix of the SBU’s and product lines that fit together in a logical way to provide synergy and competitive advantages.
The BCG matrix
The BCG matrix is illustrated by the Boston Consultancy Group and it organized businesses along two dimensions (business growth and market share). The business growth shows how rapidly the entire industry is increasing. The market share defines whether a business unit has a larger or a smaller share in comparison to competitors. These combinations provide four categories for a corporate portfolio. Star, Cash cow, Question mark and Dog.
The BCG matrix: Star
The star has a high business growth rate and a high market share; The star is visible and attractive and will generate profit and positive cash flow even if the company gets older and the market share slows.
e. g.
- Tiktok
The BCG matrix: The cash cow
The cash cow has a low business growth rate and a high market share. This means that the business is a bit riskier than the star, but still generates profit and cash flow.
e. g.
- Email
The BCG matrix: The question mark
The question mark has a low market share and a high business growth rate. This usually exists in a new, fast growing company. It is a risky business because it could become a star but could also fail.
e. g.
- Clubhouse
The BCG matrix: The dog
The dog is a poor performer. It has low market share and low business growth. Get rid of it.
e.g.
Vine
Diversification strategy
Diversification is the strategy of moving into new lines of business. The purpose is to expand the firm’s business operations to produce new kinds of valuable products and services
- related diversification
- unrelated diversification
- vertical integration
Related diversification
When the new business is related to the company’s existing business
Unrelated diversification
When an organization expands into a totally new line of business
Vertical integration
the company expands into businesses that either produce supplies needed to make products or distribute and sell the company’s products
Porter’s competitive strategies
A popular and effective model for formulating business-level strategy
- differentiation strategy
- cost-leadership
- focus strategies
Porter’s competitive strategies: differentiation strategy
Attempting to distinguish the firm’s products or services
from others in the industry
Porter’s competitive strategies: cost-leadership
The organization seeks for efficient facilities and pursues cost reductions, uses tight controls to produce products more efficiently than competitors
Porter’s competitive strategies: focus strategies
The organization concentrates on a specific regional market or buyer group. Either differentiation or cost leadership
Functional-level strategy
How the organization will support business-level strategy
Globalization strategy
If an organization chooses a globalization strategy, that means that the product design and advertising are based on standards throughout the world. This approach is based on the assumption that a single global market exists for many consumer and industrial products. The theory is that people everywhere want to buy the same things and live the same way. An advantage of this is the fact that one commercial can be used all around the world; this can safe a company and its marketing team millions of dollars.
Multidomestic strategy
If an organization chooses a multidomestic strategy, it means that competition in each country is handled independently of industry competition in other countries. A multinational company may be present in many countries, but its marketing and advertising team has to adapt to the needs of each country.
Transnational strategy
The transnational strategy seeks to achieve both global standardization and national responsiveness. It is difficult to achieve this because one goal may need global coordination while the other requires local flexibility.
Strategy execution
A key to successful strategy execution is alignment; moving towards the same direction. Great goals need to be blueprinted to make sure everything is in line with the manager’s strategic intentions.
The following are the primary tools that managers use to implement strategy effectively:
- visible leadership
- clear roles and accountability
- candid communication
- appropriate human resource practices
