Strategy Formulation and Implementation Flashcards
strategic management
the set of decisions and actions used to formulate and implement strategies that aim to give an organisation its competitive advantage
strategy
a plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage and attaining goals
competitive advantage
those characteristics that set the organisation apart from others and provides it with a distinctive edge in the marketplace
strategic elements to achieve a competitive advantage
- target customers
- exploit core competencies
- build synergy
- deliver value
corporate-level strategy
the level of strategy concerned with the question: What business are we in?’ It relates to the organisation as a whole and the combination of business units and product lines that make it up
business-level strategy
the level of strategy concerned with the question: ‘How do we compete? It relates to each business unit or product line within the organisation
functional-level strategy
the level of strategy concerned with the question: ‘How do we support the business-level strategy?’ It relates to all of the organisation’s major departments
strategy formulation
the stage of strategic management that involves the planning and decision making that lead to the establishment of the organisation’s goals and of a specific strategic plan
strategy implementation
the stage of strategic management that involves the use of managerial and organisational tools to direct resources towards achieving strategic outcomes
SWOT analysis
analysis of the strengths, weaknesses, opportunities and threats that affect organisational performance
strengths
positive internal characteristics that the organisation can exploit to achieve its strategic performance goals
weaknesses
internal characteristics that may inhibit or restrict the organisation’s performance
threats
characteristics of the external environment that may prevent the organisation from achieving its strategic goals
opportunities
characteristics of the external environment that have the potential to help the organisation achieve or exceed its strategic goals
three approaches to understanding corporate-level strategy
- the portfolio strategy
- BCG matrix
- diversification strategy
the portfolio strategy
a type of corporate-level strategy that relates to the organisation’s mix of strategic business units and product lines that fit together in such a way as to provide the organisation with synergy and competitive advantage
BCG matrix
a concept that evaluates strategic business units with respect to the dimensions of business growth rate and market share
diversification strategy
the strategy of moving into new lines of business
five competitive forces
Porter’s five force analysis is a way to understand where power lies in a business situation. It assumes there are five important forces that determine competitive power
- Potential new entrants. This looks at how easy it is for competitors to enter the market. If there are few economies of scale in place or little protection of kew products and ideas, then new competitors can quickly enter the market and take away customers
- Bargaining power of buyers. This looks at how easy it is for buyers to drive price down. It is driven by the number of buyers, the importance of each individual buyer and the cost of them switching from the business’ product to another. If there are a few potential buyers, then the power lies with them and not the business
- Bargaining power of suppliers. This looks at how easy it is for suppliers to drive prices up. It is driven by the number of suppliers of each key input, uniqueness of the product and how many suppliers are in the industry. The more a business needs help from suppliers the more power a supplier has
- Threat of substitute products. This looks at how easy it is for customers to find a product or service similar to the one provided by the business. If substitution is easy then power and influence is reduced
- Rivalry among competitors. This area focuses on the number and capability of competitors. If there are many competitors with equally attractive products and services, then the business will have limited power as suppliers and customers can go elsewhere. If the product is unique then the business has a great deal of power..
differentiation
the differentiation strategy is where a business looks to implement something unique that is valued by customers. By implementing differentiation, the business gains a competitive advantage because the business’s product is in demand from customers. The business is rewarded by being able to charge a higher price
differentiation strategies
- making the product using high quality materials
- providing better support for customers
- using good marketing
- providing training for employees
- offering products that other businesses do not offer
advantages of differentiation
- provides the business with a strong competitive advantage in markets with ‘brand loyalty’
- can charge premium pricing as the cost is not such as important consideration to customers
disadvantages of differentiation
- does not appeal to ‘price sensitive’ consumers
- the ‘unique features’ can be copied by other producers which destroys the business’s competitive advantage
cost leadership
the cost leadership is where a business looks to lower its cost to become the low cost producer in the industry. The business can increase its profit margins or sell the product at a lower price while maintaining strong profit margins to gain a competitive advantage
cost leadership strategies
- use assets efficiently by minimising idle stock on shelves and not stocking products that do not sell
- lower operating costs by sourcing supplies from cheaper suppliers
advantages of cost leadership
- provides the business with a strong competitive advantage in markets with ‘price conscious’ consumers
disadvantages of cost leadership
- customers could potentially associate lower price with lower quality
- lowering costs can be difficult to maintain in the long term as other businesses implement cost leadership strategies
focus
with a focus strategy, the organisation concentrates on a specific regional market or buyer group. The organisation will use either a differentiation or low-cost approach, but only for a narrow target market
strategic thinking
to take the long-term view and to see the big picture, including the organisation and competitive environment, and consider how they fit together
resources
all assets, capabilities, organisational processes, firm attributes, information, etc, controlled by a firm that enable it to conceive and implement value-creating strategies
intraorganisational “hard factors” (materialistic/technological)
- processes
- physical infrastructure
- equipment + tools
intraorganisation “soft factors” ( humanistic/symbolic)
- culture
- identity
- people (skills, knowledge, attributes)
- social networks
extraorganisational “hard factors” (materialistic/technological)
- ecosystem structures
extraorganisation “soft factors” ( humanistic/symbolic)
- image
- legitimacy
the VRIO framework
the “acid test” questions for resources’ contribution to a sustainable competitive advantage.
valuable?: does it allow the organisation to exploit opportunities, neutralise threats, improve efficiency/effectiveness, applicable to wide variety of products/services/markets/etc.? NO?: competitive disadvantage
rare?: how many organisations have the resource? NO?: competitive parity
imperfectly imitable?: can others copy you easily? what keeps them from it? NO?: temporary competitive advantage
organised?: are you organised to capture the value of your resources? Do you put your resources to work? NO?: unused competitive advantage. YES?: sustained competitive advantage
core competencies
resources and capabilities that generate sustainable competitive advantage for an organisation.
problem associated with the adoption of more than one strategy
in his studies, Porter found that some businesses did not consciously adopt one of these three strategies and were stuck with no strategic advantage. Without a strategic advantage, businesses earned below-average profits compared with those that used differentiation, cost leadership or focus strategies
