Formulation Formulation Overview 1 2 3 Want to
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Formulation
Formulation Overview 1. 2. 3. Want to create a sustainable competitive advantage Grounded in current mission, objectives, and strategies Identify rich range of strategic alternatives Balanced evaluation of + and - of alternatives Decide on alternatives to be implemented/recommended
Three Levels of Strategy Corporate level strategy Competitive (business level) strategy Functional strategies …all need to be consistent and in alignment
Corporate Level Strategy Directional strategy (retrenchment through growth) Portfolio strategy (what LOB’s for future) Parenting strategy (allocation of resources + connections)
Directional Growth Strategies Concentration – Vertical integration – Horizontal growth Diversification – Related (concentric) – Unrelated (conglomerate) Mergers, acquisitions, strategic alliances
Other Directional Strategies Stability Retrenchment …often more appropriate than growth strategies, which tend to be overused
Competitive Strategy (Sometimes called business level strategy) How we will compete within each line of business (LOB) or strategic business unit (SBU) Porter’s four generic competitive strategies Variations plus tactics
Generic Competitive Strategies
Competitive Advantage A firm’s ability to create value in a way that its rivals cannot When a firm has the potential to earn a persistently higher rate of profit than its rivals Competitive advantage means a lack of equilibrium with rival firms Being distinctively better than rivals on 1 -2 key success factors usually translates into competitive advantage
The Emergence of Competitive Advantage How does competitive advantage emerge? External sources of change e. g. : • Changing customer demand • Changing prices • Technological change Resource heterogeneity among firms means differential impact Some firms faster and more effective in exploiting change Internal sources of change Some firms have greater creative and innovative capability
Competitive Advantage from Responsiveness to External Change Any external change creates opportunities Frequently, speed of response is critical Responsiveness requires: – One key resource: information – One key capability: flexibility For example, Wal-Mart’s purchasing and distribution driven by point-of-sale data
Competitive Advantage from Internally. Generated Change: Strategic Innovation Characteristics of innovative strategies: – Associated with new entrants to an industry (e. g. IKEA in furniture, Home Depot, Dell in PCs) – Reconcile conflicting performance goals (e. g. Toyota’s lean production system combines low cost, high quality, and flexibility) – Reconfiguring the value chain (e. g. Southwest Airlines’ simplification of the normal airline value chain)
Sustaining Competitive Advantage Competitive advantage is subject to erosion by competitors – …by imitation or innovation Competitive imitation requires: – Identification of a competitive advantage – Incentive to imitate – Diagnosis of key features – Resource acquisition
Sustaining Competitive Advantage Against Imitation REQUIREMENT FOR IMITATION Identification Incentives for imitation ISOLATING MECHANISM - Obscure superior performance - Deterrence--signal aggressive intentions to imitators - Pre-emption--exploit all available investment opportunities Diagnosis - Rely upon multiple sources of competitive advantage to create “causal ambiguity” Resource acquisition - Base competitive advantage upon resources and capabilities that are immobile and difficult to replicate
Competitive Advantage in Different Industry Settings: Trading Markets and Production Markets MARKET TYPE SOURCE OF IMPERFECTION OF COMPETITION TRADING MARKETS • None (efficient markets) • Imperfect information • Transaction costs • Systematic behavioral trends • Overshooting • Barriers to imitation PRODUCTION MARKETS • Barriers to innovation OPPORTUNITY FOR COMPETITIVE ADVANTAGE None Insider trading Cost minimization Superior diagnosis (e. g. chart analysis) Contrarianism Identify potential barriers to imitation (e. g. deterrence, preemption, causal ambiguity, resource immobility, etc. ) & base strategy upon them. Difficult to influence or exploit.
Functional Level Strategy More localized and shorter-horizon strategies Deal with how each functional area will carry out its activities to be effective and maximize resource productivity
Need to ensure that the set of recommended strategies address all the critical issues well
International Strategies Licensing Management contracts Exporting Joint ventures, production sharing, subcontract arrangements Turnkey construction contracts BOT (build, operate, transfer) contracts Acquisitions Green-field development
Implementation
Implementation Third stage in strategic management process Vital, often neglected Reread notes on implementation
Need a good implementation plan “Then any path will do” (Cheshire Cat) “If you don’t know where you’re going, you might wind up somewhere else!” (Yogi Berra) BUT you have to work with the situation as your implementation proceeds “Plans get you into things, but you got to work your way out. ” (Will Rogers, Jr. )
Any implementation plan needs to answer: What? How? Who? When? Where? Why (are we doing it this way)?
An implementation plan is a sequence of action steps Action steps in an implementation plan may result from considering: – Basic steps necessary – Resources – Timing – Support – Reward systems – Organization structure – Culture – Tracking & control systems
Some problems in rewarding & measuring performance Lack of valid, measurable objectives Can’t get timely, valid information Side effects: – Short-term orientation – Goal displacement Behavior substitution Suboptimization
Behavior Substitution
- Why problem formulation follow goal formulation
- Wuffda
- Case formulation and treatment plan example
- Dissect the broad area into sub areas example
- 5 ps formulation
- Example of large volume parenterals
- 8 puzzle problem formulation
- Nutraceutical formulation
- Monophasic liquid are
- Research problem formulation
- Policy formulation process
- Strategic hrm models
- Preemptive goal programming examples
- Lucy johnstone power threat meaning framework
- Ner and ned guidelines
- Serial monadic dp formulation
- Plan formulation process in nepal
- Strategy formulation process
- Functional strategies in strategic management
- Question focus technique
- Moment of a force-scalar formulation
- Lp model formulation example
- Principle of calendering process
- Strategy formulation vs strategy implementation
- Formulating research problem
- Needs for project formulation
- Lp model formulation example