Strategy Formulation and Implementation Strategic Planning Strategic planning

Strategy Formulation and Implementation

Strategic Planning �Strategic planning has taken on new importance in today’s world of globalization, deregulation, advancing technology, and changing demographics, and lifestyles

Strategy Formulation and Implementation Topics: Chapter 8 �Strategic Management �Definition �Components �Model of Strategic Management Process �Models of Strategy Formation �Managerial Tools to Implement Strategic Plans

Thinking Strategically � Answers to the following define an overall direction for the organization's grand strategy F Where is the organization now? F Where does the organization want to be? F What changes are among competitors? F What courses of action will help us achieve our goals?

Strategic Management �Set of decisions and actions used to implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals �Responsibility = top managers & chief executive

Strategic Management Managers ask such questions as. . . What changes and trends are occurring? Who are our customers? What products or services should we offer? How can we offer these products or services most efficiently?

Grand Strategy � General plan of major action to achieve longterm goals �Falls into three general categories 1. Growth 2. Stability 3. Retrenchment

Grand Strategy: Growth �Growth can be promoted internally by investing in expansion or externally by acquiring additional business divisions - Internal growth = can include development of new or changed products - External growth = typically involves diversification – businesses related to current product lines or into new areas

Grand Strategy: Stability �Stability, sometimes called a pause strategy, means that the organization wants �to remain the same size or �to grow slowly and in a controlled fashion

Grand Strategy: Retrenchment �Retrenchment = the organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses �Liquidation = selling off a business nit for the cash value of the assets, thus terminating its existence �Divestiture = involves selling off of businesses that no longer seem central to the corporation

Global Corporate Strategies High Need for Global Integration Globalization Strategy Low • Treats world as a single global market • Standardizes global products/advertising strategies Export Strategy • Domestically focused • Exports a few domestically produced products to selected countries Low Transnational Strategy • Seeks to balance global efficiencies and local responsiveness • Combines standardization and customization for product/advertising strategies Multi-domestic Strategy • Handles markets independently for each country • Adapts product/advertising to local tastes and needs Need for National Responsiveness High

Global Strategy �Globalization = product design and advertising strategies are standardized around the world �Multi-domestic = adapt product and promotion for each country �Transnational = combine global coordination with flexibility to meet specific needs in various countries

Purpose of Strategy The plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization attain its goals Strategies focus on: ● Core competencies ● Developing synergy ● Creating value for customers

Three Levels of Strategy in Organizations Corporate-Level Strategy: What business are we in? Corporation Business-Level Strategy: How do we compete? Textiles Unit Chemicals Unit Auto Parts Unit Functional-Level Strategy: How do we support the business-level strategy? Finance R&D Manufacturing Marketing

Strategic Management Process Scan External Environment – National, Global Evaluate Current Mission, Goals, Strategies Scan Internal Environment – Core Competence, Synergy, Value Creation Identify Strategic Factors – Opportunities, Threats SWOT Define new Mission Goals, Grand Strategy Identify Strategic Factors – Strengths, Weaknesses Formulate Strategy – Corporate, Business, Functional Implement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systems

Strategy Formulation vs. Implementation �Strategy Formulation = stage of strategic management that involves planning and decision making that lead to the establishment of the organization’s goals and of a specific strategic plan �Strategy Implementation = stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes

Checklist for Analyzing Organizational Strengths and Weaknesses Management and Organization Marketing Management quality Staff quality Degree of centralization Distribution channels Market share Advertising efficiency Organization charts Customer satisfaction Product quality Service reputation Planning, information, control systems Sales force turnover Finance Profit margin Debt-equity ratio Inventory ratio Return on investment Credit rating Human Resources Employee experience, education Union status Turnover, absenteeism Work satisfaction Grievances Production Research and Development Basic applied research Plant location Machinery obsolescence Laboratory capabilities Research programs Purchasing system New-product innovations Quality control Technology innovations Productivity/efficiency Sources: Based on Howard H. Stevenson, “ Defining Corporate Strengths and Weaknesses, ” Sloan Management Review 17 (spring 1976), 51 -68; and M. L. Kastens, Long-Range Planning for Your Business (New York: American Management Association, 1976).

Portfolio Strategy BCG Matrix �Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage

Five Forces Affecting Industry Competition • Internet reduces barriers to entry Potential New Entrants Internet blurs differences among competitors in an industry Threat of Substitute Products • Internet expands market size, but creates new substitution threats • Internet tends to increase the bargaining power of suppliers Bargaining Power of Buyers Rivalry among Competitors • Internet shifts greater power to end consumers Bargaining Power of Suppliers Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

Competitive Edge Through Competitive Strategies �Differentiation = attempt to distinguish products or services from that of competitors �Cost leadership = aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors �Focus = concentrates on a specific regional market or buyer group

Implementing Strategy Tools �Leadership �Structural design �Information and control systems �Human resources

Tools for Putting Strategy into Action Environment Organization Leadership Persuasion Motivation Culture/values Strategy Structural Design Organization Chart Teams Centralization n. Decentralization, n Facilities, task design Human Resources Recruitment/selection Transfers/promotions Training Layoffs/recalls Performance Information and Control Systems Pay, reward system Budget allocations Information systems Rules/procedures Source: Adapted from Jay R. Galbraith and Robert K. Kazanjian, strategy Implementation: Structure, Systems and Process, 2 d ed. (St. Paul, Minn. : West, 1986), 115, Used with permission.