Types of Strategy and Strategy Formulation Geoff Leese

Types of Strategy and Strategy Formulation Geoff Leese September 2005 revised September 2006, July 2007, August 2008, August 2009 1

The Strategic Management Process • Scan External • Environment Evaluate Current: • Mission • Goals • Strategies Scan Internal Environment 2 Identify Strategic Factors: • Opportunities • Threats Define New Mission/Goals Identify Strategic Factors: • Strengths • Weaknesses Formulate Strategy: • Corporate • Business • Functional Implement Strategy via Changes in: • Leadership • Culture • Structure • HR • Marketing • Finance • Prod/dist • IT&IS • Etc

Strategy Formulation • • 3 Developing long-range plans to effectively manage environmental opportunities and threats in light of corporate strengths and weaknesses. The design of an approach to achieve the firm's mission.

Thinking Strategically • • • 4 To help managers answer questions such as: Where is the organization now? Where does the organization want to be? What changes are among competitors? What courses of action will help us achieve our goals? Answers define an overall direction for the organisation's grand strategy.

Grand Strategy General plan of action to achieve long-term objectives 1. Growth 2. Stability 3. Retrenchment. 5

Growth Can be promoted internally by investing in expansion or externally by acquiring additional business divisions. 6

Stability Remain same size or grow steadily and in a controlled way 7

Retrenchment Forced decline by either shrinking current business units or selling off or liquidating entire businesses. 8

Purpose of Strategy Value Creation = use core competence and synergy to provide increased benefits received with lower costs paid. 9

Purpose of Strategy • CORE COMPETENCE: something the organization does especially well in comparison to its competitors * Superior research and development * Mastery of a technology * Superior customer service. 10

Purpose of Strategy SYNERGY: when organizational parts interact to produce a joint effect that is greater than the sum of its parts acting alone. 11

Strategy Formulation • • • 12 Development of the firm's goals and a specific strategic plan Assessing the external environment and the internal issues Integrating the results into goals and strategy.

Levels of Strategy § § § 13 Corporate Business Functional.

Corporate-Level Strategy • • • 14 Acquisition of new businesses Additions or divestment of business units, plants, or product lines Joint ventures with other companies in new areas. What business are we in?

Portfolio Strategy The organizational mix of Strategic Business Units and product lines to provide synergy and a competitive advantage. 15

Business-Level Strategy • • • Advertising/marketing Direction and extent of R&D Product changes New product development Equipment and facilities Expansion or contraction of product lines. How do we compete? 16

Formulating Business-Level Strategy • • • 17 Porter’s Five Force model Competitive strategies Covered in Lecture 3 a

Function-Level Strategy • • Production Distribution Finance. IS&IT Marketing HR R&D How do we support business-level strategy? 18

Strategic choice Strategic Intent Context A Strategic Assessment 19 B D C Available options

Choosing an option (1) • • 20 Region A – unidentified Region B – identified, aligned and feasible! Region C – identified, aligned but not feasible Region D – identified and feasible, but not aligned

Choosing an option (2) • Three tests • • • 21 Does it take us towards where we want to be? (Alignment) Do we have, or can we obtain, the resources required to implement it? (Feasibility) Will it win the support of those who need to approve it, and those who need to implement it? (Acceptability)

Choosing an option(3) • • • 22 Number of strategic options is rarely large If more than one passes all three tests, necessary to evaluate “best” Evaluate according to tangible (risk, return, CBA) and intangible (cultural “fit”, matching values and policies) factors.

Porter’s generic strategies Basis of competitive advantage Cost Differentiation Market scope 23 Cost Leadership Differentiation Cost Focus Differentiation Focus Broad Narrow

Further Reading • • • 24 Strategic Choice – follow the link! Johnson and Scholes chapter 7 Bennett Chapters 1 and 3