Chapter 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 Manager’s Challenge: Nintendo Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Strategy Formulation and Implementation Topics: Chapter Strategic Management – Definition – Components – Model of Strategic Management Process – Models of Strategy Formation Managerial Tools to Implement Strategic Plans Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Thinking Strategically Answers to the following define an overall direction for the organization's grand strategy 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? Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 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 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 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? Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Grand Strategy General plan of major action to achieve long-term goals Falls into three general categories Growth A separate grand Stability strategy can be Retrenchment defined for global operations Ethical Dilemma: A Great Deal for Whom? Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 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 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 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 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Grand Strategy: Retrenchment 10 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 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Global Corporate Strategies Need for Global Integration High Low 11 Globalization Strategy • 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 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 Low Need for National Responsiveness Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved High Global Strategy 12 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 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 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 13 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Three Levels of Strategy in Organizations Corporate-Level Strategy: What business are we in? Corporation Business-Level Strategy: How we compete? Textiles Unit Chemicals Unit Auto Parts Unit Functional-Level Strategy: How we support the business-level strategy? Finance 14 R&D Manufacturing Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Marketing Strategic Management Process Scan External Environment – National, Global Evaluate Current Mission, Goals, Strategies Scan Internal Environment – Core Competence, Synergy, Value Creation 15 Identify Strategic Factors – Opportunities, Threats SWOT Define new Mission Goals, Grand Strategy Identify Strategic Factors – Strengths, Weaknesses Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 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 Experiential Exercise: Developing Strategy for a Small Business 16 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Checklist for Analyzing Organizational Strengths and Weaknesses Management and Organization Marketing Planning, information, control systems Distribution channels Market share Advertising efficiency Customer satisfaction Product quality Service reputation Finance Sales force turnover Production Management quality Staff quality Degree of centralization Organization charts Profit margin Debt-equity ratio Inventory ratio Return on investment Credit rating Human Resources Employee experience, education Union status Turnover, absenteeism Work satisfaction Grievances 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) 17 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Portfolio Strategy BCG Matrix 18 Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 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) 19 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Competitive Edge Through Competitive Strategies 20 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 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Continuum of Partnership Strategies Organizational Combination Acquisitions Degree of Collaboration Mergers Strategic Alliances Joint Ventures Strategic Business Partnering Preferred Supplier Arrangements Low 21 Degree of Collaboration Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved High Implementing Strategy Tools 22 Leadership Structural design Information and control systems Human resources Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Tools for Putting Strategy into Action Environment Organization Strategy Leadership Persuasion Motivation Structural Design Culture/values Human Resources Organization Chart Teams Recruitment/selection Centralization Transfers/promotions Decentralization, Training Facilities, task design Systems Layoffs/recalls Information and Control Performance 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, 2d ed (St Paul, Minn.: West, 1986), 115, Used with permission 23 Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved ... technology, and changing demographics, and lifestyles Manager’s Challenge: Nintendo Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Strategy Formulation and. .. Implement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systems Strategy Formulation vs Implementation Strategy Formulation = stage of strategic management. .. Research and Development Basic applied research Plant location Machinery obsolescence Laboratory capabilities Research programs Purchasing system New-product innovations Quality control Technology