What is an Organization

1
(No Transcript)
2
Strategy Formulation And Implementation

• Chapter 8

3
Introduction

• Story of KMART Wal-Mart
• How did Wal-Mart founder Sam Walton and his
  managers formulate and implement strategies that
  helped the company overtake Kmart
• If you were stepping in as Kmarts new CEO, what
  strategies might you adopt to help chain survive?

4

• Wal-Mart formulated implemented strategies that
  have made it one of Americas most successful
  companies
• While
• Kmart failed to cope with increased competition
  and changing customer expectations
• Kmarts new CEO and other top executives
  analyze the situation to formulate a strategy
  that will suit Org strengths as well as fit
  changing economic times if the chain is to
  survive in competitive market

5

• All the Organizations are involved in Strategic
  Management
• finding ways to respond to competitors
• Cope up with environmental changes
• Effectively use available resources

6
Thinking Strategically

• Strategic management is considered to be one
  specific type of planning
• Some Companies hire Strategic Planning Experts

7
Thinking Strategically Continue

• Strategic thinking means to take the long term
  view and to see the big picture, including the
  Organization and the competitive environment and
  how they fit together

8
What is Strategic Management ?

• The set of decisions and actions used to
  formulate and implement strategies that will
  provide a competitively superior fit between the
  organization and its environment so as to achieve
  organizational goals

9

• It is a process to help managers answer questions
  such as
• where is the organization now
• Where does the organization want to be
• What changes and trends are occurring in the
  competitive environment?
• What courses of action will help us achieve our
  goals?
• What happens after answering these
  questions!!

10
Grand StrategyGeneral plan of major action by
which a firm intends to achieve its long-term
goals

• Growth
• Stability
• Retrenchment

11
Growth Strategy

• Promoting internally by investing in expansion or
  externally by acquiring additional business
  divisions
• Diversification acquisition of business that
  are related to current product lines or that take
  the corporation into new areas Joint Ventures
• Strategy of expanding operations into new
  business or industry and producing new goods or
  services
• Examples
• PepsiCos diversification into snack food
  business
• Phillip Morriss tobacco giant
  diversification with brewing industry with the
  acquisition of Miller Beer
• GE move into broadcasting with its
  acquisition of NBC

12
Stability

• Pause strategy Org wants to remain the same
  size or grow slowly and in a controlled fashion
• The Corporation wants to stay in its current
  business
• When Org undergone a turbulent period of rapid
  growth, managers focus on a Stability strategy to
  integrate strategic business units ensure that
  Org is working efficiently
• Example Allied Tire Stores motto is We just
  sell tires

13
Retrenchment

• Org goes through a period of forced decline by
  either shrinking current business units or
  selling off or liquidating entire businesses
• Liquidation
• Divestiture
• Downsizing / Retrenchment

14

• Divestiture involves selling off businesses that
  no longer seem central to the Corporation
• When GE sold its family financial services,
  corporation were going through periods of
  retrenchment, also called downsizing
• Liquidation Selling off a business unit for the
  cash value of assets, thus termination its
  existence
• Dissolve the Co. sell off all its assets is
  usually done when the company is facing
  bankruptcy needs to repay Loans

15
Global Strategy

• Companies might pursue a separate grand strategy
  as the focus of global business
• How to compete internationally?
• A basic question confronts the managers of any
  org that competes in more than one national
  market
• To what extent should the org customize features
  of its products and marketing campaign to
  different national conditions?

16
Companies Strategic Delima
Globalization Vs Mutlidomestic strategy
Global integration national responsiveness
17
Global / Globalization Strategy

• The standardization of product design
  advertising strategies throughout the world
• Very little , if any customization to suit the
  specific needs of customers in different
  countries
• The theory is that people everywhere want to buy
  the same products and live the same way people
  everywhere want to drink Coca Cola wear Levi
  blue jeans

18

• Example Levi paid an advertising agency 500,000
  to produce a series of TV commercial to promote
  its 501 jeans using same series in many
  countries simply changing the language saved
  money keep prices low
• Colgate-Palmolive Co. toothpaste sells in 40
  countries by running same commercial saving
  1M-2M in production cost alone

19
Multi-Domestic Strategy

• Competition in each country is handled
  independently of industry competition in other
  countries
• A multinational company is present in many
  countries, but it encourages marketing,
  advertising and product design to be modified and
  adapted to the specific needs of each country
• Managers decide to customize products marketing
  strategies to specific national conditions

Companies reject the idea of a single global
market
20
Example of Multi-domestic Strategy

• Unilever European food household products Co.
  sells a different range of food products and
  uses a different marketing approach than its
  North American division
• French do not drink orange juice for breakfast
• spicy toothpaste preferred in the Middle East

21
Transnational Strategy

• To achieve both global integration national
  responsiveness
• Difficult to achieve, because one goal requires
  close global coordination while the other goal
  requires local flexibility

Transnational Strategy
22
Example of Transnational Strategy

• Caterpillars Tractor (worlds largest
  manufacturer of heavy earth-moving equipment)
• Tailored the finished product to local needs by
  adding features such as diff colors of paint or
  steering wheels on right or left side Price
  pressures in local market Government
  regulations

Differentiating its product among local markets
Local Customization
23
Purpose Of Strategy

• The plan of action that prescribes resource
  allocation and other activities for dealing with
  the environment and helping the Organization
  attain its goals
• A comprehensive plan for accomplishing an
  organizations goals

Core Competence
Synergy
Value Creation
24

• Through this strategy executives try to develop
  within the Org a core competence Synergy, thus
  creating value for money

25
Core Competence

• Something that Org does especially well in
  comparison to its competitors
• Represents Competitive advantage because the
  company acquires expertise that competitors do
  not have

Core Competence maybe in the area of
Mastery of technology
Customer Service
Superior rd
26
Synergy

• When Org parts interact to produce a joint effect
  that is greater than the sum of the parts acting
  alone, Synergy occurs
• Performance gains that result when individuals
  and departments coordinate their actions
• Team members share equipment, customer lists, and
  other information that enables these small
  companies to go after more business than they
  ever could have without the team approach

27
Example

• ATT synergy btw communication services
  hardware One-stop shop
• Two or more divisions with in a diversified
  company can utilize the same manufacturing
  facilities, distribution channels, advertising
  campaigns

Share Resources
Reduce Cost
Charge lower Prices
Attract More Customers
Competitors
28
Value Creation

• Value can be defined as the combination of
  benefits received and paid by the customer
• Exploiting core competencies attaining synergy
  help companies create value for their customers
• A product that is low in cost but does not
  provide benefits is not a good value
• Delivering value to the customer should be at the
  heart of strategy
• Managers need to understand which parts of the
  Co. operation create value which do not a Co.
  can be profitable only when the value it creates
  is greater than the cost of resources

29

• Example People Express Airlines initially made a
  splash-low prices, but travelers couldnt
  tolerate consistently late takeoffs at any price
• Macdonalds used core competencies to create
  better value for customers, resulting in the
  introduction of Extra value meals opening
  restaurants in different locations Wal-Mart etc

30
Levels Of Strategy

• Corporate Level Strategy
• Business Level Strategy
• Functional Level Strategy

31
Corporate Level Strategy

• The level of strategy concerned with the question
  What business are we in?
• Pertains to Org as a whole and the combination of
  business units and product lines
• Strategic actions at this level relate to
  acquisitions of new businesses additions or
  divestments of business units, plants or product
  lines and joint ventures
• Examples Book

32
Business Level Strategy

• The question How do we compete?
• Pertains to each business level unit or product
  line
• It focuses on how the business unit competes
  within its industry for customers
• Strategic decisions at this level concern amount
  of advertising, extent of RD, product changes,
  expansion or contraction of product lines
• Example Cost reduction To remain competitive
  Hyatt hotels trimmed MangT Staff increased
  focus on Marketing Advertising

33
Function Level Strategy

• The question How do we support the business level
  competitive strategy ?
• pertains to the major functional departments
  within the business unit
• Includes all the major functions, marketing,
  manufacturing, finance
• Example Hyatt hotels marketing dept is to focus
  on frequent business traveler by putting fax
  machines modems in rooms

34
Strategic Formulation Vs Implementation

• Strategy Formulation
• planning decision making that lead to the
  establishment of the firms goals the
  development of a specific strategic plan
• include assessing external environment
  internal problems integrating results into
  goals strategy

• Strategy Implementation
• Use of managerial Organizational tools to
  direct resources towards accomplishing strategic
  results
• Administration execution of the strategic plan
• Managers may use persuasion, new equipment,
  changes in Org structure or reward system to
  ensure that employees and resources are used to
  make formulate strategy in reality

35
Situation Analysis

• Analysis of the strengths, weaknesses,
  opportunities and threats (SWOT) that affect
  organizational performance
• Important to all companies but is crucial to
  those considering globalization because of the
  diverse environments in which they will operate
• Info about Opportunities Threats may be
  obtained from variety of sources, including
  customers, professional journals, suppliers,
  friends in other Org, association meetings
• Firms use diff techniques to learn about
  competitors, such as asking potential recruits
  about their visits to other companies, hiring
  people away from competitors, taking plant tours
  posing as innocent visitors and even buying
  garbage

36
Situational Analysis Continue

• Executives acquire info about Internal Strength
  weaknesses executives from variety of reports,
  including budgets, profit loss statements
• Face to face discussions meetings with people
  at all levels of the hierarchy, executives build
  an understanding of the Companies internal
  strength weaknesses

37
Internal strengths Weakness

• Strengths Positive internal characteristics that
  the organization can exploit to achieve strategic
  performance goals
• Weaknesses Internal characteristics that may
  restrict the Organization performance
• Finance Marketing MangT Org
• Managers can determine their strengths or
  weaknesses via other companies based on the their
  understanding of these areas

• Profit Margin
• Return on investment
• Credit Rating

• Distribution channels
• market share
• Customer Satisfaction
• Product Quality

• Degree of Centralization
• Planning, Information control
• System

38
External Opportunities Threats

• Threats characteristics of external environment
  that may prevent the Org from achieving its
  strategic goals
• Example Executives evaluate the external
  environment with info about the nine sectors

• Opportunities
• are characteristics of the external environment
  that have the potential to help the Org achieve
  or exceed its strategic goals

39
S W Kodak

• Strengths
• Trusted Brand names
• 70 Market share
• Spent Millions on Research into digital imaging
  Tech
• Blessed with tech genius

• Weaknesses
• Dispirited Workforce
• Culture focused on protecting current businesses
  rather then seeking new frontiers
• Confused btw imaging business, healthcare
  household products
• Product market developed ability ill-focused

40
O T Kodak

• Opportunities
• Tech strength digital imaging will be fast
  growing market
• Expansion in Asia while barely developed markets
  such as India, Brazil can keep traditional
  business for least next decade
• Half of the people in the world have yet to
  take a their first pic

• Threats
• Increased competition
• Digital imaging arena, facing giant such as
  Canon, Casio, Sony HP
• Smaller competitors emerging In digital market

41

• What does SWOT analysis suggest for Kodaks
  Strategy?

42

• To capitalize on the Companys Strength
  Opportunities ..How

43

• Divest or liquidate
• Communication Leadership
• Transform Culture
• Autonomy at work place
• Strategic Alliance

44

• Sell other businesses to focus more on core
  imaging business
• Improved communication stronger leadership
  improved morale
• Transform slow moving culture to prepare for
  digital future
• Brought together disjointed talent into small
  autononomous division hired former computer
  marketing executive to head it
• Strategic alliances with IBM, HP, Microsoft so
  the new divisions can develop new products in
  partnership to be more competitive on global
  basis

45
Formulating Corporate Level Strategy

• Portfolio Strategy
• Pertains to mix of business units and
  product lines that fit together in logical way to
  provide synergy competitive advantage for the
  corporation
• Strategic Business Unit
• ?

46

• The BCG Matrix

47

• Cash Cow
• Exits in mature, slow growth industry but is a
  dominant business in the industry with a large
  market share
• No heavy investments required (advertising
  plant expansion)
• Invest in other riskier businesses

• Star
• Has large market share in a rapidly growing
  industry
• It has additional growth potential profits
  should be plowed into this business as investment
  for future growth n profits
• Visible attractive will generate profits
  positive cash flow even as the industry matures
  market growth slows

48

• Question Mark
• Exists in new, rapidly growing industry but has
  only small market share
• ? Business is risky
• It could become a star, but it could also fail
• Invest cash earned from cash cows in ? With the
  goal that it will turn into future STAR

• Dogs
• Poor performer
• Small share in slow growth market
• Provides little profit
• Targeted for divestment or Liquidation if
  turnaround is not possible

49

• Gillette Company ?

50

• Formulating Business Level
• Strategy

51
Porters Competitive Forces And Strategies

• Five Competitive Forces
• Potential New Entrants
• Bargaining Power of buyers
• Bargaining Power of suppliers
• Threat of substitute products
• Rivalry among competitors

52
Potential New Entrants

• Capital Requirement economies of the scale,
  example of two potential barriers to entry that
  keep out the new competitors
• Threat is high for local hamburger restaurant
  than Ford Toyota
• Advent of internet has reduced costs other
  barrier of entry in many market segments
• Threat of new entrants has increased for many
  firms in recent years

53
Bargaining Power of buyers

• Informed customers become empowered customers
• Advertising buyer info educate customers about
  full range of prices product options available
  thus influence over Co. increases
• This is true when Co. relies on one or Two large,
  powerful customers for majority of its sales
• Example Boeing 777 Delta, KLM

54
Bargaining Power of suppliers

• To what extent to which suppliers have the
  ability to influence potential buyers
• Other factors include whether a supplier can
  survive without a particular purchaser or whether
  the purchaser can threaten the supplier
• Example The sole supplier of engines to a
  manufacturer of small airplanes have great power
• Example Local electric co. is the only source
  of electricity in your community therefore it can
  charge what it wants for its product

55
Rivalry among competitors

• Nature of the competitive relationship btw
  dominant firms in the industry
• Coke Pepsi ( price wars, comparative
  advertising, new product introduction)
• American Express Visa
• Fuji Kodak
• The more these companies compete against
  one another for customers the lower is the level
  of industry profits( low prices means low
  profits)

56
Threat of substitute products

• The power of alternatives substitutes for a Co.
  product may be affected by cost changes OR trends
  such as increased health consciousness that will
  deflect buyer loyalty to companies
• Example Sugar Co. suffered from the growth of
  sugar substitutes
• Computers reduced demand for calculators,
  typewriters
• DVD players for VCRs

57
Competitive Strategies

• Differentiation
• Cost Leadership
• Focus

58
Differentiation Strategy

• Pepsi Coca cola
• Advertise to differentiate create new unique
  image
• Toyota
• Appeal customers in all segments
• Basic transportation
• Middle of the market
• High income

• An attempt to distinguish a firms product or
  services from others in the industry
• To gain competitive advantage, add value, through
  distinctive product features (design, quality,
  after sale service)

Stuck in the
Middle Managers should choose btw Diff/CLS
Exceptions to this rule Example
Cotts Corp. advertise more / costs will rise
Toyota Production system is the
most efficient in the world
Differentiated cars basis of superior design
quality
59
Cost Leadership

• Cotts corp. ( doesnt advertise which allows
  Cott to under price both coke Pepsi
• Compaq to overtake IBM as the world no.1 PC
  supplier

• Attempts to gain advantage by reducing cost below
  cost of competing firms
• Keeping costs low, Org still able to sell its
  products at low prices still make a profit

Low-cost producer, provides a successful
strategy to defend against five competitive forces
60
Focus

• A type of competitive strategy that emphasizes
  concentration on a specific regional market or
  buyer group
• The company will use either a differentiation or
  low-cost approach, but only for a narrow target
  market ????

• Example Enterprise Rent-A-Car
• focused on market that major companies like
  Hertz dont even play in
• Low budget insurance replacement market

61

• Focused-Low cost Strategy
• Serve one or a few segments of the overall market
  aim to be the lowest Co. serving that segment
• Example Cott Corp. focus on large retail chains
  strives to be the lowest-cost Co. serving that
  segment

• Focused-Differentiation Strategy
• Serve just one or few segments of the market
  aim to be the most differentiated Co. serving
  that segment
• Example BMW
• Pursue focused strategy make cars exclusively
  for high income customers

62
Product Life Cycle
63

• Model that shows how sales volume changes over
  the life of products
• Product Life cycle helps managers recognize that
  strategies need to evolve over time
• Series of stages that a product goes through in
  its market acceptance

64
Formulating Functional-Level Strategy
Differentiation strategy for new product

• Recruiting training middle managers for moving
  into new positions

• Human Resources
• Marketing
• Finance

Aggressive marketing campaigns

• How to borrow handle large cash Investments
• Authorize construction of new production
  facilities

65
Mature products / Low cost Strategy

• Develop retain stable Workforce
• Transfers, advancements, incentives for efficiency

• Human Resources
• Marketing
• Finance

Stress on brand loyalty

• Focus on net cash-flows positive cash balances

66
Putting Strategy Into Action

• Parts of firm that can be adjusted to put
  strategy into action
• Once a new strategy is selected its implemented
  through changes in Leadership, Structure, Info
  Control System and HR

• Leadership
• Structural Design
• Information Control Systems
• Human Resources

67
Tools for Putting strategy into Action

• Organization
• Strategy Performance

• Leadership
• persuasion
• Motivation
• Culture / Values

• Human Resource
• Recruitment / Selection
• Transfers / promotions /Training
• Layoffs

• Structural Design
• Org Chart
• Teams
• Centralization / decentralization

• Info Control System
• Pay, reward system
• Budget allocations
• Info systems
• Rules / procedures

68

• Strategic Management
• Followed by
• SWOT Analysis
• Leads to
• Formulation of Explicit Strategic Plans
• takes place at three levels
• a) Corporate
• b) Business
• c) Functional
• Strategy Implementation

Evaluate Org Mission, goals, strategy
Strengths, Weakness, Opportunities, threats
Grand Strategy (growth, stability, Retrenchment,
Global
Framework for accomplishing used BCG
Porters competitive strategies Product Life
Cycle
Support the above strategies made
Tools used Leadership, structural design,
information system and HR
69

• Evaluate current
• Mission
• Goals
• Strategies

• Implement Strategy via Changes in
• __________
• __________
• __________
• __________

________ ________ ________________
Define New _________ _________