Managing Strategy and Strategic Planning Strategy
A comprehensive plan for accomplishing organizational goals Strategic management: A comprehensive and ongoing management process aimed at -Formulating and, -Implementing .effective strategy
Effective Strategy
A strategy that promotes-a superior alignment between the organization and its environment and, -the achievement of strategic goals
Strategic Management Process
lVision lMission lCrafting
Strategy lStrategy implementation lControlling
Distinctive competence
An organizational strength possessed by only a small number of competing firms
lCore
competence lCompetitive advantage
Scopes & Resource deployment
Scope: The scope of a strategy specifies the range of markets in which an organization will compete Resources deployment: How an organization distributes its
resources across the areas in which it competes
Types of Strategic Alternatives
strategy Set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or market lCorporate-level strategy As it manages its operation simultaneously across several industries and several markets
lBusiness-level
SWOT
lStrength lWeakness lOpportunities lThreat
Porters Generic Strategies
lOverall
cost leadership Strategy lDifferentiation strategy lFocus strategy
What is Situation Analysis?
Two considerations: ** Companys external or macroenvironment [Industry and competitive conditions] **Companys internal or microenvironment [Competencies, capabilities, resource strengths and weaknesses, and competitiveness]
What Is Situation Analysis?
l
Industry analysis
Company analysis
Situation Analysis
Industry analysis Or,
External or macroenvironment
Key consideration regarding Industry Analysis
Assess Industry & Competitive Conditions
lIndustrys
dominant economic traits
lNature
of competition & strength of competitive forces lDrivers of industry change lCompetitor Analysis lKey success factors lConclusions about industry attractiveness
What are the Industrys Dominant Economic Traits?
lMarket
size and growth rate lScope of competitive rivalry lNumber of competitors and their relative sizes lNature and pace of technological change lProduct and customer characteristics lIndustry profitability
What is Competition Like and
How Strong are the Competitive Forces? Objective is to identify
lMain
sources of competitive forces lStrength of these forces
Key analytical tool -Five Forces Model of Competition
Five Forces Model of Competition
Five sources of competition
lRivalry
from the other seller lCompetition from the potential new entrant lCompetition from the substitute product lCompetition from the suppliers lCompetition from the buyer
Analyzing the Five Competitive Forces: How to Do It ???
lExplain
how each force acts to create competitive pressureWhat are the factors that cause each force to be strong or weak? whether overall competition (the combined affect of all five competitive forces) is brutal, fierce, strong, normal/moderate, or weak
lDecide
What Causes Rivalry to be Stronger?
lActive
jockeying for position among rivals and frequent launches of new offensives to gain sales and market share
lOne or more firms initiates moves to
strengthen their standing at expense of rivals
lLots
of firms that are relatively equal in size and capability lSlow market growth
What Causes Rivalry to be Stronger?
lCustomers
have low costs in switching to rival brands lA successful strategic move carries a big payoff lCosts more to get out of business than to stay in lFirms have diverse strategies, corporate priorities, resources, and countries of origin
Competitive Force of Potential Entry
of threat depends on - Barriers to entry - Reaction of existing firms to entry lBarriers exist when -Newcomers confront obstacles -Economic factors put potential entrant at a disadvantage relative to incumbent firms
lSeriousness
Factors Affecting the Threat of Entry
Entry threats are stronger when lThe pool of entry candidates is large lEntry barriers are low or can be readily hurdled by the likely entry candidates lIndustry members are earning attractive profits lBuyer demand is growing rapidly
Factors Affecting the Threat of
Entry
Entry threats are weaker when lThe pool of entry candidates is small lEntry barriers are high lExisting competitors are struggling to earn good profits lThe industrys outlook is risky or uncertain lBuyer demand is growing slowly or is stagnant
Common Barriers to Entry
lSizable economies of scale lInability to gain access to specialized
technology lStrong brand preferences and customer loyalty lLarge capital requirements and/or other specialized resource requirements
lDifficulties
in gaining access to distribution channels lRegulatory policies, tariffs, trade
restrictions
Competitive Force of Substitute Products
Substitutes matter when customers are attracted to the products of firms in other industries
How to Tell Whether Substitute Products are a Strong Force
-Sales of substitutes are growing rapidly -Producers of substitutes plan to add new capacity -Profits of producers of
substitutes are up Factors Affecting Competition from Substitutes
Competitive pressures from substitutes are stronger when lGood substitutes are readily available or new ones are emerging lSubstitutes are lower priced relative to the performance they deliver lBuyers have low costs in switching to substitutes lBuyers grow more comfortable with using substitutes
Factors Affecting Competition from Substitutes
Competitive pressures from substitutes are weaker when: lGood substitutes are not readily available or dont exist lSubstitutes are higher priced relative
to the performance they deliver lBuyers have high costs in switching to substitutes
Strategy Types
Prospector Innovation and growth oriented Defender Protect current markets, maintain stable growth Analyzer Maintain current market and moderate emphasis on innovation Reactor No clear strategy, reacts to changes in the environment, drift with event
Product Life Cycle
Introduction stage Growth stage Mature stage Decline stage
It is important to identify the different stages of the product life cycle because it requires different set of strategies in different stages of a product life cycle
Diversification Strategy
What is diversification? lRelated diversification lUnrelated diversification
Advantages of Diversification
lIt
reduces an organizations dependence on any one of its business activities and thus reduces economic risks lIt reduces overhead costs associated with managing any one business lSynergy effect [ 1+1=3]
Internal Development
Integration -Forward Integration -Backward Integration lHorizontal Integration lMerger lAcquisition
lVertical
Managing Diversification
BCG Matrix [Boston Consulting Group] A method of evaluating businesses relative to the growth rate of their market and the organizations share of the market
BCG MATRIX
