STRATEGIC MANAGEMENT

03: STRATEGY FORMULATION

Birat Shrestha/ Resta Jha

MBA, KFA [Lincoln University]
January 2021, Saturday 9:30AM
 Corporate Strategy, Functional Strategy and Strategic Choice:
Levels of Strategy
• Corporate Level Strategy
– Describes a company’s overall direction in terms of its general attitude toward growth
and the management of its business and various product lines
– It fit within three categories – stability, growth, and retrenchment
• Business Level Strategy
– Occurs at the business unit or product level
– It emphasizes improvement of the competitive position of a corporation’s products or
services in the specific industry or market segment of that Strategic Business Unit (SBU)
• Functional Level Strategy
– It is the approach taken by the functional area to achieve corporate and business unit
objectives and strategies by maximizing resource productivity
– It is concerned with developing and nurturing a distinctive competence
– It is in the area of – finance, marketing, human resource, operations and production,
R&D departments
 Situational Analysis: SWOT
• SWOT
– Internal Strengths and Weaknesses
– External Opportunities and Threats
• SWOT analysis help managers to have a quick overview of
the firm’s strategic situation and assess whether there is a
sound fit between internal resources, values and external
environment – E-V-R congruence
• Strength and Weakness – competitive advantage that a
customer values – inherent limitations
• Opportunities and Threats – external issues that are
identified after environment and competitive analysis
ETOP [Environmental Threat and Opportunity Profile]
1. List Environmental Factors
2. Assess importance of Environmental Factors
– Assessing the impact (a relevant factor so analyzed might have positive or
negative impact as a threat)
– Combine to get a bigger picture (the importance of each factor and its impact
is compared to produce a compact overall picture)
Environmental Factors Impact
Political environment Opportunities [+] Threats [-]
Economical environment Opportunities [+] Threats [-]
Socio-cultural environment Opportunities [+] Threats [-]
Technological environment Opportunities [+] Threats [-]
Legal environment Opportunities [+] Threats [-]
 Strengths Weaknesses

Internal Competence Poor track

Analysis Finance Employee turnover
Market share Bureaucracy
Economies No R&D trend
SWOT Table

Technology Narrow product line

Management

Opportunities Threats

External New market segments Competitors

Analysis Vertical integration Substitute products
Market growth Government policies
Income level changes Changing economy &
Strategic alliances demography
Technological advances
 Generating Alternative Strategies Using TOWS Matrix
• SWOT analysis to assess the situation
• TOWS matrix – illustrates how the company’s internal
strengths and weaknesses matches the external opportunities
and threats facing the company
– Strengths (S) – list the specific areas of current and future strength
for the company
– Weaknesses (W) – list the specific areas of current and future
weaknesses for the company
– Opportunities (O) – list the external opportunities for the
company’s current and future environment
– Threats (T) – list the external threats facing the company now and
in future
 Strengths (S) Weaknesses (W)
List List
Opportunities (O) SO strategies WO strategies
Maxi-Maxi Mini-Maxi
List
Generate strategies Generate strategies
TOWS Matrix

here that use strengths here that take

to take advantage of advantage of
opportunities opportunities by
overcoming
weaknesses

Threats (T) ST strategies WT strategies

Maxi-Mini Mini-Mini
List Generate strategies
Generate strategies here that minimizes
here that uses weaknesses and avoid
strengths to avoid threats
threats
Competitive Business Strategies
• Cost Leadership
– Its building cost advantage over competitors and value for money – Nirma, Alto, Wal-
Mart effective for price sensitive markets
– Building competitive advantage through – economies of scale, experience curve effect,
vertical integrations with suppliers
• Differentiation
– Presenting products or services in a unique way for premium prices
– Differentiation can take various forms – brand image (Rolex, Levi’s, Pepsi, Coca Cola),
Technology (Samsung, Sony, Honda), customer service (HDFC Bank, Kingfisher
Airlines), channel (Amway, Tupperware, Eureka); Mc Donald's environment &
brand perception
• Focus
– It is targeting a niche segment of specific narrow market (Rolls-Royce, Harley Davidson,
Cross Pens, Nikon)
– Its appropriate to launch a product with superior expertise where gaps are not covered
by existing players
 Corporate Strategy
• Directional Strategy – firm’s overall orientation
toward growth, stability, or retrenchment
• Portfolio Strategy – managing business units to
compete
• Corporate Partnering – how a management
coordinates activities, resources, capabilities
among product lines and business units
 Directional Strategy
• Growth Strategy (expand the company’s activities)
– Integration
• Vertical backward (supply side) & vertical forward (client side)
• Horizontal (internal branch expansion or external M&As)
– Diversification (concentric related products &
conglomerate unrelated products, services)
– International Business Entry Options
• Trade mode (import/export)
• Contractual mode (licensing, franchising, contract
manufacturing )
• Investment mode – FDI
 Directional Strategy
• Stability Strategy
– Pause/Proceed with Caution Strategy (wait & see)
– No Change Strategy (current operations & policy)
– Profit Strategy (reducing shot-term investments & discretionary
expenses)
• Retrenchment Strategy
– Turnaround Strategy (improving operational efficiency through
restructuring, contraction and consolidation)
– Captive Company Strategy (searching for angel investor)
– Sell-Out/Divestment Strategy (selling a company or a SBU)
– Bankruptcy/Liquidation Strategy (termination of the firm by selling
assets by court proceedings)
 Portfolio Analysis
• Companies with multiple product lines or business units must
analyze how these various products and business units should be
managed to boost overall corporate performance
– How much of our time and money should we invest on our best products
and business units to ensure that they continue to be successful?
– How much of our time and money should we invest developing new costly
products, most of which will never be successful?
• In portfolio analysis, top management views its product lines and
business units as a series of investments from which it expects a
profitable return
• The top management must constantly juggle to ensure the best
return from the portfolio of business units or product lines.
 BCG Matrix
• BCG (Boston Consulting Group) is a
growth-share matrix – a way to portray a
corporation’s portfolio of investments
• BCG Matrix compares various businesses
in an organization’s portfolio on the basis
of relative market share and market
growth rate
 BCG Matrix
Relative Market Share
High Low
STARS QUESTION MARKS
Strategy: invest for position Strategy: invest for growth
High maintenance & growth
Market Growth Rate

as market potential exists or

else sell

CASH COW DOGS

Strategy: invest to maintain Strategy: wait till it brings in
Low current level as they bring in money or divest to focus on
cash that can be used to stars
maintain stars or grow
question marks, or divest
 GE-Nine Cell
• General Electric, with assistance of the McKinsey and Company
consulting firm, developed an enhanced matrix – GE Business Screen
• The industry attractiveness includes market growth rate, industry
profitability, size, among other possible strengths and weaknesses
• In the matrix there are two dimensions – industry attractiveness and
relative business strength
– Industry attractiveness is measured by – size of the market, market growth
rate, industry profitability, competitive intensity, economies of scale,
technological requirements
– Relative business strength – market share, profit margin, ability to compete
on price and quality, customer knowledge, market competitiveness strengths
and weaknesses, technological capability, management caliber
 Business Strength/Competitive Position
Strong Average Weak
A Winners B Winners C
High Question Marks
GE-Nine Cell Matrix
(Protect Position) (Invest to
Industry Attractiveness Build) (Build
Selectively)
E Winners F Average
Medium Businesses Losers
(Build Selectively) (Selectively/
Manage for (Limited
Earnings) Expansion or
Harvest)
Profit Producers G Losers H Losers
Low
(Protect and Re- (Manage for (Divest)
focus) Earnings)
 Corporate Partnering
• Joint Venture
– It is a way of implementing a strategy like M&A
– It helps firms to spread risks by jointly undertaking projects
– Companies involved take an equity stake in the newly formed entity as both
the companies will also be functioning as separate entities
• Strategic Alliances
– Partners contribute their skills, expertise in a project
– It can also be a licensing agreement
• Consortia – it is an interlocking relationships between businesses of
an industry
 Core Competency

• Core and distinctive competencies

– the sum of competencies that is widespread within
the organization and also a source of competitive
advantage or edge over competitors
– a competency is something that an organization is
good at doing by learning
• Expertise in integrating multiple technologies to create a
new product
• Cost efficient supply chain management
• Expertise in after-sales service
• Skills in manufacturing high quality products at low cost
 Functional Strategies
• Marketing Strategy
– Marketing mix strategy – 4Ps
– Market growth strategy
• Financial Strategy
– Capital structure and its sources
– Budget expenditure and revenue model
• Human Resource Strategy
– Recruitment source and selection approach
– Motivation, compensation, training, and
employee retention plan
• Operations and Production Strategy
– Manufacturing or outsourcing
– Quality control mechanism
 Assignment (Individual)
Company Strategy Report Presentation
• Select a company and provide its introduction
• The environment that affects its industry the most and its
reason
• Define its mission statement, vision & its corporate objective
• Industry analysis using P5F Model
• Discuss its strategy in terms of
– The opportunity it has capitalized on and its major strengths
– Corporate, business, and its functional strategies
– BCG Matrix for its four of the business portfolios
– Its strategic alliances
– Business growth strategy
 Thank You/Best Wishes
• Questions/Answers/Discussions