Strategy Formulation and Implementation

STRATEGY FORMULATION and IMPLEMENTATION MANAGEMENT 6 th Ed. By: Richard Daft Prepared by: GREGAR DONAVEN E. VALDEHUEZA, MBA Lourdes College Instructor

Learning Objectives Define the components of strategic management Describe the strategic planning process and SWOT analysis Understand Grand Strategies for domestic and international operations Define corporate-level strategies and explain the portfolio approach Describe business-level strategies, including Porter’s competitive forces and strategies and partnership strategies Explain the major considerations in formulating functional strategies Enumerate the organizational dimensions used for implementing strategy

What is Strategic Management? 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.

Grand Strategy The general plan of major action by which an organization intends to achieve its long-term goals. Three general categories : Growth – can be promoted internally by investing in expansion or externally by acquiring additional business divisions. Stability (pause strategy) – that the organization wants to remain the same size or grow slowly and in a controlled fashion. Retrenchment – that the organization goes through period of forced decline by either shrinking current business units or selling off or liquidating entire business.

Global Strategy a separate grand strategy as the focus of global business. Three global strategies: Globalization – the standardization of product design and advertising strategies throughout the world. Multidomestic strategy – the modification of product design and advertising strategies to suit the specific needs of individual countries. Transnational strategy – a strategy that combines global coordination to attain efficiency with flexibility to meet specific needs in various countries.

Purpose of Strategy Choosing how the organization will be different. Strategy The plan of action that prescribes resource allocation and other activities for dealing with the environment and helping the organization attain its goals.

To remain competitive, companies develop strategies that focus on: Core competence A business activity that an organization does particularly well in comparison to competitors. Synergy The condition that exists when the organization’s parts interact to produce a joint effect that is greater than the sum of the parts acting alone. Value Creation The heart of strategy. Value can be defined as the combination of benefits received and costs paid by the customers.

Levels of Strategy Corporate-Level Strategy The level of strategy concerned with the question, “What business are we in?” . Pertains to the organization as a whole and the combination of business units and product lines that make it up. Business-Level Strategy The level of strategy concerned with the question, “How do we compete?” . Pertains to each business unit or product line within the organization. Functional-Level Strategy The level of strategy concerned with the question, “How do we support the business-level strategy?” . Pertains to all of the organization’s major departments.

Three Levels of Strategy in Organization Corporation Textile Units Chemicals Unit Auto Parts Unit Finance R & D Manufacturing Marketing Corporate-Level Strategy: What business are we in? Business-Level Strategy: How do we compete? Functional-Level Strategy: How do we support the business-level strategy?

Corporation Textile Units Finance R & D Manufacturing Marketing Corporate-Level Strategy: What business are we in? Business-Level Strategy: How do we compete? Functional-Level Strategy: How do we support the business-level strategy?

Strategy Formulation Versus Implementation Strategy Formulation The stage of strategic management that involves the planning and decision making that lead to the establishment of the organization’s goals and of a specific strategic plan. Strategy Implementation The stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes.

The Strategic Management Process Implement Strategy via Changes in: Leadership / Culture Structure Human Resources Information and Control System Scan External Environment: National Global Identify Strategic Factors: Opportunities Threat Scan Internal Environment: Core Competence Synergy Value Creation Identify Strategic Factors: Strengths Weaknesses Define New: Mission Goals Grand Strategy Formulate Strategy: Corporate Business Functional Evaluate Current: Mission Goals Strategies S W O T

Situation Analysis Analysis of the strengths, weaknesses, opportunities, and threats (SWOT) that affect organizational performance. Strengths Positive internal characteristics that the organization can exploit to achieve its strategic performance goals. Weaknesses Internal characteristics that might inhibit or restrict the organization’s performance. Opportunities Characteristics of the external environment that have the potential to help the organization achieve or exceed its strategic goals. Threats Characteristics of the external environment that may prevent the organization from achieving its strategic goals.

Formulating Corporate-Level Strategy Portfolio Strategy A type of corporate-level strategy that pertains to the organization’s mix of SBUs and product lines that fit together in such a way as to provide the corporation with synergy and competitive advantage. Strategic Business Unit (SBU) A division of the organization that has a unique business mission, product line, competitors, and markets relative to other SBUs in the same corporation.

The BCG Matrix A concept developed by the Boston Consulting Group that evaluates SBUs with respect to the dimension of business growth rate and market share.

Four Alternative Positions: Question Marks The business unit has low market share compared to competitors, however it is doing business in high-growth market. Stars The business has high market share compared to competitors and it is doing business in high-growth market. Cash Cows The market is not very attractive – low market growth rate, however the business has high market share compared to competitors. Dogs This business has low market share and operates in low-growth market.

Formulating Business-Level Strategy it is a strategy formulation within the strategic business unit in which the concern is how to compete. the same three generic strategies (growth, stability, and retrenchment) apply at the business level, but they are accomplished through competitive actions rather than the acquisition or divestment of business divisions.

Porter’s Five Competitive Forces Rivalry among Competitors Threat of Substitute Products Potential New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Internet tends to increase bargaining power of suppliers Internet reduces barriers to entry Internet blurs differences among competitors Internet creates new substitution threats Internet shifts greater power to end consumers

Competitive Strategies Differentiation a type of competitive strategy with which the organization seeks to distinguish its products or services from competitors. Cost Leadership A type of competitive strategy with which the organization aggressively seeks efficient facilities, cuts costs, and employs tight cost controls to be more efficient than competitors. Focus A type of competitive strategy that emphasizes concentration on a specific regional market or buyer group.

Partnership Strategies Organizational Combination Strategic Alliances Acquisitions Mergers Joint Ventures Strategic Business Partnering Preferred Supplier Arrangements High D E G R E E O F C O L L A B O R A T I O N Low

Formulating Functional-Level Strategy the action plans adopted by major departments to support the execution of business-level strategy. major organizational functions include marketing, production, finance, human resources, and research & development.

Strategy Implementation and Control Implementation is the final step in the strategic management process and it is how strategy put into action. Some people argue that strategy implementation is the most difficult and important part of strategic management.

Tools for Putting Strategy into Action STRUCTURAL DESIGN Design organization chart Create teams Determine centralization Arrange facilities, task design LEADERSHIP Use persuasion Motivate employees Shape culture/values HUMAN RESOURCES Recruit/select employees Manage transfers/promotions/training Direct layoffs/recalls INFORMATION AND CONTROL SYSTEMS Revise pay, reward system Change budget allocations Implement information systems Apply rules and procedures Organization Environment Strategy Performance

Implementing Global Strategies In the international arena, flexibility and superb communication emerge as mandatory leadership skills. Structural design must merge successfully with foreign cultures as well as link foreign operations to the home country. Information and control systems must fit the needs and incentives within local cultures. Recruitment, training, transfer, promotion, and layoff of international human resources create array of problems not confronted from other countries such as labor laws, guaranteed jobs, and cultural traditions of keeping unproductive employees on the job.

THE END Any clarification? HAVE A NICE DAY!!! 

Strategy Formulation and Implementation

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