STRATEGY

FORMULATION
 Strategic Management Model

Environmental Strategy Strategy Evaluation

Scanning Formulation Implementation and Control
Mission
External
Reason for
Societal
existence
Environment Objectives
General Forces
What results
to
Task Strategies
accomplish
Environment
by when Plan to
Industry Analysis
achieve the Policies
mission &
Internal objectives Broad
guidelines for Programs
Structure decision Process
Chain of Command making Activities to monitor
needed to performance
Budgets
Culture accomplish and take
Beliefs, Expectations, a plan corrective
Cost of the
Values action
programs
Procedures
Resources
Sequence
Assets, Skills
of steps
Competencies,
needed to
Knowledge do the job Performance

Feedback/Learning
Strategy formulation: Strategic planning or long-range planning and is concerned
with developing a corporation’s mission, objectives, strategies and policies.

Situational Analysis: Process of finding a strategic fit between external

opportunities and internal strengths while working around external threats and
internal weaknesses (SWOT factors).

The Analysis Should Result in:

• Identification of corporation distinctive competencies;
• Capabilities and resources the firms possesses and used;
• Identification of the opportunities that the firm is not currently able to take
advantage of.
• Corporate Strategy
• Directional Strategy
• The firms overall orientation towards growth, stability, or retrenchment
• Portfolio Strategy
• The industries in which the firm competes through its products and business units
• Parenting Strategy
• The manner in which management coordinates activities and transfer resources
• Business Strategy
Focuses on improving the competitive position of a company’s or business unit's products
.
or services within the specific industry or market segment that the firm serves
Business Strategy can be :
• Competitive, cost leader, differentiation, focus
• Cooperative, strategic alliance

• Functional Strategies
Functional strategy is the approach of functional area takes to achieve corporate and
business unit objectives by maximizing resource productivity.
Strategy-Formulation Framework

External Factor Evaluation

Matrix (EFE)

Stage 1: Internal Factor Evaluation

The Input Stage Matrix (IFE)

Competitive Profile Matrix

(CPM)
Key Strategic Factors Weight Rating Weighted Duration Comments
Score
I II III

• S1 Quality Maytag Culture .10 5 .50 x Quality key to success

• S3 Hoover International orie. .10 3 .30 x Hover name in cleaners
• W3 Financial position .10 2 .20 x High debt load
• W4 Global positioning .15 2 .30 x Hoover weak outside UK
and Australia
• O1 Economic integration of
European community .10 4 .40 x Acquisition of Hoover

• O2 Demographics favor quality

appliances .10 5 .50 x Maytag quality
• O5 Trend to “super Stores” .10 2 .20 x Hoover name in
cleaners
• T3 Whirlpool and Electolux strong
globally .15 3 .45 x Hoover week globally
• T5 Japanese appliance companies .10 2 .20 x Asian presence in Aust
Total Score 1.00 3.05

I Short:< one year II Intermediate: 3-5 years III Long> 5 years

Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage
IE Matrix

Grand Strategy Matrix

 Internal Factors Strengths (S) Weaknesses (W)
(IFAS)
List 5-10 internal List 5-10 internal
strengths here weaknesses here
External
Factors (EFAS)

Opportunities (O) SO Strategies WO Strategies

List 5-10 external Generate strategies here that Generate Strategies here
opportunities here use strengths to take that take advantages of
advantages of Opportunities opportunities by
overcoming weaknesses

Threats (T) ST Strategies WT Strategies

List 5-10 external Generate strategies here Generate strategies here

threats here that use strengths to that minimize weaknesses
avoid threats and avoid threats
 Internal Factors Strengths (S) Weaknesses (W)
(IFAS) S1 Quality Maytag culture W1 Process -oriented R&D
S2 Experienced top management W2 Distribution channels
S3 Vertical integration W3 Financial position
External S4 Employee relations W4 Global positioning
S5 Hoover’s international orientation W5 Manufacturing facilities
Factors (EFAS)

Opportunities (O) SO Strategies WO Strategies

O1 Economic integration Europe Expand Hoover’s in Europe by
O2 Demographics favor quality • Use world wide Hoover distribution
channels to sell Hoover and Maytag improving Hoover quality and
O3 Economic development in Asia major appliances. reducing manufacturing and
O4 Opening of Eastern Europe • Find joint venture partners in distribution cost.
Eastern Europe and Asia.
O5 Trend towards super stores • Emphasize superstore channel
for all non-Maytag brand.

Threats (T) ST Strategies WT Strategies

T1 Increase government regulation • Acquire Raytheon’s appliance business • Sell off Dixi-Narco Division to reduce
T2 Strong US Competition to increase US market Share. debt.
T3 Whirlpool and Electralux • Merge with a Japanese major home • Emphasize cost reduction to reduce
positioned for global economy appliances company. break-even point.
T4 New product advances • Sell off all non-Maytag brands. • Sell out to Raytheon or Japanese firm.
T5 Japanese appliance companies Strongly defend Maytag’s US niche.
 Does not show how to achieve a competitive advantage
 Provides a static assessment in time
 May lead the firm to overemphasize a single internal or
external factor in formulating strategies
Directional Strategy
• The firms overall orientation towards growth, stability, or retrenchment

Portfolio Strategy
• The industries in which the firm competes through its products and
business units
• Coordination of the cash flow among units

Parenting Strategy
• The manner in which management coordinates activities and transfer
resources
• Building corporate synergies through resource sharing and
Directional Strategy
• Growth Strategies
• Concentration growth within current industry (Current product line)
• Vertical Integration (forward integration and backward integration)
• Horizontal integration (by expanding the firm’s products into other geographical
locations and/or by increasing the range of products and services offered to the current
market)
• Diversification into other industries
• Concentric (related business)
• Conglomerate (unrelated business)
• Stability Strategies
• No change Strategy
• Profit Strategy
• Retrenchment Strategies
• Turnaround
• Divestment Strategy/Sell- Out
• Bankruptcy/ Liquidation Strategy
 DIRECTIONAL STRATEGIES
CONCENTRIC GROWTH
-Market penetration
-Market development
-Product development
-Divestiture

INTEGRATION COLLABORATION DIVERSIFICATION

-Horizontal -Joint venture -Concentric
-Vertical (forward, backward -Strategic Alien -Conglomerate

Stability/
Retrenchment
-Stability
-Cut off / Sale out
-Liquidation
Directional Strategy
Group Strategy
Our goal as a Group is to lead the sporting goods industry with
brands built on a passion for sports and a sporting lifestyle. We are
a consumer-driven company and everything we do focuses on
strengthening and developing our brands to maximize the
Group’s performance. With the acquisition of Reebok, we have
extended our global position, gaining a broader presence in key
markets, consumer segments and product categories. With our
combined strengths, we aim to widen the profile we have with
consumers and enhance brand profitability by execution of a well-
defined strategy.
Portfolio Analysis

• How much of our time and money should we spend on our best products to ensure that
they continue to be successful?
• How much of our time and money should we spend developing new costly products,
most of which will never be successful

Basic Assumption
• Some business generate more cash that they need to maintain or expand their business
•Other business are the opposite
• Corporation portfolio should be balanced in terms of cash and opportunity

Portfolio analysis was a main focus of strategy in 1970’s

 Portfolio Analysis

Boston Consulting Group

BCG growth-share matrix

Relative market share: sales

relative to those of other
competitors in the market

Growth rate: Industry growth rate

in constant dollars
Portfolio Analysis
 ABC Matrix of Mc Kinsey

High A A B
Power of
Corp.
average A B C

low B C C

high medium low

Attractiveness of industry
Advantage of Portfolio Approach
• It evaluates each of the corporation’s business individually
• It stimulate the use of external oriented data to assist management judgment
• It raises the issue of cash flow availability for use in expansion and growth
• Its graphic presentation facilitates communication

Limitation /Disadvantages of Portfolio Approach

• It is not easy to define product market /segment
• It suggests the use of standard strategies that can miss opportunities
• The positions are based on subjective judgments
• It is not always clear what makes an industry attractive
• In some cases it leads to wrong decisions
Grand Strategy Matrix
 Tool for formulating alternative strategies
 Based on two dimensions
 Competitive position
 Market growth
 RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Related diversification
WEAK STRONG
COMPETITIVE
COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Related diversification
2. Related diversification 2. Unrelated diversification
3. Unrelated diversification 3. Joint ventures
4. Divestiture
5. Liquidation

SLOW MARKET GROWTH

Strategy-Formulation Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage
IE Matrix

Grand Strategy Matrix

Business Strategies

Generic or Competitive Business Strategies

(Developed by Michael Porter)
Business Strategies
Business Strategies

Cost Leadership: achieve a lower cost position than your competitors

• Economies of scale
• Production efficiency
• Technological advantage

Examples of cost leaders: Wall mart, South –West Airlines, and Alamo Rent a Car

To Realize a Cost Leader Strategy

Skills and Resources Organizational Requirements

• Sustained capital investment • Tight cost control

• Process engineering skills • Detailed control reports
• Intense supervision on labor • Structured organization
• Product designed for ease in • Incentive based on meeting targets
manufacturing. • Simple organization structure
• Low cost distribution system
Business Strategies
Differentiation
Attempt to create differences in the relative perceived value of firm’s products or services
• Product feature
• Product mix
• Links with other firms
Examples of companies using differentiation strategy: Walt Disney productions, Nike
athletic shoes, Mercedes Benz, and Maytag appliances

To Realize a Differentiation Strategy

Skills and Resources Organizational Requirements
• Strong marketing ability • Strong coordination between functions in R&D,
product development, and marketing

• Product engineering • Subjective measurement and incentives instead

of quantitative measurements.

• Strong capabilities in research • Amenities to attract highly qualified labor,

scientists, or creative people
 Business Strategies
Focus
Cost focus is low-cost competitive strategy that focuses on particular buyer group or
geographical market and attempts to serve only this niche.

Differentiation focus, like low-cost focus, concentrates on a particular buyer group, product line
segment, or geographical market.

To Realize a Focus Strategy: a combination of mentioned policies of low-cost leadership and

differentiation directed at particular strategic targets needed.

Risks of Generic Competitive Strategies

Cost Leadership Differentiation Focus
Cost leadership is not Differentiation is not The focus strategy is imitated:
sustained: Sustained: - Target segment become unattractive
- Competitors imitate - Competitors imitate - Competitors target the same segment
- Technology changes - Bases become less important - New focuses sub segment in industry
- Cost bases erode
Cost focuser achieve Differentiation cost achieve
even lower cost even greater differentiation
in segments
Business Strategies

Generic or Competitive Business Strategies

(Developed by Michael Porter)

Porter’s warning
No clear choice between cost leadership and differentiation is an
unprofitable position = “stuck in the middle with no competitive
advantage”

What about companies that attempt to achieve both low cost and
high differentiation ?
Business Strategies
Competitive strategies and tactics used to gain competitive advantage within an
industry by battling against other firms.

Corporate/ collaborate strategies can also be used to gain competitive advantage

within an industry by working with other firms.

Collusion
Collusion is the active cooperation of independent firms to reduce output and raise
prices in order to get around the normal economic law of supply and demand.
• Explicit collusion (direct communication) is illegal in most countries
• Tacit collusion (no direct communication) could be successful.
Business Tactics
Tactics in Competitive Strategies
A tactic is a specific plan detailing how a strategy is to be implemented in terms when
and where it is to be put to action. Some of the tactics are timing (when) tactics and
market location (where ) tactics.

Timing (when to compete)

• First mover (pioneer) is the first company manufacture and sell products in particular
market. First mover enjoys many advantages if successful.
• Late mover has lower risks, advantages, and disadvantages.

Market Location Tactics (where to compete)

• Front Assault: The firm goes head to head with its competitors.
• Flanking maneuver: Concentrate on part of the market in which competitor is weak.
• Bypass attack: The attacker change the rules of the game.
• Encirclement: Encircle the competitors position in terms of product or market or both.
• Guerrilla warfare: “Hit and Run”, no counter-attack, no lasting advantage.

Defensive Tactics(designed to lower the possibility of an attack)

• Raise barriers: make it expensive to enter; occupy the full market
• Expected retaliation: Behave & speak so that entrant will expect retaliation.
• Lower inducement: Keep price low.
Functional strategy is the approach of functional area takes to achieve corporate
and business unit objectives by maximizing resource productivity.

Core Competence
Core Competence is something that the corporation can do exceedingly well. It is a key
strength. A core competence is a distinctive competence when;
• Has a customer value (Increase the perceived value by the customers)
• Competitor unique (Our competitor do not have it)
• Extendibility (It can be used for several products/markets)

A corporation can gain access to a distinctive competency in four ways

• It may be an asset, such as a key patent
• It may be acquired from some one else.
• It may be shared with another business unit or alliance partner
• It may be build and accumulated over time within the company
Outsourcing
Outsourcing is purchasing from someone else a product or service that had
been previously provided internally.

Outsourcing occurs frequently in functions such as

• Accounting
• Information Technology
• Catering, Housekeeping, Security
• Maintenance and Repair
• Manufacturing
• Customer Service
• Parts of marketing, Sales (Tradition of outsourcing through agents)

Activities requiring the distinctive competencies should generally not be

outsourced.
Marketing Strategy
Marketing Strategy deals with pricing, selling, and distribution of a product.
Market Development Strategy
• Increase the market share in the existing market
• Develop new market for current products
Product development Strategy
• Develop a new product for the existing markets
• Develop new products for new markets

Advertising and promotion strategy

• Push (spending great amount of money to get the product to retails outlets)
• Pull Strategy (advertising to pull the product through distribution channels)
Pricing and Distribution Strategy
• Skim pricing (by new products)
• Penetration pricing (Trying to gain market share)
Operation Strategy
Determines how and where a product or service is to be manufactured, the level of horizontal
integration in the production process, and the relation with suppliers.
Operations Strategies
• Affected by the product life cycle (scale of the operation).
• From mass production to continues improvement system.
• Mass customization as the next step in operations strategy.
Purchasing Strategy
Deals with obtaining the raw materials, parts, and supplies needed to perform the operations
functions.
Purchasing Strategies
• Multiple sourcing
• Sole sourcing and co-makership
• Parallel sourcing (two suppliers who are the sole suppliers for two different parts
but they are also back up suppliers for each other’s parts).
Logistic Strategy
Deals with the flow of products into and out of the process
• Three current trends:- Centralization, Outsourcing, and Use of the Internet
Financial Strategy
Examine the financial implications of the corporate and business -level strategy
options and identify the best financial course of action.
• Competitive advantage can be reached through lower cost of funds.
• Attempt to maximize the financial value of the firm
Financial Strategies
• Balancing desired debt- to -equity ratio and relying on long term financing via cash flow.
• Desired level of current versus long - term investments
• Leverage buy out, a company is acquired and financed by debt.
• Dividend to share holders versus investing the money in the growing operation

R&D Strategy
Deals with:
• Product and process innovation and improvement.
• Appropriate mix of different types of R&D. (Basic, product, or process).
• Internal development of new technology or external acquisition.
Technological leader or follower?
Advantage of being technological leader or follower are overall low cost or differentiation's
advantages. (Examples: Nike, Gillette)
 Quantitative Strategic Planning Matrix - QSPM

weight Alternatives
Strategic factors CL 1 CL 2 CL 3
AS TAS AS TAS AS TAS
External environment
-Opportunities
- Threats
Internal environment
-Strengths
-Weakness
Others

Total
Strategic selection : UP-STAIR

R (RESOURCE)
I (IMPLEMENTATION)

A (ADVANTAGE)
T (TIMING)
S (SIMPLE)
Strategic selection : DOWN-STAIR

S (SUPERFICAL)

T (Temporary & Tactical)

A (ACTIVELY RESISTED)
I (IMPRACTICAL)
R (RISKY)