Study Unit 3: B.1.
Formulating and
Implementing Strategies
IV) Formulating Strategies
Once internal strengths/weaknesses and external opportunities/threats are assessed, a SWOT
analysis is performed.
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and its purpose is to help the
company:
Leverage strengths
Minimize weaknesses
Capitalize on opportunities
Counter threats
Management uses SWOT to develop strategic alternatives and then selects the set of strategies that
best align the company’s resources and capabilities with its external environment.
Types of Strategies Considered
1. Functional-Level Strategy
Focuses on improving internal operations in areas like manufacturing, marketing, product
development, materials management, and customer service.
Aims to build distinctive competencies through superior:
Efficiency (e.g., economies of scale, just-in-time systems, training, performance-linked pay)
Quality (e.g., Six Sigma, eliminating defects, reliability, excellence)
Innovation (e.g., R&D coordination with production, marketing, finance)
Customer Responsiveness (meeting needs better/faster, creating brand loyalty)
Superior performance in these areas enhances competitive advantage, leading to better profitability
and growth.
2. Business-Level Strategy
Defines the business’s position in the market and determines how it will compete. It requires
decisions on:
What customer needs to satisfy (cost vs. differentiation trade-offs)
Which customer groups to serve (broad vs. niche markets)
How to use distinctive competencies to satisfy those needs (efficiency, quality, innovation,
responsiveness)
The business model reflects these decisions and forms the basis for competitive strategy.
To outperform industry averages, companies can adopt four generic competitive strategies:
a) Cost Leadership
Achieves a lower cost structure than competitors
Focuses on efficiency, large-scale operations, and tight cost control
Risks: Quality compromise or competitors matching cost structure
In global markets, production economies of scale provide competitive advantage by reducing
unit costs through large-scale operations.
b) Focused Cost Leadership
Targets a narrow segment while maintaining low costs
Often used by small or local businesses with cost advantages in specific markets
c) Differentiation
Offers unique products through innovation, quality, or service
Allows premium pricing
Needs to manage costs without compromising uniqueness
Risk: Competitors may imitate successful differentiators
d) Focused Differentiation
Serves specific niches (e.g., baby products, organic food)
Offers specialized products tailored to narrow segments
Allows deep customer knowledge and innovation
Risk: Niche demand may decline or be overtaken by larger competitors
Note: Activities like improving product attributes or staff training are functional-level strategies, not
business-level strategies, even if they support business positioning.
3. Corporate-Level Strategy
Focuses on long-term positioning and broader questions like what industries the company should
compete in. Corporate strategies often involve forecasting industry trends to reposition the
company for future success in a dynamic environment. Managers assess changes in:
Industry dynamics
Technology
Customer preferences
Competitor behavior
These strategies guide the company in adapting or redefining its business model to maintain
relevance and profitability.
Common Corporate-Level Strategies:
a) Horizontal Integration
Acquiring/merging with competitors to:
Achieve economies of scale
Increase bargaining power
Replicate business models
Risk: Cultural clashes, management turnover, value destruction
b) Vertical Integration
Expanding upstream (suppliers) or downstream (distributors/customers) in the value chain
Enhances efficiency, differentiation, and responsiveness
Risk: Higher cost structure and reduced flexibility in fast-changing industries
Note: Backward integration enhances control over inputs, enabling improved production scheduling
and responsiveness to market shifts.
c) Strategic Alliances
Long-term collaborations between firms for mutual benefit (e.g., product development, supply
commitments)
Provide integration benefits without full mergers
d) Strategic Outsourcing
Delegating non-core value chain activities to specialized firms
Allows focus on core strengths
Benefits: Lower cost, improved differentiation
Risks: Overdependence (holdup) and loss of critical information
e) Diversification
Entering new industries to utilize existing competencies
Can be related or unrelated
Spreads risk but requires strategic fit and synergy
Goal: Enhance value and long-term profitability
V) Developing and Implementing the Chosen
Strategies
Once strategies have been selected to enhance performance and gain competitive advantage, they
must be put into action. This process is known as strategy implementation.
Implementation involves executing the strategic plan through actions and organizational alignment.
Strategy implementation happens within the framework of:
1. Organizational Structure
2. Control Systems
3. Organizational Culture
These three elements of organizational design work together to motivate and coordinate the
workforce to realize the company's distinctive competencies—efficiency, quality, innovation, and
customer responsiveness.
Organizational Structure
This defines:
Roles and responsibilities across the company
How tasks should be performed
Coordination across different departments and business levels (corporate, business, functional)
Structure helps:
Assign specific people to value-creating roles
Align efforts across departments and units to execute the strategies laid out in the business
model
2. Control Systems
These systems help managers:
Motivate employees to contribute to competitive advantage
Monitor performance against strategic goals
Adjust plans through feedback loops when performance is off-track
Effective controls ensure the organization stays aligned with its strategic direction and can adapt
when needed.
3. Organizational Culture
Culture represents the shared values, norms, and beliefs within the company. It shapes:
How employees interact
How they relate to external stakeholders
Behavioral expectations and daily conduct
Managers need to consciously foster the right culture, as culture supports or hinders strategy.
Sometimes, changing the structure is necessary to shift the culture.
Why Organizational Design Matters
These three elements (structure, systems, and culture) directly shape how strategies are carried
out.
They influence how people think, act, and collaborate within the organization.
Analyzing and refining these design elements can unlock better coordination, motivation, and
performance.
