Chapter 8-Strategy formulation and execution

Thinking strategically
1. What does it mean to think strategically?
  1. Strategic thinking means to take the long-term view and to see the big picture including the organization and the competitive environment and consider how they fit together
    1. Who is it important for?
      1. Important for both the businesses and nonprofit organizations
        Typically pertains to competitive actions in the workplace
    2. CEOs at successful companies
      1. For an organization to succeed the CEO must be actively involved in making the tough decisions and trade-offs that define and support strategy
What is strategic management?
1. Refers to the set of decisions and actions used to formulate and execute strategies that will provide A competitively superior fit between the organization and its environment so as to achieve organizational goals
  1. Plans and actions that lead to superior competitive standing
2. Managers ask questions such as the following:
  1. What changes and trends are occurring in the competitive environment?
    1. Who are our competitors and what are their strengths and weaknesses?
      1. Who are customers?
        What products or services should we offer and how can we offer them most efficiently?
        What does the future hold for industry, and how can we change the rules of the game?
3. Purpose of strategy
  1. What is the definition of strategy?
    1. It is the plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage, and attaining the organization's goals
  2. Competitive advantage
    1. Refers to what sets the organization apart from others and provides it with a distinctive edge for meeting customer or client needs in the marketplace.
    2. How to remain competitive?
      1. Strategies that focus on core competencies, provide synergy, and create value for customers.
        Exploit Core competence
        Means: it is something the organization does especially well in comparison to its competitors.
        The core competence may be in the area of superior research and development, expert technological know-how, process efficiency, or exceptional customer service.
        Build synergy
        Synergy: When organizational parts interact to produce a joint effect that is greater than the sum of the parts acting alone.
        Organization may attain a special advantage with respect to cost, market power, technology, for management skill. This can create additional value with existing resources, providing a big boost to the bottom line. Can also be obtained by good relationships between organizations.
        Deliver value
        Value can be defined as the combination of benefits received and costs paid.
        Example: Time Warner cable and Comcast offer value packages
  3. Levels of strategy
    1. Strategic managers normally think in terms of three levels of strategy
      1. What business are we in?
        Corporate level strategy
        Pertains to the organization as a whole and the combination of business units and product lines that make up the corporate entity.
        Strategic actions at this level usually relate to the acquisition of new businesses; additions for divestments of business units, plants, or product lines and joint ventures with other corporations in the new area.
      2. How do we compete?
        Business level strategy
        Pertains to each business unit or productline.
        Strategic decisions at this level concern amount of advertising, direction and extent of research and development, product changes, new product development, equipment and facilities, and expansion or contraction of product and service lines.
      3. How do we support the business level strategy?
        Functional level strategy
        Pertains to the major functional departments within the business unit.
        Functional strategies involve all the major functions including finance, Research and development, marketing, and manufacturing.
The strategic management process
1. *Pg 208 chart*
2. Strategy formulation versus execution
  1. May include accessing the external environment and internal problems and integrating the results into goals and strategy.
    1. Process is in contrast to strategy execution
      1. Which is the use of managerial and organizational tools to direct resources toward accomplishing strategic results. Managers may use persuasion, new equipment, changes in Organization structure, or A revised re-ward system to ensure that employees and resources are used to make formulated strategy A reality.
3. SWOT Analysis
  1. includes a careful assessment of strengths, weaknesses, opportunities, and threats that affect the organization's competitive situation.
    1. Managers obtain external information about opportunities and threats from a variety of sources, including cutovers, government reports,professional journals, suppliers, bankers, friends in otter organizations, consultants, or association meetings.
      1. Firms contract with special scanning organizations to provide them with newspaper clippings, Internet research, and analyses of relevant domestic global trends.
        or hire competitive intelligence professionals to scope out competitors
  2. Internal Strengths and Weaknesses
    1. Strengths: are positive internal characteristics that the organization can exploit to achieve its strategic performance goals.
      1. Weakness are internal characteristics that might inhibit or restrict organization's performance.
  3. External Opportunities and Threats
    1. Threats: are characteristics of the external environment that may prevent the organization from its achieving strategic goals.
      1. Example: Microsoft is the proliferation of cheap or free software available over the Internet.
    2. Opportunities: characteristics of the external environment that have the potential to help the organization achieve or exceed its strategic goals.
Formulating Corporate Level-Strategy
1. Three approaches to understanding corporate-level strategy are portfolio strategy, the BCG matrix, and diversification
  1. Portfolio Strategy: pertains to the mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage for the corporation.
    1. Strategic business units (SBUs): a balanced mix of business divisions
  2. BCG (Boston Consulting Group) Matrix: organizes businesses along two dimensions-business growth rate and market share.
    1. Business growth: pertains to how rapidly the entire industry is increasing.
    2. Market share: defines whether a business unit has a larger or smaller share than competitors.
    3. Combinations of high and low market share and high and low business growth provide 4 categories for a corporate portfolio
      1. Star: has a rapid growth and expansion.
      2. Cash cow: exist in a mature, slow growth industry but is a dominant business in the industry, with a large market share. Because heavy investments in advertising and plant expansion no longer required, the corporation earns a positive cash flow. It can milk the cash cow to invest in other, riskier businesses.
      3. Question mark: exists in a new, rapidly growing industry, but ha only a small market to share. Business is risky: it could become a star or it could fail.
      4. dog: is a poor performer. It has only a small share of a slow-growth market. The dog provides Little profit for the corporation and maybe targeted or divestment or liquidation if turnaround is not possible.
  3. Diversification Strategy: the strategy of moving into new lines of business, by getting into health care and alternative forms of energy.
    1. The purpose of diversification is to expand the firm's business operations to produce new kinds of valuable products or services.
      1. related diversification: new business is related to the company's existing business activities.
      2. Unrelated diversification: occurs when an organization expands into a totally new line of business.
      3. Vertical integration: means the company expands into businesses that either produce the supplies needed to make produce and services or that distribute and sell those products and services to customers.
Formulating Business Level Strategy
1. Michael E. Porter: made the competitive forces and strategies chart (five competitive forces in company's environment) (*chart on page 215*)
  1. Potential new entrants: A term that describes market participants that have recently entered a market or industry sector.
  2. Bargaining power of buyers: Informed customers become empowered customers. The Internet provides easy access to a wide array of info about products, services, and competitors that greatly increase the bargaining power of end customers.
  3. Bargaining power of suppliers: The concentration of suppliers and the availability of substitute suppliers are significant factors in determining supplier power.
  4. Threat of substitute products: the power of alternatives and substitutes for a company's product may be affected by changes in cost or in trends such as increased health consciousness that will deflect buyer loyalty.
  5. Rivalry among competitors: with leveling the force of the Internet and info technology, it has become more difficult for many companies to find ways to distinguish themselves from their competitors which intensifies rivalry.
2. Porter's Competitive Strategies
  1. A company can adopt one of the three strategies: differentiation, cost leadership, or focus to enter markets (*look at chart labeled^*)
    1. Differentiation Strategy: involves the attempt to distinguish the firms products or services from others in the industry
    2. Cost leadership: organization aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors.
    3. Focus strategy: organization concentrates on a specific regional market or buyer group.
3. Formulating Functional-Level Strategy: are the action plans used by major departments to support execution of business level strategy.
New Trends in Strategy
1. Flexibility and Strategic Partnerships
Global Strategy
1. many organizations operate globally and pursue a distinct strategy as the focus of global business.
2. Globalization Strategy
  1. means that product and advertising strategies are standardized throughout the world. (approach is based on the assumption that a single global market exist for many consumer and industrial products.
3. Multi-domestic Strategy
  1. means that competition in each country is handled independently of industry competition in other countries.
4. Transnational Strategy
  1. seeks to achieve both global standardization and national responsiveness. [a true transnational strategy is difficult to achieve, because one goal requires close global coordination while the other goal requires local flexibility.
Strategy Execution
1. how strategy is put into action
2. Alignment: that everyone is moving in the same direction.
3. Execution involves several tools:
  1. Visible Leadership: ability to influence people to adopt the new behaviors needed for putting the strategy into action.
  2. Clear Roles and Accountability: To execute strategy effectively, top executives clearly define roles and delegate authority to individuals and teams who are acceptable for results.
  3. Candid Communication: Managers openly promote their ideas, but they also listen to others and encourage disagreement and debate.
  4. Appropriate HR practices: it recruits, selects, trains, compensates, transfers, promotes, and lays off employees to achieve strategic goals.

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Chapter 8-Strategy formulation and execution

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