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Strategy formulation:
Strategy formulation is the development of long range plans for the effective management of environmental opportunities and threats in light of
corporate strengths and weaknesses. It includes defining the corporate mission, specifying achievable objectives, developing strategies and setting
policy guidelines. It begins with situational analysis. The simplest way is to analyze through is SWOT analysis. This is the method to analyze the
strengths and weakness in order to utilize the threat and to overcome the threat. SWOT is the acronym for Strength, Weakness, Opportunities and
Threats. The TOWS matrix illustrates how the external opportunities and threats facing a particular corporation can be matched with that company’s
internal strengths and weaknesses to result in four sets of possible strategic alternatives.
Strategies:
A strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives. It maximizes
competitive advantage and minimizes competitive disadvantage.
Types of strategy:
The typical business firm considers three types of strategy:
Corporate strategy:
It describes a company's overall direction in terms of its general attitude towards growth and management of its various business and product lines.
Corporate strategy deals with three key issues facing the corporation as a whole.
1. Directional strategy – the firm’s overall orientation towards growth, stability and retrenchment. The two basic growth strategies are concentration and
diversification. The growth of a company could be achieved through merger, acquisition, takeover, joint ventures and strategic alliances. Turnaround,
divestment and liquidation are the various types of retrenchment strategy.
2. Portfolio analysis – The industries or markets in which the firm competes through its products and business units. In portfolio analysis, top
management views its product lines and business units as a series of portfolio investment and constantly keep analyzing for a profitable return. Two of
the most popular strategies are the BCG Growth Share matrix and GE business screen
3. Parenting strategy – the manner in which the management coordinates activities and transfers resources and cultivate capabilities among product
lines and business units.
Chapter 2 introduced the distinction between corporate strategy and business strategy.Corporate strategy is concerned primarily with the decisions over
the scope of the firm’sactivities, including:
l Product scope. How specialized should the firm be in terms of the range of productsit supplies? Coca-Cola (soft drinks), SAB Miller (beer), Gap (fashion
retailing), andSwiss Re (reinsurance) are specialized companies: they are engaged in a single industry sector. General Electric, Samsung, and
Bertelsmann are diversifiedcompanies: each spans a number of different industries.
l Geographical scope. What is the optimal geographical spread of activities for thefirm? In the restaurant business, Clyde’s owns 12 restaurants in the
Washington DCareas, Popeye’s Chicken and Biscuits operates throughout the US, McDonald’s operates in 121 different countries.
l Vertical scope. What range of vertically linked activities should the firm encompass? Walt Disney Company is a vertically integrated company: it
produces its own movies, distributes them itself to cinemas and through its own TV networks (ABC and
Disney Channel), and uses the movies’ characters in its retail stores and theme parks. Nike is much more vertically specialized: it engages in design and
marketing but outsources many activities in its value chain, including manufacturing, distribution, and retailing.
Business strategy (also known as competitive strategy) is concerned with how a firm competes within a particular market. The distinction may be
summarized as follows: corporate strategy is concerned with where a firm competes; business strategy is concerned with how a firm competes.1 The
major part of this book has been concerned with issues of business strategy. For the next four chapters, the emphasis is on corporate strategy: decisions
that define the scope of the firm. I devote separate chapters to the different dimensions of scope – vertical scope (vertical integration), geographical
scope (multinationality), and product scope (diversification). However, as we shall discover, the key underlying concepts for analyzing these different
dimensions – economies of scope in resources and capabilities, transaction costs, and costs of corporate complexity – are common to all three.