Managing Strategy and Strategic Planning Strategy

A comprehensive plan for accomplishing organizational goals Strategic management: A comprehensive and ongoing management process aimed at -Formulating and, -Implementing .effective strategy

Effective Strategy
A strategy that promotes-a superior alignment between the organization and its environment and, -the achievement of strategic goals

Strategic Management Process

lVision lMission lCrafting

Strategy lStrategy implementation lControlling

Distinctive competence
An organizational strength possessed by only a small number of competing firms
lCore

competence lCompetitive advantage

Scopes & Resource deployment

Scope: The scope of a strategy specifies the range of markets in which an organization will compete Resources deployment: How an organization distributes its

resources across the areas in which it competes

Types of Strategic Alternatives

strategy Set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or market lCorporate-level strategy As it manages its operation simultaneously across several industries and several markets
lBusiness-level

SWOT
lStrength lWeakness lOpportunities lThreat

Porters Generic Strategies

lOverall

cost leadership Strategy lDifferentiation strategy lFocus strategy

What is Situation Analysis?

Two considerations: ** Companys external or macroenvironment [Industry and competitive conditions] **Companys internal or microenvironment [Competencies, capabilities, resource strengths and weaknesses, and competitiveness]

What Is Situation Analysis?

l

Industry analysis

Company analysis

Situation Analysis

Industry analysis Or,

External or macroenvironment
Key consideration regarding Industry Analysis
Assess Industry & Competitive Conditions
lIndustrys

dominant economic traits

lNature

of competition & strength of competitive forces lDrivers of industry change lCompetitor Analysis lKey success factors lConclusions about industry attractiveness

What are the Industrys Dominant Economic Traits?

lMarket

size and growth rate lScope of competitive rivalry lNumber of competitors and their relative sizes lNature and pace of technological change lProduct and customer characteristics lIndustry profitability

What is Competition Like and

How Strong are the Competitive Forces? Objective is to identify

lMain

sources of competitive forces lStrength of these forces

Key analytical tool -Five Forces Model of Competition

Five Forces Model of Competition

Five sources of competition

lRivalry

from the other seller lCompetition from the potential new entrant lCompetition from the substitute product lCompetition from the suppliers lCompetition from the buyer

Analyzing the Five Competitive Forces: How to Do It ???

lExplain

how each force acts to create competitive pressureWhat are the factors that cause each force to be strong or weak? whether overall competition (the combined affect of all five competitive forces) is brutal, fierce, strong, normal/moderate, or weak

lDecide

What Causes Rivalry to be Stronger?

lActive

jockeying for position among rivals and frequent launches of new offensives to gain sales and market share
lOne or more firms initiates moves to

strengthen their standing at expense of rivals

lLots

of firms that are relatively equal in size and capability lSlow market growth

What Causes Rivalry to be Stronger?

lCustomers

have low costs in switching to rival brands lA successful strategic move carries a big payoff lCosts more to get out of business than to stay in lFirms have diverse strategies, corporate priorities, resources, and countries of origin

Competitive Force of Potential Entry

of threat depends on - Barriers to entry - Reaction of existing firms to entry lBarriers exist when -Newcomers confront obstacles -Economic factors put potential entrant at a disadvantage relative to incumbent firms

lSeriousness

Factors Affecting the Threat of Entry

Entry threats are stronger when lThe pool of entry candidates is large lEntry barriers are low or can be readily hurdled by the likely entry candidates lIndustry members are earning attractive profits lBuyer demand is growing rapidly

Factors Affecting the Threat of

Entry
Entry threats are weaker when lThe pool of entry candidates is small lEntry barriers are high lExisting competitors are struggling to earn good profits lThe industrys outlook is risky or uncertain lBuyer demand is growing slowly or is stagnant

Common Barriers to Entry

lSizable economies of scale lInability to gain access to specialized

technology lStrong brand preferences and customer loyalty lLarge capital requirements and/or other specialized resource requirements

lDifficulties

in gaining access to distribution channels lRegulatory policies, tariffs, trade

restrictions

Competitive Force of Substitute Products

Substitutes matter when customers are attracted to the products of firms in other industries

How to Tell Whether Substitute Products are a Strong Force

-Sales of substitutes are growing rapidly -Producers of substitutes plan to add new capacity -Profits of producers of

substitutes are up Factors Affecting Competition from Substitutes

Competitive pressures from substitutes are stronger when lGood substitutes are readily available or new ones are emerging lSubstitutes are lower priced relative to the performance they deliver lBuyers have low costs in switching to substitutes lBuyers grow more comfortable with using substitutes

Factors Affecting Competition from Substitutes

Competitive pressures from substitutes are weaker when: lGood substitutes are not readily available or dont exist lSubstitutes are higher priced relative

to the performance they deliver lBuyers have high costs in switching to substitutes

Strategy Types
Prospector Innovation and growth oriented Defender Protect current markets, maintain stable growth Analyzer Maintain current market and moderate emphasis on innovation Reactor No clear strategy, reacts to changes in the environment, drift with event

Product Life Cycle

Introduction stage Growth stage Mature stage Decline stage

It is important to identify the different stages of the product life cycle because it requires different set of strategies in different stages of a product life cycle

Diversification Strategy
What is diversification? lRelated diversification lUnrelated diversification

Advantages of Diversification
lIt

reduces an organizations dependence on any one of its business activities and thus reduces economic risks lIt reduces overhead costs associated with managing any one business lSynergy effect [ 1+1=3]

Internal Development

Integration -Forward Integration -Backward Integration lHorizontal Integration lMerger lAcquisition

lVertical

Managing Diversification
BCG Matrix [Boston Consulting Group] A method of evaluating businesses relative to the growth rate of their market and the organizations share of the market

BCG MATRIX