Strategy formulation- concerns developing a

corporation’s mission, objectives, strategies and

policies

Situation Analysis- the process of finding a strategic

fit between external opportunities and internal
strengths while working around weaknesses

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SWOT- Strengths-Weaknesses-Opportunities-Threats

Strategy= opportunity/capacity
Opportunity has no real value unless a company has the
capacity to take advantage of that opportunity

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 Criticisms of SWOT analysis

• Generates lengthy lists

• Uses no weights to reflect priorities
• Uses ambiguous words and phrases
• Same factor can be in 2 categories
• No obligation to verify opinion with data or analysis
• Requires only a single level of analysis
• No logical link to strategy implementation

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 Generating a Strategic Factors Analysis
Summary (SFAS) Matrix

SFAS summarizes an organization’s strategic factors by

combining the external factors from the EFAS Table
with the internal factors from the IFAS Table

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*
 Finding a Sweet Spot
A Niche is a need in the marketplace that is currently
unsatisfied

Propitious niche- where an organization can use its core

competencies to take advantage of a particular
market opportunity and the niche is just large
enough for one firm to satisfy its demand

Strategic sweet spot- a company is able to satisfy

customers’ needs in a way that rivals cannot

Strategic window- a unique market opportunity that is

available for a particular time

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 Review of Mission and Objectives

A re-examination of an organization’s current

mission and objectives must be made
before alternative strategies can be
generated and evaluated

Performance problems can be caused from

inappropriate (narrow or too broad) mission
statements and objectives

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TOWS Matrix- illustrates how the external opportunities
and threats can be matched with internal strengths and
weaknesses to result in 4 possible strategic alternatives

It provides
• Provides a means to brainstorm alternative strategies
• Forces managers to create various kinds of growth and
retrenchment strategies
• Used to generate corporate as well as business
strategies

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• O: list current and future external opportunities from
EFAS table
• T: list future external threats from EFAS
• S: list specific areas of current and future strength form
IFAS table
• W: list specific areas of current and future weakness
form IFAS table
Note: TOWS matrix is useful for generating series of
alternatives that the decision makers of company or
business unit might not otherwise have considered

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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 it serves

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 Business strategy is comprised of:

• Competitive strategy [compete on cost OR

differentiating factors like service, quality]

• Cooperative strategy [working with other firms

like strategic alliance]

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 Porter’s competitive strategies

Lower cost strategy- the ability of a company or a business

unit to design, produce and market a comparable product
more efficiently than its competitors

Differentiation strategy- the ability of a company or a

business unit to provide a unique or superior value to the
buyer in terms of product quality, special features, or
after sale service

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 Porter’s competitive strategies

Cost leadership- a lower-cost competitive strategy that

aims at the broad mass market and requires efficient
scale facilities, cost reductions, cost and overhead
control; avoids marginal customers, cost minimization
in R&D, service, sales force and advertising

• Provides a defense against competitors

• Provides a barrier to entry
• Generates increased market share

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 Porter’s competitive strategies
Differentiation- involves the creation of a product or
service that is perceived throughout the industry as
unique. Can be associated with design, brand image,
technology, features, dealer network, or customer
service

• Lowers customers sensitivity to price

• Increases buyer loyalty
• Barrier to entry
• Can generate higher profits
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 Porter’s competitive strategies

Cost Focus- low-cost competitive strategy that focuses

on a particular buyer group or geographic market and
attempts to serve only this niche to the exclusion of
others

Differentiation Focus- concentrates on a particular

buyer group, product line segment, or geographic
market to serve the needs of a narrow strategic
market more effectively than its competitors

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 Risks in Competitive Strategies

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 Issues in Competitive Strategies

Stuck in the middle- when a company has no

competitive advantage and is doomed to
below-average performance
Example: K Mart, tried to follow Wall mart but couldn’t
imitate nor could product disctinctive competitive
advantage

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 Issues in Competitive Strategies

• Entrepreneurial firms follow focus strategies

where they focus their product or service on
customer needs in a market segment and
differentiate based on quality and service
• Start up follow on differentiation focus to
enter market

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 Industry Structure and Competitive Strategy

Fragmented industry- many small- and medium-sized

companies compete for relatively small shares of the
total market
• Products are typically in early stages of product life
cycle
• Focus strategies are used

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 Industry Structure and Competitive Strategy

Consolidated industry- domination by a few large

companies

• Emphasis on cost and service

• Economies of scale
• Regional and national brands
• Slower growth over capacity
• Knowledgeable buyers

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 Hyper-competition and Competitive Advantage
Sustainability

• Competitive advantage in a hyper-competitive market

is characterized by a continuous series of multiple
short- term initiatives that replace current products
with new products before competitors can do so
• Leads to an over emphasis on short-term tactics
• Focus on: Creating entry barrier for new firms and try
to destroy current rival competitors

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 Competitive Tactics

Tactic- a specific operating plan that details how a

strategy is going to be implemented in terms of when
and where it is to be put into action
• Narrower in scope and shorter in time horizon than
strategies
• It acts as a link between formulation and
implementation of strategy
• Two types: Timing and Market Location Tactics

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 Timing Tactics: When to Compete

Timing Tactics- refers towhen a company implements a

strategy

❖ First movers (first company to manufacture and sell)

• Helps to Establish reputation as industry leader, move
down learning curve to assume cost leadership,
temporary high profit (premium sales)
• Sets standard for others and ‘locks in’ clients
• Example: Microsoft Windows as an operating system
and Netscape in Internet browser
• To exploit and defend market position, first mover
need to have sufficient resources
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 Timing Tactics: When to Compete

• Late Movers : disadvantages of first movers are

advantages to late movers
• Able to imitate the technological advances of others
(keeping R&D cost low), can keep risk down by waiting
until new technology hits market
• Research shows that late movers tend to be large firms
with considerable resources and related experience
• Internet explorer brought by Microsoft to compete/attack
with Netscape browser
• Prabhu e-wallet in direct competition with e-sewa

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 Market Location Tactics
• It refers to where a company implements a strategy

• A company or business unit can implement competitive

strategy in 2 ways (offensively or defensively)

• Offensive Tactic usually takes place in an established

competititor’s market location
• Defensive Tactic usually takes place in the firm’s own
current market position as a defense against possible
attack by rivals

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 Market Location Tactics [Offensive]

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 Market Location Tactics
❖ Offensive Tactic

a) Frontal Assault
• The attacking firm goes head to head with its competitor
• It matches competitor in every category from price to
promotion to distribution
• Risky as to be successful attacker must have superior
resources
• Expensive tactic
• In the frontal attack, firms concentrate on competitor’s
strengths rather than weaknesses
• Kimberly Clark introduced Huggies disposable diapers against
P&G
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 Market Location Tactics
b) Flanking Maneuver
•Rather than going straight for competitor’s position of strength, a
firm attacks a part of the market where competitor is weak or
blind spot
•In this strategy firms follow the path of least resistance where the
competitor is incapable of defending
•Example: Texas Instruments direct competition with Intel by
producing microprocessor for consumer electronics
c) Bypass Attack
•challenging firms produce next generation products to occupy
the competitor’s market share, by making competitors product
unnecessary
•Apple iPod challenging Sony Walkman

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 Market Location Tactics
d) Encirclement
•Attacking firm encircles competitors position in terms of product
or market or both
•Product encirclement: greater product variety (product line
ranging from low to high)
•Market encirclement: introduces the products into the new
market segments which are left untapped by the competitor’s
firms
e) Guerrilla Warfare
•Instead of continual an extensive resource expensive attack on a
competitor, a firm or SBU may choose “hit an run”
•strategies with an intention to demoralize and harass the
competitor by the following strategies like;
•giving free samples, intense social media advertisements, free
delivery
 Defensive Tactics
• Defensive Tactic aim to lower the probability of attack, divert
attacks to less threatening avenues. Instead of increasing
competitive advantage they make competitive advantage
more sustainable by causing challenger to conclude that an
attack is unattractive
• Some defensive tactic used are;

a) Raise Structural Barriers

▪ Help block a challenger’s logical avenues of attack. Like;
• Offer full line of product in every profitable market segment to
close off any entry points [ Example: Cocacola offers
unprofitable noncarbonated beverages to keep competitors
off)

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 Defensive Tactics
❖ Raise Structural Barriers (continued)

• Block channel access by signing exclusive contracts with

distributors
• Raise buyer switching costs by offering low-cost training to
users
• Raise the cost of gaining trial users by keeping prices low on
items new users are most likely to purchase
• Increase sales economies to reduce costs
• Foreclose alternative technologies through patenting or
licensing
• Tie up suppliers by obtaining exclusive contracts
• Encourage government to raise barriers (safety, pollution
standards)
 Defensive Tactics
b) Increase Expected Retaliation

•Any action that increases the perceived threat of retaliation for

any attack, that will create a barrier for new entrants into the
target market segment of the firm

•Example: defending market erosion by drastically cutting prices

or matching a challenger’s promotional price

•Example: when Clorox company challenged P&G in the

detergent market with Clorox Super Detergent, P&G retaliated by
test marketing liquid bleach, Lemon Fresh detergent

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 Defensive Tactics
C) Lower the Inducement for Attack

•A third type of defensive tactic is to reduce a challenger’s

expectations of future profit in the industry
•Example: Southwest Airlines deliberately keep prices low and
constantly invest in cost reducing measures
•Keeping price low, there is little profit incentive for new entrants

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 Market Location: Where to Compete
Market location tactics- where a company implements a strategy

Offensive tactics Defensive tactics

• Frontal assault • Raise structural barriers
• Flanking maneuver • Increase expected
• Bypass attack retaliation
• Encirclement • Lower the inducement for
attack
• Guerrilla warfare

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❖ Cooperative Strategies- used to gain a competitive
advantage within an industry by working with other
firms
▪ A cooperative strategy gives a company advantages,
specially to companies that have a lack of
competitiveness, know how or resources
▪ This strategy gives to the company the possibility to
fulfill the lack of competitiveness

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 Type of Cooperative Strategies

▪ Collusion-
• The active cooperation of firms within an industry
(rivals/competitors) to reduce output and raise prices
to avoid economic law of supply and demand
• Collusion is a non-competitive, secret, and sometimes
illegal agreement between rivals which attempts to
disrupt the market's equilibrium
• Acts of collusion include price fixing, synchronized
advertising, and sharing insider information
• Antitrust and whistleblower laws help to deter collusion

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 Type of Cooperative Strategies
• Collusion can be of two types; Explicit and Tacit
• Explicit refers to firms cooperating through direct
communication by meeting and finalizing a deal for
mutual benefit
• Tacit is where there is no direct communication among
competing firms. Example: General Electronics wanted
to ease price competition in turbine industry. It widely
advertised its prices and publicly committed not to sell
below those prices. Customers were promised a repay of
the difference if prices would reduced. This message
was received by competitors informally and the pices
and profit margin for turbine (turbine industry) remained
stable for 10 years
 Type of Cooperative Strategies

▪ Strategic Alliances
• a long-term cooperative arrangement between two or
more independent firms or business units that engage
in business activities for mutual economic gain
• The idea is to help both partners share knowledge,
pool resources and add profit to their bottom lines
• You can form a strategic alliance with any company
and for any reason. Often, businesses seek out
strategic alliances in the areas of design, product
development, manufacturing, distribution or the sale of
goods and services

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 Type of Cooperative Strategies
✔ Strategic Alliance is used to:
• Obtain or learn new capabilities
• Obtain access to specific markets
• Reduce financial risk
• Reduce political risk
✔ Concerns of Strategic Alliance
• Partners may exaggerate or misrepresent the benefits
they bring to the table
• One partner may commit more than the other, leading to
frustration and conflict
• One partner may commit more than the other, leading to
frustration and conflict
 Type of Cooperative Strategies
▪ Example of Strategic Alliance:

• An oil and natural gas company might form a strategic

alliance with a research laboratory to develop more
commercially viable recovery processes
• A clothing retailer might form a strategic alliance with a
single clothing manufacturer to ensure consistent quality
and sizing
• A major website could form a strategic alliance with an
analytics company to improve its marketing efforts

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❖ Cooperative arrangements between companies and
business units fall along a continuum form weak and
distant to strong and close

Types of Cooperative Agreements

• Mutual Service Consortia
• Joint Venture
• Licensing Arrangements
• Value-Chain Partnerships

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 Types of Cooperative Arrangements
▪ Mutual Service consortia
• is a partnership of similar companies in similar
industries that pool their resources to gain a benefit
that is too expensive to develop alone
• IBM established research alliance with Sony
Electronics an Toshiba to build its next generation
chips : Result was ‘Chip cell’, whose performance was
10 times faster than chips of desktop computers
• This cooperative arrangement is weak and distant and
appropriate for partners who wish to work together but
not share their core competencies an low interaction
among partners

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 Types of Cooperative Arrangements
▪ Joint Venture ( average/ medium strong an
closeness alliance )
• Business activity formed by two or more separate
organizations or strategic purposes, that creates an
independent business entity and allocate ownership,
operational responsibilities, financial risk and reward
to each member, while preserving their separate
identity
• It is formed to pursue an opportunity/ project that
needs capability from two or more companies or
business unit, such as technology of one and
distribution channel of other
• JV is opted at times when legally two companies
cannot merge, so they temporarily combine to achieve
a mutual purpose
 Types of Cooperative Arrangements
▪ Licensing Arrangements (medium/average)
• an agreement in which the licensing firm grants rights
to another firm in another country or market to
product/sell a product
• Licensee pays compensation to licensing firm
• Its useful strategy when the trademark and brand
name is well known, but the firm lacks sufficient fund
to enter new country/market directly
• It is useful in case of government restriction of FDI in
the host country or market
• Caution: should never license ones distinctive
competencies or licensee could become competitor of
the parent firm
• Example: Franchising
 Types of Cooperative Arrangements

▪ Value chain Partnership

• Is a strong and close alliance in which one company
or unit forms a long term arrangement with a key
supplier or distributor for mutual advantage
• Example: to improve the quality of parts in purchases,
companies in US auto industry have decided to work
more closely with fewer suppliers and to involve them
more in product design decisions