Strategy formulation and execution

Chapter 8

Suzaan Hughes
Learning outcomes

1. Define the components of strategic management and discuss the levels of strategy.
2. Describe the strategic management process and SWOT analysis for evaluation the
company’s strengths, weaknesses, opportunities and threats.
3. Define corporate-level strategies and evaluate the usefulness of the Boston Consulting
Group (BCG) matrix and portfolio and diversification approaches.
4. Describe Micheal Porter’s competitive strategies.
5. Discuss organizational dimensions that managers use to execute strategy.

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 Strategy
• Every company is concerned with strategy
✓It determines which organizations succeed and which ones struggle
✓Strategic blunders can hurt a company

• Strategic management is a specific type of planning

Thinking Strategically

• The long-term view of the organization and competition

• Thinking strategically impacts performance and financial success

• Today’s environment requires everyone to think strategically

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8.1 The elements of competitive advantage

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 Strategic Management

Decisions and actions used to formulate and execute strategies that will
provide competitively superior fit between the organization and its
environment to achieve organizational goals

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 Strategic Management
•Basic concepts of strategy:
•Competitive advantage — ability to do something
so well that one outperforms competitors
•Sustainable competitive advantage — one that is
difficult or costly for competitors to imitate

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 Purpose of Strategy
• Explicit strategy is the plan of action

• Competitive advantage is the organization’s distinctive edge for

meeting customer needs

Strategies should:
• Exploit Core Competencies
• Build Synergy
• Deliver Value
• Target Customers

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 Core competencies
•Analysis of organisational resources and
capabilities:
•Core competency is a special strength that gives an
organisation competitive advantage
•Important goal is to assess
core competencies

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 Three levels of strategy in organisations -
Corporate, business and functional strategies

Sets long-term direction

for the total enterprise

How a division or
strategic business
unit will compete
in its product or
service domain

Guides
activities
within one
specific area
of operations

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8.3 - The Strategic Management Process

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 Strategy Formulation
versus Execution

Formulation: Execution:
Assessing the the use of managerial
external environment and organizational
and internal problems tools to direct
to create goals and resources toward
strategy accomplishing
strategic results

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 SWOT Analysis
• Formulating strategy often begins with an audit of internal and external
factors
• Internal Strengths and Weaknesses
• External Opportunities and Threats

• Information is acquired from reports, surveys, discussions and

meetings

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8.4 - Audit Checklist for Analyzing Organizational
Strengths and Weaknesses

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SWOT analysis of strengths, weaknesses,
opportunities, and threats

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 Organisational Missions

Source: https://www.alessiobresciani.com/foresight-strategy/51-mission-statement-examples-
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from-the-worlds-best-companies/
 Formulating Corporate-Level Strategy:
Portfolio Strategy

• Strategic Business Units (SBUs) have a unique mission, products

and competitors

• Portfolio strategy pertains to the mix of SBUs and product lines to

provide synergy and competitive advantage

• Organizations should not become too dependent on one business

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 Formulating Corporate-Level Strategy:
The BCG Matrix
• Organizes business along two dimensions
✓Business growth rate
✓Market share

• Four categories for corporate portfolio

✓The combination of high/low market share and high/low business
growth

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8.5 - The BCG Matrix

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Corporate-Level Strategy Formulation
BCG matrix — business conditions and related strategies:
• Stars
• High share/high growth businesses
• Preferred strategy — growth
• Cash cows
• High share/low growth businesses
• Preferred strategy — stability or modest growth
• Question marks
• Low share/high growth businesses
• Preferred strategy — growth for promising question marks and
restructuring or divestiture for others
• Dogs
• Low share/low growth businesses
• Preferred strategy — retrenchment/divestiture
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 Formulating Corporate-Level Strategy:
Diversification Strategy
• Moving into new lines of business
✓Expand into new valuable products and services
• Unrelated diversification is expansion into new lines of business
✓Can be a difficult strategy
✓Many companies are giving up on unrelated diversification
• Vertical integration expands into businesses that supply to the
business or are distributors

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 Formulating Business-Level Strategy

• Strategy within the business units: How do we compete?

• Business-level strategies are developed by Porter’s Five Forces
• Web technology is impacting all industries in positive and negative
ways

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Porter’s Model of Five Strategic Forces Affecting Competition:

Industry competition New entrants

• Intensity of rivalry among firms • Threat of new
and their competitive behavior competitors
entering the
market

Substitute Bargaining power of

products or suppliers
services • Ability of resource suppliers to
• Threat of substitute influence the cost of products
products or services or services

Bargaining power of
customers
• Ability of customers to
influence the price they will
pay for products or services

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8.6 Porter’s competitive advantage

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 Business-Level Strategy Formulation
Porter’s generic strategies for gaining competitive advantage:
•Differentiation strategy
• Seeks competitive advantage through uniqueness
•Cost leadership strategy
• Seeks competitive advantage by operating with lower costs
than competitors
Focus strategy
• Concentrates on a special market segment
• Two types:
• Focused differentiation – offers a unique product to a special market segment
• Focused cost leadership – seeks the lowest cost of operations within a special
market segment

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 Formulating Functional-Level Strategy

Action plans used by major departments

• Marketing
• Production
• Finance
• Human Resources
• Research and Development

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 New Trends in Strategy
• Strategic Flexibility – managers must be prepared to change and
adjust strategy quickly
• Strategic Partnerships – collaboration with other organizations is
important
• Global Strategy – organizations pursue a distinctive focus for global
business

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8.7 - Global Corporate Strategies

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 Strategy Execution
The final step!

• “Strategy is easy, but execution is hard”

✓Most important but most difficult part
• Strategy must be skillfully executed
• Alignment requires all aspects of the organization to focus on strategy
goals
✓Everyone is moving in the same direction

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8.8 - Tools for Putting Strategy into Action

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