Strategy Formulation Business Unit Level Strategies (Competitive Strategies)
Strategies -Unit I C
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Transcript of Strategies -Unit I C
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Modern tool for analysis of the
situation
Internal factors
External factors
INTERNAL
STRENGTHS (S)
INTERNAL
WEAKNESSES (W)
EXTERNAL
OPPORTUNITIES (O)
SO STRATEGY
MAXIMAXI
(successful strategy)
WO STRATEGY
MINI - MAXI
(Overcome weakness)
EXTERNAL
THREATS (T)
ST STRATEGY
MAXIMINI(Avoid threats)
WT STRATEGY
MINIMINI(Retrenchment
strategy)
TOWS MATRIX FOR STRATEGY FORMULATION
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FOUR ALTERNATIVE
STRATEGIES
WT strategy aims to minimise both
weaknesses and threats
WO strategy attempts to minimise the
weaknesses and maximises opportunities
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ST strategy based on organisations strengths
to deal with threats in the environment
SO strategydesirable situationuse
strengths to take advantage of opportunities
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Time dimensions and the TOWS
matrix
Internal and external environments are
dynamic
Strategic designer must prepare several
TOWS matrices at different points in time
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THE PORTFOLIO MATRIX
A tool for allocating resources
Developed by Boston Consulting Group (BCG)
Linkage between GROWTH RATE OF THE
BUSINESS AND COMPETITIVE POSITION
OF THE FIRM
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Question Marks
Weak market share, High growth rate
Require cash investment
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Stars
High growth, strongly competitive position
Have opportunities for growth, profit
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Cashcows
Strong competitive position, low growth rate
Makes product at low cost
Provide needed cash for operation
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Dogs
Low growth rate and weak market shareNot
profitable, generally disposed of
Developed for large corporations with several
divisions
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Major kinds of strategies and
policies
Growth
How much growth should occur?
How fast?
How should it occur?
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Finance
Clear strategy non business enterprise
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Organisation
How centralised or decentralised?
What kinds of departmental patterns?
How should staff positions be designed?
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Personnel
Human resources and relationships
Union relations, compensation, selection,
training, appraisal
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Public relations
Strategy designed closeness to the public
Fit all organisations and situations
Ex: Two major strategic areas
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Products or Services: Key questions
What is our business?
Who are our customers?
Customers wants?
Product leader?
Develop new products?
Potential competition
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Profits expected?
Basic form of strategy?
Advantages of serving customers
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Marketing
How do customers buy?
How is it best for us to sell?
Offer something that competitors do not?
Supply supporting services?
Best pricing strategy?
Best in serving customers?
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Industry Analysis and competitive
strategies by PORTER
Prof. Michael Porter at Harvard suggested
strategy formulation
Requires analysis of the industry
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Industry analysis
The competition among companies
The threat of new companies entering market
Possibility of using substitute products
Bargaining power of suppliers
Bargaining power of buyers
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Overall cost leadership strategy
Aims at reduction in cost
Based on experience
Close watch on costs in R & D
Objective is to have low cost structure
Ex: Lincoln Electric company produces arc
welding equipment and supplies
Low cost ivory soap sold in a broad market
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Differentiation strategy
Something unique in the industry
Ex: Caterpillar companyavailability of spare
parts
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Focused strategies
Concentrates on special groups of customers
Ex: Specific geographic region
Specific segment of market
Focused low cost strategy
Focused differentiation strategy
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Effective implementation of
strategies
Allocation of resources
Appropriate organisation structure
Effective management information system
(MIS)
Budgeting system
Reward systemsupports the strategy
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Strategic planning failures
Managers inadequately prepare
Information is insufficient
Goalstoo vague
Business units not identified clearly
Reviewnot done effectively
Link insufficient
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Successful implementation of
strategies
Communicating strategies to all key decision
making managers
Developing and communicating planning
premises Ensuring that action plans contribute to and
reflect major objectives and strategies
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Continuing to emphasize planning and
implementation strategy
Creating a company climate that forces
planning
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Premising and forecasting
Planning Premises
Defines as the anticipated environment in
which plans are expected to operate
Include assumptions of forecasts of the future
Forecast is a prerequisite of planning
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Environmental Forecasting
Managers compute the optimum method of
reaching their objective
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Environmental areas
Economic
Social
Political/legal
Technological
Frequently chosen for making forecasts
F ti ith th D l hi
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Forecasting with the Delphi
technique
Developed by Olaf Helmer and his colleagues
at the RAND corporation
Process:
A panel of experts selectedinside andoutside the organisation
Experts are asked to make forecast
Answers are compiled, results fedback topanel members
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Further estimates made
Process repeated
Convergence of opinion begins to evolve
acceptable forecast
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Effective premising
Selection of the premises that bear materially
on the programs
Development of alternative premises for
contingency planning Verification of the consistency of premises
Communication of the premises