strat. corp. bab1-6 [17-10--09]ndg

8/8/2019 Strat. Corp. BAB1-6 [17-10--09]NDG

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Chapter - 1

Basic Concepts of Strategic ManagementBasic Concepts of Strategic ManagementBasic Concepts of Strategic ManagementBasic Concepts of Strategic Management


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Lecture Objectives

1. To explain the phases of strategic management.

2. To draw a strategic management model.

3. To identify benefits of strategic management.

4. To discuss theory of organizational adaptation.

5. To describe the creation of a learning organization.

6. To explan the degree of environmental variables.

7. To discuss mission, objectives and strategies.


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Phases of Strategic Management Basic Financial Planning

Managers initiate serious planning when they are requested to propose nextyears budget. Projects are proposed on the basis of very little analysis withmost information coming from within the firm.

Forecast-based PlanningAs annual budgets become less useful at stimulating long-term planning,managers attempt to propose five-years plans, extrapolate current trends fiveyears into the future. The process gets very political as managers compete forlarger shares of funds.

Strategic PlanningFrustated with highly political, yet ineffective five-year plans, top managementtakes control of the planning process by initiating strategic planning. Planningis concentrating in a planning staff whose task is develop strategic plans forcorporation.

Strategic ManagementTop management forms planning groups of managers and key employees atmany level from various departments and work groups. Strategic plans nowdetail the implementation, evaluation and control issues, rather thanattempting to perfectly forecast the future, the plans emphasize probablescenarios and contingency strategies. People at all levels are now involved.


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Strategic Management Model

Step 1

EnvironmentalScanning

External

- Societal Env

- Task Env

Internal

- Structure

- Culture

- Resources

Step 2

StrategyFormulation

Mission

Objectives

Strategies

Policies

Step 3

StrategyImplementation

Programs

Budgets

Procedures

Step 4

Evaluation &Control

Performance

FEEDBACK/LEARNING


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1. Clearer sense of strategic vision for the firm.2. Sharper focus on what is strategically important.

3. Improved understanding of a rapidly changing environment.

1. Where is the organization now? (not where do we hope it is!)

2. If no changes are made, where will the organization be in one year? Two

years? Five years? Ten years? Are answers acceptable?

3. If the answers are not acceptable, what specific actions shouldmanagement undertake? What are the risks and payoffs involved?

Benefits of Strategic Management

A survey of nearly 50 corporations in a variety of countries and industries foundthe three most highly rate benefits of strategic management to be:

To be effective, however, strategic management need not always be a formalprocess. As occurred at Maytag, it can begin with a few simple questions:


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Theories of Organizational Adaptation

How can any one company keep track of all the changing technological,economic, political-legal, and socialcultural trends around the world and makethe necessary adjustments? THIS IS NOT AN EASY TASK.

Population EcologyAn organization that is successfully established in a particular environmentalniche, it is unable to adapt to changing conditions. To much inertia preventsthe organization from changing. The company is thus replaced (bought out orgoes bankrupt) by other organizations more suited the new environment.

Institution TheoryIn contrast, proposes that organizations can and do adapt to changingconditions by imitating other successful organizations.

Strategic Choice Perspective

Not only do organizations adapt to a changing environment, but that they alsohave the opportunity and power to reshape their environment. This is thedominant one taken in strategic management.


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Creating a Learning Organization

To be competitive in dynamic environments, corporations are having tobecome less bureaucratic and more flexible. The company must developstrategic flexibility the ability to shift from one dominant strategy to another.

It demands that the company become a learning organization:

Solving problems systematically.

Experimenting with new approaches.

Learning from their own experiences and past history as well as from theexperiences of others.

Transferring knowledge quickly and efficiently throughout the organization.

Organizations that are willing to experiment and are able to learn from their

experiences are more successful than those that do not.


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Environmental Variables

Creditors

Customers

Internal Env.StructureCulture

Resources

Task. Env(Industry)

TradeAssoct

Share holder

SocietalEnvironment

SocioculturalForces

Govermt

SpecialInterestGroups

Communities

Suppliers

Labor Unions

Political-LegalForces

EconomicForces

TechnologicalForces

Competitors


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Building Your Companys Vision

Core Ideology Core Values

Core Purpose

Envisioned Future

10 to 30 years BHAG

Vivid Description

BHAG =

Big, Hairy, Audacious Goal

The handful of guiding principles

by which a company navigates

Core purpose is an organi-

zations most fundamental

reason for being.

Ambitious plans that

rev up the entire org

A picture of what it will be

like to achieve the BHAGs.


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Core Values Elevation of the Japanese culture and

national status

Being a pioneer not followingothers; doing the impossible

Encouraging individual ability andcreativity

Sonys Corporate Vision

Core PurposeTo experience the sheer joy of innovationand the application of technology for thebenefit and pleasure of the general public

BHAGBecome the company most known forchanging the worldwide poor-quality

image of Japanese products

Vivid DescriptionWe will create products that becomepervasive around the world. We will bethe first Japanese company to go into theUS market and distribute directly. We willsucceed with innovations that UScompanies have failed at such as thetransistor radio. Fifty years from now, ourbrand name will be as well known as any

in the world and will signify innovationand quality that rival the most innovativecompany anywhereMade in Japan willmean something fine, not somethingshoddy


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Company product or service.

Market

Technology

Company objectives

Company philosophy

Company self-concept

Public image

BaxterBaxterBaxterBaxter TravenolTravenolTravenolTravenol is commited to

improving health care for peoplearound the world, meeting the higheststandards in responsible corporatecitizenship, attaining a position ofleadership in each of the health care

markets we serve. Providing ourcustomers with products and servicesof consistently high quality and value.Sustaining a strong spirit of teamwork

through mutual commitment,

dedication and loyalty within ouremployee family, and achievingconsistent, long-term financial growthand the best possible return to ourstockholders.

What Information Appears in theMission Statement?


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Some areas of goals and objectives

Profitability (net profits)

Efficiency (low cost)

Growth (increase in total sales)

Shareholder wealth (dividends)

Utilization of resources (ROI atau ROE)

Reputation (considered as top firm)

Contributions to employees (security,wage, diversity)

Contributions to society (taxes paid, participation in charities,providing a needed product/service)

Market leadership (market share)

Technological leadership (innovation, creativity)

Survival (avoiding bankruptcy) Personal needs of top management (job for relatives)


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Hierarchy of StrategyStrategy of corporation form a comprehensive master plan stating

how the

corporation will achieve its mission and objectives.

Corporate Strategy describes a companys overall direction interm of its general attitude toward growth and the management ofits various business and product lines.

Business Strategy usually occurs at the business unit or productlevel, and it emphasizes improvement of the competitive positionof a corporations products or services in the specific industry ormarket segment served by that business unit.

Functional Strategy is the approach taken by a functional areato achieve corporate and business unit objectives and strategies bymaximizing resource productivity. It is concerned with developinga distinctive competence to provide a company or business unitwith a competitive advantage.


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Impact of the Internet on Strategic Mgt

Expands the marketplace to national and international market. Allanyone now needs is a computer to connect buyers and sellers.

Decreases the cost of creating, processing, distributing, storing

and retrieving information. Enables people to create new, highly specialized business

ventures.

Allows smaller inventories, just in time manufacturing and less

overhead expenses by facilitating pull-type supply chainmanagement.

Enables the customization of products and services to better suitcustomer needs.

Provide the stimulus to rethink a firms strategy and to initiatereengineering projects.

Increases flexibility, compresses cycle and delivery time andprovides easy access to information on customers, suppliers andcompetitors.


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Chapter - 2

Corporate Governance & Social ResponsibilityCorporate Governance & Social ResponsibilityCorporate Governance & Social ResponsibilityCorporate Governance & Social Responsibility


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Corporate Government

A Corporation is a mechanism established to allow differentparties to contribute capital, expertise and labor for their mutualbenefit.

The investor/shareholder participates in the profits of the enterprisewithout taking responsibility for the operations. Management runsthe company without being responsible for personally providing thefunds.

Corporate Governance refers to the relationship among the threegroups (shareholder, board of directors, and top management) indetermining the direction and performance of the corporation.


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Board of Directors Continuum

Degree of Involvement in Strategic Management

Takes theleading role inestablishing &modifying themission,objectives,strategy &policies. It hasa very active

strategycommittee

Approves,questions, andmakes finaldecisions onmission,strategy,policies, &objectives. Hasactive board

committee.Performs fiscal& mgt audit.

Involved to alimited degreein theperformanceor reviewselected keydecisions,indicators, orprograms of

management

Formallyreviewsselectedissues thatofficersbring to itsattention.

Permitsofficers tomake alldecisions. Itvotes as theofficersrecommended on actionissues

Never knowswhat to do.If anything;no degree ofinvolvement

CatalystActive

Participation

Nominal

Participation

Minimal

Review

Rubber

Stamp

Phantom


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Agency Theory v.s Stewardship Theory in

Corporate Governance

Agency Theory: top managers are, in effect, hired hands who may verylikely be more interested in their personal welfare than in that of theshareholders. It will occur increases when stock is widely held, when theboard of directors is composed of people who know little of the company orwho are personal friends of top management and when a high percentage ofboard members are inside directors.

Agency theory suggests that top management have a significant degree of

ownership in the firm.

Stewardship Theory: Executives tend to be more motivated to act in thebest interests of the corporation than in their own self interests. Whereasagency theory focuses on extrinsic rewards that serve the lower-level needs

such as pay and security, but stewardship theory focuses on achievement andself-actualization.


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Trends in Corporate Governance

McKinsey survey reveals that investors are willing to pay 16% more for a

corporations stock if it is known to have good corporate governance.

Boards are getting more involved not only in reviewing and evaluating but also inshaping company strategy.

Institutional investors annually publishes a list of poorly performing companies.

Stock is increasingly being used as part of a directors compensation.

Nonaffiliated outside directors are increasing their numbers and power in publiclyheld corporations.

Boards are getting smaller and take more control of board functions by eithersplitting the combined Chair/CEO position or establishing a lead outside director

position. Corporations are increasingly looking for international experience in their board

members and to balance the economic goal with social need of society.


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The Role of Top Management

1. The CEO articulates a strategic vision.

2. The CEO presents a role.

3. The CEO communicates high performance standards and also showsconfidence in the followers ability.

Good business leaders create a vision,

articulate the vision, passionately own the

vision, and relentlessly drive it to completion.

Jack Welch


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Responsibilities of Business

Discretionary

(Might

Do)

Ethical

(ShouldDo)

Legal

(Have toDo)

Economic

(Must Do)

Social Responsibility


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Impact of the Internet on Corporate Governanceand Social Responsibility

Cybersquatting

Fraud

Taxation

Public Interest


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Chapter - 3

Environmental Scanning & Industry AnalysisEnvironmental Scanning & Industry AnalysisEnvironmental Scanning & Industry AnalysisEnvironmental Scanning & Industry Analysis


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Lecture Objectives

1. To explain the definition of environmental scanning.

2. To discuss factors in societal environment.

3. To describe the sociocultural trend in USA.

4. To identify external strategic factors.

5. To explain industry analysis using the Porters Five+ Forces.

6. To draw an industry matrix.


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Environmental Scanning

Environmental Scanning is the monitoring, evaluating, anddisseminating of information from the external and internalenvironments to key people within the corporation.

Societal Environment includes general forces that do notdirectly touch on the short-run activities of the organization butthat can, and often do, influence its long-run decisions.

Task Environment includes those elements or groups that

directly affect the corporation and, in turn, are affected by it. Industry Analysis refers to an in-depth examination of key

factors within a corporations task environment.

Both the societal and task environments must be monitored to detectthe

strategic factors that are likely to have a strong impact on corporatesuccess or failure.


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Socialcultural trends in the United States

Increasing environmental awareness

Growth of the senior market

Impact of generation Y boomlet

Decline of the mass market

Changing pace and location of life

Changing household composition

Increasing diversity of workforce and markets


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Identifying External Strategic Factors

Low

Priority

Low

Priority

Medium

Priority

LowPriority

MediumPriority

HighPriority

Medium

Priority

High

Priority

High

Priority

High Medium Low

High

Medium

Low

Probable Impact on Corporation

Probabilityof

Occurance

Strategic Factors


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IndustryCompetitors

Rivalry AmongExisting Firms

PotentialEntrants

Buyers

Substitutes

Suppliers

OtherStakeholders Bargaining power

of buyers

Threat ofnewentrants

Threats ofsubstituteproducts orservices

Bargaining powerof suppliers

Relative power ofunions,

governments, etc

Porter Five+ Forces (Industry Analysis)


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New Entrants to industry typically bring to it new capacity, a desire togain market share, and substantial resources.

Entry Barrier is an obstruction that makes it difficult for a company toenter an industry.

Some of the possible barriers to entry are:

1. Economies of scale

2. Product differentiation3. Capital requirements

4. Switching costs

5. Access to distribution channels

6. Cost disadvantages independent of size

7. Government policy

Treat of New Entrants


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Intense rivalry is related to the presence of several factors, including:

1. Number of competitors

2. Rate of industry growth

3. Product or service characteristics

4. Amount of fixed cost

5. Capacity

6. Height of exit barriers

7. Diversity of Rivals

Rivalry Among Existing Firms


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Substitute products are those products that appear to be different butcan satisfy the same need as another products.

Substitutes limit the potential returns of an industry by placing a ceiling onthe prices firms in the industry can profitably charge.

To the extent that switching costs are low, substitute may have a strongeffect on an industry. Tea can be considered a substitute for coffee. If theprice of coffee goes up high enough, coffee drinkers will slowly beginswitching to tea.

Threat of Substitute Products/Services


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Buyers affect an industry through their ability to force down prices,bargain for higher quality or more services, and play competitors againtseach other.

A buyer or a group of buyers is powerful if some of the following factors

hold true:1. A buyer purchases a large of the sellers product or service (ex: oil filters purchased

by a major automakers)

2. A buyer has the potential to integrate backward by producing the product itself.

3. Alternative suppliers are plentiful because the product is standard or undifferentiated

(ex: fotocopy paper)4. Changing suppliers costs very little.(ex: office supplies are easy to find)

5. The purchased product represents a high percentage of a buyers costs, thusproviding an incentive to shop around for a lower price.

6. A buyer earns low profits and is thus very sensitive to costs and service differences

(ex: grocery stores)7. The purchased product is unimportant to the final quality or price of a buyers

products or services and thus can be easily substituted without affecting the finalproduct adversely (ex: electric wire bought for use in lamps).

Bargaining Power of Buyers


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Supplier dapat mempengaruhi industri melalui kemampuannya untukmeningkatkan harga atau mengurangi kualitas atau pasokannya.

A supplier or supplier group is powerful if some of the following factorsapply:

1. The supplier industry is dominated by a few companies, but it sells tomany (ex: petroleum industry).

2. Its product or service is unique and/or it has built up switching costs

(ex: word processing software)

3. Substitutes are not readily available (ex: electricity).

4. Suppliers are able to integrate forward and compete directly with theirpresent customers (ex: Intel can make PC)

5. A purchasing industry buys only a small portion of the supplier groupsgoods and services and is thus unimportant to the supplier.

Bargaining Power of Suppliers


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HighlyAttractive

MildlyAttractive

NeutralMildlyUnattractiv

e

HighlyUnattractiv

e

Government actions

Availability ofsubstitutes

Power of suppliers

Power of buyers

Rivalry among

competitors

Barrier to exit

Barriers to entry

Kesimpulan: Industry attractiveness = neutral (now); mildly attractive (future)

Summary of Industry Attractiveness


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Key Success Factors are those variables that can affect significantly theoverall competitive positions of all companies within any particularindustry.

Industry Matrix:

Using Key Success Factors to Create an Industry Matrix

CompanyB

WeightedScore

CompanyB Rating

CompanyA

WeightedScore

CompanyA RatingWeight

KeySuccess

Factors


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Chapter - 4

Internal Scanning: Organizational AnalysisInternal Scanning: Organizational AnalysisInternal Scanning: Organizational AnalysisInternal Scanning: Organizational Analysis


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Lecture Objectives

1. To explain a resource-based approach to organizational analysis.

2. To determine the sustainability of an advantage.

3. To discuss about value chain analysis.

4. To explain the generic strategy.

5. To describe organization structure and corporate culture.

6. To discuss the impact of technological discontinuity on strategy.


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A Resource-based Approach to Organizational Analysis

Internal Strategic Factors are those critical strengths andweaknesses that are likely to determine if the firm will be able to

take advantage of opportunities while avoiding threats.VRIO frameworkproposes 4 questions to evaluate each of a

firms key resources:

1.Value: Does it provide competitive advantage?

2. Rareness: Do other competitors posses it?

3. Imitability: Is it costly for others to imitate?

4. Organization: Is the firm organized to exploit the resource?

If the answer to these questions is yes for a particular resources,it is considered a strength and a distinctive competence.


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Determining the Sustainability of an Advantage

Durability: the rate at which a firms underlying resources and capabilities(core competence) depreciate or become obselete.

Imitability: the rate at which a firms underlying resources and capabilities

(core competence) can be duplicated by others.

Reverse Engineering is taking apart a competitors product in order tofind out how it works.

Core Competency can be easily imitated to the extent that it istransparent, transferable, and replicable.

- Transparency: the speed with which other firms can understand the relationshipof resources and capabilities supporting a successful firms strategy.

- Transferability: the ability of competitors to gather the resources and

capabilities necessary to support a competitive challenge.- Replicability: the ability of competitors to use duplicated resources and

capabilities to imitate the other firms success.


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Continuum of Resource Sustainability

Easily duplicated

Idea driven Sony: Walkman

Standardized mass

production. Economies of

scale

Complicatedprocesses

Chrysler: Minivan

Strongly shielded

Patents, brandname

Gillette: sensorrazor

Fast-CycleResources

Standard-CycleResources

Slow-CycleResources

Level of Resource Sustainability

High Low

(Hard to imitate) (Easy to imitate)


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A value chain is a linked set of value-creating activities beginning withbasic raw materials coming from supplier, moving on to a series of valueadded activities involved in producing and marketing a product or service

and ending with distributors getting the final goods into hands of theultimate customer.

Raw

Material

Primary

Manufactrg

Fabrication

.

Product

Producers

Distributor

.

Retailer

.

Typical Value Chain for a Manufactured Products

Value Chain Analysis (1)


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Administrative

Strategy

Financial Strategy

HR StrategyTechnology Strategy

ProcurementStrategy

Inbound

Logistics

Operations Outbound

Logistics

Marketing

and Sales

Services

Marketing Strategy

HUMAN RESOURCES

TECHNOLOGY DEVELOPMENT

PROCUREMENT

FIRM INFRASTRUCTURE

Manufacturing Strategy

Profit

Margin

Primary Activities

SupportActivities

Value Chain Analysis (2)


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Differentiation

Focus

Cost

Focus

DifferentiationCost

Leadership

Narrow

Broad

Lower Cost Differentiation

Competitive Advantage

Marke

t

Sc

ope

The Three Generic Strategies


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Firm Top Management Support (Welch is CEO)

Infrastructure

Human Superior training Use of commision

Resources sales incentives

Management Best alloy Best applications

Technology technology engineering support

Development Best market research

Excellent product

Procurement positioning Profit

- High quality - Flexible - Extensive - High sales - Easy to use Margin

production delivery advertising force covera- products

capability ge.

- Excellent - Strong focus - Extensive

conformance on high - Strong per- training of

to spec. growth areas sonal relation customers

ship

- Extensive

credit

(GE credit)

Inbound Operations Outbound Marketing Sales Service

Logistics Logistics

GEs Competitive Advantage: Source of Differentiation


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DuPonts Competitive Advantage: Source of Cost

LeadershipFirm History and Tradition of DuPont in Plastics and Materials

Infrastructure

Human - Paternalistics culture guarantees security Best training, integrating sales and

Resources attracts highest-quality scientiests technical service

Management - Best polymer R & D Extensive commitment to process development.Technology - Global scale R & D technolo Recognized for R & D of customers' manufacturing

Development processes

Lowest-cost Quality image

Procurement raw materials Profit

- Direct supply - Largest scale - Extensive - Quality - Strong sales - Replacement Margin

economies warehouse image force quaranteed

network- Highest - Horizontal - Best customer

product - Rapid deli- integration of training

physical very guaran- marketing

properties teed with other - Highest technical

DuPont service coverage

- High yield SBUslow defects

Inbound Operations Outbound Marketing Sales Service

Logistics Logistics

S O


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Scanning Functional Resources Organizational

Structures Simple Structure is appropriate for a small, entrepreneur-dominated company with

one or two product lines. Employees tend to be generalist and jacks-of-all trades.

Functional Structure is appropriate for a medium-sized firm with several relatedproduct lines. Employees tend to be specialist in the business functions.

Divisional Structure is appropriate for large corporation with many product lines.Employees tend to be functional specialists organized according to product/marketdistinctions.

Strategic Business Units (SBUs) are modification to the divisional structure. SBU

must have 1) a unique mission, 2) identifiable competitors, 3) an external marketfocus, and 4) control of its business functions, 5) its income statement.

Conglomerate Structure is appropriate for a large corporation with many productlines in several unrelated industries. There is a structure of holding and subsidiarycompany.

It is a strength for the company, if the organization structure supportthe determined strategy.


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Corporate Culture: The Company Way

Corporate Culture is the collection of beliefs, expectations, and valueslearned and shared by a corporations members and transmitted from onegeneration of employees to another.

Corporate culture gives a company a sense of identity: This is who we are.This is what we do. This is what we stand for.

Corporate Culture has two distinct attributes: Cultural Intensity andCultural Integration.

Corporate culture fulfills several important functions in an organization:

1. Conveys a sense of identity for employees.

2. Helps generate employee commitment to something greater than

themselves

3. Adds to the stability of the organization as a social system.4. Serves as a frame of reference for employees to use to make sense out of

organizational activities and to use as a guide for appropriate behavior.


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Impact of Technological Discontinuity on Strategy

Mature

Technology

New

Technology

Product

Performance

Research Effort/Expenditure


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Chapter - 5

Strategy Formulation: Situation Analysis &Strategy Formulation: Situation Analysis &Strategy Formulation: Situation Analysis &Strategy Formulation: Situation Analysis &

Business StrategyBusiness StrategyBusiness StrategyBusiness Strategy


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Lecture Objectives

1. To explain the method of SWOT analysis.

2. To compose IFAS and EFAS table.

3. To discuss about Corporate Directional Strategy

4. To explain the TOWS matrix

5. To describe Porters Generic Competitive Strategies.

SWOT Analysis


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SWOT Analysis

SWOT is an acronym used to describe the particular Strengths,Weaknesses, Opportunities, and Threats that are strategic factors forspecific company.

SWOT analysis should not only result in the identification of a corporationsdistinctive competencies the particular capabilities and resources that afirm possesses and the superior way in which they are used but also inthe identification of opportunities that the firm is not currently able to takeadvantage of due to a lack of appropriate resources.

Strategic Alternative equals Opportunities divided by (Strenghts minusWeaknesses). SA= O/(S W).

Some experts criticize the SWOT analysis.

Internal Factor Analysis Summary (IFAS)


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Internal Factor Analysis Summary (IFAS)

StrengthsS1

S2

X(1 to 5)1.00Score of

Strengths

Y

(X+ Y)

(-1 to -5)1.00Score ofWeakness

Total Score

Weaknesses

W1

W2

CommentsWeighted

Score

RatingWeightInternal

StrategicFactors

E t l F t A l i S (EFAS)


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External Factor Analysis Summary (EFAS)

Opportunities

O1

O2

X(1 to 5)1.00Score of

Opportunities

Y

(X + Y)

(-1 to -5)1.00Score of Threats

Total Score

Threats

T1

T2

CommentsWeighted

Score

RatingWeightExternal Strategic

Factors


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Corporate Directional Strategies

DIVERSIFICATIONRETRENCHMENT

GROWTHSTABILITY

strengthsweakness

opportunity

threats


TOWS M t i


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TOWS Matrix

WT STRATEGIES

Generate strategies here

that minimize weaknessesand avoid threats

ST STRATEGIES

Generate strategies here

that use strengths to avoidthreats

THREATS (T)

List 5 10 external threatshere

WO STRATEGIES

Generate strategies herethat take advantage of

opportunities byovercoming weaknesses

SO STRATEGIES

Generate strategies herethat use strengths to take

advantage of opportunity

OPPORTUNITIES (O)

List 5 10 external

opportunities here

WEAKNESSES (W)

List 5 10 internalweaknesses here

STRENGTHS (S)

List 5 10 internalstrengths here

INTERNALFACTORS(IFAS)

EXTERNALFACTORS

(EFAS)

B i S i


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Business Strategies

Business Strategy focuses on improving the competitive positionof a companys or business units products or services within thespecific industry or market segment that the company or business

unit serves.

Porters Competitive Strategies

- Should we compete on the basis oflow cost (and thus price), or should

we differentiate our products or services on some basis other thancost, such as quality or service?

- Should we compete head to head with our major competitors for thebiggest but most sought-after share of the market, or should we focuson a niche in which we can satisfy a less sought-after but also profitable

segment of the market?

Porters Generic Competitive Strategies


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Porter s Generic Competitive Strategies

Differentiation

Focus

Cost

Focus

DifferentiationCost

Leadership

Narrow

Broad

Lower Cost Differentiation


M

arket

Sco

pe

Ri k f G i C titi St t i


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Risk of Generic Competitive Strategies

The focus strategy is

imitated.

The target segmentbecomes structurally

unattractive:

Structure erodes

Demand disappears

Broadly targetedcompetitors everwhelm thesegment:

The segments differencesfrom other segments

narrow. The advantages of a

broad line increase.

New focusers subsegment

the industry.

Differentiation is not

sustained:

Competitors imitate

Bases for differentiationbecome less importantto buyers

Cost proximity is lost

Differentiation focusers

achieve even greater

differentiation in segments

Cost leadership is not

sustained:

Competitors intimate

Technology changes

Other bases for costleadership erode

Proximity in differentiation

is lost

Cost focusers achieveeven lower cost in

segments

Risks of FocusRisks ofDifferentiation

Risks of CostLeadership


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Chapter - 6

Strategy Formulation: Corporation StrategyStrategy Formulation: Corporation StrategyStrategy Formulation: Corporation StrategyStrategy Formulation: Corporation Strategy

L Obj i


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Lecture Objectives

1. To discuss the level of corporate strategy

2. To explain strategies of growth, stability and retrenchment.

3. To describe BCG Growth-Share Matrix

4. To describe GEs Business Screen.

5. To discuss the corporate parenting strategy

Corporate Strategy


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Corporate Strategy

The firms overall orientation toward growth, stability, orretrenchment (directional strategy).

The industries or markets in which the firm competes through itsproducts and business units (portfolio strategy).

The manner in which management coordinates activities, transfers

resources and cultivates capabilities among product lines andbusiness units (parenting strategy).


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Corporate Directional Strategies (2)


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RETRENCHMENTSTABILITYGROWTH

- Turnaround- Captive Company

- Sell-Out/Divestment

- Backruptcy/Liquidation

- Pause/Proceed withCaution

- No Change

- Profit

Concentration- Vertical Growth

- Horizontal Growth

Diversification

- Concentric

- Conglomerate

International Entry Options


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y p

Exporting

Licensing

Franchising Joint Venture

Acquisition

Green-Field Development

Production Sharing

Turnkey Operations

BOT Concept

Management Contract

The Forms of Strategic Alliances


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g

Interfirm Links

Contractual Agreements Equity of Arrangements

Traditional Nontraditional No New Entity Creation of Entity Dissolution

Contracts Contracts of Entity

Arm's-length Joint R & D Minority Nonsubsidiary JV Subsidiaries Merger &Buy/Sell Equity JVs of MNCs Acquisitions

Contracts Joint Product Investments

Development Fifty-fifty

Franchising Equity Joint Ventures

Long-term Swaps

Licensing Sourcing Unequal Equity

Agreements Joint Ventures

Cross-licensing

Joint Manufacturin

Joint Marketing

Shared Distribution/

Service

Standards Setting/

Research Consortia

STRATEGIC ALLIANCES


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General Electrics Business Screen (1)


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Business Strengths

IndustryAttractivene

ss

High

Medium

Low

High Medium Low

Grow

DivestProtect &Refocus

Limited Expansion/Harvest

Selectivity/Managefor Earnings

Build SelectivelyInvest to Build

Build Selectively

Manage forEarnings

5 4 3 2 1

4

3

2

1

Invest to grow at

maximum digestible rate

Concentrate effort on

maintaining strength

Challenge for leadership

Build selectively on

strengths

Reinforce vulnerable areas

Specialize around limited

strengths

Seeks ways to overcome

weaknesses

Invest heavily in mostattractive segments

Build up ability to counter

competition Emphasize profitability byraising productivity

Protect existing program Concentrate investments in

segments where profitabilityis good and risk is relativelylow

Look for ways to expandwithout high risk, otherwise

minimize investment andrationalize operations

Manage for current

earnings

Concentrate on attractivesegments

Defend strengths

Protect position in most

profitable segments

Upgrade product line

Minimize investment

Sell at time that will

maximize cash value

Cut fixed costs and avoidinvestment meanwhile

General Electrics Business Screen (2)


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Must be

acceptable

Social/Politic/Legal

3.45

0.0510.05Environmental Impact

0.1020.05Energy Requirement0.1530.05Inflationary Vulnerability

0.4530.15Technological Requirements

0.3020.15Competitive Intensity

0.6040.15Historical Profit Margin

1.0050.20Annual Market Growth Rate

0.8040.20Overall Market Size

VALUERATING (1-5)

WEIGHTINDUSTRYATTRACTIVENESS


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strat. corp. bab1-6 [17-10--09]ndg

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