Lecture04 Strategy 2021 02

Lecture 4--Strategy
Thinking Strategically
• Strategic thinking means to take the long term view and to see the big picture, including the
organization and the competitive environment, and consider how they fit together
• Strategic management: the set of decisions and actions used to formulate and execute
strategies that will provide a competitively superior fit between the organization and its
environment so as to achieve organizational goals
Purpose of Strategy
exploit core competence
• what does the organization do especially well in comparison to its competitors? (competitive
advantage)
build synergy
• interaction between organizational parts to produce a joint effect that is greater than the sum
of the parts acting alone
• build good relationships between organizations
deliver value
• value is the combination of benefits received and costs paid
• value is created by devising strategies that exploit core competencies and attain synergy
Levels of Strategy
Corporate-level strategy: What Business are we in?
• applies to the organization as a whole and the different business units and product lines that
comprise the corporation
• examples of strategic actions: acquisition of new businesses; divestments of business units;
joint ventures
Business-level strategy: How do we compete?
• applies to each business unit or product line
• examples of strategic decisions: advertising, extent of research and development, product
changes, expansion or contraction of services/product lines
Functional-level strategy: How do we support the business-level strategy?
• applies to the major functional departments within the business unit
• examples of strategic decisions: finance, research and development, marketing and
manufacturing
The Strategic Management Process

Strategic Formulation
• Assessing external environment and internal problems and integrating the results into goals
and strategy
Strategic Execution
• Use of managerial and organizational tools to direct resources toward accomplishing strategic
results
SWOT Analysis: Identifying Organizational Opportunities

• Analysis of an organization’s strengths, weaknesses, opportunities, and threats in order to
identify a strategic niche that the organization can exploit
Page 1 of 6; Lecture 4 Strategy

SWOT Analysis
Strengths (Strategic)
• Internal resources that are available or things that an organization does well.
o Core competency: a unique skill or resource that represents a competitive edge.
Weaknesses
• Resources that an organization lacks or activities that it does not do well.
Opportunities (Strategic)
• Positive external environmental factors.
Threats
• Negative external environmental factors.
Examples of a Company’s Strengths, Weaknesses, Opportunities, and Threats
Formulating Corporate-Level Strategy
Three approaches to understanding corporate-level strategy

• Portfolio Strategy
• The BCG Matrix
• Diversification Strategy
Portfolio Strategy
• a mix of business units and product lines that fit together in a logical way to provide synergy
and competitive advantage for the corporation
• corporations’ balanced mix of business divisions called strategic business units (SBU)
• Direct Expansion
o increasing company size, revenues, operations, or workforce
o market penetration--increase market share
o geographic expansion--expand into new geographic markets
o product development--developing improved products for current market

• Merging
o when two companies (similar size/scale) combine their resources to form a new
company; e.g., MTRC merges with KCRC
• Acquisition
o similar to merging, only when a larger company buys a smaller company; e.g.,
PepsiCo buying Quaker Oats; Apple buying SIRI
The BCG Matrix
Organizes businesses on 2 dimensions – business growth rate and market share
The BCG Matrix
• Business growth rate: how rapidly the entire industry is increasing

• Market share: defines whether a business unit has a larger/smaller share than competitors
Star: large market share in rapidly growing industry. It has additional growth potential, it is visible and
attractive
Cash cow: exists in mature, slow-growth industry but is a dominant business in the industry. Plant
expansion and advertisement is no longer required, corporation earns a positive cash flow
Question mark: only has a small market share, it is risky business – it could become a star, or it could
fail
Dog: poor performer because it only has a small share of a slow-growth market

Diversification Strategy—moving into new lines of business
• related Diversification—when new business is related to the company’s existing business
activities
• unrelated diversification—when organization expands into a totally new line of business;
difficult to make strategy successful because the company’s lines of business aren’t logically
associated with one another
• vertical integration—when company expands into businesses that either produce the supplies
needed to make products and services or that distribute and sell those products and services
to customers
Business-Level Strategy
Business-level strategy: How do we compete?

• applies to each business unit or product line
• examples of strategic decisions: advertising, extent of research and development, product
changes, expansion or contraction of services/product lines
Michael Porter’s 5 Competitive Forces: a popular and effective model for formulating strategy
• Potential new entrants
o barriers to entry into the market include capital requirements and economies of scale
o internet technology has made it much easier for new companies to enter an industry
• Bargaining power of buyers
o internet provides more information about products, services, and competitors,
increasing the bargaining power of end consumers
• Bargaining power of suppliers
o procurement over the web gives companies more power over suppliers, but the web
also gives suppliers access to a greater number of customers
• Threat of substitute products
o internet created a greater threat of new substitutes by enabling new approaches to
meeting customer needs
o e.g., offering low-cost airline tickets over the internet hurts traditional travel agencies
• Rivalry among competitors
o companies are finding it difficult to distinguish themselves from their competitors
Michael Porter’s Competitive Strategies

• low-cost strategy
o aims to be the low-cost leader in an industry
o pursuing cost advantages from all possible sources within the value chain
o managers manufacture at lower cost, reduce waste.
o lower costs than competition mean lower prices.
• differentiation strategy
o seeks to be unique in its industry
o one or more attributes of the product/service that is perceived as important;
differentiation must be valued by the customer.
o successful differentiation allows you to charge more for a product.
• focus vs. generalist strategy
o selects a narrow market segment
o serving customers in that niche or focus (segment) better or more cheaply than
generalist competitors

In a nutshell,….
As Michael Porter put it, a company will attain competitiveness only if this competitiveness is
sustainable.
Strategy Execution
• the way in which strategy is implemented

• the most difficult and most important part of strategic management
• organizational barriers can hinder strategy execution
o six silent killers of strategy
• visible leadership
o good leadership-Ability to influence people to adopt the new behaviors
o leading by example
o persuasion, motivation techniques, and cultural values
• clear roles and accountability
o clearly defined roles and delegation of authority
o accountability
• candid communication
o listening to others and encouraging debates
o candid communication with the employees
• appropriate human resource practices
o proper recruitment and training of the employees
o recognizing good performance—awards and promotions

Global Strategy—Going International
• Export Strategy
o Domestically focused
o Exports a few domestically produced products to selected countries
• Transnational Strategy
o Combines global coordination to attain efficiency with local flexibility to meet needs in
different countries.
o Difficult to achieve as it requires both close global coordination as well as local
flexibility
o Ex. Coca-Cola, Pepsi-Cola
• Multidomestic Strategy
o Competition in each country is handled independently; product design and advertising
are modified to suit the specific needs of individual countries.
o Ex. 7/11
• Globalization Strategy
o Product design and advertising are standardized throughout the world
o Assumes that a single global market exists for many consumer and industrial products
o Helps marketing departments save cost
Before going international, companies need to be aware of the international environments (as
stipulated in Chapter 2.

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Lecture 4--Strategy

The Strategic Management Process

SWOT Analysis: Identifying Organizational Opportunities

Page 1 of 6; Lecture 4 Strategy

Examples of a Company’s Strengths, Weaknesses, Opportunities, and Threats

Formulating Corporate-Level Strategy

Three approaches to understanding corporate-level strategy

Page 2 of 6; Lecture 4 Strategy

The BCG Matrix

Organizes businesses on 2 dimensions – business growth rate and market share

The BCG Matrix

• Business growth rate: how rapidly the entire industry is increasing

Page 3 of 6; Lecture 4 Strategy

Business-level strategy: How do we compete?

Michael Porter’s Competitive Strategies

Page 4 of 6; Lecture 4 Strategy

• the way in which strategy is implemented

Page 5 of 6; Lecture 4 Strategy

Page 6 of 6; Lecture 4 Strategy

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