Strategy Formulation

• Business-level strategy


  Addresses issues on how to compete in a given business to attain a competitive advantage
• Corporate-level strategy


  The master of business strategies which are intended to provide basic direction for strategic action
• Corporate-level strategies


  Specify actions a firm takes to gain competitive advantage by selecting and managing a group of differentiated businesses competing in different product market
• Intensive Strategies


  • Market Penetration
  • Market Development
  • Product Development
• Market Penetration strategy


  Seeks to increase market share for present products or services in present markets through greater marketing efforts
• Market Development


  Involves introducing present products or services into new geographic areas, exploring possible uses or users of the product
• Product Development


  Involves substantial modification of existing products or creation of new but related items that can be marketed to current customers through established channels
• Product Development Strategies


  • Developing new product features
  • Developing quality variations
  • Developing additional models and sizes
• Types of Vertical Integration

  • Forward integration
  • Backward integration
  • Horizontal integration
• Forward integration


  Involves gaining ownership or increased control over distributors or retailers
• Backward integration


  A strategy of seeking ownership or increased control of a firm's suppliers
• Horizontal integration


  Refers to a strategy of seeking ownership of or increased control over a firm's competitors
• Types of Diversification Strategies

  • Concentric/related diversification
  • Conglomerate/Unrelated diversification
• Concentric/related diversification


  Involves acquisition of businesses related to the acquiring firm in terms of technology, market or products
• Conglomerate/Unrelated diversification


  A strategy that expands the firm's operations into industries and markets that are not similar or related to the firm's initial base
• Retrenchment Strategy


  Implies a decision to slow down, cut back and seek performance improvement through greater operating efficiency
• Unrelated differentiation


  Few similarities in the resources and capabilities among the firm's business units but value can be created in terms of restructuring, corporate parenting and portfolio analysis approach
• Retrenchment Strategy


  Decision to slow down, cut back and seek performance improvement through greater operating efficiency. Occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits. Sometimes called a turnaround or reorganizational strategy
• Retrenchment Strategy


  • The company gets rid of unprofitable products, reducing cost by pruning the work force (downsizing)
  • Strategic managers believe the firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify basic distinctive competence
• Downsizing


  A set of actions that causes a firm to strategically refocus its core businesses. Includes divestiture, spin-off or some other means of eliminating businesses that are unrelated to a firm's core businesses
• Divestiture


  Selling a division or part of an organization. Often used when the business does not fit well in the organization or consistently fails to reach its objectives set for it
• Liquidation


  Business is terminated and its assets sold off. Least desirable because it usually involves losses for both stockholders and employees. Business is typically sold in parts, only occasionally as a whole, but for its tangible asset and not as going concern
• Strategic Alliances


  Cooperative strategy in which firms combine/share some of their resources and capabilities to co-develop and sell goods and services. Allows a firm to leverage their existing resources and capabilities while working with partners to develop additional resources and capabilities as the foundation for new competitive advantage
• Types of Strategic Alliances

  • Joint venture
  • Equity strategic alliance
  • Non-equity strategic alliance
• Joint venture


  Strategic alliance in which one or two firms create a legally independent company to share some of their resources and capabilities to develop competitive advantage. Effective in establishing long-term relationships and transferring of tacit knowledge
• Equity strategic alliance


  Alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create competitive advantage
• Non-equity strategic alliance


  Alliance in which two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create competitive advantage
• Forms of non-equity strategic alliances

  Licensing agreements, distribution agreements and supply contracts
• International Strategy


  Strategy through which the firm sells its goods and services outside its domestic market
• International Expansion Tactics

  • Exporting
  • Licensing
  • Franchising
  • Joint venture
  • Greenfield venture
• Portfolio Analysis


  Key purpose is to assist a firm in balancing a portfolio of businesses whose profitability, growth and cash flow characteristics would complement each other and add up to a satisfactory overall corporate performance
• BCG Growth-share Matrix


  Analyzes the impact of industry resources in different business units on the corporation's future earnings and cash flows. Each business is positioned within a matrix, the vertical axis indicates the industry's growth rate, and the horizontal axis shows the business unit's market share relative to its largest competitor
• BCG Growth-share Matrix


  • Market growth rate in the vertical axis is a proxy measure for the maturing and attractiveness of an industry
  • A business's relative market share is a proxy for its competitive strength within its industry. Computed by dividing the business's absolute market share by that of the leading competitor
• Quadrants in BCG Growth-share Matrix

  • Question marks (problem children)
  • Stars
  • Cash cows
  • Dogs

  
• Question marks (problem children)


  SBUs competing in high growth industries but having relatively weak market shares. Require large amounts of cash for expansion and marketing to build market share
• Stars


  SBUs competing in high-growth market industries with relatively high market shares. Have long-term growth potential and should continue to receive substantial investment funding
• Cash cows


  Businesses with a high relative share of low growth markets. Primary generators of profits and cash that can be used to support question marks and stars
• Dogs


  Low-share businesses in low-growth markets. May throw off some cash but typically generate low profits/losses. Divestiture is one option
• GE's Multifactor Portfolio Matrix


  Relies on factors other than just market growth to judge the future attractiveness of different industries. Uses multiple variables in addition to relative market share to judge the competitive strength and position of each business