Strategy

Formulation:
Situation
Analysis and
Business
Strategy
Chapter 6

Learning Objectives
Organize environmental and organizational
information using a SWOT approach and
the SFAS matrix
Understand the competitive and
cooperative strategies available to
corporations
List the competitive tactics that would
accompany competitive strategies
Identify the basic types of strategic
alliances
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Situational Analysis:
SWOT Approach

Strategy formulation
concerned with developing a
corporations mission, objectives,
strategies and policies

Situation analysis
the process of finding a strategic fit
between external opportunities and
internal strengths while working around
external and internal weaknesses
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Situational Analysis:
SWOT Approach

SWOT
acronym used to describe the particular
Strengths, Weaknesses, Opportunities
and Threats that are potential strategic
factors for a specific company

Strategy = opportunity/capacity
Opportunity has no real value unless a
company has the capacity to take
advantage of that opportunity.
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Criticisms of SWOT analysis

It is simply the opinions of those filling
out the boxes.
Virtually everything that is a strength is
also a weakness.
Virtually everything that is an
opportunity is also a threat.
Adding layers of effort does not
improve the validity of the list.
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Criticisms of SWOT analysis

It uses a single point in time
approach.
There is no tie to the view from the
customer.
There is no validated evaluation
approach.

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Generating a Strategic Factors

Analysis Summary (SFAS) Matrix

SFAS (Strategic Factors Analysis

Summary) Matrix
summarizes an organizations strategic
factors by combining the external
factors from the EFAS Table with the
internal factors from the IFAS Table

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Strategic Factor Analysis Summary

(SFAS) Matrix

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Finding a Propitious Niche

Propitious niche
so well-suited to the firms internal and
external environment that other
corporations are not likely to challenge
or dislodge it

Strategic window
a unique market opportunity that is
available for a particular time
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Review of Mission and

Objectives
A re-examination of an organizations
current mission and objectives must
be made before alternative strategies
can be generated and evaluated.

Performance problems can derive

from inappropriate (narrow or too
broad) mission statements and
objectives.
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Business Strategies
Business strategy
focuses on improving the competitive
position of a companys or business
units products or services within the
specific industry or market segment
that the company or business unit
serves
competitive, cooperative

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Porters Competitive
Strategies
Competitive strategy raises the
following questions:

Should we compete on the basis of

lower cost (and thus price), or should
we differentiate our products or
services on some basis other than cost,
such as quality or service?

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Porters Competitive
Strategies
Should we compete head to head
with our major competitors for the
biggest but most sought-after share
of the market, or should we focus on
a niche in which we can satisfy a
less sought-after but also profitable
segment of the market?

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Porters Competitive
Strategies
Cost leadership
ability of a company or a business unit to
design, produce and market a comparable
product more efficiently than its
competitors

Differentiation
ability of a company to provide unique
and superior value to the buyer in terms
of product quality, special features or
after-sale service
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Porters Competitive
Strategies
Focus
ability of a company to provide unique
and superior value to a particular buyer
group, segment of the market line or
geographic market

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Porters Competitive
Strategies
Porter proposed that a firms
competitive advantage in an
industry is determined by its
competitive scopethat is, the
breadth of the companys or
business units target market.

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Porters Competitive
Strategies
Cost leadership
lower-cost competitive strategy that aims at the
broad mass market and requires aggressive
construction of efficient-scale facilities, vigorous
pursuit of cost reductions from experience, tight
cost and overhead control, avoidance of marginal
customer accounts, and cost minimization

Provides a defense against rivals

Provides a barrier to entry
Generates increased market share
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Porters Competitive
Strategies
Differentiation
involves the creation of a product or service
that is perceived throughout the industry as
unique.
can be associated with design, brand image,
technology, features, dealer network or
customer service

Lowers customers sensitivity to price

Increases buyer loyalty
Can generate higher profits
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Porters Competitive
Strategies
Cost focus
low-cost competitive strategy that focuses
on a particular buyer group or geographic
market and attempts to serve only this
niche to the exclusion of others

Differentiation focus
concentrates on a particular buyer group,
product line segment or geographic market
to serve the needs of a narrow strategic
market more effectively than its competitors
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Risks in Competitive
Strategies
A company following a
differentiation strategy must
ensure that the higher price it
charges for its higher quality is not
too far above the price of the
competition, otherwise customers
will not see the extra quality as
worth the extra cost.
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Issues in Competitive
Strategies
Stuck in the middle
when a company has no competitive
advantage and is doomed to belowaverage performance

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Issues in Competitive
Strategies
Successful entrepreneurial ventures
follow focus strategies.
They differentiate their product or
service from those of others by
focusing on customer wants in a
segment of the market, thereby
achieving a dominant share of that
part of the market.
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Industry Structure and

Competitive Strategy

Fragmented industry
many small- and medium-size
companies compete for relatively small
shares of the total market

Products are typically in early stages of

product life cycle
Focus strategies are used

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Industry Structure and

Competitive Strategy

Consolidated industry
domination by a few large companies
premium on a firms ability to achieve
cost leadership

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Industry Structure and

Competitive Strategy

Strategic rollup
developed in the mid-1990s as an
efficient way to quickly consolidate a
fragmented industry

1. They involve large numbers of firms.

2. The acquired firms are typically owner
operated.
3. The objective is to reinvent an entire
industry.
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Hyper-Competition and
Competitive Advantage
Sustainability
Competitive advantage in a hypercompetitive market is characterized
by a continuous series of multiple
short-term initiatives that replace
current products with new products
before competitors can do so.

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Hyper-Competition and
Competitive Advantage
Sustainability
Sustained competitive
advantage is increasingly a matter
not of a single advantage
maintained over time, but more a
matter of sequencing advantages
over time.

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Cooperative Strategies
Cooperative strategies
used to gain a competitive advantage
within an industry by working with other
firms
collusion, strategic alliances

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Cooperative Strategies
Collusion
the active cooperation of firms within an
industry to reduce output and raise
prices to avoid economic law of supply
and demand

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Cooperative Strategies
Strategic alliances
a long-term cooperative arrangement
between two or more independent firms
or business units that engage in
business activities for mutual economic
Figure 6-2gain

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Reasons to Form an Alliance

Obtain or learn new
capabilities
Obtain access to specific
markets
Reduce financial risk
Reduce political risk
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Types of Alliances
Mutual service consortium
partnership of similar companies in
similar industries that pool their
resources to gain a benefit that is too
expensive to develop alone, such as
access to advanced technology

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Types of Alliances
Joint venture
cooperative business activity, formed by
two or more separate organizations for
strategic purposes, that creates an
independent business entity and
allocates ownership, operational
responsibilities and financial risks and
rewards to each member, while
preserving their separate
identity/autonomy
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Types of Alliances
Licensing arrangement
agreement in which the licensing firm
grants rights to another firm in another
country or market to produce and/or sell
a product

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Types of Alliances
Value-chain partnership
a strong and close alliance in which one
company or unit forms a long-term
arrangement with a key supplier or
distributor for mutual advantage

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Strategic Alliance Success

Factors

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