Topic: Strategy Formulation

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Topic Strategy Formulation
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Here is where we were
Differentiation
Low Cost
Broad
Retrenchment
Focus
Stability
Growth
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Strategy Formulation SBU

• Three dimensions of your basic strategic posture
• Growth/stability/retrenchment
• Price/quality
• Focus/broad

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Strategy Formulation SBU

• Back to the three dimensions of your basic
  strategic posture
• Growth/stability/retrenchment
• Price/quality
• Focus/broad

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Recall basic strategic posture
Differentiation
Low Cost
Broad
Focus
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SBU Focus

• This is competitive scope, and its more than
  just product line breadth
• Segment scope Variety of products produced,
  buyers served
• Vertical scope Extent to which activities are
  in-house or contracted
• Geographic scope Range within which a firm
  competes with a particular coordinated strategy
• Industry scope Range within which a firm
  competes with a particular coordinated strategy

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Topic Portfolios
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How do we integrate these individual strategies?

• One method is to consider portfolios of
  businesses
• Bud v. Light v. Michelob
• Cars v. trucks v. financing v. insurance
• US v. Mexico v. EU v. Japan v. China
• Two models
• BCG Model
• GE Model
• Same, only different

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BCG Portfolio model

• Assesses our portfolio of industry activity
• (Although this can be broadened to include
  products within an industry, regions within an
  industry, etc.)
• Stern Stalk (1998), Perspectives on Strategy
  from the Boston Consulting Group. New York Wiley

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Strategy Formulation
BCG Portfolio Model
HIGH
Industry Growth
LOW
LOW
HIGH
Market Share
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Strategy Formulation
BCG Portfolio Model
HIGH
Industry Growth
LOW
LOW
HIGH
Market Share
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Strategy Formulation
BCG Portfolio Model
HIGH
Industry Growth
LOW
LOW
HIGH
Market Share
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Strategy Formulation
BCG Portfolio Model
HIGH
Could be 1 to 4 Could be 6 to 55 Anchor the
ends, and plot where each business line (or
market, or product) lies
Industry Growth
LOW
LOW
HIGH
Market Share
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Strategy Formulation
BCG Portfolio Model
HIGH
Could be -4 to 4 Could be 5 to 95 Anchor the
ends, and plot where each business line (or
market, or product) lies
Industry Growth
LOW
LOW
HIGH
Market Share
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Might look like this
BCG Portfolio Model
HIGH
Industry Growth
LOW
LOW
HIGH
Market Share
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Strategy Formulation
BCG Portfolio Model
HIGH
?
Stars
Industry Growth
Cash Cows
Dogs
LOW
LOW
HIGH
Market Share
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Strategy Formulation
BCG Portfolio Model
HIGH
?
Stars
Industry Growth
Cash Cows
Dogs
LOW
LOW
HIGH
Market Share
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Strategy Formulation
BCG Portfolio Model
HIGH
?
Stars
Industry Growth
Cash Cows
Dogs
LOW
LOW
HIGH
Market Share
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Strategy Formulation
GE Business Screen Portfolio Model
HIGH
(5)
?
Winners
Industry Attractiveness
Profit Producers
Losers
LOW
(1)
WEAK
STRONG
Competitive Position
(1)
(5)
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Strategy Formulation
GE Business Screen Portfolio Model
HIGH
(5)
?
Winners
Industry Attractiveness
Profit Producers
Losers
LOW
(1)
WEAK
STRONG
Competitive Position
(1)
(5)
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Strategy Formulation
GE Business Screen Portfolio Model
HIGH
(5)
?
Winners
Lots more going on here than just growth and
market share
Industry Attractiveness
Profit Producers
Losers
LOW
(1)
WEAK
STRONG
Competitive Position
(1)
(5)
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Strategy Formulation
GE Business Screen Portfolio Model
HIGH
(5)
?
Winners
Industry Attractiveness
Like what?
Profit Producers
Losers
LOW
(1)
WEAK
STRONG
Competitive Position
(1)
(5)
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Strategy Formulation
GE Business Screen Portfolio Model
HIGH
(5)
An example Recall Halls model and how we
evaluated various competitors What factors
matter, and how much?
?
Winners
Industry Attractiveness
Profit Producers
Losers
LOW
(1)
WEAK
STRONG
Competitive Position
(1)
(5)
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Strategy Formulation
GE Business Screen Portfolio Model
HIGH
(5)
?
Winners
Similar process on this axis
Industry Attractiveness
Profit Producers
Losers
LOW
(1)
WEAK
STRONG
Competitive Position
(1)
(5)
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Strategy Formulation
GE Business Screen Portfolio Model
(4.5)
IA
(1.5)
(1.5)
(4.5)
CP
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Strategy Formulation
GE Business Screen Portfolio Model
(4.5)

IA
(1.5)
(1.5)
(4.5)
CP
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Strategy Formulation
GE Business Screen Portfolio Model
(4.5)




IA


(1.5)
(1.5)
(4.5)
CP
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Strategy Formulation
Can apply by market or product, too
(4.5)
What makes each market attractive or not? What
makes for a competitive position?
Market Attractiveness
(1.5)
(1.5)
(4.5)
Comp. Pos.
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Strategy Formulation
Can apply by market or product, too
(4.5)
Do this for your current markets
Market Attractiveness
(1.5)
(1.5)
(4.5)
Comp. Pos.
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Other ways to evaluate competitive position
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Plot your own businesses (or products or mkts
(rather than you vs. competitors)
G of E
HIGH
Power Alley
Zone of Competitive Battle
Relative Differentiation
Power Alley
Danger Zone
Death Valley
LOW
LOW
HIGH
Relative Cost
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Strategy formulation Other issues

• Game theory (if time)
• Functional strategies
• Pitfalls

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Strategy Formulation
Game Theory
Maintain
B
A
Incumbent Options
D
C
Cut
Maintain
Cut
Attacker Options
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Strategy Formulation
Game Theory
Maintain
100
70
B
A
60
70
Jones Options
120
80
D
C
20
30
Cut
Maintain
Cut
Smith Options
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Strategy Formulation
Game Theory
Maintain
100
70
B
A
60
70
Jones Options
120
80
D
C
20
30
Cut
Maintain
Cut
Smith Options
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Strategy Formulation
Game Theory
Maintain
100
70
B
A
60
70
Jones Options
120
80
C
110!
20
30
Cut
Maintain
Cut
Smith Options
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RecallLevels of Strategy Formulation

• Corporate
• Business Unit (SBU)
• Functional (Value Chain)

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Strategy Formulation Functional

• Traditionally, functional areas of the business
• Recall the Value Chain
• S W for each link
• Strategies for each link
• Thats better than strict functional area
  strategies

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Evaluating Strategies

• 1. Is it profitable?
• 2. Does it conform to our mission?
• 3. Does it involve a LTSCA?
• 4. Is it feasible?
• 5. Is it an acceptable risk?
• 6. Is it responsive to our external environment?
  
• 7. Does it provide adequate flexibility?
• 8. Is the time frame appropriate?
• 9. Is it profitable?

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Evaluating Strategies

• 1. Is it profitable?
• 2. Does it conform to our mission?
• 3. Does it involve a LTSCA?
• 4. Is it feasible?
• 5. Is it an acceptable risk?
• 6. Is it responsive to our external environment?
  
• 7. Does it provide adequate flexibility?
• 8. Is the time frame appropriate?
• 9. Is it profitable?

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Another macro-level summary

• Mission Basic strategic posture (cost/diff,
  growth/stabil, broad/focus)
• SW Value chain
• OT 5 forces dimensions of those barriers to
  entry strategic inflection points
• LTSCA Criteria, Halls model
• Issues problems Potentially all
• Strategies Corp (growth intensive, integrative,
  diverse) SBU (cost/diff, competitive scope,
  portfolios, Hall, game theory) functional (value
  chain) evaluation
• Fallout Potentially all