Topic: Strategy Formulation

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Topic Strategy Formulation
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Levels of Strategy Formulation

• Corporate
• Business Unit (SBU)
• Functional

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Levels of Strategy Formulation

• Corporate
• Business Unit (SBU)
• Functional
• Where we are headed with these

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Levels of Strategy Formulation

• Corporate
• Business Unit (SBU)
• Functional

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Levels of Strategy Formulation

• Corporate
• Not easy to talk about a strategic posture for
  GM (auto mfg, GMAC financial services, GMAC bank,
  GMC insurance)
• Mostly growth strategies
• Business Unit (SBU)
• Functional

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Levels of Strategy Formulation

• Corporate
• Business Unit (SBU)
• Functional

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Levels of Strategy Formulation

• Corporate
• Business Unit (SBU)
• Cost leadership/differentiation (horizontal axis)
• Competitive scope (vertical axis)
• Portfolio approaches
• Halls model (revisited)
• Game theory
• Functional

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Levels of Strategy Formulation

• Corporate
• Business Unit (SBU)
• Functional

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Levels of Strategy Formulation

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

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Levels of Strategy Formulation

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

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Recall Porters basic strategic posture
Differentiation
Low Cost
Broad
Focus
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Recall Porters basic strategic posture (in the
book)
Differentiation
Low Cost
Broad
Cost Leadership
Differentiation
Focus
Focus
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To which weve added
Differentiation
Low Cost
Broad
Retrenchment
Focus
Stability
Growth
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Thats where well focus our attention for
corporate strategies
Differentiation
Low Cost
Broad
Retrenchment
Focus
Stability
Growth
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Strategy Formulation Corporate

• Price/quality
• Focus/broad
• Growth/stability/retrenchment

These will be at the SBU level
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Strategy Formulation Corporate

• Price/quality
• Focus/broad
• Growth/stability/retrenchment
• Most firms want to grow
• Lets look at this one first
• Same trap as LTSCA most firms look in the same
  2-3 places
• So we need a framework to help

These will be at the SBU level
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Strategy Formulation Corporate

• Growth strategies
• Intensive
• Integrative
• Diversification

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• Intensive
• Market penetration
• Market development
• Product development
• Integrative
• Backward
• Forward
• Horizontal
• Diversification
• Concentric
• Conglomerate
• Horizontal

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• Some notation
• CP current products
• CC current customers (same thing)
• CM current markets
• NM new markets
• IP improved products
• TR technologically related
• TU technologically unrelated

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• Intensive
• Market penetration
• Market development
• Product development
• Integrative
• Backward
• Forward
• Horizontal
• Diversification
• Concentric
• Conglomerate
• Horizontal

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• Intensive
• Market penetration (CP, CM) (CM CC)
• Market development (CP, NM)
• Product development (IP, CM)
• Integrative
• Backward
• Forward
• Horizontal
• Diversification
• Concentric
• Conglomerate
• Horizontal

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• Intensive
• Market penetration
• Market development
• Product development
• Integrative
• Backward
• Forward
• Horizontal
• Diversification
• Concentric (NP/TR, NM)
• Conglomerate (NP/TU, NM)
• Horizontal (NP/TR, CM)

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• Intensive
• Market penetration
• Market development
• Product development
• Integrative
• Backward (Buy suppliers)
• Forward (Buy customers)
• Horizontal (Buy competitors)
• Diversification
• Concentric
• Conglomerate
• Horizontal

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Strategy Formulation Corporate

• Irrespective of whether growth strategy relates
  to stability or retrenchment, growth is going on
• These do not diminish the importance of the P/Q
  or the broad/focus dimensions
• (Those will apply at the SBU level)
• There are external and internal options for all
  of these (buy it or do it yourself)

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Strategy Formulation Business Unit (SBU) Level
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Strategy Formulation Business Unit (SBU) Level

• Cost leadership/differentiation
• Competitive scope
• Portfolio approaches
• Halls model (revisited)
• Game theory

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Strategy Formulation Business Unit (SBU) Level

• Cost leadership/differentiation (horizontal axis)
• Competitive scope (vertical axis)
• Portfolio approaches
• Halls model (revisited)
• Game theory

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Basic strategic posture horizontal axis first
Differentiation
Low Cost
Broad
Focus
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SBU Cost leadership

• Porter identifies ten major cost drivers that
  allow cost leadership to emerge.
• The first on that list is economies of scale (CA,
  p. 70). Examples
• Specialty machines
• Cost of plant and equipment
• Employee specialization
• Lower per-unit overhead

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SBU Cost leadership

• Its effective to the extent that it can improve
  our position with respect to the five forces

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SBU Cost leadership

• Cost leadership advantages (vis a vis the Five
  Forces)
• Porter claims it improves positioning relative to
  all five
• Reduces threat of entry
• Reduces threat of rivalry
• Reduces threat of substitutes
• Less clear re threat of buyers and suppliers,
  but certainly cant hurt.

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SBU Cost leadership

• Cost leadership advantages (vis a vis the Five
  Forces)
• Porter claims it improves positioning relative to
  all five
• Reduces threat of entry (airline mfg.)
• Reduces threat of rivalry (Chery v. Honda)
• Reduces threat of substitutes (beef v. pork)
• Less clear re threat of buyers and suppliers,
  but certainly cant hurt.

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SBU Cost leadership

• But there are limitations (diseconomies of
  scale)
• Efficient machine size has limits
• Managerial diseconomies (process loss)
• Worker motivation (high specialization may lead
  to low motivation)
• Distance to markets, suppliers

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SBU Cost leadership

• But there are limitations (diseconomies of
  scale)
• Efficient machine size has limits

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SBU Cost leadership

• But there are limitations (diseconomies of
  scale)
• Managerial diseconomies (process loss)

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SBU Differentiation

• The other end differentiation (through)
• Product quality
• Product features
• Technology (better)
• Timing (first mover)
• Location (propitious niche?)
• Product mix (one stop shopping)
• Alliances with other firms
• Reputation

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SBU Differentiation

• Again, its effective to the extent that it can
  improve our position with respect to the five
  forces

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SBU Differentiation

• Differentiation advantages (vis a vis the Five
  Forces)
• Reduces threat of entry, rivalry, substitutes all
  due to creating
• Smaller market (no rivalry)
• Switching costs
• Barriers to entry
• Similar impact with threat of buyers and
  suppliers

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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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SBU Focus

• Suppose we want to enact a broad strategic
  posture, rather than a focused one?
• How can we do it?
• What would it look like for our firm?