Chapter 6: Strategy Formulation - Situation Analysis and Business Strateg

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Strategy Formulation It is often referred to as strategic planning or long-range planning.
It is concerned with developing a corporation's mission, objectives,
Strategy Formulation
strategies, and policies.
This is the process of finding a strategic fit between external
Situation Analysis opportunities and internal strengths while working around external
threats and internal weaknesses.
An acronym used to describe the particular Strengths, Weak-
SWOT nesses, Opportunities, and Threats that are strategic factors for
a specific company.
It summarizes an organization's strategic factors by combining the
SFAS (Strategic Factors Analysis Summary) Matrix external factors from the EFAS Table with the internal factors from
the IFAS Table.
Strategic Factors Column 1 of the SFAS Matrix
Weight Column 2 of the SFAS Matrix
Rating Column 3 of the SFAS Matrix
It measures how the company's management is responding to
Rating
each of the strategic factors.
Weighted Score Column 4 of the SFAS Matrix
Duration Column 5 of the SFAS Matrix
Short-Term Less than one year strategic factor.
Intermediate-Term 1-3 years strategic factor.
Long-Term 3 years and beyond strategic factor.
Comments Column 6 of the SFAS Matrix
It is an extremely favorable niche—that is so well suited to the
Propitious Niche firm's internal and external environment that other corporations
are not likely to challenge or dislodge it.
It is where a company is able to satisfy customers' needs in a way
Strategic Sweet Spot
that rivals cannot, given the context in which it operates.
It is a unique market opportunity that is available only for a partic-
Strategic Window
ular time.
Common Thread It is a unifying theme of a corporation.
It illustrates how the external opportunities and threats facing a
particular corporation can be matched with that company's inter-
TOWS Matrix
nal strengths and weaknesses to result in four sets of possible
strategic alternatives.
These are generated by thinking of ways in which a company or
SO Strategies business unit
could use its strengths to take advantage of opportunities.
These consider a company's or unit's strengths as a way to avoid
ST Strategies
threats.
These attempt to take advantage of opportunities by overcoming
WO Strategies
weaknesses.
These are basically defensive and primarily act to minimize weak-
WT Strategies nesses and
avoid threats.
It focuses on improving the competitive position of a company's or
Business Strategy business unit's products or services within the specific industry or
market segment that the company or business unit serves.
It is the ability of a company or a business unit to design, produce,
Lower Cost Strategy and market a comparable product more efficiently than its com-
petitors.

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It is the ability of a company to provide unique and superior
Differentiation Strategy value to the buyer in terms of product quality, special features, or
after-sale service.
This is the breadth of the company's or business unit's target
Competitive Scope
market.
When the lower-cost and differentiation strategies have a broad
Cost Leadership & Differentiation
mass-market target.
Cost Focus & Differentiation Focus When they are focused on a market niche (narrow target).
It is a 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 Leadership
cost and overhead control, avoidance of marginal customer ac-
counts, and cost minimization in areas like R&D, service, sales
force, advertising, and so on."
It is aimed at the broad mass market and involves the creation of
Differentiation a product or service that is perceived throughout its industry as
unique.
It is a low-cost competitive strategy that focuses on a particular
Cost Focus buyer group or geographic market and attempts to serve only this
niche, to the exclusion of others.
Like cost focus, concentrates on a particular buyer group, product
Differentiation Focus
line segment, or geographic market.
This is where many small- and medium-sized local companies
Fragmented Industry
compete for relatively small shares of the total market
It was developed in the mid-1990s as an efficient way to quickly
Strategic Rollup
consolidate a fragmented industry.
It is a specific operating plan that details how a strategy is to be
Tactic
implemented in terms of when and where it is to be put into action.
Timing Tactic It deals with when a company implements a strategy.
The first company to manufacture and sell a new product or
First Mover
service.
They may be able to imitate the technological advances of others
(and thus keep R&D costs low), keep risks down by waiting until
Late Movers a new technological standard or market is established, and take
advantage of the first mover's natural inclination to ignore market
segments.
Market Location Tactic It deals with where a company implements a strategy.
It usually takes place in an established competitor's market loca-
Offensive Tactic
tion.
It usually takes place in the firm's own current market position as
Defensive Tactic
a defense against possible attack by a rival.
The attacking firm goes head to head with its competitor. It match-
Frontal Assault es the competitor in every category from price to promotion to
distribution channel.
Rather than going straight for a competitor's position of strength
Flanking Maneuver with a frontal assault, a firm may attack a part of the market where
the competitor is weak.
This tactic attempts to cut the market out from under the estab-
Bypass Attack lished defender by offering a new type of product that makes the
competitor's product unnecessary.
It occurs as an attacking company or unit encircles the competi-
Encirclement
tor's position in terms of products or markets or both.

Guerrilla Warfare
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Defensive Tactics
Raise Structural Barriers
Increase Expected Retaliation
Lower the Inducement for Attack
Cooperative Strategies
Collusion
Strategic Alliance
Mutual Service Consortium
Joint Venture
Licensing Agreement
Value-Chain Partnership
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It is characterized by the use of small, intermittent assaults on
different market segments held by the competitor.
They aim to lower the probability of attack, divert attacks to less
threatening avenues, or lessen the intensity of an attack.
Entry barriers act to block a challenger's logical avenues of attack.
This tactic is any action that increases the perceived threat of
retaliation for an attack.
A third type of defensive tactic is to reduce a challenger's expec-
tations of future profits in the industry.
A company can also use these strategies to gain competitive
advantage within an industry by working with other firms.
It is the active cooperation of firms within an industry to reduce
output and raise prices in order to get around the normal economic
law of supply and demand.
It is a long-term cooperative arrangement between two or more
independent firms or business units that engage in business ac-
tivities for mutual economic gain.
It is a 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.
It is a "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."
It is an agreement in which the licensing firm grants rights to
another firm in another country or market to produce and/or sell a
product.
It is 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.