Business Strategy

 Disney is capitalizing on the Toy Story franchise by

opening Toy Story attractions as its theme parks.
 Gas price are forcing Toyota to cut back on SUV and
truck production.
 Vedanta Resources, a metals and mining company
located in India, will invest $9.8 billion dollars to
increase its aluminum-smelting capacity, a move
that will make it one of the world largest metal
producer.
 “Find out what customers want, then provide it to
them as cheaply and quickly as possible’’ is strategy
of Wal-Mart.
What is strategy?

 A large-scale action plan that sets the

direction for an organization
 Plans for how an organization will do what it’s
in business to do, how it will compete
successfully, and how it attract and satisfy its
customers in order to achieve its goals.
 It represent “educated guess” about what
must be done in the long term for survival or
the prosperity of organization or its principal
parts.
Can org. uses its specific
strategy forever?
 According to fast-changing conditions,
strategy can’t be decided on just once, it
needs to be revisited from time to time.
What is strategic
management?
 It is a process that involves managers from all
parts of organization in the formulation and
the implementation of strategies and
strategic goals.
 It is what managers do to develop an
organization’s strategies.
What is strategic planning?

 It is not only the organization’s long-term

goals for the next 1-5 years regarding growth
and profits but also the ways the organization
should achieve them.
 It is the process of determining what your
organization intends to accomplish, and how
you will direct organization and its resources
toward accomplishing these goals in the
coming months and years.—Bryan W. Barry
Why strategic management is
important?
1. It can make difference in how well organization
performs even organizations are in the same
environmental conditions but their
performances are different
2. It helps managers cope with uncertainty from
continually changing situations to examine
relevant factors and decide what actions to take
3. It helps people focus on the ways and direction
to achieve org.’s goals in each part of
organization
 The Strategic Management
Process 2
External Analysis
•Opportunities
•Threats
1 4 5 6
Identify the
organization’s SWOT Formulate Implement Evaluate
current mission,
goals, and Analysis Strategies Strategies Results
strategies
3
Internal Analysis
•Strengths
•Weaknesses
STEP1: Identify Org.
Current Mission, Goals, and
Strategy
Examples
 L’Oreal mission is “The right to be beautiful
day after day.”
 Facebook mission is “a social utility that
connects you with the people around you.”
 The National Heart Foundation of Australia
mission is to “reduce suffering and death
from heart, stroke, and blood vessel disease
in Australia.”
Components of a Mission
Statement
 Customers: Who are the firm’s customers?
 Markets: Where does the firm compete geographically?
 Concern for survival, growth, and profitability: Is the firm
committed to growth and financial stability?
 Philosophy: What are the firm’s basic beliefs, values, and ethical
priorities?
 Concern for public image: How responsive is the firm to societal and
environmental concerns?
 Products or services: What are the firm’s major products or services?
 Technology: Is the firm technologically current?
 Self-concept: What are the firm’s major competitive advantage and
core competencies?
 Concern for employees: Are employees a valuable asset of the firm?
STEP2: Doing an External
Analysis
Examples
 What the competition is doing?
 What pending legislation might affect the
organization?
 What the labor supply is like in locations where it
operates?
*Managers need to point out opportunities
(positive trends) that organization can exploit
and threats (negative trends) it must counteract
or buffer against
STEP3: Doing an Internal
Analysis
Examples
 Organization’s resources which are its assets use for
develop, manufacture, and deliver products to
customers i.e. financial, physical, human, and
intangible
 Organization’s capabilities (skills and abilities) in
doing work activities needed in its business
 Organization’s major value-creating capabilities that
determine its competitive weapons called ‘core
competencies’
Managers identify organizational strengths (positive
factors) and weaknesses (negative factors)
Complete SWOT Analysis

1. Combine external and internal analyses

which includes organization’s strengths,
weaknesses, opportunities, and threats
2. Formulate appropriate strategies which:
 Exploit organization’s strengths and external
opportunities
 Buffer or protect organization from external
threats
 Correct critical weaknesses
Example of Marketing SWOT
Analysis (Internal Factors)
A strength could be:
 Your specialist marketing
expertise.
 A new, innovative product
or service.
 Location of your business.
 Quality processes and
procedures.
 Any other aspect of your
business that adds value to
your product or service.
A weakness could be:
 Lack of marketing
expertise.
 Undifferentiated products
or services (i.e. in relation
to your competitors).
 Location of your business.
 Poor quality goods or
services.
 Damaged reputation.
Example of Marketing SWOT
Analysis (External Factor)
An opportunity could be:
 A developing market such as
the Internet.
 Mergers, joint ventures or
strategic alliances.
 Moving into new market
segments that offer improved
profits.
 A new international market.
 A market vacated by an
ineffective competitor.
A threat could be:
 A new competitor in your
home market.
 Price wars with competitors.
 A competitor has a new,
innovative product or service.
 Competitors have superior
access to channels of
distribution.
 Taxation is introduced on
your product or service.
Ex. Marketing SWOT Analysis
 Simple rules for successful
SWOT analysis
 Be realistic about the strengths and weaknesses of
your organization when conducting SWOT analysis.
 SWOT analysis should distinguish between where
your organization is today, and where it could be in
the future.
 SWOT should always be specific. Avoid grey areas.
 Always apply SWOT in relation to your competition
i.e. better than or worse than your competition.
 Keep your SWOT short and simple. Avoid
complexity and over analysis
Example 1 -
Wal-Mart SWOT Analysis.
 Strengths - Wal-Mart is a  Weaknesses - Wal-Mart is
powerful retail brand. It the World's largest grocery
has a reputation for value retailer and control of its
for money, convenience empire, despite its IT
and a wide range of advantages, could leave it
products all in one store. weak in some areas due to
the huge span of control.
 Opportunities - To take
over, merge with, or form  Threats - Being number
strategic alliances with one means that you are the
other global retailers, target of competition,
focusing on specific locally and globally.
markets such as Europe or
the Greater China Region.
SWOT Analysis

 SWOT analysis is a tool for auditing an

organization and its environment.
 It is the first stage of planning and helps
managers to focus on key issues.

http://www.marketingteacher.com/Lessons/lesson_swot.htm
STEP4: Formulate Strategies

 Managers need to consider the realities of

external environment , their available
resources , capabilities, and design strategies
that will help the organization achieve its
goals
STEP5: Implementing
Strategies
 No matter how great the organization’s
strategies are planned, performance will
suffer if those strategies are not implemented
properly
STEP6: Evaluate Results

 Managers need to evaluate on:

 How effective have strategies been at helping
organization reach its goals?
 What adjustments are necessary?

Example:
Anne Mulcahy, Xerox’s CEO, made strategic
adjustments to regain market share and improve
her company bottom line by cutting jobs, sold
assets, and reorganized management
Types of Organizational Strategies

1) Corporate -> Multi-business

Corporation

2) Competitive or Business ->

Strategic Business Strategic Business Strategic Business
Unit 1 Unit 2 Unit 3

3) Functional ->
Research & Human
Manufacturing Marketing Finance
Development Resources
 I. Corporate Strategy

1) Corporate -> Multi-business

Corporation

2) Competitive or Business ->

Strategic Business Strategic Business Strategic Business
Unit 1 Unit 2 Unit 3

3) Functional ->
Research & Human
Manufacturing Marketing Finance
Development Resources
What is Corporate Strategy?

 It specifies what businesses a company is in or

wants to be in and what it wants to do with
those businesses.
 It’s based on the missions and goals of org.
and the roles that each business unit of org.
will play.
Example: PepsiCo
 Mission: “to be the world’s premier consumer products
company focused on convenient foods and beverages…”

 It pursues its mission with corporate strategy which is

decided by top manager what to do in different
businesses:
 PepsiCo Americas Beverages: PepsiCo North American Beverag
es (PNAB), Latin Americas Beverages
 PepsiCo Americas Foods: Frito-Lay North America, Quaker Food
s North America, Sabritas, Gamesa, Latin Americas Foods
 PepsiCo International
Example: Unilever
 Our mission is to add vitality to life. We meet
everyday needs for nutrition, hygiene and
personal care with brands that help people look
good, feel good and get more out of life.

 It divides its business units as:

 Food brands: Lipton, Knorr, Bertolli, Flora,…
 Home care brands: Comfort, Sunlight, Omo, Cif,
Surf,…
 Personal care brands: Axe, Dove, Lux, Lifebuoy,
Pond’s, Rexona, Vaseline, Sunsilk, Closeup
Types of Corporate Strategy

1. Growth Strategies

2. Stability Strategies

3. Renewal Strategies
Corporate Strategy: Growth

 A corporate strategy that’s used when

organization wants to expand the number of
markets served or products offered, either
through its current business(es) or through new
business(es).

 It is a grand strategy that involves expansion—as

in sales revenues, market share, number of
employees, or number of customers or (for
nonprofits) clients served.
Types of Growth Strategies

1) Concentration or Intensive Growth Strategy

1) Market Development
2) Product Development
3) Market Penetration
2) Integrative Growth Strategy
1) Forward Vertical Integration
2) Backward Vertical Integration
3) Horizontal Integration
3) Diversification Growth Strategy
1) Conglomerate Diversification
2) Concentric Diversification
1) Concentration or Intensive
Growth Strategy
 Focuses on its primary line of business by doing:
 Market Development: increases the number of market
served in primary business (existing products for new
markets/ customers)
 Product Development: increases the number of products
offered by developing better quality products or innovate
new products offerings in primary business (new products
for existing customers)
 Market Penetration: increases corporate revenue by
promoting products, i.e. increased frequency or quantity of
using products, or repositioning the brand (existing
products for existing customers)
2) Integrative Growth Strategy
 A strategy for growth in which a firm acquires some othe
r element of the chain of distribution of which it is a mem
ber
 3 main types of integration:
 Backward Vertical Integration: controls subsidiaries that p
roduce some of the inputs used in the production of its prod
ucts, e.g., an automobile company may own a tire company
, a glass company, and a metal company (combine with
input supplier)
 Forward Vertical Integration: controls distribution centers
and retailers where its products are sold which enable firm
control its output (combine with output distributor/retailer)
 Horizontal Integration: occurs when a firm is being taken o
ver by, or merged with, another firm which is in the same in
dustry and in the same stage of production as the merged fi
rm, e.g. a car manufacturer merging with another car manu
facturer. (combine with competitor)
3) Diversification Growth Strategy

 It is a strategy of firm that expand its business

into new market(s) in order to gain new
customers.
 2 main types of diversification strategies:
 Concentric Diversification: combines with firms in
different but remains in a market or industry which firm is f
amiliar with (related diversification)
 Conglomerate Diversification: combines with firms in
different and never have previous experience before
(unrelated diversification)
 Market Development
Corporate Strategy
Product Development

Intensive Market Penetration

Backward Vertical

Growth Integration Forward Vertical

Horizontal

Conglomerate
Diversification
Corporate Concentric
Stability
Level

Renewal
Corporate Strategy: Stability

 It is a corporate strategy in which an organization

continues to do what it is currently doing

 It involves little or no significant change

 It includes continuing to serve the same clients by

offering the same product or service, maintain
market share, and sustaining org’s current
business operations.
Example of Market Share
Search Engine Market Share
By U.S. Monthly Visitors and
Search Queries in April 2008

The four major search engines

stack up as follows:
1.Google: 67.9%
2.Yahoo: 20.3% (unrounded,
20.28%)
3.Microsoft: 6.3% (unrounded,
6.26%)
4.Ask: 4.2% (unrounded,
4.17%)

http://searchengineland.com/hitwise-google-again-hits-new-high-microsoft-yahoo-again-new-lows-13998
Corporate Strategy: Renewal
Strategy (or Retrenchment or
Defensive Strategy)
 A corporate strategy designed to address
declining performance which normally
involve with cutting costs and restructuring
organizational operations.
 2 main types of renewal strategies:
 Retrenchment Strategy: a short-run renewal
strategy used for minor performance problems
 Turnaround Strategy: a strategy used for more
serious problems
 Summary of Corporate Strategy
1) Growth Strategy
 It can improve an existing product or service to attract more
buyers
 It can increase its promotion and marketing efforts to try to
expand its market share.
 It can expand its operations, as in taking over distribution or
manufacturing previously handled by someone else.
 It can expand into new products or services.
 It can acquire similar businesses.
 It can merge with another company to form a larger company.
 Summary of Corporate Strategy
(Con’t)
2) Stability Strategy
 It can go for no-change strategy (if, for example, it has
found that too fast growth leads to foul-ups (misdoing)
with orders and customer complaints)

 It can go for a little-change strategy (if, for example, the

company is growing at breakneck (very fast & dangerous)
speed and feels it needs a period of consolidation)
 Summary of Corporate Strategy
(Con’t)
3) Renewal Strategy
 It can reduce costs, as by freezing hiring or tightening
expenses.
 It can sell off (liquidate) assets—land, buildings,
inventories, and etc.
 It can gradually phase out product lines or services.
 It can divest part of its business, as in selling off entire
divisions or subsidiaries.
 It can declare bankruptcy.
 It can attempt a turnaround—do some retrenching, with a
view toward restoring profitability.
 II. Business or Competitive
Strategy
1) Corporate -> Multi-business
Corporation

2) Competitive or Business ->

Strategic Business Strategic Business Strategic Business
Unit 1 Unit 2 Unit 3

3) Functional ->
Research & Human
Manufacturing Marketing Finance
Development Resources
II. Business or Competitive
Strategy
 It is a strategy for how org. will compete in its
business(es).
 Org. that has 1 main line of business => strategy describes
on how it will compete in its primary or main market
 Org. that has more than 1 line of business => strategy
defines its competitive advantage, offered products or
services, target customers, etc.

 Org. can formulate different types of strategy such

as cost leadership, differentiation, or focus.
II. Business or Competitive
Strategy (Con’t)
Example:
 LVMH-Moet Hennessy Louis Vuitton SA has
different competitive strategies for its
businesses which includes:
 Donna Karan fashions
 Louis Vuitton leather goods
 Guerlain perfume
 TAG Heuer watches
 Dom Perignon champagne
 And other luxury products
SBUs = Strategic Business
Units
 Single businesses in an organization that are
independent and formulate their own
competitive strategies
II. Business or Competitive
Strategy (Con’t)
 It refers to the aggregated (total, sum) strategies of sin
gle business firm or a SBU in a diversified corporatio
n.
 According to Michael Porter, to achieve a sustainable
competitive advantage and long-term success, a
firm must formulate a business strategy that
incorporates:
 Cost leadership: keeping costs & prices low for a market
such as Dell computer, Timex watch, Home Depot
hardware retailer
 Differentiation: offering unique & superior value for a wide
market such as Ritz-Carlton hotels, Lexus automobiles
 Focus: offering unique & superior value for a narrow market
such as Rolls-Royce, Ferrari, Lamborghini, Cartier jewelry

Source: http://en.wikipedia.org/wiki/Strategic_management
 II. Functional Strategy

1) Corporate -> Multi-business

Corporation

2) Competitive or Business ->

Strategic Business Strategic Business Strategic Business
Unit 1 Unit 2 Unit 3

3) Functional ->
Research & Human
Manufacturing Marketing Finance
Development Resources
III. Functional Strategy
 Functional strategies are used by org’s various functional
departments to support the competitive strategy which i
nclude marketing strategies, new product development st
rategies, human resource strategies, financial strategies, l
egal strategies, supply-chain strategies, and information t
echnology management strategies.
 Each functional department attempts to do its part in mee
ting overall corporate objectives, and hence to some exte
nt their strategies are derived from broader corporate stra
tegies.
 The emphasis is on short and medium term plans and is li
mited to the domain of each department’s functional resp
onsibility.

Source: http://en.wikipedia.org/wiki/Strategic_management
Analytical Tools in Strategic
Management
 5 Forces Analysis
 BCG Growth-Share Matrix
 Product Life Cycle
 Five Force Model
 5 competitive forces determine business
attractiveness and profitability which
manager assess using them Any possibility?

How much?

How much? Any

possibility?

How intense ?
 BCG Growth-Share Matrix
 The overall goal of this ranking was to help corporate analysts decide which of their business
units to fund, and how much; and which units to sell.
 Managers were supposed to gain perspective from this analysis that allowed them to plan
with confidence to use money generated by the cash cows to fund the stars and, possibly,
the question marks
 BCG Growth-Share Matrix
 The natural cycle for most business units is that they start as question m
arks, then turn into stars. Eventually the market stops growing thus the
business unit becomes a cash cow. At the end of the cycle the cash cow
turns into a dog.
 Stars & Question Marks
 Stars are units with a high market
share in a fast-growing industry.
 The hope is that stars become the
next cash cows.
 Sustaining the business unit's
market leadership may require
extra cash, but this is worthwhile if
that's what it takes for the unit to
remain a leader.
 When growth slows, stars become c
ash cows if they have been able to
maintain their category leadership,
or they move from brief stardom to
dogdom
Source: http://en.wikipedia.org/wiki/Growth-share_matrix
 Question marks (also known as
problem child) are growing rapidly a
nd thus consume large amounts of c
ash, but because they have low mar
ket shares they do not generate
much cash. The result is a large net
cash consumption.

A question mark has the potential t
o gain market share and become a s
tar, and eventually a cash cow when
the market growth slows.

If the question mark does not succe
ed in becoming the market leader, t
hen after perhaps years of cash con
sumption it will degenerate into a d
og when the market growth decline
s.
 Question marks must be analyzed ca
refully in order to determine wheth
er they are worth the investment re
quired to grow market share.
 Cash Cows & Dogs
 Cash cow are units with high mar
ket share in a slow-growing industry
. mature, slow-growing industry.
 These units typically generate cash i
n excess of the amount of cash nee
ded to maintain the business.
 They are regarded as staid and bori
ng, in a "mature" market, and every
corporation would be thrilled to ow
n as many as possible.
 They are to be "milked" continuousl
y with as little investment as possibl
e, since such investment would be
wasted in an industry with low grow
th.
Source: http://en.wikipedia.org/wiki/Growth-share_matrix
 Dogs, also can called as pets, are
units with low market share in a
 These units typically "break even",
generating barely enough cash to
maintain the business's market
share.
 Though owning a break-even unit
provides the social benefit of
providing jobs and possible
synergies that assist other business
units, from an accounting point of
view such a unit is worthless, not
generating cash for the company.
 They depress a profitable company's
return on assets ratio, used by many
investors to judge how well a
company is being managed. Dogs, it
is thought, should be sold off.
 How to use it?
 To use the chart, analysts plot a
scatter graph to rank the business
units (or products) on the basis of
their relative market shares and
growth rates.
 When the organization has a lot
business units fall in “question
marks” and “stars”, that
organization tends to apply growth
strategy as a corporate strategy.
 For the organization that has most
of its business units fall in “cash
cows”, organization tends to apply
stability strategy to remain its profit
status as long as it can.
 For the organization that has a lot
of “dog”, may need to use renewal
strategy to find any solutions for
the particular bad-performance
product.

Source: http://en.wikipedia.org/wiki/Growth-share_matrix
Product Life Cycle
1. Introduction -- A product is developed and
comes to market.

2. Growth -- Consumers learn about it and more

people buy it. It becomes more competitive
through modification, price adjustments,
wider distribution and other initiatives.

3. Maturity -- The product generates profits with

more professional productivity learning from
experience. But problems can arise, such as
the arrival of competing products in the
marketplace. The product maybe modified or
marketed in a new way to keep profits strong.

4. Decline -- Sales decrease because of market

saturation, obsolescence or other
factors.Placing a product on this timeline
suggests strategies for keeping its profitability
high.
Example: If profits sag (decrease) during the
Maturity stage, the manufacturer might offer
discounted pricing or wider distribution.

 It uses to analyze the

profitability of a product at
different stages of its life cycle.

Source: http://www.trumpuniversity.com/business-briefings/post/2008/04/product-life-cycle.cfm
End of Chapter5