Casper Big Dreams

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Management, 14e

Chapter 8: Strategy Formulation and Execution

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Icebreaker (1 of 2)

How many points?

Add or subtract one point for each question as indicated by the instructor. (Questions and points are found on the next slide.)

Tally your results and either consider individually or discuss with others in the game those results.

What goal do you think the questions were trying to assess?

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For the game moderator. Ask the following questions found on the next slide.

DEBRIEF: Any person in the game with 4 or more points can be considered “well-traveled.”

This is not a scientific survey. Its purpose is to get participants thinking about what sorts of characteristics can be a strength or weakness (SWOT analysis) when evaluating how it contributes to attaining a goal (in this case, becoming well-traveled).

This chapter will discuss SWOT analysis and how to use it to formulate strategy.

Icebreaker (2 of 2)

Have you traveled to another continent? (Add 1 point for “yes”)

Did you live in the same town from birth to age 18? (Subtract 1 point for “yes”)

Have you ever traveled on a train? (Add 1 point for “yes”)

Have you been on an airplane during the past three years? (Subtract 1 point for “no”)

Do you speak more than one language fluently? (Add 1 point for “yes”)

Does you family own a lake or river cabin? (Subtract 1 point for “yes”)

Does your bucket list include visiting at least three foreign countries? (Add 1 point for “yes”)

Do you usually eat fast-food when dining out? (Subtract 1 point for “yes”)

Have you eaten ethnic food in its home country? (Add 1 point for “yes”)

Do more than half your family and friends live in the same state as you? (Subtract 1 point for “yes”)

Have you been to more than 25 states in the United States? (Add 1 point for “yes”)

Have you been to at least one of these: California, New York, Florida, Colorado? (Subtract 1 point for “no”)

Do you know how many time zones you are from London? (Add 1 point for “yes”)

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For the game moderator. Ask the following questions:

Have you traveled to another continent? (Add 1 point for “yes”)

Did you live in the same town from birth to age 18? (Subtract 1 point for “yes”)

Have you ever traveled on a train? (Add 1 point for “yes”)

Have you been on an airplane during the past three years? (Subtract 1 point for “no”)

Do you speak more than one language fluently? (Add 1 point for “yes”)

Does you family own a lake or river cabin? (Subtract 1 point for “yes”)

Does your bucket list include visiting at least three foreign countries? (Add 1 point for “yes”)

Do you usually eat fast-food when dining out? (Subtract 1 point for “yes”)

Have you eaten ethnic food in its home country? (Add 1 point for “yes”) (Add 1 point for “yes”)

Do more than half of your family and friends live in the same state as you? (Subtract 1 point for “yes”)

Have you been to more than 25 states in the United States? (Add 1 point for “yes”)

Have you been to at least one of the following: California, New York, Florida, Colorado? (Subtract 1 point for “no”)

Do you know how many time zones you are from London? (Add 1 point for “yes”)

DEBRIEF: Any person in the game with 4 or more points can be considered “well-traveled.”

This chapter will discuss SWOT analysis and how to use it to formulate strategy.

Learning Objectives (1 of 2)

By the end of this chapter you should be able to:

Define the components of strategic management and the three levels of strategy.

Explain the strategic management process.

Summarize how SWOT analysis can be used to evaluate a company’s strengths, weaknesses, opportunities, and threats.

Explain three approaches to corporate-level strategy: the portfolio, the Boston Consulting Group (BCG) matrix, and diversification.

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Review objectives.

Learning Objectives (2 of 2)

By the end of this chapter you should be able to:

Describe Michael Porter’s competitive forces and strategies.

Compare and contrast the globalization, multidomestic, and glocalization strategies for global business.

Explain the organizational dimensions that managers use to execute strategy.

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Review objectives.

Importance of Strategy (LO 1)

How important is strategic management?

It determines which organizations succeed and which ones struggle

Strategic blunders can hurt a company

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Thinking Strategically (LO 1)

What does it mean to think strategically about the organization and competition?

Take the long-term view

See the big picture

Positively affect performance and financial success

Today’s environment requires everyone to think strategically

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What Is Strategic Management? (LO 2)

Strategic management: set of decisions and actions used to formulate and execute strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals

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Purpose of Strategy (LO 2)

First step in strategic management is to define explicit strategy

Strategy: plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage, and attaining the organization’s goals

Competitive advantage: what sets the organization apart from others and provides it with a distinctive edge for meeting customer or client needs in the marketplace

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8.1 The Elements of Competitive Advantage (LO 2)

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Elements of Competitive Advantage (LO 2)

Target customers

Exploit core competencies

Core competence: something the organization does especially well in comparison to its competitors

Build synergy

Synergy: occurs when organizational parts interact to produce a joint effect that is greater than the sum of its parts acting alone

Deliver value

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Discussion Activity 1

Based on your knowledge of the following companies, how effective would you say any one of the following acquisitions were in terms of creating synergy? Why?

T-Mobile’s merger with Sprint

Google’s purchase of YouTube

PepsiCo’s purchase of Frito-Lay

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Discussion Activity 1 Debrief

Based on your knowledge of the following companies, how effective would you say any one of the following acquisitions were in terms of creating synergy? Why?

T-Mobile’s merger with Sprint

Google’s purchase of YouTube

PepsiCo’s purchase of Frito-Lay

Synergy occurs when organizational parts interact to produce a joint effect greater than the sum of its parts acting alone: for example, a special advantage with respect to cost, market power, technology, or management skill.

When properly managed, synergy can create additional value with existing resources, providing a big boost to the bottom line.

It is important to consider all these factors when evaluating the effectiveness of acquisitions in terms of creating synergy.

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8.2 Three Levels of Strategy in Organizations (LO 2)

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Levels of Strategy (LO 2)

Corporate-level strategy: pertains to the organization as a whole and the combination of business units and product lines that makes up the corporate entity

Business-level strategy: pertains to each business unit or product line

Functional-level strategy: pertains to the major functional departments within the business unit

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8.3 The Strategic Management Process (LO 3)

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Knowledge Check 1

Which of the following lists the strategic management process in proper order?

Formulate strategy; evaluate strategy; perform SWOT analysis; define new mission/goals; execute strategy; control strategy

Perform SWOT analysis; evaluate current mission/goals; formulate strategy; execute strategy; define new mission/goals

Define new mission/goals; execute strategy; formulate strategy; evaluate new mission/goals; perform SWOT analysis

Evaluate current mission/goals; define new mission/goals; formulate strategy; execute strategy; perform SWOT analysis

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Knowledge Check 1: Answer

Which of the following lists the strategic management process in proper order?

Evaluate current mission/goals; define new mission/goals; formulate strategy; execute strategy; perform SWOT analysis

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The correct answer is d. Evaluate current mission/goals; define new mission/goals; formulate strategy; execute strategy; perform SWOT analysis

Strategy Formulation Versus Execution (LO 3)

Strategy formulation: includes the planning and decision making that lead to the establishment of the firm’s goals and the development of a specific strategic plan

Strategy execution: the use of managerial and organizational tools to direct resources toward accomplishing strategic results

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SWOT Analysis (LO 3)

SWOT analysis: audit of internal and external factors

Internal Strengths and Weaknesses

External Opportunities and Threats

Information is acquired from reports, surveys, discussions, and meetings

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8.4 SWOT Analysis for the Kroger Company (LO 3)

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SOURCES: Based on information in Darrell Zahorsky, “Sample SWOT Analysis for Business: The Kroger Company,” The Balance: Small Business (February 17, 2020), www.thebalancesmb.com/swot-analysis-of-the-kroger-company-2951755 (accessed April 10, 2020); “Kroger SWOT Analysis,” Business Teacher, https://businessteacher.org.uk/swot/kroger.php (accessed April 14, 2020); and Iason Dalavagas, “SWOT Analysis: The Kroger Company,” Value Line (January 12, 2017), http://valueline.com/Stocks/Highlights/SWOT_Analysis__The_Kroger_Company.aspx#.XJo8WfZFyUk (accessed March 26, 2019).

Formulating Corporate-Level Strategy (LO 4)

Three approaches to understanding corporate-level strategy

Portfolio strategy

Boston Consulting Group (BCG) matrix

Diversification

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Formulating Corporate-Level Strategy: Portfolio Strategy (LO 4)

Strategic business units (SBUs): business division of the organization that has a unique business mission, product line, competitors, and markets relative to other SBUs in the corporation

Portfolio strategy: pertains to the mix of SBUs and product lines to provide synergy and competitive advantage

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Formulating Corporate-Level Strategy: The BCG Matrix (LO 4)

BCG matrix: organizes business along two dimensions—business growth rate and market share

The combination of high/low market share and high/low business growth rate provide four categories for a corporate portfolio

Star

Cash cow

Bright prospect

Dog

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8.5 The BCG Matrix (LO 4)

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Discussion Activity 2

Walt Disney Company has four major strategic business units: movies (including Pixar and Touchstone), theme parks (Walt Disney World and Disneyland), consumer products (the Disney Store), and television (the ABC/Disney Television Group and ESPN). Place each of these SBUs on the BCG matrix based on your knowledge of them.

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Discussion Activity 2 Debrief

Place each of Walt Disney Company’s SBUs on the BCG matrix and explain why you put them where you did.

With a high business growth rate, Pixar and Touchstone hold a significant market share. Therefore, movie SBUs would be considered a star.

The theme parks would be considered a cash cow because they are well established with a large market share, although growth rate is low.

Consumer products would be considered a question mark. Walt Disney characters appear on T‑shirts and hundreds of other products. The division is succeeding and may soon become a star.

Despite the onslaught of cable television competition, ABC TV is doing well in the media industry. Disney Television and its cable channels have high market share and continue to grow, so this SBU can be categorized as a star.

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Formulating Corporate-Level Strategy: Diversification Strategy (LO 4)

Diversification: strategy of moving into new lines of business

Merger: occurs when two or more organizations combine to become one.

Joint venture: involves a strategic alliance or program by two or more organizations

Related diversification: expansion into new business related to existing business activities

Unrelated diversification: expansion into new lines of business that are not related

Vertical integration: expansion into businesses that supply to the business or are distributors

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8.6 Porter’s Five Forces (LO 5)

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SOURCES: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980); and Michael E. Porter, “Strategy and the Internet,” Harvard Business Review (March 2001): 63–78.

Porter’s Competitive Strategies (LO 5)

Differentiation strategy: distinguish products and services

Cost leadership strategy: aggressively seek efficient facilities, cost reductions, and cost controls

Focus strategy: concentration on a specific region or buyer

Either differentiation or cost leadership approach

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Polling Activity 1

Based on your knowledge of the following companies, which one do you believe is the best at employing a cost leadership strategy?

Walmart

McDonald’s

IKEA

Amazon

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Answer will vary.

With a cost leadership strategy, an organization aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than its competitors. Most companies pursuing this strategy keep internal costs low in order to provide products and services to customers at lower prices and still earn a profit.

These companies are notable for succeeding through a cost leadership strategy.

Walmart pursues cost leadership by using automation and technology to keep operational costs low, and by working closely with suppliers, even in helping them cut their own costs.

McDonald’s main approaches to cost leadership include simple but optimized food preparation processes, employee training, and vertical integration.

IKEA’s cost leadership advantages come from offering standardized products and outsourcing its manufacturing.

Amazon is superb at using advanced technologies and process automation to maximize efficiency and minimize expenses and it does so through economies of scale provided by that automation and its warehousing facilities.

8.7 Characteristics of Porter’s Competitive Strategies (LO 5)

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SOURCES: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980); Michael Treacy and Fred Wiersema, “How Market Leaders Keep Their Edge,” Fortune (February 6, 1995): 88–98; and Michael A. Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management (St. Paul, MN: West, 1995), pp. 100–113.

Global Strategy (LO 6)

Globalization strategy: use of standardized product design and advertising strategies throughout the world

Based on the assumption that a single global market exists for many consumer and industrial products

Multidomestic strategy: handling of competition in each country remains independent of industry competition in other countries

Especially important for service companies

Glocalization strategy: combines global coordination to attain efficiency with local flexibility to meet needs in different countries

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8.8 Global Corporate Strategies (LO 6)

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SOURCES: Based on Michael A. Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management: Competitiveness and Globalization (St. Paul, MN: West, 1995), p. 239; Thomas M. Begley and David P. Boyd, “The Need for a Corporate Global Mindset,” MIT Sloan Management Review (Winter 2003): 25–32; and Gili S. Drori, Markus A. Höllerer, and Peter Walgenbach, eds., Global Themes and Local Variations in Organization and Management: Perspectives on Glocalization (New York: Routledge, 2014).

Knowledge Check 2

Company A uses standardization in its manufacturing processes to control costs, but it encourages vendors in other countries to craft a marketing campaign for the product that appeals to customers in the local market. This type of strategy is known as

cost leadership

glocalization

multidomestic

export

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Knowledge Check 2: Answer

glocalization

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The correct answer is b. glocalization.

Strategy Execution (LO 7)

Final step in the strategic management process

Most important but most difficult part

Embeddedness: deep understanding and acceptance of organizational direction and purpose throughout the organization

Alignment requires all aspects of the organization to focus on strategic goals

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8.9 Factors That Contribute to the Failure of Strategy Execution (LO 7)

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SOURCES: Based on Scott Keller and Colin Price, Performance and Health: An Evidence-Based Approach to Transforming Your Organization (New York: Wiley, 2011); and Homayoun Hatami, Sara Prince, and Maria Valdivieso de Uster, “Sales Growth Through Strategic Leadership,” Leader to Leader (Spring 2013): 57–62.

8.10 Tools for Putting Strategy into Action (LO 7)

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SOURCES: Based on Jay R. Galbraith and Robert K. Kazanjian. Strategy Implementation: Structure, Systems, and Process, 2d ed. (Cincinnati, OH: SouthWestern, Cengage Learning, 1986); Lawrence G. Hrebiniak, Making Strategy Work: Leading Effective Execution and Change (Upper Saddle River, NJ: Wharton School Publishing/Pearson Education, 2005); and Eric Beaudan, “Creative Execution,” Ivey Business Journal (March–April 2010), www.iveybusinessjournal.com/article.asp?intArticle_ID=891 (accessed March 26, 2010).

Polling Activity 2

Change is difficult. COVID-19 protocols have altered the goals the company has for providing a safe working environment. Employees now have to wear masks while at work. Which of the following approaches would you, as the manager, take to best reduce employee resistance as you implement this change in strategy?

Make sure to always wear your own mask, even when alone in your office

Provide new and “fun” masks for each employee and sponsor contests that promote mask wearing

Provide daily data to employees about COVID-19 statistics for both the department and your city/state/country in general

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Answers will vary.

All of these approaches can help in easing the transition for employees.

Wearing your own mask models desired behavior, shapes the culture, and can motivate others.

Providing new masks and sponsoring contests can increase motivation, model behaviors, and define roles.

Providing data promotes communication and honesty, defines measures, and shapes the culture.

Summary (1 of 2)

Now that the lesson has ended, you should have learned how to: