SITUATION ANALYSIS AND COMPANY STRATEGY
ARIZONA STATE UNIVERSITY
WPC 480 - STRATEGIC MANAGEMENT
WEEK 3
In this chapter, SWOT analysis will be explained as a systematic way to analyze the
situation as a step of the decision-making process. It is suggested that before generating viable
alternative strategies, strategic managers conduct the necessary review and revision of the
company's current mission and goals. The next steps include the creation, evaluation, and selection
of the best strategic alternatives. This section also proposes a set of alternative corporate strategies
as a way to help strategic managers decide, not only what industry the company should enter, but
also in which direction the company can grow and develop. After deciding which industry to enter,
the company will decide how it can best compete in each industry.
5.1 Situation Analysis: SWOT
SWOT analysis is an analysis of the internal and external conditions of an organization
which will then be used as a basis for designing strategies and work programs. Internal analysis
includes an assessment of strengths and weaknesses, while external analysis includes opportunities
and challenges.
There are two approaches to SWOT analysis,
That is:
1. Qualitative Approach SWOT Matrix
The qualitative approach of the SWOT matrix as developed by Kearns displays eight boxes,
namely the top two are boxes of external factors (Opportunities and Challenges) while the two
left boxes are internal factors (Strengths and Weaknesses).The other four boxes are boxes of
strategic issues that arise as a result of the intersection of internal and external factors.
Cell A: Comparative Advantages
This cell is the confluence of two elements of strengths and opportunities, providing the
possibility for an organization to grow faster.
Cell B: Mobilization
This cell is an interaction between threats and strengths. Here, efforts must be made to mobilize
resources which are the strengths of the organization for Comparative Advantage.
Divestment/Investment Damage Control Mobilization softens the external threat and turns it into
an opportunity.
Cell C: Divestment/Investment
This cell is an interaction between organizational weaknesses and external opportunities. This
situation provides a choice in a blurred situation. The opportunities available are very convincing
but cannot be utilized because there are not enough strengths to work on them. The decision
options taken are (releasing existing opportunities to be used by other organizations) or insisting
on working on the opportunity (investment).
Cell D: Damage Control
This cell is the weakest condition of all cells because it is a meeting between organizational
weaknesses and external threats, and because the wrong decision will bring great disaster to the
organization. The strategy that must be taken is Damage Control (controlling losses) so that it
does not become more severe than expected.
2. Quantitative Approach SWOT Analysis:
The qualitative SWOT data above can be developed quantitatively through the calculation of
SWOT Analysis developed by Pearce and Robinson (1998) in order to know exactly the real
position of the organization.
The calculation is done in three stages, namely:
a. Calculate the score (a) and weight (b) of the factor points and the total multiplication of the
score and weight (c = a x b) for each S-W-O-T factor;
Calculating the score (a) of each factor point is done in a mutually independent manner (the
assessment of a factor point should not be influenced or affect the assessment of other factor
points. The choice of score range determines the accuracy of the assessment, but the
commonly used range is from 1 to 10, assuming that 1 means the lowest score and 10 means
the highest score.
The calculation of the weight (b) of each factor point is carried out in an interdependent
manner. That is, the assessment of one factor point is by comparing its level of importance
with other factor points. So that the calculation formulation is the value that has been
obtained (the value range is equal to the number of factor points) divided by the number of
factor points).
b. Subtract the total amount of the S factor from W (d) and the O factor from T (e); The number
(d = x) then becomes the value or point on the X-axis, while the number (e = y) then becomes the
value or point on the Y-axis;
c. Find the position of the organization indicated by the point (x,y) on the SWOT quadrant.
This position indicates an organization that is strong and likely, the strategy recommendation given
is Progressive, meaning that the organization is in prime and steady condition so it is possible to
continue to expand, enlarge growth and achieve maximum progress.
Quadrant II (positive, negative):
This position indicates an organization that is strong but faces great challenges. The strategy
recommendation given is Strategic Diversification, meaning that the organization is in a steady
condition but faces a number of severe challenges so it is estimated that the wheels of the
organization will have difficulty continuing to turn if it only relies on the previous strategy.
Therefore, the organization is advised to immediately diversify its tactical strategies.
Quadrant III (negative, positive):
This position indicates an organization that is weak but very likely. The strategic recommendation
given is Change Strategy, meaning that the organization is advised to change its previous strategy
because the old strategy is feared to be difficult to capture existing opportunities while improving
organizational performance.
Quadrant IV (negative, negative):
This position indicates an organization that is weak and faces great challenges. The strategy
recommendation given is a Survival Strategy, meaning that the internal condition of the
organization is in a dilemma choice. Therefore, the organization is advised to use a survival
strategy, controlling internal performance so as not to fall further. This strategy is maintained while
continuing to work on improving itself.
5.2. Corporate Strategy:
There are four components to the formation of a corporate structure, namely the goals to be
achieved, the strategies that will be carried out to achieve them, the tactics or ways in which
resources will be used, and the resources owned. Thus strategy is one of the important components
of organizational structure. Strategy will connect the means and ends.
Strategy is a term taken from the military. Strategy in the military was originally interpreted
as a way or approach taken to defeat an opponent. Strategy will always be related to tactics, which
are steps to be able to carry out the strategy in more detail. In today's business world, strategy is an
approach to reach the future:
(1) involves the process of assessing current and anticipated factors related to customers and
competitors (as the external environment) and the company's own circumstances (as the
internal environment),
(2) the process of envisioning new or more effective roles to be more creative, and
(3) aligning policies, experiences, good practices, and resources to realize the vision.
Meanwhile, a corporation is a form of business organization, as a commercial activity to
obtain profit by carrying out an activity that produces goods or services. One of the common
characteristics of corporations is the separation of ownership of the organization which causes the
limited responsibility of the owner.This is also due to the issuance of shares that are easily
transferable.Corporations can run their business with a single product or a variety of products, as
well as allowing a place to operate and carry out extensive production services in various places.In
competition between corporations, strategy is a way to be different from competitors, which means
that corporations must be able to create a series of activities to be able to provide unique value to
users. Thus, corporate strategy can be interpreted as an approach taken by a business organization to
be able to realize its vision so as to provide value to its users differently than its competitors. There
are several implications of this definition, namely that corporate strategy must be able to answer:
(1) What top management does that is very important to the organization
(2) What are the basic references used to guide decision-making in line with the
organization's purpose and mission?
(3) What actions need to be implemented that are in line with the direction of the
organization.
(4) What organizations should do to anticipate environmental changes
(5) What are the goals to be achieved, and how.
In carrying out strategy, company executives or management in general must determine the
basis for making decisions that have an impact on strategy by using a single driving force in the
business. There are at least nine driving forces that form the basis of strategy development of
corporate strategy, namely: products provided, production capabilities, natural resources, market
needs, sales methods, size and growth, technology, distribution methods, or profits. With the
selection of these driving forces, the corporation will begin to develop strategies to better penetrate
its products or services to customers. The results of the implementation of this corporate strategy
will be continuously monitored periodically by management through various reporting activities
carried out by all organizational work units. Some important questions to see the running of the
strategy are:
(1) What has been done to improve customer service
(2) What has been done to improve customer satisfaction
(3) What has been done to reduce costs
(4) What has been done to improve productivity
(5) What has been done to increase revenue through new products or services
With some of the explanations above, there will actually be three terminologies that overlap,
namely between strategy, corporate strategy, and competitive strategy. Corporate strategy will
explain how the company's choices and commitments related to the business to be run, the market
to be served, and the products or services to be provided. Meanwhile, competitive strategy will be
related to how to outperform competitors or competitors with competencies owned by the company.
According to Porter, there are three generic competitive strategies, namely cost advantage,
differentiation, and focus. To carry out one of these generic strategies, there are five competitors
that will be faced by the company, namely (1) the threat of new entrants, (2) the threat of similar
competitors,
(3) threat of substitute products, (4) threat from suppliers, and
(5) threats from buyers.
Corporate strategy can permeate the life of the company and have a lasting impact (Collis &
Montgomery; 2005). This is because corporate strategy has the greatest consequences compared to
other managerial decisions. Research proves that 60% of assets in the USA are controlled by multi-
business corporations. In Europe, the situation is similar, while in developing countries, large
business groups dominate the ownership of national assets. Hrebiniak in Making Strategy Work
(2005) argues that realizing a successful strategy is harder than creating one. For this reason, it is
necessary to create a common conception of corporate strategy so that efforts to restructure, re-
focus, rationalize and engineer the organization become appropriate action and on target. This is
important, because recent developments show that investors are starting to pay more attention to
shareholder value, and they can see opportunities to obtain it from corporate strategy.
The above description implicitly indicates the existence of three important factors in
corporate strategy.The first relates to value creation as the main objective of corporate strategy.The
second factor relates to the configuration of various resources available to support ventures in
various business scopes, and the third factor is related to how the company coordinates all its
business activities in the corporate hierarchy to realize value creation.The triad (value,
configuration, and coordination) is important for business executives to understand.Many parent
company executives actually damage the value that has been built and become the strength of
business units (Campbell, 2003). Campbell further explains, there are four ways in which a parent
company can influence the performance of its subsidiaries that result in the elimination or creation
of value: directly and stand-alone, indirectly (linkage), through functions and services located in the
parent company, as well as through corporate development activities. Another argument in favor of
the importance of value creation in corporate strategy is put forward by Hubbard (2000), but the
underlying rationale is slightly different. If the value generated by the corporate strategy is less than
the sum of the value of all the business units, Hubbard says, there is no compelling reason to merge
the business units, or it can also be said that the corporate strategy is not working properly.In value
creation, the key word is synergy (De Wit and Meyer, 2005).But even that is not enough, because
the value generated from the synergy of these business units must still be tested against the value
owned by other business groups (Porter, 1998).
If so, there are two problems that need to be examined; how to build a corporate strategy,
and at the same time implement it to be successful. Answering the first one, there are many models
that have been built, one with another complementary or vice versa completely different and even
opposite in perspective. This happens because the emphasis of each model is different, for example
Ansoft (1965) and Andrew (1971) are in one camp when they propose the Concept of Corporate
Strategy which emphasizes the importance of the role of general managers in the development of
corporate strategy.
In contrast, in almost the same period Chandler (1962), Bower (1970), and Vancil (1978)
put forward the concept of corporate strategy using an organizational structure approach. Their
contribution, which is still widely followed today, is "structure follows strategy". Collis and
Montgomery (2005) through the Resourse-Based View (RBV) proposed the Corporate Strategy
Triangle model, whose sides represent resources, business, and organization. Within this triangle
There is a vision, goals and objectives that determine the amount of use of these three aspects in the
struggle to achieve corporate advantage.
On the other hand, there is an idea that the development of corporate strategy is a
consequence of multi-business activities or is required due to business diversification (Hubbard,
2000). Thus, the initial approach is to understand the reasons for diversification and have
knowledge of the characteristics of various types of businesses managed by the parent company.
Hubbard's approach is implicitly similar to Collis and Montgomery's triangular model, the
difference lies in the approach, Collis and Montgomery start from what the corporation has (inside-
out approach) while Hubbard starts from the external environment which then becomes a trigger for
the development of corporate strategy (outsideinapproach). Support for the inside-out approach in
creating value is getting stronger in the first decade of this millennium (Campbell, 2003) as
exemplified by Canon when developing its new products, ABB when implementing a strategy
based on commercial skills and manager orientation, and Emerson which in value creation is based
on sharpening strategic thinking in managing resources and costs effectively and efficiently.
Related to the implementation of corporate strategy, the issues or scope of activities and the
levels of strategy contained therein need to be well recognized (Hrebiniak, 2005). Implementation
of corporate strategy is carried out at the corporate level, business units, and between business units.
At the corporate level, issues of concern include portfolio management, diversification, including
vertical integration, and cross-business resource allocation. While at the business unit level, the
focus of attention is given to, among others: determining the products and or services that will be
offered, how to carry out competition to achieve a superior position in the related industry, and how
to differentiate themselves from competitors. It is argued that in terms of the implementation of
corporate strategy, in order to have a greater degree of success, the main attention needs to be given
to the choice of structure and integration of all organizational elements that reflect and are
consistent with the goals of the business strategy.
But before that, it should also be noted that a clear and focused strategy has a better chance
than a broad and unclear strategy. Clarity includes the format, substance and issues that characterize
each level of strategy.Complementing Hrebiniak's conception, De Wit and Meyer (2005) added the
importance of companies to always be responsive to changes or dynamics that occur within and
outside the corporate environment. Corporate strategy must be able to overcome various problems
contained in a multi-business environment; such as: the high cost of realizing compliance
(governancecosts), the slow decision-making process, the incongruence of business unit strategies,
dysfunctional control, and dull incentive policies.
In addition to the aforementioned issues, potential dangers also arise in corporate strategies
that tend to be aggressive and oriented towards business expansion outside their core competencies
(Zook, 2004).The results of Zook's research for the period 1997 - 2002 concluded that 75% of
expansive strategies by establishing new businesses adjacent to / related to the main (successful)
business failed.
From the above description, several conclusions can be made.First, the size of the company
does not become an obstacle to the development of corporate strategy.The reason for the need to
build a larger corporate strategy lies in how to manage various business units under one umbrella or
control.Referring to this multi-business condition, the design of corporate strategy must be able to
answer the demands of creating greater value than the value provided by each business unit
separately.For this reason, it is necessary to configure the organizational structure and coordination
of resources. Second, in building a corporate strategy, managers at the corporate level need to have
a comprehensive insight, not only mastering related business aspects but an understanding of
stakeholders and the dynamics of the global business environment is needed.Third, the obstacles
and difficulties faced at the planning and development stages are relatively small, not so when
entering the implementation stage.Overcoming this, the corporate strategy must be followed up with
a series of controlled and measurable actions.
Although it is said that corporate strategy is fit-in for all sizes of companies as long as they
manage multi-businesses, and the inside-out approach is a growing trend so that many business
groups develop their business related to the core business, but in reality many also fail. A criticism
of all this is that there is still a need for wisdom in the leadership of the parent company or CEO.
Corporate strategy is not the main determinant of business success.
FUNCTIONAL STRATEGY AND BUSINESS STRATEGY
As explained in the previous chapter, large multi-business companies operating in various
industries have three levels of strategy: corporate, business unit and functional strategies. The
previous chapter also discussed alternative corporate strategies that determine the overall direction
of the company and its business portfolio, i.e., the industries in which the company operates. This
chapter, on the other hand, will deal with the formation and selection of functional and business
strategies: those strategies that determine a company's competitive advantage.
6.1 Functional Strategy:
Functional strategies maximize resource productivity, aiming for distinctive competencies
that give the company or business unit a competitive advantage. Within the confines of business and
corporate strategies, functional strategies combine the diverse activities and competencies of each
function to improve performance. For example, manufacturing is concerned with developing a
strategy that lowers costs and improves the quality of its output. Marketing, on the other hand, is
concerned with developing a strategy that increases sales. Such functional strategies need to be
developed if functional managers are to properly implement corporate and divisional strategies.
Functional strategy is defined as short-term activities in which eachfunctional unitwithin the
company participates in the implementation of the company's grand strategy. It can be said that
strategy Functional strategy translates grand strategic thinking into actions designed to achieve
specific short-term goals. There are three basic characteristics that distinguish functional strategy
from grand strategy:
1. Time period:
Identify activities performed in the present or not too long a timeframe. The shorter the timeframe of a
functional strategy, the more important its implementation is to the grand strategy.
2. Specificity:
Activities are more specific than grand strategy, grand strategy provides more general direction.
3. Strategizers:
Many people participate in strategy creation at the functional and business levels. Business
strategy is the responsibility of the general manager.
Managers will delegate the creation of functional strategies to their subordinates who run
operations. Business unit managers should set long-term goals and strategies that allow
corporate management to feel a role in corporate-level goals.
Global Description:
Once the business-level strategy is established, it is necessary to develop functional-level
strategies to support the higher-level strategy in order to ensure that the overall strategy is unified
and consistent at the operational level. Functional strategies are required for each functional area of
an enterprise or business, where they generate the tasks necessary to realize the business-level
strategy.
The functional level strategy in the company consists of the functions that the company runs which
usually consists of the following functions:
a) Marketing.
b) Operational.
c) Finance.
d) Human Resources
e) Research and Development.
Each of these functions must have tasks and plans The actions it takes are integrated with the
business-level strategy. There are several differences between functional strategies and general and
business strategies, namely in terms of time scope, specificity and participants in development.
These strategies are activities that will be carried out in the near future, are more specific and are
developed by company staff at an operational level.
Functional strategies are more technical strategies that formulate directions and guidelines
and are operational. The strategy consists of 6 types, namely:
a) Production strategy, this strategy is to determine what is a superior product, competitive
product, new product, according to the main competencies owned.
b) Marketing strategy, this strategy is to determine which markets to work on, what market
conditions will be desired, and so on.
c) Promotion strategy, this strategy is a continuation of marketing and production, where
what promotion is wanted to be launched, what media will be used for promotion and so
on.
d) Financial strategy, which relates to funding and the availability of funds for production,
marketing and other functional parts. Where the funds come from and how they are used.
e) Human resource (HR) strategy is an important strategy and must cover all management
functions. The selection of the right and competent human resources in the right field is
very necessary.
f) Another functional strategy, this relates to external parties such as suppliers, consultants,
agents and so on by paying attention to transparency, honesty and openness.
According to Hunger and Wheelen (2003: 262), functional strategy maximizes resource
productivity, leading to distinctive competencies that give the company or business unit a
competitive advantage. Within the boundaries of business and corporate strategy, functional
strategy combines the various activities and competencies of each function within the company to
improve performance. Functional strategy consists of:
(1) Resource and Capability Acquisition. Acquisition is the part that important of strategy
decision-making. In determining the functional strategy, the strategy manager must:
(a) Identify the core competencies of the company or business unit,
(b) Ensure that competencies are continuously strengthened
(c) Manage competencies in a way that protects the competitive advantage that has been
created If the competitive advantage is low, then the company should outsource. The
outsourcing decision depends on the total additional value of the activity under
consideration and the amount of competitive advantage.
(2). Marketing Strategy.
The role and function of marketing is how to achieve company goals by generating
profitable sales of products/services in the market. This marketing functional level strategy
will provide guidance to marketing managers in determining who will sell what, to whom,
where, how much and in what way. This strategy usually begins with segmentation, target
market determination and positioning. Then on that basis, the form of the company's offer to
the market is compiled in the form of the development of each element of the marketing mix
which is also commonly referred to as the 4Ps, namely Product, Price, Place and
Promotion. The use of mix elements does not have to follow the 4Ps, it can be done by
following other concepts in marketing such as mega marketing or can also apply the concept
of relational marketing.
By utilizing a market development strategy, a company or business unit can: capture a larger
share of the current market through market saturation and penetration, or develop new
markets for existing products. Using a product development strategy, a company or business
unit can develop new products for existing markets or develop new products for new
markets. Several other marketing strategies exist in the categories of market, product line,
distribution, pricing and credit, and advertising and promotion.
In the implementation of STP (Segmenting, Targeting and Positioning), it must be
understood how the company's management views the business market served to find out
how the market is grouped and determine one or more markets that will be targeted for
service. The competitive position of the company's offerings in its target market must also
be considered so that it can determine the positioning that will be carried out for the
company's products. STP is a process of determining who the company will serve and how
to place the company's products in the minds of the market/consumers.
In developing the marketing mix elements
The following questions can be used: Product:
1. Which products will be prioritized?
2. Which product will contribute the most profit?
3. What is the product image that will be highlighted?
4. Which consumer needs will our product fulfill?
5. What changes will affect our customer orientation?
6. And etc. Price:
1. Are we going to compete on price?
2. Can we run discounts or other price modifications?
3. Is there a need for national, regional and international price standards?
4. What gross profit margin do we want?
5. Is price set based on cost, demand or competition?
6. And other places:
1. What level of market coverage do we want?
2. Any region geographic market that need to be prioritized?
3. What distribution channels are used?
4. How channel marketing channels are managed?
5. Are sales organized by market area, segment/product?
Promotion:
1. Which type of promotion is preferred?
2. What messages will be prioritized to reach consumers?
3. Which media will be used?
(3) Financial Strategy:
The purpose of financial strategy is to provide the company with a financial structure and
sufficient funds to achieve its general objectives. Financial strategy is also Financial
strategy usually seeks to maximize the financial value of a company.
It directs the utilization of financial resources to support the business strategy, long-term
goals and annual objectives. Unlike other functional strategies, this area of strategy has a
longer time horizon that will guide managers for investment, debt financing, dividend
allocation and leveraging. Some of the issues that need to be addressed in the finance
strategy are:
Capital Acquisition:
a. How much capital is reasonable?
b. What is the expected proportion of short- and long-term debt?
c. What is the balance between internal and external funding?
d. What risks and ownership restrictions are considered appropriate.
Capital allocation:
a. What is the priority for capital allocation projects?
b. On what basis is the final selection of projects made?
c. How much allocation capital that can set by the operations manager without
Dividends and Working Capital Management:
a. What portion of the capital should be distributed as dividends?
b. How important is dividend stability?
c. What other forms of dividends are feasible besides cash?
d. What are the cash flow requirements? Maximum and minimum cash balances?
(4) Research and Development Strategy:
Companies that depend on technology for their success are increasingly paying attention to
the development of R&D strategies that complement business-level strategies. One of the
various R&D choices is to be a leader or a follower. Porter states that making the decision to
become a technology leader or a technology follower is one way to achieve overall low cost
or differentiation.
This function plays a role in generating new ideas and ideas within the company, including
generating new products and developing them until they are produced and enter the market,
looking for certain methods in shaping production/operational efficiency and others. This
strategy is very important for companies that emphasize innovation in running their
business.
There are two orientations of a company's R/D decision, namely whether it is offensive or
defensive. If it is offensive, the company carries out a strong innovation strategy and always
strives to be the first mover in its industry. While the defensive orientation is more focused
on the development of modifications of existing products, both from within and competing
products.
Research and development goals can also be categorized into two, namely whether on
products or processes. If the company/business leads to a differentiation strategy, it will
certainly emphasize product research and if the business strategy is In addition, research can
also be directed towards basic research or product development research depending on the
time horizon, whether it is long or short term. In addition, research can also be directed
towards basic research or product development research depending on the timeframe
orientation, whether long or short term.
(5) Operations Strategy.
Operations strategy determines how and where a product or service is made, the degree of
vertical integration required, and the deployment of physical resources required, and the
desired supplier relationships.S. Kotha and D. Orne state that operations strategy has several
characteristics based on the competitive strategy of the company or business unit that owns
the operations department.Manufacturing strategy must also address the issue of vertical
integration, namely the decision to make or buy.
Operations strategy is a core part of every company because this field will be responsible for
converting inputs into valuable outputs in the form of products that will be delivered to
consumers. This operational strategy must guide decisions regarding :
1. The nature of a company's production/operations management system, balancing
investment inputs and operating outputs.
2. Location, facility design and short-term process planning.
As for strategy functional key in production/operational field are:
1. Facilities and equipment.
2. Purchase.
3. Operation planning and control.
Strategy production/operational strategy must be strategy must be coordinated with other
functional strategies, especially the marketing. Here are some elements of strategy that relate
to the strategy of the marketing function and other functions:
1. Compete as a low-cost product provider.
2. Compete as a provider of high-quality products.
3. Prioritize customer service.
4. Launch new products at a high frequency and quickly.
5. Absolute growth.
6. Seek vertical integration.
7. Spare capacity for flexibility.
8. Consolidation.
9. Deploy service processing.
10. Emphasis on the use of mechanization, automation and robots.
(6) Human Resources and Other Functional Strategies. Strategies in human resource
management (HRM), information systems (IS), and other important functional areas for
companies vary by industry. HRM strategies are strategies that each company or business
unit has that are used to solve problems that often arise in the company that are related to the
human resource problems of the company or business unit itself. Another HRM strategy
deals with the question of promotion from within or recruitment of managers from outside
the company.
This functional area strategy is one of the areas that can lead the company to achieve its
general strategy. Some cases of successful companies are built with the main strength in the
strategy of its HR function. Therefore, HR can no longer be considered as a daily routine
activity that only takes care of employee administration, but must be a function that supports
the creation of human resources.
The company's competitive strength, especially in global competition.
HR strategy should lead to the development of managerial and technical skills of employees
and managers so that they can be optimally utilized in running the company's business. This
functional strategy also includes elements of the operational functions of human resource
management itself such as:
a. Recruitment, selection and orientation.
b. Career development and training.
c. Compensation.
d. Evaluation, discipline and development.
e. Employee relations and fair employment opportunities.
All of these functions are designed in such a way that they can form a company advantage in
the field of HR which will certainly encourage the creation of distinctive competencies.
6.2. Business Strategy:
In recent times, when the era of business competition is getting tougher, business people or
in this case it can be said that a company must always be required to continue to find ways and
strategies to be able to excel in facing the competition in their respective fields. Of course, the
ultimate goal in order to win this competition is that the company can still survive to maintain its
survival.
In choosing the business model and concept that will be used ideally, business people or a
company must combine internal factors, especially resources or resources and look at the structure
of the industry externally. After analyzing the industrial structure of external factors and then being
able to maximize all components of internal resources (resources) with external factors creating
various advantages, then prepare strategies to be able to achieve goals. The strategy in question is a
more measurable and systematic planning step that has its own differences and characteristics both
in terms of the products or services produced and the competence of human resources.
While the definition of strategy itself is a pattern of resource allocation that allows organizations to
maintain their performance (Barney, 1997).Strategy can also be interpreted as an overall plan
regarding the use of resources to create an advantageous position so that the company can actually
achieve its desired goals.(Grant, 1995).According to Porter (1985) there are two basic types of
competitive advantages that can be owned by companies, namely low cost and differentiation.On
that basis there are three generic strategies to be able to achieve better than average results in an
industry. The three generic strategies consist of: cost leadership, differentiation and focus. Coupled
with two variations of the focus strategy, namely: cost focus and differentiation focus.
6.2.1. Differentiation Focus Strategy:
With a differentiation strategy, the company tries to be different from other companies in the
same industry. The company must be different or perceived as different from its competitors. The
difference can be in the product or service it sells, in the delivery system how the product or service
is sold, in the way marketing or in other factors. The important thing is that the differences applied
must have a positive or valuable value for consumers (Porter: 1985). Therefore, in one industry
there can be several differentiation strategies if there is more than one different attribute that can
provide positive value to consumers.
With this uniqueness, the company can sell its products or services at a premium price. But
to be successful, the premium price must exceed the extra costs incurred to create the uniqueness.
Therefore, a company that chooses this strategy must try to equalize its costs or be close to the costs
of its competitors, through cost reductions in other areas that do not affect the chosen differentiation
factor (Porter: 1985). Differentiation cannot be seen from the company's outline but differentiation
comes from specific activities carried out by the company, which then affect consumer decisions
(Porter: 1985).
On that basis, Porter (1985) states that all activities that have value or value activities have
the potential to become differentiation factors, including activities that only require a small amount
of money.Porter (1985) provides a list of the main determinants that can create uniqueness or
principal uniqueness drivers. The list consists of:
a. Policy Choices.
b. Relationships or Lingkages.
c. Timing.
d. Location.
e. Interrelationships.
f. Learning and spillovers.
g. Integration.
h. Scale
i. Institutional factors
(Porter 1985) also provides various routes to
Differentiation, among others, is as follows:
a. Fixed the source of uniqueness.
b. Making cost differentiation a competitive advantage.
c. Change the rules to create uniqueness.
d. Reconfigure the value chain to be unique as a whole.
In addition (Porter, 1985) also provides conditions that can make the differentiation strategy
taken by a company become sustainable or sustainable. These conditions are:
a. The source of the company's uniqueness relates to
barriers to entry into the industry
b. The company has competitiveness in the cost of making a difference.
c. The sources of uniqueness are diverse, not dependent on just one.
d. By making a difference to its products or services, the company also makes switching
costs or the cost of moving to another company for consumers high.
Of the many theories put forward by Porter above regarding differentiation, the business
strategy that will be used in making business planning for this fashion retail store is Differentiation
Focus. By definition, this differentiation focus is more directed to the added value or uniqueness
and differences offered to consumers.In differentiation focus a firm seeks differentiation in its target
segment. Differentiation focus exploits the special needs of buyers in certain segments. (Porter,
1985) The target market of Mississippi and Celsius is the upper middle socioeconomic class market
segment. This segment was chosen because this socio-economic class has wants for a product or
service, and usually they tend to be more willing to buy a product or service. In addition, usually
this social class customer market has a fairly high level of ego, prestige and self-esteem because it
has a wide association and community and has a relatively high level of educational background.
In contrast to the lower economic class who only shop more on considerations of meeting
needs and low price factors. Another reason is because this market segment has high buying power.
They do not require long consideration to spend money.
Given that the concept of the store to be established is with a new format, which is not in the
mall, but has its own building with the concept of two brands at once adjacent and integrated with
each other, then all components in the business ranging from physical attributes to those that are not
physically visible must represent the personality of the consumer or market that will actually be
targeted. And considering that what will be targeted is market consumers in the upper middle class
who want a comfortable and relaxed shopping atmosphere, people who already have the intention of
shopping to meet their fashion needs, and want polacustomized service, this strategy must be done.
Even specifically for stores with this new format, special customers are also allowed to
make their own requests or requests for clothing models that suit their interests and tastes in
addition to the products available in the store, and usually input from these customers will be
further informed through SMS or telephone communication and email to the production and
product procurement department. So that with the interactive process between consumers and
producers like this, it is hoped that a loyal customer market will be formed for the two brands of
this shop, namely Mississippi and Celsius.
So to win this competition, the Mississippi and Celsius stores are trying to meet the
shopping needs of The product differentiation offered by Mississippi and Celsius stores is to
provide products with the latest designs and trends with their own private labels, which are
produced from imported sourcing in China and local sourcing in their own garment factories
through the work of designers or designers who have sufficient experience in the country's retail
industry.
The most important key factor in building this business is from the side of the products sold,
both design and model, size or sizepack, quality of raw materials, quality of stitching and finally the
price. As previously explained, the products sold in the entire outlet network initially relied on
sourcing from wholesalers in Mangga Du and Tanah Abang as suppliers with a broken purchase
system, meaning that the merchandising department as the procurement department for products
bought ready-made products with a payment system of two to three months, but for products that
were not absorbed by the market or that did not sell in outlets could not be returned to the suppliers,
so that this became an obstacle and obstacle that never ran out, because after all these leftover
products were a burden on the company.
As for other differentiation that will be carried out as part of the strategy in designing and
developing this business, it will be explained in the following chapters.
6.2.2. Store development with new retail format concepts:
The business strategy that will be tried to be developed in this paper is to establish a retail
concept with a new format, which is different from the shops that have been operating before in
malls and shopping centers, while this new format is operating outside the mall with a single
building. For previous stores that have been operating in the mall, the location factor has been a
little more favorable because almost all existing malls currently carry the concept of One Stop
Shopping, which really adapts to the needs of a modern lifestyle for the community.
However, in writing this business plan the author feels confident that to develop a concept
with this new format there are still potential and opportunities that can be utilized, and the following
are the factors and considerations for developing a retail concept with this new format, namely:
a. The location factor is in the city of Manado, where previously in this city already operates a
store with the brand to be built so that it is not too difficult to introduce this brand to the
wider community.
b. From the calculation of rental cost analysis, operating outside the mall is much more efficient
than operating inside the mall although there are certainly other costs that will increase such
as promotional costs.
c. This project is a location or promotional media to customers, especially for the middle to
upper customer segment who want a comfortable shopping concept with customized service,
where these customers are really those who already have certain preferences for a product
brand and have the intention to shop for their fashion needs.
d. There are several elite settlements and housing estates inhabited by people with an upper
middle socio-economic scale around the site.
e. Stores with this new format are the main objective more towards branding strategy or in
other words, to serve unexploited customers (niche markets) whose numbers are not large.
f. This will be the first test project for the management because if the concept is successful, it
will only be necessary to continue in the following cities that have similar market conditions
as Manado.
STRATEGY IMPLEMENTATION
The stage after the implementation of strategy formulation is strategy implementation. The
best possible strategy formulation based on environmental analysis to achieve the desired goals, will
become mere rhetoric if it is not able to be implemented properly. Thus, in order for the company to
achieve optimal direction, the company must be able to formulate and implement its strategy
effectively. If one of these tasks is not carried out properly, then it is not impossible that the result
can be a failure for the company's overall strategy.
The discussion in strategy implementation includes three main topics, namely an overview
of the various possibilities that occur with strategy formulation and implementation and analysis of
strategy implementation and strategy implementation.
7.1 Multiple Possibilities for Strategy Formulation and Implementation:
Success: is the most desirable outcome for the company. This happens when the company is
able to formulate strategy and at the same time able to implement it well too.
Roulette: a situation where the strategy formulated by the company is actually not good, but
the results obtained are not too disappointing because the company management is able to
implement the strategy well accompanied by various adjustments.
Trouble: a situation where the company's strategy is actually well formulated but the
strategy is chaotic and not optimal because the company's management does not implement it
properly.
Failure: This is the worst and least desirable outcome for company management. This happens
because the company's strategy was formulated poorly and satisfactorily and even worse, the
implementation turned out to be done poorly as well.
7.2 Strategy Implementation Analysis:
To do strategy implementation well, Certo and Peter provide a model of the main tasks that
should be done before a strategy is implemented...
From the figure it can be seen that before the strategy is implemented and evaluated, the
process that must be done first is to analyze changes. analysis of organizational structure, analysis
of corporate culture and analysis of leadership in the company.
a. Analyzing Change:
This analysis of change aims to provide a clear and detailed idea of how much the company must
change in order to successfully implement its strategy. The changes analyzed in this stage are
seen as a process of change ranging from very simple ones such as no variation in strategy
between past, present and future, to very complex changes in the mission of the organization,
which questions the very essence of the company or organization.
Analysis of whether or not there are changes that must occur in the company due to strategy
formulation can usually be divided into several patterns that have their own characteristics,
which include continuation, routine change, limited change, radical change, the last don is
organizetionnal redirection.
1). No Significant Change (Continuation)
Since it requires no new skills and no unfamiliar tasks, the success of the strategy
implementation process is solely determined by monitoring activities to ensure that they work
according to a predetermined schedule. This is the simplest pattern because with the new
strategy formulation the company is still in the same industry and its production remains
relatively unchanged.
2). Routine Change
A routine change is a change in the market appeal used by a company to appeal more to
customers. Companies typically change the 'appeal' of their advertising, update and
customize packaging, use different pricing tactics, and may change their distributors or
distribution methods. One important thing in routine change is that it involves 'repositioning'
a product in the minds of customers.
3). Limited Change.
This change is due to new product offerings to new customers within the same general
product class. At this level of change, there is a lot of variety as products can be new in many
different ways. For this reason, even though the company is still in the same industry, due to
product variations or changes, the organizational format also changes undergoes changes.
4). Radical Change
A major reorganization of the company. This type of change is common in mergers and
acquisitions, but still within the same industry. Acquisitions and mergers can be complex, if
the company wants to integrate two companies as a whole.
5). Organizational Redirection
Involves mergers and acquisitions of companies from completely different industries. The
extent of this change depends largely on how different the industries are and how centralized
the management of the new company is. Another form of organizational redirection occurs
when a company leaves an industry and enters a new one. It involves a change in the
company's mission and requires newly developed skill sets and technologies.
b. Analyzing Organizational Structure:
The second analysis carried out in the strategy implementation process is an analysis of the
organizational structure. For this analysis, there are at least two basic types of organizational
structures that need attention.First, is the formal organizational structure, which is an
organizational structure that represents the relationship between resources designed by
management and is usually conveyed in the form of a chart.Second, is an informal organizational
structure, which is an organizational structure that represents social relationships based on
friendship or common interests among members of the organization.
Some of the questions that are the reasons for choosing an organizational structure are:
1) Will the existing organizational structure enhance or hinder the successful implementation
of the strategy?
2) Will management levels and personnel within the organization be responsible for the various
tasks that will be undertaken in strategy implementation?
3) There is a possibility that informal organization can be used to facilitate success strategy
implementation.
In reality, there are usually five types of organizational structures organization
commonly used organizational structures are simple, functional, divisional, SBU and matrix
organizational structures.
1) Simple Organization Structure
This simple organizational structure is an organizational structure that has only two levels:
owners and workers. Small companies with one product or several interrelated products are
usually represented in this structure. Companies represented by this simple organizational
structure are usually managed by the owner himself who also handles other jobs related to a
product.
This simple organizational structure has advantages and disadvantages. The advantages
are simple, inexpensive, fast decision-making and uncomplicated supervision. The
disadvantages are that it tends to focus on the owner of the company, there is little
opportunity for career advancement and more skills are required from the owner of the
company.
2). Functional Organizational Structure
In this 'functional organizational structure', each manager is responsible for one of the various
functions within the company: which are collectively engaged in in achievement of or in the
implementation of strategy. As an organization that grows and develops a number of products
and markets products and markets: this organizational structure regularly changes to reflect
greater specialization.
This functional organizational structure has several advantages, including simple
communication and decision networks, maintaining a level of strategic control at the top
management level, being able to delegate day-to-day operational decisions, simplifying the
training of functional specialists, simplifying training for specialists functional areas; make it
easier to measure the output of each function. While the disadvantages are that it causes
narrow specialization, encourages competition and conflict between functions, makes
coordination between functional areas difficult, can lead to high coordination costs between
functions and identification of employees with specialist groups, making change difficult and
limiting the development of broader manager skills.
3). Divisional Organizational Structure:
As the company acquires and develops new products in different industries and markets, the
corporate structure changes usually to an organizational structure consisting of various
divisions. Each division may operate independently under the direction of a division manager
who reports directly to the CEO. In this divisional organizational structure, division managers
can develop a strategy for their respective businesses and face competition that may be
different from other divisions in the company, so the strategies used may also be different
from other divisions.
The advantages of this organizational structure are that it has flexibility in the
company structure, facilitates coordination between functions, can maintain specialization in
each division, opens up career opportunities, and creates competition within the
organization. While the disadvantages are that it results in a decrease in communication
between functional specializations, there is potential for inconsistency between divisions,
and the costs are relatively high.
4). SBU Structure (Strategic Business Unit Structure)
When the divisional organizational structure becomes difficult to implement because the
CEO has too many divisions to manage effectively, the company has to reorganize its
organizational structure in the form of Strategic Business Units (SBUs) or Strategic
Groups.This structure groups a number of divisions based on things like product lines or
markets.Vice presidents are appointed to oversee the operations of the new form of SBUs
and report directly to the GEO.
The advantages of the SBU structure are that it improves coordination, facilitates
supervision for diversified organizations, where the range of supervision becomes longer.
While the disadvantages are that it requires additional layers of management, costs increase,
and the appointment of vice presidents is sometimes confusing.
5) Matrix Organizational Structure
Used to facilitate the development and implementation of various programs or projects.Each
department is headed by a vice president who has functional responsibility for completion and
strategy implementation.
The advantages of the matrix organizational structure are that it suits fluctuating
workloads, objectives It is possible to respond to several environmental sectors
simultaneously, there are many lines of communication, and work can be understood more
clearly. The downside is that the structure is very complicated, the cost is high and there
may be leadership dualism.
c. Analyzing Company Culture.
The organization of a company designed to implement a strategy is actually much more
complex than just the format of the organizational structure presented in a chart. Another thing that
needs management attention in the strategy implementation process is the corporate culture.
Corporate culture is a component that causes why a strategy can be implemented in one
company, while the strategy fails to be implemented in another company with relatively similar
conditions. Organizational culture can be defined as "an asset of shared values and beliefs that
influences the effectiveness of strategy formulation and implementation".
Culture, according to Clyde Kluchohn, is a set of habits, mindsets, feelings, and reactions that
influence decisions taken in dealing with a problem at a particular time (Purnomo, 1999). Corporate
culture itself is more or less the same, namely the attitudes and values, management style and
decision-making habits of the people in the company, thus it is clear that corporate culture greatly
affects the effectiveness of strategy implementation.
To see how the position and role of corporate culture.McKinsey describes it through The
Seven-S Corporate culture is referred to as Superordinate Goals, which are guiding concepts, values
end aspirations that unite and organization in some common purpose. The central position of the
superordinate goats (shared value) is very instrumental in coloring the other six S's, namely
structure, system, management style (staff), skills and strategy.
Corporate culture is different from corporate climate. Corporate climate measures whether the
expectations of people within the company of what the company should be have or have not been
met, whereas corporate culture is the shaping of those expectations. Corporate climate is tactical
and can be controlled over a relatively short period of time, whereas corporate culture is usually
strategic and controlled over a relatively longer period of time.
If strategy implementation results in change, while the steps taken in making these changes in
practice may not be in accordance with the corporate culture, there is a high probability of rejection
or resistance. Meanwhile, if the steps are in accordance with the existing corporate culture, the
strategy implementation process will be easier.
Another factor that needs serious attention is the degree of compatibility of these actions with
the company culture, and for this measurement we are usually faced with three questions
a. How much change will there be in the company's activities?
b. How much will the corporate culture be able to adapt?
c. What is the skill level of the existing management?
It is true that corporate culture has the risk of becoming an unacceptable risk. If this happens,
the company's management must examine the options available to turn the risk into something
manageable. The choices that management will make depend on the strategy that will be
implemented. These options include:
a. Disregard for company culture
b. Changing the corporate culture to fit the strategy
c. Changing the strategy to fit the company culture
According to Edgar H Schein, there are at least five primary mechanisms and five secondary
mechanisms in developing corporate culture. Included in the five primary mechanisms here are:
a. How leaders assess and control their organization
b. How leaders react to critical events and organizational crises
c. How leaders understand rules, teaching and training
d. Criteria for allocating rewards and status
e. Criteria for employee recruitment, selection, promotion and retirement
The five secondary mechanisms are:
a. Organizational design and structure
b. Organizational systems and procedures
c. Physical space and building design
d. History, legends, myths and parables about tourism and
important person
e. Statement Formal organization about philosophy, beliefs and articles of association
d. Analyzing Leadership Style:
It is not surprising that there are so many seminars and symposiums devoted to this topic.
Reliable speakers on this leadership theme are usually paid very expensive.
Leadership is very important and needs to be examined carefully in the implementation of
strategy. It is the leadership style that will affect the ways of communicating and the decision-
making process within the company which will ultimately lead to the formation of a corporate
culture.
Leadership styles can generally be classified into four broad groups, namely administrator,
analytical, assertive, and entrepreneurial leadership styles.
The administrator's leadership style seems less innovative and too rigid to the rules. His
attitude is conservative and seems very afraid to take risks with the main objective of finding safety.
This leadership model, if it refers to the analysis of change that we discussed at the beginning of this
chapter, is only suitable in situations of Continuation, Routine Changemaupun Limited Change.
Analytical leadership style is leadership in making decisions usually based on the process of
analysis, especially logical analysis on any information obtained. This style is results-oriented and
emphasizes detailed plans and long-term dimension. Leadership model is very deifying logic by
using approaches that make sense and quantitative.
Assertive leadership style is a leadership style that is more aggressive in nature and has a very
large attention to personal control than other leadership styles. He is more open to conflict and
criticism. Decision-making emerges from a process of argumentation with several points of view so
that a satisfactory conclusion emerges.
The entrepreneurial leadership style is concerned with power and results and de-emphasizes
the need for cooperation. This style of leadership usually seeks out competitors and targets high
standards.
Whatever the leadership style adopted by the company's management, in today's turbulent
environment, every leader must be ready and required to be able to transform. Leaders must be able
to manage change, including changing organizational culture that is no longer conducive and
productive. Leaders must have a sharp vision, be good at managing diversity and continue to spur
learning in the company due to environmental dynamics and intense competition.
The most important thing for future leaders is leaders who underlie their leadership style with
a leadership style based on trust. Leaders in this concept are leaders who are well aware that their
leadership is a mission of life and devotion in order to carry out the mandate to manage the contents
of this nature that has been given by God within the limits of space and time. Leadership is not an
honor or cultivation but rather a mandate, a test and a burden that will later be accounted for before
the God of all nature.
A trustworthy leader is a leader who upholds morality, where his charisma is really built on the
basis of credibility and integrity and has a sense of solidarity and a very high commitment of social
solidarity.A trustworthy leader is a leader who has an amazing intellect indicated by the ability of
reliable reasoning that is not only able to touch the power of his mind but also touch his mentality at
once. A trustworthy leader is a professional leader who firmly believes that everything must and
will be managed in quality and prestigious over his commitment to excellence. A trustworthy leader
is the leader of an organization that will not be shaken and weathered by change.
7.3 Strategy Implementation Steps:
To ensure the success of the chosen General Strategy, it must be translated into careful
implementation actions by:
a. Strategies must be translated into guidelines for daily activities by the company's employees,
b. Strategy should be reflected in the way the company
organizing activities, in the values, beliefs, and culture of the company, and
c. managers must direct and control activities in accordance with company objectives.
Some of the steps that must be taken in relation to Strategy Implementation are:
a. Identify annual objectives, to guide the implementation of strategies to achieve long-term goals.
b. Develop a functional strategy, which translates the general strategy into action plans for the
units.
c. Communicating policies, which guide operational managers and their subordinates to
implement strategies.
Here's the explanation:
a. Identify annual objectives
Annual goals are specific and measurable statements of what organizational units are expected
to contribute to the achievement of the company's overall Strategy. A good annual goal is one
that comes with measurable performance criteria, for example:
1) Reduced the turnover rate among sales managers by 10% starting January 1, 2000, Not:
improved morale in the sales department.
2) Increase the number of functional heads capable of assuming general management
responsibilities at the division level by .10% by July 1, 2000, Not: increase training
activities
3) Organizing public opinion polls with using a random sample in the five largest sub-districts of
district X to determine an average score of 10, Not
: improving the image of community service
While all annual goals are important, some need to be prioritized due to timing considerations
and their impact on strategy success. Some companies assign weights in percentages to
'establish and communicate priorities.relative.to.the.goals.' The qualities of good annual goals
are: acceptable, flexible, appropriate, motivating, understandable, and achievable.
b. Develop a Functional Strategy (Operating Strategy)
Functional strategies are short-term activities that each functional area within a company must
carry out in order to implement the general strategy. The basic characteristics that distinguish
functional strategy from general strategy are:
1) Time horizon, where the functional strategy identifies activities that will be carried out now or
in the near future, while the general strategy is focused on the company's posture three to five
years ahead.
2) Specifications where functional strategies show operational managers how they are expected to
achieve goals. whereas general strategies only provide general direction
3) Participants in strategy development, where the responsibility for general strategy development
lies with the general manager, while those responsible for functional strategies are his
subordinate managers.
To facilitate the understanding of functional strategies, it can be helped by some common
questions that must be answered, such as the examples below:
1). Operations/Production Strategy
Operations/production management is a core function of any organization. It transforms inputs
(raw materials, supporting materials, machines, people) into valuable outputs.
2) Marketing Strategy
Marketing management is a function to achieve company goals by generating profitable sales of
products/services in target markets. Marketing strategy should provide guidelines for marketing
managers in determining who will sell what, where, to whom, how much and how.
3) Financial Strategy
Financial strategy directs the utilization of financial resources including long-term capital
investment, debt financing, dividend allocation, and leveraging, to support the grand strategy,
long-term goals, and annual objectives.
c. Communicating Policy:
Policies are directions designed to guide the thinking, decisions and actions of managers and
their subordinates in implementing the company's strategy. Policies can be written and formal, or
unwritten and informal.
Policy benefits include:
1) Establishes indirect control over independent actions by stating how something should be
done now.
2) Encourage the same way of handling the same activities, thus helping to reduce friction due
to favoritism and discrimination.
3) Ensure faster decision-making by standardizing answers to previously asked questions
4) Institutionalize aspects of daily repetitive decision-making.
5) Overcoming resistance to the chosen strategy by members of the organization
6) Provides advance answers to routine problems.
7) Allows managers to have a mechanism to avoid hasty decisions in operations.
Policies can be imposed from outside (government), or derived from within. Communicating
specific policies will help overcome resistance to strategy change and foster commitment to
successful strategy implementation. Effective policies are those that channel actions, behaviors,
decisions and practices to drive strategy achievement.
