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STRATEGIC MANAGEMENT & BUSINESS POLICY11TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 6Strategy Formulation: Situation Analysis & Business Strategy

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Situational Analysis

Strategy formulation --

–Strategic planning or long-range planning•Develops mission, objectives, strategies, policies

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Situational Analysis

--process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses

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IFAS – Maytag as Example

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EFAS – Maytag as Example

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SFAS Matrix

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Situational Analysis

Niche --

–Need in the marketplace that is currently unsatisfied

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Situational Analysis

Corporate Goal --

–Find propitious niche–Strategic window

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Situational Analysis

SWOT --

–Internal•Strengths/Weaknesses

–External•Opportunities/Threats

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TOWS Matrix

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Business Strategy

Focuses on improving competitive position of company’s products or services within the specific industry or market segment

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Porter’s Competitive Strategies

Competitive Strategy --

–Low cost–Differentiation–Direct competition–Focus on niche

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Porter’s Competitive Strategies

Generic Competitive Strategies --

–Lower Cost strategy•Greater efficiencies than competitors

–Differentiation strategy•Unique/superior value, quality, features, service

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Porter’s Competitive Strategies

Competitive Advantage --

–Determined by Competitive Scope•Breadth of the target market

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Porter’s Competitive Strategies

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Porter’s Competitive Strategies

Cost Leadership --

–Low-cost competitive strategy–Broad mass market–Efficient-scale facilities–Cost reductions–Cost minimization

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Porter’s Competitive Strategies

Differentiation –

–Broad mass market–Unique product/service–Premiums charged–Less price sensitivity

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Porter’s Competitive Strategies

Cost-Focus –

–Low-cost competitive strategy–Focus on market segment–Niche focused–Cost advantage in market segment

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Porter’s Competitive Strategies

Differentiation Focus –

–Specific group or geographic market focus–Differentiation in target market–Special needs of narrow target market

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Porter’s Competitive Strategies

Stuck in the middle –

–No competitive advantage–Below-average performance

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Risks of Generic Strategies

Risks of Cost LeadershipCost leadership is not sustained:• Competitors imitate.• Technology changes.• Other bases for cost leadership erode.Proximity in differentiation is lost.Cost focusers achieve even lower cost in segments.

Risks of DifferentiationDifferentiation is not sustained:• Competitors imitate.• Bases for differentiation become less important to buyers.Cost proximity is lost.Differentiation focusers achieve even greater differentiation in segments.

Risks of FocusThe focus strategy is imitated:The target segment becomes structurally unattractive:• Structure erodes.• Demand disappears.Broadly targeted competitors overwhelm the segment:• The segment’s differences from other segments narrow.• The advantages of a

broad line increase.New focusers subsegment the industry.

Risks of Cost LeadershipCost leadership is not sustained:• Competitors imitate.• Technology changes.• Other bases for cost leadership erode.Proximity in differentiation is lost.Cost focusers achieve even lower cost in segments.

Risks of DifferentiationDifferentiation is not sustained:• Competitors imitate.• Bases for differentiation become less important to buyers.Cost proximity is lost.Differentiation focusers achieve even greater differentiation in segments.

Risks of FocusThe focus strategy is imitated:The target segment becomes structurally unattractive:• Structure erodes.• Demand disappears.Broadly targeted competitors overwhelm the segment:• The segment’s differences from other segments narrow.• The advantages of a

broad line increase.New focusers subsegment the industry.

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8 Dimensions of Quality

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Competitive Strategy

Industry Structure --

–Fragmented Industry–Consolidated Industry

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Competitive Tactics

Timing Tactics --

–First mover–Late movers

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Competitive Tactics

Market Location Tactics --

–Frontal Assault–Flanking Maneuver–Bypass Attack–Encirclement–Guerrilla Warfare

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Competitive Tactics

Defensive Tactics --

–Raise structural barriers–Increase expected retaliation–Lower the inducement for attack

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Cooperative Strategies

•Collusion•Strategic Alliances•Mutual service consortia•Joint ventures•Licensing arrangements•Value-chain partnerships