Strategy Formulation and Execution

Strategy Formulation and Execution

• 1. Slide44 Strategy Formulation and Execution
• 2. Slide45 Every company is concerned with strategy It determines which organizations succeed and which ones struggle Strategic blunders can hurt a company Strategic management is a specific type of planning Strateg y Strategy
• 3. Slide46 The long-term view of the organization and competition Thinking strategically impacts performance and financial success Today’s environment requires everyone to think strategically (not just top manager) Thinking Strategically
• 4. Slide48 The set of decisions and actions used to formulate and execute strategies that will provide competitively superior fit (competitive advantage) between the organization and its environment to achieve organizational goals Strategic Management
• 5. Slide49 8.1 Levels of Strategy
• 6. Slide50 8.2 Levels of Strategy
• 7. Slide51 Formulation: Assessing the external environment and internal problems to create goals and strategy Execution: the use of managerial and organizational tools to direct resources toward accomplishing strategic results Strategy Formulation versus Execution
• 8. Slide53 Strateg y Formulating strategy often begins with an audit of internal and external factor sInternal Strengths and Weaknesses External Opportunities and Threats Information is acquired from reports, surveys, discussions, and meetings SWOT Analysis
• 9. Slide54 8.3 SWOT: Audit Checklist
• 10. Slide55 Case Study – SWOT: FACEBOOK.COM •Strength: •Weakness: •Opportunities: •Threats: •Strategies
• 11. Slide56 Strategic Business Units have a unique mission, products, and competitors Companies manage the mix of SBUs for synergy and competitive advantage Organizations should not become too dependent on one business Related to the diversification strategy
• 12. Slide57 A Manager (CEO) is an agent for shareholders (owners). Owners of the firm are clients of the manager. The manager is supposed to work for the best interest of the shareholders, that is, to maximize shareholders’ wealth increase the stock price, by boosting the profit, increasing revenue and/or decreasing cost. In reality, a manager works for his own best interest, not for the shareholders. When this problem occurs, we call it “agency cost (problem) .” Agency Theory, Agency Cost
• 13. Slide58 Merge & Acquisition is an example of corporate strategy. Like any other strategy, M & A should focus on synergy, efficiency, shareholders’ wealth maximization. However, Some M & A creates Agency Cost. Cases in Point: M & A b/w HP & Compaq M & A b/w BoA & Merrill Lynch M & A b/w Disney & ABC Television
• 14. Slide59 Agency Cost, Stock Option How do shareholders know whether the manager (CEO)’s corporate strategy works or not? If the stock price does not go up after the M & A announcement, the strategy is not working. Managing a manager: Stockholders can use a carrot-and-stick approach to control the manager. Stock Option: A widely used carrot to motivate the manager to work hard for the best interest of shareholders.
• 15. Slide60 Formulating Corporate- Level Strategy: The BCG Matrix Organizes business along two dimensions Business growth rate – potential (future) Market share - current Four categories for corporate portfolio The combination of high/low market share and high/low business growth
• 16. Slide61 The BCG Matrix
• 17. Slide62 New CEO – Jeff Immelt Cash Cow: Home & Business Solutions Star: GE Technology & Infrastructure, GE Energy Question Mark: Media Division – NBC Universal Finance – GE Capital The Question Mark can become a Dog or Star. Dog: If a division falls into a dog, GE sells it off. Case Study – The BCG Matrix: General Electric
• 18. Slide63 Formulating Corporate-Level Strategy: Diversification Strategy Moving into new lines of business Expand into new valuable products and services Why does a firm attempt to diversify its business? Manage/control/minimize the risk Related Diversification vs. Unrelated Diversification Example of Related Diversification: Facebook + Search Engine Example of Unrelated Diversification: An airline company like DELTA merges with an oil company like SHELL
• 19. Slide64 Unrelated Diversification Strategy – Corporate Strategy Expansion into new lines of business Can be a difficult strategy Many companies are giving up on unrelated diversification Unattractive to investors; hard to value the firm Hard to measure the profit, cost of capital Hard to measure the firm value Hard to measure the firm’s stock price Hypothetical Example: GM enters a clothing business.
• 20. Slide65 Formulating Business-Level Strategy Vertical integration expands into businesses that supply to the business or are distributors Benefits of VI: Securing supply & distribution chains  cost savings  efficiency Limitations of VI: Less competition  less productive  inefficiency Hypothetical Examples: Starbucks in VI GM in VI
• 21. Slide66 Formulating Business-Level Strategy Strategy within the business units (SBU): How do we compete? Biz-Level Strategy vs. Corporate-Level Strategy: At the business level, strategies are accomplished through competitive actions rather than acquisition or divestment Porter’s Five Forces are widely used to develop biz-level strategy
• 22. Slide67 Formulating Business-Level Strategy SBU an autonomous organization within a firm: Budgeting authority Personnel decision-making Examples of SBU: ABC Television – one of four SBUs in Disney Division in Army College at LSSU
• 23. Slide68 8.5 Porter’s Five Forces
• 24. Slide69 8.6 Porter’s Competitive Strategies
• 25. Slide70 Action plans used by major departments (Marketing, Production, Finance, HR, R&D) To support the execution of biz-level strategy To coordinate with biz- level strategy to achieve the organization’s strategic goals Formulating Functional Level Strategy
• 26. Slide71 Strategic Flexibility – managers must be prepared to change and adjust strategy quickly Strategic Partnerships – collaboration with other organizations is important – Partners must share resources & information. Global Strategy – organizations pursue a distinctive focus for global business New Trends in Strategy
• 27. Slide72 New Trends in Strategy
• 28. Slide73
• 29. Slide74 Tools for Putting Strategy into Action