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1. STRATEGIC MANAGEMENT & BUSINESS POLICY
THOMAS L. WHEELEN J. DAVID HUNGER

2. 6-2

3. 6-3
Strategy formulation-concerns developing a
corporation’s mission, objectives, strategies &
policies
Situation Analysis-the process of finding a strategic
fit between external opportunities and internal
strengths while working around external and
internal weaknesses

4. 6-4
SWOT-Strengths-Weaknesses-Opportunities-Threats
Strategy= opportunity/capacity
Opportunity has no real value unless a company has the
capacity to take advantage of that opportunity

5. 6-5
Criticisms of SWOT analysis
•Generates lengthy lists
•Uses no weights to reflect priorities
•Uses ambiguous words and phrases
•Same factor can be in 2 categories
•No obligation to verify opinion with data or analysis
•Requires only a single level of analysis
•No logical link to strategy implementation

6. 6-6
Review of Mission and Objectives
A re-examination of an organization’s current
mission and objectives must be made
before alternative strategies can be
generated and evaluated.
For Mission
See Chapter 2 Fred R. David

7. 6-7
Business strategyfocuses on improving the competitive
positionof a company’s or business unit’s products or
services within the specific industryor market
segment it serves.
•Business strategy asks how the company or its units
should competeor cooperatein each industry.

8. 6-8
•Competitive strategy(battle against all
competitors for advantage)
•Cooperative strategy (working with one or more
companies to gain advantage against other
competitors)

9. 6-9
Porter’s competitive strategies
First Q:Should we compete on the basis of lower cost (and
thus price), or
•Should we differentiateour products or services on some
basis other than cost, such as quality or service?
•Michael Porter proposes two “generic” competitive
strategies
•Generic because they can be pursued by any type or size
of business firm, even by not for-profit organization.

10. 6-10
Porter’s competitive strategies
Lower cost strategy-the ability of a company or a business
unit to design, produce and market a comparable product
more efficientlythan its competitors.
Differentiation strategy-the ability of a company or a
business unit to provide a unique or superior value to the
buyer in terms of product quality, special features, or
after sale service.

11. 6-11
Porter’s competitive strategies
2
nd
Q:Should we compete with our major competitors
for the biggestbut most sought-after share of the
market, or
•should we focus on a nichein which we can satisfy a
less sought-after but also profitable segment of the
market?
•Porter proposes that a firm’s competitive advantage
in an industry is determined by its competitive scope,
that is, the breadth of the company’s target market.

12. 6-12
Porter’s competitive strategies
•Before using one of the two generic competitive
strategies (lower cost or differentiation)
•The firm or unit must choose a broad target(that is,
aim at the middle of the mass market) or a narrow
target (that is, aim at a market niche).
•Combining these two types of target marketswith
the two competitive strategiesresults in the four
variations of generic strategies.

13. 6-13

14. 6-14
Porter’s competitive strategies
Cost leadership-a lower-cost competitive strategy that
aims at the broad mass marketand requires
efficient scale facilities, cost reductions, cost and
overhead control; avoids marginal customers, cost
minimization in R&D, service, sales force and
advertising,
•Provides a defense against competitors
•Provides a barrier to entry
•Generates increased market share

15. 6-15
Porter’s competitive strategies
Differentiation-involves the creation of a product or
service that is perceived throughout the industry as
unique. Can be associated with design, brand
image, technology, features, dealer network, or
customer service
•Lowers customers sensitivity to price
•Increases buyer loyalty
•Barrier to entry
•Can generate higher profits

16. 6-16
Porter’s competitive strategies
Cost Focus-low-cost competitive strategy that focuses
on a particular buyer group or geographic market
and attempts to serve only this niche to the
exclusion of others
Differentiation Focus-concentrates on a particular
buyer group, product line segment, or geographic
market to serve the needs of a narrow strategic
market more effectively than its competitors

17. 6-17

18. Prentice Hall 6-18
Risks in Competitive Strategies

19. Prentice Hall 6-19
Issues in Competitive Strategies
Stuck in the middle-when a company has no
competitive advantage and is doomed to below-
average performance

20. Prentice Hall 6-20
Issues in Competitive Strategies
Entrepreneurial firms follow focus strategies
where they focus their product or service on
customer needs in a market segment and
differentiate based on quality and service

21. Prentice Hall 6-21

22. Prentice Hall 6-22
Industry Structure and Competitive Strategy
Fragmented industry-many small-and medium-sized
companies compete for relatively small shares of the
total market
•Products are typically in early stages of product life
cycle
•Focus strategies are used

23. Prentice Hall 6-23
Industry Structure and Competitive Strategy
Consolidated industry-domination by a few large
companies
•Emphasis on costand service
•Economies of scale
•Regional and national brands
•Slower growth over capacity
•Knowledgeable buyers

24. Prentice Hall 6-24
Hyper-competition and Competitive Advantage
Sustainability
Competitive advantage in a hyper-competitive market is
characterized by a continuous series of multiple short-
term initiatives that replace current products with new
productsbefore competitors can do so.
•Leads to an over emphasis on short-term tactics

25. Prentice Hall 6-25
Competitive Tactics
Tactic-a specific operating planthat details how a
strategy is going to be implementedin terms of when
and whereit is to be put into action
•Narrower in scopeand shorter in time horizon than
strategies

26. Prentice Hall 6-26
Timing Tactics: When to Compete
Timing Tactics-when a company implements a strategy
•First movers (Pioneer)
•Late movers

27. Prentice Hall 6-27
Offensive tactics:
Methods used to attack a competitor’s position
Frontal assault/Attack
•The attackingfirm goes head to head with its competitor.
•Matches the competitor in every category from price to
promotion to distribution channel.
Market Location: Where to Compete
Market location tactics-where a company implements a strategy

28. 6-28
Flanking maneuver: Rather than going straight for a
competitor’s position of strength with a frontal assault
•Firm may attack a part of the marketwhere the competitor
is weak.
Encirclement:Occurs as an attacking company or unit
encircles the competitor’s position in terms of products or
markets or both.
•The encircler has greater product variety and/or serves
more markets

29. 6-29
Bypass attack:Rather than directly attacking the
established competitor frontally.
•This tactic attempts to cut the market by offering a new
type of productthat makes the competitor’s product
unnecessary.
Guerrilla warfare:A new entrant or small firm can make
some gains without seriously threatening a large
•Established competitor and evoking some form of
retaliation/revenge.

30. 6-30
Defensive tactics
•Raise structural barriers
•Increase expected retaliation
•Lower the inducement for attack (low cost & low
profit

31. Prentice Hall 6-31
Which Competitive Strategy is Best?
•Before selecting one of Porter’s generic
competitive strategies for a company or
business unit.
•Management should assess its feasibility in
terms of company resourcesand
capabilities.

32. Prentice Hall 6-32

33. Prentice Hall 6-33
Cooperative Strategies-used to gain a competitive
advantage within an industry by working with other
firms

34. 6-34
Collusion-the active cooperation of firms within an
industry toreduce output and raise prices to avoid
economic law of supply and demand

35. Prentice Hall 6-35
Strategic Alliances-long-term cooperative arrangement
between two or more independent firms or business
units that engage in business activities for mutual
economic gain
Used to:
•Obtain or learn new capabilities
•Obtain access to specific markets
•Reduce financial risk
•Reduce political risk

36. Prentice Hall 6-36
•Cooperative arrangementsbetween companies and
business units fall along a continuum from weak and
distant to strong and close.

37. Prentice Hall 6-37
Types of Cooperative Agreements
•Mutual Service Consortia/association
•Joint Venture
•Licensing Arrangements
•Value-Chain Partnerships

38. Prentice Hall 6-38
•Mutual service consortium: partnership of similar
companies in similar industries that pool their
resources to gain a benefit that is too expensive to
develop alone, such as access to advanced
technology.

39. Prentice Hall 6-39
Joint venture: A cooperative business activity, formed
by two or more separate organizations for strategic
purposes.
•Creates an independent business entity and allocates
ownership, operational responsibilities, and financial
risks and rewards to each member, while preserving
their separate identity/autonomy

40. Prentice Hall 6-40
•Licensing arrangementis an agreement in which
the licensing firm grants rights to another firm in
another country or market to produce and/or sell a
product.

41. Prentice Hall 6-41
•Value-Chain Partnerships. A value-chain
partnership is a strong and close alliancein which
one company or unit forms a long-term arrangement
with a key supplier or distributor for mutual
advantage

42. Prentice Hall 6-42