Strategy Formulation

– Referred to as strategic planning or long-range planning, is concerned with developing a corporation’s

mission, objectives, strategies, and policies.

Situation Analysis
– Process of finding a strategic fit between external opportunities and internal strengths while working
around external threats and internal weaknesses.

SFAS (Strategic Factors Analysis Summary) Matrix

– Summarizes an organization’s strategic factors by combining the external factors from the EFAS Table
with the internal factors from the IFAS Table

Propitious Niche
– An extremely favorable niche—that is so well suited to the firm’s internal and external environment that
other corporations are not likely to challenge or dislodge. It may also be called as Strategic Sweet Spot.

TOWS MATRIX
– It illustrates how the external opportunities and threats facing a particular corporation can be matched
with that company’s internal strengths and weaknesses to result in four sets of possible strategic
alternatives.

Business Strategy
– It focuses on improving the competitive position of a company’s or business unit’s products or services
within the specific industry or market segment that the company or business unit serves.

Porter's Competitive Strategy

Lower cost strategy
– The ability of a company or a business unit to design, produce, and market a comparable product more
efficiently than its competitors.
Differentiation strategy
– The ability of a company to provide unique and superior value to the buyer in terms of product quality,
special features, or after-sale service

Competitive Scope
Broad target (that is, aim at the middle of the mass market)
Narrow target (that is, aim at a market niche)

VARIATIONS OF GENERIC STRATEGIES

Cost Leadership
– A lower-cost competitive strategy that aims at the broad mass market.
Differentiation
– Aimed at the broad mass market and involves the creation of a product or service that is perceived
throughout its industry as unique.
Cost focus
– A 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
– Like cost focus, concentrates on a particular buyer group, product line segment, or geographic market.

EIGHT DIMENSION OF QUALITY

Performance
– primary operating characteristics, such as a washing machine’s cleaning ability.
 Features
– are additional characteristics that enhance the appeal of the product or service to the user.
Reliability
– probability that the product will continue functioning without any significant maintenance. It is the
likelihood that a product will not fail within a specific time period.
Conformance
– is the precision with which the product or service meets the specified standards.
Durability
– measures the length of a product’s life. It is the number of years of service a consumer can expect from
a product before it significantly deteriorates. Differs from reliability in that a product can be durable but
still need a lot of maintenance.
Serviceability
– product’s ease of repair. It is the speed with which the product can be put into service when it breaks
down, as well as the competence and the behavior of the service person.
Aesthetics
– How a product looks, feels, sounds, tastes, or smells. It represents the individual’s personal preference.
Perceived Quality
– Product’s overall reputation. It is the quality attributed to a good or service based on indirect measures.

Fragmented Industry
– Small and medium-sized companies compete for relatively small shares of the total market and also an
industry in which many companies compete and there is no single or small group of companies which
dominate the industry.

Consolidated Industry
– A commercial structure where a relatively low number of companies control a rather large market share
of the overall output or sales for a particular product or product type. It is dominated by a few large
companies

Competitive Tactics
Tactic
– It is a specific operating plan that details how strategy is to be implemented in terms of when and where
it is to be put in action.
Timing Tactics
– Deals with when a company implements a strategy
First movers
– first company to manufacture and sell new product or service
Market Location Tactics
– Deals with where a company implements a strategy
Offensive Tactic
– Usually takes place in an established competitor’s market location
Defensive Tactic
– It usually takes place in the firm’s own current market position as a defense against possible attack by a
rival. It aims to lower the probability of attack.

COOPERATIVE STRATEGIES
Collusion
– is the active cooperation of firms within an industry to reduce output and raise prices in order to get
around the normal economic law of supply and demand.
Strategic Alliance
– is a long-term cooperative arrangement between two or more independent firms or business units that
engage in business activities for mutual economic gain.
Corporate Strategy
– is primarily about the choice of direction for a firm as a whole and the management of its business or
product portfolio.
Directional Strategy
– The firm’s overall orientation toward growth, stability, or retrenchment.
Portfolio Analysis
– The industries or markets in which the firm competes through its products and business units
Parenting Strategy
– The manner in which management coordinates activities and transfers resources and cultivates
capabilities among product lines and business units

Directional strategy is composed of three general orientations (sometimes called grand strategies):

1. Growth strategies expand the company’s activities.

2. Stability strategies make no change to the company’s current activities.
3. Retrenchment strategies reduce the company’s level of activities.

Acquisition
– is the purchase of a company that is completely absorbed as an operating subsidiary or division of the
acquiring corporation.

The two basic growth strategies

1. concentration on the current product line(s) in one industry and
2. diversification into other product lines in other industries.

Vertical growth
– can be achieved by taking over a function previously provided by a supplier or by a distributor.

Transaction cost economics

– proposes that vertical integration is more efficient than contracting for goods and services in the
marketplace when the transaction costs of buying goods on the open market become too great.

Full integration
– a firm internally makes 100% of its key supplies and completely controls its distributors.

Backward Integration
– assuming a function previously provided by a supplier

Forward Integration
– Assuming a function previously provided by a distributor

Taper integration
– (also called concurrent sourcing), a firm internally produces less than half of its own
requirements and buys the rest from outside suppliers (backward taper integration)

Quasi-integration
– a company does not make any of its key supplies but purchases most of its requirements from
outside suppliers that are under its partial control(backward quasi-integration)

Long-term contracts
 – are agreements between two firms to provide agreed-upon goods and services to each other
for a specified period of time.

Horizontal Growth
– A firm can achieve horizontal growth by expanding its operations into other geographic
locations and/or by increasing the range of products and services offered to current markets.

Horizontal integration
– the degree to which a firm operates in multiple geographic locations at the same point on an
industry’s value chain.

International Entry Options for Horizontal Growth

Exporting
– A good way to minimize risk and experiment with a specific product is exporting
Licensing
– Under a licensing agreement, the licensing firm grants rights to another firm in the host
country to produce and/or sell a product.
Franchising
– Under a franchising agreement, the franchiser grants rights to another company to open a
retail store using the franchiser’s name and operating system.
Joint Ventures
– Forming a joint venture between a foreign corporation and a domestic company is the most
popular strategy used to enter a new country.
Acquisitions
– A relatively quick way to move into an international area is through acquisitions—purchasing
another company already operating in that area.
Green-Field Development
– If a company doesn’t want to purchase another company’s problems along with its assets, it
may choose green-field development and build its own manufacturing plant and distribution
system.
Production Sharing
– Coined by Peter Drucker, the term production sharing means the process of combining the
higher labor skills and technology available in developed countries with the lower-cost labor
available in developing countries. Often called outsourcing,
Turnkey Operations
– Turnkey operations are typically contracts for the construction of operating facilities in
exchange for a fee. The facilities are transferred to the host countryor firm when they are
complete.
BOT Concept
– The BOT (Build, Operate, Transfer) concept is a variation of the turnkey operation.
Management Contracts
– A large corporation operating throughout the world is likely to have a large amount of
management talent at its disposal.

Diversification Strategies
– This often occurs when an industry consolidates, becomes mature, and most of thesurviving
firms have reached the limits of growth using vertical and horizontal growth strategies.
The two basic diversification strategies are concentric and conglomerate.
Concentric (Related) Diversification.
– Growth through concentric diversification into a related industry may be a very appropriate
corporate strategy when a firm has a strong competitive position but industry attractiveness is
low.
Conglomerate (Unrelated) Diversification.
– When management realizes that the current industry is unattractive and that the firm lacks
outstanding abilities or skills that it could easily transfer to related products or services in other
industries.
– the most likely strategy is conglomerate diversification—diversifying into an industry unrelated to its
current one.

Stability Strategy
– is a strategy in which a firm stays with its current business and product markets; maintains the existing
level of effort; and is satisfied with incremental growth.

Pause/Proceed with Caution Strategy

– is an attempt to make only incremental improvements until a particular environmental situation
changes.

No-change Strategy
– is utilized by companies who are “comfortable” with their competitive position in its industry, and sees
little or no growth opportunities within the said industry.

Profit Strategy
– is an attempt to artificially support profits when a company’s sales are declining by reducing
investment and short term discretionary expenditures

Retrenchment Strategy
– are pursued when a company’s product lines are performing poorly as a result of finding itself in a weak
competitive position or a general decline in industry or markets.

Turnaround strategy
– emphasizes the improvement of operational efficiency.

Captive company
– strategy involves giving up independence in exchange for security.

Sell-out/Divestment Strategy
– is used by corporations with a weak competitive position in an industry and is unable either to pull
itself up or to find a customer to which it can become a captive company

Bankruptcy
– involves giving up management of the firm to the courts in return for some settlement of the
corporation’s obligations.

Liquidation
– is the termination of the firm.

Question marks
– are new products with the potential for success, but they need a lot of cash for development.
Cash cows
– typically bring in far more money than is needed to maintain their market share.

Stars
– are market leaders that are typically at the peak of their product life cycle

Dogs
– have low market share and do not have the potential to bring in income

Horizontal Strategy
– is a corporate strategy that cuts across business unit boundaries to build synergy across business units
and to improve the competitive position of one or more business units.

Multipoint Competition
– Large multi-business corporations compete against other large multi-business firms in a number of
markets.

Functional Strategy
– Is the approach a functional area takes to achieve corporate and business unit objectives and strategies
by maximizing resource productivity.

Marketing Strategy
– Deals with pricing, selling and distributing a product.

Financial Strategy
– examines the financial implications of corporate and business-level strategic options and identifies the
best financial course of action.

Research and Development Strategy

– deals with product and process innovation and improvement.

Technological Leader
– pioneer of an innovation

Technological Follower
– imitating the products of competitors

Operations Strategy
– It determines how and where a product or service is to be manufactured, the level of vertical
integration in the production process, the deployment of physical resources, and relationships with
suppliers.

Purchasing Strategy
– deals with obtaining the raw materials, parts, and supplies needed to perform the operations function.

Logistics Strategy
– deals with the flow of products into and out of the manufacturing process.

Human Resource Management Strategy

– addresses the issue of whether a company or business unit should hire a large number of low-skilled
employees who receive low pay, perform repetitive jobs, and are most likely quit after a short time or
hire skilled employees who receive relatively high pay and are cross-trained to participate in self-
managing work teams.
Information Technology Strategy
– comprehensive plan that outlines how technology should be used to meet IT and business goals.

Outsourcing
– is purchasing from someone else a product or service that had been previously provided internally.

Offshoring
– is the outsourcing of an activity or a function to a wholly owned company or an independent provider
in another country.

Corporate scenarios
– are pro forma (estimated future) balance sheets and income statements that forecast the effect each
alternative strategy and its various programs will likely have on division and corporate return on
investment.

Political Strategy
– is a plan to bring stakeholders into agreement with a corporation’s actions.

Strategic choice
– is the evaluation of alternative strategies and selection of the best alternative.

Risk
– is composed not only of the probability that the strategy will be effective but also of the amount of
assets the corporation must allocate to that strategy and the length of time the assets will be
unavailable for other uses.