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Topic 4 2nd Semester 2022

The document discusses various strategic formulation frameworks including: 1. Porter's competitive strategies framework which identifies four strategies - differentiation, cost leadership, focused differentiation, and focused cost leadership. 2. The BCG matrix which analyzes business opportunities based on market growth and market share, identifying four categories - stars, question marks, cash cows, and dogs. 3. Incrementalism and emergent strategies, where strategies gradually evolve over time through a process of trial and error rather than being fully pre-planned. Managers learn from experience and make adjustments to strategies.

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43 views

Topic 4 2nd Semester 2022

The document discusses various strategic formulation frameworks including: 1. Porter's competitive strategies framework which identifies four strategies - differentiation, cost leadership, focused differentiation, and focused cost leadership. 2. The BCG matrix which analyzes business opportunities based on market growth and market share, identifying four categories - stars, question marks, cash cows, and dogs. 3. Incrementalism and emergent strategies, where strategies gradually evolve over time through a process of trial and error rather than being fully pre-planned. Managers learn from experience and make adjustments to strategies.

Uploaded by

zepzep
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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TOPIC 4

1. STRATEGY FORMULATION
With a good strategy in place, the resources of the entire organization can be focused on achieving superior
profitability or above-average returns. Whether one is talking about building e-business strategies for the new
economy or crafting strategies for more traditional operations. Michael Porter points attention toward these
opportunities for competitive advantage in the strategy formulation process:
 Cost and quality – where strategy drives an emphasis on operating efficiency and/or product or service
quality.
 Knowledge and speed – where strategy drives an emphasis on innovation and speed of delivery to
market for new ideas.
 Barriers to entry – where strategy drives an emphasis on creating a market stronghold that is protected
from entry by others.
 Financing resources – where strategy drives an emphasis on investments and/or loss sustainment that
competitors can’t match.

A. Porter’s Competitive Strategies


Within an industry, the strategic challenge becomes positioning one’s firm and products relative to
competitors. The strategy formulation question is “how can we best compete for customers in this
industry?” Porter advises managers to answer this question by using the competitive strategies framework
shown below:

Leadership strategy cost Differentiation strategy


Broad
Market
Scope
Focused low-cost Focused differentiation
Narrow strategy strategy

Low Price Unique Product

Source of Competitive Advantage

Business-level strategic decisions are driven by two basic factors:


1. Market scope 2. Source of competitive advantage

Four strategies that organizations can pursue:


a) Differentiation - competitive advantage through uniqueness
b) Cost leadership - lower costs than competitors and achieve higher profits
c) Focused differentiation
d) Focused cost leadership
Focus strategies – Organizations pursuing this strategy concentrate on a special market segment
with the objective of serving its needs better than anyone else. The strategies focus organizational
resources and expertise on a particular customer group, geographical region, or product or service
line. They seek competitive advantage in that market segment through product differentiation or
cost leadership.

B. Portfolio Planning – this is used by multi-businesses in the strategy formulation to help allocate scarce
resources among competing uses.

BCG Matrix
- This is an approach to business portfolio planning developed by the Boston Consulting Group. This
framework analyzes business opportunities according to industry or market growth rate and market
share.
Question Marks Stars
Poor position; Growing industry Dominant position; Growing industry
HIGH
Growth or Growth
Market Growth for retrenchment strategy
Products/Services
Dogs Cash Cows
Poor position; Low-growth industry Dominant position; Low-growth industry
LOW
Retrenchment Stability or modest
strategy growth strategy

HIGH
LOW

Market Share of Products/Services

As shown in the figure, this comparison results in four possible business conditions, with each being associated with a
strategic implication:
1. Stars – These are high-market-share businesses in high growth markets. They produce large profits through
substantial penetration of expanding markets. The preferred strategy is growth, and further resource
investments in them are recommended.
2. Question Marks – These are low-market-share businesses in high-growth markets. They do not produce much
profit but compete in rapidly growing markets. They are the source of difficult strategic decisions. The
preferred strategy is growth, but the risk exists that further investments will not result in improved market
share. Only the most promising question marks should be targeted for growth, others are candidates for
retrenchment by restructuring or divestiture.
3. Cash Cows – These are high-market-share businesses in low-growth markets. They produce large profits and
a strong cash flow3. Because the markets offer little growth opportunity, the preferred strategy is stability or
modest growth.
4. Dogs are low-market-share businesses in low-growth-markets. They do not produce much profit, and they
show little potential for future improvement. The preferred strategy for dogs is retrenchment by divestiture.

C. Incrementalism and Emergent Strategy


Incrementalism – the process whereby modest and gradual changes in strategy occur as managers learn
from experience and make adjustments. (James Brian Quinn)

With all the challenges of getting ahead and staying in the complexed world of organizations, effective
managers must have the capacity to stay focused on long-term objectives while still remaining flexible
enough to master short-run problems and opportunities as they occur. (the managerial behavior according
to Henry Mintzberg’s and John Kotter)

Emergent Strategies - These are strategies that develop progressively over time as “streams” of decisions
made by managers as they learn from and respond to work situations. (Mintzberg)

Incremental or emergent strategic planning allows managers and organizations to become really good at
implementing strategies, not just by formulating them. (Mintzberg)

Be sure you can:


 Explain the four competitive strategies in Porter’s model
 Illustrate how these strategies apply to products in a market familiar to you
 Describe the BCG matrix for portfolio planning and use it to analyze strategic opportunities for a business
 Explain the concepts on incrementalism and emergent strategy

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