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Chapter 4

This document discusses strategy formulation, analysis, and choice. It begins by defining strategy and strategy formulation. It then discusses the nature of strategy analysis and choice, and how organizations analyze strengths/weaknesses and opportunities/threats to determine alternative courses of action. The document presents a comprehensive three-stage framework for strategy formulation involving input, matching, and decision stages. It also discusses levels of strategy formulation at the corporate, business, and functional levels and different types of strategies at each level.

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Legese Tusse
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Download as PPTX, PDF, TXT or read online on Scribd
133 views

Chapter 4

This document discusses strategy formulation, analysis, and choice. It begins by defining strategy and strategy formulation. It then discusses the nature of strategy analysis and choice, and how organizations analyze strengths/weaknesses and opportunities/threats to determine alternative courses of action. The document presents a comprehensive three-stage framework for strategy formulation involving input, matching, and decision stages. It also discusses levels of strategy formulation at the corporate, business, and functional levels and different types of strategies at each level.

Uploaded by

Legese Tusse
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 21

CHAPTER FOUR

Strategy Formulation, Analysis


and Choice

6 1
Strategy

 A strategy

 It is a broad plan developed by an organization to take it

from where it is to, where it wants to be and how it get


there
 Strategy formulation:

 It is the process of developing the strategy.

6 Decenber 2020 2
The Nature of Strategy Analysis and Choice

 The choice of strategies is wide and much would depend on


how an organization perceives its strengths and weaknesses in
relation to the opportunities and threats the external
environment presents.
 Strategy analysis and choice seek to determine alternative
courses of action that could best enable the firm to achieve
its mission and objectives.

6 Decenber 2020 3
A Comprehensive Strategy-Formulation Framework
 It can be integrated into a three-stage decision making framework.

1. The Input Stage- the formulation framework consists of:

 An External Factor Evaluation (EFE) matrix

 It allows strategists to summarize and evaluate economic, social, cultural,

demographic, environmental, political, governmental, legal, technological, and

competitive information.

 Internal Factor Evaluation (IFE)Matrix:

 evaluates the major strengths and weaknesses in the functional areas of a business

 & it provides a basis for identifying and evaluating relationships among those

areas.

6 Decenber 2020 4
The Competitive Profile Matrix (CPM)
It identifies a firm’s major competitors and its particular

strengths and weaknesses in relation to a sample firm’s


strategic position.
 The information derived from these three matrices provides

basic input information for the matching and decision stage


matrices.

6 Decenber 2020 5
Cont…

2. The Matching Stage


 Focuses upon generating feasible alternative strategies by aligning key
external and internal factors.
 It includes the Strengths-Weaknesses-Opportunities-Threats (SWOT)
Matrix, and analysis based on Boston Consulting Group (BCG)
Matrix.

3. The Decision Stage


 Involves a single technique, the Quantitative Strategic Planning
Matrix (QSPM).
 A QSPM reveals the relative attractiveness of alternative strategies and
thus provides objective basis for selecting specific strategies.
June, 2023 6
Level of Strategy formulation
 Strategies can be formulated at different levels such as: corporate, business
and functional level strategies.
1. Corporate level strategy
 It answer in what industries and markets should we compete?

 They are basically about the choice of direction that a firm adopts in

order to achieve its objectives


 They are basically about decisions related to:

 Allocating resources among the different businesses of a firm


 Transferring resources from one set of businesses to others
 Managing and development set of businesses in such a way that the
overall corporate objectives are achieved.
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Cooperative strategies could be of the following types
1. Merger: occurs when two or more firms combine to form a single
or a new company. Mergers are often the results of the firms
mutually agreeing to combine and create a new name and a
new organizational structure and make other changes.
2. Takeovers or Acquisitions
(may be friendly or hostile): is a ‘marriage’ of two unequal partners
with one organization buying and subsuming the other party.
The shares in the smaller company are bought by the larger

6 Decenber 2020 8
2. Business level strategies
 It answer the question- How are we going to compete for customers
in this industry and market?
Business level strategies are the courses of action adopted by a firm
for each of its businesses separately to:
o Serve identified customer groups
o Provide value to the customers by satisfying their needs.
Relying on the typology suggested by porter, we could
classify business level strategies into the following three
types:
1. Cost leadership (Lower cost / broad target)
2. Differentiation (Differentiation / broad target).
3. Focus (Lower cost or differentiation / narrow target).

6 Decenber 2020 9
1. Cost Leadership Business Strategy

Value chain analysis is central to identifying where cost


savings can be made at various stages in the value chain
and its internal and external linkages.
Cost leadership depends on the arrangement of value chain
activities so as to:
 Reduce unit costs by copying rather than originating
designs, using cheaper materials, producing products with
no frills/extra cost, reducing labor costs and increasing labor
productivity
6 Decenber 2020 10
Cont’d
 Achieving economies of scale by high-volume sales perhaps
based on promotion, allowing high fixed costs of investment
in modern technology to be spread over a high volume of
output
 Using high volume purchasing to obtain discounts for bulk
buying of materials
 Locating activities in areas where costs are low or
government help is available
 When the competitive advantage of a firm lies in a lower cost
of products or services relative to what the competitors have
to offer, it is termed as cost leadership.

6 Decenber 2020 11
2. Differentiation Business Strategy

A differentiation strategy is based on


encouragement of customers that a product is
superior to that offered by competitors.
Differentiation can be based on premium
product features or simply upon creating
consumer perceptions that a product is superior.
A differentiation strategy is likely to
necessitate emphasis on innovation, design,
research and development, awareness of
particular customer needs and marketing.
6 Decenber 2020 12
Cont’d

Mitizberg has provided a series of categories within

which firms can differentiate as described below:

 Design Differentiation-differentiate by design as

compare to rivalry.

 Quality Differentiation- buyers believe the product is

reliable, durable, or has superior performance.

 Price Differentiation – if the market is price sensitive


6 Decenber 2020 13
Cont’d
By creating a strong brand name through

design, innovation, advertising, etc.

By offering after sales service

By distinctive or superior product packaging,

distribution channels, etc


6 Decenber 2020 14
3. Focus Business Strategy

Employing a focus strategy requires the following


circumstances:

Identification of a suitable target customer


group which forms a distinct market segment.
 Identification of the specific needs of that
group

6 Decenber 2020 15
Cont’d
Establishing the extent of competition within the
segment
Production of products to meet the specific
needs of that group
Deciding whether to operate a differentiation or
cost leadership strategy within the market
segment
Establishing that the segment is sufficiently large
to sustain the business
6 Decenber 2020 16
3. Functional Level Strategies
How can we best utilize resources to implement our
business strategy?
A functional strategy is essentially a strategy confined to a
particular functional group of company like marketing,
production, sales etc.
Functional strategy in key Areas
Marketing: Plans and policies related to marketing
have to be formulated and implemented on the basis of
4P’s of the marketing mix, that is, product, pricing, place,
and promotion.

6 Decenber 2020 17
Cont’d
Finance: Finance is the blood stream of any
company since the ultimate objectives is to generate
profits and create surplus to permit continuation of
company.
Research and Development
Production the strategy to produce competent
product
Personnel

6 Decenber 2020 18
Strategic Analysis and Choice
 Strategic choice is the decision to select from
among the alternatives strategy which will best
meet the enterprise’s objectives.
 The decision involves focusing on a few
alternatives, considering the selection factors,
evaluating the alternatives against these criteria
and making the actual choice.
6 Decenber 2020 19
Corporate Portfolio Analysis

Corporate portfolio analysis could be


defined as a set of techniques that help
strategists’ decisions with regard to individual
product or business in a firm’s portfolio.

6 Decenber 2020 20
U E
YO
R
FO
U !! !
YO N
K I O
N N T
A E
T H T T
A
6 Decenber 2020 21

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