Unit 4: Strategy

Formulation LH 14
By
Agni Dhar Parajuli
Associate Prof. Management
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 Unit 4: Strategy Formulation LH 14
• Concept, Business level strategy- Generic competitive strategies, a
resource-based view to strategy formulation, the industry life-cycle;
corporate level strategies- Growth strategies, related and unrelated
diversification, implementing growth strategies,
• portfolio analysis- Boston Consulting Group Matrix and The General
Electric-Mckinsey Matrix, strategy evaluation.

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 Strategic Management
• The systematic analysis of the factors associated with:
• customers and competitors (the external environment) and
• the organization itself (the internal environment) to provide the basis for
maintaining optimum management practices.
• In other words, Identify the SWOT
• The objective of strategic managements to achieve better alignment of
Strength and opportunities or corporate policies and strategic priorities.
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 Strategic Management
• Its provides overall direction to the enterprise and involves direction
to the enterprise and involves specifying the organization’s objectives,
• developing policies and plans designed to achieve these objectives, and
the allocating resources to implement the plans.

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 Concept of Strategy Formulation

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 Concept of Strategy formulation

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 Tips for using strategy formulation
• While planning a new strategy, it may be helpful for you to review the
following tips:
• Use SMART goals
• SMART stands for specific, measurable, achievable, relevant and time-
based goals.
• SMART goals can help you craft a specific objective that's easy to
measure or track and has a clear and concise plan for success.

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 Tips for using strategy formulation
• Here's an example of a SMART goal for a business that plans to start new
social media accounts to grow the customer base:
• Laxmi's Confectionary Creations: Company wants to utilize social media to connect
with potential customers.
• They plan to create 15-second videos to post on three different social media platforms
showing customers how they bake each of their products.
• They're aiming to gain at least 1,000 engagements and 250 followers on each site by
the end of the month.

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 Tips for using strategy formulation
• Specific: The organization states the exact measures they can take to achieve their goal.
• Measurable: They include numerical goals, so they can clearly understand whether they
met their goal at the end of the month.
• Achievable: Since the organization is new to social media, they set realistic goals for slowly
building a follower base rather than expecting to go viral immediately.
• Relevant: The actions Laxmi’s Confectionary Creations Company plans to take are
relevant to their overall strategy, which is to start using social media to attract customers.
• Time-based: The business hopes to complete their goal by the end of the month.

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 Tips for using strategy formulation
• Ask for feedback from employees
• When formulating a strategy, gathering data from team
members through internal surveys and interviews might help
you assess your operations.
• After creating and implementing a new strategy, ask your peers
and employees how they feel about the strategy and its
effectiveness.
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 Levels of strategy formulation

• In business, there are three levels(corporate level, Business level and operational level) of
strategy.
• But now four level strategy has been evolved.
• Defining a strategy for each of these levels may help your team align your efforts and optimize
your operations.
• It may also help you visualize the future of the organization and determine what steps you should
take
• to scale your operations along with changing market conditions.

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 Levels of strategy formulation

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 Levels of strategy formulation

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 Level of strategy

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 Feature of Corporate strategy

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 Levels of strategy formulation

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 Levels of strategy formulation

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 Levels of strategy formulation

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 Business level strategy
• Business level strategy is classified into three
• A. Generic competitive strategies,
• B. A resource-based view to strategy formulation,
• C. The industry life-cycle;

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 A. Generic competitive strategies

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 A. Generic competitive strategies

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 A. Generic competitive strategies

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 How a low cost strategy will be possible?

• Economies scale of production

• Capacity utilization
• Experience and skills efficiency
• Resource Sharing- BBA class room will be shared by MBS
• Low cost material
• Direct marketing – No middle man
• Simple product design and process
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 When will be applicable of the cost leadership strategy

• Where is high price competition

• Standardized product
• Price sensitive customers
• Similar products
• Low switching cost
• High bargaining power of customers

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 A. Generic competitive strategies

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 A. Generic competitive strategies

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 A. Generic competitive strategies

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 Types of focus strategy
• There are four primary areas of strategic focus:
• Cost focus
• Differentiation focus
• - Design focus,
• - Produce focus,
• - Deliver focus, and
• - Service focus.
• The choice of strategic focus dictates your organizational and operational choices.

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 Benefits of Focus strategy
• 1.Better consumer satisfaction
• 2. Benefits small businesses
• 3. Competitive advantage
• 4. Better understand the needs of the customer
• 5.High customer loyalty due to focus to them
• 6. Specialization of activities in business
• 7. Business can develop new cpability
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 B. A resource-based view to strategy
formulation

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 B. A resource-based view to strategy
formulation

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 B. A resource-based view to strategy formulation

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 Four Characteristics of Strategic Resources

• V=resource is an asset that is valuable for strategy formulation

• R= resource is an asset that is rare for strategy formulation
• I= resource is an asset that is difficult/ costly to imitate by other for
strategy formulation ,
• O= resource is an asset that is organized to capture value for strategy
formulation

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 Please Assess the resources of PKMC-BBA
Organized to
Valuable? Rare? Costly to Competitive
Resource or Capability capture value?
Implication
(V) (R) Imitate? (I) (O)
Building
Land Area
Faculty
Library
Admin staff
Experience
Teaching pedagogy
Pedagogy
Specially keep intangible
resources
Figure : VRIO Analysis Worksheet of tangible and intangible
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resources
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 First-mover advantages and
disadvantages
Advantages Disadvantages
The opportunity to exploit the positive feedback loop.” The use of “free riding
Establishing brand loyalty. Market and technological uncertainty.
Reducing total costs through control of new technologies, Unexpected changes in technology or
supply and distribution channels. customer needs
Creating high switching costs for customers, thus making it
more difficult for new firms to enter the market (raising
barriers to entry).

Accumulation of valuable knowledge related to needs of

customers, distribution channels, manufacturing
technologies, etc.
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 Phases of the industry life cycle and strategy focus

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 Portfolio analysis/ Analytical Tools for
Corporate Level Strategy

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 Portfolio analysis/ Analytical Tools for
Corporate Level Strategy

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 Portfolio analysis/ Analytical Tools for Corporate Level
Strategy

• There are a number of analytical tools that can be used for developing
different strategic options at the corporate level.
• Out of them, the two most important tools are mentioned below.
• 1. Boston Consulting Group (BCG) Matrix
• 2. The General Electric (GE) – Mckinsey Matrix/Multifactor

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 Strengths and weaknesses of BCG model

• Strengths:
• The BCG Matrix allows for a visual presentation of the competitive position of
all units in a business portfolio.
• The BCG model allows companies to develop a customized strategy for each
product or business unit instead of having a one-size-fits- all approach.
• Simple and easy to understand.
• It works well for companies with multiple divisions and products
• Allows for quick and simple screening of business opportunities in order to
determine investment priorities in the portfolio of products/business units.
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 Strengths and weaknesses of BCG model

• • It is used to identify how corporate cash resources can be best allocated to

maximize a company’s future growth and profitability.
• Weakness :
• Business can only be classified to four quadrants. It can be confusing to classify
an SBU that falls right in the middle.
• It does not define what ‘market’ is.
• Businesses can be classified as cash cows, while they are actually dogs, or vice
versa.
• Does not include other external factors that may change the situation completely.
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 Strengths and weaknesses of BCG model

• Market share and industry growth are not the only factors of profitability. Besides,
high market share does not necessarily mean high profits.
• It denies that synergies between different units exist.
• Dogs can be as important as cash cows to businesses if it helps to achieve
competitive advantage for the rest of the company.
• it is easy to use.
• it is quantifiable.
• it draws attention to the cash flows.
• it draws attention to the investment needs.
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 The General Electric (GE) – Mckinsey Matrix/Multifactor

• GE matrix is a systematic approach for multi-business organizations to prioritize

their investment among their different business units.
• GE matrix is developed with the assistance of Mckinsey & Company Consulting.
It studies strategies based on market attractiveness and competitive position.
• In Conclusion…
• Hence, corporate level strategy/grand strategy is the foundation to set on where
the business is going and setting overall direction to actually get there with
collective efforts of an organization as a whole building synergetic effect.
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 The General Electric (GE) – Mckinsey Matrix

• The GE Matrix was developed jointly by McKinsey and General

Electric in the early 1970s as a derivation of the BCG Matrix.
• GE-McKinsey nine-box matrix is a strategy tool that offers a
systematic approach for the multi business corporation to prioritize
its investments among its business units.

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 The General Electric (GE) – Mckinsey Matrix

• BCG Matrix showed to have some limitations.

• It was considered not flexible enough to include all the broader issues
that a company was facing while operating in a fast changing global
environment.
• The GE/McKinsey multifactor Matrix solves most of the issues of the
BCG model and proposes a more sophisticated and comprehensive
approach to investment decision making.

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 The General Electric (GE) – Mckinsey Matrix

• The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix.

• It is primary used to perform business portfolio analysis on the strategic business units
(SBU) of a corporation
• The nine-box matrix plots the Business units on its 9 cells that indicate whether the
company should invest in a product, harvest/divest it or do a further research on the
product and invest in it if there’re still some resources left.
• The BUs are evaluated on two axes:
• industry attractiveness and a competitive strength of a unit.
• Each axis is then divided into Low, Medium and High.

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 The General Electric (GE) – Mckinsey Matrix

• In the business world, much like anywhere else, the problem of resource
scarcity is affecting the decisions the companies make.
• With limited resources, but many opportunities of using them, the
businesses need to choose how to use their cash best.
• The fight for investments takes place in every level of the company:
between teams, functional departments, divisions or business units.
• The question of where and how much to invest is an ever going headache
for those who allocate the resources .
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 The General Electric (GE) – Mckinsey Matrix

• At least, it was hard until the BCG matrix and its improved version GE-
McKinsey matrix came to help.
• These tools solved the problem by comparing the business units and assigning
them to the groups that are worth investing in or the groups that should be
harvested or divested.
• Axis in GE matrix(x and y axis components)
• • Industry Attractiveness:
• The vertical axis denotes industry attractiveness, which is a weighted composite
rating based on eight different factors

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 The General Electric (GE) – Mckinsey Matrix

• Industry attractiveness indicates how hard or easy it will be for a

company to compete in the market and earn profits.
• The more profitable the industry is the more attractive it becomes.
• Industry attractiveness consists of many factors that collectively determine
the competition level in it.
• There’s no definite list of which factors should be included to determine
industry attractiveness, but some are the most common.
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 The General Electric (GE) – Mckinsey Matrix

• Competitive strength of a business unit or a product:

• It indicates business strength or in other words competitive position,
which is again a weighted composite rating based on several factors in the
next slide

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 Factors of industries attractiveness and competitive strength of a business

External factor that affect the market attractiveness Internal factor that affect the competitive strength of BU

Market size Strength of Assets or competencies

Market growth rate Relative brand strength(marketing)
Market profitability Market share
Pricing trend Market share growth
Competitive intensity/rivalry Customer loyalty
Risk return in industry Relative cost position ( Cost structure compared with competitor cost)

Entry barriers Relative profit margin ( compare to competitor )

Opportunity to differentiate product s Distribution strength and production capacity
Demand variability Records of technology and other innovation quality
Segmentation Access to financial or other investment Resources
Distribution structure Management Strength
Technology Development

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 Advantages and disadvantages
• Advantages
• Helps to prioritize the limited resources in order to achieve the best returns.
• Managers become more aware of how their products or business units perform.
• It’s more sophisticated business portfolio framework than the BCG matrix.
• Identifies the strategic steps the company needs to make to improve the
performance of its business portfolio. Disadvantages
• Requires a consultant or a highly experienced person to determine industry’s
attractiveness and business unit strength as accurately as possible.

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 Advantages and disadvantage
• Disadvantages
• Requires a consultant or a highly experienced person to
determine industry’s attractiveness and business unit strength as
accurately as possible.
• • It is costly to conduct.
• It doesn’t take into account the synergies that could exist between two or
more business units

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 Using the tool GE matrix(steps)

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 Using the tool GE matrix(steps)

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 Using the tool GE matrix(steps)

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 Strategy management Process

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 Strategy evaluation.
• Strategic evaluation constitutes the final stage of strategic management
and is considered one of the most vital steps in the process.
• Strategy evaluation is the process by which the management assesses how
well a chosen strategy has been implemented and how successful or
otherwise the strategy is.
• To simply put, strategy evaluation entails reviewing and appraising the
strategy implementation process and measuring organizational
performance.
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 Strategy evaluation
• Strategy formulation are correct?
• Strategy is accomplishing its objectives?
• Strategy is effectively implemented?
• Resources are being properly utilized according to the schedule?
• Need to reformulate or change the strategy?
• If necessary corrective action will be taken

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 Strategy Evaluation Process
• 1. Establish standards:- key area of performance, Key tasks, Quantitative
criteria, Qualitative criteria
• 2. Measure Performance: the benchmark(standard) against which the actual
performance will be evaluated
• 3. Analyze Variances:- performance matches the budgeted performance
( positive or negative)
• 4. Take Corrective Action:
• In the case the actual performance falls out of the tolerance limit, corrective
action must be taken to solve it.

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•

• The End

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