The document discusses various frameworks and tools used in strategic formulation including stakeholder analysis, environmental auditing using PESTLE and Porter's Five Forces, strategic positioning, growth strategies, Ansoff's product/market matrix, product life cycle, organizational audits using benchmarking, SWOT analysis, value chain analysis, scenario planning, and considering demographic influences. Strategic formulation involves analyzing internal strengths and weaknesses as well as external opportunities and threats to develop strategies for future growth.
Business strategy – David Campbell page 16 We, as an organisation, need to be aware of the stakeholders when making strategic decisions. Just implementing change or policy can have serious repercussions on the success of the business Not all stakeholder have the same influence. Stakeholders can therefore be ranked dependant on 2 variables. The stakeholders interest and their power. Stake holder power refers to the ability to influence the direction of the organisation Stakeholder interest refers to their willingness to influence the organisation In other words, interest concerns the extent to which the stakeholder cares what the oragnisation does. Example: The MD and Board of directors of a company have high power and high interest – not only do they manage the business but also depend on it for their livelihood
Page 72 Strategic Management (Tapoe & Mamillan) & Strategy notes on Strategic Intent Model adapted from Mendelow 1991) How the model works Remembering we have both internal and external stakeholders Extent of power High / Inclination to us power Low (top left quadrant) Avoid annoying, keep them informed thought. What would happen if the company decided to issue a batch of new shares? Ans: stakeholder power would be diluted. What about merger plans? Extent of Power High / Inclination to us power High (top Right quadrant) – these people need to be involved in the decision making process – example: militant trade unions – Arthur Scargill in 80’s Extent of power Low / Inclination to use power High – Keep informed – try not to upset but if they don’t like it then tough. This group are likely to be middle managers or suppliers Low & Low – Just do it! We are probably in a monopoly or Oligopoly situation here. Energy price rises has been significate recently but you have to pay if. Council tax rises come into the same band
The routes of these 2 lie in the external environment. In other words we are analysing what is happening to thinks outside of our control.
The following can be used as a checklist to consider and prompt analysis of the different influences. The model can then be used to inform and guide further analysis. Which of the environmental factors are affecting the organisation? Which of these are the most important at the present time? In the next few years? Political Taxation policy Local government/devolved administrations Economic Business cycles GNP trends Interest rates Inflation Unemployment Disposable income Socio-cultural Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and leisure Consumerism Levels of education Technological New discoveries ICT developments Speed of technology transfer Rates of obsolescence Legal International/European Agreement/Law Employment Law Competition Law Health & Safety Law Regional legislation Environmental Environmental impact Environmental legislation Energy consumption Waste disposal
The threat of entry. Economies of scale e.g. the benefits associated with bulk purchasing. The high or low cost of entry e.g. how much will it cost for the latest technology? Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up? Cost advantages not related to the size of the company e.g. personal contacts or knowledge that larger companies do not own or learning curve effects. Will competitors retaliate? Government action e.g. will new laws be introduced that will weaken our competitive position? How important is differentiation? e.g. The Champagne brand cannot be copied. This desensitises the influence of the environment. The power of buyers This is high where there a few, large players in a market e.g. the large grocery chains. If there are a large number of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery chains. The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to another. The power of suppliers The power of suppliers tends to be a reversal of the power of buyers. Where the switching costs are high e.g. Switching from one software supplier to another. Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft. There is a possibility of the supplier integrating forward e.g. Brewers buying bars. Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places. The threat of substitutes Where there is product-for-product substitution e.g. email for fax Where there is substitution of need e.g. better toothpaste reduces the need for dentists. Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers compete with travel companies. We could always do without e.g. cigarettes. Competitive Rivalry This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the center of the diagram.
Links heavily with SWOT The whole concept of strategic Formulation (as the title suggests) is to analysis the current situation then formulate a plan for the future based on the objectives and mission of the organisation. We are looking to safeguard the future or the business. Strategic positioning is primarily looking at our product portfolio and matching these products to the market segments. From analysing our product portfolio & matching this against the segment demographics we can develop strategies for success. Before we can do this we need to ask these in-depth questions of ourselves. Effectively we are asking the question Where are we now? And we are benchmarking ourselves against our competitors
The answers to these question can be made easier by various tools that we have at our disposal. See next slide We are formulating strategies for not only growth but survival In essence follow the following format; Do your SWOT Look at your product portfolio using an Ansoff Develop your competitive position based on the 2 pieces of analysis Formulate your future Strategy The answers gained th
Horizontal acquisition Acquisition of a firm in the same industry, a competitor in the product market Vertical acquisition Acquisition involving firms at different steps of production process Conglomerate acquisition Acquisition in which the acquiring firm and the acquired firm are not related to each other Hostile take overs An individual will buy up shares of a company until that have enough voting rights to launch a take over – ref: Manchester United & the Glazier family Friendly take overs when a bid is made
Introduction The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy. Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategy. These are described below: Market penetration Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets. Market penetration seeks to achieve four main objectives: • Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling • Secure dominance of growth markets • Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors • Increase usage by existing customers – for example by introducing loyalty schemes A market penetration marketing strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research. Market development Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets. There are many possible ways of approaching this strategy, including: • New geographical markets; for example exporting the product to a new country • New product dimensions or packaging: for example • New distribution channels • Different pricing policies to attract different customers or create new market segments Product development Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets. Diversification Diversification is the name given to the growth strategy where a business markets new products in new markets. This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.
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We are taking an internal and inward look at what we are good at (Where are we now? and relating it to the business objectives (Where do we want to be?) We can do this by again analysing the position and using the tools available to us
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Students to conduct a SWOT on TESCO A SWOT analysis of Tesco can show the strengths, weaknesses, opportunities and threats affecting the company in many different circumstances. It should be considered when performing any market research for Tesco . SWOT analysis in general has more information on SWOT analysis, and a comparison with other analysis techniques. Threats to Tesco To begin with, it is useful to take the T in SWO T and look at the threats to Tesco . An examples of a continuous threat is the economic situation. This includes threats from fluctuations in the stock market and tax increases. But the biggest, obvious threat is: Online and offline innovation by other supermarkets aimed directly at taking customers from Tesco. Examples of specific threats, that might affect Tesco in the future, are: A tax increase on alcoholic beverages. The introduction of taxes on food and books. An expansion of low cost supermarkets, like LIDL. A weakening economy. An increase in unemployment. Opportunities for Tesco Now consider the O in SW O T. Although there are many threats from competition in the online arena, it is provides great opportunities. Tesco has put a lot of effort into improving its online offerings in the past few years. There are many online threats to Tesco, given the vast increase in online competition over the past decade. However, the main threat comes from established online companies like Amazon. But Tesco turned the Amazon threat into an opportunity by selling best-selling books more cheaply. Tesco has many avenues to explore for increasing opportunities in the future. These include: Improving customer relationships, and increasing sales, through better integration of high street and internet resources. Using the vast amount of offline information on customers online, and vice versa. Tesco Weaknesses Next take a look at the W in S W OT. An example of a w eakness is that Tesco uses vast amounts of fossil fuel in its transport network and supermarket heating systems. This is expensive, and might alienate green consumers. With oil prices rising and, green taxes looming, Tesco might see an opportunity to invest in energy economy. This might lead to cost savings and better public relations. Other weaknesses include: Lack of integration between offline and online resources. Some departments not knowing what others are doing. Tesco Strengths Tesco's strengths are many. They include: Well-established brand and customer base. Loyal and trusting customers. Great store locations. Superb warehousing and logistic capabilities. A well established internet presence. A clubcard scheme for enhancing customer loyalty. Summary Any thorough analysis of Tesco, must consider all strengths, weaknesses, opportunities and threats, how they change, and how they interact.
The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.' Primary Activities Inbound Logistics Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation. Operations This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine. Outbound Logistics The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer. Marketing and Sales In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix. Service This includes all areas of service such as installation, after-sales service, complaints handling, training and so on. Support Activities Procurement This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims). Technology Development Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments. Human Resource Management (HRM) Employees are an expensive and vital resource. An organisation would manage recruitment and selection, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy. Firm Infrastructure This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department There is an exercise on Marketing teacher
Page 70 / 134 David Hussey & Page 211 Exploring Corporate Strategy www.strategy-workshops.co.uk/presentation.htm Speak of the reaction plans at Jaguar Go through Hand out. Links well with Porters 5 forces
Scenario planning is the process in which managers invent and then consider, in depth, several varied scenarios of equally plausible futures with the objective to bring forward surprises and unexpected leaps of understanding. These scenarios represent a tool for ordering the perceptions of a management team. The point is not to select one preferred future and hope for it to become true. Nor is the point to fund the most probable future and adapt to it. Rather, the point is to make strategic decisions that will be sound for all plausible futures. No matter what future takes place, a company and its management team is much more likely to be ready for it and influential in it, if it has seriously thought about scenarios. Scenario planning is about making choices today with an understanding of how they might turn out. The scenario planning concept first emerged following World War II, as a method for military planning. The U.S. Air Force tried to imagine what its opponents might do, and to prepare alternative strategies . Pierre Wack then picked it up in the late 60‘s / early 70‘s during the oil crisis. All major oil companies have on-going and evolving scenario planning departments
When constructing our organisational audit and making plans for the strategic future we will need to consider the demographics associated with our business. A PEST analysis is a useful tool here. You will see from the social stratification table that a company can target specifics groups with individual products. Advertising can be tailored towards social groups. Question: Why have Cadbury’s developed an association with Coronation St? Answer: Being aware of demographic changes and influences gives us another tool in which to formulate a strategic approach to the future. We need to recognise these trends. For example, the trend towards the birth rate has gone down, this has impacted on the long term skill levels of the country. People are living longer (SAGA Holidays would develop a strategy to embrace this) which mean the gov have to act on pensions . Immigration means more of a demand on schools & the health service. If we know these trend then we can work with them.
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