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12/25/2018 Strategy Formulation 1

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Strategy is a plan of action to achieve the organizational


goal efficiently and effectively .

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Corporate Strategy Business Unit Strategy

“What business are we in?” “How do we compete?”

• Acquisition of new business • New product development


• Addition of business unit, plants or • Advertisement
product lines • Equipment and facilities
• Joint venture with another company • Research and development
in new areas

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•Development of firm’s goal and a specific
strategic plan

•Analyzing external environment and


internal problems

•Integrating the results into goals and


strategy

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 It refers to how a company competes in
a particular business which requires

 Selection of an attractive environment


or market

 Leveraging all available resources to


create maximum competitive advantage

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Threat of new Entrants Example: Coca Cola

•Product differentiation
•Capital requirements
•Access to distribution channels •Low threat in soft drink industry
•Government Policy •High Capital requirement
• Time and cost of entry •High fixed costs
• Specialist knowledge •Heavy advertising
• Economic of scale •Strong brand name
• Cost advantages •Loyal customers
• Technological protection
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Bargaining power of buyers Example: Coca Cola

• Buying volume • Moderate threat in soft drink industry


• Buyers Profit • Buyers: large grocers, convenience stores,
• Differentiation super markets, restaurants
• Buyers information • Buy large volumes, bargain a lower price
• Number of customers

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Threat of substitute product Example: Coca Cola

•Strong threat in soft drink industry


• Time and cost of entry •Many substitutes appear (sports drink,
• Specialist knowledge energy drink, coffee etc.)
• Economic of scale •Trend to healthier drink
• Cost advantages •New innovation product
• Technological protection
• Barriers to entry
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Bargaining power of Suppliers Example: Coca Cola

• Number of suppliers • Low threat in soft drink industry


• Changing of cost • Better control distribution
• Unique service/product • Quicker to market with products
• Cost related to purchase • Integrated Coca Cola Enterprises in earlier
• Your ability to substitute 2010 for bottling

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Rivalry among existing firms Example: Coca Cola

• Strong threat in soft drink industry


• Number of competitors • Competitive pressure from rival sellers,
• Brand identity example : Pepsi
• Market share • High sales in Global market
• Switching cost • Owns the four among top five drinks in the
• Customer loyalty industry : Coca Cola, Fanta, Sprite, Diet coke

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Management should define a strategy for outstanding performance in
long run.

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Not only the tangible Resources But the intangible Assets

 Financial statements and key performance  Employees knowledge and experience,


indicators like revenue, profit etc. because Customer satisfaction, brand value because
they reflect only past performance they lead to new product and the
associated benefits

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Consumers wants value for money

Value is what buyers are ready to


pay for

When a product or brand offer a


bundle of benefits from which
customer derive a greater value we
say that brand has created value for
the customer

Source:
http://news.cnet.com/8301-1001_3-20003629-92.html

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• Attract Customers

• Beat competitors

• Strengthen organizations market position

• Differentiation

• Loyalty of customers

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Inimitability: Own resources which are hard to copy. Eg. Airbus A380
 Durability: Degree by which a resource depreciates in value.

 Proper ability: The unique resources are shared between shareholders,


employees, distributors and other groups.

 Substitutability : Can the unique resource be replaced by a different


resource? E.g.. Typewriters by Computers

 Competitive superiority : The resource should be superior to


competitors.

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1. Strategy sets Direction

Advantage: A goal which the organization can


follow

Disadvantage: It can limit the perspective and the


preparedness for threats surfacing and
opportunities passing by

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2. Strategy focuses efforts

Advantage: Promotes coordination and avoid chaos

Disadvantage: Nobody will volunteer to articulate


their concerns because of “Groupthink”

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3. Strategy defines the organization

Advantage: Provides identity to the organization


and allows to distinguish it from others

Disadvantage: It may take away the richness and


versatility, sometimes to the point of stereotyping

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4. Strategy provides consistency

Advantage: It is needed to reduce ambiguity and


provide order. It facilitates action

Disadvantage: Innovation and creativity thrives on


inconsistency. Because strategy is not an object of
reality, misrepresentations and misunderstanding can
have distorting effects.

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• Always keep monitoring the environment to remain
flexible when needed

• Appreciate the articulation of disruptive and


innovative ideas

• Communicate the strategy and maintain constant


dialog on how to achieve the objectives

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• Lack of knowledge

• Uncertainty whether the strategy is perfectly


suited to reach defined goals

• Lack of information

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• A Process of predicting future events
• Underlying basis for all business decisions

Examples:

• Shop floor agencies predict demand for products


• Consulting organizations predict demand for specific set of
skills to recruit and develop right talent

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•Extracting useful information or patterns from a large
database

•Leveraging statistical models to gain insights for


predictive analysis

Example: Market analysis – target market, segmentation ,


CRM

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 Define target: Where the organization wants to be

 Define vision: Detailed strategy including means to reach


the goal

• Motivation: Provide confidence that these goals can be


achieved

Anyone can craft a strategy, but it takes real managerial skills to implement them.

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Example

Case : Database Marketing Program

Use statistics to predict behaviour and optimize business

Leveraging customer database lead to effective marketing as


well as increased profit

The further we get ahead the more test we run. The more we learn..
the more we understand our customers.

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Conclusion

 Strategy motivates individuals to risk there life and for


investors to fund projects often based on wrong
assumptions

 Strategy formulation is not once a year but a


permanent activity which evolves based on new
insights

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