Contemporary Management 5th lecture pptx 2.pptx
- 1. Planning (The second part) PREPARED BY: DR. HEBA SADEK
- 2. Agenda ⮚Formulating Business-Level Strategies • Low Cost Strategy (cost leadership) • Differentiation Strategy • Focused Low-Cost Strategy • Focused Differentiation Strategy ⮚Formulating Corporate-Level Strategies • Concentration on a Single Industry • Vertical Integration • Diversification • International Expansion ⮚Implementing Strategy
- 3. Formulating Business-Level Strategies ⮚Michael Porter argued that business-level strategy creates a competitive advantage. ⮚Successful business-level strategy reduces rivalry, prevents new competitors from entering the industry, reduces the power of suppliers or buyers, and lowers the threat of substitutes- and this raises prices and profits. ⮚To obtain these higher profits managers must choose between two basic ways of increasing the value of an organization’s products: - Differentiating the product to increase its value to customers - Lowering the costs of making the product
- 4. Formulating Business-Level Strategies ⮚Additionally, managers must choose between serving the whole market or serving just one segment or part of a market. ⮚Based on those choices, managers choose to pursue one of four business-level strategies: low cost, differentiation, focused low cost, or focused differentiation.
- 6. Low cost strategy “cost leadership” ⮚Low-cost strategy: Managers try to gain a competitive advantage by focusing the energy of all the organization’s departments or functions on driving the company’s costs down below the costs of its industry rivals. ⮚For examples: This strategy would require that manufacturing managers search for new ways to reduce production costs, R&D managers focus on developing new products that can be manufactured more cheaply, and marketing managers find ways to lower costs of attracting customers. ⮚Ex: BIC “pursue low-cost strategy”
- 7. Differentiation Strategy ⮚Differentiation strategy: Distinguishing an organization’s products from the products of competitors on dimensions such as product design, quality, or after sales service. ⮚For examples, this strategy often requires that managers’ increase spending on product design or R&D to differentiate the product, and costs rise as a result. ⮚Ex: Coca-Cola, PepsiCo, and Procter & Gamble. They spend enormous amounts of money on advertising to differentiate, and create a unique image for their products.
- 8. Focused low-cost and focused differentiation strategies ⮚Focused low-cost strategy: serving only one segment of the overall market and trying to be the lowest-cost organization serving that segment. ⮚Focused differentiation strategy: serving only one segment of the overall market and trying to be the most differentiated organization serving that segment. ⮚Companies pursuing either of these strategies have chosen to specialize in some way by directing their efforts at a particular kind of customer (such as serving the needs of babies or even the needs of customers in a specific geographic region).
- 11. Formulating Corporate-level strategies ⮚Once managers have formulated the business-level strategies that will best position a company, or a division of a company, to compete in an industry and outperform its rivals, they must look to the future. ⮚If their planning has been successful the company will be generating high profits, and their task now is to plan how to invest these profits to increase performance over time. ⮚Corporate level strategy is a plan of action that involves choosing in which industries and countries a company should invest its resources to achieve its mission & goals.
- 12. Formulating Corporate-level strategies ⮚Top managers aim to find corporate strategies that can help the organization strengthen its business-level strategies and thus respond to the environmental changes and improve performance. ⮚The principal corporate-level strategies: 1. Concentration on a single industry 2. Vertical integration 3. Diversification 4. International expansion
- 13. Concentration on a single industry ⮚Concentration on a single industry: reinvesting a company’s profits to strengthen its competitive position in its current industry. ⮚Most common examples of this strategy: 1. Market Penetration Strategy 2. Market Development 3. Product Development
- 14. Vertical Integration Vertical integration: expanding a company’s operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes, or sells its products.
- 15. Diversification strategy ⮚Related diversification: is the strategy of entering a new business to create competitive advantage in one or more of an organization’s existing divisions. “new business which its requirements is similar but not identical to its own”(ex: PepsiCo’s diversification into the snack food business with the purchase of Frito Lay). ⮚Unrelated diversification: entering a new industry or buying a company in a new industry that is not related in any way to an organization’s current businesses or industries.(ex: GE’s move into broadcasting with its acquisition of NBC)
- 17. International Expansion A basic question confronts the managers of any organization that needs to sell its products abroad and compete in more than one national market: To what extent should the organization customize features of its products and marketing campaign to different national conditions. ⮚Global strategy: selling the same standardized product and using the same basic marketing approach in each national market (ex: Panasonic, Rolex watches). ⮚Multidomestic strategy: Customizing products and marketing strategies to specific national conditions (ex: Unilever)
- 18. Implementing strategy “It is time to put strategies into action” Strategy implementation is a five-step process: 1. Allocating responsibility for implementation to the appropriate individuals or groups. 2. Drafting detailed action plans that specify how a strategy is to be implemented. 3. Establishing a timetable for implementation that includes precise, measurable goals linked to the attainment of the action plan. 4. Allocating appropriate resources to the responsible individuals or groups. 5. Holding specific individuals or groups responsible for the attainment of corporate, divisional, and functional goals.