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What is an Organization


Putting Strategy Into Action Leadership Structural Design Information & Control Systems Human Resources Parts of firm that can be adjusted to put strategy into ... – PowerPoint PPT presentation

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Title: What is an Organization

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Strategy Formulation And Implementation
  • Chapter 8

  • Story of KMART Wal-Mart
  • How did Wal-Mart founder Sam Walton and his
    managers formulate and implement strategies that
    helped the company overtake Kmart
  • If you were stepping in as Kmarts new CEO, what
    strategies might you adopt to help chain survive?

  • Wal-Mart formulated implemented strategies that
    have made it one of Americas most successful
  • While
  • Kmart failed to cope with increased competition
    and changing customer expectations
  • Kmarts new CEO and other top executives
    analyze the situation to formulate a strategy
    that will suit Org strengths as well as fit
    changing economic times if the chain is to
    survive in competitive market

  • All the Organizations are involved in Strategic
  • finding ways to respond to competitors
  • Cope up with environmental changes
  • Effectively use available resources

Thinking Strategically
  • Strategic management is considered to be one
    specific type of planning
  • Some Companies hire Strategic Planning Experts

Thinking Strategically Continue
  • Strategic thinking means to take the long term
    view and to see the big picture, including the
    Organization and the competitive environment and
    how they fit together

What is Strategic Management ?
  • The set of decisions and actions used to
    formulate and implement strategies that will
    provide a competitively superior fit between the
    organization and its environment so as to achieve
    organizational goals

  • It is a process to help managers answer questions
    such as
  • where is the organization now
  • Where does the organization want to be
  • What changes and trends are occurring in the
    competitive environment?
  • What courses of action will help us achieve our
  • What happens after answering these

Grand StrategyGeneral plan of major action by
which a firm intends to achieve its long-term
  • Growth
  • Stability
  • Retrenchment

Growth Strategy
  • Promoting internally by investing in expansion or
    externally by acquiring additional business
  • Diversification acquisition of business that
    are related to current product lines or that take
    the corporation into new areas Joint Ventures
  • Strategy of expanding operations into new
    business or industry and producing new goods or
  • Examples
  • PepsiCos diversification into snack food
  • Phillip Morriss tobacco giant
    diversification with brewing industry with the
    acquisition of Miller Beer
  • GE move into broadcasting with its
    acquisition of NBC

  • Pause strategy Org wants to remain the same
    size or grow slowly and in a controlled fashion
  • The Corporation wants to stay in its current
  • When Org undergone a turbulent period of rapid
    growth, managers focus on a Stability strategy to
    integrate strategic business units ensure that
    Org is working efficiently
  • Example Allied Tire Stores motto is We just
    sell tires

  • Org goes through a period of forced decline by
    either shrinking current business units or
    selling off or liquidating entire businesses
  • Liquidation
  • Divestiture
  • Downsizing / Retrenchment

  • Divestiture involves selling off businesses that
    no longer seem central to the Corporation
  • When GE sold its family financial services,
    corporation were going through periods of
    retrenchment, also called downsizing
  • Liquidation Selling off a business unit for the
    cash value of assets, thus termination its
  • Dissolve the Co. sell off all its assets is
    usually done when the company is facing
    bankruptcy needs to repay Loans

Global Strategy
  • Companies might pursue a separate grand strategy
    as the focus of global business
  • How to compete internationally?
  • A basic question confronts the managers of any
    org that competes in more than one national
  • To what extent should the org customize features
    of its products and marketing campaign to
    different national conditions?

Companies Strategic Delima
Globalization Vs Mutlidomestic strategy
Global integration national responsiveness
Global / Globalization Strategy
  • The standardization of product design
    advertising strategies throughout the world
  • Very little , if any customization to suit the
    specific needs of customers in different
  • The theory is that people everywhere want to buy
    the same products and live the same way people
    everywhere want to drink Coca Cola wear Levi
    blue jeans

  • Example Levi paid an advertising agency 500,000
    to produce a series of TV commercial to promote
    its 501 jeans using same series in many
    countries simply changing the language saved
    money keep prices low
  • Colgate-Palmolive Co. toothpaste sells in 40
    countries by running same commercial saving
    1M-2M in production cost alone

Multi-Domestic Strategy
  • Competition in each country is handled
    independently of industry competition in other
  • A multinational company is present in many
    countries, but it encourages marketing,
    advertising and product design to be modified and
    adapted to the specific needs of each country
  • Managers decide to customize products marketing
    strategies to specific national conditions

Companies reject the idea of a single global
Example of Multi-domestic Strategy
  • Unilever European food household products Co.
    sells a different range of food products and
    uses a different marketing approach than its
    North American division
  • French do not drink orange juice for breakfast
  • spicy toothpaste preferred in the Middle East

Transnational Strategy
  • To achieve both global integration national
  • Difficult to achieve, because one goal requires
    close global coordination while the other goal
    requires local flexibility

Transnational Strategy
Example of Transnational Strategy
  • Caterpillars Tractor (worlds largest
    manufacturer of heavy earth-moving equipment)
  • Tailored the finished product to local needs by
    adding features such as diff colors of paint or
    steering wheels on right or left side Price
    pressures in local market Government

Differentiating its product among local markets
Local Customization
Purpose Of Strategy
  • The plan of action that prescribes resource
    allocation and other activities for dealing with
    the environment and helping the Organization
    attain its goals
  • A comprehensive plan for accomplishing an
    organizations goals

Core Competence
Value Creation
  • Through this strategy executives try to develop
    within the Org a core competence Synergy, thus
    creating value for money

Core Competence
  • Something that Org does especially well in
    comparison to its competitors
  • Represents Competitive advantage because the
    company acquires expertise that competitors do
    not have

Core Competence maybe in the area of
Mastery of technology
Customer Service
Superior rd
  • When Org parts interact to produce a joint effect
    that is greater than the sum of the parts acting
    alone, Synergy occurs
  • Performance gains that result when individuals
    and departments coordinate their actions
  • Team members share equipment, customer lists, and
    other information that enables these small
    companies to go after more business than they
    ever could have without the team approach

  • ATT synergy btw communication services
    hardware One-stop shop
  • Two or more divisions with in a diversified
    company can utilize the same manufacturing
    facilities, distribution channels, advertising

Share Resources
Reduce Cost
Charge lower Prices
Attract More Customers
Value Creation
  • Value can be defined as the combination of
    benefits received and paid by the customer
  • Exploiting core competencies attaining synergy
    help companies create value for their customers
  • A product that is low in cost but does not
    provide benefits is not a good value
  • Delivering value to the customer should be at the
    heart of strategy
  • Managers need to understand which parts of the
    Co. operation create value which do not a Co.
    can be profitable only when the value it creates
    is greater than the cost of resources

  • Example People Express Airlines initially made a
    splash-low prices, but travelers couldnt
    tolerate consistently late takeoffs at any price
  • Macdonalds used core competencies to create
    better value for customers, resulting in the
    introduction of Extra value meals opening
    restaurants in different locations Wal-Mart etc

Levels Of Strategy
  • Corporate Level Strategy
  • Business Level Strategy
  • Functional Level Strategy

Corporate Level Strategy
  • The level of strategy concerned with the question
    What business are we in?
  • Pertains to Org as a whole and the combination of
    business units and product lines
  • Strategic actions at this level relate to
    acquisitions of new businesses additions or
    divestments of business units, plants or product
    lines and joint ventures
  • Examples Book

Business Level Strategy
  • The question How do we compete?
  • Pertains to each business level unit or product
  • It focuses on how the business unit competes
    within its industry for customers
  • Strategic decisions at this level concern amount
    of advertising, extent of RD, product changes,
    expansion or contraction of product lines
  • Example Cost reduction To remain competitive
    Hyatt hotels trimmed MangT Staff increased
    focus on Marketing Advertising

Function Level Strategy
  • The question How do we support the business level
    competitive strategy ?
  • pertains to the major functional departments
    within the business unit
  • Includes all the major functions, marketing,
    manufacturing, finance
  • Example Hyatt hotels marketing dept is to focus
    on frequent business traveler by putting fax
    machines modems in rooms

Strategic Formulation Vs Implementation
  • Strategy Formulation
  • planning decision making that lead to the
    establishment of the firms goals the
    development of a specific strategic plan
  • include assessing external environment
    internal problems integrating results into
    goals strategy
  • Strategy Implementation
  • Use of managerial Organizational tools to
    direct resources towards accomplishing strategic
  • Administration execution of the strategic plan
  • Managers may use persuasion, new equipment,
    changes in Org structure or reward system to
    ensure that employees and resources are used to
    make formulate strategy in reality

Situation Analysis
  • Analysis of the strengths, weaknesses,
    opportunities and threats (SWOT) that affect
    organizational performance
  • Important to all companies but is crucial to
    those considering globalization because of the
    diverse environments in which they will operate
  • Info about Opportunities Threats may be
    obtained from variety of sources, including
    customers, professional journals, suppliers,
    friends in other Org, association meetings
  • Firms use diff techniques to learn about
    competitors, such as asking potential recruits
    about their visits to other companies, hiring
    people away from competitors, taking plant tours
    posing as innocent visitors and even buying

Situational Analysis Continue
  • Executives acquire info about Internal Strength
    weaknesses executives from variety of reports,
    including budgets, profit loss statements
  • Face to face discussions meetings with people
    at all levels of the hierarchy, executives build
    an understanding of the Companies internal
    strength weaknesses

Internal strengths Weakness
  • Strengths Positive internal characteristics that
    the organization can exploit to achieve strategic
    performance goals
  • Weaknesses Internal characteristics that may
    restrict the Organization performance
  • Finance Marketing MangT Org
  • Managers can determine their strengths or
    weaknesses via other companies based on the their
    understanding of these areas
  • Profit Margin
  • Return on investment
  • Credit Rating
  • Distribution channels
  • market share
  • Customer Satisfaction
  • Product Quality
  • Degree of Centralization
  • Planning, Information control
  • System

External Opportunities Threats
  • Threats characteristics of external environment
    that may prevent the Org from achieving its
    strategic goals
  • Example Executives evaluate the external
    environment with info about the nine sectors
  • Opportunities
  • are characteristics of the external environment
    that have the potential to help the Org achieve
    or exceed its strategic goals

S W Kodak
  • Strengths
  • Trusted Brand names
  • 70 Market share
  • Spent Millions on Research into digital imaging
  • Blessed with tech genius
  • Weaknesses
  • Dispirited Workforce
  • Culture focused on protecting current businesses
    rather then seeking new frontiers
  • Confused btw imaging business, healthcare
    household products
  • Product market developed ability ill-focused

O T Kodak
  • Opportunities
  • Tech strength digital imaging will be fast
    growing market
  • Expansion in Asia while barely developed markets
    such as India, Brazil can keep traditional
    business for least next decade
  • Half of the people in the world have yet to
    take a their first pic
  • Threats
  • Increased competition
  • Digital imaging arena, facing giant such as
    Canon, Casio, Sony HP
  • Smaller competitors emerging In digital market

  • What does SWOT analysis suggest for Kodaks

  • To capitalize on the Companys Strength
    Opportunities ..How

  • Divest or liquidate
  • Communication Leadership
  • Transform Culture
  • Autonomy at work place
  • Strategic Alliance

  • Sell other businesses to focus more on core
    imaging business
  • Improved communication stronger leadership
    improved morale
  • Transform slow moving culture to prepare for
    digital future
  • Brought together disjointed talent into small
    autononomous division hired former computer
    marketing executive to head it
  • Strategic alliances with IBM, HP, Microsoft so
    the new divisions can develop new products in
    partnership to be more competitive on global

Formulating Corporate Level Strategy
  • Portfolio Strategy
  • Pertains to mix of business units and
    product lines that fit together in logical way to
    provide synergy competitive advantage for the
  • Strategic Business Unit
  • ?

  • The BCG Matrix

  • Cash Cow
  • Exits in mature, slow growth industry but is a
    dominant business in the industry with a large
    market share
  • No heavy investments required (advertising
    plant expansion)
  • Invest in other riskier businesses
  • Star
  • Has large market share in a rapidly growing
  • It has additional growth potential profits
    should be plowed into this business as investment
    for future growth n profits
  • Visible attractive will generate profits
    positive cash flow even as the industry matures
    market growth slows

  • Question Mark
  • Exists in new, rapidly growing industry but has
    only small market share
  • ? Business is risky
  • It could become a star, but it could also fail
  • Invest cash earned from cash cows in ? With the
    goal that it will turn into future STAR
  • Dogs
  • Poor performer
  • Small share in slow growth market
  • Provides little profit
  • Targeted for divestment or Liquidation if
    turnaround is not possible

  • Gillette Company ?

  • Formulating Business Level
  • Strategy

Porters Competitive Forces And Strategies
  • Five Competitive Forces
  • Potential New Entrants
  • Bargaining Power of buyers
  • Bargaining Power of suppliers
  • Threat of substitute products
  • Rivalry among competitors

Potential New Entrants
  • Capital Requirement economies of the scale,
    example of two potential barriers to entry that
    keep out the new competitors
  • Threat is high for local hamburger restaurant
    than Ford Toyota
  • Advent of internet has reduced costs other
    barrier of entry in many market segments
  • Threat of new entrants has increased for many
    firms in recent years

Bargaining Power of buyers
  • Informed customers become empowered customers
  • Advertising buyer info educate customers about
    full range of prices product options available
    thus influence over Co. increases
  • This is true when Co. relies on one or Two large,
    powerful customers for majority of its sales
  • Example Boeing 777 Delta, KLM

Bargaining Power of suppliers
  • To what extent to which suppliers have the
    ability to influence potential buyers
  • Other factors include whether a supplier can
    survive without a particular purchaser or whether
    the purchaser can threaten the supplier
  • Example The sole supplier of engines to a
    manufacturer of small airplanes have great power
  • Example Local electric co. is the only source
    of electricity in your community therefore it can
    charge what it wants for its product

Rivalry among competitors
  • Nature of the competitive relationship btw
    dominant firms in the industry
  • Coke Pepsi ( price wars, comparative
    advertising, new product introduction)
  • American Express Visa
  • Fuji Kodak
  • The more these companies compete against
    one another for customers the lower is the level
    of industry profits( low prices means low

Threat of substitute products
  • The power of alternatives substitutes for a Co.
    product may be affected by cost changes OR trends
    such as increased health consciousness that will
    deflect buyer loyalty to companies
  • Example Sugar Co. suffered from the growth of
    sugar substitutes
  • Computers reduced demand for calculators,
  • DVD players for VCRs

Competitive Strategies
  • Differentiation
  • Cost Leadership
  • Focus

Differentiation Strategy
  • Pepsi Coca cola
  • Advertise to differentiate create new unique
  • Toyota
  • Appeal customers in all segments
  • Basic transportation
  • Middle of the market
  • High income
  • An attempt to distinguish a firms product or
    services from others in the industry
  • To gain competitive advantage, add value, through
    distinctive product features (design, quality,
    after sale service)

Stuck in the
Middle Managers should choose btw Diff/CLS
Exceptions to this rule Example
Cotts Corp. advertise more / costs will rise
Toyota Production system is the
most efficient in the world
Differentiated cars basis of superior design
Cost Leadership
  • Cotts corp. ( doesnt advertise which allows
    Cott to under price both coke Pepsi
  • Compaq to overtake IBM as the world no.1 PC
  • Attempts to gain advantage by reducing cost below
    cost of competing firms
  • Keeping costs low, Org still able to sell its
    products at low prices still make a profit

Low-cost producer, provides a successful
strategy to defend against five competitive forces
  • A type of competitive strategy that emphasizes
    concentration on a specific regional market or
    buyer group
  • The company will use either a differentiation or
    low-cost approach, but only for a narrow target
    market ????
  • Example Enterprise Rent-A-Car
  • focused on market that major companies like
    Hertz dont even play in
  • Low budget insurance replacement market

  • Focused-Low cost Strategy
  • Serve one or a few segments of the overall market
    aim to be the lowest Co. serving that segment
  • Example Cott Corp. focus on large retail chains
    strives to be the lowest-cost Co. serving that
  • Focused-Differentiation Strategy
  • Serve just one or few segments of the market
    aim to be the most differentiated Co. serving
    that segment
  • Example BMW
  • Pursue focused strategy make cars exclusively
    for high income customers

Product Life Cycle
  • Model that shows how sales volume changes over
    the life of products
  • Product Life cycle helps managers recognize that
    strategies need to evolve over time
  • Series of stages that a product goes through in
    its market acceptance

Formulating Functional-Level Strategy
Differentiation strategy for new product
  • Recruiting training middle managers for moving
    into new positions
  • Human Resources
  • Marketing
  • Finance

Aggressive marketing campaigns
  • How to borrow handle large cash Investments
  • Authorize construction of new production

Mature products / Low cost Strategy
  • Develop retain stable Workforce
  • Transfers, advancements, incentives for efficiency
  • Human Resources
  • Marketing
  • Finance

Stress on brand loyalty
  • Focus on net cash-flows positive cash balances

Putting Strategy Into Action
  • Parts of firm that can be adjusted to put
    strategy into action
  • Once a new strategy is selected its implemented
    through changes in Leadership, Structure, Info
    Control System and HR
  • Leadership
  • Structural Design
  • Information Control Systems
  • Human Resources

Tools for Putting strategy into Action
  • Organization
  • Strategy Performance
  • Leadership
  • persuasion
  • Motivation
  • Culture / Values
  • Human Resource
  • Recruitment / Selection
  • Transfers / promotions /Training
  • Layoffs
  • Structural Design
  • Org Chart
  • Teams
  • Centralization / decentralization
  • Info Control System
  • Pay, reward system
  • Budget allocations
  • Info systems
  • Rules / procedures

  • Strategic Management
  • Followed by
  • SWOT Analysis
  • Leads to
  • Formulation of Explicit Strategic Plans
  • takes place at three levels
  • a) Corporate
  • b) Business
  • c) Functional
  • Strategy Implementation

Evaluate Org Mission, goals, strategy
Strengths, Weakness, Opportunities, threats
Grand Strategy (growth, stability, Retrenchment,
Framework for accomplishing used BCG
Porters competitive strategies Product Life
Support the above strategies made
Tools used Leadership, structural design,
information system and HR
  • Evaluate current
  • Mission
  • Goals
  • Strategies
  • Implement Strategy via Changes in
  • __________
  • __________
  • __________
  • __________

________ ________ ________________
Define New _________ _________
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