CHAPTER 8: STRATEGY FORMULATION AND

EXCUTION
1) What is strategic management?
Strategic management refers to the set of decisions and actions
used to formulate and execute strategies that will provide a
competitively superior fit between the organization and its
environment to achieve organizational goals
*2) What is competitive advantage?
Competitive advantage is the organization’s distinctive edge for
meeting customer needs
*3) What are the characteristics of strategy?
- Strategy must be compared with other competitors
- Strategy must be suitable with all the factors of the
environment
- Strategy must affect the organization in long-term
*4) What are the elements of competitive advantage?
- Target customers: defines the customers and which of their
needs are to be served by the company
- Exploit core competencies (A core competence is something
that the organization does especially well in comparison to its
competitors): leader identifies what their company does especially
well and builds strategy around it
- Build synergy: when organizational parts interact to produce a
joint effect that is greater than the sum of the parts acting alone,
synergy occurs
- Create value: managers help their companies create
value by devising strategies that exploit core competencies and
attain synergy
*5) What are the 3 levels of strategy in organization?
- Corporate-level strategy (What business are we in?):
Strategic actions at this level usually relate to the acquisition of
new businesses; additions or divestments of business units,

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plants, or product lines; and joint ventures with other corporations
in new areas
- Business-level strategy (How do we compete?): Strategic
decisions at this level concern the amount of advertising,
direction, and extent of R&D; product changes; new-product
development; equipment and facilities; and expansion or
contraction of product and service lines.
- Functional-level strategy (How do we support the business-
level strategy?): Functional strategies involve all of the major
functions, including finance, R&D, marketing, and manufacturing
6) What are strategy formulation and strategy execution?
- Strategy formulation includes assessing the external
environment and internal problems to identify strategic issues,
then integrating the results into goals and strategy
- Strategy execution is the use of managerial and organizational
tools to direct resources toward accomplishing strategic results
*7) What is SWOT?
- SWOT stands for strengths, weaknesses, opportunities, threats
- Managers obtain external information about opportunities and
threats from a variety of sources, including customers,
government reports, suppliers, friends in other organizations, or
association meetings. Executives require information about
internal strengths and weaknesses from a variety of report,
including budgets, financial ratios, profit and loss statements, and
surveys of employee attitude and satisfaction
*8) What are the 3 ways to formulate the coporate-level
strategy?
- Portfolio strategy:
+ Corporations like to have a balanced mix of business
divisions called strategic business units (SBUs)
+ Portfolio strategy pertains to the mix of business units and
product lines that fit together in a logical way to provide synergy
and competitive advantage for the corporation
+ Organizations should not become too dependent on one
business (focus on or invest into 2 businesses are better than 1)
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 - The Boston Consulting Group (BCG) matrix:
+ The BCG matrix organizes businesses along two dimensions:
business growth rate and market share
+ The combinations of high and low market share and high and
low business growth provide four categories for a corporate
portfolio: stars, question marks, cash cows, dogs
+ The star has a large market share in a rapidly growing
industry. It is important because it has additional growth potential,
and profits should be plowed into this business as investment for
future growth and profits
+ The cash cow exists in a mature, slow-growth industry but is
a dominant business in the industry, with a large market share.
Because heavy investments in advertising and plant expansion
are no longer required, the corporation earns a positive cash flow.
It can milk the cash cow to invest in other, riskier businesses.
+ The question mark exists in a new, rapidly growing industry,
but has only a small market share. The question mark business is
risky: It could become a star, or it could fail and become a dog.
The corporation can invest the cash earned from cash cows into
question marks with the goal of nurturing them into future stars.
+ The dog is a poor performer. It has only a small share of a
slow-growth market. The dog provides little profit for the
corporation and may be targeted for divestment or liquidation if
turnaround is not possible
- Diversification strategy:
+ The strategy of moving into new lines of business is called
diversification
+ There are 3 types of diversification:
 Related diversification: expansion into new business
related to existing business activities
 Unrelated diversification: expansion into new lines of
business

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  Vertical integration: expansion into businesses that
supply to the business or are distributors
*9) How to formulate the busniess-level strategy?
- Business-level strategy concerns about how to compete
- A popular and effective model for formulating strategy is
Porter’s competitive strategies
- There are 5 Porter’s competitive forces that help determine a
company’s position vis-à-vis competitors in the industry
environment:
+ 1. Potential new entrants
+ 2. Bargaining power of buyers
+ 3. Bargaining power of suppliers
+ 4. Threat of substitute products
+ 5. Rivalry among competitors
- To find a competitive edge within the specific business
environment, Porter suggests that a company can adopt one of
three strategies: differentiation, cost leadership, or focus
+ Differentiation:
 distinguish the firm’s products or services from others in
the industry
 can reduce rivalry with competitors and fight off the threat
of substitute products because customers are loyal to the
company’s brand
 requires a number of costly activities, such as product
research and design and extensive advertising
+ Cost leadership:
 pursue cost reductions, and use tight cost controls to
produce products more efficiently than competitors
 maintain stability rather than pursuing innovation and
growth
+ Focus:
 concentrate on a specifc regional market or buyer group
 use either a differentiation or cost leadership approach,
but only for a narrow target market

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*10) How to formulate the functional-level strategy?
- Functional-level strategies are the action plans used by major
departments to support the execution of business-level strategy
- Major organizational functions include:
+ Marketing
+ Production
+ Finance
+ Human resources
+ Research and Development