STRATEGIC MANAGEMENT & BUSINESS POLICY

THOMAS L. WHEELEN J. DAVID HUNGER

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Strategy formulation- concerns developing a
corporation’s mission, objectives, strategies &
policies

Situation Analysis- the process of finding a strategic

fit between external opportunities and internal
strengths while working around external and
internal weaknesses

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SWOT- Strengths-Weaknesses-Opportunities-Threats

Strategy= opportunity/capacity
Opportunity has no real value unless a company has the
capacity to take advantage of that opportunity

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 Criticisms of SWOT analysis

• Generates lengthy lists

• Uses no weights to reflect priorities
• Uses ambiguous words and phrases
• Same factor can be in 2 categories
• No obligation to verify opinion with data or analysis
• Requires only a single level of analysis
• No logical link to strategy implementation

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 Review of Mission and Objectives

A re-examination of an organization’s current

mission and objectives must be made
before alternative strategies can be
generated and evaluated.

For Mission
See Chapter 2 Fred R. David

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Business strategy focuses on improving the competitive
position of a company’s or business unit’s products or
services within the specific industry or market
segment it serves.

• Business strategy asks how the company or its units

should compete or cooperate in each industry.

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• Competitive strategy (battle against all
competitors for advantage)

• Cooperative strategy (working with one or more

companies to gain advantage against other
competitors)

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 Porter’s competitive strategies
First Q:Should we compete on the basis of lower cost (and
thus price), or
• Should we differentiate our products or services on some
basis other than cost, such as quality or service?

• Michael Porter proposes two “generic” competitive

strategies
• Generic because they can be pursued by any type or size
of business firm, even by not for-profit organization.

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 Porter’s competitive strategies

Lower cost strategy- the ability of a company or a business

unit to design, produce and market a comparable product
more efficiently than its competitors.

Differentiation strategy- the ability of a company or a

business unit to provide a unique or superior value to the
buyer in terms of product quality, special features, or
after sale service.

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 Porter’s competitive strategies
2nd Q:Should we compete with our major competitors
for the biggest but most sought-after share of the
market, or
• should we focus on a niche in which we can satisfy a
less sought-after but also profitable segment of the
market?

• Porter proposes that a firm’s competitive advantage

in an industry is determined by its competitive scope,
that is, the breadth of the company’s target market.

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 Porter’s competitive strategies
• Before using one of the two generic competitive
strategies (lower cost or differentiation)
• The firm or unit must choose a broad target (that is,
aim at the middle of the mass market) or a narrow
target (that is, aim at a market niche).

• Combining these two types of target markets with

the two competitive strategies results in the four
variations of generic strategies.

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 Porter’s competitive strategies

Cost leadership- a lower-cost competitive strategy that

aims at the broad mass market and requires
efficient scale facilities, cost reductions, cost and
overhead control; avoids marginal customers, cost
minimization in R&D, service, sales force and
advertising,

• Provides a defense against competitors

• Provides a barrier to entry
• Generates increased market share

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 Porter’s competitive strategies
Differentiation- involves the creation of a product or
service that is perceived throughout the industry as
unique. Can be associated with design, brand
image, technology, features, dealer network, or
customer service
• Lowers customers sensitivity to price
• Increases buyer loyalty
• Barrier to entry
• Can generate higher profits

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 Porter’s competitive strategies

Cost Focus- low-cost competitive strategy that focuses

on a particular buyer group or geographic market
and attempts to serve only this niche to the
exclusion of others

Differentiation Focus- concentrates on a particular

buyer group, product line segment, or geographic
market to serve the needs of a narrow strategic
market more effectively than its competitors

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 Risks in Competitive Strategies

Prentice Hall 6-18

 Issues in Competitive Strategies

Stuck in the middle- when a company has no

competitive advantage and is doomed to below-
average performance

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 Issues in Competitive Strategies

Entrepreneurial firms follow focus strategies

where they focus their product or service on
customer needs in a market segment and
differentiate based on quality and service

Prentice Hall 6-20

Prentice Hall 6-21
 Industry Structure and Competitive Strategy

Fragmented industry- many small- and medium-sized

companies compete for relatively small shares of the
total market
• Products are typically in early stages of product life
cycle
• Focus strategies are used

Prentice Hall 6-22

 Industry Structure and Competitive Strategy

Consolidated industry- domination by a few large

companies

• Emphasis on cost and service

• Economies of scale
• Regional and national brands
• Slower growth over capacity
• Knowledgeable buyers

Prentice Hall 6-23

 Hyper-competition and Competitive Advantage
Sustainability

Competitive advantage in a hyper-competitive market is

characterized by a continuous series of multiple short-
term initiatives that replace current products with new
products before competitors can do so.
• Leads to an over emphasis on short-term tactics

Prentice Hall 6-24

 Competitive Tactics

Tactic- a specific operating plan that details how a

strategy is going to be implemented in terms of when
and where it is to be put into action
• Narrower in scope and shorter in time horizon than
strategies

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 Timing Tactics: When to Compete

Timing Tactics- when a company implements a strategy

• First movers (Pioneer)

• Late movers

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 Market Location: Where to Compete
Market location tactics- where a company implements a strategy

Offensive tactics:
Methods used to attack a competitor’s position

Frontal assault/Attack
• The attacking firm goes head to head with its competitor.
• Matches the competitor in every category from price to
promotion to distribution channel.

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Flanking maneuver: Rather than going straight for a
competitor’s position of strength with a frontal assault
• Firm may attack a part of the market where the competitor
is weak.
Encirclement: Occurs as an attacking company or unit
encircles the competitor’s position in terms of products or
markets or both.
• The encircler has greater product variety and/or serves
more markets

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Bypass attack: Rather than directly attacking the
established competitor frontally.
• This tactic attempts to cut the market by offering a new
type of product that makes the competitor’s product
unnecessary.
Guerrilla warfare: A new entrant or small firm can make
some gains without seriously threatening a large
• Established competitor and evoking some form of
retaliation/revenge.

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Defensive tactics
• Raise structural barriers
• Increase expected retaliation
• Lower the inducement for attack (low cost & low
profit

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 Which Competitive Strategy is Best?

• Before selecting one of Porter’s generic

competitive strategies for a company or
business unit.

• Management should assess its feasibility in

terms of company resources and
capabilities.
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Cooperative Strategies- used to gain a competitive
advantage within an industry by working with other
firms

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Collusion- the active cooperation of firms within an
industry to reduce output and raise prices to avoid
economic law of supply and demand

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Strategic Alliances- long-term cooperative arrangement
between two or more independent firms or business
units that engage in business activities for mutual
economic gain
Used to:
• Obtain or learn new capabilities
• Obtain access to specific markets
• Reduce financial risk
• Reduce political risk

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• Cooperative arrangements between companies and
business units fall along a continuum from weak and
distant to strong and close.

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 Types of Cooperative Agreements

• Mutual Service Consortia/association

• Joint Venture
• Licensing Arrangements
• Value-Chain Partnerships

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• Mutual service consortium: partnership of similar
companies in similar industries that pool their
resources to gain a benefit that is too expensive to
develop alone, such as access to advanced
technology.

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Joint venture: A cooperative business activity, formed
by two or more separate organizations for strategic
purposes.
• Creates an independent business entity and allocates
ownership, operational responsibilities, and financial
risks and rewards to each member, while preserving
their separate identity/autonomy

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• Licensing arrangement is an agreement in which
the licensing firm grants rights to another firm in
another country or market to produce and/or sell a
product.

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• Value-Chain Partnerships. A value-chain
partnership is a strong and close alliance in which
one company or unit forms a long-term arrangement
with a key supplier or distributor for mutual
advantage

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