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TABLE OF CONTENTS

WEEK 4-6: Strategy Formulation

Unit Learning Outcome (ULO A) 33

Metalanguage 33
Essential Knowledge 33
Business Strategy 33
Cost Leadership Generic Strategy 34
Cost Focus and Differentiation Focus Generic Strategy 36
Generic Strategies are Mutually Exclusive 36
The Value Chain 36
Generic strategy and the Resource-based View 38
Extending the Value Chain into Supply Chain 39
Business Model 40
Corporate Level Strategy 40
The Product Expansion Grid 42
Prospectors, Analyzers, Defenders, and Reactors 43
Mergers and Acquisitions 44
The direction of integration: vertical and horizontal 44
Strategic portfolio analysis 46
The growth-share matrix 47
Strategic business unit 48
Related diversification 49
Global strategy Level 50
The competitive advantage of nations 51
Strategies for international markets 52
Strategies for local companies in emerging markets 55
National cultures 56
Varieties of capitalism 57
Strategic alliances and partnerships 57

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Module 2: Strategy Formulation (4-6 weeks)

Unit Learning Outcomes: At the end of the unit, they are expected to:

1. To discuss the different popular competitive strategies

2. To distinguish the role of innovation as a competitive strategy.

3. To define and explain the significance of integrative growth strategies.

Metalanguage:

The volatility of the environment in the business organization, survival has become more
challenging than ever. There is a higher demand for an honest review of functional activities
and a proactive mindset through various strategic models' growth and competitiveness.
Realignment, enhancement, reinventing, strategizing, and refocusing, have become more
imperative to any organization,

Essential Knowledge:

BUSINESS LEVEL STRATEGY

Business-level strategy is the fundamental approach of a company to enable a single

entity to retain a competitive edge within a given industry.
A competing single enterprise company can only have one generic strategy.
The cost-Leadership generic strategy is a standard market plan focused on being an
industry's lowest-cost company.
Differentiation industry-wide generic strategy is an essential business plan focused on
a distinction that provides value for consumers and returns that more than offsets the
differentiation costs.
Cost focus and differentiation focus generic strategy is a single business strategy that
applies to a given part of an industry, such as a market segment or niche, where the
business concerned can design a strategy that meets customer needs more closely than
rivals could achieve.
A value chain is an organizational framework to disaggregate and show the strategically
relevant activities of an organization, which helps understand and manage cost behavior
and existing and potential differentiation sources.
Business models are conceptualizations of critical areas or structures within an
enterprise to establish the unique value that the organization provides for its customers.
A business-level strategy is a fundamental approach that a company takes to help a
single business to survive and grow its overall intent. The strategy typically aims at
sustaining competitive advantage within a given industry.

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Four Generic Strategies

Strategic management seeks to have a clear long-term strategic advantage that can support
stakeholders in an enterprise more sustainably than short-term productivity over time. An external
world is likely to be subject to unexpected changes as well as continuous change, and it is essential to
ensure that strategic goals are coherent and coherent and that the company as a whole is clear on
intent and can respond to change accordingly.

There are four broad forms of a strategic strategy that are focused on competitive advantage
and reach. Michael Porter ( 1980) refers to these as generic strategies. When a company targets a
whole market, a strategy is either a generic strategy for cost leadership or an industry-wide generic
strategy for differentiation. When a company targets a portion of an industry, such as a consumer
segment, the focus of a generic plan is either on cost or difference. A strategy's detail will depend on
the purpose of an organization and its industry; however, for it to be competitively useful, it must
conform to one of the four generic types.

Cost Leadership Generic Strategy

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A generic cost-leadership strategy has lower costs per unit generated than competitors, and
any future rivals in the industry will achieve that. The word 'leadership' is important because this
allows a company to be the cost leader and not just one of many cost-competitive organizations. If it
is an organization has a more significant share of the markets in its industry than its competitors and
can achieve comparatively wider economies of scale and reach. Scale economies are achieved by cost
savings that arise when higher volumes allow for a reduction in unit costs. Scope economies include
cost reductions made possible by different goods sharing the same facilities.

The advantages of scale and scope are related to the curve effect of experience, an idea
introduced by Boston Consulting Group founder Bruce Henderson (1974). He argued that when an
organization's cumulative output doubles over time, unit costs, when adjusted for inflation, could
decrease by 20–30 percent. It is not only the product of scale but a cumulative impact of learning,
training, expenditure, and size. The more than a company does, the lower would be the unit cost of
doing so. As total production doubles, the additional costs, including those in administration,
marketing, distribution, and manufacturing, decrease by a steady and consistent percentage.

The experience curve idea has motivated companies to seek to rapidly capture a significant
market share by spending massively and actively down-pricing goods and services; the high initial costs
can be recovered in the long run until the company has become the market leader. Organizations can
always try continuous learning and development before their rivals do so, but in many industries, it is
difficult to define an experience curve effect because its exact essence is also hard to comprehend.

Cost advantage factors are broad and involve such aspects as proprietary information and
technologies, preferential access to networks and supply sources of business distributing, and efficient
cost control. Low-cost leaders also market a regular product and service, or no-frills. They put a
significant focus on leveraging the scale but are also likely to take advantage of any other opportunities
to reduce costs.

A low-cost leader does not necessarily have to lower his prices below that of his rivals. It may
do this to win more customers and reap more economies of scale, but if its costs are lower than the
industry's average, all it has to do is command prices at or near the industry average to earn above-
average returns. Price rivalry may be risky because it causes a prolonged price war, and deflation cuts
into profits. However, if the leader has a large share of the industry 's revenue, it can typically resolve
a short-term battle, with lower prices boost their market share.

Differentiation Industry-Wide Generic Strategy

A differentiation industry-wide generic strategy offers unique value to the customers of an

industry in a way that more than offsets the differentiation costs, which allows an organization to earn
above-average profits for the industry. This can involve an ability to offer product and service attribute
that is offered differently from those of other industry participants, such as unique qualities; delivery

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and reliability features; corporate and brand images; advanced technology, service, and support
arrangements, etc.

The company concerned should try to reduce its costs but only in a way that will not impact
the different sources and the value that it generates. The 'industry-wide' role is significant as it
encompasses the industry as a whole and its markets. Unlike cost-leadership, there may be more than
one strong competitive position in an industry that differentiates across the industry. This occurs
because there are dramatically different and distinct classes of consumers who esteem contrasting
product and service attributes.

Over time, the growth of the industry's markets tends to favor distinction, particularly if the
industry is associated with customers with continually shifting tastes and who are affluent. As
consumers become more affluent, lower prices can generally be considered secondary to quality and
branding.

Cost Focus and Differentiation Focus Generic Strategy

A generic focus strategy is explicitly focused on a specific part of an industry, such as a market
segment or niche, where a company can develop its strategy to match consumer needs than its rivals
more closely. Overall, a focuser has no competitive advantage in the industry but can achieve one in
its target segment based on a low-cost base or differentiation. Both of these strategies depend on the
perception that a target segment is different from others within the industry.

The consequence of a generic focus strategy is that more narrowly focused rivals cannot offer
comparable value to the target customers of the focuser. This can be because they are unable to meet
a segment's more specialized needs or are likely to bear a relatively high cost in serving a segment;
both conditions mean that segment returns are likely to com-par with those of a focused competitor
unfavorably. There is usually space within an industry for a variety of focal approaches if the focusers
select specific target segments.

Generic Strategies are Mutually Exclusive

The essential thing about the four generic strategies is that an organization only has to choose
one in its sector. A company that selects a universal approach that blends cost and differentiation is
called a straddle when it approaches a 'Leader of all companies, master of none.' To all people doing
all things is a formula for strategic mediocrity and below-average performance because, in Michael
Porter 's opinion, a company would have no competitive advantage whatsoever. Different generic
strategies have different resource requirements and divided attention to different types of strategies
that lead to costly trade-offs between different types of resources that consume profits ability.

The Value Chain

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A value chain is an organizational framework to disaggregate and display the strategically

relevant activities of an organization to understand cost behavior and the existing and potential
sources of difference. A value chain's role is to identify those strategic activities relevant to the
organization's core areas to assess how they interact together to sustain a chosen strategy. A company
helps its competitive progress by more efficiently or better than its rivals conducting such strategically
essential activities.

Value is represented by the amount the customers are prepared to pay for the products and
services of an organization. Porter (1985) stresses the importance of value-adding operations, rather
than functions such as departments. Value is shown as a margin in the value chain, which is gross
revenue (the aggregated value created for customers) minus costs – or the net margin that the
producer receives as gross profit. The activities that generate interest are generally seen as primary
and support activities.

Primary activities add value through the transformation of resources into

products and services through the following stages:

1. inbound logistics: activities bringing in inputs

2. operations: activities turning inputs into outputs
3. outbound logistics: activities getting finished products to customers
4. marketing and sales: activities enabling customers to buy and receive
products
5. service: activities maintaining and enhancing the value

Conventionally, these are related to a company's line functions. However, a value chain is
concerned primarily with specific strategically essential characteristics and behaviors, and how they
communicate and can be implemented as a whole network – not in isolation from the viewpoint of
any functional portion of the enterprise. Support activities add value to the primary activities by
facilitating and assisting them. Help tasks are usually employee duties and are the responsibility of a
dedicated team, although generally, they are cross-functional in orientation. The figure shows a
condensed image of four functions, but more can be obtained, such as quality control. The four shown
have similar activities to them:

1. firm infrastructure: activities such as planning, legal affairs, and finance and accounting, which
support the general management of the primary activities
2. human resource management: activities that support the employment and development of people
3. technology development: activities providing expertise and technology, including research and
development, which support the production and delivery process
4. procurement: activities to support buying

To help them organize and leverage resources that foster and maintain competitive
advantage, senior managers need to look for strategic linkages. An activity managed in one area of an
organization is likely to have spillover and trade-off effects for other areas; for example, if it works to

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raise costs elsewhere, lower costs in one department may be suboptimal. Coordination is needed to
promote common ways of working following the competitive strategy 's needs. A distinctive approach
to the management of customer relationships requires attention to every part of those activities that
influence the customer experience.

Generic strategy and the Resource-based View

During the last quarter of the twentieth century, the rise of Japanese competition seemed to
call into question the exclusivity of choosing only one generic strategy, as Japanese organizations
offered differentiation while at the same time achieving lower costs than their Western rivals. They
achieved so primarily through superior organizational skills such as lean development and related
management methodologies and philosophies, including business processes and lean administration.
They seemed to follow a generic hybrid strategy or a best-cost differentiation. A best-cost
differentiation strategy aims at offering consumers superior value by meeting their requirements on
crucial product and service attributes while also exceeding their quality expectations.

The Standard best-cost differentiation approach fits right into the strategy's resource-based vision. In
comparison to Porter 's ideas regarding generic policy, the resource-based view was contrasting. His
defense is to justify Japanese strategy as being operationally successful, not as a real strategy. That
being so, the value chain concept can still be used to manage a generic strategy for the best-cost
differentiation. For an automobile company, an example is given below.

While it aims to minimize its costs through economies of scale, lean production, and just-in-
time management facilitate a demand-pull approach to value creation rather than a supply-push
approach. Senior managers use top-down strategic goals to facilitate bottom-up organizational
approaches designed to accomplish both efficiency improvements and continuous customer
satisfaction enhancement. Under lean working principles, the value chain roles are to organize and
automate practices that continuously increase value for customers. The value chain for a standardized
approach for best-cost differentiation includes strategic resources that support the primary activities.

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Best-Cost Differentiation

Extending the Value Chain into Supply Chain

The definition of the value chain can be expanded beyond the scope of an organization to
include all strategically linked operations in the distribution and supply chain. This may be envisaged
across relevant distributors and suppliers as a series of linked value chains. The idea is that suppliers,
especially first-tier suppliers, providing input crucial to value creation for an industrial customer,
should manage their activities in ways that are consistent with their customers ' business strategy.
Synergies are found between the core competencies of an industrial customer and those of upstream
suppliers, and between their downstream distributors and customers. The higher an organization's
ability to handle an internal and external series of procedures, the more difficult it is for rivals to
imitate their operation relations. However, the degree to which independent suppliers can control a
business strategy and value chains in support of an industrial client is problematic. There is always a
fear of losing bargaining power for small and specialized suppliers when a large part of their
production is tailored to the needs of a significant customer.

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Business Models

A business model is a summary of the core business areas (and CSFs) of an organization and
processes to accomplish the organization's ultimate purpose, in particular how the organization
collects value (Chesbrough and Rosenbloom, 2002). A model will illustrate how the company offers a
particular customer solution and a competitive difference. Business models and strategy are
frequently used interchangeably, but typically a business model is stable and based on an established
mission. A plan that seeks to bring about a drastic shift, such as shifting the company to a new
revolutionary role (as with the balanced strategic scorecard), will work to change the business model
underlies it. In other words, a business model is mission-oriented, while a plan for change is focused
on improving the paradigm.

Nevertheless, a generic competitive strategy should remain stable over time – Porter suggests
decades; otherwise, the strategy will lack the consistency to allow an organization to improve and
sustain its competitive position in an industry over time. It is also taking time to develop the trajectory
of strategic resources and core competency development. In this context, given an established
conventional plan and business model, a plan designed to trigger structural change is better viewed
as a strategic program for further sustaining intent, which would otherwise not be accomplished.

A strategy imposes discipline, whether in the form of an enterprise model or a change

management strategy. The right approach is not to do things that dilute effort and impact as much as
to do things that concentrate effort and impact. A simple plan ensures that everyone understands it
and has the requisite discipline to carry it out, rather than wasting time on unnecessary activities.
Managers at all levels are always under pressure to compromise – to trade long-term, strategically
relevant activities for short-term concerns that need urgent attention. It is the task of strategic leaders
to teach others about a chosen strategy in an organization, especially in how to guide the daily
management decision-making priorities.

CORPORATE LEVEL STRATEGY

The corporate-level strategy is the corporate center's strategy for managing a multi-business
organization; it is concerned with multiple business growth and development and, therefore, works
at a higher level than a single business strategy.

The product expansion grid is the matrix used by Ansoff to display four principal growth directions
using the terms market penetration, product development, market development, and diversification.

Prospectors, analyzers, defenders, and reactors are concepts used by Miles and Snow to describe
distinct strategic organizational strategies focused on how companies choose markets, choose ways
to manufacture goods and services, coordinate and handle the research.

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Mergers and acquisitions ( M&A) are transactions negotiated by companies to merge their activities
into common ownership, while acquisitions occur when one company purchases a majority interest
in another.

Vertical and horizontal integration defines the path of development of the activities of a company
either vertically through a distribution chain and supply chain, or horizontally through the introduction
of complementary goods and services, or by the acquisition of a competitor with similar offers.

Strategic portfolio analysis is a collection of divisions or companies operated as a portfolio of

independent businesses by a corporate core. Examples include the Growth-Share Matrix and the
Boston Box.

Related diversification happens when a company's businesses have certain features in common that
allow a corporate parent to create synergies that favor all the businesses that would otherwise not
exist.

Strategies for Corporate Development

The corporate-level strategy is the approach of a corporate center to manage a multi-

company group of organizations strategically. These are of sufficient size to operate in several markets
and more than one industry. A central headquarters is typically a corporate center. A concern for any

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organization, but especially for one made up of several companies, is how to manage the whole
strategically so that the various organizational parts work effectively together to achieve the strategic
purpose. Igor Ansoff (1965), one of the fathers of strategic management, emphasized the importance
of corporate synergy, which he called '2 + 2 = 5 effects,' in which an organization’s parts have a
combined performance that is greater than the sum of its parts.

Many multi-business organizations have independently existent businesses. Some businesses,

though, do better if they are grouped under single corporate management with other businesses. The
corporate center creates sufficient extra value in this instance to more than offset the costs of the
center.

The Product Expansion Grid

Ansoff suggests four key ways to expand the markets and goods of an enterprise, which he
demonstrates with his product- market expansion grid (sometimes called the growth vector matrix).
Four directions of expansion are possible: market penetration, market development, product
development, and diversification.

Ansoff’s product/market expansion grid

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Market penetration means increasing the current company – using the same range of products to
maximize the share of established markets in an enterprise. Of the four options, this is the least risky
strategy. For example, an organization should be able to understand its existing customers and exploit
existing activities to encourage them to buy more. It can also encourage prospective customers, who
may currently buy from rivals.

Market development introduces the existing products and services from an organization into
new markets. To move into new areas, active research and marketing strategy is typically needed to
provide an initial entry and target segments. Existing and new markets are likely to have significant
potential differences, so caution and understanding are required.

Product development introduces new products and services to existing markets. Ideas for new
products usually come from knowing current customers ' expectations and behavior. However, if
innovation is piloted or established with existing customers, the possibility of new product failure is
minimized.

Diversification involves new products and services being introduced into new markets. This is
the more risky option. A company must take time to build new tools and consider consumer dynamics
and emerging goods. Inorganic growth provides an attractive shape for large organizations way
forward to gain the necessary expertise if investors support the move with new finance to cover the
costs of acquisitions.

Prospectors, Analyzers, Defenders, and Reactors

Raymond E. Miles and Charles C. Snow (1978) argue in their seminal book Organization Strategy,
Structure, and Process that strategy is shaped by how organizations decide to tackle three
fundamental issues. The first is entrepreneurial – how to choose a general and target market; the
second is engineering, how to choose the most suitable means to offer products and services; and the
third is an administrative issue – how to organize and manage the work. How organizations address
these issues identifies four distinct organizational types: prospectors, analyzers, advocates, and
reactors.

Prospectors

These diversify a revolutionary approach and encourage it. Organizational thinking, searching
for new strategic roles, is exploratory. Flexibility is what characterizes prospectors; coordination and
facilitation are essential. Planning is broad and sensitive to outside changes. Prospectors will likely be
first movers.

Defenders

They address a narrow audience and focus mainly on the engineering issue of how to
manufacture value-adding goods and services. Continuous review and improvement are essential, and
organizations are committed to a core mission. Controls are centralized and are responsive to internal

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conditions. Defenders are more functionally oriented, with the supremacy of finance and
development.

Analyzers

These use market development, review, and planning, and implement projects of strategic
nature. Their features are a combination of prospector and defender approaches aimed at avoiding
excessive risks and doing well in delivering new products and services. Analyzers are represented by
more prominent firms, covering a variety of markets and industries.

Reactors

These use market penetration, which tends to use expediency and crisis management over the
short term. The strategy is to avoid overcrowding. Their response to change is typically incoherent and
inappropriate since there is a mismatch in the three fundamental issues. Often, reactors have little
control over their environment outside.
Miles and Snow argue that the strategy, structure, and processes of an organization should be
consistent, though they suggest that a single organization can use different strategies for different
projects. They argue that no single type of strategy is best; instead, what determines an organization's
ultimate success is the fact of establishing and sustaining a systematic strategy that takes into
consideration the environment, technology, and structure of the organization. Pick a strategy in other
words and stick to it.

Mergers and Acquisitions

A merger is an agreement between two organizations under common ownership to combine

and integrate their operations. A merger of equals is rare because one of the companies is typically
more powerful, and in post-merger negotiations and reorganization, the management is likely to be
preferred. An acquisition occurs when one organization purchases a controlling interest in another to
create a larger entity or, more rarely, restructure the acquisition with a view to later reselling at a
profit. Surveys conducted by McKinsey and Company management consultancy suggest that the most
common rationale for M&A is the acquisition of new products, intellectual property, and capabilities.
Other reasons include a need to incubate new businesses, enter new geographies, and acquire
increased scale.

The direction of integration: vertical and horizontal

Expansion of activities in the industry within an organization takes two directions: vertical and
horizontal. Vertical integration is the expansion of the activities of an organization up or down a
distribution chain. Horizontal integration is the expansion of the activities of an organization sideways
in an industry, achieved through the acquisition of rivals within the same part of the supply chain.
Backward vertical integration enables a company to control some of the tools used as inputs in
its goods and services. Further vertical integration up the distribution chain provides greater control
over the fulfillment centers and retailers. An alternate approach to regulating the members of a
company in a supply chain, however, is to manipulate their negotiating power by buying power. This
is often a preferred strategy if an organization wishes to spread its risk across multiple providers.

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Horizontal integration happens when rivals are taken over and combined with the internal
operations that provide identical or complementary goods and services. With time industries tend to
get more concentrated as the activity of horizontal integration narrows down the equal number.
M&A is a fast way to increase operational scale and market power. It can also take an acquiring
organization into new markets and industries, and M&A is traditionally associated with new and
expanding branches and markets. M&A activity results are often problematic, however. Success
requires a clear consolidation strategy before completing an acquisition. The integration process
needs to be quick and definitive for achieving cohesion once the financial transaction is over. It
requires a clear understanding of an acquired organization on the part of the acquiring organization's
senior management. The most successful mergers have been between organizations with an already
established history of partnerships, such as joint ventures or alliances.
Philippe Haspeslagh and David Jemison (1991) propose that the degree of strategic
interdependence between the acquired and acquiring entities depends on the anticipated value it
generates. It is focused on the importance of exchanging resources at the organizational level – a
transfer of functional expertise to enhance efficiency and experience through transferring people or
sharing information or a transfer of managers. Extra value can be achieved by combining the benefits
created by leveraging resources (such as borrowing capacity, added buying power, and increased
market power).
Haspeslagh and Jemison suggest four approaches: absorption, when the acquisition should be
fully integrated into the acquisition organization; preservation, when full autonomy should be granted
to the acquired organization; symbiosis, when integration should be gradual and existing
organizational boundaries should be permeable but maintained; and retention when there is no
intention to do so.
A significant element of M&A is a cultural fit, where an acquisition's corporate culture will be
compatible with that of the acquiring organization. Evaluation of strategic compatibility is relatively
straightforward, as organizations can evaluate whether two organizations are compatible in terms of
geography, goods, consumers, or technologies. Cultural fit is complicated because companies have
unique ways of doing business, and sometimes very different. In particular, they have specific strategic
capabilities that are difficult to define and understand for various organizations. An acquired
organization’s culture, say, a sales culture, can fight the culture of the acquiring organiza
tion, say, an engineering company.

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The Degree of consolidation and integration

Strategic portfolio analysis

Unrelated diversification is an organization's involvement in different industries, while similar

diversification typically occurs within one industry. Unrelated diversification provides contrasting
goods and services which have little to no relationship with one another. While moving into unfamiliar
industries and markets presents unique risks, once it has been established, it can spread risks across
different trading conditions and provide the organization with safety. The conglomerate organization
is the most extreme type of unrelated diversification. Strong growth in conglomerates occurred during
the middle years of the twentieth century.
Many of these add value to their financial stakeholders by imposing radical rationalization on
acquisitions and aggressive management. The process is called asset stripping when an acquisition is
bought cheaply, and its parts are restructured, and the profitability sold off. Large conglomerates have
appeared in recent times in the emerging economies of Asia, where industrial.
Government policies that restrict international competitions and promote indigenous economic
growth have attracted groups. However, conglomerates are usually considered less attractive today
than they were. However, many of the biggest companies in the world are diversified organizations,
many of which have been around for many decades.
Diversified organizations’ strategic management is carried out primarily as a portfolio of
strategic business units. This is called strategic portfolio analysis, which executives and central
management use at a corporate level to assess the performance of a corporate group of enterprises.
The management of a set of distinct investments is primarily a corporate framework. It is not intended
to be a vehicle for the analysis of the company's internal management, although it can be used to
identify problem businesses, leading to corporate interventions. The best-known approach to the
portfolio is the growth-share matrix of the Boston Consulting Group (sometimes called the Boston
Box) (Henderson, 1984).

The growth-share matrix

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In 1970, the Boston Consulting Group developed the Growth-Share Model to categorize
companies by their total business growth and market share. The idea is to rate and evaluate business
output in an equivalent manner to an investment portfolio. There will start some businesses; others,
growing. Many will be stable, and others will be insecure and decline. A balance is established between
these: companies which have potential tomorrow can be financed by moving the capital from today
's productive breadwinners.

The growth-share matrix

Cash Cow

In a slow-growing economy, companies known as cash cows have a significant market share,
usually in a mature sector. These will generate more cash than the amount needed to invest in
maintaining the company's health, so any excess is creamed off to provide investment funds for stars
and question marks. A cash cow business is likely to be unhappy to see its revenue shift if it is
prevented from diversifying it into new business. However, from the corporate perspective, the
principle is that slow-growing, but cash-rich enterprises should provide the investment needed for the
future.

Stars

Stars have a large share of the market and are in growing markets. The expectation is that these
companies will become tomorrow's cash cows but are likely to be hungry for more investment funds

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for the present than they can generate themselves. The principle is to grow star businesses as fast as
possible by eliminating resource constraints, such as investing in capacity-added ahead of demand.

Questions Mark

Question mark companies have low market share but are in fast-growing markets. Sometimes
a question mark business is called a problem child because it typically does not generate investment
funds, and the business' future is uncertain. A question mark business has the potential to become a
star, but in its early stages of market development, it is likely to be very cash hungry. Corporations
typically engage in several promising but unproven undertakings, especially in unfamiliar industries.
The principle is to be prepared to move resources into expanding businesses but, at the same time, to
note the need for caution.

Dogs

Dog businesses have a low market share and are in markets with low growth. They are divested
or closed if they bring no value to the rest of the company. These may be pet businesses in that once
they made a significant contribution to the corporation's success, sentimental owners may find it
difficult to close them down psychologically. It may be prudent to keep a dog alive if it blocks existing
competition (like a guard dog), complements other businesses (guide dog), or creates customers at
the product range bottom, who may trade up to later high-value products (sheepdog). However, the
principle is that these businesses should be terminated as soon as conditions allow.
The advantage of a matrix for growth-share is that it is a straightforward approach for
identifying the most attractive corporate businesses to put cash into. Comparing the companies on
their performance helps senior managers. Of course, cash flow is influenced by more than just market
share and growth in the industry, and many external considerations are ignored that could have a
significant impact on decisions. The strategy puts a focus on the internal funding competition. It is not
intended to be deterministic, and it is just a tool to help direct decisions; hence it is useful for periodic
assessments at the corporate level. The portfolio concept has long been used, but its form is generally
modified to suit a specific organization, the best-known example of which is the GE- McKinsey nine-
box matrix based on industry attractiveness and business strength.

Strategic business unit

They are called strategic business units (SBUs) when multinational companies are organized into
entities with a high degree of strategic independence from the corporate core. Usually, an SBU has a
general manager who is helped by a team that includes the functional heads employed in the company
who are middle managers in the sense whom they report to senior managers at the headquarters or
center. However, corporate executives are not directly involved in operating the SBU's strategic
management; instead, their role is to evaluate performance and control the group's overall resource
allocation.
If there is a high degree of strategic independence, an SBU will have its generic business strategy
for its industry, along with distinctive organizational cultures and competences. The SBU portfolio
structure's insularity means that the corporate center can add or divest individual SBUs without any
significant knock-on effects on the other SBUs' strategies and live cultures in the portfolio. This brings
a degree of versatility that allows a corporate center to quickly transfer the interests of the community

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between industries without the worries of convergence and with many dislocations. A diversified
corporation's primary benefit is that it spreads risk as businesses are located in multiple industries and
markets.

Related diversification

There has been a shift in strategic thinking since the 1980s, however, away from unrelated
diversification into related diversification. One example from a resource-based perspective is the
concept of related core products by Prahalad and Hamel (1990). These are areas of expertise and
resources specific to the organization that can be configured to produce a range of final products and
services for different and unconnected markets. Prahalad and Hamel use Canon 's example and the
use of optics technological expertise as a core product to serve as diverse markets as cameras, copiers,
and semiconductor equipment. This is possible because the people of Canon collaborate effectively in
conventional ways. Canon’s competitive advantage is an internal capability not easily seen or
understood by its rivals.
A company is likened to a tree. Its competencies are the roots of the organization, its core
products are the trunk, the corporate companies are separate branches of the tree in their various
industries and markets, and the leaves and fruits are its end products. A corporate center can identify
operational synergies, distinctive skills, and specific strengths when related to businesses in a
portfolio.

Related diversification as a corporate tree

Contrast unrelated to related diversification strategies, Michael Goold, Andrew Campbell, and Marcus
Alexander (1994) presents the idea of corporate parenting. This is how a corporate center acts as a
parent for the corporate enterprises by synergistically nurturing and growing them as dependent
entities. Parenting seeks to create a particular match for each of the individual companies between
the capacities of a company and the CSFs, and therefore the corporate parent generates interest.

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Some companies organize their strategy around business needs so that the direction of strategic
formation is outside of business rather than center-out.
Goold and Campbell (1991) offer a three-sided typology of parenting – financial control,
strategic planning, and strategic control. Financial control involves an approach to portfolios. This is
less about parenting and more about getting a more substantial investment return from the center.
Manage SBUs age their plan inside the center's tight financial goals. Strategic planning emphasizes
linkages, where strategy is coordinated and reviewed by the center. The center sets tight financial and
strategic targets. In order to create a competitive advantage, there is some attempt to create ties
between the different companies. Strategic control is based on core business management.

GLOBAL LEVEL STRATEGY

Global Level Strategy is the organization 's strategy for multinational border management of its
operations.

Porter's diamond is a model for demonstrating how nations' competitive advantages are based on
regional local advantages.

Strategies for international markets include multi-domestic, global, international, and transnational.

Micro multinationals are small organizations that maintain a hub within a domestic economy but use
the Internet to reach customers spread across global markets.

Strategic alliances and partnerships are formal and informal associations and collaborations between
independent organizations.

The global level strategy is the strategic management of its operations across multinational
boundaries by an entity. Such organizations are usually multinational corporations (MNCs), which play
a significant role in globalization. This is a trend of increasing commonalities and differences linked to
a global perception that the environment is getting smaller, more similar, and more interconnected.
Globalization is a growing global phenomenon of connections, associations, differences, and
commonalities that influence domestic and international markets. Throughout the world, human
activity and business converge and become more interconnected. It is the most critical change
phenomenon of our time and is inextricably linked to the significant international climate change and
economic management debates of this planet. The pressures to internationalize organizational
management strategies are very high; however, success in international markets can start with a
strong domestic base.

The competitive advantage of nations

Michael Porter (1990) investigated 20 industrial sectors in 12 countries and discovered that
many of the world's leading industries were clustered in geographical regions. His work highlighted
the value of establishing and cultivating a regional concentration of suppliers and specialist services
and integrating the domestic activities of a company with that spread abroad. Thus, the competitive

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advantage of an organization depends on the local benefits that cluster as a regionally localized
industry. Porter's diamond shows the key generators of the competitive power of a country.

Strategy, structure, and rivalry

Domestic competition intensity works to oblige organizations to work towards improved

productivity and innovation. The capital market is an essential factor in a country. When expected,
relatively short-term investment returns are encouraged by industries with short investment cycles –
computers and cinema are examples. In countries where the investment cycle is more prolonged,
investment favors more radical technology, such as the hybrid car Toyota, which the company began
developing in the 1990s.

Porter’s diamond for the competitive advantage of nations

Demand conditions

The presence of demanding and sophisticated customers will spur more effort and boost
competitiveness. Open competition – which raises expectations about the service standard and
products a market wants – encourages domestic industries and encourages local organizations to
innovate and improve.

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Related and supporting industries

A sufficient density of related and supportive organizations, in particular the proximity of

distributors, suppliers, and other organizations that facilitate the activities of industry, provides a
springboard favorable infrastructure for competitive advantage.

Factor conditions

Factor conditions promote the production of specialized services, including skilled labor and
capital, tailored to meet local industry needs. These do not provide services that are usually often
available for general use and cannot be said to have a distinct competitive advantage. The clustering
of similar organizations can promote a cooperative and competitive atmosphere conducive to
innovation and new ideas. The competition serves as an engine, thus working together produces
knowledge that can be exploited.

The role of government

In Porter's view, the purpose of national governments is to provide and facilitate economic
conditions that act as a catalyst and encourage enterprise. Local rivalry is thus stimulated by policies
that restrict collusion and encourage free competition. The government is an external influence since
the government's role can be either good or bad. Policy interventions, however, can work well in
building infrastructure, developing specialist resources, and boosting investment to foster innovation.
Peter Drucker (1955) compared Japan 's success with Britain's failure to support innovative industries
that would have maintained technological leadership in the country.
The diamond model is not intended to be a practical strategic management tool to help
compete more effectively with specific organizations. It was designed by Porter to help understand
why a nation is prosperous in some industries, not others. This can help strategists understand how
their organizations can use their home-base resources and networks to build a firmer foundation for
global market success.

Strategies for international markets

The effects of globalization, especially for manufacturing industries, on the competitive

advantage of nations with developed economies, have been profound. Emerging economies have a
significant cost advantage for large foreign multinationals, and many have moved parts of their
production to low-wage Asian nations. Although the supply-side advantages are substantial on the
demand side, market sizes and development in emerging economies also give growth space that
would be unlikely in domestic markets.

Global organizations have four types of strategy, depending on the strength of the pressure to
keep the cost of economic integration low and the strength of the need to respond to local and
national conditions: multi-domestic, global, international, and transnational (Bartlett C. and Beamish
P., 2018).

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Four types of strategy for international markets

Multi-domestic strategy

The multi-domestic policy includes the use of various goods and services in different countries
to suit specific markets. This approach is focused on the awareness that the markets are significantly
different from each other in various countries or geographical areas of the world. For a new country,
directly transferring an existing strategy that has been effective in a domestic market or another
foreign market may not necessarily work. The strategy should, therefore, be adaptive to the local
domestic climate and take into account features such as behavioral trends and behaviors, and any
other related local factors, including dietary preferences and religious practices.

The remedy is to establish a plan that considers local realities. However, the total organizational
costs of integrating into the company could be high because local managers are to be granted
responsibilities and substantial flexibility to make strategic and operational decisions. In order to
increase sales, the need to adapt to local circumstances takes precedence and compensates for extra
costs. Expansion into international markets may entail acquiring businesses familiar with local
conditions. This has risks when there is a clash of organizational cultures or when it is thought that the
distant parent organization is too slow to support local decisions. The intervention of corporate
management may also be misinterpreted at a local level as uninformed interference.

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Global strategy

The global strategy involves using a standardized range of products and services for all
international markets within an organization. It offers economies of scale from centralized
manufacturing, distribution, and marketing. It fits circumstances where the lifestyles and desires of
customers overlap, as is often the case with multinational brands.
A brand is a name or label that incorporates a visual design and image and distinguishes the
products and services of an organization from rivals. Through communication media and ads, various
positive qualities are associated with the brand to generate interest beyond the inherent functional
value of the product or service purchased. When branding is successful, it provides the manufacturer
with competitive price discounts and builds high consumer loyalty.
Brands are critical for global strategy because they represent a single offer and a guarantee of
benefits anywhere transactions are made. Global brands reach throughout the world, although many
of them were initially domestic in design but the wake of global changes.
Media that they could move into a new dimension. International businesses should be targeting cities
in emerging markets where there are more affluent consumers, and competition intensity is typically
higher than in a country at large.

International strategy

The international strategy uses a central direction for facilitating common ways of working
across the subsidiaries of an organization. The emphasis is on the core of a corporation when global
organizations are united around a common organizational culture and mutual values, principles of
management, and business methodologies. This represents the belief that proper diversification relies
on the company's core products rather than their end products and sequence vices. International
strategy is thus focused on the center-managed enterprise-wide goals. Those organizations are likely
to develop new practices and disseminate them to subsidiaries centrally; policies and incentives are
consistently maintained from country to country. While different experiments are a prerequisite for
senior management, the objective is to build a common corporate culture across all companies.

Transnational strategies

A mixture of multi-domestic and global strategies makes use of transnational strategy to exploit
markets in different countries. Local markets are accessible globally, but they have specific cultural
requirements that require a personalized approach to the region — allies. In this, the more significant
organization's interests must be balanced with the local management needs and its need to make
local strategic decisions.
One form of transnational strategy is based on flexible production, using common production
platforms that facilitate the extensive use of the same type of modular components. The Car industry
belongs to the best examples. General Motors (GM) and Ford both sought to develop a world
automobile during the 1980s and 1990s. They aimed at gaining economies of scale by selling the same
car everywhere, instead of separately developing vehicles for each region. Ultimately, finding that
roads are different worldwide and require different things from cars, they abandoned this idea in favor
of platforms (or architectures) designed to produce a collective group of basic models; the models are
varied at local assembly points and marketed in ways that suit local, national conditions. Car

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companies centralize their R&D while dispersing manufacturing to units and suppliers that are
relatively low-cost assembly.

Micro multinational

A micro-multinational is a small to midsize manufacturer or service provider that maintains a

hub in a domestic economy, while its international customers are spread across the world. A micro-
multinational is typically located in a niche sector of an industry where novel technologies used that
are esoteric yet vital to a more significant industry. Competitors are usually few. Before the advent of
the Internet, organizations had to be significant to gain a global reach, but this is no longer true. From
a startup, entrepreneurs can access international markets at a little initial cost. While many of these
have experienced chequered histories, some of the most successful have become very big indeed and
are household names, for example, Amazon and eBay.

Strategies for local companies in emerging markets

Niraj Dawar and Tony Frost (1999) put forward a strategic framework for local companies to
assess their competitiveness in an emerging market based on the strength of globalization pressures
and the degree to which the assets of a company are internationally transferrable.

Positioning for emergent market companies

Dodger strategy

A local company could follow a dodger strategy if its resources tailored to local conditions and
if it is receiving intense international competitive pressure. It involves working with a multinational,
possibly by providing local services or entering into a joint venture. Local businesses are likely to have
a low-cost advantage in the early stages of increased competition. However, once this diminishes, it
may be preferable to sell out to foreign businesses.

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Defender

If pressure from international businesses is low, a defender strategy is more appropriate. A local
company can target market segments where multinational competition is weak. A local company may
have developed low-cost mass-market brands positioned around regional beliefs about traditional
ingredients that multinationals ignore.

Contender

Local businesses may adopt a contender strategy by enhancing their resources and skills to
match relatively limited and specialized markets in other regions or countries where foreign
organizations compete vigorously. Generally speaking, more giant multinational corporations leave
smaller markets to themselves.

Extender

An extender strategy to move domestic goods and services to specific markets provides
incentives for expansion into other regions and countries with low levels of competition.

National cultures

There is evidence that companies operating in different countries can create a one-company
culture by moving business strategies and management principles between countries. It is important
for organizations that take a competitive advantage from a resource-based perspective. However, the
national management culture is likely to influence the style of management, and this influences
organizational culture. Pioneering research on and managing national cultures by Geert Hofstede
(1980) suggested that there are no universal management styles. He identified five dimensions of
national culture that influence how organizations are
managed:

1. Power distance: the degree of inequality a national culture considers reasonable is most significant
for Latino, Asian, African, and Arab communities and low for northern Europeans.
2. Individualism versus collectivism: the extent to which it is appropriate for people to look after
themselves and cared for – developed countries have the greatest individualism.
3. Masculinity versus femininity: the acceptable balance between dominance, assertiveness, and
acquisition compared to regard for people, feelings, and quality of life – Nordic countries have the
lowest difference. In contrast, masculinity is very high in Japan.
4. Uncertainty avoidance: the degree of preference for structured versus unstructured situations – it
is high for Latin American countries, southern Europe, and Eastern Europe, German-speaking
countries, and Japan; it is low in Anglo-American and Nordic countries and China.
5. Long-term versus short-term orientation: persistence to reach a future rather than live in the
present, follow tradition, and other social obligations – long-term orientations are found in China and
Japan but are low in Anglo-American, Islamic, African, and Latin American countries.

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Such cultural diversity is linked to differences between countries like social and economic
institutions. This will likely have a strong influence on how large organizations, especially
multinationals, organize and manage cross-border strategic management. Much was done about a
crisis of capitalism at the time of the 2008 global financial crisis, in particular about which are the most
appropriate modes or varieties of capitalism for global strategy.

Varieties of capitalism

Economists Peter Hall and David Soskice (2001) make an important observation that the nature
of an economy's capitalism depends on the strategic interactions and complementarities between
institutions and organizations. These provide the dominant mode of resource coordination that
businesses will use to manage strategically. They describe two opposing modes: a liberal market
economy in which competitive market structures emphasized; and a structured market economy in
which collective institutional relations function to eliminate long-term uncertainty.
One priority for executives is to maintain a dividend level and a high share price that will protect
the company from a hostile takeover. Government policies intended to promote open competition.
The participation of stakeholders such as employer associations, trade unions, and professional
networks is essential for cross-sharing support and ideas in a coordinated market economy. In these
economies, the regulatory systems work to facilitate the free movement of information and
collaboration between industry.
The US, UK, Australia, Canada, New Zealand, and Ireland are recognized as liberal market
economies while the countries of central and northern Europe and Japan identified as coordinated
market economies. Hall and Soskice point out how a free market ethos characterizes the United States
and the United Kingdom, while the German economy characterized by close cooperation between
companies, banks, owners, and employees. Likewise, Japan's economy depends on a coordinated
relationship between technical societies, banking and industrial organizations, and government
agencies.
China's economic growth has made many analysts see state capitalism as a threat to free-
market economies. It reported that China offers aggressive financial support to its businesses to invest
overseas and sign deals in sectors such as energy and raw materials to build new multinationals while
securing strategic commodity supplies. Global multinationals are also forced to pass the knowledge of
essential technologies in exchange for access to the Chinese market.

Strategic alliances and partnerships

Strategic alliances and partnerships are formal and informal associations and inter-agency
collaborations. A structured partnership requires a legally binding agreement between two
organizations to collaborate for a common goal that may include a large project and shared resources.
It may involve the establishment of another independent organization, such as a joint venture; this
involves the establishment of a legally separate company in which the partners take agreed equity
interests. Agreements made to establish a common purpose, standards, and contractual
arrangements covering issues such as licensing, franchising, distribution rights, and manufacturing
contracts. Informal partnerships with clients with large accounts, leading distributors, preferred
manufacturers, major institutional shareholders, and other stakeholders can enter into.
The reasons for the partnerships and alliances are varied and numerous. In return for market
access, it is often a matter of sharing knowledge about new technologies. Alliances also help

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organizations find out about management approaches from another company or unfamiliar markets.
They can help cut capital costs and spread risk, and they are often a more suitable form of market
entry for regulators. They are not with- problems though. A Chinese study of joint ventures found
that the main difficulties foreign organizations have encountered with their Chinese partners were
cultural differences and communication issues (Tian, 2016).

Self-Help: You can also refer to the sources below to help you further understand
the lesson:

Witcher, B. J. 2020, Absolute essentials of strategic management (1st Ed.) Routledge, New York
Retrieved from https://b-ok.cc/book/5304725/25a98e

Young, F. C., 2015, Strategic management made simple. Manila: REX Book Store

Flores, Marivic F. 2017, Business policy and strategy. Intramuros, Metro Manila: Unlimited

Books Library Services and Publishing Inc.

Let’s Check

Instructions: Read the statement below and write your answer on the space provided.
1. ______ an organizational framework to disaggregate and show the strategically relevant
activities of an organization, which helps understand and manage cost behavior and existing
and potential differentiation sources.
2. ______ standard market plan focused on being an industry's lowest-cost company.
3. ______ fundamental approach that a company takes to help a single business to
survive and grow its overall intent.
4. ______ essential business plan focused on a distinction that provides value for
consumers and returns that more than offsets the differentiation cost
5. ______ conceptualizations of critical areas or structures within an enterprise to
establish the unique value that the organization provides for its customers.
6. ______kind of strategy when a company targets a whole market.
7. ______ does not necessarily have to lower his prices below of his rivals and may do
this to win more customers and reap more economies of scale.
8. ______ability to offer product and service attribute that is offered differently from
those of other industry participants, such as unique qualities; delivery and reliability
features; corporate and brand images.
9. ______ activities bringing in inputs.
10. A company that selects a universal approach that blends cost and differentiation is called a
____when it approaches a 'Leader of all companies, master of none.'

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11. People doing all things is a ____ for strategic mediocrity and below-average performance.
12. ______aims at offering consumers superior value by meeting their requirements on crucial
product and service attributes while also exceeding their quality expectations.
13. ______ summary of the core business areas (and CSFs) of an organization and processes to
accomplish the organization's ultimate purpose.
14. ______ corporate center's strategy for managing a multi-business organization; that
concerned with multiple business growth and development.
15. _____ collection of divisions or companies operated as a portfolio of independent businesses
by a corporate core.
16. _____ when a company's businesses have certain features in common that allow a corporate
parent to create synergies that favor all the businesses that would otherwise not exist.
17. _____ approach of a corporate center to manage a multi-company group of organizations
strategically.
18. ____ involves new products and services being introduced into new markets.
19. _____ introduces new products and services to existing markets.
20. _____ concepts used to describe distinct strategic organizational strategies focused on how
companies choose markets, choose ways to manufacture goods and services, coordinate and
handle the research.
21. _____focus mainly on the engineering issue of how to manufacture value-adding goods and
services.
22. _____use market penetration, which tends to use expediency and crisis management over
the short term.
23. _____ occurs when one organization purchases a controlling interest in another to create a
larger entity.
24. _____ the expansion of the activities of an organization up or down a distribution chain.
25. _____rivals are taken over and combined with the internal operations that provide identical
or complementary goods and services.
26. _____ acquisition is bought cheaply, and its parts are restructured, and the profitability sold
off.
27. _____business is likely to be unhappy to see its revenue shift if it is prevented from
diversifying it into new business.
28. _____low market share but are in fast-growing markets.
29. _____ large share of the market and are in growing markets.
30. _____ multinational companies are organized into entities with a high degree of strategic
independence from the corporate core.

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Let’s Analyze

Activity 1. In this part, you are required to elaborate your answer on the questions
below:
1. Discuss the four generic strategies in your own understanding. Which of the
strategies best for you? Why?

2. What is the role of innovation as competitive strategy?

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In a Nutshell

Strategic management seeks to have a clear long-term strategic advantage

that can support stakeholders in an enterprise more sustainably than short-term
productivity over time. In this portion of the unit, you will be required to state your
arguments or synthesis relevant to the topics presented.

1. Business model is stable and based on an established mission.

2.

3.

4.

5.

6.

7.

8.

9.

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Question & Answer:

This section allows the students to list down all emerging questions or
issues. Ask questions in the LMS or other modes.

Please write answers after clarification.

Questions/Issues Answers

KEYWORDS INDEX

Business level Business model Product

strategy development
diversification
Cost leadership Merger Market
generic strategy development
diversification
Differentiation wide Acquisition Dogs
generic strategy
Cost focus generic Vertical Integration Cash Cow
strategy
Value chain Horizontal Stars
Integration
Strategic portfolio Market penetration Question mark
analysis
Related Diversification
diversification Dodger strategy

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COURSE SCHEDULE

Activity Date Where to submit

Big Picture: Let’s Check Activities Sept 07, 2020 LMS
Big Picture: Let’s Analyze Activities Sept.08, 2020 LMS
Big Picture: In a Nutshell Activities Sept. 09, 2020 LMS
Big Picture: QA List Sept. 10, 2020 LMS
Quiz-1st Sept.11, 2020 LMS
Forum 1- 3 Sept. 08-16, 2020 LMS
Quiz-2nd Sept. 16, 2020 LMS
Second Exam Sept. 18, 2020 LMS

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