9/19/2023

Introduction to Strategy

• Goals
• A company never has goals, but the persons/the
members of the organization.
• Corporate goals are determined by CEOs with the
advice of other members of senior management,
and they are usually ratified by the board of
directors.

Goals

• Profitability
▫ The most important goals for a business

Revenue – Expenses x Revenues = Return on Investment

Revenues Investment

• Maximizing Shareholder Value

• Risk,
▫ An organization’s pursuit of profitability is affected by
management’s willingness to take risk.

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Multiple Stakeholder Approach

• Management should fulfil the goals of different

stake holders
▫ Capital Market Stakeholders
▫ Product Market Stakeholders
▫ Factor Market Stakeholders

The Concept of Strategy

• A strategy describes the general direction in

which an organization plans to move to attain its
goals
• Levels of Strategy
▫ Corporate Level Strategy,
 Strategies for a whole organization
▫ Business Unit Level Strategy,
 Strategies for business units within the organization

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Strategy Environmental Internal analysis

Formulation analysis Technology know-how
Competitor Manufacturing know- how
Marketing know-how
Customer
Distribution know-how
Supplier Logistic know-how
Regulatory
Social/Political

Opportunities Strength and

and threats weaknesses
Identify opportunities Identify core competencies

Fix internal competencies with

external opportunities

FIRM’S STRATEGIES

Corporate Level Strategy

• is being in the right mix of business

• is concerned with the question of where to
compete than how to compete in particular
industry.
• The main issues are:
1. The definition of business in which the firm will
participate
2. The deployment of resources among those
business.
Decision: what business to add, what business to retain,
what business to emphasize, what business to de-
emphasize, and what business to divest.

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Industrial Mix Strategy Types

• Single Industry Firms
▫ Firms which totally commit and compete in only one industry
▫ The firms uses its core competencies to pursue growth within that
industry.
▫ Example: McDonald’s
• Unrelated Diversified Firms
▫ Firms which operate in a number of a different industries
▫ Totally autonomous businesses in very different markets
▫ Conglomerates
▫ Example: Indogroups
• Related Diversified Firm
▫ Firms that operate in a number of industries and their businesses are
connected to each other through operating synergies.
▫ Share common resources and common core competencies.
▫ Example: Unilever, P&G

Business Unit Strategies

• All the strategies applying in a business unit
• The strategies depend on:
1. Its mission (what are its overall objectives)
2. Its competitive advantage (how should the
business unit compete in its industry to
accomplish the mission)

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Business Unit Mission: The BCG Model

(Boston Consulting Groups)

Cash source
High Low
High High
“Star” “Question mark”
Market Hold Build Cash
growth use
rate
“Cash cow” “Dog”
Harvest Divest
Low Low
High Low
Relative market share

Business Unit Competitive Advantage

Potential Entrants

Existing
Buyers Suppliers
Competitive
Rivalry

Substitutes

Michael Porter’s Five Forces Model

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Competitive Advantage Questions in Activities

Conducted
1. Can we reduce costs but holding value
(revenues) constant?
2. Can we increase value (revenue) but holding
costs constant?
3. Can we reduce assets but holding costs and
revenues constants?
4. Can we do 1, 2, and 3 simultaneously?