UNIT IV. STRATEGY SELECTION.

4.1 Models and tools for strategy formulation.

An internal business analysis is a business term strongly associated with the SWOT
(Strengths, Weaknesses, Opportunities and Threats) analysis. An internal business analysis
is an assessment of the company's current position from the combined perspectives of
marketing, operations, and finance for strategic use.
The ultimate purpose of internal analysis is to use the information for strategic planning,
that is, the company's plan for growth, success, and market leadership. Determining
business strengths and weaknesses translates into the steps necessary to achieve goals.
This analysis is for internal management use only (not for shareholders) and consists of
assessments made by finance, operations, and marketing executives based on data
provided by these departments.

4.2 Types of strategies.

Strategy formulation involves developing the organization's mission, identifying the
organization's external opportunities and threats, defining its strengths and weaknesses,
establishing long-term objectives, generating alternative strategies, and choosing the
specific strategies to be followed. Some aspects of strategy formulation include deciding
which new businesses to enter, which to exit, how to allocate resources, whether to
expand operations or diversify, whether to enter foreign markets, whether to merge or
form a joint venture, and how to avoid a hostile takeover.

 Differentiation Strategy
The goal of differentiation is to create something that is perceived in the market as
unique. This does not mean that the company ignores costs, but that they are not the
primary strategic objective.
Some ways to differentiate are through:
 Product design  External appearance.
 Brand image.  After-sales service.
 Technological advancement.  Retail chains
It consists of creating value for the product, giving it a well-defined identity so that it is
perceived as unique by the customer. This can be done on the basis of quality, service,
design, etc. It may be a more expensive product (or service) but the customer perceives
that it is different and is therefore willing to pay for it.
Example: Coca Cola- Kola Real
Regarding the case of Kola Real, this drink initially sought to follow the image reference of
Coca Cola, by opting for the same color of the product, the color of the packaging and
even the flavor. However, it managed to differentiate itself due to its price and thus
position itself as an affordable, medium-quality product, and then expand and consolidate
its position in the market.

 Focus strategy
Recognizes that there are a large number of market opportunities to offer specialized
products or services. It involves identifying a market niche that has not yet been exploited
and thus not directly confronting all competitors.
It focuses on the needs of a market segment, without attempting to address the entire
market. It seeks to satisfy the needs of the segment, better than competitors who target
the entire market.
This strategy involves differentiation or cost advantage or both, but only with respect to
the chosen segment.
For example:
Valencia, the most disruptive city with a technological and modern approach, has worked
through the Centre for Strategies and Development (CEyD), which mobilises all the city's
stakeholders and strengthens the organisation's capacity, to ensure that the city achieves
the leadership or areas of notoriety that the strategy indicates.

 Stability Strategy
The objective of this strategy is essentially to stop the decline in the company's sales and
profits and is valid when the company is in a phase of instability. This is intended to
stimulate the company to put it in a position to resume growth.

4.3 Strategies and competitive advantages.

One of the most common ways to conduct internal analysis is to focus on resources and
capabilities. The analysis of resources and capabilities aims to identify the potential of the
organization and, above all, those factors that differentiate us from the rest and can
provide what is called a "competitive advantage." Competitive advantage is understood as
“The characteristics or attributes possessed by a product or brand that give it a certain
superiority over its immediate competitors.”

4.4 Adoption of a model for strategy formulation.

Identifying resources and capabilities allows us to diagnose the strengths on which to base
the strategies and how to minimize the weaknesses, in order to formulate and choose a
strategy that exploits the main resources and capabilities, ensure that the resources and
capabilities are being used appropriately and cover the current deficiencies and
weaknesses.
The resources
They are the set of factors or assets that the organization has to carry out its actions.
These can be physical, technological, human and organizational.
The capabilities
They are collective skills or abilities that allow a specific activity to be carried out, as well
as organizational routines that allow an activity to be developed in a different way.
Capabilities allow an activity to be adequately developed based on an appropriate
combination of resources. They are usually linked to human capital and rely on intangible
assets.

CONCEPTUAL MODEL
•It is one that represents an idea of what something should be in general or an image of
something formed through the generalization of particularities.
•It represents a powerful tool, as it provides the appropriate guidance for proper
functioning in practice.
•An operating model is the one actually used in companies.

INCREMENTAL PLANNING PROCESS

Current strategic Analysis of the Values, aspirations of Pressures and social
stance environment managers responsibility
Internal analysis

Limited range of strategy

alternatives

Strategic plan

Medium-term plan

Short term plan

Implantation

Results

FIRST CONCEPTUAL MODEL

1. Formulate homework. 7. Determine the current decisions
2. Develop the entries. needed.
3. Evaluate alternative courses of 8. Observe performance.
action. 9. Review annually
4. Define the primary objectives.
5. Define important policies and
strategies. SECOND CONCEPTUAL MODEL
6. Develop detailed medium-term
plans.
1. Define the kind of company we want.
2. Analyze our clients.
 3. Analyze our industry.
4. Ask: What are the opportunities and dangers for us?
5. Ask: What are our strengths and weaknesses?
6. Ask: What strategies are identifiable?
7. Evaluate alternative strategies.
8. Develop objectives.
9. Prepare detailed plans to implement strategies.
10. Develop contingency plans.
11. Translate plans into budgets.
12. Observe performance.
13. Review annually.

THIRD CONCEPTUAL MODEL

1. Develop a pragmatic understanding of strategic planning in general but particularly
for a small company.
2. SWOT Identification.
3. Identifying strategies to explore opportunities and avoid threats.
4. Evaluation and selection of strategies.
5. Implementation of plans for priority strategies.
6. Formulation of the company's main goals.
7. Prepare other associated plans.
8. Observe performance.
9. Review annually.

FOURTH CONCEPTUAL MODEL

1. Where are we?
2. Where do we want to go?
3. Can we get there?
4. What strategies will achieve which goals?
5. What decisions need to be made now to get there?
6. Observe performance.
7. Review annually

4.5 Strategic maps

Strategy maps are tools that provide a macro view of an organization's strategy, and
provide a language to describe it. They are a graphic description of the Strategy.
They serve to describe an organization's strategy and provide a framework to illustrate
how strategy links intangible assets to value creation processes.
Strategy Maps are designed under a specific cause and effect architecture, and serve to
illustrate how the four perspectives of the Balanced Scorecard (BSC) interact:
1) Financial results are only achieved if customers are satisfied. That is, the financial
perspective depends on how the customer perspective is constructed. 2)
2) The customer value proposition describes the method for generating sales and
loyal customers. Thus, it is closely linked to the perspective of the processes
necessary to ensure customer satisfaction.
3) Internal processes are the mechanism that puts the customer value proposition
into practice. However, without the support of intangible assets it is impossible for
them to function effectively.
4) If the learning and growth perspective does not clearly identify what tasks (human
capital), what technology (information capital), and what environment
(organizational culture) are needed to support the processes, value creation will
not occur. Ultimately, therefore, financial targets will not be met either.

How to build a Strategic Map

 The Strategic Map is built on 4 levels:
1) The first level is the “Financial Perspective”: the purpose of which is to identify the
company’s financial objectives for a given period. These objectives must be
 quantifiable and therefore measurable.
2) The second level is the “Customer Perspective”: the purpose of which is to identify
what we need to do to achieve the financial objectives taking into account the
satisfaction of our customers; that is, to achieve customer satisfaction with the
sale of products and/or provision of services to facilitate the achievement of the
goals set in the financial perspective (financial objectives).
3) The third level is the “Internal Perspective”: the objective of which is to define
what we have to do internally to satisfy our clients’ perspective and achieve our
financial perspective.
4) The fourth level is the “Learning Perspective”: in order to define what knowledge
and/or skills need to be developed to fulfill the “Internal Perspective”.