Lesson No. 7: Strategy Formulation 1

Lesson No.
7
Strategy Formulation 1
BUSINESS STRATEGIES
Powerpoint Templates
Page 1
STRATEGY FORMULATION
•Strategy formulation is an
essential process of Strategic
Management.
•It means designing strategies on
the corporate and business levels.
Page 2
TOPICS FOR DISCUSSION
•VALUE CHAIN ANALYSIS
•BUSINESS STRATEGIES
A. Growth strategies
B. Competitive strategies
C. Life cycle strategies
D. Turnaround strategies
Page 3
VALUE CHAIN ANALYSIS
Page 4
VALUE CHAIN ANALYSIS
•If an organization wants to be profitable, it
has to sell value to its buyers – value that is
worth paying for.
•As global markets widen, businesses have
to pay closer attention to where their raw
materials come from, how products are
produced, stored and transported, and what
end users need and want.
Page 5
VALUE CHAIN
•Value chain is a general term that refers to
a sequence of related activities performed
by an organization in a specific industry.
•It looks at every phase of business from
the time raw materials are procured to the
time the products reach the end users.
•The value chain concept is concretized in
supply chain management.
Page 6
SUPPLY CHAIN MANAGEMENT
•This is a broad continuum of specific
activities employed by a company. It consists
of:
•Supply chain management

•Production and operations
•Logistics
•Marketing and sales
Page 7
Page 8
SUPPLY MANAGEMENT
•Supply management is now a popular term
for purchasing, which was formerly termed
as procurement. It includes activities like:
•Identifying materials and service needs
•Locating and selecting suppliers, negotiating and
closing contracts
•Acquiring the needed materials, services and
equipment
•Monitoring stock keeping units (SKU)
•Tracking supplier performance
Page 9
SUPPLY MANAGEMENT
•Its goal is to obtain the right materials
by meeting quality requirements in the
right quantity, for delivery at the right
time and the right place, from the right
source, with the right service, and at
the right price.
Page 10
SUPPLY MANAGEMENT
•Supply management also aims to:
•Improve competitive position
•Provide uninterrupted flow of
materials, supplies and services
•Keep inventory and loss at a
minimum
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SUPPLY MANAGEMENT
•Maintain and improve quality
•Find best suppliers
•Purchase at lowest total costs
•Achieve harmonious relations with
suppliers
Page 12
SUPPLY MANAGEMENT
•Supply management includes
•Sourcing and ordering - canvassing and
purchasing raw materials, parts, components
and supplies from suppliers who deliver quality
products, deliver on time and at competitive
prices, provide good service back-up when
needed, and keep promises.
•Inventory management – making sure that the
right quantity of stocks are ordered and total
inventory costs are kept at a minimum.
Page 13
INVENTORY COSTS
•There are two inventory-related costs
that behave in opposite directions.
•Carrying cost or holding cost – as the number
of units goes up, the carrying or holding cost
goes up.
•Ordering cost – as he number of units ordered
goes up, the ordering cost goes down.
Page 14
LOWEST INVENTORY COST
•Since the two costs behave in
opposite directions, the lowest total
cost shall be the quantity where
carrying and ordering costs are equal.
•This is known as the Economic Order
Quantity, or EOQ.
Page 15
PRODUCTION AND OPERATIONS
•These are processes that transform
operational input into output to satisfy
consumer needs and requirements.
•Quality raw materials and parts,
efficient production layouts and
processes, and employees with skills
and motivation are essential to
effective transformational processes.
Page 16
LOGISTICS
•Now a popular term in supply chain
management, logistics management
includes the supervision of certain
sequential processes that include:
•Warehousing
•Scheduling
•Dispatching
•Transportation
•Delivery
Page 17
1 WAREHOUSING
•This is the function of physically
packing finished goods or
merchandise.
•While these items are stocked in
stockrooms, they are timetabled for
release to customers or buyers.
Page 18
2 SCHEDULING
•It is the act of organizing inventory
units and booking them for delivery.
Page 19
3 DISPATCHING
•Dispatching products are for transfer;
this may include posting, mailing,
shipping out, transmitting forwarding,
or releasing products or commodities.
Page 20
4 TRANSPORTATION
•This is one way to make dispatching
cost efficient.
•Different products require different
transportation modes and routes.
•The goal is to minimize transportation
costs.
Page 21
5 DELIVERY
•It refers to the actual and physical
process to bring the product to the
intended end user.
Page 22
THE LOGISTICS CIRCLE
•Since these logistics activities
(warehousing, scheduling, dispatching,
transportation, and delivery) are done
in sequential order, they make up what
is called the Logistics Circle.
Page 23
MARKETING AND SALES
•This is the last activity in supply chain
management.
•Selling to the end user, customer or
buyer and making sure that they
patronize the product happens here.
Page 24
SUMMARY
•Supply chain management is a
complete sequence of processes that
includes supply management,
production and operations, logistics,
and marketing and sales
Page 25
BUSINESS STRATEGIES
A. Growth Strategies
Page 26
GROWTH STRATEGIES
•A growth strategy is a mode adopted by an
organization to achieve its main objectives
of increasing volume and turnover.
•Growth strategies can be internal or
integrative.
•Internal growth strategies are business
strategies while integrative growth
strategies are corporate strategies.
Page 27
INTERNAL GROWTH STRATEGIES
•There are four internal growth strategies,
namely:
• Market penetration
• Market development
• Product development
• Diversification
•These strategies differ in terms of products

and markets.
Page 28
MARKET PENETRATION
•This strategy happens when a company
sells an existing product to an existing
market.
•To increase growth, a company must sell
more of its current products or services to
its current customers or buyers.
•It is the least risky strategy to pursue.
Page 29
MARKET DEVELOPMENT
•This is the strategy where a company sells
more of its existing products, not from its
existing market, but by seeking and tapping
new markets.
•It is a little more challenging compared to
market penetration.
Page 30
PRODUCT DEVELOPMENT
•This is the strategy where a company sells
a new product to its existing market.
•It is as challenging as market
development.
Page 31
DIVERSIFICATION
•This strategy is undertaken by selling a
new product to a new market.
•In short, it is “new products for new
customers”.
Page 32
INTERNAL GROWTH STRATEGIES
Products Current Products New Products
Markets
Current Markets MARKET PRODUCT

PENETRATION DEVELOPMENT
New Markets MARKET DIVERSIFICATION

DEVELOPMENT
Page 33
BUSINESS STRATEGIES
B. Competitive Strategies
Page 34
COMPETITIVE STRATEGIES
•These are long-term action plans prepared
with the end goal of directing how an
organization will survive and compete.
•They are formulated to help an
organization gain competitive advantage.
•They were popularized by Michael Porter,
and consist of Product Differentiation, Low
Cost and Focus strategies.
Page 35
COMPETITIVE STRATEGIES
•The competitive strategies according to
Porter are:
•Low-cost leadership strategy
•Broad differentiation strategy
•Best-cost provider strategy
•Focused/market-niche lower cost strategy
•Focused/market-niche differentiation strategy
Page 36
LOW COST LEADERSHIP
•The objective of this strategy is to offer
products and services at the lowest cost
possible in the industry.
•Example: Cebu Pacific
Page 37
BROAD DIFFERENTIATION
•The objective of this strategy is to provide
a variety of products, services or features
that competitors do not offer or are not able
to offer to consumers.
•Example: Mobile phone with face or retina
detection security feature
Page 38
BEST-COST PROVIDER
•This strategy is a combination of the low-
cost leadership and broad differentiation
strategies.
•Organizations give customers more value
for money by emphasizing both low-cost
products and services with unique features.
•Example: 168 Shopping Mall offers a
varied and wide range of products at low
cost and in large quantities.
Page 39
FOCUSED/MARKET-NICHE LOWER COST
•This strategy is implemented when the

company concentrates in a limited market
segment and creates a market niche based
on lower costs.
•Example: Low-cost condominium units for
middle-class employees
Page 40
FOCUSED/MARKET-NICHE BROAD
DIFFERENTIATION
•This strategy is implemented when the

company concentrates on a limited market
segment and creates a market niche based
on differentiated features like design, utility,
practicality, status symbol, etc.
•Example: Rolex
Page 41
OTHER COMPETITIVE STRATEGIES
•Innovation Strategy: Offering a product that is
both new and original
•Operational Effectiveness Strategy: Ensuring
efficient operations to cut down costs and
increase productivity; instituting cost saving
measures
•Economies of Scale: Lowering of cost through
high volume
•Technology Strategy: Digital integration (e.g.
ERP)
Page 42
BUSINESS STRATEGIES
C. Life Cycle Strategies
Page 43
PRODUCT LIFE CYCLE
•The life cycle of any product or service
refers to the stages of life it undergoes.
•According to Raymond Vernon, there are
four stages in a product’s life cycle, namely:
•Introduction
•Growth
•Maturity
•Decline
Page 44
INTRODUCTION STAGE
•This is the period of launching the product
or service for acceptance. In this phase, the
product or service is new; hence, there is a
need to create awareness.
•Strategies include promotions, giving
discounts, and market development.
Page 45
GROWTH STAGE
•This is the phase where the product or
service gains acceptance.
•In this phase, sales and profits slowly
increase and emphasis is now on
continuous market development and
improvement.
•Strategies include branding, building
customer loyalty, and promoting repeat
business through customer patronage.
Page 46
MATURITY STAGE
•This is the period where the product or
service has reached its peak or penultimate
level.
•Here, the established product or service
tends to remain steady and the number of
competitors increases.
•Strategies include reinventing, product
differentiation, efficient operations, and
formulation of creative marketing strategies.
Page 47
DECLINE STAGE
•This is the period where the product or
service begins to reach its low point.
•Here, sales and profits decrease and price
competition becomes intense.
•Strategies include status quo, price
reduction, consolidation with other
organizations, product or service
reinvention, aggressive marketing, and exit
from the industry.
Page 48
BUSINESS STRATEGIES
D. Retrenchment Strategies
Page 49
RETRENCHMENT STRATEGIES
•These strategies are needed when the
organization encounters serious difficulties,
or when its survival is threatened, or when it
is not competing effectively.
•Retrenchment strategies include:
•Liquidation
•Divestment
•Turnaround strategy
Page 50
LIQUIDATION
•Liquidation is the most radical action a
company takes when it is losing money.
•It is further compounded by a disinterest
on the part of the owners to do anything
more to save the company.
•In such cases, the business may be
terminated and its assets sold.
Page 51
DIVESTMENT
•Divestment is implemented when a
company consistently fails to reach the set
objectives or when the company does not fit
well in the organization.
•Thus, the owners would preferably sell it or
set it as a separate corporation.
Page 52
TURNAROUND STRATEGY
•A turnaround strategy is adopted when the
organization has reached a significant level
of non-performance, non-productivity,
demoralization, and unprofitability, and
therefore needs to implement restorative
strategies.
•In a turnaround strategy, a company needs
to focus on climate and culture, products
and services, production and operations,
infrastructure, and finances.
Page 53
End of Lesson No. 7
Strategy Formulation 1
BUSINESS STRATEGIES
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Lesson No.

•Supply chain management

•These strategies differ in terms of products

Current Markets MARKET PRODUCT

New Markets MARKET DIVERSIFICATION

•This strategy is implemented when the

•This strategy is implemented when the

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