Types of Strategy and

Strategy Formulation
Geoff Leese September 2005 revised
September 2006, July 2007, August 2008,
August 2009

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The Strategic Management Process
Identify
•Scan External Strategic
•Environment Factors:
•Opportunities Implement
•Threats Strategy via
Changes in:
Formulate
•Leadership
Strategy:
Evaluate •Culture
•Corporate
Current: •Structure
Define New •Business
•Mission •HR
Mission/Goals •Functional
•Goals •Marketing
•Strategies •Finance
•Prod/dist
•IT&IS
Identify •Etc
Strategic
Scan Internal
Factors:
Environment
•Strengths
•Weaknesses

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 Strategy Formulation

• Developing long-range plans to

effectively manage environmental
opportunities and threats in light of
corporate strengths and weaknesses.
• The design of an approach to achieve
the firm's mission.

3
 Thinking Strategically
• To help managers answer questions such as:
• Where is the organization now?
• Where does the organization want to be?
• What changes are among competitors?
• What courses of action will help us achieve
our goals?
• Answers define an overall direction for the
organisation's grand strategy.

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 Grand Strategy

General plan of action to achieve long-

term objectives
1. Growth
2. Stability
3. Retrenchment.

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 Growth

Can be promoted internally by

investing in expansion or externally by
acquiring additional business
divisions.

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 Stability

Remain same size or grow steadily

and in a controlled way

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 Retrenchment

Forced decline by either shrinking

current business units or selling off
or liquidating entire businesses.

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 Purpose of Strategy

Value Creation = use core

competence and synergy to provide
increased benefits received with lower
costs paid.

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 Purpose of Strategy

• CORE COMPETENCE: something the

organization does especially well in
comparison to its competitors
 Superior research and development
 Mastery of a technology
 Superior customer service.

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 Purpose of Strategy

SYNERGY: when organizational parts

interact to produce a joint effect that is
greater than the sum of its parts acting
alone.

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 Strategy Formulation

• Development of the firm's goals and a

specific strategic plan
• Assessing the external environment
and the internal issues
• Integrating the results into goals and
strategy.

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 Levels of Strategy

 Corporate
 Business
 Functional.

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Corporate-Level Strategy

• Acquisition of new businesses

• Additions or divestment of business
units, plants, or product lines
• Joint ventures with other companies in
new areas.
What business are we in?

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 Portfolio Strategy

The organizational mix of Strategic

Business Units and product lines to
provide synergy and a competitive
advantage.

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 Business-Level Strategy
• Advertising/marketing
• Direction and extent of R&D
• Product changes
• New product development
• Equipment and facilities
• Expansion or contraction of product
lines.

How do we compete?
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Formulating Business-Level Strategy

• Porter’s Five Force model

• Competitive strategies
• Covered in Lecture 3a

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 Function-Level Strategy
• Production
• Distribution
• Finance.
• IS&IT
• Marketing
• HR
• R&D

How do we support business-level

strategy?
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 Strategic choice

Strategic
Intent
Context

A C
B
Available
Strategic D options
Assessment

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 Choosing an option (1)

• Region A – unidentified
• Region B – identified, aligned and
feasible!
• Region C – identified, aligned but not
feasible
• Region D – identified and feasible, but
not aligned

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 Choosing an option (2)

• Three tests
• Does it take us towards where we want to
be? (Alignment)
• Do we have, or can we obtain, the
resources required to implement it?
(Feasibility)
• Will it win the support of those who need
to approve it, and those who need to
implement it? (Acceptability)

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 Choosing an option(3)

• Number of strategic options is rarely

large
• If more than one passes all three tests,
necessary to evaluate “best”
• Evaluate according to tangible (risk,
return, CBA) and intangible (cultural
“fit”, matching values and policies)
factors.

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 Porter’s generic strategies
Basis of competitive advantage
Cost Differentiation

Cost Leadership Differentiation

Broad
Market scope

Narrow Cost Focus Differentiation

Focus

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 Further Reading

• Strategic Choice – follow the link!

• Johnson and Scholes chapter 7
• Bennett Chapters 1 and 3

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