Chapter 5

Strategy Formulation: Situation

Analysis and Business Strategy

PowerPoint Slides
Anthony F. Chelte
Western New England College

Prentice Hall, 2004 Chapter 5 1

Wheelen/Hunger
 Situational Analysis

Strategy formulation:
– Strategic planning or long-range
planning
• Develops mission, objectives, strategies
and policies

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 Situational Analysis

Situational Analysis:
– Process of finding a strategic fit
between external opportunities and
internal strengths while working around
external threats and internal
weaknesses.

Prentice Hall, 2004 Chapter 5 3

Wheelen/Hunger
 Strategic Factor Analysis Summary
(SFAS)
1 2 3 4 Duration 5 6
Strategic Factors

INTERMEDIATE
(Select the most important
opportunities/threats from EFAS, Table 3.4
Weighted

SHORT
and the most important strengths and

LONG
weaknesses from IFAS, Table 4.2) Weight Rating Score Comments

Total Score

Prentice Hall, 2004 Chapter 5 4

Wheelen/Hunger
 Strategic Factor Analysis Summary (SFAS):
Maytag as Example
Duration
Strategic Factors

INTERMEDIATE
(Select the most important
opportunities/threats from EFAS, Table 3.4
Weighted

SHORT
and the most important strengths and

weaknesses from IFAS, Table 4.2) Weight Rating Score
S1 Quality Maytag culture (S) .10 5 .50
S3 Hoover’s international orientation (S) .10 3 .30
W3 Financial position (W) .10 2 .20
W4 Global positioning (W) .15 2 .30
O1 Economic integration of
European Community (O) .10 4 .40
O2 Demographics favor quality (O) .10 5 .50
O5 Trend to super stores (O + T) .10 2 .20
T3 Whirlpool and Electrolux (T) .15 3 .45
T5 Japanese appliance companies (T) .10 2 .20
LONG
Comments
X Quality key to success
X Name recognition
X High debt
Only in N.A., U.K., and Australia
X Acquisition of Hoover
X X Maytag quality
X Weak in this channel
X Dominate industry
X Asian presence

1.00 3.05
Total Score

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Wheelen/Hunger
 Situational Analysis
Niche:
– A need in the marketplace that is currently
unsatisfied.

Goal for the Corporation

– Find a propitious niche
• An extremely favorable niche
– Strategic window
• Unique market opportunity available for a limited
time

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 Situational Analysis

SWOT analysis:
– Internal
• Strengths
• Weaknesses

– External
• Opportunities
• Threats

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 TOWS Matrix

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 Resource-Based Approach

Resource:

An asset, competency, process, skill,

or knowledge controlled by the
corporation.

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 Business Strategies

Business Strategy:
Focuses on improving the competitive
position of a company’s or business
unit’s products or services within the
specific industry or market segment
that the firm serves.

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Wheelen/Hunger
Porter’s Competitive Strategies

Competitive Strategy:
– Low cost?
– Differentiation?
– Compete head to head in large
market?
– Focus on niche?

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Wheelen/Hunger
Porter’s Competitive Strategies

Generic Competitive Strategies:

– Lower cost strategy
• Design, produce, market more efficiently
than competitors
– Differentiation strategy
• Unique and superior value in terms of
product quality, features, service

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Porter’s Competitive Strategies

Competitive Advantage:
– Determined by Competitive Scope
• Breadth of the company’s target market

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 Porter’s Generic Competitive Strategies

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Porter’s Competitive Strategies

Cost Leadership:
– Low-cost competitive strategy
– Aimed at broad mass market
– Aggressive construction of efficient-
scale facilities
– Cost reductions
– Cost minimization

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Wheelen/Hunger
Porter’s Competitive Strategies

Differentiation:
– Broad mass market
– Unique product or service
– Charge premiums
– Lower customer sensitivity to price

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Wheelen/Hunger
Porter’s Competitive Strategies

Cost focus:
– Low cost competitive strategy
– Focus on particular buyer group or
market
– Niche focused
– Seek cost advantage in target market

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Wheelen/Hunger
Porter’s Competitive Strategies

Differentiation focus:
– Focus on particular group or
geographic market
– Seek differentiation in targeted market
segment
– Serve special needs of narrow target
market

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Porter’s Competitive Strategies

Stuck in the middle:

– No competitive advantage
– Below-average performance

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Wheelen/Hunger
 Risks of Generic Competitive Strategies
Risks of Cost Leadership
Cost leadership is not
sustained:
• Competitors imitate.
• Technology changes.
• Other bases for cost
leadership erode.
Proximity in differentiation is
lost.
Cost focusers achieve even
lower cost in segments.
Prentice Hall, 2004
Risks of Differentiation
Differentiation is not
sustained:
• Competitors imitate.
• Bases for differentiation
become less important to
buyers.
Cost proximity is lost.
Differentiation focusers
achieve even greater
differentiation in segments.
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Risks of Focus
The focus strategy is
imitated:
The target segment becomes
structurally unattractive:
• Structure erodes.
• Demand disappears.
Broadly targeted competitors
overwhelm the segment:
• The segment’s
differences from other
segments narrow.
• The advantages of a
broad line increase.
New focusers subsegment
the industry.
20
 Competitive Strategy

Industry Structure:
– Fragmented Industry
• Many small and medium-sized local
companies compete for small shares of total
market
– Focus strategies predominate

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 Competitive Strategy

Industry Structure:
– Consolidated industry
• Mature industry dominated by a few large
companies
– Cost Leadership or Differentiation predominate

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 Dimensions of Quality

Dimensions • Performance
• Features
• Reliability
Quality • Conformance
• Durability
• Serviceability
• Aesthetics
• Perceived Quality

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 Competitive Strategy
Strategic rollup:
– Quickly consolidate fragmented
industry
– Money from venture capital
– Entrepreneur acquires hundreds of
owner-operated firms
– Creates large firm with economies of
scale

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 Competitive Strategy

Strategic rollup:
– Differ from Conventional M&A’s
• Large number of firms
• Owner-operated firms
• Goal to reinvent entire industry

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 Competitive Tactics

Tactic:
– Specific operating plan detailing how a
strategy is to be implemented in terms
of when and where it is to be put into
action.
• Timing tactics
• Market location tactics

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 Competitive Tactics
Timing Tactics:
– First mover (pioneer)
• Reputation as industry leader
• High profits
• Sets standards for subsequent products in
the industry
– Late mover
• Able to imitate technological advances
of others
– Keeps R&D costs down
– Keeps risks down

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Wheelen/Hunger
 Competitive Tactics

Market Location Tactics:

– Offensive Tactics
• Frontal assault
• Flanking maneuver
• Bypass attack
• Encirclement
• Guerrilla warfare

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 Competitive Tactics

Market Location Tactics:

– Defensive Tactics
• Raise structural barriers
• Increase expected retaliation
• Lower the inducement for attack

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 Cooperative Strategies

Cooperative Strategies:
– Collusion
• Active cooperation of firms to reduce
output and raise prices
– Explicit
– Tacit

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 Cooperative Strategies

Cooperative Strategies:
– Strategic Alliance:
– Partnership of two or more corporations or
business units to achieve strategically
significant objectives that are mutually
beneficial.

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 Cooperative Strategies
Obtain technology

Access to markets

Strategic
Alliance Reduce financial risk

Reduce political risk

Achieve competitive
advantage

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Wheelen/Hunger
 Continuum of Strategic
Alliances

Mutual Service Joint Venture Value-Chain

Consortia Licensing Arrangement Partnership

Weak and Distant Strong and Close

Source: Suggested by R. M. Kanter, “Collaborative Advantage: The Art of Alliances,” Harvard Business Review
(July-August 1994), pp. 96–108.

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