Chapter 16
Strategy Formulation and Implementation
Chamantha Ubewarna
MBA – University of West London (UK), ACIM (UK), BBA - Edith Cowan University (AUS)
1
• Confidently use competitive and corporate strategy
tools to suggest relevant strategies or appraise
existing strategies
Learning
• Critically discuss the proposed need for a view of
Objectives strategy which sees it as a human and political
process (as opposed to a purely rational process)
• Explain accurately what an emergent strategy is and
give an example such as Honda’s motorcycle strategy
Porter’s
generic
strategies
◦ The horizontal axis shows
the two bases of
competitive advantage.
◦ Competitive scope, on the
vertical axis, shows
whether a company’s
target market is broad or
narrow.
Porter’s
Generic
strategies
❖ Having analyzed the macro-
environment and the
competitive forces in industry
and the marketplace, a
company next needs to make
strategic choices.
❖ Porter suggests three generic
strategies to choose from.
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Porter’s Generic
strategies
1. Cost leadership
o This competitive strategy centres on competing
through low costs and prices.
o A cost leadership strategy is one in which a firm uses
low price as the main competitive weapon
o It is achieved through approaches such as the
relentless pursuit of cost reductions and overhead
control, avoidance of marginal customers and cost
minimizations in non-key areas like R&D,
marketing, service and perhaps advertising. The idea
is to offer better value to customers through the same
value at a lower price.
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Porter’s Generic
strategies
The strategy has some weaknesses
❖A relentless drive to cut costs might
compromise value that customers desire.
❖Only competing on price leaves little room
for competitive manoeuvre if a competitor
finds ways of reducing their own costs (e.g.
innovating in its supply chain or finding a
substitute product).
❖Ex: If Tata exported its ‘one lakh’. The Tata
Nano car sold initially for $3000 in India,
while abroad, competitors’ cheapest cars were
selling for $8–10,000.
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Porter’s Generic
strategies
2. Differentiation
❖A differentiation strategy delivers products/services
that customers perceive to be valuable and different,
even unique.
❖ Differentiation strategy consists of offering a
product or service that is perceived as unique or
distinctive on a basis other than price.
❖A company targets customers in smaller, well-
defined segments who are willing to pay premium
prices.
❖It takes a low volume, high margin approach. The
strategy is dependent on products/services with
unique attributes (actual or perceived), for example,
in terms of quality, sophistication, prestige or luxury.
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Porter’s Generic
strategies
❖Key functional areas are R&D (as a source of
innovation), marketing/sales and after-sales
services.
❖But note that differentiation also erodes and
becomes commoditized as competitors find ways
of replicating the original product.
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3. Focus (or niche) strategy
◦ A focus strategy is when a company competes by targeting
very specific segments of the market.
◦ Here a company concentrates on serving the needs of a
particular segment or niche of an industry such as a
geographical market, type of customer or product line.
◦ Ex: Saga ([Link]) offers travel and insurance for those
over 50;
Porter’s Generic
◦ Croda ([Link]) produces specialty chemicals used in
other products, including cosmetics;
strategies
◦ NFU Mutual ([Link])offers insurance for
farmers.
There are two types of focus (Focus or niche) strategies
1. Specialized differentiator (Focused Differentiation)
2. Specialized cost leader (Focused cost- leadership)
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Porter’s Generic
strategies
Specialized differentiator
❖A specialized differentiator (Focused Differentiation)
has a smaller, narrower and sharper focus than a large
differentiator.
❖Ex: Japanese shipbuilders tend to build high quality
vessels at high prices, and at premium prices for the
global market. Scandinavian shipbuilders tend to
narrow their focus to building icebreakers, cruise ships
and other specialized vessels.
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Porter’s Generic
strategies
Specialized cost leader (Focused cost- leadership)
❖A specialized cost leader deals with a narrower segment
compared with the traditional cost leader.
❖Focusing is particularly successful when a company
possesses intimate knowledge of a particular market
segment.
❖Lower costs came from lower labour costs in India and the
adoption of process methodologies.
Ex: India’s large IT outsourcing firms such as TCS, Wipro
and Infosys throughout the early and mid 2000s competed
successfully against much larger firms such as Accenture,
Hewlett Packard and IBM because they focused on providing
good quality at lower costs for IT support, maintenance and
development work.
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Corporate
level strategy
The corporate mission
◦ A mission statement is a broad statement of an organization's scope and purpose, aiming to distinguish it from
similar organizations.
◦ IKEA ([Link]): “A better everyday life”
◦ Google ([Link]): “To organise the world’s information”
◦ Royal Society for the Protection of Birds ([Link]): “Saving nature”
◦ Cancer Research UK ([Link]): “Together we will beat cancer”
Ansoff matrix –
Strategic
choices
◦ Managers can decide how
to achieve their chosen
option by using the
product/market matrix.
◦ They can achieve growth
by focusing on one or
more of the quadrants,
stability by remaining
with existing products and
services and renewal by
leaving some markets
followed by entry into
others.
◦ Choice within this segment depends on whether the
market is growing, mature, or in decline. Each box
shows several possibilities:
◦ Market penetration aims to increase market share, which Existing markets,
will be easier in a growing market.
◦ It could be achieved by reducing price, increasing
existing
advertising or improving distribution.
product/service -
◦ Consolidation aims to protect the company’s share in
existing markets. This could mean improving efficiency Market
and/or service.
◦ In declining markets, it may mean acquiring penetration
competitors.
◦ Withdrawal adds value when competition is intense and
the organisation cannot match rivals: staying in that line
of business would destroy value, not create it.
Ansoff Matrix
Market penetration strategy
❖This involves increasing the share of current
markets with the current product/service
range.
❖We know that companies go international
because this strategy often does not meet its
growth needs domestically in limited or
overcrowded markets or where products are
mature.
Market penetration Strategy
Sub strategies
❖Increase the usage rate of existing customers
❖Win customers from competitors
❖Convert nonusers and lapsed users into users Ansoff Matrix
Ex: Price cuts, loyalty schemes,
RISK?
◦ A strategy of product or service development allows a
company to retain the relative security of its present
markets while altering products or developing new
Existing markets,
ones. new
◦ In fashion, consumer electronics and financial services,
companies continually change products to meet products/services
perceived changes in consumer preferences. Car
manufacturers compete by adding features and
- Product
extending their model range. development
◦ Some new products, such as ‘stakeholder pensions’ in
the United Kingdom, arise from government policy. strategy
◦ Most new products fail commercially, so, this is risky
and costly.
Ansoff Matrix
Product development strategy.
❖New products in existing markets – this
involves varying degrees of related
diversification (in terms of products).
❖ The strategy can be expensive in terms of
R&D and marketing, may require new
strategic capabilities and typically involves
project management risks.
Ansoff Matrix
Market development strategy
◦ Selling existing products in new markets.
◦ Sub strategies
◦ New market segments
◦ Attracting new users
◦ New geographical areas (International markets)
◦ RISK?
◦ Market development aims to find new outlets by:
◦ Extending geographically – China’s most rapidly growing
smartphone maker is expanding aggressively into the New markets, existing
Indian market;
◦ Targeting new market segments (groups of customers, by
products/services -
age, income or lifestyle); or Market development
◦ Finding new uses for a product (a lightweight material
developed for use in spacecraft is also used to make golf strategy
clubs).
Ansoff Matrix
Market development strategy.
❖Selling existing products in new markets.
❖This strategy can see companies marketing
abroad to new markets to extend the life of their
products and find opportunities to grow
revenues and profits.
❖This may also entail some product development
(e.g. new styling or packaging).
❖It can take the form of attracting new users.
Ansoff Matrix
Product development Strategy
Require new strategic capabilities, expensive, Extensive R&D
Sub strategies
❖Modifications
❖Different quality and size variations
❖Completely new products
RISK?
◦ Often described as diversification, this can take three forms:
◦ Horizontal movement: Developing related or complementary
activities, such as when mortgage lenders extend into the insurance
business, using their knowledge of existing customers to offer an
New markets,
additional service. Kwik-Fit used its database of depot customers to
create a motor insurance business.
new
◦ Vertical integration: Moving backwards or forwards into activities
related to the organization's products and services. A manufacturer
products/services
might decide to make its own components rather than buy them from
elsewhere. Equally, it could develop forward into distribution.
- Diversification
◦ Unrelated diversification: Developing into new markets outside the
present industry. Virgin has used its strong brand to create
complementary activities in sectors as diverse as airlines, media and
banking. Amazon has diversified far beyond books and online
retailing, into owning national newspapers, streaming videos and
producing films.
Ansoff Matrix
Diversification strategy.
❖New products in new markets.
❖This strategy is the riskiest approach to
internationalization.
❖According to Johnson et al. (2010) the
main drivers for diversification are
1. exploiting economies of scope -
efficiency gains through applying the
organization's existing resources or
competences to new markets or services
2. stretching corporate management
competences
3. exploiting superior internal processes
4. increasing market power.
◦ This method of analyzing the market standing of a
firm’s products and the fi rm’s overall product portfolio
was developed by the Boston Consulting Group
BCG Matrix
◦ Boston Matrix is a method of analyzing the product
portfolio of a business in terms of market share and Product portfolio
market growth.
◦ It highlights the position of each of a firm’s products
analysis
when measured by market share and market growth.
Strategy Implementation
❖ The view of strategy that we have adopted so far here is that strategy is a deliberate process, that emerges from a rational
sequence of stages of planning. Senior managers, and in some companies, managers and staff across the hierarchy, plan
strategy on the basis of a mission or vision. They gather information through internal and external analyses, and then make
strategic choices based on what appears to be a good strategic fit.
❖ However, the reality of strategic work is that it is often not so tidy. Rather than first conceiving and then executing an
optimal strategy, research shows that strategy work in real businesses rarely looks like this.
❖ It is very rare for organisations to have a process which clearly separates conception from execution. Usually, they work in a
more ad hoc, reactionary way, meaning that mission setting, internal and external analyses and strategic choices run
alongside one another, with reviews of each being kickstarted on an ad hoc and non-linear basis. Businesses don’t conceive
strategy in its entirety and then execute strategy in its entirety.
❖ Whilst we perceive managers, and the organisations they run, to be systematic, if we study them, we see that they are much
more ad hoc than that. Rather, they do some planning alongside some execution, change a few things, go back and do some
more planning, and never really have a neat and tidy process at all.
Emergent Strategy
❖ Mintzberg (1978; 1985) is a key theorist here (the same Mintzberg that you have met already in relation to
managerial theory). He feels that the idea of a rational, top-down, execution-follows-conception model of
the strategy process describes only one aspect.
❖ He distinguishes three types of strategy:
❖ Intended strategy designed by the top management team; this is primarily a rational and planned approach.
❖ Realized strategy is that small subset of intended strategy that is implemented.
❖ Emergent strategy refers to the sets of decisions made by managers trying to work within the intended strategy, but
dealing with the real world and all of its ups and downs, as well as their own biases and limits to their rationality.
Emergent Strategy
❖ The role of middle managers - To pick up on just one of these themes, as it is particularly significant for this
module. It is a common assumption that strategy is performed by top managers. However, middle managers play
important roles in the strategy process in a range of ways (Whittington et al., 2020):
❖ Making sense of strategy – middle managers have to explain the strategy to junior members of the organisation,
making sense of it for themselves and for others. There are a crucial bridge between the different layers.
❖ Adjustment – If a strategy is created, and then deployed, circumstances may change which require a change in
strategy implementation approaches, or even a change in the strategy itself. For example, in the early days of the
pandemic, middle managers in many businesses found themselves with no strategy to work to as the rules of the
market had changed, and needing to work towards emerging aims.
❖ Information source – middle managers have knowledge and experience of business realities in a way that senior
managers often do not which may impact current strategy implementation and the development of future
strategy.
The Practice of Strategy
❖ The idea of emergent strategy has come about through a more general interest in understanding how strategy (and other types of
work) really happen. This field has been labelled ‘strategy as practice’ and has led to some interesting findings, amongst which
have been:
❖ Strategy is a political process and the deliberate strategy that is often decided on may be as a result of lots of infighting and
jockeying for position at the senior level (Pettigrew, 1985).
❖ Middle managers and front-line workers can choose to embrace or reject top-down strategies in the work that they do, thus
reinforcing or blocking the strategic work of the company (top-level strategic work, can and do choose whether to execute,
block or subtly alter strategies that are told to them by senior managers, meaning that the functional level strategies and
below are not fully grounded in the strategic planning of the senior managers (Balogun, Best and Le, 2015)
❖ Strategic tools, such as those we have looked at in the strategy units you have studied, have been shown to become
constraining and habitual, limiting the thinking of managers at strategy workshops (Johnson et al., 2010).
❖ In addition, there are decisions and actions being taken on a day-to-day basis by managers around the organisation, which will
have an impact on strategic outcomes.
❖ To use the case of a hi-tech research company, the Product Safety Manager (PSM) will be aware of changes to regulation that the
organisation needs to comply with (such as electro-magnetic-compatibility of equipment). Senior managers do not have the
technical knowledge to evaluate changes to process that need to be made to comply.
❖ The PSM is likely to recommend changes, which may be discussed with functional colleagues, and be left to implement them. This
would all be invisible, provided it is compliant and the manager has successfully achieved the strategic aim of enabling goods to
be shipped freely in the EU.
❖ However, if the company gets fined for failure to comply, then this failure of emergent strategy would be brought to light.
Reputation might be damaged, and products would need recall. Should senior management have taken a more active role?