Strategic Formulation
Goals indicate what a business unit wants to achieve; strategy is a game plan for getting there. Every business
must design a strategy for achieving its goals, consisting of a marketing strategy and a compatible technology
strategy and sourcing strategy.
Porter’s Generic Strategies Michael Porter has proposed three generic strategies that provide a good
starting point for strategic thinking: overall cost leadership, differentiation, and focus.
• Overall cost leadership. Firms work to achieve the lowest production and distribution costs so they can
underprice competitors and win market share. They need less skill in marketing. The problem is that other
firms will usually compete with still-lower costs and hurt the firm that rested its whole future on cost
• Differentiation. The business concentrates on achieving superior performance in an important customer
benefit area valued by a large part of the market. The firm seeking quality leadership, for example,
must make products with the best components, put them together expertly, inspect them carefully, and
effectively communicate their quality.
• Focus. The business focuses on one or more narrow market segments, gets to know them intimately, and
pursues either cost leadership or differentiation within the target segment.
The online air travel industry has provided a good example of these three strategies: Travelocity has pursued
a differentiation strategy by offering the most comprehensive range of services to the traveler; Lowestfare has pursued a lowest-cost strategy for the leisure travel market; and Last Minute has pursued a niche strategy by focusing on travelers who have the flexibility to travel on very short notice. Some companies use a hybrid approach
According to Porter, competing firms directing the same strategy to the same target market constitute a strategic group. The firm that carries out the strategy best will make the most profits. Circuit City went out of business because it did not stand out in the consumer electronics industry as lowest in cost, highest in perceived value, or best in serving some market segment.
Porter draws a distinction between operational effectiveness and strategy. Competitors can quickly copy the
operationally effective company using benchmarking and other tools, thus diminishing the advantage of operational effectiveness. Strategy, on the other hand, is “the creation of a unique and valuable position involving a different set of activities.” A company can claim it has a strategy when it “performs different activities from rivals or performs similar activities in different ways.”
Strategic Alliances Even giant companies—AT&T, Philips, and Starbucks—often cannot achieve
leadership, either nationally or globally, without forming alliances with domestic or multinational companies that complement or leverage their capabilities and resources.
Just doing business in another country may require the firm to license its product, form a joint venture with a
local firm, or buy from local suppliers to meet “domestic content” requirements. Many firms have developed global strategic networks, and victory is going to those who build the better one. The Star Alliance brings together 27 airlines, includingnLufthansa, United Airlines, Singapore Airlines, Air New Zealand, and South Africa Airways, in a huge global partnership that allows travelers in 193 countries to make nearly seamless connections to hundreds of destinations.
Many strategic partnerships take the form of marketing alliances. These fall into four major categories.
1. Product or service alliances—One company licenses another to produce its product, or two companies
jointly market their complementary products or a new product. The credit card industry is a complicated
combination of cards jointly marketed by banks such as Bank of America, credit card companies such as
Visa, and affinity companies such as Alaska Airlines.
2. Promotional alliances—One company agrees to carry a promotion for another company’s product or service. In 2011, VIBE urban music and lifestyle magazine announced a promotional alliance with Hoop It Up, the world’s largest participatory 3-on-3 basketball tournament program, with competitions in 35 cities. The multi-platform partnership included VIBE digital, VIBE Cityguide App, editorial coverage and promotion in VIBE, and a highly integrated social media campaign with a strong VIBE branded presence at all Hoop It Up live events nationwide
3. Logistics alliances—One company offers logistical services for another company’s product. Warner Music
Group and Sub Pop Records created the Alternative Distribution Alliance (ADA) in 1993 as a joint venture
to distribute and manufacture records owned by independent labels. ADA is the leading “indie” distribution
company in the United States for both physical and digital product.
4. Pricing collaborations—One or more companies join in a special pricing collaboration. Hotel and rental car companies often offer mutual price discounts.
Companies need to give creative thought to finding partners that might complement their strengths and offset
their weaknesses. Well-managed alliances allow companies to obtain a greater sales impact at lower cost. To keep their strategic alliances thriving, corporations have begun to develop organizational structures to support them, and many have come to view the ability to form and manage partnerships as core skills called partner relationship management (PRM).
Goals indicate what a business unit wants to achieve; strategy is a game plan for getting there. Every business
must design a strategy for achieving its goals, consisting of a marketing strategy and a compatible technology
strategy and sourcing strategy.
Porter’s Generic Strategies Michael Porter has proposed three generic strategies that provide a good
starting point for strategic thinking: overall cost leadership, differentiation, and focus.
• Overall cost leadership. Firms work to achieve the lowest production and distribution costs so they can
underprice competitors and win market share. They need less skill in marketing. The problem is that other
firms will usually compete with still-lower costs and hurt the firm that rested its whole future on cost
• Differentiation. The business concentrates on achieving superior performance in an important customer
benefit area valued by a large part of the market. The firm seeking quality leadership, for example,
must make products with the best components, put them together expertly, inspect them carefully, and
effectively communicate their quality.
• Focus. The business focuses on one or more narrow market segments, gets to know them intimately, and
pursues either cost leadership or differentiation within the target segment.
The online air travel industry has provided a good example of these three strategies: Travelocity has pursued
a differentiation strategy by offering the most comprehensive range of services to the traveler; Lowestfare has pursued a lowest-cost strategy for the leisure travel market; and Last Minute has pursued a niche strategy by focusing on travelers who have the flexibility to travel on very short notice. Some companies use a hybrid approach
According to Porter, competing firms directing the same strategy to the same target market constitute a strategic group. The firm that carries out the strategy best will make the most profits. Circuit City went out of business because it did not stand out in the consumer electronics industry as lowest in cost, highest in perceived value, or best in serving some market segment.
Porter draws a distinction between operational effectiveness and strategy. Competitors can quickly copy the
operationally effective company using benchmarking and other tools, thus diminishing the advantage of operational effectiveness. Strategy, on the other hand, is “the creation of a unique and valuable position involving a different set of activities.” A company can claim it has a strategy when it “performs different activities from rivals or performs similar activities in different ways.”
Strategic Alliances Even giant companies—AT&T, Philips, and Starbucks—often cannot achieve
leadership, either nationally or globally, without forming alliances with domestic or multinational companies that complement or leverage their capabilities and resources.
Just doing business in another country may require the firm to license its product, form a joint venture with a
local firm, or buy from local suppliers to meet “domestic content” requirements. Many firms have developed global strategic networks, and victory is going to those who build the better one. The Star Alliance brings together 27 airlines, includingnLufthansa, United Airlines, Singapore Airlines, Air New Zealand, and South Africa Airways, in a huge global partnership that allows travelers in 193 countries to make nearly seamless connections to hundreds of destinations.
Many strategic partnerships take the form of marketing alliances. These fall into four major categories.
1. Product or service alliances—One company licenses another to produce its product, or two companies
jointly market their complementary products or a new product. The credit card industry is a complicated
combination of cards jointly marketed by banks such as Bank of America, credit card companies such as
Visa, and affinity companies such as Alaska Airlines.
2. Promotional alliances—One company agrees to carry a promotion for another company’s product or service. In 2011, VIBE urban music and lifestyle magazine announced a promotional alliance with Hoop It Up, the world’s largest participatory 3-on-3 basketball tournament program, with competitions in 35 cities. The multi-platform partnership included VIBE digital, VIBE Cityguide App, editorial coverage and promotion in VIBE, and a highly integrated social media campaign with a strong VIBE branded presence at all Hoop It Up live events nationwide
3. Logistics alliances—One company offers logistical services for another company’s product. Warner Music
Group and Sub Pop Records created the Alternative Distribution Alliance (ADA) in 1993 as a joint venture
to distribute and manufacture records owned by independent labels. ADA is the leading “indie” distribution
company in the United States for both physical and digital product.
4. Pricing collaborations—One or more companies join in a special pricing collaboration. Hotel and rental car companies often offer mutual price discounts.
Companies need to give creative thought to finding partners that might complement their strengths and offset
their weaknesses. Well-managed alliances allow companies to obtain a greater sales impact at lower cost. To keep their strategic alliances thriving, corporations have begun to develop organizational structures to support them, and many have come to view the ability to form and manage partnerships as core skills called partner relationship management (PRM).
No comments:
Post a Comment