A strategy is a comprehensive plan for accomplishing the organization's goals. Strategic management is a comprehensive and ongoing process aimed at formulating and implementing effective strategies. Effective strategies address three organizational issues: distinctive competence, scope, and resource deployment. Most large companies have both business-level and corporate-level strategies. Strategy formulation is the set of processes involved in creating or determining the strategies of an organization. Strategy implementation is the process of executing strategies.
SWOT analysis considers an organization's strengths, weaknesses, opportunities, and threats. Using SWOT analysis, an organization chooses strategies that support its mission and (1) exploit its opportunities and strengths, (2) neutralize its threats, and (3) avoid its weaknesses. Common strengths cannot be ignored, but distinctive competencies hold the greatest promise for superior performance.
A business-level strategy is the plan an organization uses to conduct business in a particular industry or market. Porter suggests that businesses may formulate a differentiation strategy, an overall cost leadership strategy, or a focus strategy at this level. According to Miles and Snow, organizations may choose one of four business-level strategies: prospector, defender, analyzer, or reactor. Business-level strategies may also take into account the stages in the product life cycle.
Strategy implementation at the business level takes place in the areas of marketing, sales, accounting and finance, and manufacturing. Culture also influences strategy implementation. Implementation of Porter's generic strategies requires different emphases in each of these organizational areas. Implementation of Miles and Snow's strategies affects organization structure and practices.
A corporate-level strategy is the plan an organization uses to manage its operations across several businesses. A firm that does not diversify is implementing a single-product strategy. An organization pursues a strategy of related diversification when it operates a set of businesses that are somehow linked. Related diversification reduces the financial risk associated with any particular product, reduces the overhead costs of each business, and enables the organization to create and exploit synergy. An organization pursues a strategy of unrelated diversification when it operates a set of businesses that are not logically associated with one another.
Strategy implementation at the corporate level addresses two issues: how the organization will go about its diversification and the way that an organization is managed once it has diversified. Businesses accomplish this in three ways: developing new products internally, replacing suppliers (backward vertical integration) or customers (forward vertical integration), and engaging in mergers and acquisitions. Organizations manage diversification through the organization structure that they adopt and through portfolio management techniques. The BCG matrix classifies an organization's diversified businesses as dogs, cash cows, question marks, or stars according to market share and market growth rate. The GE Business Screen classifies businesses as winners, losers, question marks, average businesses, or profit producers according to industry attractiveness and competitive position.
