Talking about strategy today.Kinds of Organizations
- For Profit
- Nonprofits
- Firm, Company, Corporation, Organization
Firms have multiple levels of strategy.
- Corporate Level — Creating value for shareholders or owners
- Business Unit Level — Strategy for individual business segment to thrive.
- Functional Level — Strategy for individual departments
Strategy Issues in Organizations
- The Business — Over time, companies can become involved in many business fields, some not wholly intentionally. Campanies can find themselves in businesses they didn’t expect, and suffer from it. If vision of what business you’re in is fuzzy, you don’t adapt well to changes and you don’t compete well in your current market.
- The Mission — The mission statement or vision statement is a summary of what the company is or does.
- Stakeholders — Stakeholders are people with some investment, whether financial, emotional, or institutional, in the success of the company. Keeping the stakeholders happy is important.
Goals for organizations can include any number of things. Maximum profit is not always the primary goal. Most companies will have multiple goals that are very important.
- Profits
- Revenues
- Market Share
- Unit Sales
- Quality
- Customer Satisfaction
- Employee Satisfaction
- Etc.
First step in setting strategy is to assess the current situation. Talk to customers. Figure out your competencies, and figure out where you have competitive advantages. You want to have as many competitive advantages as possible, and you want sustainable competitive advantages. Assess your competitors. This gets more difficult today, because competition can come from non-local companies.
Second step is start figuring out where you want to go. Growth Strategies.
BCG Analysis is a method of rating companies by their relative market share and the market growth rate. If a company has a high market share of a product in a low-growth market, that product is a cash cow. Cash cows generate more money than is required to support their positions. Cash cows will inevitably shrink as markets change, so the challenge is to anticipate this and harvest cash from them as they dwindle. Products which are in low-growth markets and which you have low market shares of are called dogs. Dogs frequently don’t generate enough money to grow themselves, and usually aren’t worth the investment to grow. The general plan for dealing with dogs is to divest yourself of them over time. Products in high-growth markets where the company has a large relative market share are called stars. Stars produce lots of money, possibly more than cash cows. Stars require support to protect their position, however, because high growth markets are very attractive for new entrants. Properly managed, stars will eventually become new cash cows. Products where the company has a low market share in a high-growth market are called question marks or problem children. With further investment and proper management, it’s possible for question marks to become stars. If things don’t work out, however, they risk becoming dogs.
A second assessment technique is called Market-Product. It divides the market into current and new markets and new and current products. Strategy for each combination of market and customer group is different. The strategy for selling current products to current markets is called market penetration; you want to sell more of the same stuff to the same people who have always been interested in it. Selling current products to new markets is called market development; can be very effective if you can open untouched markets without serious competition. Selling new products to your current markets is called Product Development. Selling new products to new markets is called Diversification. Diversification is the most difficult of the four strategies to make successful, due to lack of information.