LEVELS OF STRATEGIES, PORTER’S MODEL AND
STRATEGY DEVELOPMENT (BCG) AND IMPLEMENTATION
Level of Strategies
Many organizations develop strategies at three
different levels. These three different and distinct levels of
strategy are corporate, business, and functional:
Corporate-level strategy is developed
by top-level management and the board of directors. The
corporate-level strategy seeks to
determine what businesses a corporation should be in or wants to be in.
Two popular approaches for answering the question of what business(es)
should we be in are the grand
strategies framework and the corporate portfolio matrix.
1. These strategies address
a. What business the organization will be
coordinated to strengthen the
organization’s competitive position.
b. How the strategies of those businesses will be coordinated to
the organization’s competitive position.
c. How resources will be allocated among businesses.
2. Business-level strategy
concentrates on the best means of competing
within a particular business
while also supporting the corporate-level strategy.
a. The distinction between corporate-level and business-level strategy
only to organizations with separate divisions that compete in different
b. A strategic business unit (SBU)
is a distinct business, with its own set
of competitors that can be managed reasonably independently of other
businesses within the organization.
3. Functional-level strategy focuses on
action plans for managing a particular functional area within
a business in a way that supports the business-level strategy.
a. Functional areas include operations, marketing, finance, human
management, accounting, research and development, and engineering.
b. Functional strategies are usually developed by functional managers
typically reviewed by business unit heads.
4. Coordinating strategies across these
three levels is critical in maximizing strategic impact.
The role of competitive analysis in strategy formulation and
Porter’s Forces Model:
Michael E. Porter, a noted strategy expert,
has devised the
five competitive forces model
as an approach
for analyzing the external environment for both the nature and the
intensity of competition in a given
industry in terms of five major forces.
1. The model provides an environmental assessment of strategically
elements of the organization’s task environment.
2. Rivalry is the extent to which competitors use tactics to lower the
profits of their
3. The bargaining power of suppliers is the extent to which suppliers
can exert power
over business in an industry by threatening to raise prices or reduce
the quality of
goods and services they provide.
4. The bargaining power of buyers depends on
the factors such as number of
customers in the market, customer information, and the availability of
which determine the amount of influence that buyers have in an industry.
5. The threat of new entrants is the threat of a price war if new
competitors can enter
6. The threat of substitute products or services is the extent to which
other industries can offer substitute products, thus reducing the profit
for the industry.
The competitive environment, in some industries, may reach the point of
a state of
rapidly escalating competition. When this happens, environments may
become upward spirals of
uncertainty, dynamism, and heterogeneity of players making it difficult
for any organization to sustain
An organizational assessment
determines how organizational factors in the
internal environment affect
the competitive situation.
1. The resource-based strategic view is a useful approach to internal
assessment as it
focuses on competitive implications of several sets of organizational
a. Financial resources include debt, equity, retained earnings, and
money related matters.
b. Physical resources include buildings, machinery, and other materials
c. Human resources include skills, abilities, experience, and other work
related characteristics of those associated with the organization.
d. Organizational resources include the history, relationships, levels
and other culture dimensions.
2. Assessing the competitive implications of these resources and
to the environment involves answering questions about four critical
a. How much value does any resource or capability add?
b. What, if any, degree of rareness does each resource or capability
among competing firms?
c. What is the degree of imitability by competitors of each resource or
d. Is the organization of the firm’s resources and capabilities by the
reporting relationships, the control and reward systems, and other
such so as to achieve the best competitive advantage?
3. Achieving sustained competitive advantage requires both the
development in industries in which
competitive forces are favorable and upon the development of resources
and capabilities that are valuable,
rare, and are difficult to imitate. When a firm has valuable, rare, and
difficult to imitate resources and
capabilities, it is said to have a
Formulating corporate-level strategy.
A. A grand
strategy (master strategy) provides the
basic strategic direction at the corporate
level of the organization. Four grand strategies have been identified.
1. Growth strategies
are grand strategies that involve organizational
along some major dimension.
focuses on effecting the growth of a single product
service or a small number of closely related products or services.
1) Market development is gaining a larger
share of a current market
or expanding into new ones.
2) Product development is improving a basic product or service or
expanding into closely related products or services.
3) Horizontal integration is adding one or more business that is
similar, usually by purchasing such business.
b. Vertical integration
involves effecting growth through the production of
inputs previously provided by suppliers or through the replacement of a
customer role (Such as that of a distributor) by disposing of one’s own
1) Backward integration occurs when a business grows by becoming
its own supplier
2) Forward integration occurs when organizational growth
encompasses a role previously fulfilled by a customer.
entails effecting growth through the
development of new areas that are clearly distinct from
1) Conglomerate diversification takes place when an organization
diversifies into areas that are unrelated to its current business.
2) Concentric diversification occurs when an organization diversifies
into a related, but distinct, business.
c. These growth strategies can be implemented through a number of means:
1) Internal growth occurs as the organization expands by building
on its own internal resources.
2) An acquisition
is the purchase of all or part of one organization
3) A merger
is the combining of two or more companies into one
4) A joint venture occurs when two or more organizations provide
resources to support a given project or product offering.
2. A stability strategy
is a second type of grand strategy that involves
the status quo or growing in a methodical, but slow, manner.
a. Small, privately owned businesses are most likely to adopt this
b. Some of the reasons for adopting a stability strategy are that it
1) Avoids the risks or hassles of aggressive growth.
2) Provides the opportunity to recover after a period of accelerated
3) Lets the company hold on to current market share.
4) May occur through default.
3. Defensive strategies,
the third class of grand strategies, are sometimes
retrenchment strategies. They tend to focus on the desire or need to
organizational operations usually through cost reductions, such as
cutting back on
non-essential expenditures and instituting hiring freezes, and/or asset
such as selling land, equipment, or the business itself.
entails minimizing investments while attempting to
short-run profits and cash flow, with the long-run intention of existing
with the market.
b. A turnaround
is designed to reverse a negative trend and restore
organization to appropriate levels of profitability.
c. A divestiture
involves an organization’s selling or divesting of a
or part of a business.
d. A bankruptcy
is a means whereby an organization that is unable to
its debts can seek court protection from creditors and from certain
contract obligations while it attempts to regain financial stability.
Liquidation entails selling or dissolving
an entire organization.
portfolio strategy approach
is a method of analyzing an organization’s mix
businesses in terms of both individual and collective contributions to
strategic goals. Two
portfolio approaches are used most frequently. Each uses a
two-dimensional matrix, and
each may apply to either the existing or to potential strategic business
units (SBUs). The
portfolio concept is analogous to an individual’s selecting a portfolio
of stocks to achieve
balance in terms of risk, long-term growth, etc.
The Boston Consulting Groups (BCG)
growth-share matrix compares various
businesses in an
organization’s portfolio on the basis of relative market share and
market growth rate. The corporate
portfolio matrix approach has been a popular approach to determining
The BCG matrix,
developed by the Boston Consulting Group, is a
strategy tool to guide resource
allocation decisions based on market share and growth of SBUs.
a. Relative market share is determined by the ratio of a business’s
share compared to the market share of its largest rival.
b. Market growth rate is the growth in the market during the previous
relative to growth in the economy as a whole.
The matrix defines four business groups. SBUs plotted on the BCG matrix
can be categorized:
1) The Star
has a high market share in a rapidly growing market.
2) A Question Mark
(problem child) has a low market share in a
rapidly growing market.
3) The Cash Cow
has a high market share in a slowly growing
4) A Dog
has a low market share in an area of low growth.
c. Strategies are suggested by the SBU’s position on the matrix.
1) Use funds from cash cows to duns stars and possibly question
2) Divest dogs and less desirable question mark.
product/market evolution matrix
(sometimes called the life-cycle portfolio
matrix) is a 15-cell matrix in which business is plotted according to
unit’s business strengths or competitive position, and the industry’s
stage in the
evolutionary product/market life cycle.
a. While the BCG matrix measures market growth rate the product/market
evolution matrix shows the industry’s stage in the evolutionary life
b. The maturity and saturation stage is particularly important because
last for an extended period of time and is a stage that presents special
challenges to preserve market share while facing the prospect of the
2. In assessing these portfolio
matrixes remember that each model offers a
somewhat different perspective. Portfolio matrices do not provide advice
specific business within the organization-such specifics are derived at
The BCG matrix (and the portfolio concept) has lost much of its merit
a. Not every organization has found that increased market share leads to
b. The portfolio concept assumes that an organization’s businesses can
be divided into a reasonable
number of independent units.
c. Contrary to predictions, many so-called dogs have shown consistently
higher levels of profitability
than their growing competitors with dominant market shares.
d. Given the rate at which the economy has been growing and the fact
that a market can have only
one leader, well over half of all businesses by definition fall into the
e. Strategic implications of the BCG matrix
are: “milk” the cash cows; invest resources in the stars;
liquidate or sell the dogs; and sell off or invest in the question
Formulating Business-level strategy
A. Business-level strategies provide advice
about specific strategies for various businesses.
B. Michael E. Porter has developed three business-level strategies that
are generic, i.e., widely
applicable to a variety of situations.
1. A cost leadership strategy
involves emphasizing organizational efficiency
the overall costs of providing products and services are lower than
a. The business should have a cost advantage that is not easily or
b. Managers should consider making those product or service innovations
that are most important to customers.
2. A differentiation strategy
involves attempting to develop products and
that are viewed as unique in the industry.
a. Differentiation may occur in brand image, technology, customer
features, quality, and election.
b. Costs are not as important as product or service uniqueness.
3. A focus strategy
entails specializing by establishing a position of
leadership, differentiation, or both, but only within a particular
segment, or an entire market.
Formulating functional-level strategy
A. Strategies at the functional level are
important in supporting a business-level strategy.
B. Functional areas develop the distinctive competencies that lead to
Strategies at the functional level are
important in supporting a business-level strategy.
Functional areas develop the distinctive competencies that lead to
potential competitive advantages.
includes the various management activities
that are necessary to put the strategy
in motion, institute strategic controls that monitor progress, and
ultimately achieve organizational goals.
A. Managers need to synchronize major factors within an organization
needed to put a chosen
strategy into action.
is the knowledge, tool, equipment, and work
technique used by an
organization in delivering its product or service.
2. Human resources
are the individuals who are members of the
3. Reward systems
include bonuses, awards, or promotions provided by
others, aswell as rewards related to internal experiences, such as
feeling of achievement and
4. Decision processes
include the means of resolving questions and problems
occur in organizations.
5. Organization structure
is the formal pattern of interactions and
designed by management to link the tasks of individuals and groups in
B. Managers need to be able to monitor
progress through strategic control.
1. Strategic control involves monitoring critical environmental factors
affect the viability of strategic plans, assessing the effects of
strategic actions, and ensuring that strategic plans are implemented as
Strategic control systems include information systems that provide
feedback on the implementation and
effectiveness of strategic plans