Strategy 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.
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.
Differentiation.
The business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market.
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.
Porter draws a distinction between operational effectiveness en strategy.
Competitors can quickly copy the operationally effective company using benchmarking and other tools, thus diminishing the ad-vantage 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.”
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.
Marketing alliances may involve products or services (licensing or jointly marketing an offering), promotions (one company carrying a promotion for another), logistics (delivering or distributing another firm’s product), or pricing (offering mutual price discounts). To keep strategic alliances thriving, firms are developing 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)
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