Deck 8: Formulating Sbu-Level and Functional Area Strategy

Question 1

Explain the differences in strategies formulated at the corporate and at the SBU levels.

Answer 1

$\bullet$ Corporate-level strategy deals primarily with management of a portfolio of several or many SBUs and perhaps secondarily with raising the capital required to finance their endeavors. Strategy at the level of the individual SBUs is concerned with developing resources and competencies, competing in product and service markets, confronting competitors in those markets, creating and sustaining a competitive advantage, and responding to other changes in the external environment.

Question 2

Describe the several strategic responsibilities of the top executives of individual SBU's.

Answer 2

$\bullet$ Define strategic direction
$\bullet$ Conduct internal and external environmental assessments
$\bullet$ Negotiate strategy with the corporate parent
$\bullet$ Adopt a generic strategy (low-cost leadership, differentiation, focus)
$\bullet$ Formulate action strategies
$\bullet$ Develop needed resources and competencies
$\bullet$ Negotiate with financial markets for needed capital (if a freestanding business)
$\bullet$ Appoint and evaluate functional area managers
$\bullet$ Monitor and control strategy implementation

Question 3

Describe the possible roles that corporate management might play in the strategic planning and management process within individual SBU's in its portfolio. Discuss also the tensions between corporate and SBU management over these issues.

Answer 3

$\bullet$ Dictate the objectives and specific strategies that it wishes each SBU to pursue.
$\bullet$ Allow SBU managers substantial discretion but hold them to performance standards, goals, and criteria.
$\bullet$ Serve as financers of the SBUs' strategic endeavors, being more or less generous with the capital that they need.
$\bullet$ Facilitate sharing of resources and competencies and other synergies among the SBUs.
$\bullet$ There are two types of tensions around these issues. The SBUs may resent what they consider to be excessive interference by corporate parent management in their strategic decision making. On the other hand, corporate management may become concerned that particular SBUs are not performing at the levels expected of them and necessary to maintain the corporation's overall standing with investors. They may worry too that they are straying from the strategic directions required by their assigned roles in the portfolio. Under such circumstances, the parent may be tempted to intervene in SBU strategic decision making, provoking clashes with their executives.
$\bullet$ The SBUs count on the corporate parent for a variety of resources that they do not provide themselves. The foremost is the capital needed to fund their strategies and operations. Others may be centralized R&D, purchasing, legal services, IT capability, and the like. All of these are usually in limited supply and must be rationed among the SBUs seeking them. Individual SBUs may disagree with corporate management about the shares allocated to them.

Question 4

Explain the four fundamental ways in which a business can grow its revenues and profits.

Question 5

Explain the five generic types of growth strategy available to individual SBU's.

Question 6

Explain the concept of "competitive advantage" and the purpose it serves in planning and managing strategy. What is the importance of adding the term "sustainable" to competitive advantage?

Question 7

What are the four generic business strategies defined by Michael Porter? Explain also a fifth strategy that is a combination of those four and that was rejected by Porter.

Question 8

Describe five methods by which a business can build a "low-cost leadership" strategic position.

Question 9

What are some problems that can develop with a low-cost leadership strategy, leading to poor performance?

Question 10

List at least 10 generic features or aspects of a business's products or services that could be the basis for a differentiation strategy.

Question 11

What are the four essential criteria of a differentiation strategy that results in a sustainable competitive advantage?

Question 12

What are some problems that can develop with a differentiation strategy, leading to poor performance?

Question 13

Explain the concept of a "hybrid" strategy. Why did Porter think that such a strategy could not work, and how have some businesses found ways to make the strategy successful?

Question 14

Discuss the concept of a "focus" strategy and its connection to the definition of individual market segments.

Question 15

What is the relationship between a business's strategies and these strategies of its functional areas? Give an example of that relationship.

Question 16

What are some of the generic ways in which a business can respond to the strategic initiatives of its competitors?