Strategy Analysis and Choice Dr.

RM Saxena

CHOICE OF STRATEGY For multi-industry and multiproduct/market firms, strategic analysis begins at the corporate level. Large companies are often involved in many different kinds of businesses and sell products in many different countries. The various businesses in the portfolio are called strategic business units (SBUs). The strategic business unit is the smallest identifiable business of the company, which pursues a substrategy, and is involved in an identifiable business or industry. The advantage of multibusiness organizations is that they can transfer cash from business units that are highly profitable but have low growth potential to other units that have high growth and high profit potential. Therefore, the strategists for a multiply-SBU firm attempt also to achieve the answers to three basic in any strategic situation questions: How attractive is the group of businesses the company is in? Assuming the company sticks with its present lineup of businesses. how good is its performance outlook in the years ahead? If the previous two answers are not satisfactory. what should the company do in the ways of getting out of some existing businesses, strengthening the positions of remaining businesses, and getting into new businesses to boost the performance prospects of its business portfolio?

Gap analysis In information technology, gap analysis is an assessment tool to help identify differences between information systems or applications. A gap is sometimes called "the space between where we are and where we want to be. A gap analysis helps bridge that space by highlighting which requirements are being met and which are not. The tool provides a foundation for measuring the investment of time, money and human resources that's required to achieve a particular outcome. In software development, for instance, a gap analysis can be used to document which services and/or functions have been accidentally left out, which ones have been deliberately eliminated and which still need to be developed. In compliance, a gap analysis can be used to compare what is required by law to what is currently being done.

Alternatives for Growth

Market Penetration Market Development Product Development Expansion of existing Businesses Vertical Integration Forward & Backward

Alternatives for Growth

Diversification into new Businesses Unrelated

Related

Modes of Growth
Internal development Acquiring firms/businesses Collaborative arrangements
Strategic Alliances Joint Ventures Licensing

Repositioning Strategies
Retrenchment
Assets and/or costs

Divestiture Spin-offs

Termination Strategies
Liquidation Merger Being acquired Bankruptcy Divestment

Development strategies
DEVELOPMENT STRATEGIES What basis?
Bases of choice Corporate purpose and aspirations SBU generic competitive strategies The role of the corporate parent

Which direction?
Alternative Directions Protect and build Market penetration Product development Market development Diversification: related unrelated

How?
Alternative Methods Internal development Acquisition Joint Development/ alliances

The strategy clock: Bowmans competitive strategy options

High Hybrid
3

Differentiation Focused 4 differentiation

5

PERCEIVED ADDED VALUE

Low 2 price

7 8

Low price/ low added value Low Low

Strategies destined for ultimate failure

High PRICE Source: Based on the work of Cliff Bowman. See C.Bowman and D.Faulkner. Competitive and Corporate Strategy, Irwin, 1996.

The strategy clock

1 2 Low price/low added value Low price Likely to be segment specific Risk of price war and low margins/need to be cost leader Low cost base and reinvestment in low price and differentiation

Hybrid

Differentiation (a) Without price premium (b) With price premium

Perceived added value by user, yielding market share benefits Perceived added value sufficient to bear price premium Perceived added value to a particular segment, warranting price premium Higher margins if competitors do not follow/risk of losing market share Only feasible in monopoly situation Loss of market share

Focused differentiation

Increased price/standard value Increased price/low value Low value/standard price

7 8

Low price strategies could be successful if:

The competitor is the cost leader ... but is this sustainable? All sources of cost advantages are exploited, developing competences in low cost management ... but the danger is a low (perceived) value product or service A competitor has cost advantage over competitors in a price sensitive markets segment ... but this may mean focusing on that market segment

The Success of Differentiation Strategies depends on

Clear identification of who the customer is Understanding what is valued by the customer Clear identification of who the competitors are and the value they offer Bases of differentiation which are difficult to imitate The recognition that bases of differentiation may need to change

Focused Differentiation
Global market developments increase the need for focus Clear definition of market segments in terms of customers needs is required Within a market segment choices of strategic direction relate to competitors within that segment Multi-focused strategies may be possible in some markets New ventures started through focus strategies may be difficult to grow Differences between segments may be eroded making bases of focus redundant

Key Questions in Strategic Choice

Strategic choices need to take account of the environment and build on core competences Strategic choices need to take account of the expectations and influence of stakeholders Strategic direction and methods should build on broad strategic choices Resources and competences should be developed to deliver and sustain the chosen strategies