Strategic Management – 7

Strategic Management
Model
Company’s mission
& social responsibility

External
Environment Possible? Internal
•Remote Analysis
•Industry Desired?
•Operating
Strategic analysis and choice

Feedback
Feedback

Long-term Generic and grand

objectives strategies
Short-term Functional Policies that
objectives; reward tactics empower
system action
Restructuring,
Legend reengineering & refocusing
Major impact the organization
Strategic control
Minor Impact
& continuous improvement
Evaluating and Choosing
Business Strategies
 Two most prominent sources of competitive
advantages are:
 Business’s cost structure
 Ability to differentiate
 Highest profitability levels are found in
businesses that posses both type of competitive
advantage at the same time.
 Businesses that have one or more value chain
activities that truly differentiate them from key
competitors and also have value chain activities
that let them operate at a lower cost will
consistently out perform their rivals that don’t.
Evaluating
cost-leadership
opportunities
 Business success built on cost leadership
requires the business to be able to provide
its product or service at a cot below what
its competitors can achieve.
 Low-cost activities that are sustainable and
that provide one or more of these
advantages relative to key industry forces
should become the basis for the business’s
competitive strategy.
Cost-leadership
opportunities…
1. Low-cost advantages that reduce the
likelihood of pricing pressure from buyers.
2. Truly sustained low-cost advantages may
push rivals into other areas, lessening price
competition.
3. New entrants competing on price must face
an entrenched cost leader without the
experience to replicate every cost
advantage.
4. Low-cost advantages should lessen the
attractiveness of substitute products.
Cost-leadership
opportunities…
5. Higher margins allow low-cost producers to
withstand supplier cost increases and often
gain supplier loyalty over time.
6. Many cost-saving activities are easily
duplicated.
7. Exclusive cost leadership can become a
trap.
8. Obsessive cost-cutting can shrink other
competitive advantages involving key
product attributes.
9. Cost differences often decline over time.
Evaluating
differentiation
opportunities
 Differentiation requires that the
business have sustainable advantages
that allow it to provide buyers with
something uniquely valuable to them.
 Differentiation usually arises from one
or more activities in the value chain
that create a unique value important to
buyers.
Differentiation
opportunities…
1. Rivalry is reduced when a business successfully
differentiates itself.
2. Buyers are less sensitive to prices for effectively
differentiated products.
3. Brand loyalty is hard for new entrants to overcome.
4. Imitation narrows perceived differentiation,
rendering differentiation meaningless.
5. Technological changes that nullify past investments
or learning.
6. The cost difference between low-cost competitors
and the differentiated business becomes too great
for differentiation to hold brand loyalty.
Evaluating Market Focus
as a way to Competitive
Advantage
 Small companies, at least the better ones,
usually thrive because they serve narrow
market niches, usually called focus.
 Focus allows some businesses to compete on
the basis of low cost, differentiation and rapid
response against much larger businesses with
greater resources.
 Focus lets a business ‘learn’ its target
customers.
 The risk of focus is that you attract major
competitors that have waited for your
business to ‘prove’ the market.
Competitive advantage in
Emerging Industries
 Emerging industries are newly formed
or re-formed industries that typically
are created by technological
innovation, newly emerging customer
needs or other economic or
sociological changes.
Competitive advantage in
Emerging Industries…
 For success in emerging industry, business strategies
require one or more of these features:
 The ability to shape the industry’s structure based on the timing of
entry, reputation, success in related industries or technologies,
and role in industry associations.
 The ability to rapidly improve product quality and performance
features.
 Advantageous relationships with key suppliers and promising
distribution channels.
 The ability to establish the firm’s technology as the dominant one
before technological uncertainty decreases.
 The early acquisition of a core group of loyal customers and then
the expansion of that customer base through model changes,
alternative pricing and advertising.
 The ability to forecast future competitors and the strategies that
are likely to employ.
Competitive advantage in
the transition to Industry
Maturity

 As an industry evolves, its rate of

growth eventually declines. This
‘transition to maturity’ is
accompanied by several changes
in its competitive environment.
Competitive advantage in the
transition to Industry
Maturity…
 Strategy elements of successful firms in maturing industries
often include:
 Pruning the product line by dropping unprofitable product models,
sizes and options from the firm’s product mix.
 Emphasis on process innovation that permits low-cost product
design, manufacturing methods and distribution synergy.
 Emphasis on cost reduction through exerting pressure on suppliers
for lower prices, switching to cheaper components, introducing
operational efficiencies and lowering administrative & sales
overhead.
 Careful buyer selection to focus on buyers that are less aggressive,
more closely tied to the firm and able to buy more from the firm.
 Horizontal integration to acquire rival firms hose weaknesses can be
used to gain a bargain price and are correctable by the acquiring
firms.
 International expansion to markets where attractive growth and
limited competition still exist and the opportunity for lower-cost
manufacturing can influence both domestic and international costs.
Competitive advantage in
Mature and Declining
Industries
 Declining industries are those that make products or
services for which demand is growing slower than demand
in economy as a whole or is actually declining.
 Firms in declining industry should choose strategies that
emphasize:
 Focus on segments within the industry that offer a chance for
higher growth or a higher return.
 Emphasize product innovation and quality improvement,
where this can be done cost effectively, to differentiate the
firm from rivals and to spur growth.
 Emphasize production and distribution efficiency by
streamlining production, closing marginal production facilities
and costly distribution outlets, and adding effective new
facilities and outlets.
 Gradually harvest the business – generate cash by cutting
down on maintenance, reducing models, and shrinking
channels and make no new investment.
Competitive advantage in
Global Industries
 A global industry is one that comprises firms whose
competitive positions in major geographical or national
markets are fundamentally affected by their overall
global competitive positions.
 Global industries have four unique strategy-shaping
features:
 Differences in prices and costs from country to country due to
currency exchange fluctuations, differences in wage and
inflation rates, and other economic factors.
 Differences in buyer needs across different countries.
 Differences in competitors and ways of competing from country
to country.
 Differences in trade rules and governmental regulations across
different countries.
4 generic global competitive
strategies
 Broad-line global competition – directed at competing
worldwide in the full product line of the industry, often with
plants in many countries, to achieve differentiation or an
overall low-cost position.
 Global focus strategy – targeting a particular segment of the
industry for competition on a worldwide basis.
 National focus strategy – taking advantages of differences in
national markets that give the firm an edge over global
competitors on a nation-by-nation basis.
 Protected niche strategy – seeking out countries in which
governmental restraints exclude or inhibit global competitors
or allow concessions, or both, that are advantageous to
localized firms.
Grand Strategy
selection matrix
 The basic idea underlying the matrix is
that two variables are of central
concern in the selection process:
1. the principal purpose of the grand
strategy and
2. the choice of an internal or external
emphasis for growth or profitability.
 Grand Strategy Selection
Matrix
Overcome weakness

1.Turnaround or
retrenchment
1.Vertical integration
2.Divestiture
2.Conglomerate
3.Liquidation diversification
Internal External
(redirected II I (acquisition
resources or merger
within the
firm) 1.Concentrated
III IV 1.Horizontal
for resource
capability)
growth integration
2.Market 2.Concentric
development diversification
3.Product 3.Joint venture
development
4.Innovation

Maximize strengths
Model of
Grand Strategy Clusters

 The situation of a business is defined in

terms of the growth rate of the general

market and the firm’s competitive

position in that market.

 Model of Grand Strategy
Clusters
Rapid Market Growth

1.Reformulation of
concentration
1.Concentration
2.Horizontal
2.Vertical integration
integration
3.Divestiture
3.Concentric
Strong diversification 4.Liquidation Weak
Competitive
I II Competitive
position
1.Concentric IV III 1.Turnaround or position
diversification retrenchment
2.Conglomerate 2.Concentric
diversification diversification
3.Joint Venture 3.Conglomerate
diversification
4.Divestiture
5.Liquidation

Slow Market Growth