STRATEGIC MANAGEMENT

STRATEGY DEVELOPMENT PROCESS

BUSINESS STRATEGY
PORTER : COMPETITIVE, LOCATION TACTICS &
COOPERATIVE STRATEGY
 WHAT IS
STRATEGY
• Strategy : a plan of action designed to achieve a long-term or overall aim.
• Strategic Plan is the game plan .
• Direction and scope of an organization over the long term, and they
say that it should determine how resources should be configured to meet
the needs of markets and stakeholders.

• Michael Porter, a strategy expert and professor at Harvard Business School,

emphasizes the need for strategy to define and communicate an
organization's unique position, and says that it should determine how
organizational resources, skills, and competencies should be
combined to create competitive advantage.
 A. CORPORATE STRATEGY

• In business, corporate strategy refers to the overall strategy of an organization

that is made up of multiple business units, operating in multiple markets.
• it answers the question,
"How do we structure the overall business, so that all of its parts create
more value together than they would individually?"
• Corporations can do this by building strong internal competences, by sharing
technologies and resources between business units, by raising capital cost-
effectively, by developing and nurturing a strong corporate brand, and so on.
• Tools like Porter's Generic Strategies, the Boston Matrix , the ADL Matrix
and VRIO Analysis will help with this type of high-level analysis and planning.

• The organization's design is another important strategic factor that needs to

be considered at this level. How you structure your business, your people, and
other resources – all of these affect competitive advantage and can support your
strategic goals.
 B. BUSINESS UNIT STRATEGY

• Strategy at the business unit level is concerned with competing successfully in individual
markets, and it addresses the question,
"How do we win in this market?“
• Competitive analysis (CPM), including gathering competitive intelligence , is a great starting
point for developing a business unit strategy.

• it's important to think about your core competencies , and how you can use these to meet your
customers' needs in the best possible way.

• From there you can use USP Analysis to understand how to strengthen your competitive position.

• . Porter's Five Forces is a must-have tool for this process, while a SWOT Analysis will help you
understand and address the opportunities and threats in your market.

• As such, it's important to have a clear definition of the business unit's mission, vision and
values
 C. TEAM STRATEGY

• To execute your corporate and business unit strategies successfully, you need teams
throughout your organization to work together.
• Each of these teams has a different contribution to make, each team needs to have its own
team-level strategy, however simple.

• This team strategy must lead directly to the achievement of business unit and
corporate strategies, meaning that all levels of strategy support and enhance each other to
ensure that the organization is successful.

• This is where it's useful to define the team's purpose and boundaries using, for example, a
team charter; and to manage it using techniques such as Management by Objectives and
use of key performance indicators.
• You need to be working efficiently to achieve the strategic objectives that have been set at
higher levels of the organization; so, an important element of your team strategy is to
implement best practices to help your team to meet its objectives.
• Activities that optimize supplier management , quality, and operational excellence are
also important factors in creating and executing an effective team strategy.
 STRATEGY DEVELOPMENT
PROCESS
• The primary purpose of strategic development is to find
and create both short and long-term opportunities for
your organization.
• These opportunities must provide value for your
stakeholders, customers and society.
• Organizations that provide value remain in business and
prosper.
 TYPES OF STRATEGIES

• There are 16 strategies that can be grouped into several types of

strategies.
1. Integration strategies
2. Intensive strategies
3. Diversification strategies
4. Defensive strategies
5. Porter’s Generic strategies
In doing strategy, priority must be established because of limited
resources. Due to that, strategists must develop alternative strategies
and choose the best amongst these strategies.
1) BUSINESS STRATEGIES
TYPES OF STRATEGY

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INTEGRATION
STRATEGY
INTEGRATION
STRATEGY
 BACKWARD
INTEGRATION
1. It results in cost
1. Sohrab Bicycles buys:
Metal tubing, bike seats, savings
components from a 2. Improved efficiency
supplier , also sells 3. Guaranteed supply
bicycles to several
distributors, who sell 4. Another benefit
bicycles to retail stores. • An example of
2. If Sohrab buys its bike backward integration
seat suppliers that is would be if a bakery
backward integration. business bought a
3. If Sohrab buys a retail wheat processor and
bike store that if a wheat farm.
foreword integration.
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 FOREWARD
STRATEGY

• A company tends toward forward vertical

integration happens when a business takes over
functions that were originally performed by its partners
farther down the supply chain.

• Manufacturer – wholesalers- sett lo retailers –

consumers

• If company decide to create its own retail stores to sell

to consumer it is engaged in forward integration.

• CUTTING OUT THE MIDDLE MAN MondejarSutiana2013

 TYPES OF STRATEGY

INTENSIVE STRATEGY
• The strategies require intensive efforts if a firm’s competitive
position with existing products is to improve.
Market
• Types: Penetration

Intensive Market
Strategy Development

Product
Development
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 INTENSIVE
1. Market PenetrationSTRATEGY

MARKET Examples

PENETRATION 1.Price cuts by Pepsi co on its beverages

2.Mobile Industry by dominating growth
• Company focus on selling existing products market and targeting new market
or services into existing markets to achieve segment
growth in market share with greater
3.ENGRO fertilizers by driving out its
marketing efforts.
competitors
• Advertise, to encourage more people within 4.Nestle food by increased usage,
your existing market to choose your product, customer loyalty
or to use more of it.
5.Gourmet Bakery by competitive pricing
• Launch price or other special offer and ease of access
promotions. (loyalty scheme)
• Increase sales force activities.
• Buy a competitor company (particularly in
mature markets).  MondejarSutiana2013
 INTENSIVE
1. Market PenetrationSTRATEGY
MARKET
DEVELOPMENT
• selling existing products into new
markets.
• Target different geographical markets at
home or abroad.
• Use different sales channels, such as
online or direct sales if you are currently
selling through the trade.
• Target different groups of people, perhaps
with different age groups, genders or
demographic profiles from your normal
customers.
• New geographical markets.
Examples: Mango clothing, Next clothing,
Giorando, Levis, Mantra, Splash
• New product dimensions or packaging
Organization may simply want to repackage
its product so that it can open up a whole
new market
Gourmet, Hyper Star etc
• New distribution channels
Example: Uniworth clothing, Armani,
Nabeel & Aqeel etc
• New market segment created by
different pricing
Examples: Software suits such as Microsoft
office, offer a version with a limited
functions at a competitive price
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 INTENSIVE
1. Market PenetrationSTRATEGY
PRODUCT
DEVELOPMENT
• is a strategy that seeks increased sales by
improving or modifying present products
or services.  Product development
usually entails large research and
development expenditures.
•  Google’s new Chrome OS operating
system illuminates years of monies spent
on product development. Google expects
Chrome OS to overtake Microsoft Windows
by 2015.
Jeff Bleustein, CEO
• During the past two decades, the company has
made significant investments in new product
lines.
• The evolution engine, the softail motorcycle,
Twin Cam 88 engine.
• Products at maturity stage
• Rapid technological developments.
• When major competitors offer better-
quality products at comparable prices.
• Organization competes in a high-
growth industry.
• Firm has especially strong research &
development capabilities.
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 TYPES OF STRATEGY
DIVERSIFICATION
STRATEGIES
• Types:
Diversification Strategies

Related Unrelated
• Advantage:
• Lessen the risk of
being in a single
industry
• Disadvantage:
• More difficult to
manage
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 DIVERSIFICATION
1. Market PenetrationSTRATEGY

RELATED Examples:
MGM Mirage is opening its first
A process that takes place when a non-casino luxury hotel
business expands its activities into
product lines that are similar to those •
Computer manufacturer that
it currently offers either through produces personal computers
acquisition of competitors, internal using towers begins to produce
development of new products/services. laptop computers.
• Ketchup manufacturer may
decide to produce salsa, using its
current — and very similar —
production facilities for the task.
• Bank Islami Bought KASBL
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 DIVERSIFICATION
STRATEGY
Examples: Cola Next,
1. Market Penetration
• Engro went into various diverse Products e.g. Power
sector, Food etc. Main Business: Fertilzers
UN- • Ford Motor Company entered the industrial bank
business
RELATED Conditions:

A form of diversification When :

when the business adds • revenues derived from an organization’s current p/s
new or unrelated would increase significantly by adding the new,
product lines and unrelated products.
penetrates new • Org. competes in a highly competitive and/or a no-
markets growth industry, as indicated by low industry profit
margins and returns.
• Present channels of distribution can be used to
market the new products to current customers.
• New products have countercyclical sales patterns
compared to an organization’s present products.
 TYPES OF
STRATEGY
DEFENSIVE
STRATEGIES
• A management approach designed to reduce the
risk of loss

• Types: Defensive Strategies

Retrenc Divestit Liquidati

hment ure on

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1. Market Penetration
RETRANCHMENT
Sometimes called a turnaround or
reorganizational strategy
• Occurs when an org. regroups through
cost & asset reduction to reverse
declining sales
• Entail selling off land and buildings to
raise needed cash, pruning product
lines, closing marginal businesses,
closing obsolete factories, automating
processes, reducing the number of
employees, and instituting expense
control systems and profits
DEFENSIVE
STRATEGY
Examples:
Discovery Channel closed 103 mall-based
and stand-alone stores
In times of crises, difficult decisions must be
made and given, the severity of the energy
sectors difficulties, measures such as the
sacking of 4000 employees at the KESC
(Karachi Electric Supply Corporation) may be
understandable, it somewhat regrettable.
Nokia ( New Ceo)- 4000 jobs cuts – Starbucks
stops Australian operations though hub in US.
Retailer Venator Group, formerly Woolworth
in 1999 divested 8 divisions in order to
become solely athletic footwear and apparel c
ompany.  The 8divisions were
Music Box, Randy River,
Foot Locker Outlets, Colorado U.S., Team Editio
n, Going tothe Game, Weekend Edition, and Bu
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rger King. 

STRATEGY
1. Market Penetration
DIVESTITURE
Selling a division or part of an
organization
• Often is used to raise capital for further
strategic acquisitions or investments.
• Can be part of an overall retrenchment
strategy to rid an organization of
businesses that are unprofitable, that
require too much capital, or that do not
fit well with the firm’s other activities
DEFENSIVE
Examples:
It is long since known that Unilever Pakistan ,
would follow the Hindustan Levers way. Divest
the Dalda business. “Dawn”
• TATA group is a highly diversified entity with
a range of businesses under its fold. They
identified their non – core businesses for
divestment. TOMCO was divested and sold to
Hindustan Levers as soaps and a detergent
was not considered a core business for the
Tatas.
• Similarly, the pharmaceuticals companies of
the Tatas- Merind and Tata pharma – were
divested to Wockhardt.
• The cosmetics company Lakme was divested
and sold to Hindustan Levers, as besides being
a non core business, it was found to be a non-
competitive and would have required
substantial investment to be sustained
• Whirlpool sold its struggling Hoover floor-care business
to Techtronic Industries
 DEFENSIVE
STRATEGY
1. Market Penetration
Examples:
LIQUIDATION • Macca Cola
Selling all of a company’s assets, • Carvan East Fabric Ltd
in parts, for their tangible worth liquidated on 14 Sep 2015
A recognition of defeat and • Follow Me Charters sold all of
consequently can be an its assets and ceased doing
emotionally difficult strategy business

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 COMBINATION (MIXED STRATEGIES)

• The combination grand strategy is followed when an

organization adopts a mixture of stability, expansion and
retrenchment either at the same time in its different business
or atdifferent times in the same business with the aim of
improving its performance.
• Complicated situations generally require complex solutions.
Combination strategies arethe complex solutions that
strategists have to offer when faced with the difficulties of
reallife businesses.
 2) PORTER STRATEGIES

Michael Porter’s Generic Strategies

• Porter Devise 2 Business strategies

COMPETITIVE (battling against all competitors for

advantage).
COOPERATIVE (working with one or more
companies to gain advantage against other
competitors).
 COMPETITIVE STRATEGIES
• Cost Leadership Strategies
(CLS)
(Low-Cost & Best-Value)
Producing standardized
products/services at a very low cost
for price sensitive consumers.
• Differentiation Strategies (DS)
(Point of difference, USP)
Producing unique products/services
for price insensitive consumers.
• Focus Strategies (FS)
(Low-Cost Focus & Best-Value Focus)
Producing products/services that
fulfill the needs of small groups of
consumers.
 COST LEADERSHIP STRATEGIES
TYPE 1 & 2
• Cost Leadership Strategies
Type 1 and Type 2

• Type 1: low cost strategy (offers product at very low price available in the
market).
• Type 2: best value strategy (offers product at the best price value available on
the market compared to rival product that have similar attributes). – low price
+ value added features.
• Both strategies target a large market.
• Effective strategy to be used especially the market is composed of many price-
sensitive buyers.
• To gain low cost or best value cost leadership benefits, company need to use
integration strategies (forward, backward and horizontal strategies).Useful to
drive competitors out of the market.
 DIFFERENTIATION STRATEGIES
TYPE 3
• Type 3 (differentiation) can be done by studying buyer needs and
preferences to determine the feasibility of incorporating one or more
differentiating features into unique product that features the desired
attributes.
• Type 3 strategies target can be used at small or large market.
• Special features can differentiate one product with other products.
• Examples of differentiations are superior service, superior quality, user
friendly, durability, robust, attractive packaging etc.
• Product is hard or expensive for rivals to duplicate.
• Buyers will pay for higher price if their perceived value exceeds the price
they are paying.
 FOCUS STRATEGIES
TYPE 4 & 5
• Type 4: low cost focus (offer products/services to a small market (niche
group) at the lowest price.
• Type 5: best value focus (offer products/services to a small market (niche
group) at higher price but with value added features perceived as the
best value by consumers.
• Type 4 (low cost focus) and Type 5 (best-value focus) can be done
effectively when consumers have distinctive preferences or requirements
and the rival firms are not attempting to specialize in the same target
segment.
• Both strategies target a small market (particular customer group of
customers or particular product and produce it with low cost and provide
best value to the buyers)
• To gain focus strategy, organization need to implement intensive
strategies such as market penetration and market development.
 COMPETITIVE: MARKET
LOCATION TACTICS:
• Also known as Market Challenger Strategies

• A market location tactic deals with where a company

implements a strategy. A company or business unit can
implement a competitive strategy either offensively or defensively.

• An offensive tactic usually takes place in an established

competitor’s market location.

• A defensive tactic usually takes place in the firm’s own current

market position as a defense against possible attack by a rival
1. FRONTAL ASSAULT:
• The attacking firm goes head to head with its
competitor. It matches the competitor in every category
from price to promotion to distribution channel.
• To be successful, the attacker must have not only superior
resources, but also the willingness to persevere.
• This is generally a very expensive tactic and may serve to
awaken a sleeping giant, depressing profits for the whole
industry.
• For example, RCA, Xerox and Univac tried to attack IBM’s
mainframe business but failed due to lack of competitive
advantage. The Cola wars between Pepsi and Coke starting
from the early 1900s is an example of frontal attack
strategies. McDonald’s Mccafes which are coffee joints are
seen as a direct frontal attack on Starbucks.
2. FLANKING MANEUVER
• Rather than going straight for a competitor’s position of
strength with a frontal assault, a firm may attack a part of the
market where the competitor is weak.
• Texas Instruments, for example, avoided competing directly with
Intel by developing microprocessors for consumer electronics,
cell phones, and medical devices instead of computers.
• Taken together, these other applications are worth more in terms
of dollars and influence than are computers, where Intel
dominates.
• Examples: Auto-industry in 1970, when Japanese car-makers
exploited the vulneblitrity of US car-makers in small, fuel-efficient
car segment
• In 1980s, Canon took over Xerox’s copier market by focusing on
small size copier market that could not afford Xerox’s large
3. BYPASS ATTACK
• Rather than directly attacking the established competitor
frontally or on its flanks, a company or business unit may choose to
change the rules of the game.
• This tactic attempts to cut the market out from under the established
defender by offering a new type of product that makes the competitor’s
product unnecessary.
• For example, instead of competing directly against Microsoft’s Pocket
PC and Palm Pilot for the handheld computer market, Apple introduced
the iPod as a personal digital music player.
• Example: It was the most radical change to the way people listen to
music since the Sony Walkman. By redefining the market, Apple
successfully sidestepped both Intel and Microsoft, leaving them to play
“catch-up
4. ENCIRCLEMENT:
• Launching a new product in the market that is very similar
to the opponents to capture the wide area of market. Or
doing a grand offensive of opponents in many fronts via
blitz.
• Examples: Fashion Industry.
• The encircler has greater product variety (e.g., a complete
product line, ranging from low to high price) and/or serves
more markets (e.g.,it dominates every secondary market).
• For example, Steinway was a major manufacturer of
pianos in the United States until Yamaha entered the
market with a broader range of pianos, keyboards, and
5. GUERRILLA WARFARE
• Guerrilla marketing is an advertising strategy that focuses on low cost
unconventional marketing tactics that yield maximum results.
• GM is also a type of market challenger strategy where a firm chooses
the general attack strategy as launching small, intermittent attacks,
conventional and unconventional, including selective price cuts, intense
promotional blitzes and occasional legal action to harass the opponent
and eventually secure permanent foot holds.
• Example: the Coca Cola campaign of bringing happiness, where a coke
bottle printed with the name of a person who you have met regularly
and not know the name of. Another example would be the Dove real
beauty sketches video that was launched which showed women’s
perception of their own beauty, striking a chord with the customers.
 DEFENSIVE TACTICS

According to Porter, defensive tactics aim

• To lower the probability of attack
• divert attacks to less threatening avenues
• or lessen the intensity of an attack.
These tactics deliberately reduce short-term profitability to
ensure long-term profitability

http://library05.com/michael-porter-competitive-
advantage/22883-defensive-tactics.html
 COOPERATIVE STRATEGIES
1. Joint Venture
2. Mergers and Acquisitions
3. Strategic Alliance
4. First Mover
5. Outsourcing
 MEANS FOR ACHIEVING STRATEGIES –
1. JOINT VENTURES / PARTNERSHIP

• Occurs when 2 or more companies

form a temporary partnership or
consortium for the purpose of Examples:
capitalizing on some opportunity.
• Pizza Hut & PSO
• Also known cooperative
arrangements in the form of R&D, • Indus Motors House of Habib
cross distribution agreement, cross & Toyota Motors
licensing agreement etc. • PTCL & Ufone
• Benefits: Allow companies to • Siemens & AG Nokia
improve communication and
networking. • Microsoft & G.E
• To globalize the operations To
minimize risks (less risky)Know-how
sharing
 MEANS FOR ACHIEVING STRATEGIES –
2. MERGERS / ACQUISITIONS
Examples:
Merger :- Occurs when 2 organizations of Acquisitions:
about equal size unite to form one
• Wazeer Ali Ltd. By Dalda Foods
enterprise.
• MCB Ltd. By Mulyan Banking
Acquisition:- large organization purchase
a smaller firm or vice versa. • Direct Insurance & Agro General Companies

• Most M&A exercises are friendly mergers. Mergers

Reasons:
• Deregulations To gain economies of
scaleInability to boost profits
Benefits:
• Reduces entry barriers
• Increased diversification
• Increased market power
• Nishat Apparel & Nishat Mills Ltd.
• KASB & Bank Islami
• Pakistan Credit Corporation & Investment & NIB
• Yousaf Sugar Milk & Abdullah Sugar Milk
• Sony & Ericson
• Atlas Bank & Summit Bank 2011
• RBS & Faisal Bank 2011
• Askari Leasing Co. & Askari Bank
 MEANS FOR ACHIEVING STRATEGIES – 3.
COOPERATION AMONG COMPETITORS-
STRATEGIC ALLIANCES

Examples:
• Occurs when firms contributes their • UBL & Daewoo Pakistan
distinctive resources to overcome
their major rivals. • Pirelli Tyres & Daewoo
• Require formal agreements. • Microsoft & Nokia Research
• A strategic alliance is a long- Dept.
term cooperative arrangement • LG & Intel
between 2 or more independent • FBL & Deal Today
firms or business units that engage
in business activities for mutual • Google & LG
economic gain.
 MEANS FOR ACHIEVING STRATEGIES -
4. FIRST MOVER ADVANTAGES
• Benefits a firm may achieve by entering a new
market or developing a new product or service
prior to rival firms.
• Be a pioneer or market leader not a market
follower.
Benefits:-
• Able to secure access to rare resources
• Gaining new knowledge of key factors and
issues
• Can obstruct new rival from entering the market
• Build image and reputation with buyers
• Enjoy cost advantages over new rival
• Create strong loyal customer base
• Difficult to imitate or duplicate by rival
Examples:
• Pandora (which spearheaded the
online radio fad)
• Ebay (which was the first to
implement an active online consumer
auction process)
• Xerox (which invented, and for 15
years dominated, the photocopying
industry)
• Coca Cola (which, obviously, created
the first cola-flavored soft drink)
• Apple (which was the first to
introduce real touch screen tech;
admittedly, its control of this market
may be eroding as competitors try to
out-innovate Apple)
 MEANS FOR ACHIEVING STRATEGIES - 5.
OUTSOURCING
• Business-Process Outsourcing (BPO)Companies taking over the functional
operations of other firms.
• Transferring some job function to a 3rd party.
• Eg: IT, payroll, accounting, telemarketing etc.
Examples:
• All the known brands have outsourced their social media pages to the
digital advertising agencies
• Pepsi have outsourced to synergies
• ICI paints, Neat Foods, Shaukat khanam have outsourced their advertsing
campaigns to Farigh Four