Exploring Corporate Strategy

Part III
Strategic
Choices

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Strategic Choices

This part is concerned with the strategic choices,

or options, potentially available to an
organization for responding to the positioning
issues discussed in Part I (Strategic Position)

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Strategic Choices
This part explains strategic choices in terms of:

• How organizations relate to competitors in terms of

their competitive business strategies.
• How broad and diverse organizations should be in
terms of their corporate portfolios.
• How far organizations should extend themselves
internationally.
• How organizations pursue strategies through organic
development, acquisitions or strategic alliances.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Strategic Choices

Exhibit III.1
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategic choices relate back to analysis of
strategic position

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
 Exploring Corporate Strategy

Business Level Strategy

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Learning outcomes
• Assess business strategy in terms of the
generic strategies of cost leadership,
differentiation, focus and strategy.
• Identify business strategies suited to
hypercompetitive conditions.
• Assess the benefits of cooperation in business
strategy.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Business Level Strategies

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 FIRST: GENERIC COMPETITIVE
STRATEGIES
• Competitive strategy is concerned with how a
business unit or an organisation achieves
competitive advantage in its domain of activity.

• Competitive advantage is about how a business

unit or an organisation creates value for its users
which is both greater than the costs of supplying
them and superior to that of rivals.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

GENERIC COMPETITIVE STRATEGIES

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Cost-leadership strategy

Cost-leadership strategy involves becoming the

lowest-cost organization in a domain of activity.

key cost drivers

• Input costs
• Economies of scale
• Experience
• Product/process design

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Economies of scale and
experience

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Porter underlines two tough requirements for cost-
based strategies

• A business’s cost structure needs to be lowest

cost
• Low cost should not be pursued in total
disregard for quality. two options are available
for cost leader:
• Parity (Equivalence)
• Proximity

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
 Differentiation strategy
• Differentiation strategy involves uniqueness
along some dimension that is sufficiently valued
by customers to allow a price premium.

• Relevant points of differentiation vary between

markets. Within each market too, businesses
may differentiate along different dimensions.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Three primary differentiation drivers to
consider:
• Product and service attributes.
• Customer relationships:
 services and responsiveness
 Customization
 marketing and reputation
• Complements

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Focus strategy
• A focus strategy targets a narrow segment and
tailors its products or services to the needs of
that specific segment.

• Focus strategies come in two variants,

according to the underlying sources of
competitive advantage, cost or differentiation.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Successful focus strategies depend on at least one of
three key factors:

• Distinct segment needs

• Distinct segment value chains
• Viable segment economics

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Strategy Clock
• In a competitive situation, customers make
choices on the basis of their perception of value
for money, the combination of price and
perceived benefits.

• The ‘strategy clock’ represents different

positions in a market where customers have
different ‘requirements’ in terms of value for
money.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 The Strategy Clock

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 “No Frills” Strategy
Low
Lowprice
price
Low
Lowperceived
perceivedproduct/service
product/servicebenefits
benefits
Focus
Focuson
onprice-sensitive
price-sensitivemarket
marketsegment
segment
• Commodity-like products or services
• Price-sensitive customers
• High buyer power and/ or low switching costs
• Avoiding the major competitors

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Low Price Strategy
Lower
Lower price
price than
than competitors
competitors
Maintain
Maintain similar
similar product/service
product/service benefits
benefits

• Pitfalls of low price strategy

– Margin reduction (competitor reaction)
– Inability to reinvest leading to loss of perceived
benefit of product
– Need a low cost base
 Low cost itself not a basis for advantage
 Low cost achieved in ways that competitors cannot
match to give sustainable advantage

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 (Broad) Differentiation Strategies
Offering
Offeringbenefits
benefitsdifferent
differentfrom
fromcompetitors
competitors
Widely
Widelyvalued
valuedby
bybuyers
buyers
Better
Betterproducts/services
products/servicesatatsame
sameor
orhigher
higherprice
price

• Success depends on:

– Identification of strategic customers and knowing
what they value
– Identifying key competitors.
– The difficulty of imitation
– The extent of vulnerability to price-based
competition
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
 Hybrid Strategy
Simultaneously
Simultaneouslyachieving
achievingdifferentiation
differentiation
and
and
aaprice
pricelower
lowerthan
thancompetitors
competitors
This strategy could be advantageous when:
• Achieve greater volumes
• Cost reductions are available outside its
differentiated activities
• Entry strategy in market with established
competitors

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Focused Differentiation
High
Highperceived
perceivedproduct/service
product/servicebenefits
benefitsto
to
selected
selectedmarket
marketsegment
segment(niche)
(niche)
Premium
Premiumproducts,
products,heavily
heavilybranded
branded

Focused differentiation raises some important issues:

• Choice to be made between focused differentiation and
broad differentiation.
• Tensions between a focus strategy and other strategies.
• Possible conflict with stakeholder expectations
• Difficulty of growth for new ventures
• Market changes may erode differences between
segments
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
 Failure Strategies
Do
Do not
not provide
provide perceived
perceived value-for-money
value-for-money in
in
terms
terms of
of product
product features,
features, price
price or
or both
both

• Increase price without increasing product/service

benefit
• Reduce benefits whilst maintaining price
• A recipe for failure

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 Second: Interactive Strategies

• Generic strategies need to be chosen, and

adjusted, in the light of competitors’ strategies.

• Thus business strategy choices interact with

those of competitors.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
 1. Interactive price and quality strategies

• Richard D’Aveni depicts competitor interactions

in terms of movements against the variables of
price and perceived quality.

• Although D’Aveni applies his analysis to the

very fast-moving environments
‘hypercompetitive’ similar reasoning applies
wherever competitors’ moves are interdependent.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Interactive price and quality strategies

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
• Moves and counter-moves are a constant feature
of hypercompetitive environments.
• In these conditions, it may no longer be possible
to plan for sustainable positions of competitive
advantage.
• Planning for long-term sustainability may
actually destroy competitive advantage by
slowing down response.
• Managers have to be able to act faster than their
competitors.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 2. Cooperative strategy

• Sometimes competition can escalate in a way that is

dangerous to all competitors.

• It can be in the self-interest of organisations to restrain

competition.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

 2. Cooperative strategy

• Collaboration between some organisations in a market

may give them advantage over other competitors in the
same market, or potential new entrants.

• Collaboration can be explicit in terms of formal

agreements to cooperate, or tacit in terms of informal
mutual understandings between organisations.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005