Culture & Stakeholders exp The environment Resources & Strat.

capability Strategic analysis Identify options Strategic choice

Lec 6 Strategy selection

Planning & alloc. resources Strategy implementation Org. structure

Evaluate options

Select strategy
Strategy selection Lec 6 Slide 1 of 18 Strategy selection

Man. Strat. change

Lec 6 Slide 2 of 18

A summary model of the elements of strategic man, Johnson &Scholes, 93

Strategic selection Which way is the best? How do we get there? Involves: Generation of options E.g. increase market share? International growth? Acquisition? concentration on core competences?
Strategy selection Lec 6 Slide 3 of 18

Strategic options evaluation

Suitability logic, research evidence, cultural fit Feasibility financial, material, skills base, impact on market, competitor reactions Acceptability - meet goal, risk v/s benefit, ? meet the expectation of key stakeholders

Strategy selection

Lec 6 Slide 4 of 18

Competitive strategy - Porter - 3 generic strategies How to achieve overall cost leadership - lowest cost

Strategic choice
What basis? Generic Strategies (Porters) Cost leadership Differentiation Focus Which direction? Alternative strategies (Ansoff) Do nothing Withdraw Consolidate Market pen. Product dev Market dev Diversify How?

producer in the industry as a whole Set up production facilities to obtain economies of scale
Alternative Methods Internal dev Acquisition Joint dev

High tech industry learning curve effect Concentrate on improving productivity Minimise overhead costs Get favourable access of sources of supply

Strategy selection

Lec 6 Slide 5 of 18

Strategy selection to cheaper areas Relocate

Lec 6 Slide 6 of 18

Porters generic strategies Problems Must pursue one of cost leadership, differentiation or focus not to be stuck in the middle Cost leadership internal focus - market share more important. not possible across the firm more freedom to choose other competitive strategies competitive advantage
Strategy selection Lec 6 Slide 7 of 18

Differentiation competitive advantage through particular characteristics of the firms products Breakthrough products radical performance advantage through drastically lower price Improved products - in terms of better performance for a similar price Competitive products appeal from particular compromise on of cost and performance

Strategy selection

Lec 6 Slide 8 of 18

How to differentiate
Support activities

Value chain and direct product costing

Primary activities Marketing & sales Outbound logistics Service

Build up a brand image Give the product special features to make it stand out Exploit other activities of the value chain

*Procurement *Human resource development *Technical development *Infrastructure

Operations Inbound logistics

Added Value

Direct product cost

Allocated product cost

Strategy selection

Lec 6 Slide 9 of 18

Strategy selection

Lec 6 Slide 10 of 18

Differentiation not necessarily sold at higher price From whom? Who are the competitors? Do they compete on the same basis? Other market segments? What source of differentiation? All aspects of marketing mix, product

Focus ( or niche strategy) most companies follow this to a certain extent - market segmentation Cost focus cost leader for a particular segment eg printing, clothes manufacturing, car repair Differentition focus for a chosen segment eg luxury goods Stuck in the middle Any number of strategies can be followed

Strategy selection

Lec 6 Slide 11 of 18

Strategy selection

Lec 6 Slide 12 of 18

Product-Market Strategies
Competitive advantage Low cost Cost Cost Leadership Leadership Differentiation

Drawbacks Sacrifices economies of scale - by serving a wider

Competitive scope Industry target Segment target

market Competitors can move into this segment eg Japanese

Differentiation Differentiation

into the US luxury car market to compete with Mercedes and BMW When the segments needs may become less distinct

Cost focus Cost focus

Differentiation Differentiation focus focus

Strategy selection

Lec 6 Slide 13 of 18

Strategy selection

Lec 6 Slide 14 of 18

Sustainable competitive advantage Key issue to ensure that the competitive advantage is sustained ? Does it only exist in the customers mind Can be lost market changes or new ways of doing business Selection of strategy Competitive strategy (Porters) Product-market strategy (Ansoff) Institutional strategies (ie relationships with other org.) determine the how , the method of growth

Strategy selection

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Strategy selection

Lec 6 Slide 16 of 18

Mini case study

Market share strategies 1. Building lower price, improved quality or technical content, better delivery, service, distribution, narrowing range, smaller segments 2. Holding when mature, but not easy. 3. Harvesting product with poor market share in declining market

A large organisation in road transport operates nationwide in general road haulage. This field has become very competitive and with the recent downturn in trade, has become only marginally profitable. It has been suggested that the marginal structure of the company should be widened to include other aspects of physical distribution so that the maximum synergy would be obtained from that type of diversification. Explain the options which the firm could follow, with reasons for each one.

Strategy selection

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Strategy selection

Lec 6 Slide 18 of 18