Strategic alternatives
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STRATEGIC ALTERNATIVES. Payne (5) Key Text Readings: Chapters 6 & 7. INDUSTRY ATTRACTIVENESS. Which businesses should we be in?. CORPORATE STRATEGY. RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL. How do we make money?. COMPETITIVE ADVANTAGE. How should we compete?. BUSINESS STRATEGY.

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Strategic alternatives

STRATEGIC ALTERNATIVES

Payne

(5)

Key Text Readings: Chapters 6 & 7


Strategic alternatives

INDUSTRY

ATTRACTIVENESS

Which businesses should we be in?

CORPORATE STRATEGY

RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL

How do we make money?

COMPETITIVE ADVANTAGE

How should we compete?

BUSINESS STRATEGY


Strategic alternatives

The Decision Logic of Strategy Formulation

May be Corporate or Business

Strategic Decisions

Establishment of mission, vision, values, objectives

-- the Directional Strategies

Identification, evaluation, and selection of

-- the Adaptive Strategies

Identification, evaluation, and selection of

-- the Market Entry Strategies

Identification, evaluation, and selection of

-- the Positioning Strategies

Implementation through development of

-- the Functional &Operational Strategies


Adaptive strategies

Delineate how the organization will adapt to changes in the environment or competitive landscape:

Adaptive Strategies

  • Expansion

    • Diversification

    • Vertical Integration

    • Market Development

    • Product Development

    • Penetration

  • Contraction

    • Divestiture

    • Liquidation

    • Harvesting

    • Retrenchment

    • Outsourcing

  • Stabilization

    • Enhancement

    • Status Quo

Corporate Strategy Decisions Only


Strategic alternatives

Remember Ansoff’s Matrix?


Business level strategy

Business-level strategy: an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.

Key Issues:

What product/service to offer customers?

How to manufacture or create the product or service?

How to distribute the product/service in the marketplace?

Business-Level Strategy


Rbv core competencies and strategy

Core

competencies

Strategy

Business-level

strategy

RBV: Core Competencies and Strategy

The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals

An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage

Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets


Competitive advantage

“The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today.” - Gary Hamel and C.K. Prahalad

COMPETITIVE ADVANTAGEexists when a firm’s strategy gives it an edge in:

Defending against competitive forces and

Securing customers

…such that the firm earns (or has the potential to earn) a persistently higher rate of profit.

Competitive Advantage


Strategic alternatives

Gaining of Competitive Advantage

“The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today.”

- Gary Hamel and C.K. Prahalad

  • COMPETITIVE ADVANTAGEcomes with the offering of SUPERIOR VALUE through:

    • Offering buyers a good product at a lower price

    • Offering a better product/service buyers think is worth a premium price


Adaptive expansion market product development penetration

Market Development-- expand geographic service area or by targeting new market segments within the present area.

Building new store near high-growth residential areas

Product Development-- introduction of new product/services in present markets, through product/service enhancement and line expansion.

Penetration -- centered on promotional, distribution, and pricing strategies with current products or services.

1 in 12 wins Coca-Cola or “buy one, get one free” for Tinactin.

Adaptive: Expansion-Market/Product Development & Penetration


Strategic alternatives

22%

Stars

Question Marks

20%

18%

16%

14%

Business Growth Rate

12%

10%

Cash Cows

Dogs

8%

6%

4%

2%

0.5X

0.4X

0.3X

0.2X

0

4X

10X

1X

0.1X

1.5X

2X

Relative Market Share

The BCG Portfolio Matrix


Adaptive stabilization strategies

When past strategies have been viewed as appropriate and few changes are required:

Enhancement- when organization just “needs to do things better;” takes forms of CQI, TQM programs, speeding delivery, adding flexibility to service design

Status Quo- maintenance of services at the current levels, defending against competitors

Adaptive: Stabilization Strategies


Market entry strategies

Carry out the expansion (and stabilization) strategies through:

Purchase Strategies:

Acquisition – purchase of new product, unit or organization

Licensing – lease technology, product or service

Venture Capital Investment – “try out” investment option

Cooperation Strategies:

Mergers – two organizations come together as one

Strategic Alliance – long-term agreement to work together

Joint Venture – combined resources to work on common issue of interest

Developmental Strategies:

Internal Development – uses existing resources or structures

Internal Ventures – establishes new entity for developmental purposes

Market Entry Strategies

May be Corporate Decision if in Different Market


Positioning strategies

Business Level Positioning:

Position the organization vis-à-vis other organizations within the market

These are market-oriented and best articulate the competitive advantage within the market

May be market-wide (or broad-based) or directed at a particular segment (or niche-focused)

Based largely on Generic Business Strategies:

Low-Cost Leadership Strategy

Broad Differentiation Strategy

Focused Low-Cost Strategy

Focused Differentiation Strategy

Positioning Strategies


Strategic alternatives

Porter’s Generic Strategies


A low cost leadership strategy

Objective: Open up a sustainable cost advantage over rivals, using lower-cost edge as a basis either to:

Under-price rivals and reap market share gains OR

Earn higher profit margin selling at going price

Keys to Success:

Make achievement of low-cost relative to rivals the THEME of firm’s business strategy

Find ways to drive costs out of business year-after-year

A Low-Cost Leadership Strategy

Characteristics

  • Cost conscious corporate culture

  • Efficient scale facilities

  • Tightly controlled production costs and

  • overhead

  • Minimized costs of sales, R&D and

  • service

  • Efficient manufacturing facilities

  • Simplified production processes

  • Intensive scrutiny of budget

  • requests


Drivers of cost advantage

Economies of Scale

Indivisibilities

Specialization and Division of Labor

Economies of Learning

Increased Dexterity

Improved Coordination and Organization

Process Technology and Process Design

Mechanization and Automation

Efficient Utilization of Materials

Increased Precision

Drivers of Cost Advantage

  • Product Design

    • Design for Automation

    • Designs to Economize on Materials

  • Input Costs

    • Location Advantages

    • Ownership of Low-Cost Inputs

    • Bargaining Power

    • Supplier Cooperation

  • Capacity Utilization

    • Ratio of Fixed to Variable Costs

    • Costs of Installing and Closing Capacity

  • Managerial / Organizational Efficiency

    • Organizational Slack


Common structure for cost leadership

Office of the President

Centralized Staff

Accounting

Engineering

Operations

Marketing

Personnel

Common Structure for Cost Leadership

  • Operations is main function

  • Process engineering is emphasized over R&D

  • Large centralized staff

  • Formalized procedures

  • Structure is mechanical, job roles highly structured


A differentiation strategy

Incorporate differentiating features that cause buyers to prefer firm’s product or service over the brands of rivals

Find ways to differentiate that CREATE VALUEfor buyers and that are NOT EASILY MATCHED orCHEAPLY COPIEDby rivals

Not spending more to achieve differentiation than the price premium that can be charged

Uniquenessis achieved in ways that:

Buyers perceive as valuable

Rivals find hard to match or copy

Can be incorporated at a cost well below theprice premium that buyers will pay

A Differentiation Strategy

Objective

Keys to Success

Characteristics


Differentiation strategy

Differentiation actions required:

Developing new systems and processes

Shaping perceptions through advertising

Quality focus

Capability in R&D

Maximize human resource contributions through low turnover and high motivation

Differentiation Strategy

Factors Driving Differentiation:

  • Unique product features

  • Unique product performance

  • Exceptional services

  • New technologies

  • Quality of inputs

  • Exceptional skill or experience

  • Detailed information

  • Extensive personal relationships with buyers and suppliers


Common structure for differentiation

President and

Limited Staff

Marketing

R&D

Operations

Human

Resources

New Product

R&D

Finance

Marketing

Common Structure for Differentiation

  • Marketing is the main function for tracking new product ideas

  • New product R&D is emphasized

  • Most functions are decentralized

  • Formalization is limited to foster change and promote new ideas

  • Overall structure is organic; job roles are less structured


Best cost provider integrative strategy

Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation

Make an upscale product at a lower cost

Give customers more value for the money

Create superior value by MEETING OR EXCEEDINGbuyer expectations on product attributes and BEATING their price expectations

Be the low-cost producer of a product with GOOD-TO-EXCELLENT product attributes, then use cost advantage to UNDERPRICEcomparable brands

Best Cost Provider/Integrative Strategy

Objective

Keys to Success


Major risk of integrated strategy

An integrated cost/differentiation business level strategy often involves compromises (neither the lowest cost nor the most differentiated firm)

The firm may become “stuck in the middle” lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy

Major Risk of Integrated Strategy


A focus niche strategy

Involves concentrated attention on a narrowpiece of the total market

Serve niche buyers betterthan rivals

Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs

Develop unique capabilities to serve needs of target buyer segment

Achieve LOWER COSTSthan rivals in serving the segment-- A low-cost strategy

Offer niche buyers SOMETHING DIFFERENTfrom rivals-- A differentiation strategy

A Focus/Niche Strategy

Objective

Keys to Success

Two Types


M s key problems

M&S: Key Problems


M s examples

M&S Examples


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