Post on 03-Jun-2018
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Strategic Direction
Dr Tahir Rashid
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DEVELOPMENT
STRATEGIES
What basis? How?Which direction?
Alternative
directions
Protect and build
Market penetration
Product
development
Market
development
Diversification:related
unrelated
Alternative
methods
Internal
development
Acquisition
Joint development /
alliances
Bases of choice
Corporate purpose
and aspirations
SBU generic
competitive
strategies
The role of the
corporate parent
Development strategies
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The strategy clock: Bowmans competitive strategy options
2
45
3
1
8
7
6
Differentiation
Focused
differentiationHybrid
Low
Price
No frills
Strategies
destined for
ultimate failure
High
Low
Low High
PERCEIVED
ADDED
VALUE
PRICE
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Position
1 No frills
2 Low price
3 Hybrid
4 Differentiation
a) Without price premium
b) With price premium
5 Focused differentiation
6 Increased price/standard value
7 Increased price/low value
8 Low value/standard price
Needs / risks
Likely to be segment specific
Risk of price war and low margins/need
to be cost leader
Low cost base and reinvestment in low
price and differentiation
Perceived added value by user, yielding
market share benefits
Perceived added value sufficient to bearprice premium
Perceived added value to a particular
segment, warranting price premium
Higher margins if competitors do not
follow/risk of losing market share
Only feasible in monopoly situation
Loss of market share
Bowman uses the dimension Perceived Use Value
Differentiation
Likelyfailure
Exhibit 6.4b The strategy clock: Bowmans competitive strategy options
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LOW PRICE STRATEGIES
COULD BE SUCCESSFUL IF: The competitor is the cost leader
... but is this sustainable?
All sources of cost advantages are exploited, developing
competences in low cost management... but the danger is a low (perceived) value product or
service
A competitor has advantage over competitors in a price
sensitive markets segment... but this may mean focusing on that market segment
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DIFFERENTIATION
STRATEGIES DEPENDS ON Clear identification of who is the customer
Understanding what is valued by the customer
Clear identification of who the competitors are and the
value they offer
Bases of differentiation which are difficult to imitate
The recognition that bases of differentiation may need tochange
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FOCUSED DIFFERENTIATION
Global market developments increase the need for focus
Clear definition of market segments in terms of
customers needs is required
Within a market segment choices of strategic directionrelate to competitors within that segment
Multi-focused strategies may be possible in some
markets
New ventures started through focus strategies may bedifficult to grow
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Exhibit 7.1 Directions for strategy development
COMPETENCE
PRODUCTSExisting New
MARKETS
Existing
A
PROTECT/BUILD
Withdrawal
Consolidation
Market penetration
B
PRODUCTDEVELOPMENT
On existing competences
With new competences
New
C
MARKETDEVELOPMENT
New segments
New territories
New uses
D
DIVERSIFICATION
On existing competences
With new competences
DEVELOPMENT
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Note: Some companieswill manufacture
components or semi-
finished items. In those
cases there will be
additional integration
opportunities into
assembly or finished
product manufacture.
Repairs and
servicing
BACKWARD INTEGRATION
HORIZONTALINTEGRATION
FORWARDINTEGRATION
Raw materials
manufacture
Components
manufacture
Machinery
manufacture
Product/process
research/design
Raw materialssupply
Componentssupply
Machinerysupply
Financing
Transport
Competitive
products
Complementary
products
By-productsManufacturer
Distribution
outletsTransport
Marketing
information
Exhibit 7.9 Related diversification options for a manufacturer
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DIVERSIFICATION AND
PERFORMANCE Diversity of ...
products
markets
competences Depends on specific circumstances
industry growth
company size
business cycle
under-utilised resources
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The problem of growth
Many firms see growth as an objective desirable inits own right
Growth can be achieved through
Internal External
Development Development
(organic growth) (acquisition, merger, jointventures and
strategic alliances)
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Organic growth is
Time consuming and slow
Less disruptive than external development
Enables competitive advantage to be builtthrough the development of competencies
Avoids paying a premium for another business
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REASONS FOR
MERGERS/ACQUISITIONS Speed of market entry
Acquiring new competences
Reduce competitive backlash
Asset stripping
Cost reduction
BUT SOME DIFFICULTIES
No-one available
Integrating activities
Clash of cultures one dominates?
keep separate?
build hybrid?
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MAKING ALLIANCES WORK
Proactive attitudes
trust
cultural sensitivity
inter-personal relationships
Clear organisational arrangements
Desire to learn (not substitute)
Allow evolution
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Summary
Generic strategyis about how you compete
Strategy direct ionsis about where and what youcompete wi th
Firms can go in more than one direct ion at a t imethough this can stretch managerial capability
Diversi f icat ion needs to be exam ined careful ly, andespecially in terms ofrelated v unrelated
Growthshould be t reated w ith the utm ost care