05 Strategic Direction & Development

8/12/2019 05 Strategic Direction & Development

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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

05 Strategic Direction & Development

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