Directions and Methods of Development

Dr Keefa KiwanukaLecturer, Marketing and Management

Room 3.3b, CoBAM9 April 2013

What are Strategic Choices?

Strategic choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development

Exhibit III.1

Strategic choices

Development Directions

Development directions are the strategic options available to an organisation, in terms of products and market coverage, taking into account the strategic capability of the organisation and the expectations of stakeholders

Development directions are the strategic options available to an organisation, in terms of products and market coverage, taking into account the strategic capability of the organisation and the expectations of stakeholders

Strategy Development Directions

Existing New

Existing

New

Markets

Products

Strategy Development Directions

Protect/buildConsolidationMarket penetration

Existing New

Existing

New

Markets

Products

Strategy Development Directions

Protect/buildConsolidationMarket penetration Product Development

Existing New

Existing

New

Markets

Products

Strategy Development Directions

Protect/buildConsolidationMarket penetration

Product Development

Market development

Existing New

Existing

New

Markets

Products

Strategy Development Directions

Protect/buildConsolidationMarket penetration

Product Development

Market development Diversification

Existing New

Existing

New

Markets

Products

15

Global strategies: Globalization strategy.

World is one large market; standardize products and advertising as much as possible.

Ethnocentric view.

Multidomestic strategy. Customize products and advertising to local

markets as much as possible.

Transnational strategy Balance efficiencies in global operations and

responsiveness to local markets.

16

Restructuring and divestiture strategies

Readjusting operations when an organization is in trouble.

Retrenchment Correcting weaknesses by making changes to

current operations. Liquidation Restructuring

Downsizing and rightsizing Restructuring through divestiture

17

E-business strategies

The strategic use of the Internet to gain competitive advantage.

Popular e-business strategies Business-to-business (B2B) strategies Business-to-customer (B2C) strategies

18

Incrementalism Modest and incremental changes in strategy occur

as managers learn from experience and make adjustments.

Emergent strategies Develop progressively over time in the streams of

decisions that managers make as they learn from and respond to work situations.

Methods of Strategy Development

Methods of Strategy Development

Internal Development Build on and develop an organisation’s own

capabilities Organic development

Mergers and Acquisitions Take over ownership of another organisation

Strategic Alliances Two or more organisations share resources and

activities

Motives for Internal Development Only one in field Core competence in product manufacturing Develop new markets – direct involvement to

increase understanding & create core competence

Spread cost over time – easier for companies with low resources

Avoid cultural clash

Motives for M&As Speed Competitive Situation – lower competitor reaction Financial motives

Extreme example is that of Asset Stripping Lack of resources Cost efficiency (by merging) to avoid duplication Stakeholder expectations

Ambitions of senior managers Empire building

Types of Strategic Alliance Loose

Networks / Opportunistic Alliances Contractual

Licensing Franchising Subcontracting Outsourcing alliances Supplier alliances Distribution alliances

Ownership Consortia

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Choosing Strategic Options

What are our Opportunities? Possible new markets? Strong economy? Weak market rivals? Emerging technologies? Growth of existing

market?

What are our Threats? New competitors? Shortage of resources? Changing market tastes? New regulations? Substitute products?

The TOWS Matrix

Success Criteria for Strategic Options Suitability

Whether strategy addresses circumstances in which organisation is operating

Acceptability The expected performance outcomes (e.g. risk/return) Meeting expectations of stakeholders

Feasibility Whether strategy can be made to work in practice Linked to strategic capability

Evaluating strategic options

Suitability Acceptability Feasibility

Evaluating strategic options

Establishing the rationale

Screening options and criteria

Does it solvethe problem?

Is it acceptableto stakeholders?

Returns Risk Reactions by

stakeholders

Can we deliver?

Cash flow Break-even Resources Competencies

Adapted from Johnson & Scholes

Choosing an option

Three tests Does it take us towards where we want to be?

(Alignment)

Do we have, or can we obtain, the resources required to implement it? (Feasibility)

Will it win the support of those who need to approve it, and those who need to implement it? (Acceptability)

Financial appraisal techniques

Cash flow projection Discounted cash flow (DCF) method Sensitivity analysis Break even analysis

Criteria for assessing Acceptability

• Risk Financial ratios

E.g. High long term debt means high risk Sensitivity analysis (What-if analysis)

• Stakeholder reactions

Feasibility

Financial Funds flow forecasting Break-even analysis

Resource deployment Resources and competences needed

Key Points (1)• Three elements of strategic choice

– Competitive strategy– Direction of development– Method of development

• Four key categories of development directions– Protect and build– Product development– Market development– Diversification

Key Points (2) Three methods of strategy development

Internal development Mergers and acquisitions Strategic alliances

Three success criteria for strategic options Suitability Acceptability Feasibility

Wide range of analytical techniques for evaluation of strategic options