ISM 6 Strategic Choice

7/28/2019 ISM 6 Strategic Choice

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STRATEGIC CHOICE


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2

Results of the

strategy formulation process

Results of Process

Strategic

Intent

StrategicAssessment

AvailableOptions

Chosen Strategy

CONTEXT


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3

Choosing a strategy

from among strategic options

Choice Criteria/

No options identified

StrategicIntent

Strategic

AssessmentAvailable

Options

Logically viable options/

Chosen Strategy

Feasible but

Unaligned Options

Aligned but

Infeasible Options


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4

What Options

are available?

Structure for making strategic choice

Options ofmethod on

how to progress

Options aboutproducts, markets

and services

Options to improveresources &

capabilities

Making the Choice

Choice Criteria

-Assessment

-Intent

Theoretical

Frameworks for

making

strategic choiceWho should be

involved in

the Choice?

Linking into available strategic options

Chosen Strategy


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Source: Based on the work of Cliff Bowman.

See C.Bowman and D.Faulkner. Competitive and Corporate Strategy, Irwin, 1996.

PRICE HighLow

DifferentiationFocused

differentiation

Low price/low added value

Strategiesdestined for

ultimate failure

PERCEIVED

ADDED

VALUE

4

5

6

8

Hybrid

Lowprice

7

High

Low

1

2

3

The strategy clock:

Bowmans competitive strategy options


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1 Low price/low added value Likely to be segment specific

2 Low price Risk of price war and low

margins/need to be cost leader

3 Hybrid Low cost base and reinvestment in

low price and differentiation

4 Differentiation

(a) Without price premium Perceived added value by user,

yielding market share benefits(b) With price premium Perceived added value sufficient to

bear price premium

5 Focused differentiation Perceived added value to a particular

segment, warranting price premium

6 Increased price/standard Higher margins if competitors do not

value follow/risk of losing market share

7 Increased price/low value Only feasible in monopoly situation

8 Low value/standard price Loss of market share

The strategy clock


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LOW PRICE STRATEGIES COULD BESUCCESSFUL IF:

The competitor is the cost leader

... but is this sustainable?

All sources of cost advantages are exploited, developingcompetences in low cost management

... but the danger is a low (perceived) value product orservice

A competitor has cost advantage over competitors in aprice sensitive markets segment

... but this may mean focusing on that market segment


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THE SUCCESS OF DIFFERENTIATIONSTRATEGIES DEPENDS ON

Clear identification ofwho the customeris

Understanding what is valued by thecustomer

Clear identification ofwho the competitorsare and the value they offer

Bases of differentiation which are difficult toimitate

The recognition that bases ofdifferentiationmay need to change


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FOCUSED DIFFERENTIATION

Global market developments increase the needfor focus Clear definition of market segments in terms of

customers needs is required

Within a market segment choices of strategicdirection relate to competitors within thatsegment

Multi-focused strategies may be possible insome markets

New ventures started through focus strategiesmay be difficult to grow

Differences between segments may be erodedmaking bases of focus redundant


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FUNCTIONAL STRATEGIES


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MARKETING STRATEGY

Marketing strategy

Involved with pricing, selling, and distributing a

product.

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MARKETING STRATEGY

Market development strategy

Capture a larger share of existing market through

market saturation and market penetration

Develop new markets for current products

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MARKETING STRATEGY

Product development strategy

Develop new products for existing markets

Develop new products for new markets

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MARKETING STRATEGY

Advertising or Promotion strategy

Push marketing strategy Investing in trade promotion to gain or hold

share

Pull marketing strategy Investing in consumer advertising to build

brand awareness

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FINANCIAL STRATEGY

Financial strategy

Examines the financial implications of corporate

and business-level strategic options and identifies

the best financial course of action.

Maximizes financial value of the firm

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FINANCIAL STRATEGY

Tracking stock

Highlighting a high-growth business unit in a

popular sector of the stock market. Keeping subsidiarys common stock separately

identified

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R&D STRATEGY

R&D Strategy

Deals with product and process innovation andimprovement

Choice:

Technological leader Technological follower

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OPERATIONS STRATEGY

Operations strategy

Determines: How and where product is manufactured

Level of vertical integration in process

Deployment of physical resources

Relationships with suppliers

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OPERATIONS STRATEGY

Manufacturing strategy

Affected by product life cycle Job shop

Connected line batch flow

Flexible manufacturing system

Dedicated transfer lines

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OPERATIONS STRATEGY

Manufacturing strategy

Movement from mass production to: Continuous improvement

Modular manufacturing

Mass customization

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PURCHASING STRATEGY

Purchasing strategy

Obtaining raw materials, parts and supplies Basic Purchasing Choices:

Multiple sourcing

Sole sourcing

Parallel sourcing

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LOGISTICS STRATEGY

Logistics strategy

Flow of products into and out of the process Three current trends:

Centralization

Outsourcing

Use of the Internet

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HRM STRATEGY

HRM strategy

Addresses issues of: Low-skilled employees

Low pay

Repetitive tasks

High turnover

Skilled employees

High pay Cross trained

Self-managing teams

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STRATEGIC CHOICE

Selecting the Best Strategy:

Constructing Corporate Scenarios:

Corporate Scenarios Pro forma balance sheets and income

statements that forecast effects of alternativeson return on investment

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STRATEGIC CHOICE

Selecting the Best Strategy:

Constructing Corporate Scenarios:

Steps in constructing scenarios Use industry scenarios Develop common-size financial statements Construct detailed pro forma financial

statements for each alternative

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Chapter7

Wheelen/H

unger

26

Scenario Box to Generate Pro Forma

StatementsProbjections

1

Last Historical Trend 19 19 19

Factor Year Average Analysis O P ML O P ML O P ML Comments

GDP

CPI

Other

Sales units

Dollars

COGS

Advertising and marketing

Interest expense

Plant expansion

Dividends

Net profits

EPS

ROI

ROE

Other


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STRATEGIC CHOICE

Attitude Toward Risk:

Risk is composed of: Probability of effective strategy

Amount of assets committed

Length of time of asset commitment

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ISM 6 Strategic Choice

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