Business and Multibusiness Strategy

Prepared by: Eka Darmadi Lim

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Study Question 1: What are the foundations of

strategic competitiveness?

Basic concepts of strategy (cont.):

– Strategy — a comprehensive action plan that

identifies long-term direction for an

organization and guides resource utilization to

accomplish organizational goals with

sustainable competitive advantage.

– Strategic intent — focusing all organizational

energies on a unifying and compelling goal.

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Study Question 1: What are the foundations of

strategic competitiveness?

Basic concepts of strategy (cont.):

– Strategic management — the process of

formulating and implementing strategies to

accomplish long-term goals and sustain

competitive advantage.

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Study Question 1: What are the foundations of

strategic competitiveness?

Goal of strategic management is to create

above-average returns for investors.

– Returns exceeding those for alternative

opportunities at equivalent risk.

– Earning above-average returns depends in part

on the organization’s competitive environment.

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Study Question 2: What is the strategic

management process?

Strategy formulation

– The process of creating strategy.

– Involves assessing existing strategies,

organization, and environment to develop new

strategies and strategic plans capable of

delivering future competitive advantage.

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Figure 9.1 Strategy formulation and

implementation in the strategic management

process.

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Figure 9.6 Porter’s generic strategies

framework: soft-drink industry examples.

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Study Question 4: How are strategies

formulated?

Porter’s generic strategies for gaining

competitive advantage:

– Differentiation strategy

– Cost leadership strategy

– Focused differentiation strategy

– Focused cost leadership strategy

Cost leadership strategy

Business success built on cost leadership

requires the business to be able to provide

its product or service at a cost below what

its competitors can achieve

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Cost leadership strategy

Management 8/e - Chapter 9 10

Sustainable Low-Cost Activities

1. Some low-cost advantages reduce the likelihood of buyers’ pricing pressure

2. Truly sustained low-cost advantages may push rivals into other areas

3. New entrants competing on price must face an entrenched cost leader

4. Low-cost advantages should lessen the attractiveness of substitute products

5. Higher margins allow low-cost producers to withstand supplier cost increases

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Risks of a Cost Leadership

Strategy

1. Many cost-saving activities are easily

duplicated

2. Exclusive cost leadership can be a trap

3. Obsessive cost cutting can shrink other

competitive advantages

4. Cost differences often decline over time

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Evaluating a Business’s

Differentiation Opportunities

Management 8/e - Chapter 9 13

Evaluating Speed as a

Competitive Advantage Speed-based strategies, or rapid response

to customer requests or market and

technological changes, have become a

major source of competitive advantage for

numerous firms in today’s intensely

competitive global economy

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Management 8/e - Chapter 9 15

Speed can be created by:

Customer responsiveness

Product development cycles

Product or service improvements

Speed in delivery or distribution

Information Sharing and Technology

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Risks of Speed-based Strategy

Speeding up activities that haven’t been

conducted in a fashion that prioritizes

rapid response should only be done after

considerable attention to training,

reorganization, and/or reengineering

Some industries may not offer much

advantage to the firm that introduces some

forms of rapid response

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Risks of Speed-based Strategy

Customers in such settings may prefer the

slower pace or the lower costs currently

available, or they may have long time

frames in purchasing

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Emerging Industries

Emerging industries are newly formed or

re-formed industries that typically are

created by technological innovation,

newly emerging customer needs, or other

economic or sociological changes

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Business Strategies in Emerging

Industries

Technologies that are most proprietary to

the pioneering firms and technological

uncertainty will unfold

Competitor uncertainty because of

inadequate information about competitors,

buyers, and the timing of demand

High initial costs but steep cost declines

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Business Strategies in Emerging

Industries

First-time buyers requiring initial

inducement to purchase

Inability to obtain raw materials and

components until suppliers gear up to

meet the industry’s needs

Need for high-risk capital because of the

industry’s uncertain prospects

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The Portfolio Approach

The portfolio approach is a historical

starting point for strategic analysis and

choice in multibusiness firms

Boston Consulting Group (BCG)

pioneered an approach called portfolio

techniques that attempted to help

managers

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The Portfolio Approach

“balance” the flow of cash

resources among their various

businesses while identifying their

basic strategic purpose within the overall

portfolio

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Study Question 4: How are strategies

formulated?

Portfolio planning approach

– Designed to help managers decide on investing

scarce organizational resources among

competing business opportunities.

– Useful for multibusiness or multiproduct

situations.

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Study Question 4: How are strategies

formulated?

BCG matrix

– Ties strategy formulation to analysis of

business opportunities according to …

• Industry or market growth rate

– Low versus high

• Market share

– Low versus high

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Figure 9.7 The BCG matrix approach to

corporate strategy formulation.

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Study Question 4: How are strategies

formulated?

BCG matrix — business conditions and

related strategies:

– Stars

• High share/high growth businesses.

• Preferred strategy — growth.

– Cash cows

• High share/low growth businesses.

• Preferred strategy — stability or modest growth.

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Study Question 4: How are strategies

formulated?

BCG matrix—business conditions and related strategies (cont.):

– Question marks

• Low share/high growth businesses.

• Preferred strategy — growth for promising question marks and restructuring or divestiture for others.

– Dogs

• Low share/low growth businesses.

• Preferred strategy — retrenchment by divestiture.

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Study Question 4: How are strategies

formulated?

Types of adaptive strategies: – Prospector strategy

• Pursuing innovation and new opportunities in the face of risk and with prospects for growth.

– Defender strategy • Protecting current market share by emphasizing existing

products and current share without seeking growth.

– Analyzer strategy • Maintaining stability of a core business while exploring

selective opportunities for innovation and change.

– Reactor strategy • Merely responding to competitive pressure in order to survive.

Thank You For Your Attention

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