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Makerere University Business SchoolStrategic Management Course
STRATEGIC CHOICE
Need for a strategy/strategies How do we get there? What direction should we take? No single strategy is the best in all
situations and at all times Align strategic choices to the situation Need for a consistent set of choices
Decisions and actions / tactics in order to outwin our rivals
Without this consistent set of tactics, synergy is lost
Strategy Selection
Selecting the best strategy that will enable a firm achieve its goals.
Some strategy options are more appropriate than others.
Strategists should evaluate the existing alternatives before choosing the best strategy
Evaluation and selection criteria
Sustainable competitive advantage Corporate goals & objectives Organization policies and culture Cost of strategy failure Feasibility of the strategy Stakeholders reactions
The Generic Strategy Alternatives
These are the common strategic approaches that can give a firm sustainable competitive advantage.
There are several approaches: Michael Porter’s approach Igor Ansoff’s approach Glueck’s approach Kotler’s approach Tailor-made strategies
Michael Porter’s approach
Overall cost leadership Differentiation Focus strategy
1.Overall cost leadership: Aim at being the lowest cost producer
relative to competitors Increases a firm’s profitability The market can enjoy affordable prices
Making oneself different from others Adding to customers perceived value of
the firm and its products Calls for continuous innovations
(customer- centred)
2. Differentiation strategy
How to differentiate
Image building High quality and distinctive products Superior customer services Unique design and packaging Convenient terms to customers
3. Focus strategy
Involves segmenting the market Focusing on a given market
segment Calls for specialization in a
specific market segment (niche marketing)
Why focus strategy?
Different groups of buyers with different needs
No other rival is attempting to specialize in the same segment
A firm’s resources don’t allow it to spread over the entire segment
Where some segments are more attractive than others
ANSOFF’S APPROACH
Provides four strategic approaches based on product and market information
Presented as a product/market matrix.
Existing Products
New Products
Existing Markets
Strategies based on existing markets and existing products
Strategies based on launching new or improved products into existing markets
New Markets
Strategies based on finding new markets for existing products
Strategies based on launching new products into new markets
Existing Products-Existing Markets1. Divestiture - It has reached maturity/you need
money for other ventures/in order to concentrate on your core or more beneficial business
2. Consolidation - You are enjoying a comfort zone/need to go back to the basic (status quo)
3. Retrenchment - You have over expanded or diversified ,you need to reduce your operating costs; sell part of the business
4. Market penetration - Enter new markets with a more attractive offer/buy out your close rival through say an acquisition/use a strategic alliance
New products-Existing markets No or less resources needed to develop the
market You need to develop a new product or
modify the current one for that market A product development strategy is the best
strategy Bench-mark this generic strategy and fine-
tune it to your competitive situation
Existing products-New markets No or less resources needed to develop the
product You need to develop the new market for
your product (s) A market development strategy is needed
using say; CRM tactics/customer care practices/taking your products (services) near your customers
Refer to the current stage in the marketing cycle as you fine tune this generic strategy
New product-New market
A lot of risks and uncertainties involved; you need to develop the new product for the new market
Minimize such risks through using a competitive stepping stone
Commonly used strategies in such situations include; buying franchises, strategic alliances, and use of pilot projects among others
GLUECK’S APPROACH
Stability strategy Expansion strategy Retrenchment strategy Combination
Stability Strategies:
Strategies pursued with no or few changes made in the firm’s products, markets or functions.
Ideal for those firms that are already consolidated in the market.
Why stabilize?
The strategy is less riskyWhen a firm is doing wellExecutives aren't creative and innovativeFear to disrupt routinesEnvironment is relatively stableFear of inefficiencies due to expansion
Expansion Strategies Ideal where a firm wants to improve
its growth performance A firm adds to its markets and
functions. The firm increases the pace of its
activities
Why Expand?
To survive in a volatile environment To provide variety to the market Sign of good performance Need to re-invest profits To enjoy economies of scale Motivates the firm
Retrenchment strategies:
A firm reduces its product lines, abandons some market territories, reduces its functions.Looks like lean managementFirm reduces activities in those units with negative or little cash flows.The pace of operation and scope of activities greatly reduces.
Why retrench? The firm is performing poorly The firm has tried all strategies and still
failed to succeed The firm needs funds to pursue better
opportunities elsewhere Turbulent environment External pressure
Combination strategies: A firm uses several of the above strategies
simultaneously to different portfolios of a firm.
Kotler’s strategies.
Looks at market positions of competing firms
The competitors are at war over these competitive positions
Different competitive positions require different competitive strategies
The positions include; market leader, challenger, follower, and nicher positions
Market leader’s strategies Use strategies that help to expand or protect
market share Strategy depends on the situation at hand
In internal and external environment “Apply the best science and art of war” You are the target for the challenger’s strategic
attacks. Those you lead also want to get where you are and/or even overtake you;
a) Expanding the total market
1. Acquisitions and mergers
2. Franchises and / or international trade
3. Increase usage of your products
4. Finding new users/creating new demand
b) Protecting market share
Strategies involved:• Defending your leading position and
competitive business walls• Pro-reactive protection of your weak
flanks / pre-emptive defending• Counter offensive defense• Enter new markets for future defense• Strategic withdrawal
Exhibit 17.9
Strategic Choices for Share Leaders in Growth Markets
COMPETITOROR
POTENTIALCOMPETITOR
Contractionor strategicwithdrawal
Market expansion
Flanker strategy - ProactiveFlanker strategy - Reactive
LEADER
Fortressor position
defensestrategy
Confrontationstrategy
ProactiveReactive
Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981, pp. 30-41. Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.
Market Challengers’ strategies They want to overtake the share leaders BUT
should also aggressively differentiate themselves from fellow challengers using the following alternatives;
1. Frontal / head-on / direct attack (strengths)2. Flanking / indirect attack ( weak points)3. By pass/ Leapfrogging4. Encirclement / Guerrilla attack
Note
The market leader Is usually better in terms of resources & expertise Is also watching your attacking activities and looking
for strategies of how to deal with your challenge May react to swallow the attacker/challenger
To improve your market share, you need to build a distinctive competitive advantage of your own; not just imitating your market leader
Exhibit 17.12
Strategic Choices for Challengers in Growth Markets
MARKET LEADER
Flanking attack
Frontalattack
Encirclement strategy
Leapfrog strategy/By Pass
Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981, pp. 30-41. Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.
CHALLENGER
Market followers' strategies Sometimes overlooked by the market
leader and challenger BUT may become challenger and/or even overtake the market share leader
Their commonly used strategies;1. Cloner (making a duplicate, replica, copy) 2. Imitator3. Adaptor
Market Followers-cont Commonly found in oligopolistic industries Try to compete on dimensions other than
price (avoid price competition) Product value/quality Customer service Promotional effectiveness Distribution, etc
Market nichers Operate on high profit margins vs. high
volume Compete in well-defined market segments
(niches) They tend to specialize in that niche in terms of
customer category, products/services, geographical area
Successful nichers usually have a large share of their niche
How to select a few from the many generic/bench-market strategies
The common approaches;
1. The strategic choice matrix
2. SWOT analysis
3. Portfolio analysis
Factors determining the final acceptance of the proposed strategy by top management
1. Top management’s attitude towards risk2. Top executives’ preference for past
strategy in relation to past performance3. Their values including the shared values,
chief executive's beliefs and personal intentions
4. CEO’s power relationship with other top executives and subordinates
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