51110 - Lecture 7 2002

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Lecture Seven

BUSINESS STRATEGY

51110 / MKT3002

Module 7:Bases of strategic choice

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Module 7Stakeholder expectations and

organisational purposes This module should help you to identify the basis for

making strategic choices by doing the following:

Explain how forms of ownership may influence strategicchoice;

Explain the importance of clarity of mission or strategicintent on strategic choice;

Explain the importance of appropriately defining

business and industry for an organisation;Describe the elements of the strategic choice and showhow it can be used to determine strategy; and

Explain the elements of the parenting matrix

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Key words and concepts

Mission statement

Strategic intent

Strategic scope

Competitive strategy no frills strategy

Low price strategy

Bowmans competitive strategy options

Differentiation strategy

Hybrid strategy

Focussed differentiation

Corporate parenting

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Introduction

Corporate purpose and aspirationsOwnership Scope & diversity

Mission & strategic intent The global dimension

Bases of SBU strategyAchieving competitive advantage Differentiation strategies Price-based strategies Focus strategies

Enhancing SBU strategy: corporate parenting Portfolio management The role of the corporate parent Financial strategy The parenting matrix

Bases of strategic choice

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Introduction

Development strategies

Bases ofchoice

Corporate purposeand aspirations

SBU genericcompetitivestrategies

The role of thecorporate parent

Alternative directions

Protect & build

Market penetration

Product development

Market development

Diversification:

Related

Unrelated

Alternativemethods

Internaldevelopment

Acquisition

Joint development/alliances

How?What basis? Which direction?

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Corporate purpose and

aspirations

1. Ownership structures

2. Mission and strategic intent

3. Scope and diversity

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1. Ownership structures Changes in ownership

Privately owned organisation to publicly quotedcorporation.

Sale to a different corporate parent.Privatisation of public bodies.

Management buyout.

Strategists need to recognise thatownership of firms directly influences what strategic

choices are available to a firmConflicting expectations resulting from change inorganisation structure means that you cannot have itboth ways

Eg universities

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2. Mission and strategic

intent Mission and strategic intent allow

stakeholders to understand the goals that

the organisation is pursuing. Mission statement is the overriding purpose

Strategic Intent is the aspirations of the firm

Concern with the overall strategic direction. Provides stability to the future direction,

especially when the firm is subject to HRchanges

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2. Mission and strategic

intent (Cont)

These statements can aid the growth of afirm in a number of ways.

Successful family businesses (eg. retainownership in the family).

Major corporation (eg. Short-term profit vslong-term growth, global coverage vs focus on

selected countries).Embodied in the founder (Ikea) or result from anew leader (Red Earth).

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Scope and diversity Strategic scopeis concerned with boundaries

that managers conceive for their organisation interms of geography, product (or service) diversityor the way in which business is conducted.

Johnson & Scholes 1999, p.266.

Diversity or relatedness (Mayne group??)Organisations begin their existence focused on aparticular product or service.

Relatedness could exist in different ways.

Different SBUs in a portfolio - seek to build on

similar sorts of products or services. Different SBUs similar customers (Virgin).

Different SBUs key competences.

Business units and the skills and expertise of

the parent or corporate centre.

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Scope and diversity

(Cont)

The global dimension

Retain a strong domestic focus (distinctunderstanding of local markets).

Global strategies (cost reduction, improvedquality, competitive leverage).

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Bases of SBU strategy Competitive strategythe basis on

which a SBU might achieve competitiveadvantage in its market.


Price Based

Differentiation

Focus

Middle ofthe Road

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Price based strategies

no-frills strategycombines a low price, lowperceived added value and a focus on a price-sensitive market segment.


This strategy is successful only if there is a

market segment:Quality of the product or service might be low.

Not to afford to buy better-quality goods.

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Price based strategies (Cont)

low price strategyseeks to achieve a lowerprice than competitors whilst trying to maintainsimilar value of product or service to that offeredby competitors.


This strategy is successful only:Substantial market share.Cost advantage through specific competences.

Value chain.

Lower cost raw material, labour.

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PriceHigh Medium Low

High

LowProdu

ctQuality

Med

PremiumValue

MediumValue

Economy /no frills

Overcharging

Rip-OffFalse

Economy

HighValue

SuperValue

Good-Value /Low price

Price - Quality Strategies

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Differentiation strategies Differentiation strategiesseeks to provide

products or services unique or different fromthose of competitors in terms of dimensionswidely valued by buyers.


This strategy can be achieved through:

Uniqueness or improvements in products

( eg. Crystal drinks)

Marketing-based approaches.

Competence-based approaches.

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Hybrid strategy Hybrid strategyseeks simultaneously to

achieve differentiation and a price lower than thatof competitors.


This strategy is successful if:Ability to understand and deliver enhanced value interms of customer needs AND there is a large enoughmarket to support this (IKEA).

Sufficient financial funding to develop differentiation.

If efficiencies result in being able to out supplycompetitors (Woolworths)

Entering a new market which is not meeting consumerneeds satisfactorily (WALMART)

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Focus differentiation Focus differentiationstrategy seeks to provide

high perceived value justifying a substantial pricepremium usually to a selected market segment.Johnson & Scholes 1999, p.282.

Key issues arise from the differentiation

strategy:Broad differentiation across a market vsfocused strategy.

Differentiate with focus strategy.

Define the target market segment.Conflict between the focus strategies withstakeholders.

New ventures often begin in very focused way.

Monitor market changes.

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Failure strategies

Failure strategies:

Increasing price without increasing value tothe customer.

Reduction in value of a product or service,while increasing relative price.

Reduction in value, while maintaining price.

Unclear of the fundamental generic strategystuck in the middle.

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The management challenge

of competitive strategies

To achieve real bases of sustainable advantage, itis important to do the following:

Be clear which customers are the target for the strategy

to be followed.Clearly identify customer needs and bases of added valuein the market place.

Understanding of competitors (eg. cost structures, corecompetences).

Develop appropriate strategy based on organisationspurpose and aspirations.

Differentiate from competitors with organisationalcompetences.

Ensure that the strategic directions and methods of the

organisation are in line with the generic strategy.

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Enhancing SBU strategy

Managing portfolios

Corporate financial strategy Corporate parenting

Parenting matrix

The challenge of parenting

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Managing portfolios

Key issues in managing portfolio -businesses to be included in the portfolio,

and interaction between these businesses.Attractiveness or directional policy matrix(categorise businesses based on prospects).

Growth / share matrix (balance and

development of a portfolio).The lifecycle matrix (assess attractiveness orfit of businesses)

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Corporate financial strategy

Stars Question marks

Growth phase Launch phase

Business risk high

Financial risk low

Business risk very high

Equity(growth investors)

Equity(venture capital)

Cash cow Dogs

Maturity phase Decline phase

Business risk mediumFinancial risk medium

Financial risk high

Debt and equity

(retained earnings)

Debt

Source of funding

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Corporate parenting

Corporate parentingis the search for afit between the skills of the corporate

centre and the strategies of SBUs so as toadd value to those SBUs.


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Corporate parenting

(Cont)

Different approaches:Portfolio management style (balanceinvestments in businesses; reviewingacquisition targets, buying wisely, divestingpoor performers).

Restructurer (shifting of experience executiveswithin the organisation).

Managing synergy (transfer skills andcompetences from one SBU to another).

Sharing activities.

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The parent matrix

Determine the appropriateness of the roleof the parent and the mix of SBUs thatbest suited to the parent.

Two dimensions of fit are assessed:Fit between the CSFs of the SBUs and theskills, resources, and characteristics of theparenting organisation.

Fit between the parenting opportunities ofSBUs and the skills, resources, andcharacteristics of the parenting organisation.

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The challenge of parenting

Different roles of corporate bodies inparenting.

Take on an effective and efficient role (addvalue to the SBUs).

Assess SBUs to be included in the portfolio.

Enhance SBU strategies (consider the fitbetween the SBUs and the parent)

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Lecture 7 review Corporate purpose and aspirations.

The structure of the firm is not the goal, but an influenceon strategic direction and choices as it helps todetermine the purposes and aspirations of the firm

Good structure does not guarantee success and firms

need to be aware of corporate vs SBU strategy

Bases of SBU strategy.

Need to determine is SBU strategy is defined by the SBUor the parent

There are a number of ways a firm can find the sourcesof competitive advantage

The parent should add value to the SBU strategicadvantage

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Lecture 7 review Enhancing SBU strategy.

Managing portfolios.

Corporate financial strategy.

Corporate parenting.

The parent matrix.

The challenge of parenting.

BUT wait theres more!!!!!

This info is good but lets put into some sort ofcontext

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The application of this theory is often subject to whatcompetitive position you have in the marketplace.

So, you may decide that the analysis and identificationof the industry's CSFs suggests that the focusstrategy is the best thing to do, but if you are themarket leader then is it the best thing for you to do?

Again, your analysis may point to a cost leadershipstrategy as being the best strategy in your industry,given the current and potential environment, but if youare the market nicher then are you able to follow thisstrategy AND is this the best strategy for you?

Therefore, we need to look at various competitivepositions and what competitive strategies are mostlyused so we can apply the theory in this module

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Market Leader 40%

Market Challenger 30%

Market Follower 20%

Market Nichr 10%

These are generalisations based on averages

It is possible to have more than one firm in acategory (eg 2 challengers in TV stations)

Some industries are so fragmented that this doesnot apply (shoe shiners in New York)

Some industries have market dominators (about60% or more)

Com petitive Positions

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1. Expand total demand

2. Protect market share

3. Expanding market share

Market Leader Strategies

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Protecting and Defending market sharea. Position Mass marketing to build position - poor tactic

b. Flank Protect weaknesses e.g. Woolworths express

c. Preemptive Attack B4 enemy acts e.g. McDonalds (N.S.W)

d. Counteroffensive QANTAS vs. Compass

e. Mobile Market Broadening or diversification (SEQEB)

f. Contraction Strategic withdrawal of weak markets (Heinz)

Market Leader StrategiesOne does not rely on the enemy not attacking, but relies

on the fact the he (or she) is unassailable. (Sun Tsu)

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Challengers will attack the marketleader or firms their own size orsmaller .

The M arket Challenger

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Market Challenger StrategiesFrontal Matches leaders products, advertising, price etc

(the side with the greater resources will win)

Flank Protect weaknesses or serve unmet market needs.

Encirclement Blitz the market e.g. Microsoft Corporation.

Bypass Unrelated products (Mitsubishi Electric air-conditioners),New geographic markets (Wal-Mart, Lion Nathan),New technologies (Segas virtual-reality entertainment)

Guerrilla Small intermittent attacks to demoralise opponent.Price cuts, promotional blitzes and the odd legal action.

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Followers try to avoid competitiveretaliation.

Four main types...Counterfeiter Rolex watches from Asia

Cloner Sanitariums Corn Flakes

Imitator Copies some things

Adaptor Adapts and improves ideas

Market Follower Strategies

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Nichrs target segments within segments.End-use specialist

Customer size specialist

Specific customer specialist

Geographical specialist

Product or feature specialist

Quality-price specialist

Service specialist...and more

Market Nicher Strategies

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Next week

Module 8: Strategic options

Directions and Methods ofDevelopment

(Study book: Module 8 - Text Chapter 7)

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Next weeks tutorialAssignment 2. (preparation)

Come prepared with answers

to the modules questions and

present them in class

Documents

51110 - Lecture 7 2002