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9 strategic choice ppt 9 strategic choice ppt Presentation Transcript

  • Makerere University Business School Strategic 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 marketsNew Markets Strategies based on finding new markets for existing Strategies based on launching new products into
  • Existing Products-Existing Markets 1. 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 risky When a firm is doing well Executives aren't creative and innovative Fear to disrupt routines Environment is relatively stable Fear 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 management Firm 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 COMPETITOR OR POTENTIAL COMPETITOR Contraction or strategic withdrawal Market expansion Flanker strategy - Proactive Flanker strategy - Reactive LEADER Fortress or position defense strategy Confrontation strategy Proactive Reactive 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/ Leapfrogging 4. 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 Frontal attack 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. Imitator 3. 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 risk 2. Top executives’ preference for past strategy in relation to past performance 3. Their values including the shared values, chief executive's beliefs and personal intentions 4. CEO’s power relationship with other top executives and subordinates