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STRATEGIC MANAGEMENT
SLIDES
EVOLUTION OF STRATEGY
DR. A AGYAPONG
EVOLUTION OF THE CONCEPT
OF STRATEGY
• The word strategy derives its origin from
the Greek word ‘strategeia’ which means
the art or science of being a military
general. Effective Greek military generals
needed to lead an army to win wars and
protect their cities from aggression and
invasion. A strategy is therefore defined as
the pattern of actual actions that are
designed to counteract against enemy
attack. To the Greeks strategy was more
than fighting battles.
• Effective Greek generals had to determine
the right amount of logistics needed to
fight; where to fight and where not to fight;
the army’s relationships with citizens,
politicians, diplomat, etc
• Strategy has both decision –making
component and planning component.
Military Generals are therefore supposed
to decide and plan strategically. These two
components constitute the key elements to
any success.
What is Strategy?
• An America Heritage Dictionary-
defines strategy as the science and
art of military command as applied to
the overall planning and conduct of
large scale combat operations.
DEFINITIONS
• John R. Schermerhorn - a
comprehensive plan that sets direction
and guides the allocation of resources to
achieve long-term objectives;
• An action plan that identifies long-term
direction and guides resource utilisation to
accomplish an organization’s mission and
objectives with sustainable competitive
advantage;
• A plan for using resources with consistent
strategic intent, that is, with all
organizational energies focused on a
unifying and compelling target Eg. The
strategic intent of Coca-cola is to put a
coke within an arm’s reach of every
consumer in the world.
• A strategy is the plan that
integrates an organization’s major
goals, policies and action
sequence into a cohesive whole.
It is a managerial game plan for
running an organisation.
• Since competitors often copy
strategies, there is the need to always
search for innovative strategies that
have competitive edge. As a result of
aggressive nature of competition in
recent times, strategies must be
aggressive, bold, and fast-moving.
• Strategy is the direction and scope of
an organisation over the long term,
which achieves advantage in a
changing environment through its
configuration of resources and
competences with the aim of fulfilling
stakeholder expectations (Johnson et
al 2007)
The Characteristics of Strategic
Decisions
- The characteristics usually
associated with the words
‘strategy’ and ‘strategic decisions’
are these:
• Strategy is likely to be concerned
with the long-term direction of an
organisation
• Strategic decisions are likely to
concern with the scope of an
organisation’s activities. For
example, does (and should) the
organisation concentrate on one
area of activity, or should it have
many?
• Strategic decisions are normally
about trying to achieve some
advantage for the organisation over
competition. Advantage may be
achieved in different ways and may
mean different things.
• However, strategy can also be seen
as creating opportunities by building
on an organisation’s resources and
competences. This is called the
resource-based view of strategy..
• Strategy can be seen as the search
for strategic fit with the business
environment. This could require major
resource changes for an organisation
in the future.
• The strategy of an organisation is
affected not only by environmental
forces and strategic capability, but
also by the values and expectations
of those who have power in and
around the organisation.
Some consequences of the
strategic decisions
• Strategic decisions are likely to be
complex in nature. This complexity is a
defining feature of strategy and strategic
decisions and is especially so in
organisations with wide geographical
scope, such as multinational firms, or wide
ranges of products or services.
• Strategic decisions may also have to
be made in situations of uncertainty
about the future.
• Strategic decisions are likely to affect
operational decisions.
• Strategic decisions are also likely to
demand an integrated approach to
managing the organisation. Managers
have to cross functional and
operational boundaries to deal with
strategic problems and come to
agreements with other managers
who, inevitably, have different interest
• Managers may also have to sustain
relationships and networks outside
the organisation, for example with
suppliers, distributors and customers.
• Strategic decisions usually involve
change in organisations which may
prove difficult because of the heritage
of resources and because of culture.
Other Dimensions of Strategic
Decisions
• Strategic Issues Require Top-
Management Decisions:
• Strategic Issues Require Large
Amounts of the Firm’s Resources:
• Strategic Issues Require Considering
the Firm’s External Environment:
Strategic Issues Are Future Oriented:
• Strategic Issues Usually Have
Multifunctional or Multibusiness
Consequences:
STRATEGY MAKERS
• The ideal strategic management team
includes decision makers from all the three
company levels (the corporate, business
and functional) for example, the chief
executive officer (CEO), the product
managers, and the heads of functional
areas
What is Strategic Management
• Charles W. L. Hill and Gareth R. Jones-
the major components of the strategic
management process include defining the
mission and major goals of the
organisation; analysing the external and
internal environment of the organisation;
choosing strategies that align; or fit; the
organisation’s strength and weaknesses
with external environment opportunities
and threats; and adopting organisational
structures and control systems to
implement the organisation’s chosen
strategy.
• Strategic management includes
understanding the strategic position
of an organisation, strategic choices
for the future and turning strategy into
action. Johnson et al (2007)
• Three main concepts can be identified
from the above definition, including
strategic position, strategic choices, and
strategy into action.
• According to Johnson et al (2007),
understanding the strategic position
precede strategic choices, which in turn
precede strategy into action. However, as
they point out, in practice, the elements of
strategic management do not take this
linear form, they are interlinked and inform
each other.
IMPORTANCE OF STRATEGIC
MANAGEMENT
• In recent paper by Arthur D. Little (1998), the
multinational consulting company, the writers
made this assertion:
• Many thoughtful people are asking whether…it
makes sense to ‘do’ strategy at all. How useful
is it to engage in strategic reviews, analysing
market positions and setting goals and tactics,
when at the end of the process the world will
have changed and will continue changing? Is
strategy still relevant?
• Strategic management allows an
organisation to be more proactive
than reactive in shaping its own
future; it allows an organisation to
initiate and influence activities and
thus to exert control over its own
destiny.
• Small business owners, chief
executive officers, presidents and
managers of many profit and non-
profit organisations have recognised
and realised the benefits of strategic
management
1. The principal benefits of Strategic
Management is to help organisations
make better strategies through the use of
a more systematic, logical and rational
approach to strategic choices.
2. Through strategic management,
managers and employees become
committed to supporting organisation –
understanding and commitment
3. Managers and employees become
creative and innovative when they
understand and support the firms
mission, objectives and strategies –
empower individual’s sense of
effectiveness
- Greenly stresses that strategic
management offers the following benefits:
• It allows for identification, prioritisation and
exploitation of opportunities
• It provides an objective view of
management problems
• It represents framework for improved
coordination and control of activities
• It minimises the effects of
adversely conditions and changes
• It allows more effective allocation
of time and resources to identified
opportunities
• It creates a framework for internal
communication among personnel
• It provides a basis for the
clarification of individual
responsibilities
• It encourages a favourable
attitude toward change
BENEFITS OF HAVING
STRATEGY
• Specific advantages of having strategies
include the following:
• Co-ordination of divisions, subsidiaries
and other component parts of the
organisation become easier. The
existence of a strategy provides a focal
point towards which all the firm’s energies
may be directed.
• It forces management to think through
the possible future actions of major
competitors and hence, to prepare
reactions to change in competitor
behaviour
• Strategies provide the business with
definite criteria against which to
evaluate performance
• The process of formulating a strategy
forces the company to analyse its
position and hence, identify and
remedy internal weaknesses
• External threats and opportunities will
be identified
• The company can decide in advance
how it will respond to predictable
changes in customer tastes and
spending patterns
HIERARCHIES OF STRATEGIC
DECISIONS
STRATEGIC POSITION
• Strategic position is concerned with the
impact on strategy of the external
environment, an organisation’s strategic
capability (resources and competencies)
and the expectation and influences of
stakeholders.
MACRO-ENVIRONMENTAL
FORCES
• Environmental influences and trends can
be thought of as layers around an
organisation.
• Political
• Key issues might include:
• Increases in taxation, reducing disposable
income
• Environmental protection (a social and political
issue)
• Employment law
• Health and safety
• Foreign trade agreements
• Stability of political systems
• Economic
• Key component measures of the economy are:
• Inflation rates
• Interest rates
• Income levels
• Gross national product
• Gross domestic product
• Employment levels
• Exchange rates – currency valuation
• Consumer spending patterns.
• Social
• Social factors include issues such as:
• Demography – The characteristics of customers, age
sex, class, family life cycle, etc., trends in age
distribution.
• Society – this reflects upon the infrastructure of society
and its attitude towards many issues, i.e. religion, the
environment, green and ethical issues.
• The significance of understanding consumer power,
customer needs and wants is critical to organisatonal
success, and therefore failure to react to the outcomes
can have catastrophic implications in the future.
• Culture – The range of variables relating to
culture include:
– language
– religion
– values and attitudes
– law
– healthcare
– education
– social organisation
• Technological
• Technology has evolved rapidly over the
past 20 years and particularly in the past
10 years. Technological developments
have seen improved manufacturing
techniques, new and dynamic innovations
and increases in efficiency and
effectiveness in a way never previously
imagined.
• Government spending on research
• Identified new research initiative
• Speed of change and adoption of new
technology
• Speed of technology transfer
• However managers need to understand
the drive for technological change, and the
need to go with the flow, to remain
competitive. Decisions to improve, change
or implement new technological processes
must be made in order to meet customer
needs and expectations.
• Environmental
• The world is currently in an age where there is growing
industrial wastage, discharge of effluent, emissions of
fumes and acid rain, all of which have to be taken
seriously by manufacturers. Due to the high level of
industrialisation in the modern world, the environment is
under constant threat from global warming. In recent
times we have experienced severe whether effects, such
as heavy rain, gales, and significant flooding. All of these
relate to environmentalism and as such means that
organisations must in the future consider their strategy in
relation to these issues.
• Environmental degradation
• Global warming
• Laws on afforestation
• However, organisations need to become
increasingly aware of their environmental
responsibilities and aim to ensure that
inherent within their corporate mission,
vision and strategy, is the need to be
environmentally aware, and should
position environmentalism as a principle
that should be embedded within their
overall CSR.
• Legal
• In a culture bound by regulatory bodies, legal
restraint and an increasing role played by
European and international legislation,
organisations will clearly need to understand the
legislative nature of their own marketing
environment and abide by it.
• Every organisation is bound by controls. For
example, there are regulations concerning:
• Monopolies and mergers
• Competitive activities
• Unfair trading
• Consumer legislation
• Trade descriptions
• Health and safety
• Professional code of conduct
PORTER’S FIVE FORCES –
Competitive Analysis
• It is imperative for you as a manager to
have a clear understanding not just of your
competitor, but of nature of the competitive
environment, particularly if you are to
succeed in developing a sustainable
competitive advantage to be able to
respond from a position of strength to
competitor attacks.
• Porter’s five forces model will be
particularly helpful when undertaking a
competitor analysis within the existing
business environment. It provides a
framework for an analysis of a range of
micro-factors, which enables industry
attractiveness to be measured and also
helps organizations understand the
complexity of the markets in which they
operate.
•
• Threat of new entrants
• Barriers to entry:
• Economies of scale
• Product differentiation
• Capital requirement
• Switching cost
• Access to distribution channels
• Government policy
• Entry-deterring price
• Experience
•
• Industry competitors
• Intense rivalry if:
• Numerous of similar-sized competitors
• Slow industry growth
• High fixed cost
• Lack of differentiations
• High exit barriers
•
•
• Bargaining power Bargaining power
• of suppliers of buyers Buyers Suppliers
•
Powerful if: Power if:
• Few suppliers -Large proportion of sellers sales
• No substitute -High proportion of the buyer’s cost
• Industry not import- -Undifferentiated product
• ant customer of -Low buyer switching cost
• supplier group -Threat of backward integration
• Supplier groups
• product are different-
• rated
• Threat of forward
• Substitutes
• integration Threat of substitute product or services
• Source:
• M. E Porter, Competitive Strategy
• The Free Press, 1980
The threat of competitive rivalry
• Competitive rivalry within the marketplace
is highly intense. Intense competition has,
over the years, changed the shape of a
number of industries, and as a result there
have been an increasing number of
mergers and acquisitions to ensure that
major players within the market place
maintain market share and superior
positioning.
• Competition can take various shapes.
Competition can be cutthroat, with ongoing price
wars, as have been experienced in recent years
in the banking industry, while at the other end of
the scale, competition can appear to be non-
existent. However, while rivalry might seem
healthy, it can have both positive and negative
effects.
• Organizations that succeed in competition,
possibly increasing market share, through
a range of activities, potentially experience
a rise in profit. However, the reverse may
happen; the organization might increase
market share, but at the expense of their
profit margins.
• Key factors influencing competitive rivalry
will be identified when undertaking the
competitive analysis as already
suggested, but key components might be:
• Stage of the product life cycle (PLC) of
competing products
• Liquidity of competitor
• Ability to achieve differentiation and brand
loyalty
• Competitor intentions
• The relative size of the competitor
• Barrier of exit from the industry.
Bargaining Power of suppliers
• Bargaining Power of suppliers
• The key components of this particular
element of Porter’s Five Forces
emphasize the following points:
• The strength of the supplier brand – Is it
brand that all organizations will want to
exploit, and will this therefore increase the
price of suppliers?
• Switching supplier – The cost of
switching suppliers can be quite high:
negotiation of contracts, establishing
relationships and developing trust all
cost time and resource. This act as a
deterrent to many organizations, who
will want to retain their relationship
with their supplier.
• Substitute products of suppliers – Are
there appropriate substitute products
available?
• Forward integration – Is there a threat of
suppliers establishing their own production
facilities?
Bargaining power of buyers
• The bargaining power of buyers is likely to be
quite strong in the following instances:
• Where few buyers control a large volume of the
market.
• Where there are a large number of suppliers
fighting for a share of the market – Again the
retail industry would be a classic example of this,
particularly in the food sector, i.e. grocery and
meat products.
• The cost of switching supplier is low – The
retail sector and high street are a good
example of how customers who are not
brand loyal will swap around to gain the
best deal. This can happen where the
relationship between customer and
supplier is not based upon loyalty.
• The supplier’s product is a mass-market
product and not necessarily differentiated
– e.g. where there are many variations on
the same theme, for example, toothpaste,
soft drinks, etc.
• Strong customer power – This involves
knowledge of the market and where to
attain the best deal.
• Threat of backward vertical integration –
Where the buyer goes back to the
supplier, cutting out the middle man.
The threat for potential entrants
• This issue looks at the obstacles to
entering new markets:
• Economies of scale – Existing
organizations often have economies of
scale and therefore new entrants will
struggle to achieve the same competitive
economies in the short/medium term.
• Access to new distribution channels – It
may be difficult to gain access to the
appropriate distribution channels, due to
competitive operations and networks in the
marketplace.
• Brand loyalty – In a brand-loyal market it
might be difficult to attract new customers
and therefore marketing spend could be
quite considerable.
• Capital investment – It can be cash
intensive to enter into new markets and
require high levels of investment – from a
competitive perspective, this would
actually weaken your initial position,
unless you are a cash-rich organization.
• Competitor retaliation – It is likely that
competitors will follow suit quite closely
behind, therefore competitive rivalry
intensive.
• Regulatory influence – What is the position
in fair competition, monopolies and
mergers.
Threat of substitutes
• A new product or service equivalent– A
direct equivalent product, from a differing
brand may have a competitive influence.
This is typical of the evolution of ‘home
brands’, e.g. supermarket brands as a
substitute in soft drinks breakfast cereals,
etc.
• A new product replacing an existing
product – For example the DVD player
replacing the VHS video player or cassette
tapes being replaced by compact discs.
• Consumer substitution – Consumer choice
can be the basis of a threat, when the
consumer is willing to search for substitute
products; for example, when the consumer
chooses a new kitchen over a new car.
• Essentially the porter framework is an
opportunity for the organization to
understand the holistic range of driving
forces in the micro environment, which
they can clearly link to the macro analysis,
i.e. the SLEPT/PEST analysis.
COMPETITIVE ENVIRONMENT IS
UNATTRACTIVE WHEN:
• Rivalry is very strong
• Entry barriers are low
• Competition from substitutes is strong
• Suppliers and customers have
considerable bargaining power
COMPETITIVE ENVIRONMENT IS
ATTRACTIVE WHEN:
• Rivalry is only moderate
• Entry barrier are relatively high
• There are no good substitutes suppliers
and customers are in a weak bargaining
position
• The weaker the competitive forces, the
greater an industry’s profits
INTERNAL ANALYSIS (RESOURCE
BASED VIEW – RBV)
• The five forces framework is not the only
tool used to undertake the micro analysis
of an organisation. Successful strategies
are also dependent on the organisation
having the internal strategic capability
required for survival and success.
• Understanding strategic capability is very
important because an organisation’s
strategic capability may be the leading
edge of strategic development. New
opportunities may be created by stretching
and exploiting capabilities either in ways
which competitors find difficult to match or
to create quite new market opportunities,
or both.
• The explanation of competitive advantage
in terms of strategic capabilities is
sometimes called the resource-based view
of strategy: that the competitive advantage
of an organisation is explained by the
distinctiveness of its capabilities.
• In turn this helps explain why some
businesses are able to achieve
extraordinary profits or returns compared
to others. They have resources or
competences that permit them to produce
at lower cost or generate a superior
product or service at standard cost in
relation to other businesses with inferior
resource capabilities.
STRATEGIC CAPABILITIES
. Strategic capability can be defined as the
adequacy and suitability of the resources
and competencies of an organisation for it
to survive and prosper (Johnson et al,
2010).
• Competitive advantage is achieved by
organisations that are able to develop
strategic capabilities more appreciated by
customers and in ways that competitors
find difficult to imitate.
• According to Hitt et al (1996) resources
are inputs into a firm’s production process,
such as capital equipment, the skills of
individual employees’ patents, finance,
and talented managers. Strategic
capabilities comprise tangible and
intangible resources and competences.
• Tangible resources are the physical assets
of an organisation such as plant, labour
and finance. In contrast, intangible
resources are non-physical assets such as
information, reputation and knowledge.
• Organisation’s resources can also be
considered in terms of physical resources,
financial resources, human resources and
intellectual capital. Intellectual capital is an
important aspect of the intangible
resources of an organisation.
• This includes patents, brands and
customer database. Such resources are
certainly important; but what the
organisation does, how it employs and
deploys its resources is equally important.
SUSTAINABLE COMPETITIVE
ADVANTAGE
• Hitt et al (2005) argue that, individual
resources alone may not yield sustainable
competitive advantage. For example, a
sophisticated piece of manufacturing
equipment may become a strategically
relevant resource only when its use is
integrated effectively with other aspects of
a firm’s operations.
• But in general, it is through the
combination and integration of sets of
resources that sustainable competitive
advantages are formed.
COMPETENCES
• The term competence is used to mean the
activities and processes through which an
organisation deploys its resources
effectively in a way that others cannot
imitate. In understanding strategic
capability the emphasis is, then, not just
on what resources exist but on how they
are used.
• The organisations require such resources
and competences at least to a threshold
level in order to be able to compete.
Threshold capabilities are those
capabilities essential for the organisation
to be able to compete in a given market..
• If they are able to achieve competitive
advantage, they require resources and
competences, which are both valuable to
customers and difficult for competitors to
imitate
• Not all of a firm’s resources and
capabilities have the potential to be the
basis of sustained competitive advantage.
This potential is released when resources
and capabilities are valuable. Resources
are valuable when they allow a firm to
exploit opportunities and/or neutralise
threats in its external environment; they
are rare when possessed by few, if any,
current and potential competitors;
• they are imperfectly imitable when other
firms cannot obtain them; and they are
non-substitutable when they have no
strategic equivalents. When these criteria
are met, resources and capabilities
become core competencies and serve as
the basis of a firm’s sustained
competitiveness, and its ability to earn
above-average profits (Hitt et al 1996).
• It is important to emphasise that if an
organisation seeks to build competitive
advantage it must meet the needs and
expectations of its customers. The
importance of value to the customer may
seem to be an obvious point to make but
in practice it is often overlooked or
ignored.
• Having capabilities in terms of resources
and competences that are different from
other organisations is, of itself, not a basis
of competitive advantage. There is little
point in having capabilities that are
‘valueless’ in customer term; the strategic
capabilities must be able to deliver what
the customer values in terms of product or
service.
UNIQUE RESOURCES AND
CORE COMPETENCES
• Clearly, competitive advantage cannot be
achieved if the strategic capability of an
organisation is the same as other
organisations. It could however be that a
competitor possesses some unique or rare
capability providing competitive
advantage.
• This could take the form of unique
resources. Unique resources are those
resources that critically underpin
competitive advantage and that others
cannot easily imitate or obtain.
• It is, however, more likely that an
organisation is able to achieve competitive
advantage because it has distinctive, or
core competences. The concept of core
competences was developed by Gary
Hamel and C. K. Prahalad.
• While various definitions exist, core
competences are taken to mean the
activities and processes through which
resources are deployed in such a way as
to achieve competitive advantage in ways
that others cannot imitate or obtain.
• For example, a supplier that achieves
competitive advantage in a retail market
might have done so on the basis of a
unique resources such as a powerful
brand, or by finding ways of providing
service or building relationships with that
retailer in ways that its competitors find
difficult to imitate, a core competence.
TYPES OF CORE COMPETENCE
• Superior skills in producing high capability
• Superior system for delivering customer
order accurate and swiftly
• Better after –sale service capability
• More skill in achieving low operating costs
• Unique formula for selecting good retail location
• Unusual innovativeness in developing new
products
• Better merchandising and product display skills
• Superior mastery of an important technology
• Unusually effective sales force
• Another example is that, a company may
have a powerful brand or retail stores may
have prime locations. Some organisations
have patented product or services that
give them advantage – resources that may
need to be defended by a willingness to
bring litigation against illegal imitators
• Competitive advantage could also based
on rare competences such as the years of
experience in, for example, brand
management, or building relationships with
key customers; or perhaps the way in
which different parts of a global business
have learned to work together
harmoniously
• A wide range of resources and capabilities
can be the foundation for core
competencies. But, in the global economy,
the skills of a firm’s labour force are
increasingly critical to developing a
sustained competitive advantage.
• However, employing skilled workers does
not necessarily result in competitive
advantage. Only through establishing firm
specific patterns of training and combining
the human resources with other resources
and capabilities can firms expect their
workers to become core competencies.
USING THE RESOURCE BASED
VIEW IN INTERNAL ANALYSIS
To use the RBV in internal analysis, a firm must
identify and evaluate its resources to find those
that provide the basis for future competitive
advantage. This process involves defining the
various resources the firm possesses and
examining them based on the above discussion
to gauge which resources truly have strategic
value.
VALUE CHAIN
• Firm’s value chain is a strategic cost tool
that influences the value a firm can give to
its customers. The value chain explains a
firm’s overall performance in terms of its
pricing and it’s competitive advantage over
rivals.
• According to Michael E. Porter, a firm’s
value chain is made up of five primary
activities, which include how the firm
obtains its raw materials, converting the
raw materials into finished product,
physical distribution, marketing and sale
and lastly service.
• The support activities include human
resources management, firm’s
infrastructure, technology development
and procurement. In all, a firm’s value
chain activities are nine. These when well
managed give firms a competitive
advantage.
PRIMARY ACTIVITIES
• Inbound Logistics
• This is made up of activities and cost
associated with buying raw materials and
transporting the raw materials to the
production site . The sources from which a
company buys raw materials influence the
company ability to compete.
• Most firms in Asia have cost
advantage because they get the raw
materials from cheap source.
Receiving, storing, materials
handling, warehousing, inventory
control, vehicle scheduling, and
returns to suppliers.
• Operations
• This is made up of activities and cost
associated with converting the raw
materials into finished products. If
production is characterized by defects
it will affect final delivery and price.
• Similarly if a company lacks expertise in
using the technology to produce, company
will not be competitive. Product quality will
also be suspected. Customers will as a
result switch to other firms. (packaging,
assembly, equipment maintenance, testing
and printing)
Outbound Logistics
• This addresses activities associated
with physical distribution from the
manufacturing site to the points of
consumption. If there are several
points along the distribution chain
(middlemen) the price for a product or
the service will be high.
• E.g. it is not only the manufacturing cost
that has made the price of cement to be so
expensive but as a result of distribution
problem. (finished goods warehousing,
material handling, delivery vehicle
operations, order processing and
scheduling)
Marketing and Sales
• This include activities and cost associated
with the work of sales force and the
entire marketing team. If the marketing team
is not performing, it will affect the progress
of the organization. A company will as a
result find it difficult to get the needed funds
to run the business. (advertising, sales
force, channel selection, and pricing)
Service
• Customers are interested in after sales
service, caring, appreciation and support.
In the 21st Century, competition has move
beyond technical competencies to
functional competences and that is
customer service. Winning companies
exhibit a high sense of professionalism in
customer service. (installation, repair,
training, and parts supply)
SUPPORT ACTIVITIES
Human Resource Management
• This is made up of staffing, training,
development and compensation. The
calibre of people a company has
determines the company’s ability to
compete. This means that even though a
company may perform excellently in its
primary value chain activity it may perform
poorly due to poor staffing, bad
management practices and poor
remuneration.
Technology
• Research and development and how
innovative a firm is, makes a big
difference. A company that invests so
much into research and development
remains competitive and has an urge over
rivals.
Procurement
• It is made up of the purchasing and storing
of materials, components and semi-
finished goods. People in charge of the
procurement department influence the
company’s cost competitiveness. Their
honesty and loyalty will affect the firm’s
competitiveness.
Firms Infrastructure
• This has to do with buildings,
administrative offices etc. A firm with good
infrastructure performs creditably well
because good infrastructure improves
worker morale.
SWOT ANALYSIS
• The key ‘strategic messages’ from both
the environment and concerning strategic
capability can be summarised in the form
of a SWOT analysis. A SWOT analysis
summarises the key issues from the
business environment and the strategic
capability of an organisation that are most
likely to impact on strategy development.
• A SWOT analysis draws together key
strengths, weaknesses, opportunities and
threats that have been highlighted as a
result of the environmental audit
• SWOT, alternatively known as ‘WOT’S-
UP’ analysis, is an important tool in
enabling organisations to distil the findings
of the audit into a more cohesive and
succinct model. It is essential that it is
used for this purpose and that it is seen as
an addition to the environmental audit, not
a replacement.
• The aim of the SWOT process is to enable
you to convert weaknesses into strengths
and threats into opportunities, by taking
remedial action to improve existing
situations and plan a programme of
ongoing continuous change.
• Where an organisation is weak in respect
of a skilled workforce then it is essential
that training is identified as a key objective
of the internal strategy and this is
underpinned by financial investment and
resource.
• When undertaking a SWOT analysis, you
should be aware of the differences
between controllable and uncontrollable
factors. Essentially, the controllable areas
are those relating to internal issues. By
and large your organisation does have
control on micro issues relating to
technology, skills investment, resources,
innovations, morale, motivation, etc.
• External factors, however, are often
uncontrollable, and while you might be
able to influence their outcome you will not
be able to control them. When establishing
future opportunities and how to improve
upon weaknesses, you will be required to
work on the controllable variables.
• It is, however, essential to realise that an
organisation cannot aim to address all of
the issues raised within the SWOT
analysis and must ideally prioritise the
issues appropriately.
• The SWOT analysis should be used to
distil the critical factors that have been
identified during the auditing process.
Essentially it acts as a summary of the
audit and not a replacement for it.
Therefore the analysis should aim to
identify highly critical areas, in order to
focus attention on them during strategy
development.
CORPORATE MISSION, VISION
OR STRATEGIC INTENT
• MISSION
• A firm’s mission is a broad statement
providing a general direction for business
activities and a basis for the coherent
selection of desired ends (goals and
objectives) and means to achieve them
(strategies).
• The firm’s mission defines why it exists
and why it competes in certain selected
markets or industries and not in other. It is
an enduring statement of purpose that
distinguishes one organisation from other
similar enterprise. A mission statement is
sometimes called a creed statement or
statement of purpose.
• The mission of an organisation explains
the organisation’s purpose for existence. It
is the declaration of a company’s
fundamental purpose for existence. It
explains among other things how the
company sees itself, and what it wishes to
do. It contains firm’s beliefs, norms, and
ideologies
• Mission statement is a qualitative
statement of the overall business position
that summarises the key points with
regard to products, markets, geographic
locations, and unique competencies
• NATURE OF MISSION STATEMENTS
• It should be customer oriented rather than
product oriented
• A product definition focuses just on the
products sold and markets it serves. This
obscures a company’s function, which is to
satisfy customer needs
COMPONENTS OF MISSION
STATEMENTS
• A good mission statement should include most
of these essential elements:
• Customer: who are the firm’s customers?
• Product or services: what are the firm’s products
or services
• Markets: geographically, where does the firm
compete?
• Is the firm technologically current?
• Concern for survival, growth and profitability – is
the firm committed to growth and financial
soundness
• Philosophy – what are the basic beliefs,
values, aspirations and ethical priorities of
the firm?
• Concern for employees – are the
employees a valuable asset of the firm?
• Concern for public image – is the firm
responsive to social, community, and
environmental concern?
• Self concept – what is the firm’s distinctive
competence or major competitive
advantage
CHARACTERISTICS OF GOOD
MISSION STATEMENTS
• It should be feasible – realistic and
achievable
• It should be clear and lead to action
• It should be distinctive
• It should be motivating and inspiring
• It should indicate how objectives are to be
accomplished
• It should indicate major components of
strategy
• 1. A well crafted mission statement:
• Must be narrow enough to specify real
arena of interest
• Serves as beacon of where top
management intends to take the firm to
• 2. Overly broad mission statements provide no
practical guidance in strategy making
• Broad Definition
Narrow Definition
• Beverage
Soft drink
• Footwear
Athletic Footwear
• Global mail delivery
Overnight package delivery
• If IBM defines its mission as being in the
computer business it is typically a product based
definition.
• On the other hand, if IBM defines its mission as
operating in information and data processing
business, it is a customer based definition. This
is because when a customer buys IBM
computer, the benefit he or she is expected to
derive from it is information and data processing.
• Similarly, if an educational institution
defines its mission as an educational
establishment that provides professional
based courses, it is a product based
definition. However, if it defines its mission
statement as providers of knowledge and
information, then, this is a customer based
definition.
• IMPORTANCE OF HAVING A MISSION
STATEMENT
• It helps companies to have focus and
direction
• It helps companies to effectively utilise
their resources
• Mission helps firms to be more ethical in
their conduct of business
• THE NEED TO CHANGE MISSION
STATEMENT
• The environmental changes demand that
companies review their mission statement
frequently in order to remain competitive
and to meet needs of customers.
Customer taste is not static but changes
with time. To remain useful, mission must
be revised.
WHO DRAFTS COMPANY MISSION?
• Lead in the drafting of the mission statement is
the chief executive officer with support of the
board of directors and other senior
management members of the organisation. In
some cases the chief executive officer may draft
the mission and present it to the senior
management to add or subtract some
information. This happens when other
management members have insight into what
should constitute a good mission statement.
COMMUNICATING MISSION AND
VISION STATEMENTS
• After the mission or vision have been
drafted, senior management owns it a duty
to communicate to the other members of
the organisation. This is because
implementation becomes easy if they
understand the mission and the vision.
VISION
• The mission statement deals with present
– that is, what business the organisation is
operating in; but vision statement talks
about the future – ‘that is where the
organisation wishes to be’’. A strategic
vision provides a big picture perspective of
what the organisation intends to be
considering the instability of the business
environment.
• DEVELOPING THE MISSION
STATEMENT OF THE BUSINESS
• Definition of time frame
• Determination of the business scope
• Determination of product – market
segment
• Challenges from changes in the mission
statement
• Mission statement
• STAKEHOLDER EXPECTATIONS AND
ORGANISATIONAL PURPOSES
• Strategy formulation is also about the
purpose of the organisation and what
people want the organisation to be like.
Whom should the organisation be there to
serve and how the direction and purposes
of an organisation should be determined.
STRATEGIC OPTIONS AND CHOICES
• CORPORATE-LEVEL AND
INTERNATIONAL STRATEGY
• Corporate strategy specifies the firm’s
overall direction in terms of its general
orientation towards growth and the
management of its various businesses and
product lines to achieve a balanced
portfolio of products and services.
• The corporate parent refers to the levels of
management above that of the business units
and therefore without direct interaction with
buyers and competitors. So, a corporate centre
or the divisions within a corporation which look
after several business units act in a corporate
parenting role.
• CLASSIFICATION OF CORPORATE
STRATEGIES
STABILITY GROWTH STRATEGY
• Stability growth strategy can be characterised as
follows:
• The organisation is satisfied with its past
performance and decides to continue to pursue
the same or similar objectives
• Each year the level of achievement expected is
increased by approximately the same
percentage
• The organisation continues to serve its
customers with basically the same products or
services
• REASONS FOR THE USE OF A STABLE
GROWTH STRATEGY:
• Management may not wish to take the risk of
greatly modifying its present strategy
• Changes in strategy require changes in
resources allocation
• Too rapid growth can lead to situations in which
the organisation’s scale of operations outpaces
its administrative resources
• Organisations that pursue a stable growth
strategy concentrate on one product/service
• GROWTH STRATEGY
• Growth strategy can be described as follows:
• They do not necessarily grow faster than the
economy as a whole but do grow faster than the
markets in which their products are sold
• They tend to have larger than average profit
margin
• They regularly develop new products, new
markets, new processes and new uses for old
products
REASONS FOR GROWTH
STRATEGY
• Growth has been ingrained in Americans as ‘’the
path of success’’
• Managers are often given bonuses, salary
increases, and continued employment for
achieving growth in sales and profits
• Pressure from investors and others with a
financial interest in the company
• A belief exists that the company must grow if it is
to survive.
CONCENTRATION STRATEGY
• Concentration strategy focuses on a single
product/service or on a small number of
closely related products/services and
involves increasing sales, profits, or
market share faster than it has increased
in the past.
IMPLEMENTING GROWTH
STRATEGY THROUGH
MERGERS AND ACQUISTIONS
• Acquisition occurs when one company
purchases the assets of another and
absorbs them into its own operations.
• A merger occurs when two or more
companies combine into one company.
• REASONS FOR ACQUISITION AND
MERGERS
• Merger or acquisition can increase the
market value of the stock of both
organisations
• Providing a better utilisation of existing
manufacturing facilities
• Selling in the same channels as existing
channels to make the existing sales
organisation more productive
• Entering a new and growing field
• Providing new products or services and
better margins of profit in order to
supplement older products or services still
selling well but at increasingly competitive
levels.
• GUIDELINES FOR SUCCESSFUL
ACQUISITION AND MERGERS
• Pinpoint and spell out objectives
• Specify the gains for the stockholders of
both organisations
• Ensure that the management of the
acquired company is or at least can be
made competent.
• Seek to ensure that the acquiring
company’s resources fit with the resources
of the target company. This result in
synergy.
• Involve the chief executive officers of both
companies in the entire merger
programme. clearly define the business of
the acquiring problems and discussing
them early with the target company
• Make the right advances. Avoid
thoughtless actions, and careless voioced
sentiments
• In assimilating a newly acquired company,
exercise a minimum of control over it.
Maintain, and if possible improve, the
status of the newly acquired management
team.
• HARVESTING STRATEGIES
• Most products and services eventually reach a
point where future growth appears doubtful or
not cost-effective. This may be because of new
competition, changes in consumer preferences,
or some other similar factor. When this occurs,
organisations often attempt to ‘harvest’ as much
as they can from the product/service. A
harvesting strategy should be considered under
the following conditions:
• The product or service is in a saturated or
declining market
• The current market share of the
product/service is small and it is not cost
effective to try to increase it.
• The profit aspects are not especially
attractive
• The organisation has more attractive uses
for any freed – up resources
• A decrease in expenses and investment
will not cause a sharp decline in sales
• The product/ service is not a major
contributor of sales, stability, or prestige to
the organisation.
DEFENSIVE STRATEGIES
• Defensive strategies sometimes referred to as
retrenchment strategies, are used when a
company wants or needs to reduce its operation.
Most often, defensive strategies are used to
reverse a negative trend or to overcome a crisis
or problem situation. Consequently, defensive
strategies usually are chosen as a short-term
solution or because no better alternative exists.
Specific reasons for using defensive strategies
include:
• The company is having financial problems.
• The company forecast hard times ahead.
This can be caused by such factors as
new competitors entering the market, new
products, or changes in government
regulations
• Owners either get tired of the business or
have an opportunity to profit substantially
by selling
1. Turnaround:
• a turnaround strategy is designed to
reverse a negative trend and get the
organisation back on the track to
profitability. Turnaround strategies usually
try to reduce operating costs
2. Divestment:
• Divestment involves selling off a part of the
business, which can be a SBU, a product line, a
division. Divestment is a frequently used
strategy when either harvesting or turnaround
strategies are not successful. Sometimes, a
company’s situation has deteriorated to the point
that the only chance for survival is to sell major
components and thereby raise sufficient capital
to put the remaining parts of the business on
firm footing.
Liquidation
• 3. Liquidation occurs when an entire
company is either sold or dissolved may
come by choice or force. When liquidation
comes by choice, it can be because the
owners are tired of the business or are
near retirement
4. Becoming a Captive:
• Becoming a captive of another
organisation occurs when an
independently owned organisation allows
another organisation’s management to
make certain decisions for it in return for a
guarantee that the managing organisation
will buy a certain amount of the captive’s
product or service.
PRODUCT/MARKET DIVERSIFICATION
• Diversification is a strategy that takes the
organisation into both new markets and
products or services.
• There are two approaches to
diversification – related diversification and
unrelated diversification.
• REASONS FOR DIVERSIFICATION
• There may be efficiency gains from
applying the organisation’s existing
resources or capabilities to new markets
and products or services..
• There may also be gains from applying
corporate managerial capabilities to new
markets and products and services.
• Having diverse range of products or
services can increase market power. With
a diverse range of products or services, an
organisation can afford to cross subsidise
one product from the surpluses earned by
another, in a way that competitors may not
be able to.
• Organisations often diversify to respond to
environmental change. Sometimes this can be
justified at least for defending existing value, for
instance where markets or technologies are
converging.
• Organisations might diversify in order to spread
risk across a range of businesses.
• Organisations diversify because of the
expectations of powerful stakeholders, including
top managers.
• RELATED OR CONCENTRIC
DIVERSIFICATION
• Related diversification represents
business development beyond the existing
range of product, service and markets but
still within the broad limits of the industry
which the firm operates.
• Related diversification can be defined as a
strategy development beyond current
products and markets, but within the
capabilities or value network of the
organisation. For example Unilever is a
diversified corporation, but virtually all of
its interest are in fast moving consumer
goods distributed to retailers, and
increasingly in building global brand in that
arena.
• Related diversification can be vertical
integration or horizontal
• Vertical integration- backward or forward
integration
• Backward integration refers to
development into activities concerned with
the inputs into the company’s current
business.
• Forward integration refers to development
into activities which are concerned with a
company’s outputs, such as transport,
distribution, repairs, and servicing.
• Horizontal integration is where a firm
moves into operations which are
complementary to the firms current
activities.
• UNRELATED DIVERSIFICATION.
• Unrelated diversification is the
development of products or services
beyond the current capabilities or value
network. Unrelated diversification is often
described as a ‘conglomerate strategy’
• REASONS FOR INTERNATIONAL
DIVERSIFICATION
• The globalisation of markets and
competition can be seen as both cause
and consequence of the
internationalisation of individual
organisations
• Firms acting as suppliers to industrial
companies may follow their customers
when these internationalise their
operations.
• By expanding its markets internationally a
firm can bypass limitations in its home
market.
• There may also be opportunities to exploit
differences between countries and
geographical regions
– exploitation of differences in culture
– administrative differences allow firms to take
advantage, for example tax differentials
– Exploitation of specific economic factors. This
could include, for example, labour or the costs
of capital
– By internationalisation companies are able to
broaden the size of the market so as to exploit
strategic capabilities
– the internationalisation of value adding
activities allows an organisation to access and
develop resources and capabilities in ways
not possible in its home country thereby
enhancing its competitive advantage and
competitive position
– international diversification allows firms to
reap economies of scale by expanding the
size of the market they serve
MARKET SELECTION
• Macro-economic conditions reflected in
indicators such as the GDP and levels of
disposable income which help in the
estimation of the potential size of the
market.
• The political environment may create
significant opportunities for organisations.
It is common for some countries to provide
investment incentives to foreign investors.
• The infrastructure of national markets will
also be an important factor in assessing
the attractiveness of national markets for
entry, in particular:
– existing transport and communication
infrastructure
– availability of necessary local resources such
as appropriately skilled labour
– tariff and non tariff barriers to trade
• The extent of political and legal risks that
an organisation might face when doing
business in the country.
– Sovereign risks arise from the policies and
decisions of host governments, including
changes in tax laws and restrictions on
expatriate employment.
– also from absence of effective regulations and
control
– International risks are linked to developments
in the international political economy and
include the effects of economic sanctions.
– Security risks to employees arising from civil
unrest, violent crime and the threat of
kidnapping are of concern to organisations
operating in countries as diverse as South
Africa and Russia.
– similarity of cultural norms and social
structures with the organisation’s home
country can provide an indicator of any
changes to established products, processes
and procedures which may be required.
BUSINESS-LEVEL STRATEGY/
COMPETITIVE STRATEGIES
• Business-level strategy is about competing
better or, in public services providing best
value services. Organisations consist of a
number of strategic business units (SBUs)
and business-level strategy needs to be
developed for each of these SBUs. So
identifying organisation’s SBUs is an
important prerequisite to developing
business-level strategic choices.
• Having identified organisation’s SBUs, five
strategic choices are available to achieve
competitive advantage.
PRICE-BASED STRATEGIES
• No Frills Strategy
• No frills strategy combines a low price, low
perceived product/service benefits and a focus
on a price-sensitive market segment. These
segments might exist for a number of reasons: a
product or services are commodity-like where
customers do not discern or value differences in
the offering of different suppliers. So price
becomes the key competitive issue. Basic
foodstuffs-particularly in developing economies
are an example.
• There may be price sensitive customers, who
cannot afford, or choose not to buy better-quality
goods. The grocery retail chains Aldi and Netto
in Europe follow this strategy. Their stores are
basic, their merchandise range is relatively
limited with few speciality or luxury products, and
their prices are very low. The buyers have low
switching costs, so building customer loyalty is
difficult.
• Where there are a small number of providers
with similar market shares. So the cost structure
is similar and new product/service features are
quickly imitated. Price becomes the key
competitive weapon.
• Where the major providers are competing on
non-price basis the low price segment may be
an opportunity for smaller players to avoid the
major competitors.
Low Price Strategy
• Low price strategy seeks to achieve a
lower price than competitors whilst trying
to maintain similar perceived product or
service benefits to those offered by
competitors.
• If a business unit aims to achieve competitive
advantage through a low-price strategy it has
two basic choices. The first is to try to identify
and focus on a market segment that is
unattractive to competitors and in this way avoid
competitive pressures to erode price. A more
challenging situation is where there is
competition on the basis of price. This is
common occurrence in the public sector and for
commodity-like markets. Moreover, price-cutting
helps market leader stay ahead of its rivals.
• Despite the various benefits of this
approach, there are several potential
pitfalls when competing on price margin
reduction.
• Although tactical advantages may be
gained, by reducing price is likely to be
followed by competitors.
• This can lead to an inability to invest to
develop the product or service and result
in a loss of perceived benefit of the
product. In the public sector this can result
in a drift towards being the ‘provider of last
resort’ serving only those parts of the
community who cannot afford to purchase
better services from the private sector.
• Clearly, in the long run, a low-price strategy
cannot be pursued without a low-cost base.
However, low-cost in itself is not a basis for
advantage. Managers often pursue low-cost
strategies that do not give them competitive
advantage. The key challenge is how cost can
be reduced in ways, which others cannot match
such that a low-price strategy might give
sustainable advantage. The evidence is that this
is difficult to achieve.
SUSTAINING PRICE-BASED
ADVANTAGE
• Competitive advantage through low prices
might be sustained in a number of ways:
• Accept reduced margin
• Win price war
• Reduce cost
• Focus on specific segments
DIFFERENTIATION STRATEGIES
• This seeks to provide products or services that
offer benefits different from those of competitor
and that are widely valued by buyers Johnson et
al (2005). The aim is to achieve competitive
advantage by offering better products or
services at the same price or enhancing margins
by pricing slightly higher. Here the success of
the strategy depends on the ability to deliver
enhanced benefits to customers together with
low prices whilst achieving sufficient margins for
reinvestment to maintain and develop the basis
of differentiation.
• The extent to which a differentiation approach
will be successful is likely to be dependent on
whether the organisation has clearly identified
who is the strategic customer. This is not always
straight forward to determine, for example for a
newspaper business, is the customer the reader
of the newspaper, the advertiser, or both? They
are likely to have different needs and be looking
for different benefits. The extent to which the
organisation understands what is valued by the
customer can be dangerously taken for granted
by managers.
• Successful differentiation will also depend
on whether the manager has clearly
identified who the competitors are. For
example, is the business competing with a
wide competitor base or with a much
narrower base, perhaps within a particular
market segment? In the later case, a
strategy of focused differentiation may be
appropriate.
• In the case of broad-based differentiation,
it is likely that the business will have to
concentrate on bases of differentiation
commonly valued by customers in that
market. For example, in the automobile
mass market reliability is a key customer
requirement (critical success factor) and
those manufacturers who are able to
demonstrate high levels of reliability have
advantage over others.
SUSTAINING DIFERENTIATION-
BASED ADVANTAGE
• Create difficulties for imitation
• Achieve imperfect mobility (of
resources/competences)
– many intangible assets such as brand, image
or reputation are difficult for a competitor to
obtain
– switching cost
• Reinvest margin
THE HYBRID STRATEGY
• The hybrid strategy seeks simultaneously
to achieve differentiation and a price lower
than that of competitors. Here the success
of the strategy depends on the ability to
deliver enhanced benefits to customers
together with low prices whilst achieving
sufficient margins for investment to
maintain and develop the bases of
differentiation.
• It might be argued that, if differentiation can be
achieved, there should be no need to have a
lower price, since it should be possible to obtain
prices at least equal to competition, if not higher.
However, the hybrid strategy could be
advantageous in the following circumstances.
• If much greater volumes can be achieved than
competitors, then margins may still be better
because of low cost base.
• If organisation is still clear about the activities on which
differentiation can be built it may then be able to reduce
costs on other activities.
• As an entry strategy in a market with established
competitors, this is often used when developing global
strategy. The aim is to take market share, divert the
attention of the competitor, and establish a foothold from
which they could move further. However, in following
such strategy it is important to ensure that the overall
cost base is such that low margins can be sustained;
and a clear follow-through strategy has been considered
after entry has been achieved.
FOCUSED DIFFERENTIATION
• A focused differentiation strategy seeks to provide high-
perceived product/service benefits justifying a substantial
price premium, usually to a selected market (niche). In
many markets these are described as premium products
and are usually heavily branded.
• A choice has to be made between a focus strategy and
broad differentiation if sales are to grow. This may take
on global proportions, as managers have to make
decisions in increasingly global markets. Growth may be
achieved by targeting new sales into the same niche in
more countries/markets rather than by broadening the
appeal in a single country/market.
• Pursuing a focus strategy may be difficult when
it is only part of an organisation’s overall
strategy. For example, department stores
attempt to sell a wide range of products in one
store. In so doing they try to appeal to a range of
different customer types. So focus strategy for a
particular range of goods may run into problems
because the store itself may not be appropriate
to the needs of the target group of customers for
that range of goods. This practicality puts
limitations on the degree of diversity of
positioning that an organisation can sustain.
• Focus strategy may conflict with stakeholders’
expectations. For example, a public library
service could probably be run more cost-
efficiently if it were to pull out of low-demand
parts of its community and put more resource
into its popular branch libraries. It might also find
that concentrating its development efforts on IT-
based online information services would prove
popular with some parts of the community.
However, the extent to which these strategies
would be regarded as within the library’s remit
might be hotly debated particularly in relation to
its purpose of social inclusion.
FAILURE STRATEGIES
• A failure strategy is one which does not
provide perceived value-for-money in
terms of product features, price or both.
For example increasing price without
increasing product/service benefits to the
customer. This is, of course, the very
strategy that monopoly organisations are
accused of following.
• However, unless organisation is protected by
legislation, or high economic barriers to entry,
competitors are likely to erode market share.
Other failure strategies are reduction in
product/service benefits whilst increasing
relative price; and reduction in benefits whilst
maintaining price.
• These types of strategies are
dangerous and high risk though firms
have tried to follow them. Arguably
there is another basis of failure, which
is for a business to be unclear as to
its fundamental generic strategy such
that it ends up being ‘stuck in the
middle’ – a recipe for failure.
MICHAEL PORTER’S GENERIC
STRATEGY
• Michael Porter defined a competitive
Advantage Grid based upon three generic
strategies that enable an organisation to
closely identify the various competitive
options open to them. Typically they would
include:
• Cost leadership
• Differentiation
• Focus
• Porter himself suggested that strategy is
primarily about creating and sustaining a
profitable position in the marketplace. The
organisation needs to identify the
competitive scope available to it,
considering the approach to targeting and
segmenting the market, and ensure that
the organisation is operating in a closely
defined market.
COST LEADERSHIP
• Overall cost leadership strategy is to be
able to produce and deliver the product or
service at a lower cost than the
competition. Cost leadership is usually
attained through a combination of
experience and efficiency. One of the key
competitive positions to achieve in a mass
market setting is that of cost leadership
within your defined industry or sector.
• The focus of marketing and indeed overall
strategic activity at this level will relate to
ensuring that a low-cost structure is
implemented. In essence the organisation will be
looking to achieve economies of scale, cost
reduction policies, zero defects, minimum
expenditure on research and development and
very closely defined cost-effective marketing
strategies. Therefore, the organisation is likely to
be process-driven and technologically focused.
• The basic drivers of cost leadership, according
to Drummond, Ensor and Ashford (2003) are:
• Economy of scale – The single biggest influence
on cost
• Linkages and relationships-Being able to link
activities together and form long lasting
customer relationship, inclusive of customer
retention programmes.
• Infrastructure – Factors such as location,
availability of skills and government support
• REASONS
• It can give the firm above average returns even
on the face of strong competitive forces
• It can put the firm in a favourable position to fend
against substitutes from the firm’s competitors
• The factors contributing to a low cost position
can provide substantial barriers to entry.
• DRAWBACKS
• Technologically breakthrough can open up
cost reductions for rivals that nullify a low
cost producer’s pass investments and
hard won gains in efficiency
• Rival firms may find it easy and or
inexpensive to imitate the leader’s low-
cost methods, thus making any advantage
short-lived.
• A company driving hard to push it cost
down can become so fixated on cost that it
may fail to pick up on such significant
market changes as growing buyers
preference for added quality or service,
subtle shifts in how buyers use the
product, declining buyer sensitivity to price
and thus gets left behind as buyer interest
wings top quality, performance and
service.
• Over reliance on cost reduction can lock a
firm into both its present technology and
its present strategy, leaving it vulnerable to
new technologies, and growing customer
interest in something other than cheaper
price
• ORGANISATIONAL REQUIREMENTS
• Key skills
• Labour supervision
• Easily produced products
• Process design (mass production due to
scale and experiential economies)
• Low cost distribution outlets
• Tight cost control
DIFFERENTIATION STRATEGY
• This particular strategy presents the
opportunity to market products or services
distinctive from those of its competitors.
However, while it might be distinctive in
nature, it is only competitive and
purposefully different if it ultimately adds
value to the overall customer experience
• The product/service should have unique
features, and even benefits. It should enable the
organisation to achieve a degree of customer
loyalty and should ultimately be a competitive
response that cannot be challenged directly by
any competitor.
• The most likely scenario is that as a result of the
differentiation it will command a premium price
that will essentially reflect the quality of the
brand, design, product and high service levels.
• Drummond, Ensor and Ashford (2003) suggest
that the common sources of differentiation will
include:
• Product performance – the product performance
can enhance its perceived value from customer
perspective.
• Product perception – the perception of the
product is often different from the performance
FOCUS
• Interestingly the basis of competitive
strategy is both cost leadership and
differentiation, but instead of competing in
a mass market environment, it is more
likely to compete in a smaller or narrowly
defined area of the market. In particular
the focus will be on attractive segments or
niche markets.
• The emphasis of focus strategy primarily
implies that the organisation is focusing
effort on producing products for a closely
defined market. Often the products will be
customised, high quality, differentiated and
potentially premium priced. For example
specialist clothing, or the high quality car
market, e.g. Rolls-Royce, Morgan, etc.
• Clearly the more successful the
organisation is within the niche, the more
likely it is to attract attention. Therefore,
the emphasis of a focus strategy should
be on:
• Product and service specialism –
Producing highly differentiated, possibly
exclusive products to a closely defined
target market.
• Geographic segmentation – Tailoring
products/service needs to geographic
regions, as long as the markets are
commercially viable, based upon size
• End-user focus – The focus might be on
the end-user, therefore a customer profile
might be more appropriate to target than
an entire marketplace
Criteria for evaluating strategic
options
• This section will look at why some
strategies might succeed better than
others by introducing the concept of
success criteria by which strategic options
can be judged. There are three main
success criteria: suitability, acceptability
and feasibility.
SUITABILITY
• Suitability is concerned with whether a strategy
addresses the circumstances in which an
organisation is operating – the strategic position.
It requires a broad assessment of the extent to
which new strategies would fit with the future
trends and changes in the environment, exploit
strategic capability of an organisation and meet
the expectations of stakeholders. It attempt to
measure how far proposed strategies fit the
situation identified in the strategic analysis.
• How far does it address the difficulties
identified in the strategic analysis
(resource weakness and environmental
threats). Is the strategy likely to improve
the organisation’s competitive standing or
resolve the company’s liquidity problems,
or decrease dependence on a particular
supplier?
• Does it exploit the company strengths and
opportunities identified in the SWOT analysis?
Will the proposed strategy help utilise the
present, highly efficient, distribution system?
• Does the strategy fit in with the organisation’s
objectives? For example, would the strategy be
likely to achieve profit targets, achieve growth
expectations
• To what extent does the new strategy fit with the
future trends/changes in the environment?
• ACCEPTABILITY
• This is concerned with the expected
performance outcomes of a strategy.
However, strategies also have to be
acceptable to a variety of different
stakeholders. The acceptability of a
strategy can be assessed in three broad
ways: Return, Risk and Stakeholder
reactions.
RETURN
• Returns are the benefits which stakeholders are
expected to receive from a strategy. So an
assessment of the financial and non-financial
returns likely to accrue from specific strategies
could be a key criterion of acceptability of a
strategy – at least to some stakeholders. There
are number of different approaches to
understanding return: Forecasting the return on
capital employed, payback period, and
discounted cash flow.
• RISK
• The likely return from a particular strategy
is an important aspect of the acceptability
of that strategy. However, another aspect
of acceptability is the risk that an
organisation faces in pursuing a particular
strategy. Risks concerns the probability
and consequences of the failure of a
strategy.
• The risk can be particularly high for
organisations with major long-term
programmes of innovation or where high
levels of uncertainty exist about key issues
in the environment. There has been a
progressive move to incorporate a formal
risk assessment in regular business plans
as well as with the investment appraisal of
major projects.
STAKEHOLDER REACTIONS
• There are many situations where
judgements of stakeholder reactions could
be crucial. For example:
• A new strategy may require a substantial
issue of shares, which could be
unacceptable to powerful groups of
shareholders, since it dilutes their voting
power.
• Plans to merge with other companies or to trade
with new countries could be unacceptable to
unions, government or some customers.
• Attempts to gain market share in static market
might upset the status quo to such an extent that
competitors will be forced to retaliate in a way
that is damaging to all parties, for example by
instigating a price war.
• FEASIBILITY
• Feasibility is concerned with whether an
organisation has the resources and
competences to deliver a strategy. A
number of approaches can be useful to
understand feasibility:
• Funds Flow: A valuable piece of analysis
is funds flow forecast, which seeks to
identify the funds which would be required
for any strategy and the likely sources of
those funds
• Such an analysis should quickly highlight
whether the proposed strategy is likely to
be feasible in financial terms.
• Break Even Analysis: Break even analysis
is a simple and widely used technique
which is helpful in exploring some key
aspects of feasibility.
• It can be used to assess the feasibility of
meeting targets of return (e.g. profit) and
as such, combines a parallel assessment
of acceptability
• Resource Deployment Analysis: It is often
helpful to make a wider assessment of the
resources and competencies of the
organisation in relation to specific
strategies.
• The requirements of alternative future
strategies should be laid out, indicating the
key resources and competencies for each
strategy
• For example, a strategy of geographical
expansion in the home market might be
critically dependent on marketing and
distribution expertise, together with the
availability of cash to fund increased
stocks
GROWTH STRATEGY THROUGH
ANSOFF MATRIX
• Principally the Ansoff’s matrix allows you
to consider a range of four strategic
options. These are Market penetration,
Market development, Product
development, and diversification.
•
Ansoff Matrix
MARKET PENETRATION
• The basis of market penetration strategy is
primarily to increase sales of existing
products in existing markets. To do this
the organisation will need to demonstrate
a high level of competitive force; they will
need to be price-competitive,
promotionally competitive and execute a
hard-hitting advertising campaign.
• The focus of market penetration will be on
persuading existing customers to buy
more of your products. A number of
examples highlight this particular practice.
• Retailers offering store cards, with
opening discounted rates of purchase. The
broader scope of this particular strategy is
winning customers from other competitors,
testing out the power of the buyers, their
willingness to change.
• MARKET DEVELOPMENT
• Market development is an alternative
growth strategy that focuses on the
development of new markets for existing
products. The aim will be to open up new
geographical regions; target new market
segments and find new uses for existing
products.
• This particular strategy draws on the
creative skills of marketers to develop
alternative uses for products and then
devise creative and dynamic marketing
programmes to underpin them.
• A good example of this would be
Timberland Boots. In the main designed
for walkers, who stalked the hill and dales,
Timberland Boots are now a fashion
statement. While existing customers
continue to buy Timberland Boots for
leisure pursuits, others wear Timberland
boots on a day-to-day basis.
• PRODUCT DEVELOPMENT
• Expanding and developing the product portfolio
is an essential marketing activity, in order that
organisations continue to move with the times
and the new and more challenging expectations
of their customers, i.e. the power of the
customer/buyer. Product development is
required to attract existing customers in existing
markets to new products.
• A good example of product development
could relate to the car market. On a
regular basis most popular brands extend
the life cycle of their existing vehicles by
giving them either a minor or major facelift.
• The aim is to maintain existing customers
and encourage them to develop customer
loyalty traits in order that they will
purchase the designed and refined model.
Mercedes have recently revamped the
Mercedes ‘A’ Class and also the ‘C’ Class
range, attracting a surge of interest from
the existing customer base. What about
Toyota?
• Product development plays an important
role in attracting new customers, opening
up new markets and providing many new
opportunities, but clearly the main
drawback can be the level of investment
required. So as a growth objective, it is the
one that provides the greatest strain on
resources.
• Here the organisation would need to
undertake a financial analysis, including a
break-even analysis, to measure how long
it would take for the new product to break
even, should it be launched into the
market.
• Related marketing activities would clearly
need to reflect a strong competitive
response, in order that the product is
taken to market in advance of similar
competitive strikes and before the threat of
substitute products arises.
• The organisation would clearly need to
reflect a strong competitive response, in
order that the product is given credence in
the market place. Therefore the
components of success will rely upon a
good quality product, associated high
service levels, and a compatible
promotional and pricing strategy to give it
a head start.
• DIVERSIFICATION
• Diversification potentially poses the most
significant risk to the organisation. This
strategy is based on diversifying or moving
away from the core business of the
organisation and looking for an alternative
or complementary source of income and
profit.
• This often results, in today’s market
economy, in mergers and acquisitions, as
organisations seek to set up compatible
business portfolios, increasing their market
attractiveness and market share along the
way.
• This is a high-risk strategy, a move into the
unknown, and one that may present threats
associated with ‘new entrants’ in the
marketplace: high investment, lack of economies
of scale, and difficulties associated with
distribution. Again going back to the previous
point, one of the benefits of mergers and
acquisitions in this sense is that some of the risk
is reduced. However, this is an expensive
alternative option; for many organisations it is a
last resort.
MANAGING THE CORPORATE
PORTFOLIO
• THE GROWTH SHARE (OR BCG) MATRIX
• It is of primary importance that organizations
continually monitor and control how their SBUs
are doing in the marketplace, what SBUs are in
growth and what SBUs are in decline. To assist
with this process many organizations use what is
formally known as portfolio matrix.
• Probably the best-known and most
established matrix is the Boston
Consulting Group matrix known as BCG.
Its main purpose is to provide a framework
for considering future market growth for
both products and services.
The growth share (or BCG) matrix
• The BCG matrix has two key dimensions
associated with it, namely the level of
growth in the product’s market, and the
product’s market share in comparison to
that of its competitors.
• Market growth is an imperative to many
organizations as it present an opportunity
in the marketplace for extension and
innovation. However, in low growth
markets, it is more about survival of the
fittest, as competition is highly intensive as
each competitor strives its own portion of a
much smaller market potential.
• Each of the four quartiles of the BCG
offers an indication of potential
opportunities or even potential decline in
market share.
Question marks
• Question marks, is alternatively known as
problem children. They are principally
business units that have a small market
share of a growing market. However, they
are often subject to high levels of
investment in order for them to achieve
any significant growth in market share
overall. Key components are:
• The product has a low market share in a
high growth market
• Considerable investment is required in
order to keep up with market development
• If trying to improve competitive position,
levels of investment require are high
• The ‘question mark’ arises over whether
one need to invest or divest in a market
• A question mark requires a lot of cash
because the company has to spend
money on plant, equipment and personnel
to keep up with the fast-growing market,
and because it wants to overtake the
market leader.
• Stars
• Principally, stars are business units that
command high levels of market share, with
good potential for growth in the future. Key
components are:
• The business has moved to a position of
leadership in a high growth market
• Income needs are high in order to
maintain market growth and keep
competitors at bay
• The business generates a large amount of
income
• As long as the market share is maintained,
the business should become a cash cow.
• A star does not necessarily produce a
positive cash flow for the company. The
company must spend substantial funds to
keep up with the high market growth, and
to fight off competitors’ attacks.
Cash cows
• Cash cows are essentially business units
that have a dominant share of the market,
but with little potential for growth,
effectively having reached a level of
maturity. Key components are:
• The business unit has a high market share
and low level of market growth. Stars
become cash cow when the market rate
begins to fall.
• The term ‘cash cow’ comes from the
principle that product generate
considerable money but use little cash.
• Economies of scale are strong.
• The company does not have to finance
expansion because the market’s growth
rate has slowed. Because the business is
the market leader, it enjoys economies of
scale and higher profit margins. The
company uses its cash cows to pay bills
and support other businesses.
Dogs
• The position of ‘dogs’ in the BCG is
typically one of low market share, with no
real potential for growth. This can often be
an indication that the business is nearing
the end of its current life, and should be
potentially considered for repositioning or
deletion from the product life. Key
components of dogs are:
• The product has a weak market share in a
low growth market
• A low level of profit or a loss would be
typical in return
• Very often dogs take up more time in
terms of management than can be
justified, so phasing out the product is
likely to be considered
• Strategically, the issue is whether or not to
hold on to the business.
• After plotting its various businesses in the
growth-share matrix, a company must
determine whether its portfolio is healthy.
An unbalanced portfolio would have too
many dogs or question marks and too few
stars and cash cows.
SBU STRATEGIES
• The company’s next task is to determine
what objective, strategy, and budget to
assign to each SBU. Four strategies can
be pursued: build, hold, harvest, or divest.
Building is appropriate for question marks
whose market shares must grow if they
are to become stars. The hold strategy is
appropriate for strong cash cows if they
are to continue yielding large positive cash
flows.
• The objective of the harvest strategy is to
increase short-term cash flow regardless
of long-term effect. Harvesting involves a
decision to cash in on its ‘’crop’’, to ‘’milk
its business.’’ Harvesting generally
involves eliminating R@D expenditures,
not replacing the physical plants, not
replacing sales people, reducing
advertising expenditures, and so on.
• This strategy is appropriate for weak cash
cows whose future is dim and from which
more cash flow is needed. Harvesting can
also be used with question marks and
dogs.
• The objective of the divest strategy is to
sell or liquidate the business because
resources can be better used elsewhere.
This strategy is appropriate for dogs and
question marks that are acting as a drag
on the company’s profits.
• Companies must decide whether
harvesting or divesting is a better strategy
for a weak business. Harvesting reduces
the business’s future value and therefore
the price at which it could be sold later. An
early decision to divest, in contrast, is
likely to produce fairly good bids if the
business is in relatively good shape and of
more value to another firm.
• As time passes, SBUs change their
position in the growth-share matrix.
Successful SBUs have a life cycle. They
start as a question marks, become stars,
then cash cows, and finally dogs. For this
reason, companies should examine not
only their businesses’ current positions in
the growth-share matrix but also their
moving positions.
• The worst mistake a company could make
would be to require all its SBUs to aim for
the same growth rate or return level. The
very point of SBU analysis is that each
business has a different potential and
requires its own objective.
• Other mistakes include: leaving cash cows
with too little in retained funds or leaving
them with too much in retained funds;
making major investments in dogs in
hopes of turning them around, but failing
each time; and maintaining too many
question marks and under investing in
each. Question marks should either
receive enough support to achieve
segment dominance or be dropped.
• There are practical difficulties in deciding
what exactly high and low can mean in a
particular situation.
• In many organisations the critical resource
to be planned and balanced will not be
cash, but the innovative capacity, which
consists of the time and creative energy of
the organisation’s managers, designers,
engineers, etc. Question marks and stars
are very demanding on these types of
resources.
• The position of dogs is often
misunderstood. Certainly, there may be
some business units which need
immediate deletion. However, other dogs
may have a useful place in the portfolio.
They may be necessary to complete the
product range and provide a credible
presence in the market. They may be held
for defensive reasons – to keep
competitors out.
• Little is said about the behavioural
implications of such a strategy. How does
central management motivate the
managers of cash cows, who may see all
their hard-earned surpluses being invested
in other businesses?
• There may be political difficulties if the
decision is taken to delete ‘dogs’ that are
the brainchild of people with power within
the organisation.
• Indeed, perhaps the single factor which
makes the creation and management of a
balanced portfolio difficult in practice is the
jealousy that can arise between the
various strategic business units.
Submission date: 31st March 2015 in class
word limit: 5000-6000
• With reference to an article by YIANNIS E.
SPANOS and SPYROS LIOUKAS (2001),
critically assess the composite effects of
Resource Based View perspective and
Porter’s competitive strategy framework on
the performance of family businesses in
Ghana
• The article has been submitted into your email.
Penalty apply for any late submission. No
assignment will be collected 3 days after
submission date.
ORGANISING FOR SUCCESS
STRUCTURAL TYPES
FLAT AND TALL ORGANISATIONS
FLAT- Managing director, Department
Managers, Supervisors, Workers
TALL – Managing director, divisional
directors, Department managers, Assistant
managers, Supervisors, Team leaders,
Workers
THE FUNCTIONAL STRUCTURE
• A functional structure is based on the
primary activities that have to be
undertaken by an organisation such as
production, finance and accounting,
marketing, human resources and research
and development.
• ADVANTAGES
• It gives senior managers direct and
greater control from the top. Chief
executives in touch with all operations.
• It provides a clear definition of roles and
tasks, increasing accountability
• Functional departments also provide
concentrations of expertise, thus fostering
knowledge development in areas of
functional specialism.
• Reduces/simplifies control mechanisms
• Specialists at senior and middle
management levels.
Exhibit 12.2 A functional structure
DSSADVANTAGES
• Senior managers overburdened with
routines matters
• Senior managers neglect strategic issues
• Difficult to cope with diversity
• Co-ordination between functions is difficult
• Failure to adapt
• Too concerned with narrow functional
interest
• Tend to be inward looking
MULTIDIVISIONAL STRUCTURE
• A multidivisional structure is built around
separate divisions on the basis of
products, services or geographical areas.
• ADVANTAGES
• Training in strategic view
• Ownership of strategy
• Specialisation of competences
• Control by performance
• Flexible (add or divest divisions)
• DISSADVANTAGES
• Additional costs of the centre
• Fragmentation and non-co-operation
• Duplication
• THE MATRIX STRUCTURE
• A matrix structure is a combination of
structures which could take the form of
product and geographical divisions or
functional and divisional structures
operating in tandem.
• Sometimes referred to as multiple
command system.
• It is a structure in which employees report
to both a functional or divisional manager
and at the same time to project or a group
manager, that is employees have two
bosses.
• Employees work under two chains of
command- one chain is functional or
divisional[vertical] and the other horizontal
overlap that combines people from various
divisions or functional department into a
project or business team led by a project
or group manager who is an expert in the
team’s assigned area of specialisation.
example of matrix structure
ADVANTAGES
• Integrate knowledge
• Flexible
• Allow dual dimensions
• DISSADVANTAGES
• Length of time to take decisions
• Unclear job and task responsibilities
• Unclear cost and profit responsibilities
• High degree of conflict
• TRANSNATIONAL STRUCTURE
• Combines the local responsiveness of the
international subsidiary with the
coordination advantages found in global
product companies. The transnational
structure seeks to obtain the best from the
two extreme international strategies, the
multidomestic strategy and the global
strategy.
• FEATURES
• Each national units operates
independently, but is the source of ideas
and capabilities for the whole corporation.
• National units achieve greater scale
economies through specialisation on
behalf of the whole corporation, or at least
large regions.
•
• Corporate centre manages this global
network by first establishing the role of
each business unit, then sustaining the
systems, relationships and culture to make
the network of business units operate
effectively.
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STRATEGIC MGT SLIDES.ppt
STRATEGIC MGT SLIDES.ppt
STRATEGIC MGT SLIDES.ppt
STRATEGIC MGT SLIDES.ppt
STRATEGIC MGT SLIDES.ppt
STRATEGIC MGT SLIDES.ppt
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STRATEGIC MGT SLIDES.ppt

  • 2. EVOLUTION OF THE CONCEPT OF STRATEGY • The word strategy derives its origin from the Greek word ‘strategeia’ which means the art or science of being a military general. Effective Greek military generals needed to lead an army to win wars and protect their cities from aggression and invasion. A strategy is therefore defined as the pattern of actual actions that are designed to counteract against enemy attack. To the Greeks strategy was more than fighting battles.
  • 3. • Effective Greek generals had to determine the right amount of logistics needed to fight; where to fight and where not to fight; the army’s relationships with citizens, politicians, diplomat, etc • Strategy has both decision –making component and planning component. Military Generals are therefore supposed to decide and plan strategically. These two components constitute the key elements to any success.
  • 4. What is Strategy? • An America Heritage Dictionary- defines strategy as the science and art of military command as applied to the overall planning and conduct of large scale combat operations.
  • 5. DEFINITIONS • John R. Schermerhorn - a comprehensive plan that sets direction and guides the allocation of resources to achieve long-term objectives; • An action plan that identifies long-term direction and guides resource utilisation to accomplish an organization’s mission and objectives with sustainable competitive advantage;
  • 6. • A plan for using resources with consistent strategic intent, that is, with all organizational energies focused on a unifying and compelling target Eg. The strategic intent of Coca-cola is to put a coke within an arm’s reach of every consumer in the world.
  • 7. • A strategy is the plan that integrates an organization’s major goals, policies and action sequence into a cohesive whole. It is a managerial game plan for running an organisation.
  • 8. • Since competitors often copy strategies, there is the need to always search for innovative strategies that have competitive edge. As a result of aggressive nature of competition in recent times, strategies must be aggressive, bold, and fast-moving.
  • 9. • Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations (Johnson et al 2007)
  • 10. The Characteristics of Strategic Decisions - The characteristics usually associated with the words ‘strategy’ and ‘strategic decisions’ are these: • Strategy is likely to be concerned with the long-term direction of an organisation
  • 11. • Strategic decisions are likely to concern with the scope of an organisation’s activities. For example, does (and should) the organisation concentrate on one area of activity, or should it have many?
  • 12. • Strategic decisions are normally about trying to achieve some advantage for the organisation over competition. Advantage may be achieved in different ways and may mean different things.
  • 13. • However, strategy can also be seen as creating opportunities by building on an organisation’s resources and competences. This is called the resource-based view of strategy..
  • 14. • Strategy can be seen as the search for strategic fit with the business environment. This could require major resource changes for an organisation in the future.
  • 15. • The strategy of an organisation is affected not only by environmental forces and strategic capability, but also by the values and expectations of those who have power in and around the organisation.
  • 16. Some consequences of the strategic decisions • Strategic decisions are likely to be complex in nature. This complexity is a defining feature of strategy and strategic decisions and is especially so in organisations with wide geographical scope, such as multinational firms, or wide ranges of products or services.
  • 17. • Strategic decisions may also have to be made in situations of uncertainty about the future. • Strategic decisions are likely to affect operational decisions.
  • 18. • Strategic decisions are also likely to demand an integrated approach to managing the organisation. Managers have to cross functional and operational boundaries to deal with strategic problems and come to agreements with other managers who, inevitably, have different interest
  • 19. • Managers may also have to sustain relationships and networks outside the organisation, for example with suppliers, distributors and customers.
  • 20. • Strategic decisions usually involve change in organisations which may prove difficult because of the heritage of resources and because of culture.
  • 21. Other Dimensions of Strategic Decisions • Strategic Issues Require Top- Management Decisions: • Strategic Issues Require Large Amounts of the Firm’s Resources: • Strategic Issues Require Considering the Firm’s External Environment: Strategic Issues Are Future Oriented: • Strategic Issues Usually Have Multifunctional or Multibusiness Consequences:
  • 22. STRATEGY MAKERS • The ideal strategic management team includes decision makers from all the three company levels (the corporate, business and functional) for example, the chief executive officer (CEO), the product managers, and the heads of functional areas
  • 23. What is Strategic Management • Charles W. L. Hill and Gareth R. Jones- the major components of the strategic management process include defining the mission and major goals of the organisation; analysing the external and internal environment of the organisation; choosing strategies that align; or fit; the organisation’s strength and weaknesses with external environment opportunities and threats; and adopting organisational structures and control systems to implement the organisation’s chosen strategy.
  • 24. • Strategic management includes understanding the strategic position of an organisation, strategic choices for the future and turning strategy into action. Johnson et al (2007)
  • 25. • Three main concepts can be identified from the above definition, including strategic position, strategic choices, and strategy into action.
  • 26. • According to Johnson et al (2007), understanding the strategic position precede strategic choices, which in turn precede strategy into action. However, as they point out, in practice, the elements of strategic management do not take this linear form, they are interlinked and inform each other.
  • 27. IMPORTANCE OF STRATEGIC MANAGEMENT • In recent paper by Arthur D. Little (1998), the multinational consulting company, the writers made this assertion: • Many thoughtful people are asking whether…it makes sense to ‘do’ strategy at all. How useful is it to engage in strategic reviews, analysing market positions and setting goals and tactics, when at the end of the process the world will have changed and will continue changing? Is strategy still relevant?
  • 28. • Strategic management allows an organisation to be more proactive than reactive in shaping its own future; it allows an organisation to initiate and influence activities and thus to exert control over its own destiny.
  • 29. • Small business owners, chief executive officers, presidents and managers of many profit and non- profit organisations have recognised and realised the benefits of strategic management
  • 30. 1. The principal benefits of Strategic Management is to help organisations make better strategies through the use of a more systematic, logical and rational approach to strategic choices. 2. Through strategic management, managers and employees become committed to supporting organisation – understanding and commitment
  • 31. 3. Managers and employees become creative and innovative when they understand and support the firms mission, objectives and strategies – empower individual’s sense of effectiveness
  • 32. - Greenly stresses that strategic management offers the following benefits: • It allows for identification, prioritisation and exploitation of opportunities • It provides an objective view of management problems • It represents framework for improved coordination and control of activities
  • 33. • It minimises the effects of adversely conditions and changes • It allows more effective allocation of time and resources to identified opportunities • It creates a framework for internal communication among personnel
  • 34. • It provides a basis for the clarification of individual responsibilities • It encourages a favourable attitude toward change
  • 35. BENEFITS OF HAVING STRATEGY • Specific advantages of having strategies include the following: • Co-ordination of divisions, subsidiaries and other component parts of the organisation become easier. The existence of a strategy provides a focal point towards which all the firm’s energies may be directed.
  • 36. • It forces management to think through the possible future actions of major competitors and hence, to prepare reactions to change in competitor behaviour • Strategies provide the business with definite criteria against which to evaluate performance
  • 37. • The process of formulating a strategy forces the company to analyse its position and hence, identify and remedy internal weaknesses • External threats and opportunities will be identified
  • 38. • The company can decide in advance how it will respond to predictable changes in customer tastes and spending patterns
  • 40. STRATEGIC POSITION • Strategic position is concerned with the impact on strategy of the external environment, an organisation’s strategic capability (resources and competencies) and the expectation and influences of stakeholders.
  • 41. MACRO-ENVIRONMENTAL FORCES • Environmental influences and trends can be thought of as layers around an organisation.
  • 42. • Political • Key issues might include: • Increases in taxation, reducing disposable income • Environmental protection (a social and political issue) • Employment law • Health and safety • Foreign trade agreements • Stability of political systems
  • 43. • Economic • Key component measures of the economy are: • Inflation rates • Interest rates • Income levels • Gross national product • Gross domestic product • Employment levels • Exchange rates – currency valuation • Consumer spending patterns.
  • 44. • Social • Social factors include issues such as: • Demography – The characteristics of customers, age sex, class, family life cycle, etc., trends in age distribution. • Society – this reflects upon the infrastructure of society and its attitude towards many issues, i.e. religion, the environment, green and ethical issues. • The significance of understanding consumer power, customer needs and wants is critical to organisatonal success, and therefore failure to react to the outcomes can have catastrophic implications in the future.
  • 45. • Culture – The range of variables relating to culture include: – language – religion – values and attitudes – law – healthcare – education – social organisation
  • 46. • Technological • Technology has evolved rapidly over the past 20 years and particularly in the past 10 years. Technological developments have seen improved manufacturing techniques, new and dynamic innovations and increases in efficiency and effectiveness in a way never previously imagined.
  • 47. • Government spending on research • Identified new research initiative • Speed of change and adoption of new technology • Speed of technology transfer
  • 48. • However managers need to understand the drive for technological change, and the need to go with the flow, to remain competitive. Decisions to improve, change or implement new technological processes must be made in order to meet customer needs and expectations.
  • 49. • Environmental • The world is currently in an age where there is growing industrial wastage, discharge of effluent, emissions of fumes and acid rain, all of which have to be taken seriously by manufacturers. Due to the high level of industrialisation in the modern world, the environment is under constant threat from global warming. In recent times we have experienced severe whether effects, such as heavy rain, gales, and significant flooding. All of these relate to environmentalism and as such means that organisations must in the future consider their strategy in relation to these issues.
  • 50. • Environmental degradation • Global warming • Laws on afforestation
  • 51. • However, organisations need to become increasingly aware of their environmental responsibilities and aim to ensure that inherent within their corporate mission, vision and strategy, is the need to be environmentally aware, and should position environmentalism as a principle that should be embedded within their overall CSR.
  • 52. • Legal • In a culture bound by regulatory bodies, legal restraint and an increasing role played by European and international legislation, organisations will clearly need to understand the legislative nature of their own marketing environment and abide by it. • Every organisation is bound by controls. For example, there are regulations concerning:
  • 53. • Monopolies and mergers • Competitive activities • Unfair trading • Consumer legislation • Trade descriptions • Health and safety • Professional code of conduct
  • 54. PORTER’S FIVE FORCES – Competitive Analysis • It is imperative for you as a manager to have a clear understanding not just of your competitor, but of nature of the competitive environment, particularly if you are to succeed in developing a sustainable competitive advantage to be able to respond from a position of strength to competitor attacks.
  • 55. • Porter’s five forces model will be particularly helpful when undertaking a competitor analysis within the existing business environment. It provides a framework for an analysis of a range of micro-factors, which enables industry attractiveness to be measured and also helps organizations understand the complexity of the markets in which they operate.
  • 56. • • Threat of new entrants • Barriers to entry: • Economies of scale • Product differentiation • Capital requirement • Switching cost • Access to distribution channels • Government policy • Entry-deterring price • Experience • • Industry competitors • Intense rivalry if: • Numerous of similar-sized competitors • Slow industry growth • High fixed cost • Lack of differentiations • High exit barriers • • • Bargaining power Bargaining power • of suppliers of buyers Buyers Suppliers • Powerful if: Power if: • Few suppliers -Large proportion of sellers sales • No substitute -High proportion of the buyer’s cost • Industry not import- -Undifferentiated product • ant customer of -Low buyer switching cost • supplier group -Threat of backward integration • Supplier groups • product are different- • rated • Threat of forward • Substitutes • integration Threat of substitute product or services • Source: • M. E Porter, Competitive Strategy • The Free Press, 1980
  • 57. The threat of competitive rivalry • Competitive rivalry within the marketplace is highly intense. Intense competition has, over the years, changed the shape of a number of industries, and as a result there have been an increasing number of mergers and acquisitions to ensure that major players within the market place maintain market share and superior positioning.
  • 58. • Competition can take various shapes. Competition can be cutthroat, with ongoing price wars, as have been experienced in recent years in the banking industry, while at the other end of the scale, competition can appear to be non- existent. However, while rivalry might seem healthy, it can have both positive and negative effects.
  • 59. • Organizations that succeed in competition, possibly increasing market share, through a range of activities, potentially experience a rise in profit. However, the reverse may happen; the organization might increase market share, but at the expense of their profit margins.
  • 60. • Key factors influencing competitive rivalry will be identified when undertaking the competitive analysis as already suggested, but key components might be:
  • 61. • Stage of the product life cycle (PLC) of competing products • Liquidity of competitor • Ability to achieve differentiation and brand loyalty • Competitor intentions • The relative size of the competitor • Barrier of exit from the industry.
  • 62. Bargaining Power of suppliers • Bargaining Power of suppliers • The key components of this particular element of Porter’s Five Forces emphasize the following points: • The strength of the supplier brand – Is it brand that all organizations will want to exploit, and will this therefore increase the price of suppliers?
  • 63. • Switching supplier – The cost of switching suppliers can be quite high: negotiation of contracts, establishing relationships and developing trust all cost time and resource. This act as a deterrent to many organizations, who will want to retain their relationship with their supplier.
  • 64. • Substitute products of suppliers – Are there appropriate substitute products available? • Forward integration – Is there a threat of suppliers establishing their own production facilities?
  • 65. Bargaining power of buyers • The bargaining power of buyers is likely to be quite strong in the following instances: • Where few buyers control a large volume of the market. • Where there are a large number of suppliers fighting for a share of the market – Again the retail industry would be a classic example of this, particularly in the food sector, i.e. grocery and meat products.
  • 66. • The cost of switching supplier is low – The retail sector and high street are a good example of how customers who are not brand loyal will swap around to gain the best deal. This can happen where the relationship between customer and supplier is not based upon loyalty.
  • 67. • The supplier’s product is a mass-market product and not necessarily differentiated – e.g. where there are many variations on the same theme, for example, toothpaste, soft drinks, etc.
  • 68. • Strong customer power – This involves knowledge of the market and where to attain the best deal. • Threat of backward vertical integration – Where the buyer goes back to the supplier, cutting out the middle man.
  • 69. The threat for potential entrants • This issue looks at the obstacles to entering new markets: • Economies of scale – Existing organizations often have economies of scale and therefore new entrants will struggle to achieve the same competitive economies in the short/medium term.
  • 70. • Access to new distribution channels – It may be difficult to gain access to the appropriate distribution channels, due to competitive operations and networks in the marketplace. • Brand loyalty – In a brand-loyal market it might be difficult to attract new customers and therefore marketing spend could be quite considerable.
  • 71. • Capital investment – It can be cash intensive to enter into new markets and require high levels of investment – from a competitive perspective, this would actually weaken your initial position, unless you are a cash-rich organization.
  • 72. • Competitor retaliation – It is likely that competitors will follow suit quite closely behind, therefore competitive rivalry intensive. • Regulatory influence – What is the position in fair competition, monopolies and mergers.
  • 73. Threat of substitutes • A new product or service equivalent– A direct equivalent product, from a differing brand may have a competitive influence. This is typical of the evolution of ‘home brands’, e.g. supermarket brands as a substitute in soft drinks breakfast cereals, etc.
  • 74. • A new product replacing an existing product – For example the DVD player replacing the VHS video player or cassette tapes being replaced by compact discs.
  • 75. • Consumer substitution – Consumer choice can be the basis of a threat, when the consumer is willing to search for substitute products; for example, when the consumer chooses a new kitchen over a new car.
  • 76. • Essentially the porter framework is an opportunity for the organization to understand the holistic range of driving forces in the micro environment, which they can clearly link to the macro analysis, i.e. the SLEPT/PEST analysis.
  • 77. COMPETITIVE ENVIRONMENT IS UNATTRACTIVE WHEN: • Rivalry is very strong • Entry barriers are low • Competition from substitutes is strong • Suppliers and customers have considerable bargaining power
  • 78. COMPETITIVE ENVIRONMENT IS ATTRACTIVE WHEN: • Rivalry is only moderate • Entry barrier are relatively high • There are no good substitutes suppliers and customers are in a weak bargaining position • The weaker the competitive forces, the greater an industry’s profits
  • 79. INTERNAL ANALYSIS (RESOURCE BASED VIEW – RBV) • The five forces framework is not the only tool used to undertake the micro analysis of an organisation. Successful strategies are also dependent on the organisation having the internal strategic capability required for survival and success.
  • 80. • Understanding strategic capability is very important because an organisation’s strategic capability may be the leading edge of strategic development. New opportunities may be created by stretching and exploiting capabilities either in ways which competitors find difficult to match or to create quite new market opportunities, or both.
  • 81. • The explanation of competitive advantage in terms of strategic capabilities is sometimes called the resource-based view of strategy: that the competitive advantage of an organisation is explained by the distinctiveness of its capabilities.
  • 82. • In turn this helps explain why some businesses are able to achieve extraordinary profits or returns compared to others. They have resources or competences that permit them to produce at lower cost or generate a superior product or service at standard cost in relation to other businesses with inferior resource capabilities.
  • 83. STRATEGIC CAPABILITIES . Strategic capability can be defined as the adequacy and suitability of the resources and competencies of an organisation for it to survive and prosper (Johnson et al, 2010).
  • 84. • Competitive advantage is achieved by organisations that are able to develop strategic capabilities more appreciated by customers and in ways that competitors find difficult to imitate.
  • 85. • According to Hitt et al (1996) resources are inputs into a firm’s production process, such as capital equipment, the skills of individual employees’ patents, finance, and talented managers. Strategic capabilities comprise tangible and intangible resources and competences.
  • 86. • Tangible resources are the physical assets of an organisation such as plant, labour and finance. In contrast, intangible resources are non-physical assets such as information, reputation and knowledge.
  • 87. • Organisation’s resources can also be considered in terms of physical resources, financial resources, human resources and intellectual capital. Intellectual capital is an important aspect of the intangible resources of an organisation.
  • 88. • This includes patents, brands and customer database. Such resources are certainly important; but what the organisation does, how it employs and deploys its resources is equally important.
  • 89. SUSTAINABLE COMPETITIVE ADVANTAGE • Hitt et al (2005) argue that, individual resources alone may not yield sustainable competitive advantage. For example, a sophisticated piece of manufacturing equipment may become a strategically relevant resource only when its use is integrated effectively with other aspects of a firm’s operations.
  • 90. • But in general, it is through the combination and integration of sets of resources that sustainable competitive advantages are formed.
  • 91. COMPETENCES • The term competence is used to mean the activities and processes through which an organisation deploys its resources effectively in a way that others cannot imitate. In understanding strategic capability the emphasis is, then, not just on what resources exist but on how they are used.
  • 92. • The organisations require such resources and competences at least to a threshold level in order to be able to compete. Threshold capabilities are those capabilities essential for the organisation to be able to compete in a given market..
  • 93. • If they are able to achieve competitive advantage, they require resources and competences, which are both valuable to customers and difficult for competitors to imitate
  • 94. • Not all of a firm’s resources and capabilities have the potential to be the basis of sustained competitive advantage. This potential is released when resources and capabilities are valuable. Resources are valuable when they allow a firm to exploit opportunities and/or neutralise threats in its external environment; they are rare when possessed by few, if any, current and potential competitors;
  • 95. • they are imperfectly imitable when other firms cannot obtain them; and they are non-substitutable when they have no strategic equivalents. When these criteria are met, resources and capabilities become core competencies and serve as the basis of a firm’s sustained competitiveness, and its ability to earn above-average profits (Hitt et al 1996).
  • 96. • It is important to emphasise that if an organisation seeks to build competitive advantage it must meet the needs and expectations of its customers. The importance of value to the customer may seem to be an obvious point to make but in practice it is often overlooked or ignored.
  • 97. • Having capabilities in terms of resources and competences that are different from other organisations is, of itself, not a basis of competitive advantage. There is little point in having capabilities that are ‘valueless’ in customer term; the strategic capabilities must be able to deliver what the customer values in terms of product or service.
  • 98. UNIQUE RESOURCES AND CORE COMPETENCES • Clearly, competitive advantage cannot be achieved if the strategic capability of an organisation is the same as other organisations. It could however be that a competitor possesses some unique or rare capability providing competitive advantage.
  • 99. • This could take the form of unique resources. Unique resources are those resources that critically underpin competitive advantage and that others cannot easily imitate or obtain.
  • 100. • It is, however, more likely that an organisation is able to achieve competitive advantage because it has distinctive, or core competences. The concept of core competences was developed by Gary Hamel and C. K. Prahalad.
  • 101. • While various definitions exist, core competences are taken to mean the activities and processes through which resources are deployed in such a way as to achieve competitive advantage in ways that others cannot imitate or obtain.
  • 102. • For example, a supplier that achieves competitive advantage in a retail market might have done so on the basis of a unique resources such as a powerful brand, or by finding ways of providing service or building relationships with that retailer in ways that its competitors find difficult to imitate, a core competence.
  • 103. TYPES OF CORE COMPETENCE • Superior skills in producing high capability • Superior system for delivering customer order accurate and swiftly • Better after –sale service capability
  • 104. • More skill in achieving low operating costs • Unique formula for selecting good retail location • Unusual innovativeness in developing new products • Better merchandising and product display skills • Superior mastery of an important technology • Unusually effective sales force
  • 105. • Another example is that, a company may have a powerful brand or retail stores may have prime locations. Some organisations have patented product or services that give them advantage – resources that may need to be defended by a willingness to bring litigation against illegal imitators
  • 106. • Competitive advantage could also based on rare competences such as the years of experience in, for example, brand management, or building relationships with key customers; or perhaps the way in which different parts of a global business have learned to work together harmoniously
  • 107. • A wide range of resources and capabilities can be the foundation for core competencies. But, in the global economy, the skills of a firm’s labour force are increasingly critical to developing a sustained competitive advantage.
  • 108. • However, employing skilled workers does not necessarily result in competitive advantage. Only through establishing firm specific patterns of training and combining the human resources with other resources and capabilities can firms expect their workers to become core competencies.
  • 109. USING THE RESOURCE BASED VIEW IN INTERNAL ANALYSIS To use the RBV in internal analysis, a firm must identify and evaluate its resources to find those that provide the basis for future competitive advantage. This process involves defining the various resources the firm possesses and examining them based on the above discussion to gauge which resources truly have strategic value.
  • 110. VALUE CHAIN • Firm’s value chain is a strategic cost tool that influences the value a firm can give to its customers. The value chain explains a firm’s overall performance in terms of its pricing and it’s competitive advantage over rivals.
  • 111. • According to Michael E. Porter, a firm’s value chain is made up of five primary activities, which include how the firm obtains its raw materials, converting the raw materials into finished product, physical distribution, marketing and sale and lastly service.
  • 112. • The support activities include human resources management, firm’s infrastructure, technology development and procurement. In all, a firm’s value chain activities are nine. These when well managed give firms a competitive advantage.
  • 113. PRIMARY ACTIVITIES • Inbound Logistics • This is made up of activities and cost associated with buying raw materials and transporting the raw materials to the production site . The sources from which a company buys raw materials influence the company ability to compete.
  • 114. • Most firms in Asia have cost advantage because they get the raw materials from cheap source. Receiving, storing, materials handling, warehousing, inventory control, vehicle scheduling, and returns to suppliers.
  • 115. • Operations • This is made up of activities and cost associated with converting the raw materials into finished products. If production is characterized by defects it will affect final delivery and price.
  • 116. • Similarly if a company lacks expertise in using the technology to produce, company will not be competitive. Product quality will also be suspected. Customers will as a result switch to other firms. (packaging, assembly, equipment maintenance, testing and printing)
  • 117. Outbound Logistics • This addresses activities associated with physical distribution from the manufacturing site to the points of consumption. If there are several points along the distribution chain (middlemen) the price for a product or the service will be high.
  • 118. • E.g. it is not only the manufacturing cost that has made the price of cement to be so expensive but as a result of distribution problem. (finished goods warehousing, material handling, delivery vehicle operations, order processing and scheduling)
  • 119. Marketing and Sales • This include activities and cost associated with the work of sales force and the entire marketing team. If the marketing team is not performing, it will affect the progress of the organization. A company will as a result find it difficult to get the needed funds to run the business. (advertising, sales force, channel selection, and pricing)
  • 120. Service • Customers are interested in after sales service, caring, appreciation and support. In the 21st Century, competition has move beyond technical competencies to functional competences and that is customer service. Winning companies exhibit a high sense of professionalism in customer service. (installation, repair, training, and parts supply)
  • 121. SUPPORT ACTIVITIES Human Resource Management • This is made up of staffing, training, development and compensation. The calibre of people a company has determines the company’s ability to compete. This means that even though a company may perform excellently in its primary value chain activity it may perform poorly due to poor staffing, bad management practices and poor remuneration.
  • 122. Technology • Research and development and how innovative a firm is, makes a big difference. A company that invests so much into research and development remains competitive and has an urge over rivals.
  • 123. Procurement • It is made up of the purchasing and storing of materials, components and semi- finished goods. People in charge of the procurement department influence the company’s cost competitiveness. Their honesty and loyalty will affect the firm’s competitiveness.
  • 124. Firms Infrastructure • This has to do with buildings, administrative offices etc. A firm with good infrastructure performs creditably well because good infrastructure improves worker morale.
  • 125. SWOT ANALYSIS • The key ‘strategic messages’ from both the environment and concerning strategic capability can be summarised in the form of a SWOT analysis. A SWOT analysis summarises the key issues from the business environment and the strategic capability of an organisation that are most likely to impact on strategy development.
  • 126. • A SWOT analysis draws together key strengths, weaknesses, opportunities and threats that have been highlighted as a result of the environmental audit
  • 127. • SWOT, alternatively known as ‘WOT’S- UP’ analysis, is an important tool in enabling organisations to distil the findings of the audit into a more cohesive and succinct model. It is essential that it is used for this purpose and that it is seen as an addition to the environmental audit, not a replacement.
  • 128. • The aim of the SWOT process is to enable you to convert weaknesses into strengths and threats into opportunities, by taking remedial action to improve existing situations and plan a programme of ongoing continuous change.
  • 129. • Where an organisation is weak in respect of a skilled workforce then it is essential that training is identified as a key objective of the internal strategy and this is underpinned by financial investment and resource.
  • 130. • When undertaking a SWOT analysis, you should be aware of the differences between controllable and uncontrollable factors. Essentially, the controllable areas are those relating to internal issues. By and large your organisation does have control on micro issues relating to technology, skills investment, resources, innovations, morale, motivation, etc.
  • 131. • External factors, however, are often uncontrollable, and while you might be able to influence their outcome you will not be able to control them. When establishing future opportunities and how to improve upon weaknesses, you will be required to work on the controllable variables.
  • 132. • It is, however, essential to realise that an organisation cannot aim to address all of the issues raised within the SWOT analysis and must ideally prioritise the issues appropriately.
  • 133. • The SWOT analysis should be used to distil the critical factors that have been identified during the auditing process. Essentially it acts as a summary of the audit and not a replacement for it. Therefore the analysis should aim to identify highly critical areas, in order to focus attention on them during strategy development.
  • 134. CORPORATE MISSION, VISION OR STRATEGIC INTENT • MISSION • A firm’s mission is a broad statement providing a general direction for business activities and a basis for the coherent selection of desired ends (goals and objectives) and means to achieve them (strategies).
  • 135. • The firm’s mission defines why it exists and why it competes in certain selected markets or industries and not in other. It is an enduring statement of purpose that distinguishes one organisation from other similar enterprise. A mission statement is sometimes called a creed statement or statement of purpose.
  • 136. • The mission of an organisation explains the organisation’s purpose for existence. It is the declaration of a company’s fundamental purpose for existence. It explains among other things how the company sees itself, and what it wishes to do. It contains firm’s beliefs, norms, and ideologies
  • 137. • Mission statement is a qualitative statement of the overall business position that summarises the key points with regard to products, markets, geographic locations, and unique competencies
  • 138. • NATURE OF MISSION STATEMENTS • It should be customer oriented rather than product oriented • A product definition focuses just on the products sold and markets it serves. This obscures a company’s function, which is to satisfy customer needs
  • 139. COMPONENTS OF MISSION STATEMENTS • A good mission statement should include most of these essential elements: • Customer: who are the firm’s customers? • Product or services: what are the firm’s products or services • Markets: geographically, where does the firm compete? • Is the firm technologically current? • Concern for survival, growth and profitability – is the firm committed to growth and financial soundness
  • 140. • Philosophy – what are the basic beliefs, values, aspirations and ethical priorities of the firm? • Concern for employees – are the employees a valuable asset of the firm?
  • 141. • Concern for public image – is the firm responsive to social, community, and environmental concern? • Self concept – what is the firm’s distinctive competence or major competitive advantage
  • 142. CHARACTERISTICS OF GOOD MISSION STATEMENTS • It should be feasible – realistic and achievable • It should be clear and lead to action • It should be distinctive
  • 143. • It should be motivating and inspiring • It should indicate how objectives are to be accomplished • It should indicate major components of strategy
  • 144. • 1. A well crafted mission statement: • Must be narrow enough to specify real arena of interest • Serves as beacon of where top management intends to take the firm to
  • 145. • 2. Overly broad mission statements provide no practical guidance in strategy making • Broad Definition Narrow Definition • Beverage Soft drink • Footwear Athletic Footwear • Global mail delivery Overnight package delivery
  • 146. • If IBM defines its mission as being in the computer business it is typically a product based definition. • On the other hand, if IBM defines its mission as operating in information and data processing business, it is a customer based definition. This is because when a customer buys IBM computer, the benefit he or she is expected to derive from it is information and data processing.
  • 147. • Similarly, if an educational institution defines its mission as an educational establishment that provides professional based courses, it is a product based definition. However, if it defines its mission statement as providers of knowledge and information, then, this is a customer based definition.
  • 148. • IMPORTANCE OF HAVING A MISSION STATEMENT • It helps companies to have focus and direction • It helps companies to effectively utilise their resources • Mission helps firms to be more ethical in their conduct of business
  • 149. • THE NEED TO CHANGE MISSION STATEMENT • The environmental changes demand that companies review their mission statement frequently in order to remain competitive and to meet needs of customers. Customer taste is not static but changes with time. To remain useful, mission must be revised.
  • 150. WHO DRAFTS COMPANY MISSION? • Lead in the drafting of the mission statement is the chief executive officer with support of the board of directors and other senior management members of the organisation. In some cases the chief executive officer may draft the mission and present it to the senior management to add or subtract some information. This happens when other management members have insight into what should constitute a good mission statement.
  • 151. COMMUNICATING MISSION AND VISION STATEMENTS • After the mission or vision have been drafted, senior management owns it a duty to communicate to the other members of the organisation. This is because implementation becomes easy if they understand the mission and the vision.
  • 152. VISION • The mission statement deals with present – that is, what business the organisation is operating in; but vision statement talks about the future – ‘that is where the organisation wishes to be’’. A strategic vision provides a big picture perspective of what the organisation intends to be considering the instability of the business environment.
  • 153. • DEVELOPING THE MISSION STATEMENT OF THE BUSINESS • Definition of time frame • Determination of the business scope • Determination of product – market segment • Challenges from changes in the mission statement • Mission statement
  • 154. • STAKEHOLDER EXPECTATIONS AND ORGANISATIONAL PURPOSES • Strategy formulation is also about the purpose of the organisation and what people want the organisation to be like. Whom should the organisation be there to serve and how the direction and purposes of an organisation should be determined.
  • 155. STRATEGIC OPTIONS AND CHOICES • CORPORATE-LEVEL AND INTERNATIONAL STRATEGY • Corporate strategy specifies the firm’s overall direction in terms of its general orientation towards growth and the management of its various businesses and product lines to achieve a balanced portfolio of products and services.
  • 156. • The corporate parent refers to the levels of management above that of the business units and therefore without direct interaction with buyers and competitors. So, a corporate centre or the divisions within a corporation which look after several business units act in a corporate parenting role. • CLASSIFICATION OF CORPORATE STRATEGIES
  • 157. STABILITY GROWTH STRATEGY • Stability growth strategy can be characterised as follows: • The organisation is satisfied with its past performance and decides to continue to pursue the same or similar objectives • Each year the level of achievement expected is increased by approximately the same percentage • The organisation continues to serve its customers with basically the same products or services
  • 158. • REASONS FOR THE USE OF A STABLE GROWTH STRATEGY: • Management may not wish to take the risk of greatly modifying its present strategy • Changes in strategy require changes in resources allocation • Too rapid growth can lead to situations in which the organisation’s scale of operations outpaces its administrative resources • Organisations that pursue a stable growth strategy concentrate on one product/service
  • 159. • GROWTH STRATEGY • Growth strategy can be described as follows: • They do not necessarily grow faster than the economy as a whole but do grow faster than the markets in which their products are sold • They tend to have larger than average profit margin • They regularly develop new products, new markets, new processes and new uses for old products
  • 160. REASONS FOR GROWTH STRATEGY • Growth has been ingrained in Americans as ‘’the path of success’’ • Managers are often given bonuses, salary increases, and continued employment for achieving growth in sales and profits • Pressure from investors and others with a financial interest in the company • A belief exists that the company must grow if it is to survive.
  • 161. CONCENTRATION STRATEGY • Concentration strategy focuses on a single product/service or on a small number of closely related products/services and involves increasing sales, profits, or market share faster than it has increased in the past.
  • 162. IMPLEMENTING GROWTH STRATEGY THROUGH MERGERS AND ACQUISTIONS • Acquisition occurs when one company purchases the assets of another and absorbs them into its own operations. • A merger occurs when two or more companies combine into one company.
  • 163. • REASONS FOR ACQUISITION AND MERGERS • Merger or acquisition can increase the market value of the stock of both organisations • Providing a better utilisation of existing manufacturing facilities
  • 164. • Selling in the same channels as existing channels to make the existing sales organisation more productive • Entering a new and growing field • Providing new products or services and better margins of profit in order to supplement older products or services still selling well but at increasingly competitive levels.
  • 165. • GUIDELINES FOR SUCCESSFUL ACQUISITION AND MERGERS • Pinpoint and spell out objectives • Specify the gains for the stockholders of both organisations
  • 166. • Ensure that the management of the acquired company is or at least can be made competent. • Seek to ensure that the acquiring company’s resources fit with the resources of the target company. This result in synergy.
  • 167. • Involve the chief executive officers of both companies in the entire merger programme. clearly define the business of the acquiring problems and discussing them early with the target company
  • 168. • Make the right advances. Avoid thoughtless actions, and careless voioced sentiments • In assimilating a newly acquired company, exercise a minimum of control over it. Maintain, and if possible improve, the status of the newly acquired management team.
  • 169. • HARVESTING STRATEGIES • Most products and services eventually reach a point where future growth appears doubtful or not cost-effective. This may be because of new competition, changes in consumer preferences, or some other similar factor. When this occurs, organisations often attempt to ‘harvest’ as much as they can from the product/service. A harvesting strategy should be considered under the following conditions:
  • 170. • The product or service is in a saturated or declining market • The current market share of the product/service is small and it is not cost effective to try to increase it. • The profit aspects are not especially attractive
  • 171. • The organisation has more attractive uses for any freed – up resources • A decrease in expenses and investment will not cause a sharp decline in sales • The product/ service is not a major contributor of sales, stability, or prestige to the organisation.
  • 172. DEFENSIVE STRATEGIES • Defensive strategies sometimes referred to as retrenchment strategies, are used when a company wants or needs to reduce its operation. Most often, defensive strategies are used to reverse a negative trend or to overcome a crisis or problem situation. Consequently, defensive strategies usually are chosen as a short-term solution or because no better alternative exists. Specific reasons for using defensive strategies include:
  • 173. • The company is having financial problems. • The company forecast hard times ahead. This can be caused by such factors as new competitors entering the market, new products, or changes in government regulations • Owners either get tired of the business or have an opportunity to profit substantially by selling
  • 174. 1. Turnaround: • a turnaround strategy is designed to reverse a negative trend and get the organisation back on the track to profitability. Turnaround strategies usually try to reduce operating costs
  • 175. 2. Divestment: • Divestment involves selling off a part of the business, which can be a SBU, a product line, a division. Divestment is a frequently used strategy when either harvesting or turnaround strategies are not successful. Sometimes, a company’s situation has deteriorated to the point that the only chance for survival is to sell major components and thereby raise sufficient capital to put the remaining parts of the business on firm footing.
  • 176. Liquidation • 3. Liquidation occurs when an entire company is either sold or dissolved may come by choice or force. When liquidation comes by choice, it can be because the owners are tired of the business or are near retirement
  • 177. 4. Becoming a Captive: • Becoming a captive of another organisation occurs when an independently owned organisation allows another organisation’s management to make certain decisions for it in return for a guarantee that the managing organisation will buy a certain amount of the captive’s product or service.
  • 178. PRODUCT/MARKET DIVERSIFICATION • Diversification is a strategy that takes the organisation into both new markets and products or services. • There are two approaches to diversification – related diversification and unrelated diversification.
  • 179. • REASONS FOR DIVERSIFICATION • There may be efficiency gains from applying the organisation’s existing resources or capabilities to new markets and products or services.. • There may also be gains from applying corporate managerial capabilities to new markets and products and services.
  • 180. • Having diverse range of products or services can increase market power. With a diverse range of products or services, an organisation can afford to cross subsidise one product from the surpluses earned by another, in a way that competitors may not be able to.
  • 181. • Organisations often diversify to respond to environmental change. Sometimes this can be justified at least for defending existing value, for instance where markets or technologies are converging. • Organisations might diversify in order to spread risk across a range of businesses. • Organisations diversify because of the expectations of powerful stakeholders, including top managers.
  • 182. • RELATED OR CONCENTRIC DIVERSIFICATION • Related diversification represents business development beyond the existing range of product, service and markets but still within the broad limits of the industry which the firm operates.
  • 183. • Related diversification can be defined as a strategy development beyond current products and markets, but within the capabilities or value network of the organisation. For example Unilever is a diversified corporation, but virtually all of its interest are in fast moving consumer goods distributed to retailers, and increasingly in building global brand in that arena.
  • 184. • Related diversification can be vertical integration or horizontal • Vertical integration- backward or forward integration • Backward integration refers to development into activities concerned with the inputs into the company’s current business.
  • 185. • Forward integration refers to development into activities which are concerned with a company’s outputs, such as transport, distribution, repairs, and servicing. • Horizontal integration is where a firm moves into operations which are complementary to the firms current activities.
  • 186. • UNRELATED DIVERSIFICATION. • Unrelated diversification is the development of products or services beyond the current capabilities or value network. Unrelated diversification is often described as a ‘conglomerate strategy’
  • 187. • REASONS FOR INTERNATIONAL DIVERSIFICATION • The globalisation of markets and competition can be seen as both cause and consequence of the internationalisation of individual organisations
  • 188. • Firms acting as suppliers to industrial companies may follow their customers when these internationalise their operations. • By expanding its markets internationally a firm can bypass limitations in its home market.
  • 189. • There may also be opportunities to exploit differences between countries and geographical regions – exploitation of differences in culture – administrative differences allow firms to take advantage, for example tax differentials
  • 190. – Exploitation of specific economic factors. This could include, for example, labour or the costs of capital – By internationalisation companies are able to broaden the size of the market so as to exploit strategic capabilities
  • 191. – the internationalisation of value adding activities allows an organisation to access and develop resources and capabilities in ways not possible in its home country thereby enhancing its competitive advantage and competitive position – international diversification allows firms to reap economies of scale by expanding the size of the market they serve
  • 192. MARKET SELECTION • Macro-economic conditions reflected in indicators such as the GDP and levels of disposable income which help in the estimation of the potential size of the market. • The political environment may create significant opportunities for organisations. It is common for some countries to provide investment incentives to foreign investors.
  • 193. • The infrastructure of national markets will also be an important factor in assessing the attractiveness of national markets for entry, in particular: – existing transport and communication infrastructure – availability of necessary local resources such as appropriately skilled labour – tariff and non tariff barriers to trade
  • 194. • The extent of political and legal risks that an organisation might face when doing business in the country. – Sovereign risks arise from the policies and decisions of host governments, including changes in tax laws and restrictions on expatriate employment. – also from absence of effective regulations and control
  • 195. – International risks are linked to developments in the international political economy and include the effects of economic sanctions. – Security risks to employees arising from civil unrest, violent crime and the threat of kidnapping are of concern to organisations operating in countries as diverse as South Africa and Russia.
  • 196. – similarity of cultural norms and social structures with the organisation’s home country can provide an indicator of any changes to established products, processes and procedures which may be required.
  • 197. BUSINESS-LEVEL STRATEGY/ COMPETITIVE STRATEGIES • Business-level strategy is about competing better or, in public services providing best value services. Organisations consist of a number of strategic business units (SBUs) and business-level strategy needs to be developed for each of these SBUs. So identifying organisation’s SBUs is an important prerequisite to developing business-level strategic choices.
  • 198. • Having identified organisation’s SBUs, five strategic choices are available to achieve competitive advantage.
  • 199. PRICE-BASED STRATEGIES • No Frills Strategy • No frills strategy combines a low price, low perceived product/service benefits and a focus on a price-sensitive market segment. These segments might exist for a number of reasons: a product or services are commodity-like where customers do not discern or value differences in the offering of different suppliers. So price becomes the key competitive issue. Basic foodstuffs-particularly in developing economies are an example.
  • 200. • There may be price sensitive customers, who cannot afford, or choose not to buy better-quality goods. The grocery retail chains Aldi and Netto in Europe follow this strategy. Their stores are basic, their merchandise range is relatively limited with few speciality or luxury products, and their prices are very low. The buyers have low switching costs, so building customer loyalty is difficult.
  • 201. • Where there are a small number of providers with similar market shares. So the cost structure is similar and new product/service features are quickly imitated. Price becomes the key competitive weapon. • Where the major providers are competing on non-price basis the low price segment may be an opportunity for smaller players to avoid the major competitors.
  • 202. Low Price Strategy • Low price strategy seeks to achieve a lower price than competitors whilst trying to maintain similar perceived product or service benefits to those offered by competitors.
  • 203. • If a business unit aims to achieve competitive advantage through a low-price strategy it has two basic choices. The first is to try to identify and focus on a market segment that is unattractive to competitors and in this way avoid competitive pressures to erode price. A more challenging situation is where there is competition on the basis of price. This is common occurrence in the public sector and for commodity-like markets. Moreover, price-cutting helps market leader stay ahead of its rivals.
  • 204. • Despite the various benefits of this approach, there are several potential pitfalls when competing on price margin reduction. • Although tactical advantages may be gained, by reducing price is likely to be followed by competitors.
  • 205. • This can lead to an inability to invest to develop the product or service and result in a loss of perceived benefit of the product. In the public sector this can result in a drift towards being the ‘provider of last resort’ serving only those parts of the community who cannot afford to purchase better services from the private sector.
  • 206. • Clearly, in the long run, a low-price strategy cannot be pursued without a low-cost base. However, low-cost in itself is not a basis for advantage. Managers often pursue low-cost strategies that do not give them competitive advantage. The key challenge is how cost can be reduced in ways, which others cannot match such that a low-price strategy might give sustainable advantage. The evidence is that this is difficult to achieve.
  • 207. SUSTAINING PRICE-BASED ADVANTAGE • Competitive advantage through low prices might be sustained in a number of ways: • Accept reduced margin • Win price war • Reduce cost • Focus on specific segments
  • 208. DIFFERENTIATION STRATEGIES • This seeks to provide products or services that offer benefits different from those of competitor and that are widely valued by buyers Johnson et al (2005). The aim is to achieve competitive advantage by offering better products or services at the same price or enhancing margins by pricing slightly higher. Here the success of the strategy depends on the ability to deliver enhanced benefits to customers together with low prices whilst achieving sufficient margins for reinvestment to maintain and develop the basis of differentiation.
  • 209. • The extent to which a differentiation approach will be successful is likely to be dependent on whether the organisation has clearly identified who is the strategic customer. This is not always straight forward to determine, for example for a newspaper business, is the customer the reader of the newspaper, the advertiser, or both? They are likely to have different needs and be looking for different benefits. The extent to which the organisation understands what is valued by the customer can be dangerously taken for granted by managers.
  • 210. • Successful differentiation will also depend on whether the manager has clearly identified who the competitors are. For example, is the business competing with a wide competitor base or with a much narrower base, perhaps within a particular market segment? In the later case, a strategy of focused differentiation may be appropriate.
  • 211. • In the case of broad-based differentiation, it is likely that the business will have to concentrate on bases of differentiation commonly valued by customers in that market. For example, in the automobile mass market reliability is a key customer requirement (critical success factor) and those manufacturers who are able to demonstrate high levels of reliability have advantage over others.
  • 212. SUSTAINING DIFERENTIATION- BASED ADVANTAGE • Create difficulties for imitation • Achieve imperfect mobility (of resources/competences) – many intangible assets such as brand, image or reputation are difficult for a competitor to obtain – switching cost • Reinvest margin
  • 213. THE HYBRID STRATEGY • The hybrid strategy seeks simultaneously to achieve differentiation and a price lower than that of competitors. Here the success of the strategy depends on the ability to deliver enhanced benefits to customers together with low prices whilst achieving sufficient margins for investment to maintain and develop the bases of differentiation.
  • 214. • It might be argued that, if differentiation can be achieved, there should be no need to have a lower price, since it should be possible to obtain prices at least equal to competition, if not higher. However, the hybrid strategy could be advantageous in the following circumstances. • If much greater volumes can be achieved than competitors, then margins may still be better because of low cost base.
  • 215. • If organisation is still clear about the activities on which differentiation can be built it may then be able to reduce costs on other activities. • As an entry strategy in a market with established competitors, this is often used when developing global strategy. The aim is to take market share, divert the attention of the competitor, and establish a foothold from which they could move further. However, in following such strategy it is important to ensure that the overall cost base is such that low margins can be sustained; and a clear follow-through strategy has been considered after entry has been achieved.
  • 216. FOCUSED DIFFERENTIATION • A focused differentiation strategy seeks to provide high- perceived product/service benefits justifying a substantial price premium, usually to a selected market (niche). In many markets these are described as premium products and are usually heavily branded. • A choice has to be made between a focus strategy and broad differentiation if sales are to grow. This may take on global proportions, as managers have to make decisions in increasingly global markets. Growth may be achieved by targeting new sales into the same niche in more countries/markets rather than by broadening the appeal in a single country/market.
  • 217. • Pursuing a focus strategy may be difficult when it is only part of an organisation’s overall strategy. For example, department stores attempt to sell a wide range of products in one store. In so doing they try to appeal to a range of different customer types. So focus strategy for a particular range of goods may run into problems because the store itself may not be appropriate to the needs of the target group of customers for that range of goods. This practicality puts limitations on the degree of diversity of positioning that an organisation can sustain.
  • 218. • Focus strategy may conflict with stakeholders’ expectations. For example, a public library service could probably be run more cost- efficiently if it were to pull out of low-demand parts of its community and put more resource into its popular branch libraries. It might also find that concentrating its development efforts on IT- based online information services would prove popular with some parts of the community. However, the extent to which these strategies would be regarded as within the library’s remit might be hotly debated particularly in relation to its purpose of social inclusion.
  • 219. FAILURE STRATEGIES • A failure strategy is one which does not provide perceived value-for-money in terms of product features, price or both. For example increasing price without increasing product/service benefits to the customer. This is, of course, the very strategy that monopoly organisations are accused of following.
  • 220. • However, unless organisation is protected by legislation, or high economic barriers to entry, competitors are likely to erode market share. Other failure strategies are reduction in product/service benefits whilst increasing relative price; and reduction in benefits whilst maintaining price.
  • 221. • These types of strategies are dangerous and high risk though firms have tried to follow them. Arguably there is another basis of failure, which is for a business to be unclear as to its fundamental generic strategy such that it ends up being ‘stuck in the middle’ – a recipe for failure.
  • 222. MICHAEL PORTER’S GENERIC STRATEGY • Michael Porter defined a competitive Advantage Grid based upon three generic strategies that enable an organisation to closely identify the various competitive options open to them. Typically they would include: • Cost leadership • Differentiation • Focus
  • 223. • Porter himself suggested that strategy is primarily about creating and sustaining a profitable position in the marketplace. The organisation needs to identify the competitive scope available to it, considering the approach to targeting and segmenting the market, and ensure that the organisation is operating in a closely defined market.
  • 224. COST LEADERSHIP • Overall cost leadership strategy is to be able to produce and deliver the product or service at a lower cost than the competition. Cost leadership is usually attained through a combination of experience and efficiency. One of the key competitive positions to achieve in a mass market setting is that of cost leadership within your defined industry or sector.
  • 225. • The focus of marketing and indeed overall strategic activity at this level will relate to ensuring that a low-cost structure is implemented. In essence the organisation will be looking to achieve economies of scale, cost reduction policies, zero defects, minimum expenditure on research and development and very closely defined cost-effective marketing strategies. Therefore, the organisation is likely to be process-driven and technologically focused.
  • 226. • The basic drivers of cost leadership, according to Drummond, Ensor and Ashford (2003) are: • Economy of scale – The single biggest influence on cost • Linkages and relationships-Being able to link activities together and form long lasting customer relationship, inclusive of customer retention programmes. • Infrastructure – Factors such as location, availability of skills and government support
  • 227. • REASONS • It can give the firm above average returns even on the face of strong competitive forces • It can put the firm in a favourable position to fend against substitutes from the firm’s competitors • The factors contributing to a low cost position can provide substantial barriers to entry.
  • 228. • DRAWBACKS • Technologically breakthrough can open up cost reductions for rivals that nullify a low cost producer’s pass investments and hard won gains in efficiency • Rival firms may find it easy and or inexpensive to imitate the leader’s low- cost methods, thus making any advantage short-lived.
  • 229. • A company driving hard to push it cost down can become so fixated on cost that it may fail to pick up on such significant market changes as growing buyers preference for added quality or service, subtle shifts in how buyers use the product, declining buyer sensitivity to price and thus gets left behind as buyer interest wings top quality, performance and service.
  • 230. • Over reliance on cost reduction can lock a firm into both its present technology and its present strategy, leaving it vulnerable to new technologies, and growing customer interest in something other than cheaper price
  • 231. • ORGANISATIONAL REQUIREMENTS • Key skills • Labour supervision • Easily produced products • Process design (mass production due to scale and experiential economies) • Low cost distribution outlets • Tight cost control
  • 232. DIFFERENTIATION STRATEGY • This particular strategy presents the opportunity to market products or services distinctive from those of its competitors. However, while it might be distinctive in nature, it is only competitive and purposefully different if it ultimately adds value to the overall customer experience
  • 233. • The product/service should have unique features, and even benefits. It should enable the organisation to achieve a degree of customer loyalty and should ultimately be a competitive response that cannot be challenged directly by any competitor. • The most likely scenario is that as a result of the differentiation it will command a premium price that will essentially reflect the quality of the brand, design, product and high service levels.
  • 234. • Drummond, Ensor and Ashford (2003) suggest that the common sources of differentiation will include: • Product performance – the product performance can enhance its perceived value from customer perspective. • Product perception – the perception of the product is often different from the performance
  • 235. FOCUS • Interestingly the basis of competitive strategy is both cost leadership and differentiation, but instead of competing in a mass market environment, it is more likely to compete in a smaller or narrowly defined area of the market. In particular the focus will be on attractive segments or niche markets.
  • 236. • The emphasis of focus strategy primarily implies that the organisation is focusing effort on producing products for a closely defined market. Often the products will be customised, high quality, differentiated and potentially premium priced. For example specialist clothing, or the high quality car market, e.g. Rolls-Royce, Morgan, etc.
  • 237. • Clearly the more successful the organisation is within the niche, the more likely it is to attract attention. Therefore, the emphasis of a focus strategy should be on: • Product and service specialism – Producing highly differentiated, possibly exclusive products to a closely defined target market.
  • 238. • Geographic segmentation – Tailoring products/service needs to geographic regions, as long as the markets are commercially viable, based upon size • End-user focus – The focus might be on the end-user, therefore a customer profile might be more appropriate to target than an entire marketplace
  • 239. Criteria for evaluating strategic options • This section will look at why some strategies might succeed better than others by introducing the concept of success criteria by which strategic options can be judged. There are three main success criteria: suitability, acceptability and feasibility.
  • 240. SUITABILITY • Suitability is concerned with whether a strategy addresses the circumstances in which an organisation is operating – the strategic position. It requires a broad assessment of the extent to which new strategies would fit with the future trends and changes in the environment, exploit strategic capability of an organisation and meet the expectations of stakeholders. It attempt to measure how far proposed strategies fit the situation identified in the strategic analysis.
  • 241. • How far does it address the difficulties identified in the strategic analysis (resource weakness and environmental threats). Is the strategy likely to improve the organisation’s competitive standing or resolve the company’s liquidity problems, or decrease dependence on a particular supplier?
  • 242. • Does it exploit the company strengths and opportunities identified in the SWOT analysis? Will the proposed strategy help utilise the present, highly efficient, distribution system? • Does the strategy fit in with the organisation’s objectives? For example, would the strategy be likely to achieve profit targets, achieve growth expectations • To what extent does the new strategy fit with the future trends/changes in the environment?
  • 243. • ACCEPTABILITY • This is concerned with the expected performance outcomes of a strategy. However, strategies also have to be acceptable to a variety of different stakeholders. The acceptability of a strategy can be assessed in three broad ways: Return, Risk and Stakeholder reactions.
  • 244. RETURN • Returns are the benefits which stakeholders are expected to receive from a strategy. So an assessment of the financial and non-financial returns likely to accrue from specific strategies could be a key criterion of acceptability of a strategy – at least to some stakeholders. There are number of different approaches to understanding return: Forecasting the return on capital employed, payback period, and discounted cash flow.
  • 245. • RISK • The likely return from a particular strategy is an important aspect of the acceptability of that strategy. However, another aspect of acceptability is the risk that an organisation faces in pursuing a particular strategy. Risks concerns the probability and consequences of the failure of a strategy.
  • 246. • The risk can be particularly high for organisations with major long-term programmes of innovation or where high levels of uncertainty exist about key issues in the environment. There has been a progressive move to incorporate a formal risk assessment in regular business plans as well as with the investment appraisal of major projects.
  • 247. STAKEHOLDER REACTIONS • There are many situations where judgements of stakeholder reactions could be crucial. For example: • A new strategy may require a substantial issue of shares, which could be unacceptable to powerful groups of shareholders, since it dilutes their voting power.
  • 248. • Plans to merge with other companies or to trade with new countries could be unacceptable to unions, government or some customers. • Attempts to gain market share in static market might upset the status quo to such an extent that competitors will be forced to retaliate in a way that is damaging to all parties, for example by instigating a price war.
  • 249. • FEASIBILITY • Feasibility is concerned with whether an organisation has the resources and competences to deliver a strategy. A number of approaches can be useful to understand feasibility:
  • 250. • Funds Flow: A valuable piece of analysis is funds flow forecast, which seeks to identify the funds which would be required for any strategy and the likely sources of those funds • Such an analysis should quickly highlight whether the proposed strategy is likely to be feasible in financial terms.
  • 251. • Break Even Analysis: Break even analysis is a simple and widely used technique which is helpful in exploring some key aspects of feasibility. • It can be used to assess the feasibility of meeting targets of return (e.g. profit) and as such, combines a parallel assessment of acceptability
  • 252. • Resource Deployment Analysis: It is often helpful to make a wider assessment of the resources and competencies of the organisation in relation to specific strategies. • The requirements of alternative future strategies should be laid out, indicating the key resources and competencies for each strategy
  • 253. • For example, a strategy of geographical expansion in the home market might be critically dependent on marketing and distribution expertise, together with the availability of cash to fund increased stocks
  • 254. GROWTH STRATEGY THROUGH ANSOFF MATRIX • Principally the Ansoff’s matrix allows you to consider a range of four strategic options. These are Market penetration, Market development, Product development, and diversification. •
  • 256. MARKET PENETRATION • The basis of market penetration strategy is primarily to increase sales of existing products in existing markets. To do this the organisation will need to demonstrate a high level of competitive force; they will need to be price-competitive, promotionally competitive and execute a hard-hitting advertising campaign.
  • 257. • The focus of market penetration will be on persuading existing customers to buy more of your products. A number of examples highlight this particular practice.
  • 258. • Retailers offering store cards, with opening discounted rates of purchase. The broader scope of this particular strategy is winning customers from other competitors, testing out the power of the buyers, their willingness to change.
  • 259. • MARKET DEVELOPMENT • Market development is an alternative growth strategy that focuses on the development of new markets for existing products. The aim will be to open up new geographical regions; target new market segments and find new uses for existing products.
  • 260. • This particular strategy draws on the creative skills of marketers to develop alternative uses for products and then devise creative and dynamic marketing programmes to underpin them.
  • 261. • A good example of this would be Timberland Boots. In the main designed for walkers, who stalked the hill and dales, Timberland Boots are now a fashion statement. While existing customers continue to buy Timberland Boots for leisure pursuits, others wear Timberland boots on a day-to-day basis.
  • 262. • PRODUCT DEVELOPMENT • Expanding and developing the product portfolio is an essential marketing activity, in order that organisations continue to move with the times and the new and more challenging expectations of their customers, i.e. the power of the customer/buyer. Product development is required to attract existing customers in existing markets to new products.
  • 263. • A good example of product development could relate to the car market. On a regular basis most popular brands extend the life cycle of their existing vehicles by giving them either a minor or major facelift.
  • 264. • The aim is to maintain existing customers and encourage them to develop customer loyalty traits in order that they will purchase the designed and refined model. Mercedes have recently revamped the Mercedes ‘A’ Class and also the ‘C’ Class range, attracting a surge of interest from the existing customer base. What about Toyota?
  • 265. • Product development plays an important role in attracting new customers, opening up new markets and providing many new opportunities, but clearly the main drawback can be the level of investment required. So as a growth objective, it is the one that provides the greatest strain on resources.
  • 266. • Here the organisation would need to undertake a financial analysis, including a break-even analysis, to measure how long it would take for the new product to break even, should it be launched into the market.
  • 267. • Related marketing activities would clearly need to reflect a strong competitive response, in order that the product is taken to market in advance of similar competitive strikes and before the threat of substitute products arises.
  • 268. • The organisation would clearly need to reflect a strong competitive response, in order that the product is given credence in the market place. Therefore the components of success will rely upon a good quality product, associated high service levels, and a compatible promotional and pricing strategy to give it a head start.
  • 269. • DIVERSIFICATION • Diversification potentially poses the most significant risk to the organisation. This strategy is based on diversifying or moving away from the core business of the organisation and looking for an alternative or complementary source of income and profit.
  • 270. • This often results, in today’s market economy, in mergers and acquisitions, as organisations seek to set up compatible business portfolios, increasing their market attractiveness and market share along the way.
  • 271. • This is a high-risk strategy, a move into the unknown, and one that may present threats associated with ‘new entrants’ in the marketplace: high investment, lack of economies of scale, and difficulties associated with distribution. Again going back to the previous point, one of the benefits of mergers and acquisitions in this sense is that some of the risk is reduced. However, this is an expensive alternative option; for many organisations it is a last resort.
  • 272. MANAGING THE CORPORATE PORTFOLIO • THE GROWTH SHARE (OR BCG) MATRIX • It is of primary importance that organizations continually monitor and control how their SBUs are doing in the marketplace, what SBUs are in growth and what SBUs are in decline. To assist with this process many organizations use what is formally known as portfolio matrix.
  • 273. • Probably the best-known and most established matrix is the Boston Consulting Group matrix known as BCG. Its main purpose is to provide a framework for considering future market growth for both products and services.
  • 274. The growth share (or BCG) matrix
  • 275. • The BCG matrix has two key dimensions associated with it, namely the level of growth in the product’s market, and the product’s market share in comparison to that of its competitors.
  • 276. • Market growth is an imperative to many organizations as it present an opportunity in the marketplace for extension and innovation. However, in low growth markets, it is more about survival of the fittest, as competition is highly intensive as each competitor strives its own portion of a much smaller market potential.
  • 277. • Each of the four quartiles of the BCG offers an indication of potential opportunities or even potential decline in market share.
  • 278. Question marks • Question marks, is alternatively known as problem children. They are principally business units that have a small market share of a growing market. However, they are often subject to high levels of investment in order for them to achieve any significant growth in market share overall. Key components are:
  • 279. • The product has a low market share in a high growth market • Considerable investment is required in order to keep up with market development • If trying to improve competitive position, levels of investment require are high
  • 280. • The ‘question mark’ arises over whether one need to invest or divest in a market • A question mark requires a lot of cash because the company has to spend money on plant, equipment and personnel to keep up with the fast-growing market, and because it wants to overtake the market leader.
  • 281. • Stars • Principally, stars are business units that command high levels of market share, with good potential for growth in the future. Key components are:
  • 282. • The business has moved to a position of leadership in a high growth market • Income needs are high in order to maintain market growth and keep competitors at bay
  • 283. • The business generates a large amount of income • As long as the market share is maintained, the business should become a cash cow. • A star does not necessarily produce a positive cash flow for the company. The company must spend substantial funds to keep up with the high market growth, and to fight off competitors’ attacks.
  • 284. Cash cows • Cash cows are essentially business units that have a dominant share of the market, but with little potential for growth, effectively having reached a level of maturity. Key components are: • The business unit has a high market share and low level of market growth. Stars become cash cow when the market rate begins to fall.
  • 285. • The term ‘cash cow’ comes from the principle that product generate considerable money but use little cash. • Economies of scale are strong.
  • 286. • The company does not have to finance expansion because the market’s growth rate has slowed. Because the business is the market leader, it enjoys economies of scale and higher profit margins. The company uses its cash cows to pay bills and support other businesses.
  • 287. Dogs • The position of ‘dogs’ in the BCG is typically one of low market share, with no real potential for growth. This can often be an indication that the business is nearing the end of its current life, and should be potentially considered for repositioning or deletion from the product life. Key components of dogs are:
  • 288. • The product has a weak market share in a low growth market • A low level of profit or a loss would be typical in return • Very often dogs take up more time in terms of management than can be justified, so phasing out the product is likely to be considered
  • 289. • Strategically, the issue is whether or not to hold on to the business. • After plotting its various businesses in the growth-share matrix, a company must determine whether its portfolio is healthy. An unbalanced portfolio would have too many dogs or question marks and too few stars and cash cows.
  • 290. SBU STRATEGIES • The company’s next task is to determine what objective, strategy, and budget to assign to each SBU. Four strategies can be pursued: build, hold, harvest, or divest. Building is appropriate for question marks whose market shares must grow if they are to become stars. The hold strategy is appropriate for strong cash cows if they are to continue yielding large positive cash flows.
  • 291. • The objective of the harvest strategy is to increase short-term cash flow regardless of long-term effect. Harvesting involves a decision to cash in on its ‘’crop’’, to ‘’milk its business.’’ Harvesting generally involves eliminating R@D expenditures, not replacing the physical plants, not replacing sales people, reducing advertising expenditures, and so on.
  • 292. • This strategy is appropriate for weak cash cows whose future is dim and from which more cash flow is needed. Harvesting can also be used with question marks and dogs.
  • 293. • The objective of the divest strategy is to sell or liquidate the business because resources can be better used elsewhere. This strategy is appropriate for dogs and question marks that are acting as a drag on the company’s profits.
  • 294. • Companies must decide whether harvesting or divesting is a better strategy for a weak business. Harvesting reduces the business’s future value and therefore the price at which it could be sold later. An early decision to divest, in contrast, is likely to produce fairly good bids if the business is in relatively good shape and of more value to another firm.
  • 295. • As time passes, SBUs change their position in the growth-share matrix. Successful SBUs have a life cycle. They start as a question marks, become stars, then cash cows, and finally dogs. For this reason, companies should examine not only their businesses’ current positions in the growth-share matrix but also their moving positions.
  • 296. • The worst mistake a company could make would be to require all its SBUs to aim for the same growth rate or return level. The very point of SBU analysis is that each business has a different potential and requires its own objective.
  • 297. • Other mistakes include: leaving cash cows with too little in retained funds or leaving them with too much in retained funds; making major investments in dogs in hopes of turning them around, but failing each time; and maintaining too many question marks and under investing in each. Question marks should either receive enough support to achieve segment dominance or be dropped.
  • 298. • There are practical difficulties in deciding what exactly high and low can mean in a particular situation.
  • 299. • In many organisations the critical resource to be planned and balanced will not be cash, but the innovative capacity, which consists of the time and creative energy of the organisation’s managers, designers, engineers, etc. Question marks and stars are very demanding on these types of resources.
  • 300. • The position of dogs is often misunderstood. Certainly, there may be some business units which need immediate deletion. However, other dogs may have a useful place in the portfolio. They may be necessary to complete the product range and provide a credible presence in the market. They may be held for defensive reasons – to keep competitors out.
  • 301. • Little is said about the behavioural implications of such a strategy. How does central management motivate the managers of cash cows, who may see all their hard-earned surpluses being invested in other businesses?
  • 302. • There may be political difficulties if the decision is taken to delete ‘dogs’ that are the brainchild of people with power within the organisation.
  • 303. • Indeed, perhaps the single factor which makes the creation and management of a balanced portfolio difficult in practice is the jealousy that can arise between the various strategic business units.
  • 304. Submission date: 31st March 2015 in class word limit: 5000-6000 • With reference to an article by YIANNIS E. SPANOS and SPYROS LIOUKAS (2001), critically assess the composite effects of Resource Based View perspective and Porter’s competitive strategy framework on the performance of family businesses in Ghana • The article has been submitted into your email. Penalty apply for any late submission. No assignment will be collected 3 days after submission date.
  • 305. ORGANISING FOR SUCCESS STRUCTURAL TYPES FLAT AND TALL ORGANISATIONS FLAT- Managing director, Department Managers, Supervisors, Workers TALL – Managing director, divisional directors, Department managers, Assistant managers, Supervisors, Team leaders, Workers
  • 306. THE FUNCTIONAL STRUCTURE • A functional structure is based on the primary activities that have to be undertaken by an organisation such as production, finance and accounting, marketing, human resources and research and development.
  • 307. • ADVANTAGES • It gives senior managers direct and greater control from the top. Chief executives in touch with all operations. • It provides a clear definition of roles and tasks, increasing accountability
  • 308. • Functional departments also provide concentrations of expertise, thus fostering knowledge development in areas of functional specialism. • Reduces/simplifies control mechanisms • Specialists at senior and middle management levels.
  • 309. Exhibit 12.2 A functional structure
  • 310. DSSADVANTAGES • Senior managers overburdened with routines matters • Senior managers neglect strategic issues • Difficult to cope with diversity • Co-ordination between functions is difficult • Failure to adapt • Too concerned with narrow functional interest • Tend to be inward looking
  • 311. MULTIDIVISIONAL STRUCTURE • A multidivisional structure is built around separate divisions on the basis of products, services or geographical areas. • ADVANTAGES • Training in strategic view • Ownership of strategy • Specialisation of competences • Control by performance • Flexible (add or divest divisions)
  • 312. • DISSADVANTAGES • Additional costs of the centre • Fragmentation and non-co-operation • Duplication
  • 313. • THE MATRIX STRUCTURE • A matrix structure is a combination of structures which could take the form of product and geographical divisions or functional and divisional structures operating in tandem. • Sometimes referred to as multiple command system.
  • 314. • It is a structure in which employees report to both a functional or divisional manager and at the same time to project or a group manager, that is employees have two bosses.
  • 315. • Employees work under two chains of command- one chain is functional or divisional[vertical] and the other horizontal overlap that combines people from various divisions or functional department into a project or business team led by a project or group manager who is an expert in the team’s assigned area of specialisation.
  • 316. example of matrix structure
  • 317. ADVANTAGES • Integrate knowledge • Flexible • Allow dual dimensions • DISSADVANTAGES • Length of time to take decisions • Unclear job and task responsibilities • Unclear cost and profit responsibilities • High degree of conflict
  • 318. • TRANSNATIONAL STRUCTURE • Combines the local responsiveness of the international subsidiary with the coordination advantages found in global product companies. The transnational structure seeks to obtain the best from the two extreme international strategies, the multidomestic strategy and the global strategy.
  • 319. • FEATURES • Each national units operates independently, but is the source of ideas and capabilities for the whole corporation. • National units achieve greater scale economies through specialisation on behalf of the whole corporation, or at least large regions. •
  • 320. • Corporate centre manages this global network by first establishing the role of each business unit, then sustaining the systems, relationships and culture to make the network of business units operate effectively.