grand strategy [ strategic alternatives]
TRANSCRIPT
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Differentiation
Low-cost
leadership
Focus
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1. Cost
Leadership2. Differentiation
3 A. Cost Focus 3 B. Differentiation
FocusNarrow
Target
Broad
Target
DifferentiationLower Cost
Competitive
Advantage
Competitive Score
Generic Commodity Required Common Organizational
Strategy Skills and Resources Requirements
Overall cost Sustained capital investment Tight cost control
leadership access to capital Frequent, detailed control reports
Process engineering skills Structured organization and responsibilities
Intense supervision of labour Incentives based on
Products designed for ease meeting strict quantitative
Low-cost distribution system targets in manufacture
Differentiation Strong marketing abilities Strong coordination Product engineering among functions in R&D, Creative flare product development, and
marketing
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Strong capability in basic Subjective measurement and
research incentives instead of
quantitative measures
Corporate reputation for Amenities to attract highly
quality or technological skilled labour, scientists, or
leadership creative people
Long tradition in the industry
or unique combination of skills
drawn from other businesses
Strong cooperation from
channels
Focus Combination of the above Combination of the above policies
policies directed at the directed at the regular strategic
particular strategic target target
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Risks of Cost Leadership Risks of Differentiation Risk of Focus
Cost of leadership is not Differentiation is not The focus strategy is sustained initiated
sustained: Competitors imitate The target segment Competitors imitate: Bases for differentiation becomes structurally
unattractive Technology changes becomes less imported to Structure erodes Other bases for cost buyers Demand disappears
leadership erodeProximity in differentiation Cost proximity is lost Broadly targeted is lost competitors overwhelm
the segment: The segment’s differences
from other segments narrow The advantages of a broad
line increaseCost focusers achieve Differentiation focusers New Focusers sub-segmentseven lower cost in segments achieve even greater the industry
differentiation in segments
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Keeping
ahead of the
field
Cost leadership
Raise barriers
Deter
competitors
Redefine scope
Divest
peripherals
Encourage
departures
Imitation at
lower cost Joint
ventures
Differentiati
on FocusDifferentiation
New
opportunities
Leade
r
Follower
Growth Maturity Decline
Strategic
position of
organizatio
n
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Consortia
Concentrated Growth
Market Development
Product Development
Innovation
Horizontal Integration
Vertical Integration
Concentric Diversification
Conglomerate Diversification
Turnaround
Divestiture
Liquidation
Bankruptcy
Joint Ventures
Strategic Alliances
Involves focusing resources on the profitable growth of a single product, in a single market, with a single dominant technology
Rationale - Firm develops and exploits its expertise in a delimited competitive arena
Determinants of competitive market success
◦ Ability to assess market needs
◦ Knowledge of buyer behavior
◦ Customer price sensitivity
◦ Effectiveness of promotion
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Firm’s industry is resistant to major technological advancements
Firm’s targeted markets are not product saturated
Firm’s inputs are stable in price and quantity and available in amounts and at times needed
Firm’s industry is stable
Firm’s competitive advantages are based on efficient production or distribution channels
Success of market generalists
Market development
◦ Consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by
Adding channels of distribution or
Changing content of advertising or promotion
Product development
◦ Involves substantial modification of existing products or creation of new but related products
◦ Based on penetrating existing markets by
Incorporating product modifications into existing items or
Developing new products connected to existing products
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Prof.Sushil\IITD\Session-VI 12
Concentration: Increasing use of present products in present markets
1. Increasing present customers’ rate of use:
a. Increasing size of purchase
b. Increasing rate of product obsolescence
c. Advertising other uses
d. Giving price incentives for increased use
2. Attracting competitors’ customers
a. Establishing sharper brand differentiation
b. Increasing promotional effort
c. Initiating price cuts
3. Attracting nonusers to buy the product
a. Inducing trial use through sampling, price incentives, and so on
b. Pricing up or down
c. Advertising new uses
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Market Development: Selling present products in new markets
1. Opening additional geographic markets
a. Regional expansion
b. National expansion
c. International expansion
2. Attracting other market segments
a. Developing product versions to appeal to other segments
b. Entering other channels of distribution
c. Advertising in other media
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Product Development: Developing new products for present markets
1. Developing new product features
a. Adapt (to other ideas, developments)
b. Modify (change color, motion, sound, odor, form, shape)
c. Magnify (stronger, loner, thicker, extra value)
d. Minify (smaller, shorter, higher
e. Substitute (other ingredients, process, power)
f. Rearrange (other patterns, layout, sequence, components)
g. Reverse (inside out)
h. Combine (blend, alloy, assortment, ensemble; combine units, purposes, appeals, ideas)
2. Developing quality variations
3. Developing additional models and sizes (product proliferation)
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Involves creating a new product life cycle,
thereby making similar existing products
obsolete
Horizontal integration
◦ Based on growth via acquisition of one or more similar firms operating at the same stage of the production-marketing chain
◦ Involves eliminating competitors, providing acquiring firm with access to new markets
Vertical integration
◦ Involves acquiring firms
To supply acquiring firm with inputs - backward integrationor
Are customers for firm’s outputs - forward integration
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Acquisitions or mergers of suppliers or customer businesses are vertical integrations
Acquisitions or mergers of competing businesses are horizontal integrations
Textile producer
Shirt manufacturer
Clothing store
Textile producer
Shirt manufacturer
Clothing store
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Increase growth rate of firm
Investment is better use of funds than using them for internal growth
Improve stability of earnings and sales
Balance or fill out product line
Diversify product line
Acquire a needed resource quickly
Achieve tax savings
Increase firm’s stock value
Increase efficiency and profitability
Concentric diversification
◦ Involves acquisition of businesses related to acquiring firm in terms of technology, markets, or products
Conglomerate diversification
◦ Involves acquisition of a business because it represents a promising investment opportunity
◦ Primary motivation is profit pattern of venture
Difference between the approaches
◦ Concentric diversification emphasizes commonalitywhereas conglomerate diversification emphasizes profits for each individual unit
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A grand strategy of cost reduction and asset
reduction by a company to survive and
recover from decline profit
Divestiture strategy
◦ Involves selling a firm or a major component of a firm
◦ Reasons for divestiture
Partial mismatches between acquired firm and parent firm
Corporate financial needs
Government antitrust action
Liquidation strategy
◦ Involves selling parts of a firm, usually for its tangible asset value and not as a going concern
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Two approaches◦ Liquidation - Involves complete distribution of a
firm’s assets to creditors, most of whom receive asmall fraction of amount owed
◦ Reorganization - Involves creditors temporarilyfreezing their claims while a firm reorganizes andrebuilds its operations more profitably
Advantage of a reorganization bankruptcy◦ Proactive option offering maximum repayment of a
firm’s debt in the future if a recovery strategy issuccessful
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Joint venture
◦ Involves establishing a third company (child), operated for the benefit of the co-owners (parents)
Strategic alliance
◦ Involves creating a partnership between two or more companies that contribute skills and expertise to a cooperative project
Exists for a defined period
Does not involve the exchange of equity
Consortia, Keiretsus, and Chaebols
◦ Defined as large interlocking relationships between businesses of an industry
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1. Improve Business Focus
2. Access to World-Class Capabilities
3. Accelerated Reengineering Benefits
4. Shared Risks
5. Free Resources for Other Purposes