strategic management 07

8/8/2019 Strategic Management 07

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Strategic Management – 7



Strategic Management

Model Company’s mission& social responsibility

Internal

Analysis

ExternalEnvironment

•Remote•Industry

•Operating

Strategic analysis and choice

Long-term

objectives

Generic and grand

strategiesShort-term

objectives; rewardsystem

Functionaltactics

Policies thatempower

action

Restructuring,reengineering & refocusing

the organization

Strategic control& continuous improvement

F e e

d b

a c

kF

e e d b

a c

k

Desired?

Possible?

Legend

Major impactMinor Impact



Evaluating and Choosing

Business Strategies Two most prominent sources of competitive

advantages are: Business’s cost structure

Ability to differentiate

Highest profitability levels are found inbusinesses that posses both type of competitiveadvantage at the same time.

Businesses that have one or more value chainactivities that truly differentiate them from keycompetitors and also have value chain activitiesthat let them operate at a lower cost will

consistently out perform their rivals that don’t.



cost-leadership

opportunities Business success built on cost leadership

requires the business to be able to provide

its product or service at a cot below whatits competitors can achieve.

Low-cost activities that are sustainable andthat provide one or more of these

advantages relative to key industry forcesshould become the basis for the business’scompetitive strategy.



Cost-leadership

opportunities…1. Low-cost advantages that reduce the

likelihood of pricing pressure from buyers.

2. Truly sustained low-cost advantages maypush rivals into other areas, lessening pricecompetition.

3. New entrants competing on price must facean entrenched cost leader without the

experience to replicate every costadvantage.

4. Low-cost advantages should lessen theattractiveness of substitute products.



Cost-leadership

opportunities…5. Higher margins allow low-cost producers to

withstand supplier cost increases and oftengain supplier loyalty over time.

6. Many cost-saving activities are easilyduplicated.

7. Exclusive cost leadership can become atrap.

8. Obsessive cost-cutting can shrink othercompetitive advantages involving keyproduct attributes.

9. Cost differences often decline over time.



differentiation

opportunities Differentiation requires that the

business have sustainable advantages

that allow it to provide buyers withsomething uniquely valuable to them.

Differentiation usually arises from oneor more activities in the value chainthat create a unique value important tobuyers.



Differentiation

opportunities…1. Rivalry is reduced when a business successfully

differentiates itself.

2. Buyers are less sensitive to prices for effectively

differentiated products.3. Brand loyalty is hard for new entrants to overcome.

4. Imitation narrows perceived differentiation,rendering differentiation meaningless.

5. Technological changes that nullify past investments

or learning.

6. The cost difference between low-cost competitorsand the differentiated business becomes too greatfor differentiation to hold brand loyalty.



Evaluating Market Focusas a way to Competitive

Advantage Small companies, at least the better ones,

usually thrive because they serve narrowmarket niches, usually called focus.

Focus allows some businesses to compete onthe basis of low cost, differentiation and rapidresponse against much larger businesses withgreater resources.

Focus lets a business ‘learn’ its target

customers. The risk of focus is that you attract major

competitors that have waited for yourbusiness to ‘prove’ the market.



Competitive advantage in

Emerging Industries Emerging industries are newly formed

or re-formed industries that typically

are created by technological

innovation, newly emerging customer

needs or other economic or

sociological changes.




Emerging Industries… For success in emerging industry, business strategiesrequire one or more of these features: The ability to shape the industry’s structure based on the timing of

entry, reputation, success in related industries or technologies,and role in industry associations.

The ability to rapidly improve product quality and performancefeatures.

Advantageous relationships with key suppliers and promisingdistribution channels.

The ability to establish the firm’s technology as the dominant one before technological uncertainty decreases.

The early acquisition of a core group of loyal customers and thenthe expansion of that customer base through model changes,alternative pricing and advertising.

The ability to forecast future competitors and the strategies thatare likely to employ.



the transition to Industry

Maturity As an industry evolves, its rate of

growth eventually declines. This

‘transition to maturity’ is

accompanied by several changes

in its competitive environment.



ompe ve a van age n etransition to Industry

Maturity… Strategy elements of successful firms in maturing industriesoften include: Pruning the product line by dropping unprofitable product models,

sizes and options from the firm’s product mix. Emphasis on process innovation that permits low-cost product

design, manufacturing methods and distribution synergy. Emphasis on cost reduction through exerting pressure on suppliers

for lower prices, switching to cheaper components, introducingoperational efficiencies and lowering administrative & salesoverhead.

Careful buyer selection to focus on buyers that are less aggressive,more closely tied to the firm and able to buy more from the firm.

Horizontal integration to acquire rival firms hose weaknesses can beused to gain a bargain price and are correctable by the acquiringfirms.

International expansion to markets where attractive growth andlimited competition still exist and the opportunity for lower-costmanufacturing can influence both domestic and international costs.



ompe ve a van age nMature and Declining

Industries Declining industries are those that make products or

services for which demand is growing slower than demandin economy as a whole or is actually declining.

Firms in declining industry should choose strategies that

emphasize: Focus on segments within the industry that offer a chance for

higher growth or a higher return.

Emphasize product innovation and quality improvement,where this can be done cost effectively, to differentiate thefirm from rivals and to spur growth.

Emphasize production and distribution efficiency bystreamlining production, closing marginal production facilitiesand costly distribution outlets, and adding effective newfacilities and outlets.

Gradually harvest the business – generate cash by cutting

down on maintenance, reducing models, and shrinkingchannels and make no new investment.




Global Industries A global industry is one that comprises firms whose

competitive positions in major geographical or nationalmarkets are fundamentally affected by their overallglobal competitive positions.

Global industries have four unique strategy-shapingfeatures: Differences in prices and costs from country to country due to

currency exchange fluctuations, differences in wage andinflation rates, and other economic factors.

Differences in buyer needs across different countries. Differences in competitors and ways of competing from country

to country. Differences in trade rules and governmental regulations across

different countries.



4 generic global competitivestrategies

Broad-line global competition – directed at competing

worldwide in the full product line of the industry, often with

plants in many countries, to achieve differentiation or an

overall low-cost position. Global focus strategy – targeting a particular segment of the

industry for competition on a worldwide basis.

National focus strategy – taking advantages of differences in

national markets that give the firm an edge over global

competitors on a nation-by-nation basis. Protected niche strategy – seeking out countries in which

governmental restraints exclude or inhibit global competitors

or allow concessions, or both, that are advantageous to

localized firms.



Grand Strategyselection matrix

The basic idea underlying the matrix is

that two variables are of central

concern in the selection process:

1. the principal purpose of the grand

strategy and

2. the choice of an internal or external

emphasis for growth or profitability.



Matrix

Overcome weakness

External(acquisitionor merger

for resourcecapability)

Internal(redirectedresourceswithin the

firm)

Maximize strengths

1.Vertical integration

2.Conglomerate

diversification

1.Horizontalintegration

2.Concentric

diversification

3.Joint venture

1.Concentratedgrowth

2.Market

development

3.Productdevelopment

4.Innovation

1.Turnaround orretrenchment

2.Divestiture

3.Liquidation

III

III IV



Model of Grand Strategy Clusters

The situation of a business is defined in

terms of the growth rate of the general

market and the firm’s competitive

position in that market.



Clusters

Rapid Market Growth

Weak

Competitive

position

Strong

Competitive

position

Slow Market Growth

1.Reformulation of concentration

2.Horizontalintegration

3.Divestiture

4.Liquidation

1.Turnaround orretrenchment

2.Concentric

diversification3.Conglomerate

diversification

4.Divestiture

5.Liquidation

1.Concentricdiversification

2.Conglomerate

diversification3.Joint Venture

1.Concentration

2.Verticalintegration

3.Concentricdiversification I II

IIIIV

strategic management 07

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