BUSINESS STRATEGY 51110 mkt3002

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BUSINESS STRATEGY 51110 / mkt3002

• LECTURE Eight
• Topic 8
• Strategic options directions and methods of
  development

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Module 8Strategic options directions and
methods of development

• Learning outcomes
• Explain how the three elements of strategy
  (basis, direction and method) must complement
  each other
• Identify the development directions for an
  organisation
• Explain how the PIMS database can be developed
• Compare three methods of development (internal,
  acquisition and alliances)
• Explain the different forms of strategic
  alliances
• Describe what makes a successful alliance.

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Key words and concepts

• Consolidation
• PIMS framework
• Market penetration / Product development / Market
  development
• Diversification related diversification
• Vertical integration
• Unrelated diversification
• Synergy
• Internal development
• Acquisition
• Joint development
• Networks

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Introduction
Development strategies
How?
What basis?
Which direction?

• Alternative directions
• Protect build
• Market penetration
• Product development
• Market development
• Diversification
• Related
• Unrelated

• Bases of choice
• Corporate purpose and aspirations
• SBU generic competitive strategies
• The role of the corporate parent

• Alternative methods
• Internal development
• Acquisition
• Joint development/ alliances

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Where have we been?

• Survival and success of an organisation is
  determined by its ability to position effectively
  through its
• Strategy the long-term direction of a firm
• Strategic decisions the scope of the firms
  activities and how it gains advantages
• Degree of Strategic Fit or Stretch
• Ability to satisfy stakeholder expectations
• and how this translates into operational strategy

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Alternative directions for strategy development
Competence
Products
New
Existing
Existing
Markets
New
Development
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A. Protect and build on current position

• This category concerns with protecting and
  building on organisations current position.
• Options are built around both the current
  products and competences.
• Stretched to improve the competitive position in
  the current market.
• Three specific options available within this
  category
• Withdrawal
• Consolidation and
• Market penetration.

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1. Withdrawal

• The withdrawal option can result from any of the
  following
• Unable to secure the resources or achieve the
  competence levels.
• Intrinsic value of a companys products or assets
  is subject to changes over time.
• Limited unique resources and core competences
  set priorities of development.
• Expectations of dominant stakeholders.
• Assets to be purchase and sold as part of an
  overall corporate portfolio of investments.
• Partially withdraw from a market licensing the
  rights to other organisations.
• Withdrawal as a sensible strategy.

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2. Consolidation

• Consolidation is concerned with protecting and
  strengthening the organisations position in its
  current markets through its current products.
• (Johnson Scholes 1999, p. 312)
• Improve the value for money of the organisation's
  current products or services.
• Fit the market need
• Identification of appropriate resources and
  competences.
• Adapt and develop these resources and competences
  to maintain competitive position.
• PIMS

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The PIMS framework for assessing strategic
potential

• Competitive strength
• Market share
• Relative share
• Relative quality
• Patents
• Customer coverage

• Market attractiveness
• Growth
• Concentration
• Innovation
• Bargaining power
• Logistical complexity

ROI

• Lean production
• Investment intensity
• Fixed vs. liquid assets
• Capacity utilisation
• Productivity
• Make vs. buy

• People excellence
• Lean organisation
• Participative culture
• Incentives
• Training
• Insiders vs. outsiders

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3. Market penetration

• Market penetration Seeking opportunities to gain
  market share.
• This option can be achieved through
• Competences that can sustain or improve quality
  or market activities.
• The desire to obtain dominant market share.
• Overall market is growing / can be induced to
  grow relatively ease to gain market share.
• Static markets more difficult to achieve market
  share, and short-term profits are likely to
  sacrificed.
• Market leaders have allows smaller-share
  competitors to catch up.

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B. Product development

• Continuingly to introduce new product lines
  meet the changing needs of customers.
• Have developed core competences related to RD.
• Product life cycle is short.
• Expensive, risky and potentially unprofitable
  process.
• Long-term product development is unlikely to
  sustain without the development or acquisition of
  new competences.

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C. Market development

• Look for opportunities to exploit the current
  products in other markets. This can be achieved
  through
• Extension into market segments which are not
  currently served.
• Development of new uses for existing products.
• Geographical spread either nationally or
  internationally into new markets.

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D. Diversification

• Diversification involves directions of
  development which take the organisation away from
  its present markets and products at the same
  time.
• (Johnson Scholes 1999, p. 323)
• Can be related or unrelated

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Types of Diversification

• Related diversification 2 types
• development beyond the present product and
  market, but still within the broad confines of
  the industry usually through backward or
  forward integration or based on related
  technologies or competences.
• Unrelated products or competences but related
  appeal to current markets eg Woolworths banking
• Unrelated diversification is where the
  organisation moves beyond the confines of its
  current industry.
• Involve extension into new markets and new
  products by exploiting the current core
  competences.
• Creation of genuinely new markets.
• Development of new competences for new market
  opportunities.

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Synergy

• Synergy can occur in situation where to or more
  activities or processes complement each other, to
  the extent that their combined effect is greater
  than the sum of the parts.
• (Johnson Scholes 1999, p. 331)

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Conditions for synergy
Pressure to change
The centre is determined
Sharing is appropriate
SBUs have accepted
Compatibility with decentralisation contract
Opportunity to improve
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Alternative methods of strategy development

• Three types of strategy development
• Internal development
• Mergers and acquisitions and
• Joint developments and strategic alliances.

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Internal development

• Internal development is where strategies are
  developed by building up the organisations own
  resource base and competences.
• (Johnson Scholes 1999, p. 336)
• Primary method of strategy development.
• Highly technical in design or method of
  manufacture.
• New market development by direct involvement.
• High level of competence in the management
  innovation.
• Limited available resources.
• Slow rate of change - minimise disruption to
  other activities.

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Mergers and acquisitions

• Mergers and acquisitions is where an
  organisation develops its resources and
  competences by taking over another organisation.
• (Johnson Scholes 1999, p. 337)
• Benefits
• Speed in which it allows company to enter new
  product or market areas.
• Lack of resources or competence to develop a
  strategy internally.
• Competitive situation.
• Financial motives.
• Cost efficiency.
• Synergy.
• Drawback
• Integrating the new and old companies.

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Joint developments and strategic alliances

• Joint development is where two or more
  organisations share resources and activities to
  pursue a strategy.
• (Johnson Scholes 1999, p. 340)
• Networks are arrangements whereby two or more
  organisations work in collaboration without
  formal relationships.
• (Johnson Scholes 1999, p. 341)
• Resources and competences are readily available
  through co-operation.
• Concerned with the assets involved (financial,
  physical, skills, intellectual property).

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Joint developments and strategic alliances (Cont)

• The form of alliance may be influenced by
• Asset management
• Asset separability and
• Asset appropriability.
• Two forms of joint developments and strategic
  alliances.
• Formalised interorganisational relationships (eg.
  joint venture and consortia).
• Loose arrangements of co-operation and informal
  networking between organisations (eg. networks,
  opportunistic alliances, franchising, licensing,
  subcontracting).

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Types of and motive for strategic alliances
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Lecture 8 review

• Alternative directions for strategy development.
• Protect and build on current position.
• Product development.
• Market development.
• Diversification.
• Alternative methods of strategy development.
• Internal development.
• Mergers and acquisitions.
• Joint developments and strategic alliances.

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Next week

• Module 9 Strategy Evaluation and Selection
• (Study book Module 9 - Text Chapter 8)

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Next weeks tutorial

• Assignment 2. (preparation)