Strategic Management

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Strategic Management
Strategic Choice And Options
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Development StrategiesCranfield Sheffield
Hallam Model)

• What Basis? Which Direction How?
• and Risk
• Generic Direction Implementation
• Bowman Ansoff Greenfield
• Joint Venture
• M and A

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Alternative Generic Strategies

• Bowmans Generic Strategies
• Strategy Clock

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The Strategy Clock
Note The strategy clock is adapted from the work
of Cliff Bowman (see D. Faulkner and C. Bowman,
The Essence of Competitive Strategy, Prentice
Hall, 1995.) However, Bowman uses the dimenstion
Perceived Use Value.
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The Strategy Clock
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No Frills Strategy
Low price Low perceived product/service
benefits Focus on price-sensitive market segment

• Commodity-like products or services
• Price-sensitive customers
• High buyer power and/ or low switching costs
• Small number of providers with similar market
  shares
• Avoiding the major competitors

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Low Price Strategy
Lower price than competitors Maintain similar
product/service benefits Public sector year on
year efficiency gains

• Pitfalls of low price strategy
• Margin reduction (competitor reaction)
• Inability to reinvest leading to loss of
  perceived benefit of product
• Need a low cost base
• Low cost itself not a basis for advantage
• Low cost achieved in ways that competitors cannot
  match to give sustainable advantage

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Differentiation Strategies
Offering benefits different from
competitors Widely valued by buyers Better
products/services at same or higher price Public
sector - centre of excellence

• Success depends on
• Identification of strategic customers and knowing
  what they value
• Knowing the competitors
• Narrow competitor base focused differentiation
• Wide competitor base address bases of
  differentiation valued by customers

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Hybrid Strategy
Simultaneously achieving differentiation and a
price lower than competitors

• Achieve greater volumes
• Clarity about activities on which differentiation
  can be built (core competences)
• Reduce costs on other activities
• Entry strategy in market with established
  competitors

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Focused Differentiation
High perceived product/service benefits to
selected market segment (niche) Premium
products, heavily branded

• Choice to be made between focused differentiation
  and broad differentiation if growth required
• Difficult when the focus strategy is only part of
  an organisations overall strategy
• Possible conflict with stakeholder expectations
• New ventures start off focused, but need to grow
• Market situation may change, reducing differences
  between segments

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Failure Strategies
Do not provide perceived value-for-money in terms
of product features, price or both

• Increase price without increasing product/service
  benefit
• Reduce benefits whilst maintaining price

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Alternative Directions

• MARKET PENETRATION (Low Risk)
• Existing Markets
• Existing Products
• On existing competences
• With new Competences
• PRODUCT DEVELOPMENT (Medium-Low Risk)
• Existing markets
• New/enhanced products
• On existing competences
• With new Competences
• MARKET DEVELOPMENT (Medium-High Risk)
• New Segments
• New Territories
• New Uses

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MARKET PENETRATION

• Aims to Protect and Build
• Seeks to increase market share in existing
  markets with existing products

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PRODUCT DEVELOPMENT

• Typically aims to follow changing needs of
  customers
• Main downsides cost, high failure rate of new
  products.
• To be sustainable, usually needs
  development/acquisition of new competences.

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MARKET DEVELOPMENT

• Extension into new market segments
• New uses for existing products
• Geographical spread

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DIVERSIFICATION

• Related
• Beyond present product market
• Within broad confines of the industry
• Backward integration
• Forward integration
• Unrelated
• Beyond confines of present product
• Financially successful diversification difficult
  to achieve

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Methods of Development

• INTERNAL (ORGANIC, GREENFIELD) DEVELOPMENT
• MERGER AND ACQUISITION
• JOINT DEVELOPMENT

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INTERNAL DEVELOPMENT

• Advantages
• Costs spread
• Choice of location
• Latest technology
• No inappropriate cultural history
• Disadvantages
• Overall cost higher than other methods
• Long gestation period

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MERGER AND ACQUISITION

• Reasons for
• Gives rapid entry into new product or market
• Lack of internal competences
• Lower risk of competitor retaliation
• Low cost
• Reasons against
• Problems of integrating new with old
• Likely to be a long time before financial
  benefits seen (shareholder value)
• Success unlikely if buying into small market
  share

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Joint Development
Lynchs Four Links Model
Government Links Networks
Informal Links Networks
Organisation
Complementors
Formal Cooperative Links
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Collaboration

• Collaboration may help to achieve advantage or
  avoid competition
• Organisations may compete in some markets and
  collaborate in others
• Collaboration can be
• between potential competitors or
• between buyers and sellers
• Collaboration can help build switching costs

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Key Points (1)

• Generic strategies for competitive advantage
• No frills, low price, differentiation, hybrid,
  focused differentiation
• Development Direction and Risk
• Market penetration
• Product development
• Market development
• Diversification

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Key Points (2)

• Implementation
• Organic Growth/Greenfield/Internal
  Development/Internal Development
• Joint Development (Alliances/Collaboration)
• Merger and Acquisition