Lecture Seven

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Lecture Seven

• BUSINESS STRATEGY 51110 / MKT3002
• Module 7
• Bases of strategic choice

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Module 7Stakeholder expectations and
organisational purposes

• This module should help you to identify the basis
  for making strategic choices by doing the
  following
• Explain how forms of ownership may influence
  strategic choice
• Explain the importance of clarity of mission or
  strategic intent on strategic choice
• Explain the importance of appropriately defining
  business and industry for an organisation
• Describe the elements of the strategic choice and
  show how it can be used to determine strategy
  and
• Explain the elements of the parenting matrix

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Key words and concepts

• Mission statement
• Strategic intent
• Strategic scope
• Competitive strategy
• no frills strategy
• Low price strategy
• Bowmans competitive strategy options
• Differentiation strategy
• Hybrid strategy
• Focussed differentiation
• Corporate parenting

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Introduction
Bases of strategic choice
Corporate purpose and aspirations Ownership
Scope diversity Mission strategic intent
The global dimension
Bases of SBU strategy Achieving competitive
advantage Differentiation strategies
Price-based strategies Focus
strategies
Enhancing SBU strategy corporate parenting
Portfolio management The role of
the corporate parent Financial strategy
The parenting matrix
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Introduction
Development strategies
How?
What basis?
Which direction?

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

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

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

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Corporate purpose and aspirations

• Ownership structures
• Mission and strategic intent
• Scope and diversity

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1. Ownership structures

• Changes in ownership
• Privately owned organisation to publicly quoted
  corporation.
• Sale to a different corporate parent.
• Privatisation of public bodies.
• Management buyout.
• Strategists need to recognise that
• ownership of firms directly influences what
  strategic choices are available to a firm
• Conflicting expectations resulting from change in
  organisation structure means that you cannot have
  it both ways
• Eg universities

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2. Mission and strategic intent

• Mission and strategic intent allow stakeholders
  to understand the goals that the organisation is
  pursuing.
• Mission statement is the overriding purpose
• Strategic Intent is the aspirations of the firm
• Concern with the overall strategic direction.
• Provides stability to the future direction,
  especially when the firm is subject to HR changes

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2. Mission and strategic intent (Cont)

• These statements can aid the growth of a firm in
  a number of ways.
• Successful family businesses (eg. retain
  ownership in the family).
• Major corporation (eg. Short-term profit vs
  long-term growth, global coverage vs focus on
  selected countries).
• Embodied in the founder (Ikea) or result from a
  new leader (Red Earth).

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Scope and diversity

• Strategic scope is concerned with boundaries
  that managers conceive for their organisation in
  terms of geography, product (or service)
  diversity or the way in which business is
  conducted.
• Johnson Scholes 1999, p.266.
• Diversity or relatedness (Mayne group??)
• Organisations begin their existence focused on a
  particular product or service.
• Relatedness could exist in different ways.
• Different SBUs in a portfolio - seek to build on
  similar sorts of products or services.
• Different SBUs similar customers (Virgin).
• Different SBUs key competences.
• Business units and the skills and expertise of
  the parent or corporate centre.

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Scope and diversity (Cont)

• The global dimension
• Retain a strong domestic focus (distinct
  understanding of local markets).
• Global strategies (cost reduction, improved
  quality, competitive leverage).

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Bases of SBU strategy

• Competitive strategy the basis on which a SBU
  might achieve competitive advantage in its
  market.
• Johnson Scholes 1999, p.269.

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Price based strategies

• no-frills strategy combines a low price, low
  perceived added value and a focus on a
  price-sensitive market segment.
• Johnson Scholes 1999, p.271.
• This strategy is successful only if there is a
  market segment
• Quality of the product or service might be low.
• Not to afford to buy better-quality goods.

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Price based strategies (Cont)

• low price strategy seeks to achieve a lower
  price than competitors whilst trying to maintain
  similar value of product or service to that
  offered by competitors.
• Johnson Scholes 1999, p.271.
• This strategy is successful only
• Substantial market share.
• Cost advantage through specific competences.
• Value chain.
• Lower cost raw material, labour.

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Price - Quality Strategies
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Differentiation strategies

• Differentiation strategies seeks to provide
  products or services unique or different from
  those of competitors in terms of dimensions
  widely valued by buyers.
• Johnson Scholes 1999, p.276.
• This strategy can be achieved through
• Uniqueness or improvements in products
• ( eg. Crystal drinks)
• Marketing-based approaches.
• Competence-based approaches.

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Hybrid strategy

• Hybrid strategy seeks simultaneously to
  achieve differentiation and a price lower than
  that of competitors.
• Johnson Scholes 1999, p.281.
• This strategy is successful if
• Ability to understand and deliver enhanced value
  in terms of customer needs AND there is a large
  enough market to support this (IKEA).
• Sufficient financial funding to develop
  differentiation.
• If efficiencies result in being able to out
  supply competitors (Woolworths)
• Entering a new market which is not meeting
  consumer needs satisfactorily (WALMART)

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Focus differentiation

• Focus differentiation strategy seeks to
  provide high perceived value justifying a
  substantial price premium usually to a selected
  market segment.
• Johnson Scholes 1999, p.282.
• Key issues arise from the differentiation
  strategy
• Broad differentiation across a market vs focused
  strategy.
• Differentiate with focus strategy.
• Define the target market segment.
• Conflict between the focus strategies with
  stakeholders.
• New ventures often begin in very focused way.
• Monitor market changes.

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Failure strategies

• Failure strategies
• Increasing price without increasing value to the
  customer.
• Reduction in value of a product or service, while
  increasing relative price.
• Reduction in value, while maintaining price.
• Unclear of the fundamental generic strategy
  stuck in the middle.

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The management challenge of competitive strategies

• To achieve real bases of sustainable advantage,
  it is important to do the following
• Be clear which customers are the target for the
  strategy to be followed.
• Clearly identify customer needs and bases of
  added value in the market place.
• Understanding of competitors (eg. cost
  structures, core competences).
• Develop appropriate strategy based on
  organisations purpose and aspirations.
• Differentiate from competitors with
  organisational competences.
• Ensure that the strategic directions and methods
  of the organisation are in line with the generic
  strategy.

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Enhancing SBU strategy

• Managing portfolios
• Corporate financial strategy
• Corporate parenting
• Parenting matrix
• The challenge of parenting

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Managing portfolios

• Key issues in managing portfolio - businesses to
  be included in the portfolio, and interaction
  between these businesses.
• Attractiveness or directional policy matrix
  (categorise businesses based on prospects).
• Growth / share matrix (balance and development of
  a portfolio).
• The lifecycle matrix (assess attractiveness or
  fit of businesses)

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Corporate financial strategy
Source of funding
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Corporate parenting

• Corporate parenting is the search for a fit
  between the skills of the corporate centre and
  the strategies of SBUs so as to add value to
  those SBUs.
• Johnson Scholes 1999, p.290.

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Corporate parenting (Cont)

• Different approaches
• Portfolio management style (balance investments
  in businesses reviewing acquisition targets,
  buying wisely, divesting poor performers).
• Restructurer (shifting of experience executives
  within the organisation).
• Managing synergy (transfer skills and competences
  from one SBU to another).
• Sharing activities.

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The parent matrix

• Determine the appropriateness of the role of the
  parent and the mix of SBUs that best suited to
  the parent.
• Two dimensions of fit are assessed
• Fit between the CSFs of the SBUs and the skills,
  resources, and characteristics of the parenting
  organisation.
• Fit between the parenting opportunities of SBUs
  and the skills, resources, and characteristics of
  the parenting organisation.

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The challenge of parenting

• Different roles of corporate bodies in parenting.
• Take on an effective and efficient role (add
  value to the SBUs).
• Assess SBUs to be included in the portfolio.
• Enhance SBU strategies (consider the fit between
  the SBUs and the parent)

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Lecture 7 review

• Corporate purpose and aspirations.
• The structure of the firm is not the goal, but an
  influence on strategic direction and choices as
  it helps to determine the purposes and
  aspirations of the firm
• Good structure does not guarantee success and
  firms need to be aware of corporate vs SBU
  strategy
• Bases of SBU strategy.
• Need to determine is SBU strategy is defined by
  the SBU or the parent
• There are a number of ways a firm can find the
  sources of competitive advantage
• The parent should add value to the SBU strategic
  advantage

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Lecture 7 review

• Enhancing SBU strategy.
• Managing portfolios.
• Corporate financial strategy.
• Corporate parenting.
• The parent matrix.
• The challenge of parenting.
• BUT wait theres more!!!!!
• This info is good but lets put into some sort of
  context

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• The application of this theory is often subject
  to what competitive position you have in the
  marketplace.
• So, you may decide that the analysis and
  identification of the industry's CSFs suggests
  that the focus strategy is the best thing to
  do, but if you are the market leader then is it
  the best thing for you to do?
• Again, your analysis may point to a cost
  leadership strategy as being the best strategy in
  your industry, given the current and potential
  environment, but if you are the market nicher
  then are you able to follow this strategy AND is
  this the best strategy for you?
• Therefore, we need to look at various competitive
  positions and what competitive strategies are
  mostly used so we can apply the theory in this
  module

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Competitive Positions

• Market Leader 40
• Market Challenger 30
• Market Follower 20
• Market Nichér 10
• These are generalisations based on averages
• It is possible to have more than one firm in a
  category (eg 2 challengers in TV stations)
• Some industries are so fragmented that this does
  not apply (shoe shiners in New York)
• Some industries have market dominators (about 60
  or more)

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Market Leader Strategies

• 1. Expand total demand
• 2. Protect market share
• 3. Expanding market share

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Market Leader StrategiesOne does not rely on
the enemy not attacking, but relies on the fact
the he (or she) is unassailable. (Sun Tsu)

• Protecting and Defending market share
• a. Position Mass marketing to build position -
  poor tactic
• b. Flank Protect weaknesses e.g. Woolworths
  express
• c. Preemptive Attack B4 enemy acts e.g.
  McDonalds (N.S.W)
• d. Counteroffensive QANTAS vs. Compass
• e. Mobile Market Broadening or diversification
  (SEQEB)
• f. Contraction Strategic withdrawal of weak
  markets (Heinz)

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The Market Challenger

• Challengers will attack the market leader or
  firms their own size or smaller .

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Market Challenger Strategies
Frontal Matches leaders products, advertising,
price etc (the side with the greater
resources will win) Flank Protect weaknesses
or serve unmet market needs. Encirclement Blitz
the market e.g. Microsoft Corporation. Bypass Unre
lated products (Mitsubishi Electric
air-conditioners), New geographic markets
(Wal-Mart, Lion Nathan), New technologies
(Segas virtual-reality entertainment) Guerrilla S
mall intermittent attacks to demoralise opponent.
Price cuts, promotional blitzes and the odd
legal action.
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Market Follower Strategies

• Followers try to avoid competitive retaliation.
• Four main types...
• Counterfeiter Rolex watches from Asia
• Cloner Sanitariums Corn Flakes
• Imitator Copies some things
• Adaptor Adapts and improves ideas

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Market Nicher Strategies

• Nichérs target segments within segments.
• End-use specialist
• Customer size specialist
• Specific customer specialist
• Geographical specialist
• Product or feature specialist
• Quality-price specialist
• Service specialist
• ...and more

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Next week

• Module 8 Strategic options Directions and
  Methods of Development
• (Study book Module 8 - Text Chapter 7)

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Next weeks tutorial

• Assignment 2. (preparation)
• Come prepared with answers to the modules
  questions and present them in class