Strategic Alternatives Business Policy Please note that these slides are not intended as a substitute to reading the recommended text for this course. 0
Objectives Importance of sustainable competitive advantage Recommend an appropriate strategy Porter s Generic Strategies Ansoff s model Causes / Solution to corporate decline. Chapters 6 & 7: Johnson, Scholes & Whittington 1
Types of Competitive Advantage Price Based Strategies Differentiation Based Strategies Strategic Lock In user becomes dependent on 1 supplier (Microsoft) 2
Porter s Generic strategies Three main value/price combinations: Cost leadership: lower value, lower price Differentiation: higher value, higher price Best value (Focus): higher value at lower price 3
Soft-drink industry examples. 4
Porter s Generic Strategies Generic strategies - help position the firm to best advantage Overall cost leadership strategy seeks to be lowest cost provider Differentiation strategy seeks to create something unique, unmatched by competitors Focus strategy seeks to identify a particular segment within the broader market and to dominate that segment 5
Differentiation Strategy Differentiation in Porter s model: High quality, tailored to customer needs Can be expensive to produce Customers may be willing to pay more 6
Differentiation Strategy Firms that succeed in a differentiation strategy often have the following internal strengths: Access to leading scientific research. Highly skilled and creative product development team. Strong sales team with the ability to successfully communicate the perceived strengths of the product. Corporate reputation for quality and innovation. 7
Products in the Differentiation Hall of Fame 8
Low Cost strategy: the basic idea Underprice competitors or offer a better value thereby gain market share and sales driving some competitors out of the market entirely. Can be especially effective when: Rival s products are identical and supplies are readily available There are few ways to achieve differentiation 9
Focused Strategies Producing products and services that fulfill the needs of small groups of consumers (niche market). 2 types: products or services to a small range (niche) of customers at the lowest price available on the market. products or services to a small range (niche) of customers at the lowest price available on the market. (focused differentiation) 10
Risks with Generic Strategies Cost: A higher level of cash Competitor may follow suit Differentiation: Imitation by competitors Changing customer preference Focus All the above Competitors create sub-markets 11
Stuck in the Middle? 12
Market & Product Development 13
Optimal Portfolio To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the organisation's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. 14
Ansoff's matrix Existing Products New Products Existing Markets Market Penetration Product Development New Markets Market Development Diversification 15
Ansoff's matrix Ansoff's matrix provides four different growth strategies: Market Penetration - the organisation seeks to achieve growth with existing products in their current market segments, aiming to increase its market share. Market Development - the organisation seeks growth by targeting its existing products to new market segments. Product Development - the organisations develops new products targeted to its existing market segments. Diversification - the organisation grows by diversifying into new businesses by developing new products for new markets. 16
Methods for Pursuing Ansoff Strategies Joint venture Mergers & Acquisitions Leveraged Buyouts (LBOs) First Mover Advantage Outsourcing Stability Strategy Corporate Decline Retrenchment Turnaround Divestment Liquidation Combination Strategies Strategic Group Analysis Hyper-Competition Collaboration 17
Stability Strategy Stability, sometimes called a pause strategy, means that the organization wants to remain the same size or to grow slowly and in a controlled fashion 18
Retrenchment strategies 1. Turnaround: Eliminating unprofitable outputs, pruning/cutting assets, reducing size of work force, rethinking firm s products lines and customer groups. 2. Divestment: sell one of business units 3. Liquidation: last resort strategy 19
Strategic Group Analysis A strategic group is a group of firms in an industry following the same or similar strategy Identifying strategic groups: Identify principal strategic variables which distinguish firms. For example, single product Vs product family, private labeling Vs branded products 20
Hyper-competition In hyper-competitive markets product repositioning is frequent, product life cycles are short and product design cycles are quick. Firms are said to enter a state of hypercompetition state when competitive advantages can only be sustained for very short periods. Any competitive advantage is only temporary 21