1. 2 learning objectives understanding of: internal growth strategies and implications for...
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Learning Objectives
Understanding of:
• Internal growth strategies and implications for organization scope and resource allocations
• External growth strategies and implications for organization scope and resource allocations
• The timing of growth moves • Generic competitive strategies and their risks• The implications of stages in the product life cycle for growth
and competitive strategies.
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StrategicStrategicDirectionDirection
Strategy FormulationStrategy Formulation(corporate and (corporate and business level)business level)
Strategy ImplementationStrategy Implementationand Controland Control
Strategic RestructuringStrategic Restructuring
Internal and External Internal and External AnalysisAnalysis
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Business-Level Strategy Formulation
Responsibilities
Business-Level Strategy Formulation
Responsibilities
• Direction Setting--Mission, vision, ethics, goals
• Situation Analysis--Compilation and assessment of information
• Selection of Strategies--Generic Strategy (cost leadership, differentiation, best cost, focus) and Strategic Posture (specific strategies)
• Management of Resources--Acquisition and/or development of resources leading to competitive advantage
• Direction Setting--Mission, vision, ethics, goals
• Situation Analysis--Compilation and assessment of information
• Selection of Strategies--Generic Strategy (cost leadership, differentiation, best cost, focus) and Strategic Posture (specific strategies)
• Management of Resources--Acquisition and/or development of resources leading to competitive advantage
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Business-Level Strategies
• Growth Strategies
• Competitive Strategies
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Growth Strategies
• Involve investment in resources to achieve growth in sales (assuming the industry is attractive)
• Investments over time may involve a redefinition/expansion of organizational scope
• Three concerns: • what activities and resources to invest in• the implications for scope and complexity• the timing relative to competitors
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Growth Strategies
• Internal Strategies
• Market penetration
• Market development
• Application development
• Product development
• External Strategies
• Horizontal integration
• Alliance formation
• Vertical integration
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Internal Growth Strategies
Market penetration
• Objective: Increase sales volume, share of market in existing markets with existing products
• Invest: Advertising, promotion, sales force, capacity.
• Scope: Scale may increase, but scope does not change
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Products
Function Served
Markets Served
Processes/Activities
Market Penetration
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Internal Growth Strategies
Market development
• Objective: Cultivate new market segments (demographic, geographic, psychographic) for existing products
• Invest: Marketing programs, new distribution channels, new sales staff, capacity...
• Scope: Increases the number and type of markets served
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Products
Function Served
Markets Served
Processes/Activities
Market Development
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Internal Growth Strategies
Application development
• Objective: Qualify the product for new applications, which will lead to more volume sold to new and existing market segments.
• Invest: Applications development, testing, marketing programs, new distribution channels, new sales staff, capacity...
• Scope: Increases the number and type of functions served, and possibly the number and type of markets served
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Products
Function Served
Markets Served
Processes/ActivitiesApplication Development
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Internal Growth Strategies
Product Development
• Objective: Develop new products and modifications that will lead to sales in new and existing market segments, possibly for new applications.
• Invest: Product development, process development, applications development, testing, marketing programs, new distribution channels, new sales staff, capacity...
• Scope: Increases the number/type of products, processes, functions served, and possibly the number and type of markets served
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Products
Function Served
Markets Served
Processes/ActivitiesProduct Development
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External Growth Strategies
Horizontal Integration
• Objective: Intention is to accomplish the same end as the internal growth strategies. Acquire capacity, product lines, market channels, etc.
• Invest: Acquire all or part of a competitor’s assets.
• Scope: May increase scale and/or scope, similar to internal growth strategies.
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External Growth Strategies
Common in industries:
• experiencing a leveling of growth and excess capacity:
• $75.7 billion merger of Smith, Kline, Beecham with Glaxo Wellcome
• acquisition of Western Airlines by Delta.
• where rapid scale-up and access to new technologies are critical:
• Cisco’s acquisition of 51 companies over 6 years, reshaping product line and repositioning in key technologies.
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External Growth Strategies
Strategic Alliances/Joint Ventures
• Objective: To gain access to the capacity and/or capability of another firm for purposes of extending products, markets, processes, of function served.
• Invest: In cooperative initiatives. Management team, project resources.
• Scope: Provides a mechanism for extending scope.
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External Growth Strategies
• Alliances between competitors for product and process development
• E.g., GM -- an on-line marketplace for auto suppliers’ goods and services. Toyota, Isuzu, Suzuki, and Fuji involved.
• E.g., GM -- an alliance with Honda for engine and transmission development and production.
• And between a firm and its suppliers or channels for exclusive supply arrangements
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Stability StrategiesStability Strategies
• Not typical in publicly-held organizations
• May be acceptable if
All key stakeholders agreeMature market with high exit barriersPrivate firms that want to preserve control Restructuring (temporary condition)
• Not typical in publicly-held organizations
• May be acceptable if
All key stakeholders agreeMature market with high exit barriersPrivate firms that want to preserve control Restructuring (temporary condition)
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Miles and Snow’s Strategic CategoriesMiles and Snow’s
Strategic Categories
• Prospectors• First mover
• Analyzers• Follow the first mover when
opportunity is proven• Defenders
• Defensive strategy• Reactors
• No distinct strategy
• Prospectors• First mover
• Analyzers• Follow the first mover when
opportunity is proven• Defenders
• Defensive strategy• Reactors
• No distinct strategy
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Porter’s Three Generic Business Strategies
Porter’s Three Generic Business Strategies
CostLeadershi
p
CostLeadershi
p
Differentiation
Differentiation
Cost FocusCost
Focus
Differentiation
Focus
Differentiation
Focus
Competitive ScopeCompetitive Scope
BroadTargetBroadTarget
NarrowTargetNarrowTarget
Cost EfficiencyCost Efficiency Preferred Product/ServicePreferred Product/Service
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Cost LeadershipCost Leadership
• Accurate Demand Forecasting and
High Capacity Utilization
• Economies of Scale
• Technological Advances
• Learning/Experience Effects
• Accurate Demand Forecasting and
High Capacity Utilization
• Economies of Scale
• Technological Advances
• Learning/Experience Effects
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Typical Learning/Experience Curve
Typical Learning/Experience Curve
unitcostunitcost
total cumulative outputtotal cumulative output
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Create Value Through Uniqueness• Superior Quality• Innovations and Research• Speed and Flexibility• Reputation and Brand Name• Creative advertising
Customers Must Be Willing to Pay More for Uniqueness• Added costs vs. incremental price
Create Value Through Uniqueness• Superior Quality• Innovations and Research• Speed and Flexibility• Reputation and Brand Name• Creative advertising
Customers Must Be Willing to Pay More for Uniqueness• Added costs vs. incremental price
DifferentiationDifferentiation
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• Combination of Cost Leadership and Differentiation
• May Actually Be the Dominant Strategy Among the Most Successful Companies Today
• Either:The same resources/activities that allow cost
reductions also allow differentiation. E.g., automation that lowers costs and improves speed and service.
Profits from cost reductions are used to invest in differentiating features, and vice versa.
• Combination of Cost Leadership and Differentiation
• May Actually Be the Dominant Strategy Among the Most Successful Companies Today
• Either:The same resources/activities that allow cost
reductions also allow differentiation. E.g., automation that lowers costs and improves speed and service.
Profits from cost reductions are used to invest in differentiating features, and vice versa.
Best CostBest Cost
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FocusFocus
• Based on Differentiation or Lowest Cost
• Key Is to Provide a Product or Service That Caters to a Particular Segment
• Based on Differentiation or Lowest Cost
• Key Is to Provide a Product or Service That Caters to a Particular Segment
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The Product Life CycleThe Product Life Cycle
AA
BB
CC
IntroductionIntroduction
GrowthGrowth
MaturityMaturity
Commodity or Decline
Commodity or Decline
TimeTime
Unit Sales
Volume
Unit Sales
Volume