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