strategic choice

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STRATEGIC CHOICE How do we get there? What direction should we take?

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Page 1: Strategic choice

STRATEGIC CHOICE

How do we get there?What direction should we take?

Page 2: Strategic choice

Need for a strategy/strategies

• No single strategy is the best in all situations and at all times

• Avoid casual bench marking by aligning your strategic choices to your situation

• We need a consistent set of choices/decisions and actions/tactics in order to outwit our rivals

• Without this consistent set of tactics, synergy is lost

Page 3: Strategic choice

Selecting the best Selecting the best strategy that will enable a strategy that will enable a firm achieve its goals.firm achieve its goals.Some strategy options are Some strategy options are more appropriate than more appropriate than others.others.Strategists should Strategists should evaluate the existing evaluate the existing alternatives before alternatives before choosing the best strategychoosing the best strategy

Page 4: Strategic choice

Criteria for evaluation and selection of strategy

•Sustainable competitive advantage

•Corporate goals & objectives

•Organization policies and culture

Page 5: Strategic choice

•Ethical issues•Cost of strategy failure•Feasibility of the strategy

•Stakeholders reactions

Page 6: Strategic choice

The Generic Strategy Alternatives.

Are the common strategic approaches that can give a firm sustainable competitive advantage.

Michael Porter’s approachIgor Ansoff’s approachGlueck’s approachKotler’s approachTailor-made strategies

Page 7: Strategic choice

Michael Porter’s approach

1.Overall cost leadership

2.Differentiation

3.Focus strategy

Page 8: Strategic choice

1.Overall cost leadership:• Aim at being the

lowest cost producer relative to competitors

• Increases a firm’s profitability

• The market can enjoy affordable prices

Page 9: Strategic choice

Making oneself different Making oneself different from othersfrom others

Adding to customers Adding to customers perceived value of the perceived value of the firm and its productsfirm and its products

Calls for continuous Calls for continuous innovations (customer- innovations (customer- centred)centred)

2. Differentiation 2. Differentiation strategy:strategy:

Page 10: Strategic choice

How can a firm differentiateHow can a firm differentiate Image buildingImage buildingHigh quality and High quality and distinctive productsdistinctive products

Superior customer Superior customer servicesservices

Unique design and Unique design and packagingpackaging

Convenient terms to Convenient terms to customerscustomers

Page 11: Strategic choice

3. Focus strategy3. Focus strategy Involves segmenting the Involves segmenting the

marketmarket Focusing on a given Focusing on a given

market segmentmarket segment Calls for specialization in a Calls for specialization in a

specific market segment specific market segment (niche marketing)(niche marketing)

Page 12: Strategic choice

Why focus strategy?Why focus strategy?Different groups of buyers Different groups of buyers with different needswith different needs

No other rival is No other rival is attempting to specialize in attempting to specialize in the same segmentthe same segment

A firm’s resources don’t A firm’s resources don’t allow it to spread over the allow it to spread over the entire segmententire segment

Where some segments are Where some segments are more attractive than othersmore attractive than others

Page 13: Strategic choice

ANSOFF’S APPROACH Provides four

strategic approaches based on product and market information

Came up with the product/market matrix.

Page 14: Strategic choice

Existing Existing ProductsProducts

New New ProductsProducts

ExistiExisting ng MarkMarketsets

Strategies Strategies based on based on existing existing markets markets and and existing existing productsproducts

Strategies Strategies based on based on launching launching new or new or improved improved products products into into existing existing marketsmarkets

New New MarkMarketsets

Strategies Strategies based on based on finding new finding new markets for markets for existing existing productsproducts

Strategies Strategies based on based on launching launching new new products products into new into new marketsmarkets

Page 15: Strategic choice

Existing Products-Existing Existing Products-Existing MarketsMarkets

1.1. Divestiture-It has reached maturity/you need Divestiture-It has reached maturity/you need money for other ventures/in order to money for other ventures/in order to concentrate on your core or more beneficial concentrate on your core or more beneficial businessbusiness

2.2. Consolidation-You are enjoying a comfort Consolidation-You are enjoying a comfort zone/need to go back to the basic (status zone/need to go back to the basic (status quo)quo)

3.3. Retrenchment-You have over expanded or Retrenchment-You have over expanded or diversified ,you need to reduce your diversified ,you need to reduce your operating costs; sell part of the businessoperating costs; sell part of the business

4.4. Market penetration-Enter new markets with Market penetration-Enter new markets with a more attractive offer/buy out your close a more attractive offer/buy out your close rival through say an acquisition/use a rival through say an acquisition/use a strategic alliancestrategic alliance

Page 16: Strategic choice

New products-Existing New products-Existing marketsmarkets

No or less resources needed to develop No or less resources needed to develop the marketthe market

You need to develop a new product or You need to develop a new product or modify the current one for that marketmodify the current one for that market

A product development strategy is the A product development strategy is the best strategy; refer to PLC as you craft best strategy; refer to PLC as you craft this strategythis strategy

Bench-mark this generic strategy and Bench-mark this generic strategy and fine tune it your competitive situationfine tune it your competitive situation

Page 17: Strategic choice

Existing products-New Existing products-New marketsmarkets

No or less resources needed to develop No or less resources needed to develop the productthe product

You need to develop the new market for You need to develop the new market for your product (s) your product (s)

A market development strategy is needed A market development strategy is needed using say; CRM tactics/customer care using say; CRM tactics/customer care practices/taking your products (services) practices/taking your products (services) near your customersnear your customers

Refer to the current stage in the Refer to the current stage in the marketing cycle as you fine tune this marketing cycle as you fine tune this generic strategygeneric strategy

Page 18: Strategic choice

New product-New marketNew product-New market

A lot of risks and uncertainties A lot of risks and uncertainties involved; you need to develop the involved; you need to develop the new product for the new marketnew product for the new market

Minimize such risks through using a Minimize such risks through using a competitive stepping stonecompetitive stepping stone

Commonly used strategies in such Commonly used strategies in such situations include; buying situations include; buying franchises, strategic alliances, and franchises, strategic alliances, and use of pilot projects among othersuse of pilot projects among others

Page 19: Strategic choice

GLUECK’S APPROACH

Stability strategy Expansion strategy Retrenchment strategy

Combination

Page 20: Strategic choice

Stability Strategies:•Strategies pursued with no or few changes made in the firm’s products, markets or functions.

•Ideal for those firms that are already consolidated in the market.

Page 21: Strategic choice

Why stabilize?The strategy is less riskyWhen a firm is doing wellExecutives aren't creative and innovativeFear to disrupt routinesEnvironment is relatively stableFear of inefficiencies due to expansion

Page 22: Strategic choice

Expansion Strategies A firm serves the market with

additional offers, adds to its markets and functions.

Firm increases the pace of its activities

Ideal where a firm wants to improve its growth performance

Page 23: Strategic choice

Why Expand?To survive in a volatile environmentTo provide variety to the marketSign of good performanceNeed to re-invest profitsTo enjoy economies of scaleMotivates the firm

Page 24: Strategic choice

Retrenchment strategies:A firm reduces its product lines,

abandons some market territories, reduces its functions.

Looks like lean management

Firm reduces activities in those units with negative or little cash flows.

The pace of operation and scope of activities greatly reduces.

Page 25: Strategic choice

Why retrench?• The firm is performing poorly

• The firm has tried all strategies and still failed to succeed

• The firm needs funds to pursue better opportunities elsewhere

• Turbulent environment

• External pressure

Page 26: Strategic choice

Combination strategies:

•A firm uses several of the above strategies simultaneously to different portfolios of a firm.

Page 27: Strategic choice

Kotler’s strategies.• Looks at market positions (shares) of

competing firms

• The competitors are at war over these competitive positions

• Different competitive positions require different competitive strategies

• The positions include; market leader, challenger, follower, and nicher mainly

Page 28: Strategic choice

Market leader’s strategies

• Those you lead also want to get where you are and/or even overtake you; you are the target for the challenger’s strategic attacks

• Use strategies that may help you to expand or protect your market share

• The best science and art of war/the general (strategy) depends on your situation at hand in your internal and external environment

Page 29: Strategic choice

a) Expanding your total market

1. Acquisitions and mergers

2. Franchises and/or international trade

3. Increase usage of your products

4. Finding new users/creating new demand

Page 30: Strategic choice

Protecting your market share (strategies involved)

1. Defending your leading position and competitive business walls

2. Pro-reactive protection of your weak flanks/Pre-emptive defending

3. Counter offensive defense

4. Enter new markets for future defense

5. Strategic withdrawal

Page 31: Strategic choice

Exhibit 17.9

Strategic Choices for Share Leaders in Growth Markets

COMPETITOROR

POTENTIALCOMPETITOR

Contractionor strategicwithdrawal

Market expansion

Flanker strategy - ProactiveFlanker strategy - Reactive

LEADER

Fortressor position

defensestrategy

Confrontationstrategy

ProactiveReactive

Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981, pp. 30-41. Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.

Page 32: Strategic choice

Market Challengers’ strategies

• They want to overtake the share leaders BUT should also aggressively differentiate themselves from fellow challengers using the following alternatives;

1. Frontal/head-on/direct attack (strengths)

2. Flanking/indirect attack ( weak points)

3. By pass/ Leapfrogging

4. Encirclement/Guerrilla attack

Page 33: Strategic choice

Note

• The market leader is usually better than you in terms of resources/expertise

• They are also watching your attacking activities and looking for strategies of how to deal with your challenge

• Some market share leaders’ reactions may shallow the attacker/challenger

• To improve your market share, you need to build a distinctive competitive advantage of your own; not just imitating your market leader

Page 34: Strategic choice

Exhibit 17.12

Strategic Choices for Challengers in Growth Markets

MARKET LEADER

Flanking attack

Frontalattack

Encirclement strategy

Leapfrog strategy/By Pass

Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981, pp. 30-41. Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.

CHALLENGER

Page 35: Strategic choice

Market followers' strategies

• Sometimes overlooked by the market leader and challenger BUT may become challenger and/or even overtake the market share leader

• Their commonly used strategies;

1. Cloner

2. Imitator

3. Adaptor

Page 36: Strategic choice

Market Followers-cont

• Commonly found in oligopolistic industries

• Try to compete on dimensions other than price (avoid price competition)

– Product value/quality

– Customer service

– Promotional effectiveness

– Distribution, etc

Page 37: Strategic choice

Market nichers

• Operate on high profit margins vs. high volume

• Compete in well-defined market segments (niches)

• They tend to specialize in that niche in terms of customer category, products/services, geographical area

• Successful nichers usually have a large share of their niche

Page 38: Strategic choice

How to select a few from the many generic/bench-marked strategies

• The common approaches;

1. The strategic choice matrix

2. SWOT analysis

3. Portfolio analysis

Page 39: Strategic choice

Factors determining the final acceptance of the proposed strategy by top management

1. Top management’s attitude towards risk

2. Top executives’ preference for past strategy in relation to past performance

3. Their values including the shared values, chief executive's beliefs and personal intentions

4. CEO’s power relationship with other top executives and surdodinates