theme8 presentation

8/12/2019 Theme8 Presentation

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THEME 8:GENERIC STRATEGIES

1. Introduction.

2. The Porter's approach: competitive strategies (costadvantage, differentiation advantage and specialization).

3. The Ansoff's approach: the Growth Matrix (market

penetration, product development, market development,and diversification).

4. An integrating approach.

Alfonso VARG

AS SNCHEZ


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2Hope is not a strategy, specially wheninternationalizing the company is the intention


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Strategic Analysis:

Compulsory Questions What business is the organisation in? manufacturing/retail, etc. Who do they compete with, and how do they compete? Who are the organisations stakeholders? Key stakeholders & their

influence. What are the external drivers for change?

PEST model, macro environment.

Five Forces model, micro/industry environment. How does the organisation gain value?

Resource audit, tangible & intangible. Value Chain and Value System analysis.

Assess the balance in the corporate portfolio, BCG matrix. How should I compete? Porters generic strategies:

low cost, differentiation, specialization.

What are my strategic movements? Mergers/Acquisitions, etc.


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STRATEGY

(3)(3)FUNCTION

(2)(2)(2)(2)BUSINESS

(1)(1)(1)(1)CORPORATE

SYNERGIESCOMPETITIVECOMPETITIVEADVANTAGESADVANTAGES

RESOURCES &

CAPABILITIES

BUSINESSBUSINESS

SCOPESCOPE

ELEMENTS

LEVELS


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FOCUS or

NARROW

SEGMENTATION

Reduced

(only onesegment)

COSTS

LEADERSHIPDIFFERENTIATION

Broad

(the wholesector)

COMPETITIVE

SITUATION

Position of

low costs

Exclusivity

perceived

by the customer

STRATEGIC ADVANTAGE

PORTERSAPPROACH


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THE LOW COSTPHENOMENON

Two basic ways:

-Productivity.

-Economies of scale & learning/experience.


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-Technologicalchange that cancelsout the experiencegained or investmentmade.

-Competitors who

learn easily andrapidly.

-Stagnation of theproduct or of the

marketing.

-Inflation of coststhat annuls theprevious price

differential.

-Strict control of costs.

-Detailed and frequent controlreports.

-Clearly defined organisationand responsibilities.

-Incentives based on meetingquantitative objectives.

-Sustainedinvestment of capitaland favourableaccess to financialmarkets.

-Special aptitudes for

process engineering.

-Close supervision ofwork and operations.

-Products designedfor ease ofmanufacturing.

-Low cost of

distribution.

RISKS ORLIMITATIONS

ORGANISATIONALREQUIREMENTS

RESOURCES ANDAPTITUDES

COSTS LEADERSHIP


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Reading: Designerson quest to build $12

computer


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-Competitive levels ofproduct prices, inaccordance with astrategy of minimum

global cost.

-The customers no longervalue the product's factorsof differentiation.

-As the industry matures,imitation reduces theperceived differentiation.

-Coordination between thefunctions of R&D, productdevelopment andmarketing.

-Qualitative assessmentsand incentives.

-Capacity forunderstanding the marketand how it changes.

-Appropriate

organisational structure forstimulating and rewardingcreativity.

-Significant aptitudesin marketing and inproduct engineering.

-Strong investmentin R&D.

-Prestige in qualityand technology.

-Full cooperation ofthe distributionchannels.

-Long tradition in thesector, or a uniquecombination ofaptitudes obtained in

other businessactivities.

RISKS OR

LIMITATIONS

ORGANISATIONAL

REQUIREMENTS

RESOURCES AND

APTITUDES

DIFFERENTIATION


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Mention some brands for which you arewilling to pay a premium price


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-The differences in costscompared with non-specialized companies areso wide that theadvantages ofspecialisation areeliminated.

-The market in which thecompany is specializedreduces its differenceswith respect to the global

market.

-Other competitors arespecialized in part of themarket of the already

specialized company.

-Flexible and efficientorganisation structure.

-Corporate culture relevantand specific to its areas ofspecialisation (products andmarkets).

-Close coordination betweenfunctions.

-Rapid response to changes

in the environment.

-Resources andaptitudes of specialapplication andinterest in thecompany's area ofoperation.

-Dominance of therelevant technologyand of theengineering of theproduct.

-Marketing capacity.

-Ability in the use oflimited resources.

RISKS ORLIMITATIONS

ORGANISATIONALREQUIREMENTS

RESOURCESAND APTITUDES

SPECIALISATION


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A niche strategy within a decliningindustry

Reading: Cassettes linger long after

expected demise


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Segmentation variables

Varieties of products. Types of purchaser.

Distribution channels.

Geographic areas.

Example: olive oil market.


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Segmentation matrix (1)

Extra Virgin Olive Oil

Virgin Olive Oil

Olive Oil

Restaurants, etc.

(bulk product)

Final customer

(bottled product)

VARIETIES OFPRODUCTS (QUALITY)

TYPE OF PURCHASER


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Extra Virgin Olive Oil

Virgin Olive Oil

Olive Oil

SpecificGenericVARIETIES OFPRODUCTS (QUALITY)

TYPE OF DISTRIBUTION CHANNEL


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(d)(b)

Extra Virgin Olive Oil forfinal customers using aspecific distribution channel

(c)(a)

Virgin Olive Oil for finalcustomers using a genericdistribution channel

International

Market

National

Market

VARIETIES OFPRODUCTS (QUALITY)

GEOGRAPHIC AREA


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The choice of a segment/s

Against:(6) Competitors with broader objectives.

(7) Imitation.

(8) Substitution.

SUSTAINABILITY:your business scope shouldlead to a strong (defensible)position.

(4) Advantages in costs or indifferentiation.

(5) Costs of coordination, ofcommitment and of inflexibility.

INTERRELATIONSHIPS:choose the most beneficialcombination of segments.

(1) Structural attractiveness (competitiveforces).(2) Size and growth.

(3) Position of the company.

ATTRACTIVENESS:

within the same industry thereare segments with differentlevels of attractiveness.


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SUSTAINABILITYINTERRELATIONSATTRACTIVENESSSEGMENTS

/ CRITERIA

(d)

(c)

(b)

(a)

(8)(7)(6)(5)(4)(3)(2)(1)

Example: olive oil market


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Criticisms of Porters framework

Hybrid strategies could be employed without stuck inthe middle.

Cost leadership alone does not sell products. Differentiation strategies can be used to increase sales

volumes rather than to charge a premium price. Price can sometimes be used to differentiate. A generic strategy can not give a competitive

advantage. Arguably, the resource based strategy has superseded this

generic strategy framework.


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A company must produce at low cost, while alsoinnovating; it must deploy the massed resourcesof a large corporation, while showing the

entrepreneurial flair of a small start-up; it mustachieve high levels of reliability and consistency,while also being flexible (Grant, 2012).


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OPTIONS FOR GROWTH

DiversificationProduct

Development

NEW PRODUCTS

Market

Development

Market

Penetration

CURRENT PRODUCTS

NEWMARKETS

CURRENTMARKETS

ANSOFFS APPROACH

Diversificationof ProductsNEW PRODUCTS

of MarketsExpansionCURRENT PRODUCTS

NEWMARKETS

CURRENTMARKETS

ANSOFFS APPROACH

CASE STUDY:


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The Growth Matrix

Diversification:

-Concentric (or related).-By conglomerates (orunrelated).

Product Development:

-New products (R&D,innovation).

-New product lines.

-New services.

New

Market Development:

-New territories-INTERNATIONALIZATION.

-New segments of purchasers.-New distribution channels.

-New possibilities forutilization.

Market Penetration:

-Intensification.

-Relaunching.

-Imitation.-Reduction of costs/prices.

-Disaggregation.

Existing

PRODUCTS

NewExisting

MARKETSSub-strategies


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INTERNATIONALIZATION &GLOBALIZATION


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INTERNATIONALIZATION &GLOBALIZATION

Reading: Chinasbudding food industry

faces scrutiny


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International Strategy Opportunities and Outcomes

IdentifyInternational

Opportunities

ExploreResources and

Capabilities

Use CoreCompetence

StrategicCompetitiveness

Outcomes

International

Strategies

Modes of

EntryIncreased

Market Size

Return on

Investment

Economies of

Scale and

Learning

LocationAdvantage

International

Business-Level

Strategy (*)

MultidomesticStrategy

Global

Strategy

TransnationalStrategy

Exporting

Establishment ofNew Subsidiary

Licensing

StrategicAlliances

Acquisition

Management

Problems

and Risks

Management

Problems

and Risks

Higher

Performance

Returns

Innovation

(*) Low cost or Differentiation.

Standardization vs Adaptation.

Multidomestic vs Global.


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Strength of Market Drivers

Low High

Baked Goods

Book Publishing

Retail Banking

Toothpaste

Soft Drinks

Automobiles

Computers

Aircraft

Multidomestic Global


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Strength of Cost Drivers

Low High

Baked Goods

Retail Banking

Toothpaste

Soft Drinks

Automobiles

Computers

Aircraft

Pharmaceuticals

Multidomestic Global


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C i S i


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Corporate-Level International StrategiesCorporate-Level International Strategies

Products are standardized across national markets.Products are standardized across national markets.

Decisions regarding businessDecisions regarding business--level strategies arelevel strategies arecentralized in the home office.centralized in the home office.

Strategic business units (SBU) are assumed to beStrategic business units (SBU) are assumed to beinterdependent.interdependent.

Emphasizes economies of scale.Emphasizes economies of scale.

Often lacks responsiveness to local markets.Often lacks responsiveness to local markets.

Requires resource sharing and coordination acrossRequires resource sharing and coordination across

borders (which also makes it difficult to manage).borders (which also makes it difficult to manage).

Global StrategyGlobal Strategy

C L l I i l S i


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Corporate-Level International StrategiesCorporate-Level International Strategies

Seeks to achieve both global efficiency and localSeeks to achieve both global efficiency and localresponsiveness.responsiveness.

Difficult to achieve because of simultaneousDifficult to achieve because of simultaneousrequirements for strong central control andrequirements for strong central control andcoordination to achieve efficiency and localcoordination to achieve efficiency and localflexibility and decentralization to achieve localflexibility and decentralization to achieve local

market responsiveness.market responsiveness.

Must pursue organizational learning to achieveMust pursue organizational learning to achieve

competitive advantage.competitive advantage.

Transnational StrategyTransnational Strategy

I t ti l C t St tI t ti l C t St t


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International Corporate StrategyInternational Corporate Strategy

When is each strategy appropriate?

Need forNeed for

GlobalGlobal

IntegrationIntegration

Need for Local Market ResponsivenessNeed for Local Market Responsiveness

Low

High

Low High

Multi-

Domestic

GlobalStrategy

Trans-national


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Effective StandardizationCoca-Cola

McDonalds


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Barbie: The All-American

Girl Goes Overseas Barbie is more than 40 years old.

Sold in 130 countries. National adaptations:

Physical features.

Costumes.

Activity sets.

Standardized physique: Scaled to 62, 110 lbs.

38-18-28.


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Limits to International ExpansionLimits to International Expansion


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Management Problems

Limits to International Expansion

(beyond political and economic risks)

Limits to International Expansion

(beyond political and economic risks)

Cost of coordination across diverse geographicalbusiness units.

Institutional and cultural barriers.

Understanding strategic intent of competitors.

The overall complexity of competition.


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DIVERSIFICATION

Why? Growth, Profitability and Risk Reduction:Dont put all your eggs in one basket !!


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DIVERSIFICATION Three essential tests for judging diversification (Porter):

-The attractiveness test: Is the target industry attractive? Use the 5-forces model to assess its attractiveness.-The cost-of-entry test: Is the cost of the diversification worth it? Willthe diversified firm create enough additional value to justify the cost?-The better-off test: Does the diversification move produceopportunities for synergies? Will the company be better off after thediversification than it was before? How and why?

Potential advantages:1. Economies of scope (cost savings from using a resource in

multiple activities carried out in combination).

2. Internal market (for capital and staff).

Reading: Perils of diversification.

The era of diversification, 50s-80s.

Refocusing, 90s-onwards.


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DIVERSIFICATIONBecause of its high risk, many companiesattempting to diversify have led to failure.

However, there are some good examples ofsuccessful diversification:-Virgin Group moved from music production totravel and mobile phones.-Walt Disney moved from producing animatedmovies to theme parks and vacation properties.-Canon diversified from a camera-making

company into producing an entirely new range ofoffice equipment.


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DIVERSIFICATION

Reading:Toyota tunes up violin-

playing robot


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Diversification & PerformanceThe findings of empirical research:

How do diversified firms perform relative to specialised firms?-No consistent, systematic relationship has been emerged.-High levels of diversification are associated with deterioratingprofitability.-Timing is key.Does related diversification outperform unrelateddiversification?

-Diversification into related industries should be more profitable thandiversification into unrelated industries.

-Peters and Watermans golden rule: Stick to the Knitting.Empirical studies have defined relatedness in terms of similarities: Operational relatedness. Strategic relatedness.


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Unrelated Diversification No common linkage or element of strategic fit among

SBUs -- i.e., no meaningful value chaininterrelationships.

Dominant logic: spreads businesses risk over multipleindustries, stabilizing corporate profitability (in theory).

Strategic approach: any company that can be acquired ongood financial terms & offers good prospects forprofitability is a good business for diversification.

Conglomerates (clusters of businesses under central,mainly financial, management control), such as GE.


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Example: GE "Diversification helps to strengthen General Electric; when one

business is going badly, the other goes well, which contributesto the stability and growth of the company". These words ofRicardo Artigas, Vice President of the General ElectricCompany, clearly reflect the sense behind this strategic option,the result of which is a company configured into twelve

divisions:1. Aircraft Engines; 2. Appliances (domestic electricalappliances); 3. Capital Services (financing services forcustomers); 4. Lighting; 5. Medical Systems; 6. NBC(television channel); 7. Plastics; 8. Power Systems (electricalenergy generation); 9. Electrical Distribution and Control(power cables, transformers, etc.); 10. Information Services;11. Motors & Industrial Systems; 12. Transportation Systems.


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AN INTEGRATING APPROACH

Leadership in costs Differentiation

Maintenance Growth Restructuring

Internal External

Expansion Diversification

of Products of Markets Concentric Conglomerate

Vertical Integration Horizontal Integration


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AN INTEGRATING APPROACH

Conglomerate

ConcentricDiversification

of Markets

of ProductsExpansion

External

Conglomerate

ConcentricDiversification

of Markets

of ProductsExpansion

Internal

DifferentiationCosts

Strategic AdvantageGROWTH STRATEGIES

Readings from the textbook: Pascual & Lagasa -internal growthbased on diversification-; Fontaneda & La Casera -external

growth based on the expansion of products and markets-.


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Progress is whenProgress is when

things get simpler,things get simpler,not more complicatednot more complicated

Bruno Munari,

Italian artist.

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