Unit 3 - Strategy

Chapters in Study Text – 2, 3, 5, 6, 21

 Strategy is a pattern of activities that seeks
to achieve the objectives of the
organisation and adapt its scope, resources
and operations to environmental changes in
the long term.
 Finding a unique way to put the
organization’s activities (buying, selling,
producing, hiring, firing, etc.) together that
is hard or impossible for competitors to
replicate and is valuable to customers
 A stream of decisions focused on a purpose.
 Looking long term.
 Capitalizing on change.
 The creation of a unique and valuable position
in the industry.
 Choosing what not to do.
 Creating a fit among an organization’s
activities.
 Gives direction to the whole organisation,
and integrates its activities
 Considers all stakeholders
 Looks at how to gain a sustainable
competitive advantage
 Relates the organisation, its resources and
competences to its environment.
Corporate

Business

Functional
Corporate Strategy:
 Directional Strategy - the firm's orientation
toward growth
 Portfolio Strategy - level of diversification in
the company's products and markets
 Parenting Strategy - the manner in which
management coordinates activities and
transfers strategic capabilities between
business units
 Concerned with how the corporate parent can add
value to its business units across multiple
dimensions, such as the product or market scope,
vertical scope, and geographical scope
 Diversification
 Entering businesses upstream / downstream
 Acquisitions, mergers
 Internationalization
 Growth
Business Strategy
 The actions taken to provide value to
customers and gain a competitive advantage
by exploiting core competencies in specific,
individual product or service markets.
 The firm's position in an industry, relative to
competitors
 Business level decisions about
 Who customers are going to be
 how to attract them
 How to encourage them to buy the product or
service within an environment
 Where other companies may be looking to capture
those same customers’ attention, commitment,
and money
Functional Strategy:
 Allocation of resources among different operations
within that functional area
 Coordination between functions for optimal
contribution to the achievement of the SBU and
corporate-level objectives
 Gaining, retaining and developing resources and
capabilities into ones which can give strategic
advantages and support the business level strategy.
Strategic Management
The analysis of the internal
capabilities and the external
environment of a firm to
efficiently use resources to meet
organizational objectives
Strategic Management Process:
Strategic Intent
Strategy Formulation
Strategy Implementation
Strategy Evaluation
Process of Strategic Management
 Strategic Intent:
 Vision
 Mission
 Values
 Objectives
 Plans
Continued..
Strategy Formulation:
Environmental Scanning
Organizational Appraisal
SWOT Analysis
Continued..
 Strategy Implementation:
 Processes
 Procedures
 Resource Allocation
 Systems
 Policies
Johnson Scholes Whittington
 Strategic Position / Analysis:
 Environment
 Internal capabilities
 Stakeholder effect, power,
expectations
 Culture, beliefs and assumptions by
organizations.
 Strategic Choices:
 Various strategic options available
 Their analysis
 Deciding which strategy makes most sense – what is
suitable, feasible and acceptable to the organization
 Strategic Action:
 Organizing / structuring
 Resource planning
 Change management
 Strategic Position:
 Likely demand
 Cost benefit analysis
 Branding
 Acceptability by staff and patients
 Hygiene and safety of patients
 Permissions / Sanctions
 Strategic choices:
 Locations
 What to treat there
 Deviation points
 Staffing and their compensation
 Open hours
 Strategic Action:
 Actual action of acquiring locations, staffing them,
advertising, liaisons with authorities and other similar
local bodies
Strategic Drift:
 When an organization’s planned strategies
don’t go ahead as planned, due to events
developing in other ways than predicted:
 Assumptions
 Speed
 Internal / external environment
 Drift – Flux – Demise / Transformation
Analysis tools:
 External Analysis:
 PESTEL Factors
 Porter’s 5 Forces
 Scenario Planning
 Porter’s Diamond
 Internal Analysis:
 Porter’s Value Chain
 Capabilities and Competencies
 SWOT
Porter – 5 Forces
 Michael Porter - five competitive forces that
shape every industry and every market.
 These forces determine the intensity of
competition and hence the profitability and
attractiveness of an industry.
 The objective of corporate strategy should
be to modify these competitive forces in a
way that improves the position of the
organization
Porter’s 5 Forces
 Bargaining power of suppliers
 Threat of new entrants
 Threat of substitutes
 Rivalry amongst competitors
 Bargaining power of customers
Bargaining Power of Suppliers:
 How many suppliers are in the market?
 Are there many options (which can
lower prices) or just a few (which can
raise them)?
 How easy is it to switch / what’s the
cost?
 How would changing suppliers affect
your products/services?
Continued - BPS
 The market is dominated by a few large
suppliers - supplier concentration.
 There are no substitutes for the particular
input
 Impact of inputs on cost or differentiation
 The switching costs from one supplier to
another are high.
 Forward / backward integration
 Cost relative to total purchase of the
industry
Threat of new entrants
 Entry barriers
 Scarcity of resources
 Access / distribution of raw materials
controlled by existing players
 Long term service contracts
Barriers to Entry
 Economies of size and scale
 Capital intensive work
 IPR
 Governmental regulations and licenses
 High switching costs
 Established strong brands
 Lock up of distribution channels
Threat of substitutes
 How easy is it to find an alternative to
your products or services?
 How do cheaper substitutes measure
up against your company ?
 Switching costs
 Price for performance of substitute
 Buyer propensity to substitute
Substitutes:
 A threat from substitutes exists if there are
alternative products with comparable
pricing and performance parameters for the
same purpose.
 They could attract a significant proportion
of market volume and hence reduce the
potential sales volume for existing players.
Rivalry amongst Competitors:
• What’s the level of competition in your
company’s sector?
• Who are your large, direct competitors?
What advantages do they have over you?
• Who are your smaller, independent
competitors? What do they do to stay
competitive?
Rivalry among Competitors:
Multiple players
Similar strategies
Not much differentiation
High exit barriers
 Price cutting
 Increased advertising expenditures
 Spending on service/product improvements
and innovation.
 Barriers to exit:
 High investment in specialized
equipment
 High fixed costs
 Specialized skills
Bargaining Power of Customers
 B2B / Retail?
 How powerful are your buyers?
 How many are there? What different kinds
of buyers do you interact with?
 Can your buyers get costs down?
 Do they have the power to dictate terms?
Continued – BPC:
 Buyer concentration
 High number of suppliers and
undifferentiated products
 Customer self manufacturing is possible
 Simple switching possible
 Buyer information
Switching Costs:
 Exit fees (when breaking contract) and lock in
periods
 Equipment costs (when changing service
provider)
 Installation costs
 Learning costs (time and effort, training)
 Convenience (location)
 Risk
 Emotional costs
Porter’s Value Chain Analysis
The value chain is the varied
systems that a company uses to
make money
It refers to the full lifecycle of a
product or process or the full chain
of a business's activities in the
creation of a product or service
Primary Activities:
• Inbound logistics: Receiving,
warehousing, and inventory
management of source materials and
components
• Operations: Turning raw materials
and components into a finished
product
• Outbound logistics: Distribution,
including packaging, sorting, and
shipping
• Marketing and sales: Marketing and sale
of a product or service, including
promotion, advertising, and pricing strategy
• After-sales services: Activities after a sale
has been finalized, including installation,
training, quality assurance, repair, and
customer service
Secondary Activities:
• Procurement: Sourcing of raw materials,
components, equipment, and services
• Technological development: Research and
development, including product design, market
research, and process development
• Human resources management: Recruitment,
hiring, training, development, retention, and
compensation of employees
• Infrastructure: The company’s overhead and
management, including financing and planning
VRIO Framework
 VRIO is an internal analysis tool that can
be used to categorize resources based on
whether they hold certain traits that are
outlined within the framework

 This categorization allows organizations to

identify which company resources are
actually competitive advantages.
Value - Does this resource offer a
tangible benefit?
Rare - Is this resource found within
other organizations, or is it unique?
Inimitable - Is any resource
difficult to reproduce or protected
by IPR?
Organized - Is any resource
organized in a way that is different
from others?
 Governments can take steps to improve a country’s
competitive position in global markets
 The Diamond Model helps businesses and countries
understand the sources of competitive advantage
and identify the most critical factors to their success.
 By understanding the factors that contribute to
competitive advantage, countries can make policies
that will enable them to compete more effectively in
the global marketplace. This also allows
policymakers to see the areas for improvement.
 Factor conditions are the basic factors of
production that a country has access to.
This includes land, labor, capital, and
infrastructure.
 Factor conditions can be a competitive
advantage if they are superior to other
countries.
 Natural Resources, Human Resources
and Infrastructure
 Demand conditions refer to the domestic
demand for a good or service. A country
with a large and growing market is a better
destination than countries with a small or
stagnant market.
 Related and supporting industries are the
businesses that supply inputs or purchase
businesses’ outputs.
 Firm strategy, structure, and rivalry refer to how a
company is organized and competes.
 Well-organized firms can develop and implement
strategies effectively and respond quickly to market
changes.
Competitive Strategies:
Low Cost / Cost Leadership
Differentiation
Focus
 Cost leadership / Low Cost – No Frills
• Increasing profits by reducing costs, while
charging industry-average prices.
• Increasing market share by charging only
slightly lower prices, while still making a
reasonable profit on each sale because of
reduced costs.
 Requirements:
 Access to technology that brings costs down
 Large scale production facilities
 Efficient logistics
 Low cost base of labour, facilities and material
 These ways aren’t unique and need continuous and
incremental changes focused on keeping costs low
 Focus on TQM, Lean Management, JIT, Value
Engineering and similar techniques also help in
this.
 Differentiation: Unique and desirable
products and services
 Involves making products or services different
from and more attractive than those of
competitors.
 Will change on the basis of industry and
products and services, but will involve features,
functionality, durability, support, and brand
image that customers value.
 Requirements:
 Good research, development and innovation
 The ability to deliver high-quality products or
services.
 Subtle and assertive marketing and sales so that
the market understands the benefits of the
differentiated offerings
 Differentiation can be in quality, design, service,
 Focus strategies – specialized in a niche
market
 Concentrate on particular niche market
segments and, by understanding the dynamics
of that market and the unique needs of
customers within it, develop uniquely low-cost
or well-specified products for the market.
 Tailor a strategy to serve that segment best, to
the exclusion of others
 Variants:
 Cost Focus emphasizes on cost-
minimization within a focused market
 Differentiation Focus means pursuing
strategic differentiation within a focused
market
Growth Strategies:
 Expansion Strategy is adopted by an
organization when it attempts to achieve a
high growth as compared to its past
achievements.
 When a firm aims to grow by broadening the
scope of one of its business operations in the
perspective of customer groups, customer
functions and technology alternatives, either
individually or jointly, they would engage in
the expansion strategy
Expansion through:
Concentration and / or
Diversification
Internationalization
Integration
Cooperation
Concentration is the investment
of resources in the existing or new
product line, catering to the needs
of the identified existing or new
market with the help of proven and
tested technology and market
research
 Existing product, existing market – market
penetration
 Existing product, new market – market
development
 New product, existing market – product
development (also changes to existing products)
 New product, new market – diversification
 But also, just new product or new market
 Diversification is followed when an organization
aims at changing the business definition, either by
developing a new product or expanding into a new
market
 Opportunity for new products and markets
 Shared risks
 Encourages cross selling
 Concentric Diversification - acquiring or developing a
new product or service closely related to the
organization’s existing range
 Conglomerate Diversification – expanding into areas
unrelated to its core areas
 Related / unrelated
 Internationalization is the strategy followed by
an organization when it aims to expand beyond
the domestic market.
 This need might arise when an organization has
explored all the potential to expand domestically
and look for the expansion opportunities beyond
the national boundaries, or because it wants to put
its company on the global map to leverage on
several benefits of global possibilities
 Cooperation is when an organization enters into a
mutual agreement with another company to carry
out business operations with the objective to
expand the market potential in the form of
 Mergers & Acquisitions
 Takeovers
 Joint Ventures
 Strategic Alliances
 Franchising
Strategic Alliances
 An arrangement between two companies to
undertake a mutually beneficial project
while each retains its independence.
 Agreements and actions by consenting
organizations to share some resources to
accomplish a mutual goal
 Because speed to market is of essence
 Just by itself organic growth might not be
enough
 Increase in complexity, and a single
organization might not have all expertise
needed
 Global markets become open
 Risk mitigation to some extent
Concept of S L & F
 Stretch - a company following or struggling
to follow its strategic intent despite
insufficient resources and/ or opportunities
by:
 Limiting cash flow
 Finding new ways of enhancing productivity
 Downsizing workforce
 Leverage
 Focusing on optimization of available resources by
being resourceful
 Getting more value out of existing resources

 Fit – Seeking a match between opportunities and

resources
Ways to S / L / F:
 Concentrate
 Accumulate
 Conserve
 Complement
 Recover
Portfolio Analysis Tools: The BCG
Matrix
Portfolio Analysis Tools
Campbell, Goold, Alexander
 The Ash ridge portfolio ‘parenting’
matrix is used to evaluate the
attractiveness of potential acquisition
targets or existing businesses to the
parent.
 This matrix has two variables,
according to which the attractiveness
of businesses is to be judged.
Benefits
 It is the value business can add to
potential business by utilizing their
resources and competencies.
 Those resources and capabilities which
the potential business needs to grow.
 Benefits are the opportunities to help.
Feel
 Feel is the similarity between Parent
and the potential business.
 Similarities can be determined by
industry, organization structure,
culture and law.
 Critical success factors (CSF) related to
the elements stated above.
Ashridge Portfolio Parenting Matrix
Under consideration are:
 Value propositions
 Revenue streams
 Channels
 Customer segments
 Customer relationships
 Key resources
 Key activities
 Cost structures
 Partnerships and alliances
Sustainability
 The ability to serve (use resources) the current generation
without compromising the ability of future generations to
use resources.
 A sustainable company determines its activities, behaviour,
products and services through a detailed understanding of
the environmental and social context in which it operates.
 It works within understood environmental and social
limitations and reflects the demands and requirements of
society.
 It ensures that its impact upon the environment and
society is either neutral or positive.
 Ideation / R & D
 Launch
 Growth
 Maturity
 Decline
7 Ps and Competitive Advantage:
 Product:
 What is offered to the customer - Features, brand name,
packaging, quality, options, warranties, service, appeal
 Price:
 Pricing models, payment terms
 Cost plus
 Penetration , predatory
 Loss leader
 Price skimming
 Dynamic
 Competitive
 Psychological
 Value based
 Promotion:
 Advertising, publicity, sales promotion, personal
selling
 Place:
 Distribution channels, outlets, territories,
inventory locations
 Rural marketing – 4 As – acceptability,
affordability, availability, awareness
 Fading of conservative distribution channels
 People:
 Trained sales staff, listening to customers
 Process:
 Delivery methods and payment options
 Physical evidence:
 Website, branding, packaging
 Start with the product
 Set a price
 Choose the right place
 Promote your product
 Focus on the people
 Streamline the process
 Create physical evidence