BS 9 Strategic Development Flashcards
Session 9 Strategic Development
Basis of strategy:
Please state three alternative methods of carrying out strategy.
- Internal development
- Acquisition and mergers and
- Joint venture / Alliances
Porter’s generic strategies plays important roles in the development of an organization’s strategies.
What are the three ways an organization can achieve sustainable competitive advantage?
•These are :
**Cost leadership strategy, **
Differentiation strategy and
Focus strategy.
Please give a brief definition of cost leadership strategy and give their advantages(4) and disadvantage (3)
Cost leadership strategy:
Sets out to be lowest cost produce in an industry.
By producing in lowest possible cost a manufacturer can compete on price with other producers in the industry and earn the highest unit profits.
Advantages:
- Better margings through lower costs.
- Ability to undercut competitors on price, hence reducing competitive rivalry
- Low cost as a barrier to entry deterring new entrants.
- Low prices make substitutes less attractive.
Disadvantages:
- Only room for one cost leader - no fallback position if this advantage is eroded.
- Cost advantage may be eroded by inflation, movements in exchange rates, advancements in technolog etc.
- Clients may be willing to pay a premium for better quality.
Explain briefly the differentiation strategy:
Enumerate Advantages (4) and Disadvantages (4).
Differentiation strategy:
Firms creats a product that is perceive to be unique in the market.
Advantages:
- **Better **margins through charging better prices
- Higher Quality offsets competitive rivalry
- Product uniqueness reduces customer power.
- Quality acts as barrier to entry.
Disadvantages:
- Cheap copies
- Being out differentiated
- Customers not wiling to pay a high price.
- Differentiating factors not appreciated by customers.
Explain the focus strategy and give advantages and drawbacks.
Focus strategy:
An organization positions itself to serve a particular niche in the market. This is based on fragmenting the market and focusing on particular market segments. The firms does not market its products industry wide but **concentrates on a particular type of buyer or geographical area. **
**Advantage: **Become an expert in a particular field and understand the market in detail.
**Drawbacks: **The segment may not be sustainable enough to provide a profitable basis.
Explain Bowman’s strategic clock briefly by what it does and means. Give 3 Statements!
- Strategy clock is regarded as extension of Porter’s generic strategies.
- It assumes that competitive advantage is achieved if a firm supplies what customers want better or more effectively than its competitors.
- Better in this case means a more suitable product/service or a cheaper one of adequate quality.
Look at the picture of Bowman’s Strategic Clock below and explain all given numbers.
1 & 2 are price based strategies
1 = No frills – low price / low added value for price sensitive customers.
This covers simple products and services where innovation is quickly imitated. Price is a key competitive weapon.
2 =
3 = Hybrid strategy
Differentiates but keeps prices down.This may imply high volumes or alternative
4 & 5 = Differentiation - Offers better products and services at higher selling prices. Relies on very strong branding.
6,7,8 are failure strategies.
6 = increased price / standard value – higher margins if competitors do not follow. There is however a risk of losing market share.
7 = increased price/low value – this is only feasible in monopoly situations.
8 = low value/ standard price – this will lead to lose of market share.
Please explain Internal Development:
In three statesments.
1.
- Has been the primary method for many Organization of strategy development
- Especially firms with products that are highly technical as this perceived as the best way to acquire necessary skills and knowleade to exploit the product and attain competitive edge.
- Some organization choose to forego the use of marketing agents in order for them to gain a full understanding of the market.
Explain **mergers and acquisition: **
In three statements
- Development by acquisition has significant advantages over organic growth
- A compelling reason to develop by acquisition is the speed by which it allows the company to enter into new markets/products.
- Sometimes acquisitions are propelled by reasons of cost effiency benefiting from the experience curve of an established company.
Explain Joint Venture and give 3 reasons why this approach is useful.
- A joint venture is separate entity whose shares are owned by two or more business entities.
- Assets are formally integrated and jointly owned.
This is very useful approach for :
- Cost sharing
- Risk Sharing
- Expertise sharing
Strategic alliances explain!
- A strategic alliance is a cooperative business activity, formed by two or more separate organizations for strategic purposes, that allocates ownership, operational responsibilities, financial risks and rewards to each meber while preserving their individual identities.
- Alliances allow participants to achieve a critical mass, benefit from other participants skills allow skills transfer between participants.
Please explain the Ansoff Matrix. First define. Secondly draw it. Lastly explain all its components
Withdrawal:
this is an option open for consideration. It may be necessary at times to consider a complete
or partial withdrawal from a market. The objective of a small entrepreneur may be to ‘make a million
kwacha’ and retire. It may be the case that a policy is pursued to make a company attractive to sell off
rather than being driven by long term considerations.
Consolidation:
this means changing the way the company operates, though the range of products and
market remain the same.
Market penetration/growth-existing markets and products:
this strategy entails a company increasing
its product sales in its existing markets. This is achieved by attracting customers through offers and price
reductions and by attracting new users.
Product development-existing markets and new products:
This strategy entails increasing sales by
developing products for a firms existing market.
Diversification: this is used to identify directions of development taking the Organization away from both
its present products and markets. Diversification can be divided into two types.
Related diversification: this is development within the broad confines of the industry within which the
company operates. Related diversification typically takes the following forms;
Backward integration: developments into activities that concern an Organization’s inputs.
Forward integration: developments into activities that concern an Organization’s outputs.
Horizontal integration: developments into activities that are complimentary to an Organization’s
current activities.
Unrelated diversification: this is development beyond the current industry into products/markets which at
face value bear no clear relationship to the present product/market.
Explain the gap analysis briefly.
- A technique that businesses use to determine what steps need to be taken in order to move from its current state to its desired, future state.
- There are tools to fill the gaps such as the 4P’s, Ansoff Matrix approach etc.
