Chapter 5: Strategic Options Flashcards
What are Strategic Options?
[A variety of possible actions that an organization can pursue to accomplish its objectives and goals are known as strategic options.]
Examples
Software Org and Hardware Org
Why are Strategic Options important?
Strategic options enable organizations to respond/adapt to changes in their external environment, leverage their strengths, and address their weaknesses.
When are Strategic Options developed?
Strategic options are developed/formulated during the annual or biannual strategic planning process, but organizations may also develop them in response to shifts in the market or competitive environment.
Who develops Strategic Options?
Alternative strategies are typically developed by the senior management team in collaboration with other relevant stakeholders such as departmental heads, employees, and external consultants.
The scope of strategic options
Alternative strategies
Directions for strategy development
Methods for strategy development
What is Market Development as an alternative strategy?
Expanding into new markets or segments that the organization has not previously targeted. For example, an organization that sells office supplies to businesses may expand into selling to individual consumers.
What is Product Development as an alternative strategy?
Developing new products or services that can be sold to existing or new customers. For example, a software organization may develop a new software product that complements its existing product line.
What is Diversification as an alternative strategy?
Expanding into new industries or markets that are not related to the organization’s current business. For example, an organization that manufactures clothing may start a restaurant chain.
What is Cost Leadership as an alternative strategy?
Competing on the basis of cost by reducing expenses and passing on savings to customers. For example, an organization may reduce its production costs by outsourcing manufacturing to a lower-cost country.
What is Differentiation as an alternative strategy?
Competing on the basis of differentiation by offering unique features or benefits that are not available from competitors. For example, an organization may differentiate its products through superior design or customer service.
What is Vertical Integration as an alternative strategy?
Integrating different stages of the supply chain, such as manufacturing, distribution, and retailing, in order to gain greater control over costs and quality. For example, an organization that manufactures bicycles may also operate its own retail stores.
Direction for Strategy Development
- Refers to the overall guidance and framework that directs the formulation of an organization’s strategic options.
- Provides a clear vision and purpose for the organization’s strategic planning process.
- Helps to ensure that the strategic options developed align with the organization’s overall goals and objectives.
- Established through a systematic process which involves analyzing the external environment and internal strengths and weaknesses, defining the organization’s mission, vision, and values, setting long-term goals and objectives, developing a comprehensive strategy, and implementing and monitoring progress towards achieving the organization’s goals and objectives.
Methods of strategy development
Top-down approaches: executive decision-making
Bottom-up approaches: involving employees in the strategy development process
Porter’s Five Forces: analyzing the competitive environment of the organization
Balanced Scorecard: developing a set of performance metrics aligned with the organization’s strategy
Blue Ocean Strategy: creating new market space by identifying and pursuing new opportunities
Ansoff Matrix: analyzing the organization’s product and market portfolio for growth opportunities.
What are the conditions under which a stability strategy can be pursued?
Maturity of the industry
Limited resources
Unfavorable market conditions
Limited competitive pressure
Why is a stability strategy appropriate for a mature market?
A stability strategy allows organizations to focus on maintaining their market position and profitability without taking significant risks, which is essential for long-term success in a mature market.
Why may a stability strategy be the best option for organizations with limited resources?
By maintaining the status quo, the business can conserve its limited resources, reduce costs, and avoid the expenses associated with major changes, such as restructuring or new product development.
Why may a stability strategy be the best option for organizations facing unfavorable market conditions?
During an economic downturn or unfavorable market conditions, organizations may choose to focus on cost-cutting measures, such as reducing staff, rather than investing in growth initiatives.
Why may a stability strategy be appropriate for organizations in markets with limited competition?
In a business environment where there is little competition, stability strategy allows the business to focus on optimizing its current operations, improving efficiencies, and maximizing profits.
Benefits of a stability strategy
Predictability
Reduced risk
Maintaining customer loyalty
Employee stability
Cost savings
Improved quality
Predictability: Organizations adopting a stability strategy can predict their future performance with accuracy, providing a sense of security and stability.
Reduced risk: Stability strategies avoid major changes, thus reducing the risk of failure or loss.
Maintaining customer loyalty: Stability strategies allow for consistency in products, services, and customer experience, building brand recognition and customer trust.
Employee stability: Stability strategies increase employee morale and reduce turnover by providing a stable work environment.
Cost savings: Stability strategies save money on resources needed for growth initiatives or changes to the business.
Improved quality: Stability strategies lead to improved quality of products and services, increasing customer satisfaction and loyalty, as well as efficiency.
Category: Stability Strategy
Pause/Proceed with Caution
No-Change Strategy
Profit Strategy
Pause/Proceed with Caution: A temporary pause in growth or expansion plans. The organization may focus on maintaining its existing operations and improving efficiencies.
No-Change Strategy: Maintaining the status quo by continuing to operate the business as it currently exists.
Profit Strategy: Focusing on improving profitability by increasing efficiency, reducing costs, or optimizing product/service offerings. May involve streamlining operations, outsourcing non-core functions, or divesting non-core assets.
What is a growth strategy?
A growth strategy is a plan of action designed to help an organization expand its business, increase revenue, and gain a larger market share. It typically involves expanding its market share, product offerings, customer base, or geographic reach. The goal of a growth strategy is to identify and capitalize on opportunities that will drive sustainable growth for the organization over the long term.
What are the benefits of a growth strategy?
Increased market share
Increased profits
Increased brand recognition
Improved economies of scale
Diversification of revenue streams
Conditions that can make a growth strategy appropriate for an organization:
Availability of resources
Market demand
Competitive landscape
Industry trends
Economic conditions
