Strategic choices Flashcards
DRIVING THE BUSINESS FORWARD - STRATEGIC DIRECTION
A central strategic choice that needs to be made by every organisation is what?
What are the only two variables to manipulate?
Why is this recognition fundamental?
This concept was captured by Ansoff (1988) in his product/market grid. Explain this grid. (4)
the direction in which it sees its future development and growth
products/services and customers
fundamental in allowing the identification of the areas within which we need to refine our market research and strategic development, and ultimately our choices
- Existing markets, existing products/services = market penetration
- Existing markets, new products/services = product development
- New markets, existing products/services = market development
- New markets, new products/services = diversification
DRIVING THE BUSINESS FORWARD - STRATEGIC DIRECTION - MARKET PENETRATION
What does market penetration suggest?
What does this build upon?
What are the 2 core forces that may restrict this type of perceived growth?
In the UK the Competition and Markets Authority (CMA) has the right to do what?
Name an example.
suggests growth through the increase of the market share of the current product and market mix.
This builds upon current strategic capabilities and is probably the most risk averse of the strategic directions that could be followed.
(1) retaliation from competitors (wanting to capture a share of a proven successful market); and
(2) legal restriction based around an acceptable concentration of market power
to challenge, prevent or restrict any perceived monopolistic dominance.
requiring the closure of stores when one company is dominant
e.g. Morrisons plc acquired Safeway group and were forced to close 52 stores
DRIVING THE BUSINESS FORWARD - STRATEGIC DIRECTION
PRODUCT DEVELOPMENT
What does product development suggest?
Name an example.
MARKET DEVELOPMENT
What does market development suggest?
What would this require?
Name an example.
Product development suggests using the knowledge of the existing customer base and markets to provide different, evolved or complementary products or services
E.g., the development of the iPad by Apple, where sales of a completely new concept were made readily to a marketplace that had already developed with sales of the iPod and iPhone.
Market development suggests that there is an opportunity to take existing products or services into new markets.
would require significant pre-emptive market and consumer research, and possibly some product development to tailor the existing product to the particular expectations of the new market
E.g., Sony introduced their PlayStation 2 games console = they radically reduced the price point of the earlier PlayStation 1, thus opening significant new market potential for an existing product, with the additional intangible benefit of building their brand reputation within a dramatically larger group of people
DRIVING THE BUSINESS FORWARD - STRATEGIC DIRECTION - DIVERSIFICATION
Diversification is undoubtedly the highest risk option from within the Ansoff matrix, requiring what?
This type of diversification will often be narrowed through what?
What is horizonal diversification?
Name an example.
What is vertical diversification?
Name an example.
What is concentric diversification?
Name an example.
What is conglomerate diversification?
Name an example.
significant research and market intelligence in terms of both aspects of development.
through the recognition of opportunity:
- Horizontal diversification = takes place when an organisation sees the opportunity to develop a new or variant product and market it to the customers of its competitors.
E.g., after the successful introduction of the iPad tablet most other technology companies rapidly began to produce tablets - Vertical diversification = takes place when an organisation sees the opportunity to acquire either a new supplier or a new customer and therefore broaden its overall offering.
E.g., Alibaba has grown its market presence through the frequent acquisition of direct suppliers of core commodities - Concentric diversification = takes place when an ostensibly new product (in reality closely related to a current product) is introduced by an organisation.
E.g., PepsiCo broadened its product line from soft drinks to a range of fast-food franchises = led to a mutuality of offering (fast-food franchises being used to sell the classic PepsiCo drinks) - Conglomerate diversification = describes the situation where completely new and unrelated products are introduced by an organisation wishing to take advantage of its existing name and reputation.
E.g., Virgin Group = different offerings and breadth of its markets = holidays, internet, airline, bank
BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE
Porter (2004) argues that there are 3 fundamental methods for an organisation to achieve competitive advantage. What are these?
Porter suggests that an organisation is able to focus its business and choose the scope of customers that it wishes to serve. What are the 2 options?
Explain these above ideas in the matrix Porter proposes.
Take either offensive or defensive action to create a defendable strategic position:
1. need structurally lower costs than competitors; or
2. demonstrate that products/services are differentiated from competitors (to charge a higher price for the added value created)
3. organisational focus = organisation will tailor its product or service to one or more specific needs of the perceived customer.
(1) could be a particularly narrow segment = strategic intention to skim the top layer off a wider market OR be a strategy to dominate a particular segment of a market; alternatively,
(2) adopt a broad scope and target customers with a new and much wider range of characteristics, such as age, wealth or geography
(1) competitive advantage; lower cost, competitive scope; broad target = cost leadership
(2) competitive advantage; lower cost, competitive scope; narrow target = cost focus
(3) competitive advantage; differentiation, competitive scope; broad target = differentiation
(4) competitive advantage; differentiation, competitive scope; narrow target = differentiation focus
(with a narrow market = dotted line recognises the need for a combined focus on both cost focus and differentiation focus rather than explicit strategy)
BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - COST LEADERSHIP
There can only be one cost leader in any industry or sector. What is the intent when pursuing this as a strategic choice?
What will it require? (5)
to become the lowest cost organisation within a particular area of activity while maintaining quality
require an aligned set of interrelated tactics including:
1. a detailed understanding of all actual costs associated with the provision of a product or service
- a focus on cost reduction based upon historic performance within the organisation aligned with an understanding of the cost options available;
- the removal of unnecessary activities within the value chain;
- a focus on customers who will fund the supply chain on time and in full;
- a focus on quality of product or service to ensure a right-first-time delivery
(Cost leadership enables an organisation to price its product or services competitively and gain competitive advantage.)
BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - COST LEADERSHIP
Why are there risks in pursuing such a focused strategy?
Name 4 examples.
there are a number of areas where cost leadership can fail, including:
- unjustified focus on the direct cost of one or more specific value-chain activities, while ignoring or not realising the true underlying cost of other activities
- a restricted and insufficient supply base needing to be shared between all competitors
- easy imitation or replication of the cost strategy by competitors
- reductions being made in cost, by using cheaper supplies, to the detriment of quality
BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - DIFFERENTIATION
The principle that underpins a differentiation strategy requires what?
What will this enable?
Johnson (2017) argues that there are 3 primary drivers of differentiation which an organisation ought to consider when pursuing this strategy. What are they?
Name examples for each.
the development of one or more aspects of the product/service that are either unique or perceived by customers as being unique
enable the organisation to charge a price premium for the provision of that product or service
these can work in isolation or on a combined basis:
1. Product and service attributes = endless possibilities only limited by the creativity of an organisation, with the objective to appeal to different consumer preference = based around colour, design, size, speed, style, taste, etc.
E.g., Apple make minimal changes to new products but are perceived to be adding value by end consumer = ‘must have the latest’ drive
- Customer relationships = the manner in which the organisation deals with its customer = availability, speed of distribution, methods of payment or after sales service
E.g., rapid growth of different coffee shops driven by the ambience and service that is received rather than types of coffee
- Complements = the perceived or actual receipt of additional products or service online, to enhance the value of the core purchase
E.g., the inclusion of software with certain phones and computers, differentiating
them from less expensive alternatives
BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - DIFFERENTIATION
Garvin (1987) identified 8 dimensions of differentiation quality. What are they?
These dimensions are clearly interlinked, but what does Garvin suggest?
What does this mean for an organisation?
- Performance = is it better than the competition?
- Features = does it have unique or unusual additional aspects?
- Reliability = will it outperform the competition?
- Conformance = does it comply with the law or required standards?
- Durability = will it last?
- Serviceability = if it breaks can it be repaired?
- Aesthetics = does it look, sound or feel better?
- Perceived quality = does the customer achieve a sense of satisfaction by acquiring this product or service?
at least one has to be satisfied to attract a continuing customer base
Strategic choice of organisation = ensure that one or more of these dimensions are deliberately built into the production process
BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - DIFFERENTIATION
The success of a differentiation strategy will be aligned to what?
As with cost leadership, there are natural dangers in pursuing a very focused strategy of differentiation. These might include what 5 things?
how well an organisation can identify and understand its strategic customer
- too much differentiation causing confusion for the customer
- too high a price premium
- easy imitation by competitors leading to dilution of brand value
- differing perceptions of the meaning of quality between buyers and sellers
- striving for a uniqueness that fails to bring sufficient added value.
BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE - ORGANISATIONAL FOCUS
Johnson (2017) gives useful examples of the 2 different types of focus strategy identified by Porter. What are these?
The choice of strategic focus requires an organisation to what?
Often an organisation following strategic focus is able to identify what?
Johnson argues that a successful focus strategy depends upon at least one of the following what three key factors?
- cost-focus strategy E.g., Ryanair target price-conscious travellers; and
- differentiation-focus strategy E.g., Ecover gains a price premium by targeting its ecological cleaning products at environmentally conscious consumers
dedicate itself to achieving competitive edge by giving a better service to its target customers than that which is achieved by its competitors who are aiming for a broader customer base
niche opportunities that have been left open by the breadth of coverage from its wider target competitor
- identification of a distinct segment need
- identification of distinct segment value chains
- identification of a viable market segment
BUSINESS LEVEL STRATEGY - PORTER GENERIC STRATEGY OPTIONS TO GAIN COMPETITIVE ADVANTAGE
Porter is clear in his views that, under normal operating circumstances, an organisation should have clarity in the strategic choice that it makes between generic strategies. He suggests what? (3)
Can a hybrid strategy be used?
Name 2 examples.
(1) a cost leader will only add cost if it attempts to also differentiate its product or service;
(2) a differentiator will lose its point of difference if it fails to have clarity as to why its product or service is different; and
(3) a focus strategy can find its customer base eroded by being perceived as having lost its dedication or speciality
Yes, part of the strategic choice is to recognise the time to move from one generic strategy to another
- McDonalds = moved from its initial strategic positioning of product differentiation to combining this with a low-cost base = only achieved through size and dominance of its markets through the rapid multiplication of its outlets
- Tesco = the largest UK retailer for over 25 years through a combination of all three of Porter’s generic strategies being exercised jointly or individually in different product offerings
CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS
Many of the tools discussed in business level strtaegy are equally applicable at the corporate level. What is the differentiation between corporate level and business level?
What are the 3 alternative approaches to the development, analysis, challenge and understanding of corporate strategy?
= precisely where the operational boundary is drawn:
Business level generally refers to a single business operating within a defined boundary
Corporate level refers to a number of businesses operating within a wider boundary
- blue ocean strategy
- corporate parenting
- portfolio analysis and the Boston Consulting Group approach
CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS - BLUE OCEAN STRATEGY
The concept of a blue ocean strategy evolved from the recognition that an organisation will often need to find a different approach to innovation.
Kim and Mauborgne (2005) originated the term. What do they describe as red oceans?
They suggest that innovative organisations ought instead to be searching for and identifying what?
In essence what are they trying to encourage?
Red ocean = Kim and Mauborgne argue that too much of current strategy is based around attempts to satisfy existing and historic perceptions of markets, resulting in a fight for competitive advantage between rivals within these markets (existing markets are red oceans with the blood of competitors (sharks!))
Blue oceans in today’s marketplace have untapped market space = offers highly profitable growth opportunities
encourage organisations to look beyond their existing markets and boundaries (higher returns in new markets)
CORPORATE LEVEL STRATEGY AND STRATEGIC MODELS - BLUE OCEAN STRATEGY
In a blue ocean strategy, there is a recognition of what?
Lynch (2015) identifies what 4 dimensions of realising and deriving value from a blue ocean strategy?
blue oceans need to coexist with the red oceans = that there will be the need to continue to develop strategies in existing markets while seeking out the higher value new and totally innovative opportunities that exist
- Elimination = the recognition of which aspects of the current red ocean are really important to customers, and which can be eliminated – e.g. do we need excessive packing?
- Reduction = the removal of overdesigned products and services that can take place within the red ocean without detrimental effect to existing products or customers – e.g. do all mobile phones need to have complex technological features?
- Raising = the need to improve features of current products and services to make them more attractive to customers – e.g. are we more likely to buy a product if it contains a longer warranty in the price?
- Creation = use of existing knowledge and abilities to create new value addition for both customers and the organisation itself – e.g. when handled correctly, a move to more sustainable packaging can create a better approach to social responsibility and enhanced customer perception, combined with a reduced cost to the manufacturer
