STRATEGIC ALTERNATIVES Payne 5 Key Text Readings Chapters 6 7 1 INDUSTRY ATTRACTIVENESS RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL How do we make money Which businesses should we be in CORPORATE STRATEGY COMPETITIVE ADVANTAGE How should we compete BUSINESS STRATEGY 2 The Decision Logic of Strategy Formulation May be Corporate or Business Strategic Decisions Establishment Establishmentof ofmission mission vision vision values values objectives objectives the theDirectional DirectionalStrategies Strategies Identification Identification evaluation evaluation and andselection selectionof of the theAdaptive AdaptiveStrategies Strategies Identification Identification evaluation evaluation and andselection selectionof of the theMarket MarketEntry EntryStrategies Strategies Identification Identification evaluation evaluation and andselection selectionof of the thePositioning PositioningStrategies Strategies Implementation Implementationthrough throughdevelopment developmentof of the theFunctional Functional Operational OperationalStrategies Strategies 3 4 Adaptive Strategies Delineate how the organization will adapt to changes in the environment or competitive landscape Expansion Diversification Vertical Integration Market Development Product Development Penetration Contraction Divestiture Liquidation Harvesting Retrenchment Outsourcing Stabilization Enhancement Status Quo Corporate Strategy Decisions Only 5 Remember Ansoff s Matrix 6 Business Level Strategy Business level strategy an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets Key Issues What product service to offer customers How to manufacture or create the product or service How to distribute the product service in the marketplace 7 8 RBV Core Competencies and Strategy Core competencies The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals Strategy An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage Business level strategy Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific individual product markets 9 Competitive Advantage The essence of strategy lies in creating tomorrow s competitive advantages faster than competitors mimic the ones you possess today Gary Hamel and C K Prahalad COMPETITIVE ADVANTAGE exists when a firm s strategy gives it an edge in Defending against competitive forces and Securing customers such that the firm earns or has the potential to earn a persistently higher rate of profit 10 Gaining of Competitive Advantage The essence of strategy lies in creating tomorrow s competitive advantages faster than competitors mimic the ones you possess today Gary Hamel and C K Prahalad COMPETITIVE ADVANTAGE comes with the offering of SUPERIOR VALUE through Offering buyers a good product at a lower price Offering a better product service buyers think is worth a premium price 11 Adaptive Expansion Market Product Development Penetration Market Development expand geographic service area or by targeting new market segments within the present area Building new store near high growth residential areas Product Development introduction of new product services in present markets through product service enhancement and line expansion Penetration centered on promotional distribution and pricing strategies with current products or services 1 in 12 wins Coca Cola or buy one get one free for Tinactin 12 The BCG Portfolio Matrix 22 Stars Question Marks 20 16 14 12 10 Cash Cows 8 Dogs 6 4 0 1X 0 2X 0 3X 0 4X 0 5X 1X 1 5X 2X 0 4X 2 10X Business Growth Rate 18 Relative Market Share 13 Adaptive Stabilization Strategies When past strategies have been viewed as appropriate and few changes are required Enhancement when organization just needs to do things better takes forms of CQI TQM programs speeding delivery adding flexibility to service design Status Quo maintenance of services at the current levels defending against competitors 14 Market Entry Strategies Carry out the expansion and stabilization strategies through Purchase Strategies May be Corporate Decision if in Different Market Acquisition purchase of new product unit or organization Licensing lease technology product or service Venture Capital Investment try out investment option Cooperation Strategies Mergers two organizations come together as one Strategic Alliance long term agreement to work together Joint Venture combined resources to work on common issue of interest Developmental Strategies Internal Development uses existing resources or structures Internal Ventures establishes new entity for developmental purposes 15 Positioning Strategies Business Level Positioning Position the organization vis vis other organizations within the market These are market oriented and best articulate the competitive advantage within the market May be market wide or broad based or directed at a particular segment or niche focused Based largely on Generic Business Strategies Low Cost Leadership Strategy Broad Differentiation Strategy Focused Low Cost Strategy Focused Differentiation Strategy 16 Porter s Generic Strategies 17 18 A Low Cost Leadership Strategy Objective Open up a sustainable cost advantage over rivals using lower cost edge as a basis either to Under price rivals and reap market share gains OR Earn higher profit margin selling at going price Keys to Success Make achievement of low cost relative to rivals the THEME of firm s business strategy Find ways to drive costs out of business year after year Characteristics Cost conscious corporate culture Efficient scale facilities Tightly controlled production costs and overhead Minimized costs of sales R D and service Efficient manufacturing facilities Simplified production processes Intensive scrutiny of budget requests 19 Drivers of Cost Advantage Economies of Scale Indivisibilities Specialization and Division of Labor Economies of Learning Increased Dexterity Improved Coordination and Organization Process Technology and Process Design Mechanization and Automation Efficient Utilization of Materials Increased Precision Product Design Design for Automation Designs to Economize on Materials Input Costs Location Advantages Ownership of Low Cost Inputs Bargaining Power Supplier Cooperation Capacity Utilization Ratio of Fixed to Variable