CHAPTER 2 – WHAT OPTIONS ARE OPEN TO THE ORGANIZATION?

Objectives:

Briefly discuss option generation at both corporate and business

levels.
Determine the strategic choices at the corporate level.
Recognize the different strategies used for product and market
developments.

SRATEGIC CHOICES AT THE CORPORATE LEVEL

Strategic choices at the corporate level can be involve decisions about:

Business closure
Business disposal
Business acquisition
Business re-organization
Business start up
The impact of doing nothing different

Even in the case of a single business organization, a corporate level perspective might
be important because an option may involve a diversification that can be best managed
by creating a divisional form of organization.

A useful starting point is to compare the financial performance of these various options
to the financial performance of the current business (i.e. the do-nothing-different option).
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This is important because a key strategic objective is to safeguard and improve

shareholder value, and to do this the options must improve upon existing levels of
performance. The analysis should also consider if the identified options have ‘strategic
fit’ and whether they will have a positive or negative impact upon the financial balance
within the corporate portfolio. It is equally likely that the success of the corporate whole
will depend upon the ability of senior management to fit together individual businesses,
via appropriate ‘parenting’, so that their full potential is realized.

Portfolio balance. Portfolio models, such as the Boston Consulting Group (BCG)
matrix and the General Electric (GE) matrix, are useful devices for examining multi-
business organizations. Understanding how the businesses ‘fit’ together is important
because it may be necessary, for example, to use money from a cash-rich company to
fund a growing and cash-hungry company. Shareholders must be happy that this is an
effective use of their money, which is why the business being funded must benefit
‘strategically’ from being in the portfolio.

Strategic fit and parenting. If organizations develop incrementally over time, then
situations can arise where inter-business synergies are lost and the scope for corporate
parenting is eroded. In these circumstances it may be necessary to divest non-core
businesses if the assessment is that there are no synergies or opportunities for
parenting.

Senior management teams must understand and appreciate the role of ‘parents’ in
assessing strategic fit and in the leveraging out of competitive advantage. It is clearly
important that the portfolio of businesses should be constructed in such a way that the
organization can fund its ambitions.

SRATEGIC CHOICES AT BUSINESS UNIT LEVEL: PRODUCT MARKET MATRICES

SPACE analysis (Strategic Position and Action Evaluation - after Rowe et al., l994) can
also be used to identify options at the business units and product level.

An alternative approach is to use product-market matrices, as these focus on the

products and market that a business can serve. They can be especially powerful in
terms of the options they generate, which can, in turn, be evaluated against the
product–market mission is being pursued. The process of referencing future and
potential activities against current activities is therefore about current and potential
market activities. And since these market opportunities cannot be sustained without an
appropriate matching of resources, skills and value chain activities, the matrices in
Figures 2.l and 2.2 are outlined as a way of identifying options at the business unit and
product level.

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Figure 2.1

Product-market Matrix
1. Market Geography
2. New
3. Present 2
4. Market Need 1
2
5. Product-services
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3
3
Technologies source: (Ansoff
1988) The New Corporate 3 2
Strategies.
4

PRODUCT / MARKET

Maintenance Development

Box E Box F
Maintaining present Moving into new
Maintenance
resources to serve products and
present market markets with
segments present resources
RESOURCE
PORTFOLIO
Box G Box H
Delivering present Delivering new
Development products with new products and/or
resources entering new
markets with new
resources

Figure 2.2 Product / market competence portfolio matrix.

The matrices in Figures 2.l and 2.2 can be used to generate a number of possible
options for a business unit.

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Market / product maintenance strategies for growth: holding/increasing market

share

This could be the position in a highly competitive environment and may require a
constant improvement of product and service features because customers’ perceptions
of quality (as fitness for purpose) are changed by rapidly advancing technology and the
offerings of competitors. The main concern of firms is to maintain or enhance their
sources of market advantage - be it cost or differentiation based - the personal
computer market exemplifies this well.

In order to maintain its market, position a manufacturing company might:

◆ have to change inventory control systems that require new competencies in

the use of information technology (Box G).
◆ have co ensure skills are maintained by introducing a staff training program
and updating resources incrementally (Box L).

When an industry is in its early stages of development there can be competition

between products and competitors, and between different technologies (operating
systems in personal computers and video recording formats are good examples of
competing technologies). In these situation rival technologies can be ‘made’ obsolete by
effective strategy.

Market and product maintenance in situations of adjustment and turnaround

The analysis of the business may indicate that the organization is in a situation where
some adjustments in strategy content and/or implementation are required as an antidote
to decline. The decline may be in the early stages or may be so advanced as to require
urgent action.

C
Customer perceived product benefits

Figure 2.3 De-positioning of product or service

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Figure 2.3. illustrates how organizations lose touch with their market and how their
product is ‘de-positioned’ by the market changing faster than the firm’s strategy. An
organization can lose its brand image and reputation and slip from position ‘C’ to
position ‘D’. This is the case when a product market position is not maintained and
customer expectations of the standard product increase.

A business may find that it is losing market share; it may have operating inefficiencies
and have products or services that are not competitive. In this situation the competence
portfolio is likely to need updating. It is also likely that the organization culture is no
longer responding in an effective way to its environment. Slatter (l984) indicates the
following factors cause a firm to decline:

➢ Poor management.
➢ Inadequate financial control.
➢ High cost structure.
➢ Lack of marketing effort.
➢ Competitive weakness.
➢ Big project acquisitions.
➢ Financial policy.

Product maintenance, market development strategies for growth

This can occur when a company seeks opportunities in a different geographic area or
wishes to reposition a product to appeal to a wider or different market segment. The
concept of repositioning is illustrated in Figure 2.4.

Customer perceived product benefits B

Figure 2.4 Repositioning of product or service

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In Figure 2.4, the company launches or acquires a product in position ‘A’, which has
basic tangible features. The company then improves the tangible and intangible features
(intangible features include reputation and brand image) of the product. At the same time
the product price increased incrementally (perhaps via point ‘B’) so that ultimately
position ‘C’ is achieved. Although there may be no advantage in leaving a high volume/
low price market to move into a low volume/higher price market, it can be an
appropriate strategy where the lower price segment is smaller than a higher priced
segment. So, even though the product is not new (although it might be modified) the
organization makes strenuous efforts to change the customers’ perception of its benefits.

Market maintenance, product development strategies

This is an appropriate option when the strategic analysis suggests that there are
opportunities for the business to develop new products for customers. These products
may meet a present need that is served by other suppliers or may be a new need. In
this situation there may be a requirement to develop new competencies as well as
exploiting current one. (Boxes F and H).

Product and market development strategies (related and unrelated diversification)

Diversification can be considered from two different strategic perspectives:

1. A ‘market’ based perspective.

2. A ‘resource’ based perspective.

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From a market-based perspective a relaced diversification will involve moving into new
products and markets that has similar dimensions to the ones currently being served. In
this scenario products and markets are chosen that have similar features to the ones
currently being served. For example, a perfume retailer whose historic market consist of
females may move into the manufacture and sales of men’s undergarments. In this case
selling, branding and distribution would have similar features for both product market
missions. A car producer who moves into manufacturing light vans may find some
marketing commonalties e.g. brand name and distribution, as well as relatedness in
production, etc.

If we wish to explain relatedness from a resource-based perspective we could argue

that there is relatedness when the current competences and resources of the
organization can be used as market entry facilitators and possibly sources of advantage
in new markets. The greater the overlap of primary value chain activities the greater the
relatedness. There may also be a requirement to develop new competences in primary
activities (Boxes ‘F’ and ‘H’). In unrelated diversification there is little overlap in primary
value chain activities but the diversification is justified on the basis of secondary
relatedness, especially in the area of general management.

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WHAT OPTIONS ARE OPEN TO THE ORGANIZATION?

The procedure that has been outlined for option generation and evaluation has three
stages:

1. From the analysis produce a series of options for each business.

2. Assess how the options selected for each business fit into the corporate
vision.
3. Make choices and recommendations based on the ideas developed.

To know more information about The Ansoff Matrix

Please click the link: https://www.youtube.com/watch?v=4dKliWrCywM

To know more information about SPACE Analysis or SPACE Matrix

Please click the link: https://www.youtube.com/watch?v=VP_kn_gOQro

To know more information about Business Strategy’ Resource-Based

View Please click the link: https://www.youtube.com/watch?v=5cDOpGNK24s

Strategic Management and Business Analysis / David Williamson, Wyn Jenkins,

Peter Cooke and Keith Moreton