SESSION 9 – BASICS IN STRATEGY

Strategic choices – Corporate-level strategy

Today, let’s focus on corporate-level strategy

There are three important pillars in the strategic management:
• the external diagnosis;
• the internal diagnosis
• strategic choices.

So we are going to explore the third pillar today in addition to the previous session but
this time we are going to dedicate our time on corporated level strategy so every
choices that concern which product industries and markets to pursue.

Corporate level choices informed decisions about how broad an organization should
be we call this the scope of an organization.

The scope is concerned with how far an organization should be diversified in terms of
two different dimensions products and markets. Corporate level strategy is not only
about thinking about the present it's about thinking about the future also. By thinking
about it scope but organization may have to think about how it could increase it by
engaging in market spaces or products different to its current ones.

But this chapter is not just about large commercial businesses small businesses may
also have different business units or be concerned with corporate level decisions.
Example: Local building company may be undertaking contract work for
local government industrial buyers and local homeowners not only are these
different market segments but the mode of operation and capabilities required
for competitive success in each are also likely to be different.

Define your perimeter of activities: the Ansoff

matrix (1988)
To help companies take relevant corporation
decisions and more precisely help them on their
ongoing organizational growth the Ansoff
matrix is a very useful strategic management
tool.

This matrix generates four basic dimensions for

organizational growth. Typically an organization
starts in the zone called Market Penetration.
It may choose between penetrating still further within the zone it is sometimes termed
to consolidation or this corporation might choose to increase its diversity along the
two axes of increasing novelty of markets or increasing novelty of products. This
process of increasing the diversity of products and market is known as diversification.
Diversification involves increasing the range of product to market served by an
organization. There are two types of diversification:
• Related Diversification
• Conglomerate Diversification

Related diversification involves expanding into products or services with relationships

to the existing businesses. Related diversification will be rather concerned with market
development or new product innovation zones.

Conglomerate diversification this type of diversification involves diversifying into

products or services with no relation to existing businesses.

Market Penetration Zone

Let's start with the market penetration zone also called the consolidations zone. In
this scenario there is no modification on the proposal of the company it still provides
the same types of products in the existing markets in markets where it is already
established.

For a simple and diversified business the most obvious strategic option if the company
wants to grow is often to increase market penetration with existing products.

Market penetration implies increasing share of current markets with the current
product trench. This strategy often builds on established strategic capabilities and does
not require the organization to venture into uncharted territory. In this case the
organization scope is exactly the same.

Generally greater market share implies increased power, presented buyers and
suppliers if you remember the porters 5 forces it also implies greater economies of
scale and experience curve benefits. Basically you are at ease with the market that you
already know.

To run a market penetration strategy companies usually use a price war and strong
marketing investments. In the end they want to gain more customers in this market
they are already invested in. The most dangerous constrain of this situation is about
the exacerbation of industry rivalry because basically other competitors in the market
might want to defend their share .

The Telegraph (UK) suggests offers and promotions

to increase its market share
One example of such market penetration strategy can be when a company is running
some promotions and offers to increase its market share if we take the example of the
Telegraph (the UK newspaper) actually this company to face competition with the
Time they suggest regularly some offers and promotions in order to increase their
market share in the strategy they do not create new products or they do not try to go
to another territory they just try to gain more market shares in a market they are
already invested in.

New Product/ Innovation

When companies do not focus on market
penetration strategies it means that they
start to diversify. Let's focus now on one type
of Related Diversification which is called new
product innovation or also product
development. The strategy is run when
organizations deliver modified or new
products or services to markets they are
already involved in. In this situation
companies modify parts of their proposal
because they modify their portfolio of
products and or services.

This strategy which is related diversification one type of related diversification

corresponds to a limited extension of the front perimeter because more generally the
innovations that are brought up for the existing portfolio products and services are
actually mostly incremental.

As such companies target the same customers and they use mostly very similar
production processes and distribution channels but even incremental innovations
slight modifications brought to our existing products services might actually imply that
some resources and capabilities might need to be developed to reach relevantly this
this objective.

New product or development strategies might typically involve mastering new

processes or new technologies that can be unfamiliar to the organization. The
development of new technological competence is for instance might involves heavy
investments so it can represent but not quite important risk for the organization.
Especially if the innovation tends sometimes to be more radical. Another risk for as the
organisations pursuing new product or innovation strategy uses about bad project
management for instance delayes or increased costs due to project complexity and
potentially changing project specifications overtime might be some dangerous.

Product dev. at Apple

One example of product development or new product strategies can be that of apple
when apple created the iPod actually it created an entirely new radical product but
when these iPod belonged to the perimeter of activity of apple it actually the company
decided to create modified elements modified products along this iPod which
corresponded to product development or new product strategies. to run this strategy
apple decided to modify the size of its iPod it created the iPod mini with a variety of
colors the iPod nano also with a variety of colors sound smaller compared to the iPod
mini and finally they created the iPod shuffle even smaller compared to the two
previous models.

Market Development
Another possibility for companies to run a
Related Diversification is about Market
Development. This strategy can be more
attractive than new product or innovation
strategy for instance because it is
potentially cheaper and quicker to execute.

Market development involves offering

existing products to new markets so
products that are already mastered by the
organization and so two territories or users
that they do not know yet. This type of
scenario is often followed when you want to run an internationalization strategy. In
such a strategy it might be relevant to invest on the appropriate marketing skills and
brands to make progress in a market with unfamiliar customers.

Market Development - Airstar Example

An example of such market development strategy is the company Airstar- It is a
French company that invented the lighting balloons which are made for an appropriate
lighting technology for a diffused inhomogeneous light without shadows and glare
free. The first market for these lights were actually emergency and construction
markets but progressively the product found new users and markets such as the
events industry with the example here of the Paralympic opening ceremony in Sochi
Russia in 2014 or even the cinema the movie industry with funds from stance of the
Pirates of the Caribbean movie in 20O3. The company also developed itself in many
countries around the world.

Conglomerate Diversification
The last scenario is about conglomerate
diversification. So this time it is not anymore
Related Diversification including product or
market already included in the portfolio of
activity at the company this time this strategic
move corresponds to go into new industries with
new products basically on developing a new
profession.

In this sense this type of conglomerate

diversification increases the organization scope.
Even if this type of strategy can be tempting in order to realize a huge growth for the
company this strategy can actually be very risky. More precisely it can be extremely
costly to develop a new set of products to investigate new territories or new
customers and of course develop the appropriate resources and skills.

Example: An interesting example of this conglomerate diversification

strategy is the virgin company. Virgin started in the music industry setting
records but it developed with a new range of products towards new territories
and new industries such as the water industry, the care industry, the casino
industry so many varied industries impacting it's development of scope.