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Strategic Direction

Dr Tahir Rashid
DEVELOPMENT
STRATEGIES
What basis? How? Which direction?
Alternative
directions

• Protect and build
• Market penetration
• Product
development
• Market
development
• Diversification:
related
unrelated
Alternative
methods

• Internal
development
• Acquisition
• Joint development /
alliances
Bases of choice


• Corporate purpose
and aspirations
• SBU generic
competitive
strategies
• The role of the
corporate parent
Development strategies
The strategy clock: Bowman’s competitive strategy options
2
4
5
3
1
8
7
6
Differentiation
Focused
differentiation
Hybrid
Low
Price
‘No frills’
Strategies
destined for
ultimate failure
High
Low
Low High
PERCEIVED
ADDED
VALUE
PRICE
Position
1 ‘No frills’
2 Low price

3 Hybrid

4 Differentiation
a) Without price premium

b) With price premium

5 Focused differentiation

6 Increased price/standard value

7 Increased price/low value
8 Low value/standard price
Needs / risks
Likely to be segment specific
Risk of price war and low margins/need
to be cost leader
Low cost base and reinvestment in low
price and differentiation

Perceived added value by user, yielding
market share benefits
Perceived added value sufficient to bear
price premium
Perceived added value to a particular
segment, warranting price premium
Higher margins if competitors do not
follow/risk of losing market share
Only feasible in monopoly situation
Loss of market share
Bowman uses the dimension ‘Perceived Use Value’
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Exhibit 6.4b The strategy clock: Bowman’s competitive strategy options
LOW PRICE STRATEGIES
COULD BE SUCCESSFUL IF:
• The competitor is the cost leader
... but is this sustainable?
• All sources of cost advantages are exploited, developing
competences in low cost management
... but the danger is a low (perceived) value product or
service
• A competitor has advantage over competitors in a price
sensitive markets segment
... but this may mean focusing on that market segment
THE SUCCESS OF
DIFFERENTIATION
STRATEGIES DEPENDS ON
• Clear identification of who is the customer
• Understanding what is valued by the customer
• Clear identification of who the competitors are and the
value they offer
• Bases of differentiation which are difficult to imitate
• The recognition that bases of differentiation may need to
change
FOCUSED DIFFERENTIATION
• Global market developments increase the need for focus
• Clear definition of market segments in terms of
customers needs is required
• Within a market segment choices of strategic direction
relate to competitors within that segment
• Multi-focused strategies may be possible in some
markets
• New ventures started through focus strategies may be
difficult to grow
Exhibit 7.1 Directions for strategy development
COMPETENCE
PRODUCTS
Existing New
MARKETS
Existing
A
PROTECT/BUILD
 Withdrawal
 Consolidation
 Market penetration
B
PRODUCT
DEVELOPMENT
 On existing competences
 With new competences
New
C
MARKET
DEVELOPMENT
 New segments
 New territories
 New uses
D
DIVERSIFICATION
 On existing competences
 With new competences
DEVELOPMENT
Note: Some companies
will manufacture
components or semi-
finished items. In those
cases there will be
additional integration
opportunities into
assembly or finished
product manufacture.
Repairs and
servicing
BACKWARD INTEGRATION
HORIZONTAL
INTEGRATION
FORWARD
INTEGRATION
Raw materials
manufacture
Components
manufacture
Machinery
manufacture
Product/process
research/design
Raw materials
supply
Components
supply
Machinery
supply

Financing


Transport

Competitive
products
Complementary
products

By-products


Manufacturer

Distribution
outlets

Transport

Marketing
information
Exhibit 7.9 Related diversification options for a manufacturer
DIVERSIFICATION AND
PERFORMANCE
• Diversity of ...
– products
– markets
– competences
• Depends on specific circumstances
– industry growth
– company size
– business cycle
– under-utilised resources
The problem of growth …
Many firms see growth as an objective desirable in
its own right
Growth can be achieved through …


Internal External
Development Development
(organic growth) (acquisition, merger, joint
ventures and
strategic alliances)
Organic growth is …
• Time consuming and slow

• Less disruptive than external development

• Enables competitive advantage to be built
through the development of competencies

• Avoids paying a ‘premium’ for another business
REASONS FOR
MERGERS/ACQUISITIONS
• Speed of market entry
• Acquiring new competences
• Reduce competitive backlash
• Asset stripping
• Cost reduction
BUT SOME DIFFICULTIES
• No-one available
• Integrating activities
• Clash of cultures
– one dominates?
– keep separate?
– build hybrid?
MAKING ALLIANCES WORK
• Proactive attitudes
– trust
– cultural sensitivity
– inter-personal relationships
• Clear organisational arrangements
• Desire to learn (not substitute)
• Allow evolution
Summary
• Generic strategy is about how you compete
• Strategy directions is about where and what you
compete with
• Firms can go in more than one direction at a time –
though this can stretch managerial capability

• Diversification needs to be examined carefully, and
especially in terms of – related v unrelated
• Growth should be treated with the utmost care