Exploring Corporate Strategy

7th Edition

Part III

Strategic Choices

Slide 7.1
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Exploring Corporate Strategy
7th Edition

Chapter 7

Directions and Methods Of Development

Slide 7.2
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Directions and Methods of Development Outline ‡ Directions for strategy development ‡ Methods of strategy development
² Internal, acquisition, alliance

‡ Forms of strategic alliance ‡ Success criteria for strategic choices
² Suitability, acceptability, feasibility

‡ Techniques to evaluate strategic options
Slide 7.3
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Seventh Edition. © Pearson Education Ltd 2005 .4 Exploring Corporate Strategy.Motives for Strategies ‡ Environment-based ² Fit strategies to changing business environment ‡ Capability-based ² Stretch and exploit organisational resources and competences ‡ Expectations-based ² Meet expectations deriving from cultural and political context Slide 7.

5 Exploring Corporate Strategy. Seventh Edition. © Pearson Education Ltd 2005 . in terms of products and market coverage. taking into account the strategic capability of the organisation and the expectations of stakeholders Slide 7.Development Directions Development directions are the strategic options available to an organisation.

Seventh Edition. © Pearson Education Ltd 2005 Slide 7.Strategy Development Directions Source: Adapted from H. Chapter 6. Penguin. Exhibit 7.1 Exploring Corporate Strategy. Corporate Strategy. 1988.6 . Ansoff.

7 Exploring Corporate Strategy.Protect and strengthen position in current markets with current products ‡ Downsizing or withdrawal from activities ‡ Maintenance of market share Market penetration . © Pearson Education Ltd 2005 .Organisation gains market share ‡ Leverage competences ‡ Desirability of dominant market share Slide 7. Seventh Edition.Protect and Build Consolidation .

8 Exploring Corporate Strategy.Product Development (1) Deliver modified or new products to existing markets ‡ With existing capabilities ² Follow changing customer needs ² Short product life cycles ² Exploitation of core competence in market analysis ‡ With new capabilities ² Change of emphasis in customer needs ² Change in Critical Success Factors (CSFs) Slide 7. © Pearson Education Ltd 2005 . Seventh Edition.

9 Exploring Corporate Strategy. risk and potential unprofitability ² Unacceptable consequences of not developing new products Slide 7.Product Development (2) ‡ Associated dilemmas ² Expense. © Pearson Education Ltd 2005 . Seventh Edition.

© Pearson Education Ltd 2005 . Seventh Edition.Market Development Offer existing products in new markets ‡ ‡ ‡ ‡ New market segments with similar CSFs New uses for existing products New geographic markets Issues ² Normally requires some product development and capability development ² Credibility and expectations Slide 7.10 Exploring Corporate Strategy.

11 Exploring Corporate Strategy.Diversification A strategy that takes the organisation away from both its current markets and products ‡ Related diversification ‡ Unrelated diversification Slide 7. © Pearson Education Ltd 2005 . Seventh Edition.

© Pearson Education Ltd 2005 Slide 7.2 Exploring Corporate Strategy.12 .The TOWS Matrix Exhibit 7. Seventh Edition.

Methods of Strategy Development ‡ Internal Development ² Build on and develop an organisation·s own capabilities ² Organic development ‡ Mergers and Acquisitions ² Take over ownership of another organisation ‡ Strategic Alliances ² Two or more organisations share resources and activities Slide 7. © Pearson Education Ltd 2005 .13 Exploring Corporate Strategy. Seventh Edition.

Seventh Edition.14 Exploring Corporate Strategy. © Pearson Education Ltd 2005 .Motives for Internal Development Environment Capabilities Expectations Avoid culture clash Lack of choice ² Develop highly technical breaking new products in-house to create ground/only one in field core competence Inability to find suitable acquisition target Develop new markets ² direct involvement to increase understanding & create core competence Spread cost over time ² easier for companies with limited resources Avoid potential incompatibility Slide 7.

© Pearson Education Ltd 2005 . avoid competitor resources or reaction competences Deregulation ² created suboptimal units ripe for acquisition Financial ² opportunistic acquisition of firm with low share value Cost efficiency Learning Slide 7. Seventh Edition.Motives for Mergers and Acquisitions Environment Speed in fast-moving product/market Capabilities Exploit core competences in new arena Expectations Institutional shareholders want continuing growth Ambitions of senior managers Speculative to boost short-term share value Competitive situation ² static Address lack of market.15 Exploring Corporate Strategy.

Companies commonly overpay.16 Exploring Corporate Strategy. Seventh Edition. especially for cross country acquisitions Slide 7.Issues in Making Acquisitions Work In many cases acquisitions fail to improve financial performance. ‡ Difficult to add any value ‡ Inability to integrate the new company ‡ Difficult to identify which knowledge to transfer for organisational learning ‡ Problems of cultural fit. © Pearson Education Ltd 2005 .

geographical market entry. Seventh Edition.17 Exploring Corporate Strategy. Public Finance Initiative ‡ Learning ² Helps to develop future competences Slide 7. value chain activities. © Pearson Education Ltd 2005 .Motives for Strategic Alliances ‡ Need for critical mass ² Cost reduction ² Improved customer offering ‡ Co-specialisation ² Each partner concentrates on using own capabilities.g. e.

Types of Strategic Alliance Exhibit 7. Seventh Edition. © Pearson Education Ltd 2005 Slide 7.18 .3 Exploring Corporate Strategy.

Ingredients of Successful Alliances (1) ‡ Clear strategic purpose with senior management support ‡ Compatibility at operational level ² Strong interpersonal relationships ² Transcend national cultural differences ‡ Defining and meeting performance expectations ² Clear goals. governance and organisation ² Simple. Seventh Edition. flexible. © Pearson Education Ltd 2005 .19 Exploring Corporate Strategy. allowed to evolve and change Slide 7.

20 Exploring Corporate Strategy.Ingredients of Successful Alliances (2) ‡ Trust ² Most important for success ² Competence based ² Character based Slide 7. © Pearson Education Ltd 2005 . Seventh Edition.

risk/return) ² Meeting expectations of stakeholders Slide 7.g. © Pearson Education Ltd 2005 . Seventh Edition.21 Exploring Corporate Strategy.Success Criteria for Strategic Options (1) ‡ Suitability ² Whether strategy addresses circumstances in which organisation is operating ² Linked to strategic position ² Rationale of strategy ‡ Acceptability ² The expected performance outcomes (e.

Seventh Edition. © Pearson Education Ltd 2005 .22 Exploring Corporate Strategy.Success Criteria for Strategic Options (2) ‡ Feasibility ² Whether strategy can be made to work in practice ² Linked to strategic capability Slide 7.

4 Exploring Corporate Strategy. © Pearson Education Ltd 2005 Slide 7.23 .Understanding the suitability of strategic options by using concepts about the strategic postion Exhibit 7. Seventh Edition.

strategic spaces Industry threshold standards Basis of competitive advantage Opportunities for vertical integration/outsourcing Acceptability to stakeholders Power and interest ´Realµ acceptability. impact on feasibility Strategy must address Industry convergence Contingency plans Barriers to new entrants Repositioning Eliminate weaknesses Exploit strengths How to integrate (e. © Pearson Education Ltd 2005 Amended Exh 7. Mobility barriers. merger/alliance) Effect on stakeholders Manage power/interest Manage culture clash in merger/alliance Slide 7.g. Seventh Edition.Suitability ² Strategic Position Concept PESTEL Scenarios 5-forces Strategic Groups Core Competence Value chain Stakeholders Cultural web To understand Growth/decline Changes in industry structure Uncertainty/risk Competitive forces Attractiveness of groups.4 .24 Exploring Corporate Strategy.

5 Exploring Corporate Strategy.Some examples of suitability Exhibit 7. Seventh Edition. © Pearson Education Ltd 2005 Slide 7.25 .

Seventh Edition. © Pearson Education Ltd 2005 Capability Build on strengths ² invest and innovate Expectations Better returns at low risk by exploiting current strategies Consolid-ation Market penetration Product developm·t Market developm·t Exploit superior resources & competences Exploit R&D Exploit current products Exploit core competences in new areas Better returns at medium risk by exploiting current strengths or market knowledge Better returns at higher risk by seeking new business Slide 7.5/ split into two Exploring Corporate Strategy.Directions for Growth Strategic Option Suitability in terms of Environment Withdraw from declining markets Sell valuable assets Maintain market share Gain market share for advantage Exploit knowledge of customer needs Opportunities for new geographical market. 7.Examples of Suitability . new segments/uses saturated/declining Adapted from Exh.26 Diversifi-cation Current markets .

Examples of Suitability . © Pearson Education Ltd 2005 Slide 7.27 .5/ split into two Exploring Corporate Strategy. 7. Seventh Edition.Methods of Growth Strategic Option Suitability in terms of Environment First in field Partners/acquisitions not available Speed Supply/demand P/E ratios Speed Industry norm Capability Learning and competence development Spread of cost Acquire competences Scale economies Complementary competences Learning from partners Expectations Cultural/political ease Internal developm·t M&A Returns: growth or share value Problems of culture clash Required for entry Dilutes risk Fashionable Strategic alliance Adapted from Exh.

© Pearson Education Ltd 2005 Slide 7.28 .Understanding the relative suitability of Strategic options Exhibit 7.6 Exploring Corporate Strategy. Seventh Edition.

Why Strategies may be Unsuitable ‡ Biased ² Not addressing all three factors of environment. © Pearson Education Ltd 2005 . Seventh Edition.29 Exploring Corporate Strategy. development direction and development method Slide 7. capability and expectations ‡ Relative suitability ² Other options may be more suitable ‡ Elements of strategy not internally consistent ² Competitive strategy.

30 .7 Exploring Corporate Strategy.Some criteria for understanding the acceptability of strategic options Exhibit 7. © Pearson Education Ltd 2005 Slide 7. Seventh Edition.

Seventh Edition.Criteria for Acceptability Criteria Return Profitability Financial return on investments ROCE Payback period DCF Major infrastructure projects Apply to discrete projects Only tangible costs/benefits Difficulties of quantification To Understand Examples Limitations Cost-benefit Wider costs/benefits (incl. intangibles) Sequence of decisions Real options Real options analysis Quantification Shareholder value analysis Impact on shareholder value Mergers and acquisitions Technical detail often difficult Slide 7. 7. © Pearson Education Ltd 2005 .31 Adapted from Exh.7/ split into two Exploring Corporate Strategy.

© Pearson Education Ltd 2005 Slide 7. 7.Criteria for Acceptability Criteria Risk Financial ratio projections Sensitivity analysis Robustness of strategy Break-even analysis Impact on gearing/liquidity What if? analysis Tests factors separately To Understand Examples Limitations Test assumptions/ robustness Stakeholder reactions Political dimension Stakeholder mapping Game theory Largely qualitative Adapted from Exh.32 .7/ split into two Exploring Corporate Strategy. Seventh Edition.

© Pearson Education Ltd 2005 Slide 7.33 .Assessing profitability Exhibit 7.8a Exploring Corporate Strategy. Seventh Edition.

34 .8b Exploring Corporate Strategy. Seventh Edition. © Pearson Education Ltd 2005 Slide 7.Assessing profitability Exhibit 7.

Copyright © 1989 by the Harvard Business School Publishing Corporation. Seventh Edition. Exhibit 7. Adapted from T.9 Exploring Corporate Strategy. p. © Pearson Education Ltd 2005 Slide 7. 3.Real options framework Source: Reprinted with permission of Harvard Business Review. all rights reserved. 1998. ´Strategy as a portfolio of real optionsµ.35 . Luehrman. September-October.A.

Feasibility ‡ Financial ² Funds flow forecasting ² timing of new funding ² Break-even analysis ‡ Resource deployment ² Resources and competences needed ‡ Threshold ‡ Unique resources/core competences ² Scale. timetable for change Slide 7. quality of resource. Seventh Edition. © Pearson Education Ltd 2005 .36 Exploring Corporate Strategy.

Seventh Edition.10 Exploring Corporate Strategy. © Pearson Education Ltd 2005 Slide 7.Resource Deployment Exhibit 7.37 .

© Pearson Education Ltd 2005 .Key Points (1) ‡ Three elements of strategic choice ² Competitive strategy ² Direction of development ² Method of development ‡ Four categories of development directions ² ² ² ² Protect and build Product development Market development Diversification Slide 7. Seventh Edition.38 Exploring Corporate Strategy.

Seventh Edition.39 Exploring Corporate Strategy. © Pearson Education Ltd 2005 .Key Points (2) ‡ Three methods of strategy development ² Internal development ² Mergers and acquisitions ² Strategic alliances ‡ Three success criteria for strategic options ² Suitability ² Acceptability ² Feasibility ‡ Range of analytical techniques for evaluation of strategic options Slide 7.

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