Lecture - Week 7 - Strategic Chocies - Business Strategies

BUSI1633 – Strategy for Managers
Dr. Sterling Rauseo, Module Leader

Week 7 – Lecture
Strategic choices - Business Strategy
Slide materials courtesy Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy, 10th edition ©Pearson Education Limited 2014
Learning outcomes
• Introduction to Exploring Strategy – Strategic
Choices
• Assess business strategy in terms of the generic
strategies of cost leadership, differentiation,
focus and hybrid strategy.
• Apply the Strategy Clock model to assessing
hybrid strategies
Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Slide 1.4
The strategy checklist

Strategic position Strategic choices Strategy in action
• What are the • How should business units • Are strategies suitable,
environmental compete? acceptable and feasible?
opportunities and threats? • Which businesses to • What kind of strategy-
• What are the include in a portfolio? making process is
organisation’s strengths • Where should the needed?
and weaknesses? organisation compete • What are the required
• What is the basic purpose internationally? organisation structures
of the organisation? • Is the organisation and systems?
• How does culture fit the innovating appropriately? • How should the
strategy? • Should the organisation organisation manage
buy other companies, ally necessary changes?

Used to
analyse your or go it alone? • Who should do what in the
case strategy process?
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 6.5
1.5
2.5
3.5
Strategic choices
Business Strategy
Generic competitive strategies
Michael Porter introduced the term ‘generic
strategy’ to mean basic types of competitive
strategy that hold across many kinds of business
situations.
• Competitive strategy is concerned with how a
company, business unit or organisation achieves
competitive advantage in its domain of activity.
• Competitive advantage is about how a company,
business unit or organisation creates value for its
users, both greater than the costs of supplying
them and superior to that of rivals.
Three generic strategies
Use in
Strategic
Choices in
analysing
your case
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by
Michael E. Porter. Copyright © 1985, 1998 by Michael E. Porter. All rights reserved.
Cost-leadership strategy
Cost-leadership strategy involves becoming the
lowest-cost organisation in a domain of activity.
Four key cost drivers that can help deliver cost
leadership:
• Lower input costs
• Economies of scale
• Experience
• Product/process design.
Differentiation strategy (1 of 2)
Differentiation involves uniqueness along some
dimension that is sufficiently valued by customers
to allow a price premium.
• Within each market businesses may
differentiate along different dimensions.
Two key issues to consider:
• The strategic customer on whose needs the
differentiation is based.
• Key competitors – who are the rivals and who
may become a rival.
Differentiation strategy (2 of 2)
The key drivers of differentiation are:
• Product and service attributes – providing better
or unique features (e.g. Apple or Dyson).
• Customer relationships – customer service and
responsiveness (e.g. Zalando); customisation (e.g.
SAP) or marketing and reputation (e.g. Coca Cola).
• Complements – building on linkages with other
products/services (Apple and iTunes).
Focus strategy (1 of 3)
A focus strategy targets a narrow segment or domain
of activity and tailors its products or services to the
needs of that specific segment to the exclusion of
others.
Two types of focus strategy:
• Cost-focus strategy (e.g. Ryanair).
• Differentiation focus strategy (e.g. Ecover for
ecological cleaning products).
• Cost focusers identify areas where broader cost
based strategies fail because of the added cost of
trying to satisfy a wide range of needs (e.g.
Iceland Foods).
• Differentiation focusers look for specific needs
that broad differentiators do not satisfy so well
(e.g. ARM Holdings in the market for mobile
phone chips).
Successful focus strategies depend on at least one
of three key factors:
• Distinct segment needs.
• Distinct segment value chains.
• Viable segment economics.
Combining generic strategies
• A company can create separate strategic
business units each pursuing different generic
strategies and with different cost structures.
• Technological or managerial innovations where
both cost efficiency and quality are improved.
• Competitive failures – if rivals are similarly ‘stuck
in the middle’ or if there is no significant
competition then middle strategies may work.
• Hybrid strategies.
Hybrid strategy
A hybrid strategy combines different generic
strategies.
For example Southwest Airlines (USA)
famously pioneered low cost air fares but also
seeks to differentiate on convenience,
frequent departures and friendly service.
Use in
The Strategy Clock (1 of 2) Strategic
Choices in
analysing
your case
The strategy clock provides an alternative
approach to generic strategy which gives more
scope for hybrid strategies.
It has two distinct features:
• It is focused on the prices to customers rather
than the costs to organisations.
• The circular design allows for incremental
adjustments in strategy rather than stark
choices.
The Strategy Clock (2 of 2)
Source: Adapted from D. Faulkner and C. Bowman, The Essence of Competitive Strategy, Prentice Hall, 1995.
Strategy clock – differentiation
• Strategies in this zone seeks to provide products
that offer perceived benefits that differ from
those offered by competitors.
• There is a range of alternative strategies:
– differentiation without price premium (12 o’clock)
– used to increase market share.
– differentiation with price premium (1 o’clock) –
used to increase profit margins.
– focused differentiation (2 o’clock) – used for
customers that demand top quality and will pay a
big premium.
Strategy clock – Low-price
Low price combined with low perceived value.
• A standard low-price strategy (9 o’clock)
Low prices combined with similar quality to
competitors aimed at increasing market share.
Needs a cost advantage (such as economies of
scale) to be sustainable, e.g. Asda/Walmart in
grocery retailing.
• A ‘no-frills’ strategy (7 o’clock)
Focusing on price sensitive market segments –
typified by low-cost airlines like Ryanair.
Strategy clock – hybrid strategy
Seeks to simultaneously achieve higher benefits
and lower prices relative to those of competitors.
Hybrid strategies can be used:
• to enter markets and build position quickly;
• as an aggressive attempt to win market share;
• to build volume sales and gain from mass
production.
A classic example is IKEA.
Strategy clock – non-competitive
strategies
Increased prices with low perceived product or
service benefits.
• In competitive markets, such strategies will be
doomed to failure.
• Only feasible where there is strategic ‘lock-in’ or
a near monopoly position.
Slide 2.23
1.23
Review last years reports
• For next week’s tutorial :

• Review Section 3 (under Last Year’s
Reports section on Moodle) in last year’s
reports and grade each in terms of which of
depth of analysis and discussion of Section
3- Strategic Choices - TOWS analysis
discussion in terms the strategies
Porter’s Generic and/or Hybrid strategies
Learning outcomes & next Steps
• Introduction to Exploring Strategy – Strategic
Choices
• Assess business strategy in terms of the generic
strategies of cost leadership, differentiation,
focus and hybrid strategy.
• Apply the Strategy Clock model to assessing
hybrid strategies
Next week we explore Strategic Choices’

Corporate Strategy & Diversification and
Bringing Strategic Choices Together

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BUSI1633 – Strategy for Managers

Dr. Sterling Rauseo, Module Leader

Strategic choices - Business Strategy

The strategy checklist

buy other companies, ally necessary changes?

Review last years reports

• For next week’s tutorial :

Next week we explore Strategic Choices’

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