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: Bowmans 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: Bowmans 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