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Strategic Management
Module ~ 4
Dr. T.K. Vijay Kumar
Generic Competitive Strategies
© Dr. T.K. Vijay Kumar
Strategic planning has taken on new importance in today’s world of :-
Globalization, Deregulation, Advancing Technology, Changing Demographics, and
Lifestyles.
Strategic Planning
© Dr. T.K. Vijay Kumar
Strategies (Alternatives) Defined with Examples
Copyright ©2013 Pearson Education
© Dr. T.K. Vijay Kumar Copyright ©2013 Pearson Education
Strategies (Alternatives) Defined with Examples
© Dr. T.K. Vijay Kumar 5
Generic Strategies
Differentiation
Low-cost leadership
Focus
Which hat is
unique?
Which hat is Unique?
© Dr. T.K. Vijay Kumar
Generic Competitive Strategies --
–Lower Cost strategy• Greater efficiencies than competitors
–Differentiation strategy• Unique/superior value, quality, features,
service
© Dr. T.K. Vijay Kumar
PORTER’S GENERIC STRATEGIES
© Dr. T.K. Vijay Kumar
General plan of major action to achieve long-term goals
Falls into three general categories1. Growth2. Stability3. Retrenchment
Grand Strategy
A separate grand strategy can be defined for Global Operations
© Dr. T.K. Vijay Kumar
Growth can be promoted internally by investing in expansion or externally by acquiring additional business divisions
- Internal growth = can include development of new or changed products
- External growth = typically involves diversification – businesses related to current product lines or into new areas
Grand Strategy: Growth
© Dr. T.K. Vijay Kumar
Stability, sometimes called Pause strategy, means that the organization wants
◦to remain the same size or
◦to grow slowly and in a controlled fashion
Grand Strategy: Stability
© Dr. T.K. Vijay Kumar
Stability Strategies
Pause
Proceed-with-caution
No change
Profit
© Dr. T.K. Vijay Kumar
Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry that the business is already in. At the corporate level, it is generally via investing in a promising business outside of the scope of the existing business unit.
Diversification is part of the four main growth strategies defined by the Product/Market Ansoff matrix
Grand Strategy: Diversification
© Dr. T.K. Vijay Kumar
Strategies in Declining IndustriesIn
ten
sity
of
Co
mp
etit
ion
in
Dec
linin
g In
du
stry
Few strengths Many strengths
High
Low
DivestQuickly
Nicheor Harvest
Harvestor Divest
Leadershipor Niche
Leadership: Seek a leadership position in terms of market share.Niche: Create or defend a strong position in a particular segment.Harvest: Manage a controlled disinvestment, taking advantage of strengths.Divest Quickly: Liquidate the investment as early in the decline as possible.
* Value-Add Info.
© Dr. T.K. Vijay Kumar
The organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses
Retrenchment Reduction of expenditures in order to become financially stable. ~ Cutting down or back; reduction, ~ Curtailment of expenses. i.e.,
Downsizing and Curtailment Liquidation
Selling off a business nit for the cash value of the assets, thus terminating its existence
Divestiture Selling off of businesses that no longer seem central to the corporation
Grand Strategy:Retrenchment, Liquidation Divestiture
* Value-Add Info.
© Dr. T.K. Vijay Kumar
Retrenchment Strategies
Turnaround
Captive
Divestment
Bankruptcy
Liquidation
© Dr. T.K. Vijay Kumar
A corporate conglomerate is an
organizational structure
made up of SBU’s
© Dr. T.K. Vijay Kumar
Strategic Business Unit (SBU)
Independent Product-Market unit with:
1. Unique mission2. Identifiable competitors3. External market focus4. Control of its business functions
4.8 Strategic Business Unit p. 89
© Dr. T.K. Vijay Kumar
Purpose of Strategy
The plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization attain its goals
Strategies focus on:●Core competencies●Developing synergy●Creating value for customers
* Value-Add Info.
© Dr. T.K. Vijay Kumar
Competitive advantage is what allows a firm to gain an edge over its Rivals in attracting Customers and Defending against Competitive forces.
Key challenges of competitive advantage:
1. Build Advantage2. Extend Advantage3. Organize for Advantage4. Sustain and Renew Advantage
Strategy & Competitive Advantage
© Dr. T.K. Vijay Kumar
NPD Quality Superior customer service Achieving lower costs Better geographic location Technical expertise Supply chain management Brand image / reputation
Many routes to Competitive Advantage
* Value-Add Info.
© Dr. T.K. Vijay Kumar
The Competitive StrategiesM
ark
et
Targ
et
Type of Advantage Sought
Overall Low-CostProviderStrategy
BroadDifferentiation
Strategy
FocusedLow-CostStrategy
FocusedDifferentiation
Strategy
Best-CostProviderStrategy
Lower Cost Differentiation
BroadRange of Buyers
Narrow Buyer
Segmentor Niche
* Repeat Info.
© Dr. T.K. Vijay Kumar
Strategic Analysis and Decision Making
Methods of Analysis to find and select strategies:
Cluster Analysis
TOWS Matrix
SPACE matrix (Strategic Position and Action
Evaluation Matrix) Portfolio Analysis
Boston Consulting GroupIE (Internal and External) Matrix-- For class use the General
Electric Business Screen (an IE-type matrix)
© Dr. T.K. Vijay Kumar
Cluster Analysis and TOWS
Cluster Analysis is the bringing together of the most important Strengths, Weaknesses, Opportunities and Threats to identify problems. (Core and Distinctive Competencies and Critical Success Factors are likely to be in your Cluster Analysis.)
Cluster Analysis or clustering is the task of grouping a set of objects in such a way that objects in the same group {Ref: Positioning Grid}
When you make a matrix out of SWOT items it is called a TOWS matrix which identifies potential strategic alternative types--SO, WO, ST, WT ( strategies).
* Refer Mod-1
© Dr. T.K. Vijay Kumar
TOWS
TOWS MATRIX is not used to pick alternatives but to give an idea of potential problems, and opportunities and the strategies to overcome or exploit those Opportunities and Threats.
© Dr. T.K. Vijay Kumar25
The TOWS Matrix
List strengths List weaknesses
STRENGTHS - S WEAKNESSES - W
OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES
THREATS - T ST STRATEGIES WT STRATEGIES
List opportunitiesUse strengths to take
advantage of opportunities
Overcome weaknesses by
taking advantage of opportunities
List threats Use strengths to avoid threats
Minimize weaknesses and
avoid threats* Repeat Info.
© Dr. T.K. Vijay Kumar
Portfolio AnalysisTreats product lines or SBU’s as
potential investments.Portfolio Analysis methods include:
Boston Consulting Group (BCG)-Growth Share Matrix—This company is one of largest strategic consulting companies in U.S.
GE Matrix (Similar to IE Matrix–value of the GE Matrix over IE Matrix is that once you plot your company on the Matrix, locations on matrix are associated with best strategies to pick, and types of strategic leadership to initiate strategy.)
Product/Market Evolution Matrix (Not in text)
© Dr. T.K. Vijay Kumar
The BCG MatrixThe BCG Matrix
Relative Market Share Position in the Industry
Industry Sales Growth Rate (Percent)
High +20
Medium 0
Low -20
High Medium Low
1.0 .50 0.0 Question Marks (I)
Dogs (IV)
Stars (II)
Cash Cows (III)
?
© Dr. T.K. Vijay Kumar
BOSTON CONSULTING GROUP (BCG) Quadrant-I --Question Marks ?
Low Market share, Hi Growthuse intensive strategies such as market penetration, market
development, product development Quadrant II, Stars
High Industry Growth RateUse backward and forward integration, horizontal integration, market
penetration, market development, product development and joint ventures
Quadrant III, Cash Cows – High Market Share, Low Industry Growth Rate
Use Product Development or Diversification
Quadrant IV, DogsLow industry Growth Rate, and Low Market Share
Use retrenchment, liquidation, divestment
* Value-Add Info.
© Dr. T.K. Vijay Kumar
Portfolio Analysis using General Electric Business Screen, similar to IE Matrix in text.
Uses industry attractiveness and business competitive strength on axes
Circles represent industry sales, wedge represents companies share of market
Product or SBU position on graph indicates type of strategy likely to be best choice.
We can use IFE weighted score and EFE weighted scores for axes
* Value-Add Info.
© Dr. T.K. Vijay Kumar
General Electric Business Screen
AWinners Winners
B
C
Question Marks
D
F
Average Businesses
EWinners
Losers
GLosers H
LosersProfit
Producers
Strong Average Weak
Low
Medium
High
Business Strength/Competitive Position
Indu
stry
Att
ract
iven
ess
Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company.
© Dr. T.K. Vijay Kumar
Business Strengths / Competitive Position Strong Average Weak
Growth Market/product
Development Concentration via
Vertical Integration
Growth Market/product Development
Concentration via Horizontal Integration
Retrenchment
Turnaround
Stability
Pause or Proceed with Caution
Growth Concentration via
Horizontal Integration Stability
No Change in Profit Strategy
Retrenchment
Captive Company or Divestment
Growth
Concentric Diversification
Growth
Conglomerate Diversification
Retrenchment
Bankruptcy or Liquidation
High
Medium
Low
Ind
ust
ry A
ttra
ctiv
enes
s
* Value-Add Info.
© Dr. T.K. Vijay Kumar
Internal Factor Evaluation (IFE)
Internal Factors Weight RatingWeighted Score Comments
1 2 3 4 5
1.00
Strengths
Weaknesses
Total Weighted Score
* Value-Add Info.
© Dr. T.K. Vijay Kumar
Continuum of Partnership Strategies
Organizational Combination
Strategic Alliances
Preferred Supplier Arrangements
Strategic Business Partnering
Mergers
Acquisitions
Low High
Joint Ventures
Degree of Collaboration
De g
ree
of C
oll a
bor a
ti on
* Value-Add Info.
© Dr. T.K. Vijay Kumar
Financial Restructuring and Turnaround Strategies
Turnaround is the process of corporate renewal and involves planning and analytical tools to save troubled companies and return them to solvent position
To identify the reasons of financial distress
Characteristics of a successful Turnaround plan Employment of Business Consultant, Turnaround specialist, Interim
CEO/Turnaround CEO, Accounting firm, Legal firm and Public Relations Firm Predicting financial distress through ratio analysis Considering financial and non-financial aspects of the business Expert turnaround team- business knowledge, expertise and experience
Turnaround Strategies Revenue Enhancement- Improvement of systems, processes and
technology Cost Reduction Asset Reduction- Portfolio disinvestment through selling off assets is used as
mechanism to raise cash for the turnaround
* Value-Add Info.
© Dr. T.K. Vijay Kumar
LeadershipStructural design Information and control systemsHuman resources
Implementing Strategy Tools
* Value-Add Info.
© Dr. T.K. Vijay Kumar
THANK U