Learning Outcomes

At the end of this session you will:

Explain the relationship between forms of ownership and strategic choice Explain the importance of clarity of mission or strategic intent on strategic choice Explain the importance of determining what business we are in Explain different bases of competitive advantage in terms of routes on the strategic clock

Bases of strategic choice

Corporate purpose and aspirations
Ownership Mission and strategic intent Scope and diversity The global dimension

Bases of SBU strategy

Achieving competitive advantage Price-based strategies Differentiation strategies Focus strategies

Enhancing SBU strategy: corporate parenting

Portfolio management Financial strategy The role of the corporate parent The parenting matrix

Development strategies
DEVELOPMENT STRATEGIES What basis?
Bases of choice Corporate purpose and aspirations SBU generic competitive strategies The role of the corporate parent

Which direction?
Alternative Directions Protect and build Market penetration Product development Market development Diversification: related unrelated

How?
Alternative Methods Internal development Acquisition Joint Development/ alliances

The strategy clock: Bowmans competitive strategy options

High Hybrid
3

Differentiation Focused 4 differentiation

5

PERCEIVED ADDED VALUE

Low 2 price

7 8

Low price/ low added value Low Low

Strategies destined for ultimate failure

High PRICE Source: Based on the work of Cliff Bowman. See C.Bowman and D.Faulkner. Competitive and Corporate Strategy, Irwin, 1996.

The strategy clock

1 2 Low price/low added value Low price 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

Hybrid

Differentiation (a) Without price premium (b) With price premium

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

Focused differentiation

Increased price/standard value Increased price/low value Low value/standard price

7 8

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 cost 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 the customer is 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 Differences between segments may be eroded making bases of focus redundant

Key Questions in Strategic Choice

Strategic choices need to take account of the environment and build on core competences Strategic choices need to take account of the expectations and influence of stakeholders Strategic direction and methods should build on broad strategic choices Resources and competences should be developed to deliver and sustain the chosen strategies