STRATEGIC CHOICE

Results of the strategy formulation process

Results of Process Chosen Strategy Strategic Intent

CONTEXT

Strategic Assessment

Available Options

Choosing a strategy from among strategic options

Logically viable options/ Chosen Strategy Aligned but Infeasible Options

Choice Criteria/ No options identified

Strategic Intent

Feasible but Unaligned Options

Strategic Assessment

Available Options
3

Structure for making strategic choice

What Options are available?

Options about products, markets and services

Options to improve resources & capabilities

Options of method on how to progress

Choice Criteria -Assessment -Intent Who should be involved in the Choice?

Linking into available strategic options Theoretical Frameworks for making strategic choice

Making the Choice

Chosen Strategy

The strategy clock: Bowmans competitive strategy options

High Hybrid
3

Differentiation Focused 4 differentiation

5

PERCEIVED ADDED VALUE

Low 2 price
7 8

Low

Low price/ low added value 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 3 4 Low price/low added value Low price Hybrid Differentiation (a) Without price premium (b) With price premium 5 6 7 8 Focused differentiation Increased price/standard value Increased price/low value Low value/standard 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 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

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

FUNCTIONAL STRATEGIES

MARKETING STRATEGY

Marketing strategy Involved with pricing, selling, and distributing a product.

11

MARKETING STRATEGY

Market development strategy

Capture

a larger share of existing market through market saturation and market penetration Develop new markets for current products

12

MARKETING STRATEGY

Product development strategy

Develop

new products for existing markets Develop new products for new markets

13

MARKETING STRATEGY

Advertising or Promotion strategy

Push

marketing strategy

Investing in trade promotion to gain or hold share

Pull

marketing strategy

Investing in consumer advertising to build brand awareness

14

FINANCIAL STRATEGY

Financial strategy
Examines

the financial implications of corporate and business-level strategic options and identifies the best financial course of action. Maximizes financial value of the firm

15

FINANCIAL STRATEGY

Tracking stock
Highlighting

a high-growth business unit in a popular sector of the stock market.

Keeping subsidiarys common stock separately identified

16

R&D STRATEGY

R&D Strategy Deals with product and process innovation and improvement Choice:
Technological

leader Technological follower

17

OPERATIONS STRATEGY

Operations strategy
Determines:

How and where product is manufactured Level of vertical integration in process Deployment of physical resources Relationships with suppliers

18

OPERATIONS STRATEGY

Manufacturing strategy
Affected

by product life cycle

Job shop Connected line batch flow Flexible manufacturing system Dedicated transfer lines

19

OPERATIONS STRATEGY

Manufacturing strategy
Movement

from mass production to:

Continuous improvement Modular manufacturing Mass customization

20

PURCHASING STRATEGY

Purchasing strategy
Obtaining

raw materials, parts and supplies

Basic Purchasing Choices: Multiple sourcing Sole sourcing Parallel sourcing

21

LOGISTICS STRATEGY

Logistics strategy
Flow

of products into and out of the process

Three current trends: Centralization Outsourcing Use of the Internet

22

HRM STRATEGY
HRM strategy
Addresses

issues of:

Low-skilled employees Low pay Repetitive tasks High turnover Skilled employees High pay Cross trained Self-managing teams
23

STRATEGIC CHOICE
Selecting the Best Strategy: Constructing Corporate Scenarios:
Corporate

Scenarios

Pro forma balance sheets and income statements that forecast effects of alternatives on return on investment

24

STRATEGIC CHOICE
Selecting the Best Strategy: Constructing Corporate Scenarios:
Steps

in constructing scenarios

Use industry scenarios Develop common-size financial statements Construct detailed pro forma financial statements for each alternative

25

Scenario Box to Generate Pro Forma Statements

1 Probjections Last Factor GDP Year Historical Average Tr end Analysis O 19 P ML O 19 P ML O 19 P ML Comments

Chapter 7 Wheelen/Hunger

CPI Other Sales units Dollars COGS Advertising and marketing Interest expense Plant expansion Dividends Net pr ofits EPS ROI ROE Other

26

STRATEGIC CHOICE

Attitude Toward Risk:

Risk

is composed of:

Probability of effective strategy Amount of assets committed Length of time of asset commitment

27