ISM 6 Strategic Choice

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

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STRATEGIC CHOICE

Results of the strategy formulation process

Choosing a strategy from among strategic options

Logically viable options/ Chosen Strategy Aligned but Infeasible Options

Choice Criteria/ No options identified

Feasible but Unaligned Options

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?

Making the Choice

The strategy clock: Bowmans competitive strategy options

Differentiation Focused 4 differentiation

PERCEIVED ADDED VALUE

Low price/ low added value Low

Strategies destined for ultimate failure

The strategy clock

LOW PRICE STRATEGIES COULD BE SUCCESSFUL IF:

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

Market development strategy

Product development strategy

Advertising or Promotion strategy

Investing in trade promotion to gain or hold share

Investing in consumer advertising to build brand awareness

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

leader Technological follower

by product life cycle

from mass production to:

Continuous improvement Modular manufacturing Mass customization

raw materials, parts and supplies

Basic Purchasing Choices: Multiple sourcing Sole sourcing Parallel sourcing

of products into and out of the process

Three current trends: Centralization Outsourcing Use of the Internet

Scenario Box to Generate Pro Forma Statements

Attitude Toward Risk:

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