Vision & Mission Strategy Formulation External Opportunities & Threats Internal Strengths & Weaknesses Alternative Strategies Strategy Selection Strategic formulation Long term objectives

Strategies for taking the hill won’t necessarily hold it. – Amar Bhide Strategies in Action The early bird may get the worm, but the second mouse gets the cheese. – Unknown

Types of Generic Strategies Integration Strategies: related to industrial value chain Intensive Strategies: markets size and market share Diversification Strategies: a movement into other business areas Defensive Strategies: related to those when company is in “trouble”

Types of Strategies Integration Strategies Forward Integration Backward Integration Horizontal Integration

Forward Integration Strategies  Attempts to gain control over: Distributors and Retailers  should be adopted when:  Current distributors – expensive or unreliable  Availability of quality distributors – limited  Firm competing in industry expected to grow markedly  Firm has both capital & HR to manage new business of distribution  Current distributors have high profit margins

Backward Integration Strategies  Control of Firm’s suppliers  should be adopted when:  Current suppliers – expensive or unreliable  # of suppliers is small; # of competitors is large  High growth in industry sector  Firm has both capital & HR to manage new business  Stable prices are important  Current suppliers have high profit margins

Horizontal Integration Strategies  Control of Firm’s Competitors  should be adopted when:  Gain “lawful” monopolistic characteristics with out government challenge  Competes in growing industry  Increased economies of scale – a major competitive advantage by increase in size  Faltering due to lack of managerial expertise or need for particular resource

Types of Strategies Intensive Strategies Market Penetration Market Development Product Development

Strategy should be adopted when :  Current markets not saturated  Rate of present customers can be increased significantly  Shares of competitors declining; industry sales increasing  Increased economies of scale (increase units of production cause reduction in average cost to produce a unit) provide major competitive advantage Market Penetration Strategies: Increased Market Share of Present products/services or Present markets

 New channels of distribution – reliable, inexpensive, good quality  When Firm is successful at what it does  Untapped/unsaturated markets  Excess production capacity  Basic industry rapidly becoming global Strategy should be adopted when : Market Development Strategies: New Markets -- Present products/services to new geographic areas

 Products in maturity stage of life cycle  Industry characterized by rapid technological development  Competitors offer better-quality comparable prices  Strong R&D capabilities Product Development Strategies: Increased Sales -- Improving present products/services or developing new products/services Strategy should be adopted when :

Types of Strategies Diversification Strategies Related Diversification Unrelated Diversification

Related Diversification Preferred To Capitalize on: Combining the related activities of separate businesses into a single operation to lower costs Cross-business collaboration to create competitively valuable resource strengths and capabilities

Related Diversification May be Effective When: An organization competes in a no-growth or a slow growth industry New, but related, products have seasonal sales levels that counterbalance an organization’s existing peaks and valleys An organization’s products are currently in the declining stage of the product’s life cycle

Unrelated Diversification Favours capitalising on a portfolio of businesses that are capable of delivering excellent financial performance Entails hunting to acquire companies: –Whose assets are undervalued –That are financially distressed –With high growth potential but are short on investment capital

Unrelated Diversification May be Effective When: An organization’s current distribution channels can be used to market new products to existing customers An organization has the capital and managerial talent to compete successfully in a new industry An organization’s basic industry is experiencing declining annual sales and profits An organization has the opportunity to purchase an unrelated business as an attractive investment opportunity

Types of Strategies Defensive Strategies Retrenchment Divestiture Liquidation

Defensive Strategies  Retrenchment: reduce Costs & assets to reverse declining sales & profit  Divesture: Selling a division or part of an organization  Liquidation: Sell Company’s assets, in parts, for only their tangible worth; not for their copyrights …

Retrenchment Strategies Guidelines --  Failed to meet objectives & goals consistency; has distinctive competencies  Firm is one of weaker competitors  Inefficiency, low profitability, poor employee morale, pressure for stockholders  Strategic managers have failed  Rapid growth in size; major internal reorganization necessary

Divestiture Strategies Guidelines --  Retrenchment failed to attain improvements  Division needs more resources than are available  Division responsible for firm’s overall poor performance  Division is a mis-fit with organization  Large amount of cash is needed and cannot be raised through other sources

Liquidation Strategies Guidelines --  Retrenchment & divestiture failed  Only alternative is bankruptcy  Minimize stockholder loss by selling firm’s assets

Michael Porter’s Generic Strategies Cost Leadership Strategies Differentiation Strategies Focus Strategies

Generic Strategies  underprice competitors or offer a better value  thereby gain market share and sales  driving some competitors out of the market entirely. Low Cost strategy: the basic idea

Cost Leadership: lowest/best price Ways of ensuring total costs across value chain are lower than competitors’ total costs 1.Perform value chain activities more efficiently than rivals and control factors that drive costs 2.Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities

Cost Leadership: lowest/best price Can be especially effective when: 1.Price competition among rivals is vigorous 2.Rival’s products are identical and supplies are readily available 3.Most buyers use the product in the same way 4.Buyers are large and have significant power 5.Industry newcomers use low prices to attract buyers

 producing products that are considered unique  allows a firm to charge higher prices  gain customer loyalty   risk associated with differentiation strategy:  unique product may not be valued highly enough by customers to justify the higher price.:  Some of the requirements for a successful differentiation strategy:  strong coordination among the R&D and marketing functions  substantial amenities to attract scientists and creative people. Differentiation: Unique products

Differentiation Can be especially effective when: 1.There are many ways to differentiate and many buyers perceive the value of the differences 2.Buyer needs and uses are diverse 3.Few rival firms are following a similar differentiation approach 4.Technology change is fast paced and competition revolves around evolving product features

Generic Strategies  two types:  producing products and services that fulfill the needs of small groups of consumers (niche market).  products or services to a small range (niche) of customers at the lowest price available on the market. (focused differentiation) Focused Strategies (Type 4 & 5)

Focused Strategy Can be especially effective when: 1.The target market niche is large, profitable, and growing 2.Industry leaders do not consider the niche crucial 3.Industry leaders consider the niche too costly or difficult to meet 4.The industry has many different niches and segments 5.Few, if any, other rivals are attempting to specialize in the same target segment

Using Information Systems to Achieve Competitive Advantage Low-cost leadership  Use information systems to achieve the lowest operational costs and the lowest prices  E.g., Walmart Inventory replenishment system sends orders to suppliers when purchase recorded at cash register Minimizes inventory at warehouses, operating costs Efficient customer response system

Using Information Systems to Achieve Competitive Advantage Example Supermarkets and large retail stores such as Walmart use sales data captured at the checkout counter to determine which items have sold and need to be reordered. Walmart’s continuous replenishment system transmits orders to restock directly to its suppliers. The system enables Walmart to keep costs low while fine-tuning its merchandise to meet customer demands.

Product differentiation  Use information systems to enable new products and services, or greatly change the customer convenience in using your existing products and services  E.g., Google’s continuous innovations, Apple’s iPhone  Use information systems to customize, personalize products to fit specifications of individual consumers E.g., Nike’s iD program for customized sneakers Using Information Systems to Achieve Competitive Advantage

Focus on market niche  Use information systems to enable specific market focus, and serve narrow target market better than competitors Analyzes customer buying habits, preferences Advertising pitches to smaller and smaller target markets  E.g., Hilton Hotel’s OnQ System Analyzes data collected on guests to determine preferences and guest’s profitability Using Information Systems to Achieve Competitive Advantage

Strengthen customer and supplier intimacy  Strong linkages to customers and suppliers increase switching costs and loyalty  Toyota: uses IS to f acilitate direct access from suppliers to production schedules Permits suppliers to decide how and when to ship supplies to plants, allowing more lead time in producing goods.  Amazon: keeps track of user preferences for purchases, and recommends titles purchased by others Using Information Systems to Achieve Competitive Advantage

Successfully using IS to achieve competitive advantage requires precise coordination of: –technology, –organizations, –and people Using Information Systems to Achieve Competitive Advantage

Question Describe three of the following types of generic strategies: integration, intensive, diversification or defensive (9 marks) Explain, using suitable example, when any two of these strategies could be used. (8 marks) Discuss the type of strategy: integration, intensive, diversification or defensive, which you would consider to be most appropriate for the D.I.T. in the current economic climate. (13 marks)

Questions Describe three of the following types of generic strategies: integration, intensive, diversification or defensive (10 marks) Describe two of Porter’s strategies’s: low-cost, differentiation and focus. (8 marks) Explain the relationship between these two strategies and the size of the market. (6 marks) Compare, using examples, any one of the generic strategies with any one of Porter’s strategies (6 marks)