1. Advanced Strategic Management and Globalization
Muhammad Atiq (PhD)

2. Business-Level Strategy
What are the bases of achieving competitive advantage in terms of ‘routes’ on the strategy clock?
How to sustain the chosen bases of achieving competitive advantage?
What is the relationship between competition and collaboration?

3. Bases of Competitive Advantage
Competitive strategy is concerned with the basis on which a business unit might achieve competitive advantage in its market
In a competitive situation, customers make choices on the basis of their perception of value-for-money
The ‘strategy clock’ represents different positions in a market where customers have different requirements in terms of value-for-money
Cost and difficulty of imitation are ‘strategic considerations’ for all strategies on the clock

4. The Strategy Clock

5. Price-based Strategies (Routes 1 and 2)
Route 1 – a ‘no-frills’ strategy combines a low price, low perceived product benefits and a focus on a price-sensitive market segment
Route 2 – a low-price strategy seeks to achieve a lower price than competitors whilst trying to maintain similar perceived product benefits to those offered by competitors

6. Price-based Strategies (Routes 1 and 2)
Price-sensitive customers may be unattractive to major providers but offer an opportunity to others
Moreover, price-based strategies are adopted in situations where buyers have high power and/or low switching costs
Such strategies also offer an opportunity to avoid major competitors

7. Price-based Strategies (Routes 1 and 2)
However, price reduction is going to be followed by all competitors leading to reduced margins for everyone
Low margins in turn lead to reduced resources available to develop/innovate products
Hence, low cost in itself is not a basis for achieving competitive advantage
Low cost can be a basis for advantage IF costs can be reduced in ways which others cannot imitate easily

8. Price-based Strategies (Routes 1 and 2)
Possible ways of sustaining low cost advantage are:
achieving much greater sales volume than competitors or cross-subsidising an SBU from elsewhere in the portfolio
Obtaining raw materials at lower prices than competitors or undertaking production in areas where labour cost is low
Organisation specific capabilities deep rooted in the culture and history of the organisation

9. Summing-up Price-based Strategies
“We have adopted the strategy of flank attack. Flank attack is a marketing strategy where those areas of the enemy are hit that are easy to be captured. We are focusing on flank areas like Charsadda, Parachinar, Hangu, Tal etc. They are backward and underdeveloped areas. Such areas are mostly neglected by MNCs, and even if they do send their representatives to such areas, they cannot sell their medicines there because their prices are high compared to us. Doctors in such areas need such medicines that are of good quality but low-priced as well”. (Manager B at Bryon Pharmaceuticals, Peshawar)

10. The Hybrid Strategy (Route 3)
A hybrid strategy seeks simultaneously to achieve differentiation and a price lower than that of competitors
Success depends on delivering enhanced benefits at low prices whilst achieving sufficient margins for reinvestment in order to maintain and develop bases of differentiation
This strategy can be advantageous when:
much greater sales volumes can be achieved than competitors
Entering a market where there are established competitors

11. Differentiation Strategy (Route 4)

12. Differentiation Strategy (Route 4)
A differentiation strategy seeks to provide product benefits that are different from those of competitors and that are widely valued by buyers
The aim is to achieve competitive advantage by offering better products at the same price or enhancing margins by pricing slightly higher

13. Differentiation Strategy (Route 4)
Success of this strategy is dependent on identifying critical success factors and performing better at them in ways that competitors cannot imitate easily
Identifying the strategic group an organisation belongs to, is also essential for crafting a successful differentiation strategy

14. Differentiation Strategy (Route 4)
Difficulty of imitation is likely to come from core competencies rather than tangible resources
By investing in intangible assets and creating switching costs , a firm can sustain differentiation-based advantage
There should also be an emphasis on lowering the costs in order to obtain better margins that can be reinvested in further developing the brand

15. Summing-up Differentiation Strategy
“We are number one in Europe and number four in Pakistan. The majority of our products are research-based products. We conduct large studies and enrich the data continuously. We arrange seminars based on our studies and tell doctors the success rates of our medicines. Therefore, our products are of high quality and have superior efficacy. We are benefiting society through the quality of our medicines. Society is getting benefit in terms of high quality medicines and we are getting benefit in the shape of increasing revenues”.
(Manager C at Sanofi Pakistan)

16. Focused Differentiation (Route 5)
A focused differentiation strategy seeks to provide high perceived product benefits justifying a substantial price premium, usually to a niche
Growing a focused venture is very difficult because growth means moving from route 5 to route 4
The above mentioned movement eventually means a lowering of price as well as product benefits

17. Competition and Collaboration
Theory dictates that competitive advantage can always be achieved by competing
In ideal conditions, kicking out the competitor out of the market will give you competitive advantage
However, practical situation at hand in an industry may warrant inter-organisational collaboration rather than pure competition
Inter-organisational collaboration may lead to the attainment of competitive advantage or simply avoiding competition, thus creating win-win scenario

18. Inter-organisational Collaboration
‘Collaboration is a process in which autonomous actors interact through formal and informal negotiation, jointly creating rules and structures governing their relationships and ways to act and decide on the issues that brought them together; it is a process involving shared norms and mutually beneficial interactions’ (Thomson, 2001, p. 163)

19. Purposes of Inter-organisational Collaboration
Pressure Groups
Innovation/Entering New Markets
Sharing of resources
Creation of new knowledge
Reducing uncertainty
Reducing costs
Practising CSR

20. Strategic Directions and Corporate-Level Strategy
Analyze the choices of products and markets for an organisation to enter or exit
Understand the role of corporate-level activities, decisions and resources in adding value to the actual businesses (SBUs)
Understand which businesses should corporate parents cultivate and which should they divest

21. Strategic Directions and Corporate-Level Strategy
Value creation
Corporate
parenting
Portfolio
management
Diversification
Penetration
Consolidation
Development
Scope decisions

22. Strategic Directions
The Ansoff’s matrix provides a simple way of generating four basic alternative directions for strategic development

23. Market Penetration
An organisation takes increased share of its existing markets with its existing product range
Builds on existing strategic capabilities and is the most obvious strategic direction
Greater market share implies increased power vis-à-vis buyers and suppliers, greater economies of scale and experience curve benefits

24. Market Penetration
However, market penetration may exacerbate competitive rivalry as others defend their share (consolidation) through waging price wars and expensive marketing battles
Acquiring weak competitors can be effective in reducing industry rivalry but that may invite the attention of competition regulators
TOTAL-PARCO and CHEVRON Pakistan

25. Consolidation
Consolidation refers to a strategy by which an organisation focuses defensively on its current markets with current products
It involves defending market share and downsizing or divestment in a declining market
Hence, this strategy does not involve growing the company

26. Product Development
refers to a strategy by which an organisation delivers modified or new products to existing markets
Incremental and radical product innovations
Product development is expensive and high-risk activity because of:
Acquiring new strategic capabilities
Risk of delays and increased costs due to project complexity

27. Product Development
Successful product development requires the achievement of three objectives:
maximise fit with customer requirements
minimise time to entry
control development costs
The attainment of these objectives requires co-ordination among various functions of the firm
Collaboration with customers and suppliers is also required in order to ensure fit with customer requirements and ensure appropriate quality raw materials at minimum costs

28. Market Development
Is where existing products are offered in new markets
Market development might take two forms:
New segments/New Users
New geographies
Market development strategies should be based on products that meet the critical success factors of the new market
Simply off-loading existing products in new markets is bound to fail

29. Diversification
A strategy that takes an organisation away from both its existing markets and its existing products
Diversification is the most radical strategic direction and increases the organisation’s scope
Diversification can be broadly classified as: related diversification and unrelated diversification

30. Related Diversification
Corporate development beyond current products and markets, but within the capabilities or value network of the firm
Abbott Pharmaceutical’s venture in to diagnostics
NBP’s venture in to NAFA funds

31. Related Diversification
Related diversification can be further classified in to vertical integration and horizontal integration
Vertical integration is backward or forward integration in to adjacent activities in the value network
Horizontal integration is development in to activities which are complementary to present activities

32. Related Diversification Options for a Manufacturer

33. Unrelated Diversification
Involves development of products or services beyond the current capabilities and value network
Engro Corporation, Arif Habib Group
Singer company’s venture in to manufacturing motor bikes
Such companies are often called conglomerates

34. Value-Adding Activities of Coporate Parents
Envisioning
Coaching and
facilitating
Providing central
services and
resources
Intervening

35. Value-Destroying Activities of Corporate Parents
Adding management costs
Adding bureaucratic complexity
Obscuring financial performance

36. The Directional Policy Matrix
Also known as GE-McKinsey matrix
This portfolio matrix positions SBUs according to how attractive the relevant market is, in which they are operating and the competitive strength of the SBU in that market
Market attractiveness can be determined from Porter’s five forces framework or market growth rate
SBU’s strength can be determined from strategy canvas or market share

37. The Directional Policy Matrix

38. Strategy Guidelines based on the Directional Matrix

39. The Directional Policy Matrix
The matrix suggests that the businesses with the highest growth potential and the greatest strength are those in which to invest for growth
This matrix also acknowledges the difficult middle ground as compared to BCG matrix
Managers have to be carefully selective for the SBUs that operate in the middle ground