Management
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Strategic options: Strategic directions
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LD0495
Lecture 7
8/3/15
1
Reminder: Outline of the process of strategic management
Business
Environment
Current
Strategies
SWOT
Key
Issues
Feedback
Strategic
Options
Strategy
Implementation
Analysis
Strategic
Capability
Current
Objectives
Diagnosis
Decision
Implementation
A simplified view of the process
The Past
Analysis
The Future
Key
Issues
Strategic
Options
Strategy
Implementation
From past to the future
• The end-point of the analysis explained in Semester
1 was the diagnosis of the firm – the key strategic issues that have to be addressed by management
• Management must choose future strategies from a set of strategic options
• The strategic options include:
– Development Strategies = Strategic Direction
– Competitive Strategies
The Key Strategic Decisions
What markets should we be in?
What products/services should we provide?
How do we compete in our chosen markets?
Development Strategy or Strategic Direction
Competitive Strategy
Development Strategy Options
• Elaborating the core business
– Can we increase our market share?
– Can we find new markets for our products?
– Can we find new products for our markets?
• Extending the core business
– What business do we want to be in?
• Simplifying or reducing the core business
– Consolidate/rationalise our markets/products
– Withdraw from part (or all) of the business
• Ansoff’s Product/Market Matrix
Elaborating the Core
Product
Development
Market
Core
Penetration
Business
Market
Development
Business Level
Strategies
Market Penetration
• Increasing the firm’s share of its current market
– In the early stages of the product lifecycle the firm can increase market share at low cost and without increasing competitive rivalry
– In saturated markets the firm may increase market share through more intensive selling and product enhancement - incurs costs and increases competitive rivalry (diminishing returns)
• Relatively risk free, but not always “easy”
• Can be very expensive when rivalry is high
Market Development
• Using current products/services:
– Identify new market segments, e.g.
• Clothes for younger customers
• Universities and “Lifelong Learning”
– Geographical market expansion
• Regional National International
– Identify new uses for current products
• e.g. Aspirin to prevent blood clots
• Seeking economies of scale in production
• Risk of mistakes through misunderstanding the needs of the new market
Product Development
• Substantial additions to current product range but aimed at the same customers, e.g.:
– M&S offering financial services
– Kodak offering digital cameras
• Needs innovation, knowledge, technology, design skills
- expensive for small businesses
• Seeking economies of scope in marketing and distribution • Risk of mistakes through ignorance of technology what if the new product doesn’t work?
Extending the Core
New Business
Corporate Strategy
Core
Business
New
Business
Related
Diversification
Unrelated
Diversification
New
Business
Related Diversification
• Move away from core business
– Retain the “old” core?
– Abandon the “old” core?
• Related through Value Chain linkages
• Likely to require the development or acquisition of new competencies
• Example: Vertical Integration - extending value
chain