Strategic management presentation 2 PRESENTED BY: J CHIMTENGO LEVELS OF STRATEGY 1 . Corporate-level strategy: • is concerned with the overall scope of an organisation and how value is added to the constituent businesses of the entire organisation. • Corporate-level strategy issues include geographical scope, diversity of products or services, acquisitions of new businesses, and how resources are allocated between the different elements of the organization. • Being clear about corporate-level strategy is important: determining the range of businesses to include is the basis of other strategic decisions, such as acquisitions and alliances. 09/08/2022 2. Business-level strategy • Business-level strategy is about how the individual businesses should compete in their particular markets (this is often called ‘competitive strategy’). • These might be stand-alone businesses, for instance entrepreneurial start-ups, or ‘business units’ within a larger corporation. • Business-level strategy typically is concerned with issues such as innovation, appropriate scale and response to competitors’ moves. E.G at Tesla, this means rolling out a lower cost electric car to build volume and capture market share in advance of potential competitor entry. 09/08/2022 BUSINESS LEVEL STRATEGY…………… • In the public sector, the equivalent of business-level strategy is decisions about how units (such as individual hospitals or schools) should provide best-value services. • Where the businesses are units within a larger organisation, business-level strategies should clearly fit with corporate-level strategy. 09/08/2022 3. Functional strategies • Functional strategies are concerned with how the components of an organisation deliver effectively the corporate- and business-level strategies in terms of resources, processes and people. • In most businesses, successful business strategies depend to a large extent on decisions that are taken, or activities that occur, at the functional level. • Functional decisions need therefore to be closely linked to business-level strategy. They are vital to successful strategy implementation. 09/08/2022 FUNCTIONAL STRATEGY……………… • This need to link the corporate, business and functional levels underlines the importance of integration in strategy. • Each level needs to be aligned with the others. • The demands of integrating levels define an important characteristic of strategy: strategy is typically complex, requiring careful and sensitive management. • Strategy is rarely simple. 09/08/2022 The ‘Exploring Strategy’ Framework • The Exploring Strategy Framework includes understanding the strategic position of an organisation; assessing strategic choices for the future; and managing strategy in action. • Strategy could theoretically be presented in a linear sequence of strategic position, assessing strategic choice, and managing strategy in action. • However, in reality, strategy does not always occur in such linear sequence. 09/08/2022 The exploring strategy framework. 09/08/2022 Strategic Position • The strategic position is concerned with the impact on strategy of the macroenvironment, the industry environment, the organisation’s strategic capability (resources and competences), the organisation’s stakeholders organisation’s culture. • Understanding these five factors is central for evaluating future strategy. 09/08/2022 and the Strategic Choices • Strategic choices involve the options for strategy in terms of both the directions in which strategy might move and the methods by which strategy might be pursued. • E.g. An organisation might have a range of strategic directions open to it: (diversification into new products; enter new international markets; or transform its existing products and markets through radical innovation. 09/08/2022 Strategic choices • These various directions could be pursued by different methods: ⮚e.g. acquire a business already active in the product or market area; ⮚form alliances with relevant organisations that might help its new strategy; ⮚or pursue its strategies on its own. 09/08/2022 Strategic choices: Options • Diversification • Mergers and acquisitions • Internationalization / international strategy • Entrepreneurship and innovation 09/08/2022 Strategy in Action • Managing strategy in action is about how strategies are formed and how they are implemented. The emphasis is on the practicalities of managing. i) Strategy performance and evaluation. Managers have to decide whether existing and forecast performance is satisfactory and then choose between options that might improve it. • The fundamental evaluation questions are as follows: are the options suitable in terms of matching opportunities and threats; are they acceptable in the eyes of significant stakeholders; and are they feasible given the capabilities available? 09/08/2022 ii) Strategy development processes. • Strategies are often developed through formal planning processes. • However, sometimes the strategies an organisation actually pursues are emergent – in other words, accumulated patterns of ad hoc decisions, bottom-up initiatives and rapid responses to the unanticipated. • Given the scope for emergence, the fundamental question is: what kind of strategy process should an organisation have? 09/08/2022 iii) Organizing • Once a strategy is developed, the organisation needs to organize for successful implementation. Each strategy requires its own specific configuration of structures and systems. • The fundamental question, therefore, is: what kinds of structures and systems are required for the chosen strategy? 09/08/2022 iv) Leadership & change • In a dynamic world, strategy inevitably involves change. • Managing change involves leadership, both at the top of the organisation and lower down. • There is not just one way of leading change, however: there are different styles and different levers for change. • So the fundamental question is: how should the organisation manage necessary changes entailed by the strategy? 09/08/2022 v) Strategy and practice • Inside the broad processes of strategy development and change is a lot of hard, detailed work. • The fundamental question in managing this work is: who should do what in the strategy process? 09/08/2022 Strategic Management model /process 09/08/2022 Characteristics of Clear Objectives ❑Quantitative - objectives are those that can be tracked and evidenced by data. ❑Measurable - An objective describes the end results to be achieved by the firm. It refers to measurable targets. ❑Realistic - Within reach, realistic, and relevant to fit in with the overall vision and mission of the organization. ❑Understandable – management must understand where the organization stands now and where it has been. Characteristics of Objectives– Cont’ ❑Challenging – objectives must be motivational to the team to offer opportunities for self development. ❑Hierarchical – they are needed at corporate, divisional and functional levels of the organization. ❑Obtainable – Is it feasible to pull them off? ❑Congruent across the department – suitable and appropriate to the whole departmental unit. Benefits of Clear Objectives ❑Provide direction by revealing expectations ❑Allow Synergy – extra energy, power, success is achieved as two or more people or companies work together, instead of on their own ❑Assist in evaluation by serving as standards – guides in what is expected; quality and behaviour ❑Establish priorities – clear determination of significant actions to undertake. Benefits of Clear Objectives – Cont’ ❑Reduce uncertainty – the organization is very much certain/sure of the outcome. ❑Minimize conflicts – objectives help skills advancement and tactical positioning. ❑Stimulate exertion – aid in adding more effort. ❑Aid in allocation of resources. ❑Aid in design of jobs – arrangement of work in such a way that eliminates job dissatisfaction and alienation. ❑Provide basis for consistent decision making Types of Strategies Integration Strategies ❑These are vertical and horizontal actions by firms in the implementation of their ‘game plans’. Types Of Integration Strategies ❑Forward integration ❑Backward integration ❑Horizontal integration Forward Integration ❑This is a business strategy taken by firms to gain ownership or increased control over distributors or retailers ❑This can be through: 1. Establishment of websites to sell directly to consumers 2. Franchising Guidelines On Forward Integration Forward integration is effective when: ❑An organization’s present distributors are especially expensive, unreliable, or incapable of meeting the firm’s distribution needs. ❑The availability of quality distributors is so limited as to offer a competitive advantage to those firms that promote forward integration. ❑An organization competes in an industry that is growing and is expected to continue to grow markedly; this is a factor because forward integration reduces an organization’s ability to diversify if its basic industry falters. Guidelines On Forward Integration – Cont’ ❑An organization has both the capital and human resources needed to manage the new business of distributing its own products. ❑The advantages of stable production are particularly high; this is a consideration because an organization can increase the predictability of the demand for its output through forward integration. ❑Present distributors or retailers have high profit margins; this situation suggests that a company could profitably distribute its own products and price them more competitively by integrating forward. Backward Integration ❑This is a strategy of seeking ownership or increased control of a firm’s suppliers. Guidelines On Backward Integration Backward integration is effective when: ❑An organization’s present suppliers are especially expensive, unreliable, or incapable of meeting the firm’s needs for parts, components, assemblies, or raw materials. ❑The number of suppliers is small and the number of competitors is large. ❑An organization competes in an industry that is growing rapidly; this is a factor because integrative-type strategies (forward, backward, and horizontal) reduce an organization’s ability to diversify in a declining industry. Guidelines On Backward Integration Cont’d ❑An organization has both capital and human resources to manage the new business of supplying its own raw materials. ❑The advantages of stable prices are particularly important; this is a factor because an organization can stabilize the cost of its raw materials and the associated price of its product(s) through backward integration. ❑Present suppliers have high profit margins, which suggest that the business of supplying products or services in a given industry is a worthwhile venture. ❑An organization needs to quickly acquire a needed resource. Horizontal Integration ❑Seeking ownership of or control over a firm’s competitors. ❑Arguably the most common growth strategy. ❑Mergers, acquisitions, and takeovers are forms of horizontal integration. Nearly all these transactions aim for increased economies of scale and enhanced transfer of resources and competencies. Guidelines On Backward Integration Horizontal integration is effective when: ❑An organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government for “tending substantially” to reduce competition. ❑An organization competes in a growing industry. ❑Increased economies of scale provide major competitive advantages. ❑An organization has both the capital and human talent needed to successfully manage an expanded organization. ❑Competitors are faltering as a result of a lack of managerial expertise or a need for particular resources that an organization possesses; note that horizontal integration would not be appropriate if competitors are doing poorly because in that case overall industry sales are declining. Intensive Strategies ❑Strategies that require intensive efforts if a firm’s competitive position with existing products is to improve. ❑These are: Market penetration Market development Product development Market Penetration ❑Strategy seeks to increase market share for present products or services in present markets through greater marketing efforts. ❑Effective when: 1. Current markets are not saturated with a particular product or service. 2. The usage rate of present customers could be increased significantly. 3. The market shares of major competitors have been declining while total industry sales have been increasing. 4. The correlation between dollar sales and dollar marketing expenditures historically has been high. 5. Increased economies of scale provide major competitive advantages. Market Development ❑Introduces present products or services into new geographic areas. ❑Effective when: 1. New channels of distribution are available that are reliable, inexpensive, and of good quality. 2. An organization is successful at what it does. 3. New untapped or unsaturated markets exist. 4. An organization has the needed capital and human resources to manage expanded operations. 5. An organization has excess production capacity. 6. An organization’s basic industry is rapidly becoming global in scope. Product Development ❑Strategy that seeks increased sales by improving or modifying present products or services. ❑entails large research and development expenditures. Effective when: 1. An organization has successful products that are in the maturity stage of the product life cycle; the idea here is to attract satisfied customers to try new (improved) products as a result of their positive experience with the organization’s present products or services. 2. An organization competes in an industry that is characterized by rapid technological developments. 3. Major competitors offer better-quality products at comparable prices. 4. An organization competes in a high-growth industry. 5. An organization has especially strong research and development capabilities. A. Diversification Strategies: What are they? ❑Diversification involves adding new related or unrelated products or services to the company’s product or service range. ❑Businesses are said to be - related when their value chains possess competitively valuable cross-business strategic fits; or unrelated when their value chains are so dissimilar that no competitively valuable cross-business relationships exist. ❑The key difference between related and unrelated diversification is that the former is based on some commonality in markets, products, or technology, whereas the latter is based more on profit considerations.) ❑An example of related diversification: FDH acquiring Malawi Savings Bank. An example of unrelated diversification: My Bucks acquiring Nedbank i). Related Diversification Strategy: When is it preferred? Most companies favor related diversification strategies to capitalize on synergies as follows: ❑Transferring competitively valuable expertise, technological know-how, or other capabilities from one business to another ❑Combining the related activities of separate businesses into a single operation to achieve lower costs ❑Exploiting common use of a well-known brand name ❑Cross-business collaboration to create competitively valuable resource strengths and capabilities i). Related Diversification Strategy: When is it an effective business strategy? cont’d The guidelines for when related diversification may be an effective strategy are as follows: ❑An organization competes in a no-growth or a slowgrowth industry. ❑Adding new, but related, products would significantly enhance the sales of current products. ❑New, but related, products could be offered at highly competitive prices. ❑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. ❑An organization has a strong management team. ii). Unelated Diversification Strategy: When is it preferred? ❑An unrelated diversification strategy favors capitalizing on a range of businesses that can deliver excellent financial performance in their respective industries, rather than striving to capitalize on value chain strategic fits among the businesses. ❑Firms that employ this strategy search for companies that can be acquired for less and yet still have potential to provide a high return on investment. This also entails acquiring companies whose assets are undervalued, companies that are financially distressed, or companies that have high-growth prospects but are short on investment capital. ii). Unrelated Diversification Strategy: cont’d When is it an effective business strategy? The guidelines when unrelated diversification may be an effective strategy are as follows: ❑Revenues derived from an organization’s current products or services would increase significantly by adding the new, unrelated products. ❑An organization competes in a highly competitive or a no-growth industry, as indicated by low industry profit margins and returns. ❑An organization’s present channels of distribution can be used to market the new products to current customers. ❑New products have countercyclical sales patterns compared to an organization’s present products. ❑An organization’s basic industry is experiencing declining annual sales and profits. ii). Unrelated Diversification Strategy: cont’d When is it an effective business strategy? The guidelines when unrelated diversification may be an effective strategy are as follows: ❑An organization has the capital and managerial talent needed to compete successfully in a new industry. ❑An organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity. ❑Financial synergy exists between the acquired and acquiring firm. ❑Existing markets for an organization’s present products are saturated. ❑Antitrust action could be charged against an organization that historically has concentrated on a single industry. B. Defensive Strategies: What are they? ❑In addition to diversification strategies, organizations also need to consider defensive strategies such as retrenchment, divestiture, or liquidation. ❑The primary purpose of defensive strategy is to defend your market share or make a possible attack unattractive and discourage potential challenger or competitors from attacking your business. i). Retrenchment Strategy: What is it & When is it an effective business strategy? Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits. Sometimes called a turnaround or reorganizational strategy, retrenchment is designed to fortify an organization’s basic distinctive competence. ❑During retrenchment, strategists work with limited resources and face pressure from shareholders, employees, and the media. Retrenchment can involve selling off land and buildings to raise needed cash, pruning product lines, closing marginal businesses, closing obsolete factories, automating processes, reducing the number of employees, and instituting expense control systems. i). Retrenchment Strategy: What is it & When is it an effective business strategy? cont’d Five guidelines for when retrenchment may be an especially effective strategy to pursue are as follows: ❑An organization has a clearly distinctive competence but has failed consistently to meet its objectives and goals over time. ❑An organization is one of the weaker competitors in a given industry. ❑An organization is plagued by inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance. ❑An organization has failed to capitalize on external opportunities, minimize external threats, take advantage of internal strengths, and overcome internal weaknesses over time; thus when the organization’s strategic managers have failed (and possibly will be replaced by more competent individuals). ❑An organization has grown so large so quickly that major internal reorganization is needed. ii). Divestiture Strategy: What is it & When is it an effective business strategy? ❑This strategy entails selling a division or part of an organization. ❑It is often used to raise capital for further strategic acquisitions or investments. ❑Divestiture can be part of an overall retrenchment strategy to rid an organization of businesses that are unprofitable, that require too much capital, or that do not fit well with the firm’s other activities. ❑Divestiture has also become a popular strategy for firms to focus on their core businesses and become less diversified. ii). Divestiture Strategy: What is it & When is it an effective business strategy? cont’d Below are some guidelines for when divestiture may be an effective strategy: ❑An organization has pursued a retrenchment strategy and failed to accomplish needed improvements. ❑To be competitive, a division needs more resources than the company can provide. ❑A division is performance. responsible for an organization’s overall poor ❑A division is a misfit with the rest of an organization; this can result from radically different markets, customers, managers, employees, values, or needs. ❑A large amount of cash is needed quickly and cannot be obtained reasonably from other sources. ❑Government antitrust action threatens an organization. iii). Liquidation Strategy: What is it & When is it an effective business strategy? ❑The selling all of a company’s assets, in parts, for their tangible worth is called liquidation; ❑Liquidation is a recognition of defeat and consequently can be an emotionally difficult strategy. However, it may be better to cease operating than to continue losing large sums of money. iii). Liquidation Strategy: What is it & When is it an effective business strategy? cont’d Below are some guidelines for when liquidation may be an effective strategy to pursue: ❑An organization has pursued both a retrenchment strategy and a divestiture strategy, and neither has been successful. ❑An organization’s only alternative is bankruptcy. Liquidation represents an orderly and planned means of obtaining the greatest possible amount of cash for an organization’s assets. A company can legally declare bankruptcy first and then liquidate various divisions to raise needed capital. ❑The stockholders of a firm can minimize their losses by selling the organization’s assets. Micheal Porters’ Generic Strategies The Michael Porter's Five Generic Strategies allow organizations to gain competitive advantage from three different bases: ❑Cost leadership - emphasizes producing standardized products at a low per-unit cost for consumers who are price sensitive. ❑Differentiation - a strategy aimed at producing products and services considered unique to the industry and directed at consumers who are relatively price insensitive. ❑Focus - means producing products and services that fulfill the needs of small groups of consumers. Michael Porter's Five Generic Strategies Cost Leadership Strategy ❑Type 1 - low-cost strategy - offers products or services to a wide range of customers at the lowest price available on the market. ❑Type 2 - best-value strategy - offers products or services to a wide range of customers at the best price-value available on the market. Differentiation ❑Type 3 – differentiation strategy - aimed at producing products and services considered unique to the industry and directed at consumers who are relatively price insensitive. Michael Porter's Five Generic Strategies - Cont’ Focus ❑Type 4 – low cost focus strategy - offers products or services to a small range (niche group) of customers at the lowest price available on the market. ❑Type 5 - best-value focus strategy - offers products or services to a small range of customers at the best price-value available on the market. Means For Achieving Strategies ❑Cooperation Among Competitors – this means an alliance between or among competing firms. Benefits: 1. Access to more resources 2. Expansion into new markets 3. Reduces costs and risk of entering new business or markets 4. Skills transfer 5. Growth in revenue Risk – there is a major risk of transferring unintended important skills. Means For Achieving Strategies - Cont’ ❑Joint Venture And Partnering - occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. ❑Merger/Acquisition 1. A merger occurs when two organizations of about equal size unite to form one enterprise. 2. An acquisition occurs when a large organization purchases (acquires) a smaller firm or vice versa. Tactics To Facilitate Strategies ❑First mover - refers to a firm entering a new market or developing a new product or service prior to rival firms. Benefits 1. Secure access and commitments to rare resources. 2. Gain new knowledge of critical success factors and issues. 3. Gain market share and position in the best locations. 4. Establish and secure long-term relationships with customers, suppliers, distributors, and investors. 5. Gain customer loyalty and commitments. Tactics To Facilitate Strategies – Cont’ Challenges 1. It is highly costly to become the first mover because the firm has to create demand in the market for the product and so it needs to spend a lot of resources on promotion. 2. The late movers can copy/imitate the technical-how, easily and eventually may be able to dust the first-mover from the market. Tactics To Facilitate Strategies - Cont’ ❑Outsourcing - involves companies hiring other companies to take over various parts of their functional operations, such as human resources, information systems, payroll, accounting, customer service, and even marketing. Benefits: Cost savings, Cost restructuring, Improve quality, Knowledge, Contract, Operational expertise, Access to talent, Catalyst for change, Enhance capacity for innovation, Reduce time to market, Risk management, Tax benefit, increased reach. Tactics To Facilitate Strategies - Cont’ Challenges 1. Service delivery – which may fall behind time or below expectations. 2. Lack of flexibility – contract could prove too rigid to accommodate change. 3. management difficulties – Changes at the outsourcing company could lead to friction. Tactics To Facilitate Strategies - Cont’ ❑Reshoring - refers to companies planning to move some of their manufacturing back to their country of origin. Benefits: Stable wages, Reduced gas and electricity costs, Excellent security to protect designs from overseas copycats, Enable closer tabs on quality control and supply chains, Excellent economy with consumers purchasing more, Less shipment costs with consumers nearby, Excellent human rights, education, legal, and political systems that promote freedom and opportunity for citizens Tactics To Facilitate Strategies - Cont’ ❑Challenges: The principal disadvantage of reshoring is that of huge costs associated with driving/moving manufacturing processes from one nation to another. It is a duty that needs careful logistical planning and management.
