Part - 2 THEORIES OF CORPORATE STRATEGY objectives • Students will be able to interpret different corporate strategies strategy- Ansoff’s Matrix and Porter’s strategic Matrix • Students will be able to demonstrate Portfolio analysis and effect of strategic and tactic decisions DEVELOPMENT OF CORPORATE STRATEGY • ANSOFF’S MATRIX • PORTER’S STRATEGIC MATRIX • PORTFOLI ANLAYSIS ANSOFF’S MATRIX • The Ansoff Matrix is a fundamental framework taught by business schools worldwide. The matrix was developed by applied mathematician and business manager H. Igor Ansoff and was published in the Harvard Business Review in 1957 ANSOFFS’ MATRIX CONT., 1. Market Penetration – The concept of increasing sales of existing products into an existing market 2. Market Development – Focuses on selling existing products into new markets 3. Product Development – Focuses on introducing new products to an existing market 4. Diversification – The concept of entering a new market with altogether new products PORTERS’ STRATEGIC MATRIX Differentiation Differentiation is a type of competitive strategy with which a company seeks to distinguish its products or services from that of competitors: the goal is to be unique. A company may use creative advertising, distinctive product features, higher quality, better performance, exceptional service or new technology to achieve a product being perceived as unique. A differentiation strategy can reduce rivalry with competitors if buyers are loyal to a company’s brand. Cost Leadership Cost Leadership is a type of competitive strategy with which a company aggressively seeks efficient large-scale production facilities, cuts costs, uses economies of scale, gains production experience and employs tight cost controls to be more efficient in the production of products or the offering of services than competitors: the goal is to be the low-cost producer in the industry. The Focus Strategy Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market. Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors ASSESSMENT FOR LEARNING • Q&A • 1. The purpose of------------------------- is to achieve growth in existing markets with existing products. (Fill in the blanks) 2. Describe the connection between corporate strategy and business aims • Critical Thinking: • 3. According to porter any business which does not adopt one of his three generic strategies is ‘Stuck in the middle. Which all are those strategies. Explain why. SECOND OBJECTIVE • Students will be able to demonstrate Portfolio analysis and effect of strategic and tactic decisions Answers 1. market development 2. Businesses have aims that they hope to achieve through stated objectives and these requires a lot of planning. This planning to achieve corporate objectives is known as a strategy. - 3. Cost leadership: striving to be the lowest cost providers in the market - Differentiation: Un like cost leadership, a differentiation strategy may be adopted by any business provided that it can deliver a way of differentiating itself from the rivals. - Focus: by emphasising cost minimisation within a focused or niche market or by adopting differentiation strategy to target narrow range of customers. The Boston Matrix • The Boston Matrix is a model which helps businesses analyse their portfolio of businesses and brands. The Boston Matrix is a popular tool used in marketing and business strategy. The four categories can be described as follows: •Stars are high growth products competing in markets where they are strong compared with the competition. Often Stars need heavy investment to sustain growth. Eventually growth will slow and, assuming they keep their market share, Stars will become Cash Cows •Cash cows are low-growth products with a high market share. These are mature, successful products with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars •. •Question marks are products with low market share operating in high growth markets. This suggests that they have potential, but may need substantial investment to grow market share at the expense of larger competitors. Management have to think hard about “Question Marks" - which ones should they invest in? Which ones should they allow to fail or shrink? •Unsurprisingly, the term “dogs" refers to products that have a low market share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in. Dogs are usually sold or closed Effects Of Strategic And Tactical Decisions • HUMAN RESOURCES • PHYSICAL RESOURCES • FINANCIAL RESOURCES Assessment for learning • ………………………….is a method of categorizing all the products of a firm to decide where each one fits within the strategic plans. • Describe the aim of portfolio analysis At present, it seems that Motorvite has a strong portfolio of products. Two of these – the P4 and P901 models – have experienced exponential growth over the past year, with growth rates of 36.9 per cent and 27 per cent respectively. Both the P4 and the P901 seem to be ‘Stars’ for Motorvite and will generate a majority of the businesses sales revenue. It is important that Motorvite is able to keep up with demand for these products in order to maximise sales. Sales will eventually stabilise for these products, and Motorvite will hope to turn at least one of the products into a ‘Cash cow’ if high sales are maintained Sales of the P6 are in decline, and this might suggest that the product is a ‘Dog’. Motorvite might decide to discontinue this model and focus its attention on meeting demand for the P4 and P901. The final car is the P7, which was only launched within the last year. Sales are still relatively low and Motorvite will want to invest heavily in promoting this product in order to develop it into another ‘Star’. It will be important for Motorvite to invest some of the revenue it is generating from the P4 and P901 into the promotion of this car. . Which was your interesting topic for today? Why?
