Strategic Choices
Murad Rattani
Oxford College of London
Strategic choice
‘
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Strategic choice refers to any action taken by the management of
the firm to respond to the changes in the environment in order to
either exploit an opportunity or to avoid a threat. The main
intention is to achieve the strategic fit between the organization
and the environment.’
Factors to be considered before
making a strategic choice
An analysis of the environmental threats and opportunities (SWOT Analysis, PEST
Analysis, Michael Porter’s five forces of competitive strategies)
2.
An analysis of the company’s resources (financial resource, human resource, expertise,
core competencies, Michael Porter’s value chain analysis)
3.
Portfolio Analysis (BCG matrix, PLC, BLC)
4.
The stated objectives of the company and those of the management team.
5.
The values and preferences of management decision-makers.
6.
The realities of organizational politics.
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1.
Strategic choices
Strategic choices should meet one or all of the following criteria
1.
Suitability: refers to considerations as the ability of the strategy to tackle major
problems, improve competitive standing, exploit strengths, and the extent to
which it meets corporate objectives.
Feasibility: It refers to the extent to which that strategy can be achieved given
the financial, physical and human resource base of the company. In other
words, the capability of the company allows the co. to go ahead with a
particular strategy.
3.
Acceptability: The strategy to be adopted should be acceptable to various
interested parties, such as management, employees, shareholders and
customers. Shareholders may be particularly sensitive to strategies of the
acquisition. The ultimate acceptance of a particular strategy might depend on
the attitude of senior management to risk.
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2.
Strategic choices
•
Sustainability: this refers to the extent to which the strategy is difficult for
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others to copy. Such a concept has much in common with core
competence. Product and process innovation can lead to a sustainable
competitive advantage that persists for many years, especially, when
protected by patents and trademarks. Toyota achieved sustainable
competitive edge over its competitors through continuous improvement
in lean production. Coca Cola is enjoying sustainable advantage because
of branding policies and the secret formula.
In contrast to that any action or innovation brought about by any one of
the UK supermarket chain is easily and promptly copied by the competitor
for e.g. all the supermarket chains are offering customer loyalty cards,
have opened cafeteria for the customers and introduced petrol stations.
Types of strategic options
Miles and Snow (1978) offer four main types of strategy that
competing organizations can adopt within a single industry. They
classify the firms as
The defender organization.
The prospector organization.
The analyser organization.
The reactor organization.
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1.
2.
3.
4.
The defender organization
The defender organizations are such which
Tends to have limited product line.
2.
By focussing on a niche market the defender can achieve market leadership.
3.
The key focus of most defenders is to reduce cost and achieve efficiency
through low-cost operations.
4.
The defender is unlikely to innovate and is best suited to stable environments.
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1.
The prospector organization
• The prospector organizations operates with a wide range of products in a
growing and usually fast-moving market.
• Prospectors tend to focus on innovation and new market opportunities.
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• Prospector organizations tend to be flexible and decentralized and tend to
be creative while remaining efficient.
• The prospector organizations tend to emphasize on R&D and marketing as
the crucial functions.
The analyzer organization
• The analyzer organizations are rarely first in the market.
• These organizations follow others after a thorough analysis of the market
and the competitors’ behaviour.
• Their approach to change is cautious and planning functions and planning
teams play a key role.
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• Analyzers can be found in both stable environments where they tend to
emphasize on cost reduction and in changing environments, where they
emphasize product differentiation.
The reactor organization
• The reactor organizations tend to have mismatch between environment
and their strategy.
• These organizations might not have any strategy at all.
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• These organizations find it difficult to respond to the changes in the
environment and their strategies could be inappropriate.
Michael Porter’s Competitive
Strategies
According to Michael Porter (1985), competitive advantage is a product of positioning within that
industry and he identifies two basic types of advantage and hence competitive focus.
1. Cost Leadership: firms pursuing this must aim to be the lowest-cost producer, but still be
able to compete in terms of product function and quality.
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2. Product Differentiation: firms pursuing the competitive strategy of product differentiation
must aim to produce goods and services that have certain unique dimensions that make
them attractive to customers. It involves adding those attributes and features which
distinguishes the firm’s products from those of the competitors. Customers should be willing
to pay premium for this product.
Limitations of Porter’s competitive
strategies.
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Porter’s approach is based on simplicity and logic, however business
environment is not that easy. There are some constraints on the
effectiveness of these strategies such as
1.
Every firm wants to reduce their costs to increase their profits even
those who offer premium products for e.g. by adopting JIT approach or
lean production.
2.
There is a limitation to which the firm can reduce the cost. Firms
cannot reduce the cost at the expense of the quality.
3.
Differentiation may be short-lived as the firm emulate each other. For
e.g. BA introduced beds as part of their first-class service on long-haul
flights. They were soon followed by Singapore Airlines, and Virgin
announced plans to offer double beds as an option.
Ansoff’s Matrix
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Ansoff’s matrix
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Market Penetration
In this growth strategy we market the existing
products to the existing customer. The
company tries to increase revenue by
repositioning or branding but does not change
either the product or the market.
Ansoff’s matrix
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Market Development
In this growth strategy, the company promotes
the existing product in the new market. This
could also involve exporting or promoting in a
new region.
Ansoff’s matrix
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Product Development
In this growth strategy, the company redevelops,
add new features and sells the innovated
product to the existing customers or in the
same market.
Ansoff’s matrix
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Diversification
The company develops new products for the
new market. It could be related or unrelated.
Related Diversification: A soup manufacturer
diversifies into cake manufacturer.
Unrelated Diversification: For e.g. a soup
manufacturer diversifies into auto industry.
Integrative strategies
• Horizontal Integrative strategies (for e.g.
mergers and takeovers).
• Vertical Integrative strategies
Growth through Vertical Integration
• Types of vertical integration
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– backward integration ('upstream' integration)
– forward integration ('downstream' integration)
Growth through Merger
• Mergers and takeovers
– distinction between mergers and takeovers
• Motives for mergers and takeovers
– growth
– monopoly power
– increased market valuation
– reduced uncertainty
– Opportunities
– To avoid being taken over
– Geographical expansion
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– economies of scale
References
David Needle, 2004, Business in Context, An introduction to business and its
environment (ISBN: 978-1-86152-992-3), pgs: 754-756
Ian Marcouse, The Business Studies Teachers’ Book (ISBN: 0340-73763-8),
1999
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www.marketingteacher.com/.../lesson_ansoff.htm (accessed on 19-11-09)