Upon completion of this chapter, you should be able to:
• Critically apply Porter’s generic competitive strategies.
• Apply Ansoff’s market options matrix to identify strategic opportunities.
• Examiner your organisations internal and external expansion opportunities.
• Review your organisations resource based strategic options.
• Link strategic options to your SWOT analysis.
• Consider the benefits and drawbacks of different strategic options available to the organisation.

• Long-term or grand strategy must be based on core idea about how the firm can best compete in the marketplace.
• The popular term for this core idea is generic strategy. From a scheme developed by Michael Porter, many planners believe that any long-term strategy should derive from a firm’s attempt to seek a competitive advantage based on one of three generic strategies:
– Low-cost leadership
– Differentiation
– Focusing on cost or differentiation concerns.

• The 3 basic strategies open to any business are cost leadership, differentiation and focus.
These can be explained by considering two aspects of the competitive environment:
– Two source of competitive advantage
– The competitive scope of the target customers

• Low-Cost Leadership
– Low-cost leaders in any industry will have build and maintained plant, equipment, labour cost and working practices that deliver the lowest costs in that industry.
– The essential point is that the firm with the lowest costs has a clear and possibly sustainable competitive advantage.
– However in order to cut costs, a low cost producer must find and exploit all the sources of cost advantage.
– Cost leadership does not necessarily imply a low price. The company could charge an average price and reinvest the extra profits generated.

• Differentiation
– Occurs when the products of an organisation meet the needs of some customers in the market place better than others.
– Underlying differentiation is the concept of market segmentation – the identification of specific groups who respond differently from other groups to competitive strategies.
– Through differentiation strategy, the firm produces nonstandardised products for customers who value differentiated features more than they value low cost.
– 2 problems associated with differentiation strategies – refer to page 161.

• Focus Strategy (niche strategy)
– A focus strategy occurs when the organisation focuses on a specific niche in the market place and develops its competitive advantage by offering products especially developed for that niche; hence tailoring its strategy to serve them to the exclusion of others.
– Porter argues that the company may undertake this process either by using a cost leadership approach or by differentiation: (refer to page 161)
– Problems with focus strategy – (refer to page 162)

• Comments of Generic Strategies
(page 163)

• It presents the product and market choices open to the organisation.
• Distinction is drawn between markets, which are defined as customers and products which are defined as the items sold to customers.
• Matrix examines the options available to the organisation from a broader strategic perspective than simple product/market matrix.
• It also explores the possibilities of withdrawing from markets and moving into unrelated markets.

• Market Penetration
1. Market penetration in the Existing Market
– Without moving outside the organisation’s current range of products/services, it may be possible to attract customers from directly competing products by penetrating the market.
– Market penetration strategies should begin with existing customers.
– This strategy may be costly in the short run but may prove beneficial in the future in terms of increased market share.
– Market penetration is easier if the market is growing.

2. Withdrawal
– A strategy must always take into account the unpredictable if it is to develop competitive advantage. There are a number of situations where this option is applicable:
• Product life cycle in decline phase with little possibility of retrenchment.
• Overextension of product range, which can only be resolved by discontinuation.
• Holding company sale of subsidiaries
• Raising funds for investment elsewhere.

3. De-merger
– This is a form of withdrawal from the market but has a specialist meaning.
– For some listed companies, the value of the underlying assets may be larger than the value implied by the share price.
– The company may then split itself i.e. de-merge itself into two companies, thus issuing two sets of shares at a greater value.
4. Privatisation
– the trend to privatise government-owned companies has been an option for some institutions.

• Market Development
– The organisation moves beyond its immediate customer focus into attracting new customers for its existing product range.
– It may seek new segments of the market, new geographical areas or new uses for its product/services that will bring in new customers.
– This strategy may involve some slight repackaging and then promotion into a new market segment.
This usually involves selling a repackaged product in international markets.

• Product Development
– This refers to significant new product developments, not a minor variation on an existing product.
– There are number of reasons that might justify such a strategy:
• Utilise excess productive capacity
• Counter competitive entry
• Exploit new technology
• Maintain the company’s stance as a product innovator
• Protect overall market share.
– Innovation may be the most significant reason to undertake such a strategy as it represents a threat to an existing product line or an opportunity to take market share from competition.

• Diversification
1. Related Markets
• Forward integration
• Backward integration
• Horizontal integration
2. Unrelated Markets
• When an organisation moves into unrelated markets, it runs the risk of operating in areas where its detailed knowledge of its key factors for success is limited
Comments
• The market options matrix is a useful way of structuring the options available. However it does not provide many useful indicators as of which option to choose under specific circumstances.

• The Expansion Method Matrix
– Acquisitions & Merger
– Joint Ventures
– Strategic Alliances
– Franchise
Comments – this matrix suffers from the same disadvantages as the market options matrix whereby it is useful at structuring the options but offers only limited guidance on choosing between them.

• The Value Chain
– Relevant when market opportunities are limited, either because the market is growing slowly or because the organisation itself has limitations placed on their resources.
– Identifying sources of value added:
• Upstream: activities early in the value chain i.e. inbound logistics and operations
• Add value by: buying in bulk
Make few changes to production processes.
– This is assisted if the organisation produces standardised items. Upstream value is added by low-cost efficient production processes and process innovations.

– Downstream: activities later on in the value chain i.e. outbound logistics, sales and marketing and service.
– Add value by: - R & D
- Patents
- Advertising
- Market positioning

• Resource-based view strategy
– Need to consider the opportunities presented by the RBV.
– The identification of these resources is important in delivering a sustainable competitive advantage.
– One method of locating these options is to test resource against the criteria of:
• Architecture
• Reputation
• Innovation

• Core competencies
– Are identified as a group of skills and technologies that enable an organisation to provide a particula benefit to customers.
– One way of generating options based on core competencies is to consider them as a hierarchy of competencies, starting with low-level individual skills and rising through the organisation to higher-level combined knowledge and skills.