bg strategic management chapter 5 3052

CHAPTER 5 TYPES OF STRATEGIES Bộ môn Quản trị chiến lược 9/16/2022102 http //images google com vn/imgres?imgurl=http //www johnwiley com au/highered/stratmgt2e/0470809299 jpg&imgrefurl=http //www john[.]

CHAPTER 5 TYPES OF STRATEGIES

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 5.1 Corporate level strategies

 5.2 Business level strategies

 5.3 Choosing and making decision

Unrelated Diversification

• Value chains have no

competitively valuable cross-business

relationships exist

SYNERGIES OF RELATED DIVERSIFICATION

 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

Related Diversification Guidelines

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When an organization competes in a no-growth or a slow-growth industry

When adding new, but related, products would significantly enhance the sales of current products

When new, but related, products could be offered at highly competitive prices

When an organization has a strong management team

Unrelated Diversification Guidelines

When revenues derived from an organization’s current products would increase

significantly by adding the new, unrelated products

When an organization’s present channels of distribution can be used to market the new products to current customers

When an organization’s basic industry is experiencing declining annual sales and

profits

Unrelated Diversification Guidelines (cont.)

When an organization has the opportunity to purchase an unrelated business which is an attractive investment opportunity

When existing markets for an organization’s present products are saturated

When antitrust action could be charged against an organization that historically has

concentrated on a single industry

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a strategy of seeking ownership of or increased control

over a firm’s competitors

Integration Strategies

Forward

Backward

Forward integration guidelines

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When an organization’s present distributors are especially expensive

When the availability of quality distributors is so limited as to offer a competitive

advantage

When an organization competes in an industry that is growing

When present distributors or retailers have high profit margins

Backward Integration Guidelines

When an organization’s present suppliers are overpriced or unreliable

When the number of suppliers is small, and the number of competitors is large

When the advantages of stable prices are particularly important

When an organization needs to quickly acquire a needed resource

Horizontal Integration Guidelines

When an organization competes in a growing industry

When increased economies of scale provide major competitive advantages

When competitors are faltering due to a lack of managerial expertise

5.1.3 Intension strategies

 Market penetration strategy

seeks to increase market share for present

products or services in present markets

through greater marketing efforts

 Market development

involves introducing present products or

services into new geographic areas

 Product development strategy

seeks increased sales by improving or

modifying present products or services

Market Development

Intensive Strategy

Market Penetration

Product Development

Market Penetration Guidelines

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When current markets are not saturated with a particular product or service

When the usage rate of present customers could be increased significantly

When the market shares of major competitors have been declining while total industry sales have been increasing

When increased economies of scale provide major competitive advantages

Market Development Guidelines

 When new channels of distribution are available that are reliable, inexpensive, and of good quality

 When an organization is very successful at what it does

 When new untapped or unsaturated markets exist

 When an organization has excess production capacity

Product Development Guidelines

When major competitors offer better-quality products at comparable prices

When an organization competes in a high-growth industry

5.1.4 Defense Strategies

Retrenchment: when an organization regroups

through cost and asset reduction to reverse

declining sales and profits

Retrenchment can entail 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

5.1.4 Defense Strategies

Divestiture: Selling a division or part of an

organization

Divestiture often is used to raise capital for further

strategic acquisitions or investments Divestiture has

also become a popular strategy for firms to focus on

their core businesses and become less diversified

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5.1.4 Defense Strategies

Liquidation: Selling all of a company’s assets,

in parts, for their tangible worth

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

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 5.1 Corporate level Strategies

 5.2 Business level strategies

 5.3 Choosing and making decision of strategies

 5.1 Corporate level strategies

 5.2 Business level strategies

 5.3 Choosing and making decision

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 Business level strategies reflect the basic

ways in which an enterprise competes in its

markets based on two basic characteristics:

low cost and differentiation.

 Combine with the scope of activities of the

business, create three strategies of general

competition:

 Cost leadership strategy

 Differentiation strategy

 Focus strategy

5.2.1 Cost Leadership Strategy

 To employ the cost leadership strategy successfully, a firm must

ensure that its total cost across its overall value chain are lower than

competitors’ total cost

There are two ways:

1.Perform value chain activities more efficiently than rivals and control

the factors that affect the cost of value chain activities

2.Revamp the firm’s overall value chain to eliminate or bypass some

cost-producing activities

5.2.1 Cost Leadership strategy

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When price competition among rival sellers is especially vigorous

When there are few ways to achieve product differentiation that have value to buyers

When most buyers use the product in the same ways

When buyers incur low cost in switching their purchases from one seller to another

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When there are many ways to differentiate the product

When buyer’s needs and uses are diverse

When few rival firms are following a similar differentiation approach

When technological change is fast paced

5.2.2 Differentiation Strategy

 Successful focus strategy depends on an industry segment that has sufficient size, goodgrowth potential, and is not crucial to the success of other major competitors

 Most effective when consumers have distinctive preferences

5.2.3 Focus Strategy

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When the target market niche is large, profitable, and growing

When industry leaders do not consider the niche to be crucial to their own success

When the industry has many different niches and segments

When few, if any, other rivals are attempting to specialize in the same target segment

Focus Strategy Guidelines

 5.1 Corporate level strategies

 5.2 Business level strategies

 5.3 Choosing and making decision

5.3.1 Boston Consultant Group Matrix (BCG)

5.3.1 Boston Consultant Group Matrix (BCG)

BCG matrix developed by Boston Consulting Group is an analytical tool used to accesscompany’s product lines It aims at helping the company to make the best possibleallocation of its resources

BCG matrix is also known as the growth-share or Boston matrix

5.3.1 Boston Consultant Group Matrix (BCG)

According to this technique, businesses or products are classified as low or highperformers depending upon their market growth rate and relative market share

To understand the Boston Matrix, you need to understand how market share and market

growth interrelate

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5.3.1 Boston Consultant Group Matrix (BCG)

• Market share is the percentage of the total market that is being serviced by your

company, measured either in revenue terms or unit volume terms

• RMS = Business unit sales this year

Leading rival sales this year

• The higher your market share, the higher proportion of the market you control

5.3.1 Boston Consultant Group Matrix (BCG)

Market growth is used as a measure of a market’s attractiveness

MGR = Individual sales - individual sales

this year last yearIndividual sales last year

Markets experiencing high growth are ones where the total market share available is expanding, and there’s plenty of opportunity for everyone to make money

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MAIN STEPS OF BCG MATRIX

Identifying and dividing a company into SBU

Assessing and comparing the prospects of each SBU according to two criteria :

1 SBU’s relative market share

2 Growth rate of SBU’S industry

Classifying the SBU’S on the basis of BCG matrix

Developing strategic objectives for each SBU

5.3.2 TOWS Matrix

Objective: Helping managers develop four types of strategies: SO Strategies, WO Strategies, ST Strategies, and WT Strategies by matching key external and internal factors.

There are eight steps involved in constructing a SWOT Matrix:

1 List the firm’s key external opportunities.

2 List the firm’s key external threats.

3 List the firm’s key internal strengths.

4 List the firm’s key internal weaknesses.

5 Match internal strengths with external opportunities and record the resultant SO Strategies in the

appropriate cell.

6 Match internal weaknesses with external opportunities and record the resultant WO Strategies.

7 Match internal strengths with external threats and record the resultant ST Strategies.

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5.3.3 QSPM Matrix

Designed to determine the relative attractiveness of feasible alternative strategies

The QSPM uses input from EFE Matrix, IFE Matrix analyses and matching results from TOWS Matrix analyses to decide objectively among alternative strategies

The QSPM is a tool that allows strategists to evaluate alternative strategies objectively, based on previously identified external and internal critical success factors

6 steps required to develop a QSPM are discussed:

 Step 1 Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses

 Step 2 Assign weights to each key external and internal factor These weights are identical to those in the EFE Matrix and the IFE Matrix.

 Step 3 Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing.

 Step 4 Determine the Attractiveness Scores (AS) defined as numerical values that indicate the relative

attractiveness of each strategy in a given set of alternatives.

 The range for Attractiveness Scores is 1 = not attractive, 2 = somewhat attractive, 3 = reasonably attractive, and 4 = highly attractive.

 Step 5 Compute the Total Attractiveness Scores Total Attractiveness Scores (TAS) are defined as the

product of multiplying the weights (Step 2) by the Attractiveness Scores (Step 4) in each row.

 Step 6 Compute the Sum Total Attractiveness Score.

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