ism 6 strategic choice
TRANSCRIPT
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STRATEGIC CHOICE
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Results of the
strategy formulation process
Results of Process
Strategic
Intent
StrategicAssessment
AvailableOptions
Chosen Strategy
CONTEXT
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Choosing a strategy
from among strategic options
Choice Criteria/
No options identified
StrategicIntent
Strategic
AssessmentAvailable
Options
Logically viable options/
Chosen Strategy
Feasible but
Unaligned Options
Aligned but
Infeasible Options
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What Options
are available?
Structure for making strategic choice
Options ofmethod on
how to progress
Options aboutproducts, markets
and services
Options to improveresources &
capabilities
Making the Choice
Choice Criteria
-Assessment
-Intent
Theoretical
Frameworks for
making
strategic choiceWho should be
involved in
the Choice?
Linking into available strategic options
Chosen Strategy
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Source: Based on the work of Cliff Bowman.
See C.Bowman and D.Faulkner. Competitive and Corporate Strategy, Irwin, 1996.
PRICE HighLow
DifferentiationFocused
differentiation
Low price/low added value
Strategiesdestined for
ultimate failure
PERCEIVED
ADDED
VALUE
4
5
6
8
Hybrid
Lowprice
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High
Low
1
2
3
The strategy clock:
Bowmans competitive strategy options
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1 Low price/low added value Likely to be segment specific
2 Low price Risk of price war and low
margins/need to be cost leader
3 Hybrid Low cost base and reinvestment in
low price and differentiation
4 Differentiation
(a) Without price premium Perceived added value by user,
yielding market share benefits(b) With price premium Perceived added value sufficient to
bear price premium
5 Focused differentiation Perceived added value to a particular
segment, warranting price premium
6 Increased price/standard Higher margins if competitors do not
value follow/risk of losing market share
7 Increased price/low value Only feasible in monopoly situation
8 Low value/standard price Loss of market share
The strategy clock
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LOW PRICE STRATEGIES COULD BESUCCESSFUL IF:
The competitor is the cost leader
... but is this sustainable?
All sources of cost advantages are exploited, developingcompetences in low cost management
... but the danger is a low (perceived) value product orservice
A competitor has cost advantage over competitors in aprice sensitive markets segment
... but this may mean focusing on that market segment
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THE SUCCESS OF DIFFERENTIATIONSTRATEGIES DEPENDS ON
Clear identification ofwho the customeris
Understanding what is valued by thecustomer
Clear identification ofwho the competitorsare and the value they offer
Bases of differentiation which are difficult toimitate
The recognition that bases ofdifferentiationmay need to change
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FOCUSED DIFFERENTIATION
Global market developments increase the needfor focus Clear definition of market segments in terms of
customers needs is required
Within a market segment choices of strategicdirection relate to competitors within thatsegment
Multi-focused strategies may be possible insome markets
New ventures started through focus strategiesmay be difficult to grow
Differences between segments may be erodedmaking bases of focus redundant
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FUNCTIONAL STRATEGIES
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MARKETING STRATEGY
Marketing strategy
Involved with pricing, selling, and distributing a
product.
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MARKETING STRATEGY
Market development strategy
Capture a larger share of existing market through
market saturation and market penetration
Develop new markets for current products
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MARKETING STRATEGY
Product development strategy
Develop new products for existing markets
Develop new products for new markets
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MARKETING STRATEGY
Advertising or Promotion strategy
Push marketing strategy Investing in trade promotion to gain or hold
share
Pull marketing strategy Investing in consumer advertising to build
brand awareness
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FINANCIAL STRATEGY
Financial strategy
Examines the financial implications of corporate
and business-level strategic options and identifies
the best financial course of action.
Maximizes financial value of the firm
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FINANCIAL STRATEGY
Tracking stock
Highlighting a high-growth business unit in a
popular sector of the stock market. Keeping subsidiarys common stock separately
identified
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R&D STRATEGY
R&D Strategy
Deals with product and process innovation andimprovement
Choice:
Technological leader Technological follower
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OPERATIONS STRATEGY
Operations strategy
Determines: How and where product is manufactured
Level of vertical integration in process
Deployment of physical resources
Relationships with suppliers
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OPERATIONS STRATEGY
Manufacturing strategy
Affected by product life cycle Job shop
Connected line batch flow
Flexible manufacturing system
Dedicated transfer lines
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OPERATIONS STRATEGY
Manufacturing strategy
Movement from mass production to: Continuous improvement
Modular manufacturing
Mass customization
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PURCHASING STRATEGY
Purchasing strategy
Obtaining raw materials, parts and supplies Basic Purchasing Choices:
Multiple sourcing
Sole sourcing
Parallel sourcing
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LOGISTICS STRATEGY
Logistics strategy
Flow of products into and out of the process Three current trends:
Centralization
Outsourcing
Use of the Internet
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HRM STRATEGY
HRM strategy
Addresses issues of: Low-skilled employees
Low pay
Repetitive tasks
High turnover
Skilled employees
High pay Cross trained
Self-managing teams
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STRATEGIC CHOICE
Selecting the Best Strategy:
Constructing Corporate Scenarios:
Corporate Scenarios Pro forma balance sheets and income
statements that forecast effects of alternativeson return on investment
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STRATEGIC CHOICE
Selecting the Best Strategy:
Constructing Corporate Scenarios:
Steps in constructing scenarios Use industry scenarios Develop common-size financial statements Construct detailed pro forma financial
statements for each alternative
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Chapter7
Wheelen/H
unger
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Scenario Box to Generate Pro Forma
StatementsProbjections
1
Last Historical Trend 19 19 19
Factor Year Average Analysis O P ML O P ML O P ML Comments
GDP
CPI
Other
Sales units
Dollars
COGS
Advertising and marketing
Interest expense
Plant expansion
Dividends
Net profits
EPS
ROI
ROE
Other
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STRATEGIC CHOICE
Attitude Toward Risk:
Risk is composed of: Probability of effective strategy
Amount of assets committed
Length of time of asset commitment
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