Strategic management 1 notes NUST ZIMBABWE

Strategic Management CBU
4107
MR J. RANGANAI
EMAIL: ranganaij@gmail.com
0772 122 120 /0733 236 657/0713 421 422

Conceptualizing & Defining Strategy
*Merely playing in the marketplace with a gun loaded with hope
and little else is not courage nor strategy. It is important to define
how you intend to win. How will you play? You cannot let fate
answer that question unless you are insane (Kamwendo;2014)
*Oh what a king,sitteth not down first and consulted whether he be
able with ten thousand to meet him that cometh with twenty
thousand (Luke 14 verse 31 )
*STRATEGY is the direction and scope of an org over the
long term, which achieves competitive advantage in a changing
environment through its configuration of resources and
competencies with the aim of fulfilling stakeholder expectations. (Adapted Johnson et al 2006)

Defining Strategy: Mintzberg `s five fold
definition
*Further ,pursuant to defining strategy, it is Mintzberg et al
(2009) who came up with the most holistic definition of
strategy which is fivefold, that is defines strategy from five
perspectives as follows:
(i) Strategy as a plan: from this perspective, strategy is
some sort of consciously intended course of action, a
guideline (or set of guidelines) to deal with a situation
- As a plan, strategy is thus a direction, a guide or course of
action into the future or a path to get here from there.
(ii) Strategy as a pattern: Here ,strategy is seen as a
pattern in a stream of actions.
-It is the aggregate of behaviour that can be consistently
observed in an organisation over time.

definition
(ii) Strategy as a pattern (Deliberate & Emergent
strategies) : Mintzberg and Quinn (1996) distinguish deliberate
strategies as those where intentions that existed previously were realized,
from emergent strategies, where patterns developed in the absence of
intentions, or despite them, went unrealized.

definition
(i11) Strategy as a position: Here strategy reflects
specifically a means of locating an organization in what
organizational theorists call an “environment”
-By this defination,strategy becomes the mediating force -
or “match” according to Hofer & Schendel (1978) – btwn the
org & the environment, that is,btwn the internal and external
context
(iv) Strategy as a ploy: Here Mintzberg et al (2009)
highlight strategy as a specific manoeuvre intended to
outwit a competitor

Defining Strategy: Mintzberg `s five fold definition
(v) Strategy as perspective
*Here strategy is seen as:
-An ingrained way of perceiving the world
-As the organisation`s fundamental way of doing
doings (Mintzberg et al 2009)
-As a theory of business (Drucker;1994)
-Or as the personality of the organisation (Barman
and Petersson ;2002,Mintzberg and Quinn;1996).

Discussion Point
(i) Using Mintzberg (2009) `s five fold definition of strategy,
discuss strategy in the Zimbabwean corporate context
[15marks]
(ii) ‘Proffessor Henry Mintberg asserts that an organisation `s
realised strategy may differ from its realised
strategy’.Assess why an organisation `s realized strategy
may differ from its intended strategy [10 marks]

CLASSIFICATION OF STRATEGY
*Many typologies can emerge from the concept of strategy
when it is seen from different perspectives. Pursuant to
that, a review of literature on strategy shows that many
typologies exist. Thus strategy can be classified on the
following basis;
a) On a generic basis
b) According to levels in an organisation
c)On the basis of corporate direction
d) Based on the match between product and market
focus
e)According to the intensity of competition
f)On the basis of intention vs realization

(i) Classification of strategy on a generic basis
*One of the most popular typologies of strategy, based
on Porter (1985) `s generic strategies, the typology
delineates strategy into three classes, that is;
i. Overall Cost Leadership Strategy
ii.Differentiation Strategy
iii.Focus Strategy

(ii) Classification according to levels in an
org
*One of the most popular classifications of strategy is according to levels
in an organisation as follows:
Global level strategies are pursued by organizations while they
expand their operations in international business so as to
increase their profitability
-corporate level strategy: concerned with the overall scope of an
organisation and how value will be added to the different
parts(business units) of the org.
- business level strategy: according to Johnson et al (2006) can
be conceptualised in terms of how to compete successfully in
particular markets.
-operational strategy: concerned with how the component parts
of an organisation deliever the corporate and business level
strategies in terms of resources ,processes and people

Classification on the basis of
corporate direction
*Here strategy is viewed from a corporate directional perspective
such that four sub-types of strategy emerge:
Growth Strategy: expansion driven by increased market
penetration and development, horizontal integration, vertical
integration or diversification.
Stability Strategy: implemented on a steady as it goes approach
in order to consolidate or maintain a firm`s competitive position
 Retrenchment Strategy: based on reduction in product/service
lines, markets or functions
 Combination Strategy: a multi-strategy approach whereby
there is justification for pursuing one strategy in some Strategic
Business Units and another in the others

Classification on the basis of the match
between product & market focus
*Through matching product development and market
position, four alternative growth strategies based on
the Ansoff matrix as follows:
 Market Penetration
 Market Development,
 Product Development
 Diversification

Classification on the basis of intention vs
realization
* Henry Mintzberg introduced two terms to help clarify
the shift that often occurs between the time a strategy
is formulated and the time it is implemented.
An intended strategy (i.e., what management
originally planned) may be realized just as it was
planned, in a modified form, or even in an entirely
different form
Occasionally, the strategy that management intends is
actually realized, but the intended strategy and the
realized strategy—what management actually
implements—usually differ

Classification on the basis of intensity of
competition
*By looking at strategy on the basis of intensity of
competition, Red Ocean Strategy and Blue Ocean
Strategy emerge as the strategy sub-types.
(i)Red Ocean Strategy: focuses on head on rivalry with
competitors in existing markets, such that competitive
rivalry creates intense competition that is analogous to
bloody shark-infested waters.
(ii)Blue Ocean Strategy, as conceptualised by Kim and
Mauborgne (2005) is a strategic framework whereby a
business focuses on creating new demand, directing its
strategic compass on uncontested market space, making
competition irrelevant thus realising disproportionately
high growth and profitability.

Factors that Shape a Company’s Strategy
EXTERNAL FACTORS
(a) PESTLE I considerations
(b) Competitive conditions and overall industry
attractiveness - company’s strategy should be tailored to
match the mix of competitive factors at play such as:
price, product quality, service as well as industry changes in
industry structure, technology developments, changing
buyer needs and expectations etc.
(e)The org ’s market opportunities and threats ;-
Strategy should involve crafting offensive moves to
capitalize on the most promising opportunities and
crafting defensive moves to protect the org’s competitive
position and long-term sustainability.

Factors that Shape a Company’s Strategy
INTERNAL FACTORS
Company resource endownments, competitive
capabilities and competencies ;- strategy depends on
availability of resources, capabilities and competencies
needed to execute the strategy proficiently.
The backgrounds, personal ambitions, business
philosophies and ethical beliefs of managers ;-
Strategy can be influenced by a managers personal values,
experiences and emotions either deliberately or sub-consciously.
Influence of shared values and company culture ;-
an org `s practices, traditions, philosophical beliefs and
way of doing things combine to create a distinctive culture
that will impact on strategy development &
implementation

Tests of a Winning Strategy
(i) The Goodness of Fit Test
-A good strategy has to match the industry and
competitive conditions, market opportunities, threats
and other external environmental aspects.
-It should also fit in with its company’s resource
strengths as well as weaknesses.
(ii) The Competitive Advantage Test ;- A good
strategy leads to a sustainable competitive advantage.
(iii) The Performance Test;- A good strategy should
boost company performance, company's competitive
strength and long term market position.

(iv) E-V-R Congruence – A winning strategy should
have coherence & intergration in terms of the
environment, resources & organizational value system.
(v) Distinctiveness – Another test of a winning
strategy is whether it gives the org something different
from competitors.
-A distinctive position in the market place allows a firm
to develop an identity that customers can notice.
-Distinctiveness relates to parts of the strategy that the
org `s customers can see & experience.

(vi) Sustainability – One of the toughest test of a
winning strategy is whether it leads to the organisation
developing the attributes that will allow it to survive &
thrive over the long term.
Discussion Point: Given that the hallmark of strategy
is to achieve superior performance, evaluate any five
parameters that could be employed as tests of a
winning strategy [20 Marks]

Strategic Management
*Strategic management consists of the analysis,decisions,and
actions an org undertakes in order to create and
sustain competitive advantages. Dess et al (2005).This
definition captures two elements @ the heart of strategic
management:
(a) Strategic management of an organization entails three
ongoing processes: analysis, decisions & actions.
(b) The essence of strategic management is the study of why
some firms outperform others, leading to two fundamental
sub-questions;
How should we compete in order to create competitive
advantages in the marketplace?
How can we create competitive advantages in the
marketplace that are not only unique and valuable but
also difficult for competitors to copy or substitute?

Strategy & Strategic Management
Strategic management is a broader term than
strategy and is a process that includes top
management’s analysis of the environment in which
the org operates prior to formulating a strategy, as
well as the plan for implementation and control of
the strategy.
The difference between a strategy and the strategic
management process is that the latter includes
considering what must be done before a strategy is
formulated, implementation of the strategy as well
as assessing the success of an implemented.

Strategic Management Process
*The strategic management process can be summarized in five steps:
1.Strategic Analysis which is split as follows:
(a) Internal Analysis: Analyze the org ’s strengths and weaknesses in its internal
environment. Internal analysis is based cultural analysis (vision &
mission),strengths & weaknesses (SWOT Analysis),resource focused analysis, value
chain analysis or Mckinsey 7s framework.
(b) External Analysis: Analyze the opportunities and threats, or constraints, that
exist in the org ’s external environment, including industry and forces in the external
environment. External analysis is supported by PESTELI Analysis,SWOT Analysis,
Five Forces Model,SPECTACLES Analysis, Competitor Analysis, Strategic Group
Analysis etc
2. Strategy Formulation: Formulate strategies that build and sustain competitive
advantage by matching the org ’s strengths and weaknesses with the environment’s
opportunities and threats. Functional, business level (competitive) & corporate
strategies are formulated.
3. Strategy Implementation: Execute the strategies that have been developed.
4. Strategic Control and Evaluation: Measure success, provide feedback, & make
corrections when the strategies are not producing the desired outcome.

Theoretical Influences on Strategic Management
(i) Industrial organization (IO)
 A branch of microeconomics, emphasizes the influence
of the industry environment upon the firm.
 The central tenet of IO theory is the notion that a firm
must adapt to influences in its industry to survive and
prosper; thus, its financial performance is primarily
determined by the success of the industry in which it
competes.
 Industries with favorable structures offer the greatest
opportunity for firm profitability.
 Posits that’s its more important for a firm to choose the
correct industry within which to compete than to
determine how to compete within a given industry.

(ii) Resource-based theory
Views performance primarily as a function of a firm’s ability to
utilize its resources.
 Although environmental opportunities and threats are
important, a firm’s unique resources are key variables to the
development distinctive competences & creation competitive
advantage.
An org ’s resources are directly linked to its capabilities, which
can create value and ultimately lead to profitability for the firm.
Resources can be a sustainable source of competitive advantage
if they are;
- valuable & rare
-not subject to perfect imitation
-without strategically relevant substitutes

(iii) Contingency theory
 The most profitable firms develop beneficial fits with their
environments.
 In other words, a strategy is most likely to be successful when it is
consistent with the org ’s mission, its competitive environment, and
its resources.
 Perspective a middle ground perspective that views organizational
performance as the joint outcome of environmental forces and the
firm’s resources.
 Firms can become proactive by choosing to operate in environments
where opportunities and threats match the firms’ strengths and
weaknesses.
 Should the industry environment change in a way that is
unfavorable to the firm, its top managers should consider leaving
that industry and reallocating its resources to other, more favorable
industries.

Benefits of Strategic Management
Principal benefit of strategic management has been to help
organization formulate better strategies.
Ensures a sense of purpose & direction
High level of strategic fit with the environment because of
enhanced awareness of & understanding the environment
Allows an org to be more proactive than reactive in shaping
its own future i.e. it allows an org to initiate and influence
the future.
Involvement in the process results in a high level of affective
commitment in the org.

Benefits of Strategic Management
Creativity and innovativeness when employees
understand and support the firm’s mission,
objectives, and strategies.
Allows for identification, prioritization &
exploitation of opportunities
Ensures that organizations prosper even in harsh
operating environments
Allows org to enhance their performance through
collaborative relationships
It helps integrate the behavior of individuals into a
total effort

Why Some Firms do not formulate
strategies
a) Lack of knowledge or experience in
strategic planning
b) Firefighting— An org can be so deeply
embroiled in resolving crises & firefighting that it
reserves no time for planning.
c) Waste of time & resources—Some firms see
strategic planning as a waste of time because the
strategies are not implemented
d) Laziness—People may not want to put forth the
effort needed to formulate a plan.

Why Some Firms do not formulate
strategies
g) Content with success — Particularly if a firm is
successful, individuals may feel there is no need to plan
because things are fine as they stand.
h) Overconfidence—As managers amass experience,
they may rely less on formalized planning.
i) Prior bad experience—People may have had a
previous bad experience with planning, that is,
cases in which plans have been long, cumbersome,
impractical, or inflexible managers may not be
committed to planning.

Pitfalls in Strategic Planning
*Some pitfalls to watch for and avoid in strategic
planning are these:
Viewing planning as unnecessary or unimportant
Doing strategic planning only to satisfy
accreditation or regulatory requirements
Moving too hastly from mission development to
strategy formulation
Failing to communicate & involve key employees
in all phases of planning
Top managers making many intuitive decisions
that conflict with the formal plan

Pitfalls in Strategic Planning
Delegating planning to a “planner” rather than
involving all managers
 Failing to create a collaborative climate
supportive of change
Being too formal in planning & implementation
that flexibility and creativity are stifled

Critique of Strategic Management
Models are too complex or too simplistic
Stages in the process are so closely interrelated and
that considering them as independent steps may be
counterproductive.
 Still others, such as Mintzberg, argue that planning
models stifle the creativity and imagination that is
central to formulating an effective strategy
Can be a waste of time if strategy is not implemented
Can lead to constant changes that may alienate key
stakeholders

Strategic Decisions
*It is also important to distinguish between strategic
decisions and common management decisions. In
general, strategic decisions are marked the following
distinctions:
(i)Magnitude: They affect an entire org or a large part of it as
well as beyond.
(ii)Time-scale – strategic decisions set the direction for the org
over the medium to long term.
(iii)Commitment: Strategic decisions involve making choices &
committing resources in ways that cannot be reversed cheaply or
easily.
(iv)Systematic: They are based on a systematic, comprehensive
analysis of internal attributes and factors external to the
organization.

Strategic Decisions
(v) Orientation: They future-oriented but are built on
knowledge about the past and present.
(vi) Focus: They seek to capitalize on favorable situations
outside the org and minimize on the effects of external
threats as well.
(vii) Impact: They involve choices. Although making win-win
strategic decisions may be possible, most involve some
degree of trade-off between alternatives—at least in the
short run.

Strategic Decisions: Role of Chief
Executive
Provides strategic leadership to the org
Strategic decision making is generally reserved for
the top executive and members of his or her top
management team
The CEO is the individual ultimately responsible for
the organization’s strategic management but s/he
rarely acts alone.
There wont be no effective strategic planning in an
org in which chief executive does not give firm
support.

Strategic Decisions: Role of Business
Unit Heads & other managers
The CEO relies on a team of top-level executives &
business unit heads for strategic input
Thus CEO generally involve the heads of functional
departments in strategic decisions
The degree of involvement of top & middle managers
in the strategic mngt process also depends on the
personal philosophy of the CEO
Input to strategic decisions, however, need not be
limited to members of the top mgnt team.

Strategic Decisions: Role of Corporate Players:
Board of Directors
*The Board of Directors normally approves all decisions that
affect long-term performance of the Corporation
* The Board carries out three basic tasks for strategic
management.
a) Monitoring: The Board should be aware of the developments
within and outside the organization and bring it to the notice of
the management.
b) Evaluation: A Board should analyze the plans, decisions and
actions of management and highlight the positive and negative
side of the issues and suggest alternatives.
c) Initiative and determination: continuously assess corporate
mission, specify strategic options, make policy decisions

Role of Board of Directors: Theoretical
Perspectives
(i) Managerial Hegemony Theory: Boards are a
legal fiction dominated by management because of:
 Separation of ownership & control
 Information Asymmetry
 Management `s reduced dependence on
shareholders for capital

Role of Board of Directors: Theoretical
Perspectives
(ii) Agency Theory
Agency theory suggests that the firm can be viewed as a nexus of
contracts (loosely defined) between resource holders.
Principals (shareholders) delegate work to the agents
(managers),an arrangement in which conflict of interest is
inevitable.
Agency theory assumes that managers are likely to satisfice rather
than profit maximise on behalf of the principal.
Agency theory argues that the major role of the board is to reduce
the potential divergence of interest between shareholders &
management, minimizing agency costs and protecting
shareholders` investments.

Agency Theory Problem
The agency problem occurs when:
 the desires or goals of the principal and agent conflict
and it is difficult or expensive for the principal to verify
that the agent has behaved inappropriately
Solution:
 Principals engage in incentive-based performance
contracts
 Monitoring mechanisms such as the board of directors

ESTABLISHING COMPANY
DIRECTION
DEVELOPING STRATEGIC VISION,MISSION,
VALUES,CONCEPT OF BUSINESS MODEL

Vision
Is description of the ideal future towards which the firm is moving.
 Represents an ideal destiny that is massively inspiring & evokes passion
by inducing managers & other employees to reach
 Represents the dream & strategic intent of the org, such as industry
leadership on a national or global scale, to overtake market leaders,
pioneer new technological discoveries etc.
 Corporate vision concerns the whole org & business unit vision focuses
on an individual business unit.
 Vision forms the inspirational foundation for managers in relation to
strategic decision making
 E.g of vision statement: A car in every garage (Ford Motor
Company,1920)
 A good vision should be;-
 Clear
 Inspiring
 Realistic
 Creative

Why visions fail
Walk doesn't match the talk
Irrelevance
Visions are not a panacea for all organisational
problems
Ideal future not reconciled with the present

Mission Statement
Mission – a foundational statement that describes the org `s fundamental
purpose i.e. the reason why it exists.
 It shows the following ;-
 Definition of the business
 Its distinctive competence
 Indications of its future direction
E.g of a mission statement: Southwest Airlines is dedicated to the
highest quality service delivered with a sense of
warmth,friendliness,individual pride & company spirit.
A good Mission Statement should be:
 Clear
 Acceptable to stakeholders
 Defines what the org is
 Limited enough to exclude some ventures & broad enough to
allow for creative growth.
 Sufficiently clear to be widely understood throughout the organization
 Serve as a framework for evaluating both current and prospective activities.
 Distinguishes a given org from the others.

Values
The principles that orgs are committed pursuant to
achieving their visions & missions
They define what your business stands for — they are
your core rules.
They provide the bounds or limits of how the employees
will conduct their activities while carrying out the vision
and mission.
They are statements about how the organization will
value customers, suppliers, and the internal community.
Once defined, the values that are important to your
organization should be reflected in everything you do.

Corporate goals & objectives
*Objectives and Goals
Objectives and goals are used interchangeably but
there is a subtle distinction between these two
terms.
Objective is the end, which the organization tries to
achieve through its operations. „
Goal is an open-ended statement,which does not
quantify what needs to be achieved, and time frame
for completion.
So „growth is a goal whereas ‟ an objective is to
achieve 10% growth in terms of market share

*Some areas in which a corporate might establish its
goals & objectives are:
Profitability
Efficiency
Growth
Survival
Shareholder Wealth
Reputation

Technological Leadership
Utilization of resources (ROI or ROE)
Market Leadership
Contribution to employees (job security, competitive
remuneration & good working
environment,fullfilling jobs)
Contribution to society (taxes,charity & needed
products)
Market Leadership

Corporate Culture
Is the aggregate of beliefs, expectations & values
learned and shared by a corporation `s members &
transmitted from one generation to another.
Reflects the values of the founder (s) & mission of the
firm
Give the company a sense of direction
Includes the dominant orientation of the company
It includes a number of informal work rules (“the
company way”) that employees follow without
question.
Work practices over time become the company `s
tradition

Attributes of Corporate culture
i) Cultural Intensity: The degree to which members
of an org accept the norms, values or other cultural
content associated with the unit.
 Cultural intensity reflects the cultural depth of an
org

Attributes of Corporate culture
(ii) Cultural Integration: This is the extent to
which units in throughout the org share a common
culture.
 Cultural integration reflects the company `s cultural
diffusion
 In contrast, a company that is structured into diverse
units by functions or divisions usually exhibits some
sub-cultures & a less integrated corporate culture

Importance of corporate culture
A source of sustainable competitive advantage
Conveys a sense of identity for employees
Adds to the stability of the organisation as a social
system
Serves as a frame of reference for employees to make
sense of organisational activities
As a guide for appropriate behaviour

Concept of Business Model
A conceptual tool containing a set of objects, concepts
and their interrelationships with the objective to
express the business logic of the firm.
How an organisation manages its incomes and costs
through structural arrangement of its activities.
A company `s method for making money in the
current business environment.
It includes key structural & operational characteristics
of a firm – how it earns revenue & makes a profit

Elements of a business model
*A business model is composed of five elements:
 Who it serves
 What it provides
 How it makes money
 How it differentiates and sustains competitive
advantage
*The simplest business model is to provide a good or
service that can be sold so that revenues exceed costs
& expenses. Other business models can be much
complicated.

Types of Business Models
(i) Customer Solutions Business Model: making
money not by selling products per ser but solutions
that provide certain benefits.
(ii) Profit Pyramid Model: offering a full line of
products to close any niches where a competitor
might find a position.
-Customers adopt an org `s products up to the most
profitable range.
(i) Multi-component model: product is a
system,not just one product, with one component
providing most of the profits.

(iv) Advertising Model: Model offers products for
free or very cheap in order to make money on
advertising.
Model originated in newspaper industry & is heavily
used in commercial radio & television.
Some internet based businesses offer free services to
users in order to expose them to advertising that helps
them make money.

(v) Switchboard Model: firm acts as an intermediary
connecting multiple sellers to multiple buyers.
(vi) Time Model: Product R &D and speed are the keys to
success in the time model e.g being first to market with a
new innovation allows Sony to earn high margins.Once
others enter the market with lower margins,its time to
move on.
(vii) Efficiency Model: company awaits until a product
becomes standardised & then enters the market with a
low-priced,low margin product that appeals to the mass
market e.g Wal Mart & SouthWest Airlines

(viii) Blockbuster Model: In industries such as
pharmaceuticals & motion picture studios, profitability is
driven by key products.The focus is high investment in a
few products with high potential payoffs-especially if
they can be protected by patents.
(viv) Profit Multiplier Model: The idea is to develop a
concept that may not make much money on its own but
can spin off other profitable opportunities e.g a football
team makes money not only from gate takings but from
selling players,advertising,television rights,selling
memorabia like jerseys etc

(x) Entrepreneurial Model: Company offers
specialized products /services to market niches too
small to be worthwhile to large companies but have
potential to grow quick
*In order to understand how business models work, it
is important to learn where on the value chain
company make its money

Strategic Assessment
INTERNAL ANALYSIS
EXTERNAL ANALYSIS

INTERNAL ANALYSIS
a) SWOT Analysis (as well as external analysis)
b) Mckinsey 7 ‘s’ framework
c) Value Chain Analysis
d) Resource Based Approach to Organizational
Analysis

SWOT ANALYSIS
• Involves carrying out a Strengths, Weaknesses, Opportunities
and Threats (SWOT) analysis
• Threats; negative impacts from the external environment that
could decrease the company’s sales and profits e.g. competitor
actions, economic changes, political instability etc.
• Opportunities positive impacts from the external environment
that a company could use to increase its sales and profits e.g.
economic growth, new market, improved technology etc.
• Opportunities and threats are derived from the external analysis
• Strengths; strong internal aspects of the company relative to its
competitors. E.g. resource capabilities, strong management, skilled
workforce etc.
• Weaknesses; weak internal aspects of the company relative to its
competitors e.g. poor structure, lack of systems, poor management.
• Strengths and weaknesses are derived from internal analysis.

Example: SWOT Analysis for Econet Wireless Ltd
• Type of Factor
FFaavvoouurraabbllee UUnnffaavvoouurraabbllee
Location
Of
Factor
Internal
External
STRENGTHS
•Strong brand name
•Passionate & hardworking
mngt team
•Strong resource base
•Economies of scale
WEAKNESSES
Over-reliance
on relationships
OPPORTUNITIES
•Growing internet market
•Largely unbanked rural
market
•Effective demand &
positive attitude to mobile
phone services
THREATS
•Intense competition
•Market liquidity challenges
•Inadequacy of power
supplies
•High Unemployment rate in
Zim

Mckinsey 7s framework
*The Mckinsey 7s framework is a very
comprehensive and better alternative to
SWOT Analysis in respect of analyzing the
intenal environment.
Strategy: the plan devised to maintain and build
competitive advantage over the competition.
 Structure: the way the organization is
structured and who reports to whom.
Systems: the daily activities and procedures that
staff members engage in to get the job done.

Mckinsey 7s framework
Shared Values: called "superordinate goals"
when the model was first developed, these are the
core values of the company that are evidenced in
the corporate culture and the general work ethic.
 Style: the style of leadership adopted.
 Staff: the employees and their general
capabilities.
 Skills: the actual skills and competencies of the
employees working for the company.

Concept of the Value Chain
• A company’s value chain identifies the primary
activities that create value for customers and the
related support activities.
• Each activity in the value chain incurs costs and
ties up assets.
• The costs incurred in performing each activity can
be broken down into primary costs and activities
and support costs and activities
• Value is created when the market value of the
product is more than the total cost of
organizational inputs involved in creating the
product

Value Chain Activities
• Primary Activities;- activities that are at the core of the
company’s operations in producing the product or service
such as;
 Inbound logistics (raw material handling, warehousing, order
processing etc.)
 Operations (machining, assembling, packaging testing)
 Outbound logistics (warehousing, distribution, shipping)
 Sales and marketing (advertising, promotions, pricing, market
research)
 Service (installation, repair services, technical assistance)
• Support (Secondary Activities) ;- facilitate the smooth
running of the primary activities and include;
 Human resources management (selection, recruitment, training etc)
 Procurement (various intangible & tangible inputs.
 Technology(support services)
 Firm infrastructure (Land, buildings)

Examples of Using the Value Chain to Create
Cost Advantages
• Simplifying product design
• Stripping away extras
• Shifting to a cheaper less capital intensive process
• Relocation to premises closer to supplier of key
input
• Relocation closer to market
• Outsourcing some non/key secondary activities
• Streamlining the workforce.
• Optimizing inventory management

Resource Based Approach to Organisational
Analysis
*Resources are an org `s assets which are the basic
building blocks for competitive advantage.
• A resource is an asset, competency, process, skill
or knowledge controlled by the company.
• It is a strength if it provides the company with a
competitive advantage.
• It becomes a weakness if the organisation does
not possess the resources that the other
competitors do possess or if it is a key success
factor in the industry.

Types of Resources
• Tangible
– Financial; borrowing capacity, internal funds generation
– Physical;- plant and equipment, location, technology, raw
materials etc
• Intangible
– Reputation; brand name, customer base, relationship with
suppliers
– Culture;- shared values
• Human
– Skills and knowledge, Motivation, flexibility and adaptation,
loyalty.

Sustainability of a Resource as a source of
Competitive Advantage
There are four important characteristics:
• Durability; the time it takes before the resource
becomes obsolete
• Transparency; the rate at which competitors can
learn the relationship of the resource and its
capability in supporting the company’s successful
strategy
• Transferability; the rate at which competitors
are able to acquire the resource and capability
• Replicability; the ability of competitors to
duplicate the resource and capability of the
company so as to imitate its successful strategy.

Resources: Capabilities & Competencies
(i) Capabilities: refer to an org`s ability to exploit
its resources through organizational processes &
routines that manage the interactions among the
resources to turn inputs into outputs.
(ii) Competency: is cross functional integration
& co-ordination of capabilties e.g a competency in
NPD in a division may be as a result of
intergrating HR,Mkting,R&D & production
capabilities in that division.

Resources: Capabilities & Competencies
(iii) Core Competences: Collection of core
competencies that cross divisional boundaries,is
widespread within the corporation & is something
the corporation does exceedingly well.
(iv) Distinctive Competencies: core competencies
that are superior to those of competition.
*E.g 3M is known for its distinctive competence in
New Product Development,General Electric for its
distinctive competency in management
development.

External Assessment
a) PESTLE Analysis
b) SPECTACLES Analysis
c) Competitor Analysis
d) Strategic Group Analysis
e) Porter `s Five Forces Model
f) Porter `s Four Corner Analysis Model

PESTLE I Analysis
(i) Political Factors
 Political stability
 Influence of Political parties
 Gvt, gvt bodies & quasi-gvt bodies
 Gvt ideology e.g. free market or socialist thrust
 Changes in gvts
 Gvt policies
(ii) Economic factors
 GDP per capita(income levels)
 Income distribution
 Interest rates
 Inflation
 Exchange rates
 Stock Market Performance

PESTLE I Analysis
(iii) Social Factors
Culture
Demographic Trends
Social expectations
Customer tastes and preferences
Educational levels
(iv) Technological Factors
Rate of innovation
Globalization
Infrastructural Requirements
Information technology
Research & Development

PESTLE I Analysis
(v)Legal Factors: Relates to how the legal framework
affects corporate strategy:
 Regulatory framework & competitiveness
 Legal framework & resources (tangible & intangible
resources)
 Legal framework & growth
 Legal framework & marketing of goods
 Legal framework & corporate governance
(vi) Environmental /Ecological Factors
Raw materials
Cost of energy
Pollution & green imperatives
Business & climate change
Discovery of new natural resources

PESTLE I Analysis
(vii) International Factors: The aggregate of
factors that include world economic,political,socio-cultural,
technological,environmental,legal
framework & other imperatives.

SPECTACLES Analysis
*Cartwright (2002) takes a detailed approach to assessing
the environmental factors under which the activities have
to be conducted and decisions taken under a ten point
acronym SPECTACLES.
(i)Social: changes in society & societal trends, demographic
trends & influences.
(ii)Political: political processes & structures,political
institutions & their influence on business
(iii)Economic: referring to sources of finance,stock markets,
inflation,interest rates, property
prices,local,regional,national & global economies.
(iv)Cultures; local,regional & international,cultural
changes,cultural pressures on organizational activities.

SPECTACLES Analysis
(v) Technological:technological needs of
business,technological pressures,technology and
functional level efficiency & effectiveness.
(vi) Aesthetic: communication, marketing &
promotion,image,fashion,organisational,public
relations.
(vii) Customer: needs & wants,customer
care,anticipating,future requirements,consumer
behaviour.
(viii)Legal: Legal pressures,product
liability,employment law,competition legislation

SPECTACLES Analysis
(ix)Environmental: responsibities to the
planet,responsbilities to communities,pollution &
other environmental imperatives.
(x)Sectoral:Competition,market structures,competitive
forces,co-operation,differentiation & market
segmentation

SPECTACLES Analysis
For those responsible for strategic management &
direction of organizations, the SPECTACLES
approach generates a broadness of considerations
that, in many cases, is not present at all.
The key benefit of SPECTACLES approach is to
ensure that every aspect of the business &
environment is addressed.
It requires that even the softer aspects of the org like
culture & aesthetics are considered.
 It makes managers think more deeply about every
issue & constrain

Competitor Analysis
*Competitor Analysis Framework
i) Competitor Identification; The starting point in
competitor analysis is identifying existing as well as
potential competitors
(ii) Competitor Assumptions;The assumptions that a
competitor`s managers hold about their firm & their
industry help define the moves they are likely to make
(iii) Competitor Objectives; Knowledge of a competitor
objectives facilitates a better prediction of the `s
competitor`s reaction to different competitive moves

Competitor Analysis
(iv) Competitor Strategies; Knowledge of the
competitor`s strategy ensures that the firm will craft
a strategy that aimed at outperforming competition
v) Competitor Capabilities; competitor capabilities
can be analysed according to its strengths &
weaknesses in functional areas

Strategic Group Analysis
• A strategic group is a group of firms following
the same strategy in a given target market.
• The firm’s in a strategic group provide direct
competition to each other.
• A firm must thus always monitor the activities
of those competitors in its strategic group
more closely than those outside the group.
• Strategic groups are identified by the key
competitive variables in that industry

Porter `s Five Forces Model
Porter's five forces of competitive position analysis was
developed in 1979 by Michael E. Porter of Harvard Business
School as a simple framework for assessing and evaluating
the competitive strength and position of a business
organisation.
This theory is based on the concept that there are five forces
which determine the competitive intensity and attractiveness
of a market.
Porter’s five forces helps to identify where power lies in a
business situation.
This is useful both in understanding the strength of an
organisation’s current competitive position, and the strength
of a position that an organisation may look to move into.

P0rter `s five forces Model
Threats of
New Entrants
Bargaining
Power of
Suppliers
Competitive
Rivarly
Bargaining
Power of
Buyers
Threats of
New
Substitutes

Porter’s 5 forces Model
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Porter identified that high or low industry profits are
associated with the following characteristics:
High industry profits are
associated with;
Weak Suppliers
Weak Buyers
High Entry barriers
Little rivarly
Few opportunities for
substitutes
Low industry profits are
associated with;
Strong Suppliers
Strong Buyers
Low Entry barriers
Intense rivarly
Many opportunities for
substitutes

Threats of New Entrants
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Profitable markets attract new entrants, which
erodes profitability.
 Unless incumbents have strong and durable barriers
to entry, for example, patents, economies of scale,
capital requirements or government policies, then
profitability will decline to a competitive rate.
If barriers to entry are low then the threat of new
entrants will be high, and vice versa

Bargaining Power of Suppliers
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If a firm’s suppliers have bargaining power they will:
Exercise that power
Sell their products at a higher price
Squeeze industry profits
*Bargaining power of suppliers depends on
(i) Uniqueness of the input supplied
(ii) The relative size & strength of the supplier
(iii) The number of suppliers for each essential input
(iv) Competition for the input from other industries
(v) Cost of switching to alternative sources

Bargaining Power of Buyers
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Powerful customers are able to exert pressure to
drive down prices, or increase the required quality
for the same price, and therefore reduce profits in an
industry.Several factors determine the bargaining
power of customers, including:
(i)Number of customers /buyers in the market
(ii)Their size of their orders
(iii)Number of firms supplying the product
(iv)The threat of integrating backwards
(v)The cost of switching from one supplier to another

Threat of Substitute Products
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A substitute product can be regarded as something
that meets the same need
If there are many credible substitutes to a firm’s
product, they will limit the price that can be
charged and will reduce industry profits.

Degree of Competitive Rivarly
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If there is intense rivalry in an industry, it will
encourage businesses to engage in
Price wars (competitive price reductions),
Investment in innovation & new products
Intensive promotion (sales promotion and higher
spending on advertising)
All these activities are likely to increase costs
and lower profits.

Sixth Force ? (Power of
Complementors)
*The sixth force, “The Power of Complementors’’ was
added by Brandenburger & Nalebuff (1996) who
identified the power of affect the usage & sales of PC
market players like IBM,DELL & HP
-Complementors are not found in every industry &
reseaerchers only noticed them when they were studying
new industries like software.
-Complementors do not complete in the industry ,do not
supply it or buy from it.
-Porter (2001) disputes the power of complementors to
directly affect the profitability of an industry-in his fiew
its not a true force.

Porter `s Four Corner Analysis Model
*Developed by Michael Porter, the four corner’s analysis is a
useful tool for analysing competitors.
It emphasises that the objective of competitive analysis
should always be on generating insights into the future.

Porter `s Four Corner Analysis Model

Summary of Porter's Four Corner's
Analysis Model
a) Motivation – drivers: Analysing a competitor’s
goals assists in understanding whether they are
satisfied with their current performance and market
position.
This helps predict how they might react to external
forces and how likely it is that they will change
strategy.
b) Motivation – Management Assumptions:
The perceptions and assumptions that a competitor
has about its business, the industry and other
companies will influence its strategic decisions.

Summary of Porter's Four Corner's
Analysis
c) Actions – Strategy: A company’s strategy
determines how it competes in the market.
Where the current strategy is yielding satisfactory
results, it is reasonable to assume that an org will
continue to compete in the same way as it currently
does.
d) Actions – capabilities. The drivers, assumptions
and strategy of an organisation will determine the
nature, likelihood and timing its actions.
However, an org ’s capabilities will determine its
ability to initiate or respond to external forces.

Concept of Competitive Advantage
*An organization a achieves competitive advantage
when it offers disproportionately higher net benefits
to customers relative to competitive.
Having achieved competitive advantage means that
the org has been able out-peform competitors in one
or more ways.
Org would have deviated from parity in terms of
industry performance.
Ideally competitive advantage should be sustainable

Sources of Competitive Advantage
a) Resources
b) Corporate Culture
c) Technological know-how
d) Market Power
e) Relationships
f) Size of the organization.

COLLABORATIVE AND
COOPERATIVE STRATEGIES
“STRATEGIC PARTNERSHIPS HAVE BECOME
CENTRAL TO COMPETITIVE SUCCESS IN
FAST CHANGING MARKETS”
*STRATEGIC ALLIANCES
*OUTSOURCING

What is Collaboration
*“Collaborative management is a concept that
describes the process of facilitating and operating in
multi-organizational arrangements to solve problems
that cannot be solved, or solved easily, by single
organizations. (Agronoff & McGuire 2002)
*Collaborative arrangements include:
Policymaking and strategy making e.g
Engaging in formal partnerships & joint policy making
Resource exchange
Project-based work

Types of Collaborative Arrangements
a) Strategic Alliances
b) Outsourcing

(a) Strategic Alliances
*A partnership of two or more corporations or
business units to achieve strategically significant
objectives which are mutually beneficial.
*Any cooperative effort between two or more
organisations to develop, manufacture and/or
market products and services.

Three Types
Of
Alliances
Nonequity
Alliance
Contracts
• licensing
• supply &
distribution
agreements
Joint
Venture
Equity
Alliance
Cross Equity
Holdings
• partners own
stakes in
eachother
Joint Equity
Holdings
• independent
firm is
created

Reasons for Forming Strategic Alliances
 Generate economies of scale
 Gain access to strategic markets
 Overcome trade barriers such as import barriers
 To share costs and risks of R&D
 Gain access to a needed technology
 Use excess capacity
 Gain access to low-cost manufacturing capabilities
 Access a name or customer relationship
 Reduce the investment required to enter a new venture.

Guidelines for Alliance Success
Choose the right partner
Reputation and Trust
Mutual dependency ;- each party should have
something of value to gain from the alliance
Pre-nuptial Agreement;- Partners should work
out a plan how to deal with proprietary technology
and competitively sensitive information
 There should be no elephant and ant complex
among the partners

(b) Outsourcing
This involves withdrawing certain activities in the value
chain system and relying on outside organisations to
supply the needed activities, products and support
services.Orgs outsource when:
An activity can be performed better or more cheaply by
outside specialists.
An activity is not crucial to the org ’s ability to achieve a
sustainable competitive advantage.
Outsourcing reduces the org’s risk exposure to changing
technology
Outsourcing allows the org to concentrate on its core
business and do what it does best.

Outsourcing Benefits & Risks
*Benefits
 Ability to concentrate on core business and core
competencies
 Obtaining higher quality and/or cheaper components or
services than can be done internally.
 Reduced capital investment
*Risks
Loss of competitive knowledge in outsourced
activities
Conflicting objectives with outsourcing partner
Danger of outsourcing the wrong types of
activities which impact on the org ’s capabilities.

Conclusion
Strategic alliances and outsourcing have become
an important strategic tool of cooperation to
enhance competitiveness.
 Most important decisions: picking the right
alliance or outsourcing partners

STRATEGIC FORMULATION &
CHOICE
CORPORATE STRATEGY

What is Corporate Strategy?
*Determining the overall direction that will enable the org to best
fulfill its purpose & achieve its strategic goals through:
(i)The org `s overall orientation towards
growth,stability,retrenchment or combination (directional
/grand strategies)
(i) Actions to boost combined performance of businesses through
the manner in which mngt co-ordinates the activities & transfers
resources & cultivates capabilities among SBUs (parenting
strategy)
(ii) The industries or markets in which the firm competes through its
SBUs, establishing investment priorities & steering corporate
resources into most attractive units (portfolio strategy)

Possible Corporate (grand /directional )
strategies
(1) Growth: expansion of organizational activities.
(2) Stability: keeping the organization where it is in
order to consolidate or maintain a firm`s
competitive position
(3) Retrenchment: reversing the organization’s
weaknesses or decline through reduction in
product/service lines, markets or functions.
(4) Combination Strategy: a multi-strategy
approach whereby there is justification for
pursuing one strategy in some SBUs & another in
the others

A. GROWTH as grand/directional strategy
Growth strategy
 Involves the attainment of specific growth objectives by
increasing the level of an firm’s operations
Typical growth objectives for businesses
 Increase in sales revenues
 Increase in earnings or profits
 Other performance measures
Growth objectives of not-for-profit businesses
 Increasing clients served or patrons attracted
 Broadening the geographic area
 Increasing programmes offered

Types of Growth Strategies
(prd-mkt/limited/intensive)
Organizational
Growth
Diversification
•Related
•Unrelated Horizontal
Integration
Vertical
Integration
•Backward
•Forward
Concentration
International

Concentration Strategy
A growth strategy where the firm
 Concentrates on its primary line of business
 Looks for ways to meet its growth objectives through
increasing its level of operation in this primary business.
*Through concentration growth is realized by way of:
 market penetration
 market development
 product development.

Market Penetration
*A growth strategy seeking to increase market share for
present products or services in present markets through
greater marketing efforts with two broad objectives:
 To increase market share
 To retain existing customers.
*Firm concentrates on doing better what it has been
doing well such that its objectives are actualized through:
 Increasing the consumption rate of existing users.
 Attracting new users to the product
 Getting competitor customers to switch to your products.

Conditions favouring Market Penetration
When current markets are not saturated with a
particular product or service.
 When the usage rate of present customers could be
increased significantly
 When increased economies of scale provide major
competitive advantages

Market Development
A concentration growth alternative where expansion is
driven by introducing present products or services into
new geographic areas. The new markets can be:
(ii) New geographical markets such as foreign countries,
or
(ii) new market segments not currently using the product
Over the past 30 yrs,China has been an attractive
target of many firms' mkt development initiatives
especially those that deal in consumer goods & `kids
related products.

Conditions favouring Market Development
When new channels of distribution are available that
are reliable, inexpensive, and of good quality.
When new untapped or unsaturated markets exist.
When an org has the needed capital and human
resources to manage expanded operations.
 When an org has excess production capacity.

Product Development
*Growth is driven by increasing sales through the
introduction of new products to existing markets.
*Product development may involve altering existing
products by:
(i) adding new features,
(ii) offering different quality levels, or
(iii) offering different sizes of the product
 Often linked to attempts to prolong the PLC
 Product development usually entails large R&D
expenditures

Conditions favouring Product Development
An org competes in a high-growth industry that is
characterized by rapid technological developments.
Major competitors offer better-quality products at
comparable prices.
 When an org has especially strong research and
development capabilities.

Diversification Strategies
A corporate growth strategy in which a firm expands
its operations by moving into a different industry
Two major types of diversification
 Related (concentric) diversification
 Unrelated (conglomerate) diversification

Why Do Firms Diversify?
a) To achieve desirable levels of growth
b) To more fully utilize existing resources and capabilities
c) Risk reduction and/or spreading
d) To make use of surplus cash flows
e) To enhance shareholder value through snergy.Synergy
can be obtained in three ways
 Exploiting economies of scale
 Exploiting economies of scope
 Efficient allocation of capital through the use of portfolio
management techniques

Criteria for Effective Diversification
Diversification is capable of increasing shareholder
value if it passes three tests:
 The attractiveness test: The industry must be structurally
attractive or capable of being made attractive
 The cost-of-entry test: The cost of entry must not capitalize
all future profits
 The better-off test: Either the new unit must gain
competitive advantage from its link with the corporation or
vice versa (i.e. synergy)

Costs of Diversification
Ignorance
(about newly
entered fields)
Ignorance
(about newly
entered fields)
Neglect
(of core
business)
Neglect
(of core
business)
Coordination
Coordination
( Communication
•Accountability)
( Communication
•Accountability)

Balancing the Benefits & Costs of
Diversification
Benefits • Costs
• More attractive terrain
• Access to key resources
• Sharing resources
• Ignorance
• Neglect
• Coordination

Limiting Diversification Costs
*Limit Costs of Ignorance by...
entering familiar fields
 entering new areas internally rather than by acquisition
*Limit Costs of Neglect by...
 ensuring new businesses fit easily with existing ones
 leveraging a distinctive competence systemwide
*Limit Costs of Cooperation by…
carefully managing the sharing of activities
designing organizational support systems that promote that
promote interrelationships

Diversification Strategies (options)
(i) Related (Concentric) Diversification
 Diversifying into a different industry but one that’s related
in some ways to the org ’s current operations
 The new products or services involved may have linkages
with the current products either through marketing or
technology.
 Search for strategic “synergy”, which is the performance of
the sum of the parts is better than the whole
 Synergy happens because of the interactions and the
interrelatedness of the combined operations and the
sharing of resources, capabilities, & distinctive
competencies
 Builds shareholder value by capturing cross-business
“strategic fits”

Diversification Strategies (options)
(ii) Unrelated Diversification
Diversifying into completely different industry from
the firm’s current operations.
No discernible relationship between existing and
new products service or markets such that
diversification is justified as a promising investment
opportunity.
Firm move into industries where there is
 No strategic fit to be exploited
 No meaningful value chain relationships
 No unifying strategic theme
Approach is venture into any business with good
profitability prospects

Intergrative (substantive) growth strategies
*Through mergers & acquistions firms are able to grow
through vertical & horizontal intergration such that they
gain control over distributors, suppliers, and/or
competitors.
 A merger is a legal transaction in which two or more
organizations combine through an exchange of stock to
create one bigger firm.
 An acquisition is an outright purchase of an
organization by another

VERTICAL & HORIZONTAL INTERGRATIONS
Textile Producer Textile Producer
Shirt Manufacturer
Shirt Manufacturer
Clothing Store Clothing Store
Green arrows reflect vertical intergration whereby firm grows by merging
with or aqcuiring suppliers or intermediaries while purple arrows show
growth by horizontal intergration (aquistions & mergers of competing
businesses.

Vertical Intergration
*Firm grows either by acquiring firms that supply it
with inputs (backward vertical intergration) or that
distribute its products (forward vertical intergration)
 For example acquisition of a textile firm by a shirt
manufacturer is a classic reflection of backward
vertical intergration & the aquistion of a clothing
chain store by a the same shirt manufacturer which
classically typify forward vertical intergration

Forward Intergration
* Forward integration entails growth gaining ownership or
increased control over distributors or retailers.
*Conditions favouring forward intergration include:
(i) An org ’s present distributors are especially expensive, or
unreliable, or incapable of meeting the firm’s distribution
needs.
(ii) The availability of quality distributors is so limited as to
offer a competitive advantage to those firms that integrate
forward.
(iii) An org has the resources needed to manage the new
business of distributing its own products.
(V) Present distributors or retailers have high profit margins

Backward Intergration
*Backward integration is a strategy of seeking
ownership or increased control of a firm’s suppliers.
*Conditions that favour backward intergration
include:
(i) An organization’s present suppliers are especially
expensive, or unreliable, or incapable of meeting the
firm’s needs for parts, components, assemblies, or
raw materials.
(ii) The number of suppliers is small and the number of
competitors is large

Backward Intergration
*Conditions that favour backward intergration
include:
(iii) An org the resources to manage the new business
of supplying its own raw materials.
(iv) Advantages of stable prices are particularly
important.
(v)Present suppliers have high profit margins
(vi) An org needs to quickly acquire a needed resource

Vertical Integration Continuum
*Harrigan (1989) postulated that a company `s degree
of vertical intergration can range from a total
ownership of the value chain needed to sell a product
to no ownership at all.
Full Intergration
Taper
Intergration
Quasi-
Intergration
Long-term
Contract
Source: Harrigan K.R (1983),Strategies for Vertical
Intergration,Rowan & Littlefield Publishing Group,page 16

(i) Full Intergration: firm internally makes 100% of
its key supplies & completely controls its
distributors.
 Large oil companies such as Royal Dutch Shell are
fully integrated.
 They own the oil rigs that pump oil out of the
ground,the ships & pipelines that transport the
oil,the refineries that convert the oil to petroleum
and the trucks that deliver the petroleum to
company owned & franchised gas stations.

(ii) Taper Intergration
A firm internally produces less than half of its own
requirements & buys the rest from outside suppliers
(backward taper integration)
 In terms of forward taper integration,a firm may
sell part of its products through company owned
outlets & the rest through other intermediaries.

(iii) Quasi integration: a firm does not make any of
its key supplies but purchases from outside suppliers
that that are under its partial control (backward-quasi
intergration)
• An example of forward-quasi intergration would be
when a large pharmaceutical firm acquires part
interest (through equity ownership) in a pharmacy
chain (drug store) to guarantee that its drugs have
access to distribution channel.

(iv) Long term contracts: Agreements between
firms to provide certain supplies of goods or services
to each for a specified period of time.
 Long term contracts are considered vertical
intergration if they is an exclusive contract.
 In that case, the supplier or is really a captive
company that, although officially independent, does
most of its business with the contracted firm & is
formally tied to the org through a long term contract.

International Growth options (Entry modes)
(a) Exporting: producing goods in one country &
selling them in another directly/indirectly.
(b) Licensing: firm enters a foreign market segment
through giving the right to another company to
operate using its trademark, trade secret or any other
similarly valued items of intellectual property to
another company in return for a fee.
(c) Contract Manufacturing: company contracts a
foreign firm to manufacture products according to its
stated specifications

International Growth options contd
(d) Franchising: a more complete form of licensing
which entails a contractual agreement between the
franchisor & the franchisee allowing the franchisee to
operate a foreign country based business (retail product
or service firm/ or business to business provider) using
the brand name & business model developed &
supported by the franchisor.
(e) Joint Ventures: a firm entering a new foreign
market pools resources with those of a local firm to
form a new company in which ownership, control &
profits are shared.

International Growth options contd
(f) Direct Investment: firm establishes wholly
owned plants, operations facilities in a foreign
country through establishing wholly owned
subsidiaries.
Entry strategy requires highest level of financial
commitment thus exposes firm to highest level of
risk

B. STABILITY as grand/directional strategy
A strategy where the organization maintains its
current size and current level of business operations
without any significant change in direction.
Although it is inconceivable that an org that an org
may stay where it is, there are times when its
resources, capabilities & competencies are stretched
to the limit such that expanding the org `s operations
further might risk the org `s competitive advantage.
It is at times like these that managers might decide to
maintain their activities & operations at a certain
level.

When is stability an appropriate strategy?
 Industry is in a period of rapid upheaval with several key
industry & external forces drastically changing, making
future highly uncertain
 Industry is facing slow or no growth opportunities-strategic
managers might opt for stability before making strategic
moves into new industries.
 Organization has just completed a frenzied period of growth
& needs to have some “down” time in order for its resources
& capabilities to build up strength again
 For small business owners who have found a niche & are
happy with their success & the manageable size of their firms.

Stability strategy options
(i) Pause/Proceed-with-Caution strategy
 This stability alternative reflects an opportunity to
rest before continuing a growth or retrenchment
strategy.
 Deliberate attempt to make incremental
improvements until a particular environmental
situation changes.
 Typically conceived as a temporary strategy until
the environment becomes more hospitable or to
enable a company to consolidate its resources after
prolonged rapid growth.

(ii) No change strategy
Is a decision to do nothing new-a choice to continue
with current operations & policies for the foreseeable
future.
Success of such a strategy depends on a lack of
significant change in the firm `s environment.
Firms makes small adjustments for inflation in its
sales & profit objectives.

(iii) Profit Strategy: is a strategic decision to do nothing new
in a worsening but to act as though the company `s problems
are temporary.
May manifest through the firm artificially supporting profits
when a company `s sales are declining by reducing reducing
investment & short term discretionary expenditures.
Blaming the company `s problems on a hostile environment
mngt defers investment & or cuts expenses to stabilize
profits during this period.

Conclusion: Stability as a
Grand/Directional Strategy
 A stability strategy is implemented through not
expanding organization’s level of operation .
 Stability should be a short-run strategy.
 Because industry & competitive positions continue to
change while an org stabilizes,its important for
strategic managers to get the org `s
resources,capabilities and core competencies aligned
& strengthened once again so that it does not lose its
competitive position.

C.Retrenchment as a grand/directional
strategy
*Short-run strategy alternatives designed to address
organizational weaknesses and deficiencies that are leading
to performance decline through contraction of activities.
*Retrenchment is often triggered by: disappointing
performance,economic downturn,excessive debt or
ill-chosen acquisitions.
*In attempts to deal with weaknesses that are weighing
down performance, mngt follow any of the
following retrenchment strategies:
a) Turnaround strategy b) Captive Company Strategy
c) Sell-out/Divest d) Bankruptcy / Liquidation

a) Turnaround strategy
*Turnaround Strategies
A retrenchment strategy alternative that focuses on
reversing declining sales and profit through cutting
costs and selling assets for situations where the firm’s
performance problems are more serious but not yet
critical
Objective of turnaround strategies
 Improve operational efficiency
 Improve revenue and profitability of
underperforming businesses

Turnaround strategy
*Turnaround most appropriate when
Reasons for poor performance are short-term
Divestment doesn't make long-term sense
Firm has failed to meet its objectives and goals
consistently over time but has distinctive
competencies
Where there is inefficiency, low profitability, poor
employee morale, and pressure from stockholders
to improve performance.

Phases of a turnaround strategy
Two basic phases of a turnaround strategy
Contraction – effort to quickly “stop the
bleeding” through general across the board
cutback in size costs.
Consolidation – stabilizing the new leaner
organization

b) Captive Company Strategy
Involves giving up independence in exchange for
security.
Mngt desperately searches for an “angel” by offering to be a
captive company to one of its larger customers in order to
guarantee the company`s continued existence with a longer
term contract.
In this way org may be able to reduce the scope of its
functional activities such as marketing, thus significantly
reduce costs.
Weaker company gains certainty of sales & production in
return for being heavily dependant on another firm for at
least 75% of its sales.

c) Sell-Out /Divestment Strategy
(i) Selling-Out : Selling off the entire operation to a
buyer where it will continue as a going concern.
*Sell out makes sense if:
-mngt can get a good price for its shareholders.
-employees can keep their jobs by selling the entire
company to another firm.
-Acquiring company will have the necessary
determination & resources to return the company to

c) Sell-Out /Divestment Strategy
(ii) Divestment: corporation has multiple businesses & it
chooses to sell off a division that is underperforming/has low
growth potential.
*Divestiture makes strategic sense when:
 Firm has pursued turnaround strategy but failed to attain
needed improvements
 Division needs more resources than the firm can provide
 Division is responsible for the firm’s overall poor
performance
 Division is a misfit with the org.
 A large amount of cash is needed to sustain the SBU &
cannot be obtained from other sources

d.Bankruptcy/Liquidation Strategy
• When a firm finds itself in the worst possible situation,
with a poor competitive position in an industry with
few propects,mngt has only a few alternatives all of
which are distasteful i.e liquidation or bankruptcy.
• (i) Bankruptcy: A firm declares itself bankrupt for
protection from creditors for a period of time to permit
reorganization.
• Thus with bankruptcy, an org re-organizes its debts &
is legally protected from creditors collecting their on
their debts until such time it can emerge from
bankruptcy

d.Bankruptcy/Liquidation Strategy
(ii)Liquidation: selling off a business for the cash
value of the assets, thus terminating its existence
*The last resort…no one wants to buy the entire
business.
*The assets are worth more than the business…so
they’re sold piece by piece.
*With liquidation, business ceases to exist (no longer
going concern).

D. Combination as a grand/directional
strategy
Is a mixture (combination) of stability, growth &
retrenchment strategies adopted by an org,either at
the same time in its different businesses or at
different times in the same businesses with the aim
of improving its performance.
Reflects corporate planning being aimed at two or
more goals such as growth, stability & streamlining
simultaneously.
Combination is not an independent classification but
is a mix of different strategies.

Circumstances favouring combination
strategies
 The org has multiple SBUs in different industries.
 When a single grand strategy does not fit all the businesses
at a particular point in time.
 Where its imperative to balance various environmental &
organizational factors

Creating value through Corporate Strategy
Reducing Risk
Maintaining growth
Balancing Cash Flows
Sharing Infrastructure
Increasing Market power
Capitalizing on core competence

Portfolio Strategy
A business portfolio is the collection of businesses & products
that make up the company.
The best business portfolio is the one that best fits the
company`s strengths and weaknesses to opportunities in the
environment.
In relation to business portfolio planning, the company
must;
 Analyze its current business portfolio and decide which
businesses should receive more, less or no investment, and
 Develop growth strategies for adding new products or
businesses to the portfolio

STEPS IN BUSINESS PORTFOLIO PLANNING
(i) 1.Identification of key business units.
Management `s first step is to identify key business units
that make up the Company. These are called Strategic
Business Units.
An SBU is a separately managed division or unit of an
enterprise with strategic objectives that is both distinct
from the parent unit and integral to the overall
performance of the enterprise e.g Powerfm, Spot fm,Radio
Zimbabwe, National Fm and ZTV are SBUs of Zimbabwe
Broadcasting Holdings Limited

2. Assessing relative attractiveness of
SBUs
Most standard portfolio analysis tools evaluate
SBUs on two important dimensions: the
attractiveness of the SBU `s market/industry & the
strength of the SBU `s position in that market or
industry.
The best known of these portfolio planning
methods is the BCG matrix as well as the
Business Screen (General Electric Matrix as well as
the Pioneer-Settler-Migrator Map (PMS Map)

The BCG Matrix
A way to determine whether a business unit is a cash
producer or a cash user
The BCG Matrix classifies SBUs according to two dimensions
ie market growth rate and market share.
On the vertical axis, market growth rate provides a measure
of industry attractiveness.
On the horizontal axis, market share serves as a measure of
company strength in the market such that four types of SBUs
(Stars, Cash Cows, Dogs and Question Marks) can be
identified.

Dogs
A dog holds a low market share in an unattractive, low
growth market.
It is likely to be making a loss or a low profit or just
breaking even.
*Strategy options for ‘Dogs’
a)Divest: Exit the business in order to use the resources
elsewhere.
b)Maintain: keep the dog has an important role it is playing
and its future prospects are bright
c)Reposition: reposition it into narrower market segment

Question Marks
Are low share business units in high growth markets.
They consume resources (as you attempt to increase
share) and generate little in return.
The high growth rate of a question mark is a good
thing but the low share is worrying.
• Strategic options for “Question Marks”
a)Build Share: here the company can invest to
increase market share
b)Divest: from question marks lacking long-term
potential

Stars
These SBUs that are in high growth markets with a relatively
high share of that market
Often they need heavy investment to finance their growth &
sustain business unit's market leadership position
Eventually the growth rate of their market will slow and,
assuming they maintain their relative market share, will
become cash cow
*Strategic Options for ‘Stars’
Fortify & defend market position in the industry up to
the time when market growth rate slows down.

Cash Cows
Cash cows are relatively high market share
businesses operating in low growth market.
They generate cash surpluses over & above what
is needed to sustain its present market position.
These are mature, successful businesses with
relatively little need for investment
*Strategic options for Cash Cows
Hold : Fortify & defend present market position
i.e here the company invests adequately to keep
the SBU in its present position.

BCG Matrix: Implications/Advantages
 It is quantifiable and easy to use.
 Easy to remember terms and their meaning
when referring to business units
 Assumes large market shares => economies of
scale => cost leadership
 Each business unit moves across the matrix in
predictable ways over time
 Focuses attention on cash flows and needs

Limitations of BCG Matrix
Assumes that the major source of financing is internal.
The main problem is that it oversimplifies a complex set of
decisions
There is an assumption that higher rates of profit are directly
related to high rates of market share
High market growth is not the only indicator of industry or
market attractiveness
High market share is not the only measure of strength
Premised on the assumption that SBUs fit into polar extremes
measures of high & low for relative market share & market
growth.
A SBU classified as a dog may still be profitable for yrs even
though it never gains market share.
There is another assumption that SBUs will cooperate.

The General Electric (GE) Matrix
The limitations of the BCG portfolio led to the
development of other approaches (such as the GE
Matrix) to the same set of strategic questions.

General Electric Matrix
*The GE model emphasises all all potential sources of
strength,not just market share,and all the factors that influence
long term attractiveness of an industry/market,not just its
growth rate.

*According to Laudon et al (2005):
 Industry attractiveness is determined by market growth
plus market size, pricing flexibility ,competitive structure,
profitability, technology role, social environment, legal
imperatives etc.
Business strength is determined market share plus
company size, and growth rate, brand position,
profitability margins, technology position, product
quality, image, etc.

The different colour quadrant areas each represent different
combinations of industry attractiveness & company strength/position.
The “red and purple” zone represents SBUs of low to medium industry
attractiveness & average to weak business strength/position (Losers).
These are prime candidates for divestment or liquidation unless a
turnaround strategy is employed.
The “blue” zone consists of the three diagonal cells stretching frm the
lower left to the upper right. These SBUS (Profit Producers,Average
Businesses & Question Marks) warrant only a medium investment
allocation & the strategy is usually hold & maintain.
The “green & yellow” zone represents SBUs (Winners) that are in the
most attractive industries where the company has relatively favourable
strength/position. These SBUs are in the highest investment priority &
the strategy for these SBUs is “grow & build.”

General Electric Matrix: Strengths
Allows for more classifications of SBUs through the nine cell
approach allows for intermediate rankings between
high/low and strong/weak
 It also involves analysis of many factors to evaluate business
strength and industry attractiveness and not just market
share and industry growth rates.
The detail and richness of this type of analysis provide a
more in-depth perspective of an SBU’s current position.
Stresses channeling of resources to areas with the greatest
probability of achieving competitive advantage and
superior performance

General Electric Matrix: Weaknesses
Considerably more time and effort is needed to collect
the data and rank each business using the GE approach
There may be trade-offs between some factors e.g brand
image & market share

The Pioneer – Migrator – Settler Map
 Red Ocean based portfolio-planning has its own impressive array of
tools that include the widely popular Boston Matrix, the General
Electric Matrix among others.
 To aid in the navigation of Blue Oceans, Kim and Mauborgne (2005)
came up with Pioneer - Migrator - Settler Map as the Blue Ocean
Strategy based equivalent.

Settlers
Me-too businesses which will not generally contribute
much to a company’s future growth.
If both the current portfolio and the planned offerings
consist mainly of settlers, the company has a low
growth potential, is largely confined to red oceans, and
needs to push for value innovation.
Although the company might be profitable today as its
settlers are still making money, it may well have fallen
into the trap of competitive benchmarking, imitation,
and intense price competition

Migrators
Migrators offer improved value, but not innovative
value.
These are businesses whose strategies fall on the
margin between red oceans and blue oceans.
If current and planned offerings consist of a lot of
migrators, reasonable growth can be expected.
However,the company is not exploiting its potential
for growth, and it risks being marginalized by a
company that value-innovates.

Pioneers
Are the businesses that offer unprecedented value.
These are your blue oceans which are the most
powerful sources of profitable growth.
Pioneers have a mass following of customers.
Pioneers have maximum growth potential but
often consume cash at the outset as they grow and
expand

Conclusion: PMS Map
The PMS map shown above depicts this org ’s portfolio of
businesses, where the gravity of its current portfolio of 12
businesses, expressed as 12 dots,shifts from a preponderance
of settlers to a stronger balance of migrators and pioneers.
In pushing their businesses toward pioneers, however, senior
executives should be well aware that even though settlers have
marginal growth potential, they are frequently today’s cash
generators.
On the other hand, pioneers have maximum growth potential
but often consume cash at the outset as they grow and
expand. Thus,senior managers’ goal here should be to manage
their portfolio of businesses to wisely balance between
profitable growth and cash flow at a given point in time.

Corporate Parenting Strategy
Relates to corporate value creation through managing resources
& capabilities in a way that creates & maximises synergistic
relationships across the SBUs.
CP strategy focuses on core competencies of the parent
corporation & on the value created from the r/shp btwn the
parent & SBUs.
If there is a good fit between the parent `s skills & resources &
the needs & opportunities of the SBUs,the corporation is likely to
create value.
Research shows that SBUs with a good fit between their strategy
& parental support & guidance are better performers than those
without good fit.

Developing a corporate parenting strategy
(i) Examine each SBU (or target firm, in case of
acquisition) in terms of its strategic factors.
(ii) Examine each SBU (or target firm) in terms of
areas in which performance can be improved.
(iii) Analyze how well the parent corporation fits with
the SBU or target firm e.g its own strengths &
weaknesses in terms of resources,skills &
capabilities.

STRATEGIC FORMULATION
& CHOICE
BUSINESS LEVEL/ COMPETITIVE STRATEGY

BUSINESS LEVEL/ COMPETITIVETRATEGY
– Focuses on improving the competitive position of a company or
business unit within the specific industry or market segment it
serves.
– While corporate strategy ask what industry (ies) the company
should be in, business strategy asks how the company or its units
should compete or co-operate in each industry.
– Business level strategy options include:
a) Porter (1980) `s generic competitive strategies.
b) Intergrated low cost & differentiation (combination strategies)
e.g Blue Ocean Strategy
c) Miles & Snow `s Adaptive Strategies
d) Mintzberg `s Generic competitive Strategies

(A) Porter’s Generic Competitive Strategies
Porter (1980) came up with 3 generic strategies
which the scholar posited as effective
pursuant to coping with competitive forces &
driving competiveness in given markets:
I. Overall cost leadership
II.Differentiation
III.Focus

Porter’s Generic Competitive Strategies

Porter’s Generic Competitive Strategies
Combination of the competitive advantage used and the strategic target
results in the three generic competitive strategies as follows:
I. Cost leadership strategy ;-firm strives to have the lowest costs in its
industry and produces products /services for a broad customer base.
II.Differentiation Strategy ;-firm competes on the basis of providing
unique (different) products /services with features that a broader group
of customers value, perceive as different, and are willing to pay a
premium price for.
III.Focus strategy ;-can be cost focus or differentiation focus.
 Focus (cost): concentrating on a narrow customer segment and
outcompeting rivals by serving the niche customers at a lower cost than
competitors
 Focused (differentiation ) ;- concentrating on a narrow buyer
segment and outcompeting rivals by offering the niche customers
customised attributes that meet their requirements better than
competitor products

(i) Cost Leadership Strategy
*Requirements for Cost Leadership (Internal)
 Commonly required Skills and Resources
 Sustained capital investment
 Access to cheap sources of capital
 Process engineering skills
 Low cost distribution system
 Common organizational requirements
 Tight cost control
 Frequent detailed control reports
 Incentives based on meeting strict quantitative targets

Cost Leadership Strategy Works Best where
Price competition among rival producers is very
intense.
Product is standardised or readily available from rivals
There are few ways to achieve differentiation that has
value to customers

(ii) Differentiation Strategy
Requirements for Differentiation (Internal)
 Commonly Required Skills and Resources
 Strong marketing abilities and reputation in the industry
 Creative flair
 Strong R&D capabilities
 Corporate reputation for quality and technological leadership
 Common Organizational Requirements
 Ability to develop product features that raise performance of the
product
 Ability to deliver value via competitive abilities competitors cannot
match
 Strong coordination and collaboration among the functions
 Ways to attract highly skilled labour and creative people
 Incentives based on qualitaive and not quantitative measures

Differentiation Strategy Works Best where
• Differentiation of a product can command a
premium price which is higher than the cost of
differentiation.
• There are many ways to differentiate the product
that have value and please the customer
• Few rivals are following a similar differentiation
approach

Focused (Market Niche) Strategies
• Is based on the choice of a narrow competitive scope within
an industry
– Firm selects a segment or group of segments (niche) and
tailors its strategy to serve them.
– Firm achieves competitive advantages by dedicating itself
to these segments exclusively.
• Two variants
– Cost focus: Strives to create a cost advantage in its target
segment
– Differentiation focus: Seeks uniqueness in target market
– Both rely on providing better service than broad-based
competitors who are trying to serve the focuser’s target
segment

Focusing is Attractive when:
The target market niche is big enough to be profitable
and offers good growth potential
Industry leaders do not view the niche as crucial to their
own success
It is costly or difficult for multi-segment competitors to
put capabilities in place to meet the specialised needs of
the niche and at the same time serve their main stream
customers.
The focuser has the capabilities and resources as well as
goodwill it may have built up to compete against
challengers trying to enter the niche.

Conclusion on Generic Strategies
Discussion point – Discuss how companies in
Zimbabwe are employing Porter (1980)`s generic
strategies to outperform competition

B.Integrated low cost & differentiation
(combination strategies)
Primary benefit of successful integration of low-cost
and differentiation strategies is difficulty it poses for
competitors to duplicate or imitate strategy
Goal of combination strategy is to provide unique
value in an efficient manner
Blue Ocean Strategy is one of the most popular
combination strategy alternatives

Blue Ocean Strategy
Blue Ocean Strategy, as conceptualised by Kim and
Mauborgne (2005) is a strategic framework whereby a
business focuses on creating new demand, directing
its strategic compass on uncontested market space,
making competition irrelevant thus realising
disproportionately high growth and profitability.
A red ocean is a market space characterised by
intense competition and is analogous to blood-stained,
shark infested waters

Blue Ocean vs Red Ocean Strategy

Value Innovation: cornerstone of Blue
Ocean Strategy
Creation of an unparalleled leap in value for buyers and their company
through simultaneous achievement of low cost & differentiation in an
offering.

Value Innovation: cornerstone of Blue Ocean
Strategy
Questions that guide value innovation

Six Principles of Blue Ocean
Strategy
Reconstruct market boundaries
 Focus on the big picture, not the numbers
 Reach beyond existing demand
 Get the strategic sequence right
 Overcome key organizational hurdles
 Build execution into strategy

Six Misconceptions about Blue Ocean Strategy
Misconception 1: Blue Ocean is about new
products, new technologies or diversification
beyond a company’s core business.
Misconception 2: Blue Ocean Strategy is a
cowardly approach as it asks companies to evade
the competition.
Misconception 3: Blue Ocean Strategy is a
customer-oriented strategy

Six Misconceptions about Blue Ocean Strategy
Misconception 4: Blue Ocean is only wishful
thinking, as any blue ocean created usually turns
red rapidly.
Misconception 5: Blue Ocean Strategy is like an
old wine in a new bottle, as it is just a modified
version of differentiation strategy.
Misconception 6: Blue Ocean Strategy does not fit
the needs of Zimbabwean companies

Strengths of a Blue Ocean Strategy based
business model
 Sustainable profitability
 Inbuilt barriers to entry
 Disproving entrenched economic theory through achieving low
cost and differentiation simultaneously
 Absence of price wars that are associated with crowded market
places.
 Based on a unique but clear methodology and a refreshing set of
analytical tools
 Based on a refreshing and game changing approach to business
 Higher profits on the backdrop of low costs
 Encouraging creativity and innovativeness in an organisation
 Unique business model that cannot be created by other
companies and that competitors cannot make sense of

Weaknesses of a Blue Ocean Strategy based
business model
Risky as it may push companies to pursue new things
while jettisoning their competencies indiscriminately
Commercial success may be unsustainable as
competitors, attracted by supernormal profits, will
enter the industry and turn the blue ocean (red)
bloody
Not easy to achieve low cost and differentiation
simultaneously

Applicability of Blue Ocean Strategy in Zimbabwe
Viable in Zimbabwe
Sustainable in Zimbabwe
Blue Ocean based business model has more
strengths than weaknesses
 There are current or possible blue oceans in
Zimbabwe
Zimbabwean Companies are able to achieve
differentiation and low cost simultaneously.

Blue Ocean Strategy is the future of strategy

C.MILES & SNOW `s ADAPTIVE
STRATEGIES
Miles and Snow's adaptive strategies approach
is based on the strategies that organizations
use to successfully adapt to their uncertain
competitive environment. They identify four
strategic postures:
i. Prospector strategy
ii.Defender strategy
iii. Analyser strategy
iv.Reactor strategy

Prospector strategy
*Org continually innovates by finding & exploiting new
product and market opportunities.
 A prospector `s competitive strength is its ability to survey
rapidly changing environmental conditions to create new
products & services to fit this dynamic environment.
 Prosepector competitive strategy is to continously
innovate,develop and test new products thus creating
uncertainity for competition-who never know what going
to happen & what to expect from the prospector.
 Thus prospectors are constantly on the lookout
(prospecting) for new directions to pursue & if the develop
new products the market desires & is willing to pay for,the
will have a sustainable competive advantage.

Strategic management 1 notes NUST ZIMBABWE

Strategic management 1 notes NUST ZIMBABWE

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