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2 Learning Objectives Understanding of: Internal growth strategies and implications for organization scope and resource allocations External growth strategies and implications for organization scope and resource allocations The timing of growth moves Generic competitive strategies and their risks The implications of stages in the product life cycle for growth and competitive strategies.

3 StrategicDirection Strategy Formulation (corporate and business level) Strategy Implementation and Control Strategic Restructuring Internal and External Analysis

4 Business-Level Strategy Formulation Responsibilities Direction Setting--Mission, vision, ethics, goals Situation Analysis--Compilation and assessment of information Selection of Strategies--Generic Strategy (cost leadership, differentiation, best cost, focus) and Strategic Posture (specific strategies) Management of Resources--Acquisition and/or development of resources leading to competitive advantage Direction Setting--Mission, vision, ethics, goals Situation Analysis--Compilation and assessment of information Selection of Strategies--Generic Strategy (cost leadership, differentiation, best cost, focus) and Strategic Posture (specific strategies) Management of Resources--Acquisition and/or development of resources leading to competitive advantage

5 Business-Level Strategies Growth Strategies Competitive Strategies

6 Growth Strategies Involve investment in resources to achieve growth in sales (assuming the industry is attractive) Investments over time may involve a redefinition/expansion of organizational scope Three concerns: what activities and resources to invest in the implications for scope and complexity the timing relative to competitors

7 Growth Strategies Internal Strategies Market penetration Market development Application development Product development External Strategies Horizontal integration Alliance formation Vertical integration

8 Internal Growth Strategies Market penetration Objective: Increase sales volume, share of market in existing markets with existing products Invest: Advertising, promotion, sales force, capacity. Scope: Scale may increase, but scope does not change

9 Products Function Served Markets Served Processes/Activities Market Penetration

10 Internal Growth Strategies Market development Objective: Cultivate new market segments (demographic, geographic, psychographic) for existing products Invest: Marketing programs, new distribution channels, new sales staff, capacity... Scope: Increases the number and type of markets served

11 Products Function Served Markets Served Processes/Activities Market Development

12 Internal Growth Strategies Application development Objective: Qualify the product for new applications, which will lead to more volume sold to new and existing market segments. Invest: Applications development, testing, marketing programs, new distribution channels, new sales staff, capacity... Scope: Increases the number and type of functions served, and possibly the number and type of markets served

13 Products Function Served Markets Served Processes/Activities Application Development

14 Internal Growth Strategies Product Development Objective: Develop new products and modifications that will lead to sales in new and existing market segments, possibly for new applications. Invest: Product development, process development, applications development, testing, marketing programs, new distribution channels, new sales staff, capacity... Scope: Increases the number/type of products, processes, functions served, and possibly the number and type of markets served

15 Products Function Served Markets Served Processes/Activities Product Development

16 External Growth Strategies Horizontal Integration Objective: Intention is to accomplish the same end as the internal growth strategies. Acquire capacity, product lines, market channels, etc. Invest: Acquire all or part of a competitor’s assets. Scope: May increase scale and/or scope, similar to internal growth strategies.

17 External Growth Strategies Common in industries: experiencing a leveling of growth and excess capacity: $75.7 billion merger of Smith, Kline, Beecham with Glaxo Wellcome acquisition of Western Airlines by Delta. where rapid scale-up and access to new technologies are critical: Cisco’s acquisition of 51 companies over 6 years, reshaping product line and repositioning in key technologies.

18 External Growth Strategies Strategic Alliances/Joint Ventures Objective: To gain access to the capacity and/or capability of another firm for purposes of extending products, markets, processes, of function served. Invest: In cooperative initiatives. Management team, project resources. Scope: Provides a mechanism for extending scope.

19 External Growth Strategies Alliances between competitors for product and process development E.g., GM -- an on-line marketplace for auto suppliers’ goods and services. Toyota, Isuzu, Suzuki, and Fuji involved. E.g., GM -- an alliance with Honda for engine and transmission development and production. And between a firm and its suppliers or channels for exclusive supply arrangements

20 Stability Strategies Not typical in publicly-held organizations May be acceptable if  All key stakeholders agree  Mature market with high exit barriers  Private firms that want to preserve control  Restructuring (temporary condition) Not typical in publicly-held organizations May be acceptable if  All key stakeholders agree  Mature market with high exit barriers  Private firms that want to preserve control  Restructuring (temporary condition)

21 Miles and Snow’s Strategic Categories Prospectors First mover Analyzers Follow the first mover when opportunity is proven Defenders Defensive strategy Reactors No distinct strategy Prospectors First mover Analyzers Follow the first mover when opportunity is proven Defenders Defensive strategy Reactors No distinct strategy

22 Porter’s Three Generic Business Strategies Cost Leadershi p Cost Leadershi p Differentiation Cost Focus Differentiation Focus Differentiation Focus Competitive Scope Broad Target Broad Target Narrow Target Narrow Target Cost Efficiency Preferred Product/Service

23 Cost Leadership Accurate Demand Forecasting and High Capacity Utilization Economies of Scale Technological Advances Learning/Experience Effects Accurate Demand Forecasting and High Capacity Utilization Economies of Scale Technological Advances Learning/Experience Effects

24 Typical Learning/Experience Curve unit cost unit cost total cumulative output

25 Create Value Through Uniqueness Superior Quality Innovations and Research Speed and Flexibility Reputation and Brand Name Creative advertising Customers Must Be Willing to Pay More for Uniqueness Added costs vs. incremental price Create Value Through Uniqueness Superior Quality Innovations and Research Speed and Flexibility Reputation and Brand Name Creative advertising Customers Must Be Willing to Pay More for Uniqueness Added costs vs. incremental price Differentiation

26 Combination of Cost Leadership and Differentiation May Actually Be the Dominant Strategy Among the Most Successful Companies Today Either:  The same resources/activities that allow cost reductions also allow differentiation. E.g., automation that lowers costs and improves speed and service.  Profits from cost reductions are used to invest in differentiating features, and vice versa. Combination of Cost Leadership and Differentiation May Actually Be the Dominant Strategy Among the Most Successful Companies Today Either:  The same resources/activities that allow cost reductions also allow differentiation. E.g., automation that lowers costs and improves speed and service.  Profits from cost reductions are used to invest in differentiating features, and vice versa. Best Cost

27 Focus Based on Differentiation or Lowest Cost Key Is to Provide a Product or Service That Caters to a Particular Segment Based on Differentiation or Lowest Cost Key Is to Provide a Product or Service That Caters to a Particular Segment

28 The Product Life Cycle A A B B C C Introduction Growth Maturity Commodity or Decline Time Unit Sales Volume