DSGM. Lecture 4.2 Strategic choices 1 - Business level

Strategic choices 1: Business Level DSGM (Lecture 4.2) Dr Elvira Bolat C113, Christchurch House, Talbot campus ebolat@bournemouth.ac.uk @Elvira_Mlady

This week: Outline Lecture 4.1: Strategic purpose – Purpose of the organisation: values, vision, mission and objectives – Corporate governance – Stakeholder analysis

Lecture 4.2: Strategic choices 1 - Business level – – – – –

From Audit to formulating Strategy – SWOT Scope of business strategy Generic competitive strategies Interactive strategies Business models

Summary for the week Next week’s seminar preparation

Learning outcomes • Understand the importance of bringing all the analysis together • Tools for bringing the analysis together and identifying the strategic position – SWOT and TOWS • Examine the tools of portfolio analysis • Understand on what basis an organisation can compete and how to assess the best way to establish this • Examine growth and other strategic directions

SOSTAC Plan Framework

Situation

Control

Objectives

Actions

Strategy

Tactics

P R Smith (1993)

‘What we are aiming to do is maximise synergy, which could be described as the 2 + 2 = 5 effect. The starting point is the marketing audit, leading to the SWOT analyses.’

Malcolm McDonald – Marketing Plans p.295

SWOT Analysis

A SWOT summarises the key issues from the business environment and the strategic capability of an organisation that are MOST LIKELY to impact on strategy development

3-6

Place of SWOT in Strategic Marketing • Key part of Strategic Marketing analysis • Translates a marketing audit into a format that has strategic perspective • It is about separating meaningful data from that which is merely interesting • Powerful tool if used correctly

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Key Elements of each Dimension STRENGTHS: Areas of distinctive competence that: • Must always be looked at relative to the competition • If managed properly are the basis for competitive advantage • Derive from the marketing asset base WEAKNESSES: Areas of relative disadvantage that: • Indicate priorities for marketing improvement • Highlight areas and strategies that an organisation should avoid OPPORTUNITIES: environmental trends with positive outcomes that offer scope for higher performance if pursued effectively • Highlight areas for competitive advantage THREATS: trends within the environment with potentially negative impacts that: • Increase the risks a strategy • Hinder the implementation of strategy • Increase resources required • Reduce performance expectations

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Ways to produce a rigorous SWOT • Relate S & W to Critical Success Factors e.g. extensive distribution for soft drinks • State S & W in competitive terms e.g. how much more effective is our product innovation processes • Elements of the analysis must be specific • Be clear on competitive capabilities • Include a broad range of issues not just marketing ones • Soft as well as hard issues need to be included e.g. culture ITS NOT JUST A LIST OF POINTS. IT NEEDS TO CONTAIN LOGIC & EVIDENCE 9

Dangers in a SWOT analysis • Long lists with no attempt at prioritisation.

• Over generalisation – sweeping statements often based on biased and unsupported opinions.

• SWOT is used as a substitute for analysis – it should result from detailed analysis using the frameworks we have looked at.

• SWOT is not used to guide strategy – it is seen as an end in itself.

The TOWS matrix

EXTERNAL FACTORS

• TOWS uses the same inputs as SWOT but reorganises them and integrates them more fully into strategic planning process INTERNAL FACTORS ORGANISATIONAL ORGANISATIONAL STRENGTHS (S) WEAKNESSES (W) ENVIRONMENTAL OPPORTUNITIES (O)

SO Strategic options - Generate options here that use strengths to take advantage of opportunities

WO Strategic Options - Generate options that take advantage of opportunities by overcoming weaknesses

ENVIRONMENTAL THREATS(T)

ST Strategic options - Generate options here that use strengths to avoid threats

WT Strategic options Generate options here that minimise weaknesses and avoid threats

11 ADAPTED FROM H.WEIHRICH ‘THE TOWS MATRIX – A TOOL FOR SITIATIONAL ANALYSIS’ LONG RANGE PLANNING APRIL (1982) PP 54-66

TOWS Strategic Alternatives Matrix

Source: Weihrich, H., 1982. The TOWS matrix—A tool for situational analysis. Long range planning, 15(2), p. 60

In practice: Apple TOWS matrix

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Barriers to Effective Marketing Planning

McDonald (2010)

1.

2.

3.

4.

5.

6.

Confusion between tactics and strategy Isolating marketing function from operations Confusion between marketing concept and function Organisational barriers – silos, SBUs etc.

Lack of in-depth analysis (or analysis paralysis – nothing gets done!)

Confusion between process and output (process driven, rather than focussed) 7. Lack of knowledge and skills 8. Lack of systematic approach to marketing planning 9. Failure to prioritize objectives 10.Hostile corporate culture

10Ss Approach to Overcoming Barriers to Effective Marketing Planning

(McDonald (2010)

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Strategy before tactics Situate marketing within operations Shared values about marketing Structure around markets Scan the environment thoroughly Summarize information in a SWOT Skills and knowledge Systemise the process Sequence objectives Style and culture

Formulating Strategy 3 fundamental considerations for the formulation of strategy: – On what basis are we going to compete?

Strategic capability – competitive advantage

– Which direction in terms of markets & products and marketing strategy?

– What method(s) of strategic development?

Strategy Formulation

Business Level GENERIC STRATEGIES Competitive advantage: • Cost leadership • Differentiation • Focus

On what basis to compete?

Corporate level ALTERNATIVE DIRECTIONS? • Withdrawal • Consolidation • Market Penetration • Product Development • Market Global level Development ALTERNATIVE • Diversification DIRECTIONS? • Entry modes Which direction?

ALTERNATIVE DEVELOPMENT METHODS • Internal development • Mergers & Acquisitions • Joint Ventures • Alliances How? Source: Johnson et al, 2017

Scope of Business level Strategy

Source: Johnson et al., 2017

Competitive Advantage “… is the process of identifying a fundamental and sustainable basis on which to compete.

Ultimately marketing strategy aims to deliver this advantage into the market place.’’

Drummond et al., 2008, p.152

Porter’s generic strategies

Source: Porter, 1980

The strategy clock

Source: Johnson et al., 2017

Route 1, No Frills & Route 2, Cost-leadership No Frills strategy combines a low price with low perceived product/service benefits and a focus on a price-sensitive market segment due to : – Commodity markets.

– Price-sensitive customers.

– High power and low switching costs.

– Avoidance of major competitors.

Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity.

Four key cost drivers that can help deliver cost leadership: – – – –

Lower input costs.

Economies of scale.

Experience.

Product process and design.

Source: Johnson et al., 2017

Route 4, Differentiation Differentiation involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium.

Two key issues: – The strategic customer on whose needs the differentiation is based.

– Key competitors – who are the rivals and who become a rival.

Word of warning: CONCORDE Difference was not sufficient For customers wanting to pay the extra price

may

Route 3, Hybrid Hybrid seeks simultaneously to achieve differentiation and low price relative to competitors.

Two key issues: – Greater volumes can be achieved than competitors (e.g. Tesco).

– Cost reductions are available outside its differentiated activities (e.g. IKEA).

– Used as an entry strategy in a market with established competitors.

Route 5, Focus strategies (1) A focus strategy targets a narrow segment of domain of an activity and tailors its products or services to the needs of that specific segment to the exclusion of others.

Two types of focus strategy: – cost-focus strategy. – differentiation focus strategy.

Route 5, Focus strategies (2) Successful focus strategies depend on at least one of three key factors: • Distinct segment needs.

• Distinct segment value chains.

• Viable segment economics.

Source: Johnson et al., 2017

In practice: Generic strategies in European Ice Cream

Competitive advantage

Broad target

Low cost

Differentiation

Cost leadership: Unilever

Differentiation: Nestle Mars Ice Cream

Competitive scope Narrow target

Cost Focus:

Differentiation focus:

Economy ice cream made by small local ice cream companies with low overheads

Super premium e.g.

Haagen-Dazs, Ben&Jerry’s

Source: Lynch, 2009, p. 308

Routes 6,7, 8!

Failure strategies - do not provide perceived value for money in terms of product features, price or both.

– Route 6 suggests increasing price without increasing product/service benefits to the customer (e.g. monopoly).

– Route 7 iinvolves the reduction in product/service benefits whilst increasing relative price.

– Route 8, reduction in benefits whilst maintaining price.

Source: Johnson et al., 2017

Some drawbacks to generic strategic options

•

Low cost leadership – – –

•

Differentiation – –

•

Differentiated products are assumed to be higher priced – not always the case Company may have an objective to increase market share so it will use differentiation for this purpose and match the lower price of competitors

Competitive scope – –

•

How can more than one company be the low cost leader – contradiction to have an option of low cost leadership Competitors can reduce their costs, therefore how can a company hope to maintain cost leadership without risk Assumes technology is predictable. Radical change can alter the cost positions of competitors

Distinction between broad and narrow targets is unclear. Are they distinguished by size of market or customer type?

Difficult to identify which niche is likely to prove worthwhile – generic strategies provide no useful guidance to that

Stuck in the middle

Value-added or cost-driven?

• Consumers perceive value when: – it costs less to buy them than competing products offering similar benefits, i.e. ‘cost-driven’ – when they have unique benefits which offset their premium prices, i.e. ‘value-added’

• Distinction not always neat and tidy • Value-added cost driven strategies?

V.

or

Sustaining CA?

Source: Johnson et al., 2017

Competitive strategy in hypercompetition

Source: Johnson et al., 2017

Game Theory

Game Theory • • • •

Get in mind of the competitors Think forward and reason backwards The prisoner’s dilemma A dominant strategy

Summary • Strategic intent (or purpose) is expressed though statements of vision, mission values and objectives • Corporate governance & stakeholder analysis is crucial to determining strategic intent • SWOT translates a marketing audit into a format that has strategic perspective • Different generic strategies can be defined in terms of cost leadership, differentiation and focus • Competition and its structure + intensity determines dynamic nature of strategies (e.g. hypercompetition and game theory)

Individual students (pair or trio) will be given a task that requires a pre-work (i.e. analysis of the company) and then presentation of your results at the start of the following week’s seminar/workshop.

Your task is conduct your research and present your findings in 7 minutes using 7 slides.

Episode 2 Our presenters per seminar group are: Group A: Jennifer Burling, Oliver Carpenter Group B: Laura De La Red Garcia, Sarah Dahtlen Group C: Jessica Drake, Katy Fletcher Group D: Luke Gibbs, Harry Green Task: You are to explore Amazon, its strategic purpose (mission, values) and business level strategy(ies) this corporate giant is implementing. What do you thy should do next to keep up with their vision?

Remember! You are to produce 7 slides to present in 7 minutes

References • • • • • • • •

Drummond, G., Ensor, J. & Ashford, R., 2008. Strategic Marketing: Planning and Control, 3rd edition. Oxford: Butterworth-Heinemann Hooley, G., Saunders, J., Piercy, N. and Nicoulaud, B., 2012. Marketing Strategy and Competitive Positioning, 5th ed. London: FT Prentice Hall.

Johnson, G., Whittington, R., Scholes, K., Angwin, D. and Regner, P., 2017. Exploring Strategy, 11th ed. London: Pearson Education.

Levitt, T., 1960. ‘Marketing Myopia’, Harvard Business Review Lynch, R., 2009. Corporate Strategy. 5th ed. London: FT Prentice Hall Porter, M., 1980. Competitive Strategy. New York: Free Press Porter, M.E. 1985., Competitive Advantage: Creating and sustaining superior performance. New York: Free Press Ranchhod, A. & Gurau, C., 2007. Marketing Strategies: a contemporary approach, 2nd Edition. London: FT Prentice Hall