directions and methods of development dr keefa kiwanuka lecturer, marketing and management room...
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Directions and Methods of Development
Dr Keefa KiwanukaLecturer, Marketing and Management
Room 3.3b, CoBAM9 April 2013
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What are Strategic Choices?
Strategic choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development
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Exhibit III.1
Strategic choices
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Development Directions
Development directions are the strategic options available to an organisation, in terms of products and market coverage, taking into account the strategic capability of the organisation and the expectations of stakeholders
Development directions are the strategic options available to an organisation, in terms of products and market coverage, taking into account the strategic capability of the organisation and the expectations of stakeholders
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Strategy Development Directions
Existing New
Existing
New
Markets
Products
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Strategy Development Directions
Protect/buildConsolidationMarket penetration
Existing New
Existing
New
Markets
Products
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Strategy Development Directions
Protect/buildConsolidationMarket penetration Product Development
Existing New
Existing
New
Markets
Products
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Strategy Development Directions
Protect/buildConsolidationMarket penetration
Product Development
Market development
Existing New
Existing
New
Markets
Products
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Strategy Development Directions
Protect/buildConsolidationMarket penetration
Product Development
Market development Diversification
Existing New
Existing
New
Markets
Products
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Global strategies: Globalization strategy.
World is one large market; standardize products and advertising as much as possible.
Ethnocentric view.
Multidomestic strategy. Customize products and advertising to local
markets as much as possible.
Transnational strategy Balance efficiencies in global operations and
responsiveness to local markets.
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Restructuring and divestiture strategies
Readjusting operations when an organization is in trouble.
Retrenchment Correcting weaknesses by making changes to
current operations. Liquidation Restructuring
Downsizing and rightsizing Restructuring through divestiture
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E-business strategies
The strategic use of the Internet to gain competitive advantage.
Popular e-business strategies Business-to-business (B2B) strategies Business-to-customer (B2C) strategies
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Incrementalism Modest and incremental changes in strategy occur
as managers learn from experience and make adjustments.
Emergent strategies Develop progressively over time in the streams of
decisions that managers make as they learn from and respond to work situations.
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Methods of Strategy Development
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Methods of Strategy Development
Internal Development Build on and develop an organisation’s own
capabilities Organic development
Mergers and Acquisitions Take over ownership of another organisation
Strategic Alliances Two or more organisations share resources and
activities
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Motives for Internal Development Only one in field Core competence in product manufacturing Develop new markets – direct involvement to
increase understanding & create core competence
Spread cost over time – easier for companies with low resources
Avoid cultural clash
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Motives for M&As Speed Competitive Situation – lower competitor reaction Financial motives
Extreme example is that of Asset Stripping Lack of resources Cost efficiency (by merging) to avoid duplication Stakeholder expectations
Ambitions of senior managers Empire building
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Types of Strategic Alliance Loose
Networks / Opportunistic Alliances Contractual
Licensing Franchising Subcontracting Outsourcing alliances Supplier alliances Distribution alliances
Ownership Consortia
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Choosing Strategic Options
What are our Opportunities? Possible new markets? Strong economy? Weak market rivals? Emerging technologies? Growth of existing
market?
What are our Threats? New competitors? Shortage of resources? Changing market tastes? New regulations? Substitute products?
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The TOWS Matrix
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Success Criteria for Strategic Options Suitability
Whether strategy addresses circumstances in which organisation is operating
Acceptability The expected performance outcomes (e.g. risk/return) Meeting expectations of stakeholders
Feasibility Whether strategy can be made to work in practice Linked to strategic capability
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Evaluating strategic options
Suitability Acceptability Feasibility
Evaluating strategic options
Establishing the rationale
Screening options and criteria
Does it solvethe problem?
Is it acceptableto stakeholders?
Returns Risk Reactions by
stakeholders
Can we deliver?
Cash flow Break-even Resources Competencies
Adapted from Johnson & Scholes
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Choosing an option
Three tests Does it take us towards where we want to be?
(Alignment)
Do we have, or can we obtain, the resources required to implement it? (Feasibility)
Will it win the support of those who need to approve it, and those who need to implement it? (Acceptability)
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Financial appraisal techniques
Cash flow projection Discounted cash flow (DCF) method Sensitivity analysis Break even analysis
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Criteria for assessing Acceptability
• Risk Financial ratios
E.g. High long term debt means high risk Sensitivity analysis (What-if analysis)
• Stakeholder reactions
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Feasibility
Financial Funds flow forecasting Break-even analysis
Resource deployment Resources and competences needed
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Key Points (1)• Three elements of strategic choice
– Competitive strategy– Direction of development– Method of development
• Four key categories of development directions– Protect and build– Product development– Market development– Diversification
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Key Points (2) Three methods of strategy development
Internal development Mergers and acquisitions Strategic alliances
Three success criteria for strategic options Suitability Acceptability Feasibility
Wide range of analytical techniques for evaluation of strategic options