strategy - what is strategy?

Overall Definition:

Johnson and Scholes (Exploring Corporate Strategy) define strategy as follows:

"Strategy is the direction and scope of an organization over the long-term: which achieves
advantage for the organization through its configuration of resources within a challenging
environment, to meet the needs of markets and to fulfill stakeholder expectations".

In other words, strategy is about:

* Where is the business trying to get to in the long-term (direction)

* Which markets should a business compete in and what kind of activities are involved in such
markets? (markets; scope)
* How can the business perform better than the competition in those markets? (advantage)?
* What resources (skills, assets, finance, relationships, technical competence, facilities) are
required in order to be able to compete? (resources)?
* What external, environmental factors affect the businesses' ability to compete?
(environment)?
* What are the values and expectations of those who have power in and around the business?
(stakeholders)

Strategy at Different Levels of a Business

Strategies exist at several levels in any organisation - ranging from the overall business (or group
of businesses) through to individuals working in it.

Corporate Strategy - is concerned with the overall purpose and scope of the business to meet
stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the
business and acts to guide strategic decision-making throughout the business. Corporate strategy
is often stated explicitly in a "mission statement".

Business Unit Strategy - is concerned more with how a business competes successfully in a
particular market. It concerns strategic decisions about choice of products, meeting needs of
customers, gaining advantage over competitors, exploiting or creating new opportunities etc.

Operational Strategy - is concerned with how each part of the business is organised to deliver
the corporate and business-unit level strategic direction. Operational strategy therefore focuses
on issues of resources, processes, people etc.

How Strategy is Managed - Strategic Management

In its broadest sense, strategic management is about taking "strategic decisions" - decisions that
answer the questions above.

In practice, a thorough strategic management process has three main components, shown in the
figure below:

Strategic Analysis

This is all about the analysing the strength of businesses' position and understanding the
important external factors that may influence that position. The process of Strategic Analysis can
be assisted by a number of tools, including:

PEST Analysis - a technique for understanding the "environment" in which a business operates
Scenario Planning - a technique that builds various plausible views of possible futures for a
business
Five Forces Analysis - a technique for identifying the forces which affect the level of
competition in an industry
Market Segmentation - a technique which seeks to identify similarities and differences between
groups of customers or users
Directional Policy Matrix - a technique which summarises the competitive strength of a
businesses operations in specific markets
Competitor Analysis - a wide range of techniques and analysis that seeks to summarise a
businesses' overall competitive position
Critical Success Factor Analysis - a technique to identify those areas in which a business must
outperform the competition in order to succeed
SWOT Analysis - a useful summary technique for summarising the key issues arising from an
assessment of a businesses "internal" position and "external" environmental influences.

Strategic Choice

This process involves understanding the nature of stakeholder expectations (the "ground rules"),
identifying strategic options, and then evaluating and selecting strategic options.

Strategy Implementation

Often the hardest part. When a strategy has been analysed and selected, the task is then to
translate it into organisational action.
Strategy - competitive advantage
Competitive Advantage - Definition

A competitive advantage is an advantage over competitors gained by offering consumers greater

value, either by means of lower prices or by providing greater benefits and service that justifies
higher prices.

Competitive Strategies

Following on from his work analysing the competitive forces in an industry, Michael Porter
suggested four "generic" business strategies that could be adopted in order to gain competitive
advantage. The four strategies relate to the extent to which the scope of a businesses' activities
are narrow versus broad and the extent to which a business seeks to differentiate its products.

The four strategies are summarised in the figure below:

The differentiation and cost leadership strategies seek competitive advantage in a broad range
of market or industry segments. By contrast, the differentiation focus and cost focus strategies
are adopted in a narrow market or industry.

Strategy - Differentiation

This strategy involves selecting one or more criteria used by buyers in a market - and then
positioning the business uniquely to meet those criteria. This strategy is usually associated with
charging a premium price for the product - often to reflect the higher production costs and extra
value-added features provided for the consumer. Differentiation is about charging a premium
price that more than covers the additional production costs, and about giving customers clear
reasons to prefer the product over other, less differentiated products.

Examples of Differentiation Strategy: Mercedes cars; Bang & Olufsen

Strategy - Cost Leadership

With this strategy, the objective is to become the lowest-cost producer in the industry. Many
(perhaps all) market segments in the industry are supplied with the emphasis placed minimising
costs. If the achieved selling price can at least equal (or near)the average for the market, then the
lowest-cost producer will (in theory) enjoy the best profits. This strategy is usually associated
with large-scale businesses offering "standard" products with relatively little differentiation that
are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also
discount its product to maximise sales, particularly if it has a significant cost advantage over the
competition and, in doing so, it can further increase its market share.

Examples of Cost Leadership: Nissan; Tesco; Dell Computers

Strategy - Differentiation Focus

In the differentiation focus strategy, a business aims to differentiate within just one or a small
number of target market segments. The special customer needs of the segment mean that there
are opportunities to provide products that are clearly different from competitors who may be
targeting a broader group of customers. The important issue for any business adopting this
strategy is to ensure that customers really do have different needs and wants - in other words that
there is a valid basis for differentiation - and that existing competitor products are not meeting
those needs and wants.

Examples of Differentiation Focus: any successful niche retailers; (e.g. The Perfume Shop); or
specialist holiday operator (e.g. Carrier)

Strategy - Cost Focus

Here a business seeks a lower-cost advantage in just on or a small number of market segments.
The product will be basic - perhaps a similar product to the higher-priced and featured market
leader, but acceptable to sufficient consumers. Such products are often called "me-too's".

Examples of Cost Focus: Many smaller retailers featuring own-label or discounted label
products.
strategy - SWOT analysis
Definition:

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats

SWOT analysis is an important tool for auditing the overall strategic position of a business and
its environment.

Once key strategic issues have been identified, they feed into business objectives, particularly
marketing objectives. SWOT analysis can be used in conjunction with other tools for audit and
analysis, such as PEST analysis and Porter's Five-Forces analysis. It is also a very popular tool
with business and marketing students because it is quick and easy to learn.

The Key Distinction - Internal and External Issues

Strengths and weaknesses are Internal factors. For example, a strength could be your specialist
marketing expertise. A weakness could be the lack of a new product.

Opportunities and threats are external factors. For example, an opportunity could be a
developing distribution channel such as the Internet, or changing consumer lifestyles that
potentially increase demand for a company's products. A threat could be a new competitor in an
important existing market or a technological change that makes existing products potentially
obsolete.

it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up
with the same version of a SWOT analysis even when given the same information about the
same business and its environment. Accordingly, SWOT analysis is best used as a guide and not
a prescription. Adding and weighting criteria to each factor increases the validity of the analysis.

Areas to Consider

Some of the key areas to consider when identifying and evaluating Strengths, Weaknesses,
Opportunities and Threats are listed in the example SWOT analysis below:
Strategic planning - setting objectives
Introduction

Objectives set out what the business is trying to achieve.

Objectives can be set at two levels:

(1) Corporate level

These are objectives that concern the business or organisation as a whole

Examples of “corporate objectives might include:

• We aim for a return on investment of at least 15%
• We aim to achieve an operating profit of over £10 million on sales of at least £100 million
• We aim to increase earnings per share by at least 10% every year for the foreseeable future

(2) Functional level

e.g. specific objectives for marketing activities

Examples of functional marketing objectives” might include:

• We aim to build customer database of at least 250,000 households within the next 12 months
• We aim to achieve a market share of 10%
• We aim to achieve 75% customer awareness of our brand in our target markets

Both corporate and functional objectives need to conform to the commonly used SMART
criteria.

The SMART criteria (an important concept which you should try to remember and apply in
exams) are summarised below:

Specific - the objective should state exactly what is to be achieved.

Measurable - an objective should be capable of measurement – so that it is possible to determine

whether (or how far) it has been achieved

Achievable - the objective should be realistic given the circumstances in which it is set and the
resources available to the business.

Relevant - objectives should be relevant to the people responsible for achieving them

Time Bound - objectives should be set with a time-frame in mind. These deadlines also need to
be realistic.
Strategic planning - mission
Mission

A strategic plan starts with a clearly defined business mission.

Mintzberg defines a mission as follows:

“A mission describes the organisation’s basic function in society, in terms of the products
and services it produces for its customers”.

A clear business mission should have each of the following elements:

Taking each element of the above diagram in turn, what should a good mission contain?

(1) A Purpose

Why does the business exist? Is it to create wealth for shareholders? Does it exist to satisfy the
needs of all stakeholders (including employees, and society at large?)

(2) A Strategy and Strategic Scope

A mission statement provides the commercial logic for the business and so defines two things:

- The products or services it offers (and therefore its competitive position)

- The competences through which it tries to succeed and its method of competing

A business’ strategic scope defines the boundaries of its operations. These are set by
management.

For example, these boundaries may be set in terms of geography, market, business method,
product etc. The decisions management make about strategic scope define the nature of the
business.

(3) Policies and Standards of Behaviour

A mission needs to be translated into everyday actions. For example, if the business mission
includes delivering “outstanding customer service”, then policies and standards should be created
and monitored that test delivery.

These might include monitoring the speed with which telephone calls are answered in the sales
call centre, the number of complaints received from customers, or the extent of positive customer
feedback via questionnaires.

(4) Values and Culture

The values of a business are the basic, often un-stated, beliefs of the people who work in the
business. These would include:

• Business principles (e.g. social policy, commitments to customers)

• Loyalty and commitment (e.g. are employees inspired to sacrifice their personal goals for the
good of the business as a whole? And does the business demonstrate a high level of commitment
and loyalty to its staff?)

• Guidance on expected behaviour – a strong sense of mission helps create a work environment
where there is a common purpose

What role does the mission statement play in marketing planning?

In practice, a strong mission statement can help in three main ways:

• It provides an outline of how the marketing plan should seek to fulfil the mission
• It provides a means of evaluating and screening the marketing plan; are marketing decisions
consistent with the mission?
• It provides an incentive to implement the marketing plan
Global business - globalisation
Background

During the last decades of the 20th century many barriers to international trade fell and a wave of
firms began pursing global strategies to gain competitive advantage.

Rather than thinking in terms of national markets and national economies, leaders of business
thought in terms of global markets.

Let us first consider why there has been such a rapid expansion of overseas trade in recent
decades.

Causes of rapid expansion of trade

 Rising real living standards

 Trade liberalisation (World Trade Organisation, expansion and deepening of the
European Union)
 Transition to market systems in Eastern Europe
 Rapid growth in the Asian Tigers and more recently in China and India
 Privatisation in and liberalisation of domestic markets
 Deregulation of international capital markets
 Fall in transport costs
 Improvement in global communications

What is globalisation?

Globalisation is a business philosophy based on the belief that the world is becoming more
homogeneous - national distinctions are fading and will eventually disappear.

Globalisation is an increase in interconnectedness and interdependence of economic activity and

social relations.

If the world is homogeneous then companies need to think globally and standardise their strategy
across national boundaries.

Globalisation concerns:

 Trade in goods and services

 Investment
 Labour force movement
 Products
 Production
 Technology
  Research and development
 Exchange of ideas and knowledge
 Intellectual property

Key features of globalisation

 Rapid expansion of international trade

 Internationalisation of products and services by large firms
 Growing importance of multinational corporations
 Increase in capital transfers across national borders
 Globalisation of technology
 Shifts in production from country to country
 Increased freedom and capacity and firms to undertake economic transactions across
national
 boundaries
 Fusing of national markets
 Economic integration
 Global economic interdependence

Growth of multinational enterprise:

There are various forces driving the growth of MNCs:

 The search for growth markets

 Globalisation of markets
 Desire to reduce production costs
 Desire to shift production to countries with lower unit labour costs
 Desire to avoid transportation costs
 Desire to avoid tariff and non tariff barriers
 Forward vertical integration
 Extension of product life cycles
 Deregulation of capital markets
strategy - portfolio analysis - ge matrix
The business portfolio is the collection of businesses and products that make up the company.
The best business portfolio is one that fits the company's strengths and helps exploit the most
attractive opportunities.

The company must:

(1) Analyse its current business portfolio and decide which businesses should receive more or
less investment, and

(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at
the same time deciding when products and businesses should no longer be retained.

The two best-known portfolio planning methods are the Boston Consulting Group Portfolio
Matrix and the McKinsey / General Electric Matrix (discussed in this revision note). In both
methods, the first step is to identify the various Strategic Business Units ("SBU's") in a company
portfolio. An SBU is a unit of the company that has a separate mission and objectives and that
can be planned independently from the other businesses. An SBU can be a company division, a
product line or even individual brands - it all depends on how the company is organised.

The McKinsey / General Electric Matrix

The McKinsey/GE Matrix overcomes a number of the disadvantages of the BCG Box. Firstly,
market attractiveness replaces market growth as the dimension of industry attractiveness, and
includes a broader range of factors other than just the market growth rate. Secondly, competitive
strength replaces market share as the dimension by which the competitive position of each
SBU is assessed.

The diagram below illustrates some of the possible elements that determine market attractiveness
and competitive strength by applying the McKinsey/GE Matrix to the UK retailing market:
Factors that Affect Market Attractiveness

Whilst any assessment of market attractiveness is necessarily subjective, there are several factors
which can help determine attractiveness. These are listed below:

- Market Size
- Market growth
- Market profitability
- Pricing trends
- Competitive intensity / rivalry
- Overall risk of returns in the industry
- Opportunity to differentiate products and services
- Segmentation
- Distribution structure (e.g. retail, direct, wholesale

Factors that Affect Competitive Strength

Factors to consider include:

- Strength of assets and competencies

- Relative brand strength
- Market share
- Customer loyalty
- Relative cost position (cost structure compared with competitors)
- Distribution strength
- Record of technological or other innovation
- Access to financial and other investment resources