Strategy Formulation : Types of

strategies
 Competitive Tactics
• A tactic is a specific operating plan that details
how a strategy is to be implemented in terms of
when and where it is to be put into action.
• By their nature, tactics are narrower in scope and
shorter in time horizon than are strategies.
• Some of the tactics available to implement
competitive strategies are timing tactics and
market location tactics.
 Competitive Tactics (cont….)
• Timing Tactics: When to Compete
– A timing tactic deals with when a company implements a
strategy.
• The first company to manufacture and sell a new product or service
is called the first mover (or pioneer).
• Being a first mover does, however, have its disadvantages. These
disadvantages can be, conversely, advantages enjoyed by late-
mover firms.
• Late movers may be able to
– imitate the technological advances of others (and thus keep R&D costs low),
– keep risks down by waiting until a new technological standard or market is
established, and
– take advantage of the first mover’s natural inclination to ignore market
segments.
 Competitive Tactics (cont….)
• First Mover - advantages:
– Cost advantages
– Less (or no) competitive rivalry
– The opportunity to secure important supplier and
distributor channels
– Create the category position
– The opportunity to gain expertise through market
participation
– Brand equity: “Pioneer Admiration”
 Competitive Tactics (cont….)
• First-Mover Disadvantages
– Demand uncertainty - Difficulty in estimating the
potential size of the market, how fast it will grow,
and the key dimensions along which it will grow.
– No “role model” to follow.
 Competitive Tactics (cont….)
• Technological uncertainty - Difficulty in
assessing whether the technology will perform
and whether alternate technologies will emerge
and leapfrog over current technologies.
• Adaptation Difficulties - Hardship in adapting to
new environmental conditions.
– Entrepreneurial attributes of persistence and
determination can inhibit the ability of the
entrepreneur to detect, and implement, change.
 Competitive Tactics (cont….)
• First-Mover Disadvantages, cont.
– Customer Uncertainty - Difficulty in accurately
assessing whether the new product or service
provides value for them.
• Overcome customer uncertainty by:
– Informational advertising
– Creating a frame of reference for potential customer
– Educating customers through demonstration and
documentation
– Beta-testing
 Competitive Tactics (cont….)
• Lead Time Strategies for First-Movers
– Lead time – The grace period in which the first
mover operates in the industry under conditions
of limited competition.
– Extend lead time by:
• Building customer loyalties.
• Building switching costs.
• Protecting product uniqueness.
• Securing access to important sources of supply and
distribution.
 Competitive Tactics (cont….)
• Risk is derived from uncertainties over market
demand, technological development, and
actions of competitors.
• Three strategies can be used to reduce risk:
– Market scope strategies - Focus on which
customer groups to serve and how to serve them.
– Imitation strategies - Involves copying the
practices of others.
– Managing newness
 Competitive Tactics (cont….)
• Market Scope Strategies
– Narrow-scope (niche) strategy: offer a small
product range to a small number of customer
groups to satisfy a specific need.
• Focuses on producing customized products.
• Leads to specialized expertise and knowledge.
• Reduces some competition-related risks but increases
the risks associated with market uncertainties.
 Competitive Tactics (cont….)
• Broad-scope strategy: offer a wider range of
products to multiple different market
segments, catering to different sets of needs.
– Strategy typically emerges through continuous
learning about the market.
– Opens the firm up to many different “fronts” of
competition.
– Reduces risks associated with market uncertainties
but increases exposure to competition.
 Competitive Tactics (cont….)
• Imitation Strategy
– Why do it?
• It is easier to imitate the practices of a successful firm.
• It can help develop skills necessary to be successful in the
industry.
– Types of imitation strategies
• Franchising - A franchisee acquires the use of a “proven
formula” for new entry from a franchisor.
• “Me-too” strategy - Copying products that already exist
and attempting to build an advantage through minor
variations.
 Competitive Tactics (cont….)
• An imitation strategy can potentially:
– Reduce the entrepreneur’s costs associated with
R&D.
– Reduce customer uncertainty over the firm.
– Make the new entry look legitimate from day one.
 Competitive Tactics (cont….)
• Managing Newness
– Liabilities of newness arise from unique conditions:
– Experience curve costs in learning new tasks.
– Conflict arising from overlap or gaps in responsibilities.
– Unestablished and continually evolving informal structures of
communication.
• A new firm needs to:
– Educate and train employees.
– Facilitate conflict over roles.
– Promote activities that foster informal relationships and a
functional corporate culture.
Market Location Tactics: Where to Compete

• A market location tactic deals with where a

company implements a strategy.
• A company or business unit can implement a
competitive strategy either offensively or
defensively.
• Types of Attack Strategies
– Frontal Attack
– Flanking Attack
– Encirclement Attack
– Bypass Attack
– Guerrilla Attack
• Types of Attack Strategies (cont….)
• Frontal Attack
– It is a full-fledged attack on the competitor on all
fronts - product, price, distribution and promotion in
all market segments.
– This type of attack can be launched only by a strong
firm with strong competitive advantage and full
determination.
– A frontal attack usually invites serious reaction from
the competitor.
• Types of Attack Strategies (cont….)
• Flanking Attack:
– This attack is target at soft spots of the competitor
such as weak market segments, weak products, and
weak consumer and hade promotions.
– This attack may not result in severe reactions from
the competitor.
– Examples
• Canon capturing small printer market from Xerox
• Japanese Automobile capturing fuel efficient market
• Types of Attack Strategies (cont….)
• Encirclement Attack:
– This involves attack on several fronts in selected market
segments with the objective of capturing market share of
the competitor in the market segments.
– It is a selective attack strategy that involves cornering
and cordoning the competitor in the selected segments
and taking away a large part of its market share.
– This attack invites some reaction from the competitor.
 Example of Encirclement Attack
• Attacking strengths as well as weakness
• Types of Attack Strategies (cont….)
• Bypass Attack:
– It is an indirect attack implemented through a ,
breakthrough in new technology, introduction of
a better product, a better packaging, or a better
marketing network .
– This attack does not invite quick reaction as it
requires enough preparation time for the
competitor.
• Types of Attack Strategies (cont….)
• Guerrilla Attack:
– This involves small attacks on different fronts in
different market segments.
– The strategy has the objective of harassing and
demoralizing competitor and eventually
capturing its major market share in the targeted
segments.
• Attack Weapons
– price discounts, cheaper products, prestige
products, product proliferation (expansion),
product innovation, improved services, improved
distribution, channel incentives, and high
promotion levels
• Defense Strategy
– Every firm needs to formulate its defense strategy
when attacked by a competitor.
– The major objective of the defense strategy is to
avoid attack, divert attack to less sensitive fronts,
and lessen the effects of attacks on the firm's
market share.
• Types of Defense
– Position Defense
– Flank Defense
– Preemptive Defense
– Counteroffensive Defense
– Mobile Defense
– Contraction Defense
• Position Defense:
– It is the most sensitive defense as the firm's
image and its product (brand) image is very
important in strategic marketing.
– The attacker may launch a product in the firm's
current position and try to take away its market
share.
– The position can be defended by launching image
strengthening promotion campaign.
• Flank Defense:
– When a firm is attacked on its weak flanks
(segments, products, geographical area) it can be
defended by establishing area or regional offices
in order to effectively tackle the flank attack.
• Preemptive Defense:
– It involves attacking the attacker before it
launches any attack.
– This is targeted at reducing the competitor's
attacking capabilities.
– This defense may be launched through a guerrilla
attack or flank attack or a frontal attack.
• Counteroffensive Defense:
– This is a reactive defense that involves launching
a counteroffensive attack immediately after a
competitor launches an attack.
– Usually, the market leader launches a frontal
attack as a response when it is attacked by a
follower firm.
• Mobile Defense:
– Under this defense strategy, the defender moves
away from the attacked territory and shifts its
business to less noticeable market area or
segments.
– This strategy is suitable for small firms and is also
known as the market diversification strategy
• Toys R Us versus WalMart
• Contraction Defense:
– When a firm is attacked by competitors on
several fronts it may close down its operation in
some weak segments and bring down the size of
its operation and concentrate on the stronger
market segments.
– This is popularly known as strategic withdrawal.
 Cooperative Strategies
• A company uses competitive strategies and tactics to gain
competitive advantage within an industry by battling against
other firms.
• These are not, however, the only business strategy options
available to a company or business unit for competing
successfully within an industry.
• A company can also use cooperative strategies to gain
competitive advantage within an industry by working with other
firms.
• The two general types of cooperative strategies are
– Collusion and
– Strategic alliances.
 Cooperative Strategies (cont….)
• Collusion
– Collusion is the active cooperation of firms within an
industry to reduce output and raise prices in order to get
around the normal economic law of supply and demand.
– Collusion may be
• Explicit:- firms cooperate through direct communication and
negotiation, or tacit,
• Tacit:- in which case firms cooperate indirectly through an informal
system of signals.
– Explicit collusion is illegal in most countries and in a number
of regional trade associations, such as the European Union.
 Cooperative Strategies (cont….)
• Collusion (cont….)
– Collusion can also be tacit, in which case there is no
direct communication among competing firms.
– According to Barney, tacit collusion in an industry is
most likely to be successful if
• There are a small number of identifiable competitors,
• costs are similar among firms,
• one firm tends to act as the price leader,
• there is a common industry culture that accepts cooperation,
• sales are characterized by a high frequency of small orders,
• there are high entry barriers to keep out new competitors
 Strategic Alliances
• A strategic alliance is a long-term cooperative
arrangement between two or more
independent firms or business units that
engage in business activities for mutual
economic gain
• Alliances between companies or business
units have become a fact of life in modern
business
 Strategic Alliances (cont….)
• Companies or business units may form a strategic
alliance for a number of reasons, including:
– To obtain or learn new capabilities:
• For example, General Motors and Chrysler formed an
alliance in 2004 to develop new fuel-saving hybrid engines
for their automobiles.
– To obtain access to specific markets:
• Rather than buy a foreign company or build breweries of its
own in other countries, Anheuser-Busch chose to license the
right to brew and market Budweiser to other brewers, such
as Labatt in Canada, Modelo in Mexico, and Kirin in Japan.
 Strategic Alliances (cont….)
• To reduce financial risk:
– Alliances take less financial resources than do
acquisitions or going it alone and are easier to exit if
necessary.
– For example, because the costs of developing new large
jet airplanes were becoming too high for any one
manufacturer, Aerospatiale of France, British
Aerospace, Construcciones Aeronáuticas of Spain, and
Daimler-Benz Aerospace of Germany formed a joint
consortium called Airbus Industries to design and build
such planes.
 Strategic Alliances (cont….)
• To reduce political risk:
– Forming alliances with local partners is a good
way to overcome deficiencies in resources and
capabilities when expanding into international
markets.
– To gain access to China while ensuring a positive
relationship with the often restrictive Chinese
government, Maytag Corporation formed a joint
venture with the Chinese appliance maker, RSD.
Strategic Alliances (cont….)
• Mutual Service Consortia.
– A mutual service consortium is a partnership of similar companies in
similar industries that pool their resources to gain a benefit that is too
expensive to develop alone, such as access to advanced technology.
– For example, IBM established a research alliance with Sony Electronics
and Toshiba to build its next generation of computer chips.
– The result was the “cell” chip, a microprocessor running at 256 gigaflops—
around ten times the performance of the fastest chips currently used in
desktop computers.
– Referred to as a “supercomputer on a chip,” cell chips were to be used by
• Sony in its PlayStation 3, by
• Toshiba in its high-definition televisions, and by
• IBM in its super computers.
• Joint Venture.
– A joint venture is a “cooperative business activity, formed by two or more
separate organizations for strategic purposes, that creates an
independent business entity and allocates ownership, operational
responsibilities, and financial risks and rewards to each member, while
preserving their separate identity/autonomy.”
– For example, Proctor & Gamble formed a joint venture with Clorox to
produce food-storage wraps.
– P&G brought its cling-film technology and 20 full-time employees to the
venture, while Clorox contributed its bags, containers, and wraps business.
– Disadvantages of joint ventures include
• loss of control, lower profits, probability of conflicts with partners, and the likely
transfer of technological advantage to the partner.
• Licensing Arrangements.
– It is an agreement in which the licensing firm grants rights
to another firm in another country or market to produce
and/or sell a products.
– The licensee pays compensation to the licensing firm in
return for technical expertise
– For example, Yum! Brands successfully used franchising
and licensing to establish its KFC, Pizza Hut, Taco Bell, Long
John Silvers, and A&W restaurants throughout the world.
– In 2007 alone, it opened 471 restaurants in China alone
plus 852 more across six continents.
• Value-Chain Partnerships.
– A value-chain partnership is a strong and close alliance in
which one company or unit forms a long-term arrangement
with a key supplier or distributor for mutual advantage.
– For example, P&G, the maker of Folgers and Millstone
coffee, worked with coffee appliance makers Mr. Coffee,
Krups, and Hamilton Beach to use technology licensed from
Black & Decker to market a pressurized, single-serve coffee-
making system called Home Cafe.
– This was an attempt to reverse declining at-home coffee
consumption at a time when coffeehouse sales were rising.
 Corporate Level
• Four Grand Strategies
– Stability and Expansion Strategy
– Retrenchment
– Corporate Restructuring
– Combination Strategy- Concept of Synergy
 Stability Strategy
• Maintain the present Strategy
• Concentrating on their present resources
– Classified into
• No change strategy
– Process of continuing the current operation and creating nothing new
• Pause/ Proceed with caution strategy
– Analyze advantages and disadvantages before processing the growth
strategy
• Profit Strategy
– Reducing the amount of investment and short term expenditure
– Which Stage of Boston Consulting Group Matrix
 Expansion Strategy
• Selected to increase their profit, sales and
market share
• Provides a significant increase in the
performance of the organisation
• Further classified into
– Diversification
– Concentration
 Expansion Strategy (cont….)
• Diversification
– Concentric
• Relates to current business activity
• In terms of
– Customer groups/ customer functions/ alternative technology
– Soap/ shampoo/ toothpaste
– Conglometric
• Not related to the current business activity
• In terms of
– Customer groups/ customer functions/ alternative technology

• Concentration
• Expanding present line of activities in organization
– Vertical Expansion (Forward and Backward Integration)
– Horizontal Expansion (to expand into other geographical locations)
 Retrenchment Strategy
• To reduce the size of activities
– In terms of consumer groups, consumer functions
and alternative technology
• Different types of retrenchment strategies
– Turn around
– Captive Company
– Divestment
– Bankruptcy
– Liquidation
 Retrenchment Strategy (cont….)
• Turn around
– Temporary reduction in the activities which is done to
pursue growth at some future point
• Captive Company
– Process of tying up with larger organization
• Staying viable as an exclusive supplier to the large organization
• Distribution cost low
• Divestment
– Sale of one or more portion of its business
– Unit not performing well:- sold
• Reinvestment in another business
 Retrenchment Strategy (cont….)
• Bankruptcy
– Legal protective strategy
– Does not allow others to restructure the
organizations debt obligation
• Liquidation
– Most unattractive process
– Involves in closing down of organization and
selling its assets
 Corporate Restructuring
• Change in current strategy and direction of the
organisation
• Change affects structure of the organisation
• Decreasing the levels of the personnel among
– Top level, mid level and low level management
 Combination Strategies
• Process of Combining
– Stability, Expansion and Retrenchment Strategies
 Functional strategy
• It is the approach a functional area takes to
achieve corporate and business unit objectives and
strategies by maximizing resource productivity.
• It is concerned with developing and nurturing a
distinctive competence to provide a company or
business unit with a competitive advantage
• Just as competitive strategies may need to vary
from one region of the world to another, functional
strategies may need to vary from region to region.
 Marketing Strategy
• Marketing strategy deals with pricing, selling,
and distributing a product.
• Market Development Strategy
• Product Development Strategy
• Pricing Strategy
– New Product Strategy
• Market Skimming
• Market Penetration
 FINANCIAL STRATEGY
• Financial strategy examines the financial implications
of corporate and business-level strategic options and
identifies the best financial course of action.
• It can also provide competitive advantage through a
lower cost of funds and a flexible ability to raise
capital to support a business strategy.
• Financial strategy usually attempts to maximize the
financial value of a firm.
• Capital Structure
• Leverage Ratio
 RESEARCH AND DEVELOPMENT (R&D)
STRATEGY
• R&D strategy deals with product and process
innovation and improvement.
• It also deals with the appropriate mix of
different types of R&D (basic, product, or
process) and with the question of how new
technology should be accessed—through
internal development, external acquisition, or
strategic alliances.
• Technology Leader v/s Technology Follower
 OPERATIONS STRATEGY
• Operations strategy determines
– how and where a product or service is to be manufactured,
– the level of vertical integration in the production process,
– the deployment of physical resources, and relationships with
suppliers.
• Baldor Electric Company, the largest maker of industrial electric
motors in the United States, built a new factory by using the
new technology to eliminate undesirable jobs with high
employee turnover.
• With one-tenth the employees of its foreign plants, the plant
was cost-competitive with motors produced in Mexico or China.
• Caselet
– Page 293/ 243
– INTERNATIONAL DIFFERENCES ALTER
WHIRLPOOL’S OPERATIONS STRATEGY
• The automobile industry is currently experimenting with the strategy of
modular manufacturing in which preassembled subassemblies are delivered as
they are needed (i.e., Justin-Time) to a company’s assembly-line workers, who
quickly piece the modules together into a finished product. For example,
General Motors built a new automotive complex in Brazil to make its new
subcompact, the Celta. Sixteen of the 17 buildings were occupied by suppliers,
including Delphi, Lear, and Goodyear. These suppliers delivered preassembled
modules (which comprised 85% of the final value of each car) to GM’s building
for assembly. In a process new to the industry, the suppliers acted as a team to
build a single module comprising the motor, transmission, fuel lines, rear axle,
brake-fluid lines, and exhaust system, which was then installed as one piece.
GM hoped that this manufacturing strategy would enable it to produce 100
vehicles annually per worker compared to the standard rate of 30 to 50 autos
per worker. Ford and Chrysler have also opened similar modular facilities in
Brazil.
 PURCHASING STRATEGY
• Purchasing strategy deals with obtaining the
raw materials, parts, and supplies needed to
perform the operations function.
• Purchasing strategy is important because
– materials and components purchased from
suppliers comprise 50% of total manufacturing
costs of manufacturing companies in the United
Kingdom, United States, Australia, Belgium, and
Finland.
 PURCHASING STRATEGY (cont….)
• Multiple sourcing has traditionally been
considered superior to other purchasing
approaches because
– it forces suppliers to compete for the business of an
important buyer, thus reducing purchasing costs, and
– if one supplier cannot deliver, another usually can,
thus guaranteeing that parts and supplies are always
on hand when needed.
• Just-InTime (JIT) concept
• Page 295/ 245
• Environmental Sustanability Issue
– Operations need fresh water and lots of it
 LOGISTICS STRATEGY
• Logistics strategy deals with the flow of products
into and out of the manufacturing process.
• Three trends related to this strategy are evident:
centralization, outsourcing, and the use of the
Internet
• Companies such as Georgia-Pacific, Marriott, and
Union Carbide view the logistics function as an
important way to differentiate themselves from
the competition, to add value, and to reduce costs.
 LOGISTICS STRATEGY (cont….)
• Many companies have found that outsourcing
logistics reduces costs and improves delivery
time.
– For example, HP contracted with Roadway
Logistics to manage its inbound raw materials
warehousing in Vancouver, Canada.
– Nearly 140 Roadway employees replaced 250 HP
workers, who were transferred to other HP
activities.
 HUMAN RESOURCE MANAGEMENT (HRM)
STRATEGY
• HRM strategy, among other things, addresses
the issue of whether a company or business
unit should hire a large number of low-skilled
employees who receive low pay, perform
repetitive jobs, and are most likely quit after a
short time (the McDonald’s restaurant strategy)
or hire skilled employees who receive
relatively high pay and are cross-trained to
participate in self managing work teams.
 HUMAN RESOURCE MANAGEMENT (HRM)
STRATEGY (cont….)
• 360 degree Appraisal
• Diverse Workforce/ Workforce Diversity
INFORMATION TECHNOLOGY STRATEGY
• Corporations are increasingly using information technology
strategy to provide business units with competitive advantage.
• When FedEx first provided its customers with PowerShip
computer software to store addresses, print shipping labels,
and track package location, its sales jumped significantly.
• UPS soon followed with its own MaxiShips software. Viewing
itsinformation system as a distinctive competency, FedEx
continued to push for further advantage over UPS by using its
Web site to enable customers to track their packages.
• FedEx uses this competency in its advertisements by showing
how customers can track the progress of their shipments.
Soon thereafter, UPS provided the same service
INFORMATION TECHNOLOGY STRATEGY
• Multinational corporations are finding that having a sophisticated intranet
allows employees to practice follow-the-sun management, in which
project team members living in one country can pass their work to team
members in another country in which the work day is just beginning.
• Thus, night shifts are no longer needed.
• The development of instant translation software is also enabling workers to
have online communication with co-workers in other countries who use a
different language.
• For example, Mattel has cut the time it takes to develop new products by
10% by enabling designers and licensees in other countries to collaborate
on toy design.
• IBM uses its intranet to allow its employees to collaborate and improve
their skills, thus reducing its training and travel expenses.