STRATEGIC MANAGEMENT

TEAM PROJECT
I. GROWTH STRATEGIES

Businesses can follow many growth strategies
when they wish to expand. These strategies
typically focus on new products and/or new
markets. (In this discussion, services are
referred to as the products of a service
business.) Three broad categories of growth
strategies are:
• Intensive growth strategies
• Integrative growth strategies
1. Read over the material in this
worksheet.
2. Summarize the 3 main topics on
a PostIt Pad: Intensive growth
strategies
Integrative growth strategies
Diversification growth strategies

• Diversification growth strategies 3. Answer the questions at the

end of the worksheet
(everyone in the team).

4. Be prepared to present to the

class.

Intensive Growth Strategies

An intensive growth strategy is a growth strategy that focuses on cultivating new

products or new markets, and sometimes both. Businesses use an intensive growth
strategy when they believe they haven't fully realized their strengths or their markets.
This strategy is best described as "doing more of what you are good at doing." The
three most common types of intensive growth strategies are:
• Market penetration
• Market development
• Product development

Market penetration is an intensive growth strategy that emphasizes more intensive

marketing of existing products. This strategy has two goals: sell more to existing
customers and sell to new customers in existing markets. Both goals require extensive,
and expensive, marketing (advertising, promotions, and so on). However, market
penetration is a way for a business to increase its profits by taking advantage of its
existing skills, experience, and knowledge about its target markets. It is a popular
growth strategy for small businesses.

Existing customers may be convinced to buy more of a product if the business

advertises new uses for that product. The makers of dry soup mixes could, for example,
publish recipes for party dips made from their products. Businesses can also try to
convince existing customers to buy a product more often. Toothbrush manufacturers
advertise that dentists recommend replacing a toothbrush every three months. Existing
customers may also buy more and buy more often if they are offered incentives, such
as frequent‐buyer programs.

Market penetration can also involve pursuing new customers in current target markets.
Basically, the business uses marketing tactics to try to gain customers from its
competitors. This increases a business's market share. Market share is the percentage
of the total sales captured by a product or a business in a particular market. In other
words:

(Sales by Business ൊ Total Sales in Market) x 100 = Market Share

If a company sells $1,000 worth of tennis rackets in a town where total sales of tennis
rackets are $5,000, the company has a one‐fifth, or 20%, market share.

($1,000 ൊ $5,000) x 100 = 20%

Once a business has the largest market share it believes it

can capture, the next step is usually to find new markets.
Market development is an intensive growth strategy that
focuses on reaching new target markets, such as
customers in another geographic area or customers who
have different demographics from current customers. A
retail store might open a branch in a new city or develop a
Website to sell its products online.

Product development is an intensive growth strategy in which

businesses develop new products or enhance their existing
products. Enhancements may include bonus features or new
packaging for products. For example, they could

add small toys as extras to cereal boxes. Product development is typically costly for a
business but can be a successful means of growth if the new or enhanced offering is
popular with customers.
Integrative Growth Strategies

An integrative growth strategy is a growth strategy that emphasizes blending

businesses together through acquisitions and mergers Integrative growth strategies are
typically more expensive than intensive growth strategies and are usually practiced by
mature businesses with large cash flows. There are two types of integrative growth
strategies:

• Vertical Integration. An integrative growth strategy in which one business acquires

another business in its own supply chain, but not at the same supply chain level) is a
vertical integration strategy. An example of this type of growth strategy is when a
retail store buys a wholesaler. Another example is when a manufacturing business
buys a retail store in which its products are sold.

• Horizontal Integration. An integrative growth strategy in which one business acquires

another business at the same supply chain level as itself is a horizontal integration
strategy. When one manufacturing company buys another manufacturing company,
that's a horizontal integration strategy. The acquired business may be a competitor
or a business in a completely different industry.

Diversification Growth Strategies

Every business has a core business, which is the most important focus of the business.
For example, the core business of McDonald's is selling fast food. A diversification
growth strategy is a growth strategy in which a business grows by offering products or
services that are different from its core business. There are two types of diversification
growth strategies:

• Synergistic Diversification. A growth strategy in which a business adds new products

or services that are related to its existing products or services is a synergistic
 diversification. A clothing store that begins selling shoes practices this type of
growth. So does an event‐planning business that begins to offer catering services.

• Horizontal Diversification. A growth strategy in which a business adds new products

or services that are not related to its existing products or services but appeal to its
existing target market is called horizontal diversification. Recently some large
grocery stores have begun offering credit cards to their customers. This is an
example of horizontal diversification. Another example would be a gas station that
sells food.

II. STRATEGIC FIT

III. STRATEGIC GAP
IV. BCG MATRIX

Using the BCG Matrix (Growth Market Share Matrix) to review your product portfolio

What is the BCG Matrix?

The Boston Consulting group’s product portfolio matrix (BCG matrix) is designed to help
with long-term strategic planning, to help a business consider growth opportunities by
reviewing its portfolio of products to decide where to invest, to discontinue or develop
products. It's also known as the Growth/Share Matrix.

The Matrix is divided into 4 quadrants derived on market growth and relative market
share, as shown in the diagram below.
 1. Dogs: These are products with low growth or market share.

 2. Question marks or Problem Child: Products in high growth markets with low
market share.

 3. Stars: Products in high growth markets with high market share.

 4. Cash cows: Products in low growth markets with high market share

How to use the BCG Matrix?

To look at each of these quadrants, here are some tips:

 Dogs: The usual marketing advice is to remove any dogs from your product portfolio
as they are a drain on resources.

However, some can generate ongoing revenue with little cost.

For example, in the automotive sector, when a car line ends, there is still a need for
spare parts. As SAAB ceased trading and producing new cars, a whole business has
emerged providing SAAB parts.

 Question marks: Named this, as it’s not known if they will become a star or drop into
the dog quadrant. These products often require significant investment to push them
into the star quadrant. The challenge is that a lot of investment may be required to
get a return. For example, Rovio, creators of the very successful Angry Birds game
has developed many other games you may not have heard of. Computer games
companies often develop hundreds of games before gaining one successful game.
It’s not always easy to spot the future star and this can result in potentially wasted
funds.

 Stars: Can be the market leader though require ongoing investment to sustain. They
generate more ROI than other product categories.

 Cash cows: ‘Milk these products as much as possible without killing the cow!. Often
mature, well established products.The company Procter & Gamble which
manufactures Pampers nappies to Lynx deodorants has often been described as a
‘cash cow company’.

Use the model as an overview of your products, rather than detailed analysis. If market
share is small, use the 'relevant market share' axis is based on your competitors rather
than entire market.

BCG Matrix Example: How it can be applied to digital marketing strategies?

The BCG Model is based on products rather than services, however, it does apply to
both. You could use this if reviewing a range of products, especially before starting to
develop new products.

Looking at the British retailer, Marks & Spencer, they have a wide range of products and
many different lines. We can identify every element of the BCG matrix across their
ranges:

 Stars

Example: Lingerie. M&S was known as the place for ladies underwear at a time when
choice was limited. In a multi-channel environment, M&S lingerie is still the UK’s market
leader with high growth and high market share.

 Question Marks/Problem Child

Example: Food. For years M&S refused to consider food and today has over 400
Simply Food stores across the UK. Whilst not a major supermarket, M&S Simply Food
has a following which demonstrates high growth and low market share.

 Cash Cows

Example: Classic range. Low growth and high market share, the M&S Classic range
has strong supporters.

 Dogs

Example: Autograph range. A premium-priced range of men’s and women’s clothing,

with low market share and low growth. Although placed in the dog category, the
premium pricing means that it makes a financial contribution to the company.

You can also apply the BCG model to areas other than your product strategy. We
developed this matrix as an example of how a brand might evaluate its investment in
various marketing channels. The medium is different, but the strategy remains the
same- milk the cows, don't waste money on the dogs, invest in the stars and give the
question marks some experimental funds to see if they can become stars.

What to watch for?

The BCG Model is seen as simplistic and it can be difficult to classify products in
smaller businesses where the relative market share is too small to quantify. It’s also
based on the concept that market share can be achieved by spending more on the
marketing budget.

V. STRATEGIC PLANNING PROCESS

Strategic management consist of three stages are formulation, implementation and

evaluation of strategies. Each stage based upon set of activities performed by the
individual working in the organization.
STRATEGY FORMULATION
Strategy formulation is the first stage of strategic management, this stage includes
developing vision and mission statement, identifying external opportunities and threats,
evaluating company internal strengths and weaknesses, developing alternative
strategies, selection strategies which benefits the business. Strategy formulation issues
include deciding what new business to enter, what business to abandon, how to allocate
resources, whether to expand operation or diversify, whether to enter international
market. whether to merge or form a joint venture.

No organization have unlimited resources, strategists must go with the strategies which
are most feasible and beneficial for the business.Strategy formulation commit an
organization to specific products,services, markets, resources and technologies over an
extended period of time. Strategies are developed for long term competitive advantage
over its competitors.

STRATEGY IMPLEMENTATION
Strategy implementation is the second stage of strategic management. Strategy
implementation can be only proceed after completion of strategy formulation stage,
when strategists are done with strategies selection. This stage includes number of
activities such as defining policies, building organizational structure, allocating resource
to implementing strategy, assigning tasks to each functional area employees and
tracking the progress of strategy implementation.[large]

This stage is often referred as action stage because each individuals is looking to get
the thing implemented according to the strategy. To execute the strategy in a right way
each individual must ask himself or herself the following questions.

What are the objectives?

What must we do to implement out part of the organization’s strategy?

How best can we get the job done?

The challenge for the managers to create gel effect among the employees and guide
them throughout the strategy implementation.

STRATEGY EVALUATION
Strategy evaluation is the last stage of strategic management, the purpose of this stage
to monitor the implemented strategies and find out whether they are working or not to
achieve organization objectives.Strategy evaluation consist of three fundamental
activities reviewing external and internal factors that are bases for current strategies,
measuring performance and taking corrective action. Each implemented strategy is
evaluated to determine the outcomes, if the outcomes are meeting the expectation it
means strategy is successfully otherwise corrective action is required.

VI. COMPETITIVE STRATEGIC ANALYSIS

Porter's Generic Competitive Strategies (ways of competing)

A firm's relative position within its industry determines whether a firm's profitability is
above or below the industry average. The fundamental basis of above average
profitability in the long run is sustainable competitive advantage. There are two basic
types of competitive advantage a firm can possess: low cost or differentiation. The two
basic types of competitive advantage combined with the scope of activities for which a
firm seeks to achieve them, lead to three generic strategies for achieving above
average performance in an industry: cost leadership, differentiation, and focus. The
focus strategy has two variants, cost focus and differentiation focus.
1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The
sources of cost advantage are varied and depend on the structure of the industry. They
may include the pursuit of economies of scale, proprietary technology, preferential
access to raw materials and other factors. A low cost producer must find and exploit all
sources of cost advantage. if a firm can achieve and sustain overall cost leadership,
then it will be an above average performer in its industry, provided it can command
prices at or near the industry average.

2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry along some
dimensions that are widely valued by buyers. It selects one or more attributes that many
buyers in an industry perceive as important, and uniquely positions itself to meet those
needs. It is rewarded for its uniqueness with a premium price.
3. Focus
The generic strategy of focus rests on the choice of a narrow competitive scope within
an industry. The focuser selects a segment or group of segments in the industry and
tailors its strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while
in (b) differentiation focus a firm seeks differentiation in its target segment. Both variants
of the focus strategy rest on differences between a focuser's target segment and other
segments in the industry. The target segments must either have buyers with unusual
needs or else the production and delivery system that best serves the target segment
must differ from that of other industry segments. Cost focus exploits differences in cost
behaviour in some segments, while differentiation focus exploits the special needs of
buyers in certain segments.

VII. THE VISSION THING