Generic Strategies

Market & Resource based

strategic options
Lecture 6

Market based strategic options

Resource based strategies - are identified
by looking inwards to the organisation.
Market based strategies - arise from
looking at the external markets, customers
and competitors of the organisation.

Market based strategic options

Generate strategy option & major
constraints
Resource based

Portfolio
matrix

Value
Chain &
Linkages

These are inter-linked

Generic
Strategies
Cost
Differentiation
Focus

Market
Options
Matrix

Market based

Expansion
Method
Matrix

Portfolio Matrix the BCG

Matrix
High relative market
share
High
market
growth

STAR
Expensive with
potential

Low
market
growth

CASH COW
Milk and limit
investment

Low relative market

share

PROBLEM
CHILD
Decide on future

DOG
Divest

Value Chain
Focus on those activities that maximise value and
convey market power.

Inbound Operations Outbound Sales &

Logistics
Logistics Marketing

Service

Generic Strategies
Porter (1980 & 85)

Two sources of competitive

advantage
Lowest Cost or
Differentiation

Generic Strategies
Lowest Cost: control the market by
producing an acceptable product at a
lower cost than any of your competitors.
Profits are increased because the firm
enjoys a lower cost base than its
competitors.

Generic Strategies
Differentiation: increase profits by
charging a higher than average price for
the product or service produced.
Differentiation involves adding more
customer (perceived, or real) value than
your competitors.
Porter tells us that usually an industry only
has room for one Cost Leader, but many
Differentiators

Generic Strategies
SOURCE OFCOMPETITIVE
ADVANTAGE
Uniqueness

Low Cost

Broad

COST
LEADERSHIP

DIFFERENTIATION

COMPETITIVE
SCOPE
Niche

FOCUS

Low Cost Leadership

Questions to consider:
Is it sustainable? Can it be copied? What
are the dangers? e.g... technological
advance etc...
Can there be just one low cost leader?
Leadership on cost may involve price
competition.

Differentiation
Questions to consider
Need to target KSFs, especially value
drivers.
Normally involves segmentation of the
market.
Depends on uniqueness/monopoly power.
Is this sustainable? E.g. What makes
Mercedes Benz, Mercedes Benz?!

Focus
Option for smaller firms that lack market
share relative to competition, or the
resources necessary to develop a broader
based strategy. e.g. Volvo & Jaguar v
Ford and General Motors
Focus can either involve
differentiation or low cost

Stuck in the middle

Porter argued that firms stuck in the middle
would find it hard to compete successfully
because their competitors would either be
better differentiators or lower cost producers.
Those segments a firm dabbles in when stuck
in two different modes, would therefore be
better served by the competition.

Further questions to consider

What are the costs of the strategy?
What are the dangers?
Can it be copied? How stable are the value drivers?
How predictable is the technology?
Is it sustainable? How high are the entry barriers?
What does the chosen strategy mean for the culture
of the organisation?
NB: In consumer markets, Brand and all its
attributes become increasingly important.

The Strategy Clock (Bowman)

4
HIGH

5 Routes to
Strategic options

VALUE 2

LOW

Failing
Strategies
7

1
LOW

8
PRICE

HIGH

Market options matrix Ansoff

products
Present

Present

Market
penetration

New

Product
development

customers

New

Market
development

Diversification

Related
markets
Unrelated
markets

Market Penetration
Existing products and existing customers
Broad Options
Danger of price competition
Withdrawal - obsolete products, raise funds for other
activities.
De-merger - increase shareholder value, increase focus
in the business.
Market share battles
Mergers & acquisitions to reduce competitive threat

Market Development
Existing products and new customers
new segments
new geographical areas

Product Development
New products and existing customers
counter competitive threat from new or
existing firms.
utilise capacity and achieve scale
economies.
exploit new technology development

Diversification - Related Markets

New products and new customers, but
linked markets.
greater level of risk than other market
options
forward integration
backward integration
horizontal integration

Diversification - Unrelated
Markets
New products and customers, but no
links with the existing markets.
potentially very risky firm may lack the
core competencies necessary and the
critical success factors
often holding company - Hanson plc.bricks, batteries and tobacco

Expansion Method Matrix

Company

Home

Geographical
Location

International

Inside

Outside

Internal
development
-organic growth

Merger
Acquisition
Joint venture
Alliance
Franchise

Passive exporting
Overseas sales office
Overseas manufacture
Multinational
Globalisation

As above

Issues arising from entering new

markets
Organic growth: slow, but relatively stable.
Acquisition: popular, but risky (research
suggests that only about 15% are successful).
Merger: can lead to identity problems - merging
cultures leading to organisational conflict.
Joint ventures: again can be risky and
problematic e.g... Honda/Rover & The Airbus
Consortium.
Others - franchises and alliances.