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Strategic options: Strategic directions
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Reminder: Outline of the process of strategic management
A simplified view of the process
From past to the future
• The end-point of the analysis explained in Semester
1 was the diagnosis of the firm – the key strategic issues that have to be addressed by management
• Management must choose future strategies from a set of strategic options
• The strategic options include:
– Development Strategies = Strategic Direction
– Competitive Strategies
The Key Strategic Decisions
What markets should we be in?
What products/services should we provide?
How do we compete in our chosen markets?
Development Strategy or Strategic Direction
Development Strategy Options
• Elaborating the core business
– Can we increase our market share?
– Can we find new markets for our products?
– Can we find new products for our markets?
• Extending the core business
– What business do we want to be in?
• Simplifying or reducing the core business
– Consolidate/rationalise our markets/products
– Withdraw from part (or all) of the business
• Ansoff’s Product/Market Matrix
Elaborating the Core
• Increasing the firm’s share of its current market
– In the early stages of the product lifecycle the firm can increase market share at low cost and without increasing competitive rivalry
– In saturated markets the firm may increase market share through more intensive selling and product enhancement - incurs costs and increases competitive rivalry (diminishing returns)
• Relatively risk free, but not always “easy”
• Can be very expensive when rivalry is high
• Using current products/services:
– Identify new market segments, e.g.
• Clothes for younger customers
• Universities and “Lifelong Learning”
– Geographical market expansion
• Regional National International
– Identify new uses for current products
• e.g. Aspirin to prevent blood clots
• Seeking economies of scale in production
• Risk of mistakes through misunderstanding the needs of the new market
• Substantial additions to current product range but aimed at the same customers, e.g.:
– M&S offering financial services
– Kodak offering digital cameras
• Needs innovation, knowledge, technology, design skills
- expensive for small businesses
• Seeking economies of scope in marketing and distribution • Risk of mistakes through ignorance of technology what if the new product doesn’t work?
Extending the Core
• Move away from core business
– Retain the “old” core?
– Abandon the “old” core?
• Related through Value Chain linkages
• Likely to require the development or acquisition of new competencies
• Example: Vertical Integration - extending value