STRATEGIC MANAGEMENT

Session 7

BASES OF STRATEGIC CHOICE

Corporate purpose and

aspirations



Ownership



Mission and strategic intent



Scope and diversity



The global dimension

Bases of SBU strategy



Achieving competitive advantage



Price-based strategies



Differentiation strategies



Focus strategies



PIMS

Enhancing SBU strategy:

corporate parenting



Portfolio management



Financial strategy



The role of the corporate parent



The parenting matrix

Exhibit 6.1 Bases of strategic choice

Covered in 5th
session – the
role of
stakeholders

The role of the
market –
Porter covered
here in the
6th session.

The role of
the parent
covered here
in the 6th
session.

DEVELOPMEN

T

STRATEGIES

What basis?

How?

Which direction?

Alternative

directions

• Protect and build

• Market

penetration

• Product

development

• Market

development

• Diversification:

related
unrelated

Alternative

methods

• Internal

development

• Acquisition

• Joint

development /
alliances

Bases of choice

• Corporate

purpose and
aspirations

• SBU generic

competitive
strategies

• The role of the

corporate parent

Exhibit 6.2 Development strategies

Lecturer’s Resource Manual – Basic Strategy in Context. Thomson &

Baden-Fuller

FIGURE 8-1a Porter’s Generic Strategies Model

Lecturer’s Resource Manual – Basic Strategy in Context. Thomson &

Baden-Fuller

EXHIBIT 8-2

Airlines on Porter’s Generic Strategies

Matrix

Lecturer’s Resource Manual – Basic Strategy in Context. Thomson &

Baden-Fuller

EXHIBIT 8-3

Examples from the Automobile Industry in

Porter’s Generic Strategies Model

Exhibit 6.4a The strategy clock: Bowman’s competitive strategy

options

2

4

5

3

1

8

7

6

Differentiatio

n

Focused
differentiati
on

Hybrid

Low
Price

‘No

frills’

Strategies
destined for
ultimate
failure

High

Low

Low

High

PERCEIVED
ADDED
VALUE

PRICE

Position

1 ‘No frills’

2 Low price

3 Hybrid

4 Differentiation

a) Without price premium

b) With price premium

5 Focused differentiation

6 Increased price/standard value

7 Increased price/low value

8 Low value/standard price

Needs / risks

Likely to be segment specific

Risk of price war and low
margins/need to be cost leader

Low cost base and reinvestment in
low price and differentiation

Perceived added value by user,
yielding market share benefits

Perceived added value sufficient to
bear price premium

Perceived added value to a
particular segment, warranting price
premium

Higher margins if competitors do
not follow/risk of losing market
share

Only feasible in monopoly situation

Loss of market share

Bowman uses the dimension ‘Perceived Use Value’

D

if

e

re

n

ti

a

ti

o

n

L

ik

e

ly

f

a

il

u

re

Exhibit 6.4b The strategy clock: Bowman’s competitive strategy

options

Lecturer’s Resource Manual – Basic Strategy in Context. Thomson &

Baden-Fuller

FIGURE 7-4

The BCG Growth-Share Matrix

$

Stars

Cash Cow

Question

Marks

Dogs

High

Low

H

i

g

h

Lo

w

Relative Market Share

(Cash Generation)

M

a

rk

e

t

G

ro

w

th

R

a

te

(C

a

s

h

U

sa

g

e

)

Exhibit 6.5 Source of funding

Source: Adapted from K. Ward, Corporate Financial Strategy, Butterworth/Heinemann, 1993, p. 32

STARS

GROWTH PHASE

Business risk high

Financial risk low

Equity
(growth investors)

QUESTION MARKS

LAUNCH PHASE

Business risk very high

Financial risk very low

Equity
(venture capital)

CASH COWS

MATURITY PHASE

Business risk medium

Financial risk medium

Debt and equity
(retained earnings)

DOGS

DECLINE PHASE

Business risk low

Financial risk high

Debt

Exhibit 6.6a Roles of corporate parents

Source: Adapted from M.E. Porter, ‘From competitive to corporate strategy’, Harvard Business Review, May/June 1987

PORTFOLIO
MANAGERS

RESTRUCTURERS SKILL

TRANSFERERS

ACTIVITY SHARERS

Strategic
requirements

Identifying and

acquiring

undervalued

assets


Divesting low-

performing

SBUs quickly

and good

performers at

a premium

Identifying

restructuring

opportunities


Intervention in

SBUs to

transform

performance


Sale of SBUs

when

restructuring

complete or

market

conditions

favourable

Transfering skills

to give

competitive

advantage in

SBUs


Ongoing transfer

of skills


Identification of

appropriate skills

to transfer

Sharing activities

to provide

competitive

advantage to

SBUs


Identification of

benefits of

sharing which

outweigh costs


Overcoming

SBU resistance

to sharing

Exhibit 6.6b Roles of corporate parents

Source: Adapted from M.E. Porter, ‘From competitive to corporate strategy’, Harvard Business Review, May/June 1987

PORTFOLIO
MANAGERS

RESTRUCTURERS SKILL

TRANSFERERS

ACTIVITY SHARERS

Organisational
requirements

Autonomous

SBUs


Small, low-

cost corporate

staff


Incentives

based on SBU

results

Autonomous

SBUs


Turnround

skills of

corporate staff


Incentives

based on

acquired SBU

results

Autonomous but

collaborative

SBUs


Corporate staff

as integrators


Cross-SBUs

taskforces


Incentives based

partly on

corporate results

SBUs

encouraged to

share


Strategic

planning at

different levels


Corporate staff

as integrators


Incentives based

on corporate

results

Source: M. Goold, A. Campbell and M. Alexander, Corporate Level Strategy, Wiley 1994

Exhibit 6.7 The parenting matrix: the Ashridge Portfolio

Display

Fit between SBU parenting opportunities and the

parent’s skills, resources and characteristics

Fit between
SBU critical
success factors
and the
parent’s skills,
resources and
characteristics

High

High

Low

Low

Ballast
SBUs

Heartlan

d

SBUs

Alien

SBUs

Value

trap

SBUs

CORPORATE PARENTING

• Heartland businesses: a fit between corporate

and SBU strategic aspirations which the parent
can help develop

• Ballast businesses: good strategic fit but not

requiring help from the parent

• Value trap businesses: requiring help from the

parent but with little fit between corporate and
SBU aspirations

• Alien businesses: no strategic fit and no benefit

from the parent

Illustration 6.9 Unilever’s parenting

Fit between SBU parenting opportunities and the

parent’s skills, resources and characteristics

Fit between
SBU critical
success factors
and the
parent’s skills,
resources and
characteristics

High

High

High

Low

Detergents

Animal

feed

Tea

plantatio

ns

Speciality

products

Personal

products

Food

Lecturer’s Resource Manual – Basic Strategy in Context. Thomson &

Baden-Fuller

FIGURE 7-1a Ansoff Matrix

Market

Penetration

Product

Developme

nt

Market

Developme

nt

Diversificati

on

Existing Products

New Products

E

x

i

st

in

g

M

a

r

k

e

t

s

N

e

w

M

a

r

k

e

t

s