Strategic Options in Business

Generic Strategies

Definition

• Fundamental strategies supporting other strategies
• Three main types: cost leadership, differentiation, and focus
• Developed by Michael Porter

Cost Leadership

• Strategy to become low-cost producer
• Aim: Lower costs to create margin without increasing prices
• Requires: Ferocious cost control, efficient systems, large scale
• Examples: Lenovo, HP with low-cost, large-scale manufacturing

Differentiation

• Strategy to offer unique or higher quality products
• Aim: Increase selling price due to the perceived special nature of the product
• Requires: Product uniqueness, brand strength, ability to charge premium prices
• Examples: Apple with unique design, brand appeal

Focus Strategy

• Concentrates on a narrow market segment
• Two types: Cost focus (low cost in a niche market) and Differentiation focus (unique products for a niche market)
• Examples: Crystal Holiday company focusing on ski market

Strategic Direction

Overview

• After determining fundamental strategy, organizations choose strategic direction
• Options include: expanding to new markets, developing new products, etc.

Methods of Achieving Strategic Direction

• Setting up operations abroad: E.g., building a factory in a new country
• Acquisition or Merger: Buying or merging with an existing company in the target market
• Franchising or Distribution Arrangements: Partnering with local entities to distribute products

The Strategic Clock

Explanation

• Extends Porter's generic strategies to more nuanced positions
• Examples using Airlines:
  • Low Price, Basic Service: Ryanair
  • Slightly Higher Price, Better Service: easyJet
  • Hybrid: JetBlue, combining relatively low prices with better service
  • High Price, High Service: Business class, private jets
  • High Price, Low Service: Typically doomed to failure

Ansoff Matrix

Description

• Tool for identifying growth strategies based on markets and products
• Options: Market Penetration, Market Development, Product Development, and Diversification

Strategies

1. Market Penetration

   • Increase market share in existing markets
   • Methods: Efficiency gains (cost-cutting), higher market share, consolidation, withdrawal from unprofitable markets
   • Characterized by low risk and low return

2. Market Development

   • Expand to new markets
   • Example: Expanding from Europe to the USA
   • Higher risk and potential for high return but significant challenges

3. Product Development

   • Developing new products for existing markets
   • Example: Transition from vacuum cleaners to washing machines
   • High R&D costs with uncertain returns

4. Diversification

   • Related Diversification: Expanding into related markets or products
   • Unrelated Diversification: Venturing into completely different markets or products
   • High risk as it involves changing the nature of the business significantly