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Файл:Strategic analysis and planning. Textbook
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Hofer — Schendel matrix
In the Hofer — Schendel matrix, the stages of market development are displayed
along the OY axis. Up to 5 main stages can be considered: development (repression),
growth, maturity, saturation, reduction.
The OX axis displays the relative competitive position of a business within an
industry. It is divided into categories: strong, medium, weak. The original model
included a fourth category, “inferior or displaced”; Since it is obvious that the last stage
implies the failure of the business, it almost never deserves attention during strategic
planning.
Depending on the position of the business area, a strategy is developed. Fig. 12
shows generalized strategies. You can see: one generalized strategy covers an area of
several matrix cells.
Characteristics of six general business strategies are given in table 12.
Fig. 12. Hofer — Schendel matrix
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Table 12
Characteristics of six general business strategies
Type of general strategy
The goal of competitiveness
Investment strategy
Strategies to increase in share:
–
–
stage of development
Promote position
Moderate investment
repression stage
Promote position
High investment
other stages
Promote position
Very big investment
Type of general strategy
The goal of competitiveness
Investment strategy
Growth strategies
Save position
High investment
Profit Strategies
Save position
Moderate investment
Market concentration and
strategies of reduction of
assets
Shift position to a lower level
From moderate investments
to negative
Promotion or shift strategies
Improve the situation
From minor up to moderate
investment
Elimination or Refusal
Strategies
Lower position to the lowest
protective level
Negative investments
Strategies for increasing market share.
The main goal of the strategy for increasing market share is to significantly and
constantly increase the share of the relevant type of business in the market.
Implementing this strategy requires more capital investment than industry average. To
keep up, you will need to increase your sales volume at least in line with the market
growth rate, which could be 50 % or more. If the competitiveness of a business type is
average or weak, and it is necessary to achieve high competitiveness, then the increase
should be on the order of 100–150 % or more. Significant increases in market share
usually result in horizontal mergers or the development of unique competitive
advantages. At each stage of market development, there may be different opportunities
for competitive advantage. At the development stage, competitive advantage can be
obtained through product design, product promotion to the market, and its quality. At
the displacement stage, this can be achieved through features of the product itself,
market segmentation, pricing, improved service or increased distribution efficiency. At
other stages, there are fewer opportunities: competitive advantages are achieved mainly
due to mistakes made by the leader, or as a result of a major technical achievement.
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Growth strategies.
The goal of these strategies is to maintain competitiveness in rapidly growing
markets. The absolute volume of capital investments is quite high, but relative to the
industry level it is average. In the initial stages, markets grow quickly, and in order to
keep up with them, significant resources are required; moreover, it is necessary to
strengthen the competitive position of this type of business before the stage of
crowding out, so as not to be forced out. One of the disadvantages of these strategies
is that you can spend resources, but not achieve a sustainable competitive position.
Strategies to increase profits.
At the maturity stage of the life cycle, when competition stabilizes and market
growth rates slow down, the main goal of business development should be its
profitability, not growth. Investments must be maintained at the level necessary to
maintain appropriate volumes, and profits must be maximized. Profitability can be
achieved as a result of qualified market segmentation and efficient use of existing
assets. To improve the efficiency of resource use, it is necessary to identify those areas
where costs can be reduced, revenues increased, and the potential for synergistic effects
maximized. A successfully developed and implemented profit strategy should
necessarily lead to an increase in positive cash flow, which could be used to invest in
a growing business. Profits can only be reinvested in the same type of business in the
event that the leader of a given industry has become passive or the industry itself is on
the verge of a technological breakthrough. To implement such intentions, close
monitoring of external business conditions is necessary.
Market concentration and asset reduction strategy.
The goal of this strategy is to review the size and level of use of assets to quickly
increase the mass of profits and develop their capabilities. This is achieved by
redistributing material resources and personnel in accordance with new market
segments.
At the stages of maturity and saturation, if the business share in the market is up
to 15 % (relative to the leader), it is necessary to reconsider your market, limiting it to
the segments where competitive advantages are most evident. If the business's market
share is less than 5 %, then it may be concentrated in a small niche. You can purchase
several similar companies to achieve the result of the 15 % market share. If this cannot
be accomplished, then it is advisable to think about selling your business to another
organization or simply liquidating it. In the later stages of maturity and saturation,
acquiring 15 % or selling is usually not feasible. In some cases, it makes more sense to
create a niche that will not disappear completely and focus on it.
Before deciding to concentrate on a niche, it is necessary to fully assess the size
of the remaining segment and competitors.
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Promotion or shift strategies.
The goal of these strategies is to stop the process of declining sales as quickly as
possible. Sometimes this may require investment of capital and resources, in other
cases the business turns out to be capable of self-financing.
These strategies should only be applied to businesses with good potential for
future profitability, which will be even more important than liquid assets. Before
adopting a shift strategy, it is necessary to analyze the cause of the decline: whether it
is the result of mistakes in the previous strategy or poor implementation of the strategy.
Once the decision to shift is made, a business type has 4 alternatives: increasing
revenue, decreasing costs, reducing assets, or any combination of these three.
Elimination or refusal strategies.
The goal of these strategies is to obtain as much cash as possible in the process
of leaving (gradual or rapid) from the business. Hofer and Schendel came to the
obvious conclusion that it is not profitable to try to maintain a weak position in an
unattractive market.
Liquidation or abandonment strategies should be used when the business in
question still has some value and is somehow attractive to someone. Otherwise, it is
unlikely to be implemented. The strategy may involve selling unused equipment,
reducing the number of customers with long consumer debt repayment periods
(collection periods), and reducing the production of products with below-average profit
margins and high inventory requirements. Even if leaving the business is beneficial to
competitors, it is better to leave this market and focus resources on developing other
opportunities.
In their model, Hofer and Schendel propose three types of ideal business
portfolio at the level of a diversified organization (fig. 13):
• a growth business portfolio may include many types of businesses whose
market is in the early stages of its life cycle. In hopes of achieving success and
generating large amounts of profit in the future, significant investments will be made
in these types of businesses. This can lead to short-term cash flow problems;
• the profit business portfolio consists of those types of businesses whose
market is at a high stage of development. These types of businesses generate a
significant amount of profit, and if it is not used for reinvestment, then problems may
arise when sales volumes begin to fall;
• a balanced business portfolio contains a proportional number of types of
business, focused on “young” and “mature” markets.
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Fig. 13. Three main types of ideal corporate business portfolio
(according to the Hofer — Schendel model)
Hofer and Schendel name 4 possible types of unbalanced business portfolios
and their characteristics:
• a business portfolio with a large number of weak businesses in the latter stages
of the market life cycle often suffers from a lack of profit mass necessary to ensure
growth;
• an excess of weak types of business in the early stages of the market life cycle
also leads to a shortage of profit;
• too many strong, stable types of business create an excess of money supply,
but do not provide an increase in areas for investment;
• a business portfolio with an abundance of developing, potentially strong types
of business require a lot of attention, creates a negative cash flow, instability of growth
and return on investment.
Product / market matrix by Igor Ansoff
Igor Ansoff's product / market matrix was first presented in 1957. Today, the
matrix remains the most common strategic management tool for determining directions
for business growth. The matrix helps to choose the right direction for business
development, taking into account the existing resources and capabilities of the
enterprise. A parameter that influences the choice of an appropriate growth strategy is
newness to the market and / or goods for the organization. The matrix suggests
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choosing one of the possible growth strategies of the organization, using two
characteristics:
1) the market in which the company wants to operate;
2) the product that the organization plans to sell (fig. 14).
Fig. 14. Product / market matrix by Igor Ansoff
The “market” in Ansoff’s matrix is understood as a separate segment of
consumers or target audience (TA) of an organization. The market can be existing or
new. Existing (current) market means a market in which the organization has already
been operating for a certain time, has a certain operational experience and reputation.
These are existing consumers; current target audience of the company; a group of
people who currently buy the organization’s product and to whom all advertising
messages are addressed. A new market means a market in which the organization has
no experience; the organization wants to enter this market to expand the capabilities of
its business. This is the group of people who currently do not buy the organization’s
product for some reason (the existing product is unattractive; the audience does not
know about the existence of the organization’s product; the organization did not
consider this segment as possible consumers of its product, etc.). New markets can be
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consumers in new regions or consumers in the current region but representing a
different segment.
A product is something that an organization creates for the purpose of selling to
consumers. It can also be existing or new. Existing (current) product — a product
that exists in the organization’s product portfolio and has a sales history. A new product
is a product that does not yet exist in the organization’s product portfolio, which is
planned to be released to attract new consumers or replace an existing product and has
no sales history.
Igor Ansoff, in his product / market matrix, identified 4 possible business growth
strategies:
• market penetration strategy, which means that growth will occur in the
direction of increasing the share of the existing market of an existing product;
• market development strategy, which means that the organization will grow by
developing demand for an existing product in a new market;
• product development strategy, which means that the source of the
organization’s growth is the release and sale of a new product in the existing market;
• diversification strategy, which means updating the product and entering a new
market at the same time.
Consumer Matrix
The methods of market analysis described above in justifying the organization's
strategies were based on the state of affairs in the organization itself and its products
on the market. The consumer matrix, or market map, allows you to take into account
information about goods produced by competitors and their prices.
In order to increase sales of a product by luring customers away from competitors,
you need to move away from your competitors. There are 2 main directions of removal:
• at the same price level, increase the economic value of the product (improve
some parameters, add new properties), i.e. apply a differentiation strategy;
• while maintaining the properties of the product, reduce its price by reducing
costs, i.e., apply a cost minimization strategy.
Fig. 15 shows a consumer matrix for a hypothetical organization.
Not only these directions are possible, but many of their modifications are
possible (fig. 16).
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Fig. 15. Consumer matrix with two main directions movement of goods:
A — the product of interest to our organization;
* — product of a competitor, very close in the eyes of buyers in terms
of price and quality ratio to the company’s own
Fig. 16. Consumer matrix with all directions of goods movement
Option 1. Has been considered. Differentiation strategy.
Option 2. The company spends money on improving the product, but at the same
time tries to get a higher price for it in the market. The effect of this strategy will depend
Качество
Цена
*
* * А
Стратегия
дифференциации
Стратегия
минимизации издержек
Качество
Цена
1 2А
3
4
5
6
7
8
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on the presence in the market of a group of buyers who are willing to pay this price for
a more advanced product.
Option 3. Increasing the price without improving the properties of the product.
It is acceptable if all competitors raise prices and do so to a greater extent, than you.
Option 4. Increase in price when the economic value of the product decreases.
Can only be sold on a market with an acute shortage of goods.
Option 5. Decrease in the economic value of the product at the same price level.
An undesirable development of events that occurs in cases where your rivals improve
the properties of a product, but you were unable or did not have time to do so do.
Option 6. Reducing the price and reducing the economic value of the product.
This is the strategy of a company that seeks to conquer the market segment of the least
wealthy and least demanding customers.
Option 7. Has been described earlier. Cost minimization strategy.
Option 8. Increasing the economic value of the product while reducing the price.
The best option, the implementation of which can improve the company’s competitive
position in the market and increase sales. But this strategy can be applied only in rare
cases if the company has a unique new technology that simultaneously improves the
properties of goods and reduces their production costs.
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6. DEVELOPMENT OF STRATEGIC ALTERNATIVES
6.1. NATURE AND TYPES OF STRATEGIC ALTERNATIVES
Strategic alternatives are possible directions of movement, a set of options for
the strategic development of an organization that allow achieving strategic goals. Each
strategic alternative presents different opportunities and is characterized by different
costs and benefits, which determines the need for strategic choice.
Strategic alternatives can be divided into three types:
• alternatives for continuous improvement are different options for continuing
and adjusting existing, previously adopted strategies of the organization;
• renewal alternatives are alternatives that are focused on the existing strategy,
but significantly change the direction of the organization's activities, attitude towards
markets, existing ways of doing business and provide for significant changes in scale,
appearance and goals;
• innovative alternatives are variants of the organization's strategy that are
associated with its radical changes, using completely new goods (products) and / or
methods of competing.
6.2. SELECTING THE BEST STRATEGIC ALTERNATIVE
The procedure for developing strategic alternatives and selecting the best one:
• a large number of possible strategic alternatives are being developed;
• pre-developed options are finalized and clarified from the point of view of the
development of the situation in the external environment and its changes; a portfolio
of strategies is formed;
• strategic alternatives are assessed from the point of view of achieving the
mission and goals of the organization and the possibilities for their implementation;
• the best strategy is selected from the generated portfolio of strategies.
Factors influencing the selection of the best strategic alternative:
1. Strengths of the industry and strengths of the organization.
Strong (leading) organizations should strive to maximize the opportunities
generated by their leadership position, and to strengthen this situation. Leading
organizations, depending on the state of the industry, must choose different growth
strategies: if the industry is going to decline — a strategy of unrelated diversification;
if the industry is rapidly developing, a strategy of related diversification.
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