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Файл:Strategic analysis and planning. Textbook
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Weak organizations must choose strategies that can lead to their strengthening.
If there are no such strategies, then organizations should leave this industry.
2. Goals of the organization.
The goals reflect what the organization strives to achieve. The chosen strategy
should not contradict the goals, but, on the contrary, accompany their achievement.
3. Interests and attitudes of top management.
Management may like to take risks, or, on the contrary, they may strive to avoid
risk by any means. This decision can be decisive in choosing a development strategy.
4. Financial resources of the organization.
Any changes in the behavior of an organization require large financial costs, and
therefore the scale of changes must be determined within the framework of available
funds.
5. Qualification of workers.
The strategy must take into account the qualifications of the organization's
employees.
6. Obligations of the organization.
When choosing new strategies, it is necessary to take into account the fact that
obligations from previous years will remain in effect for some time, which may
constrain or adjust the ability to implement new strategies.
7. Degree of dependence on the environment.
There are situations when an organization is so dependent on suppliers or buyers
of its products that it is not free to choose any strategy that suits it. Strong dependence
on the external environment can also be due to legal regulation of the organization’s
behavior, for example, antimonopoly legislation, social restrictions, dependence on the
natural environment, on political factors, etc.
8. Time factor.
Time must be taken into account when choosing a strategy, since opportunities,
threats and planned changes always have certain time limits. It is important to take into
account the calendar time and the time duration of intervals for the implementation of
specific actions to implement the strategy.
6.3. DEFINITION OF ORGANIZATION STRATEGY
An organization's strategy is the general direction of an organization's activities,
adherence to which in the long term should lead it to its goal. This understanding of
strategy eliminates limitations in the behavior of the organization, since the strategy,
determining the direction towards the final state, leaves freedom of choice in
accordance with the changing situation.
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An organization's strategy is a long-term, qualitatively defined direction of
development of an organization, relating to the scope of the organization's activities,
the means and forms of its activities, the system of relationships within the
organization, as well as the position of the organization in the environment, leading the
organization to its goals.
When determining a company's strategy, management is faced with three main
questions related to the company's position in the market: which business to terminate;
what business to continue; what business to go into.
6.4. HIERARCHY (PYRAMID) OF ORGANIZATION STRATEGIES
The hierarchy (pyramid) of organizational strategies is the alignment of
organizational strategies by management levels. The priority is the corporate strategy,
to which business (competitive) strategies, or business unit strategies, functional
(supporting) strategies, and operational strategies.
Hierarchy (pyramid) of organizational strategies by A. A. Thompson and
A. J. Strickland, shown in fig. 17, takes into account the type of organization in terms
of diversification. It turns out that a diversified organization has four levels of strategy.
A non-diversified (narrow-profile) organization has, accordingly, three levels of
strategy.
Table 13 presents the characteristics of strategies at various levels of
management.
Fig. 17. Hierarchy (pyramid) of organizational strategies
by A. A. Thompson and A. J. Strickland
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Table 13
Characteristics of strategies at various levels of management
Level strategies
Strategy object
Focus strategies
Responsible persons
Corporate strategy
Diversified
organization
Integration of strategies of
several business units into a
single whole
Managers of senior
rank, board of directors
Business
(competitive)
strategy
Business unit
(main area of
activities)
Acquiring sustainable
competitive advantages for
the business unit
General Director, Head
of Production Division
Functional
(providing)
strategy
Functional
(supporting)
areas of activity
Improving marketing and
financial activities
Head of functional
department
Operational
strategy
Regional
representative
office, branch
Ensuring the sustainable
operation of a regional
representative office or branch
Head of regional
representative office,
branch
The formation of a hierarchy (pyramid) of organizational strategies can be
carried out from top to bottom or from bottom to top. In the first case, top management
initiates the process of forming a corporate strategy and authorizes individual strategic
business units and functional units to develop their own strategies that contribute to the
implementation of the corporate strategy. In the second case, strategies of business
units and functional divisions are initially developed, and on their basis a corporate
strategy is developed.
Strategies at all levels must be interconnected and must not contradict each other.
6.5. TYPICAL (BASIC, REFERENCE) CORPORATE STRATEGIES
Typical (basic, reference) strategies are strategies that reflect different
approaches to the development of an organization and are associated with a change in
the state of one or more elements:
1) product;
2) market;
3) industry;
4) the position of the organization within the industry;
5) technology.
The state of each element is characterized as existing or new. Characteristics of
typical corporate strategies are presented in table 14.
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Table 14
Characteristics of typical corporate strategies
Name
Special purpose
Direct integration
Acquisition of ownership or establishment of full control over the
distribution network
Backward Integration
The desire to obtain ownership of raw material suppliers or take it
under full control
Horizontal integration
The desire to take ownership of your competitors or take it under
full control
Market Capture
The desire to increase the share of your product in traditional
markets
Market development
Bringing your product to market in new geographical areas
Product development
The desire to increase sales volume through improvement or
modification of your product
Concentric diversification
Creation of new production facilities that coincide with
organization profile
Conglomerate diversification
Mastering the release of new products that do not match with a
traditional organization profile
Horizontal diversification
Mastering the release of new non-core products, but for
traditional consumers
Joint venture
Teaming up with another company to work on a special project
Reduction
Restructuring to reduce costs to stop the decline in sales volumes
Rejection
Sale of a branch or part of an organization
Liquidation
Sale of all assets of the organization
Combination
The organization simultaneously implements at least two different
standard strategies
6.6. CLASSIFICATION OF BUSINESS (COMPETITIVE) STRATEGIES
There are several approaches to the classification of business (competitive)
strategies:
• a universal approach, formulated by M. Porter and modified by A. A. Thompson
and A. J. Strickland, focused on identifying strategies for competing for consumers;
• marketing approach, which involves consideration of competitive strategies
against competitors; formulated by F. Kotler and supplemented by J. Trout;
• biological approach, based on determining the types of innovative behavior of
an organization based on the use of biological terms, developed by the Soviet biologist
L. G. Ramensky and the Swiss economist H. Friesewinkel;
• a large-scale approach, which involves taking into account changes in the
scale of the business when determining the type of strategy; this approach was used by
I. Ansoff, who considered various business growth strategies, as well as by F. Kotler,
who added reduction strategies to growth strategies.
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Strategies for competing for consumers
These strategies are determined by two parameters: the type of competitive
advantage (low costs, differentiation) and the type of target market (a wide range of
buyers throughout the market; a separate segment of buyers or a market niche, which
can be determined based on geographic uniqueness, special requirements for the use of
the product or special characteristics of the product that are attractive only to a given
segment) (fig. 18).
Fig. 18. Matrix of competition strategies for consumers
1. The cost leadership strategy is aimed at attracting buyers by minimizing
production costs. Provides for a reduction in the total production costs of a product or
service, which attracts a large number of buyers.
There are two ways to establish cost advantage:
• improvement of performance compared to competitors, efficient
implementation of operations in the internal value chain and management of factors
that determine the level of costs in the value chain;
• improving the organization’s value chain, up to the consolidation of operations
or the abandonment of high-cost actions in the value chain (modernization,
reconstruction, simplification of product development, transfer of production facilities
closer to the consumer, use of less capital-intensive rational technology, finding ways
to eliminate the use of expensive materials and components). An example is a situation
where the joint actions of various departments can provide economies of scale, reduce
the time to create new technology and / or achieve full capacity utilization by reducing
the specifications for purchased materials, introducing fewer distinctive features
relative to competing products.
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Conditions for a successful cost leadership strategy:
• price competition among sellers is particularly strong;
• the manufactured product has standard characteristics that meet consumer
requirements;
• most buyers use the product in the same way;
• buyer costs for switching from one product to another are quite low;
• There are a large number of buyers who have serious power to reduce the price.
Ways for a leader to generate significant additional profit by costs:
• reduce product prices by reducing costs and attract more buyers;
• no price changes.
Disadvantages of the strategy:
• the strategy is fraught with a protracted price war;
• cost reduction is not always the exclusive property of the company, and
competitors can easily repeat them;
• while reducing costs, it is necessary to pay attention to other factors, for
example, improving the product.
2. The strategy of broad differentiation is focused on attracting buyers by
maximizing the difference between the organization’s products and similar products of
competitors. It becomes attractive when consumer needs and preferences become
diverse and can no longer be satisfied by standard products. In order for a
differentiation strategy to be successful, the organization must study the demands and
behavior of customers, know what customers prefer, what they think about the value
of the product and what they are willing to pay for.
Successful differentiation allows an organization to:
• set an increased price for the product;
• increase sales volume (since the bulk of consumers are attracted by the
distinctive characteristics of the product);
• win customer loyalty to your brand (some customers become very attached to
the additional characteristics of the product). Example: Caterpillar guarantees delivery
of spare parts worldwide in no more than 48 hours; In case of violation of the deadlines,
delivery is carried out free of charge for the client.
A differentiation strategy works best in markets where:
• there are many ways to change products and most buyers recognize these
differences as having value;
• customer needs and / or uses of the product are different;
• a small number of competitors are taking a similar approach to differentiation.
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Typically, differentiation provides a longer lasting competitive advantage when
it is based on technical excellence; quality of products; excellent customer service.
Such distinctive characteristics are recognized by customers and have value, moreover,
the skills and experience required to produce these characteristics are difficult for
competitors to copy and use to their advantage.
Ways to give a product distinctive consumer property:
• reducing consumer costs for using the product;
• increasing the efficiency of product use by the consumer;
• imparting consumer properties that provide an intangible advantage;
• creation of additional consumer value due to competitive opportunities that
competitors do not and cannot have.
Disadvantages of the strategy:
• there is no guarantee that differentiation will bring a competitive advantage;
• it is possible to quickly copy successful distinctive features.
3. The optimal cost strategy provides increased customer value due to higher
quality at prices at the level of competitors and below. By choosing this strategy, the
enterprise must reduce costs and, accordingly, prices, while maintaining or increasing
the quality of products. Involves a focus on low costs while providing customers with
more than the minimum acceptable quality, service, performance, and attractiveness of
the product. Competitive advantage consists of closeness to the parameters “quality —
service — characteristics — attractiveness” and superiority in costs over competitors.
The distinctive features of companies that successfully implement an optimal
cost strategy are the ability to:
• develop and implement additional product attributes at lower costs;
• offer products that are different from competitors' analogues, at prices
acceptable to the buyer.
The strategy is most attractive from the point of view of the possibility of
competitive maneuvering. It provides an opportunity to create exceptional value for the
customer by balancing low cost and differentiation strategies. Consequently, allows the
organization to leverage the competitive advantage of both strategies, creating superior
customer value.
Disadvantages of the strategy:
• there is a risk of being caught between enterprises with two identical strategies;
• cost leaders can push the company out of the segment of price-sensitive buyers;
• those who use broad differentiation push the organization out of the segment
where quality and individual design are valued.
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4. A focused (niche) low-cost strategy implies the enterprise’s focus on a narrow
segment of buyers and displacing competitors due to lower production costs.
5. Focused (niche) differentiation strategy — implies focusing on a narrow
segment of buyers and displacing competitors by offering products that better satisfy
the needs of buyers. This strategy depends on the buyer segment that requires unique
characteristics and attributes of the product (usually it is aimed at elite buyers who want
products with first-class characteristics).
Focused strategies are attractive under the following conditions:
• the segment has good growth potential;
• it is quite expensive and difficult for organizations operating in various
segments to meet the requirements of specialized niche buyers;
• the organization does not have sufficient resources to serve a larger market
share;
• there are many different segments in the industry, which allow the organization
to choose its niche according to its strengths and abilities.
Flaws:
• there is a possibility that competitors will force them out of the segment;
• consumer needs and preferences may change into the needs and preferences
characteristic of the majority;
• the segment may turn out to be attractive, which will lead to a decrease in
profits.
Competition strategies against competitors by F. Kotler
The definition of these strategies is preceded by the construction of a competitive
market map identifying groups of organizations with different market shares: leaders
(market share — more than 40 %), contenders for leadership (market share — about
30 %), followers / slaves (market share — about 20 %), niche wikis (market share —
no more than 10 %).
1. Market leader strategies.
Many industries are led by recognized leading companies that hold the largest
market shares. Such companies typically set an example for competitors by changing
pricing policies, introducing new products, expanding distribution channels, and
increasing the intensity of promotional activities. A market leader should never let
down its guard because other companies are trying to challenge its position or profit
from its weakness. A dominant position obliges the organization to take active action
on three fronts at once. First, the company needs to find ways to expand the overall
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demand for the industry's products. Second, it must protect its market segment through
well-planned defensive and offensive actions. Thirdly, the leader may try to expand its
market share even if its overall volume stabilizes.
Possible strategies of market leaders:
1. Market expansion by increasing demand through:
• attracting new consumers. Every product category has the potential to attract
new customers: people unaware of the product or those who refuse it due to the high
price or lack of the required characteristics;
• searching for new ways to use the product. Market expansion is facilitated by
the discovery and promotion of new ways to use products;
• increasing the intensity of product use.
The costs of market expansion can significantly exceed the income received.
Therefore, before deciding to take such a step, the organization must carefully analyze
the influence of two factors: the possibility of a conflict with antimonopoly legislation;
high economic costs. In general, expanding market share is inappropriate in cases
where the organization does not have the opportunity to take advantage of the “scale
effect”, as well as in the presence of unattractive market segments, the desire of
consumers to use various sources of supply and high barriers to exiting the market; the
consequences of an incorrect strategy when creating a marketing mix, when the policy
of expanding market share is not accompanied by an increase in profits;
2. Protecting market share through defensive and offensive measures.
A leading company has the ability to use seven defensive strategies:
• positional defense. The basic principle of any defense is the construction of
impregnable fortifications on the borders of one’s territory;
• flank protection. The response to the actions of competitors may be the release
of another brand by the leader, aimed at surpassing the competitive advantage of the
pursuer;
• proactive defensive actions. If a company is not satisfied with a passive
position, it is ahead of opponents concentrating forces and launches a pre-emptive
strike, thereby disrupting the plans of each of them. There is also the possibility of
sending unambiguous signals (carrying real data or misinformation) to competitors,
warning them against carrying out attacks. A market leader with rich resources has the
ability to simply ignore the actions of rivals, waiting for them to “bleed out” in fruitless
attacks;
• counterattack. An effective method of counterattack is to invade the enemy's
main territory. Another common form of counterattack is an economic or political
blockade of a competitor. The leader has the opportunity to subsidize a reduction in
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prices for certain types of products (usually the most profitable for competitors) while
raising them for its other goods, or to announce preparations for the production of a
new product so that consumers stop purchasing from a rival. In addition, lobbying for
political decisions unfavorable to a competitor remains in the arsenal;
• mobile protection. A leader pushes its boundaries by expanding and
diversificating of markets. When expanding the market, the company shifts attention
from a specific product to the needs that this class of goods satisfies as a whole,
conducts research and development work along the entire technological chain;
• forced reduction. The planned reduction (strategic withdrawal) implies the
concentration of resources on promising areas;
• expanding the share of its presence in the market, even if the size of the market
does not change.
2. Strategies of leadership candidates.
In pursuit of increasing their market share, newcomers may attack leaders and
other competitors. The strategic goal of most leadership contenders is to increase their
market share. An aggressor may target a market leader, organizations of its size that
are underperforming or underfunded, or small local or regional organizations that are
underperforming or underfunded.
Leadership applicants can use both offensive and attacking strategies.
Offensive strategies include:
• frontal attack (directed rather at the strengths than at the weaknesses of the
competitor and goes in several directions at once);
• flank attack (by identifying the weakest points of the competitor); encirclement
(attacking from all directions at once, so that the competitor is forced to defend
simultaneously from the front, flanks and rear; usually with the involvement of
resources exceeding the capabilities of the opponent);
• flanking (a maneuvering strategy in which a challenger company bypasses a
competitor, choosing easier markets as a target; for example, establishing distribution
in new territories or trying to displace existing products by offering modifications);
• technological leap (a strategy characteristic of the IT sector, when, instead of
copying a competitor’s products, the challenger company painstakingly develops
superior technologies);
• guerrilla attacks (periodic attacks, typical of applicants with modest resources).
The main competitive actions within the attacking strategy include the
following:
• price discount strategy;
• strategy for reducing the cost of goods (including reducing quality);
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