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Файл:Strategic analysis and planning. Textbook
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organization. Varieties of new goods are: improved goods or new generation goods;
goods in new packaging; goods in a new volume; absolutely new items from the brand.
In a product development strategy, it is important to eliminate as much as
possible the cannibalization of the current assortment, i.e., the switching of consumers
from existing products to new ones. If, however, the organization understands that the
new product will completely replace the existing one, then cannibalization should be
more profitable: the new product should either be more expensive or be sold in higher
volumes.
The conditions for effective use of the strategy are the following:
1) success in the industry depends on innovation and the constant offer of new
products;
2) existing products are at the maturity stage of their life cycle;
3) increased competition from key competitors;
4) the organization begins new activities that require a new product.
Tactical solutions for product development strategy.
When working with the target audience, all efforts of the organization should be
aimed at introducing a new product, creating a culture of using the product, and
creating trial purchases. When setting prices, an organization is recommended to use a
skimming strategy in case of competitive advantages or a low-price strategy to achieve
maximum audience coverage for a new product.
The product distribution strategy should be aimed at building distribution in the
key sales channel of the market, and the assortment strategy should concentrate its
projects on promotional offers to stimulate trial purchases, cross-promotion with the
current assortment.
In promoting a product, the organization should strive to increase knowledge of
new product variations, in advertising messages, emphasize the advantages of the
product, carry out promotions for sales channels to build the distribution of new
products; promotions for consumers for the purpose of making trial purchases.
The diversification strategy is the riskiest of the proposed growth strategies. The
reasons for choosing this strategy are:
1) distribution of the organization’s risks between different areas of business
(if one type of business is unsuccessful, the second will ensure growth for the
organization);
2) withdrawal from existing markets that have negative growth rates and low
profit margins.
In an increasingly competitive environment, a diversification strategy, allowing
one to avoid excessive focus on one area of the organization's work, becomes an
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excellent tool for risk management. When implemented correctly, a diversification
strategy helps to maintain the performance and profit of an organization during periods
of economic downturn, stagnation, or a sharp change in the operating principles of the
industry. Strategy can bring clear benefits to the organization and improve business
stability, but requires a detailed assessment of the organization's internal resources,
environmental factors and in-depth knowledge of market trends. When choosing a
diversification strategy, an organization must have the opportunity to invest and
allocate additional resources to develop new business.
Diversification can take many forms. In modern practice, there are 4 main types
of diversification strategies: horizontal, vertical, concentric and conglomerative.
The horizontal diversification strategy involves the acquisition or development
of new products that can be sold to the organization's current consumers. In such a
strategy, the organization relies on the existing sales level and production technology.
An example of horizontal diversification is the addition of a new type of cheese to the
sales range of a dairy company. Risks in a horizontal diversification strategy are
reduced by increasing product diversity. In the event that one type of product loses its
relevance, the organization will still have an assortment that allows it to receive a stable
income.
The vertical diversification strategy involves the organization moving up or
down the production chain. In other words, the organization enters the stages preceding
its production cycle or moves forward to the stages following its production cycle. The
vertical diversification strategy reduces the organization's dependence on the decisions
of third parties, prevents third parties from receiving excess profits, and closes all
important processes within one organization. Examples of vertical integration are the
following situations:
1) the organization ceases to sell its goods through individual retailers, and opens
its own retail and wholesale store;
2) the organization acquires a supplier of resources and raw materials for the
production of its goods;
3) the organization opens a subsidiary business selling paints and building
materials to its main business of remodeling houses, ensuring better prices and material
supply processes.
A concentric diversification strategy, or a related diversification strategy, means
expanding the organization’s business portfolio through goods / business lines that
allow more efficient or full use of the organization’s existing technologies and
resources. In other words, following the strategy of concentric diversification, the
organization creates complementary goods or introduces complementary services that
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facilitate and improve the consumption of the main product. This type of diversification
is often used by small organizations, and the new products created tend to be closely
related to the organization's core business. For example, a manufacturer of children's
products may acquire other small toy manufacturers around the country to increase the
distribution of its products and gain access to new markets. Another example would be
the introduction of a small bakery into its assortment, in addition to ready-made baked
goods, semi-finished products and dough for preparing products at home. The
advantages of a related diversification strategy are gaining access to ready-made
solutions and experience, reducing competition in the segment (when purchasing
competing products), and increasing the efficiency of using available resources.
The conglomerate diversification strategy, or unrelated diversification strategy,
involves running two completely independent lines of business that do not improve
each other’s activities. Following this strategy, the organization develops completely
new business areas and gains access to new consumers. In fact, this is an investment of
the organization’s current profits in new growing and highly profitable industries.
Sometimes this type of diversification in the future allows the organization to gain
access to new technologies that can improve an existing product.
An organization resorts to a conglomerate diversification strategy when it can
effectively apply its knowledge and experience in new markets; when it has technologies
that allow it to gain competitive advantages in new markets; when new markets and
industries have significantly high potential. An example of such a strategy is a situation
where a shoe manufacturer enters a new clothing market, using its knowledge and
experience in consumer preferences and behavior. The main advantages of an unrelated
diversification strategy are that the organization can find and develop a more profitable
business in the future, and also reduce the impact of seasonal declines in core business
sales. The disadvantages / risks of such a diversification strategy is the need to allocate
significant resources to the development of a new line of business and investments,
which may not pay off if management is poor.
An international diversification strategy can take one of the two forms described
above: linked or unlinked. International diversification is one of the main strategic
ways to diversify an organization's activities. They switch to it when diversification at
the national level is completely completed. This process requires high management
competencies and a properly structured management structure. The organization must
develop a marketing strategy not only for each business, but also for each country,
taking into account national and regional characteristics of the market and product
consumption patterns. Using the correct strategy of international diversification, an
organization can obtain a significant effect on the scale of production, access to rare
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and valuable resources, make the most of its resources and reduce the risks of
stagnation and decline in sales.
Appendix B presents an algorithm for developing a diversification strategy.
Strategies for changing the scale of business by F. Kotler
1. Concentrated growth strategies:
1.1. Strategy for strengthening market position (or market processing). This type
of strategy works with an existing product in the current market. The risk, in
comparison with other types of strategies, is minimal: everything you have to work
with is familiar and tested; the worst that can happen is that the organization will remain
at the same level. But at the same time, you will have to invest significant effort into
marketing. This strategy is aimed at increasing sales volumes. In I. Ansoff’s
classification, this strategy is called a market penetration strategy.
1.2. Market development strategy. This type of strategy works with the current
product and consists of searching for new markets, developing a sales system, and
searching for innovations in sales policy.
1.3. Product development strategy. This type of strategy means working in the
current market with a new product.
2. Integrated growth strategies (cooperation strategies):
2.1. Vertical integration strategy. This strategy involves expanding the
organization by adding new structures along the production chain. There are 2 main
types of vertical integration strategy:
2.1.1. A strategy of direct (forward) vertical integration, which is expressed in
the growth of the organization through the acquisition or strengthening of control over
the structures located between the organization and the end consumer, i.e. distribution
and sales systems.
2.1.2. A strategy of reverse vertical integration, which is aimed at the growth of
the organization through the acquisition or strengthening of control over suppliers, as
well as through the creation of subsidiaries that carry out supply. The implementation
of this strategy gives the organization favorable results associated with reduced
dependence on fluctuations in prices for components and requests from suppliers.
2.2. Horizontal integration strategy. This strategy means taking control or
absorption of an organization located in the same field of activity and at the same stage
of production as the absorbing organization. The broader impact of horizontal
integration on the functioning of the market is that, on the one hand, it increases the
efficiency of resource use, reduces prices and costs, on the other hand, due to
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weakening competition and increasing the level of concentration of sellers in the
market, it worsens the efficiency of resources placement and poses the threat of
monopoly. The benefits of horizontal integration are: cost reduction by eliminating
redundant processes; due to economies of scale; through the exchange of experience;
by reducing competition. Disadvantages of horizontal integration: reduced level of
diversification; dissatisfaction of the team when changing the organizational structure
of the enterprise.
There are two varieties of this strategy:
2.2.1. The organization’s desire to specialize in a certain phase of production and
sales of products, instead of participating in a number of successive stages (as with
vertical integration). It is also called lateral integration.
2.2.2. Merger of organizations producing the same product. From an
organization's point of view, expansion through horizontal integration can be beneficial
because it allows the organization to reduce production costs and circulation due to
economies of scale, and in addition, horizontal integration eliminates or reduces the
impact of competition and strengthens the organization's control over the market.
3. Diversified growth strategies (combination strategies):
3.1. Related diversification strategy:
3.1.1. Concentric diversification strategy. This strategy means expanding the
organization’s business portfolio through products / business lines that allow more
efficient or full use of the organization’s existing technologies and resources.
3.1.2. Horizontal diversification strategy. This strategy involves acquiring or
developing such new products that can be sold to the organization's existing customers.
3.2. Strategy of unrelated diversification (strategy of conglomerate
diversification). This strategy involves running two or more completely independent
lines of business.
4. Reduction Strategies:
4.1. Elimination strategy. This strategy involves bankruptcy and the sale of
enterprise assets.
4.2. Harvest strategy. This strategy means abandoning a long-term view of
business in favor of maximizing income generation in the short term.
4.3. Downsizing strategy. This strategy involves the sale of one of the
organization’s divisions or businesses.
4.4. Cost reduction strategy. This strategy means the search of opportunities to
reduce costs, as a rule, to the detriment of the quality of the product.
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6.7. FUNCTIONAL STRATEGIES
Functional strategies are developed by the relevant divisions of the enterprise
(organization). Due to their purpose and the specific nature of their activities, various
services of the enterprise have their own vision of achieving the set goals, therefore the
strategies they develop do not always fit together, and sometimes contradict each other.
The art of enterprise management is to force functional units to balance and coordinate
the strategies they develop. This can be achieved in two main ways: firstly, the heads
of functional services of the enterprise participate in the justification and development
of the basic (general) strategy of the enterprise; secondly, the process of developing the
final enterprise development strategy must be multi-stage, including the stage of
agreement and coordination.
The enterprise must develop the following main types of functional strategies:
personnel management strategy, product and marketing, production, financial,
innovation, social and environmental strategies.
HR strategy
The personnel management strategy is a priority direction for the formation of
a competitive, highly professional, responsible and cohesive workforce, contributing
to the achievement of long-term goals and the implementation of the overall strategy
of the organization.
The main features of the HR strategy are:
• connection with the strategy of the organization as a whole, taking into account
numerous factors of the external and internal environment, since their change entails a
change or adjustment of the organization’s strategy and requires timely changes in the
structure and number of personnel, their skills and qualifications, management style
and methods;
• long-term nature, which is explained by the focus on developing and changing
psychological attitudes, motivation, personnel structure, the entire personnel management
system or its individual elements, and such changes usually require a long time.
Human resource management strategy as a functional strategy can be developed
at two levels: for the organization as a whole in accordance with its overall strategy —
as a functional strategy at the corporate, organization-wide level; for individual areas
of activity (business) of a multi-industry company — as a functional strategy for each
area of business, corresponding to the goals of this area. In each specific case, the
personnel management strategy can cover its individual components, depending on the
goals and strategy of the organization, the goals and strategy of personnel management.
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The personnel management strategy can be either subordinate to the strategy of the
organization as a whole, or combined with it representing a single whole. Table 16
presents personnel management strategies related to the main strategic directions of the
organization.
Table 16
HR strategies related to core areas of work of the organization
Organization strategy
in a relationship to
HR strategy
Cost reduction
Staff reduction, salary reduction, increase of labor
productivity, re-planning of positions,
negotiations to change the terms of collective agreements
Extension
Aggressive recruitment and selection policy, promotion of
wages, creation of new jobs, expansion of training and
personnel development
Update
Management of staff turnover, selective dismissals,
organizational development, relocation and replacement of
personnel.
Involvement of personnel in work
Radical changes of emphasis and
responsibility
Special creation of positions, reduction of positions.
Specialized training and development
Purchase or absorption of
services (functions)
Selective layoffs, employee movements.
Job Combination, Orientation and Training for managing
cultural differences
The components of the personnel management strategy are:
• conditions and labor protection, personnel safety;
• forms and methods of regulating labor relations;
• methods for resolving industrial and social conflicts;
• establishing norms and principles of ethical relationships in the team,
developing a code of business ethics;
• employment policy in the organization, including analysis of the labor market,
system of recruitment and use of personnel, establishment of working hours and rest;
• career guidance and adaptation of personnel;
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• improving methods for forecasting and planning personnel requirements based
on studying new requirements for employees and jobs;
• development of new professional qualification requirements to personnel on
the basis of systematic analysis and design of work performed in various positions and
workplaces;
• new methods and forms of selection, business assessment and certification of
personnel;
• improving the mechanism for managing staff labor motivation;
• development of new systems and forms of remuneration, material and non-
material incentives for employees;
• improving information support for all personnel work within the framework of
the chosen strategy, etc.
Approaches to personnel management:
• technocratic approach, within which labor resources are considered as a
complex mechanism functioning in accordance with given technological regimes;
• humanitarian approach, which is focused not on management technologies,
but on human relations; it is based on the enthusiasm and dedication of employees, an
individual approach to staff, coaching, open communications, and stimulation of
initiative.
These approaches create space for the application of various types of personnel
management policies (personnel policies), which are based on four criteria for the
organization’s activities (fig. 19):
• exploitation — considering personnel as a means for exploitation to achieve
organizational goals;
• relationships — looking at building the right relationships with employees as a
key factor in increasing labor productivity;
• technology — considering technology as key factors in business success;
• investments — consideration of investing in human capital as the most
important way to develop highly professional personnel.
Fig. 19. HR policy space
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Types of personnel management policies (personnel policies):
1. “Let the loser cry” is a personnel policy that combines a technocratic approach
(exploitation) and a humanitarian approach (investment). This personnel policy is
typical for retail chains with multi-level marketing, in which there is no HR
management, and its functions are performed by the system itself. Characteristic
features of organizations using this type of personnel policy are: lack of hiring; lack of
legal labor relations with sellers or distributors; minimum obligations of the
organization to personnel; distributors work at their own peril and risk, receiving
income as a share of sales volume. The advantages of such a personnel policy are the
simplicity and minimization of the efforts of managers, the absence of personnel costs
and the employer’s responsibility. The disadvantage is the lack of opportunity to satisfy
employee needs such as recognition, a sense of involvement in a common cause, and
reliance on the team as a source of moral support. However, this is compensated by the
humanitarian component of this policy, which involves the organization of corporate
events with awarding of winners.
2. “Taylor's Schmidt” is a personnel policy that combines operation and
technology within the framework of a technological approach. This policy is
appropriate if there is a shortage of jobs in the labor market and employment itself
becomes especially valuable. An employer can pick and choose employees and easily
part with them. Such a policy is characteristic of the Taylorist system, characterized by
the use of tools such as carrots and sticks. The work of HR managers when using this
policy is reduced to personnel records management, registration of hiring and layoffs.
This personnel policy works in communities where the majority of people in the labor
market are concerned with primitive survival. It allows for profitability due to cost
savings, but is questionable from the point of view of security and development of the
enterprise.
3. “Employee market” is a personnel policy that combines investments in human
capital (humanitarian approach) and technology (technocratic approach). It is
appropriate when the job shortage is being overcome. The bearers of labor resources
no longer strive to survive at any cost, but to provide themselves with comfortable
living conditions, putting in the first place the content and working conditions, stability,
legitimacy of labor relations, and social security. Employers have to think about
creating attractive conditions and a positive image, giving preference to highly
qualified employees. The task of the HR department is reduced to the implementation
of personnel rules, procedures, business processes.
4. “Internal labor market” is a personnel policy that combines investments in
human capital and relationships within the framework of a humanitarian approach. This
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policy is applied by international branded manufacturers who pay great attention to the
selection and development of personnel, place high demands on applicants, and
provide attractive compensation programs. The main difference between the described
personnel policy and the previous one is that when applying it, the organization focuses
not on the external, but on the internal labor market, creating reserves. Particular
attention is paid to the training and adaptation of new employees, ideological work —
corporate principles, “codes of conduct”. Personnel rotation, including geographical
rotation, is practiced. The main disadvantages of such a policy are high personnel costs
and reserve leakage.
Personnel policy is a set of rules and regulations, goals and ideas that determine
the direction and content of work with personnel.
HR policy goals:
• identifying potential opportunities in the field of people management;
• minimizing the risk of conflicts between employees;
• stabilization of the working atmosphere in the team;
• reduction in staff turnover.
Personnel policy is developed by the management of the organization and
implemented by the personnel service in the process of employees performing their
functions. It is reflected in the following regulatory documents: internal labor
regulations; employment contract; collective agreement.
The formation and development of personnel policy is influenced by external
and internal factors.
External factors influencing personnel policy:
• the situation on the labor market (demographic factors, education policy,
interaction with trade unions);
• economic development of the region in which the organization carries out its
economic activities;
• regulatory environment (regulatory acts established by the state, including
labor legislation, labor protection legislation, employment, social guarantees, etc.).
Internal factors influencing personnel policy:
• goals of the organization;
• management style;
• automation of production processes;
• financial resources;
• human resources potential of the organization;
• leadership methods.
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