Directions and Methods of
Development
Dr Keefa Kiwanuka
Lecturer, Marketing and Management
Room 3.3b, CoBAM
9 April 2013
What are Strategic Choices?
Strategic
choices involve
understanding the
underlying bases for
future strategy at both
the business unit and
corporate levels and
the options for
developing strategy
in terms of both the
directions and
methods of
development
Strategic choices
Exhibit III.1
Development Directions
Development directions are the strategic options
available to an organisation, in terms of products and
market coverage, taking into account the strategic
capability of the organisation and the expectations
of stakeholders
Strategy Development Directions
Products
Existing
Existing
Markets
New
New
Strategy Development Directions
Products
Existing
Existing
Markets
New
Protect/build
Consolidation
Market penetration
New
Strategy Development Directions
Products
Existing
Existing
Markets
New
Protect/build
Consolidation
Market penetration
New
Product Development
Strategy Development Directions
Products
Existing
Existing
Protect/build
Consolidation
Market penetration
Markets
Market development
New
New
Product Development
Strategy Development Directions
Products
Existing
Existing
Markets
New
New
Protect/build
Consolidation
Market penetration
Product Development
Market development
Diversification
Global strategies:
 Globalization strategy.
 World is one large market; standardize products
and advertising as much as possible.
 Ethnocentric view.
 Multidomestic strategy.
 Customize products and advertising to local
markets as much as possible.
 Transnational strategy
 Balance efficiencies in global operations and
responsiveness to local markets.
15
Restructuring and divestiture
strategies
 Readjusting operations when an organization
is in trouble.
 Retrenchment
 Correcting weaknesses by making changes to
current operations.
 Liquidation
 Restructuring
 Downsizing and rightsizing
 Restructuring through divestiture
16
E-business strategies
 The strategic use of the Internet to gain
competitive advantage.
 Popular e-business strategies
 Business-to-business (B2B) strategies
 Business-to-customer (B2C) strategies
17

Incrementalism
Modest and incremental changes in strategy occur
as managers learn from experience and make
adjustments.

Emergent strategies
Develop progressively over time in the streams of
decisions that managers make as they learn from
and respond to work situations.
18
Methods of Strategy Development
Methods of Strategy
Development
 Internal Development
 Build on and develop an organisation’s own
capabilities
 Organic development
 Mergers and Acquisitions
 Take over ownership of another organisation
 Strategic Alliances
 Two or more organisations share resources and
activities
Motives for Internal Development
 Only one in field
 Core competence in product manufacturing
 Develop new markets – direct involvement to
increase understanding & create core competence
 Spread cost over time – easier for companies with
low resources
 Avoid cultural clash
Motives for M&As
 Speed
 Competitive Situation – lower competitor reaction
 Financial motives
 Extreme example is that of Asset Stripping
 Lack of resources
 Cost efficiency (by merging) to avoid duplication
 Stakeholder expectations
 Ambitions of senior managers
 Empire building
Types of Strategic Alliance
 Loose
 Networks / Opportunistic Alliances
 Contractual
 Licensing
 Franchising
 Subcontracting
 Outsourcing alliances
 Supplier alliances
 Distribution alliances
 Ownership
 Consortia
Choosing Strategic Options
 What are our
Opportunities?





Possible new markets?
Strong economy?
Weak market rivals?
Emerging technologies?
Growth of existing
market?
 What are our Threats?





New competitors?
Shortage of resources?
Changing market tastes?
New regulations?
Substitute products?
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The TOWS Matrix
Success Criteria for Strategic
Options
 Suitability
 Whether strategy addresses circumstances in which
organisation is operating
 Acceptability
 The expected performance outcomes (e.g. risk/return)
 Meeting expectations of stakeholders
 Feasibility
 Whether strategy can be made to work in practice
 Linked to strategic capability
Evaluating strategic options
Evaluating
strategic options
Suitability
Acceptability
Feasibility
Does it solve
the problem?
Is it acceptable
to stakeholders?
Can we deliver?
 Establishing the
rationale
 Screening
options and
criteria
 Returns
 Risk
 Reactions by
stakeholders




Cash flow
Break-even
Resources
Competencies
Adapted from Johnson & Scholes
Choosing an option
 Three tests
 Does it take us towards where we want to be?
(Alignment)
 Do we have, or can we obtain, the resources
required to implement it? (Feasibility)
 Will it win the support of those who need to
approve it, and those who need to implement
it? (Acceptability)
Financial appraisal techniques




Cash flow projection
Discounted cash flow (DCF) method
Sensitivity analysis
Break even analysis
Criteria for assessing Acceptability
• Risk
 Financial ratios
 E.g. High long term debt means high risk
 Sensitivity analysis (What-if analysis)
• Stakeholder reactions
Feasibility
 Financial
 Funds flow forecasting
 Break-even analysis
 Resource deployment
 Resources and competences needed
Key Points (1)
• Three elements of strategic choice
– Competitive strategy
– Direction of development
– Method of development
• Four key categories of development directions
– Protect and build
– Product development
– Market development
– Diversification
Key Points (2)
 Three methods of strategy development
 Internal development
 Mergers and acquisitions
 Strategic alliances
 Three success criteria for strategic options
 Suitability
 Acceptability
 Feasibility
 Wide range of analytical techniques for
evaluation of strategic options