Strategic Management Models
Week 2 Chapter 7: Strategic Directions and Corporate-Level Strategy ..................... 2
Ansoff’s Matrix pg. 258 ............................................................................................................. 2
1) Market Penetration .......................................................................................................... 2
2) Consolidation ...................................................................................................................... 3
3) Product Development ..................................................................................................... 3
4) Market Development ....................................................................................................... 3
5) Diversification .................................................................................................................... 4
Related Diversification Options for a manufacturer pg. 266 ..................................... 4
Portfolio managers, synergy managers and parental developers pg. 274............ 4
Value-adding potential of corporate rationales pg. 277 .............................................. 5
BCG Matrix pg. 279 ..................................................................................................................... 5
Stars ............................................................................................................................................. 5
Question Marks ....................................................................................................................... 5
Cash Cows .................................................................................................................................. 6
Dogs ............................................................................................................................................. 6
GE-McKinsey/ Directional Policy Matrix pg. 281 ........................................................... 6
The Parenting Matrix: the Ashridge Portfolio Display pg. 284 ................................. 6
Week 7 Chapter 8: International Strategy.............................................................................. 7
International Strategy Framework pg. 294 ...................................................................... 7
Drivers of Internationalisation pg. 297 .............................................................................. 7
Porter’s Diamond – the determinants of national advantages pg. 301 .................. 8
Boeing’s global R&D network pg. 303 ................................................................................. 9
Four International Strategies pg. 305 ................................................................................. 9
International Competitor Retaliation pg. 310 ............................................................... 10
Market Entry Modes: Advantages and Disadvantages pg. 312 .............................. 10
Subsidiary Roles in Multinational Firms pg. 315 ......................................................... 12
Week 2 Chapter 7: Strategic Directions and Corporate-Level
Strategy
Ansoff’s Matrix pg. 258
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Looks at the four basic alternative directions for strategic development
Growth is rarely a good end in itself
o Public sector organisations often accused of growing out-ofcontrol-bureaucracies
o Private sector managers accused of empire building at the expense
of shareholders
Consolidation added which involves protecting existing products and
existing markets
Products
Markets
Existing
New
1) Market Penetration
2) Consolidation
3) Product
Development
4) Market
Development
5) Diversification
Existing
New
1) Market Penetration
 Where an organisation gains market share with existing product
range
 Builds on existing strategic capabilities
 Organisation’s scope is exactly the same
 Greater market share implies increased power vis-à-vis buyers and
suppliers, greater economies of scale and experience curve benefits
 However, 2 constraints with seeking greater market penetration
o Retaliation from competitors: likely to exacerbate industry
rivalry and involve price wars or expensive marketing battles
 Where organisations face retaliation dangers, seeking
market penetration need strategic capabilities that give
a clear competitive advantage
 In low-growth or declining markets, it can be more
effective to acquire competitors
o Legal constraints: concerns from official competition regulators
concerning excessive market power
 Regulators restrain powerful companies or prevent
mergers and acquisitions that would create excessive
power
2) Consolidation
 Where organisations focus defensively on their current markets with
current products
 Can take two forms:
o Defending market share: differentiation strategies in order to
build customer loyalty and switching costs are often effective
o Downsizing or divestment: especially when overall market size
is declining, reducing the size of the business through closing
capacity is often unavoidable
 Selling activities to other businesses; can be dictated by
the needs of shareholders
 Can also make it easier to sell the core business to a
potential purchaser
 Sometimes used to describe strategies of buying up rivals in a
fragmented industry
 Can gain market power and increase overall efficiency by acquiring
weaker competitors and closing capacity
3) Product Development
 Where organisations deliver modified or new products to existing
markets
 Deliver modified or new products/services to existing markets
 Implies greater degrees of innovation
 Same markets are involved but technologies are radically different
 Product can be expensive and high-risk:
o New strategic capabilities: success frequently depended on a
willingness to acquire new technological and marketing
capabilities with the help of specialised IT and e-commerce
consultancy firms; involves heavy investments and high risk of
failures
 E.g. banks entering online banking but suffered setbacks
with technologies so different from traditional branches
of delivering services
o Project management risk: typically subject to the risk of delays
and increased costs due to project complexity and changing
project specifications over time
 E.g. Airbus A380 suffered 2 years of delays in mid-2000s
because of wiring problems; high degrees of
customisation required by each airline customer and
incompatibilities in computer-aided design software
4) Market Development
 Where existing products are offered in new markets
 Extension of scope is limited
 Can take 3 forms:
o New segments: e.g. college might offer its services to older
students or evening courses
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o New users: e.g. aluminium, which was originally used in
packaging and cutlery, and now supplemented by aerospace
and automobiles
o New geographies: internationalisation; spread of small retailer
into new towns
Essential that market development strategies are based on
products/services that meet critical success factors of the new market
Challenge of coordinating different segments, users and geographies
which all might have different needs
5) Diversification
 A strategy that takes an organisation away from both its existing markets
and its existing products
 Radically increases the organisation’s scope
 Is a matter of degree
Related Diversification Options for a manufacturer pg. 266
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Related diversification: is corporate development beyond current
products and markets, but within the capabilities or value network of the
organisation. This can be problematic for two reasons: 1) corporate level
time and cost as top managers try to ensure that the benefits of
relatedness are achieved through sharing or transfer across business
units. 2) Business unit complexity, as business unit managers attend to
the needs of other business units, perhaps sharing resources or adjusting
marketing strategies, rather than focusing exclusively on the needs of
their own unit.
Vertical integration: is backward or forward integration into adjacent
activities in the value network
Backward integration: is development into activities concerned with the
inputs into the company’s current business.
Forward integration: is development into activities that are concerned
with a company’s output.
Horizontal integration: is development into activities, which are
complementary to present activities.
Un-related Diversification
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Is the development of products and services beyond the current
capabilities and value network
Advantages: exploiting dominant logics (rather than concrete operational
relationships), countries with under developed markets (can be fertile
ground for conglomerates).
Diversification can be dangerous if large corporations were diversifying
simply to spread risks for managers, to save managerial jobs in declining
businesses or to preserve the image of growth. Some diversification is
good- but not too much.
Portfolio managers, synergy managers and parental developers pg. 274
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A portfolio manager is a corporate parent acting as an agent on behalf of
financial markets and shareholders. Its role is to identify and acquire
undervalued assets or businesses and improve them. In terms of value
creating activities, the portfolio manger concentrates on intervening and
the provision or withdrawal of investment, they also seek to keep costs of
the centre low. They give autonomy to their chief executives and thus can
manage a large number if businesses as they are not directly managing
their everyday strategies; rather they are acting from above.
 The synergy manager: is a corporate parent seeking to enhance value
across business units by managing synergies across business units. It
S value creating activities are: envisioning, building a common purpose,
and facilitating cooperation across businesses and providing central
services and resources. Three problems arise: excessive costs (managing
synergetic relationships tends to involve expensive investments in
managing time), overcoming self-interest (likely to be unwilling to
sacrifice their time and resources for the common good), illusory
synergies (claims synergies often prove illusory when managers actually
have to put them into practise).
 The parental developer is a corporate parent seeking to employ its own
competences as a parent to add value to its businesses and build
parenting skills that are appropriate for its portfolio of business units.
They focus on the resources or capabilities they have as parents which
they can transfer downwards to enhance the potential of business units.
Four challenges exist: 1) identifying parental capabilities (if the value
adding capabilities of the parent are wrongly identified then its
contribution will only be counter productive. 2) parental focus corporate
executives should focus their energy and time on activities where they
really do add value. 3) The crown jewel problem (parental developers
should divest businesses they do not add value to even profitable ones. 4)
Sufficient feel (corporate parents must have an understanding of the
businesses within the portfolio to know where they can add value and
where they cannot.
Value-adding potential of corporate rationales pg. 277
BCG Matrix pg. 279
Stars
 High market share in a growing market
 May be spending heavily to keep up with growth, but market share should
yield sufficient profits to make it sufficient in terms of investment needs
Question Marks
 Growing market but not yet with high market share
 Developing question marks into stars takes heavy investment
 BCG advises corporate parents to nurture several question marks at a
time because not all succeed
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Because existing stars will eventually become cash cows or dogs, it is
important to develop question marks into stars
Cash Cows
 High market share in a mature market
 Because growth is low, investment needs are less
 High market share  profitable business unit
 Cash cow should be a provider of investments to question marks
Dogs
 Low share in static or declining markets
 May be a cash drain and use up disproportionate amount of money and
resources
Market Share
High
Low
High
Stars
Question marks
Cash Cows
Dogs
Market
Growth
Low
GE-McKinsey/ Directional Policy Matrix pg. 281
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The directional policy matrix positions business units according to (i) how
attractive the relevant market is in which they are operating and (ii) the
competitive strength of the SBU in that market. The matrix suggests that
the businesses with the highest growth potential and the greatest
strengths are those in which to invest for growth. Those that are the
weakest and in the least attractive markets should be divested or
harvested.
The Parenting Matrix: the Ashridge Portfolio Display pg. 284
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The parenting matrix introduces parental fit as an important criterion for
including businesses in the portfolio. The two key dimensions of fit in the
parenting matrix: 1) feel (which is a measure of the fit between each
business unit’s critical success factors and the capabilities of the
corporate parent. 2) benefit (which measures the fit between the
parenting opportunities or needs of business units and the capabilities of
the parent. Parenting should be avoided if there is no benefit.
Four kinds of business along these two dimensions of feel and benefit:
 Heartland: business units are one, which the parent understands well and
can continue to add value.
 Ballast: are ones the parent understands well but can do little for.
 Value trap: appear attractive because there are opportunities to add value
but they are deceptively attractive because the parent’ lack of feel will
result in more harm then good.
 Alien business units offer little opportunity to add value and the parent
does not understand them anyway.
Week 7 Chapter 8: International Strategy
International Strategy Framework pg. 294
Drivers of Internationalisation pg. 297
 Market drivers
 Similar customer needs
 Global customers
 Transferable marketing
 Government drivers
 Trade policies
 Technical standards
 Host government policies
 Competitive drivers
 Interdependence between countries
 Competitors’ global strategies
 Cost drivers
 Scale economies
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Country-specific differences
Favourable logistics
Porter’s Diamond – the determinants of national advantages pg. 301
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Porter’s diamond suggests that there are inherent reasons why some
nations are more competitive than others, and why some industries
within nations are more competitive than others.
Home base determinants are:
Factor conditions which refer to the factors of production that go into
making a product or service
Home demand conditions- the nature of the domestic customers can
become a source of competitive advantage.
Related and supporting industries- can be important, which are regionally
based and make personal interaction easier.
Firm strategy, industry structure and rivalry- in different countries can
also be a basis of advantage, a competitive local industry structure is also
helpful if too dominant in their home territory, local organisations can
become complacent and lsoe advantage overseas. Some domestic rivalry
can be good.
Boeing’s global R&D network pg. 303
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Global sourcing: purchasing services and components from the most
appropriate suppliers around the world regardless of their location.
 Different location advantage can be identified:
 Cost advantage- includes labour costs, transportation, and
communication costs, taxation and investments incentives.
 Unique capabilities may allow an organisation to enhance its competitor’s
advantage.
 National characteristics can enable organisations to develop
differentiated product offerings aimed at different segments.
 On of the consequences of organisations trying to exploit locational
advantages can be that they create complex networks of intra and interorganisational relationships.
Four International Strategies pg. 305
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The global-local dilemma relates to the extent to which products and
services may be standardised across national boundaries or need to meet
the requirements of specific national markets.
The four basic international strategies are:
Simple export-, which involves a concentration of activities in one
country, typically the country of the organisation’s origin.
Multi-domestic- this strategy is similarly loosely coordinated
internationally, but involves dispersion overseas of various activities,
including manufacturing and sometimes product development.
Complex export- which involves the location of most activities in a single
country but builds on more coordinated marketing.
Global strategy- describes the most mature international strategy with
highly coordinated activities dispersed geographically around the world.
Using international value networks to the full, geographical location is
chosen according to the specific locational advantage for each activity, so
that product development, manufacturing, marketing, and headquarters
functions might all be located in different countries.
Configuration of Activities
Dispersed
Concentrated
High
Coordination
of Activities
Low
Global
Complex Export
Multidomestic
Simple Export
International Competitor Retaliation pg. 310
Market Entry Modes: Advantages and Disadvantages pg. 312
An organisation needs to choose how to enter the market. The key entry modes
are:
Exporting:
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Advantages
No operational facilities needed
in the host country
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Economies of scale can be
exploited
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By using internet,
small/inexperienced firms can
gain access ti international
markets
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Disadvantages
Does not allow the firm to
benefit from the locational
advantages of the host nation
Limits opportunities to gain
knowledge of local markets and
competitors
May create dependence on
export intermediaries
Exposure to trade barriers such
as import duties
Incurs transportation costs
May limit the ability to respond
quickly to customer demands
Joint ventures and alliances
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Advantages
Investment risk shared with
partner
Combining of complementary
resources and know-how
May be a gov condition for
market entry
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Licensing
Disadvantages
Difficulty of identifying
appropriate partner and
agreeing appropriate
contractual terms
Managing the relationship with
the foreign partner
Loss of competitive advantage
thorugh imitation
Limits ability to integrate and
coordinate activities across
national boundaries
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Advantages
Contractually agreed income
through sale of production and
marketing rights
Limits economic and financial
exposure
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Disadvantages
Difficulty of identifying
appropriate partner and
agreeing contractual terms
Loss of competitive advantage
through imitation
Limits benefits from the
locational advantages of host
nation
FDI
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Advantages
Full control of resources and
capabilities
Facilities integration and
coordination of activities across
national boundaries
Acquisition allow rapid market
entry
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Disadvantages
Substantial investment in and
commitment to host country
leading to economic and
financial exposure
Acquisition may lead to
problems of integration and
coordination
Greenfield entry time
consuming and less predictable
inn terms of cost
Greenfield investments allow
development of state of the art
facilities and can attract
financial support from the host
government.
Entry modes are often selected according to stages of organisational
development.
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Staged international expansion: firms initially use entry modes that allow
them to maximise knowledge acquisiton whilst minimising the exposure
of their assets.
Internationalisation and performance:
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An inverted U-curve: the combination of diverse locations and diverse
business units also give rise to high levels of organisational complexity.
After a point the costs of organisational complexity may exceed the
benefits of internationalisation. Moderate levels of internationalisation
leads to best results instead of an inverted u curve.
Service sector disadvantage: internationalisation may not lead to
improved performance for service sector firms. 1) The operations of
Foreign Service firms in some sectors remain tightly regulated and
restricted in many countries. 2) Due to intangible nature of service they
are often sensitive to cultural differences and require greater adaptation,
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which may lead to higher initial leading costs. 3) Services typically
require a significant local presence and reduce the scope for the
exploitation of economies of scale in production.
Internationalisation and product diversity: those firms are likely to do
better from international expansion because they have already developed
the necessary skills and structures for managing internal diversity. But
those may also face excessive costs of coordination and control leading to
poor performance.
Subsidiary Roles in Multinational Firms pg. 315
Capabilities
Strategic
Importance
of the Local
Environment
Low
High
High
Black Hole
Strategic Leader
Implementer
Contributor
Low
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Strategic leaders: are subsidiaries that not only hold valuable resources
and capabilities but are also located in countries that are crucial for
competitive success.
Contributors: are subsidiaries with valuable internal resources but located
in countries of lesser strategic significance, which none the less play key
roles in a multinational organisation’s competitive success.
Implementer: simply executive strategies developed elsewhere and may
generate surplus financial resources to help fund initiatives elsewhere.
Black holes: are subsidiaries locate in countries that are crucial for
competitive success but with low-level resources or capabilities.