ADVANCED
STRATEGIC MANAGEMENT AND
GLOBALIZATION
Muhammad Atiq (PhD)
Business-Level Strategy
• What are the bases of achieving competitive advantage
in terms of ‘routes’ on the strategy clock?
• How to sustain the chosen bases of achieving
competitive advantage?
• What is the relationship between competition and
collaboration?
Bases of Competitive Advantage
• Competitive strategy is concerned with the basis on which a
business unit might achieve competitive advantage in its
market
• In a competitive situation, customers make choices on the
basis of their perception of value-for-money
• The ‘strategy clock’ represents different positions in a market
where customers have different requirements in terms of
value-for-money
• Cost and difficulty of imitation are ‘strategic considerations’
for all strategies on the clock
The Strategy Clock
Price-based Strategies (Routes 1 and 2)
• Route 1 – a ‘no-frills’ strategy combines a low price, low
perceived product benefits and a focus on a pricesensitive market segment
• Route 2 – a low-price strategy seeks to achieve a lower
price than competitors whilst trying to maintain similar
perceived product benefits to those offered by
competitors
Price-based Strategies (Routes 1 and 2)
• Price-sensitive customers may be unattractive to major
providers but offer an opportunity to others
• Moreover, price-based strategies are adopted in situations
where buyers have high power and/or low switching costs
• Such strategies also offer an opportunity to avoid major
competitors
Price-based Strategies (Routes 1 and 2)
• However, price reduction is going to be followed by all
competitors leading to reduced margins for everyone
• Low margins in turn lead to reduced resources available to
develop/innovate products
• Hence, low cost in itself is not a basis for achieving
competitive advantage
• Low cost can be a basis for advantage IF costs can be
reduced in ways which others cannot imitate easily
Price-based Strategies (Routes 1 and 2)
• Possible ways of sustaining low cost advantage are:
• achieving much greater sales volume than competitors or
cross-subsidising an SBU from elsewhere in the portfolio
• Obtaining raw materials at lower prices than competitors or
undertaking production in areas where labour cost is low
• Organisation specific capabilities deep rooted in the culture
and history of the organisation
Summing-up Price-based Strategies
• “We have adopted the strategy of flank attack. Flank attack is
a marketing strategy where those areas of the enemy are hit
that are easy to be captured. We are focusing on flank areas
like Charsadda, Parachinar, Hangu, Tal etc. They are backward
and underdeveloped areas. Such areas are mostly neglected
by MNCs, and even if they do send their representatives to
such areas, they cannot sell their medicines there because
their prices are high compared to us. Doctors in such areas
need such medicines that are of good quality but low-priced
as well”. (Manager B at Bryon Pharmaceuticals, Peshawar)
The Hybrid Strategy (Route 3)
• A hybrid strategy seeks simultaneously to achieve differentiation
and a price lower than that of competitors
• Success depends on delivering enhanced benefits at low prices
whilst achieving sufficient margins for reinvestment in order to
maintain and develop bases of differentiation
• This strategy can be advantageous when:
• much greater sales volumes can be achieved than competitors
• Entering a market where there are established competitors
Differentiation Strategy (Route 4)
Differentiation Strategy (Route 4)
• A differentiation strategy seeks to provide product benefits
that are different from those of competitors and that are widely
valued by buyers
• The aim is to achieve competitive advantage by offering better
products at the same price or enhancing margins by pricing
slightly higher
Differentiation Strategy (Route 4)
• Success of this strategy is dependent on identifying critical
success factors and performing better at them in ways that
competitors cannot imitate easily
• Identifying the strategic group an organisation belongs to, is
also essential for crafting a successful differentiation strategy
Differentiation Strategy (Route 4)
• Difficulty of imitation is likely to come from core competencies
rather than tangible resources
• By investing in intangible assets and creating switching costs
, a firm can sustain differentiation-based advantage
• There should also be an emphasis on lowering the costs in
order to obtain better margins that can be reinvested in
further developing the brand
Summing-up Differentiation Strategy
• “We are number one in Europe and number four in Pakistan.
The majority of our products are research-based products. We
conduct large studies and enrich the data continuously. We
arrange seminars based on our studies and tell doctors the
success rates of our medicines. Therefore, our products are
of high quality and have superior efficacy. We are benefiting
society through the quality of our medicines. Society is
getting benefit in terms of high quality medicines and we are
getting benefit in the shape of increasing revenues”.
(Manager C at Sanofi Pakistan)
Focused Differentiation (Route 5)
• A focused differentiation strategy seeks to provide high
perceived product benefits justifying a substantial price
premium, usually to a niche
• Growing a focused venture is very difficult because growth
means moving from route 5 to route 4
• The above mentioned movement eventually means a lowering
of price as well as product benefits
Competition and Collaboration
• Theory dictates that competitive advantage can always be achieved by
competing
• In ideal conditions, kicking out the competitor out of the market will give
you competitive advantage
• However, practical situation at hand in an industry may warrant inter-
organisational collaboration rather than pure competition
• Inter-organisational collaboration may lead to the attainment of
competitive advantage or simply avoiding competition, thus creating
win-win scenario
Inter-organisational Collaboration
• ‘Collaboration is a process in which autonomous actors
interact through formal and informal negotiation, jointly
creating rules and structures governing their relationships
and ways to act and decide on the issues that brought
them together; it is a process involving shared norms and
mutually beneficial interactions’ (Thomson, 2001, p. 163)
Purposes of Inter-organisational Collaboration
• Pressure Groups
• Innovation/Entering New Markets
• Sharing of resources
• Creation of new knowledge
• Reducing uncertainty
• Reducing costs
• Practising CSR
Strategic Directions and Corporate-Level Strategy
• Analyze the choices of products and markets for an
organisation to enter or exit
• Understand the role of corporate-level activities, decisions
and resources in adding value to the actual businesses
(SBUs)
• Understand which businesses should corporate parents
cultivate and which should they divest
Strategic Directions and Corporate-Level Strategy
Value creation
Corporate
parenting
Portfolio
management
Diversification
Penetration
Consolidation
Development
Scope decisions
Strategic Directions
• The Ansoff’s matrix provides a simple way of generating four
basic alternative directions for strategic development
Market Penetration
• An organisation takes increased share of its existing markets with
its existing product range
• Builds on existing strategic capabilities and is the most obvious
strategic direction
• Greater market share implies increased power vis-à-vis buyers and
suppliers, greater economies of scale and experience curve
benefits
Market Penetration
• However, market penetration may exacerbate competitive rivalry as
others defend their share (consolidation) through waging price wars
and expensive marketing battles
• Acquiring weak competitors can be effective in reducing industry
rivalry but that may invite the attention of competition regulators
• TOTAL-PARCO and CHEVRON Pakistan
Consolidation
• Consolidation refers to a strategy by which an organisation
focuses defensively on its current markets with current
products
• It involves defending market share and downsizing or
divestment in a declining market
• Hence, this strategy does not involve growing the company
Product Development
• refers to a strategy by which an organisation delivers modified
or new products to existing markets
• Incremental and radical product innovations
• Product development is expensive and high-risk activity
because of:
• Acquiring new strategic capabilities
• Risk of delays and increased costs due to project complexity
Product Development
• Successful product development requires the achievement of three
objectives:
• maximise fit with customer requirements
• minimise time to entry
• control development costs
•
The attainment of these objectives requires co-ordination among
various functions of the firm
• Collaboration with customers and suppliers is also required in
order to ensure fit with customer requirements and ensure
appropriate quality raw materials at minimum costs
Market Development
• Is where existing products are offered in new markets
• Market development might take two forms:
• New segments/New Users
• New geographies
• Market development strategies should be based on products
that meet the critical success factors of the new market
• Simply off-loading existing products in new markets is bound
to fail
Diversification
• A strategy that takes an organisation away from both its
existing markets and its existing products
• Diversification is the most radical strategic direction and
increases the organisation’s scope
• Diversification can be broadly classified as: related
diversification and unrelated diversification
Related Diversification
• Corporate development beyond current products and
markets, but within the capabilities or value network of the
firm
• Abbott Pharmaceutical’s venture in to diagnostics
• NBP’s venture in to NAFA funds
Related Diversification
• Related diversification can be further classified in to
vertical integration and horizontal integration
• Vertical integration is backward or forward integration in to
adjacent activities in the value network
• Horizontal integration is development in to activities which
are complementary to present activities
Related Diversification Options for a Manufacturer
Unrelated Diversification
• Involves development of products or services beyond the
current capabilities and value network
• Engro Corporation, Arif Habib Group
• Singer company’s venture in to manufacturing motor bikes
• Such companies are often called conglomerates
Value-Adding Activities of Coporate Parents
Envisioning
Coaching and
facilitating
Providing central
services and
resources
Intervening
Value-Destroying Activities of Corporate Parents
Adding management costs
Adding bureaucratic complexity
Obscuring financial performance
The Directional Policy Matrix
• Also known as GE-McKinsey matrix
• This portfolio matrix positions SBUs according to how attractive the
relevant market is, in which they are operating and the competitive
strength of the SBU in that market
• Market attractiveness can be determined from Porter’s five forces
framework or market growth rate
• SBU’s strength can be determined from strategy canvas or market
share
The Directional Policy Matrix
Strategy Guidelines based on the Directional
Matrix
The Directional Policy Matrix
• The matrix suggests that the businesses with the highest
growth potential and the greatest strength are those in which
to invest for growth
• This matrix also acknowledges the difficult middle ground as
compared to BCG matrix
• Managers have to be carefully selective for the SBUs that
operate in the middle ground