Grand Strategies

Growth

Internal Growth

Concentrated growth

Seeking increased market share for present products or services in present markets through greater marketing efforts (Romans)

Market penetration, is a strategy that seeks to increase the market share of an organisation through concentrated marketing efforts. The organisation stays focused on its present market, as well as its present products and services.

Can be effective if the following conditions prevail

• The market for a specific product or service is not saturated

• There is room to increase the usage rate of present customers

• The market shares of its major competitors have been declining while total sales in the particular industry have been increasing

• Economies of scale can provide cost benefits to organisations

• There is not much fluctuations in the availability, price and quality of the raw materials and other resources required to provide the specific product or service that consumers require.

Market development

Introducing present products or services into new geographic areas (MTN)

A market development strategy involves expanding the portfolio of marketers that the organisation serves. Present products or services are therefore introduced into new geographical areas, including other countries.

Can be effective when the following conditions prevail:

• An organisation has access to reliable and affordable distribution channels in the area it wishes to enter.

• Cultural barriers and a lack of insight with regard to the buying behaviour of the consumers in the foreign country present challenges to organisations that consider entering international markets – some organisations form strategic partnerships with organisations in the foreign market (which they wish to enter) to overcome these barriers.

Product development

Seeking increased sales by improving present products or services or developing new ones (TOYOTA)

Improving and modifying the products and services of the organisation om in order to increase sales.

Its particularly effective when an organisation has successful products that are reaching the maturity stage of their product life cycle.

Can be effective when the following conditions prevail:

• If the industry is characterised by rapid technological developments, especially when the major competitors offer better quality products at comparable prices

• When capital is available for capital investment in R&D, technology and the attainment of appropriate human resources.

Innovation

Create new product life cycles that will make similar existing products or services obsolete (Microsoft)

Organisations that have distinct technological competencies and capital reserves to invest in R&D may find in profitable to make innovation their grand strategy instead of concentrating on extending the life cycle of their products/ services through differentiation and product development, these organisations endeavour to create new product life cycles that will make similar existing products obsolete.

While most growth – orientated organisations innovate from time to time, organisations that make innovation their grand strategy use it as the fundamental way of relating to their markets

Can be effective when the following conditions prevail:

• Customers demand differentiation

• The industry is characterised by rapid changes and advances in technology

• The organisation has R&D skills

• The organisation culture fosters innovativeness.

Diversification

Related

Acquiring another business which products relate to your own products or services (Spur buying Roco Mamas)

Adding new but related products / services to the product line of the organisation – the objective is to expand the market share of an organisation in an existing market, or alternatively to enter new markets

Related diversifications refer to businesses diversifying into related markets or industries

Can be effective when the following conditions prevail:

• In industries that experience slow growth / no growth, the goal is to increase sales in this particular market by increasing the number of products consumed by each individual.

• The current products / services of an organisation are in the decline stage of the product life cycle

• The potential exists to reap economies of scale across business units that can share the same strategic asset (such as common distribution systems)

• The potential exists to utilise a core competency developed through experience of building strategic assets in existing businesses to create a new strategic asset in business faster or at a lower cost.

Unrelated

Acquiring another business which products do not relate to your own products or services (Lion Matches Corp buying Cherubs Wet Wipes)

Involves adding new, unrelated products / services in an effort to reach and penetrate new markets. This is a corporate strategy, usually applicable to large conglomerate multi business organisations.

Can be effective when the following conditions prevail:

• The basic industry of the organisation in experiencing sales and profits

• Existing markets for the products and services of the organisation are saturated

• The organisation has the capital and managerial talent needed to compete successfully in a new industry.

Some of the methods through which an organisation can pursue unrelated diversification are:

• Buying a high – performing organisation in an attractive industry

• Buying a cash – strapped organisation that can be turned around quickly through additional capital investment

• Buying an organisation whose seasonal and cyclical sales patterns would provide stability to the cash flow and profitability of the organisation

• Buying a largely debt – free organisation to improve the borrowing power of the acquiring organisation

Diversification is directly concerned with extending the organisation beyond its original boundaries. The major benefits that diversification can provide to an organisation are:

• More attractive that can provide opportunities for faster growth, higher product and service offering profitability and greater stability

• Access to key resources such as capital, technology and expertise

• Sharing of value chain activities to provide greater economies of scale and thus lower total cost.

The risk associated with diversification are:

• Ignorance about newly entered markets could result in inefficiency as a result of inadequate knowledge about customer needs, technological developments and environmental shifts

• Organisations that pursue unrelated diversification run the risk of reducing their management effectiveness. Unrelated diversification places significant demands on senior executives due to increased complexity and technological differences across industries. It might be very difficult for managers to understand each of the core technologies and appreciate special requirements of each of the individual business units in an unrelated diversified organisation

• Sharing value chain activities with another organisation often entails substantial cost with regard to communication, compromise and accountability.

Integration

Involve gaining control over suppliers, distributions or competitors in a particular industry to enhance the effectiveness and efficiency of the organisation.

Vertical

It extends the scope and operations of an organisation to other activities within the same industry. The primary objective of vertical integration is to strengthen the hold of the organisation on the resources it deems critical to its competitive advantage.

Vertical forward

Gaining ownership or increased control over distributors or retailers (Sea Harvest opening a factory shop)

Gaining ownership over distributors or retailers. Establishing websites to sell products directly to consumers is also a form of forward integration, as the organisation cuts out retailers and distributes its products directly to consumers.

Attractive when:

Existing distributors / retailers are unreliable, have high profit margins or are incapable of servicing the consumers of the organisations effectively.

Vertical backward

Seeking ownership or increased control of a firm’s suppliers (Woolworths buying a bean sprout farm for supplies)

Gaining ownership or increased control of an organisation’s suppliers. This type of strategy is particularly common in industries where low cost and certainty of supply are vital to maintaining the competitive advantage of the organisation in its market.

Appropriate when:

The current suppliers of an organisation are unreliable, too costly or incapable of meeting the needs of the organisation with regard to parts, components or materials. Needless to say, adequate capital and human resources are prerequisites for pursuing this strategy.

Cumulative potential benefits of vertical integration strategies is:

They tend to reduce the economic uncertainties and transaction cost facing an organisation in a particular industry.

However, vertical integration can sometimes lead an organisation to overcommit scarce resources to a given technology, production process or activity that could become obsolete in a certain industry.

Its also capital intensive, resulting in high fixed costs that may leave the organisation vulnerable in an industry downturn. – Can also pose problems with regard to integrating different sets of capabilities, skills, management styles and values.

Horizontal

Seeking ownership or increased control over competitors (Merger, acquisition, takeover) – (ABSA 1991 – Volkskas, Allied, United and Trust Bank)

Takes place when an organisation seeks ownership of or increased control over certain value chain activities of its competitors. It occurs through merges, acquisitions and takeovers.

Attractive when:

An organisation competes in a growing industry, where the achievement of economies of scale could provide cost benefits or other forms of competitive advantage and where an organisation has both the capital and human talent needed to manage an expanded organisation successfully. (VOLKSKAS)

Decline

(defensive strategies) are pursued when an organisation finds itself vulnerable as a result of poor management, inefficiency and ineffectiveness.

Turnaround

Regrouping through cost and asset reduction to reverse declining sales and profit (Mining industry, Postal Service)

Focuses on strengthening the distinctive competencies of the organisation in order to break the downward spiral with regard to sales and profits. Activities focus on ways to reduce costs in order to stabilise the financial condition of the organisation and to put it on a path to recovery.

Appropriate:

For organisations that have distinctive competencies but have been managed poorly or have grown too quickly and therefore need major reorganisation in order to survive.

Divestiture

Selling a division or part of an organization (SABMiller selling stake in EDCON)

Involves selling a division or part of the organisation to raise capital for further acquisitions or investments. It can also be a part of overall retrenchment strategies to get rid of divisions that are unprofitable or no longer fit in with the strategic direction that the organisation is embarking on

Liquidation

Selling all of a company’s assets, in parts, for their tangible worth. The business seize to exist. Often due to instability in the business. Forced or due to unforeseen circumstances.

Admitting defeat… Liquidation Entails selling all assets of an organisation in an attempt to avoid bankruptcy, is usually pursued when effort to turn an organisation around through retrenchment and divestiture have been unsuccessful, and ceasing operations is the only alternative to bankruptcy. Liquidation is therefore a planned and orderly way of converting the assets of the organisation into cash in an attempt to minimise losses for the shareholders of the organisation.

However – liquidation is better than bankruptcy as management has the opportunity to plan the activities in such a way loss is minimised.

Bankruptcy

Inevitable failure…

As a strategic option where all the assets of the organisation are sold in parts for their tangible worth. Creditors are compensated to the extent that cash resources allow and the rest of the debt of the organisation is then written off. Bankruptcy allows organisations to reorganise and come back after filing a petition for bankruptcy.

Corporate combinations

Today the market is more competitive and powers of organisations can be joined to achieve their goals. Corporate combination strategies are especially appropriate for organisations that operate in global, dynamic and technologically driven industries.

Joint ventures

Partnership between two or more businesses to capitalize on an opportunity. Share ownership: Nestlé & Coca Cola (Nestea) – Headquarters in Germany

Temporary partnership formed by two or more organisations for the purpose of capitalisation on a particular opportunity. Partners contribute their own proportional amounts of capital, distinctive skills, managers and technologies to the specific venture.

Organisations enter into a joint venture to seek some degree of vertical integration. To acquire or learn a partner’s distinctive skills in some value creating activity, to upgrade and improve internal skills, and lastly to develop and commercialise new technologies that may significantly influence an industry’s future direction.

Attractive when:

The distinct competencies of two or more organisations complement each other. Smaller organisations can increase their competitiveness by joining forces against larger organisations.

Strategic alliances

Partnership - share skills and expertise, but not ownership. (Woolworths and Engen)

Differ from joint ventures in the sense that the organisations involved do not share ownership in a specific business venture. These organisations tend to share skills and expertise for a defined period, usually linked to the life cycle of a specific project. An organisation that want to venture into a new and unfamiliar markets (usually international) can benefit immensely from forming a strategic alliance with another organisation that is already established in that particular market and therefore has expert knowledge with regard to consumer behaviour and market conditions there.

Consortia

Large interlocking relationship between organizations in an industry. Universities (NWU and UNISA), AIRBUS (consortium of companies established AIRBUS).

Large interlocking relationships between organisations in a particular industry. These relationships represent most sophisticated form of strategic alliance as they involve multi-partner alliances and highly complex linkages between groups of organisations. Some of these linkages are financial others involve complex sharing of technologies, resources or value – creating activities among different partners.

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Risk of combination strategies:

Partners becoming incompatible over time. Partners could, on the other hand, become too dependent on each other. Furthermore, organisations involved in corporate combination strategies run the risk of providing partners with more insight into their knowledge and skills base than intended. Corporate combination strategies can become very cost - intensive, especially as far as coordination, learning and flexibility are concerned.

Combination of grand strategies

A few organisations will embark on a strategy that is a pure form of just one of the grand strategies described ↑ … Usually they integrate 2 or more of these strategies in order to achieve their objectives.