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    Strategic Choice SLP

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    Note: Throughout this course, it is recommended that you complete the SLP before you undertake the case analysis. Before you begin the SLP, you need to read the background materials thoroughly.
    In this SLP, you will be learning how to apply and integrate the results of your SWOT variables (discussed in Modules 2 & 3) to the four generic business strategies discussed in this module. As has been the case in the past 3 modules, we will take you through the process step-by-step:
    Step 1: Create a 5x5 table with the four strategies listed across the top and the four SWOT variables along the side as follows:
    Low cost Differentiation Focus Pre-emptive
    Step 2: From your work in modules 2 and three, select one element from any of the analytical models we studied that contributes to each of the four SWOT variables. For example, for Weaknesses, you may want to choose an element from Porter's Value Chain (say operations) and for opportunities, you may want to select something from the PEST analysis (say, socio-cultural factors). Select one also for Strengths and Threats.
    Step 3: Enter the elements you have chosen with the corresponding SWOT variable. Below, I have shown how I have selected "Strong Competitive Rivalry" for Threats. Note that I could have also chosen high barriers to entry, bargaining power of suppliers or customers, substitutability (From 5-Forces analysis), or political, economic, social or technological factors (from PEST)as well.
    Low cost Differentiation Focus Pre-emptive
    Threat: Strong competitive rivalry
    Complete this process for all four SWOT variables.
    Step 4: This is the hard part.
    Indicate what impact each strategy could have on each SWOT factor you have chosen by offering a business action that will address the SWOT. I've chosen one threat: Strong competitive rivalry. Follow that factor across all four generic strategies. How would a low-cost strategy address an industry environment characterized by intense rivalry? What about a differentiation strategy? Focus? Pre-emptive? See the example below.
    Low cost Differentiation Focus Pre-emptive
    Threat: Strong competitive rivalry Undercut rivals on price through operational economies Brand loyalty attracts repeat customers Find an underserved market segment that rivals are unwilling to serve Beat the rivals out of the gate, establish dominant position
    SLP Expectation:
    There is no right or wrong answer to this, provided that your analysis is internally logical. That is, the factors your chose must align with the appropriate SWOT variable, and the business actions you choose to fill in the matrix must align with the proper strategy.
    Take care to prepare a professional presentation of your table. It should fit on one page and be readable. You will probably have more luck with a landscape layout than portrait layout. (In Word, click "File", then "Page Set-up")
    If you are having trouble seeing how to integrate the SWOT factors with different strategies, the following readings may help get you started:
    This article has some examples of how RBV variables can be used to leverage a cost or differentiation strategy. It may be helpful.
    n.a Competitive Advantage (2007). Retrieved from: http://www.quickmba.com/strategy/competitive-advantage/
    This reading demonstrates how a cost, differentiation, or focus strategy can defend against Porter's 5-forces.
    n.a. (2007). Porter's Generic Strategies. Retrieved from http://www.quickmba.com/strategy/generic.shtml

    Strategic choices
    Modular Learning Objectives
    By the end of this module, the student shall be able to satisfy the following outcomes expectations:
    • Case
    o Identify the generic strategy employed by a given firm.
    o Describe how a firm achieves Sustained Competitive Advantage through strategic choices.
    o Assess how strategic choices align with firm strengths, weaknesses, opportunities and threats.
    • SLP
    o Demonstrate how different strategies prescribe different firm actions to address the same external and internal contingencies.
    • TD
    o Assess how strategic choices align with firm strengths, weaknesses, opportunities and threats.
    o Describe how a firm achieves Sustained Competitive Advantage through strategic choices.
    A good strategy will outline the fundamental steps that an organization needs to take in order to achieve a set of objectives. Management develops a strategy by evaluating options available to the organization and choosing one or more of the available options.
    Strategies exist at different levels in an organization, and they are classified according to the scope of their coverage.
    Strategies that address which businesses a multi-business organization will be in, and how resources will be allocated among those businesses, are called corporate strategies. Corporate-level strategies are established at the highest levels of the organization, and they involve a long-range time horizon.
    Business-level strategies focus on how a company should compete in a given business. The scope of a business strategy is narrower than a corporate strategy, and it generally applies to a single business unit or strategic business unit (SBU).
    A third level of strategy is the functional strategy, which are narrower yet in scope than are business strategies. Functional strategies are concerned with the activities of the different functional areas, e.g., production, finance, marketing, and human resources. Usually, functional strategies exist for a relatively short period of time. Although functional strategies must support corporate and business unit strategies, they are primarily concerned with "how-to?" issues.
    In this module, we will be evaluating the various levels of strategies and the different means for evaluating options.

    Modular Background

    In this module, we focus on strategic alternatives at the corporate, business, and functional levels. Companies follow strategies at several levels along a continuum, namely at the functional, business, and corporate levels, as well as at the global level.
    • At the functional level, strategies are short-term in nature, and refer to functions of a company such as marketing, manufacturing, materials management, customer service, R&D.
    • The business level refers to strategies that are of medium range. They include the company's market positioning, geographic locations, and distribution channels.
    • At the corporate level, strategies are long-term, and include such options as horizontal and vertical integration, diversification, strategic alliances, mergers, and acquisitions.
    Please click here for a Presentation on Strategic Choices by Professor Anastasia Luca.
    Competitive Advantage
    For this module, we will focus on the strategic options available for companies at the level of business strategy. Companies select business strategies to obtain sustained competitive advantage (SCA) against competitors. SCA's are advantages that cannot be easily copied or imitated by competitors. A few years ago, strategist talked in terms of Porter's generic strategies (basically cost and differentiation). Today, we have four distinct strategies we use to analyze strategic options, although there are various approaches to achieving these strategies employed by different firms.
    • cost leadership
    • differentiation
    • niche focus
    • pre-emptive move (or first-mover advantage)
    Cost leadership
    Most people think of economies of scale when they think of low cost strategies. McDonalds and Wal-Mart notwithstanding, high volume is not the only way to achieve low prices. Here are some other approaches to implementing a low cost strategy:
    No frills. Southwest Airlines eschewed big airports and cut costs by flying in to smaller fields. Competitors such as Delta and American were too heavily invested in the hub business model to change.
    Product design. Masonite developed an alternative to expensive wood products by using sawdust and woodchips. Some telecommunications companies "bundle" products offering cable/satellite TV, high speed internet and telephone service for one low price. Hershey's shrank the chocolate bar to keep from raising their low price.
    Operational economies. Firms can save money by eliminating high costs in the value chain. Amazon was able to significantly cut costs by eliminating physical stores, inventories, and cutting the 30% return rate of bookstores to just 3%.
    Experience. Costs decline at a predictable rate with a firms accumulated experience. Such declines are attributed to the learning curve, technological improvements, and product redesign resulting in product and process efficiencies.
    Economies of Scale. With higher sales, fixed costs such as R&D, overhead, advertising, even legal support, can be spread over a larger revenue base.
    Here is another way of looking at low-cost strategies:
    Algasae (n.d.) Promoting thought leadership...Customer focused low-cost strategy. Retrieved from http://www.alagse.com/strategy/s10.php
    Differentiation Strategies
    If a company positions itself as offering a product or service that is different from its competitors in a way that customers value, it is following a differentiation strategy.
    A successful differentiation strategy will create customer value that is PERCEIVED as such by the customer. Many so-called "new-and-improved" products have fallen flat because the customer simply didn't care! In addition, a successful differentiation strategy will only build a sustained competitive advantage to the degree that it is difficult to copy.
    There are many ways to add value to any aspect of a business through differentiation:
    • Ingredients/components: Healthier, "greener", more lasting ingredients/materials. (Maytag, Healthy Choice frozen dinners)
    • Product offering: Better designed products (Blackberry touch screen, Dell 'ultra thin" notebooks)
    • Combining products: Two is better than 1! (Colgate 2 in 1 toothpaste with mouthwash)
    • Added services: Extra services beyond the basic purpose of the product or service (Concierge service with American Express Cards)
    • Breadth of Product Line: Extra convenience in dealing with fewer vendors. (Wal-Mart super stores offer one stop shopping, eliminating the need to go to multiple stores.)
    • Channel: Offering items or services through a medium or channel unavailable in that form anywhere else. (E-bay offers instant access to hundreds of individuals located worldwide simultaneously - asynchronously.)
    • Design: Product or service is unique, (Bed-and-breakfasts offer a ''homey" alternative to standardized hotel rooms).
    In general, there are two ways to build SCA through differentiation strategies. Most of the methods of adding value mentioned above can be related to either quality or brand recognition.
    Quality Strategy. In this type of differentiation, a company tries to set it's product/service appart on the basis of superior quality It is probably the most widely used method of attaining sustained competitive advantage. Usually, quality means superior performance, and a primium brand as opposed to discount or economy brands. These top of the line offerings command a high price tag. However, quality does not always mean pricey. Both Mercedes and VW connote high quality German engineering.
    Branding. Brands build SCA through customer familiarity, loyalty, and trust. Aspirin is aspirin, but Bayer continues to trive against low-priced generics due to the power of the brand.
    Blue Ocean: An Alternative Approach
    A combination of low cost and differentiation strategies has created a buzz in the recent business press. Known as "Blue Ocean" strategy, it is an interesting new idea that challenges the standard classifications of strategy.
    The following is the official Blue Ocean website, Be sure to check out some of the links to view the tools and frameworks for Blue Ocean strategic planning:
    Kim, W.C. and Mauborgne, R. (2009), What is BOS? Nine key points of Blue Ocean Strategy. Retrieved from http://www.blueoceanstrategy.com/about/whatis.html
    Niche Focus Strategies
    Niche or Focus strategies are really variations of a cost or differentiation (or both!) strategy, only concentrating the company's efforts on a single or limited product or market. By focusing its efforts, the firm is able to realize the following advantages:
    • Avoid distraction or dilution: All the firms efforts are directed toward a single end and competitive pressures are diminished. All company resources and capabilities are matched to the market needs - creating a SCA (remember RBV?)
    • Maximize limited resources: When resources are tight, they will go father and create a greater impact when the target is limited.
    • Circumvent competitors resources and capabilities: By operating in a niche market, say, private-label manufacturing, a firm does not have to contend with the big advertising and distribution capacities of the brand names. Competitive pressure are dimished overall as there are likely to be fewer competitors.
    • Establish a unique identity: Offering a narrow product line, or operating in a limited geographic area can confer a certain cachet. In-and-Out Burgers, for example competes successfully with the huge fast food franchises by refusing to offer anything but hamburgers, made with the freshest site-prepared ingredients, in California, Nevada and Arizona only.
    There are basically three ways a firm can establish a focus strategy. It can concentrate on one of these approaches, or a combination.
    Focusing the product line. Firms that focus their product line often do so because they possess some expertise and special interest that often translates into technical superiority. These products excite and electrify. Take Bose Corporation, for example. It manufactures a very small line of exceedingly high quality audio products that are based on astonishing technology. If Bose broadened its offerings to all kinds of consumer electronics, it would run the risk of sliding into mediocrity with ho-hum products.
    Targeting market segments. This is essentially "snob-appeal", broadly defined. Gucci handbags target high-end fashionistas, Harley Davidson targets rebellious non-conformists (at least in their own minds!), and Castrol motor oil, which is not even sold in service stations, targets independent male do-it-yourselfers.
    Limited geographic area. We have already considered In and Out Burger, but many other products are conferred a kind of cachet because you can't get them just anywhere. Other examples include small breweries (Shiner in Texas), coffee shops (independent and locally owned), or bakeries (Tim Horton donuts in Canada and the NE United States)
    For another take on Niche strategies, including some important caveats and warnings about potential pitfalls, read:
    Iansiti, M. and Levien, R. (2004). Strategy for small fish. Harvard Business School Working Knowledge. Retrieved from http://hbswk.hbs.edu/item/4331.html
    Pre-emptive Strategy
    By being the first entrant into a new market or business area, a firm can establish competencies or assets that competitors are not able to copy or develop on their own. The first-mover advantage can create high switching costs for customers, erect high barriers to entrance for competitors, and tie up contracts with suppliers. Thus, a pre-emptive strategy can confer SCA's from both internal and external sources.
    Pre-emptive startegies usually are implemented in one of three ways:
    Product opportunities. The first product offered in a new market can generate advantages in terms of dominant position that can be hard for competitors to later dislodge or overcome. They can establish the "standard" for an industry, such as Intel did with microprocessors and Microsoft with operating systems. Of course, firms must continue investment in improvements lest an upstart come up with a "better mousetrap".
    Production systems. When a firm invents a better or more efficient production system that expands capacity, reduces cost and/or improves quality, they have created an SCA.
    Customer advantages. First movers have an advantage with customers - creating brand loyalty and increasing switching costs. Customers become used to a familiar product or brand and see no reason to switch. Some companies get customers to make ling term commitments - as in long contracts for the latest in i phone or blackberry technology. Banks may vie to get first mover advantage in online banking because such systems involve substantial switching costs for customers who pay all their bills online.
    Take a minute to watch this interesting video featuring Jay Walker, founder of Priceline, talk about first movers and the ability to sustain competitive advantage. Business Strategy: The Difficulty of Dislodging a First Mover Retrieved at http://www.allbusiness.com/lecture/11802832-1.html

    Required Readings
    Algasae (n.d.) Promoting thought leadership...Customer focused low-cost strategy. Retrieved from http://www.alagse.com/strategy/s10.php
    Business Strategy: The Difficulty of Dislodging a First Mover Retrieved at http://www.allbusiness.com/lecture/11802832-1.html
    Kim, W.C. and Mauborgne, R. (2009), What is BOS? Nine key points of Blue Ocean Strategy. Retrieved from http://www.blueoceanstrategy.com/about/whatis.html
    Iansiti, M. and Levien, R. (2004). Strategy for small fish, Harvard Business School Working Knowledge. Retrieved from http://hbswk.hbs.edu/item/4331.html

    SLP Readings (Optional)
    n.a Competitive Advantage (2007). Retrieved from: http://www.quickmba.com/strategy/competitive-advantage/
    n.a. (2007). Porter's Generic Strategies. Retrieved from http://www.quickmba.com/strategy/generic.shtml

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    Solution Preview

    Running Head: STRATEGIC CHOICE

    Strategic Choice for Auto Industry

    Step 1
    Low cost Differentiation Focus Pre-emptive
    Strengths Economies of scale Competitive Advantage Build unique identity First mover advantage
    Weaknesses Difficult to implement Need exclusive perception Lack of economies of scale Lack of market knowledge
    Opportunity Increase market share Attract a large customer base Enhance limited resources (Ryall & Craig, 2003). Increase customer switching cost
    Threat Technological changes Imitable Competitors Existing rivals
    Step 2
    Strength: Strong Customer base
    Weakness: Lack of operational economies
    Opportunity: Technological innovation
    Threat: Rivalry (Campbell, Stonehouse & Houston, 2002).
    Step 3
    Low cost Differentiation Focus Pre-emptive
    Strengths: Strong customer base
    Weaknesses: Lack of operational economies
    Opportunity: Technological Innovation
    Threat: Rivalry
    Step 4
    Low ...

    Solution Summary

    Strategic choices for SLP is examined.