Topic 8 - Growth Strategies PDF

# Topic 8 - Growth Strategies ## What is Strategy? - **Strategic Management** - The art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. - **Strategy** - Is about looking into the possibility and shap...

# Topic 8 - Growth Strategies ## What is Strategy? - **Strategic Management** - The art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. - **Strategy** - Is about looking into the possibility and shaping the future. - Consists of the competitive moves and business approaches used to compete against its competitor, improve its strategic and financial performance. ## Product Life Cycle * A graph of sales against time is shown, with introduction, growth, maturity, and Decline stages: - Introduction: Sales are low. - Growth: Sales are increasing rapidly. - Maturity: Sales growth is slowing down. - Decline: Sales are decreasing. ## SWOT Analysis ### Internal (Strengths & Weaknesses) - **Strengths:** - Internal resources such as talent & skilled workers - Things the company does well - Qualities that separate from its competitors - Tangible assets such as intellectual property, capital and proprietary technologies - **Weaknesses:** - Resources limitations - Things the company lacks - Things the competitors do better than the company - Liabilities of the company such as incompetent staff ### External (Opportunities & Threats) - **Opportunities:** - Emerging trends that benefit of the company - Positive press/ media coverage of the company - Changes in external forces that are favorable to the company - Competitors existing the industry - **Threats:** - Changing customers attitudes toward the company, product or services - Negative press/ media coverage of the company - Changes in external forces are harmful to the company - More and more new comers into the industry ## What Are Company's Resources? ### Tangible Resources - Physical - Financial - Technological - Organizational ### Intangible Resource - Talents and intellectual capital - Brand name - Company Culture - External relationships ## Identifying A Company's Internal Strengths - **A Competence:** - Is an activity that a company has learned to perform with proficiency—a capability. - **A Core Competence:** - Is a proficiently performed internal activity that is central to a company's strategy and competitiveness. - **A Distinctive Competence:** - Is a competitively valuable activity that a company performs better than its competitors. ## Generic Competitive Strategies - **Cost Leadership** - **Differentiation** - **Focused** ## Cost Leadership vs Differentiation - **Cost Leadership Strategy:** - Offers products or services with acceptable quality and features to a broad set of customers at a low price. - Most cost leaders achieve efficiency through economies of scale which helps the company to enjoy the cost advantage. - Examples include Walmart, Payless Shoesource, MR DIY. - **Differentiation Strategy:** - Charges the customers a premium price on good or services. - The customers are willing to pay a higher price for distinctive features and quality. - Examples include Apple, Starbucks, BMW, Louis Vuitton ## Focused Strategy - Target to a relatively narrow niche market instead of a broad market in general. - Adopt focused cost leadership or focused differentiation approach to attract the customers. ### Focused Cost Leadership Strategy - Examples include Checkers (fast food restaurants - keep costs low by not offering indoor seating, drive through service, big burgers at rock-bottom prices) ### Focused Differentiation Strategy - Examples include Augustino LoPrinzi Guitars and Ukuleles (builds high-end custom instruments - handmade models start at $1,100, and some sell for more than $10,000). ## Company's Value Chain A value chain with the following parts is shown: - **Primary Activities and Costs** - Supply Chain Management - Operations - Distribution - Sales and Marketing - Service - Profit Margin - **Support Activities and Costs** - Product R&D, Technology, and Systems Development - Human Resource Management - General Administration ## Ansoff matrix - Is known as the Product/Market Expansion Grid, is a tool used by firms to analyze and plan their strategies for growth. A matrix with the following quadrants is shown: - **Existing Products/ Existing Markets:** Market Penetration Strategy - **New Products/ Existing Markets:** Product Development Strategy - **Existing Products/ New Markets:** Market Development Strategy - **New Products/ New Markets:** Diversification Strategy ## Market Penetration - The market penetration strategy can be done in a number of ways: - Decreasing prices to attract existing or new customers - Increasing promotion and distribution efforts - Acquiring a competitor in the same marketplace ## Market Development - The market development strategy can be done in a number of ways: - Catering to a different customer segment. - Entering into a new domestic market (expanding regionally). - Entering into a foreign market (expanding internationally). ## Product Development - The product development strategy can be done in a number of ways: - Investing in R & D to develop new products to cater to the existing market. - Acquiring a competitor's product and merging resources to create a new product that better meets the need of the existing market. - Strategic partnerships with other firms to gain access to each partner's distribution channels or brand. ## Diversification ### Related Diversification - Moves into a new industry that has important similarities with the firm's existing industry or industries. - There are potential synergies to be realized between the existing business and the new product/market. ### Unrelated Diversification - Enters an industry that lacks any important similarities with the firm's existing industry or industries. - There are no potential synergies to be realized between the existing business and the new product/market. ## BCG matrix * A graph is shown depicting the BCG matrix, with market growth on the y-axis and market share on the x-axis. - High market growth and high market share: Star. - High market growth and low market share: Question Mark. - Low market growth and high market share: Cash Cow. - Low market growth and low market share: Dog. - Actions that can be applied to each quadrant are shown: Invest (Star), Prioritize (Question Mark), Divest (Dog), Kill (Cash Cow). ## The Boston Consulting Group (BCG) Matrix - Graphically portrays differences among divisions in terms of relative market share position and industry growth rate. - Allows a multidivisional organization to manage its portfolio of businesses by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organization. - The major benefit of the BCG matrix is that it draws attention to the cash flow, investment characteristics, and needs of organization's various divisions. ## THE BCG MATRIX ### Question Marks - Quadrant I - Organization must decide whether to strengthen them by pursuing an intensive strategy (market penetration, market development, or product development) or to sell them. ### Stars - Quadrant II - Represent the organization's best long-run opportunities for growth and profitability. ### Cash Cows - Quadrant III - Generate cash in excess of their needs - Should be managed to maintain their strong position for as long as possible. ### Dogs - Quadrant IV - Compete in a slow- or no-market-growth industry. - Businesses are often liquidated, divested, or trimmed down through retrenchment. ## Product Life Cycle and the BCG Matrix - A diagram is shown, combining the product life cycle and the BCG matrix. - The diagram suggests that: - Question marks are in the introduction stage. - Stars are in the growth stage. - Cash cows are in the maturity stage. - Dogs are in the decline stage. ## Conclusion - Having a clear understanding of a business's current position in the market, industry, and among competitors is crucial. This insight helps in devising effective strategies tailored to its current position (SWOT). - Choosing the right strategy (see more on Generic Strategy, Ansoff Matrix, BCG Matrix), implementing it at the right time can significantly contribute to a business's growth and success. Flexibility and adaptability are also vital as market conditions can change, requiring adjustments to the chosen strategies. - Each component of BMC should be analyzed when devising growth strategy.